Treasury Dep.rtn.

eot : | ureau of Interna Revenue

Interna Revenue uetn
Cumuatve uetn 19 8-1
NU RY- UN 19 8
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SP CI L TT NTION
s drected to the cautonary notce on ths page that pub-
shed rungs of the ureau do not have the force and effect
of Treasury Decsons and that they are appcabe ony to facts presented n the pubshed case
Treasury Department
: : ureau of Interna Revenue
Interna Revenue uetn
Cumuatve uetn 19 8-1
NU RY- UN 19 8
IN T IS ISSU
Page
Introductory Notes I
Contents
Rungs Nos. 12722-12811
Ta Court of the Unted States, The, formery Unted
States oard of Ta ppeas 1 1
Income Ta
Part I ( . Interna Revenue Code and . 1938
ct) 5-107
Part II (1937 and 1936 cts) 108
Part III (1935 and 1931 or Pror cts. . . . . 109-111
mpoyment Ta es 113-126
Msceaneous Ta es-
state and Gft Ta es 127-132
cse Ta es, Stamp Ta es, etc 133-1 2
Msceaneous Rungs 113-210
Legsaton 211-239
Commttee reports 211-355
Inde 357-361
The rungs reported n the Interna Revenue uetn are for the nformaton of ta payers and ther counse as
shovng the trend of offca opnon n the admnstraton of the ureau of Interna Revenue; the rungs other than
Treasury Decsons hare none of the force or effect of Treasury Decsons and do not commt the Department to
any nterpretaton of the aw whch has not been formay approved and promugated by the Secretary of the
Treasury. ach rung embodes the admnstratve appcaton of the aw and Treasury Decsons to the entre
state of facts upon whch a partcuar case rests. It s especay to be noted that the same resut w not neces-
sary be reached n another case uness a the matera facts are dentca wth those of the reported case. s t s
not aways feasbe to pubsh a compete statement of the facts underyng each rung there can be no assurance
that any new case s dentca wth the reported case. s bearng out ths dstncton, t may be observed that the
rungs pubshed from tme to tme may appear to reverse rungs prevousy pubshed.
Offcers of the ureau of Interna Revenue are especay cautoned aganst reachng a concuson n any case
merey on the bass of smarty to a pubshed rung, and shoud base ther |udgment on the appcaton of at
pertnent provsons of the a|v and Treasury Decsons to a the facts n each case. These rungs shoud be used
as ads n studyng the aw and ts forma constructon as made n the reguatons and Treasury Decsons pre-
Tousy ssued.
o addton to pubshng a Interna Revenue Treasury Decsons, t s the pocy of the ureau of Interna
Revenue to pubsh a rungs and decsons, ncudng opnons of the Chef Counse for the ureau of Interna
Revenue, whch, because they announce a rung or decson upon a nove queston or upon a queston n regard
to whch there e sts no prevousy pubshed rung or decson, or for other reasons( are of such mportance as
to be of genera nterest. It s aso the pocy of the ureau to pubsh a rungs or decsons whch revoke,
modfy, amend, or affect n any manner whatever any pubshed rung or decson. In many nstances opnons
of the Chef Counse for the ureau of Interna Revenue are not of genera nterest because they announce no
new rung or new constructon of the revenue aws but smpy appy rungs aready made pubc to certan
stuatons of fact whch are wthout speca sgnfcance. It s not the pocy of the ureau o pubsh such opnons.
Therefore, the numbers assgned to the pubshed opnons of the Chef Counse for the ureau of Interna
Revenue are not consecutve. No unpubshed rung or decson w be 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 otherwse
specfcay ndcated, a pubshed rungs and decsons have receved the consderaton and approva of the
Chef Counse for the ureau of Interna Revenue.
UNIT D ST T S GO RNM NT PRINTING OFFIC : W S INGTON : 19 8
of Documen s, U. S. Government Prntng Offce. Washngton 25, D. C
See buck of tte for prces
LI R RY
UNI RSITY OF C LIFORNI
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The Interna Revenue uetn servce for 19 8 w consst of
buetns ssued every other week and semannua cumuatve buetns.
The buetns w contan the rungs and decsons to be made
pubc and a Treasury Department decsons (known as Treasury
Decsons) pertanng to Interna Revenue matters. The semannua
cumuatve buetns w contan a rungs and decsons (ncudng
Treasury Decsons) pubshed durng the prevous 6 months.
