/

SP CI L. TT NTION a u ec,cd to the cautonary notce on ths page that pub-

shed rungs of the ureau do not have the force and effect
f Treasury Decsons and that they are appcabe ony to facts presented n the pubshed case
Treasury Department : : : : : ureau of Interna Revenue
Interna Revenue uetn
Cumuatve uetn -1
NU RY- UN , 1936
IN T IS ISSU
Introductory Notes
Contents
Rungs Nos. 7885-8149
oard of Ta ppeas
Income Ta
Part 1 (1936, 1935, and 1934 cts)
Part (1932 ct)
Part m (1928 ct)
Part I (1926 and Pror cts)
Msceaneous Ta es
state and Gft Ta es ,
Saes Ta . . . ffo N N RSIWr
Msceaneous LffR R S
100MIN(W.
m
v-vn
1-48
49-148
149-158
159-263
264-340
/
/
Msceaneous
Inde ....
341-372
373-419
420-478
479-524
525-541
The ru m reported n the Interna R evenue uetn arc (or the nformaton of ta payers and ther counse s
tf d of offca opnon n the admnstraton of the ureau of Interna Revenue the rungs other than
Treasury Decsons have none W 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
Trea ury. ach ruun embode the admnstratve appcaton of the aw and Treasury Decsons to the entre
state of f cs upon whch a partcuar case rests. It s especay to be noted that the some resnt w not neces-
fr . O h r case uness a the matera facts are dentca wth those of the reported case. s t s
cot aways feasbe to pubsh a compete statement of the facts underyng each rung, there can be no assurance
tha any new case s dentca wth the reported case. s bearng out ths dstncton, t may be observed that the
rungs pubshed from tme to tme may appear to reverse ratngs prevousy pubshed.
Offcers of the ureau of Interna Revenue are especay cautoned aganst reachng a concuson n any case
refy on the bass of smarty to a pubshed rung, aod shoud base ther |udgment on the appcaton of a per-
s of the aw and Treasury Decsons to a the facts n each case. These rung shoud be used as
( the aw and ts forma constructon as made h the reguatons and T
In addton to pubshng a Interna Revenue Treasury Decsons, t s (he pocy of the ureau of Interna Revenue
ro pcbsh a rungs and decsons, ncudng opnons of the ssstant Genera Counse for the ureau of Interna
tT u s_f tcaU9t neT announce a rung or dcc oa.npon a nove queston or upon a queston n regard
t9 IIt t tTe costs no prevousy pubshed rung or decson, or for other reasons, are of such mportance at
to be of genera nterest. It s aso the pocy of the ureau to pubsh a rungs or decsons whch revoke, modfy,
amend, or affect n any manner whatever any pubshed rung Of decson. In many nstances opnons of the
ssstant Genera Counse for the ureau of Interna Revenue are not of genera nterest because they announce
no narw rung or no new constructon of the revenue aws but smpy appy rungs aready made pubc to certan
Mssons 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 nreau of
Interna Revenue are not consecutve. No unpubshed rung or decson w be cted or reed upon by any offcer
or empoyee of the ureau of Interna Revenue as a precedent n the dsposton of other cases. Uness otherwso
specfcay ndcated, a pubshed ratngs and decsons have receved the consderaton and approva of the
ssstant Genera Counse for the ureau of Interna Revenue,
UNIT D ST T S GO RNM NT PRINTING O IC , W S INGTON : 1936
or sae h| the Superntendent of Documents Washngton, D.C. - - - - Sec back of tte for prces
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The Interna Revenue uetn servce for 1936 w consst of
weeky buetns and semannua cumuatve buetns.
The weeky buetns w contan the rungs and decsons to be
made pubc and a Treasury Department decsons (known as
Treasury decsons) pertanng to Interna Revenue matters. The
semannua cumuatve buetns w contan a rungs and dec-
sons (ncudng Treasury decsons) pubshed durng the prevous
s months.
The compete uetn servce may be obtaned, on a subscrpton
bass, from the Superntendent of Documents, Government Prntng
Offce, Washngton, D. C, for 2 per year. Snge copes of the weeky
uetn, 5 cents each.
New subscrbers and others desrng to obtan the 1919, 1920, and
1021 Income Ta Servce may do so from the Superntendent of Docu-
ments at prces as foows: Dgest of Income Ta Rungs No. 19
(contans dgests of a rungs appearng n Cumuatve uetn 1
to 5, Incusve), 50 cents per copy Cumuatve uetns Nos. 1 to 5,
contanng n fu a rungs pubshed snce pr, 1919, to and n-
cudng December, 1021, as foows: No. 1, 30 cents No. 2, 25 cents
No. 3, 30 cents No. 4, 30 cents No. 5, 25 cents.
Persons desrng to obtan the Saes Ta Cumuatve uetns for
anuary- une and uy-December, 1021, may procure them from the
Superntendent of Documents at 5 cents per copy.
Persons desrng to obtan the Interna Revenue uetn servce for
the years 1022, 1023, 1024, 1925, 1026, 1927, 1028, 1929, 1930, 1931,
1932, 1033, 1934, 1935, and 1936, may do so at prces as foows:
Cumuatve uetn 1-1 ( unuary- une, 1922) 40cents
Cumuatve uetn 1-2 ( uy-December, 1922) 30 cents
Cumuatve uetn II- ( anuary- une, 1023) 30cents
Cumuatve uetn II-2 ( uy-December, 1023) 40 cents
Cumuatve uetn III 1 ( anuary- une, 1924) 50cents
Cumuatve uetn III-2 ( uy-December, 1024) 60 cents
Dgest No. 13 ( anuary, 1922-December, 1924) 60cents
Cumuatve uetn I -1 ( anuary- une, 1925) 40 cents
Cumuatve uetn 1 -2 ( uy-December, 1025) 35cents
Dgest No. 17 ( anuary-December, 1925) 25 cents
Cumuatve uetn - ( anuary- une, 1928) 40 cents
Cumuatve uetn -2 ( uy-December, 1026) 80cents
Dgest No. 21 ( anuary-December, 1026) 15cents
Cumuatve uetn I-1 ( anuary- une, 1927) 40 cents
Cumuatve uetn I-2 ( uy-December, 1927) 40cents
Dgest No. 22 ( anuary, 1025-December, 1027) 85 cents
Cumuatve uetn II-1 ( anuary- une, 1928) 85cents
Cumuatve uetn II-2 ( uy-December, 1028) 50 cents
Cumuatve uetn III-1 ( anuary- une, 1929) 60 cents
Cumuatve uetn III-2 ( uy-December, 1929) 55cents
Cumuatve uetn r -1 ( anuary- une, 1930) 60 cents
Cumuatve uetn I -2 ( uy-December, 1930) 60cents
Cumuatve uetn - ( anuary- une, 1931) 65cents
Cumuatve uetn -2 ( uy-December, 1931) 30 cents
Cumuatve uetn I-1 ( anuary- une, 1032) 30cents
Cumuatve uetn I-2 ( uy-December, 1032) 30 cents
Cumuatve uetn II-1 ( anuary- une, 1933) SOcents
Cumuatve uetn II-2 ( uy-December, 1933) 50 cents
Cumuatve uetn III-1 ( anuary- une, 1934) SOcents
Cumuatve uetn III-2 ( uy-December, 1934) 50 cents
Cumuatve uetn I -1 ( anuary- une, 1935) 50cents
Cumuatve uetn I -2 ( uy-December, 1935) SOcents
Cumuatve uetn -1 ( anuary- une, 1936) 55cents
Dgest (ncome ta rungs ony, pr, 1919, to December
1930, Incusve 1- 50
Inqures n regard to these pubcatons and subscrptons shoud
be sent to the Superntendent of Documents, Government Prntng
Offce, Washngton, D. C.
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INTRODUCTORY NOT S.
The Interna Revenue Cumuatve uetn -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, and msceaneous ta es, as ndcated on the tte,
page of ths uetn, pubshed n the weeky uetns ( oume
, Nos. 1 to 26, ncusve) for the perod anuary 1 to une 30,
1936. It aso contans a cumuatve st of announcements reatng
to decsons of the Unted States oard of Ta ppeas pubshed
n the Interna Revenue uetn Servce from anuary 1, 1932, to
une 30, 1936.
Income Ta rungs are prnted n four parts. Rungs under the
Revenue cts of 1936, 1935, and 1934 are prnted as Part I ( ,
1936 ct, , 1935 ct, and C, 1934 ct), the secton headngs
correspondng wth the sectons of those cts. The rungs under
the atter ct are pubshed under the artce headngs correspond-
ng to the artce headngs of Reguatons 86. Rungs under the
Revenue ct of 1932 are pubshed as Part II, the secton and artce
headngs correspondng wth the secton and artce headngs of the
Revenue ct of 1932 and Reguatons 77. Rungs under the Reve-
nue ct of 1928 are prnted as Part III, the secton and artce head-
ngs correspondng wth the secton and artce headngs of the
Revenue ct of 1928 and Reguatons 74. Rungs under the Reve-
nue ct of 1926 and pror cts are prnted as Part I , the secton
and artce headngs correspondng wth the secton and artce
headngs of the Revenue ct of 1926 and Reguatons 69.
Rungs under Tte I of the Soca Securty ct w be pub-
shed under artce headngs of Reguatons 90 and rungs under
Tte III of the Revenue ct of 1936 Ta on un|ust enrchment
w be coded under the sectons of that ct and the artce headngs
of Reguatons 95.
R I TIONS.
The foowng abbrevatons are used throughout the uetn:
, , C, etc. Tne names of Indvduas.
. 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. II. Genera Counse s or ssstant Genera Counse s memorandum.
I. R . Interna Revenue uetn.
L T Income Ta Unt.
(n)
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I
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.
S. T. Saes Ta Dvson.
S. Sver Ta Dvson.
S. M. Soctor s memorandum.
So. Op. Soctor s opnon.
S. R. Soctor s recommendaton.
S. S. T.- Soca Securty ta and Carrers ta .
T. Tobacco Dvson.
T. . M. dvsory Ta oard memorandum.
T. . R. dvsory Ta oard recommendaton.
T. D. Treasury decson.
w and y are used to represent certan numbers, and when used wth the word
doars represent sums of money.
The practce of promugatng Treasury Decsons that embody
court decsons reatng to the nterna revenue has been dscontnued.
ereafter opnons of the courts, wth approprate headnotes for the
nformaton and gudance of ta payers and offcers and empoyees of
the ureau of Interna Revenue, w be pubshed n the Interna
Revenue uetn wthout forma approva and promugaton by the
Secretary of the Treasury.
NNOUNC M NT R L TING TO O RD O T PP LS D CISIONS.
Under the provsons of the recent Revenue cts, reatng to ap-
peas to the oard of Ta ppeas, the Commssoner may acquesce
n the decson of the oard or he may, f the appea was heard by
the oard pror to the passage of the 11)26 ct, cause to be nsttuted
a proceedng n court for the coecton of any part of a ta deter-
mned by the Commssoner to be due but dsaowed by the oard,
provded that such proceedng s commenced wthn one year after
fna decson of the oard. s to appeas heard by the oard after
the passage of the 1926 ct, the Commssoner may, wthn s
months after the oard s decson s rendered, fe a petton for a
revew of the decson by a Crcut Court of ppeas or by the Unted
States Court of ppeas for the Dstrct of Coumba however, as to
decsons rendered on and after une 7, 1932, pettons for revew
must be fed wthn three months after the decson s rendered.
In order that ta payers and the genera pubc may be nformed as to
whether or not the Commssoner has acquesced n a decson of the
oard of Ta ppeas dsaowng a ta determned by the Comms-
soner to be due, announcement w be 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 No.
Page.
420
47a
479
492
61
341
479
140
338
46
492
118
127
338
124
310
421
486
495
4:7
485
124
490
n
491
4S5
4 9
48
2:

348
367
188
189
192
274
276
264
270
272
261
326
268
421
245
245
294
383
m
257
288
185
217
436
176
. 77
209
212
280
158
250
341
224
162
164
Rung.
-Con.
Court decsons
1093..
1084
1085 -
1086
1097
1098
1099
1100
1101
1102
1103...
1101
1105
1109
1107
1108
1109
1110 --
1111
1112
1113
1114
1115
1116.
1117
1118
1119
1120 -
1121
1122
1123 -
1124
1125
1126
1127
1128.
1129.
1130.
1131
1132.
Genera Counse s and s-
sstant Genera Counse s
memoranda:
15745
15758
15891
15837
16020
16029.
16068
16092
16100
16121
16144
1C164
1616
16223.
16265....
16278
16290...
16347
16460
16491
16510
16521
16543 ....
1U572
16724
16730
Rung No.
-12-8008
-12-8009
-12-8010
-13-8019
-13-8020
-13-8018
-14-8030
-14-80 8
-14-8027
-15-8086
-15-8037
-15-8040
-16-8050
-16-8051
-16-8052
-17-8058
-17-S002
-17-80S9
-18-8087
-18-S06
-19-8078
-19-8077
-19-8079
-20-8088
-20-8088
-20-8090
-21-S098
-21-8097
-22-8103
-22-8104
-23-8117
-24-8123
-24-8122
-24-8124
-25-8131
-25-8132
-25-S137
-28-8143
-26-8144
-26-8146
-4-7923
-1-7887
-1-7886
-3-7908
-6-7937
-2-7S99
-10-7982
-7-7957
-8-7961
-6-7939
-9-7972
-7-7958
-14-8029
-11-7999
-14-8028
-20-8085
-10-7986
I1-8000
-15-8038
-22-8101
-16-8053
-21-8096
-24-8125
-19-S075
-25-8136
-25-8130
( )
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I
oard of Ta ppeas:
24921
31110
33241
42268
42771
43208.
45081---
45394.
45323
47772
48317..
441516
48832
61833.-
521 3
82448-
52449---
52601
53429
53S78
54223
54227-
54 S99-
55546
56299
563(0-
56C71
67417-
57479
57848
67867
57906
57923
58118
58119-
58306
58413
58443
68475
58490
68770
68772-
58700
68904
6S90S
5S906
58907
6S917
68918
6S925
59612
69660.---
59687
60177-
61002
61215
62023
62309
62854 1
62985
62991
63088
63370
63699-
64064.
No.
64246
64609
64637
64638-
61639
64653
64654
64655
64835 ,
65203-
65832
nd 19 reated dockets.
-19-8074
-17-6056
-17-6056
-20-8083
-10-7981
-5-7926
-13-8015
-6-7936
-8-7960
-25-8129
-8-7960
-5-7926
-20-8083
-3-7907
-19-8074
-13-8015
-13-8015
-10-7981
-20-6083
-1-7885
-24-8I20
-16-8034
-15-8034
-23-8112
-20-8083
-13-8015
-19-S074
-168047
-1-7 S5
-18-8065
-8-7960
-9-7971
-17-8056
-1 -S074
-8-7960
-7-7952
-7-7952
-9-7071
-9-7971
-8-7060
-9-7971
-9-7971
-16-8047
-9-7971
-9-7971
-15-8034
-9-7971
-9-7971
-9-7971
-9-7971
-9-7971
-9-7971
-O-7971
-3-7907
-I6-8034
-19-M74
-12-S005
-12-SO0S
-7-7952
-23-8112
-19-8074
-26-8139
-7-7952
-23-8112
-12-SOOf
-15-8034
-20-8083
-16-8047
-6-7936
-22-8100
-3-7P07
-3-7907
-3-7807
-3-7907
-3-7907
-3-7907
-26-8139
-2I-809S
-19-8074
-19-8074
Page.
44
31
31
46
11
37,38
43
21
38
27
44
7,30
46
32
9,11
46
46
11
46
27
20
38
37
38
19
46
12
10,33
45
40
20,43
18,41
81
37
18
36
35
18,41
18,41
11
18,41
18,41
12,36
18,41
18,41
44
18,41
18,41
18,41
18,41
18,41
18,41
18,41
20
27
12
46
45
23
12,25
. 11
33
3,27
12,25
45
37
46
10,33
39
36
36
42
30
36
38
43
21
36
48
44
Rung.
oard ot Ta ppeas Con
65834 . --
5S35
68701
66702 _
60703
66718
66768-.-
66767-
67076
67280
67368
67369
67949
6SO0I
68002-
6SO03
68503
68504
68505
68628
68876
69212
69525
69800
69844
70103
703S4
70449
70582
70998
71063
71114
71755
71788
73347
73380
73381
73382-
73383
73848
74118
74759
74910
74911
74928
75348
76366
75404
75969
76120-
76196
76545
76548
78828
77116
77812
77923
78188
78829
79029
Offce decsons (I. T ):
2949
2950
2951
2932-
2953
2954.
2953
2956-
2837
2958
2959
2960
2961
2962
2963
2964
2965
2066
Rung No.
-19-8074
-19-8074
-1-7885
-1-7885
-1-7885
-1-7885
-1-7885
-1-7885
-24-8120
-8-7960
-1-7886
-1-7885
-6-7938
-1-7888
-1-7886
-1-7888
-1-7885
-1-7885
-1-7885
-1-7918
-8-7960
-19-8074
-16-8034
-1-7885
-19-8074
-20-8083
-2-7S98
-19-S074
-22-8100
-12-8005
-19-8074
-16-8047
-20-8083
-13-8015
-18-8065
-7-7952
-7-7952
-7-7952
-7-7952
-14-8024
-23-8112
-2-7888
-18-8065
-18-8066
-2-7898
-22-8100
-3-7907
-13-S016
-1I-7092
-8-7S60
-18-8065
-3-7907
-3-7907
- -7036
-16-8047
-17-8056
-6-7936
-8-7971
-22-8100
-1-7888
-1-7888
-I-7888
-3-7917
-4-7918
-4-7920
-6-7927
- -7928
-6-7938
-8-7962
-8-7WS3
-11-7993
-11-7994
-12-8006
-12-S007
-13-8016
-13-8017
-14-8025
-14-8031
-15-8035
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II
Rung.
Offce decsons (L T Con.
37S..
859..
830-
83L.
S32-
S33..
8 4-
835-
S3S-
538-
(S. S. T.):
2..
3..
Rung No.
-16-P048
-16-8049
-17-80S7
-18-8066
-19-8076
-20-8084
-20-8088
v-ao-so 7
-22-8102
-23-8113
-23-8114
-23-311S
-24-8121
-25-8133
-25-8I34
-25-8135
-26-8I40
-26-8141
-26-8142
-3-7914
-3-7915
-5-7933
-6-7951
-9-7976
-10-7987
-12-8011
-15-8039
-17-fOf
-19-8OP0
-19-S0R1
-22-8106
-23-8116
-25-8I38
-26-8145
-6-7950
-20-S091
-21-8099
Page.
104
144
145
107
108
89
126
145
128
I
113
140
140
T
193
299
87
119
136
382
393
365
380
416
413
403
418
418
LS 6
S96
379
891
414
473
473
466
Rung.
Offce decsons (S. 8. T.)
Contnued.
4
5
6
7
8
Offce decsons (MS.):
171.
172
173
174.
175
176
Offce decsons (T.):
18
19
20
21
22.
23
Mmeographs:
3838 (rev.)
4409
4411
4426
4429
4431
4435
Department crcuar:
230 (rev.)
Msccaceou
Rung No.
-22-8105
-24-8126
-24-8127
-24-8128
-26-8147
-5-7034
-9-7979
-13-6023
-17- 063
-22-8110
-26-8149
-1-7894
- -7947
-10-7989
-15-f042
-19-8082
-22-8109
-5-7935
-3-7909
-4-7924
-7-7953
-8-7967
-10-7988
-11-7995
-6-7948
-8-7P68
-9-7977
-12-80I3
-13-S021
-15-8041
-10-8054
-I6-8065
-18-8070
-18-8071
Page.
476
464
474
475
502
503
504
505
5C6
507
S
m
508
5011
509
509
130
151)
497
125
498
501
113
369
520
510
510
521
521
52-1
400
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CONT NTS O CUMUL TI ULL TINS (I. T.) 1 TO 5 S. T. OR 1 20 ND 1MI INT RN L
revenue -, -2. -, n-2. n-, m-2. v-, v-. v-, v-2, v-, v-2, vn-, vn-2. vn-L vm-2.
I -1, I -2. -, -2, -. I-2, I1-1, II 2. I-I. 1U-2, I -I, I -2. ND I.
Cumuatve uetn.
Income Ta :
December, 1919 (No. 1)
anuary- une, 1920 (No. 2)
uy-December, 1920 (No. 3)
anuarv- une, 1921 (No. 4)
uv-December, 1921 (No. 5)
Saes Ta :
1920 (S. T. 1- 20)
anuary- une, 1921
uy-December, 1921
Interna Revenue uetn:
anuary- une, 1922 (No. 1-1)
uy-December, 1922 (No. 1-2)...
anuary- une, 1923 (No. II-)
uv-December, 1923 (No. II-2)..
anuarv- une, 1924 (No. III-)...
uv-December, 1924 (No. III-2)..
anuary- une, 1925 (No. I -1)...
uv-December, 1925 (No. I -2)..
anuary- une, 1926 (No. -)
uy-December, 1926 (No. -2).._
anuarv- une, 1927 (No. I-1)...
uy-December, 1927 (No. I-2)..
anuary- une, 1928 (No. II-1)..
uy-December, 1928 (No. II-2).
anuarv- une, 1929 (No. III-1)..
uv-December, 1929 (No. III-2)
anuary- une, 1930 (No. I -1)...
uv-December, 1930 (No. I -2)..
anuary- une, 1931 (No. -)
uv-December, 1931 (No. -2)...
anuary- une, 1932 (No. I-1)...
uy-December, 1932 (No. I-2)..
anuary- une, 1933 (No. II-1)..
uv-December, 1933 (No. II-2).
anuary- une, 1934 (No. III-1).
uy-Dccember, 1934 (No. III-2)
anuarv- une, 1935 (No. I -1)..
uy-December, 1935 (No. I -2)
anuary- une, 1936 (No. -1)..
( III)
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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,
1936, INCLUSI .
nnouncements reatng to the acquescence or nonacquescence o 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 In
Cumuatve uetn -2, pages 1-106. The
) weeky I
ments pubshed n the
beow, therefore, contans ony such announce-
uetns from anuary 1, 1932, to une 30, 1936, ncusve.
The Commssoner acquesces n the foowng
Unted States oard of Ta ppeas:
-26-8139
decsons of the
Ta payer.
Docket
oard of Ta ppeas.
No.
oume.
Tage.
40546
24
435
37695
24
435
37C93
24
435
37694
24
435
37696
24
435
41034
24
435
25194
38687

429
39980
25
211
39593
25
1246
39593
25
1246
56960
69007
28
586
74759
33
373
20765
24
376
41295
27
1091
60700
28
1291
39019
27
1210
44860
30
636
25414
25
834
31704
25
1276
40039
28
868
30133

31998
56024
30
1182
63436

bekas, Chares T
bees, Cfford
bces, rancs, estate of
bees, ohn T
bees, atherne
bees, Wemene
cme Manfodng Co., Inc
deade Park Land ct L. trustees,
fremow, Davd, estate of
fremow, Sarah, e ecutr
Mnera Land Co
bers, Wam .1
bert Lea Packng Co., Inc
brecht et aL, atherne ., e ecu trces
coma Corporaton
e ander, . ., estate of
egheny Garbage Co
en, Irene C
ed mercan Corporaton
mbassador Petroeum Co_
mercan Centra Lfe Insurance Co.3
1 cquescence reates to deducton for contrbutons.
1 state ta decson acquescence reates to deducton of 133,000.
1 cquescence reates to ssue whether pettoner receved Interest on mortgages when t bd n property
npon forecosure.
Rung No. 8130 ncudes a acquescence and nonacquescence notces pubshed n the nterna fteve-
mu uetn servce from anuary 1, 1032, to une 30, v30.
(1)
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2
cquescbnces Contnued.
Ta payer.
mercan Cgar Co
mercan eature m Co.
mercan Gas ectrc Co. and subsdary com-
panes.
mercan Prntng Co
mercan Securty Trust Co. et a., e ecutors
mercan South frcan Lne, Inc
nco Investment Co
nderson, C.
nderson, Gustave
nderson, .
nderson, Staney S
nn rbor R. R. Co
rgumbau, rank M
rmstrong, C. George
rmstrong, Wam -
rnod Wnsor Co
shforth, bert ., estate of2.
shforth et a., Mabe ., e ecutors 2.
tkns, . ., estate of.
tkns, Mrs. .
tantc Coast Lne
ton, dwn D.
ton, Robert L.
ton, Wood ..
Co.
.
T. (Deaware)..
T. (New York).
abbtt, Inc., .
abbtt, Inc., .
aker, I. .
adwn, orence G
afour, Sr Robert
a, Php D. C
atmore Oho R. R. Co
atmore Oho R. R. Co.3
ankers Dary Credt Corporaton _
arber, rthur
arber, Php C
arber, St. George..
arber Trusts, Sarah P
arcay, W. L
arker, red
arnes, enry
asch, N.
Ice Coa Co.
easey, W.
Docket
No.
16229
27623
67368
67369
69800
39721
39167
62955
68830
70701
58647
33242
36224
63827
42053
25869
73614
58400
58603
61553
47190
48009
49354
47190
48009
49354
3S520
38519
58958
65310
65311
56160
56162
56441
74047
74047
56348
323S7
53702
37239
48329
26747
26755
26757
26747-
26757
8743
51102
56440
45928
67637
60061
oard of Ta ppeas.
oume.
21
24
33
27
24
30
30
27
26
30
33
29
31
31
32
29
26
26
28
28
31
32
32
32
32
32
32
23
25
27
29
30
26
25
25
25
25
26
28
32
30
27
31
Page.
1 stato ta decson.
1 Nonacquescence pubshed n uetn II- , wthdrawn.
1 cquescence reates to ssue nvovng contrbutons by shppers for constructon of sde and s
and deducton for nterna-revenue stamps aff ed to bonds.
rtracks
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3
cquescences Contnued.
Docket
No.
oard of Ta ppeas.
oume.
eaumont, Lous D.
ebb, Rchard ., estate of -
eggs, ohn I. (Trusts)
ehr, Chares
e, Ivor .
eows as Power Co
enedum, M. L.
ent Co., R. G --
erdc, r., Chares P
ernsten, Isaac M
est, rank
ups, George W
ngham, Robert W
rckhead, Over W
rdneck Reaty Corporaton.
scayne ay Isands Co
ar, r., Mrs. Wey.
oodgood, dth ...
um, uus, trustee.
umentha, Lucy
oehrnger, Rudoph 4
oos ros. Cafetera Co
org eck Co
ostck, r., ohn, trustee..
owden, Pau kers.
owen, dwn L.
raun, rthur ., trustee..
rnton, Lan McDonad.
rown, erence
ryan et u ., C.
ryan et u ., L.
uck, ohn ., estate of8.
uck et a., Mary M., e ecutors6
uena sta Land Deveopment Co.
uffao Unon Iron urnace Co.7
31031
1
46569
25
474
49422
41295
27
1091
65675
30
370
39534
30
1290
22335
27
377
18592
29104
25
195
30990
28
917
57312
59796
26
1369
70298
32
600
36729
28
744
36746
26
1070
54917
29
804
51051
27
186
72389
33
466
46079
25
1084
27616
1
35098
23
731
40147

69682
31
212
26750
25
513
39242

40939
45741
25
119
51507
64975
30
591
49891
29
8
39200
25
651
24223
34964

995
68382
31
25
54923
26
1410
62985
33
208
54556
29
1161
53715
28
472
24667
36637
25
814
24036
19
111
24037
19
111
32584

44153
) 25
780
44684

32584
1
44153
25
780
44684

2025
13
895
16075
16076
23
439
1 state ta decson acquescence reates to deducton of 133,000.
1 cquescence reates to tbat part of decson hodng that Water . ettman s not abe as a transferoe
and to mtaton ssue.
1 cquescence reates to rght of overrdng royaty owners to beneft of secton 211(b), Revenue ct of
1818.
cquescence reates to Issue nvovng secton 115(g) of the Revenue ct of 1938.
1 cquescence reates to ssue as to basc vaues of stock.
1 state ta decson acquescence reates to vaue of certan rea estate In San rancsco and vaue of
tock of Langendorf akng Co. for estate ta purposes and reasonabeness of Commssoner s aowance
forsnpport of the wdow.
cquescence reates to ssue regardng deductons for obsoescence of bast furnaces.
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cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
ungton, Orve
ungton, Mrs. Sade
us, een - ---
uock, George 1
urdck, a P., trustee... -
urdck, oe W., estate of
urnham, Sas
urroughs, mbrose ., estate of
urton, en|amn T
uter, U. - -
y ere Trust, . T
C.
Caforna Coast O Co_ -
Camp Manufacturng Co
Canaday, Inc., Ward M
Canfed. et a., rances Marsha, e ecutors
Sed, George ., cstat of
nng, ohn
.ta Compress Co
Carman, . --
Carne, Goude Manufacturng Co
Caro, Sue (Mrs. Nck Stuart)
Carona, Cnchfed Oho Ry..
Carona Contractng Co
Carter Pubcatons, Inc
Caspar Lumber Co
Cathey, George
Cat hey, 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
cquescence reates to Issue 2 of decson.
cquescence reates to ssue regardng apportonment of
cquescence reates to bass upon whch gan or oss u
69G84
69679
68164
73954
31209
46322
46322
61009
53795
59797
61055
46055
68382
25018
35955
58632
68415
68415
41482
49303
44321
44939
50178
20074
27095
63963
71025
71649
71650
77638
44838
66891
57729
46056
46057
25421
25413
24837
42587
28701
20776
31
31
32
23
29
29
29
29
28
24
31
25
25
29
31
31
29
31
25
24
30
31
32
28
30
24
24
25
25
25
29
25
24
29
31
27
27
25
25
affated
of stock shoud be
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1
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-
0
1
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2
2

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1
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8
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3
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5
cqotescences Contnued.
Ta payer.
oard of Ta ppeas.
No.
oume.
rage.
36343
22
1407
47704
20
292
59797
29
190
31869
23
663
34499
24
1235
33585
1
40890
29
436
51197

46058
24
506
41962
46297
20
772
40554
25
446
54880
28
1311
38904
28
1127
61882
27
506
53799
20
588
42743
25
456
42707
26
794
43495
50051
28
143
70384
33
19
68034
31
515
68034
31
515
60434
32
920
18591
29106
25
195
44081
45833
46267
51967
30
331
60566
66948
44083
45834
30
331
44082
30
331
72391
30
552
44859
30
636
41963
20
772
38579
25
1351
53044
27
33
54740
60228
32
100
26751
25
513
44768
25
1320
44769
25
1320
Chcago Northwestern Ry. Co.1
Chrstopher, Rache S.
Cty ank armers Trust Co., e ecutor
Cty ank armers Trust Co. et a., e ecutors
Cark et a., ames, e ecutors
Ceand state Co., Inc., enry .1.
Cements, W. L
Ceveand Trndad Pavng Co.4
Cnchfed Securtes Co -
Cnton Cotton Ms, Inc
Coats, Inc. (R. I.), . P.s
Cogate, Mary
Coorado fe Utah Coa Co
Coumban Carbon Co.
Coumbus rck Te Co.
Commerca Investment Trust Corporaton _
Communty Mausoeum Co.
Cone, mma S., e ecutr 1
Cone, Irvng ., estate of 1
Connay, Mary W. T
Connectcut Rver Power Co
Conney, ames .10.
Conney, L. .
Conney, Mary .
Conservatve Gas Co
Contnenta Lega and Protectve ssocaton.
Contractors Constructon Suppy Co.4
Cook, zabeth .
Cook, M. M., estate of
Cook, P. W
Cooke. eatrce
Coombs, zabeth M
Coombs, . oward
1 cquescence reates to foowng Issues: Matera and suppes ad|ustment amortzaton of bond
premum assessment of ssocaton of Raway ecutves raroad Y. M. C. .
state ta decson.
1 cquescence does not reate to bass of property devsed sub|ect to a fe estate.
Nonacquescence notce pubshed n Cumuatve uetn -2 revoked.
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 Interna Revenue uetn I-14 revoked.
T 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 Issues: Deducton of e penses In connecton wth ssuance of
preferred stock deducton for dvdends credted to accounts of empoyees for purchase of stock.
cquescence reates to ssue whether a sae of a cemetery crypt s a sae of reaty enttng the ta payer
to the Instament bass when tota amounts receved n basc year do not e ceed 40 per cent of gross prce.
cquescence reates to queston whether the vaue of rghts to subscrbe to certan bonds consttutes
Income.
cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
G
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a
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
1
9

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8
8
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3
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cqttescenceb Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume. Page.
Cooper, ohn I
Corbett, ott R.
Cornng Trust Co., trustee
Corn we, . L
Cosmopotan ond Mortgage Co.1..
Costeo, oseph
Cotton, G.
Couchman, Wam ennng
Coursev, Sarah . W.
Co , tta
Co , Carre G
Crane, e ander ., estate of 4
Crane et a., e ander M., e ecutor
Crews, Chares
Crews, verett
Crews, Raph W -
Robert
Croker, ua
Cromwe et a., Wam Neson, e ecutors
Cronan, Mr. and Mrs rancs M
Crousc, George N
Crowey, oseph ., estate of s_-
Crownfn8hed Shpbudng Co.
Cuver, Wmer T
Cunard Coa Co.
Curts, Laura M_
D.
Dah, ndrew .| estate of
Dah et a., ua, e ecutors
Daey, ugene S., e ecutor
Day, Margaret P
Dana, Myer.. -
Dancer, dth M., estate of
Davs, ohn
De orest, ate R.
Deaware udson Co.
32610
40115
40926
29252
30303
44617
22640
59655
67729
70957
71755
69698
69698
71718
71718
66766
66767
66701
66702
41121
42619
78185
43446
51419
35472
18987
37574
26874
26875
28792
56314
44845
44845
26645
65213
50248
70456
20703
37284
50553
50629
24
27
26
24
30
27
25
30
33
31
31
30
30
30
31
33
33
30
31
33
30
31
33
27
24
33
26
25
24
24
26
28
24
24
25
32
30
30
24
27
26
1 cquescence reates to Issue Invovng method of accountng used by ta payer.
cquescence reates to that part of decson hodng that Water . ettman s not abe a
and to mtaton ssue.
cquescence reates to the foowng ssue: Incuson n pettoner s ta abe net ncome
tota proft receved from sae of rea estate by the trust.
Nonacquescence pubshed n Cumuatve uetn III-1 wthdrawn.
state ta decson nonacquescence pubshed n Cumuatve uetn L revoked.
state ta decson.
cquescence reates to deductons for addtona royates and offcers saares and
Gft ta decson.
Nonacquescence pubshed In Cumuatve uetn 1-2. wthdrawn.
a transferee
for 1930, the
G
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d

f
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U
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
1
9

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3
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0
0
0
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8
8
9
3
3
6
8
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s
s
_
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#
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e
cqu sc NC a Contnued.
Ta payer.
Dennett, Car P.
Dennett, Mare G.1
Denns, rank ., estate of 1
Denns, Merry M., e ecutr 1
Denny, Regnad
Detrot Trust Co. et a., e ecutors .
Dckey, Water S., estate of
Dcknson, bert G
Don, erbert L
Drksen, nna L., e ecutr
Drksen, Theodore ., estate of
Dttmar, mmy
Dockweer et a., Isdore ., e ecutors and trustees
Doembechcr 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
Dorc partment Co
Dougas Co., ohn
Drake, rancs
Dre e Packng Co
Duff, Robert C
Duncan, T. P
Duncan, Mrs. T. P
Dunham, Water
Dunne, ney Peter
du Pont, Perre S.5
.
ag .e Pass Pedras Ncgras rdge Co.
asterwood, r., W.
asterwood, r., Mrs. W.
sendrath, dwn W
sendrath et a., dwn W., e ecutors.
sendrath, Maron
sendrath et a., Rose L., trustees
sendrath, Wam
sendrath, Wam N., estate of
oard of Ta ppeas.
71858
72023
50263
50263
49516
35472
51643
35015
43176
58025
59280
17717
17717
63931
50828
34853
43527
46421
50607
63628
71534
68159
41136
41887
52165
56443
56443
44655
38726
46804
20775
37552
65921
65924
66308
54444
2699G
42460
40181
63416
40182
63417
36726
36724
36727
36728
36725
30724
30
r,o
26
26
33
25
32
23
32
24
24
32
30
30
31
30
26
26
31
31
32
23
30
24
23
31
31
27
29
18
23
28
28
28
28
28
28
28
28
reates to deductbty of osses sustaned by pettoners upon aeged saes of stock to
other durng tbe ta year.
1 state ta decson.
cquescence reates to ssue Invovng deducton of operatng e penses of aeropane and deprecaton
theeon and whether amounts e pended for costumes, make-up, and wgs are deductbe as ordnuy
and necessary e penses.
cquescence reates to Issue 1 of decson.
Nonacquescence pubshed n Cumuatve uetn I -2 revoked.
G
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n
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r
a
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e
d

f
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L

n

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U
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t
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
1
9

G
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2
7
/

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3
0
0
0
0
0
8
8
9
3
3
6
8
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#
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e
c tr 80 NC 6 Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
Page.
drdge, ce .
drdge, . S.1
gn Compress Co
ott-Grante Lnen Corporaton.
Mng Co_
Metas Co
nns Ice Co
rb et a., Rav L., e ecutors 2...
vans, .
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
dety Unon Trust Co., e ecutor..
fth venue ank of New York, e ecutor
rst Ctzen 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
tch, orence - -
orence Manufacturng .Co
.
yce et a., Wam C, rustces-
Produc
acts Chemca Co
orres, Lord
orrester, W.
oster, L. .
oster, N. C, estate of
64779
64778
49302
48212
46768
52972
19011
22021
22022
26259
42184
29260
64397
62664
43044
30726
20452
67636
20774
10596
1S105
27194
31748
43317
29466
1S105
64474
29758
14862
31801
39106
45215
69193
69166
71599
36438
46583
45186
63732
68338
51670
15383
26079
28396
31018
17

f 40229
43973
73591
43086
32984
cquescence reates to Issue whether dvdends decared n 1929 consttuted
In 1929 or 1930.
cquescence reates to market vaue of o and gas eases on March 1.1913.
1 cquescence reates to ssue n connecton wth opton payment receved for
state ta decson.
cquescence reates to ssue regardng fng of separate return for 1925.
30
30
31
26
27
25
24
29
30
29
29
26
26
27
24
30
27
26
30
31
24
23
33
32
32
25
26
30
32
29
25
25
30
27
25
32
26
25
to the pettoner
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(
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U
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t
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
1
9

G
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2
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2
7
/

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3
0
0
0
0
0
8
8
9
3
3
6
8
8
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#
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9
Ta payer.
Decke
No.
oard of Ta ppeas.
oume.
oster et a., Ward,
o , ontane
rancke, Chares
rank, m
rankn Teegraph Co
: Trust Co. ...
rschkorn
uhage, fred .
Co.
G.
Gamb, .
Gambe, Cec ., e ecutor1.
Gambe, ames N., estate of
Gambe, Mary II., estate of
Gambe Stockton Co.
Gardner, Chares ..
Garron et a., Isabe . ., e ecutors
Gaston, Wam
D.
. C.

Gay,
Gay,
Genera Outdoor dvertsng Co., Inc.7.
George, erome R
George Machnery Co., R. .
Gbbs, G. Wdy.
Gette Rubber Co...
Gnsberg, bert
Gnsberg, Nathan
Gven, T. ., estate of.
Gancy, Inc., . R
Gobe Constructon Co.
God Stock Teegraph Co.
Goden, dward
Godman, Ma we
Godsmth, Ma . --
Gordon, fred W -
Gordon, zze
Gordon, Ma L.
Gore ros., Inc
Gotteb Reaty Co --
Gracpcr, W.
Grand Rver Grave Co
32984
71084
56438
50224
29095
51947
60167
67805
30496
35170
42452
01754
47902
60840
55595
60840
42707
38575
47705
52103
62309
58787
58788
66511
45240
61218
31329
43052
50073
27628
27629
54556
62062
43438
51694
53310
29470
27025
30302
59722
574 S3
22332
22333
39538
42528
46019
23085
25
30
32
27
26
32
30
32
26
33
32
33
26
25
26
34
31
31
32
27
26
28
31
24
24
29
31
25
26
24
24
29
29
27
27
30
28
27
22
1 state ta decson.
cquescence reates to deducton for deprecaton on premses and Incuson In year 1930 n pettoner
o s Income, 7,400 representng renta vaue of premses occuped by hm.
1 cquescence reates to Issue nvovng deducton of commssons pad on sae of mortage notes.
cquescence reates to Issue whether ta payer Is entted to the statutory persona e empton as the
bead of a famy.
1 cquescence reates to ncuson n consodated Invested capta of capta stock Issued for a te and
brck manufacturng pant, etc.
cquescence reates to Issues regardng aocaton of tota cost between common and preferred stocks
purchased.
cquescence reates to Issue whether pettoner reazed gan on transfer of certan of Its assets to Centra
Outdoor dvertsng Co. for stock of that company.
1 cquescence reates to that part of decson hodng that Water . ettman Is not abe as a transferee
md to mtat
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3
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10
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Grant, arry ohnston
Great Southern Lfe Insurance Co.1
Green, Robert D.
Green, W. S
Grey u Corporaton
Grffs, Stanton 3
Grffths, va Lavno
Grffths, George W.
Grffths, ohn -
Grswod Co
Guaranty udng Loan Co.
Gudeon, Water T
Guf Coast Irrgaton Co.4
GuUett, C.
Guett, W. ---
Gummey, rank .4
Gurnee, ugustus Coe, estate of
II.
abcrand, Pau
afner, fred
aey-Oa Coa Co.
aaday, Sarah P..
amburg, r., Sam.
andy, rankn Mer.
anna, R. ., estate of
anna, rgna W., e ecutr
anscom, dward ., estate of 7
anscom et a., Meve, e ecutors 7.
arbeson Lumber Co., W.
arkness, dward S
arkness, Mary S
arnschf ger, enry, estate of 7
amschfeger et a., Mare ., e ecutors 7.
arper, II. T
arrah, Mare
arrah, Wam
arrson, Inc., . M
artford- mpre Co
51794
56540
64064
71114
53647
43786
46373
63487
47376
38577
63354
42498
43074
68628
55352
54739
C0229
33694
40081
41343
52517
52518
61056
42619
29289
48389
57132
30962
26754
30304
66810
67671
74406
62718
62718
44992
44992
33076
51012
65169
71310
71311
69636
C9636
62784
25269
21643
50594
29958
41736
53600
80
1028
33
512
24
719
26
1017
27
853
25
1351
30
852
25
1292
25
1292
33
537
27
754
32
100
24
958
31
1067
31
1067
26
894
24
461
25
1370
31
338
24
895
25
513
24
915
30
1271
31
1126
31
1126
24
173
24
173
24
542
31
1100
31
1100
31
224
31
224
31
1126
27
1305
27
1305
30
455
26
134
cquescence n ssue nvovng deductbty of nterest pad on matured coupons surrendered.
cquescence reates to transactons 1, 2, 3, and 4.
quescence reates to ssues regardng aocaton of tota cost between common and preferred
purchased.
cquescence reates to e Issues e cept affaton Issue.
Nonacquescence pubshed n Cumuatve uetn II-1, wthdrawn.
state ta decson n on acquescence pubshed n Cumuatve uetn -2, revoked,
state ta decson.
stocks
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0
1
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3
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11
con sr Nc s Contnued.
Tu payer.
astngs, Cve, estate of
astngs, .
astngs, rederck
atfed . T...
avard, Chares
awk, enrv C, estate of
awk, Ida W., e ecutr
ay, W.
avman Co ,
aze wood, N.
ock, dwn
emph. Cfford -
enke Trust, Mrs. Catherne.
enke, enry, estate of
ennngsen, Water
erff Dttmar Land Co_
ervev, W. R
ess, Nathane
ettman, Water .
ewtt, rs ne
ckman, anne Snyder
man, . D., estate of
man et a., udson McCntock, admnstrators
mehoch ros. Co_.
res Co., Chares
obbs, enry
obos, Teck..- -
offer, nta Owens
offer, T.
oday, ohn ..
ongsworth, .
oster, George ue..
oy Deveopment Co
omby Corporaton
omes, George W
oughton, anson
oughton, r., rnory, estate of_
oughton, rthur
oughton, Chares ., estate of.
ouston ros.
ouston, George T.
ouston, orace .
ouston Land Tru6t Co.
ouston, PhUp D. .
oward et a., ohn
trustee.
ubbard, dward, estate of
Docket
No.
63789
63790
38864
72788
32841
60090
60690
37499
16552
61334
56161
38573
63321
63321
50668
62845
60729
68821
46806
33279
22341
57032
63141
16253
62676
62676
41728
42769
45663
47781
27351
33374
33375
64127
54282
29161
42771
52661
51303
53797
29445
29444
29446
29465
12052
13104
22008
22009
63321
22007
52163
62309
63878
67569
oard of Ta .
oume.
regardng aocaton of tota cost between
29
163
29
163
27
1305
32
1
25
1161
29
1061
29
1061
25
96
25
736
29
595
32
613
25
1351
33
73
33
73
30
301
32
349
25
1282
24
475
27
377
30
962
24
438
31
1126
31
1126
26
541
26
1351
26
241
26
241
24
22
24
22
29
1272
27
621
26
1359
33
774
28
1091
29
605
26
1359
26
1359
26
1359
26
1359
22
51
22
51
22
51
33
73
22
51
34
57
30
619
and preferred stocks
reates to that part of decson hodng tbat Water . ettman s not abe as a transferee
to mtaton ssue.
cquescence reates ony to deducton for busness e penses n 1920 and to number of feet of tmber
t durng 1918.
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12
cquescencks Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
ubbard, Mdred M
ubbard, Mdred M., formery e ecutr .
ubbard, Mdred M., transferee
ughes, .
unter, C. W., e ecutor
unter, George ., estate of
unter, r., homas .1
untngton, enry ., estate of3
unttng, enry R
urbut, . M
urt et a., Mrs. . ., e ecutors
urt, oe, estate of :
uyer s, Inc
I.
Inos Centra R. R. Co
Inos Power Lght Corporaton.
Independent Ice Coa Co
Indana Lamp Corporaton
Ingas, Chares C, estate of
Insu, Margaret .
Insu, Samue
Insu, r., Samue
Internatona Ocean Teegraph Co.
Interstate Reaty Co
Iten scut Co
Iverson, I. C
Iverson, Ruphane .
ames, Wam L
ohnson, orence D., estate of.
ones, Chester ddson
ones, R. D
.
ammerdncr,
ansas Cty Leasehod Improvement Co.5.
ansas Cty Memphs arms Co

63837
63878
67569
67335
45417
45417
58490
45429
75304
71788
28099
28099
28369
29154
39841
62023
02991
56299
59687
67639
52761
57835
68002
68504
68003
68503
6S001
68505
29585
46272
5C981
16429
20899
48838
48837
70278
75969
50206
69858
41643
46555
35718
51060
30
30
30
32
20
26
33
28
32
33
30
30
24
30
34
33
27
28
25
32
32
32
26
25
26
29
29
30
33
31
29
25
17
25
cquescence n ssue as to whether pettoner receved a ta abe dstrbuton from Marsha ed Co.
on anuary 5, 1927, n the amount of 1,118.51.
1 cquescence reates to ssue regardng oss from operaton of a farm n 1025 and 1026 and ssue regardng
ncreasng defcency for 1925 by amount of nterest accrued on bonds e changed for art ob|ects.
8 state ta decson.
cquescence as to Issue whether pettoner shoud be aowed to fe hs return on communty property
bass.
cquescence reates to March 1. 1913, vaue for purposes of cacuatng can or oss upon sae of and
at ersaes, Mo. whether the nvested capta of the Smcoe Reaty Co. shoud be ncreased for 1918:
and the March 1,1913, vaue for amortzaton purposes of a easehod beongng to ansas Cty Leasehod
Improvement Co.
G
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1
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-
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2

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4
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1
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13
cquescence Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
ansas Cty Southern Raway Co. and affated
companes 1
asch, d
asch, Theodora
eU, rank
e. Mrs. rank
eU, oe
eU, We May
ohn P
ent, verett _
r, . M.
bee O. .
ng, enretta M., estate of.
ngsbury, . R
Co., Inc., G. R_.
rehner, 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
Lang et a., orence 0. R., e ecutors
Lang, enry, estate of
Langworthy, Mar|ore C
Lawrence, Gadys G
Lawson, ohn
Leamngton ote Co
Ledesdorf, Samue D
Leonard odng Corporaton, George ., estate of_.
Letts, r., rthur
Lews, Sr., . S
Ley, George W.
Ley, Mary C. -
Lberty arms Co
22068
35527
35528
35529
35530
L 35531
48293
48293
69677
69678
69681
69685
38233
f 39576
42589
46064
52640
24882
52632
56382
f 31397
L 329S0
25428
52632
56865
37822
f 32609
40267
64815
34630
36940
35443
71117
71117
71961
75494
40232
48413
4So05
48871
62106
56163
22336
22337
26717
29899
66546
53385

22
25
25
31
31
81
31
26
26
31
27
31
31
26
27
31
28
25
24
27
25
21
32
32
3(1
33
25
2 .
26
26
30
32
27
27
22
31
31
Lberty osery Ms
Ldo udng Co., Inc
cquescence reates to the foowng Issues: Deducton of contrbutons to Y. M . O. ., Prests of Paace,
and ssocaton of Raway ecutves and amortzaton of commssons and e penses ncurred n sae
of bonds.
cquescence reates to that part of decson hodng that Water . ettman s not abe as a transferee
and to mtaton Issue.
state ta decson.
to reorz nzatnn ssrae.
hodng that Water . ettman s not abe as a transferee
G
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a
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2
0
1
3
-
0
1
-
2
2

0
4
:
1
9

G
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8
8
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3
3
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14
cquehce ces Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Lncon, Robert Todd, estate of1
Lppncott et a., . ertram, e ecutors .
Lppncott, Water, estate of 1
Lttauer, ugene, estate of
Lttauer et a., Lucus N., e c tore
Ltte, C.
Loyd, S. Rose
Loyd, Water
Loeb, r., et a., Wam, trustees
Loge, oseph
Longyear, r., ohn M.
Longyear, M: r ., estate of
Loughborough Deveopment Corporaton.
Loure, Davd
Luhrg Coeres Co
M.
MacCaum Gauge Co
Mata Tempe ssocaton 4
Manhattan Lfe Insurance Co
Manstque Lake Superor R. R. Co
Markham Irrgaton Co.
Marston, dgar L
Martn ote Co. and affated corporatons.
Martn et a., . are, trustees
Martn, T. S., estate of
Martns, ndy
Marvn, Water S.7
Mason, Pau
Matagarda Cana Co.
Matchette, rankn
Matthews, . P
Maudn, I. M
Mc uffe, gues
McCa, orence 1
McCarter, Uza
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.
39167
49233
49233
51858
51858
61821
75765
44089
34161
37762
40071
47117
56027
62410
36438
46583
51064
27630
40048
70437
29476
32940
35337
41344
61961
16275
44583
44583
22334
38578
58413
40082
41345
40710
26250
26239
49071
47702
09193
43478
46059
25427
25996
25997
25995
25994
25997
26753
24
27
27
25
25
27
32
30
20
24
28
25
29
24
26
32
16
32
29
24
29
24
24
24
27
25
33
24
26
22
22
29
26
33
29
24
27
26
26
26
26
26
25
state ta decson.
1 state ta decson acquescence reates to Issues 4, 5, and 7 of __
cquescence reates to queston whether the vaue of rghts to subscrbe to certan bonds consttutes
ncome.
Nonacquescence pubshed n Cumuatve uetn III-2 wthdrawn
cquescence reates to a
cquescence
and to mtat
cquescence
e cept affaton
to that part of decson hodng that Water . ettman s not abe as a transferee
to ssue regardng aocaton of tota cost between (
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2
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1
3
-
0
1
-
2
2

0
4
:
1
9

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2
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2
7
/

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3
0
0
0
0
0
8
8
9
3
3
6
8
8
P
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15
cqt|escences Contnued.
Ta payer.
Docket
No.
oard of Tn ppeas.
oume.
McLaughn, Thomas
McLennan, . R
McMan, Wam Northrup, estate of .
McRae, Louse C. e ecutr -
McRae, Php, estate of
Mead Coa Co., C. ._
Memphs Memora Park
Mente Co., Inc.
Mente, ugene W.
Mente, . G
Mercante-Commerce Natona ank n St. Lous
et a., e ecutors and trustees
Mercante Trust Co. of atmore et a
Merr, Isaac L
Messer, Rchard ., estate of1
Metropotan Propertes Corporaton
Mchgan Centra R. R. Co.
Mchgan Trust Co. et a., e ecutors
Mby Dow Coa Mnng Co.
Mugrm ros., Inc., .
Mken, Sae Gbba
Mnneapos, St. Pau Saut Ste. Mare Ry. Co.
Msssspp Packng Co., Inc
Mssour State Lfe Insurance Co. .-
Mtche, L. C -
Mtche, Oscar
Mobe Lght Raroad Co.7
Moore, dward W ., estate of
Moore, Louse C, e ecutr
Moorehead, W am .
Moorsead, O
Mossman, . Pau
Mossman, Wam ., estate of .
chnc, . ., admnstrator
: ohnson
.
59788
26730
45966
32303
32303
42718
42719
54660
49259
53458
61305
54701
54708
35443
68338
61722
42513
45032
19930
42513
22021
22022
26259
42184
33177
31330
74118
20772
58241
62386
41610
41680
41874
54673
41026
42062
58720
58720
25853
57045
59747
59747
63789
76942
62838
29
25
27
30
30
28
28
29
29
29
21
32
31
27
24
28
27
24
24
28
34
24
29
28
27
23
33
33
22
28
32
32
29
32
28
state ta decson acquescence, ecept In so far as concerns the queston of stus.
1 state ta decson.
cquescence reates to the foowng Issues: Whether amount pad by New York Centra R. R. Co. to
State of Inos n connecton wth ssuance of bonds was a ta or fee savage recovered from ore docks
credt representng deprecaton on property retred n 1918.
cquescence reates to ssue 1 of decson.
cquescence does not reate to foowng ssues: Deducton for reserve set up to meet abty upon
matured coupons ad|ustment of ncome for renta of space occuped In home offce budng and depreca-
ton upon such budng.
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 In the ta abe years n accordance wth a wrtten agreement entered nto by and between pettoner
and another n 1906 consttute ta abe payments of rent or nonta abe payments on the seng prce of
assets. 2. Whether pettoner sustaned statutory net osses for 1924 and 1926 whch can be deducted from
ts ncome for 1925 and 1926. respectvey.
state ta decson acquescence n hodng taat the commuted vaues of the Instament poces In
the frst two groups shoud be ncuded n the gross estate
G
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16
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Murphy, Mae . eey
Murrav, dward
Murray, Rebecca
Murtha Schmoh Co
Musgrove, oyd L
Mutua ssurance Socety of rgna.
N.
Na et a., R. ., e ecutors
Natona Capta Insurance Co. of the Dstrct of
Coumba
Natona Casket Co., Inc.1
Natona Contractng Co.
Natona M Suppy Co
Natona Packng Corporaton
Natona Te Co
Neracher, George
Netcher, Chares, estate of
Netcher, Gadys Over, e ecutr
Netcher, Irvng
Netcher, Townscnd
Newavgo Portand Cement Co
Newbock O Co. of Te as
Newbury, Moe Netcher
Newbury , Moe Netcher, trustee.
Newe et a., Sterng, e ecutors4
New ngand Power Co
Newman et a., Rose, e ecutors4
Newman, Samue, estate of4
New Market Investment Co.5
Newton, zabeth .4
Newton, oseph R., estate of4
New York Centra R. R. Co. .
New York, Chcago St, Lous R. R. Co.
Nagara Share Corporaton of Maryand..
Nbey-Mmnaugh Lumber Co
Ncodemus, r., . C.7
Nppert et a., fred ., e ecutors and trustees..
Noonan
state Trust, . R.
38222
40176
58858
40174
58857
17911
42591
43911
53044
50748
50320
24520
37001
31668
33971
64013
74411
38053
38053
38052
38050
36319
28045
38049
38052
57835
18593
29105
59598
59598
35719
47703
47705
19932
34437
62040
21047
70813
17527
52326
02509
55595
62664
26
28
28
17
27
24
27
28
29
25
23
24
30
32
26
26
26
26
27
26
26
26
25
25
31
31
17
26
26
28
23
31
32
26
32
29
1 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 competed bass and that formua used by pettoner was permssbe and ssue reatve to
neggence.
Nonacquescence pubshed n Cumuatve uetn I-2 revoked.
state ta decson.
cquescence reates to March 1,1913, vaue for purposes of cacuatng pan or oss upon sae of and at
ersaes, Mo. whether the nvested capta of the Smcoe Reaty Co. shoud be ncreased for 1918 and the
March 1,1913,vaue for amortzaton purposes of a easehod beongng to ansas Cty Leasehod Improve-
ment Co.
cquescence reates to the foowng ssues: Whether amount pad by New York Centra R. R. Co.
to State of Inos n connecton wth ssuance of bonds was a ta or fee savage recovered from ore docks
credt representng deprecaton on property retred n 1918.
7 Nonacquescence pubshed n Cumuatve uetn I-2 wthdrawn.
G
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17
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Page.
North Sde Lumber 4 Tmber Co
Northern Coa Co.1- --.
Noyes, ansen
O.
Oakey, Rchard
O Donohoe, ohn
O Donohoe, Mrs. ohn
W.
Omsted, Iva C.
Oympa arbor Lumber Co
Ontaro Reaty Co.4
O Rear, . C.5
Osborne, Owen, estate of
P.
Pacfc 4 tantc Teegraph Co. of the Unted
States...
Pacfc Coast scut Co. eta.
Package Machnery Co
Pane et a., rancs Ward, e ecutors
Pane, Wam ., eRtate of
Pam each Mather Co
Pamer, radey W.
Parke, Davs 4 Co
Parker, Cara ., e ecutr
Parker, George D., estate of
Parkand Ice 4 Coa Storage Co
Parrott, . .
Patterson, zabeth P
Peavy- yrnes Lumber Co
34924
34945
38574
45778
69686
69680
44090
45745
48121
54714
60746
( 44089
45746
48143
54713
I, 60745
64272
35721
32335
69957
29586
71588
54334
34113
34113
43850
62652
62717
58604
58604
67640
30989
76058
15824
16354
25984
27
24
25
24
31
31
30
30
30
17
28
29
26
32
28
25
25
24
32
31
31
31
27
28
33
25
1187
307
1351
1082
212
212
331
331
114
213
698
374
914
39
980
764
764
536
550
427
644
644
1346
917
57
223
1 cquescence reates to Inventory Issue.
cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
cquescenoe reates to queston whether the vaue of rghts to subscrbe to certan bonds consttutes
ncome.
cquescence reates to March 1, 1913, vaue for purposes of cacuatng gan or oss upon saes of and
tt ersaes, Mo. whether the nvested capta of th Smcoe Reaty Co. shoud be ncreased for 1918
and the March 1,1913, vaue for amortzaton purposes of a easehod beongng to ansas Cty Leasehod
Improvement Co.
cquescence reates to Issue as to aowabe deducton of cost of operatng automobe party used n
ta payer s busness n 1924.
onacquescence pubshed n Cumuatve uetn III-1 wthdrawn.
cquescenoe wth respect to deducton of e pense ncdent to amendment of pettoner s charter.
cquescence reates to ssue whether stock rghts were capta assets where the stock n respect of
wbeh they were ssued had been hed for more than two years pror to sae of the rghts.
cquescence reates to a questons wheren decson was not whoy n favor of Commssoner e pect
decson regardng e steooe of partnershp of George D. Parker Co.
cquescence reates to rght of overrdng royaty owners to beneft of secton 211(b), Revenue ct of
ss
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18
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Page.
Peavy-Moore Lumber Co.
Peavy-Wson Lumber Co.
Peck, Cara S., estate of_.
Peck et a., remont C, e ecutors.
Pegg, bert O.1
Penn Mutua Lfe Insurance Co
Pennsyvana Indemnty Co
Pennsyvana Investors Co
Peopes Lfe Insurance Co.
Perata, ohn M
Perkns et a., acob
Perkns et a., Thomas N. _
Perry, oward
Perry, Raymond ., estate of.
Pershouse, ce
Pershouse, Mabe
Peters, ndrew
Phps, C. ...
Phoen Insurance Co
Pctora Revew Co
Pggy Wggy Corporaton.
Ptkn, George P
Pttsburgh thetc Co.4...
Pttsburgh Metng Co
Pttsburgh West rgna Ry. Co.
Pztz Dry Goods Co., Lous
15823
16355
25986
15822
16356
25985
61520
61521
61520
61521
22338
52577
59670
71992
20766
66969
71744
57923
28701
57848
58305
58306
58443
58475
58770
58772
58904
58905
58906
58907
58917
58918
58925
69855
63645
26749
26748
54050
47901
48867
43995
25126
43860
65173
60569
66964
67422
44858
72157
72158
46585
25
26
81
31
27
32
30
24
31
33
25
33
33
32
25
2.-)
28
20
29
20
28
31
27
30
82
22
1 cquescence reates to that part of decson hodng that Water . ettman Is not abe as a trans-
feree and tn mtaton ssue.
1 cquescence reates ony to treatment of renta vaue.
cquescence reates to the foowng Issues:
Is any part of the defcency as to astern Carbon ack Co., Thompson O Co., O. . M. Co., and Davs
ros. Co. due to fraud wth Intent to evade ta
Dd the shares of Interstate Gas Co. stock receved by O. . M. Co. as a dvdend from astern Carbon
ack Co. consttute n part a qudatng dvdend
Nonacquescence pubshed n Cumuatve uetn II-2 revoked.
G
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r
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e
d

f
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L

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t
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)

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2
0
1
3
-
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1
-
2
2

0
4
:
1
9

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0
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0
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8
8
9
3
3
6
8
8
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19
cqt|escences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
P-M- Petroeum Co.1-
Poar Ice 4 Coa Co. ..
Pope, Ove R
Powe, en|amn I
PoweL T. L are
Prare O 4 Gas Co
Prce, Laura M
Prce, W.
Prophyactc rush Co.
Inc. .
Prosperty Co.,
Prosser, Constance
Provdent Trust Co. of Phadepha, e ecutor
Putnam Trust Co
Mrs. Macom
unn, van
unn, Martn M
unn, Pau
.
Ramsh, doph
Ramsh, Inc., doph
Randa, Marore G.1
Rapp, ohn W., estate of..
Rauh Reaty Co
Ray OU Co. .
Reardon 4 Sons Co., ohn.
Record Petroeum Co
Reynard Corporaton T..
Reynods Catte Co
, Isaac T
Rhea, Mrs. Isaac T
Rhodes, erman M
Rato Mnng Corporaton.
Rchards 4 rschfed, Inc
Rchardson, my 8., e ecutr
Rchardson, Chares W., estate of1
Rchmond, redercksburg 4 Potomac R. R. Co. .
Rggs Natona ank 10
50576
54779
67638
29274
50380
64464
57117
40659
41072
32996
47845
47846
45896
59468
26752
59957
34743
69683
8544
8598
8574
39568
39569
38971
28618
32822
34332
20773
50962
62424
57728
67386
70795
68445
71463
54960
54959
54899
48692
56S77
21715
64023
64023
6SS7
30903
24
27
25
26
17
29
24
24
25
27
25
29
26
31
26
26
26
30
30
17
24
26
28
24
32
29
30
30
31
29
29
34
25
24
31
31
33
17
360
1346
1161
509
65
113
216
216
676
28
513
374
655
212
970
970
970
1290
1290
475
1061
48
1204
376
1270
565
579
451
206
804
804
212
980
1280
245
245
895
615
cquescence reates to thrd ssue of decson.
Nonacquescence pubshed n Cumuatve uetn II-1 wthdrawn.
cquescence reates to deducton of oss resutng from qudaton of one of ts subsdares.
Nonacquescence pubshed n Cumuatve uetn III-1 wthdrawn.
cquescence n that part of decson reatng to deductbty of oss sustaned In 1024 from sae of
cquescence reates to ssue whether pettoner was ta abe In 1923 as a trust or as an assocaton.
cquscence reates to deducton for deprecaton on premses and ncuson n year 1930 n pettoner
o s Income, 7,400, representng renta vaue of premses occuped by hm.
state ta decson.
cquescence reates to ncreased deducton for oss on retrements of roadway property.
Nonacquescence pubshed In Cumuatve uetn -2 wthdrawn.
G
e
n
e
r
a
t
e
d

f
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L

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2
0
1
3
-
0
1
-
2
2

0
4
:
1
9

G
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2
7
/

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3
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0
0
0
0
8
8
9
3
3
6
8
8
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20
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Rtter Lumber Co. et a., W. M.
Roach Studos, Inc., a
Robertson, Cae
Robertson, R. R
Robson, Lester L
Robson, Cara P., estate of
Rodco- ae|o erry Co.1 --.
Rogers, rown Crocker ros., Inc.
Roande, Guano 1
Rosenberg, Lous
Rosenboom nance Corporaton ...
Rosshem, Irvng D.4
Roth, Gorton
Roy Ttcomb, Inc
Ruz, M ---
Russe, C. C
Russe, Mrs. C. C
St. ohns Investment Co
St. Lous Unon Trust Co. et a., cotrustees
St. Lous Unon Trust Co., e ecutor
Sanders, W. C__ -
San Marcos Compress Co
San Martnez O Co
Sappngton, G. Rdgey
Savngs eature of the Reef Department of the
atmore Oho R. R. Co
Scatcna, vra
Schepp Co., L
Schermerhorn, arret Puman
Schumacher, . P
Scov Manufacturng Co
42833
42834
42835
42836
43604
43605
43606
48749
57319
57320
57321
57322
61750
42496
42497
53878
26645
36411
48528
67581
57479
67286
27626
35778
40903
57503
22568
29138
67097
46060
46061
50613
65675
45966
26651
49304
37447
43121
51944
59486
61156
63920
42908
43145
59612
29854
30238
33610
46270
30
33
31
28
28
33
25
24
32
33
24
24
31
26
24
30
24
24
30
30
27
25
31
25
25
32
32
25
26
32
25
24
24
Scruggs, Gross R
Scruggs Investment Co
cquescence reates to deducton of contrbuton to ctory ghway ssocaton.
1 cquescence reates to reducton of proft of members of syndcate by the 2 per cent commsson due
syndcate manager and whether porton of the syndcate ncome consstng of dvdends shoud be ta ed to
the ndvduas ony at surta rates.
cquescence reates to hodng of oard that dstrbutons receved from oseph . nch Co. were
not parta qudatng dvdends. .
cquescence reates to Issue whether pettoner reazed addtona compensaton on sae of stock of
Warner ros. Pctures, Inc., n 1928.
1 state ta decson acquescence, e cept n so far as concerns the queston of stus.
cquescence reates to ssue nvovng Incuson of far market vaue of rghts to buy bonds n pet-
toner s ncome.
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2
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1
3
-
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1
-
2
2

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4
:
1
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21
cqotescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Maran P
Seaconnet Coa Co.1
Searcs Rea state Trust
Second Natona ank of Phadepha
Securtes Co
Securty rst Natona ank of Los ngees et a.,
e ecutors
Sebert, Ltd
8es Sportng Goods Co - --
Shaffer, C. . __- - -
Shand, Gadsden
Shapro, Samue
Shaw, Davd, estate of -
Shea, R. P -
Shepherd, Cttte G., estate of 1
Srr|coe Reaty Co. ..-
Smmons, II, et a., dward C, e ecutors-
Smmons, dward
Smmons, George W., estate of
Smmons et a., Rchard ff, e ecutors
Smmons, Waace D., estate of
Smms O Co.
Smms Petroeum Co.
Sncar 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
Soss, atte echt
Smathcrs, . ., estate of
Smathers Power Typewrter Co
Smth et a., zabeth D., e ecutors-
Smth, I. N., estate of
Smth, esse, e ecutr
Smth, Mrs. esse
Smth, Lous, estate of
Smoot, Lews
Sneed, r., . T.
Memphs Land Co.
d, enne
38711
18089
24489
76825
40553
45429
57059
20771
29259
26238
65158
34499
37835
40034
69166
35720
47210
47211
47212
47212
47210
61497
61496
37703
29252
37520
37520
37864
37703
41070
72605
64835
29260
43968
39291
49668
39291
49668
18876
22313
18876
32578
45694
44500
42592
24
24
25
33
25
28
29
24
29
22
29
24
24
32
17
32
32
32
32
32
28
28
26
26
26
26
26
26
26
31
33
29
28
25
25
24
24
24
25
30
33
27
27
1 cquescence reates to nventory Issue.
cquescence reates to ssue regardng oss from operaton of a farm In 1925 and 1926 and ssue regardng
ncreasng defcency for 1925 by amount of nterest accrued on bonds e changed for art ob|ects.
cquescence reates to market vaue of o and gas eases on March 1, 1913.
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 be ncreased for 1918 and
the March 1, 1913, vaue for amortzaton purposes of a easehod beongng to ansas Cty Leasehod t
Improvement Co.
cquescence reates to bass for computng deprecaton on assets acqured by Smms O Co. n 1925
from Cayton O Refnng Co.
7 cquescence reates to toe foowng queston: Dd pettoner receve a dvdend from echt road-
way Corporaton n 1929 n the amount of 1,5GS
1 cqu.essence reates to oard s hodng that bonuses shoud be ta ed as separate or communty property
n accordance wth the cassfcaton of the propertes under the ease and ssue n connecton wth assess-
ment of defcency for 1925.
cquescence reates to ssue nvovng deducton for depeton from advanced royates or bonuses.
G
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2
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1
3
-
0
1
-
2
2

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4
:
2
0

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3
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22
cgu SC NC S Contnued.
Ta payer.
Southern tantc Teegraph Co_
Southern Raway Co. et a.1
Docket
No.
Spange r, Georga M
Spanger, . W
Sprague-Ses Corporaton
Sprague Son Co., C. .2
Sprunt Son, Inc., e ander.
Standard eef Co
Standard Conveyor Co
Standfer Constructon Corporaton, G. M
Starr, rank C
StaufTen, Theodora
Stearns, Robert L
Steege, W. - - --
Stegeman, .
Stegeman, r., bert
Stegeman, anne L
Stegeman, . M
Stegeman, II. R
Stegeman, Mabe
Stegeman, Wam L
Stephenson, Ida
Sternberg, erman
Stevens, ohn
Stevenson Consodated O Co.5
Stewart, Maco, e ecutor
Stewart, Theodore
Stock Yards ank of Cncnnat
Stockham, |ah
Stone et a., Irvng ., e ecutors and trustees
Stone, Irvng Lee, estate of
Stoneman, Davd
Storey, . M
Straube, . L. G
Stromeycr, Irene
Stromever, Wam
Strong, arod C.s
Stuart, Chares
Stuart, r., Woughby -
Sugar Creek Coa Mnng Co
Suvan, ugene C
Summerfek Co
Sunburst O Refnng Co
Swenhart, ames
cquescence reates to foowng Issues: 1. Dd petton reaze taabo Income from
portons of amounts deposted bv shppers for constructon of factes for use of such shppers
bonds were sod at a premum pror to Nfarch 1, 1913. s the amorted porton of such pren
ncome 3. Dd Commssoner erroneousy e cude from ad|ustment for matera and supper
equvaent to Infaton contaned n book vaue of such materas and suppes as were not used durng 1920
cquescence reates to Inventory Issue.
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 In ncome for a y
vaue of capta sock of Sunburst O Oas Co. receved by pettoner asa premum.
state ta decson acquescence reates to Issue nvovnr
cquescence reates to Issues regardng aocaton of tots
purchased.
oard of Ta ppeas.
29694
oume.
26
21481
1
29951
37887-

37898
56320
29
56321
29
42006
30
42434
34946
24
38408
24
20770
24
33159
1
36393

25
40873
51636
30
69259
31
26756
25
37573
24
67098
30
26643
25
26650
25
26644
25
26647
25
26646
25
20649
25
26648
25
62825
33
55758
32
29685
24
43416
23
63645
32
70297
32
41085
25
22569
26
43830
26
43830
26
27627
24
62813
31
56867
29
55341
28
55342
28
38576
25
53796
29
73869
32
73758
31
29389
26
58711
29
45979
23
54784
29
unrcfunded
2. Where
um ta abo
n amount
years of 1 par
deductons from gross estate,
cost between common and preferred stocks
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1
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1
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2
2

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8
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3
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23
cqt|tescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Tabot, . .
Teague, .
Te as Irrgaton Co.
Water
dward W...
W. L_.
Three ver Securty Corporaton..
Thrft Reaty Co
Tfft, Chares
Tfft, Lews .
Tmes-Pcayune Pubshng Co.
Co . . .
Tracy, Davd ., estate of
Tracy et a., Gertrude emer, trustee.
Tracy, Wam R_.
Tresner, my
Trcou, 88e S._
Trnty Drng Co. .
Tro, nne
Trost, dward
Trout, . W
True, dward C
M
Turner, atheen M.
Turrsh, enry
Twn e O Syndcate..
Twnng, dmund S
U.
Uster Deaware R. R. Co.
Unon Lard Corporaton
36191
73034
40083
41346
67506
61103
51104
44857
44880
60653
31029
33464
42340
45957
31030
33165
42341
45958
48892
49539
27624
45320
53778
54828
62982
54828
62982
45513
66703
28093
40258
61498
61215
73848
39020
68501
43733
47900
55553
64334
64560
22340
44742
29518
70296
28927
20769
23
32
24
32
28
28
30
29
28
26
27
24
23
31
30
30
25
30
31
33
26
28
33
34
27
31
31
27
24
26
32
25
24
1 cquescence reates to oss Incurred In sae of a boat.
1 cquescence reates to a ssues e cept affaton ssue.
cquescence reates to ssue regardng deducton of oss sustaned by pettoner durng nonaffated
perod.
cquescence n oard s decson In so far as t hods that pettoner was not ta abe on any part of the
proceeds of the 100 shares preferred stock gven by hm to hs four sons n 1928.
cquescence reates to bass for computng deprecaton on assets acqured by Smms O Co. n 1035
from Cayton O Refnng Co.
cquescence reates to that part of decson hodng that Water . ettman a not abe as a trans-
feree and to mtaton ssue.
G
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2
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1
3
-
0
1
-
2
2

0
4
:
2
0

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3
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0
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8
8
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3
3
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24
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Co.
Unon Pacfc It. R.
Unon Pacfc R. R. Co. et a
Unon Peopes Natona ank of ackson et a.,
admnstrators 3
Unon Trust Co. of Pttsburgh, trustee
Unted utographc Regster Co
Unted States Trust Co. of New York, trustee.
aant, the N etcher
ermont ydro- ectrc Corporaton-
rgna Iron, Coa Coke Co
W.
Waker, George ., estate of 3
Waker Products Corporaton
Ward ros. Co
Warner Co. .
Warner, Raph C
Washngton Market Co
Waterbury, Charotte M.5..
Waterbury, Donad N.5
Waterbury, ugene W.s
Waterbury, Whtford N.s
Watson, r., ohn
Wavne Countv ome Savngs ank 11
Weddng, G. G
Weeks, anson. .
Wes, Samue W
Whee ock, R. L
Wheeock, Mrs. R. L
Whte Oak Transportaton Co.7
Whtman, Ward Lee Co
Whtney, Ward M-.
Whtson, Thomas .
Wco , C. ._ ._ _......I
Wams, r., ford
51530
70183
70219
35639-
35649
35684
35685
40060
40061
40062
70456
61009
30384
26747-
26757
38051
59638
51576
31889
44856
30992
53039
53040
59190
62510
43912
73381
73380
73383
73382
53414
49144
56442
63916
62126
37806
37805
18088
61552
37927
40233
46371
66915
32
26
30
29
27
25
26
29
29
23
30
24
26
31
25
33
33
33
33
27
26
32
31
:o
28
28
24
29
26
25
27
29
383
1126
1277
731
433
513
101
1006
1087
663
636
1225
1126
576
208
208
208
208
463
761
613
627
478
611
611
307
670
212
154
580
892
cquescence reates to ssues wth respect to oss sustaned by O. w. u. u. o. on e enange
n Seatte n 1925 amount of oss sustaned by O. . Raroad and Navgaton Co. n 1925 on sae of and
n Mutnomah County, Oreg. contrbutons to hospta departments n 1934. 1925, and 1926: amortzaton
of dscount on bonds ssued pror to March 1,1913, and commssons unrefundabc porton of depost made
wth pettoner n connecton wth constructon of branch no.
cquescence reates to donatons ssue amortzaton of dscount on bonds ssued pror to 1913 compu-
taton of ta for 1920.
) state ta decson.
Nonacquescence pubshed n Cumuatve uetn II-1, wthdrawn.
cquescence reates to ssue as to basc vaues of stock.
Nonacquescence pubshed n Cumuatve uetn I-2, revoked.
cquescence reates to nvenory ssue.
G
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2
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1
3
-
0
1
-
2
2

0
4
:
2
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0
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0
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8
8
9
3
3
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8
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25
cquescences Contnued.
Tapayer
Docket
No.
oard of Ta ppeas.
oume.
Wams, a
Wams, L.
Wams, W. W
Wamson, e ander _
Wamson, rchbad (Lord orres).
Ws, Mary
Wson Co., Inc., of Caforna.
Wson Co., Lee
Wson Commsson Co
Wson urs, Inc
Wson, George S., estate of 1
Wson Shpbudng Co.
Wnne, Water G
Wndow, Mary N
Wrof, . C
Wood, red T
Wood Lumber Co., .
Woodard, ohn S.1
Woodward, rthur P
Wray, za
Wrght, George M
Wrght, Leonard Marsha
y.
Yazoo Msssspp aey fty. Co.
Young, the P
Yukon aska Trust
Znsser Co.
Z.
29273
58789
46062
40231
43972
40229
43973
66718
20768
33826
20767
57058
50828
34337
60900
76059
56439
38808
23605
24156
71962
54741
60227
25881
25854
45508
62023
62991
38868
34161
5242
25
31
24
25
25
30
31
33
24
25
24
29
30
25
27
33
32
27
25
30
32
24
22
20
30
34
24
26
21
1 state ta decson.
1 cquescence does not reate to ssue 5 of decson.
cquescence reates to reorganzaton ssue.
The Commssoner has wthdrawn hs acquescence n the foowng
decsons of the Unted States oard of Ta ppeas:
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Mchenny et a., rances Pumer, e ecutors
Mchenny, ohn D., estate of
M t-f , CO I/O
Wade, eptha ., estate of 1
et a., eptha ., e ecutors
45008
45008
43164
43164
22
22
21
21
state ta decson acquescence pubshed In Cumuatve uetn -2.
84326
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2
0
1
3
-
0
1
-
2
2

0
4
:
2
0

G
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2
0
2
7
/

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3
0
0
0
0
0
8
8
9
3
3
6
8
8
P
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#
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26
The Commssoner does NOT acquesce n the foowng decsons
of the Unted States oard of Ta ppeas:
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
beson Reaty Co., Inc.
boson s, Inc
ckerman, Irvng C.
ameda Park Co
bers, Wam .
brecht et a., aterne ., e ecutrces 2_
ker, era M. oher.
ed urrers Corporaton
mercan rck Te Corporaton.
mercan Centra Lfe Insurance Co.3_
mercan Gas ectrc Securtes Corporaton.
mercan Idea Ceanng Co.
mercan Raways Co
mercan Refrgerator Transt Co.
mercan Seatng Co.4
mes, Mure Oakes
mes, r., Ward _
partment Corporaton
ppeby, rancs S
rabo Manufacturng Co.
rchbad, dward
rchbad, oseph
rchbad, r., oseph .
rmstrong, Wam M_
shton, Ward
tas Lfe Insurance Co
uto Strop Safety Razor Co., Inc
.
abson, red
abson, Gustavus
abson, enry
anger, esse M., e ecutr .
anger, Water ., estate of5.
atmore Oho R. R. Co.
53792
53793
30311
31634
40948
40949
8355
74759
41295
36116
50059
29994
30133
31998
56024
63430
62004
49205
67062
64782
67602
72861
14670
71811
49817
42024
73089
50489
61660
65064
61661
65062
61073
65063
40419
39143
40544
40751
67199
57374
52224
52223
52222
32177
32177
37239
21
24
24
25
33
27
2. )
24
22
30
33
30
30
31
14
30
27
20
31
20
27
27
27
25
2o
29
28
27
27
27
23
23
30
reates to s3ue concernng oss on sae of stock of . Nash Co.
-on nonacquescence reates to State Inhertance ta ssue.
Nonac uescence reates to Issue whether certan funds denomnated Insured s persona beneft fund
were reserve funds requred by aw and Issue whether the pettoner s abty on outstandng unsur-
rendered unpad coupons consttutes a reservo fund requred by aw.
cquescence pubshed n Cumuatve uetn 1II-2 wthdrawn.
ksuto ta decson.
and trarturra enCe Teaes a6uuct bty as e pense for year 1920 of amount for mantenance of ways
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27
Nonacquescences Contnued.
Ta payer.
ank of Caforna, Natona ssocaton.
ankers Trust Co., trustee
artett, . emp
ashford, Raymond I.
ass, Yancs M
ate man, . L
av, Robert P...
ebb, Rchard ., estate of1
eebe, unus, trustee
eebe, Marcus, estate of
ehan, Thomas W...
efast Investment Co.2
e, rederc D., estate of
e Sons, Samue.
eresford, ven een do a Poer, estate of3.
erkeey a Schoo, Inc
ndey, Mary M., estate of
smarck Trbune Co
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
oehrnger, Rudoph 4
onwt, Pau
oston Safe Depost Trust Co. et a., e ecutors 1
owen, dwn L.5
owman- tmore otes Corporaton.
owman ote Corporaton.
Ltd.
rackman, . W
radbury, I. C
rskey Co
rtsh- mercan Tobacco Co.,
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
oard of Ta ppeas.
No.
oume.
Page.
55537
60699
30
556
32459
24
10
63632
28
285
71565
33
10
73626
30
4
47772
34
351
66014
28
1168
41295
27
1091
52707
26
190
52707
26
190
75428
32
1088
19128
17
213
69534
f 31
32
945
701
38056
1
41647
22
793
45616

67259
31
329
47415
31
1116
58871
28
113
59660
33
281
69803
29
1096
42313
63741

1192
55902
26
962
53422
26
732
52221
29
580
52220
29
580
43150
26
860
40446
25
941
49891
29
8
53661
33
507
49272
30
679
62985
33
208
41472
43629

1193
10651

24912
28971
1193
38006

45714
24
259
45780
23
1351
60899
29
987
41224
27
226
20353
27
77
20353
27
77
61229
31
269
68560
31
70
47677
26
901
33343
25
031
48136
26
931
47677
26
901
72713
31
927
I state ta decson nonacquescence reates to State nhertance ta ssue.
1 Nonacquescence n Issue as to whether pettoner s entted to deducton for amortzaton of the Lc3
tract warehouse for 1918.
state ta decson.
Nonacquescence reates to ssue nvovng reorganzaton.
3 whether gans on sae of stock of the Waterbury Chemca Co. were
1 by them.
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1
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0
0
8
8
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3
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8
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28
NoN cyu C NC s Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
31
927
25
780
25
780
32
1272
23
439
23
710
27
150
25
692
26
615
26
1401
10
1345
25
191
23
953
27
1078
32
1157
31
839
26
675
20
675
27
05
27
65
31
607
28
236
28
236
27
65
27
65
27
65
27
65
27
65
27
65
27
65
26
1401
25
499
25
757
33
588
27
1312
27
1312
32
720
rownng, S. P
uck, ohn ., estate of
uck et a., Mary M., e ecutors 1
uckhardt, ugust
uffao Unon Iron urnace Co.2.
uock, George 3
unge North mercan Gran Corporaton.
urdette, Cara
urey, anche ., e ecutr
urr, dward L
usche, . C. .
usness Rea state Trust of oston.
uter- etch Co
C.
Cadwaader, Mary een
Cadwaader, r., Rchard M.
Carey, Robert.
Carev bre Products Co.,
Carey Sat Co
Carro, .
Carro, Lena Carter
Carson state Co
merson.
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.-.
Centra Unted Natona ank
Champon, Davd .9
Champon, T. Perre
Chander, Constance
72714
32584
44153
44681
325S4
44153
446S4
76255
16075
10076
31209
47800
37321
44909
5S795
9147
10202
10755
33109
42684
50305
45109
45170
40327
71h00
54033
G0432
67415
30381
36382
51880
51881
47444
53489
45393
45392
51882
47009
51883
51884
51S85
47609
51SS0
58793
24837
31730
09212
71003
55509
03818
55508
07471
state ta decson nonacqueseenco reates to deducton of amount of a cam Ded aganst the estate
and aowed by probate court.
Nonac uescenco reates to ssue regardng deducton from gross ncome of fsca year ended pr 34
1919. of reserve for renng bast furnaces.
Nonacquescence reates to asue 1 of decson.
cquocence pubshed In Cumuatve uetn - wthdrawn.
N onac trewence rebto (o ssue ro urdng oard s |ursdcton of subsdares.
Nonacquesconco reates to ssue w hether redempton of stock was equvaent to ta abe dvdend.
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8
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29
Nonacqcebcences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Page.
Chander, arrson Gray
Chander, een
Chander, Maran Ots
Chander, Norman
Chander, Php
Chapman, C.
Charavay, Marus
Chemca Natona ank of New York.
Chenowth, . C
Chcago Dock Cana Co
Chcago North Western Ry. Co.1
Chdaw, arry
Chrstensen, Ises
Cark, Percy ...
Cark Thread Co.1 --
Ceand state Co., Inc., enry . .
Covs, C.
Coastwse Transportaton Corporaton
Cobegh, Margaret dwards, estate of
Cochrane, Davd .5
Coumba Pacfc Shppng Co
Coumbus rck Te Co.s
Commerca Garage Co
Commerca Investment Trust Corporaton 7.
Communty ond Mortgage Corporaton..
Communty Mausoeum Co.8
Communty Teephone Co
Communty Water Servce Co
Cone, dward
Conney, ames .8.
Conney, L. .
Connev, Mary . ..
Cook, zabeth .10.
Cook, Sam
67470
67475
67468
67473
67476
52496
70005
71592
45604
38349
48268
3G343
69782
72424
65177
38903
47974
33585
40890
51197
68433
39916
40765
60428
50968
42707
41646
43495
50051
43784
70384
77508
77560
58777
44081
45833
46267
51967
60586
66948
44083
45834
44082
38579
35014
32
32
32
32
32
28
29
30
26
32
22
29
33
SI
28
20
32
28
24
20
29
26
22
28
27
33
32
32
26
30
30
30
25
25
720
720
720
720
720
5:
1255
178
301
231
1407
1096
79
1082
1127
436
646
725
176
1167
964
794
793
143
480
19
164
164
1401
331
331
331
1351
92
Nonaequescence reates to foowng Issues: Undermantenance pro3t and oss on bonds retred
amortzaton of bond dscount.
Nonaequescence reates to s3ue respectng deprecaton.
1 Nonaequescence reates to bass for determnaton of gan or oss on the sae of prop rty devsed sub|ect
to a fe estate.
state ta decson.
1 cquescence pubshed n Cumuatve uetn II-1 revoked.
Nonaequescence reates to ncuson In consodated nvested capta of capta stock ssued for prom-
ssory notes.
Nonaequescence reates to deducton n 1920 of e cess of market vaue over sae pres of stock sod to
empoyees.
Nonaequescence reates to Issue whether the fna nstament on the sae prce of mausoeum crypts
to be retaned by a trustee as a perpetua rare fund shoud be e cuded from the fu contract prce n com-
putng proft, the ta payer reportng on the accrua nstament bass.
Nonaequescence reates to Issue nvovng the amounts pad to stockhoders by . O. Curts Leather
Co. upon canceaton of certan stock.
Nonaequescence reates to vaue of common stock of mercan Chan Co., Inc., and the bass of ao-
caton of cost between sad common stock and preferred stock of sad company acqured at the same tme
and under the same agreement.
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1
3
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1
-
2
2

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2
7
/

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.
3
0
0
0
0
0
8
8
9
3
3
6
8
8
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30
Nonacquebcences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Page.
Cooper, . T. 1
Cosmopotan ond Mortgage Co.2__
Coughn, R. Lawrence and veyn W.
Courser, Sarah . W.s
Cre, Grace Mc de
Crspn, Mrs. gerton
Crosby, Oscar T
Cross, Maurce
Cunard Coa Co. .
Cuppa, erome C
Curee, Sheby ., trustee.
Cza|ke, I. T., transferee
D.
Davdson, Watson P.
Davs, C. R.5
Davs, rederck II
Davs, Thomas L
Degener, ohn ., estate of 0
Dcgener, r., et a., ohn ., e ecutors .
De Lsser, orace, estate of 7
de Me, Cec .s.
de Me Productons, Inc., Cec .
de Me Productons, Inc., Wam C.
Dennett, Mare G.
Denny, Regnad 10
Depcw, Ganson.
Des Mones Improvement Co. 1
Dohrmann, ndrew . C
Doomte, Ino
Donner, Carro
Donner et a., Carro ., e ecutors.
Donner et a., Carro ., guardans.
Donncr, oseph W
Donner, r., oseph W
Dort, . Daas, estate of
Dougass, oward W., estate of
Drawoh, Inc
3144
44617
76106
71755
43136
45267
51317
32735
2G874
2C875
28792
58545
48833
64639
464SG
10299
32950
37324
37395
38500
38500
2459
52995
61291
65122
71951
52996
61290
65123
53108
61321
72023
49516
50800
8573
20058
23969
60661
60237
60236
60235
60236
60235
44735
40031
45014
7
30
32
33
26
28
27
24
26
26
28
33
27
10
20
24
2 1
20
20
2
31
31
30
30
33
27
7
10
19
28
32
32
32
32
32
26
30
2S
798
717
1048
1068
1020
236
1234
1079
234
1401
773
564
158
1233
931
405
405
185
185
102
1161
1161
826
49
738
515
279
507
466
1270
364
364
364
364
364
1321
1143
666
cquescence pubshed n Cumuatve uetn II-1 wthdrawn.
Nonacquoscence reates to ssue nvovng commssons charged on rea estate oans.
Nonacquescence reates to the foowng ssue: Computaton of ta abe proft to pettoner from sa
of and by the trust durng 1930 on the bass of the vaue of sad and as of March 1, 1913.
Nonacquescence reates to e pendtures for uuo equpment.
I cquescence pubshed n Cumuatve uetn - wthdrawn.
8 state ta decson.
state ta decson acquescence pubshed In Cumuatve uetn -2 recaed.
Nonacquescence does not reate to the case of Constance . de Me, Docket 71952, whch was dsposed
of by stpuaton.
Nonacquescence reates to deductbty of S10.000 because of the fad that a bond n whch pett Ter
had nvested became worthess n 1930, athough that fact was not ascertaned unt 1931.
Nonacquescence reates to deducton of amount e pended for denta brdge work and amount e pended
In keepng pettoner n frst-cass physca condton.
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1
3
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1
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2
2

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4
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8
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31
Nonacqt|escences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Drunheer, George
Duff, Robert C. 1
Dunham et a., Lucy ee, e ecutors 1
Dunham, Mary rgna, estate of1
Dye, Carke
.
ast Coast O Co., S.
dson Securtes Corporaton
dward Securtes Corporaton
fert, ar C
drdge, ce .
drdge, . S.
kns, ae D.4..-
kns, Wam L., estate of
y, zabeth Tayor
mery, Mary M., estate of4
qutabe Lfe ssurance Socety of the Unted
States.
qutabe Trust Co., of New York, ancary admn-
strator
rb et a., Ray L., e ecutors 4
the D. Co
usts, ugustus .
venng Star Newspaper Co
verhart, ames Wam
.
armount Cemetery ssocaton
armers Cotton O Co
armers Lfe Insurance Co.7
awsett, Chares
edman, enry 0
erree, C.
dety Coumba Trust Co., trustee
dety Unon Trust Co. et a., e ecutors 1
ed, Marsha
fth venue ank of New York, e ecutor
fth Street udng
rst Natona ank n St. Lous 9
41515
45752
37552
46603
46603
74911
58180
52662
71208
45781
64779
64778
39255
56449
76546
40899
31110
33241
57867
67259
29260
32032
71637
ts70
66855
26675
30925
42811
42679
43317
72057
45359
61542
65041
65042
72236
36908
69534
16627
29264
45537
44278
48078
27
23
26
26
33
31
29
30
23
30
30
24
28
33
2f
33
31
29
27
30
28
26
25
27
27
30
28
32
30
31
26
31
32
24
23
Nonacquescence reates to Issue 2 of decson.
state ta decson.
Nonacquescence reates to deducton of oss In transfer of securtes to a corporaton n whch pettoner
owned a the stock e cept quafyng shares.
1 cquescence pubshed n Cumuatve uetn I-2 revoked.
Nonacquescence reates to the foowng ssues: Reducton of cost bass (March 1,1913, vaue) of assets
sod by a partnershp In 1919 by deprecaton aowed n computng ncome for r-arod March 1, 1913, to
December 1,1915 computaton of 1919 partnershp proft on sae of assets by consderng as part of the sae
prce ta es of the partners pad n 1920 by the vendee.
cquescence pubshed n Cumuatve uetn III-2 wthdrawn.
Nonacquescence does not reate to ssue n connecton wth opton payment receved for purchase
of and.
1 cquescence notce pubshed n Cumuatve uetn -2 recaed.
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32
Nona cqt|escences C ontnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
rst Natona ank of oston, admnstrator .
rst Peopes Trust
sher sher, Inc
sher, Irvng, .
tzgerad, Thomas
etmunn, Wam M., estate of 2
etmann, r., et a., Wam M., e ecutors ..
emng, Wam
emng, Mrs. Wam.
etcher, Saathe R
utemann, C ,r . L., estate of1.
oger Co., .
ogcr state Co
orest Gen Creamery Co
oster, Carone ., estate of
oster et a., Chares . W., e ecutors .
oster, L. .
ounders ssocates
o , ontane 4
o Rver Paper Co
rankn Tte Trust Co.5_
ranks, ack M
uhnge. fred .s
uer, van T
urnture Corporaton of merca, Ltd_
Gae, my
Gambe Stockton Co.7
Garcn, dward
Gardner, Chares .
Garre, Dane T., estate of
Garvan, ohn oseph, estate of 1
Gary, rgna ., e ecutr 1
Gassncr, Lous
Genera Machnery Corporaton
Genera Outdoor dvertsng Co., Inc.10..
Genera Uttes Operatng Co
Gerard, re
44746
45403
60929
61622
62075
2S449
28449
61042
65676
01043
65677
33011
75516
22 212
30721
31200
35147
51833
6 72
46672
430S6
020 -1
7108-1
2087S
51947
60167
67S: ,|
536S5
61754
73759
72800
72801
61672
42707
21657
38575
31736
44746
40031
4017
70449
66511
52770
45221
25
612
26
551
32
211
30
433
29
1113
22
1291
22
1291
31
623
31
623
24
75
32
996
27
1
27
1
33
564
26
708
26
708
26
132
29
326
30
451
28
1183
32
26G
32
260
32
222
31
154
30
878
27
837
26
794
22
1027
25
1351
25
757
25
612
30
1143
4
1071
33
1215
32
1011
29
934
28
236
stats ta decson.
cquescence notce pub shed n Cumuatve uetn -2 recaed.
Nonacquescence reates to deductons n 1924 and 1925 on account of osses resutng from aeged saes
ot actes.
NTonacquescen o reates to ncuson n ncome of corporaton for years ended March 31, 1930, and
March 31, 1931, amounts representng renta of premses occuped by ts presdent.
s Nonacquescence reates to the queston whether rankn ond Mortgage Co. was entted to deduct
oatntnsskuu pad on the sae ot ts bonds nstead of proratng cost over the fe of the bonds.
Nonacquescence re at s to ssue whether redempton of shares of stock represents payment In parta
qudaton of a corporaton or a ta abe dvdend.
Nonacquescence reates to ncuson n consodated nvested capta of capta stock ssued for proms-
wy notes.
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 tho same agreement.
cquescence pubshed n Cumuatve uetn - wthdrawn.
Nonacqucscence n Issue Invovng counse fees pad n connecton wth tgaton.
-
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1
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-
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2

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8
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3
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33
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Gerach, Theodore R
Gerstc et aL, Mark L.1
Gessner, erman
Grard Trust Co. et a., admnstrators
Gaddng, Marv D., estate of
G. M. S. Co _
Goet|en Metson Co
Goforth, Mary ...
Goforth, R. S
Godberg, arry S
Godschmdt et a., Georgette, e ecutors 6_
Godschmdt, enry P., estate of
Goodan, May Chander
Graham, M.
Grant, een .
Great Southern Lfe Insurance Co. _
Great Western Power Co. of Caforna.
Green, .
Green, Robert D.7
Greeneaf Te te Corporaton
Gregory, veyn P
Grffs, Stanton 8
Grosvenor, Theodore P
Gutar Trust state
Guf Coast Irrgaton Co.
Guf, Mobe Northern R. R. Co.10,
ae, rnest _.
ae, R. W
ae, W. T
.
38042
41041
62854
77506
75624
31435
163S3
17875
52316
52316
5389
16138
16138
67472
38335
02029
65577
68324
56540
64064
71114
48617
74910
53647
46746
55299
38577
60381
35102
33694
40081
41343
248S7
42150
67105
67750
67751
27
33
32
32
27
21
26
32
32
4

14
32
26
21)
33
30
33
24
26
27
27
31
25
24
22
33
32
32
Nonacquescenee reates to the foowng queston: re pettoners entted to deduct on ther nd-
vdua returns the operatng and capta osses sustaned by rea estate syndcates of whch they were
members
nd 19 reated dockets.
state ta decson.
cquescence pubshed n Cumuatve uetn - wthdrawn.
state ta decson acquescence pubshed n Cumuatve uetn -2 recaed.
Nonacquescenee n foowng ssues:
Dd the ta payer reaze nterest accrued upon a oan where t forecosed ens on certan bonds pedged
as coatera
Dd ta payer reazo nterest as ta abe net ncome whero notes were e changed for new notes whch
ncuded nterest and the new notes were not pad durng the ta abe year
Where ta payer acqured the assets and busness of three other nsurance companes durng tho ta abe
year, was ncome reazed upon the coecton of nterest that was accrued but not pad as of date of pur-
chase
1 Nonacquescenee reates to transacton 5.
1 Nonacquescenee reates to vaue of common stock of mercan Chan Co., Inc., and the bass of ao-
caton of cost between sad common stock and preferred stock of sad company acqured at the same tmo
and under the same agreement.
Nonacquescenee reates to affaton ssue.
Nonacquescenee reates to ssues nvovng award of Interstate Commerce Commsson n 1920 for
transportaton of Unted States mas n 1910 and 1917 and deducton n 1926 for deprecaton on ways
and structures.
Nonacquescenee appes to the entro decson of the oard n so far as t s advorse to the Commssoner.
Parta acquescence pubshed n uetn I-28 revoked.
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1
3
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1
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2

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8
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34
Nonacqt|escences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
a, arry . R., estate of.
a, Martha M.
ancock, G. an
anson, Chares C
arbson, Raph W.1
arbson, Wam bert
ardwck, Mar|ory Tayor.
aran, George
arrs, en 2
arrs, Smon
arrson, ames M
arrson, .
art, ohn
artey, Cavour, e ecutor..
artey, G. G, estate of
auser, W.
awey Investment Co.
azetne Corporaton.
edrck, . T
cffefnger, rank T_
eer, . G
emph, Cfford
endrckson, oseph G., estate of
enn, . W
enrtze, .
enrtze, Ne
enrtze, T. R
enrtze, T. W
ermann, ohn C
ertensten, reda M
ertensten, rederck
ckman, oward C
eronymus, Car Rchard, estate of
ghands, vanston-Lnconwood Subdvson,
rst ddton, Trust No. 1546, et a
ghands, vanston-Lnconwood Subdvson,
Trust No. 1521, et a
ghwav Traer Co
gev Co., .
. D. ., estate of
et a., Pau ., e ecutors
nds, Water DeWtt, estate of 4
70004
71598
64501
36867
15398
54346
54347
76545
60500
10980
31632
66193
45361
52795
60115
42343
42343
43301
43302
45169
45170
42277
47011
51931
60313
3.3533
41 14
44852
53881
63407
69094
73479
406.34
38573
73029
37102
60609
60607
60608
60606
51959
5593S
55936
37369
48930
74464
74465
44568
51003
29399
29399
49860
29
1255
31
1013
25
607
23
590
26
896
26
896
33
249
30
804
10
1374
24
512
30
966
28
236
27
528
27
952
27
952
26
1178
23
953
32
4
24
444
32
1232
25
259
5
1351
32
449
20
1133
28
1172
28
1172
28
1172
28
1172
27
409
29
216
29
216
27
807
24
269
32
760
32
760
28
792
25
127
24
1144
24
1144
32
254
1 cquescence pubshed n Cumuatve uetn II I wthdrawn.
cquescence pubshed In Cumuatve uetn - wthdrawn.
Nonacquoscence reates to vaue of common stock of narcn Chan Co., Inc., and tho 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.
state ta decson.
G
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a
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1
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2

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8
8
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3
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6
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#
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35
Nonacquescenc:
-Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
tte, ohn
odges, gnes Wey, e ecutr ..
odges, W. L., estate of
odges, W. L., trustee
oge, rthur ., estate of
oge, anche C, e ecutr
oge et a., the ., e ecutors.
oge, ames D., estate of
odng Corporaton, O. P. P
omes akery Confectonery-
omes, Car
omes, . ., trustee
omes, Margaret
ome Tte Insurance Co
onnod, W. L
ousehod Products, Inc
ousmau, Carence
ousman, rederck
ouston aseba ssocaton.
ouston ros.1
ouston, George T.1.
ouston, orace .1
ouston, Php D.
uburd, Chares ., estate of
uburd, De orest, ndvduay and as e ecutor
and trustee
umme-Ross bre Corporaton
umphrey, Dudey T
unter, G. W., estate ofs
unter, r., Thomas .3
untngton, enry ., estate of4
utchson Coa Co
yde, ames
Inos Lfe Insurance Co
Impera evator Co
Impera Investment Co
Indanapos, Crawfordsvc Danve ectrc
Ry. Co
Indanapos Northwestern Tracton Co
Ingram, Thomas
Irvngton Investments Co
70820
3S336
38336
3S337
68435
CS435
58118
58119
5S118
58119
60674
/ 44943
52S61
51473
53395
44943
52861
48031
51570
53394
63737
55211
44809
58798
58774
439S5
430
12052
)4
)8
22009
22007
22028
f 43
1 45
12
f 13
220C
22028
59865
64376
33564
58490
45429
34939
65495
69952
67201
35688
29291
33859
33801
56943
77557
33
276
26
301
26
301
26
301
32
646
32
646
33
718
33
718
30
337
27
1229
27
6G0
27
1229
27
660
33
318
30
774
24
594
26
1401
26
1401
24
69
22
51
22
51
22
51
22
51
27
1123
27
1123
31
451
32
280
25
1078
33
941
28
289
24
973
31
256
30
1160
25
234
23
1281
24
197
24
197
32
1003
32
1165
1 Non acquescence reates to March 1, 1913, vaue, and to the b.ss for the deducton for depeton and
for the computaton of gan or oss upon subsequent sae of the tmber.
1 state ta decson.
1 Nonacquescence n ssue nvovng queston of.reazaton of ta abe proft on e change of cass
eommon stock for cass stock
4 Nonacquescence reates to ssue whether ta payer sustaned a net oss n any busness reguary carred
on n 1024 whch coud be carred forward and deducted from ta abe ncome n 1925.
G
e
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e
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a
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e
d

f
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g

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U
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)

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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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/

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3
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0
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0
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8
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9
3
3
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8
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#
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36
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume
Itcn scut Co
Ives, Chares
Ives Dary, Inc
Iwck, . W., transferee
.
ackson astern Ry. Co
ackson, Pau Wde, trust
ackson, Wernch Trust
amson Coa Coke Co
anotta, Stea S.
efferson Standard Lfe Insurance Co
ohnson, . M
ohnston, . arod, e ecutor
ohnston, . M., estate of
ohnston, ugh McUmey, ndvduay and as e
ecutor and trustee
ones, esse R
ones, Chester ddson
unge, Caus, transferee
.
ansas Cty Southern Ry. Co. and affated com-
panes
eener O Gass Co
eeys, dward L
choe, ohn
ehoe, Sarah
ey, rancs ., e ecutors
ey, Rose ., estate of
erbaugh, enry S
errgan, rthur L
ng, ohn M
rkpatrck, ohn L
tsemau, C. M., estate of
napp, tte .6
no , Seymour
och, arry
ountze, Chares T
ountze et a., Chares T., e ecutors.
ountze, Luther L., estate of
rause et a., rances ., e ecutors 5.
rug, George
ru, rancs 7
43C67
45104
51527
39873
C4653
38295
42149
74928
32307
31090
34088
51172
43149
61345
79029
79029
22028
58285
50206
C4637
25
29
23
33
22
33
24
24
28
25
32
33
33
27
27
31
33
22608
35527
35528
35529
22
949
35530
35531

60789
32
186
45360
28
236
64609
34
59
04609
34
59
70899
31
941
70899
31
941
68976
29
1014
58794
26
1401
41549
26
1158
67474
32
720
77812
33
494
2775
7
790
65203
33
972
55318
26
1025
37323
24
405
37535
24
405
37535
24
405
49860
32
254
46713
30
1375
16985
10
1096
Mnco reates to ssue nvovng deducton for deprecaton on ways and structures.
_ __t ta decson.
Nouacquesoence as to ssue regardng deducton for depeton.
Nonacquescenee reates to the foowng Issues: Deducton of amounts e pended to restore pettoner s
propery notwthstandng the fact that the Drector Genera of Raroads made payment to pettoner for
hs faure to mantan the property e cuson from gross ncome of ntercompany freght charges on
matera and suppes used n makng addtons and betterments to pettoner s property.
state a decson.
cquescence pubshed n Cumuatve uetn II-1 wthdrawn.
b pubshed u Cumuatve uetn - wthdrawn.
G
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n
e
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a
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d

f
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L

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37
NoN cqr SC N ces Con tnucd.
Ta payer.
Lafayette Lfe Insurance Co
Langford Investment Co., trustee.
Langford, r., et a., Perce P
Langworthy, Mar|ore C.1
Laube, ustus
Laun, fred
Laun, .
Lazarus 4 Co., . 4 R
Lceper, rank ., estate of --
Leeper, Pear
Leetona urnace Co
Lembcke, George
Leon Son, Inc., bert
Levne, vnan 1
Lberty Marne Insurance Co
Lebes Co.,
Lndennan, Wam S., e ecutor
Lttauer, ugene, estate of
Lttauer et a., Lucus N., e ecutors .
Lvngood, Chares ., e ecutor 4
Lovd, Water
Loffand, . M.
Loffand, T. S.
Lous, Cora
Lousve Trust Co. et a., trustees...
Lustg, Davd L., estate of
M.
Maernee, D. ...
Maorv, L. W., estate of
Maoy Co
Manchester Coa Co
Manhattan Lfe Insurance Co.
George D
Manus-Muer Co., Inc.
Margay O Corporaton. _
Markham Irrgaton Co.8.
Marvn, Water S.
Matagarda Cana Co.
Matheson, ugh M.
Docket
No.
41721
42603
57203
67203
71061
70007
71595
45347
45348
69481
69750
45266
45265
32272
75365
53410
7435
67263
28544
35038
58871
51858
51858
40 - 9
48120
13425
13426
49179
65010
70582
63553
33231
57900
33392
60827
54223
63370
59778
44S91
11311
38578
400S2
413 45
71353
43208
oard of Ta ppeas.
oume.
26
28
28
30
29
26
26
28
26
23
33
29
8
32
23
28
25
25
25
30
10
10
29
30
31
27
33
24
28
33
30
26
24
25
Mathews, Susan ., e ecutr
Nonacquescence reates to queston whether dstrbuton of stock had the effect of dstrbuton of a
ta abe dvdend.
cquescence pubshed In Cumuatve uetn - wthdrawn
state ta decson nonacquescence n respect to that part of decson whch hods that accrued nterest
pad on edera ncome tares for 1927 and 1928 from date of decedent s death to November 5, 1930, s a proper
aowabe admnstratve e pense.
cquescence pubshed n Cumuatve uetn I-2 revoked.
Nonacquescence reates to ssue Invovng the amounts pad to stockhoders by . O. Curts Leather
Co. upon canceaton of certan stock.
_ Nonacquescence reates to deprecaton aowabe under the Revenue ct of 1913 acquescence pub-
shed n Cumuatve uetn III-1 wthdrawn n so far as t appes to ths ssue.
state ta decson.
1 Nonacquescence reates to affaton ssue.
Nonacquescence reates to vaue of common stock of mccan Chan Co.. Inc.. and the bass of aoca-
ton of cost between sad common stock and preferred stoc . of sad company acqured at the same tme
and under tho same agreement.
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38
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Page.
Mathews, W. ., estate of
McCabc, en C
McCabe, George ., estate of
McCabe, ames
McCabc, ames Roscoe
McCabe, Mton Mathew
McCabc, Wam ohn
McCabc, r., Wam ohn
McCormck et a., Cyrus ., trustees.
McCrorv, Luke W., trustee
McCurdy, Wam ., estate of 1
McGrath, amoa W. and ntonette..
McGrath, Mare Louse
McGrath, Robert
Mcvano et a., Wam ., trustees._
Mc uney, Ida I
McLstcr, rank
McMan, Wam Northrup, estate of -
Merner, Deght Ward
Mcrrc, Irvng S
Metropotan ee Co.
Meyer, George L., transferee
Mover, Robert R
Mchgan Centra R. R. Co.1
Mgetta, O v,o-
Mes Reatv Co
Mer, bert
Ms, . . Goadby
Mnnesota Tea Co
Mssour State Lfe Insurance Co.5.
Mtche, Chares
Mtche, . .
Mtche, Oscar 11 _.
Mtche, Wam,
Mtten Management, Inc.
Mod|esk, Raph
Moore, ma
Moore read Co
Moore, dward W., estate of 7.
Moore, G.
Moore, ohn R
Moore, Louse C, e ecutr 7...
43208
69783
69779
69778
69781
09777
69780
69784
44139
32444
67081
65040
05042
65039
f 52931
57226
45823
4S5G2
45966
73406
70103
53936
69525
64054
44032
19930
30379
51394
45368
58797
54227
5S241
023S6
74720
05S34
41080
41S74
54673
58799
42494
53990
G1S01
49517
64790
68219
41645
58720
38351
04791
68218
58720
33
29
29
29
29
29
29
29
20
25
31
30
30
30
32
27
27
32
33
32
33
27
28
25
31
28
26
34
29
32
33
27
26
29
28
30
22
33
20
30
33
682
1096
1096
1096
1096
1096
1096
1096
1172
994
37 )
502
502
502
304
460
155
318
658
1151
687
564
44
437
243
443
230
1401
145
401
1093
806
101
1401
576
1051
1197
793
10S
301
1197
ICS
1 state ta decson.
1 state ta decson nonacnuescence as to queston of stus.
3 cquescence pubshed n Cumuatve ueL I -2 wthdrawn.
Nonacquesoence reates to foowng ssuer Whether ma pay receved n 1921 consttuted Income n
1620 renta nterest receved on competed addton and betterments n fna settement wth tho Drector
Oener..
1 Nonacquescenre reates to deducton for reserve set up to moet abty upon matured coupons ad|ust-
ment of ncome for renta of space occuped n homo offce budng and deprecaton upon such budng.
Nonacquesoence reates to ssue regardng deducton from ncome of sprnkng ta .
state ta decson nonacquesoence In the concusons on the thrd group of poed that the proceeds
thereof shoud be e cuded from the gross estate.
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39
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Page.
Morgante rush Co., Inc
Moro Reaty odng Corporaton.
Morrs, rthur
Morrss et a., ua L.
Morrss Reaty Co. Trust No. 1.
Morrss Reaty Co. Trust No. 2.
Morse, mma R., estate of 1
Moser, Caroyn L_
Mosser, Chares
Mott, Chares Stewart
Mueer, ar W
Murphv et a., red T., trustees
Murphy Persona Property Trust
Mutua Lfe Insurance Co. of New York.
Myrck, uan S
.
Nashve, Chattanooga St. Lous Ry.
Natona Casket Co., Inc.2
Natona Contractng Co.3
Natona Grange Mutua Labty Co..
Natona Land Constructon Co
Natona Outdoor dvertsng ureau, Ine.
Natona Ppe oundry Co.4
Nea et a., . enry, trustees
Ne, ames
Nems, rank aywood
Nems, Mrs. rank aywood
Netcher, Chares, estate of
Newberry Lumber Chemca Co
Newbury, Moe Netcher, trustee
Newport Co
New York Centra R. R. Co. .
New York Lfe Insurance Co
New York, Ontaro Western Ry. Co.
Nbey-Mmnaugh Lumber Co
Nchos Co Lumber Co
2C369
37406
44759
50490
6424G
41023
41024
45803
45864
41023
45803
41024
45864
44652
55937
55399
51585
57506
45352
43795
43795
9764
51526
63370
33799
50320
24520
73099
40126
65252
70999
32997
45403
9290
51887
51 SS
424, |o
68511
42435
35431
19932
34437
02040
38880
52(393
17527
23G01
21
25
23
23
23
27
29
27
30
2S
2. )
25
23
29
21
29
:
25
o2
19
2:1
s
27
27
:
33
31
24
28
24
30
2t
21
776
1135
241
1070
1076
1076
1070
216
51 :|
1040
230
72:
72
7-19
f 22
S50
139
107
( ,
502
1025
242
65 I
299
05
05
I
150
41
1240
437
1217
408
978
54
state ta decson.
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 to
qudaton of a subsdary company.
Nonacquescence reates to ssue 1 of decson and ssue re ardnc: deductbty of overhead costs n 1925.
cquescence pubshed n Cumuatve uetn I -2 revoked. Revocaton of pror acquescence and
present nonacquescence are du to the faure of the oard s docson to mt the word dstrbuted
to the cash dstrbutons made to the stockhoders.
cquescence pubshed n Cumuatve Ien -I wthdrawn.
8 Nonacquescence reates to foowng ssues: Whether ma pay receved n 1921 consttuted ncome In
1920 renta nterest receved on competed addton and bctermants n fn settement wth th Drector
Genera.
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40
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Nchoson, ames
Ncoa, .
Nesen Co., .
North mercan Investment Co.
Northern Coa Co.1
Northport Shores, Inc
Noyes, ansen 2
O.
Oakman et a., Mame R.
O Donne, Thomas
Ogden, ugh W
Od Coony Trust Co., trustee
Od Msson Portand Cement Co
Od Natona ank n vansve, e ecutor3.
Ongcr Mortuary ssocaton
Over, Ove ume
Omsted, George W.1
Omsted, Iva C.4.
Ostad, Oscar
Omaha Coca-Coa ottng Co.
O Rcar, . C.
Oregon Termnas Co
Oswego as Corporaton-
Owens, . T
Owens, Mrs. . T.
Owens, 0.0
Pacfc Coast scut Co. et a.6.
Pacfc Nash Motor Co
Pacfc Rock Grave Co
Pamer, radey W.
Parker, Cara ., e ecutr
Parker, George D., estate of .
Parker, erbert L., estate of
66966
57417
8899
30183
34945
64500
38574
42917
52987
62979
23943
74928
38853
07681
36502
65040
44090
45745
48121
54714
60746
44089
45746
48143
54713
60745
76683
52641
32335
68893
28301
32673
31352
63149
63150
31986
71588
45169
45170
28776
62652
58604
58604
53320
32
33
20
24
24
31
25
24
32
24
33
25
:
23
30
30
30
32
20
28
29
26
27
27
20
32
23
26
32
31
31
30
1 Nonncquescense reates to statute of mtatons ssue.
Nonacquescone reates to vaue of common stock of mercan Chan Co., Inc., and the bass of aoca-
ton of cost t etween sad common sock and preferred stock of sad company acqured at the same tme
and under the s|me agreement.
state ta decson.
NomcquteM-ew reates to ssue nvovng the amounts pad to stockhoders hy . G. Curts Leather
Co. upon cance.ton of certan stock.
NoDncque . onse reates to ssue regardng amount of oss sustaned by pettoner by roason of destruc-
ton by fro of hs resdence and furnture.
N onac ue conco wth respect to deducton of amounts e pended n connecton wth dssouton and
qudaton of eorponon.
Nonacqncscrncc n Uoard 3 decson hodng that the Superpower rghts were not dvdends.
Nonacque-swucc reates to ssue regardng e stence of Ooorge D. Parker Co. partnershp.
G
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41
Nonacquescenceb Contnued:
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Parker et a., my ng, trustees 1
Parrott, . .1
Peabody, Cornea aven, estate of 1
Peabody et a., Stephen, e ecutors 1
Pennsyvana Co. for Insurances on Lves
Grantng nnutes, e ecutor and trustee. -
and
Perkns et a., Thomas N.3.
Petauma fc Santa Rosa R. R. Co.4..
Pheps et a., Lus ames, e ecutors 5.
Phps, Wam S 1
Perce, dward
Pttsburgh Lake re R. R. Co. ...
Pans Reaty Co
Pant, enry radey.
Pettner, Maude rown,
P-M- Petroeum Co.7..
Portand urnture Manufacturng Co.
Post Shedon Corporaton
Prce, arry
Prester, . C
53320
30989
39647
39047
73029
57848
58305
58306
58443
58475
58770
58772
58904
58905
58906
58907
58917
58918
58925
13830
50336
24446
31769
58796
42764
48977
65492
67197
43889
48984
52C94
55659
60923
33345
f 50576
I 54779
61809
70307
56695
70008
596
55195
/ 70(
I 71,c
30
28
24
24
32
33
11
27
24
26
2S
31
30
25
631
24
360
30
878
28
26
29
1255
33
230
1 t2te ta decson.
Nonacqu cence reates to nterpretaton of artce 1567, Reguatons 45, as apped to e change of stock
of Pttsburgh Te as O Gas Co.
Nnnaequescenso reates to the foowng ssues:
Dd the statute of mtatons, at the tme of the mang of the defcency notces, bar assessment and
coecton of the defcences as to Thompson O Co., astern Carbon ack Co., . II. Davs, Lan .
Davs. Matda M. Davs, ton N. Davs, mma Luette Davs, e ecutr , u/w O. L. Davs, Lue Davs
and Davs ros. Co., where the ncome ta returns were fed wth a deputy coector
Dd the statute of mtatons, at the tme of the mang of the defcency notces, bar assessment and
coecton of the defcency as to Thompson O Co., where a consodated return was orgnay fed and the
Commssoner ater rued aganst consodaton
Is O. . M. Co. entted to a deducton greater than 14,179.70 as an addtona bonus to ts genera
manager
Ncrtacqnescence 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 II-2 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.
onacquescence reates to frst ssue of decson.
G
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1
3
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2

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42
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Proctor Shop, Inc.1
Prosperty Co., Inc.2
Prouty, Ove
Prudenta Insurance Co. of merca.
Pryor Lockhart Deveopment Co.
Purse, ames N
unn, Porte .
R.
Ranbow Gasone Corporaton.
Randoph, ranke Carter
Randoph, R. D
Randoph, rg P., trust
Ray O Co.s.
Raymond, oward T
Reaty ssocates, as syndcate manager 4
Reed, Latham R
Reese, ugusta ss
Rehtam, Inc
Revbne, phcus, estate of 5
Reybne, Martha ., e ecutr 6
Reynard Corporaton 6
Rchardson et a., orrest, e ecutors 5
Rchfed O Co ,
Rchmond, redercksburg Potomac R. R. Co.7_.
Rffe, enry 8
Rey, nna
Rey Stoker Corporaton
Rey, Thomas ., transferee
Ro Grande Land Cana Co
Ro Grande Reservor Dtch Co
Robbns, arwood
Roberts, G. P
Roberts, Water
Robertson, . G
Rockwood, George O
Rockwood, Wam M
58909
66268
45896
59468
57829
f 56641
608S4
I 67238
38872
45668
51326
54124
67156
65152
72365
51890
51SS9
48833
43123
45219
48015
01554
58544
27921
58800
70410
45016
60660
60660
673S6
70795
44652
42921
68876
3576
61066
365S4
64638
71350
71351
67076
68434
37534
49552
52370
72711
72712
30
27
30
33
26
27
31
31
27
27
28
28
26
17
26
30
L S
31
31
30
27
25
33
3
29
20
33
31
31
33
32
24
28
31
31
cquescence pubshed n Cumuatve uetn III-2, 33, revoked.
1 Nonacquescence reatos to overstatement of oss sustaned as a resut of qudaton of subsdary.
. Nonscquescence reates to ssue whether pettoner was ta abe for years 1925 to 1929, ncusve, as a
trust or as an assocaton.
cquescence pubshed n Cumuatve uetn -2 wthdrawn.
state ta decson.
f Nonacqucsccnee reates o ncuson n ncome of corporaton for years ended March 31, 1930, and
March 31, 1931, amounts representng renta of premses occuped by ts presdent.
7 Nonacquescence reates to ssue nvovng the queston. re payments made to hoders of guaranteed
stock desgnated n certfcates as dvdends deductbe as nterest
state ta decson acquescence pubshed n Cumuatve uetn -2 recaed.
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43
Nonacquescences Contnued.
Ta payer.
Ducket
No.
oard of Ta ppeas.
oume
24
936
31
994
32
1176
33
843
34
38
27
871
24
763
28
39
30
6G2
24
176
31
857
22
587
32
705
24
917
27
318
4
1109
8
979
24
1132
34
186
21
1291
26
86
32
675
30
1075
20
322
27
1224
30
679
33
903
24
307
25
396
28
289
29
25
1341
Rodeo- ae|o erry Co.1.
Rogcrs, May
Roande, Guano
Roosevet Son Investment und-
Rormer, Lous
Rosenbcora nance Corporaton
Ross, anche S.4
Ross, W ater L
Rosser, . M., e ecutor
Rosshe-m, Irvng D.
Roth, W. .7
S.
Sabatr., Rafae
St. Lous Southwestern Ry. Co.
St. Lous Unon Trust Co., e ecutor 8.
Saomon, Leon 7
San Caros Mng Co., Ltd.0 .
San acnto Lfe Insurance Co
Sand Sprngs Ry. Co
Sathcr Lease Thomas ather Co
Scatena, vra 10
Schoen, Lous
Schwartz- asser Improvement Co
Scott, Thomas ., estate of 11
Scove, Cnton ., estate of
Scrpps, Robert P
Seaconnet Coa Co.s-
Seatree, Wam rnest
Securty rst Natona ank of Los ngees ct a.,
e ecutors
Securty- Savngs Commerca ank
Sewyn ddy Co
36411
48528
45051
57479
67280
76190
58850
35778
40903
51171
73282
40765
57503
45005
50134
13319
277SS
33938
45900
3725
12231
30525
75348
32438
32430
31979
03020
50770
3GS7G
50330
49272
77110
1SCSU
22004
33040
45420
50523
21G12
1 onacquesconce reates to frst Issue of decson.
Nonacquescence as to s3uo regardng ta abty n 1323 of dvdends decared n stock n 1923, certf-
cates for whch were not devered unt 1023.
s NGnaoauescenco docs not reate to the oard s hodng that dstrbutons receved from oseph .
Rne Co. were not parta qudatng dvdends.
Gft ta decson.
1 state ta decson.
NonaC|Ue ence reates to .sue whether Commssoner .- entto to ncrcasod deSconcy as raded
by hs amended answer fed wth the oard.
: cquescence pubshed n Cumuatve uetn - wthdrawn.
state ta decson nonac uesccnce as to queston of stus.
cquescence as to ssue 2 and nonacquescence as to ssue 1 pubshed n Cumuatve uetn I-1
wthdrawn,
w Nonacquescence reates to dvdend ssue.
t state ta decson nonacqtesconce wth respect to tho trusts for the son and daughter,
n Nonacquescsmcs reates to statute of mtatons ssue.
u Nonaequescenco reates to ssue whether ta payer sustaned a net oss n any bune-s ro usry c.rred
on n 1924 whch coud be carred forw. .r nn 1 deducted fr|m tt bh ncome n 25.
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2

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44
Nonaoquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Shaffer, C. .1..
Shaffer, ohn C.
Sharp et a., dth uggard, e ecutors 2.
Sharp, Water P., estate of 2
Sheaffer Penn Co., W.
Shephord Syndcate
Shenkcr, Smon
Sbey et a., ohn R., e ecutors s.
Sbey, ufus ., estate of3
Sbe rbatt, Soomon
Skewes-Co , dth Page
Skff, rank .4
Sma s, Inc
Smathers, . ., estate ot 1
Smey, bert
Smey, rancs G
Smth, Mrs. Grant
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. et a.
Spang, Chafant Co.7
Spencer, George rnck, estate of .
Speyer, ames
Sprague, CO. M
Sprague Son Co., C. .8_
Sprng Cty oundry Co
Sredcs, Inc
Staney Co. of merca.
Stay ton, r., Wam
Stearns, Marsha, admnstrator
Steee, Wam, estate of
Stern et a., Samue . ., e ecutors .
29259
50086
5P511
48317
48317
36604
48332
51327
58801
24921
24921
46335
61G69
68335
51173
53791
29260
74424
74425
13300
43305
4330G
52132
52132
45694
36686
30898
f 21481
I 29951
137887-
37898
58790
72236
56435
65833
34946
21169
45015
31516
33142
40023
71867
48930
73347
2459
29
28
30
33
30
33
27
26
26
16
10
2S
29
28
24
29
33
3:
26
28
2S
30
26
26
27
31
31
30
33
24
1 5
2S
26
32
24
34
2
1 Nonacquesccnco reates to tho foowng ssues: Reducton of cost bass (March 1, 1913, vaue) of assets
sod by a partnershp In 1919 by deprecaton aowed n computng ncome for perod March 1, 1913, to
December 1, 1915 computaton of 1919 partnershp proft on sae of assets by consderng as part of the sao
prce ta es of the partners pad n 1020 by the vendee.
1 state ta decson.
cquescence pubshed n Cumuatve uetn III-2 wthdrawn.
Gft ta decson.
Nonacqucscence 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.
Nonacqucscence reates to Issues nvovng addtona compensaton, renta nterest on addtons and
betterments, and back rnf pay for use of propertes durng edera contro.
cquescence pubshed n Cumuatve uetn I -2 wthdrawn.
Nonacqucscence reates to statute of mtatons ssue.
state ta decson acquescence pubshed n Cumuatve uetn -2 recaed.
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1
3
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2

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8
8
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3
3
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45
NoN C T I SC NC Contnued.
Ta payer.
Stetson, oa, Wse
Stevens, yam
Stevens, Wam D
Stevenson Consodated O Co.1
Stewart, ohn
Stewart, Wam Rhneander, estate of 2
Stewart, r., et a., Wam Rneander, e ecu
tors 55
Stfe, rthur C
Stfe. dward W
Stfe, enrv G
Stne, Doe M
Stne, M. osephne
Stockhoms skda ank
Stone, . C, estate of
Stone, Mrs. . C, e ecutr
Stone et a., Irvng ., e ecutors and trustees4
Stone, Irvng I ee, estate of4..
fkraub, Teca M
Straus, aron
Straver, Water
Streefkerk, Mrs. S
Strong. arod C.5
Sturgcon-IIbbard Trust
Sturgeon et a., Ron S., trustees
Suvan, oseph
Suncrest Lurrbcr Co
Swart/, Inc., dward G
Swft. Mary Dodson, estate of
Swsky, Toby W
Swss O Corporaton
Taft, nna S., estate of
Taft, Robert ., e ecutor a
Tabot, rederck C, estate of
Tabot, . .T
Tabot et a., Susan D., e ecutors
Tabot, Wam ., estate of
Tavor. . Sedon, estate of
Tayor, r., et a., . Scdon, e ecutors _
Tayor, esse Carter
Tayor, udson L
41743
70006
71593
70009
71594
43416
57531
67776
67776
60738
60739
60740
62C94
62695
55755
38336
38336
43830
43830
55935
65091
4s.r. 4
45303
38576
37095
37095
56671
33244
36650
44909
42032
6077
61002
630SS
70098
77923
77923
20411
36191
20409
20409
64444
64414
51891
51892
oard of Ta ppeas.
oume.
Page.
26
390
27
173
29
1255
29
1255
23
610
29
809
31
201
31
201
29
1145
29
1145
29
1145
32
482
32
482
25
1328
26
301
26
301
26
1
26
1
29
216
27
1116
27
155
28
236
25
1351
25
368
25
368
33
629
25
37.5
25
1065
26
615
25
259
32
777
33
671
33
(171
27
829
23
702
27
S29
27
S29
27
220
27
220
27
65
27
65
- onacquewence reates to s3o regardng ncuson n Income for IU20 of 180,323.35 receved upon
e change by pettoner of 250,000 shres of Sunburst O Gas Co. stock wth that corporaton.
1 state tan decson nonacquesc nca reates to far market vaue of an undvded or fractona nterest
n certan rea property.
state tar decson nonacquecvnco reates to far market vaue of 3,03 ) shnres of stork of Rhneander
Rea state Co. as of September 4, W . cquescence as to ths ssue pubshed In uetn I -7 wth-
drawn.
state ta decson nonacquescence reates to ssu nvovng property transferred by trust agrooment.
Noaacf|uescence reates to vaue of common stock of mercan Cmn Co., Inc., and the basts of ao-
caton of cost between sad common stock and preferred stock of sad company acqured at the same tme
and under the same agreement.
state ta decson.
1 Nonacfuescence reates to deprecaton aowance In computng oss n sae of a boat.
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2

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46
Nonacquesoences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Ten yck, Peter G
Tennessee Consodated Coa Co.
Termna Raroad ssocaton of St. Lous.
Termna Reaty Corporaton.
Tere aute, Indanapos astern Tracton Co.
Terrc aute Tracton Lght Co
Terrv, nna Davs
Terry, r., . T
Te as Irrgaton Co.1
Te as Ppe Lne Co
Thatcher Son, ohn
The ub, Inc
Theman, Mrs. Leo
Thra, dna May
363 Le ngton venue Corporaton
Tde Water O Co
Totson Manufacturng Co
Tte Trust Co
Ttus, C. Dckson
Ttus, Inc., C. W
Todd, Ws
Toerton Warfed Co.2
Torrens, ames .z
Towers Suvan Manufacturng Co
Townsend, .
Townscnd, W. S
Transatantc Shppng Co., Inc
Traveers ank Trust Co
Traveers re Insurance Co.
Traveers Indemnty Co.
Tro|an O Co
Tumcy, W. W
Turney, Mrs. W. W ._
Tuth, r., orace S
Tutte, Car
Twn e O Syndcate.
Tyer ct a., Sdney ., trustees.
U.
Uhen, oseph
Umann, manue Soomon.
Umaun, r., oseph
6S197
33383
49832
53429
G3699
43766
50762
60596
71157
33858
33860
45446
65835
400S3
41346
59457
56888
65545
46298
65041
52449
55546
6tOS9
39936
44167
73785
20705
42268
37536
45320
53778
40503
73186
74541
61932
62834
71349
62833
7134S
57916
62832
71347
33757
65258
65257
52148
70558
45052
56449
51234
56470
56471
29
24
33
32
24
24
20
33
24
32
30
26
30
31
3 2
27
29
27
33
24
33
24
23
31
25
32
32
31
31
31
31
20
31
31
31
32
31
26
2S
30
30
30
Nonncquescencc reates to affaton ssue.
1 Nonacquescenee reates to ssus regardng deducton of oss sustaned by two affated companes
durng fscu year ended anuary 31, 1924, and the ta abe perod ebruary 1 to pr 25, 1924, n computng
the consodated net ncome far ta abe perod pr 25 to December 31, 1924, and the year 1925.
1 Nonacquescence reates to the trust and dvdend
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3
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47
NoN C tusc NC S Contnued.
Ta payer.
Dorkot
No.
oard of Ta ppeas.
oume.
Umann, Samue, estate of
Umann et a., Theresa, e ecutors
Unon Guardan Trust Co., admnstrator
Unon Guardan Trust Co., e ecutor 1
Unon Pacfc R. R. Co. .
Unon Pacfc R. R. Co. et a.3.
Unon Trust Co., trustee
Unted Natona Corporaton,
Unted O Co.
an Camp Packng Co., Inc
an Schack, George S., Superntendent of Insur-
ance of New York, qudator
an orst Co., C. _.
aughan, Wam W
oebe, acob, estate of
oebe. Water W., e ecutor1
ounteer State Lfe Isurar.ee Co
on Gunten, Chrstan W -
onnegut ardware Co
Waggoner, n._.
Waggoner, W. T_.
Waker, Tabot C.
Wa, rank .s._
Waters, ohn W.
Ward ct a., Dasy M
Wardman, arry I 2234S
56472
56472
75510
44735
51530
70183
70219
35639-
35640
35684
35085
40060
40061
C002
42917
67949
380S2
42922
51622
46131
67263
70360
67813
C009
6009
54170
0127
44910
3:5017
3351.0
20407
7359
/ 70010
I 71597
/62044
62019
Warner Coeres Co. of Deaware
atab Paper Co.
Waterbury, Charotte M.e.
Waterbury, Donad N.
34079
24773
280.82
38685
41733
46076
51387
73381
73380
30
30
32
20
32
20
24
33
25
20
32
30
31
7
7
27
28
2S
24
21
27
4
29
29
21
20
27
33
33
. tate t5s decson.
Nonacquescence reates to the ssues regardng cost of ntercompany transportaton of matera used
n constructon of capta assets s:e n 1925 of bock 394, Seatte Tde L.urts sae of and to ansas Cty
Termna Raway Co. ad|ustment for deprecaton sustaned pror to anuary , 1903, of equpment retred
In 1924.
Nonacquescence reates to 3suo rezardn renta nterest au ue concernng net oss of Los ngees
4 Sat Lake . R. Co. for perod anuary 1 to pr 30, 1921.
state ta decson.- acquescence pubshed n Cumuatve uetn -2 recaed.
1 cquescence pubshed n Cumuatve uetn - wthdrawn.
Nonacquc-scence reates to ssue whether gans on sae o m of the Waterbury Chemca Co. were
ta abe to pettoner or to trusts created by them.
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48
Nonacqt|escences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Waterbury, ugene W.1
Waterbury, Whtford N.1
Watson-Moore Co
Wayburn, Ned
Wes argo ank Unon Trust Co., admnstrator
Wes, ames
Wes, Thomas .2
West rgna-Pttsburgh Coa Co
Wheeer, Dwght C
Wheeer, P. L
Wheeng Mod oundry Co. (De.)
Whppe, rank
Whte, uet C
Whte Oak Transportaton Co.5
Whte, Rta M. oher
Whte, Sdney
Wco Sons, .
We, dwn
Wams et a., rank G., e ecutors
Wamson, Ruth Chander
Wson, ohn P
Wson, Luke ., estate of
Wson, Peter transferee
Wson Shpbudng Co.5
Wnston ros. Co
Wobber ros
Wobbers, Inc
Wopert, Urban
Wood, en yer
Wood urnture Co., .
Wood, r., . O
Wood, eremah
Wood, Stuart, estate of
Wood, Ws D
Woodard, ohn S.4
Woodward, George 7
Y.
Youngstown Sheet Tube Co
Z.
Zeger, bert W
Zeger, Cfford
Zmmerman and wfe, Cavn
Zobeen, George
Zobeen, Mrs. dward
Zukor, doph
73383
73382
62179
74348
20411
62948
78829
20337
25030
71338
69028
23410
57532
58775
18088
36112
58776
40619
54451
33564
67468
52931
57226
32444
64655
34337
59270
36875
36874
48563
65211
40565
65 32
74090
74688
75624
69844
71962
42279
f 28149
35511
46291
46292
71145
45352
45353
76120
33
33
30
32
27
29
34
24
32
32
27
29
26
24
25
26
2S
3
25
32
29
25
33
25
20
26
26
27
29
21
33
31
::
33
30
23
21
23
23
31
2S
2S
33
Nonacquescence reates to ssue whether pans on sae of stock of the Waterbury Chemca Co. were
ta abe to pettoner or to trusts created by them.
s Gft ta decson.
Nonacquescence reates to statute of mtntons ssue.
1 Nonacquescence reates to the trust and dvdend ssues.
1 Nonacquescence reates to ssue 5 of decson.
Nonacucscence reates to queston whether dstrbuton of stock had the effect of dstrbuton of a
ta abe dvdend.
cquescence pubshed n Cumuatve uetn -2 wthdrawn.
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INCOM T RULINGS. P RT I.
R NU CTS O 1936, 1935, ND 1934.
. R NU CT O 1936.
SU TITL C SUPPL M NT L PRO ISIONS.
S CTION 143. WIT OLDING O T
T SOURC .
( so Secton 144.) -26-8148
T. D.4649
Wthhodng of ncome ta under sectons 143 and 144 of the
Revenue ct of 1936.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
Coectors of Interna Revenue and Others Concerned:
Paragraph . The Revenue ct of 1036 (Pubc, No. 740, Seven-
ty-fourth Congress, second sesson, . R. 12395), was approved by
the Presdent, une 2 2,1936,9 p. n., eastern standard tme.
Paragraph . Secton 143 (Tte I Income Ta ) of the ct, re-
atng to wthhodng of ta at the source, provdes:
Sec. 143. Wthhodng or Ta at Source.
(a) Ta -fee covenant bonds.
(1) Requrtment of wthhodng. In any ease where bonds, mortgages, or
deeds of trust, or other smar obgatons of a corporaton, ssued before an-
nary 1, 1934, contan a contract or provson by whch the obgor agrees to
pay any porton of the ta mposed by ths tte upon the obgee, or to rem-
burse the obgee for any porton of the ta , or to pay the nterest wthout
deducton for any ta whch the obgor may be requred or permtted to pay
thereon, or to retan therefrom under any aw of the Unted States, the obgor
sha deduct and wthhod a ta equa to 2 per centum of the nterest upon
such bonds, mortgages, deeds of trust, or other obgatons, whether such n-
terest s payabe annuay or at shorter or onger perods, f payabe to an Ind-
vdua, a partnershp, or a foregn corporaton not engaged n trade or busness
wthn the Unted States and not havng any offce or pace of busness theren:
Provded, That f the abty assumed by the obgor does not e ceed 2 per
centum of the Interest, then the deducton and wthhodng sha be at the
foowng rates: ( ) 10 per centum In the case of a nonresdent aen ndvdua
(e cept that such rate sha be reduced, n the case of a resdent of a contguous
country, to such rate, not ess than 5 per centum, as may be provded by treaty
wth such country), or of any partnershp not engaged In 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, (15) n the case of such
a foregn corporaton, 15 per centum, and (C) 2 per centum n the case of other
Indvduas and partnershps: Provded further, That If the owners of such
obgatons are not known to the wthhodng agent the Commssoner may
(49)
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143.
50
authorze such deducton and wthhodng to be at the rate of 2 per centum,
or, f the abty assumed by the obgor does not e ceed 2 per centum of the
uterest, then at the rate of 10 per centum.
(2) eneft of credts aganst net ncome. Such deducton and wthhodng
sha not be requred n the case of a ctzen or resdent entted to receve such
nterest, f he fes wth the wthhodng agent on or before ebruary 1 a sgned
notce n wrtng camng the beneft of the credts provded n secton 25(b)
nor In the case of a nonresdent aen ndvdua f so provded for n regua-
tons prescrbed by the Commssoner under secton 215.
(3) Income of obgor and obgee. The obgor sha not be aowed a de-
ducton for the payment of the a mposed by ths tte, or any other ta pad
pursuant to the ta -free covenant cause, nor sha such ta be ncuded n
the gross ncome of the obgee.
(b) Nonresdent aens. persons, n whatever capacty actng, ncud-
ng essees or mortgagors of rea or persona property, fducares, empoyers,
and a offcers and empoyees of the Unted States, havng the contro,
recepr, custody, dsposa, or payment of nterest (e cept nterest on deposts
wth persons carryng on the bankng busness pad to persons not engaged
n busness n the Unted States and not havng an offce or pace of bus-
ness theren), dvdends, rent, saares, wages, premums, annutes, compensa-
tons, remuneratons, emouments, or other f ed or determnabe annua or
perodca gans, profts, and ncome (but ony to the e tent that any of the
above tems consttutes gross ncome from sources wthn the Unted States),
of any nonresdent 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,
sha (e cept n the cases provded for n subsecton (a) of ths secton and
e cept as otherwse provded n reguatons prescrbed by the Commssoner
under secton 215) deduct and wthhod from such annua or perodca gans,
profts, and ncome a ta equa to 10 per centum thereof, e cept that such
rate sha be reduced, n the case of a nonresdent aen ndvdua a resdent
of a contguous country, to such rate (not ess than 5 per centum) as may be
provded by treaty wth such country: Provded, That no such deducton or
wthhodng sha be requred In the case of dvdends pad by a foregn cor-
poraton uness (1) such corporaton s engaged n trade or busness wthn
the Unted States or has an offce or pace of busness theren, and (2) more
than 85 per centum of the gross Income of such corporaton for the 3-year
perod endng wth the cose of ts ta abe year precedng the decaraton
of such dvdends (or for such part of such perod ns the corporaton has been
In e stence) was derved from sources wthn the Unted States as deter-
mned under the provsons of secton 119: Provded farther, That the Com-
mssoner may authorze such ta to be deducted and wthhed from the
nterest upon any securtes the owners of whch are not known to the wth-
hodng agent. Under reguatons prescrbed by the Commssoner, wth the
approva of the Secretary, there may be e empted from such deducton and
wthhodng the compensaton for persona servces of nonresdent aen nd-
vduas who enter and eave the Unted States at frequent ntervas.
(c) Return and payment. very person requred to deduct and wthhod
any ta under ths secton sha make return thereof on or before March 15
of each year and sha on or before une 15, n eu of the tme prescrbed
n secton 56, pay the ta to the offca of the Unted States Government
authorzed to receve t. very such person s hereby made abe for such
ta and s hereby ndemnfed aganst the cams and demands of any person
for the amount of any payments made In accordance wth the provsons of ths
secton.
(d) Income of recpent. Income upon whch any ta s requred to be
wthhed at the source under ths secton sha be ncuded n the return of
the recpent of such ncome, but any amount of ta so wthhed sha be
credted aganst the amount of ncome ta as computed n such return.
(e) Ta pad by recpent. If any ta requred under ths secton to be
deducted and wthhod s pad by the recpent of the ncome, t sha not. be
re-coected from the wthhodng agent nor n cases n whch the ta s so
pad sha any penaty be mposed upon or coected from the recpent of the
ncome or the wthhodng agent for faure to return or pay the same, uness
such faure was frauduent and for the purpose of evadng payment.
(f) Refunds and credts. Where there has been an overpayment of ta
under ths secton any refund or credt made under the provsons of secton
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51
3.
322 sha be made to the wthhodng agent uness the amount of such ta
was actuay wthhed by the wthhodng agent.
(g) Wthhodng before enactment of act. Notwthstandng the pro-
vsons of subsectons (a) and (b), the deducton and wthhodng for any
perod pror to the tenth day after the date of the enactment of ths ct sha
be upon the tems of ncome and at the rates prescrbed n secton 14. (a)
and (b) of the Revenue ct of 1934, as amended, n eu of the tems and
rates prescrbed n such subsectons.
Paragraph C. Secton 144 (Tte I Income Ta ) of the ct, re-
atng to payment of corporaton ncome ta at the source, provdes:
Sec. 144. Payment of Corporaton Income Ta at Source.
(a) Genera rue. In the ease of foregn corporatons sub|ect to ta aton
under ths tte not engaged n trade or busness 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
ncome as s provded In secton 143 a ta equa to 15 per centum thereof,
e cept that n the case of dvdends the rate sha be 10 per centum, and
e cept that n the case of corporatons organzed under the aws of a con-
tguous country such rate of 10 per centum wth respect to dvdends sha be
reduced to such rate (not ess than 5 per centum) ns may be provded by
treaty wth such country and such ta sha be returned am pad n the same
manner and sub|ect to the same condtons as provded n that secton: Pro-
vded, 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.
(b) Wthhodng before enactment of ct. Notwthstandng the provsons
of subsecton (a), the deducton and wthhodng for any perod pror to the
tenth day after the date of the enactment of ths ct sha be upon the tems
of ncome and at the rates prescrbed n secton 144 of the Revenue ct of
1934. as amended, n eu of the tems and rates prescrbed n such subsecton.
Paragraph D. Secton 147(b) (Tte I Income Ta ) of the ct,
reatng to returns of nformaton at the source, provdes:
Sec. 147. Informaton at Source.

(b) Returns regardess of amount of payment. Such returns may be re-
qured, regardess of amounts, (1) In 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 ard dvdends from foregn corporatons by persons undertakng as a mat-
ter 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.
Paragraph . Secton 62 (Tte I Income Ta ) of the ct,
reatng to rues and reguatons, provdes:
Sec. 62. Rues and Reguatons.
The Commssoner, wth the approva of the Secretary, sha prescrbe am
pubsh a needfu rues and reguatons for the enforcement of ths tte.
Paragraph . Pursuant to the above-quoted provsons of the ct
the foowng reguatons are hereby prescrbed wth respect to
wthhodng of ta at the source:
rtce 1. Domestc, foregn, resdent, and nonresdent persons. or the pur-
pose of these reguatons, a domestc corporaton s one organzed or created
n the Unted States, ncudng ony the States, the Terrtores of aska and
awa, and the Dstrct of Coumba, or under the aw of the Unted States or
of any State or Terrtory, and a foregn corporaton s one whch s not domestc.
foregn corporaton engtged n trade or busness wthn the Unted States
or havng an offce or pace of busness theren s referred to n these regua-
tons 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
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143.
52
pace of busness theren s referred to n these reguatons as a resdent
partnershp, md a partnershp not engged n trade or busness wthn the
Unted States and not havng any offce or pace of busness theren, as a non-
resdent partnershp. s used n these reguatons the term nonresdent
aen ncudes a nonresdent aen ndvdua and a nonresdent aen fducary.
rt. 2. Wthhodng ta at source. (a) Wthhodng n genera. Wthhod-
ng of a ta of 10 per cent s requred n the ease of f ed or determnabe
annua or perodca ncome pad to a nonresdent aen or to a nonresdent
partnershp, composed n whoe or In part of nonresdent aen Indvduas,
e cept (1) ncome from sources wthout the Unted States, ncudng nterest
on deposts wth persons carryng on the bankng busness pad to persons not
engaged n busness In the Unted States and not havng any offce or pace
of busness theren, (2) nterest upon bonds or other obgatons of a corpora-
ton contanng a ta -free covenant and Issued before anuary 1, 1934, (3)
dvdends pad by a foregn corporaton uness (a) such corporaton Is engaged
In trade or busness wthn the Unted States or has an offce or pace of
busness theren, and (6) more than 85 per cent of the gross ncome of such
corporaton for the 3-year perod endng wth the cose of ts ta abe year
precedng the decaraton of such dvdends (or for such part of such perod
as the corporaton has been In e stence) was derved from sources wthn the
Unted States, as determned under the provsons of secton 119, (4) dvdends
dstrbuted by n corporaton organssed under the Chna Trade ct, 1922, to a
resdent of Chna, and (5) e cept that such rate of 10 per cent sha be reduced,
In the case of a resdent of a contguous country, to such rate, not ess than
5 per cent, ns may be provded by treaty wth such country.
ta of 10 per cent must be wthhed from nterest on bonds or securtes
not contanng a ta -free covenant, or contanng a ta -free covenant and ssued
on or after anuary 1, 1934, If the owner Is unknown to the wthhodng agent,
e cept where such Interest represents ncome from sources wthout the Unted
States.
or wthhodng n the case of ncome pad to nonresdent foregn corpora-
tons see artce 11.
Resdent or domestc fducares are requred to deduct the ncome ta at
the source from a f ed or determnabe annua or perodca gans, profts,
and ncome pad to nonresdent aen benefcares, to the e tent that such
tems consttute gross ncome from sources wthn the Unted States. Income
pad to a nonresdent aen fducary whch s otherwse sub|ect to the wth-
hodng provsons of the ct s not e empt from wthhodng by reason of
the fact that the benefcares of the ncome are ctzens or resdents of the
Unted States.
debtor corporaton havng an Issue of bonds or other smar obgatons
whch apponts a duy authorzed agent to act In Its behaf under the wth-
hodng provsons of the ct, s requred to fe notce of such appontment
wth the Commssoner of Interna Revenue, Sortng Secton, Washngton, D. C,
gvng the name and address of the agent.
If n connecton wth the sae of ts property, payment of the bonds or other
obgatons of a corporaton s 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.
or wthhodng n the case of dvdends dstrbuted by a corporaton organ-
zed under the Chna Trade ct, 1922, see artces 4 and 12.
(6) Ta -free covenant bonds ssued before anuary , 1984. The wthhod-
ng provsons of secton 143(a) are appcabe ony to bonds, mortgages, or
deeds of trust, or other smar obgatons of a corporaton whch were ssued
before anuary 1, 1934, and whch contan a ta -free covenant. or the pur-
pose of secton 143(a )1 bonds, mortgages or deeds of trust, or other smar
obgatons of a corporaton are Issued when devered. If a broker or other
person acts as seng agent of the obgor the obgaton s Issued when dev-
ered by the agent to the purchaser. If a broker or other person purchases
the obgaton outrght for the purpose of hodng or reseng t, the obgaton
s ssued when devered to such broker or other person. In order that the
date of ssue of bonds, mortgages, or deeds of trust, or other smar obga-
tons of corporatons, contanng a ta -free covenant may be ready deter-
mned by the owner, for the purpose of preparng the ownershp certfcates
requred under these reguatons the ssung or debtor corporaton sha Ind-
cate, by an approprate notaton, the date of ssue or use the phrase, Issued on
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53
143.
or after anuary 1, 1034, on each such obgaton or u a statement accompany-
ng the devery of such obgaton.
In cases where on or after anuary 1, 1934. the maturty date of bonds
or other obgatons of a corporaton s e tended, the bonds .sha be consd-
ered to have been ssued on or after anuary 1, 1034. The nterest on such
obgatons s not sub|ect to the wthhodng provsons of secton 143(a) but
fas wthn the cass of nterest descrbed n secton 143(b).
In the case of nterest upon bonds or other obgatons of a corporaton con-
tanng a ta -free covenant and ssued before anuary 1, 15)34, pad to an nd-
vdua, fducary or a partnershp, whether resdent or nonresdent, wthhodng
of a ta of 2 per cent s requred, e cept that f the abty assumed by the
obgor n connecton wth suc a covenant does not e ceed 2 per cent of the
nterest, wthhodng s requred at the rate of 10 per cent n the case of a
nonresdent aen, or a nonresdent partnershp composed n whoe or n purt
of nonresdent aen ndvduas, or f the owner s unknown to the wthhodng
agent. The rates of wthhodng appcabe to the nterest on bends or other
obgatons of a corporaton contanng a ta -free covenant, and ssued before
anuary 1, 1934, are appcabe to nterest on such obgatons ssued by a
domestc corporaton or a resdent foregn corporaton. owever, wthhodng
s hot requred n the case of nterest payments on such bonds or ob gatons
f snch nterest s not to be treated as ncome from sources wthn the Unted
States under secton 119(a)( ) of the ct, and the payments are mad to a
nonresdent aen or a partnershp composed n whoe of nonresdent aeos.
nonresdent foregn corporaton havng a fsca or payng agent n the Unted
States s requred to wthhod a ta of 2 per cent upon the nterest on ts ta -
free covenant bonds ssued before anuary 1, 1934, pad to a ctzen or resdent
of the Unted States, ndvdua or fducary, or a partnershp any member of
(rhch s a ctzen or resdent.
or wthhodng n the case of nterest upon bonds or other obgatons of a
corporaton contanng a ta -free covenant and ssued before anuary 1, 1934,
pad to nonresdent foregn corporatons see artce 11.
onds ssued under a trust deed contanng a ta -free covenant are treated
as f they contan such a covenant. If nether the bonds nor the trust deeds
gven by the obgor to secure them1 contan a ta -free covenant, suppementa
agreements e ecuted by the obgor corporaton and the trustee contanng a
ta -free covenant whch modfy the orgna trust deeds to that e tent are of
the tame effect from the date of ther proper e ecuton as f they had been
part of the orgna deeds of trust, and the bonds from such date are sub|ect
to the provsons of secton 143(a), provded approprate authorty e sts for
the modfcaton of the trust deeds n ths manner. The authorty must be
contaned In the orgna trust deeds or actuay secured from the bondhoders.
In the case of corporate bonds or other obgatons contanng a ta -free
covenant, ssued before anuary 1, 1934, the corporaton payng a edera ta ,
or any part of t, for some one ese pursuant to ts agreement s not entted to
deduct such payment from gross ncome on any ground nor sha the ta so
pad be ncuded n the gross ncome of the bondhoder. The amount of the
ta may nevertheess be camed by the bondhoder as a credt aganst the
tota amount of ncome ta due n accordance wth secton 143(d). Iu the case,
however, of corporate bonds or other obgatons contanng an approprate
ta -free covenant, the corporaton payng for some one ese, pursuant to ts
agreement, a State ta or any ta other than a edera ta may deduct such
payment as nterest pad on ndebtedness.
(c) Wthhodng under Revenue ct of 103, as amended. The wthhodng
provsons of secton 143 and secton 144 of the Revenue ct of 1930 (whch are
merey admnstratve provsons provdng for the coecton at the source of
the ta mposed under other sectons of the ct) do not appy for any perod
pror to the tenth day after the date of the enactment of that ct, that s,
for any perod pror to uy 2, 1930. or such pror perod wthhodng shaL
be upon the tems of ncome and at the rates provded by the Revenue ct
of 1934, as amended.
rt. 3. ed or determnabe, annua or perodca ncome Ony f ed or
determnabe annua or perodca ncome s sub|ect to wthhodng. The ct
specfcay ncudes In such ncome, nterest, dvdends, rent, saares, wages,
premums, annutes, compensaton, remuneratons and emouments. ut other
knds of ncome are Incuded, as, for Instance, royates.
Income s f ed when It s to be pad n amounts defntey predetermned.
Income Is determnabe whenever there Is a bass of cacuaton by whch the
amount to be pad may be ascertaned. The ncome need not be pad annuay
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143.1
54
f t s pud perodcay that s to say, from tme to tme, whether or not at
reguar ntervas. That the ength of tme durng whch the payments are to
be made may be ncreased or dmnshed n accordance wth some one s w or
wth the happenng of an event does not make the payments any the ess
determnabe or perodca. saesman workng by the month for a com-
msson on saes whch s pad or credted monthy receves determnabe
perodca ncome. The dstrbutabe share of the ncome of an estate or trust
from sources wthn the Unted States pad by a fducary to a nonresdent
aen benefcary consttutes f ed or determnabe annua or perodca ncome
wthn the meanng of secton 143(b). The Income derved from the sae n the
Unted States of property, whether rea or persona, s not f ed or determn-
abe annua or perodca ncome.
rt. 4. (a) empton from wthhodng. Wthhodng from nterest on
corporate bonds or other obgatons ssued pror to anuary 1, 1934, contanng
a ta -free covenant sha not be requred In the case of n ctzen or resdent f
he fes wth the wthhodng agent when presentng nterest coupons for pay-
ment, or not ater than ebruary 1 foowng the ta abe year, an ownershp
certfcate on orm 1000 statng that hs net Income does not e ceed hs persona
e empton and credt for dependents. To avod Inconvenence a resdent aen
shoud fe a certfcate of resdence on orm 1078 wth wthhodng agents,
who sha forward such certfcates to the Commssoner of Interna Revenue,
Sortng Secton, Washngton, D. C, wth a etter of transmtta.
The ncome of domestc corporatons and of resdent foregn corporatons a
free from wthhodng.
No wthhodng from dvdends pad by a corporaton organzed under the
Chna Trade ct, 1922, s requred uness the dvdends are treated as ncome
from sources wthn the Unted States under secton 119 of the ct and are
dstrbuted to
(1) nonresdent aen other than a resdent of Chna at the tme of such
dstrbuton
(2) nonresdent partnershp composed n whoe or n part of nonresdent
aens (other than a partnershp resdent n Chna) or
(3) nonresdent foregn corporaton (other than a corporaton resdent n
Chna).
The saary or other compensaton for persona servces of a nonresdent aen
Indvdua who enters and eaves the Unted States at frequent ntervas, sha
not be sub|ect to deducton and wthhodng of ncome ta at the source, pro-
vded he s a resdent of Canada or Me co. Such a nonresdent aen sha
fc on orm 1040 , wth the coector of Interna revenue for the dstrct n
whch he s empoyed, a true and accurate return of hs tota Income from a
sources wthn the Unted States, ncudng the compensaton for persona
servces rendered n the Unted States.
The foowng tems of f ed or determnabe annua or perodca Income from
sources wthn the Unted States receved by a ctzen of rance resdng n
rance, or a corporaton organzed under the aws of rance, are not sub|ect to
te wthhodng provsons of the Revenue ct of 1930, snce such ncome Is
e empt from edera ncome ta under the provsons of the conventon and
protoco between the Unted States and rance, sgned pr 27, 1932, and
effectve anuary 1, 1936 (C. . I -2, 535) :
(1) mounts pad as consderaton for the rght to use patents, secret proc-
esses and formuas, trade marks and other anaogous rghts
(2) Income receved as copyrght royates and
(3) Prvate pensons and fe annutes.
The tems of f ed and determnabe ncome enumerated above pad to ctzens
of rance resdng n rance and corporatons organzed under the aws of
rance are not sub|ect to the wthhodng provsons of the Revenue ct of
1936. The person payng such Income shoud be notfed by etter from the
rench ctzen or corporaton, as the case may be, that the Income Is e empt
from ta aton under the provsons of the conventon and protoco referred to
above. Such etter from a ctzen of rance sha contan hs address and a
statement that he s a ctzen of rance resdng n rance. The etter from
such corporaton sha contan the address of ts offce or pace of busness and
a statement that t s a corporaton organzed under the aws of the Repubc
of rance, and sha be sgned by an offcer of the corporaton gvng hs offca
tte. The etter of notfcaton or a copy thereof shoud be Immedatey for-
warded by the recpent to the Commssoner of Interna Revenue, Sortng
Secton, Washngton, D. C.
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143.
(6) Dscontnuance of e empton certfcates. nonresdent aen Indvdua
not engaged n trade or busness wthn the Unted States am not havng an
offce or pace of busness theren s sub|ect to the ta mposed by secton
211(a) of the ct on gross ncome and s not entted to any persona e emp-
ton or credt for dependents. though a nonresdent aen ndvdua who s
encashed n trade or busness wthn the Unted States or has an ofce or pace
of busness theren Is entted to the persona e empton of 1,000 (and a credt
for dependents f he s a resdent of Canada or Me co), he s sub|ect to the
norma ta and the surta nwsed by sectons 11 and 12 of the ct y reason
of the provsons of secton 211(b) and the benet of the rsona e empton
and credt for dependents may not be receved by tng a cam therefor wth
the wthhodng agent. ccordngy, the use of e empton certfcates by non-
resdent aen ndvduas as provded for n pror reguatons s hereby ds-
contnued. or reef from wthhodng wth res|wet to compensaton for per-
sona servces n the case of nonresdent aens, resdents of Canada or Me co,
who enter and eave the Unted States at frequent ntervas, see artce 4(a).
rt. 5. Ocnershp certfcates for bond nterest. In accordance wth the pro-
vsons of secton 147(b), ctzens and resdent ndvduas and fducares, res-
dent 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 sca agent or a payng agent n the
Unted States, when presentng nterest coupons for payment sha e ownershp
certfcates for each ssue of such obgatons regardess of the amount of the
couk|us.
In the case of nterest payments on overdue coupon bonds, the nterest coupons
of whch have been e hausted, ownershp certfcates are requred to be fed
when coectng the nterest n the same manner as f nterest coupons were pre-
sented for coecton.
In a cases where the owner of bonds, mortgages, or deeds of trust, or other
smar obgatons of a corporaton s a nonresdent aen, a nonresdent partner-
shp composed n whoe or n part of nonresdent aens, a nonresdent foregn
corporaton, or where the owner s unknown, an ownershp certfcate for each
ssue of such obgatons sha be fed when nterest coupons for any amount are
presented for payment. The ownershp certfcate s requred whether or not the
obgaton contans a ta -free covenant. owever, ownershp certfcates need
not be fed by a nonresdent aen, a partnershp composed n whoe of nonres-
dent aens, or a nonresdent foregn corporaton n connecton wth nterest pay-
ments on such bonds, mortgages, or deeds of trust or other smar obgatons of
a domestc or resdent foregn corporaton quafyng under secton t)(a)( )
of the evenue ct of 1936, or of a nonresdent foregn cororaton.
The ownershp certfcate sha show the name and address of the debtor cor-
poraton, the name and address of the owner of the obgatons, a descrpton of
the obgatons, te amount of nterest and ts due date, the rate at whch tu s to
be wthhed, and the date upon whch the nterest coupons were presented for
payment
Ownershp certfcates need not be fed n the case of nterest payments on
obgatons of a State, Terrtory, or any potca subdvson thereof, or the Ds-
trct of Coumba or obgatons of a corporaton organzed under ct of Con-
gress, f such corporaton s an nstrumentaty of the Unted States or the ob-
gatons of the Unted States or ts possessons. (See secton 22(b)4 of the
ct.) Ownershp certfcates are not requred to be fed n connecton wth
nterest payments on bonds, nortgnres, or deeds of trust, or other smar obga-
tons Issued by an Indvdua or a partnershp. Ownershp certfcates are not
requred where the owner s a domestc corporaton, a resdent foregn corpo-
raton, or a foregn government.
When nterest coupons detached from corporate bonds are receved unaccom-
paned by ownershp certfcates, uness the owner of the bonds s known to the
frst bank to whch the coupons are presented for payment, and the bank s
satsfed that the owner s a person who s not requred to fe an ownershp
certfcate, the bank sha requre of the payee a statement showng the name
and address of the person from whom the coupons were receved by the payee,
and aegng that the owner of the bonds s unknown to the payee. Such state-
ment sha be forwarded to the Commssoner wth the monthy return on orm
1012. The bank sha aso requre the payee to prepare a certfcate on orm
1001, crossng out owner and nsertng payee and enterng the amount cf
the nterest on ne 3, and sha stamp or wrte across the face of the certfcate
Statement furnshed, addng the name of the bank.
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143.1
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Ownershp cerfcates are requred n connecton wth nterest payments on
regstered bonds as n the case of coupon bonds, e cept that f ownershp certf-
cates are not furnshed by the owner of such bonds, ownershp certfcates must
be prepared by the wthhodng ugent.
bt. 0. orm of certfcate for ctzens or resdents. or the purpose of
artce 5, orm 1000 sha be used n preparng ownershp certfcates of ctzens
or resdents of the Unted States (ndvdua or fducary), resdent partner-
shps, and nonresdent partnershps a of the members of whch are ctzens or
resdents. If the obgatons are ssued by a nonresdent foregn corporaton
havng a fsca or payng agent n the Unted States, orm 1000 shoud be mod-
fed to show the name and address of the fsca agent or the payng agent n
addton to the name and address of the debtor corporaton.
rt. 7. orm of certfcate for nonresdent aens, nonresdent foregn corpora-
ons, and unknown owners. or the purpose of artce 5, orm 1001 sha be
used n preparng ownershp certfcates (a) of nonresdent aens, (6) of non-
resdent partnershps composed n whoe or n part of nonresdent aens, (c)
of nonresdent foregn corporatons, and (d) where the owner s unknown.
or the purpose of ths artce and artces 5, 6, and 9, e stng ownershp
certfcate forms, propery modfed, may be used pendng the ssuance of revsed
forms.
rt. 8. Return and payment of ta wthhed. very wthhodng agent sha
make on or before March 15 an annua return on orn 1013 of the ta wthhed
from Interest on corporate bonds or other obgatons. Ths return shoud
be fed wth the coector for the dstrct In whch the wthhodng agent Is
ocated. The wthhodng agent sha aso make a monthy return on orm
1012 on or before the 20th day of the month foowng that for whch the
return s made. The ownershp certfcates, orms 1000 and 1001, must be
forwarded to the Commssoner wth the monthy return. Such of the forms
as report nterest from whch the ta s to be wthhed shoud be sted on the
monthy return. Whe the forms reportng nterest from whch no ta s to
be wthhed need not be sted on the return, the number of such forms sub-
mtted shoud ba entered n the space provded. If orm 1000 s modfed to
show the name and address of a fsca or payng agent n the Unted States
(see artce 6), orms 1012 and 1013 shoud be kewse modfed.
very person requred to deduct and wthhod any ta from ncome other
than such bond nterest sha make an annua return thereof to the coector
on or before March 15 on orm 1042, showng the amount of ta requred to
be- wthhed for eac nonresdent aen, nonresdent partnershp composed n
whoe or n part of nonresdent aens, or nonresdent foregn corporaton to
whch ncome other than bond nterest was pad durng the prevous ta abe
year. orm 1042 shoud be fed wth the coector for the dstrct In whch
the wthhodng agent s ocated. In every case of both casses the ta wth-
hed must be pad on or before une 15 of each year to the coector. or
penates and addtons to the ta attachng upon faure to make such returns
or such payment, see sectons 145 and 291 of the ct.
If a debtor corporaton has desgnated a bank to act for It as wthhodng
agent, and the bank has not coected any ta from the bondhoders nor receved
any funds from the debtor corporaton to pay the ta whch the debtor cor-
poraton assumed n connecton wth Its ta -free covenant bonds, the bank
can not be hed abe for the ta merey by reason of Its appontment as wth-
hodng agent. If a duy authorzed wthhodng agent has become Insovent
or for any other reason fas to make payment to the coector of nterna
revenue of money deposted wth t by the debtor corporaton to pay ta es,
cr money wthhed from bondhoders, the debtor corporaton s not dscharged
of Its abty under secton 143(a), snce the wthhodng agent Is merey
the agent of the debtor corporaton.
rt. 9. Ownershp certfcates n the case of fducares and |ont owners.
If fducares have the contro and custody of more than one estate or trust,
and such estntos and trusts have as assets bonds of corporatons and other
securtes, a certo|te of ownershp sha be e ecuted for each estate or trust,
regardess of the fact that the bonds are of the same ssue. The ownershp
certfcate shoud show the name of the estate or trust, n addton to the
name and address of the fducary. If bonds are owned |onty by two or
more persons, n separate ownershp certfcate must be e ecuted In behaf of
each of the owners.
rt. 10. Return of ncome from whch ta was wthhed. The entre amount
of the ncome from whch the ta was wthhed sha be ncuded n gross In-
come n the return made by the recpent of the Income wthout deducton for
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57
143.
guch payment of the ta . ut any ta so wthhed sha be credted aganst
the tota Income ta as computed n the ta payer s return. If the ta s pad
by the recpent of the ncome or by the wthhodng agent t sha not be re-
coected from the other, regardess of the orgna abty therefor, and n
such event no penaty w be asserted aganst ether person for faure to re-
turn or pay the ta where no fraud or purpose to evade payment s Invoved.
bt. 11. Wthhodng n the case of nonresdent foregn corporatons. ta
of 15 per cent s requred to be wthhed n the case of f ed or determnabe
annua or perodca ncome pad to a nonresdent foregn corporaton e cept
(1) ncome from sources wthout the Unted States, ncudng nterest on de-
posts by persons carryng on the bankng busness pad to persons not engaged
In busness n the Unted States and not havng any offce or pace of busness
theren, (2) nterest upon bonds or other obgatons of a corporaton contan-
ng a ta -free covenant and ssued before anuary 1, 1934, where the abty
assumed by the obgor does not e ceed 2 per cent of the nterest, and (3)
dvdends-
Wthhodng of a ta at the rate of 2 per cent s requred n the case of nter-
rat payments made to a nonresdent foregn corporaton, representng ncome
from sources wthn the Unted States, pad upon corporate bonds or other
obgatons contanng a ta -free covenant, Issued before anuary 1, 1034, where
the abty assumed by the obgor e ceeds 2 per cent of the nterest.
- ta of 10 per cent s requred to be wthhed from ncome from sources
wthn the Unted States pad to a nonresdent foregn corporaton whch con-
ssts of dvdends (other than dvdends dstrbuted by a corporaton organzed
under the Chna Trade ct, 1922, to a resdent of Chna) e cept that such rate
of 10 per cent sha be reduced, n the case of corporatons organzed under
the aws of a contguous country, to such rate (not ess than 5 per cent) as may
be provded by treaty wth such country. Dvdends pad by a foregn corpo-
raton are not, however, sub|ect to wthhodng uness such corporaton s en-
gaged n trade or busness wthn the Unted States or has an offce or pace
of busness theren and more than 85 per cent of the gross ncome of such for-
egn corporaton for the 3-year perod endng wth the cose of ts ta abe year
precedng 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 ct.
or wthhodng n the case of dvdends dstrbuted by a corporaton organ-
zed under the Chna Trade ct, 1922, see artces 4 and 12.
kt. 12 Wthhodng by a Chna Trade ct corporaton. Dvdends ds-
trbuted by a corporaton organzed under the Chna Trade ct, 1922, whch
are treated as ncome from sources wthn the Unted States under the pro-
vsons of secton 119 of the ct are sub|ect to wthhodng at the rate of
10 per cent when pad to persons (other than resdents of Chna) who are (1)
nonresdent aens, (2) nonresdent partnershps composed In whoe or n part
of nonresdent aens, or (3) nonresdent foregn corporatons. The 10 per
cent rate of wthhodng specfed n ths artce wth respect to dvdends sha
be reduced n the case of sharehoders who are (a) nonresdent aens res-
dents of a contguous country or (6) nonresdent foregn corporatons organ-
zed under the aws of a contguous country, to such rate (not ess than 5
per cent), as may be provded by treaty wth such country.
kt. 13. ds to wthhodng agents n determnng abty for wthhodng
of ta . Snce no wthhodng of ta on bond Interest or other ncome s re-
qured n the case of a resdent foregn corporaton, the person payng such
ncome shoud be notfed by a etter from such corporaton that t s not
sub|ect to the wthhodng provsons of the ct. The etter from the corpora-
ton sha contan the address of ts offce or pace of busness In the Unted
States and be sgned by an offcer of the corporaton gvng hs offca tte.
Such etter of notfcaton, or copy thereof, shoud be Immedatey forwarded
by the recpent to the Commssoner of Interna Revenue, Sortng Secton,
Washngton, D. C.
though the burden of wthhodng ta from dvdends s paced upon the
payor corporaton, or any other person (Incudng a nomnee), havng the
contro, recept, custody, dsposa, or payment of dvdends, f such payor
corporaton or person has no other reason to beeve that the dvdends are
sub|ect to wthhodng, the foowng procedure n genera may be adopted:
(1) s to those stockhoders whose name and stye Indcate that they are
nonresdent aens, foregn partnershps, or foregn corporatons, the ta sha
84326 86 3
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02. 58
be wthhed In a cases If the address of any such stockhoder U wthout the
Unted States.
(2) If the address of such stockhoders Is In care of an Indvdua, a part-
nershp, or a corporaton wthn the Unted States, the ta sha kewse
be wthhed, but as to any stockhoder whose address Is wthn the Unted
States, the ta need not be wthhed.
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved une 25, 1936.
enry Morgenthat, r.,
Secretary of the Treasury.
( ed wth the Dvson of the edera Regster une 26, 1936, 12.39 p. m.)
S CTION 144. P YM NT O CORPOR TION
INCOM T T SOURC .
Secton 144.
revenue act of 1936.
Reguatons wth respect to wthhodng of ta at source. (See
T. D. 4649, page 49.)
. R NU CT O 1935.
TITL L INCOM ND C SS-PRO ITS T S.
S CTION 102. INCOM T S ON CORPOR TIONS.
Secton 102. -4-7919
I. T. 2952
R NU CT O 1935.
Procedure to be foowed by domestc corporatons n compyng
wth the provsons of secton 144 of the evenue ct of 1934, as
amended by secton 102 (f) and () of the Revenue ct of 1935,
reatng to the wthhodng of ncome ta at the source on dvdends
pad to foregn corporatons.
dvce s requested reatve to the procedure to be foowed by
domestc corporatons n compyng wth the provsons of secton 144
of the Revenue ct of 1934, as amended by secton 102 (f) and ()
of the Revenue ct of 1935, reatng to the wthhodng of ncome
ta at the source on 10 per cent of the dvdends pad to foregn
corporatons.
Under the provsons of secton 23 (p) of the Revenue ct of 1934,
corporatons are aowed as a deducton from gross ncome the
amount receved as dvdends from a domestc corporaton whch s
sub|ect to ncome ta . The deducton s not aowed, however, n
the case of dvdends receved from a corporaton organzed under
the Chna Trade ct of 1922, or a corporaton whch under secton
251 of the Revenue ct of 1934 s ta abe ony on ts gross ncome
from sources wthn the Unted States by reason of ts recevng a
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59
102.
arge percentage of ts gross ncome from sources wthn a possesson
of the Unted States.
Secton 23 (p) of the Revenue ct of 1934 was amended by sec-
ton 102(h) of the Revenue ct of 1935 to aow as a deducton ony
60 per cent of the amount of dvdends receved from a domestc
corporaton, eavng the baance (10 per cent) of the dvdend ta -
abe. Under the provsons of secton 144 of the Revenue ct of
1934, as amended by secton 102 (f) and () of the Revenue ct of
1935, ncome ta s requred to be wthhed at the source from 10
per cent of the dvdends pad by a domestc corporaton to foregn
corporatons not engaged n trade or busness wthn the
Unted States and not havng any offce or pace of busness
theren .
Under the above amendments to the Revenue ct of 1934, domestc
corporatons shoud deduct a ta of 15 per cent of the 10 per cent of
dvdends (not permtted as a deducton) on and after anuary 1,
1936, f pad by a domestc corporaton sub|ect to ta aton under
Tte I (Income Ta ) of the Revenue ct of 1935 to foregn corpora-
tons not engaged n trade or busness n the Unted States and not
havng an offce or pace of busness theren. The ureau has been
advsed that many of the arger corporatons are confronted wth an
admnstratve probem n compyng wth the foregong provsons
of aw. In order to dstngush between domestc and foregn cor-
poratons for the purpose of wthhodng the ta on the 10 per cent
of dvdends not aowabe as a deducton, the foowng procedure
has been suggested by wthhodng agents for determnng the for-
egn corporaton stockhoders from whch the ta sha be deducted :
L s to those stockhoders of record whose name and stye nd-
cate that they are foregn corporatons, the ta sha be deducted
n a cases f the address of such stockhoder s wthout the Unted
States.
2. If the address of such corporate stockhoder s n care of an
ndvdua or corporaton wthn the Unted States, the ta sha
kewse be deducted but as to those foregn corporatons whose
address on the stock books s wthn the Unted States, the ta sha
not be deducted.
It s further proposed that n cases where a ta has been wthhed
n payng a dvdend to a stockhoder who n wrtng states that the
stockhoder s not a foregn corporaton or that, f a foregn corpora-
ton, t s engaged n trade or busness wthn the Unted States or
has an offce or pace of busness theren, refunds w be made by
the dvdend dsbursng corporaton n reance upon such representa-
ton, uness such ta has been reported to the Government.
though the burden of wthhodng ta from dvdends, whch
are pad to a foregn corporaton not engaged n trade or busness
wthn the Unted States and not havng any offce or pace of bus-
ness theren, s paced upon the payor corporaton, t s concuded
that the procedure suggested, f the domestc corporaton has no
other reason to beeve that the dvdends are sub|ect to wthhodng,
w enabe t to compy wth the provsons of the ct. In so far as
the ureau s concerned, no reason s seen at the present tme why
the suggested procedure shoud not n genera be adopted by domestc
corporatons for the purpose of ascertanng whch dvdends pad to
foregn corporatons are sub|ect to wthhodng.
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102.
60
Secton 102. -21-8096
G. C. M. 16521
R NT CT O 193 .
Where stock of a domestc corporaton Is regstered n the names
of Dutch dmnstraton Offces, a ta at the rate of 15 per cent
shoud be wthhed from 10 per cent of the dvdends pad by the
domestc corporaton (whch are not aowabe as a deducton
under secton 23(p) of the Revenue ct of 1934, as amended by
secton 102(h) of the Revenue ct of 1936), uness dscosure on
orms 1087 s made by the Dutch dmnstraton Offces that the
stock regstered n ther names s actuay owned by nonresdent
aen ndvduas or other persons not sub|ect to the wthhodng
provsons reatng to such dvdends.
dvce s requested concernng the wthhodng of ncome ta by
domestc corporatons from dvdends payabe to Dutch dmnstra-
ton Offces, the atter beng foregn corporatons not engaged n trade
or busness wthn the Unted States and not havng any offce or
pace of busness theren.
Under the provsons of secton 144 of the Revenue ct of 1934,
as amended by secton 102 (f) and () of the Revenue ct of 1935,
domestc corporatons sub|ect to ta aton are requred to deduct a
ta of 15 per cent on 10 per cent of the dvdends (not permtted
as deductons) pad on and after anuary 1, 1936, to foregn cor-
poratons not engaged n trade or busness n the Unted States
and not havng any offce or pace of busness theren. rung on
ths sub|ect was contaned n I. T. 2952 page 58, ths uetn , In
that rung t s stated n part as foows:
It s further proposed that n cases where a ta has been wthhed n payng
a dvdend to a stockhoder who In wrtng states that the stockhoder s not
a foregn corporaton or that, f a foregn corporaton, t s engaged In trade
or busness wthn the Unted States or has an offce or pace of busness theren,
refunds w be made by the dvdend dsbursng corporaton n reance upon
such representaton, uness such ta has been reported to the Government.
It s ponted out n that rung that the burden of wthhodng of
ta s paced upon the payor corporaton and that no reason s seen
why the procedure suggested shoud not n genera be adopted by
domestc corporatons for the purpose of ascertanng whch dv-
dends pad to foregn corporatons are sub|ect to wthhodng. The
specfc case now referred to s that of the Dutch dmnstraton
Offces, whch buy arge bocks of stock ssued by domestc corpora-
tons and n turn ssue ther own bearer certfcates whch are sod
abroad. The Dutch dmnstraton Offces propose to notfy the
domestc corporatons to the effect that they have no knowedge of
any foregn corporatons ownng any of ther bearer certfcates, and
that f they earn of any foregn corporaton ownng the certfcates
at the tme the coupons are payabe they w deduct the ncome ta
and forward t to the domestc corporaton.
The queston of wthhodng ncome ta at the source from dv-
dends upon stock of domestc corporatons regstered n the name
of Dutch dmnstraton Offces s not new. Under secton 13(f)
of the Revenue ct of 1916, dvdends upon stock of domestc cor-
poratons were sub|ect to wthhodng. Under the provsons of
Treasury Decson 2382, promugated October 19, 1916, orm 1087
was drafted for use n dscosng the dentty of ownershp of stock
where the stock was regstered n a name other than that of the
actua owner. Under the provsons of Treasury Decson 2386, pro-
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61
mugated on the same date, t was stated that Dutch dmnstra-
ton Offces bear the reatonshp of agent wth respect to ther bearer
certfcate hoders. Provson was aso made n that Treasury dec-
son for the use of orm 1087 to dscose actua ownershp. Treas-
ury Decson 26G9 (modfyng Treasury Decson 2386) was pro-
mugated under date of March 9,1918, n whch t was stated that the
reatonshp of the Dutch dmnstraton Offces to ther varous
bearer certfcate hoders s that of fducary, and agan a provson
was made for the use of orm 1087 to dscose actua ownershp of
stock. Under the present reguatons the use of orm 1087 s pre-
scrbed n artce 147-8. In that artce t s stated that dvdends on
stock are prma face the ncome of the record owner of the stock
and provson s made for dscosure of the name and address of the
actua owner on orm 1087. It s further provded that uness such
dscosure s made the record owner w be hed abe for such
ta based upon such dvdends.
It s the opnon of ths offce that where stock of a domestc cor-
poraton s regstered n the names of Dutch dmnstraton Offces,
a ta at the rate of 15 per cent shoud be wthhed from 10 per cent
of the dvdends pad by the domestc corporaton (whch are not
aowabe as a deducton under the provsons of secton 23 (p) of
the Revenue ct of 1934, as amended Dy secton 102(h) of the Reve-
nue ct of 1935), uness dscosure s made by the Dutch dmns-
traton Offces that the stock regstered n ther names s actuay
owned by nonresdent aen ndvduas or other persons not sub|ect
to wthhodng provsons reatng to such dvdends.
s ndcated above, the reguatons provde that dscosure shoud
be made on orm 1087, prescrbed for use of the record owners of
stock of domestc or resdent corporatons. Such forms are evdence
whch may be reed upon by the domestc corporaton to |ustfy
ts faure to wthhod ncome ta from dvdends pad to foregn
corporatons. ttenton s nvted, however, to the fact that the burden
of wthhodng the ta from the dvdends s paced upon the payor
corporaton. If t does not wthhod the ta , orms 1087 and any other
evdence on whch t reed shoud be forwarded wth ts wthhodng
return, orm 1042, and w be consdered n connecton wth the audt
of ts return. In other words, the evdence upon whch the payor
corporaton reed w be sub|ect to fna approva by the Department.
erman Ophant,
Genera Counse for the Department of the Treasury.
-8-7970
T. D.4626
INCOM T .
Reguatons 86 amended to accord wth the Revenue ct of
1935 and other cts amendng the Income ta provsons of the
Revenue ct of 1934.
Treasubt Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . The Revenue ct of 1935, approved ugust 30,
1935 (Pubc, No. 407, Seventy-fourth Congress, frst sesson), n so
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far as t reates to edera ncome ta for the purposes of ths
Treasury decson, provdes:
Sec. 101. Subta es on ndvduas.
Secton 12(b) of the evenue ct of 1934 Is amended by strkng out a
after the bracket
6,080 upon surta net Incomes of 44,000 and upon surta net Incomes
In e cess of 44,000 and not In e cess of 50,000, 27 per centum n addton of
such e cess.
and nsertng In eu thereof the foowng:
7,700 upon surta net Incomes of 50,000 and upon surta net Incomes
n e cess of 50,000 and not n e cess of 56,000, 31 per centum In addton
of such e cess.
9,5(50 upon surta net ncomes of 56,000 and upon surta net ncomes
n e cess of 56,000 and not n e cess of 62,000, 35 per centum n addton
of such e cess.
11,660 upon surta net ncomes of 62,000 and upon surta net ncomes
n e cess of 62,000 and not n e cess of 6S,000, 39 per centum n addton
of such e cess.
14,000 upon surta net ncomes of 68,000 and upon surta net ncomes
n e cess of 68,000 and not n e cess of 74,000, 43 per centum n addton
of such e cess.
16,580 upon surta net ncomes of 74,000 and upon surta net ncomes
n e cess of 74,000 and not n e cess of 80,000, 47 per centum n addton
of such e cess.
19,400 upon surta net ncomes of 80,000 and upon surta net Incomes
In e cess of 80,000 and not n e cess of 90,000, 51 per centum n addton
of such e cess.
24,500 upon surta net ncomes of 90,000 and upon surta net ncomes
n e cess of 90,000 and not n e cess of 100,000, 55 per centum n addton
of such e cess.
30,000 upon surta net ncomes of 100,000 and upon surta net Incomes
n e cess of 100,000 and not n e cess of 150,000, 58 per centum n addton
of such e cess.
59,000 upon surta net ncomes of 150,000 and upon surta net ncomes
n e cess of 150,000 and not n e cess of 200,000, 60 per centum n addton
of such e cess.
89,000 upon surta net ncomes of 200,000 and upon surta net ncomes
n e cess of 200,000 and not n e cess of 250,000, 62 per centum n addton
of such e cess.
120,000 upon surta net ncomes of 250,000 and upon surta net ncomes
n e cess of 250,000 and not n e cess of 300,000, 64 per centum n addton
of sue e cess.
152,000 upon surta net ncomes of 300.000 and upon surta net ncomes
In e cess of 300,000 and not n e cess of 400,000, 66 per centum n addton
of such e cess.
218,000 upon surta net ncomes of 400.000 and upon surta net ncomes
n e cess of 400,000 and not n e cess of 500,000, 68 per centum n addton
of such e cess.
280,000 upon surta net ncomes of 500,000: and upon surta net ncomes
n e cess of 500,000 and not n e cess of 750,000, 70 per centum n addton
of such e cess.
461,000 upon surta net ncomes of 750,000 and upon surta net ncomes
n e cess of 750,000 and not n e cess of 1,000,000, 72 per centum n addton
of such e cess.
641,000 upon surta net ncomes of 1,000,000 and upon surta net ncomes
n e cess of 1,000,000 and not n e cess of 2,000,000, 73 per centum n addton
of such e cess.
1,371,000 upon surta net ncomes of 2,000,000 and upon surta net
ncomes n e cess of 2,000,000 and not n e cess of 5,000,000, 74 per centum n
addton of such e cess.
3,591,000 upon surta net ncomes of 5,000,000 and upon surta net
ncomes n e cess of 5,000,000, 75 per centum n addton of such e cess.
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Seo. 102. Income ta es on corporatons.
(a) Secton 13(a) of the Revenue ct of 1984 s amended to read as foows:
(a) Rate of ta . There sha be eved, coected, and pad for each ta abe
year upon the net ncome (n e cess of the credt aganst net ncome provded
In secton 26) of every corporaton, a ta as foows:
Upon net ncomes not In e cess of 2,000, 12 per centum.
250 upon net Incomes of 2,000 and upon net ncomes n e cess of 2,000
and not n e cess of 15,000, 13 per centum n addton of such e cess.
1,940 upon net ncomes of 15,000 and upon net ncomes n e cess of
15,000 and not n e cess of 40,000, 14 per centum n addton of such e cess.
5,440 upon net ncomes of 40,000 and upon net ncomes n e cess of
40,000, 15 per centum n addton of such e cess.
(b) Secton 141(c) of the Revenue ct of 1934 Is amended by strkng out
e cept that there sha be added to the rate of ta prescrbed by secton 13(a)
a rate of 2 per centum, but the ta at such ncreased rate sha be consdered
as mposed by secton 13(a) and by nsertng n eu thereof the foowng:
e cept that the rate of ta sha be 15 per centum, n eu of the rates pre-
scrbed by secton 13(a), but the ta at such rate of 15 per centum sha be
consdered as mposed by secton 13(a).
(c) Secton 23 of the Revenue ct of 1934 (reatng to deductons from gross
Income) Is amended by addng at the end thereof a new subsecton as foows:
(r) Chartabe and other contrbutons by corporatons. In the case of a
corporaton, contrbutons or gfts made wthn the ta abe year to or for the
use of a domestc corporaton, or domestc trust, or domestc communty chest,
fund, or foundaton, organzed and operated e cusvey for regous, char-
tabe, scentfc, terary, or educatona purposes or the preventon of cruey
to chdren (but n the case of contrbutons or gfts to a trust, chest,
fund, or foundaton, ony If such contrbutons or gfts are to be used wthn
the Unted States e cusvey for such purposes), no part of the net
earnngs of whch nures to the beneft of any prvate sharehoder or ndvdua,
and no substanta part of the actvtes of whch s carryng on propaganda,
or otherwse attemptng, to Infuence egsaton to an nmount whch does not
e ceed 5 per centum of the ta payer s net ncome as computed wthout the
beneft of ths subsecton. Such contrbutons or gfts sha be aowabe as
deductons ony f verfed under rues and reguatons prescrbed by the Com-
mssoner, wth the approva of the Secretary.
(d) Secton 204(c) of the Revenue ct of 1934 (reatng to deductons from
gross ncome by nsurance companes other than fe or mutua) Is amended by
addng at the end thereof a new paragraph as foows:
(10) Chartabe, and so forth, contrbutons, as provded n secton 23(r).
(e) Secton 232 of the Revenue ct of 1934 (reatng to deductons aowed
foregn corporatons) s amended by nsertng (a) In genera. before the
begnnng of the secton and by nsertng at the end thereof the foowng new
subsecton:
(b) Chartabe, and so forth, contrbutons. The so-caed chartabe
contrbuton deducton aowed by secton 23(r) sha be aowed whether or
not connected wth ncome from sources wthn the Unted States.
(f) Secton 144 of the Revenue ct of 1934 (reatng to payment of corpora-
ton ncome ta at source) s amended by nsertng after the words a ta
equa to 13 per centum the foowng: thereof wth respect to a payments
of ncome made before anuary 1, 1930, and equa to 15 per centum thereof
wth respect to a payments of ncome mode after December 31, 1935.
(g) Secton 143(a)(1) of the Revenue ct of 1934 (reatng to wthhodng
of nterest on ta -free covenant bonds) s amended by strkng out cause
( ) thereof and nsertng n eu thereof the foowng:
( ) n the case of such n foregn corporaton, 13 per centum wth respect
to a payments of nterest made before anuary 1, 1930, and 15 per centum
wth respect to a payments of nterest made after December 31, 1935. and.
(h) Secton 23(p) of the Revenue ct of 1934 (reatng to the deducton
of dvdends receved by corporatons) s amended by strkng out the words
the amount and nsertng n eu thereof the foowng: 00 per centum
of the amount.
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() Secton 144 of the Revenue ct of 1934 Is amended by strkng ont the
perod at the end thereof and nsertng a coon and the foowng: Provded
further, That n the case of the payment, after December 31, 1935, of dvdends
of the cass wth respect to whch a deducton s aowed by secton 23(p),
the deducton and wthhodng provded for n ts secton sha aso appy
to 10 per centum of the amount of the payment: Provded further, That the
Commssoner, under rues and reguatons prescrbed by hm wth the approva
of the Secretary, may authorze wthhodng under ths secton and secton
143(a)(1)( ), n cases where the ta payer has a ta abe year endng on
any other date than December 31, at the rate of 13 per centum (and, n
the case of payments of dvdends wth respect to whch wthhodng s re-
qured, may authorze such payments to be made wthout wthhodng) unt
the begnnng of the ta payer s frst ta abe year whch begns after December
81, 1935.
SCO. 103. INCOM T ON LOTS INSUR NC COMP NI S.
Sectons 201(b) (1) and (2) of the Revenue ct of 1934 are amended by
strkng out 13 per centum of and Insertng n eu thereof a ta at
the rates specfed n secton 13 upon.
Sec. 104. Income ta on nsurance companes other than fe oe mutua.
Sectons 204(a) (1) and (2) of the Revenue ct of 1934 are amended by
strkng out 13 per centum of and nsertng n eu thereof a ta at
the rates specfed n secton 13 upon.

Sec. 107. Ta abe tears to whch appcabe.
The amendments made by sectons 101, 102 (e cept subsectons (f), (g),
and () thereof), 103, and 104 sha appy ony n the case of ta abe years
begnnng after December 31, 1935.
Sec. 108. Credt aowed Chna Trade ct corporatons.
(a) Secton 261(a) of the Revenue ct of 1934 s amended to read aa
foows:
(a) owance of credt. or the purpose ony of the ta es Imposed
by secton 13 of ths ct and secton 108 of the Revenue ct of 1935 there
sha be aowed, In the case of a corporaton organzed under the Chna
Trade ct, 1922, n addton to the credt provded n secton 26, a credt
aganst the net ncome of an amount equa to the proporton of the net ncome
derved from sources wthn Chna (determned n a smar manner to that
provded n secton 119) whch the par vaue of the shares of stock of the
corporaton owned on the ast day of the ta abe year by (1) persons resdent
n Chna, the Unted States, or possessons of the Unted States, and (2)
ndvdua ctzens of the Unted States or Chna wherever resdent, bears
to the par vaue of the whoe number of shares of stock of the corporaton
outstandng on such date: Provded, That In no case sha the dmnuton,
by reason of such credt, of the ta mposed by such secton 13 (computed
wthout regard to ths secton) e ceed the amount of the speca dvdend
certfed under subsecton (b) of ths secton and n no case sha the
dmnuton, by reason of such credt, of the ta mposed by such secton
106 (computed wthout regard to ths secton) e ceed the amount by whch
such speca dvdend e ceeds the dmnuton permtted by ths secton n the
ta mposed by such secton 13.
(b) The amendment made by subsecton (a) sha appy, wth respect
to the ta mposed by secton 18 of the Revenue ct of 1934, ns amended,
ony n the case of ta abe years begnnng after December 31, 1935.
Seo. 109. Persona hodng companes.
(a) Secton 351(a) of the Revenue ct of 1934 s amended to read aa
foows:
(a) Imposton of ta . There sha be eved, coected, and pad, for
each ta abe year, upon the undstrbuted ad|usted net ncome of every per-
sona hodng company a surta equa to the sum of the foowng:
(1) 20 per centum of the amount thereof not n e cess of 2,000 pus
(2) 30 per centum of the amount thereof n e cess of 2,000 and not n
e cess of 100,000 pus
(8) 40 per centum of the amount thereof In e cess of 100,000 and not
n e cess of 500,000 pus
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(4) 50 per centum of the amount thereof In e cess of 500,000 and not
In e cess of 1,000,000 pus
(5) 60 per centum of the amount thereof In e cess of 1,000,000.
(b) Secton 351(b)(2)(C) of such ct Is amended by strkng out the
perod at the end thereof and Insertng n eu thereof a comma and the fo-
owng : and dstrbutons (not n compete or parta qudaton and not a
dvdend as defned In secton 115) made durng the ta abe year out of
earnngs or profts of such year.
(c) The amendments made by ths secton sha appy ony In the case of
ta abe years begnnng after December 81, 1035.
Sec. 110. Corporate qudatons.
(a) Secton 112(b) of the Revenue ct of 1034 s amended by addng after
paragraph (5) a new paragraph readng as foows:
(6) change n qudaton. No gan or oss sha be recognzed upon
the recept by a corporaton of property (other than money) dstrbuted n
compete qudaton of another corporaton, f the corporaton recevng such
property on such e change was on the date of the enactment of the Revenue
ct of 1035 and has contnued to be at a tmes unt the e change, n contro
of such other corporaton. s used n ths paragraph compete qudaton
Incudes any one of a seres of dstrbutons by a corporaton n compete
canceaton or redempton of a ts stock n accordance wth a pan of
qudaton under whch the transfer of the property under the qudaton s
to be competed wthn a tme specfed n the pan, not e ceedng fve years
from the cose of the ta abe year durng whch s made the frst of the seres
of dstrbutons under the pan. If such transfer of property s not competed
wthn the ta abe year the Commssoner may requre of the ta payer, as a
condton to the nonrecognton of gan under ths paragraph, such bond, or
waver of the statute of mtatons on assessment and coecton, or both, as
he may deem necessary to nsure the assessment and coecton of the ta
If the transfer of the property Is not competed n accordance wth the pan.
Ths paragraph sha not appy to any qudaton f any dstrbuton n pur-
suance thereof has been made before the date of the enactment of the
Revenue ct of 1035.
(b) Secton 112(c) (1) of the Revenue ct of 1934 s amended by strkng
out or (5) and Insertng n eu thereof (5), or (6).
(c) Secton 112(e) of the Revenue ct of 1934 s amended by strkng out
subsecton (b) (1) to (5) and nsertng n eu thereof subsecton (b) (1)
to (6).
(d) Secton 112(1) of the Revenue ct of 1934 s amended by strkng out
(4), or (5) and nsertng n eu thereof (4), (5), or (6), and by
strkng out (3) or (5) and Insertng n eu thereof (3), (5), or (6).
(e) The amendments made by ths secton sha appy ony n the case
of ta abe years begnnng after December 31, 1935.

Sec. 202. state ta auaton.
(a) Secton 302 of the Revenue ct of 1926, as amended, s amended by
addng a new subdvson as foows:
( ) If the e ecutor so eects upon hs return (f fed wthn the tme pre-
scrbed by aw or prescrbed by the Commssoner n pursuance of aw), the
vaue of the gross estate sha be determned by vaung a the property n-
cuded theren on the date of the decedent s death as of the date one year
after the decedent s death, e cept that (1) property ncuded n the gross estate
on the date of death and, wthn one year after the decedent s death, dstrbuted
by the e ecutor (or, n the case of property Incuded n the gross estate under
subdvson (c), (d), or (f) of ths secton, dstrbuted by the trustee under
the nstrument of transfer), or sod, e changed, or otherwse dsposed of, sha
be Incuded at Its vaue as of the tme of such dstrbuton, sae, e change, or
other dsposton, whchever frst occurs, nstead of ts vaue as of the date one
year after the decedent s death, and (2) any nterest or estate whch s affected
by mere apse of tme sha be ncuded at Its vaue as of the tme of death
(Instead of the ater date) wth ad|ustment for any dfference n ts vaue as
of the ater date not due to mere apse of tme. No deducton under ths tte
of any tem sha be aowed f aowance for such tem Is n effect gven by
the vauaton under ths subdvson. Wherever n any other subdvson or
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secton of ths tte or In Tte II of the Revenue ct of 1082, reference Is made
to the vaue of property at the tme of the decedent s death, such reference
sha be deemed to refer to the vaue of such property used In determnng
the vaue of the gross estate. In case of an eecton made by the e ecutor
under ths subdvson, then for the purposes of the deducton under secton
303(a)(3) or secton 303(b)(3), any bequest, egacy, devse, or transfer enu-
merated theren sha be vaued as of the date of decedent s death wth ad|ust-
ment for any dfference n vaue (not due to mere apse of tme or the occur-
rence or nonoccurrence of a contngency) of the property as of the date one
year after the decedent s death (substtutng the date of sae or e change In
the case of property sod or e changed durng such one-year perod).
(b) The amendment made by ths secton sha be effectve ony wth respect
to transfers of estates of decedents dyng after the date of the enactment of
ths ct

Sbo. 404. Interest on denquent ta es.
Notwthstandng any provson of aw to the contrary, nterest accrung dur-
ng any perod of tme after the date of the enactment of ths ct upon any
Interna-revenue ta (Incudng amounts assessed or coected as a part thereof)
or customs duty, not pad when due, sha be at the rate of 6 per centum per
annum.

Sec. 406. aure to fe beturns.
In the case of a faure to make and fe an Interna-revenue ta return re-
qured by aw, wthn the tme prescrbed by aw or prescrbed by the Comms-
soner n pursuance of aw, f the ast date so prescrbed for fng the return
Is after the date of the enactment of ths ct, f a 25 per centum addton to
the ta s prescrbed by e stng aw, then there sha be added to the ta , In
eu of such 25 per centum: 5 per centum If the faure Is for not more than
30 days, wth an addtona 5 per centum for each addtona 30 days or frac-
ton thereof durng whch faure contnues, not to e ceed 25 per centum In the
aggregate.

Seo. 503. ffectve date of ct.
cept as otherwse provded, ths ct sha take effect upon Its enactment
Pah. . The ct entted n ct to amend certan provsons re-
atng to pubcty of certan statements of ncome, approved pr
19, 1935 (Pubc, No. 40, Seventy-fourth Congress, frst sesson), pro-
vdes :
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) Income returns fed under ths tte for any ta abe year be-
gnnng after December 31, 1934 (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 nformaton may be furnshed to any offca, body, or commsson of
any potca subdvson of such State, awfuy charged wth the admnstra-
ton 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
ta 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
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102.
testfy In any udca or admnstratve proceedng to whch the State or
potca subdvson, or such State or oca offca, body, or commsson, as
such, s a party) any nformaton acqured by hm through an nspecton
permtted hm or another under ths subsecton 6ha he guty of a msdemeanor
and sha upon convcton be punshed by a fne of not more than 1,000, or
by Imprsonment for not more than one year, or both.
Pab. C. The ct entted n ct to e empt from ta aton offca
compensaton of certan foregn representatves and to provde for
the deductbty from ncome of certan dvdends on preferred
stock owned by the Unted States or nstrumentates thereof,
approved ugust 27,1935 (Pubc, No. 374, Seventy-fourth Congress,
frst sesson), provdes:
That secton 116 of the Revenue ct of 1934 reatng to e cusons from
gross Income s amended by addng at the end thereof a new subsecton readng
as foows:
(h) Compensaton of empoyees of foregn governments.- Wages, fees, or
saary of an empoyee of a foregn government (ncudng a consuar or other
offcer, or a nondpomatc representatve) receved as compensaton for offca
servces to such government
(1) If such empoyee s not a ctzen of the Unted States and
(2) If the servces are of a character smar to those performed by em-
poyees of the Government of the Unted States In foregn countres and
(3) If the foregn government whose empoyee s camng e empton
grants an equvaent e empton to empoyees of the Government of the Unted
States performng smar servces n such foregn country.
The Secretary of State sha certfy to the Secretary of the Treasury the
names of the foregn countres whch grant an equvaent e empton to the
empoyees of the Government of the Unted States performng servces n
such foregn countres, and the character of the servces performed by em-
poyees of the Government of the Unted States In foregn countres.
Sec. 2. The provsons of secton 1 sha be retroactvey apped n comput-
ng ncome under the provsons of the Revenue ct of 1934 and pror Revenue
cts, or any of such cts as amended, sub|ect to the statutor| perod of mta-
tons propery appcabe to such cts.
Sec. 3. Tte I of the Revenue ct of 1934, reatng to Income ta , s amended
by addng after secton 120 a new secton readng as foows:
Sec. 121. Deducton of dvdends pad on certan preferred stock of certan
corporatons. In computng the net Income, for any ta abe year begnnng after
December 31, 1934, of any natona bankng assocaton, or of any bank or
trust company organzed under the aws of nny State, Terrtory, possesson
of the Unted States, or the Cana Zone, or of any other bankng corpora-
ton engaged n the busness of ndustra bankng and under the supervson
of a State bankng department or of the Comptroer of the Currency, or of
any ncorporated domestc nsurance company, there sha be aowed as a
deducton from gross Income, n addton to deductons otherwse provded for
n ths tte, any dvdend (not ncudng any dstrbuton n qudaton) pad,
wthn such ta abe year, to the Unted States or to any Instrumentaty
thereof e empt from edera ncome ta es, on the preferred stock of the
corporaton owned by the Unted States or such nstrumentaty.
Par. D. In order to accord wth the above-mentoned cts, Regu-
atons 86 are amended as foows:
The frst paragraph of artce 1-1 s amended to read:
btce 1-1. Scope of reguatons. These reguatons dea wth the ta upon
Income mposed by Tte I and Tte I- of the Revenue ct of 1934, and by
such ttes as amended by (a) the Revenue ct of 1935, approved ugust 30,
1935, (6) the ct entted n ct to amend certan provsons reatng to
pubcty of certan statements of ncome, approved pr 19, 1935, and (c)
the ct entted n ct to e empt from ta aton offca compensaton of
certan foregn representatves and to provde for the deductbty from ncome
of certan dvdends on preferred stock owned by the Unted States or nstru-
mentates thereof, approved ugust 27, 1935.
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rtce 1-1 s further amended by addng at the end thereof a
new paragraph readng:
The references In these reguatons to the Revenue ct of 1934 and to ttes,
sectons, subsectons, or paragraphs thereof sha be consdered, wherever
consstent, as references aso to such ct, ttes, sectons, subsectons, or
paragraphs thereof as amended by the cts referred to In the frst paragraph
of ths artce.
The frst sentence of artce 11-1, reatng to norma ncome ta
on ndvduas, s amended to read:
Tte I of the Revenue ct of 1934, and Tte I of that ct, as amended,
whch In genera appy to ta abe years begnnng after December 81, 1933 (see
secton 1), and ta abe years begnnng after December 81, 1935, respectvey,
Impose an ncome ta on Indvduas, Incudng a norma ta (secton 11) and
a surta (secton 12).
rtce 12-2, reatng to computaton of surta , s amended to
read:
rt. 12-2. Computaton of surta . The tabe desgnated beow as Surta
Tabe No. 1 shows the surta due for ta abe years begnnng after December
31, 1933, but not after December 31, 1935, upon certan specfed amounts of
surta net ncome. The tabe desgnated beow as Surta Tabe No. 2 shows
the surta due for ta abe years begnnng after December 31, 1935, upon
certan specfed amounts of surta net Income. In each nstance the frst
fgure of the surta net ncome n the surta net-ncome coumn Is to be
e cuded and the second f|rure ncuded. The percentage gven opposte appes
to the e cess of ncome over the frst fgure n the surta net-Income coumn.
The ast coumn gves the tota surta on a surta net ncome equa to the
second fgure n the surta net-ncome coumn.
Surta Tabe No. 1.
(Ta abe years begnnng after December 31, 1933, but not after December 31, 1935.)
Surta net Income.
0 to 4,000
4,000 to 6,000.
6,000 to 8,000
8,000 to 10,000
10,000 to 12,000
12,000 to 14,000
14,000 to 16,000
16,000 to 18,000
18,000 to 20,000
20,000 to 22,000
22,000 to 26,000
26,000 to 832,000
32,000 to 38,000
38,000 to 44,000
44,000 to .-0,000
50,000 to 56,000
56,000 to 62,000
62,000 to 68,000
68,000 to 74,000
74,000 to 80,000
80,C00 to 90,000
90,000 to 100.000....
100,000 to 150.000..
150,000 to 200,000...
200,000 to 300,000. _.
300,000 to 400,000...
400,000 to 500,000...
500,000 to 750,000...
750,000 to 1,000,000.
1,000,000 up..
Per cent. Tota surta .
4
80
5
180
6
300
7
440
8
600
9
780
11
1,000
13
1, 260
15
1, 560
17
2, 240
19
3, 380
21
4, 640
24
6, 080
27
7, 700
30
9, 500
33
11,480
36
13, 640
39
15, 980
42
18, 500
45
23, 000
50
28, 000
52
54, 000
53
SO, 500
54
134, 500
55
189, 500
56
245, 500
57
388, 000
58
533, 000
59
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Surta Tabe No. 2.
(Ta abe years bernnng after December 31,1 5.)
Surta net Income.
0 to 4,000
4,000 to 6,000
0,000 to 8,000
8,000 to S10.000
10,000 to 812,000
12,000 to 14,000
14,000 to 16,000
16,000 to 18,000
18,000 to 20,000
20,000 to 822,000
22,000 to 26,000
26,000 to 32,000 -
32,000 to 38,000
38,000 to 44,000
44,000 to 850,000
50,000 to 56,000
56,000 to 62,000
62,000 to 68.000
68,000 to 74,000
74,000 to 80,000
80,000 to 90,000 -.
90,000 to 100,000
100,000 to 150,000
150,000 to 200,000
200,000 to S250.000
250,000 to 300,000
300,000 to 400,000
400,000 to 500.000
500,000 to 8750.000
750,000 to 1,000,000.-.
1,000,000 to 2,000,000.
2,000,000 to 5,000,000.
5,000,000 up
Per cent.
4
5
6
7
s
9
11
13
15
17
19
21
24
27
31
35
39
43
47
51
55
58
60
62
64
66
68
7(1
72
73
74
75
Tota surta .
80
180
300
4-40
600
780
1, 000
1, 200
1, 560
2, 240
3, 380
4, 640
6, 080
7, 700
9, 560
11, 660
14, 000
16, 580
19, 400
24, 500
30, 000
59, 000
89, 000
120, 000
152, 000
218, 000
286, 000
461, 000
641, 000
1, 371, 000
3, 591, 000
The surta for any amount of surta net Income not shown In the tabes
s computed by addng to the surta for the argest amount shown whch s
ess than the surta net ncome, the surta upon the e cess over that amount
at the rate ndcated n the tabes. ccordngy, the surta due for ta abe
years begnnng after December 31, 1933, but not after December 31, 1935, upon
a surta net ncome of 63,128 woud be 11,886.08, computed as foows:
Surta on 62,000 from Tabe No. 1 11, 480. 00
8urta on 1,128 at 36 per cent 406.08
Tota 11,880.08
The surta due for ta abe years begnnng after December 31, 1935, upon
a surta net ncome of 63,128 woud be 12,099.92, computed as foows:
Surta on 62,000 from Tabe No. 2 11, 660. 00
Surta on 1,128 at 39 per cent 439. 92
Tota 12, 099.92
The foowng s substtuted for the frst sentence of artce 13-1,
as amended by Treasury Decson 4585, approved September 9, 1935
(C. . I -2, 54), reatng to ta on corporatons, and the re-
mander of that artce s made the second paragraph thereof:
In genera, for ta abe years begnnng after December 81, 1933, but not
after December 31, 1935, the ct mposes an ncome ta on a corporatons
not e pressy e empt (see secton 101) at the rate of 13 per cent of the
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net ncome sub|ect to ta , and for ta abe years begnnng after December 31,
1935, an ncome ta at the rates specfed n secton 13(a) of the Revenue ct
of 1934, as amended by secton 102(a) of the Revenue ct of 1935. The
foowng tabe shows the ta due from corporatons n genera for ta abe
years begnnng after December 31, 1935, upon certan specfed amounts of
net Income. In each nstance the frst fgure of the net Income In the net-
ncome coumn s to be e cuded and the second fgure ncuded. The percentage
gven opposte appes to the e cess of Income over the frst fgure n the
net-ncome coumn. The ast coumn gves the tota ta on a net ncome
equa to the second fgure n the net-Income coumn.
Corporaton Income Ta Tabe.
(Ta abe years begnnng after December 31,1936.)
Net Income.
0 to 2,000
2,000 to 15,000.
15,000 to 40,000
40,000 up
Tota ta .
The ta for any amount of net ncome not shown In the tabe s computed
by addng to the ta for the argest amount shown whch s ess than the
net ncome, the ta upon the e cess over that amount at the rate ndcated
n the tabe. ccordngy, the ta due for ta abe years begnnng after
December 31, 1935, upon a net ncome of 20,000 woud be 2,640, computed
as foows:
Ta on 15,000 from tabe 1,940.00
Ta on 5,000 at 14 per cent 700.00
Tota 2,640.00
The foowng s substtuted for the ast sentence of the frst para-
graph of artce 23(o)-, as amended by Treasury Decson 4585,
approved September 9, 1935 (C. . I -2, 54), reatng to contrbu-
tons or gfts by ndvduas:
Ths artce does not appy to gfts by estates and trusts (see secton 102).
or contrbutons or gfts by corporatons see artce 23(r)-.
rtce 23(o)- s further amended by addng at the end thereof
a new paragraph readng as foows:
donaton made by an ndvdua to an organzaton other than one referred
to n secton 23(o) whch bears a drect reatonshp to hs busness and Is
made wth a reasonabe e pectaton of a fnanca return commensurate wth
the amount of the donaton may consttute an aowabe deducton as bus-
ness e pense.
rtce 23(o)-2 s revoked.
new artce s added after artce 23(q)-, desgnated rt.
23(r)-, as foows:
rt. 23(r)-. Contrbutons or gfts by corporatons. corporaton s
entted to deduct from gross ncome for a ta abe year begnnng after
December 31, 1935, contrbutons or gfts to organzatons referred to In sec-
ton 23 (r), whether or not such contrbutons or gfts consttute busness
e penses, but ony to the e tent provded n that secton.
Corporatons may deduct, for a ta abe year begnnng after December 31,
1935, to the e tent provded by secton 23(r), contrbutons or gfts to organ-
zatons referred to In that secton, ony for the ta abe year n whch they are
actuay pad, regardess of when pedged and regardess of whether the hooks
and records of the corporaton are kept on the cash recepts and dsbursements
bass or the accrua bass.
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The provsons of the frst paragraph of artce 23(o)-, as amended, reatng
to (1) the statement In returns of the name and address of each organzaton
to whch a contrbuton or gft was made and the appro mate datp and the
amount of the contrbuton or gft, (2) the substantaton of the cams for
deductons when requred by the Commssoner, and (3) the bass for cacu-
aton of the amount of a contrbuton or gft whch s other than money, are
equay appcabe to cams for deductons of contrbutons or gfts by cor-
poratons under secton 23(r).
Donatons to organzatons other than those referred to n secton 23 (r)
whch bear a drect reatonshp to the corporaton s busness and are made
wth a reasonabe e pectaton of a fnanca return commensurate wth the
amount of the donaton may consttute aowabe deductons as busness
e penses. or e ampe, a street raway corporaton may donate a sum of
money to an organzaton (of a cass not referred to n secton 23(r)) ntend-
ng to hod a conventon n the cty In whch It operates, wth the reasonabe
e pectaton that the hodng of such conventon w augment ts ncome
through a greater number of peope usng the cars. Sums of money e pended
for obbyng purposes, the promoton or defeat of egsaton, the e potaton
of propaganda, Incudng advertsng other than trade advertsng, and con-
trbutons for campagn e penses, are not deductbe from gross ncome.
The foowng s substtuted for artces 55(b)- to 55(b)-5, n-
cusve, reatng to pubcty of returns:
rt. 55(b)-. Defnton . ny word or term used n ths artce and art-
ces 55(b)-2 to 55(b)-4, Incusve, whch s denned n the Revenue ct of 1934,
or the Revenue ct of 1934 as amended, sha be gven the respectve defnton
contaned In that ct
rt. 55(b)-2. Copes of ncome return . very person (e cept nonresdent
aen Indvduas) requred to fe an ncome return (Incudng affaton sched-
ues) under the provsons of sectons 51, 52, 141, 142 or 187 of Tte I, secton
851 of Tte I- , or secton 702 of Tte of the Revenue ct of 1934, or any
such secton as amended, or under secton 106 of the Revenue ct of 1935, for
any ta abe year begnnng after December 31, 1934, sha fe wth the
return a copy thereof on a dupcate form on coored paper whch w be
provded for that purpose. The copy on such dupcate form sha be a com-
pete dupcate of the return as fed e cept that the affdavts on the dupcate
form need not be fed In. There sha be attached to the copy on the dup-
cate form a copy of any schedue or statement attached to the orgna return
e cept (1) Schedue C- In the case of a corporaton return, (2) the copy of
the w or trust Instrument n the case of a fducary return, (3) the power
of attorney on orm 035 or orm 936 n the case of a return made by an
agent, and (4) the copy of the annua statement made to the Insurance de-
partment of the State, Terrtory, or Dstrct of Coumba n the case of a
return of an nsurance company. In eu of fng n the dupcate form on
coored paper, a egbe photostat or photograph of the return and reated sched-
ues as fed may be fed wth the return provded such photostat or photo-
graph Is not of arger dmensons than the return and s securey fastened to
the dupcate form.
rt. 55(b)-3. Inspecton of copes of returns. Wthn a reasonabe tme after
the returns are fed the copes thereof (Incudng photostats and photographs),
under such procedure as may be prescrbed by the Commssoner, sha be made
avaabe for Inspecton n the offce of the coector of nterna revenue n whch
the returns are fed, by any offca, body, or commsson, awfuy charged
wth the admnstraton of any State ta aw, or by the representatves of such
offca, body, or commsson desgnated n wrtng by the governor of the
State, for the purpose of such admnstraton or for the purpose of obtanng
nformaton to be furnshed to oca ta ng authortes as provded In secton
55(b)(2) of the Revenue ct of 1934, as amended. The governors of the re-
spectve States sha be notfed by the Commssoner of the date the copes of
the returns are avaabe for Inspecton and Inspecton thereof shu not be
permtted after one year from such date.
rt. 55(b)-4. Request for permsson to nspect copes. Requests for per-
msson to nspect the copes of returns must be In wrtng sgned by the gov-
ernor under the sea of hs State, and must be addressed to the Commssoner
of Interna Revenue, Washngton, D. C, Records Dvson. The request must
state (a) the knd of returns It Is desred to nspect, (6) the ta abe year
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72
or years covered by the copes of returns It Is desred to Inspect, (o) the name
of the offca, body, or commsson by whom or whch the nspecton s to be
made, ( Z) the name of the representatve of such offca, body, or comms-
son, desgnated to make the nspecton, (e) by specfc references, the State ta
aw whch such offca, body, or commsson Is charged wth admnsterng
and the aw under whch he, she, or t s so charged, (f) the purpose for whch
the Inspecton s to be made, and (g) f the nspecton s for the purpose of ob-
tanng nformaton to be furnshed to oca ta ng authortes, (1) the name
of the offca, body, or commsson of any potca subdvson of the State,
awfuy charged wth the admnstraton of the ta aws of such potca sub-
dvson, If any, to whom or to whch the Informaton secured by the Inspec-
ton s to be furnshed, and (2) the purpose for whch the Informaton Is to
be used by such offca, body, or commsson.
s to nspecton and furnshng copes of returns under other pro-
vsons of aw see Treasury Decson 4504, approved December 29,
1934 (C. . I -1, 86).
The foowng new artces are added after artce 112(b) (5)-2:
et. 112(b) (6)-. change n qudaton of controed corporaton Defn-
ton of terms. Under the genera rue, upon the e change of property, gan
or oss must be recognzed f the new property dffers n a matera partcuar,
ether n knd or In e tent from the od property. See artce 111-1. The
purpose of the provsons of secton 112(b) (6) s to e cept from the genera
rue certan e changes ncdent to compete qudaton of a corporaton whch
s controed by another corporaton. The nonrecognton of gan or oss s
mted to the recept by a corporaton of property (other than money) dstrb-
uted durng a ta abe year of the recpent begnnng after December 31, 1935, n
compete qudaton of another corporaton, f the recpent corporaton s n
contro of such other corporaton. The ct e pressy requres that the recpent
corporaton must have been on ugust 30, 1935 (the date of the enactment of
the Revenue ct of 1935), and have contnued to be at a tmes unt the
e change, In contro of the qudatng corporaton. The ct aso e pressy
provdes that the provsons of secton 112(b) (6) sha not appy to any quda-
ton f any dstrbuton n pursuance thereof has been made before ugust 30,
1935. Secton 112() paces a mtaton on the appcaton of secton
112(b)(6) to foregn corporatons. See artce 112()-.
The appcaton of the term e change n qudaton Is strcty mted to
the specfc transactons descrbed n secton 112(b)(6).
The term compete qudaton means the dstrbuton of the propertes
of the controed corporaton In canceaton or redempton of a ts stock
n accordance wth a pan of qudaton. The term aso ncudes any one of
a seres of dstrbutons of property of the controed corporaton n compete
canceaton or redempton of a of Its stock In accordance wth a pan of
qudaton.
The term pan of qudaton means a pan (evdenced by wrtten memo-
randa) provdng for a compete qudaton wthn one ta abe year or wthn
a specfed tme not e ceedng the 5-year perod aowed by secton 112(b) (6).
The term contro s defned, for the purpose of secton 112(b)(6), n
secton 112(h). See artce 112(h)-.
et. 112(b) (6)-2. changes n qudaton for property and money. If In
an e change In qudaton In pursuance of a pan of compete qudaton, there
Is receved by the controng corporaton money (not permtted to be receved
wthout the recognton of gan) then
(1) s provded n secton 112(c)(1), the gan, If any, to the controng
corporaton w be recognzed n an amount not n e cess of the sum of money,
but
(2) No o 5s from such an e change w be recognzed (see secton 112(e)).
rt. 112(b) (6)-3. changes n qudaton as affectng mnorty nterests.
In nn e change In qudaton n pursuance of a pan of compete qudaton,
the gan or oss of mnorty sharehoders sha be determned wthout regard
to secton 112(b)(6), whch Is not appcabe thereto, snce that secton does
not appy to e changes In qudaton made by mnorty sharehoders.
et. 112(b) (6)-4. ng of bonds or wavers of statute of mtatons. ny
bond requred under secton 112(b)(6) sha have such surety or suretes as
the Commssoner may requre. owever, see secton 1126 of the Revenue ct
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of 1926 (paragraph 31 of the ppend to these reguatons), provdng that
where a bond Is requred by aw or reguatons, n eu of surety or suretes
there may be deposted bonds or notes of the Unted States. Ony surety com-
panes hodng certfcates of authorty from the Secretary of the Treasury
as acceptabe suretes on edera bonds w be approved as suretes. The bonds
sha be e ecuted In trpcate so that the Commssoner, the ta payer, and the
surety or depostary may each have a copy.
Wavers under secton 112(b) (6) of the statute of mtatons on assessment
or coecton, or both, sha be e ecuted on a form prescrbed by the Com-
mssoner.
bt. 112(b) (6)-5. Record to be kept and nformaton to be fed wth re-
turns. (a) Permanent records n substanta form sha be kept by every cor-
poraton whch Is a party to an e change n qudaton under secton 112(b) (6)
showng the Informaton requred by ths artce to be submtted wth the
return of the corporaton. The pan of qudaton must be adopted by each
of the corporatons partes thereto and the resouton of adopton sha appear
as part of the offca records of each such corporaton.
(0) The controng corporaton sha fe wth ts return for ts ta abe
year In whch the qudaton occurred, or, If the pan of qudaton provdes
for a seres of dstrbutons over a perod of more than one ta abe year, for
each ta abe year n whch a dstrbuton s made under the pan:
(1) duy certfed copy of the pan for compete qudaton.
(2) statement showng the amount of money, If any, and a propertes
receved as a dstrbuton In qudaton, and the far market vaues of such
propertes at the date of dstrbuton.
(3) statement as to ts ownershp of the votng stock and of the shares of
a other casses of stock of the qudatng corporaton (showng percentages)
as of ugust 30, 1935 (the date of the enactment of the Revenue ct of 1935),
and at a tmes snce, to and ncudng the date of the dstrbuton n quda-
ton, and the cost or other bass of such stock.
(c) The qudatng corporaton sha fe wth ts return for the ta abe year
In whch the qudaton occurred, or, If the pan of qudaton provdes for a
seres of dstrbutons over a perod of more than one ta abe year, for each
ta abe year n whch a dstrbuton Is made under the pan, a st of a of
Its propertes and money, showng the amount of money and the far market
vaues of ts propertes on the date of the e change In qudaton or, If the
pan of qudaton provdes for a seres of dstrbutons over a perod of more
than one ta abe year, the amount of money and the far market vaues of a
of ts propertes on the date on whch each dstrbuton was made, specfyng
the amount of money and the propertes transferred In each such dstrbuton.
rtce 112(c)- s amended by addng at the end thereof a new
paragraph readng:
s to recept of money In an e change n qudaton, see artce 112(b) (6)-2
The frst paragraph of artce 112(e)- s amended to read:
The ct provdes that n no event sha a oss be recognzed from a ta -free
e change of property under secton 112(b) (1) to (6), ncusve, notwthstand-
ng the fact that there s receved In the e change other property or money
In addton to property permtted to be receved wthout recognton of gan
or oss.
The frst sentence of artce 112(h)- s amended to read:
Secton 112(h) defnes the term contro n reference to the phrase contro
of the corporaton, as used n secton 112(b) (5) and (6) and secton 112(g) (1).
The frst sentence of artce 112()- s amended to read:
foregn corporaton w not be consdered a corporaton to whch a ta -free
transfer of property for stock or securtes may be mare, or a corporaton a
party to a reorganzaton wth whch a ta -free reorganzaton e change may
be made, or a corporaton a party to an e change n qudaton to whch a
ta -free qudaton dstrbuton may be made, uness, pror to the transfer or
e change, t has been estabshed to the satsfacton of the Commssoner that
such transfer or e change s not n pursuance of a pan havng as one of ts
prncpa purposes the avodance of edera Income ta es.
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Paragraph (o) of artce 113(a) (5)-, reatng to bass of prop-
erty acqured by bequest, devse, or nhertance, s amended to read:
(c) ar market vaue. or the purposes of ths artce, the vaue of prop-
erty as of the date of the death of the decedent as apprased for the purpose of
the edera estate ta or If the property Is not apprased as of the date of the
death of the decedent for such purpose or If the estate Is not sub|ect to such
ta , Its vaue as apprased as of the date of the death of the decedent for the
purpose of State Inhertance or transmsson ta es, sha be deemed to be Its
far market vaue at the tme of the death of the decedent.
rtce 113(a) (6)- s amended by nsertng after the ffth para-
graph thereof a new paragraph readng as foows:
In the case of dstrbutons to a controng corporaton under secton
112(b)(6) the cost or other bass of the stock of the qudatng corporaton
assgnabe to the propertes dstrbuted (decreased n the amount of any
money receved and ncreased In the amount of gan recognzed upon such
e change) sha be aocated among the severa propertes receved n the
proporton that the far market vaue of each such property as of the date of
dstrbuton bears to the far market vaue of a of such propertes on that
date.
The second sentence of the second paragraph of artce 116-1,
reatng to ncome of foregn governments, ambassadors, and consus,
s amended to read:
Ther ncome from a sources other than a busness carred on by them In
the Unted States s aso e empt.
The thrd paragraph of artce 116-1 s amended to read:
empoyees of a foregn government (ncudng consuar or other offcers,
or nondpomatc representatves) who are not ctzens of the Unted States
are e empt from edera Income ta wth respect to wages, fees, or saares
receved by them as compensaton for offca servces rendered n the Unted
States to such foregn government, provded (1) the servces are of a character
smar to those performed by empoyees of the Government of the Unted
States In such foregn country and (2) the foregn government whose empoyee
s camng e empton grants an equvaent e empton to empoyees of the
Government of the Unted States performng smar servces In such foregn
country. The ct entted n ct to e empt from ta aton offca compen-
saton of certan foregn representatves and to provde for the deductbty
from ncome of certan dvdends on preferred stock owned by the Unted States
or Instrumentates thereof, approved ugust 27, 1935 (Pubc, No. 874, Sev-
enty-fourth Congress, frst sesson), provdes that the Secretary of State sha
certfy to the Secretary of the Treasury the names of the foregn countres
whch grant an equvaent e empton to the empoyees of the Government of
the Unted States performng servces n such foregn countres, and the char-
acter of the servces performed by empoyees of the Government of the Unted
States n foregn countres. The Income receved by empoyees of foregn gov-
ernments (other than ambassadors, mnsters and members of ther househods
ncudng secretares, attaches and servants) from sources other than ther
saares, fees, or wages, referred to above, s sub|ect to edera ncome ta .
The second paragraph of artce 143-1, reatng to wthhodng
of ta at source, s amended to read:
ta of 13 per cent Is requred to be wthhed In the case of f ed or
determnabe annua or perodca Income (wth the e ceptons stated In the
frst paragraph of ts artce) pad before anuary 1, 1936, to a nonresdent
foregn corporaton (see artce 801-8). In the case of payments of such n-
come (ncudng 10 per cent of payments of dvdends of a cass aowed as a
credt by secton 25(a)) made after December 81, 1935, a ta of 15 per cent
Is requred to be wthhed. See secton 144 and artce 144-1.
The frst sentence of the nnth paragraph of artce 143-1 s
amended to read:
Wthhodng of a ta of 2 per cent Is requred n the case of Interest pad
to an ndvdua or a partnershp, whether resdent or nonresdent (see
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artce 801-8), or to a nonresdent foregn corporaton npon bonds or other
obgatons of domestc corporatons or resdent foregn corporatons (see
artce 801-8) contanng a ta -free covenant and Issued before anuary 1,
1934, e cept that If the abty assumed by the obgor n connecton wth such
a covenant does not e ceed 2 per cent of the Interest, wthhodng s requred
at the rate of 4 per cent In the case of a nonresdent aen or a nonresdent
partnershp composed In whoe or n part of nonresdent aen ndvduas, at
the rate of 13 per cent n the case of payments made to a nonresdent
foregn corporaton before anuary 1, 1936, and at the rate of 15 per cent n
the case of payments made to a nonresdent foregn corporaton after December
31, 1935.
The ne t to the ast sentence of artce 143-3, as amended by
Treasury Decson 4535 approved March 16, 1935 (C. . I -1,
118), reatng to e empton from wthhodng, s amended to read:
In the case of (c) the rate of wthhodng appcabe Is 13 per cent n
the case of dstrbutons made pror to anuary 1, 1936, and 15 per cent n
the case of dstrbutons made after December 31, 1935.
The frst paragraph of artce 144-1, as amended by Treasury
Decson 4535, approved March 16, 1935 (C. . I -1, 118), s
amended to read:
bt. 144-1. Wthhodng n the case of nonresdent foregn corporatons.
In genera, wth respect to payments to nonresdent foregn corporatons (see
artce 801-S) wthhodng s requred of a ta of 2 per cent n the case of
Interest representng ncome from sources wthn the Unted States pad upon
corporate bonds or other obgatons contanng a ta -free covenant, ssued
before anuary 1, 1934, e cept that f the abty assumed by the obgor n
connecton wth such a covenant does not e ceed 2 per cent of the nterest,
wthhodng s requred at the rate of 13 per cent wth respect to payments
made before anuary 1, 1936, and at the rate of 15 per cent wth respect to
payments made after December 31, 1935. Wthhodng of a ta of 13 per cent
Is aso requred n the case of payments made before anuary 1, 1936, of other
f ed or determnabe annua or perodca Income 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 Is not a resdent of Chna. Wthhodng of a ta
of 15 per cent s aso requred n the case of payments made after December
31, 1935, of other f ed or determnabe annua or perodca ncome from sources
wthn the Unted States to nonresdent foregn corporatons, e cept 90 per cent
of the amount of dvdends dstrbuted 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 corpora-
ton whch s not a resdent of Chna. ta of 15 per cent sha be wthhed
from 10 per cent of the amount of dvdends dstrbuted after December 31,
1935, by a domestc corporaton sub|ect to ta aton under Tte I to a non-
resdent foregn corporaton ncudng nonresdent foregn corporatons havng
a ta abe year endng on any other date than December 31, e cept that no
wthhodng s requred from dvdends dstrbuted by a corporaton organzed
under the Chna Trade ct, 1922, to a nonresdent foregn corporaton whch s
a resdent of Chna. s to refunds of e cess ta wthhed at the source see
sectons 143(f) and 322 and artces 143-11, 322-1, 322-2, 322-3 as amended
by Treasury Decson 4585, approved September 9, 1935 (C. . I -2, 54), and
Z22- to 322-7, ncusve.
The second sentence of the frst paragraph of artce 201(b)-,
reatng to rates of ta on fe nsurance companes, s amended to
read:
The rate for 1934, and for subsequent years s 13 per cent, e cept that
for ta abe years begnnng after December 31, 1035, the ta s mposed at the
graduated rates specfed n secton 13(a) of the Revenue ct of 1934, as
amended by secton 102(a) of the Revenue ct of 1935, and the net Income
upon whch the ta Is mposed dffers from the net ncome of other corpora-
tons.
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rtce 203(a) (3)-, reatng to the deducton of dvdends by
fe nsurance companes, s amended to read:
rt. 203(a)(3)- . Dvdends. The deducton aowed by secton 203(a)(3)
for dvdends receved from other corporatons s dentca wth the deducton
aowed other corporatons by secton 23(p), and by that secton, as amended,
e cept that for tn abe years begnnng after December 31, 1935, fe nsurance
companes are entted to a deducton for the fu amount receved as dvdends
from a domestc corporaton whch s sub|ect to ta aton under Tte I of the
Revenue ct of 1934, as amended, other than a corporaton entted to the
benefts of secton 251, and other than a corporaton organzed under the Chna
Trade ct, 1922.
The thrd sentence of artce 204(a)-, as amended by Treasury
Decson 4585, approved September 9,1935 (C. . T -2, 54), reat-
ng to ta on nsurance companes other than fe or mutua, a
amended to read:
The rate of ta mposed by secton 204 s 13 per cent, e cept that for
ta abe years begnnng after December 31, 1935, the ta s Imposed at the
graduated rates specfed n secton 13(a) of the Revenue ct of 1934, as
amended by secton 102(a) of the Revenue ct of 1935, and the net ncome
upon whch the ta s mposed, as defned n secton 204, dffers from the net
Income of other corporatons.
The frst sentence of artce 232-1, reatng to deductons aowed
foregn corporatons, s amended to read:
oregn corporatons are aowed the same deductons from ther gross
ncome arsng from sources wthn the Unted States as are aowed to domestc
corporatons to the e tent that such deductons are connected wth such gross
ncome e cept that for ta abe years begnnng after December 31, 1935, the
so-caed chartabe contrbuton deducton aowed by secton 23(r) s aowed
whether or not connected wth ncome from sources wthn the Unted States.
The foowng s substtuted for the ne t to the ast sentence of
artce 261-2, reatng to credts aowed Chna Trade ct corpora-
tons :
In the case of ta abe years begnnng before anuary 1, 1930, the decrease
In ta by reason of such credt must not e ceed the amount of the speca
dvdend referred to n secton 261(b), and s not aowabe uness the speca
dvdend has been certfed to the Commssoner by the Secretary of Commerce.
In the case of ta abe years begnnng after December 31, 1935, the dmnu-
ton, by reason of such credt, of the ta mposed by secton 13 (computed
wthout regard to secton 261(a) of the Revenue ct of 1934, as amended
by secton 108 of the Revenue ct of 1935), sha not e ceed the amount of
the speca dvdend referred to n secton 261(b), and s not aowabe
uness the speca dvdend has been certfed to the Commssoner by the
Secretary of Commerce.
The thrd sentence of artce 261-4, reatng to wthhodng by a
Chna Trade ct corporaton, s amended to read:
In the case of an Indvdua sharehoder or partnershp, the rate of wth-
hodng Is 4 per cent, and n the case of a corporaton, 13 per cent wth
respect to payments made before anuary 1, 1936, and 15 per cent wth respect
to payments made after December 31, 1935.
The foowng sentence s added to the thrd paragraph of artce
273-1, reatng to |eopardy assessments:
In any case, however, Interest accrung durng any perod of tme after
ugust 30, 1935, s at the rate of 6 per cent per annum.
The foowng s substtuted for the frst three paragraphs of
artce 291-1:
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77
sr. 291-1. ddton to the taw n case of faure to fe return. In case of
faure to make and fe a return requred by Tte I wthn the prescrbed
tme, a certan per cent of the amount of the ta Is added to the ta uness
the return Is ater fed and faure to fe the return wthn the prescrbed
tme Is shown to the satsfacton of the Commssoner to be due to reasonabe
cause and not to wfu negect. If the ast date prescrbed by aw or pre-
scrbed by the Commssoner In pursuance of aw for fng the return s before
ugust 31, 1985, the amount to be added to the ta for faure to make and
fe the return wthn the prescrbed tme s 25 per cent of the amount of the
ta . If the ast date so prescrbed for fng the return Is after ugust 80,
1085, the amount to be added to the ta In en of such 25 per cent s 5 per cent
f the faure s for not more than 80 days, wth an addtona 5 per cent
for each addtona 80 days or fracton thereof durng whch faure contnues,
not to e ceed 25 per cent n the aggregate. Two casses of denquents are sub-
|ect to ths addton to the ta :
(a) Those who do not fe returns and for whom returns are made by a
coector or the Commssoner, and
(6) Those who fe tardy returns and are unabe to show reasonabe cause
for the deay.
ta payer who fes a tardy return and wshes to avod the addton to
the ta for denquency must make an affrmatve showng of a facts
aeged as a reasonabe cause for faure to fe the return on tme In the form
of an affdavt whch shoud be attached to the return. If such an affdavt
s furnshed wth the return or upon the coector s demand, the coector,
uness otherwse drected by the Commssoner, w forward the affdavt wth
the return, and, f the Commssoner determnes that the denquency was due
to a reasonabe cause, and not to wfu negect, the addton to the ta w
not be assessed. If the ta payer e ercsed ordnary busness care and pru-
dence and was nevertheess unabe to fe the return wthn the prescrbed
tme, then the deay s due to a reasonabe cause.
If the addton to the ta for denquency n fng the return has been
added, the amount so added sha be coected n the same manner as the ta .
The ne t to the ast paragraph of artce 351-3, reatng to the
computaton of undstrbuted ad|usted net ncome of persona hod-
ng companes, s amended to read:
The undstrbuted ad|usted net Income s computed by subtractng from
the ad|usted net ncome descrbed above, (a) an amount equa to 20
per cent of the e cess of the ad|usted net ncome over the amount of dv-
dends receved from persona hodng companes whch are aowabe as a
deducton for the purpose of the ta mposed by secton 13 or 204, (6) rea-
sonabe amounts used or set asde to retre Indebtedness Incurred by the
ta payer pror to anuary 1, 1934 (see artce 351-4), and (c) any dvdends
pad durng tbe ta abe year, and for ta abe years begnnng after December
31, 1935, dstrbutons (not n compete or parta qudaton and not a dv-
dend as defned n secton 115, for e ampe, as a resut of an e stng defct)
made durng the ta abe year out of earnngs or profts of such year.
rtce 351-5 s amended to read:
rt. 351-5. Rates of surta . or ta abe years begnnng before anuary
1, 1930, the surta s to be computed at the rate of 30 per cent upon the
amount of the undstrbuted ad|usted net ncome not n e cess of 100,000,
and at the rate of 40 per cent upon the amount of the undstrbuted ad|usted
net ncome n e cess of 100,000. or ta abe years begnnng after December
31, 1935, the surta Is to be computed at the rates specfed In secton 351(a)
of the evenue ct of 1934, as amended by secton 109 of the evenue ct
of 1935. The foowng tabe shows the surta due from persona hodng
companes for ta abe years begnnng after December 31, 1935, upon certan
specfed amounts of undstrbuted ad|usted net ncome In each nstance the
frst fgure of the undstrbuted ad|usted net ncome In the undstrbuted ad-
usted net-ncome coumn s to be e cuded and the second fgure Incuded.
The percentage gven opposte appes to the e cess of ncome over the frst
fgure In the undstrbuted ad|usted net-ncome coumn. The ast coumn gves
the tota surta on an undstrbuted ad|usted net ncome equa to the second
fgure In the undstrbuted ad|usted net-ncome coumn.
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22(a), rt. 22(a)-. 78
Persona odng Company Subta Tabe.
(Ta abe years begnnng after December 31, 1935.)

Undstrbuted ad|usted net ncome.
Tota surta .
0 to 2,000 -
2,000 to 100,000
100,000 to 500,000..
500,000 to 1,000,000
1,000,000 up
400
29, 800
189, 800
439, 800
The surta for any amount of undstrbuted ad|usted net Income not shown
In the tabe Is computed by addng to the surta for the argest amount shown
whch Is ess than the undstrbuted ad|usted net Income, the surta upon
the e cess over that amount at the rate Indcated In the tabe. ccordngy,
the surta due for ta abe years begnnng after December 31, 1935, upon an
undstrbuted ad|usted net ncome of 150,000 woud be 49,800, computed as
foows:
Ta on 100,000 from tabe.
Ta on 50,000 at 40 per cent-
Tota.
29, 800.00
20,000.00
49, 800.00
Gut T. everng,
Commssoner of Interna Revenue.
pproved ebruary 18, 1936.
Stephen . Gbbons,
ctng Secretary of the Treasury.
C. 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.
rtce 22(a)-: What ncuded n gross ncome. -6-7937
G. C. M. 16020
R NU CT O 1034 ND PRIOR R NU CTS.
Ta abty of Income of restrcted Indans of the ve Cvzed
Trbes.
n opnon s requested as to what changes, f any, are to be made
n procedure wth reference to the ta abty of ncome of restrcted
Indans of the ve Cvzed Trbes on account of the decson of the
Supreme Court of the Unted States n Superntendent of ve Cv-
zed Trbes (on behaf of Sandy o ) v. Commssoner (295 U. S.,
418, Ct. D. 974, C. . I -1, 158).
That case nvoved the ta abty of the ncome of a restrcted
Indan derved from the renvestment of ncome from restrcted
aotted ands, the orgna ncome havng been consdered to be ta -
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522(a), rt. 22(a)-.
e empt as from a ta -free source. It has been the consstent poston
of the ureau that the renvestment ncome s ta abe. (See ate
SneU et aL v. Commssoner, 10 . T. ., 1081, and G. 0. M. 9621,
C. . -2, 111.) The decson of the Unted States Supreme
Court n Superntendent, etc., v. Commssoner, supra, confrms that
poston.
In that case the Court stated that nonta abty and restrcton
upon aenaton are dstnct thngs, and that ta aton of the trust
property of ts Indan wards by the edera Government, under ed-
era Revenue cts genera n scope, s not so nconsstent wth the
reatonshp between the Government and ts Indan wards that e -
empton s a necessary mpcaton and that f e empton e sts t
must derve pany from agreements wth the Indan Trbes or some
ct of Congress deang wth ther affars.
Wth partcuar reference to the ta abty of the restrcted aot-
ments of the ve Cvzed Trbes, and of the ncome derved d-
recty therefrom, the ttorney Genera n hs opnon of March 15,
1924 (34 Ops. . G., 275, T. D. 3570, C. . I -1, 85), rued that, n
addton to the specfc e empton for stated perods of the home-
stead aotments contaned n the cts of Congress, a of the re-
strcted aotted ands contnued to be e empt from ta aton durng
the contnuance of the restrctons n accordance wth the purpose
and ntent of secton 19 of the ct of pr 26, 1906 (34 Stat., 137,
144), and secton 4 of the ct of May 27, 1908 (35 Stat. 312, 313).
Secton 19 of the ct of 1906 ceary e empted the aotted ands
durng the contnuance of the restrctons but not beyond the fe
of the orgna aottee. Secton 4 of the ct of 1908 provded that
a aotted ands from whch restrctons are removed sha be sub-
|ect to ta aton and a other cv burdens, and that aotted ands
sha not be sub|ect to any persona cam or demand arsng pror
to the remova of restrcton. empton from ta aton by neces-
sary mpcaton of aotted ands soey because of the e stence of
restrctons seems to be requred by the anguage of Congress n sad
secton 4, even f tested by the standard of constructon rased by the
Supreme Court n Superntendent, etc., v. Commssoner, supra. t
any rate, Congress n the ct of May 10, 1928 (45 Stat., 495), seems
to have proceeded on that understandng of the matter. In secton
3 of the atter ct t s provded that a mneras, ncudng o
and gas, produced on or after pr 26, 1931, from restrcted aotted
ands of the ve Cvzed Trbes n Okahoma sha be sub|ect to
ta aton.
y secton 4 of that ct t s provded aso that on and after sad
date aotted, nherted, or devsed restrcted ands of each Indan
n e cess of 160 acres sha be sub|ect to ta aton that the restrcted
owner sha seect from hs restrcted ands tracts not e ceedng 160
acres whch sha reman e empt from ta aton (e cept as to the
mneras produced therefrom as above ndcated), such seecton to
be evdenced by a certfcate fed wth the Superntendent of the
ve Cvzed Trbes and recorded n the proper county and that
such certfcated restrcted ands sha reman e empt (e cept as to
mneras produced) whe the tte remans n the Indan desgnated
n the certfcate or any fu-bood her or devsee of the and. y
secton 1 of the ct of anuary 27, 1933 (47 Stat., 777), the e emp-
ton of the certfcated restrcted ands was broadened, by makng
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22(a), rt. 22(a)- .
80
them e empt (e cept as to mneras produced) n the hands of
any restrcted Indan her, devsee, or donee (and not ony as to a
fu-bood Indan her or devsee), or n the hands of any restrcted
Indan for whom such ands are purchased wth restrcted funds.
Ths offce s of the opnon, therefore, that no change n the
procedure foowed by the ureau for the perod up to pr 26.
1931, n respect of the ta abty of the restrcted aotted ands or
the members of the ve Cvzed Trbes, and of the ncome derved
drecty therefrom, s requred on account of the decson of the
Supreme Court n Superntendent, etc., v. Commssoner, supra. The
procedure to be adhered to begnnng wth pr 26, 1931, s nd-
cated by the above revew of the e press egsaton of Congress n
the cts of May 10,1928, and anuary 27,1933.
Wth reference to the ta abty of renvestment ncome, t has
been ndcated above that the ureau s poston has consstenty been
that such ncome s ta abe, and that the decson n Superntendent,
etc.| v. Commssoner, supra, s but an affrmaton of a ong standng
poston of the ureau.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
rtce 22(a)-: What ncuded n gross ncome. -8-7961
G. C. M. 16100
R NU CT OP 1934 ND PRIOR R NU CTS.
Ta abty of Income of restrcted members of the Osage Indan
Trbe.
dvce s requested reatve to the ta abty of ncome of the
restrcted members of the Osage Indan Trbe.
The case of Superntendent of ve Cvzed Trbes on behaf of
Sandy o ) v. Commssoner (295 U. S., 418, Ct. D. 974, C. .
I -1, 158) whch has gven rse to ths revew of the matter,
deat prmary wth the ta abty of ncome from the renvestment
of ncome from the restrcted aotted ands of members of the ve
Cvzed Trbes. The Court hed that such renvestment ncome s
and has been sub|ect to ta . In answer to the contenton that re-
strctons and nonta abty shoud go hand n hand, and that t
s not ghty to be assumed that Congress ntended to ta the
ward for the beneft of the guardan, the Court sad that the
genera terms of the ta ng ct ncude the ncome under consdera-
ton and f e empton e sts t must derve pany from agreements
wth the Indans or some ct of Congress deang wth ther affars.
The Court specfcay stated that the decson n ackbrd v. Com-
mssoner (38 ed. (2d), 976), whch s to the contrary, does not
harmonze wth ts opnon n Choteau v. urnet (283 U. S., 691),
and concuded wth the foowng anguage:
Nor can we concude that ta aton of Income from trust funds of an Indan
ward s so Inconsstent wth that reatonshp that e empton s a necessary
mpcaton. Nonta abty and restrcton upon aenaton are dstnct thngs.
(Choate y. Trapp, 224 U. 8., 665, 673.) The ta payer here s a ctzen of
the Unted States, and wardshp wth mted power over hs property does not,
wthout more, render hm mmune from the common burden.
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22(a), rt. 22(a)-.
TatD v. ( bsotrZahnser O Corporaton, supra, hed that restrcted and
purchased for a 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 Imped merey because of the restrctons upon the Indan s
power to aenate.
The Osage otment ct of 1906 ( 34 Stat., 539) s sent as to any
ta e empton of the Osage mnera rghts or of the ncome there-
from, nor s there any anguage n any of the subsequent cts of
Congress deang wth the Osage Trbe whch e empts such rghts
or ncome from edera ta aton. (See Mary ackbrd v. Com-
mssoner, 14 . T. ., 1247, for a smar concuson by the oard
of Ta ppeas.) ccordngy, n vew of the decson of the Unted
States Supreme Court n Superntendent, etc., v. Commssoner,
supra, t s hed that the ncome of the restrcted members of the
Osage Trbe from rents, royates, and bonuses derved from the
mnera eases of the Trbe s sub|ect to edera ncome ta .
The homestead aotments of the members of the Osage Trbe
were made naenabe and nonta abe by secton 2, paragraph 4, of
the otment ct of 1906 unt otherwse provded by ct of Con-
gress, sub|ect to the provson n paragraph 7 of secton 2 that f
a member were ssued a certfcate of competency by the Secretary
of the Interor, hs homestead shoud reman naenabe and non-
ta abe for 25 years or durng hs fe. y secton 3 of the ct of
March 3, 1921 (41 Stat., 1249), t was provded that the homestead
aotments of a the members of the Osage Trbe shoud not be sub-
|ect to ta aton, f hed by the orgna aottee, pror to pr 8.
1931. (See I. T. 1834, C . II-2, 62.) y secton 1 of the ct of
March 2,1929 (45 Stat., 1478), the rue now n effect s that the home-
stead aotments of those Osages of one-haf or more Indan bood
who do not have certfcates of competency are e empt n the hands
of the orgna aottee or n the hands of hs unaotted hers or
devsees of one-haf or more Osage Indan bood unt anuary 1,
1959, provded that the ta -e empt and of any such Indan aottee,
her, or devsee sha not at any tme e ceed 160 acres. The ncome
from such homestead aotments remans e empt from edera n-
come ta . It shoud be borne n mnd that the e empton mentoned
n ths paragraph has no reaton to the mneras contaned n such
aotments, the mnera rghts under a the aotted ands havng
been reserved as trba property wthout provsons for ta e emp-
ton as heretofore ponted out. (See I. T. 1834, supra.) The home-
stead e empton s to be confned wthn the mts ast above nd-
cated.
The former poston of the ureau that the ncome of the re-
strcted members of the Osage Trbe from the mnera eases of the
trbe shoud not be sub|ected to edera ncome ta was adopted
after the decson of the Unted States Supreme Court n Choteau
v. urnet, supra. Inasmuch as certorar had not been apped for n
ackbrd v. Commssoner supra, and nasmuch as the rung of
the crcut court of appeas n that case to the effect that a restrcted
Indan s not sub|ect to the ta because of hs reatonshp wth the
edera Government arsng out of the e stence of restrctons was
n harmony wth the rung of the ttorney Genera to the same
effect n reference to the restrcted aotments of the uapaw In-
dans (34 Ops. . G., 439, T. D. 3754, C. . I -2,87), t was decded
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22(a), rt. 22(a)- .
82
that the Government shoud contnue to abde by that poston. c-
cordngy, the mnera ncome of such restrcted Indans has been
consdered to be ta e empt up to the present tme. In vew of the
fact that the e cuson of such ncome from the returns of the re-
strcted members of the Osage Trbe has been based upon offca
acton thus taken and not upon any act or faure of the Indans, a
reversa of procedure for pror years woud enta a hardshp upon
such Indans. ecause of ths stuaton, ths offce s of the opnon
that the concuson that such mnera ncome s ta abe to such re-
strcted Indans shoud not be apped retroactvey pror to May 20,
1935, the date of the decson of the Unted States Supreme Court n
Superntendent, etc., v. Commssoner, supra.
Wth respect to the ta abty of the ncome of restrcted Indans
from the renvestment of ncome derved from sources heretofore
consdered to be ta e empt, t has been the consstent poston of
the ureau that such renvestment ncome s ta abe. Ths poston
was approved by the oard of Ta ppeas n ate Sne et a. v.
Commssoner (10 . T. ., 1081), decded ebruary 29, 1928. In
G. C. M. 9621 ( une, 1931, C. . -2, 111), ths offce restated ts
poston that such ncome s ta abe. The matter was fnay con-
cuded by the decson of the Unted States Supreme Court (May 20,
1935) n Superntendent, etc., v. Commssoner, supra. The stua-
ton n ths respect does not present any change of poston of the
ureau as a resut of that decson.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
pproved.
Guy T. everng, Commssoner.
T. . Cootdge, ctng Secretary.
rtce 22(a)-: What ncuded n gross ncome. -19-8075
G. C. M. 16572
LL R NU CTS.
The proceeds of an embezzement consttute ta abe ncome In
the hands of the embezzer for edera ncome ta purposes.
n opnon s requested whether embezzed funds consttute ta -
abe ncome to the embezzer.
Secton II of the Revenue ct of 1913 provdes n part that net
ncome sha ncude among other thngs gans, profts, and ncome
derved from the transacton of any awfu busness car-
red on for gan or proft . In the Revenue ct of 1916
(secton 2(a)) the defnton of net ncome was amended and among
other changes the word awfu was deeted therefrom. There-
after, n Rau v. Unted States (260 ed., 131), decded by the Cr-
cut Court of ppeas for the Second Crcut, t was for the frst
tme |udcay stated that funds acqured by ta payers through
embezzement shoud not be treated as ncome for edera ncome
ta purposes. The statement n that case was merey dctum and the
court gave nether reasons nor ctatons of authorty n support of t.
The Rau case was foowed by Unted States v. rank udtors,
an unreported case decded by the Unted States dstrct court n
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83
522(a), rt. 22(a)- .
the same crcut n whch the Rau case was decded. In grantng a
moton for dsmssa of the ndctment chargng per|ury and fraud
n connecton wth ta payer s wfu faure to return as ncome
property whch he had stoen or embezzed, the court, agan merey
py way of dctum, observed that stoen property coud not be re-
garded as ta abe ncome under the Revenue cts. No authorty
was cted n support of that concuson but the court gave as a rea-
son the fact that a thef and an embezzer do not acqure ega
tte to the proceeds of such crmes, and t was ntmated that
nothng coud be regarded as ta abe ncome other than property
the ega ownershp of whch may be regarded as resdng n the
ta payer.
In Stenberg v. Unted States (14 ed. (2d), 564), aso from the
same crcut as the precedng cases, the court stated that upon the
authorty of the Rau case a dstncton mght be drawn between the
proceeds of an embezzement, a robber 7, or a burgary and those of
saes of quor or pumes from brds of paradse, the ega tte to
whch resdes m the offender and s therefore ta abe ncome n hs
hands. That statement was aso dctum and s consderaby weak-
ened by the succeedng paragraphs n the court s opnon whch nd-
cate that the court was merey makng an argumentatve statement
wth respect to the ta abe status of embezzed property.
Contrasted wth the dcta above mentoned, there s the broad
and unquafed defnton of gross ncome contaned n the Revenue
cts from 1916 to the present tme whch specfcay ncudes
gans or profts and ncome derved from any source whatever.
It woud be dffcut to fnd more approprate anguage for the e -
presson of a egsatve ntent to ncude as ta abe ncome a gans
nurng to a ta payer whether or not obtaned by awfu means.
There s nothng n the defnton to suggest that Congress ntended
to draw a dstncton between gans en|oyed by the ta payer to
whch he had ega tte and those possessed by hm and nurng to
hs beneft but to whch he does not have ega tte. Moreover, such
a dstncton can scarcey be sad to harmonze wth .the rues of
the ureau as to what consttutes ta abe ncome n other cases.
or e ampe, apart from the specfc requrements of secton 167 of
the Revenue ct of 1934 and the correspondng provsons of pror
Revenue cts, t s now estabshed by decsons of the Unted States
Supreme Court that the grantor of an rrevocabe trust s ta abe
on that porton of the ncome of the trust whch s used for the
purpose of dschargng hs own ob atons. (See Dmtgas v. W-
cuts, 296 U. S., 1, Ct. D. 1041, C. . I -2, 250 evcrng v.
Schwetzer, 296 U. S., 551 evcrng v. wmentha, 296 U. S., 552.)
In those cases the grantors of the trust had no nterest n the trust
ncome whch coud be descrbed as a defnte ega or equtabe estate.
The ta aton of such ncome to them was sustaned by the court
n each case upon the theory that the ncome was, nevertheess, actu-
ay apped for ther beneft.
The Unted States Supreme Court has aso defned ncome as
gan derved from capta, from abor, or from both combned, pro-
vded t be understood to ncude proft ganed through a sae or con-
verson of capta assets. ( ner v. Macomber, 252 U. S., 189. T. D.
3010, C. . 3, 25.) Ths defnton of ncome s kewse suffcenty
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22(a), rt. 22(a)-3.
84
a-ncusve to comprehend embezzed property. The proceeds of
an embezzement may surey be regarded as a gan, and f the court s
requrement that gam must be derved from abor may be taken to
mean that the gam must resut from some e pendture of human
energy, then t woud seem that the proceeds of an embezzement are
derved from abor.
though there are no decsons hodng drecty that the proceeds
of an embezzement consttute ta abe ncome, yet, n vew of the
foregong, t may propery be sad that there s no controng author-
ty to the contrary. urthermore, the defntons of ta abe ncome
and a anaoges ndcate that such proceeds were not e cepted by
Congress from those gans whch do consttute ta abe ncome. (See
generay the reasonng of the court n Unted States v. Wamper,
5 ed. Supp., 796, Ct. D. 791, C. . III-1,101.)
ccordngy, t s the opnon of ths offce that the proceeds of an
embezzement consttute ta abe ncome n the hands of the embezzer.
erman Ophant,
Genera Cownse for the Department of the Treasury.
rtce 22(a)-3: Compensaton pad other than -10-7982
n cash. G. C. M. 16069
R NU CT O 1034.
Premums pad by an empoyer on the ordnary type of fe In-
surance poces on the ves of Its empoyees represent add-
tona Income to the empoyees. Premums pad by an empoyer
on group fe nsurance poces for ts empoyees do not con-
sttute addtona ncome and are not requred to be Incuded
In the edera Income ta returns of the empoyees.
dvce s requested reatve to the treatment for edera ncome
ta purposes of premums pad on both ordnary and group Ufa
nsurance poces by the M Company for the beneft of ts empoyees.
It was hed n I. T. 2891 (C. . I -1, 50) that amounts pad
by an empoyer toward the purchase of retrement annuty contracts
for the beneft of empoyees are not constructvey receved by the
empoyees n the year or years n whch such payments are made
and are not, therefore, requred to be ncuded n the edera ncome
ta returns of the empoyees. It s suggested that the rung n
queston s nconsstent wth the statements n G. C. M. 8432 (C. .
I -2. 114), wheren t was ponted out (ctng cases) that premums
pad by a corporaton for nsurance poces on the ves of ts off-
cers represent addtona compensaton to the offcers. dvce s,
therefore, requested whether the concuson reached n G. C. M.
8432, supra, s to be apped to the premums pad on the ordnary
fe nsurance poces taken out for the empoyees of the M Com-
pany or whether I. T. 2891 s appcabe. dvce s aso requested
as to the effect, for ncome ta purposes, of the rght of the nsured
to desgnate the benefcary.
The statements made n G. C. M. 8432, that generay the premums
ad by corporatons on ndvdua fe nsurance poces taken out
y or on behaf of ther offcers and coverng ther ves consttute
addtona ncome to the offcers whch shoud be ncuded n ther
returns for the year or years n whch pad, fnd support n the
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85
22(b), rt. 22(b)-.
decsons of the oard of Ta ppeas n George Matthew dams v.
Commssoner (18 . T. ., 881), N. Lorng Danforth v. Comms-
soner (18 . T. ., 1221), and n the more recent decsons of the
oard of Ta ppeas and the Unted States Crcut Court of p-
peas for the Thrd Crcut n rank D. Yuengng v. Commssoner
(27 . T. ., 782, affrmed 69 ed. (2d), 971). The poston of ths
offce n ths partcuar aso fnds support n the statement made by
the Unted States Supreme Court n urnet v. Wes (289 U. S., 670,
Ct. D. 688, C. . II-1, 261), vz:
Insurance for dependents a to-day In the thought of many a pressng soca
duty. ven f not a duty, t s a common tem n the famy budget, kept
up very often at the cost of panfu sacrfce, and abandoned ony under dre
compuson. It w be a van effort at persuason to argue to the average man
that a trust created by a father to pay premums on fe poces for the
nse of sons and daughters s not a beneft to the one who w have to pay
the premums f the poces are not to apse. Ony by cosng our mnds to
common modes of thought, to everyday reates, sha we fnd t n our power
to form another udgment.
The rung pubshed as I. T. 2891 s not to be construed as mod-
fyng . CM. 8432 supra. The atter shoud be foowed n cases
nvovng the queston of the treatment for edera ncome ta
purposes of premums pad by an empoyer on fe nsurance poces
other than group fe nsurance poces. The poston of the ureau
on the queston of premums pad by an empoyer on group fe
nsurance poces s ndcated by artce 22(a)-3 of Reguatons 86,
as we as the correspondng artces of pror reguatons, readng n
part as foows:
Premums pad by an empoyer on poces of group fe nsurance
coverng the ves of hs empoyees, the benefcares of whch are desgnated
by the empoyees, are not ncome to the empoyees.
No dstncton shoud be made between the premums pad by an
empoyer on an ndvdua pocy of fe nsurance coverng the
fe or an empoyee where the empoyee s entted to desgnate the
benefcary and premums pad on a pocy of fe nsurance the
proceeds of whch nure drecty to the beneft of the empoyee s
wfe or other dependents or hs estate, notwthstandng the nsured
empoyee may not be permtted to desgnate the benefcary.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
S CTION 22(b). GROSS INCOM : CLUSIONS
ROM GROSS INCOM .
rtce 22(b)-: emptons cusons from -18-8016
gross ncome. I. T. 2963
R NU CT OP 1934.
The retrement pay receved by an offcer retred from actve
servce n the Reguar rmy, Navy, or Marne Corps s not e empt
from edera ncome ta under the provsons of the ct of ugust
12, 1935 (Pubc, No. 262, Seventy-fourth Congress, 49 Stat., 007).
Inqury s made whether the retrement pay receved by a retred
rmy offcer s e empt from edera ncome ta under the provsons
of the ct of ugust 12, 1935, reatng to veterans.
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22(b), rt. 22(b)- .
86
The ta payer entered the mtary servce of the Unted States n
1892 as a commssoned offcer and served contnuousy unt 1919
when he was retred from actve servce for dsabty n ne of duty.
e s a veteran of the Spansh- mercan War. Phppne Insurrec-
ton, and the Word War. The eterans dmnstraton deter-
mned that he was entted to tota dsabty ratng from the date
of retrement.
Secton 3 of the ct of ugust 12, 1935 (Pubc, No. 262, Seventy-
fourth Congress, 49 Stat., 607, C. . I -2, 538), provdes n part
as foows:
Sec. 3. Payments of benefts made to, or on account of, a benef-
cary under any of the aws reatng to veterans sha be e empt from ta a-
ton .
Secton 1251 of the Revsed Statutes provdes:
When a retrng board fnds that an offcer s Incapactated for
actve servce, and that hs Incapacty Is the resut of an Incdent of servce,
and such decson s approved by the Presdent, sad offcer sha be retred
from actve servce and paced on the st of retred offcers. (Tte 10, secton
933, U. S. O.)
The term veteran reates to one ong e ercsed n the servce of
war or, more popuary, one who has seen servce as dstngushed
from a recrut or a soder n hs frst enstment. The ta payer s
servce undenaby entted hm to be caed a veteran, but the
queston of e empton from edera ncome ta of the pay receved
by offcers retred from actve servce n the Reguar rmy, Navy, or
Marne Corps does not rest upon the use of that term aone.
The ct of ugust 12, 1935, s entted n ct to safeguard the
estates of veterans derved from payments of penson, compensaton,
emergency offcers retrement pay and nsurance, and for other pur-
poses. Secton 5 states that the ct sha be effectve from and
after ts passage but that ts provsons sha appy to payments
made heretofore under any of the cts mentoned heren. Under
secton 2, menton s made of the War Rsk Insurance ct, as
amended, the Word War eterans ct, 1924, as amended, the mer-
gency Offcers Retrement ct, as amended, the Word War d-
|usted Compensaton ct, as amended, the penson aws n effect
pror to March 20, 1933, Pubc Law Numbered 2, Seventy-thrd
Congress, as amended, Pubc Law Numbered 484, Seventy-thrd
Congress, or any ct or cts amendatory of such cts. The ct of
ugust 12, 1935, does not menton the statute under whch the ta -
payer receves retrement pay, nor s any reference made theren to
any of the genera statutes under whch retrement pay s provded
for offcers or ensted men of the Reguar rmy, Navy, or Marne
Corps.
Retrement aowances pad to offcers retred from actve servce n
the Reguar rmy, Navy, or Marne Corps are regarded as compen-
saton for servces prevousy rendered and for awatng orders to
actve servce whenever the contngency may arse. n offcer who s
retred from actve servce s st n the mtary servce of the
Unted States.
It s hed, therefore, that the provsons of the ct of ugust 12,
1935, supra, are not such as to e empt from edera ncome ta the
retrement pay receved by an offcer retred from actve servce n
the Reguar rmy, Navy, or Marne Corps.
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87 1522(b), rt. 22(b) (2)-2.
rtce 22(b) (2)-2: nnutes. -26-8140
L T. 2984
R NU CT OP 1934.
Ta aton of annutes pad to retred cv servce empoyees.
dvce s requested whether Treasury Decson 3112 (C. . 4, 76),
promugated anuary 10, 1921, reatng to the ta abty of annutes
granted under the Cv Servce Retrement ct, s appcabe to such
annutes receved n the ta abe year 1935. In the event that Treas-
ury decson s not appcabe, the ureau s requested to rue as to the
proper treatment, for edera ncome ta purposes, of an annuty
receved under the foowng statement of facts:
The annutant In queston was separated from the servce on une 30, 1935,
and granted an annuty of 1,200 per annum, effectve uy 1, 1935, payabe
n 12 equa monthy Instaments. Durng hs servce there was deducted from
hs saary for the retrement fund the sum of 2,281.91. Of ths amount 00 was
credted to the so-caed tontne account representng 1 per month from
uy 1, 1930, as provded In the Retrement ct of May 29, 1930, whch remans
n the retrement fund. The baance of hs deductons 2,221.91 pus nterest of
698.08 was credted to hs ndvdua account, and ths sum, 2,919.99, purchased
for hm 263.56 of hs 1,200 annuty.
It was hed n Treasury Decson 3112, supra, that an annuty
pad to a retred cv servce empoyee s sub|ect to ta to the e tent
that the aggregate amount of the annuty payments e ceeds the
amounts wthhed from the compensaton of the empoyee. Pror to
the enactment of the Revenue ct of 1934, annuty payments n an
amount equa to the consderaton pad by the annutant were return-
abe to hm ta free for edera ncome ta purposes. though the
amount utmatey returned to the annutant ta free under the pro-
vsons of secton 22(b) 2 of the Revenue ct of 1934 s unchanged,
t s dstrbuted over a dfferent perod. ach year the e cess of
the amount receved over 3 per cent of the consderaton pad by
the annutant s ta free unt the aggregate of the sums e cuded
from gross ncome under the Revenue ct of 1934 and pror Revenue
cts e ceeds the consderaton pad. When the aggregate of the
amounts receved and e cuded from gross ncome equas the con-
sderaton pad by the annutant, the entre amount receved there-
after n each ta abe year must be ncuded n gross ncome. No
change has been made, therefore, n Treasury Decson 3112, but the
provsons of the Revenue ct of 1934, wth respect to annutes n
genera, operate so as to cause a change n the method of ts appca-
ton to cases n 1934 and subsequent years.
Reatve to the rung requested, artce 22(b) (2)-2 of Regua-
tons 86, reatng to the Revenue ct of 1934, provdes n part as
foows:
If an annuty s payabe In two or more nstaments over each
12-month perod, such porton of each nstament sha be ta abe as s equa
to 3 per cent of the aggregate premums or consderaton pad for such
annuty, dvded by the number of nstaments payabe durng
such years, .
The consderaton pad by the annutant n the present case s hed
to ncude the amount credted to the tontne account and to e cude
the nterest credted to hs ndvdua account. ppyng the aw
and reguatons to the facts presented, 5.70 ( 2,281.91 .03 68.4573
-r-12) s the porton of the annuty payment of 100 each month
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522(b), rt. 22(b) (3)- . 88
whch s sub|ect to edera ncome ta . or the s months of 1935
the annutant receved G0O. Of ths sum, 34.20 ( 5.70 6) s the
part whch shoud be ncuded n the annutant s gross ncome for
that year and the remander, 565.80, shoud not be returned as
ncome.
ssumng that ke provsons (secton 22(b)2 of the Revenue ct
of 1934) w be n effect for the years 1936 and 1937, 68.45 (3 per
cent of 2,281.91) of the annuty for 1936 w be ta abe and 1,131.55
w not be ta abe. The tota amount to be e cuded from gross
ncome for 1935 and 1936 s, therefore, 1,697.35, Ths eaves 584.56
( 2,281.91 mnus 1,697.35) to be e cuded from gross ncome for
1937. Consequenty, of the annuty of 1,200 to be receved n that
year, 615.44, or the dfference between the annuty and the e cuded
sum of 584.56, s the amount whch w be ncudbe as ta abe
ncome n the annutant s return for that year.
rtce 22(b) (3)-: Gfts and bequests. -11-799-3
I. T. 2959
R NU CT O 1934.
Where, under the provsons of the Cv Servce Retrement ct
of May 29, 1930, as amended by the ct of une 22, 1934 (48 Stat,
1201), a benefcary, dstrbutee, or ne t of kn receves any part
of the amount standng to the credt of a decedent, whether an
empoyee or annutant at the date of death, such sum s e empt
from edera Income ta under the provsons of secton 22(b)3
of the Revenue ct of 1934.
dvce s requested whether the amount to the credt of a dece-
dent under the Cv Servce Retrement ct of May 29, 1930, as
amended, when pad to a benefcary, dstrbutee, or ne t of kn s
sub|ect to edera ncome ta n the hands of the recpent.
Secton 12(c) of the Cv Servce Retrement ct, as amended by
the ct of une 22, 1934 (48 Stat., 1201), reads as foows:
(c) In case an annutant sha de wthout havng receved In annutes
purchased by the empoyee s contrbutons as provded In (2) of secton 4 of
ths ct an amount equa to the tota amount to hs credt at tme of retre-
ment, the amount remanng to hs credt and any accrued annuty sha be
pad, upon the estabshment of a vad cam therefor, In the foowng order
of precedence:
rst, to the benefcary or benefcares desgnated In wrtng by such
annutant and recorded on hs ndvdua account
Second, f there be no such benefcary, to the duy apponted e ecutor or
admnstrator of the estate of such annutant
Thrd, f there be no such benefcary, or e ecutor or admnstrator, pay-
ment may be made, after the e praton of 30 days from the date of the death
of the annutant, to such person or persons as may appear n the |udgment of
the Cv Servce Commsson to be egay entted thereto, and such payment
sha be a bar to recovery by any other person.
In the case of an annutant who has eected to receve an Increased annuty
as provded n secton 4 of ths ct, the amount to be pad under the provsons
of ths subsecton sha be ony the accrued annuty.
Secton 12(d) of the Cv Servce Retrement ct, as amended,
provdes for payment n the same order of precedence of the amount
n the retrement fund to the credt of an empo| ee who des wth-
out havng attaned egbty for retrement or wthout havng
estabshed a vad cam for annuty.
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89
23(a), rt. 23(a)-.
Secton 22(b)3 of the Revenue ct of 1934 provdes for the e cu-
son from gross ncome and the e empton from ta aton of
(3) Gfts, bequests, and devses. The vaue of property acqured by gft,
bequest, devse, or Inhertance .
It s hed| therefore, that where under the provsons of the Cv
Servce Retrement ct of May 29, 1930 as amended by the ct of
une 22, 1934 (48 Stat., 1201), a benefcary, dstrbutee, or ne t of
kn receves any part of the amount standng to the credt of a
decedent, whether an empoyee or annutant at the date of death,
such sum s e empt from edera ncome ta under the provsons of
secton 22(b) 3 of the evenue ct of 1934.
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S.
rtce 23 (a)-1: usness e penses.
R NU CT O 1034.
ttorney s fees pad n connecton wth tgaton nvovng Lous-
ana ta es on merchandse. (See I. T. 2972, page 108.)
rtce 23(a)-: usness e penses. -20-8084
I. T. 2973
NU CT O 1034.
Where a substtute teacher Is empoyed In eu of a reguar
teacher In the pubc schoos of the Dstrct of Coumba and the
atter pays the substtute on a per dem bass, the amount pad by
the reguar teacher consttutes a proper deducton as au ordnary
and necessary busness e pense.
dvce s requested whether the amount pad to a substtute teacher
n the pubc schoos of the Dstrct of Coumba by a reguar teacher
n such schoos for servces rendered by the former n the absence of
the atter s deductbe as an ordnary and necessary busness e pense
under secton 23(a) of the Revenue ct of 1934.
It s stated that there are two casses of substtutes, one known as
an annua substtute and one as a per dem substtute. The annua
substtutes (provded for n the Dstrct of Coumba Code) receve a
basc saary and when they are not substtutng for reguar teachers
they are empoyed n reguar work. When one of the annua sub-
sttutes s used n eu of a reguar teacher, the compensaton of the
atter s reduced, such reducton beng based upon a schedue em-
poyed n the schoos. If, however, a per dem substtute s caed
by the prncpa of the schoo to substtute for a reguar teacher,
then the reguar teacher, nstead of havng a reducton n the amount
of compensaton, as n the case where an annua substtute s em-
poyed, receves fu compensaton and s requred to pay the per
dem teacher a certan amount. The atter s the cass concernng
whch the nqury s made.
84326 36
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23(o), rt. 23(o)-.
90
Upon consderaton of the queston presented, t s hed that where
a substtute s empoyed n eu of a reguar teacher and the atter
pays the substtute on a per dem bass, the amount so pad by the
reguar teacher consttutes a proper deducton as an ordnary and
necessary busness e pense. Support for ths vew s found n LUUan
M. Godsmth v. Commssoner (7 . T. ., 151, acquescence, C. .
II-1,12). In that case the pettoner was vce presdent and owned
50 per cent of the capta stock of a corporaton engaged n busness
n Chcago, 111. She receved a f ed saary of 5,000 a year. Due
to her absence from Chcago and her nabbty satsfactory to
protect her nterest n the corporaton, she personay empoyed a
substtute and pad hm a saary of 20 a week (a tota of 1,040 n
the year nvoved) to ook after her nterests n the corporaton and
to keep her fuy advsed n the premses. That amount was aowed
by the oard as an ordnary and necessary busness e pense.
There s no doubt, of course, n the other stuaton, that s, where
an annua substtute s empoyed and the reguar teacher s saary s
reduced accordngy, that the atter shoud return, for edera n-
come ta purposes, ony the net amount of compensaton receved.
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM : T S G N R LLY.
rtce 23 (c)-: Ta es. -1-7886
G. C. M. 15894
R NU CT O 1934.
In the State of Msssspp the ownershp of persona or rea
property on anuary 1 of each year Is the event whch determnes
the abty for ta es thereon and ta payers whose books of
account are kept on the accrua bass shoud accrue ther property
ta es as of that date.
dvce s requested reatve to the proper accrua date for prop-
erty ta es n the State of Msssspp.
The provsons of aw appcabe to the queston submtted are
contaned n chapter 61 of the Msssspp Code, 1930, nnotated,
voume 1, readng as foows:
3120. Ta es, a en, from what date. Ta es, both State and county, assessed
upon ands or persona property, sha bnd the same, and be entted to prefer-
ence over a udgments, e ecutons, encumbrances, or ens, whensoever cre-
ated and a ta es assessed sha be a en upon and bnd the property
assessed, from the 1st day of anuary of the year In whch the assessment
sha be made and no property sha be e empt from dstress and sae for
ta es. nd t sha not be necessary to the vadty of an assessment, or of a
sae of and for ta es, that t sha be assessed to ts true owner but the
ta es sha be a charge on the and or persona property ta ed, and the sae
sha be a proceedng aganst the thng sod, and sha vest tte In the pur-
chaser, wthout regard to who may own the and or other property when as-
sessed or when sod, or whether wrongfuy assessed, ether to a person, or
to the State, or any county, cty, town, or vage, or subdvson of ether.
8121. What date f es abty to ta aton. ta abe property brought
nto the State or acqured or hed by any person before the 1st day of anu-
ary sha be assessed, and ta es thereon pad for the ensung year, provded,
however, that when a muncpaty Is created or the corporate mts thereof
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91
523(c), rt. 23(c)-.
e tended after the 1st dny of anuary of any year, It sba have, pror to uy 1
of sad year, the fu rght and power to assess sad property and coect ta es
for the current year to the same e tent as f t had been created or mts
e tended pror to the 1st day of anuary of that year. ut nothng n ths
secton sha be construed to mt the power of the State to defne and decare
the stus of partcuar speces of property havng no f ed stus at some pace
n ths State.
The ureau has consstenty hed that ownershp of property on
the date as of whch the assessment s made s the event whch
determnes the abty for ta es and f the ta payer s books of
account are kept on the accrua bass, he shoud accrue property ta es
as of that date. (See G. C. M. 15305, C. . I -2, 80, and de-
csons cted theren.) The rungs of the ureau have foowed the
prncpe ad down by the Supreme Court of the Unted States n
Unted States v. nderson (269 U. S., 422, T. D. 3839, C. . -,
179), wheren t was stated 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.
Wth respect to persona property, there appears to be no doubt
from the wordng of secton 3121 of the Msssspp Code, 1930,
that ownershp of the property on anuary 1 f es the abty for
ta es assessed for the ensung year. (The day as of whch per-
sona property shoud be assessed was formery ebruary 1.) In
dams v. Lamb- sh Lumber Co. (114 Mss., 534, 75 So., 378), the
Supreme Court of Msssspp ponted out that the abty for ta es
on persona property attaches as of the date of assessment. The
abty attaches to a persona property owned on that date re-
gardess of the fact that actua evy s made at a ater date.
s to rea property no specfc date s stated n the statute as of
whch assessment shoud be made, but the State court decsons nd-
cate that the date s the same as n the case of persona property,
that s, anuary 1. though the e act amount of the abty for
property ta es s not ascertaned unt ater n the year, the abty
reates back to the date as of whch the en for ta es attaches.
eksburg Waterworks Co. v. chsburg Water Suppy Co., 80
Mss., 68, 31 So., 535 Wdberger v. Shaw, 84 Mss., 442, 36 So., 539
Swnney v. Cockre, 86 Mss., 318, 38 So., 353 Mc enn/ aptst
Church v. McNea, 86 Mss., 22, 38 So., 195.) The en date pre-
scrbed by statute at the tme those cases were decded was ebru-
ary 1. That date has snce been changed to anuary 1. (See sec-
ton 3120 of the Msssspp Code, 1930.)
In vew of the foregong, t s hed that n Msssspp ownershp
of persona or rea property on anuary 1 of each year s the event
whch determnes the abty for ta es thereon, and ta payers
whose books of account are kept on the accrua bass shoud accrue
ther property ta es as of that date.
though secton 3120 of the Msssspp Code, 1930, was amended
by chapter 199 of the sesson aws for 1934, the amendment does not
n any way affect the concusons stated heren.
rthur . ent,
ctng ssstant Genera Counse for the
ureau of Interna Revenue.
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23(c), rt. 23(c)- .
92
etcb 23(c)-1: Ta es. -4-7920
I. T. 2953
R NU CT OP 1934.
The genera consumers saes ta Imposed by the West rgna
suppementa (emergency) revenue act of 1935, effectve uy 1,
1935, and termnatng une 30, 3937, s deductbe by the purchaser
or consumer as a tu In hs edera ncome ta return.
ta payer nqures whether he may deduct, for edera ncome
ta purposes, the saes ta pad by hm under the provsons of
rtce II of the West rgna suppementa (emergency) revenue
act of 1935.
Pror to the enactment of that act, a genera consumers saes ta
had been mposed by Tte II of the suppementa (emergency)
revenue act of 1934, effectve pr 1, 1934, and termnatng on
une 30, 1935. The ureau hed that the ta so mposed was
deductbe as a ta ony by the retaer or vendor. (I. T. 2812, C. .
III-2 51.)
rtce II of the suppementa (emergency) revenue act of 1935
s found n chapter 84 of the acts of the West rgna Legsature,
reguar sesson, 1935. The aw was passed March 9, 1935, became
effectve uy 1, 1935, and w termnate on une 30, 1937. The
provsons bearng on the queston nvoved read as foows:
Sec. 3. or the prvege of engagng In the busness of seng tan-
gbe persona property at reta, and of dspensng certan seected servces
defned In secton 6 of ths artce, a reta deaer sha coect from a purchaser
a ta of 2 per cent of the gross proceeds of each separate transacton, and sha
pay the amount coected to the ta commssoner In accordance wth the prov-
sons of ths artce.
purchaser sha pay the amount of the ta to the reta deaer. The reta
deaer sha keep the ta pad by the purchaser separate and apart from the
proceeds of sae and sha account to the State for a the ta pad by the
purchaser. There sha be no ta on saes where the monetary consderaton a
5 cents or ess. On each sae where the monetary consderaton s from 6 cents
to 50 cents, both ncusve, the ta payabe by the purchaser sha be 1 cent on
each sae where the monetary consderaton s from 51 cents to 1, both Incu-
sve, the ta payabe by the purchaser sha be 2 cents, and on each 50 cents of
such monetary consderaton, or fractona part thereof, n e cess of 1, the
ta payabe by the purchaser sha be 1 cent.
No proft sha accrue to any person by vrtue of the provsons of ths secton,
as a resut of the coecton of the ta heren eved upon purchasers, notwth-
standng that the tota amount of such ta es coected may be n e cess of the
amount for whch such person woud be abe by the appcaton of the evy
of 2 per cent to the gross proceeds of hs saes, and the tota of a ta es co-
ected by any such person sha be returned and remtted to the ta comms-
soner as herenafter provded.

Sec. 6. The provsons of ths tte sha appy not ony to seng
tangbe persona property, but aso to the furnshng of a servces, e cept
professona and persona servces, and e cept those servces furnshed by cor-
poratons sub|ect to the contro of the pubc servce commsson and the State
road commsson.

Sec. 8. It Is the ntent of ths artce that the ta eved hereunder
sha be passed on to and be pad by the consumer. The amount of the ta
sha be added to the saes prce, and sha consttute a part of that prce and
be coectbe as such.
Seo. 9. person engaged In any busness ta abe hereunder sha
not advertse or hod out to the pubc, In any manner, drecty or ndrecty,
that he w absorb a or any part of the ta , or that the ta Imposed by ths
artce s not to be consdered an eement n the prce to the consumer.
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93
23(c), rt. 23(c)-.
Secton 23 (c) of the Revenue ct of 1934 provdes that n comput-
ng net ncome there sha be aowed as deductons ta es pad or
accrued wthn the ta abe year, wth certan e ceptons not here ma-
tera. rtce 23(c)- of Reguatons 86, reatng to the Revenue
ct of 1934, provdes that n genera ta es are deductbe ony by the
person upon whom they are mposed. rom the provsons of the
State aw quoted above, t s cear that the egsatve ntent was to
mpose the ta under the West rgna suppementa (emergency)
revenue act of 1935 upon the purchaser or consumer and to make the
reta deaer the coector of the ta for and on behaf of the State.
Snce the ta s mposed upon the purchaser or consumer, he may
deduct the amount pad by hm as a ta n hs edera nrome ta
return. If, however, the ta s added to or made a part of hs bus-
ness e penses, or s otherwse used to reduce hs net ncome, t may
not be deducted separatey as a ta .
The foregong rung s appcabe ony to the genera consumers
saes ta mposed under the West rgna suppementa (emergency)
revenue act of 1935, and n no way aters the concuson reached n
L T. 2812, supra, under the consumers saes ta aw enacted n 1933.
rtce 23(c)-: Ta es. -5-7927
I. T. 2954
R NU CT OP 1034.
or edera Income ta purposes, the cgarette stamp ta , effec-
tve uy 1, 1935, Imposed by the State of Connectcut Is an aow-
abe deducton as a ta In the return of the dstrbutor or deaer
purchasng and aff ng the stamps. To the purchaser or consumer
of the cgarettes, the cost of the stamps s merey addtona cost
of the artce purchased.
dvce s requested as to who may take a deducton, for edera
ncome ta purposes, of the cgarette stamp ta mposed by the State
of Connectcut n 1935.
The aw under whch the ta s mposed s contaned n chapter 75a
of the Cumuatve Suppement to the Connectcut Genera statutes,
anuary Sessons, 1931,1933,1935. The aw appes ony to cgarettes
sod by dstrbutors, or hed by deaers for resae, between uy 1,
1935, and une 30,1939, ncusve. Provsons of the aw pertnent to
the ssue read as foows:
Sec. 464c. Defntons. Whenever used n ths chapter, uness the conte t sha
otherwse requre, the word dstrbutor sha mean any person
engaged n ths State In the busness of producng or manufacturng cgarettes
or Importng nto the State cgarettes at east 75 per cent of whch are purchased
drecty from the manufacturers thereof the word deaer sha
mean any person other than a dstrbutor, as defned heren, who s engaged n
ths State n the busness of seng cgarettes the word sae or
se sha ncude or appy to gfts, e changes and barter.
Sec. 4C5c. Deaers ard dstrbutors to be censed. ach person cngngng n
the busness of seng cgarettes n ths State, ncudng any dstrbutor or
deaer, sha secure a cense from the ta commssoner before engagng n such
busness, or contnung to engage theren after uy 1, 1035.

Sec. 468c. One m ta mposed. ta Is mposed on a cgarettes hed n
ths State by any person for sae, sad ta to be at the rate of 1 m for each
cgarette, and the payment thereof to be evdenced by the aff ng of stamps
to the packages contanng the cgarettes, as herenafter provded. ny cga-
rette on whch a ta has been pad, such payment beng evdenced by the aff -
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23(c), rt. 23(c)-.
94
ng of such stamp, sha not be sub|ect to a further ta under ths chapter.
Nothng contaned In ths chapter sha be construed to Impose a ta on any
transacton the ta aton of whch by ths State s prohbted by the Consttu-
ton of the Unted States.

Sec. 473c. Dstrbutors to aff stamps. ach dstrbutor sha aff , or cause
to bo aff ed, to each Indvdua package of cgarettes sod or ds-
trbuted by hm, stamps of the proper denomnaton, as requred by secton 468c.
Such stamps may be aff ed by a dstrbutor at any tme before the cgarettes are
transferred out of hs possesson.
Skc. 474c. Deaers to aff stamps. ach dener sha, wthn 24 hours after
uy 1, 1935, and wthn 24 hours after comng nto possesson of any cgarettes
not bearng proper stamps evdencng payment of the ta mposed by ths chap-
ter, and before seng such cgarettes, aff or cause to be aff ed, n such manner
as the commssoner may specfy In reguatons ssued pursuant to ths chapter,
to each Indvdua package of cgarettes, stamps of the proper denomnaton, as
requred by secton 468c.
Pertnent provsons of the reguatons pubshed n une, 1935,
by the ta commssoner of the State of Connectcut, reatng to the
statutes mposng a ta on the sae of cgarettes, read as foows:
3. ff ng of stamps. Dstrbutors seng cgarettes to censed
deaers and censed deaers seng cgarettes not purchased from a dstrbutor
n ths State, are requred to aff to each package of cgarettes a stamp
equa n vaue to 1 m for each cgarette contaned theren .
rom the foregong t appears that any person n the State of
Connectcut who s engaged n the busness of seng cgarettes must
secure a cense. Wth the e cepton of certan nonresdents engaged
n the busness of seng and shppng cgarettes nto the State,
stamps are sod ony to censed dstrbutors and censed deaers.
It s cear under the State aw and reguatons that the ta s mposed
upon the dstrbutors or deaers who, n purchasng and aff ng the
stamps, pay the ta .
Secton 23(c) of the Revenue ct of 1934 provdes that n com-
putng net ncome there sha be aowed as deductons ta es pad
or accrued wthn the ta abe year, wth certan e ceptons not here
matera. rtce 23(c)- of Reguatons 86, reatng to the Reve-
nue ct of 1934, states that n genera ta es are deductbe ony by
the person upon whom they are mposed.
or edera ncome ta purposeS| the cost of the stamps, whch
are requred by the aws of Connectcut to be purchased and aff ed
to packages of cgarettes, s an aowabe deducton as a ta n the
return of the dstrbutor or deaer purchasng and aff ng the
stamps. The cost of the stamps, however, may not be deducted sep-
aratey as a ta f t s ncuded as a part of the busness e pense
of the dstrbutor or deaer or s otherwse used to reduce hs net
ncome. To the purchaser or consumer of the cgarettes, the cost
of the stamps s merey addtona cost of the artce purchased.
rtce 23(c)-: Ta es. -5-7928
I. T. 2955
R NU CT O 1934.
The reta saes ta mposed by the State of Washngton, effec-
tve May 1, 1935, Is deductbe by the purchaser or consumer as a
ta n hs edera Income ta return.
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95
23(c), rt. 23(c)-
dvce s requested whether the saes ta mposed by the State
of Washngton s deductbe n the edera ncome ta return of the
consumer.
The ta on reta saes, effectve May 1, 1935, s mposed under
tte 3 of the State revenue act of 1935, chapter 180, Laws of Wash-
ngton, 1935. Provsons of the aw pertnent to the queston read
as foows:
Sbo. 16. rom and after the 1st day of May, 1035, there s hereby
eved and there sha be coected a ta on each reta sae n ths State
equa to 2 per cent of the seng prce.
t| O. 17. or the purposes of ths tte, uness otherwse requred
by the conte t:

(b) The term seer means every person engaged n the busness of makng
saes at rets or reta saes, whether as agent, broker, or prncpa

Sec 21. The ta hereby mposed sha be pad by the buyer to the
seer, and t sha be the duty of each seer to coect from the buyer the
fa amount of the ta payabe n respect to each ta abe sae. The amount
of ta sha be pad by the buyer n cash, or by token or n scrp havng the
face vaue of ether the purchase prce or that porton of the purchase prce
for whch the ta has not been pad n cash. In case any seer fas to coect
the ta heren mposed he sha be personay abe to the State for the
amount of such ta es as he fas to coect. The amount of ta , unt pad to
the seer, sha consttute a debt from the buyer to the seer and t amounts
coected by the seer sha be deemed hed n trust for the State.
Sm 22.
The commsson sha have power to requre that persons makng
reta saes sha purchase and keep on hand scrp or tokens for the purpose
of suppyng buyers therewth.
Sec 23. ach seer, on or before the 15th day of the month
succeedng the end of each bmonthy perod, sha make out a return for the
precedng bmonthy perod settng forth the amount of a saes,
nonta abe saes, a ta abe saes, the amount of ta thereon and such other
nformaton as the ta commsson may requre, sgn and transmt the same
to the ta commsson. The ta coected by a seer or accrued
under the provsons of ths tte sha be pad by the seer to the ta comms-
son : Provded, however, That the commsson sha have fu power
to provde, by reguaton, methods by whch scrp or tokens sha be redeemed,
accepted, transmtted or canceed n satsfacton of ta mposed under the
provsons of ths tte.
Sec. 24. The commsson may authorze a seer to prepay the ta
eved under ths tte upon saes made through vendng machnes or smar
devces, and wave the coecton of the ta from the customer. No such
authorty sha be granted e cept upon appcaton to the commsson and
uness the commsson, after hearng, sha fnd that the condtons of the
appcant s busness are such as to render mpractcabe the coecton of the
ta n the manner otherwse provded under ths tte.

Sec. 27. Whoever, e ceptng as e pressy authorzed pursuant to
ths act, refunds, remts or rebates to a buyer, ether drecty or ndrecty and
by whatsoever means, a or any part of the ta eved by ths tte, or muces
n any form of advertsng, verba or otherwse, any statements whch mght
nfer that he s absorbng the ta or payng the ta for the buyer by an ad-
|ustment of prces, or at a prce ncudng the ta , or n any other manner
whatsoever sha be guty of a msdemeanor.
Secton 23(c) of the Revenue ct of 1934 provdes that n com-
putng net ncome there sha be aowed as deductons ta es pad
or accrued wthn the ta abe year, wth certan e ceptons not here
matera. rtce 23(c)- of Reguatons 86, reatng to the Revenue
ct of 1934, provdes that n genera ta es are deductbe ony by
the persons upon whom they are mposed.
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23(o), rt. 23(c)- .
96
rom the State aw quoted above, t s cear that the egsatve
ntent was to mpose the ta on reta saes upon the buyer and to
make the seer the coector of the ta for and on behaf of the State.
Snce the ta s mposed upon the buyer or consumer, he may deduct
the amount pad by hm as a ta n hs edera ncome ta return.
If the ta s added to or made a part of hs busness e pense, or s
otherwse used to reduce hs net ncome, t may not be deducted
separatey as a ta .
Inasmuch as under secton 24 of tte 3 of the State aw authorty
may be granted to a seer to prepay the ta on saes made through
vendng machnes or smar devces and to wave the coecton of
the ta from the customer, n such cases the seer s entted to
deduct the amount of ta so pad as a ta n hs edera ncome ta
return.
rtce 23 (c)-: Ta es. -8-7962
I. T. 2957
R NU CT OP 1934.
The saes ta Imposed under the saes ta act of New ersey
(chapter 268, aws of 1935) s an e cse ta mposed for the prv-
ege of seng tangbe persona property at reta and s deductbe
by the retaer as a ta under secton 23(c) of the Revenue ct of
1934 n determnng hs net ncome sub|ect to edera ncome ta .
dvce s requested whether the New ersey saes ta s an a-
owabe deducton n the edera ncome ta return of the consumer
or retaer.
The ta n queston s mposed under the saes ta act of New
ersey, chapter 268, aws of 1935. The chapter s entted n act
mposng ta es for the prvege of seng tangbe persona prop-
erty at reta, provdng for the dsposton of the proceeds there-
from, and prescrbng the method of coecton. y the terms of
the aw the ta was effectve from uy 1, 1935, to une 30, 1938,
but the aw was repeaed by chapter 1 of the frst speca sesson,
aws of 1935 effectve at mdnght October 25, 1935. Provsons of
the act pertanng to the queston are as foows:
801. Defntons.

1. Reta saes or saes at reta means any sae of tangbe persona
property, n the ordnary course of busness, for consumpton or use or for any
purpose other than for resae n the form of tangbe persona property.
The term reta sae or sae at reta does not ncude an
Isoated transacton not beng made n the ordnary course of
repeated and successve transactons of a ke character

n. Ta payer means any person sub|ect to a ta mposed by the prov-
sons of ths act

401. Ta rate.
or the prvege of seng tangbe persona property at reta. In ths State,
durng the perod commencng uy 1, 1935, and endng une 30, 1938, every
person sha pay a ta of 2 per centum upon the tota gross seng prce thereof,
e cept as n ths act provded. Ths ta sha be n addton to a other ta es.
402. ddng taw to saes prce.
very retaer sha add the ta Imposed by ths act, or the average equva-
ent of sad ta , to hs saes prces, e cept as herenafter provded, and when
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23(c), rt. 23(c)-.
added the ta sha consttute a part of the prce, sha be a debt of the pur-
chaser to te retaer unt pad and sha be recoverabe at aw n the same
manner as the purchase prce.

405. Canceaton of sae ta credt.
Where a sae has been rescnded or canceed and the goods f devered have
been returned and Ihe fu sae prce and ta thereon have been refunded or
credted, the retaer sha be entted to a credt for the amount at the ta
whch woud have accrued had the sae not been rescnded or canceed. If
the ta has aready been pad to the commssoner the credt sha be apped
aganst any present or future abty of the retaer, under ths act, and f
there be no such abty the retaer sha be entted to a refund of the ta
so pad.

504. Ta a debt proceedngs to recover preference.
The ta es, fees, nterest and penates mposed by ths act, from the tme
the same sha be due, sha be a persona debt of the retaer to the State of
New ersey, recoverabe n any court of competent |ursdcton n an acton
at aw n the name of the State of New ersey.

503. Refunds and credts.
a. ny retaer, at any tme wthn two years after the payment of any
orgna or addtona ta assessed aganst hm, may fe wth the commssoner
a cam under oath for refund, .
b. If It sha be determned by the commssoner that there has
been an overpayment of ta , the amount of such overpayment sha be credted
aganst any abty of the retaer under ths act and f there be no sudh a-
bty the retaer sha be entted to a refund of the ta so overpad.
The foowng e cerpts from the rues and reguatons promu-
gated by the State ta commsson ndcate the admnstratve con-
cept as to who sha be regarded as the ta payer:
202. Nature of the ta . The saes ta Is a ta mposed upon every person
n the State of New ersey engaged, more or ess reguary, In makng saes
of tangbe persona property at reta. It Is a ta for the prvege of seng
tangbe persona property at reta and s measured by the tota gross saes
of such property.

302. Cass of property nvoved n a sae at reta. It Is for the
prvege of makng reta saes of ths knd of property tangbe persona
property that the ta Is mposed.
If a person Is engaged n the busness of renderng servces n whch the use
of suppes and materas s ncdenta, he s not abe to the State for the
payment of the saes ta on the suppes and materas used he s the con-
sumer and the ta must be ncuded n the prces he pays for hs suppes and
materas. The retaer who ses to hm s abe to the State for the ta .

601. Ta must be passed on to purchasers. Whe the ta s mposed upon,
and must be pad by, retaers, t must be passed on by the retaers to the
purchasers.
602. Schedue for passng on the ta . It s the ntent that the average
equvaent of the ta Imposed upon, and payabe by, each retaer sha be
passed on to consumers.
603. Ta abty not determned by the amount of ta passed on.
The State as the ta -coectng agency ooks ony to the retaers for the pay-
ment of the ta at the rate of 2 per cent of ther tota gross saes of tangbe
persona property, regardess of the amount passed on to consumers.
Secton 23(c) of the evenue ct of 1934 provdes that n com-
putng net ncome there sha be aowed as deductons ta es pad or
accrued wthn the ta abe year, wth certan e ceptons not here
matera. rtce 23(c)- of Reguatons 86, reatng to the Reve-
nue ct of 1934, provdes that n genera ta es are deductbe ony
by the person upon whom they are mposed.
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23 (o), rt. 23(c)- .
98
The pertnent provsons of the New ersey saes ta aw are not
entrey harmonous wth respect to the dentty of the ta payer.
Some provsons ndcate that the ta was ntended to be a prvege
ta eved upon the retaer and measured by the voume of gross
saes, whe others appear more consstent wth the vew that the con-
sumer was the ntended ta payer wth the retaer merey a coectng
agency for the State. owever, n vew of the tte of the act, whch
states that t s n act mposng ta es for the prvege of seng
tangbe persona property at reta, the provsons of the act mpos-
ng the ta (secton 401 of the New ersey saes ta act), and the
reguatons of the State ta commsson, t s the opnon of the u-
reau that the ta n queston s an e cse ta mposed upon the retaer
for the prvege of seng tangbe persona property at reta,
athough he s requred to pass the amount of the ta on to the pur-
chaser as part of the seng prce. The retaer, therefore, s entted
to deduct the amount as a ta under secton 23(c) of the Revenue ct
of 1934 n determnng hs net ncome sub|ect to edera ncome ta .
The ta may not be deducted, however, uness the amount thereof
coected by the retaer has been ncuded n hs gross ncome,.nor s
the ta deductbe f t has been refunded to hm. urthermore, the
amount may not be deducted separatey as a ta f t s added to or
made a part of the busness e pense of the retaer, or s otherwse
used to reduce hs net ncome. The purchaser or consumer may not
deduct the amount as a ta notwthstandng t s passed on to hm by
the retaer.
rtce 23 (c) -1: Ta es. -11-7994
I. T. 2960
R NU CT O 1034.
The e cse ta mposed upon an empoyer under secton 901 of
the Soca Securty ct s deductbe for edera ncome ta pur-
poses.
or edera ncome ta purposes an empoyer may deduct the
e cse ta mposed under secton 901 of the Soca Securty ct for
the year n whch such ta s pad or accrued, dependng upon the
method of accountng empoyed.
rtce 23 (c)-: Ta es. -12-8006
I. T. 2961
R NU CT O 1934.
The reta occupatona saes ta mposed by the State of South
Dakota, effectve uy 1, 1935, s deductbe by the consumer as
a ta n hs edera ncome ta return.
dvce s requested whether the reta occupatona saes ta
mposed by the State of South Dakota s deductbe by the retaer
or consumer for edera ncome ta purposes.
The aw under whch the reta occupatona saes ta of South
Dakota s eved s set forth n Dvson III (sectons 83 to 38) of
chapter 205, Laws of South Dakota, 1935. That chapter s entted
n act mposng and provdng for the coecton,
enforcement and admnstraton of a net ncome ta , and a ta
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99
23(c), rt. 23(c)-.
upon the e ercse of the prvege of engagng or contnung to
engage n the busness or occupaton of seng at reta as denned
heren . The act was approved March 14, 1935, and be-
came effectve uy 1, 1935.
Secton 34(a) or chapter 205 provdes:
There s hereby mposed as a ta upon the prvege of engagng
n busness as a retaer, a ta of two per cent (2 ) upon the gross recepts
from a aes of tangbe persona property, consstng of goods, wares, or
merchandse, e cept as otherwse provded n ths dvson, sod at reta In
the State of South Dakota to consumers or users. There s hereby mposed
a ke rate of ta upon the gross recepts from the saes, furnshng or servce
of gas, eectrcty, water and communcaton servce, ncudng the gross re-
cepts from such saes by any muncpa corporaton furnshng gas, eectrcty
and communcaton servce to the pubc n ts propretary capacty, e cept
as otherwse provded n Os dvson, when sod at reta n the State of
South Dakota to consumers or users and a ke rate of ta upon the gross
recepts from a saes of tckets or admssons to paces of amusement and
athetc events, e cept as otherwse provded n ths dvson.
The ta heren eved sha be computed and coected as herenafter provded.
Under the provsons of the aw, dscounts taken on saes and the
sae prce of property returned by purchasers when the fu sae prce
(ncudng ta ) s refunded to the purchasers are e cepted from the
computaton of gross recepts. Saes to certan purchasers, such
as the Unted States, the State of South Dakota, pubc or muncpa
corporatons, and reef agences, and saes of certan commodtes
aready ta ed by the State, such as gasone, beer, cgarettes, etc.,
are e empt. The retaer s requred to add the amount of the ta
to the saes prce and coect t from the purchaser, uness the drector
of ta aton sha determne that the use of tokens or coupons s the
most e pedtous method of coecton, n whch event the purchaser
may be requred to buy such tokens or coupons and the retaer w
coect the ta from the purchaser at the tme of the sae by coectng
the necessary amount of tokens or other evdence of ta payment.
Refunds are to be made to the retaer on account of property re-
turned to hm by the purchaser ony where the retaer has actuay
refunded the amount of the ta to the purchaser. The act contans
provsons estabshng the manner n whch the retaer sha return
and account for the amounts coected from the purchaser as a ta ,
and penates are provded for faure propery to coect and return
such amounts.
The drector of ta aton has ssued rues and reguatons wth
respect to the reta occupatona saes ta of South Dakota rtces
2 and 5 provde n part as foows:
bt. 2. Nature of the ta . In accordance wth the ntenton of the egsa-
ture, as e pressed n the act, the two per cent (2 ) saes ta s hereby decared
to be a consumer s ta .

rt. 5. Monthy returns and payment of ta .
Snce the two per cent (2 ) saes ta w be pad by consumers and the
merchants or deaers w act merey as ta coectors on behaf of the State,
the monthy returns and remttances must be fed wthn the tme prescrbed
by the act.
Secton 23(c) of the Revenue ct of 1934 provdes that n comput-
ng net ncome there sha be aowed as deductons ta es pad or
accrued wthn the ta abe year, wth certan e ceptons not here
matera. rtce 23(c)- of Reguatons 86, reatng to the Revenue
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23(o), rt. 23(c)- .
100
ct of 1934, provdes that n genera ta es are deductbe ony by
the person upon whom they are mposed.
In order to ascertan who s entted to the deducton for edera
ncome ta purposes of the reta occupatona saes ta mposed by
the State of South Dakota, t s necessary to determne the egsatve
ntent, that s, whether t was ntended to mpose the ta upon the
retaer or consumer. eatures of the act mposng the ta whch
ndcate that the consumer s the ntended ta payer are those whch
emphasze the mposton of the ta upon each sae as a separate
transacton (whch s not consstent wth the prncpe of a prvege
or cense ta ), provde for the e empton of certan commodtes
aready ta ed, requre the retaer to add the amount of the ta to
the sae prce and coect t from the purchaser at the tme of the
sae, and aow refunds to the retaer ony when he has refunded
the ta to the consumer. In addton, the drector of ta aton for
the State of South Dakota has hed that the ta s mposed upon
the consumer, that the consumer s the ta payer, and that the retaer
s merey the coector of the ta for the State.
The State aw and the reguatons thereunder thus ndcate that
t was the egsatve ntent to mpose the South Dakota reta occu-
patona saes ta upon the consumer. The ta beng mposed upon
the consumer, he may deduct the amount pad by hm as a ta n
hs edera ncome ta return. In the event the ta s added to or
made a part of hs busness e penses, or s otherwse used to reduce
hs net ncome, t may not be deducted separatey as a ta .
rtce 23(c)-: Ta es. -12-8007
I. T. 2962
R NU CT O 1034.
The saes ta Imposed under the Wyomng emergency saes ta
act of 1935 Is, wth one e cepton (snge unt purchases of 13 cents
or under), mposed upon the consumer, who may deduct the
amount pad by hm as a ta In hs edera Income ta return.
dvce s requested whether the saes ta of 2 per cent mposed by
the State of Wyomng s deductbe by the consumer.
The ta n queston s eved under the emergency saes ta act of
1935 chapter 74, Laws of Wyomng, 1935, effectve on and after
pr 1, 1935, and w e pre on March 31, 1937. Provsons of the
act pertnent to the queston are as foows:
Seo. 4. Prom and after the effectve date of ths act, wthn the mtaton
heren set out, there s hereby eved and there sha be coected and pad:
(a) ta upon every reta sae of tangbe persona property made wthn
the State of Wyomng equvaent to two (2 ) per cent of the purchase prce
pad or charged, or n the case of reta saes Invovng the e change of prop-
erty, equvaent to two (2 ) per cent of the consderaton pad or charged,
ncudng the far market vaue of the property e changed at the tme and
pace of the e change, e cept that, those commodtes now bearng a State
e pse ta n e cess of fve (6 ) per cent sha not be ta abe under the
provsons of ths act.
(b) ta equvaent to two per cent (2 ) of the amount pad: (1) to
carrers, or teephone or teegraph corporatons defned by the consttuton of
the State of Wyomng and aso as defned by aw, whether such corporatons
are muncpay or prvatey owned, for a transportaton, teephone servce, or
teegraph servce provded, that sad ta sha not appy to nterstate move-
ments of freght, passengers and e press (2) to pubc uttes, gas, eectrc,
and heat corporatons as defned by chapter nnety-four (04), Wyomng Revsed
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101
523(c), rt. 23(c)-.
Statutes, 1931, whether such corporatons are muncpay or prvatey owned
for gas, eectrcty, or heat, furnshed for domestc or commerca consumpton.
(c) ta equvaent to two per cent (2 ) of the amount pad for a meas
furnshed at any restaurant, eatng house, hote, drug store or other pace at
whch meas are reguary served to the pubc
(d) ta equvaent to two per cent (2 ) of the amount pad for adms-
son to any pace of amusement, entertanment or recreaton
(e) The State board of equazaton sha provde unform methods and
schedues for addng the ta or the average equvaent thereof to the seng
prce, and t sha be the duty of sad board to formuate and promugate
approprate rues and reguatons to effectuate the purpose of ths act pro-
vded, that the purchaser, consumer or user sha not n any snge unt pur-
chase of thrteen cents (130) or under, be requred to pay the ta as provded
heren, and n a such cases the retaer sha assume and pay sad ta .
Sec 5. very person recevng any payment or consderaton upon a sae
of property or servce sub|ect to the ta under the provsons of ths act, or
to whom such payment or consderaton s payabe (herenafter caed the
vendor) sha be responsbe for the coecton of the amount of the ta m-
posed on sad saes and sha, on or before the 15th day of each month, make
a return, under oath or affrmaton, to the State board of equazaton for the
precedng month and sha remt the ta es so coected to the State board of
equazaton. The vendor sha, n so far as the same can be done practcaby,
coect the ta from the vendee, .

If any vendor sha coect as a ta an amount n e cess
of 2 per cent of hs tota ta abe saes, he sha remt to the board the fu
amount of the ta heren mposed, and aso such e cess and f any vendor
under the pretense or representaton of coectng the ta .sha co-
ect an amount n e cess of 2 per cent of hs tota ta abe saes, the
retenton of such e cess or any part thereof, or the ntentona faure to remt
punctuay the fu amount s decared to be unawfu
and sha be punshabe by a fne of not e ceedng one thousand doars ( 1,C00)
or by mprsonment for not to e ceed s months, or by both such fne and
mprsonment.

Sec. 11. ta due and unpad under ths act sha consttute a debt due the
State from the vendor and may be coected, together wth nterest, penaty
and costs, by approprate |udca proceedngs, whch remedy sha be n
addton to a other e stng remedes.

Sec. 16. It sha be unawfu and a msdemeanor for any retaer to adver-
tse or hod out, or state to the pubc, or to any consumer, drecty or ndrecty,
that the ta or any part thereof mposed by ths act w be assumed or
absorbed by the retaer, or that t w not be consdered as an eement n the
prce to the consumer, or f added, that t, or any part thereof, w be
refunded.
Rues and reguatons were promugated by the State board of
equazaton on March 22, 1935. rtce 4 provdes n part that:
It s the obgatory and bndng duty of the retaer and of the
vendor of tangbe persona property, of meas, of admssons and of servce,
sub|ect to sad ta to charge to and coect from the purchaser
sad ta and to remt the same to the board as herenafter provded and he
w be hed abe and responsbe to the State for the entre amount of sad
ta es n a sum of not ess than two per cent (27c) upon hs gross ta abe
saes, .
Rue 2 of the speca rues promugated by the board reates to
refunds to consumers and provdes that when a retaer aows a
refund or credt to a customer and the refund or credt s deductbe
from the retaer s gross recepts, the retaer must return to, or
credt the customer wth, the amount of ta passed on to the
customer on the amount of deductbe gross recepts. Rue
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23(c), rt. 23(c)- .
102
46 states that the burden of proof s upon the seer to determne
whether the buyer s e empt from payment of the ta . The aw
and reguatons ndcate that t was the egsatve ntent to mpose
the ta , wth one mnor e cepton, on the buyer or utmate consumer,
and to make the retaer or vendor the coector of the ta for and
on behaf of the State.
Secton 23(c) of the Revenue ct of 1934 provdes that n com-
putng net ncome there sha be aowed as deductons ta es pad
or accrued wthn the ta abe year, wth certan e ceptons not
here matera. rtce 23(c)- of Reguatons 86, reatng to the
Revenue ct of 1934, provdes that n genera ta es are deductbe
ony by the person upon whom they are mposed.
Inasmuch as the ta under the Wyomng emergency saes ta
act of 1935 s, wth one e cepton, mposed upon the consumer, he
may deduct the amount pad by hm as a ta m hs edera ncome
ta return. If, however, the ta s added to or made a part of
hs busness e pense, or s otherwse used to reduce hs net ncome,
t may not be deducted separatey as a ta . The e cepton referred
to s the snge unt purchases of 13 cents or under. (See sub-
dvson (e) of secton 4 of the act.) The vendor s specfcay
requred to assume and pay the ta on such purchases. There s
nothng n the aw or reguatons to ndcate that the ta on such
purchases s determned by the vendor as a separate tem or treated
as other than a component part of the 2 per cent of the gross ta abe
saes n computng the amount for whch he s abe to the State.
Uness the ta on the snge unt purchases of 13 cents or under s
accounted for separatey as a ta by the vendor, t s not deductbe
by hm as a ta for edera ncome ta purposes.
rtce 23(c)-1: Ta es. -14-8025
L T.2965
R NU CT O 1934.
The ta mposed by the Mssour emergency revenue act of 1935
s deductbe by the consumer for edera ncome ta purposes.
dvce s requested whether the saes ta mposed by the Mssour
emergency revenue act of 1935 s deductbe by the consumer or
retaer.
The act n queston repeas a pror act, under whch a ta was m-
posed for the prvege of engagng n the busness of makng saes
at reta, and s effectve from ugust 27, 1935, to December 31,
1937. (See Laws of Mssour, 1935, page 411 et seq.) The tte
of the act states that t s an act to repea tho e stng saes ta aw
and to enact n eu thereof a new aw to provde for the rasng of
addtona revenue by mposng and evyng a ta of 1 per cent of
the purchase prce on saes at reta of tangbe persona property
and a ta of 1 per cent on the amount pad or charged for certan
servces. Provson s made for the coecton of the ta by the
vendor at the tme of the sae or renderng of servce. The act
makes t unawfu for the seer to advertse that the ta w be
assumed or absorbed by hm or that t w not be added to the se-
ng prce or charge for servce rendered, or, f added, that t w
be refunded. Pertnent provsons of the aw read as foows:
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103
23(c), rt. 23(c)-.
Sbo. 2. Ta mposed on reta sae of tangbe persona property, sae of serv-
ce, etc. mount of ta . rom and after the effectve date of ths act and
np to and ncudng December 31, 1937, there sha be and s hereby eved aud
mposed and there sha be coected and pad:
(a) Upon every reta sae n ths State of tangbe persona property a
ta equvaent to one (1) per cent, of the purchase prce pad or charged,
or n case such sae nvoves the e change of property, a ta equvaent to
one (1) per cent of the consderaton pad or charged, ncudng the far market
vaue of the property e changed at the tme aud pace of the e change.
(b) ta equvaent to one (1) per cent of the amount pad, for admsson
and seatng accommodatons to any pace of amusement, entertanment or
recreaton, games and athetc events.
(c) ta equvaent to one (1) per cent of amounts pad or charged on a
saes of eectrcty or eectrca current, water and gas (natura or artca),
to domestc, commerca or ndustra consumers.
(d) ta equvaent to one (1) per cent on amounts pad or charged on
a saes of servce to teephone subscrbers and to others through equpment
of teephone subscrbers for the transmsson of messages and conversatons,
both oca and ong dstance, and upon the sae, renta or easng of a equp-
ment or servces pertanng or ncdenta thereto.
(e) ta equvaent to one (1) per cent of amounts pad or charged for
a saes of servces for transmsson of messages by teegraph companes.
(f) ta equvaent to one (1) per cent of the amounts pad or charged
for advertsng of whatever knd or character to be pubshed n newspapers
or magaznes or to be dspayed on bboards or other knd of ndoor or out-
door advertsng devces or to be broadcast over rado statons or to be dspayed
by any stereoptcon or moton pcture.
(g) ta equvaent to one (1) per cent of the amount pad or charged
for the makng or renderng of any sae, servce or transacton by any com-
merca aundry, or for ceanng, pressng or dyeng.
(h) ta equvaent to one (1) per cent of the amount pad or charged
for tckets, fares and servces by every person operatng a raroad, seepng
car, dnng car, e press car, and such buses and trucks as are censed by the
Pubc Servce Commsson of Mssour, engaged In the transportaton of per-
sons or freght for hre.
() ta equvaent to one (1) per cent on the amount of saes or charges
for a rooms, meas and drnks furnshed at any hote, tavern, nn, restaurant,
eatng house, drug store, dnng car, tourst cabn, tourst camp or other pace
n whch rooms, meas or drnks are reguary served to the pubc.

Seo. 5. Person makng sae responsbe for ta Ta s upon sae Penaty
for faure to pass on ta . very person recevng any payment or consdera-
ton upon the sae of property or renderng of servce sub|ect to the ta
mposed by the provsons of ths act, or requred to make coecton of tho
ta mposed by the provsons of ths act, sha be responsbe not ony for
the coecton of the amount of the ta mposed on sad sae or servce but
sha, on or before the 15th day of each month, make a return to the State
audtor of a ta es coected for the precedng month or requred to be co-
ected for the precedng month, and sha remt the ta es so coected or
requred to be coected to the State audtor. The seer of any property
or person renderng any servce, sub|ect to the ta mposed by ths act s
drected to coect the ta from the purchaser of such property or the recpent
of the servce as the case may be.
The State audtor has ssued rues and reguatons under the
Mssour emergency revenue act of 1935. rtces 1, 2, and 15
provde n part as foows:
rtce 1. The act Imposes a ta upon the transacton or sae of
tangbe persona property at reta and/or certan servces from ugust 27,
1935, to December 31, 1937.

rt. 2.
Ths ta Is upon the sae, servce or transacton and sha be coected by the
person makng the sae of tangbe persona property or renderng the servces
embraced n the act

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23 (c), rt. 28(c)- .
104
bt. 15.
( )
ut n any event the merchant Is requred to coect the equvaent
of 1 per cent In ta and at the end of the month must fe hs report and remt
the ta on a 1 per cent bass.
In the opnon of ths offce, the tte of the act, ts provsons,
and the reguatons thereunder ceary show that the e cse ta n
queston s mposed upon the purchaser or utmate consumer and
that the seer s the coector of the ta for and on behaf of the
State.
Secton 23(c) of the Revenue ct of 1934 provdes that n com-
putng net ncome there sha be aowed as deductons ta es pad
or accrued wthn the ta abe year, wth certan e ceptons not here
matera. rtce 23(c)- of Reguatons 86, reatng to the Revenue
ct of 1934, provdes that n genera ta es are deductbe ony by
the person upon whom they are mposed. Inasmuch as under the
Mssour emergency revenue act of 1935 the saes ta s mposed upon
the consumer, ne may deduct the amount pad by hm as a ta n hs
edera ncome ta return. In the event the ta s added to or made
a part of hs busness e penses, or s otherwse used to reduce hs
net ncome, t may not be deducted separatey as a ta .
rtce 23 (c)-: Ta es. -16-8048
I. T. 2968
R NU CTS O 1928, 1982, ND 1934.
The e cse ta Imposed by the State of Oho on the use, ds-
trbuton, or sae of motor vehce fue Is deductbe for the ta abe
year 1935 and subsequent ta abe years n the edera ncome ta
return of the consumer who pays t and to whom t s not
refunded
The e cse ta mposed on the use, dstrbuton, or sae of qud
fue s deductbe by the deaer for edera Income ta purposes.
I. T. 2472 (C. . III-1, 74) revoked.
dvce s requested whether the motor vehce fue ta and the
qud fue ta mposed bv the State of Oho are deductbe by the
purchaser or the deaer n hs edera ncome ta return.
In I. T. 2472 (C. . III-1, 74) the ureau hed that the deaer
was entted to a deducton of the gasone ta mposed by the State
of Oho. Subsequent to that rung numerous changes have been
made n the State aw. The statutory provsons under whch the
ta s eved are found n the Permanent Suppement, 1926-1935, to
Page s nnotated Oho Genera Code, chapter 9, sectons 5522 to
5542 18c. The aw has snce been amended by 116 Oho aws (page
422), 1935, effectve September 2, 1935, wthout effectng any sub-
stanta change n the sectons quoted heren. The pertnent sectons
read as foows:
Sec. 5527. cse ta of cents per gaon on motor vehce fue pur-
pose e emptons. or the purpose of provdng revenue for mantanng the
State hghway system of ths State In passabe condton for trave, for repar-
ng the damage caused to such hghway system by motor vehces used on the
same, for wdenng e stng surfaces on such hghways where such wdenng
s rendered necessary by the voume of motor vehce traffc thereon, for resur-
facng such hghways where e stng surfaces have become worn or rutted, for
enabng the severa countes of the State to propery mantan and repar ther
roads and for enabng the severa muncpa corporatons of the State propery
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105
23(c), rt. 23(o)-.
to mantan, repar, construct and repave ther streets, and suppementng reve-
nue aready avaabe for such purposes and arsng from drect ta aton and
from regstraton fees of motor vehces, and for dstrbutng equtaby upon
those persons usng the prvege of drvng such motor vehces upon such hgh-
ways and streets a far share of the cost of mantanng and reparng the same,
an e cse ta s hereby Imposed on a deaers n motor vehce fue upon the
use, dstrbuton or sae wthn ths State by them of motor vehce fue at the
rate of one and one-haf cents (1 ) per gaon so used, dstrbuted or sod, to
be computed In the manner herenafter set forth .

Sbo. 5534. Refund of ta appcaton for refund rght to receve refund
not transferabe e cepton. ny person who sha use any motor vehce fue
on whch the ta heren mposed has been pad, for the purpose of operatng or
propeng statonary gas engnes, road roers, power shoves, tractors not used
on pubc hghways, uncensed motor vehces used e cusvey n ntrapant
operatons, motor boats or arcraft, or who sha use any such fue upon whch
the ta heren provded for has been pad, for ceanng or dyeng, or any other
purpose than the propuson of motor vehces upon the hghways of ths State
sha be rembursed to the e tent of the amount of the ta so pad on such
motor vehce fue n the foowng manner: Provded, however, That such
appcatons for refunds must be fed wth the ta commsson of Oho wthn
90 days from the date of purchase or Invoce.

The rght to receve any refund under the provsons of ths secton sha not
be assgnabe, e cept to the duy censed deaer who sha have sod to the
user the motor-vehce fue upon whch the cam for refund Is based.

Sec. 5541. ddtona e cte ta of 1 cents per gaon on motor vehce
fue purpose. or the purpose of provdng revenue an e cse ta
s hereby Imposed on a deaers n motor vehce fue, upon the use, dstrbu-
ton, or sae wthn the State by them of motor vehce fue, at the rate of one
and one-haf cents (1 0) per gaon so used, dstrbuted or sod, sub|ect to
the specfc e emptons theren set forth, to be reported, computed, pad,
coected, admnstered, enforced and refunded, and the faure propery and
correcty to report and pay same penazed n e acty the same manner as Is
provded In sectons 5527 to 5536-1, both ncusve, of the genera code and a
of the provsons contaned In sad sect ons 5527 to 5536-1, both ncusve, of
the genera code, reatng to motor vehce fue e cse ta es sha be, and the
same hereby are reenacted and Incorporated as If specfcay set forth heren
wheh ta sha be In addton to the ta mposed under sad sectons 5527 to
5536-1 of the genera code.
Secton 23 c) of the Revenue ct of 1934 and the correspondng
provsons of pror Revenue cts provde that n computng net
ncome there sha be aowed as deductons ta es pad or accrued
wthn the ta abe year, wth certan e ceptons not here matera.
rtce 23(c)- of Reguatons 86, reatng to the Revenue ct of
1934, and correspondng provsons of reguatons promugated under
pror Revenue cts provde that n genera ta es are deductbe ony
by the persons upon whom they are mposed. Whe some of the
anguage of the Oho statutes under whch the ta on motor vehce
fue s mposed may ndcate that the deaer s the one upon whom
the ta s mposed, that vew s not consstent wth secton 5527,
wheren t s stated that the purpose s for dstrbutng equtaby
upon those persons usng the prvege of drvng such motor vehces
upon such hghways and streets a far share of the cost of man-
tanng and reparng the same. urthermore, secton 5534, wth
respect to rembursements, provdes that the person who uses motor
vehce fue for purposes other than the propuson of motor vehces
s entted to a refund of the amount of ta pad.
That t was the egsatve ntent to mpose the ta upon the
consumer and to charge the deaer wth ts coecton s borne out
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23(c), rt. 23(c)- .
106
by the anguage of the decsons of the Oho courts n State v. Can-
fed O Co. (34 Oho pp., 267, 171 N. ., I), Cncnnat OU
Works Co. v. Cty of Cncnnat (40 Oho pp., 8, 177 N. ., 768),
and State v. rown (112 Oho St., 500, 148 N. ., 95).
It s hed, therefore, that the e cse ta mposed by the State of
Oho on the use, dstrbuton, or sae of motor vehce fue s de-
ductbe as a ta n the edera ncome ta return of the consumer
who pays t and to whom t s not refunded. If, however, such ta
s added to or made a part of the busness e pense of the con-
sumer, t may not be deducted by hm separatey as a ta . Under
the authorty granted by secton 08(a) of the cvenue ct of 1926,
as amended by secton 605 of the Revenue ct of 1928 and secton
506 of the Revenue ct of 1934, ths rung w be apped to n-
come ta returns for 1935 and subsequent ta abe years ony. Snce
I. T. 2472, supra, s nconsstent wth ths rung, t s hereby
revoked.
Provson s made n an act approved uy 1, 1933 (115 Oho Laws,
1933, 631), for the evy and coecton of a ta on the use, dstrbu-
ton, or sae of qud fue wthn the State of Oho. Lqud
fue s defned under secton 5542-1 to ncude any voate or
nfammabe qud by whatever name such qud may be known
or sod, whch s used or usabe, ether aone or when m ed or
compounded, for the purposes of generatng ght, heat or power,
or for any purpose whatsoever and wthout pre|udce to the gen-
eraty of sad descrpton, ncudes gasone, kerosene and a other
ke substances, but does not ncude tar or petroeum resdue os
from whch gasone and kerosene have been e tracted.
The ta s mposed n the foowng terms:
Sec. 5542-2. Purpose of ta rate. or the purpose of affordng te ad-
vantages of a free educaton to the youth of the State and to defray the
e penses of admnsterng ths act, an e cse ta s hereby mposed on a
deaers n qud fue upon the use, dstrbuton or sae wthn ths State by
them of qud fue on and after the day of passage of ths act, and to and
ncudng the 31st day of December, 1935, at the rate of one cent (10) per ga-
on so used, dstrbuted or sod, to be computed n the manner herenafter set
forth .
The ony refunds provded n the case of qud fue (sectons
5542-12 and 5542-14) are to the deaer for the ta pad on qud
fue ost or destroyed or on e cess gaonage reported sod over the
amount receved.
It s hed that the ta of 1 cent per gaon mposed by the State
of Oho on the use, dstrbuton, or sae of qud fue s mposed
on the deaer and s deductbe by hm as a ta for edera ncome
ta purposes. The ta , however, may not be deducted separatey
as a ta f t has been ncuded as a part of the busness e penses
of the deaer or s otherwse used to reduce hs net ncome. ny
part of the ta whch has been refunded to the deaer may not be
deducted and, f the ta has been passed on to the consumer, the
amount coected must be ncuded n gross ncome.
Guy T. eveeno,
Commssoner of Interna Revenue.
pproved.
Watne C. Tayor,
ctng Secretary of the Treasury.
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107
523(c), rt. 23(c)- .
rtce 23(c)-1 : Ta es. -18-8066
I. T. 2971
NT CT O 1934.
The Caforna franchse ta accrues on the frst day of a ta -
payer s ta abe year. ta payer keepng Its books on the accrua
bass s entted to deduct n ts return for the fsca year ended
uy 31, 1935, the amount of ts Caforna franchse ta whch
accrued on ugust 1, 1934, the ta beng measured by the ta -
payer s net Income for the fsca year ended uy 31, 1934.
dvce s requested reatve to the proper accrua date for ed-
era ncome ta purposes of the Caforna franchse ta under the
aw now n effect.
On uy 31, 1935, the M Corporaton had accrued a State fran-
chse ta abty based upon ts net ncome from ugust 1, 1934,
to uy 31, 1935. It contends that such ta s deductbe n ts
edera ncome ta return fed for the same perod. In support
of that vew the ta payer rees upon the decson of the Unted
States Supreme Court n Unted States v. nderson et a. (269
U. S., 422, T. D. 3839, C. . -, 179).
The ureau hed that a corporaton fng ts return on the accrua
bass for the caendar year 1931 was entted to deduct for that year
the amount of the Caforna franchse ta mposed by the act of
March 1, 1929 (as amended by chapters 64 and 65, Caforna
Statutes, 1931), whch ta accrued on anuary 1, 1931, and was
measured by the net ncome for the caendar year 1930. (I. T.
2770, C. . n-1, 111.) The statute of 1929, however, has been
further amended by chapters 275 and 353, Caforna Statutes, 1935,
effectve une 6 and une 25, 1935, respectvey. Pertnent pro-
vsons of the aw, sectons 4, 11, 12, and 23, as amended by chapters
275 and 353, read as foows:
Sec. 4. (1)
(3) every corporaton sha annuay pay to the State,
for the prvege of e ercsng ts corporate franchses wthn ths State, a ta
accordng to or measured by ts net ncome, to be computed, n the manner
herenafter provded, at the rate of 4 per centum upon the bass of ts net
Income for the ne t precedng fsca or caendar year.

(7) Ta es under ths secton sha accrue on the frst day of the
ta abe year, as defned n secton 11 hereof.

(8) The provsons of ths subdvson, and of a other amendments to ths
act enacted durng the year 1935, sha appy to ta abe years begnnng after
December 31, 1934. Provded, however, that the ta for ta abe years be-
gnnng pror to anuary 1, 1935, and endng durng the caendar year 1935,
sha be ad|usted .

Sec. 11. (a) The term ncome year, as heren used, means the caendar
year, or the fsca year endng durng such caendar year, upon the bass of
whch the net Income s computed heren.
(b) The term ta abe year, as heren used, means the caendar year, or
the fsca year endng durng such caendar year, for whch the ta Is
payabe.

Sec. 12. 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,
In accordance wth the method of accountng reguary empoyed n keepng
the books of such ta payer .
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23 e|, rt. 23(c)- .
108
Sec. 23.

In the case of corporatons of the casses referred to n subdvson (3) of
secton 4 of ths act, one-haf the amount of ta dscosed by the return,
sha be due and payabe as a frst nstament of the ta on such corporatons,
on or before the 15th day of the thrd month foowng the cose of the ncome
year, as defned n secton 11 hereof. The baance of the ta sha be due and
payabe as a second Instament, on or before the 15th day of the nnth month
foowng the cose of the ncome year. ta mposed by ths act or any
nstament thereof may be pad at the eecton of the ta payer, pror to the
date prescrbed for ts payment.
The nstant case s not parae wth Unted States v. nderson,
supra. In that case t was hed that where a ta payer kept ts books
on the accrua bass and set up a reserve durng the year 1916 for
the muntons manufacturer s ta mposed by the Revenue ct of
1916, the muntons ta shoud be taken as a deducton n the ncome
ta return for the year 1916, as accrued, and not n the return for
the year 1917 when the ta was pad. In the nstant case the ta
for the fsca year ended uy 31, 1935, accrued, as provded by the
Caforna aw, on the 1st day of the ta abe year. That s, the ta
for the fsca year ended uy 31, 1935, accrued on ugust 1, 1934,
n the case of a corporaton e ercsng ts franchse on that date.
The ta s for the fsca year ended uy 31, 1935, not the fsca year-
ended uy 31, 1934, though measured by the net ncome for the
fsca year ended uy 31, 1934. ccordngy, a ta payer on the
accrua bass, fng ts edera ncome ta return for tne fsca year
ended uy 31, 1935, s entted to deduct n the return for that year
the amount of the franchse ta accrued on ugust 1,1934, whch ta
s measured by the ta payer s net ncome for the fsca year ended
uy 31, 1934. (See aso Petauma Santa Rosa Raroad Co. v.
Commssoner, 11 . T. ., 541, n whch t was hed that the Cafor-
na State franchse ta , based upon the gross recepts for 1920, was
an e pense of the busness for 1921 and coud not be deducted n the
pror year as an accrued abty.)
rtce 23 (c)-1: Ta es. -19-8076
( so Secton 23 (a), rtce 23 (a)-.) I. T. 2972
R NU CT O 1 34.
Where a ta payer uses the accrua method of accountng, add-
tona ta es assessed by the State of Lousana on merchandse
n the ta payer s warehouse on the ast day of the years 1931,
1932, and 1933, and whch were pad In 1935, are aowabe deduc-
tons for the year n whch the orgna ta es on the merchandse
accrued.
ttorney s fees pad n 1935 n connecton wth tgaton con-
cuded n that year wth respect to the ta es are an aowabe
deducton n the return for that year.
dvce s requested reatve to the deductbty of certan ta es
and attorney s fees.
The State of Lousana Ta ng Commsson ncreased the assess-
ment on consgned merchandse hed n the ta payer s warehouse
on the ast day of the years 1931, 1932, and 1933, resutng n ta es
payabe n 1932 of 10.53a doars, n 1933 of 4.21a doars, and n
1934 of 5.26a doars. In the year 1935 the ta payer pad the tota
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109
23(o), rt. 23(c)-.
amount of addtona ta es (20a doars) and attorney s fees of 6a|
doars n connecton therewth. Durng the years under consdera-
ton the ta payer used the accrua method of accountng and fed
ts returns on the caendar year bass.
Under secton 23(c) of the Revenue cts of 1928, 1932, and 1934,
provson s made for the deducton of ta es from gross ncome for
the year n whch they are pad or accrued. The ureau has hed
that persona property ta es n Lousana accrue, for edera ncome
ta purposes, on anuary 1 of each year. The ta s for the perod
of the caendar year and s assessed as of the 1st day of anuary
of the year n whch the assessment s made, (I. T. 2643, C. .
I 2, 81.) In the assessment of merchandse or stock n trade on
hand durng the year precedng the caendar year n whch the as-
sessment s made, the nventory vaue, as prescrbed by Lousana
statutes, furnshes the bass for the assessment. (Secton 8328,
voume 3, Lousana Genera Statutes, Dart, nnotated, 1932.)
To a ta payer whose books are kept on the accrua bass, ta es
are deductbe from gross ncome for the ta abe year n whch such
ta es accrue and not for the year n whch they are pad. (Unted
States v. nderson. 269 U. S., 422.) It appears that the addtona
ta es of 10.53a doars, based on December 31, 193-1, fgures, were
assessabe as of anuary 1, 1932, accrued on that date, and consttute
ta es for the caendar year 1932 that, smary, the addtona ta es
of .21 doars accrued as of anuary 1, 1933, and consttute ta es
for the caendar year 1933 and that the ta es of 6.26a doars
accrued as of anuary 1 1934, a nd consttute ta es for 1934.
Inasmuch as the addtona ta es were eved by reason of a vaua-
ton paced on the property by the ta ng authortes n e cess of
that orgnay reported for the years n queston, the ta payer s
not entted to the deducton of the tota addtona ta es n the
return for 1935. Such defcences n ta accrue as of the date the
orgna ta accrued. ( . R R. 1153, C. . 1-2, 92 I. T. 1953, C. .
m-1, 139 I. T. 1984, C. . III-, 140 I. T. 2500, C. . III-2,
103.) The addtona ta of 10.53a doars s, therefore, an aowabe
deducton for 1932, the addtona ta of 4.21a doars s deductbe
for 1933, and the addtona ta of 5.26a doars s deductbe for
1934.
Snce the tgaton concernng the payment of the addtona ta es
was concuded n 1935, the attorney s fees pad n that year are an
aowabe deducton as an ordnary and necessary busness e pense
n the return for 1935.
rtce 23(c)-: Ta es. -22-8101
G. C. M. 16491
R NU CTS OP 1932 ND 1084.
The cense ta on chan stores Imposed by secton 2, chapter 469,
Laws of Wsconsn, 1963 (approved uy 25, 1933), Is not deductbe
for edera ncome ta purposes even though accrued on the ta -
payer s books In 1933 and 1934, Inasmuch as the ta never became
operatve.
dvce s requested as to the proper accrua date of the cense
ta mposed upon chan stores by secton 2, chapter 469 of the Laws
of Wsconsn, 1933.
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23(c), rt. 23(c)- .
110
The act, desgnated as chapter 469, and entted n act to create
secton 76.75 and subsecton (5) of secton 20.09 of the statutes, re-
atng to an emergency occupatona ta on chan stores, provdng
penates, and makng an appropraton, was approved uy 25,1933
(pubshed uy 28, 1933), and was to termnate December 31, 1935.
Secton 1 of the act mposed an occupatona ta on chan stores
measured by gross ncome at graduated rates. Secton 2 of the act
reads n part as foows:
Sec. 2. If t s fnay determned that the occupatona ta on chan stores
mposed n secton 1 of ths act s nvad, ether n ts entrety or n ts app-
caton to any partcuar person or group, then such person sha mmedatey
be requred to secure a cense and pay a cense fee as herenafter provded,
effectve as of uy 1, 1933.
The fees for censes to engage n the chan store busness ranged
from 10 to 100 for each store, dependng upon the number of stores
operated n the State.
Secton 3 of the act reads as foows:
Sec. 3. It s the ntent of the egsature that In the event that the provsons
of secton 1 of ths act are fnay decared nvad as to any person or group,
such person or group sha be requred to pay the cense fees prescrbed n
secton 2 the same as f sad secton took effect on uy 1, 1933, e cept for
such perod for whch such person sha have pad a cense fee under chapter
29, aws of the speca sesson of 1931-32. It s aao the ntent of the egsa-
ture that n the event that secton 2 of ths act takes effect by reason of secton
1 beng decared nvad, the emergency board sha provde such funds for the
department of agrcuture nnd markets as may be necessary to carry out ts
functons under secton 2 of ths act.
Under date of une 4, 1935, the Supreme Court of Wsconsn n
d Schuster Co., Inc., v. enry (218 Ws., 506, 261 N. W., 20)
hed that the Wsconsn statute n mposng a graduated occupatona
ta on gross ncomes of chan stores was vod as arbtrary and ds-
crmnatory under the equa protecton cause of the fourteenth
amendment to the Consttuton of the Unted States. That case
was consodated wth Wadhams O Co. v. enry. Petton for
wrt of certorar to the Unted States Supreme Court was fed n
the atter case but the petton was dened under date cf October
21,1935 (296 U.S., 625). (Cf. Stewart Dry Goods Co. v. Lews, 294
U. S., 550, reatng to a smar ta mposed by the State of en-
tucky.) efore the petton for wrt of certorar was dened, how-
ever, the Wsconsn Legsature enacted a aw whch was approved
October 2, 1935 (pubshed October 4, 1935), chapter 545, Laws
of Wsconsn, 1935, repeang secton 76.75 and subsecton (7) of
secton 20.09 of the Wsconsn Statutes and secton 2 of chapter
469, Laws of Wsconsn, 1933. That act, effectve upon pubcaton
on October 4,1935, mposed a graduated occupatona ta upon chan
stores rangng from 25 to 250 per store and dependng upon the
number of stores operated. In vew of the fact that the occupatona
ta on chan stores was decared nvad by the Supreme Court
of the State of Wsconsn and petton for wrt of certorar was
dened by the Unted States Supreme Court, nqury has been made
reatve to the proper accrua date for edera ncome ta purposes
of the cense ta mposed by secton 2 of chapter 469 of the Laws
of Wsconsn, 1933, quoted above.
In Unted States v. nderson (269 U. S., 422, T. D. 3839, C. .
-, 179), t was stated that n advance of the assessment of a ta
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23(c), rt. 23(c)-.
a the events may occur whch f the amount of the ta and
determne the abty of the ta payer to pay t. though that
case reated to the accrua of muntons ta es, the genera prn-
cpe ad down has been cted as a precedent n many cases deang
wth the queston as to the proper accrua date of ta es. Under
the provsons of secton 2 of chapter 469, Laws of Wsconsn, 1933,
the cense ta mposed by that secton dd not become effectve
uness the occupatona ta on chan stores (secton 1) measured by
gross ncome shoud be fnay decared nvad. The queston
whether the occupatona chan store ta was nvad was not fnay
determned unt petton for wrt of certorar was dened by the
Unted States Supreme Court on October 21, 1935. The dena of
the petton for wrt of certorar on that date mght we have
been consdered the event whch determned the abty of chan
stores for the cense ta mposed by secton 2 of the Wsconsn aw,
but before tgaton of the queston of the consttutonaty of the
occupatona chan stores ta , measured by gross ncome, was term-
nated by dena of the petton for wrt of certorar on October
21, 1935 the egsature on October 2, 1935, repeaed the aw m-
posng the ta . It foows that secton 2, chapter 469, Laws of
Wsconsn, 1933, never became operatve because the cense ta
(based on the number of stores conducted) was not, by the e press
provson of that secton, to become effectve uness and unt the
provsons of secton 1, chapter 469, Laws of Wsconsn, 1933. (whch
unposed an occupatona ta on chan stores), were fnay decared
to be nvad.
Inasmuch as the cense ta referred to n secton 2 of chapter
469, Laws of Wsconsn, 1933, never became operatve, havng been
repeaed before secton 1, mposng an occupatona ta on chan
stores, was fnay determned nvad, a ta payer n that State may
not, for edera ncome ta purposes, take a deducton for any
amount of such ta whch he may have accrued on hs books for
the years 1933 and 1934. (Wth respect to the aowance of deduc-
tons for ta es decared to be unconsttutona, see I. T. 2578, C. .
-, 119.)
erman Otphant,
Genera Counse for the Department of the Treasury.
rtce 23(c)-1: Ta es. -23-8113
I. T. 2977
R NU CT O 1934.
The emergency gross recepts ta mposed by the State of Mary-
and (effectve from pr 1, 1935, to March 31, 1930) s deductbe
as a ta by the vendor for edera ncome ta purposes.
dvce s requested whether the vendor or the consumer s entted
to a deducton for edera ncome ta purposes of the emergency
gross recepts ta mposed by the State of Maryand.
The aw under whch the ta was mposed s set forth n chapters
188 and 539 of the Laws of Maryand, 1935. It was effectve from
pr 1, 1935. to March 31, 1936. Chapter 188 s entted n act to
add a new subtte and 17 new sectons to artce 56 of the nnotated
Code of Maryand, 1929 Suppement, tte Lcenses, sad new sub-
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23(c), rt. 23(c)- .
112
tte to be known as mergency Gross Recepts Ta , and sad new
sectons to be known as sectons 72- an(| 72- , to foow-
mmedatey after secton 72 of sad artce, provdng for the evy
and coecton of a ta for the prvege of engagng n the bus-
ness of seng tangbe persona property at reta at the rate of
1 per cent of the gross recepts from such saes provdng
the method and manner of coectng sad ta and mposng penates
for voatons of the provson of ths act.
Provsons of the act pertnent to the queston nvoved read as
foows:
72- . Defntons.

(d) The word vendor means any person who engages n the busness of
seng at reta tangbe persona property sub|ect to the ta mposed by ths
act, whether such person s a manufacturer, producer, whoesaer, |obber or
retaer.

(g) The word consumer means the purchaser at fna sae or the user of
any tangbe persona property sub|ect to the ta Imposed by ths act.

72- . or the prvege of engagng n the busness of seng tangbe persona
property at reta, there s hereby mposed upon every person engagng n such
busness a cense fee or ta , n addton to a other fees or ta es mposed by
aw, at the rate of 1 per centum of the gross recepts of any such person, on
or after pr 1, 1935, to and ncudng March 31, 1930, from the sae of a
tangbe persona property at reta n ths State.
72-C. n or before the 10th day of May, 1935, and on the 10th day of each
caendar month thereafter, every vendor who has made any saes at reta sub-
|ect to the ta hereby mposed durng the precedng caendar month, sha make
a return to the comptroer, and sha pay the comptroer the amount
of the ta heren mposed.

72- . (a) s soon as practcabe after the return s fed, the comptroer sha
e amne t and compute the ta . If the amount pad e ceeds the amount whch
shoud have been pad, the e cess sha be refunded by the comptroer or cred-
ted on account of future ta es accrung from the same ta payer or hs sucessor
or assgns.

72- . very ta mposed by ths act and a ncreases, nterest and penates
thereon sha become, from the tme due and payabe, a persona debt from the
person abe to pay the same to the State of Maryand .
Chapter 539. Laws of Maryand, 1935, adds secton 72CC and
72CCC for tre purpose of ncreasng the fee for regsterng the
tte to motor vehces and authorzng regstered motor vehce
deaers to deduct from ther gross saes, before the payment of the
1 per cent, gross recepts ta , the amount of gross saes on motor
vehces.
Secton 23(c) of the Revenue ct of 1934 provdes that n com-
putng net ncome there sha be aowed as deductons ta es pad
or accrued wthn the ta abe year, wth certan e ce|tons not here
matera. rtce 23(c) 1 of Reguatons 80, reatng to the Revenue
ct of 1934, provdes that n genera ta es are deductbe ony by
the person upon whom they are mposed.
In order to ascertan who s entted to the deducton of the emer-
gency gross recepts ta mposed by the State of Maryand, t s
necessary to determne the egsatve ntent as to whether the ta
was mposed upon the vendor or upon the consumer. The tte of
the act, whch states that t s n act provdng for the
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113
23(c), rt. 23(c)-.
evy and coecton of a ta for the prvege of engagng n the
busness of seng tangbe persona property at reta, the tera
terms under whch the ta s mposed (72- ), and a other prov-
sons of the act ndcate that the ta was ntended to be a prvege
ta eved upon the vendor and measured by the voume of gross
saes.
It s hed, therefore, that the emergency gross recepts ta mposed
by the State of Maryand s an e cse ta upon the vendor for the
prvege of seng tangbe persona property at reta and s de-
ductbe by the vendor as a ta under secton 23(c) of the Revenue
ct of 1934 n determnng hs net ncome sub|ect to edera ncome
ta . The ta may not be deducted separatey as a ta f t s added
to or made a part of the vendor s busness e pense, or s otherwse
used to reduce hs net ncome.
rtce 23 (c)-: Ta es. -23-8114
I. T. 2978
R NU CT OP 1034.
The motor fue ta mposed under chapter 58, Laws of Wash-
ngton, 1933, as amended by chapter 109, Laws of Washngton,
1935, Is deductbe as a ta In the edera Income ta return of
the owner or operator of the motor vehce by whom It Is pad and
to whom It s not refunded.
The fue o ta mposed under Tte I, chapter 180, Laws of
Washngton, 1935, Is deductbe by the dstrbutor.
rung s requested whether, for edera ncome ta purposes,
the dstrbutor or purchaser may deduct the ta mposed by the State
of Washngton (1) on motor fue and (2) on fue o. It s stated
that the aw n effect when the ureau hed that the motor fue ta
was deductbe by the purchaser (G. C. M. 7071, C. . III-2, 106)
has been repeaed that the ta s now mposed under chapter 58,
Laws of Washngton, 1933, as amended by chapter 109, Laws of
Washngton, 1935 ard that the fue o ta s mposed under Tte
I, chapter 180, Laws of Washngton, 1935.
The pertnent provsons of the statute mposng the motor fue
ta , as amended n 1935, read as foows:
n act mposng an e cse ta on gasone and other nfammabe quds, and
provdng for the payment, coecton and en of the ta , .

Set. 5. very dstrbutor sha pay, n addton to any other ta es provded
by aw, an e cse ta to the treasurer of ths State of fve (5) cents for each
gaon of motor vehce fue sod, dstrbuted or used by t n the State of
Washngton. The ta heren Imposed sha be coected and pad to the State
of Washngton but once n respect to any motor vehce fue. s sha be
rendered by dstrbutors to a purchasers of Infammabe petroeum products of
ffty (50) gaons or more, and upon request to a purchasers of smaer ots.
In the case of saes of motor vehce fues as heren defned, such bs sha
contan a statement that the dstrbutor has assumed the ta thereon and n
other cases the bs sha contan a statement that the purchaser s responsbe
for the ta , f the product sha be used for the purpose of operatng a motor
vehce.
Sek. 6. very person who sha use any Infammabe petroeum products other
than motor vehce fue, to operate a motor vehce, as heren defned, sha
pay a ta of fve (5) cents for each gaon thereof so used. very such
person sha report to the drector and pay the ta n the manner provded
for dstrbutors .

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23(c), rt. 23(c)- .
114
Sec. 18.
ny person who sha use any motor vehce fue as heren defned for the
purpose of operatng any nterna combuston engne not used on nor n con-
|uncton wth any motor vehce capabe of beng operated upon a pubc
hghway, and as the motor power thereof, upon whch motor vehce fue
e cse ta provded for n ths chapter has 1-een pad, sha be entted to and
sha receve a refund of fve (5) cents for each gaon of motor vehce fue
so used. very person who sha purchase and use any motor vehce fue
as heren defned as an ngredent for manufacturng or for ceanng or dyeng
or for some other smar purpose and upon whch the motor vehce fue e cse
ta provded for n ths chapter has been pad sha be entted to and sha
receve a refund of fve (5) cents for each gaon of motor fue so used.
very person who sha e port any motor vehce fue as heren defned for
use outsde of ths State and who sha have pad the e cse ta upon such
motor vehce fue as requred by ths chapter, ether drecty to the vendor
from whom t was purchased or ndrecty by addng the amount of such
e cse ta to the prce of such fue, sha be entted to and receve a refund
of fve (5) cents for each gaon of motor vehce fue so e ported: Pro-
vded, .
ny person camng refund from motor vehce fue used other than n
motor vehces as heren provded may be requred by the drector of censes
to aso furnsh nformaton by affdavt regardng the amount of motor vehce
fue purchased from other sources or for other purposes durng the perod
reported upon whch no refund s camed.
Secton 23(c) of the Revenue ct of 1934 provdes that n com-
putng net ncome there sha be aowed as deductons ta es pad or
accrued wthn the ta abe year, wth certan e ceptons not here
matera. rtce 23(c)- of Reguatons 8G, reatng to the Revenue
ct of 1934, states that n genera ta es are deductbe ony by the
person upon whom they are mposed.
Whe t s true that by the terms of the Washngton aw the ds-
trbutor s requred to pay the ta to the State, hs poston wth
respect to the ta s that of coector ony. The provsons of the motor
fue ta aw, when consdered n ther entrety, ndcate that t was
the ntenton of the egsature to mpose a ta upon the use of
motor vehce fue, ncudng a nfammabe petroeum products,
n the propuson of motor vehces upon the hghways of the State
and not upon the sae of such fue by the dstrbutor. (See gen-
eray Cunnngham v. Potts, 9 ed. (2d) 469, dscussng the statute
here n queston.) The refund provsons of the statute whch
authorze a refund of the ta to purchasers of motor vehce fue
who use t for purposes other than the operaton of motor vehces
s partcuary sgnfcant n ths connecton.
Snce the dstrbutor s merey the coector of the motor vehce
fue ta , t s evdent that the purchaser or consumer s the ta payer
wthn the meanng of secton 23(c) of the Revenue ct of 1934.
ccordngy, the ta s deductbe as a ta n the edera ncome ta
return of the owner or operator of the motor vehce by whom the
ta s pad and to whom t s not refunded. If the ta s added to or
made a part of the busness e pense of the ta payer, or s otherwse
used to reduce hs net ncome, t can not be deducted by hm sepa-
ratey as a ta .
Reatve to the ta on fue o mposed by Tte I, chapter 180,
Laws of Washngton, 1935, pertnent provsons of the aw read as
foows:
Seo. 78. rom and after the 1st day of May, 1035, there Is hereby eved and
there sha be coected, n nddton to any other ta es provded by aw, an
e cse ta upon every dstrbutor at the rate of one-quarter ( ) cent for each
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115
23(e), rt. 23(e)-.
gaon of fue o and/or dese o sod, dstrbuted, wthdrawn or used by hm
n the State of Washngton. The ta heren Imposed sha be coected by the
drector of censes of ths State and sha be pad by every dstrbutor but
once In respect to any fue o and/or dese o, sod, dstrbuted, wthdrawn
or used by hm.
s sha be rendered by dstrbutors to a purchasers of fue o and/or
dese o of ffty (50) gaons or more and to a purchasers of smaer
quanttes upon request contanng a statement that the dstrbutor has as-
sumed the ta thereon.
Sea 79.

(c) The word dstrbutor sha mean and Incude every person who
refnes, manufactures, produces or compounds fue o and/or dese o and
ses, dstrbutes, or n any manner uses the same In ths State aso any person
who mports any fue o and/or dese o Into ths State and stores, wthdraws,
ses, dstrbutes, or n any manner uses the same In ths State whether n the
orgna package or contaner n whch It s mported or otherwse aso any
person who havng acqured In ths State n the orgna package or contaner
fue o and/or dese o, sha dstrbute or se the same, whether n such
orgna package or contaner In whch the same was Imported or otherwse, or
In any manner uses the same
Whe the fue o ta aw ncudes admnstratve and certan
other provsons of the motor fue ta aw (chapter 58, Laws of
Washngton, 1933), secton 81 of the fue o ta aw specfcay
e cepts from appcaton thereto those provsons (sectons 5, 6, 18,
etc.) of the motor fue ta aw whch furnshed the bass for concud-
ng that the motor fue ta was mposed upon the consumer. It ap-
pears, therefore, that t was the egsatve ntent to mpose the fue
o ta upon the dstrbutor. The amount of such ta pad by the
dstrbutor s, therefore, deductbe by hm for edera ncome ta
purposes. The ta , however, may not be deducted separatey as a
ta f t has been ncuded as a part of the busness e pense of the
dstrbutor or otherwse used to reduce hs net ncome.
S CTION 23(e). D DUCTIONS ROM GROSS INCOM :
LOSS S Y INDI IDU LS.
btc e 23 (e)-: Losses by ndvduas. -14-8026
G. C. M. 16255
R NU CT O 1934.
Where an automobe purchased for the ta payer s persona use
Is damaged In a coson, the deducton aowabe under secton
23(e)3 of the Revenue ct of 1934 s the amount of the oss ac-
tuay sustaned but not n e cess of the amount computed n ac-
cordance wth the provsons of sectons 23(h) and 113(b) of that
ct.
Recommended that I. T. 2217 (C. . I -2, 58) and I. T. 2231
(C. . I -2, 53) be modfed.
dvce s requested reatve to the determnaton of the amount
of the oss deductbe under the provsons of secton 23(e)3 of the
Revenue ct of 1934 where an automobe purchased for the ta -
payer s persona use was damaged n a coson.
In the year 1929 the ta payer purchased an automobe for hs
persona use at a cost of 7 doars. In the year 1934 he had a co-
son, not due to hs own reckessness, at whch tme he carred no co-
son nsurance. ust pror to the coson the automobe had been
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23(e), rt. 25(e)- .
116
apprased for trade-n purpobes at o. Ou doars. fter the coson
the car was traded n but the aowance was ony 1.07 doars.
Secton 23(e)3 of the Revenue ct of 1934 provdes that n com-
putng the ta abe net ncome of an ndvdua there sha be aowed
as a deducton osses sustaned durng the ta abe year and not com-
pensated for by nsurance or otherwse of property not connected
wth the trade or busness, f the oss arses from fres, storms, shp-
wreck, or other casuaty, or from theft. In nterpretng the corre-
spondng secton of pror Revenue cts, t has been hed that a oss
resutng from an automobe coson, where such accdent was not
due to the wfu act or wfu neggence of the ta payer, s de-
ductbe as a oss arsng from other casuaty. (Shearer v. n-
derson, 16 ed. (2d), 995: W. S. ronson v. Commssoner, 9 . T. .,
1008, acquescence, C. . III-1, 6 Tracy . uckwater v. Comms-
soner, 20 . T. ., 1005 I. T. 2408, C. . II-1, 85 and artce
23(e)- of Reguatons 86.)
Secton 23(h) of the Revenue ct of 1934 provdes that the bass
for determnng the amount of deducton for osses sustaned, to be
aowed under secton 23(e) of that ct, sha be the ad|usted bass
provded n secton 113(b) for determnng the oss from the sae or
other dsposton of property. Under the provsons of secton
113(b) of the Revenue ct of 1934, the bass for determnng gan
or oss from the sae or other dsposton of property acqured after
ebruary 28, 1913, wth certan e ceptons nappcabe n the nstant
case, s the cost of such property, dmnshed as provded by secton
113(b) 1( ) for e hauston, wear and tear, obsoescence, amortza-
ton, and depeton, to the e tent aowed (but not ess than the
amount aowabe) under that ct or pror ncome ta aws.
In Tracy . uckwater v. Commssoner, supra, the oard of Ta
ppeas aowed as a deducton n the case of an automobe dam-
aged by fre n 1924 ony the dfference between the actua vaue
mmedatey pror to the fre and the savage vaue.
In ener v. Tnde (276 U. S., 582), arsng under the Revenue
ct of 1918, the ta payer but a resdence n 1888, used t as a res-
dence unt 1901, and eased t begnnng n 1901 unt he sod t n
1920. The Unted States Supreme Court hed that there occurred
n 1901 a transacton entered nto for proft, and snce the far market
vaue of the property on March 1, 1913, was ess than the vaue n
1901, and ess than actua cost, the ta payer sustaned a deductbe
oss of the dfference between the March 1,1913, vaue and the seng
prce.
In Mtche v. Ccommssoner (48 ed. (2d), 697, certorar dened,
284 U. S., 646) the Crcut Court of ppeas for the Second Crcut
sad n a case arsng under the Revenue ct of 1921
The aowance of anythng beyond an actua oss woud be most unkey In
the absence of a cear egsatve mandate. The provson n secton 214(a)6
that osses are to be computed upon the bass of the far market prce or
vaue as of March 1, 1013, shoud be construed, ke other smar causes, as
merey a mtaton upon osses that woud otherwse have been deductbe.
Whe Congress can, of course, aow such deductons as It peases and mt
them as t w, t can not reasonaby be thought to have ntended n any case
to have aowed more than actua osses .
In George uock v. Commssoner (23 . T. , 710, acquescence,
C. . I-1, 2) the oard sad:
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117
23(e), rt. 23(e)- -
The Tnde decson In effect hods that In determnng the oss sustaned
from the sae of property orgnay acqured as a resdence, and ater con-
verted Into busness property, the rue s to compute the amount of the oss,
frst. In accordance wth the appcabe statute deang wth the computaton
of gan or oss from the sae or other dsposton of property, and, second, to
aow as a deducton ony that porton of the oss so determned aa occurred
subsequent to the tme the property was converted nto busness uses.

It Is our opnon that the nstant case Is controed by secton 204(b), supra,
and that the vaue n 1916 shoud be used ony as a mtaton upon the actua
oss prescrbed by the statute.
In Chares . Thatcher v. Commssoner (24 . T. ., 1130) the
oard sad:
When resdenta property Is converted Into busness property, t
s the far market vaue of the property at the tme of converson whch repre-
sents the cost of the busness property.
The above reasonng has been carred nto artce 23(e)- of Reg-
uatons 86 n nterpretng secton 23(e) of the Revenue ct of 1934.
That artce provdes n part as foows:
Losses by ndvduas.

If, however, property so purchased or constructed Is pror to Its
ae rented or otherwse approprated to Income-producng purposes and s
used for such purposes up to the tme of Its sae, a oss from the sae of the
property, computed as provded n secton 111, s, sub|ect to the mtatons
provded In secton 117, an aowabe deducton n an amount not to e ceed the
e cess of the vaue of the property at the tme t was approprated to ncome-
producng purposes (wth proper ad|ustment for deprecaton) over the amount
reazed from the sae. Itacs supped.
The e ampe set forth n artce 23(e)- shows ceary a compu-
taton wheren the aowabe oss s mted to the actua oss sus-
taned, based upon the vaue of the property when converted to
ncome-producng purposes, athough the provsons of secton 23(h)
are equay appcabe.
Secton 23(e) 3 of the Revenue ct of 1934 aows as a deducton
certan osses sustaned durng the ta abe year, ncudng osses
arsng from other casuaty. Such osses must be actuay sus-
taned. In such a case t s not the purchase prce of the property
whch s ost but the vaue of the property at the tme of the casuaty.
It s the opnon of ths offce that the provsons of secton 23(e) 3
are controng wth regard to the deductbty of such osses by n-
dvduas, and that such osses are mted thereby to the amount of
oss actuay sustaned and that secton 23 (h) whch provdes that a
oss must be determned or measured by the ad|usted bass s a mta-
ton provson. Therefore, athough computaton must be made n
accordance wth secton 23(h) and secton 113, the amount deductbe
s the oss actuay sustaned, and not n e cess of the amount com-
puted under secton 118. s stated above, ths vew was adopted n
Reguatons 86 and s ceary set forth n the e ampe reatng to oss
from sae of property purchased as a resdence but ater converted
to ncome-producng purposes.
In the present case the ta payer s automobe was vaued |ust pror
to the coson at 3.60a doars. ust after the coson ts vaue was
ony 1.07a doars. The oss actuay sustaned as a resut of the
coson was, therefore, the dfference between those amounts, or
2.53co doars. Snce that amount s not n e cess of the amount com-
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23(10, rt. 23(k)-.
118
puted under secton 113, t foows that 2.53a doars s the amount
of the oss aowabe as a deducton under secton 23(e)3.
In vew of the fact that the poston adopted heren s not n accord
wth the concuson reached n I. T. 2217 (C. . I -2, 53) that upon
the destructon of a resdence by fre n the year 1924 the deductbe
oss sustaned was the dfference between the cost of the property
(wthout any ad|ustment for deprecaton) and the nsurance or
other compensaton receved, reduced by the savage vaue, f any, of
the property, or wth the concuson reached n I. T. 2231 (C. .
I -2, 53) that the amount of a oss sustaned by a ta payer through
the burstng of a boer used n the heatng of hs resdence s the
dfference between the bass of the boer and the nsurance or other
compensaton receved, reduced by the savage vaue of the boer, f
any, t s recommended that I. T. 2217 and I. T. 2231 be modfed
accordngy.
erman Ophant,
Genera Counse for the Department of the Treasury.
S CTION 23 (k). D DUCTIONS ROM GROSS
INCOM : D D TS.
rtce 28 (k)-: ad debts. -15-8043
T. D. 4633
INCOM T .
Last paragraph of artce 23(k)- of Reguatons 86 an ast
paragraph of artce 191 of Reguatons 77, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The ast paragraph of artce 23(k)- of Reguatons 86 and the
ast paragraph of artce 191 of Reguatons 77 are amended to read :
Where banks or other corporatons whch are sub|ect to supervson by
edera authortes (or by State authortes mantanng substantay equva-
ent standards) n obedence to the specfc orders of such supervsory offcers
charge off debts n whoe or n part, such debts sha be concusvey presumed,
for ncome ta purposes, to be worthess or recoverabe ony n part, as the
ease may be, but n order that any amount of the charge-off may be aowed
as a deducton for any ta abe year t must be shown that the charge-off took
pace wthn such ta abe year.
Ths document s ssued under the authorty prescrbed by secton
62 of the Revenue ct of 1934 and secton 62 of the Revenue ct
of 1932.
Gur T. everno,
Commssoner.
pproved pr 3, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster pr 7, 1930)
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119 23(k), rt. 23(k)-.
rtce 23(k)- ad debts.
-26-8141
I. T. 2985
R NU CTS O 1932 ND 1934.
Treasury Decson 4633 page 118, ths uetn , reatng to de-
ductons for debts charged off by banks or other corporatons In
obedence to specfc orders of edera or State supervsory offcers,
s not appcabe to charge-offs ordered, by such offcers on rea estate
taken n settement of debts.
dvce s requested on the foowng queston:
Where rea estate, taken over n satsfacton of a debt, s set up on the books
of a bank at ts far market vaue or at a vaue the same as the unpad amount
of a mortgage note and ater a bank e amner orders that the vaue at whch
t s carred be wrtten down and the bank compes, may the bank cam ths
amount us a deducton on ts ncome ta return
Treasury Decson 4633, whch amends the ast paragraph of artce
23(k)- of Reguatons 86, promugated under the Revenue ct of
1934, and the correspondng artce of Reguatons 77, promugated
under the Revenue ct of 1932, reates soey to debts charged off
durng the year of ascertanment of worthessness n whoe or n
part. debt denotes the e stence of the reatonshp of debtor and
credtor. If a bank, n compance wth the order of a State or ed-
era bank e amner, charges off debts n whoe or n part, the ureau
w aow a deducton (as a bad debt) for the amount of the charge-
off made n compance wth such order, provded the charge-off s
made n the year of ascertanment of worthessness n whoe or n
part.
It s cear, however, from the anguage used n Treasury Decson
4633, supra, that uness the reatonshp of debtor and credtor e sts
the rue prescrbed theren s not appcabe. Rea estate acqured n
satsfacton of a debt becomes an asset of the bank and the reaton-
shp after such acquston s not that of debtor and credtor. c-
cordngy, notwthstandng the requrements of the State or edera
bank e amners that the vaue or the rea estate be wrtten down,
such a charge-off does not fa wthn the contempaton of the pro-
vsons of the Treasury decson.
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41, rt. 41-1.
120
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.
-6-7938
I. T. 2956
R NU CT O 1034.
The foowng rates of e change are accepted by the ureau of
Interna Revenue as the current or market rates of e change
prevang as of December 31, 1935:
Country or cty.
rgentna
rgentna
ustraa
ustra
egum
raz
ugara
Canada
Che
Chna (Shangha)
Coomba
Cubs
Czechosovaka...
Denmark
ngand
nand
rance
Germany
Greece
ong ong
ungary
Monetary unt.
Peso (god)
Peso (paper)..
Pound (Ster
ng).
Schng
ega
Mres .
Lev
Doar.
Peso
Yuan doar
Peso
Peso
oruna
rone
Pound (Ster
ng).
Markka
ranc
echsmark
Drachma
Doar
Pengo
aue In
terms of
Unted
States
0.7 0931
.328050
3.913437
.188100
.168607
.0838 3
. 013375
.993828
.050950
.295312
.6(19800
.999200
.041553
.220045
4.93UOCO
. 021713
.06CI83
. 402421
.009400
.318437
.296375
Country or cty.
Inda
Itay
apan
Me co
Netherands..
New Zeaand.
Nonvay
Panama
Peru
Phppne Isands..
Poand
Portuga
Rumana
South frca
Span
Strats Settements.
Sweden
Swtzerand
Uruguay
enezuea
Yugosava
Monetary unt.
Rupee
Lra
Yen.
Peso
orn
Pound (Ster-
ng)
rone
aboa
So.
Peso..
Zoty
scudo
Leu
Pound (Ster-
ng).
Peseta
Doar..
rona
ranc
Peso (god)
ovar
Dnar
aue n
terms of
Unted
tatcs
0.3721S5
.080411
.287700
.277675
.679478
3. 943750
.247650
1.000000
. 247100
.500000
.189020
.044833
.007875
4.875250
.137100
.576250
.254133
.325389
.802750
.255700
. 022925
rtce 41-1: Computaton of net ncome.
R NU CT O 1934.
-8-7963
I. T.2958
Ta payers who reguary make ther ncome ta returns on the
cash recepts and dsbursements bass shoud not ncude n such re-
turns any ncrement n vaue of Unted States savngs bonds, ssued
under the provsons of secton 22(c) of the Second Lberty ond ct,
as amended, unt they receve pa| ment for the bonds whether at or
before maturty. The entre dfference between the prce pad for the
bonds at ssue and the amount receved n payment therefor shoud
be reported as ncome for the ta abe year n whch redempton oc-
curs. (See G. C. M. 15875, C. . I -2, 100, reatve to ta payers
who empoy the accrua method of accountng.)
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121
42, rt. 42-0
S CTION 42. P RIOD IN W IC IT MS O
GROSS INCOM INCLUD D.
rtce 42-1: When ncuded n gross ncome. -6-7939
G. C. M. 16121
R NU CT OP 1934.
Compensaton receved In 1935 by the e ecutors of the estate
of for servces rendered by hm pror to hs death In November,
1934, bat not payabe unt after anuary 1, 1935, shoud be In-
cuded In hs return for the ta abe year 1934 even though hs
books of account were kept on the cash recepts and dsbursements
bass.
The opnon of ths offce s requested whether compensaton for
servces rendered by pror to the date of hs death n 1934, but not
payabe unt after anuary 1, 1935, shoud be ncuded n hs re-
turn of ncome for the ta abe year 1934.
The ta payer, , was empoyed by the M Company under a con-
tract dated anuary , 1928, by the terms of whch hs compensa-
ton was f ed as a saary equa to per cent of the net profts
derved from the sae of merchandse n the stores drecty under
hs contro and management, payment to be made annuay as soon
as convenent after anuary 1, but not ater than March 1. It was
aso provded that n the event of the death of , the contract
shoud thereupon termnate and he or hs ega representatve sha
be entted to share n the profts ony to the tme of hs death,
such share to be based upon the tota net profts for the
year, pro rata for the tme served. It was further provded that
fna settement can not be requred unt after the succeedng
annua nventory sha be fnshed, not ater, however, than March
1, of the succeedng year.
Snce the M Company dd not determne ts net profts unt after
the cose of the caendar year, the amount of the ta payer s compen-
saton for servces rendered n one year was not determned and pad
unt the foowng year. Tho ta payer s books of account were kept
on the cash recepts and dsbursements bass. Pursuant to the method
of determnng and payng hs compensaton above descrbed, the
compensaton for servces rendered n one caendar year was reported
by hm as ncome for the succeedng year. The ta payer ded n
November, 1934, and hs e ecutors, n fng hs ncome ta return for
the ta abe year 1934, reported ony the compensaton whch he had
receved n anuary, 1934, as compensaton for servces rendered n
1933. The revenue agent, reyng upon secton 42 of the Revenue ct
of 1934, recommends the ncuson as ta abe ncome of the decedent,
, for 1934 of doars, representng compensaton for servces ren-
dered by hm n 1934, the amount or whch was not determned and
pad to the e ecutors unt anuary, 1935. The acton of the revenue
agent has been protested by the ta payer s ega representatves.
ased upon the foregong facts the foowng queston s submtted:
Can the saary receved by the e ecutors n 1935, representng com-
84S26 -
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43, rt. 43-2.
122
pensaton of the decedent, , for servces rendered by hm n 1934,
propery be consdered as ncome accrued to the date of death of the
decedent and ncuded n the return fed n hs behaf for the ta abe
year 1934
Secton 42 of the evenue ct of 1934 reads as foows :
Sbo. 42. Perod n whch tems of gross ncome ncuded.
The amount of a tems of gross ncome 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 secton 41, any such amounts are to be propery
accounted for as of a dfferent perod. In the case of the death of a ta payer
there sha be ncuded n computng net ncome for the ta abe perod n whch
fas the date of hs death, amounts accrued up to the date of hs death f not
otherwse propery ncudbe n respect of such perod or a pror perod.
The ast sentence of the foregong secton s new n the evenue
ct of 1934, beng added, as the report of the Commttee on nance
dscoses, for the purpose of makng ta abe as ncome n the year of
hs death amounts earned by, or accrued to, a ta payer up to the
date of hs death, whch amounts had theretofore entrey escaped
ta aton as ncome n cases where the decedent s books of account
were kept on the cash recepts and dsbursements bass. (See Senate
Report No. 558, at page 28, and Nchos v. Unted States, 64 Ct. Cs.,
241, certorar dened, 277 U. S.. 584.)
Under the crcumstances of the present case, t s evdent that the
ta payer had, at the date of hs death, become egay entted to
receve a certan share of the net profts derved from the sae of mer-
chandse n the stores under hs management for the year 1934, to be
computed by proratng the tota net profts for the year upon the
bass of the tme served by hm n such year pror to hs death. Ony
the e act amount of hs share of the profts remaned to be deter-
mned. Ths offce s, therefore, of the opnon that the ta payer s
share of the net profts had accrued up to the date of hs death
wthn the meanng of secton 42 of the Revenue ct of 1934. c-
cordngy, the compensaton receved n 1935 by the e ecutors of the
estate of for servces rendered by hm pror to hs death n the
year 1934 shoud be consdered as ncome accrued to the date of death
whch s ncudbe n s return for the ta abe year 1934.
erman Ophant,
Genera Counse for the Department of the Treasury.
S CTION 43. P RIOD OR W IC D DUCTIONS
ND CR DITS T N.
rtce 43-2: When charges deductbe. -20-8085
G. C. M. 16279
R NU CT O 1934.
The entre amount e pended In 1934 by the M Raroad Co. for
ncdenta repars (current mantenance cost) to raroad cars con-
sttutes a proper deducton for the year 1034 for edera ncome
ta purposes, even though n that year the number of cars repared
was four tmes the average annua number and authorzaton was
procured from the Interstate Commerce Commsson to amortze
the cost of such repars over a perod of four years.
n opnon s requested whether certan e pendtures made by the
M Raroad Co. n 1934 for the repar of raroad cars may be
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43, rt. 43-2.
amortzed, for edera ncome ta purposes, over the years 1934 to
1937, ncusve.
The ta payer repars on an average as cars each year, the e pense
of whch s charged to current mantenance cost. In 1934, however,
n order to ncrease empoyment, ts drectors authorzed e pend-
tures to cover repars of 4 cars n the event that proper authorty
coud be obtaned from the Interstate Commerce Commsson to
make an accountng consstent wth the company s best nterests.
The ta payer accordngy made appcaton to the commsson for
permsson to amortze the contempated repar e pendtures over
a 4-year perod and n 1934 receved from the commsson the neces-
sary authorzaton. The company began and competed the con-
tempated repar program durng the year 1934. ecause, however,
the e pendtures were equvaent to appro matey four years
norma e pendtures, the ta payer deducted n ts 1934 return ony
one-fourth of the tota cost of reparng the cars, wth the nten-
ton of deductng as e penses the remanng three-fourths n equa
amounts n ts returns for 1935, 1936, and 1937. The queston has
been rased as to the proper treatment of such e pendtures for
edera ncome ta purposes.
Secton 43 of the Revenue ct of 1934 reads as foows:
Sec. 43. Pebod foe whch Deductons and Cmmts Taken.
The deductons and credts provded for n ths tte sha be taken for the
ta abe year In whch pad or accrued or pad or ncurred, dependent
upon the method of accountng upon the bass of whch the net ncome s
computed, uness n order to ceary refect the ncome the deductons or credts
shoud be taken as of a dfferent perod.
rtce 43-2 of Reguatons 86, promugated under the Revenue
ct of 1934, provdes n part as foows:
m. 43-2. When charges deductbe. ach year s return, so far as practca-
be, both as to gross Income and deductons therefrom, shoud be compete In
Itsef, and ta payers are e pected to make every reasonabe effort to ascertan
the facts necessary to make a correct return. The e penses, abtes, or
defct of one year can not be used to reduce the ncome of a subsequent year.
ta payer has the rght to deduct a authorzed aowances, and t foows
that f he does not wthn any year deduct certan of hs e penses, osses,
Interest, ta es, or other charges, he can not deduct them from the ncome of
the ne t or any succeedng year.
rtce 23(a)-4 of Reguatons 86 states:
bt. 23(a)-4. Repars. The cost of ncdenta repars whch nether mate-
ray add to the vaue of the property nor apprecaby proong Its fe, but
keep t n an ordnary effcent operatng condton, may be deducted as
e pense, provded the pant or property account s not ncreased by the amount
of such e pendtures. Repars n the nature of repacements, to the e tent
that they arrest deteroraton and apprecaby proong the fe of the property,
shoud be charged aganst the deprecaton reserve f such account s kept.
In vew of the statutory provsons and reguatons quoted above,
t s hed that snce the e pendtures made n 1934 to cover repars ot
cars consttuted ncdenta repars (current mantenance cost)
rather than repacements or mprovements, the amount thereof s not
amortzabe over a 4-year perod but shoud be deducted for the
vear 1934. (Cf. Od Coony Rab oad Co. v. Commssoner, 284
t . S., 552.)
erman Ophant,
Genera Counse for the Department of the Treasury.
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653. rt. 53-2. 124
P RT -R TURNS ND P YM NT O T .
S CTION 51. INDI IDU L R TURNS.
rtce 51-2: orm of return. -20-8094
T. D. 4643
Preparaton of ncome ta returns Correct address of ta payer
requred. mendng artce 51-2 of Reguatons 86.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Coectors of Interna Revenue and Others Concerned:
rtce 51-2 of Reguatons 86, reatng to ncome returns requred
to be made under the Revenue ct of 1934, s hereby amended by
addng at the end thereof the foowng:
The home or resdenta address of the ta payer (ncudng the street and
number, f any) sha be gven In the space provded at the top of the return
for the name and address of the ta payer. ta payer havng a permanent
busness address may gve that address as the prncpa or mang address,
provded that the compete home or resdenta address s aso gven wthn
the srace provded.
The foregong amendment sha take effect 15 days after the date
of approva of ths Treasury decson.
Ths document s promugated under the authorty contaned n
secton 62 of the Revenue ct of 1934.
Gut T. everno,
Commssoner of Interna Revenue.
pproved May 11, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster May 13,1930,12 6 p. m.)
S CTION 53. TIM ND PL C OR
ILING R TURNS.
rtce 53-2: tensons of tme for fng -17-8060
returns. T. D. 4636
ncome ta mutua nsurance companes other than fe.
tenson of tme for fng returns.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Pursuant to the provsons of secton 53 of the Revenue ct of
1934, e tensons of tme for such perod as may be necessary, but
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125 54, rt. 64-1.
not ater than une 15,1936, are hereby granted to mutua nsurance
companes other than fe for the fng of ncome ta returns, orm
1030, for the caendar year 1935.
Ths document s ssued under the authorty prescrbed by sectons
53 and 62 of the Revenue ct of 1934.
Gut T. evekng,
Commssoner of Interna Revenue.
pproved pr 15, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster pr 18, 1936, 9.34 a. m.)
S CTION 54. R CORDS ND SP CI L R TURNS.
rtce 54-1: ds to coecton of ta . -7-7953
Mm. 4426
When a subsdary s orgna return Is not fed In the same
dstrct as the return of the common parent corporaton, copes
thereof fed In that dstrct must be pany desgnated as such.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, anuary 27, 1936.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
Offcers and mpoyees of the ureau of Interna Revenue, and
Others Concerned:
Informaton has been receved that n many nstances a subsdary
corporaton, not permtted to be ncuded n a consodated return
under secton 141 of the Revenue ct of 1934, has faed to desgnate
the copy of the orgna return as such when fng such copy, as re-
qured by the second paragraph of artce 54-1 of Reguatons 86,
wth the coector to whom the return of the common parent corpora-
ton was made, the subsdary s separate orgna return havng been
fed wth the coector n whose dstrct s ocated ts prncpa
pace of busness or prncpa offce or agency. s a resut the copes
are not ready dstngushabe as such.
In order to assure proper handng of copes of the orgna re-
turns of subsdary corporatons fed n accordance wth the requre-
ments of the second paragraph of artce 54-1 of Reguatons 86, such
copes sha have pany typed or wrtten across the top of page 1
of the return form the words Copy Subsdary Corporaton
Orgna return fed wth the Coector at (desgnate cty and
State).
Correspondence n regard to the nstructons contaned heren
shoud refer to the number of the mmeograph and to the symbos
IT: :RR.
Gut T. eve rng,
C ommssoner.
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54, rt. 54-1.
126
rtce 54-1: ds to coecton of ta . -20-8086
I. T. 2974
R NU CT O 1934.
ssessments for faure to fe dupcate ncome ta returns.
Under reguatons prescrbed by the Treasury Department (T. D.
4626, page 61, ths uetn) to carry out the provsons of secton
55(b) of the Revenue ct of 1934, as amended by the ct (Pubc, No.
40, Seventy-fourth Congress, C. . I -1, 552) approved pr 19,
1935, every person (e cept nonresdent aen ndvduas) requred to
fe an ncome return for a ta abe year or perod begnnng on or
after anuary 1, 1935, s aso requred to fe wth the return a copy
thereof on the dupcate form on coored paper provded for that
purpose or a photostatc or photographc copy of the orgna return.
The reguatons requre such copy to be a compete dupcate of the
return as fed e cept that the copy need not be sgned or the aff-
davts on the dupcate form otherwse fed n. The reguatons
Srovde further that there sha be attached to the copy on the
upcate form a copy of any schedue or statement attached to the
orgna return e cept () Schedue C- n the case of a corporaton
return, (2) the copy of the w or trust nstrument n the case of a
fducary return, (3) the power of attorney on orm 935 or orm
936 n the case of a return made by an agent, and (4) the copy of
the annua statement made to the nsurance department of the State,
Terrtory, or Dstrct of Coumba n the case of a return of an
nsurance company.
Under the provsons of the ct entted n ct reatng to the
fng of copes of ncome returns, and for other purposes (Pubc,
No. 510, Seventy-fourth Congress, page 522, ths uetn ), approved,
pr 10, 1936, whch amends secton 54 of the Revenue ct of 1934,
as amended, by addng at the end thereof a new subsecton (d), f
Rny person requred pursuant to the above-mentoned reguatons to
fe a copy of hs ncome return for any ta abe year begnnng on
or after anuary 1, 1935, fas to fe such copy at the tme requred,
there w be assessed aganst such person 5 n the case of an
ndvdua return, or 10 n the case of a fducary, partnershp, or
corporaton return, and the coector of nterna revenue wth whom
the return s fed w prepare such copy. Wth respect to the
fng of ncome returns for any ta abe year begnnng durng the
caendar year 1935, however, such amount of 5 or 10 w be assessed
ony f the copy s not fed before the e praton of 15 days after
the mang of a request therefor by the coector. In the case of
an ncome return for a ta abe year begnnng on or after anuary 1,
1936, whch s fed wthout the requred copy, the ta payer s
sub|ect to an mmedate assessment of 5 or 10, as the case may be,
because of the faure to fe such copy and no request to suppy t
s necessary or w be made.
If an assessment of 5 or 10 s made because of the ta payer s
faure to fe the requred copy of hs return, such assessment s
payabe under the aw upon notce by the coector, as n the case
of an assessment of an addtona ta due on account of a mathe-
matca error appearng on the face of the return, and the ta payer
has no rght of appea to the oard of Ta ppeas wth respect
to such assessment.
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127 101, rt. 101(11)-1.
S CTION 55. PU LICITY O R TURNS.
6ectto 55(a).
R NU CT O 1934.
Speca Commttee Investgatng Od ge Penson Organzatons,
ouse of Representatves. (See T. D. 4637, page 310.)
S CTION 57. MIN TION O R TURN ND
D T RMIN TION O T .
rtce 57-1: amnaton of return and determ- -15-8035
naton of ta by the Commssoner. I. T. 2967
R NU CT O 1034.
Determnaton of Income and profts ta abty In the Ceve-
and, Oho, dvson.
s a further step to mprove admnstraton of the ncome ta
aws, the ureau of Interna Revenue has authorzed the nterna
revenue agent n charge of the Ceveand, Oho, dvson, begnnng
pr 1, 1936, to ssue fna notces of defcency (90-day etters) n
ncome ta cases arsng n that dvson. These etters represent
the fna notce under the statute of the proposed assessment of
addtona ta es and advse the ta payer that upon petton the
case w become sub|ect to the |ursdcton of the Unted States
oard of Ta ppeas.
The ureau has aso authorzed the nterna revenue agent n
charge at Ceveand to assume the responsbtes and authorty of
the Income Ta Unt n Washngton n the conduct of negotatons
for settement n respect of proposed ncreases n ta abty and
n the consderaton of the entre record n the endeavor to reach
agreements wth ta payers or ther counse. The prmary purpose
of ths acton s to afford ta payers a more convenent and ess costy
method of dsposng of ther ncome ta questons and to enabe the
ureau of Interna Revenue to e pedte the work of audt and n-
vestgaton.
SU TITL O SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S O T .
S CTION 101. MPTIONS ROM T
ON CORPOR TIONS.
rtce 101(11)-1: armers or other mutua -15-8045
ha, cycone, casuaty, or fre nsurance T. D. 4634
companes or assocatons.
ncome ta .
rst paragraph of artce 101(11)-1 of Reguatons 86, amended.
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111, rt. 111-1.
128
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Coectors of Interna Revenue and Others Concerned:
The frst paragraph of artce 101(11)-1 of Reguatons 86 s
amended to read:
To be e empt under secton 101(11) the busness of the organzaton must
be purey mutua and ts ncome must be used or hed soey for the purpose
of payng osses or e penses. Nether the e tent of the terrtory n whch the
company may propery operate nor the fact that It accepts premun deposts
nstead of assessments s decsve as to ts e empton. The wrtng of nonmutua
Insurance regardess of amount w deprve a company of the e empton.
Ths document s ssued under the authorty prescrbed by secton
62 of the Revenue ct of 1934.
Gut T. evehng,
Commssoner.
pproved pr 7, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
(Ped wth the Dvson of the edera Regster pr 10, 1936)
SUPPL M NT . COMPUT TION O N T INCOM .
S CTION 111. D T RMIN TION O MOUNT O ,
ND R COGNITION O , G IN OR LOSS.
rtce 111-1: Computaton of gan or oss. -1-7887
G. C. M. 15766
R NU CTS O 1932 ND 1834.
In determnng gan or oss recognzed and nterest receved,
If any, where a ta payer whose books were kept on the cash re-
cepts and dsbursements bass e changed a mortgage on whch
unpad Interest had accrued for ome Owners Loan Corporaton
bonds, the amount reazed (cash pus the far market vaue of
the bonds receved and the accrued nterest thereon) shoud be
apped frst to the bass of the mortgage to the e tent of the
prncpa, then the baance, If any, whch does not e ceed the
unpad accrued Interest, to such Interest, and the e cess, If any,
to the bass.
Recommended that I. T. 2773 (C. . III-1, 78) be modfed.
n opnon s requested reatve to the proper treatment for ed-
era ncome ta purposes of an e change by the M Company, whose
books are kept on the cash recepts and dsbursements bass, of a frst
mortgage on rea estate for bonds of the ome Owners Loan Cor-
poraton.
The facts are as foows:
Prncpa and cost of mortgage acqured In 1927 10,00O
Unpad nterest thereon when e changed for . O. L. O. bonds In 1934.. 636
Tota 10.036
or whch ta payer receved 10,100 par vaue . O. L. O. bonds havng
a far market vaue on the date of e change of 9, 424
ccrued nterest thereon 9
Cash 18
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129
111, rt. 111-1.
Secton 112 of the Revenue ct of 1934 provdes that upon the
sae or e change of property the entre amount of the gan or oss
sha be recognzed, e cept as therenafter provded. One of the e -
ceptons s contaned n secton 112(b) 1, whch reads as foows:
(1) Property hed for productve use or nvestment. No gan or oss sha bo
recognzed f property hed for productve use n trade or busness or for n-
vestment (not ncudng stock n trade or other property hed prmary for
sae, nor stocks, bonds, notes, choses n acton, certfcates of trust or benefca
nterest, or other securtes or evdences of ndebte Uess or nterest) s e -
changed soey for property of a ke knd to be hed ether for productve use
n trade or busness or for Investment.
The present mortgage comes wthn the parenthetca porton of
the anguage of secton 112 quoted above and the gan or oss arsng
from the transacton must be recognzed. (See I. T. 2773, C. .
III-1, 78.)
Under secton 111(b) of the Revenue ct of 1934, the amount rea-
zed from the e change n the nstant case s the sum of the cash and
the far market vaue of the bonds receved and the accrued nteres|t
thereon. It s the opnon of ths offce that n determnng gan or
oss recognzed and nterest receved, f any, the amount reazed
shoud be apped frst to the bass of the mortgage to the e tent of
the prncpa, then the baance, f any, whch does not e ceed the un-
pad accrued nterest, to such nterest, and the e cess, f any to the
bass. The bass of the mortgage here nvoved, under secton 113
of the Revenue ct of 1934, s ts cost ( 10,000). The amount reazed
from the e change of the mortgage beng ess than the prncpa of
the mortgage ( 10,000), the amount reazed s appcabe, under the
above-stated rue, n ts entrety to the bass of the mortgage, resutng
n a oss (determned under secton 111 (a) and (b) of the Revenue
ct of 1934 and whch s recognzed under secton 112 (a) and (b)
of that ct) represented by the dfference between the bass and the
amount reazed. Inasmuch as t appears that the amount reazed
(far market vaue of the bonds on the date of the e change pus the
cash payment and accrued nterest) from the e change s ess than the
bass (cost of the mortgage) and aso ess than the prncpa, no por-
ton of the amount reazed shoud be consdered as nterest receved
but shoud be apped entrey to the bass, resutng, as prevousy
ndcated, n a recognzed oss of the dfference between the bass
and the amount reazed.
The mortgage n ths case was a capta asset wthn the def-
nton contaned n secton 117 of the Revenue ct of 1934 and the oss
recognzed upon the e change thereof s sub|ect to the provsons of
that secton. I. T. 2773, supra, n whch t was hed that gan or oss
must be recognzed upon the e change of a rea estate mortgage for
bonds of the ome Owners Loan Corporaton, was not concerned
wth the e change of a capta asset and a rung based on that
decson mght produce an ncorrect resut n a case nvovng the
e change of sucn an asset. In I. T. 2773 t was not necessary to
dstngush between the two casses of ncome, but that rung s
not strcty accurate n so far as t treats the e cess there receved
entrey as a proft from the e change rather than as a recept of nter-
est. (Cf. Natona Lfe Insurance Go. v. Unted States, 78 Ct. Cs.,
869, 4 ed. Supp., 1000, Ct. D. 810, C. . III-1, 290, certorar
dened, 291 U. S., 683, hodng that where a mortgage s forecosed
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116, rt. 116-3.
130
nterest s receved where the amount bd on the sae equas the unpad
prncpa and unpad nterest even where the mortgagee s the suc-
cessfu bdder ohn ancock Mutua Lfe Insurance Co. v. Com-
mssoner, 10 . T. ., 736, acquescence, O. . II-2, 20, hodng that
nterest s not receved where the bd equas the face of the mortgage
ony and mercan Centra Lfe Insurance Co. v. Commssoner, 30
. T. ., 1182, acquescence, 0. . III-2, 1, hodng that nterest
was derved where mortgaged property acqured n dscharge of the
debt was not shown to be worth ess than the oans, costs, and nterest)
There s no vad dstncton between a case where the ta payer s
hed to receve nterest through forecosure proceedngs, or through
the vountary deedng of the property by the mortgagor, and the case
where t s reazed through recept of ome Owners Loan Corpora-
ton bonds whch are e changed on behaf of the debtor n sette-
ment and satsfacton of the mortgagee s cam aganst hm.
Inasmuch as the method prescrbed heren of aocatng the
amount reazed n the e change may dffer n resuts from the con-
cuson reached n I. T. 2773, supra, t s recommended that L T.
2773 be modfed to conform to the rue set forth n ths memo-
randum.
Ths offce s aso of the opnon that the proper bass for deter-
mnng gan or oss on the subsequent sae or dsposton of the
bonds receved n e change s ther far market vaue at the date of
the e change. (Secton 113, evenue ct of 1934.)
rthur . ent,
ctng ssstant Genera Counse for the
ureau of Interna Revenue.
S CTION 116. CLUSIONS ROM GROSS INCOM .
rtce 116-2: Compensaton of State offcers -5-7935
and empoyees. Mm. 3838 (Rev.)
Ta abty of compensaton receved by offcers and empoyees of
a State or potca subdvson.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, anuary 17, 1936.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Other Offcers and mpoyees of the ureau of Interna
Revenue Concerned:
In order to nsure greater unformty n the admnstraton of the
Revenue cts n regard to the mposton of the edera ncome ta
upon the compensaton receved by offcers and empoyees of a State
or ts potca subdvsons, and to secure the revenue to whch the
edera Government s entted from that source, t s desred to
drect attenton to the provsons of artce 648 of Reguatons 77,
artce 116-2 of Reguatons 86, to rungs of the ureau, and to
certan court decsons and decsons of the Unted States oard of
Ta ppeas whch pertan to the sub|ect.
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131
116, rt. 116-2.
rtce 116-2 of Reguatons 86 reads n part as foows:
The operatons of a State or potca subdvson thereof essen-
ta to the e ercse of ts governmenta functons, and whch ony the State
or the potca subdvson can do tsef, are e empt from edera ta aton.
Compensaton receved for servces rendered to a State or a potca sub-
dvson thereof Is to be Incuded In gross ncome uness (a) the person re-
ceves such compensaton from the State or potca subdvson as an offcer
or empoyee thereof, and (6) the servces are rendered In connecton wth the
e ercse of an essenta governmenta functon.
States and potca subdvsons thereof have a dua character and
possess two knds of power, one that s a governmenta power and
one that s a corporate or propretary power. In the e ercse of the
former, the State and ts potca subdvsons are cothed wth
soveregnty. In the e ercse of the atter, they are treated as pr-
vate corporatons. Coector v. Day, 11 Wa., 113 State of South
Carona v. Unted States, 199 U. S., 437 eaze ank v. enno,
8 Wa., 533 and Unted States v. Raroad Co. 17 Wa., 322.)
owever, there s a fundamenta dstncton between a pubc pur-
pose and a governmenta functon. (State of North Dakota v.
Oson, 33 ed. (2d), 848.)
The doctrne of mmunty from edera ta aton of State agences
or nstrumentates essenta to the dscharge of ts usua and
essenta functons of government s not e pressy stated n the
Consttuton but has been estabshed by decsons of the Unted States
Supreme Court whch have hed that due to an u mped consttu-
tona restrcton the edera Government can not nterfere wth the
States n the dscharge of such functons. The e empton does not
e st for the beneft of the ndvdua but soey to protect the e ercse
of the soveregn powers of the States and ther potca subdvsons.
The protecton or the soveregn power of the edera Government to
evy and coect ta es s no ess mportant than the protecton of
governmenta actvtes of States and potca subdvsons.
That the doctrne of mmunty shoud be confned wthn appropr-
ate narrow bounds was recognzed by the Unted States Supreme
Court n Wcuts v. unn (282 U. S., 216 Ct D. 280, C. . -, 309 )
when t stated that The mtaton of ths prncpe to ts approprate
appcaton s aso mportant to the successfu workng of our govern-
menta system. The power to ta s no ess essenta than the power
to borrow money, and, n preservng the atter| t s not necessary to
crppe the former by e tendng the consttutona e empton from
ta aton to those sub|ects whch fa wthn the genera appcaton
of nondscrmnatory aws, and where no drect burden s ad upon
the governmenta nstrumentaty, and there s ony a remote, f any,
nfuence upon the e ercse of the functons of government. Itacs
supped. The rue must be apped accordng to practca stand-
ards. (Raroad Co. v. Penston, 18 Wa., 5 Metcaf fa ddy v.
MtcheU, 269 U. S., 514 T. D. 3824, C. . -, 218 and urnet v.
ergns Trust, 288 U. S., 508 Ct. D. 653, C. . II-L 214 .) The
Unted States Supreme Court n ducatona ms Corporaton v.
Ward (282 U. S., 379) sad that The consttutona power of one
government to reach ths permssbe ob|ect of ta aton may not be
curtaed because of the ndrect effect whch the ta may have upon
the other. In that same decson the Court aso sad: Ths Court,
n drawng the ne whch defnes the mts of the powers and mmun-
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116, rt. 116-2.
132
tes of State and Natona Governments, s not ntent upon a mechan-
ca appcaton of the rue that government nstrumentates are
mmune from ta aton, regardess of the consequences to the opera-
tons of government. The necessty for markng those boundares
grows out of our consttutona system, under whch both the edera
and the State Governments e ercse ther authorty over one peope
wthn the terrtora mts of the same State. The purpose s the
preservaton to each government, wthn ts own sphere, of the free-
dom to carry on those affars commtted to t by the Consttuton,
wthout undue nterference by the other. (Cases cted).
The Unted States Supreme Court n nt v. Stone Tracy Co.
(220 U. S., 107) sad that The true dstncton s between the at-
tempted ta aton of those operatons of the States essenta to the
e ecuton of ts governmenta functons, and whch the State can
ony do tsef, and those actvtes whch are of a prvate character.
The former, the Unted States may not nterfere wth by ta ng
the agences of the State n carryng out ts purposes the atter
are not removed from the fed of egtmate edera ta a-
ton. Itacs supped.
The rue s not appcabe where the pubc actvty s one com-
mony undertaken by prvate corporatons or ndvduas, as, for
e ampe, the operaton of a muncpa waterworks pant, an eectrc
ght pant, or a street raway. (See nt v. Stone Tracy Co.,
supra, and everng v. Powers et a., 293 U. S., 214, Ct. D. 900.
C. . II- 2, 213.) In everng v Powers et a., supra, the Court
sad:
We see no reason for puttng the operaton of a street raway n a dfferent
category from the sae of quors. In each case, the State, wth ts own
concepton of pubc advantage, s undertakng a busness enterprse of a sort
that Is normay wthn the reach of the edera ta ng power and s dstnct
from the usua governmenta functons that are mmune from edera ta a-
ton In order to safeguard the necessary ndependence of the State.
If the busness tsef, by reason of ts character, Is not mmune, athough
undertaken by the State, from a edera e cse ta upon ts operatons, upon
what ground can t be sad that the compensaton of those who conduct the
enterprse for the State s e empt from a edera ncome ta Ther com-
pensaton, whether pad out of the returns from the busness or otherwse, can
have no quaty, so far as the edera ta ng power s concerned, superor to
that of the enterprse n whch the compensated servce s rendered.
In State of Oho v. everng et a. (292 U. S., 360, Ct. D. 836, C. .
III-1, 531), the Court sad:
ut, by the very terms of the rue, the mmunty of the States from
edera ta aton s mted to those agences whch are of a governmenta
character. Whenever a State engages n a busness of a prvate nature t e er-
cses nongovernmenta functons, and the busness, though conducted by the
State, s not mmune from the e ercse of the power of ta aton whch the
Consttuton vests n the Congress.
The argument seems to be that the poce power s eastc and capabe
of deveopment and change to meet changng condtons. 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 In carryng
them on.
s stated by the Unted States Supreme Court n Metcaf ddy
v. Mtche, supra, n offce s a pubc staton conferred by the ap-
pontment of government. Where an offce s created the
aw usuay f es ts ncdents, ncudng ts term, ts dutes and ts
compensaton. The term 1 offcer s one nseparaby con-
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133
I 116, rt. 116-2.
nected wth an offce . statute may authorze the em-
poyment or engagement of an ndvdua and yet not create an
offce nor consttute the ndvdua an empoyee. n empoyee
s one who s contnuousy empoyed to render servces of a routne
or recurrng character and who s sub|ect to drecton not ony as to
what sha be done but as to how t sha be done. Commssoner
v. Mod|esk, 75 ed. (2d), 468, certorar dened, 295 U. S., 764.) One
engaged to render a partcuar servce to a State or potca subd-
vson, or to brng about a desred resut, or one who has entered nto
a contract to accompsh a specfc ob|ect s an ndependent profes-
sona agent or an ndependent contractor, and not an empoyee, as
there s not present a contro of such a nature as characterzes an
empoyer and empoyee reatonshp.
ffect of sources of funds for compensaton. If a or a part of the
compensaton of an offcer or empoyee of a State or potca subdv-
son thereof s pad drecty or ndrecty by the edera Government,
such compensaton (or part) s ta abe, as, for e ampe, the compen-
saton pad by the Unted States to offcers of the Natona Guard of
a State, or the compensaton pad by a State to offcers or empoyees
of an agrcutura schoo or coege whoy or party out of grants
from the edera Government. Ths s aso appcabe to State
emergency reef admnstratons where compensaton s pad from
grants of edera funds. (I. T. 2859, C. . I -1,101.) The rung
n regard to ta ng the compensaton of offcers and empoyees of
agrcutura schoos and coeges pad from edera grants w be
apped ony for the year 1934 and subsequent years, as the reguatons
under pror Revenue cts specfcay provded that such compensa-
ton s not sub|ect to edera ncome ta .
Recevers, qudators of banks and nsurance companes, and no-
tares pubc. It s aso hed that n certan other cases where the
compensaton s not pad out of pubc funds of the State or potca
subdvsons, the compensaton s sub|ect to edera ncome ta , as
the mposton of the ta woud not so burden the State or potca
subdvsons as to consttute a substanta and drect nterference by
the edera Government wth the e ercse of a usua soveregn func-
ton. ccordngy, the compensaton of recevers apponted by State
courts and qudators of banks and nsurance companes taken over
by the States, whch s pad out of the funds or assets of the corpora-
tons nvoved, s not e empt. (See G. C. M. 13488, C. . III-2,156,
and G. C. M. 14116, C. . I -1, 102.) ees of notares pubc are
sub|ect to ta . ( rtce 116-2, Reguatons 86.)
State acohoc admnstratons. Th Department has decded
that t was not the ntenton of Congress to mpose the edera n-
come ta drecty on States or potca subdvsons thereof. States
and potca subdvsons whch, engage n the manufacture and/or
sae of acohoc beverages w not be ta ed on the profts made from
such saes. (See G. C M. 14407, C. . I -1, 103.) owever, as
the actvty s one that s propretary n nature as dstngushed from
one that s essentay governmenta, the compensaton of the offcers
and empoyees engaged n the manufacture and/or sae of such bev-
erages s sub|ect to edera ncome ta . (See Oho v. eoerng et
a., supra.)
Pubc parks and paygrounds. In regard to the ta abe status
of the compensaton of offcers and empoyees whose servces are
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116, rt. 116-2.
134
rendered n connecton wth the mantenance and operaton of pubc
parks, the decson n Commssoner v. Sherman (69 ed. (2d), 755 ,
uphodng the decson of the Unted States oard of Ta ppeas
(27 . T. ., 1169) that the saary of the superntendent of pubc
parks n New edford, Mass., s e empt from edera ncome ta ,
s not accepted as a precedent for other cases nvovng the ta abe
status of the compensaton of offcers and empoyees of pubc parks.
n appea has been taken from the decson of the Unted States
oard of Ta ppeas n ernard Peter Lamb v. Commssoner,
docket No. 70050 (unpubshed), whch s now pendng before the
Crcut Court of ppeas for the Nnth Crcut. That case nvoves
the queston of the ta abty, for edera ncome ta purposes, of
the compensaton of an empoyee of the oard of Park Comms-
soners of San rancsco, Caf. Pendng a fna |udca determna-
ton of the queston presented n the Lamb case, supra the ureau
w adhere to ts rung that the compensaton of ndvduas who
render servces n connecton wth the mantenance and operaton of
pubc parks and paygrounds s not e empt from edera ncome
ta . (See I. T. 2627, C. . I-1, 119.)
osptas. It s hed that the operaton of chartabe, soaton, or
nsane hosptas by States or potca subdvsons consttutes the
e ercse of an essenta governmenta functon and the compensa-
ton of the offcers and empoyees of such hosptas s e empt from
edera ncome ta . On the other hand, n the case of the operaton
by a State or potca subdvson of a genera hospta, where a
casses of patents are admtted and charges made to such as can
pay, even though the amount of such charges s ess than the cost,
the actvty s cassed as a propretary one and the compensaton or
the offcers and empoyees of such a hospta s sub|ect to edera
ncome ta . (I. T. 2357, C. . I-1, 52 L T. 2642, C. . I-2, 44.)
s to hosptas comng between these e tremes, no defnte rue can be
ad down and each case must be decded on the partcuar facts. In
submttng nformaton wth respect to such nsttutons you shoud
gve fuy a the facts, partcuary as to the statutes or ordnances
provdng for ther estabshment and operaton, the practce wth
respect to admsson of patents and charges therefor, and a other
pertnent facts.
Independent contractors. Partcuar attenton shoud be gven to
cases of professona men who engage n prvate practce and who
aso serve States or ther potca subdvsons professonay. s
a genera rue they w be hed to be ndependent contractors or
ndependent professona agents on the authorty of Metcaf ddy
v. Mtche, supra Commssoner v. McDonough (46 ed. (2d), 944,
Ct. D. 338, C. . -, 367) urnet v. ones (50 ed. (2d), 14)
Underwood v. Commssoner (56 ed. (2d), 67) ohn Red, r., v.
Commssoner (28 . T. ., 1217) | Commssoner v. Mod|esk, supra
and Water G. Wnne v. Commssoner (27 . T. ., 369). In Regs-
ter v. Commssoner (69 ed. (2d), 607, Ct. D. 863, C. . III-2.
284), the court sad that It s setted doctrne, however, that one or
a cass sub|ect to ta aton camng the beneft of an e empton
must brng hmsef e acty wthn the e cepton he cams.
To hod moneys whch pettoner has earned n the prac-
tce of hs professon e empt from ncome ta merey because the
cent who pad them was a cty, woud be to set unreasonabe bounds
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135
5116, rt. 116-2.
to the doctrne of the mmunty of the soveregn to press ts conse-
quences far beyond the practca necesstes of ether government.
Ths cass of cases s the most dffcut upon whch to reach a de-
cson. In submttng nformaton reatve to them t s desred that
you do not merey draw a concuson that the ndvdua s an offcer
or an empoyee but that you gve very fuy a the facts, etc., upon
whch you base your opnon, so that ths offce may be n a poston
to determne the correctness of your concusons. ery compete and
defnte nformaton shoud be furnshed n regard to the nature of
ther actvtes, whether a pubc offce s provded for them, whether
they are requred to observe reguar offce hours, whether the pos-
ton s specfcay provded for by statute or by ordnance, and, f
so, the provson of the aw or ordnance shoud be secured, and the
ctaton to the aw gven by voume and page. (See . . Peate v.
Commssoner, 30 . T. ., 17, now pendng on appea before the
Unted States Crcut Court of ppeas for the S th Crcut.) In
Regster v. Commssoner, supra, the court sad that In decdng
those cases as we dd we ad down no genera rue. We dd not
undertake to, we dd not, mark out for other cases the ne beyond
whch the edera ta ng power coud not go. We recognzed that
on what sde of that ne each case woud fa must be precsey and
separatey determned n each case as t arses.
State banks. The operaton of a State bank has aso been hed to
be the dscharge of a propretary functon and, therefore, the com-
pensaton of ts offcers and empoyees s sub|ect to ta . (The State
of North Dakota v. Oson, supra.)
arbors. The constructon, ownershp, and operaton by a State
or potca subdvson of wharves, pers, eevators, termnas, cng
pants, warehouses, and other port factes to promote shppng and
commerce are propretary actvtes. (S. M. 2232, C. . III-2, 83
and Packet Co. v. eokuk, 95 U. S., 80.) (Cases nvovng compensa-
ton of empoyees of the Port of New York uthorty are now pend-
ng before the Unted States oard of Ta ppeas.)
ppontees of State courts. s a genera rue the compensaton
of masters apponted by State courts to hear and report on specfc
cases, recevers, audtors, e amners, guardans of estates of ncompe-
tent persons, apprasers, and pubc admnstrators w be sub|ect to
ta . (I. T. 1245, C. . 1-1,103 I. T. 1305, C. . 1-1,104 I. T. 2030,
C. . n-1, 117 S. M. 5287, C. . -, 222 G. C. M. 14116, supra
and Mer v. McCaughn, 22 ed. (2d), 165 (affrmed 27 ed. (2d),
128), C. . II-2, 266.) The acquescence n the decson of the
Unted States oard of Ta ppeas n Davd . Cochrane v.
Commssoner (26 . T. ., 1167, C. . II-1, 3) was wthdrawn
(C. . III-2, 23).
Rura credt board. The functon of a rura credt board has been
hed to be propretary n character and the compensaton of ts
offcers and empoyees s, therefore, sub|ect to ta . (S. M. 5490, C. .
-L 37.)
arbor pots. The compensaton of harbor pots s ta abe.
(See rungs n C. . I-2, 39 to 58, and ew v. Unted States, 35 ed.
(2d),977.)
Irrgaton and recamaton dstrcts. The functons of rrgaton
and recamaton dstrcts are propretary n nature and the compensa-
ton of the offcers and empoyees thereof s sub|ect to ta .
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117, rt. 117-2.
136
Ta coectors. Persons apponted ony for the purpose of coect-
ng denquent ta es or partcuar ta es are not offcers or empoyees
of a State or ts potca subdvsons and the compensaton receved
for such servces s sub|ect to ta . (G. C. M. 809, C. . -2, 28, and
Reed v. Commssoner, 34 ed. (2d), 263, reversed by the Supreme
Court, 281 U. S., 699.)
Schoo cafeteras. The operaton of schoo cafeteras s an actvty
that s propretary n nature and the compensaton of the offcers and
empoyees whose servces are rendered n connecton therewth s
ta abe. (See ugene oshns et a. v. Commssoner, 32 . T. .,
682.)
M ed actvtes. In some cases ndvduas render servces to
States or potca subdvsons n connecton wth an nstrumentaty
embracng both propretary and governmenta actvtes. In such
cases the ta abty of the compensaton receved w depend upon
the nature of the enterprse, and not the partcuar ncdents or ts
management. The fact -that a part of the actvty may be govern-
menta n nature does not warrant e empton when that part s merey
ncdent to the man purpose. (See M. S. Denman, e ., v. Comms-
soner, 27 . T. ., 256, affrmed 73 ed. (2d), 193 and everng v.
Powers, supra.) When a ta payer cams the beneft of an e empton
from ta aton, the burden s upon hm to show ceary that he s
wthn the e empton camed. (Phoen re fe Marne Insurance
Co. v. Tennessee, 161 U. S., 174 Chcago, urngton tf ansas Cty
R. R. v. Gu|fey, 120 U. S., 569 Metcaf ddy v. Mtche, supra.)
In regard, therefore, to the admnstratve dffcutes nvoved n
cases where a State or a potca subdvson combnes n one agency
actvtes whch are party propretary and party governmenta and
nether can be sad to be merey ncdenta, t may be stated that t
devoves upon the ta payer to substantate from records the dvson
of hs tme between the two, such as the number of months, days, etc.,
devoted to each. If he can furnsh no bass for the dvson of hs
tme or saary whch appears reasonabe, the tota amount shoud be
ncuded n ta abe ncome.
Correspondence n regard to ths mmeograph shoud refer to the
number thereof and to the symbos IT: : RR.
Gut T. evekno,
C ommssoner.
S CTION 117. C PIT L G INS ND LOSS S.
rtce 117-2: Lmtatons on capta gans -26-8142
and capta osses. I. T. 2986
R NU CT OP 1934.
Where the M Improvement Dstrct refunded Its bonds pror to
maturty wth the ntenton of not ressung them, osses sustaned
by the hoders thereof are sub|ect to the mtatons contaned n
secton 117 (a) and (d) of the Revenue ct of 1934, uness the
bonds were not hed as capta assets as defned n the ct.
dvce s requested as to the appcabty of secton 117 of the
Revenue ct of 1934 to osses sustaned by ndvduas and corpora-
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137
117, rt. 117-2.
tons through the refundng of bonds of the M Improvement Dstrct
for an amount ess than the face vaue of such bonds. That ds-
trct obtaned a oan for the purpose of refnancng ts outstandng
bonded ndebtedness and used the proceeds of the oan n the refund-
ng of a of ts outstandng bonds on the bass of cents on each
doar of prncpa n fu satsfacton of the prncpa and accrued
nterest on such bonds.
Secton 117 of the Revenue ct of 1934 provdes n part as foows:
(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 be taken nto account n computng net ncome:
100 per centum f the capta asset has been hed for not more than 1 year
80 per centum f the capta asset has been hed for more than 1 year but not
for more than 2 years
60 per 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 If the capta asset has 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 In the nventory
of the ta payer f on hand at the cose of the ta abe year, or property hed
by the ta payer prmarUy for sae to customers In the ordnary course of hs
trade or busness.

(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 Is the recept of deposts, ses any bond, debenture, note, or certfcate
or other evdence of ndebtedness ssued by any corporaton (ncudng one
Issued by a government or potca subdvson thereof), wth nterest coupons
or In 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 Incuded n determnng the appca-
bty of such mtaton to other osses.

(f) Retrement of bonds, etc. or the purposes of ths tte, amounts receved
by the hoder upon the retrement of bonds, debentures, notes, or certfcates or
other evdences of Indebtedness ssued by any corporaton (Incudng 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.
In the opnon of ths offce the term retrement of bonds as used
n secton 117(f) of the Revenue ct of 1934, ncudes the purchase
or refundng by a corporaton of ts bonds pror to ther maturty
date wth the ntenton of not ressung the same bonds.
It s hed, therefore, that the oss sustaned by an ndvdua hoder
of bonds of the M Improvement Dstrct as the resut of the refund-
ng of such bonds on the bass above set forth s sub|ect to the m-
tatons contaned n secton 117 (a) and (d) of the Revenue ct of
1934, and that such a oss sustaned by a corporate hoder of the
bonds s sub| ect to the mtaton of secton 117(d), uness the bonds
n both cases do not consttute capta assets as defned n secton
117(b) of the ct.
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131, rt. 131-1.
138
S CTION 119. INCOM ROM SOURC S WIT IN
UNIT D ST T S.
rtce 119 -7: Income from sources wthout the -22-8102
Unted States. I. T. 2976
R NU CT O 1934.
The renta or beneft payments made by the Secretary of gr-
cuture under the provsons of the grcutura d|ustment ct
to the M Company, a foregn corporaton operatng n Puerto Rco,
for reducton n acreage, or reducton n producton for market of
sugar cane, are ncome from sources wthout the Unted States.
dvce s requested whether the renta or beneft payments
receved by the M Company, a sugar cane producer n Puerto Rco,
by reason of sugar cane producton ad|ustment contracts under the
provsons of the grcutura d|ustment ct consttute ncome
from sources wthn or wthout the Unted States.
The M Company conducts a ts busness n Puerto Rco, where
ts offces are ocated, and for edera ncome ta purposes s con-
sdered a foregn corporaton. Its ncome s derved prmary from
the cutvaton and sae of sugar cane produced n Puerto Rco.
It was hed n I. T. 2767 (C. . III-1, 35) that the renta or
beneft payments made to producers by the Secretary of grcuture
under the provsons of the grcutura d|ustment ct for the
reducton n acreage, or the reducton n producton for market of
any basc agrcutura commodty specfed n secton 11 of that ct,
as amended, consttute ta abe ncome to the recpent. owever,
the acreage for whch the rentas were pad n the nstant case, or
upon whch producton was reduced, s ocated n Puerto Rco.
ccordngy, the ncome n queston arose from the ownershp of
and by the M Company wthout the Unted States and consttutes
ncome from sources wthout the Unted States.
The fact that the grcutura d|ustment ct has been hed to
be unconsttutona (Unted States v. uter et a., Recevers of
oosae Ms Corporaton, 297 U. S., 1) does not have any effect on
the queston of whether payments made under that ct consttute
ncome.
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. -13-8017
I. T. 2964
R NU CT O 1934.
The tar Imposed by Canada on nonresdents In connecton wth
the use of copyrghts In Canada Is an aowabe credt under
secton 131 of the Revenue ct of 1934, sub|ect to the mtatons
provded In that secton.
dvce s requested reatve to the aowance of a credt aganst
Unted States ncome ta for ta es eved by the Canadan Govern-
ment n respect of copyrghts under chapter 97 of the ncome war
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139
S131, rt. 131-L
ta act, enacted by Canada n 1917, and chapters 12, 24, 41, 65, and
40, a of whch are amendments to the ncome war ta act. The
nqury reates partcuary to a new provson wrtten nto the aw
(chapter 40, assented to une 28,1935), by vrtue of whch mercan
fm producers w be sub|ect to a 5 per cent ta at the source based
on saes made n Canada.
The foowng provsons of the Canadan ta aw are pertnent:
Chapter 97. 9. There sha be assessed, eved and pad upon the ncome
durng the precedng year of every person
Chapter 41. 9 . (1)
(2) In addton to any other ta mposed by ths act an ncome ta of 5
per centum s hereby Imposed on aU persons who are nonresdents of Canada
In respect of
(a) dvdends receved from Canadan debtors rrespectve of the cur-
rency In whch the payment s made, and
(b) Interest receved from Canadan debtors f payabe soey In Cana-
dan funds e cept the Interest from a bonds of or guaranteed by the Domnon
of Canada.
Chapter 55. 5.
(c) nterest receved by a nonresdent parent company from a Canadan
subsdary company .
(d) Income for any ta aton perod receved from any Canadan estate
or trust, .
Chapter 40. 9.
(e) payments receved drecty or ndrecty from Canadan debtors n
respect of
() any copyrght, used n Canada, reatng to books, musc, artces In
perodcas, newspaper syndcated artces, pctures, comcs and other news-
paper or perodcas features, and (II) any rghts n and to the use of any
copyrghted work subsequenty produced or reproduced n Canada by way of
the spoken word, prnt or mechanca sound on or from paper, composton,
fms or mechanca devces of any descrpton.
The ta payabe by vrtue of ths paragraph sha be deducted by the
Canadan debtor from the amount pad or credted to such nonresdent at the
tme of payment or credtng, and sha be remtted to the recever genera of
Canada.
Secton 31 of the Revenue ct of 1934 provdes that ncome ta es
mposed by foregn countres sha be aowed as a credt to the e -
tent provded n secton 131, whch n turn paces certan mtatons
upon the credt Secton 131(a) of that ct provdes n part:
(a) owance of credt. If the ta payer sgnfes n hs return hs desre
to have the benefts of ths secton, the ta mposed by ths tte sha be
credted wth:
(1) Ctzen and domestc corporaton. In the case of a ctzen of the Unted
States and of a domestc corporaton, the amount of any Income, war-profts,
and e cess-profts ta es pad or accrued durng the ta abe year to any for-
egn country or to any possesson of the Unted States .
In order that the credt may be aowed, t s essenta that the
ta pad to the foregn country be an ncome, war-profts, or e cess-
profts ta . If the ta s n the nature of an ncome ta , t must be
a ta on ncome accordng to the concept of ncome as denned by
the Supreme Court of the Unted States n sner v. Macomb, r (252
U. S., 189 T. D. 3010, C. . 3, 25 ). The Court stated:
Income may be defned as the gan derved from capta, from abor or from
both combned, provded t be understood to ncude proft ganed through a
sae or converson of capta assets .
The 5 per cent ta deducted at the source by the Canadan debtors
s a ta mposed upon royates or smar payments for the use of
copyrghted materas.
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161, rt. 161-1.
140
ppyng the foregong prncpes to the ta mposed by Canada
on nonresdents n connecton wth the use of copyrghts n Canada,
t ceary appears that the ta s an aowabe credt under secton 131
of the Revenue ct of 1934, sub|ect to the mtatons provded n
that secton.
rtce 131-5: Countres whch do or do not -1-7888
satsfy the smar credt requrement. I. T. 2949
R NU CT O 1934.
Germany does not satsfy the smar credt requrement of secton
131 (a) 3 of the Revenue ct of 1934.
rtce 131-5: Countres whch do or do not -24-8121
satsfy the smar credt requrement. I. T. 2980
R NU CT O 1934.
The Netherands Government does not satsfy the smar credt
requrement of secton 131 (a)3 of the Revenue ct of 1934.
SUPPL M NT . ST T S ND TRUSTS.
S CTION 161. IMPOSITION O T .
rtce 161-1: Imposton of the ta . -11-8003
( so Secton 166, rtce 166-1.) T. D. 4629
INCOM T .
states and trusts rtce 161-1 and artce 166-1 of Regua-
tons 86, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
(1) rtce 161-1 (a) of Reguatons 86 s hereby amended by
deetng from the end of the frst sentence of the frst paragraph of
that artce the parenthetca phrase e cept n the case of those
trusts wthn the scope of sectons 165, 166, and 167.
(2) The ast paragraph of artce 161-1 (a) of Reguatons 86 s
amended to read as foows:
The provsons of sectons 161, 162, and 163 (reatng to estates and trusts,
fducares and benefcares) contempate that the corpus of the trust, or the
ncome therefrom, s, wthn the meanng of the ct, no onger to be regarded
as that of the grantor. If, by vrtue of the nature and purpose of the trust,
the corpus or ncome therefrom remans attrbutabe to the grantor, these pro-
vsons do not appy. Thus the provsons of sectons 166 and 167 dea wth
certan trusts whch are e cuded from the scope of sectons 161, 162, and 163.
nd other trusts, not specfed n sectons 166 and 167, where n contempaton
of aw the corpus of the trust or the ncome therefrom s regarded as reman-
ng n substance that of the grantor are kewse e cuded from the scope of
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141
( 161, rt. 161-1.
sectons 161, 162, and 163. Some of such trusts are deat wth n artce 1CG-1
and artce 167-1. Speca rues are prescrbed n secton 165 wth respect te
the ta aton of empoyees trusts.
(3) rtce 161-1(6) of Reguatons 86 s amended by addng, at
the end of the frst sentence thereof after the reference to sectons
165, 166, and 167, the phrase and artces 166-1 and 167-1.
(4) rtce 166-1 o Reguatons 86 s amended to read as foows:
bt. 166-1. Trusts, wth respect to the corpus of whch, the grantor s re-
garded as remanng n substance the owner. (a) If the grantor of a trust s
regarded, wthn the meanng of the ct, as remanng n substance the owner
of the corpus thereof, the Income therefrom s not ta abe n accordance wth
the provsons of sectons 161, 162, and 163 but remans attrbutabe and
ta abe to the grantor. Ths artce deas wth the ta aton of such Income.
s used In ths artce, the term corpus means any part or the whoe of
the property, rea or persona, consttutng the sub|ect matter of the trust.
(6) Secton 166 defnes wth partcuarty nstances n whch the grantor
U regarded as n substance the owner of the corpus by reason of the fact
that he has retaned power to revest the corpus n hmsef. or the purposes
of ths artce the grantor Is deemed to have retaned such power f he, or
any person not havng a substanta Interest n the corpus or the ncome
therefrom adverse to the grantor, or both, may cause the tte to the corpus
to revest n the grantor. If the tte to the corpus w revest n the grantor
upon the e ercse of such power, the Income of the trust s attrbuted and
ta abe to the grantor regardess of
(1) whether such power or abty to retake the trust corpus to the grantor s
own use s effected by means of a power to revoke, to termnate, to ater
or amend or to appont
(2) whether the e ercse of such power s condtoned on the precedent
gvng of notce, or on the eapsng of a perod of years, or on the happenng
of a specfed event
(3) the tme at whch the tte to the corpus w revest In the grantor
n possesson and en|oyment, whether such tme s wthn the ta abe year
or not, or whether such tme be f ed, determnabe, or certan to come
(4) whether the power to revest n the grantor tte to the corpus s n the
grantor, or In any person not havng a substanta nterest In the corpus or
ncome therefrom adverse to the grantor, or In both. bare ega Interest,
such as that of a trustee, s never substanta and never adverse
(5) when the trust was created.
ut the provsons of secton 160 are not to be regarded as e cudng from
ta aton to the grantor the ncome of other trusts, not specfed theren, In
whch the grantor s, for the purposes of the ct, smary regarded as re-
manng In substance the owner of the corpus. The grantor s regarded as n
substance the owner of the corpus, f, In vew of the essenta nature and
purpose of the trust, It s apparent that the grantor has faed to part per-
manenty and defntvey wth the substanta ncdents of ownershp n the
corpus.
In determnng whether the grantor Is In substance the owner of the corpus,
the ct has Its own standard, whch s a substanta one, dependent nether
on the ncetes of the partcuar conveyancng devce used, nor on the tech-
nca descrpton whch the aw of property gves to the estate or Interest
transferred to the trustees or benefcares of the trust. In that determna-
ton, among the matera factors are: the fact that the corpus Is to be returned
to the grantor after a specfc term the fact that the corpus s or may be
admnstered n the Interest of the grantor the fact that the antcpated ncome
Is beng approprated n advance for the customary e pendtures of the grantor
or those whch he woud ordnary and naturay make and any other crcum-
stances bearng on the mpermanence and ndefnteness wth whch the grantor
has parted wth the substanta ncdents of ownershp n the corpus.
Thus the grantor s regarded as beng n substance the owner of the corpus f,
n any case, the trust amounts to no more than an arrangement whereby the
grantor, n the orderng of hs affars, fnds t e pedent to entrust for a erod
the tte to, and custody or management of, certan of hs property to a trustee,
the Income from such property to be used by the trustee durng such perod to
make those e pendtures whch the grantor woud customary or ordnary
or naturay make and to whch the grantor chooses to commt hmsef n ad-
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166, rt. 166-1.
142
vance, whe the corpus Is to be hed Intact, for return In due course to the
grantor. In such a case, It Is Immatera that, at the tme of the creaton of the
trust, an rrevocabe dsposton or consummated gft was made of those prop-
erty rghts whch consst of the rght to the e pected future Income of the cor-
pus for the specfed perod. On the other hand, If the grantor, Incdent to a
defntve and permanent dsposton of certan of hs property, creates the trust
In order to conserve the property, not for hmsef but for the donees, who w
utmatey en|oy t, the provsons of sectons 161, 102, and 163 are appcabe.
(c) or e ampe, a grantor s regarded as remanng n substance the owner
of the corpus of the trust, f he has paced t n trust for hs son, ohn.
( ) for the term of three years, at the end of whch tme the trust mght
be e tended for a ke perod at the opton of the grantor and successvey
thereafter, but n the absence of such an e tenson the tte Is once more to
revest In the grantor In possesson and en|oyment or
( ) for the term of a year and a day, then to be dstrbuted to whomsoever
the wfe of the grantor sha by deed appont (the wfe not havng a sub-
stanta adverse Interest In the dsposton of the corpus or the Income there-
from) or
(C) for the term of the grantor s fe, then to be dstrbuted to ohn, the
grantor reservng, however, the rght to ater, amend, or revoke any provson
of the trust nstrument, upon notce of a year and a day.
In these typca cases the grantor s regarded as havng retaned the sub-
stanta ncdents of ownershp wth respect to the Income-producng property
snce the corpus w or may once more revest n hmsef In ( ) upon the
e praton of the trust perod If the grantor does not e ercse hs opton to
e tend the trust, n ( ) upon the desgnaton of the grantor as dstrbutee,
by a person not substantay and adversey Interested, and n (O) upon the
revocaton of the trust Instrument or an ateraton or amendment thereof,
resutng In the desgnaton of the grantor as dstrbutee.
(d) If the grantor s regarded as remanng n substance the owner of
the corpus the gross Income of sueh corpus sha be ncuded n the gross
Income of the grantor, and he sha be aowed those deductons wth respect
to the corpus as he woud have been entted to had the trust not been
created.
If the grantor strps hmsef of the substanta ncdents or attrbutes of
ownershp In the corpus retaned by hm so that he ceases to be regarded
as In substance the owner of the corpus, the Income thereof reazed after
the effectve date of such dvestng Is not ta abe to the grantor but Is ta abe
as provded In sectons 161, 162, and 163.
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved March 7, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
S CTION 166. R OC L TRUSTS.
rtce 166-1: Trusts n the corpus of whch the grantor
retans an nterest.
R NU CT O 1934.
mendment of Reguatons 86, artce 166-1. (See T. D. 4629,
page 140.)
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143
167, rt. 167-1.
S CTION 167. INCOM OR N IT O GR NTOR.
rtce 167-1: Trusts n the ncome of whch -11-7995
the grantor retans an nterest. Mm. 4435
Income of trust ta abe to grantor.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, ebruary 26, 1936.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
Reference s made to the decson of the Unted States Supreme
Court n Dougas v. WUcuts (296 U. S., 1, Ct. D. 1041, C. .
I -2, 250), rendered on November 11, 1935, n whch the Court
hed that the ncome of the trust created by the ta payer provdng
for annua payments out of such ncome to hs wfe n eu of a-
mony and any other nterest n hs property or estate was ta abe to
the husband, the grantor, under the provsons of the Revenue cts
of 1926 and 1928. The trust agreement was e ecuted three days be-
fore the wfe was granted a decree of absoute dvorce n a dstrct
court of the State of Mnnesota and ts provsons were approved
by the court and ncorporated n the decree. In hodng that the
trust ncome was used to pay a ega obgaton of the ta payer, the
Court stated n part:
The creaton of a trust by the ta payer as the channe for the app-
caton of the Income to the dscharge of hs obgaton eaves the nature of
the transacton unatered. ( urnet v. Wes, supra.) In the present case, the
net ncome of the trust fund, whch was pad to the wfe under the decree,
stands substantay on the same footng as though he had receved the ncome
personay and had been requred by the decree to make the payment drecty.
On December 9, 1935, the Supreme Court under the authorty of
ts decson n Dougas v. WUcuts, supra, rendered per curam dec-
sons reversng the decsons of the crcut courts n the foowng
cases: everng v. dmond 0. Schwetzer (56 S. Ct., 304) ever-
ng v. Lucy . umentha (56 S. Ct., 305) and everng v. rancs
. Stokes (56 S. Ct., 308). In such cases the crcut courts had hed
that the ncome of the trust was not ta abe to the grantor. The
matera facts n these cases are as foows:
In everng v. dmond O. Schwetzer supra,reversng the Crcut
Court of ppeas for the Seventh Crcut (75 ed. (2d), 702), ars-
ng under the Revenue cts of 1926 and 1928 the ta payer created
trusts for the beneft of hs three mnor chdren, the ncome of
whch was payabe to hm to be used soey for ther support, man-
tenance, ana educaton. In everng v. Lucy . umentha, supra,
reversng the Crcut Court of ppeas for the Second Crcut (76
ed. (2d), 507), arsng under the Revenue ct of 1928, the ta -
payer created a trust whch contaned a provson drectng the
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211, rt. 211-7.
144
trustee to appy the unpad accumuated dvdends on the stock
paced n trust, when pad, toward the qudaton and payment of
the prncpa and nterest thereon of a oan obtaned by the ta -
payer from a bank. The Crcut Court of ppeas for the Second
Crcut had ooked upon the corpus of the trust as the prmary fund
for the payment of the debt, the ta payer standng n the reaton
of surety ony, and had hed that the payment of the ndebtedness
through the satsfacton of the en had prmary benefted those to
whom the corpus beonged. In evcrng v. rancs . Stokes,
supra, reversng the Crcut Court of ppeas for the Thrd Crcut
(79 ed. (2d), 256), arsng under the Revenue ct of 1928, a trust
was created for the mantenance, educaton, and support of the set-
tor s chdren durng ther respectve mnortes. The agreement
drected the trustee, as each chd became 21 years of age or ded
pror to that tme, to transfer the equa share of the fund of such
chd to the wfe of the ta payer, or f she shoud not be vng, to
the ta payer hmsef, and t nether shoud be vng, to other per-
sons for the purposes theren e pressed.
The provsons of the Revenue cts of 1926 and 1928 reatng to
trusts, the ncome of whch nures to the beneft of the grantor, are
substantay the same as the correspondng provsons of the Reve-
nue cts of 1932 and 1934 (secton 167). The above-mentoned dec-
sons of the Supreme Court uphod the poston whch the ureau
s takng under such provsons, whch poston s e pressy stated
n artce 167-1 of Reguatons 86, that s, that n cases n whch the
ncome of a trust may be apped to the support of mnor chdren,
the payment of amony, or the dscharge of other ega obgatons
of the grantor, such ncome s ta abe to the grantor. Care shoud
be e ercsed n the e amnaton of returns nvovng the queston
of the proper treatment for edera ncome ta purposes of the n-
come of trusts whch nures to the beneft of the grantor n order
that the e amnaton of such returns and the determnaton of the
ta abty of the ta payers concerned may be made n accordance
wth the poston of the ureau.
Correspondence and nqures regardng ths mmeograph w
refer to tne number thereof and to the symbos IT: : CTR.
Chas. T. Russe,
ctng Commssoner.
suppement h. nonresdent aen ndvduas.
S CTION 211. GROSS INCOM .
rtce 211-7: cuson of earnngs of foregn -16-8049
shps from gross ncome. I. T. 2969
R NU CTS O 1028, 1032, ND 1034.
egum meets the equvaent e empton provsons of sectons
212(b) and 231(b) of the Revenue ct of 1928 (from anuary L
1931), secton 212(b) and 231(b) of the Revenue ct of 1932, and
sectons 211(b) and 231(b) of the Revenue ct of 1934.
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145
351, rt. 351-2.
rtce 211-7: cuson of earnngs of foregn
shps from gross ncome.
-20-8087
I. T. 2975
R NU CTS O 1932 ND 1934.
Span does not satsfy the equvaent e empton requrements
of sectons 211(b) and 231(b) of the Revenue ct of 1934 and the
correspondng provsons of the Revenue ct of 1932.
TITL L DDITION L INCOM T S.
S CTION 351. SURT ON P RSON L OLDING
COMP NI S.
Where a ease of certan and provded that the essor was
entted to one-eghth of the o and gas produced from the prem-
ses, payments made n 1934 to the essor by the essee on account
of such one-eghth Interest consttute royates wthn the mean-
ng of that term as used n artce 351-2(1) of Reguatons 86.
rung s requested whether certan payments receved by the
M Company under an o and gas ease come wthn the meanng of
the term royates as used n artce 351-2(1) of Reguatons 86
for the purpose of determnng whether that company s a persona
hodng company.
On May , 1929, a ease of certan premses was entered nto be-
tween the M Company as essor and the N Company as essee. r-
tce II of the ease provdes for the devery to the essor of one-
eghth part of the amount of a o and other substances (e cept gas
produced and saved from the and) and for the sae of a royaty
o by the essor to the essee at the prce stated. rtce III of the
ease provdes that the essor sha be entted to receve and take
one-eghth of a gas (n e cess of that used by the essee n opera-
ton under the ease) whch s saved and utzed from the premses.
Whe the essee s not obgated to save any gas produced on the
premses, t s stpuated that n case the essee desres to save and
utze the gas the essee sha have the rght to purchase the essor s
royaty share at the prce mentoned theren. rtce I of the ease
provdes as a further consderaton for the ease a f ed annua renta
of doars commencng three years from the date of the ease. It
s stated that f the payments under rtces II and III of the ease
may propery be treated as rentas and not as royates the ta payer
woud not be a persona hodng company wthn the meanng of
secton 351 of the Revenue ct of 1934.
rtce 351-2(1) of Reguatons 86 provdes n part as foows:
(1) Royates. The term royates ncudes amounts receved for the use
of or for the prvege of usng patents, copyrghts, secret processes and formu-
as, good w, trade marks, trade brands, franchses, and other ke property.
It does not ncude rents, nor overrdng royates receved by an operatng
company.
rtce 351-2: Cassfcaton of a persona
hodng company.
R NU CT O 1934.
-17-8057
I. T. 2970
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|702.
146
The term renta must be taken n ts usua and ordnary sense,
that s, as appyng to a f ed sum to be pad at stated dates for
the use of property. Duffy v. Centra Raroad Co. of New ersey,
268 U. S., 55 rank Seder Co. v. Commssoner, 44 ed. (2d),
147.) In . T. Sneed, r.. v. Commssoner (33 . T. ., 478) t
was sad: The word royaty as used n a gas ease generay refers
to a share of the product or proft reserved by the owner for per-
mttng another to use the property ctng cases . It s a com-
pensaton for the prvege of drng and producng o and gas
and conssts of a share n the product ctng cases . Royates
under an ordnary o and/or gas ease are not pad as f ed rents
but for o and/or gas taken out and do not consttute renta
wthn the ordnary meanng of that term. (State v. atcher, 115
Te ., 332, 281 S. W., 192.)
Whe t s apparent that the f ed annua payments of doars
provded n rtce I of the ease here n queston are rents, t
s aso cear that the payments provded n rtces II and III of
the ease are royates wthn the meanng of that term as used
n artce 351-2(1), supra.
TITL I . CIS T S.
S CTION 607. N ORC M NT O LI ILITY
OR T S COLL CT D.
Secton 607. -23-8115
I. T. 2979
R NU CT O 1034.
Where a defcency Is determned n Income ta requred to be
wthhed at the source under the Revenue ct of 1934, defcency
notce w be sent to the wthhodng agent under the provsons
of secton 272(a) of that ct
The oard of Ta ppeas havng hed n Ssters of the Thrd
Order of St. rancs of the Docese of Pttsburgh, Pa., v. Comms-
soner (Docket No. 82367, memorandum opnon dated March 11,
1936) that t has |ursdcton wth respect to ncome ta requred
to be wthhed at the source under the Revenue ct of 1934, notce
w be ssued to the wthhodng agent by regstered ma, as pro-
vded by secton 272(a) of that ct, n the case of a defcency n
such ta .
TITL -C PIT L STOC ND C SS-PRO ITS
T S.
S CTION 702. C SS-PRO ITS T .
Secton 702. -3-7908
G. C. M. 15937
R NU CT O 1034.
In computng the e cess-profts ta under secton 702 of the
Revenue ct of 1934, the ncome of a corporaton havng an n-
come-ta ta abe year consstng of a perod of ess than 12 months
due to a change n accountng perod shoud not be paced on an
annua bass.
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147
703.
dvce s requested wth respect to the e cess-profts ta abty
of the M Company under secton 702 of the Revenue ct of 1934
for the perod anuary 1 to une 30, 1935. The queston presented
s whether the net ncome of a corporaton shoud be paced on an
annua bass where a return s fed for a perod of ess than a year
due to a change n ts accountng perod.
The provsons of the Revenue ct of 1934 reatng to e cess-
profts ta read as foows:
Sec. 702. cess-profts ta .
(a) There s hereby mposed upon the net ncome of every corporaton, for
each Income-ta ta abe year endng after the cose of the frst year n respect
of whch It s ta abe under secton 701, an e cess-profts ta equvaent to
6 per centum of such porton of ts net ncome for such ncome-ta ta abe
year as s n e cess of 12 per centum of the ad|usted decared vaue of ts
capta stock (or n the case of a foregn corporaton the ad|usted decared
vaue of capta empoyed n the transacton of ts busness n the Unted
States) as of the cose of the precedng Income-ta ta abe year (or as of
the date of organzaton If It had no precedng Income-ta ta abe year)
determned as provded n secton 701. If the Income-ta ta abe year n
respect of whch the ta under ths secton s mposed s a perod of ess than
12 months, such ad|usted decared vaue sha be reduced to an amount whch
bears the same rato thereto as the number of months n the perod bears to
12 months. or the purposes of ths secton the net Income sha be the
same as the net Income for ncome ta purposes for the year n respect of
whch the ta under ths secton s Imposed.
(b) provsons of aw (ncudng penates) appcabe n respect of the
ta es mposed by Tte I of ths ct, sha, n so far as not nconsstent wth
ths secton, be appcabe In respect of the ta mposed by ths secton, e cept
that the provsons of secton 131 of that tte sha not be appcabe.
Secton 702(a) provdes that for ts purposes the term net n-
come, as used theren, sha be the same as the net ncome for ncome
ta purposes. Secton 702(a) makes appcabe, n so far as not
nconsstent therewth, a provsons of aw reatng to ncome ta es.
Secton 47(c) of the Revenue ct of 1934, reatng to ncome ta es,
reads as foows:
(c) Income paced on annua bass. If a separate return s made under
subsecton (a) on account of a change n the accountng perod, the net ncome,
computed on the bass of the perod for whch separate return s made, sha
be paced on an annua bass by mutpyng the amount thereof by 12 and
dvdng by the number of months ncuded n the perod for whch the
separate return Is made. The ta sha be such part of the ta computed
on such annua bass as the number of months n such perod s of 12 months.
It w be observed that secton 702(b) of the Revenue ct of
1934 states that the ncome ta provsons of the aw sha be ap-
pcabe n respect of the e cess-profts ta n so far as not ncon-
sstent tvth ths secton 702 . Secton 702(a) provdes that f the
ncome-ta ta abe year n respect of whch the ta under ths sec-
ton s mposed s a perod of ess than 12 months, the ad|usted de-
cared vaue of capta stock sha be reduced to an amount whch
bears the same rato thereto as the number of months n the perod
bears to 12 months. These provsons are specfc and prescrbe the
e act method by whch the computaton sha be made. ccordngy,
the genera provsons of secton 47(c), supra, of the Revenue ct o
1934 requrng ncome to be paced on an annua bass where a
return for a perod of ess than 12 months s fed due to a change n
accountng perod are not appcabe n computng the e cess-profts
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5702.
148
ta under secton 702 of the Revenue ct of 1934 for a perod of ess
than 12 months. The correct computaton of the ta s as foows:
Net Income for 6-month perod ended une 30, 1935 10,000. OO
d|usted decared vaue of capta stock as of December 81, 1934,
100,000, reduced to a 6-month bass 50,000.00
12 2 per cent of 50,000 6,250. 00
mount sub|ect to e cess-profts ta ( 10,000 mnus 6,250) 8,750.00
cess-profts ta , 5 per cent of 3,750 .... 187. 50
In vew of the foregong, t s the opnon of ths offce that n
computng the e cess-profts ta under the provsons of secton 702
of the Revenue ct of 1934, the ncome of a corporaton havng an
ncome-ta ta abe year consstng of a perod of ess than 12 months
due to a change n accountng perod shoud not be paced on an
annua bass.
(See I. T. 2951, page 469, ths uetn, for method of computaton
under the Natona Industra Recovery ct Wth respect to the
case where a corporaton dssoves durng the ta abe year, see I. T.
2817, C. . III-2, 116.)
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna. Revenue.
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149 23(c), rt. ML
INCOM T RULINGS. P RT IL,
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.
R NU CT O 1932.
Ta abty of ncome of restrcted Indans of the ve Cvzed
Trbes. (See G. C. M. 16020, page 78.)
rtce 51: What ncuded n gross ncome.
R NU CT OP 1932.
Ta abty of ncome of restrcted members of the Osage Indan
Trbe. (See G. C. M. 16100, page 80.)
rtce 51: What ncuded n gross ncome.
R NU CT O 1932.
Proceeds of embezzement. (See G. C. M. 16572, page 82.)
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM : T S G N R LLY.
rtce 151: Ta es.
R NU CT OP 1932.
Msssspp property ta es. (See G. C. M. 15894, page 90.)
rtce 151: Ta es.
R NU CT O 1932.
Oho qud fue ta . (See I. T. 2968, page 104.)
rtce 151: Ta es.
R NU CT O 1932.
Wsconsn chan store ta . (See G. C. M. 16491, page 109.)
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101, rt. 50
150
S CTION 23(|). D DUCTIONS OM GROSS
INCOM : D D TS.
rtce 191: ad debts.
R NU CT OP 1032.
mendment of Reguatons 77, artce 191. (See T. D. 4633,
page 118.)
rtce 191: ad debts.
R NU CT O 1032.
Charge-offs ordered by bank e amners wth respect to rea estate
taken n settement of debts. (See I. T. 2985, page 119.)
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 1032.
Speca Commttee Investgatng Od ge Penson Organzatons,
ouse of Representatves. (See T. D. 4637, page 310.)
SU TITL C SUPPL M NT L PRO ISIONS.
suppement a. rates of ta .
S CTION 101. C PIT L N T G INS ND LOSS S.
rtce 501: Defnton and ustraton of -3-7909
capta net gan. Mn. 4409
Property acqured by Intestacy or genera bequest. Determna-
ton, for capta gan and oss purposes, of perod hed by the
ta payer. ffect of Supreme Court decson.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, December 27,1935.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Other Offcers and mpoyees of the ureau Concerned:
Reference s made to the decson of the Unted States Supreme
Court, rendered on November 11, 1935, n the cases entted Nancy .
Mc eey v. Commssoner of Interna Revenue, No. 24 The Unted
States of merca v. The rst Natona ank of oston et a., No.
110: Commssoner of Interna Revenue v. rances G. Lee, No. I
Rufus R. Rand, r., v. Commssoner of Interna Revenue, No. 439
and Isabe . Dbbce v. Commssoner of Interna Revenue, No. 494
(56 S. Ct., 54, Ct. D. 1040, C. . I -2, 209).
The above-mentoned cases arose under secton 101 of the Revenue
ct of 1928, whch permts ta payers at ther opton to pay edera
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151
5101, rt. 501.
ncome ta at the rate of 12 per cent on net gans from the sae
or e change of capta assets. Secton 101(c) 8 of that ct, so far
as matera, provdes that capta assets means property hed by
the ta payer for more than two years . The queston pre-
sented to the Court was whether property acqured from a decedent
by ntestacy or by genera bequest s, wthn the meanng of secton
101 (c) 8, hed by the ta payer from the date of the decedent s death
or from the date of the dstrbuton of the property. The Court hed
that n such cases the property was hed by the ta payer from the
date of the decedent s death.
In each of the above-mentoned cases the ta payer sod the prop-
erty more than two years after the death of the decedent but ess
than two years after dstrbuton to the ta payer by the representa-
tves of the decedent s estate. In each case a return was made of the
proft from the sae as capta net gan ta abe at 12y2 per cent, as
provded n secton 101 of the Revenue ct of 1928.
The Government contended that unt actua dstrbuton propertv
can not be sad to be hed by one havng an nterest n a decedent s
estate, and even f ths be not true, secton 113 (a)5 of the Revenue
ct of 1928, makng the vaue at the date of dstrbuton the bass for
determnng the gan n such cases, requres that the word hed n
secton 101(c)8 be construed to set the same date as the tme at whch
the hodng begns.
The ta payers contended that property s, n contempaton of aw,
hed from the date of acquston, and one dervng property from a
decedent s estate through devse, bequest, or ntestacy acqures the
property at the date of death and hods t from that date that a
pror cts usng smar phraseoogy have been so nterpreted by
the Treasury Department that the reenactment of those cts wth-
out sgnfcant change consttutes a egsatve confrmaton of the
admnstratve nterpretaton and that secton 113, reatng to the
bass for determnng gan or oss, can not ater the pan meanng of
secton 101, whch prescrbes the ength of tme property must be
hed n order to consttute a capta asset.
In sustanng the ta payers contentons the Court stated n part
as foows:
In common understandng to hod property s to own t. In order to own
or hod one must acqure. The date of acquston s, then, that from whch
to compute the duraton of ownershp or the ength of hodng. Whether under
oca aw tte to persona property passes from a decedent to the epatee or
ne t of kn at death sub|ect to a wthhodng of possesson for purposes of
admnstraton, or passes to the persona representatve for the pur-
poses of admnstraton, the tte of the benefcary, though derved
through the e ecutor, reatng back to the date of death, s for pres-
ent purposes mmatera. In ether case, the date of acquston wthn the
Intent of the Revenue ct Is the date of death. reostcr v. Gage,
280 U. S., 327, and cases cted.