The compete uetn servce may be obtaned, on a subscrpton
bass, from the Superntendent of Documents, Government Prntng
Offce, Washngton 25, D. C, for 2.50 per year; foregn, 3.75. Snge
copes of the uetn, 10 cents each.
New subscrbers and others desrng to obtan the 1919, 1920. and
1921 Income Ta Servce may do so from the Superntendent of Docu-
ments at prces as foows: Dgest of Income Ta Rungs No. 19
(contanng dgests of a rungs appearng n Cumuatve uetns
1 to 5, ncusve), 50 cents per copy; Cumuatve uetns Nos. 1 to 5,
contanng n fu a rungs pubshed snce pr, 1919, to and ncud-
ng December, 1921, as foows: No. 1, 30 cents; No. 2, 25 cents; No. 3,
30 cents; No. , 30 cents; No. 5, 25 cents.
Persons desrng to obtan Saes Ta Cumuatve uetns for
uy-December, 1921, may procure them from the Superntendent of
Documents at 5 cents per copy.
Persons desrng to obtan the Interna Revenue uetn servce for
the years 1922 to 19 7, ncusve, may do so at prces as foows:
Year.
Cumuatve uetn.
Frst 6 months.
Second 6 months.
Prce (cents).
1922..
1923..
192 ..
1926..
1926..
1927..
1928..
1929..
1930..
1931..
1932..
1933..
193 ..
1935..
1936..
1937..
1938..
1939..
19 0..
19 1..
19 2..
19 3..
19 ..
19 5..
19 6..
19 7..
19 8..
1-1
II-
III-
I -1
-
I-1
II-1
III-1
I -1
-
I-1
1I-1
III-1
rv-
v-
1937-1
1938-1
1939-1
Part 1
Part 2
19 0- 1
19 1- 1
19 2- 1
18 6-1
19 7- 1
19 8- 1
1-2
II-2
III-2
I -2
-2
I-2
II-2
III-2
I -2
-2
I-2
II-2
III-2
rv-2
-2
19.37-2
19 0- 2
19 1- 2
19 2- 2
19 15-2
19 7-2
0,30
30, 0
50,50
0.35
0,30
0, 0
35,50
60,55
60,50
65,30
311,55
30,50
50,60
60,50
65, 5
60,60
60,51)
60
50
1
30,60
6.60
0.60
1.25
1.50
1
60,75
0,75
75
The astersk ( ) ndcates the suppy of that pubcaton s e hausted,
ouse, Senate, and conference reports on revenue bs from October 3, 1913, to Revenue
ct of 1938, Incusve; and on amendments thereto.
Persons desrng to obtan the servce n dgest form may do so at
prces as foows: Dgest No. 13 (1922-192 ), 60 cents; Dgest No. 17
(1925), 25 cents; Dgest No. 21 (1926), 15 cents; Dgest No. 22 (1925-
1927), 35 cents; and Dgest (ncome ta rungs ony, pr, 1919, to
December, 1930, ncusve), 1.50.
nqures n regard to these pubcatons and subscrptons shoud
be sent to the Superntendent of Documents, Government Prntng
Offce, Washngton 25, D. C.
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INTRODUCTORY NOT S.
The Interna Revenue Cumuatve uetn 19 8-1, n addton to
a decsons of the Treasury Department (caed Treasury Decsons)
pertanng to Interna Revenue matters, contans opnons of the
Chef Counse, and rungs and decsons pertanng to ncome, estate,
gft, saes, capta stock, e cess profts, empoyment, soca securty,
and msceaneous ta es, and egsaton affectng the revenue statutes,
as ndcated on the tte page of ths uetn, pubshed n the
uetns (19 8, Nos. 1 to 13, ncusve) for the perod anuary 1 to
une 30, 19 8. It aso contans a cumuatve st of announce-
ments reatng to decsons of The Ta Court of the Unted States,
formery Unted States oard of Ta ppeas, pubshed n the Interna
Revenue uetn Servce from anuary 1 to une 30, 19 8.
Income Ta rungs are prnted n three parts. The rungs n
Part I are prnted as Part I, (Interna Revenue Code) and
(Revenue ct of 1938), the aw headngs correspondng wth the
sectons of the Code, as amended, and the 1938 ct, respectvey, and
the reguatons headngs correspondng wth the secton headngs of
Reguatons 111 or 103 and the artco headngs of Reguatons 101.