We are of opnon that secton 101(c)8 s cear on ts face that It deas
soey wth the tenure necessary to cam a rate of 12 per cent on capta
net gan as dstngushed from the norma and surta rate upon ordnary
gan that secton 113(a)5 deas ony wth the bass for the cacuaton of the
ta n cases fang under secton 101(c)8 that the sectons are not Incon-
sstent and that each shoud be read as affectng the sub|ect to whch aone
It appes.
Inasmuch as secton 101 of the Revenue ct of 1932, n so far as
matera, s substantay the same as secton 101 of the Revenue ct
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131, rt. 691. 152
of 1928, the rue announced by the Supreme Court n the above-
mentoned cases s aso appcabe to cases arsng under secton 101
of the Revenue ct of 1932, whch n genera appes to the ta abe
years 1932 and 1933.
Inqures n regard to ths mmeograph shoud refer to the number
thereof and the symbos IT: : RR: CTR.
Gttt T. eveenq,
Commssoner.
SUPPL M NT COMPUT TION O N T INCOM .
S CTION 112. R COGNITION O G IN OR LOSS.
rtce 571: Recognton of gan or oss. -1-7889
IIT.2950
R NU CT O 1932.
I. T. 2773 (C. . III-1,78) s modfed, n vew of G. C. M. 15766,
page 128.
S CTION 116. CLUSIONS ROM GROSS INCOM .
rtce 643: Compensaton of State offcers and empoyees.
R NU CT O 1932.
Ta abty of compensaton receved by offcers and empoyees of
a State or potca subdvson. (See Mm. 8838, revsed, page 130.)
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 691: nayss of credt for ta es. -9-7972
G. C. M. 16144
R NU CT OP 1932.
Method of computng the credt for foregn ta es under secton
131 (a)4 of the Revenue ct of 1932 n the case of an mercan
ctzen who has a capta net oss or a capta net gan for the
ta abe year.
n opnon s requested reatve to the method of computng the
credt for foregn ta es under secton 131 (a)4 of the Revenue ct
of 1932 where the ta payer, an mercan ctzen, has a capta net
oss or a capta net gan for the ta abe year.
The ta payer, , s a member of a foregn partnershp and hs
pro rata snare of the foregn ncome ta es pad by the partnershp
was camed by hm as a credt aganst hs Unted States ta n ac-
cordance wth the provsons of secton 131 (a)4 of the Revenue ct
of 1932. The return for the caendar year 1932 dscosed no ta due,
snce the credt for foregn ta es e ceeded the Unted States ta
abty. The ta payer sustaned a capta net oss from sources
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153
131, rt. 691.
wthn the Unted States whch e ceeded the ordnary net ncome,
of the ct the ta payer had a net oss. Nevertheess, he s sub|ect
to ta , n vew of secton 101 of the Revenue ct of 1932, whch per-
mts the ta on ordnary net ncome to be reduced by ony 12 per
cent of the capta net oss. In vew of ths stuaton, the foowng
questons are submtted:
(1) Where a capta net oss from sources wthn the Unted States
e ceeds the ordnary net ncome of the ta payer, may a credt for
foregn ta es be aowed
(2) If the amount of such capta net oss s ess than the ordnary
net ncome, shoud the tota net ncome used n the mtng rato on
the foregn ta credt refect the capta oss
(3) re capta net gans to be ncuded n tota net ncome form-
ng the denomnator of the mtng rato
Secton 13 1 of the Revenue ct of 1932, n so far as appcabe,
reads as foows:
Sea 131. Ta es of fobek|n countres and possessons of Unted States.
(a) owance of credt. If the ta payer sgnfes n bs return hs desre to
have the benefts of ths secton, the ta mposed by ths tte sha be credted
wth:
(1) Ctzen and domesto corporaton. In the case of a ctzen of the Unted
States and of a domestc corporaton, the amount of any ncome, war-profts,
and e cess-profts ta es pad or accrued durng the ta abe year to any foregn
country or to any possesson of the Unted States and

(4) Partnershps and estates. In the case of any such ndvdua who s a
member of a partnershp or a benefcary of an estate or trust, hs propor-
tonate share of such ta es of the partnershp or the estate or trust pad or
accrued durng the ta abe year to a foregn country or to any possesson of
the Unted States, as the case may be.
(b) Lmt on credt. The amount of the credt taken under ths secton
sha be sub|ect to each of the foowng mtatons:
(1) The amount of the credt In respect of the ta pad or accrued to any
country sha not e ceed the same proporton of the ta aganst whch such
credt s taken, whch the ta payer s net ncome from sources wthn such
country bears to hs entre net ncome for the same ta abe year and
(2) The tota amount of the credt sha not e ceed the same proporton
of the ta aganst whch such credt s taken, whch the ta payer s net ncome
from sources wthout the Unted States bears to hs entre net Income for the
same ta abe year.
Secton 101 of the Revenue ct of 1932 reads as foows:
Seo. 101. Capta net oans and sses.
(a) Ta n case of capta net gan.- In the case of any ta payer, other than
a corporaton, who for any ta abe year derves a capta net gan (as heren-
after defned In ths secton), there sha, at the eecton of the ta payer, be
eved, coected, and pad, n eu of a other ta es mposed by ths tte, a ta
determned as foows: parta ta sha frst be computed upon the bass of
the ordnary net ncome at the rates and n the manner as f ths secton had
not been enacted and the tota ta sha be ts amount pus 12 per centum
of the capta net gan.
(b) Taw n case of capta net oss. In the case of any ta payer, other than
a corporaton, who for any ta abe year sustans a capta net oss (as heren-
after defned n ths secton), there sha be eved, coected, and pad n eu of
a other ta es mposed by ths tte, a ta determned as foows: a parta ta
sha frst be computed upon the bass of the ordnary net ncome at the rates
and n the manner as f ths secton had not been enacted, and the tota ta
sha be ths amount mnus 12 per centum of the capta net oss but n no
and, consequenty, nstead of
84326 -
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5131, rt. 691.
154
case sha the ta of a ta payer who has sustaned a capta net oss be eas
than the ta computed wthout regard to the provsons of ths secton,
(c) Defntons. or the purposes of ths tte

(7) Ordnary net ncome means the net ncome, computed n accordance
wth the provsons of ths tte, after e cudng a tems of capta gan, capta
oss, and capta deductons.
The dffcuty n appyng the provsons of secton 131(b) of the
evenue ct of 1932 es m the nterpretaton of the words net
ncome contaned n the mtaton on the credt for foregn ta es.
In other words, the queston s what denomnator shoud be used n.
arrvng at the same proporton of the ta aganst whch such credt
s taken whch the ta payer s net ncome from sources wthout the
Unted States bears to hs entre net ncome for the same ta abe
year. Secton 21 of the Revenue ct of 1932 states that net n-
come means gross ncome computed under secton 22 ess the deduc-
tons aowed by secton 23. The mtaton on the credt for foregn
ta es, based on net ncome, has been n the Revenue cts snce the
enactment of the Revenue ct of 1921. (See secton 222(a) 5 and
secton 238(a) of the Revenue ct of 1921 and correspondng prov-
sons of subsequent Revenue cts.) In the Revenue ct of 1921 a
provson was made n secton 206(b) to permt the ta payer at hs
eecton to be ta ed on capta net gams at the rate of 12 per cent.
In secton 208 of the Revenue ct of 1924, the provson permttng
ta aton of capta net gans at the rate of 12 per cent was retaned
n secton 208(b), and n secton 208(c) a mtaton was put upon
capta net osses by requrng the ta to be frst computed on ord-
nary net ncome and aowng the ta on ordnary ncome to be
reduced by 12 per cent of the capta net oss. Thus, athough the
method of computng ncome ta due the Unted States n the case
of capta osses was changed n 1924, no correspondng change was
made n the Revenue ct of 1924 and subsequent Revenue cts wth
respect to the mtaton on the credt for foregn ta es. The resut
s tnat to appy the provsons of secton 181(b) of the Revenue ct
of 1932 wth a strct nterpretaton of the words net ncome woud
n some cases ead to a rdcuous concuson. If the ta payer sus-
taned a arge capta net oss from sources wthn the Unted States,
the effect woud De to emnate entrey any ta on ncome derved
from sources wthn the Unted States f the denomnator based on
secton 131(b) of the Revenue ct of 1932 s to be consdered net
ncome as denned n secton 21, that s, gross ncome under secton
22 ess deductons aowed by secton 23. The rea ntent of the pro-
vson reatng to foregn ta es, as contaned n secton 131 of the
Revenue ct of 1932, was to avod doube ta aton. It was not the
purpose of the aw, where the ta payer derved ncome from sources
wthn and wthout the Unted States, to emnate the Unted States
ta entrey but ony to gve the ta payer a far proporton of the
foregn ta es as a credt. Ths seems cear from a readng of ouse
Report No. 708, dated March 8, 1932, reatng to the Revenue ct
of 1932, at page 23, wheren t was stated that Under secton 131 (b)
of the e stng aw the credt aowed for ta es pad to foregn coun-
tres s sub|ected to a mtaton n order to prevent foregn ta es
from absorbng the ta on ncome from sources wthn the Unted
States. Itacs supped. The scheme of a the Revenue cts
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155
5131. rt. 695.
snce that of 1916 has been to sweep a ncome of every sort, ncud-
ng capta gans, nto what s denomnated gross ncome and to
authorze certan deductons therefrom n order to arrve at net n-
come, the base for cacuaton of the ta . ( everng v. ss, 293
U. S-, 144, Ct. D. 884. C. . III-2, 191.) Where a ta payer has a
capta net gan, the base of the ta s net ncome for the reason
that the ta s not ony computed on the ordnary ncome but s aso
computed on the capta net gan. Therefore, n arrvng at the
mtaton under secton 131(b) of the Revenue ct of 1932 on the
credt for foregn ta es, the proporton or fracton woud be as
foows:
Net Income from sources wthout U. S. TT _ . _
U. S. tn CredIt.
Tota net ncome
Where, however, there s a capta net oss nstead of a capta
net gan, the base of the ta s not gross ncome computed under
secton 22 ess deductons aowed by secton 23. On the contrary,
the base of the computaton s the ordnary net ncome, athough the
ta on ordnary net ncome s reduced by a percentage of the capta
net oss. Therefore, the mtaton under secton 131 (b) of the Reve-
nue ct of 1932, where there s a capta net oss, woud be e pressed
as foows:
Net ncome from sources wthout U. S. . _ .
T, U. S. ta Credt.
Ordnary net ncome
The resut of the foregong s to permt n every case a far aow-
ance for foregn ta es pad where there s ncome from sources wthn
the Unted States, but the formuae or fractons shown above do not
permt the foregn ta es to absorb entrey the ta es appcabe to net
ncome from sources wthn the Unted States. The above concu-
sons do no voence to the statute but gve effect to the ntenton of
Congress to avod doube ta aton by permttng a credt for foregn
ta es and at the same tme requrng the ta payer to pay ta on
ncome derved from sources wthn ths country. In answer to the
specfc questons submtted, t s hed that:
(1) The credt for foregn ta es may be aowed even though a
ta payer has a capta net oss from sources wthn the Unted States
whch e ceeds hs ordnary net ncome.
(2) Where such capta net oss s ess than the ordnary ncome,
the denomnator to be used under secton 131(b) of the Revenue ct
of 1932 s ordnary net ncome.
(3) Where the ta payer has a capta net gan from sources wthn
the Unted States, the amount thereof shoud be ncuded n the de-
nomnator of the fracton used as the mtaton under secton 131(b)
of the Revenue ct of 1932, that s to say, the denomnator s tota
net ncome.
erman Opant,
Genera Counse for the Department of the Treasury.
rtce 695: Countres whch do or do not satsfy the
smar credt requrement.
R NU CT OP 1932.
Netherands Government. (See L T. 2980, page 140.)
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131, rt. 698.
156
rtce 698: Lmtatons on credt for -2-7899
foregn ta es. G. C. M. 16029
R NU CT O 1932.
dvdend receved by a ctzen of the Unted States on stock
of a domestc corporaton must be treated as Income from sources
wthout the Unted States, for the purpose of computng the mta-
ton on the credt for foregn ta es under secton 131 of the Reve-
nue ct of 1932, f such dvdend under secton 119 of the ct s
defned as ncome from sources wthout the Unted States.
dvdend receved by a ctzen of the Unted States from a
foregn corporaton must be treated as ncome from sources wthn
the Unted States, for the purpose of computng the mtaton on
the credt for fore gn ta es under secton 131 of the Revenue ct
of 1932, f such dvdend under secton 119 of that ct s defned
as ncome from sources wthn the Unted States.
n opnon s requested reatve to the computaton of the credt
for foregn ta es under the foowng crcumstances:
Durng the year 1932, the ta payer, a ctzen of the Unted States,
receved a dvdend of doars from the M Corporaton and a dv-
dend of 2a doars from the O Corporaton. The M Corporaton s
a domestc corporaton, ncorporated under the aws of the State of
R, and durng the three precedng years derved ts entre gross n-
come from a foregn country. The O Corporaton s a foregn cor-
poraton and durng the three precedng years derved 50 per cent
or more of ts gross ncome from sources wthn the Unted States.
The queston submtted makes t necessary to consder the meanng
of certan phraseoogy used n secton 119 of the Revenue ct or
1932 and ts reatonshp to smar phraseoogy contaned n secton
131 of that ct.
Secton 119 of the Revenue ct of 1932, reatng to ncome from
sources wthn the Unted States, n so far as matera, reads as
foows:
Sec. 119. Income feom sources wthn Unted States.
(a) Gross 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 domestc corporaton other than a corporaton entted to the
benefts of secton 251, and other than a corporaton ess than 20 per centum of
whose gross Income s shown to the satsfacton of the Commssoner to have
been derved from sources wthn the Unted States, as determned under the
provsons of ths secton, for the 3-year perod endng wth the cose of the
ta abe year of such corporaton precedng the decaraton of such dvdends
(or for such part of such perod as the corporaton has been In e stence), or
( ) 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 ts ta abe year precedng 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 ths
secton

(c) Gross ncome from sources urthout Unted States. The foowng tems
of gross Income sha be treated as Income from sources wthout the Unted
States:

(2) Dvdends other than those derved from sources wthn the Unted
States as provded n subsecton (a) (2) of ths secton.
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157
131, rt. 608.
Secton 131 of the Revenue ct of 1932, reatng to credt for
foregn ta es, reads n part as foows:
(b) Lmt on credt. The amount of the credt taken under ts secton sha
be sub|ect to each of the foowng mtatons:
(1) The amount of the credt n respect of the ta pad or accrued to any
country sha not e ceed the same proporton of the ta aganst whch such
credt Is taken, whch the ta payer s net ncome from sources wthn such
country bears to hs entre net ncome for the same ta abe year and
(2) The tota amount of the credt sha not e ceed the same proporton of
the ta aganst whch such credt Is taken, whch the ta payer s net ncome
from sources wthout the Unted States bears to hs entre net Income for the
same ta abe year.
It s the opnon of ths offce that n appyng secton 131(b) the)
terrtora source of the ta payer s ncome s to be determned by ref-
erence to the provsons of secton 119. Ths s the mpcaton of
secton 131(e) of the Revenue ct of 1932, whch provdes n part aa
foows:
The credts provded n ths secton sha be aowed ony f the ta payer
estabshes to the satsfacton of the Commssoner (1) the tota amount of
ncome derved from sources wthout the Unted States, determned as provded,
n secton 119, .
It s aso the mpcaton of artce 692, Reguatons 77, whch con
tans the statement, s to the meanng of sources, see secton 119.
Lkewse, n enactng the Revenue ct of 1934| Congress assumed
that secton 119 defned the terrtora source of ncome for the pur-
pose of appyng secton 131. The report of the Senate Commttee
on nance (Report No. 558, on the revenue b of 1934, page 38)
contans the foowng statement:
n amendment has been made to subsecton (a)2( ) of the ouse b.
Under the ouse b dvdends from foregn corporatons (50 per cent or more
of the gross ncome of whch was derved from sources wthn the Unted States)
are sub|ect both to norma ta and surta In the hands of an ndvdua and are
fuy sub|ect to Income ta In the hands of a recpent corporaton, and at the
some tme such dvdends are ta abe n fu by the country under the aws of
whch the corporaton s organzed. Uness such dvdends are treated for
credt purposes as ncome from sources wthout the Unted States, a ctzen
of the Unted States or a domestc corporaton w be unabe to take a credt
aganst ts edera ncome ta for the ncome ta es pad to a foregn country
on such dvdends. Ths foows because of the mtaton on the credt for
foregn ta es contaned n secton 131(b) of the ouse b. In order to rectfy
ths stuaton and provde for a credt In such cases, your commttee has
amended the ouse b so that dvdends from such foregn corporatons w
be treated for purposes of secton 131 as Income from sources wthout the
Unted States.
Consequenty, there was added to secton 119(a)2( ) the words
of secton 131 (reatng to foregn ta credt), be treated as ncome
from sources wthout the Unted States. It s evdent that the
amendment to secton 119(a)2( ) as t appears n the Revenue ct
of 1934 was not regarded as beng merey carfyng, but was n-
tended to make a matera change n the aw.
In vew of the foregong, t s the opnon of ths offce that n
appyng secton 131 of the Revenue ct of 1932 dvdends receved
from a foregn corporaton must be consdered as ncome from
sources wthn the Unted States f 50 per cent or more of the for-
egn corporaton s gross ncome for the perod prescrbed by statute
was derved from sources wthn the Unted States and that dv-
foregn
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5212, rt. 1042.
158
dends receved from a domestc corporaton must be consdered as
ncome from sources wthout the Unted States f 80 per cent or
more of ts gross ncome for the perod prescrbed by statute was
derved from sources wthout the Unted States.
rom the above t s concuded:
(1) dvdend receved by a ctzen of the Unted States on stock
n a domestc corporaton must be treated as ncome from sources
wthout the Unted States, for the purpose of computng the m-
taton on the credt for foregn ta es under secton 131 of the Reve-
nue ct of 1932, f such dvdend under secton 119 of the ct s
defned as ncome from sources wthout the Unted States, and
(2) dvdend receved by a ctzen of the Unted States from
a foregn corporaton must be treated as ncome f -om sources wthn
the Unted States for the purpose of computng the mtaton on the
credt for foregn ta es under secton 131 or the Revenue ct of
1932, f such dvdend under secton 119 of that ct s defned as
ncome from sources wthn the Unted States.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
SUPPL M NT . ST T S ND TRUSTS.
S CTION 167. INCOM OR N IT O GR NTOR.
rtce 881: Income of trusts ta abe to grantor.
R NU CT OP 1932.
Income of trust whch nures to beneft of grantor. (See Mm.
4435, page 143.)
SUPPL M NT . NONR SID NT LI N INDI IDU LS.
S CTION 212. GROSS INCOM .
rtce 1042: cuson of earnngs of foregn shps from
gross ncome.
R NU CT OP 1932.
egum, equvaent e empton. (See I. T. 2969, page 144.)
rtce 1042: cuson of earnngs of foregn shps
from gross ncome.
R NU CT O 1982.
quvaent e empton Span. (See I. T. 2975, page 144.)
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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 OP 1028.
Ta abty of ncome of restrcted Indans of the ve Cvzed
Trbes. (See G. C. M. 16020, page 78.)
rtce 51: What ncuded n gross ncome.
R NU CT O 1028.
Ta abty of ncome of restrcted members of the Osage Indan
Trbe. (See G. C. M. 16100, page 80.)
rtce 51: What ncuded n gross ncome. -10-7983
Ct. D. 10S7
INCOM T R NU CT O 1928 D CISION O COURT.
Income ssgnment Testamentary Trust.
n assgnment, by the fe benefcary of a testamentary trust,
of a rght, tte, and Interest In the trust fund was nvad, where
the w provded that payments of trust Income shoud be made to
the benefcary wthout power of antcpaton by vountary or In-
vountary assgnment or otherwse, and trust ncome pad to the
assgnee, pursuant to the nstrument of assgnment, was ta abe
to the benefcary.
Dstrct Court of the Unted States for the Dstrct of Massachusetts.
ce S. ng v. Unted States of merca.
November 4, 1935.
opnon.
Sweenet, .: Ths Is an acton at aw to recover a defcency assessment of
Income ta for the years 1929 and 1930. The pont of aw nvoved dsposes
of the cams for both years as they are fed under the same crcumstances.
The pantff contends that snce the pettoner had assgned a of hor rght,
tte and Interest In a trust fund herenafter set forth n the agreed statement
of facts, and that, not beng entted to Income under that trust fund, the
Income was not ta abe to her. The defendant questons the vadty of the
assgnment by the pettoner, and contends that, snce the purported assgnment
was nvad, the Income thereunder was ncome due her wthn the meanng
of secton 21 of the Revenue ct of 1928 (26 U. S. C. ., secton 2021).
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22(a), rt. 51.
160
The court adopts as Its fndngs of fact the foowng agreed statement of
facts:
It s hereby stpuated by and between the partes hereto by ther respectve
attorneys, that the foowng facts may be taken as true upon the tra of
ths case, sub|ect to the rght of ether party to ob|ect, on grounds of rree-
vancy or mmateraty, to any of the facts heren stpuated, and sub|ect
further to the rght of ether of the partes to Introduce other and further
evdence not nconsstent wth any of the facts heren stpuated to be true.
On December 1, 1913, the w of enry P. ng, ate of every, Mass.,
deceased, was duy proved and aowed n the probate court for the county of
sse . The sad w, n so far as pertnent to ths case contans the foowng
provsons:
the rest and resdue of my property of every nature I gve to my
trustees herenafter named upon the foowng trust, to pay the net ncome
thereof to my wfe ce S. ng upon her own soe order or recept for and
durng her fe and after her death to appy so much of sad ncome for the
mantenance and educaton of my son enry P. ng, r., as my trustees
sha deem necessary addng the une pended baance of ncome to prncpa
unt he sha have attaned the age of twenty-one (21) years and thereafter
to pay over to hm as much of the net ncome of sad trust fond as n ther
absoute dscreton my trustees sha decde as best for hs nterests addng the
une pended baance thereof f any to prncpa unt he sha have attaned
the age of thrty (30) years and after my sad son sha have attaned the
age of 30 years to pay over to hm such part or the whoe of the prncpa of
sad trust fund at such tme or tmes as my trustees sha In ther absoute
dscreton decde as best for hs nterests payng over or wthhodng (or
part each) n ther dscreton the net ncome of such part or the whoe of sad
trust fund as sha not have been pad over to hm as aforesad and upon the
death of my sad son to pay over and dstrbute such of sad1 trust fund as
sha not have been prevousy pad over and dstrbuted to and among ha
chdren n equa shares and/or to ther ssue by rght of representaton and In
case my sad son sha de wthout eavng ssue survvng hm then to my
sster Sarah . Wed or f she sha be not then vng to her chdren In
equa shares and/or ther ssue by rght of representaton. I aso empower
my trustees n case my sad son sha marry to pay over durng hs fetme
to or for the beneft of hs wfe, or chdren or both such porton or the whoe
of the ncome of sad trust fund as my trustees n ther absoute dscreton
sha deem best and n such manner as they deem best. Payments of ncome
hereunder are to be made upon the soe order or recept of the benefcary
wthout power of antcpaton by vountary or Invountary assgnment or other-
wse and free from the contro of any credtors.
The pettoner In ths case s the ce S. ng mentoned n sad w.
The pettoner and the trustees under the sad w and enry P. ng, formery
r., a e ecuted a certan nstrument on pr 1, 1920, In these words:
now a men by these presents
That whereas enry P. ng ate of every, Mass., deceased, by hs w
duy proved and aowed n the probate court, county of sse , December 1,
1913 (Itee. ook 710, page 42), gave a the rest and resdue of hs property
to hs trustees upon trust to pay the net Income thereof to hs wfe ce S.
ng for and durng her fe, and after her death for the beneft of hs son,
enry P. ng, r., and upon certan other trusts theren more partcuary set
forth, and
Whereas sad enry P. ng, r., has now attaned the age of twenty-one
(21) years and has marred, and I desre to wave n hs behaf and reease
to hm absoutey my benefca fe estate under sad w.
Now therefore, I, ce S. ng, wdow of sad enry P. ng, In
consderaton thereof and of one doar and other vauabe consderatons pad
by sad enry P. ng, r., recept of whch Is acknowedged, do hereby wave,
reease and surrender, and n confrmaton of such waver, reease and sur-
render, do hereby assgn, transfer and set over unto the sad enry P. ng,
r., a of my sad fe estate and a my benefca nterest under sad trust,
and authorze and drect to the trustees hereunder henceforth to pay over to
hm the ncome at such tmes and In such manner as s provded In sad w
to be pad to me, and I hereby reease and dscharge the trustees from a
abty and obgaton to me under sad w, and agree to ndemnfy them
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161
22(a), rt. 51.
and bod them harmess for a abty or damage whch they sha Incur
for any payments made or acts done n consequence hereof.
(Sgned) ucb S. ng.
In consderaton of the foregong assgnment and agreement of Indemnty
we, Wam S. Spaudng, ohn T. Spaudng and dward M. Wed, trustees
under the w of enry P. ng, hereby accept sad waver and assgnment
and agree to be governed thereby so far as s consstent wth the terms of
sad w.
(Sgned) Wam S. Spaudng.
(Sgned) ohn T. Spaudng.
(Sgned) dward M. We d.
In consderaton of the foregong I, enry P. ng (formery enry P.
ng, r.), hereunto set my hand and sea n token of my assent thereto and
acceptance thereof.
(Sgned) enry P. no. Sea.
pr 1, 1920.
Sad enry P. ng, r., was born on anuary 12, 1808, and s now known
as enry P. ng. In pursuance of sad nstrument the sad trustees n the
years 1929 and 1930 pad over a the net ncome from the sad trust to the
sad enry P. ng. The pettoner dd not ncude the sad ncome n her
edera ncome ta returns for the caendar years 1929 and 1930. Wth respect
to the pettoner s edera ncome ta for the caendar year 1929 a defcency
assessment of 4,540.26 was assessed to the pettoner on account of the sad
Income from the sad trust for the year 1929. ke defcency was assesse 1
aganst the pettoner for the year 1930 n the amount of 2,175.62 on account
of the ncome from the sad trust durng the year 1930.
The pettoner s and has been at a matera tmes a ctzen of the Unted
States and a resdent of every n the Commonweath of Massachusetts. The
pettoner pad the above-mentoned defcency asstssment for the caendar
year 1929 on May 18, 1932, and ater on ugust 9, 1932, the pettoner pad
606.65 as nterest assessed on sad defcency for 1929. The pettoner pad
he amount of the defcency assessment for the caendar year 1930 on uy
1. 1932, and ater on ugust 12, 1932, pad 176.58 as nterest assessed on sad
defcency for he caendar year 1930. the aforementoned payments were
made to Thomas W. Whte, coector of nterna revenue at oston, Mass., who
was no onger n offce as coector of nterna revenue when the present pet-
ton was brought. On pr 17, 1933, pettoner fed cams for refund for
the ta years 1929 and 1930 In the respectve amounts of 4,540.26 wth nterest,
and 2,175.62 wth nterest. The sad cams for refund aeged the same
grounds for the redetermnaton of ta abty of the pettoner as were set
forth In the petton n ths case. The petton was fed wthn two years
of the dsaowance of the respectve cams for refund.
Under these facts t s cear that the decson n ths case must turn on
the rght of the pettoner to aenate the ncome provded for her by the trust
fund-
In decdng ths queston ths court s bound by the Massachusetts decsons
as to the vadty and constructon of a spendthrft trust. (Warburton v.
Whte. 176 U. S., 484 reucr v. cvcrnff, 291 U. S., 35, 45 Ct. D. 782, O. .
III-1, 242 .)
It has ong been the setted rue n Massachusetts that a testator may, In
creatng an equtabe nterest n a trust fund for another, Impose such mta-
tons on the rght to aenate or antcpate the fund as may be deemed neces-
sary, and to restrct the fund created from the drect or ndrect attachment
of credtors. (. roadway natona ank v. dams, 133 Mass., 170 oston
Safe Depost frust Co. v. Luke, 220 Mass., 484 aske v. aske, 234 Mass.,
442.)
In construng a trust created by a w, recourse must be had to the Intent
of the testator as e pressed n the w. In the nstant case the testator set
np a spendthrft trust provdng that the benefcary was wthout power of
antcpaton by vountary or nvountary assgnment. Consderng the nstru-
ment as a whoe, t seems obvous that the testator ntended to create a trust,
the Income of whch woud be pad to the pettoner durng her fetme. Pany
t was ntended that she woud not have the rght to receve other than the
Income from ths fund as t matured, and was wthout the power to dspose of
her future Interest n the fund by assgnment or otherwse.
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162
The pettoner argues that the prohbton aganst antcpaton by assgnment
does not n any way mt the power to assgn, and that snce the power to
assgn was not dened to her that the conveyance of her nterest n the trust
to her son was vad. It s dffcut to foow ths ne of argument. ntcpa-
ton Is defned as used n the present for what s to accrue deang wth the
Income before t s due. (Words and Phrases, oume I, 216.) The testator
partcuary set up a mtaton aganst the rght of the benefcary to antcpate
or dspose of her future ncome. e partcuary provded that she coud not
dspose n the present of her future nterest. To hod that the assgnment here
s vad woud n effect run counter to the ntent of the testator.
The contenton of the pettoner that she was n effect merey reeasng the
trustees from the further obgatons of makng payments to her under the
trust fas to the ground by the force of Its own weght, when reference Is made
to the fact that she drected the trustees to pay her future ncome to her son.
The thrd contenton of the pettoner s that the assgnment If not good as
a present assgnment was, nevertheess, a bndng and uncondtona contract
under whch the pettoner never had an equtabe rght to the ncome. It s
unsound n the ght of the foregong. Under a vad spendthrft trust such a
contract woud be Invad. It coud not be vad as an assgnment of a future
Interest for the rght of antcpaton was partcuary dened ths pettoner.
In vew of ths decson t s not necessary to pass on the respondent s request
for rungs. The pettoner s requests for rungs n so far as they are consst-
ent wth ths opnon are granted n so far as they are Inconsstent wth
ths opnon are not granted.
The acton Is dsmssed.
rtce 51: What ncuded n gross ncome.
R NU CT O 1928.
Proceeds of embezzement. (See G. C. M. 16572, page 82.)
rtce 68: Sae and retrement by corpora- -11-7996
ton of ts bonds. Ct. D. 1091
INCOM T R NU CT O 1028 D CISION O COURT.
1. Income Purchase by Corporaton or Its Own onds.
n operatng raroad corporaton (on the accrua bass) whch
purchased some of ts own bonds n 1030 at a prce ess than par,
at whch they were ssued n 1909, reazed ta abe gan In the
year of purchase to the e tent of the dfference between the par
Issue prce and the ower purchase prce.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (31 . T. ., 62) affrmed.
8. Certorar Dened.
Petton for certorar dened October 14, 1935.
Unted States Crcut Court of ppeas fob the Thrd Cmcurr.
Montana, Wyomng d Southern Raroad, Co., pettoner, v. GommUtoner of
Interna Revenue, respondent.
Petton for revew from the Unted States oard of Ta ppea .
efore uffngton and Thompson, Crcut udges, and ohnson, Dstrct
udge.
May 16, 1935.
opnon.
Per curam: In ths Income ta case t appears the ta payer, an operatng
raroad corporaton, had, n 1909, n the purchase of raroad property, ssued
900,000 of ts own bonds at par. In the ta year of 1980 It bought back
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23(e), rt. 171.
55,000 par vaue of these bonds for 3O,S32.50. Whe t has not surrendered
such bonds to the trustee for canceaton, t st owns them and by ts purchase
has proportonatey pad such part of ts ndebtedness. On hearng, the Com-
mssoner hed the ta payer had made a proft of the dfference between the
par Issue prce and the ower purchase prce. The Ta oard approved the
Commssoner s hodng, sayng The prncpe appcabe here s that of Unted
States v. rby Lumber Co. (284 U. S., 1 Ct. D. 420, C. . -2, 356 ) and
everng v. mercan Chce Co. (291 U. S., 426 Ct. D. 809, C. . III-1,
265 ), n both of whch the ta payers bought n bonds at ess than face vaue.
ndng no error n the Ta oard s rung, t s affrmed.
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S.
rtce 121: usness e penses.
R NU CT O 1928.
Commssons pad by corporaton on sae of stock at or near tme
of organzaton. (See Ct. D. 1099, page 198.)
rtce 121: usness e penses.
R NU CT O 1928.
ees of attorneys for prosecuton of cams before M ed Cams
Commsson. (See Ct. D. 1100, page 172.)
rtce 121: usness e penses.
R NU CT O 1928.
Dvdends on preferred stock of essor corporaton pad by essee
under guaranty. (See Ct. D. 1125, page 167.)
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM : T S G N R LLY.
rtce 151: Ta es.
R NU CT O 1928.
Revocaton of I. T. 2472 (C. . III-1, 74). (See I. T. 2968,
page 104.)
S CTION 23(e). D DUCTIONS ROM GROSS INCOM :
LOSS S Y INDI IDU LS.
rtce 171: Losses. -8-7964
Ct. D. 1081
INCOM T R NU CT O 1928 D CISION O COURT.
1. Deducton Loss Purchase and Sae op Securtes Parent
and Subsdary Corporatons.
Where a corporaton (not an nsurance company), wth the ev-
dent purpose of betterng the fnanca standng of ts whoy
owned subsdares (nsurance companes), purchased from them
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23(e), rt. 171.
164
certan securtes at ther orgna cost, whch greaty e ceeded ther
then market vaue, and mmedatey sod the securtes through
brokers at market prce, It s not entted to deduct as a oss the
dfference between the amount pad for the securtes and the prce
at whch they were sod.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (30 . T. ., 413) affrmed.
8. Certorar Dened.
Petton for certorar dened October 14, 1935.
Unted States Cbcut Court of ppeas fob the Thrd Crcut.
Pennsyvana Indemnty Co., pettoner, v. Commssoner of Interna Revenue,
respondent.
Petton for revew from the Unted States oard of Ta ppeas.
efore uffnqton, Davs, and Thompson, Crcut udges.
March 27, 1035.
opnon.
Per curam: The pertnent facts In ths Income ta case are as foows:
The Pennsyvana Indemnty Co. acqured In 1080 from Its whoy owned sub-
sdares certan securtes havng a then market vaue of 420,051, whch t
Immedatey sod through brokers for 420,732.25. or those securtes the
ta payer pad 666,067.37 to Its subsdares. The soe queston Is whether
the ta payer has a rght to deduct 247,637.29 from ts gross Income, repre-
sentng the dfference between the amount It pad Its subsdares and the
amount utmatey receved from resae. The Ta oard hed It had no rght
to deduct thereupon the ta payer took ths appea. We are of opnon no
error was commtted by the oard.
The stuaton was that the fnanca standng of the ta payer s two, whoy
owned, subsdary companes had been, to that e tent, Impared by the drop
In vaue of ther assets of some 270,000. vdenty wth the purpose of
restorng such deprecaton, the ownng company took over the deprecated
assets, not at ther then market prce, but at ther orgna cost prce, and
mmedatey sod the same at market prce and at a oss of some 246,000.
Measured by the ordnary reatons of fe, t was the od story of a father
makng good the oss of hs son s busness and startng hm agan wth an
unmpared capta. The order of the oard Is affrmed.
rtce 171: Losses. -11-7997
Ct. D. 1092
INCOM T NU CT O 1928 D CISION O COURT.
1. Deducton Loss Sae of Stock Whether ona de Sas.
Where the ta payer authorzed her husband to dever to a
broker for sae certan shares of stock, wth the admtted purpose
of estabshng a ta oss, her son purchased the stock wth bor-
rowed money, wthn two weeks of the sae the ta payer gave the
son te money to dscharge hs oan, and wthn a year the son
returned the stock to her wthout consderaton, the aeged sae
was not bona fde, and no deductbe oss was sustaned.
2. oard of Ta ppeas ndngs of act Concuson of
Law.
The facts presented to the oard of Ta ppeas furnshed sub-
stanta evdence from whch t coud fnd that no bona fde sae
was made. The oard s fndng was not so arbtrary as to const-
tute a dena of due process and was not contrary to the unds-
puted evdence, nor was ts concuson, from the utmate facts
found, unwarranted n aw.
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165
823(e), rt. 171.
8. Decson ffrmed.
Decson of the oard of Ta ppeas (29 . T. ., 031) affrmed.
4. C To a Dened.
Petton for certorar dened October 14, 1935.
Unted States Cbcot Coubt op ppeas fob the bst Cecut.
Lvea oyt ayton, pettoner for revew, v. Commssoner of Interna
Revenue.
ppea from oard of Ta ppeas.
efore ngham, Wson, and Mobton, .
March 26, 1935.
OPINION.
Wson, .: Ths s a petton by a ta payer for a revew of a decson of
the oard of Ta ppeas under secton 1003(a) (b) of the Revenue ct of
1926. It nvoves a defcency ta for the year 1928. The defcency ta was
assessed by reason of a refusa by the Commssoner to aow u deducton for
a oss of appro matey 139,000 due to an aeged sae by the ta payer of
1,500 shares of stock n the oyt Shoe Co. The stock at the tme of sae was
represented by trust certfcates whch were transferabe. They were a part
of a arge ssue of such certfcates whch had been ssued at the request of
bankers, who had In 1927 advanced to the shoe company arge sums of money
and taken over the management of the company, whch at the tme was fnan-
cay embarrassed. oth Mrs. Sayton and her husband hed other stock n
the company than the shares, the transfer of whch has gven rse to ths
controversy.
The Commssoner, upon a report of the facts connected wth the sae by the
deputy coector as a resut of an e amnaton of the ta payer s return and
an Investgaton of the aeged sae by a edera revenue agent, dsaowed the
deductons on the ground that no bona fde sae was made. The oard of Ta
ppeas affrmed hs fndng.
The 18 assgnments of error In her petton for revew may be summarzed
as foows: That the oard erred n fndng that no bona fde sae took pace,
that ts fndngs do not support ts |udgment, and that the oard erred In not
basng ts concuson on facts supported by undsputed testmony.
The oard of Ta ppeas s not a court. It s an e ecutve or admnstra-
tve board, upon the decson of whch the partes are gven an opportunty to
base a petton for revew to the courts. (Od Coony Trust Co. v. Comms-
soner, 279 U. S., 710, 725 Ct. D. 80, C. . III-2, 222 .) On revew the courts
may modfy or reverse a decson of the oard ony when It Is not In accord-
ance wth aw.
In speakng of the scope of revew of admnstratve boards, the Supreme
Court n Phps v. Commssoner (283 U. S., 589, 600 Ct. D. 350, C. . -,
264 ) sad:
It has ong been setted that determnatons of fact for ordnary admns-
tratve purposes arc not sub|ect to revew. Such admnstratve fnd-
ngs on ssues of fact are accepted by the court as concusve f the evdence
was egay suffcent to sustan them and there was no rreguarty n the
proceedngs.
In Tagg ros. Moorchcad ct a. v. Unted Sates et a. (280 U. S., 420, 442)
the court sad:
It has been setted n cases arsng under the Interstate Commerce ct that
f an order rests upon an erroneous rue of aw (Interstate Commerce Com-
msson v. Dffenbaugh, 222 U. S., 42), or s based upon a fndng made wthout
evdence (Chcago uncton case, 264 U. S., 258, 263), or upon evdence whch
ceary does not support t (Interstate Commerce Commsson v. Unon racfc
R. R. Co., 222. U. S., 541, 547 New ngand Dvsons case, 261 U. S., 184, 203
Coorado v. Unted States, 271 U. S., 153, 166), the order must be set asde.
In Interstate Commerce Commsson v. Lousve Nashve R. R. Co. (227
U. 8., 88, 91), the court sad:
In the comparatvey few cases n whch such questons have nrsen t has
been dstncty recognzed that admnstratve orders, quas |udca n char-
acter, are vod If a hearng was dened f that granted was Inadequate or
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23(e), rt 171.
166
manfesty unfar f the fndng was contrary to the ndsputabe character
of the evdence Tang Tun v. dte, 223 U. S., 673, 681 Ohn Yoh v. Unted
States, 208 U. S., 8,13 Low Wah Suey v. ackus, 225 U. S., 460, 468 Zakonate
v. Wof, 226 U. S., 272) or, f the facts found do not, as a matter of aw,
support the order made.
In Tracy v. Commssoner (53 Ted. (2d), 575, 578 Ct D. 468, C. . I-1,
205 ) the Crcut Court of ppeas for the S th Crcut, n nterpretng the
decsons of the Supreme Court, we sad:
We assume, therefore, that the court may, and shoud, n every case In
whch a hearng was had and evdence was ntroduced before the oard, ook
nto such evdence to determne whether t was egay suffcent to sustan
the fndngs made. The court need go no further. It s not requred to wegh
the evdence, or to determne the credbty of wtnesses nor may t usurp
the power of admnstratve decson. The anaogy to an appea n
equty, suggested but not adopted n our decson In Con v. Commssoner (32
ed. (2d), 753), can not now be consdered a cose one. The queston of the
March 1, 1913, vaue of property s a queston of fact, and a decson of ths
sort reached by the ta ng offcer or board wthn the scope of the authorty
conferred by aw, when made n good fath, and n the absence of gross mstake
or other Irreguarty, has ong been hed by the courts as concusve. (Cf.
agerty v. uddeston, ubbard d Co., 60 Oho St., 149, 165, 166.) Ths s
but another way of sayng that the decson of the Ta ng oard must preva
f t s not contrary to the ndsputabe character of the evdence or f the
evdence Is egay suffcent to sustan such fndng. The evdence Is egay
suffcent to sustan the fndng f there be substanta evdence to support It,
and the record as a whoe does not ceary, convncngy, or even possby,
ndsputaby requre a contrary concuson.
In order to reverse the oard of Ta ppeas under secton 1003(b) of the
1926 ct, because t s contrary to aw, t must appear that the oard has
found the facts on whch ts decson rests, wthout any substanta evdence
to support ts fndngs or It has dened the ta payer a far hearng, ether by
refusng to receve reevant and matera evdence, or by other arbtrary pro-
ceedngs or has erred as a matter of aw n the concuson t reaehed from the
utmate facts found. fact found contrary to Indsputabe evdence or
wthout egay suffcent evdence s ony another way of sayng that the
fndng was wthout substanta evdence to support It.
It s urged, because the ta payer n ths case testfed that, actng upon
her husband s advce she Indorsed the certfcate of stock n queston and
authorzed her husband to dever t to 6ome broker for sae at a prce estab-
shed by her husband, and that she dd not know her son had bought t unt
her husband tod her and asked her f she was wng to gve her son the
money to pay for t, whch she dd and because her son corroborated ths
testmony, and the Government presented no wtness who dsputed t a fnd-
ng that the sae was not bona fde was contrary to the undsputed evdence
and wthout any evdence to support t, and was therefore erroneous n aw.
Ora testmony may be undsputed, but may not from a the evdence n the
case consttute ndsputabe evdence.
There are some unusua features to ths case whch we thnk warranted the
oard n arrvng at the concuson It dd. It was not an open, drect sae
to a member of the famy, as In Commssoner v. ae (67 ed. (2d), 561),
In whch the purchase was made after saes In the open market, and pad
for out of the ndependent means of the purchaser.
To determne whether the oard s concuson had support n the evdence, It
s necessary to have a cear understandng of the stuaton of the partes at
the tme of transfer to the son. The husband, ovey . Sayton, became con-
nected wth the oyt Shoe Co. In 1903, and, after the death of hs wfe s
father, who organzed the company, Mr. Sayton became ts presdent, treasurer
and genera manager. It met fnanca reverses n 1927 and the management
was taken over by a bankng house whch has advanced arge sums of money
to enabe t to contnue. Mr. Sayton then organzed a corporaton known as
the Sayton-Learoyd Co. to take over the sae of the trust shares In the
Massachusetts Investors Trust, the agency for whch had formery been
handed by the Learoyd, oster Co., a brokerage house deang In these
shares and In other stocks.
The son, after graduatng from coege, worked for a tme for the oyt
Shoe Co., and n ugust, 1928, was empoyed or was connected wth Learoyd,
oster Co., and on November 1, 1928, was empoyed by the Sayton-Learoyd
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167
23(k), rt. 201.
Co., of whch hs father was an offcer, and whch occuped the same offces as
Learoyd, oster Co.
Mrs. Sayton knew tte about the busness of the oyt Shoe Co. e cept
as she was tod by her husband. er transfer of the stock was at hs sug-
geston and from her testmony he ceary acted as her agent n arrangng
for the transfer of the shares.
It s sgnfcant that the aeged sae was not made drect to the son. Mrs.
Sayton apparenty dd not know to what brokerage house the certfcate was
gven for sae. The husband arranged It a. The son s account of hs aeged
purchase of the stock was as foows: I can e pan how I came to go to
. M. amn Co. to buy the securtes. When I frst spoke to father about
buyng the stock, I knew that he was an ous to estabsh t as a ta oss, and
I sad I was wng to buy the stock at ts far vaue, whch he set on t, and
I made arrangements wth Learoyd, oster Co. to fnd out where I coud
take care of that stock, to pck It up as I shoud, n a ega way, and I eft
the matter at that tme entrey up to them.
Of course, both the father and son knew where It coud be pcked up.
No adequate reason appears why the son coud not have deat drecty wth
. M. amn Co. and borrowed the money of Sayton-Learoyd Co., n whch
hs father was an offcer and he was an empoyee, or hs father and mother at
the outset coud not have gven hm the money to purchase the stock, e cept
t woud not then have had the appearance of a bona fde sae. We thnk the
oard was warranted n fndng from the testmony that, whe Mrs. Sayton
dd not know at the tme of the sae that arrangements had been made by
the husband for the son to buy, she ntrusted the entre transacton to her
husband to carry t out as her agent, and as a matter of aw hs knowedge was
hers as were hs acts. The oard may we have found that the father,
through . M. amn CO., who sod a ke amount of the stock to the son
at the same tme, devered hs and hs wfe s certfcates to . M. amn
Co., and that the son, who conferred wth the father wth reference to the
transacton, knew perfecty we where they coud be pcked up when he
ntrusted the dea to Learoyd, oster Co.
Wthn two weeks of the sae the money was gven to the son by Mrs. Sayton
to pay for her stock, or to dscharge hs oan, and before the end of the ne t
year the son returned to each parent wthout consderaton the same shares he
had acqured n ths manner. It was not necessary for the oard to fnd that
the testmony of Mrs. Sayton, or that of the son, was or was not truthfu, and
the testmony of counse has tte, f any, bearng on the Issue here.
The wfe naturay reed on her husband the husband was advsed that by
a sae a deductbe ta oss coud be created. e attempted to perfect It, but
from the ndrect course taken to brng t about, together wth the admtted
fart that Mrs. Sayton gave the son the money for the stock, who wthn a
year returned the stock to her wthout any consderaton, furnshed substanta
evdence from whch the oard coud fnd that no bona fde sae was made.
It can not be sad that there was no evdence to support the fndngs of the
oard, or that t was so arbtrary as to consttute a dena of due process, or
was arrved at aganst ndsputabe testmony, or that the concuson of the
oard from the facts found was not warranted n aw.
The actua facts and not form Is the determnng factor In these cases. See
Gregory, Petr., v. cverng, Commssoner (derded by the Supreme Court
anuary 7, 1935 Ct D. 911, C. . I -1, 193 ), Invovng an aeged bona fde
reorganzaton of a corporaton to reduce ta aton.
The decson of the oard of Ta ppeas s affrmed.
S CTION 23 (k). D DUCTIONS ROM GROSS
INCOM : D PR CI TION.
rtce 201: Deprecaton. -24r-8122
( so Secton 23 (a), rtce 121.) Ct. D. 1125
INCOM T R NU CT OP 1028 D CISION O COURT.
1. Deducton Deprecaton Lessob and Lessee Corporatons.
Where a raway company eased a Its propertes for a perod
of 999 years, the essee company agreeng to mantan, repar, and
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23 (k), rt. 201.
168
renew the eased property durng the term of the ease and to re-
turn t to the essor at the termnaton thereof n good order and
condton, nether the essor nor the essee s entted to a deducton
for deprecaton wth respect to the eased property, under secton
23(k) of the Revenue ct of 1928, snce the essee had no capta
Investment theren and the essor had sustaned no oss.
2. Deducton Ordnary and Necessary pense Loss Pay-
ments Made n Performance or Guaranty.
raroad company whch acqured the common stock of another
for a stated consderaton and agreed to guarantee the payment of
dvdends on the preferred stock of the atter s not entted to
a deducton n the amount of the payments made n performance
of the guaranty, ether as an ordnary and necessary e pense of
the busness or as a oss sustaned In the course of Its operaton,
snce such payments were part of the consderaton pad for the
common stock and were therefore capta e pendtures.
8. Decson ffrmed.
Decson of the oard of Ta ppeas (31 . T. ., 730) affrmed.
4. Certorar Dented.
Petton for certorar dened pr 6, 1936.
Unted States Cracurr Court or ppeas for the ourth Crcut.
tantc Coast Lne Raroad Co., pettoner, v. Commssoner of Interna
Revenue, respondent.
Carona, Cnchfed f Oho Raway, pettoner, v. Commssoner of Interna
Revenue, respondent.
On petton to revew the decsons of the Unted States oard of Ta ppeas.
efore Parker, Nobthcott, and Soper, Crcut udges.
anuary 6, 1936.
opnon.
Soper, Crcut udge: Two questons are presented by the petton for revew
n these cases (1) whether ether the essor or the essee Is entted to a
deducton for deprecaton under secton 23(k) of the Revenue ct of 1928
(45 Stat., 791), when one raroad company eases equpment from another for
999 years and agrees to mantan, repar and renew the property durng the
term of the ease, and (2) whether a raroad company whch acqures the
common stock of another In e change for a stated consderaton, Incudng
a guaranty to pay dvdends on the other s preferred stock, and makes pay-
ments under Its guaranty, Is entted to deduct the amounts pad as ordnary
and necessary e penses or osses under secton 23 (a) and (f) of the Revenue
ct of 1928. Income ta es for the years 1928, 1929, and 1930 are Invoved.
Under a ease of October 16, 1924, the Carona, Cnchfed Oho Raway,
herenafter caed the Carona company, and ts subsdares, eased a ther
propertes to the tantc Coast Lne Raroad Co., herenafter caed the
Coast Lne, and the Lousve Nashve Raroad Co., |onty, for a perod
of 999 years. The Coast Lne owns 61 per cent of the stock of the Lousve
Nashve. The ease provded for the payment by the essees of money
renta In stated amounts, certan corporate e penses of the essors, nterest
on outstandng obgatons of the essors, and a ta es upon the essors or
the eased property, ncudng edera ncome ta es. In addton thereto,
the essees agreed at ther own e pense to mantan, repar, renew and repace
the eased property so that the same shoud at a tmes be n substanta
repar, workng order and condton, but wth the rght In ther dscreton to
repace wth other property of equa vaue to make such addtons and bet-
terments as In ther udgment shoud be advsabe at ther own e pense and
accept the bonds or other obgatons of the essors therefor) durng the term
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23(k), rt. 201.
ease, to assume a abty of the essors In respect to maturng
Ions ns set out In the ease, wth the rght ony to receve new bonds of
payabe n effect at the end of the ease and wthout Interest
durng the term of the ease to abde by, keep and perform a agreements
and covenants bndng on the essors under any of ther mortgages, deeds of
trust and equpment trust agreements and to return the eased property
at the end of the term or upon earer termnaton of the ease n good order
and condton, ordnary wear and tear e cepted.
Snce the effectve date of the ease, the accounts of n the raroad com-
panes Invoved have been kept n accordance wth the unform system of
accounts prescrbed by the Interstate Commerce Commsson pursuant to the
authorty vested In t by the Interstate Commerce ct. In accordance wth
ths system, no charge has been made on the books of the essors on account
of deprecaton computed on the eased equpment, but deprecaton has been
computed thereon and currenty accrued on the books of the essees.
The ta payers concede that ther ta abty s not controed by the
system of accounts estabshed In accordance wth the rues and reguatons
of the Interstate Commerce Commsson but the Coast Lne, one of the
ta payers, seeks to deduct from ts gross Income an aowance for deprecaton
wth respect to the property n whch It had no capta Investment but whch
It hed under the ease for 909 years. The Carona company, the other
ta payer, seeks In the aternatve to deduct from Its gross Income an aow-
ance for sad depredaton on the same property whch durng the term of the
ease, the Coast Lne was obged to retan, repar and renew. In our opnon
nether poston Is tenabe. It has been unformy hed that where property
Is eased for a ong term of years and the essee covenants to mantan, repar
and renew the property, the essee Is not entted to an aowance for
deprecaton because t has Invested no capta In the property. (See Wets v.
Wener, 279 U. 8., S33 Ct. D. 60, C. . III-1, 257 rt Raway Co. v.
Commssoner, 86 . (2d), 641, certorar dened, 281 U. S., 742 Tunne
Raroad Co. v. Commssoner, 61 . (2d), 166, certorar dened, 288 U. S.,
604.) In respect to the essor under such a ease, the decsons are aso
unanmous to the effect that t s not entted to an aowance for deprecaton
because It has sustaned no oss, In vew of the fact that the essee has
assumed an obgaton to mantan, repar nnd renew. Commssoner v.
Terre aute ectrc Co., 67 . (2d), 697 Ct. D. 838, C. . III-1, 29. ) 1
Georga Raway d ectrc Co. v. Commssoner, 77 . (2d), 807, certorar
dened, October 14, 1035, 56 Sup. Ct., 117.)
It Is suggested by the ta payers that n none of the cases In whch these
questons have been consdered dd the court have before t at the same
tme both the essor and essee raroad, and therefore dd not meet the
aternatve propostons that the aowance for deprecaton wth respect
to the property shoud be made ether to one or the other. The contenton
that the aowance must be made to one or the other of the partes to such
a ease was, however, consdered and re|ected n New York Centra Raroad
Co. v. Commssoner (79 . (2d), 247, certorar dened, December 23, 1935),
In the foowng anguage:
The pettoner argues that ether the essor or the essee of property shoud
have a rght to deduct a reasonabe amount for e hauston and deprecaton,
that under the facts at bar the essor sustans no oss of capta, snce ho w
receve equvaent property upon the termnaton of the ease, and that there-
fore the oss fas upon the essee who has the burden of restorng the prop-
erty s vaue. The Commssoner rees upon Wess v. Wener (279 U. S., 333,
49 S. Ct, 337, 73 L. d., 720), as dd the oard, as estabshng that the
camed deductons shoud not be aowed. There the ta payer was engaged n
the busness of takng 99-year eases, renewabe forever, and subettng. e
camed a deducton for deprecaton of the budngs, whch, t was assumed
for purposes of the decson, he undertook to keep up to ther present condton.
In dsaowng the deducton, Mr. ustce omes ponted out that the essee
bad not yet made any capta Investment, and concuded that It Is not enough
that he has made a contract that very possby may not be carred out to
repace that capta at some future tme. (279 U. S., 333, at pugo 330, 49
S. Ct., 837, 838, 73 L. d., 720.) Despte possbe verba dfferences n the
eases, we thnk Wess v. Wener Is controng and requres affrmance of the
oard on ths ssue. In the case at bar the essee made no capta nvestment
In the eased property.
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23(k), rt. 201.
170
The facts wth regard to the second queston rased by the Coast Lne reate
to an agreement of ebruary 23, 1926, between the Coast Lne and a commttee
representng the bondhoders of the tantc, rmngham Coast Raroad Co.
whch was paced In recevershp n 1915, and operated by the recever up to and
Incudng the year 1920. Durng the ta abe years Invoved, a of ts stock was
owned by the Coast Lne and ts Income ta returns were ncuded In the con-
sodated returns fed by the atter. The agreement of ebruary 23, 1926,
provded that a new company shoud be organzed to acqure the property of
the company In recevershp whch shoud have a captazaton of 5,200,000
par vaue preferred stock entted to 5 per cent cumuatve dvdends, payabe
semannuay, and 150,000 shares of no par vaue common stock that the pre-
ferred stock shoud have no power to vote e cept In case of a contnung de-
faut n the payment of two semannua dvdends, n whch event the pre-
ferred stock shoud have e cusve votng power so ong as the defaut con-
tnued that the dvdends of the preferred stock shoud be guaranteed by the
Coast Lne that the Coast Lne shoud provde cash for certan specfed
requrements n the tota amount of appro matey 3,600,000 and that the Coast
Lne shoud be entted to receve the entre Issue of common stock In e change
for the cash so provded. The agreement was performed and the stock of the
company dstrbuted as theren provded. Durng each of the years 1928, 1929,
and 1930, the Coast Lne n compance wth ts guaranty, pad the dvdends
on the preferred stock, ncudng the sum of 257,059 to owners thereof other
than the Coast Lne Itsef. In ts returns for these years, It camed the sad
sum as a deducton, but It was dsaowed by the Commssoner.
The ta payer contends that the obvous purpose of ths agreement was to
pace t n a poston to mantan and e ercse contnuous contro of the prop-
ertes of the ., . O. Raroad Co. and to operate these propertes as a part
of Its raroad system. It s ponted out that the ta payer acqured nothng
new or In addton to what t aready had by the payments, and that each pay-
ment preserved for the s months perod the e stng rght to e cusve vot-
ng contro over the affars of the , . O. Raroad and the management of
ts property. It s therefore contended that the payments were a reguary
recurrng e pense necessary to preserve contro over the physca operatons
of a part of the ta payer s raroad system, and shoud be regarded ether as
an ordnary and necessary e pense of the busness or as a oss sustaned In the
course of Its operaton.
The argument s not wthout persuasve force, but we are of opnon that
the payments made by the Coast Lne under Its guaranty were part of the
consderaton pad by It for the common stock and were therefore capta e -
pendtures rather than osses or ordnary and necessary busness e pendtures.
In Newark Mk t Cream Co. v. Commssoner (34 . (2d), 854), a dspute
between two sets of stockhoders of a corporaton was setted by an agreement
whereby one set acqured the stock formery hed by the other and as part
of the agreement, the corporaton guaranteed a return of 8 per cent upon the
consderaton so pad for ts stock for a perod of 10 years. It was hed that
the amounts pad under ths guaranty by the corporaton were not deductbe
from ncome as an ordnary and necessary busness e pense, but consttuted
part of the prce pad by the stockhoders who acqured the busness In order
to get contro of the company.
The Coast Lne contends that If a smar vew s adopted In the present
case, It w be Impossbe to determne the basc cost of the stock now or at
any partcuar tme n the future, and snce the Coast Lne woud not be re-
eved from the obgaton of Its guaranty by a sae, the transacton coud
never be cosed for ta purposes. Ths consderaton, however, woud not
necessary determne the character of the e pendtures made under the guar-
anty, nor woud any practca dffcuty arse n the determnaton of the
gan or oss by the ta payer for purposes of ta aton n case of a sae. If such
a sae shoud take pace, the cost of the stock woud then be determned by
reference to the cash outay made under the agreement n 1926, dncudng theren
such amounts as woud have been pad n the performance of the guaranty, and
the proft or oss coud be cacuated accordngy. If addtona payments
under the guaranty shoud subsequenty be requred, they woud be deductbe
as osses for the year n whch they shoud occur.
The decsons of the oard of Ta ppeas are affrmed.
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171
23(n), rt. 2G2.
S CTION 23(n). D DUCTIONS ROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS.
rtce 262: Donatons by corporatons. -14r-8027
Ct D. 1101
ncome ta revenue act ob 1928 decson of court.
1. Deducton Ordnary and Neoessaby pense Contrbutons
to Communty Chest.
corporaton pubshng a newspaper, whch took aggressve
eadershp In and made substanta contrbutons to a Communty
Chest campagn In 1929 and 1930, was not entted to deduct the
amounts of the donatons as ordnary and necessary e penses,
wthn the meanng of secton 23(a) of the Revenue ct of 1928,
athough ts atttude no doubt materay aded In the mantenance
of ts good w and the e pendture may have bad an advertsng
vaue.
2. Decson Reverses.
Decson of the oard of Ta ppeas (28 . T. ., 762) reversed.
3. Certorar Dened.
Petton for certorar dened October 21, 1935.
Unted States Crcut Court of ppeas for the ourth Crcut.
uy T. cverng, Commssoner of Interna Revenue, pettoner, v. venng
tar Newspaper Co., respondent.
On pettons to revew the decson of tbe Unted States oard of Ta ppeas.
efore Soper, Crcut udge, and MoCnto and ayes, Dstrct udges.
une 10, 1935.
OPINION.
ayes, Dstrct udge: Ths Is an appea by the Commssoner of Interna
evenue from a decson of the oard of Ta ppeas, reported In 28 . T. .,
762. and nvoves the rght of the venng Star, a corporaton pubshng a
newspaper, to deduct as ordnary and necessary e penses wthn the mean-
ng of secton 23(a) of the Revenue ct of 1928 contrbutons to the Washngton
Communty Chest n the years of 1929 and 1930.
The ta payer pubshes the venng Star, a newspaper of the argest crcua-
ton and havng more than haf the advertsng busness In the cty of Wash-
ngton. Its crcuaton n 1929 was 105,978 day and 111,076 Sunday, yedng
advertsng revenue of 2,211,722, and n the year 1930, the fgures were 110,018,
110,389, and 2,008,442 respectvey.
The Communty Chest was sponsored by 57 chartabe agences for the pur-
pose of makng an appea to the peope of Washngton to support the enterprse
for the chartabe needs of the cty. In the campagn for each year, the ta -
payer took the aggressve eadershp through the news and edtora coumns
and n addton contrbuted 20,000 and 25,000 In 1929 and 1930 respectvey.
Its net Income as determned by the Commssoner, for 1929 was 1,382,530.88
and for 1930, 1,061,122.54.
The oard of Ta ppeas decded that the ta payer was entted to deduct
these contrbutons as necessary and ordnary e penses.
In Od Msson Portand Cement Co. v. cverng (293 U. S., 289 LCt. D. 903,
C. . I -1, 332 ), Mr. ustce Stone says: The prvege of deductng dona-
tons from gross ncome, conferred on ndvdua ta payers by secton 214(a)
of the Revenue cts of 1921, 1924, and 1920, has not been e tended to cor-
poratons.
proposa to e tend t to them was re|ected by Congress pendng the pas-
sage of the Revenue ct of 1918. (Congressona Record, ouse, oume 56,
Part 10, 10426-10428.) Secton 234(a)1 of the Revenue cts of 1921, 1924, and
1926 authorzes corporatons to deduct from gross ncome a the ordnary
and necessary e penses pad or ncurred durng the tu abe year n carryng
on any trade or busness.
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41, rt. 321.
172
rtce 5G2 of the Treasury Reguatons C2, 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 nsttutons, hosptas or educatona nsttutons conducted for
the beneft of ts empoyees, 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, In the regua-
tons promugated under the 1024, 1926, and 1928 cts. ( rtce 5C2 of Treas-
ury Reguatons 65, 69 artce 262 of Treasury Reguatons 74.) s secton
234(a)1 to whch they pertan has been reenacted In severa Revenue cts,
the reguaton now has the force of aw. (McCaughn v. ershey Chocoate Co.,
283 U. S., 488, 492 Ct. D. 345, O. . -, 444 Massachusetts Mutua Lfe
Insurance Co. v. Unted States, 288 U. S., 269, 273 Ct. D. 638, O. . II-1, 286 .)
It s a queston of fact In each case whether a donaton s made to an
nsttuton conducted for the beneft of the donor s empoyees or Is consderaton
for a beneft fowng drecty to the donor as an Incdent of ts busness.
The tn pnyer contends the contrbutons were a consderaton for a beneft
fowng drecty to the donor as an ncdent of Its busness. The manager
and the assocate edtor In substance stated that they do not know whether the
Star sod any more papers because of ts support of the Communty Chest nor
do they have defnte nformaton as to how much advertsng resuted from
the contrbuton but, whe they have no way of showng, they thnk defntey
the resut was a arger sae of papers the prestge of the paper was enhanced
and, havng urged others to gve unt t hurt, Its prestge woud have suffered
f t had not contrbuted n a bera manner.
Whether the contrbutons resuted In an Increase n the crcuaton or ad-
vertsng of the Star, and, f any, to what e tent, Is of necessty, mere con-
|ecture. The evdence fas far short of estabshng ether proposton. If
any beneft. In ether respect, dd accrue, It Is so ndrect and remote that t
can not rse to the dgnty of beng substanta, nor warrant a fndng that
the donatons nvoved were, n a genune sense, necessary and ordnary e -
penses wthn the meanng of secton 23 of the Revenue ct of 1928, or of
the Treasury Reguatons 74. It s not enough that the e pense be necessary
t must be ordnary and necessary. (Wech v. everng, 290 U. S., I Ct.
. 755, C. . II-2, 112 .)
The ta payer s atttude no doubt materay aded n the mantenance of ts
good w. Such woud be the effect on any paper pubshed In that or another
cty, athough n a dfferent degree. ut the act was a contrbuton by a cor-
poraton. Congress dd not authorze a corporaton to deduct chartabe con-
trbutons. The ta payer advertsed t as a donaton ayng cam, by ts act,
to a response of a generous mpuse gvng unt It hurts, by e ampe, n order
that ts precept mght be effectve. There was no suggeston of a reward desred
or antcpated. Certany the e pendture was not an ordnary and necessary
e pense, athough It may have had an advertsng vaue. ( tgon-Schd Co.,
21 . T. ., 1163.)
The decson of the oard of Ta ppeas Is reversed.
Reversed.
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. -14-8028
( so Secton 23(a), rtce 121 Secton 131, CtD.1100
rtce 691.)
INCOM T R NU CT O 1928 D CISION O COURT.
1. Income Payment or wards Return op Capta ..
mounts receved n 1928 by the ta payer, who had been a
member of a bankng house In Germany, n part payment of
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173
41, rt. 321.
awards of the M ed Cams Commsson n respect of accounts
to hs credt In German banks darng the war perod (the awards
representng capta, and nterest from anuary 1, 1920, to an-
nary 1, 1928), consttuted a return of capta and no part thereof
was ta abe as ncome, n vew of evdence showng the Improb-
abty of the recept of further payments. Prncpe announced n
urnet v. Logan (Ct. D. 851, O. . -, 845 288 U. 8., 404)
foowed.
2. Incouk Coectons Credted Peob to uy 2, 1921 Cash
Recepts and Dsbursements ass.
Coectons of nterest, dvdends, and profts made by German
banks, and credted to the ta payer s accounts theren pror
to uy 2, 1921, can not be ta ed as receved n 1928 or any sub-
sequent year, hs books havng been kept on the cash recepts and
dsbursements bass.
8. Deducton ttorneys ees.
The entre amount of attorneys fees pad In 1928 for prosecu-
ton of ta payer s cams before the M ed Cams Commsson
was deductbe as a busness e pense, under the provsons of
secton 23(a) of the Revenue ct of 1928.
4. Deducton Credt Ta es of oregn Country.
Income ta es for 1916 assessed aganst the ta payer by the
German Government and pad durng the foowng four years, and
deducted from the award entered by the M ed Cams Comms-
son n 1926, were not aowabe as a credt or deducton n
1928 under the provsons of sectons 23(c) and 181 of the
Revenue ct of 1928, those sectons mtng the credt or deduc-
ton to ta es pad or accrued wthn the ta abe year.
5. Decson ffrmed.
Decson of the oard of Ta ppeas (30 . T. ., 517) affrmed.
6. Certorar Dened.
Petton for certorar dened October 28, 1935.
Unted States Crcut Court of ppeas for the Second Crcut.
Commssoner of Interna Revenue, pettoner, v. ames Speyer, respondent.
ames Speyer, pettoner, v. Commssoner of Interna Revenue, respondent.
Petton to rcvae a determnaton of the oard of Ta ppeas (30 . T. ., 517). oth
e Commssoner and the ta payer fe petton . Determnaton affrmed.
efore Manton, Swan, and Chase, Crcut udges.
une 10, 1935.
OPINION.
Manton, Crcut udge: In 1928, the ta payer, pursuant to the Settement of
War Cams ct (45 Stat, 254), receved 485,912.43 part payment on account
of awards of the M ed Cams Commsson (Unted States and Germany).
The awards were made n respect of rechsmark accounts to hs credt n
German banks durng the Word War perod. The awards were 996,738.47
prncpa, and 397,775.52 Interest from anuary 1, 1020, to anuary 1, 1923.
The prncpa of the awards contaned Interest, dvdends and profts credted
to the ta payer s account n the German banks pror to uy 1, 1921. The
ta payer contended and the oard of Ta ppeas hed that the amount pad
was In part restoraton of the prncpa and not ta abe ncome.
The ta payer was n the bankng busness n New York Cty, wth a partner,
n pr, 1917. e was aso a member of a bankng house at rankford-on-
Man, Germany. t ths tme the New York frm had mark accounts wth
varous banks n Germany. pr 4, 1917, the ta payer wthdrew from the
German frm. e had fve accounts n marks wth hs German frm. The
Interest of hs partner n the New York Cty partnershp was assgned to hm
December 81, 1923. The ta payer s books were kept on a cash bass.
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41, rt. 321.
174
German war egsaton resuted, ugust 9, 1917, In the e tenson of a mora-
torum to debts payabe to persons In tbe Unted States. decree of November
10, 1917, resuted n the restrcton on saes, assgnments and charges of enemy
owned property and t became appcabe to persons of the Unted States. an-
uary 30, 1918, a decree provded that property of Unted States resdents woud
be taken over for admnstraton by the German Government. Under the
German aw a bank account depost creates a debtor-credtor reatonshp be-
tween a depostor and hs bank. The accounts of ths ta payer were never
taken over under the decree authorzng the Treuhander to do so. The accounts
were contnued n the name of the ta payer, and that of hs New York frm,
throughout the war perod.
efore the M ed Cams Commsson, apponted pursuant to statute, after
controversy, a compromse was reached between the agent of Germany and our
Government, whereby Germany assumed a |ont abty wth the German banks
n respect to the mark baances. y the terms of that agreement, these awards
were made to the ta payer. y the War Cams ct (45 Stat, 254) means of
payment of awards were provded. Secton 4(c) sts prortes of payment.
The amounts receved and the dsbursements made, as the record dscoses, n-
dcate a very ong deay estmated at 24 years before ths ta payer woud be
pad n fu the amount of hs award. Moreover, upon convncng evdence, the
oard of Ta ppeas concuson that there s not ony a ack of certanty of
future payments, but that t s hghy probabe that the ta payer w never
receve any substanta part of that whch Is due hm, Is |ustfed.
The ta payer s capta nvestment n the bank accounts on whch the award
was based was 1,228,748.28. Of the payment receved 485,912.43 the Com-
mssoner determned 181,535.45 was ta abe ncome. Ths concuson was
reached by anayzng the ta payer s capta, nterest on the awards from anu-
ary 1, 1920, to anuary 1, 1928, and nterest, dvdends and profts pad nto the
bank accounts n Germany pror to December 31, 1920. The Commssoner
treated the nterest on the awards, and the Interest, dvdends and profts pad
nto the bank accounts, as Income, and on ths bass found that the awards
stated as of anuary 1, 1928, were made up of 61 per cent capta and 39 per cent
ncome. e then determned that as each payment Is made out of the German
speca depost fund on the awards t woud contan 39 per cent ta abe ncome.
In ts manner he arrved at the amount of Income and ta ed t accordngy.
The oard of Ta ppeas dsagreed.
The ta payer s capta n the bank accounts was far n e cess of the payment
receved n 1928. In order to arrve at gan or oss, there must be wthdrawn
from the gross proceeds an amount suffcent to restore capta that e sted at
the commencement of the perod under consderaton. ( sner v. Macombcr,
252 U. S., 189 T. D. 3010, O. . 3, 25 Doye v. Mtche ros. Co., 247 U. S.,
179.) In Drer v. everng (72 ed. (2d), 76 (O. D. C.)), the court consd-
ered ncome ta on an award of the M ed Cams Commsson. The award
made on ugust 1, 1928, amounted to 68,782.70, of whch 48,000 was prncpa
and 21,128, nterest. t the tme of the sezure of Drer s property, t was
worth 68,782.70. The vaue of the ta payer s property at the tme t was ac-
qured by her was equa to the sum receved by her under the award of the
Cams Commsson the tota sum receved was suffcent ony to restore the
capta vaue that e sted at the commencement of the perod under consdera-
ton, and the court hed that there was no reazed gan and no ncome ta
assessabe.
In the Instant case, the oard found that there was no reasonabe prospect
of the fu amount beng pad. In utomobe Insurance Co. of artford v. Com-
mssoner (72 ed. (2d), 265), the ta payer keepng ts books on an accrua
bass, receved 80 per cent of the amount due as an award of the M ed Cams
Commsson and we hed that t was entted to accrue the dfference for that
year. The case s dstngushabe because ths ta payer kept hs books on a
cash bass. Moreover, the record n the utomobe Insurance company case
contaned no evdence showng the Improbabty of recevng further payments
from Germany, as Is shown In the Instant case and as found by the oard.
In urnet v. Logan (283 U. S., 404) Ct, D. 851, O. . -, 345 , the court
consdered the attempt of the Commssoner to base ncome ta on a specuatve
assumpton wheren he determned the vaue of the seer s promse to pay 60
per cent a ton for ore mned. ddng ths vaue to the cash, the Commssoner
then deducted the seer s bass for the stock and found the ta abe profts. The
court hed there woud be no ta abe Income unt actua recepts by the seer
e ceeded hs bass for the stock. We thnk the same prncpe s appcabe here.
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175
41, rt. 321.
The ta payer rghtfuy contends that the Items coected by the German
banks whch conssted of nterest, dvdends and profts pad and credted to
the ta payer s accounts pror to uy 2, 1921, and whch the ta payer dd not
report n hs edera ncome ta returns for the year when coected, coud not
be ta ed as receved n 1928. The reason advanced for not reportng these
ta es was the ack of means of communcaton between Germany and the
Unted States durng the perod of the war and for some tme thereafter.
The ta payer was not advsed of ther depost These tems coected by
the German bank and deposted to the credt of the ta payer In the accounts
were receved n the years such deposts were made and accordngy coud not
be treated as Income to ths ta payer In 1928 or any subsequent year. ccord-
ngy, the decson of the oard of Ta ppeas, that of the payment receved
n 1928 no part thereof s ta abe ncome, s affrmed.
The Commssoner s appea aso Invoves the deductbty of the attorneys
fees charged as a busness e pense and dsbursements under secton 23(a). The
Commssoner determned that a porton of the attorney s fees aocabe to
what he concedes to be the ta payer s capta n the awards, s not deductbe
as an e pense for the reason that t s a capta charge. Ths contenton
was re|ected by the oard of Ta ppeas whch hed that the fu amount
was deductbe from gross Income n accordance wth the provsons of secton
23(a) of the Revenue ct of 1928. It must be remembered that ths ta payer
had a bankng house n Germany where baances were kept. The cost of the
recovery of these baances through the M ed Cams Commsson comes drecty
wthn the specfcatons of deductons for e penses. The proceedngs before
the M ed Cams Commsson were for the purpose of recoverng assets for
the ta payer. It s not questoned but that the attorneys were pad the amounts
camed In connecton wth the transacton of ths busness. Such fees are
deductbe as an e pense of the busness. ( omhauscr v. Unted States, 276
U. 8., 146 T. D. 4222, C. . II-2, 267 .)
The ta payer appeas from the determnaton of the oard of Ta ppeas
dsaowng deducton n 1928 for ta es pad to the German Government n
behaf of the ta payer from 1917 to 1920. Durng that perod, wthout the
ta payer s consent or knowedge, the German partnershp pad to Germany,
and charged the ta payer s persona accounts on ts books, 59,805.31 for
Income ta es assessed aganst the ta payer on the German ncome for 1916.
In the cam fed wth the M ed Cams Commsson n 1922, the ta payer
asked for an award for the mark baance n hs capta account on December
81, 1816, wth the German partnershp, pus nterest. The commsson, n
1926, entered an award for that amount, stated n doars, ess the amount
owng by the ta payer to the German partnershp whch ncuded the German
ta es pad. The ta payer mantans that ths baancng of the accounts wth
the German partnershp had the effect of forcng hm to pay the ta es n 1928.
The ta payer rees on secton 23(c) and secton 131 of the Revenue ct of
132 , as authorty for a credt and deducton for payment of foregn tu es,
but those sectons mt the deductons to ta es pad or accrued wthn the
ta abe year. The ta abe year here nvoved was 1928 these ta es accrued
In 1916, and were pad durng the foowng four years. Such deductons must
be taken n the year of ther occurrence. (Darng v. Commssoner, 49 ed.
(2d), 111 DeLoss v. Commssoner, 28 ed. (2d), 803.)
The determnaton s affrmed.
rtce 321: Computaton of net ncome. -14-8029
G. C. M. 16166
R NU CT O 1028.
No ta abe Income Is derved by ta payers from awards of the
M ed Cams Commsson, Unted States and Germany, under
the Settement of War Cams ct of 1928, unt there has been a
recovery by the ta payers of ther capta bases, f any.
G. C. M. 9210 (0. . -, 129) and G. C. M. 9166 (C. . -.
183) modfed.
Reference s made to the court decsons n Commssoner v. Speyer
and Commssoner v. mann (77 ed. (2d), 824, and 77 ed. (2d),
827), respectvey, certorar dened, 56 S. Ct., 155. In those cases
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42, rt. 331
176
the Crcut Court of ppeas for the Second Crcut affrmed the
decsons of the oard of Ta ppeas and hed that no ta abe
ncome was receved by the ta payers (whose accounts were kept on
the cash recepts and dsbursements bass) as the resut of awards
of the M ed Cams Commsso| Unted States and Germany,
under the Settement of War Cams ct of 1928 unt the ta -
payers had receved a return of ther capta bases. The crcut
court decned to foow G. C. M. 9210 (C. . -, 129), n whch
t was hed that n determnng the amount of ta abe ncome de-
rved by ta payers on the cash recepts and dsbursements bass
from payments receved pursuant to the Settement of War Cams
ct the ureau shoud ascertan the part of the award so receved
whch represents nterest upon the prncpa of the award accrung
pror to anuary 1, 1928, the part attrbutabe to nterest ncuded
n the prncpa of the award and the part attrbutabe to the
amount awarded as compensaton for the property sezed or de-
stroyed by Germany durng the war and gvng rse to the award
n queston and that the part attrbutabe to nterest consttutes
ta abe ncome to the recpent n the year n whch the ta payer
on the cash recepts and dsbursements bass receves such amount,
but that no ncome s reazed wth respect to the part attrbutabe
to the amount awarded as compensaton for the property taken
unt there has been a recovery of the capta bass, f any.
The poston taken by the Crcut Court of ppeas for the
Second Crcut s n accord wth the poston of the Unted States
Court of ppeas for the Dstrct of Coumba n Drer v. everng
(72 ed. (2d), 7C) and the Crcut Court of ppeas for the ourth
Crcut n everng v. Drer (79 ed. (2d), 501).
In vew of the foregong, G. C. M. 9210, supra, whch deas wth
ta payers on the cash recepts and dsbursements bass, and G. C. M.
94G6 (C. . -, 133), whch deas wth ta payers on the accrua
bass, are modfed to hod that no ta abe ncome s derved by
ta payers from awards of the M ed Cams Commsson, Unted
States and Germany, under the Settement of War Cams ct of
1928 unt there has been a recovery by the ta payers of ther
capta bases, f any.
erman Ophant,
Genera Counse for the Department of the Treasury.
S CTION 42. P RIOD IN W IC IT MS O GROSS
INCOM INCLUD D.
rtce 331: When ncuded n gross ncome. -8-79G5
Ct. D. 1082
ncome ta revenue act of 1028 decson of court.
1. Income Dscounts Method of ccountng.
trust company fed returns for 1929 and pror years, usng
a combnaton of the cash recepts and dsbursements method and
the accrua method, and treatng dscounts on commerca paper as
ncome at the tme the oans were made, rrespectve of the date
of payment. Later t fed an amended return for 1929 on the
cash recepts and dsbursements bass, reportng a dscounts
actuay receved n 1929, whch resuted n the ncuson of ds-
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177
42, rt. 331.
counts accrued and reported In 1928. The dscounts receved In
1929 were propery Incuded In gross ncome for that year, under
secton 42 of the Revenue ct of 1928 and artce 331 of Regu-
atons 74, It not beng shown that there had been any reasonabe
consstency In the treatment of tems of gross Income In pror
years or that the method of accountng used n 1928 ceary re-
fected ncome for that year.
2. Cebttobab Dened.
Petton for certorar dened October 14, 1935.
Unted States Cbcut Coubt of ppeas foe the Second Cbcut.
Mount ernon Trust Co., pettoner, v. Commssoner of Interna Revenue,
respondent.
Petton to revew a decson of the Unted States oard of Ta ppeas.
efore L. and, Swan, and Chase, Crcut udges.
March 11, 1935.
OPINION.
Ths proceedng nvoves ncome ta es for the year 1929. The ta payer seeks
to revew a decson of the oard sustanng the acton of the Commssoner In
Incudng n gross Income tems of dscount receved In 1929 whch had been
reported as accrued ncome n the ta payer s return for 1928. Order affrmed.
Swan, Crcut udge: The queston presented by ts appea Is whether the
Commssoner propery Incuded n the pettoner s gross Income for 1929 certan
dscounts receved n that year whch had been reported as accrued ncome for
the year 1928 and were used n computng the 1928 ta . rom the stpuated
facts t appears that n conductng ts busness as a trust company the pet-
toner, among other thngs, dscounts commerca paper. Up to and Incudng
1928 the pettoner used a method of accountng whch was a combnaton of the
cash recepts and dsbursements method and the accrua method that Is, some
tems of Income or e pense were recorded when receved or dsbursed, whe
others were recorded when earned or ncurred Irrespectve of the date of pay-
ment. Dscounts were treated as Income at the tme oans were made, whether
payment of such dscounts was made then or ater. The pettoner s Income ta
returns for 1928 and pror years were made In accordance wth the method of
accountng above descrbed and were accepted and cosed by the Commssoner
wthout ob|ecton thereto. The orgna return for 1929 was made on the same
bass as the returns for former years, but subsequenty an amended return for
1929 was fed on the cash recepts and dsbursements bass. Ths was done
wthout havng obtaned the pror consent of the Commssoner, but he audted
the return for 1929 on the bass of cash recepts and dsbursements. In Its
amended return the pettoner reported a dscounts actuay receved n 1929,
regardess of the tme as of whch they accrued, and ths resuted n Incudng
dscounts of 146,133.33 whch had accrued In 1928 and had been reported In the
return for that year. In other words, ths sum was Incuded as Income n both
years and has been twce ta ed. Ths dupcaton was caed to the Comms-
soner s attenton by a cam for refund, but the cam was re|ected and a
defcency for 1929 was determned based on other ad|ustments whch are not
here nvoved. The pettoner cams an overpayment of some 16,500.
cosng agreement under secton 606 of the Revenue ct of 1928 has been entered
Into, precudng the pettoner from camng any refund on account of the
1928 ta .
The pettoner contends that ths Is a case where the change from one proper
bass of reportng ncome to another proper bass has resuted In a dupca-
ton of Items n successve years, and that the Commssoner has, and snud
e ercse, dscretonary power to emnate such dupcaton. The respondent, on
the other hand, contends that ths s merey a case where the ta payer s
seekng to correct an error n the 1928 ta , whch arose from the use of nn
Improper and hybrd system of accountng, by the e cuson of ncome from
the year 1929, In whch year t Is propery ta abe.
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42, rt. 331.
178
If we were faced wth a case n whch a ta payer on an accrua bass for an
earer year was forced to dupcate tems of ncome for the ensung year when
he went upon a cash bass, we shoud fnd the pettoner s argument very per-
suasve. It Is unkey that Congress ntended that a change In the ta payer s
method of bookkeepng shoud resut In doube ta aton, and t may we be that
secton 42 of the Revenue ct of 1928 ( 45 Stat., S05) and artce 322 of Regu-
atons 74 shoud be construed to gve the Commssoner power to emnate
the dupcaton of tems under such crcumstances. (See Natona ank of
South Carona v. Lucas, 36 . (2d), 1013 ( pp. D. C.).) The recent decson of
ths court n Chemung Cana Trust Co. v. Commssoner, anuary 7, 1935, n
whch we affrmed wthout opnon the decson of the oard of Ta ppeas
reported In 30 . T. ., 230, dd not decde ths queston, for there the ta payer
kept hs books on a cash bass In both years. Nor do we fnd It necessary to
decde t now.
The pettoner kept ts books for the year 1928 on an amorphous bass. Its
counse suggests that the tems recorded on the cash bass may have been few,
but the record does not bear ths out. Some tems of ncome or e pense
were recorded on the cash bass, whe others were recorded on the accrua
bass. or a that appears the method of accountng may have been a hotch-
pot of cash and accrua tems. Taken teray secton 41 seems to recognze
any method of accountng reguary empoyed n keepng the books of the
ta payer, provded that t shoud ceary refect the ncome. (See Uorrs-
Poston Coa Co. v. Commssoner, 42 . (2d), 020, (C. C. . 6) compare NUes
ement Pond Co. v. Unted States, 2S1 U. S., 357, 361 Ct. D. 1S5, C. . I -1,
295 .) ut the reguatons (artce 322, Reguatons 74) contan the foowng
provson:
bt. 322. ases of computaton. pproved standard methods of accountng
w ordnary be regarded as ceary refectng ncome. method of account-
ng w not, however, be regarded as ceary refectng ncome uness a Items
of gross Income and a deductons are treated wth reasonabe consstency.
Ths s a proper and vad reguaton. When secton 41 speaks of the method
of accountng t can not mean to ncude a merey haphazard dvson be-
tween cash and accrua bases. (Compare Unted States v. Mtche, 271 U. S.,
T. D. 3S65, C. . -, 233 Unted States v. nderson, 269 U. S., 422
T. D. 3839, C. . -, 179 umnum Castngs Co. v. Routzahn, 282 U. S.,
92 Ct. D. 270, O. . -, 352 .) dfferent stuaton mght be presented
f the record showed that the books of the pettoner were kept on an accrua
bass wth some e ceptons of sma tems whch were entered ony when pad
and receved. See artce 342, Reguatons 74, whch recognzes that partc-
uary n a gong busness of any magntude there are certan overappng
tems both of ncome and deductons, and so ong as these overappng tems
do not materay dstort the ncome they may be Incuded n the year In
whch the ta payer, pursuant to a consstent pocy, takes them nto hs ac-
counts. The present record does not dscose that there was any reasonabe
consstency In the treatment of tems of gross ncome, some were on the
cash bass and others on the accrua bass. Therefore the pettoner has
not shown that the dscounts were propery ncuded In ts 1928 return and
that ts method of accountng ceary refected ts Income for that year.
Consequenty, under secton 42 and artce 331 of Reguatons 74 the dscounts
receved n 1929 were propery ncuded n the gross ncome for the ta abe
year n whch receved by the ta payer, and the case becomes ke Chemung
Cana Trust Co. v. Commssoner, supra, and a mstake n the 1928 return can
not be offset by e cudng from 1929 ncome propery returnabe n that year.
Natona ank of South Carona v. Lucas (36 . (2d), 1013 ( pp. D. C.)),
upon whch the pettoner strongy rees, was treated by the court as a case
n whch the ta payer s books were propery kept upon an accrua bass In
so far as matters here are concerned. rom the facts appearng n the
oard s opnon (10 . T. ., 642) t woud seem that the ony Items treated
on the nccrua bass were Items of dscount. We shoud fnd dffcuty n agree-
ng wth the concuson that those were propery returned In the earer year
(see Chemung Cana Trust Co. v. Commssoner, supra), but In any event the
case s not precsey n pont snce n the appea at bar the record fas to
dscose that ony dscounts were accrued as aready stated the pettoner s
method may have been a compete hotchpot of the cash and accrua bases.
It s urged that the Commssoner s acceptance of the returns for 1928 and
pror years s a recognton that the method used In those years was proper, but
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42, rt. 331.
no estoppe can arse aganst tbe Commssoner from hs acceptance of the
return. In e ement Pond Co. v. Unted States (281 U. S., 357, 862) a
smar argument was re|ected, wth the suggeston that the faure of the Com-
mssoner to correct the return may as we be attrbutabe to error or oversght
or ack of nformaton as to bs opnon of the proprety of the tem. (See
aso . 0. Ncws Land Co. v. Commssoner, 65 P. (2d), 487, 438 (O. O. . 8)
Tonnngsen v. Commssoner, 61 . (2d), 199, 200 (C. C. . 9) Ot. D. 669,
C. . II-1, 251 onwt Teer Co. v. Commssoner, 53 . (2d), 881,
884 (C. C. . 2).)
The order Is affrmed.
rtce 331: When Incuded n gross ncome. -25-8130
( so Secton 43, rtce 842.) G. C. M. 16730
R NU CT O 1928.
Where , who kept hs books on the cash recepts and dsburse-
ments bass, receved ncome under a cam of rght and wthout
restrcton as to ts dsposton, such Income was propery reported
n hs Income ta returns for the years In whch receved, athough
he was subsequenty requred to pay the amount to another. e
s, however, entted to a deducton for the amount of such payment
for the year n whch pad.
G. C. M. 1582 (C. . I-1, 171) modfed. Recommended that
O. D. 825 (C. . 4, 95) and I. T. 1164 (O. . 1-1, 17) be revoked
and that O. D. 1141 (O. . 6, 134) be modfed.
n opnon s requested whether certan profts ncuded n the
ta payer s ncome ta returns for the years 1928 and 1929 shoud
be emnated therefrom because n a ater year he was requred to
account for such profts to another.
In 1928 the ta payer, , who kept hs books on the cash recepts
and dsbursements bass, was a drector of the M Company. In that
year t was essenta for the M Company to acqure rghts to manu-
facture under certan basc patents and t was beeved that such
rghts mght be acqured through the N Company, then n recever-
shp. It deveoped that ths purpose mght be accompshed by the
M Company acqurng y shares of N Company stock. Later t ap-
peared that the M Company coud not rase the funds wth whch to
purchase ths stock (or so t was camed) and the stock was acqured
by a number of persons, ncudng the ta payer, who made arge
rofts n 1928 and 1929 deang n the shares. The M Company
ter went nto bankruptcy and the trustee brought sut aganst the
ta payer and hs assocates to compe them to account for the profts
reazed from ther deangs n the N Company stock. The bass of
the sut was that the proft was made n voaton of the defendants
fducary duty as offcers and agents of the M Company. The ta -
Sayer dened abty. The tra court decded n favor of the
ef endants but ts decree was reversed by the crcut court as aganst
the ta payer and certan other defendants. Certorar was dened
by the Unted States Supreme Court.
The ta payer reported as ncome for the years 1928 and 1929 hs
profts from the sae of the stock, but now contends that such profts
shoud be emnated from ncome for those years because of the
adverse |udgment rendered n a ater year.
It s we setted that when a ta payer receves earnngs under a
cam of rght and uses them as hs own, he has receved ncome
whch he s requred to return, for edera ncome ta purposes, n
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180
the year of recept even though another may be assertng a rght to
those earnngs and may subsequenty, by tgaton or otherwse,
compe hm to pay them over. North mercan O Consodated
v. urnet, 286 U. S., 417, Ct. D. 499, C. . I-1, 293 oard v. Com-
mssoner, 51 ed. (2d), 73, certorar dened, 284 U. S., 658 Tro|an
O Co. v. Commssoner, 26 . T. ., 659.)
In North mercan O Consodated v. urnet supra, the ta -
payer, n 1916, was operatng certan o propertes ega tte to
whch stood n the name of the Unted States. The Government,
camng aso the benefca ownershp, nsttuted sut to oust the
ta payer from possesson and n 1916 secured the appontment of a
recever to operate the property and to hod the net ncome thereof.
In 1917 a decree was entered dsmssng the b and the money m-
pounded was pad to the defendant corporaton. The Government
ook an appea, whch was not fnay determned unt 1922. The
court hed that the ta payer shoud report the amount as ncome for
1917, when t coected t, and not for 1922, when ts rght was fnay
estabshed. In so hodng the court sad:
If a ta payer receves earnngs under a cam of rght and wthout
restrcton as to ts dsposton, he has receved Income whch he s requred
to return, even though It may st be camed that he Is not entted to retan
the money, and even though he may st be ad|udged abe to restore Its
equvaent. (See oard v. Commssoner, 51 . (2d), 73, 75, 76. Compare
Unted States v. S. 8. Whte Denta Mfg. Co., 74 U. S., 398, 403.) If In 1922
the Government had prevaed, and the company had been obged to refund
the profts receved n 1917, It woud have been entted to a deducton from
the profts of 1922, not from those of any earer year. (Compare Lucas v.
mercan Code Co., supra.)
oard v. Commssoner, supra, affords another ustraton of the
rue that ncome receved under a cam of rght and wthout restrc-
ton as to dsposton must be reported n the year of recept. In
that case corporaton O sod a of ts assets and went nto quda-
ton. t that tme O had entered nto a contract for the construc-
ton of a ppe ne. The other party to the contract was unabe to
fnance hs part of the agreement. The pro|ect was taken over by
the qudatng trustees and two other offcers and constructed on the
|ont credt of O and those ndvduas. Upon the sae of the prop-
ertes of O the qudatng trustees dstrbuted a part of the proceeds
to the offcers and other qudatng trustees n 1920. Certan stock-
hoders contested ths dstrbuton and fed an acton whch was not
fnay setted unt 1927. In hodng that the ta payer was requred
to report the amount as ncome for 1920 rather than for 1927, the
court stated n part as foows:
We are of the opnon that the oard was rght In aocatng ths ncome
to the year 1920. That t was actuay receved durng that year s not ds-
puted nor s t dsputed that t was receved under a cam of rght and as
profts to whch the pettoner was |usty entted. The ony cam made Is
that the contract whereby pettoner purported to secure hs Interest In the
ppe ne was ega and unenforceabe by reason of hs poston as a drector
of the Od Domnon O Co. In ths contenton the pettoner of course never
acquesced. The payment was never refunded. Possby t mght have been
recovered n tha tgaton whch was nsttuted for that purpose, but t was
not, and t s at east unusua that a ta payer shoud be heard to assert
the possbty of an ad|udcaton of aeged msconduct and breach of trust,
| s reevng hm from ta abty whch Is predcated upon the assumpton
of the honesty and egaty of hs acts. Obvousy, the sum Invoved must be
consdered as ncome ether for the year 1920 or 1927, and we thnk that It
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181
must be aocated to the year 1920, n whch It wns actuay receved, rather
than to the year 1927, In whch the ta payer s rght to retan It was estabshed.
In the Tro|an O Co. case a smar concuson was reached
under crcumstances cosey anaogous to those presented n North
mercan O Consodated v. urnet, supra, athough the tgaton
termnated n a ater year unfavoraby to the ta payer. The oard
commented as foows:
though n the Instant case more than one year s earnngs were Impounded
and the tgaton was decded In favor of the Government, we thnk the
decson n the North mercan Consodated case governs n ths case.
In the nstant case the ta payer receved the ncome under a cam
of rght and wthout restrcton as to ts dsposton. On authorty
of the cases cted heren, ths offce s of the opnon that .the profts
n queston shoud not be emnated from the ta payer s gross n-
come for the years 1928 and 1929, but that the ta payer s entted
to a deducton, for the year n whch pad, of the amount of the
profts pad to the trustee for the M Company.
G. C. M. 1582 (C. . I-1, 171) s modfed n so far as t s
nconsstent wth the vews heren e pressed. It s recommended
that O. D. 825 (C. . 4, 95) and I. T. 1161 (C. . 1-1, 17) be re-
voked and that O. D. 1141 (C. . 5, 134) be modfed n so far as
t s nconsstent wth the vews heren e pressed.
erman Ophant,
Genera Counse for the Department of the Treasury.
rtce 332: Income not reduced to possesson.
R NU CT O 1928.
G. C. M. 9466 (C. . -, 133) modfed. (See G. C. M. 16166,
page 175.)
S CTION 43. P RIOD OR W IC D DUCTIONS
ND CR DITS T N.
rtce 342: When charges deductbe.
R NU CT O 1928.
Income ncuded n return requred to be pad to another. (See
G. C. M. 16730, page 179.)
S CTION 45. LLOC TION O INCOM ND
D DUCTIONS.
Secton 45. -16-8050
Ct. D. 1105
INCOM T R NU CT O 1928 D CISION O COURT.
1. Income ocaton Saes etween Domestc and oregn
Corporatons op a eated Group.
The pettoner, a domestc corporaton whose stock was owned
by two foregn corporatons, sod at cost certan property whch
had apprecated In vaue to a foregn corporaton, the stock of
whch was owned by the same nterests that owned pettoner s
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182
stock, and on the foowng day the foregn purchaser sod the
property to a domestc corporaton at a substanta proft, both
saes takng pace outsde the Unted States. The provsons of
secton 45 of the Revenue ct of 1928 are appcabe to these facts,
and the profts from the utmate sae were propery aocated to
the pettoner. The egsatve purpose of the secton was to pre-
vent the avodance of tar or the dstorton of Income by shft-
ng profts from one reated trade or busness to another by means
of transactons such as these.
2. Consttutonaty.
Secton 45 of the Revenue ct of 1928 as apped to the facts
n ths case s not unconsttutona as deprvng the ta payer of
property wthout due process of aw. It does not measure the ta
of one corporaton by the Income of another, but ooks through
form to reaty.
8. Decson ffemed.
Decson of the oard of Ta ppeas (31 . T. ., 1152) affrmed.
4. Ceetobar Dened.
Petton for certorar dened November 25, 1935.
Unted States Cbcutt Coubt of ppeas fob the Second Ckcut.
satc Petroeum Co. (Deaware), Ltd., pettoner, v. Commssoner of
Interna Revenue, respondent.
Petton to revew an order of the Unted States oard of Ta ppeas.
efore Manton, Swan, and Chase Crcut udgea
ugust 16, 1935.
OPINION.
The ta payer, satc Petroeum Co. (Deaware), Ltd., seeks reversa of an
order determnng a defcency n ts ncome ta for the year 1929. Order
affrmed.
Swan, Crcut udge: Ths case was heard by the oard upon stpuated
facts, whch Incuded a stpuaton that f the Commssoner was correct n
appyng secton 45 of the Revenue ct of 1928 (45 Stat., 806) there was a
defcency of 303,083 n the pettoner s ta for the year 1929 otherwse
there was no defcency. The oard sustaned the Commssoner.
The agreed facts are these. Two foregn corporatons, one organzed under
the aws of the Netherands (caed Roya Dutch) and the other under the
aws of Great rtan (caed rtsh She), owned respectvey 60 nnd 40
per cent of the stock of another Netherands corporaton (caed ataafsche)
and of the pettoner (hereafter referred to as satc). Nether Roya Dutch
nor rtsh She has ever done any busness In the Unted States other than
hodng stock of domestc corporatons. ataafsche deas In petroeum products
n varous parts of the word other than the Unted States. satc s a
Deaware corporaton, organzed n 1920, and has aways been a hodng
company engaged n hodng the stocks of varous subsdary corporatons.
or the year 1929 satc fed a consodated return, for Itsef and Its sub-
sdares, whch omtted to Incude any proft from the transactons now to be
descrbed. satc owned 39,997 shares of a Lousana corporaton (referred
to as Norco) and on anuary 8, 1929, contracted n London, ngand, to se
sad Norco shares to ataafsche for the prce of 3,999,700, whch was the
cost bass of (he stock to satc. Payment was made In London, and on the
foowng day, anuary 9, 1929, the stock) certfcates, propery Indorsed In
bank, were devered to a representatve of ataafsche n Montrea, Canada.
On the same date ataafsche sod and devered n Montrea sad Norco shares
to a Deaware corporaton known as She Unon for the sum of 6,755,000.
No part of the purchase prce pad by She Unon was ever receved by
satc. ataafsche owned 59 per cent or more of the votng stock of She
Unon. On May 3, 1929, She Unon sod sad Norco shares to She Petroeum
Corporaton of St. Lous, a rgna corporaton whose stock was whoy owned
by She Unon, for 6,755,000. Thereupon She Petroeum took over the assets
and abtes of Norco and caused the atter to be dssoved before the end of
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183
1929. The proft of 2,755,300 reazed by ataafsche upon Its sae of the
Norco snares to She Unon was aocated by the Commssoner to satc by
appyng to the foregong facts the provsons of secton 45 of the Reve ne
ct of 1928. Ths produced the defcency companed of, whch the oard of
Ta ppeas confrmed.
The statute under whch the Commssoner purported to act reads as
foows:
Sec. 45. ocaton of ncome and deductons. In any case of two or more
trades or busnesses (whether or not ncorporated, whether or not organzed
In the Unted States, and whether or not affated) owned or controed
drecty or ndrecty by the same nterests, the Commssoner s authorzed
to dstrbute, apporton, or aocate gross ncome or deductons between or
among such trades or busnesses, f he determnes that such dstrbuton, ap-
portonment, or aocaton s necessary n order to prevent evason of ta es
or ceary to refect the ncome of any of such trades or busnesses.
The pettoner contends that secton 45, propery nterpreted, s Inappcabe
to the facts of ths case, and, f apped, s unconsttutona.
Secton 45 authorzes the Commssoner to make an aocaton of gross
ncome among busnesses controed by the same nterests n order (1) to
prevent evason of ta es, or (2) ceary to refect the Income of any of such
busnesses. The substance of the two contemporaneous saes above descrbed
was to transfer the Norco stock to She Unon at a prce of 6,755,000, and t
can scarcey be doubted that the ntermedate sae to ataafsche, made abroad
and at the cost bass of the stock to satc, was devsed for the purpose of
avodng Income ta es on the proft of 2,755,300, to whch satc woud con-
cededy have been sub|ect had t sod drect to She Unon at the prce whch
the atter pad. Snce the parent corporatons had the same stock ownershp
both satc and ataafsche, It woud be a matter of Indfference to the
oefca owners of the proft whether t was reazed by the one subsdary
or the other. ut the pettoner contends that, assumng a purpose to avod
ta es, the Commssoner can not ustfy hs aocaton to satc of the proft
reazed by ataafsche on the ground of preventng an evason of ta es,
because that phrase Is not the same as avodance of ta es. It s argued that
avodance connotes escape from ta aton by avodance of the recept of
ncome, whe evason connotes an effort to escape ta aton by one who has
receved ta abe Income, and Is conduct crmnay punshabe under secton
146(b) of the Revenue ct of 1928. y seng to ataafsche at cost what t
mght have sod to She Unon at a proft, satc avoded the recept of
ncome hence, t s urged, t dd not evade any ta , and secton 45 s nap-
pcabe on the bass of ta evason. We can not accept so narrow a construc-
ton. satc had an actua proft (e cess of vaue over cost) before the sae
to ataafsche, though as yet unreazed for ncome ta aton. The phrase
evason of ta es s broad enough to ncude the avodance of the reazaton
for ta aton of such a proft through Its transfer to another branch of the
same busness enterprse n a way whch ony changes ts pace n the busness
set-up. That such was the meanng ascrbed to t durng the progress of the
b through Congress s evdent from the commttee reports whch e pan
that evason may be attempted by the shftng of profts, the makng of
fcttous saes, and other methods frequenty adopted for the purpose of
mkng. ( . Rept. No. 2, Seventeth Congress, frst sesson, page 16 S.
ept. No. 960, Seventeth Congress, frst sesson, page 24 see aso 69 Con-
gressona Record, part 2, page 1068.)
Secton 45, athough t has no e act counterpart In earer egsaton, s
based on the consodated return provsons of secton 240(d) of the Revenue
cts of 1921 and 1924 and secton 240(f) of the Revenue ct of 1920. Upon
the fact that the commttee reports e panng secton 240(d) of the 1921 ct
( . Rept. No. 350, S ty-seventh Congress, frst sesson, page 14 Report No.
276, S ty-seventh Congress, frst sesson, page 20) refer to foregn subsdares
as a frequenty empoyed method of mkng the parent company or otherwse
Impropery manpuatng ts fnanca accounts, and that the commttee reports
regardng secton 45 aso menton mkng, the pettoner bases an argument
that the mkng at whch the egsaton was amed, s ony that of a
domestc parent by a foregn subsdary, so that secton 45 has no appcaton
when the parent s a foregn corporaton or, as n the present case, two such
corporatons. ut we see nothng n the anguage or n the purpose of the
statute to ustfy gvng t so restrcted a meanng. n evason or avodance
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184
of ta es may be accompshed when a foregn subsdary mks a domestc
subsdary of the common foregn parent as we as when It mks a domestc
parent. The statute Is desgned to frustrate the one abuse no ess than the
other.
more substanta contenton wth respect to nterpretng secton 45 turns
on the meanng of the words gross ncome. The Commssoner s authorzed
to aocate gross ncome among trades or busnesses under the specfed statu-
tory condtons. If there s no gross ncome, there s nothng to aocate. It 13
argued that the proft reazed by ataafsche on the sae of the Norco stock to
She Unon was not gross ncome wthn the defnton of that term contaned
n the Revenue ct of 192S, snce secton 231(a) provdes that In the case of
a foregn corporaton gross Income ncudes ony the gross Income from sources
wthn the Unted States, and under secton 119(e) ataafsche s proft was
ncome from sources wthout the Unted States. It s true that for the purpose
of mposng ta es on a foregn corporaton gross ncome has a more mted
meanng than s gven t n the genera defnton contaned n secton 22, and
t s kewse true that ataafsche reazed no ta abe proft ut ataafsche
dd reaze a proft whch fas wthn the genera defnton of gross ncome n
secton 22. earng n mnd the abuses at whch secton 45 was drected, we
agree wth the oard that gross Income shoud be gven Its broader meanng
whether the ncome to be aocated be receved by a foregn or a domestc
corporaton. Secton 45 s not concerned wth whether the recpent of gross
ncome s a corporaton or whether, f t be, It s a domestc or a foregn
corporaton. It speaks n terms of two or more trades or busnesses, whether
or not ncorporated and whether or not organzed n the Unted States, and
the mpcaton s cear that gross ncome means the same whether t be
receved by a busness organzed wthn or wthout the Unted States. The
egsatve purpose was to prevent the avodance of ta es or the dstorton of
Income by the shftng of profts from one busness to another by means of such
transactons as ths record presents.
The fna argument aganst the appcabty of the statute s that satc
Is purey a hodng company and so not engaged n a trade or busness. Ths
s based upon the stpuaton In the agreed statement of facts that the pet-
toner s and aways has been a hodng company, engaged In hodng the stocks
of varous subsdary corporatons. It Is not cear from ths anguage that
satc Is soey a hodng company and does nothng ese. In ts 1929 return
Its knd of busness s stated to be petroeum and petroeum products.
ut f t be assumed that It was purey a hodng company and conducted the
busness of deang n petroeum products soey through subsdares, we thnk
ths was a busness wthn the meanng of secton 45. It can hardy be
thought that Congress ntended to eave hodng companes free to avod ta es
and sub|ected ony ther subsdares to the terms of the statute. The cases
reed upon by the pettoner are qute besde the mark snce they dea wth
statutes of very dfferent Import.
or the foregong reasons we are satsfed that secton 45 s appcabe to
the facts at bar. It remans to consder the contenton that, so apped, t s
unconsttutona.
The argument Is that the proft was ataafsche s, and that to aocate It to
satc s nothng more than an effort to ta one person on the Income of
another, whch resuts In a deprvaton of property wthout due process of taw.
( oeper v. Taw Commssoner, 284 U. S., 200 ener y. Donnan, 285 U. S.,
312 Ct. D. 473, C. . I-1, 324 .) The oeper case hed nvad a State
statute whch requred the ncome of the wfe to be added to the Income of the
husband and ta ed the atter upon the aggregate ncome. The ener case hed
nvad a provson of the edera estate ta aw whch requres that gfts by
the decedent wthn two years of hs death must be deemed transfers made n
contempaton of death. Ths was unconsttutona because n effect t meas-
ured the decedent s estate ta by the property of hs donee. We do not regard
ether case as opposte to the stuaton now before the court ere satc had
potenta Income, the vaue In e cess of cost of the Norco stock. True, It was
not ta abe Income unt reazed n money. In order to avod the recept by
satc of ta abe Income, the potenta ncome was transferred wthout consd-
eraton to ataafsche, a foregn corporaton, n whose hands the reazed proft
woud not be ta abe. The transferee and the transferor had the same stock-
hoders so that t was mmatera to the benefca owners of the potenta In-
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56, rt. 432.
come whether It was reazed by one busness or the other. Legsaton whch
decares that under such crcumstances the transferor sha be ta ed ust as
though the potenta Income had been reazed by t, does not, n our opnon,
deprve the ta payer of property wthout due process of aw. Such a statute
seems as approprate a provson for enforcng a genera scheme of awfu ta a-
ton, and no more dffcut to sustan aganst consttutona attack, than the egs-
aton under consderaton In Taft v. owers (278 U. S., 470 Ct. D. 49, O. .
III-1, 228 ). It does not measure the ta of one person by the Income of
another, as In oeper v. Ta Commssoner, supra rather, It ooks through form
to reaty, and recognzes that the apprecaton n vaue durng the transferor s
ownershp of the property (when reazed for the beneft of the rea owners, the
stockhoders) shoud be ascrbed to the transferor rather than to the transferee.
ven wthout such a statute as secton 45, many cases have gone very far n
dsregardng forma transfers ntroduced nto corporate transactons for the
purpose of escapng ta aton. (See 8. . Macqueen Co. v. Commssoner, 67 .
(2d), 857 (C. C. . 3) Ct. D. 830, O. . III-1, 266 Penn. Indemnty Co. v.
Commssoner, 77 . (2d), 92 (O. C. . 3) everng v. Gen. Uttes Oper-
atng Co., 74 . (2d), 972 (0. 0. . 4) Tayor O d as Co. v. Commssoner, 47
. (2d), 108 (O. C. . 5) eebush v. Commssoner, 65 . (2d), 902 (C. C. .
6) Ct, D. 776, C. . III-1, 268 .) If antcpatory arrangements ntended to
crcumvent ta es may be dsregarded by the courts wthout the ad of statutory
authorty, a statute authorzng the Commssoner to dsregard them under
smar crcumstances can not be unconsttutona. It Is true, as the Supreme
Court recenty stated In Gregory v. ncverng (293 U. S., 465 Ct D. 811,
O. . I -1, 193 ), that a ta payer s prveged to decrease the amount
of what woud otherwse be hs ta es, or atogether avod them, by menus
vfhch the aw permts. ut there Is no suggeston In that opnon, or n
the authortes upon whch t rees, that a statute woud be unconsttutona
whch took away ths prvege. t east under the condtons specfed n
secton 45, we are satsfed that t may be taken away. Order affrmed.
P RT . R TURNS ND P YM NT O T .
S CTION 55. PU LICITY O R TURNS.
rtce 421: Inspecton of returns.
Speca Commttee Investgatng Od ge Penson Organzatons,
ouse of Representatves. (See T. D. 4637, page 310.)
INCOM T R NU CT O 1928 D CISION OP COURT.
Sut ond tenson of Tme toe Payment or Ta uthorty
of Co eotob stoppe.
Where, at the ta payer s request, the coector granted an e ten-
son of tme for payment of overdue nstaments of ta , In con-
sderaton of the e ecuton of a bond, runnng to the Unted States,
to secure payment wthn the e tended perod, the surety company
Is estopped, n an acton on the bond after the ta payer s faure to
pay, to cam that the bond was nvad on the ground that the
coector had no authorty, under secton 56(c) of the Revenue ct
of 1928, to grant the e tenson.
R NU CT O 1928.
S CTION 56. P YM NT O T .
rtce 432: tenson of tme for payment
of the ta or nstament thereof.
-7-7954
Ct. D. 1078
84326 86 T
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186
Unted States Crcut Court of ppeas fob the Nnth Crcut.
The Unted States of merca, appeant, v. dety d Depost Co. of Maryand,
a Corporaton, appeee.
Upon appea from the Dstrct Court of the Unted States for the Southern Dstrct of
Caforna, Centra Dvson.
October 23, 1935.
OPINION.
Wbur, Crcut udge: Ths s an acton by the Unted States on a bond gven
on ebruary 24, 1031, by the dety Depost Co. of Maryand to the coector
of nterna revenue to secure the payment of two overdue nstaments of the
nterna revenue ta on Income due from the eman Investment Co. for the
caendar year 1029, the ta not havng been pad. udgment was rendered for
the defendant on demurrer from whch the Government appeas.
The tota ta was 235,920.30, the thrd nstament of 58,980.07 was due
September 15, 1930, and the fourth nstament of the ta was due December
15, 1030. The coector was demandng payment and the ta payer requested
an e tenson of tme to September 15, 1931. Ths e tenson was granted n
consderaton of the e ecuton of the bond n queston for the sum of 135,000,
runnng to the Unted States as obgee, wheren t was agreed that the appeee,
herenafter caed the Surety company, woud pay the ta n the event that
the eman Investment Co. faed to do so. avng thus secured the desred
e tenson the ta payer has faed to pay the ta and the Surety company
defends upon the ground that the coector had no authorty to grant the e ten-
son, and therefore that the e tenson was not effectve, and consequenty that
there was no consderaton for the bond athough the coector n fact refraned
from any attempt to enforce the ta unt after September 15, 1931. The com-
pant heren was fed ugust 22, 1932.
The contenton of the Surety company, sustaned by the tra court, s based
upon secton 56(c) of the Revenue ct of 1928 (ch. 852, 45 Stat, 791), whch
authorzes the Commssoner of Interna Revenue to e tend the tme of pay-
ment of the amount determned as the ta by the ta payer, or any nstament
thereof, for a perod not to e ceed s months from the date prescrbed for the
payment thereof. That ths provson mts the power of the Commssoner
n the grantng of e tensons s not questoned. The appeee contends that ths
mtaton aso appes to the coector of nterna revenue who s charged wth
the duty of coectng the ta after the ta ro eaves the hands of the Com-
mssoner, or rather, ts contenton s that the coector has no power to e tend
the tme for the coecton of the ta because he s charged wth the duty of
mmedate coecton, ctng 26 U. S. O. ., sectons 2, 14, 34, 102, 103, 104, and
2056, n support of ths contenton. ppeee states: The underyng faacy
n appeant s entre poston as set forth In ts bref s that the
coector of nterna revenue has the power n the e ercse of hs own dscreton
to grant e tensons of tme for the payment of ncome ta es for such perod as
he may determne.
The vadty of a bond gven to a coector of nterna revenue to secure the
payment of a ta then due In consderaton of further tme to pay the ta haa
been repeatedy sustaned. In a ate case by ths court we sustaned such a
bond. ( ughson v. Unted tates, 59 . (2d), 17, ctng Roberts ash Door
Co. v. Unted States, 38 . (2d), 716, 717, affrmed, 282 U. S., 812 Ct D. 177,
C. . I -1, 227 | Unted States v. ohn arth Co., 279 U. S., 370 Ct D. 65,
C. . III-1, 189 .) It s contended by the appeant and conceded by the ap-
peee that offcers of the Unted States may take bonds vountary gven, and
that such bonds are vad common aw obgatons. We quote from appeee s
bref as foows: We are entrey n accord wth the frst statement that the
Unted States, or an offcer thereof, may, notwthstandng the absence of statu-
tory authorty, take a bond vountary gven, as a common aw obgaton,
sub|ect t contends, to the e cepton that the act guaranteed must not be con-
trary to aw or pubc pocy. The rue s of course sub|ect to ths mtaton
and the controversy s thus narrowed to the queston of whether the e tenson
s voatve of aw or pubc pocy. (See Moses v. Unted States, 166 U. S.,
571.) It s contended by appeee that the duty of the ta coector to coect
the ta and the restrcton upon the Commssoner n the matter of e tensons
(secton 56(c), Revenue ct 1028, supra) estabsh the fact that the e tensons
granted by the coector were both voatve of hs ega duty and of the pocy
decared by Congress h regard to e tensons. The power of the coector to
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take a bond runnng to the Unted States to secure the payment of a ta he a
charged wth, the duty of coectng In consderaton for deay n coectng
the ta Is we estabshed, regardess of whether or not the ta s mmedatey
due and coectbe. See dscusson of Supreme Court n Oraham v. oster (282
U. 8., 409, 422 Ct D. 287, C. . -, 191 ) as to a vountary stay granted
by the coector and recognzed by Congress. In a recent we consdered case
by Dstrct udge Lndey (Unted States v. Converse Cooperage Co., 42 . (2d),
227 Ct. D. 244, C. . I -2, 398 ) an acton on such a bond was sustaned.
No such bond was authorzed by the Revenue ct of 1918. The appcabe rue
s thus stated by udge Lndey:
The concuson s that Congress has tacty approved of the e ercse of ds-
cretonary admnstratve power n the coecton and abatement of ta es.
ust as the Secretary of the Treasury n the case of Unted States v. Tngey,
and the Secretary of War n the case of Moses v. Unted States, were hed to be
representatves of the soveregn, who mgbt n the admnstraton of ther offce
propery accept bonds, for whch there was no statutory authorty, so the Secre-
tary of the Treasury and the Commssoner of Interna Revenue n ths case
charged wth the coecton, abatement, and refundng of revenue, and mpedy,
at east, vested by Congress wth wde dscreton n the procedure of perform-
ng hs admnstratve dutes as a representatve of the Government, had the
rght to accept wth the cam for abatement a bond condtoned for the payment
of the ta f the cam shoud thereafter be dened and the ta assessed.
Ths rue was foowed by Dstrct udge Gbson n Unted States v. Cark
(3 P. Supp., 375), where t was camed that under the Revenue ct of 1921
the e tenson of tme that coud be granted by the coector was 18 mouths
from November 23, 1921.
Dstrct udge Strum n Coeman v. Unted States (5 . Supp., 548) sus-
taned the vadty of such a bond gven by the ta payer to avod a sae of
property sezed by the coector under dstrant warrant very recent case
by the Crcut Court of ppeas for the fth Crcut, wrtten by udge Sbey
(Maryand Casuaty Co. v. Unted States, 76 . (2d), 626), hods that a bond
gven to the Commssoner of Interna Revenue for an e tenson of tme to pay
a ta s a good common aw bond, athough the tme gven was beyond that
authorzed by statute, and the bond was not authorzed by statute, e cept n
case of a defcency assessment (and for the purpose of the decson t was
assumed that the ta was not a defcency ta ).
The appeee ctes a number of decsons by State courts deang wth bonds
gven to varous State offcers such as ta coector: ardcsty v. Prce (3 Coo.,
556) Packard v. Tsdae (50 Me., 376) Co. Trcas. Cass Co. v. eck Co. (76
a., 487) Sherff Rcnfro v. eard (14 a., 23) odsdon v. Wkns (7 Me.,
91) Prevent v. Garrett .(6 a., 128) Coe, dm r., v. Parker (7 a., 167)
Tobacco Inspector Wrght v. Gardner (98 y., 454) aor, Moore, v. en
and Grant (26 y., 410). These bonds were hed ega upon the ground
that they were predcated upon an agreement of the offcer n queston to
voate hs duty n the premses. Whe a contract of a edera offcer to shrk
hs duty n consderaton of a bond mght be hed vod on the same prncpe,
the edera courts from an eary date have assumed that an offcer n the
e ercse of hs dutes mght e act a bond n favor of the Unted States not
requred by statute and that such a bond was vad. Over 100 years ago
(1831) the Supreme Court sad: It has been the constant practce of the
Government to take such bonds wthout e press egsatve authorty, and t
has been the understandng of Congress that such bonds were reguar.
If the Unted States are competent to become partes to such a bond wthout
egsatve requstons, t s equay true that the rght to drect or requre
such a bond beongs to the ecutve. It s a part of ts consttutona power.
bond to pay ta es s a new obgaton. (See Unted States v. ohn arth Co.,
pupra, and cases cted theren wth approva Unted States v. Onkcn, 23 .
(2d), 367 T. D. 4108, C. . I-2, 270 Gray Motor Co. v. Unted States, 16 .
(2d), 357 T. D. 3994, C. . I-1, 149 Unted States v. Rennods, 27 .
(2d), 902 McCaughn v. Pha arge Co., 27 . (2d), 628 T. D. 4199, C. .
II-2, 168 . Note Unted States v. U. S. . G. Co., 221 ., 27 Raymond v.
Unted States, ed. Cas. 11, 596. See, aso, Guf States Stee Co. v. Unted
States, 287 U. S., 32 Ct D. 608, C. . I-2, 314 Unted States v. Wyotnng
Centra ssn., 70 . (2d), 869 Ct D. 864, C. . III-2, 323 Unted States v.
Caumet Stee Co., 74 . (2d), 429.) These consderatons pont wth equa
force to the estoppe of the Surety company. (See aso as to estoppe, or-
shem ros. Dry Goods Co., Ltd., v. Unted States, 280 U. S., 453, 464 Ct. D.
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112, rt. 577.
188
167, C. . I -, 260 , and Magee v. Unted States, 282 U. 8., 432 Ot D. 280,
O. . -, 189 .) The Surety company s estopped to cam the Invadty
of the bond.
udgment reversed.
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . COMPUT TION O N T INCOM .
S CTION 111. D T RMIN TION O MOUNT O
G IN OR LOSS.
rtce 561: Determnaton of the amount of gan
or oss.
R NU CT O 1928.
Redempton of preferred stock, dvdends thereon pad n com-
mon stock. (See Ct. D. 1124, page 219.)
S CTION 112. R COGNITION O G IN OR LOSS.
rtce 577: Defntons. -2-7900
Ct. D. 1059
ncome ta revenue act of 1928 decson of supreme court.
1. Gan oe Loss Reorganzaton.
If the ta payer corporaton n November, 1929, transferred sub-
stantay a of ts assets to another corporaton n e change for
200,000 n cash and 17,250 shares of stock of the purchaser, but
retaned stock of certan subsdary corporatons and some other
property of undscosed vaue, and thereafter remaned n e stence
and contnued to do busness, the transacton amounted to a re-
organzaton wthn the meanng of secton 112()( ) of the
Revenue ct of 1928, n that the ta payer acqured a substanta
and contnung nterest n the affars of the purchaser corpora-
ton. The facts n respect of ths not beng fouqd by the oard of
Ta ppeas, the case must be remanded. The mere fact that the
ta payer and ts subsdares contnued actvey In busness does
not defeat the cam of reorganzaton.
2. Decson Reversed.
Decson of the Crcut Court of ppeas, ourth Crcut (76 ed.
(2d), 454), reversed.
Supreme Court of the Unted States.
The O. . Manufacturng Co., pettoner, v. Ouy T. everng, Commssoner
of Interna Revenue.
On wrt of certorar to the Unted States Crcut Court of ppeas for the ourth Crcut
December 16, 1935.
OPINION.
Mr. ustce McReynods devered the opnon of the Court.
The pettoner contests the vadty of a defcency assessment for 1929
ncome ta es. It mantans that the transacton out of whch the aeged
gans arose amounted to a reorganzaton wthn the Intendment of secton
112()( ), Revenue ct, 1928.
The court beow was of opnon that the transacton nvoved amounted to a
sae of the assets and busness of the ta payer. In November, 1929, pet-
toner transferred what the oard of Ta ppeas seems to have assumed was
substantay a of ts assets to the raft-Phen Cheese Corporaton and
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189
112, rt. 577.
receved therefor 200,000 n cash and 17,250 shares common stock of the
purchaser, then worth possby 30 per share. fter the transfer, the ta -
payer remaned n e stence and contnued to do busness. It aso retaned
assets of undscosed vaue, namey, shares of certan subsdary corporatous
and some other property. If the cam of the ta payer that the transfer In-
cuded substantay a ts property s correct, then we thnk what was done
amounted to a reorganzaton wthn the statute. The facts In respect of ths
were not found by the oard of Ta ppeas, and the cause must be returned
there In order that the emsson may be supped. The mere fact that the
ta payer and Its subsdares contnued actvey n busness woud not defeat
the cam of reorganzaton. The ownershp of the stock n the raft-Phen
Cheese Corporaton gave the ta payer a substanta and contnung nterest n
the affars of that corporaton.
The |udgment of the court beow s reversed. The cause w be remanded
to the crcut court of appeas wth drecton to that court to remand the
case to the oard of Ta ppeas for determnaton of the vaue of the re-
taned assets and such further proceedngs as may be necessary.
rtce 577: Defntons. -2-7901
Ct. D. 1060
INCOM T R NU CT O 1028 D CISION O SUPR M COURT.
1. Gan or Loss Reorganzaton Constructon or Statute.
Corporaton organzed C Corporaton and transferred to t rea
estate, nvestments, and msceaneous assets In e change for the
entre capta stock of C, dstrbutng the shares thus obtaned
among Its three stockhoders, and transferred a ts remanng
assets to D Corporaton n e change for votng trust certfcates
representng 1,800 shares of stock n D and over 400,000 cash.
retaned the certfcates but mmedatey dstrbuted the cash
among ts stockhoders, who agreed to pay outstandng debts of
amountng to appro matey 100,000. Under these facts, the
atter transacton was not a sae, but partook of the nature of a
reorganzaton wthn the meanng of secton 112(1)1 ( ) of the
Revenue ct of 1028, n that the eer acqured a defnte and sub-
stanta nterest n the purchaser. Treasury reguatons ong n
force support the concuson that the scope of cause ( ) of sec-
ton 112(1)1 Is not narrowed by cause ( ), whch requres that
the transferor obtan contro of the transferee. The facts that the
reatonshp of to the assets conveyed was substantay changed,
that a arge part of the consderaton was cash, and that the trans-
feror corporaton was not dssoved, do not render the statute n-
appcabe.
2. Decson ffrmed.
Decson of the Crcut Court of ppeas, ghth Crcut (76 ed.
(2d), 797), whch reversed the decson of the oard of Ta p-
peas (28 . T. ., 501), affrmed.
Supreme Court of the Unted States.
174. Guy T. everng, Commssoner of Interna Revenue, pettoner, v.
Mnnesota Tea Co.
175. Guy T. everng, Commssoner of Interna Revenue, pettoner, v. . C.
Peterson.
176. Guy T. everng, Commssoner of Interna Revenue, pettoner, v. L. T,
Peterson.
On wrts of certorar to the Unted Sates Crcut Court of ppeas for the ghth Crcut.
December 16, 1935.
OPINION.
Mr. ustce McRetnods devered the opnon of the Court.
No. 174. Respondent, a Mnnesota corporaton wth three stockhoders, as-
aed a defcency assessment for 1928 ncome ta and prevaed beow. The
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112, rt. 577
Commssoner seeks reversa. e cams the transacton out of whch th
assessment arose was not a reorganzaton wthn secton 112, paragraph
()( ), Revenue ct, 1928 (ch. 852, 45 Stat, 791). The term reorganza-
ton means ( ) a merger or consodaton (Incudng 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 corpora-
ton, or substantay a the propertes of another corporaton. The crcut
court of appeas hed otherwse and remanded the cause for determnaton by
the oard whether the whoe of the cash receved by the Mnnesota Tea Co. was
n fact dstrbuted as requred by the ct We granted certorar because of
aeged confctng opnons.
The petton aso stated that, as the ta payer made an earer conveyance of
certan assets, the ater one, here In queston, of what remaned to the Grand
Unon Co. dd not resut n acquston by one corporaton of substantay a
property of another. Ths pont was not rased pror to the petton for
certorar and, n the crcumstances, we do not consder t.
Statutory provsons presenty hepfu are n the margn.1
uy 14, 1928, respondent caused Peterson Investment Co. to be organzed
and transferred to the atter rea estate, Investments and msceaneous assets
n e change for the transferee s entre capta stock. The shares thus obtaned
were mmedatey dstrbuted among the three stockhoders. ugust 23, 1928,
t transferred a remanng assets to Grand Unon Co. In e change for votng
trust certfcates, representng 1,800 shares of the transferee s common stock,
and 426,842.52 cash. It retaned the certfcates but mmedatey dstrbuted
the money among the stockhoders, who agreed to pay 106,471.73 of Its
outstandng debts. though of opnon that there had been reorganzaton,
the Commssoner treated as ta abe gan the amount of the assumed debts
upon the vew that ths amount of the cash receved by the company was
reay approprated to the payment of ts debts.
The matter went before the oard of Ta ppeas upon the queston whether
the Commssoner rued rghty n respect of ths ta abe gan. oth partes
proceeded upon the vew that there had been reorganzaton. Of ts own
moton, the oard questoned and dened the e stence of one. It. then rued
1 Revenue ct, 1918 (ch. 18, 40 Stat., 1000) :
Sec. 202. (b) When property Is e changed for other property, the property receved
n e change sha for the purpose of determnng gan or oss be treated as the equva-
ent of cash to the amount of ts far market vaue, f any but when In 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.
Revenue ct, 1021 (ch. 136, 42 Stat, 230) :
Sec. 202. (c) or the purposes of ths tte, on an e change of property, rea, persona
or m ed, for any other such property, no gan or oss sha be recognzed uness the
property receved n e change has a ready reazabe market vaue but even f the
property receved n e change has a ready reazabe market vaue, no gan or oss
sha be recognzed

(2) When In the reorganzaton of one or more corporatons a person receves In
pace of any stock or securtes owned by hm, stock or securtes In a corporaton a
party to or resutng from such reorganzaton. The word reorganzaton as used
n ths paragraph, ncudes a merger or consodaton (Incudng 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 of sub-
stantay a the propertes of another corporaton), recaptazaton, or mere change In
Identty, form, or pace of organzaton of a corporaton.
Revenue ct, 1924 (ch. 234, 43 Stat., 258) :
Sue. 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 herenafter pro-
vded n ths secton.

(b) (2) No gan or oss sha be recognzed f stock or securtes n a corporaton
a party to a reorganzaton are, In pursuance of the pan of reorganzaton, e changed
soey for stock or securtes In such corporaton or n another corporaton a party to
the reorganzaton.
(3) No gan or oss sha be recognzed f a corporaton a party to a reorganzaton
e changes property, In pursuance of the pan of reorganzaton, soey for stock or
securtes n another corporaton a party to the reorganzaton.
(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 In such corporaton,
and Immedatey after the e change such person or persona are In contro of the
corporaton but In the case of an e change by two or more persons ths paragraph
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191
5112, rt. 577
that the corporaton had reazed ta abe gan amountng to the dfference
between cost of the property transferred and the cash receved pus the vaue
of the 1300 shares 712,195.90.
The crcut court of appeas found there was reorganzaton wthn the statute
and reversed the oard. It concuded that the words the acquston by one
corporaton of substantay a the property of another corporaton
pany Incude the transacton under consderaton. so that cause ( ), sec-
ton 112(1)1, frst Introduced by Revenue ct of 1924, and contnued n ater
statutes, dd not narrow the scope of cause ( ). urther, that reorganzaton
was not dependent upon dssouton by the conveyng corporaton. nd fnay,
that ts concusons fnd support n Treasury reguatons ong n force.
These concusons we thnk are correct
The Commssoner mantans that the statute presents two defntons of
reorganzaton by transfer of assets. One, cause ( ), requres that the trans-
feror obtan contro of the transferee. The other, cause ( ), s part of the
defnton of merger or consodaton, and must be narrowy nterpreted so as
to necesstate somethng neary nkn to technca merger or consodaton.
These causes have separate egsatve hstores and were ntended to be
mutuay e cusve. Consequenty, he says, cause ( ) must be restrcted to
prevent overappng and negaton of the condton n cause ( ). so, the
transacton here nvoved substantay changed the reaton of the ta payer
to ts assets a arge amount of cash passed between the partes there are
many attrbutes of a sae what was done dd not suffcenty resembe merger
or consodaton as commony understood.
Wth panstakng care, the opnon of the court beow gves the hstory of
causes ( ) and ( ), secton 112(1)1. We need not repeat the story. Cause
( ) frst appeared n the ct of 1921 ( ) was added by the 1924 ct We
fnd nothng n the hstory or words empoyed whch ndcates an ntenton to
modfy the evdent meanng of ( ) by what appears n ( ). oth can have
effect, and f one does somewhat overap the other the ta payer shoud not
be dened, for that reason, what one paragraph ceary grants hm. Treasury
reguatons ong enforced support the ta payer s poston, as the opnon beow
pany ponts out
sha appy ony If the amount of the stock and securtes receved by each s substan-
tay n proporton to hs nterest n the property pror to the e change.

(e If an e change woud be wthn the provsons of paragraph (3) of subdvson
(b) f t were not for the fact that the property receved In e change conssts not ony
of stock or securtes permtted by such paragraph to be receved wthout the recognton
of gan, but aso of other property or money, then
(1) If the corporaton recevng such other property or money dstrbutes It In pur-
suance of the pan of reorganzaton, no gan to the corporaton sha be recognzed
from the e change, but
(2) If the corporaton recevng such other property or money does not dstrbute
t n pursuance of the pan of reorganzaton, the gan, f any, to the corporaton sha
be recognzed, but n an amount not In e cess of the sum or such money and the far
market vaue of such other property so receved, whch Is not so dstrbuted.

(h) s used In ths secton and sectons 201 and 204
The term reorganzaton means ( ) 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 the propertes of another corporaton), or ( ) a
transfer by a corporaton of a or a part of ts assets to another corporaton If
mmedatey after the transfer the transferor or Its stockhoders or both are In contro
of the corporaton to whch the assets are transferred, or (C) a recaptazaton, or
(D a mere change In dentty, form, or pace of organzaton, however effected.
(2) The term Ta party to a reorganzaton Incudes a corporaton resutng from
a reorganzaton and Incudes both corporatons In the case of an acquston by one
corporaton of at east a nn|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.
Revenue ct, 1920 (ch. 2T, 44 Stat., 12) :
Secton 203 (a), (b)(2), (b)(3), (b)(4), (e). (e)(1). (e)(2), (h), (h)(1), and
(h) (2) repeat the words of secton 203 (a), (b)(2), (b)(3), (b)(4), (e), (e)(1),
(e)(2), (h), (h)(1), and (h)(2) of the ct of 1924.
Revenue ct, 1928 (ch. 852, 45 Stat., 810) :
Secton 112 (a), (b)(3), (b)(4), (b)(5), (d), (d)(1), (d)(2). (1), (0(1), and
(I) (2) repeat the words of secton 203 (a), (b)(2), (b)(3), (b)(4), (e), (e)(1),
(e)(2), (h), (h)(1), and (h)(2) of the ct of 1924.
Revenue ct, 1932 (ch. 209, 47 Stat., 190) :
Secton 112 (a), (b)(3), (b)(4), (b)(5), (d), (d)(1). (d)(2), (1), (0(1), and
() (2) repeat the words of secton 203 (a), (b)(2), (b)(3), (b)(4), (e), (e)(1),
(e)(2), (h), (h)(1). and (h)(2) of the ct of 1924.
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5112, rt. 577.
192
Pneas Ioe Co. v. Commssoner (287 U. S., 462, 470 Ct, P. 630, O. .
II-1, 161 ) consdered the anguage of secton 203(h)( ), ct of 1926,
whch became secton 112()( ), ct of 1928, and hed that a sae for money
or short-term notes was not wthn ts ntendment. We approved the concu-
son of the Commssoner, oard of Ta ppeas and Court of ppeas
that the transacton there nvoved was n reaty a sae for the equvaent of
money not an e change for securtes. ut we dsapproved the foowng as-
sumpton and observatons of the court: That n adoptng paragraph (h)
Congress ntended to use the words merger and consodaton n ther ord-
nary and accepted meanngs. Gvng the matter n parentheses the most bera
constructon, t s ony when there s an acquston of substantay a the
property of another corporaton n connecton wth a merger or consodaton
that a reorganzaton takes pace. Cause ( ) of the paragraph removes any
doubt as to the Intenton of Congress on ths pont. nd we sad: The
words wthn the parentheses may not be dsregarded. They e pand the mean-
ng of merger or consodaton so as to ncude some thngs whch partake
of the nature of a merger or consodaton but are beyond the ordnary and
commony accepted meanng of those words so as to embrace crcumstances
dffcut to demt but whch n strctness can not be desgnated as ether
merger or consodaton. ut the mere purchase for money of the assets of one
company by another s beyond the evdent purpose of the provson, and has no
rea sembance to a merger or consodaton. Certany, we thnk that to be
wthn the e empton the seer must acqure an nterest n the affars of the
purchasng company more defnte than that Incdent to ownershp of Its short-
term purchase-money notes. nd we now add that ths nterest must be
defnte and matera t must represent a substanta part of the vaue of the
thng transferred. Ths much s necessary n order that the resut accom-
pshed may genuney partake of the nature of merger or consodaton.
Ghregory v. everng (293 U. S., 465 Ct D. 911, C. . I -1, 193 ), reveaed
a sham a mere devce ntended to obscure the character of the transacton.
We, of course, dsregarded the mask and deat wth reates. The present rec-
ord dscoses no such stuaton nothng suggests other than a bona fde busness
move.
The transacton here was no sae, but partook of the nature of a reorganza-
ton n that the seer acqured a defnte and substanta Interest n the
purchaser.
True It s that the reatonshp of the ta payer to the assets conveyed was
substantay changed, but ths s not Inhbted by the statute. so, a arge
part of the consderaton was cash. Ths, we thnk, Is permssbe so ong as
the ta payer receved an nterest n the affars of the transferee whch
represented a matera part of the vaue of the transferred assets.
nay, t s sad the transferor was not dssoved and therefore the transac-
ton does not adequatey resembe consodaton. ut dssouton s not
prescrbed and we are unabe to see that such acton s essenta to the end n
vew.
The chaenged |udgment s affrmed.
Nos. 175 and 176. The respondents n these cases are two of the three stock-
hoders of Mnnesota Tea Co. The wrts were granted upon the Commssoner s
petton whch states the queston nvoved s whether the transacton between
Mnnesota Tea Co. and Grand Unon Co., descrbed above No. 174 resuted n
a reorganzaton wthn the Revenue ct of 1928. The petton aso decared
The amount of the ta due from the respondents, depends soey
upon whether the transfer of the propertes of the Mnnesota Tea Co. to the
Grand Unon Co. was a reorganzaton wthn the meanng of the Revenue ct.
We thnk the court beow rghty decded there was a reorganzaton. It
reversed the oard of Ta ppeas and remanded the cause for further proceed-
ngs, and ts |udgment must be affrmed.
rtce 577: Defntons. -2-7902
Ct. D. 1061
INCOM T R NU CT OP 1928 D CISION O 8UPR M COURT.
1. Gan oe Loss change of Stock for Stock Reorganzaton.
Where, under the crcumstances stated, certan corporate shares
owned by the pettoner corporaton were e changed n 1929 for
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193
112, rt. 577.
shares whch another corporaton owned, the pettoner was not a
party to a reorganzaton wthn the meanng of secton 112() of
the Revenue ct of 1928, snce nether party to the e change ac-
qured any defnte mmedate Interest In the other. Nothng n the
transacton even remotey resembes ether merger or reorganzaton
as commony understood.
2. Decson ffrmed.
Decson of the Crcut Court of ppeas, Thrd Crcut (79 ed.
(2d), 509), affrmed.
Supreme Court of the Unted States.
us Transport Securtes Corporaton, pettoner, v. Guy T. cvcrng,
Commssoner of Interna Revenue.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Thrd Crcut.
December 10, 1935.
opnon.
Mr. ustce McRetnods devered the opnon of the Court.
Pettoner us Transport Securtes Corporaton chaenges a defcency
ncome ta assessment for 1929, and says that the transacton from whch the
aeged ta abe gan arose was reorganzaton wthn secton 112, Revenue ct,
1928. Paragraphs (b)(4), ()() and () (2) are specay reed upon.
acobus owned practcay a shares of two corporatons, heren desgnated
and , whch operated bus nes. The Pubc Servce Corporaton of New
ersey the pro|ector desred to contro these nes and to that end engneered
the foowng pan:
Pubc Servce Coordnated Transport Co., affated wth the pro|ector, caused
the organzaton of C. asman acobus, Inc., took a the stock and pad therefor
by transferrng 2,500 of the pro|ector s shares.
acobus caused pettoner to be organzed and acqured a Its stock n e -
change for a shares of and corporatons. Thereafter pettoner
transferred to Pubc Servce Coordnated Transport Co. these and
shares and took a shares of C. asman acobus, Inc.
Thus, pettoner, through acobus, Inc., came to contro 2,500 of the pro|ector s
shares. nd Pubc Servce Coordnated Trans rt Co. became owner of a
shares of and corporatons. Through these manpuatons, the pro-
|ector obtaned ndrect contro of corporatons and and the nes whch
they operate.
The Commssoner, the oard of Ta ppeas, and the Crcut Court of ppeas
a rghty concuded that pettoner was not party to a reorganzaton wthn
the statute. Certan corporate shares owned by t were e changed for shares
whch another corporaton owned. Nether party to the e change acqured any
defnte mmedate nterest n the other. Nothng here, we thnk, even remotey
resembes ether merger or reorganzaton as commony understood. Pneas
Ice Co. v. Commssoner, 287 U. S., 402 Ct. D. 030, C. . II-1, 101 .)
The chaenged |udgment must be affrmed.
rtce 577: Defntons. -25-8131
Ct. D. 1127
INCOM T R NU CT O 1928 D CISION O COURT.
1. Gan or Loss change of Stock for Stock Reorganzaton.
Where an offer by the ma|orty stockhoders of a bank, to e -
change ther stock for cash and stock of a trust company whch de-
sred to take over the busness of the bank, was never accepted but
nstead, wthout the knowedge of the bank stockhoders, a dfferent
method of transfer was substtuted whereby a thrd corporaton
acqured a the bank stock, whch was then purchased by the trust
company, foowed by qudaton of the bank and retrement of ts
stock, the evdence was suffcent to sustan the fndng of the oard
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112, rt. 677.
194
of Ta ppeas that the thrd corporaton was not actng as agent
for the trust company, and the transfers dd not amount to a reor-
ganzaton wthn the meanng of secton 112(b)8 of the Revenue
ct of 1928.
2. Decson ffbmed.
Decson of the oard of Ta ppeas (30 . T. ., 89) affrmed.
Unted States Crcut Court or ppeas for the Thrd Crcut.
Chares . eech, pettoner, v. Commssoner of Interna Revenue, respondent.
On petton for revew of decson of the Unted States oard of Ta ppeas.
efore uffnqton and Thompson, Crcut udges, and rkpatrck, Dstrct
udge.
anuary 30, 1936.
OPINION.
rkpatrck, Dstrct udge: The queston presented by ths petton for
revew of the decson of the oard of Ta ppeas s whether gan arsng
from an e change of stock was ta abe.
The e empton camed s under secton 112(b)3 whch s as foows:
(3) Stock for stock on reorganzaton. No gan or oss sha be recognzed
If stock or securtes In a corporaton a party to a reorganzaton are, In
pursuance of the pan of reorganzaton, e changed soey for stock or secur-
tes In such corporaton or n another corporaton a party to the reorganzaton.
It w be noted that the e empton depends upon two condtons: frst, the
corporatons whose stock s e changed must be partes to a reorganzaton,
and second, the e change must be In pursuance of the pan of reorganzaton.
It mght be thought that a stuaton coud scarcey arse n whch one of
these condtons woud be present wthout the other, yet ths appears to be
such a case. There Is no rea controversy about the fact that a pan of re-
organzaton was formed, that the ta payer parted wth hs stock n pur-
suance of the pan, and that, so far as he knew, the stock whch e got n
e change was aso devered n pursuance of the pan. ut the oard of Ta
ppeas has found as a fact that, unknown to the ta payer, the pan under
whch he thought he was e changng hs stock was never carred out but that
the stock whch he receved was owned by a thrd person who was actng
ndependenty of and not as an agent for ether corporaton nvoved. Conse-
quenty no reorganzaton wthn the meanng of that term as used n the ct
took pace and nether of the corporatons whose stock was e changed was a
party to a reorganzaton.
The facts as found by the oard were as foows: The corporatons Invoved
were two bankng Insttutons whch may be caed the Trust company and the
rmngham bank. The Trust company desred to take over and absorb the
rmngham bank by acqurng Its stock and qudatng ts busness. Negota-
tons resuted n a wrtten proposa by the hoders of 770 shares of stock of the
rmngham bank by whch they offered to e change ther stock at the rate of
1 share for 3 shares of the Trust company, wth the provso that the Trust
company stock so acqured woud be purchased for cash at a fgure named
wthn 15 days of the acceptance of the offer. It was provded that the offer
shoud reman open for acceptance for a perod of 30 days.
If ths arrangement had been carred out It may be assumed that t woud
have consttuted a reorganzaton as that term s defned In Pneas Ice d- Cod
Storage Co. v. Commssoner (287 U. S., 462 Ct. D. 630, C. . II-1, 161 ), and
Cortand Specaty Co. v. Commssoner (60 ed. (2d), 937 Ct. D. 668, C. .
II-1, 104 ).
ut It whs not carred out and, nstead, entrey new machnery of transfer
was substtuted wthout the knowedge of the stockhoders of the rmngham
bank. fer the offer had been submtted to the Trust company Its offcas
came to the concuson that If It were accepted there woud be a voaton of
the rues of the edera Reserve oard, snce permsson of that body had not
been obtaned a matter whch had caused crtcsm In prevous transactons.
On the supposton that an appcaton for the consent of the edera Reserve
oard woud cause consderabe deay, a new method of acqurng the nnng-
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195
15112, rt. 577.
bam bank stock was adopted. The stockhoders of the rmngham bank were
not notfed of the change.
The offer of une 20 was never accepted and no acton was taken upon t by
the Trust company. Instead two other corporatons, man Investment Co.
and egheny ankshares, Inc., were brought nto the arrangement. man
company bought 7G3 of the 1,000 outstandng shares of the rmngham bank
for cash for the account of the Trust company but n the name of ankshares,
Inc., fnancng the transacton wth money borrowed by ankshares party from
the Trust company and party from another bank. or the remanng 237
shares of stock of the rmngham bank, man company gave the hoders
786 shares of the Trust company stock, of whch t owned a very arge bock.
man company thus acqured a the stock of the rmngham bank (e cept
70 shares owned by drectors) between uy 25 and ugust 9, the certfcates
beng assgned n bank and devered to man company or ankshares
from whom the bank s stockhoders receved ether cash or certfcates of stock
of the Trust company. The drectors shares were devered for cash between
November, 1930, and anuary, 1931. man company thus became the soe
stockhoder of rmngham bank.
On anuary 13, 1931, the Trust company by resouton offered to purchase the
assets of the rmngham bank for 559,000 sub|ect to abtes. Ths offer
was accepted by the rmngham bank, now controed by man company,
and duy consummated. The rmngham bank was qudated, ts shares of
stock caed for retrement and canceed and ts charter surrendered. The
S550.000 was pad to Sheets, a drector of man company who was the record
hoder of the stock of the rmngham bank, who turned t over to ankshares.
ust how the transacton was fnay wound up s not matera, e cept that
nothng appeared whch woud amount to brngng n the man company as
an agent for the Trust o mpany.
It thus appears that the whoe queston revoves about the snge controverted
pont, whether or not man company n carryng out the scheme adopted
was or was not the agent of the Trust company. If t was, the entre trans-
ecton n aw woud stand as though the Trust company had acqured the stock
tsef, and at that pont a reorganzaton woud be effectve and that condton
of the statute met. In such case, the subsequent acquston by the Trust)
company of the assets of the rmngham bank woud have amounted to tte
more than an nterna read|ustment by the Trust company of ts own property,
and the fact that the pan as prevousy conceved was not actuay carred out
woud make no practca dfference.
owever, at ths pont the appeants ease s met by a fndng of fact by
the oard of Ta ppeas to the effect that man company was not actng
as agent for the Trust company. The oard sad Gvng due consderaton to
a the evdence In the case, we are unabe to fnd that ether the man
company or ankshares, Inc., or both, were actng as the agent of the Trust
company n acqurng the stock of the rmngham bank. In order to con-
sttute the agency reatonshp t must appear that these corporatons or at
east one of them was actng upon authorty from the Trust company or the
Trust company ratfed the acton taken. Ceary the Trust company dd not
authorze the acton to e taken n ts behaf, nor dd t e pressy or mpedy
ratfy t. ccordngy the contenton of the pettoner on ths pont Is dened.
The most that can be sad of the arrangement between the e ecutve
offcers of the Trust company and man s that It was a genteman s agree-
ment, entered nto by the offcers n ther ndvdua capacty. So far as the
record shows t was never ratfed or adopted ether by the drectors of the
Trust company or by ts stockhoders.
The e stence of a dsputed agency may be a queston of fact even where the
evdence s not confctng f dfferent concusons can reasonaby be drawn
therefrom. That s the stuaton n ths case. The fndng of no agency by
te oard of Ta ppeas s a determnaton of fact for admnstratve pur-
poses, not sub|ect to revew. (Phps v. Commssoner, 283 U. S., 589 Ct. D.
350, C. . -, 264 .) s to It, the ony queston for ths court s whether tho
evdence was egay suffcent to sustan It, and upon ths pont we hod that
t was.
rom the fact stuaton thus presented, It foows as a matter of aw that,
regardess of the queston whether or not the pettoner s stock was e changed
n pursuance of a pan of reorganzaton, tho corporatons nvoved were not
actuay partes to a reorganzaton. s found by the oard of Ta ppeas,
what happened, n smpest terms, was that a stockhoder of the bank e changed
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113, rt. 591.
196
hs bank stock for Trust company stock (and a sma amount of cash) whch
was owned by a thrd corporaton actng entrey ndependenty wthout author-
zaton or subsequent ratfcaton by the Trust company. Thereafter ths thrd
corporaton sod to the Trust company a the stock of the bank whch t had
thus acqured, the bank was qudated and the stock retred. It can not be
contended that a transfer accompshed n ths manner, even though t resuted
n a fna absorpton of the bank by the Trust company, amounted to a reorgan-
zaton f, as has been found by the oard of Ta ppeas, the acton of the
ntermedary was not by vrtue of any agency or bndng obgaton of any
knd to the bank.
The order of the oard s approved.
S CTION 113. SIS OR D T RMINING
G IN OR LOSS.
rtce 591: ass for determnng gan or -13-8018
oss from sae. Ct.D. 1098
INCOM T R NU CTS O 1921, 1924, 1926, ND 1928 D CISION O
supreme court.
1. Gan ob Loss ass Lease of Property wth Opton to
uy Date Property was cqured.
Where the essee of and under a 10-year ease, embodyng an
rrevocabe opton to buy at the e praton of the ease on Novem-
ber 30, 1916, e ercsed the opton and subsequenty transferred
the and to ts successor under crcumstances whch do not ater
the bass for cacuaton of gan, and the successor sod portons
of the tract durng the perod 1920 to 1928, Incusve, the property
was acqured, wthn the meanng of the appcabe Revenue cts,
when the opton was e ercsed and conveyance made, rather than
when the ease was made, and the cost of the property on November
30, 1916, was the proper bass for determnng gan upon the saes.
2. Decson Reversed.
Decson of the Crcut Court of ppeas, Nnth Crcut (77 ed.
(2d), 723), reversng decson of the oard of Ta ppeas (28
. T. ., 395), reversed.
Supreme Court of the Unted States.
Guy T. everng, Commssoner of Interna Revenue, pettoner, v. Son oaqun
rut f Investment Co.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Nnth Crcut.
March 2, 1936.
opnon.
Mr. ustce Roherts devered the opnon of the Court
Is rea property acqured, wthn the meanng of the Revenue cts, when
a ease s made contanng an opton to purchase, or when the opton Is e er-
csed The queston s presented under the reevant sectons of the Revenue
cts of 1921, 1924, 1926, and 1928.1
1 42 Stat. 227, 229 43 Stat, 253, 258 44 Stat., 9, 14: 45 Stat., 791, 818. The pro-
vsons of the Revenue ct of 1924. whch are typca, foow :
Sec. 204. fa) The bass for determnng the cnn or oss from the sae or other dspos-
ton of property acqured after ebruary 28, 1913, sha be the cost of such property e -
cept that .
(b) The bass for determnng the gan or oss from the sae or other dsposton of
property acqured before March 1, 1913, sha be ( ) the cost of such property
or ( ) the far mnrket vaue of such property as of March 1, 1913, whchever Is
greater.
Secton 202 of the Revenue ct of 1921 speaks of property, rea, persona, or m ed.
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197
113, rt. 591.
October 13, 1906, the Irvne Co. eased to the San onqun rut Co. 1,000
acres, part of a much arger tract, of bare unrrgated and n Caforna. The
essor was whoy owned by one Irvne, and the essee was organzed by two
e perenced men who together wth Irvne subscrbed ts capta n the hope
that pantng, rrgaton, and cutvaton woud make the and vauabe. The
ease was for a term of 10 years from December 1, 1906 requred the essee
to pant the tract as an orchard wthn four years, to procure and conduct
a specfed suppy of Irrgaton water to the tract, and to rase certan fed
crops n connecton wth the orchard and emboded an rrevocabe opton to buy
the whoe acreage for 200,000, e ercsabe November 30, 1910. efore October,
1908, the essee procured the water, panted, and was successfuy workng the
and and the takng up of the opton at the end of the term was then no
onger a matter of doubt. y ebruary 28, 1913, the vaue of the property had
greaty ncreased. On November 30, 1916, the opton was cosed and conveyance
made to the essee, whch subsequenty transferred the and to the respondent
under crcumstances whch do not ater the bass for cacuaton of gan. Dur-
ng the perod 1920 to 192S, ncusve, the respondent sod portons of the tract.
In computng the ta abty for these years the pettoner determned the
property was acqured November 30, 1916, when the opton was e ercsed, and
ts cost was the 200,000 pad pus the amounts e pended for mprovements
pursuant to the ease. The respondent appeaed to the oard of Tu ppeas,
contendng the essee acqured a property n the and an nterest rea pror
to March 1, 1913, and the vaue of the and at that date was the proper bass
for cacuatng gan on saes. The oard sustaned the pettoner. The Cr-
cut Court of ppeas reversed the oard s decson. To resove an asserted
confct we granted certorar
We hod that the respondent acqured the property on November 30, 1910.
The opton tsef was property, and doubtess was vauabe. If t had been as-
sgnabe, and the essee had sod t at a proft, ta abe gan woud have
resuted from the sae. ut the opton s admttedy not the same property
as the and. So concedng, the respondent st nssts that ownershp of the
opton created an nterest n the and. Ths woud not be true of a bare opton
unconnected wth a ease 6 but we are tod that because emboded n the ease
the agreement became a covenant rea and gave the essee a speces of nterest
or property n the and. The weght of authorty s to the contrary, and no
cted Caforna decson supports the poston. ut even f we shoud agree
that a essee-optonee acqures, by vrtue of the nstrument an equtabe n-
terest n the and t woud not foow that, wthn the contempaton of the
Revenue cts, e acqures the property at the date of the opton rather than
at the date of conveyance. The word acqured s not a term of art n the
aw of property but one n common use. The pan mport of the word s
obtaned as one s own. Language used n ta statutes shoud be read n the
ordnary and natura sense. In the common and usua meanng of the term
the and was acqured when conveyed to the respondent s predecessor.
The Crcut Court of ppeas thought that to avod serous doubts concernng
the consttutona power to ta gans accrung bsfore March 1, 1913, t was
Important, f possbe, to treat the property as acqured when the opton was
gven. The court therefore resorted to the doctrne that the tte when acqured
reates back to the date of the opton. Cted n support of ths appcaton of
the theory are cases n whch the Caforna courts have nvoked t to subord-
nate the rghts of assgnees or mortgagees who became such wth notce of
an outstandng opton. The f ton of reaton, nduged to defeat those deang
wth the ega tte wth knowedge of the opton, can gve no ad n sovng the
queston of the tme of the optonee s acqurement of property under a statute
2S . T. ., 395.
77 . (2d), 723.
See Commssoner . Cummngs (77 . (2(1), 670) Cshom v. Commssoner (79 .
(2d). 14).
Rchardson v. ardwck (106 U. S., 252, 254) Todd v. Ctzens Oas Co. (48 . (2d),
855. 6G).
Ward v. Tayoe (8 Wa., 557, 564) adsh v. Lyon (229 111., 35, 40) : ras v.
Sheffed (49 an 702, 710) Cadtcc v. razer (65 an., 24) Lugart v. Le ngton
Turf Cub (130 y., 473, 480) Trumbu v. ombard (171 pp. Dv. (N. Y.), 700) :
Gambe v. Oarock (116 Mnn., 59).
Compare Ludy v. Zuntcat (85 Ca. pp., 119) cks v. Chrstcson (174 Ca., 712).
Od Coony Raroad Co. v. Commssoner (284 U. S 552 Ct. D. 456, C. . I-1,
274 ) Renecke v. mth (289 U. S., 172 ICt. D. 664, C. . II-1, 250 ).
Smth v. ankham (156 Ca., 359) Chapman v. rcat Western Oypsum Co. (216 Ca.,
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113, rt. 591.
198
ta ng gan upon a subsequent sae. nd there s no need of the cton to
avod any consttutona queston. The power to ta gans whch accrued pror
to the adopton of the s teenth amendment s not here Invoved. We suppose
the amount receved by the respondent from a sae ncudes and Is the resut
of Increase In vaue of the property In the perod pror to March 1, 1913. at
the gan accrung n that perod dd not accrue to property owned by the essee.
Nether the and nor the gan so accrung before March 1, 1913, became the
essee s property unt 1916 when t took up the opton.
n aternatve contenton s that the e ercse of the opton and the convey-
ance on November 30, 1916, consttuted merey an e change of capta assets
n cosed transacton and the bass for cacuaton of gan was the vaue of
the and and mprovements at that date. The capta asset, sae of whch
resuted In ta abe gan, was the and. Ths was not an asset of the ta payer
pror to the e ercse of the opton. We thnk t cear that there was no
combnaton of two capta assets the opton and 200,000 of cash, to form
a new capta asset, the and, whch was subsequenty sod at a proft The
udgment of the crcut court of appeas must be reversed.
So ordered.
rtce 591: ass for determnng gan or -14-8030
oss from sae. Ct. D. 1099
( so Secton 23(a), rtce 121.)
INCOM T R NU CT O 192S D CISION O COURT.
1. Deducton Loss Sae of usness rokerage ees Organ-
zaton penses Cost of cqurng ssets of nother
Company.
Where the ta payer, a re Insurance company whch acqured a
the assets and abtes of an Indana company In 1922, sod Us
busness and assets to another company n 1929, t was not entted
to deduct as a oss on such sae the amount of fees pad to brokers
for effectng rensurance of a porton of the rsks on whch the
Indana company had ssued poces, such fees not beng a part
of the cost of the assets of the ta payer. Other e penses ncurred
and pad In 1922 n connecton wth the merger, n the nature of
organzaton e penses, were deductbe as a oss f they were part
of the cost of acqurng the assets of the Indana company.
2. Gan or Loss Sae of usness Good W.
company owned and controed by Cathocs and specazng
n wrtng re nsurance on property owned by Cathocs, whch
was authorzed to and dd begn busness as a corporaton on
March 1, 1913, and whch had secured pedges of nsurance In
arge amounts pror to that date, was not entted to any aowance
for good w, n determnng gan or oss upon the sae of Its
assets n 1929, n the absence of satsfactory evdence as to the
vaue of the pedge contracts above the commssons pad to agents
and the cost of carryng the rsks, or as to the vaue of the good
w, f any, at March 1, 1913, attrbutabe to the pedges obtaned
and to the nature and appea of the organzaton.
8. Deducton Commssons on Sae of 8tock Organzaton
pense) Ordnary and Necessary pense mortzaton
Statute and Reguatons.
Commssons pad by a corporaton on the sae of ts stock at or
near the tme of organzaton are not deductbe as an organzaton
e pense or as an ordnary and necessary e pense wthn the mean-
ng of the ta aw, and can not be amortzed over the perod of
organzaton as a part of the cost of obtanng capta. Long-
standng Treasury reguatons denyng any deducton on account
of such commssons have been approved by the oard of Ta p-
peas and by the courts, and Congress has not changed the statute
In respect thereto, athough numerous Revenue cts have been
enacted snce the reguatons were frst promugated.
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113, rt. 591.
Court op Cams of the Unted State
The Coumban Natona re Insurance Co., a Mchgan Corporaton, v. The
Unted States.
ebruary 4, 1035.
OPINION.
Green, udge, devered the opnon of the court.
Pantff seeks to recover 33,429.07, wth Interest, on account of ncome ta es
aeged to have been overpad by t for the year 1929 under the Revenue ct of
1928. tmey and proper cam for refund was fed and re|ected.
It appears that the pantff s a fre nsurance company organzed under the
aws of Mchgan n 1011, began busness n March, 1913, and ts frst pocy was
ssued n that month. On November 1, 1922, the pantff took over the Coum-
ban re Insurance Co. of Indana, and the assets and abtes of that com-
pany were transferred to pantff s books as of the ast day of that year. On
ugust 19, 1929, a group of Ceveand bankers organzed the Monarch re Insur-
ance Co. for the specfc purpose of acqurng the busness and assets of the
pantff as the nuceus n a new company. The Monarch company, actng
through ts brokers, n September and October, 1929, purchased 18,4884 0
shares (out of a tota of 26,000) of pantff s stock at the rate of 43 per share,
payng therefor a tota of 795,013.40. avng thus acqured the ownershp of
over 70 per cent of pantffs stock, the Monarch company obtaned contro of
the pantff corporaton, the same ndvdua servng as presdent of both com-
panes, and an agreement was made on behaf of pantff to se n of ts
property and assets, of whatsoever knd to the Monarch company In consder-
aton of the payment to pantff of 1,118,000 and the assumpton by the
Monarch company of a of pantff s abtes. The pantff receved ths sum
and caused t to be dstrbuted to ts stockhoders, and a outstandng stock of
the pantff corporaton was retred and canceed, havng been redeemed at 43
per share.
The pantff fed ts Income ta return for 1929 whch dscosed a ta abe not
ncome of 310,941.27 and a ta abty of 34,203.54, whch was duy pad.
Incuded n ts gross ncome was an tem of 370,252.78 shown as proft from
saes of assets. The return set out the sae of ts assets and busness, as
above stated, charged pantff wth the 1,118,000 receved n cash, and offset
aganst the same the cost of the assets ess the abtes assumed. The amount
of the net assets was stated n the return at 738,747.22, and ths deducted from
the prce pad by the Monarch company made the proft from the sae 370,252.78.
The cost of the assets as shown n the return and used by the Commssoner In
computng the ta dd not ncude any amount for the vaue of good w on
March 1, 1013.
The pantff fed a cam for refund of the entre ta for 1929 and Interest
thereon. Ths cam was based on severa grounds as shown n fndng 3. The
frst ground mentoned may be summarzed by sayng that It camed that the
return for the year 1929 n pace of showng a proft of 379,252.78 shoud have
set out a tota oss of 589,601.34 composed of certan tems to whch wo sha
herenafter refer. mendments were fed to ths cam aegng aternatvey
that n 1920 pantff sod ts entre capta stock to Monarch re Insurance
Co. of Ceveand, Oho, for the sum of 1,118,000, and that as of that date the
cost of the capta stock so sod was 1,640,640.00 and as a further aternatve
the pantff camed that good w was sod at the same tme to the Monarch
re Insurance Co., whch had a market vaue as of March 1, 1913, of not ess
than 500,000, for whch the pantff was entted to a credt as an asset.
Subsequenty, a further amendment was fed to the orgna cam statng
aternatvey that the Monarch re Insurance Co. n 1929 purchased from the
stockhoders of the pantff a of ts capta stock for the sum of 1,118,000,
that by reason thereof there was no sae of assets by the ta payer, and no
proft whch shoud have been reported n ts Income ta return.
In addton to the matters stated above, the pantff ncuded In ts refund
cam as a part of ts net oss an Item of Consodated e pense 1922, 15,101.98.
In the consderaton of the cam for refund ths ast tem w be frst taken up.
The evdence shows that n 1922 pantff acqured a the assets and ab-
tes of the Coumban re Insurance Co. of Indana ncudng ts obgatons
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113, rt. 691.
200
on fre nsurance poces whch t had Issued. fter the pantff had taken
over the busness of the Indana company, t was consdered advsabe, for
certan reasons not necessary to menton here, to rensure a porton of the rsks
upon whch the Indana company had ssued poces, and an nsurance broker
was pad 10,000 for effectng the rensurance thereof wth other companes.
Pantff cams that n addton to ths brokerage other e penses were ncurred
and pad durng 1922 n connecton wth the so-caed merger amountng to
5,101.98. The testmony n the case shows that ths amount was made up of
a number of smaer tems some of whch n the frst nstance may have been
pad by the Indana company. The evdence s not as cear as t mght have
been made wth reference to ths matter, but on the whoe we are satsfed
that pantff ncurred e pense n acqurng the assets of the Indana com-
pany n the amount of 5,101.98 n addton to the brokerage fee whch was
ncurred. The two tems of e pense, however, were of a very dfferent nature.
Wthout gong nto detas we may say that the tems whch made up the
5,101.98 were somewhat n the nature of organzaton e penses. They were
costs whch pantff was obged to pay n order to carry out the transactons
by whch t acqured the assets of the Indana company. The brokerage fee
was pad for effectng the rensurance of a porton of the Insurance contracts
acqured from the Indana company evdenced by poces ssued t beng con-
sdered that they beonged to a cass whch t was not desrabe for the pan-
tff to carry. The brokerage fee, beng pad n order to get pantffs busness
In more satsfactory condton, was ether an ordnary and necessary e pense
or It was a capta e pendture. We are ncned to thnk t was a capta
e pendture, as the benefts obtaned through It were permanent but n ether
event we do not thnk t was part of the cost of the assets of pantff. If t was
an ordnary e pense, t shoud have been deducted n 1922. If t was a capta
e pendture, no deducton can be aowed therefor. We are satsfed that the
brokerage fee was not deductbe as a oss on the sae of pantff s assets.
On the other hand, If we are rght n concudng that the Item of 5,101.98 was
a part of the cost of the assets acqured from the Indana company t becomes
propery deductbe as a oss at the tme the pantff fnay sod a of Its
assets to the Monarch company.
Of the other tems of pantff s cam for refund ony two are presented In
argument. One reates to good w and the other to commssons on the sae
of stock.
It s urged on the part of pantff that the evdence shows that when pan-
tff s assets were sod there was ncuded a good w whch on March 1, 1913,
was worth not ess than 250,000, and that the amount of ths good w shoud
have been ncuded by the Commssoner n pantffs assets and consdered n
determnng the gan or oss on the fna sae thereof to the Indana company.
In ths connecton t shoud be sad that athough there s some menton n
the cam for refund of an aternatve cam that nstead of a sae of the
assets there was a sae of the stock of pantff to the Indana company, ths
cnn seems to have been abandoned and the pantffs counse now practcay
concede that the transactons between the pantff and the Monarch company
amounted to a sae of a of the pantffs assets to that concern whch assumed
a of pantffs abtes to the stockhoders for the proceeds of the sae.
It w be observed that t s camed that ths good w e sted on March 1,
1913, whch was the date on whch the pantff was authorzed to commence
busness and the date when t dd begn busness as a corporaton.
The evdence shows that a speca feature of the pan on whch pantff was
organzed was that of havng an Insurance company whch woud be owned and
controed by ndvduas wth Cathoc fath and woud specaze n wrtng
nsurance on pro erty owned by Cathocs. response to the dea was found
among Cathocs, both ay and cergy, and on uy 26, 1911, pantff was or-
ganzed wth promnent Cathocs as ts offcers and drectors. The promoters
of the company In seng ts stock presented an appea to Cathocs generay,
referrng to the amount of nsurance taken out by Cathocs and the nature of
the organzaton as showng certan advantages whch woud accrue to the
company, and In the stock seng campagns It was the practce of the saes-
men to secure pedges of nsurance to be taken out wth the pantff. etween
. 30,000,000 and 40,000,000 worth of nsurance was pedged pror to December
31, 1913, and from one-haf to two-thrds of that amount was pedged pror to
March 1, 1913, durng the sae of the frst ssue of the stock. These pedges
were generay fufed. The stock saesmen In addton to beng pad a com-
msson on the sae of the stock receved a commsson on the pedges taken.
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201
113, rt. 891.
It Is urged on behaf of pantff not ony that the good w was acqured
through these pedges so obtaned, but that from the nature of the organzaton
of the company and the appea whch t woud naturay make to peope of the
Cathoc fath, that a vauabe good w e sted on March 1, 1913.
On behaf of the defendant t s contended that pantff acqured no good
w and that If any was acqured the evdence entrey fas to show the vaue
thereof.
There s much dscusson n the arguments of respectve counse as to what
may or may not consttute good w. We sha not undertake to set out the
controng features of good w when vewed as consttutng an asset further
than may be necessary to determne whether there s any evdence whch shows
the vaue thereof to the pantff on March 1, 1913, the date when the company
was organzed and when It s camed t e sted.
It w be remembered that pror to ths date the company had done no
busness athough partes soctng subscrptons for stock had obtaned con-
tracts whch provded for takng out poces when the company came nto
e stence. Whe these contracts may have had some vaue above the com-
mssons pad to agents for obtanng them and the cost to the company of carry-
ng the nsurance rsk, the amount thereof, If there was any such vaue, s not
shown by the evdence. It was qute probabe that the stockhoders were
moved to make these contracts by reason of the partcuar nature of the or-
ganzaton of the company, but the fact that they hed stock n the company
may have Infuenced them as much or more n agreeng to tnke out the In-
surance. owever ths may be, there s nothng here upon whch any vaue
was paced by the evdence, nor do we thnk any coud be paced as a matter
of good w. It may be argued that as soon as the company was organzed t
had certan advantages n acqurng the busness of Cathocs, and f we under-
stand pantffs argument correcty ths consttuted good w of a very con-
sderabe vaue. Wthout determnng whether such advantage n fact con-
sttuted good w n a ega sense wth reference to the ta statutes, we must
agan say that there s no satsfactory evdence of ts vaue.
It shoud aso be sad n ths connecton that the fact that surroundng con-
dtons make t key that a new corporaton w be abe to secure a proftabe
busness s not of tsef suffcent to show that t possessed a vauabe good w
at the tme t entered upon the transacton of busness. Corporatons are
sedom formed uness those organzng them beeve that the busness to be
carred on w be proftabe and that the tme Is favorabe for creatng a new
corporaton. Sometmes the antcpated resuts foow and the corporaton s
successfu from the outset If the udgment of the promoters be wrong, a oss
or faure w resut, but f successfu, the success aone s not suffcent to prove
the e stence of good w. We have entered a fndng to the effect that there s
no satsfactory evdence of the good w, If any, that the pantff possessed, and
therefore hod that the Commssoner was correct In refusng to make any aow-
ance or deducton therefor n computng the ta upon the sae of pantff s
assets.
The evdence shows that pantff pad commssons to the amount of 525,000
on the sae of ts stock on two dfferent occasons, one of whch was before or
at the tme of ts organzaton and the other a short perod ater. It Is con-
tended on behaf of the pantff that ths e pense s a part of the cost of organ-
zaton of the company and shoud be amortzed over the perod of the organ-
zaton thereof.
If the queston thus rased were new and orgna, we thnk t mght present
an Interestng probem. The oard of Ta ppeas and the courts, whenever
the queston has arsen of makng a deducton by amortzaton or the dscount
on the sae of bonds or commssons pad for the aowance thereof, seem to
have unformy hed n favor of the ta payer. It woud seem there was as
much reason for aowng a commsson upon the sae of stock sod for the
purpose of obtanng capta as n aowng a commsson on the sae of bonds
for the same purpose where the ength of tme the capta so obtaned by sae
of stock Is known as t was n ths case. If there s a dstncton t s because
the Issuance of bonds created an absoute abty, but the sae of stock dd not.
In each Instance t may seem that the commssons were the cost of obtanng
capta, and f the rue wth reference to commssons on bonds s foowed ths
cost shoud be amortzed over the perod that the capta was used. ut the
decsons of the oard of Ta ppeas and of the courts whch have consdered
the queston, so far as they have decded t ether drecty or ndrecty, a
appear to be aganst the ta payer. It s true that n most of these cases the
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113, rt. 591.
202
corporaton was st In e stence and there was no way of determnng for
what ength of tme the capta whch had been obtaned by the sae of stock
woud be used and therefore no way of determnng the amount of amortzaton,
for any partcuar year. ut ths fact was not gven as a reason for any of
these decsons. On the contrary they were based upon grounds whch are
entrey nconsstent wth the aowance of the deducton camed by pantff.
In Smmon Co. v. Commssoner (33 ed. (2d), 75 Ct D. 06, C. . III-2,
317 ), t was hed, n effect, that commssons pad to bankers for saes of stock
were not organzaton e penses nor ordnary and necessary e penses wthn
the meanng of the ta aw, and, further, that commssons pad for marketng
stock smpy dmnsh the net return from the stock ssue and are equvaent
to an ssue of stock at a dscount. Ths decson was rendered n 1929, and
was based upon the Treasury reguatons. The court gave as a reason for
uphodng the reguatons the fact that they had e sted and had been n force
for a ong tme wthout any change n the aw by Congress.
In Cornng Gass Yorcs v. Lucas (37 ed. (2d), 798), the rues ad down n
the Smmons Co. case, supra, were approved, and the court agan caed atten-
ton to the fact that Its decson was supported by Treasury reguatons pro-
mugated under the Revenue cts of 1921, 1924, 1926, and 1928, and aso caed
attenton to a Treasury decson promugated n 1922 to the effect that a com-
msson pad for marketng preferred stock was a capta e pendture, and
sad that ths nterpretaton of secton 234(a)1 of the Revenue ct of 1921
was mpedy approved by Congress through the reenactment of the secton
n unchanged form In the Revenue ct of 1924. If the commsson so pad
was a capta e pendture, t s obvous that It Is not an ordnary and neces-
sary e pense of busness, and that t can not be amortzed as a part of the
cost of obtanng capta, or treated as organzaton e pense for the purpose
of aowng a deducton therefor. In the Revenue cts of 1926 and 1928,
secton 234 was reenacted, and as the Revenue cts enacted snce have made
no change n t the reasonng of the decsons n the two cases cted above
appes wth ncreased force. Pantff ctes the cases of ershey Manufac-
turng Co. v. Commssoner (14 . T. ., 867, 43 ed. (2d), 298) and Mata
Tempe ssocaton v. Commssoner (16 . T. ., 409), but t s not necessary
to revew the decsons theren. Nether of the cases nvoved any queston
wth respect to commssons pad or dscounts aowed on the sae of cor-
porate stock, but deat ony wth organzaton e penses, and we are of the
opnon that the commssons n queston In the case now before us can not
be hed to be organzaton e penses.
It thus appears that for more than 13 years Treasury reguatons have been
promugated denyng any deducton on account of commssons pad for saes
of stock, and from tme to tme the courts and the oard of Ta ppeas
have approved these reguatons. though numerous Revenue cts have been
enacted snce these reguatons were frst promugated, Congress has not seen
ft to take any acton changng the statute. Under these crcumstances, we
thnk the aw must be consdered setted, and that no deducton can be aowed
pantff on account of ths matter.
In ths connecton we thnk t ought to be sad that even If pantff s con-
tenton for amortzaton of the commssons nvoved were sustaned, there
does not appear to be any rue of aw under whch we coud aow the pantff
any further deducton thun the pro rata part of such e penses for the ast year.
In other words, there does not seem to be any method of gvng the pantff
a compete and ogca remedy under the theory that the commssons were
part of cost of capta.
The pantff s entted to recover the amount of mproper e cess n Its
ta es arsng from the faure to aow as a deducton e penses Incurred In
acqurng the assets of the Coumban re Insurance Co. of Indana. efore
|udgment s entered, counse for the respectve partes may submt to the
court a stpuaton as to the amount of |udgment whch shoud be entered
In accordance wth ths opnon f they can agree thereon. If not, they may
submt computatons of ths amount as they respectvey consder It shoud be
determned, and upon consderaton thereof the court w enter fna |udgment.
Whaet, udge Wams, udge Ltteton, udge and ooth, Chef
ustce, concur.
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203
113, rt. 601.
rtce 591: ass for determnng gan or -22-8103
oss from sae. Ct. D. 1121
INCOM T R NU CT O 1928 D CISION O COURT.
1. Income Lqudaton of Contra ore auaton vdence
urden of Proof.
In anuary, 1929, the ta payer corporaton acqured, In e change
for some of Its stock, certan contracts owned by former stock-
hoders of a corporaton whch had sod ts assets to another, one
of the contracts provdng for an opton to pay the consderaton
ether In a ump sum or In an agreed percentage of the profts of
operatons for three years thereafter. In December, 1929, the
opton was e ercsed and the contracts qudated by the payment
of the agreed sum of money. In determnng the ta abty for
1929, the amount reazed n connecton wth the qudaton of the
contracts consttuted gross Income and the e cess of such amount
over the cost represented ta abe proft. The burden of proof
whch rests upon the ta payer In an attack upon the Comms-
soner s vauaton of the contracts, whch vauaton Is presump-
tvey correct, was not sustaned by the evdence submtted.
2. Decson fftrmed.
Decson of the oard of Ta ppeas (30 . T. ., 491) affrmed.
Unted States Crcut Court of ppeas for the Nnth Crcut.
Peeress Investment Co., an Oregon Corporaton, pettoner, v. Commssoner
of Interna Revenue, respondent.
Upon petton to revew an order of the Unted States oard of Ta ppeas.
efore Wbur, Denman, and Mathews, Crcut udges.
December 17, 1935.
OPINION.
Denman, Crcut udge: The pettoner heren seeks a revew of a decson
of the Unted States oard of Ta ppeas fndng a defcency n pettoner s
1929 Income ta of 2,728.92 and denyng hs cam for refund of 5,688.91,
the ta aready pad for the year In queston.
In 1928 one Wam L. ames, actng on behaf of the Pacfc Stages Co.,
an Oregon corporaton, and on behaf of a ts stockhoders, of whch he was
one, sod to the Southern Pacfc Motor Transport Co., a compettor, an opton
to purchase the entre stock of Pacfc Stages. The consderaton for the
sae was to be the sum resutng from an apprasa of a the assets of
Pacfc Stages at the tme of the sae, pus one-haf the profts of Its operatons
for three years thereafter.
In October, 1928, a suppementa agreement was concuded between ames
end the Transport company whereby It was provded that the atter shoud
have the prvege of payng the sum of 90,000 n eu of one-haf the profts
or three years.
In December, 1928, the Transport company e ercsed Its opton to purchase.
The Immedate consderaton, based on apprasa of the assets of Pacfc Stages,
was 116,487.54. Of ths sum the Transport company at that tme pad a
but 10,356.24 whch It retaned to meet contngent cams aganst the assets.
It was uncertan, at ths tme, whether the vendee woud render the remander
of the consderaton In payments of haf the profts over a perod of three
years, or In a ump sum of 90,000 as It was prveged, under the suppementa
agreement, to do.
fter the sae, seven former stockhoders of Pacfc Stages, ncudng ames,
ownng 705 of the 1,908 4 outstandng shares of that corporaton (whch stock
had by ths tme, of course, passed to the Transport company), purchased from
the other former stockhoders ther entre rghts under the contract wth the
Transport company, at the rate of 80 per share of ther former hodngs. These
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113, rt. 591.
204
obgatons were satsfed out of the 106,131.27 aready pad by the buyer, eav-
ng n the hands of ames a baance of 9,851.27. so due ames as repre-
sentatve of the seven former stockhoders was so much of the 10,356.24, re-
taned by the Transport company to meet contngent obgatons of Pacfc
Stages, as was not requred for that purpose, and the stated percentage of
profts or the 90,000, whchever the Transport company shoud choose to pay.
In anuary, 1929, ames and hs s assocates, former stockhoders of Pacfc
Stages, ncorporated the Peeress Investment Co., pettoner heren, under the
aws of Oregon. The new corporaton had an authorzed capta stock of 1,000
shares at the par vaue of 100 each. Seven hundred and fve shares were
ssued to the seven assocates n ke proporton as they had hed stock n.
Pacfc Stages. The consderaton for these 705 shares conssted of a rghts
under (e Transport company contract hed by the assocates, ncudng the
rghts they had taken over from the remanng former Pacfc Stages stock-
hoders, pus the 9,S51.27 st retaned by ames out of the orgna payment
made to hm by the Transport company.
In Say and ugust of 1929, the Transport company pad to pettoner the
10,350.24 whch t had retaned out of the orgna payment on the sne con-
tract to meet contngent cams. In December, 1929, t e ercsed the suppe-
menta opton to pay 90,000 n eu of haf the profts for three years and pad
pettoner 30,000 n cash and 60,000 n promssory notes.
In ts orgna ncome return for 1929, pettoner showed a proft of 39,069.27,
at whch t arrved by subtractng the vaue of the Transport company con-
tracts when receved from the amounts reazed thereon. In computng the
amounts reazed, pettoner added the 30,000 cash and 59,361.70 dscounted
vaue of the notes, both cash and notes receved n December, 1929, to the
10,356.24 pad over n May and ugust, the sum whch had been retaned by
the Transport company to meet contngent cams. These tems made a tota
reazed of 99,718. The subtracted vaue of the contracts when receved was
estmated by the pettoner to be 60,648.73.
The Commssoner, n hs redetermnaton of the ta abty for 1929, dd
not treat the 10,356.24 Item as Income, but sted t together wth the 9,851.27
cash pad n by ames at organzaton on both sdes of the edger, that s, as
a porton of the amounts reazed on the contracts and as vaue pad n at
the tme of organzaton.
Ths eft for computaton the vaue of the Transport company s optona
obgaton to pay ether the stated percentage of the profts for three years
or 90,000. The Commssoner vaued ths contract at 36,192.49 at the tme
t was receved by the pettoner. Pettoner produced no evdence to refute
ths vauaton found by the Commssoner other than an opnon by ames
that, because competton had been removed, the proft shoud ncrease, and the
e ercse of the opton to pay the 90,000 n eu of the profts 11 months after
the acquston of the contract by pettoners. We can not dsturb the fndng
of the oard that such evdence s nsuffcent to overcome the presumpton of
the correctness of the Commssoner s vauaton of 36,192.49. (Wcktore v.
Rcnccke, 275 U. S., 101, 105 T. D. 4128, C. . II-1, 316 Wech v. evcr-
ng, 290 U. S., I, 115 Ct D. 755, C. . II-2, 112 .)
fter the e ercse of the opton the amount reazed was 89,361.76 n cash
and dscounted notes. The dfferenta was 53,169.27, a ta abe gan. The
oard of Ta ppeas sustaned the Commssoner, decreed a defcency, and
re|ected pettoner s cam for a refund of ta es aready pad.
The decson s ceary correct. That a ta payer who acqures an asset
for 36,000 n anuary and reazes 89,000 on that asset n December has
reazed a ta abe gan seems too obvous for argument. Pettoner s argu-
ments for a contrary resut In ths case are somewhat confused and unum-
nated by the ctaton of a snge case. or e ampe, the pettoner contends
that, There was no sae or e change, but a mere reazaton by the corpora-
ton of the amounts due upon the capta asset.
If ths Is an asserton that an ncrement n capta assets s not ta abe n-
come, the asserton s competey dened by sner v. Macotnber (252 T . S., 189,
207 T. D. 3010, O. . 3, 25 ) and Unted States v. rby Lumber Co. (284
U. S., 1, 3 Ct. D. 420, C. . -2, 350 ). If t s ntended to be argued that
ta abe gan may not resut from the dscharge of a contract obgaton at an
enhanced vauaton, as dstngushed from the sae of such obgaton, the argu-
ment s wthout mert. (Ruth Iron Co. v. Commssoner (C. C. .), 26 ed.
(2d), 30, 33 dredge v. Unted States (C. C. .), 31 ed. (2d), 924, 928
We musement Co. v. Commssoner (C. O. .), 70 ed. (2d), 209, 212.)
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205
5113, rt. 591.
Wo take ths argument to be In effect, as are other ponts urged by pet-
toner, that the vaue of the contract wth the Transport company was sub-
stantay greater than the Commssoner s estmate of 36,192.49. ut, as
we have ponted out, the burden of proof In an attack on the Commssoner s
vauaton rests upon the ta payer, and the oard found that the burden In
ths case was not sustaned.
ffrmed.
rtce 591: ass for determnng gan or -26-8143
oss from sae. Ct. D. 1130
INCOM T R NU CT O 1928 D CISION O COURT.
1. Deducton Lass Surrender or Lfe Insurance Pocy.
corporaton whch took out nsurance upon the fe of one of ts
prncpa offcers for ts own beneft s not entted, upon surrender
of the pocy, to deduct as a oss the e cess of the net cost of the
nsurance over the cash surrender vaue. In the absence of proof
as to what part of the premums was pad for protecton and what
part for nvestment, t s presumed that the cash surrender vaue
corresponds wth the amount of the reserve and hence no oss was
estabshed, snce the cost was appro matey refected n the cash
surrender vaue. The porton of the premums not used to bud
up the reserve was pad to obtan the protecton afforded.
2. Certobar Dened.
Petton for certorar dened pr 27, 1938.
Unted States Crcut Court or ppeas fob the Second Crcut.
London hoe Co., Inc., pettoner, v. Commssoner of Interna Revenue,
respondent.
ppea from the Unted States oard of Ta ppeas.
efore Manton. ugustus N. and, and Chase, Crcut udges.
December 9, 1935.
opnon.
rom an order of the oard of Ta ppeas determnng that there was a
defcency of 3,713.48 In ncome ta es of London Shoe Co., Inc., for the year
1931, the ta payer appeas. ffrmed.
ugustus N. and, Crcut udge: Ths appea nvoves Income ta es of
London Shoe Co., Inc., for the year 1981, and the sum n controversy a
3,115.44.
In 1924 that company nsured the fe of Marcus Wengarten, one of ts
prncpa offcers, for 100,000. Under the terms of the pocy the ta payer was
desgnated as the benefcary and a gross annua premum of 9,097 was requred
to be pad so ong as Wengarten was ave uness the pocy was to determne
other than by reason of the death of the nsured. etween 1924 and 1931, the
ta payer pad for premums the aggregate sum of 63,679 and receved as
dvdends 13,117, eavng 50,562 us the net amount e pended for the nsurance.
The premums were not deducted as an e pense durng any of the ta abe
years. The pocy was surrendered and canceed In 1931 and the ta payer
receved 24,600 as the cash surrender vaue of the pocy. In ts Income ta
return for that year t camed a deductbe oss of 25,962 based upon the
dfference between 50,562, the net cost of the nsurance, and the cash surrender
vaue of 24,600. In assessng the ta for the year 1931, the Commssoner
re|ected the deducton camed. Upon an appea by the ta payer to the oard
of Ta ppeas the oard kewse dsaowed the deducton and because of
ths determned a defcency n ta es of 3,713.48.
fe nsurance pocy ordnary combnes nvestment wth Insurance pro-
tecton. The decson n Love v. St. Lous Mutua Lfe Insurance Co. (I
U. 8., 264, 274), where the contract was termnated by the act of te company
and the pocyhoder demanded a return of a premums pad, wth nterest.
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5113, rt. 591.
206
ess the amount of hs premum note, Iustrates ths doube feature. The court
there sad:
ut we do not thnk that he s entted to a return of the fu amount of
hs premums pad. e had the beneft of nsurance upon hs fe for fve years,
and the vaue of that nsurance shoud be deducted from the aggregate amount
of hs payments. In other words, the amount to whch the companant a
entted s, what Is caed and known n the fe Insurance busness as the
vaue of hs pocy at the tme t was surrendered, wth nterest, ess the
amount of hs premum note, whch shoud be surrendered and canceed.
In the earer years of a pocy, the annua fe premum s n e cess of the
amount requred to pay the current cost of nsurance protecton nnd such
e cess s retaned by the nsurance company as a reserve and ncreased at
compound nterest at an agreed rate for the purpose of makng good the
deceucy n ater years when the annua premum s no onger suffcent to
pay for the actua cost of nsurance. The fund accumuated out of the e cess
premums s known as the reserve on the pocy and represents the nvest-
ment porton of the premum payments hed for the beneft of the pocyhoder.
In case the pocy Is surrendered or aowed to apse the hoder may receve
the reserve hed for hs benefts known as the cash surrender vaue whch
represents the equty of the nsured n the pocy above the amounts pad for
protecton. The nature of a surrender vaue was descrbed by the orda
Dstrct Court n In re Morgan (2S2 ed., 650), substantay as above. In
order to determne whether there was any oss n the present case, the ta -
payer woud have to show what porton of the premums was attrbutabe to
nvestments and whether the cash surrender vaue was ess thnn such porton.
It may be assumed n the absence of any proof to the contrary that the cash
surrender corresponds wth the amount of the reserve, that s to say, wth
the e cess of premums over what was requred for protecton.
It Is argued that In Lucas v. e ander (279 U. S., 573 Ct. D. 76, C. .
III-2, 273 ), the Supreme Court apped another rue and hed where, upon
the surrender of the poces, the amount receved was n e cess of the pre-
mums pad the dfference wns ta abe gan wthn the provsons of secton
213 of the Revenue ct of 1918 whch provded:
. That for the purpose of ascertanng the gan derved or oss sustaned
from the sae or other dsposton of property the bass sha be:
(1) In the case of property acqured before March 1, 1913, the far market
prce or vaue of such property as of that date.
In other words, t s sad that the dfference between the amount receved
ns a surrender vaue and the premums pad Is the measure of the ta aganst
the profts and ncome derved from any source whatever. We thnk, however,
that such was not the effect of the decson. It s true that ustce S -one at
one pace n hs opnon (page G7G) sad:
y the e pendture of 78,100 n premums, the nsured secured a return
of 120,797, resutng In an economc and reazed money gan to hm of 42,697.
ut he nether sad, nor dd the Court hod, that the dfference was a ta abe
gan. In that case the poces were taken out n 1899, the premums had been
fuy pad In 1908 and n 1919 the pocyhoder was gven the opton of recev-
ng on each pocy the sum of 50,000 pus the cash dvdend then apportoned
by the company. The queston of the cost of the capta asset was not before
the Court but ony the far market vaue as of March 1, 1913, and the gan
reazed after that date. It wns hed that the gan was the dfference between
the cash surrender vaue of the pocy on March 1, 1913, pus dvdends then
coectbe and the cash surrender vaue pus dvdends receved when the
I ocy was surrendered. The Court was not deang wth the cost of the pocy
but ts vaue on March 1, 1913.
It was the faure to take nto account the two factors of Investment nnd
nsurance protecton whch are nherent n the ordnary fe pocy that e -
pans the decson In orbes Lthograph Mfg. Co. v. Whte (42 ed. (2d), 287),
wth whch, wth a respect, we must dffer. The precse queston we have
to determne was before the Crcut Court of ppeas of the Thrd Crcut n
Century Wood Preservng Co. v. Commssoner (69 ed. (2d), 967). That court
decned to foow orbes Lthograph Mfg. Co. v. Whte, supra, and hed that
a corporate ta payer was not entted to deduct as a busness oss the dfference
between the cash surrender vaue of a fe nsurance pocy and the amount
of premums pad. The hodng of the thrd crcut that cost s appro matey
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207
113, rt. 597.
refected In the cash surrender vaue of a pocy and consequenty that there
coud be no oss though the premums e ceeded the vaue seems to us correct
and appcabe to the facts before us.
Secton 22(b)2 of the Revenue ct of 1928 e empts from ta abe Income:
mounts receved (other than amounts pad by reason of the death of the
Insured and nterest payments on such amounts) under a fe nsurance, en-
dowment, or annuty contract, but If such amounts (when added to amounts
receved before the ta abe year under such contract) e ceed the aggregate
premums or consderaton pad (whether or not pad durng the ta abe year)
then the e cess sha be ncuded In gross Income.
It Is argued that, because the foregong subdvson provdes that gan sha
be ascertaned by takng the tota amount pad n on one sde from the tota
amount receved upon the cosng out of the transacton, a smar rue ought
to be apped where there s a oss. ut there s no speca statutory provson
for computng deductbe osses In cases where the premums pad for a fe
Insurance pocy e ceed the amount of the reserve or the push surrender vaue.
The subdvson deang wth the computaton of ta abe gans somewhat
favors the ta payer at the e pense of the Government because t aows the
deducton of the fu amount of the premums pad from the tota amount
receved, though the premums are In e cess of what woud normay be re-
qured for nsurance protecton, and thus essens the amount of the ta abe
gan. It does not necessary resut that such statutory Indugence w be
gven the ta payer n computng osses especay where there s no statutory
provson that contans anguage that w |ustfy It
Secton 113 of the ct of 1928 contans u genera cause for computng oss
whch states the aw appcabe to the present stuaton. It provdes that:
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.
ere the cost of the proceeds whch the ta payer receved upon the surrender
of the pocy seems to have been appro matey the amount of e cess premums
set apart from year to year as a reserve. Secton 22(b)2 whch s a specfc
statute deang wth gans has nothng to do wt the mode of cacuatng the
osses that may be deducted when the cash surrender vaue of a fe nsurance
pocy s pad. They are governed by the genera provsons of secton 23 (f)
(g) and secton 113. Losses, f any, woud be represented by the amount by
whch the premums so far as they are pad toward the reserve e ceed the
cash surrender vaue of the pocy.
We can see no escape from the concuson reached by the oard that no oss
was estabshed n ths case for the reason that the cost was appro matey
refected n the cash surrender vaue. The porton of the premums not used to
bud up the reserve was pad to obtan the nsurance protecton whch was for
many years afforded. (Centvry Wood Presenng Co. v. Commssoner, W9 ed.
2d), 967 eystone Consodated Pubshng Co., 26 . T. ., 1210 Standard
rewng Co., 6 . T. ., 980.)
The order of the oard of Ta ppeas s affrmed.
rtce 597: Property acqured upon an -6-7940
e change. Ct. D. 1075
ncome ta revenue) act op 1928 decson of supreme court.
1. Capta Gan Sae ob change of Stock ass auaton
of Optoned Stock.
The ta payer acqured stock of a corporaton n December, 1922,
at much ess than ts market vaue, agreeng to refran from com-
petng busness aud to gve the corporaton an opton to repurchase
at par a part of the stock. Later n 1U122 he e changed a the
stock so acqured for common and redeemabe preferred stock of
the corporaton, and n 1929 the preferred stock was redeemed at
110 per share. Under these facts, the bass for determnng cap-
ta gan derved from redempton of the stock was the far market
vaue n 1922 of the shares then hed, and, consderng the out-
standng opton to repurchase at par, the far market vaue dd
not e ceed 100 per share.
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113, rt. 597.
208
2. ursdcton op Crcut Court or ppeas ueston or
stoppe.
Where the queston whether the ta payer was estopped, because
of faure to report ncome from purchase of stock at a bargan
prce In 1922, to cam that the far market vaue, and not cost,
n 1922 was the bass for determnng gan from redempton of
the stock n 1929, was not presented to nor consdered by the
Roard of Ta ppeas, the crcut court of appeas has no |urs-
dcton to pass upon the queston. Genera Uttes, etc., Co. v.
cverng (Ct. D. 1005, page 214, ths uetn), decded December
9, 1935, foowed.
Supreme Court of the Unted States.
No. 173. Ouy T. cverng, Commssoner of Interna Revenue, pettoner, v.
Samue . Savage.
No. 280. Samue . Savage, pettoner, v. Ouy T. cverng, Commssoner of
Interna Revenue.
anuary 13, 1936.
OPINION.
Mr. ustce MoReynods devered the opnon of the Court.
These cross wrts brng up a |udgment of the Crcut Court of ppeas,
Second Crcut, whch dsapproved a defcency assessment for 1929 Income
and authorzed recovery for overpayment beow the ta payer s cam.
The petton for certorar In No. 173 asserts: The queston s Whether the
ta payer Is estopped to cam that the dfference between the market vaue of
the 1,500 shares as of December 80, 1922, and ther cost to hm consttuted
ta abe ncome to hm for 1922 and hence that the far market vaue of these
shares, and not ther cost, s the bass to be used n measurng the gan from
the dsposton of the shares n 1929, no ncome from the transacton havng
been reported In 1922.
The ponts to be urged In No. 280 are stated thus The crcut court of
nppeas erred: (1) In hodng that the cost base of the preferred stock of
mercan scose Corporaton redeemed n 1929 was to be arrved at by takng
as the far market vaue of the scose company stock the sum of 100 per
share, n so far as the fve-sevenths of sad stock whch was sub|ect to the
opton to repurchase was concerned. (2) In makng a fndng as to the vaue
of sad optoned stock.
Pror to 1922, Savage, the ta payer, bought 25 shares, scose company
stock. e pad 166.60 for each one for a 4,166.66. In December, 1922,
he acqured from the corporaton 1,500 shares for whch he pad 100 per
share ( 150,000) and entered nto an obgaton to refran from competng
busness, etc. so, he agreed that durng 1923 the corporaton mght repur-
chase fve-sevenths of 1,500 shares at par durng 1924, four-sevenths, etc.
Intrnscay (when unncumbered) a share of the company stock was then
worth 1,104.70.
Later durng 1922, a these shares (1,525) wore e changed for 6,100 pre-
ferred shares, redeemabe at 110, and 7,625 common shares, mercan scose
Corporaton. The bass of e change was four preferred and fve common shares
of new stock for one share of od. The ta payer s return for 1922 (not n
evdence) showed no gan from these transactons.
Durng 1929, mercan scose Corporaton redeemed ts preferred shares
at 110 Savage receved 671,000. s return for that year dscosed as net
capta gan the dfference between that sum and 154,106.G0, tota outay for
the 1.525 converted shares. Upon ths, he pad the assessed ta . pparenty,
he supposed apportonment between preferred and common stock of ther tota
cost was mpossbe or unnecessary aso that no ta abe gan arose before
return of hs entre outay.
Upon an audt, the Commssoner rued that proper apportonment of the
tota cost 154,166.06 coud be made. e assgned 37-f per cent to the
preferred and 62-)- per cent to the common shares and made a defcency
assessment of 12,005.38. Thereupon, the ta payer camed, frst that In 1922
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209
5114, rt. 611.
each scose company share was fary worth 1,164.70 and wth that as the
base, no ta abe gan arose upon redempton of the preferred stock. so
that he had overpad to the e tent of 63,750. Second, that apportonment of
the cost of both between preferred and common shares was Impractcabe
and no ta abe gan coud arse pror to recovery of the fu outay.
Upon these confctng cams, the oard of Ta ppeas took the matter.
There the Commssoner asserted correctness of hs acton he presented no
affrmatve defense set up no cam of estoppe because of the ta payer s fa-
ure propery to report 1922 gan.
The oard hed the dfference between the true vaue of scose company
shares and the prce pad by the ta payer was not compensaton for servces)
aso that the defcency assessment was propery made. stoppe was nether
presented nor consdered.
The court beow hed that the consderaton for the scose company stock
acqured n 1922 was 100 per share, pus the covenants to rese fve-sevenths
at par, etc., and not to engage In competng busness. so that the base cost
for estmatng capta gan n 1929 was the far market vaue n 1922 of the
shares then hed. nd snce the corporaton had the rght to repurchase at
par, the market vaue of fve-sevenths dd not e ceed 100 per share. urther,
that the faure to dscose 1922 ta abe gan apparenty resuted from Innocent
mstake of aw there was no fase representaton of fact nothng gave sup-
port to the cam of estoppe. The cause was remanded for ascertanment of
the amount of the overpayment.
We fnd no reason to dsagree wth the udgment of the court
The defense of estoppe was not before the oard. Under what we regard
as the correct practce Genera Uttes, etc., Go. v. everng, December 9,
1935 Ct. D. 1055, page 214, ths uetn ), the court shoud have passed the
pont. urthermore, the facts dscosed gve It no support.
Consderng the opton to repurchase at par, outstandng In 1922, there coud
be no proper fndng of far market vaue at that tme n e cess of 100 per
share. In the crurnstances, the court dd not err In so hodng.
Pertnent Treasury reguatons, rungs and |udca opnons are adequatey
ponted out by the court s opnon.
The |udgment s affrmed. The cause w be remanded for further
proceedngs.
ffrmed.
S CTION 114. SIS OR D PR CI TION
ND D PL TION.
rtce 611: ass for aowance of depreca- -9-7973
ton and depeton. Ct. D. 1084
INCOM T NU CTS OP 1926 ND 1928 D CISION O COURT.
1. Deducton- Depeton ass O and Gas Wes Casno-
head Gasone.
Where o wes produce a m ture known as wet gas whch s
separated n the producer s pant nto two merchantabe products,
casnghead gasone and dry gas, the market vaue of the casng-
head gasone content of the wet gas as t emerges from the we,
rather than the amount actuay receved from the sae of the
casnghead gasone after the process of e tracton, s to be n-
cuded n the gross ncome from the property for the purpose of
computng the percentage depeton aowed by secton 204(c)2 of
the Revenue ct of 1926 and secton 114(b)3 of the Revenue ct
of 1928.
2. Decson fttbmed.
Decson of the oard of Ta ppeas (29 . T. ., 1134) affrmed.
8. Cbbtoeam Denes).
Petton for certorar dened October 14, 19S5.
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114, rt. 611.
210
Unted States Crcut Coubt of teas fob the Nnth Cbcutt.
rca Canon O Co., a Corporaton, pettoner, v. Commssoner of Interna
Revenue, respondent.
Upon petton to revew an order of the Unted States oard of Ta ppeas.
efore Wbub and Gabkecht, Crcut udges, and Cavanah, Dstrct udge.
pr 22, 1935.
opnon.
Wbub, Crcut udge: The pettoner seeks to revew an order of the oard
of Ta ppeas reatng to ts ncome ta for the caendar years 1926 to 1930,
ncusve, nvovng the tota ta of 36,625.49. The queston nvoved reates
to the depeton aowance upon gross proceeds from o and gas wes under
the Revenue ct of 1926 (secton 204(c)2 Revenue ct of 1928, secton
114(b)3, whch provdes that n 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.
Pettoner s wes produce what s known as casnghead gasone, that s, a
very voate gasono whch comes from the we n the form of gas m ed wth
the more stabe gas known as natura, or dry, gas. The m ture s caed wet
gas. fter separaton the merchantabe products consst of casnghead gaso-
ne and dry gas. The respondent contends, and pettoner admts, that the
process of e tracton of the casnghead gasone from the wet gas s a manu-
facturng process. The respondent, n estmatng the bass upon whch the
percentage of 27 per cent shoud be aowed for depeton took 40 per cent of
the gross recepts from the casnghead gasone as the market vaue of the
casnghead gasone content of the wet gas as t emerged from the we, and
hed that the remanng 60 per cent of the gross recepts from casnghead
gasone was attrbutabe to the manufacturng process and, consequenty, dd
not consttute ncome from the property wthn the meanng of the Revenue
ct of 1926 (secton 204(c)2 Revenue ct of 1928, secton 114(b)3).
It s conceded by the pettoner that f the gross proceeds derved from the
sae of casnghead gasone shoud be apportoned at a, the apportonment of
40 per cent of the gross proceeds from casnghead gasone as the vaue of the
gasone content of the wet gas s correct. The soe queston for our consder-
aton then s whether or not the amount actuay receved from the sae of
casnghead gasone by the pettoner Is sub|ect to the aowance of 27 per
cent for depeton, or whether the depeton shoud be estmated upon the mar-
ket vaue of the gasone content of the wet gas. The reguatons of the Com-
mssoner adopted under ths ct are quoted n fu In the footnote.1
Whe the ct of Congress and reguatons adopted n pursuance thereof must
be construed accordng to ther pan Import, It shoud be borne n mnd n
determnng the amount of the depeton aowance that such aowance a
1 Commssoner s reguatons:
Reguatons 09 Reatng to the Revenue ct of 1926 :
rt. 201. When used In these artces (201-237) coverng depeton and
deprecaton
(o) mnera property Is the mnera depost, the deveopment and pant necessary
for ts e tracton, and so much of the surface ony as Is reasonaby e pected to be under-
ad wth the mnera. The vaue of a mnera property s the combned vaue of Its
component parts.
(d) mnera depost refers to mneras ony, such as the ores ony n the case of a
mne, to the o ony n the case of an o we, and to the ga ony n the case of a gas
we, and to the o and gas In the case of n we producng both o and gas. The vaue
of a mnera depost Is the vaue of the mnera property, ess the vaue of the pant and
equpment, and ess the vaue of the surface of the and for purposes other than mnera
producton. The cost of a mnera depost s that proporton of the tota cost of the
mnera property whch the vaue of the depost bears to the vaue of the property at the
tme of ts purchase.
RT. 207. Determnaton of far market vaue of o and pat propertes.
(6) To determne the far market vaue of an o and/or gas property by the present
vaue method, the essenta factors must be determned for each depost ncuded n the
property. The factors are (1) the tota quantty of o and/or gas n terms of the prn-
cpa or customary unt (or unts) pad for n the product marketed, (2) the quantty of
o and/or gas e pected to be recovered durng each operatng perod, (3) the average
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211
114, rt. 611.
Intended to represent the amount of capta recovered In the product produced
by the we, that Is the vaue of the raw product. s stated by the Supreme
Court, speakng through ustce randes, n Unted States v. Lvdey (274 U. S.,
285, 302 T. D. 4046, 0. . I-2, 167 )
e depeton charge permtted as a deducton from the gross ncome In
determnng the ta abe Income of mnes for any years represents the reducton
In the mnera contents of the reserves from whch the product Is taken. The
reserves are recognzed as wastng assets. The depeton effected by operaton
Is kened to the usng up of raw matera In makng the product of a manu-
facturng estabshment. s the cost of the raw matera must be deducted
from the gross ncome before the net ncome can be determned, so the estmated
cost of the part of the reserve used up s aowed.
Consequenty, the Commssoner has provded n hs reguatons that f the
o and gas are not sod on the property but are manufactured or converted
Into a refned product or are transported from the property pror to sae, then
the gross ncome sha be assumed to be equvaent to the market or fed prce
of the o and gas before converson or transportaton.
The pettoner concedes the vadty of these reguatons but contends that
the pant for the e tracton of the casnghead gasone from the wet gas s a.
part of the property from whch the gasone Is produced, and therefore the
e tracton pant beng erected upon the property and used In connecton wth the
producton of the casnghead gasone that t s the gross ncome derved from
the sae of the gasone rather than the market vaue of the wet content of tha
natura gas whch shoud be used as a bass for the depeton aowance. Pet-
toner ctes Reguatons 69, artce 201, as foows:
rt. 201. When used n these artces (201-237) coverng depeton and
deprecaton
(c) mnera property Is the mnera depost, the deveopment and pant
necessary for ts e tracton, and so much of the surface ony as s reasonaby
e pected to be underad wth the mnera. The vaue of a mnera property s
the combned vaue of Its component parts.
The pettoner aso ponts to the fact that the Commssoner has treated
the process of dehydratng o as a part of the method of producton of the
o and has aowed the 27 per cent depeton upon the Income from the o
sod after dehydraton and contends that the process of separatng the cnsng-
head gas from the wet gas s essentay the same. There s an obvous dffer-
ence. In the atter case the wet gas s composed of two marketabe products
and s saabe as such and has a market vaue, whereas the water content of the
o produced by a we s an Impurty ke the o sand whch s aso sometmes
m ed wth the o. oth may be separated by the operaton of gravty a
settng process athough more compcated processes have been utzed.
owever that may be, t s mmatera for the purpose of ths case whether
or not the Commssoner s correct n gnorng the dehydratng process In est-
matng the depetabe base where the o produced contaned a arge water
content, f he s correct n mtng the pettoners heren to the market vaue
of the casnghead gasone content of wet gas produced from the pettoner s
property. In the atter case, t s conceded that the process s a manufacturng
quaty or grade of the o and/or gas reserves, (4) the e pected percentage of recovery In
each process or operaton necessary for the preparaton of the o and gas for market,
(6) the probabe operatng fe of the depost In years, (6) the unt deveopment cost,
that s, cost of deveopment e cusve of deprecaton and depeton, (7) the unt oper-
atng cost, that Is, cost of producton e cusve of depredaton and depeton, and, (8)
the rate of Interest commensurate wth the rsk for the partcuar depost. When the
depost has been suffcenty deveoped these factors mny be determned from past oper-
atng e perence. In the appcaton of factors derved from past e perence fu aow-
ance shoud be made for probabe future varatons In the rate of e hauston, quaty or
grade of the o and/or gas, percentage of recovery, cost of deveopment, producton,
Interest rate, and seng prce of the product marketed durng the e pected operatng fe
of the o and/or gas depost.
( ) The number of unts of o and/or gas recoverabe In marketabe form mutped
by the dfference between the seng prce and the operatng cost per unt gves the tota
e pected operatng proft. The vaue of each o or gas depost Is then the tota e pected
operatng proft from that depost reduced to a present vaue as of the ba c date at the
rate of Interest commensurate wth the rsk for the operatng fe, and further reduced
by the vaue at the basc date of the deprecabe assets and of the capta addtons. If any,
necessary to reaze the profts. The uWree of rsk Is generay owest In cases where the
factors of vauaton are fuy supported by the operatng record of the o and/or gas
property pror to the basc date reatvey hgher rsks attach to apprasas upon any
other bass.
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114, rt. 611.
212
process and under the requstons of the Commssoner It Is the market vaue
of the net product that consttutes the depetabe base. so, It Is mmatera
that the manufacturng process s reatvey smpe, athough t appears from
the record that a argo capta nvestment s necessary for the separaton of
the gasone content of the wet gas.
The rue of the Commssoner s conceded to be awfu. The acton of the
Commssoner foows the rue and s presumptvey correct
Order affrmed.
rtce 611: ass for aowance of deprcca- -9-7974
ton and depeton. Ct. D.-1085
ncome ta revenue act of 1828 decson op court.
1. Deducton Depeton O and Gas We.
The owner of a natura gas we whose busness was the produc-
ton, transportaton, and sae of ts product to consumers, s en-
tted to deducton for depeton, under the provsons of secton
114(b)3 of the Revenue ct of 1928 and artce 221(1) of Regu-
atons 74, computed upon the estmated Income representng the
vaue of the gas at the mouth of the we and not upon the ncome
derved from the sae of gas at the meters.
2. Decson ffrmed.
Dacson of the oard of Ta ppeas (30 . T. ., 1263) affrmed.
3. Certorar Dened.
Petton for certorar dened October 28, 1035.
Unted States Crcut Court of ppeas fob the Second Crcut.
Consumers Natura Gas Co., pettoner, v. Commssoner of Interna Revenue,
respondent.
Petton to revew an order of the oard of Ta ppeas, f ng a defcency In the pet-
toner s ncome ta for the year 1929.
efore Manton, L. and, and ugustus N. and, Crcut udges.
une 17, 1935.
OPINION.
L. and, Crcut udge: The queston Invoved In ths appea s of a depre-
caton aowance dened the ta payer for the year 1929, and camed by t
under secton 114 of the Revenue ct of 1928. It s the owner of a natura
gas we n the western part of New York from whch It drecty suppes
consumers n two nearby vages, from 1 to. 5 mes away. The decson turna
upon the words: 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 (secton 114(b)3) and the e act Issue s whether ths per-
centage s to be computed upon the ncome of the ta payer derved from
the sae of gas to consumers at the meter, or upon so much of that Income
as s estmated to represent the vaue of the gas at the mouth of the we.
The purpose of the secton, and of secton 23(1) to whch It s ancary,
s to aow an annua deducton to amortze the orgna cost (or vaue) of a
wastng depost of mnera weath. (Unted States v. Ludey, 274 U. S., 295
T. D. 4046, C. . I-2, 157 .) If the voume of the depost were known, the
proper amortzaton charge woud be the quotent of the co: t dvded by that
voume but as t Is unknown, any deducton must depend upon as good a
guess as s possbe. Orgnay (secton II G (b) of the Revenue ct of 1913),
an arbtrary aowance of 5 per cent of the gross vaue at the mne of the
output for the year, was f ed for metas, and ths was e tended admnstra-
tvey to o and gas wes. That proved unsatsfactory, and n 1916 (secton
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213
114, rt. 611.
12(a) Second (a) of the ct of 1916), an effort was made at a more fe be
formua a reasonabe aowance for actua reducton In fow and producton
to be ascertaned by the setted producton or reguar fow. The
far market vaue of the property was substtuted as the bass n 1018
(secton 234(a )9), and contnued through 1921 and 1924 and unt the ct
of 1926, when the aw took the form wth whch we are here concerned, and
whch once more went back to an arbtrary percentage. owever, nstead
of takng the gross vaue at the mne of the output, as n 1913, Congress
then adopted the phrase whch we have aready quoted gross Income from the
property. Dd property mean the we, or the o or gas at Its sae upon
devery mes away
It f qute true, as the ta payer says, that no snge formua w gve a
ratona resut for a wes. The same percentage w be too much for one de-
post and too tte for another that s an Inevtabe consequence of abandonng
any effort to earn Its amount the pan Is a makeshft, at best no more than an
appro maton to the average of many nstances. Moreover, nstend of f ng an
arbtrary proporton of the orgna cost (or vaue) It makes the bass the
yeary vaue of the product when sod. That Is a further Irratona factor.
ut these defects are no e cuse for not emnatng whatever ese w Impar
the vadty of the souton, so far as It has any vadty at a. ecause the
formua Is rude and Imperfect we are not |ustfed n In|ectng Into the bass
the added vaue mparted to the output by work done upon t after t reaches
the surface. That can not fa to make the devaton greater and to ntroduce
a varabe whch adds a qute unnecessary dscrmnaton to a resut arbtrary
enough at best. True, ts correcton Invoved some computaton the saes prce
must be broken down Into two component parts the vaue contrbuted by the
ater servces, and the remander of the gross prce. ut the contrbuted vaue
Is not naccessbe: the apparatus for transportaton Is known, Its cost, ts
wear and tear, ts coeffcent of obsoescence the cacuaton s ke much that
Is customary In reckonng other ta es, and there Is no reason to suppose that
Congress woud shrnk from t Indeed It can not be avoded n many cases.
rtce 221(1) of Reguatons 74 requres, both when the gas and o Is refned
and when It s transported, that the market or fed prce before
converson or transportaton sha be the bass for depeton. The ta payer
concedes, and must concede, that ths Is the rght rue when the product Is
converted Into somethng ese. ( rea Canon O Co. v. Commssoner, Tt ed.
(2d), 67 (C. C. 9) Ct. D. 1084, page 209, ths uetn .) It s ony when
o or gas s transported, that t says that the artce s nvad. t east the
probem Is the same and If the souton Is toerabe In one case, we can not
see why It shoud not be In the other. We are deang wth economc cate-
gores, not physca, to say nothng of metaphysca. When does o for e ampe
cease to be o n the process of refnng We are surey not to engage In such
ncetes when tryng to fnd a workng method of amortzng the orgna cost
of the we. It s nevtabe ndeed that the owner of a short-ved we shoud
suffer as aganst that of a ong-ved but t Is not Inevtabe that a man wth
a ppe ne shoud amortze hs Investment more qucky than one who ses
at the surface. It s probaby true that part of the apparatus of transporta-
ton has a fe cotermnous wth the we but In substanta part that s not
the case, certany not as to street mans, meters and the ke. In ths respect
such property s unke the subsurface apparatus n the we Itsef, whch Is
argey Irrecoverabe when the we goes dry. Nor Is t reevant that the art-
ce grants to the e tracton apparatus not ony a depeton aowance, but a
deducton for wear and obsoescence. (Unted States v. Dakota-Montana Co.,
288 U. S., 459 Ct. D. 655, C. . II-1, 243 .) Indeed t mght theoretcay
be entted to each for even f ts fe be mted to that of the we, t may
not ast as ong. ut whether or not the doube aowance be ustfed s of
no moment the ta payer can not propery compan, so ong as he Is not
prevented from ncudng In hs bass a that he shoud be aowed.
Nothng n the congressona debates throws any ght upon the queston
errng v. Commssoner (293 U. S., 322 Ct. D. 904, C. . I -1, 303 )
perhaps does. depeton deducton was there aowed aganst a bonus or
dead-rent, whch was necessary ncome from the we and not from the sae
of o so far as the decson s pertnent at a It mpes that property
In secton 114(b)3 means the we. True, In such cases It s customary to
gve the essee a credt to be worked out n o, and f that happens, the bonus
w be ony an advance payment. ut If the essee fas to strke o, ths
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115, rt. 627. 214
does not hod, or If the strke s short-ved. nay as to the consttutona
ob|ecton, put forward rather as a make-weght n nterpretaton, we are not
cear that o or gas as soon as It s e tracted from the ground, can not wthout
more be a reazed gan, but assumng that t can not, the gan at sae may
certany be dvded between the spot gas so to say, and the addtons duo
to transportaton, and Ine two parts ta ed by separate formuas. Indeed that
s Inevtabe n cases of manufacture or converson.
The te t of the secton s n accord. Secton 114(b) s n three subdv-
sons a desgned to defne the bass for depeton. The frst refers back
to secton 113 and makes cost (or vaue) the bass the second Is for mnes
and f es far market vaue at dscovery, once the bass for o and
gas wes. It ends wth a mtaton to 50 per cent of the net ncome from
the property. Consstenty the thrd subdvson shoud aso make the cost
or vaue of the we the bass. It does not do that, for t uses ncome but
we shoud e pect the bass to be the ncome from the we, and gram-
matcay that s |ust what t does. It does not speak of o or gas,
but of o and gas wes as the property from whch the ncome s to
arse. If cacuaton s necessary to fnd that ncome, cacuaton Is mped.
Nor does the second sentence ntroduce any compcatons whch compromse
ths nterpretaton, as the ta payer woud have us understand. It Is true
that the net ncome from the property can not be found, even after the
gross Income at the mouth of the we has been computed, wthout the aoca-
ton of the overhead or genera e penses. rtce 221 (1) provdes for that
by a reasonabe formua t s not unduy dffcut of appcaton the mped
admnstratve deta s surey preferabe to the nequates whch resut from
the ta payer s proposa. Moreover, It s a matter of some Importance that ths
sentence of subdvson 3 was carred over substantay unchanged from the
ct of 1924 (secton 204(c)). There, at any rate the word property meant
we. We can fnd no reason for change from ts present conte t It seems
to us that the bass s ncome from the wes, not from the o or gas after
t has been carred through perhaps many mes of ppng.
Order affrmed.
S CTION 115. DISTRI UTIONS Y CORPOR TIONS.
rtce 627: Dvdends pad n property. -1-7890
Ct. D. 1055
INCOM T R NU CT O 1928 D CISION O SUTR M COURT.
1. Gan or Loss Recognton Dvdend Payabe n Stock of
nother Corporaton at a aue Whch ceed.t Its Cost.
Where a corporaton acqured stock of another corporaton n
1927, and n March, 1928, decared a dvdend payabe In stock of
the atter corporaton at an agreed vaue per share, whch vaue
was n e cess of the cost of the stock, t derved no ta abe gan
from the dstrbuton among ts stockhoders of the shares as a
dvdend.
2. ursdcton of Crcut Court of ppeas.
Upon petton for revew of a decson of the oard of Ta
ppeas, the Crcut Court of ppeas Is wthout power to make
fndngs of fact or to rue upon a pont not presented to or rued
upon by the oard, ts functon beng to decde whether the correct
rue of aw was apped to the facts found and whether there was
substanta evdence before the oard to support the fndngs made.
3. Decson Reversed.
Decson of the Crcut Court of ppeas, ourth Crcut (74
ed. (2d), 972), whch reversed the decson of the oard of Ta
ppeas (29 . T. ., 934), reversed.
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5115, rt. 627.
Sttpremb Coubt op the Unted States.
Genera Uttes Operatng Co., pettoner, v. Guy T. everng, Commssoner
of Interna Revenue.
On Tt of certorar to the Unted States Crcut Court of ppeas for tbe ourth Crcut.
December 9, 1935.
OPINION.
Mr. ustce McRetnods devered the opnon of the Court
anuary 1, 1927, pettoner Genera Uttes, a Deaware corporaton ac-
qured 20,000 shares (one-haf of tota outstandng) common stock Isands
dson Co., for whch t pad 2,000. Get Co. owned the remander.
Durng anuary, 1928, Whetstone, presdent of Southern Ctes Uttes Co.,
contempated acquston by hs company of a Isands dson common stock.
e dscussed the matter wth Lucas, pettoner s presdent, aso wth Get
Co. The atter concern agreed to se Its hodngs upon terms acceptabe to
a. ut Lucas ponted out that the shares whch hs company hed coud
ony be purchased after dstrbuton of them among stockhoders, snce a
sae by t woud sub|ect the reazed proft to ta aton, and when the proceeds
passed to the stockhoders there woud be further e acton. Lucas had no
power to se, but he, Get and Whetstone were n accord concernng the terms
and condtons under whch purchase of a the stock mght become possbe
t beng understood and agreed between them that pettoner woud moke
dstrbuton of the stock of the Isands dson Co. to ts stockhoders and that
counse woud prepare a wrtten agreement embodyng the terms and con-
dtons of the sad sae, agreement to be submtted for approva to the stock-
hoders of the Isands dson Co. after the dstrbuton of sad stock by the
pettoner.
Pettoner s drectors, March 22, 1928, consdered the dsposton of the
Isands dson shares. Offcers reported they were worth 1,122,500, and rec-
ommended an apprecaton on the books to that fgure. Thereupon a resou-
ton drected ths change aso that a dvdend n the amount of 1,071,426.25
be and t s hereby decared on the common stock of ths company payabe n
common stock of the Isands dson Co. at a vauaton of 56.12 a share,
out of the surpus of the company arsng from the apprecaton n the vaue of
the common stock of the Isands dson Co. hed by ths company, vz, 1,120,-
600, the payment of the dvdend to be made by the devery to the stockhoders
of ths company, pro rata, of certfcates for the common stock of the Isands
dson Co. hed by ths company at the rate of two shares of such stock for
each share of company stock of ths corporaton.
ccordngy, 19,090 shares were dstrbuted amongst pettoner s 83 stock-
hoders and proper transfers to them were made upon the ssung corporaton s
books. It retaned 910 shares.
fter ths transfer, a hoders of Isands dson stock, sod to Southern
Ctes Uttes Co. at 56.12 per share. Pettoner reazed 46,34430 net
proft on 910 shares and ths was duy returned for ta aton. There was no
report of gan upon the 19,090 shares dstrbuted to stockhoders.
The Commssoner of Interna Revenue decared a ta abe gan upon ds-
trbuton of the stock n payment of the dvdend decared March 22, and made
the questoned defcency assessment. Seekng redetermnaton by the oard
of Ta ppeas, pettoner aeged, The Commssoner of Interna Revenue has
erroneousy hed that the pettoner corporaton made a proft of 1,069,517.25
by dstrbutng to Its own stockhoders certan capta stock of another corpora-
ton whch t had theretofore owned. nd t asked a rung that no ta abe
gan resuted from the apprecaton upon ts books and subsequent dstrbuton
of the shares. nswerng, the Commssoner dened that hs acton was errone-
ous, but advanced no new bass of support. stpuaton concernng the facts
foowed and upon ths and the peadngs, the oard heard the cause.
It found The respondent has determned a defcency n ncome ta n the
amount of 128,342.07 for the caendar year 1928. The ony queston presented
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5115, rt. 627.1
216
In ths proceedng for redetermnaton Is whether pettoner reazed ta abe
gan n decarng a dvdend and payng t In the stock of another company at
an agreed vaue per share, whch vaue was In e cess of the cost of the stock
to pettoner. so, On March 26, 1928, the stockhoders of the Isands
dson Co. (one of whch was pettoner, ownng 910 shares) and the Southern
Ctes Uttes Co., entered nto a wrtten contract of sae of the Isands
dson Co. stock. t no tme dd pettoner agree wth Whetstone or the
Southern Ctes Uttes Co., verbay or n wrtng, to make sae to hm or to
the Southern Ctes Uttes Co. of any of sad stock e cept the aforesad 910
shares of the Isands dson Co.
The opnon rectes The Commssoner s theory s that upon the decara-
ton of the dvdend on March 22, 1928, pettoner became ndebted to ts
stockhoders n the amount of 1,071,426.25, and that the dscharge of that
abty by the devery of property costng ess than the amount of the debt
consttuted Income, ctng rby Lumber Co. v. Unted States (284 U. S., 1
Ct. D. 420, O. . -2, 356 ). The Intent of the drectors of pettoner was
to decare a dvdend payabe n Isands dson stock ther ntent was e -
pressed n that way n the resouton formay adopted and the dvdend was
pad n the way ntended and decared. We so construe the transacton, and
on authorty of rst Utah Savngs ank, supra (53 ed. (2d), 919 Ct. D. 451,
C. . I-1, 280 ), we hod that the decaraton and payment of the dvdend
resuted n no ta abe ncome.
The Commssoner asked the Crcut Court of ppeas, ourth Crcut, to
revew the oard s determnaton. e aeged, The ony queston to be de-
cded s whether the pettoner (ta payer) reazed ta abe Income n decarng
a dvdend and payng t In stock of another company at an agreed vaue per
share, whch vaue was n e cess of the cost of the stock.
The court stated: There are two grounds upon whch the pettoner urges
that the acton of the oard of Ta ppeas was wrong: rst, that the dv-
dend decared was n effect a cash dvdend and that the respondent reazed a
ta abe ncome by the dstrbuton of the Isands dson Co. stock to ts
stockhoders equa to the dfference between the amount of the dvdend de-
cared and the cost of the stock second, that the sae made of the Isands d-
son Co. stock was n reaty a sae by the respondent (wth a the terms agreed
upon before te decaraton of the dvdend), through ts stockhoders who were
vrtuay actng as agents of the respondent, the rea vendor.
Upon the frst ground, It sustaned the oard. Concernng the second. It hed
that, athough not rased before the oard, the pont shoud be rued upon.
When we come to consder the sae of the stock of the Isands dson Co.
we can not escape the concuson that the transacton was deberatey panned
and carred out for the soe purpose of escapng ta aton. The purchaser was
found by the offcers of the respondent the e act terms of the sae as fnay
consummated were agreed to by the same offcers the purchaser of the stock
stated that the devery of a the stock was essenta and that the devery of a
part thereof woud not suffce the detas were worked out for the e press and
admtted purpose of avodng the payment of the ta and for the reason that
the attorneys for the respondent had advsed that uness some such pan was
adopted the ta woud have to be pad and a wrtten agreement was to be
prepared by counse for the respondent whch was to be submtted to the stock-
hoders a ths wthout the stockhoders, or any of them, who were ostensby
makng the sae, beng nformed, advsed or consuted. Such admtted facts
pany consttuted a pan, not to use the harsher terms of scheme, artfce or
conspracy, to evade the payment of the ta . or the purposes of ths decson
t s not necessary to consder whether such a course as Is here shown const-
tuted a fraud, t s suffcent f we concude that the ob|ect was to evade the
payment of a ta usty due the Government.
The sae of the stock In queston was, n substance, made by the respondent
company, through the stockhoders as agents or conduts through whom the
transfer of the tte was effected. The stockhoders, even In ther character as
agents, had tte or no opton n the matter and In no sense e ercsed any n-
dependent |udgment. They automatcay ratfed the agreement prepared and
submtted to them.
udgment of reversa foowed.
oth trbunas beow rghty decded that pettoner derved no ta abe gan,
from the dstrbuton among ts stockhoders of the Isands dson shares as a
dvdend. Ths was no sae assets were not used to dscharge ndebtedness.
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217
5115, rt. 627.
The second ground of ob|ecton, athough sustaned by the court, was not
presented to or rued upon by the oard. The petton for revew reed whoy
nron the frst pont and, n the crcumstances, we thnk the court shoud have
consdered no other. ways a ta payer s entted to know wth far certanty
the bass of the cam aganst hu. Stpuatons concernng facts and any other
evdence propery are accommodated to ssues adequatey rased.
Recenty ( pr, 1935) ths Court ponted out The Court of ppeas s
wthout power on revew of proceedngs of the oard of Ta ppeas to make
any fndngs of fact The functon of the court s to decde whether the
correct rue of aw was apped to the facts found and whether there was sub-
stanta evdence before the oard to support the fndngs made. If the
oard has faed to make an essenta fndng and the record on revew s
nsufcent to provde the bass for a fna determnaton, the proper procedure
s to remand the case for further proceedngs before te oard. nd the
same procedure s approprate even when the. fndngs omtted by the oard
mght be supped from e amnaton of the record. ( everng v. Rankn,
295 U. S., 123, 131, 132 Ct D. 966, C. . I -1, 160 .)
ere te court undertook to decde a queston not propery rased. so It
made an Inference of fact drecty n confct wth the stpuaton of the partes
and the fndngs, for whch we thnk the record affords no support whatever.
To remand the cause for further fndngs woud be fute. The oard coud
not propery fnd anythng whch woud assst the Commssoner s cause.
The udgment of the court beow must be reversed. The acton of the oard
of Ta ppeas s approved.
Reversed.
rtce 627: Dvdends pad n property. -7-7955
Ct. D. 1079
INCOM ) T R NU CT O 1028 D CISION OP COURT.
1. I soon b Dvdend Pad n Stock of nother Corporaton.
Where a corporaton on anuary 2, 1929, decared and dstrb-
uted a dvdend of 1 share of stock In another corporaton, whch
t had acqured after ebruary 28, 1913, for each 10 shares of ts
own stock, the shares so receved by a stockhoder were ta abe as
a dvdend n an amount measured by ther market vaue at the
tme of dstrbuton.
2. Certorar Dened.
Petton for certorar dened on October 14, 1935.
Unted States Crcut Court or ppeas fob the Second Crcut.
Peter Dnze, r., pettoner, v. Commssoner of Interna Revenue, respondent.
ppea from Unted States oard of Ta ppeas.
efore Manton, Swan, and ugustus N. and, Crcut udges.
March 4, 1935.
opnon.
rom an order of the oard of Ta ppeas ad|udgng a defcency of
9,708.86 n the ncome ta es of the pettoner, Peter nze, r., for the year
1929. the atter appeas. ffrmed.
ugustus N. and, Crcut udge: On anuary 2, 1929, the ta payer owned
2.500 shares of the Unted Cork Cos. and on the same date the atter company
decared a dvdend of 1 share of Natona Cty ank stock, whch t had
among Its assets, for each 10 shares hed by ts stockhoders n ts own stock.
It had purchased 1,335 shares of the Cty ank stock at varous tmes after
ebruary 28, 1913, and dstrbuted 845 shares of the tota amount to ts
stockhoders on anuary 2, 1929. The average cost of ths stock to the Unted
84326 38 -8 .
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5115, rt. 627.
218
Cork Cos. was 62.98 per share and the market vaue at the tme the dvdend
was decared was 273 per share. t ths vauaton the 250 shares whch the
ta payer receved were worth 68,250. The ta payer vaued the 250 shares at
5,745 In hs Income ta return for the year 1929, whch was at 62.98 per share,
the orgna cost to the Unted (Dork Cos. The Commssoner vaued them at
273 per share the worth of each share when dstrbuted to the ta payer
assessed hs ta upon such a vauaton of hs shares, and determned a de-
fcency of 9,708.86 accordngy, whch was affrmed by the oard of Ta
ppeas.
The ta payer cams that any amount over 62.98 per share receved by hm
through the dstrbuton of the Cty ank stock was not sub|ect to ta aton
because the e cess was unreazed and coud not be ta ed unt t shoud
e ceed the bass of hs Unted Cork Cos. stock. The Commssoner cams that
the dstrbuton was an ordnary dvdend n property and sub|ect to the pro-
vson of artce 627 of Reguatons 74, whch provded that:
Dvdends pad n securtes or other property (other than ts own stock)
n whch the earnngs of a corporaton have been Invested are ncome to the
recpents to the amount of the market vaue of such property when recevabe
by the sharehoders.
Secton 115(a) of the Revenue ct of 1928 defnes a dvdend as:
any dstrbuton made by a corporaton to Its sharehoders, whether
n money or n other property, out of ts earnngs or profts accumuated after
ebruary 28, 1913.
Subdvson (b) of the same secton provdes that:
ny earnngs or profts accumuated, or ncrease n vaue of
property accrued, before March 1, 1913, may be dstrbuted e empt from ta ,
after the earnngs and profts accumuated after ebruary 28, 1913, have been
dstrbuted, but any such ta -free dstrbuton sha be apped aganst and
reduce the bass of the stock provded n secton 113.
s the ta payer has the burden of proof we must assume that the stock of
the Cty ank was purchased out of earnngs accrued after March 1, 1913.
If so, Its Increase n vaue resuted from earnngs out of whch the stock was
orgnay purchased and pro tanto was added to ts surpus avaabe for
dvdends or for any other purpose. It does not foow, because the Unted
Cork Cos. reazed no ta abe proft whe t hed the shares of the Natona
Cty ank, that there was no proft n fact, or that the dvdend was not
sub|ect to ta es based upon a vauaton of the stock that ncuded the ncre-
ment. That the market vaue at the tme of dstrbuton shoud be the bass
for the Income ta Is evdent from the decsons of the Supreme Court n
Unted Sates v. PheUs (257 U. S., 156 T. D. 3270, C. . 5, 37 ) Rockefeer
v. Unted States (257 U. S., 176 T. D. 3271, C. . 5, 34 ), as we as under
artce 627 of Reguatons 74, supra.
It s argued on behaf of the pettoner that the vaue of the Cty ank
stock, represented by the ncrease over ts cost, s not ta abe as a dvdend,
but shoud be apped aganst and reduce the bass of the stock whch the
ta payer hed In the Unted Cork Co., because of the anguage of secton 115(d)
of the Revenue ct of 1928. That subdvson reads as foows:
(d) Other dstrbutons from capta. If any dstrbuton (not n parta
or compete qudaton) made by a corporaton to ts sharehoders s not
out of ncrease n vaue of property accrued before March 1, 1913, and Is not
out of earnngs or profts, then the amount of such dstrbuton sha be
apped aganst and reduce the bass of the stock provded n secton 113,
and f n e cess of such bass, such e cess sha be ta abe n the same manner
as a gan from the sae or e change of property.
The foregong subdvson, however, does not e empt dstrbutons made out
of earnngs or profts of the Unted Cork Cos. There s no reason to suppose
that the earnngs and profts were not suffcent to cover the vaue of the Cty
ank stock at the tme of dstrbuton, and the burden to prove that they were
not was upon the ta payer. (Wckwre v. Rcnccke, 275 U. S., 101 T. D.
4126, C. . II-1, 316 Mrtcaf s state v. Commssoner, 32 ed. (2d), 192,
195 (O. C. . 2) Ct. D. 58, C. . III-1, 219 .) Secton 115(d), therefore,
can not be regarded as requrng that the Increase In vaue of the bank stock
over Its cost shoud be apped aganst and reduce the bass of the ta payer s
hodng of stock of the Unted Cork Cos. If that corporaton had earnngs
or profts from any source, accumuated after ebruary 28, 1918, from whch
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219
115, rt. 628.
It coud have made a dstrbuton equa n amount to the market vaue of the
bank stock receved by the ta payer, the dstrbuton shoud be regarded as
havng been made from the most recenty accumuated earnngs, aud shoud
not be apped to reduce the bass of hs stock n Unted Cork Cos. (Secton
115(b), supra everng v. Canfed, 291 U. S., 163 Ct. D. 783, C. . III-1,
176 Leand v. Commssoner, 60 ed. (2d), 623 (C. C. . 1) Ct. D. 387, C. .
5-2, 300 .)
Whether we regard the dstrbuton of the bank stock as made out of earnngs
accrued after ebruary 28, 1913, because t was orgnay purchased out of
them and ts ncreased vaue orgnated n that purchase, or whether at the
tme the ta payer receved the Cty ank stock there were earnngs and
profts accrued after ebruary 28, 1913, that were equvaent to ts then market
vaue, n ether event the ncrement woud not be e empt from ta es under
115(d), but woud be a part of a dvdend a of whch was sub|ect to ta aton
as current ncome of the recpent.
We thnk that the oard correcty determned that the ta payer receved a
dvdend In Cty ank stock ta abe at a vaue of 273 per share and Its order
Is affrmed accordngy.
rtce 628: Stock dvdends. -24-8123
( so Secton 111, rtce 5C1.) Ct. D. 1124
INCOM T R NU CTS O 1926 ND 1928 D CISION O SUPR M
COURT.
Gan or Loss Redempton op Preferred Stock Dvdends Pad
n Common Stock Whether Income ob Return or Capta
adty of Treasury Reguatons.
ta payer who purchased cumuatve nonvotng preferred
shares of stock of a corporaton upon whch dvdends were subse-
quenty pad n common votng shares s not requred, upon the
redempton of the preferred stock, to apporton Its cost between
the preferred and common for the purpose of determnng gan
or oss, notwthstandng that Treasury reguatons, ong In force,
prescrbe such aocaton. The stock dvdends were ncome and
may not be treated as returns of capta. The provsons of the
statute are unambguous and ts drectons specfc that n ta ng
ncome arsng from capta gan the cost of the asset dsposed of
sha be the measure of the ncome, and the Secretary of the
Treasury Is therefore wthout power by reguatory amendment to
add a provson that Income derved from the capta asset sha
be used to reduce cost.
Supreme Court op the Unted States.
Cornte . oshand, pettoner, v. Ouy T. everng, Commssoner of Interna
Revenue.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Nnth Crcut.
May 18, 1936.
opnon.
Mr. ustce Roberts devered the opnon of the Court.
The wrt of certorar was granted n ths case to resove a confct between
the decson beow1 and one by the Crcut Court of ppeas for the S th
Crcut.
The queston s whether, under the Revenue cts of 1926 and 1928, a ta -
payer who purchases cumuatve nonvotng preferred shares of a corporaton
upon whch a dvdend s subsequenty pad n common votng shares, must,
upon a sae or other dsposton of the preferred shares, apporton ther cost
between preferred and common for the purpose of determnng gan or oss.
Commssoner v. onhand (81 . (2d), 641).
Commssoner r. Totson Mfg. Co. (76 . (2d), 189).
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5115, rt. 628.
220
The pettoner, n 1924 and 1928, purchased preferred stock of Coumba
Stee Corporaton. The company s artces of ncorporaton provded that
hoders of preferred stock shoud receve annua dvdends of 7 a share n
cash or, at the company s opton, one share of common stock for each share of
preferred. Dvdends on the preferred were to be pad n fu before any
coud be pad on the common the common had votng rghts, the preferred
none. The preferred was redeemabe at 105 per share, pus accrued dv-
dends and upon dssouton or qudaton was entted to preferenta pay-
ment of 100 per share, pus accrued dvdends, and no more. The com-
mon aone was entted n such event to the assets of the corporaton reman-
ug after payment of the preferred.
In each of the years 1925 to 1928, ncusve, the company had a surpus
suffcent to pay the preferred dvdends n cash, but eected to pay them n
common stock. The pettoner receved, In each of those years, shares of
common stock as dvdends on her preferred. In 1930 the corporaton re-
deemed ts preferred stock at 105 per share. In computng the proft reazed
by the pettoner the Commssoner aocated to the common stock so receved,
n each nstance, a proportonate amount of the cost of the preferred stock.
o thereby decreased the resutng cost bass per share and ncreased the
gan. The oard of Ta ppeas reversed hodng that the dvdends were
ta abe ncome, were not stock dvdends wthn the meanng of the Reve-
nue cts, and ther recept dd not reduce the cost bass of the preferred
stock. The crcut court of appeas reversed the oard and approved the
Commssoner s acton.
The pettoner contends, frst, that the dvdends she receved were not
stock dvdends e empted from ta aton by the Revenue cts and, secondy,
f e empted, they were none the ess Income and can not be treated as returns
of capta In computng capta gan or oss. The respondent answers that the
dstrbutons were stock dvdends because made In the capta stock of the
corporaton and come wthn the pan meanng of the provsons e emptng
stock dvdends from Income ta accordngy, the Treasury reguatons have
consstenty and contnuousy treated them as returns of capta, and requred
the orgna cost to be apportoned between the shares orgnay acqured and
those dstrbuted as dvdends to obtan the cost bass for the cacuaton of
gan or oss. We hod that the dvdends were ncome and may not be treated
as returns of capta.
The Revenue ct of 1913 mposed an Income ta on dvdends.4 In Tcnvne v.
mer (245 U. S., 418) t was hed that where a corporaton decared a
dvdend on ts common stock, n the form of common stock, the dvdend was
not ncome wthn the ntendment of the ct. The Revenue ct of 1916
provded that a stock dvdend shoud be consdered ncome to the amount of
ts cash vaue. In sner v. Macomber (252 U. S., 189 T. D. 3010, C. . 3, 25 )
t was decded that a dvdend n the corporaton s common stock pad to the
then common stockhoders, was not Income wthn the meanng of the s teenth
amendment and therefore the effort to ta such dvdends e ceeded the power
granted by the amendment. It was sad that such a dvdend was not ncome
because, by ts payment, no severance of corporate assets was accompshed
and the pree stng proportonate nterests of the stockhoders remaned
unatered. fter the decson the Treasury revoked reguatons to the effect
that a dvdend pad In the corporaton s stock Is ncome and ssued amended
reguatons, broady phrased, to e empt a ncome In the form of stock dv-
dends, whether the dvdend shares be of the same cass as those theretofore
hed by the stockhoder or of a dfferent cass, and prescrbng the method of
aocatng the orgna cost as between the od and the new stock for purposes
of cacuatng gan or oss upon reazaton. Subsequenty Congress adopted
the Revenue ct of 1921 whch provded, n secton 201(d) : stock dvdend
pha not be sub|ect to ta . The reason for the e empton was the
decson In sner v. Marombcr, supra. The reports of both the ouse and the
Senate commttees deang wth the b state that the ct modfes the
defnton of dvdends n e stng aw by e emptng stock dvdends from the
Revenue ct of 1028. secton 115(f) (cn. S52. 45 Stat., 791. 822) Revenue ct of 1026.
secton 201(f) (ch. 27, 44 Stat., 0. 11) : 6tock dvdend sha not be sub|ect to ta .
4 38 Stt., 114, 1(10, IT.
, o,at- 7r 81 7 7- Compare Revenue ct of 1018 (40 Stat., 1057, 1059).
42 Stat., 227, 228. The same provson was repented In a subsequent Revenue cts:
Revenue cts of 102 4 and 1026, secton 201(f) Revenue cts of 1028. 1982, and 19 4
secton 11IW f 1
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221
115, rt. 628.
Income ta , as requred by the decson of the Supreme Court n sner v.
Uacombcr (252 U. S., 189).
though sner v. Macomber affected ony the ta aton of dvdends decared
n the same stock as that presenty hed by the ta payer, the Treasury gave
the decson a broader nterpretaton whch Congress foowed n the ct of
1921. Soon after the passage of that ct, ths Court ponted out the dstnc-
ton between a stock dvdend whch worked no change In the corporate entty,
the same nterest n the same corporaton beng represented after the dstrbu-
ton by more shares of precsey the same character, and such a dvdend where
there had ether been changes of corporate dentty or a change n the nature
of the shares ssued as dvdends whereby the proportona nterest of the
stockhoder after the dstrbuton was essentay dfferent from hs former
nterest. Nevertheess the successve statutes and Treasury reguatons re-
spectng ta aton of stock dvdends remaned unatered. We gve great weght
to an admnstratve nterpretaton ong and consstenty foowed, partcuary
when the Congress, presumaby wth that constructon n mnd, has reenacted the
statute wthout change. The queston here, however, s not merey of our
adoptng the admnstratve constructon but whether t shoud be adopted f
n effect t converts an ncome ta nto a capta evy.
We are deang soey wth an ncome ta ct. Under our decsons the
payment of a dvdend of new common shares, conferrng no dfferent rghts or
nterests than dd the od the new certfcates, pus the od, representng the
same proportonate nterest n the net assets of the corporaton as dd the
od does not consttute the recept of ncome by the stockhoder. On the other
hand, where a stock dvdend gves the stockhoder an nterest dfferent from
that whch hs former stock hodngs represented he receves Income. The
atter type of dvdend s ta abe as ncome under the s teenth amendment.
Whether Congress has ta ed t as of the tme of Its recept, s mmatera for
present purposes.
The reevant capta gans provsons of the Revenue ct of 1928 are secton
111(a) :
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 . n
nd secton 113:
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 prop-
erty: (wth e ceptons havng no reevancy here).
The property dsposed of was the pettoner s preferred stock. In pan terms
the statute drects the subtracton of ts cost from the proceeds of ts redemp-
ton, f the atter sum be the greater. ut we are tod that Treasury regua-
tons1 ong n force requre an aocaton of the orgna cost between the
preferred stock purchased and the common stock receved as dvdend. nd It s
sad that whe no provson of the statute authorzes a specfc reguaton
respectng ths matter, the genera power conferred by the aw to mnke appro-
prate reguatons comprehends the sub|ect. Where the ct uses ambguous
terms, or s of doubtfu constructon, a carfyng reguaton or one Indcatng
the method of Its appcaton to specfc cases not ony s permssbe but s to
be gven great weght by the courts. nd the same prncpe governs where the
statute merey e presses a genera rue and nvests the Secretary of the Treas-
ury wth authorty to promugate reguatons approprate to ts enforcement.
ut where, as n ths case, the provsons of the ct are unambguous, and ts
drectons specfc, there s no power to amend t by reguaton. Congress
. R 350, S ty-seventh Congress, frst sesson, page 8. Senate Report No. 275, S ty-
seventh Contrress, frst sesson, page 9.
Unted State . Phes (257 D. S., 158 Ct. D. 19. C. . 5, 371) Rockefeer v. Unted
State (257 T . 8 . 17 ICt. D. 18. C. . 5. 841 Cunan v. Waker (262 IT. 8.. 134 TCt
D. 32, C. . II-2, 55 ) arr v. Unted States (268 U. S., 536 T. D. 3755. C I -2
1161).
See Reguatons 65 and 69, artces 1547, 1648 Reguatons 74 and 77, artces C27
628: Reguatons 86, artces 115-7, 115-8.
Poe v. eaborn (282 T . S., 101, 116 Ct. D. 259, C. . I -2, 2021) : IfcCattahn r
ershey (283 U. S., 488, 492 Ct. D. 845, C. . -, 444 ) Uo eey . Commssoner (290
T . 8.. 102, 108).
m 45 Stat., 815.
a 45 Stat, 818.
Reguatons 74, artces 58, 628. and 600.
Manhattan Genera qupment Co. v. Commssoner of Interna Revenue. No. 226,
October Term, 1935, and cases cted.
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115, rt. 629.
222
havng ceary and specfcay decared that In ta ng Income arsng from
capta gan the cost of the asset dsposed of sha be the measure of the ncome,
the Secretary of the Treasury s wthout power by reguatory amendment to
add a provson that ncome derved from the capta asset sha bo used to
reduce cost.
The |udgment s reversed.
rtce 629: Dstrbuton n redempton or -15-8036
canceaton of stock ta abe as a dvdend. Ct. D. 1102
ncome ta revenue act op 1028 decson of court.
Income Dvdend Canceaton ob Redempton op Stock.
Where a corporaton n 1930 redeemed and canceed a porton of
the stock hed by ts prncpa stockhoder, the payment beng made
out of surpus, and mmedatey thereafter ncreased Its capta
stock by decarng a stock dvdend, and contnued n busness,
the amount receved by the stockhoder, though n form a stock
redempton, was n fact a dstrbuton of earnngs and substantay
equvaent to a cash dvdend, ta abe under the provsons of sec-
ton 115(g) of the Revenue ct of 192a
Unted States Crcut Coubt of ppeas fob the Thrd Crcut.
Wam T. rown, r., pettoner, v. Commssoner of Interna Revenue,
respondent.
Upon petton for revew from the Unted States oard of Ta ppeas.
efore uffngton and Thompson, Crcut udges, and ohnson, Dstrct
uy 31, 1935.
OPINION.
Thompson, Crcut udge: Ths s a petton for revew of a decson of the
oard of Ta ppeas. In 1927, the ectro Constructon Co., a corporaton,
had outstandng 1,000 shares of capta stock, of whch the pettoner, Wam
T. rown, r., owned 550 shares, oseph . McCarthy 445 shares and ohn .
McCarthy 5 shares. oseph . McCarthy ded testate and under hs w
ohn . McCarthy became the owner of hs shares. The corporaton decned
ohn . McCarthy s request to redeem those shares at ther book vaue of
205 per share, for, athough at that tme t had 154,000 cash on hand, t
needed a of ts avaabe cash to e ecute a number of contracts then pendng.
The pettoner, however, agreed to and dd n fact, buy the 445 shares for
91,225 and pad for them out of hs own persona funds. The pettoner there-
upon sod 5 shares to hs secretary and retaned 990 shares. In 1927 and
1928, the corporaton decared a 100 per cent cash dvdend, but n 1929, no
dvdend was decared, athough the company s earnngs were hgh. The
cash on hand had ncreased from 154,000 n 1927 to appro matey 241,000
near the cose of 1930. December 16, 1930, the corporaton redeemed and
canceed 440 of the shares whch the pettoner had purchased from ohn .
McCarthy and pad the pettoner 2S0 per share or 123,200, usng funds out
of ts surpus wth whch to pay for the dfference between the par vaue nnd
the book vaue. One day ater the corporaton decared a 400 per cent stock
dvdend on ts capta stock, whereby the pettoner receved 2,200 shares, hs
secretary 20 shares and ohn . McCarthy 20 shares. In hs ncome ta
return for 19: 0, the pettoner reported 31,975 as proft resutng from the sae
of Is stock to the corporaton. The Commssoner assessed a defcency and
was sustaned by the oard of Ta ppeas.
The pettoner contends that the transacton was n parta qudaton of
the corporaton under secton 115(c) of the Revenue ct of 1928 and that ony
the qudated proft of .S1,975 was ta abe. The Commssoner, on the other
hand, contends that the transacton was essentay equvaent to the dstr7
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223
115, rt. 629.
button of a ta abe dvdend under secton 115(g) of the Revenue ct of 1928
and that the entre 123,200 shoud be reported n the pettoner s ncome ta
return as dvdend sub|ect to ta .
The appcabe statute s secton 115 of the Revenue ct of 1928 (26 U. S.
C. ., 2115) whch provdes:
(a) The term dvdend when used n ths tte (e cept n secton 203(a)4
and secton 208(c), reatng to nsurance companes) means any dstrbuton
made by a corporaton to ts sharehoders, whether n money or n other prop-
erty, oat of Its earnngs or profts accumuated after ebruary 28, 1913.

(c) mounts dstrbuted In compete qudaton of a corporaton sha be
treated as n fu payment In e change for the stock, and amounts dstrbuted
In parta qudaton of a corporaton sha be treated as n part or fu pay-
ment n e change for the stock. The gan or oss to the dstrbutee resutng
from such e change sha be determned under secton 111, but sha be recog-
nzed ony to the e tent provded n secton 112. In the case of amounts ds-
trbuted In parta qudaton (other than a dstrbuton wthn the provsons
of secton 112(h) of stock or securtes n connecton wth a reorganzaton) the
part of such dstrbuton whch s propery chargeabe to capta account sha
not be consdered a dstrbuton of earnngs or profts wthn the meanng of
subsecton (b) of ths secton for the purpose of determnng the ta abty of
subsequent dstrbutons by the corporaton.

(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 It represents a ds-
trbuton of earnngs or profts accumuated after ebruary 28, 1913, sha be
treated as a ta abe dvdend. In the case of the canceaton or redempton of
stock not ssued as a stock dvdend ths subsecton sha appy ony f the
canceaton or redempton s made after anuary 1, 1926.
(h) s used n ths secton the term amounts dstrbuted n parta quda-
ton means a dstrbuton by a corporaton n compete canceaton or redemp-
ton of a part of ts stock, or one of a seres of dstrbutons n compete cance-
aton or redempton of a or a porton of ts stock.
The queston s whether the payment by the corporaton for the redempton of
the pettoner s stock was essentay equvaent to the dstrbuton to hm of a
ta abe dvdend. It s for the oard of Ta ppeas to determne from the
facts before It whether the partcuar transacton s essentay equvaent to a
ta abe dvdend. (Commssoner v. abson, 70 ed. (2d), 304, certorar de-
ned, 293 U. S., 571.) We thnk the oard had sufcent evdence upon whch
to base ts fndngs. The money wth whch the corporaton pad the pettoner
came from ts profts and earnngs. Pror to the sae to the corporaton of 440
shares of capta stock, the pettoner hed 99 per cent of the stock. Notwth-
standng the fact that the corporaton pad hm 123,200 for ess than one-haf
of the stock whch he hed, the pettoner, after the sae, contnued to hod 98
per cent of ts stock. The reducton of the capta stock dd not amount to a
qudaton, for t Is to be noted that the foowng day the capta stock was
Increased and the busness of the corporaton was contnued at a proft.
In yman v. Commssoner (71 ed. (2d), 342 Ct. D. 920, O. . I -1, 213 ,
certorar dened, 293 U. 8., 570), the court, speakng of secton 115(g) of the
Revenue ct of 1928 sad:
The purpose of Congress In the Incuson of (g) was to narrow the dstnc-
ton to the end that corporatons mght not by resort to the devce of stock re-
dempton or canceaton make a dstrbuton to ts sharehoders essentay re-
sutng n a dvson of profts. In both the ouse and Senate reports, and n
the conference reports, an Iustraton s gven showng the congressona pur-
pose. The ustraton supposes, under the ta aws pror to the amendment
Invoved 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 tock hed by them and cances t, and the payment s non-
ta abe because t s a parta redempton of stock. To change ths resut and
make It ta abe (g) was wrtten and Incorporated Into the aw. Granted the
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116, rt. 642.
224
Iustraton s an apt one and the ob|ect sought accompshed, It w be seen
how neary It 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 In
the condton n whch t was pror to the transfer, e cept that Its earnngs have
been dstrbuted to ts stockhoder wthout havng dsturbed hs ownershp and
contro of the corporaton.
In the Instant case, our concuson s that the transacton, though n form a
stock redempton, was, n fact, a dstrbuton of earnngs substantay equva-
ent to a cash dvdend. We fnd no error n the fndngs of fact and concu-
sons of aw of the oard of Ta ppeas.
The decson of the oard of Ta ppeas s affrmed.
S CTION 116. CLUSIONS ROM GROSS
INCOM .
rtce 642: Income of States. -11-7998
Ct. D. 1090
INCOM T R NU CT O 1028 D CISION OP COURT.
. empton Income Rents Receved by Lessee of State
Lands.
Where a State eased and, hed and used for the soe beneft
of the State unversty, to a essee whch Invested a arge amount
of capta and abor n the erecton of budngs upon the eased
and, the essee s ncome from the rents receved was not Immune
from tu . The ta was not Imposed upon the State, nor upon the
ease, but upon a prvate corporaton hodng the ease, and Its
mposton paced no substanta burden upon the e ercse of any
essenta functon of government.
2. Decsons Dstngushed.
Gespe v. The State of Okahoma (257 U. S., 501) and urnet
. Coronado O d Gas Co. (285 U. S., 393 Ct. D. 485, O. . I-1.
265 ) dstngushed.
8. Cebtobab Dened.
Petton for certorar dened March 2, 1936.
Coubt of Cams of the Unted States.
Metropotan udng Co. v. The Unted States.
November 4, 1935.
OPmO .
Wams, udge, devered the opnon of the court.
The pantff seeks recovery of 16,646.31, together wt Interest, ncome ta
pad for the perod, ebruary 1, 1929, to November 13, 1929. The facts have
been stpuated by the partes, the soe controversy beng whether the ncome
upon whch the ta was Imposed s sub|ect to ta aton by the Unted States.
The and, the sub|ect of the ease, Is ocated n the cty of Seatte, Wash.,
and s commony desgnated as Unversty Tract. It s owned by the State
of Washngton and s hed and used for the soe beneft of the Unversty of
Washngton. The ncome to the State under the ease Is pad drect to the
unversty and s used e cusvey for educatona purposes.
The Supreme Court of the State of Washngton, n the case of State of
Washngton v. The Cty of Seatte et a. (57 Wash., 602 107 Pacfc, 827),
where the drect ssue presented was whether the and In queston was owned
and hed by the State In ts prvate capacty as a propretor or n ts govern-
menta capacty, hed that the tract was acqured by the State n trust for
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5116, rt. 642.
the 60te use of upbudng Its unversty accordng to the purpose and sprt of
the grant by whch It was acqured, to the e tent and In the same manner In
whch the State had accepted the grant of pubc and from the Unted States
for pubc schoo purposes. The and beng owned and hed by the State of
Washngton n Its governmenta capacty under an e press trust to use the
and and a the ncome arsng therefrom n support of the unversty, the
ease n queston s an nstrumentaty of the State.
The pantff contends that the ta n queston Is In effect a ta upon the
ease tsef, and that as such s vod under the rue ad down by the Supreme
Court In Gespe v. The State of Okahoma (257 U. S., 601), urnet v. Coro-
nado O Gas Co. (285 U. S., 893), and other cases, and by ths court n
norand v. ntcd States (78 C. Cs., 69, 53 ed. (2d), 907).
The prncpe of Immunty from ta aton by the edera Government of
nstrumentates of a State and the correspondng Immunty of edera nstru-
mentates from ta aton by a State Is we setted. owever, t s recognzed
that ust what nstrumentates 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. (Metcaf ddy v. Mtche, 269 U. S., 514 T. D. 8824, C. .
-, 218 .) The estabshed prncpe has Its nherent mtatons. ( o
m Corporaton v. Doya et a., 286 U. S., 123.) The reasons underyng the
prncpe mark the mts of Its range. (Indan Motocyce Co. v. Unted States,
2S3 U. S., 570 Ct. D. 354, O. . -, 439 .) The mmunty does not e st
where no drect burden s ad upon the governmenta Instrumentaty, and
there Is onv a remote, If any Infuence upon the e ercse of the functons of
government. (Wttcuts v. unn, 282 U. S., 216 Ct. D. 280, C. . -, 309 .)
The rue of Gespe v. Okahoma and urnet v. Coronado O t Gas Co.
must be consdered In the ght of the mtatons paced upon t n the dec-
sons |ust cted, and, as stated by the court n the Coronado case, Is to be
apped strcty and ony n crcumstances cosey anaogous to those whch
they dscose.
The crcumstances of the present case n our opnon are not cosey ana-
ogous to the crcumstances dscosed In the Gespe and the Coronado cases.
The facts are ceary and fundamentay dstngushabe. In both the G-
espe and the Coronado cases the ta ed Income came from profts reazed
on the sae of o abstracted from the ands eased. The Income came drecty
and whoy from the thng eased the and tsef. That Is not the stuaton
here. The pantff s ncome was not derved drecty from the ands eased
but came whoy from rents receved from budngs whch the pantff had
erected on the premses. It came from more than a thousand tenants to
whom the pantff had rented storerooms and of ces. cept for pantffs
arge nvestment n budngs, amountng to amost 5,000,000, and the abor
Incdent to the successfu management of the propertes represented by such
nvestment, the ncome coud not have been reazed. The fact that the bud-
ngs were erected n conformty wth the terms of the ease and that tte
to the budngs vested Immedatey In the State upon ther erecton Is not
Important and does not change the stuaton. The Income upon whch the
ta was Imposed was reazed prmary from the pantff s arge Investment
of capta and abor and dd not come drecty from the premses eased, as
In the cases reed upon. These facts remove the case from the rue announced
In the Gespe and Coronado cases. ( cksten v. ntcd States, 80 C. Cs., 725,
10 ed. Supp., 231.)
The chaenged ta Is not Imposed upon the State of Washngton, nor
upon the ease, the Instrumentaty of the State, but upon the pantff, a pr-
vate corporaton hodng the ease. The Immunty camed, therefore, e sts
ony If the effect of the ta Is to pace a substanta burden upon the e ercse
of the State s essenta functons of government, and as stated n Wcuts
v. unn, supra, It must appear that the burden Is rea, not Imagnary sub-
stanta, not neggbe. The appcaton of the doctrne of Imped Im-
munty must be practca (Raroad Co. v. Pcnston, 18 Wa., 5, 31, 36) and
shoud have regard to the crcumstances dscosed. ( urnet v. . T. ergns
Trust, 288 U. S., 508 Ct. D. 653, C. . II-1, 214 .)
The amount of renta pad to the State under the ease Is defntey f ed
by the terms of the ease, and Is pad at stated Intervas unaffected by whether
or not the pantff Is ta ed on the profts of Its busness. Theoretcay the
ta may have some effect upon the amount of renta reserved In the ease
but, f so, ts Infuence s so remote and Indrect as to be magnary rather
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116, rt. 643.
226
than rea. a a practca matter, therefore, the Imposton of the ta aganst
pantff paces no substanta burden upon the State s e ercse of any essenta
functon of government. It foows that the petton must be dsmssed, and It
s so ordered.
haey, udge Ltteton, udge Greek, udge and ooth, Chef ustce,
concur.
rtce 643: Compensaton of State offcers and empoyees.
R NU CT O 1928.
Ta abty of compensaton receved by offcers and empoyees of
a State or potca subdvson. (See Mm. 3838, revsed, page 130.)
rtce 643: Compensaton of State offcers . -19-8077
and empoyees. Ct. D. 1114
ncome ta revenue acts of 1926 and 1928 decson of court.
empton Compensaton fob Servces Offcer or mpoyee of
State: Independent Contractor.
Compensaton receved by the ta payer as attorney and chef
counse for the Impera rrgaton dstrct of the State of Ca-
forna was not e empt from edera ncome ta . The ta payer
was not an offcer or empoyee of the State, but was an ndependent
contractor who entered nto the ordnary reaton of attorney and
cent wth a pubc corporaton.
Unted States Crcut Court or ppeas for the Nnth Crcut.
Chares L. Chders, pettoner, v. Commssoner of Interna Revenue,
respondent.
Upon petton to revew orders of the Unted States oard of Ta ppeas.
efore Wbur, Garrbght, and Denman, Crcut udges.
November 4, 1935.
OPINION.
Per curam: Ths Is a petton to revew smutaneous decsons of the Unted
States oard of Ta ppeas entered anuary 11, 1934, and nvoves the ed-
era Income ta abty of the pettoner, formery a resdent of C mtro,
Caf., and now resdng n Los ngees, Caf.
The pettoner cams that the respondent has erroneousy ncuded In the
pettoner s ta abe ncome the amounts of 11,588.23 and 10,055 for the years
1927 and 1928, respectvey, representng compensaton receved by the pet-
toner for servces as an offcer or empoyee of the Impera Irrgaton
dstrct of the State of Caforna. The ta payer contends that the rrgaton
dstrct s a pubc agency of the State, e ercsng essenta governmenta
functons, and that he devoted practcay a of hs busness hours to the
busness of sad dstrct.
It s the pettoner s contenton that the amounts receved by hm from the
dstrct are not sub|ect to edera ncome ta es under the genera prncpe
of aw that the edera Government can not ta the means and nstrumenta-
tes of the States. e aso nvokes the revenue aws of the Unted States and
Treasury reguatons ssued pursuant thereto.
The oard hed n effect that the Impera Irrgaton dstrct coud not be
cassfed as an essenta governmenta functon of the State of Caforna and
that, therefore, the pettoner s ncome derved therefrom was not e empted
from edera ncome ta aton.
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227
5116, rt. 643.
The matter n dspute was submtted upon an agreed statement of facts,
from whch the oard found the foowng:
In 1923, the pettoner was engaged as attorney and chef counse of the
Irrgaton dstrct, and was so engaged durng the years In controversy, namey,
1927 and 1928.
The authorty for the pettoner s connecton wth the dstrct Is contaned
n the foowng resouton adopted by the board of drectors of the dstrct:
Resoved, That Chas. L. Chders, of Centro, Caf., be empoyed as
attorney for Impera Irrgaton dstrct, at a retaner of 350, whch retaner
sha Incude a servces rendered by hm, e ceptng the tra of cases an any
cervces requrng hs absence from the county of Impera, and when engaged
In the tra of cases on behaf of the dstrct or absent from Impera County
on behaf of the dstrct n addton to sad retaner he sha receve the sum of
(25 per day.
The pettoner mantaned hs own aw offce and durng the years 1927 and
1928 he was free to and dd accept some other mnor concurrent work. e
aso operated a farm for proft, whch operaton resuted n a net oss for the
year 1927 of 66.06, and net proft of 439.13 for the year 1928.
Practcay a of hs ordnary busness hours were devoted to the affars of
the sad Impera rrgaton dstrct. ecause of the voume of dstrct work. It
was necessary for the pettoner to empoy an assstant, whose compensaton was
pad by the pettoner.
The e penses ncurred by the pettoner n connecton wth earnng the com-
pensaton receved from the dstrct, whch have been aowed by the respondent
as deductons from gross Income, ncuded offce rent, suppes, the saary of the
assstant, ta es and deprecaton.
The etterhead of the Impera rrgaton dstrct sts the pettoner as
attorney, under the headng of offcers.
The Impera Irrgaton dstrct was formed and e sts under the Caforna
rrgaton dstrct act, and the acts amendatory thereof and suppementary
thereto.
The pettoner asks ths court to revew the decson of the oard approvng
defcences In edera ncome ta es of 145.96 and 73.22 for the years 1927
and 1928, respectvey.
The prmary queston here presented s whether the compensaton receved
by the pettoner as attorney for the rrgaton dstrct s e empt from the
edera ncome ta . Ths depends upon the queston as to whether the pet-
toner was an offcer or empoyee of the State of Caforna.
rtce 37 of Reguatons 69, promugated under the Revenue ct of 1926,
reads n part as foows:
State contracts. The proft of an Independent contractor from a contract
wth a State or potca subdvson thereof must be Incuded In gross
ncome.
rtce 88 of the same reguatons Is In part as foows:
Compensaton of tate offcers and empoyees. Compensaton pad to Its
offcers and empoyees by a State or potca subdvson thereof for servces
rendered In connecton wth the e ercse of an essenta governmenta functon
of the State or potca subdvson, Incudng fees receved by notares pubc
commssoned by States and the commssons of recevers apponted by State
courts, s not ta abe. Compensaton receved for servces rendered to a State
or potca subdvson thereof s Incuded In gross ncome uness (a) the per-
son receves such compensaton as an offcer or empoyee of a State or potca
subdvson, and (6) the servces are rendered In connecton wth the e ercse of
an essenta governmenta functon.
n offcer s a person who occupes a poston In the servce of the State or
potca subdvson, the tenure of whch s contnuous and not temporary and
the dutes of whch are estabshed by aw or reguatons and not by agreement.
n empoyee s one whose dutes consst n the rendton of prescrbed servces
and not the accompshment of specfc ob|ects, and whose servces are con-
tnuous, not occasona or temporary.
rtces 56 and 643 of Reguatons 74, promugated under the Revenue ct
of 1928, contan provsons dentca, In a matera respects, wth those quoted
above.
The pettoner contends that, rom the probatve facts found by the oard,
the utmate fact must necessary be that the pettoner s an offcer or an
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116, rt. 643.
228
empoyee of the Irrgaton dstrct. The respondent Inssts that the pettoner
was an ndependent contractor In hs reatonshp to the dstrct.
Under ths headng, the pettoner asserts that Snce the oard dd not fnd
that the pettoner was not an offcer or empoyee, but based ts decson whoy
upon other grounds, the decson of the oard of Ta ppeas can not be sus-
taned on the ground that the oard mght have found that the pettoner was
not an offcer or an empoyee.
Though the oard s fndngs do not contan a statement of the utmate fact
that te pettoner was not an empoyee or an offcer, the fndngs contan suff-
cent facts to enabe us to determne that queston as a matter of aw. It s
we setted that an appeate court may base an affrmance upon grounds other
than those reed upon beow.
In support of hs contenton that he was an empoyee of the rrgaton
dstrct, the pettoner quotes secton 1965 of the Cv Code of Caforna, whch
reads as foows:
The contract of empoyment s a contract by whch one, who s caed the
empoyer, engages another, who s caed the empoyee, to do somethng for the
beneft of the empoyer, or of a thrd person.
Ths secton, however, must be read n connecton wth secton 2009, whch
provdes:
servant s one who s empoyed to render persona servce to hs empoyer,
otherwse than In the pursut of an ndependent cang, and who n such serv-
ce remans entrey under the contro and drecton of the atter, who s caed
hs master.
The Supreme Court of Caforna has hed that The word servant Is gen-
eray synonymous wth the word empoyee. (Western Indemnty Co. v.
Psbury, 172 Ca., 807, 810-811.)
The pettoner aso ays consderabe stress upon the fact that the oard
e pressy found that he had been engaged as attorney and chef counse,
and upon the fact that the board of drectors of the dstrct, n ts resouton,
stated that he be empoyed as attorney, etc.
gan the Supreme Court of Caforna has rued aganst the pettoner s
contenton, and wth specfc reference to contracts between attorney and
cent. In dety C. Co. v. Industra co. Com. (191 Ca., 404, 410), the
court sad:
The crcumstance that under the contract decedent was to render non-
deegabe persona servces may be persuasve, but t s n no sense concusve
or determnatve. Contracts for the rendton of nondeegabe persona servces
are of common occurrence whch do not consttute the contractor an empoyee.
or e ampe, the ordnary contracts between attorney and cent. The same
may be sad of the use of the phrase engages and empoys.
Indeed, t has been hed that even when the word empoyee Is used n a
statute, such usage s not concusve n estabshng the reatonshp of empoyer
and empoyee. ( urnet v. hU zey (C. C. . 4), 48 . (2d), 159, 161.)
The books are repete wth nstances where the term empoyer or em-
poy s used n connecton wth the hrng of an ndependent contractor.
We need cte ony a few such decsons: Western Indemnty Co. v. Psoury,
supra, at page 813 dety O. Co. v. Industra co. Com., supra, at page
410, quotng Shearman and Redfed on Neggence, 6th ed., secton 164 Mctcaf
ddy v. Mtche, at pages 518 and 520 T. D. 3824, O. . -, 218
Regster v. Commssoner of Interna Revenue (O. C. . 6) (69 . (2d), 607,
608 Ct D. 8C3, C. . III-2, 284 .)
In Caforna, as esewhere, The chef consderaton whch determnes one
to be an ndependent contractor s the fact that the empoyer has no rght
of contro as to the mode of dong the work contracted for
(Green v. Soue, 1-15 Ca., 90, 99, quotng 16 m. ng. ucyc. of Law, 2d
ed.. page 187 Western Indemnty Co. v. Psbury, supra, at page 811.)
To rader one :n empoyee, the empoyer s rght of contro must be compete,
and e tend to the detas of the work.
In Western Indemnty Co. v. Psbury, supra, at page 811, the court sad:
It s true that many authortes specfy contro of the person performng
the work as the means of dfferentatng servce from ndependent empoyment.
The test of contro, however, means oompete contro.
nd In dety t O. Co. v. Industra oc. Com., supra, at page 407:
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229
116, rt. 643.
e Is deemed to be the master who has the supreme choce, contro, and
drecton of the servant, and whose w the servant represents, not merey
tn the utmate resuts of the work, but n a the detas.
The test to whch we refer was recognzed n the case of aght v. Comms-
toner of Interna Revenue (O. 0. . 7) (52 (2d), 779, 781, certorar dened,
2S5 U. S., 537-538), n whch the court sad:
The record n ths case shows that dcock, n renderng hs servces to the
santary dstrct, was under the genera drecton and supervson of ts
genera attorney. Ths was requred by the rues and reguatons of the board
of trustees. ths amounts to Is that dcock woud report to the genera
attorney from tme to tme as to what had been done, and consuted wth
hm. It does not show that the genera attorney e ercsed any detaed contro
as to what shoud be done, and how It shoud be done, whch Is essenta to
the reatonshp of empoyer and empoyee.
In the eadng case of Metcaf t ddy v. Mtche, supra, the pantffs were
consutng engneers, who, ether as ndvduas or as copartners, were profes-
sonay empoyed to advse States or subdvsons of States wth reference
to proposed water suppy and sewage dsposa systems. In that case, at pages
520-521 of ts opnon, the Supreme Court of the Unted States sad:
Nor do the facts stated n the b of e ceptons estabsh that the pantffs
were empoyees wthn the meanng of the statute. So far as appears, they
were n the poston of ndependent contractors. The record does not revea
to what e tent, f at a, ther servces were sub|ect to the drecton of the
pubc boards or offcers engagng them. In each nstance the performance of
ther contract nvoved the use of |udgment and dscreton on ther part and
they were requred to use ther best professona sk to brng about the
desred resut. Ths permtted to them berty of acton whch e cudes the
dea of that contro or rght of contro by the empoyer whch characterzes the
reaton of empoyer and empoyee and dfferentates the empoyee or servant
from the ndependent contractor. Cases cted.
So here, there s nothng n the record to estabsh that the pettoner was
an empoyee wthn the meanng of the consttutona mtaton. Nether
In the resouton of the board of drectors, upon whch the pettoner rees,
nor n the fndngs of the oard of Ta ppeas can there be found any state-
ment whch woud ustfy the assumpton that the contract between the
pettoner and the dstrct was other than an ordnary contract between
attorney and cent, so far as supervson and contro by the cent are concerned.
Of a smar contract wth a dranage dstrct, n urnet v. ones (C. C. . 8)
(50 . (2d), 14,15), the court sad:
Whe hs empoyment was authorzed by statute, the statute tsef does
not f the status of the attorney as an empoyee. It does not f hs dutes,
hs saary, nor hs tenure of offce. e had no f ed offce hours, but rendered
ega servces pursuant to specfc contract

The awyer who s retaned In the affars of hs cent s not propery
desgnated an empoyee. e Is an offcer of the court. s counseor and
advsor to hs cents and as an advocate before the court, whatever acton he
takes Is upon ndependent udgment umnated by hs earnng, hs sk, hs
e perence, and hs ethcs. The reatonshp of attorney and cent s entered
Into and mantaned wth regard to these consderatons, and s not that of
empoyer and empoyee.
(See aso 13 Ca. ur., 1019-1020 3 Ca. ur., 654-656 Snger Manufacturng
Co. v. Rahn, 132 U. S., 518, 523-524 Ch., Rock Isd. ac. Ry. v. ond, 240
U. S., 449, 455-457 urnet v. McDonough (C. C. . 8), 46 . (2d), 944, 945-946
Ct D. 338, C. . -, 367 rown v. Commssoner of Interna Revenue, 19
. T. ., 368, 573-574, petton for revew dened, 55 . (2d), 1076, certorar de-
ned, 287 U. S., 602 repke v. Commssoner of Interna Revenue (C. C. . 8),
32 . (2d), 594, 596 Ct. D. 114, C. . III-2, 287 Roberts v. Commssoner
(C. C. . 5), 44 . (2d), 168 aght v. Commssoner, supra, at page 781 Un-
derwood v. Commssoner (C. C. . 4), 56 . (2d), 67, 71-72 Norcross v. c-
verng (C. . D. C), 75 . (2d), 679, 680.)
Nor coud the pettoner be consdered an offcer of the dstrct e ctes
to us no statute creatng the offce of attorney for an rrgaton dstrct, nor
have we been abe to dscover any. Sectons 7 and 19 of the Caforna rrga-
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5116, rt. 643.
230
ton dstrct act provde for the eecton of offcers, and secton 19c provdes for
the appontment of offcers, but no menton s made of an attorney.
Secton 15 of the act empowers the board of drectors to empoy and ap-
pont such agents, offcers and empoyees as may be requred, and prescrbe ther
dutes. We assume that the pettoner was apponted as attorney under ths
provson.
Nor does the fact that the pettoner s name appears as attorney under the
headng of offcers, on the etterhead of the dstrct concude the matter for,
as we have repeatedy hed, and as we have aready ponted out heren, ega
reatonshps are determned not by abes but by contractua provsons, Inter-
preted accordng to aw. We do not regard that queston as answered by
mere termnoogy. ( everng v. Powers, 293 U. S., 214, 224 Ct D. 900, C. .
III-2, 213 .)
tremey apposte to the nstant case s the anguage of the court In Metcaf
ddy v. Mtche, supra, at page 520:
n offce s a pubc staton conferred by the appontment of government.
The term embraces the dea of tenure, duraton, emoument, and dutes f ed by
aw. Where an offce Is created, the aw usuay f es ts ncdents, ncudng ts
terms, ts dutes, and ts compensaton. Case cted. The term offcer Is one
nseparaby connected wth an offce but there was no offce of sewage or water
uppy e pert or santary engneer, to whch ether of the pantffs was ap-
ponted. The contracts wth them, athough entered Into by authorty of aw
and prescrbng ther dutes, coud not operate to create an offce or gve to
pantffs the status of offcers. Cases cted. There were ackng n each In-
stance the essenta eements of a pubc staton, permanent n character, cre-
ated by aw, whose ncdents and dutes were prescrbed by aw. Cases cted.
(See aso everng v. Powers, supra, at pages 222-223 ar v. Dyers (C. C.
. 8), 35 . (2d), 326, 328 Ct. D. 140, C. . I -1, 247 aght v. Commssoner,
supra, at pages 780-781 Regster v. Commssoner, supra Commssoner v.
Mod|esk (C. C. . 2), 75 . (2d), 468, 470.)
ppyng the prncpes announced n the foregong decsons, we concude
that the pettoner was nether an empoyee nor an offcer, but was an ndepend-
ent contractor who entered nto the ordnary reaton of attorney and cent
wth a pubc corporaton.
The pettoner has not brought hmsef ether substantay or e acty wthn
the e cepton he cams. (Regster v. Commssoner, supra, at page 607.)
Inqurng nto the effect of the partcuar ta , we do not fnd that t Impars
In any substanta manner the abty of the pettoner to dscharge hs ob-
gatons to the State or the abty of a State or Its subdvsons to procure the
servces of prvate ndvduas to ad them In ther undertakngs. (Metcaf t
ddy v. Mtche, supra, at page 526. See aso Trre v. ohnston, 86 N. .,
530, 171 , 641, 654, affrmed, 293 U. S., 533.)
The petton s dened, and the decsons of the oard of Ta ppeas are
affrmed.
ncome ta revenue act of 1023 decson of court.
1. empton Compensaton fob Seevoes mpoyee of State-
Independent CoNTR CTO .
Compensaton receved by the ta payer as chef counse for
an nvestgaton commttee created by the egsature of the State
of New ersey was not e empt from edera ncome ta , where the
ta payer contnued to engage n prvate practce, was under no
supervson by the commttee as to hs hours, and e ercsed hs
own |udgment and dscreton In the conduct of the nvestgaton.
e was nn ndependent contractor and not an empoyee of the
State.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (31 . T. ., 1097) affrmed.
rtce 643: Compensaton of State offcers
and empoyees.
-25-8132
Ct, D. 1128
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231
U6, rt. 643.
Unted States Craomr Court of ppsw s fob the Thrd Crcut.
Russe . Watson, pettoner, v. Commssoner of Interna Revenue, respondent.
Upon petton for revew from the Unted States oard of Ta ppeas.
efore Davs and Thompson, Crcut udges, and orman, Dstrct udge.
anuary 20, 1936.
opnon.
Thompson, Crcut udge: Ths s a petton for revew of a decson of the
oard of Ta ppeas. The pettoner s a awyer engaged n genera practce
In New ersey. In 1928, by a ont resouton, the New ersey Legsature
created a commttee charged wth the duty
To make a survey of a questons of pubc Interest to nvestgate voatons
of aw and the conduct of any State, county, or muncpa offca, State, county
or muncpa department, State, county or muncpa commsson, State, county
or muncpa board, or State, county or muncpa body, to report whether the
functons of such offcas, departments, commssons, boards, and bodes, have
been or are beng awfuy and propery dscharged, for the purpose of obtanng
Informaton reatve thereto as a bass for such egsatve acton as the
senate and genera assemby may deem necessary and proper to ascertan
what departments or actvtes of the State, county, or muncpa governments
may be curtaed, consodated, or emnated, and report those fndngs as
a bass for such egsatve acton as the senate and genera assemby may deem
necessary and proper to make a genera survey a the fnances of the State,
countes, muncpates, and to report ts fndngs as a bass for such egsa-
tve acton as the senate and genera assemby may deem necessary and proper,
e cudng, however, any nvestgaton of the department of bankng and
nsurance.
Secton 2 of the resouton provded:
The commttee sha seect a charman and secretary, and sha
have the power to empoy the necessary ega, cerca and other assstance.
The pettoner served as chef counse for the commttee from une, 1928, unt
anuary, 1930, and for the servces thus rendered, he was pad 18,000 n 1029
by the State of New ersey. e dd not ncude ths amount n hs ncome ta
return. The Commssoner assessed a defcency and was sustaned by the
oard of Ta ppeas. The pettoner cams that as to ths sum he was an
Instrumentaty of the State. The Commssoner dsputes the cam. though
there s no e press provson In the Consttuten of the Unted States whch
prohbts the mposton of edera ncome ta es upon agences and nstru-
mentates of a State, the Supreme Court has hed that the ta prohbton Is
necessary mped. (The Coector v. Day, 11 Waace, 113 Unted States v.
Raroad Company, 17 Waace, 322.) The s teenth amendment to the Con-
sttuton has not atered ths e empton from ta aton. ( owers v. erbaugh-
mpre Co., 271 U. S., 170 T. D. 3881, C. . -, 199 .) In accordance wth
ths doctrne Congress has enacted 26 U. S. C. ., 1065b, whch provdes:
ny ta es mposed by the Revenue ct of 1924 or pror Revenue cts upon
any ndvdua In respect of amounts receved by hm as compensaton for per-
sona servces as an offcer or empoyee of any State or potca subdvson
thereof (e cept te the e tent that such compensaton s pad by the Unted
States Government drecty or Indrecty), sha, sub|ect to the statutory perod
of mtatons propery appcabe thereto, be abated, credted, or refunded.
The pettoner dees not cam to be an offcer of the State, but does cam to
be an empoyee of the State and contends that hs Income so derved s ta
e empt. The Commssoner mantans that the pettoner was not an empoyee
but was an ndependent contractor. The dstncton s tersey made by the
Supreme Court n Metcaf t ddy v. Mtche (209 U. S., 514, 520 T. D. 3824,
C. . -, 218 ), where t s sad:
Nor do the facts stated n the b of e ceptons estabsh that the pantffs
were empoyees wthn the meanng of the statute. So far as appears, they
were n the poston of ndependent contractors. The record does not revea
to what e tent, f at a, ther servces were sub|ect to the drecton or contro
of the pubc boards or offcers engagng them. In each Instance the perform-
ance of ther contract nvoved the use of udgment and dscreton on ther part
and they were requred to use ther best professona sk to brng about the
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117, rt. 651.
232
desred resut. Ths permtted to them berty of acton whch e cudes the
dea that contro or rght of contro by the empoyer whch characterses the
reaton of empoyer and empoyee and dfferentates the empoyee or servant
from the Independent contractor.
We appy ths test to the nstant case. s evdence that the pettoner was
an empoyee are the facts that the resouton used the word empoy, that
the pettoner took an onth of offce (athough the same was not requred by
the egsature), that he coud be dscharged by the commttee at any tme and
that he was pad out of the State treasury under authorty of the |ont resou-
ton. s evdence that he was ndependent contractor are the facta that the
commttee e ercsed no supervson over ds hours, that he contnued to engage
n hs prvate practce, and that he e ercsed hs own udgment and dscreton
n the conduct of the Investgaton authorzed by the ont resouton. In Lucas,
Commssoner of Interna Revenue, v. Reed (281 U. S., 699), the Supreme Court,
upon authorty of Metcaf ddy v. Mtche, supra, reversed the decson of
ths court reported n 84 . (2d), 263. In that case the ta payer was em-
poyed as speca counse to represent the Commonweath n certan nhertance
ta cases. The State egsature had approprated funds for the servces of
attorneys to be empoyed n such cases. The Commssoner refused to aow
the ta payer e empton for compensaton receved from the State on the ground
that he was an ndependent contractor and not an empoyee of the State.
The Supreme Court uphed the Commssoner. udged by the test deveoped
n the dscusson In Metcaf d ddy v. Mtche, supra, and by the rung of
the Supreme Court In Lucas, Commssoner of Interna Revenue, v. Reed, supra,
we thnk the oard In the nstant case had before It suffcent evdence to
estabsh ts concuson that the pettoner was an ndependent contractor and
not an empoyee. We thnk the decson of the oard of Ta ppeas Is ampy
supported by the evdence and ts concusons sustaned by the authortes. It
s, accordngy, affrmed.
S CTION 117. N T LOSS S.
rtce 651: Net osses, defnton and com- -20-8088
putaton. Ct D. 1116
INCOM T R NU CT O 1928 D CISION O COURT.
1. Deducton Net Loss Separate and ont ettors.
Where separate returns were fed by a husband and wfe for
1929, that of the husband showng a net busness oss, and a |ont
return was fed for 1930 dscosng net Income of the wfe and net
busness oss sustaned by the husband, the net oss of the husband
for 1929 can not be carred over and taken as a deducton from the
aggregate Income of the husband and wfe for 1930.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (31 . T. ., 433) affrmed.
8. Certorar Dened.
Petton for certorar dened pr 6, 1936.
Unted States Crcut Court of ppeas fob the Second Crcut.
Chares . an eck and Natae . an eck, pettoners, v. Commssoner of
Interna Revenue, respondent.
Chares . an eck, pettoner, v. Commssoner of Interna Revenue,
respondent.
Pettons to revew decsons of the oard of Ta ppeas. ffrmed.
efore Manton, ugustus N. and, and Chase, Crcut udges.
December 9, 1935.
OPINION.
The pettoners n one case are a husband and wfe who fed a ont return
of ncome for the caendar year 1930 and In the other the husband aone s
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233
117, rt. 651.
tte pettoner. s the same Issue Is rased In each case, they were consodated
for hearng.
Chase. Crcut udge: Durng the caendar years 1929 and 1980 Chares .
Tan eck, one of the pettoners, was reguary engaged n the busness of
buyng and seng securtes. e sustaned a net busness oss of 58,105.37
In 1929 and fed a separate return for that caendar year whch showed the oss
sustaned.
Durng the caendar year 1930, he had gross ncome amountng to 77,996.50
and a capta net gan of -12,079.30 but hs aowabe deductons for that perod
aone were 110,814.58, so that a computaton of hs ncome ta status for the
perod, fgured on the bass of a separate return, eft hm wth another net oss
and wth no opportunty then to carry over and use as a deducton the statutory
net oss he had sustaned In the prevous year.
Mr. an eck, however, dd not fe a separate return for the caendar year
1930. Instead, he and hs wfe, the other pettoner, who were vng together
and had aggregate ncome suffcent to entte them so to do, fed a |ont return
for 1930. Mrs. an eck had net Income for that perod whch e ceeded the
tota net osses her husband had sustaned both n 1929 and 1930. In that
|ont return the husband s 1930 net oss was deducted from the aggregate gross
Income of both and the rght to take that deducton has not been questoned.
What has gven rse to the ssue rased by these pettoners s the fact that
the net oss he sustaned n 1929 was aso deducted. That s to say, 39,418.10
of t was taken as a deducton n the |ont return, and ater the pettoners
fed a cam for refund based upon a recomputaton n whch the remander of
hs 1929 oss was camed to be deductbe. That cam for refund s st
pendng before the Commssoner and s, strcty, not here nvoved athough t
Is nevtabe that the decson here w suppy the bass for decdng the
refund cam.
rom the above, t w be seen that the soe queston presented s whether,
when a husband and wfe fed, as they mght, a |ont return for the year 1030
whch showed no ta abe net ncome e cept that of the wfe, such ta abe
et may be reduced by carryng over and deductng a not oss sustaned by
the husband n the prevous year. The rght to fe a |ont return under the
crcumstances aready outned fows from the provsons of secton 51 of the
evenue ct of 1928. The statute provdes that where a husband and wfe
may, and do, fe a snge |ont return the ta sha be computed on the
segregate ncome, nd artce 3S1 of Treasury Reguatons 74 n so far as
here appcabe provdes that, Where the ncome of each s Incuded
n a snge |ont return, the ta Is computed on the aggregate ncome and a
deductons and credts to whch ether Is entted sha be taken from such
ncome.
In the ght of the above statute and reguaton no ob|ecton was made to the
deducton by the husband of hs 1930 statutory net oss from the net ncome
of hs wfe. Smpy stated, the poston of the pettoners s that there s
the same rght to carry over and deduct hs 1929 net oss.
Ths cam of rght to take such a deducton fas adequatey to take nto
account a basc mtaton upon the rght to carry over a net oss for purposes
of deducton n a subsequent year. We agree that once ether husband or wfe
can estabsh In hs or her own rght that a oss s deductbe t may be
taken from the aggregate Income shown by the |ont return. ut n the
case of a oss sustaned n a prevous year the rght to any deducton at
a depends upon the rght to carry the oss over and nto the computaton of
the current year for the purpose of determnng gan or oss for the ta abe
year. The rght to carry over a oss s an ncdent of the rght to deduct
and equay depends upon egsatve grace. The enactments of Congress upon
ths sub|ect dscose a genera pocy to mt the rght to deduct osses to
the ta payer who sustaned them and when the rght to make them avaabe
to another Is camed t must be supported by an appcabe statute. (See
ew Coona Co. v. everng, 292 U. S., 435 Ct. D. 841, 0. . III-1, 194
Wooford Reaty Co. v. Rose, 286 U. S., 319 Ct. D. 493, a . I-1, 154
Panter Cotton O Co. v. opkns, 286 U. S., 332 Ct. D. 492, C. . I-1, 153 .)
though the pettoners fed a |ont return n 1930, each of them remaned
a separate and dstnct ta payer. (Wooford Reaty Co. v. Rose, supra.) In
the case |ust mentoned the ta payers were corporatons but the prncpe
appes wth equa force to ndvdua ta payers. s two corporate ta payers
who fe a consodated return reman two separate ta payers so do a husband
end wfe who fe a |ont return.
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141, rt. 41 (Regs. 76).
234
The rght to carry over and deduct a prevous net oss rests upon secton
117(b) of the 1028 Revenue ct. The rght to carry over Is e pressy mted
to any ta payer (who) has sustaned a net oss and the rght to use the
deducton Is as e pressy mted to computng the net Income of the ta -
payer for the succeedng year or years. It foows that the ony ta payer
who coud use the husband s 1929 net oss In computng net Income for 1930
was the ta payer who sustaned the oss, 1. e., the husband hmsef. ut It
so happens that hs rght to take t nto the computaton s so restrcted
that e coud not even do ths. Secton 117(a)6 of the Revenue ct of 1928
provded that: In computng the net oss for any ta abe year a net oss
for a pror year sha not be aowed as a deducton. s the husband sustaned
a net oss In 19S0 he coud not n hs own rght carry hs 1929 net oss nto
the 1930 computaton. (See wcers v. Commssoner, 89 ed. (2d), 215
(decded to-day).) s the wfe dd not sustan the 1930 net oss she coud
not carry t nto the 1930 computaton ether. nd, of course, as nether coud
carry It nto the 1930 computaton of ta abe Income It coud have no pace
at a n the 1930 ont return.
ffrmed.
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 691: nayss of credt for ta es.
R NU CT O 1928.
Ta es assessed by German Government for 1916 and pad durng
ne t four years. (See Ct. D. 1100, page 172.)
rtce 695: Countres whch do or do not satsfy the
smar credt requrement.
R NU CT O 1028.
Netherands Government. (See I. T. 2980, page 140.)
SUPPL M NT D. R TURNS ND P YM NT O T .
S CTION 141. CONSOLID T D R TURNS O COR-
POR TIONS 1929 ND SU S U NT
T L Y RS.
rtce 41, Reguatons 75: Net osses. -13-8019
Ct. D. 1096
INCOM T R NU CT O 1928 D CISION O COURT.
1. Consodated Returns Change rom Caendar to soa
Year ass Ta abe Year Net Loss of Subsdary.
Where the parent of two corporatons whch became affated
In 1929 secured the permsson of the Commssoner to change Its
accountng perod for 1929 from the caendar year bass to the
fsca year endng une 80, provded It fed Its 1928 return for
the perod from anuary 1 to une 80, and aso secured the consent
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235 rt. 41 (Regs. 75).
of the subsdary, whch had prevousy fed returns upon the
bass of a fsca year endng October 31, to the fng of a con-
sodated return, the 2-month perod of November-December, 1928,
whch was not ncuded n the ta abe year of the parent, con-
sttuted a ta abe year for whch the subsdary was obgated
to fe a separate reurn, under the provsons of secton 141 (a)
and (b) of the Revenue ct of 1928 and Reguatons 75, and a
statutory net oss sustaned by the subsdary for the fsca year
endng October 31, 1927, was aowabe ony aganst ncome ao-
cated to the 2-month separate return perod and not aganst
ncome for the perod from anuary to uy, 1929, for whch con-
sodated return was fed.
2. ormer Opnon dhered to.
Opnon of March 12, 1934 (Ct D. 880, O. . III-2, 217 77
ed. (2d), 774) adhered to.
3. Decson Dstngushed.
cverng v. Morgan s, Inc. (68 ed. (2d), 325 293 U. S., 121),
dstngushed.
4. Certorar Dened.
Petton for certorar dened October 21, 1935.
Unted States Court of ppeas fob the Dstrct of Coumba.
Wshnck-Tumpeer, Inc., pettoner, v. -uy T. evcrng, Commssoner of
Interna Revenue, respondent.
On rehearng.
f une 10, 1935.
OPINION.
Groneb, .: Our former opnon was fed March 12, 1934. Shorty there-
after, and before our mandate had gone down, the Government apped to the
Supreme Court for certorar In evcrng v. Morgan s, Inc. (68 . (2d), 325).
The petton assgned as the reason for grantng the wrt that:
The decson beow s n drect confct wth the decson of the Unted
States Court of ppeas for the Dstrct of Coumba n Wshnck-Tumpeer,
Inc., v. Commssoner, decded March 12, 1934 Ct. D. 880, C. . III-2, 217 .
though the Wshnck-Tumpeer case arose under the Revenue ct of 1928,
and Invoked the provsons of Reguatons 75, there s, we submt, no bass
of dstncton between the two cases on ths ground. In each case the utmate
queston s the meanng of the words ta abe year as used n the appcabe
secton of the statute.
Certorar was granted, and the decson of the rst Crcut Court of ppeas
affrmed November 5, 1934 (293 U. S., 121 Ct. D. 888, C. . III-2, 267 ).
We granted a rehearng. On rehearng the Government reversed Its formor
poston and now nssts there s a dstncton between the two cases. Ths
Laodcean pocy does not commend Itsef to us, but we doubt f It can be
made to ustfy a refusa to e amne the queston for ourseves.
In Morgan s case that corporaton, on une 1, 1925, acqured the votng stock
of anes Corporaton. oth corporatons were prevousy on the caendar
year bass, and n fng ther 1926 returns anes fed a separate return for
the frst fve months of 1925 and the two corporatons fed consodated
returns for the ast seven months of that year and for the years 1926 and
1927. In 1925 and In 1926 anes sustaned net osses. In 1927 t made a net
proft. Its net oss n the frst fve months of 1925 (before affaton) was
shown n a separate return for that perod. Its net osses for the ast seven
months of 1925 and for the year 1926 were shown n the consodated returns
of the two corporatons for those perods. In the consodated return for 1927
anes brought forward ts oss for the frst fve months of 1920 and deducted
t from ts net ncome n 1927. The Commssoner dsaowed the deducton
on the ground that the separate return coverng the frst fve months of 1925
and the consodated return for the ast seven months of 1925 covered two
separate ta abe years wthn the meanng of the statute resutng n makng
the thrd year carry-over e pre n 1926.
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141, rt. 41 (Regs. 75).
236
In our case the two corporatons In queston were affated, In the sense
that Tunpeer owned 95 per cent of Poneer for a perod pror to the tme n
queston, but both companes had durng that perod fed separate ta returns.
Tumpeer s ta perod was the caendar year, and Poneer s the fsca year
endng October 31. Tumpeer n 1929 was granted permsson by the Comms-
soner to change ts ta abe year from caendar year to a fsca year endng
une 30, provded It fed ts return for that year (1929) on or before Sep-
tember 15, coverng the perod of anuary 1 to une 30, 1929. Tumpeer, wth
the consent of Poneer, then fed a consodated return. The return ncuded
the net ncome of Tumpeer from anuary 1 to une 30, 1929, and the net
ncome of Poneer for the 8-month perod November 1, 1928, to une 30, 1929.
In Poneer s return there was deducted a oss sustaned In 1927, no porton
of whch had been used to offset Its Income In the year endng October 31,
1928. The Commssoner hed that ths was not permssbe, treated Poneer s
return as a separate return for the perod November 1 to December 31, 1928,
and aowed the 1927 net oss aganst the net Income aocated to the Novem-
ber-December perod, but dened the rght to offset the remander aganst the
ncome for the perod anuary to uy, 1929 and ths resut was accompshed,
as n Morgan s case, by treatng the perod November and December, 192S,
as a separate ta abe year.
The statement of facts In Morgan s case and ths case, to the e tent we have
gone, shows the cases are dentca.
In Morgan s case the Supreme Court hed the Commssoner s decson wrong
on the ground that the ta abe year n the carry-over statute was a 12-
month perod, and that a return made, under the crcumstances of that case,
for a shorter perod dd not consttute such perod a separate ta abe year.
nd f ths were a, t woud be manfesty our duty to reca our former
opnon and to conform t to the vew of the Supreme Court. ut n the vew
we take there are other facts and consderatons, to whch we sha refer,
whch when fary weghed dstngushed the two cases and made the rue n
the one nappcabe n the other and ths, we thnk, was the vew of the
Supreme Court as ndcated by the ony two references to ths case In the
opnon n Morgan s case.
Morgan s case arose under the Revenue ct of 1926 our case under the Reve-
nue ct of 1928. There Is no substanta dfference In the two cts In def-
nton of ta abe year, or oss carry-over, but n other respects there are mate-
ra dfferences both n the cts and In the Treasury reguatons made pursuant
to statutory authorty.
Secton 141 ( ct of 1928, ch. 852 45 Stat, 791) Is new. It provdes as
foows:
(a) n affated group of corporatons sha, sub|ect to the provsons of
ths secton, have the prvege of makng a consodated return for the ta abe
year 1929 or any subsequent ta abe year, In eu of separate returns. The
makng of a consodated return sha be upon the condton that a the cor-
poratons whch have been members of the affated group at any tme durng
the ta abe year for whch the return Is made consent to a the reguatons
under subsecton (b) prescrbed pror to the makng of such return and the
makng of a consodated return sha be consdered as such consent. In the
case of a corporaton whch s a member of the affated group for a frac-
tona part of the year the consodated return sha ncude the Income of
such corporaton for such part of the year as It s a member of the affated
group.
(b) The Commssoner, wth the approva of the Secretary, sha prescrbe
such reguatons as he may deem necessary In order that the ta abty of
an affated group of corporatons makng a consodated return and of each
corporaton In the group, both durng and after the perod of affaton, may
be determned, computed, assessed, coected, and ad|usted In such manner as
ceary to refect the ncome and to prevent avodance of ta abty.
Pursuant to ths authorty, the Commssoner promugated Reguatons 75.
We quote the appcabe sectons, as foows:
rt. 13. (g) If a corporaton, durng ts ta abe year, becomes a member of
an affated group, Its ncome for the porton of such ta abe year not ncuded
n the consodated return of such group must be Incuded n a separate
return .
rt. 14. The ta abe year of the parent corporaton sha be consdered an
the ta abe year of an affated group whch makes a consodated return,
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237
5141, rt. 41 (Regs. 75.)
and the consodated net Income must be computed on the bass of the ta abe
year of the parent corporaton.
m. 4L (d) ny perod of ess than 12 months for whch ether a separate
return or a consodated return s fed, under the provsons of artce 13,
sha be consdered as a ta abe year.
y reference to the above It w be seen that Congress, In the 1928 ct,
authorzed the Commssoner to prescrbe specfc reguatons to determne the
ta abty of an affated group of corporatons seekng permsson to make
a consodated return, and made the acceptance of the reguatons by the
appcant corporatons a condton precedent to the rght to fe consodated
returns. nd t w aso be seen that the Commssoner s reguatons, made
pursuant to ths authorty, provde that where there s affaton for the pur-
pose of fng consodated returns, and such returns are fed durng the ta -
abe year of one of the corporatons, ts return for the perod of the year not
Incuded n the consodated return sha be made separatey aso that the
ta abe year of the parent sha be the ta abe year of the affate and that
any perod of ess than 12 months for whch ether a separate or consodated
return s fed sha be a ta abe year. These condtons, In ther entrety,
e acty ft the case of pettoner here. Tumpeer and Poneer became affated
for the purpose of consodated ta aton n the year 1929. Tumpeer s the
parent. It duy apped to the Commssoner for permsson to change ts
ta abe year from caendar year to fsca year. Wth the consent of Poneer,
t fed a consodated return. y the terms of the Commssoner s permt, ts
ta abe year for ts 1929 return was anuary 1 to une 30. Poneer, In
order to conform to the reguatons, was obgated to fe a separate return
to cover the ast two months of 1928 the months not ncuded n the ta abe
year of ts parent. Under artce 41(d) of the reguatons, ths separate
perod return embraced a ta abe year.
It therefore foows that, f the Commssoner s reguatons are to be gven
the force of aw, the Government s poston s, as we formery hed, n a re-
spects correct.
Is there, then, anythng n Morgan s case to negatve ths concuson We
thnk not. That case turned upon the constructon of secton 200(a) of the 1926
ct The secton defnes the term ta abe year to ncude a fractona part
of a year for whch a return s made. The Supreme Court construed the word
ncudes, not as synonymous wth means, but as the equvaent of compre-
hends or embraces, and found support n other provsons of the ct for ths
constructon but t Is perfecty obvous that f the Court had construed the
word ncudes as means, the concuson reached woud have been dfferent.
The ambguty whch the Supreme Court found n the 1926 ct, and resoved n
favor of the ta payer, s whoy absent In the 1928 ct and Treasury regua-
tons, when consdered together for n the atter there Is the e press and pos-
tve command that the fractona part of the year for whch the return s made
sha be consdered as a ta abe year. nd f Congress had the rght to
mt or restrct the carry-over prvege, as to whch there can be but one
answer, t had the same rght to confer that power on the Commssoner. Con-
gress unquestonaby nserted the new provsons n the 1928 ct to carfy
admnstratve procedure under the former ct and to substtute, In pace of
a defnte provson, rues to be made by the Commssoner whch woud be
optona n the case of corporatons changng from separate to consodated re-
turns and. sometmes, nvovng n the change whoy dfferent ta perods and,
n ths vew, pettoner s case s brought precsey wthn the scope of the pur-
pose. In Morgan s case the ta payers ta abe year (parent and affate), both
before and after the year of affaton, was the caendar year, and the fng of
returns for fractona parts of the year dd not nvove any change n ether
of the ta payers accountng years and, so far as the queston here nvoved
s concerned, had no effect upon the actua net ncome, or the amount of ta .
In the nstant case, Tumpeer s prevous ta abe year was the caendar year,
and Poneer s the fsca year endng October 31.
The appcaton of Tumpeer nvoved a compete change n accountng perods
of both parent and affate. The consent was a concesson for whch the Com-
mssoner had the rght to demand terms. The condtons were that Poneer
shoud fe a separate return for the perod pror to affaton and that such
return shoud be consdered as coverng a ta year. In effect, he sad to pe-
ttoner If the returns of Poneer for the two months pror to affaton and
the s months of affaton be consdered as a snge return, the resut w be
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142, rt. 731.
238
to permt ts entre oss carry-over to be set off aganst earnngs of ony eght
months and ths w not correcty refect Its ta for the reason that a return
for that perod w not correcty refect Its ncome. True, to ths t may be
sad nether does the reguaton but, snce the reguaton must appy gen-
eray, t s not enough to say that n a partcuar case where t s optona
and not coercve t s nvad because t deprves a ta payer of somethng
whch otherwse he woud be entted to. n occasona hardshp Is Inescapabe.
It was the recognton of ths fact, doubtess, whch nduced Congress In 1928 to
enarge the power of the Commssoner to make specfc rues to appy when
a change of accountng perod ke that nvoved here s asked as a matter of
grace. It s true that n ths case, as was true n Morgan s case, f Poneer
had not taken advantage of the provson authorzng consodated returns, It
woud have been permtted to carry over Its net oss of 1027 for the ne t two
succeedng years but, even n that event the two succeedng years woud have
embraced two fu years and not, as n the present case, a materay shorter
tme.
of ths we menton as gvng substance to our assumpton that Congress,
In the 1928 provsons, had a defnte purpose In vew. The reguatons au-
thorzed to carry out the purpose were ntentonay made optona. n aff-
ated corporaton coud take them or eave them, as appeared to It advan-
tageous. Ths was as neary a far and equtabe arrangement as the dff-
cutes nherent In the stuaton made possbe and we can thnk of no reason,
and certany can fnd none n Morgan s case, to |ustfy our sayng that the regu-
atons so made are nvad.
Pettoner, havng e ercsed ts opton and consented to be bound, w not
now be heard to compan, and n ths vew we have no other course than to
adhere to our former opnon.
S CTION 142. CONSOLID T D R TURNS O
CORPOR TIONS T L Y R 1928.
rtce 731: Consodated returns of affated -12-8008
corporatons for 1928. Ct. D. 1093
INCOM T R NU CT O 1028 D CISION O COURT.
1. ffated Corporaton ecton to e Separate Returns
Change of ass udton of New Corporaton to ffated
Group.
Where two affated corporatons eected to fe separate re-
turns for the years 1926 and 1927, the addton to the group, n
1928, of a newy formed subsdary, carved out of the parent and
whoy owned by t, and whch brought n nether new capta nor
busness, dd not create a new rght of eecton so as to permt the
fng of a consodated return for 1928, wthout the permsson of
the Commssoner as provded n secton 142(a) of the Revenue
ct of 1928, snce the dentty of the group remaned the same and
the ntegrty of a snge busness was not destroyed.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (31 . T. ., 161) affrmed.
Unted States Crcut Court of ppeas for the Tenth Crcut.
raden Stee Corporaton, pettoner, v. Commssoner of Interna Revenue,
appeee.
On petton to revew the decson of the Unted States oard of Ta ppeas.
efore Lews, Phps, and ratton, Crcut udges.
uy 8, 1935.
opnon.
Phps, Crcut udge, devered the opnon of the court
The raden Co., an e press trust, was organzed n 1923 and has at a tmes
snce been ta ed as a corporaton. On anuary 1, 1926, the raden Co. organ-
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239
142, rt. 731.
sed the raden Stee Wnch Co. und transferred to It a part of Its busness
In return for a of the ssued stock. On anuary 1, 1928, the raden Co.
organzed the raden Stee Corporaton and transferred another porton of
ts busness and n return receved a the ssued stock. It has at a tmes
contnued to own a of the outstandng stock of ts two subsdares.
The raden Co. and the raden Stee Wnch Co. made separate ncome ta
returns for the years 1926 and 1927. Those two companes each sustaned a
oss In 1928, whe the raden Stee Corporaton earned a net ncome of
24,939.75. Wthout requestng or securng permsson of the Commssoner to
change the bass of fng returns, the raden Co. fed a consodated return
for the year 1928 for Itsef and ts two whoy owned subsdares.
The Commssoner determned that the three companes, athough affated,
were not entted to fe a consodated return for the year 1928, under secton
142, Revenue ct, 1928, and thereupon proposed to assess a defcency aganst
the raden Stee Corporaton of 2,632.77.
The oard of Ta ppeas affrmed the determnaton of the Commssoner.
The ony queston presented here s whether the three affated corporatons
had the rght to fe a consodated return of ncome for the year 1928, wthout
frst obtanng permsson from the Commssoner.
Secton 142, supra, grants to affated corporatons the opton of fng
separate returns or a consodated return, but t s e pressy provded that f
an eecton was made n 1927, the method eected coud not be changed n
1928 wthout the consent of the Commssoner. The statute requres a defnte
and permanent eecton, and once made, t must be adhered to by the ta payer
n the absence of permsson of the Commssoner to change the bass.
It s argued that, even though separate returns were fed n 1927 by the
raden Co. and the raden Stee Wnch Co., a new rght of eecton arose
In 1928, because of the addton of the raden Stee Corporaton to the group.
The addton of a new member to a group does not create a new rght of
eecton, where the group remans substantay constant and such addton
does not destroy the Integrty of a snge busness. ( port Leaf Tobacco Co.
v. Commssoner (O. C. . 2), . (2d), Ct. D. 1094, page 240, ths uetn
Sweets Co. of merca v. Commssoner (C. C. . 2), 40 . (2d), 436 Swft
Co. v. Unted States (O. CI.), 38 . (2d), 365.)
When the change s so fundamenta that a new and dfferent group s
created, a new rght of eecton arses. ( bert Leon Son, Inc. v. Com-
mssoner, 29 . T. , 251.) Whether such a substanta change Is brought
about by such addton s a queston of fact. Some of the cases hod that
a change whch gves rse to a new rght of eecton does not occur f the
domnant parent of a the affates remans the same. ( untngton each,
nc, t. Commssoner, 30 . T. ., 731 Marve qupment Co. v. Comms-
soner (C. C. . 3), 67 . (2d), 354, 355 port Leaf Tobacco Co. v. Comms-
soner (C. C. . 2), . (2d), . Compare Stonega Coke Coa Co. v. Com-
mssoner (C. C. . 3), 57 . (2d), 1030.)
though the domnant parent was the same here durng the years 1927 and
1928, t s not necessary for us to rest our decson upon that bass, snce the
facts ceary dscose that the dentty of the group was the same In 1928 as
It was n 1927. There s no sound bass for the contenton advanced that a
newy formed subsdary, whch was carved out of the parent corporaton and
whoy owned by It and whch brought nether new capta nor busness nto
the group, changed the Identty of the affaton and empowered t to change
the method of reportng Income from that adopted n 1927. If such a stuaton
gave rse to a new rght of eecton, t woud be a smpe matter for an affa-
ton to estabsh a new rght of eecton by carvng out a part of the busness
of one member of the group and organzng a new member, or by one of the
members absorbng another member, despte the Commssoner s nonperrasson
or even e press dsapprova. It Is not to be assumed that Congress woud
have mposed ths e press restrcton upon the vountary eecton gven cor-
1 Secton 142(a), Revenue ct, 1928 (45 St.. 832). whch In substance reenacted secton
240(a), Revenue ct, 1926, provdes In part as foows:
(a) Consodated returns permtted. Corporatons whch are affated wthn the
meanng of ths secton may, for the ta abe year 1928, make separate returns or, under
reguatons prescrbed by the Commssoner wth the approva of the Secretary, make a
consodated return of net Income for the purpose of ths tte, n whch case the ta es
thereunder sha be computed and determned upon the bass of such return. If return
for the ta abe year 1927 was made upon ether of such bases, return for the ta abe
year 1928 sha be upon the same basa uness permsson to change the bass Is granted
by the Commssoner.
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142, rt. 731.
240
porate ta payers, and yet eave open such an obvous means of Its crcum-
venton nnd frustraton.
The decson of the oard of Ta ppeas s affrmed.
ncome ta revenue act of 1028 decson of court.
1. ffated Corporatons ecton to e Seta bate Re-
turns ddton of New ffates Change n ass.
Where affated corporatons fed separate returns for 1026
and no proper consodated return was made for 1927 (when one
member fed a separate return and the group faed to fe a con-
sodated return on behaf of a ts members), an eecton to fe
separate returns for both years had been e ercsed, and the
addton of new affates In 1927 and 1928 dd not entte the
group to a new eecton and to change to a consodated return
bass for 1928, snce there had been no substanta change n
the contnuty of the busness and the domnant parent remaned
the same, and the permsson of the Commssoner to change the
bass had not been requested or granted.
2. Cosng greement Intenton to Change Status of ff-
ated Group.
y the e ecuton of a cosng agreement, pursuant to secton
608 of the Revenue ct of 1928, settng the ta abty of two
of the affates upon the bass of ther consodated returns for
1927, such returns dd not become proper and awfu and dd not
authorze the fng of a consodated return by the affated group
for 1928. The Commssoner dd not ntend thereby to change the
status of the corporatons as to future returns or In such an n-
drect way to afford them a new eecton.
3. Decson ffrmed.
Decson of the oard of Ta ppeas (31 . T. ., 28) affrmed.
4. Certorar Dened.
Petton for certorar dened October 21, 1935.
Unted States Crcut Court of ppeas for the Second Crcut.
port Leaf Tobacco Co., pettoner, v. Commssoner of Interna Revenue,
respondent.
T. C. Wams Co., pettoner, v. Commssoner of Interna Revenue, respondent.
The Smth Paper Co., pettoner, v. Commssoner of Interna Revenue,
respondent.
efore Manton, L. and and ugustus N. and, Crcut udges.
The foregong three cases, whch were consodated for hearng before the
Unted States oard of Ta ppeas, Invove defcences In ncome ta es for
the year 1928, arsng soey out of the fact that the Commssoner of Interna
Revenue requred the severa pettoners to compute ther ncome upon the
bass of separate returns. rom orders of the oard, ad|udgng defcences
n ncome ta es aganst the severa ta payers, the atter have appeaed.
ffrmed.
ugustus N. and, Crcut udge: The defcences of the above corporate
ta payers arse out of the fact that the Commssoner requred each of them
rtce 731: Consodated returns of affated
corporatons for 1928.
-12-8009
Ct. D. 1094
une 17, 1935.
OPINION.
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241
142, rt. 731.
to compute ts Income upon the bass of a separate return. The ony queston
before us s whether, under the crcumstances presented, these ta payers
were entted to report on a consodated bass. The ta es affected are
those for the year 1928.
Secton 142(a) of the Revenue ct of 1928, whch n substance reenacted
secton 240(a) of the ct of 192C, provded that:
Corporatons whch are affated wthn the meanng of ths secton may,
for the ta abe year 1928, make separate returns or, under reguatons pre-
scrbed, by the Commssoner wth the approva of the Secretary, make a
consodated return of net Income for the purpose of ths tte, n whch
case the ta es thereunder sha be computed and determned upon the bass
of snch return. If return for the ta abe year 1927 was made upon ether
of such bases, return for the ta abe year 1928 sha be upon the same bass
uness permsson to change the bass s granted by the Commssoner.
Under secton 142(c) of the ct of 1928 domestc corporatons are deemed
to be affated (1) f one corporaton owns at east 95 per centum of the
stock of the other or others, or (2) f at east 95 per centum of the stock of
two or more corporatons Is owned by the same nterests.
In 1927 a foregn corporaton known as rtsh- mercan Tobacco Co.,
Ltd., became owner of 99 per cent of the stock of port Leaf Tobacco Co. of
Deaware. The atter company had succeeded to the busness and property
of a New ersey company of the 6ame name, 99 per cent of the stock of
whch was owned by the rtsh- mercan company n 1926. In 1920 the
rtsh- mercan company aso acqured a the stock of the T. C. Wams
Co., a rgna corporaton, whch conducted a tobacco busness. In March,
1927, the rown Wamson Tobacco Corporaton was orpranzod and 95
per cent of ts stock was owned by the rtsh- mercan company. rown
Wamson Tobacco Corporaton kewse owned a of the stock of rown
ft Wamson Tobacco Saes Corporaton, whch was organzed une 5, 1928.
On October 8, 1928, the port Leaf Tobacco Co. of Deaware acqured 95
per cent of the stock of the Smth Paper Co., a Massachusetts corporaton
engaged n manufacturng cgarette papers.
rom the foregong, t s evdent that before the end of 1928, port Leaf
Tobacco Co., T. C. Wams Co., rown Wamson Tobacco Corporaton,
rown ft Wamson Tobacco Saes Corporaton and the Smth Taper Co.
were a affated wthn the meanng of secton 142(c) of the ct of 1928,
uness the fact that the rtsh company was a foregn corporaton made a
dfference. See secton 238 of that ct.
port Leaf Tobacco Co. of New ersey and T. C. Wams Co. fed sep-
arate ncome ta returns for the year 1926. port of New ersey, and
rown Wamson fed a consodated return for the perod from anuary
1, 1927. to November 30, 1927, the date of dssouton of port of New ersey,
and the atter s successor, port of Deaware, and rown Wamson fed
a consodated return for the baance of 1927, whe the T. C. Wams Co.
fed a separate return for that entre year. or the year 1928 port of
Deaware, T. C. Wams Co., rown Wamson, rown Wamson Saes
Corporaton and the Smth Paper Co. fed consodated returns.
It appears from the foregong that for 1926 the group, of whch the rtsh
company was the parent, fed separate returns, and that for 1927 the group
consstng of port of New ersey, ts successor port of Deaware, rown
4 Wamson and T. C. Wams, dd not fe a proper consodated return
for the reason that T. O. Wams fed a separate return. The eecton
aowed by the statute had been e ercsed by fng separate returns for 1926
and by n effect contnung the same method of reportng n 1927, when one of
the affates fed a separate return and the group negected to fe a con-
sodated return on behaf of a ts members. Where one member of a
group fes a separate return, t has been generay hed that a are bound
by that return and must fe separatey. (Duke Power Co. v. Commssoner,
44 ed. (2d), 543 (C. C. . 4), certorar dened, 282 U. S., 903 Dr. Pepper
ottng Co. v. Commssoner, 69 ed. (2d), 768 Pctora Reveo Co. v.
everng, 68 ed. (2d), 766, 769 Safety ectrc Products Co. v. cverng,
70 ed. (2d), 439.) In secton 240(a) of the ct of 1926, and 142(a) of the
ct of 1928, t s sad that, f return s made upon ether a separate or
consodated bass, the subsequent return sha e upon the same bass uness
permsson to change the bass s granted by the Commssoner. We thnk
that the return referred to n those secton evdenty Is a proper and
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142, rt. 731.
242
awfu return and that some of the affates can not fe a consodated return
n dsregard of others who negect or refuse to on and thus eave the
method or reportng to the choce not of the group, but of any members of It
that may happen to fnd the method adopted temporary advantageous. Such
a method s qute out of keepng wth the mted eecton afforded by the
statute and woud eave the bass for the Imposton of Income ta es to the
caprce of the ta payer though the statute requres a defntve and permanent
eecton whch the ta payers must adhere to In the absence of permsson
of the Commssoner to change the bass.
It Is argued that every addton of an affate changes the group and gves
rse to a new rght of eecton. ut ths s not so where the group remans
substantay constant and the new member can not fary be sad to destroy
the ntegrty of a snge busness. Whether that happens n any partcuar
case s a queston of fact to be determned by how substanta s the change
n the contnuty of the busness and whether two groups havng tte common
reaton are consodated. ere the rtsh company was the parent and
controng head and t from tme to tme absorbed other corporatons nto
ts busness. port, T. C. Wams and rown Wamson owned prop-
erty of the vaue of more than 19,000,000 havng a gross ncome of about
36,070,000, whe the Smth Paper Co., whch was added to the group n 1928,
had a probabe gross busness of about 2,400,000. There can be no doubt
that the group had a contnuty from 1926 to 1927, ncusve, and when t
acqured the Smth Paper Co. n 1928 absorbed a reatvey sma concern
wth a good busness and made t n every sense a subsdary. In Streets
Co. of merca v. Commssoner (40 ed. (2d), 436 (C. C. . 2)), and n
Stcft f Co. v. Unted States (38 ed. (2d), 305 (C. Cs.)), t was hed that
te mere entry nto or wthdrawa from a group of a new affate dd not
termnate the group or create a new ta -computng unt. Doubtess a change
may be so fundamenta as to create a new and dfferent group ( bert Leon
d Son, Inc., v. Commssoner, 29 . T. ., 251), but such a change w not
occur f the domnant parent of a the affates remans the same ( untngton
eaeh, Inc., v. Commssoner, 80 . T. ., 731, 735). It s ths dstncton
that s mentoned n Marve qupment Co. v. Commssoner (67 ed. (2d),
854, 355 (C. C. . 3)), and we thnk renders the earer decson by the
same court n Stonega Coke t Coa Co. v. Commssoner (57 ed. (2d),
1030 (C. C. . 3)) sub|ect to the mtatons mposed by the genera current
of authorty.
Inasmuch as ndvdua returns were made by the members of the group
for the year 1926 and no proper consodated return was made by the group
for the year 1927, we hod that an eecton to fe separate returns for both
of those years had been e ercsed. Consequenty there was no rght to change
to a consodated return for the year 1928 wthout the permsson of the
Commssoner, whch was nether requested nor granted.
We have not overooked the dffcuty of treatng affaton as possbe among
the members of a group bound together In one busness through the medum
of a foregn corporaton. (Secton 238, Revenue ct of 1928.) ut Inasmuch
as the Commssoner rased no ob|ecton to the fng of a consodated return
on ths ground, we have assumed for the sake of argument that t aone woud
not render such a return unawfu and have ony dscussed the Issues rased
on the appea. If affaton was mpossbe ether (1) because the members
of the group had eected to fe separate returns for 1926 and 1927, or (2)
because the parent company was a foregn corporaton, the resut woud be
the same and the acton of the oard woud be rght n ether event. We have
hed t mpossbe upon the frst ground.
nay the ta payers contend that because the Commssoner e ecuted cosng
agreements, pursuant to secton 606 of the ct of 1928, settng the Income ta
abty of port and rown Wamson for 1927 upon the bass of ther
consodated returns, the consodated returns whch they attempted to make
for the year 1927 became proper and awfu returns on the consodated bass
and authorzed the fng of consodated returns for 1928. ut the cosng
agreement was a mere arrangement to sette the amount of ther ta es for
1927 and there Is not the sghtest reason to suppose that the Commssoner
Intended by t to change the status of the ta payers as to future returns or In
such an ndrect way to afford them a new eecton. s consent was not to
a consodated return for 1927, because none n aw had been fed. e merey
compromsed a cam and admtted nothng In aw or n fact.
Orders affrmed.
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243
142, rt. 734.
btce 734: Consodated net ncome of aff- W13-8020
ated corporatons for 1928. Ct D. 1097
INCOM T R NU CT OP 1928 D CISION O COURT.
1- Deducton Loss ft a ted Corporatons Consodated Rb-
turns Lqudaton of Subsdary.
Where a corporaton acqured the capta stock of another In
1924, and thereafter, n consodated returns, reported a proft of
the subsdary n 1925 and operatng osses n 1920, 1927, and 1928,
the oss deductbe by the parent n 1928, upon the dssouton of
the subsdary, was the e cess of ts nvestment oss (the dffer-
ence between the tota cost of the subsdary and the vaue of ts
assets taken over upon dssouton) over the operatng osses of
the subsdary prevousy deducted, wthout reducng the atter by
the amount of proft reported n 1925.
2. Decson Reversed.
Decson of the oard of Ta ppeas (29 . T. ., 139) reversed.
Unted States Crcut Court of ppeas for the Thrd Crcut.
Commssoner of Interna Revenue, pettoner, v. Natona Casket Co., Inc.,
respondent.
Upon petton for revew from the decson of the Unted States oard of Ta ppeas.
efore uffnqton and Thompson, Crcut udges, and ohnson, Dstrct
udge.
uy 81, 1935.
opnon.
Thompson, Crcut udge: Ths s a petton for revew of a decson of the
oard of Ta ppeas. In 1924, the respondent acqured a of the capta
stock of orntha Co., a subsdary. In 1925, the subsdary operated at
a gan, but n 1926, 1927, and 1928, t sustaned operatng osses. Throughout
the perod of affaton, the respondent fed consodated ncome ta returns.
In 1928 the respondent dssoved the subsdary and took over Its assets, appy-
ng part to repay tsef for advances made to the subsdary and the baance
towards ts nvestment n the capta stock of that company. In ts 1928
ncome ta return the respondent camed a deductbe oss of 105,355.07,
ncurred through ts nvestment n the subsdary. The Commssoner reduced
the deductbe oss to 4,995.70 and assessed a defcency. The oard of Ta
ppeas reversed the Commssoner n part, aowed a deductbe oss of
48,087.67, and found that there was an overpayment for 1928. The Com-
mssoner has taken ths appea. The foowng summary sets forth the meth-
ods used by the respondent, the Commssoner, and the oard of Ta ppeas,
respectvey, n arrvng at the amount to be aowed the respondent as a
deductbe oss by reason of ts nvestment n the subsdary:
Cacuaton of deductbe oss by:
respondent.
Pad by respondent for capta stock of orntha Co 103, 515. 29
dvanced by respondent to orntha Co 485, 531. 28
Tota cost to respondent 649.008. 55
ssets of orntha Co 543,711.48
Investment oss camed as deductbe oss by respondent 105, 305. 07
COMMISSION R.
Investment oss of respondent 105, 355. 07
Operatng osses of orntha Co. prevousy deducted by respond-
ent n consodated ncome ta returns for 1926, 1927, and 1928 100, 359. 37
Deductbe oss aowed by Commssoner 4 995. 70
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142, rt. 734.
244
O RD O T PP LS.
Operatng oss of orntha Co. for 1928, prevousy deducted by
respondent n consodated ncome ta return 10,993. 44
Operatng oss of orntha Co. for 1927, prevousy deducted by
respondent n consodated ncome ta return 78,087. 51
Operatng oss of orntha Co. for 1928, deducted by respondent
n consodated ncome ta return 11,278. 42
Gross operatng oss of orntha Co 100,359. 37
Proft of orntha Co. for 1925 43,091. 97
Net operatng oss of orntha Co 57,267. 40
Investment oss of respondent 105,355. 07
Net operatng oss of orntha Co 67,267. 40
Deductbe oss aowed by oard of Ta ppeas 48,087.67
The Commssoner asserts error n that porton of the oard s rung whch
aows the gross operatng osses to be dmnshed by the proft reported by the
respondent for the subsdary n 1925, one of the years of affaton. e rees
upon the prncpe enuncated by the Supreme Court that, e cept where ct
and reguaton so provde, doube deducton of the same osses, frst as subsd-
ary company osses n consodated returns for earer years, and agan n
statng the eventua oss to the parent company from ts nvestment n the
subsdary, s not permssbe. (Ifed Co. v. ernandez, 292 U. S., 62 Ct. D.
819, C. . III-1, 139 McLaughn v. Pacfc Lumber Co., 293 U. S., 351 Ct. D.
907, C. . I -1, 335 . Compare urnet v. umnum Goods Mfg. Co., 287
U. S., 544 Ct D. 631, C. . II-1, 283 .) We thnk none of those cases
entrey dspostve of the ssue n the nstant case, nasmuch as n each of
the cted cases the net operatng osses of the subsdary e ceeded the qudat-
ng osses of the parent company, so that when the operatng osses were
set off aganst the qudatng osses, there was no aowabe deducton. There
was, therefore, no need n those cases to determne whether profts of the sub-
sdary shoud be apped to dmnsh the gross operatng osses. In spte
of the absence of drect authorty, we do have an ndcaton as to the vews
of the Supreme Court on ths ssue. In Ifed Co. v. ernandez, supra, the
Supreme Court sad:
Where a the members gan, tota ta abe ncome s the same on a con-
sodated return as upon separate ones. ut where as n the case before us
the subsdares ose and the parent gans, the osses of the former go n
reducton of the ta abe ncome of the atter. Consderatons that ustfy
ncuson of the profts made by a the members do not support the doube
deducton camed.
We paraphrase ths statement and appy t to the nstant case: Where, n
1925, both the respondent and the subsdary ganed, the tota ta abe ncome
was the same on the consodated return as upon separate ones. Where, how-
ever, the subsdary sustaned osses and the respondent ganed, the osses of
the former went n reducton of the ta abe ncome of the atter. The effect
of ths s that the respondent s ta burden remaned the same n 1925, the
year when the subsdary ganed, but was essened n 1920, 1927, and 1928, the
years when the subsdary ost. In the nstant case, the respondent took credt
n 1926, 1927, and 1928 for the gross operatng osses sustaned by the sub-
sdary and thereby reduced the ncome ta whch t woud have been obged
to pay on ts own gross profts for the three years In queston. The fact that
an ncome ta was pad on the proft earned by the subsdary n 1925 dd not
ncrease the Income ta the respondent was obged to pay on Its own proft
for that year. In our opnon, credt for the Investment oss shoud be aowed
ony to the e tent to whch the nvestment oss e ceeds the credt aready
taken by the respondent for the operatng osses sustaned by the subsdary
durng the three years n queston. In effect, what the oard dd when It
reduced the operatng osses by the 1925 proft, was to aow the respondent
to take credt for a proft.
We concude that the oard of Ta ppeas erred n so far as t aowed
the operatng osses of the subsdary to be reduced by the profts of the
subsdary. The decson of the oard of Ta ppeas n that respect a
reversed.
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245 15162, rt. 861.
SUPPL M NT . ST T S ND TRUSTS.
S CTION 162. N T INCOM .
btce 861: states and trusts. -5-7929
Ct. D. 1071
INCOM T R NU CTS OP 1924, 1026, D 1928 D CISION O SUPR M
COURT.
1. Income Trttst Whether Separate Trusts were Created by
mendment.
Where, by amendment under a reserved power, a deed creatng a
snge trust was atered so that a separate account was opened for
each benefcary, to whch account an undvded one-thrd Interest
n the trust property was assgned athough there was no physca
dvson of the trust assets, the amendment accompshed the pur-
pose of creatng three separate and dstnct trusts, the Income from
whch was separatey ta abe.
2. Decson ffrmed.
Decson of the Crcut Court of ppeas, Seventh Crcut (78
ed. (2d), 787), affrmng decson of the oard of Ta ppeas
(29 . T. ., 304). affrmed.
Supreme Court of the Unted States.
Guy T. everng, Commssoner of Interna Revenue, pettoner, v. Wam .
Mcvane and ohn P. Wson, r., Trustees under Deed of Trust of ohn P.
Wson.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Seventh
Crcut.
anuary 6, 1930.
opnon.
Mr. Chef ustce uohes devered the opnon of the Court
The queston presented n ths case s smar to that nvoved n Unted
States Trust Co. v. Commssoner, decded ths day Ct. D. 1072, beow . y
amendments under a reserved power, the terms of an orgna trust created by
ohn P. Wson, n 1913, were atered wth the ntenton of creatng three
separate trusts. The oard of Ta ppeas, upon fndngs supported by ev-
dence, concuded that ths purpose was accompshed and hence that there was
no defcency. (28 . T. ., 304.) The crcut court of appeas affrmed the
order of the oard. (78 . (2d), 787.) We granted certorar because of the
confct wth the decson of the Crcut Court of ppeas for the Second Cr-
cut, n the case of the Unted States Trust Co., supra (75 . (2d), 973), and,
for the reasons stated n our opnon n that case, the decree of the crcut court
of appeas s affrmed.
ffrmed.
btce 861: states and trusts. -5-7930
Ct. D. 1072
INCOM T R NU CTS O 1924, 1920, ND 1928 D CISION O SUPR M
COURT.
1. Income Trust Whether Separate Trusts Were Created by
mendment.
Where, by amendment under a reserved power, a deed creatng a
snge trust was atered so that a separate account was opened for
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5162, rt. 861.
246
each benefcary, to whch account an undvded one-thrd Interest
n the trust property was assgned athough there was no physca
dvson of the trust assets, the amendment accompshed the pur-
pose to create three separate and dstnct trusts, the ncome from
whch was separatey ta abe.
2. Decson Reversed.
Decson of the Crcut Court of ppeas, Second Crcut (75 ed.
(2d), 073), reversed.
SUP M COU T OP T UNIT D ST T S.
Unted States Trust Co. of New York, Trustee under Deed of Trust of ohn
P. Wson, pettoner, v. Commssoner of Interna Revenue.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Second
Crcut
anuary 6, 1936.
OPINION.
Mr. Chef ustce ughes devered the opnon of the Court.
Pettoner Is trustee under a trust created by ohn P. Wson, In 1913, for
the beneft of hs three chdren. Under a reserved power, the trust was four
tmes amended. The soe queston s whether the amendments created three
separate trusts. The queston arses n reaton to the ta aton of ncome.
If there s but a snge trust, as the Commssoner of Interna Revenue rued,
an addtona ta woud be payabe. If there are three trusts, as the oard
of Ta ppeas determned, there woud be no addtona ta . The crcut
court of appeas hed that there was ony one trust (75 . (2d), 973.) Cer-
torar was granted because of the confctng decson of the Crcut Court
of ppeas for the Seventh Crcut n everng v. Mcvane (78 . (2d), 787
Ct. D. 1071, page 245, ths uetn .)
y the orgna deed, one-thrd of the net Income of the securtes hed n
trust was to be pad to each of the three chdren whe vng, and upon the
death of any one, to those who were to succeed to hs or her Interest n
accordance wth the provsons of the deed. Durng the frst 15 years of
the trust the ncome coud be accumuated by the trustee, wth the wrtten con-
sent of the prmary benefcares, and added to the prncpa. The trust was
termnabe at any tme n whoe or In part by the three chdren (or sur-
vvors) sub|ect to the approva of the grantor, If vng, and n any event
was to termnate on the death of a the chdren. Upon termnaton, one-
thrd of the prncpa was to be dstrbuted to each of the three chdren If
vng, and the share of a deceased chd was to go accordng to the provsons
of hs or her w or, In the absence of such dsposton, to the survvng ssue
of the decedent or, n defaut of such ssue, to the survvng ssue of the
grantor per strpes. Provson was made for the ateraton of the trust In
any respect and to any e tent at any tme by the three chdren, or survvors,
sub|ect to the approva of the grantor If vng. Thereafter the rghts and
powers of a partes concerned were to be the same as though the trust
deed had orgnay been e ecuted In the atered form.
In 1918, the three chdren, wth the approva of the grantor, modfed the
trust so as to provde:
The trust estate now hed under sad trust deed sha be dvded nto
three separate and equa parts or shares (to whch may be assgned undvded
Interests n the whoe or any part of the sad trust estate), whch parts or
shares sha severay be desgnated by our respectve names, and each of us
and our respectve ega representatves sha have the same rghts, nterest
and power n and over one of sad three equa parts or shares and the ncome
thereof whch s gven to us respectvey by sad Indenture over one-thrd of
sad trust estate and the ncome thereof, e cept as may be otherwse specfcay
provded heren.
It was further provded that the whoe of the net Income receved from each
share durng the remander of 1918, and one-haf of the net Income receved
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247
5162, rt. 861.
thereafter and durng the fe of the grantor, shoud be accumuated and added
to the prncpa of such share, wth prvege of wthdrawa by the benefcary,
wth the grantor s consent, of the amount so accumuated. the provsons of
the orgna trust deed, e cept as they were e pressy or necessary modfed
by the new nstrument, were to contnue n force.
In 1919, the three chdren, wth the grantor s approva, e ecuted another
modfyng nstrument whch provded that one-haf of the net ncome of each
of the three trust estates shoud be pad over, as receved, to the benefcares
entted thereto, and that the other one-haf shoud be pad to them when the
payment was requested by any two of the orgna benefcares the net ncome
not so pad over was to be added to the prncpa of the trust fund from whch
t s derved. Provson was aso made for the dsposton of the net ncome
n case of the death of any of the orgna benefcares and for the dstrbuton
of the severa trust estates upon termnaton.
In 1920, the three chdren, wth the approva of the grantor, modfed the
amendment of 1919 wth respect to the dsposton of ncome by provdng that
the trustee shoud pay out as much of the net Income from each of sad sepa-
rate trusts to the benefcares as shoud be requested by a ma|orty n nterest
of the benefcares, wth the added requrement that equa payments must be
made out of the net ncome from each of sad separate trusts, to the end that
sad severa separate trusts may be mantaned on a bass of equaty n amount
so far as practcabe. There was a further provson that so much of the net
ncome, receved n any year from each separate trust estate, whch was not
pad out shoud form part of the prncpa of the separate trust estate from
whch t was derved, and the trustee was requred to devote to chartabe pur-
poses so much of the net ncome of sad trusts as shoud be requested by the
three chdren (or survvors), such payments to be made In equa amounts
from each of sad separate trusts.
There was a further amendment In 1928 enargng the powers conferred upon
the trustee by the orgna deed wth respect to the borrowng of money, the
borrowed sums to be deat wth as part of the prncpa of the three trusts
hereunder, n equa 6hares.
The purpose of the frst amendment and the subsequent course of deangs are
thus descrbed n the fndngs of the oard of Ta ppeas, whch are adequatey
supported by the evdence:
The purpose of the amendment of September 21, 1918, was to create three
separate and dstnct trusts, one for each of the benefcares of the snge trust
then In e stence, n order to reduce abty for ncome ta es on the ncome of
the trust,
Pror to the frst amendment the trustee kept one cash account for the trust
under the headng Trust under deed of ohn P. Wson, for ohn P. Wson, r.,
and others to whch was credted a ncome of the trust. On September 27,
1918, three accounts were opened up by the trustee, one n the name of Trust
under Deed of ohn P. Wson for ohn P. Wson, r. one under the name of
Trust under Deed of ohn P. Wson, for nna W. Dcknson and the other
under the name of Trust under Deed of ohn P. Wson, for Martha Wson.
The snge account was then cosed by transferrng equa amounts of Its baance
to each of the new accounts. Thereafter cash receved and dsbursed on account
of the trust property was entered n these accounts, one-thrd In each.
t the same tme the property account kept by the trustee for the stock of
the snge trust was cosed out by transferrng the tems thereof equay to
accounts opened up under the names of the three benefcares. There was no
actua dvson of the property hed under the trust Indenture. The new accounts
as set up showed that one-thrd of each asset of the od trust represented the
corpus of three new trusts, one for each of the three chdren of the grantor.
cqustons of addtona prncpa by purchase were dvded equay among
the three trusts.
The stock certfcates acqured by the trustee before and after September 21,
1918, were carred n the name of the pettoner as trustee under the deed of
trust of ohn . Wson or n the name of a nomnee of the trustee. The cash
beongng to the trusts n queston here and a other trusts beng admnstered
by the trustee was kept n one genera account wth another bank.
Durng the ta abe years the trustee rendered separate reports each month
to the benefcares on the bass of a separate trust for each. or each of the
years 1924 to 1929, ncusve, t fed fducary and ncome ta returns on the
bass of a separate and dstnct trust for each chd. In hs audt of the returns
the respondent determned that the ncome hed n trust under the ndenture of
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5166, rt. 881.
248
March 12, 1913, as amended, was ta abe on the bass of a snge trust and a
snge return for each year.
The oard of Ta ppeas concuded that three separate and dstnct trusts
were created.
No queston s rased as to the vadty of the severa amendments. The ony
queston s as to ther constructon and effect. The partes, f they peased, had
power to convert the snge trust nto three trusts and the evdence and fndngs
eave no doubt as to ther ntenton to do so. The queston s whether they
accompshed ther purpose. (Unted States v. PhcUs, 257 U. S., 156, 172 T. D.
3270, C. . 5, 37 .) If the varous securtes had been dvded physcay, f
new certfcates of stock had been obtaned for the severa benefcares, and
such certfcates and specfc bonds and cash had been set asde for each, there
woud be no room for argument that three separate trusts were not created.
ut t was not necessary to have such a physca dvson n order to carry out
the cear ntenton of the partes. n undvded nterest n property may con-
sttute the corpus of a trust. The orgna trust deed provded that ts prov-
sons and mtatons houd be construed accordng to the aws of Inos.
ut the eementary prncpe Is apped In Inos, as esewhere, that every
knd of vested rght whch the aw recognzes as vauabe may be transferred
n trust. ( urke v. urke, 250 111., 262, 268.) It (a trust) may be created
In any property, rea or persona, ega or equtabe, whch Is n e stence, and
whch n the eye of a court of equty, s of vaue. (Gurnctt v. Mutua Lfe
Insurance Co., 356 111., 612, 617. Perry on Trusts, seventh edton, sectons 67,
68.) Nor are the amendng nstruments open to the ob|ecton that the sub|ect
of the trusts was not adequatey defned. (Compare Snyder v. Snyder, 280 111.,
467, 409, 470 Marbe v. Marbe s state, 304 111., 229, 230.) Where there s an
Intenton to create separate trusts, the fact that the trusts are kept In one
fund does not necessary defeat the ntenton and requre the concuson that
there s but a snge trust. (Matter of Coegrove, 221 N. Y., 455, 459.) In many
cases, sad the Court of ppeas of New York n anderpoe v. Lov (112 N. Y.,
167, 180), where ncome and prncpa were gven n equa shares, athough
out of one fund kept n sodo for convenence of nvestment, a severance of the
trust nto ts component parts has been ad|udged. The shares and
nterests are severa, athough the fund remans undvded. (See, aso, Roe-
stone v. Natona ank of Commerce, 299 Mo., 57, 71.)
In the nstant case, Immedatey foowng the frst amendment, the trustee
opened separate accounts for the three trusts and the snge account prevousy
kept was cosed. Income receved and amounts dsbursed were dvded and
entered n the separate accounts. The property account of the snge trust was
cosed and the tems were transferred equay to separate accounts In the names
of the benefcares, showng one-thrd of the assets of the od trust as repre-
sentng the corpus of each of the three trusts. New prncpa was dvded
equay n the same way. If, at the outset, there had been three trust deeds,
each creatng a trust for the beneft of a dstnct benefcary n an undvded
one-thrd of the property nvoved, no queston woud have arsen. We thnk the
same resut was acheved by the use of the power of amendment. We fnd no
ground for concudng that the purpose of the partes to create the three trusts
was not carred out.
The decson of the crcut court of appeas 1b reversed and the order of
the oard of Ta ppeas s affrmed.
It Is so ordered.
ncome ta revenue acts of 1026 and 1928 decson op court.
1. Income Revocabe Teust Ta abe to Settor.
Where four trusts were created n 1925, each for the beneft of
a snge benefcary and each desgnatng two trustees, of whom n
three nstances one was the benefcary, and to each beng attached
a condton that any two of a commttee of three named persons,
who were nether trustees nor benefcares and of whom the settor
S CTION 166. OC L T USTS.
rtce 881: Income of trusts ta abe to
grantor.
-20-8089
Ct. D. 1117
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249
166, rt. 881.
was not one, mght ater or termnate the trusts provded the settor
stated In wrtng that he had no ob|ecton thereto, the ncome from
the trusts was ta abe to the settor under the provsons of secton
219(g) of the Revenue ct of 1926 and secton 166 of the Revenue
ct of 1928. Renecke v. Smth (289 U. S., 172 Ct D. 664, O. .
1I-1, 256 ) foowed.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (31 . T. ., 594) affrmed.
Usted States Crcut Coukt or ppeas fob the Second Crcut.
Robert . ower, appeant, v. Guy T. everng, Commssoner of Interna
Revenue, appeee.
ppea (petton to revew) by a ta payer from an order of tbe oard of Ta ppeas
f ng defcences In hs Income ta es for the years 1826, 1027, 1028, and 1020.
Per curam: Ths case Invoves Income ta es for the years 1926, 1927, 1928,
and 1929 the ony queston Is whether the Income of four trusts created by
the ta payer on December 25, 1925, Is ta abe to hm as settor under secton
219(g) of the Revenue ct of 1926, and secton 166 of the ct of 1928. ach
trust was for a snge benefcary In each there were two trustees, of whom
n three Instances one was the benefcary to each was attached a condton that
any two members of a commttee of three named persons who were nether
trustees nor benefcares of the trust for whch they were apponted and of
whom the settor was not one, mght change and ater any of or a the
trusts heren set forth and decare new trusts of the property n any way or
manner whatsoever aso to termnate or modfy the benefca nterest of any
person or cass of persons or to name or appont any other persons or casses
of persons benefcares. The settement aso provded: No e ercse of
sad power sha be vad whe I am ave and competent to act unt and
uness I sha have In wrtng sgnfed that I have no ob|ecton thereto. The
power so mentoned was that of the commttee. The oard hed that the
ast cause |ust quoted brought the case wthn the statutes (Renecke v. Smth,
289 T . S., 172), and f ed defcences accordngy.
The ta payer argues that Renecke v. Smth does not rue because n that
case one of te cotrustees wth the settor was hs son, over whose w he
must be supposed to have had an nfuence and whom he coud therefore bend
to hs purposes. ach case must therefore depend upon the actua reaton
between the settor and the other trustees and the ncome w be ta abe
to the settor ony n case t appears that hs s the domnant w. Ths qute
msunderstands the decson. The son was a drect benefcary n one trust
and a contngent benefcary n the others the court assumed sub sento
that he coud not count, as ndeed he coud not, beng faty wthn the terms
of secton 219(g), ct of 1924, whch s the same as the sectons here nvoved.
It was ony because the settor mght revoke the trust wth the concurrence
of the thrd trustee, a trust company, that the statute apped, and thus the
case s on a fours wth that at bar, e cept for the fact that here the settor
has ony a veto upon the acton of the commttee. We can not see that ths
makes any dfference save n form. donees of a |ont power must concur
n ts e ercse the refusa of any one s an effectve veto. It s true that
n form any change In the mtatons of the trusts at bar had to orgnate
wth the commttee at east we may assume that they are frst to decde
and then submt ther decson to the settor for hs approva, whe n the
case of a ont power any of the donees may suggest an e ercse of the power
to the others. ut such a dfference s of no practca moment whatever
If the settor wshes to modfy any of these trusts he need ony persuade two
of the commttee to hs mnd, e acty as he woud have had to do If he
had been a member. Nothng prevents hs takng the affrmatve hs power
s as much and as tte as t was In Renecke v. Smth, supra, e cept that
here he has two persons to convnce whe there he had ony one. The const
efore L. and, Swan, and Chase, Crcut udges.
December 9, 1935.
OPINION.
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238.
250
tutona apoogy for the doctrne Is that uness the Income Is regarded as the
settor s, It w aways be easy for hm to nduce compasant trustees to
quafy and practcay to contro the ncome, resumng t when he chooses.
That reasonng appes equay we to these trusts.
Order affrmed.
SUPPL M NT . NONR SID NT LI N INDI IDU LS.
S CTION 212. GROSS INCOM .
rtce 1042: cuson of earnngs of foregn shps from
gross ncome.
R NU CT O 1928.
egum, equvaent e empton. (See I. T. 2969, page 144.)
SUPPL M NT I, OR IGN CORPOR TIONS.
S CTION 238. ILI TION.
Secton 238. -10-7984
Ct. D. 1088
INCOM T R NU CT O 1928 D CISION O COURT.
1. Consodated Returns ffates oregn Corporaton.
Two domestc corporatons were not entted to fe a consodated
return as affates for the year 1929, when ther affaton depended
entrey upon the fact that a foregn corporaton hed more than
95 per cent of the shares of each. Such corporatons were not an
affated group, n vew of secton 238 of the Revenue ct of
1928, whch e pressy states that a foregn corporaton sha not
be deemed to be affated wth any other corporaton wthn the
meanng of secton 141 or 142.
2. Decson Revebsed.
Decson of the oard of Ta ppeas (30 . T. ., 1015) reversed.
3. Certorar Dented.
Petton for certorar dened anuary 6, 1936.
Unted States Crcut Court of ppeas for the Second Crcut.
Commssoner of Interna Revenue, pettoner, v. Manus Mttcr d Co., no.,
respondent.
On petton to revew an order of tho oard of Ta ppeas e pungng a defcency n the
respondent s Income ta for the year 1929.
efore Manton, L. and, and ugustus N. and, Crcut udges.
uy 1, 1935.
opnon.
L. and, Crcut udge: Ths appea presents the snge queston of aw
whether under secton 141 and secton 238 of the Revenue ct of 1928, two
domestc corporatons may fe a consodated return as affates, when ther
affaton depends entrey upon the fact that a foregn corporaton hods more
than 95 per cent of the shares of each. rtce 2(b) of Reguatons 75 forbds
ths, but the ta payer mantans, and the oard has found, that t s nvad.
The ouse wshed to end wth the year 1928 any prvege whatever of fng
a consodated return secton 141 of ts b was then n the same form as
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251
238.
secton 142 of the ct as It became aw. Secton 238 was aso In the b, and
read as It does now, e cept that It ended wth the words, wthn the meanng
of secton 141, Instead of wthn the meanng of secton 141 or 142 Its
meanng was what It wond hare been, had It become aw readng, wthn the
meanng of secton 142. The Senate had other vews and Inter|ected a new
secton, now secton 141, whch granted a more mted prvege of affaton
after the year 1928. Subdvson (e) of that secton read as It does now
consodated return sha be made ony for the domestc corporatons wthn
the affated group an Intmaton that there mght be an affated group
of whch a foregn corporaton was one member. owever secton 238 was
e tended to both sectons It e pressy contradcted the mpcaton It decared
that a foregn corporaton sha not be deemed to be affated wth any other
corporaton wthn the meanng of secton 141 or 142. In the face of such a
confct the e press provson must preva, uness there be some reason to
suppose that t dd not reay mean what It sad.
It Is the vew of the ta payer, whch the oard has adopted, that t dd not
The argument rests upon the forma pattern of the ct of 1928, whch contaned
genera provsons In the frst four Suppements, and partcuar provsons In
others that were compenda of a that was pecuary appcabe to cassfed
sub|ects. Secton 141 s among the genera provsons (Suppement D) secton
238 s In Suppement I whch touches foregn corporatons ony. We do not see
the force of ths fact t s as reasonabe to suppose that the paramount ntent
s n one pace as n the other. though secton 238 Is redundant as to secton
142, and athough that s aso the case wth other sectons n Suppement I and
perhaps esewhere n the ct, t s surey nadmssbe to say that bo far as not
redundant, that s, qua secton 141, It s not to be treated as aw at a. ow
n ths vew are we to reconce ts e press e tenson to secton 141 Its gen-
era purpose many have been ony symmetry of arrangement, but It was cast n
the Imperatve, and we can not pay so fast and oose wth the chosen words of
a statute.
We have assumed that the mpcaton of subdvson (e) must be that foregn
corporatons are members of an affated group for a purposes but the Incu-
son of ther Incomes n the consodated return. Though that no doubt s the
natura meanng, t s not the nevtabe one. In the frst pace It contradcts
the underyng noton on whch affaton rests. When a busness s snge, n-
dustray and fnancay, It ought to be assessed as such there Is but a snge
ncome and ntramura transactons cance each other that Is the noton whch
supports the affaton. ut If a foregn corporaton s the ony ne us whch
untes domestc subsdares f It Is the parent ths theory can be reazed
ony by brngng ts Income nto hotchpot wth the rest, |ust what secton 141(e)
tsef forbds. To emnate that ncome and st to treat as a unt those com-
panes whch are a unt ony because the e cuded foregn corporaton hods
ther shares, s to deny the premse and affrm the concuson. True, t woud
not compromse the resut n practce when the parent had no Income, but
those woud be uncommon nstances. There are ndeed crcumstances whch
may ustfy such a course and subdvson (e) mentons one an affaton In
whch an nsurance company Is parent (Corner roadoay-Maden Lane,
Inc., v. Commssoner, 76 ed. (2d), 106 (C. O. . 2).) ut the ncome of the
parent can there be ta ed, and s e cuded from the consodated return ony
because a dfferent rate and method of assessment appy to It. The ncome of
a foregn corporaton can not be ta ed, e cept so far as t arses n ths country.
So much for antecedent probabty. Te tuay the oard s nterpretaton s
not nevtabe, ether. The phrase, affated group In subdvson (e) refers
back to subdvson (d) for defnton, and the cause may have meant that
foregn corporatons though wthn the group as so defned, were not to count
as such at a. The draftsman of the phrase may have assumed that the com-
poston of the consodated return was the measure of a the ega conse-
quences foowng upon affaton, not foreseeng a stuaton ke that at bar.
The change n phrasng between secton 141 and secton 142 woud ndeed have
been sgnfcant, had the two come from the same hand but as the ct was
composed, there s no reason to suppose that affaton n one secton was
Intended to be dfferent from affaton n the other. If we are to specuate,
we shoud put down the dscordance to mere dfference n draftsmanshp, even f
secton 238 were not present That dscordance was corrected by secton 141(e)
of the ct of 1932, and It woud have to be much more strdent to ustfy our
settng down secton 238 as brutum fumen. esdes, affaton s a prvege n
any case, akn to an e empton, and doubts go aganst the ta payer.
Order reversed defcency restored.
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275, rt. 1201. 252
SUPPL M NT SS SSM NT ND COLL CTION OP D ICI NCI S.
S CTION 275.-P RIOD O LIMIT TION UPON
SS SSM NT ND COLL CTION.
INCOM T R NU CTS O 1926 ND 1928 D CISION O COURT.
1. Statute) of Lmtaton adty of Watveb Devery and
Consent Determnaton and ssessment of Ta urs-
dcton of oard of Ta ppeas.
waver of the statute of mtaton upon assessment of 1924 and
1025 ta es, e ecuted on ebruary 1, 1929, was vad, snce the
e ecuton thereof Incuded ts devery and the Commssoner s
wrtten consent thereto was not necessary, and such waver e -
tended the tme for both determnaton and assessment of the ta es
so that the 60-day etter maed wthn the e tended perod was
tmey, and the oard of Ta ppeas had ursdcton of the appea.
2. Statute of Lmtaton adty of Waver ecuton of
Watveb efore ndng of Defcency Presumpton of
Reguarty of Commssoner s cton.
waver of the rght to fe a petton wth the oard of Ta
ppeas and a consent to the assessment and coecton of de-
fcences for the years 1923 to 1926, ncusve, e ecuted on October
23,1929, were premature and Invad where fed before the Comms-
soner had found any defcency, and dd not prevent the mang of
a defcency notce by whch the runnng of the statute of mtaton
was suspended. In the absence of an affrmatve showng to the
contrary, t s presumed that the defcences were assessed, where
the Commssoner admtted merey that the assessments were not
made pror to the e praton of the perod stated n the waver of
ebruary 1, 1929.
3. Notce of Defcency Suffcency.
defcency etter addressed to McCarthy Co. Instead of
The McCarthy Co. was a suffcent notce to the ta payer for
a purposes, where the evdence showed that the etter was sent to
the correct address and was devered to and accepted by the ta -
payer as a notce n respect to ts ta abty for the years In
queston.
4. Certorar Dened.
Petton for certorar dened pr 6, 1936.
Unted States Crcut Court of ppeas fob the Nnth Crcut.
The McCarthy Co., a Corporaton, pettoner, v. Commssoner of Interna
Revenue, respondent.
Upon petton to revew an order of the Unted States oard of Ta ppeas.
rtce 1201: Perod of mtaton upon
assessment of ta .
-26-8144
Ct. D. 1131
efore Wbur, Gabbecht, and Denman, Crcut udges.
December 9, 1935.
opnon.
Gabbecht, Crcut udge: ccordng to a forma stpuaton of facts fed
before the oard of Ta ppeas n the nstant case, the pettoner, wthn the
tme requred by aw, fed ncome ta returns for the years 1923. 1924, 1925,
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253
5275, rt. 1201.
and 1926, and pad the Income ta es shown to be due by such returns. Ony
the ta es for 1924, 1925, and 1926 are here In queston.
On or before ebruary 1, 1929, the pettoner e ecuted a waver e tendng
the tme wthn whch any ncome ta es found to be due for the years 1924-1925
mght be assessed, to December SI, 1929.
Durng the year 1929 the nterna revenue agent n charge at Los ngees,
Caf., caused an audt to be made of the ncome ta returns fed by the
pettoner for the years 1923, 1924, 1925, and 1926, and as a resut of such
audt determned that there were defcences n the ta es for those years as
foows:
1923 5, 881. 91
1924 11,266. 32
1925 1,247. 73
1926 270. 73
Subsequenty to such audt, and on or about October 23, 1929, the pettoner
e ecuted a waver of rght to fe a petton to the Unted States oard of
Ta ppeas and e ecuted a consent to the assessment and coecton of the
defcences above set forth, and devered such waver and consent to the
nterna revenue agent n charge at Los ngees.
Under date of November 25, 1929, the Commssoner drected a etter to The
McCarthy Co., 1031 South roadway, Los ngees, makng reference to the
report of the nterna revenue agent n charge at San rancsco, coverng the
e amnaton of the pettoner s books for the years 1922 to 1926, ncusve,
ndcatng defcences n ta es of 18,660.69, pontng out that the statutory
perod of mtatons for the years 1924 and 1925 woud e pre December 31,
1929, and that the ureau woud be compeed to ssue a fna notce of
defcency for those years uness agreements e tendng the statutory perod for
assessment were e ecuted and fed.
On December 27, 1929, the respondent maed a regstered etter to McCarthy
Co., 1031 South roadway, Los ngees, Caf., a copy of whch etter was
attached to the pettoner s peadngs before the oard. The etter was
devered to the pettoner heren, and accepted by t. It was ntended for the
pettoner, and the drectng of the etter to McCarthy Co. was an error of
the respondent.
The pettoner s correct ta abe net Income for the year 1924 s 243,821.60,
and the ta computed thereon s 30,477.70, of whch sum the pettoner has
pad 19,211.38.
The correct ta abe net Income for 1925 s 152,837.51, and the ta computed
thereon s 19,868.87, of whch the pettoner has pad 18,621.14.
The correct ta abe net ncome for 1926 s 113,736.77, and the ta computed
thereon s 15,354.46, of whch the pettoner has pad 15,083.73.
Pursuant to the determnaton of the oard, as set forth n Its memorandum
opnon, there was handed down a decson decarng defcences as foows:
1924, 11,266.32 1925, 1,247.73 1926, 270.73.
rom that decson by the oard, the ta payer has fed a petton for revew
before ths court
In ts bref, the pettoner rees upon the foowng specfcatons of error:
1. The oard erred n fang to hod that there was no vad e tenson of
tme for the assessment of defcences for 1924 and 1925, because the record
fas to show that any such e tenson was devered to the respondent or
accepted by hm n wrtng, at any rate before the mtatons had e pred In
fang to hod that, f the e tenson was vad, the tme for assessment e pred
n any event on December 31, 1929 and n fang to hod that the statute of
mtatons had run as to both 1924 and 1925 defcences.
2. The oard erred n fang to hod that the pettoner had e ecuted and
devered to the respondent vad consents to the assessment of the 1924 and
1925 defcences pror to December 31, 1929, and therefore that the rght to
make defcency assessments for those years e pred, In any event, December
31, 1929, so that no defcences coud be found or assessed for those years and
the oard erred n fang to hod that snce the pettoner had consented to
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254
the 1926 defcency on October 23, 1929, or, In any event, on November 25, 1929,
the statute of mtatons prevented a fndng or assessment of defcency for
1926 after March 15, 1930.
3. The oard erred In fang to hod that notce of defcency sent to
McCarthy Co. was not notce to the pettoner, The McCarthy Co., and
that such notce was neffectua for any purpose and In fang to hod that
therefore the statute of mtatons had run as to a defcences, and that the
oard was wthout |ursdcton to fnd any defcency.
We w consder each of the pettoner s propostons seratm.
The frst specfcaton of error nvoves ony the taes for 1924 and 1925.
s the pettoner ponts out, the statutory mtaton for the assessment of
ncome ta es for 1924 s four years. Snce the return n queston was fed
on March 15, 1925, the mtaton, but for the waver of ebruary 1, 1929,
woud have e pred on March 15, 1929. The perod of mtaton for 1925 s
three years from the date on whch the return Is fed, whch In ths case
was on March 15, 1926. Therefore, but for the waver, the perod of mtaton
for the ta for 1925 woud kewse have e pred on March 15, 1929. (Secton
200(a) and secton 277(a) (1) (2) of the Revenue ct of 1926.)
The queston therefore turns on the vadty of the waver of ebruary
1, 1929.
The pettoner contends that There was no stpuaton or evdence that the
e tenson was devered to or fed wth the Commssoner or any other agency
of the Government, or that the Commssoner consented In wrtng, as requred
by aw.
We are not mpressed wth the pettoner s ob|ectons to the waver. In the
frst pace, the stpuaton sets forth that the pettoner e ecuted the waver.
In Caforna, as esewhere, It Is setted that e ecuton Incudes devery.
Secton 1933 of the Code of Cv Procedure of Caforna reads as foows:
The e ecuton of an nstrument s the subscrbng and deverng It, wth
or wthout aff ng a sea.
(See aso Le Mesnager v. amton, 101 CaL, 532, 539 (mortgage) Wams
v. dd, 170 Ca., 631, 151 P. 1, 8 (deed) an akenburgh v. Odham, 12 Ca.
pp., 572, 579 (note and mortgage) Whte v. endey, 35 Ca. pp., 267, 273
(deed) Washngton nance Corporaton v. Oass, 74 Wash., 653, 661 (note)
drch v. Pubc Opnon Pub. Co. (S. D.), 132 N. W., 278, 282 (appea bond).)
s to the necessty for the Commssoner s consent In wrtng, In ths crcut
It Is setted that such consent s not necessary n order to gve vadty to a
ta payer s waver of the statute of mtatons. In Commssoner v. nd (52
. (2d), 1075, 1078) we sad:
It seems that, snce the provson reatve to the Commssoner s
sgnature, as hed by the Supreme Court, was for purey admnstratve
purposes, hs faure to sgn the waver of ebruary 25, 1926, dd not render
such waver Invad.
It shoud be borne In mnd that, when there s a prma fade showng that
the statute of mtatons has not e pred, the burden Is upon the ta payer to
come forward wth proof to satsfy the court that the ta ng arm of the
Government shoud be stayed. s was sad by Mr. ustce Sutherand In
DuPont de Nemours d Co. v. Davs (264 U. S., 456, 482), Statutes of mta-
ton sought to be apped to bar rghts of the Government, must receve a
strct constructon In favor of the Government. (See aso ones v. Comms-
soner, 18 . T. ., 1225, 1227 /. redman Co. v. Commssoner, 16 . T. .,
1119, 1122 Nchoson v. Commssoner, 22 . T. , 744, 746 Loewer Reaty
Co. v. nderson, 31 . (2d), 268, 269 (C. O. . 2) Ct. D. 125, C. . III-2,
218 , certorar dened, 280 U. S., 558 owers v. New York bany Lghter-
age Co., 273 T . S., 247, 249 T. D. 4009, C. . I-1, 268 .)
Ne t, the pettoner argues that the e tenson, If any, agreed ony to
assessment before December 31, 1929, and that there Is no evdence or
stpuaton that the ta payer consented to a mere determnaton of defcency
wthn such tme, and assessment afterward.
The courts, however, repeatedy have hed contrary to the pettoner s con-
tenton. In Stange v. Unted States (282 T . S., 270, 277 Ct. D. 274, C. .
-, 414 ), where a smar waver was under consderaton, Mr. ustce
randes sad:
The partes can not have ntended to have the amount of the ta ascer-
taned and to eave the ta payer free to pay It or not. They ceary con-
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255
5275, rt. 1201.
tempate the entre procedure necessary to determnaton and coecton
of the ta .
(See aso ken v. urnet, 282 U. 8., 277, 282 Ct D. 275, O. . -, 419
rown uns Co. v. urnet, 282 U. S., 283, 287 Ct D. 279, 0. . -, 274
Unted States v. Southern Lumber Co. (C. C. . 8), 51 . (2d), 95G, 901,
certorar dened, 284 U. S., 680 Washngton Coa Coke Co. v. ener, 42
. (2d), 681, 684, 685 Ct. D. 216, C. . 1 -2, 249 , affrmed, 55 . (2d), 229
(C. O. . 8) abn v. Unted States (Ct. CI.), 44 . (2d), 70, 77 tas Se-
curtes Co. v. Commssoner (C. C. . 8), 58 . (2d), 214, 215 Crucbe
Stee Castng Co. v. Commssoner (C. C. . 7), 66 . (2d), 82 Ct D. 807,
C. . III-1, 326 , certorar dened, 290 U. S., 695.)
We hod, therefore, that the waver of ebruary 1, 1929, was vad that t
e tended the tme for not ony assessment but aso determnaton of
the ta , unt December 81, 1929 and that, therefore, the respondent s 60-
day etter of December 27, 1929, consttuted a tmey determnaton of the
pettoner s ta abty, from whch he coud and dd appea to the oard,
whch therefore had |ursdcton.
What we have sad wth reference to the frst specfcaton of error reed
upon, argey dsposes of the second, whch t w be seen covers much of
the ground taken n by the frst. In addton, however, the pettoner com-
pans of the useess act of the Commssoner n sendng to the ta payer
n notce of defcency, on December 27, 1929, after the pettoner had, on
October 23, 1929, e ecuted a waver of rght to fe a petton to the oard
and a consent to the assessment and coecton of the defcences for the
years 1923, 1924, 1925, and 1926.
It has aready been decded by ths court that a waver or consent of that
knd, fed before the Commssoner has sent a notce of defcency, s premature
and therefore nvad. In Mutua Lumber Co. v. Poe (66 . (2d), 904, 907, cert-
orar dened, 290 . S., 706), the ate udge Sawtee sad:
If there Is no determnaton of defcency by the Commssoner, there Is no
rght of appea for the ta payer to wave for the provsona report of an
Interna revenue agent can not be made the bass of an appea. Ths Is cear
from the terms of the subsecton tsef, whch computes the tme aowed for
the fng of a petton wth the oard of Ta ppeas, not from the mang
of an agent s report but from the mang of the Commssoner s notce of
defcency.

or ts reason we hod that the purported waver was fed wth the
Commssoner before the atter had found any defcency, was therefore prema-
ture, and was poweress to prevent the Commssoner s resort to a etter of
defcency, by whch the runnng of the statute was suspended.
The pettoner aso ponts out that he aeged before the oard, and the
Commssoner admtted In hs answer, that no assessment of the 1924 and
1925 ta es has been made wthn the perod prescrbed by aw as such perod
was e tended by the waver herenbefore referred to. Ths Is not tantamount,
however, to an admsson by the Commssoner that a vad assessment was
never made. It s merey an asserton that an assessment was not made pror
to December 31, 1929. s we have aready shown, the notce of defcency was
maed wthn the statutory mt as e tended by the waver of ebruary 1,
1929, and the pettoner seasonaby appeaed therefrom.
The subsecton referred to n the e cerpt from udge Sawtee s opnon
n Mutua Lumber Co. v. Poe, supra, whch we have ust set out s secton
274(a) of the Revenue ct of 1926, whch reads In part as foows:
If n the case of any ta payer, the Commssoner determnes that there s a
defcency n respect of the ta Imposed by ths tte, the Commssoner s au-
thorzed to send notce of such defcency to the ta payer by regstered ma.
Wthn 60 days after such notce s maed (not countng Sunday as the s teth
day), the ta payer may fe a petton wth the oard of Ta ppeas for a
redetermnaton of the defcency. cept as otherwse provded n subdvson
(d) or (f) of ths secton or n secton 279, 282, or 1001, no assessment of a
defcency n respect of the ta Imposed by ths tte, and no dstrant or pro-
ceedng n court for ts coecton sha be made, begun, or prosecuted unt
such notce has been maed to the ta payer, nor unt the e praton of such
60-day perod, nor, f a petton has been fed wth the oard, unt the decson
of the oard has become fna.
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275, rt. 1201.
256
s the pettoner ponts out, secton 200 of the Revenue ct of 1920, supra,
provdes that The frst ta ahe year, to be caed the ta abe year 1925, sha
be the caendar year 1925 or any fsca year endng durng the caendar year
1925.
Secton 283(a) of the ct of 1926 provdes that Income ta es computed
under the Revenue ct of 1924, sha be assessed, coected, and pad In the
same manner and sub|ect to the same provsons and mtatons as
In the case of a defcency In the ta mposed by ths tte, e cept as otherwse
provded n secton 277 of ths ct
Snce the sendng out of a notce of defcency Is ceary one of the steps
connected wth the assessment coecton and payment of an Income ta , the
provsons of secton 274(a) or the 1926 ct, supra, appy to the defcency In
the 1924 ta as we as to the 1925 and 1926 defcences.
Secton 504 of the Revenue ct of 192S Is as foows:
(a) Secton 277(b) of the Revenue ct of 1926 Is amended to read as
foows:
(b) The runnng of the statute of mtatons provded n ths secton or In
secton 278 on the makng of assessments and the begnnng of dstrant or a
proceedng n court for coecton. In respect of any defcency, sha (after the
mang of a notce under subdvson (a) of secton 274) be suspended for the
perod durng whch the Commssoner Is prohbted from makng the assess-
ment or begnnng dstrant or a proceedng n court (and n any event
a proceedng n respect of the defcency Is paced on the docket of the oard,
unt the decson of the oard becomes fna), and for 60 days thereafter.
(b) Subsecton (a) of ths secton sha appy In a cases where the perod
of mtaton has not e pred pror to the enactment of ths ct
ccordngy, the Commssoner had ampe tme wthn whch to make assess-
ments of defcences for a the ta es heren Invoved, after December 31,
1929. Under the presumpton of reguarty, we can not assume, at the ta -
payer s behest that the Commssoner faed to perform hs duty. It s the
duty of an appeant to brng up a record that affrmatvey shows error. Ths
the pettoner has faed to do for the stpuaton Is sent as to the makng
of assessments after December 31, 1929. The Commssoner s admsson covers
the absence of assessments ony wthn the perod prescrbed by aw as such
perod was e tended by the waver herenbefore referred to , e., a perod
endng on December 31, 1929.
The thrd specfcaton of error attacks the respondent s notce of defcency
on the ground that t was addressed to McCarthy Co. Instead of The
McCarthy Co. The stpuatons, however, show that the etter of the Com-
mssoner was sent to the correct address, that t was devered to the pet-
toner, and that It was accepted by the pettoner. The copy of the defcency
notce attached to the petton In ths case stated that a copy of the notce had
been furnshed to the attorney whose name s sgned to the bref fed before us,
and the oard so found. The oard further found that t was qute evdent
that the ta payer was In no way msed by the notce and ceary understood
t to be one n respect to Its ta abty for the years n queston. The
frst sentence of the petton fed before the oard prays for a redetermnaton
of the defcency set forth n the very notce that the pettoner cams was
msdrected.
In vew of such record, and of such uncontradcted fndngs by the oard,
we regard the pettoner s crtcsm of the address as too mcroscopc to mert
e tended dscusson.
Reyng upon a number of recent decsons by crcut courts of appeas, n
the case of aag v. Commssoner ((C C. . 7), 59 . (2d), 516, 518), the court
sad:
These cases hod that athough the notce was not drected to the proper
party, nevertheess If t appeared that the proper party had receved the
notce or that the party who succeeded to the tte of the party fng the
return had receved the notce, t was suffcent.
(See aso urnet v. San oaqun rut t Investment Co. (C. C. . 9), 52 .
(2d), 123, 128 Ct D. 406, C. . -2, 2G0 Commssoner v. New York Trust
Co. (C. C. . 2), 54 . (2d), 463, 465 Ct. D. 540, C. . I-2, 320 , certorar
dened, 285 U. S., 556 Commssoner v. Oswego as Corporaton (C C. . 2),
71 . (2d), 673, 077.)
The decson of the oard s affrmed.
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257 294.
SUPPL M NT M. INT R ST ND DDITIONS TO T T .
S CTION 294. DDITIONS TO T T IN C S
O NONP YM NT.
Secton 294. -6-7941
Ct.D. 107G
INCOM T R NU CT O 1928 D CISION O COURT.
Interest Penaty.
Where Interest was charged upon an unpad Income ta def-
cency assessed aganst an Indvdua who was ater ad|udcated a
bankrupt, at the rate of 12 per cent per annum from the date of
notce and demand to the date of appontment of a recever of the
bankrupt s property, and thereafter at the rate of 6 per cent per
annum unt payment, the hgher rate was a proper nterest charge,
under secton 294(b) of the Revenue ct of 1928, and not n part a
penaty.
Unted States Crcut Court of ppeas fob the Second Crcut.
In the Matter of ohn Semon, ankrupt.
ppeas from the Dstrct Court of the Unted States for the Dstrct of Connectcut.
efore Manton, L. and, and Swan, Crcut udges.
December 16, 1936.
OPINION.
The Unted States appeas from an order aowng Its cam aganst the
bankrupt n an amount ess than the sum camed to be due as Interest on a
denquent defcency ncome ta for 1929. Modfed.
Swan, Crcut udge: ohn Semon was ad|udcated bankrupt on March 9,
1933. In the bankruptcy proceedngs the coector of nterna revenue for the
dstrct of Connectcut fed proof of cam for a defcency ncome ta for
1929 assessed aganst the bankrupt In November, 1931. Interest was camed
at the rate of 12 per cent per annum from November 12, 1931, to pr 29,
1932 (when a recever In equty was apponted for the bankrupt s property),
and thereafter at the rate of 6 per cent per annum unt payment. The
dstrct court aowed as a prorty cam the prncpa amount of the ta ,
wthout Interest unt pr 29, 1932, and wth nterest as camed thereafter.
Ths appea presents ony the queston of the correctness of the dsaowance
of Interest pror to pr 29, 1932. though the amount n dspute s sma
ess than 400 the prncpe Invoved s not unmportant
The dsputed Interest s camed by the Government under secton 294(h)
of the Revenue ct of 1928 (45 Stat., 858), whch provdes tat f a de-
fcency s not pad In fu wthn 10 days after notce and demand, there
sha be coected as part of the ta , nterest upon the unpad amount at the
rate of 1 per centum a month from the date of such notce and demand unt
It s pad. ecause other provsons of the Revenue ct prescrbe nterest
at the rate of 6 per cent per annum for deay n payment, the dstrct court
concuded that the above-quoted provson coaked a penaty of one-haf of 1
per cent a month, and, snce penaty and nterest were umped as one sum,
aowed no nterest whatever, reyng upon ew York v. ersav t (263 U. S.,
493) and secton 5T(|) of the ankruptcy ct (11 U. S. C. ., secton 93(|)).
though the queston Is not free from doubt and the opnon of udge
ncks contans a strong argument for the constructon he has adopted, we are
constraned to dsagree wth t
The Revenue ct of 1928 deas wth penates and Interest wth partcuarty.
Penates proper are provded n sectons 291 and 293 25 per cent of the ta
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813.
258
Is to be added In case of faure to fe a return | In the case of defcences,
5 per cent thereof f due to neggence, and 50 per cent thereof If due to fraud.
Other sectons dea wth nterest, eo nomne. S per cent nterest per annum
s provded n certan stuatons: on defcences pror to assessment (secton
292) where an estate s hed by a fducary apponted by a court or by
w (secton 294(c)) durng e tensons granted on payment (sectons 293.
296) on eopardy assessments (secton 297) and on overpayments ana
udgments aganst the Unted States (sectons 614, 615). Interest s f ed at
1 per cent a month where the ta determned by the ta payer s not pad
when due (secton 294(a)) where such ta has not been pad wthn a
granted perod of e tenson (secton 294(a)2) where a defcency remans
unpad after notce and demand, or after an e tenson perod (sectons
294(b), 296). Thus Congress has decared that n certan crcumstances one
rate of nterest sha obtan, and n others a hgher rate. The queston Is
whether ths fact necessary makes the hgher rate n part a penaty though
denomnated nterest by Congress.
n nterest rate of 1 per cent a month s not per se a penaty. (Unted
States v. Chd , 266 U. S., 304 T. T . 3671, C. . I -L 241 .) That case
arose under secton 14(a) of the Revenue ct of 1916 (39 Stat, 772) whch
dd not n Tte I, reatng to ncome ta es, provde dfferent rates of Interest
for dfferent denquences In payment, and on ths ground t s sad to be
dstngushabe from the case at bar. ut n Tte II, deang wth the estate
ta , sectons 204 and 207 provded for nterest at varyng rates. It woud
seem, therefore, that the argument now urged on behaf of the trustee n bank-
ruptcy mght have been used n the Chds case to contend that the 1 per cent
a month In fact coaked a penaty. We are not persuaded that when Congress
prescrbes dfferent rates of nterest for dfferent denquences n payment of
ta es, the hgher rate must necessary be deemed to Incude a penaty. Snce
the hgher rate Is one wthn the egsatve power to prescrbe as nterest
(Unted, States v. Chds, supra), t may we be argued that Congress regards
the hgher rate as the norma compensaton for deay n payment under the
crcumstances where t obtans, athough wng to accept a esser compensa-
ton for deay under other crcumstances. Impostons whch were pany
penates were set apart and deat wth In other sectons, and In the sectons
prescrbng Interest the mposton s e pcty decared to be such. Ths
egsatve decaraton we do not thnk may be dsregarded merey because
dfferent sectons prescrbe dfferent rates. though no precse authorty
has been found, Unted States v. Maryand Casuaty Co. (49 . (2d), 556, 558
(O. O. . 7) Ot D. 371, O. . -2, 381 , certorar dened, 284 248 U. S., 645),
tends to support the vew that Congress may Impose dfferent rates of nterest
wthout causng the hgher rate to ncude a penaty as does aso vghson v.
Unted States (59 . (2d), 17, 19 (O. C. . 9) Ct D. 565, O. . I-2, 337 ).
The order s modfed to ncude nterest at the rate of 1 per cent a month
from the date of notce and demand by the coector, November 12, 1931, to
pr 29, 1932 as thus modfed, It Is affrmed.
TITL I . DMINISTR TI PRO ISIONS.
S CTION 613. LI N OR T S.
Secton 613. -4-7921
Ct. D. 1069
federa ta es revsed statutes decson of court of appeas of
the state of new york.
Spendthrft Tbust Rghts op udgment Credtors Under Stats
Law Len fob edera Ta es.
Under the aws of the State of New York, the Income of a spend-
thrft trust s not assgnabe by the benefcary and s e empt from
garnshee e ecuton e cept as to 10 per cent thereof, and where
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259
613
udgment credtors have fed udgments aganst such a benefcary
and the Unted States has fed notces of en for unpad ncome
ta es pursuant to secton 115, Tte 26, Unted States Code (secton
8186, Revsed Statutes, as amended), two of the |udgments havng
been recorded pror to the fng of the en notces, the Unted
States s entted to 90 per cent of the trust Income unt the pror
|udgments are satsfed, and thereafter, f ts cam s st unpad.
It s entted to the entre ncome, unt pad.
Coubt of ppeas (op the State of New York).
(Sub|ect to revson.)
In the Matter of the appcaton of erome Rosenberg for an order drectng
the Guaranty Trust Co. of New York and George . auman, as Trustees
under the Last W and Testament of enry Rosenberg, Deceased, to pay
the sad erome Rosenberg certan trust funds and ad|udcate hs rghts n
trust fund. Unted States of merca, appeant, erome Rosenberg, pet-
toner, Lese Lester, Recever, Guaranty Trust Co. of New York, and George
. auman, Trustees, respondents.
ppea by the Unted States of merca, pursuant to eave granted by order of ths court,
dated pr 23, 1935, from an order of the ppeate Dvson, rst Department, affrm-
ng an order of the Surrogate s Court, County of New York.
November 29, 1935.
OPINION.
Crouch, .: erome Rosenberg, a fe benefcary of a trust created by the
w of enry Rosenberg, nsttuted a proceedng n the surrogate s court to
secure an ad|ustment of the rghts of hs credtors to the trust ncome, whch
was under the provsons of secton 15 of the persona property aw and sec-
ton 103 of the rea property aw, not assgnabe by the pettoner, and e empt
from garnshee e ecuton e cept (C. P. ., secton 684) as to 10 per cent
thereof. number of udgments aganst pettoner were represented n the
proceedng by a recever of the pettoner apponted by the cty court In sup-
pementary proceedngs. The Unted States had prevousy Informay ar-
ranged that the recevershp e tend to cover ts cam for unpad Income ta es,
for whch t had fed notces of ens pursuant to Unted States Code, secton
115, Tte 26, on November 20, 1929, and May 25, 1931. Two of the udgments
represented by the recever were recorded pror to the fng of the notces of
en.
The Unted States ntervened n the surrogate s court proceedng and as-
serted that nasmuch as t was not a |udgment credtor, confned by Unted
States Code, secton 727, Tte 28 (R. S., secton 916) to the same remedes
whch t mght have had In the State courts, nor mted by any edera
e empton to a percentage of the trust ncome, Its rght to enforce ts en
under secton 115 was not mted by any aw of the State of New York.
The surrogate re|ected that contenton and drected the trustee to pay 90
per cent of the Income to the benefcary and the remanng 10 per cent to the
recever for the |udgment credtor. The order was affrmed by the appeate
dvson. The courts beow seem to have found the absence of any reported
hodng to the contrary suffcent ground for determnng that the edera Gov-
ernment ether has no authorty to satsfy ts cam from the ncome of a spend-
thrft trust or that ts pocy In reaton to that devce Is In accordance wth the
pocy of our own State.
The fundamenta pocy to be borne n mnd s that the rght of property
s a rght cum onere. person may not ordnary have ownershp of or rght
to en|oy property and at the same tme be abe to keep t from the cams of
credtors and others. (Cf. aett v. Thompson, 6 Page, 586.) n ndvd-
uastc crosscurrent came to permt fathers of mprovdent sons, by way of
e cepton, to nsure a sum necessary for educaton and support (Rea property
aw, secton 98) In order to protect them from ther own e travagance and to
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G13.
260
prevent them from becomng pubc charges. Nevertheess, under the pressure
of speca crcumstances, that apparenty unreachabe sum has been permtted
by the courts to be reached. (Wetmore v. Wetmore, 149 N. Y., 520 and see 43
arvard Law Rev., 63.) It Is by no means certan that our State pocy e cudes
the payment of State ta es and other possbe cams by the State from the cate-
gory of necessary support. ta n some form nowadays s at east as certan
as, say, medca or ega e penses.
owever that may be, t s certan that no pocy of ths State may Interfere
wth the power of Congress to evy and coect ta es on ncome. ( urnet v.
arme, 287 U. S., 103, 110 Ct. D. 611, O. . I-2, 210 Unted States v.
Snyder, 149 U. S., 210, 214.) Cases where State e emptons have been apped
to the coecton of |udgments In favor of the Unted States have been n every
nstance predcated on the statutory adopton of State e emptons. ( nk v.
O NeU, 106 U. S., 272 Custer v. McGutcheon, 283 U. S., 514.)
Secton 115 of Tte 26 of the Unted States Code provdes as foows:
Seo. 115. Len for ta es. (a) If any person abe to pay any ta negects
or refuses to pay the same after demand, the amount (Incudng any nterest,
penaty, addtona amount, or addton to such ta , together wth any costs that
may accrue n addton thereto) sha be a en n favor of the Unted States
upon a property and rghts to property whether rea or persona, beongng to
such person. Uness another date s specfcay f ed by aw, the en sha
arse at the tme the assessment st was receved by the coector and sha
contnue unt the abty for such amount a satsfed or becomes unenforceabe
by reason of apse of tme.
If the rght or Interest whch the benefcary here has n the ncome of the
trust may be sad to fa wthn the sweepng mts of the phrase a property
and rghts to property, whether rea or persona, beongng to such person,
then we see no reason to doubt the vadty of the appeant s contenton. It
s true that the ega estate Is In the trustee. Nevertheess, the whoe benef-
ca propretorshp, or Interest, s In the cestu que trust, for whom he hods the
estate and who has the rght to enforce the performance of the trust (Met-
cafe v. Unon Trust Co., 181 N. Y., 39, 41.) To say that rght s not a rght
to property wthn the meanng of the Unted States Code, secton 115, because
equty acts n personam and not n rem, woud be mere egasm and woud
dsregard the pan anguage and what we thnk s the pan ntendment of the
statute. Certan other arguments may be brefy notced. It s sad (grantng
that the benefcary s rght Is a rght to property), that snce Unted States
Code, secton 116 of Tte 20 grants to the Government the power to dstran
for ta es certan specfed tems of persona property, among whch ncome
from a spendthrft trust s not ncuded, the en and rght to enforce gven
by secton 115 shoud be confned to the tems mentoned n secton 116. The
two statutes are not n par matera. ( ackock v. Unted States, 208 U. S.,
75.) s to the ack of specfc statutory authorty to mantan a sut or pro-
ceedng n equty to enforce a en on trust Income (whch authorty s specf-
cay gven wth respect to nterests n rea property), It s enough to say that
f, as we thnk, such a en e sts here, t must have the attrbutes of ens
generay and Is somethng that courts of genera equtabe |ursdcton may en-
force. (Cf. 1 Pomeroy s quty ursprudence (4th ed.), secton 167 Gchrst
v. eena Mot Sprngs d Smeter R. Co., 58 ed., 708 Westmoreand Trousdae
v. oster, 60 a., 448.) The powers of a surrogate s court wth respect to testa-
mentary trusts are suffcenty broad for the purpose. nay, snce the prop-
erty rght here n queston may not be reached at a by dstrant under secton
116, and may be reached under the State statute by garnshment ony to the
e tent of 10 per cent (C. P. ., secton 684 U. S. C, secton 142 of chapter 3
of Tte 26), t s dffcut to say that there s an adequate remedy at aw.
The order shoud be reversed and an order granted to the effect that the
|udgments fed pror to the fng of the notce of en are entted to 10 per
cent of the trust ncome ahead of the Unted States and that the Unted States
s entted to 90 per cent of the trust ncome unt the pror |udgments are sats-
fed and then, f the cam of the Unted States s st unpad, to the entre
ncome unt pad a, however, wthout costs.
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261 701, rt. 1314.
TITL . G N R L PRO ISIONS.
S CTION 701. D INITIONS.
rtce 1314: ssocaton dstngushed from -3-7910
trust. Ct. D. 1067
INCOM T R NU CTS O 1926 ND 1928 D CISION OP SUPR M
COURT.
1. Teust Ta abe as ssocaton.
trust created or utzed by the benefcary assocates as a
medum to carry on a ont enterprse for ther ont proft Is an
assocaton ta abe as a corporaton, as t secures for those asso-
cated the essenta corporate attrbutes of contnuty of organza-
ton, centrazed management, and mted abty. The facts that
ony a few persons formed the assocaton and that there was no
provson for contro by the benefcares, as such, are not deter-
mnatve. Not ony were they engaged n carryng on an e tensve
busness for proft, but the terms of the trust nstrument author-
zed a wde range of actvtes, and the partes are not at berty
to say that ther purpose was other or narrower than that formay
set forth n the nstrument under whch ther actvtes were con-
ducted, orrssey v. Commssoner, decded by the Supreme Court
December 16, 1935 Ct. D. 1064, page 264, ths uetn , foowed.
2. Decson Reversed.
Decson of the Crcut Court of ppeas, rst Crcut (76 ed.
(2d), 191), reversed.
Supreme Couut of the Unted States.
Nos. 78, 79. Ouy T. Ieverng, Commssoner of Interna Revenue, pettoner, v.
Coeman-Obert ssocates.
On wrts of certorar to the Unted States Crcut Court of ppeas for the rst Crcut.
December 16, 1935.
opnon.
Mr. Chef ustce ughes devered the opnon of the Court.
The Commssoner of Interna Revenue determned defcences n ncome
ta es for the years 1927 to 1929 upon the ground that respondent was ta abe
as an assocaton. The decson of the oard of Ta ppeas, sustanng ths
rung, was reversed by the crcut court of appeas. (70 . (2d), 191.) In
vew of the confct of decsons as to the test to be apped, we granted cer-
torar. (See Morrssey v. Commssoner, decded ths day Ct. D. 1004, page 204.
ths uetn .)
rom the facts, as found by the oard of Ta ppeas, It appears that
respondent was formed by an Indenture of trust n November, 1926. The
creators of the trust were arry Coeman, Paune Coeman, ernard Gbert,
arrs Levne, and Lena Levne. They were eoowners of rea property con-
sstng of about 20 apartment houses n the cty of oston and vcnty.
The property had orgnay been owned by arry Coeman, ernard Gbert
and arrs Levne n equa shares, but subsequenty Coeman and Levne
transferred to ther wves one-haf of ther nterests. These fve persons had
for some tme been assocated n the busness of ownng and operatng apart-
ment houses. y the trust nstrument, whch rected a contemporaneous con-
veyance of the property to themseves, they decared that the rea estate so
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701, rt. 1314.
262
conveyed, and any rea estate thereafter acqured under the trust, shoud be
hed by them In trust for the purposes descrbed, wth the desgnaton Coe-
man-Gbert ssocates. The trust was to contnue for 15 years uness sooner
termnated by sae and dstrbuton of the trust estate. The trustees were to
hod the property n order to mprove and dspose of t for the beneft of the
persons named as cesua que truatent and benefcares, and ther respectve
representatves and assgns, devsees, or egatees n the shares provded n
the Instrument. cept as stated, the benefcares were to have no nterest n
the trust property, and especay they were to have no rght to ca for
any partton thereof. The nterests of the benefcares were to be persona
property, and the death of any one or of a the benefcares was not to deter-
mne the trust nor entte the ega representatves of the decedent to an
accountng by the trustees.
The trustees were to have the fu power and dscreton of absoute own-
ers, wth authorty to nvest and renvest the trust property, ncudng Its
ncome, In mortgages or n obgatons secured upon rea estate, and n the
purchase and mprovement of rea estate stuated In the ctes or towns of the
Commonweath of Massachusetts. The trustees were authorzed to se at
pubc or prvate sae any part or a of the trust property upon such terms
as they mght see ft, to Improve, to ease for a term beyond the possbe
termnaton of the trust, or for any ess term, to hre for Improvement or
otherwse, to et, to e change, to reease, to partton, to borrow money, and
to e ecute a necessary contracts. unds In the possesson of the trustees,
beng the proceeds of saes or otherwse, or net ncome, whch was not
requred n ther |udgment for deveopment or mprovement of the trust
property, were to be dvded and pad over annuay, or oftener, f convenent,
equay among the sad benefcares and ther respectve representatves and
assgns n the proportons stated. The trustees were to have no power to
bnd the benefcares personay, and the trustees were to be responsbe ony
for wfu defaut and breach of trust There was aso provson for the
resgnaton of trustees, and n case of death or resgnaton of a trustee, the
survvng trustees were to appont successors, and f they faed to do so,
the benefcares were to have the rght of appontment
The oard of Ta ppeas found that the trust owned and operated some
20 apartment houses, the gross annua rents of whch amounted to about
420,000. There were appro matey 1,500 tenants. The gross cost of the
propertes was about 3,000,000. mpoyees pay ros amounted to about
825,000, and the operatng e penses to about 300,000, annuay. The trustees
drew no saary. Two of the mae trustees devoted ther entre tme to the
management and a thrd trustee was aso actvey engaged. n offce force
of three persons, besdes the three operatng trustees, was requred to keep the
necessary fnanca records of the trust There were no budng managers
or superntendents. The trustees supervsed the mantenance of the trust
propertes ookng after ther operatng condton, coectng rents, orderng
repars, purchasng suppes, arrangng oans and supervsng offce detas, se-
curng new tenants and generay operatng the trust propertes. The femae
trustees were entrey nactve.
The oard of Ta ppeas summed up ts fndngs by sayng: These
trustees, athough they dd not e ercse a of the powers gven to them In the
trust Instrument, were engaged, nevertheess, In carryng on a busness for
proft n much the same manner as the drectors of a corporaton are assocated
together for the purpose of carryng on a busness enterprse.
We thnk that the oard was rght n ts concuson that the trust con-
sttuted an assocaton wthn the meanng of the Revenue cts. The govern-
ng prncpes have been dscussed n Morrssey v. Commssoner, supra, and
need not be restated. The sma number of persons n the trust now before
us does not present a dfference In the ega aspect of ther enterprse from
the standpont of the statutory cassfcaton. few persons, as we as
many, may form an assocaton to conduct a busness for ther common
proft. Nor s the absence of provson for contro by the benefcares, as such,
determnatve. The fact that the enterprse was confned to deangs In
rea property, ts management and mprovement, does not prevent ts beng
cassfed as an assocaton. (See Swanson v. Commssoner, decded ths day
Ot. D. 1065, page 270, ths uetn .) The crcut court of appeas, whe not
questonng the suffcency of the evdence to warrant the oard of Ta p-
peas In fndng that the trustees were conductng a busness enterprse for the
purpose of nsurng an Income for the benefcares, and that the trustees may
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263
( 701, rt. 1314.
have e ercsed powers In some respects as great as those of the drectors of a
corporaton, found a dstncton In the procedure that had been foowed.
There had been no meetngs, no records, and the acts of the trustees were
not determned by a ma|orty vote. The trustees had conducted the busness
In the same manner as t had been conducted before the trust was formed.
We thnk that the court unduy emphaszed the mere dfferences of forma
procedure. If such dfferences were to be made the test n determnng whether
or not an enterprse for the transacton of busness consttutes an assoca-
ton, the sub|ect woud be enveoped n a coud of uncertanty, and enterprses
of the same essenta character woud be paced In dfferent categores smpy
by reason of forma varatons n mere procedura detas. The sgnfcant
resembance to the acton of drectors does not e n the formates of meet-
ngs or records but n the fact that, by vrtue of the agreement for the conduct
of the busness of a |ont enterprse, the partes have secured the centrazed
management of ther undertakng through desgnated representatves.
We agree wth the crcut court of appeas that weght shoud be gven to
the purpose for whch the trust was organzed, but that purpose s found
n the agreement of the partes. Not ony were they actuay engaged, as the
oard of Ta ppeas determned n carryng on an e tensve busness for
proft, but the terms of the trust nstrument authorzed a wde range of actv-
tes n the purchase, mprovement and sae of propertes n the ctes and towns
of the State. The partes are not at berty to say that ther purpose was
other or narrower than that whch they formay set forth n the nstrument
under whch ther actvtes were conducted. Undoubtedy they wshed to avod
partton of the property of whch they had been coowners, but ther purpose
as decared n ther agreement was much broader than that. They formed a
combnaton to conduct the busness of hodng, mprovng and seng rea
estate, wth provson for management through representatves, wth contnuty
whch was not to be dsturbed by death or changes In ownershp of benefca
Interests, and wth mted abty. They had been coowners but they pre-
ferred to become assocates, and aso not to become partners. Morrssey
. Commssoner, supra.)
The decrees of the crcut court of appeas are reversed and the orders of
the oard of Ta ppeas are affrmed.
It s so ordered.
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1 and 2, rt. 1504. 264
INCOM T RULINGS. P RT I .
R NU CT O 1926 ND PRIOR CTS.
TITL L G N R L D INITIONS.
S CTIONS 1 ND 2. G N R L D INITIONS.
rtcub 1504: ssocaton dstngushed from -8 7911
trust. Ct D. 1064
INCOM T R NU CTS O 1924, 1026, ND 1928 D CISION O SUPR M
COU T.
1. Trust Ta abe as ssocaton Retroactve Statute.
trust created or utzed by the benefcary assocates as a
medum to carry on a |ont enterprse for ther |ont proft Is an
assocaton ta abe as a corporaton, as t secures for those asso-
cated the essenta corporate attrbutes of contnuty of organ-
zaton, centrazed management, and mted abty. The retro-
actve provsons of secton 704(a) of the Revenue ct of 1828 are
not appcabe, under the crcumstances stated n the opnon, to
avod cassfcaton as an assocaton for 1924 and subsequent
years.
2. Decson ffrmed.
Decson of the Crcut Court of ppeas, Nnth Crcut (74 ed.
(2d), 803), affrmed.
Supreme Court of the Unted States.
T. . Morrssey and ames M. O ren, Trustees of an press Trust known
as Western venue Gof Cub, pettoners, v. Commssoner of Interna
Revenue.
On wrt of certorar to the Unted States Crcut Court ot ppeas for the Nnth Crcut.
December 16, 1935.
opnon.
Mr. Chef ustce ughes devered the opnon of the Court
Pettoners, the trustees of an e press trust, contest Income ta es for the
years 1924 to 1926, ncusve, upon the ground that the trust has been egay
treated as an assocaton. The crcut court of appeas affrmed the decson
of the oard of Ta ppeas whch sustaned the rung of the Commssoner
of Interna Revenue. (74 . (2d), 803.) We granted certorar because of a
confct of decsons as to the dstncton between an assocaton and a pure
trust, the decsons beng descrbed n one of the cases as seemngy In a
hopeess state of confuson. ( everng v. Coeman-GUbert ssocates, 76 .
(2d), 191, 193 Ct. D. 1067, page 261, ths uetn .)
The facts were stpuated. In the year 1921 pettoners made a decaraton
of trust of rea estate n Los ngees. They were to be desgnated n ther
coectve capacty as Western venue Gof Cub. The trustees were
authorzed to add to ther number and to choose ther successors to purchase,
encumber, se, ease and operate the descrbed or other ands to construct
and operate gof courses, cubhouses, etc. to receve the rents, profts and
ncome to make oans and Investments to make reguatons and generay
to manage the trust estate as f the trustees were ts absoute owners. The
1 Pott, Nob. 78-79. See, nso. po t, No. 108, Soanson v. CommUtoner Ct. D. 1063,
pa-. 270, ths uetn , and No. 238, evetnff v. Comb Ct. D. 1006, page 272, toa
uetn.
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265
51 and 2, rt. 1504.
trustees were decared to be wthout power to bnd the benefcares personay
by any act, negect or defaut, and the benefcares and a persons deang
wth the trustees were requred to ook for payment or Indemnty to the trust
property. The benefca nterests were to be evdenced soey by transferabe
certfcates for shares whch were dvded nto 2,000 preferred shares of the
par vaue of 100 each, and 2,000 common shares of no par vaue, and the
rghts of the respectve sharehoders n the surpus, profts, and capta assets
were defned. Share edgers showng the names and addresses of share-
hoders were to be kept
The trustees mght convene the sharehoders In meetng for the purpose of
makng reports or consderng recommendatons, but the votes of the share-
hoders were to be advsory ony. The death of a trustee or of a benefcary
was not to end the trust, whch was to contnue for 25 years uness sooner
termnated by the trustees.
Durng the years 1921 and 1922, the trustees sod benefca Interests and
pad commssons on the saes. bout 42 acres (of the 155 acres descrbed by
the decaraton of trust) were potted nto ots whch were sod durng the
years 1921 to 1923, most of the saes beng on the nstament bass. On the
remanng property a gof course and cubhouse were constructed, and n 1923
ths property wth the Improvements was conveyed to Western venue Gof
Cub, Inc., a Caforna corporaton, In e change for Its stock. Under a ease
from the corporaton pettoners contnued the operaton of the gof course
unt anuary 12, 1924. fter that date pettoners actvtes were confned
to coectons of nstaments of prncpa and nterest on contracts of pur-
chase, the recept of nterest on bank baances and of fees on assgnments by
hoders of purchase contracts, the e ecuton of conveyances to purchasers, the
recept of dvdends from the ncorporated cub, and the dstrbuton of moneys
to the hoders of benefca nterests. On December 31, 1923, the tota number
of outstandng benefca Interests was 3,016 hed by 920 persons by December
81, 1926, the number of nterests had been graduay decreased to 2,172, hed
by 275 persons. The hodngs by the trustees ranged appro matey from 16
to 29 per cent
Pettoners contend that they are trustees of property hed n trust, wthn
secton 219 of the Revenue cts of 1924 and 1926,1 and are ta abe accordngy
and not as an assocaton. They urge that to consttute an assocaton,
the appcabe test requres a quas-corporate organzaton n whch the
benefcares, whether or not certfcate hoders, have some voce n the manage-
ment and some contro over the trustees and have an opportunty to e ercse
such contro through the rght to vote at meetngs and that, n any event,
the aetMdes n whch pettoners were engaged, durng the ta years under
consderaton, dd not consttute a carryng on of busness wthn the rue
apped by ths Court
The Government Inssts that the dstncton between assocatons and the
msts ta ed under secton 219 s between busness trusts on the one sde
and other trusts whch are engaged merey n coectng the Income and
conservng the property aganst the day when It s to be dstrbuted to the
benefcares that Congress ntended that a busness trusts shoud be
ta ed as assocatons.
1. The Revenue cts of 1924 and 1928 provded:
The term corporaton ncudes assocatons, ont-stock companes, and
Insurance companes. (1924, secton 2(a)2 1926, secton 2(a)2. )
smar defnton s found n the earer Revenue cts of 1917 (secton
200), 1918 (secton 1), and 1921 (secton 2(2)), and aso In the ater cts of
1928 (secton 701(a)2), 1932 (secton (a)2), and 1934 (secton 801(a)2).
The Corporaton Ta ct of 1909, whch mposed an e cse ta upon the
prvege of dong busness n a corporate capacty, embraced assocatons
havng a capta stock represented by shares and organzed under the aws of
the Unted States or of any State or Terrtory. ( nt v. Stone Tracy Go.,
220 U. S-, 108, 144 ot v. reeman, 220 U. S., 178, 186.) The Income Ta ct
of 1913 ta ed the net ncome of every corporaton, |ont-stock company or
assocaton, and every Insurance company, organzed n the Unted States, no
43 Stat., 275 44 Stat.. 32.
43 Stat., 253 44 Stat., 9.
40 Stat., 302 40 Stat., 1058 42 Stat., 227.
45 Stat., 878 47 Stat., 289 48 Stat., 771.
36 Stat., 112.
38 Stat.. 172.
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51 and 2, rt. 1504.
266
matter how created or organzed, not ncudng partnershps. The case of
Crocker v. Maey (249 U. S., 223) arose under the atter ct. The Court found
that the decaraton of trust In that case, reatng to m property, was on ts
face an ordnary rea estate trust of the knd famar n Massachusetts, and
that the functon of the trustees was not to manage the ms but smpy to
coect the rents and ncome of such property as may be n ther hands, wth a
arge dscreton n the appcaton of t, but wth a recognton that the recept
hoders are entted to It sub|ect to the e ercse of the powers confded to the
trustees. The Court thought that, If t were assumed that the words no
matter how created or organzed apped to assocaton, st t woud be
a wde departure from norma usage to ca the benefcares a ont-stock
assocaton when they were not partners and had no |ont acton or nterest
and no contro over the fund. Nor coud the trustees by themseves be
treated as a |ont-stock assocaton wthn the meanng of the ct uness a
trustees wth dscretonary powers are such. (Id., pages 232-234.)
The decson n Crocker v. Maey was rendered n March, 1919, and the
Treasury Department thereupon assumed that the degree of contro e ercsed
by the benefcares over the management of the trust was determnatve of the
queston whether the trust consttuted an assocaton. See statement of the
rungs of the ureau by the oard of Ta ppeas In Woodrow Lee Trust v.
Commssoner (17 . T. ., I, 112). It was In that vew, that the reguatons
under the Revenue cts of 1918 and 1921, n dstngushng an assocaton
from a trust, provded as foows:
If, however, the cestus que trust have a voce n the conduct of the busness
of the trust, whether through the rght perodcay to eect trustees or other-
wse, the trust s an assocaton wthn the meanng of the statute. (Regua-
tons Nos. 45, 62, artce 1504.)
Ths rung contnued unt our decson In May, 1924, In echt v. Mae/
(265 U. S., 144 T. D. 8595, O. . III-, 489 ), and furnshed the test whch the
oard of Ta ppeas theretofore apped. ccordngy, the oard In the case
now before us, hodng that under the trust Instrument the sharehoders had
no contro over the trustees or the management of the busness, determned
that the trust was ta abe as such, and not as an assocaton, for the years 1921,
1922, and 1923.
The case of echt v. Maey reated to the e cse ta es Imposed upon asso-
catons by the Revenue cts of 1916 (secton 407) and 1918 (secton
1000(a)). The provson of the ct of 1916 retaned the quafyng words of
the Corporaton Ta ct of 1909 organzed under the aws of the Unted
States, or any State or Terrtory and the Court foowed the constructon
paced upon those words n Uot v. reeman, supra. ut the ct of 1918
omtted ths quafcaton and the e cse ta as ad upon corporatons apped
to assocatons under the genera defnton. The Court thus found the
terms of the ct of 1918 to be In sgnfcant contrast to the provsons of the
cts of 1909 and 1916. The omsson of the quafcaton showed the ntenton
of Congress to e tend the ta from one Imposed soey upon organzatons
e ercsng statutory prveges, as theretofore, to ncude aso organzatons
e ercsng the prvege of dong busness as assocatons at the common aw.
(265 U. S., 155.) Shorn of the restrcton, the word assocaton appeared
to be used n ts ordnary meanng, and we referred to severa defntons found
In standard dctonares, as, e. g., a body of persons unted wthout a charter,
but upon the methods and forms used by ncorporated bodes for the prosecuton
of some common enterprse a body of persons organzed, for the prosecuton
of some purpose, wthout a charter, but havng the genera form and mode of
procedure of a corporaton an organzed but unchartered body anaogous to
but dstngushed from a corporaton. (Id., 157.) We e pressed the vew that
the word assocaton, as used In the e cse ta provson of the Revenue ct
of 1918, ceary Incuded Massachusetts trusts, of the sort there Invoved,
havng quas-corporate organzatons under whch they are engaged n carry-
ng on busness enterprses. We were carefu to say that t was then
unnecessary to determne what other form of assocaton, f any, the ct
embraced. (Id.)
In the echt case, the trustees of the ooht and aymarket trusts reed
strongy upon the decson In Crocker v. Maey as concusvey determnng that
. . Lantrcth Co. (I . T. .. 655). an Cearn Trust (IS . T. ., 4 0), Com-
merca Trust Co. (18 . T. ., 1248) Ron S. Sturgeon et a.. Trustees (25 . T. -
80S). Tm u e O Svnttcntc (2G . T. ., 16. )
39 Stut., 780 40 Stat.. 1126.
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267 and 2, rt 1604,
those trusts coud not be hed to be assocatons, uness the trust agreements
rested the sharehoders wth such contro over the trustees as to consttute
them more than strct trusts wthn the Massachusetts rue. Revewng the
reasonng of that decson, we ponted out that It was not authorty for the
broad proposton advanced. We concuded that, when the nature of the trusts
was consdered, as the pettoners were not merey trustees for coectng
funds and payng them over, but were assocated together In much the same
manner as the drectors In a corporaton for the purpose of carryng on busness
enterprses, the trusts were to be deemed assocatons wthn the meanng of
the ct of 1918. Ths was true Independenty of the arge measure of con|
tro e ercsed by the benefcares. nd we re|ected the vew that Congress
Intended that organzatons of that character shoud be e empt from the
e cse ta on the prvege of carryng on ther busness merey because such
a sght measure of contro may be vested n the benefcares that they mght
be deemed strct trusts wthn the rue estabshed by the Massachusetts
courts.
oowng ths decson, the Treasury Department amended ts reguaton so
as to provde that the dstncton between an assocaton and a trust shoud no
onger depend upon benefcary contro. The new provson read:
Operatng trusts, whether or not of the Massachusetts type, n whch the
trustees are not restrcted to the mere coecton of funds and ther payments
to the benefcares, but are assocated together n much the same manner as
drectors n a corporaton for the purpose of carryng on some busness enter-
prse, are to be deemed assocatons wthn the meanng of the ct, regardess
of the contro e ercsed by the benefcares. (Reguatons No. 65, artce 1504,
ssued n October, 1924, under the Revenue ct of that year.)
Ths provson was amended n ugust, 1925, so as to read as foows:
If, however, the benefcares have postve contro over the trust, whether
through the rght perodcay to eect trustees or otherwse, an assocaton
e sts wthn the meanng of secton 2. ven n the absence of any contro by
the benefcares, where the trustees are not restrcted to the mere coecton of
funds and thsr payment to the benefcares, but are assocated together wth
smar or greater powers than the drectors n a corporaton for the purpose
of carryng on some busness enterprse, the trust s an assocaton wthn the
meanng of the statute. (T. D. 3748, C. . I -2, 7.)
The te t of the reguatons reatng to assocatons, so far as pertnent here,
promugated under the ct of 1924, s set forth In the margn (Reguatons
No. 65, artces 1502, 1504, as amended).10 These reguatons were contnued
substantay unchanged under the Revenue cts of 1926 and 1928. (No. 69,
artces 1502, 1504 No. 74, artces 1312, 1314.) The correspondng reguatons
under the ct of 1932 were somewhat modfed (No. 77, artce 1314) and these
were consderaby e panded by the reguatons ssued under the ct of 1934
(No. 86, artces 801-2, 801-3).
2. s the statute merey provded that the term corporaton shoud n-
cude assocatons, wthout further defnton, the Treasury Department was
authorzed to suppy rues for the enforcement of the ct wthn the permssbe
bounds of admnstratve constructon. Nor can ths authorty be deemed to be
so restrcted that the reguatons, once ssued, coud not ater be carfed or
M bt. 1502. ssocaton. ssocatons and |ont-stock companes Incude assoca-
tons, common aw trusts, and organzatons by whatever nnmt nown, whch act or do
busness u an organzed capacty, whether created under and pursuant to State aws,
agreements, decaratons of trust, or otbcrwse, tbe net Income of wbch, f any. s ds-
trbuted or dstrbutabe among tbe sharehoders on tbe bass of tbe capta stock whch
each hods, or, where there s no cnpta stock, on the bass of the proportonate share or
capta whch each has or has Invested n tbe busness or property of the organ-
zaton.
RT. 1504. ssocaton dstngushed from trust. Where trustees merey bod property
for the coecton of the Income and ts dstrbuton among the benefcares of the trust,
and are not engaged, ether by themseves or n connecton wth the benefcares, n the
carryng on of any busness, and the benefcares have no contro over the trust athough
ther consent may be requred for the fng of a vacancy among tbe trustees or for a
modfcaton of the terms of the trust, no assocaton e sts, and the trust and the
benefcares thereof w be sub|ect to ta as provded by secton 219 and by artces
(U-347. If, however, the benefcares have postve contro over the trust, whether
through the rght perodcay to eect trustees or otherwse, an assocaton e sts wthn
the meanng of secton 2. ven n the absence of any contro by the benefcares, where
the trustees are not restrcted to the mere coecton of funds and ther payment to the
benefcares, but are assocated together wth smar or greater powers than the
drectors n a corporaton for the purpose of carryng on some busness enterprse, the
trust s an assocaton wthn the meanng of the statute.
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268
enarged so as to meet admnstratve e gences or conform to udca decson.
(Compare Murphy O Co. v. urnet, 287 U. S., 299, 303-307 Ct. D. 619, C. .
II-1, 331 .) We fnd no gTound for the contenton that by the enactment
of the Revenue ct of 1924 the Department was mted to ts prevous regu-
atons as to assocatons. nd, whe the case of echt v. Maey was con-
cerned wth the speca e cse ta provson of the Revenue ct of 1918, the
rung of the Court that the degree of the contro by benefcares was not a
decsve test n that reaton coud by smar reasonng be apped to the
genera ncome ta es ad by the Revenue cts upon corporatons and thus
upon assocatons. These genera Income ta es covered both those ta es whch
n ther nature were e cse ta es on busness, and as such coud have been
ad pror to the s teenth amendment, and those ta es on other Income whch
were permtted by that amendment. (Stanton v. atc Mnng Co., 240 U. S.,
103, 107, 114.) We thnk that the Department dd not e ceed Its powers In
rewrtng ts reguaton, In the ght of the decson In echt v. Maey, so as
to provde wth respect to the Income ta es, n genera, to be pad by assoca-
tons, that the e tent or ack of contro by the benefcares of a trust shoud
not n tsef determne whether there was an assocaton wthn the meanng
of the statute. That the revsed reguaton had congressona approva a
persuasvey-evdenced by the fact that the reguaton, as amended n 1925, was
contnued wthout substanta ateraton unt 1933, and meanwhe Congress
reenacted wthout change the genera provson as to assocatons n the Reve-
nue cts of 1926, 1928, and 1932. (See rewster v. Oage, 280 D. S., 327, 337
Ct. D. 148, C. . I -1, 274 McCaughn v. ershey Chocoate Co., 283 U. S.,
48S, 492 Ct. D. 345, C. . -, 444 Murphy O Co. v. urnet, supra
evcrng v. ss, 293 U. S., 144, 151 Ct. D. 884, C. . III-2, 191 .)
The queston Is not one of the power of Congress to mpose ths ta upon
pettoners but s smpy one of statutory constructon whether Congress has
Imposed t. (See urk-Waggoner O ssocaton v. opkns, 269 U. S., 110, 114
T. D. 3790, C. . -, 147 .) The dffcuty wth the reguatons as an e pos-
ton was that they themseves requred e pcaton that they eft many ques-
tons open wth respect both to ther appcaton to partcuar enterprses and
to ther vadty as apped. The so-caed contro test had ed to much
tgaton, and the change n the reguatons after the decson n echt v.
Maey caused ncreased uncertanty. That stuaton s put In a strong ght
by the acton of Congress, n order to afford reef to ta payers, n enactng
secton 704 of the Revenue ct of 1928 as a retroactve provson appcabe,
as stated, to trust returns whch had been fed for a ta abe year pror to
1925 under prevous reguatons and rungs, and aso by gvng an opton
to a trustee, In specfed crcumstances, n reaton to the Revenue ct of
1926 and pror cts. Whe t Is Impossbe In the nature of thngs to trans-
ate the statutory concept of assocaton nto a partcuarty of deta that
woud f the status of every sort of enterprse or organzaton whch ngenuty
may create, the recurrng dsputes emphasze the need of a further e amna-
ton of the congressona ntent.
8. ssocaton mpes assocates. It mpes the enterng Into a |ont
enterprse, and, as the appcabe reguaton mports, an enterprse for the
transacton of busness. Ths s not the characterstc of an ordnary trust
whether created by w, deed, or decaraton by whch partcuar property Is
conveyed to a trustee or s to be hed by the settor, on specfed trusts, for
the beneft of named or descrbed persons. Such benefcares do not ordnary,
and as mere cestu que trust, pan a common effort or enter nto a combnaton
for the conduct of a busness enterprse. Undoubtedy the terms of an asso-
caton may make the takng or acqurng of 6hares or nterests suffcent to
consttute partcpaton, and may eave the management, or even contro of the
enterprse, to desgnated persons. ut the nature and purpose of the coopera-
tve undertakng w dfferentate It from an ordnary trust. In what are
caed busness trusts the ob|ect Is not to hod and conserve partcuar
property, wth ncdenta powers, as n the tradtona type of trusts, but to pro-
vde a medum for the conduct of a busness and sharng ts gans. Thus a
trust may be created as a convenent method by whch persons become asso-
cated for deangs n rea estate, the deveopment of tracts of and, the con-
structon of mprovements, and the purchase, management and sae of proper-
tes or for deangs n securtes or other persona property or for the produc-
ton, or manufacture, and sae of commodtes or for commerce, or other sorts
a 40 Stat., 880.
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269
1 and 2, rt. 1504.
of busness where those who become benefcay Interested, ether by |onng
In the pan at the outset, or by ater partcpaton accordng to the terms of the
arrangement, seek to share the advantages of a unon of ther nterests n the
common enterprse.
The Government contends that such an organzed communty of efTort for the
dong of busness presents the essenta features of an assocaton. Pettoners
stress the sgnfcance of, and the mtatons sad to be mped In, the prov-
son cassfyng assocatons wth corporatons.
4. The Incuson of assocatons wth corporatons mpes resembance but t
Is resembance and not dentty. The resembance ponts to features dstn-
gushng assocatons from partnershps as we as from ordnary trusts. s
we have seen, the cassfcaton can not be sad to requre organzaton under
a statute, or wth statutory prveges. The term embraces assocatons as they
may e st at common aw. echt v. MaUey, supra.) We have aready re-
ferred to the defntons, quoted n that case, showng the ordnary meanng of
the term as appcabe to a body of persons unted wthout a charter but upon
the methods and forms used by ncorporated bodes for the prosecuton of some
common enterprse. These defntons, whe hepfu, are not to be pressed so
far as to make mere forma procedure a controng test. The provson tsef
negatves such a constructon. Thus unncorporated ont-stock companes have
generay been regarded as bearng the cosest resembance to corporatons.
ut, n the Revenue cts, assocatons are mentoned separatey and are not
to be treated as mted to ont-stock companes, athough beongng to the
same group. Whe the use of corporate forms may furnsh persuasve evdence
of the e stence of an assocaton, the absence of partcuar forms, or of the
usua termnoogy of corporatons, can not be regarded as decsve. Thus an
assocaton may not have drectors or offcers but the trustees may
functon n much the same manner as the drectors n a corporaton for the
purpose of carryng on the enterprse. The reguatory provsons of the trust
nstrument may take the pace of by-aws. nd as there may be, under the
reasonng In the echt case, an absence of contro by benefcares such as Is
commony e ercsed by stockhoders In a busness corporaton, t can not be con-
sdered to be essenta to the e stence of an assocaton that those benefcay
nterested shoud hod meetngs or eect ther representatves. gan, whe the
facuty of transferrng the nterests of members wthout affectng the contnuty
of the enterprse may be deemed to be characterstc, the test of an assocaton
Is not to be found In the mere forma evdence of nterests or n a partcuar
method of transfer.
What, then, are the saent features of a trust when created and man-
taned as a medum for the carryng on of a busness enterprse and sharng
Its gans whch may be regarded as makng t anaogous to a corporate or-
ganzaton corporaton, as an entty, hods the tte to the property em-
barked n the corporate undertakng. Trustees, as a contnung body wth
provson for successon, may afford a correspondng advantage durng the
e stence of the trust. Corporate organzaton furnshes the opportunty for a
centrazed management through representatves of the members of the cor-
poraton. The desgnaton of trustees, who are charged wth the conduct of
an enterprse who act In much the same manner as drectors may pro-
vde a smar scheme, wth correspondng effectveness. Whether the trustees
are named In the trust Instrument wth power to seect successors, so as to
consttute a sef-perpetuatng body, or are seected by, or wth the advce of,
those benefcay nterested n the undertakng, centrazaton of management
anaogous to that of corporate actvtes may be acheved. n enterprse car-
red on by means of a trust may be secure from termnaton or nterrupton
by the death of owners of benefca Interests and n ths respect ther Interests
are dstngushed from those of partners and are akn to the nterests of mem-
bers of a corporaton. nd the trust type of organzaton factates, as does
corporate organzaton, the transfer of (benefca Interests wthout affectng
the contnuty of the enterprse, and aso the ntroducton of arge numbers
of partcpants. The trust method aso permts the mtaton of the persona
abty of partcpants to the property embarked n the undertakng.
It s no answer to say that these advantages fow from the very nature of
trusts. or the queston has arsen because of the use and adaptaton of the
trust mechansm. The suggeston gnores the postuate that we are consder-
ng those trusts whch have the dstnctve feature of beng created to enabe
the partcpants to carry on a busness and dvde the gans whch accrue from
ther common undertakng trusts that thus satsfy the prmary concepton
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1 and 2, rt. 1504.
270
of assocaton and have the attrbutes to whch we have referred, dstngush-
ng them from partnershps. In such a case, we thnk that these attrbutes
make the trust suffcenty anaogous to corporate organzaton to |ustfy the
concuson that Congress ntended that the ncome of the enterprse shoud
be ta ed n the same manner as that of corporatons.
5. ppyng these prncpes to the nstant case, we are of the opnon that
the trust consttuted an assocaton. The trust was created for the deveop-
ment of a tract of and through the constructon and operaton of gof courses,
cubhouses, etc., and the conduct of ncdenta busnesses, wth broad powers
for the purchase, operaton and sae of propertes. Provson was made for
the ssue of shares of benefca Interests, wth descrbed rghts and prortes.
There were to be preferred shares of the vaue of 100 each and common
shares of no par vaue. Thus those who took benefca nterests became
sharehoders n the common undertakng to be conducted for ther proft
accordng to the terms of the arrangement. They were not the ess assocated
n that undertakng because the arrangement vested the management and
contro n the trustees. nd the contempated deveopment of the tract of
and hed at the outset, even If other propertes were not acqured, Invoved
what was essentay a busness enterprse. The arrangement provded for
centrazed contro, contnuty, and mted abty, and the anaogy to cor-
porate organzaton was carred st further by the provson for the ssue
of transferabe certfcates.
Under the trust, a consderabe porton of the property was surveyed and
subdvded Into ots whch were sod and, to factate the saes, the subdvded
property was Improved by the constructon of streets, sdewaks and curbs.
The fact that these saes were made before the begnnng of the ta years
here n queston, and that the remanng property was conveyed to a corpora-
ton n e change for ts stock, dd not ater the character of the organzaton.
Its character was determned by the terms of the trust nstrument. It was
not a qudatng trust t was st an organzaton for proft, and the profts
were st comng n. The powers conferred on the trustees contnued and
coud be e ercsed for such actvtes as the nstrument authorzed.
6. Pettoners contend that the trust was not ta abe as an assocaton, by
reason of the retroactve provsons of secton 704(a) of the Revenue ct of
1928. The contenton Is pany unavang and does not requre an e tended
dscusson. Secton 704(a) of the ct of 1928 provdes, n substance, that
where a ta payer fed a return as a trust for a ta abe year pror to 1925, the
ta payer sha be ta abe as a trust, and not as a corporaton, If the ta payer
was consdered to be so ta abe ether (1) under the reguatons n force at the
tme the return was made, or (2) under a departmenta rung then appcabe
and n force. Pror to the tme for fng pettoners return for the year 1924
the reguatons had been amended, foowng the decson In echt v. Maey,
supra, so as to provde that operatng trusts In whch the trustees were not re-
strcted to the mere coecton of funds and ther payment to benefcares, but
were assocated together n much the same manner as drectors n a corporaton
for the purpose of carryng on a busness enterprse, shoud be deemed to be
assocatons, regardess of the contro e ercsed by the benefcares. (Treasury
Reguatons No. 65, artce 1504, October, 1924.) It does not appear that there
were reguatons or rungs In force, at the tme of the return for the ta abe
year 1924, under whch the trust n ths nstance woud be ta abe as a trust
and not as an assocaton.
The udgment Is affrmed.
rtce 1504: ssocaton dstngushed from -3-7912
trust. Ct. D. 1065
ncome ta revenue act of 1926 decson op supreme court.
1. Trust Ta abe as ssocaton.
trust created or utzed by the benefcary assocates as a me-
dum to carry on a ont enterprse for ther |ont proft Is an asso-
caton ta abe as a corporaton, as t secures for those assocated
the essenta corporate attrbutes of contnuty of organzaton.
u 45 Stat.. 880.
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271
1 and 2, rt. 1504.
centrazed management, and mted abty. Morrssey v. Com-
ms snner, decded by the Supreme Court December 16, 1935 Ot D.
1064, page 264, ths uetn , foowed.
2. Decson ffrmed.
Decson of the Crcut Court of ppeas, Seventh Crcut (76 ed.
(2d), 661), affrmed.
SOT M t COU T O T UNIT D ST T S.
No. 108. oseph . Swans on et a., as Trustees of the Lake ew Land
ssocaton, pettoners, v. Commssoner of Interna Revenue.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Seventh Crcut.
December 16, 1936.
OPINION.
Mr. Chef ustce ughes devered the opnon of the Court.
The queston presented s whether the ncome of the Lake ew Land sso-
caton for the years 1925 and 1926 was sub|ect to ta as the ncome of a
trust under secton 219 of the Revenue ct of 1926, or as the ncome of an
assocaton by vrtue of secton 2(a)2 of that ct. The crcut court of
appeas hed the ta payer to be an assocaton and affrmed the decson of
the oard of Ta ppeas to that effect. (76 . (2d), 051.) Ths Court
granted a wrt or certorar. (See Morrssey v. Commssoner, decded ths day
Ct- D. 1064, page 264, ths uetn .)
The matera facts as found by the oard of Ta ppeas are as foows:
oseph . Swanson and Raph C. Ots, n 1914, acqured a pece of vacant and
In the cty of Chcago wth the vew of mprovng It by the erecton of an
apartment house, the tte beng taken by Swanson. n apartment house was
but. Subsequenty, In 1015, at the suggeston of ther attorney, they entered
Into a trust agreement for the purpose of carryng the tte to the property.
The trust was desgnated as the Lake ew Land ssocaton. The frst
trustees were Raph C. Ots, oseph . Swanson, and en G. Ms. Pettoners
set forth the foowng summary of the trust agreement taken from the
opnon of the crcut court of appeas:
Under the trust agreement, the trustees were gven the compete manage-
ment and contro of the property, to e change, reconstruct, remode, se, or
mprove at ther dscreton or to borrow money secured by the property. They
were authorzed to rent sutabe quarters for the transacton of the busness of
the trust and empoy such assstants as they requred. The agreement provded
for the Issuance of recepts to evdence the nterests of the benefcares, rep-
resentng 1,000 shares at the par vaue of 100 each. It was provded that
the recepts were evdences of the ownershp of persona property and not
rea estate. They mght be transferred by assgnment. Orgnay, one-haf of
the shares were Issued to Ots and one-haf to Swanson, who ater transferred
ther Interests to ther wves, who owned the shares durng 1925 and 1926.
The agreement provded that the trust coud sue and be sued that nether the
trustees nor the benefcares shoud be personay abe, and that a persons
deang wth the trustees must ook ony to the property of the trust that t
shoud be termnated at the e praton of 20 years after the death of the ast
survvor of certan named persons or by the trustees n ther dscreton at any
tme before the e praton of the 20 years by seng a the property hed by
them as such and dstrbutng the net proceeds of such sae. The trust had
successon and was not termnated by the death of a trustee or benefcary.
The court of appeas aso stated that The trustees of the Lake ew Land
ssocaton never assembed n forma meetngs, never adopted resoutons or
took forma acton wth reference to the affars of the property, kept no mnute
book, had no by-aws. They eected no offcers and no so-caed board of
drectors.
44 Stat., 82.
44 Stat., 0.
Pettoners submt that ths provson of the agreement shoud, under the aw of
Inos, be taken to Impy that the trustees coud sue and be sued as Indvduas, and not
the trust as an entty.
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5 1 and 2, rt.. 1504.
272
The compensaton of the trustees was to be f ed by themseves but was not
to e ceed 2 per cent of the gross Income of the trust. fter makng provson
for the payment of outstandng cams, the net Income was to be dvded among
the benefcares accordng to ther Interests, and on the request of any benef-
cary the trustees were to render annua accounts. The trust agreement aso
made provson for a wrtten regstry of benefcares, who coud transfer ther
nterests n a descrbed manner, after havng frst offered them to the other
benefcares.
Te rentng of apartment , the detas of management and the dstrbuton ot
net ncome, were commtted to a frm (of whch oseph . Swanson was a
member) engaged n the busness of buyng and seng rea estate and manag-
ng propertes. That frm acted under the drecton of Raph O. Ots and
oseph . Swanson and the entre affars of the Lake ew Land ssocaton
were at a tmes n ther hands.
ppyng the governng prncpes, as set forth n our opnon n Morrssey
v. Commssoner, supra, we agree wth the court of appeas that the trust
consttuted an assocaton and was ta abe as such. The mted number of
actua benefcares dd not ater the nature and purpose of the common under-
takng. Nor dd the fact that the operatons of the assocaton dd not e tend
beyond the rea property frst acqured change the quaty of that undertakng.
The |udgment s affrmed.
rtce 1504: ssocaton dstngushed from -3-7913
trust Ct. D. 1066
INCOM T R NU CT OP 1926 D CISION O SUPR M COURT.
1. Trust Ta abe as ssocaton.
trust created or utzed by the benefcary assocates as a
medum to carry on a |ont enterprse for ther |ont proft s an
assocaton ta abe as a corporaton, as t secured for those asso-
cated the essenta corporate attrbutes of contnuty of organ-
zaton, centrazed management, and mted abty. The facts
that the benefcares dd not hod meetngs, that the trust had no
offce or pace of busness, no sea, by-aws, or offca name, and
that the operatons of the trustees were confned to one o we,
are not controng. Morrssey v. Commssoner, decded by the
Supreme Court December 16, 1935 Ct. D. 1064, page 264, ths
uetn , foowed.
2. Decson Reversed.
Decson of the Crcut Court of ppeas, Nnth Crcut (76 ed.
(2d), 682), reversed.
Supreme Court or the Unted States.
No. 238. Guy T. everng, Commssoner of Interna Revenue, pettoner, v.
. . Combs and dward verett, Trustees of . . Combs We No. 2,
press Trust.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Nnth Crcut.
December 16,1935.
opnon.
Mr. Chef ustce ughes devered the opnon of the Court.
The trustees of . . Combs We No. 2 contested the rung of the Com-
mssoner of Interna Revenue that the ta payer was ta abe as an assocaton,
and not as a trust, on ts ncome for the years 1925 and 1926. The oard of
Ta ppeas sustaned ther contenton and the crcut court of appeas affrmed
the order of the oard. (76 . (2d), 682.) wrt of certorar was ssued
n vew of the confct of decsons to whch we have referred n Morrssey v.
Commssoner, decded ths day Ct. D. 1064, page 254, ths uetn .
The trust was created to fnance and dr a we for producton and sae of
o and other hydrocarbon substances under o and gas ease dated uy 24,
1924. y the agreement, the ub O Co., a Caforna corporaton and
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273
1 and 2, rt. 1504.
owner of the o and gas ease, assgned to . . Combs and dward verett as
trustees a Its rghts under the ease, sub|ect to a reservaton of 6.5 per cent of
a o, gas, and other hydrocarbon substances whch mght be produced and
Of a royaty Interest In favor of one Smthson of 2 per cent The agreement
descrbed as benefcares persons who may own or acqure portons of the
whoe benefca Interest as defned. The assgnor agreed to suppy to the
trustees certan equpment, and one aes had aready agreed to furnsh other
equpment and materas and to superntend the operaton of drng the we
n consderaton of 12 per cent of the producton. The trust was to pay a
abor cams and for materas not otherwse provded.
The whoe benefca nterest n the trust was defned as .71333 per cent
of gross producton, and the benefcares were to be pad ther pro rata shares,
after deducton for the payment of awfu trust obgatons, as foows: (a) 25
per cent of gross producton to the benefcares who provded money for the
trust purposes, (b) .44333 per cent to . . Combs, and (c) 2 per cent to dward
verett. Certfcates of benefca nterest were to be ssued n approved ega
form and were to be hed In escrow unt a producng we was brought n.
Thrteen persons were named as benefcares, wth the amounts contrbuted
and the percentages owned by each, these amounts aggregatng 25,000 and
the percentage of ownershp amountng to 25 per cent The certfcate of
benefca Interest rected that the party named was the hoder of a benefca
nterest under the trust agreement n the amount stated and that the same was
transferabe ony upon the books of the trustees, upon Indorsement and surren-
der of the certfcate. The trustees were authorzed to hod a property and
property rghts, the ega tte to whch mght vest n them under the trust,
to use the moneys deposted by benefcares to pay for abor, casng and other
materas ncdent to drng and producton, to manage and protect the trust
property, to pay trust debts, to se a products of the we, to borrow money
upon the credt of the trust, and to se any unsod benefca Interests as
they mght deem best for trust purposes. The trustees were not to be nd-
vduay abe e cept for wfu msconduct. . . Combs was to act as pro-
ducton manager at a stated saary after the we was In producton.
proceeds of sae of we products were to be pad nto a desgnated bank to
be dstrbuted as agreed.
The provsons of the agreement were carred out. The 13 descrbed bene-
fcares contrbuted the amount above stated. we was dred n 1025 and
produced o through the remander of that year and for a porton of the year
1926. In the atter year the trustees sod the ease. In both years they cur-
renty dstrbuted to the benefcares the net proceeds from the sae of o
and from the sae of the ease and, after the atter sae and dstrbuton of the
moneys receved, the trust was termnated.
The benefcares dd not hod a meetng and the trust had no offce or pace
of busness, no sea, by-aws or offca name, and the operatons of the trustees
were confned to the one ease they acqured.
In consderng whether an assocaton was created, the fact that the bene-
fcares dd not e ercse contro s not determnatve. ( echt v. Maey, 265
U. S-, 144 T. D. 3595, C. . I -1, 439 orrssey v. Commssoner, supra.)
The partes |oned In a common enterprse for the transacton of busness, and
the benefcares who contrbuted money for that purpose became assocated
n the enterprse accordng to the terms of the arrangement. The essenta
features of the enterprse were not affected by the fact that the partes confned
ther operatons to one o we. (See Swanson v. Commssoner, decded ths
day Ct. D. 1065, page 270, ths uetn .) Partes may form an assocaton for
a sma busness as we as for a arge one. ere, through the medum of a
trust the partes secured centrazed management of ther enterprse, and ts
contnuty durng the trust term wthout termnaton or nterrupton by death
or changes n the ownershp of Interests, and wth mted abty and transfer-
abe benefca nterests evdenced by certfcates. nterng Into a ont under-
takng they avoded the characterstc responsbtes of partners and secured
advantages anaogous to those whch pertan to corporate organzaton. The
fact that meetngs were not hed or that partcuar forms of corporate procedure
were absent s not controng, (orrssey v. Commssoner, supra.)
We thnk that the ta payer was ta abe as an assocaton. The |udgment Is
reversed and the cause Is remanded for further proceedngs n conformty wth
ths opnon.
It s so ordered.
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203, rt. 1577. 274
rtce 1504: ssocaton dstngushed from trust.
R NU CT O 1926.
Trust utzed by benefcary assocates to carry on |ont enterprse.
(See Ct. D. 10G7, page 261.)
TITL II. INCOM T .
P RT I. G N R L PRO ISIONa
S CTION 201. DISTRI UTIONS Y CORPOR TIONS.
rtce 1545: Dstrbutons n qudaton. -25-8133
L T. 2981
R NU CT O 1918.
1. T. 1164 (C. . 1-1, 17) s revoked, n vew of G. C. M. 16730.
(See page 179.)
rtce 1548: Stock dvdends.
R NU CT O 1926.
Dvdend on preferred stock pad n common stock. (See Ct. D.
1124, page 219.)
S CTION 203. R COGNITION O G IN OR LOSS
ROM S L S ND C NG S.
rtce 1577: Defntons. -2-7903
Ct. D. 1062
INCOM T R NU CT O 1926 D CISION O SUPR M COURT.
1. Gan or Loss Reorganzaton Constructon or Statute.
In 1920, Corporaton, under agreement wth C, the pettoner,
organzed a new corporaton wth 12,500 shares nonvotng pre-
ferred stock and 30,000 shares of common, and purchased the atter
for 2,000,000. The new corporaton then acqured substantay
a of C s property, e cept 100,000, n return for 2,000,000 and
the entre Issue of preferred stock. C used part of the cash to
retre ts own preferred stock and dstrbuted the remanng cash
and the preferred stock of the new corporaton among Its stock-
hoders, retanng ts franchse and 100,000, and contnung to be
abe for certan obgatons. The preferred stock, so dstrbuted,
e cept n case of defaut, had no voce n the contro of the ssung
corporaton. Under these facts, the transacton amounted to a
reorganzaton wthn the meanng of secton 203(h)( ) of the
Revenue ct of 1020. n that the seer acqured a defnte and sub-
stanta nterest n the affars of the purchasng corporaton. The
statute does not requre partcpaton n the management of the
purchaser, that the conveyng corporaton be dssoved, or that the
transferor corporaton obtan a controng nterest In the trans-
feree. Secton 203(h)( ) of the Revenue ct of 1926 was not
ntended to modfy the provsons of cause ( ) of that secton,
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275
5203, rt. 1577.
but descrbes a cass. everng v. Mnnesota Tea Co., decded
by the Supreme Court December 16, 1988 Ct D. 1060, page 189, ths
uetn , foowed.
2. Decson Reversed.
Decson of the Crcut Court of ppeas, Seventh Crcut (75 ed.
(2d), 696), affrmng the decson of the oard of Ta ppeas
(28 . T. , 629), reversed.
Supreme Court of the Unted States.
ohn . Neson Co pettoner, v. Guy T. everng, Commssoner of Interna
Revenue.
On wrt of certorar to the Unted States Crcut Court of ppeas for toe Seventh Crcut.
December 16, 1935.
OPINION.
Mr. ustce McReynods devered the opnon of the Court.
The pettoner contests a defcency ncome assessment made on account of
aeged gans durng 1928. It cams that the transacton out of whch the
assessment arose was reorganzaton wthn the statute. Secton 203, Revenue
ct, 1926 (ch. 27, 44 Stat., 9, 11), s reed upon. The pertnent parts are
n the margn of the opnon n No. 174, announced ths day Ct. D. 1060,
page 189, ths uetn .
In 1926, under an agreement wth pettoner, the ott- sher Corporaton
organzed a new corporaton wth 12,500 shares nonvotng preferred stock and
30,000 shares of common stock. It purchased the atter for 2,000,000 cash.
Ths new corporaton then acqured substantay a of pettoner s property,
e cept 100,000, In return for 2,000,000 cash and the entre Issue of preferred
stock. Part of ths cash was used to retre pettoner s own preferred shares,
and the remander and the preferred stock of the new company went to ts
stockhoders. It retaned Its franchse and 100,000, and contnued to be abe
for certan obgatons. The preferred stock so dstrbuted, e cept n case
of defaut, had no voce n the contro of the Issung corporaton.
The Commssoner, oard of Ta ppeas and the court a concuded there
was no reorganzaton. Ths, we thnk, was error.
The court beow thought the facts showed that the transacton essentay
consttuted a sae of the greater part of pettoner s assets for cash and the
preferred stock In the new corporaton, eavng the ott- sher Co. In entre
contro of the new corporaton by vrtue of Its ownershp of the common
stock.
The controng facts eadng to ths concuson are that pettoner con-
tnued Its corporate e stence and ts franchse and retaned a porton of ts
assets that t acqured no controng nterest In the corporaton to whch t
devered the greater porton of ts assets that there was no contnuty of
nterest from the od corporaton to the new that the contro of the property
conveyed passed to a stranger, n the management of whch pettoner retaned
no voce.
It foows that the transacton was not part of a strct merger or consoda-
ton or part of somethng that partakes of the nature of a merger or consoda-
ton and has a rea sembance to a merger or consodaton nvovng a contn-
uance of essentay the same nterests through a new modfed corporate
structure. Mere acquston by one corporaton of a ma|orty of the stock or
a the assets of another corporaton does not of tsef consttute a reorganza-
ton, where such acquston takes the form of a purchase and sae and does
not resut n or bear some matera resembance to a merger or consodaton.
True, the mere acquston of the assets of one corporaton by another does
not amount to reorganzaton wthn the statutory defnton. Pneas Ice Co.
v. Commssoner (287 . S., 462 Ct. D. 630, C. . II-1, 161 ) so affrmed.
ut where, as here, the seer acqures a defnte and substanta Interest n
the affars of the purchasng corporaton, a whoy dfferent stuaton arses.
The owner of preferred stock s not wthout substanta nterest In the affars
of the Issung corporaton, athough dened votng rghts. The statute does
not requre partcpaton In the management of the purchaser nor does t
demand that the conveyng corporaton be dssoved. controng Interest In
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203, rt. 1677.
276
the transfer corporaton s not made a requste by secton 203(h)( ). ThU
must not be confused wth paragraph (b) (2).
nay, as has been ponted out n the Mnnesota Tea case, paragraph
(h)( ) was not Intended to modfy the provsons of paragraph (h)( ).
It descrbes a cass. Whether some overappng Is possbe Is not presenty
Important.
The |udgment beow must be reversed.
btce 1577: Defntons. -2-7904
Ct. D. 1063
ncome ta revenue act of 1924 decson of sopreme coukt.
1. Gan ob Loss Reorganzaton onds as Secubtes Con-
structon of Statute.
Where the soe stockhoders of Corporaton In 1024 e changed
a ther stock for shares of C Corporaton and mortgage bonds of
guaranteed by C, and Corporaton contnued to do busness
unt ts dssouton n 1928, the transacton comes wthn the
descrpton of a reorganzaton recognzed by artce 1574 of Regu-
atons 65. The bonds were securtes wthn the meanng of the
statute and can not be regarded as cash. everng v. Mnne ota
Tea Co., decded by the Supreme Court December 18, 1035 Ct. D.
1060, page 180, ths uetn foowed.
2. Decson ffrmed.
Decson of the Crcut Court of ppeas, Second Crcut (75 ed.
(2d), 081), reversng the decson of the oard of Ta ppeas
(28 . T. ., 1056), affrmed.
SUP M COU T O T UNIT D ST T S.
184. Guy T. everng, Commssoner of Interna Revenue, pettoner, v. ohn
. Watts.
185. Guy T. everng, Commssoner of Interna Revenue, pettoner, v. ugh
C. Scard.
180. Ouy T. everng, Commssoner of Interna Revenue, pettoner, v. Parker
Soane.
On wrts of certorar to the Unted States Crcut Court of ppeas (or the Second Crcut.
December 16, 1035.
OPINION.
Mr. ustce McReynods devered the opnon of the Court
These causes nvoved defcency assessments for ncome ta aganst the
three respondents for the year 1024.
They were the soe stockhoders of Unted States erro oys Corporaton
heren erro oys and the causes, ake In a essenta partcuars, were
deat wth beow n one opnon.
The respondents mantan that they e changed a stock of erro oys for
shares of anadum Corporaton of merca and bonds of erro oys guar-
anteed by anadum that these two corporatons were partes to a reorganza-
ton, and that under secton 203(b)2, Revenue ct, 1924, no ta abe gan re-
suted. The Commssoner Inssts that the transacton was a sae of a the
stock of the erro oys and therefore ta abe gan resuted. The appcabe
statutory provson In secton 203, Revenue ct, 1924, the pertnent parts of
whch are n the margn of the opnon In No. 174, ante, page 2 Ct. D. 1060,
page 189, ths uetn .
In December, 1024, respondents owned a the stock of erro oys Corpora-
ton. They e changed ths wth the anadum Corporaton for stock of the
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277
204, rt. 1598.
atter vaued at 30 per share and for 1,161,184.60 mortgage bonds of erro
oys guaranteed by anadum. erro oys contnued to conduct busness
unt Its dssouton n 1928. rtce 1574 of Treasury Reguatons 65 provded
that under the ct of 1924 no gan or oss sha be recognzed to the sharehoders
from the e change of stock made In connecton wth the reorganzaton, f two
or more corporatons reorganze, for e ampe, by ether the sae of the stock
of to , or the acquston by of a ma|orty of the tota number of shares
of a other casses of stock of .
The transacton here Invoved Is wthn the descrpton of reorganzaton
recognzed by the Treasury reguatons above quoted. nd f the reguaton
can be taken as propery nterpretng the statute, the chaenged udgment
must be affrmed.
Te court beow rectes the hstory of the Treasury reguaton above quoted
and concudes that, n vew of the reenactment of the paragraph to whch t
refers wthout change, Congress ntended to approve the reguaton as wrtten.
The Commssoner here mantans that the defnton of reorganzaton found
In secton 203(h) 1( ), Revenue ct, 1924, shoud be mted to transactons
whch partake of the nature of mergers or consodatons and that here the
anadum merey made an nvestment In erro oys stock and obtaned ony
the rghts of a stockhoder theren. It s aso urged that an e change of stocks
for bonds resuts n a substanta change of poston and that such bonds are
other property wthn the meanng of the statute and as such sub|ect to ta .
Much of the argument presented Is the same as the one consdered n the
Mnnesota Tea Co. case, and t need not be agan foowed n deta. The bonds,
we thnk, were securtes wthn the defnton and can not be regarded as cash,
as were the short term notes referred to In Pneas Ice Co. v. Comms (oner
(287 U. S., 462 Ct D. 630, O. . II-1, 161 ).
The |udgment of the court beow must be affrmed.
S CTION 204. SIS O D T RMINING G IN OR
LOSS, D PL TION, ND D PR CI TION.
rtce 1591: as3 for determnng gan or oss from
sae.
R NU CTS OP 1921, 1924, ND 1926.
Property acqured through e ercse of opton to buy at e praton
of ease. (See Ct. D. 1098, page 196.)
rtce 1598: Property acqured after December -8-7966
31,1920, by a corporaton. Ct. D. 1083
INCOM T R NU CT O 1920 D CISION OP COURT.
Gan oe Loss Sae and change of Property asts Property
Transferred to Corporaton n change for Stock.
In 1921 an ndvdua caused a corporaton to be formed, to
factate the handng of hs property, and acqured practcay
a of ts stock n e change for shares In a rtsh corporaton.
Shorty thereafter he aso transferred to the corporaton, wthout
addtona stock ssuance or other consderaton, stock of another
corporaton whch he had acqured pror to March 1, 1913. The
atter stock was sod by the transferee corporaton n 1927. The
transactons In 1921 must be treated In substance as the ssuance
of securtes for property transferred, unaffected by the fact that
the vaue of the stock sod was treated on the books of the trans-
feree as pad-n surpus, and the bass to be used n determnng
gan from the sae Is the same as It woud be In the hands of the
transferor, namey, the vaue of the stock at March 1, 1913, under
the provsons of secton 204(a)8 of the Revenue ct of 1926.
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204, rt. 1598.
278
Unted States Crcut Coubt of ppeas for the ourth Crcut.
Louse . ng, appeant, v. Unted States of merca, appeee.
ppea from the Dstrct Court of the Unted States for the Dstrct of Maryand, at
atmore.
October 8, 1935.
OPINION.
Northcott, Crcut udge: The appeant, heren referred to as the pantff,
brought ths acton aganst the Unted States, In the Dstrct Court of the
Unted States for the Dstrct of Maryand, to recover 78,557.15, prncpa and
Interest, aeged e cessve ncome ta es requred by the Commssoner of Inter-
na Revenue to be pad. demurrer was fed to the pantff s decaraton and,
after argument, In a we consdered opnon, the |udge beow sustaned the
demurrer and entered an order gvng |udgment n favor of the defendant wth
costs from ths order ths appea was brought
The pantff was a transferee of assets from the Gramaphone Securtes
Corporaton, a rgna corporaton, and as such transferee pad the ta In
queston. The ta was orgnay assessed aganst the corporaton as Income
ta for the year 1927. fter payment, a cam for refund was fed n May,
1932. The cam was dsaowed In November, 1932, whereupon the pantff
brought ths acton.
The Gramaphone Securtes Corporaton was organzed In uy, 1921, and
Issued me erner 1,998 shares of Its capta stock In e change for 19,993
shares of the capta stock of the Gramaphone Co., Ltd., a rtsh corporaton.
The ob|ect of the formaton of the rgna corporaton was to factate the
dstrbuton by erner, among hs famy, of a substanta part of hs property,
at the same tme keepng t unted and under hs contro durng hs fetme.
erner was an nventor who had cose contact wth the deveopment of the
busness of an mercan corporaton, the ctor Takng Machne Co. Two
shares, n addton to those owned by erner, were Issued, makng the tota
Issuance of capta stock 2,000 shares. No more stock was ever ssued by the
corporaton. The pantff Is one of erner s daughters.
Wthn about 30 days after the organzaton of the corporaton and the
ssuance of ts stock as stated, erner aso transferred to the corporaton,
wthout addtona stock ssuance or other consderaton, 1,200 snares of
ctor Takng Machne Co. stock ths Takng Machne stock, subsequenty
and before Its sae by the ta payer, by vrtue of stock dvdends, was ncreased
to 8,400 shares. It s admtted that the reason that the ctor Takng Ma-
chne Co. s stock was not transferred to the ta payer at the tme of the trans-
fer of the shares n the rtsh company, was due to accdent rather than
desgn and because of the fact that the certfcate for ctor Takng Machne
stock was not mmedatey at hand. rom ths fact the |udge beow drew the
nference that t was wthn the orgna contempaton of erner to transfer
a ths stock at the same tme and that the stock gven to erner by the
rgna corporaton was reay Intended as compensaton for the stock In the
Takng Machne company as we as that In the rtsh company. We are of
the opnon that the nference was a far one and necessary foowed from
the facts admtted but we are aso of the opnon, as w be dscussed ater,
that ths nference s not matera to a proper decson of the queston here
Invoved.
The Takng Machne stock, transferred by erner to the rgna corpora-
ton, had been acqured by hm pror to March 1, 1913, at a cost prce of ess
than 720,000, whch was ts market vaue on March 1, 1913. When the stock
was transferred to the ta payer n 1921, ts far market vaue was 1,200,000.
Ths stock was sod by the ta payer In 1927 for 1,302,000, ess e pense In-
curred of 11,911.40. In ts ncome ta return for 1927 the corporaton treated
the sae as yedng a proft represented by the dfference between the vaue
of the stock at the tme of Its acquston by the ta payer ( 1,200,000) and the
net sae prce but the Commssoner of Interna Revenue on revew determned
that the ta abe proft must be computed on the bass of the net sae prce
ess the market vaue as of March 1, 1913 ( 720,000). e thus added to the
ta abe proft 480,000.
The soe queston n the case s whether the vaue of the stock as of March
1, 1913, or Its vaue In the year 1921, when t was transferred to the corpora-
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279
204, rt. 1598.
ton, a to be deducted from Its net sae prce In determnng what proft was
ta abe as Income.
The revenue statutes Invoved are secton 204(a) (2) and (8) of the Reve-
nue ct of 1926 (26 U. S. C. ., 985) and secton 203(b)4 of the Revenue ct of
1926 (U. S. O. ., Tte 26, secton 934), whch read as foUows:
Seo. 204. (a) 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

(2) If the property was acqured by gft after December 31, 1920, the bass
sha be the same as It woud be n the hands of the donor or the ast pre-
cedng owner by whom t was not acqured by gft. If the facte necessary to
determne such bass are unknown to the donee, the Commssoner sha, f
possbe, obtan such facts from such donor or ast precedng owner, or any
other person cognzant thereof. If the Commssoner fnds t mpossbe to
obtan such facts, the bass sha be the far market vaue of such property as
found by the Commssoner as of the date or appro mate date at whch,
accordng to the best nformaton that the Commssoner s abe to obtan, such
property was acqured by such donor or ast precedng owner

(8) If the property (other than stock or securtes In a corporaton a party
to a reorganzaton) was acqured after December 31, 1920, by a corporaton
by the Issuance of Its stock or securtes n connecton wth a transacton de-
scrbed In paragraph (4) of subdvson (b) of secton 203 (Incudng, aso,
cases where part of the consderaton for the transfer of such property to the
corporaton was property or money In addton to such stock or securtes), then
the bass sha be the same as t woud be In the hands of the transferor, n-
creased n the amount of gan or decreased n the amount of oss recognzed to
the transferor upon such transfer under the aw appcabe to the year n whch
the transfer was made

Sec. 203. (b) (4) No gan or oss sha be recognzed f property s trans-
ferred to a corporaton by one or more persons soey In e change for stock or
securtes In such corporaton, and mmedatey 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 persons ths paragraph sha appy ony If the amount of the
stock and securtes receved by each Is substantay n proporton to hs
Interest In the property pror to the e change.
It s contended on behaf of the pantff that the transfer by erner to
the Gramaphone Securtes Corporaton of the Takng Machne stock was
not a gft wthn the meanng of secton 204(a)2 of the Revenue ct of 1926,
and further that It was not an acquston of property by the transferee corpora-
ton n consderaton of Its stock or securtes wthn the meanng of secton
204(a)8 of sad Revenue ct, but that sad stock when so transferred to the
corporaton became pad-n surpus and therefore woud not come wthn the
pan provsons of the Revenue ct. It s further contended that If the coec-
ton of the ta Is sustaned t woud be a doube ta upon essentay the same
transacton.
It Is contended on behaf of the Government that the transfer when made by
erner was ether a gft to the transferee corporaton or was a transfer n
consderaton for capta stock Issued to erner.
We are not concerned here wth the queston of whether or not the ta amounts
to doube ta aton but ony wth whether the ta In te transacton under con-
sderaton comes ceary wthn the meanng of the Revenue ct. Whe It s
not cear from the record that the ta here woud n any event be a doube tu ,
doube ta aton, f ceary the ntenton of Congress, s eonsededy not uncon-
sttutona and may propery be coected. Ths s admtted on behaf of tha
pantff, and t has been repeatedy so hed by the courts. ( e mch v. e-
man, 276 U. 8., 233 T. D. 4217, C. . II-2, 238 Pars v. everng, 71 .
(2d), 610 Ct. D. 929, C. . I -1, 242 umnum Co. of merca v. Unted
Statet.GT . (2d), 172 Ct D. 799. C. . III-1, 299 T. W. Phps, r., Inc., v.
Commssoner, 63 . (2d), 101 Perthur odng Corporaton v. Commssoner,
61 . (2d), 785 Ct D. 680, C. . II-1, 173 .)
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5204, rt. 1599.
280
We are of the opnon that the transfer In queston comes wthn the pan
meanng and Intent of secton 204(a)8 of the Revenue ct of 1926. The trans-
feree corporaton was a one-man corporaton, erner ownng practcay a
of ts stock and recevng It at the tme of the transfer of the shares n the
rtsh corporaton. The Takng Machne stock was not transferred at the
same tme because t was not convenent or because of nadvertence, but was
transferred shorty after. s was we reasoned by the |udge beow, the Is-
suance of addtona stock n the transferee corporaton to the man who aready
owned a of the stock woud In no way have affected the vaue of the stock
aready hed by hm, whe owned by hm and the concuson s nescapabe
that the transacton must be treated In substance as the ssuance of securtes
for property transferred. The fact that the vaue of the Takng Machne
stock was treated on the books of the transferee corporaton as pad-n surpus
does not n any way affect the substance of the transacton. There was a arge
Increase n the vaue of the stock from March 1, 1913, to the date on whch
the stock was sod n 1927. Ths ncrease In vaue represented a proft whch
the Government was entted to ta . ad the property remaned n the hand
of erner unt the date of the sae, the Increase n the vaue woud hare
been sub|ect to the ta . The fact that erner, to factate the handng of
hs estate, transferred the stock to a corporaton of whch he owned a the
stock can not affect the rght of the Government to receve the proper ta
upon the ncrease In vaue. The ta bass of the transferor of stock, under
the crcumstances that e sted here, s propery appcabe to proft reazed
from the sate of the same stock receved by a corporaton from the transferor.
(T. W. Phps, r., /no., v. Commssoner, supra.)
The secton n queston, wthn the pan ntent of the words used, makes
the bass for determnng gan or oss upon the subsequent sae of stock by a
corporaton the same as It woud be In the hands of the transferor. Ths
secton has been hed consttutona In a number of decsons. (Pars v. e-
ver ng, supra Perthur odng Corporaton v. Commssoner, supra.)
In hs opnon the udge beow revews the egsatve hstory of the ct as
shown In the Congressona Record and, In our opnon, propery concudes that
the nterpretaton gven the ct by hm was ceary the ntent of Congress In
Its enactment.
avng reached the concuson that the ta In queston was propery coected
under secton 204(a)8, t s not necessary to dscuss the pont rased that the
transfer of the Takng Machne Co. stock was a gft to the corporaton. In
Commssoner v. Rosenboom nance Corporaton (66 ed. (2d), 656 Ct D.
805, C. . III-1, 187 ), the Crcut Court of ppeas for the Thrd Crcut
hed that a transfer of stock under smar condtons was a gft. The |udge
beow aby reasons that the transfer must ether have been a gft or a transfer
for stock. We thnk t was the atter n any event the court beow reached the
proper concuson n sustanng the demurrer to pantff s decaraton.
The |udgment of the court beow Is accordngy affrmed.
INCOM T R NU CT O 1926 D CISION O COURT.
1. Gan or Loss Sae of Stock ass Stock Dstrbuted n
Reorganzaton mended Reguaton ppcabe.
M Corporaton n une, 1925, purchased a the capta stock
of N Corporaton. In December, 1925, pursuant to a pan of re-
organzaton, N transferred to O Corporaton a of ts assets, wth
certnn e ceptons, n e change for shares of stock of O, and mme-
datey thereafter dstrbuted to M Corporaton the 6tock of O and
a porton of ts remanng assets. In 1926, the M Corporaton sod,
at a oss, a the shares of N Corporaton. Under these facts, the
bass for measurng the oss sustaned, under secton 204(a)9 of
the Revenue ct of 1926, s determnabe by apportonng the cost
of the N shares between the shares of N and the shares of O, n
accordance wth artce 1599(2) of Reguatons 69, as amended.
Snce the orgna reguaton as apped to these facts woud brng
rtce 1599: Stock or securtes dstrbuted
n reorganzaton.
-9-7975
Ct. D. 108
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204, rt. 1599.
about an nequtabe apportonment, contrary to the Intent of the
statute, and was unreasonabe, the amended reguaton n effect
became the prmary and controng rue n respect of the stuaton
presented.
2. Decson ffrmed.
Decson of the Crcut Court of ppeas, Second Crcut (76 ed.
(2d), 892), affrmng decson of the oard of Ta ppeas (29
. T. ., 895), affrmed.
Supreme Court of the Unted States.
Manhattan Genera qupment Co., pettoner, v. Commssoner of Interna
Revenue.
Cotter Servce Corporaton, formery roadway Subway dvertsng Co., Inc.,
pettoner, v. Commssoner of Interna Revenue.
On wrts of certorar to the Unted States Crcut Court ot ppeas for the Second Crcut.
ebruary 3, 1930.
OPINION.
Mr. ustce Sutherand devered the opnon of the Court.
These cases Invove dentca facts and questons of aw, and were dsposed
of by the court beow n one opnon. (76 . (2d), 892.) The facts, so far as
they concern the queston here, are taken from the statement of that court.
The pettoners are affates of Unted rokerage Co. That corporaton fed
ncome ta returns for tsef and ts affates for 1925 and 1926 and the pet-
toners seek to revew ta defcences attrbuted to them by the Commssoner,
whch the oard of Ta ppeas has affrmed.
On une 30, 1925, the Unted rokerage Co. purchased for 3,414,345.63 In
cash a the capta stock of rtemas Ward, Inc. (a New York corporaton), that
was Issued and outstandng consstng of 4.964 shares of no par vaue.
On December 31, 1925, pursuant to a pan of reorganzaton, rtemas Ward,
Inc. (N. Y.), transferred to rtemas Ward, Inc. (a Deaware corporaton), n
e change for 100 shares of stock of the atter company of no par vaue, a
ts assets, then of a net book vaue of 1,246,920.07, wth the e cepton of cash
and accounts recevabe aggregatng 284,907.21 that s to say, the New York
corporaton transferred to the Deaware corporaton assets of the vaue of
961,952.86. Immedatey after the transfer, and on December 31, 1925, rtemas
Ward, Inc. (N. Y.), dstrbuted to Unted rokerage Co. the 100 shares of
stock of rtemas Ward, Inc. (De.), and accounts recevabe amountng to
234,907.21. In December, 1926, Unted rokerage sod the entre 4,964 shares
of rtemas Ward, Inc. (N. Y.), for 49,640. That stock had cost the Unted
rokerage 3,414,345.63 and the tota must be apportoned between the 100
shares of the Deaware corporaton (whch t st owns) and the 4,964 shares
of rtemas Ward, Inc. (N. Y.), In order to determne the oss suffered by the
Unted rokerage Co. through ts sae of the 4,964 shares at 49,640.