Rungs under the Revenue cts of 1937 and 1936 are prnted as Part
II, the aw headngs correspondng wth the secton headngs of those
cts and the reguatons headngs correspondng wth the artce head-
ngs of Reguatons 9 . Rungs under the Revenue cts of 1935 and
193 or pror cts arc prnted as Part III, the aw headngs corre-
spondng wth the secton headngs of the Revenue ct of 193 and the
reguatons headngs correspondng wth the artce headngs of
Reguatons 86.
Rungs under Ttes III and I of the Soca Securty ct and
under Subchapters and C, Chapter 9, of the Interna Revenue
Code n force pror to anuary 1, 19 0, are pubshed under artce
headngs of Reguatons 91 and 90, respectvey; rungs under Sub-
chapters and C, Chapter 9, of the Code n force on or after anuary
1, 19 0, are pubshed under the secton headngs of Reguatons 106
and 107, respectvey; rungs under the Carrers Ta ng ct of 1937
and under Subchapter , Chapter 9, of the Code, are pubshed under
the artce headngs of Reguatons 100; and rungs under Tte III
of the Revenue ct of 1936 Ta on un|ust enrchment are coded
under the sectons of that ct and the artce headngs of Reguatons
95.
R I TIONS.
The foowng abbrevatons are used throughout the uetn:
, , C, etc. The names of ndvduas.
. R. M. Commttee on ppeas and Revew memorandum.
. R. R. Commttee on ppeas and Revew recommendaton.
. T. coho Ta Unt.
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I
. T. oard of Ta ppeas.
C. . Cumuatve uetn.
Ct. D. Court decson.
C. S. T Capta Stock Ta Dvson.
C. T. Ta es on mpoyment by Carrers.
D. C. Treasury Department crcuar.
m. T. Ta es mposed by the Soca Securty ct, the Carrers Ta ng ct
of 1937, and Subchapters , , and C of the Interna Revenue Code.
. P. C. cess Profts Ta Counc rung or memorandum.
. T state Ta Dvson.
G. C. M. Genera Counse s, ssstant Genera Counse s, or Chef Counse s
memorandum.
I. R. . Interna Revenue uetn.
I. R. C. Interna Revenue Code.
I. T. Income Ta Unt.
M, N, , Y, Z, etc. The names of corporatons, paces, or busnesses, accord-
ng to conte t.
Mm. Mmeographed etter.
MS. or M. T. Msceaneous Dvson.
O. or L. O. Soctor s aw opnon.
O. D. Offce decson.
Op. . G. Opnon of the ttorney Genera.
P. T. Processng Ta Dvson.
S. T Saes Ta Dvson.
S. Sver Ta Dvson.
S. M. Soctor s memorandum.
So. Op. Soctor s opnon.
S. R. Soctor s recommendaton.
S. S. T. Ta es on mpoyment by others than carrers.
T. Tobacco Dvson.
T. . M. dvsory Ta oard memorandum.
T. . R. dvsory Ta oard recommendaton.
T. C Ta Court of the Unted States.
T. D. Treasury decson.
and y are used to represent certan numbers, and when used wth the word
doars represent sums of money.
NNOUNC M NT R L TING TO D CISIONS OF T T COURT OF T UNIT D
ST T S, FORM RLY NOWN S T UNIT D ST T S O RD OF T PP LS.
In order that ta payers and the genera pubc may be nformed
whether the Commssoner has acquesced n a decson of The Ta
Court of the Unted States, formery known as the Unted States
oard of Ta ppeas, dsaowng a defcency n ta determned by
the Commssoner to be due, announcement w be made n the b-
weeky Interna Revenue uetn at the earest practcabe date.
Notce that the Commssoner has acquesced or nonacquesced n a
decson of The Ta Court reates ony to the ssue or ssues decded
adversey to the Government. Decsons so acquesced n shoud be
reed upon by offcers and empoyees of the ureau of Interna
Revenue as precedents n the dsposton of other cases.