Upon the reorganzaton, the New York corporaton had eft among ts assets,
vaued at 1,246,920.07, accounts recevabe and cash aggregatng 284,967.21, or
appro matey 22.85 per cent thereof, after 961,05286 had been transferred to
the Deaware company. Under artce 1599(2) (as amended, nfrn) the porton
of 3,414,345.63 pad by the Unted rokerage Co. for the stock of rtemas
Ward, Inc. (N. Y.), represented by that stock after the reorgnnraton was
780,303.97. If from ths be deducted 234,907.21 accounts recevabe and the
49,640 reazed from the sae n December, 1926, there woud be a oss of
495,696.76. Ths oss the Commssoner aowed In assessng the Income ta for
1925. The second pont rased on ths appea s whether the oss, for the year
1926, to whch the Unted rokerage Co. and Its affates were entted was ony
the sum of 495,696.76 or was the sum of 2,167,785.56 whch woud arse through
deductng from 3,414,345.63 (the cost of the stock of the New York company),
the vaue at the tme of the reorganzaton of the Deaware stock whch was
961,952.86 and 234,967.21 reazed from accounts recevabe and 49,640 reazed
from sae of the 4,964 shares.
84326 36 10
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204, rt. 1599.
282
It thus appears, the New York company barng parted wth a Its assets e cept
50,000 In cash, that the assets behnd tbe 4,904 shares when the 100 share ds-
trbuton was made conssted of ony that sum, whe the 100 shares of the
Deaware company stock was represented by the transferred assets of the New
York company of the vaue of 901,952.86. The sae of the 4,904 shares brought
49,640 and the smpe queston to be determned s what method for the
purposes of ta aton shoud be empoyed to determne the oss n respect of the
4,964 shares under the Revenue ct of 1928, secton 204(a)9 (ch. 27, 44 Stat, 9,
14, 15). That secton provdes that the bass for determnng the gan or oss
from such sae sha be the cost of the property, e cept that
(9) If the property conssts of stock or securtes dstrbuted after December
31, 1923, to a ta payer n connecton wth a transacton descrbed n subdv-
son (c) of secton 203, the bass n the ease of the stock n respect of whch
the dstrbuton 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 .
t the tme of the reorganzaton, artce 1599 of Treasury Reguatons 69,
whch had been promugated on ugust 28,1926, was n force. Pettoners nvoke
subdvson 2 of that reguaton whch provded:
Where the stock dstrbuted n reorganzaton s n whoe or n part of a
character or preference materay dfferent from the stock n respect of whch
the dstrbuton s made, the cost or other bass of the od shares of stock sha
be dvded between such od stock and the new stock n proporton, as neary as
may be, to the respectve vaues of each cass of stock, od and new, at the tme
the new shares of stock are dstrbuted, and the bass of each share of stock w
be the quotent of the cost or other bass of the cass wth whch such share
beongs, dvded by the number of shares In the cass. The porton of the cost or
other bass of the od shares of stock to be attrbuted to the shares of veto stock
sha n no case e ceed the far market vaue of such shares as of the tme of
ter dstrbuton. Itacs added.
pr 3, 1928, ths reguaton was amended by strkng from t the taczed
porton. The ta payer contended that Its oss shoud be computed n accordance
wth the orgna reguaton. Ths woud have resuted n an aocaton to the
4,964 shares of the New York corporaton of 2,452,392,77 and, after makng
certan deductons, the aowabe oss, as aready appears, woud have been
somethng over 2,000,000. The Commssoner, however, proceedng In strct
accordance wth the amended reguaton, determned the amount of oss to be
495,696.76. Wthout pursung the matter n further deta, t Is enough to say
that the case turns entrey upon the queston whether the oss was to be deter-
mned In accordance wth the orgna or the amended reguaton. If n accord-
ance wth the former, the ta payer s rght f In accordance wth the atter,
the Commssoner s rght. The court beow hed that the amended and not the
orgna reguaton furnshed the appcabe rue, and affrmed the determnaton
of the oard of Ta ppeas, whch n turn had sustaned the Commssoner.
We agree wth that vew.
In determnng a oss, the statute requres that the bass sha be appor-
toned between the od and the new stock. To apporton Is to dvde and
assgn In ust proporton, to dstrbute among two or more a |ust part
or share to each ( sher v. Charter Oak Lfe Insurance Co., 14 bb. N. C,
32, 36), abet, a dvson may be |ust wthout necessary beng aso an e acty
equa dvson. The resut of appyng the orgna reguaton here Is to brng
about an Inequtabe apportonment, contrary to the ntent of the statute,
am to credt the ta payer wth a oss essentay and greaty dsproportonate.
On the other hand, appcaton of the amended reguaton effectuates the
egsatve ntent that the bass of apportonment between the od and the new
stock sha resut In a far and ust dvson.
The power of an admnstratve offcer or board to admnster a edera
statute and to prescrbe rues and reguatons to that end s not the power
to make aw for no such power can be deegated by Congress but the power
to adopt reguatons to carry Into effect the w of Congress as e pressed by
1 Secton 203(c) provdes: If there Is dstrbuted, In pursuance of a pan of reorgan-
zaton, to a sharehoder In a corporaton a party to the reorganzaton, sock 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 recognzed.
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206, rt. 1621.
the statute. reguaton whch does not do ths, but operates to create a rue
out of harmony wth the statute, Is a mere nuty. Lynch v. TUden Co.,
265 U. S., 315, 320-322 T. D. 3605, C. . III-, 516 Mer v. Unted States,
294 U. S., 435, 439-440, and cases cted.) nt not ony must a reguaton, In
order to be vad, be consstent wth the statute, but It must be reasonabe.
(Internatona Ry. Co. v. Davdson, 257 U. 8., 506, 514.) The orgna regua-
ton as apped to a stuaton ke that under revew s both Inconsstent wth
the statute and unreasonabe.
The contenton that the new reguaton Is retroactve s wthout mert.
Snce the orgna reguaton coud not be apped, the amended reguaton
In effect became the prmary and controng rue In respect of the stuaton
presented. It ponted the way, for the frst tme, for correcty appyng the
antecedent statute to a stuaton whch arose under the statute. (See Tts-
vorth v. Commssoner of Interna Revenue, 73 . (2d), 385, 386.) The statute
defnes the rghts of the ta payer and f es a standard by whch such rghts
are to be measured. The reguaton consttutes ony a step In the admnstra-
tve process. It does not, and coud not, ater the statute. It s no more
retroactve In Its operaton than s a udca determnaton construng and
appyng a statute to a case n hand.
udgment affrmed.
nnoL 1602: ass for aowance of depeton and
deprecaton.
R NU CT O 1926.
Wet gas. (See Ct. D. 1084, page 209.)
S CTION 206. N T LOSS S.
rtce 1621: Net osses, defnton and -21-8097
computaton. Ct. D. 1120
( so Secton 240, rtce 632.)
INCOM ND PRO ITS T R NU CT O 1018 D CISION O COURT.
1. Deducton Net Loss ffated Corporatons.
parent corporaton fed consodated returns for 1918 and 1919
on behaf of Itsef and ts subsdares, the 1918 return showng a
consodated net ncome for the group (most of the companes hav-
ng reazed n proft but some havng sustaned a oss), and the 1919
return dscosng a consodated net oss. No bass e sts, under
secton 204 of the Revenue ct of 1918, for the deducton of the con-
sodated net oss for 1919 from the net Income of the group for
1918, for the purpose of determnng the ta . In an affated group
the ndvdua corporatons are the ta payers, and the net oss of
each corporaton for 1919 s to be deducted from the Indvdua net
Income of the same company for 1918 f It had no Income for that
year there coud be no dedu ton.
2. ffated Corporatons greement as to Payment of Ta .
parent corporaton whch owned a the stock of Its subsd-
ares, controed ther poces and busness, drecty supervsed the
keepng of ther books and the makng of ther ta returns, and
whose offcers n many nstances were offcers of the subsdares,
fed consodated returns for 1918 and 1919 on behaf of tsef and
the subsdares, the atter fng ony Informaton returns ndcatng
that none of the ta es of the group was to be apportoned to them.
ssessment of the entre ta was made aganst the parent wthout
ob|ecton, and subsequent proceedngs before the Commssoner and
the courts were conducted by the parent. These facts are suffcent
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284
to estabsh an mped agreement between a partes concerned
that the ta shoud be pad by the parent corporaton, and |ustfy
the Commssoner n aocatng the entre ta to the parent
8. stoppe.
Under the facts set out above, where the parent corporaton hed
tsef out to be the proper party to pay the ta of the consodated
group unt after the statute of mtatons had barred assessment
of the ta aganst the subsdares and t was too ate to appy what
t then camed to be the correct rue of aw, t s estopped to repud-
ate ts former representatons and to cam that the ta es whch t
pad shoud be refunded.
, Court of Cams of the Unted States.
Wson Co., Inc a Corporaton, v. The Unted States.
anuary 6, 1036.
opnon.
Green, udge, devered the opnon of the court.
The pantff s the successor to the corporaton of the same name engaged
n what s commony caed the packng-house busness and seeks to recover
Income and profts ta whch was pad by ts predecessor for the year 1918.
or convenence both n the fndngs and the opnon the name pantff Is
used as appyng both to the od corporaton, whch was a New York corpora-
ton e stng n 1918 and contnung In e stence unt 1026, and aso to the
pantff n ths acton, a Deaware corporaton of the same name whch ac-
qured the assets of the New York corporaton.
The orgna corporaton owned a the stock of some 44 corporatons, the
names of whch appear n the fndngs, and for each of these years fed on be-
haf of tsef and these corporatons a consodated return for ncome and
profts ta purposes. The return for 1918 showed a consodated net ncome
for the group upon whch a ta was pad by pantff. The return for 1919
made n the same manner showed a oss. In 1919 the pantff pad part of the
ta shown to be due for 1918 and fed a cam In abatement for the baance
amountng to 1,016,629.82, and about une 13, 1919, each member of the aff-
ated corporatons n the consodated group e cept the pantff, as parent cor-
poraton, fed an nformaton return for the year 1918 and n repy to a ques-
ton propounded on the form used as foows:
9. State the amount of ncome and profts ta es for the ta abe year appor-
toned to the subsdary or affated corporaton makng the return, made an-
swer None. fter the fng of the returns mentoned above and before ths
sut was commenced, there were proceedngs on behaf of the pantff and the
Government and among others the pantff fed cams for refund and abate-
ment, the revenue offcers made e amnaton of the returns, and the Comms-
soner determned and assessed an addtona ta for 1918. Ths sut was be-
gun une 7, 1927, by fng a petton n whch pantff sought to recover the
entre ta pad for 1918 on the ground that the consodated group for whch
t had made a return had sustaned a net oss for 1919 whch shoud be de-
ducted from the net Income of the group for 1918, and that when such appca-
ton was made as provded by secton 204 of the Revenue ct of 1918 the resut
woud show no ta abty for 1918 and accordngy the ta pad that year by
pantff shoud be refunded. The Commssoner consdered the cams and pro-
tests fed by pantff and on September 27, 1927, ssued a certfcate of over-
assessment whch showed that a part of the ta pad for 1918 was refundabe
and refund was accordngy made to the pantff. The sut, however, was con-
tnued as pantff st contended that the whoe amount whch t had pad
shoud be refunded. March 21, 1932, the amended and suppementa petton
upon whch the case s now submtted was fed. The amended petton aeged
many errors n computng the ta es of the pantff and ts subsdares for the
years 1918 and 1919, whch, f corrected n accordance wth pantff s conten-
tons, woud show that no ta es whatever were due from the pantff for the
year 1918. It s not necessary at ths pont to set out these cams n deta,
but t shoud be sad that the amended petton ntroduced an Issue whch
defendant cams was not covered by the orgna petton and at east had not
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285
206, rt. 1621.
been mentoned n the proceedngs between the partes up to the tme of the
fng of the amended petton. Ths ssue reates to the manner n whch the
Commssoner computed the consodated ta for the year 1018, a of whch
was assessed aganst the pantff. The precse nature of pantffs cam w
appear when we consder further the facts n the case. Much of the argument
made by the respectve partes s devoted to questons reatng to the proprety
of certan aowances and deductons whch pantff cams shoud have been
made n computng the ta es n controversy. It w not be necessary, however,
to consder these matters unt other ssues whch may be decsve of the case
have been determned.
The pantff contends that It was not abe for any ta es whatever for the
year 1918. The defendant nssts, on the contrary, that under the facts n the
case the pantff was obgated to pay a of the ta es due for that year from
the severa members of the affated group and aso that the pantff can not
now be heard to deny ts abty for these ta es. In dscussng the ssues so
rased t w be necessary to state the facts more n deta.
The consodated return whch was fed for the year 1918 by the pantff
on behaf of Itsef and the affated companes showed that n that year the
pantff and most of the affated companes reazed a proft but some of
the companes sustaned a oss, and smar resuts were shown when the
Commssoner made hs fna determnaton of the ta on September 27, 1927.
In makng hs computaton the Commssoner smpy deducted the aggregate
net osses of the severa companes whch had not been proftabe from the
tota net ncome of the other companes for the same year. The dfference
was 6,890,404.52, whch he determned was the net Income of a of the affated
corporatons for 1918 before appyng the 1919 net oss. The Commssoner
proceeded n the same manner n determnng the stuaton n 1919. In that
year the tota of the osses e ceeded the aggregate net ncome by 5,174,168.10,
whch the Commssoner found was the consodated net oss for that year.
The Commssoner then deducted the tota consodated net oss for 1919 from
the tota consodated net ncome for 1918, thus showng a ta abe consodated
net ncome for 1918 of 1,716,236.42. Upon ths revsed consodated net ncome
he computed the ta abty for the group, and, snce the ta thus deter-
mned was ess than the ta whch had been pad by pantff, the dfference
was refunded to pantff. In so computng the ta , the Commssoner was
n error. In the case of Swft Co. v. Unted States (69 C. Cs., 171, 191),
we hed that n an affated group the ndvdua corporatons are the ta -
payers, that the group s merey a ta computng unt and not a ta abe unt,
and that accordngy no bass e sts under secton 204 of the Revenue ct of
1918 for a group appcaton of a consodated net oss for 1919 to a con-
sodated net ncome for 1918 for the purpose of ascertanng the ta . The
Commssoner of Interna Revenue has acquesced n the rue ad down n
Swft Co., supra, and t has been approved by the courts. (Cf. Deaware St
udson Co. v. Commssoner, 26 . T. ., 520, affrmed, 65 ed. (2d), 292 Ct. D.
801, C. . III-1, 197 Wooford Reaty Co. v. Rose, 286 U. S., 319 Ct. D.
493, C. . I-1, 154 and Panters Cotton O Co. v. opkns, 286 U. S., 332
Ct. D. 492, C. . I-1, 153 .) It foows n cases ke the one before us
that where an affated company sustaned a net oss for 1919, t shoud be
deducted from the ndvdua net ncome of the same company for 191S, and
If t had no ncome for that year there coud be no deducton.
Pantff contends that certan ad|ustments other than those made by the
Commssoner shoud have been aowed n computng ts ncome. or the
purposes of the argument t may be assumed that these ad|ustments shoud
have been made, and we have set out In fndngs 13 and 14 an temzed state-
ment of the determnaton of the Commssoner wth reference to the ncome
or oss of each company for the years 1918 and 1919 and aso a computaton
thereof In accordance wth the contentons of the ta payer for each of these
years. ndng 14(b) aso ncudes a computaton of 1918 ta abe ncome n
whch aowabe net osses of the varous affated companes for 1919 are
apped to the net ncome of the approprate companes for 1918. rom ths
computaton t appears that a substanta part of the net oss of the group
for 1919 s not aowabe as a deducton for 1918 wth the resut that the
consodated net ncome for 1918, after appyng the net osses of the severa
companes for 1919 to the e tent to whch they are aowabe, s 2,787,156.27.
The Commssoner s determnaton of the ta was based upon hs computaton
of a consodated net ncome of 1,716,236.42, but the recomputaton of
the ta abty for the group as set out n fndng 14(b) shows an aggregate
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5206, rt. 1621.
286
abty for the affated group for a greater amount than that prevousy
determned by the Commssoner. In other words, so far as the tota ta
whch shoud have been pad by the group as a whoe Is concerned, It has
been underpad nstead of beng overpad.
Pantff does not queston that even when effect s gven n ts favor of a
of the ad|ustments contended for, and the prncpes of the Swft Co. case
are apped, the tota of the ta abtes of a of the affated companes
woud be greater than the amount whch was fnay coected as the ta upon
the group as a whoe. The argument s that so far as pantff Indvduay
s concerned ts aowabe net oss for 1919 was n e cess of ts net Income for
1918, that under the aw as t then stood t was entted to have ts oss for
1919 deducted or set off aganst the ncome for 19181 and therefore t had no
ncome for 1918. Upon ths bass t s nssted that pantff s not abe for
any ta whatever for the year 1918 and that the whoe amount pad by It
shoud be refunded. Pantff pad a of the ta whch has been pad for tb,e
group. The affated companes pad nothng, and t s contended that pantff
can not be abe for the ta es of the affated corporatons uness there was
an agreement between a partes concerned that a ta shoud be pad by the
parent company. It s Inssted that there was no such agreement and conse-
quenty no abty.
Whether there was such an agreement Is obvousy a queston of fact to be
determned from a of the evdence. The concuson of the Commssoner as to
the method of computng the ta s prma face correct and the burden of
estabshng the none stence of such an agreement s upon the pantff. On
ths pont t may be sad that t s not necessary that the agreement shoud
be n wrtng. It may be mped or nferred from the estabshed facts n
the case and the conduct of the partes under a of the crcumstances shown
by the evdence. In ths case pantff, as parent of the affated group, owned
a the stock of the subsdary corporatons and controed the pocy and
managed the busness of each. The books of the affated corporatons were
kept and ther ta returns were made under the drect supervson and con-
tro of pantff. In many Instances the offcers of the subsdary corporatons
were aso offcers of the parent corporaton. The consodated return for 1918,
whch ncuded the net ncome of pantff and the other corporatons, was
fed by pantff, and no ndcaton was made theren other than that the
ta shoud be assessed aganst and pad by pantff. On the contrary, It
stated that pantff was the ta payer, and the ta was accordngy so assessed.
Pantff pad a part of the ta and fed a cam n abatement for the ba-
ance. No queston was rased as to the proprety of the assessment aganst
or payment by pantff. The subsdary corporatons whose every acton was
controed by pantff aso fed nformaton returns n whch t was stated
that none of the ta es of the consodated group was to be apportoned to them.
In accordance wth these proceedngs no ta was assessed aganst or pad by the
subsdary corporatons.
t a tmes the ta abty In the case has been consdered and deat wth
by the Commssoner wthout any ob|ecton by pantff on the bass that the
entre ta was to be assessed aganst the parent company. When the Comms-
soner determned a defcency an e haustve protest was fed by pantff, not
on the ground that t was not abe, but on the ground that the assessment
was e cessve. ctng on ths protest an overassessment was determned In
favor of pantff and a refund made. The facts rected above ampy support
the concuson that there was an agreement that the entre ta was to be
apportoned to pantff and pad by t. The ony evdence to the contrary s
the testmony of the attorney who had supervson of the preparaton of the
returns n queston and who now appears as counse for pantff n ths pro-
ceedng. It may be that no wrtten or forma agreement of any knd was ever
entered Into as to the apportonment, but n vew of the fact that the pantff
owned a the stock of the other affated corporatons and controed ther
actons the fng of the consodated and nformaton returns and the subse-
quent acts of the partes n conformty therewth are ceary suffcent to estab-
sh an mped agreement and |ustfy the Commssoner n aocatng the
entre ta to pantff. The crcumstanta evdence outweghs the drect
testmony.
The same queston of fact has often been before the courts n other cases.
The evdence presented n the nstant case s at east as strong n favor of the
1 See secton 204(b), Revenue ct of 1918.
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287
206, rt. 1621.
acton of the Commssoner as t was In any of them. In many of these cases
an offca of the parent corporaton testfed that there was no agreement, but
It was hed that ths forma testmony was not suffcent to overcome the
presumpton n favor of the Commssoner s acton and the crcumstanta ev-
dence. (See Woodsde Cotton Ms Co., 13 . T. ., 266 ermont OU Co.,
22 . T. ., 182 urnture hbton udng Co. ct a., 24 . T. ., 1279
Washburn Wre Co., 26 . T. ., 464 and 1146, affrmed on ths ssue, 6T ed.
(2d), 658: mehoch ros, d Co., 26 . T. ., 541 In re Temtor Corn d rut
Products Co., 299 ed., 326 T. D. 3693, C. . I -1, 220 and Popuar Prce
Taorng Co. v. Commssoner, 33 ed. (2d), 404.)
It seems cear aso that the pantff s now estopped from camng that
the ta es whch t pad shoud be refunded. We have shown above that the
pantff made a consodated return referrng to tsef as the ta payer n
accordance wth whch the ta was assessed aganst t that the subsdary
companes controed by the pantff made ony nformaton returns statng
that no part of the ta was to be pad by them that pantff not dsputng
ts abty pad part of the ta and fed a cam n abatement us to the reman-
der whch cam was aowed and no further payment made that ts protest
aganst the defcency assessed by the Commssoner was not on the ground that
t was not abe but under a cam that even the amount whch t had pad
was e cessve and that t fed a cam for refund whch was aowed n part
by the Commssoner and a arge sum returned to pantff. Not unt the
amended and suppementa petton was fed dd the defendant receve any
notce that pantff camed not to be abe for any ta by reason of the fact
that ts ndvdua osses for 1919 e ceeded Its ndvdua profts for 1918 and
that the basc computaton of ts tu was wrong. The amended and suppe-
menta petton was not fed unt March 21, 1932. The statute of mtatons
had then run aganst the assessment of the ta aganst the subsdary cor-
poratons whch were abe for t Indvduay, as pantff now cams.
The case of Mahonng Investment Co. v. Unted States (78 C. Cs., 231, certo-
rar dened) was In many respects ke the one now before us. There were
two affated companes. The Mahonng Investment Co. was the parent com-
pany and owned a the stock of the subsdary company, the Rochester
Pttsburgh Cca Iron Co. The parent company fed a return showng that
the company Itsef had no ta abe Income and that the consodated ncome
was the ncome of the coa company. The Commssoner made a defcency
assessment aganst the parent company athough no ta es were due from t and
the bass of the assessment was the profts reazed by the subsdary. The
parent company, however, notfed the Commssoner that It woud pay the
ta and dd so pay t. In genera t accepted the stuaton athough Its offcers
knew that t was not abe and there was no agreement that t shoud pay the
ta . In the case cted we hed that the conduct of the parent company and
ts acquescence n the proceedngs taken by the defendant to coect the ta
were such as woud naturay msead the defendant and cause t to contnue
n the course whch t had begun, and that It was not necessary for the party
camng the estoppe to show that the other party Intended to msead, or that
drect proof shoud be offered that t was n fact msed. It Is suffcent f
ths fact s found as a natura and ordnnry nference from a of the crcum-
stances shown by the evdence and we have made such a fndng n the case
now before us. In the Mahonng case, supra, we sad (page 248) :
The doctrne of equtabe estoppe, or more propery as we thnk quas estop-
pe, s graduay beng e tended by the modern courts to prevent a wrong beng
done wherever, n good conscence nnd honest deang, a party ought not to be
permtted to repudate hs prevous statements and decaratons.
We are cear that the rue appes In ts case. fter hodng Itsef out as
the proper party to pay the ta , the pantff now, when the statute of mta-
tons has run, seeks to repudate the representatons of Itsef and ts assocates
when t Is too ate to appy what t cams to be the correct rue of aw. If
ts poston were sustaned, the affated group woud not ony escape the pay-
ment of any ta es whatever for 1918 but the pantff woud receve a refund
on what had been pad athough It was ess than was actuay due on the
consodated abty of the affated group whch conssted of corporatons
a owned by the pantff. That equty and good conscence woud not permt
such a resut to be brought about by the conduct of pantff, we thnk Is
manfest. Our concuson s that pantff s estopped from mantanng Its
cam for a refund regardess of whether the evdence estabshes that an
agreement e sted that t shoud pay the consodated ta .
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5213(a), rt. 31.
2S8
One other matter wth reference to the fndngs shoud be mentoned. nd-
ng 4 rectes that pantff fed a consodated ncome and profts ta return
for 1918 for tsef and the subsdary corporatons. Ths does not foow the
wordng of the stpuaton of the partes whch rectes that Wson Co.,
Inc., and ts affated companes fed a consodated Income, e cess-
profts, and war-profts ta return for the caendar year 1918, but we have
many tmes hed that we are not bound by the stpuaton when t s contrary
to a fact whch appears In evdence. The fndng rectes the fact correcty.
ndng 6 makes a smar recta wth reference to fng a return for the
year 1919.
Pantffs petton must be dsmssed and t Is so ordered.
P RT II. INDI IDU LS.
S CTION 213(a). GROSS INCOM D IN D:
INCLUSIONS.
rtce 31: What ncuded n gross ncome. -6-7942
Ct. D. 1077
INCOM T R NU CTS OP 1018 ND 1926 D CISION O COURT.
Gan oe Loss Sae or Stock Compensaton for Servces
stoppe Retroactvty or Reguaton.
Ta payers who used cost as the bass for reportng gan on the
sae, n 1927, of stock purchased n 1920 from ther empoyer cor-
poraton at ess than ts far market vaue, makng no dscosure In
ther returns that the stock had been acqured as compensaton for
persona servces, are estopped to ater cam that the bass shoud
have been the far market vaue of the stock at the date of acqus-
ton, as aowed by artce 31, Reguatons 69, no ncome havng
been reported upon the transacton In 1920 and the statute of m-
taton havng run aganst coecton of any ta that mght have
been due for that year. rtce 31, Reguatons 69, upon whch
ta payers rey, has no appcaton, snce Treasury Decson 3-135
(C. . II-, 50), upon whch t s based, was not n force unt
1923, and s not retroactve n ts operaton.
Unted States Ceout Coubt op ppeas, ghth Cecut.
ohn . Larkn and erbert . Dootte, appeants, v. Mted States of
merca, appeee.
ppea from tbe Dstrct Court of the Unted States for the Dstrct of South Dakota.
ugust 15, 1935.
OPINION.
ooth, Crcut udge, devered the opnon of the court
Ths s an appea n a consodated cause from udgments entered for defend-
ant after demurrers to compants of pantffs had been sustaned.
The actons were brought by the appeants respectvey (ta payers) to re-
cover refunds of ncome ta payments made for the ta year 1927.
The actons were consodated pursuant to the provsons of secton 734, Tte
28, U. S. C. .
The compants aeged the foowng facts: The ta payers were n 1920, and
for many years pror thereto had been, empoyees of the Manchester scut
Co., a corporaton n Sou as, S. Dak. In that year the corporaton sod
to each of the ta payers 200 shares of Its common stock at 10O per share.
t the tme of the sae, the stock had a far market vaue of 250 per share.
The ta payers were permtted to buy the stock at 100 per share by reason of
ther ong and fathfu servce.
In 1927 the ta payers sod the stock of the Manchester scut Co. so
acqured, 200 shares each, for 231.25 per share. In March, 1928, the ta -
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289
5213(a), rt. 31.
payers fed wth the coector of Interna revenue for Sonth Dakota Indvdua
Income ta returns for 1927, and In ther returns reported a ta abe proft from
the sae of sad stock In a sum equa to the dfference between 100 per share
and the sae prce In 1927 of 231.25 per share. They pad ncome ta es on
that bass.
The ta payers further aege n ther compants that the amounts pad by
them bb ther 1927 ncome ta on the reported profts from the sae of sad
stock were erroneousy and egay pad and coected that on uy 81, 1929,
they fed wrtten cams for refund of the sums so pad by each of them wth
the Commssoner of Interna Revenue, and aeged n sad cams for refund
that they n fact, each sustaned a ta abe oss for the year 1927 by reason of
sad saes.
ttached to the compants were hbt , Income ta return of ta payer
for 1927, and hbt , Cam of ta payer for refund. These cams for
refund were re|ected by the Commssoner of Interna evenue and the present
suts foowed.
The demurrers Interposed by the Government to the ta payers compants
were on the ground that the compants dd not state facts suffcent to const-
tute a cause of acton.
The court sustaned the demurrers udgments of dsmssa were entered,
and ths appea was taken therefrom.
The contenton of appeants s, as we gather It from ther bref, that ta -
abe ncome resuted In the year 1920 from the stock purchase transactons n
that year between the ta payers and the corporaton that the statute and
reguatons appcabe are secton 213(a) of the Revenue ct of 1918, and a part
of artce 33, Reguatons 45, under the Revenue ct of 1918, whch read
respectvey as foows:
Sec. 213. That for the purposes of ths tte the term gross
ncome
(a) Incudes gans, profts, and Income derved from saares, wages, or
compensaton for persona servce of whatever knd and n what-
ever form pad, or gans or profts and ncome derved from any
60urce whatever. The amount of a such Items sha be Incuded n the gross
Income for the ta abe year In whch receved by the ta payer .
et. 33 (Reguatons 45). Compensaton pad an empoyee of a
corporaton In ts stock s to be treated as If the corporaton sod the stock
for ts market vaue and pad the empoyee n cash.
The further contenton of appeants s that no ta abe ncome resuted from
the sae of the stock In 1927, but In fact a oss resuted to the ta payers, as
appears by takng as the bass the market vaue of the stock In 1920 nstead
of the cost of such stock to the ta payers, It beng conceded that the sae prce
of the stock In 1927 was ess than the market vaue thereof n 1920 that the
error of the ta payers n makng ther Income ta returns n 1927 conssted
n usng as a bass the actua cost to them of the stock n 1920, nstead of the
far market vaue as provded n Treasury Decson 3135, whch was afterwards
ncorporated as part of artce 31, Reguatons 69, reatng to the Revenue ct of
1926, and whch reads as foows:
Where property s sod by a corporaton to a sharehoder, or by an empoyer
to an empoyee, for an amount substantay ess than ts far market vaue,
such sharehoder of the corporaton or such empoyee sha Incude In gross
Income the dfference between the amount pad for the property and the
amount of ts far market vaue. In computng the gan or oss from the
subsequent sae of such property ts cost sha be deemed to be ts far market
vaue at the date of acquston.
ppeants further contend that f any ta was due the Unted States by
reason of the recept of the stock by them n 1920, such ta was barred by the
statute of mtatons on March 15, 1928, and a abty e tngushed. See
secton 250(d), Revenue ct of 1918 secton 1106(a), Revenue ct of 1920.
The contenton of appeee Is that It s at east doubtfu from the decsons
whether any ta abe ncome arose n 1920 at the tme the stock was receved,
nasmuch as the transacton of 1920 was not wthn the strct etter of the
provson contaned n artce 33, Reguatons 45, under the Revenue ct of 1918
(above quoted) and nasmuch as the provsons contaned n Treasury Decson
8435 were not In force unt 1923. (See Savage v. Commssoner. 76 P. (2d),
112 Commssoner of Interna Revenue v. an orst, 59 . (2d), 677 RoMnson
v. Commssoner, 59 . (2d), 1008 Tapn v. Commssoner, 41 . (2d), 454.)
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213(a), rt. 31.
290
The further contenton of appeee s that appeants are precuded from cam-
ng the beneft of the provsons of Treasury Decson 3435 (part of artce 31,
Reguatons 69, under the Revenue ct of 1926) and, fnay, that sad Treasury
decson has no appcaton to the cases at bar.
We thnk the contentons of appeee are we founded. We pretermt ds-
cusson of the frst contenton.
When the appeants made out ther ncome ta returns for the year 1927, they
ncuded the stock transactons In controversy. Larkn n hs return ( hbt
) stated that hs stock had been acqured between 1914 and 1920 at a cost
of 27,075.50 that It was sod by hm n 1927 for 56,716 that the e pense of
sue was 86.96 that the net gan was 29,552.54.
The statutes used by the ta payers for determnng the gan or oss n sad
stock transactons were sectons 202(a) and 204(a) of the Revenue ct of 1926,
whch read as foows:
Sec 202. (a) cept as 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 subdvson (a) or (b) of secton
204, and the oss sha be the e cess of such bass over the amount reazed.
(44 Stat, 11, 26 U. S. O. ., secton 933.)
Sec. 204. (a) 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 . (44 Stat., 14, 26 D. S. O. ., secton 935.)
Nothng was stated to the effect that the stock had been acqured In whoe
or In part as compensaton for servces, athough artce 33 of Reguatons 69
had been n force as part of former reguatons snce pror to 1920. Nor was
menton made In sad ncome ta returns of the provson (artce 31, Regua-
tons 69) upon whch the ta payers now rey, and whch has been quoted above.
Ths paragraph was not In e stence n 1920. It was frst promugated n 1923
as Treasury Decson 3435, Cumuatve uetn II-, 50, and was ater Incorpo-
rated n the reguatons.
It thus seems pan that at the tme of makng the ta returns for 1927, the
ta payers consdered the stock transacton of 1920 as a pan purchase of stock
and that artce 33 and artce 31 of Reguatons 69 had no appcaton. Later
on, however, In uy, 1929, the ta payers apparenty concuded that the para-
graph above quoted from artce 31, Reguatons 09, dd have appcaton to ther
ncome ta returns for the year 1927, and that the returns actuay made by
them were erroneous. Demand for refund accordngy was made on the Com-
mssoner of Interna Revenue, and ths beng refused, the present sut was
brought
The ncome ta returns of the ta payers for the year 1920 are not before
us, so that we are not advsed of ther contents but return of the ta payer
Larkn for the year 1927 s before us as hbt , made a part of the
compant rom ths e hbt we earn nothng whatever about the stock
transacton of 1920, but nstead we are advsed that the stock was acqured by
the ta payers from 1914 to 1920. We earn nothng to the effect that the
stock was acqured n payment n whoe or In part for servces rendered.
pan purchase and sae of stock was stated and was reed upon both by to
ta payer and by the Commssoner of Interna Revenue. The ta was pad.
fter the statute of mtatons had run aganst the coecton of any ta
that mght have been due for the year 1920, the ta payer camed error n
hs return for the year 1927. The error was not a mstake n the fgures
of cacuaton, but was an omsson by the ta payer to state the true character,
as now camed, of the stock transacton of 1920.
In Gregory v. cvcrng (293 U. S., 465 Ct. D. 911, C. . I -1, 193 ) the
Court sad (pugo 469) :
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.
Whe ths s true, yet the e presson by means whch the aw permts
opens up a fed of Inqury.
In skn d Marne Co. v. Cornmwtoner (60 . (2d), 776 Ct. D. 806, O. .
III-1, 229 ) the Court sad (page 778) :
Whe the Commssoner must nvestgate returns to satsfy hmsef of ther
correctness In fact and aw, a ta payer may not beneft at the e pense of the
Government by msrepresentng facts under oath by succeedng n havng the
Commssoner accept Its representatons as the truth and by camng ater
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291
213(a), rt. 31.
that what t represented to be true mght have been found fase had the
Commssoner refused to have fath n the sworn return.
(See to the same effect Stearns Co. v. Unted States, 291 U. S., 54 Ct, D.
780, C. . III-1, 321 Commssoner v. Lberty ank d Trust Co., 5 ) .
(2d), 320 dward . Swartz, Inc., v. Commssoner, 69 . (2d), 633 oth-
ce. v. Commssoner, 77 . (2d), 35.)
In the Stearns case the Court sad (page 61) :
The appcabe prncpe Is fundamenta and unquestoned. e who pre-
vents a thng from beng done may not ava hmsef of the nonperformance
whch he has hmsef occasoned, for the uw says to hm n effect ths s your
own act, and therefore you are not damnfed. (Doan v. Rodgers, 149 N. .,
489, 491 44 N. ., 167 and Imperator Reaty Co. v. Tu, 228 N. Y., 447, 457 127
N. ., 263 quotng West v. akeway, 2 Man. G., 828. 830.) Sometmes the
resutng dsabty has been characterzed as an estoppe, sometmes as a
waver. The abe counts for tte. nough for present purposes that the
dsabty has Its roots n a prncpe more neary utmate than ether waver
or estoppe, the prncpe that no one sha be permtted to found any cam
upon hs own Inequty or take advantage of hs own wrong. (Imperator Reaty
Co. v. Tu, supra.) sut may not be but on an omsson nduced by ha
who sues.
We thnk the ta payers are precuded by ther conduct, as shown In ther
compants, ncudng e hbts, from mantanng the present suts.
urthermore, n our opnon, the paragraph from artce 31, Reguatons 69
(Treasury Decson 3435), Is not appcabe to the case of the ta payers hero
presented.
It Is a rue of statutory constructon that a statute shoud be consdered as
a whoe, and not that ts parts shoud be consdered as separate enactments.
(Lews Sutherand Statutory Constructon (second edton), sectons 344, 348
Costanzo v. Tnghast, 287 U. S., 341, 345 emuh v. eman, 276 IT. S.,
233. 237 T. D. 4217, C. . II-2, 238 an Duke v. Cordova Copper Co.,
234 U. S., 188, 191 artett Trust Co. v. ott, 30 . (2d), 700 Wanwryht
v. Pennsyvana R. Co., 253 ., 458, 465 In re Crook, 219 ., 979, 087.)
We thnk the same rue of constructon shoud be apped to departmenta
reguatons.
Treasury Decson 3435 (afterwards ncorporated nto the reguatons) was
ntended to ntroduce and dd ntroduce a new practce. y that rung, an
empoyee who was aowed by hs company to purchase stock n the company
at a prce ess than the far market vaue thereof was requred to ncude
n hs gross Income for the year n whch the stock was receved the dfference
between the actua cost to hm of the stock and ts far market vaue. Ths
was not a. s owner of the stock he was obged to state n hs ncome ta
report, f and when he sod the stock, the gan or oss, the same as any other
owner. ut snce he had aready reported as ncome at the tme he acqured
the stock the dfference between the actua cost to hm of the stock aud ts far
market vaue, he was aowed n reportng the sae to assume that the cost to
hm was the same as the far market vaue, thus avodng the possbty of a
doube ta aton.
The ast sentence n Treasury Decson 3435 must be read n connecton wth
what precedes. The provson of the ast sentence appes ony to the cass
of persons mentoned n the frst sentence. It Is an ad|ustment provson.
The ta payers n the case at bar were not and coud not be n suc cass of
persons, and, therefore, the ast sentence has no appcaton to them.
gan, Treasury Decson 3435 was prospectve and not retroactve n Its
operaton.
Such s the rue In regard to statutes, absent anpuage or surroundng cr-
cumstances pany ndcatng the contrary. (Lews Sutherand Statutory
Constructon (second edton), secton 642 rewster v. Cage, 280 U. S., 327,
337 Ct. D. 148, C. . I -1, 274 Unted States v. Magnoa Co., 276 U. S.,
160, 162 T. D. 4153, C. . II-1, 287 Unted States v. St. Lous, etc., Ry.
Co., 270 U. S., 1, 3 uerton Co. v. Northern Pacfc, 266 U. S., 435 Co v.
art, 260 U. S., 427, 434 S. W. Coa Co. v. Mc rde, 185 U. S., 409, 503.) nd
such we consder the better rue n regard to departmenta decsons.
(Shearer v. nderson, 16 . (2d), 995 T. D. 3800, C. . -, 2391. See aso
26 U. S. C. , secton 1251, and as amended May 10, 1934 (48 Stat., 7157).)
We are aware that the foregong constructon has not been unformy paced
upon Treasury Decson 3435, but we thnk t best accords wth the anguage
used, and aso wth the pertnent canons of constructon.
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213(a), rt. 32.
292
It foows that Treasury Decson 3435, reed upon by the ta payers as te
bass of ther compants, has no appcaton to the facts set up.
or the foregong reasons, we thnk that the demurrers were rghty sus-
taned.
The |udgments are affrmed.
rtce 31: What ncuded n gross ncome.
R NU CT O 1026 ND PRIOR R NU CTS.
Ta abty of ncome of restrcted Indans of the ve Cvzed
Trbes. (See G. C. M. 16020, page 78.)
rtce 31: What ncuded n gross ncome.
R NU CT O 1926 ND PRIOR R NU CTS.
Ta abty of ncome of restrcted members of the Osage Indan
Trbe. (See G. C. M. 16100, page 80.)
rtce 31: What ncuded n gross ncome.
R NU CT O 1926 ND PRIOR R NU CTS.
Proceeds of embezzement. (See G. C. M. 16572, page 82.)
rtce 32: Compensaton for persona -20-8090
servces. Ct. D. 1118
ncome ta revenue act of 1924 decson of court.
Income Recept of Stock Compensaton fob Servces.
Pursuant to a contract between the ta payers and the hers of
the deceased owner of a corporaton of whch the ta payers had
been empoyees, a new corporaton was organzed, whch the ta -
payers were to manage and contro and the preferred and common
stock of whch was to be Issued to the hers. The hers conveyed
to the new corporaton the assets of the od, and, pursuant to the
contract, transferred the new common stock to the ta payers.
Such transfer was not a gft, but was made n compensaton for
past and future servces, and the vaue of the stock so receved
consttuted Income to the ta payers wthn the meanng of secton
213 of the Revenue ct of 1924.
Unted States Crcut Court of ppeas for the S th Crcut.
demons . Davs, pettoner, v. Commssoner of Interna Revenue, respondent.
ugo Mer, pettoner, v. Commssoner of Interna Revenue, respondent.
Love R. raus, pettoner, v. Commssoner of Interna Revenue, respondent.
Pettons to revew decsons of the Unted States oard of Ta ppeas.
efore Moorman, cks, and en, Crcut udges.
anuary 10, 1036.
opnon.
Moorman, Crcut udge: ugo Scherer was the owner of the ugo Scherer
Land Co., the Detrot orgng Co. and the St Car- tho Rubber Co. PeO-
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293
213(a), rt. 50.
doners were empoyees of the Scherer company. In November of 1923 Scherer
ded, eavng a w In whch he devsed a of hs property to hs wfe and
two daughters. bout four months ater hs wfe and daughters made a
contract wth pettoners by whch the pettoners agreed to organze a new
corporaton, Davs, raus Mer, Inc., wth an authorzed capta stock,
haf 6 per cent cumuatve preferred and haf common, equa In capta vaue
to the vaue of the net assets of the Scherer company, the wfe and daughters
agreeng, In consderaton of the ssue to them of a the stock, to convey to
the corporaton the assets of the Scherer company, and then to transfer to the
pettoners the common capta stock. The agreement was prompty carred
out and tha common stock of the new corporaton assgned to the pettoners
In equa parts. ach of the pettoners treated ths stock, In hs Income ta
return for the year 1924, as a gft. The respondent was of opnon that Its
vaue as of the date receved was Income and made defcency assessments,
whch the oard of Ta ppeas sustaned.
The queston presented to us Is whether there Is evdence In the record
to support the fndng of the oard that the stock was ncome wthn the
meanng of the Revenue ct of 1924 (ch. 234, 43 Stat, 253, secton 213, 26
D. S. C , secton 954(a)). It s not contended that the facts found by
the oard are ackng n evdentary support, but that they show gfts not
ta abe under the appcabe ct. In our opnon they are suffcent to |ustfy
the oard s concuson that the stock was transferred to the pettoners to
compensate them for past and future servces, and that Is true, we thnk,
though there was no ega obgaton on the part of the wfe and daughters
to pay for past servces or to make the transfers. (Od Coony Trust Co. v.
Commssoner, 279 U. S., 716 Ct D. 80, C. . III-2, 222 Noe v. Pwrrott,
15 ed. (2d), 069 (C. C. . 2) T. D. 3908, C. . -2, 149 ass v. awey,
62 ed. (2d), 721 (C. C. . 5) Ct D. 693, C. . II-2, 169 Levey v. ever-
ng, 68 ed. (2d), 401 (C. . D. C.) Unted States v. McCormck, 67 ed. (2d),
807 (C. C. . 2) sher v. Commssoner, 59 ed. (2d), 192 (C. C. . 2).)
ach of the pettoners had been a vauabe empoyee and actve In the manage-
ment of the Scherer company for many years. t one tme or another each had
contempated severng hs connecton wth the company and enterng some other
busness but had been ed by Scherer to beeve that he woud be compensated
beyond hs saary f he remaned wth the company. ach remaned unt
sfter Seherer s death. The agreement wth the wfe and daughters stated that
the common stock of the new company woud be gven to the pettoners In
fu settement and ad|ustment of any and a cams. It aso provded that
the pettoners shoud be the offcers of the new company, and they agreed
to devote ther entre tme to Its busness. They further agreed that the
new company woud act as saes agent for the Detrot orgng Co. and the St.
Car- tho Rubber Co., whch were owned by the wfe and daughters. It s
cear from these provsons n the contract that the wfe and daughters had
fath n the abty and ntegrty of the pettoners, and wshng to protect
ther own nterests n the new company decded to pace the contro and
management of It In the pettoner s hands by gvng them the common stock.
The proftabe operaton of the Detrot orgng Co. and the St. Car- tho
Rubber Co. aso depended on the effcent management of the new company.
The benefts whch the wfe and daughters thus e pected to receve, together
wth the past servces of the pettoners, for whch they were no doubt
gratefu, consttuted ampe consderaton for the transfer of the stock.
The orders of the oard of Ta ppeas are affrmed.
rtce 50: When ncuded n gross ncome. -25-8134
I. T. 2082
R NU CT O 1918.
Offce Decson 825 (C. . 4, 95) s revoked, n vew of G. C. M.
16730. (Seepage 179.)
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S213(b), rt. 90. 294
S CTION 213(b). GROSS INCOM D IN D:
CLUSIONS.
rtce 88: Compensaton of State offcers and empoyees.
R NU CTS O 1924 ND 1926.
Ta abty of compensaton receved by offcers and empoyees of
a State or potca subdvson. (See Mn. 3838, revsed, page 130.)
rtce 88: Compensaton of State offcers and empoyees.
R NU CT O 1926.
ttorney for rrgaton dstrct. (See Ct. D. 1114, page 226.)
rtce 90: Income accrued pror to March 1, -5-7931
1913. Ct. D. 1073
ncome ta revenue act of 1926 decson of supreme court.
Income Capta, Patent Infrngement Profts Receved by
Infrnger Pror and Subsequent to March 1, 1013.
Where the ta payer brought sut In 1912, aegng nfrngement
of a patent, and for an accountng of profts from such nfrnge-
ment, whch cam was contested unt 1915 and the amount thereof
undetermned unt 1925, when the ta payer accepted a settement
of the profts receved by the Infrnger between anuary 1, 1909,
and pr 30,1914, the porton of the settement attrbutabe to acts
of nfrngement pror to March 1, 1913, was not capta, but the
entre amount consttuted Income, fuy accrued and ta abe In 1925.
The ta payer Is not entted to a deducton on the bass of a dffer-
ence between the vaue of the chose In acton on March 1, 1913, or
at any other tme and the proceeds of coecton, nor to a refund
of the proporton of the settement attrbutabe to the profts of the
nfrnger before the effectve date of the s teenth amendment.
Supreme Court or the Unted States.
No. 75. Unted States of merca, pettoner, v. Safety Car eatng
Lghtng Co.
No. 76. ohn R. Rogers, Coector of Interna Revenue for the fth Dstrct
of New ersey, pettoner, v. Safety Car eatng d Lghtng Co.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Thrd Crcut.
anuary 6, 1936.
OPINION.
Mr. ustce Cardozo devered the opnon of the Court.
The respondent cams a refund of ncome ta es under the Revenue ct
of 1926. The pettoner n one of the cases (No. 75) s the Unted States,
a defendant n the court beow. The pettoner n the other (No. 76) Is the
coector of Interna revenue for the ffth dstrct of New ersey.
Snce 1907, the ta payer, respondent, has been the owner of the Creveng
patent for an mprovement n the eectrc ghtng equpment of raway passen-
ger cars. It brought sut n 1912 aganst the Unted States Lght eatng
Co. to restran an Infrngement of the patent, and for an accountng of dam-
ages and profts. The sut was pendng on ebruary 25, 1913, the effectve
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213(b), t. 90.
date of the s teenth amendment, and on March 1, 1913, the effectve date of
the frst statute enacted thereunder. ( ct of October 3, 1913, ch. 16, 38 Stat,
114, 166, 168, 172, 174.1) The accused nfrnger contested ts abty for In-
frngement as we as Its abty for damages and profts. Not t 1915
was the capta fact of an Infrngement determned. On ebruary 15, 1915,
there was entered n the dstrct court an Interocutory decree for an In|unc-
ton, whch was affrmed by the crcut court of appeas n uy of the same
year. n accountng foowed before a master and contnued for eght years.
On that accountng the companant waved any recovery for damages, and
confned ts cam to the profts receved by the nfrnger. On May 26, 1923,
the master fed hs report n whch he found that there was due to the com-
panant for profts receved by the nfrnger between anuary 1, 1909, and
pr 30, 1914, the sum of 501,180.32. Of ths award, a arge part ( 436,137.41)
was for profts appcabe to the perod before March 1, 1913. The report
was confrmed by the dstrct court on October 10, 1923, at whch tme the
nfrngng defendant was n the hands of recevers. fna decree foowed
n October, 1924, the award beng ad|udged to consttute a superor en upon
the assets of the nfrnger then hed by a successor. Cross-appeas were car-
red to the Court of ppeas for the Second Crcut, the companant contend-
ng that the award was too sma, the nfrnger and ts successor contendng
that the award was too arge and that error had been commtted aso n the
decaraton of the en. Whe the appeas were undetermned, the companant
accepted a settement In May, 1925, after 13 years of tgaton, whereby t
receved from the nfrnger the sum of 200,000 n satsfacton of the udgment
fter deductng the e penses ncurred n connecton wth the sut ( 23,468.05),
the net amount coected was 176,531.95. of whch part ( 153,621.72) s at-
trbutabe to acts of nfrngement before March 1, 1913, and part to such acts
thereafter.
In Say, 1926, the ta payer fed ts ncome ta return for 1925, showng a net
ncome for that year of 1,473,187.13, and a ta cue thereon of 172,610.19, whch
has been pad. It dd not Incude In the return any part of the proceeds of the
patent tgaton ( 176,531.95), nor dd t cam any deducton for oss resutng
from the settement. Thereupon the Commssoner made a defcency determna-
ton of 22,162.07, pus nterest, the addtona ta cue after addng the net
proceeds of the settement to the Income of the year. Two cams for refund
foowed. The frst, fed n March, 1929, was for 69,729.18. The ta payer took
the ground that as a resut of the settement It had sustaned a oss of 536,378.28,
whch through error t had faed to deduct n makng ts return and n payng
the ta thereunder. Its books were kept on the accrua bass. The second of the
two cams, fed n uy, 1930, was for an addtona refund n the amount of
19,970.82. In ths the ta payer took the ground that n determnng the gross
ncome for 1925 the Commssoner had erred by ncudng that part of the pro-
ceeds of the settement attrbutabe to acts of nfrngement before March, 1913.
oth cams were re|ected by the Commssoner. The ta payer then sued, mak-
ng the Unted States the defendant wth reference to the frst cam and the
coector the defendant wth reference to the second.
In the sut aganst the Unted States the dstrct court found that the ta -
payer s cam for damages on account of so much of the nfrngement as had oc-
curred before March 1, 1913, had a market vaue on that date of 436,137.41,
the profts of the Infrnger up to that tme as reported by the master. rom ths
the court concuded that n the year 1925 there had been a deductbe oss of the
dfference between 436,137.41 and the sum of 174,040.62, a ke proporton of
the 200,000 actuay recovered. The ta upon ths dfference ( 262,096.79)
was 34,072.58. The ta payer receved an award of udgment for that amount
wth nterest. (5 . Supp., 276) In the sut aganst the coector, the dstrct
court hed that such porton of the net settement as was aocabe to acts of
nfrngement before March 1, 1913 ( 153,621.72), had accrued to the ta payer
n advance of that date, and was therefore to be treated as capta, not ta abe
as ncome for the year when the settement was made. The ta payer receved
an award of udgment for the ta on that amount (1. e., for 24,73290) wth
nterest.
Wth reference to every corporaton sub|ect thereto, that ct provdes as foows:
The ta heren Imposed sha be computed upon Its entre net Income accrued wthn
each caendar year endng December 81 : Provded, however, That for the year endng
December 31, 1913, sad ta sha be Imposed upon Its entre net Income accrued wthn
that porton of sae year from March 1 to December 81. both dates Incusve, to be
ascertaned by takng fve-s ths of Its entre net Income for sad caendar year. (38
Stat.. 174.)
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213(b), rt. 90.
296
The Crcut Court of ppeas for the Thrd Crcut affrmed the udgments In
both suts. (76 . (2d), 133.) To f more precsey the ta abe quaty of
contested and contngent coses n acton beongng to a ta payer before March
1, 1913, wrts of certorar Issued from ths Court.
rst Congress ntended, wth e ceptons not now Important, to ay a ta
upon the proceeds of cams or choses n acton for the recovery of profts, uness
the rght to such recovery e sted uncondtonay on March 1, 1913, the effectve
date of the frst statute under the s teenth amendment
The ta mposed on the respondent was ad under the Revenue ct of 1926
(ch. 27, 44 Stat, 9), whch ncudes n gross ncome (secton 213(a)) gans
on profts from any source whatever. We have sad of that ct that It reveas
n Its provsons an ntenton on the part of Congress to reach pretty much
every sort of Income sub|ect to the edera power. ( everng v. Stockhoma
nskda ank, 203 U. 8., 84, 89 Ct. D. 887, a . III-2, 200 .) There s no
dena that profts owng to a patentee by the Infrnger of a patent are ncome
wthn the meanng of the statute, uness wthdrawn from that category by
the date of the Infrngement (Cf. Treasury Reguatons 45, artce 52 Treasury
Reguatons 62, artce 51 Treasury Reguatons 65, artce 50 Treasury Regu-
atons 69, artce 50 Commssoner v. S. . Woods Machne Co., 57 . (2d), 635
Ct. D. 666, C. . II-1, 275 .)
Unt uy, 1915, the e stence of any abty was contested and uncertan.
The amount remaned contested and uncertan unt May, 1925, when there was a
settement of that abty reported by the master. Then for the frst tme the
profts fowng from the Infrngement became ta abe as ncome. (North mer-
can O Consodated v. urnet, 286 U. S., 417, 423 Ct. D. 499, C. . I-1, 293
Lucas v. mercan Code Co., 280 U. S., 445, 451, 452 Ct D. 168, C. . I -1, 314
Lucas v. North Te as Co., 281 U. S., 11 Ct D. 169, C. . I -1, 294 urnet v.
uff, 288 U. S., 150 Ct D. 640, C. . II-1, 220 .) The respondent admts
ths to be true to the e tent that the acts of nfrngement were ater than ebru-
ary, 1913. The argument seems to be, however, that accrua has a dfferent
meanng when apped to ncome generated by acts commtted earer. ut
pany the respondent s e empton, f t e sts, w have to rest upon some
other bass. cam for profts so contngent and ndefnte as to ack the quaty
of accrued ncome n March, 1913, can not have had the quaty of such ncome
before that tme, ts e stence and e tent beng then equay uncertan. Ony
an arbtrary dchotomy coud brng us to the concuson that part of the re-
covery was Income to the ta payer as of the date of payment or coecton and
part as of the date of the underyng wrong. The respondent, to preva, must
be abe to make out that though the profts were ncome n ther entrety as of
May, 1925, there was an ntenton of the Congress that part of ths ncome, the
part attrbutabe to acts before March, 1913, shoud be e cuded from the
reckonng.
We fnd no dscosure of that ntenton In the provsons of the statute, and
none n the hstory of other cts before t. The frst statute foowng the s -
teenth amendment ad a ta , as we have seen, on the entre net Income ac-
crued wthn each caendar year, the Impost beng couped wth a provso that
for the year 1913 what was to be ta ed shoud be the entre net ncome accrued
wthn that porton of the year from March 1 to the end. Defnteness of mean-
ng was gven to that and ater cts by Treasury reguatons. rtce 90 of
Reguatons 62, adopted n 1922, provdes: ny cam e stng uncondtonay
on March 1, 1913, whether presenty payabe or not, and hed by a ta payer
pror to March 1, 1913, whether evdenced by wrtng or not does not const-
tute ta abe ncome, athough actuay recovered or receved subsequent to such
date. Ths provson appears wthout change of form n a Treasury regua-
tons adopted snce that tme. (Treasury Reguatons 65, artce 90 Treasury
Reguatons 69, artce 90 Treasury Reguatons 74, artce 91 Treasury Regu-
atons 77, artce 90.) It appears wth unmportant verba dfferences n earer
reguatons. (Treasury Reguatons 45, artce 87, as amended by T. D. 3206,
C. . 5, 116.) cam e stng uncondtonay woud ncude a cam for
Interest on a bond or for rent under a ease. cam e stng condtonay can
have no better ustraton than s found n a cam to recover an nfrnger s
profts. (Cf. O. D. 917, C. . 4, 142: O. D. 1141, C. . 5, 134 S. M 2285, C. .
III-2, 87, 89, 90, dsapprovng I. T. 1294, C. . 1-1, 111.) Nor does the case for
the Government stand upon the reguatons aone wthout confrmatory evdence.
y cear Impcaton the reguatons have been ratfed by Congress, whch has
passed Revenue cts at frequent ntervas thereafter wthout a sgn of dsap-
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297
213(b), rt. 90.
prova L Congress must be taken to have been famar wth the e stng admn-
stratve nterpretaton. (Mc eey v. Commssoner, November 11, 1935, U. S.,
Ct D. 1040, C- . I -2, 209 Zderbach Paper Co. v. everng, 293 U. S.,
172, 179, 180 Ct. D. 891, C. . III-2, 347 .) Cams e stng uncondtonay
before March 1, 1913, beng thus e cuded from the ta , the pan mennng of the
reguaton Is that condtona or contngent cams, though they may have had
an nchoate e stence before March 1, 1913, are to be ta ed when they are shorn
of ther condtona or contngent quaty and become uncondtona or absoute.
So far as the probem to be soved depends upon the ntenton of the Congress n
tbe enactment of the statute, the resut s hardy doubtfu.
Whatever obscurty e sts has ts orgn, one may beeve, n a not uncommon
confuson of the rue wth the e cepton. There s a tendency now and agan
to ook upon March 1, 1913, as f ng a pont of tme when cams of every knd,
no matter how contngent, became transmuted nto capta, at east for ta ng
purposes. Ths s far from the truth, as the acceptance by Congress of the
foregong reguatons suffcenty attests. The Intenton has rather been that,
wth e ceptons specay decared or dependent upon consderatons of estab-
shed methods of accountng, every form of Income accrung fuy or uncond-
tonay after ebruary, 1913, sha contrbute to the Treasury, though t had a
potenta e stence for years before ts capacty to fructfy. s aready sug-
gested, percepton of ths ntenton has been couded by e ceptons, actua or
seemng, whch have been so nsuated and emphaszed as to be taken for the rue
Itsef. Thus, Congress has now provded (see, e. g., Revenue ct of 1916, ch. 463,
secton 2(a), 39 Stat., 758, 757 Revenue ct of 1921, ch. 135, secton 201, 42
Stat., 224, 226 Revenue ct of 1926, ch. 27, secton 201, 44 Stat., 9, 10) that
dvdends may be dstrbuted e empt from the ta to the e tent that they are
made out of earnngs or profts accumuated before March 1, 1913. The e emp-
ton s a concesson to the equty of stockhoders (Is/nch v. ornby, 247 U. S.,
339, 346 everng v. Canfed, 291 U. S., 163, 167 Ct. D. 783, C. . I -1, 176 ),
and had no e stence under the poneer statute, the ct of 1913, a dvdend,
Irrespectve of ts source, beng then ta abe atogether. Lynch v. ornby,
supra.) So Congress has now provded (see, e. g., Revenue ct of 1924, ch. 232,
43 Stat., 253, 259, secton 204()b supra, secton 204(b) Revenue ct of 1926.
supra, secton 204(b)) that In computng gan or oss from the sae or other
dsposton of property acqured before March 1, 1913, the base sha be the cost
or the vaue on that day, whchever Is the greater. (See aso, Revenue ct of
1916, supra, secton 2(c) Revenue ct of 1921, supra, secton 202(b) 1. Cf.
Merchants L. d T. Co. v. Sm tanka, 255 U. S., 509 T. D. 3173, C. . 4, 34
Goodrch v. dwards, 255 U. S., 527 T.. D. 3174, C. . 4, 40 .) We are not un-
mndfu of cases In whch a ke formua was apped wthout the ad of statute.
(Lynch v. Turrsh, 2 1 . S., 221 Doye v. Mtche ros. Co., 247 U. S., 179
ays v. Ganey Mt. Coa Co., 247 U. S., 189 and cf. MacLaughn v. ance In-
surance Co., 286 U. S., 244, 251 Ct D. 496, C. . I-1, 124 .) They do not rue
the case at hand. In those cases and others ke them assets that were capta
In ebruary, 1913, had been converted Into cash thereafter. Coa ands and
tmberands and tmber had been sod by an owner n the ordnary course of
busness. y the practce of merchants a stock In trade s capta accordng to
ts Inventory vaue. ( ays v. Ganey Mt. Coa Co., supra, at page 193.) Noth-
ng of the knd s here. The case Is not heped by speakng of the cam as
property. The queston s whether t s property that has been transmtted
Into capta. In ebruary, 1913, the chose In acton now assessed was not a
part of the respondent s capta as merchants or other busness men woud under-
stand the term. (Cf. North mercan O Consodated v. urnet, supra.) t
best t was contngent ncome, the ncome of the future. It had no nventory
vaue, much ess a vaue quoted In the market Whether t woud ever be worth
anythng was st unknown and unknowabe. The answer was not gven for
many years thereafter.
The argument s pressed upon us that the cam coected by the respondent
Is to be vewed as one for damages rather than as one for profts, and that
n the aspect of a cam for damages t had a market vaue ascertanabe at
the commencement of the sut and ater. There are two reasons, f not more,
why the argument must fa. In the frst pace, the respondent made an eec-
ton to abandon any cam for damages and to confne tsef to the profts re-
ceved by the nfrnger. The amount of these profts was unknown nt the
commencement of the sut and must needs have remaned unknown In advnnce
of an accountng. To determne what the respondent got we are to consder
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5213(b), rt. 00.
298
what It dd, and not what t coud have had If It had made another choce.
In the second pace, a cam for damages ke one for an Infrnger s profts s
too contngent and uncertan to have a determnabe market vaue when the
vadty of the patent s unsetted and contested and the factors makng up the
damage are arrved at by con|ecture. (Sncar Refnng Co. v. enkns Pe-
troeum Co., 289 U. S., 689, 697. Ct ener v. Crosby, 24 . (2d), 191 Water
v. Duffy, 287 ed., 41.) There Is sgnfcance n the fact that the estmate of
the damage In the cam fed wth the Commssoner e ceeded by neary 300,-
C00 the estmate of the damage accepted at the tra.
The case comes down to ths: On ebruary 28, 1913, the respondent had a
contested cam for profts whch f prosecuted effectvey woud rpen nto
ncome. That cam woud not have been capta f t had been acqured for
the frst tme on March 1, 1913. It was not turned nto capta because t had
been acqured earer. dwards v. eth, 224 ed., 585 231 ed., 110 Work-
man v. Commssoner, 41 . (2d), 139.) efore March 1, 1913, and afterwards,
t was contnuousy the same thng unt reduced to udgment and coected.
The case Is not to be confused wth one where the bass of the sut s an In|ury
to capta, wth the resut that the recovery s never ncome, no matter when
coected. ampes of such a cam are Saunders v. Commssoner (29 .
(2d), 834) and ener v. ewes (30 . (2d), 787), cted by the ta payer.
uffao Unon urnace Co. v. everng (72 . (2d), 399) s perhaps upon
the border ne, the cam beng not for profts, but for recovery of out of
pocket e penses. Confnng t to Its pecuar facts, we do not read It as ncon-
sstent wth the vews heren e pressed.
Second. Congress was not restraned by e press or Imped restrctons of
the edera Consttuton from gvng effect to ts Intenton and evyng a ta
upon the proceeds of the settement.
In ebruary, 1913, f our anayss of the facts s accurate, there was a con-
tested and contngent cam for profts, not fary to be characterzed as Income
for that year or earer. In 1925, ths nchoate and dsputed cam became con-
summate and estabshed. It was now somethng more than a cam. It was
ncome fuy accrued, and ta abe as such. T then the patentee had ts cap-
ta, the patent, and an e pectancy of ncome, or ncome, more accuratey, n the
process of becomng. Thereafter t had somethng dfferent. No doubt the
ncome thus accrued derved sustenance and vaue from the so of past events.
We do not Identfy the seed wth the frut that t w yed.
Income wthn the meanng of the s teenth amendment Is the frut that Is
born of capta, not the potency of fruton. Wth few e ceptons, If any, t
s ncome as the word s known In the common speech of men. (Lynch v.
ornby, supra, page 344.) When t s that, It may be ta ed, though t was
n the makng ong before. (MacLaughn v. ance Insurance Co., supra,
at pages 249, 250 Taft v. owers, 278 U. S., 470 Ct. D. 49, C. . III-1, 2261
everng v. Canfed, supra. Cf. Lucas v. e ander, 279 U. S., 573, 577, 578
Ct. D. 76, C. . III-2, 273 Towne v. sner, 245 U. S., 418 sner v. Ma-
comber, 252 U. S., 189, 208, 207 T. D. 3010, C. . 3, 25 .) If e ceptons are
to be aowed In e ceptona condtons, they are Inappcabe here.
Thrd. The ta payer s not entted to a deducton on the bass of a dfference
between the vaue of the chose In acton on March 1, 1913, or at any other tme
and the proceeds of coecton.
(a) t the tme of the settement, the amount of the Infrnger s abty was
contested as t had been before, the outcome of the contest beng uncertan as
ong as the appea was pendng. The respondent chose to forego a arge porton
of the |udgment n the beef that compromse was prudent. or a that ap-
pears, f compromse had been re|ected, the udgment woud have been so re-
duced as to make the recovery even ess. True the respondent nssts that the
fear of a reducton was not the motve for the settement. The motve s sad
to have been the fear that the |udgment, even If not reduced, mght not be sus-
ceptbe of coecton. On the other hand, the Infrnger may have vewed the
prospects dfferenty. We have no means of ascertanng whose forecast was
the better. What we know s that here was a compromse through whch
patentee and nfrnger surrendered rghts and opportuntes.
(6) The vaue of the chose n acton, uncertan at the tme of settement, was
even more uncertan In ebruary, 1913. Unpredctabe vcsstudes mght reduce
t to a nuty. The patent mght be ad|udged nvad. The nfrnger mght
become nsovent. In the earer years as n the ater ones the supposed profts
of the busness mght have evaporated as the resut of negect or Incapacty.
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299
214(a)4, 5, 6, rt. 141.
Not t the report by the master and ts confrmaton by the court coud the
recovery be estmated wth even appro mate correctness. There s no conten-
ton by the respondent that the vaue of the udgment was greater at that tme
than It was a few months ater at the date of the settement n the face of an
appea
The concuson s Inescapabe that the acceptance of the settement dd not
nvove a oss of ncome, st ess a oss of capta.
ourth. The ta payer Is not entted to a refund of the proporton of the
settement attrbutabe to the profts of the Infrnger before the effectve date
of the s teenth amendment.
Ths concuson foows wthout need for eaboraton from what has been
sad n ths opnon as to the dstncton between capta and ncome.
The |udgments are reversed.
S CTION 214(a) 1. D DUCTIONS LLOW D INDI-
IDU LS: USIN SS P NS S.
rtce 112: When charges deductbe. -25-8135
I. T. 2983
R NU CT OP 1918.
Offce Decson 1141 (C. . 5, 134) s modfed n so far as t s
nconsstent w th G. C. M. 16730. (See page 179.)
S CTION 214(a)4, 5, 6. D DUCTIONS LLOW D
INDI IDU LS: LOSS S.
rtce 141: Losses. -14-8031
I. T.2966
R NU CT OP 1926.
I. T. 2217 (C. . I -2, 53) and I. T. 2231 (C. . I -2, 115) are
modfed, n vew of G. C. M. 16255. (See page 4.)
rtce 141: Losses. -15-8037
Ct. D. 1103
ncome ta revenue act of 1926 decson of court.
1. Deducton Losses Payments Made n Compromse of La-
bty Under Contracts of Indorsement and Guaranty.
Where the prncpa stockhoder of a corporaton made payments
In 1926 and 1927, out of hs persona funds, n compromse sette-
ment of hs abty under certan ndorsements and guarantes of
notes and obgatons of the corporaton, whch had become n-
sovent n 1924, such payments beng made as part of an agreement
wth credtors whereby the corporaton was enabed to contnue n
busness, he s not entted to deduct the amount of the payments
as osses, under the provsons of secton 214(a) (4) or (5) of the
evenue ct of 1920.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (29 . T. ., 169) afrmed.
3. Certorar Dened.
Petton for certorar dened December 16, 1935.
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214(a)4, 5, 6, rt. 141.
300
Unted States Cnourr Coubt of ppeas for the Second Cecut.
eremah O. Menhan, pettoner-appeant, v. Commssoner of Interna Revenue,
respondent-appeee.
Petton to revew a decson of the oard of Ta ppeas sustanng defcences n ncome
ta es for the years 1926 and 1927. ffrmed.
efore L. and, ugustus N. and, and Chase Crcut udges.
uy 30, 1935.
OPINION.
Chase, Crcut udge: In 1924, the pettoner, a resdent of Rochester, N. Y
was presdent of the Menhan Co., a New York corporaton, engaged n the bus-
ness of manufacturng ades shoes. The corporaton s capta stock conssted
of 500 shares, of whch the pettoner owned 497 and controed the other 3,
whch stood n the name of hs nomnees for quafcaton purposes. Durng
the three years mmedatey precedng, the corporaton had e panded rapdy,
and n 1924, because of a serous strke n one of ts pants couped wth adverse
trade condtons, t had become Insovent. The pettoner had ndorsed ts notes
and guaranteed ts accounts to the amount of 655,695.14 and had aso become
Insovent
Wth the affars of hs corporaton and hmsef n ths stuaton, he apped
to credtors for an ad|ustment n an endeavor to avod bankruptcy proceed-
ngs and save the busness f possbe. credtor s commttee was formed
to whch he transferred a the Menhan Co. stock to enabe It to assume
compete contro of the busness. votng trust agreement was subsequenty
made under whch the stock was hed. The credtors commttee took over the
busness and empoyed the pettoner to manage It at a saary pus a per-
centage of the net profts above an amount stated. pan of reorganzaton
was fnay agreed to by a concerned whch provded that the bank credtors
of the corporaton shoud receve, n fu satsfacton of the abty of the
corporaton on ther cams, bonds of the corporaton of the face vaue of
50 per cent of ther cams secured by a mortgage upon the rea estate of the
corporaton sub|ect to e stng ens, and that a other credtors shoud accept
the promssory notes of the corporaton to the amount of 50 per cent. It was
agreed that the votng trust shoud contnue for the protecton of the credtors
unt the bonds and notes were pad In fu. The pettoner aso agreed that
the acceptance by credtors of the corporaton s offer of compromse sha n
no wse essen, modfy, ater or reease me from any abty on account
of any ndorsement or guarantes whch I may have heretofore gven on
account of the Menhan Co. The pettoner reached an agreement wth the
credtors of the corporaton hodng pnper he had ndorsed or cams he had
guaranteed to pay 15 per cent of those debts n fu dscharge of hs persona
abty upon the e press condton that hs payment of the 15 per cent shoud
not be made the bass of any cam by hm aganst the company. To secure
the payment of notes he gave to pay 15 per cent of such cams, the pet-
toner e ecuted and devered to the Unon Trust Co. of Rochester a deed of
trust dated October 1, 1924, though not formay e ecuted unt une 30, 1925,
whch covered hs home 10 notes of the Menhan Co., each for 2,732.71, whch
had been gven hm on account of hs payment of debts of the corporaton
out of hs own funds the votng trust certfcate for the stock he had trans-
ferred to the credtors commttee and a one-haf nterest n the bonus he
mght receve under hs empoyment contract as manager of the corporaton.
Upon hs payment of the notes the property so paced n trust was to be
returned to hm.
TIo pettoner pad 12,877.36 In 1925 on account of the agreement to pay
the 15 per cent to dscharge hs abty as Indorser or guarantor for the
corporaton. e camed ths amount as a deductbe oss for that year and
the Commssoner aowed t. In 1926 he pad 10,460.34, and n 1927 68,-
0-15.09, for a ke purpose, and camed a deductbe oss In each year of the
nmount so pad. The Commssoner dsaowed both of these deductons on
the ground that the payments were capta contrbutons rather than osses.
Te decson of the oard of Ta ppeas sustanng the dsaowance of the
deductons s here for revew.
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301
214(a)4,5, 6, rt. 141.
In 1927 the Menhan Co. Itsef bad outstandng notes and bonds whch It
had gven Its credtors under the 50 per cent compromse agreement whch
requred 568,769.96 for ther redempton. The pettoner In that year ad-
vanced 78,769.98 to the corporaton whch was used to retre the bonds and
notes and to gve hm a credt of 10,000. e treated ths advance as a
capta e pendture for whch he camed no deducton. y such advance and
the payment of hs obgaton to the e tent of 15 per cent of the corporaton s
debts, he succeeded n havng the compromse settement wth credtors fuy
carred out and reganed hs former contro of the corporaton. s stock
was returned to hm by the credtors commttee on pr 28, 1927 In accord-
ance wth the terms of the votng trust agreement. Thereafter the corpora-
ton was reorganzed.
The deductons are camed under secton 214 of the Revenue ct of 1926
(ch. 27, 44 Stat, 9 U. 8. C. ., secton 955). They are n a respects, e -
cept n amount, the same as the deducton aowed In 1925. The Comms-
soner decned to foow hs former rung.
Snce payment by the pettoner created no debt aganst the corporaton
n vew of hs agreement that t shoud not, subdvson (a) (7) of the above
secton reatng to debts ascertaned to be worthess and charged off durng
the ta abe perod s nappcabe for that reason aone. No one owed hm
any debt, because of hs payments, whch he coud ascertan to be worthess
and charge off. The Inqury comes down to whether or not the payments
were deductbe osses sustaned ether n hs trade or busness (subdvson
(a)(4) of secton 214), or n a transacton entered nto for proft though not
connected wth trade or busness (subdvson (a) (5) of secton 214). though
the pettoner owned or controed a of the stock of the Menhan Co. any oss
whch was Incurred n Its trade or busness was that of the corporaton. It
was a separate and dstnct entty dong busness for Itsef and not as the
pettoner s agent. Whatever osses were ncurred n thnt busness were de-
ductbe, If at a, ony from the ncome of the corporaton Itsef. (See Daton
v. owers, 287 U. S., 404 Ct. D. 621, C. . II-1, 177 .) There Is no bass
appearng n ths record for dsregardng the corporate structure. The fact
that pettoner owned or controed a of the corporaton s stock s aone
nsuffcent ground for that. ( mercan Unon Lne v. Orenta Nav. Corpora-
ton, 239 N. Y., 207.) Indeed, the pettoner nssts that the usua dstncton
between corporaton and stockhoder shoud be preserved here, and wth that we
are n entre agreement.
The gst of the pettoner s case s that because the pettoner had pre-
vousy ndorsed the corporaton s notes and guaranteed Its obgatons, he
had ncurred a abty whch he made defntey hs own ndvdua debt
to the e tent of 15 per cent of such obgatons of the corporaton when he
made the ad|ustment for the settement of hs abty to ts credtors upon
that bass and that, as hs payments gave hm no rght to recourse aganst
the corporaton, he ost the amounts so pad when he pad them. s the
returns fed by the pettoner for the years n queston were on the cash
recepts and dsbursements bass, he may take deductbe osses In the ta abe
perod when they are pad n cash. ( ckert v. urnet, 283 U. S., 140 Ct. D.
825, C. . -, 241 .)
The ad|ustment, however, whch Is now sad to have made hs own
the obgatons he dscharged for cash n 1926 and 1927, was but a part of the
entre arrangement whch saved both the corporaton and the pettoner from
bankruptcy. Credtors of the corporaton had the securty of the deed of
trust he gave for the performance of hs promse. That deed of trust covered
a hs stock n the corporaton. Wthout the ad|ustment, hs stock was
worthess. s agreement saved that stock, and, though we are not nformed
as to |ust how vauabe t became, n 1928 and 1927 ts vaue greaty e ceeded
what the pettoner pad the corporaton s credtors to secure ts return to hm.
When he ndorsed the corporaton s paper and guaranteed ts debts, he
was not n the ndorsement or guarantee busness, but ceary dd that to protect
hs own prevous nvestment. (See urnet v. Cark, 287 U. S., 410 Ct. D.
620, C. . II-1, 175 .) When he dscharged the abty, whether It had
become hs aone to the e tent he pad or remaned secondary to that of the
corporaton, he was but performng hs part of the compromse agreement
whch preserved the vaue of hs nvestment. Whether he w ever sustan any
oss as a resut depends upon the vaue of that stock when events take pace
whch cose the transacton for ta aton purposes. (Do Lots v. Commssoner,
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214(a)7, rt. ML
302
28 ed. (2d), 803.) Unt then the pettoner has but added to hf Investment
In the corporate stock. Nothng took pace durng 1926 or 1927 to make It
possbe to determne that the payments he made In those years were osses.
They are, on ths record, n the same category wth the addtona capta
contrbuton of 78,769.96 whch he made to hep rehabtate the corporaton
and were capta nvestments st at rsk durng the ta abe years n whch,
the deductons are camed.
ffrmed.
S CTION 214(a)7. D DUCTIONS LLOW D
INDI IDU LS: D D TS.
rtce 151: ad debts. -17-8058
Ct. D. 1108
INCOM T R NU CT O 102C D CISION OP COURT.
Deducton Loss Debt scertaned to n Worthess,
mercante company In 1920 asserted a cam aganst a concern
from whch t had purchased goods, aegng that the matera de-
vered was defectve, but the goods were used for another purpose
than that for whch purchased. The cam was never tgated,
athough the seer was a responsbe concern, and n 1927 the ac-
count was charged off as uncoectbe. Under these crcumstances,
the company Is not entted to a deducton In 1927, ether for a oss
sustaned or for a debt ascertaned to be worthess durng the
ta abe year.
Unted States Crcut Court or ppeas foe the Tenth Crcut.
The . D. Lee Mercante Co., pettoner, v. Commssoner of Interna Revenue,
respondent.
On petton to revew the decson of tbe Unted States oard of Ta ppeas.
efore Lews, Phps, and McDebsott, Crcut udges.
ugust 26, 1035.
OPINION.
McDebmott, Crcut udge, devered the opnon of the court.
In Its return of ncome for 1927, pettoner deducted 42,688.91 as a busness
oss. The Commssoner dsaowed t and the oard of Ta ppeas affrmed.
The crcumstances are these:
In 1919 pettoner ordered 500,000 yards of coth from Woodward, adwn
Co., for devery between March and September, 1920, at 39 4 cents a yard.
Thrty thousand yards were devered n pr, 1920, made up Into cothng
and pad for. Pettoner camed the coth was not up to standard. ddtona
shpments came In unt ugust, 1920, totang 103,000 yards. These shpments
were pad for on the Invoce, takng advantage of the trade dscount, before
arrva of the goods covered thereby. In November, 1920, pettoner Invoced
the coth back to the seer and charged ts account wth the prce pus Interest
and e penses the amount now nvoved. In the sprng of 1921 efforts were
made to ad|ust the controversy, the seer offerng to take back the goods
and cance out the baance of the order f pettoner woud ether gve t a new
order for 300,000 yards at 26 cents a yard or pay 5 cents a yard for coth
undevered under the contract. It thus appears that the market prce had
materay decned snce the order was gven, and that each asserted a cam
aganst the other. Nothng came of these negotatons. Pettoner made the
coth up nto garments, usng t for nngs for whch cheaper coth ordnary
was used. No credt was gven the seer, nor the Government n ths cam,
for the vaue of the coth used. Nothng more occurred e cept occasona state-
ments by Mr. Lee to hs empoyees that he beeved the account coectbe,
unt 1927 when Mr. Lee tod hs audtor, for the frst tme, that he was n
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303
214(a)7, rt. 151.
doubt about coectng It In 1927 It was charged off. Mr. Lee ded n 1928
from an Iness wth whch he was strcken n 1927.
The petton to revew does not pont out the secton under whch the deduc-
ton s camed, merey assertng that the oard erred n hodng t s not a
ega oss and an aowabe deducton. The bref and ora argument are amost
as vague, the poston taken beng that the facts gve rse ether to a oss
sustaned durng the ta abe year and not compensated for by nsurance or
otherwse or a debt ascertaned to be worthess and charged off wthn the
ta abe year. (Sectons 234(a) 4 and 5, Revenue ct 1926, 44 Stat., 41.)
Counse ndcates no preference between these sectons whch are mutuay
e cusve (Sprng Cty Co. v. Commssoner, 292 U. S., 182, 189 Ot D. 829,
C. . III-1, 281 ) we are eft to understand that ether secton seected by
the court w be satsfactory to counse.
The record dscoses nether a oss nor a worthess debt durng the ta abe
year. ven f the coth was not up to contract, the seer was a arge and
responsbe concern, ampy abe to respond for breaches of contract. or the
same reason, the debt was not worthess, even f an unad|ucated cam for
breach of contract can be consdered a debt, as has otherwse been hed.
(DeweUyn v. ec Reducton Co., 275 U. S., 243, 246 Wadsworth Mfg. Co. v.
Commssoner (C. C. . 6), 44 . (2d), 762.) It Is a startng proposton that
a ta payer may, for reasons of hs own, decne to enforce a vad cam aganst
a responsbe concern and then assert that he has sustaned a busness oss
whch the Government shoud share. Obvousy, the mere refusa to perform
a contract does not |ustfy the deducton, as a oss, of the antcpated damages.
or, even an unquestonabe breach does not resut n a oss f the n|ured party
forgves or refrans from prosecutng hs cam. (Lucas v. mercan Code Co.,
280 C. S., 445, 450 Ct. D. 168, C. . I -1, 314 .) Pettoner suggests that t
mght not wn the sut, Intmatng that the seer mght have couutercamed
for breach of contract, or that a |ury mght fnd that the cam that the goods
were defectve was made because of the drop In the market. Perhaps so the
seer Is not In court, and t may very we be a court woud have found there
was no oss when both sdes were heard. In any event, pettoner dd not
choose to submt the controversy to a court.
Nor does the record dscose any Identfabe event by whch to assocate
the oss wth the 1927 ta year. It s sad that a awyer once tod an empoyee
that the statute of mtatons woud not run before 1927, but there Is no
statement that t ran n 1927. No appcabe ansas statute ran n 1927 f
the seer was a New York corporaton, we know of no 7-year statute n that
State. ven so, the statute of mtatons can not be used to convert a vad
cam aganst a responsbe debtor nto a deductbe oss or a worthess debt.
Mr. Lee was taken 111 n 1927, but that untoward crcumstance dd not render
worthess a the outstandng accounts of pettoner. In 1927 Mr. Lee e pressed
doubt as to the coectbty of the tem. The bass for that doubt s not ds-
cosed. The facts supportng the aeged breach of contract had not changed
the courts were st open the seer was st abe to respond to a |udgment.
The poston of pettoner comes to ths: ta payer has an absoute rght
to determne whether he sha requre a defautng contractor to make good
the oss occasoned by the defaut. If the ta payer decdes, for busness reasons
or from frendy motves, not to recoup hs oss from the defauter, then he
may deduct the oss from hs ta abe Income In the year n whch the decson
s made f that year happens to be one n whch he has a arge ncome, that s
a matter of no concern to the Government.
We can not subscrbe to such doctrne. efore a oss s deductbe under
ether secton of the statute, It must be an actua oss whch occurred durng
the ta abe year. The proof here fuy sustans the acton of the Commssoner
and the decson of the oard of Ta ppeas. In reachng ths concuson, we
have e amned the foowng authortes, among others, whch have some
bearng on the propostons decked: Sprng Cty Co. v. Commssoner (292
U. S., 182) Unted States Cartrdge Co. v. Unted States (284 U. S., 511
Ct D. 460, C. . I-1. 282 ) urnet v. Sanford d rooks Co. (282 U. S., 359
fct. D. 277, O. . -, 363 ) Letceyn v. eo. Reduetun Co. (275 U. S., 243)
Unted States v. Whte Denta Co. (274 U. S., 398) Darng v. Commssoner
(C. O. . 4) (49 . (2d), 111, certorar dened, 283 U. S., 806) very v.
Commssoner (C. O. . 5) (22 . (2d), 6 T. D. 4116, C. . II-1, 155 ) :
Commssoner v. Thatcher (C. O. . 2) ( . (2d), (decded pr 8, 103o))
Oympa arbor Dumber Co. v. Commssoner (O. C. . 9) ( . (2d),
(decded ugust 12, 1935)).
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214(a)8, rt. 161.
804
If there was a oss, the record Is sent as to the amount of It, for these
goods were used In makng garments, and e cept for the sketchy statement that
trmmngs reatvey cost us 14 cents a yard for 52.85 weght, we hare no Idea
how much of the oss has been thus recouped.
ffrmed.
S CTION 214(a)8. D DUCTIONS LLOW D
INDI IDU LS: D PR CI TION.
rtce 161: Deprecaton. -12-8010
Ct D. 1095
INCOM T R NU CTS O 1917, 1918, 1921, 1924, ND 1926 D CISION
O COURT.
1. Deducton Deprecaton Obsoescence 999-Yeab Lease.
Where the essee under a 999-year ease, entered Into In 1912,
agreed to renew, repar, and repace the eased premses so as to
mantan them n ther then state of effcency, and to furnsh at
ts own cost a new equpment, and, so far as appeared from the
evdence, the terms of the ease were strcty carred out, the essor
was not entted, upon the termnaton of the ease by canceaton,
In 1927, to any deducton for deprecaton on account of e hauston,
wear and tear. In the absence of proof of the cost or far market
vaue, as of Marcb 1, 1913, of property abandoned or sod, or of
any amount whch mght be aocabe to obsoescence, the essor was
not entted to deducton on account of obsoescence or oss sus-
taned as to such property.
2. Certorar Dened.
Petton for certorar dened October 14, 1935.
Unted States Crcut Court or ppeas for the fth Crcut.
Georga Raway d ectrc Co. et a., pettoners, v. Commssoner of Interna
Revenue, respondent.
Petton for revew of decson of Unted States oard of Ta ppeas (dstrct of Ueorga).
efore ryan, oster, and utcheson, Crcut udges.
une 1, 1935.
opnon.
rtan, Crcut udge: On anuary 1, 1912, the Georga Raway ectrc
Co. eased a Its property of every descrpton, Incudng ts street raway,
eectrc ght nud heatng pants, to the Georga Raway Power Co. for a
term of 999 years. In 1927 the essor and the essee were merged n the Georga
Power Co., and the ease was canceed. The Commssoner of Interna Revenue
In determnng defcences n the essor s Income ta es for the years 1917 to
1920, Incusve, refused to aow to t any deducton on account of deprecaton
of the eased property, and the defcences assessed by hm were sustaned by
the oard of Ta ppeas. Pettons by the essor and by the Georga Power
Co. as transferee brng the oard s decson here for revew. The amount of
deprecaton sustaned n operatng the eased property year by year was agreed
upon. The ony queston before us stpuated by the partes to be whether the
essor s entted to the deductons for deprecaton.
y the terms of the ease the essee bound tsef to pay the essor as ret,
wthout any deducton oven for ta es, a quartery dvdend of per cent
on preferred shares, and 2 per cent on common shares, of ts capta stock
to renew, repar and repace the same, so as to mantan and keep the
demsed premses n as good order, repar and condton as the same now
are and n ther present state of effcency and to furnsh at t own cost
a new equpment. The essee was gven the rght to se any property whch
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305
214(a)8, rt. 161.
It deemed worn, damaged, or no onger sutabe or necessary for Its purposes,
provded the proceeds of every such sae shoud ether be apped to the subst-
tuton of property equa n vaue to that sod, or e pended to ncrease the
vaue of the remanng property and to se the essor s treasury stock and
bonds for the purpose of makng permanent mprovements and addtons other
than those whch t was obged to make at ts own e peuse. t the e praton
or earer termnaton of the ease, the essee was to surrender the eased
property wth a mprovements, addtons and betterments, e cept such as
had been dsposed of, and the essor was to pay to the essee the actua vaue
of a e tensons, mprovements, renewas and betterments, e cept such as
had been pad for out of proceeds of the sae of the essor s property, or In
the renewa of or substtuton for demsed premses. The pettons before
he oard aeged n genera terms that the essor was entted to deprecaton.
The oard, treatng those pettons to mean that the pettoners were camng
deductons ony for e hauston, wear, and tear of the physca property, hed
that, snce the essee was requred by the ease to make good n deprecaton
resutng from renewas and repacements, the essor was not entted to any
aowance on account of deprecaton, ctng . Whem Co. v. Commssoner
(6 . T. ., 1) and Commssoner v. Terre aute eotro Co. (67 P. (2d), 697
Ct D. 838, C. . III-1, 295 ). On a rehearng pettoners ntroduced ev-
dence for the purpose of showng that the essor had sustaned osses resutng
from the abandonment and sae of some of the eased property on account
of obsoescence, and that the ease, because of ths practca constructon thus
paced upon t by the partes n the course of ther deangs wth each other,
shoud be construed to mean that t was ther ntenton that a such osses
shoud be borne by the essor. ut as no evdence was submtted of the
cost of the property whch was abandoned and sod, or of ts market vaue
as of March 1, 1913, the oard, among other thngs, hed that the oss camed
had not been proven, for the reason that the cost or the far market vaue
as of that date, whchever was greater, was the bass for determnng gan
or oss on the sae or other dsposton of property acqured, as a the essor s
property had been, pror to March 1, 1913. (26 U. S. C. ., secton 935(b).)
Pettoners contend that they were reeved of the burden of provng the cost
of the property abandoned and sod, because the tota amount of the depreca-
ton sustaned was not In dspute but even so, and assumng that obsoescence
was ncuded wthn the genera term deprecaton aong wth e hauston, wear
and tear, t woud be necessary to know the amount aocabe to obsoescence,
at east n the event the essor was not entted to any aowance for e hauston,
wear and tear. The partes agreed ony to the tota amount of deprecaton
sustaned by the property, but they dd not agree that the essor was entted
to any of t. We therefore agree wth the oard n ts decson that no
eowance shoud be made on account of obsoescence, or oss sustaned n the
abandonment or sae of eased property.
We agree aso that the essor s not entted to any aowance for depreca-
ton resutng from e hauston, wear and tear. The ease requred the essee
at ts own e pense to make a repars, renewas, and repacements. The
essee, n the event t e ercsed the rght to se any property that had become
worn, or unsutabe for further use, was obged to substtute other property,
or to appy the proceeds of that sod to ncrease the vaue of the remanng
property. It had the rght to make permanent mprovements and addtons,
and to receve credt therefor at the termnaton of the ease, e cept for such
as had been pad for out of the proceeds of the sae of the essor s property,
and such as had been made n renewa or substtuton. Ceary, under these
provsons of the ease, the oss resutng from renewas and repacements, and
from the e hauston, wear, and tenr of the property generay, was to be borne,
not by the essor, but by the essee. Commssoner v. Terre aute ectrc Co.,
supra, s, as we thnk, drecty n pont. In anguage dentca wth that
empoyed In the ease before us the essee was there requred to bear the
e pense of renewas, repars, and repacements, and because ths was so the
essor was hed not to be entted to deducton from hs ncome for depre-
caton. We aso thnk that case was rghty decded. The rung In Wess v.
Wener (279 U. S., 333 Ot D. 60, O. . III-1, 257 ), that a essee who had
made no Investment was not entted to an aowance for deprecaton, s equay
appcabe to a essor who kewse has suffered no oss resutng from depre-
caton. There s no evdence whatever to sustan the contenton of the pet-
toners that the essor, though not requred by the ease to do so, bore the
osses resutng from e hauston, wear, and tear, and requred the essee to
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230, rt. 502.
306
bear ony the cost of current mantenance and repars. Nor Is there any
evdence that the essor pad or bore any of such osses. It does not appear
therefore that when the ease was termnated by canceaton, and the essor
and the essee were both merged In the Georga Power Co., the essee owed the
essor anythng on account of osses for deprecaton. So far as appears the
ease whe t asted underwent no change as a resut of anythng the partes
dd n carryng t out, but was enforced strcty accordng to ts terms and
provsons.
The pettons for revew are dened.
S CTION 219. ST T S ND TRUSTS.
rtce 341: states and trusts.
R NU CTS OP 1924 ND 1926.
Trust deed amended so that separate account opened for each bene-
fcary. (See Ct. D. 1071, page 246.)
rtce 341: states and trusts.
R NU CTS O 1924 ND 1926.
Trust deed amended so that separate account opened for each
benefcary. (See Ct. D. 1072, page 245.)
rtce 347: Income of trusts ta abe to grantor.
R NU CT O 1920.
teraton or termnaton of trust by commttee, provded settor
does not ob|ect. (See Ct. D. 1117, page 248.)
P RT III. CORPOR TIONS.
S CTION 230. T ON CORPOR TIONS.
rtce 502: Rates of ta . -24-8124
Ct. D. 1126
INCOM T R NU CT O 1918 D CISION O COURT.
Income pportonment or Ta Raroad Company Under ed-
era Contro for Porton or Ta abe Year.
In computng the ta abty of a raroad company for the
year 1820, the net ncome for the entre year shoud be frst com-
puted and the ta then apportoned on the caendar year bass
at the rate of 8 per cent for the 2-month perod durng whch the
company was under edera contro and at the rate of 10 per cent
for the remander of the year, under the provsons of the Rev-
enue ct of 1918 and the edera Raroad Contro ct of March
21, 1918.
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307
( 230, rt. 502.
UfTT ) States Gbcutt Coubt of ppeas fob the ourth Crcut.
Southern Raway Co., for Itsef and Its ffated Corporatons, pettoner, v.
Commssoner of Interna Revenue, respondent.
On petton to revew the decson o the Unted States oard of Ta ppeas.
efore Pabkeb and Sopeb, Crcut udges, and Chesnut, Dstrct udge.
anuary 6, 1936.
OPINION.
Pabkeb, Crcut udge: Ths s the second petton to revew a decson of
the oard of Ta ppeas In Os case. On the frst ton (74 ed. (I d),
887), we hed that, n computng Income ta for the year 1920, an undernan-
tenance aowance of 12,805,933.68 to the ta payer by the Drector Genera
of Raroads shoud not be used to dmnsh the ta payer s deducton on account
of e pendtures for mantenance and upkeep made durng the ast 10 months
of the year 1920, foowng the termnaton of Government contro. The oard
of Ta ppeas, upon remand, recomputed the ta for the year 1920, aowng
the ta payer as a deducton the fu amount of the e pendtures camed, and
ta ng 60/366 of the annua Income thus ascertaned at 8 per cent, the amount
of the so-caed war ta , and the remander at 10 per cent, the amount of the
war ta pus the norma ta of 2 per cent 60/366 was the porton of
the year that the raroad was under edera contro and what the oard
dd was to ta a correspondng porton of the annua ncome at 8 per cent
and the remander at 10 per cent
The contenton of the ta payer Is that, Instead of computng the net ncome
for the ta year and apportonng t for ta aton n accordance wth the por-
ton of the year that the property was under edera contro, the net Income
of each porton of the year shoud be separatey computed and the e pendtures
for mantenance and upkeep made durng the 10-month perod foowng the
termnaton of edera contro shoud be deducted from Income earned durng
that perod. In other words, the oard of Ta ppeas computed the net
Income for the year and dvded t on the caendar bass for purpose of ta aton
at the dfferent rates appcabe. The ta payer contends that the net ncome
of the 2 months of contro shoud be computed separatey from the Income of
the succeedng 10 months and that the 8 per cent and 10 per cent rates shoud
be apped to the actua ncome of the two separate perods as thus computed.
The dfference n resut Is some 43,000.
Some confuson n thnkng wth respect to the case resuts from consderng
as aw what the partes have agreed s the practca effect of the aw, 1. e.,
that the Income of the edera contro perod s ta abe at 8 per cent and that
of the perod foowng contro at 10 per cent. When the aw Itsef s con-
sdered, there s no confuson and the decson of the oard Is ceary rght.
There was mposed by the Revenue ct of 1916 a norma ta of 2 per cent
on the ncome of corporatons. See ct of September 8, 1916 (39 Stat., 76. )),
and ct of March 3, 1917 (39 Stat., 1000). The War Revenue ct of October
3, 1917, Imposed a speca war ta of 4 per cent on the ncome of corporatons,
In addton to the norma ta of 2 per cent mposed by the Revenue ct of
1916. (See 40 Stat., 302.) The edera Raroad Contro ct of March 21,
1918 (40 Stat., 451), provded n secton 12 thereof that moneys derved from
the operaton of the raroads under edera contro shoud be dsbursed for
e penses of operaton, payment of ta es and other pun osps as specfed n
the ct, wth the e cepton, however, that ncome and e cess profts ta es
mposed by the War Revenue ct of October 3, 1917 (-10 Stat., : 02), shoud
be pad by the carrers out of ther own funds. The Revenue ct of 1918
(40 Stat., 1057, 1075, 1076) Imposed an Income ta of 10 per cent on corpora-
tons for years subsequent to the year 1918 and provded that, for the purposes
of the edera Raroad Contro ct of March 21, 1918, four-ffths of the a
so mposed shoud be treated as eved by an amendment to the War Revenue
ct of 1917. It resuted, therefore, that of the 10 per cent ncome ta m-
posed by the Revenue ct of 1918 on raroads, 2 per cent was norma ta
and was to be borne by the Drector Genera whereas 8 per cent was war ta
and was to be borne by te raroads out of ther own funds. (See aso 40
8tat, 452 ppea of New York, Ontaro d Western Ry. Co., 1 . T. ., 1172.)
There s nothng n the Revenue ct of 1918 whch provdes for the assess-
ment of ncome ta es otherwse than on the annua bass customary foowed.
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233, rt. 545.
308
On the contrary, that ct e pressy drects what sha be Incuded In gross
Income of the ta abe year (sectons 213 and 230) and what deductons sha
be aowed In arrvng at net Income. Sectons 214 and 234. Ony In secton
12 of the edera Contro ct of 1918 (40 Stat., 457) s provson made fop
apportonment of ta es where edera contro ends durng a ta abe year
and the provson there s for apportonment of, ta es, not apportonment of
ncome. The appcabe provson s as foows:
If edera contro begns or ends durng the ta year for whch any ta es
so chargeabe to raway ta accruas are assessed, the ta es for such year
sha be apportoned to the date of the begnnng or endng of such edera
contro, and dsbursements sha be made ony for that porton of such ta es
as s due for the part of such ta year whch fas wthn the perod of
edera contro.
s the ta on the net ncome of the raroad for the year 1920 was not
assessed or payabe unt the foowng year, It s cear that the ncome ta
for the entre year woud fa on the raroad e cept for the provson whch
we have quoted requrng apportonment and, as the 8 per cent war ta Is
to be borne by the raroad n any event, the provson as to apportonment.
In so far as t affects edera Income ta , s appcabe ony to the 2 per cent
norma ta . In other words, the Revenue ct of 1918 mposes a ta of 10
per cent on the raroad s ncome, of whch 2 per cent s norma ta and 8
per cent s war ta and the edera Raroad Contro ct provdes that the
2 per cent norma ta sha be apportoned between the raroad and the
drector In accordance wth the perod of the year fang under edera
contro, whereas the whoe of the 8 per cent ta sha be borne by the raroad.
pportonng the 2 per cent ta between the drector and the raroad on ths
bass and mposng the 8 per cent ta on the raroad aone, s the same as
mposng 8 per cent on 60/366 of the net Income for the year and 10 per cent
on the remander, as 60/366 of the year was the porton of edera contro.
There s, of course, no dfference between reevng the road of the 2 per cent
rate durng 60/366 of the year, and reevng t of 60/306 of the ta computed
at that rate for the entre perod.
The Mroad concedes that ts other ta es for the year 1920 were propery
apportonabe on the caendar bass under the provson of the statute quoted
and we see no reason why ncome ta es shoud not be treated In the same way.
though Income s earned from day to day and from month to month, It Is
we setted that the ta mposed by the edera statute s on an annua Income
( urnet v. Sanford d rooks Co., 282 U. S., 359 Ct. D. 277, C. . -, 363 )
and there Is no authorty In the statute or esewhere for attrbutng any par-
tcuar porton of the ta eved on annua ncome to any partcuar porton of
the ncome. The anguage of the statute s cear that t s the ta and not the
ncome whch s to be apportoned and when ths Is grasped, t s ready seen
that the caendar bass, admttedy apped In the case of other ta es, Is the
ony bass of apportonment possbe. Ths was the decson of the oard n
Unon Pacfc R. Co. v. Commssoner (26 . T. ., 1126, 1145) and we know
of no decson anywhere to the contrary.
The decson appeaed from w be affrmed.
S CTION 233. GROSS INCOM O CORPOR -
TIONS D IN D.
rtce 545: Sae and retrement of corporate -16-8051
bonds. Ct. D. 1106
ncome ta revenue act of 1924 decson of court.
Deducton Unamortzed Dscount, Premums, and penses on
Retrement ok onds.
company whch kept ts books on the accrua bass Issued
bonds at a dscount n 1921, wth the rght to redeem ether for
cash or for cash and certan other bonds of equa face vaue.
Pror to December 31, 1923, certan of the bonds had been re-
deemed for cash and the then unamortzed dscount and e pense
aocabe thereto had been charged off n the year of retrement.
In 1924 the remanng bonds were caed for redempton, some of
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309
233, rt. 545.
the hoders eectng to receve In e change bonds and cash, and
the others eectng to receve cash. Under these facts, the com-
pany was not entted, under secton 234(a) of the Revenue ct
of 1924, to a deducton n 1924 of the premums, e penses, and
unamortzed dscount appcabe to the bonds retred by e change
for other bonds. Upon the substtuton of the new obgaton for
the od, the remanng unamortzed e pense of Issue of the orgna
bonds and the e pense of the e change shoud be amortzed an-
nuay throughout the term of the bonds devered n e change
for those retred.
Supreme Coubt of the Unted States.
On wrt of certorar to the Unted States Crcut Court of ppeas for tbe Second Crcut.
Great Western Power Co. of Caforna, pettoner, v. CommUsoner of Interna
Revenue.
March 16, 1936.
OPINION.
Mr. ustce Roberts devered the opnon of the Court.
The partes dsagree as to pettoner s rght to deduct from gross ncome
for 1924 unamortzed dscount, premums, and e penses pad and ncurred n
that year n connecton wth the retrement of certan bonds. The pettoner
took the deducton n ts Income ta return. The respondent dsaowed t and
determned a defcency. The pettoner appeaed to the oard of Ta ppeas
whch hed the deducton proper.1 The crcut court of appeas reversed the
oard s decson n part. We granted the wrt to resove a confct.
March 1, 1919, the company e ecuted a mortgage securng four seres of
bonds, one of whch was desgnated Seres 7 . ebruary 1, 1921, the
company e ecuted another mortgage, securng bonds known as Genera Len
Convertbe 8 God onds, and thereby covenanted to depost and pedge
wth the trustee seres 7 s equa In par vaue to the genera en 8 s at
any tme outstandng. The Indenture provded that when ths shoud be ac-
compshed the debtor shoud have the rght to redeem the genera 8 s at 105
and accrued nterest, the hoders to have the opton to receve cash or seres
bonds, of equa face vaue, pus 5 per cent In cash. The genera en 8 s
were ssued at a dscount of 150,000 and an -e pense of 22,283.54. Pror to
December 31, 1923, certan genera en 8 s had been redeemed for c:sh and
the then unamortzed dscount and e pense aocabe to the bonds retred
had been charged off In the year of retrement. May 8, 1024, the company
caed the remanng outstandng genera en 8 s for redempton ugust 1,
1924. The hoders of 2,354,000 face vaue e ercsed the opton to e change
for seres 7 s at par and a cash premum of 5 per cent. The tota premum
pad to them was 117,725 and the e pense of the converson was 1,401.05.
The unamortzed dscount and e pense of ssuance n respect of the genera
en 8 s thus e changed, at the date of e change, was 126,176.97. or the
remanng genera en 8 s, whch were not e changed for seres 7 s, cash
was pad at the rate of 105 per cent of par and the company ncurred certan
e penses n the transacton. The tota of the premum, the e pense, and the
unamortzed dscount appcabe to a of the bonds redeemed for cas or
In e change for seres bonds was charged off n 1924 and taken as a de-
ducton from Income for that year. The company keeps Its accounts on the
accrua bass. The Commssoner dsaowed the entre deducton, but before
the oard he admtted the proprety of so much of t as apped to bonds
redeemed for cash. e nssted, however, that as to those retred by e change
of the seres 7 s the dscount, premum, and e pense shoud be amortzed
over the fe of the atter. The oard overrued hs contenton, but tbe crcut
court of appeas sustaned t, hodng that the tems woud not be deductbe
as reazed osses unt payment or redempton of the seres bonds, and
shoud be amortzed n annua nstaments durng ther term.
Secton 234(a) of the Revenue ct of 1924 drects that n computng the
net ncome of a corporaton sub|ect to the ta there sha be aowed as
30 . T. ., 603.
79 . (2d), 84.
an oaqun L. P. Corporaton v. McLaughn, Coector (65 . f2d). 677).
Ch. 234, 43 Stat., 253.
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257, rt. 1090.
310
deductons ordnary and necessary e penses pad or Incurred durng the
ta abe year n carryng on the busness, Interest pad or accrued wthn
the year on ndebtedness, and osses sustaned durng the year not com-
pensated by nsurance or otherwse. The Treasury promugated a regua-
ton under the Revenue ct of 1918 coverng treatment of dscounts and
premums, whch, wth mmatera changes, has remaned n force under a
the Revenue cts and appears as artce 545 of Reguatons 65 appcabe to
the Revenue ct of 1924.1
though the artce does not e pressy cover the Items n queston other
than dscount and premums pad at redempton, e pense n connecton wth
the ssuance of the securtes Is deductbe on the same theory as unamortzed
dscount It has accordngy been hed that where an ssue of bonds s re-
tred for cash, whether the cash be obtaned by the sae of a new ssue or not,
the tems n queston are deductbe n the year of retrement.
The queston then s whether, upon an e change of one obgaton for an-
other whch s to be retred, the transacton s to be vewed as f the retre-
ment were accompshed by the payment of cash. If the retred bonds had
not been caed, the e pense tems ncurred In connecton wth ther ssuance
woud propery be amortzed over the remander of ther fe. ere the
pettoner substtuted a new obgaton for the od. The remanng unamortzed
e penses of ssue of the orgna bonds and the e pense of the e change are
both e penses attrbutabe to the Issuance of the new bonds and shoud be
treated as a part of the cost of obtanng the oan. They shoud, accordngy,
be amortzed annuay throughout the term of the bonds devered n e change
for those retred.
The udgment of the crcut court of appeas s affrmed.
ffrmed.
S CTION 240. CONSOLID T D R TURNS O
CORPOR TIONS.
rtce 632: Consodated returns.
R NU CT OP 1918.
greement as to payment of ta , estoppe. (See Ct. D. 1120,
page 283.)
P RT I DMINISTR TI PRO ISIONS.
S CTION 257. R TURNS TO
PU LIC R CORDS.
rtce 1090: Inspecton of returns. -17-8064
T. D. 4637
Reguatons governng the Inspecton of Income, profts, and
capta stock ta returns by the Speca Commttee Investgatng
Od ge Penson Organzatons, ouse of Representatves.
rt. 545. Soe and retrement of corporate bond .
(3) (a) If bonds are Issued by a corporaton at a dscount, the net amount of anch
dscount s deductbe and shoud be prorated or amortzed over the fe of the bonds.
(6) If thereafter the corporaton purcnses and retres any of such bonds at a prce n
e cess of the Issung prce pns any amount of dscount nready deducted, the e cess of the
purchase prce over the ssung prce pus any amount of dscount aready deducted (or
over the face vaue mnus any amount of dscount not yet deducted) s a deductbe e -
pense for the ta abe year, (c) If, however, the corporaton purchases and retres any
of such bonds at a prce ess than the ssung prce pus any amount of dscount aready
deducted, the e cess of the Issung prce pus any amount of dscount aready deducted
(or of the face vaue mnus any amount or dscount not yet deducted) over the purchase
prce Is gan or Income for the ta abe year.
everng v. Unon Pac. R. R. Co. (203 U. S., 282 Ct. D. 001, C. . III-2, 805 )
everng v. Ca . Oregon Pr. Co. (16 . (2d), 644).
everng v. Cat. Oregon Pr. Co., supra: everng v. Centra state ec. Corporaton
(76 . (2d). 1011) everng v. Unon Pub. Serv. Co. (75 . (2d). 723 T. D. 4608
C. . I -2, 88 ).
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311
257, rt. 1090.
Treasury Department,
Washngton, D. C, pr 20, 1936.
To Coectors of Interna Revenue and Others Concerned:
Pursuant to the provsons of secton 257(a) of the Revenue ct
of 1926 secton 55 of the evenue ct of 1928 secton 55 of the
Revenue ct of 1932 secton 215(e) of the Natona Industra
Recovery ct and secton 55(a) and secton 701(e) of the Revenue
ct of 1934, ncome and profts ta returns made under the Revenue
ct of 1934 and under the pror Revenue cts, and capta stock
ta returns made under the Natona Industra Recovery ct and
the Revenue ct of 1934, may be nspected by the Speca Commt-
tee Investgatng Od ge Penson Organzatons, apponted under
ouse Resouton 443, Seventy-fourth Congress, second sesson,
passed March 10, 1936, for the purpose of, and to the e tent neces-
sary n the nvestgaton whch the commttee s authorzed and
drected to make by ouse Resouton 443. The nspecton of re-
turns heren authorzed may be by the commttee or by or through
such e amners or agents as the commttee may desgnate or appont.
Upon wrtten notce by the charman of the commttee to the Secre-
tary of the Treasury, gvng the names and addresses of the ta -
payers whose returns t s necessary to nspect and the ta abe
perods covered by the returns, the Secretary and any offcer or
empoyee of the Treasury Department sha furnsh such commttee
wth any data reatng to or contaned n any such return, or sha
make such return avaabe for nspecton by the commttee or by
such e amners or agents as the commttee may desgnate or appont,
n the offce of the Commssoner of Interna Revenue. ny nfor-
maton thus obtaned by the commttee whch s reevant or pertnent
to the purpose of the nvestgaton, may be submtted by the com-
mttee to the ouse of Representatves.
Wayne C. Tayor,
ctng Secretary of the Treasury.
pproved.
rankn D. Roosevet,
The Whte ouse.
( ed wth the Dvson of the edera Regster pr 24, 1936, 3.03 p. m.)
CUTI ORD R INSP CTION O INCOM , PRO ITS, ND C PIT L STOC
T R TURNS Y T SP CI L COMMITT IN STIG TING OLD G P N-
SION ORG NIZ TIONS.
y vrtue of the authorty vested n m by secton 257(a) of the
Revenue ct of 1926 (ch. 27, 44 Stat., 9, 51) secton 55 of the Reve-
nue ct of 1928 (ch. 852, 45 Stat., 791, 809) secton 55 of the Reve-
nue ct of 1932 (ch. 209, 47 Stat., 169, 189), as amended by secton
218(h) of the Natona Industra Recovery ct (ch. 90, 48 Stat.,
195, 209) secton 55(a) and secton 701(e) of the Revenue ct of
1934 (ch. 277, 48 Stat., 680, 698, 770) and secton 215(e) of the
Natona Industra Recovery ct (ch. 90, 48 Stat., 195, 208), t s
hereby ordered that ncome, profts, and capta stock ta returns
made under the Revenue ct of 1934, the Natona Industra Recov-
ery ct, the Revenue ct of 1932 as amended by the Natona Indus-
tra Recovery ct, and the pror Revenue cts sha be open to
nspecton by the Speca Commttee Investgatng Od ge Penson
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270, rt. 1203.
812
Organzatons, apponted under ouse Resouton 443, Seventy-
fourth Congress, second sesson, passed March 10, 1936, such nspec-
ton to be n accordance and upon compance wth the rues and
reguatons prescrbed by the Secretary of the Treasury n the
Treasury Decson reatng to the nspecton of returns by that com-
mttee approved by me ths date.
rankn D. Roosevet.
The Whte ouse,
pr 20, 1936.
(7350)
( ed wth the Dvson of the edera Regster pr 23,1936,1050 a. m.)
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 LT, P ID.
rtce 1203: Coecton of ta by sut. -21-8098
Ct. D. 1119
D R L T S UDICI L COD D CISION O SUPR M COURT.
Statute of Lmtaton ppea to Crcut Court of ppeas
Orgna and mended Decree.
Where the |udge of a dstrct court made an order e tendng the
term of the court so that necessary changes mght be made n a
decree entered n a sut by the Unted States to set asde certan
deeds of and, e ecuted by the ta payer at a tme when he was
ndebted to the Unted States for ta es, appeas to the crcut court
of appeas were tmey where taken wthn the tme aowed by
statute from the date of the amended decree. The effect of the
order was to suspend the operaton of the orgna decree so that
no appea coud be taken from t unt t had been amended or
confrmed.
Supreme Court of the Unted States.
Samue Zmmern et a., pettoners, v. The Unted States of merca.
On wrt of certorar to the Unted States Crcut Court of ppeas for the fth Crcut.
pr 27, 1036.
OPINION.
Mr. ustce Cardozo devered the opnon of the Court
The queston In ths case Is whether the pettoners appeaed to the crcut
court of appeas wthn the tme prescrbed by aw.
The Unted States brought sut to set asde a deed by Samue Zmmern to
hs wfe, acd another deed, In whch the wfe oned, to hs chdren, a sepa-
rate parce of rea estate beng the sub|ect of each. t the tme of the con-
veyance Samue Zmmern was ndebted to the companant for a defcency
of ncome ta es duy assessed aganst hm. The deeds were attacked upon
the ground that they had been made wthout consderaton and wth fraudu-
ent ntent The dstrct court after a tra sustaned the charge of fraud and
gave |udgment n favor of the companant for the reef prayed for n the
b. Its decree, whch was entered on March 3, 1934, drected a sae of the
two parces, and the payment of the proceeds to the Unted States to be
apped upon the ta es after deductng what was due to the wfe by reason
of a homestead e empton aowed by the oca aw. Nothng was sad In the
decree as to the e cepton or reservaton from the sae of her nchoate rght of
dower.
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313
270, rt. 1204.
The term at whch the cause was tred woud have e pred, uness e tended,
w May 28, 1934. owever, before that date, the |udge made an order e tend-
ng the term for 90 days, the order beng prefaced wth the foowng recta:
It appearng to the court that a decree was entered n ths cause on March S,
1934, and for good reason shown t w be necessary to modfy or amend sad
decree. 1 No petton for rehearng n behaf of the wfe, Lea Zmmern,
appears n the record, nor any moton for an amendment. petton n behaf
of Samue Zmmern does appear, but t was fed on ugust 11, 1934, when the
tme to appea had aready gone by f the orgna decree was then presenty
In force. (Cf. Conboy v. rst Natona ank of ersey Cty, 203 U. S., 141,
145.) Two days ater the udge made an order amendng the decree by drect-
ng that the sae be sub|ect to any dower rghts of the wfe, and n a other
respects denyng whatever motons were before hm. ppeas by a the defend-
ants were taken and aowed. Under the appcabe statute (28 U. S. C, secton
230), the appeas were too ate f the tme s to be computed from the date of
the decree as orgnay entered. They were reguar f the tme s to be com-
puted from the date of the amendment. The court of appeas hed that what
had been corrected by the amendment was an accdenta sp or omsson, not
affectng the Issues n sut ( edera quty Rue 72), and noperatve to to the
statute. ccordngy, the appeas were dsmssed, two opnons beng wrtten,
one upon the orgna hearng and the other upon rehearng. (79 . (2d), 703
80 . (2d), 993.) Ths Court granted certorar to revew a rung as to prac-
tce that mght tend, f erroneous, to ntroduce confuson nto the aw.
We thnk the decson msapprehends the effect of the order of May 11, 1934,
In whch the |udge who had tred the cause decared hmsef dssatsfed wth
the decree that he had made, and to gve hmsef an opportunty to make the
necessary changes e tended the term then drawng to a cose. e dd not mt
the amendment to matters of form ony as dstngushed from those of sub-
stance. e dd not act, bo far as the record shows, at the nstance of the
defendants, st ess upon a showng of error n ony one partcuar. e stated
broady and, for a that appears, of hs own moton that changes must be
made, and wthout a word to Indcate whether he meant them to be great or
tte. We thnk the effect of that order was to suspend the operaton of the
decree so that no appea coud be taken from t unt t had been amended or
confrmed, and ts vgor thus restored. Unt such acton had been taken t was
no onger a decree at a. The |udge had penary power whe the term was n
e stence to modfy hs |udgment for error of fact or aw or even revoke t
atogether. (Doss v. Tyack, 14 ow., 297, 313 asset v. Unted States, 9 WaL,
38, 41 ronson v. Schuten, 104 U. S., 410, 415 enderson v. Carbondae Coa
Coke Co., 140 U. S., 25, 40.) naty was ackng unt hs choce had been
announced.
The appeas beng tmey, the decree whch dsmssed them shoud be reversed,
and the cause remanded to the Court of ppeas for the fth Crcut for
farther proceedngs In harmony wth ths opnon.
It Is so ordered.
btce 1204: Coecton of ta by dstrant. -19-8078
Ct. D. 1113
INCOM T R NU CT OP 1920 R IS D ST TUT S D CISION OP
COURT.
1. Dstrant nnuty and Lra Insurance Poces Interest
or enefcary Loca Law.
Where the coector of nterna revenue sezed and advertsed
for sae, under warrants of dstrant for coecton of Income ta es,
an annuty contract and certan fe Insurance poces ssued upon
the fe of the ta payer, the annuty contract was sub|ect to ds-
1 or greater certanty the terms of the order are here stated n fu:
It appearng to the court that a decree was entered n ths cause on March 3, 1934,
and for good reason shown t w be necessary to modfy or amend sad decree,
It s, therefore, ordered and ad|udged by the court that the November term of ths
court whch e pres on the 28th day of May, 1934, be, and the same 1b, e tended for nnety
(90) days from that date, n whch tme a matters and orders n connecton wth ths
cause and the amendments of the decree may be entered.
Done ths 11th day of May, . D. 1934.
Robert T. evn, udge.
84320 88 11
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270, rt. 1204.
314
trant, bat, as to the Insurance poces, whch desgnated the
Insured s wfe as benefcary, wth rght reserved to hm to revoke
and change such desgnaton, the ta payer s wfe had an nterest
n the poces whch was not sub|ect to sae for her husband s
ta es, and the effort to se the entre poces, ncudng the
wfe s nterest theren as recognzed by the oca aw, shoud be
en|oned.
2. Decson ffrmed n Part and Reversed n Part.
Decson of the Unted States Dstrct Court, Dstrct of Coo-
rado (10 ed. Supp., 718 Ct D. 090, O. . 1 -2, 319), affrmed
n the case of No. 1290, and reversed n the case of No. 1289.
Unted States Crcut Court of ppeas for tub Tenth Crcut.
No. 1289. Margaret R. Cannon, appeant, v. Raph Nchoas, at Coector of
Interna Revenue, appeee.
No. 1290. . rown Cannon, appeant, v. Raph Nchoas, as Coector of
Interna Revenue, appeee.
ppeas from the Dstrct Court of the Unted States for the Dstrct of Coorado.
December 9, 1935.
opnon.
McDermott, Crcut udge, devered the opnon of the court.
To coect Income ta es for 1928 due from . rown Cannon, the coector
sezed under warrant of dstrant three poces of nsurance upon the fe
of Cannon, and one annuty contract ssued to hm. The coector then adver-
tsed for sae at pubc aucton those poces and the contract, descrbng them
ony as
Three fe Insurance poces Issued by the Capto Lfe Insurance Co. of
Denver, Coo., upon the fe of . rown Cannon as foows: One for the um
of 10,000 one for the sum of 5,000 one for the sum of 2,000 one annuty
nsurance pocy Issued by the Traveers Insurance Co. of artford, Conn.,
upon the fe of . rown Cannon for the sum of 25,000.
efore the sae date, these suts were brought to quash the warrant of
dstrant the poces were deposted wth the court to abde the tgaton,
and the sae caed off. The essenta facts were stpuated, and the bs ds-
mssed on ther merts.
No. 1290: Ths case nvoves the annuty contract, and Mr. Cannon s the
pantff. On September 1, 1928, for a snge premum of 25,000, the ssung
company agreed to pay Cannon 1,000 a year durng hs fe, and upon hs
death to pay hs e ecutors 825,000 pus a proporton of the current annuty.
The cash and oan vaue of ths contract when the evy was made, was 24,375,
aganst whch Cannon had borrowed 20,272.34.
There s tte room for the argument that ths arge sum, nvested n an
annuty. Is e empt from ta es f ta payers coud nvest ther fortunes In
annutes and stand aoof when the ta coector comes around, payment of
ta es woud be too often a vountary matter. To coect ts revenues, the power
of the Government over the property of the ta payer s penary. State e -
empton aws, e propro vgore, do not appy. nk v. O Ne, 100 U. S., 272.)
Congress has not In the revenue aws, as t dd n bankruptcy, recognzed State
e empton statutes nor has t e empted ether annuty contracts or fe Insur-
ance poces.
The statutes governng the coecton of ta es are broad and comprehensve.
y 26 U. S. C. ., secton 115, ta es are decreed to be a en upon a prop-
erty and rghts to property, whether rea or persona beongng to the ta -
payer. y secton 116 the coector s authorzed to coect by dstrant or sae
the goods, chattes, or effects, Incudng stocks, securtes, bank accounts,
and evdences of debt of the denquent y secton 117 the coector Is
authorzed to evy upon a property and rghts to property, e cept such as
are e empt by the precedng secton, beongng to such person, or on whch
the sad en e sts. y secton 118 a persons are requred on demand of
a coector who has or Is about to dstran on any property, or rghts of
property to e hbt a books, etc. y secton 129 the coector s authorzed
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315
270, rt. 1204.
to seze and se any of the property, rea or persona (e cept property e -
empt from dstrant and sae, under secton 3178 (26 U. S. 0. ., 116) of the
Revsed Statutes), or any rght or nterest theren. y 26 U. S. 0. ., 1268(a),
any person In possesson of property, or rghts to property, sub|ect to ds-
trant, upon whch a evy has been made Is requred to surrender such prop-
erty to the coector.
n Ingenous argument s made that because secton 116 specfes stocks,
securtes, bank accounts, and evdences of debt, and because bank accounts
were brought nto the statute n 1924, Congress ntended to e empt a ntan-
gbe property e cept those sted. ut the doctrne of e presso unus est e -
cuso aterus, whe at tmes an ad n constructon of doubtfu anguage, does
not ava here. In the frst pace, readng the varous sectons of the statutes
devoted to coecton of ta es, t s cear that Congress ntended to sub|ect a
of a ta payer s property e cept that specfcay e empted to the payment of
ta es. gan, the enumeraton here foows the word ncudng whch has
varous shades of meanng, sometmes of restrcton and sometmes of enarge-
ment1 We have no doubt that the word here was used from an e cess of
cauton, that s, to pont out certan casses of property whch Congress was
fearfu a coector mght overook. We do not beeve, n the ght of the
sweepng anguage used throughout these statutes, that Congress Intended to
mt dstrant to tangbe property and to the specfed casses of ntangbes.
No reason s apparent why stocks and securtes shoud be sub|ect to evy
and an annuty contract not. gan, n a true If not a cooqua sense, an
annuty contract Is an evdence of debt.
We hod that ths annuty contract s sub|ect to ta es and to dstrant The
notce of sae gven has spent ts force, but t s proper to say that the notce
gven was not specfc enough as to the terms of the contract, ts surrender
vaue, oans aganst t etc., fary to apprse the pubc as to what they
were nvted to bd on. It Is possbe, as suggested by counse for appeant,
that the fu surrender vaue can be reazed wthout |eopardzng the rghts of
the Government or possby sacrfcng the rghts of appeant at a pubc sae,
by compeng the company to pay the baance of the surrender vaue to the
coector under 26 . S. C. ., 1268(a).
The order n No. 1290 s affrmed.
No. 1289: The appea n No. 1289 presents a much more dffcut queston.
That sut s by Mrs. Cannon, the benefcary n two poces ssued on the fe
of Mr. Cannon, one a 20-year endowment for 2,000, maturng n 1930. y ts
terms, that sum Is to be pad Mrs. Cannon f her husband des before 1930,
otherwse to hm. The other s a straght fe pocy for 10,000 wth Mrs.
Cannon the benefcary. Rght Is reserved n Cannon to revoke and change
the benefcary In both poces. The record does not dscose the oan or cash
vaue of the 2,000 pocy, but t must equa the face, for It matures In a few
months. The oan or cash vaue of the 10,000 pocy, now n ts nnth year,
s neary 7,000.
Mrs. Cannon contends that, under the Coorado decsons, she s the owner
of these poces, and that her property can not be sub|ected to the payment of
her husband s ta es. The Supreme Court of the Unted States, n the com-
munty property and other cases, has hed that State aw determnes the
ownershp of property sub|ect to ts |ursdcton, and that a wfe s property
can not be taken for her husband s ta es. (Poe v. Seaborn, 282 U. S., 101 Ct D.
2o9, C. . I -2, 202 oepcr v. Ta Commsson, 284 U. S., 206 cvcrng .
Cty ank armers Trust Co., arguendo, U. S., (decded November 11,
1935).)
The Supreme Court has aso hed (Chase Natona ank v. Unted States,
278 U. S., 327 Ct D. 40, C. . III-1, 308 ), that many of the ega ncdents
Monteo Sat Co. v. Utah (221 U. S.. 452) Cahoun v. Mempht f P. R. Co. (U. S.)
14 ed. Cas.. 1045) Cunnngham v. Szer Stee Corporaton (D. C. N. Y.) (1 . (2d),
837) Unted States . Perce (147 ed.. 100) Suvan Machnery Co. v. Unted States
(108 ., 501) Decorated Meta Ufa. Co. . Unted States (12 Ct. Cust. pp., 140)
ehes v. usr|rove (212 a., 47. 101 So., 670) rascr v. cnte (161 Ca.. 300, 11 ) P.,
600) ennedy v. Industra ccdent Commsson (50 Ca. pp., 184, 195 1 ., 267) :
acksonve Termna Co. v. anshard (77 a., 855, 82 So., 300) yatt v. Cty of
Lousve (206 y., 432, 267 S. W., 146) In re Oortz (75 N. Y. S., 750) In re Shcp-
pard s state (170 N. Y. S., 409) Peope e re Wooworth s state . State Ta Com-
msson (192 N. Y. S.. 772) Cooper v. Stnson (5 Mnn.. 522) Nehr v. MoCook Co. (11
8. D.. 422. 78 N. W., 998) ank . Poneer Mnng Co. (93 Wash.. 20, 159 I .. 1077).
The thrd pocy covered by the notce s for 5,000 and the benefcary s Cannon s
on. That pocy s not n sut, but t was deposted wth the cerk, apparenty to
abde the resut of ths sut.
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270, rt. 1204.
316
of ownershp are vested In the Insured under a pocy payabe to another upon
hs death, where the rght s reserved In hm to revoke the benefcary, and
among those ncdents enumerates the power to pedge the pocy for a oan
and to dspose of the proceeds for hs own beneft durng hs fe. Mr. Cannon
has the power to borrow substanta sums upon these poces and to use the
proceeds for hs own beneft, and that wthout surrenderng the rght to keep
hs nsurance n force by payng premums.
Snce the notce advertsed for sae the entre poces, and not whatever
nterests theren beonged to the ta payer, our task Is to ascertan whether
under Coorado aw Mrs. Cannon was vested wth any of the Incdents of
ownershp.
In endre Mfg. Co. v. Patt (13 Coo. pp., 15, 66 P., 209), credtors under-
took to reach the proceeds of severa poces on the fe of ther debtor, after
hs death and after hs benefcary had receved the proceeds. Two of the
poces had. endowment features. The opnon does not state that the In-
sured reserved the rght to change the benefcary. There was then no Co-
orado statute e emptng nsurance money from debts. fter an e haustve
revew of the cases. It was hed that credtors coud not reach fe Insurance
money, the court sayng that the fund arose from the benefcary s Insurabe
Interest n the fe of her husband that t dd not e st unt death that
pubc pocy requred that wdows and chdren shoud not be eft desttute:
that the moment t Is Issued, ts ownershp vests In the benefcary,
the tte thereto had become vested In her, that unt
the maturty of an endowment pocy her tte was as absoute as If the
Insurance had been upon any other pan.
In Natona ank of Commerce v. ppe Co. Co. (35 Coo., 149, 83 P., 965),
a credtor undertook to reach the surrender vaue of an endowment pocy,
wth rght reserved to change the benefcary, before the maturty of the en-
dowment or the death of the nsured. There was no aegaton of nsovency,
or that the nsured was ndebted when the pocy was ssued. Wthout de-
cdng the rue appcabe n such state of the case, the court hed that the
benefcary coud not be dvested of her Interest e cept by the act of the
nsured, the opnon concudng:
If the atter shoud be compeed to surrender these poces to the
companes ssung them, and accept the vaue thereof, the rghts of the
benefcares woud be destroyed. The Insured may have nterests n these
poces whch a court of equty, f ther rghts ony were nvoved, mght
nave the power to compe them to appy to the payment of ther ndebtedness
but, however ths may be, a court of equty woud not be authorzed to e -
ercse ths power when thereby the vested rghts of thrd persons woud be
destroyed, uness It shoud appear that the condtons e sted under whch
a court of equty, at the nstance of a credtor, may annu vountary ar-
rangements entered Into between hs debtors and thrd persons.
In v. Capto Lfe Insurance Co. (91 Coo., 300, 14 P. (2d), 1006),
the fact stuaton Is not pertnent, but the court hed that even where the
nsured reserved the rght to change the benefcary, the benefcary had an
nterest n the pocy pror to the e ercse of the reserved rght.
In 1929 a statute was passed whch s set out n the margn. The Coorado
courts have not yet had occason to determne whether ths statute s one ot
e empton or one f ng property rghts. If the atter, t does not ad here
because the poces n queston were ssued ong pror to ts enactment, and
because t adds nothng to pantff s rghts under the cted Coorado decsons.
The second crcut, n a we-reasoned opnon, has hed an dentca statute to
be one of e empton. (In re Messnger (C. C. . 2), 29 P. (2d), 158.) s
such, t s not appcabe to edera ta es.
The poces are not n the record, but t does appear that reserves have accumuated
thereon, and such poces ordnary If not unformy grant an opton to borrow the
accumuated reserve wthout surrenderng the pocy. Whe the record s not cear, It may be
that Mr. Cannon, In order to borrow on the pocy, must cther change the benefcary
to hs estate, or procure the consent of the benefcary. ut It Is conceded that, by
changng the benefcary, he may borrow the stated sum upon the soe securty of the
pocy and wthout consent of the benefcary.
If a pocy of Insurance, whether heretofore or hereafter Issued, Is effected by any
person on hs own fe or on another fe, In favor of a person other than hmsef, or,
e cept In cases of transfer wth Intent to defraud credtors, If a pocy of fe Insurance
s assgned or In any way made payabe to any Mch person, the awfu benefcary or
assgnee thereof, other than the Insured or the person so effectng such Insurance, or ha
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317
270, rt. 1204.
rom these decsons It appears that In Coorado a benefcary has a prop-
erty Interest n a pocy of fe nsurance. ut t does not foow that the In-
sured has no nterest theren, for two or more persons may own nterests n
the same property. The ankruptcy ct provdes (70-a-5) that, uness
e empted by State aw ( odcn v. Stratton, 193 U. S., 212), the surrender
vaue of any pocy on the fe of a bankrupt payabe to hmsef, hs estate,
or persona representatves passes to the trustee n bankruptcy uness the
bankrupt pays such surrender vaue to the trustee. In 1917 the queston arose
whether the surrender vaue of a pocy not payabe to the nsured or hs
estate, but wth a rght to change the benefcary to hmsef or hs estate,
passed to the trustee. though not passng by vrtue of ths secton, the
Supreme Court hed that the surrender vaue passed to the trustee because
of hs power to change the benefcary to hmsef or hs estate under 70-a-3.
The Supreme Court hed:
It mght Indeed be that t woud better fuf the protecton of Insurance
by consderng the provso aone and teray, regardng the pocy at the
moment of ad|udcaton, and, If t be not payabe then n words to the bank-
rupt no matter what rghts or powers are reserved by hm, no matter what
ts pecunary facty and vaue Is to hm to consder that he has no prop-
erty In t ut we thnk such constructon s untenabe. The decaraton of
subdvson 8 s that powers whch he mght have e ercsed for hs own
beneft sha n turn be vested n the trustee, and there s vested n hm
as we a property that the bankrupt coud transfer or whch by |udca
process coud be sub|ected to hs debts, and especay as to nsurance poces
whch have a cash surrender vaue payabe to hmsef, hs estate or persona
representatve. It s true the poces n queston here are not so payabe, but
they can be or coud have been so payabe at hs own w and by smpe
decaraton. Under such condtons to hod that there was nothng of property
to vest n a trustee woud be to make an nsurance pocy a sheter for vauabe
assets and, t mght be, a refuge for fraud. nd our concusons woud be
the same f we regarded the provso aone.
Ths court has been carefu to defne the nterest of bankrupts In the
nsurance poces they may possess. In scock v. Mertens (205 U. S., 202)
we gave a bankrupt the beneft of the redempton of a pocy from the cams
of credtors, though a cash surrender vaue was not provded by t but was
recognzed by the Insurance company. In urngham v. Crouse (228 U. S.,
459, 472) we sad that It was the purpose of Congress to pass to the trustee
that sum whch was avaabe to the bankrupt at the tme of bankruptcy as a
cash asset otherwse to eave to the nsured the beneft of hs fe nsur-
ance. (See aso verett v. udson, Id., 474.) (Cohen v. Samues, 245 U. S.,
60, 52-63.)
Whe constraned to hod that Mrs. Cannon has an Interest n these poces
not sub|ect to sae for her husband s ta es, we do not hod that the ta payer
has no nterest theren whch may not be abe for hs ta es. Whether the
oan vaue can be so sub|ected under 26 U. S. O. ., 1268(a) or otherwse,
eavng to the benefcary the rght to the proceeds upon hs death f premums
are pad as provded n the pocy, wre are not now caed upon to decde nor
need we pass upon the queston of whether a sae s a proper way to reaze
upon vaues n a fe nsurance pocy because the aw mts the bdders to
those havng an nsurabe nterest n the fe of the Insured. ( eusner v.
Lfe Insurance Co., 47 Mo. pp., 336 Industra Loan d Investment Co. v.
Mssour State Lfe Insurance Co., Mo., , 3 S. W. (2d). 1046.) The effort
to se the entre pocy, ncudng Mrs. Cannon s nterest theren as recognzed
by the Coorado aw, shoud be en|oned.
The order n No. 1289 Is reversed.
e ecutors or admnstrators, sha be entted to ts proceeds and avas aganst the
credtors and representatves of the nsured and of the person effectng the same,
whether or not the rght to change the benefcary Is reserved or permtted, and whether
or not the pocy s made payabe to the person whose fe s nsured If the benefcary or
assgnee sha predecease such person provded, that, sub|ect to the statute of mta-
tons, the amount of any premums for sad nsurance pad wth ntent to defraud
credtors, wth Interest thereon, sha nure to ther beneft from the proceeds of tho
pocy but the company ssung the pocy sha be dscharged of a abty thereon by
payment of ts proceeds In accordance wth Its terms, uness before such payment the
company sha nave wrtten notce, by or n behaf of a credtor, of a cam to recover
for transfer made or premums pad wth ntent to defraud credtors, wth specfcatons
of the amount camed. (Ch. 113, Laws of Coo., 1929.)
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277 and 278, rt. 1271.
318
S CTIONS 277 ND 278. P RIOD O LIMIT TION UPON
SS SSM NT ND COLL CTION O T .
The perods of mtaton upon the coecton of ncome and
profts ta es prescrbed by the Revenue cts are not appcabe to
the payment of such ta es made by the en Property Custodan
under the Tradng wth the nemy ct, as amended by the Sette-
ment of War Cams ct of 1928 and the ct of une 18, 1934
(48 Stat., 978).
G. O. M. 4978 (C. . II-2, 163) revoked.
dvce s requested whether a refund may propery be aowed of
a payment made by the en Property Custodan and apped by
the ureau n settement of ta es assessed for the year 1917 aganst
the M Company based soey upon the ground that the payment was
made after the e praton of the statutory perod of mtaton for
coecton.
In the recent decson of the Court of Cams n Maranne rausz
and Pau ohenau, as Soe Legatees v. Unted States, decded pr
6,1936, the court hed that the wordmg of subdvson (b) of secton
24 of the Tradng wth the nemy ct, as amended, requres that
where ta es were due from the aens whose property had been sezed
they shoud be computed and wthhed wthout regard to the statute
of mtatons.
The court s decson s n part as foows:
It s argued on behaf of the pantffs that the War Cams ct dd not
repea the provsons of the statutes wth reference to the assessment and
coecton of ta es and that as these statutes were not repeaed, they were
not ony n force at the tme when the en Property Custodan turned the
money nvoved over to the Commssoner but apped drecty to the funds n
the hands of the en Property Custodan, and consequenty the dsposton of
these funds was controed by the genera statutory provsons wth reference
to ta es. Ths s ceary an erroneous concuson. We have aready shown
that unt the War Cams ct became a aw the former owners of the prop-
erty sezed had no enforceabe rghts whatever theren and when ths ct was
passed they acqured no rghts e cept those granted thereby. The War Cama
ct made provson for (he payment of ta es and the Government havng com-
pete rght to retan the property, none of the ta ng statutes had any app-
caton e cept as specay stated In the ct tsef.
t ths pont t shoud be noted that the pantffs dd not fe the ony cam
for refund made n ths case. It was fed by the en Property Custodan.
Why, we do not know. It woud seem sef-evdent that the en Property
Custodan was not the agent for the former owner of the property. e was the
agent of the Government tsef and dd not act for the pantffs n fng the
cam for refund. (See Opnon of ttorney Genera, voume 32, pages 249, 253.)
The ncongruous stuaton Is presented where an agent of the Government fes
a cam aganst the Government. If anyone was authorzed to fe a cam for
refund, t woud seem to be the pantffs yet the pantffs had not pad the
ta , t was pad by the en Property Custodan out of money over whch the
Government had compete contro and the rght to approprate as t saw ft
These features of the case show how dffcut f not mpossbe t s to appy
the genera provsons of the ta ng statutes to the case now before us. The
attempt to do so eads nto a sorts of nconsstences and presents one of the
many reasons why we thnk Congress had no ntenton of restrctng the rght
of the Government to retan money or property whch had been sezed by the
en Custodan by appyng the genera statutes wth reference to the assess-
ment and coecton of tn es.
What has been sad above, we thnk shows pany that pantffs case depends
not upon whether the provsons of the revenue aws wth reference to the
btce 1271: Perod of mtaton upon
assessment of ta .
R NU CT O 1017.
-25-8136
G. C. M. 16724
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319
55277 and 278, rt. 1271.
assessment and coecton of ta es were repeaed by the War Cams Settement
ct bnt upon whether that statute made these provsons appcabe In determn-
ng the amount whch the camants shoud receve. The ta es nvoved were
not assessed and coected wthn the perod prescrbed by the genera prov-
sons of the revenue aws and f they are appcabe n determnng whether
the money Invoved In the sut can be retaned by the Government t s obvous
that pantffs are entted to recover. On the other hand, f the War Cams
Settement ct, as we thnk, provded that the ta es shoud be computed, as
If the property had not been sezed by the en Custodan, and then pad
wthout any further restrctons, the pantffs have no foundaton for ther
Ut.
Pantffs rey argey on secton 24 of the Tradng wth the nemy ct whch
was amended by the War Cams Settement ct n secton 18 thereof whch
was headed Ta es. Secton 24 of the Tradng wth the nemy ct was
made subdvson (a) by the amendment and subdvsons (b) to (f) ncusve
were added. Secton 24 (now subdvson (a)), among other thngs, provded:
The en Property Custodan s authorzed to pay a ta es here-
tofore or hereafter awfuy assessed aganst any money or other
property hed by hm .
It dd not drect the en Property Custodan to pay or turn over anythng
to the former owners of the property but merey authorzed the payment of
certan ta es. Subdvson (b) of the amendment reads as foows:
(b) In the case of ncome, war-profts, e cess-profts, or estate ta es m-
posed by any ct of Congress, the amount thereof sha, under reguatons
prescrbed by the Commssoner of Interna Revenue wth the approva of the
Secretary of the Treasury, be computed n the same manner (e cept as here-
nafter n ths secton provded) as though the money or other property had
not been sezed by or pad to the en Property Custodan, and sha be pad,
as far as practcabe, In accordance wth subsecton (a) of ths secton. Pend-
ng fna determnaton of the ta abty the en Property Custodan s
authorzed to return, In accordance wth the provsons of ths ct, money or
other property n any trust n such amounts as may be determned, under
reguatons prescrbed by the Commssoner of Interna Revenue wth the
approva of the Secretary of the Treasury, to be consstent wth the prompt
payment of the fu amount of the Interna-revenue ta es.

We thnk the wordng of subdvson (b) requres that where ta es were
due from the aens whose property had been sezed they shoud be computed
and wthhed wthout regard to the statute of mtatons. If t shoud be
conceded for the sake of the argument that the statute was ambguous, the
surroundng crcumstances ceary show that such must have been the Intent of
Congress. Ths money or property was turned over purey as an act of grace.
In so dong, the Unted States was not standng upon Its war-tme rghts but
paced the matter on a mora and equtabe pane hghy favorabe to the
camants. avng done ths. It seems hardy concevabe that t was ntended
to turn ths property back to the former owners wthout coectng ta es
|usty due from them. Our Government was Intendng to do e act |ustce to
the aen camants and It woud e act no more than |ustce In requrng these
ta es to be pad. Where the ntent Is manfest and the anguage ambguous
the Intent must contro.

Counse for pantffs ca attenton to a rung of the Genera Counse of
the ureau of Interna Revenue n whch t was hed that the Settement of
War Cams ct dd not abrogate the genera statute of mtatons appcabe
to the assessment and coecton of an nterna-revenue ta , but f we are
correct n what has been stated above, an erroneous bass was taken for the
rung. We have aready shown that the omsson from the War Cams Sette-
ment ct of any provson repeang the genera provsons reatng to the
assessment and coecton of ta es dd not make them appcabe to the money
n the hands of the Custodan. It requred a speca provson n the War
Cams Settement ct to make them appcabe. Ths rung, however, s
not very matera, as the ureau dd not adhere to t, and t seems to have
been wthdrawn.
Under our vew of the aw appcabe to the case the pantffs petton must
be dsmssed and It Is so ordered.
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280, rt. 1291.
320
In vew of the foregong decson, t s hed that the ta es n
queston may not be refunded on the ground that the coecton
(hereof was barred by the statute of mtatons at the tme of
payment by the en Property Custodan.
G. C. M. 4978 (C. . II-2, 163), whch hods that the assessment
and coecton of ncome and profts ta es n respect of property
hed by the en Property Custodan under the Tradng wth the
nemy ct, as amended, s sub|ect to the perods of mtaton pre-
scrbed by the Revenue cts appcabe to the varous ta abe years,
s hereby revoked.
erman Ophant,
Genera Counse for the Department of the Treasury.
rtce 1271: Perod of mtaton upon assessment
of ta .
R NU CT O 1926.
adty of waver wth respect to assessment and determnaton.
ecuton of waver before fndng of defcency. Suffcency of
notce. (See Ct. D. 1131, page 252.)
S CTION 280. CL IMS G INST TR NS-
RR D SS TS.
rtce 1291: Cams n cases of transferred -1-7891
assets. Ct. D. 1056
INCOM ND PRO ITS T R NU CT O 1926 D CISION O SUPR M
COURT.
1. ssessment Labty of Transferee ecutor and Legatee
Undfh W of Deceased Stockhoder of Dssoved Corpora-
ton Loca Law.
The e ecutor of the w of a deceased stockhoder of a dssoved
corporaton Is not chargeabe wth abty, as egatee under the
w, for a defcency of Income and profts ta es assessed aganst
the corporaton, In a proceedng aganst the estate as transferee of
the assets of the corporaton. The estate havng been setted and
the e ecutors dscharged before the notce of the proposed assess-
ment was maed, the e ecutor was no onger sub|ect to an assess-
ment or sut In hs representatve capacty, under the aw of Inos.
2. Decson Reversed.
Decson of the Crcut Court of ppeas, Seventh Crcut (76 ed.
(2d), 736), whch reversed the decson of the oard of Ta ppeas
(27 . T. ., 1123), reversed.
Supreme Court of the Unted States.
De orest uburd, pettoner, v. Commssoner of Interna Revenue, respondent.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Seventh Crcut.
December 9, 1935.
opnon.
Mr. ustce Cardozo devered the opnon of the Court.
The controversy s one as to the abty of the e ecutor and egatee of a
sharehoder n a dssoved corporaton for a defcency of ncome and profts
ta es assessed aganst the company.
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321
5280, rt. 1291.
In September, 1919, the an Scken Co., an Inos corporaton, sod a Its
assets to a Deaware corporaton, the an Scken Speedometer Co., and was
thereupon dssoved. In consderaton of the sae t receved 250,000 n cash
and 5,000 shares n the new company, whch t dstrbuted forthwth among Its
own sharehoders. One of these sharehoders was Chares . uburd. s
dstrbutve porton on the dssouton of the company was 8,000 In cash and
160 shares of no par stock. e ded on anuary 14, 1924, eavng a w by
whch hs son, De orest uburd, and ugh Mc rney ohnston were apponted
e ecutors. The son, who s the pettoner n ths court, was aso a egatee and
devsee. The coe ecutor, ohnston, Is dead.
In December, 1919, the an Scken Co. fed a corporaton ncome and profts
ta return for the fsca year endng September 30, 1919. The return, however,
was nadequate. ccordngy, on November 17, 1924, the Commssoner of
Interna Revenue made an addtona assessment n the sum of 227,872.06, wth
penates n the sum of 113,936.03. Unabe to coect ths defcency from the
company after the dstrbuton of ts assets, he turned to the sharehoders. On
October 27, 1926, he maed a etter to the state of Chares . uburd,
c/o De orest uburd, 86 ast Randoph Street, Chcago, 111. In ths he
gave notce of a proposed assessment aganst the estate by reason of ts
abty as transferee of the assets of the Inos corporaton. The amount of
that abty was stated to be 24,000, but was afterwards reduced to 8,000,
the cash receved by the testator. In announcng ths assessment, the Com-
mssoner acted In reance on secton 280 of the Revenue ct of 1926 (26
U. S. C. pp., secton 1069) whch permts an assessment aganst the trans-
feree of a ta payer upon the ta payer s defaut. efore the passage of that
ct sharehoders who had receved the assets of a dssoved corporaton mnht
be compeed to dscharge unpad corporate ta es, but ony by b In equty or
acton at aw. (Phps v. Commssoner, 283 U. S., 589, 592, 593 Ct. D. 350,
C. . -, 264 .) summary procedure was added by the statute. (Phps v.
Commssoner, supra.) Upon the defaut of tbe ta payer, the Commssoner s
to apporton the defcency among the transferees of the property and to gve
notce accordngy. (Revenue ct of 1926, secton 274.) If the transferee s
dssatsfed, he may petton the oard of Ta ppeas to redetermne the
e stence of abty and ts proper dstrbuton.
On October 27, 1926, when notce of the proposed assessment was sent to the
pettoner, the estate of Chares . uburd had been setted, the assets ds-
trbuted and the e ecutors dscharged.1 The dscharged e ecutors submtted to
the oard of Ta ppeas a petton for revew dscamng abty. They
stated n effect that they were the persons who had been apponted e ecutors by
the w of Chares . uburd, but that ther responsbtes as such were
ended. numeratng ther ob|ectons to the assessment they aeged that the
acton of the Commssoner was erroneous for the reason that the estate had
been whoy dstrbuted and setted and your pettoners duy dscharged as
e ecutors thereof. Thus, as eary as December, 1926 (when the petton for
revew was fed), and before the perod of mtaton under the statute had run
aganst a new assessment aganst egatees or devsees (Revenue rt of 1026,
secton 280(b)2), the Commssoner was put upon notce that the defcency had
been assessed aganst persons no onger abe and was gven the opportunty to
mpose t upon others. Instead of dong ts he stood hs ground and prayed
for an order that hs determnaton be confrmed.
The oard of Ta ppeas hed that at the tme the notce was maed there
was no abty of the estate or of the pettoners as e ecutors. It put asde
The decree of the Probate Court of Cook County, 111., the pace of admnstraton, was
made on ebruary 20, 1925, and, the te t beng mportant, s quoted n fu:
In the Matter of the state of Chares . uburd, Deceased.
Ths day came ugh Mc rney ohnston and De orest uburd, e ecutors of the Inst
w and testament of Chares . uburd, deceased, and presented to the court and fed
heren ther fna account wth the estate of sad decedent, showng that sad estate has
been fuy admnstered.
nd t now appearng to the court that more than one year has eapsed snce the grant-
ng of etters testamentary heren that due notce has been gven to a of the hers at
taw. egatees and benefcares that a assets of sad estate have been coected that no
cams have been fed aganst sad estate that specfc egaces have been pad that the
Inhertance ta . edera estate ta , Income ta , court costs and a other costs and e -
penses of admnstraton heren have been pad, and that the baance of sad estate has
been dstrbuted accordng to the ast w and testament of sad decedent, and guardan
ad tem consentng to tbe approva of sad fna account.
It s therefore ordered by the court that sad fna account be approved and recorded,
that the estate be and It 1b decared setted and that the e ecutors be and they are hereby
dscharged.
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5280, rt. 1291.
322
the consderaton of a possbe abty of any of the benefcares under the
w or the dstrbutees of the assets of the estate on the ground that no such
queston was In the case. (27 . T. ., 1123 cf. 21 . T. ., 23.) The decson
Of the oard was revewed by the Crcut Court of ppeas for the Seventh
Crcut. That court decded that the e ecutors were abe de bons testators
because they had faed to gve notce to the Commssoner that ther fducary
capacty had termnated. (Revenue ct of 1026, secton 281(b).) esdes ths,
the court hed that De orest uburd was abe Indvduay to the e tent of
4,000 because n the record there was evdence, not confrmed by any fndng,
that as egatee under the w he had receved haf of the 8,000 pad to hs
father on the dssouton of the company. The order of the oard was accord-
ngy reversed, and the cause remanded for proceedngs to conform to the opnon.
(76 . (2d), 736.) The power was thus assumed to change a defcency assessed
aganst the e ecutors of an estate Into a defcency to be assessed aganst a
egatee who had shared n the estate. To determne the vadty of that assump-
ton and to sette other questons of statutory constructon, a wrt of certorar
was granted by ths court.
rst: The pettoner s not chargeabe n ths proceedng wth abty as
egatee under the w of a deceased sharehoder n the ta payer, a corpora-
ton now dssoved.
The ct of 1926 (ch. 27, 44 Stat, 9, secton 280 26 U. S. O. pp., secton
1069), n suppementng by a summary procedure the cumbrous remedy of
sut, ad the duty of assessment upon the Commssoner of Interna Revenue.
The abty, at aw or n equty, of a transferee of property of a ta payer
was to be assessed, coected, and pad n the same manner and sub|ect to
the same provsons and mtatons as n the case of any other ta def-
cency. (Ibd, secton 280(a)1.) Pursuant to ths mandate the Commssoner
dd assess a abty and gave notce to the transferee accordngy. e as-
sessed t to the estate represented by e ecutors, and not to anyone ese.
s provded by secton 280 of the Revenue ct of 1926, there s proposed for
assessment aganst the estate the sum of 24,000 consttutng ts abty as
a transferee of the assets of the an Scken Co., gn, 111. The oard of
Ta ppeas upon petton for revew had power to redetermne the defcency
thus charged to the estate (Revenue ct of 1926, secton 274), but not to
charge t to another. (Cf. 28 U. S. O. (1934 ed.), sectons 600, 601, 619 T t-
amsport Wre Rope Co. v. Unted States, 277 U. 8., 551, 562, 564 T. D. 4172,
C. . II-2, 323 .) If some one ese was to be charged, there woud be need
of a new assessment, whch the Commssoner mght make at any tme wthn
a year after the enactment of the statute. (Revenue ct of 1926, secton
280(b)2.) In makng t he woud consder any facts matera and reevant
for arrvng at a ust apportonment of benefts and burdens. The duty to
Inqure and determne was Imposed by the statute upon hm and not upon an
agency of government estabshed for the purpose of revsng hs decson.
These restrants upon ursdcton were duy heeded by the oard. It ds-
camed the power or the purpose to pass upon the abty of egatees or
devsees or to assess a ta aganst them. The same restrants upon ursdc-
ton were bndng upon the Court of ppeas n revewng the acton of the
oard, and bndng wth greater emphass, for the court was wthout power
to choose between confctng nferences uness ony one was possbe, or to
try the case de novo. (Ieverng v. Rankn, 295 U. S., 123 Ct. D. 966, C. .
I -1, 160 .) The ad|udcaton of abty as to uburd ndvduay was
made In seemng forgetfuness of these ursdctona restrctons. It was error
to gnore them.
In so hodng we are not unmndfu of the argument for the respondent that
the form of the petton to revew the acton of the Commssoner was effectve
n some way to enarge the scope of the proceedng and to sub|ect the egatee
to a new and dfferent assessment. The argument w not stand. There s
nothng n the petton submtted to the oard whereby power was e tended
beyond the statutory mts, f we assume provsonay that consent mght
be effectve, at east n certan crcumstances, to brng that resut about. The
pettoners, havng been dscharged as e ecutors, were unwng to descrbe
themseves as If they were st actng n that capacty. What they dd was to
state the facts and ask the udgment of the oard thereon. ar from con-
cedng that the assessment ran aganst ether of them personay, they pro-
tested that In form and n purpose t was an assessment aganst the estate
and hence was of no vadty after the estate had been setted and the e ecutors
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323
280, rt. 1291.
dscharged. The meanng of ther protest was not sub|ect to msconstructon,
nor In fact was It msconstrued, as the opnon of the oard shows f the
fact mght otherwse be doubtfu. When the protest had been made, the rem-
edy avaabe to the Commssoner was obvous and ampe. e had tme even
then as we have aready ponted out, to announce a new assessment, whch
woud have brought up the queston whether the abty once restng on the
e ecutors had devoved upon another. or reasons not dscosed he determned
not to do so. In such crcumstances the cases cted by the Government, where
a forma defect has been Ignored n crcumstances tendng toward an nfer-
ence of waver or estoppe, have no reaton to the case at hand. We are not
requred at ths tme to approve or dsapprove them. In ths case there was
nether waver nor estoppe, but a steady nsstence that the defcency had
been assessed aganst the estate and no one ese, and that the abty of the
estate had ended. To hod that by consent, ether tact or e press, the pro-
ceedng had been turned Into one to revew the vadty of a dfferent assess-
ment, and one never In fact made, woud be a perverson of the record.
Second: The estate havng been setted and the e ecutors dscharged, the
pettoner was functus offco under the aw of Inos, and was no onger
sub|ect to an assessment n hs representatve capacty.
The Court of ppeas n uphodng the abty of the e ecutors as such put
Its rung upon the ground that they had faed to gve notce to the Comms-
soner of the termnaton by decree or otherwse of ther fducary capacty.
The notce was thought to be requste under secton 281(b) of the Revenue ct
of 1926, whch s quoted In the margn. ut the Revenue ct of 1920 became a
aw In ebruary of that year (secton 286 U. S. C, secton 931), and the
e ecutors were dscharged In ebruary, 1925. If ther abty as e ecutors
was ended at that tme, the statute w not be read as attemptng to revve t,
(Whte v. Unted States, 191 U. S., 545 Wnfree v. Northern Pacfc R. Co., 227
T . S., 296 Unon Pacfc R. Co. v. Larame Stock Yards, 231 U. S., 190, 199
Shwab v. Doye, 258 U. S., 529 T. D. 3339, C. . 1-2, 312 Lberman s
Commttee v. Commssoner, 54 . (2d), 527.)
Secton 281(b) beng found to be nappcabe, we have st to determne
whether e ecutors who have been dscharged after a fu settement of the
estate are sub|ect by the aw of Inos to assessment or sut n ther repre-
sentatve capacty.
y the common aw of ngand an e ecutor was deemed to carry forward the
persona of the testator. ( omes, The Common Law, pages 344, 345 ods-
worth s story of ngsh Law, voume 3, pages 563, 573, 574, 583 Ltteton s
Tenures, secton 337 Co. Ltt., 209, a, b Mechancs Savn-gs ank v. Wate,
150 Mass., 234, 235 Chpman v. Manufacturers Natona ank, 156 Mnss., 147,
149.) Uness the appontment was quafed n respect of tme, It contnued
durng fe. (Wams, ecutors, twefth edton, voume 1, pages 131, 147,
342.) There was no such thng as a dscharge upon a showng of pcne admn-
stravt. There was no such thng as a resgnaton because of mere unw-
ngness to go on. Rogers v. rank, 1 Tounge and ervs, 409, 414 In the
Goods of esop, 1 Robertson s ccesastca Rep., 457, 458 In the Goods of
cga, 3 Swabey Trstram 13, 15.) The power to act mght be suspended or
revoked through the appontment of a commttee or a recever f the e ecutor
was found to be physcay or mentay ncapabe. (In the Goods of nckes,
1 Curtes, 286 In the Goods of Newton, 3 Curtes, 428 In the Goods of Cooke
(1895), P. D., 68 In the Goods of Godschmdt, 78 L. T. (N. S.), 763 In the
state of Shaw (1905), P. D., 92.) There mght be ke reef f he had become
Insovent after probate or had dsappeared or had msapproprated the assets
or otherwse abused hs trust (In the Goods of Cove (1889), P. D., 8 state,
Commssoner v. New York Trust Co. (54 . (2d), 463 Ct. D. 540, C. . I-2, 320 )
aao v. Commssoner (59 P. (2d). 510) urnet v. an oaqun rut Investment Co.
(52 . (2d), 123 Ct. D. 406, C. . -2, 2001) Warner Coeres Co. v. Unted States
(63 . 2d), 34 Ct. D. 703, C. . II-2. 227 ) mercan qutabe ssurance Co. of
New York v. Ievernn (0s . (2d), 40 Ct. D. 822, C. . III-1, 330 ): Contnenta
roducts Co. v. Commssoner (06 . (2d). 434) u-ard v. everng (77 . (2d). 30)
Commssoner v. Nchos d Co Lumber Co. (05 . (2d), 1009 Ct. D. 704. C. . II-2,
2-tC) : Pttsburr/h Termna Coa Corporaton v. ener (50 . (2d), 1072 Ct. D. 501,
C. . I-1. 225 ).
Upon notce to the Commssoner that any person Is actng n a fducary capacty for
a person sub|ect to the abty specfed n secton 280, the fducary sha assume, on
behaf of such person, the powers, rghts, dutes, and prveges of such person under such
secton (e cept that the abty sha be coected from the estate of such person), unt
notce Is gven that the fducary capacty has termnated.
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2S0, rt. 1291.
324
of Thomas (1012), P. D., 177 tterson v. Ma 2 Yes. r., 95, 97, 98 In the
Goods of Loveday (1900), P. D., 154, 156 Odfed v. Cobbett, 4 L. . (N. 8.)
(Chnn.), 271, 272 Rchards v. Perkns, 8 L. . (N. S.) ( . q.), 57, 58.)
Nothng short of cear necessty woud cause hm to be ousted. In the absence
of per to the estate, responsbty and power were not to be renounced when
once they had been assumed. So the aw of ngand contnues even now.
The common aw rue Is preserved In some of our States to-day, but In
many has been abandoned, at tmes as the resut of statute, at tmes through
the combned force of statute and decson. The dversty of doctrne Is sur-
prsng, and so often Is ts obscurty. The commentators te us, however, and,
as the cases show, correcty, that the growng tendency In ths country s away
from the ngsh rue. Some States, though they make provson for an ac-
countng, make none for a dscharge, and hod the e ecutor suabe after the
estate has been dstrbuted upon the chance that other property may be ds-
covered ater on. The |udgment w be coectbe out of assets n futuro, or
quando accdernt, as was snd In eary days. (Wams, supra, voume 2,
page 1253 Mary Shpey s case, 8 Co., 134, a, b Noe v. Neson, 2 Saund., 226.)
Ths In effect s the practce n New York (Mahoney v. ernhard, 45 pp. Dv.,
499, 501 affrmed, 1C9 N. Y., 589 WUets v. anes, 96 pp. Dv., 5, 7 Rosen v.
Ward, 96 pp. Dv., 262, 266 Pearse v. Natona Lead Co., 162 pp. Dv., 766,
769 Paff v. nney, 1 radf., 1, 9), where a |udca settement of accounts a
concusve as to the past, but Is never utmate n the sense that It reeves the
fducary from abty for the future. (See aso azett v. state of akey,
70 Neb., 613, 617 Weyer v. Watt, 48 Oho, 545, 551.) On the other hand, there
are States where by e press provson of the statutes the e ecutor Is to be
dscharged upon a showng of fu admnstraton, and others where the
requrement of a dscharge has been read Into the statutes by a process of
constructon.
The courts of Inos, as we nterpret ther opnons, mantan a mdde
ground, whch Is nether that of the common aw on the one sde nor ts opposte
on the other. Ths Is not to say that there s any case n that State so ke
n ts essenta features to the one for decson here as to make the Inos pos-
ton certan. On the contrary, support w be found for the strct rue of the
common aw If what has been sad n some of the opnons s taken from ts
framework and consdered wthout reference to what was actuay decded.
(See, e. g., Starr v. Woughby, 218 111., 485, 493.) The aspect becomes dffer-
ent, however, when attenton s drected to the settng of the facts and to the
provsons and mpcatons of the appcabe statutes. What emerges, t woud
seem, Is ths: dscharge upon an accountng w be vacated n a drect pro-
ceedng, f t appears that there were assets, not nventored by the e ecutor or
ncuded n hs report, for whch, when the decree was passed, he was propery
accountabe ( raser v. raser, 149 111. pp., 188, 187, 195, 196 cf. Mustek v.
eebe, 17 an., 47, 53, 54) n the absence of such a showng, the dscharge
when decreed upon a fndng of fu admnstraton w reeve the e ecutor
Cf. 14 a bury, Laws of ngand, second edton, pages 171, 269, 287, 288, and case
cted.
See Woerner, The mercan Law of dmnstraton, thrd edton, voume 3, secton
571. 572, 573, where the cases are brought together.
Mnnesota : Securty Trust Co. v. ack Rver Natona ank (187 T . 8., 211, 234 ,
revewng the State decsons State e re. Matteson v. Probate Court (84 Mnn., 289,
293) (snce 1903 the rght to a dscharge has been renforced by statute. cts of 1903,
ch. 195 1 Mason s Stats., 1927, secton 8886) Mssour: Grayson r. Wedde (63 Mo.,
523. 539, 540) State f re. Stotts v. enrek (159 Mo., 631) In re state of Rooney
(163 Mo. pp., 389, 394) cf. entucky : Unted States dety d Guaranty Co. v. Martn
(143 y., 241, 242, 243) West rgna: Downey v. earney (81 W. a., 422. 428). See
aso, abama: Modace v. omes (40 a., 391, 404) cky v. taworth (143 a.,
035, 540) Code, 1928, secton 5902 Caforna: WUUs v. arey (24 Ca., 490, 502)
n re Cary (112 Ca., 292, 294) Probate Code, 1933, secton 1066 Georga: Carter v.
nderson (4 Ga., 516) ror.e v. ed (13 Ga., 24, 30) Code. 1933, secton 113-2302 |
Iowa : Deh v. Mer (56 Iowa, 313) Code, 1931, secton 12052 ansas : Musck v.
eebe (17 an., 47, 63. 64) Proctor v. Dckow (57 an., 119. 125) Rev. Stats., 1923,
secton 22-931 Montana: State e re. Potters d Co. v. Dstrct Court (78 Mont., 143.
148) Rev. Code. 1921, sectons 10311, 10331 Pennsyvana: andever s ppea (43
Penn., 74) : state of ohn Wseman (12 Pha., 11) : 20 Purdon s Stats., secton 9111
South Carona : Scabury v. Green (294 D. S., 185, 169) uck v. CampbeU (44 S. C,
3S0. 392) Mc ar v. owe (123 S. C, 252, 266) Code. 1932, secton 9024.
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325
62SO, rt. 1291.
for the future of responsbty and power. (Cf. Rezer v. Mrts, 223 I1L, 555,
662, 564 Robnson v. Robnson, 214 1U. pp., 262, 268, 269.)
Whatever doubt may survve a readng of the cases Is dspeed or greaty
attenuated when we pass to an e amnaton of the statutes and the pan that
they revea.
rst n order of mportance s the statute reguatng the settement of ac-
counts. n e ecutor s requred to e hbt a report of hs admnstraton
wthn 30 days after the e praton of one year from the date of hs etters.
That beng done, he must e hbt a report thereafter, whenever requred by the
court, unt the dutes of admnstraton are fuy competed. e may from
tme to tme at hs own voton fe a fna report of hs admnstraton to a
specfed date, whch, even f approved, w not termnate hs offce. e may
aso make a fna report at the concuson of admnstraton. Such a report,
f approved upon notce to a partes n nterest, sha be bndng upon them
n the absence of fraud, accdent or mstake. fna report at the con-
cuson of admnstraton assumes that there s a stage when admnstraton s
over. The e ecutor s functus offco when dscharged by the court after that
stage has been attaned.
nother statute of hgh sgnfcance s one that makes provson for an
appea of the assets. If the e ecutor dscovers after the makng of an n-
ventory and apprasa that the assets of the estate do not e ceed the amount
of the wdow s aowance, after deductng necessary e penses, he s to report
the facts to the court Thereupon the court, f t fnds the report to be true,
sha order the assets to be devered to the wdow, and dscharge the e ecutor
or admnstrator from further duty. Pany such a dscharge s equvaent to
a termnaton of the offce. There s not ony e oneraton for the past, but
absouton for the future.
The decree of the probate court dschargng ths e ecutor must be read
aganst the background of ths statutory scheme. It s too precse n ts terms
to be dsmssed as amountng to nothng more than a confrmaton of the report
as submtted for approva. If words can e press an ntenton to decare admn-
straton ended, the e presson s not ackng here. We may not put a ths
asde as surpusage. If there was no power n the Inos court to gve reef
so comprehensve, the defect shoud be very cear before a edera court w
undertake to wrest the words of the decree from ther natura and ordnary
meanng or hod them to be fute. specay s that so n vew of the growng
tendency of probate courts throughout the and to break the shackes of the
ancent rue. Weghty consderatons of e edency and |ustce e pan ths
tendency and support t. In the thought of many |udges, an e ecutor dscharged
after a fu and far accountng s no onger to be ve ed by the annoyance and
e pense of defendng frutess suts wth assets no onger avaabe for rem-
bursement or ndemnty. If sutors or ta gatherers wsh to go aganst the
estate or aganst those who have shared n t, they must ether vacate the decree
upon a showng of assets unaccounted for, or procure upon a showng of neces-
Leadng cases n Inos are brought together n ths note for the purpose of dstn-
gushng dctum from decson: anchard v. Wamson (70 111., G47, 650) hods that a
dscharge of an admnstrator w be treated as a nuty f mnde whe the estate Is n
course of admnstraton Dvertey v. ohnson (93 111., 547, 558) hods that a dscharge
Is of no effect If obtaned by the admnstrator wth notce of an outstandng cam and
In fraud of the rghts of the adverse camant (ef. Peope v. Rardn, 171 111. pp., 226,
230) ayett v. eope (56 111. pp., 55, 58) hods that a surety Is abe on an e ecutor s
bond where a baance avaabe for credtors was wrongfuy dstrbuted Starr v. W-
oughby (218 111., 485, 492) hods that a power In trust, unreated to the offce of e ecutor,
w survve a decree whch purports to dscharge hm and Manure v. Cty of Macomb
(293 111., 441, 453) Is substantay to the same effect. No case has been found where an
e ecutor whose dscharge had been decreed after a fu and far accountng has been hed
suabe thereafter In hs representatve capacty.
Laws of 1872, page 77, at pages 105, 106, secton 112 emended by Laws of 1910, page
1. at page 3 Laws of 19.U, page 6 Laws of 1933, page 3, at page 0 now Revsed Stat-
utes, 1935, ch. 3, secton 114.
See Laws of 1931. page 6.
Laws of 1872, page 77, at page 92. secton 59 Laws of 1910, page 1, at page 2 now
Revsed Statutes, 1935, ch. 3, secton 60.
u St another Inroad upon the common aw rue s made by a statute aowng an
e ecutor to resgn whenever t appears to the court that a resgnaton s proper. Laws
of 1872, page 77, at page 88, secton 40 now Revsed Statutes, 1935, ch. 3, secton 41.
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280, rt. 1291.
326
sty the appontment of an admnstrator, or pass over the estate and Its repre-
sentatves and pursue the egatees to the e tent of benefts receved. There
was no attempt to tread those paths, though the ast at a events was open.
The controversy In ths aspect Is one of oca aw, whch, once It Is ascer-
taned, must be accepted as controng. (Securty Trust Co. v. ack Rver
Natona ank, supra orrest v. ack, 294 U. S., 158 Seabury v. Green, 294
U. S., 165.) The decree dschargng the e ecutors amounts to a constructon
of the Inos statute by a court of the State, and a court of speca competence
and e perence n dsposng of such questons. There beng no satsfactory
showng that the decson overpasses the bounds of ursdcton, we yed to
ts authorty.
The decree of the Crcut Court of ppeas s reversed and the order of the
oard of Ta ppeas affrmed.
It Is so ordered.
rtce 1291: Cams n cases of transferred -4-7922
assets. Ct. D. 1068
INCOM T R NU CT O 1926 D CISION OP COURT.
1. Labty op Transferees Dssoved Corporaton ursdc-
ton of oard of Ta ppeas Statute of Lmtaton.
On ebruary 10, 1925, notce of defcences for the years 1919
and 1920 was maed to a corporaton whch had dssoved n 1922,
and on pr 11, 1925, a petton, entted In the name of the cor-
poraton, was fed wth the oard of Ta ppeas by an attorney
whose acton, In a corrected petton fed pr 25, 1925, was
ratfed by the trustees apponted under authorty of State aw to
sette the affars of the corporaton. On anuary 17, 1929, after
promugaton of the eard s decson ( ebruary 13, 1928), notce
of proposed assessments aganst the pettoners as transferees,
under secton 280 of the Revenue ct of 1928, was maed to each
of them, and an appea for redetermnaton of abty as such
transferees was taken, on the ground that the proposed assess-
ments were barred by the statute of mtaton at the tme the
notces were maed. Under these facts, the Commssoner s def-
cency notce of ebruary 10, 1925, was n tme the petton, how-
ever styed, was In ega effect an appea by the trustees the
oard of Ta ppeas propery took ursdcton the effect of
the petton was to suspend the runnng of the statute aganst the
corporaton and ts trustees unt the fna decson of the oard
and the defcency notces to the pettoners as transferees, beng
maed wthn one year after the fna decson of the oard, were
wthn the statutory perod.
2. stoppe.
Where the prncpa stockhoders and drectors of a corporaton
apped for Its dssouton and were apponted by the court as
trustees to pay the debts and dstrbute the assets, as the rea
partes In Interest after such dssouton, they were onty and
severay abe (to the e tent of the dstrbutve assets receved
by them) for ta es thereafter egay assessed aganst the cor-
poraton, and, havng had the beneft of a hearng and reconsd-
eraton of the ta cam before the oard of Ta ppeas, thus se-
curng the deay on whch ther defense Is but, to permt them
to contnue to hod the assets of the corporaton and to say that
the entre proceedng before the oard was a nuty woud be to
aow them to repudate ther own vountary appearance n the
corporaton s behaf, to deny ther own peadngs, and to take n-
consstent postons n the same tgaton. They are therefore
estopped to deny the reguarty of the proceedngs before the
oard.
3. Labty of Transferees Interest.
The transferees of a corporaton dssoved n 1922 are abe
for nterest upon amounts of defcences for 1919 and 1920, stp-
uated before the oard of Ta ppeas, where there s nothng n
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327
280, rt. 1291.
the stpuaton to show that Interest was Incuded In the agreed
sums, such nterest to be chargeabe from ebruary 20, 1920,
under the provsons of sectons 280(a) 1 and 283(d) of the Rev-
enue ct of 1928.
4. Decson fftbmed.
Decson of the oard of Ta ppeas (29 . T. ., 981) affrmed.
Unted States Coubt of ppeas foe the Dstrct of Coumba.
R. T. uzard, pettoner, v. uy T. Ueverng, Commssoner of Interna Reve-
nue, respondent.
. T. Dusenbu-ry, pettoner, v. uy T. evcrng, Commssoner of Interna Reve-
nue, respondent.
On pettons for revew of decsons of tbe Unted States oard of Ta ppeas.
efore Mabtn, C. ., and Robb, an O sde, tz, and Gboner, .
pr 1, 1935.
OPINION.
Gboneb, .: The Navarro Lumber Co. was a Caforna corporaton. It fed
ts ncome ta return for 1919 on March 15, 1920, and for 1920 on March 8,
1921. In 1922 t fed an appcaton for vountary dssouton n the superor
court of the county of ts prncpa pace of busness, and n the same year a
decree was entered, dssovng the corporaton and appontng Its three drec-
tors (two of whom are the pettoners heren) to dstrbute the assets to ts
stockhoders.
The perod of mtaton for assessment aganst the umber company for 1919
e pred March 15, 1925, and for 1920 on March 8, 1926 and on ebruary 10,
1925 (wthn the mtatons perod), the Commssoner maed notce of def-
cences for the years 1919 and 1920 to the umber company at Its Snn rancsco
address and wthn the aowabe 60-day perod thereafter a petton for rede-
termnaton was fed wth the oard of Ta ppeas. The petton was sgned
for Navarro Lumber Co., by ohn . ebere. ebere, presumaby, s a
New York awyer, and n sgnng tbe petton he was actng pursuant to a
power of attorney to hm, of date November 9, 1923, e ecuted by the three trus-
tees. On pr 25, 1925, an addtona or corrected petton, sgned and verfed
by the three trustees personay, was fed wth the oard. In ths petton
the trustees say:
We desre to and do confrm a of the sad acts of our sad attorneys, and
we verfy and adopt as our own act and deed, the sad petton fed wth the
Unted States oard of Ta ppeas, on pr 11, 1925.
ttached to the petton was a copy of the power of attorney to ebere, the
decree of the Caforna court dssovng the corporaton and appontng trus-
tees, a reference and quotaton from secton 400 of the Cv Code of Caforna
showng that the trustees had authorty, under the provsons of that statute,
to do the acts and thngs they were then dong.
On ebruary 13, 1928, the oard promugated ts fndngs of fact and opnon,
and entered a defcency order aganst the umber company for 1919 and 1920
and on anuary 17, 1929, the Commssoner maed to each of the pettoners a
notce statng:
Under the provsons of secton 280 of the Revenue ct of 1926, there Is
proposed for assessment aganst you the amount of 33,086.18 pus any accrued
penaty and Interest representng your abty as a transferee of the assets of
the Navarro Lumber Co. for outstandng ta assessed aganst sad company
for the years 1919 and 1920.
Pettoners appeaed to the oard of Ta ppeas for a redetermnaton of
ther abty as transferees under secton 280 (Revenue ct of 1920). The
bass of the petton was that the assessment proposed by the Commssoner
aganst pettoners as transferees was barred when he maed hs notces
( anuary 17, 1929). In ths proceedng a stpuaton was fed, as foows:
The oard may fnd and determne that there are defcences
wth respect to the abty of Navarro Lumber Co. for the ta abe
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280, rt. 1291.
328
years 1919 and 1920 In the respectve amounts of 13,568.75 and 17,630.97,
savng and reservng to the pettoners such rght or rghts as they
may have under the aw and the evdence, upon ther peas that the statute of
mtatons has run aganst the assessment .
The stpuaton aso rected t was agreed that pettoner Dusenbury receved
on ugust 7, 1922, dstrbutons n qudaton of the umber company In
the sum of 26,947.70, and that pettoner uzard receved, at the same tme,
sums n e cess of the tota amount of the stpuated ta .
On ebruary 1, 1934, the oard (ve members dssentng) decded aganst
pettoners, hodng uzard and Dusenbury abe, as transferees, n the amount
of 31,199.72 (the stpuated amount), pus Interest thereon from ebruary
26, 1926, to the date of assessment at the rate of 6 per cent per annum.
Pettoners have appeaed to ths court, and assgn the foowng grounds of
error: rst, that the Navarro Lumber Oo. s the ta payer that ncurred the
ta for 1919 and 1920 on whch the proposed abty of the pettoners s
founded second, that Navarro Lumber Co. was totay dssoved n 1922 and
dd not e ecute or fe the appea to the oard n 1925, on whch the Com-
mssoner rees for an e tenson of the perods of mtaton for assessments
aganst that company thrd, that the Commssoner has not shown that the
umber company ever e tended the perod of mtatons beyond the statutory
perod March 15, 1925, and March 8, 1926, respectvey fourth, that the
notces of abty maed to these pettoners on anuary 17, 1929, were
maed more than one year ater than ether of those dates, and that the assess-
ments proposed In them were therefore barred when the notces were maed
and ffth, that the oard erred when It ordered for each pettoner a abty,
pus nterest.
Secton 280 of the Revenue ct of 1926 authorzes the assessment of the
abty of a transferee of property of a ta payer, In respect to the atter s
ta and provdes that ths abty sha be assessed wthn one year after
the e praton of the perod of mtaton for assessment of ta aganst the
ta payer and further provdes that when the ta payer was a corporaton,
but has termnated ts e stence, the perod of mtaton for assessment aganst
t sha be the perod whch woud be In effect If t were st In e stence.
The provsons of the ct appy to any ta Imposed by that (1926) or any
pror ncome ta ct,
rom what has been sad, It w be seen that the foundaton of the appeas
s that the charter of the umber company havng been wthdrawn n 1922, the
petton fed n Its behaf n 1925 by the trustee was of no effect and dd not
e tend the perod of mtaton for assessments aganst the corporaton or
aganst pettoners as dstrbutees of the corporaton.
On the other hand, t s argued, f the appea was propery fed and bndng
on the corporaton, admttedy ts fng woud stop the runnng of the mta-
ton perods unt the fna decson of the oard and, In that case, notce
to pettoners wthn one year after the e praton of the perod of mta-
ton for assessment aganst the ta payer woud bnd them and carry over to
them the ta abty of the corporaton.
Pettoners te us that, though an appea was fed n behaf of the umber
company, t was not fed ty the umber company (the ta payer) and there-
fore dd not e tend, as aganst pettoners or the company, the perods of
mtaton. To sustan ths, they say that as the umber company was dssoved
In the year 1922 t had ceased to e st from that moment and under the aw
of the State of ts Incorporaton t was egay dead and Incapabe of takng
any acton whch woud egay bnd ether tsef or pettoners as transferees
of ts property.
Pettoners rey on Grossman v. venda Water Co. (150 Ca., 575). That
was an acton In debt commenced aganst a dssoved corporaton and certan
persons aeged to be stockhoders. Summons was served on the presdent of
the corporaton a demurrer was fed and overrued and an answer was then
fed by the stockhoder defendants n whch they dened abty on the part
of the aeged corporaton and aso dened the e stence of the corporaton,
aegng t had been vountary dssoved under the Caforna statute. No
peadng or answer was fed by the corporaton, and a udgment aganst It was
taken by defaut. On appea, the |udgment was set asde by the Supreme
Court of Caforna on the ground that It had been entered by the cerk wth-
out an order of court. Thereupon the pantff dsmssed the acton as to
the ndvdua defendants, and an order was made by the tra court appontng
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329
I 280, rt. 1291.
a referee to take an accountng between pantff and the corporaton. On the
bass of the referee s report, |udgment was entered n favor of pantff aganst
the corporaton. Subsequenty a proceedng was begun aganst the stock-
hoders ndvduay, aegng the recovery of the |udgment aganst the cor-
poraton and ts bankruptcy. The stockhoders appeared and moved to set
asde the |udgment upon the ground that the court had no |ursdcton to
enter the same for the reason that pror to the Insttuton of the sut the
corporaton had been dssoved and had ceased to e st Ths moton prevaed,
and on appea the Supreme Court of Caforna sad:
It s setted beyond queston that, e cept as otherwse provded by statute,
the effect of the dssouton of a corporaton Is to termnate ts e stence as
a ega entty, and render t Incapabe of sung or beng sued as a corporate
body or n ts corporate name. It s dead, and can no more be proceeded
aganst as an e stng corporaton than coud a natura person after hs
death. There s no one who can appear or act for t, and a actons pendng
aganst t are abated, and any |udgment attempted to be gven aganst t
Is vod. s to ths, a the te t-wrters agree, and ther statement s sup-
ported by an overwhemng weght of authorty. (See 5 Thompson on Cor-
poratons, sectons 6721, 6722, 6723 Cark and Marsha on Prvate Cor-
poratons, sectons 322, 329 nge and mes on Corporatons, secton 196 2
Morawetz on Corporatons, secton 1031 10 Cyc, 1316 7 m. and ng. ncy- of
Law, 854 Pendeton v. Russe, 144 U. S., 640 (12 Sup. Ot, 743) rst Natona
ank v. Coby, 21 Wa., 609 Mumma v. Potomac Co., 8 Pet., 281 St urges v.
Yanderbt, 73 N. Y., 384 Rodgers v. dratc, tc., Co., 148 N. T., 38 (42
N. ., 515).) There s no statute of ths State that authorzes the commence-
ment or contnuance of an acton aganst the corporaton after ts ega death.
We have no statute smar to that of severa States, provdng that In the
event of the dssouton of a corporaton ts e stence sha be contnued
ether ndefntey or for a specfed tme for the settement of ts affars.
Statutes smar to our secton 400 of Cv Code above quoted do not have the
effect of contnung the e stence of the corporaton as cestu que trust, or
otherwse, so as to render t capabe of defendng actons n ts corporate
name. (Thompson on Corporatons, secton 6739 Cark and Marsha on
Prvate Corporatons, 333 Sturges v. anderbt, 73 N. Y., 384.) If secton
385 of the Code of Cv Procedure, provdng that an acton does not abate
by the death or any dsabty of a party, f the cause of acton survves, Is
appcabe to the case of a corporaton, t does not authorze the contnuance
of the acton aganst the corporaton Itsef, but aows the acton to be con-
tnued ony aganst the representatve or successor n nterest, brought n
on moton. (McCuoch v. Norwood, 58 N. Y., 5G2, 508. See, aso, udson v.
Love, 35 Ca., 4G3.) There beng no statute whch can be hed to modfy the
genera rue, t woud seem that the |udgment n ths case was as much of
a nuty as f t had been gven aganst a dead natura person, and that
pantffs remedy, after the dssouton of ths corporaton, was nganst the
drectors who contnued such at the tme of dssouton as trustees and the
stockhoders. (Sturges v. anderbt, 73 N. Y., 384.)
(See aso an Landngham v. . T. Packers, 189 Ca., 353, 208 Pac, 973
ogan v. Superor Court, 74 Ca. pp., 704, 241 Pac, 584 Panzer- amton v.
ray, 274 Pac, 770 Smth v. Lews, 287 Pac, 472, s. c, 295 Pac, 39.)
Pacng themseves squarey on the Caforna aw, as Interpreted and pro-
nounced by the Supreme Court of Caforna n the Crossuan case, pet-
toners say that, snce the Navarro Lumber Co. had been egay dssoved
n 1922, It coud not thereafter be served wth process, coud not appear,
and coud not tsef admt anythng, nor authorze anyone to do so for t.
That, n these crcumstances, a that was done n ts behaf by Its trustees
n the matter of the appea to the oard of Ta ppeas was a nuty, and
therefore had no effect, and coud have no effect, n e tendng (he perods
of mtatons. If the premse be admtted, and f pettoners rght to cha-
enge the bndng effect of the appea be kewse admtted, the concuson whch
pettoners urge must foow because, conceded , the notces of the Comms-
soner to pettoners of the assessments aganst them, as transferees, were not
maed unt anuary 17, 1929, and that date was consderaby more than one
year after the e praton of the orgna perods of mtaton for assessment
of the ta aganst ther transferor, the umber company. ut, n our vew,
pettoners premse Is not sustanabe on ether of two grounds.
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5280, rt. 1291.
330
rst, as we have aready shown, the Commssoner s notce of defcences
to the umber company was dated ebruary 10, 15)25. That was wthn the
5-year perod. Its effect, therefore, was to f and determne the company s
ta abty for the years 1919 and 1920 whch, uness appeaed from to the
oard of Ta ppeas, woud at the e praton of 60 days become fna and
bndng. Wthn the 00-day perod a petton for a redetermnaton of the
defcences was fed wth the oard. It was entted ppea of Navarro
Lumber Co., but t was sgned for the company by the three trustees, who,
n the dssouton decree, were drected to wnd up ts affars and dstrbute
ts assets.
In takng the appea, pettoners set out the authorty on whch they acted.
They speak of themseves as the trustees of the umber company now n
process of qudaton and pont to the statute of Caforna for ther
authorty to act. y reference to that statute (Cv Code, Ca., 1921, ch. 383)
we fnd that they have power to sette the affars of the corporaton, coect
and pay outstandng debts, to sue and to be sued n reaton to the debts
and property of the corporaton, and that they sha be |onty and severay abe
to credtors to the e tent of any property that sha come nto ther hands.
It was n recognton of these dutes and responsbtes that they fed the
appea. We thnk t can not be urged that they were wthout authorty,
or te oard wthout |ursdcton. Indeed, we do not understand counse
to go that far, but rather, to nsst that, because the appea was taken In
the name of the umber company, and the trustees were not themseves sub-
sttuted (after the passage of the 192G ct) formay by name n the pace
and stead of the corporaton, the appea was neffectve and the decson
rendered thereon whoy vod. Counse say that three trustees compose an
ndvsbe fducary, a snge ta payer under present Revenue cts, but that
under the 1924 ct, n effect when the appea was fed, the fducary entty
wh:ch they composed coud not Invoke the |ursdcton of the oard of Ta
ppeas by appeang from the Commssoner s notce. In the same breath
they say the umber company was dead and had no rghts, so that the resut
of the stuaton when the appea was taken was that there was nobody, natura
or artfca, capabe of contestng the Commssoner s determnaton, or ava-
ng of the provsons of aw for a redetermnaton of the Commssoner s
assessment. We have been cted no authorty for ths poston, and we can
fnd none and we shoud be sow to foow any whch mght pont n that
drecton. ut however ths may be, the 1926 ct (283(b)) does provde
that, n any appea then pendng, the oard sha have |ursdcton and so,
on the one ground or the other, we are satsfed that when pettoners as trus-
tees appeaed to the oard, and the oard accepted |ursdcton, the powers
of the oard, on the one hand, and the rghts and prveges of the pettoners,
on the other, were not pre|udced by the fact that the appea was entted
In the name of the umber company, rather than n the names of the trustees
for the umber company.
The oard of Ta ppeas s not a court and, though t may e ercse
udca powers, t s essentay an admnstratve commsson and on ap-
peas from ts decsons, the statute admonshes us to affrm, modfy, or
reverse as |ustce may requre. The appea from the defcency notce, we
thnk, was an appea by the trustees of the umber company, however It may
have been styed n the hearngs or n the peadngs. The defcences n ta
were debts of the umber company. If the assessment was vad, t was pay-
abe out of the assets of the umber company. It was the duty of the trustees
to preserve the assets and pay the debts, and ths duty nvoved contestng
the mposton of the addtona ta . There never was the sghtest doubt n
the trustees mnds that ths was ther duty, and It s perfecty cear that n
takng the appea to the oard they consdered they were performng that
duty. nd we thnk t s nso cear that the decson of the oard, sustanng
the defcency notce of the Commssoner, was no more or ess than an
ascertanment of the vadty of the debt of the umber company for whch,
under the ta statutes, pettoners as trustees were abe, and bound to
account under the ta aws and under the Caforna statutes. It s an
estabshed prncpe that one who prosecutes a sut In the name of another
to estabsh and protect hs own rghts, or who asssts n the prosecuton of
an acton n ad of some Interest of hs own, Is bound by the |udgment.
(Souffront v. Compagne, tc, 217 U. S., 475, 487.)
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831
5280, rt. 1291.
In ths vew, wo hod (1) that the Commssoner s defcency notce of eb-
ruary 10, 1925, was In tme (2) that the petton fed pr 11, 1925, by
the trustees for a redetermnaton of the defcences, however styed, was n
ega effect an appea by the trustees apponted to admnster the affars of
the dssoved corporaton (3) that the oard of Ta ppeas propery took
ursdcton of the petton (4) that the effect of the petton was to suspend
the runnng of the statute aganst the umber company and ts trustees unt
the fna decson of the oard (5) that the defcency notces aganst pet-
toners as transferees, maed anuary 17, 1929, were maed wthn one year
after the fna decson of the oard ( ebruary 13, 1928) and were therefore
wthn the statutory perod.
We have sad there s st another ground on whch the oard s concuson
shoud be sustaned. We sha dscuss t brefy. Pettoners were the prn-
cpa stockhoders of Navarro Lumber Co. They were aso drectors of that
corporaton. In these capactes they sgned the appcaton for dssouton
of the corporaton, and by an order of court they and another were apponted
trustees of the credtors and stockhoders of the dssoved corporaton wth
power to sette the affars of the corporaton, pay ts debts, and dstrbute
Its assets. Pursuant to ths power In ugust, 1922, Dusenbury receved
26,947.70, and uzard receved sums n e cess of the tota amount of the
assessed ta . We thnk we are safe In assumng that together they receved
a of the dstrbutve assets of the corporaton. On ths assumpton, they
were |onty and severay abe to the Unted States (to the e tent of the
amounts receved by them) for a amounts of ta es whch mght be there-
after egay assessed aganst the corporaton. Ths abty accrued not ony
under the edera ta aws but under the Caforna aws. They were, there-
fore, the partes soey n nterest n resstng cams aganst the corporaton.
If, therefore, on ebruary 10, 1925, when the Commssoner maed the notce
of defcences to the umber company, they had taken no acton, but aowed
the 60-day perod to e pre, they woud have been abe, at the sut of the
Unted States, to respond to the fu amount of the assessed ta es. It was,
therefore, soey n ther nterests that the petton for redetermnaton shoud
be fed wth the oard. They dd fe such petton and prosecuted t to
fna decson. Thereafter, and when assessed by the Commssoner ns trans-
ferees under the provsons of secton 280(a) of the 1920 ct, they ndvduay
pettoned for redetermnaton of ther ndvdua abty, groundng ther
appeas on the statute of mtatons, and that queston we have dsposed of.
ut f we had concuded dfferenty on that queston, we shoud never-
theess be constraned to hod that t Is not opeu to them now to rase the
queston of mtatons. Pettoners, from the moment of the dssouton of
the umber company, were the rea partes n nterest n a the proceedngs
before the Commssoner and the oard. They sought and had the beneft
of a hearng and reconsderaton of the ta cam. Thus they secured the
deay on whch ther defense s but. To permt them now to contnue to
hod the assets of the corporaton and to say that that entre proceedng was
a nuty, Incudng the notces to pettoners as transferees, because the
corporaton, beng dead, was wthout ega rght to chaenge the ta , woud be
to aow pettoners to repudate ther own vountary appearance n the cor-
poraton s behaf, to deny ther own peadngs, and to take nconsstent
postons n the same tgaton and ths shoud not be permtted ether to
ta payer or Government n ths case or any other. We thnk t cear that
pettoners as transferees are now estopped to deny the reguarty of the
appea whch they caused to be fed wth the oard
Ths eaves ony for consderaton the queston whether Interest may prop-
ery be ncuded on the amounts stpuated to be due. To decde that queston,
t s unfortunatey necessary to repeat some of the facts. On ebruary 10,
1925, the Commssoner maed a notce to the umber company, ndcatng a
defcency In ta for the year 1919 of 13,568.75, and for 1920, 39,517.43.
The two amounts aggregate 53,086.18. Wthn the 00-day perod thereafter
pettoners, as trustees, apped to the oard for redetermnaton of the de-
fcences. On December 10, 1925, whe the appea was pendng, the Com-
mssoner made a eopardy assessment of the defcency of 13,568.75 for
1919. On ebruary 27, 1928, the oard entered an order of redetermna-
ton for a defcency of 13,508.75 for 1919 and 39,517.43 for 1920, and on
anuary 17, 1929, the Commssoner maed to each of the pettoners a notce
statng:
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280, rt. 1291
332
Under the provsons of secton 280 of the Revenue ct of 1926, there a
proposed for assessment aganst you the amount of 53,086.18 pus any accrued
penaty and Interest representng your abty as a transferee of the assets
of the Navarro Lumber Co. for outstandng ta assessed aganst sad company
for the years 1919 and 1920.
In the subsequent pettons to the oard (pettoners-transferees) t was
stpuated that the correct defcences for the ta abe years 1919 and 1920
were 13,568.75 and 17,630.97, respectvey.
Pettoners poston here s that these conceded defcences represented
not ony the amount of the orgna ta but the ta pus Interest, and were
ntended to determne fnay, aganst both respondent and pettoners, that
the tota sum due from the company was 31,199.72. Pettoners, moreover,
nsst that there s no statutory authorty for the assessment of nterest
on the abty of transferees. Ths s not our vew of the aw. Secton
280(a)1 of the ct of 1926 mposes nterest on the abty of a transferee
of property of a ta payer, and secton 283(d) provdes that n the case of
a ta assessment mposed by cts pror to November 23, 1921, nterest sha
be coected, as a part of the ta . There s certany nothng In the stpuaton
tsef whch shows that nterest was ncuded n the agreed sum and, n ths
vew, Interest was propery chargeabe from ebruary 26, 1926, the effectve
date of the Revenue ct of 1926.
Inasmuch, however, as t appears that the pettoner Dusenbury receved
ony the sum of 26,947.70 as a transferee of the corporaton, the order of
the oard of Ta ppeas, requrng hm to pay 31,109.72, w be corrected to
the sum receved by hm as transferee, wth nterest from ebruary 26, 1926.
The transferees abty s severa, and therefore each s responsbe, to the
e tent of benefts, for the entre ta but the payment of the entre ta by one,
or both onty, w dscharge the abty.
Modfed and affrmed.
rtce 1291: Cams n cases of transferred -16-8052
assets. Ct. D. 1107
INCOM T R NU CT O 1918 D CISION O COURT.
1. ont Stock ssocatons Consodaton ursdcton op
oafd Transferee Labty Lmtaton stoppe.
ont stock assocaton n 1920 turned over a Its assets to an-
other assocaton whch had been organzed, owned, and controed
by substantay the same Interests, n e change for shares of the
atter s stock, and thereafter the consodated assocaton assumed
the assets, abtes, dentty, and name of the frst assocaton.
Proceedngs wth the Commssoner and before the oard of Ta
ppeas were conducted In recognton of the fact, now sought to
be dened, that the successor assocaton was the ta payer and was
abe for the ta es asserted for 1919 and 1920. In 1931, by moton
to dsmss for want of ursdcton, the cam was frst made be-
fore the oard that the two assocatons were not consodated,
and that the orgna assocaton and not the pettoner was the
ta payer. Under the facts of the case, the oard had ursdcton
and correcty hed that the pettoner was abe as transferee for
the ta es accrued aganst ts predecessor, and that the statute of
mtaton had not run. Moreover, havng for severa years deat
wth the Government on the assumpton that t was the ta payer,
the consodated assocaton was estopped, after the statute of
mtaton had run aganst ts predecessor, to assume an ncon-
sstent poston.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (29 . T. ., 910) affrmed.
8. Certorar Dened.
Petton for certorar dened October 28, 1935.
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280, rt. 1391.
Unted States Crcut Court op ppeas for the fth Crcut.
amrock O Co., pettoner, v. Commssoner of Interna Revenue, respondent.
Petton for revew of decson of the Unted States oard of Ta ppeas (dstrct
of Te as).
efore ryan, oster, and utcheson, Crcut udges.
May 14, 1935.
OPINION.
utcheson, Crcut udge: Ths petton to revew a oard of Ta ppeas
decson questons not the amount, but the e stence of the ta abty found.
The ponts made are based on the fact that whe the ta accrued not aganst
Shamrock O Co., pettoner, but aganst Shamrock O Co., Its predecessor,
wavers were obtaned from, the defcency etter was sent to, and a proceed-
ngs Is connecton wth the determnaton and coecton of the ta , Incudng
the proceedngs before the oard, were had wth pettoner. The ponts are the
two made before the oard: (1) that the oard was wthout |ursdcton be-
cause the appea had not been prosecuted by the ta payer (2) that the deter-
mnaton and coecton of the defcences are barred by the statute of mta-
tons, because the wavers on whch the Commssoner rees were not sgned by,
or by the authorty of, Shamrock O Co., the ta payer and (8) the addtona
one, that the facts do not make out a case for transferee abty. The facts
and the proceedngs are n a respects accuratey and n most respects fuy,
stated n the opnon of the oard (29 . T. , 910). We sha abstract and
suppement, but not restate, them. They show that In 1920 there were two
|ont stock assocatons,1 Shamrock O Co. and Chapman-Cark- arbn, Trus-
tees, engaged n the o busness, whch had been organzed, and were owned
and controed by substantay the same nterests. Shamrock O Co. fed
tmey Income ta returns for the years endng December 31, 1919, and Decem-
ber 31, 1920, but fed none for the subsequent years. In the fu of 1920 these
assocatons, pursuant to negotatons ookng to that end,1 were consodated.
The form chosen to effect ths consodaton was a turnover of a of the Sham-
rock O Co. s propertes to Chapman-Cark- arbn In e change for shares of
stock n Chapman-Cark- arbn, Trustees, to be ssued by that assocaton to
the stockhoders of Shamrock, share for share. Thereafter, even to the e tent
of takng ts name, the consodaton assumed to be, acted as, and was Sham-
rock O Co. So compete was ths merger of the two ont stock assocatons,
bo absoute the assumpton by the successor consodaton of the assets, the a-
btes, the dentty, even to the name, of the Shamrock company, that nether
Mr. Dunaway, ts presdent, nor the counse empoyed n connecton wth ths
1 On ane 30, 1920. the same Interests owned or controed 92.7 per cent of the out-
standng capta stock of the Shamrock O Co., and 90.T per cent of the outstandng
capta stock of Cnapman-Cark- arbn, Trustees. On December 31, 1920, these percent-
ages became respectvey, 90.8 per cent and 9 .7 per cent. Of the eght members of the
board of trustees of Chapman-Cark- arbn, Trustees, seven were on the board of trustees
of the Shamrock O Co.
On December 13, 1920, Shamrock O Co. proposed to purchase the Chapman-Cark-
arbn propertes. On December 14, 1920, Shamrock O Co. addressed a communcaton
to Chapman-Cark- arbn, Trustees, readng n part as foows :
I beg eave to advse that the drectors of the Shamrock O Co. have passed a resou-
ton favorng the consodaton of Its propertes wth your propertes. Wthout
reference to the actua vaues of the propertes, e cept ther reatve vaues that the two
companes be combned upon the bass of ther present set-up vaues for the purpose of
ssung certfcates of fractona Interest to the partes ownng same. Ths to be accom-
pshed n such manner as may sut your convenence. It beng suggested that you take
Over a the propertes, rea and persona, cash and credts of every character whatsoever
of the Shamrock O Co.
On the same date Chapman-Cark- arbn, Trustees, drected ths etter to the Shamrock
O Co. :
Gentemen : Tour proposton of December 14, 1920, for consodaton of your com-
pany wth the Chapman-Cark- arbn Interests has ths day been by resouton of the
trustees, accepted and you w kndy take such steps as necessary ookng to the ega
consummaton of the same and to that end we ask for a |ont conference for the purpose
of workng oat the detas and form.
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280, rt. 1291.
334
ta matter ever knew or supposed, unt the 1931 change of front, anythng
other thnn that the consodaton contnued to be and was, the Shamrock O Co
In 1925 pettoner sod ts assets to the Prare O Co. and qut busness, bat
Dunaway remaned In Wchta as to wnd up the affars of the assocaton.
Contnung for more than seven years, begnnng n 1924, proceedngs were
conducted wth the Commssoner and before the oard of Ta ppeas In
compete recognton of the fact now sought to be dened, that Shamrock O
Co., the pettoner was, and contnued after the consodaton to be, Shamrock
O Co., the ta payer, and that the ta abty asserted for the years n ques-
ton was by reason of the consodaton the ta abty of the pettoner. In
Its petton to the oard for the redetermnaton of defcences fed anuary
22, 1927, a forma and engthy one, a of the proceedngs In connecton wth the
organzaton of the two assocatons was set out and the cam was made that
the two companes were so cosey aated as to be entted to make a con-
sodated return. Indeed, t was camed that n 1919 and 1920 when the ta
abty accrued, there was such a unty of operatons of the two couped wth
such ownershp and contro by the same Interests, of a of the stock of both,
assocatons as that the two were n effect one. Nothng was ever camed to
the contrary unt In 1931, when ths about fnce was made. Then t was that
the cam was frst tendered, that Shamrock O Co. was not consodated wth
Chapman-Cark- arbn, but was sod out and dssoved, and that Shamrock
O Co., the pettoner, was not a contnuaton of t. In the ong drawn-out
proceedngs and peadngs before the oard there was a cam to addtona
aowances for nvested capta, but the man Insstence was that the two
concerns were affated, that the ta shoud have been fgured on the bass of
a consodated return, and that snce Chapman-Cark- arbn had sustaned net
osses whch Shamrock was entted to take as deductons, the ta assessed was
e cessve. In anuary, 1929, there was an amendment to the petton settng
up mtaton, not on the ground of any want of authorty on the part of
Dunaway to sgn wavers, but upon the ground that at the tme the wavers
were sgned, the ta es had aready become barred. In pr, 1929, the petton
was agan amended to add certan cams for amortzaton, but st the man
pont made In ths petton, as n the others, was that the two assocatons were
affated most cosey, n fact were dentca, and shoud be so ta ed. On
ebruary 18, 1931, by moton to dsmss for want of |ursdcton, t was for
the frst tme camed that pettoner Shamrock O Co. was not the ta payer,
and that a wavers had been sgned and proceedngs authorzed and taken
under the mstaken Impresson of pettoner s presdent, that t and the Sham-
rock O Co., whch had ncurred the ta , were one and the same. The oard
was rght n hodng that the pettoner was for the purposes of the proceed-
ngs before t, the ta payer, and that mtaton had not run. We thnk, too,
that there s no mert In the addtona pont the ta payer seeks to make here,
the pont that pettoner s not abe as a transferee because the orgna
Shamrock O Co. was a partnershp, and snce partners may be ooked to for
partnershp debts, a transfer of a the partnershp assets does not charge them
n the hands of the transferee wth a en for partnershp debts.
These proceedngs dea wth edera ta es. s to edera ta es, Te as
stock assocatons are not partnershps, they are corporatons. ( urke
Waggoner ssocaton v. opkns, 269 U. S., 110 T. D. 3790, C. . -, 147 .)
They are abe as corporatons for the ta es they ncur. Whatever may be
the rue In Te as as to the abty to genera credtors, of the members of
such assocatons, as partners, and whatever may be the rue there as to the
effect upon genera credtors of a transfer of a the assets, we thnk t cear
that as to ta abty, a transfer by a |ont stock assocaton whch strps
In hs testmony gven nfter, In 1931, the pont of dfference between the two assoca-
tons had been rased, Dunaway, who sgned the wavers, conducted the negotatons, and
authorzed tho proceedngs takon by Shamrock O Co. n connecton wth the ta . makes
ths cear. e testfed that he dd not know that actuay tho Chapman-Carc- arbn.
Trustees, had purchased the Shamrock, and that the Shamrock O Co. then e stng had
been dssoved thnt he thought Shamrock had bought Chapman Cark- arbn. t that
tme I thought that the company I was representng was st the same Shamrock O Co.,
organzed In March, 11)18, a contnuaton of the company.
4 Thompson . Schmtt (274 S. W.. 554 115 Te .. 53) ctor Refnng Co. v. Oy
Natona ank of Commerce ( 74 S. W.. 561 f Te .. 71) : oster v. McCamey (274
S. W., 502 115 Te ., 40) owe . eystone Ppe d Suppy Co. (274 S. W., 563: 115
Te ., 158).
Industra Lumoer Co. v. Te as Pne Lc d ssocaton (72 S. W., 875).
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335
283.
It bare makes the taker abe as transferee for the edera ta es It owes.
ut the abty of pettoner here s not merey equtabe, t s ega. It rests
npon a contractua bass. We thnk It too cear for argument that what-
ever the form of the transacton by whch the consodaton was effected,
In fact and In aw a consodaton resuted a consodaton whch, carryng
forward nto tsef the assets and abtes of the consttuent assocatons,
thereafter owned the assets and owed the debts of ts consttuents. Such a
consodaton mpes as one of ts terms, an agreement to pay the debts of
Its consttuents. very acton that ts offcers took unt the change of
front n 1931, testfes to the e stence of ths agreement, and to ther Inten-
ton to carry t out. fter the consodaton, Shamrock O Co. consodated
was to a ntents and purposes, as to ta abtes ts consttuents had
Incurred, the ta payer. Shamrock O Co., the pettoner here, s and has
been snce the consodaton Shamrock O Co., the ta payer, both because
of the contnuaton n fact. If not In form, of the Identty of the orgna
assocaton, and because n connecton wth and as a part of the consoda-
ton an Imped agreement arose that t woud pay and dscharge a debts.
The Government has and has had snce the consodaton, the rght to ook
to t for the ta es. negotatons and agreements thereafter made wth
regard to the ta es were propery made wth ts offcers. proceedngs
taken wth regard to the ta es were propery taken wth It and wth them
Commssoner v. Nchos Com, 65 ed. (2d), 1000 Ct D. 764, C. .
II-2, 246 North mercan Coa Corporaton v. Commssoner, 63 ed. (2d),
1011 urnet v. an oaqun, 62 ed. (2d), 123 Ct. D. 406, C. . -2, 260
Pttsburgh Termna Coa v. ener, 56 ed. (2d), 1072 Ct D. 501, C. .
I-1, 225 Warner Coeres Co. v. Unted States, 63 ed. (2d), 34 Ct. D.
703, C. . I-2, 227 Commssoner v. New York Trust Co., 54 ed. (2d), 463
Ct. D. 540, C. . I-2, 320 Traherne Pump Co. v. Commssoner, 27 . T. .,
883 affrmed 71 ed. (2d), 584) and ths whoy wthout reference to ques-
tons of estoppe or mseadng. When It Is addtonay shown, as here, that
through a ong course of years pettoner has been assumng to be, and act-
ng upon that assumpton the Government has deat wth It as, the ta payer,
and that It commenced to cam otherwse ony when, If It may now unsay
what t has been sayng, mtaton has barred the cam, It s qute cear
that t Is now estopped to assume an nconsstent poston. (Php Carey
Ufg. Co. v. Dean, 58 ed. (2d), 737 Ct. D. 557, O. . I-2, 325 Swartz v.
Commssoner, 69 ed. (2d), 633 Panters Cotton O Co. v. opkns, 53 ed.
(2d), 825 Waker v. Commssoner, 63 ed. (2d), 346 Lucas v. unt, 45
ed. (2d), 781 artwe Ms v. Rose, 61 ed. (2d), 441.)
The petton Is dened.
S CTION 283. T S UND R PRIOR CTS.
Secton 283. -19-8079
Ct. D. 1115
ncome ta revenue acts of 1918 and 1026 decson of court.
Interest Cam n batement Notce and Demand Statute
ppcabe.
Defcency assessments for 1917, 1918, and 1920 were made n
1919, 1924, and 1921, respectvey, and notce and demand made
and cams n abatement fed, as to the 1917 and 1918 t es, pror
to the enactment of the Revenue ct of 1926. The date of fng
the cam for abatement of the 1920 ta es s not shown n the
record. Upon the coecton of the ta es, n 1929, nterest was pay-
abe as prescrbed by secton 250(e) of the Revenue ct of 1918,
at the rate of 6 per cent per annum from the due dates of the
ta es. The nterest provsons of secton 283(h) of the Revenue
ct of 1926 do not supersede the provsons of secton 250(e) of
the 1918 ct where notce and demand have been made by the
coector and where a bona fde cam n abatement has been
fed.
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336
Unted States Cbcut Coubt of ppeas fob the Nnth Crcut.
Crocn Wamette Paper Co., a Corporaton, appeant, v. ohn P. McLaughn,
as Coector of Unted Staes Interna Revenue for the rst Dstrct of Ca-
fornq, appeee.
Upon appea from the Dstrct Court of the Unted Stntes for the Northern Dstrct of
Caforna, Southern Dvson.
October 17, 1035.
OPINION.
Wbur, Crcut udge: ppeant brought ths acton to recover certan
amounts whch It cams were Iegay e acted from It by the coector
of Interna revenue of the Unted States, as and for nterest upon ta es for
the years 1917, 1918, and 1920 upon assessments made In May, 1919, March 21,
1924, and March 15, 1921, respectvey, and a coected n 1929. The Interest
for whch refund s camed s that for the perod prer to the enactment of
the Revenue ct of ebruary 26, 1926, t beng conceded that the proper
amount of nterest for the perod thereafter was coected.
The cause of acton Is stated n three counts, one for each of the years
nvoved. or each year the appeant fed cams n abatement, n Septem-
ber, 1919, as to the 1917 ta , on March 29, 1924, as to the 1918 ta . The date
of the cam In abatement for the 1920 ta s not stated In the peadngs, ev-
dence or fndngs.
The defcency ta for 1917 was assessed n May, 1919, n the amount of
177,760.21. The Commssoner reduced ths amount to 140,601.46 In actng
upon the cam n abatement fed n September, 1919, and on appea to the
oard of Ta ppeas ths amount was further reduced to 57,872.48. Ths
amount was coected December 18, 1929, wth Interest from the date of the
Commssoner s assessment September 22, 1919, at one-haf of 1 per cent per
month (6 per cent per annum). The amount the appeant seeks to recover
on ths tem of Interest s the sum of 6 per cent per annum from September
22, 1919, to ebruary 28, 1926, the date of the enactment of the Revenue ct
of 1926.
The defcency assessment for 1918 was made by the Commssoner March 21,
1924, n the sum of 19,786.76 and a cam n abatement was fed March 29,
1924. The appeant seeks to recover 2,324.94 beng 6 per cent nterest per
annum on the defcency assessment of 19,786.76 from March 21, 1924, to
ebruary 26, 1920.
The unpad baance of the assessment for 1920 ta es amounted to 222,-
978.50. The ta return was fed by the ta payer on March 15, 1921.
defcency assessment was made by the Commssoner uy 7, 1927, but was set
asde by the oard of Ta ppeas on May 22, 1929, beng f ed by the
oard of Ta ppeas n accordance wth the orgna assessment of the ta
by the ta payer, I. e., a ta abty of 754,276.92 wth an unpad baance
of 222,978.50, and was coected November 16, 1929, wth Interest amountng
to 111,047.97. ppeant seeks to recover 01,592.46 of ths amount, beng
nterest nt 6 per cent per annum from March 15, 1921, to ebruary 26, 1926.
The appeant rees upon the provsons of secton 283 (f), (e), (h) of the
Revenue ct of 1926, and partcuary upon the cause provdng that nterest
sha be coected at the rate of 6 per cent per annum from the date of the
enactment of ths ct up to the date of notce and demand from the coector.
(Secton 283, sub. (h).) ppeant states hs Interpretaton of ths cause
as foows: On the od assessments the essenta pont was that nterest
shoud start on the date of the enactment of the ct. The appeee cams
that the provson as to 6 per cent Interest from the date of the ct above
referred to s made entrey nappcabe to the assessments nvoved here
because of concudng sentence of sub. (h) as foows: The nterest provded
In ths subdvson sha be ncuded ony In cases where no other nterest
for the same perod s provded by aw. Subdvson (e) of secton 283
provdes nterest sha, e cept as provded In subdvson (h.)
of ths secton be computed as f ths ct had not been enacted. It Is
cear then that the aw reguatng Interest on ncome ta es n effect when
the Revenue ct of 1926 was enacted s an mportant factor n nterpretng
the provsons of secton 283, whch twce refers to e stng aw, n the frst
nstance (sub. (e)) contnung t n effect, and n the second nstance mtng
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337
283.
the new provson for Interest to cases where no other nterest Is
provded by aw. The Revenue ct of 191S, secton 250(e) provdes for
the coecton of nterest as foows:
If any ta remans unpad after the date when It s due, and for 10 days
after notce and demand by the coector, then, e cept In the case of estates
of nsane, deceased, or Insovent persons, there sha be added as part of the
ta the sum of 5 per centum on the amount due but unpad, pus nterest at
the rate of 1 per centum per month upon such amount from the tme It
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 Is decded
sha be at the rate of one-haf of 1 per centum per month.
The coector contends that the provso appes n the case at bar because
here a bona fde cam In abatement was fed and consequenty that Interest
Is to be coected from the date the ta was due unt pad at the rate of
6 per cent per annum, and that the provson as to demand and notce s
appcabe ony when t s sought to coect the penaty of 5 per cent and the
hgher rate of 12 per cent per annum. ppeee s contenton, then, Is n efTeet
that by fng a cam n abatement as to the entre defcency ta camed the
appeant brought Into effect the 6 per cent per annum provso of secton
250(e) of the Revenue ct, and precuded the coector s nvokng the penaty
provsons of that secton by demandng the amount of the ta whch was
dsputed by the cam n abatement. Ths seems to be a reasonabe construc-
ton of ths statute and to be n accord wth the artce 1003 of Reguatons 45
promugated by the Secretary of the Treasury n 1920 under the Revenue ct
of 1918:
Interest on ta . Where the tme for the payment of any Instament of the
ta s postponed at the request of the ta payer, nterest at the rate of 6 per
cent per annum s added from the orgna due date. If any ta
remans due and unpnd for 10 days after notce and demand by the coector,
or n the case of the frst nstament as computed by the ta payer remans due
and unpad for 10 days, nterest at the rate of 12 per cent per annum Is added
from the due date, e cept that the Interest on any amount whch n the sub|ect
of a bona fde cam for abatement sha be at the rate of 6 per cent per
annum, .
What we have sad so far appes to the nterest on the assessments of ta es
for 1917, 1918, and 1920. Wrtten demand and notce were gven by the
coector for the ta es for the years 1917 and 1918 whch started nterest at
12 per cent per annum under secton 250(e) supra, of the Revenue ct of
1918, athough Interest at 6 per cent ony was coected. ppeant s soe cam
to recover the nterest so pad s on the theory that secton 283(h) of the
Revenue ct of 1928 entrey superseded the provsons of secton 250(e) of
the Revenue ct of 1918, supra. It seems to us cear that Congress had no
such ntenton n enactng secton 283(h) of the Revenue ct of 1926. In that
regard the report of the Senate nance Commttee on the Revenue ct of
1926 (Senate Report No. 52, S ty-nnth Congress, frst sesson, page 33)
makes t cear that where notce and demand had been gven by the coector
under the pror cts those cts shoud appy Instead of the provsons of
secton 283(h) of the Revenue ct of 1926. We quote from that report n
part as foows:
It s aso provded n secton 283(h) that n cases where the assessment
was made before une 2, 1924, the Interest sha begn to run from the date of
the enactment of ths b and contnue up to the date of notce and demand
from the coector, whch w be made after the Commssoner Is freed from
the restrctons on makng the coecton. In certan of these eases, however,
where notce and demand was made at the tme of the assessment. Interest has
been runnng ever snce and secton 283(h) therefore provdes that the 6 per
cent nterest sha not be coected n such cases.
We have not undertaken to state the varous nterreferences of the sub-
dvsons of secton 283 of the Revenue ct of 1926 for the reason that both
sdes agree that the queston nvoved heren Is as to whether or not the
nterest provsons of secton 283(h) of the Revenue ct of 1926 supersede the
nterest provsons of secton 250(e) of the Revenue ct of 1918 where demand
and notce has been gven by the coector as to the ta es of 1917 and 1918, and
In the case of the 1920 ta whether the fng of a bona fde cam n abatement
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1118, rt. 1391.
338
by the ta payer starts Interest and thus brngs the 1920 ta wthn the e cep-
ton contaned n the ast sentence of secton 283(h) of the Revenue ct of
1920, above quoted. or the reason stated we concude that the frst and
second counts of the compant do not state a cause of acton because of the
faure of the pantff to aege that no demand and notce had been gven
to the pantff by the coector pror to 1920. The thrd count fas to state
a cause of acton because there s no aegaton that a bona fde cam In abate-
ment had not been fed by the appeant. Such a cam, as we have hed,
woud start the runnng of nterest from the date the ta was due. The frst
and second counts aso have the same defect.
udgment affrmed.
TITL L G N R L DMINISTR TI PRO ISIONS.
S CTION 1118. P YM NT O ND R C IPTS OR
T S.
rtce 1391: Payment of ta by Treasury cer- -11-8004
tfcates of ndebtedness and Treasury notes. T. D. 4630
Instructons wth respect to acceptance of Treasury bs In
payment of ncome ta es requred to be pad on March 16, 1936.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Coectors of Interna Revenue and Others Concerned:
In connecton wth the payment of the March 15, 1936 (March 16,
1936, payment date), nstament of ncome ta es, you are requested
to arrange, so far as possbe, to have a checks actuay paced n
the hands of, or n transt to, the edera reserve bank, branch bank
or other depostory on the same day n whch they are receved.
The edera reserve banks have been requested to cooperate to the
fuest e tent possbe n recevng deposts of ncome ta checks
durng the heavy ta payment perod n March.
The ony Government securtes acceptabe on March 16, 1936, n
payment of ncome ta es are the varous seres of Treasury bs
aggregatng appro matey 450,000,000, whch mature on March
16, 1936. These bs may be receved on March 16, 1936, ony, or
wthn a reasonabe tme mmedatey pror thereto, and are accept-
abe (at par or face amount) ony n payment of ta es whch the
ta payer s requred to pay on that day, that s, ta es payabe for
the frst tme on that day and whch woud be overdue thereafter.
Treasury bs maturng on other dates are not acceptabe n payment
of nstaments of ncome ta es requred to be pad on March 16,
1936, and Treasury bs maturng on March 16, 1936, are not accept-
abe n payment of nstaments of ncome ta es uness such nsta-
ments are requred to be pad on March 16, 1936.
The procedure prescrbed wth respect to the acceptance of Treas-
ury notes or certfcates of ndebtedness by Treasury Decson 4347
C. . I-2, 425 , approved ugust 9,1932 (paragraphs 19-20, pages
390-391, append to Reguatons 86 ssued under the Revenue ct
of 1934) shoud be foowed n connecton wth the acceptance of
the above-mentoned Treasury bs n payment of ncome ta es
payabe on March 16, 1936.
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839
S 18, rt. 1391.
In order that the Department may have a record of your recept
of these nstructons, t w be apprecated f you w prompty send
an acknowedgment to the Commssoner of ccounts and Deposts,
room 376, Treasury Department.
y drecton of the Secretary:
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved ebruary 29, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
rtce 1391: Payment of ta by Treasury cer- -15-8046
tfcates of ndebtedness and Treasury notes. T. D. 4635
Instructons wth respect to acceptance of Treasury notes of
Seres C-1936 n payment of ncome and profts ta es requred to
be pad on pr 15, 1936.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. 0.
To Coectors of Interna Revenue and Others Concerned:
These nstructons are ssued pursuant to the authorty contaned n
secton 1118(a) of the Revenue ct of 1926 and by vrtue of a other
authorty of aw.
In connecton wth the tender of Treasury notes maturng pr 15,
1936, n payment of ncome or profts ta es, the attenton of coectors
s caed to paragraph 19 of the append to Reguatons 86 and
partcuary to the ast sentence thereof readng as foows:
The amount, at par, of Treasury 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.
Treasury notes of Seres C-1936 were ssued n denomnatons of
100, 500, 1,000, 5,000, 10,000, and 100,000, and w be payabe
n such amounts on pr 15, 1936. Such Treasury notes may be
receved on pr 15, 1936, ony, or wthn a reasonabe tme m-
medatey pror thereto, and are acceptabe (at par or face amount)
ony n payment of ncome and profts ta es whch the ta payer s
requred to pay on that date, that s, ta es due for the frst tme on
that date and whch woud be overdue thereafter. Treasury notes
maturng on other dates are not acceptabe n payment of nsta-
ments or ncome or profts ta es requred to be pad on pr 15,1936,
and Treasury notes maturng on pr 15, 1930, are not acceptabe n
payment of nstaments of ncome or profts ta es uness such nsta-
ments are requred to be pad on pr 15, 1936. Snce the frst n-
stament of ncome and profts ta es determned on a caendar year
bass s due for the frst tme on March 15, regardess of whether an
e tenson of tme s granted to fe the ta return, Treasury notes
maturng on pr 15, 1936, are not acceptabe n payment of ncome
or profts ta es determned on a caendar year bass. If any such
notes are offered n payment of ncome or profts ta es sub|ect to any
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1118, rt. 1392.
340
condton, quafcaton, or reservaton whatsoever, or for any greater
amount than the par or face amount, they w not be deemed to be
duy tendered and the coectors sha refuse any such offer and return
the notes to the ta payers mmedatey.
Gut T. everng,
Commssoner of Interna Revenue.
pproved pr 9, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster pr 10, 1930)
rtce 1392: Procedure wth respect to Treasury certfcates
of ndebtedness and Treasury notes.
R NU CT O 1026.
Instructons wth respect to acceptance of Treasury bs n pay-
ment of ncome ta es requred to be pad on March 16, 1936. (See
T. D. 4630, page 338.)
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MISC LL N OUS T RULINGS.
TITL II ST T T . (1935)
-9-7980
T. D.4627
state ta . Reguatons 80 amended to accord wth provsons
of evenue ct of 1935.
Treasury Department,
Offce of Commssoner of Interna, Revenue,
Washngton, D. 0.
To Coectors of Interna Revenue and Others Concerned:
Pursuant to the provsons of the evenue ct of 1935, approved
on ugust 30, 1935, Reguatons 80, reatng to the estate ta , are
amended as herenafter set forth:
Sec. 201. state ta rates.
(a) Secton 401(b) of the Revenue ct of 1932, as amended, s amended to
read as foows:
(b) The tentatve ta referred to n subsecton (a) (1) of ths secton sha
equa the sum of the foowng percentages of the vaue of the net estate:
Upon net estates not n e cess of 10,000, 2 per centum.
200 upon net estates of 10,000 and upon net estates n e cess of 10,000
and not In e cess of 20,000, 4 per centum n addton of such e cess.
600 upon net estates of 20,000 and upon net estates n e cess of 20,000
and not n e cess of 30,000, 6 per centum In addton of such e cess.
1,200 upon net estates of 30,000 and upon net estates n e cess of
30,000 and not n e cess of 40,000, 8 per centum In addton of such e cess.
2,000 upon net estates of 40,000 and upon net estates n e cess of
40,000 and not n e cess of 50,000, 10 per centum In addton of such e cess.
3,000 upon net estates of 50,000 and upon net estates n e cess of
50,000 and not In e cess of 70,000, 12 per centum n addton of such e cess.
5,400 upon net estates of 70,000 and upon net estates n e cess of 70,000
and not In e cess of 100,000, 14 per centum In addton of such e cess.
9,600 upon net estates of 100,000 and upon net estates In e cess of
100,000 and not In e cess of 200,000, 17 per centum In addton of such e cess.
26,600 upon net estates of 200,000 and upon net estates n e cess of
200,000 and not n e cess of 400,000, 20 per centum n addton of such
e cess.
60,600 upon net estates of 400,000 and upon net estates n e cess of
400,000 and not n e cess of 600,000, 23 per centum n addton of such e cess.
112,600 upon net estates of 600,000 and upon net estates n e cess of
800,000 and not n e cess of 800,000, 28 per centum n addton of such
e cess.
164,600 upon net estates of 800,000 and upon net estates n e cess of
800,000 and not n e cess of 1,000,000, 29 per centum n addton of such
e cess.
222,600 upon net estates of 1,000,000 and upon net estates n e cess of
1,000,000 and not In e cess of 1,500,000, 32 per centum In addton of such
e cess.
(341)
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Msc.
342
382,600 upon net estates of 1,500,000 and upon net estates n e cess
of 1,500,000 una not In e cess of 2,000,000, 35 per centum In addton of such
e cess.
557,000 upon net estates of 2,000,000 and upon net estates In e cess
of 2,000,000 and not n e cess of 2,500,000, 38 per centum n addton of such
e cess.
747,600 upon net estates of 2,500,000 and upon net estates n e cess of
2,500,000 and not n e cess of 3,000,000, 41 per centum n addton of such
e cess.
952,600 upon net estates of 3,000,000 and upon net estates n e cess of
3,000,000 and not n e cess of 3,500,000, 44 per centum n addton of such
e cess.
1,172,600 upon net estates of 3,500,000 and upon net estates n e cess of
3,500,000 and not n e cess of 4,000,000, 47 per centum n addton of such
e cess.
1,407,600 upon net estates of 4,000,000 and upon net estates In e cess
of 4,000,000 and not n e cess of 4,500,000, 60 per centum n addton of such
e cess.
1,657,600 upon net estates of 4,500,000 and upon net estates In e cess of
4,500,000 and not n e cess of 5,000,000, 53 per centum n addton of such
e cess.
1,922,600 upon net estates of 5,000,000 and upon net estates n e cess
of 5,000,000 and not In e cess of 6,000,000, 56 per centum n addton of such
e cess.
2,482,600 upon net estates of 6,000,000 and upon net estates n e cess of
6,000,000 and not n e cess of 7,000,000, 59 per centum n addton of such
e cess.
3,072,600 upon net estates of 7,000,000 and upon net estates In e cess of
7,000,000 and not n e cess of 8,000,000, 61 per centum n addton of such
e cess.
3,682,600 upon net estates of 8,000,000 and upon net estates In e cess
of 8,000,000 and not n e cess of 9,000,000, 63 per centum n addton of such
e cess.
4,312,600 upon net estates of 9,000,000 and upon net estates n e cess
of 9,000,000 and not n e cess of 10,000,000, 65 per centum n addton of
such e cess.
4,962,000 upon net estates of 10,000,000 and upon net estates n e cess
of 10,000,000 and not n e cess of 20,000,000, 67 per centum n addton of
such e cess.
11,662,600 upon net estates of 20,000,000 and upon net estates n e cess
of 20,000,000 and not n e cess of 50,000,000, 69 per centum n addton
of such e cess.
32,302,600 upon net estates of 50,000,000 and upon net estates n e cess
of 50,000,000, 70 per centum n addton of such e cess.
(b) Secton 401(c) of the Revenue ct of 1932 (reatng to the e empton
for the purposes of the addtona estate ta ) Is amended by strkng out
50,000 and nsertng n eu thereof 40,000.
(c) Secton 403 of the Revenue ct of 1932, as amended (reatng to the
requrement for fng return under such addtona estate ta ) s amended
by strkng out 50,000 and Insertng n eu thereof 40,000.
(d) The amendments made by ths secton sha be effectve ony wth
respect to transfers of estates of decedents dyng after the date of the enact-
ment of ths ct.
The second paragraph of artce 6 s amended to read as foows:
If the specfc e empton s appcabe and the decedent ded after the
enactment of the Revenue ct of 1932, the net estate must be determned, for
the computaton of the ta Imposed by the Revenue ct of 1926, on the bass
of a specfc e empton of 100,000, and the net estate must aso be determned,
for the computaton of the addtona ta Imposed by the Revenue ct of
1932, or by the Revenue ct of 1032 as amended, on the bass of a specfc
e empton of 50,000 f the decedent ded pror to ugust 31, 1935, or on a
bass of a specfc e empton of 40,000 f the decedent ded on or after
ugust 81, 1935.
The ast two sentences of artce 7 are strcken out, and n eu
thereof the foowng s substtuted:
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343
Mso.
The rates prescrbed by the Revenue ct of 1934 for the computaton of the
addtona ta are appcabe to estates of decedents dyng on or after May
11, 1634, and before ugust SI, 1935. The rates prescrbed by the Revenue
ct of 1935 for the computaton of the addtona ta are appcabe to estates
of decedents dyng on or after ugust 31, 1935.
The second sentence of the frst paragraph of artce 8 s amended
to read as foows:
The addtona ta Imposed by the Revenue ct of 1932, or by the Revenue
ct of 1932 as amended, Is obtaned by subtractng the ta Imposed by the
Revenue ct of 1926 from an amount computed on the vaue of the appro-
prate net estate at the rates set forth ether n the Revenue ct of 1932,
or In that ct as amended by the Revenue cts of 1934 or 1935, as the case
may requre.
The ffth sentence of the frst paragraph of artce 8 s amended
to read as foows:
If credts are authorzed, the ta computed at the rates prescrbed by the
Revenue ct of 1924 and the Revenue ct of 1926 and tho addtona ta
computed under the provsons of the Revenue ct of 1932 or the Revenue
ct of 1932 as amended, Is the gross ta or the ta before reducton by
credts.
The porton of the headng of coumn (1) of Tabe I ( or
Computaton of state Ta ) whch reads, In effect on and after
May 11, 1934, s amended to read, In effect from May 11, 1934,
to ugust 30, 1935, ncusve.
The headng of subparagraph (2) of artce 9(a) s amended to
read as foows:
Credt aganst addtona estate ta Imposed by the Revenue ct of 1932
and the Revenue ct of 1932 as amended.
In eu of the phrase between the date of the gft and the date
of the decedent s death at the end of the thrd paragraph of artce
9(a) (nes 7 and 8, page 21), the phrase, after the date of the
gft s substtuted.
Sue. 202 btatb Ta auatow.
(a) Secton 302 of the Revenue ct of 1926, as amended, s amended by
addng a new subdvson as foows:
( ) If the e ecutor so eects upon hs return (If fed wthn the tme pre-
scrbed by aw or prescrbed by the Commssoner n pursuance of aw), the
vaue of the gross estate sha be determned by vaung a the property In-
cuded theren on the date of the decedent s death as of the date one year
after the decedent s death, e cept that (1) property ncuded In the gross estate
on the date of death and, wthn one year after the decedent s death, dstrbuted
by the e ecutor (or, In the case of property Incuded In the gross estate under
subdvson (c), (d), or (f) of ths secton, dstrbuted by the trustee under
the Instrument of transfer), or sod, e changed, or otherwse dsposed of, sha
be ncuded at Its vaue as of the tme of such dstrbuton, sae, e change, or
other dsposton, whchever frst occurs, nstead of Its vaue as of the date
one year after the decedent s death, and (2) any nterest or estate whch s
affected by mere apse of tme sha be Incuded at Its vaue as of the tme of
death (nstead of the ater date) wth ad|ustment for any dfference n Its
vaue as of the ater date not due to mere apse of tme. No deducton under
ths tte of any tem sha be aowed f aowance for such tem s In effect
gven by the vauaton under ths subdvson. Wherever n any other sub-
dvson or secton of ths tte or n Tte II of the Revenue ct of 1932, ref-
erence Is made to the vaue of property at the tme of the decedent s death,
such reference sha be deemed to refer to the vaue of such property used
In determnng the vaue of the gross estate. In case of an eecton made by
the e ecutor under ths subdvson, then for the purposes of the deducton
under secton 303(a)(3) or secton 303(b)(3), any bequest, egacy, devse, or
transfer enumerated theren sha be vaued as of the date of decedent s deth
wth ad|ustment for any dfference In vaue (not due to mere apse of tme
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344
or the occurrence or nonoccurrence of a contngency) of the property as of the
date one year after the decedent s death (substtutng the date of sae or
e change In the case of property sod or e changed durng such one-year
perod).
(b) The amendment made by ths secton sha be effectve ony wth respect
to transfers of estates of decedents dyng after the date of the enactment of
ths ct.
Reguatons wth respect to the foregong provson, secton 202 of
the Revenue ct of 1935. w be promugated at a ater date.
The fourth sentence of artce 48 s amended to read as foows:
The specfc e empton deductbe n determnng the net estate upon whch
the uddtona ta s mposed by the Revenue ct of 1932 (In effect after 5
p. m., eastern standard tme, une 6, 1932) s 50,000 f the decedent ded pror
to ugust 31, 1935, and 40,000 If the decedent ded on or after ugust 31, 1935.
The frst sentence of artce 57 s strcken out and n eu thereof
the foowng s substtuted:
premnary notce s requred to be fed In the case of every resdent or
ctzen (or of a resdent ony, wthout regard to ctzenshp f the decedent ded
pror to 11.40 a. m., eastern standard tme, May 10, 1934), whose gross estate
e ceeded 40,000 n vaue at the date of death, e cept that f the decedent ded
(1) after September 8, 1916, and pror to 10.25 a. m., eastern standard tme,
ebruary 26, 1926, or (2) after 5 p. m., eastern standard tme, une 6, 1932,
and pror to ugust 81, 1935, notce s requred ony f the gross estate e ceeded
50,000 In vaue at the date of death, and e cept that f the decedent ded after
10.25 a. m., eastern standard tme, ebruary 26, 1926, and pror to 5 p. m.,
eastern standard tme, une 6, 1932, notce s requred ony If the gross estate
e ceeded 100,000 In vaue at the date of death. The vaue of the gross estate
at the date of death governs wth respect to the fng of the notce regardess
of whether the vaue of the gross estate s, at the e ecutor s eecton, fnay
determned as of a date subsequent to the date of death pursuant to the pro-
vsons of secton 802( ) of the Revenue ct of 1926, as added by secton 202 of
the Revenue ct of 1935.
The ast sentence of artce 57 s amended to read as foows:
If there s doubt as to whether the gross estate e ceeded 40,000, or e ceeded
50,000, or e ceeded 100,000, as the case may be, the notce shoud be fed as
a matter of precauton n order to avod the possbty of penates attachng.
Sec. 203. state ta Due date.
(a) Secton 305(a) of the Revenue ct of 1926 s amended to read a foows:
(a) The ta Imposed by ths tte sha be due and payabe ffteen months
after the decedent s death, and sha be pad by the e ecutor to the coector.
(b) Secton 305(c) of the Revenue ct of 1926 s amended to read as foows:
(c) If the tme for the payment Is thus e tended there sha be coected,
as a part of such amount, Interest thereon at the rate of 6 per centum per annum
from the e praton of three months after the due date of the ta to the e pra-
ton of the pero/I of the e tenson.
(c) The amendments made by ths secton sha be effectve ony wth respect
to transfers of estates of decedents dyng after the date of the enactment of ths
ct.
The frst sentence of artce 63 s strcken out and n eu thereof the
foowng s substtuted:
return on orm 706 s requred n the case of every resdent or ctzen
(or resdent wthout regard to ctzenshp, f the decedent ded pror to 11.40
a. m., eastern standard tme, May 10, 1934), whose gross estate, as defned
n the statute, e ceeded 40,000 n vaue at the date of death, e cept that f
the decedent ded (1) after September 8, 1916, and pror to 10.25 a. m.,
eastern standard tme, ebruary 26, 1926, or (2) after 6 p. m., eastern stand-
ard tme, une 6, 1932, and pror to ugust 81, 1935, the return s requred
ony f the gross estate e ceeded 50,000 In vaue at the date of death, and
e cept that f the decedent ded after 10.25 a. n., eastern standard tme, eb-
ruary 26, 1926, and pror to 5 p. m., eastern standard tme, une 6, 1932, the
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345
Msc.
return Is requred ony f the gross estate e ceeded 100,000 In vaue at the
date of death. The duty to fe a return depends upon the vaue of the gross
estate on the date of the decedent s death, regardess of any vauaton as of a
subsequent tme that the e ecutor may use by vrtue of hs eecton under
subdvson (|) of secton 302 of the Revenue ct of 1920, as added by secton
202 of the Revenue ct of 1035, snce such eecton may be made ony upon
the return.
The fourth sentence of artce 63 s amended to read as foows:
The return on orm 706 must be fed n dupcate wthn 15 months after
the date of death. If the decedent ded on or after ugust 31, 1935, and wthn
1 year after the date of death, If the decedent ded before ugust 31, 1935.
The fourth sentence of artce 65 s strcken out and n eu thereof
the foowng s nserted:
If the decedent ded subsequent to the effectve date of the Revenue ct of
1932 (5 p. m., eastern standard tme, une 6, 1932), the return must set forth
(1) both the net estate determned n accordance wth the provsons of the
Revenue ct of 1926 and the net estate for the purposes of the addtona ta
Imposed by the Revenue ct of 1932, or by the Revenue ct of 1932 as amended,
whch shoud be determned In the same manner e cept that n eu of the
e empton of 100,000 provded n secton 303(a)(4) of the Revenue ct of
1926, the e empton s 50,000 or 40,000, as the case may be (see artce 48),
and (2) both the ta mposed by the Revenue ct of 1926 and the addtona
ta Imposed by the Revenue ct of 1932, or by the Revenue ct of 1932 as
amended.
The second sentence of artce 68 s amended to read as foows:
n e tenson of tme for fng the return does not In tsef operate to e tend
the tme for the payment of the ta , whch s due and payabe 15 months after
the date of death f the decedent ded on or after ugust 31, 1935, and 1 year
after the date of death If the decedent ded before ugust 31, 1935.
The frst sentence of artce 69 s amended to read as foows:
In case It Is Impossbe for the e ecutor to fe a reasonaby compete return
wthn 15 months from the date of death f the decedent ded on or afer
ugust 31, 1935, or wthn 1 year from the date of death f the decedent ded
before ugust 31, 1935, the Commssoner may, upon appcaton from the
e ecutor showng good and suffcent cause, grant an e tenson of tme not to
e ceed 3 months from the due date f the decedent ded on or after ugust
31, 1935, or 6 months from the due date f the decedent ded before ugust
31, 1935.
The ffth sentence of artce 69 s amended to read as foows:
n e tenson of tme for fng the return does not operate to e tend the tme
for payment of the ta , whch Is due 15 months after the date of death f
the decedent ded on or after ugust 31, 1935, and 1 year after the date of
death f the decedent ded before ugust 31, 19.15.
The thrd sentence of artce 70 s amended to read as foows:
If the decedent ded after the effectve date of the Revenue ct of 1932
(5 p. m., eastern standard tme, une 6, 1932), the return must set forth both
the ta mposed by the Revenue ct of 1926 and any addtona ta mposed
by the Revenue ct of 1932 or the Revenue ct of 1932 as amended.
The ffth sentence of artce 70 s amended to read as foows:
The return must be fed n dupcate and under oath wthn 15 months from
the date of dea h f the decedent ded on or after ugust 31, 1935, and wthn
1 year from the date of death f the decedent ded before ugust 31, 1935,
uness an e tenson s obtaned pursuant to artce 6S or 69.
The frst sentence of artce 78 s amended to read as foows:
The ta Is due and must be pad wthn 15 months from the date of death
If the decedent ded on or after ugust 31, 193o, or wthn 1 year from the
date of death f the decedent ded before ugust 31, 1935, uness an e tenson
of tme for payment thereof has been granted by the Commssoner.
8432C
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346
Sea 404. Interest on denquent ta es.
Notwthstandng any provson of aw to the contrary, Interest accrung
(urng any perod of tme after the date of the enactment of ths ct upon
any nterna-revenue ta (ncudng amounts assessed or coected as a part
thereof) or customs duty, not pad when due, sha be at the rute of 6 per
centum per annum.
rtce 84 (a) s amended to read as foows:
et. 84. (a) Interest on ta shown on return. If any porton of the ta
shown on the e ecutor s return s not pad on or before the due d te, and
no e tenson of tme for payment thereof has been granted, such unpad porton
bears nterest from the due date unt payment s receved by the coector at
the rate of 6 per cent per annum (e cept that durng any part of such perod
of tme pror to ugust 31, 1935, Interest accrues at the rate of 1 per cent
a month).
If an e tenson of tme has been granted for payng any porton of the ta
shown on the e ecutor s return, n accordance wth artce 82(a), nterest
accrues thereon at the rate of 6 per cent per annum from te e praton of
18 months after the decedent s death to the e praton of the perod of tho
e tenson. If the amount of the ta , the tme for payment of whch as been
e tended, together wth any nterest accrued thereon, s not pad n fu on
or before the date of the e praton of the e tenson, the tota unpad amount
(ta and any accrued nterest) bears nterest from the e praton of the e ten-
son unt payment s receved by the coector at the rate of 6 per cent per
annum (e cept that durng any part of such perod of tme pror to ugust 31,
1935, nterest accrues at the rate of 1 per cent a month).
Interest at 6 per cent per annum s computed on the bass of 365 days to
the year, or 866 days n a eap year. Interest at the rate of 1 per cent a month
s computed on the bass of a caendar month, 1. e., a perod (save one begn-
nng on the frst day of a caendar month) termnatng wth the day of the
succeedng caendar month numercay correspondng wth the day precedng
the begnnng of the perod. If there Is no correspondng day of the succeed-
ng caendar month, the ast day of such succeedng month s the ast day
of the perod. If nterest at the rate of 1 per cent a month Is to be computed
for one or more months and a fracton of a month, It shoud be computed for
the number of whoe months, and then for the fracton upon the bnss of the
number of days of the caendar month n whch the frst day of the fracton
fas. Thus, for e ampe, the eapsed perod from ebruary 14 to March 13,
both dates ncuded, s one month, and the perod from ebruary 14 to March
11, both dates ncuded, Is twenty-s twenty-eghths of a month, e cept that
If the year be a eap year the perod s twenty-seven twenty-nnths of a month.
rtce 84(b) s amended by addng at the end thereof the foow-
ng sentence:
owever, If the amount of the ta , the tme for payment of whch Is so
postponed, together wth nterest accrued thereon, Is not pad n fu on or
before the date of the e praton of the perod of the postponement (s months
after the termnaton of the precedent nterest or nterests n the property),
the unpad amount bears nterest at the rate of 6 per cent per annum from
the date of the e praton of the perod of the postponement unt payment
s receved by the coector.
rtce 85 s amended to read as foows:
et. 85. Interest on dcfcencu ta . The statute provdes that any defcency
sha bear nterest at the rate of 6 per cent per annum from the due date for
payment of the ta (15 months after the date of death f the decedent ded
cn or after ugust 81, 1935, or 1 year after the date of death f the decedent
ded before ugust 31, 1935) to the date the defcency Is assessed, e cept n
the case of a waver of the restrctons aganst the assessment and coecton
of the defcency, and that such nterest sha be assessed at the same tme
as the defcency of whch t becomes an ntegra part. The defcency n
respect to whch the restrctons aganst the assessment and coecton are
waved under secton 30S(d) bears nterest at the rate of 6 per cent per annum
from the due date of the ta to the thrteth day after the fng of such
waver or to the date tho defcency s assessed, whchever s the earer. The
term defcency ncudes any ta resutug from the correcton of a mathe-
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Mso
matca error appearng upon the face of a return. (See second paragraph of
artce 77.)
If any porton of the defcency assessed s not pad wthn 30 days from the
date of the notce and demand ssued by the coector (e cept a defcency or
any part thereof wth respect to whch a |eopardy assessment s made and
coecton s stayed by the fng of a bond), and no e tenson of tme for
payment thereof has been granted, such unpad porton bears nterest from the
date of the notce and demand unt payment Is receved by the coector at
the rate of 6 per cent per annum (e cept that durng any part of such perod
of tme pror to ugust 31, 1935, nterest accrues at the rate of 1 per cent a
month).
If an e tenson of tme s granted for payng any porton of the defcency
assessed, n accordance wth artce 83, nterest accrues thereon at the rate
of 6 per cent per annum for the perod of the e tenson, . e., from the date
prescrbed for the payment (30 days after the date of the notce and demand)
to the e praton of the perod of the e tenson. If the amount of the def-
cency, the tme for payment of whch has been e tended, together wth nterest
accrued thereon, s not pad n fu on or before the date of the e praton of
the e tenson, the tota unpad amount (ta , nterest and any addton thereto)
bears nterest from the e praton of the e tenson unt payment s receved
by the coector at the rate of G per cent per annum (e cept that durng any
part of such perod of tme pror to ugust 31, 1935, nterest accrues at the
rate of 1 per cent a month).
ny addton to the ta resutng from the mposton of an ad vaorem
penaty under the provsons of secton 3176, Revsed Statutes, Is sub|ect to the
same provsons of aw reatng to the assessment, coecton, and the accrua
cf nterest, as the defcency ta , e cept that such addton to the ta s not
sub|ect to any nterest between the due date for payment of the ta (15
months after the date of death f the decedent ded on or after ugust 31, 1935,
or 1 year after the date of death f the decedent ded before ugust 31, 1935)
and the date of the assessment thereof.
If a stay of the coecton of a |eopardy assessment of a defcency ta , or
any addton to the ta resutng from the mposton of an ad vaorem penaty,
s obtaned and a petton for a redetermnaton of the defcency s fed wth
the oard of Ta ppeas, nterest accrues on such unpad porton of the
defcency or penaty, f any, determned by a decson of the oard whch s
|nade fna, at the rate of 6 per cent per annum from the date of the notce
and demand from the coector foowng the |eopardy assessment to the date
of the notce and demand by the coector subsequent to.the fna acton taken
on the petton fed wth the oard. If the amount whch the oard deter-
mnes shoud have been assessed s not pad n fu wthn 30 days from the
date of such notce and demand ssued subsequent to the decson of the oard
whch has become fna, nterest accrues upon the unpad amount from the date
of such notce and demand unt It s pad at the rate of G per cent per annum
(e cept that durng any part of such perod of tme pror to ugust 31, 1935,
nterest accrues at the rate of 1 per cent a month). If the amount (e cusve
of any ad vaorem penaty) determned by the oard as the amount whch
shoud be assessed Is greater than the amount actuay assessed the dfference
bears Interest at the rate of G per cent per annum from the cue date of the
ta unt assessment of such dfference. If the coecton of the |eopardy as-
sessment s stayed, and no petton s fed wth the oard for a redetermna-
ton of the defcency, nterest accrues upon the defcency so assessed at the
rate of 6 per cent per annum from the date of the |eopardy notce and demand
to the date of the notce and demand made by the coector after the e pra-
ton of the 90 days from the mang by the Commssoner of the notce of the
defcency. If such amount s not pad wthn 30 days from the date of such
further notce and demand, Interest accrues upon the unpad amount from the
date of such further notce and demand unt t s pad at the rate of 0 per
cent per annum (e cept that durng any part of such perod of tme pror
to ugust SI, 1935, nterest accrues at the rate of 1 per cent a month).
or method of computng nterest at G per cent per annum or at 1 per cent
a month see ast paragraph of artce 84(a).
Sec. 406. aure to fe returns.
In the case of a faure to make and fe an nterna-revenue ta return re-
qured by aw, wthn the tme prescrbed by aw or prescrbed by the Comms-
soner n pursuance of aw, f the ast date so prescrbed for fng the return
Is after the date of the enactment of ths ct, f a 25 per centum addton to
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Regs. 80(1929), rt. 25.
348
the ta Is prescrbed by e stng aw, then there sha be added to the ta , 1b
eu of such 25 per centum: 5 per centum f the faure s for not more than 30
days, wh an addtona 5 per centum for each addtona 30 days or fracton
thereof durng whch faure contnues, not to e ceed 25 per centum n the
aggregate.
rtce 92 s amended to read as foows:
rt. 92. Penaty for faure to gve notce or make and fe return. or fa-
ure to gve the notce or make and fe the return wthn the tune prescrbed, the
person In defaut s sub|ect to a penaty not e ceedng 500.
or faure to make and fe the return wthn the tme prescrbed by the
Commssoner, or wthn an e tenson of tme granted by the Commssoner or
the coector, 5 per cent w be added to the ta f the faure Is for not more
than 30 days, wth an addtona 5 per cent for each 30 days or fracton thereof
durng whch faure contnues, not to e ceed 25 per cent In the aggregate,
e cept that If the ast date aowed for fng the return Is on or before ugust
30, 1935, 25 per cent w be added to the ta , and e cept that f the return a
fed after the tme aowed and It Is shown that the faure to fe wthn the
tme so aowed was due to a reasonabe cause and not to wfu negect, no
such addton w be made to the ta .
Guy T. everng,
Commssoner of Interna Revenue.
pproved ebruary 24, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
TITL III. ST T T . (1926)
S CTION 302.
eguatons 80 (1929), rtce 25: Ta abe -1-7892
nsurance. Ct. D. 1057
ST T T R NU CT O 1026 decson op supreme court.
1. Gross state Proceeds op Lte Insurance Pocy.
Where the decedent had taken out a fe Insurance pocy In
1892, payabe to hs wfe If vng and If not, to hs survvng
chdren, or If none of them survved then to hs ega representa-
tves, whch pocy became pad up In 1912, antf where no power
was reserved to change the benefcares, to borrow on the pocy,
or surrender It, the proceeds of the pocy pad to the three sur-
vvng chdren upon the death of the decedent, n 1930, were not
Incudbe In hs gross estate under the provsons of secton 302(g)
of the Revenue ct of 1926.
2. Cash oowed.
ngham v. Unted States (decded December 9, 1935) (290
U. 8., Ct. D. 1058, page 307, ths uetn foowed.
Supreme Court of the Unted States.
Industra Trust Co. and Orand S. Greene, ecutors of the state of Wam
M. Greene, pettoners, v. The Unted States.
On wrt of certorar to the Court of Cams.
(December 9, 1935.
opnon.
Mr. ustce Sutherand devered the opnon of the Court.
Pettoners, as e ecutors of the estate of Wam M. Greene, who ded In
1930, fed an estate ta return and pad the amount of the edera estate ta
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349
Regs. 70(1929), rt. 10.
dscosed thereby. pad-up fe Insurance pocy of 42,000 was omtted from
the return. The Commssoner of Interna Revenue decared a defcency and
Incuded the amount of ths pocy In the gross estate. Pettoners fed a cam
for refund, whch was re|ected by the Commssoner. Thereupon, ths pro-
ceedng was brought In the Court of Cams to recover the amount of the
cam. That court hed aganst the rght to-recover and dsmssed the petton.
The pocy, ssued n 1892, promsed to make payment to the wfe of the
decedent, as soe benefcary If vng and If not vng, to the survvng ch-
dren of the decedent and, n the event of none survvng, then to the e ecu-
tors, admnstrators, or assgns of the decedent. In 1912, the pocy became a
pad-up pocy requrng no further payment of premums. No power was re-
served to change benefcares, borrow on the pocy or surrender t. The wfe
of the decedent predeceased hm but he was survved by three chdren, to
whom the proceeds of the pocy were pad upon hs death.
The case of Leweyn v. rck (268 U. S., 233 T. D. 3715, C. . I -1, 322 )
arose under the Revenue ct of 1918. Ths case arses under the ct of
1928 (secton 302(g), whch s the same as secton 402(f) of the former ct).
Subdvson (h) of the 1926 ct, however, provdes that subdvsons (b), (c),
(d), (e), (f), and (g) sha appy to transfers, trusts, estates, nterests, rghts,
powers, and renqushment of powers, as severay enumerated and de-
scrbed theren, whether made, created, arsng, e stng, e ercsed, or ren-
qushed before or after the enactment of ths ct. Whether any of these
terms appy to an amount recevabe by a benefcary, under a pocy such ns
we have here, s fary debatabe. (See Wyeth v. Crooks, 33 . (2d), 1018,
1019.) If any of them do appy, the provson Is open to grave dcubt as to ts
consttutonaty, and the rue of the rck case contros.
The foregong facts brng te case ceary wthn our decson |ust an-
nounced In ngham v. Unted States (290 U. S., Ct. D. 1053, page 367, ths
uetn ) and the |udgment of the court beow s accordngy
Reversed.
Regt|ato s 70 (1929), rtce 10: Character of -17-80C2
nterests ncuded. Ct. D. 1109
ST T T R NU CT O 1026 D CISION OP COURT.
G OSS 6T T D DUCTION P RSON L PkOP TY LOC T D OUTSID
the Unted States ngsh Death Dutes.
Where a ctzen of the Unted States domced n New York
ded n ngand, n 1931, eavng tangb .e and ntangbe persona
property both n ngand and n the Unted States, the vaue of
the ngsh property s ncudbe n the gross estate, under the
provsons of secton 302(a) of the Revenue ct of 1926, wthout
any deducton for ngsh death dutes pad, ta es of such nature
beng e pressy e cuded from deducton by secton 303(a) of that
ct
Unted States Cbct|t Cot|kt op ppeas fob the Second Cbcutt.
Guaranty Trust Co. of New York, as ecutor of the state of ames en-
son ennedy, Deceased, pettoner, v. Commssoner of Interna Revenue,
respondent.
Petton to revew a decson of the oard of Tar ppeas sustanng a defcency n estate
ta es determned by the Commssoner under the provsons of the Revenue ct of 1920.
ffrmed.
efore Manton, Swan, and Chase, Crcut udges.
ugust 12, 1935.
opnon.
Chase, Crcut udge: The pettoner s the e ecutor of the mercan w of
ames enson ennedy who was a ctzen of the Unted States domced In New
Tork when he ded n ngand on ebruary 24, 1931, durng a temporary vst
there. e eft tangbe and Intangbe persona property both In ngand and
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egs. 70(1929), rt. 10.
350
In the Unted States. e eft an mercan w whch dsposed of hs property
In the Unted States and an ngsh w effectve ony as to property n ngand.
s property n ngand conssted of stocks, bonds, and securtes of corpora-
tons not mercan and of Governments other than the Unted States cash and
tangbe persona property of the tota vaue of 614,987.30. The e ecutors of
hs ngsh w pad the ngsh death dutes assessed thereon to the amount
of 133,582.05. The mercan estate of the deceased as returned for ta aton
was ncreased by the Commssoner by the vaue of the ngsh estate above
gven, wthout any deducton for ngsh death dutes pad, and the resutng
defcency assessed s the one before us upon ths petton to revew.
Secton 302(a) of the Revenue ct of 1928 provded that the gross estate of
every decedent shoud consst of a hs property wherever stuated to the e tent
of hs nterest theren at the tme of hs death. We need not now dea wth
deductons whch are aowabe f duy camed by nonresdents, for ths decedent
was a resdent of ths country as we as an mercan ctzen. Nor need we be
concerned wth any dstncton between rea estate and persona property n a
foregn country, for decedent owned no ngsh rea property. See, however,
31 Opnons of the ttorney Genera, 287, May 14, 1918, e cudng foregn rea
estate from the scope of the estate ta .
The anguage of the above statute Is e tremey broad. It foows that of
the Revenue ct of 1916 and subsequent cts were unform n ths respect
unt a change was made n that of 1934. The reguaton appcabe, Treas-
ury Reguatons 70, artce 11, provded In part, foowng the above mentoned
opnon of the ttorney Genera, that, where decedent was a resdent of ths
country, the vaue of a persona property wherever stuated shoud be n-
cuded n hs gross estate. The reguatons under prevous cts had been
to the same effect See Reguatons 37, artce 13 Reguatons 63, artce 12
and Reguatons 68, artce 11, promugated respectvey under the 1918, 1921,
and 1924 cts. Ths admnstratve constructon of the statute s to be taken
as havng been approved by Congress when t reenacted the statute wthout
change n 1921, 1924, and 1926. (McCaughn v. ershey Chocoate Co., 283
U. S., 488 Ct. D. 345, C. . -, 444 rewster v. age, 280 U. S., 327
(Ot. D. 148, C. . I -1, 274 Unted States v. Dakota-Montana O Co., 288
U. S., 459 Ct. D. 655, O. . II-1, 243 .) In vew of ths we can have no
doubt but that Congress ntended to ncude the vaue of foregn persona
property n the ta base |ust as the anguage used ordnary woud mpy.
The suggeston that the decson n Unted States v. Ooeet (232 U. S., 293),
n whch t was hed that a ta mposed on foregn but yachts dd not appy
to a yacht of a ctzen permanenty domced abroad s to the contrary, Is
too farfetched for serous consderaton. It reates to what Congress In-
tended when It enacted a dfferent statute reatng to a dfferent ta . Nor
does the possbty, even the present certanty, of doube ta aton, make the
ta n any wse nvad. ( urnet v. Chcago Portrat Co., 285 U. S., 1.)
That s a matter wthn the dscreton of Congress and not a mtaton upon
ts power to ta . (See Gbbons v. Ogden, 9 Wheat, 1 WUouts v. unn, 282
U. S., 216 Ct. D. 280, C. . -, 809 .)
The power of Congress to put the vaue of foregn persona property n the
estate ta base 6eems as pan as ts ntent to do so. The fact that ths
persona property was n the possesson of the ngsh e ecutor s mma-
tera, for the ta s mposed upon the transfer, not the property. (Renecke v.
Northern Trust Co., 278 U. S., 339 T. D. 4201, C. . III-1, 305 .) The con-
sttutona mtatons upon the power of the States to ta persona property
do not appy to the Unted States. ( urnet v. rooks, 288 U. S., 878 Ct. D.
648, C. . II-1, 302 Unted States v. ennett, 232 U. S., 299.) The Unted
States s equay free to ta the transfer of such property. In Cook v.
Tat (265 U. S., 47 T. D. 3594, C. . III-, 73 ), the power of Congress to ta
a Unted States ctzen, domced outsde of ths country, upon Income from
rea and persona property ocated n Me co, was uphed. ere the decedent
receved the governmenta protecton upon whch the power to ta may be
supported under the foregong authortes unt the moment he ded. Of
course hs death was the event whch took pace to ca the ta ng statute
nto operaton, and at that tme he no onger needed or coud be accorded
protecton, but the dstncton the petton woud put upon ths ground Is
whoy unrea. The ta may we be supported by the beneft derved up to
the nstant of death.
The ncdenta contenton that the ta abe estate of the decedent shoud be
reduced by the amount of the ngsh death dutes pad can not be sustaned.
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351 Regs. 70(1926), rt. 15.
e power to ta the estate made up by Incudng the vaue of the persona
property stuated n ngand Is not mted by any requrement to aow de-
ductons from that vaue. Whether any deductons w be aowed s for the
determnaton of Congress. Secton 303(a) 1 of the 1920 ct provded for
some deductons from the gross estate of a resdent n arrvng at the ta abe
net but e pressy e cuded from such deductons any estate, successon,
egacy, or nhertance ta es.
ffrmed.
Reguatons 70(1926), rtce 15: Transfers -10-7985
durng fe. Ct D. 1089
ST T T NU CT O 192 D CISION OP COU T.
L Gross state Transfers n Trust Contempaton of Death.
On une 1, 1926, the decedent, then 74 years of age, created two
trusts, and e ecuted hs w whereby he gave the resdue of hs
estate to hs wfe and chdren. The frst trust nstrument was
rrevocabe and provded for the payment of trust ncome to hs
wfe for fe, upon her death the corpus to be dvded n equa
portons among the survvng chdren, the share of any deceased
chd to go to that chd s survvng ssue the second provded
for payment of trust Income to hmsef for fe, wth a ke prov-
son as to corpus, and wth reservaton of power to revoke. The
decedent ded on December 24, 1927. The evdence submtted as
to the crcumstances attendng the creaton of the trusts and as
to the decedent s purposes n creatng them persuasvey ndcates
that the transfers were made n contempaton of death, wthn
the meanng of secton 302(c) of the Revenue ct of 1926, and
the vaue of the trust property at the date of death was propery
ncuded In the decedent s gross estate.
2. Gross state Proceeds of Lfe Insurance Poces.
Where the decedent, n ebruary, 1026, bought from a corpora-
ton of whch he was a stockhoder and offcer nsurance poces
on hs own fe, taken out pror to 1920 for the beneft of the cor-
poraton (appcatons for whch had been sgned by the decedent),
and caused the benefcary to be changed to others than hs own
estate, retanng the rght further to change the benefcares, the
poces are to be regarded as havng been taken out by the dece-
dent, wthn the meanng of secton 302(g) of the Revenue ct of
1926, when he bought them from the corporaton and desgnated
new benefcares, and the proceeds thereof were propery ncuded
n hs gross estate.
3. Gross state Proceeds of Lfe Insurance Pocy v-
dence urden of Proof.
In the absence of evdence as to the crcumstances attendng the
takng out by the decedent. In ugust, 1927, of a snge premum
endowment pocy on the fe of hs wfe, t may be presumed that
they were such as to make the vaue of the pocy at the date of
the decedent s death a part of hs gross estate, wthn the meanng
of secton 302(c) of the Revenue ct of 1920, and the burden of
provng that the Commssoner erred n so hodng has not been
sustaned.
4. empton edera arm Loan onds.
The provsons of secton 26 of the edera arm Loan ct (39
Stat, 360), e emptng edera farm oan bonds from ta aton,
are not voated by the ncuson In the decedent s gross estate of
the vaue of such bonds owned by hm. The estate ta beng an
e cse upon the prvege of transmttng property at death, the
Unted States may ta such transmsson regardess of the char-
acter of the property.
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Regs. 70(1926), rt. 15. 352
5. Deducton unera pense Loca Law.
n amount Incurred by the decedent s estate for perpetua care
and mantenance of a mausoeum and cemetery ot Is not an
aowabe deducton under the provsons of secton 803 (a)1 of
the Revenue ct of 1026, snce the aw of the ursdcton In whch
the estate was admnstered does not Indcate that such e pend-
ture comes wthn the meanng of funera e penses.
6. Decson ffrmed.
Decson of the oard of Ta ppeas (28 . T. ., 888) affrmed.
Unted States Cbottt Court of ppeas fob the fth Cmcurr.
dgar . Igeheart, ecutor, Cora . Igeheart, ecutr , state of ddson
W. Igeheart, pettoners, v. Commssoner of Interna Revenue, respondent.
Petton for revew of decson of Unted States oard of Ta ppeas (dstrct of orda.).
efore ryan, Sbey, and Waker, Crcut udges.
May 21, 1935.
OPINION.
Waker, Crcut udge: y petton for revew the e ecutr and e ecutor
of the estate of ddson W. Igeheart, deceased, compan of the acton of the
oard of Ta ppeas under a petton for a redetermnaton of a defcency
of estate ta es assessed by the respondent aganst the estate of the decedent,
who ded on December 24, 1927.
On une 1, 1926, the decedent, then 74 years of age, the date of hs brth
beng March 6, 1852, created two trusts, and e ecuted hs w whch super-
seded a w made n 1921 whereby, after a specfc bequest to hs wfe,
he gave the resdue of hs estate n equa shares to hs wfe and hs four
chdren, the w namng hs wfe as e ecutr and hs son e ecutor. One of
the trusts was created by an Instrument whereby the decedent transferred
rrevocaby to hs wfe corporate stock and bonds, Incudng edera and bank
bonds, the property transferred then havng a vaue of 498,599.88, In trust
to receve for hersef the net ncome durng her fe, upon her death the trust
fund to be dvded equay between the decedent s survvng chdren, the
share of any deceased chd of the decedent to go to that chd s survvng
ssue. The other trust was created by an Instrument whereby the decedent
transferred to a named trust company descrbed corporate stock, then havng
the vaue of 869,122.28, n trust to pay the net Income of the trust property
to the decedent durng hs natura fe, and, upon the death of the decedent,
the trust property to be dvded equay between the decedent s chdren, the
share of any deceased chd of the decedent to go to that chd s survvng
ssue. The decedent e pressy reserved the rght at any tme durng hs fetme
to revoke, annu or amend the trust created by that nstrument. In ebruary,
1920, Igeheart ros., an Indana corporaton, of whch decedent was a stock-
hoder and offcer, sod to the decedent for the cash surrender vaue thereof
certan poces of Insurance on the decedent s fe whch that corporaton, pror
to 1920, had taken out for ts own beneft, the severa appcatons therefor
havng been sgned by the decedent. Pursuant to provsons contaned n each
of the poces the decedent caused the name of the benefcary to be changed
from that of the corporaton to a named benefcary other than the estate of
the decedent, under the poces the decedent havng the rght further to
change the benefcares. Upon the death of the decedent 112,446 was pad
under the poces to the desgnated benefcares chosen by the decedent. In
ugust, 1927, the decedent took out a 2-year endowment pocy of 100,000,
on the fe of hs wfe, payng therefor a snge premum of 97,225.
The estate ta defcency In queston, n so far as t was approved by the
oard of Ta ppeas, resuted from: addng to the amount shown by pet-
toners return as sub|ect to estate ta the foowng: the amount of the vaue
at the date of the decedent s dent of the property Incuded n the trust created
by hm n favor of hs wfe prmary, the vaue of that property at that tme
beng substantay greater than It was at the tme that trust was created
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353
Regs. 70(1926), rt. 15.
the amount of the vaue at the date of the decedent s death of the property
Incuded In the trust created by the decedent In hs own favor for fe, that
vaue beng substantay greater than the vaue of such property at the tme
that trust was created (In cacuatng the vaue or the amounts of property
transferred by the decedent In creatng the two trusts, an e empton of 5,000
was aowed for each of fve benefcares) the amount coected on poces
of Insurance on the fe of the decedent bought by the decedent from Igeheart
ros, of Indana, ess the statutory e empton of 40,000 the amount of the
cash surrender vaue at the date of the decedent s death of the 2-year endow-
ment pocy on the fe of decedent s wfe, and the amount of the vaue at
the tme of decedent s death of farm oan bonds hed by the decedent and In
trust In hs favor and from the dsaowance of a deducton of 1,500, the
amount of an obgaton ncurred by decedent s estate for the perpetua care
and mantenance of a mausoeum and cemetery ot for the ast restng pace
of the decedent.
rom hs boyhood unt pr, 1926, when a of the stock of Igeheart ros,
of Indana was sod, the decedent was connected wth the busness of thut
corporaton, that busness beng a four mng busness whch was estabshed
by the father of the decedent In the earer years the decedent was a cerk
and saesman, and from 1905 to pr 1, 1926, he was vce presdent and
treasurer. The decedent and hs two brothers each had one son. The de-
cedent and hs two brothers each owned two-nnths of the common and pre-
ferred stock of Igeheart ros., and each of the sons owned one-nnth thereof.
oowng negotatons, on pr 1, 1926, after the preferred stock, havng
a par vaue of 810,000, had been retred, a the common stock of that corpo-
raton was sod to the Postum company for 595,000 cash and 95,000 shares of
Postum company stock, the qud assets of the corporaton consstng of cash
and securtes beng dstrbuted pro rata to the stockhoders at the same tme.
Contemporaneousy there was organzed a Deaware corporaton, caed Ige-
heart ros., Inc., whch receved the 95,000 shares of the Postum company stock
and In e change therefor devered to the former stockhoders of Igeheart
ros, of Indana ts own cass stock n proporton to ther respectve nterests.
s a resut of the retrement of the preferred stock of Igeheart ros, of
Indana and the sae of the common stock to the Postum company, the decedent
acqured cash and stock amountng In vaue to 2,424,000. efore these trans-
actons hs net worth, e cudng hs nterest n Igeheart ros, of Indana,
was appro matey 100,000, and after the sae of the common stock of Ige-
heart ros, of Indana to the Postum company, the decedent was possessed
of ndependent means n e cess of 2,500,000.
In November, 1915, the decedent suffered a stroke descrbed as a rght-
sde hempega, a condton brought about by the rupture of a bood vesse n
the eft sde of the bran whch mght resut from any one of a number of
causes, such as thckenng or hardenng of the arteres, embosm, stomach
dsease, nephrts and other causes. Medca e amnaton of the decedent after
the stroke faed to dscose the cause. s urne was norma, there was no
heart troube and he had no kdney dsease. Decedent was confned to hs
bed about four weeks and then reganed norma heath e cept that the use
of hs rght arm and eg was serousy mpared from the tme of the stroke
to hs death. s mnd, speech, hearng and eyesght remaned norma unt
hs death, but because of ack of use of the rght arm he earned to wrte
wth hs eft hand. Unt three days before hs death the decedent had genera
good heath, hs appette remaned norma and he was not attended by a
physcan e cept on two or three occasons for mnor aments unreated to the
hempega. fter the stroke the decedent coud and dd wak short dstances
about hs house wth assstance and the hep of a cane, but for the most part
he spent hs tme sttng n a char n the house or on the veranda readng
or takng wth hs famy, frends, or busness assocates. In good weather
he took some trps of severa hundred mes. The decedent remaned cheerfu
and optmstc to the end, was never morose, but aways of a socabe nature
wth a sense of humor, and dd not tak about the condton of hs rght eg
and arm.
fter the stroke n 1915 the decedent dd not go to hs offce but contnued
as vce presdent and treasurer of the corporaton and kept n actve touch
wth the busness through records of busness, statements of day saes, reports
of the wheat market and busness teegrams reguary sent to hm, and n ater
years when at hs home n Indana the offce manager caed once a week and
dscussed the affars of the corporaton. The decedent and hs two brothers
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Regs. 70(1926), rt. 15. 354
were the drectors and no ma|or busness pocy was adopted wthout unan-
mous consent, meetngs of the drectors on ma|or poces beng hed, after
the stroke In November, 1915, at decedent s home at vansve or Newburgh,
Ind., uness he was absent from both of those paces. The decedent after hs
stroke dd not dscuss wth hs famy, hs frends, or hs busness assocates
the sub|ect of hs death. In the nter years of hs fe the decedent spent the
ate fa and wnter months In orda, and spent part of hs tme In the
summer at Newburgh, Ind. fter the decedent created the two trusts and made
hs ast w he made hs home In orda, vng n a resdence he bought, the
tte to whch was taken n hs wfe s name. Shorty after the sae to the
Postum company was made the decedent returned to Indana from orda,
and dscussed wth one of hs brothers the nvestment of ther capta n
such manner as to reeve ther wves of the burden of ts care n the event
of ther absence. That brother was a wtness for the pettoners In the
hearng before the oard of Ta ppeas. The foowng Is an e tract from
hs testmony: fter we merged wth Postum and had receved our payment,
he, as we as mysef, was very much concerned as to how to nvest ths money
so that n the event of our absence our wves woud not have the burden of t
n the care of It. In our dscusson as to how to nvest hs money, the
decedent dd not dscuss the possbty of hs dyng any more than t was a
thng that woud happen to any one of us at any tme, and whe t mght
be some years ahead we ought to be prepared for any eventuates, and get
a three of our estates f ed up. I dscussed ths wth both of my brothers,
Lese and the decedent, ddson W. In dscussng ths matter wth my
brother, he |ust thought ke you woud to-day, that f you wanted to have
your wfe put n a poston to be reeved from these thngs, and the way I
fet wth my wfe, we dd not know when that woud take pace, and we
wanted to do t whe we were cear headed and when there was no rush we
dscussed that the frst week or two after he returned from orda, n the ate
sprng or eary summer. The awyer who prepared the two trust nstru-
ments and the w dscussed wth the decedent the matter of two trusts and
the preparaton of the w. That awyer was a wtness for the pettoners.
e testfed that at the frst meetng wth the decedent n pr, 1926, the
decedent stated In effect that for the frst tme n hs fe, through the sae to
the Postum company, he had become possessed of ndependent means whch
were free, and he wshed frst of a to make some provson for hs wfe
that woud make her Independent and gve her a competence consstent wth
what he had, and aso that he thought t wse that she shoud begn to earn
somethng about the care of property that wth regard to the other trust the
decedent stated that he wshed to wthdraw a substanta part of the Postum
stock or Igeheart ros., Inc., stock from hs own hodngs, and put them n the
hands of a competent trustee that he wshed, however, to reserve the rght
to ca upon t If he needed to do so, to reserve the rght to the Income, to
dstngush between hs genera estate and ths trust, so t woud go down,
after the ves of hs chdren, to the grandchdren, makng a dstncton
between those who had Issue and those who had not, and passng the entre
remander to hs grandchdren ony that decedent further stated that he had
been spendng the wnters In orda for severa years, that he proposed to
go back there, and as he then fet, woud probaby make hs ega home
there, and, from what be had heard from frends and acquantances In orda,
there had been a good dea of dssatsfacton at tmes wth the admnstraton
of trusts and estates In orda, through oca admnstrators and oca coun-
se, and that he dd not care to have the trust, whch woud represent the
ma|or part of hs estate, where It woud be sub|ect to the admnstraton of
a orda court, If he made hs ega resdence there that he wshed to pck
hs own trustee and f the terms of the trustee s compensaton. wtness
for the pettoners testfed that he dscussed wth the decedent the matter of
pacng property of the atter In trust that decedent had a two or three fod
purpose n estabshng the trust n favor of hs wfe that hs Idea was to
reduce Income ta , and hs other reason was to gve hs wfe an ndependent
Income, and schoo her In nvestments. The wtness stated: e spoke to
me about reducng ncome ta es n May, rght after he returned to vansve
he mentoned that hs Income woud be much greater, nnd he asked me f It
were possbe to do that and save ta es, and I tod hm yes. I tod hm the
method to be empoyed, the scope woud be up to hm.
The statute appcabe to the property transfers made by the two trust
nstruments In queston contans ft provson to the effect that where wthn
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355 Regs. 70(1926), rt. 15.
two years pror to hs death, but after the enactment of that statute, the dece-
dent had made such a transfer or transfers of any of hs property or an nter-
est theren, not admtted or shown to have been made n contempaton of or
Intended to take effect n possesson or en|oyment at or after hs death, and
the vaue or aggregate vaue at the tme of such death of the property or
nterest so transferred to any one person s n e cess of 5,000, then, to the
e tent of such e cess, such transfer or transfers sha be deemed and hed to
hare been made n contempaton of death wthn the meanng of that statute.
(Secton 302(c) of Revenue ct of 1926, 44 Stat., 9.) fter the death of the
decedent, and after the determnaton by the respondent of the estate ta def-
cency n queston, that provson, whch creates a concusve presumpton that
gfts made wthn two years pror to the death of the donor were made n con-
tempaton of death, was decded to be consttutonay nvad. ( encr v.
Donnan, 285 U. S., 812 Ct. D. 473, 0. . I-1, 324 .) It appears from the
opnon of the oard of Ta ppeas that that trbuna hed that the pettoners
must estabsh by a preponderance of evdence that the transfers n queston
were not, n fact, made n contempaton of death or to take effect n possesson
or en|oyment at or after the decedent s dea .h. The pettoners chaenge the
correctness of that rung. Nothng contaned n the record Indcates whether
the respondent s determnaton of the estate ta defcency n queston was
based on the statutory presumpton referred to or on hs concuson from
evdence wth reference to the transfers n queston. s to the respondent s
determnaton of the estate ta defcency n queston nothng Is shown by the
record other than the wrtten notce to pettoners of such determnaton and
the accompanyng statement showng the dfferences between the computa-
ton contaned n pettoners estate ta return and the computaton upon
whch respondent s determnaton of the estate ta defcency was based. y
the terms of the statutory provson referred to the presumpton thereby pur-
ported to be created appes ony to a transfer or transfers by the decedent
not admtted or shown to have been made n contempaton of or ntended
to take effect n possesson or en|oyment at or after hs death. Nothng con-
taned n the record negatves the concuson that respondent s fndng that
the transfers In queston were made n contempaton of death was based on
evdence supportng that fndng. In the ndcated condton of the record t
eems that t can not reasonaby be nferred or presumed that the respondent,
n determnng the estate ta defcency n queston, acted on the nvad pre-
sumpton purported to be created by the statutory provson referred to. The
acton of an offca Is presumed to be correct n the absence of a showng of
Its ncorrectness. The burden was on the pettoners to estabsh the nvadty
of the respondent s determnaton of the estate ta defcency n queston.
(Lucas v. Structura Stee Co., 281 U. S., 264, 271 Ieverng v. Tayor, 293
U. S., 507, 515 Ct. D. 912, C. . I -1, 168 ynn v. Commssoner, ed.
(2d), Ct. D. 1023, 0. . I -2, 166 .)
The domnant purpose of the provson of the estate ta statute for ncudng
n the estate to be ta ed property transferred by the decedent In contempaton
of death Is to reach substtutes for testamentary dsposton and thus to
prevent the evason of the ta . (Unted States v. Wes, 283 U. S., 102, 117
Ot. D. 340, C. . -, 475 Nchos v. Coodge, 274 U. S., 531, 542 T. D.
4072, C. . I-2, 351 .) It Is manfest that much property woud escape the
ta If one coud evade t by makng gfts durng fe nstead of bequeathng
property by w or permttng t to be dsposed of under ntestacy statutes.
The words In contempaton of death mean that the thought of death Is
the Impeng motve of the transfer, whether there s or s not a conscousness
or beef that death Is Immnent. gft s to be regarded as made n contem-
paton of death where the domnant motve of the donor s to make proper
provson for the donee after the death of the donor. In determnng whether
a transfer was or was not made n contempaton of death due consderaton
most be gven, not ony to testmony as to what was sad by or to the decedent
wth reference to the transfer at and pror to the tme It was made, but aso
to the evdence as to the crcumstances attendng the makng of the transfer.
There s no escape from the necessty of carefuy scrutnzng the crcum-
stances of each case to detect the domnant motve of the donor n the ght
of hs body and menta condton and thus gve effect to the manfest purpose
of the statute. (Unted States v. Wes, supra, 119.) The above set out part
of the testmony of the decedent s brother as to the wtness and the decedent
dscussng the matter of beng prepared for any eventuates, of gettng ther
estates f ed up, and dong t whe they were cear headed and when there
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Regs. 70(1926), rt. 15. 356
was no rush, as to how to Invest money receved In the sae to the Postum
company, so that In the event of our absence our wves woud not have the
burden of It In the care of It, persuasvey ndcates that n e ecutng the
two trust nstruments the decedent had hs death n mnd. It s not reasonaby
concevabe that some of the thngs sad by the decedent In conversatons wth
the awyer who prepared the two trust Instruments, as deposed to by that
awyer, partcuary as to the decedent s makng provson for hs grand-
chdren, and as to the admnstraton of trusts and estates n orda, coud
hove been sad, If, at the tme those conversatons occurred, the decedent
dd not have n contempaton hs own death. Such deposed to statements of
the decedent have an enhanced tendency to prove that the two trust Instru-
ments n queston were made n contempaton of death when the testmony
n regard thereto s consdered n the ght of the crcumstances attendng the
e ecuton of those nstruments. Those two Instruments and the decedent s
w, made at the same tme, were parts of a comprehensve scheme or pan
embracng the entre estate of the decedent, then havng a vaue In e cess
of two and a haf mon doars. It s manfest from the evdence that for
the decedent the sae to the Postum company meant hs fna retrement from
actve partcpaton n busness. fter that sae hs estate conssted prnc-
pay of money, bonds, and stocks of corporatons to whch the decedent s
reaton was that of an nvestor. y the two Instruments he dsposed of a
substanta part of hs estate, and the remander of hs estate was dsposed
of by w. The creaton of the two trusts was not n pursuance of a pre-
e stng pan or pocy of makng gfts to members of decedent s famy of
consderabe amounts of property. vdence showed that prevousy he had
made no such gfts. No evdence ndcated that t was contempated or e pected
that decedent and hs wfe woud be separated for any consderabe perod
durng ther ves. It appeared that they were habtuay together. In the
crcumstances attendng the reference n the conversatons between the decedent
and hs brother to the former s absence, t Is fary nferabe that the ony
absence referred to was that resutng from death. The combned effect
of the three nstruments e ecuted at the same tme, the two trust nstruments
and the w, was such an arrangement as to the maker s entre estate, not ony
durng hs fe, but after hs death, as reasonaby mght be e pected to be
made by one, stuated as the decedent was at the tme those nstruments were
e ecuted, who desred to get hs estate f ed up and to do so whe he
was cear headed and when there was no rush. One of the trust nstru-
ments, the one under whch the ncome from the property transferred was to
go to the decedent durng hs fe, had features characterstc of a w, In that
durng hs fe the decedent was to be the soe benefcary of the property
conveyed, and the nstrument, ke a w, was sub|ect to be revoked by ts
maker. Under the evdence t Is not fary open to queston that at the tme
the three Instruments were e ecuted the decedent had n contempaton hs
own death. In the crcumstances dscosed It reasonaby was to be Inferred
that each of those nstruments, beng a part of a comprehensve pan embracng
the entre estate of the decedent, ncudng the makng of a w, was made
n contempaton of death. In behaf of the pettoners It was contended that
the evdence showed that the domnant motve Infuencng the decedent In
creatng the two trusts was to brng about a reducton of ncome ta es, and
that another controng motve for the creaton of the trust under whch the
decedent s wfe was the trustee was to enabe her to become e perenced In
the management of property. Whe evdence Indcated that the decedent,
n creatng the two trusts, was nfuenced by a desre to make ta es on the
ncome from hs property ess than they woud be If he retaned tte to a
of It, yet, as he put nto effect a comprehensve pan embracng hs entre
estate, provdng for the dsposton and handng of substanta parts of It
durng hs fe, and for the dsposton of the remander of It upon hs death,
t seems reasonabe to Infer that the arrangement as a whoe was made In
contempaton of death, and that each of the trust nstruments was a substtute
for testamentary dsposton. The two trust Instruments and the w were
parts of what practcay was a snge transacton, whereby a substanta part
of the decedent s estate was put nto an Irrevocabe trust for the beneft of
the decedent s wfe durng her fe, the trust property upon her death to go
to the descendants of the decedent and hersef another substanta part of
the decedent s estate was put Into a revocabe trust, for the beneft of the
decedent hmsef durng hs fe, and after hs death for the beneft of ha
descendants and the remander of decedent s estate was dsposed of by wL
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357
Regs. 70(1926), rt. 15.
It hardy coud be Inferred that decedent had n contempaton hs own death
ony when he made the w, but not when, at practcay the same tme, he
created the two trusts. s the decedent n hs w named hs wfe as
e ecutr thereof, hs e pressed desre that she begn to earn somethng
shout the care of property may have had reference to her performance of
her dutes as e ecutr , as we as to the care of the property transferred to
her as trustee.
The appcabe statute (secton 302(c) of Revenue ct of 1928) provdes that
there sha be Incuded n the gross estate of the decedent the vaue at the
tme of hs death of a property to the e tent of the nterest theren
of whch the decedent has at any tme made a transfer, by trust or otherwse,
n contempaton of hs death . The thng ta ed s the
transmsson of property from the dead to the vng. or the purposes of
the ta property transferred by the decedent n contempaton of death s n
the same category as t woud have been f the transfer had not been made
and the transferred property had contnued to be owned by the decedent up
to the tme of hs death. s to the property so transferred, as we as to
property owned by the decedent at the tme of hs death, the measure of
the ta s the vaue of that property at the tme of the decedent s death,
(fe ner v. Donnan, supra MWcen v. Unted States, 2S3 T . S., 15, 23 Ct. D.
320, O. . -, 472 Chase Natona ank v. Unted States, 278 U. S., 327, 337,
Ct. D. 40, C. . III-1, 308 Snyder v. Ucverng, 69 ed. (2d), 377.) It
foows that the oard of Ta ppeas dd not err rung that the vaue of the
assets of the two trusts at the tme of the decedent s death shoud be ncuded
n the gross estate n computng the ta .
Secton 302(g) of the Revenue ct of 1926 provdes for the ncuson n the
gross estate of every decedent of the amount recevabe by the e ecutor
s nsurance under poces taken out by the decedent upon hs own fe and to
the e tent of the e cess over 40,000 of the amount recevabe by a other
benefcares as nsurance under poces taken out by the decedent upon hs
own fe. The manfest purpose of that provson Is to Incude n the dece-
dent s estate for purposes of the ta the proceeds of a nsurance on hs fe
recevabe under poces acqured through e pendture by hm. (.Chase Na-
tona ank v. Unted States, supra Scott v. Commssoner, 69 ed. (2d),
444.) The poces, under whch the rght to change the benefcares was re-
served, havng orgnay been taken out, for ts own beneft, by a corporaton
of whch the decedent was an offcer, the appcatons for whch were sgned
by the decedent, are to be regarded as havng been taken out by the decedent,
wthn the meanng of the statute, when he bought those poces from that
corporaton, and had new benefcares, chosen by hmsef, desgnated, he re-
tanng the rght under each pocy further to change the benefcary. The
statute ready coud be evaded f a pocy, under whch the benefcary may
be changed, coud be taken out by a corporaton or frm on the fe of an
offca or member of that corporaton or frm, and the atter coud acqure the
pocy and have a new benefcary desgnated, wth the resut of e cudng from
hs gross estate the amount n e cess of 10,000 recevabe by the benefcary
under the pocy. The rung under consderaton was not erroneous.
The record contans no evdence as to the crcumstances attendng the takng
out by the decedent of the endowment pocy on the fe of hs wfe. In the
absence of evdence on the sub|ect, t may be presumed that that pocy was
taken out n such crcumstances as to make the vaue of t, at the date of the
decedent s death, part of the decedent s estate for estate ta purposes. Ths
beng so, the pettoners faed to sustan the burden of estabshng the In-
vadty of the acton of the respondent wth reference to that matter.
The acton of the respondent, approved by the oard of Ta ppeas, n
ncudng n the grcss estate of the decedent sub|ect to the estate ta the vaue,
at the date of the decedent s death, of edera farm oan bonds mentoned,
was chaenged on the ground that the statute (secton 20. edera arm Loan
ct, 39 Stat., 360) provdes that such bonds and the ncome derved therefrom
sha be e empt from edera, State, muncpa and oca ta aton. The
statute mposed a ta on the transfer of the net estate of every decedent, and
provded n substance that, to the e tent of hs nterest theren at the tme of hs
death, the vaue of a the decedent s property, rea or persona, tangbe or
ntangbe, wherever stuated, sha be ncuded n hs gross estate, n computng
the ta mposed. (Sectons 301(a) and 302(a) of Revenue ct of 1926, 26
U. S. C. ., sectons 1092, 1094(a).) The estate ta s not a ta on property.
It s an e cse on the prvege of transmttng property of a decedent upon
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Regs. 70(1926), rt. 15.
358
hs death, the amount of the ta beng measured by the vaue of the property
transmtted. (Chase Natona ank v. Unted States, 278 U. S., 327 New York
Trust Co. v. sner, 256 U. S., 845 nowton v. Moore, 178 U. S., 41.) The
provson e emptng from ta aton edera farm oan bonds and the Income
therefrom s not voated by measurng the estate ta by the vaue, at the tme
of the decedent s death, of a of hs property, Incudng such bonds, as the
Unted States may ta the transmsson of property upon the death of te
former owner, regardess of the character of that property. (Pummer v. Coer,
178 U. S., 115 Murdoch v. Ward, 178 U. S., 139 Grener v. Leweyn, 258 U. 8.,
884, 387 T. D. 3326, O. . 1-1, 467 .) In support of the contenton that the
farm oan bonds were ta ed by the ncuson of them n the gross assets of
the decedent n computng the estate ta , counse for the pettoners refer to
statements contaned n the opnon rendered n the case of rst Natona
ank v. Mane (284 U. S., 812). In that case t was decded that corporate
stock coud not be made the bass of an nhertance ta n a State other than
that of the domce of Its deceased owner. The opnon contaned statements
to the effect that rea property can not be ta ed, or made the bass of an
nhertance ta , e cept n the State In whch It s ocated, and that certan
knds of ntangbes, namey, bonds, notes and credts, are sub|ect to the mpos-
ton of an nhertance ta ony by the domcary State. Those statements
had reference to the effect of the ocaton of property upon the ta abty by-
States of the transfer of t at death. Nothng contaned In that opnon nd-
cates an ntenton to depart from prevous decsons to the effect that the
Unted States may ta the transmsson of property upon the death of ts
owner, whether that property tsef s or s not e empt from ta aton. The
queston of such transmsson beng or not beng ta abe by the Unted States
was not nvoved In that case.
The pettoners unsuccessfuy sought the aowance of a deducton from
decedent s gross estate of 1,500 for an obgaton In that amount Incurred by
decedent s estate for the perpetua care and mantenance of a mausoeum and
cemetery ot for the remans of the decedent. The statute (secton 303(a) 1
of Revenue ct of 1920, 26 U. S. O. ., secton 1095) authorzes a deducton
from the gross estate of Such amounts for funera e penses, as are
aowed by the aws of the |ursdcton under whch the estate
s beng admnstered . orda statute (secton 5541, Laws of
orda) provdes: ecutors and admnstrators sha be aowed a reason-
abe charges on account of dsbursements for funera e penses, . The
anguage used Imports charges or e pendtures ncdent to the bura or nter-
ment of the remans of the decedent Nothng Indcates that the awmakers had
In mnd e pendtures for the care and mantenance, after the competon of the
bura and seputure, of the pace where the body of the decedent was ntended
to reman. So far as we are advsed no orda court has construed the
statute as coverng e pendtures for the perpetua care and mantenance of the
pace where the decedent s Interred. The anguage of the statute fas short
of showng that t was Intended to enabe e ecutors or admnstrators to ob-
gate the decedent s estate for the cost of the perpetua care and mantenance
of a mausoeum and cemetery ot for the remans of the decedent We concude
that the dsaowance of the deducton n queston was not erroneous.
The oard of Ta ppeas refused to compy wth a request of the pettoners
that |udca notce be taken of the case of Cora . Igeeart v. Commssoner,
pendng before that trbuna. It appears that the purpose of the proposa
that the other case referred to be consdered was to dscose that n that
case the respondent took a poston nconsstent wth a poston taken by
hm n the Instant case, In that n the former he contended that the above-
mentoned trust nstrument under whch Cora . Igeheart was the trustee
and a benefcnry was not made n contempaton of death, whe In the nstant
case he contended that that nstrument was made n contempaton of death.
Nether of the pettoners n her or hs e ecutona capacty was a party to
the other case referred to. It was not made to appear that the fact as to
what poston was taken by the respondent n the other case referred to,
that case and the nstant one not beng between the same partes, had any
pertnency to the ssues n the nstant case. The fact, f t was a fact, that
n the other case the respondent took a poston Inconsstent wth one taken
by hm n the nstant case woud not ustfy or e cuse a faure of the oard
of Ta ppeas, or of ths court, to sustan a correct poston taken by the
respondent n the nstant case. urthermore, f In the other case referred to
the respondent contended that the trust Instrument under whch Cora .
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359 Regs. 70(1926), rt. 19.
Igeheart was the trustee was not made In contempaton of death, that con-
tenton was oyerrued by the decson of the Crcut Court of ppeas for the
Seventh Crcut In passng on a petton for revew of the decson of the
oard of Ta ppeas In that case. (Commssoner v. Coro . Igeheart Trust
state, 75 ed. (2d), 151.) It Is apparent that the rung now under con-
sderaton was not substantay harmfu to pettoners, and s not a ground
of reversa
The record showng no reversbe error, the petton s dened.
Reguatons 70(1926), rtce 19: Power to -2 -8137
change en|oyment. Ct. D. 1129
ST T T R NU CT O 1920 D CISION O COURT.
1. Gross state Transfer n Trust Reservaton or Tower to
ter, uknd, or Revoke.
The decedent and hs wfe n 1926 e ecuted a trust Instrument
by the terms of whch the net ncome was to be pad monthy to
desgnated benefcares for ther respectve ves, the trustors re-
servng the rght to name other benefcares, e cept themseves,
and to change the amounts, tmes and perods of payment, and aso
reservng the rght to desgnate by wrtten drecton or by w
to whom the corpus shoud be conveyed upon the termnaton of
the trust. The trust was operatve durng the fetme of the
decedent, who ded n 1927. Under these tacts, the vaue of the
trust property transferred by the decedent was ncudbe In hs
gross estate under the provsons of secton 302(d) of the Revenue
ct of 1926.
2. Deducton Condtona equest to Charty.
Where the decedent bequeathed a hs prop3rty to hs wfe for
fe, wth penary nnd e cusve dscreton as to ts use and ds-
posa durng her fetme, and drected that upon her death
and upon the termnaton of the trust e ecuted by hmsef and hs
wfe n 1926 hs remanng property be used to estabsh a founda-
ton devoted to charty, the vaue at the date of the decedent s
death of such contngent bequest can not be estmated wth suff-
cent certanty to aow any deducton therefor under the pro-
vsons of secton 303(a)3 of the Revenue ct of 1926.
Unted States Dstrct Court for the Southern Dstrct of Caforna,
Centra Dvson.
c a Wde Mead, Indvduay and as ecutr of the state of Wam
Mead, Deceased, and Nea Wde Mead ercsng the Power to Coect the
Cam here Invoved Duy Conferred upon and ested n her by the ast
w of Wam Mead, Deceased, and by Decree of Dstrbuton heretofore
duy made and entered n ths state, pantff, v. Gaen . Wech, Unted
States Coector of Interna Revenue for the S th Dstrct of Caforna,
defendant.
March 11, 1936.
OPINION.
McCormck, Dstrct udge: ccordng to the brefs In ths case, but two
ssues reman unsetted and undecded: rst, whether or not the Commssoner
of Interna Revenue erred by Incudng n the gross estate of Wam Mend, de-
ceased, the sum of 115,400 transferred by decedent to others under the Mead
1926 Trust, and, second, whether or not the Commssoner of Interna Revenue
erred by Incudng In the gross estate and sub|ect to ta the sum of 959,038.97,
representng the aeged market vaue of a bequest n the w of Wam Mead
to the Mead ousng Trust.
y a wrtten Instrument e ecuted December 22, 1926, denomnated Deed of
Trust, Wam Mead, the deceased, and Nea Wde Mead, husband and wfe,
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Regs. 70(1926), rt. 19.
360
created the trust that Is the sub|ect matter of the frst of the two questons for
decson. The pertnent provsons of ths trust nstrument are:
ourth: rom the net ncome receved or derved from the trust estate
and avaabe for dstrbuton hereunder, and f necessary from the prncpa,
there sha be by the trustees, pad monthy to Ida M. erman, ce ans-
borough, Dorothy ansborough, Carre M. Wyckoff, ohn Wde, Lucna Wde,
esse Wde Cooper, and dth Wde Parker, and to such other person or per-
sons now vng, other than the trustors or ether of them, herenafter caed
benefcares, for and durng ther respectve fetmes, or for such perod ess
than the fetme of any desgnated benefcary, as to such benefcary, such
amounts as sad trustors, by wrtten nstrument drected to sad trustees, drect
nnd appont no payment sha be made to any benefcary e cept and ony for
the amounts and at the tmes and for the perod set forth and drected n a
wrtten nstrument e ecuted by both trustors nnd fed wth the trustees, whch
amounts and tmes and perods may be n ke manner changed from tme to
tme n the same manner by ke wrtten nstrument

Nnth: Ths trust sha pso facto cease and termnate at the tme of the
demse of the ast vng of the benefcares, or at the tme of the termnaton
of the perod of payment to the survvng benefcary on such termnaton, or
upon ts faure or termnaton for any cause or reason, or n any manner
whatsoever, In whoe or n part, the trustees sha then frst fuy pay from
the ncome, and/or prncpa, of the trust estate, any and a Inhertance ta ,
and/or ta es, estate and/or other ta es whch may then or thereafter be
requred to be pad from sad trust estate, and a accrued and accrung costs
and e penses of the trust as often and when ths trust termnates, n whoe
or n part, as aforesad, then the porton or whoe or part of the trust estate
as to whch ths trust s termnated as aforesad, sha be by the trustees
conveyed, assgned and devered as foows, to wt:
(o) One-haf to such person or persons, other than to or for the beneft of
trustors, or ether of them, n such proporton, manner and event, and for
such uses and purposes, as sad trustor, Wam Mead, may by duy e ecuted
wrtten drecton desgnate and appont, and the other one-haf to such per-
son or persons, other than to or for the beneft of the trustors, or ether of
them, n such proporton, manner and event, and for such uses and purposes,
as sad trustor, Nea Wde Mead, may by duy e ecuted wrtten drecton
desgnate and appont
(6) Shoud both or ether of sad trustors fa to e ecute wrtten drecton
n ther fetmes as aforesad, and be deceased when ths trust termnates as
aforesad, then the sad one-haf thereof sub|ect to sad wrtten drecton of
sad deceased trustor, to such person or persons n such proporton, manner
and event, and for such uses and purposes, as such deceased trustor, may by
hs or her ast w and testament desgnate and appont
(o) Shoud trustors, or ether of them, fa to e ercse the powers of ap-
pontment as aforesad, then the one-haf sub|ect to such wrtten drecton of
6ad trustor so fang, to the hers at aw of such trustor accordng to the
aw of successon of the State of Caforna then In force.
Ths 1926 trust was operatve durng the fetme of Wam Mead. e ded
November 23, 1927. On March 12, 1927, he made and e ecuted a hoographc
w. It contans the foowng statements:
4th. I drect the trustees of the trust e ecuted n December, 1920, by mysef
and wfe to Wam Mead, Nea Wde Mead and dth Wde Parker, as trus-
tees to pay the amounts herenafter named at the tmes specfed to the foow-
ng named persons, and to contnue to pay the same for the perod of ther
natura fe: To my ssters Ida M. erman, Carre M. Wyckoff and ce
ansborough and my nece Dorothy ansborough each three hundred ( 300)
doars per month, pnyabe monthy. To my neces een erman, atherne
erman McLaughn and my nephew ugene . erman each one hundred
( 100) doars per month payabe monthy, unt anuary 1, 1937. and after
anuary 1, 1937, each three hundred ( 300) doars per month payabe monthy t
the sums above drected to be pad monthy are not In addton to the amounts
beng pad at my death to the sad persons or any of them by sad trust or any
other provson made by me, but Incude the amounts then beng so pad.
I drect the trustees of sad trust, at such tme as they deem best, but
wthn fve years of my death to pay the sum of fve thousand ( 5,000) do-
ars each to sad ugene . erman, een erman, atherne erman Mc-
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361
Regs. 70(1926), rt. 19.
Langhn, and Dorothy ansborough. I further drect the trustees of sad
trust to pay a property In sad trust sub|ect to my w and wrtten drec-
ton and not drected by me to be pad otherwse, to my sad e ecutr and
wfe for the uses and purposes n ths w e pressed.
Secton 302(d) of the Revenue ct of 1020, whch estabshes and de-
termnes the method of ascertanng the vaue of the gross estate of a decedent
for edera estate ta purposes, as far as appcabe to our present nqury,
reads:
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 to the
e tent of any nterest theren of whch the decedent has at any tme made
a transfer by trust or otherwse, where the en|oyment thereof was sub|ect
at the date of hs death to any change through the e ercse of a power, ether
by the decedent aone or n con|uncton wth any person, to ater, amend or
revoke, or where the decedent renqushed any such power n contempaton
of hs death.
It Is cear from the terms of the fourth and nnth paragraphs of the trust
nstrument that the en|oyment of benefca nterests n the trust estate resdes
and s retaned n the trustors. They have reserved e pressy the rght and
the power to change the benefcares and aso the amounts and perods to
whch a benefcary sha be entted to share n the trust estate. Nothng coud
be more ceary e pressed than the absoute contro reserved by the trustors
durng ther fe tmes as to whom, and n what amount, and for what tmes,
persons mght become benefcares of the bounty of the two persons who
created the trust.
Not ony does the certan wordng of the trust nstrument brng Into effect
secton 302(d) of the Revenue ct of 1926 so as to requre the ncuson n
the gross estate of Wam Mead, deceased, of the sums transferred by the
decedent under the 1926 trust to others, but the Supreme Court, n Porter v.
Commssoner (288 U. S., 436 Ct. D. 647, O. . II-1, 894 ), has defntey
setted the requrement of ncudng such transfers n the gross vaue of a
decedent s estate under the statute n queston n ths matter. In that case,
the Court sad:
The net estate upon the transfer of whch the ta s mposed s not mted
to property that passes from the decedent at death. Subdvson (d) requres
to be Incuded n the cacuaton a property prevousy transferred by de-
cedent, the en|oyment of whch remans at the tme of hs death sub|ect to
any change by the e erton of a power by hmsef aone or In con|uncton wth
another. Pettoner argues that as decedent was wthout power to revoke the
nterests or to ater or modfy the trusts In favor of hmsef or hs estate, the
property s not governed by subdvson (d). ut the ds|unctve use of the
words ater, modfy, and amend, negatves that contenton. We fnd noth-
ng n the conte t or n the pocy evdenced by ths and pror estate ta aws,
or In the egsatve hstory of subdvson (d) to suggest that con|unctve use
of those words was ntended, or that ater or modfy were used as equva-
ents of revoke, or are to be understood In other than ther usua meanngs.
We need not consder whether every change, however sght or trva, woud
be wthn the meanng of the cause. ere the donor retaned unt hs death
power enough to enabe hm to make a compete revson of a that he had
done n respect of the creaton of the trusts even to the e tent of takng tha
property from the trustees and benefcares named and transferrng t ab-
soutey or n trust for the beneft of others. So far as concerns the ta here
Invoved, there s no dfference n prncpe between a transfer sub|ect to such
changes and one that s revocabe. The transfers under consderaton are
undoubtedy covered by subdvson (d).
The same appcaton of the correspondng secton of the Revenue ct of
1924 has been made by the Court of ppeas of the Dstrct of Coumba In
Dort v. everbng (69 ed. (2d), 836 Ct. D. 859, O. . III-2, 878 ), n the
foowng anguage:
The pan anguage of ths subdvson makes Its terms appy n the case
of every trust where the rght s reserved on the part of the grantor to affect
the en|oyment of the property transferred by any change, ether by ateraton,
amendment or revocaton.
See aso oster v. Commssoner, eto. (81 . T. ., 148).
Overpayment must appear before refund Is authorzed, and as ths case Is
n the nature of an acton for money had and receved, the ta payer must
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Regs. 70(1926), rt. 19. 362
show that the Unted States has money whch beongs to hm. (Lews v. Reyn-
ods, 284 U. S., 282 Ct. D. 443, C. 13. I-1, 130 .) Ths does not appear, and
accordngy the Commssoner dd not err by ncudng the 115,400 n the gross
estate of Wam Mead, deceased.
The second queston for decson Is whether the aeged present vaue at the
tme of the death of Wam Mead of a certan contngent bequest that he made
In hs w to a carty descrbed In the w as Mead ousng Trust s
deductbe under secton 303 (a) and (3) of the Revenue ct of 1926 and
artces 44 and 47 of Reguatons 70 promugated pursuant to and as an ad
to the constructon and enforcement of sad secton of sad Revenue ct. The
secton of the ct n queston re:ds:
Sec. 303. or the purpose of the ta , the vaue of the net estate sha be
determned (a) In the case of a resdent by deductng from the vaue of the
gross estate (3) the amount of n bequests, egaces, devses or transfers
to a trustee or trustees but ony f such contrbutons or
gfts are to be used by such trustee or trustees e cusvey for
regous, scentfc, terary or educatona purposes or for the pre-
venton of cruety to chdren or anmas. The amount of the deducton under
ths paragraph for any transfer sha not e ceed the vaue cf the transferred
property requred to be Incuded n the gross estate
nd the part of artce 44, Reguatons 70, that Is pertnent to our present
nqury, reads:
Where a trust s created for both a chartabe and a prvate purpose deduc-
ton may be taken of the vaue of the benefca nterest n favor of the former
ony In so far as such nterest s presenty ascertanabe and hence severabe
from the nterest n favor of the prvate use
nd artce 47 of the same reguatons s as foows:
Condtona bequests.- Where the transfer s dependent upon the perform-
ance of some act or the happenng of some event In order to become effectve,
t Is necessary that the performance of the act or the occurrence of the event
sha have taken pace before the deducton can be aowed.
These reguatons have the force of statutes (Tyson v. Commssoner, etc.,
68 ed. (2d), 584) and are proper ads of constructon of ta and Revenue
cts of Congress (Sknner v. aton, etc, 45 ed. (2d), 568 Tyson v. Com-
mssoner, supra).
The terms of the w of Wam Mead that pertan to the matter under
consderaton are as foows:
I, Wam Mead, make ths my ast w and testament 1st, I appont my
wfe, Nea de Mead, soe e ecutr hereof, wthout bond, and w and drect
that there be pad and dstrbuted to her a my property, rea, persona, and
m ed, for and durng her natura fe, and for her own use, wth power to se,
convey, assgn, transfer, coect, Invest, and renvest the same, or any part
thereof, or the proceeds thereof, or any part thereof. 2nd, Of the property con-
sttutng my estate at her death, I w and drect that the sum of two hundred
thousand ( 200,000) doars In money or property be transferred to the trust
e ecuted by mysef and wfe n December, 1926, to Wam Mead, Nea Wde
Mead, and dth Wde Parker, as trustees, the Income on whch may be used
by sad trust for the purposes of sad trust and the prncpa sha at the
termnaton of sad trust be transferred to the Mead ousng Trust heren-
after descrbed. 3rd, the remanng property consttutng my estate at her
death I w and drect to be pad and dstrbuted to the Securty Trust
Savngs ank, a corporaton of Los ngees, Caf., and dth Wde Parker,
Lucen Gray, Nathane P. Conrey, and bert I ee Stephens as trustees, In
trust (sad bank beng consdered as one trustee), wthout bond, for the purpose
of provdng a fund or foundaton devoted to charty, whch may be known as
the Mead ousng Trust to Improve the heath, safety and wefare of the
Inhabtants of Los ngees Count , Caf., by provdng homes on easy payments
and wthout proft for wage earners, and peope wth sma and moderate sa-
ares, and busness and professona peope wth sma capta who mght
otherwse be unabe to become home owners.
It has been hed by the Supreme Court In umes v. Unted States (276 D. S.,
487 T. D. 4185, C. . II-2, 378 ), that where the vaue of a chartabe bequest
s uncertan and can not be estmated by any known data It Is not deductbe
under a edera ta statute substantay anaogous to secton 303(a)3 of the
Itevenue ct of 1926.
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363
Regs. 80(1934), rt. 50.
Nevertheess, t s earnesty argued by pantff that the evdence n ths case
stows that the vaue of the bequest to the Mead ousng Trust at the tme
of the death of the testator Wam Mead was not uncertan and that t can be
estmated as of that tme by known data that Is estabshed by the evdence and
by resort to tabes of mortaty e perence.
Reance s paced upon Ithaca Trust Co. v. Unted, States (279 U. S., 151 Ct
D. (O, O. . I-1, 313 ), but that case s ceary dstngushabe from the one
at bar. In the Ithaca case, the Court sad:
The prncpa that coud be used was ony so much as mght be necessary
to contnue the comfort then en|oyed. The standard wts f ed n fact nnd
capabe of beng stated n defnte terms of money. It was not eft to the
wdow s dscreton.
The restrctons upon Mrs. Mead, the pantff, whch are contaned n the
w of Mr. Mead, are not so precse or strngent as those mposed upon Mrs.
Stewart n the Ithaca Trust case, and even f t be assumed that Mrs. Mead s
Invested wth nothng more than a fe estate n the property devsed to her,
she nevertheess as penary and e cusve dscreton as to ts use and dsposa
durng her fetme, and s not crcumscrbed by any |ont vestee or fducary n
her soe contro of the estate, as far as any part of t pertans to the ousng
Trust. Ths was not the stuaton of the wdow n the Ithaca case.
It s true that the evdence shows Mrs. Mead to be the owner n her own
rght of a arge separate estate, the ncome from t beng suffcent to meet her
present vng requrements, and that she s earnesty Interested n carryng
out the Mead ousng Trust dea e pressed n the w of her deceased hus-
band, but these facts are not suffcent, n the ght of her broad and unre-
strcted rght of possesson and use of a of the property and her undefned
and prospectve fe estate requrements, to enabe anyone to fnd n defnte
terms of money the vaue of the Mead ousng Trust at the death of Wam
Mead. The vaue of the thng to be ta ed, the Mead ousng Trust, must be
estmated as of that tme. (Waca Trust Co. v. Unted States, supra.)
When consderaton s gven to the e pectancy of Mrs. Mead at the tme of
Mr. Mead s death n 1927, whch, accordng to the mercan perence Tabe
of Mortaty, was 18.79 years, the uncertanty and con|ectura aspect of estmat-
ng any then present vaue of the ousng Trust s strengthened. Moreover,
It has been over eght years snce the trust was created, but nothng of an
actve or operatve character has occurred n t to date, and no possesson of
any property has been devered or vested n the trustees. They have not yet
commenced to functon, and t s entrey specuatve as to whether or not ths
audabe charty of Mr. Mead w ever become an e stng organzaton to
carry out the w of Its creator. It s not mprobabe that Mrs. Mead may be
dsposed to use, or may deem t necessary to use, durng her fetme, the entre
estate devsed to her and of whch she Is nvested by the w and by the
decree of dstrbuton n her husband s estate wth soo and e cusve possesson
and contro.
There s no mmedate transfer of the property that may utmatey comprse
the corpus of the Mead ousng Trust f, as or when t comes nto the
possesson of the trustees who mght ater receve t, subsequent to the death
of Mrs. Mead.
These uncertantes and contngences, In my opnon, operate under the
umes case to prevent the deducton camed by the pantff.
It s ony by specuaton and con|ecture that any defnte vaue for ta
purposes can be paced upon the Mead ousng Trust as of the date of Mr.
Mead s death, and such beng the case, no error was commtted by the Com-
mssoner n refusng the deducton.
S CTION 303.
Reguatons 80(1934), rtce 50: Stus of -7-7958
property. G. C. M. 16164
Where a nonresdent aen ded possessed of an nterest In a
rench partnershp whch owned property n the Unted States,
the nonresdent aen s nterest n such property s ncudbe n
hs gross estate for edera estate ta purposes.
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Regs. 50(1934), rt. 50. 364
n opnon s requested whether the nterest of a nonresdent
aen decedent n the property of a rench partnershp attrbutabe
to such partnershp s nterest n a New York partnershp consttutes
property stuated n the Unted States whch s ncudbe n the
decedent s gross estate for edera estate ta purposes.
Secton 303 of the evenue ct of 1926, contnued n effect by
a subsequent Revenue cts, provdes for the ncuson n the gross
estate of a nonresdent decedent of a property of the nonresdent
whch at the tme of hs death s stuated n the Unted States.
t the tme of hs death the decedent was a ctzen and resdent
of rance and was a member of a rench cv aw partnershp en-
gaged n busness n rance. The mercan branch of the partner-
shp s busness was conducted n New York by a domestc partner-
shp composed of the rench cv aw partnershp and a number of
resdents of New York.
Under the partnershp aws of New York a partner has no nterest
n specfc partnershp property other than the rght to have t
apped for partnershp purposes, and a partner s nterest n the
partnershp s defned to be hs share of the profts and surpus thereof
and s persona property. (Cah s Consodated Laws of New
York, sectons 40, 51, 52, page 1591.) It resuts that the nterest of
any partner n the New York partnershp at any tme s persona
property of the character ordnary referred to as a credt. The
partnershp aws of New York aso provde that ndvduas, part-
nershps, corporatons, and other assocatons may become members
of a partnershp. (Laws of New York, supra, secton 40.) Under
the aws of rance, the rench cv aw partnershp was authorzed
to become a member of other partnershps such as the New York
partnershp heren nvoved.
Wth reference to ntangbe property, such as credts, ths offce
has hed that such property has a stus n the Unted States for
edera estate ta purposes where the debtor s egay domced n
the Unted States at the tme of death. (G. C. M. 15773, C. .
I -2, 353.) The ratonae of the prncpe thus estabshed s
that, snce the source of the credts has a stus n the Unted States,
over whch source the Unted States may and does e orcse an effec-
tve ega contro, the credts necessary have a ta abe stus at the
source as property of the person entted to such credts. (See
ackstone v. mter, 188 U. S., 189 DeGanay v. Lederer, 250 U. S.,
376 odgett v. Sverman, 277 U. S., 1 armers Loan Trust
Co. v. Mnnesota, 280 U. S., 204 urnet v. rooks 288 U. S., 378
Sanchez v. owers, 70 ed. (2d), 715.) Whe t was stated n
G. C. M. 15773, supra, that credts have a ta abe stus n the Unted
States because the debtor s egay domced n the Unted States
at the tme of death, t was not ntended thereby to ay down a
requrement that the debtor must be so egay domced n order
to gve the credts a ta abe stus n the Unted States. or the
purpose of that case t was deemed suffcent to pont out that the
contro of the Unted States over the credt represented by the cor-
porate bond, whch afforded a ta abe stus wthn the Unted States,
was estabshed by the ega domce of the debtor corporaton n
the Unted States.
The rench partnershp was not ony actvey engaged n carry-
ng on busness wthn the Unted States by reason of ts membershp
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365
Regs. 63, rt. 17.
m the New York partnershp, but, n vew of the prncpes above
e pressed, aso had vauabe property stuated n the Unted States
(represented by ts credt n the New York partnershp) by reason
of such membershp. The decedent had at east an equtabe nterest
n that property or the rench partnershp to the e tent of the vau-
aton paced thereon n the nventory fed n rance by the repre-
sentatve of the decedent for nhertance ta and probate purposes.
It, therefore, foows that the nterest of the decedent n the property
of the rench partnershp stuated n the Unted States was aso
stuated theren at the tme of hs death and had a stus n the Unted
8tates for edera estate ta purposes. (See Commssoner of
Interna Revenue v. Nevus, 76 ed. (2d), 109, Ct. D. 1049, C. .
T -2, 350 certorar dened, 56 Sup. Ct., 104, n whch t was hed
that the vaue of the equtabe nterest of a nonresdent aen
decedent n shares of corporate stock whch had a ta abe stus n
the Unted States coud be regarded as property of the decedent
stuated n the Unted States for edera estates ta purposes, rre-
spectve of the status of the ega tte to such shares.) Ths
resut foows even though the rench partnershp shoud be recog-
nzed n ths country as a separate ega entty for ta purposes.
Under the rench cv aw recognton of the rench partnershp
as an entty mght resut n estabshng the entty as the ega owner
of the credt n the New York partnershp, but t woud aso ceary
estabsh the ndvdua partners theren as the owners of the bene-
fca or equtabe nterest n the credt. Moreover, snce the rench
partnershp, f a separate ega entty or |urstc person, coud not
nave rghts aganst tsef, t resuts that the credt of such partner-
shp n the New York partnershp must be regarded as a rght
enforceabe aganst the other members of the New York partner-
shp, a of whom were resdents of the Unted States. rtce 50 of
Reguatons 80(1934) provdes that ntangbe persona property
has a ta abe stus wthn the Unted States f consstng of a prop-
erty rght ssung from or enforceabe aganst a corporaton organzed
n the Unted States or a person who s a resdent of the Unted States.
In vew of the foregong, t s the opnon of ths offce that the
decedent s nterest n the property of the rench partnershp stu-
ated n the Unted States at the date of hs death s ncudbe n hs
gross estate for edera estate ta purposes.
erman Ophant,
Genera Counse for the Department of the Treasury.
TITL I . ST T T . (1921)
S CTION 402(c). TR NS RS Y D C D NT IN IS LI TIM .
Reguatons 63, rtce 17: Nature and tme -18-8067
of transfer. Ct. D. 1111
ST T T R NU CT O 1921 D CISION O SUPR M COURT.
Gbobs state Tbansffr n Trust Contempaton op Death
urden of Proof Revew op vdence by Ccut Court of
ppeas.
Where a transfer In trust of a substanta porton of the de-
cedent s estate, made wthn two years of hs death, was hed by
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Reg. 63, rt 17.
366
the tra court to hare been made In contempaton of death wthn
the meanng of secton 402(c) of the Revenue ct of 1921, on the
ground that the e ecutors had faed to show that the motve that
nduced the transfer was not of the sort whch eads to testa-
mentary dsposton and consequenty had faed to meet the burden
of proof paced upon them by the statute, the utmate queston for
decson by the tra court was one of fact, and, a |ury tra havng
been waved, a genera verdct found by the court was concusve,
and the crcut court of appeas was wthout authorty to wegh the
evdence and to make ts own fndngs.
Supreme Couht of the Unted States.
akey D. McCaughn, Coector of Interna Revenue for the rst Dstrct of
Pennsyvana, pettoner, v. Rea state Land Tte d Trust Co. and Dougas
Mac aran, ecutors of state of Macom Mac aran, Deceased.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Thrd Crcut.
March 30, 1936.
OPINION.
Per curam: On ebruary 9, 1920, Macom Mac aran, a physcan of Pha-
depha, Pa., made a transfer of rea estate and securtes, of the vaue of up-
wards of 070,000, n trust for the beneft of hs chdren and ther wves and
descendants. e ded on December 8, 1921. s hs death occurred wthn two
years after the transfer, t fe wthn the terms of the statute creatng a pre-
sumpton that the transfer was made n contempaton of death. (Revenue ct
of 1921, ch. 136, secton 402(c), 42 Stat., 227, 277, 278.) The remanng estate
of the decedent, of whch dsposton was made by w (e ecuted on the same
day as the transfer n trust) was worth about 13,000. The Commssoner of
Interna Revenue ncuded the property transferred as part of decedent s gross
estate, and demanded payment of an estate ta upon that bass. The payment
was made, cam for refund was re|ected, and ths sut was brought by the
e ecutors of the decedent aganst the coector to recover the amount pad.
|ury was waved. fter the evdence had been receved, both partes sub-
mtted requests for concusons of aw and pantffs aso requested speca
fndngs of fact The court refused pantffs requests and affrmed certan
concusons of aw requested by defendant, and pantffs were aowed
e ceptons.
Referrng to decedent s physca condton, the court sad In ts opnon that
the evdence showed that at the tme of the transfer decedent was 78 years od,
unusuay vgorous and cear-mnded and, e cept for a condton common In
men of hs age, n good heath. The court sad that the most that coud be
camed for that evdence was that t estabshed, and the court specfcay
found, that the transfer was not made under any conscousness or beef or
apprenenson that death was mmnent. The substance of the court s concu-
son on a the evdence was that the pantffs have faed to show that tha
motve that Induced ths transfer, whatever t was, was not of the sort whch
eads to testamentary dsposton, and, consequenty have faed to meet the
burden of proof paced upon them by the statute. The court then found a
genera verdct n favor of the defendant and drected |udgment accordngy.
(7 . Supp., 742.)
The crcut court of appeas revewed the evdence, decded that the transfer
was not made n contempaton of death, and reversed the |udgment. (79
. (2d), 602.)
The prncpes governng the determnaton whether a gft nter vvos a
made In contempaton of death are set forth In Unted States v. We
(283 U. S., 102 Ct. D. 840, O. . -, 475 ), and need not be restated. Tha
Instant case Is controed by the estabshed rues reatng to appeate revew
In actons at aw where a |ury tra has been waved. (R. S., 649, 700 28
U. S. C, 773, 875.) Where a genera verdct Is found by the tra court, It
has the same effect as the verdct of a |ury. The appeate court can not pass
upon the weght of evdence. (Norrs v. ackson, 9 Wa., 125, 128 rtsh
ueen Mnng Co. v. aker Sver Mnng Co., 139 U. S., 222 Lehncn v. Dck-
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367
Regs. 37, rt. 32.
ton, 148 U. S., T, 73 t. Lous v. Western Unon Teegraph Co., 166 U. S., 388
Law v. Unted States, 266 U. S., 494 eschmann Co. v. Unted States, 270
D. 8., 849, 356, 867 arvey Co. v. Maey, 288 U. S., 415, 418, 419 astman
odak Co. v. Gray, 292 U. S., 332, 836, 837.)
ere, pantffs e ceptons to the concusons of aw of the tra court, and
to the refusa of the court to reach other concusons as requested, rased no
queston save the one of aw, whether the court s verdct was whoy wthout
evdence to sustan t. That queston does not appear to be substanta. The
utmate queston for the decson of the tra court was one of fact and ts
genera verdct was concusve. The crcut court of appeas was wthout
authorty to wegh the evdence and to make ts own fndngs.
The udgment of the crcut court of appeas Is reversed and that of the
dstrct court s affrmed.
It Is so ordered.
TITL I . ST T T . (1918)
S CTION 402,
Reguatons 37, rtce 32: Ta abe -1-7893
nsurance. Ct. D. 1058
ST T T R NU CT O 1918 D CISION O SUPR M COURT.
1. Gross state Proceeds of Lfe Insurance Poces Retro-
onvmr of Statute.
The decedent, who ded n 1921, hs wfe survvng, had taken
out poces of Insurance on hs own fe, one havng been ssued
In 1883 payabe to hs wfe, or, f she predeceased hm, then to the
survvng chdren or ther descendants, otherwse to decedent s
ega representatves, and the others of such poces havng been
assgned by the decedent to hs wfe n 1904, the proceeds of whch
beng payabe to her shoud she survve hm. The decedent had no
power, none beng reserved, to change the benefcares, to revoke
the assgnments, or to pedge or surrender the poces. Under
these facts, the proceeds of none of the poces consttuted a part
of the gross estate under the provsons of secton 402(f) of the
Revenue ct of 1918, snce that provson Is not to be construed
as havng retroactve effect. Leueyn v. rok (208 U. S., 238)
foowed.
2. Gross state Phoceedb of Lfe Insurance Poces Poss-
bty of Reverter.
No nterest passed as the resut of decedent s death, whch, at
most, put an end to the possbty that the proceeds of any of the
poces woud become payabe to hs ega representatves. e-
verng v. St. Lous Unon Trust Co. et a. (Ct. D. 1047, C. .
I -2, 339) and ecker v. St. Lous Unon Trust Co. et a.
(Ct. D. 1046, C. P . I -2, 337), both decded November 11, 1935
(296 U. S., and ), foowed.
Supreme Coubt of the Unted States.
Norman W. ngham, r., et a., etc., pettoners, v. The Unted States of
merca.
On wrt of certorar to the Unted States Crcut Court of ppeas for the rst Crcut.
December 9, 1935.
OPINION.
Mr. ustce Sutherand devered the opnon of the Court.
Ths case nvoves the constructon and consttutonaty, as apped, of sec-
ton 402(f) of the Revenue ct of 1918, whch provdes that the vaue of the
gross estate of the decedent sha be determned by ncudng the vaue, at
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Regs. 37, rt. 32.
368
the tme of hs death, of a property (f) to the e tent of the amount recev-
abe by the e ecutor as Insurance under poces taken out by the decedent
upon hs own fe and to the e tent of the e cess over 40,000 of the amount
recevabe by a other benefcares as Insurance under poces taken out by
the decedent upon hs own fe.
Pettoners are the e ecutors of the w of ng Upton, who ded n 1921
whe the ct of 1918 was n force. s wfe survved hm. Long pror to
the passage of the ct, a number of fe nsurance poces were ssued to
the decedent, among them four Issued by the erkshre Lfe Insurance Co. of
Massachusetts, orgnay payabe to hs estate and one Issued n 1883 by
the Connectcut Mutua Lfe Insurance Co. of Connectcut, payabe to the wfe
of the decedent wth a condton that n case of the predecease of the wfe
the amount of the pocy shoud be payabe to hs chdren or, f there be no
chdren or descendants of chdren then vng, to the ega representatves
of the nsured. In 1904, decedent assgned the four erkshre poces to hs
wfe, provded she survves me. The decedent had no power, none beng
reserved, to change the benefcares, to pfdge or assgn the poces after
the assgnment to hs wfe, or revoke that assgnment, or surrender the poces
wthout the consent of the benefcares. (Washngton Centra ank v. Uume,
128 U. S., 195, 205 Mes v. Connectcut Lfe Insurance Co., 147 U. S., 177,
181, 182, 183, compare dssent, page 188 Commonweath v. Whppe, 181 Mass.,
341, 343 Phngrey v. Natona Lfe Insurance Co., 144 Mass., 374, 382.)
fter havng deducted the specfc e empton of 40,000, the Commssoner of
Interna Revenue Incuded the proceeds of these fve poces n the decedent s
gross estate, for the purpose of the edera estate ta . n acton was brought
n a edera dstrct court to recover the amount of the ta resutng from the
ncuson of these proceeds. That court re|ected the vew of the Commssoner
and awarded .udement to the ta payers upon the authorty of Letceyn v.
rck (208 U. S., 238 T. D. 3715, C. . I -1, 322 . 7 . Supp., 907.)
The court of appeas reversed, hodng that the rck case was dstngushabe.
(76 ed (2d), 573.) We thnk the vew taken by the dstrct court s the correct
one.
1. even poces were Invoved In the rck case, a antedatng the passage
of the ct mong them was one Issued by the erkshre company and another
ssued by the Connectcut Mutua. These poces n terms were dentca wth
the correspondng poces In queston here. The assgnment of the erkshre
pocy there was the same as the assgnments here. Ths Court apped the
rue that cts of Congress are to be construed, f possbe, so as to avod grave
doubts as to ther consttutonaty and sad that such doubts were avoded by
construng the statute as referrng ony to transactons takng pace after t was
passed. In that connecton we nvoked the genera prncpe that the aws are
not to be consdered as appyng to cases whch arose before ther passage
when to dsregard t woud be to mpose an une pected abty that, f known,
mght have been avoded by those concerned. The court beow sought to ds-
tngush the decson on the ground that ths Court dd not refer to those specfc
provsons set forth In the poces and assgnments whch are pertnent here.
The Government makes the same pont, and contends that snce ths Court dd
not aude to these provsons n the opnon, the decson can not be regarded as
havng passed on ther effect. It s true that questons whch merey urk n the
record, nether brought to the attenton of the court nor rued upon, are not to be
consdered as havng been so decded as to consttute precedents. (Webster v.
a, 266 U. S., 507, 511.) That, however, s not the stuaton n the present case.
In Leweyn v. rck the poces and assgnments, n ther entrety, were
defntey before the court and ths necessary Incuded each of the provsons
whch they contaned. Moreover, both n the append to the Government s
bref and n the man bref of the ta payers, the attenton of the court was
dstncty caed to a of the provsons whch are now nvoked. The atter
bref summarzed and descrbed the provsons of the four casses of poces
whch were nvoved one cass beng poces, It was ponted out, made payabe
to the rck estate subsequenty assgned by Mr. rck to hs wfe or daughter
f she survved hm, wthout reservng power to revoke the assgnments. Ths
Court, wthout stoppng to recte the varous specfc provsons that were thus
ceary brought to ts attenton, hed that the proceeds of none of the poces
were sub|ect to the estate ta under secton 402(f). It fary must be con-
cuded that n reachng that resut these provsons were consdered, and that
such of them as bore upon the probem, there as we as here presented, were
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369
Regs. 67(1924), rt. 1.
found not to requre a dfferent determnaton. v e thnk the ponts now urged
by the Government were decded In the rck case, and fnd no reason to recon-
sder them.
2. The prncpes so recenty announced by ths Court n everng v. St. Lov
Unon Tr. Co. et a. (November 11, 1935) (296 U. S., Ct. D. 1047, O. .
I -2, 839 and ecker v. St. Lous Unon Tr. Co. et a. (November 11, 1935)
296 U. S., CL D. 1046, C. . I -2, 337 ) are decsve of the case n favor
of the ta payers. Those prncpes estabsh that the tte and possesson of
the benefcary were f ed by the terms of the poces and assgnments thereof,
beyond the power of the nsured to affect, many years before the ct here n
queston was passed. No nterest passed to the benefcary as the resut of the
death of the nsured. s death merey put an end to the possbty that the
predecease of hs wfe woud gve a dfferent drecton to the payment of the
poces.
udgment reversed.
TITL III (P RT II). GI T T . (1924)
TITL IIL GI T T . (1932)
S CTION 319 O T R NU CT O 1924. S CTION 501(a) O T
R NU CT O 1932.
Reguatons 67(1924), rtce 1 Reguatons -15-8038
79 (1936), rtce 2: Transfers reached. G. C. M. 16460
The gft of a donor s own check s not compete unt the check
s pad or s negotated for vaue to a thrd person.
The gft of a donor s own note s not compete unt the note s
pad or s transferred for vaue.
dvce s requested whether certan gfts are sub|ect to the gft
ta .
Secton 319 of the Revenue ct of 1924 mposed a ta for the
caendar year 1924 and for each caendar year thereafter upon the
transfer by gft of any property wherever stuated vaued n e cess
of 50,000. That secton was repeaed by secton 1200 of the Revenue
ct or 1926 as of anuary 1, 1926. No gft ta was n force n the
year 1926 but t agan became effectve for the caendar year 1932
and for each caendar year thereafter under the provsons of secton
501(a) of the Revenue ct of 1932.
The gfts n queston were made under the foowng crcum-
stances :
(a) On December 25, 1925, , the donor, presented wth a check
for a sum n e cess of 50,000. requested not to depost or cash
the check for a few days as he was not certan hs bank baance was
suffcent to cover the check. hed the check unt anuary 2, 1926,
when t was cashed by the drawee bank. The record shows that
s bank account was suffcent to cover the check from the date the
check was presented to unt t was cashed by the bank. It s con-
tended that the gft was not made unt anuary 2, 1926, after the
repea of the gft ta provsons of the Revenue ct of 1924, and s,
therefore, not sub|ect to gft ta .
( ) On ugust 29, 1935, C, the donor, transferred to a trustee
an nterest-bearng note e ecuted by hm on ugust 15, 1935, for
a sum n e cess of 100,000. The note s payabe wthn one year
upon C s order, s ndorsed by hm n bank, and bears nterest
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Regs. 67, rt. 1.
370
at the rate of 4 per cent. The note was pad by C n 1936. The
date of the gft s matera nasmuch as the hgher rates mposed
by secton 301 of the Revenue ct of 1935 w appy f the gft was
made n 1936 when the note was pad.
It s we setted that a gft s not consumated by the mere dev-
ery of the donor s own check or note. The gft of a check does not be-
come compete unt t s pad, certfed, or accepted by the drawee,
or s negotated for vaue to a thrd person. Pror to payment,
certfcaton, or negotaton, a check s nothng more than an order
on the drawee bank whch may be revoked at any tme by stoppng
payment and s revoked pso facto by the death of the drawer.
( dwards v. Guaranty Trust Savngs ank, 190 Pac., 57 (Ca.
pp., 1920) Provdent Insttuton for Savngs, tc., v. Ssters of
the Poor, tc., 87 N. . q., 424, 100 t., 894 (1917) anbrdge v.
oes, 149 N. Y. S., 20 (1914).) The gft of the donor s own note
s not compete unt the note s pad or transferred for vaue.
(Shaw v. Camp, 1C0 111., 425, 43 N. ., 608 (1896) owers v. e -
andra ank, 130 N. ., 808 (Ind. pp., 1921) Dougherty v. Sat,
227 N. Y., 200, 125 N. ., 94 (1919).) In the Dougherty case the
court sad:
The transacton thus reveaed admts of one Interpretaton, and ony
one. The note was the vountary and unenforceabe promse of an e ecutory
gft.
In vew of the foregong, t s the opnon of ths offce that n
the frst case the gft by was competed on anuary 2, 1926, the
date on whch the check was cashed. Snce the check was cashed
subsequent to the effectve date of the repea of the gft ta pro-
vsons of the Revenue ct of 1924, the gft s not sub|ect to the
gft ta . In the second case, the gft of the note by C was
effected n 1936 when the note was pad. The ta shoud be com-
puted upon the amount of the prncpa and the nterest thereon
at rates n effect for that year.
erman Otfhant,
Genera Counse for the Department of the Treasury.
TITL III. P RT II. GI T T . (1924)
S CTION 319.
Regtato s 67, rtce 1: Transfers reached. -17-8059
Ct. D. 1110
gft ta revenue act op 1024 decson of court.
1. Transfer bt Gft Communty Property Caforna Law.
gft whch the ta payer made to hs wfe on October 2, 1925,
of a hs rght, tte, and nterest n certan rea property In Ca-
forna, acqured wth communty funds n 1910 and 1924, was
sub|ect to the ta mposed by secton 319 of the Revenue ct of
1924 to the e tent of the far market vaue of the entre property,
snce under the oca aw the wfe had no propretary Interest or
estate n the communty property, beyond a mere e pectancy,
before the gft was made.
2. Certorar Dened.
Petton for certorar dened March 30, 1936.
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371
Regs. 67, rt. 1.
Unted States Crcut Court or ppeas fob the Nnth Crcut.
Robert C. Gs, appeant, v. Gaen . Wech, Unted States Coector of
Interna Revenue for the S th Dstrct of Caforna, appeee.
Upon appea from the Dstrct Court of the Unted States for the Southern Dstrct of
Caforna, Centra Dvson.
efore Wbur, Garbecht, and Denman, Crcut udges.
November 18, 1935.
OPIIvTON.
Garbecht, Crcut udge: n acton was brought by appeant Gs, as
pantff, aganst appeee, heren to recover the sum of 7,202.70, wth Inter-
est, camed to have been coected as an e cessve ssessment of the edera
gft ta , upon a gft by pantff to hs wfe of certan communty property.
Pantff and hs wfe acqured, as communty property, a fve-nnths nterest
n certan rea property In Caforna, known as Topango Canyon ands. t
a tmes nvoved n ths proceedng pantff and hs wfe were resdents of
the State of Caforna. Two-ffths of ths fve-nnths Interest n the Topango
Canyon ands was purchased wth communty funds n 1010, and the reman-
ng three-ffths of the sad fve-nnths was purchased wth communty funds n
1924. On October 2, 1925, pantff made a gft of a of hs rght, tte and
Interest n the sad property to hs wfe, rances L. Gs. On that date the
property was of the reasonabe market vaue of 389,166.66. On the 15th of
March of the foowng year pantff fed a return for edera gft ta for
the year 1925, settng forth the vaue of the gft to hs wfe as one-haf of the
vaue of the property 194,583.33, and computng the ta upon that amount,
pad the ta to the coector In the sum of 2,381.66. The Commssoner of
Interna Revenue computed a defcency n the ta , basng the ta upon the
fu vaue of the property and assessed a defcency n the ta for the year
1925 n the sum of 0,685.01. Pantff was notfed and pad the assessed
defcency of 7,292.70 ( 6,685.01 pus 607.69 nterest). Pantff thereafter
fed a cam for refund, whch was re|ected. The present acton was brought
to recover the camed refund. genera demurrer was Interposed and sus-
taned and udgment of dsmssa entered, from whch ths appea s taken.
To use appeant s words, The utmate ssue nvoved Is whether, under
the gft ta statute the far market vaue of a gft of communty property
by a husband to hs wfe s ess than the entre vaue of sad property.
y secton 819 of the Revenue ct of 1924 (43 Stat., 253 26 U. S. C. .,
secton 1131 (repeaed, ct of ebruary 26. 1920)) a ta was mposed upon
the transfer by a resdent by gft of any property, etc. y the foowng
secton of sad ct, It was provded that f the gft was made In property, the
far market vaue thereof at the date of the gft shoud be consdered the
amount of the gft
In Caforna, a husband may make a gft of the communty property to the
wfe, and It s not necessary for the wfe to on n the deed. (Logan v. Thorne,
205 Ca., 26, 28 atschmdt v. Weer, 145 Ca., 590, 599.)
The Supreme Court of Caforna has sad that The respectve rghts of
husband and wfe n communty property are determned by the aw n force
nt the tme of ts acquston. (TrmMe v. Trmhe, 219 Ca., 340, 26 P. (2d),
477, 479. See aso Mc ay v. Laurston, 204 Ca., 557. 50G.)
The nterest of the wfe In the property whch was the sub|ect of the gft
must be determned, for It Is cear that the husband coud not gve to the wfe
more than that whch he had. In ths nqury we must ook to the state of
the aw at the tme of the acquston of the property. The queston of the
Interest of the wfe In the communty property has been the source of much
tgaton n the courts of Caforna.
It Is we setted by the decsons that the nterest of the wfe n the property
acqured n 1910 s no more than a mere e pectancy, to borrow the term
used n the decsons. The decsons of the Supreme Court of the State of
Caforna as to the nature of the wfe s nterest n the communty property
are bndng upon ths court. Tacott v. Unted States, 23 . (2d), 897
(C. O. . 9) T. D. 4137, C. . II-1, 319 .)
The supreme court n Stewart v. Stewart (204 Ca., 546 (269 Pac,
439)), referrng to a prevous appea of the same case, sad: In that opnon
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Regs. 67, rt. 1.
372
we hed that the ong-estabshed doctrne of ths State was, as reterated and
confrmed by ths court In SpreckeU v. Spreckes (172 Ca., 775 (168 Pac., 637)).
that the husband was durng marrage The soe and e cusve owner of a
the communty property, and that the wfe had no tte thereto, nor Interest or
estate theren, other than a mere e pectancy as her, f she survved hm. We
further ponted out what was decared In more recent decsons of ths court
that egsaton enacted subsequent to the rendton of sad ast-mentoned
decson had not n any manner changed or modfed sad doctrne as to tb
wfe s rght n communty property acqured n, or pror to, the year 1918, the
year the partes hereto purchased the rea property descrbed In the compant
heren. ence, It was further hed that the Interest of
the wfe durng marrage n the communty property s a mere e pectancy to bo
reazed ony upon her survvng her husband, or upon the earer dssouton of
the marrage by dvorce proceedngs. (Moore, etc, v. Neghbour
et a, 95 Ca. pp., 628, 631. See aso Lahaney v. Lahaney, 208 Ca., 323, 325
cthen v. Pacfc Mutua Lfe Insurance Co., 198 Ca., 91, 98.)
fter ctng authortes, Stewart v. Stewart, supra, goes on to say, at page
553, These authortes hod unformy and consstenty that durng the mar-
rage the husband s the soe and e cusve owner of a the communty property
and the wfe has no tte thereto, nor nterest or estate theren other than a
mere e pectancy as her, f she survve hm. (See aso state of Mofftt, 153
Ca., 359.)
No need to mutpy ctatons. We have seen, at east so far as the property
acqured n 1910 Is concerned, that the wfe has no estate or nterest n the
common property. The wfe s nterest or estate n the communty property dd
not materaze unt dssouton of the marrage reatonshp, ether by death
or dvorce. (Chance v. obsted, 66 Ca. pp., 434, 437.) The estate In
e pectancy of the wfe n the common property s dependent upon her survvor-
shp and n the event of her death before her husband, It s deemed never to
have e sted. (In re Rowand, 74 Ca., 523, cted n Mc ay v.
Laurston, supra, at page 568.) Therefore, as to the 1910 acquston, the entre
vaue of the property was ta abe.
Wth regard to the property acqured n 1924, uness the changes n the a
reatng to communty property made n 1923 were basc changes, the same rue
must appy. In 1923, secton 1401 of the Cv Code of Caforna (now secton
201, Probate Code) was amended to provde that upon the death of ether hus-
band or wfe, one-haf of the communty property was sub|ect to the testamentary
dsposton of the decedent ut here, agan, the wfe s nterest n the communty
property does not materaze unt dssouton of the marta reatonshp. r-
ter, secton 1401 does not reate to ownershp or to estate, but to descent and
successon. ( state of PhUps, 203 Ca., 106, 109.)
Dean cMurray, n hs artce on Communty Property, 1930 Suppement to
Ca. ur., secton 06, at page 99 of the artce, says:
The genera form of statement n the opnons s that the wfe, at east pror
to the adopton of secton 161a of the cv code In 1927, took no vested nterest
or estate n the communty property. The husband has been sad to be the
owner of the communty property, and to have the unquafed rght to dspose of
t, e cept for such restrctons as may have been mposed by the egsature. The
wfe, on the other hand was hed to have a mere e pectancy, a d not a tte or
nterest that she coud convey.
No case has been ponted out to us.nvovng communty property acqured after
1923 and before 1927,1 wheren the wfe was hed to have an Interest of more than
a mere e pectancy. (Cf. concurrng opnon of udge Preston n Cuttng v.
ryan, 206 Ca., 254, 259.)
It foows, therefore, that the wfe, havng no-propretary nterest or estate n
the communty property beyond a mere e pectancy before the gft by the hus-
band, and thereafter havng the entre nterest n the property as a part of her
separate estate, was propery assessed a gft ta upon the whoe vaue of the
property under the ct.
udgment affrmed.
In 1027 an amendment to the Cv Code of Caforna (secton 161a) provded that th
wfe was to have a vested Interest In the communty property eqna to that of the husband,
athough he was st eft wth the possesson and contro thereof.
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373
Regs. 43, rt. 3
TITL I CIS T S. (1934)
S CTION 602 . PROC SSING T ON C RT IN OILS.
Reodatons 48, rtce 3: Imposton of the
ta .
-22-8104
Ct. D. 1122
CIS T R NU CT O 1934 R IS D ST TUT S D CL R TORY
|udgment act decson of court.
1. Processng Ta on Coconut O Consttutona.tt.
The processng ta on coconut o produced n the Phppne
Isands, Imposed by secton 602 of the Revenue ct of 1934, Is
vad as an e cse ta and wthn the ta ng power of Congress.
The Phppne Isands do not attan compete soveregnty under
the ndependence statute of 1933 unt 10 years after the enact-
ment of the statute, and Congress retans |ursdcton to egs-
ate or to make appropratons for ther beneft.
2. In|uncton Restrant upon Coecton of Ta ursdcton
or Court op quty.
court of equty s wthout ursdcton to grant an n|uncton
to restran coecton of any consttutona ta or to render a
decaratory |udgment, n vew of the prohbtons of secton 8224
of the Revsed Statutes and the decaratory |udgment ct, as
amended.
Dstrct Court or the Unted States, Southern Dstrct or Caforna,
Centra Dvson.
Los ngees Soap Co., a Corporaton, pantff, v. Nat Rogan, Indvduay and
as Coector of Interna Revenue for the S th Coecton Dstrct of Ca-
forna, defendant.
Tankwch, Dstrct udge: Secton 602 of the Revenue ct of 1934 ( 20
U. S. C. ., secton 999) eves a processng ta of 3 cents per pound on certan
os Incudng coconut o, sesame o, pam o, pam kerne o, and sunfower
o. It aso eves an addtona ta of 2 cents per pound on coconut o. Ths
ta , however, does not appy to coconut o produced n the Phppne Isands.
The pantff by Its b of compant attacks the processng ta of 3 cents and
seeks a determnaton both under the equty powers of the court and under
the decaratory udgment statute (28 U. 8. O. ., secton 400) that It s an
unconsttutona e acton and penaty and not a ta . In|unctve reef Is
sought.
The compant dscoses the foowng facts: The pantff Is a manufacturer
of soaps, operatng a manufacturng pant In the cty of Los ngees where the
process of manufacturng Is carred on whoy In Intrastate commerce. It has
a arge estabshment representng a arge nvestment, and for 37 years pror
to the year 1936, Its busness was conducted at a substanta proft. In 1934,
the b states, It was abe to make a proft merey because It has on hand
arge quanttes of vegetabe o whch had been purchased before the enactment
of secton 602 of the Revenue ct of 1934. In the conduct of ts busness,
whch s e cusvey that of the manufacture of soaps and aed products, pan-
tff must use arge quanttes of coconut o whch s the ony mportant commer-
ca source of aurc acd. It uses a arge quantty of coconut o orgnatng
In the Phppne Isands. Its busness Is that of a processor wthn the moan-
ng of the Revenue ct of 1934. etween May 1, 1934, and December 31, 193o,
It pad under the ct a tota of 485,642.56 as processng ta on the processng
of Phppne Isands o. Processng ta es w contnue to be eved by the
defendant, who s the coector of Interna revenue for the dstrct, uness he
March 16, 193C.
OPINION.
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Regs. 48, rt. 3.
374
s en|oned from coectng the ta . temporary restranng order was ssued.
temporary n|uncton s now sought. The defendant has fed ob|ectons
to ts ssuance. e has aso fed a moton to dsmss the b upon the ground
that t does not state facts suffcent to consttute a cause of acton, that the
court s wthout ursdcton to restran the coecton of the ta or to enter-
tan an acton n decaratory reef reatng to t, and that the pantff has a
pan, speedy and adequate remedy at aw.
Pantff s attack upon the consttutonaty of the statute Is grounded upon
the contenton that t s not a ta under rtce I, secton 8, cause 1, of the
Consttuton of the Unted States, but a penaty, the effect of whch Is to
penaze the pantff for the beneft of certan producers of domestc os and
of the Phppne Isands.
The pantff, by paraphrasng certan genera anguage of the Supreme Court
n Unted States v. uter (1036) (80 L. d., 287 Ct. D. 1070, page 421, ths u-
etn ), nssts that ths ta s sub|ect to the same consttutona fraty as the
grcutura d|ustment ct.
It s we to bear n mnd that the rea bass for the decson n that case s
the fact that the Congress had attempted to reguate agrcuture and to acheve
that resut by means of moneys obtaned through a ta . Whatever anguage
of genera character may have been used n the ma|orty opnon must be
read n the ght of ths man prncpe whch ay at the foundaton of the
decson. The decson estabshes the prncpe that, rrespectve of any ques-
ton of nterstate commerce, the Congress of the Unted States has the power
to evy a processng ta . The mnorty opnon, wrtten by Mr. ustce Stone,
emphaszes ths fact by statng:
The consttutona power of Congress to evy an e cse ta upon the process-
ng of agrcutura products Is not questoned. (See Unted States v. uter
(1935), 80 L. d., at 301.)
nother sgnfcant matter to be borne n mnd s the fact that the Court
adopted the amtonan vew on the meanng of the phrase genera wefare
contaned n the ta ng cause of the Consttuton. amton s vew was con-
taned n hs Report on Manufactures made by hm n 1791, whe he was
Secretary of the Treasury. e there wrote:
The phrase s as comprehensve as any that coud have been used, because
t was not ft that the consttutona authorty of the Unon to approprate ta
revenues shoud have been restrcted wthn narrower mts than the genera
wefare, and because ths necessary embraces a vast varety of partcuars
whch are susceptbe nether of specfcaton nor of defnton. It Is, therefore,
of necessty eft to the dscreton of the Natona Legsature to pronounce upon
the ob|ects whch concern the genera wefare and for whch, under that descrp-
ton, an appropraton of money s requste and proper. nd there seems to
be no room for doubt that whatever concerns the genera n : rests of earnng,
of agrcuture, of manufacture, and of commerce, are wthn the sphere of the
natona councs, as far as regards appcaton of money. Itacs added.
The processng ta on coconut o appears to be a revenue measure. It s
not ted, as was the processng ta under the grcutura d|ustment ct, to
any scheme, vountary or coercve, to contro ntrastate actvtes whch are
beyond the power of the Congress. readng of the measure and a comparson
wth other provsons woud ndcate that the ob|ect of the Congress may have
been to make the ta repace the custom duty whch appes to coconut o
orgnatng esewhere than n the Phppnes. (19 U. S. O. ., secton 1001,
paragraph 54 19 U. S. O. ., secton 1301.) Coconut o so orgnatng must
pay In addton to ths duty the processng ta of 3 cents per pound. The net
resut s that the processor who uses coconut o not orgnatng n the Php-
pne Isands s sub|ect to a ta of 7 cents per pound whe those who, ke the
pantff, use o orgnatng In the Phppne Isands, pay ony the 3 cents per
pound processng ta . In effect, a protectve tarff Is thus gven to the Php-
pne product There Is no drect dscrmnaton between persons usng one
product nstead of another. ut even If there were, that n tsef woud not
render the ta nvad. Courts have hed repeatedy that a ta can not be n-
vadated merey because ts effect mght be to dscourage the use of a product,
such as oeomargarne, or even the destructon of a busness. (See eezto
ank v. enno (1869), 8 Wa., 533, 19 L. d., 482 McOray v. Unted States
(1904), 195 U. S., 56 aska sh Co. v. Smth (1921), 255 U. S., 44 Mer
v. Standard Nut Margarne Co. (1932), 259 U. S., 201 Magnano Company T.
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375
Regs. 48, rt. 3.
amton (1934), 292 U. S., 40 o v. Standard O Co. (1934), 294 U. S., 87,
100.) In aska sh Co. v. Smth, supra, Mr. ustce omes sad:
ven though a cense ta shoud destroy a busness, t woud not be
tovad or requre compensaton upon that ground aone. Those who enter
upon a busness take that rsk.
Pantff quotes from certan of the debates whch occurred durng the ds-
cusson of the adopton of the coconut o processng ta from whch It may
be nferred that the ob|ect of the Congress was to dscourage the use of coco-
nut o and to force the use of domestc o substtutes. ssumng ths to
have been the ob|ect, the answer s In the decsons ust cted whch state
ceary that where the power to ta s not mted, the mere fact that the
egsatve body n e ercsng t may have sought to repress the use of one
product or to foster the use of another does not make the e ercse of the
ta ng power consttutonay vunerabe. (See o v. Standard O Co., supra.)
ew ta measures coud stand the test If the courts, dsregardng the pre-
umpton of consttutonaty, were to scrutnze apparenty proper e ercses
of power wth the vew of dscoverng a hdden purpose to acheve an un-
awfu end. The Instances n whch courts have done so (suc as v. Wa-
ace (1922), 259 U. S., 44 aey v. Drctoe urnture Co. (1922), 259 T . S.,
20 T. D. 3346, C. . 1-2, 337 Unted States v. Constantne (1933), 200 U. S.,
2S7 Unted States v. uter, supra) were those In whch the unawfu regua-
ton sought to be attaned, under the guse of ta aton, was apparent to the
court. They were Instances In whch the ta ng power was used merey as a
coak to acheve an unauthorzed end.
The contenton here that the rea am was to ad Indrecty domestc prod-
nets and that for that reason the ta s, n reaty, a penaty, Is of the same
character as that made n Mer v. Standard Nut Margarne Co., supra. There
t was argued that the ta on oeomargarne was In reaty a penaty mposed
for the purpose of emnatng competton w.th butter. The Supreme Court
decned to nvadate the ta upon that ground.
ut It Is nssted that In vew of the requrement of cause of secton 999,
Tte 26, that the ta es coected wth respect to coconut o whoy of Phppne
product or produced from materas whoy of Phppne growth be hed as a
separate fund and be pad to the treasurer of the Phppne Isands, the ob|ect
of the ta has faed wth the estabshment of the Phppne Commonweath.
The date of the estabshment of the Phppne Commonweath was subsequent
to the enactment of the ct. y the treaty concuded wth Span on November
7, 1900, the Phppnes came under the compete and absoute soveregnty and
domnon of the Unted States and so became terrtory of the Unted States over
whch cv government coud be estabshed. (See ourteen Damond Rngs v.
Unted States (1901), 183 U. S., 176 Porto Rco rokerage Co. v. Unted States
(1935) (C. C. P. .), 76 . (2d), 605, 610.)
There s no mtaton upon the power of the Congress to approprate money to
use n any porton of Its Terrtores, whether the Terrtores are States, posses-
sons or protectorates. (See azac v. Porto Rco (1922), 258 U. S., 298.) The
power to govern possessons mpes the power to spend money for ther beneft
The power to govern mpes the power to ta . nd It can not be contended that
a ta from a partcuar source may not be ear-marked for the use of a partcuar
terrtory of the Unted States. The estabshment of the Phppne Common-
weath In 1935 under the Independence statute of 1933 (48 U. S. C. ., sectons
1231-1236) has not severed competey the tes between the Phppnes and the
Unted States. Unt the compete wthdrawa of the soveregnty of the Unted
States over the Phppnes, whch w not occur unt the e praton of a perod
of 10 years from the date of the Inauguraton of the new Phppne Government,
the Unted States retans certan rghts of possesson, supervson, |ursdcton,
contro and soveregnty over the terrtory and peope of the Phppnes. Ths s
evdenced by the reservatons contaned In the ndependence statute. The char-
acter of the consttuton Is prescrbed. Pendng the fna and compete wth-
drawa of the soveregnty of the Unted States, a ctzens of the Phppne
Isands owe aegance to the Unted Sates. very offcer of the government of
the Commonweath upon enterng the dscharge of hs dutes must take and sub-
scrbe an oath of offce decarng, among other thngs, that he recognzes and
accepts the supreme authorty of the Unted States and w mantan true fath
and aegance to t. Certan fundamenta r|dts are made mandatory n the new
consttuton. The decsons of the courts of the Commonweath are sub|ect to
revew by the Supreme Court of the Unted States. The Unted States may, by
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egs. 48, rt.. 3.
376
presdenta procamaton, e ercse the rght to Intervene for the mantenance
or preservaton of the government of the Commonweath of the Phppnes or
for the protecton of fe, property and Indvdua berty, and for the dscharge
of government obgatons under and n accordance wth the provsons of the
consttuton. Pendng compete wthdrawa, the trade reatons between the
Unted States and the Phppnes are to be governed by e stng aw. Certan
eves on Imports are estabshed. The Unted States Government e ercses, n
other ways, supervsory powers. very amendment to the consttuton of the
Commonweath of the Phppnes must be submtted to the Presdent of the
Unted States for approva. The Presdent of the Unted States has the authorty
to suspend the takng effect of or the operaton of any aw, contract, or e ecutve
order of the government of the Phppnes when, n hs |udgment, t w resut
n dsabng the government of the Commonweath to fuf Its contracts or to
meet ts bonded ndebtedness or s key to mpar the reserves estabshed for
the protecton of the currency of the Phppnes or whch n hs udgment w
voate the natona obgatons of the Unted States. e has a representatve
In the Phppne Isands n the person of the Unted States gh Commssoner
who hods offce at hs peasure. Restrctons are paced upon Immgraton.
nd, chat s most mportant, n vew of the dscusson to foow on the tests
of soveregnty, the foregn affars of the sands are under the drect supervson
and contro of the Unted States.
In many eds, therefore, the w of the Unted States s st the aw of the
Phppne Isands.
To that e tent the Unted States Is st soveregn. or, as stated by Mr.
ustce omes In mercan anana Co. v. Unted rut Co. (1909) (213
U. S., 347, 358) :
The very meanng of soveregnty Is that the decree of the soveregn makes
aw.
Moore says:
state s soveregn from the pont of vew of the aw of natons, when
It s Independent of every other state n the e ercse of ts Internatona rghts
e ternay and n the manner n whch t ves and governs Itsef Internay.
( ohn assett Moore, Dgest of Internatona Law (1900), voume 1, page 18.)
( nd see Wson on Internatona Law (1927), second edton, page 16
DeLtma v. dwe (1900), 182 U. S., 1 Docnes v. d oe (1901), 182 U. S.,
244.) state may e ercse certan mted e traterrtora rghts over ts
ctzens or on certan sub|ects wthn the doman of another state as n
the case of the e traterrtora courts mantaned by the Unted States n
Chna and the m ed courts of certan uropean powers n gypt. The e ercse
of these rghts do not affect soveregnty. ut when one state demands ae-
gance of the ctzens of another state and an oath of aegance of ts offcas,
retans appeate |ursdcton over Its courts, gves Its chef e ecutve offcer
the rght to suspend the operaton of any aw or governmenta order by mere
e ecutve fat, and the rght to veto amendments to the state s consttuton,
retans the rght to ntervene (by force of arms, ce assume) In order to mantan
the government or to make t fuf Its obgatons or for the purpose of
protectng fe and berty we have a quas ndependence ony.
We do not have ether that nterna or e terna Independence of one state
toward another whch s the essence of soveregnty, and whch woud ustfy
an e ecutve or |udca characterzaton of the terrtory of the sub|ect state
as foregn terrtory. (DeLma v. dwe, supra Docnes v. dtcc, supra.)
Rather do we have that state of dependence whch s desgnated n nter-
natona reatons as a protectorate. (See The Ionan Shps (1855), 2 Spnks,
212 Scott s Cases on Internatona Law (1922), pape 21 Re v. The ar
of Crewe, L. R. . ., 576, 619, 020 (1910) The Chnrkeh, L. R., 4 dm.
and cc, 59 (1873), Scott s Cases on Internatona Law (1922), page 22.)
ut, n the hst anayss, t s unmportant what term we appy to the
suzeranty whch the Unted States st e ercses over the Phppnes.
On the whoe, t s apparent that by the estabshment of the Phppne
Commonweath, the Phppnes have not ceased to become a possesson of
the Unted States. The Government of the U ted States e ercses powers
over them whch are those of a soveregn. It w not surrender ts compete
soveregnty unt the 4th of uy mmedatey foowng the e praton of a
perod of 10 years from the nauguraton of the new Phppne Government.
The Unted States, havng, therefore, retaned certan soveregnty, athough
mted, over the Phppnes, and havng assumed certan bndng obgatons
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377
Regs. 4S, rt. 3.
towards them, they may contnue to pay to them moneys whch have been
coected for ther beneft durng the tme when the Unted States e ercsed
compete soveregnty over them.
ut even f we assume that compete ndependence has aready been acheved,
and that the moneys whch have accumuated from the processng ta on coco-
nut o orgnatng n the Phppnes, can no onger be pad to the Phppne
Isands, the ony resut we can conceve woud be that the money w go,
as do other moneys derved from the processng ta estabshed by the Reve-
nue ct of 1934, nto the Treasury of the Unted States and become a part
of the genera funds of the Unted States.
No authorty has been caed to our attenton whch hods that under such
crcumstances courts can reeve the ta payer of ts payment. We know of
no ega doctrne sanctonng such resut. Ceary t s for the Congress to
say, assumng the orgna ob|ect to have faed, what sha be done wth the
money coected for the use of the Phppne Isands. It aone can determne
that the money accumuated sha now be put to a dfferent use, or be returned
to the ta payer or that the ta payer be, n the future, reeved of the ta .
We concude that the processng ta on coconut o s a proper e ercse of
the ta ng power of the Congress of the Unted States and that the present
status of the Phppnes does not render nvad ts e ercse, so as to reeve
the processors of Its payment.
We are aso of the vew that the compant fas to state a cause for the
Interventon of ths court, In vew of the provsons of secton 3224 of Revsed
Statutes (26 U. S. C. ., secton 154) and of the decaratory udgment ct,
as amended (28 U. S. C. ., secton 400), whch prohbt the nsttuton of
cuts seekng to en|on the coecton of ta es and of actons seekng decaratory
udgments n ta matters. In Reder v. Rogan (1935) (12 ed. Supp., 307) I
dscussed very fuy the vadty of these provsons. The decson of the
Supreme Court In the Rechert Rce Ms v. ontenot (1936) (80 L. d., 853)
does not weaken the authorty of the ong st of cases cted n my opnon
and n whch the Supreme Court has sustaned consstenty the vadty of
restrants upon the power to sue the Government n ta matters. that
the Court rued n Rechert Rce Ms v. ontenot, supra, was that the gr-
cutura d|ustment ct havng been decared unconsttutona, the uncoected
ta es whch had been mpounded by the dstrct court pendng the determna-
ton of the vadty of the ct were returnabe to the ta payer. Ths upon
the ground that any attempt to coect them now woud be an unawfu
trespass. So rung, the Court dd not ether drecty or Indrecty, queston the
vadty or proprety of congressona mtatons upon suts reatng to ta aton.
Two recent cases have so nterpreted ths decson. (See monn s ons, Inc.,
v. Rothenses (D. C. Pa.), decded n December, 1935, by rkpatrck, dstrct
|udge Meon v. Mertz, decded on ebruary 24, 1936, by the Court of ppeas
of the Dstrct of Coumba and reported n fu n Prentce- a 1936 Ta
Servce at paragraph 817.) Restrctons upon the rght to nsttute actons
reatng to a ta do not appy to penates. (See Lpke v. Lederer (1922), 259
U. 8., 557 Rega Drug Corporaton v. Warde (1922), 260 U. S., 386 Unted
tates v. Odden Co. (1935) (C. C. . 6), 78 . (2d), 639 raham v. DuPont
(1923), 262 U. S., 235 T. D. 3486, O. . II-, 226 Coett v. Cassdy (1933)
(D. C. Wy.), 12 ed. Supp., 21.) ut, as aready stated, the statute under attack
Is not a penaty, nor have the defendants brought themseves wthn the
e cepton decared In Dodge v. rady (1916) (240 U. S., 1221), aey v. George
(1822) (259 U. 8., 161 T. D. 8347, C. . 1-2, 342 ), and Mer v. Standard
fut Margarne Co., supra, whch nows the court to take ursdcton despte
the statutory prohbton f e traordnary and e ceptona crcumstances e st.
Of course mere egaty or unconsttutonaty s not suffcent. (See Cruck-
shank v. dwe (1900), 176 U. S., 174 Dodge v. Osoorne (1916), 240 U. S.,
113 Chd Labor Taw Case (1922), 259 U. S., 20 sher ourng Ms v.
Yerhus (1935) (C. C. . 9), 78 ed. (2d), 889.) t best, the b of compant
merey shows that Phppne coconut o Is an essenta ngredent to the
busness of the pantff, that the ta Is onerous and mght resut n the
depeton of the assets and property of the pantff, that the remedy for
recovery through admnstratve channes s datory, that f payment s refused,
dstress warrants mght be eved and f sut for recovery were nsttuted,
a mutpcty of suts woud resut. It has been hed repeatedy that no
ueston of mutpcty arses when one acton by the ta payer woud deter-
mne the entre queston. (See ose rtesan Water Co. v. ose Cty (1909),
84326 38 13
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Regs. 48, rt. 3.
378
218 U. S., 276 Mathews v. Rodgers (1932), 284 U. 8., 521 and note to same
on Mutpcty as ground for n|uncton aganst aeged unconsttutona ta
(76 L- d., 455-456) Moor v. Te as d . O. R. Oo. (19351 (0. O. . 5), 76
. (2d), 386, 389 Reder v. Rogan, supra.) Nor Is the trespass Incdenta
to the coecton of the ta consdered an e traordnary crcumstance. (See
heton v. Patt (1891), 139 U. S., 591 Daton ddng Machne Oo. v. rgna
(1915), 236 U. S., 699.) The fact that the money coected mght be pa4
over to the Phppne Government s not a ground for the nterventon ot
equty. Shoud ths happen and shoud the aw utmatey be decared uncon-
sttutona, a stuaton woud arse as n the case of the faure of the Congress)
to approprate money out of whch refunds of ta es shoud be pad. nd
t has been hed that such faure does not make the remedy provded through
admnstratve channes Inadequate. (See Cohen v. Dunnng (1935) (D. O.
N. Y.), 11 ed. Supp., 825, 8 8 rye Oo. v. erhus (1935), 12 ed Supp.,
697 sher ourng Ms v. erhus, supra ) We add that the decaratory
|udgment ct (28 U. S. O. , secton 400) whe remeda In nature, can not
be, even n the absence of the amendment of ugust 80, 1935, whch e cudes
from ts provsons controverses reatng to ta matters, so nterpreted as to
aow us to entertan suts for In|uncton In ta matters under crcumstances
under whch they were not entertaned before. or, as stated by the Supreme
Court, In Unted States v. West rgna (1935) (295 U. S., 403, 476) :
It (the decaratory |udgment ct) does not purport to ater the character
of the controverses whch are the sub|ect of the |udca power under the
Consttuton.
nd as more recenty stated by the Crcut Court of ppeas of ths Crcut
(Southern Pacfc Co. v. Mc doo, No. 7954, decded March 9, 1936):
The mere fact that a decaratory |udgment Is sought s not, of tsef, a
ground of edera |ursdcton.
We concude that the vadty of the enactment under attack and the pro-
hbtons whch the Congress has paced upon the rght to nsttute actons
reatng to ta aton, stand In the way of grantng the reef sought by the
b, and that ths court Is wthout |ursdcton to entertan t The temporary
restranng order w, therefore, be vacated a premnary n|uncton w be
dened and the b w be dsmssed. n e cepton to each of the rungs made
Is aowed.
Reguatons 48, rtce 3: Imposton of the -22-8106
ta . S. T. 836
Denatured pam o Is sub|ect to the ta Imposed by secton
602 of the Revenue ct of 1934.
dvce s requested whether pam o treated wth a denaturant
whch makes t unft for edbe use s sub|ect to the ta mposed by
secton 602 of the Revenue ct of 1934, t beng stated that pam
kerne o s sub|ect to an mport ta under the Tarff ct of 1930
whch s removed when the o s so treated as to make t unft for
edbe use.
Secton 602 of the Revenue ct of 1934 mposes a ta of 3 centa
per pound upon the frst domestc processng of pam o and certan
other os specfed theren, wth the e cepton that the use of pam
o n the manufacture of tn pate s not sub|ect to the ta .
Paragraph 1732 of the Tarff ct of 1930 e empts from duty upon
mportaton pam kerne o rendered unft for use as food. ow-
ever, the mport ta under the Tarff ct of 1930 has no connecton
wth the ta mposed under the provsons of secton 602 of the
Revenue ct of 1934. The os enumerated under secton 602
are sub|ect to ta regardess of whether they are ft for edbe use.
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379
Regs. 44(1934), rt. 40.
It s hed, therefore, that pam o treated wth a denaturant whch
renders t unft for edbe use s sub|ect to the ta mposed by sec-
ton 602 of the Revenue ct of 1934 upon the frst domestc proc-
essng thereof n the Unted States after the effectve date of the
ct, wth the e cepton that the use of pam o n the manufacture
of un pate, whether or not denatured, s not sub|ect to ta .
TITL T . M NU CTUR RS CIS T S. (1932)
S CTION 601(c) O T R NU CT O 1932, S M ND D Y
T CT O UN 16, 1933 (PU LIC, NO. 73, S NTY-T IRD CON-
GR SS), ND Y S CTION 603(a) O T R NU CT O 1934.
Reguatons 44(1934), rtce 40: Use of terms. -26-8145
( so rtce 43.) S. T. 839
Ta abty of crude neatsfoot o, refned and deodorzed neats-
foot o, and transformer o.
S. T. 558 (C. . I-2, 450) modfed.
dvce s requested whether crude neatsfoot o, refned and deo-
dorzed neatsfoot o, and transformer o are sub|ect to the ta
mposed by secton 601 (c) of the Revenue ct of 1932, as amended
by the ct of une 16, 1933 (Pubc, No. 73, Seventy-thrd Con-
gress), and by secton 603(a) of the Revenue ct of 1934.
Secton 601 (c) of the Revenue ct of 1932, as amended, mposes a
ta of 4 cents per gaon upon the sae of ubrcatng os by the
manufacturer or producer.
rtce 40 of Reguatons 44(1934) reads n part as foows:
The term ubrcatng o as used In these reguatons ncudes n
os, regardess of ther orgn, whch are sod as ubrcatng os and a os
whch are sod or used for ubrcaton.
It was hed n S. T. 558 (C. . I-2, 450) that neatsfoot o trans-
former o, and certan other os were not sub|ect to ta under sec-
ton 601 (c) of the Revenue ct of 1932 when sod under a name
dentfyng them for purposes other than ubrcaton, or when used
as the component matera n the manufacture of other artces ta -
abe under Tte T of the Revenue ct of 1932, provded the manu-
facturer obtaned from the purchaser a certfcate to the effect that
the o so sod woud not be used for ubrcaton.
Crude neatsfoot o s not sod or used for ubrcatng purposes and
s, therefore, not sub|ect to ta as ubrcatng o. ccordngy, such
o may be sod by the manufacturer wthout the necessty of obtan-
ng e empton certfcates from the purchasers. Refned and deodor-
zed neatsfoot o s normay sod and used for ubrcatng purposes,
and, when so sod, s ta abe under secton 601 (c) of the Revenue
ct of 1932, as amended. If, however, t shoud be sod for nonubr-
catng purposes by the manufacturer or producer drect, t may be
sod free from ta under e empton certfcates n accordance wth
the provsons of artce 43 of Reguatons 44(1934), as amended by
Treasury Decson 4604 (C. . I -2 379).
O manufactured and sod specfcay for use n eectrca trans-
formers and arge outdoor o crcut breakers as an nsuatng agent,
generay known as transformer or nsuatng o, s not sod for
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Regs. 46, rt. 22.
380
ubrcaton wthn the meanng of artce 40 of Reguatons 44(1934),
and s, therefore, not (when so sod) sub|ect to ta under secton
601 (c) of the Revenue ct of 1932, as amended. empton certf-
cates need not be obtaned wth respect to such saes.
S. T. 558 (C. . I-2, 450) s modfed n so far as nconsstent
wth the concusons reached heren.
Reguatons 44 (1934), btcb 43: Saes of -6-7951
o for nonubrcatng uses. S. T. 828
The sae of ubrcatng o by the manufacturer or producer to
a deaer or consumer who Is not a producer of gasone for use
In m ng sma quanttes thereof wth gasone s ta abe.
dvce s requested whether the sae of ubrcatng o by the
manufacturer or producer to a deaer or consumer who s not a pro-
ducer of gasone for the purpose of m ng sma quanttes thereof
wth gasone s sub|ect to ta under secton 601(c) of the Revenue
ct of 1932, as amended.
Secton 601 (c) 1 of the Revenue ct of 1932, as amended mposes
a ta of 4 cents a gaon upon the sae of ubrcatng o by the
manufacturer or producer. Saes of an o havng both ubrcatng
and nonubrcatng uses by the manufacturer or producer for non-
ubrcatng purposes are not sub|ect to ta , provded the o s put
nto a channe of consumpton or dstrbuton for use other than that
of ubrcaton and the manufacturer or producer obtans the e emp-
ton certfcate requred by artce 43 of Reguatons 44(1934), as
amended by Treasury Decson 4604 (C. . I -2, 379).
Where ubrcatng o s sod by the manufacturer or producer to
such a deaer or consumer for the purpose of m ng sma quanttes
of such o wth gasone, t s evdent that the o s ntended to
serve the purpose of ubrcaton and s not sod for a nonubrcatng
use wthn the meanng of artce 43 of Reguatons 44(1934), as
amended. ccordngy, a deaer or consumer who s not a producer
of gasone wthn the meanng of secton 617 of the Revenue ct of
1932, as amended, may not purchase ubrcatng o ta -free for such
use, and no refund or credt may be aowed to the manufacturer or
producer for the ta pad by hm on such saes.
S CTION 603. TOIL T PR P R TIONS, TC.
Reguatons 46, rtce 22: Scope of ta . -11-7999
( so rtce 4.) G. C. M. 16223
The Company, whch contros the fabrcaton by the T Com-
pany of cosmetcs sod as the products of the former company, Is
the manufacturer or producer thereof wthn the meanng of secton
603 of the Revenue ct of 1032.
G. C. M. 11522 (C. . II-1, 387) modfed.
dvce s requested whether the Company or the Y Company
shoud be regarded as the manufacturer or producer of toet prepa-
ratons, under the crcumstances herenafter stated, wthn the mean-
ng of secton 603 of the Revenue ct of 1932.
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381
Regs. 46, rt. 22.
The ct mposes a ta at specfed rates upon the sae by the
manufacturer, producer, or mporter of certan enumerated artces
and smar artces whch are used or apped, or ntended to be used
or apped, for toet purposes.
The Y Company fabrcated cosmetcs at the request of, and e -
pressy for, the Company accordng to the Company s specfca-
tons. In so dong, t used perfumes specfed by the Company
and at the drecton of the Company paced the cosmetcs n con-
taners bearng the Company s name or trade mark. The prod-
ucts are presumaby bought by customers because of the Com-
pany s name and the dstnctve perfumes used n ther manufacture.
The Company has a monopoy on toet preparatons marketed
under ts name.
Upon carefu consderaton of the varous factors nvoved n ths
cass of cases, ths offce s of the opnon that no genera rue can
be formuated whch w be controng under a crcumstances. In
the fna anayss the decson must necessary rest upon the partcu-
ar facts n each case.
In advertsng campagns for the promoton of saes of varous
products, a trade name and, n respect of toet preparatons, a ds-
tnctve perfume are very mportant factors. In the recent decson
of the Unted States Dstrct Court for the astern Dstrct of New
York n our|os v. McGowan (12 ed. Supp., 787 Ct. D. 1074, page
383, ths uetn ), the court had occason to consder such factors.
In the course of the decson the foowng anguage was used:
The evdence shows that the reta prces of perfumes and cos-
metcs made by dfferent producers vary argey n amount and that such
prces aso vary argey from the cost of manufacture. One wtness testfed
that there were arge varances n such prces whore ony perfume was added
to a cream and a contaner had been changed, both nvovng tte addtona
cost. Ths wtness e paned such dfferences on the theory that the prces
are dctated by one who has a monopoy on the sae. our|os products are
bought, because they are our|os made. our|os has a monopoy on the
cosmetc and perfume busness under that name. It s true the nta cost
of manufacture Is comparatvey sma, but peope buy our|os products on
ther reputaton wth sght regard to prces pad. our|os products doubtess
can be dupcated by other manufacturers. Ther parts and proportons nro
easy determnabe. Other manufacturers may put on the market the same prod-
ucts as our|os, Inc., but they can not be sod under the names our|os and
arbara Goud. Whe they may se the same artce n so far as consttuent
parts are concerned, they are not the same artces as sod by the pantff
by reason of the fact that they are not represented to be pantff s prod-
ucts.
The term manufacturer or producer may we be consdered
not ony as appcabe to hm who actuay makes an artce but aso
to hm who causes t to be made. The ega doctrne fact per a wm
faet per se s appcabe. See decson n oss- ughes Co. v. Led-
erer (287 ed., 150), n whch the foowng anguage was used:
There s no cam that the pantff Imports, and none that he Is
a manufacturer, e cept In the sense In whch one who has somethng made
for hm by others, to be sod by hm, may be sad to be a manufacturer. Ths
s doubtess the sense n whch Congress used the word producer, and was
aso doubtess the occason for ts use.
Upon carefu consderaton of the facts presented, t s the opnon
of ths offce that the Company, whch controed the producton
and dsposton of the products n queston, was the manufacturer
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Regs. 46, rt 22. 882
or producer thereof wthn the meanng of secton 603 of the Reve-
nue ct of 1932.
G. 0. M. 11522 (0. . II-1, 887) s modfed to agree wth the
vews e pressed heren.
erman Ophant,
Genera Counse for the Department of the Treasury.
Reguatons 46, rtce 22: Scope of ta . -3-7914
S. T. 826
Ta abty nvoved n the addton of water to ta -pad toet
preparatons by beauty parors and barber shops and the use or
sae thereof by them.
dvce s requested whether a beauty paror or barber shop ncurs
abty for the ta mposed under secton 603 of the Revenue ct
of 1932 by addng water to ta -pad toet preparatons and by usng
such soutons or m tures as ads n gvng shampoos and wave sets
and n renderng smar persona servces to patrons.
Secton 603 of the Revenue ct of 1932, as amended, mposes a
ta on the sae by the manufacturer, producer, or mporter of toet
preparatons and smar artces used or apped, or ntended to be
used or apped, for toet purposes. Secton 622 of the same ct
mposes an equvaent ta on the use of ta abe artces by the manu-
facturer, producer, or mporter thereof, e cept a use n the produc-
ton of another artce on the sae or use of whch a ta w be n-
curred under Tte I of the Revenue ct of 1932, as amended.
It appears that some beauty parors and barber shops purchase a
atherng preparaton n a form sutabe for appcaton to the head
wthout duton whe others purchase soap ta -pad n the form
of bars, a semqud soap base, or a partay duted qud soap,
add the desred amount of water, and pace the qud n bottes or
contaners for use when needed n servng patrons. In sma shops
ths use s ordnary a very trva and ncdenta actvty, not suff-
cent n scope to warrant the concuson that the user s a producer
wthn the meanng of the aw. Moreover, such qud soutons are
not of a type customary sod to ndvdua users. owever, n
some arge estabshments, or n the case of severa shops under one
management, such dutons or soutons are often made n substanta
quanttes, or on a commerca scae, and are sod to ndvdua con-
sumers or to others n competton wth manufacturers reguary en-
gaged n producng shampoo preparatons for reta sae. Somewhat
smar practces and condtons have been found to e st wth respect
to the dutng by beauty parors of fnger wave set soutons or
powders, permanent wave soutons, and other substances. In most
cases no accurate bass e sts for determnng the amount m ed or
the seng prce of ke artces.
Upon consderaton of the varous factors nvoved, the ureau
has reached the concuson that where, as a part of the busness of
renderng persona servces to patrons, barber shops, beauty parors,
and smar nsttutons prepare for ther own use qud shampoos,
har wavng soutons, etc, through the addton of water to soap
bases and other substances, or by smar duton, such barber shops
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383
Regs. 46, rt. 22.
or beauty parors do not thereby acqure the status of producers of
artces ta abe under secton 603 of the Revenue ct of 1932. Con-
sequenty, such barber shops or beauty parors w not be hed abe
for a ta under secton 603 on such shampoo preparatons, har
wavng souton etc., prepared for ncdenta use n ther shops as
a part of the busness of renderng persona servces to patrons. It
foows that barber shops or beauty parors producng such qud
shampoos, har wavng soutons, etc., for use n renderng persona
servces to patrons are not entted to purchase artces enumerated
n secton 603 of the Revenue ct of 1932 ta -free under secton
620(1) of the Revenue ct of 1932, as amended. Where, however,
a barber shop or beauty paror produces shampoo preparatons, har
wavng soutons, etc, for sae and not for use n ts busness, the
status of a producer s estabshed and abty for the ta on toet
preparatons mposed under secton 603 s ncurred upon the sae by
them of such products.
Reguatons 46, rtce 22: Scope of ta . -10-7991
( so Secton 619 and rtce 15.) Ct D. 1074
M NU CTUR RS CIS T R NU CT O 1932 D CISION O COURT.
1. Sae or Manufactured rtce Cotpotaton of Ta ass
Statute ppcabe.
If the bass for computng the ta upon the sae of an artce by
the manufacturer or producer thereof may be determned under the
provsons of secton 619(b)3 of the Revenue ct of 1032, secton
601(a) of the Revenue ct of 1926 Is not appcabe.
2. Toet Preparatons Sae by Manufacturer to Subsdary
Corporatons rm s-Length Transacton Presumpton.
corporaton engaged In the manufacture of toet preparatons
and cosmetcs sod the greater part of ts producton to two saes
corporatons, whch It had organzed In ugust, 1932, at cost pus
1 4 per cent, pus 10 per cent, pus the ta . It owned a the stock
of the saes corporatons and the brand names, trade-marks, and
formuas used In connecton wth the manufacture of the artces,
controed the poces of the subsdares, and dctated the prces
at whch they shoud rese the products. Practcay a the bus-
ness of the new corporatons was the sae of these products to the
pubc, the sae prce beng substantay the same as that for
whch they had been sod pror to the organzaton of the saes cor-
poratons. Saes between a manufacturng company and whoy-
owned subsdares are prma face not at arm s ength, and,
that presumpton not havng been met or overcome by the facts
shown n ths case, secton 619(b)3 of the Revenue ct of 1932 s
appcabe In determnng the ta , f the saes were made at ess
than the far market prce.
8. ar Market Prce.
Where the manufacturer of toet preparatons, seng Its prod-
ucts under we-estabshed trade-marks and brands, had what
amounted to a monopoy upon ther sae by vrtue of such trade-
marks and brands, and marketed substantay a ts producton
through whoy-owned saes corporatons whose poces and saes
prces were dctated by the manufacturng company, the far
market prce of the products can not be determned by comparson
wth prces at whch artces contanng the same or smar In-
gredents were sod by other manufacturers, but Is the prce f ed
by the manufacturer as ther vaue In an open market. Under such
crcumstances, the Commssoner correcty determned that the
prce at whch the manufacturng company sod to Its subsdares
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Regs. 46, rt. 22.
384
was ess than the far market prce, and that the prce at whch
the saes corporatons sod to the pubc consttuted the prce for
whch the artces were sod n the ordnary course of trade by
manufacturers and producers, wthn the meanng of secton
619(b)3 of the Revenue ct of 1932.
4. Incuson op Ta n Seno Prce Refund Proof Requred.
The ta havng been Incuded n the prce at whch the products
were sod, and the requrements of secton 621(d) of the Revenue
ct of 1932, as to proof of repayment of the ta to the utmate
purchaser, not havng been met, the ta payer s not entted to
recover an aeged overpayment of ta .
Unted States Dstrct Court, astern Dstrct of New York.
our|os, Inc., pantff, v. George T. McOowan, Indvduay and as Coector
of Interna Revenue, defendant.
November 12, 1935.
OPINION.
nght, Dstrct udge: Ths sut s brought to recover 13,918.39 pad by the
pantff as addtona ta on cosmetc and toet preparatons for the month
of September, 1932.
The pantff was ncorporated n 1929, under the name of Internatona
Perfume Co. change to the present name was made In 1930. arbara
Goud, Ltd., a corporaton engaged n manufacturng beauty and treatment
nes, was egay merged wth pantff on ugust 9, 1932. On the ast-men-
toned day, our|os Saes Corporaton and arbara Goud Saes Corporaton
were ncorporated. The pantff at a tmes snce ugust 9, 1932, has been
the owner of a the ssued and outstandng stock of our|os Saes Corpora-
ton and arbara Goud Saes Corporaton and the owner of a of the brands,
trade-marks and formuas used and empoyed In connecton wth ts busness
of manufacturng toet preparatons and cosmetcs. The greater part of pan-
tff s producton was sod to the above-named saes corporatons, the baance
beng sod to a mted number of foregn corporatons operatng In foregn
markets. The pantff sod ts products to the two saes corporatons at the
cost of manufacturng, Incudng the cost of contaners, abes and thngs of
ke nature, pus 1 per cent, pus 10 per cent, pus the ta .
Under secton 603 of the Revenue ct of 1932, a ta s mposed on artces
of the type manufactured by the pantff equvaent to 10 per centum of the
prce for whch such goods are sod. On certan tems the ta s reduced to
per centum of the seng prce, but for convenence the ta w be referred
to as a ta of 10 per centum. Pantff pad such ta computed on the prce
at whch It sod ts products to the domestc and foregn saes corporatons.
Secton 619(b)3 of the above-mentoned ct provdes as foows: If an
artce s sod (otherwse than through an arm s ength transacton) nt ess
than the far market prce, the ta under ths tte sha (f based on the
prce for whch the artce s sod) be computed on the prce for whch such
artces are sod, n the ordnary course of trade, by manufacturers or pro-
ducers thereof, as determned by the Commssoner. The Commssoner of
Interna Revenue determned that the pantff s saes were made at ess than
the far market prce, through transactons at ess than arm s ength. e
thereupon determned that the prce at whch the saes corporatons sod the
pantff s products consttuted the prce for whch such artces are sod n the
ordnary course of trade, by manufacturers or producers thereof. e com-
puted the addtona ta , now n tgaton, by appyng the rate of ta . f ed
by secton 603, to the dfference between the amount secured by the pantff
as the resut of ts saes and the amount receved by the saes corporaton on
resae of the goods. Pantff pad ths ta , subsequenty fng a cam for
refund. It Is asserted that s ch addtona ta was not coected by pantff
from ts customers.
Pantff cams that Its saes to the saes corporaton were at a far market
prce nasmuch as artces made up of smar ngredents are sod at that
prce, In the ordnary course of trade, by other manufacturers and producers and,
therefore, that secton 619(b)3 has no appcaton to Its transactons and the
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385
Regs. 46, t. 22.
Commssoner erred In evyng the addtona ta . The Government contends
that the aeged saes to the saes corporatons were not arm s ength transac-
tons that they were made at ess than the far market prce, and that the
Commssoner propery determned the prce at whch such products are sod, In
the ordnary course of trade by manufacturers and producers thereof, and
propery computed the ta on that bass.
The Government ctes sectons 601(a) and 240 of the Revenue ct of 1926 as
supportng the poston taken by the Commssoner. Secton 601(a) of the
Revenue ct of 1926 provded that when the manufacturer ses artces of the
knd n queston here to a corporaton affated wth t wthn the meanng
of secton 240 of such ct at ess than the far market prce obtanabe
therefor, the ta sha be computed on the bass of the prce at whch such
artce Is sod by such affated corporaton. Secton 240 of the
same ct brngs these two saes corporatons wthn the term affated as
Incuded In secton 601(a). The Government cams that these sectons of the
ct of 1926 are not nconsstent wth secton 619 of the ct of 1932 and there-
fore were not repeaed that secton 619 of the ast-mentoned ct was Intended
to cover not ony transactons covered by secton 601(a) but aso other trans-
actons arsng from tme to tme not specfcay fang wthn the narrower
provsons of the atter ct. If the sectons are not Inconsstent one wth the
other, the earer ones are not repeaed. Secton 627 specfcay so provdes wth
respect to a provsons of aw appcabe n respect of the ta es mposed on
artces enumerated n secton 600 of the ct of 1926. Nether secton 601(a)
nor 240(c) of the 1926 ct has been specfcay repeaed by the ct of 1932.
Secton 601(a) and secton 619(b)3 provde dfferent methods for computng
the ta . One makes the prce at whch the artce Is sod by the affated com-
pany the bass the other uses for a base the prce charged by manufacturers or
other producers, n the ordnary course of trade. There was no reason to retan
the od provsons uness It was ntended to mpose the ta as theretofore and
that s dened by the fact that the ct of 1932 f es a new bass of ta aton. The
rung of the Treasury Department n 1932 (S. T. 617, C. . I-2, 513) recognzed
that secton 619(b)3 Is appcabe to the saes between corporatons such as those
Invoved here. Under ths rung the Department hed that these corporatons
were recognzed as separate enttes and assessabe the same as though not af-
fated, and t woud then foow, f the transacton was at arm s ength between
corporatons or at a far market prce, sectons 603 and 619(a) ony woud appy
and If not at arm s ength and not at a far market prce, secton 619(b)3
woud aso appy. Sectons 240(c) and 601(a) of the ct of 1926 must stand
or fa wth respect to ther consstency wth the provsons of the ct of 1932.
Under the ct of 1932, there woud be no dstncton made between corporatons
such as those nvoved here and corporatons not so reated where the trans-
actons were not at arm s ength. Snce the ct of 1932 s broad enough to
Incude transactons between corporatons such as these, t seems to me t was
the Intent to ncude transactons of the knd nvoved, and, If that s so, the ta
must be mposed as provded by 619(b)3. It s- my vew that secton 601(a) of
the Revenue ct of 1926 s not appcabe to the ta es Imposed n ths case, snce
secton 619(b)3 s ntended to cover transactons formery covered by secton
601(a).
If a sae Is at a far market prce, or f t Is at arm s ength, the ta s assessed,
under secton 603, at 10 per cent, of the sae prce, aowng for the modfcaton
made by subdvson (a) of 619 (that Is, ncudng packng and ess the ta
charge), and aso aowng deducton for transportaton etc., as determned by
the Commssoner. If the sae s not at arm s ength, secton 619 subdvson
(b)(3) appes, but ony In the event that such sae Is at ess than the far
market vaue.
Saes between a manufacturng company and saes corporatons In whch such
manufacturng company owns a of the stock are not pso facto not at arm s
ength. Whether they are not at arm s ength rases a queston of fact. That
such saes are prma face not at arm s ength s recognzed by the rung of
the Treasury Department on the Revenue ct of 1932 (S. T. 617, C. . I-2, 613).
Pontng out the purpose of 619(b)3 and that Congress apparenty foresaw the
probabty of the creaton of corporatons havng Identca Interests, t s stated :
ewng the statute n ths ght, t must be presumed that Congress dd not
Intend to have two or more affated corporatons recognzed as a snge entty
for manufacturers e cse ta purposes. owever, upon the facts shown In ths
sut, t seems to me that there Is a presumpton that the transactons n queston
were not at arm s ength.
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Regs. 46, rt 22.
386
Pror to the merger pantff and arbara Goud, Ltd., manufactured artces
havng estabshed and we known trade names and had an e tensve busness
but upon such, ts dstnctve name. Prce sts of both our|os, Inc., and
arbara Goud, Ltd., were put out effectve une 21, 1932. fter the merger
pantff hed the ownershp and tte to a of the brand names, trade-marks and
formuas used and empoyed n connecton wth the artces manufactured by both
our|os, Inc., and arbara Goud, Ltd. In ugust, 1082, two saes corpora-
tons were organzed, and the busness done by them was amost entrey the
sae of the pantff s product In September, 1932, the saes corporatons sod
the same artces theretofore advertsed and sod by our|os, Inc., and arbara
Goud, Ltd., at the same prces at whch they were prevousy advertsed and
sod by the atter two corporatons. Saes to the saes companes were at a
prce f ed by takng the cost of manufacture pus M per cent of such cost,
pus 10 per cent, pus the ta . cept for the keepng of separate books of ac-
count, the busness of the three corporatons was carred on argey as the
busness had been pror to September, 1932. The same busness ocaton and
quarters were utzed, the same empoyees as theretofore contnued n empoy-
ment The saes manager for both saes corporatons contnued as assstant
treasurer of the three corporatons. It seems to me that the presumpton that
these transactons were not at arm s ength has not been met or overcome. In
aw t resuted n nothng more than carryng on the od busness by a changed
method.
Were the saes to the saes corporatons made at a far market prce It s
camed by the Government that these artces are hghy specazed, that they
have a prce pecuar to themseves by reason of pantff s monopoy of them
and by vrtue of ther trade names, our|os and arbara Goud, and that the
far market prce, as t must be arrved at under the crcumstances shown, s
the prce for whch they were sod by the saes companes and the prce at whch,
shorty pror to September, 1932, they had been sod by the pantff. Pantff
cams not ony that the saes were made at a far market prce but aso that
the prce at whch ts products were sod was the prce at whch such artces
are sod, n the ordnary course of trade, by manufacturers and producers
thereof.
Market prce s often defned as the prce at whch a seer s ready and wng
to se and a buyer ready and wng to buy In the ordnary course of trade.
Ths rue of vaue s the same as provded n secton G19, subdvson (b)(3).
Severa manufacturers of cosmetcs and perfumes testfed as to the far market
prce of pantff s products and f ed such prce as ess than or comparabe wth
the prce charged the saes corporatons by the pantff. The testmony of these
wtnesses s, n effect, that artces made for a smar purpose by varous manu-
facturers are composed of substantay the same Ingredents and that the cost
of manufacture s substantay the same. avng n mnd these costs and the
Item of reasonabe proft they are abe to say what they thnk the far market
prces are. Whether these artces are such that a comparatve estmate of
market prces can be made or whether no such comparson can be made as a
bass of f ng far market prce, where pantff ses under we estabshed
trade-marks and brands and has what, for a practca purposes, s a monopoy
by vrtue of such trade-marks-and brands, the court w take |udca notce
that a great voume of busness s done n reance upon or beef n the product
of partcuar producers. Inta reance s often shaken by resuts, but where a
concern has manufactured a usefu and peasng artce for u number of years
under the same brand name or trade-mark, pubc satsfacton wth the artce
s demonstrated. Peope do not ong do busness at a oss. Contnued bus-
ness must mean contnued saes. our|os, Inc., s a we known and we recog-
nzed manufacturer of perfumeres and cosmetcs. The sae of ts products
reached such proportons that n September, 1932, assessment of the ta n
queston dscosed a busness of upwards of 100,000 for a snge month. The
evdence shows that the reta prces of perfumes and cosmetcs made by dffer-
ent producers vary argey n amount and that such prces aso vary argey from
the cost of manufacture. One wtness testfed that there were arge varances
n such prces where ony perfume was added to a cream and a contaner had
been changed, both nvovng tte addtona cost. Ths wtness e paned
such dfferences on the theory that the prces are dctated by one who has a
monopoy on the sae. our|os products are bought, because they are our|os
made. our|os has a monopoy on the cosmetc and perfume busness under
that name. It s true the nta cost of manufacture Is comparatvey sma,
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387
Regs. 46, rt. 22.
but peope buy our|os products on ther reputaton wth sght regard to prces
pad. our|os products doubtess can be dupcated by other manufacturers.
Ther parts and proportons are easy determnabe. Other manufacturers may
put on the market the same products as our|os, Inc., but they can not be sod
under the names our|os and arbara Goud. Whe they may se the same
artce n so far as consttuent parts are concerned. Ihcy are not the same artces
as sod by the pantff by reason of the fact that they are not represented to be
pantff s products. There s no evdence that any one ese sod artces of the
same ngredents as those manufactured by the pantff. It was stated by one
wtness that artces, smar In nature, whch cost the same amount to manu-
facture may, on account of the trade names or brands under whch they are
sod, brng wdey dvergent prces, and further that when a manufacturer has
but up a demand through the acquston of a centee or foowng, the prce
charged may be whatever the traffc w bear.
Pantff s monopoy on the use of ts trade name s a vauabe rght. Tes-
tmony ntroduced by the pantff ndcates that the vaue of such rght s
predcated on advertsng. ecause of the hghy compettve condton of the
market, f advertsng of the goods were dscontnued, saes and the vaue of
the monopoy of the use of the trade names woud rapdy approach the van-
shng pont. Pantff tsef does no advertsng. It s merey a manufactur-
ng corporaton. The prce at whch t ses to the saes corporaton ncudes
no ch:rge to offset advertsng and promotona e pense. or ths reason
pantff asserts that t s n a cass wth manufacturers who produce smar
artces regardess of trade name. It was not ntended that the cost of adver-
tsng and promoton of saes shoud be ncuded n arrvng at the prce on
whch the ta shoud be computed. It woud seem, therefore, that the far
market prce of the pantffs products shoud be arrved at by comparson
wth prces charged by other manufacturng companes not engaged n saes
promoton. Other manufacturng companes prces beng smar and smary
arrved at, the pantffs seng prce woud seem to be the far market prce
and the proper bass for computng the ta . On such a fndng, t woud not
matter that the saes was not at arm s ength and we woud have no further
concern wth the prce charged by the saes companes on resae of the goods.
Moreover, the precedng fndng fas to take nto consderaton the fact
that the pantff Is the soe stockhoder n the saes corporatons, contros the
poces thereof and dctates the prces at whch they sha rese the pantff s
products. corporaton and Its stockhoders are generay to be treated as
separate enttes. (Cannon Manufacturng Co. v. Cudahy Co., 267 U. S., 333
urnet v. Commonweath Improvement Co., 2S7 U. S., 415 Ct. D. 622, C. .
II-1, 277 .) Ordnary corporatons are to be regarded as separate enttes
even though ther stockhoders are the same or when one corporaton owns
a of the stock of the other. owever, the fcton of separate Identty w
not be adhered to when one corporaton, organzed, owned and controed by
another. Is so managed as to make It merey an nstrumentaty or ad|unct of
such other corporaton. (Gregory v. everng, 293 U. S., 405 Ct. D. 911, C. .
I -1, 193 Northern Securtes Co. v. Unted States, 193 U. S., 197 Martn
v. Deveopment Co., 240 ., 42 and In re Watertoum Paper Co., 169 ., 252.)
The ob|ects of the statute are not to be defeated by mere forms of transac-
tons. (Metropotan odng Co. v. Snyder, 79 . (2d), 2C3.) Such s the
stuaton n the nstant case. The saes corporatons were organzed and a
stock theren s owned by the pantff. There coud be no other fndng than
that the pantff contros the poces of the saes corporatons and dctates
the prces at whch ther saes are made. The saes corporatons were merey
agents of the pantff. (Pamove Manufacturng Co. (Ontaro), Ltd., v. The
ng, Canada Law Reports, 1933, 131.) Saes by the saes companes were
reay saes of the pantff. dvertsng and saes promoton, ostensby car-
red on by the saes corporaton, were, ndrecty, the work of the pantff.
our|os, Inc., from whom aone our|os and arbara Goud products can be
obtaned, s thus found to be seng ts products at the prces charged by the
saes corporatons.
Many stape artces have market vaues whch may be estabshed as the
resut of saes of smar artces. The market vaue of our|os, Inc., products
can not be determned by comparson wth the vaues of other perfumes and
cosmetcs. Ther market vaue s the vaue whch they brng n the market.
s was sad n Poppenberg v. Owen Co. (84 Msc., 126. affrmed, 231 N. Y.,
569): The prce the defendant estabshed was the prce that controed. So
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Regs. 46, rt. 22.
388
we have a speca artce of manufacture handed ony by, and e cusvey by,
the defendant. There Is no market prce for pantff s product other than
the prce f ed by the pantff. In such cases that prce must be sad to be the
far market prce for the purpose of ta aton. (The Perce rrow Motor Car
Co. v. Unted States, Ct. Cs., une 3, 1935 Ct. D. 1007, O. . I -2, 276 .)
What was the prce f ed by pantff for Its products Was It the prce
charged to the saes corporatons or the prce charged by the saes corpora-
tons The pantff sod goods at the former prce ony to the saes corpora-
tons, whch were owned by pantff and whose profts were profts of pan-
tff, and to a mted number of foregn corporatons operatng In mted for-
egn markets. t no tme dd pantff offer to se Its merchandse to the
whoesae trade generay at the prces charged to Its saes corporatons.
The pantff tsef made no saes n the open market. Thus there Is no basts
for determnng the market vaue of ts products e cept by ookng to the prce
at whch the goods were sod by the saes corporatons. Such prces were
determned by the pantff, snce pantff, the owner of such saes corporatons,
must necessary dctate Its poces and prces. The pantff, therefore, made
the frst offer of ts goods to the pubc at the prces charged by the saes cor-
poratons. Ths was the seng prce f ed by the pantff, the manufacturer.
Ths was the prce whch must be regarded as the far market vaue for the
purpose of ta aton. The prce at whch the pantff sod to the saes cor-
poratons was ess than the far market prce. The Commssoner havng
reached that determnaton, It devoved upon hm, under secton 619, subdvson
(b) (3), to determne the prce for whch such artces are sod In the ordnary
course of trade by manufacturers or producers thereof. The Commssoner
propery determned that the prce at whch the goods were sod by the saes
corporatons was the prce at whch the goods are sod In the ordnary course
of trade, by manufacturers or producers thereof, and the prce on whch the
ta shoud be computed.
The aw Is we setted by a ong ne of decsons that, In the absence of
fraud, a ta payer may utze any ega method to escape payment of a ta .
(Gregory v. everng, supra Unted States v. Isham, 84 U. S., 490 Chsom v.
Commssoner, 79 . (2d), 14, certorar dened, November 11, 1935 ones v.
everng, 71 . (2d), 214 aton v. Whte, 70 . (2d), 449 and Ioca rdge
Commsson v. Coector of Interna Revenue, 39 . (2d), 777.) Pantff had
the rght to organze the saes corporatons n an attempt to essen the-ta es
assessabe aganst t. The fact that pantff owned a of the stock of the
saes corporatons does not affect ther rght to ncorporaton and separate
e stence. The purpose behnd ther organzaton Is of no moment. The court
Is Interested In determnng what the statute was ntended to reach and, hav-
ng found on that pont, n determnng whether the acts of the ta payer,
desgned to carry t wthout the operaton of the statute, were suffcent to ac-
compsh such a resut. (Gregory v. everng, supra.) Secton 603 was de-
sgned to ta the actua manufacturers seng prce. Secton C19(b)3 was
passed to prevent ta payers from dodgng payment of the ta by means of
artfca transactons desgned soey for that purpose. Sectons of the Reve-
nue ct of 1926, cted herenbefore, are evdence that the Dtent of the Congress
was to reach the actua manufacturer s seng prce regardess of any attempt
of the ta payer to hde such prce through transactons wth dummy affates or
artfca prce manpuatons.
Ths tgaton arses from pantff s attempted conceament of Its seng
prce through the organzaton of the saes corporatons. avng found that
the transactons In queston between the pantff and the saes corporatons were
not at arm s ength and that the prce at whch the artces were sod to the
saes corporaton was not the far market prce, the concuson foows that
the method by whch the pantff determned ts seng prce was a mere cover
and a fraud upon the Government. In fact, a part of the pantff s actua
seng prce was ncuded n the saes prce of the saes corporatons. In
coectng such porton of the pantff s seng prce, the saes corporatons
were more agents of the pantff.
s heretofore ponted out, secton 619 defnes certan thngs to be Incuded
n the prce and certan thngs whch are or may be e cuded. Packagng and
charges ncdent to t are added. The amount of the ta Is e cuded. Trans-
portaton, etc., or other charge (not requred by the foregong sentence to be
ncuded) sha be e cuded from the prce ony f the amount thereof a
estabshed to the satsfacton of the Commssoner In accordance wth the
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389
Regs. 46, rt. 22.
reguatons. When the ct of 1932 was beng consdered In Congress, It was
stated by the Introducer that the seng cost was not Intended to be added.
Ths was In answer to an nqury as to whether the manufacturer s prce n-
cuded saesmen s commssons. If the saes corporatons are to be construed as
a saesman seng on commsson, the corporatons e tra charge mght be
e cuded from the ta . aes by these saes corporatons mean more than
saes by snge saesmen. Saes corporatons themseves empoy saesmen. Saes
corporatons take a proft on the saes made by saesmen. What was meant
by ths decaraton was that commssons of saesmen seng for the manu-
facturer n the ordnary way were not to be ncuded. Many other tems enter
Into the saes prce of the saes corporaton. To aow saesmen s commssons
and costs and e penses of advertsng and seng to be e cuded from the sae
prce, the amount thereof under secton 619(a) supra must be estabshed to
the satsfacton of the Commssoner, and that means there must be some bass
on whch a deducton can be made on account of such e penses. There s
nothng n the record to show the amount of such commssons and costs or
what the actua e penses were. We, therefore, are not requred to determne
whether any deducton shoud be made. The determnaton as made by the
Commssoner wthout any proof of actua e pense of saes s rght.
Pantff asserts that t has not coected these addtona ta es. fter the
merger the cataogues of the saes corporatons sted the goods at the same
prces at whch they had prevousy been sted In the cataogues of our|os,
Inc., and arbara Goud, Ltd., and stated that the prces Indcated ncuded
the ta , as had the prevous cataogues. The ta ncuded In makng up the
prce sts for the prevous cataogues undoubtedy was computed on the bass
of the seng prces of our|os, Inc., and arbara Goud, Ltd., whch prces
woud correspond cosey to the present seng prces of the saes corporatons
ess the amount added to cover the ta . It Is to be assumed, therefore, that
the prces now charged by the saes corporatons Incude an amount equa to
the ta computed on the seng prce of the saes corporatons, whch prce has
been determned to be the seng prce of the pantff, the manufacturer. It Is
evdent that the saes corporatons have coected the ta not ony on the prce
at whch the pantff sod to them but aso on the dfference between such prce
and the prce at whch the goods were offered for resae by them. our|os, Inc.,
Itsef has not coected the addtona ta . The saes corporatons have. The
effect s the same as though pantff had coected t.
Secton 621 of the ct of 1932 provdes: No overpayment of a ta
sha be refunded uness the person who pad the ta
estabshes (1) that he has not ncuded the ta n the prce of the
artce, or that he has repad the ta to the utmate purchaser.
The purchaser havng pad the ta , the pantff sustaned no oss. (Unted
tate v. efferson eotro Lght Co., 291 U. S., 886 Ct D. 803, O. . III-1,
393 .)
or the reasons herenbefore gven, the compant shoud be dsmssed. nd-
ngs of fact and aw are aff ed hereto and are to be consdered to be for
and as a part of ths opnon to meet the requrements of equty rue 61 .
Reguatons 46, rtce 22: Scope of ta . -26-8146
CtD. 1132
CIS T R NU CT O 1032 R IS D ST TUT S D CISION O
COURT.
Toet Preparaton Yeast Used as Cosmetc In|uncton to
Restran ssessment and Coecton of Ta vdence.
The ta payer s not entted to an n|uncton restranng the
assessment and coecton of an e cse ta on yeast manufactured
and sod by t for use as a cosmetc, where the facts fa to show
(1) any rea and Immnent In|ury, (2) speca and e traordnary
crcumstances such as to render secton 3224 of the Revsed Statutes
nappcabe, or (3) are nsuffcent to ustfy a rung on nonta -
abty as a cosmetc.
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Regs. 46, rt. 22.
890
Unted States Crcut Coubt op ppeas for tub Seventh Cmcurr.
ed Star Yeast Products Co., appeant, v. 0. . La udde, Indvduay and
as Coector of Interna Revenue for the Dstrct of Wsconsn, appeee.
ppea from the Dstrct Court of the Unted States for the astern Dstrct of Wsconsn.
efore vans and Sparks, Crcut udges, and Lndey, Dstrct udge.
pr 13, 1936.
OPINION.
vans, Crcut udge: ppeant brought ths sut to en|on appeee, the
coector of Interna revenue, from attemptng to assess and coect e cse ta es
on yeast by It manufactured and sod, or from Imposng a en for sad ta
upon Its property. It aso asked the court to fnd and enter a decaratory
decree that yeast by It sod was not sub|ect to the ta Imposed by secton 60S1
of the Revenue ct of 1932, whch Imposes an e cse ta upon cosmetcs, etc.
ppeant asserts Its beef to be that, uness restraned, appeee w assess
the ta and resort to remedes provded by aw to enforce ts payment, and the
amount w be so arge that payment can ony be made through a qudaton
of ts assets.
The court Issued a temporary restranng order. Thereafter, t vacated ths
order and dened an appcaton for a temporary n|uncton. The present appea
s from the refusa to grant the temporary In|uncton.
ppeee s answer rased the defense presented by secton 3224 (26 U. S. C. .,
secton 1543), whch prohbts the brngng of a sut to restran the assess-
ment or coecton of any ta . It aso asserted that the Commssoner had
rued that some yeast sod by appeant was sub|ect to a ta under secton
603, but no ta had as yet been assessed. It further answered that the purpose
for whch the yeast, upon whch the ta , f assessed, woud be eved, was
manufactured and sod by appeant, as decared In the pubc rado advertse-
ment, was for cosmetc use. It dened that the ta woud be so arge as to
nterfere wth the conduct of appeant s busness.
ffdavts were fed In support of the peadngs whch deat wth the sub-
|ect of advertsng and the use of yeast for facas. ppeant argued that
many artces, such as emons, mk, fa , oatmea, eggs, vnegar, honey, ove
o, etc., were e tensvey advertsed and used to a certan e tent, as cosmetcs.
On the other hand there were copes of advertsements showng that appeant s
yeast was e tensvey sod for facas. In addton there appears In the record
numerous artces e tong the benefts of yeast facas, not marked as adver-
tsements, whch were taken from newspapers.
The rung of the dstrct court must be sustaned on any of severa grounds.
(a) In order to |ustfy the ssuance of a temporary n|uncton, there must
be a showng of a threatened n|ury. The In|ury must be rea, not magnary.
(14 R. C. L., page 354.) Ordnary, t must be of rreparabe character, for
whch a money award woud be nadequate. In the nstant case, the Gov-
ernment has not yet assessed any ta aganst the ta payer. Shoud such a
ta be assessed and an attempted enforcement greaty pre|udce the appeant
n the conduct of Its busness, pendente te, the court may agan be appeaed
to. It w aways be open to hear any appcaton whch may be addressed
to t. Temporary n|unctons dffer In ther fnaty from the fna or perma-
nent n|unctons. Dena of an appcaton for a temporary n|uncton does
not prevent another appcaton by the same party In the same sut, f new facts
warrant t. In a sut for ether In|uncton, however, the party seekng the
reef must make a fact showng that the threatened n|ury s mmnent.
1 Taw on toet preparatons, etc. There Is hereby Imposed upon the foowng artces,
sod by the manufacturer, producer, or mporter, a ta equvaent to 10 per centum of
the prce for whch so sod: Perfumes, essences, e tracts, toet waters, cosmetcs,
petroeum |ees, hnr os, pomades, har dressngs, har restoratves, har dyes, tooth
and mouth washes (e cept that the rate sha be 5 per centum), dentfrces (e cept that
the rate sha be 5 per centum), tooth pastes (e cept that the rate sha be 5 per centum),
aromatc cachous, toet soaps (e cept that the rate sha be C per centum), toet powders,
and any mar substance, artce, or preparaton, by whatsoever name known or ds-
tngushed any of the above whch are used or apped or Intended to be used or apped
for toet purposes.
2 No sut for the purpose of restranng the assessment or coecton of any ta sha be
mantaned n any court.
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391
Regs. 46, rt. 25.
It s unnecessary to consder the effect of the statute whch permts a court
to grant decaratory decrees, because the secton, whch authorzes suts for a
decaratory decree (28 U. S. C. ., secton 400), e pressy e cepts suts Invov-
ng edera ta es.
(6) ppeant has not brought ts case wthn the rue set forth n Mer
t. Standard Nut Margarne Co. (284 U. S., 498 Ct. D. 457, C. . I-1, 370 )
v. Waace (259 U. S., 44) so as to avod the consequences of secton 3224,
Revsed Statutes (26 U. S. C. ., secton 1543). In the Mer case, the court
was deang wth a ta on oeomargarne. There the court sad:
Ths s not a case n whch the n|uncton s sought upon the mere ground
of egaty because of error n the amount of the ta . The artce s not
covered by the ct. vad oeomargarne ta coud by no ega possbty
have been assessed aganst respondent, and therefore the reasons underyng
secton 3224 appy, If at a, wth tte force. Respondent commenced
busness after the product It proposed to make had repeatedy been deter-
mned by the Commssoner and ad|udged n courts not to be oeomargarne or
ta abe under the ct, and upon the assurance from the ureau that Its prod-
uct woud not be ta ed. It Is cear that, by reason of the speca and
e traordnary facts and crcumstances, secton 3224 does not appy. The ower
courts rghty hed respondent entted to the In|uncton.
In vew of the pan anguage of secton 3224, whch prohbts such suts as
the Instant one, we are not ustfed n e tendng the rue announced n the
Mer case.
thrd ob|ecton to the grantng of the temporary n|uncton may be found
n the fact showng whch s nsuffcent to utsfy a rung on the nonta -
abty of appeant s product as a cosmetc. The fact controversy, n other
words, s not cosed.
If we emnate the fact knowedge of whch the court may take udca
notce, we st coud not hod, n the face of the other evdence, that the
appeant s product Is not a cosmetc. The advertsements so descrbe t. The
dstrct court coud hardy be e pected to fnd that the product was not what
appeant sad It was In Its advertsements.
ppeant argues that the court must take udca notce of the fact that
compressed yeast cakes are used prmary n bread makng and beer produc-
ton. True, we w take udca notce of the use of yeast In these two ndus-
tres. It by no means foows, however, that appeant s product was made
for ether or both of sad purposes. Lkewse, the statute mposng the ta , aso
the rues and reguatons of the Department, ca for Informaton as to the per-
centage of appeant s yeast producton used for facas. Such fgures and other
nformaton are necessary to the determnaton of the vta queston n the
case the ta abty of any of appeant s product as a cosmetc.
The order s affrmed.
S CTION 604 O T R NU CT O 1932 ND S CTION 608 O
T R NU CT O 1934. URS.
Reguatons 46, rtce 25: Repars. -23-8116
( so Secton 619(b), Revenue ct of 1932, S. T. 837
and rtce 15.)
Determnaton of far market prce for ta purposes n the
case of sae or use of artces of fur by manufacturers who dea
at reta ony.
S. T. 821 (C. . I -2, 367) modfed.
dvce s requested reatve to the proper method of determnng
ta abty under secton 604 of the Revenue ct of 1932 and
secton 608 of the Revenue ct of 1934 wth respect to saes of
artces of fur by manufacturers who se at reta ony and n
reta fur repar |obs.
Under the provsons of secton 604 of the Revenue ct of 1932
and secton 608 of the Revenue ct of 1934, a ta of 10 per cent
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Regs. 46, rt. 25.
392
of the sae prce s mposed upon the sae on and after May 11, 1934.
for 75 or more, by the manufacturer, produce or mporter or
artces made of fur on the hde or pet, or of whch any such fur
s the component matera of chef vaue.
Secton 619 of the Revenue ct of 1932 provdes n part:
(b) If an artce Is
(1) sod at reta:

the ta under ths tte sha (f based on the prce for whch the artce Is
sod) be computed on the prce for whch such artces are sod, n the
ordnary course of trade, by manufacturers or producers thereof, as determned
by the Commssoner.
rtce 15 of Reguatons 46 reads n part:
Where a manufacturer ses artces at reta, the ta on hs reta saes
ordnary w be computed upon a prce for whch smar artces are sod by
hm at whoesae. If he has no such saes at whoesae, a far market
prce w be determned by the Commssoner.
It was hed n S. T. 821 (C. . I -2, 367) wth respect to a
reta fur repar |ob, that s, where a repar |ob s performed by
a reparer drecty for the consumer, that the ta shoud be computed
upon the far market prce of the fur and that 75 per cent of tha
amount charged the consumer for the |ob w be consdered to be
the far market prce of the fur, e cept that n ocates west of the
Rocky Mountans the ta shoud be computed upon the bass of 70
per cent of the reta sae prce charged the consumer for the fur.
In ether case no ta woud attach uness the whoesae far market
prce of the fur was 75 or more.
These same percentages have been apped n determnng the
whoesae far market prce n cases where a manufacturer ses, at
reta ony, artces made of fur or of whch fur s the component
matera of chef vaue.
fter carefu nvestgaton and consderaton of the whoesae
far market prces of artces made of fur or where fur s used n
reta repar fur |obs by manufacturers who se at reta ony, t s
hed that 65 per cent of the reta sae prce of such artces correcty
refects the whoesae far market prce n such cases wthn the
meanng of secton 619(b) of the Revenue ct of 1932 and artce
15 of Reguatons 46. ccordngy, manufacturng reta furrers
and reta fur reparers who have no substanta saes of fur artces
nt whoesae are sub|ect to ta on ther reta saes on the bass of the
far market prce as above determned, regardess of where ther
paces of busness are ocated.
Wth respect to fur repars, artce 25 of Reguatons 46, as
amended by Treasury Decson 4449 (C. . III-2, 402), reads as
foows:
Repars. Ordnary repars to an artce made whoy or n part
of fur on the hde or pet are not ta abe, but where new fur s supped the
ta attaches to the sae of such new fur. The prce pad for the repar |ob
w be presumed to be the prce for whch such fur Is sod uness the abor
and new fur are bed as separate Items. Where the prce attrbutabe to the
new fur Is shown as a separate tem on the Invoce furnshed to the customer,
the ta w attach to the sae prce of the new fur ony. New fur furnshed
n repar |obs competed or devered pror to May 11, 1934, Is sub|ect to ta
regardess of the prce charged for such fur. No ta w attach to new fur
furnshed n repar |obs competed on and after May 11, 1934, where the pres
charged for such fur Is ess than 75.
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393
Rega. 46, rt. 15.
person abe for the ta wth respect to a reta fur repar |ob
must mantan certan records and keep them avaabe for e amna-
ton by representatves of the ureau for a perod of four years from
the date abty for the ta was ncurred. reta reparer of fur
artces who nvoces the prce of the repar |ob as a ump sum w
be sub|ect to the ta based upon the prce charged for the entre
repar |ob, f 75 or more, uness he can correcty estabsh the sae
prce of the new fur used n the |ob by the foowng records (1)
an authentc |ob tcket, prepared at the tme the artce was actuay
repared, showng the name, quaty, sze, and vaue of the new fur
used n the repar |ob (2) a copy of the nvoce gven to the customer
at the tme the artce was repared or devered, contanng the name
and address of the customer and n some manner dentfed wth the
|ob tcket coverng the partcuar transacton and (3) adequate n-
ventory records, as we as purchase bs, coverng cash and/or
credt purchases of the fur materas used.
S. T. 821, supra, s modfed n so far as nconsstent herewth.
S CTION 605 O T R NU CT O 1932, S M ND D Y
S CTION 609 O T R NU CT O 1934. W LRY, TC.
Regttatons 46, rtce 15: ar market prce - -7915
n case of reta saes, consgnments, etc S. T. 826
Method to be used In determnng the far market prce of
|ewery sod e cusvey at reta.
dvce s requested reatve to the proper method to be used n
determnng the far market prce of artces ta abe under secton
605 of the Revenue ct of 1932, as amended by secton 609 of the
Revenue ct of 1934, whch are sod e cusvey at reta.
Secton 605 (Tte I ) of the Revenue ct of 1932. as amended,
mposes a ta upon artces commony or commercay known as
|ewery sod by the manufacturer, producer, or mporter. Secton
619 (b) of the Revenue ct of 1932 provdes n part that f an
artce s sod at reta the ta under Tte I sha (f based on the
prce for whch the artce s sod) be computed on the prce for
whch such artces are sod n the ordnary course of trade by
manufacturers or producers thereof, as determned by the Comms-
soner.
It appears that consderabe confuson and ack of unformty
e sts n the |ewery trade as to the proper bass under secton
619 (b) on whch producers seng e cusvey at reta shoud pay
ta ncurred under secton 605 of the Revenue ct of 1932, as
amended. Ths s partcuary true wth respect to rng mountngs,
precous stones, watch cases, and watch movements purchased by
reta |eweers from the producers thereof and ater assembed and
sod to customers.
Manufacturers of rngs and watches, fuy assembed, often se
them n the ordnary course of trade to reta |eweers and pay ta
on the actua whoesae prce, but more frequenty they se to such
|eweers stones, mountngs, watch movements, and watch cases ready
for assemby but not actuay assembed n order that the reta
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Reg . 46, rt. 15.
394
|eweer may offer to hs customers a wder seecton of possbe
combnatons. The abor nvoved n assembng such competed
parts s not very matera but by assembng them the reta |eweer
becomes a prodwer of rngs and watches and s, therefore, sub|ect
to ta on hs saes. If he ses at reta, secton 619 (b) provdes
that the ta sha be computed on the prce at whch such artces
are sod n the ordnary course of trade by manufacturers, producers,
or mporters thereof. Ths provson s construed as reatng to the
prce at whch fuy assembed artces are normay sod at whoe-
sae n the open market by manufacturers, producers, or mporters.
Some reta |eweers have purchased unassembed parts ta -pad
from the producers or ther |obbers, but have pad no ta on ther
saes of rngs or watches assembed by them from such ta -pad parts
on the ground that the prce to the reta |eweer s deemed to be the
same whether the purchase s made n assembed or unassembed
form. Other reta |eweers have purchased these unassembed parts
ta -free n accordance wth reguatons promugated under authorty
of secton 620 of the Revenue ct of 1932, as amended, wth respect
to artces ntended for further manufacture. On ther saes at reta
of artces assembed from such parts, they have pad ta on the prce
whch they pad for the parts wthout ncudng any amount to cover
the cost of assemby, overhead, or proft. In some cases rngs and
watches assembed by reta |eweers have been sod for varous rea-
sons at ess than the cost.
In attemptng to f a bass on whch the ta shoud be pad by
persons seng at reta, t has been found desrabe to f the open
market whoesae prce as a defnte percentage of the actua reta
prce. owever, ths pan requres the appcaton of a dfferent per-
centage or formua where the |eweer seng at reta s not usng the
ordnary merchandsng method of seng for cash or on open ac-
count ampes of such e ceptons to the genera rue are saes
under nstament contracts and saes of cass rngs and pns.
In accordance wth the authorty conferred upon the Comms-
soner by secton 619(b) of the Revenue ct of 1932, as amended, t
has been determned that on and after une 21, 1932, the ta on saes
of rngs and watches by manufacturers, producers, or mporters se-
ng at reta who do not se ke artces at whoesae sha be com-
puted as foows:
(1) The ta s due on an amount equvaent to 65 per cent of the
actua reta prce for whch the artce was sod durng the perod
une 21, 1932, to une 2, 1933, ncusve, and on an amount equva-
ent to 60 per cent of the actua reta prce on or after une 3, 1933
(when the percentage rate was changed from the former rate to the
atter), e cept that
(a) Where rngs and watches are sod under nstament contracts
and where 60 per cent of the actua reta prce s ess than cost pus
15 per cent, the ta s due on the sum of the actua cost of a the
parts and materas used pus 15 per cent (whch percentage covers
the charge, f any, for assembng, overhead, proft, and that porton
of the seng and admnstratve e penses appcabe to a far whoe-
sae prce) and e cept that
(b) Where goods are sod for ess than orgna cost because of
changed market condtons or other reasons, the ta may be com-
puted on the sum of the current repacement vaue of the parts (n-
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395
( egs. 46, rt. 29.
stead of on the orgna cost of such parts) pus 15 per cent or,
f sod at ess than such current repacement vaue, the ta s due
on the actua sa prce.
(2) Where watch parts, damonds, and mountngs are purchased
ta -pad by the retaer who assembes them, such retaer may, n
computng the ta due the Government on the sae of the competed
artces, take credt for the ta pad by the pror manufacturers from
whom such artces were purchased. In such causes, however, t s
necessary that the retaer have n hs possesson evdence showng
the amount of the ta the manufacturer actuay pad to the Govern-
ment on the sae of the watch parts, damonds, and mountngs.
(3) Where schoo cass rngs and pns, not ta -pad, were sod
by the retaer durng the perod une 21, 1932, to May 21, 1933, n-
cusve, the ta s due on an amount equvaent to 55 per cent of the
reta sae prce and when sod on and after May 22, 1933 (when
the rate of percentage was changed, S. T. 672, C. . II-1, 395),
the ta s due on 67 per cent of the reta sae prce.
The ta es due on a saes ta abe under secton 605, as amended,
whch were made on or before December 31, 1935, may be computed
at 10 per cent of the far market prce determned n accordance
wth the rues specfed herenbefore and thereafter, unt further
notce, on the bass of one-eeventh of the far market prce as so
determned.
Reguatons 46, rtce 29: ewery. -5-7933
S. T. 827
Ta abty of charges for engravng artces sub|ect to ta under
secton 605 of the Revenue ct of 1932, as amended.
dvce s requested whether charges for engravng artces ta -
abe under secton 605 of the Revenue ct of 1932, as amended by
secton 609 of the Revenue ct of 1934, shoud be ncuded n com-
putng the ta mposed by those cts.
Secton 605 of the Revenue ct of 1932 mposes a ta equvaent
to 10 per cent of the prce for whch artces commony or commer-
cay known as |ewery, whether rea or mtaton, and other spec-
fed artces, are sod Dy the manufacturer, producer, or mporter,
provded such prce s 3 or more. Under the amendment of sec-
ton 605 by secton 609 of the Revenue ct of 1934, effectve on and
after May 11, 1934, the ta attaches ony where the seng prce s
25 or more.
If the order provdes that the artce w be sod for a certan
prce and such prce ncudes the amount charged for engravng,
t s hed that the ta mposed under secton 605 of the Revenue ct
of 1932, as amended, attaches to the entre prce, provded t s 3
or more where the sae was made pror to May 11, 1934, or 25 or
more where the sae was made on or after that date. If, however,
after agreeng upon the prce of the artce, the reta |eweer re-
quests that t be engraved, t s hed that the amount charged for en-
gravng s not a part of the prce of the artce, and that f such
amount s shown on the nvoce as a separate tem, the ta mposed
under secton 605, as amended, w not attach to the prce so charged.
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Regs. 46, rt. 53.
896
S CTION 606. UTOMO IL S, TC
Reguatons 46, rtce 41: Defnton of parts -19-8080
or accessores. S. T. 834
aby auto seats, auto beds, and auto hammocks are ta abe as
automobe accessores.
dvce s requested whether baby auto seats, auto beds, and auto
hammocks are automobe accessores wthn the meanng of secton
600(c) of the Revenue ct of 1932.
That ct mposes a ta equvaent to 2 per cent of the prce for
whch automobe parts or accessores are sod by the manufacturer,
producer, or mporter.
rtce 41 of Reguatons 46 provdes n part as foows:
The term parts or accessores for an automobe truck or
other automobe chasss or body, or motor cyce, Incudes (b) any
artce desgned to be attached to or used In connecton wth such vehce or
artce to add to ts utty or ornamentaton, or (c) any artce the prmary
use of whch s n connecton wth such vehce or artce whether or not
essenta to ts operaton or use.
The baby auto seats, auto beds, and auto hammocks n queston
are of stee frame constructon covered wth duck or other sutabe
matera. The seats and beds are equpped wth rubber covered
hooks or arms whch may be bent or ad|usted to hang over the
back of any automobe seat. Some of the seats and beds aso have
rubber covered stee egs whch rest upon the automobe seat cushon.
The baby auto hammocks are of the same genera constructon but
are equpped wth straps, safety sprngs, and snaps, rather than wth
hooks or arms, and are suspended from the top of the automobe
nstead of from the back of the seat. of the artces are pr-
mary desgned to be attached to, and used n, automobes.
It s hed that baby auto seats, auto beds, and auto hammocks so
desgned and used are automobe accessores wthn the meanng of
secton 606(c) of the Revenue ct of 1932 and artce 41 of Regua-
tons 46 and as such are sub|ect to the ta mposed by that ct.
S CTION 609. SPORTING GOODS.
Reguatons 46, rtce 53: Scope of ta . -19-8081
S. T. 835
Ta abty of certan types of shoes under secton 609 of the
Revenue ct of 1932. S. T. 811 (C. . 1 -1, 409) modfed.
dvce s requested whether shoes whch are ready usabe for
genera outdoor wear and are not especay desgned, advertsed, and
sod by the manufacturer, producer, or mporter for use n specfc
sports are sub|ect to the ta mposed by secton 609 of the Revenue
ct of 1932 on the sae of sportng goods.
That secton mposes a ta on the sae by the manufacturer, pro-
ducer, or mporter of specfed artces, ncudng certan types of
shoes, and a smar artces commony or commercay known
as sportng goods, equvaent to 10 per centum of the prce for
whch sod.
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Regs. 40, rt. 55.
rtce 53 of Reguatons 46 reads n part as foows:
The term sportng1 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.
s a genera rue, shoes havng soes and hees equpped wth
spkes, ceats, or cauks w be regarded as beng desgned for use
n specfc sports, such as baseba, footba, track, or gof, and,
therefore, sub|ect to ta , uness t ceary appears that the purpose
of the spkes, ceats, or cauks s to adapt the shoes to use for purposes
other than sports.
It s hed, however, that shoes whch are ready usabe for gen-
era outdoor wear and are not especay desgned, advertsed, and
sod by the manufacturer, producer, or mporter for use n specfc
sports are not sub|ect to the ta mposed by secton 609 of the
evenue ct of 1932.
S. T. 811 (C. . I -1, 409) s modfed accordngy.
Reguatons 46, rtce 55: Games. -11-8000
G. C. M. 16347
con-operated machne desgned to afford sport, recreaton, or
amusement s ta abe as a game regardess of any vendng feature.
n opnon s requested whether a con-operated machne desgned
to afford sport, recreaton, or amusement, the operaton of whch n-
voves an eement of chance or sk, s ta abe as a game under sec-
ton 609 of the Revenue ct of 1932 where the machne at the same
tme provdes a vendng servce.
Secton 609 of the Revenue ct of 1932 mposes a ta of 10 per
cent upon the prce for whch games and parts of games are sod
by the manufacturer, producer, or mporter.
rtce 53 of Reguatons 46 provdes n part as foows:
The term game ncudes games of sk or chance and every contrvance,
devce or combnaton of artces whch s desgned to furnsh sport, recreaton,
or amusement.
The foowng descrbed machnes are representatve of the types
of machnes nvoved:
(a) The machne permts the payer upon the nserton of a
con to receve an amount of money f the spnnng rees of the
machne come to rest on certan combnatons, the resut dependng
upon the combnaton obtaned.
( ) Upon the nserton of a con, the Y machne devers to the
payer a sma quantty of gum or mnts and, n addton, affords
the payer a chance of recevng a number of tokens shoud the spn-
nng rees come to rest on certan combnatons. These tokens may
be used n repayng the machne. so, the rees contan or-
tunes or Wtty Sayngs whch are desgned to furnsh a certan
amount of amusement to the payer.
(c) The Z machne operates a mnature crane. fter the nser-
ton of a con the payer by turnng a knob may, f he manpuates
the caws of the crane successfuy, secure a premum or candy from
the gass-ncosed compartment n whch the devce s nstaed.
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Regs. 46, rt. 55.
398
Con-operated machnes used for gambng purposes have been
hed ta abe as games under secton 609 of the Revenue ct of 1932.
(Ms Novety Co. v. Unted States, 72 Ct. Cs., 443, 50 ed. (2d),
476, certorar dened, 285 U. S., 547.) The court stated that
Congress used the words games and parts of games as a
sort of catch a or basket cause, that s, t was ntended to catch
and brng wthn the revenue net a knds of artces used n
payng games whether they were ncuded n the st that preceded
or not.
It s not serousy contended that the Y and Z machnes, whch
reease to the payer a sma amount of gum, mnts, or other mer-
chandse upon the nserton of a con, are operated prmary for
ther vendng servce. The amount of gum, mnts, or merchandse
dspensed by the machnes s usuay much ess than can normay be
purchased wth the con nserted. It foows that the payer s oper-
atng the machne, not for the vendng servce, but chefy for sport,
recreaton, or amusement. Moreover, most of the machnes are
equpped wth vendng attachments whch do not affect ther opera-
ton when the vendng compartment s empty. Ths s ndcatve of
the fact that the machnes are not desgned prmary as vendng
machnes.
There are some devces of ths character whch are bona fde vend-
ng machnes, that s, the one who deposts a con receves a qud pro
quo n the form of merchandse of some sort. Such a devce, even
though nove n operaton, woud be a vendng machne and not a
game. owever, where, as n the nstant case, the vendng feature
s merey ncdenta, ths feature shoud not govern n cassfyng
the artce for ta purposes.
In vew of the foregong, t s the opnon of ths offce that where
a machne s desgned to afford sport, recreaton, or amusement, and
nvoves ether chance or sk (features nvoved n a three of the
machnes descrbed heren), t s ta abe as a game under secton 609
of the Revenue ct of 1932, even though the machne at the same tme
furnshes an ncdenta vendng servce.
In vew of the fact that the ureau has prevousy taken dfferent
postons wth respect to such machnes ana that many of them have
been sod n reance upon such rungs, t s recommended, under
the authorty of secton 1108(a) of the Revenue ct of 1926, as
amended by secton 506 of the Revenue ct of 1934, that ths opnon
be apped wthout retroactve effect n respect of saes of such ma-
chnes made n reance upon rungs to the effect that the saes were
not ta abe.
erman Ophant,
Genera Counse for the Department of the Treasury.
pproved.
Gut T. evehno,
Commssoner.
Stephen . Gbbons,
ctng Secretary.
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399
Msc.
S CTION 620 O T R NU CT O 1932, S M ND D Y S C-
TION 4 O T CT O UN 16, 1933 (48 ST T., 254), ND Y S CTION
401 O T R NU CT O 1935. T - R S L S.
-8-7968
cerpts from an opnon rendered by the Comptroer Genera
of the Unted States to the Secretary of the Navy on anuary 7,
1936, reatve to the Incuson or e cuson of the manufacturers
e cse ta n the saes prce of artces sod for the e cusve use
of the UDted States.
The Secretary of the Navy requested the Comptroer Genera of
the Unted States to render a decson concernng the methods whch
shoud be adopted n makng specfcatons, bds, and purchases for
the Navy n respect of e cse ta es normay due on certan artces
but whch under recent egsaton may be sod by the manufacturer,
producer, or mporter for the use of the Unted States free from ta .
Pertnent e tracts from the Comptroer Genera s opnon are as
foows:
Secton 401 of the Revenue ct of 1935, Pubc, No. 407, ugust 30, 1935,
amended secton 620, Ta -free saes, of the Revenue ct of 1932, as
amended by secton 4 of the ct of une 16, 1933 (48 Stat, 255), so as to
provde n substance that under reguatons prescrbed by the Commssoner
of Interna Revenue wth the approva of the Secretary of the Treasury, no
ta under sad Tte I sha be mposed wth respect to the sae of any
artce for the e cusve use of the Unted States, any State, Terrtory of the
Unted States, or any poUtca subdvson of the foregong, or the Dstrct of
Coumba.
Secton 621, Credts and returns, of the 1932 ct, as amended by secton 4
of the ct of une 16, 1933 (48 Stat, 255), was further amended by the
ct of ugust 30, 1935, to provde that a credt aganst ta under the tte
or a refund, may be aowed or made to a manufacturer, producer, or Importer
In the amount of the ta pad by hm under the tte wth respect to the
sae of any artce to any vendee, f the manufacturer, producer, or mporter
has n hs possesson suoh evdence as the reguatons may prescrbe that on
or after the 1st day of the second month foowng the date of the enactment
of the Revenue ct of 1935, such artce was, by any person, resod for th9
e cusve use of the Unted States, any State, Terrtory of the Unted States,
or any potca subdvson of the foregong, or the Dstrct of Coumba.
The Commssoner of Interna Revenue has ssued reguatons and amendments
to e stng reguatons to meet the provsons of the Revenue ct of 1935. Those
reguatons were approved by the ctng Secretary of the Treasury November
12, 1935, are desgnated Treasury Decsons 4604 and 4605, .
These reguatons and the reguatons whch they amend prescrbe n deta
the procedure to be foowed by the manufacturer, producer, or mporter
to obtan a credt aganst the ta or a refund thereof, both where a sae
Is made by the manufacturer, producer, or mporter, drect to the Unted
States, or to others who rese to the Unted States. The whoe procedure
s dependent upon the producton by the manufacturer, producer, or mporter
of evdence satsfactory to the Commssoner of Interna Revenue that the
artces nvoved have n fact been sod ether drecty or through other pur-
chasers, for the e cusve use of the Unted States and that the Unted States
has not pad the amount of the ta as a part of the purchase prce or other-
Wse.