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88ZI-8-8WI
tun-c-t
ZI-5-8WI
622I-2 8WI
6ZZ-Z-8WI
cun--M
Z22I-I-8W
69Z2I-Z-8t8I
II8ZI-II-8WI
1ISZI-II-8W1
II8ZI-II-8
06 I-6-8WI
88Z-8-8 61
06 2-6-8W
682-8-8 6
ZI-t-St6
882I-8-8 61
C8ZI-tt-8W
88 -8-8 6
88ZI-8-8W
I8ZI-II-W6I
98121-8-8 81
81821-21-8 61
08121-2-8 61
212--8 6
91821-11-8 61
808ZI-0I- WI
96121-6-8 61
z-z-vm
6C8ZI-8I-8MI
8 8ZI- I-8WI
ora-e-sw
I 8ZI-8I-8WI
9I8oI--W6
WI-II-8WI
5I8r.II 1-8 W)I
908ZI-OI-8 11
8ZI-6-8W
0SZI--8 6
9ZI--8W
6 --8W
8 I--8 6I
89ZI-9-8t6I
9ZI-9-8 6I
99Z 1-9-8
8S I-9-8MI
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03:5I- -8 6I
9 ZI-C-8 )I
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9 ZI-Z-8 6I
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:stn Soaa O
om au nu
2u nu
on an|pn
8ntn
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I
Rung.
Offce decsons (I. T.) Con.
3891
3892
3893.
389 .
3895.
3896
3897
3898.
3899.
3900..
3901
3902.
3903.
390
3905
3906
3907.
3908
3909
3910.
3011
Offce decsons ( . P. C):
2
26
26
27
28
29.
36.
31
32
Offce decsons (M.s|
318_
319
Rung No.
19 8- -127 9
19 8-5-12755
19 8-5-12756
19 8-6-12760
19 8-6-12761
19 8-6-12762
19 8-6-12763
19 8-7-12773
19 8-7-1277
19 8-7-12775
19 8-8-1278
19 8-8-12786
19 8-8-12787
19 8-9-12791
19 8-9-12792
19 8-9-12793
19 8-9-1279
19 8-9-12795
19 8-10-1280
19 8-13-12826
19 8-13-12827
19 8-13-12828
19 8-13-12829
19 8-13-12830
19 8-13-12831
19 8-13-12832
19 8-13-12833
19 8-13-1283
19 8-13-12835
19 8-13-12836
19 8-3-127 3
19 8- -12753
19 8-8-12765
19 8-8-12788
Pago.
90

M
M
201
202
203
;
Rung.
Offce decsons (M. S.) Con.
322.
323
Offce decsfons (M. T0:
25.
26.
Offce decsons (T.):
201
202..
203
20 .
205.
206.
207
208. . _
209
210
211
212.
Mmeographs:
6030 (Sup. 1)...
6185 (amended).
6219
6239
62 3
62
62 7
6259
Legsaton
Msceaneous.
Rung No.
19 8-10-12807
19 8-12-12823
19 8-12-12819
19 8-12-12820
19 8-13-12837
19 8-1-12727
19 8-1-12728
19 8-3-127
19 8-3-127 5
19 8-5-12757
19 8-6-12759
19 8-7-12781
19 8-7-12782
19 8-9-12800
19 8-9-12801
19 8-12-12821
19 8-12-12822
19 8-3-127 0
19 8-7-12777
19 8-2-12735
19 8-6-1276
19 8-7-12772
19 8-7-12770
19 8-7-12771
19 8-10-12805
f 19 8-9-12798
19 8-10-12808
19 8-10-12809
19 8-10-12810
U9 8-12-1282
19 8-8-12789
19 8-9-12790
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II
CONT NTS OF CUMUL TI ULL TINS (I. T. I to 5: S. T. FOR 1920 ND 1921; INT RN L
R NU I- , 1-2, 11-1, II-2, III-I, III-2, I -1, I -2. -, -2, I-1, I-2, II-1, II-2, III-1.
m-2. I -1, I -2. -, -2, I-1. I-2, II-I. II-2, III-1, III-2, I -1, I -2. -1, -2. 1937-1,
1 37-2, 193S-1, 1938-2, 1939-1 (P RT 1 ND P RT 2), 1939-2, 19 0-1. 19 0-2, 19 1-1, 1911-2, 19 2-1,
1S 2-2; NNU L ULL TINS FOR 19 3, 19 , ND 19 5; S MI NNU L ULL TINS 19 6-1,
mS-2. 19 7-1, 19 7-2, ND 1918-1.
Cumuatve uetn.
Rung Nos.
Income Ta :
December, 1919 (No. 1)
anuary- une, 1920 (No. 2)
uy-December, 1920 (No. 3)
anuary- une, 1921 (No. )
uv-December, 1921 (No. 5)
Saes Ta :
1920 (S. T. 1-20)
anuary- une, 1921
uy-December, 1921..
Interna Revenue uetn:
anuarv- une, 1922 (No. 1-1)
uy-December, 1922 (No. 1-2)
anuary- une, 1923 (No. II-)
uv-December, 1923 (No. II-2)
anuary- une, 192 (No. III-)
uy-December, 192 (No. III-2)
anuary- une, 1925 (No. I -1)
uy-December, 1925 (No. I -2)
anuarv- une, 1926 (No. -)
uv-December, 1926 (No. -2)
anuary- une, 1927 (No. I-1)
uv-D ecember, 1927 (No. I-2)
anuary- une, 1928 (No. II-1)
uy-December, 1928 (No. II-2)
anuary- une, 1929 (No. III-1)
uy-December, 1929 (No. III-2)
anuarv- une, 1930 (No. I -1)
uy-December, 1930 (No. I -2)
anuary- une, 1931 (No. -)
uv-December, 1931 (No. -2)
anuary- une ,1932 (No. I-1)
uv-December, 1932 (No. I-2)
anuary- une, 1933 (No. II-1)
uv-December, 1933 (No. I1-2)
anuarv- une, 193 (No. III-1)
uy-December, 193 (No. III-2)
anuary- une, 1935 (No. I -1)
uy-December, 1935 (No. I -2)
anuary- une, 1936 (No. -1)
uv-December, 1936 (No. -2)
anuary- une, 1937 (1937-1)
uv-December, 1937 (1937-2)
anuary- une, 1938 (1938-1)
uy-December, 1938 (1938-2)
anuary- une, 1939 (1939-1 Part 1 and Part 2).
uy-December, 1939 (1939-2)
anuary- une, 19 0 (19 0-1)
uy-December, 19 0 (19 0-2)
anuary- une, 19 1 (19 1-1)
uv-December, 19 1 (19 1-2)
anuarv- une, 19 2 (19 2-1)
uy-December, 19 2 (19 2-2)
anuary-December, 19 3 (12 months)
anuary-December, 19 (12 months)
anuary-December, 19 5 (12 months)
anuary- une, 19 6 (19 6-1)
uv-December, 19 6 (19 6-2)
anuarv- une, 19 7 (19 7-1)
uv-December, 19 7 (19 7-2)
anuary- une, 19 8 (19 8-1)
1-655
656-1033
103 -1368
1369-1710
1711-1996
1-112
13-265
266-356
1-383
38 -665
666-956
957-1276
1277-16 1
16 2-19 9
1950-2251
2252-2523
252 -2813
281 -3026
3027-3291
3292-3557
3558-378
3785- 052
053- 2 8
2 9- 87
88- 683
6S - 887
888-512
5125-5338
5339-5531
5532-5961
5902-6262
6263-6581
6582-6871
6872-722
722.5-7563
756 -788
7885-81 9
8150-8 59
8 60-8792
8793-9118
9119-9 2
9 25-905
9055-9890
9897-10120
10127-1030
10305-105 8
105 9-10761
10702-109 3
109 -11138
11139-11302
11303-11590
11591-11916
11917-12200
12201-12332
12333-12 05
12 00-12580
12581-12721
12722-128 1
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T T COURT OF T UNIT D ST T S.
CUMUL TI LIST OF NNOUNC M NTS R L TING TO
D CISIONS OF T T COURT OF T UNIT D ST T S
PU LIS D IN T INT RN L R NU ULL TIN S R -
IC FROM NU RY 1, 19 8, TO UN 30, 19 8, INCLUSI .
19 8-13-12825
The Commssoner acquesces n the foowng decsons:
Ta payer.
Docket No.
Report.
oume. Page.
braham, en|amn 1
tschu s Incorporated
mercan usness Credt Corporaton.
twater Co., Inc., Wam C
asch, Fred, estate of_
attee, Cora __
attee, enneth S
erkshre O Co
ass Co., Gus 1
e ntwear, Inc..