In vew of the terms of the aw and the reguatons of the Commssoner
of Interna Revenue, t appears desrabe n future specfcatons to requre
ony that where the bdder Is manufacturer, producer, or mporter of any
artce sub|ect to e cse ta under Tte I of the Revenue ct of 1932, as
amended, the bdder state whether the amount of such ta has been con-
sdered n f ng the amount of hs bd and whether he has camed or w
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Msc.
400
cam e empton from, credt for, or refund of such ta wth respect to the sae
of sad artces. There s suggested the foowng, whch woud appear
adequate:
To be e ecuted ony where the bdder s manufacturer, producer, or m-
porter of any artce bd on whch s sub|ect to ewcse taw under Tte I
of the Revenue ct of 1932, as amended. The amount of edera ta es pad
or payabe on artces sub|ect to ta under Tte I of the Revenue ct of
1932, as amended, are (ncuded/e cuded) n the prces bd heren, and the
bdder (has/has not) camed and/or (w/w not) cam e empton from,
credt for, or refund of such ta wth respect to sae of sad artces, as provded
by aw.
No other provson wth respect to any e stng edera ta shoud appear
n the bd or contract.
or the purpose of payment under a Government contract, the
contractor may be presumed to have ncuded n hs bd prce a necessary
eements of cost, but where the Interests of the Government are concerned t
may not be presumed that a bdder has e cuded an unauthorzed Item. It s
to be observed further, that n order to obtan a credt or refund of the ta
n the event It s not Incuded, that fact must be estabshed by a contractor
or the manufacturer, producer, or mporter entted thereto. In order to obtan
such reef there must be furnshed an affdavt by a responsbe representatve
of the Government to that effect. It woud seem, therefore, both n the nterests
of the contractor and the Unted States that t be defntey estabshed n every
Instance that the ta has or has not been Incuded n the bd prce, as the case
may be. owever, the utmate resut w be same In ether event. If the
bd prce ncuded the ta the contract prce shoud be pad but no representatve
of a department or agency of the Government shoud make any affdavt or
statement whereby a contractor may obtan reef. If, on the other hand, t be
estabshed that the ta was e cuded n submsson of the bd, the contractor
woud be entted upon estabshment of that fact, to cam a refund from the
Commssoner of Interna Revenue.

In vew of the concuson reached above, no ad|ustment n prce by reason
of the ncuson of the ta n connecton wth deveres of matera on or after
October 1, 1935, on contracts based on bds opened pror to ugust 80, 1935,
appears necessary. Where a bdder In submttng a bd certfed that the
prces ncuded edera ta , payment shoud be made at the contract prce
and no possbe undertakng to obtan reef from the ta es shoud be consdered

S CTION 620 O T R NU CT O 1932, S M ND D Y S C-
TION 4 O T CT O UN 16, 1933 (48 ST T., 254), ND Y S C-
TION 401 O T R NU CT O 1935. T - R S L S. ( LSO
S CTION 619 O T R NU CT O 1932.)
-18-8070
Opnon rendered by the Comptroer Genera of the Unted
States to the dmnstrator of eterans ffars on pr 14,
1936, reatve to the ncuson or e cuson of the manufacturers
e cse ta n the prce of artces sod for the e cusve use of
the Unted States.
-67334 pr 14, 1936.
The dmnstrator of eterans ffars,
eterans dmnstraton.
Sd3 : There were receved your etters of ebruary 5 and March 3,
1936, n regard to your etter of December 12, 1935, as foows:
Recept s acknowedged of your etter of November 29, 1985 ( -67334),
reatve to deducton of edera e cse ta under the provson of secton 401
of the Revenue ct of 1935, Pubc, No. 407, Seventy-fourth Congress.
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401
Mso.
In my etter of November 4, 1935, reference was made to eterans dmns-
traton contracts s-1599, s-1600 and s-1605, coverng requrements for
toet soap and request was made that you Indcate procedure to be foowed
In deductng e cse ta , to whch you have responded n your etter of
November 29. 1935, as foows:
rtces devered under the contracts n queston on and after October 1.
1935, are e empt from the ta es mposed by secton 603 of the Revenue ct or
1932. Such ta es were mposed as a percentage of the seng prce and may
be determned defntey by smpe cacuatons. n amount equa to the ta es
In effect and appcabe to the artces n queston at the tme contracts were
ecuted shoud be deducted from the contract prce on a artces devered
under the contracts n queston after September 30, 1935. It w be for the
contractors to make such showng to the ureau of Interna Revenue as may
be necessary to secure e empton from such ta es on the artces n queston
devered after October 1,1935, or f the ta es are pad, to secure refund thereof.
The rate of ta mposed on toet soap by secton 603, Tte I of the Revenue
ct of 1982 s a certan percentage of the manufacturer s sae prce and the
bass of computaton s as outned n artces 8 to 15 Incusve of ureau of
Interna Revenue Reguatons 46. rtce 12 of these reguatons states that
Charges for transportaton, devery, nsurance, nstaaton, and other charges
whch have no connecton whatever wth the manufacturng process or wth
pacng the artce n a fnshed condton packed and ready for shpment are
to be e cuded n computng the ta . The contract prces of the toet soap
covered by the contracts above referred to ncude transportaton charges f. o. b.
raroad destnatons of eterans dmnstraton factes, aso ncude appca-
be ta , and there may be other tems not sub|ect to ta Incuded n the contract
prces. It s Inferred from the statements In the above quoted paragraph of
your decson of November 29, 1935, that the amount to be deducted as ta sha
be determned by appyng the rate of ta to the contract prces, deductng
therefrom the resut, but t appears tut such procedure woud be Improper n
vew of the bass prescrbed by the ureau of Interna Revenue for determnng
ta .
In vew of the condtons governng the computaton of ta , as above outned,
t appears that t w be mpossbe for the eterans dmnstraton to ready
determne the amount deductbe as ta from the contract prces of toet soap
or other ta abe commodtes covered by contracts whch ncude ta , whether
purchased drecty fr m a manufacturer or from a deaer where tte passes
through one or more persons n a chan of saes from the manufacturer to the
eterans dmnstraton, and your further consderaton of the matter pre-
sented n my etter of November 4, 1 35, and advce as to data requred on
vouchers nvovng ta abe commodtes devered under contracts whch ncude
ta s requested and w be apprecated.
The seng prce referred to n decson of November 29, 1935.
has reference to the manufacturer s sae prce, whch s the bass of
the ta . ureau of Interna Revenue Reguatons 46, approved une
18, 1932, referred to n your etter, among other thngs provde:
rt. 8. ass of ta t on saes generay. The ta Is mposed on each sae by
the manufacturer of the artces enumerated n these reguatons. The pro-
vsons of the ct quoted embody the rues for determnng the sae prce, whch
s the bass of the ta . In genera, ths shoud be the manufacturer s actua
prce at the factory or pace of producton. In determnng the sae prce, for
ta purposes, there sha be ncuded any charge ncdent to pacng the artce
n condton packed ready for shpment. There sha be e cuded (1) the
amount of ta mposed by Tte I , whether or not bed as a separate tem,
and 2) (sub|ect to the provsons of artce 12) transportaton, devery, n-
surance. Instaaton, or other charges (not requred by the precedng sentence
to be ncuded).
bt. 10. Charges for coverngs, contaners, etc. ny charges for cover-
ngs, contaners, etc., ncdent to pacng the artce n condton packed
ready for shpment sha be ncuded as a part of the sae prce for the
purpose of computng the ta . Therefore, the amount pad for the artce and
ts coverng or contaner s the bass for computng the ta even though a
separate charge for such coverng or contaner Is bed on the nvoce.
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402
rt. 12. cuson of charges for transportaton, devery, etc. Charges for
transportaton, devery, nsurance, Instaaton, and other charges whch
have no connecton whatever wth the manufacturng process or wth pac-
ng the artce In a fnshed condton packed and ready for shpment, ar
to be e cuded n computng the ta . ny addtona charge whch a pur-
chaser woud not be requred to pay If he accepted devery of the artce at
the factory may be so e cuded.
Pursuant to the Revenue ct of 1935 (49 Stat., 1025), the Com-
mssoner of Interna Revenue has ssued reguatons and amend-
ments to e stng reguatons to cover the rght to ta e empton
from, and refund or credt of, certan e cse ta es on artces sod
for the e cusve use of the Unted States, etc. Those reguatons
and amendments were approved by the ctng Secretary of the
Treasury November 12, 1935, the reevant parts of whch are quoted
n 15 Comp. Gen., 588, 590, and repetton here s unnecessary.
Where the manufacturer s actua prce at the factory or pace of
producton, that s, the bass of the ta , s not known or s dffcut
to determne, the temzaton of the ta n the certfed voucher of a
contractor may be accepted as the correct amount of such ta . In
such cases, the amount of the ta deducted shoud be stated n the
admnstratve certfcate, or affdavt by the representatve of the
department or agency of the Government or other evdence furnshed
n order to enabe the manufacturer, producer, or mporter, to ob-
tan credt or refund of the ta .
Whe the contracts nvoved authorze deducton from the con-
tract prce of an amount equa to the e cse ta es n effect at the
tme the contracts were e ecuted whch sad ta es were made n-
appcabe to the artces covered by the contracts and devered on
and after October 1, 1935, by the act of ugust 30, 1935, such acton
s not requred. (See decsons of anuary 7, 1936, -67600, 15
Comp. Gen., 588, supra ebruary 8, 1936, -69761, 15 Comp. Gen.,
686 ebruary 11, 1936, -68693, 15 Comp. Gen., 694 and ebru-
ary 25 1936, -70629,15 Comp. Gen.. 728.)
If the amount s deducted t w be refunded by the Comms-
soner of Interna Revenue | f t s not deducted and the fu con-
tract prce s pad, no admnstratve certfcate, or other evdence,
upon whch a cam for refund or credt mght be estabshed shoud
be furnshed. The net resut to the Unted States s the same n
ether case. If for admnstratve reasons, deducton of an amount
equa to the e cse ta es n effect at the tme the contract was en-
tered nto and not now for mposng, s mpractcabe, there s no
ega ob|ecton to payment of the fu contract prce for artces
de vered under the contracts subsequent to September 30, 1935.
You are advsed accordngy.
Respectfuy,
. R. McCar,
Comptroer Genera of the Unted State .
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403 Regs. 43, rt. L
TITL - DMISSIONS ND DU S. (1926)
S CTION 500(a) O T R NU CT O 1926, 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.
Reguatons 43, rtce ass, rate, and -12-8011
computaton of ta . S. T. 831
( so Secton 500(b) and rtce 24.)
Payments for admssons to theatrca performances sponsored
by the Works Progress dmnstraton are ta abe, e cept where
the payment s ess than 41 cents.
dvce s requested whether payments for admssons to theatr-
ca performances sponsored by the Works Progress dmnstraton
are sub|ect to ta under secton 500(a) 1 of the Revenue ct of 1926,
as amended by secton 411(a) of the Revenue ct of 1928 and by
secton 711(a) of the Revenue ct of 1932.
Secton 500(a) 1, as amended, mposes a ta of 1 cent for each
10 cents or fracton thereof pad for admsson to any pace f the
amount pad s 41 cents or more. The ta s payabe by the person
payng for admsson and must be coected by the person to whom
the admsson charge s pad. Secton 500(b) of the Revenue ct
of 1926 provdes for certan e emptons from the ta .
The Works Progress dmnstraton was estabshed by ecutve
Order on May 6, 1935, under the authorty conferred by Pubc
Resouton No. 11, Seventy-fourth Congress. porton of the funds
approprated by the mergency Reef ppropraton ct of 1935
has been made avaabe to the Works Progress dmnstraton for
use n provdng empoyment for professona persons, such as actors,
srtsts, muscans, and wrters. In order to accompsh such purpose,
the Works Progress dmnstraton s sponsorng theatrca per-
formances to whch admsson charges w be made. The proceeds
from the admsson charges w be used for the transportaton and
subsstence e penses of the troupe, necessary materas and suppes,
renta of theaters, and compensaton of e tra workers. The com-
pensaton of the actors, muscans, and other members of the troupe
w be pad from edera funds.
The Works Progress dmnstraton does not come wthn any
of the casses of organzatons whch are e empt under secton
500(b) of the Revenue ct of 1926. No e empton s provded wth
respect to payments for admssons coected by an agency of the
edera Government as such.
It s hed that amounts pad for admsson to theatrca per-
formances sponsored by the Works Progress dmnstraton are
sub|ect to ta under secton 500(a) 1 of the Revenue ct of 1926,
as amended, f the admsson charge s 41 cents or more, and must
be coected by representatves of that organzaton and pad over
to the coector of nterna revenue.
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Regs. 43, rt. 43.
S CTION 502 O T R NU CT O 1926. S M ND D Y
S CTION 414 O T R NU CT O 1928.
Reguatons 43, rtce 43: Duty to coect, -24-8125
return, and pay ta dmssons. G. 0. M. 16543
( so Secton 607, Revenue ct of 1934.)
Offcers of a corporaton may be hed personay abe for ta es
on admssons coected by the corporaton but not pad over to
the Unted States.
dvce s requested whether the offcers of a corporaton may be
hed personay abe for ta es on admssons coected by the cor-
poraton but not pad over to the Unted States.
The facts n the case n whch the present ssue arose are that a
certan corporaton sod ta abe tckets of admsson and coected
the admsson ta es thereon but faed to pay the ta es to the Gov-
ernment. The amount of the ta es coected was used for other pur-
poses and funds are not now avaabe to pay the assessment whch
has been made aganst the corporaton.
The admssons ta s mposed by secton 500 of the Revenue ct
of 1926, as amended. Secton 502(a) of the ct, as amended by
secton 414 of the Revenue ct of 1928, provdes that every person
recevng any payments for admssons sha coect the amount of
the ta from the person makng such payments, make returns thereof,
and pay the ta so coected to the coector of nterna revenue for
the dstrct n whch the prncpa offce or pace of busness s
ocated.
Secton 607 of the Revenue ct of 1934 provdes as foows:
Whenever any person Is requred to coect or wthhod any nterna-revenue
(a from any other person and to pay such ta over to the Unted States, the
amount of ta so coected or wthhed sha be hed to be a speca fund In
trust for the Unted States. The amount of such fund sha be assessed, co-
ected, and pad n the same manner and sub|ect to the same provsons and
mtatons (ncudng penates) as are appcabe wth respect to the ta es
from whch such fund arose.
Under the provsons of secton 1114(b) of the Revenue ct of 1926,
any person who wfuy fas to coect or truthfuy account for
and pay over such ta sha, n addton to the other penates pro-
vded by aw, be guty of a feony and upon convcton sha be
fned or mprsoned. Under secton 1114(d) such person sha, n
addton to the other penates provded by aw, be abe to a penaty
of the amount of ta evaded, or not pad, coected, or accounted for
and pad over, to be assessed and coected n the same manner as
ta es are assessed and coected.
Secton 1114(f) of the Revenue ct of 1926 provdes:
The term person as used n ths secton ncudes an offcer or em-
poyee of a corporaton or a member or empoyee of a partnershp, who as such
offcer, empoyee, or member Is under a duty to perform the act n respect of
whch the voaton occurs.
It s we estabshed that where an offcer of a corporaton, know-
ng t to be nsovent, partcpates n the use, for the beneft of the
corporaton, of trust funds, he s personay abe for such funds
whether he agreed to be responsbe or not. Where money n the
hands of a corporaton s earmarked as beongng to a thrd person,
the corporate offcers are abe for ts msappcaton whether or not
the corporaton s nsovent. In 14a, C. ., page 180, t s stated:
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405
Regs. 71, rt. 8.
The rue that drectors, offcers, or agents, of a corporaton are
abe for ther torts to a person In|ured thereby s appcabe where they are
guty of converson. Ths Is true, even though they act as offcers In behaf
of the corporaton and athough the corporaton may aso be abe, as where
money or property of a thrd person Is n the hands of the corporaton and the
offcers In contro of the fund knowngy and Intentonay convert t by refus-
ng to gve up possesson, or by appyng It to the uses of the corporaton.
who are concerned In the wrong are personay abe. drector who has
knowedge that a busness corporaton was recevng deposts of money for
safe-keepng and that the offcers were msappropratng them Is abe for the
msappropraton uness he protested and took steps to prevent oss to the
depostors. so drectors are abe to a thrd person whose money has been
msapproprated by offcers or empoyees of the corporaton where ther neg-
gence enabed, and was the pro mate cause of such msappropraton.
In Unted States v. Thomas (15 Wa. (82 U. S.), 337), the Unted
States Supreme Court sad:
Trustees are ony bound to e ercse the same care and soctude
wth regard to the trust property whch they woud e ercse wth regard to ther
own. quty w not e act more of them. They are not abe for a oss by
theft wthout ther faut. ut ths e empton ceases when they m the trust-
money wth ther own, whereby It oses ts Identty, and they become mere
debtors.
The prmary abty for admssons and other ta es wthn the
cope of secton 607 of the Revenue ct of 1934 s on the corporate or
other prncpa requred to make coecton. Such ta es, together
wth the ad vaorem penates ordnary assessabe, may be assessed
under secton 607. owever, secton 607 has no appcaton to, and,
therefore, does not render assessabe penates whch are not ord-
nary assessabe.
Where the facts warrant such acton, resort may be had to the
offcers or a corporaton for the coecton of admssons ta es.
responsbe corporate offcer who fas, whether wfuy n a ega
sense or not, to pay over ta es wthn the scope of secton 607, or
permts the use of such ta es for corporate purposes, s personay
abe therefor. Where an offcer of a corporaton who s under a
duty to pay over ta es wthn the scope of secton 607 fas to do so,
he ncurs persona abty to a penaty equa to the ta . Ths
penaty s assessabe by vrtue of secton 1114(f) of the Revenue ct
of 1926, supra, regardess of secton 607.
erman Ophant,
Genera Counse for the Department of the Treasury.
TITL IIL ST MP T S. (1926)
SC DUL -, S M ND D Y S CTION 721(a) O T R NU
CT O 1932. ONDS, D NTUR S, ND C RTI IC T S O IN-
D T DN SS.
Reguatons 71, rtce 8: onds renewed by -18-8068
agreement e tendng mortgage. Ct. D. 1112
ST MP T R NU CTS O 1926 ND 1932 D CISION OP COURT.
1. onds or Indebtedness Suppementa gbeement Postpone-
ment ov Matubty Renewa.
In 1927 the ta payer Issued bonds secured by a mortgage, under
the terms of whch modfcatons of the mortgage provsons were
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Regs. 71, rt. 8.
406
authorzed. Pursuant to that authorty, a suppementa ndenture
was e ecuted n 1933, by whch the maturty dates of a then out-
standng bonds were e tended for perods of fve years Indorse-
ments of the e tensons of maturty dates were made upon the
bonds, and addtona Interest coupons to cover the e tended
perods were ssued. Certan addtona provsons were made
reatng, to the conduct of the busness and the powers and dutes
of the trustee. The suppementa Indenture, and acts done pur-
suant thereto, postponed the maturtes of the bonds and was
therefore a renewa wthn the meanng of the provso cause of
Tte III, Schedue -, of the Revenue ct of 1026 and artce
8 of Reguatons 71, and was sub|ect to the ta Imposed by that
tte, as amended by the Revenue ct of 1932.
2. Certorar Dened.
Petton for certorar dened March 16, 1936.
Unted States Crcut Court or ppeas for the fth Crcut.
George L. Shedon, Coector of Interna Revenue, appeant, v. Msssspp
Cottonseed Products Co., appeee.
ppea from the Dstrct Court of the Unted States for the Southern Dstrct of
Msssspp.
efore Sbey, utcheson, and Waker, Crcut udges.
anuary 8, 1936.
OPINION.
Waker, Crcut udge: The appeee, a Deaware corporaton, brought th9
acton to recover the amount, 945, of documentary stamp ta es e acted of It
In crcumstances mentoned beow, wth Interest thereon. ppeee s orgna
decaraton contaned two counts, one of whch was wthdrawn by t. ppe-
ant s demurrer to the remanng count was overrued, and, upon nppeant
decnng to pead further, fna |udgment was rendered In favor of the
appeee. egatons of the count demurred to showed the foowng: In
uy, 1927, appeee Issued ts bonds, wth nterest coupons, n the tota amount
of 1,250,000, and e ecuted Its mortgage to secure those bonds, whch, n
dfferent amounts, were payabe seray n successve years, begnnng uy 1,
1929, and endng uy 1, 1942, when 350,000 of the bonds were payabe. The
mortgage contaned a provson whch, among other thngs, empowered the
hoders of 90 per cent of the prncpa amount of bonds outstandng at any
tme, wth the consent of appeee and the corporate trustee named n the
mortgage, to assent to and authorze any modfcaton of the provson of the
mortgage, such modfcaton to be set forth n a suppementa ndenture between
the appeee and the trustee In the mortgage. Pursuant to that provson, on
or about anuary 1, 1933, when there had been no defaut of any knd or
character n the payment of the then outstandng bonds amountng to 945,000,
by an nstrument caed a suppementa Indenture, to whch appeee, the
trustee n sad mortgage, and a named bank, depostory of 90 per cent In
prncpa amount of a sad bonds then outstandng, were partes, the maturty
dates of a then outstandng bonds were e tended for perods of fve years.
That Instrument contaned rectas to the effect that, due to the chaotc
economc condtons for whch appeee was n no way responsbe, provsons
of both the bonds and the mortgage securng them had become mpossbe of
performance n respects mentoned. The depostory ndorsed on each of the
then outstandng bonds the foowng: The maturty date of ths bond Is
hereby e tended fve yeara Dated as at uy 1, 1933. t the tme of the
e ecuton of sad suppementa Indenture appeee Issued addtona nterest
coupons to cover Interest for the fve years for whch sad bonds were e tended,
and such coupons were devered to the hoders of sad bonds. The above
mentoned suppementa ndenture contaned, n addton to what sad mort-
gage contaned, provsons whereby appeee agreed to do, or refran from
dong, stated thngs n the conduct of ts busness and aso provsons whch
conferred or mposed upon the corporate trustee named In sad mortgage
specfed powers and dutes. Upon the Commssoner of Interna Revenue
rung that the transacton evdenced by the above-mentoned nstruments was
sub|ect to the stamp ta es prescrbed by Schedue - of Tte III of the
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407
Reg . 71, rt. 8.
Revenue ct of 1928 (44 Stat, 99-101, 26 U. S. O. ., secton 901(1)), and
amended by the Revenue ct of 1932 (47 Stat, 169, 26 U. 8. O. ., secton 901),
and demandng of the appeee the payment of such ta In the sum of 943,
appeee pad that sum under protest, and duy camed the refund of the sum
so pad, whch cam for refund was dened.
The above cted provson of the Revenue ct of 1926 reads as foows:
Sec. 800. On and after the e praton of 80 days after the enactment of ths
ct there sha be eved, coected, and pad, for and In respect of the severa
bonds, debentures, or certfcates of stock and of Indebtedness, and other docu-
ments, nstruments, matters, and thngs mentoned and descrbed n Schedue
of ths tte, the severa ta es specfed In such schedue.
Schedue . Stamp Ta es.
1. onds of ndebtedness: On a bonds, debentures, or certfcates of n-
debtedness ssued by any corporaton, and a Instruments, however termed,
Issued 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: Provded, That every renewa of the foregong sha be tu ed as a
new ssue:
So far as s matera In ths case, the amendment of the |ust set out provson
made by the above cted provson of the Revenue ct of 1932 conssted n strk-
ng from subdvson 1 of sad Schedue the words 5 cents, and nsertng n
eu thereof 10 cents.
The decson of ths case turns upon the meanng of the word renewa In
the above set out provso, That every renewa of the foregong sha be ta ed
as a new ssue. The word renewa has dfferent meanngs, varyng wth
the sub|ects wth reference to whch t s used. One of the defntons of the
word renew found In Webster s New Internatona Dctonary s: To grant
or obtan e tenson of to contnue In force for a fresh perod as to renew a
note or a bond. s commony used wth reference to notes and bonds the
word renewa Imports a postponement of the maturty of the obgaton deat
wth, an e tenson of the tme n whch that obgaton may be dscharged.
(Lowry Natona ank v. ckett, 122 Ga., 489 WUon v. Rovsneav, 4 ow.,
646, 697 armer Loan d Trutt Co. v. Centra Park, N. d . R. R. Co., 193 ed.,
963.) Wth reference to the word renewa the foowng was sad n the
opnon n the case of Lowry Natona ank v. ckett, supra:
In aw t has been defned to be an obgaton on whch tme of payment s
e tended. ngsh Law Det It has aso been sad, that t s not a word of art
and has no ega or technca sgnfcaton t has aso been hed that
there mght be such a thng as a renewa where the party was dfferent, provded
the obgaton was of the same nature as n a case where a wdow gave her
note In eu of the note of her deceased husband for the same amount. (Spon-
haut v. aoy, 21 Ind. pp., 287 52 N. ., 245.) Not ony the defn-
ton of renewa, but aso ts appcaton n the cases cted and smar cases,
carres the Idea that an obgaton s renewed when the same obgaton s car-
red forward by the new paper or undertakng, whatever t may be. There may
be a change of partes. There may be an Increase of securty, but there Is no
renewa uness the obgaton s the same. What makes the renewa s an e ten-
son of tme n whch to dscharge the obgaton.
It we may be nferred that, n enactng the above set out provso, the
awmakers contempated that that provso woud cover such a transacton as
the one now In queston. It can not reasonaby be supposed that It was In-
tended that an Issue of new bonds wth Interest coupons and maturng at ater
dates n eu of prevousy outstandng smar bonds evdencng the same ob-
gaton as to prncpa and rate of nterest woud be sub|ect to the ta , but that
a change n the prevousy outstandng bonds by an ndorsement thereon
postponng the dates of the maturty thereof woud not gve rse to abty for
that ta . Nothng In the anguage of the statute ndcates a purpose to make
abty for the ta Imposed dependent upon form, rather than upon substance.
To say the east, t appears, that, consstenty wth we recognzed usage, a
postponement of the maturty of corporate coupon bonds evdencng ndebted-
ness may be descrbed as a renewa of such bonds.
The provso In queston s found n provsons of earer statutes mposng
stamp ta es on bonds and other nstruments evdencng Indebtedness. We
understand that t frst appeared n such a connecton n Schedue - of
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Regs. 71, rt 8.
408
Tte III of the Revenue ct of 1917 (40 Stat, 300). It was reenacted wth-
out change four tmes, namey, In the Revenue ct of 1918, Tte 46, Schedue
- (40 Stat., 1057) n the Revenue ct of 1921, Tte I, Schedue - (42
Stat., 303) n the Revenue ct of 1924, Tte III, Schedue - (43 Stat,
8331 and n the Revenue ct of 1926. It appears that that provso has been
construed by offcas charged wth the enforcement of t as meanng postpone-
ment of the maturty of bonds referred to, and coverng such a transacton as
the one now n queston, and that that constructon has been mpedy ap-
proved by Congress. The foowng s artce 8 of Treasury Reguatons 71,
reatng to stamp ta es under Tte III of the Revenue ct of 1926, as
amended by the Revenue ct of 1932:
bt. 8. ons renewed by agreement e tendng mortgage. n agreement
e tendng a mortgage upon maturty where a bond Is secured by the mortgage
and such agreement operates to renew the bond, sub|ects the atter to stamp
ta as a renewa.
The |ust set out reguaton was frst ssued In the same anguage as artce
4 of Treasury Reguatons 55, reatng to stamp ta es under the Revenue ct
of 1918, aud has been carred forward Into reguatons reatng to stamp ta es
under subsequent Revenue cts, and s st n force. ven f the meanng of
the provso n queston propery coud be regarded as doubtfu, great weght
shoud be gven to the constructon of t by the Department charged wth ts
e ecuton, and the repeated reenactment by Congress, wthout change, of the
provso whch prevousy had receved ong contnued e ecutve constructon
s an adopton by Congress of such constructon. ( omada v. Unted States,
215 U. S., 392 Massachusetts Mutua Lfe Insurance Co. v. Unted States, 288
U. S., 269, 273 Od Msson Portand Cement Co. v. everng, 293 U. S., 289,
293 Ct D. 903, C. . I -1, 332 errng v. Commssoner, 293 U. S., S23
Ct D. 904, O. . I -1, 303 .)
Counse for appeee suggested n argument that the above set out regua-
ton s rendered Inappcabe to the facts of the Instant case by the crcum-
stance that the agreement to e tend the maturty dates of bonds was made n
anuary, 1933, and the earest maturty of any bond deat wth by that agree-
ment was In uy, 1933. Nothng n that reguaton ndcates that the words,
an agreement e tendng a mortgage upon maturty referred ony to an
agreement made at or after the date of the maturty of the mortgage. It s
qute manfest that an agreement e tendng a mortgage upon maturty s
covered by the anguage used, though that agreement was entered nto before
the mortgage matured.
In behaf of the appeee. It was contended that the agreement whereby the
maturty dates of outstandng bonds were e tended was kept from beng a
renewa, wthn the meanng of the above set out provso, by the crcum-
stance that the makng of that agreement was an e ercse of a power con-
ferred when those bonds were ssued, wth the resut that that agreement
effected a mere rearrangement of the reatons between the maker of those
bonds and the hoders of them. The provson of the mortgage authorzng the
transacton entered nto n 1933 to be consummated f consented to by the
hoders of 90 per cent n prncpa amount of the then outstandng bonds dd
not make that transacton dfferent n ts nature or effect from what t woud
have been f the mortgage had not contaned the above mentoned provson
and that transacton had been consented to by the hoders of a then out-
standng bonds, nstead of by the hoders of 90 per cent n prncpa amount of
such bonds. vad agreement whereby the maturty of bonds s postponed
for a defnte tme s, wthn the meanng of the provso n queston as t ong
has been authortatvey construed, a renewa of such bonds, whether the
makng of such agreement was authorzed when the bonds were ssued, or at
a subsequent tme was proposed and assented to by the partes In Interest. The
ugrcement entered Into n 1933 havng effected a renewa of then outstandng
bonds, and such renewa beng the sub|ect of the ta mposed, t Is not ma-
tera In ths case what other changes In the reatons of the partes In Inter-
est were brought about by that agreement
Though the provso In queston, when It was frst enacted, may have been
open to a constructon dfferent from that adopted by the offcas charged wth
Its enforcement, that admnstratve constructon must be foowed because t
has been approved by Congress. We concude that, wthn the meanng of
that provso, what occurred was a renewa of the bonds the maturtes of
whch were postponed, and that the above mentoned rung was erroneous.
The decree s reversed.
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409
Regs. 71, rt. 34.
SC DUL -3 O TITL III O T R NU CT O 1926, S
M ND D Y S CTION 723 O T R NU CT O 1932.
Reguatons 71, rtce 34: Saes or transfers -7923
sub|ect to ta . G. C. M. 15745
Transfers to the contnung corporaton of stock hed In a
fducary capacty by a corporaton whch Is merged or conso-
dated wth another corporaton under the bankng aw of New York
are sub|ect to stamp ta .
n opnon s requested whether transfers of stock by reason of
the merger or consodaton of the M Corporaton and the N Corpora-
ton under the bankng aw of the State of New York are sub|ect
to the stamp ta mposed by Schedue -3 of Tte III of the Reve-
nue ct of 1926, as amended by secton 723 of the Revenue ct of
1932.
That ct mposes a stamp ta on a saes, or agreements to se,
or memoranda of saes or deveres of, or transfers of ega tte
to any of the shares or certfcates mentoned or descrbed n sub-
dvson 2 of the ct, or to rghts to subscrbe for or to receve such
shares or certfcates.
Secton 494 of the bankng aw of New York provdes n part as
foows:
ffect of merger. Upon the merger of any corporaton nto another
as provded n the artce:
1. Its corporate e stence sha be merged nto that of such other corpora-
tons and a and snguar ts rghts, prveges and franchses, and ts rght,
tte and nterest In and to a property of whatsoever knd, whether rea,
persona or m ed, and thngs In acton, and every rght, prvege. Interest
or asset of concevabe vaue or beneft then e stng whch woud nure to
It under an unmerged e stence, sha be deomed fuy and fnay, and wthout
any rght of reverson, transferred to and vested n the corporaton Into whch
t sha have been merged, wthout further act or deed, and such ast-mentoned
corporaton sha have and hod the same n ts own rght as fuy as the same
was possessed and hed by the merged corporaton from whch t was, by
operaton of the provsons of ths artce, transferred.
2. Its rghts, obgatons and reatons to any person, credtor, depostor,
trustee or benefcary of any trust, sha reman unmpared, and the corpora-
ton nto whch t sha have been merged sha by such merger succeed to
a such reatons, obgatons, trusts and abtes, and sha e ecute and
perform a such trusts, In the same manner as though t had tsef assumed
the reaton or trust, or ncurred the obgaton or abty and ts ab-
tes and obgatons to credtors e stng for any cause whatsoever sha not
be mpared by such merger nor sha any obgaton or abty of any
stockhoder or sharehoder n any corporaton whch s a party to such
merger be affected by any such merger, but such obgatons and abtes sha
contnue as fuy and to the same e tent as e sted before such merger. Ita-
cs supped.
rtce 34 of Reguatons 71 ctes e ampes of transactons sub|ect
to the ta , among whch are: (b) the transfer of stock to or by
trustees ( ) upon a merger, the transfer of stock owned by a cor-
poraton whch s merged nto another corporaton from the name
of the frst to the name of the second corporaton, such a transfer
beng effected by the act of the partes and not whoy by operaton
of aw and (t) the transfer of ega tte to stock rrespectve of
whether the transferee receved any benefca nterest theren,
e cept as provded n artce 35 (k).
84326 36 14
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Regs. 71, rt. 84.
410
mong the transactons not sub|ect to ta , enumerated n artce
85 of Reguatons 71, are: ( ) the transfer of stock from the name
of a deceased or resgned trustee to the name of a substtuted trustee
apponted n accordance wth the terms of the orgna trust agree-
ment, whch s a transfer resutng whoy by operaton of aw and
(r) transfers of shares or certfcates of stock whch resut whoy
by operaton of aw.
Pursuant to a merger agreement, the M Corporaton merged wth
the N Corporaton (the contnung corporaton). oth corporatons
were organzed and were dong busness n the State of New York. t
the tme of the merger the M Corporaton hed stock n a fducary
capacty. s a resut of the merger the N Corporaton hods such
stock formery hed by the M Corporaton and s actng n a fducary
capacty wth respect thereto. Some of the trust nstruments under
whch the stock was hed by the M Corporaton were sent as to a
successor trustee, some provded for a successor trustee, whe n
others the trustor reserved the rght to appont a successor trustee n
the event the orgna trustee for any reason ceased to act. In the
ast cass of cases the trustors apponted the N Corporaton as suc-
cessor trustee. The merger agreement provdes that each corporaton
sha contrbute a of ts assets, rghts, prveges, and franchses to
the contnung corporaton that upon merger the assets, etc., of
the N Corporaton sha beong to the contnung corporaton as the
contnuaton of the corporate entty of N wthout deed or assgnment
or devouton of tte that the assets, etc., of the M Corporaton sha
be deemed transferred and vested n the contnung corporaton by
operaton of aw, wthout further act or deed and that n a respects
the effects of the merger sha be as prescrbed n the bankng aw of
the State of New York. That aw provdes specfcay that the
corporaton nto whch another s merged sha by suck merger
(. e., the acts of the partes) succeed to trusts, abtes, etc.
In G. C. M. 8050 (C. . I -1, 896) t was hed that transfers of
stock of other corporatons owned by mergng or consodatng cor-
poratons were not effected whoy by operaton of aw and were sub-
|ect to stamp ta . It was further hed that t was mmatera whether
the stock so hed was owned absoutey or was hed n trust at the
tme of the merger or consodaton, snce some acton by the n-
terested partes was requred. In the present case t s apparent
that acton by the nterested partes was aso requred. The board
of drectors had to act, the stockhoders had to approve, and the
merger agreement had to be e ecuted. of these acts by the
fartes n nterest were requred n order to accompsh the merger,
t s the opnon of ths offce that the transfer of stock hed by the
mergng corporaton ether as owner or n a fducary capacty to
the contnung corporaton was a transfer not effected whoy by
operaton of aw but was brought about, n part at east, by acts of
the partes.
Wth respect to stock hed by the banks under trust nstruments
provdng for the appontment of a successor trustee, or under trust
nstruments n whch the trustor reserved the rght to appont a
successor trustee n the event the orgna trustee ceased to act, t s
the opnon of ths offce that the rue s the same n such stuatons
as where the trust nstrument s sent regardng a successor trustee.
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411
Regs. 71, rt. 31.
It s we setted that the aw w not permt a trust to fa because
of ack of a trustee. Where one corporaton succeeds another as
trustee by reason of a merger or consodaton, t makes no dfference
whether (a) the successon be ordered by a court of .equty or oc-
curs because of a provson of State aw, or whether (b) the suc-
cessor corporaton s apponted pursuant to a provson of the trust
nstrument, In each of the stuatons ndcated, the successon s
the resut of the merger or consodaton whch was consummated
by act of the partes. Therefore, n none of the stuatons s there
a transfer whoy by operaton of aw wthn the ntent of the regu-
atons. Ths vew s not n confct wth artce 35( ) or the other
provsons of the reguatons cted, supra. rtce 35( ) hods non-
ta abe a transfer of stock from a deceased or resgned trustee to
the name of a substtuted trustee n accordance wth the terms of
the orgna trust agreement. Ths does not contempate appont-
ment of the trustee pursuant to a corporate merger or consodaton
and shoud not be apped to the nstant stuaton. Nether s such
vew n confct wth S. T. G99 (C. . II-2, 360), deang wth cor-
porate qudaton through a State superntendent of banks. Ob-
vousy, a transfer due to forced qudaton through a State offcer
does not resut from an act of the partes, as n the case of a voun-
tary merger or consodaton.
It s, therefore, the opnon of ths offce that where, upon a
merger or consodaton of corporatons under the bankng aw of
ew York, a successor corporaton takes the pace of another cor-
poraton prevousy actng as trustee or n other fducary capactes,
the transfer of any corporate stocks hed n a fducary capacty
from the frst to the successor corporaton s ta abe whether or not
the nstrument under whch the stock s hed makes provson for the
appontment of a successor fducary and rrespectve of any provson
of State aw conferrng the powers and prveges of the orgna
corporate trustee upon the successor corporaton.
rthub . ent,
ctng ssstant Genera Counse for the
ureau of Interna Revenue.
egv| atons 71, htce 34: Saes or trans- -10-7986
fers sub|ect to ta . G. C. M. 16290
Where a broker, as agent of the purchaser, has stock transferred
through htn ether to the name of the purchasng broker s nomnee
or to the name of the purchaser s nomnee, abty for two stamp
ta es s ncurred.
n opnon s requested concernng the stamp ta abty n-
voved n the transfer of stock from the seng broker or hs prn-
cpa through the purchasng broker to the nomnee of the purchas-
ng broker or to the nomnee of the purchaser.
Schedue -3, Tte III of the Revenue ct of 1926, as amended
by secton 723(a) of the Revenue ct of 1932, mposes documentary
stamp ta es:
On a saes, or agreements to se, or memoranda of saes or
deveres of, or transfers of ega tte to any of the shares or certfcates
mentoned or descrbed n subdvson 2, or to rghts to subscrbe for or to
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Regs. 71, rt. 34.
412
receve such shares or certfcates, 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 same, but such deveres or transfers sha
be accompaned, by a certfcate settng forth the facts: .
y reference to Schedue -3, Tte III evenue ct of 1926,
as amended, mposng the ta n queston, t w be seen that ts
provsons are broad n ther scope. The ta s mposed thereby
on a saes or transfers of ega tte to shares or certfcates of
stock, wth certan e ceptons provded for n the ct. The pan
ntent of the provso quoted above s to e empt from the stamp ta
a deveres by a seer to a broker for the purpose of makng a sae
and a deveres by a broker to a customer m competng a sae.
In such cases where the broker has no ownershp or nterest n the
stock, he acts merey as agent for hs prncpa. s act s n reaty
the act of the prncpa and, where the e empton certfcate requred
s furnshed, ony one stamp ta s due on the sae by one prncpa
to another prncpa, even though the transacton s carred on
through the broker agents.
Where, however, a nomnee takes ega tte to the stock, the ne
s broken and there occurs a transacton whch s not wthn the
terms of the above-quoted provso. The transfer of certfcates of
Stock to a nomnee s nether a devery nor a transfer to a broker
for sae nor s t a transfer by hm to compete a sae wthn the
meanng of the provso. The fact that the nomnee may have no
persona nterest n the securtes s of no consequence n passng
upon the ta abty of the transacton because, under the e press
terms of the aw, the ta s due on transfers of ega tte whether
enttng the hoder n any manner to the beneft of such share, cer-
tfcate, nterest, or rghts, or not . The statute beng
concerned wth transfers ot ega tte, whether or not they nvove
transfers of equtabe nterests, the ta attaches to any and a trans-
fers whatever the purpose may be, uness the transacton s ceary
e empt. It s a we estabshed rue of constructon that e emp-
tons from ta aton must aways be strcty construed aganst the
person camng e empton. ( ank of Commerce v. Tennessee, 161
U.S., 134.)
Upon carefu consderaton of the queston presented, t s the
opnon of ths offce that where stock s transferred from the seng
broker or hs prncpa through the purchasng broker to the pur-
chasng brokers nomnee, abty for two stamp ta es s ncurred,
one on the transfer of the stock from the seng broker or hs prn-
cpa to the purchasng broker, and one on the transfer of the stock
from the purchasng broker to hs nomnee.
It s aso the opnon of ths offce that when stock s transferred
from the seng broker or hs prncpa through the purchasng
broker to the purchaser s nomnee, abty for two stamp ta es s
ncurred, one on the transfer of the stock from the seng broker or
hs prncpa to the purchasng broker and one on the purchaser s
constructve transfer to hs nomnee of hs rght to receve the stock.
Ths poston s n accord wth the decson of the Unted States
Supreme Court n Raybestos-Manhattan, Inc., v. Unted States
(296 U. S., 60, Ct. D. 1039. C. . I -2, 400).
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413
Regs. 71, rt. 34.
It s understood that brokers n reance upon a poston prev-
ousy taken by the ureau have consdered that the stamped memo-
randum of sae e ecuted at the tme of sae covers the transfer of
the stock not ony from the seng broker or hs prncpa to the
purchasng broker or hs prncpa but aso to the nomnee of the
purchasng broker, and have foowed the practce of havng stock
transferred from the seng broker or hs prncpa to the purchas-
ng broker s nomnee wth the payment of ony one stamp ta . In
vew of that poston and practce and n order that the opportunty
may be gven to a concerned to become apprsed of the poston
taken heren before the effectve date, t s recommended that ths
opnon be made effectve 10 days after the date of ts pubcaton n
the Interna Revenue uetn,
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
pproved.
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
T. . Coodge,
ctng Secretary of the Treasury.
Reguatons 71, rtce 34: Saes or trans- -10-7987
fers sub|ect to ta . S. T. 830
Transfer of stock from the name of the trustee for a fe
tenant to the name of the fe tenant Is sub|ect to stamp ta .
dvce s requested whether the transfer of stock from the name
of the trustee for a fe tenant to the name of the fe tenant pur-
suant to court order s sub|ect to the stamp ta mposed by Schedue
-3 of Tte III of the Revenue ct of 1926, as amended by sec-
ton 723(a) of the Revenue ct of 1932.
The ct mposes a stamp ta on a saes or agreements to se,
or memoranda of saes or deveres of, or transfers of ega tte
to corporate shares or certfcates of stock, or to rghts to subscrbe
for or to receve such shares or certfcates.
Under the w of a resdent of Connectcut, the estate of the
decedent was eft to hs wdow for fe wth remander to the de-
cedent s chdren. The ank was apponted as trustee for the
wdow under the w and certan stock whch was a part of the
estate was transferred to the ank as trustee. The ank
subsequenty resgned as trustee. Pursuant to an order entered by
the probate court, the stock n queston was transferred to the
wdow as fe tenant under the w rather than as successor trustee.
The w provded that the fe tenant shoud not be requred to gve
bond. It s contended that the transfer of the stock to the fe
tenant s not sub|ect to stamp ta snce under the crcumstances the
fe tenant was a successor trustee.
Whe the transfer of the stock to the fe tenant was approved by
the probate court, such transfer was, nevertheess, occasoned by the
vountary acts of the partes to the transfer and, therefore, dd not
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Regs. 71, rt 34.
resut whoy by operaton of aw. s a resut of the transfer the
e stng trust was dssoved and the trust property was transferred
to the benefcary of the trust, who had ony a fe estate theren.
Snce the benefcary dd not have compete ownershp of the prop-
erty, she s requred under the aws of Connectcut to gve bond for
the protecton of the remandermen, but s not requred to account
to the court wth respect to the funds n her hands n the same man-
ner as does a trustee n respect of trust funds.
In vew of the foregong, t s hed that the fe tenant s not
a successor trustee wthn the meanng of the aw and reguatons
reatng to stamp ta es, and that the transfer of the stock n ques-
ton to the fe tenant under the crcumstances stated s sub|ect to
the stamp ta mposed by Schedue -3 of Tte III of the Revenue
ct of 1926, as amended.
Reguatons 71, rtce 84: Saes or trans-
fers sub|ect to ta .
( so Schedue -9 of Tte III of the Revenue
ct of 1926, as added by secton 724(a) of the
Revenue ct of 1932.)
The depost of stocks and bonds by the M Insurance Co., a for-
egn corporaton, wth a bank or trust company n the Unted
States, as trustee, as securty for ts obgatons consttutes a
devery whch s sub|ect to stamp ta .
dvce s requested whether the depost of certfcates of stock and
corporate bonds by the M Insurance Co., a foregn corporaton, wth
a bank or trust company n the Unted States, as trustee, under the
crcumstances herenafter stated, s sub|ect to the stamp ta es m-
posed by Schedue -3 of Tte III of the Revenue ct of 1926, as
amended by secton 723(a) of the Revenue ct of 1932, and by
Schedue -9 of Tte III of the Revenue ct of 1926, as added by
secton 724(a) of the Revenue ct of 1932.
Schedue -3 of Tte III of the Revenue ct of 1926, as
amended, mposes a stamp ta
On a saes, or agreements to se, or memoranda of saes or
deveres of, or transfers of ega tte to any of the shares or certfcates
mentoned or descrbed n subdvson 2, whether made upon or
shown by the books of the corporaton or other organzaton, or by any assgn-
ment n bank, or by any devery, (whether enttng the hoder n
any manner to the beneft of such share, certfcate, nterest, or rghts, or not),
Provded further, 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 certfcates are not actuay sod, nor upon the
devery or transfer for such purpose of certfcates so deposted nor upon the
return of stock oaned: .
Schedue -9 of Tte III of the Revenue ct of 1926, as added
by secton 724(a) of the Revenue ct of 1932, mposes a stamp ta
upon saes, transfers, or deveres of corporate bonds n amost the
dentca terms of Schedue -3, as amended, quoted above.
Under the provsons of secton 801 of the Revenue ct of 1926, as
amended by secton 441 of the Revenue ct of 1928, Government
-25-8138
S. T. 838
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415
(Regs. 71, rt. 34.
bonds and certan other casses of securtes are e empt from stamp
ta .
The M Insurance Co., a foregn corporaton, carres on an nsur-
ance busness n the Unted States. Under the nsurance aws of
certan States the company s requred to depost wth a bank or trust
company n the Unted States, as trustee, securtes of suffcent
vaue to cover any possbe osses whch may be suffered by the pocy-
hoders of the company through any faure of the company to meet
ts obgatons. The depost agreement provdes that the securtes
deposted pursuant thereto sha be hed n trust to secure and carry
out the ob|ects and purposes of the agreement. The company re-
serves the rght to wthdraw any securty and depost n eu thereof
another securty of equa vaue. Upon the demand of any person
hodng a fna |udgment or decree aganst the company n respect
of moneys due and payabe under any pocy ssued by t on the fe
of any person, a resdent of the Unted States, the trustee, after the
apse of three months from the date of any such unpad |udgment
or decree, s requred to se a suffcent amount of the deposted
securtes, or, at the opton of the trustee, retan any dvdends or
cash receved as ncome from the securtes, to satsfy the |udgment
or decree. Unt such a demand has been made by a pocyhoder or
camant, the ncome from the deposted securtes s payabe to the
company. The company may modfy, ater, or revoke the depost
agreement, provded the rghts of the pocyhoders are not affected
or mpared, and under specfed condtons may change the trustee.
The depost of securtes wth the trustee, e cept those securtes
comng wthn the e empt casses specfed n secton 801 of the
Revenue ct of 1926, as amended, consttutes a devery of the
securtes wthn the meanng of the stamp ta provsons of the
Revenue ct of 1926, as amended, t beng assumed that the securtes
were de ered to the trustee n such form that they may be sod
by the trustee, . e., by assgnment n bank. The fact that the trustee
acqures no benefca ownershp n the securtes s mmatera under
the e press terms of the statute. The securtes are devered to the
depostory n ts capacty as trustee. The transfer of securtes to
or by trustees s sub|ect to stamp ta . ( rtce 31(6), Reguatons
71.) It s we estabshed that there can be no trust wthout a
ega estate vested n the trustee. (1 Perry on Trusts, 7th d., page
443.) Consequenty, the devery of the securtes to the depostory
as trustee s sub|ect to the transfer ta , rrespectve of whether the
securtes are actuay regstered n the name of the trustee. The
fact that depost of stocks and bonds as coatera securty for oans
s e empted from the stamp ta provsons of the aw carres the
cear mpcaton that deposts for other purposes are ta abe.
In vew of the foregong, t s hed that the depost of certfcates
of stock and corporate bonds by the M Insurance Co., a foregn
corporaton, wth a trustee n the Unted States under the crcum-
stances stated, other than those nstruments specfcay e empt under
secton 801 of the Revenue ct of 1926, as amended, s sub|ect to
the stamp ta es on transfers of stocks and bonds mposed by Schedue
-3 and Schedue -9 of Tte III of the Revenue ct of 192G,
as amended.
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Regs. 71, rt. 84.
416
SC DUL -6 O TITL III O T R NU CT O 1926, 3
M ND D Y S CTION 442 O T R NU CT O 1928.
P SS G TIC TS.
Consuar offcers of nand are e empt from the ta on passage
tckets.
dvce s requested whether consuar offcers of nand are e empt
from the ta mposed on passage tckets by Schedue -5 of Tte
III of the Revenue ct of 1926, as amended by secton 442 of the
Revenue ct of 1928.
In vew of the provsons of rtce I of the Treaty of rend-
shp, Commerce and Consuar Rghts of ebruary 13, 1934, effectve
ugust 10, 1934, between the Unted States and nand, consuar
offcers of nand, and the members of ther fames, are entted
to e empton from the ta on passage tckets purchased on or after
ugust 10, 1934, the effectve date of the treaty, sub|ect to the
condtons outned n S. T. 681 (C. . II-1, 455).
The consuar offcers of nand are added to the st of consuar
offcers pubshed n S. T. 681, supra, as suppemented by S. T. 720
(C. . III-1, 437), who have been hed to be e empt from the
ta on passage tckets.
SC DUL -8 O TITL III O T R NU CT O 1926, S
DD D Y S CTION 725 O T R NU CT O 1932,
CON Y NC S.
Reguatons 71, rtce 84: What consttutes -16-8053
rea property determnabe by aw of State G. C. M. 16510
where ocated.
n o and gas ease of ndefnte duraton n respect of and
stuated n rkansas, or any assgnment thereof, s sub|ect to
stamp ta as a conveyance of reaty.
The queston s presented whether an o and/or gas ease coverng
and n rkansas, or any assgnment thereof, s sub|ect to the stamp
ta on conveyances mposed by Schedue -8 of Tte III of the
Revenue ct of 1926, as added by secton 725 of the Revenue ct of
The aw mposes a stamp ta 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 con-
sderaton or vaue of the nterest or property conveyed, e cusve o
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 ease n queston, for a vauabe consderaton, granted, con-
veyed, demsed, eased and et certan and stuated n rkansas
Reguatons 71, rtce 53: Passage tckets
ssued to certan foregn representatves.
-9-7976
S. T. 829
1932.
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417
Regs. 71, rt. 84.
for the purpose of mnng and operatng for o and gas for a
specfed term and as ong thereafter as o or gas, or ether of them
s produced from sad and by the essee.
In rrngton v. Unted Royaty Co. (1933) (65 S. W. (2d), 36),
the Supreme Court of rkansas hed that an o and gas ease for a
defnte term of years, and to contnue thereafter as ong as o and/or
gas are produced, s a grant and conveyance for an ndetermnate
perod whereby a freehod estate n reaty s created n the nature of
a quafed fee. In the course of ts opnon the court sad:
It seems, aso, that whether the royaty, when severed from the
reverson, s to be deemed rea or persona property, depends upon the duraton
of the ease. If the o and gas ease s for a defnte term of years e prng at
a certan tme, t s a chatte rea, and the severed royaty woud be persona
property but, where the ease may endure for an ndetermnate erod, t
creates an estate n the nature of a quafed fee, and the royaty reserved
woud be an nterest n reaty.
Whe the nterest n dspute n the foregong case had to do
wth the reserved royaty of the essor rather than wth the work-
ng nterest of the essee under the ease, hs hers, or assgns, st
the character of the royaty was deemed to be governed by the nature
of the ease under whch t was reserved. The hodng of the court
appears to be cear that an o and gas ease n rkansas for a
defnte term of years, and to contnue thereafter as ong as o
and/or gas are produced, s for an ndefnte duraton and, as such,
grants and conveys an estate n and n the nature of a quafed
fee. (Compare odcaw Lumber Go. v. Goode ( rk., 1923), 254
S W., 345.)
In State v. rkansas ue O Co. ( rk., 1929) (18 S. W. (2d),
906), the court hed that an o and gas ease for a defnte term
of years, and as ong thereafter as o and gas (or ether of them)
are produced from the and by the essee, consttutes a severance
of the o and gas rghts from the fee smpe (or genera property)
n the and wthn the meanng of secton 9856 of Crawford
Moses Dgest of the Laws of rkansas, whch provdes among
other thngs that where mnera and/or tmber rghts n and are
hed by another than the owner of the and, such rghts sha be
assessed separatey from the genera property n the and that the
sae of such rghts for nonpayment of ta es sha not affect the
tte to the and tsef and that a sae of the and for nonpayment
of ta es sha not affect the tte to such rghts. The hodng of
the court n that case, consdered n the ght of the State statute
referred to, woud seem to be tantamount to hodng that an o and
gas ease n rkansas of ndefnte duraton creates a quafed fee
n the and, an nterest and easement n the and tsef.
In vew of the foregong, t s the opnon of ths offce that
an o and/or gas ease of the type heren consdered coverng and
n rkansas, or any assgnment thereof, s a conveyance of reaty
sod and s sub|ect to stamp ta under Schedue -8 of Tte III
of the Revenue ct of 1926, as added by secton 725 of the Revenue
ct of 1932.
erman Opant,
Genera Counse for the Department of the Treasury.
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Regs. 46, rt. 74.
418
SC DUL -9 O TITL III O T R NU CT O 1926, S
DD D Y S CTION 724(a) O T R NU CT O 1932.
Reguatons 71, rtce 120: ass of ta . -15-8039
S. T. 832
The transfer of corporate bonds from the name of a guardan for
a mnor to the name of the ward In the State of New York s not
sub|ect to stamp ta .
dvce s requested whether the transfer of corporate bonds 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 the State of New
York, s sub|ect to the stamp ta mposed by Schedue -9 of Tte
III of the Revenue ct of 1926, as added by secton 724(a) of the
Revenue ct of 1932.
The ct mposes a stamp ta upon a saes or transfers of ega
tte to bonds, debentures, or certfcates of ndebtedness ssued by a
corporaton. The ta abty of the transfer of corporate bonds from
the name of a guardan 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 bonds remaned n the ward or vested n
the guardan at the tme of hs appontment. (See MS. 42, C. .
I -I, 338.) If under the State aw no transfer of ega tte to the
bonds occurs when there s a transfer of the bonds from the name of
the guardan to the name of the ward, no stamp ta abty s
ncurred.
In the State of New York a guardan for a mnor does not acqure
ega tte to hs ward s estate. Consequenty, no transfer of ega
tte s nvoved n the transfer of corporate bonds from the name of
the guardan to the name of the ward n that State, and no stamp
ta abty s ncurred wth respect to such transfers.
TITL L G N R L DMINISTR TI PRO ISIONS.
(1926)
S CTION 1121 O T R NU CT O 1926, M D PPLIC L Y
S CTION 627 O T R NU CT O 1932.
Reguatons 46, rtce 74: Saes for e port. -17-8061
S. T. 833
Meanng of the words In due course so e ported n secton
1121 of the Revenue ct of 1926 as apped to drve-away saes
of automobes or trucks for e port.
dvce s requested whether automobes or trucks sod for e port
under the crcumstances stated heren are n due course so e -
ported wthn the meanng of secton 1121 of the Revenue ct of
1926, made appcabe by secton 627 of the Revenue ct of 1932,
to saes of artces ta abe under Tte I of that ct.
Under the provsons of secton 1121 of the Revenue ct of 1926,
and artce 74 of Reguatons 46, as amended by Treasury Decson
4355 (C. . I-2, 551). saes for e port of automobes and other
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419
Regs. 46, rt. 74.
artces ta abe under Tte I of the Revenue ct of 1932 are
e empt from ta , provded the evdence requred try artces 74 and
75 of Reguatons 46, as amended by Treasury Decson 4355, supra,
shows that the artce was sod for e port and that the artce was
n due course e ported.
n automobe or truck sod for e port s sometmes devered
to a purchaser at the factory and s drven by hm to a port of the
Unted States for embarkaton to a foregn country, or to a pont
on the Canadan or Me can border for entry nto ether of those
countres. Occasonay, an automobe and a truck are sod and
devered to the purchaser at the factory and the automobe s
oaded on the truck and drven to such port or country.
utomobes and trucks sod, devered, and drven under the fore-
gong crcumstances are consdered to have been n due course so
e ported wthn the meanng of secton 1121 of the Revenue ct of
1926, provded the automobe or truck s not used for any purpose
other than the haung, towng, or drvng thereof from the factory
to the pont of e portaton that the tme ntervenng between de-
very at the factory and arrva at the pont of e portaton s de-
voted to reachng such pont and that the evdence requred by
the reguatons s furnshed. The tme or meage nvoved n mak-
ng the trp s not mportant so ong as the automobe or truck s
drven drecty from the factory to the pace of e portaton wthout
deay and s not used for any other purpose, as, for e ampe, makng
a tour or vstng paces of nterest n the Unted States.
Where an automobe and truck are sod for e port and devery s
made at the factory, the automobe s oaded on the truck, and the
truck s drven to the pont of e portaton under the condtons
specfed heren, the truck s not consdered to have been used n
the Unted States for any purpose other than that ncdent to
e portaton.
Merchandse whch may be transported n automobes and trucks
so sod and devered, wthout destroyng the e empton, s mted
to the persona baggage of the passengers.
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Msc.
420
GRICULTUR L D USTM NT CT.
-2-7906
T.D.4622
Compensatng ta wth respect to peanuts under the grcu-
tura d|ustment ct, as amended. Refund of compensatng ta
pad on peanut os. rtce S of Treasury Decson 4489 C. .
III-2, 493 amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Secton 15(a) of the grcutura d|ustment ct, as amended,
provdes, n part:
Durng the perod n whch any certfcate under ths secton s
effectve, the provsons of subsecton (e) of ths secton sha be suspended
wth respect to a mported artces of the knd descrbed In such certfcate |
and notwthstandng the provsons of secton 21, any compensatng ta es, whch
have heretofore, durng the perod n whch any certfcate under ths secton
has been effectve, become due and payabe upon Imported artces of the knd
descrbed n such certfcate, sha be refunded by the Secretary of the
Treasury f the same have been pad, or, f the same have not been pad the
amount thereof sha be abated.
Pursuant to the above provsons, artce 3 of Treasury Decson
4489 s hereby amended to read as foows:
rt. 3. Compensatng ta on mported artces. (a) compensatng ta
became effectve at the earest moment of October 1, 1934, wth respect to a
artces processed or manufactured whoy or party from any type or knd of
peanuts, and Imported nto 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. The respectve rates of ta
appcabe to such artces are gven n artce 4(a) of these reguatons.
ffectve ugust 24, 1935, no compensatng ta s mposed wth respect to
peanut o Imported on and after that date. or detaed reguatons reatve
to the compensatng ta , see Chapter I of Reguatons 81, as amended.
(6) Refund of compensatng ta pad wth respect to peanut os. ny
person who mported peanut o and pad the compensatng ta wth respect
thereto, upon compyng wth the condtons herenafter prescrbed, s entted
to a refund of such ta .
The cam for refund sha be e ecuted, under oath, on P. T. orm 24, In
accordance wth these reguatons and n accordance wth the Instructons
prnted on the form, and fed wth the coector of nterna revenue for the
dstrct In whch the ta was pad.
The grounds and facts aeged n support of the cam sha be competey
set forth In deta and show (1) the amount of refund camed, (2) the date
on whch the peanut o was mported, the port of entry, the customs entry
number, and the name of the vesse, (3) the date of payment of the ta , the
amount thereof, and to whch coector (revenue or customs) the ta was pad,
and (4) the number of contaners, gaon content of each contaner, and the
tota number In gaons of each mportaton. If the ta has been pad to a
coector of customs, the coector of nterna revenue wth whom the cam Is
fed sha procure from the coector of customs a statement reatve to pay-
ment and sha submt such statement wth the cam to the Commssoner.
Gut T. everng,
Commssoner of Interna Revenue.
pproved anuary 4, 1936.
T. . COOLTOG ,
otng Secretary of the Treasury.
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421
Regs. 81, Chap. I .
Reguatons 81, Chapter I . -18-8069
T. D.4638
Compensatng ta under grcutura d|ustment ct, as
amended. Treasury Decson 4501, approved December 4, 1934
C. . III-2, 524 , amendng Chapter I of Reguatons 81,
revoked.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue, Coectors of Customs, and Others
Concerned:
Treasury Decson 4501, approved December 4, 1934, whch
amended Chapter I of Reguatons 81, reatng to the coecton of
compensatng ta es under secton 15(e) of the grcutura d|ust-
ment ct, as amended, s hereby revoked.
Ths Treasury decson s promugated under authorty of secton
10(d) of the grcutura d|ustment ct, as amended.
Guy T. evernq,
Commssoner of Interna Revenue.
pproved pr 25, 1936.
Stethen . Gbbons,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster pr 28, 1936, 3.40 p. m.)
-6-7943
Ct. D. 1070
PROC SSING ND T.OOR T S GRICULTUR L, D USTM NT CT-
D CISION O SUPR M COURT.
Con sTrrunoN autt.
The grcutura d|ustment ct, 1933 ( 48 Stat., 31), whch
provdes for reducton In acreage or n producton for market of
any basc agrcutura commodty, for renta and beneft payments
to producers In connecton therewth, and for the evyng of a ta
upon processors and others engaged In the handng of any agrcu-
tura commodty n order to obtan revenue for the admnstraton
of the ct, does not come wthn rtce I, secton 8, of the Con-
sttuton, and voates the tenth amendment thereof. The ct
Invades the reserved rghts of the States, beng a statutory pan for
the reguaton and contro of agrcutura producton, a matter
beyond the powers deegated to the edera Government and the
ta , the appropraton of the funds rased, and the drecton for
ther dsbursement, are but means to an unconsttutona end.
Sdpremb Coubt of the Unted States.
Unted States of merca, pettoner, v. Wam M. uter ct a., Recevers
of oosac Ms Corporaton.
On wrt of certorar to the Unted States Crcut Court of ppeas for the rst Crcut.
anuary 6, 19 SO.
OPINION.
Mr. ustce Robehts devered the opnon of the Court.
In ths case we must determne whether certan provsons of the grcutura
d|ustment ct, 1933,1 confct wth the edera Consttuton.
1 May 12, 1933 (ch. 25, 48 Stat.. 31).
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422
Tte I of the statute a captoned grcutura d|ustment Secton 1
rectes that an economc emergency has arsen, due to dsparty between the
prces of agrcutura and other commodtes, wth consequent destructon of
farmers purchasng power and breakdown In ordery e change, whch, n turn,
have affected transactons n agrcutura commodtes wth a natona pubc
nterest and burdened and obstructed the norma currents of commerce, cang
for the enactment of egsaton.
Secton 2 decares t to be the pocy of Congress:
To estabsh and mantan such baance between the producton and con-
sumpton of agrcutura commodtes, and such marketng condtons therefor,
as w reestabsh prces to farmers at a eve that w gve agrcutura com-
modtes 1 a purchasng power wth respect to artces that farmers buy, equva-
ent to the purchasng power of agrcutura commodtes In the base perod.
The base perod, n the case of cotton, and a other commodtes e cept tobacco,
s desgnated as that between ugust, 1900, and uy, 1914.
The further poces announced are an approach to the desred equaty by
gradua correcton of present nequates at as rapd a rate as s deemed feas-
be In vew of the current consumptve demand In domestc and foregn mar-
kets, and the protecton of consumers nterest by read|ustng farm producton
at such eve as w not Increase the percentage of the consumers reta e -
pendtures for agrcutura commodtes or products derved therefrom, whch a
returned to the farmer, above the percentage returned to hm n the base perod.
Secton 8 provdes, amongst other thngs, that In order to effectuate the
decared pocy, the Secretary of grcuture sha have power
(1) To provde for reducton n the acreage or reducton n the producton
for market, or both, of any basc agrcutura commodty, through agreementa
wth producers or by other vountary methods, and to provde for renta or
beneft payments n connecton therewth or upon that part of the producton
of any basc agrcutura commodty requred for domestc consumpton. In
such amounts ns the Secretary deems far and reasonabe, to be pad out of any
moneys avaabe for such payments.
(2) To enter Into marketng agreements wth processors, assocatons of
producers, and others engaged In the handng, In the current of Interstate or
foregn commerce of any agrcutura commodty or product thereof, after due
notce and opportunty for hearng to nterested partes.
(3) To Issue censes permttng processors, assocatons of producers, and
others to engage In the handng, In the current of Interstate or foregn commerce,
of any agrcutura commodty or product thereof, or any competng commodty
or product thereof.
It w be observed that the Secretary s not requred, but s permtted, f, n
hs uncontroed udgment, the pocy of the ct w so be promoted, to make
agreements wth Indvdua farmers for a reducton of acreage or producton
upon such terms as he may thnk far and reasonabe.
Secton 9(a) enacts:
To obtan revenue for e traordnary e penses ncurred by reason of the
natona economc emergency, there sha be eved processng ta es as heren-
after provded. When the Secretary of grcuture determnes that renta or
beneft payments are to be made wth respect to any basc agrcutura com-
modty, he sha procam such determnaton, and a processng ta sha be In
effect wth respect to such commodty from the begnnng of the marketng year
therefor ne t foowng the date of such procamaton. The processng ta sha
be eved, assessed, and coected upon the frst domestc processng of the com-
modty, whether of domestc producton or Imported, and sha be pad by the
processor.
The Secretary may from tme to tme, If he fnds It necessary for the effectua-
ton of the pocy of the ct, read|ust the amount of the e acton to meet the
requrements of subsecton (b). The ta s to termnate at the end of any
marketng year f the renta or beneft payments are dscontnued by the
Secretary wth the e praton of that year.
Secton 9(b) f es the ta at such rate as equas the dfference between the
current average furm prce for the commodty and the far e change vaue,
Secton 11 denomnates wheat, cotton, fed corn, hoes, rce, tobacco, and mk and t
products, basc agrcutura commodtes, to whch the ct a to appy. Others hare
been added by ater egsaton.
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423
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wth power In the Secretary, after Investgaton, notce, and hearng, to read|ust
the ta so as to prevent the accumuaton of surpus stocks and depresson of
farm prces.
Secton 9(c) drects that the far e change vaue of a commodty sha be such
a prce aa w gve that commodty the same purchasng power wth respect to
artces farmers buy as It had durng the base perod and tmt the far e change
vaue and the current average farm prce of a commodty sha be ascertaned
by the Secretary from avaabe statstcs n hs department.
Secton 12(a) approprates 100,000,000 to be avaabe to the Secretary of
grcuture for admnstratve e penses under ths tte and for renta and
beneft payments and secton 12(b) approprates the proceeds de-
rved from a ta es Imposed under the ct to be avaabe to the Secretary of
grcuture for e panson of markets and remova of surpus agrcutura
products : dmnstratve e penses, renta and beneft payments, and
refunds on ta es.
Secton 15(d) permts the Secretary, upon certan condtons, to mpose com-
pensatng ta es on commodtes n competton wth those sub|ect to the
processng ta .
y secton 16 a foor ta s Imposed upon the sae or other dsposton of any
artce processed vhoy or n chef vaue from any commodty wth respect to
whch a processng ta Is to be eved n amount equvaent to that of the process-
ng ta whch woud be payabe wth respect to the commodty from whch the
artce s processed f the processng had occurred on the date when the process-
ng ta becomes effectve.
On uy 14, 1933, the Secretary of grcuture, wth the approva of the Pres-
dent, procamed that he had determned renta and beneft payments shoud
be made wth respect to cotton that the marketng year for that commodty
was to begn ugust 1,1933 and cacuated and f ed the rates of processng and
foor ta es on cotton n accordance wth the terms of the ct.
The Unted States presented a cam to the respondents as recevers of the
oosac Ms Corporaton for processng and foor ta es on cotton eved under
sectons 9 and 10 of the ct The recevers recommended that the cam be ds-
aowed. The dstrct court found the ta es vad and ordered them pad.3
Upon appea the crcut court of appeas reversed the order.4 The |udgment
under revew was entered pror to the adopton of the amendng ct of ugust
24, 1935, and we are therefore concerned ony wth the orgna ct.
rst. t the outset the Unted States contends that the respondents have
no standng to queston the vadty of the ta . The poston Is that the ct s
merey a revenue measure evyng an e cse upon the actvty of processng
cotton a proper sub|ect for the Imposton of such a ta the proceeds of
whch go nto the edera Treasury and thus become avaabe for appropra-
ton for any purpose. It s sad that what the respondents are endeavorng
to do s to chaenge the Intended use of the money pursuant to congressona
appropraton when, by confesson, that money w have become the property
of the Government and the ta payer w no onger have any nterest n t.
Massachusetts v. Meon (262 U. S., 447) Is camed to forecose tgaton
by the respondents or other ta payers, as such, ookng to restrant of the
e pendture of Government funds. That case mght be an authorty n the
pettoners favor f we were here concerned merey wth a sut by a ta payer
to restran the e pendture of the pubc moneys. It was there hed that
a ta payer of the Unted States may not queston e pendtures from Its Treas-
ury on the ground that the aeged unawfu dverson w depete the pubc
funds and thus Increase the burden of future ta aton. Obvousy the as-
serted nterest of a ta payer n the edera Government s funds and the
supposed Increase of the future burden of ta aton Is mnute and Indeterm-
nabe. ut here the respondents who are caed upon to pay moneys as ta es,
resst the e acton as a step In an unauthorzed pan. Ts crcumstance
ceary dstngushes the case. The Government n substance and effect asks us
to separate the grcutura d|ustment ct nto two statutes, the one evyng
an e cse on processors of certan commodtes, the other appropratng the
pubc moneys ndependenty of the frst. Passng the nove suggeston that
two statutes enacted as parts of a snge scheme shoud be tested as f they
were dstnct and unreated, we thnk the egsaton now before ns Is not
susceptbe of such separaton and treatment
rankn Proceta Co. v. ooaac a Corporaton (8 P. Supp., 552).
uffer et a. v. Unted State (78 . (2d), 1).
Pubc, No. 320, Seventy-fourth Congress, frst sesson.
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424
The ta can ony be sustaned by Ignorng the avowed purpose and opera-
ton of the ct, and hodng t a measure merey ayng an e cse upon
processors to rase revenue for the support of government. eyond cav
the soe ob|ect of the egsaton Is to restore the purchasng power of agr-
cutura products to a party wth that prevang In an earer day to take
money from the processor and bestow It upon farmers who w reduce ther
acreage for the accompshment of the proposed end, and, meanwhe, to ad
these farmers durng the perod requred to brng the prces of ther crops to
the desred eve.
The ta pays an ndspensabe part n the pan of reguaton. s stated
by the grcutura d|ustment dmnstrator, t Is the heart of the aw
a means of accompshng one or both of two thngs ntended to hep farm-
ers attan party prces and purchasng power. 1 ta automatcay goes
Into effect for a commodty when the Secretary of grcuture determnes that
renta or beneft payments are to be made for reducton of producton of that
commodty. The ta s to cease when renta or beneft payments cease. The
rate s f ed wth the purpose of brngng about crop reducton and prce rasng.
It s to equa the dfference between the current average farm prce and
far e change vaue. t may be atered to such amount as w prevent
accumuaton of surpus stocks. If the Secretary fnds the pocy of the
ct w not be promoted by the evy of the ta for a gven commodty, he
may e empt t (Secton 11.) The whoe revenue from the evy s appropr-
ated n ad of crop contro none of t Is made avaabe for genera govern-
menta use. The entre agrcutura ad|ustment program emboded n Tte I
of the ct s to become noperatve when, n the |udgment of the Presdent,
the natona economc emergency ends and as to any commodty he may
termnate the provsons of the aw, f he fnds them no onger requste to
carryng out the decared pocy wth respect to such commodty. (Secton 13.)
The statute not ony avows an am foregn to the procurement of revenue
for the support of government, but by Its operaton shows the e acton ad
upon processors to be the necessary means for the ntended contro of agrcu-
tura producton.
In these aspects the ta , so-caed, cosey resembes that ad by the ct
of ugust 3, 1882, entted n ct to reguate mmgraton, whch came
before ths Court In the ead Money cases (112 U. S., 580). The statute
drected that there shoud be eved, coected and pad a duty of 50 cents for
each aen passenger who houd come by vesse from a foregn port to one
In the Unted States. Payment was to be made to the coector of the port
by the master, owner, consgnee or agent of the shp the money was to be
pad Into the Treasury, was to be caed the mmgrant fund, and to be used
by the Secretary of the Treasury to defray the e pense of reguatng Immgra-
ton, for the care of mmgrants and reevng those In dstress, and for the
e penses of effectuatng the ct.
arous ob|ectons to the ct were presented. In answerng them the
Court sad (page 505) :
ut the true answer to a these ob|ectons Is that the power e ercsed
n ths Instance s not the ta ng power. The burden Imposed on the shpowner
by ths statute s the mere Incdent of the reguaton of commerce of that
branch of foregn commerce whch Is Invoved In mmgraton.
It s true not much s sad about protectng the shpowner. ut he Is
the man who reaps the proft from the transacton, . The sum de-
manded of hm s not, therefore, strcty speakng, a ta or duty wthn the
meanng of the Consttuton. The money thus rased, though pad Into the
Treasury, Is approprated In advance to the uses of the statute, and does not
go to the genera support of the Government.
Whe there the e acton was sustaned as an approprate eement In a
pan wthn the power of Congress to reguate commerce wth foregn na-
tons, no queston was made of the standng of the shpowner to rase the
queston of the vadty of the scheme and consequenty of the e acton whch
was an Incdent of t.
Unted States Department of grcuture, chevng a aanced grcuture, page 88
armers shoud not forget that a the processng ta money ends up In ther own
pockets. ven In those cases where they pay part of the ta . they get It a back. very
doar coected In processng ta es goes to the farmer In beneft payments.
Unted States Department of grcuture, The Processng Ta , page 1 s Proceeds of
processng tmes are passed to farmers as beneft payments.
Unted States Department of grcuture, grcutura d|ustment, page 0.
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425
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It Is Inaccurate and mseadng to speak of the e acton from processors
prescrbed by the chaenged ct as a ta , or to say that as a ta t s sub-
|ect to no Infrmty. ta . In the genera understandng of the term, and as
Used In the Consttuton, sgnfes an e acton for the support of the Govern-
ment. The word has never been thought to connote the e propraton of
money from one group for the beneft of another. We may concede that th
atter sort of mposton Is consttutona when Imposed to effectuate regu-
aton of a matter In whch both groups are Interested and In respect of
Whch there s a power of egsatve reguaton. ut manfesty no ustf-
caton for It can be found uness as an ntegra part of such reguaton.
The e acton can not be wrested out of ts settng, denomnated an e cse
for rasng revenue and egazed by gnorng Its purpose as a mere nstru-
mentaty for brngng about a desred end. To do ths woud be to shut our
eyes to what a others than we can see and understand. (Chd Labor Ta
case, 259 U. S., 20, 87.)
We concude that the ct s one reguatng agrcutura producton that
the ta s a mere ncdent of such reguaton and that the respondents have
standng to chaenge the egaty of the e acton.
It does not foow that as the ct Is not an e erton of the ta ng power
and the e acton not a true ta , the statute Is vod or the e acton uncoectbe.
or, to paraphrase what was sad In the ead Money cases (supra), page
D88, f ths Is an e pedent reguaton by Congress, of a sub|ect wthn one
of ts granted powers, and the end to be attaned Is one fang wthn that
power, the ct Is not vod, because, wthn a oose nnd more e tended sense
than was used In the Consttuton, the e acton s caed a ta .
Second. The Government asserts that even If the respondents may queston
the proprety of the appropraton emboded In the statute ther attack must
fa because rtce I, secton 8 of the Consttuton authorzes the contem-
pated e pendture of the funds rased by the ta . Ths contenton presents
the great and the controng queston n the case. We approach ts decson
wth a sense of our grave responsbty to render udgment n accordance
wth the prncpes estabshed for the governance of a three branches of the
Government.
There shoud be no msunderstandng as to the functon of ths Court n
such a case. It s sometmes sad that the Court assumes a power to over-
rue or contro the acton of the peope s representatves. Ths s a mscon-
cepton. The Consttuton s the supreme aw of the and ordaned and estab-
shed by the peope. egsaton must conform to the prncpes It ays
down. When an ct of Congress Is appropratey chaenged In the courts
as not conformng to the consttutona mandate the udca branch of the
Government has ony one duty to ay the artce of the Consttuton whch
s Invoked besde the statute whch Is chaenged and to decde whether the
atter squares wth the former. the Court does, or can do, Is to announce
Its consdered udgment upon the queston. The ony power t has, If such It
may be caed, Is the power of udgment. Ths Court nether approves nor
condemns any egsatve pocy. Its decate and dffcut offce s to ascertan
and decare whether the egsaton Is In accordance wth, or n contraventon
of, the provsons of the Consttuton and, havng done that, ts duty ends.
The queston s not what power the edera Government ought to have but
what powers In fact have been gven by the peope. It hardy seems necessary
to reterate that ours Is a dua form of government that n every State there
are two governments the State and the Unted States. ach State has a
governmenta powers save such as the peope, by ther Consttuton, have
conferred upon the Unted States, dened to the States, or reserved to them-
seves. The edera Unon s a Government of deegated powers. It has ony
such as are e pressy conferred upon t and such as are reasonaby to be
mped from those granted. In ths respect we dffer radcay from natons
Other questons were presented and argued by counse, but we do not consder or decde
them. The respondents nsst that the ct n numerous respects deeaates egsatve
S wer to the ecutve contrary to the prncpes announced In Panama efntnr/ Co. v.
fan (298 U. 8.. 888) and chechter Corporaton v. Unted Sates (295 U. S.. 495) that
ths unawfu deegaton Is not cured by the amendng ct of ugust 24, 1903: that the
e acton Is In voaton of the due process cause of the ffth amendment snce the egsa-
ton takes ther property for a prvate use that the foor ta s a drect ta and therefore
vod for ack of apportonment amongst the States, as requred by rtce I. secton 9
and that the processng ta Is wantng In unformty and so voates rtce I, secton 8,
cause 1, of the Consttuton.
Compare dkns v. Chdren ospta (261 T . S., 525, 544) Massachusetts v. Urnn
(262 U. 8., 447, 488).
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426
where a egsatve power, wthout restrcton or mtaton, Is vested In a
parament or other egsatve body sub|ect to no restrctons e cept the
dscreton of ts members.
rtce I, secton 8, of the Consttuton vests sundry powers In the Congress.
ut two of ts causes have any bearng upon the vadty of the statute under
revew.
The thrd cause endows the Congress wth power to reguate commerce
among the severa States. Despte a reference n Its frst secton to a
burden upon, and an obstructon of the norma currents of commerce, the ct
under revew docs not purport to reguate transactons n Interstate or foregn
commerce. Its stated purpose s the contro of agrcutura producton, a purey
oca actvty, In an effort to rase the prces pad the farmer. Indeed, the
Government does not attempt to uphod the vadty of the ct on the bass of
the commerce cause, whch, for the purpose of the present case, may be put
asde as Irreevant.
The cause thought to authorze the egsaton the frst confers upon the
Congress power to ay and coect ta es, dutes. Imposts and e cses, to pay
the debts and provde for the common defense and genera wefare of the Unted
States . It s not contended that ths provson grants power to
reguate agrcutura producton upon the theory that such egsaton woud
promote the genera wefare. The Government concedes that the phrase to
provde for the genera wefare quates the power to ay and coect ta es.
The vew that the cause grants power to provde for the genera wefare, nde-
pendenty of the ta ng power, has never been authortatvey accepted. Mr.
ustce Story ponts out that f t were adopted t s obvous that under coor
of the generaty of the words, to provde for the common defense and genera
wefare, the Government of the Unted States s, n reaty, a Government of
genera and unmted powers, notwthstandng the subsequent enumeraton of
specfc powers. The true constructon undoubtedy s that the ony thng
granted s the power to ta for the purpose of provdng funds for payment of
the Naton s debts and makng provson for the genera wefare.
Nevertheess the Government asserts that warrant s found n ths cause
for the adopton of the grcutura d|ustment ct. The argument s that
Congress may approprate and authorze the spendng of moneys for the gen-
era wefare that the phrase shoud be beray construed to cover anythng
conducve to natona wefare that decson as to what w promote such wefare
rests wth Congress aone, and the courts may not revew ts determnaton
and fnay that the appropraton under attack was n fact for the genera
wefare of the Unted States.
The Congress s e pressy empowered to ay ta es to provde for the genera
wefare. unds n the Treasury as a resut of ta aton may be e pended ony
through appropraton. ( rtce I, secton 9, cause 7.) They can never accom-
psh the ob|ects for whch they were coected uness the power to approprate
s as broad as the power to ta . The necessary mpcaton from the terms of
the grant s that the pubc funds may be approprated to provde for the
genera wefare of the Unted States. These words can not be meanngess, ese
they woud not have been used. The concuson must be that they were ntended
to mt and defne the granted power to rase and to e pend money. ow sha
they be construed to effectuate the ntent of the Instrument
Snce the foundaton of the Naton sharp dfferences of opnon have perssted
as to the true nterpretaton of the phrase. Madson asserted t amounted to
no more than a reference to the other powers enumerated n the subsequent
causes of the same secton that, as the Unted States s a Government of
mted and enumerated powers, the grant of power to ta and spend for the
genera natona wefare must be confned to the enumerated egsatve feds
commtted to the Congress. In ths vew the phrase Is mere tautoogy, for
ta aton and appropraton are or may be necessary ncdents of the e ercse
of any of the enumerated egsatve powers. amton, on the other hand,
mantaned the cause confers a power separate and dstnct from those ater
enumerated, s not restrcted In meanng by the grant of them, and Congress
consequenty has a substantve power to ta and to approprate, mted ony by
10 The enactment of protectve tarff aws has Its bass In the power to reeuate foregn
commerce. See oard of Truetect of the Unversty of Inott v. Unted tate (289
U. R.. 4S, 8S).
Story. Commentares on the Consttuton of the Unted States, ffth edton, oume I,
secton 907.
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427
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the requrement that It sha be e ercsed to provde for the genera wefare of
the Unted States. ach contenton has had the support of those whose vews
are entted to weght. Ths Court has notced the queston, but has never
found It necessary to decde whch Is the true constructon. Mr. ustce Story,
In hs Commentares, espouses the amtonan poston. We sha not revew
the wrtngs of pubc men and commentators or dscuss the egsatve practce.
Study of a these eads us to concude that the readng advocated by Mr. ustce
Story s the correct one. Whe, therefore, the power to ta Is not unmted,
ts confnes are set In the cause whch confers t, and not In those of secton
8 whch bestow and defne the egsatve powers of the Congress. It resuts
that the power of Congress to authorze e pendture of pubc moneys for pubc
purposes s not mted by the drect grants of egsatve power found n the
Consttuton.
ut the adopton of the broader constructon eaves the power to spend sub-
|ect to mtatons.
s Story says:
The Consttuton was, from ts very orgn, contempated to be the frame of
a natona government, of speca and enumerated powers, and not of genera
and unmted powers. 1
gan he says:
power to ay ta es for the common defense and genera wefare of the
Unted States s not In common sense a genera power. It s mted to those
ob|ects. It can not consttutonay transcend them.
That the quafyng phrase must be gven effect a advocates of broad con-
structon admt. amton, n hs we-known Report on Manufactures, states
that the purpose must be genera, and not oca. Monroe, an advocate of
amton s doctrne, wrote: ave Congress a rght to rase and approprate the
money to any and to every purpose accordng to ther w and peasure
They certany have not. M Story says that f the ta be not proposed for
the common defense or genera wefare, but for other ob|ects whoy e traneous,
It woud be whoy Indefensbe upon consttutona prncpes. nd he makes
It cear that the powers of ta aton and appropraton e tend ony to matters
of natona, as dstngushed from oca wefare.
s esewhere throughout the Consttuton the secton n queston ays down
prncpes whch contro the use of the power, and does not attempt metcuous
or detaed drectons. very presumpton s to be Induged n favor of fath-
fu compance by Congress wth the mandates of the fundamenta aw. Courts
are reuctant to ad|udge any statute n contraventon of them. ut. under our
frame of government, no other pace s provded where the ctzen may be
heard to urge that the aw fas to conform to the mts set upon the use of
a granted power. When such a contenton comes here we naturay requre
a showng that by no reasonabe possbty can the chaenged egsaton fa
wthn the wde range of dscreton permtted to the Congress. ow great s
the e tent of that range, when the sub|ect s the promoton of the genera we-
fare of the Unted States, we need hardy remark. ut, despte the breadth
of the egsatve dscreton, our duty to hear and to render |udgment remans.
If the statute pany voates the stated prncpe of the Consttuton we must
so decare.
We are not now requred to ascertan the scope of the phrase genera wefare
of the Unted States or to determne whether an appropraton n ad of
agrcuture fas wthn U. Whoy apnrt from that queston, another prncpe
embedded n our Consttuton prohbts the enforcement of the grcutura
d|ustment ct. The ct Invades the reserved rghts of the States. It s a
statutory pan to reguate and contro agrcutura producton, a matter be-
yond the powers deegated to the edera Government. The ta , the appropra-
ton of the funds rased, and the drecton for ther dsbursement, are but
parts of the pan. They are but means to an unconsttutona end.
rom the accepted doctrne that the Unted States Is a Government of dee-
gated powers, It foows that those not e pressy granted, or reasonaby to be
mped from such as are conferred, are rese-ved to the States or to the peope.
Loc. ct., Chapter I , passm.
a Loc. ct.. secton 009.
Loc. ct., secton 022.
Works. oume III. page 250.
M Rchardson, Messages and Paper of the Presdents, oume II, page 1ST.
Loc. ct., page 673.
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428
To foresta any suggeston to the contrary, the tenth amendment was adopted.
The same proposton, otherwse stated, Is that powers not granted are pro-
hbted. None to reguate agrcutura producton s gven, and therefore egs-
aton by Congress for that purpose s forbdden.
It s an estabshed prncpe that the attanment of a prohbted end may
not be accompshed under the prete t of the e erton of powers whch are
granted.
Shoud Congress, n the e ecuton of ts powers, adopt measures whch are
prohbted by the Consttuton or shoud Congress, under the prete t of
e ecutng ts powers, pass aws for the accompshment of ob|ects not In-
trusted to the Government t woud become the panfu duty of ths trbuna,
shoud a case requrng such a decson come before It, to say that such an
ct was not the aw of the and. (McCuoch v. Maryand, 4 Wheat., 816,
423.)
Congress can not, under the prete t of e ecutng deegated power, pass
aws for the accompshment of ob|ects not ntrusted to the edera Govern-
ment. nd we accept as estabshed doctrne that any provson of an ct of
Congress ostensby enacted under power granted by the Consttuton, not
naturay and reasonaby adapted to the effectve e ercse of such power but
soey to the achevement of somethng pany wthn power reserved to the
States, Is nvad and can not be enforced. (Lnder v. Unted States, 268
U. S., 5, 17.)
These prncpes are as appcabe to the power to ay ta es as to any other
edera power. Sad the Court, In McCuoch v. Maryand (supra, 421):
Let the end be egtmate, et t be wthn the scope of the Consttuton, and
a means whch are approprate, whch are pany adapted to that end, whch
are not prohbted, but consstent wth the etter and sprt of the Consttuton,
are consttutona.
The power of ta aton, whch s e pressy granted, may, of course, be
adopted as a means to carry nto operaton another power aso e pressy
granted. ut resort to the ta ng power to effectuate an end whch s not
egtmate, not wthn the scope of the Consttuton, s obvousy nadmssbe.
Congress s not empowered to ta for those purposes whch are wthn the
e cusve provnce of the States. (Gbbons v. Ogdcn, 9 Wheat., 1, 199.)
There are, ndeed, certan vrtua mtatons, arsng from the prncpes
of the Consttuton tsef. It woud undoubtedy be an abuse of the ta ng
power If so e ercsed as to Impar the separate e stence and ndependent sef-
government of the States, or If e ercsed for ends nconsstent wth the mted
grants of power n the Consttuton. ( caze ank v. enno, 8 Wa., 533,
541.)
In the Chd Labor Taw case (259 U. S., 20) and n m v. Waace (259
U. S., 44), ths Court had before t statutes whch purported to be ta ng
measures. ut ther purpose was found to be to reguate the conduct of manu-
facturng and tradng, not In Interstate commerce, but n the States matters
not wthn any power conferred upon Congress by the Consttuton and the
evy of the ta a means to force compance. The Court hed ths was not a
consttutona use, but an unconsttutona abuse of the power to ta . In
Lnder v. Unted States, supra, we hed that the power to ta coud not ustfy
the reguaton of the practce of a professon, under the prete t of rasng
revenue. In Unted States v. Constantne (decded December 11, 1935) Ct. D.
1053, C. . I -2, 403 we decared that Congress coud not, In the guse
of a ta , mpose sanctons for voaton of State aw respectng the oca sae
of quor. These decsons demonstrate that Congress coud not, under the
prete t of rasng revenue, ay a ta on processors who refuse to pay a cer-
tan prce for cotton and e empt those who agree so to do, wth the purpose
of beneftng producers.
Thrd. If the ta ng power may not be used as the Instrument to enforce a
reguaton of matters of State concern wth respect to whch the Congress has
no authorty to nterfere, may t, as n the present case, be empoyed to rase
the money necessary to purchase a compance whch the Congress s poweress
to command The Government asserts that whatever mght be sad aganst
the vadty of the pan, f compusory, t s consttutonay sound because the
The tenth amendment decares : The powers not deegated to the Unted States by
the Consttuton, nor prohbted by It to the States, are reserved to the States respectvey,
or to the Dftone.
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end a accompshed by vountary cooperaton. There are two suffcent an-
swers to the contenton. The reguaton a not In fact vountary. The fanner,
of course, may refuse to compy, but the prce of such refusa Is the oss of
benefts. The amount offered Is Intended to be suffcent to e ert pressure on
hm to agree to the proposed reguaton. The power to confer or wthhod
unmted benefts Is the power to coerce or destroy. If the cotton grower
eects not to accept the benefts, he w receve ess for hs crop those who re-
ceve payments w be abe to underse hm. The resut may we be fnanca
run. The coercve purpose and Intent of the statute Is not obscured by the
fact that It has not been perfecty successfu. It Is ponted out that, because
there st remaned a mnorty whom the renta and beneft payments were
nsuffcent to Induce to surrender ther ndependence of acton, the Congress
has gone further and, In the ankbead Cotton ct, used the ta ng power
In a more drecty mnatory fashon to compe submsson. Ths progresson
ony serves more fuy to e pose the coercve purpose of the so-caed ta
Imposed by the present ct. It Is cear that the Department of grcuture
has propery descrbed the pan as one to keep a noncooperutng mnorty n
ne. Ths Is coercon by economc pressure. The asserted power of choce
s Iusory.
In rost Truckng Co. v. R. R. Commsson (271 U. S., 583), a State act was
consdered whch provded for supervson and reguaton of transportaton
for hre by automobe on the pubc hghways. Certfcates of convenence
and necessty were to be obtaned by persons desrng to use the hghways
for ths purpose. The reguatory commsson requred that a prvate contract
carrer shoud secure such a certfcate as a condton of ts operaton. The
effect of the commsson s acton was to transmute the prvate carrer Into
a pubc carrer. In other words, the prvege of usng the hghways as a
prvate carrer for compensaton was condtoned upon hs dedcatng hs
property to the quas pubc use of pubc transportaton. Whe hodng that
the prvate carrer was not obged to submt hmsef to the condton the
commsson dened hm the prvege of usng the hghways If be dd not do so.
The argument was, as here, that the carrer had a free choce. Ths Court
sad, n hodng the act as construed unconsttutona:
If bo, consttutona guarantes, so carefuy safeguarded aganst drect
assaut, are open to destructon by the ndrect but no ess effectve process
of requrng a surrender, whch, though, In form vountary, n fact acks none
of the eements of compuson. avng regard to form aone, the act here
s an offer to the prvate carrer of a prvege, whch the State may grant
or deny, upon a condton, whch the carrer s free to accept or re|ect. In
reaty, the carrer Is gven no choce, e cept a choce between the rock and
the whrpoo an opton to forego n prvege whch may be vta to hs
vehood or submt to a requrement whch may consttute an ntoerabe
burden. (Page 598.)
ut f the pan were one for purey vountary cooperaton t woud stand
no better so far as edera power s concerned. t best It Is a scheme for
purchasng wth edera funds submsson to edera reguaton of a sub|ect
reserved to the States.
It Is sad that Congress has the undoubted rght to approprate money to
e ecutve offcers for e pendture under contracts between the Government and
Indvduas that much of the tota e pendtures Is so made. ut appropra-
tons and e pendtures under contracts for proper governmenta purposes
can not ustfy contracts whch are not wthn edera power. nd contracts
for the reducton of acreage and the contro of producton are outsde the
range of that power. n appropraton to be e pended by the Unted States
under contracts cang for voaton of a State aw ceary woud offend the
Consttuton. Is a statute ess ob|ectonabe whch authorzes e pendture of
edera moneys to nduce acton In a fed a whch the Unted States has
no power to Intermedde The Congress can not Invade State ursdcton to
compe ndvdua acton no more can t purchase such acton.
Unted Sates Department of grcuture, grcutura d|ustment, page 9: pe-
rence of cooperatve assocatons and other groups has shown that wthout such Govern-
ment support, the efforts of the farmers to band together to contro the amount of ther
product sent to market are neary aways brought to nothng. most aways, under such
crcumstances, there has been a noncooperatng mnorty, whch, refusng to go aong
wth the rest, has stayed on the outsde and tred to beneft from the sacrfces the ma|orty
has made. It s to keep ths noncooperatng mnorty n ne, or at east pre-
vent It from dong harm to the ma|orty, that the power of the Government has been
marshaed behnd the ad|ustment programs.
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430
We are referred to numerous types of edera appropraton whch hare
been made n the past, and t s asserted no queston has been rased as to ther
vadty. We need not stop to e amne or consder them. s was sad In
Massachusetts v. Meon, supra (page 487) :
as an e amnaton of the cts of Congress w dscose, a arge
number of statutes appropratng or nvovng the e pendture of moneys for
non- edera purposes have been enacted and carred nto effect.
s the opnon ponts out, such e pendtures have not been chaenged
because no remedy was open for testng ther consttutonaty n the courts.
We are not here concerned wth a condtona appropraton of money, nor
wth a provson that f certan condtons are not comped wth the appro-
praton sha no onger be avaabe. y the grcutura d|ustment ct
the amount of the ta s approprated to be e pended ony In payment under
contracts whereby the partes bnd themseves to reguaton by the edera
Government. There s an obvous dfference between a statute statng th
condtons upon whch moneys sha ba e pended and one effectve ony upon
assumpton of a contractua obgaton to submt to a reguaton whch other-
wse coud not be enforced. Many e ampes pontng the dstncton mght be
cted. We are referred to appropratons n ad of educaton, and t s sad
that no one has doubted the power of Congress to stpuate the sort of
educaton for whch money sha be e pended. ut an appropraton to an
educatona nsttuton whch by ts terms s to become avaabe ony f the
benefcary enters nto a contract to teach doctrnes subversve of the Const-
tuton s ceary bad. n affrmance of the authorty of Congress so to
condton the e pendture of an appropraton woud tend to nufy a const-
tutona mtatons upon egsatve power.
ut t s sad that there a a wde dfference n another respect, between
compusory reguaton of the oca affars of a State s ctzens and the mero
makng of a contract reatng to ther conduct that, f any State ob|ects.
It may decare the contract vod and thus prevent those under the State s
|ursdcton from compyng wth ts terms. The argument Is pany faacous.
The Unted States can make the contract ony f the edera power to ta :
and to approprate reaches the sub|ect matter of the contract. If ths does
reach the sub|ect matter, ts e erton can not be dspaced by State acton.
To say otherwse Is to deny the supremacy of the aws of the Unted States:
to make them subordnate to those of a State. Ths woud reverse the
cardna prncpe emboded n the Consttuton and substtute one whch
decares that Congress may ony effectvey egsate as to matters wthn
edera competence when the States do not dssent.
Congress has no power to enforce ts commands on the farmer to the ends
sought by the grcutura d|ustment ct. It must foow that t may not
ndrecty accompsh those ends by ta ng and spendng to purchase comp-
ance. The Consttuton and the entre pan of our Government negatve any
such use of the power to ta and to spend as the ct undertakes to authorze.
It does not hep to decare that oca condtons throughout the Naton have
created a stuaton of natona concern for ths s but to say that whenever
there s a wdespread smarty of oca condtons, Congress may gnore
consttutona mtatons upon Its own powers and usurp those reserved to
the States. If, n eu of compusory reguaton of sub|ects wthn the States
reserved |ursdcton, whch s prohbted, the Congress coud nvoke the ta -
ng and spendng power as a means to accompsh the same end, cause 1 of
secton 8 of rtce I woud become the nstrument for tota subverson of the
governmenta powers reserved to the ndvdua States.
If the ct before us s a proper e ercse of the edera ta ng power, ev-
denty the reguaton of a ndustry throughout the Unted States may be ac-
compshed by smar e ercses of the same power. It woud be possbe
to e act money from one branch of an Industry and pay t to another branch
n every fed of actvty whch es wthn the provnce of the States. The
mere threat of such a procedure mght we nduce the surrender of rghts and
the compance wth edera reguaton as the prce of contnuance n busness.
few Instances w ustrate the thought.
Let us suppose Congress shoud determne that the farmer, the mner or some
other producer of raw materas Is recevng too much for hs products, wth
consequent depresson of the processng ndustry and deness of ts empoyees.
Though, by confesson, there s no power vested n Congress to compe by stat-
ute a owerng of the prces of the raw matera the same resut mght
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431
Regs. 81, Chap. I .
be accompshed, f the questoned ct be vad, by ta ng the producer upon
bs output and appropratng the proceeds to the processors, ether wth or
wthout condtons mposed as the consderaton for payment of the subsdy.
We have hed In Sohechter Poutry Corporaton v. Unted States (295 D. S.,
485) that Congress has no power to reguate wages and hours of abor In a
oca busness. If the pettoner s rght ths very end may be accompshed
by appropratng money to be pad to empoyers from the edera Treasury
under contracts whereby they agree to compy wth certan standard s f ed
by edera aw or by contract
Shoud Congress ascertan that sugar refners are not recevng a far
proft, and that ths Is detrmenta to the entre ndustry, and In turn has Its
repercussons n trade and commerce generay, t mght, n anaogy to the
present aw, Impose an e cse of 2 cents a pound on every sae of the com-
modty and pass the funds coected to such refners, and such ony, as w
agree to mantan a certan prce.
ssume that too many shoes are beng manufactured throughout the Naton
that the market s saturated, the prce depressed, the factores runnng hnf-
tme, the empoyees sufferng. Upon the prncpe of the statute In queston
Congress mght authorze the Secretary of Commerce to enter nto contracts
wth shoe manufacturers provdng that each sha reduce hs output and that
the Unted States w pay hm a f ed sum proportoned to such reducton, the
money to make the payments to be rased by a ta on a reta shoe deaers or
ther customers.
Suppose that there are too many garment workers In the arge ctes that
ths resuts In dsocaton of the economc baance. Upon the prncpe con-
tended for an e cse mght be ad on the manufacture of a garments manu-
factured and the proceeds pad to those manufacturers who agree to remove
ther pants to ctes havng not more than a hundred thousand popuaton.
Thus, through the asserted power of ta aton, the edera Government, aganst
the w of Indvdua States, mght competey redstrbute the Industra
popuaton.
possbe resut of sustanng the camed edera power woud be that
every busness group whch thought Itsef underprveged mght demand that
a ta be ad on Its vendors or vendees the proceeds to be approprated to the
redress of Its defcency of ncome.
These ustratons are gven, not to suggest that any of the purposes men-
toned are unworthy, but to demonstrate the scope of the prncpe for whch
the Government contends to test the prncpe by ts appcaton to pont out
that, by the e ercse of the asserted power, Congress woud. In effect, under
the prete t of e ercsng the ta ng power, n reaty accompsh prohbted
ends. It can not be sad that they envsage Improbabe egsaton. The sup-
posed cases are no more mprobabe than woud the present ct have been
deemed a few years ago.
Unt recenty no suggeston of the e stence of any such power n the
edera Government has been advanced. The e pressons of the framers of
the Consttuton, the decsons of ths Court nterpretng that nstrument and
the wrtngs of great commentators w be searched n van for any suggeston
that there e sts n the cause under dscusson or esewhere n the Consttu-
ton, the authorty whereby every provson and every far mpcaton from
that nstrument may be subverted, the ndependence of the ndvdua States
obterated, and the Unted States converted nto a centra Government e er-
csng uncontroed poce power n every State of the Unon, supersedng a
oca contro or reguaton of the affars or concerns of the States.
amton hmsef, the eadng advocate of broad nterpretaton of the power
to ta and to approprate for the genera wefare, never suggested that any
power granted by the Consttuton coud be used for the destructon of oca
sef-government In the States. Story countenances no such doctrne. It seems
never to have occurred to them, or to those who have agreed wth them, that
the genera wefare of the Unted States (whch has apty been termed an
Indestructbe Unon, composed of ndestructbe States ) mght be served by
obteratng the consttuent members of the Unon. ut to ths fata concu-
son the doctrne contended for woud nevtaby ead. nd Its soe premse s
that, though the makers of the Consttuton, In erectng the edera Govern-
ment, ntended seduousy to mt and defne Its powers, so as to reserve to
the States and the peope soveregn power, to be weded by the States and
ther ctzens and not to be nvaded by the Unted States, they nevertheess by
a snge cause gave power to the Congress to tear down the barrers, to Invade
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432
the States ursdcton, and to become a parament of the whoe peope, sub-
|ect to no restrctons save such as are sef-mposed. The argument when seen
n ts true character and n the ght of Its nevtabe resuts must be re|ected.
Snce, as we have ponted out, there was no power n the Congress to
Impose the contested e acton, t coud not awfuy ratfy or confrm what
an e ecutve offcer had done In that regard. Consequenty the ct of 1933
does not affect the rghts of the partes.
The udgment s affrmed.
Unted States of merca, pettoner, v. Wam M. uter et a, Recever of
Ioosao Ms Corporaton.
On wrt of certorar to the Unted States Crcut Court of ppeas for the rst Crcut
anuary 0, 1036.
DISS NTING OrNION.
Mr. ustce Stone : I thnk the udgment shoud be reversed.
The present stress of wdey hed and strongy e pressed dfferences of
opnon of the wsdom of the grcutura d|ustment ct makes t Important,
n the nterest of cear thnkng and sound resut, to emphasze at the outset
certan propostons whch shoud have controng Infuence n determnng the
vadty of the ct. They are:
1. The power of courts to decare a statute unconsttutona s sub|ect to
two gudng prncpes of decson whch ought never to be absent from udca
conscousness. One Is that courts are concerned ony wth the power to enact
statutes, not wth ther wsdom. The other s that whe unconsttutona e er-
cse of power by the e ecutve and egsatve branches of the Government s
sub|ect to udca restrant, the ony check upon our own e ercse of power
s our own sense of sef-restrant. or the remova of unwse aws from the
statute books appea es not to the courts but to the baot and to the processes
of democratc government.
2. The consttutona power of Congress to evy an e cse ta upon the proc-
essng of agrcutura products s not questoned. The present evy s hed
nvad, not for any want of power n Congress to ay such a ta to defray
pubc e pendtures, ncudng those for the genera wefare, but because the
use to whch ts proceeds are put s dsapproved.
3. s the present depressed state of agrcuture s Naton-wde In ts e tent
and effects, there s no bass for sayng that the e pendture of pubc money
n ad of farmers s not wthn the specfcay granted power of Congress to
evy ta es to provde for the genera wefare. The opnon of the
Court does not decare otherwse.
4. No queston of a varabe ta f ed from tme to tme by fat of the Secre-
tary of grcuture, or of unauthorzed deegaton of egsatve power, s now
presented. The schedue of rates mposed by the Secretary n accordance wth
the orgna command of Congress has snce been specfcay adopted and con-
frmed by ct of Congress, whch has decared that t sha be the awfu ta .
( ct of ugust 24, 1935, Stat., .) That s the ta whch the Government
now seeks to coect ny defects there may have been n the manner of ayng
the ta by the Secretary have now been removed by the e ercse of the power
of Congress to pass a curatve statute vadatng an ntended, though defectve
ta . (Unted States v. entzcn Co., 206 D. S., 370 Graham oster v.
Goodce, 282 . S., 409 Ct D. 287. C. . -, 191 cf. Mken v. Unted
States, 283 U. S., 15 Ct. D. 320, C. . -, 472 .) The grcutura d|ustment
ct as thus amended decares that none of ts provsons sha fa because others
are pronounced nvad.
It s wth these premnary and hardy controverted matters n mnd that we
shoud drect our attenton to the pvot on whch the decson of the Court s
mode to turn. It s that a evy unquestonaby wthn the ta ng power of
Congress may be treated as nvad because t s a step n a pan to reguate
agrcutura producton and s thus a forbdden nfrngement of State power.
The evy Is not any the ess an e ercse of ta ng power because t s ntended
to defray an e pendture for the genera wefare rather than for some other
support of government. Nor s the evy and coecton of the ta ponted to
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433
Mso.
as effectng the reguaton. Whe a edera ta es nevtnby haye some In-
fnence on the Interna economy of the States, It Is not contended that the evy
of a processng ta upon manufacturers usng agrcutura products as raw
matera has any perceptbe reguatory effect upon ether ther producton or
manufacture. The ta s unke the penates whch were hed nvad n the
Chd Labor Ta case (250 U. S., 20), n v. Waace (259 U. S., 44), n
hnder v. Unted States (268 U. S., 5, 17), and n Unted States v. Constantne,
decded December 11, 1935 Ct D. 1053, C. . I -2, 403 , because they were
themseves the nstruments of reguaton by vrtue of ther coercve effect on
matters eft to the contro of the States. ere reguaton, f any there be, s
accompshed not by the ta but by the method by whch ts proceeds are
e pended, and woud equay be accompshed by any ke use of pubc funds,
regardess of ther source.
The method may be smpy stated. Out of the avaabe fund payments nre
made to such farmers as are wng to curta ther productve acreage, who n
fact do so and who n advance have fed ther wrtten undertakng to do so
wth the Secretary of grcuture. In sayng that ths method of spendng
pubc moneys s an nvason of the reserved powers of the States, the Court
does not assert that the e pendture of pubc funds to promote the genera
wefare Is not a substantve power specfcay deegated to the Natona Govern-
ment, as amton and Story pronounced t to be. It does not deny that the
e pendture of funds for the beneft of farmers and In ad of a program of
curtament of producton of agrcutura products, and thus of a supposedy
better ordered natona economy, s wthn the specfcay granted power. ut
It s decared that State power s nevertheess Infrnged by the e pendture of
the proceeds of the ta to compensate farmers for the curtament of ther
cotton acreage. though the farmer Is paced under no ega compuson to
reduce acreage, t Is sad that the mere offer of compensaton for so dong s a
speces of economc coercon whch operates wth the same ega force and effect
as though the curtament were made mandatory by ct of Congress. In any
event t s nssted that even though not coercve the e pendture of pubc
funds to nduce the recpents to curta producton s Itsef an Infrngement of
State power, snce the edera Government can not Invade the doman of the
States by the purchase of performance of acts whch t has no power to
compe.
Of the asserton that the payments to farmers are coercve, It s enough to
say that no such contenton s pressed by the ta payer, and no such conse-
quences were to be antcpated or appear to have resuted from the admns-
traton of the ct. The suggeston of coercon fnds no support In the record
or n any data showng the actua operaton of the ct Threat of oss, not
hope of gan, Is the essence of economc coercon. Members of a ong depressed
ndustry have undoubtedy been tempted to curta acreage by the hope of
resutng better prces and by the preferred opportunty to obtan needed ready
money. ut there s nothng to ndcate that those who accepted benefts were
mpeed by fear of ower prces f they dd not accept, or that at any stage In
the operaton of the pan a farmer coud say whether, apart from the certanty
of cash payments at specfed tmes, the advantage woud e wth curtament
of producton pus compensaton, rather than wth the same or Increased acreage
pus the e pected rse n prces whch actuay occurred. though the gr-
cutura d|ustment ct was put nto operaton n une, 1933, the offca
reports of the Department of grcuture show that 6,343,000 acres of produc-
tve cotton and, 14 per cent of the tota, dd not partcpate n the pan In
1934, and 2,790,000 acres, 6 per cent of the tota, dd not partcpate n 1935.
Of the tota number of farms growng cotton, estmated at 1,500,000, 33 per
cent In 1934 and 13 per cent n 1935 dd not partcpate.
It Is sgnfcant that n the congressona hearngs on the b that became
the ankhead ct (48 Stat., 598), as amended by ct of une 20, 1934 (48 Stat.,
1184), whch mposes a ta of 50 per cent on a cotton produced n e cess of
mts prescrbed by the Secretary of grcuture, there was abundant testmony
that the restrcton of cotton producton attempted by the grcutura d|ust-
ment ct coud not be secured wthout the coercve provsons of the ankhead
ct. (See hearng before Commttee on grcuture, Unted States Senate, on
S. 1974, Seventy-thrd Congress, second sesson hearng before Commttee on
grcuture, Unted States ouse of Representatves, on . R. 8402. Seventy-
thrd Congress, second sesson.) The Senate and ouse commttees so re-
ported (Senate Report No. 283, Seventy-thrd Congress, second sesson, page
3 ouse Report No. 867, Seventy-thrd Congress, second sesson, page 3.) The
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434
report of the Department of grcuture on the admnstraton of the grcu-
tura d|ustment ct ( ebruary 15, 1934, to December 81, 1934), page 50,
ponts out that the ankhead ct was passed n response to a strong sentment
n favor of mandatory producton contro that woud prevent noncooperatng
farmers from ncreasng ther own pantngs n order to captaze upon the
prce advances that had resuted from the reductons made by contract sgners. 1
The presumpton of consttutonaty of a statute s not to be overturned by an
usserton of ts coercve effect whch rests on nothng more substanta than
groundess specuaton.
It s upon the contenton that State power s nfrnged by purchased reguaton
of agrcutura producton that chef reance s paced. It s nssted that,
whe the Consttuton gves to Congress, n specfc and unambguous terms, the
power to ta and spend, the power s sub|ect to mtatons whch do not fnd
ther orgn n any e press provson of the Consttuton and to whch other
e pressy deegated powers are not sub|ect.
The Consttuton requres that pubc funds sha be spent for a defned
purpose, the promoton of the genera wefare. Ther e pendture usuay n-
voves payment on terms whch w nsure use by the seected recpents
wthn the mts of the consttutona purpose. pendtures woud fa of
ther purpose and thus ose ther consttutona sancton f the terms of pay-
ment were not such that by ther nfuence on the acton of the recpents the
permtted end woud be attaned. The power of Congress to spend s nsep-
arabe from persuason to acton over whch Congress has no egsatve contro.
Congress may not command that the scence of agrcuture be taught In State
unverstes. ut f t woud ad the teachng of that scence by grants to
State nsttutons, t s approprate, f not necessary, that the grant be on the
condton, ncorporated n the Morr ct (1- Stat., 503 26 Stat., 417), that
t be used for the ntended purpose. Smary t woud seem to be compance
wth the Consttuton, not voaton of t, for the Government to take and the
unversty to gve a contract that the grant woud be so used. It makes no
dfference that there s a promse to do an act whch the condton s cacuated
to nduce. Condton and promse are ake vad snce both are n furtherance
of the natona purpose for whch the money s approprated.
These effects upon ndvdua acton, whch are hut ncdents of the authorzed
e pendture of Government money, are pronounced to be themseves a mtaton
upon the granted power, and so the tme-honored prncpe of consttutona
nterpretaton that the granted power ncudes a those whch are Incdent to
t s reversed. Let the end be egtmate, sad the great Chef ustce, et
t bo wthn the scope of the Consttuton, and a means whch are approprate,
whch are pany adapted to that end, whch are not prohbted, but consst
wth the etter and sprt of the Consttuton, are consttutona. (McCuoch
v. Maryand, 4 Wheat., 316, 421.) Ths cardna gude to consttutona e pos-
ton must now be rephrased so far as the spendng power of the edera
Government s concerned. Let the e pendture be to promote the genera
wefare, st, f t s needfu n order to nsure ts use for the ntended purpose
to nfuence any acton whch Congress can not command because wthn the
sphere of State government, the e pendture s unconsttutona. nd ta es
otherwse awfuy eved are kewse unconsttutona f they are approprated
to the e pendture whose ncdent s condemned.
Congress through the Interstate Commerce Commsson has set asde ntra-
state raroad rates. It has made and destroyed ntrastate ndustres by rasng
or owerng tarffs. These resuts are sad to be permssbe because they are
ncdents of the commerce power and the power to evy dutes on mports.
(See Mnnesota Rate cases, 230 U. S., 352 Shreveport Rate cases, 234 U. S.,
342 oard of Trustees of the Unversty of Inos v. Unted States, 289 U. S.,
48.) The ony concuson to be drawn s that resuts become awfu when they
are ncdents of those powers but unawfu when ncdent to the smary
granted power to ta and spend.
Such a mtaton s contradctory and destructve of the power to approprate
for the pubc wefare, and s Incapabe of practca appcaton. The spendng
power of Congrqss Is n addton to the egsatve power and not subordnate
to t. Ths ndependent grant of the power of the purse, and ts very nature,
nvovng In ts e ercse the duty to nsure e pendture wthn the granted
power, presuppose freedom of seecton among dvers ends and ams, and the
1 Whether coercon was the soe or the domnant purpose of the ankhead ct, or
whether the ct was desgned uso for revenue or other egtmate ends, there s do
occason to consder now.
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435
Mao.
capacty to Impose such condtons as w render the choce effectve. It Is a
contradcton In terms to say that there s power to spend for the natona
wefare, whe re|ectng any power to Impose condtons reasonaby adapted to
the attanment of the end whch aone woud |ustfy the e pendture.
The mtaton now sanctoned must ead to absurd consequences. The
Government may gve seeds to fanners, but may not condton the gft upon
ther beng panted n paces where they are most needed or even panted at
a. The Government may gve money to the unempoyed, but may not ask that
those who get It sha gve abor n return, or even use t to support ther
fames, t may gve money to sufferers from earthquake, fre, tornado,
pestence or food, but may not mpose condtons heath precautons desgned
to prevent the spread of dsease, or nduce the movement of popuaton to safer
or more santary areas. that, because t Is purchased reguaton Infrngng
State powers, must be eft for the States, who are unabe or unwng to suppy
the necessary reef. The Government may spend ts money for vocatona
rehabtaton (48 Stat., 389), but t may not, wth the consent of a concerned,
supervse the process whch t undertakes to ad. It may spend ts money for
the suppresson of the bo weev, but may not compensate the farmers for
suspendng the growth of cotton n the nfected areas. It may ad State
reforestaton and forest re preventon agences (43 Stat., 653), but may not be
permtted to supervse ther conduct. It may support rura schoos (30 Stat.,
G29 45 Stat., 1151 48 Stat., 792), but may not condton Its grant by the
requrement that certan standards be mantaned. It may approprate moneys
to be e pended by the Reconstructon nance Corporaton to ad In fnancng
agrcuture, commerce and Industry, and to factate the e portaton of
agrcutura and other products. Do a ts actvtes coapse because, In order
to effect the permssbe purpose, In myrad ways the money s pad out upon
terms and condtons whch Infuence acton of the recpents wthn the States,
whch Congress can not command The answer woud seem pan. If the
e pendture s for a natona pubc purpose, that purpose w not be thwarted
because payment Is on condton whch w advance that purpose. The acton
whch Congress nduces by payments of money to promote the genera wefare,
but whch t does not command or coerce, s but an Incdent to a specfcay
granted power, but a permssbe means to a egtmate end. If appropraton
In ad of a program of curtament of agrcutura producton s consttutona,
and t s not dened that t s, payment to farmers on condton that they reduce
ther crop acreage Is consttutona. It s not any the ess so because the
fanner at hs own opton promses to fuf the condton.
That the governmenta power of the purse s a great one s not now for
the frst tme announced. very student of the hstory of government and
economcs s aware of ts magntude and of Its e stence n every cvzed gov-
ernment. oth were we understood by the framers of the Consttuton when
they sanctoned the grant of the spendng power to the edera Government,
and both were recognzed by amton and Story, whose vews of the spendng
power as standng on a party wth the other powers specfcay granted, have
htherto been generay accepted.
The suggeston that t must now be curtaed by |udca fat because It
may be abused by unwse use hardy rses to the dgnty of argument. So
may |udca power be abused. The power to ta s the power to destroy,
but we do not, for that reason, doubt ts e stence, or hod that Its effcacy
Is to be restrcted by ts ncdenta or coatera effects upon the States. (See
caze ank v. enno, 8 Wa., 533 McCray v. Unted States, 195 U. S., 27
compare agnano Co. v. amton, 292 U. S., 40.) The power to ta and
spend Is not wthout consttutona restrants. One restrcton s that the pur-
pose must be truy natona. nother s that t may not be used to coerce
acton eft to State contro. nother Is the conscence and patrotsm of Con-
gress and the ecutve. It must be remembered that egsators are the
utmate guardans of the bertes and wefare of the peope n qute as great
a degree as the courts. ( ustce omes, n Mssour, ansas d Te as R. R.
Go. v. May, 194 U. S., 267, 270.)
tortured constructon of the Consttuton Is not to be |ustfed by recourse
to e treme e ampes of reckess congressona spendng whch mght occur
f courts coud not prevent e pendtures whch, even If they coud be thought
to effect any natona purpose, woud be possbe ony by acton of a Legsa-
ture ost to a sense of pubc responsbty. Such suppostons are addressed
to the mnd accustomed to beeve that t s the busness of courts to st In
|udgment on the wsdom of egsatve acton. Courts are not the ony agency
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Regs. 81, rt. 4.
of government that must be assumed to have capacty to govern. Congress
and the courts both unhappy may fater or be mstaken In the performance
of ther consttutona duty. ut Interpretaton of our great charter of gov-
ernment whch proceeds on any assumpton that the responsbty for the
preservaton of our nsttutons s the e cusve concern of any one of the
three branches of government, or that t aone can save them from destructon
Is far more key, In the ong run, to obterate the consttuent members
of an Indestructbe unon of Indestructbe States than the frank recogn-
ton that anguage, even of a Consttuton, may mean what It says: that the
power to ta and spend ncudes the power to reeve a Naton-wde economc
maad|ustment by condtona gfts of money.
Mr. ustce randes and Mr. ustce Cabdozo on In ths opnon.
S CTION 9. PROC SSING T .
Reguatons 81, rtce 4: Nature of the ta . -7-7956
Ct. D. 1080
PROC SSING T GRICULTUR L D USTM NT CT D CISION O SUPR M
COURT.
1. mendment or ct Consttutonaty.
The changes made by the ct of ugust 24, 1935, amendng the
grcutura d|ustment ct, 1933, do not cure the nfrmtes of
the orgna ct. The e acton st acks the quaty of a true ta ,
and remans a means for effectuatng the reguaton of agrcu-
tura producton, a matter not wthn the powers of Congress.
2. Coecton by Dstrant In|uncton.
Upon the ssue of the rght of the pettoner to an n|uncton to
restran coecton of processng ta es on rce mposed by the gr-
cutura d|ustment ct, as amended, It was hed, n vew of the
decson In Unted States v. uter et a. (Ct. D. 1070, page 421, ths
uetn), decded anuary 6, 1936, that the pettoner can not be
requred to pay any outstandng ta that f the coector shoud
now attempt to coect the ta by dstrant he woud be a tres-
passer and that a decree shoud be entered en|onng coecton.
In so hodng the Court dd not pass upon the adequacy of the
reef afforded by secton 21(d) of the grcutura d|ustment
ct, as amended.
Supreme Court or the Unted States.
No. 577. Rckert Rce Ms, Inc., pettoner, v. Rufus W. ontenot, Indvduay
and at ctng Unted States Coector of Interna Revenue for the Dstrct of
Lousana.
On wrt of certorar to the Unted States Crcut Court of ppeas for the fth Crcut.
anuary 13, 1936.
OPINION.
Mr. ustce Roberts devered the opnon of the Court
Ths Is one of eght companon cases.1 They were consodated for hearng
by the dstrct court. It w be suffcent brefy to state the facts In No. 577:
The pettoner, a processor of rce, fed Its b n the Dstrct Court for
astern Lousana, to restran the respondent from assessng or coectng ta es
eved for the month of September, 1935, and subsequent months, pursuant to
the grcutura d|ustment ct, 1933, as amended by the ct of ugust 24,
The others are: 578, Dore v. ontenot 579, Unted Rce Mng Product Co., /no.,
v. ontenot: 580, aton Rouge Rce M, Ino., v. ontenot 581, Smon v. ontenot: 585,
Levy Rce Mng Co., Inc., v. ontenot 586, armers ce Mng Co., Inc., v. ontenot
and .187. Nobe-Trotter Rce Mng Co., Inc., v. ontenot.
Ch. 25, 48 Stat., 31.
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Regs. 81, rt. 4.
1935. The b charges the e acton Is unconsttutona and aeges the respond-
ent threatens coecton by dstrant, whch w cause rreparabe n|ury, as
the pettoner has no adequate remedy at aw to recover what may be coected.
premnary n|uncton was sought The respondent fed a moton to dsmss,
ctng Revsed Statutes 8224 and secton 21(a) of the amended grcutura
d|ustment ct as prohbtng restrant of coecton, and aso assertng that
the pettoner had a pan, adequate, and compete remedy at aw. The court
refused an nterocutory In|uncton and entered a decree dsmssng the b.
ppea was perfected to the crcut court of appeas. The dstrct |udge re-
fased to grant an In|uncton pendng the appea. ppcaton to the crcut
court of appeas for such an n|uncton was dened upon the vew that the
pettoner had an adequate remedy at aw and the statute deprved the court
of ursdcton to restran coecton.
In prayng a wrt of certorar the pettoner asserted that by reason of
the provsons of secton 21(d) t woud be Impossbe to recover ta es coected,
even though the ct were unconsttutona, snce the secton forbds recovery
e cept upon a showng of facts not susceptbe of proof. Ths Court granted
the wrt and restraned coecton of the ta upon condton that the pettoner
shoud pay the amount of the accrung ta es to a depostary, to the |ont
credt of pettoner and respondent, such funds to be wthdrawn ony upon the
farther order of the Court. The muse was advanced for hearng and has been
fuy argued on the questons of the consttutonaty of the e acton and the
Inadequacy of the remedy for recovery of ta es pad.
The changes made by the amendatory ct of ugust 24, 1935, do not cure
the nfrmtes of the orgna ct whch were the bass of decson n Unted
States v. uter ( anuary 6, 1936 Ct. D. 1070, page 421, ths uetn ). The
e acton st acks the quaty of a true ta . It remans a means for effectuat-
ng the reguaton of agrcutura producton, a matter not wthn the powers of
Congress.
We have no occason to dscuss or decde whether secton 21(d) affords an
adequate remedy at aw. s yet the pettoner has not p d the ta es to
the respondent, and, n vew of the decson n the uter ca c, hereafter can
not be requred so to do. If the respondent shoud now attempt to coect the
ta by dstrant he woud be a trespasser. The decree of the dstrct court
w be vacated, an approprate order entered drectng the repayment to the
pettoner of the funds Impounded pendente te, and the cause remanded to the
dstrct court for the entry of a decree en|onng coecton of the assaed
e acton. smar dsposton w be made of the companon cases.
So ordered.
Pubc, No. 320, Seventy-fourth Congress, frst sesson.
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438
ITUMINOUS CO L CONS R TION CT, 1935 (PU LIC,
NO. 402, S NTY- OURT CONGR SS).
-23-8117
Ct. D. 1128
CIS T ITUMINOUS CO L CONS R TION CT D CISION O SUP M
COU T.
1. In|unctons ganst nfoscement of ct Stockhoders
Suts ursdcton of Court of quty.
Suts brought by coa companes aganst offcas of the edera
Government, to en|on the enforcement of the tumnous Coa
Conservaton ct of 1935, and suts by stockhoders aganst such
companes and ther offcers, to enforce compance wth ther
demands, are mantanabe In a court of equty, and are not pre-
mature where brought to prevent an In|ury whch Is certany
mpendng.
2. Consttutonaty.
The tumnous Coa Conservaton ct of 1935, the decared pur-
poses of whch are to stabze the btumnous coa-mnng ndustry
and promote ts nterstate commerce, to provde for cooperatve
marketng of such coa, to evy an e cse ta thereon, to decare
the producton, dstrbuton, and use of such coa to be affected
wth a natona pubc nterest, to conserve the natona coa re-
sources, to provde for the genera wefare, and for other pur-
poses, s unconsttutona. The so-caed e cse ta s not a ta
but a penaty the genera purposes whch the ct rectes are
beyond the power of Congress the abor provsons of the ct do
not come wthn the power of Congress as a reguaton of nter-
state commerce the deegaton of power to f hours of abor Is
arbtrary and voates the due process cause of the ffth amend-
ment and the prce-f ng provsons are Inseparabe from the
unconsttutona abor-reguatng provsons.
Supreme Court of the Unted States.
636. ames Water Carter, pettoner, v. Carter Coa Co., George L. Carter, at
ce Presdent and a Drector of sad Company, et a.
651. Guy T. everng et a., pettoners, v. ames Water Carter et a.
On wrts of certorar to the Unted States Court of ppeas for the Dstrct of Coumba.
649. R. C. Tcay Coa Co., entucky Cardna Coa Corporaton, aran-Wans
Coa Corporaton, et a., pettoners, v. Seden R. Genn, Indvduay and a
Coector of Interna Revenue for the Dstrct of entucky.
650. R. C. Tcay Coa Co., R. 0. Tway, Presdent and Drectors of R. C. Tcay
Coa Co., et a., pettoners, v. C. II. Cark.
On wrts of certorar to the Unted States Crcut Court of ppeas for the S th Crcut.
May 18, 1936.
opnon.
Mr. ustce Sutherand devered the opnon of the Court.
The purposes of the tumnous Coa Conservaton ct of 1935, nvoved
In these suts, as decared by the tte, arc to stabze the btumnous coa-
mnng Industry and promote ts nterstate commerce to provde for coopera-
tve marketng of btumnous coa to evy a ta on such coa and provde for
a drawback under certan condtons to decare the producton, dstrbuton,
nnd use of such coa to be affected wth a natona pubc nterest to conserve
the natona resources of such coa to provde for the genera wefare, and
for other purposes. (Ch. 824, 49 Stat., 991.) The consttutona vadty of the
act s chaenged n each of the suts.
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Nob. 636 and 651 are cross-wrts of certorar In a stockhoder s sut, brought
In the Supreme Court of the Dstrct of Coumba by Carter aganst the Carter
Coa Co. and some of ts offcers, Guy T. everng (Commssoner of Interna
Revenue of the Unted States), and certan other offcers of the Unted States,
to en|on the coa company and ts offcers named from fng an acceptance of
the code provded for In sad ct, from payng any ta Imposed upon the coa
company under the authorty of the ct, and from compyng wth ts provsons
or the provsons of the code. The b sought to en|on the Commssoner of
Interna Revenue and the other edera offcas named from proceedug under
the ct In partcuars specfed, the detas of whch t s unnecessary to state.
No. 648 s a sut brought n a edera dstrct court n entucky by pet-
toners aganst respondent coector of Interna revenue for the dstrct of
entucky, to en|on hm from coectng or attemptng to coect the ta es
sought to be Imposed upon them by the ct, on the ground of ts unconsttu-
tonaty.
No. 650 s a stockhoder s sut bronght n the same court aganst the coa
company and some of ts offcers, to secure a mandatory n|uncton aganst
ther refusa to accept and operate under the provsons of the btumnous
coa code prepared In pursuance of the ct.
y the terms of the ct, every producer of btumnous coa wthn the
Unted States Is brought wthn ts provsons.
Secton 1 s a detaed asserton of crcumstances thought to |ustfy the ct
It decares that the mnng and dstrbuton of btumnous coa throughout
the Unted States by the producer are affected wth a natona pubc nterest
and that the servce of such coa In reaton to ndustra actvtes, transpor-
taton factes, heath and comfort of the peope, conservaton by controed
producton and economca mnng and marketng, mantenance of |ust and
ratona reatons between the pubc, owners, producers and empoyees, the
rght of the pubc to constant and adequate suppes of coa at reasonabe
prces, and the genera wefare of the Naton, requre that the btumnous coa
ndustry shoud be reguated as the ct provdes.
Secton 1, among other thngs, further decares that the producton and ds-
trbuton by producers of such coa bear upon and drecty affect Interstate
commerce, and render reguaton of producton and dstrbuton mperatve
for the protecton of such commerce that certan features connected wth the
producton, dstrbuton, and marketng have ed to waste of the natona coa
resources, dsorganzaton of nterstate commerce n such coa, and burdenng
and obstructng nterstate commerce theren that practces prevang n the
producton of such coa drecty affect nterstate commerce and requre regua-
ton for the protecton of that commerce and that the rght of mne workers
to organze and coectvey bargan for wages, hours of abor, and condtons
of empoyment shoud be guaranteed n order to prevent constant wage cuttng
and dsparate abor costs detrmenta to far Interstate competton, and n
order to avod obstructons to nterstate commerce that recur n ndustra
dsputes over abor reatons at the mnes. These decaratons consttute not
enactments of aw, but egsatve averments by way of nducement to the
enactment whch foows.
The substantve egsaton begns wth secton 2, whch estabshes In the
Department of the Interor a Natona tumnous Coa Commsson, to be ap-
ponted and consttuted as the secton then specfcay provdes. Upon ths
commsson Is conferred the power to hear evdence and fnd facts upon whch
ts orders and actons may be predcated.
Secton 8 provdes:
There s hereby mposed upon the sae or other dsposa of a btumnous
coa produced wthn the Unted States an e cse ta of 15 per centum on
the sae prce at the mne, or In the case of captve coa the far market
vaue of such coa at the mne, such ta , sub|ect to the ater provsons of
ths secton, to be payabe to the Unted States by the producers of such coa,
and to be payabe monthy for each caendar month, on or before the frst
busness day of the second succeedng month, and under such reguatons, and
In such manner, as sha be prescrbed by the Commssoner of Interna
Revenue: Provded, That In the case of captve coa produced as aforesad,
the Commssoner of Interna Revenue sha f a prce therefor at the current
market prce for the comparabe knd, quaty, and sze of coas In the ocaty
where the same Is produced: Provded further, That any such coa producer
who has fed wth the Natona tumnous Coa Commsson hs acceptance
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440
of the code provded for In secton 4 of ths ct, and who acts n compance
wth the provsons of such code, sha be entted to a drawback In the form
of a credt upon the amount of such ta payabe hereunder, equvaent to
90 per centum of the amount of such ta , to be aowed and deducted there-
from at the tme settement therefor s requred, In such manner as sha be
prescrbed by the Commssoner of Interna Revenue. Such rght or beneft
of drawback sha appy to a coa sod or dsposed of from and after the
day of the producer s fng wth the commsson hs acceptance of sad code n
such form of agreement as the commsson may prescrbe. No producer sha
by reason of hs acceptance of the code provded for n secton 4 or of the
drawback of ta es provded n secton 3 of ths ct be hed to be precuded
or estopped from contestng the consttutonaty of any provson of sad code,
or ts vadty as appcabe to such producer.
Secton 4 provdes that the commsson sha formuate the eaborate pro-
vsons contaned theren Into a workng agreement to be known as the tum-
nous Coa Code. These provsons requre the organzaton of 23 coa ds-
trcts, each wth a dstrct board the membershp of whch s to be determned
n a manner ponted out by the ct. Mnmum prces for coa are to be estab-
shed by each of these boards, whch s authorzed to make such cassfcaton
of coas and prce varaton as to mnes and consumng market areas as t
may deem proper. In order to sustan the stabzaton of wages, workng
condtons, and ma mum hours of abor, sad prces sha be estabshed so
as to yed a return per net ton for each dstrct n a mnmum prce area,
as such dstrcts are dentfed and such area s defned n the sub|oned
tabe desgnated Mnmum-prce area tabe, equa as neary as may be to
the weghted average of the tota costs, per net ton, determned as heren-
after provded, of the tonnage of such mnmum prce area. The computa-
ton of the tota costs sha ncude the cost of abor, suppes, power, ta es,
nsurance, workmen s compensaton, royates, deprecaton, and depeton (as
determned by the ureau of Interna Revenue In the computaton of the
edera Income ta ) and a other drect e penses of producton, coa operators
assocaton dues, dstrct board assessments for board operatng e penses ony
eved under the code, and reasonabe costs of seng and the cost of admnstra-
ton. The dstrct board must determne and ad|ust the tota cost of the
ascertanabe tonnage produced n the dstrct so as to gve effect to any
changes In wage rates, hours of empoyment, or other factors substantay
affectng costs, whch may have been estabshed snce anuary 1, 1934.
Wthout repeatng the ong and Invoved provsons wth regard to the f -
ng of mnmum prces. It s enough to say that the ct confers the power
to f the mnmum prce of coa at each and every coa mne n the Unted
States, wth such prce varatons as the board may deem necessary and
proper. There s aso a provson authorzng the commsson, when deemed
necessary In the pubc Interest, to estabsh ma mum prces n order to pro-
tect the consumer aganst unreasonaby hg prces.
saes and contracts for the sae of coa are sub|ect to the code prces
provded for and n effect when such saes and contracts are made. arous
unfar methods of competton are defned and forbdden.
The abor provsons of the code, found n Part III of the same secton, re-
qure that n order to effectuate the purposes of the ct the dstrct boards
and code members sha accept specfed condtons contaned n the code,
among whch are the foowng:
mpoyees to be gven the rght to organze and bargan coectvey, through
representatves of ther own choosng, free from Interference, restrant, or co-
ercon of empoyers or ther agents n respect of ther concerted actvtes.
Such empoyees to have the rght of peaceabe assembage for the dscus-
son of the prncpes of coectve barganng and to seect ther own check-
weghman to Inspect the weghng or measurng of coa.
Labor oard s created, consstng of three members, to be apponted by
the Presdent and assgned to the Department of Labor. Upon ths board s
conferred authorty to ad|udcate dsputes arsng under the provsons ust
stated, and to determne whether or not an organzaton of empoyees had been
promoted, or Is controed or domnated by an empoyer In Its organzaton,
management, pocy, or eecton of representatves. The board may order
a code member to meet the representatves of ts empoyees for the purpose
of coectve barganng.
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441
Subdvson (g) of Part III provdes:
Whenever the ma mum day and weeky hours of abor are agreed upon
In any contract or contracts negotated between the producers of more than
two-thrds of the annua natona tonnage producton for the precedng caendar
year and the representatves of more than one-haf of the mne workers em-
poyed, such ma mum hours of abor sha be accepted by a the code nem-
Ders. The wage agreement or agreements negotated by coectve barganng
n any dstrct or group of two or more dstrcts, between representatves of
producers of more than two-thrds of the annua tonnage producton of such
dstrct or each of such dstrcts n a contractng group durng the precedng
caendar year, and representatves of the ma|orty of the mne workers theren,
sha be fed wth the Labor oard and sha be accepted as the mnmum
wages for the varous cassfcatons of abor by the code members operatng
n such dstrct or group of dstrcts.
The b of compant n Nos. 636 and 651 was fed n the Supreme Court
of the Dstrct of Coumba on ugust 81, 1935, the day after the Coa Con-
servaton ct came nto effect. That court among other thngs, found that
the sut was brought n good fath that If Carter Coa Co. shoud |on the
code t woud be compeed to cance e stng contracts and pay ts propor-
tonate share of admnsterng the code that the producton of btumnous
coa s a oca actvty carred on wthn State borders that coa s the Na-
ton s greatest and prmary source of energy, vta to the pubc wefare, of
the utmost Importance to the Industra and economc fe of the Naton and
the heath and comfort of ts nhabtants and that ts dstrbuton n Inter-
state commerce shoud be reguar, contnuous, and free of nterruptons, ob-
structons, burdens, and restrants.
Other fndngs are to the effect that such coa s generay sod f. o. b. mne,
and the predomnant porton of It shpped outsde the State n whch t s
produced that the dstrbuton and marketng s predomnanty nterstate n
character, and that the ntrastate dstrbuton and sae are so connected that
nterstate reguaton can not be accompshed effectvey uness transactons of
Intrastate dstrbuton and sae be reguated.
The court further found the e stence of a condton of unrestraned and
destructve competton n the system of dstrbuton and marketng such
coa, and of destructve prce-cuttng, burdenng and restranng Interstate
commerce and dsocatng and dvertng ts norma fow.
The court concuded as a matter of aw that the brngng of the sut was
not premature that the pantff was wthout ega remedy, and rghty
Invoked reef n equty that the abor provsons of the ct and code were
unconsttutona for reasons stated, but the prce-f ng provsons were vad
and consttutona that the abor provsons ore separabe and, snce the
provsons wth respect to prce-f ng and unfar competton are vad, the
ta ng provsons of the ct coud stand. Therefore, e cept for grantng a
permanent n|uncton aganst coecton of the ta es accrued durng the
sut ( parte Young, 209 U. 8., 123, 147-148), the court dened the reef
sought, and dsmssed the b.
ppeas were taken to the Unted States Court of ppeas for the Dstrct
of Conmba by the partes but pendng hearng and submsson In that
court, pettons for wrts of certorar were presented askng us to revew the
decree of the Supreme Court of the Dstrct wthout awatng such hearng and
submsson. ecause of the mportance of the queston and the advantage of
a speedy fna determnaton thereof, the wrts were granted. ( U. S., .)
The remanng two suts (Nos. 649 and 650), nvovng the same questons,
were brought n the edera Dstrct Court for the Western Dstrct of en-
tucky. That court hed the ct vad and consttutona n ts entrety and
entered a decree accordngy. (12 . Supp., 570.) ppeas were taken to the
Crcut Court of ppeas for the S th Crcut but, as In the Carter case and
for the same reasons, ths Court granted wrts of certorar In advance of
hearng and submsson. ( U. S., .)
The questons nvoved w be consdered under the foowng heads:
1. The rght of stockhoders to mantan suts of ths character.
2. Whether the suts were prematurey brought
8. Whether the e acton of 15 per centum on the sae prce of coa at the
mne s a ta or a penaty.
84826 86 10
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442
4. The purposes of the ct as set forth n secton 1, and the authorty vested
In Congress by the Consttuton to effectuate them.
5. Whether the ubor provsons of the ct can be uphed as an e ercse
of the power to reguate nterstate commerce.
8. Whether subdvson (g) of Part III of the code, s an unawfu deegaton
of power.
7. The consttutonaty of the prce-f ng provsons, and the queston of
severabty that s to say, whether, If ether the group of abor provsons or
the group of prce-f ng provsons be found consttutonay Invad, the other
can stand as separabe.
rst. In the Carter case (Nos. 636 and 651) the stockhoder who brought
the sut had formay demanded of the board of drectors that the company
shoud not |on the code, shoud refuse to pay the tu f ed by the ct, and
shoud brng approprate |udca proceedngs to prevent an unconsttutona
and Improper dverson of the assets of the company and to have determned
the nbty of the company under the ct. The board consdered the demand,
determned that, whe t beeved the ct to he unconsttutona and eco-
nomcay unsound and that t woud adversey affect the busness of the com-
pany f accepted, nevertheess It shoud accept the code provded for by the
ct because the penaty In the form of a 15 per cent ta on ts gross saes
woud be serousy n|urous and mght resut n bankruptcy. Ths acton
of the board was approved by a ma|orty of the sharehoders at a speca
meetng caed for the purpose of consderng It.
In the Tway company cases, the company tsef brought sut to en|on the
enforcement of the ct (No. 649) and a stockhoder brought sut to compe
the company to accept the code and operate under ts provsons (No. 050).
Wthout reatng the ong averments of the severa bs, we are of opnon
that the suts were propery brought and were mantanabe n a court of
equty. The rght of stockhoders to brng such suts under the crcumstances
dscosed Is setted by the recent decson of ths Court n shwander et a. v.
Tennessee aey uthorty ( U. S., ) ( ebruary 17, 1936), and requres no
further dscusson.
Second. That the suts were not prematurey brought aso Is cear. Sec-
ton 2 of the ct s mandatory n ts requrement that the commsson be ap-
ponted by the Presdent. The provsons of secton 4 that the code be formu-
ated and promugated are equay mandatory. The so-caed ta of 15 per
cent Is defntey mposed, and Its e acton certan to ensue.
In Pennsyvana v. West rgna (262 U. 8., 553, 592-595) suts were brought
by Pennsyvana and Oho aganst West rgna to en|on the defendant State
from enforcng an act of her egsature upon the ground that t wtfud In-
|urousy affect or cut off the suppy of natura gas produced In her terrtory
and carred by ppe nes Into the terrtory of the pantff States and there
sod and used. These suts were brought a few days after the West rgna
act became effectve. No order had yet been made under It by the pubc
servce commsson, nor had It been tested n actua practce. ut It appeared
that the act was certan to operate aa the companant States apprehended
It woud. Ths Court hed that the sut was not premature. One does not
have to awat the consummaton of threatened In|ury to obtan preventve
reef. If the n|ury s certany Impendng that s enough.
Perce v. Socety of Ssters (268 U. S., 510, 535-536) Invoved the consttu-
tona vadty of the Oregon compusory educnton act, whch requred every
parent or other person havng contro of a chd between the ages of 8 and 16
years to send hm to the pubc schoo of the dstrct where he resdes. Sut
was brought to en|on the operaton of the act by corporatons ownng and con-
ductng prvate schoos, on the ground that ther busness and property was
threatened wth destructon through the unconsttutona compuson e ercsed
by the act upon parents and guardans. The suts were hed to be not prema-
ture, athough the effectve date of the act had not yet arrved. We sad
The n|ury to appeees was present and very rea, not a mere possbty n
the remote future. If no reef had been possbe pror to the effectve date of the
net, the In|nry woud have become rreparabe. Preventon of mpendng n|ury
by unawfu acton Is a we recognzed functon of courts of equty.
(See, aso, Terrace v. Thompson, 263 T . S., 197, 215-216 Scft f Co. v. Unted
States, 270 U. S., 311, 326 ucd v. mber Co., 272 U. S., 365, 386 Cty ank
Co. v. Schnader, 291 U. S., 24, 34.)
Thrd. The so-caed e cse ta of 15 per centum on the sae prce of coa at
the mne, or, n the case of captve coa the far market vaue, wth ts drawback
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443
Mso.
aowance of 13 per cent, Is ceary not a ta but a penaty. The e acton
appes to a btumnous coa produced, whether t be sod, transported or
consumed n nterstate commerce, or transactons n respect of t be confned
whoy to the mts of the State. It aso appes to captve coa that s to
say, coa produced for the soe use of the producer.
It s very cear that the e cse ta s not mposed for revenue but e acted
as a penaty to compe compance wth the reguatory provsons of the ct
The whoe purpose of the e acton s to coerce what s caed an agreement
whch, of course, t s not, for t acks the essenta eement of consent. One who
does a thng In order to avod a monetary penaty does not agree he yeds to
compuson precsey the same as though he dd so to avod a term n a.
The e acton here s a penaty and not a ta wthn the test ad down by ths
Court n numerous cases. (Chd Labor Ta cage, 259 U. S., 20, 37-39 Unted
States v. La ranca, 282 T . S., 568, 572 Unted States v. Constantno, 296 U. S.,
287, 293 et seq. Unted States v. uter, 297 U. S., 1, 70.) Whe the awmaker
s entrey free to gnore the ordnary meanngs of words and make defntons
of hs own ( arnuth v. Unted States, Zt9 U. S., 231, 242 Tyer v. Unted
States, 281 U. S., 497, 502 Ct. D. 190, C. . I -1, 383 ), that devce may not be
empoyed so as to change the nature of the acts or thngs to whch the words
are apped. ut t s not necessary to pursue the matter further. That the
ta s n fact a penaty s not serousy n dspute. The poston of the
Government, as we understand t, s that the vadty of the e acton does not
rest upon the ta ng power but upon the power of Congress to reguate Inter-
state commerce and that f the ct n respect of the abor and prce-f ng
provsons be not uphed, the ta must fa wth them. Wth that poston
we agree and confne our consderaton accordngy.
ourth. Certan rectas contaned n the ct pany suggest that ts makers
were of opnon that ts consttutonaty coud be sustaned under some genera
edera power, thought to e st, apart from the specfc grants of the Con-
sttuton. The faacy of that vew w be apparent when we reca funda-
menta prncpes whch, athough htherto often e pressed n varyng forms
of words, w bear repetton whenever ther accuracy seems to be chaenged.
The rectas to whch we refer are contaned n secton 1 (whch Is smpy
a preambe to the ct), and, among others, are to the effect that the ds-
trbuton of btumnous coa s of natona nterest, affectng the heath and
comfort of the peope and the genera wefare of the Naton that ths cr-
cumstance, together wth the necessty of mantanng ust and ratona rea-
tons between the pubc, owners, producers, and empoyees, and the rght
of the pubc to constant and adequate suppes at reasonabe prces, requre
reguaton of the ndustry as the ct provdes. Th se affrmatons and the
further ones that the producton and dstrbuton of such coa drecty
affect nterstate commerce, because of whch and of the waste of the natona
coa resources and other crcumstances, the reguaton s necessary for the
protecton of such commerce do not consttute an e erton of the tc of
Congress whch s egsaton, but a recta of consderatons whch n the
opnon of that body e sted and ustfed the e presson of Its w n the
present ct Nevertheess, ths preambe may not be dsregarded. On the
contrary t s Important, because t makes cear, e cept for the pure assump-
ton that the condtons descrbed drecty affect nterstate commerce,
that the powers whch Congress undertook to e ercse are not specfc but of
the most genera character namey, to protect the genera pubc Interest and
the heath and comfort of the peope, to conserve prvatey-owned coa, man-
tan |ust reatons between producers and empoyees and others, and promote
the genera wefare, by controng naton-wde producton and dstrbuton of
coa. These, t may be conceded, are ob|ects of great worth but are they
ends, the attanment of whch has been commtted by the Consttuton to the
edera Government Ths s a vta queston for nothng s more certan
than that benefcent ams, however great or we drected, can never serve
n eu of consttutona power.
The rung and frmy estabshed prncpe s that the powers whch the
Genera Government may e ercse are ony those specfcay enumerated n
the Consttuton, and such mped powers as are necessary and proper to
carry nto effect the enumerated powers. Whether the end sought to be
attaned by an ct of Congress s egtmate s whoy a matter of consttu-
tona power and not at a of egsatve dscreton. Legsatve congressona
dscreton begns wth the choce of means and ends wth the adopton of
methods and detas to carry the deegated powers Into effect The dstnc-
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444
ton between these two thngs power and dscreton s not ony very pan
but very mportant. or whe the powers are rgdy mted to the enumera-
tons of the Consttuton, the means whch may be empoyed to carry the
powers nto effect are not restrcted, save that they must be approprate,
pany adapted to the end, and not prohbted by, but consstent wth, the
etter and sprt of the Consttuton. (McCuoeh v. Maryand, 4 Wheat, 818,
421.) Thus, t may be sad that to a consttutona end many ways are open|
but to an end not wthn the terms of the Consttuton, a ways are cosed.
The proposton, often advanced and as often dscredted, that the power of
the edera Government nherenty e tends to purposes affectng the Naton
as a whoe wth whch the States severay can not dea or can not adequatey
dea, and the reated noton that Congress, entrey apart from those powers
deegated by the Consttuton, may enact aws to promote the genera wefare,
have never been accepted but aways defntey re|ected by ths Court Mr.
ustce Story, as eary as 1816, ad down the cardna rue, whch has ever
snce been foowed that the Genera Government can cam no powers whch
are not granted to t by the Consttuton, and the powers actuay granted,
must be such as are e pressy gven, or gven by necessary Impcaton.
(Martn v. unter s Lessee, 1 Wheat, 804, 826.) In the ramers Conventon,
the proposa to confer a genera power akn to that |ust dscussed was ncuded
In Mr. Randoph s resoutons, the s th of whch, among other thngs, decared
that the Natona Legsature ought to en|oy the egsatve rghts vested n
Congress by the Confederaton, and moreover to egsate n a cases to
whch the separate States are Incompetent, or n whch the harmony of the
Unted States may be Interrupted by the e ercse of ndvdua egsaton.
The conventon, however, decned to confer upon Congress wer n such
genera terms nstead of whch t carefuy mted the powers whch It
thought wse to entrust to Congress by specfyng them, thereby denyng a
others not granted e pressy or by necessary mpcaton. It made no grant
of authorty to Congress to egsate substantvey for the genera wefare
(Unted States v. uter, supra, page 64) and no such authorty e sts, save as
the genera wefare may be promoted by the e ercse of the powers whch
are granted. (Compare acobsen v. Massachusetts, 197 U. S., 11, 22.)
There are many sub|ects n respect of whch the severa States have not
egsated In harmony wth one another, and In whch ther varyng aws and
the faure of some of them to act at a have resuted n n|urous confuson
and embarrassment. (See ddyston Ppe d Stee Co. v. Unted States, 175
U. S., 211, 232-233.) The State aws wth respect to marrage and dvorce
present a case n pont and the great necessty of natona egsaton on that
sub|ect has been from tme to tme vgorousy urged. Other pertnent e ampes
are aws wth respect to negotabe nstruments, deserton and uonsupport,
certan phases of State ta aton, and others whch we do not pause to menton.
In many of these feds of egsaton, the necessty of brngng the appcabe
rues of aw nto genera harmonous reaton has been so great that a Com-
msson on Unform State Laws, composed of commssoners from every State
In the Unon, has for many years been ndustrousy and successfuy workng
to that end by preparng nud securng the passage by the severa States of
unform aws. If there be an easer and consttutona way to these desrabe
resuts through congressona acton, t thus far has escaped dscovery.
Repyng drecty to the suggeston advanced by counse In ansas v. Coo-
rado (206 U. S., 46, 89-90), to the effect that necessary powers natona In
ther scope must be found vested In Congress, though not e pressy granted or
essentay mped, ths Court sad:
ut the proposton that there are egsatve powers affectng the Naton as
a whoe whch beong to, athough not e pressed n the grant of powers, s n
drect confct wth the doctrne that ths s a government of enumerated
powers. That ths s such a government ceary appears from the Consttuton,
ndependenty of the amendments, for otherwse there woud be an nstrument
grantng certan specfed thngs made operatve to grant other and dstnct
tngs. Ths natura constructon of the orgna body of the Consttuton Is
made absoutey certan by the tenth amendment. Ths amendment, whch was
seemngy adopted wth prescence of |ust such contenton as the present, ds-
cosed the wdespread fear that the Natona Government mght, under the
pressure of a supposed genera wefare, attempt to e ercse powers whch had
not been granted. Wth equa determnaton the framers Intended that no
such assumpton shoud ever fnd |ustfcaton In the organc act, and that If
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445
Mso.
In the future further powers seemed necessary they shoud be granted by the
peope In the manner they had provded for amendng that act
The genera rue wth regard to the respectve powers of the Natona and
the State Governments under the Consttuton, Is not In doubt. The States
were before the Consttuton and consequenty, ther egsatve powers
antedated the Consttuton. Those who framed and those who adopted that
Instrument meant to carve from the genera mass of egsatve powers, then
possessed by the States, ony such portons as It was thought wse to confer
upon the edera Government and In order that there shoud be no uncer-
tanty n respect of what was taken and what was eft, the natona powers
of egsaton were not aggregated but enumerated wth the resut that what
was not embraced by the enumeraton remaned vested In the States wthout
change or Imparment. Thus, when It was found necessary to estabsh a
Natona Government for natona purposes, ths Court sad n Munn v.
Uhnos (94 U. S., 113, 124), a part of the powers of the States and of the
peope of the States was granted to the Unted States and the peope of the
Unted States. Ths grant operated as a further mtaton upon the powers
of the States, so that now the governments of the States possess a the powers
of the Parament of ngand, e cept such as have been deegated to the
Unted States or reserved by the peope. Whe the States are not soveregn
In the true sense of that term, but ony uas-soveregn, yet In respect of u
powers reserved to them they are supreme as Independent of the Genera
Government as that Government wthn Its sphere Is ndependent of the
States. (The Coector v. Day, 11 Wa., 113, 124.) nd snce every addton
to the Natona egsatve power to some e tent detracts from or nvades the
power of the States, t s of vta moment that, n order to preserve the f ed
baance ntended by the Consttuton, the powers of the Genera Government
be not so e tended as to embrace any not wthn the e press terms of the
severa grants or the mpcatons necessary to be drawn therefrom. It Is no
onger open to queston that the Genera Government, unke the States ( am-
mer v. Dagenhart, 247 U. S., 251, 275), possesses no nherent power n respect of
the nterna affars of the States and emphatcay not wth regard to egsaton.
The queston n respect of the Inherent power of that Government as to the
e terna affars of the Naton and In the fed of nternatona aw s a whoy
dfferent matter whch It s not necessary now to consder. (See, however,
ones v. Unted States, 137 U. S., 202, 212 Nshmura Mu v. Unted States,
142 U. S., 651, 659 ong Tue Tng v. Unted States, 149 U. S., 698, 705 et seq.
urnet v. rooks, 288 U. S., 378, 396 Ct. D. 648, C. . II-1, 362 ).
The determnaton of the ramers Conventon and the ratfyng conventons
o preserve compete and unmpared State sef-government n a matters
not commtted to the Genera Government Is one of the panest facts whch
emerges from the hstory of ther deberatons. nd adherence to that
determnaton s ncumbent equay upon the edera Government and the
States. State powers can nether be approprated on the one hand nor abd-
cated on the other. s ths Court sad n Te as v. Whte (7 Wa., 700, 725)
the preservaton of the States, and the mantenance of ther governments,
are as much wthn the desgn and care of the Consttuton as the preservaton
of the Unon and the mantenance of the Natona Government. The Con-
sttuton, In a ts provsons, ooks to an ndestructbe Unon, composed of
ndestructbe States. very ourney to a forbdden end begns wth the
frst step and the danger of such a step by the edera Government n the
drecton of takng over the powers of the States s that the end of the ourney
may fnd the States so despoed of ther powers, or what may amount to
the same thng so reeved of the responsbtes whch possesson of the
powers necessary en|ons, as to reduce them to tte more than geographca
subdvsons of the natona doman. It Is safe to say that f, when the
Consttuton was under consderaton, t had been thought that any such danger
urked behnd ts pan words, t woud never have been ratfed.
nd the Consttuton Itsef s n every rea sense a aw the awmakers
beng the peope themseves, In whom under our system a potca power and
soveregnty prmary resdes, and through whom such power and soveregnty
prmary speaks. It Is by that aw, and not otherwse, that the egsatve,
e ecutve, and udca agences whch t created e ercse such potca au-
thorty as they have been permtted to possess. The Consttuton speaks for
Itsef n terms so pan that to msunderstand ther Import Is not ratonay
possbe. We the Peope of the Unted States, t says, do ordan and
estabsh ths Consttuton . Ordan and estabsh These are def-
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446
nte words of enactment, and wthout more woud stamp what foows wth
the dgnty and character of aw. The framers of the Consttuton, however,
were not content to et the matter rest here, but provded e pcty Ths
Consttuton, and the aws of the Unted States whch sha be made In pur-
suance thereof sha be the supreme aw of the and .
The supremacy of the Consttuton as aw s thus decared wthout quafca-
ton. That supremacy Is absoute the supremacy of a statute enacted by
Congress s not absoute but condtoned upon ts beng made n pursuance of
the Consttuton. nd a |udca trbuna, cothed by that Instrument wth
compete |udca power, and, therefore, by the very nature of the power,
requred to ascertan and appy the aw to the facts In every case or proceedng
propery brought for ad|udcaton, must appy the supreme aw and re|ect
the nferor statute whenever the two confct. In the dscharge of that duty,
the opnon of the awmakers that a statute passed by them Is vad must be
gven great weght ( dkns v. Chdren s ospta, 261 U. S., 525, 544) but
ther opnon, or the court s opnon, that the statute w prove greaty
or generay benefca Is whoy Irreevant to the Inqury. (Schechter v.
Unted States, 295 U. S., 495, 549-550.)
We have set forth, perhaps at unnecessary ength, the foregong prncpes,
because t seemed necessary to do so In order to demonstrate that the genera
purposes whch the ct rectes, and whch, therefore, uness the rectas be
dsregarded, Congress undertook to acheve, are beyond the power of Congress
e cept so far, and ony so far, as they may be reazed by an e ercse of soma
specfc power granted by the Consttuton. Proceedng by a process of
emnaton, whch It s not necessary to foow n deta, we sha fnd no
grant of power whch authorzes Congress to egsate h respect of these
genera purposes uness t be found In the commerce cause and ths we
now consder.
fth. Snce the vadty of the ct depends upon whether t Is a regua-
ton of Interstate commerce, the nature and e tent of the power conferred
upon Congress by the commerce cause becomes the determnatve queston
n ths branch of the case. The commerce cause vests n Congress the
power To reguate commerce wth foregn natons, and among the severa
States, and wth the Indan Trbes. The functon to be e ercsed s that
of reguaton. The thng to be reguated s the commerce descrbed. In
e ercsng the authorty conferred by ths cause of the Consttuton, Congress
s poweress to reguate anythng whch s not commerce, as t s poweress
to do anythng about commerce whch s not reguaton. We frst nqure,
then What Is commerce The term, as ths Court many tmes has sad.
Is one of e tensve Import. No a-embracng defnton has ever been formu-
ated. The queston s to be approached both affrmatvey and negatvey
that s to say, from the ponts of vew as to what t Incudes and what It
e cudes.
In C bbons v. Ogden (9 Wheat., 1, 189-190), Chef ustce Marsha sad:
Commerce, undoubtedy, s traffc, but It s somethng more: t s nter-
course. It descrbes the commerca ntercourse between natons, and parts
of natons, In a Its branches, and s reguated by prescrbng rues for carryng
on that ntercourse.
s used n the Consttuton, the word commerce s the equvaent of the
phrase Intercourse for the purposes of trade, and ncudes transportaton,
purchase, sae, and e change of commodtes between the ctzens of the
dfferent States. nd the power to reguate commerce embraces the nstru-
ments by whch commerce s carred on. (Weton v. State of Mssour, 91
. S., 275, 280 ddyston Ppe d- Stee Co. v. Unted States, 175 U. S., 211, 241
opkns v. Unted Staes, 171 U. S., 578, 597.) In dar v. Unted State
(208 U. S., 161, 177) the phrase Commerce among the severa States was
defned as comprehendng traffc, ntercourse, trade, navgaton, communca-
ton, the transt of persons and the transmsson of messages by teegraph
Indeed, every speces of commerca ntercourse among the severa States. In
caze et at v. Moor (14 ow., 568, 573-674), ths Court, after sayng that
the phrase coud never be apped to transactons whoy nterna, sgnfcanty
added: Nor can It be propery concuded, that, because the products of
domestc enterprse n agrcuture or manufactures, or n the arts, may
utmatey become the sub|ects of foregn commerce, that the contro of the
means or the encouragements by whch enterprse s fostered and protected,
s egtmatey wthn the mport of the phrase foregn commerce, or fary
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MfC.
Imped In any nvestture of the power to reguate such commerce. pre-
tenson as far-reachng as ths, woud e tend to contracts between ctzen and
ctzen of the same State, woud contro the pursuts of the panter, the
grazer, the manufacturer, the mechanc, the Immense operatons of the co-
eres and mnes and furnaces of the country for there Is not one of these
avocatons, the resuts of whch may not become the sub|ects of foregn
commerce, and be borne ether by turnpkes, canas, or raroads, from pont
to pont wthn the severa States, towards an utmate destnaton, ke the
one above mentoned.
The dstncton between manufacture and commerce was dscussed In d
v. Pearson (128 U. S., 1, 20, 21, 22) and It was sad:
No dstncton s more popuar to the common mnd, or more ceary e -
pressed In economc and potca terature, than that between manufacture
and commerce. Manufacture s transformaton the fashonng of raw ma-
teras nto a change of form for use. The functons of commerce are dffer-
ent. If t be hed that the term ncudes the reguaton of a such
manufactures as are ntended to be the sub|ect of commerca transactons n
the future, t Is mpossbe to deny that It woud aso ncude a productve
ndustres that contempate the same thng. The resut woud be that Con-
gress woud be nvested, to the e cuson of the States, wth the power to
reguate, not ony manufactures, but aso agrcuture, hortcuture, stock ras-
ng, domestc fsheres, mnng In short, every branch of human ndustry. or
s there one of them that does not contempate, more or ess ceary, an Inter-
state or foregn market Does not the wheat grower of the Northwest and
the cotton panter of the South, pant, cutvate, and harvest hs crop wth an
eye on the prces at Lverpoo, New York, and Chcago The power beng
vested In Congress and dened to the States, t woud foow as an Inevtabe
resut that the duty woud devove on Congress to reguate a of these decate,
mutform, and vta nterests nterests whch n ther nature are and must
be oca n a the detas of ther successfu management.
nd then, as though foreseeng the present controversy, the opnon proceeds:
ny movement toward the estabshment of rues of producton n ths
vast country, wth ts many dfferent cmates and opportuntes, coud ony be
at the sacrfce of the pecuar advantages of a arge part of the ocates In
t, f not of every one of them. On the other hand, any movement toward the
oca, detaed and ncongruous egsaton requred by such nterpretaton woud
be about the wdest possbe departure from the decared ob|ect of the cause n
queston. Nor ths aone. ven n the e ercse of the power contended for,
Congress woud be confned to the reguaton, not of certan branches of In-
dustry, however numerous, but to those Instances n each and every branch
where the producer contempated an nterstate market. stuaton
more parayzng to the State governments, and more provocatve of confcts
between the Genera Government and the States, and ess key to have been
what the framers of the Consttuton ntended, It woud be dffcut to magne.
Chef ustce uer, speakng for ths Court n Unted States v. . C. nght
Co. (156 U. S., 1, 12, 13), sad:
Doubtess the power to contro the manufacture of a gven thng Invoves
n a certan sense the contro of Its dsposton, but ths s a secondary and not
the prmary sense and athough the e ercse of that power may resut n
brngng the operaton of commerce nto pay, It does not contro t, and affects
It ony ncdentay and Indrecty. Commerce succeeds to manufacture, and s
not a part of t.
It s vta that the ndependence of the commerca power and of the
poce power, and the demtaton between them, however sometmes perpe -
ng, shoud aways be recognzed and observed, for whe the one furnshes
the strongest bond of unon, the other Is essenta to the preservaton of the
autonomy of the States as requred by our dua form of government and
acknowedged evs, however grave and urgent they may appear to be, had
better be borne, than the rsk be run, n the effort to suppress tem, of more
serous consequences by resort to e pedents of even doubtfu consttutonaty.
The reguaton of commerce appes to the sub|ects of commerce
and not to matters of nterna poce. Contracts to buy, se, or e change
goods to be transported among the severa States, the transportaton and ta
nstrumentates, and artces bought, sod, or e changed for the purposes of
roch transt among the States, or put n the way of transt, may be regu-
ated, but ths Is because they form part of Interstate trade or commerce.
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448
The fact that an artce a manufactured for e port to another State does
not of tsef make It an artce of Interstate commerce, and the ntent of the
manufacturer does not determne the tme when the artce or product passes
from the contro of the State and beongs to commerce.
That commodtes produced or manufactured wthn a State are Intended
to be sod or transported outsde the State does not render ther producton
or manufacture sub|ect to edera reguaton under the commerce cause.
s ths Court sad n Coe v. rro (116 U. S., 517, 528), Though Intended for
e portaton, they may never be e ported the owner has a perfect rght to
change hs mnd and unt actuay put n moton, for some pace out of the
State, or commtted to the custody of a carrer for transportaton to such
pace, why may they not be regarded as st remanng a part of the genera
mass of property n the State It Is true that ths was sad In respect of
a chaenged power of the State to Impose a ta but the query Is equay
pertnent where the queston, as here, Is wth regard to the power of regua-
ton. The case was reed upon In dd v. Pearson, supra, page 26. Tha
appcaton of the prncpes above announced, t was there sad, to the case
under consderaton eads to a concuson aganst the contenton of the pan-
tff n error. The poce power of a State s as broad and penary as Its
ta ng power and property wthn the State s sub|ect to the operatons of the
former so ong as t s wthn the reguatng restrctons of the atter.
In eUer v. Thomas Coery Oo. (260 U. S., 245, 250-260), we hed that the
possbty, or even certanty of e portaton of a product or artce from a
State dd not determne t to be n Interstate commerce before the commence-
ment of ts movement from the State. To hod otherwse woud natonaze
a Industres, t woud natonaze and wthdraw from State ursdcton and
dever to edera commerca contro the fruts of Caforna and the South,
the wheat of the West and Its meats, the cotton of the South, the shoes of
Massachusetts and the wooen Industres of other States, at the very Incepton
of ther producton or growth, that Is, the fruts unpcked, the cotton and wheat
ungathered, hdes and fesh of catte yet on the hoof, woo yet unshorn, and
coa yet unmned, because they are n varyng percentages destned for and
surey to be e ported to States other than those of ther producton.
In Over Iron Co. v. Lad (262 U. S., 172, 178), we sad on the authorty of
numerous cted cases: Mung s not nterstate commerce, but, ke manufac-
turng, s a oca busness sub|ect to oca reguaton and ta aton.
Its character n ths regard s ntrnsc, s not affected by the ntended use or
dsposa of the product, s not controed by contractua engagements, and per-
ssts even though the busness be conducted In cose connecton wth nterstate
commerce.
The same rue appes to the producton of o. Such producton Is es-
sentay a mnng operaton and therefore Is not a part of nterstate commerce
even though the product obtaned s ntended to be and In fact s Immed-
atey shpped n such commerce. (Champn Rfg. Co. v. Commsson, 286
U. S., 210, 235.) One who produces or manufactures a commodty, subse-
quenty sod and shpped by hm n nterstate commerce, whether such sae
and shpment were orgnay Intended or not, has engaged In two dstnct
and separate actvtes. So far as he produces or manufactures a commodty,
hs busness s purey oca. So far as he ses and shps, or contracts to serf
and shp, the commodty to customers In another State, he engages In nter-
state commerce. In respect of the former, he s sub|ect ony to reguaton
by the State n respect of the atter, to reguaton ony by the edera Gov-
ernment. (Utah Power L. Co. v. Pfost, 286 U. S., 165, 182.) Producton
Is not commerce but a step n preparaton for commerce. (Ohassano v.
Greenwood, 201 U. S., 584, 587.)
We have seen that the word commerce Is the equvaent of the phrase
ntercourse for the purposes of trade. Pany, the ncdents eadng up to
and cumnatng n the ranng of coa do not consttute such ntercourse. The
empoyment of men, the f ng of ther wages, hours of abor and workng
condtons, the barganng n respect of these thngs whether carred on sep-
aratey or coectvey each and a consttute ntercourse for the purposes of
producton, not of trade. The atter Is a thng apart from the reaton of
empoyer and empoyee, whch In a producng occupatons s purey oca
In character. tracton of coa from the mne s the am and the competed
resut of oca actvtes. Commerce In the coa mned Is not brought Into
beng by force of these actvtes, but by negotatons, agreements, and cr-
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cumstances entrey apart from producton, Mnng brngs the sub|ect matter
of commerce Into e stence. Commerce dsposes of It.
consderaton of the foregong, and of many cases whch mght be added
to those aready cted, renders Inescapabe the concuson that the effect of
the abor provsons of the ct, Incudng those In respect of mnmum wages,
wage agreements, coectve barganng, and the Labor oard and ts powers,
prmary fas upon producton and not upon commerce and confrms the
further resutng concuson that producton Is a purey oca actvty. It
foows that none of these essenta antecedents of producton consttutes a
transacton In or forms any part of nterstate commerce. (Schechter Corpora-
ton v. Unted States, supra, 542 et seq.) verythng whch moves n nter-
state commerce has had a oca orgn. Wthout oca producton somewhere,
nterstate commerce, as now carred on, woud practcay dsappear. Never-
theess, the oca character of mnng, of manufacturng and of crop growng
s a fact, and remans a fact, whatever may be done wth the products.
Certan decsons of ths Court, superfcay consdered, seem to end sup-
port to the defense of the ct now under revew. ut upon e amnaton,
they wU be seen to be napposte. Thus, Coronado Co. v. 17. . Workers (268
C. 8., 295, 310), and kndred cases, nvoved conspraces to restran Interstate
commerce In voaton of the ant-trust aws. The acts of the persons nvoved
were oca In character but the ntent was to restran nterstate commerce,
and the means empoyed were cacuated to carry that ntent nto effect.
Interstate commerce was the drect ob|ect of attack and the restrant of
such commerce was the necessary consequence of the acts and the mmedate
end n vew. ( edford Co. v. Stone Cutters ssn., 274 U. S., 37, 46.) The
appcabe aw was concerned not wth the character of the acts or of the
means empoyed, whch mght be n and of themseves purey oca, but wth
the ntent and drect operaton of those acts and means upon nterstate com-
merce. The mere reducton n the suppy of an artce, ths Court sad
n the Coronado Co. case, supra, page 310, to be shpped n nterstate com-
merce by the Iega or tortous preventon of Its manufacture or producton
s ordnary an ndrect and remote obstructon to that commerce. ut when
the ntent of those unawfuy preventng the manufacture or producton Is
shown to be to restran or contro the suppy enterng and movng n Interstute
commerce, or the prce of t n Interstate markets, ther acton s a drect
voaton of the nt-Trust ct.
nother group of cases, of whch Swft f Co. v. Unted States (196 U. S.,
875) s an e ampe, rest upon the crcumstance that the acts n queston
consttuted drect nterferences wth the fow of commerce among the
States. In the Swft case, ve stock was consgned and devered to stock-
yards not as a pace of fna destnaton, but, as the Court sad n Stafford v.
Waace (258 U. S., 495, 516), a throat through whch the current fows.
The saes whch ensued merey changed the prvate nterest n the sub|ect of the
current wthout Interferng wth ts contnuty. (Industra ss n v. Unted
States, 268 U. S., 64, 79.) It was nowhere suggested n these cases that the
nterstate commerce power e tended to the growth or producton of the thngs
whch, after producton, entered the fow. If the Court had hed that the
rasng of the catte, whch were Invoved n the Swft case, ncudng the
wages pad to and workng condtons of the herders and others empoyed In
the busness, coud be reguated by Congress, that decson and decsons hod-
ng smary woud be In pont for t s that stuaton, and not the one
wth whch the Court actuay deat, whch here concerns us.
The dstncton suggested s ustrated by the decson n rkadepha Co. v.
8t. Lous 8. W. Ry. Co. (249 U. S., 134, 150-152). That case deat wth
orders of a State commsson f ng raroad rates. One of the questons
consdered was whether certan shpments of rough matera from the forest
to ms n the same State for manufacture, foowed by the forwardng of
the fnshed product to ponts outsde the State, was a contnuous movement
n Interstate commerce. It appeared that when the rough matera reached
the ms t was manufactured nto varous artces whch were stacked or
paced n kns to dry, the processes occupyng severa months. Markets for
the manufactured artces were amost entrey In other States or In foregn
countres. bout 95 per cent of the fnshed artces was made for outbound
shpment. When the rough matera was shpped to the ms, It was e pected
by the ms that ths percentage of the fnshed artces woud be so sod
and shpped outsde the State. nd a of them knew and Intended that
ths 95 per cent of the fnshed product woud be so sod and shpped. Ths
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450
Court hed that the State order dd not Interfere wth nterstate commerce,
and that the Swft case was not n pont as t Is not n pont here.
The restrcted fed covered by the Swft and kndred cases s ustrated
by the Sehechter case, supra, page 643. There the commodty In queston,
athough shpped from another State, had come to rest n the State of ts
destnaton, and, as the Court ponted out, was no onger n a current or fow
of nterstate commerce. The Swft doctrne was re|ected as napposte. In
the Sehechter case the fow had ceased. ere t had not begun. The dffer-
ence s not one of substance. The appcabe prncpe s the same.
ut secton 1 (the preambe) of the ct now under revew decares that
a producton and dstrbuton of btumnous coa bear upon and drecty
affect ts Interstate commerce and that reguaton thereof Is mperatve for
the protecton of such commerce. The contenton of the Government s that
the abor provsons of the ct may be sustaned n that vew.
That the producton of every commodty Intended for nterstate sae and
transportaton has some effect upon Interstate commerce may be, If It has not
aready been, freey granted and we are brought to the fna and decsve
Inqury, whether here that effect s drect, as the preambe rectes, or
ndrect The dstncton s not forma, but substanta In the hghest degree,
as we ponted out n the Sehechter case, supra, page 546, et seq. If the com-
merce cause were construed, we there sad, to reach a enterprses and
transactons whch coud be sad to have an ndrect effect upon nterstate
commerce, the edera authorty woud embrace practcay a the actvtes
of the peope and the authorty of the State over ts domestc concerns wond
e st ony by sufferance of the edera Government. Indeed, on such a theory,
even the deveopment of the State s commerca factes woud be sub|ect to
edera contro. It was aso ponted out, page 548, that the dstncton
between drect and ndrect effects of ntrastate transactons upon nterstate
commerce must be recognzed as a fundamenta one, essenta to the mante-
nance of our consttutona system.
Whether the effect of a gven actvty or condton s drect or Indrect
s not aways easy to determne. The word drect mpes that the actvty
or condton Invoked or bamed sha operate pro matey not medatey, re-
motey, or coateray to produce the effect It connotes the absence of an
effcent ntervenng agency or condton. nd the e tent of the effect bears no
ogca reaton to Its character. The dstncton between a drect and an
Indrect effect turns, not upon the magntude of ether the cause or the
effect, but entrey upon the manner n whch the effect has been brought
about. If te producton by one man of a snge ton of coa ntended for Inter-
state sae and shpment, and actuay so sod and shpped, affects Interstate
commerce ndrecty, the effect does not become drect by mutpyng the ton-
nage, or Increasng the number of men empoyed, or addng to the e pense or
compe tes of the busness, or by a combned. It s qute true that rues
of aw are sometmes quafed by consderatons of degree, as the Government
argues. ut the matter of degree has no bearng upon the queston here, snce
that queston s not What s the e tent of the oca actvty or condton,
or the e tent of the effect produced upon nterstate commerce but What Is
the reaton between the actvty or condton and the effect
Much stress Is put upon the evs whch come from the strugge between
empoyers and empoyees over the matter of wages, workng condtons, the
rght of coectve barganng, etc., and the resutng strkes, curtament and
rreguarty of producton and effect on prces and It Is Inssted that Interstate
commerce s greaty affected thereby. ut, n addton to what has |ust been
sad, the concusve answer Is that the evs are a oca evs over whch the
edera Government has no egsatve contro. The reaton of empoyer and
empoyee Is a oca reaton. t common aw, t Is one of the domestc reatons.
The wages are pad for the dong of oca work. Workng condtons are ob-
vousy oca condtons. The empoyees are not engaged In or about commerce,
but e cusvey In producng a commodty. nd the controverses and evs,
whch It Is the ob|ect of the ct to reguate and mnmze, are oca contro-
verses and evs affectng oca work undertaken to accompsh that oca
resut. Such effect as they may have upon commerce, however e tensve It
may be, s secondary and Indrect n Increase n the greatness of the effect
adds to ts Importance. It does not ater ts character.
The Government s contentons n defense of the abor provsons are reay
dsposed of adversey by our decson In the Sehechter case, supra. The ony
perceptbe dfference between that case and ths Is that n the Sehechter case.
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the edera power was asserted wth respect to commodtes whch had come
to rest after ther Interstate transportaton whe here, the case deas wth
commodtes at rest before Interstate commerce has begun. That dfference s
wthout sgnfcance. The edera reguatory power ceases when nterstate
commerca Intercourse ends and, correatvey, the power does not attach unt
Interstate commerca Intercourse begns. There s no bass n aw or reason
for appyng dfferent rues to the two stuatons. No such dstncton can be
found n anythng sad In the Schechter case. On the contrary, the stuatons
were recognsed as akn. The opnon, at page 546, after cang attenton to
the fact that If the commerce cause coud be construed to reach transactons
havng an Indrect effect upon nterstate commerce the edera authorty woud
embrace practcay a the actvtes of the peope, and the authorty of the
State over Its domestc concerns woud e st ony by sufferance of the edera
Government, we sad: Indeed, on such a theory, even the deveopment of the
tate s commerca factes woud be sub|ect to edera contro. nd agan,
after pontng out that hours and wages have no drect reaton to nterstate
commerce and that If the edera Government had power to determne the
wages and hours of empoyees n the Interna commerce of a State because of
ther reaton to cost and prces and ther ndrect effect upon nterstate com-
merce, we sad, page 549: the processes of producton and dstrbuton
that enter nto cost coud kewse be controed. If the cost of dong an Intra-
state busness Is n Itsef the permtted ob|ect of edera contro, the e tent
of the reguaton of cost woud be a queston of dscreton and not of power.
readng of the entre opnon makes cear, what we now decare, that the
want of power on the part of the edera Government Is the same whether
the wages, hours of servce, and workng condtons, and the barganng about
them, are reated to producton before nterstate commerce has begun, or to
sae and dstrbuton after t has ended.
S th. That the ct, whatever t may be n form, n fact Is compusory
ceary appears. We have aready dscussed secton 3, whch Imposes the
e cse ta as a penaty to compe acceptance of the code. Secton 14 pro-
vdes that the Unted States sha purchase no btumnous coa produced at
any mne where the producer has not comped wth the provsons of the
code and that each contract made by the Unted States sha contan a pro-
vson that the contractor w buy no btumnous coa to use on, or n the
carryng out of, such contract uness the producer be a member of the code,
as certfed by the Coa Commsson. In the ght of these provsons we come
to a consderaton of subdvson (g) of Part III of secton 4, deang wth
Labor reatons.
That subdvson deegates the power to f ma mum hours of abor to a
part of the producers and the mners namey, the producers of more than
two-thrds of the annua natona tonnage producton for the precedng ca-
endar year and more than one-haf of the mne workers empoyed and
to producers of more than two-thrds of the dstrct annua tonnage durng
the precedng caendar year and a ma|orty of the mners, there s deegated
the power to f mnmum wages for the dstrct or group of dstrcts. The
effect, n respect of wages and hours, s to sub|ect the dssentent mnorty,
ether of producers or mners or both, to the w of the stated ma|orty,
snce, by refusng to submt, the mnorty at once Incurs the hazard of en-
forcement of the drastc compusory provsons of the ct to whch we have
referred. To accept, In these crcumstances, Is not to e ercse a choce,
but to surrender to force.
The power conferred upon the ma|orty s, In effect, the power to reguate
the affars of an unwng mnorty. Ths Is egsatve deegaton In Its most
obno ous form for It s not even deegaton to an offca or an offca body,
presumptvey dsnterested, but to prvate persons whose Interests may be and
often are adverse to the Interests of others In the same busness. The record
shows that the condtons of competton dffer among the varous ocates.
In some, coa deaers compete among themseves. In other ocates, they aso
compete wth the mechanca producton of eectrca energy and of nntura
gas. Some coa producers favor the code others oppose It and the record
ceary Indcates that ths dversty of vew arses from ther confctng and
even antagonstc nterests. The dfference between producng coa and regu-
atng Its producton s, of course, fundamenta. The former Is a prvate
actvty the atter Is necessary a governmenta functon, snce, n the very
nature of thngs, one person may not be entrusted wth the power to reguate
the busness of another, and especay of a compettor. nd a statute whch
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452
attempts to confer such power undertakes an ntoerabe and unconsttutona
Interference wth persona berty and prvate property. The deegaton s so
ceary arbtrary, and so ceary a dena of rghts safeguarded by the due
process cause of the ffth amendment, that It s unnecessary to do more than
refer to decsons of ths Court whch forecose the queston. (Schechter Cor -
poraton v. Unted States, 295 U. S., at page 537 ubank v. Rchmond, 226
U. S., 137, 143 Seatte Trust Co. v. Roberge, 278 U. S., 116, 121-122.)
Seventh. nay, we are brought to the prce-f ng provsons of the code.
The necessty of consderng the queston of ther consttutonaty w depend
upon whether they are separabe from the abor provsons so that they can
stand Independenty. Secton 15 of the ct provdes:
If any provson of ths ct, or the appcaton thereof to any person or
crcumstances, s hed nvad, the remander of the ct and the appcaton
of such provsons to other persons or crcumstances sha not be affected
thereby.
In the absence of such a provson, the presumpton s that the egsature
ntends an act to be effectve as an entrety that s to say, the rue Is aganst
the mutaton of a statute and f any provson be unconsttutona, te
presumpton s that the remanng provsons fa wth t. The effect of the
statute Is to reverse ths presumpton n favor of nseparabty, and create
the opposte one of separabty. Under the nonstatutory rue, the burden s
upon the supporter of the egsaton to show the separabty of the provsons
nvoved. Under the statutory rue, the burden Is shfted to the assaant to
show ther nseparabty. ut under ether rue, the determnaton, In the
end, Is reached by appyng the same test namey, What was the ntent of
the awmakers
Under the statutory rue, the presumpton must be overcome by consdera-
tons whch estabsh the cear probabty that the Invad part beng em-
nated the egsature woud not have been satsfed wth what remans
Wams v. Standard O Co., 278 U. S., 235, 241 et seq.) or, as stated In
Utah Power t L. Co. v. Pfost (286 U. S., ICS, 184-185), the cear probabty
that the egsature woud not have been satsfed wth the statute uness It
had Incuded the nvad part. Whether the provsons of a statute are so
Interwoven that one beng hed Invad the others must fa, presents a queston
of statutory constructon and of egsatve ntent, to the determnaton of
whch the statutory provson becomes an ad. ut It s an ad merey not
an Ine orabe command. (Dorchy v. ansas, 264 U. S., 286, 290.) The pre-
sumpton In favor of separabty does not authorze the court to gve the
statute an effect atogether dfferent from that sought by the measure
vewed as a whoe. (Retrement oard v. ton R. Co., 295 U. S., 330, 362.)
The statutory ad to constructon In no way aters the rue that n order
to hod one part of a statute unconsttutona and uphod another part as
separabe, they must not be mutuay dependent upon one another. Perhaps
a far approach to a souton of the probem Is to suppose that whe the
b was pendng n Congress a moton to strke out the abor provsons had
prevaed, and to nqure whether, In that event, the statute shoud be so con-
strued as to |ustfy the concuson that Congress, notwthstandng, probaby
woud not have passed the prce-f ng provsons of the code.
Secton 3 of the ct, whch provdes that no producer sha, by acceptng
the code or the drawback of ta es, be estopped from contestng the consttu-
tonaty of any provson of the code s thought to ad the separabty cause
ut the effect of that provson s smpy to permt the producer to chaenge
any provson of the code despte hs acceptance of the code or the drawback.
It seems not to have anythng to do wth the queston of separabty.
Wth the foregong prncpes In mnd, et us e amne the ct Itsef. The
tte of the ct and the preambe demonstrate, as we have aready seen, that
Congress desred to accompsh certan genera purposes theren rected. To
that end It created a commsson, wth mandatory drectons to formuate Into
a workng agreement the provsons set forth In secton 4 of the ct. That
beng done, the resut Is a code. Producers acceptng and operatng under
the code are to be known as code members and secton 4 specfcay requres
that, In order to carry out the pocy of the ct, the code sha contan the
foowng condtons, provsons, and obgatons , whch are then
set forth. No power s vested In the commsson, n formuatng the code,
to omt any of these condtons, provsons, or obgatons. The mandate to
ncude them embraces a.of them. oowng the requrement ust quoted,
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453
Mso.
and, sgnfcanty, n the same secton (Internatona Te tbook Co. v. Pgg,
217 U. S., 91, 112-113) under approprate headngs, the prce-f ng and abor-
reguatng provsons are set out n great deta. These provsons, pany,
meant to operate together and not separatey, consttute the means desgned
to brng about the stabzaton of btumnous-coa producton, and thereby
to reguate or affect nterstate commerce In such coa. The frs: cause of the
tte s: To stabze the btumnous coa-mnng ndustry and promote ts
Interstate commerce.
Thus, the prmary contempaton of the ct s stabzaton of the ndustry
through the reguaton of abor and the reguaton of prces for, snce both were
adopted, we must concude that both were thought essenta. The reguatons
of abor on the one hand and prces on the other furnsh mutua ad and
support and ther assocated force not one or the other but both combned
was deemed by Congress to be necessary to acheve the end sought The
statutory mandate for a code uphed by two egs at once suggests the Improb-
abty that Congress woud have assented to a code supported by ony one.
Ths seems pan enough for Congress must have been conscous of the fact
that emnaton of the abor provsons from the ct woud serousy mpar,
h not destroy, the force and usefuness of the prce provsons. The nter-
dependence of wages and prces s manfest. ppro matey two-thrds of the
cost of producng a ton of coa s represented by wages. ar prces necessary
depend upon the cost of producton and snce wages consttute so arge a
proporton of the cost, prces can not be f ed wth any proper reaton to
cost wthout takng Into consderaton ths ma|or eement. If one of them
becomes uncertan, uncertanty wth respect to the other necessary ensues.
So much s recognzed by the code Itsef. The Introductory cause of Part III
decares that the condtons respectng abor reatons are To effectuate the
purposes of ths ct. nd subdvson (a) of Part II, quoted n the forepart
of ths opnon, reads n part: In order to sustan the stabzaton of wages,
workng condtons, and ma mum hours of abor, sad prces sha be estab-
shed so as to yed a return per net ton for each dstrct n a mnmum prce
area, equa as neary as may be to the weghted average of the
tota costs, per net ton . Thus wages, hours of abor, and workng
condtons are to be so ad|usted as to effectuate the purposes of the ct and
prces are to be so reguated as to stabze wages, workng condtons, and
hours of abor whch have been or are to be f ed under the abor provsons.
The two are so woven together as to render the probabty pan enough that
unform prces, n the opnon of Congress, coud not be fary f ed or effectvey
reguated, wthout aso reguatng these eements of abor whch enter so
argey nto the cost of producton.
These two sets of requrements are not ke a coecton of brcks, some of
whch may be taken away wthout dsturbng the others, but rather are ke
the nterwoven threads consttutng the warp and woof of a fabrc, one set of
whch can not be removed wthout fata consequences to the whoe. Para-
phrasng the words of ths Court n utts v. Merchants Transp n Co. (230 U. S.,
126, 133), we Inqure What authorty has ths Court, by constructon, to con-
vert the manfest purpose of Congress to reguate producton by the mutua
operaton and nteracton of f ed wages and f ed prces nto a purpose to
reguate the sub|ect by the operaton of the atter aone re we at berty
to say from the fact that Congress has adopted an entre ntegrated system
that t probaby woud have enacted a doubtfuy effectve fracton of the
system The words of the concurrng opnon n the Schechter case (295 D. S.,
at pages 554-555) are pertnent n repy. To take from ths code the pro-
vsons as to wages and the hours of abor s to destroy t atogether.
Wages and the hours of abor are essenta features of the pan, Its very bone
and snew. There s no opportunty n such crcumstances for the severance
of the nfected parts n the hope of savng the remander. The concuson
Is unavodabe that the prce-f ng provsons of the code are so reated to
and dependent upon the abor provsons as condtons, consderatons or com-
pensatons, as to make t ceary probabe that the atter beng hed bad, the
former woud not have been passed. The fa of the atter, therefore, carres
down wth t the former. (Internatona Te tbook Co. v. Pgg, supra, 118
Warren v. Mayor and dermen of Charestotcn, 2 Gray Mass. , 84, 98-99.)
The prce-f ng provsons of the code are thus dsposed of wthout comng
to the queston of ther consttutonaty but nether ths dsposton of the
matter, nor anythng we have sad, s to be taken as ndcatng that the Court
Is of opnon that these provsons, f separatey enacted, coud be sustaned.
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454
If there be In the ct provsons, other than those we have consdered, that
may stand Independenty, the queston of ther vadty s eft for future deter-
mnaton when, f ever, that queston sha be presented for consderaton.
The decrees n Nos. 636, 649, and 650 must be reversed and the causes re-
manded for further consderaton n conformty wth ths opnon. The decree
In No. 651 w be affrmed.
It s so ordered.
Sepabatb Opnon of Mb. Chef ustce ughes.
I agree that the stockhoders were entted to brng ther suts that, n
vew of the queston whether any part of the ct coud be sustaned, the suts
were not premature that the so-caed ta s not a rea ta , but a penaty
that the consttutona power of the edera Government to mpose ths pen-
aty must rest upon the commerce cause, as the Government concedes that
producton n ths case mnng whch precedes commerce, s not tsef com-
merce and that the power to reguate commerce among the severa States s
not a power to reguate Industry wthn the State.
The power to reguate nterstate commerce embraces the power to protect
that commerce from n|ury, whatever may be the source of the dangers whch
threaten t, and to adopt any approprate means to that end. (Second m-
poyers Labty cases, 223 U. S., 1, 51.) Congress thus has adequate author-
ty to mantan the ordery conduct of Interstate commerce and to provde
for the peacefu settement of dsputes whch threaten t (Te as N. O. R.
Co. v. Raway Cerks, 281 U. S., 548, 570.) ut Congress may not use ths
protectve authorty as a prete t for the e erton of power to reguate actv-
tes and reatons wthn the States whch affect nterstate commerce ony
Indrecty. Otherwse, n vew of the muttude of ndrect effects, Congress
In ts dscreton coud assume contro of vrtuay a the actvtes of the
peope to the subverson of the fundamenta prncpe of the Consttuton. If
the peope desre to gve Congress the power to reguate ndustres wthn the
State, and the reatons of empoyers and empoyees n those ndustres, they
are at berty to decare ther w n the approprate manner, but t s not
for the Court to amend the Consttuton by udca decson.
I aso agree that subdvson (g) of Part III of the prescrbed code s
nvad upon three counts: (1) It attempts a broad deegaton of egsatve
power to f hours and wages wthout standards or mtaton. The Govern-
ment nvokes the anaogy of egsaton whch becomes effectve on the hap-
penng of a specfed event, and says that n ths case the event s the agree-
ment of a certan proporton of producers and empoyees, whereupon the other
producers and empoyees become sub|ect to ega obgatons accordngy. I
thnk that the argument s unsound and s pressed to the pont where the
prncpe woud be entrey destroyed. It woud remove a restrctons upon
the deegaton of egsatve power, as the makng of aws coud thus be
referred to any desgnated offcas or prvate persons whose orders or agree-
ments woud be treated as events, wth the resut that they woud be
nvested wth the force of aw havng pena sanctons. (2) The provson
permts a group of producers and empoyees, accordng to ther own vews of
e pedency, to make rues as to hours and wages for other producers and
empoyees who were not partes to the agreement Such a provson, apart
from the mere queston of the deegaton of egsatve power, s not In accord
wth the requrement of due process of aw whch under the ffth amendment
domnates the reguatons whch Congress may Impose. (3) The provson
goes beyond any proper measure of protecton of nterstate commerce and
attempts a broad reguaton of Industry wthn the State
ut that s not the whoe case. The ct aso provdes for the reguaton
of the prces of btumnous coa sod In Interstate commerce and prohbts
unfar methods of competton In Interstate commerce. Undoubtedy trans-
actons In carryng on nterstate commerce are sub|ect to the edera power to
reguate that commerce and the contro of charges and the protecton of far
competton In that commerce are famar Iustratons of the e ercse of the
power, as the Interstate Commerce ct the Packers and Stockyards ct,
and the nt-Trust cts abundanty show. The court has repeatedy stated
that the power to reguate Interstate commerce among the severa States Is
supreme and penary. (Mnnesota Rate cases, 230 U. S., 852, 898.) It Is)
compete In Itsef, and may be e ercsed to Its utmost e tent and acknow-
edges no mtatons, other than are prescrbed n the Consttuton. (Gbbon
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455
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v. Offden, 9 Wheat, 1, 106.) We are not at berty to deny to the Congress,
wth respect to Interstate commerce, a power commensurate wth that en|oyed
by the States In the reguaton of ther nterna commerce. (See e ba v.
T c York, 291 . S., 502.)
Whether the pocy of f ng prces of commodtes sod n nterstate com-
merce s a sound pocy s not for our consderaton. The queston of that
pocy, and of ts partcuar appcatons, s for Congress. The e ercse of
the power of reguaton s sub|ect to the consttutona restrcton of the due
process cause, and f n f ng rates, prces or condtons of competton, that
requrement s transgressed, the udca power may be nvoked to the end
that the consttutona mtaton may be mantaned. (Interstate Commerce
Commsson v. Unon Pacfc R. R. Co., 222 U. S., 541, 547 St. oseph Stock
Yards Co. v. Unted States, decded pr 27, 1936.)
In the egsaton before us, Congress has set up eaborate machnery for
the f ng of prces of btumnous coa sod n nterstate commerce. That
provson s attacked n mne. Prces have not yet been f ed. If f ed,
they may not be contested. If contested, the ct provdes for revew of the
admnstratve rung. If n f ng prces, due process s voated by arbtrary,
caprcous or confscatory acton, udca remedy s avaabe. If an attempt
s made to f prces for saes n ntrastate commerce, that attempt w aso
be sub|ect to attack by approprate acton. In that reaton t shoud be
noted that n the Carter cases, the court beow found that substantay a
the coa mned by the Carter Coa Co. s sod f. o. b. mnes and s transported
nto States other than those n whch t s produced for the purpose of fng
orders obtaned from purchasers n such States. Such transactons are n
nterstate commerce. (Savage v. ones, 225 U. 8., 501, 520.) The court
beow aso found that the nterstate dstrbuton and sae and the ntrastate
dstrbuton and sae of the coa are so ntmatey and ne trcaby con-
nected that the reguaton of nterstate transactons of dstrbuton and
sae can not be accompshed effectvey wthout dscrmnaton aganst nter-
state commerce uness transactons of Intrastate dstrbuton and sae be
reguated. Substantay the same stuaton s dscosed n the entucky
cases. In that reaton, the Government nvokes the anaogy of transportaton
rates. (The Shreveport case, 234 U. S., 342 Wsconsn Raroad Commsson
v. Chcago, urngton d uncy R. R. Co., 257 U. S., 563.) The queston w
be the sub|ect of consderaton when t arses n any partcuar appcaton
of the ct.
Upon what ground, then, can It be sad that ths pan for the reguaton of
transactons n nterstate commerce n coa Is beyond the consttutona power
of Congress The Court reaches that concuson n the vew that the nvadty
of the abor provsons requres us to condemn the ct n ts entrety. I am
unabe to concur n that opnon. I thnk that the e press provsons of the
ct precude such a fndng of nseparabty.
Ths s admttedy a queston of statutory constructon and hence we must
search for the ntent of Congress. nd n seekng that ntent we shoud not
fa to gve fu weght to what Congress tsef has sad upon the very pont
The ct provdes (secton 15) :
If any provson of ths ct, or the appcaton thereof to any person or
crcumstances, s hed nvad, the remander of the ct and the appcaton
of such provsons to other persons or crcumstances sha not be affected
thereby.
That s a fat decaraton aganst treatng the provsons of the ct as
Inseparabe. It Is a decaraton whch Congress was competent to make. It
s a decaraton whch reverses the presumpton of Indvsbty and creates an
opposte presumpton. (Utah Power d Lght Co. v. Pfost, 286 U. S., 165, 184.)
The above quoted provson does not stand aone. Congress was at pans to
make a decaraton of smar Import wth respect to the provsons of the
code (secton 3):
No producer sha by reason of hs acceptance of the code provded for n
secton 4 or of the drawback of ta es provded n secton 3 of ths ct be hed
to be precuded or estopped from contestng the consttutonaty of any pro-
vson of sad code, or ts vadty as appcabe to such producer.
Ths provson evdenty contempates, when read wth the one frst quoted,
that a stpuaton of the code may be found to be unconsttutona and yet that
Its nvadty sha not be regarded as affectng the obgatons attachng to
the remander.
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456
I do not thnk that the queston of separabty shoud be determned by
tryng to magne what Congress woud have done f certan provsons found
to be nvad were e csed. That, f taken broady, woud ead us Into a ream
of pure specuaton. Who can te amd the host of dvsve nfuences payng
upon the egsatve body what ts reacton woud have been to a partcuar
e cson requred by a fndng of nvadty The queston does not ca for
specuaton of that sort but rather for an nqury whether the provsons are
Inseparabe by vrtue of nherent character. That Is, when Congress states
that the provsons of the ct are not nseparabe and that the nvadty of
any provson sha not affect others, we shoud not hod that the provsons are
nseparabe uness ther nature, by reason of an Ine trcabe te, demands that
concuson.
that s sad In the preambe of the ct, n the drectons to the comms-
son whch the ct creates, and n the stpuatons of the code, Is sub|ect to
the e pct drecton of Congress that the provsons of the statute sha not
be treated as formng an ndvsbe unt. The fact that the varous requrements
furnsh to each other mutua ad and support does not estabsh Indvsbty.
The purpose of Congress, pany e pressed, was that f a part of that ad
were ost, the whoe shoud not be ost. Congress desred that the ct and code
shoud be operatve so far as they met the consttutona test Thus we are
brought, as I have sad, to the queston whether, despte ths purpose of
Congress, we must treat the marketng provsons and the abor provsons as
ne trcaby ted together because of ther nature. I fnd no such te. The
abor provsons are themseves separated and paced n a separate part (Part
III) of the code. It seems qute cear that the vadty of the entre ct can
not depend upon the provsons as to hours and wages n paragraph (g) of
Part III. or what was contempated by that paragraph s manfesty nde-
pendent of the other machnery of the ct, as t can not become effectve uness
the specfed proporton of producers and empoyees reach an agreement as to
partcuar wages and hours. nd the provson for coectve barganng n
paragraphs (a) and (b) of Part III Is apparenty made separabe from the
code tsef by secton 0 of the ct, provdng, n substance, that the empoyees
of a producers sha have the rght of coectve barganng even when pro-
ducers do not accept or mantan the code.
The marketng provsons (Part II) of the code naturay form a separate
category. The nterdependence of wages and prces s no cearer n the coa
busness than n transportaton. ut the broad reguaton of rates n order
to stabze transportaton condtons has not carred wt It the necessty of
f ng wages. gan, the requrement, In paragraph (a) of Part II that ds-
trct boards sha estabsh prces so as to yed a prescrbed return per net
ton for each dstrct n a mnmum prce area, n order to sustan the stab-
zaton of wages, workng condtons and ma mum hours of abor, does not
nk te marketng provsons to the abor provsons by an unbreakabe bond.
Congress evdenty desred stabzaton through both the provsons reatng
to marketng and those reatng to abor, but the settng up of the two sorts
of requrements dd not make the one dependent upon the vadty of the other.
It Is apparent that they are not so nterwoven that they can not have separate
operaton and effect. The marketng provsons In reaton to nterstate com-
merce can be carred out as provded n Pnrt II wthout regard to the abor
provsons contaned n Part III. That fact, n the ght of the congressona
decaraton of separabty, shoud be consdered of controng Importance.
In ths vew, the ct, and the code for whch t provdes, may be sustaned
n reaton to the provsons for marketng In Interstate commerce, and the
decsons of the courts beow, so far as they accompsh that resut, shoud
be affrmed.
Mb. ustce Cardozo (Dssentng n Nob. 636, 649, and 600, and n No. 651
Concurrng n the Resut).
My concusons compendousy stated are these:
(a) Part II of the statute sets up a vad system of prce-f ng as apped
to transactons In Interstate commerce and to those dn Intrastate commerce
where Interstate commerce s drecty or Intmatey affected. The prevang
opnon hods nothng to the contrary.
(b) Part II, wth Its system of prce-f ng, s separabe from Part III,
whch contans the provsons as to abor consdered and condemned In the
opnon of the Court.
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457
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(c) Part II beng vad, the companants are under a duty to come n
under the code, and are sub|ect to a penaty f they persst n a refusa.
(d) The suts are premature n so far as they seek a |udca decaraton
as to the vadty or nvadty of the reguatons n respect of abor emboded
n Part III. No opnon Is e pressed ether drecty or by mpcaton as to
those aspects of the case. It w be tme enough to consder them when there
Is the threat or even the possbty of mmnent enforcement. If that tme
sha arrve, protecton w be gven by cear provsons of the statute (secton
3) aganst any adverse nference fowng from deay or acquescence.
(e) The suts are not premature to the e tent that they are Intended to
avert a present wrong, though the wrong upon anayss w be found to be
unrea.
The companants are askng for a decree to restran the enforcement of
the statute n a or any of ts provsons on the ground that t s a vod
enactment, and vod n a ts parts. If some of ts parts are vad and are
separabe from others that are or may be vod, and f the parts uphed and
separated are suffcent to sustan a reguatory penaty, the n|uncton may not
ssue and hence the suts must fa. There s no need when that concuson has
been reached to str a step beyond. Of the provsons not consdered, some
may never take effect, at east n the absence of future happenngs whch
are st uncertan and contngent. Some may operate n one way as to one
group and n another way as to others accordng to partcuar condtons as
yet unknown and unknowabe. decson n advance as to the operaton and
vadty of separabe provsons n varyng contngences s premnture and
hence unwse. The court w not antcpate a queston of consttutona
aw n advance of the necessty of decdng t. (Steamshp Co. v. mgraton
Commssoners, 113 U. S., 33, 39 brams v. an Schaok, 203 T. 8.. 188 W-
shre O Co. v. Unted States, 295 U. S., 100.) It s not the habt of the court
to decde questons of a consttutona nature uness absoutey necessary to a
decson of the case. ( urton v. Unted States, 196 U. S., 283, 295.) (Per
randes, ., n shcander v. Tennessee aey uthorty, U. S., , ebruary
17, 1936.) The moment we perceve that there are vad and separabe portons,
broad enough to ay the bass for a reguatory penaty, nqury shoud hat.
The companants must conform to whatever Is uphed, and as to parts e -
cuded from the decson, especay f the parts are not presenty effectve, must
make ther protest n the future when the occason or the need arses.
rst: I am satsfed that the ct s wthn the power of the Centra
Government n so far as t provdes for mnmum and ma mum prces upon
saes of btumnous coa n the transactons of nterstate commerce and In
those of ntrastate commerce where nterstate commerce s drecty or nt-
matey affected. Whether t s vad aso n other provsons that have been
consdered and condemned In the opnon of the court, I do not fnd t neces-
sary to determne at ths tme. Sence must not be taken as mportng acqu-
escence. Much woud have to be wrtten If the sub|ect, even as thus restrcted
were to be e pored through a ts mpcatons, hstorca and economc as
we as strcty ega. The fact that the prevang opnon eaves the prce
provsons open for consderaton n the future makes t approprate to forego
a funess of eaboraton that mght otherwse be necessary. s a system of
prce f ng the ct s chaenged upon three grounds: (1) because the govern-
ance of prces s not wthn the commerce cause (2) because t s a dena of
due process forbdden by the ffth amendment and (8) because the standards
for admnstratve acton are ndefnte, wth the resut that there has been
an unawfu deegaton of egsatve power.
(1) Wth reference to the frst ob|ecton, the obvous and suffcent answer Is,
so far as the ct Is drected to nterstate transactons, that saes made n such
condtons consttute nterstate commerce, and do not merey affect t.
(Dahnke-Waker Mng Co. v. ondtrant, 257 U. S., 282, 290 anagan v.
edera Coa Co., 267 U. S., 222, 220 Lcmke v. armers dran Co., 258 U. S.,
50, 60 Pubc Uttes Commsson v. tteboro Steam d ectrc Co., 273
U. S., 83, 90 edera Trade Commsson v. Pacfc States Paper Trade sso-
caton, 273 U. S., 52, 64.) To reguate the prce for such transactons s to
reguate commerce tsef, and not aone ts antecedent condtons or ts ut-
mate consequences. The very act of sae s mted and governed. Prces n
nterstate transactons may not be reguated by the States. ( adcn v. Seeg,
294 U. S., 511.) They must therefore be sub|ect to the power of the Naton
uness they are to be wthdrawn atogether from governmenta supervson.
(Cf. The ead Money cases, 112 U. S., 580, 593 Story, Commentares on the
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458
Consttuton, secton 1082.) If such a vacuum were permtted, many a
pubc ev ncdenta to nterstate transactons woud be eft wthout a remedy.
Ths does not mean, of course, that prces may be f ed for arbtrary reasons
or n au arbtrary way. The commerce power of the Naton s sub|ect to the
requrement of due process ke the poce power of the States. ( amton v.
entucky Dsteres Co., 251 U. S., 146, 156 cf. rooks v. Unted States, 267
U. S., 432, 436, 437 Nebba v. New York, 201 U. S., 502, 524.) eed must be
gven to smar consderatons of soca beneft or detrment n markng the
dvson between reason and oppresson. The evdence s overwhemng that
Congress dd not gnore those consderatons n the adopton of ths ct
What s to be sad n that regard may convenenty be postponed to the part
of the opnou deang wth the ffth amendment.
Reguaton of prces beng an e ercse of the commerce power In respect of
nterstate transactons, the queston remans whether t comes wthn that power
as apped to Intrastate saes where nterstate prces are drecty or ntmatey
affected. Mnng and agrcuture and manufacture are not nterstate commerce
consdered by themseves, yet ther reaton to that commerce may be such that
for the protecton of the one there s need to reguate the other. (Schechter
Poutry Corporaton v. Unted States, 295 U. S., 495, 544, 545, 546.) Some-
tmes t s sad that the reaton must be drect to brng that power nto
pay. In many crcumstances such a descrpton w be suffcenty precse to
meet the needs of the occason. ut a great prncpe of consttutona aw s
not susceptbe of comprehensve statement n an ad|ectve. The underyng
thought s merey ths, that the aw s not ndfferent to consderatons of
degree. Schechter Poutry Corporaton v. Unted States, supra, concurrng
opnon, page 554.) It can not be ndfferent to them wthout an e panson of
the commerce cause that woud absorb or mper the reserved powers of the
States. t tmes, as In the case cted, the waves of causaton w have radated
6o far that ther unduatory moton, f dscernbe at a, w be too fant or
obscure, too broken by cross-currents, to be heeded by the aw. In such crcum-
stances the hodng s not drected at prces or wages consdered In the abstract,
but at prces or wages n partcuar condtons. The reaton may be tenuous
or the opposte accordng to the facts. ways the settng of the facts s to be
vewed f one woud know the coseness of the te. Perhaps, f one group of
ad|ectves s to be chosen n preference to another, Intmate and remote
w be found to be as good as any. t a events, drect and ndrect,
even f accepted as suffcent, must not be read too narrowy. (Cf. Stone, ., n
D Santo v. Pennsyvana, 273 U. S., 34, 44.) survey of the cases shows that
the words have been nterpreted wth suppeness of adaptaton and fe bty
of meanng. The power s as broad as the need that evokes t.
One of the most common and typca nstances of a reaton characterzed as
drect has been that between Interstate and ntrastate rates for carrers by ra
where the oca rates are so ow as to dvert busness unreasonaby from nter-
state compettors. In such crcumstances Congress has the power to protect
the busness of ts carrers aganst dsntegratng encroachments. (The Shreve-
port case, 234 U. S., 342, 351, 352 Wsconsn Raroad Commsson v. Chcago,
urngton unoy R. Co., 257 U. S., 5G3. 588 Unted States v. Lousana,
290 U. S., 70, 75 orda v. Unted States, TSf U. S., 1.) To be sure, the rea-
ton even then may be characterzed as ndrect f one s nce or overtera In
the choce of words. Strcty speakng, the Intrastate rates have a prmary
effect upon the ntrastate traffc and not upon any other, though the repercus-
sons of the compettve system may ead to secondary consequences affectng
Interstate traffc aso. ( tantc Coast Lne R. Co. v. orda, 295 U. S., 301,
806.) What the cases reay mean Is that the casua reaton n such crcum-
stances s so cose and Intmate and obvous as to permt It to be caed drect
wthout sub|ectng the word to an unfar or e cessve stran. There s a ke
Immedacy here. Wthn rungs the most orthodo , the prces for ntrastate
saes of coa have so Inescapabe a reaton to those for Interstate saes that a
system of reguaton for transactons of the one cass Is necessary to gve ade-
quate protecton to the system of reguaton adopted for the other. The argu-
ment s strongy pressed by Intervenng counse that ths may not be true n
a communtes or In e ceptona condtons. If so, the operators unawfuy
affected may show that the ct to that e tent Is nvad as to them. Such
parta nvadty s pany an nsuffcent bass for a decaraton that the ct
Is nvad as a whoe. (Dahnke-Waker Co, v. ondurant, supra, 289 DuPont
v. Commssoner, 289 U. S., 685, 688.)
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What has been sad In ths regard s sad wth added certtude when com-
panants busness s consdered n the ght of the statstcs e hbted n the
severa records. In No. 636, the Carter case, the companant has admtted
that substantay a (over 97 per cent) of the saes of the Carter com-
pany are made n nterstate commerce. In No. 649 the percentngas of ntra-
state saes are, for one of the companng companes, 25 per cent, for another
per cent, and for most of the others 2 per cent or 4. The Carter company
has ts mnes n West rgna the mnes of the other companes are ocated
n entucky. In each of those States, moreover, coa from other regons s
purchased n arge quanttes, and s thus brought nto competton wth the
coa ocay produced. Pany, t s mpossbe to say ether from the statute
Itsef or from any fgures ad before us that nterstate saes w not be pre|u-
dcay affected n West rgna and entucky If ntrastate prces are man-
taned on a ower eve. If t be assumed for present purposes that there
are other States or regons where the effect may be dfferent, the companants
are not the champons of any rghts e cept ther own. ( atch v. Reardon,
204 U. S., 152, 160, 161 Premer-Pabst Saes Co. v. Orosscup (May 18, 1936),
U. S., .)
(2) The commerce cause beng accepted as a suffcent source of power,
the ne t nqury must be whether the power has been e ercsed consstenty
wth the ffth amendment In the pursut of that nqury, Nebba v. New
York (291 U. S., 502) ays down the appcabe prncpe. There a statute
of New York prescrbng a mnmum prce for mk was uphed aganst the
ob|ecton that prce f ng was forbdden by the fourteenth amendment1 We
found t a suffcent reason to uphod the chaenged system that the cond-
tons or practces In an ndustry make unrestrcted competton an nadequate
safeguard of the consumer s nterests, produce waste harmfu to the pubc,
threaten utmatey to cut off the suppy of a commodty needed by the pubc,
or portend the destructon of the Industry Itsef. (291 U. S., at page 538.)
ths may be sad, and wth equa, f not greater force, of the condtons
and practces n the btumnous coa ndustry, not ony at the enactment of
ths statute n ugust, 1935, but for many years before. Overproducton was
at a pont where free competton had been degraded nto anarchy. Prces
had been cut so ow that proft had become mpossbe for a e cept a ucky
handfu. Wages came down aong wth prces and wth profts. There were
strkes, at tmes naton-wde n e tent, at other tmes spreadng over broad
areas and many mnes, wth the accompanment of voence and boodshed
and msery and btter feeng. The sordd tae Is unfoded n many a docu-
ment and treatse. Durng the 23 years between 1913 and 1935, there were
19 nvestgatons or hearngs by Congress or by specay created commssons
wth reference to condtons n the coa mnes. The hope of betterment was
fant uness the Industry coud be sub|ected to the compuson of a code. In
the weeks mmedatey precedng the passage of ths ct the country was
threatened once more wth a strke of omnous proportons. The pght of
the ndustry was not merey a menace to owners and to mne workers: t was
and had ong been a menace to the pubc, deepy concerned n a steady and
unform suppy of a fue so vta to the natona economy.
Congress was not condemned to nacton n the face of prce wars and wage
wars so pregnant wth dsaster. Commerce had been choked and burdened ts
norma fow had been dverted from one State to another there had been bank-
ruptcy and waste and run ake for capta and for abor. The berty pro-
tected by the ffth amendment does not ncude the rght to persst n ths
anarchc rot. When ndustry s grevousy hnrt, when producng concerns
fa, when unempoyment mounts and communtes dependent upon proftabe
producton are prostrated, the wes of commerce go dry. ( ppaachan Coas,
Inc., v. Unted States, 288 U. S., 344, 372.) The free competton so often fg-
ured as a soca goods mports order and moderaton and a decent regard for the
amton v. entucky Dsteres Co. (251 T . S.. 146. 159) : The war power of the
Unted States, ke Its other powcr and ke the poce power of the States, Is sub|ect to
appcabe consttutona mtatons ( parte Mgan. 4 Wa.. 2. 121-127 Monongahea
avnaon Co. v. Unted States, 148 U. ., 312, 336: Unted States v. ont Traffc ssn.,
171 U. S., 505, 571 cCray v. Unted Sates. 19 IT. S.. 27. 61 : Unted States v. Cress.
243 U. 8., 316, 326) but the ffth amendment mposes n ths respect no renter mtaton
upon the Natona power than does the fourteenth amendment upon State power. (Tn re
emmer, 136 D. S.. 436, 448 Carro v. Urcenwch Insurance Co., 10 ) IT. S.. 401. 410.)
(Cf. rook v. Unted States, 267 U. S., 432, 436, 437 Ncbba r. New Tor, 291 T . S.,
502. 524.)
The dates and ttes are gven In the bref for the Government In No. 636, at pages
15-18
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460
wefare of the group. (Cf. The Sugar Insttute, Inc., v. Unted States,
T . S., , March 30, 1936.) There Is testmony n these records, testmony even
by the assaants of the statute, that ony through a system of reguated prces
can the ndustry be stabzed and set upon the road of ordery and peacefu
progress. If further facts are ooked for, they are narrated n the fndngs a9
we as n congressona reports and a mass of pubc records. fter makng
every aowance for dfference of opnon as to the most effcent cure, the
student of the sub|ect s confronted wth the ndsputabe truth that there were
s to be corrected, and s that had a drect reaton to the mantenance of
commerce among the States wthout frcton or dverson. n ev e stng, and
aso the power to correct t, the awmakers were at berty to use ther own.
dscreton n the seecton of the means.
(3) nay, and n answer to the thrd ob|ecton to the statute n ts prce-
f ng provsons, there has been no e cessve deegaton of egsatve power.
The prces to be f ed by the dstrct boards and the commsson must conform
to the foowng standards: they must be |ust and equtabe they must take
account of the weghted average cost of producton for each mnmum prce
area: they must not be unduy pre|udca or preferenta as between dstrcts
or as between producers wthn a dstrct and they must refect as neary
as possbe the reatve market vaue of the varous knds, quates and szes
of coa, at ponts of devery n each common consumng market area to the
end of affordng the producers n the severa dstrcts substantay the same
opportunty to dspose of ther coas on a compettve bass as has heretofore
e sted. The mnmum for any dstrct sha yed a return, per net ton, not
ess than the weghted average of the tota costs per net ton of the ton-
nage of the mnmum prce area the ma mum for any mne, If a ma mum
s f ed, sha yed a return not ess than cost pus a reasonabe proft. Reason-
abe prces can as easy be ascertaned for coa as for the carrage of
passengers or property under the Interstate Commerce ct, or for the servces
of brokers n the stockyards (Tagg ros. d Moorhead v. Unted States, 28
T . S., 420), or for the use of dwengs under the emergency rent aws
( ock v. rsh, 256 U. S., 135, 157 Marcus rown Co. v. edman, 256 U. S..
170 Levy Leasng Co. v. Segc, 258 U. S., 242), adopted at a tme of e cessve
scarcty, when the aws of suppy and demand no onger gave a measure
for the ascertanment of the reasonabe. The standards estabshed by ths
ct are qute as defnte as others that have had the approva of ths Court.
(New York Centra Securtes Corporaton v. Unted States, 287 U. S., 12, 4
edera Rado Commsson v. Neson ros. ond d Mortgage Co., 289 U. S.,
266, 286 Tagg ros, d Moorhead v. Unted States, supra Maher v. by,
264 U. S., 32.) Certany a bench of |udges, not e perts n the coa busness,
can not say wth assurance that members of a commsson w be unabe, when
advsed and nformed by others e perenced n the ndustry, to make the
standards workabe, or to overcome through the deveopment of an admnstra-
tve technque many obstaces and dffcutes that mght be baffng or confusng
to ne perence or gnorance.
The prce provsons of the ct are contaned n a chapter known as Part II.
The fna subdvsons of that part enumerate certan forms of conduct whch
are denounced as unfar methods of competton. or the most part the
prohbtons are ancary to the f ng of a mnmum prce. The power to
f a prce carres wth t the subsdary power to forbd and prevent evason.
(Cf. Unted States v. erger, 250 U. 8., 199.) The few prohbtons that may
be vewed as separate are drected to stuatons that may never be reazed
n practce. None of the companants threatens or e presses the desre to
1 Sec aRo the Report of the fteenth nnua Meetng of the Natona Coa ssocaton.
October 20-27, 1034. and the statement of the resoutons adopted at the s teenth annua
meetng as reported at hearngs premnary to the passage of ths ct. earngs before
a Subcommttee of the Commttee on Ways and Means. ouse of Representatves, Seventy-
fourth Congress, frst sesson, on . R. 8479, pp. 20. 152.
4 There a sgnfcance n the many bs proposed to the Congress after panstakng
reports durng successve natona admnstratons wth a vew to the reguaton of the
coa ndustry by congressona acton. 8. 2 57, October 4. 1921, S ty-seventh Congress,
frst sesson S. 3147. ebruary 13, 1922, S ty-seventh Congress, second sesson: . R.
9222. ebruary 11, 1926, S ty-nnth Congress, frst sesson . R. 11898, May 4. 192
(S. 4177), S ty-nnth Congress, frst sesson S. 2935, anuary 7, 1932 ( . R. 7530),
Seventy-second Congress, frst sesson aso same sesson . R. 12918 and 9924.
s Prce contro, ke any other form of dscrmnaton, s unconsttutona ony f arb-
trary-, dscrmnatory or demonstraby Irreevant to the pocy the egsature Is free to
adopt, and hence an unnecessary and unwarranted Interference wth Indvdua berty.
( ebbfa v. Tee York, supra, at page 538.)
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461
Mso.
do these forbdden acts. s to those phases of the statute the suts are
premature.
Second: The ne t nqury must be whether Part I of the statute whch
creates the admnstratve agences, and Part II, whch has to do n the man
wth the prce-f ng machnery, as we as premnary sectons evyng a ta
or penaty, are separabe from Part III, whch deas wth abor reatons n
the ndustry, wth the resut that what s earer woud stand f what s ater
were to fa.
The statute prescrbes the rue by whch constructon sha be governed. If
any provson of ths ct, or the appcaton thereof to any person or crcum-
stances, s hed nvad, the remander of the ct and the appcaton of such
provsons to other persons or crcumstances sha not be affected thereby.
(Secton 15.) The rue s not read as an ne orabe mandate. (Dorchy v.
ansas, 264 U. S., 286, 290 Utah Power d Lght Co. v. Pfost, 286 U. S., 165,
184 Raroad Retrement oard v. ton R. Co., 295 U. S., 330, 362.) It
creates a presumpton of dvsbty, whch s not apped mechancay or
n a manner to frustrate the ntenton of the awmakers. ven so, the burden
s on the tgant who woud escape ts operaton. ere the probabtes nf
Intenton are far from overcomng the force of the presumpton. They fortfy
and confrm t. confrmatory token s the forma dvson of the statute nto
parts separatey numbered. Part III whch deas wth abor Is physcay
separate from everythng that goes before t. ut more convncng than the
evdences of form and structure, the dvson nto chapters and sectons and
paragraphs, each wth ts proper sub|ect matter, are the evdences of pan
and functon. Part II, whch deas wth prces, s to take effect at once, or as
oon as the admnstratve agences have fnshed ther admnstratve work.
Part III n some of Its most sgnfcant provsons, the secton or subdvson
n respect of wages and the hours of abor, may never take effect at a. Ths
s cear beyond the need for argument from the mere readng of the statute.
The ma mum hours of abor may be f ed by agreement between the producers
of more than two-thrds of the annua natona tonnage producton for the
precedng caendar year and the representatves of more than one-haf the mne
workers. Wages may be f ed by agreement or agreements negotated by
coectve barganng n any dstrct or group of two or more dstrcts between
representatves of producers of more than two-thrds of the annua tonnage
producton of such dstrcts or each of such dstrcts In a contractng group
durng the precedng caendar year, and representatves of the ma|orty of the
mne workers theren. It Is possbe that none of these agreements as to hours
and wages w ever be made. If made, they may not be competed for months
or even years. In the meantme, however, the provsons of Part II w
be contnuousy operatve, and w determne prces n the Industry. Pany,
then, there was no Intenton on the part of the framers of the statute that prces
shoud not be f ed f the provsons for wages or hours of abor were found to
be Invad.
Undoubtedy the rues as to abor reatons are mportant provsons of the
statute. Undoubtedy the awmakers were an ous that provsons so mportant
shoud have the force of aw. ut they announced wth a the drectness
possbe for words that they woud keep what they coud have f they coud
not have the whoe. Stabzng prces woud go a ong way toward stabzng
abor reatons by gvng the producers capacty to pay a vng wage. To
hod otherwse s to gnore the whoe hstory of mnng. In van have
offca commttees Inqured and reported In thousands of prnted pages f
ths esson has been ost In the face of that hstory the Court s now hodng
t a hearng before a Subcommttee of tbe Commttee on Ways and Means, ouse of
Representatves, Seventy-fourth Congress, frst sesson, on n. R. 847D, counse for the
t nted Mne Workers of merca, who had cooperated In the draftng of the ct, sad
(p. 35) :
We have, as can be we understood, a provson of ths code deang wth abor rea-
tons at the mne. We thnk that s |ustfed we thnk It Is Impossbe to conceve of any
reguaton of ths Industry that does not provde for reguaton of abor reatons at the
mnes. I reaze that whe It may be contested, yet I fee that It s gong to be sustaned.
so, there s a provson n ths ct that If ths et, or any part of t, Is decared to
be nvad as affectng any person or persons, the rest of It w be vad, and If the other
frevsons of ths ct st stand and the abor provsons are struck down, we st want
he ct, because t stabzes the Industry and caabes us to negotate wth them on a
bass whch w at east be dfferent from what we have been confronted wth snce pr,
and that s a dsncnaton to even negotate a abor wage scae because they cam they
are osng money.
If the abor provsons go down, we st want the ndustry stabzed so that our
unon may negotate wth them on the bass of a vng mercan wage standard.
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Msc.
4G2
that Congress woud have been unwng to gve the force of aw to the prov-
sons of Part II, whch were to take effect at once, If t coud not have Part
III, whch n the absence of agreement between the empoyers and the mners
woud never take effect at a. Indeed, the prevang opnon goes so far,
t seems, as to nsst that f the east provson of the statute n any of the
three chapters s to be set asde as vod, the whoe statute must go down, for
the reason that everythng from end to end, or everythng at a events begn-
nng wth secton 4, s part of the tumnous Coa Code, to be swaowed
at a snge draught, wthout power n the commsson or even n the court to
abate a |ot or ttte. One can ony wonder what s eft of the presumpton
of dvsbty whch the awmakers were at pans to estabsh ater on.
Codes under the Natona Recovery ct are not a genune anaogy. The Re-
covery ct made t mandatory (secton 7a) that every code shoud contan pro-
vsons as to abor, ncudng wages and hours, and eft everythng ese to
the dscreton of the codfers. Wages and hours n such crcumstances were
propery descrbed as essenta features of the pan, Its very bone and snew
(Schechter Poutry Corporaton v. Unted States, supra, concurrng opnon,
page 555), whch taken from the body of a code woud cause t to coapse.
ere on the face of the statute the prce provsons of one part and the
abor provsons of the other (the two to be admnstered by separate agences)
are made of equa rank.
What s true of the sectons and subdvsons that dea wth wages and the
hours of abor s true aso of the other provsons of the same chapter of the
ct. mpoyees are to have the rght to organze and bargan coectvey
through representatves of ther own choosng, and sha be free from nter-
ference, restrant or coercon of empoyers, or ther agents, n the desgnaton
of such representatves, or n sef-organzaton or n other concerted actvtes
for the purpose of coectve barganng or other mutua ad or protecton, and
no empoyee and no one seekng empoyment sha be requred as a condton
of empoyment to on any company unon. No threat has been made by
any one to do voence to the en|oyment of these mmuntes and prveges.
No attempt to voate them may be made by the companants or ndeed by
any one ese n the term of four years durng whch the ct Is to reman
In force. y another subdvson empoyees are to have the rght of peace-
abe assembage for the dscusson of prncpes of coectve barganng, sha
be entted to seect ther own check-weghman to nspect the weghng or
measurng of coa, and sha not be requred as a condton of empoyment to
ve n company houses or to trade at the store of the empoyer. None of
these prveges or Immuntes has been threatened wth mparment No
attempt to mpar them may ever be made by any one.
nayss of the statute thus eads to the concuson that the provsons of
Part III, so far as summarzed, are separabe from Parts I and II, and that
any decaraton In respect of ther vadty or nvadty under the commerce
cause of the Consttuton or under any other secton w antcpate a con-
troversy that may never become rea. Ths beng so, the proper course s
to wthhod an e presson of opnon unt e presson becomes necessary.
dfferent stuaton woud be here If a porton of the statute, and a porton
suffcent to uphod the reguatory penaty, dd not appear to be vad. If
the whoe statute were a nuty, the companants woud be at berty to stay
the hand of the ta gatherer threatenng to coect the penaty, for coecton
n such crcumstances woud be a trespass, an Iega and forbdden act.
(Chd Labor Ta case, 259 T . S., 20 v. Waace, 259 U. S., 44, 62
Terrace v. Thompson, 263 U. 8., 197, 215 Perce v. Socety of Ssters, 268 U. 8.,
510, 536.) It woud be no answer to say that the companants mght avert
the penaty by decarng themseves code members (secton 8) and fghtng
the statute afterwards. In the crcumstances supposed there woud be no
power n the Natona Government to put that constrant upon them. The
ct by hypothess beng vod In a ts parts as a reguatory measure, the com-
panants mght stand ther ground, refuse to sgn anythng, and resst the
onsaught of the coector as the aggresson of a trespasser. ut the case
as t comes to us assumes a dfferent posture, a posture nconsstent wth the
commsson of a trespass ether present or prospectve. The hypothess of com-
pete nvadty has been shown to be unrea. The prce provsons beng
vad, the companants were under a duty to come In under the code, whether
the provsons as to abor are vad or nvad, and ther faure to come n
has e posed them to a penaty awfuy Imposed. They are thus In no pos-
ton to restran the acts of the coector, or to procure a |udgment defeatng
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463
Mss.
the operaton of the statute, whatever may be the fate hereafter of partcuar
provsons not presenty enforcbe. The rght to an In|uncton fang, the
suts must be dsmssed. Nothng more s needfu no pronouncement more
eaborate for a dsposton of the controversy.
ast assaut upon the statute s st to be repused. The companants take
the ground that the ct may not coerce them through the mposton of a
penaty nto a seemng recognton or acceptance of the code, f any of the
code provsons are nvad, however separabe from others. I can not yed
assent to a poston so e treme. It s one thng to mpose a penaty for
refusng to come n under a code that s vod atogether. It s a very dfferent
thng f a penaty s mposed for refusng to come n under a code nvad at
the utmost n separabe provsons, not mmedatey operatve, the rght to
contest them beng e pcty reserved. The penaty n those crcumstances s
adopted as a awfu sancton to compe submsson to a statute havng the
quaty of aw. sancton of that type s the one In controversy here. So
far as the provsons for coectve barganng and freedom from coercon
are concerned, the same dutes are Imposed upon empoyers by secton 9 of
the statute whether they come n under the code or not. So far as code mem-
bers are sub|ect to reguaton as to wages and hours of abor, the force of the
companants argument s destroyed when reference Is made to those provsons
of the statute n whch the effect of recognton and acceptance Is e paned
and mted. y secton 3 of the ct, No producer sha by reason of hs
acceptance of the code provded for n secton 4 or of the drawback of ta es
provded for n secton 3 of ths ct be hed to be precuded or estopped
from contestng the consttutonaty of any provson of sad code, or ts
vadty as appcabe to sad producer. These provsons are renforced and
made more defnte by sectons 5(c) and 6(b), whch so far as presenty
matera are quoted n the margn. or the subscrber to the code who s
doubtfu as to the vadty of some of ts requrements, there s thus compete
protecton. If ths mght otherwse be uncertan, t woud be made cear
by our decson n parte Young (209 U. S., 123), whch was apped n the
court beow at the nstance and for the beneft of one of these companants to
gve reef aganst penates accrung durng sut. everng v. Carter, No.
651.) nay, the adequacy of the remeda devces s made even more ap-
parent when one remembers that the attack upon the statute In ts abor regu-
atons assumes the e stence of a controversy that may never become actua.
The faure to agree upon a wage scae or upon ma mum hours of day or
weeky abor may make the statutory scheme abortve n the very phases
and aspects that the Court has chosen to condemn. What the code w pro-
vde as to wages and hours of abor, or whether t w provde anythng, s
st n the doman of prophecy. The opnon of the Court begns at the wrong
end. To adopt a homey form of words, the companants have been cryng
before they are reay hurt.
My vote s for affrmance.
I am authorzed to state that Mr. ustce bandes and Mr. ustce Stone
on n ths opnon.
S c. 5. (c) ny producer whose membershp In the code and -whose rght to a draw-
back on the ta es as provded under ths ct has been canceed, sha have the rght to
pare hs membershp restored upon payment by hm of a ta es In fu for the tme dur-
ng whch It sha be found by the commsson that hs voaton of the code or of any
reguaton thereunder, the observance of whch Is requred by Its terms, sha have con-
tnued. In makng Its fndngs under ths subsecton the commsson sha state specf-
cay (1) the perod of tme durng whch such voaton contnued, and (2) the amount
of ta es requred to be pad to brng about renstatement as a code member.
Sbc. 6. (b) ny person aggreved by an order Issued by the commsson or Labor oard
In a proceedng to whch such person s a party may obtan a revew of such order In the
Crcut Court of ppeas of the Unted States, wthn any crcut wheren such person
resdes or has bs prncpa pace of busness, or In the Unted States Court of ppeas for
the Dstrct of Coumba, by fng n such court, wthn 60 days after the entry of such
order, a wrtten petton prayng that the order of the commsson or Labor oard be
modfed or set asde In whoe or In part. The |udgment and decree of the
court, affrmng, modfyng, and enforcng or settng asde, n whoe or n part anv such
order of the commsson or Labor oard, as the case may be, sha be fna, sub|ect to
revew by the Supreme Court of the Unted States upon certorar or certfcaton as pro-
Tded n sectons 239 and 240 of the udca Code, as amended (U. S. C, Tte 28, sectons
a O T
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Regs. 93, rt. 203.
464
C RRI RS T ING CT, PPRO D UGUST 29, 1935
(PU LIC, NO. 400, S NTY- OURT CONGR SS).
S CTION 1. D INITIONS.
Reguatons 93, rtce 3: Defnton of -26-8147
empoyee. S. S. T. 8
The recever operatng the busness of a carrer Is not an
empoyee wthn the meanng of sectons 2 and 4 of the Carrers
Ta ng ct. ccordngy, hs compensaton s not sub|ect to the
ta es Imposed by that ct. The recever s, however, abe for
coecton of the empoyees ncome ta and for the e cse ta
mposed by that ct.
dvce s requested whether the compensaton of a recever operat-
ng the busness of a carrer s sub|ect to the ta es mposed by
sectons 2 and 4 of the Carrers Ta ng ct, approved ugust 29,
1935 (Pubc, No. 400, Seventy-fourth Congress).
The empoyees ncome ta mposed by secton 2 of the Carrers
Ta ng ct and the e cse ta on carrers mposed by secton 4 of
that ct are both measured by the compensaton of empoyees
of a carrer, as such terms are denned by the ct and Reguatons
93 ssued pursuant thereto.
Secton 1 (b) of the ct provdes n part as foows:
The term empoyee means (1) each person who at or after the enactment
hereof s n the servce of a carrer, .
rtce 3 of Reguatons 93 reads n part as foows:
When used In these reguatons, the term empoyee means a person
who at any tme after ugust 28, 1035, performs servces for a carrer n an
empoyment as defned In artce 4. owever, the reatonshp between the
person who performs such servces and the carrer must, as to those servces,
be the ega reatonshp of empoyer and empoyee. The words empoy,
empoyer, and empoyee are to be taken n ther ordnary meanng.
It s hed that a recever operatng the busness of a carrer s
not an empoyee of the carrer wthn the meanng of secton
1(b) of the Carrers Ta ng ct and artce 3 of Reguatons 93.
ccordngy, nether the empoyees ncome ta mposed by secton
2 of the ct nor the e cse ta on carrers mposed by secton 4
thereof attaches wth respect to the compensaton pad to the recever
for servces performed as such. The recever s, however, requred
to coect the empoyees ncome ta mposed by secton 2 of the ct
by deductng or causng to be deducted the amount of the ta
from the compensaton of each empoyee of the carrer as and when
pad, and he s aso abe for the carrers e cse ta mposed by
secton 4 of the ct wth respect to the compensaton pad to each
such empoyee. The recever s abe for the empoyees ncome
ta whether or not coected from the empoyees.
S CTION 3. D DUCTION O T ROM W G S.
Reguatons 93, rtce 203: Coecton of, -24-8126
and abty for, empoyees ta . S. S. T. 5
( so Secton 4 and rtce 303.)
Carrers abty for empoyees Income ta and carrers e cse
ta wth respect to the compensaton of an ndvdua empoyed by
two carrers.
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465
Regs. 93, rt. 203.
dvce s requested reatve to the abty of carrers under sec-
tons 8 and 4 of the Carrers Ta ng ct, approved ugust 29. 1935
compensaton pad to an ndvdua by each of two carrers.
Secton 2 of the ct mposes a ta upon the ncome of every em-
poyee of a carrer at the rate of 3y2 per cent of the empoyee s com-
pensaton not n e cess of 300 per month. Secton 3(a) provdes
that the ta mposed by secton 2 sha be coected by the carrer by
deductng the amount of the ta from the compensaton of the
empoyee as and when pad, and that the carrer sna be abe for
the payment of such ta . Secton 4 mposes an e cse ta upon
every carrer at the rate of 3 per cent of the compensaton not n
e cess of 300 per month pad by t to ts empoyees.
The ndvdua n queston s empoyed by the M Carrer and the
N Carrer. The compensaton receved from each carrer s n e cess
of 300 per month. The foowng questons are rased:
L Whether the M Carrer s requred to deduct the ta from the)
compensaton pad by t to the empoyee f the N Carrer makes such
a deducton from the compensaton t pays to such empoyee If
the M Carrer s requred to make such deducton and the IS Carrer
coects and pays over to the Unted States the ta on the compen-
saton pad by t, s the M Carrer requred to pay over to the Unted
States the amount of ta deducted by t or may t return such amount
to the empoyee
2. If the N Carrer pays the carrers e cse ta mposed by sec-
ton 4 of the ct, s the M Carrer aso requred to pay such ta
wth respect to the compensaton pad by t to the empoyee
The 300 mtaton prescrbed n secton 2 wth respect to the
ncome ta on empoyees reates to the tota compensaton of the
empoyee, whether receved from one carrer or severa carrers. In
other words, an empoyee of two carrers who receves a tota compen-
saton n e cess of 300 per month from both s requred to pay ta
on ony 300. ccordngy, where the tota compensaton receved
from both carrers s 300 or ess per month, under secton 3(a) of
the ct each carrer s requred to deduct the ta from the compensa-
ton pad by t. If the empoyee receves more than 300 per month
from each carrer, the ta may be coected entrey from one carrer
or n part from each carrer, snce the ct does not provde for an
aocaton of the empoyees ncome ta between the two carrers
when the same ndvdua s empoyed by two carrers and receves
more than 300 per month from each carrer. In order to prevent
an overcoecton and overpayment of the empoyees ncome ta and
the consequent ad|ustments n such a case, the carrers may by mutua
agreement determne the porton of the ta each sha deduct from
the empoyee s compensaton. If the correct amount of the ta s
deducted and accounted for by ether or both of the carrers, the
arrangement between the carrers may be made as ther |udgment
and convenence warrant. In any event, both carrers must mantan
records defntey showng how the ta was coected, and must submt
such nformaton wth ther returns on orm 942. If the correct
amount of ta s not reported and pad to the coector, each carrer
may be hed abe for payment of the correct amount of ta due on
the compensaton pad by t. ..-
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Regs. 93, rt. 6.
466
In the nstant case, f the N Carrer deducted the entre amount of
the empoyees ta due wth respect to the empoyee s compensaton,
the M Carrer shoud return to the empoyee the amount of such ta
deducted from the compensaton pad by t.
Wth respect to the e cse ta on carrers mposed under secton 4
of the ct, the mtaton contaned n that secton, under whch the
amount of compensaton n e cess of 300 per month s not sub|ect to
such ta , reates to the tota compensaton pad by the carrer to ts
empoyee, regardess of whether the empoyee aso receves compen-
saton from another carrer. ccordngy the ta abty of the M
Carrer under secton 4 of the ct s dstnct and s not affected by
the ta mposed by that secton upon the N Carrer wth respect to
the compensaton pad by t to the empoyee n queston. It foows
that the M Carrer and the N Carrer are each abe for the carrers
e cse ta at the rate of 3 per cent of the tota amount of compen-
saton not n e cess of 300 per month pad by each carrer to the
empoyee.
S CTION 7. INCOM T ON MPLOY S R PR S NT TI .
Reguatons 93, rtce 6: Defnton of com- -21-8099
pensaton n the case of a representatve . S. S. T. 3
Method of computng ta abty of a fu-tme representatve
of empoyees of a carrer.
dvce s requested as to the method of computng the ta under
secton 7 of the Carrers Ta ng ct, approved ugust 29, 1935
(Pubc, No. 400, Seventy-fourth Congress), n the case of a fu-tme
representatve of an empoyee organzaton who s duy desgnated
and authorzed to represent empoyees under and n accordance wth
the Raway Labor ct.
Secton 7 of the Carrers Ta ng ct provdes:
In addton to other ta es, there sha be eved, coected, and pad
upon the compensaton of each empoyees representatve receved by such repre-
sentatve an ncome ta of 7 per centum annuay upon that porton of the
compensaton of such empoyees representatve not n e cess of 300 per month.
The compensaton of a representatve for the purpose of ascertanng the ta
thereon sha be determned accordng to such rues and reguatons as the Com-
mssoner of Interna Revenue sha deem ust and reasonabe and as near aa
may be sha be the same compensaton as f the representatve were st n the
empoy of the ast former carrer.
rtce 6(b) of Reguatons 93 reads n part as foows:
When used n these reguatons, the term compensaton, n the
case of a representatve, means a remuneraton receved hy hm for servces
performed ns an offcer or other offca of the empoyee organzaton. If the
remuneraton of the representatve for servces performed durng any caendar
month e ceeds 300, the term does not ncude that part of such remuneraton
whch Is n e cess of the frst 300 thereof. If, however, the representatve
estabshes to the satsfacton of the Commssoner that he woud have receved
a esser amount of remuneraton from hs ast former carrer empoyer had he
remaned contnuousy n the empoy of such carrer, the porton of the
remuneraton receved by hm as representatve, not In e cess of such esser
amount, sha be the representatve s compensaton.
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467
Regs. 93, rt. 6.
Under the aw and reguatons above quoted, 300 per month s
the ma mum amount of compensaton receved as an empoyees
representatve whch s sub|ect to the ta . Where the representatve
estabshes to the satsfacton of the Commssoner that tor the same
perod for whch remuneraton was receved as a representatve
ess remuneraton woud have been receved as an empoyee of hs
ast former carrer empoyer (had he remaned contnuousy n ts
empoy) than that receved as a representatve, then the ta may be
computed at the rate of 7 per cent of the amount that woud have
been so receved as an empoyee. or e ampe, f the representa-
tve s compensaton as such s 350 for a gven caendar month, ony
300 of that amount s ta abe. If he woud have receved 310 for
the month from hs ast former carrer empoyer had he remaned
contnuousy n ts empoy, the ta abe compensaton s st 300.
If, however, the compensaton he woud have receved from such
carrer s 250 or a esser amount, ony 250, or the esser amount,
as the case may be, s sub|ect to the ta .
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Regs. 88, rt. 20. 468
N TION L IR RMS CT (1934), S M ND D.
Reguatons 88, rtce 20: Meanng of terms. -22-8107
T. D. 4645
Ta es on certan frearms and machne guns. Secton 1(a) of
the Natona rearms ct approved une 20, 1934, amended by
Pubc, No. 490, Seventy-fourth Congress, approved pr 10,
1936 rtce 20 of Reguatons 88, approved ugust 17, 1934,
amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 88 are amended to gve effect to the provsons of
Pubc, No. 490, Seventy-fourth Congress, approved pr 10, 1936.
Precedng artce 20, and foowng secton (k), there sha be
nserted the foowng:
S CTION (m) O T N TION L IR RMS CT PPRO D UN 2 .
19S4, M ND D Y PU LIC, NO. 490. S NTY- OURT CONGR SS.
PPRO D PRIL 10, 1936.
e t enacted by the Senate and ouse of Representatve of the
Unted States of merca, n Congress assembed, That subsecton (a)
of secton 1 of the Natona rearms ct reatng to the defnton
of frearms s amended by nsertng after defnton a comma
and the foowng: but does not ncude any rfe whch s wthn
the foregong provsons soey by reason of the ength of ts barre
If the caber of such rfe s .22 or smaer and f ts barre s 16
nches or more n ength.
Pursuant to the foregong provsons of aw artce 20(a) of
Reguatons 88 s amended to read as foows:
(a) The terms defned n the above provsons of aw sha have the mean-
ngs so assgned to them, and the defnton of frearms contaned n subsec-
ton (a) above does not ncude any rfe havng a caber of .22 or smaer
f the ength of ts barre s 16 Inches or more.
Ths document s ssued under the authorty contaned n secton 12
of the Natona rearms ct.
Guy T. evernq,
Commssoner of Interna Revenue.
pproved May 25, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster May 27, 1936, 11.59 a. m.)
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469
216.
N TION L INDUSTRI L R CO RY CT.
Secton 216. -3-7917
L T.2951
Computaton of e cess profts ta abty under tbe Natona
Industra Recovery ct for the perod anuary 1 to September 30,
1933, where a corporaton changed ts accountng perod.
dvce s requested whether the decared vaue of the M Company s
capta stock as dscosed by ts capta stock ta return for the year
ended une 30 1933, shoud be prorated n computng ts e cess-
profts ta abty for the perod anuary 1 to September 30, 1933,
under secton 216 of the Natona Industra Recovery ct, the ta -
payer havng been granted permsson by the ureau to change ts
accountng perod begnnng wth the year 1933.
The queston arses n vew of the fact that secton 702 of the
Revenue ct of 1934 provdes n the case of an e cess-profts ta
return for an ncome-ta ta abe year whch s a perod of ess than
12 months that the ad|usted decared vaue of the capta stock set
forth n the corporaton s capta stock ta return sha be reduced to
an amount whch bears the same rato thereto as the number of
months n the perod bears to 12 months, but the Natona Industra
Recovery ct contans no correspondng provson. It s proposed
by the revenue agent to pace the ncome on an annua bass under
secton 47(c) of the Revenue ct of 1932 and at the same tme to
prorate or reduce the ad|usted decared vaue of the capta stock.
Secton 216 of the Natona Industra Recovery ct provdes n
part as foows:
Seo. 216. (a) There s hereby Imposed upon the net ncome of every corpora-
ton, for each Income-ta ta abe year endng after the cose of the frst year
n respect of whch t s ta abe under secton 215, an e cess-profts ta equva-
ent to 5 per centum of such porton of ts net Income for such Income-ta
ta abe year as s n e cess of 12 per centum of the ad|usted decared vaue
of ts capta stock as of the cose of the precedng ncome-ta
ta abe year . The terms used In ths secton sha have the same
meanng as when used n the Revenue ct of 1932.
(b) The ta mposed by ths secton sha be assessed, coected, and pad
In the same manner, and sha be sub|ect to the same provsons of aw (n-
cudng penates), as the ta es Imposed by Tte I of the Revenue ct of
1932. . _
Secton 47(a) of the Revenue ct of 1932 prescrbes the returns
to be fed for a short perod resutng from change of accountng
perod. Secton 47(c) of that ct reads as foows:
(c) Income paced on annua bass. If a separate return Is made under
subsecton (a) on account of a change In the accountng perod, the net
ncome, computed on the bass of the perod for whch separate return s
made, sha be paced on an annua bass by mutpyng the amount thereof
by 12 and dvdng by the number of months Incuded n the perod for whch
the separate return s made. The ta sha be such part of the ta computed
on such annua bass as the number of months n such perod s of 12 months.
In determnng e cess-profts ta abty under the provsons of
secton 216 of the Natona Industra Recovery ct, the provsons
of the Revenue ct of 1932 are appcabe e cept where they are n-
consstent. ccordngy, secton 47(c), supra appes, there beng
no specfc provson n the Natona Industra Recovery ct for
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216.
470
the reducton of the ad|usted decared vaue of capta stock cor-
respondng to secton 702(a) of the evenue ct of 1934. In the
nstant case the corporaton s net ncome for the perod anuary
1 to September 30,1933, was 24,000, and the ad|usted decared vaue
of ts capta stock (vaue as of December 31, 1932) for the year
ended une 30, 1933, on whch the e cess-profts ta deducton for
the perod ended September 30, 1933, s based, was 100,000. The
e cess-profts ta abty shoud be computed as foows:
(1) Net Income for 9-month perod 24,000.00
(2) Item (1) mutped by 12 288,000.00
(3) Net ncome on annua bass ( 2SS,0G M-9) 32,000.00
(4) Deducton of ad|usted decared vaue (12 per cent of
100.000) 12,500.00
(5) Net ncome sub|ect to e cess-profts ta 19,500.00
(0) Ta on tem (5) at 5 per cent -annua bass 975.00
(7) mount of ta for perod ( 975 ) 731.25
It s hed, therefore, that n computng the e cess-profts ta a-
bty under the Natona Industra Recovery ct for a perod of
ess than a year where a corporaton changed ts accountng perod,
the ad|usted decared vaue of ts capta stock shoud not be reduced
but ts ncome shoud be paced on an annua bass. ven though the
resut may be the same under the Natona Industra Recovery ct
and under the Revenue ct of 1934, dfferent methods of computa-
ton are prescrbed by those cts.
It may be added that the above computaton may not be nvoked n
the case of the frst return after organzaton of a corporaton, or the
ast return upon dssouton, regardess of the fact that the perod
durng whch ts ncome s receved or earned s ess than a fu year.
(See ankers Trust Co. v. owers, 295 ed., 89, T. D. 3547, C. .
III-, 237 G. C. M. 2292, C. . I-2, 78 G. C. M. 2080, C. .
I-2, 288 Lous ynve Pantng ds Manufacturng Co. v. Comms-
soner, 5 . T. ., 910, acquescence, C. . I-2. 3 I. T. 2817, C. .
III-2, 116. Compare G. C. M. 15937, page 146, ths uetn.)
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471
T POT TO CT O 1935.
-1-7896
T. D.4620
POT TO OINT R GUL TIONS NO. 1.
ont reguatons pursuant to the provsons of secton 209(b)
of the Potato ct of 1935 pertanng to the form of, and the terms
and condtons reatng to the ssuance of potato ta -e empton
stamps for the aotment year begnnng December 1, 1935.
Unted States Department of grcuture,
Offce of the Secretary.
Unted States Treasury Department,
Offce of the Secretary.
y vrtue of the authorty vested n the Secretary of grcuture
and the Secretary of the Treasury by secton 209(b) of the Potato ct
of 1935, beng Tte II of the ct of Congress approved ugust 24,
1935, Pubc, No. 320, Seventy-fourth Congress, we, R. G. Tugwe,
ctng Secretary of grcuture, and T. . Coodge, ctng Secre-
tary of the Treasury, do make, prescrbe, pubsh, and gve pubc
notce of the foowng reguatons pertanng to the form of, and
the terms and condtons reatng to, the ssuance of potato ta -e emp.
ton stamps for the aotment year begnnng December 1, 1935, to
be n force and effect from the date of approva hereof unt amended
or superseded by reguatons hereafter |onty made by the Secretary
of grcuture and the Secretary of the Treasury under such ct.
In testmony whereof I have hereunto set my hand and caused the
offca sea of the Department of grcuture to be aff ed n the cty
of Washngton ths 9th day of December, 1935.
R. G. Tugwe,
ctng Secretary of grcuture.
In testmony whereof I have hereunto set my hand and caused the
offca sea of the Treasury Department to be aff ed n the cty of
Washngton ths 30th day of December, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
rtce I.
ORM O POT TO T - MPTION ST MPS.
Secton 1. orm of stamps for aotment year commencng December 1, 1935.
Potato ta -e empton stamps sha be prepared n the form of adhesve stamps
and sha be smar n sze to the sma sze Unted States postage stump. On
the face of such stamps sha appear the e pressons, U. S. Department of
grcuture, Seres 1935, and Ta - empt Potatoes. In addton, the
face of each such stamp sha show thereon, n promnent fgures foowed by
the word Pounds or Pound as the case may be, the denomnaton of the
stamp e pressed n the number of pounds of potatoes for whch such stamp s
cacuated to estabsh an e empton from the ta eved and assessed by the
Potato ct of 1935.
Sec. 2. Denomnaton of stamps. The foowng denomnatons of potato ta -
e empton stamps are prescrbed for use n evdencng ta -e empt potato saes
under sad ct: One hundred and s ty-fve (1C5) pounds, one hundred and
ffty (150) pounds, one hundred (100) pounds, ffty (50) pounds, twenty-fve
(25) pounds, ffteen (15) pounds, ten (10) pounds, fve (5) pounds, four (4)
pounds, three (3) pounds, two (2) pounds, and one (1) pound.
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472
rtce II.
T MS ND CONDITIONS R L TING TO T ISSU NC O POT TO T - MPTCOW
ST MPS.
fter apportonments to farms are estabshed In accordance wth reguatons
prescrbed by the Secretary of grcuture, ta -e empton stamps for a quantty
of potatoes equa to the apportonment to each such farm sha be ssued to the
person who, beng egbe therefor, e ecutes and fes, In the form and manner
prescrbed by the Secretary of grcuture, an appcaton for ta -e empton
stamps for such farm, a recept for such stamps, and an agreement reatng to
the utzaton of such stamps by or on behaf of each producer sharng In the
potatoes produced for sae on such farm durng the aotment year for whch
such apportonments were made. Such ta -e empton stamps sha be Issued
In accordance wth suc procedure as sha be estabshed by the Secretary of
grcuture and through such agents or agences as sha be desgnated for such
purpose by the Secretary of grcuture.
btce III.
M NDM NTS.
These reguatons. In whoe or n part, sha be sub|ect to such modfcatons,
amendments, and addtons as may from tme to tme be |onty approved by
the Secretary of grcuture and the Secretary of the Treasury.
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473
Msc.
SOCI L S CURITY CT.
TITL III. T S WIT R SP CT TO MPLOYM NT.
Secton 807: Coecton and payment of ta es. -6-7950
( so Secton 905.) S. S.T.I
Penates for msrepresentaton concernng te ta es mposed by
the Soca Securty ct.
Ttes III and I of the Soca Securty ct mpose ta es at
spected rates measured by the amount of wages as defned n
sectons 811 and 907 of the ct. The ct does not prohbt the ncu-
son of the amount of the ta actuay pad or payabe n the cost
of producton of an artce or n the prce at whch an artce s
sod or eased. owever, secton 1123 of the Revenue ct of 1926,
made appcabe by sectons 807(c) and 905(b) of the Soca Secu-
rty ct, provdes for certan penates for msrepresentaton of any
ta mposed under the authorty of the Unted States.
Secton 1123 provdes as foows:
Whoever n connecton wth the sae or ease, or offer for sae or
ease, of any artce, or for the purpose of makng such sae or ease, makes
any statement, w: t ten or ora, (1) ntended or cacuated to ead any persoa
to beeve that any part of the prce at whch such artce s sod or eased,
or offered for sae or ease, conssts of a ta Imposed under the authorty of
the Unted States, or (2) ascrbng a partcuar part of such prce to a ta
Imposed under the authorty of the Unted States, knowng that such state-
ment s fase or that the ta s not so great as the porton of such prce as-
crbed to such ta , sha be guty of a msdemeanor and upon convcton
thereof sha be punshed by a fne of not more than 1,000 or by mprsonment
not e ceedng one year, or both.
ny person, as defned n secton 1101 (a)3 of the Soca Securty
ct, who makes any statement, wrtten or ora, ntended or cacuated
to ead any person to beeve that any part of the prce for whch an
artce s sod or eased, or offered for sae or ease, conssts of a ta
mposed under the Soca Securty ct, knowng that the statement a
fase or that the amount so represented as the ta s greater than the
amount of ta actuay pad or payabe as such, s sub|ect, upon con-
vcton, to the penates provded for n secton 1123 of the Revenue
ct of 1926.
Secton 811: Defntons. -20-8091
( so Secton 907, rtce 206(5)-(6).) S. S. T. 2
The ta es mposed by Ttes III and I of the Soca Securty
ct are not appcabe wth respect to empoyees of a ghtng
pant, waterworks, or cemetery owned and operated by a cty.
dvce s requested whether abty for the ta es mposed by
Ttes III and I of the Soca Securty ct s ncurred wth
respect to servces performed n the empoy of a ghtng pant,
waterworks, or cemetery owned and operated by a cty.
Ttes III and I of the Soca Securty ct mpose ta es at
specfed rates measured by the amount of wages wth respect to
empoyment as defned n sectons 811 and 907 of the ct. Sec-
84320 3G 10
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474
ton 811 (b) provdes that the term empoyment used n Tte
III means any servce, of whatever nature, performed wthn the
Unted States by an empoyee for hs empoyer, e cept
(7) Servce performed In the empoy of a State, a potca subdvson
thereof, or an nstrumentaty of one or more States or potca subd-
vsons
Secton 907(c) 6 contans an dentca e cepton wth respect to
the ta under Tte I .
rtce 206(5)-(6) of Reguatons 90, reatng to the e cse ta
on empoyers under Tte I , provdes as foows:
Government empoyees. Servces performed by edera and State
empoyees are e cepted. The e cepton e tends to every servce performed
by an ndvdua In the empoy of the Unted States, the severa S ates, the
r- strct of Coumba, or the Terrtory of aska or awa, or any potca
subdvson or nstrumentaty thereof, ncudng every unt or agency of
government, wthout dstncton between those e ercsng functons of a gov-
ernmenta nature and those e ercsng functons of a propretary nature.
Snce the e cepton n secton 811(b)7 s dentca wth that con-
taned n secton 907(c)6, the nterpretaton of the atter secton n
artce 206(5)-(6) of Reguatons 90 s equay appcabe to Tte
III.
It s hed that nether the ncome ta on empoyees nor the e cse
ta on empoyers mposed by Tte III of the Soca Securty ct
w appy wth respect to servces performed n the empoy of a
cty owned and operated ghtng pant, waterworks, or cemetery,
and that the e cse ta on empoyers mposed by Tte I of that
ct does not attach wth respect to such servces.
Secton 811: Defntons. -24-8127
Labty of the M Commttee, a potca organzaton, for the
ta es Imposed upon empoyers and empoyees by Ttes III and
I of the Soca Securty ct.
dvce s requested whether the M Commttee, a potca organ-
The ta mposed by secton 801, Tte III, of the Soca Securty
ct s an ncome ta equa to the specfed percentages of the wages
(as defned n secton 811) receved by every ndvdua after De-
cember 31, 1936, wth respect to empoyment after such date.
The ta mposed by secton 804, Tte III, of the ct s an e cse
ta on every empoyer wth respect to havng ndvduas n hs
empov, equa to the specfed percentages of the wages pad by hm
after December 31, 1936, wth respect to empoyment after such
date. The ta mposed by secton 901, Tte I , of the ct s
an e cse ta on every empoyer (as defned n secton 907(a)), wth
respect to havng ndvduas n hs empoy, equa to the specfed
percentages of the tota wages payabe by hm wth respect to em-
poyment durng the caendar year 1936 and succeedng caendar
years.
The term empoyment as used n Ttes III and I of the
ct s defned by secton 811(b) and secton 907(c) of the ct as
meanng any servce, of whatever nature, performed wthn the
( so Secton 907, rtce 206.)
S. S. T. 6
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475
Msc.
Unted States by an empoyee for hs empoyer, wth the e cepton
of certan servces whch are specfcay set forth n those sectons.
Snce the ta es mposed by Ttes III and I of the Soca
Securty ct are appcabe wth respect to a empoyment, e cept
as provded n sectons 811(b) and 907 (a) and (c), and as t does
not appear that the servces performed for the M Commttee by ts
empovees come wthn any of the e cepted servces specfed n sec-
tons 811(b) and 907(c) of the ct, t s hed that the M Commt-
tee, whch quafes as an empoyer, s abe wth respect to the
ta es mposed upon empoyers and empoyees by Ttes III and I
of the Soca Securty ct.
Secton 811: Defntons. -24-8128
( so Secton 907, rtce 203.) S.S.T.7
empton of an organzaton from fng returns of ncome
tnder the provsons of the ncome ta aws of the Unted States
does not e tend to ta es mposed by the Soca Securty ct, e emp-
ton from whch must be determned soey on the bass of the
e empton provsons contaned n that ct.
dvce s requested whether the M Chamber of Commerce s e -
empt from ta aton under the provsons of the Soca Securty ct.
The nqurer s of the opnon that nasmuch as the M Chamber of
Commerce s e empt from ncome ta aton under the varous Reve-
nue cts t s aso e empt from ta aton under the Soca Securtv
ct.
The ta ng provsons of the Soca Securty ct are contaned n
Ttes III and I of that ct. The e cse ta under the Soca
Securty ct, equa to specfed percentages of the wages pad
wth respect to empoyment, s eved on a empoyers, regard-
ess of status under the provsons of other ta ng cts, wth respect
to havng ndvduas n ther empoy, and the ncome ta s eved
on the wages receved by every ndvdua, regardess of status
under the provsons of other ta ng cts, wth respect to empoy-
ment (as defned n the ct).
Secton 811(b) of the ct provdes as foows:
The term empoyment means any servce, of whntever nature,
performed wthn the Unted States by an empoyee for hs empoyer, e cept
(1) grcutura abor
(2) Domestc servce n a prvate home
(3) Casua abor not n the course of the empoyer s trade or busness
(4) Servce performed by an ndvdua who has attaned the age of 05
(5) Servce performed as an offcer or member of the crew of a vesse docu-
mented under the aws of the Unted States or of any foregn country
(6) Servce performed n the empoy of the Unted States Government or of
an nstrumentaty of the Unted States
(7) Servce performed n the empoy of a State, a potca subdvson
thereof, or an nstrumentaty of one or more States or potca subdvsons
(8) Servce performed n the empoy of a corporaton, communty chest,
fund, or foundaton, organzed and operated e cusvey for regous, char-
tabe, scentfc, terary, or educatona purposes, or for the preventon of
cruety to chdren or anmas, no part of the net earnngs of whch nures to
the beneft of any prvate sharehoder or ndvdua.
Secton 907(c) of the ct provdes as foows:
The term empoyment means any servce, of whatever nature,
performed wthn the Unted States by an empoyee fqr hs empoyer, e cept
(1) grcutura abor
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Rega. 90, rt. 200
476
(2) Domestc servce In a prvate home
(8) Servce performed as an offcer or member of the crew of a vesse on
the navgabe waters of the Unted States
(4) Servce performed by an ndvdua n the empoy of hs son, daughter,
or spouse, and servce performed by a chd under the age of 21 In the empoy
of hs father or mother
(5) Servce performed n the empoy of the Unted States Government or
of an nstrumentaty of the Unted States
(6) Servce performed In the empoy of a State, a potca subdvson
thereof, or an Instrumentaty of one or more States or potca subdvsons
(7) Servce performed In the empoy of a corporaton, communty chest,
fund, or foundaton, organzed and operated e cusvey for regous, char-
tabe, scentfc, terary, or educatona purposes, or for the preventon of
cruety to chdren or anmas, no part of the net earnngs of whch nures to
the beneft of any prvate sharehoder or ndvdua.
empton was granted to the M Chamber of Commerce under
the ncome ta aws n vew of the specfc e empton contaned n
the varous Revenue cts (for edera ncome ta purposes ony)
appyng to busness eagues, chambers of commerce, rea estate
boards, or boards of trade not organzed for proft and no part of
the net earnngs of whch nures to the beneft of any prvate share-
hoder or ndvdua. though the M Chamber of Commerce has
been hed to be e empt from fng returns of ncome mder the prov-
sons of the ncome ta aws, such e empton does not e tend to the
ta es mposed bv the Soca Securty ct. empton, f any, under
that ct must be determned soey on the bass of the e empton
provsons contaned theren. There s no provson n that ct
under whch the M Chamber of Commerce s entted to e empton
from ts ta ng provsons.
Indvduas who were pensoned pror to December 31, 1935,
and who have performed no servces for ther former empoyer
snce that date are not consdered to be empoyees wthn the
meanng of Tte I of the Soca Securty ct.
The foowng queston has been submtted by an empoyer n the
State of R:
We have about y peope whom we pay weeky, havng been pensoned off by
us for fe, the pensons runnng from w doars to 4a doars per week. The
queston Is, do we have to pay unempoyment compensaton upon the amount
of ts pay ro each week, nso w we have to make payment aganst ths part
of our pay ro for od age assstance
Secton 901 of the Soca Securty ct provdes n part:
On and after anuary 1, 1936, every empoyer (as defned In secton
907) sha pay for each caendar year an e cse ta , wth respect to havng
Indvduas n hs empoy, equa to the foowng percentages of the tota wages
(as defned In secton 907) payabe by hm (regardess of the tme of pay-
ment) wth respect to empoyment (as defned by secton 907) durng such,
caendar year:
It w be noted from the foregong that the ta provded by Tte
I of the Soca Securty ct s mposed wth respect to empoy-
ment. That term s defned by secton 907(c) of the ct as beng
any servce, of whatever nature, performed wthn the Unted States
TITL I . T ON MPLOY RS O IG T OR MOR .
Secton 901: Imposton of ta .
rtce 200: Nature of ta .
-22-8105
S. S. T. 4
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477
Regs. 90, rt. 206 (5)-(6).
by an empoyee for hs empoyer, wth certan e ceptons not pert-
nent to ths nqury. Tte I of the ct, whch became effectve
anuary 1. 1936, contempates ony those servces rendered by em-
poyees subsequent to December 31, 1935. ccordngy, ndvduas
who were pensoned pror to December 31, 1935, and who have per-
formed no servces for ther former empoyer snce that date, are
not consdered empoyees wthn the meanng of Tte I ot the
Soca Securty ct and the ta ng provsons of that tte are not
appcabe wth respect to such ndvduas.
Secton 905: dmnstraton, refunds, and penates.
Penates for msrepresentaton concernng the ta es mposed by
the Soca Securty ct. (See S. S. T. 1, page 473.)
Secton 907: Defntons.
rtce 203: Persons abe for the ta .
empton of organzatons from ta es mposed by the Soca
Securty ct. (See S. S. T. 7, page 475.)
Secton 907: Defntons.
rtce 206: cepted servces generay.
M Commttee and empoyees of that organzaton. (See S. S. T.
6, page 474.)
Secton 907: Defntons.
rtce 206(5)-(6): Government empoyees.
mpoyees of a ghtng pant, waterworks, or cemetery owned and
operated by a cty. (See S. S. T. 2, page 473.)
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Regs. 8(1934), rt. 110. 478
TO CCO.
Reguatons 8(1934), rtce 110: Contents of -6-7948
statutory packages. T. D. 4623
Contents of statutory packages of tobacco, snuff, cgars, and
cgarettes.
Reguatons No. 8, reatng to the ta es on tobacco, snuff, cgars,
and cgarettes, aso on cgarette papers and tubes and purchase
and sae of eaf tobacco, amended.
Treasury Department,
Offce or Commssoner or Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 110 of Reguatons No. 8, as revsed and approved Novem-
ber 12, 1934, s amended to read as foows:
kt. 110. Contents of statutory packages. (a) Manufacturers are requred
to put up ther tobacco, snuff, cgars, or cgarettes In statutory packages.
statutory package of tobacco, snuff, cgars, or cgarettes means a package whch
contans ony that artce upon whch the ta Is pad. The contents of a
statutory package must be mted to the net number of pounds or ounces of
tobacco or snuff, or the number of cgars, or cgarettes, ndcated by the stamp
aff ed to the package. owever, manufacturers may pace wthn ther stat-
utory packages contanng tobacco, snuff, cgars, or cgarettes sma adver-
tsng cards, coupons, certfcates, paper bands, crcuars, trade-mark tn tags,
and trade-mark strps whch do not materay ncrease the weght of the
contents or the sze of the package, and whch are Intended as an advertse-
ment of the busness of the manufacturer and concern the manufacture and
sae of hs tobacco, snuff, cgars, or cgarettes. The manufacturer s regstered
factory number, dstrct, and State, or hs name and address sha appear
upon such cards, coupons, certfcates, or other advertsng ma ter. Manu-
facturers usng tssue, fo, ceophane, or other ghtweght wrappngs for cgars,
may prnt thereon the name and address, or busness of the dstrbutor, cus-
tomer, or consumer.
(6) Lottery features barred. The advertsng matter to be packed by a
manufacturer wthn hs statutory package of tobacco, snuff, cgars, or cg-
arettes w not be prohbted, athough ntended to be returned to the manu-
facturer or to some person desgnated by hm thereon and e changed for other
artces, provded the dstrbuton of the prze artces does not depend upon
the event of a ottery. The equaty or nequaty of the redempton vaue of
coupons, certfcates or other advertsng matter on the one hand, or cost of
redempton thereof to the manufacturer on the other hand, determnes whether
the statute s voated. ny dfferentaton as to the character of coupons,
certfcates or other advertsng matter whch have a redempton vaue, to meet
varyng condtons n dfferent States whch bar ther use, consttutes a vo-
aton of the statute.
(c) Indecent pctures, prnts, or words, etc. It s not the purpose of the
Commssoner to defne or decde what pctures, representatons, prnts, or
words sha be regarded as mmora or Indecent as dstngushed from other
pctures, representatons, prnts, or words that may be regarded as egtmate,
and manufacturers must refran from submttng to the offce any queston
reatng to the proposed use of doubtfu matter for advance offca opnon,
and the crcuaton of advertsng matter w be at the rsk of the manu-
facturer Incosng the same In statutory packages of tobacco, snuff, cgars,
and cgarettes.
If a manufacturer Is found voatng the aw wth respect to ottery tckets
and ndecent and mmora pctures, representatons, prnts, or words, the
penates Imposed by secton 8450 of the Revsed Statutes w be Invoked.
Guy T. everng,
Commssoner of Interna Revenue.
pproved anuary 30, 1936.
T. . Coodge,
ctng Secretary of the Treasury,
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MISC LL N OUS RULINGS.
DISTILL D SPIRITS, TC.
Reguatons 20, rtce 3. -11-8001
T. D. 4628
mendment of artce 3, Reguatons 20.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Dstrct Supervsors and Others Concerned:
Reguatons 20, artce 3, s hereby amended to read as foows:
genera bonded warehouse must be an entre budng, sutabe for tbat
purpose, or a separate and secure room In a sutabe budng but no dweng
house sha be used for such purpose, and no door, wndow, or other openng
sha be made or permtted n the was of such budng or room eadng nto
any other room or budng, e cept that when a room Is used the door, when
necessary, may ead nto a ha or passage way, or eevator shaft and a
doors, e cept the one on whch the Government ock Is paced, must be securey
cosed and barred on the nsde, and on a wndows ron bars must be paced,
or sod shutters whch must be securey barred or fastened on the Insde.
Such warehouse sha not be under the same roof or n the same budng
wth a dstery, Industra acoho pant or rectfyng estabshment, provded,
however, the Commssoner of Interna Revenue, may, n Instances where the
revenue w not be |eopardzed thereby, permt a genera bonded warehouse
to be under the same roof or In the same budng wth a rectfyng estabsh-
ment, and, e cept as to such warehouses heretofore estabshed, no dster
or any other person engaged n the producton or rectfyng of dsted sprts
sha be nterested n such warehouse as propretor.
Such warehouse must be a frst-cass warehouse, accordng to the cassfca-
ton of fre nsurance companes of the cty or pace, or of the board of fre
underwrters where such e sts.
Gut T. everng,
Commssoner.
pproved March 6, 1936.
Watne C. Tayor,
ctng Secretary of the Treasury.
-G-7944
T. D.4C24
(T. D. (Customs) 48104)
Dsposton to be made of forfeted dsted sprts (ncudng
acoho), wne, and mat beverages.
Treasury Department,
Offce of the Secretary of the Treasury,
Washngton, D. C, anuary 15, 1936.
To Dstrct Supervsors, Interna Revenue, Coectors of Customs,
and Others Concerned:
Secton 9 of the edera coho dmnstraton ct, approved
ugust 29, 1935, provdes as foows:
(a) dsted sprts, wne, and mat beverages forfeted, summary or by
order of court, under any aw of the Unted States, sha be devered to the
Secretary of the Treasury to be dsposed of as herenafter provded.
(479)
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Msc.
480
(b) The Secretary of the Treasury sha dspose of a dsted sprts, wne,
and mat beverages whch have been devered to hm pursuant to subsecton
(a)
(1) y devery to such Government agences as, n hs opnon, have a need
for suc dsted sprts, wne, or mat beverages for medcna, scentfc, or
mechanca purposes or
(2) y gft to such eeemosynary nsttutons as, n hs opnon, have a need
for such dsted sprts, wne, or mat beverages for medcna purposes or
(8) y destructon.
(e) No dsted sprts, wne, or mat beverages whch have been sezed under
any aw of the Unted States may be dsposed of n any manner whatsoever
e cept after forfeture and as provded n ths secton.
(d) The Secretary of the Treasury s authorzed to make a rues and regua-
tons necessary to carry out the provs ns of ths secton.
Pursuant to the authorty contaned n the above secton of aw,
the foowng reguatons are prescrbed:
1. s used n these reguatons the terms
(a) coho means tat substance known as ethy acoho, hydrated o de
of ethy, or sprt of wne from whatever source or whatever processes pro-
duced.
(6) Insttuton and eeemosynary nsttuton sha mean any nonproft
nsttuton organzed and operated for chartabe purposes, whose net ncome
does not nure n whoe or n part to the beneft of sharehoders or ndvduas,
whch sha have fed wth the Drector of Procurement a satsfactory affdavt
estabshng such status.
(o) gency or Government agency sha mean any e ecutve department,
ndependent estabshment, board, commsson, bureau, servce, or dvson of
the Unted States and any corporaton n whch the Unted States owns a or
a ma|orty of the stock.
2. The Drector of Procurement sha dspose of a dsted sprts (ncudng
acoho), wne, and mat beverages whch have been reported to hm under these
reguatons by the sezng agences n the manner outned In paragraph (b)
of secton 9 of the edera coho dmnstraton ct.
8. The Drector of Procurement sha mantan sts of a dstUed sprts
(Incudng acoho), wne, and mat beverages reported to hm, and Government
agences and eeemosynary Insttutons desrng the transfer thereof sha
forward ther requstons n trpcate to the Drector of Procurement to cover
not more than one year s requrements, specfcay statng the knd desred,
quantty, pace of devery, and other specfcatons, f any, requred to f the
partcuar need, and the purpose for whch to be used. The heads of the
departments or Independent estabshments of the Unted States sha submt
a requstons of ther agences.
4. The Drector of Procurement sha act upon such requests as he may
determne proper, gvng preference, however, to the requests of Government
agences. The recevng agency or nsttuton sha pay a costs n connecton
wth packng and transportaton.
5. In order to avod deays and costs ncdent to possbe shpment of dsted
sprts (Incudng acoho), wne, and mat beverages, whch w not meet the
requrements of the requstonng agency or nsttuton, t sha, e cept In the
case of acoho for mechanca use, arrange drecty wth the sezng agency as
soon as transfer Is authorzed to have sampes forwarded for testng before
shpment of the entre quantty s undertaken.
6. If t Is determned from sampes furnshed that any such dsted sprts
(Incudng acoho), wne, and mat beverages do not meet the requrements
and are not desred, the requstonng agency or nsttuton w advse the
Drector of Procurement, In order that other dsposton thereof may be made.
7. No forfeted dsted sprts (Incudng acoho), wne, or mat beverages
sha be sod. pror reguatons reatng to the sae of forfeted dsted
sprts (ncudng acoho), wne, and mat beverages, and predcated upon
other e stng aw are hereby superseded.
8. No dsted sprts (ncudng acoho), wne, or mat beverages, sezed
under any aw of the Unted States, sha be destroyed or otherwse dsposed
of e cept after forfeture and as provded n these reguatons. regua-
tons or nstructons reatng to destructon or other dsposton of sezed ds-
ted sprts (Incudng acoho), wne, or mat beverages, pror to forfeture,
are hereby superseded.
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481
Mso.
9. Upon consummaton of summary or admnstratve forfeture, or upon
recept of advce of the entry of a court order decreeng forfeture and drect-
ng devery to the Secretary of the Treasury, of dsted sprts (Incudng
acoho), wne, or ma beverages the chef offcer of the sezng agency w
prepare nterna-revenue orm 1503 n quntupet, submttng three copes to
the Drector of Procurement, sendng one copy to the head of hs agency, and
retanng the remanng copy n hs fe: Provded, That dsted sprts (n-
cudng acoho), wne, or mat beverages not ft for human consumpton or for
scentfc or mechanca purposes, and acoho of ess proof than 160 degrees,
need not be reported to the Drector of Procurement but sha be destroyed.
10. Domestc wne, mat beverages, and dsted sprts (other than acoho),
whch are not produced at a regstered wnery, brewery, or dstery, w be
regarded as unft for human consumpton and sha be destroyed after for-
feture. coho of ess proof than 100 degrees sha aso be destroyed after
forfeture. oregn wne, mat beverages and dsted sprts (other than
acoho), and domestc wne, mat beverages and dsted sprts (other than
acoho), produced at regstered wneres, breweres or dsteres sha not
be destroyed, e cept as provded n paragraph 11 or uness anayss by Govern-
ment chemsts shows that they are unft for human consumpton.
11. Where the amount of dsted sprts (ncudng acoho), wne, or mat
beverages nvoved n any sezure s ess than 5 wne gaons, nterna-revenue
orm 1563 need not be prepared or submtted to the Drector of Procurement,
and such dsted sprts (ncudng acoho), wne, or mat beverages w be
destroyed mmedatey after forfeture: Provded, That dsted sprts (other
than acoho) of any one knd and brand In e cess of 1 gaon, sha not be
destroyed under ths paragraph.
12. Representatve sampes of a acoho, and of other dsted sprts, wne,
and mat beverages not destroyed under the authorty contaned n paragraphs
(10) and (11) hereof sha be taken from the contaners n whch sezed, and
sha be anayzed by the nearest Government chemst. copy of the chemst s
report w be attached to the orgna of Interna-revenue orm 1563 transmtted
to the Drector of Procurement, and a copy of the report retaned In the fes of
the sezng agency.
13. orfeted acoho may be awarded by the Drector of Procurement to
eeemosynary nsttutons for medcna purposes ony. It may be awarded by
the Drector of Procurement to Government agences (1) for medcna or sc-
entfc purposes, and (2) for mechanca purposes for use by such agences n
nstances where, n the |udgment of the sezng agency and upon approva of
the head thereof, any part or a of a sezure can economcay be denatured and
transferred. Potabe acoho awarded for transfer to any agency for mechan-
ca purposes sha be denatured In the manner requred by the sezng agency,
under the supervson of an offcer of the sezng agency, pror to reease or
transfer thereof. The agency desgnated to receve such acoho sha purchase
a denaturng materas and pay for abor costs ncdent to such denaturaton.
14. When dsted sprts (ncudng acoho), wne, or mat beverages whch
have been reported on nterna-revenue orm 1563 are not assgned to a Gov-
ernment agency for offca use, or dsposed of by gft to an eeemosynary nst-
tuton, fed offcers submttng the forms w be so advsed by the Drector of
Procurement, and the sprts (ncudng acoho), wne, or mat beverages sha
be destroyed.
15. ed offcers w mantan a record of a forfeted sprts (ncudng
acoho), wne, or mat beverages reported to the Drector of Procurement.
Where authorty s not receved wthn a reasonabe tme to transfer the art-
ces to a Government agency or an eeemosynary nsttuton, a foow-up etter
shoud be sent to the Drector of Procurement requestng defnte nformaton
concernng ther utmate dsposton. Prompt dsposton shoud bo made to
prevent unnecessary storage charges.
16. Dstrct supervsors w report on nterna-revenue orm 1565, prepared
n dupcate, the dsposton of a sprts (ncudng acoho), wne, or mat
beverages drected by the Drector of Procurement, the orgna thereof to be
sent to the Deputy Commssoner and the copy retaned n the dstrct super-
vsor s fes. Coectors of customs sha report such dsposton n the manner
requred by reguatons for reportng the transfer of sezed property to other
agences for offca use.
T. . COOLIDG ,
ctng Secretary of the Treasury.
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482
-15-8040
Ct D. 1104
ta on dsted sprts revenue act op 1926 revsed statutes
decson of supreme court.
1. forfeture proceedngs sa|b of acoho proceedngs to
nforce Ta Len ganst Proceeds Tmeness of Petton.
The Unted States fed a be In admraty seekng forfeture
of a cargo of acoho sezed n December, 1932, for voaton of
customs and navgaton aws. The crcut court of appeas, re-
versng the decree of forfeture entered by the dstrct court,
ordered the acoho sod free of a Government ta es or ta ens
and the proceeds pad nto the regstry of the court. Later, a
petton of the Unted States, askng that the proceeds of the sae be
apped In satsfacton of ts ta en, was dened by the crcut
court of appeas on the ground that the queston of ta es had not
been rased n the be. Under these facts, deferrng the cam for
ta es unt after fna ad|udcaton of the be proceedng was not
datory conduct, snce, f a forfeture had been decreed, there
woud have been no occason to proceed aganst the property for
ta es.
2. Ta on coho Len.
The ta sought to be recovered was not a penaty mposed for
voaton of the Natona Prohbton ct and hence uncoectbe
because of the repea of the eghteenth amendment, but was the
basc ta upon dsted sprts. Irrespectve of ther ega or ega
orgn. The Unted States has the rght to enforce Its en for
ta es, whch attaches as soon as the acoho comes nto e stence
as such, contnues unt the ta s pad, and s vad aganst a
transferees wthout assessment, dstrant, or other admnstratve
proceedngs.
8. stoppe ecton of Remedes Waver.
y nsttutng forfeture proceedngs the Unted States was not
estopped, because of an eecton of remedes, from ater prosecut-
ng Its ta cam, the ta proceedng beng founded upon a rght
dstnct from, and entrey consstent wth, the rghts theretofore
asserted. Nor s the Unted States estopped where the order of
sae provded, n effect, that e stng ens shoud attach to the
proceeds of the sae, and counse for the Government had made no
agreement to wave the ta en on the proceeds.
4. ursdcton of Courts.
The crcut court of appeas sttng n admraty has ursdc-
ton to enforce the en for ta es, the proceeds of the sae beng
n ts custody, and the Supreme Court has ursdcton to revew
the decson as to the ta queston, whch had not theretofore been
tgated and whch was not barred by the earer proceedngs.
Supreme Court of the Unted States.
Unted States, pettoner, v. rank Rzzo, Camant of 146,157 Gaons of coho.
On certorar to the Unted States Crcut Court of ppeas for the Thrd Crcut
March 9, 1936.
OPINION.
Mr. ustce randes devered the opnon of the Court.
In December, 1932, a cargo of acoho was sezed by Customs and Coast
Guard offcas actng together and the Unted States fed, n the edera
court for New ersey, a be In admraty prayng forfeture for voaton
of the customs and navgaton aws. Rzzo, as camant, fed an answer.
decree of forfeture was entered on the ground that the cargo was carred
on a vesse empoyed n a trade other than that for whch she was censed.
The court of appeas reversed, ctng Unted States y. Chambers (291 U. 8.,
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483
Mso.
217) . Whe the Government s petton for a rehearng, ater dened, was
pendng, that court ordered, upon appcaton by Rzzo for sae of the acoho,
that It be sod, free and cear of a cams of any knd or character that
the proceeds be deposted In the regstry and that they be substtuted In the
pace and stead of sad 148,157 gaons of acoho, and that a further proceed-
ngs heren sha be aganst sad proceeds of sae.
The marsha sod the acoho for 1.85 per wne gaon. In confrmng the
sae, the court ordered (1) that the acoho be devered to the purchaser free
of a Government ta es or ta ens and customs dutes (2) that t sha
be treated by the Unted States Government and any of ts departments as
ta -pad, Irrespectve of the ack of any stamp or ta certfcate aff ed thereto
on the respectve contaners In whch sad acoho may be deposted or con-
taned and (3) that the proceeds of sae be pad Into the regstry of the
court. We dened a wrt of certorar, sought on the ground that the crcut
court of appeas acked authorty to Incude the provson regardng ta es n
ts order of confrmaton. (294 U. S., 709.)
Thereupon, the Unted States fed n the crcut court of appeas a petton
askng that the proceeds of the sae be pad nto the Treasury of the Unted
States n satsfacton of the en for ta es due on the acoho made proof
that the ta es e ceeded the proceeds of the sae and fed wth the cerk
notces of evy and warrant for dstrant. The court rued that the petton
coud not be entertaned, because the Government had faed to rase the ques-
ton of ta es when t fed ts be but had wated unt after dena of certorar
to seek such reef. ccordngy, the court drected that the proceeds be pad
to the camant or hs assgns.1 To revew ths order we granted certorar, a
msconstructon of the statutes concernng ta ens and a departure from the
usua course cf proceedngs beng charged. (296 U. S., .)
rst. zzo does not attempt here to support the order on the ground
stated by the court of appeas. Nor coud he we do so. The cam for ta es,
beng nonmartme, coud not have been set forth n the be. (Compare The
Steamboat Oreans v. Phoebus, 11 Pet., 175, 182.) To defer presentng the
cams for ta es unt after the fna decree ad|udcatng the rght to the
property was not datory conduct. Obvousy, there woud have been no
occason to proceed aganst the property for coecton of the ta f the acoho
had been decared forfet to the Unted States.
Second. Rzzo contends that the ta sought to be recovered s a penaty
Imposed for voaton of the Natona Prohbton ct hence uncoectbe, be-
cause of the repea of the eghteenth amendment. (.Unted States v. Cambers,
2 1 U. S- 217.) ut ths ta s not a penaty. It s the basc ta upon dsted
sprts rrespectve of ther ega or ega orgn. (Unted States v. One ord
Coupe, 272 U. S., 321, 328 arous Item of Person Property v. Unted States,
282 U. S., 577, 579.) en attaches to acoho as soon as t s n e stence
as such and contnues unt the ta s pad. (Revsed Statutes, sectons 3248,
3251 Thompson v. Unted States, 142 U. S., 471, 474.) That en Is vad
aganst a transferees, wthout assessment, dstrant or other admnstratve
proceedngs. ( kan v. ean, 1 ed. Cas. No. 202, 418 Unted States v. Turner,
28 ed. Cas. No. 16,548, 232.)
Rzzo ob|ects here that the acoho does not appear to have been of domestc
manufacture. s answer In the dstrct court stated that It was not mported
and there s no showng that t was. s the acoho was sub|ect to the ta ,
the burden rested upon hm to prove payment. (Revsed Statutes, secton
3333, as amended.) No evdence to that effect was Introduced. The contrary
was estabshed.
Thrd. Rzzo contends that the Unted States Is estopped from coectng the
ta , because t eected to seek forfeture for voaton of the Natona Pro-
hbton ct. ut the Government made no such attempt The be sought
forfeture on four grounds. Three of them were for voaton of provsons
n the Tarff ct of 1930 ( une 17, 1930, ch. 497, 46 Stat., 590). The fourth
was for voaton of the navgaton aws. (Revsed Statutes, secton 4377.)
The dstrct court decreed forfeture on the fourth ground, wthout passng on
the other three. The petton presented to the crcut court of appeas has
no reaton to navgaton or customs aws. It states a cam based soey upon
the Interna revenue aws. The present proceedng s thus founded on a rght
dstnct from, and entrey consstent wth, the rghts theretofore asserted.
(Compare Unted States v. One ord Coupe, 272 U. S., 321, 327, 333-334.) No
1 Rzzo bad fed wth the cerk notce ot assgnment of the proceeds In amounts aggre-
gatng neary the whoe of the depost
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Msc. 484
reference was made In the be, and no evdence was Introduced In the dstrct
court, wth respect to the ta due upon the domestc producton of acoho.
There Is no bass for the contenton that the Unted States Is estopped by an
eecton of remedes. (Compare Southern Pacfc Co. v. ogert, 250 U. S., 483,
490-191.)
ourth. Rzzo contends that the Unted States Is aso barred because ts
counse agreed, when the terms of sae were framed, that the proceeds shoud
be answerabe ony to the causes of forfeture set forth In the be and that
any ta en shoud be waved. There was no such agreement. The notce of
the terms and condtons under whch the sae w be conducted (to whch
counse for the Government s aeged to have consented) rected: 3. The
cargo of acoho whch s beng sod Is to be sod free and cear of a cams
of any knd or character. The order of sae had provded that a further
proceedngs heren sha be aganst sad proceeds of sae. Thus It was In
the common form authorzed by dmraty Rue 40, whch Is Interpreted as
transferrng a e stng ens from property to proceeds. (Compare The Lotta-
wanna, 20 Wa., 201, 211, 221 Schuchardt v. Shp ngequc, 19 ow., 239,
241.) Snce counse dd not agree to wave the ta en on the proceeds, and
snce the court of appeus made no fndng of such a waver, we need not con-
sder whether a Unted States attorney had authorty to wave the Govern-
ment s rght. .(Compare Utah v. Unted States, 284 U. S., 534, 545-546.)
fth. Rzzo contends that the crcut court of appeas sttng In admraty
acks ursdcton to enforce the en for ta es. The argument Is that co-
ecton of Interna revenue ta es must be effected In accordance wth prescrbed
statutory methods and that the ct of ebruary 26, 1926 (ch. 27, secton
1115, 44 Stat., 117), and Revsed Statutes secton 838 provde specfcay for
coecton by the coector of Interna revenue through proceedngs specfed.
( ut compare Revsed Statutes, secton 8213.) The order of the appeate
court confrmng the sae deprved the Government of two of the statutory
methods. rst, the rght to forfet the acoho even after It had been trans-
ferred to a bona fde purchaser whe In a contaner not propery stamped ( ct
of anuary 11, 1934, ch. 1, Tte II, secton 206, 48 Stat., 317). Second, the
rght to coect the ta es from the purchaser under the court s order (Revsed
Statutes, secton 3334, as amended by ct of March 1, 1879, ch. 125, secton 5,
20 Stat., 840). ut n orderng sae of the acoho free of ens, the court
of appeas In effect provded, In accord wth the common practce, that e stng
ens shoud attach to the proceeds. (Compare Terre aute L. Ry. v. arr-
son, 96 ed., 907, 911.) These beng n oustoda egs, It was proper to petton
that they be apped towards satsfacton of the ta . (Compare Marsha y.
New York, 254 U. S., 880, 884-385 In re Tyer, 149 U. S., 164, 182-183, 187.)
The practce prevas In admraty as In other courts. In Schuchardt v. Shp
ngeque (19 ow., 239, 241), where proceeds of the sae of a mortgaged shp
had been pad Into the regstry, the court, refusng to entertan a be smpy
to forecose a mortgage, or to enforce the payment of a mortgage, sad: s.
the fund s n the custody of the dmraty, the appcaton must necessary
be made to that court by any person settng up an nterest n It. Ths app-
caton by petton Is frequenty entertaned for proceeds n the regstry. In
cases where a sut In the dmraty woud be whoy nadmssbe. ( dm-
raty Rue 42 compare The hottawanna, 21 Wa., 658, 582-5S3 The . .
Rumbe, 148 U. S., 1, 15.) The practce prevas n appeate courts as weU
as n courts of orgna ursdcton. (Compare In re ntgo Screen Door Co.,
123 ed., 249, 251-252.)
S th. nay, Rzzo contends that ths Court acks ursdcton because the
order appeaed from does no more than carry out another order not here for
revew. Ths Is not true. The Unted States seeks to enforce aganst property
n the possesson of the crcut court of appeas a rght whch had not there-
tofore been tgated, and whch was not barred by earUer proceedngs. If
the Government had been a stranger to the tgaton It woud have been
entted to Intervene (compare Savannah v. esup, 108 U. S., 563, 564-565
rppendorf v. yde, 110 U. 8., 270, 282-283 umbe v. PUkn, 113 U. S., 545,
647-548 124 U. S., 131) and a dena of Interventon woud have been revew-
abe as a fna ud rment (compare Centra Trust Co. v. Grant Locomotve
Works, 135 U. S., 207, 224-225 Credts Commutaton Co. v. Unted States, 177
U. S., 811, 815-316 Cark v. WUard, 292 U. S., 112, 117-119). Its rght to
have the new Issue ad|udcated Is not to be dened because It was aready a
party to the sut (Compare In the Matters of oward, 9 Wa., 175, 183.)
The cases whch hod that merey admnstratve proceedngs under a decree
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485 Msc.
may not be brought here for revew have no appcaton. (See T |/n/ooop, etc.,
Co. v. Ganes, 227 U. S., 4. Compare Cons v. Mer, 252 U. S., 364, 370-371
armers Loan Trust Co., pettoner, 120 U. S., 206.)
The order Is reversed wth drecton to the crcut court of appeas to pay
to the Unted States the proceeds of the sae now n the regstry after deduct-
ng the usua court charges.
Reversed.
-20-8093
T. D.4642
Stamps ndcatng ta payment of dsted sprts n bottes.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue, Dstrct Supervsors, and Others
Concerned:
1. ffectve une 1, 1936, the pacng (by prntng, wrtng, per-
foratng, rubber-stampng, or other method) of the name and ad-
dress (or symbo number) of the botter of domestc sprts, or any
other nformaton, on strp stamps prescrbed by the Lquor Ta ng
ct of 1931 s prohbted: Provded, however, That the name ana
address of the mporter and the brand and knd of dsted sprts
sha contnue to be overprnted on strp stamps to be aff ed to
bottes of mported sprts n accordance wth present reguatons.
2. overprnted strp stamps on hand une 1, 1936, may be
used.
3. Treasury decsons nconsstent herewth are amended accord-
ngy.
Gut T. everng,
Commssoner of Interna Revenue.
pproved May 7, 1936.
Wayne C. Tator,
ctng Secretary of te Treasury.
( ed wth the Dvson of the edera Regster May 11, 1936, 1.32 p. m.)
-23-8118
T. D.4647
Stamps ndcatng ta payment of dsted sprts n bottes.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue, Dstrct Supervsors, and Others
Concerned:
1. The effectve date of Treasury Decson 4642 above , prohbt-
ng the overprntng of red strp stamps for domestc sprts s hereby
e tended from une 1, 1936, to uy 1,193G.
Guy T. everng,
Commssoner of Interna Revenue.
pproved une 1, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster une 4, 1936, 10.02 a. m.)
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486
Reguatons 8 ( coho): Cstern room. -18-8072
T. D.4639
Ppe nes connectng recevng csterns.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
The frst paragraph on page 12 of Reguatons 8, under the cap-
ton Cstern Room, s hereby amended to read as foows:
These csterns must not be connected wth each other, and must be so con-
structed as to eave an open space of at east 3 feet between the top and the
roof or foor above, and a space of not ess than 18 nches between the bottom
and the foor beow, and they must be separated so that the offcer may pace
around them, and so constructed as aways to be e posed to the vew of the
offcer provded, however, that a connectng ppe ne between recevng csterns
w be permtted n order to prevent oss of sprts by overfow. Such con-
nectng ppe ne must be ocated as cose to the top of each cstern as the
constructon of the cstern w permt, and must he cosed and a connectons
theren brazed or otherwse effectuay seaed to prevent abstracton of sprts
wthout evdence of tamperng. vave n the connectng ppe, equpped for
ockng wth Government ock, must be provded and same must be cosed and
ocked before the sprts are proofed and whe the sprts are beng drawn off.
Guy T. everng.
Commssoner of Interna Revenue.
pproved pr 29, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster May 1, 1936, 11.40 a. m.)
-12-8012
T. D. 4G31
Markng packages of dsted sprts, other than acoho.
mendment of Gaugng Manua.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, I). C.
To Dstrct Supervsors and Others Concerned:
ffectve pr 1, 1936, paragraph 71 of the Gaugng Manua, as
amended by Treasury Decson 26 ( ureau of Industra coho),
s hereby amended to read as foows:
Par. 71. (a) The knd (cass and type) of the sprts w be branded on the
package accordng to the standards of Identty for dsted sprts f ed by
the edera coho dmnstraton.
(b) The dster w mark on the head of each package of whsky the
proof at whch the sprts were dsted. Ths w be done by stencng,
cuttng or burnng the words Dsted not over 160 Proof or Dsted
over 1( 0 Proof, as the case may be, n etters not ess than nch In heght
Such markng may be sutaby abbrevated, as D not over 160 P and D
over 160 P. The proof of the sprts n the cstern room, pror to reducton,
w be taken as the proof at whch the sprts were dsted.
(c) When packages of whsky, fed on and after pr 1, 1936, or fed
pror thereto and not marked Straght at tte tme of fng, meet the
requrements of the cassfcaton Straght Whsky at the tme of wthdrawa.
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487
Regs. 13, rt. L
the dster w cut or stenc the word Straght on the package Imme-
datey before the desgnaton Whsky, Rye Whsky, etc.
(d) Where packages of whsky, fed pror to pr 1, 1936, were marked
Straght at the tme of fng and meet the requrements of the cassfca-
ton Straght Whsky at the tme of wthdrawa, the desgnaton Straght
may reman on the package, but where the sprts are not entted to such
desgnaton at the tme of wthdrawa, the dster w scrape off the word
Straght pror to shpment of the packages.
Gut T. everno,
Commssoner of Interna Revenue.
pproved March 13, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
Reguatons 13, rtce 1: Defntons. -20-8092
T. D.4641
Reguatons 13 amended.
Treasury Department,
Offce of the Secretary of the Treasury,
Washngton, D. C.
To Dstrct Supervsors, Interna Revenue, and Others Concerned:
rtce 1, paragraph (e), and ppend , of Reguatons 13,
ssued 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 hereby amended
to read as foows:
rtce 1. (e) Lquor botte sha mean any gass contaner for pack-
agng 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 ed-
era coho dmnstraton, the reguatons n that regard promugated by the
edera coho dmnstraton beng hereby adopted as a part of these
reguatons.
PP NDI .
Dgest of Certan Portons op Reguatons of the edera coho
dmnstraton Reatng to Standard ottes for Dsted Sprts.
1. The standard bottes prescrbed by reguatons of the edera coho
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 8 per centum of the tota capacty of the botte
after cosure.
2. The standards of f for dsted sprts In quor bottes are as foows,
sub|ect to the toerances set forth n paragraph 3 (ts In amounts ess than
pnts omtted):
or a dsted sprts, whether domestcay manufactured, domestcay
botted, or Imported:
1 gaon.
gaon.
1 quart.
quart.
1 pnt
pnt.
In addton, for Scotch and Irsh whsky and Scotch and Irsh type whsky
and for brandy and rum:
Pat
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Regs. 13, rt. 1.
488
S. The foowng toerances sha be aowed:
(a) Dscrepances due e cusvey to errors a measurng whch occur a
fng conducted n compance wth good commerca practce.
(b) Dscrepances due e cusvey to dfferences In the capacty of bottes,
resutng soey from unavodabe dffcutes n manufacturng such bottes
so as to be of unform capacty: Provded, That no greater toerance sha be
aowed n case of bottes whch, because of ther desgn, can not be made
of appro matey unform capacty than Is aowed n case of bottes whch
can be manufactured so as to be of appro matey unform capacty.
(c) Dscrepances n measure due e cusvey to dfferences In atmospherc
condtons In varous paces and whch unavodaby resut from the ordnary
and customary e posure of acohoc beverages n bottes to evaporaton. The
reasonabeness of dscrepances under ths paragraph sha be determned on
the facts n each case.
4. Dsted sprts domestcay bottod pror to anuary 1, 1935, and Im-
ported dsted sprts entered In customs bond n bottes pror to March 1,
1935, sha be regarded as beng n conformty wth the prescrbed standards
of f (1) f the botte, or the abe on the botte, contans a conspcuous state-
ment of the net contents thereof, and (2) If the actua capacty of the botte
Is not substantay ess than the capacty t appears to have upon vsua
e amnaton under ordnary condtons of purchase or use.
5. s used wth reference to standard bottes, the term gaon means
Unted States gaon of 231 cubc nches of acohoc beverages at 68 .
(20 C), and a other unts of qud measure are subdvsons of the gaon
as so defned.
6. The standards of f heren set forth do not appy to the foowng:
(a) Dsted sprts mported as vntage sprts under permt Issued by a
dstrct supervsor of the coho Ta Unt of the ureau of Interna Revenue
pursuant to Reguatons 13 (Lquor otte Reguatons) ssued by the Secretary
of the Treasury.
(6) Cordas and queurs, and cocktas, hghbas, gn fzzes, btters, and
such other specates as are specfed from tme to tme by the dmnstrator.
7. Copes of the reguatons of the edera coho dmnstraton reatng
to standards of f for botted dsted sprts (Labeng and dvertsng of
Dsted Sprts, Reguatons No. 5) may be obtaned from the edera coho
dmnstraton, Department of ustce udng, Washngton, D. C.
8. Ths Treasury decson sha be In force and effect on and after ugust
15, 193a
Wayne C. Tator,
ctng Secretary of the Treasury.
pproved May 6, 1936.
( ed wth the Dvson of the edera Regster May 9, 1936, 12.35 p. m.)
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489
Msc.
INDUSTRI L LCO OL.
Reguatons 3 ( coho), rtce 117: Sae -1-7897
and use of competey denatured acoho. T. D. 4621
Treasury Decson 4553 C. . I -1, 524 amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
The tme wthn whch stocks of competey denatured acoho, for-
mua No. 5, made pror to une 1,1935, whch are n the hands of pro-
ducers or controed by them, must be dsposed of, s hereby e tended
from anuary 1,1936, to pr 1, 1936.
Gut T. everng,
Commssoner of Interna Revenue.
pproved December 81, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
-23-8119
T. D.4648
uthorzng competey denatured acoho formuae 11, 12, and 13.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Pursuant to authorty conferred by the ct of une 7, 1906, and
Tte III of the Natona Prohbton ct, the foowng competey
denatured acoho formuae are hereby authorzed:
Competey denatured acoho formua No. 11.
To every 100 parts by voume of ethy acoho of not ess than 160 proof add:
8 parts by voume of Ponto- , or a compound smar thereto.
8 parts by voume of ST-115, or a compound smar thereto.
1 part by voume of gasone.
0.5 part by voume of gdte or a compound smar thereto, or 1 part by
voume of ydrono or a compound smar thereto.
Competey denatured acoho formua No. 12.
To every 100 parts by voume of ethy acoho of not ess than 160 proof add:
4 parts by voume of Ponto- , or a compound smar thereto.
2 parts by voume of methy sobuty ketone.
1 part by voume of gasone.
1 part by voume of gdte or a compound smar thereto, or 2 parts by
voume of ydrono or a compound smar thereto.
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490
Competey denatured acoho formua No. 13.
To every 100 parts by voume of ethy acoho of not ess than 160 proof add:
4 parts by voume of ST-115, or a compound smar thereto.
2 parts by voume of methy sobuty ketone.
1 part by voume of gasone.
0.5 part by voume of gdte or a compound smar thereto, or 1 part by
voume of ydrono or a compound smar thereto.
competey denatured acoho formuae heretofore authorzed
are hereby revoked, e cept that the formuae for the modfcaton of
e stng stocks of competey denatured acoho formuae Nos. 5-
and 10 prescrbed by Treasury Decson 4G4G, approved May 27, 1936
page 491, ths uetn , sha reman n effect unt such stocks are so
modfed.
Ths reguaton sha become effectve uy 1, 1936.
Gut T. everno,
Commssoner of Interna Revenue.
pproved une 3, 1936.
Watne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster une 5, 1936, 9.45 a. m.)
-22-S108
T. D.4644
mendng specay denatured acoho formuae 25 and 25-
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Pursuant to authorty conferred by the ct of une 7, 1906, and
Tte III of the Natona Prohbton ct, specay denatured a-
coho formuae 25 and 25- are hereby amended to read as foows
effectve at once:
Specay denatured acoho formua No. 25.
To every 100 gaons of ethy acoho add:
20 pounds of Iodne, U. S. P., and
15 pounds of potassum odde, U. S. P., or
15 pounds of sodum odde, U. S. P.
Specay denatured acoho formua No. 25- .
To every 300 gaons of ethy acoho add:
souton composed of 20 pounds of odne, U. S. P.
15 pounds of potassum Iodde, U. S. P., or
15 pounds of sodum odde, U. S. P., and
15 pounds of water.
Guy T. everno,
Commssoner of Interna Revenue.
pproved May 25, 1936.
Wayne C. Tayor,
ctng Secreta v| of the Treasury.
( ed wth the Dvson of the edera Regster May 27,1930, 11.58 a. m.)
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491
Mso.
-22-8111
T. D. 4646
Modfyng competey denatured acoho formuae 5- and 10 and
further denaturng stocks of these formuae on hand.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Dstrct Supervsors and Others Concerned:
Pursuant to authorty conferred by the ct of une 7, 190C, and
Tte III of the Natona Prohbton ct, competey denatured
acoho formuae 5- and 10 authorzed by Treasury Decson No. 10,
approved une 30, 1932, are modfed to read as foows, effectve
from the date of approva hereof to uy 1, 1936:
Competey denatured acoho formua No. 5- modfed.
To every 100 parts by voume of ethy acoho of not ess than 160 proof add:
2.5 parts by voume of denaturng grade sopropano.
3 parts by voume of the compound ponto or a compound smar thereto.
2 parts by voume of methy sobuty ketone.
0.5 parts by voume ether adeho grade or denato or a compound smar
thereto.
0.5 parts by voume of the compound caorte or a compound smar thereto.
0.25 parts by voume of commerca apha terpneo, denaturng grade.
Competey denatured acoho formua No. O modfed.
To every 100 parts by voume of ethy acoho of not ess than 160 proof add:
5 parts by voume of the compound tecso or a compound smar thereto.
2.5 parts by voume of the compound ponto or a compound smar thereto.
2.5 parts by voume of denaturng grade sopropano.
2 parts by voume of methy sobuty ketone.
0.5 parts by voume of avaton gasone.
cept as to that packaged n drums or smaer contaners a
6tocks of competey denatured acoho formuae Nos. 5- and 10 on
the premses or n the possesson or under the contro of denaturers,
ncudng stocks sod on consgnment and remanng n the hands of
the denaturers or ther consgnees, must be mmedatey further de-
natured by havng added thereto 1.75 gaons of methy sobuty
ketone to every 100 gaons. Ths denatured acoho must be marked
and branded Competey Denatured coho ormua No. 5- Mod-
fed or Competey Denatured coho ormua No. 10 Modfed,
respectvey.
Specfcatons for mety sobuty ketone.
cdty. Not more than 0.02 per cent as acetc acd.
Specfc gravty. to 0.804 at 20/20 C.
Coor. Water-whte.
ong range (760 mm.). None shoud come over beow 113 O. or none
above 119 C. when dsted by the . S. T. M. method.
Gut T. evern ,
Commssoner of Interna Revenue.
pproved May 27, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster May 27, 1936, 4.35 p. m.)
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492
-14-8033
T. D. 4683
orm 1477. Treasury Decson 4551 0. . I -1, 542 amended.
Theasubt Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Dstrct Supervsors and Others Concerned:
Treasury Decson 4551 s hereby amended to read as foows:
orm 1477, ppcaton for permt to procure specay denatured acoho,
by persons hodng permts on orm 1476 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 regu-
ated that the permttee 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 1476 or orm 1481: Provded, however, the dstrct supervsor may, In
hs dscreton, upon proper showng of necessty therefor, (1) n the case of a
seasona busness, authorze the wthdrawa durng nny one month of more
than one-twefth but not to e ceed one-s th of the tota quantty of specay
denatured acoho authorzed by the permttee s basc permt to be wthdrawn
durng the year, or (2) ssue to the permttee, n eu of an annua permt, one
or more wthdrawa permts, orm 1477, for a specfed quantty or perod,
sub|ect to the above restrctons as to the ma mum quantty that may be wth-
drawn durng any one month but the toa quantty authorzed under (1) and
(2) sha not e ceed the tota quantty specfed n the permttee s basc permt,
orm 1476 or 1481, to be wthdrawn durng the year.
Gut T. everng,
Commssoner of Interna Revenue.
pproved March 31, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster pr 2, 1936.)
-6-7945
T. D.4625
(T. D. (Customs) 48105)
Reports, requests for assgnment, and dsposton of forfeted
and abandoned property
Treasury Department,
Offce of the Drector of Procurement,
Washngton, D. C.
To Coectors of Interna Revenue, Coectors of Customs, Dstrct
Supervsors, and Others Concerned:
The foowng reguatons reatng to abandoned and forfeted
property are hereby prescrbed pursuant to the provsons of Tte
III of the Lquor Law Repea and nforcement ct, approved
ugust 27, 1935 (Pubc 347, Seventy-fourth Congress):
rtce I.
D INITIONS.
The foowng terms sha have the meanng set forth beow whenever used
n these reguatons:
(a) Drector means the Drector of the Procurement Dvson of the
Treasury Department of the Unted States.
(6) edera agency ncudes any e ecutve department. Independent estab-
shment, board, commsson, bureau, servce, or dvson of the Unted States,
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493
and any corporaton n whch the Unted States owns a or a ma|orty of
the stock.
(c) bandoned means vountary abandoned to any edera agency In
snch manner as to vest tte to the property n the Unted States.
(d) orfeted Incudes forfetures whether by summary process or by
order of court pursuant to any aw of the Unted States.
(e) Property means a persona property, Incudng but not mted to
vesses, vehces, arcraft, and abandoned acohoc beverages, e cept
(1) orfeted dsted sprts (ncudng acoho), wne, and mat beverages,
as defned n secton 17(a) of the edera coho dmnstraton ct.
(2) rms or muntons of war condemned pursuant to the provsons of
secton 4 of Tte I of the ct entted n ct to punsh acts of Interference
wth the foregn reatons, the neutraty, and the foregn commerce of the
Unted States, to punsh esponage, and better to enforce the crmna aws
of the Unted States, and for other purposes (40 Stat., 223), approved une
15, 1917, as amended.
(8) Opum, coca eaves, cocane, or any sat, dervatve, or preparaton of
opum, coca eaves, or cocane.
(4) Shotguns or rfes havng barres ess than 18 Inches In ength, or any
other weapon (e cept a psto or revover) from whch a shot s dscharged by
an e posve f such weapon s capabe of beng conceaed on the person, or a
machne gun, and Incudes a muffer or sencer for any frearm whether or not
such frearm s ncuded wthn the foregong defnton, and any weapon whch
shoots, or s desgned to shoot, automatcay or semautomatcay, more than
one hot, wthout manua reoadng, by a snge functon of the trgger.
etoh II.
R PORTS, R U STS OR SSIGNM NT, ND DISPOSITION.
Secton 1. nnua reports. There sha be submtted to the Drector not ater
than uy 15, of each year, an Itemzed report coverng the foowng property
forfeted and abandoned durng the precedng fsca year, gvng estmated vaues
but not descrbng It In deta:
(o) bandoned property whch the edera agency to whch t was abandoned
retaned for offca use.
(6) Property forfeted otherwse than by court decree and not ordered by
competent authorty to be returned to any camant, whch the sezng edera
agency retaned for offca use.
(c) orfeted and abandoned property whose condton was such that t had
no vaue e cept as scrap matera, and was, as hereby authorzed, dsposed of
under e stng aw and reguatons.
(d) Money and vauabe securtes, whch sha be dsposed of under e stng
aw and reguatons.
(e) Pershabe commodtes and prohbted artces ncudng but not mted
to ndecent or obscene artces whch were, as hereby authorzed, dsposed of
under e stng aw and reguatons.
Sec. 2. Reports requred prompty upon, abandonment or acton ookng toward
forfeture. abandoned or forfeted property, e cept that specfed n secton
1 of ths artce, ncudng the foowng:
(a) bandoned property whch the edera agency to whch It was abandoned
does not desre to retan for offca use.
(b) Property forfeted otherwse than by court decree and not ordered by
competent authorty to be returned to any camant, whch the sezng edera
agency does not desre to retan, and
(o) Property concernng whch court proceedngs are beng or have been
commenced for forfeture by court decree, whether or not the property s desred
for offca use by the sezng edera agency sha be reported prompty to the
Drector by the head of the edera agency by whch the property was sezed or
to whch t was abandoned, e cept that f a sezure made by one edera agency
Is adopted by another for prosecuton under the aws enforced by the adoptng
edera agency, the report sha be made ony by the adoptng edera agency.
Reports made pursuant to ths secton sha contan the foowng nforma-
ton:
(a) Name of the reportng edera agency.
(6) Status of the property, whether (1) vountary abandoned, (2) for-
feted otherwse than by court decree, or (8) proceedngs are beng or have
been commenced for forfeture by court decree.
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494
(c) Pace and date of abandonment or forfeture, or pace and |udca ds-
trct of court from whch decree w be ssued.
( ) Statute or statutes under whch abandoned or forfeted or under whch
forfeture proceedngs w be prosecuted.
(e) Present offca custodan of property, and street, cty, and State address
where ocated.
(f) Condton of the property.
(g) stmated vaue.
(h) stence or kehood of en or cam of en, and amount nvoved.
() Charges ncurred for haung, transportng, towng and storage to date
of report, and rate of storage charges.
(/) If the property Is a vehce, reports sha aso show (1) type, (2) make,
(3) mode or year, (4) body, (5) coor, (6) capacty, (7) speedometer read-
ng, (8) number of whees, (9) e tra equpment, (10) motor number, (11)
nature and probabe cost of repars necessary to put n servceabe condton,
(12) condton of tres.
(fc) If the property s a vesse or an arcraft, reports sha aso show (1)
type, (2) manufacturer, (3) Identfyng offca name or number, (4) age, (5)
descrpton.
(I) If the property Is abandoned acohoc beverages, the reports sha aso
contan the foowng data: (1) Name of person from whom sezed, (2) qua-
tes and knds (whether ethy acoho or hydrated o de of ethy rye or
bourbon or other whsky and ts brand, f any sparkng or st wne and ts
coor or brand corda, brandy, gn, etc.), (3) proof ratng and other quates
shown by test, (4) number and sze of contaners, (5) condton (whether ft
for medcna, scentfc or mechanca purposes), and bass therefor, (6)
condton for shppng.
(ro) Other property sha be suffcenty descrbed to enabe a decson to be
made regardng Its desrabty and utty.
Seo. 3. Requests for assgnment of property. requests for assgnment of
forfeted and abandoned property, for offca use, sha be fed prompty wth
the Drector by the head of the edera agency desrng the same (and not
by the head of any fed actvty). When property desred by the sezng
edera agency s n the custody of another edera agency whch has adopted
the sezure for forfeture, the sezng edera agency sha appy to the adopt-
ng edera agency for devery of the property n the event of forfeture, and
(a) If forfeted otherwLse than by court decree and not ordered by competent
authorty to be returned to any camant, the adoptng agency sha dever
same to the sezng agency wthout reference to the Drector, but (6) If pro-
ceedngs are commenced for forfeture by court decree, the adoptng agency
sha request the Drector to petton the court, before entry of a decree, for
devery of the property to the sezng agency n the event of forfeture.
ach such request (e cept requests submtted by sezng agences) must be
accompaned by a statement descrbng the need for the property In queston
and |ustfyng the request
Sec. 4. Dsposton of forfeted and abandoned property. property re-
ported to the Drector pursuant to the provsons of secton 2 of ths artce
sha be dsposed of as foows:
(a) If such property has been abandoned or forfeted otherwse than by
court decree and not ordered by competent authorty to be returned to any
camant, the Drector w cause the same to be devered to any edera
agency whch has fed request therefor pursuant to the provsons of secton
8 hereof, and whch, n hs udgment shoud receve the property or, n the
absence of such request, cear the same for dsposton by the hodng agency
as otherwse provded by aw.
(6) If proceedngs are beng or have been commenced for the forfeture of
the property by court decree, the Drector w prompty and before entry of the
decree appy to the court to order devery of such property:
(1) To the sezng edera agency f t has theretofore fed a request for
such property for ts offca use or
(2) To any other edera agency whch has fed a request therefor pur-
suant to the provsons of secton 8 hereof, and whch n the udgment of
the Drector, shoud be gven such property f the sezng agency has not fed
a request therefor or
(3) To the sezng agency to be retaned n ts custody, f the edera agency
whch sezed such property has not requested t, and no other edera agency
has requested, and n the |udgment of the Drector shoud be gven, such
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495
Regs. 12, rt. 80.
property, and, 11 In the udgment of the Drector, the property may ater be-
come necessary for any edera agency for offca use. Thereafter, the
Drector w, wthn a reasonabe tme, order such agency to dever the prop-
erty to any other edera agency whch requests and In hs |udgment shoud
be gven such property, or to dspose of It as otherwse provded by aw.
Sec 5. vaabty of appropratons for acquston, mantenance, etc., of
forfeted and abandoned property. (a) Secton 305 of Tte III of the Lquor
Law Repea and nforcement ct reads as foows:
The appropraton avaabe to any agency for the purchase, hre, operaton,
mantenance, and repar of property of any knd sha be avaabe for the pay-
ment of e penses of operaton, mantenance, and repar of property of the same
knd receved by It under any provson of ths tte for offca use for the pay-
ment of any en recognzed and aowed pursuant to aw, and for the payment
of a moneys found to be due any person upon the duy authorzed remsson or
mtgaton of any forfeture and for rembursement of other agences as here-
after provded. The costs of haung, transportng, towng, and storage of such
property sha be pad by the agency whch has sezed such property or to whch
It has been abandoned and. If such property s ater devered to another
agency for offca use under sectons 302, 303, or 304 of ths tte, the atter sha
make rembursement for a such costs ncurred pror to the date of devery
to It of such property.
(6) When a sezure of property Is adopted for forfeture purposes by an-
other than the sezng agency, the adoptng agency sha be entted to the
same rembursement for costs ncurred by t as s aowed the sezng agency
under the provsons of aw quoted above.
Sec. 6. Custody of property. The Procurement Dvson w not n any case
undertake custody of the property pendng devery to another edera agency.
The hodng agency sha have custody of, and be responsbe for, such prop-
erty unt shpped or devered to the recevng edera agency or otherwse
dsposed of after cearance by the Drector. Ths provson sha appy to
property turned over to the hodng edera agency by court order to be re-
taned unt dsposed of upon order of the Drector. questons nvovng
shppng or devery nstructons, rembursements for costs and ke matters,
sha be handed between the hodng and recevng agences.
Sec. 7. Status of property assgned under these reguatons. ny property,
when authorzed for offca use under the provsons of aw and these regua-
tons, oses ts dentty as abandoned or forfeted property and becomes the
property of the Unted States. When no onger needed for offca use, such
property sha be dsposed of as surpus property n the manner provded n
secton G of the Reguatons Governng the Operaton of the Procurement
Dvson, ranch of Suppy.
C. . Peopes,
Drector of Procurement.
pproved anuary 15, 1930.
T. . Coodge,
ctng Secretary of the Treasury.
Reguatons 12, rtce 80: Contents not to -18-8073
be dscosed wthout permsson. T. D. 4640
Investgators permtted to testfy n State courts.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
The second paragraph of artce 80, Reguatons 12, revsed Octo-
ber 1, 1920, s hereby amended to read as foows:
Interna-revenue offcers are hereby prohbted from Rvng out any records,
or any copes thereof, to prvate persons or to oca offcers, or to produce such
records or copes thereof n a State court, whether n answer to subpoena duces
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Regs. 12, rt. 80.
496
tecum or otherwse, or to testfy to facts comng to ther knowedge n ther
offca capactes wthout e press authorty from the Commssoner: Provded,
however. That f the nterests of the Unted States w not be |eopardzed
thereby, and f nformaton w not be dvuged contrary to secton 3167.
Revsed Statutes, as amended, dstrct supervsors of the coho Ta Unt
may upon recept of subpoenas or requests of State authortes, and at the
e penses of the State, authorze nvestgators and other empoyees under ther
supervson to attend tras and admnstratve hearngs n quor cases In
whch the State s a party, produce records and testfy as to facts comng to
ther knowedge n ther offca capactes.
Gut T. eyerng,
Commssoner of Interna Revenue.
pproved pr 29, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster May 1, 1036, 11.41 a. m.)
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497
Msc.
MISC LL N OUS.
-4-7924
Mm.4411
empton of pensons and other benefts pad to veterans and
retred emergency offcers.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, anuary 4, 1936.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
L Secton 3 of an ct of Congress approved ugust 12, 1935
f49 Stat., 607, Pubc, No. 262, Seventy-fourth Congress), entted
n ct to safeguard the estates of veterans derved from payments
of penson, compensaton, emergency offcers retrement pay and
nsurance, and for other purposes, provdes:
Payments of benefts due or to become due sha not be assgnabe,
and such payments made to, or on account of, a benefcary under any of the
aws reatng to veterans sha be e empt from ta aton, sha be e empt from
the cams of credtors, and sha not be abe to attachment, evy, or sezure
by or under any ega or equtabe process whatever, ether before or after
recept by the benefcary. Such provsons sha not attach to cams of the
Unted States arsng under such aws nor sha the e empton heren con-
taned as to ta aton e tend to any property purchased n part or whoy out
of such payments.
2. Secton 5 of the ct referred to provdes:
That ths ct sha take effect and be n force from and after ts
passage, but the provsons hereof sha appy to payments made heretofore
under any of the cts mentoned heren.
3. Secton 2 of the ct mentons the War Rsk Insurance ct, as
amended, the Word War eterans ct, 1924, as amended, the
mergency Offcers Retrement ct, as amended, the Word War
d|usted Compensaton ct, as amended, the penson aws n effect
pror to March 20 1933, Pubc Law No. 2, Seventy-thrd Congress,
as amended, Pubc Law No. 484, Seventy-thrd Congress, and any
ct or cts amendatory of such cts.
4. In accordance wth the above-quoted provsons of aw, bene-
fts pad to or on account of any benefcary under any of the cta
mentoned n secton 2 of the ct of ugust 12, 1935, or any other
aws reatng to veterans, are e empt from edera ncome ta under
a the Revenue cts.
5. ny person camng e empton under the ct of ugust 12,
1935, of any payment or beneft pad by the Unted States, when
requred by the Commssoner, sha show by competent evdence
that such payment or beneft was pad and receved under one of
the cts mentoned n secton 2 of that ct or under other aws
reatng to veterans.
6. Cams for refund based on the e empton provded by the ct
of ugust 12,1935, of amounts pad by the Unted States to veterans
may be fed by ta payers but may be aowed ony f fed wthn
the statutory perod of mtaton provded by the Revenue ct
appcabe to the year for whch the ta was pad. ach cam fed
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Msc.
498
sha, when requred by the Commssoner, be supported by compe-
tent evdence showng the ct or aws reatng to veterans under
whch the amounts were pad. ny such cam sha be fed wth
the coector of nterna revenue n whose dstrct the return was
fed, and sha be forwarded by the coector to the Income Ta Unt
n Washngton for approprate acton. If the cam reates to a
return made on orm 1040 whch s n the coector s offce, the co-
ector w transmt the return wth the cam to Washngton.
7. Correspondence and nqures regardng the provsons of ths
mmeograph shoud refer to the number and the symbos IT: : CTR.
Chas. T. Russe,
ctng Commssoner.
-8-7967
Mm. 4429
empton from edera Income ta of payments to veterans
under the d|usted Compensaton Payment ct, 1936.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, ebruary 4, 1936.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
The d|usted Compensaton Payment ct, 1936 (Pubc, No. 425,
Seventy-fourth Congress), sometmes referred to as the Word War
eterans onus ct, provdes n part:
That notwthstandng the provsons of the Word War d|usted Compensa-
ton ct, as amended (U. S. C, 1934 edton, tte 38, ch. 11), the ad|usted-
servce certfcates ssued under the authorty of such ct are hereby de-
cared to be mmedatey payabe.

Seo. 4. The amount certfed pursuant to secton 1 of ths ct sha be pad
to the veteran or hs estate on or after une 15, 1936, by the Secretary of
the Treasury by the ssuance of bonds of the Unted States, regstered n the
name of the veteran ony, n denomnatons of 50 havng a tota face vaue
up to the hghest mutpe of 50 n the amount certfed as due the veteran,
and the dfference between the amount certfed as due the veteran and the
face amount of the bonds so Issued sha be pad to the veteran or hs estate
by the Secretary of the Treasury out of the fund created by secton 505 of
the Word War d|usted Compensaton ct, as amended. The bonds sha
be dated une 15, 1936, and sha mature on une 15, 1945, but sha be re-
deemabe at the opton of the veteran or hs estate at any tme, at such
paces, ncudng post offces, as the Secretary of the Treasury may desgnate.
Such bonds sha be ssued under the authorty and sub|ect to the provsons
of the Second Lberty ond ct, as amended, and sha not be transferabe,
assgnabe, sub|ect to attachment, evy, or sezure under any ega or equtabe
process and sha be payabe ony to the veteran or, n case of death or n-
competence of the veteran, to the representatve of hs estate. Interest on
eac bond ssued hereunder sha accrue at the rate of 8 per centum per
annum from une 15, 1936, to date of maturty or payment of the prncpa
of the bond, whchever s earer, and w be pad wth such prncpa: Pro-
vded, however, That no nterest w be pad on any bond redeemed pror to
une 15, 1937. The provsons of ths secton sha be carred out sub|ect
to reguatons of the Secretary of the Treasury to be Issued from tme to tme
to effectuate the purposes of ths ct.
Secton 308, chapter 157, of the Word War d|usted Compensa-
ton ct, approved May 19, 1924 (43 Stat., 125), as amended by seo-
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499
Mso.
ton 8(a), chapter 751, of the ct of uy 8, 1926 (44 Stat., 827),
codfed as secton 618 of chapter 11 of tte 88 n the Unted States
Code, 1984 edton, provdes:
No sum payabe under ths chapter to a veteran or hs dependents, or to
hs estate, or to any benefcary named under Part of ths chapter, no
ad|usted-servce certfcate, and no proceeds of any oan made on such certf-
cate sha be sub|ect to attachment, evy, or sezure under any ega or equ-
tabe process, or to Natona or State ta aton, and no deductons on account
of any Indebtedness of the veteran to the Unted States sha be made from
the ad|usted-servce credt or from any amounts due under ths chapter.
In vew of the foregong, t s hed that payments to veterans
under the d|usted Compensaton Payment ct, 1936, whether n
the form of bonds as provded n secton 4, or payments n redemp-
ton thereof, or nterest, are e empt from edera ncome ta .
Correspondence and nqures regardng the provsons of ths
mmeograph shoud refer to the number and to the symbos IT:
R.CT .
Gut T. everno,
Commssoner.
-7-7957
. C. M. 16092
The cash surrender vaues of veterans war rsk Insurance po-
ces are not sub|ect to dstrant proceedngs to coect nterna
revenue ta es due the Unted States.
n opnon s requested whether, n order to coect ta es due the
Unted States, the cash surrender vaues of veterans war rsk n-
surance poces are sub|ect to dstrant proceedngs.
Secton 22 of the Word War eterans ct of 1924 (43 Stat,, 607)
provded as foows:
Sec. 22. That the compensaton, Insurance, and mantenance and support
aowance payabe under Ttes II, III, and I , respectvey, sha not be as-
sgnabe sha not be sub|ect to the cams of credtors of any person to whom
an award s made under Ttes II, III, or I and sha be e empt from a
ta aton: Provded, That such compensaton, nsurance, and mantenance and
support aowance sha be sub|ect to any cams whch the Unted States may
have, under Ttes II, III, I , and , aganst the person on whose account the
compensaton, nsurance, or mantenance and support aowance Is payabe.
That the provsons of ths secton sha not be construed to prohbt the
assgnment by any person to whom converted Insurance sha be payabe under
Tte III of such ct of hs nterest n such Insurance to any other member of
the permtted cass of benefcares.
Secton 4747 of the Revsed Statutes, not drecty nvoved n
the queston under consderaton, aso contaned certan provsons
reatve to e empton from attachment, evy, or sezure by or under
ega or equtabe process of moneys due to pensoners.
On ugust 12,1935, an ct of Congress (Pubc, No. 262, Seventy-
fourth Congress, 49 Stat, 607) entted n ct to safeguard the
estates of veterans derved from payments of penson, compensaton,
emergency offcers retrement pay and nsurance, and for other pur-
poses, became effectve. s shown by the report of the Commttee
on Word War eterans Legsaton and the report of the Senate
Commttee on nance, whch reports accompaned . R. 3979,
enacted nto aw as Pubc No. 2(52, Seventy-fourth Congress, t
was one of the purposes of that b to repace secton 22 of the
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Word War eterans ct of 1924 and secton 4747 of the Revsed
Statutes by a new secton (secton 3 of . R. 3979) n order that
the same protecton, mmunty, and e empton mght be provded
for a benefts to pensoners and other veterans. Secton 8 of the
ct whch became effectve ugust 12,1935, reads as foows:
Seo. 3. Payments of benefts due or to become due sha not be assgnabe,
and such payments made to, or on account of, a benefcary under any of the
aws reatng to veterans sha be e empt from ta aton, sha be e empt from
the cams of credtors, and sha not be abe to attachment, evy, or sezure
by or under any ega or equtabe process whatever, ether before or after
recept by the benefcary. Such provsons sha not attach to cams of the
Unted States arsng under uch aws nor sha the e empton heren con-
taned as to ta aton e tend to any property purchased In part or whoy
out of such payments. Secton 4747 of the Revsed Statutes and secton 22
of the Word War eterans ct, 1924, are hereby repeaed, and a other
cts nconsstent herewth are hereby modfed accordngy. The provsons
of ths secton sha not be construed to prohbt the assgnment by any person,
to whom converted Insurance sha be payabe under Tte III of the Word
War eterans ct, 1924, of hs nterest n such Insurance to any other member
of the permtted cass of benefcares.
Pror to the enactment of Pubc, No. 262, n vew of secton 22
of the Word War eterans ct of 1924, a en of the Unted States
for nterna revenue ta es dd not attach to a ta payer s converted
war rsk nsurance pocy and cams of the Government, e cept
the casses of cams mentoned n secton 22, were not enforceabe
aganst such a pocy. Ttes II, III, I , and of the Word War
eterans ct of 1924, referred to n secton 22 of that ct, reate
respectvey to compensaton and treatment, nsurance, vocatona
rehabtaton, and penates. ny cam of the Unted States based
upon an ndebtedness arsng out of such compensaton and treat-
ment, nsurance, vocatona rehabtaton, and penates s charge-
abe aganst the vaue of a converted pocy, but e cept as to cams
so arsng, t s evdent that any cam of a dfferent character made
by the Unted States aganst the vaue of the pocy s not enforce-
abe. The specfcaton by name of the casses of cams cognzabe
under the statute e cudes a other casses not mentoned.
though the anguage empoyed n secton 22 of the Word War
eterans ct was dfferent from that used n secton 3 of the ct
of ugust 12, 1935, the ntent under the atter ct (secton 3) to
e empt payments and benefts (wth specfc e ceptons) due or to
become due under a veteran s pocy ssued by the Unted States
s |ust as cear as t was n the repeaed secton. It s ceary the n-
tent of that secton to mt cams whch are chargeabe aganst
such beneft payments to cams of the Unted States arsng under
any of the aws reatng to veterans. Were a edera ta cam en-
forceabe aganst the cash surrender vaue of such a pocy, the
enforcement obvousy woud deprve the person entted thereto of
benefts payabe under the pocy. Such enforcement woud n-
drecty accompsh that whch the statute specfcay prohbts.
ccordngy, t s the opnon of ths offce that n vew of the pro-
vsons of secton 3 of the ct of ugust 12 1935, the cash surrender
vaues of veterans war rsk nsurance poces are not sub|ect to ds-
trant proceedngs to coect nterna revenue ta es due the Unted
States.
erman Ouphant,
Genera Counse for the Department of the Treasury.
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501
MIso.
S CTION 3 O T INSON CT (PU LIC, NO. 135,
S NTY-T IRD CONGR SS).
-10-7988
Mm. 4431
Determnaton, assessment, and coecton of e cess profts on
Navy contracts under the nson ct.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, ebruary 15, 1936.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
Treasury Decson 4434 (C. . III-1, 540), promugated under
secton 3 of the nson ct (Pubc, No. 135, Seventy-thrd Con-
gress, . R. 6604), deegates to the Commssoner of Interna Reve-
nue the duty of determnng the proft, and the e cess proft, f any,
on contracts entered nto under that ct and provdes that f the
Commssoner determnes n respect of any such contract that there
s an e cess proft n an amount e ceedng the e cess proft voun-
tary pad nto the Treasury, the Commssoner may proceed to co-
ect the amount of such unpad e cess proft under the usua methods
empoyed under the nterna revenue aws to coect edera ncome
ta es.
Pursuant to the foregong, the foowng procedure for the de-
termnaton, assessment, and coecton of the e cess proft, f any,
on contracts entered nto under the nson ct s hereby prescrbed :
The procedure for the determnaton of the proft, and the e cess
proft, f any, and for the assessment and coecton of any e cess
proft on Navy contracts entered nto under the nson ct w be,
n genera, the-same as the estabshed procedure for the e amnaton
of ncome ta returns and the determnaton of the ta abty,
ncudng opportuntes for protests and conferences. s far as prac-
tcabe, the reports of contractors coverng competed contracts w
be assocated wth the ncome ta returns of respectve contractors
for the reated year or years. Whether or not a copy of a report of a
competed contract s fed wth the coector as requred by Treasury
Decson 4434, the proft, and the e cess proft, f any, on any com-
peted contract w be determned, as far as practcabe, at the same
tme as the ncome ta abty of the contractor for the reated
year or years s determned. The resuts of fed nvestgatons of
competed contracts w be reported separatey from the resuts of
the nvestgatons of ncome ta returns. In no case w approprate
acton n respect of ether the ncome ta abty or the e cess proft
ab|ty, whch has been fnay determned by the Commssoner, be
deayed pendng a fna determnaton of the other abty.
revew by the Unted States oard of Ta ppeas of the de-
termnaton of e cess profts on Navy contracts entered nto under
the nson ct s not authorzed under that ct. ccordngy,
regardess of whether or not the e cess proft has been fuy pad, no
statutory notce of the Commssoner s fna determnaton thereof
s requred as n the case of a defcency n the edera ncome ta .
(See secton 272, Revenue ct of 1934.) owever, f an e cess
proft n an amount whch e ceeds the e cess proft reported by the
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502
contractor and/or prevousy assessed s fnay determned by the
Commssoner, the contractor w be advsed of the fna deter-
mnaton by etter and such e cess proft w be prompty assessed
on the Commssoner s assessment st, and w be coected under
the usua methods empoyed under the nterna revenue aws to
coect edera ncome ta es.
Correspondence and nqures regardng the provsons of ths
mmeograph shoud refer to the number and the symbos IT: : CTR.
Gut T. eveung,
Co-mmssoner.
OL OM RG RIN .
-5-7934
MS. 171
Schedue of oeomargarne produced and materas used durng the month of
December, 1035, as compared wth December, 103 .
December,
1935.
December,
1034.
Poun.
33.322,51S
Pound .
30,346,741
Ingredent schedue for uncoored oeomargarne:
33.388,096
29, 760, 333
931,806
ISO
Coconut o
14,926, 810
30,115
9,096,433
89, 218
2,363
6,888,475
158,607
1,248,422
191,378
. 139,019
13,730,137
Cottonseed o
7,513,696
71,803
733
6,843,414
405,117
2,051,074
283,563
171,350
2.524
Dervatve of gycorne
Lecthn
Mk
Neutm ard
Oeo o
Oeo stearno
Oeo stock
Pam o __
04,054
377,170
1,725,450
8,353
14,177
271, OS0
Peanut o
316,160
1,790,343
Sat.-.
Sesame o
Soda (benzoate of)
10,487
24,413
1,3
egetabe o
Tota
36,192,957
33,224,353
183,496
123, 137
Tota wthdrawn ta -pad
49,188
67,334
33
Ingredent schedue for coored oeomargarne:
abassue o ...
400
utter
96, 775
199
23,609
148
43,376
6,607
20,582
025
. 1,810
3,100
60
14,033
16
2,170
41,047
101
Coor
Cottonseed o
19,384
271
Dervatve of gycerne
Mk.

Neutra ard
S6.634
Pam o
393
200
Peanut o
Sat
Tota
212,502
117. S9
Of the amount produced, 32,411 pounds were reworked.
1 Of the amount produced, 28,931 pounds were reworked.
Of the amount produced, 64 pounds were reworked.
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Mso.
-9-7979
MS. 172
Schedue of oeomargarne produced and materas used durng the month of
anuary, 19S6, as compared wth anuary, 1935.
Tota producton of uncoored oeomargarne-
Tota wthdrawn ta -pad
Ingredent schedue for uncoored oeomargarne:
abassue o
utter
Coconut o.
Cottonseed o.
Dervatve of gycerne..
Lecthn
Mk
Neutra ard..
Oeo o
Oeostearne..
Oeo stock
Pam o.
Pam kerne o-
Peanut o.
Sat
Sesame o
Soda fbcnzoateof).
oya bean o.
Tota
Tota producton of coored oeomargarne
Tota wthdrawn ta -pad
Ingredent schedue for coored oeomargarne:
abassue o
utter.
Coor . . _
Cottonseed o
-
Mk
Neutra ard
Oeo o
Oeo stearns
Oeo stock -
Pam o
Peanut o
Sat
Soda fbenzoate of).
Sunfower seed o..
Tota.
anuary,
1936.
Pounds.
1 36,364, 236
36, 017, 32
655,045
17,87
875,661
578, m
99, 112
2, 175
345,554
182,668
340,979
408,409
179,200
103,838
16,861
468,969
948,392
9, 180
16.353
242, 199
89,480,979
64,270
1,410
70, 164
178
48,201
262
60,684
6,712
28,963
1,816
1,300
311
14,207
43
910
225,037
1 Of the amount produced, 27,474 pounds were reworked.
1 Of the amount produced, 8,513 pounds were reworked.
1 Of the amount produced, 12 pounds were reworked.
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504
-13-8023
MS. 173
Schedue of oeomargarne produced and materas used durng the month of
ebruary, 19S6, as compared toth ebruary, 19S5.
ebruary,
1938.
ebruary,
1935.
Tota producton of uncoored oeomargarne ,
Pount.
38,528, 731
Pounds.
41,551,503
Tota wthdrawn ta -pad
37,974.385
41. 699,441
Ingredent schedue for uncoored oeomargarne:
974, 689
utter -.
16,960,525
5,064
10, 665,429
106,581
1,809
7,474,878
281,267
1,480,203
246,573
171,016
101,271
27,171
659,343
1,973. 7C0
6,318
17,187, 774
600
Mk
12,121,444
105,241
1,308
9,512.070
491. 331
2,312,820
213,727
Neutra ard
Oeo o
Sat
16, 749
347,861
20.799
28,023
M 809
egetabe o
Tota
41,409,494
45.064.969
306, 510
343,027
Ingredent schedue for coored oeomargarne:
58,710
120,948
1,200
44
Coor
147,204
300
34,444
94,104
286
49,869
493
109.824
13,972
103.077
3.107
8,260
Mk
338
80.287
7,621
63,903
3.408
5,160
Sat
578
23,716
24,731
21
7,750
4-4
109
3,605
Tota
361,863
413,981
Of the amount produced, 10,971 pounds were reworked.
Of the amount produced, 30,369 pounds were reworked.
Of the amount produced, 20 pounds were reworked.
Of thy amount produced, 12 pounds were reworked.
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505 Mso.
-17-8063
MS. 174
8chedue of oeomargarne produced and materas used durng the month of March,
19S6, as compared wh March, 1936.
March, 1036.
March, 1935.
Tota prod acton of uncoored oeomargarne
Pounds.
83, 541. 659
Pounds.
I 33.907,010
Tota wthdrawn ta -pad _
33,991,252
33,668,036
abassue o _
2,849, 728
mttw . ,
289
Coconut o -
13,160,094
98,672
8,783,733
89, 245
1,767
6, 664,464
202,358
1, 239,851
277,492
191, 499
174, 776
400,195
1,746, 526
9,234
15,
289,814
14,475,864
Corn o-
Cottonseed o
9,818, 353
121,978
1,680
Dervatve of gycerne
Mk
7,647,073
364,248
Neutra ard -
Oeo o -
1,687,6S7
224,021
215, 576
Oeo stearfne
Pam o
Peanut o
378, 218
1,915,780
7,238
15,102
118,206
at - -
Soda (benzoate of) -
Soya bean o - - -
Tota....
36,094. 568
36,991,213
Tota producton of coored oeomargarne
1 252, 603
292, 543
Ingredent schedue for coored oeomargarne:
60,716
89,748
6,661
15
Coconut o .
128, 454
84,300
216
33
34,005
235
67,640
5.138
30,326
809
2,617
2,300
359
20,695
89
660
258
Cottonseed o
85,527
343
Dervatve of gycerne.
Mk - -
53,339
9,810
Neutra ard
88, 359
4,080
4,025
Pahn o . - - -
333
20,372
15
Sat
12,250
289,818
313, 020
Of the amount produced. 15,426 pounds were reworked.
Of the amount produced, 20,491 pounds were reworked.
Of the amount produced, 32 pounds were reworked.
Of the amount produced, 1,824 pounds were reworked.
84326 38 17
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506
-22-8110
MS. 175
Schedue of oeomargarne produced and materas used durng the month of
pr, 1936, as compared wth pr, 1935.
pr, 1938.
pr, 1935.
Pound .
31,975,375
Pounds.
37,177,814
Ingredent schedue of uncoored oeomargarne:
a z m
37,159, 911
utter
2, 859,125
294
Coconut o
12,108,147
291.079
8,509,822
91.229
1,817
6,443.712
178.466
1,263,798
291.792
133,207
63,483
71, 374
221. 29S
8,786
1, 701,939
4,880
14.711
376,851
15,864.015
Corn o
Cottonseed o
10,962,009
174.302
3,493
8,584.149
321.857
1,663. 749
160,296
217,943
Dervatve of gycerne
ecthn
Mk
Oeo stearne
Oeo stock...
Pam o
Pam kerne o
Peanut o
496,171
ape seed o
Sat
2,161.023
5.410
19.041
156.979
403
Sesame o
Soda (benzoate of)-
Soya bean o.
egetabe o..
Tota
34, 685, 316
40,791,147
Tota producton of coored oeomargarne
326,441
241.673
Tota wthdrawn ta -pad
54,943
100,937
Ingredent schedue of coored oeomargarne:
4,925
165,648
312
11
80,538
227
Coor.
Corn o.
Cottonseed o
37.072
642
42.824
412
7
Mk....
85,011
8.041
49,060
80.871
12,717
59,061
Oeo o
1.3.10
Sat
2,982
1,251
21,763
43
1,225
3,680
587
21,989
58
64
4.750
Soda (benzoate of).
Sunfower seed o
Tota
375,584
289,095
1 Of the amount produced, 14,209 pounds wore reworked.
1 Of the amount produced, 31.450 pounds were reworked.
Of the amount produced. 1S1 pounds were reworked.
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507
Msc.
-26-8149
MS. 176
(Schedue of oeomargarne produced and matera used durng the month of
May, 1936, as compared wth May, 1935.
May, 1936.
Tota producton of uncoored oeomargarne..
Tota wthdrawn ta -pad
t schedue of uncoored oeomargarne:
5 O
ut tor
Coconut o
Corn o
Cottonseed o
Dervatve of gycerne
Lecthn
Mk
Neutra ard
Oeo o
Oeo stearne
Oeo stock
Pam o
Pam kerne o
Peanut o
Sesame o
Soda (ben oate of)-
Soya bean o
Tota .
Tota producton of coored oeomargarne.
Tota wthdrawn a -pad
t schedue of coored oeomargarne:
o
o
Coor
Corn o.
Cottonseed o
Dervatve of gycerne
Mk
Neutra ard
Oeo o.
Oeo ste-rne
Oeo stock
Peanut o
Sat-
Soda (bonzoate of)
Soya boan o
d o
Tota.
1 Of the amount produced, 35,231 pound wore reworked.
1 Of tho amount producod, 14,461 pounds wero reworked.
Of the amount produced, 3S2 pounds were reworked.
Pounds.
25, 266, 493
25,452,311
, 034, 517
S, 793, 729
226.196
7,332,137
0,871
1,441
4,971,350
135, 251
1,085,333
316,449
117,844
71,096
215,542
168,364
1,297, 137
1,400
11,030
299, 135
27, 148, 822
314,700
44, 070
706
185,493
242
41
28,835
391
67,266
3,389
28,717
6.000
2,663
1,016
22,798
56
923
337, 625
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508
TO CCO.
-1-7894
T. 18
r
Statement of manufactured tobacco produced, by casses, durng the month
of October, 9S5, as compared wth October, 1934.
October,
1933.
October,
1934.
October,
1935.
October,
1934.
Poundt.
Poundt.
Poundt.
Poundt.
Pug
6,928.206
643,398
460,703
8,617,732
426, 637
378, a30
18,280,680
17,792.319
Twst
ne-cut ohewng _ _
Tota
29,280,643
27, 680, 800
4,067,858
3,665,782
No. These fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
-6-7947
T. 19
Statement of manufactured tobacco produced, by casses, durng the month of
November, 1935, as compared wth November, 1934.
November,
1935.
November,
1934.
November,
1935.
November,
1934.
Poundt.
Poundt.
Pounds.
Pug
4,726,630
437,994
368,346
4, 878,830
443.883
241,328
Smokng
14,811,607
upturn
Twst
Tota
23,752,541
25,160,108
Scrap chewng
3,407,964
3, 463, 579
Note. These fgures are sub|ect to revson unt pubshed In the Commssoner s annua report.
-10-7989
T. 20
Statement of manufactured tobacco produced, by casses, durng the month of
December, 1935, as compared unth December, 1934.
Pug
Twst
ne-cut chewng
Scrap chewng
Decem-
ber, 1935.
Poundt.
4,052,361
457,084
393. 977
3,083, 642
Decem-
ber, 1934.
Poundt.
4, 159,842
370, 551
211,651
3,057, 694
Smokng
Tota.
Decem-
ber, 1935.
Poundt.
13,883,600
21,870,664
ber, 1934.
13,152,883
20,952,621
Note. These fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
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#
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509
Msc.
-15-8042
T. 21
Statement of manufactured tobacco produced, by casses, durng the month of
anuary, 1936, as compared wth anuary, 19S5.
r -
anuary,
193 .
anuary,
1935.
anuary,
1936.
anuary,
1935.
Pounds.
Pound.
15, 797,188
Pound).
16,431,140
444,667
413,101
8,616,615
8,108,497
450.252
252,919
Smokng..
Scrap chewng
8,769,493
Tota
24,867,640
26, 012, 301
Note. These fgures are sub|ect to revson unt pubshed In the Commssoner s annua report.
-19-8082
T.22
Statement of manufactured tobacco produced, by casses, durng the month of
ebruary, 1936, as compared unth ebruary, 1935.
ebruary,
1936.
ebruary,
1935.
ohruary,
1936.
ebruary,
1935.
Pounds.
Pounds.
Pounds.
8.459.671
15, 433, 634
Pounds.
3,169,622
14, 657, 768
Pug
4, 804. 301
620,855
353,138
4,710,520
441. 442
191,817
Scrap chewng
Smokng .
Tota
24, 571, 599
23,171,169
Non. These fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
-22-8109
T.23
Statement of manufactured tobacco produced, by casses, durng the month of
March, 1936, as compared teth March, 1935.
March,
1936.
March,
1935.
March.
1936.
March,
1935.
Pounds.
Pounds.
Pounds.
Pounds.
15,424, 218
Pug
4,987,982
561,499
879,414
4,907,117
430, 334
367,678
17,281,200
Twst
ne-cut chewng
Tota ... .
26,757,933
24,613,441
Scrap chewng
3, 547,838
3,484,097
Note. These fgures are sub|ect to revson unt pubshed n the Commssoner s nnua Report.
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510
O RD O T PP LS.
-13-8021
Rue 47. Depostons upon wrtten nterrogatores (as amended
ebruary 28, 1936).
Depostons may be taken n the dscreton of the oard upon
wrtten nterrogatores n substantay the same manner as pro-
vded n rues 45 and 46 for depostons upon ora e amnatons. n
orgna and fve copes of the nterrogatores must be fed wth the
appcaton. The cerk w serve one copy of the appcaton and
of the nterrogatores upon the opposte party. If the opposte
party desres to fe ob|ectons or cross-nterrogatores, he must do
so wthn 10 days after the appcaton and nterrogatores have
been served upon hm. Cross-nterrogatores must consst of an
orgna and fve copes. The cerk w serve one copy thereof upon
the opposte party who, f he has any ob|ecton thereto, must fe hs
ob|ectons wthn 10 days thereafter. No ob|ectons to the nterroga-
tores or cross-nterrogatores w be consdered at the hearng uness
tmey fed n accordance wth ths rue.
No person other than the wtness, a stenographc reporter, and the
offcer takng the deposton upon wrtten nterrogatores and cross-
nterrogatores sha be present at the e amnaton of the wtness.
Ths fact sha be certfed by the offcer takng the deposton. That
offcer sha propound the nterrogatores and cross-nterrogatores
to the wtness n ther order and reduce the testmony to wrtng n
the wtness s own words.
Depostons obtaned n foregn countres must be taken upon
wrtten nterrogatores, e cept as otherwse drected by the oard
for cause shown.
MISC LL N OUS.
-12-8013
D R L R GIST R CT PU LIC, NO. 220, S NTY- OURT
CONGR SS 49 ST T., 500-503 .
n ct to provde for the custody of edera procamatons,
orders, reguatons, notces, and other documents, and for the
prompt and unform prntng and dstrbuton thereof.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That the rchvst
of the Unted States, actng through a dvson estabshed by hm
n the Natona rchves stabshment, herenafter referred to as
the Dvson, s charged wth the custody and, together wth the
Pubc Prnter, wth the prompt and unform prntng and dstrbu-
ton of the documents requred or authorzed to be pubshed under
secton 5. There sha be at the head of the Dvson a drector,
apponted by the Presdent, who sha act under the genera drec-
ton of the rchvst of the Unted States n carryng out the pro-
vsons of ths ct and the reguatons prescrbed hereunder who
sha receve a saary, to be f ed by the Presdent, not to e ceed
5,000 a year.
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IMIbc.
Sec. 2. The orgna and two dupcate orgnas or certfed copes
of any document requred or authorzed to be pubshed under sec-
ton 5 sha be fed wth the Dvson, whch sha be open for that
Surpose durng a hours of the workng days when the rchves
udng sha be open for offca busness. The Drector of the
Dvson sha cause to be noted on the orgna and dupcate org-
nas or certfed copes of each document the day and hour of fng
thereof: Provded, That when the orgna s ssued, prescrbed, or
promugated outsde of the Dstrct of Coumba and certfed copes
are fed before the fng of the orgna, the notaton sha be of the
day and hour of fng of the certfed copes. Upon such fng, at
east one copy sha be mmedatey avaabe for pubc nspecton
n the offce of the Drector of the Dvson. The orgna sna be
retaned n the archves of the Natona rchves stabshment and
sha be avaabe for nspecton under reguatons to be prescrbed
by the rchvst. The Dvson sha transmt mmedatey to the
Government Prntng Offce for prntng, as provded n ths ct,
one dupcate orgna or certfed copy of each document requred
or authorzed to be pubshed under secton 6. very edera agency
sha cause to be transmtted for fng as heren requred the org-
na and the dupcate orgnas or certfed copes of a such docu-
ments ssued, prescrbed, or promugated by the agency.
Seo. 3. documents requred or authorzed tobe pubshed under
secton 5 sha be prnted and dstrbuted forthwth by the Govern-
ment Prntng Offce n a sera pubcaton desgnated the edera
Regster. It sha be the duty of the Pubc Prnter to make ava-
abe the factes of the Government Prntng Offce for the prompt
prntng and dstrbuton of the edera Regster n the manner and
at the tmes requred n accordance wth the provsons of ths ct
and the reguatons prescrbed hereunder. The contents of the day
ssues sha be nde ed and sha comprse a documents, requred
or authorzed to be pubshed, fed wth the Dvson up to such tme
of the day mmedatey precedng the day of dstrbuton as sha
be f ed by reguatons hereunder. There sha be prnted wth each
document a copy of the notaton, requred to be made under secton
2, of the day and hour when, upon ffng wth the Dvson, such
document was made avaabe for pubc nspecton. Dstrbuton
sha be made by devery or by depost at a post offce at such tme
n the mornng of the day of dstrbuton as sha be f ed by such
reguatons prescrbed hereunder. The prces to be charged for the
edera Regster may be f ed by the admnstratve commttee
estabshed by secton 6 wthout reference to the restrctons paced
upon and f ed for the sae of Government pubcatons by secton 1
of the ct of May 11. 1922, and secton 807 of the ct of une 30,
1932 (U. S. C, tte 44, sectons 72 and 72a), and any amendments
thereto.
Sec. 4. s used n ths ct, uness the conte t otherwse requres,
the term document means any Presdenta procamaton or ec-
utve order and any order, reguaton, rue, certfcate, code of far
competton, cense, notce, or smar nstrument ssued, prescrbed,
or promugated by a edera agency the terms edera agency or
agency mean the Presdent of the Unted States, or any e ecu-
tve department, ndependent board, estabshment, bureau, agency,
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512
nsttuton, commsson, or separate offce of the admnstratve branch
of the Government of the Unted States but not the egsatve or
|udca branches of the Government and the term person means
any ndvdua, partnershp, assocaton, or corporaton.
Seo. 5. (a) There sha De pubshed n the edera Regster (1)
a Presdenta procamatons and ecutve orders, e cept such aa
have no genera appcabty and ega effect or are effectve ony
aganst edera agences or persons n ther capacty as offcers,
agents, or empoyees thereof (2) such documents or casses of docu-
ments as the Presdent sha determne from tme to tme have gen-
era appcabty and ega effect: and (3) such documents or casses
of documents as may be requred so to be pubshed by ct of the
Congress: Provded, That for the purposes of ths ct every docu-
ment or order whch sha prescrbe a penaty sha be deemed to have
genera appcabty and ega effect.
(b) In addton to the foregong there sha aso be pubshed n
the edera Regster such other documents or casses of documents
as may be authorzed to be pubshed pursuant hereto by reguatons
prescrbed hereunder wth the approva of the Presdent, but n no
case sha comments or news tems of any character whatsoever be
authorzed to be pubshed n the edera Regster.
Sec. 6. There s estabshed a permanent dmnstratve Commt-
tee of three members consstng of the rchvst or ctng rchvst,
who sha be charman, an offcer of the Department of ustce desg-
nated by the ttorney Genera, and the Pubc Prnter or ctng
Pubc Prnter. The Drector of the Dvson sha act as secretary
of the commttee. The commttee sha prescrbe, wth the approva
of the Presdent, reguatons for carryng out the provsons of ths
ct. Such reguatons sha provde, among other thngs: (a) The
manner of certfcaton of copes requred to be certfed under sec-
ton 2, whch certfcaton may be permtted to be based upon con-
frmed communcatons from outsde of the Dstrct of Coumba
b) the documents whch sha be authorzed pursuant to secton
(b) to be pubshed n the edera Regster (c) the manner and
form n whch the edera Regster sha be prnted, reprnted, com-
ped, nde ed, bound, and dstrbuted (d) the number of copes of
the edera Regster whch sha be prnted, reprnted, and comped,
the number whch sha be dstrbuted wthout charge to Members or
Congress, offcers and empoyees of the Unted States, or any edera
agency for ther offca use, and the number whch sha be avaabe
for dstrbuton to the pubc and (e) the prces to be charged for
ndvdua copes of, and subscrptons to, the edera Regster and
reprnts and bound voumes thereof.
Seo. 7. No document requred under secton 5(a) to be pubshed
n the edera Regster sha be vad as aganst any person who has
not had actua knowedge thereof unt the dupcate orgnas or
certfed copes of the document sha have been fed wth the Dv-
son and a copy made avaabe for pubc nspecton as provded
n secton 2 and, uness otherwse specfcay provded by statute,
such fng of any document, requred or authorzed to be pubshed
under secton 5, sha, e cept n cases where notce by pubcaton
s nsuffcent n aw, be suffcent to gve notce of the contents of such
document to any person sub|ect thereto or affected thereby. The
pubcaton n the edera Regster of any document sha create a
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513
Msc.
rebuttabe presumpton (a) that t was duy ssued, prescrbed, or
promugated (b) that t was duy fed wth the Dvson and made
avaabe for pubc nspecton at the day and hour stated n the
prnted notaton (c) that the copy contaned n the edera Regs-
ter s a true copy of the orgna and, (d) that a requrements of
ths ct and the reguatons prescrbed hereunder reatve to such
document have been comped wth. The contents of the edera
Regster sha be |udcay notced and, wthout pre|udce to any
other mode of ctaton, may be cted by voume and page number.
Sec. 8. Whenever notce of hearng or of opportunty to be heard
s requred or authorzed to be gven by or under an ct of the
Congress, or mav otherwse propery be gven, the notce sha be
deemed to have been duy gven to a persons resdng wthn the
contnenta Unted States (not ncudng aska), e cept n cases
where notce by pubcaton s nsuffcent n aw: f sad notce sha
be pubshed n the edera Regster at such tme that the perod
between the pubcaton and the date f ed n such notce for the
hearng or for the termnaton of the opportunty to be heard sha
be (a) not ess than the tme specfcay prescrbed for the pubca-
ton of the notce by the approprate ct of the Congress or (b)
not ess than 15 days when no tme for pubcaton s specfcay
prescrbed by the ct, wthout pre|udce, however, to the effectve-
ness of any notce of ess than 15 days where such shorter perod
s reasonabe.
Sec. 9. very payment made for the edera Regster sha be
covered nto the Treasury as a msceaneous recept. The cost of
prntng, reprntng, wrappng, bndng, and dstrbutng the ed-
era Regster and any other e penses ncurred by the Government
Prntng Offce n carryng out the dutes paced upon t by ths
ct sha be borne by the appropratons to the Government Prnt-
ng Offce and such appropratons are hereby made avaabe, and
are authorzed to be ncreased by such addtona sums as are neces-
sary for such purposes, such ncreases to be based upon estmates
submtted by the Pubc Prnter. The purposes for whch appro-
pratons are avaabe and are authorzed to be made under secton
10 of the ct entted n ct to estabsh a Natona rchves
of the Unted States Government, and for other purposes (48
Stat., 1122), are enarged to cover the addtona dutes paced upon
the Natona rchves stabshment by the provsons of ths ct.
Copes of the edera Regster maed by the Government sha be
entted to the free use of the Unted States mas n the same manner
as the offca ma of the e ecutve departments of the Government.
The cost of mang the edera Regster to offcers and empoyees
of edera agences n foregn countres sha be borne by the re-
spectve agences.
Sec. 10. The provsons of secton 2 sha become effectve 60
days after the date of approva of ths ct and the pubcaton of
the edera Regster sha begn wthn three busness days there-
after: Provded, That the appropratons nvoved have been n-
creased as requred by secton 9 of ths ct. The mtatons upon
the effectveness of documents requred, under secton 5(a), to be
pubshed n the edera Regster sha not be operatve as to any
document ssued prescrbed, or promugated pror to the date when
such document s frst requred by ths or subsequent ct of the
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Congress or by ecutve order to be pubshed n the edera
Regster.
Seo. 11. Wthn s months after the approva of ths ct each
agency sha prepare and fe wth the commttee a compete com-
paton of a documents whch have been ssued or promugated
pror to the date documents are requred or authorzed by ths ct
to be pubshed n the edera Regster and whch are st n force
and effect and reed upon by the agency as authorty for, or nvoked
or used by t n the dscharge of, any of ts functons or actvtes.
The commttee sha wthn 60 days thereafter report wth respect
thereto to the Presdent, who sha determne whch of such docu-
ments have genera appcabty and ega effect, and sha author-
ze the pubcaton thereof n a speca or suppementa edton or
ssue of the edera Regster. Such speca or suppementa edtons
or ssues sha be dstrbuted n the same manner as reguar edtons
or ssues, and sha be ncuded n the bound voumes of the edera
Regster as suppements thereto.
Sec. 12. Nothng n ths ct sha be construed to appy to trea-
tes, conventons, protocos, and other nternatona agreements, or
procamatons thereof by the Presdent.
Seo. 13. cts or parts of cts n confct wth ths ct are
hereby repeaed nsofar as they confct herewth.
Seo. 14. Ths ct may be cted as the edera Regster ct.
pproved, uy 26, 1935.
tract from Pubc Law No. 440, Seventy-fourth Congress, approved ebruary 11, 1936.
GO RNM NT PRINTING. O IC .
Pubc prntng and bndng: or the prntng and dstrbuton
of the edera Regster and such documents as may be requred to
be prnted and dstrbuted by the Dvson of the edera Regster
durng the fsca year 1936, n accordance wth the provsons of
Pubc ct Numbered 220, Seventy-fourth Congress, approved uy
26, 1935, 100,000: Provded, That the provsons of secton 2 of the
edera Regster ct sha become effectve 30 days after sad
appropratons become avaabe and the pubcaton of the edera
Regster sha begn wthn two busness days thereafter.
CUTI ORD R R GUL TIONS GO RNING T PR P R TION, PR -
S NT TION, ILING, ND DISTRI UTION O CUTI ORD RS ND
PROCL M TIONS.
y vrtue of and pursuant to the authorty vested n me by the
edera Regster ct, approved uy 26, 1935 (49 Stat., 500), and
as Presdent of the Unted States, I hereby prescrbe the foowng
reguatons governng the preparaton, presentaton, fng, and
dstrbuton of ecutve orders and procamatons:
1. Proposed ecutve orders and procamatons sha be prepared
n accordance wth the foowng requrements:
(a) sutabe tte for the order or procamaton sha be pro-
vded.
(6) The authorty under whch the order or procamaton s
promugated sha be cted n the body thereof.
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515
Mso.
( |) Punctuaton, captazaton, orthography, and other matters
of stye sha conform to the most recent edton of the Stye Manua
of the Unted States Government Prntng Offce.
(d) The speng of geographc names sha conform to the most
recent offca decsons made pursuant to ecutve Orders No. 27- ,
of September 4, 1890, No. 399, of anuary 23, 1906, and No. 6680, of
pr 17, 1934.
(e) Descrptons of tracts of ands sha conform, so far as prac-
tcabe, wth the most recent edton of the Specfcatons for
Descrptons of Tracts of Land for Use n ecutve Orders and
Procamatons, pubshed by the edera oard of Surveys and
Maps.
(/) Proposed ecutve orders and procamatons sha be type-
wrtten on paper appro matey 8 by 12 nches, sha have a eft-
hand margn of appro matey 2 nches and a rght-hand margn of
appro matey 1 nch, and sha be doube-spaced, e cept that quota-
tons, tabuatons, or descrptons of and may be snge-spaced.
2. The proposed ecutve order or procamaton sha frst be sub-
mtted to the Drector of the ureau of the udget. If the Drector
of the ureau of the udget approves t, he sha transmt t to the
ttorney Genera for hs consderaton as to both form and egaty.
If the ttorney Genera approves t, he sha transmt t to the Drec-
tor of the Dvson of the edera egster, the Natona rchves.
If t conforms to the requrements of paragraph 1 hereof the Drec-
tor of the Dvson of the edera Regster sha transmt t and three
copes thereof to the Presdent. If t s dsapproved by the Drec-
tor of the ureau of the udget or the ttorney Genera, t sha not
thereafter be presented to the Presdent uness t s accompaned by
the statement of the reasons for such dsapprova.
3. If the order or procamaton s sgned by the Presdent, the
orgna and two copes thereof sha be forwarded to the Drector
of the Dvson of the edera Regster for approprate acton n
conformty wth the provsons of the edera Regster ct: Pro-
vded, however, That the sea of the Unted States sna be aff ed to
the orgnas of a procamatons pror to such forwardng. The
Dvson of the edera Regster sha cause to be paced upon the
copes of a ecutve orders and procamatons the foowng nota-
ton, to be sgned by the Drector or by some person authorzed by
hm: Certfed to be a true copy of the orgna. The Dvson of
the edera Regster sha number and sha supervse the promu-
gaton, pubcaton, and dstrbuton of a ecutve orders and
procamatons.
4. The Dvson of the edera Regster sha cause a mted num-
ber of copes of the ecutve orders and procamatons not requred
or authorzed to be fed and pubshed under the provsons of the
edera Regster ct to be made avaabe n sp form to the appro-
prate agences of the Government.
5. The Dvson of the edera Regster sha fe n the Natona
rchves the orgnas of a ecutve orders and procamatons.
6. The sgned orgnas and copes of a ecutve orders and
procamatons heretofore promugated and now n the custody of
the Department of State sha be transferred to the Natona
rchves.
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516
7. Nothng n ths order sha be construed to appy to treates,
conventons, protocos, and other nternatona agreements, or proc-
amatons thereof by the Presdent.
8. Ths order sha become effectve on March 12, 1936, and sha
thereupon supersede ecutve Order No. 6247, of ugust 10, 1938.
rankn D. Roosevet.
The Whte ouse,
ebruary 18, 1936.
No. 7298
UL TIONS PR SCRI D Y T DMINISTR TI COMMITT OP T
D R L R GIST R, ND PPRO D Y T PR SID NT, PURSU NT TO
T UT ORITY CONT IN D IN S CTION 6 OP T D R L R GIST R CT
(49 ST T.. 600).
L Defntons.
s used heren, uness the conte t otherwse requres:
(a) The term ct means the edera Regster ct, approved
uy 26, 1935 (49 Stat., 500 .
(e ) The terms agency or edera agency mean the Pres-
dent of the Unted States, or any e ecutve department, ndependent
board, estabshment, bureau, agency, nsttuton, commsson, or
separate offce of the admnstratve branch of the Government of
the Unted States, but not the egsatve or |udca branches of the
Government.
(0) The terms Commttee or dmnstratve Commttee
mean the dmnstratve Commttee estabshed under secton 6 of
the ct.
(d) The term Drector means the Drector of the Dvson of
the edera Regster, The Natona rchves.
(e) The terms date of ssue or dstrbuton day mean Tues-
day, Wednesday, Thursday, rday, and Saturday, e ceptng where
such days foow a ega hoday.
(/) The term Dvson means the Dvson of the edera Reg-
ster, The Natona rchves.
(a) The term document means any Presdenta procamaton
or ecutve order, and any order, reguaton, rue, certfcate, code
of far competton, cense, notce, or smar nstrument ssued,
prescrbed, or promugated by a edera agency.
(h) The term edera Regster means the day ssue of the
edera Regster.
(1) The term edera Regster Suppement means the docu-
ments pubshed under the provsons or secton 11 of the ct.
( ) The term person means any ndvdua, partnershp, as-
socaton, or corporaton.
II. Documents Requred to be ed n the Offce of the Drector and
Pubshed n the edera Regster.
. There sha be fed n the offce of the Drector and pubshed
n the edera Regster:
(a) Such documents or casses of documents as may be requred
so to be pubshed by ct of Congress.
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( ) ecutve orders and procamatons havng genera app-
cabty and ega effect, e cept such as are effectve ony aganst
edera agences or persons n ther capacty as offcers, agents, ot
empoyees thereof.
(c) The foowng documents or casses of documents, e cept
ecutve orders and procamatons, ssued by the foowng edera
agences :

D P RTM NT O T TR SURY.

UR U O INT RN L R NU .
Reguatons and Treasury Decsons, so entted, prescrbed or
approved by the Secretary of the Treasury, wth respect to nterna
revenue, ssued under authorty of any aw or aws or ecutve
orders reatng to nterna revenue.

. other documents havng genera appcabty and ega
effect ssued prescrbed, or promugated by any edera agency not
desgnated m secton II (c) of these Reguatons sha be for-
warded by the agency ssung the same to the Dvson. There sha
aso be forwarded to the Dvson any document havng genera
appcabty and ega effect ssued, prescrbed, or promugated by
any edera agency pursuant to authorty deegated to such agency
subsequent to the approva of these reguatons.
The Drector shaL under the drecton of the dmnstratve Com-
mttee, e amne the documents forwarded to the Dvson pursuant to
the above paragraph, and f, under such drecton, t s determned
that the documents have genera appcabty and ega effect, sha
cause such documents to be fed n accordance wth the reguar
routne and pubshed n the day ssue of the edera Regster.
I. Documents ffectve Ony ganst edera gences, tc.
No documents effectve ony aganst edera agences or persons
n ther capacty as offcers, agents, or empoyees thereof sna be
fed n the offce of the Drector or forwarded to the Dvson pur-
suant to the provsons of secton II ( ) or II of these
reguatons.
I . Documents orwarded to the Dvson avng No Genera ppcabty
and Lega ffect.
documents, e cept ecutve orders and procamatons, for-
warded to the Dvson pursuant to secton II of these reguar
tons, whch the dmnstratve Commttee sha determne to nave
no genera appcabty and ega effect, sha be returned by the
Dvson to the agency ssung the same.
. Documents Prescrbed onty by Two or More edera gences.
Documents bearng the sgnature of offcers of two or more edera
agences, sha, for the purposes of these reguatons, be deemed to
have been ssued, prescrbed, or promugated by the offcer ast
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Msc.
518
sgnng the same, and the duty of fng such documents n the offce
of the Drector, or forwardng such documents to the Dvson, sha
rest upon such offcer. Where necessary such offcer sha make the
approprate arrangements for keepng the other agency or agences
nformed regardng the fng.
I. ecutve Orders and Procamatons.
The preparaton, presentaton, promugaton, and dstrbuton of
ecutve orders and procamatons sha conform to the procedure
prescrbed n ecutve Order No. 7298, dated ebruary 18, 1936.
II. Preparaton of Documents.
documents requred to be fed n the offce of the drector or
forwarded to the Dvson sha be prepared as foows:
(a) sutabe tte sha be prov ded.
(b) The authorty under whch the document s promugated sha
be cted n the body thereof.
(c) Punctuaton, captazaton, orthography, and other matters
of stye sha conform to the most recent edton of the Stye Man-
ua of the Unted States Government Prntng Offce.
(d) The speng of geographc names sha conform to the most
recent offca decsons made pursuant to ecutve Orders, No. 27-
of September 4, 1890, No. 399 of anuary 23, 1906, and No. 6680
of pr 17, 1934.
(e) Descrptons of tracts of and sha conform, so far as prac-
tcabe, wth the most recent edton of the Specfcatons for De-
scrptons of Tracts of Land for Use n ecutve Orders and
Procamatons, pubshed by the edera oard of Surveys and
Maps.
(/) documents sha be typewrtten on paper 8 by 12 4 nches,
fcha have a eft-hand margn of appro matey 2 nches and a rght-
hand margn of appro matey 1 nch, and sha bo doube-spaced,
e cept that quotatons, tabuatons, or descrptons of and may be
snge-spaced. Where t s the estabshed practce of an agency to
cause the orgnas of ts documents to be put n prnt before they
are sgned, such prnted orgnas and dupcates thereof may be
receved t the stye and form have been duy approved by the
Drector.
(ff) There sha be attached to the orgna or confrmed copy,
e cept ecutve orders and procamatons, three certfed copes
thereof.
III. ff aton of Sea.
The sea, f any, of the agency ssung the same sha be aff ed to
the orgna and certfed copes of a documents requred to be fed
n the offce of the Drector or forwarded to the Dvson.
I . Certfcaton.
The certfed copes of a documents requred to be fed n the
offce of the Drector or forwarded to the Dvson, e cept ecutve
orders and procamatons, sha be certfed as foows: Certfed
to be a true copy of the orgna, and each such certfcaton sha
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519
Mso.
be sgned by the offcer sgnng the orgna or by an offcer or em-
poyee desgnated by hm provded, that notce of such desgnaton
be fed wth the Dvson.
. Documents Issued Outsde of the Dstrct of Coumba.
In the case of documents ssued, prescrbed, or promugated out-
sde of the Dstrct of Coumba whch are requred to be fed n the
offce of the Drector or forwarded to the Dvson, there may be fed
or forwarded, n eu of the orgna, a confrmed copy of such docu-
ment. There sha be on such copy so fed or forwarded the notaton
Confrmed, whch notaton sha be sgned by an offcer or empoyee
desgnated for that purpose by the head of the agency concerned
rovded, that notce of such desgnaton sha be fed wth the
vson.
I. orwardng and ng Documents.
Documents requred to be fed n the offce of the Drector or for-
warded to the Dvson sha be forwarded by messenger to the D-
vson and receved ony durng the hours of the workng days
when the Natona rchves udng sha be open for offca bus-
ness, . e,, 9 a, m. to 4.30 p. m. (Saturday 9 a. m. to 1 p. m.).
II. Recept and Dsposton of Documents.
(a) Immedatey upon the recept of those documents requred to
be fed and pubshed n the edera Regster, there sha be paced
upon the orgna and certfed copes the day and hour of fng.
(b) The orgnas of such documents sha be forwarded to the
Natona rchves for custody.
(c One certfed copy sha be made mmedatey avaabe for
pubc nspecton n the offce of the Drector.
d) One certfed copy sha be forwarded to the Government
Prntng Offce.
III. Treates, tc., not ffected.
Nothng n these reguatons sha be construed to appy to treates,
conventons, protocos, and other nternatona agreements or proca-
matons thereof by the Presdent.
I . Tme of Pubcaton of Documents ed.
Documents requred to be fed and pubshed n the edera Regs-
ter, whch are fed n the offce of the Drector pror to 1 p. m.,
sha be pubshed n the ssue of the edera Regster appearng the
foowng dstrbuton day. Documents requred to be fed and
pubshed n the edera Regster whch are fed n the offce of the
Drector subsequent to 1 p. m., sha be pubshed n the ssue of
the edera Regster appearng the second foowng dstrbuton
day.
. Iustratons.
The ncuson of ustratons as a part of documents requred or
authorzed to be pubshed n the edera Regster shoud be avoded
wherever possbe. Iustratons accompanyng such documents,
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Msc. 520
when pubshed, sha be reduced to a sze not greater than 7 by 10
nches and be ne cuts ony. Copy for ustratons must be for-
warded to the Dvson wth the documents of whch they are a part.
I. Dates of Pubcaton of edera Regster.
The edera Regster sha be dstrbuted by the Government
Prntng Offce every Tuesday, Wednesday, Thursday, rday, and
Saturday mornng, e ceptng days foowng ega hodays, and
sha be n the genera form, stye, and sze of the Congressona
Record.
II. Contents and Inde ng of edera Regster.
The contents of the edera Regster sha be nde ed day,
monthy, quartery, annuay, and at such other tmes as the Drector
may prescrbe.
III. DST I UTIO .
Dstrbuton of the edera Regster sha be made by devery
or by depost at a post offce at or before 9 a. m. of the day of
dstrbuton.
I . Copes fob Offca Use.
Copes of the edera Regster sha be dstrbuted wthout charge
to Members of Congress, offcers and empoyees of the Unted States,
or any edera agency for ther offca use.
. Requests fob Copes.
requests for copes of the edera Regster sha be addressed to
the Superntendent of Documents, Government Prntng Offce,
Washngton, D. C.
I. Notces.
Notwthstandng anythng n these reguatons to the contrary,
no notces sha be pubshed n the edera Regster e cept those
whch ssue, amend, or repea reguatons or those whch prescrbe
a penaty: or notces or orders for a pubc hearng or opportunty
for a pubc hearng wth respect to any proceedng to whch a ed-
era agency s requred or authorzed by statute to admt as a party
any State or potca subdvson thereof, or any authortes thereof,
or representatves of nvestors, consumers, or other nterested cass or
casses of persons.
These reguatons sha become effectve mmedatey and sha
supersede the reguatons approved by me on March 2, 1936.
pproved:
rankn D. Roosevet.
The Whte ouse,
March 11, 1936.
-9-7977
S. 3934. PU LIC, NO. 433, S NTY- OURT CONGR SS.
n ct to repea the err Tobacco ct, the ankhead Cotton
ct of 1934, and the Potato ct of 1936.
e t enacted by the Serate and ouse of Representatves of the
Unted States of merca n Congress assembed, That Pubc Law
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521
Msc.
Numbered 483, Seventy-thrd Congress, as amended, known as the
err Tobacco ct, and Pubc Law Numbered 169, Seventy-thrd
Congress, as amended, known as the ankhead Cotton ct of 1934,
e cept secton 24 thereof, and sectons 201 to 233, both ncusve, of
Pubc Law Numbered 320, Seventy-fourth Congress, known as the
Potato ct of 1935, be, and the same hereby are, repeaed and a
ens for ta es mposed as provded n subdvson (f) of secton 4
of Pubc Law Numbered 169 are hereby canceed and reeased.
pproved ebruary 10, 1936.
-15-8041
S. 3227. PU LIC, NO. 470, S NTY- OURT CONGR SS.
n ct to amend secton 8 of the ct approved May 10, 1928, en-
tted n ct to e tend the perod of restrcton n ands of
certan members of the ve Cvzed Trbes, and for other pur-
poses, as amended ebruary 14, 1931.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That secton 8
of the ct of May 10, 1928, entted n ct to e tend the perod
of restrcton n ands of certan members of the ve Cvzed
Trbes, and for other purposes, as amended ebruary 14, 1931, be
amended to read as foows:
Sec. 3. That a mneras, ncudng o and gas, produced on or after pr
26, 1931, from restrcted aotted ands of members of the ve Cvzed Trbes
In Okahoma, or from nherted restrcted ands of fu-bood Indan hers or
devsees of such ands, sha be sub|ect to a State and edera ta es of every
knd and character the same as those produced from ands owned by other
ctzens of the State of Okahoma and the Secretary of the Interor s hereby
authorzed and drected to cause to be pad, from the ndvdua Indan funds
hed under hs supervson and contro and beongng to the Indan owners of
the ands, the ta or ta es so assessed aganst the royaty nterest of the respec-
tve Indan owners n such o, gas, and other mnera producton: Provded,
That nothng In ths ct sha be construed to mpose or provde for doube
ta aton and, n those cases where the machnery or equpment used n pro-
ducng o or other mneras on restrcted Indan ands are sub|ect to the ad
vaorem ta of the State of Okahoma for the fsca year endng une 30, 1931,
the gross producton ta whch s n eu thereof sha not be Imposed pror
to uy 1, 1981: Provdes fvrter, That n the dscreton of the Secretary of
the Interor, the ta or ta es due the State of Okahoma may be pad n the
manner provded by the statutes of the State of Okahoma.
pproved March 12, 1936.
-16-8054
. 397a PU LIC, NO. 482, S NTY- OURT CONGR SS.
n ct reatng to ta aton of shares of preferred stock, capta
notes, and debentures of banks whe owned by the Reconstruc-
ton nance Corporaton and reaffrmng ther mmunty.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Oongre s assembed, That secton 304
of the ct entted n ct to provde reef n the e stng natona
emergency n bankng and for other purposes, approved March 9,
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Msc.
522
1933, as amended, be further amended by addng at the end thereof
the foowng:
Notwthstandng any other provson of aw or any prvege or consent to
ta e pressy or Impedy granted thereby, the shares of preferred stock of
natona bankng assocatons, and the shares of preferred stock, capta notes,
and debentures of State banks and trust companes, heretofore or hereafter
acqured by Reconstructon nance Corporaton, and the dvdends or nterest
derved therefrom by the Reconstructon nance Corporaton, sha not, so ong
as Reconstructon nance Corporaton sha contnue to own the some, be sub-
|ect to any ta aton by the Unted States, by any Terrtory, dependency, or
possesson thereof, or the Dstrct of Coumba, or by any State, county, munc-
paty, or oca ta ng authorty, whether now, heretofore, or hereafter mposed,
eved, or assessed, and whether for a past, present, or future ta ng perod.
Sec. 2. ffectve upon the date of enactment of ths ct, nterest
charges on a oans by the Reconstructon nance Corporaton to
cosed banks and trust companes, now n force, or made subsequent
to the date of enactment of ths ct, sha not e ceed 3y2 per centum
per annum on condton that the rate of nterest charged debtors
of such banks or trust companes sha not e ceed 4y2 per centum per
annum otherwse such nterest rate sha be as f ed by the Recon-
structon nance Corporaton: Provded, however, That no prov-
son of ths ct sha be construed to authorze a reducton n the
rate of nterest on such oans by the Reconstructon nance Corpo-
raton retroactve from the date of enactment of ths ct.
Seo. 3. If any provson, word, or phrase of ths ct, or the
appcaton thereof to any condton or crcumstance, s hed nvad,
the remander of the ct, and the appcaton of ths ct to other
condtons or crcumstances, sha not be affected thereby.
pproved March 20, 1936.
-18-8071
. R. 11365. PU LIC, NO. 510, S NTY- OURT CONGR SS.
n ct reatng to the fng of copes of ncome returns, and
for other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That secton 54
of the Revenue ct of 1934, as amended, s amended by nsertng at
the end thereof the foowng new subsecton:
(d) Copes of Retuens. If any person, requred by aw or reguatons
made pursuant to aw to fe a copy of any ncome return for any ta abe
year begnnng after December 31, 1934, fas to fe such copy at the tme
requred, there sha be due and assessed aganst such person 5 In the case
of an Indvdua return or 10 n the case of a fducary, partnershp, or cor-
poraton return, and the coector wth whom the return s fed sha prepare
such copy. Such amount sha be coected and pad, wthout nterest, n the
same manner as the amount of ta due n e cess of that shown by the ta -
payer upon a return n the case of a mathematca error appearng on the
face of the return. In case of a person who fed a return for any ta abe
year not begnnng after December 31, 1935, such amount of 5 or 10 sha be
due and assessed ony If the copy Is not fed before the e praton of ffteen
days after the mang by the coector In whose offce the return Is fed, of a
request to such person for the fng of the copy. Copes of returns fed or
prepared pursuant to ths subsecton sha reman on fe for a perod of not
ess than two years from the date they are requred to be fed, and may be
destroyed at any tme thereafter nnder the drecton of the Commssoner.
pproved pr 10, 1936.
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523
M80.
-6-7948
D. C. 230 (Revsed)
Laws and Reguatons Governno the Recognton op ttorneys, gents, and
Otheb Persons Representng Camants and Others efore the Treasury
Department and Offces Thereof.
(Department Crcuar No. 230 of 1934 (Revsed)1 (193S mendment). Commttee on
nroment and Dsbarment
Treasury Department,
Offce of the Secretary,
Washngton, anuary 15,1936.
Department Crcuar No. 230 (Revsed)1 of October 1,1934, secton
1, s hereby amended to provde for the appontment of a part-tme
member or members of the Commttee on nroment and Dsbar-
ment. s amended paragraph 1 of secton 1 w read as foows:
Secton 1. Commttee on nroment and Dsbarment. Commttee on n-
roment and Dsbarment Is hereby created consstng of three members who
sha be apponted by the Secretary of the Treasury. The Secretary of the
Treasury sha desgnate a charman and vce charman of the commttee. The
Secretary n hs dscreton aso sha appont a part-tme member or members
of the commttee, and whenever n hs udgment such acton s necessary, the
Secretary sha appont some person to serve temporary as a substtute for a
reguar member of the commttee. The commttee shn have such powers to
prescrbe rues for ts own government and procedure as are set forth esewhere
n these reguatons. The commttee sha meet at such tmes as t may desg-
nate or at the ca of the charman. Two members of the commttee sha con-
sttute a quorum. earngs for the purpose of takng testmony n proceedngs
for reprmand, suspenson, or dsbarment may be hed by a snge member of
the commttee at such paces as the commttee may desgnate, but a fndngs
of fact and recommendatons thereon sha be made by the commttee, a quorum
beng present
enry Morgenthat|, r.,
Secretary of the Treasury.
ffectve October 1, 1034. Ths crcuar supersedes Treasury Department Crcuar
No. 230, dated uy 1, 1927, and the amendments thereof and suppements thereto.
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Msc.
524
1 -16-8055
Dsbarments and suspensons from practce before Treasury Department qf
attorneys and agents.
DIS RM NTS.
The Secretary of tbe 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.
Gorham, r., red .
Green, Chares
nds, aph L
offmann, rthur ..
ent, r., Robert C...
Landreau, Norman .
Leavtt, en|amn D_.
Mc h, rank . .
Ober, arry.
Grand Rapds, Mch
Phadepha, Pa
Cncnnat, Oho...
11 West orty-second Street, New York,
N. Y.
eacon, N. Y
Washngton, D. 0
Chcago. I
ormery New York, N. Y., now Larch-
mont, N. Y.
ormery oston, Mass., now rook-
ne, Mass.
Mar. 6,1035
ug. 29,1935
Mar. 26. 1936
pr. 30,1935
Mar. 6,1935
Mar. 8,1935
Mar. 6,1935
Mar. 28,1933
une 27,1035
SUSP NSIONS.
The Secretary of the Treasury, after due notce and opportunty
for hearng, has ordered tbe 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.
more, D. Carro
escher, . vn...
rtey, red
Maher, en|amn
O Connor, Raymond |
Thompson, Donad .
Sheboygan, Ws
New York, N. Y
ormery Washngton, D.
C, now Mam, a.
New York, N. Y
Nagara as, N. Y
r, Oho
90 days, from an. 10, 1930.
S months, from an. 29, 1938.
5 years, from ug. 8,1931.
8 months, from an. 29, 1938.
8 months, from an. 29, 1936.
6 months, from an. 29, 1938.
ncudes aso rungs Nos. 7895, 7905, 7916, 7925, 7932. 7949, 7959, 7969, 7978, 7990. (
and 8044. These rungs have been thus consodated because pubcaton of each
separatey woud be argey dupcaton
Ths st ncudes a attorneys and agents whose dsbarment from practce before the Treausry Depart-
Sent was pubshed durng the perod ended pr 20,1936, and a suspensons In effect durng the perod
anua y 1 to pr 20, 1938, Incusve. It does not Incude those barred from practce by reason of dsap-
prova of ther appcaton for enroment.
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IND .
.
bandoned and forfeted property, reguatons
dmssons ta . (.See Msceaneous ta es: dmssons.)
ffated corporatons:
Net oss deducton
Returns. (.See Returns.)
grcutura d|ustment ct:
Consttutonaty .
Processng ta es, rce, n|uncton to restran coecton
Renta payments under, to Puerto Rcan sugar company, n-
come
coho, ndustra:
ormuae 5- and 10, modfed
ormuae 11, 12, and 13, authorzed
ormuae 25 and 25- , amended
coho Ta Unt, nvestgators testfyng n State courts, regua-
tons amended
en Property Custodan, mtaton perod upon assessment and
coecton of ta es
ocaton of ncome, saes between reated domestc and foregn
corporatons
mendments:
Gaugng Manua, paragraph 71
Reguatons 8
Reguatons 8 (1934), artce 110
Reguatons 12, artce 80
Reguatons 13-
ppend
rtce 1
Reguatons 20, artce 3
Reguatons 77, artce 191
Reguatons 80-
rtce 6
rtce 7
rtce 8 ----
rtce 9
rtce 48
rtce 57
rtce 03
rtce 65
rtce 68
rtce 69 .
rtce 70...
rtce 78
rtce 84
rtce 85
rtce 92
Reguatons 81, Treasury Decson 4501 revoked
Reguatons S -
rtce 1-1
rtce 11-1
rtce 12-2
7945
492
8097
283
7943
421
7956
436
7956
438
8102
138
8111
491
8119
489
8108
490
8073
495
8136
318
8050
181
8012
486
8069
421
7946
478
8073
495
8092
487
8092
487
8001
479
8043
118
7980
341
7980
341
7980
341
7980
341
7980
341
7980
341
7980
341
7980
341
7980
341
7980
341
7980
341
7980
341
7980
341
79S0
341
7980
341
8069
421
7970
61
7970
61
7970
61
(525)
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526
mendments Contnued.
Reguatons 86 Contnued.
rtce 13-1
rtce 23(k)-
rtce 23(o)-
rtce 23(o)-2 (revoked).
rtce 23(r)- (added)..
rtce 51-2
rtce 55(b)-._-
rtce 55(b)-2
rtce 56(b)-3. -
rtce 55(b)-4
rtce 101 ()--
rtce 112(b) (6)-
rtce 112(b) (6)-2
rtce 112(b) (6)-3
rtce 112(b) (6)-4
rtce 112(b) (6)-5
rtce 112(c)-
rtce 112(e)-
rtce 112(h)- .
rtce 112()-
rtce 113(a) (5)-.
3(a) (6)-.
(added)
(added)
(added)
(added)
(added)
rtce 113
rtce 116-1
rtce 143-1
rtce 143-3
rtce 144-1
rtce 161-1
rtce 166-1
rtce 201(b)-
rtce 203(a (3)-
rtce 204(a)-
rtce 232-1
rtce 261-2
rtce 261-4
rtce 273-1
rtce 291-1
rtce 351-3
rtce 351-5
Reguatons 88, artce 20
Revenue ct of 1934, secton 54
Treasury Decsons
4489 - -
4551 -
4553
nnutes:
Cv Servce Retrement ct, deceased empoyee s bene-
fcary, e empton
Retred empoyees, ta abty
Contract, dstrant
rmy offcer, retrement pay, ta abty
ssessments:
Charge for faure to fe dupcate returns
Ta es. (See Ta es.)
ssgnments, trust ncome
ttorneys and agents:
Dsbarments and suspensons
ees, busness e pense deducton
Reguatons governng recognton by Treasury Department.
utomobes:
Coson damage, oss deducton
7970
8043
7970
7970
7970
8094
7970
7970
7970
7970
8045
7970
7970
7970
7970
7970
7970
7970
7970
7970
7970
7970
7970
7970
7970
7970
8003
8003
7970
7970
7970
7970
7970
7970
7970
7970
7970
7970
8107
8071
7906
8033
7897
7993
8140
8078
8016
8086
7983
8055
8076
7948
8026
.8031
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527
Rung
No. 1
utomobes Contnued.
Parts ot accessores. (See Manufacturers e cse ta es.)
aes. See Manufacturers e cse ta es.)
awards:
M ed Cams Commsson, return of capta, ncome
Settement of War Cams ct
.
ad debte:
scertanment of worthessness
anks
Charge-off deducton . .
Rea estate acqured n settement of debts, charge-off
on ......... .
ankhead Cotton ct of 1934, repea of.... ...
anks:
deducton.
Cot1
ad debts
Charge-off deducton T......
Rea estate acqured n settement of debts, charge-off
deducton . ....
Stock, notes, etc.. owned by Reconstructon nance Corpo-
raton, e empton , .....
egum, shps earnngs, equvaent e empton ... ...
equests:
Condtona, to charty, deducton.
nty,
Retrement annuty of deceased edera empoyee..........
tumnous Coa Conservaton ct, consttutonaty ........
onds:
tenson of tme for payng ta , sut, coector s authorty,
estoppe .
ome Owners Loan Corporaton, e changed for mortgage,
gan or oss
Purchase and retrement, ncome .
Refundment pror to maturty, capta osses, mtaton
Retrement, unamortzed dscount, premums, and e penses,
deducton .
Unted States savngs, ncrement n vaue, when reported
usness e penses:
ttorneys fees. (See ees.)
Corporaton s contrbutons to Communty Chest ..
Guaranty payments, deducton.
Substtute schoo teacher, payments to.
0.
Caforna franchse ta es
Canada, copyrght ta on nonresdents, credt aganst ta .
Capta gans and osses:
onds refunded pror to maturty, oss mtatons
uuua muuucu puu vv uatub|, uoo nu
Property acqured by bequest or ntestacy.
Redempton of stock
Carrers Ta ng ct:
Carrers abty wth respect to compensaton of an em-
poyee of two carrers-
mpoyees representatve, method of computng ta abty.
Ta abty of compensaton of a recever operatng the bus-
ness of a carrer
.mber of commerce, Soca Securty ct, ta abe status
rty, condtona bequests to
Iheck, when gft s compete
stamp ta , Connectcut
8028
8029
8058
8043
8141
7977
8043
8141
8054
8049
8137
7903
8117
7954
1/7887
7889
7996
8142
8051
7063
8027
8122
8084
8066
8017
8142
7909
7940
8126
8099
8147
8128
8137
8038
7927
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3
-
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1
-
2
2

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528
Csterns, recevng, ppe nes connectng, reguatons amended--
Cv Servce Retrement ct, annutes under
Ceveand, Oho, dvson, determnaton of ncome and profts ta
n
Coa Conservaton ct, tumnous, consttutonaty
Coconut o. (See Processng ta .)
Commssons, sae of stock, deducton
Communty property, Caforna, gft to wfe
Compensatng ta :
Peanuts, reguatons amended
Reguatons 81 amended (T. D. 4501, C. . III-2, revoked).
Compensaton:
ddtona, nsurance premums, empoyees ordnary and
group fe poces
states, servces rendered pror to ta payer s death, year
reported
State offcers and empoyees. (See State.)
Stock transferred to former empoyees, ncome
Comptroer Genera of the Unted States:
rtces sod for use of Unted States, ncuson or e cuson
of e cse ta
Incuson or e cuson of manufacturers e cse ta
Connectcut, cgarette stamp ta
Consodated returns. (See Returns.)
Consuar offcers. (See Msceaneous ta es: Stamp ta es.)
Contrbutons, Communty Chest, corporaton s busness e pense
deducton
Conveyances. (See Msceaneous ta es: Stamp ta es.)
Copyrghts, ta on nonresdents use n Canada, credt
Corporatons:
ffated, returns. (See Returns).
Contrbutons to Communty Chest, busness e pense de-
ducton
Dssouton, transferees ta abty
empton. (See empt corporatons.)
Persona abty of offcers for admssons ta es coected
by corporaton
Purchase of own bonds, ncome
Returns. (See Returns.)
Cotton ct of 1934, ankhead, repea of
Court decsons:
satc Petroeum Co. (Deaware), Ltd., v. Commssoner
tantc Coast Lne Raroad Co. v. Commssoner
eech v. Commssoner
ngham e a. v. Unted Staes
nze v. Commssoner
our|os, Inc., v. McGowan
ower v. evcrng
raden Stee Corporaton v. Commssoner
rea Canon O Co. v. Commssoner
rown v. Commssoner
us Transport Securtes Corporaton v. everng
uter et a. Unted Staes v
uzard v. everng
Cannon et a. v. Nchoas
Carona, Cnchfed Oho Raway Co. v. Commssoner
Carter v. Carter Coa Co. et a
Carter Coa Co. et a. Carter v
Carter et a. everng et a. v
Chders v. Commssoner.
Cark Tway Coa Co. et a
Coeman-Obert ssocates
everng v.
8072
17993
S140
8035
8117
8030
8059
790G
8069
7982
7939
8090
7968
8070
7927
8027
8017
8027
7922
8125
7996
7977
8050
8122
8131
7893
7955
7991
8089
8008
7973
8036
7902
7943
7922
8078
8122
8117
8117
8117
8077
8117
7910
127
43S
198
870
420
421
84
121
292
S99
400
93
171
138
171
326
404
162
620
181
167
193
367
217
383
243
238
209
222
192
421
326
313
167
438
438
438
226
433
261
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2

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4
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529
Court decsons Contnued.
Coer Servce Corporaton v. Commssoner
Coumban Natona re Insurance Co. v Unted Staes.
Combs et a. everng v.
satc Petroeum Co. (Deaware), Ltd., v
tantc Coast Lne Raroad Co. v
eech v
nze v
raden Stee Corporaton v
rea Canon O Co. v
rovm v
Carona, Cnchfed Oho Raway Co. v
Chdert v
Coer Serce Corporaton v
Consumers Natura Gas Co. v
Davs v
port Leaf Tobacco Co. v
Georga Raway ectrc Co. et a. v
Great Western Power Co. of Caforna v
Guaranty Trust Co. of New York v
uburav
Igeheart v
raus v
Lee Mercante Co. v
London Shoe Co., Inc., v
Manhattan Genera qupment Co. v
v. Manus Muer Co., Inc
McCarthy Co. v
Menhan v
Mer v
Montana, Wyomng Southern Raroad Co. v
Morrssey et a. v
Mount ernon Trust Co. v
v. Natona Casket Co., Inc
Pennsyvana Indemnty Co. v
Peeress Investment Co. v
Shamrock O Co. v
Sayton v
Smth Paper Co. v
Southern Raway Co. v
v. Speyer
Speyer v
Swanson et a. v
Unted States Trust Co. of New York v
an eck v ---
Watson v
Wams Co. v -
Consumers Natura Gas Co. v. Commssoner
Crown Wamette Paper Co. v. McLaughn
Davs v. Commssoner
Dusenbury v. everng
venng Star Newspaper Co. - everng v
port Leaf Tobacco Co. v. Commssoner
dety Depost Co. of Maryand Unted States v
ontenot Rckert Rce Ms, Inc., v
G. . Manufacturng Co. v. everng
Genera Uttes Operatng Co. v. everng
Georga Raway ectrc Co. et a. v. Commssoner
Gs v. Wech
Genn Tway Coa Co. et a. v
Great Western Power Co. of Caforna v. Commssoner
Trust Co. of New York v. Commssoner
ower v ,
Commssoner
Commssoner
Commssoner
Commssoner,
Commssoner:
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Comm soner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
7975
280
8030
198
7913
272
8050
181
8122
167
8131
193
7955
217
8008
238
7973
209
8036
222
8122
167
8077
226
7975
280
7974
212
8090
292
8009
240
8010
304
8051
308
8062
349
7891
320
7985
351
8090
292
8058
302
8143
205
7975
280
7984
250
8144
252
8037
299
8090
292
7996
162
7911
264
7965
176
8020
243
7964
103
8103
203
8052
332
7997
164
8009
240
8124
306
8028
172
8028
172
7912
270
7930
245
8088
232
8132
230
8009
240
7974
212
8079
335
8090
292
7922
326
8027
171
8009
240
7954
185
7956
436
7900
188
7890
214
8010
304
8059
370
8117
438
8051
308
8062
349
8089
248
G
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3
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1
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2
2

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#
p
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e
530
Court decsons Contnued.
everng us Transport Securtes Corporaton v
everng uzard v
everng v. Coeman-Gbcrt ssocates
everng v. Combs e a
everng Dusenbury v
everng e a. v. Carter e a
everng v. venng Star Newspaper Co
everng C. . Manufacturng Co. v
everng Genera Uttes Operatng Co. v
everng oshand v
everng v. Mcvane e a
everng v. Mnnesota Tea Co
everng Neson Co. v
everng v. Peterson
everng v. Savage
everng Savage v
everng v. San oaqun rut Investment Co
everng v. Scard
everng v. Soane
everng v. Wats
everng Wshnck-Tumpeer, Inc., v
uburd v. Commssoner
Industra Trust Co. e a. v. Unted States
Igeheart v. Commssoner
ng, ce S.,y. Unted States
ng, Louse ., v. Unted States
oshand v. everng
raus v. Commssoner
La udde Red Star Yeast Products Co. v
Larkn e a. v. Unted Sates
Lee Mercante Co. v. Commssoner
London Shoe Co., Inc., v. Commssoner
Los ngees Soap Co. v. Rogan
Manhattan Genera qupment Co. v. Commssoner
Manus Muer Co., Inc. Commssoner v
McCarthy Co. v. Commssoner
McCaughn v. Rea state Land Tte Trust Co. e a
McGowan our|os, Inc., v
Mcvane e a. everng v
McLaughn Crown Wamette Paper Co. v. .
Mead v. Wech
Menhan v. Commssoner
Metropotan udng Co. v. Unted StaUs
Mer v. Commssoner
Mnnesota Tea Co. everng v
Msssspp Cottonseed Products Co. Shedon v ...
Montana, Wyomng Southern Raroad Co. v. Commssoner
Morrssey et a. v. Commssoner
Mount ernon Trust Co. v. Commssoner
Natona Casket Co., Inc. Commssoner v
Neson Co. v. everng
Nchoas Cannon et a. v
Peeress Investment Co. v. Commssoner
Pennsyvana Indemnty Co. v. Commssoner
Peterson everng v
Rea state Land Tte Trust Co. et a McCaughn v
Red Star Yeast Products Co. v. La udde
Rckcrt Rce Ms, Inc., v. ontenot
Rzzo Unted States v
Rogan Los ngees Soap Co. v
Rogers v. Safety Car eatng Lghtng Co
Rosenberg, In re
7902
102
7922
326
7910
2(51
7913
272
7922
326
8117
438
8027
171
7900
188
7890
214
8123
219
7929
245
7901
189
7903
274
7901
189
7940
207
7940
207
8018
196
7904
276
7904
276
7904
276
8019
234
7891
320
7892
348
7985
351
7983
159
7966
277
8123
219
8090
292
8146
389
7942
288
8058
302
8143
205
8104
373
7975
280
7984
250
8144
252
8067
3G5
7991
383
7929
245
8079
335
8137
359
8037
299
7998
224
8090
292
7901
189
8068
405
7996
162
7911
264
7965
176
8020
243
7903
274
8078
813
8103
203
7964
163
7901
189
8067
865
8146
389
7956
436
8040
482
8104
873
7931
294
7921
258
G
e
n
e
r
a
t
e
d

f
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L

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1
3
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2

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e
531
Court decsons Contnued.
Safety Car eang Lghtng Co.
Rogers v
Unted States v
Savage v. everng
Savage everng v .
San oaqun rut Investment Co. everng v
Semon, ankrupt, In the matter of
Shamrock O Co. v. Commssoner
Shedon v. Msssspp Cottonseed Products Co
Scard everng v
Sayton v. Commssoner
Shane everng v
Smth Paper Co. v. Commssoner
Southern Raway Co. v. Commssoner
Speyer v. Commssoner
Speyer Commssoner v
Swanson et a. v. Commssoner
Tway Coa Co. et a. v. Cark
Tway Coa Co. et a. v. Genn --
Unted States ngham e a. v
Unted States v. uter et a
Unted States Coumban Natona re Insurance Co. v
Unted States v. dety Depost Co. of Maryand
Unted Staes Industra Trust Co. e a. v
Unted States ce S. ng v
Unted Sutes Louse . ng v
Unted States Larkn et a. v
Unted States Metropotan udng Co. v
Unted States v. Rzzo
Unted Sates v. Safety Car eatng Lghtng Co
Unted Sates Wson Co., Inc., v
Unted States Zmmern et at.
Unted States Trust Co. of New York v. Commssoner
an eck v. Commssoner
Watson v. Commssoner
Watts everng v
Wech Gs v --
Wech Mead v
Wams Co. v. Commssoner
WUon dt Co., Inc., v. Unted States
Wshnck-Tumpeer, Inc.. v. everng
Zmmern et a. v. Unted States
Courts, |ursdcton, fndngs of fact, etc., by oard
Credts, foregn ta es:
Canada, nonresdents , use of copyrghts
Computaton where ta payer has capta net gan or oss
Germany, smar credt requrement
Lmtaton on credt source of dvdends determned
Netherands, smar credt requrements
Pror year payments
D.
Deducton:
Patent nfrngement, profts and damages, when deductbe-
Profts ncuded n return subsequenty pad over to another
Deeds. See Msceaneous ta es: Stamp ta es Conveyances.)
Defcences. (See Ta es: Defcences.)
Denatured acoho:
orm 1477, fed annuay, reguatons amended
ormua No. 5, e tensons of tme for dsposa of stock
ormuae 6- and 10, modfed
ormuae 11, 12. and 13 authorzed
ormuae 25 and 25- , amended
Itnng
No.
7931
7931
7940
7940
8018
7941
8052
8068
7904
7997
7904
8009
8124
8028
8 28
7912
8117
8117
7893
7943
8030
7954
7892
7983
7966
7942
7998
8010
7931
8097
8098
7930
8088
8132
7904
8059
8137
8009
8097
8019
8098
7890
8017
7972
7888
7899
8121
8028
8135
8130
8033
7897
8111
8119
8108
G
e
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a
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532
Depeton, o and gas wes:
Casnghead gasone
Gas supped drect to consumers
Depostons upon wrtten nterrogatores, oard s dscreton, reg-
uatons coverng
Deprecaton, essor s and essee s deducton
Dsbarments. (See ttorneys and agents.)
Dscount:
ond retrement. (Sec onds.)
Method of accountng
Dsted sprts:
Contaners, reguaton of traffc n, reguatons amended
Dsposton of (ncudng acoho), wne, and mat beverages,
procedure
orfeture proceedngs, acoho sod ta -free, ens, eecton of
remedes
In bottes, stamps ndcatng ta payment
Made from materas other than frut, reguatons amended-
Markng packages of (other than acoho)
Dstrant:
Lfe nsurance poces and annuty contract
War rsk nsurance, cash surrender vaue of
Dstrbutons, n qudaton, used n part to pay corporaton s ta ,
stockhoder s ncome
Dstrct of Coumba, substtute schoo teacher, payment to,
deducton
Dvdends:
Canceaton or redempton of stock
Stock
Common, on preferred stock hodng, gan or oss bass-
Of another corporaton
Wthhodng ta at source, payments to
Dutch dmnstraton Offces
oregn corporatons
.
mbezzement proceeds, ncome
mergency gross recepts ta , Maryand . ---
mpoyees representatve, carrers ta . (See Carrers Ta ng
ct.)
states and trusts:
rtces 161-1 and 166-1, Reguatons 86, amended
Compensaton, servces rendered pror to ta payer s death,
year reported
Deductons, perpetua care of mausoeum
Gross estate
Lfe nsurance poces bought from corporaton by
stockhoder
Nonresdent s nterest n rench partnershp ownng
property n the Unted States
Proceeds of fe nsurance pocy, retroactvty
Transfers n contempaton of death
Reguatons amended
state ta :
Deducton, condtona bequest to charty
Gross estate
Persona property outsde Unted States, ngsh death
dutes not deductbe
Rung
No.
7973
7974
8021
/8010
S122
7965
8092
7944
8040
/8093
8118
8001
8012
8078
7957
8133
8084
8036
8123
7955
8096
7919
8075
8113
8003
7939
7985
7985
7958
17892
7893
7985
7980
8137
8062
Page.
G
e
n
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r
a
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d

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1
3
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2

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8
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9
3
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533
state ta Contnued.
Gross estate Contnued.
Transfer n
Contempaton of death, revew of evdence by
court of appeas
Trust, power to ater, amend, or revoke
stoppe:
Stock acqured as compensaton, gan from sae, change n
bass -
Suts, e tenson of tme for payng ta , bond securty, co-
ector s authorty
cess profts on Navy contracts under nson ct, assessment
and coecton
cess-profts ta :
Perod ess than 12 months, computaton
Natona Industra Recovery ct
Revenue ct of 1934
change rates, foregn
changes, gan or oss. (See Gan or oss.)
ta , Soca Securty ct. (.See Soca Securty ta es.)
pt corporatons:
armers or other mutua, etc., nsurance companes
Soca Securty ct. ( See Soca Securty ta es.)
empt ncome:
nnutes, Cv Servce Retrement ct
Indans. (Sec Indans.)
Shps earnngs
egum
Span
State ands, rents receved by essee of
eterans
d|usted compensaton payment, 1936 ct
Pensons, etc
Retrement pay, rmy, Navy, or Marne Corps offcers-.
port, drve-away saes of automobes or trucks
tenson of tme:
ng of returns, mutua nsurance companes, caendar year
1935
Payment of ta es, sut, bond securty, coector s authorty,
estoppe
.
ar market prce, |ewery, etc., sod at reta
edera empoyees, Cv Servce Retrement ct annutes
edera farm oan bonds, e empton
edera Regster ct, reguatons, etc
ees:
ttorneys , busness e pense deducton
rokerage, sae of busness, oss deducton
ducares, e ecutor, notce of transferee assessment after ds-
charge, abty
rearms. (See Msceaneous ta es: Stamp ta es.)
oor ta es, grcutura d|ustment ct, consttutonaty
oregn e change, rates prevang December 31, 1935
orm 1477, denatured acoho, reguatons amended
ranchse ta es, Caforna, deducton
ur. (See Manufacturers e cse ta es.)
Rung
No.
8067
8137
7942
7954
7988
17908
7917
7917
7908
7938
8045
(7993
8140
8049
8087
7998
7967
7924
8016
8061
8060
7954
7915
17993
8140
7985
8013
/8028
8076
8030
7891
7943
7938
8033
8066
Page.
365
359
288
185
501
146
469
469
146
120
127
88
87
144
145
224
498
497
85
418
124
1S5
393
88
87
351
510
172
108
198
320
421
120
492
107
G
e
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3
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1
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3
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8
8
9
3
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8
8
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534
G.
Gan or oss:
Dvdend payabe n stock of another corporaton, vaue
e ceedng cost
changes
Mortgage for omo Owners Loan Corporaton bonds...
Rung
No.
Stock, reorganzaton
Lfe nsurance pocy, surrender of, oss deducton
Lqudaton of contracts, vauaton, burden of proof
Redempton of preferred stock on whch dvdends pad n
common stock
Reorganzaton _
onds as securtes
Saes
ass, property acqured
y corporaton n e change for stock
Under opton at e praton of ease
Corporate assets, good w aowance
Stock, compensaton for servces, change n bass, estop-
pe
Stock acqured n reorganzaton, bass
Games. (See Manufacturers e cse ta es: Sportng Goods.)
Gasone. (See Ta es: Motor vehce fue.)
Germany, ta es, smar credt requrements
Gfts:
Compensaton for servces dstngushed
Retrement annuty, deceased edera empoyee s benefcary
Gft ta :
Check, when gft s compete
Communty property, Caforna, gft to wfe
Note, when gft s compete
Good w, sae of busness, gan or oss
Guardan, transfer of bonds to ward, New York
Guffey Coa ct, consttutonaty
.
ome Owners Loan Corporaton, bonds e changed for mortgage,
gan or oss ---
usband and wfe, returns, |ont and separate, net oss deducton
I.
Income:
ccrued pror to March 1, 1913, patent nfrngement, ncome
Cam of rght, when ta abe
rom sources wthout Unted States, renta or beneft pay-
ments under grcutura d|ustment ct to Puerto Rcan
sugar company
Royates, tte to producng and n tgaton, when ta abe..
Indans:
ve Cvzed Trbes, ncome from
Mnera ands
Restrcted aotment
Osage, ncome from restrcted aotment
Inspecton of returns, reguatons governng
Insurance:
Lfe, pocy surrender, oss deducton
Poces, dstrant
Premums, empoyees ordnary and group fe poces, n-
come
7890
7887
7889
/7902
S131
8143
8103
8123
7900
7901
.7903
7904
7966
8018
8030
7942
7975
7888
8090
7993
8038
8059
8038
8030
8039
S117
Pago.
7887
123
78S9
152
8088
232
7931
294
8130
179
8102
138
8134
293
8041
521
7937
78
7961
80
8064
310
8143
205
8078
313
7982
84
G
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535
Insurance companes:
oregn, depost of stocks and bonds wth trustee n Unted
States, stamp ta es
Mutua (other than fe), e tenson of tme, fng returns, ca-
endar year 1935
Interest:
Defcences, notce and demand, abatement cam, effect of
1926 ct..
Ta es, bankrupt, dfferent rates
.
ewery. (Sec Manufacturers e cse ta es.)
ursdcton, courts , fndngs of fact, etc., by oard
.
err Tobacco ct, repea of
L.
Leases, o and gas:
rkansas, as conveyances
Royaty payments
Legsaton:
ankhcad Cotton ct of 1934, repea of
edera Regster ct
ve Cvzed Trbes, ct to e tend restrcton perod,
amended
Potato ct of 1935, repea of
Returns, ncome, fng of copes
Stock, notes, etc., of banks owned by Reconstructon nance
Corporaton, ta aton of
Tobacco ct, err, repea of
Lens, edera ta es, spendthrft trust, credtors |udgment rghts
under State aw
Lmtaton perod:
ssessment of ta es, en Property Custodan
Coecton of ta es-r-
en Property Custodan
y sut, appea to crcut court of appeas, orgna and
amended decree
Suts, coecton of ta es, appea to crcut court of appeas,
orgna and amended decree
Wavers
Devery and consent, vadty
ecuted before fndng of defcency, vadty
Lqudaton, dstrbuton n, used n part to pay corporaton s ta ,
stockhoder s ncome
Losses:
ffated corporatons, qudaton of subsdary
utomobes, coson damage, deducton
Compromse payments under contracts of ndorsement and
guaranty
Debt, ascertanment of worthessness
Guaranty payments, deducton
Lfe nsurance pocy, surrender of
Purchase and sae of securtes, parent and subsdary corpo-
ratons
Sae of busness, brokerage fees
Stock, sae and repurchase
Lousana, persona property ta es, deducton
(See Manufacturers e cse ta es.)
Rung
No.
8138
8060
8079
7941
7890
7977
8053
8057
7977
8013
8041
7977
8071
8054
7977
7921
8136
8136
8098
8098
8144
8144
8133
8020
/8026
8031
8037
8058
8122
8143
7964
8030
7997
8076
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2

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3
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#
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536
M.
Manufacturers e cse ta es:
utomobes or trucks
Drve-away saes for e port
Parts or accessores, baby auto seats, auto beds, and auto
hammocks
Company whch contros the fabrcaton of cosmetcs by
another company s the manufacturer
Comptroer Genera s opnon, ncuson or e cuson of ta
on artces sod for use of Unted States
ar market prce of |ewery, etc., sod e cusvey at reta
ur, whoesae far market prce, reta saes and reta fur
repar |obs
ewery, etc.
ngravng charges
ar market prce, reta saes
Lubrcatng o
Neatsfoot o, transformer o (S. T. 558 C. . -2,
450 modfed)
Sae for m ng wth gasone
Sportng goods
Games, con-operated machnes, certan types ta abe as
games
Shoes, ta abty of certan types
Toet preparatons, etc.
ddton of water to ta -pad preparatons by beauty
parors, etc
ae prce, arm s-ength transacton, transfer to subsd-
ares
Yeast used as cosmetc, n|uncton to restran assessment
and coecton, evdence
Marne Corps, retrement pay of offcer, ta abty
Maryand emergency gross recepts ta
Msceaneous ta es:
dmssons
Persona abty of offcers for ta es coected by the
corporaton
Theatrca performances sponsored by the W orks Prog-
ress dmnstraton
Stamp ta es
onds, maturty postponement, renewa
Conveyances, o and gas eases, rkansas
Depost of stocks and bonds by foregn nsurance com-
pany wth trustee n Unted States
rearms and machne guns, Reguatons 88 amended
Merger or consodaton, transfer of stock hed n fduc-
ary capacty, New York
Passage tckets, consuar offcers of nand
Tobacco, snuff, cgars, etc., statutory packages--
Transfer of bonds from guardan to ward, New York
Transfer of stock
y a broker, as agent of purchaser, to broker s nom-
nee or purchaser s nomnee
rom trustee for fe tenant to fe tenant
ed n fducary capacty, merger or consodaton,
New York
Msssspp, property ta es, accrua date
Mssour saes ta
M ed Cams Commsson, awards, return of capta, ncome
Mortgages, e changed for ome Owners Loan Corporaton bonds,
gan or oss
Motor vehce fue
Oho _ _
Washngton
Rung
No.
8061
418
8080
896
7999
7968
8070
880
899
7915
S
8116
891
7933
7915
395
893
8145
7951
379
380
8000
8081
397
396
7914
382
7991
383
8146
8016
8113
389
85
111
8125
404
8011
8068
8053
8138
8107
7923
7976
7946
8039
7986
7987
7923
78SG
8025
8028
17887
7889
8048
8115
403
405
416
414
463
409
416
47S
418
411
413
409
90
102
172
123
152
104
146
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537
Rung
No.
N.
Navy:
Contracts, nson ct, e cess profts on, assessment and co-
ecton
Retrement pay of offcer, ta abty
Netherands, ta es, smar credt requrements
Net osses:
ffated corporatons
Change n accountng perod
Separate and |ont returns, deducton
New ersey saes ta
Note, when gft s compete
7C88
8016
8121
8097
8019
8088
7962
8038
Oho, motor vehce fue ta .
O and gas:
Depeton aowance
Casnghead gasone
Gas sod drect to consumers
Leases, royaty payments
Oeomargarne: ,
Schedue of producton and materas used-
December, 1935 and 1934
anuary, 1936 and 1935
ebruarv, 1936 and 1935
March, 1936 and 1935
pr, 1936 and 1935
Mav, 1936 and 1935
8048
7973
7974
8057
7934
7979
8023
8063
8110
8149
Pam o. (See Processng ta es.)
Passage tckets. (See Msceaneous ta es.)
Patents, nfrngement, profts of nfrnger pror and subsequent to
March 1, 1913
Payment of ta es:
Treasury bs
Treasury notes
Peanuts. ( ee Compensatng ta .)
Penates:
Msrepresentaton concernng Soca Securty ta
Nonpayment of ta , bankrupt, dferent nterest rates
Pensons, veterans and retred emergency offcers
Persona hodng companes| cassfcaton
Ppe nes connectng recevng csterns, reguatons amended
Potato ct of 1935, repea of
Potato ta -e empton stamps, reguatons governng
Processng ta es:
grcutura d|ustment ct, consttutonaty
Coconut o, produced n Phppnes, vadty of ta uphed..
Denatured pam o
Rce, n|uncton to restran coecton, consttutonaty
Property ta es. (See Ta es.)
Pubcty, quor records, nvestgators testfyng n State courts,
reguatons amended
Puerto Rco, sugar company s grcutura d|ustment ct pay-
ments, source of ncome
R.
Raroads:
Car repars, when deductbe
edera contro part of year, apportonment of ta .
84326 3G 18
7931
8004
8046
7950
7941
7924
8057
8072
7977
7896
7943
8104
8106
7956
8073
8102
8085
8124
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#
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538
Rates of e change, foregn
Reconstructon nance Corporaton, bank stock, notes, etc.,
owned by, e empton
Regster, The edera, ct and reguatons
Reguatons:
bandoned and forfeted property
Dsposton of dsted sprts (ncudng acoho), wne, and
mat beverages
80, amendment of
86, amendment of
Governng recognton of attorneys, agents, and others by
Treasury Department
Wthhodng of ncome ta , 1936 ct
Rentas, grcutura d|ustment ct, payments to Puerto Rcan
sugar company, ncome
Reorganzaton, gan or oss. (See Gan or oss.)
Repars, raroad cars, when deductbe
Retred emergency offcers, pensons, etc., e empton
Retrement pay, rmy, Navy, or Marne Corps offcers
Returns:
ffated corporatons
greement as to payment of ta , estoppe
Loss deducton, qudaton of subsdary
Consodated
Change n accountng perod, ta abe year, subsd-
arys net oss
oregn corporaton affate
Dupcate copes, fng of.
Copy of subsdary s return fed n parent s dstrct,
nstructons
ecton to fe separate returns, change of bass
tenson of tme for fng, mutua nsurance companes,
caendar vear 1935
ng of dupcate copes of
usband and wfe, separate and |ont, net oss deducton.. .
Inspecton of, reguatons governng
Preparaton of, correct address requrements, reguatons
amended
Revocaton, Treasury Decson 4501
Rce. (See Processng ta es.)
Royates:
O and gas ease
Tte to producng and n tgaton, when ta abe
S.
Saes:
etween domestc and foregn corporatons of reated group,
ncome aocaton
Gan or oss. (See Gan or oss: Saes.)
Stock, commssons, deducton
Ta es. (See Ta es.)
Schoo teachers, substtute, Dstrct of Coumba, payments to,
busness e pense deducton
Shps, foregn, e empton of earnngs:
egum
Soca securty ta es:
Chamber of commerce
mpoyees of cty owned and operated ghtng pant, water-
works, or cemetery
Rung
No.
7938
8054
8013
7945
7944
7980
7970
7948
8148
8102
8085
7924
8016
8097
8020
8019
79S4
/8071
80S6
7953
1/8008
8009
8060
1/8071
8086
8088
8064
8094
8069
8057
8135
8050
8030
8084
8049
8087
8128
8091
G
e
n
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1
3
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1
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2
2

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8
8
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3
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#
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539
Soca securty ta es Contnued.
Income ta deducton
Organzatons e empt from ncome ta , status
Penates for msrepresentaton
Pensoners and empoyees dstngushed
Potca organzaton
South Dakota, reta occupatona saes ta
Span, shps earnngs, equvaent e empton
Sportng goods. (See Manufacturers e cse ta es.)
Stamps, strp, ndcatng ta payment of dsted sprts n bottes
Stamp ta es. (See Msceaneous ta es.)
State:
Income, rents receved by essee of State ands
Offcers and empoyees, compensaton
ttorney for rrgaton dstrct
Chef counse for nvestgaton commttee
Ta abty
Ta es. (See Ta es.)
Stock:
cqured n reorganzaton, gan or oss bass
Canceaton or redempton, cash dvdend
change of, stock for stock, reorganzaton, gan or oss
Redempton
Gan or oss
Preferred stock on whch dvdends pad n common
stock gan or oss
Sae and repurchase, oss deducton
Saes -
cqured as compensaton, gan or oss bass, change n,
estoppe
Commssons, deducton
Transfer to former empoyees, compensaton
Suts:
Coecton of ta by sut
Lmtaton perod. (See Lmtaton perod: Suts.)
Recovery of ta es, e tenson of tme, bond securty, co-
ector s authorty, estoppe
Suspensons. (See ttorneys and agents.)
T.
Ta es:
dmssons, persona abty of offcers for ta coected by
the corporaton
ssessments
Charge for faure to fe dupcate returns..
Consodated returns, agreement as to payment, es op-
- peL-
Lmtaton perod
Transferee s abty under w of deceased stockhoder
of dssoved corporaton
Caforna franchse ta
Cgarette stamp, Connectcut
Coecton
Dstrant
Cash surrender vaue of veteran s war rsk nsur-
ance poces
Lfe nsurance poces and annuty contract
Lmtaton perod
Sut, mtaton perod. (See Lmtaton perod.)
Credt for. (See Credts.)
Rung
No.
7994
8128
7950
8105
8127
8000
8087
/S093
8118
7998
8077
8132
7935
7975
8036
8131
7940
8123
7997
7942
8030
8090
8098
7954
8125
8086
8097
8136
7891
8006
7927
7957
8078
8136
G
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1
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2

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8
8
9
3
3
6
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#
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540
Ta es Contnued.
Defcences
Income ta wthhed at source
Interest on, notce and demand and abatement cam,
effect of 1926 ct.
Notces
Income ta wthhed at source
Suffcency
cse, Soca Securty ct, Income ta deducton
oregn, credt for. (See Credts.)
Germany, smar credt requrement
Income and profts, Ceveand dvson.
Income wthhed at source, defcency notces
Len for edera ta es. (See Lens: edera ta es.)
Maryand emergency gross recepts ta
Msrepresentaton of Soca Securty ta , penates.
Motor vehce fue
Oho
Washngton
Payment of
Treasury bs
Treasury notes
Property
Lousana
Msssspp
Saes
Mssour
New ersey
South Dakota
Washngton
West rgna
Wyomng
Soca securty ct. (See Soca securty ta es.)
Wsconsn chan store cense
Tobacco:
Contents of statutory packages
Statement of manufactured, produced, by casses
October, 1935 and 1934
November, 1935 and 1934
December, 1935 and 1934
anuary, 1936 and 1935
ebruary, 1936 and 1935- -- --.
March, 1936 and 1935.
Tobacco ct, err, repea of
Toet preparatons. (See Manufacturers e cse ta es.)
Transferred assets, cams aganst:
oard s |ursdcton, mtaton perod
Consodaton of |ont stock assocatons
ecutor and egatee under w of deceased stockhoder of
dssoved corporaton
Treasury:
s, acceptance n payment of ta
Notes, acceptance n payment of ta
Trucks. (See Manufacturers e cse ta es.)
Trusts:
rtces 161-1 and 166-1, Reguatons 86, amended
Income
Separate trusts created by amendment..
Ta abe to grantor
8114
8079
8114
8144
7994
7888
8035
8114
8113
7950
8048
8115
8004
8046
8076
7886
8025
7962
8006
7928
7920
8007
8101
7946
7894
7947
7989
8042
8082
8109
7977
7922
8052
7891
8004
8046
8003
7929
7930
7995
Page.
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2

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8
8
9
3
3
6
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#
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e
541
Trusts Contnued.
Revocabe, settor s ta abty.
aa assocatons.
U.
Unted States oard of Ta ppeas:
Decsons of
Lst of acquescences and nonacquescences
Depostons upon wrtten nterrogatores, reguatons
coverng
Unted States Savngs bonds, Increment n vaue, when reported
.
eterans :
d|usted compensaton payments, 193G ct
Pensons, etc
War rsk Insurance poces, cash surrender vaues, dstrant
nson ct, e cess profts on Navy contracts under, assessment
and coecton
W.
Wavers: (.See Lmtaton perod: Wavers.)
War Cams, awards under Settement of War Cams ct
War rsk nsurance poces, cash surrender vaues, dstrant
Washngton:
Motor vehce fue ta
Saes ta
West rgna, consumers saes ta
Wsconsn, chan store cense ta , deducton
Wthhodng ta at source:
Dvdends payabe to-
Dutch dmnstraton Offces
oregn corporatons, procedure
Sectons 143 and 144, 1936 ct, reguatons
Works Progress dmnstraton, admssons to theatrca per-
formances sponsored by
Wyomng saes ta
8089
248
7910
261
7911
264
7912
270
.7913
272
8139
1-48
8021
510
7963
120
7967
498
7924
497
7957
499
7988
501
8029
175
7957
499
8115
146
7928
94
7920
92
8101
109
8096
60
7919
58
8148
49
8011
403
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