.
rookyn Rchmond Ferry Co., Inc.
uffao Meter Co
Carnahan, Robert L
Carnrck, George W
Cathoc News Pubshng Co., The.
Cohen, Ma
Comeau , G.
D.
Demng, r., Robert O.
DuPuy, my ., estate of3.
DuPuy, Chares M.
.
6 31
12317
9906
8999
11793
89 5
89
9382
5 8
10629
1107
11756
11720
120 0
120 1
953
12 7
12038
12039
12010
10376
1018
687
9
9
9
10
9
9
9
9
9
9
9
10
9
10
9
10
10001
11 35
11 35
222
697
1111
218
027
299
299
903
15
1179
865
1206
756
73
1156
201
383
276
275
1132
779
779
te-McCuough, Inc
manue et a., dward Corne, e ecutors of estate
of mma . manue1
manue, mma ., estate of
cquescence reates ony to the Issue nvovng the deductbty of unrembursed e penses ncurred a
entertanng cents of the company of whch the ta payer was a drector and vce presdent.
cquescence reates to a ssues e cept the ssue wth respect to the deductou for chartabe contrbu-
tons for e cess profts ta purposes.
1 state ta decson.
Gft ta decson.
(1)
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cquescences Contnued.
Ta payer.
Fegey, Catherne, estate of
Frst Natona ank of efower.
Forcum, era
Forcum- ames Co
Ford, Carence
Foray the, Snne
Foster, L. Mae
Foster, Wam ., estate of
G.
Garrett odng Corporaton.
Grace, Wam
art, Inc., .
arvey, udo Gray
errmann, G. C.1
rsch, Mare
oywood, Inc., a Forda Corporaton
ouston Natura Gas Corporaton (Te as), successor
to ouston Natura Gas Corporaton (Deaware)-.
oward, osephne M., e ecutr of estate of Raph
Owen oward
oward, Raph Owen, estate of2
urd, George F., estate of2
urd et a., Patrca enda, e ecutr and e ecutors
of estate of George F. urd 2
Ina|a Land Co., Ltd.
.
effers, Wam ., admnstrator c. t. a. of estate of
Water Thee 1
ennngs, Davd L
.
mbe-Damond Mng Co
L
Lanteen Medca Laboratores, Inc
Luckenbach Steamshp Co., Inc
M.
Meng Co., The . Rchard
Merrck, eanor D.
Mooney et u ., ames D
Moore, Wade
Gft ta decson.
state ta decson.
Docket No.
95 2
9351
1051
10 8
1052
10920
8939
8936
9381
11352
915
10318
10877
10280
56 1
10995
10287
10287
11556
11556
9036
8366
11972
10982
12986
9781
10698
883
6875
11205
1050
oume. Page.
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cqt|escences Contnued.
Docket No.
N.
Neumann, Frank D., estate of1
Neumann, Louse ., ndependent e ecutr of estate
of Frank D. Neumann 1
O.
Onger, L. C
Over, rthur F
Over, Mnto L
P.
Pam each Trust Co
Peopes Frst Natona ank Trust Co. et a., e ec-
utors of estate of my . DuPuy 1
R.
Repubc Natona ank of Daas
Ruthrauff et a., bbe . ., e ecutors under ast
w and testament of Wbur . Ruthrauff 1
Ruthrauff, Wbur ., estate of
S.
Safford, Carence
St. oseph aey ank, e ecutor of estate of Wam
. Foster -
Shunk, Francs R., estate of
Shunk, ohn
Shunk, ohn ., e ecutor of estate of Catherne Fegey
Shunk, ohn ., e ecutor of estate of Francs R. Shunk.
Smth et u ., Norton L
Smth, W. ncke
Stewart Sk Corporaton
Stefe, Reuben
Straa, nthony Cornero-.
Swoby Corporaton
T.
Thee, Water, estate of 1
.
on offmann, George.
ortreffch (or ort), Pau Wm., e ecutor of estate of
Fred asch
W.
Whtng Co., . . . C
Whtman Sons Inc., Carence
Wer Long Leaf Lumber Co
Weser, Norbert .3
Wson, W. T
Wson ros. Co
11383
11383
1 131
1207
12072
9569
1018
11690
819
819
12073
8936
95 1
95 0
95 2
95 1
10833
93663
10288
106 2
11713
1112 7
111820
1028
8366
13759
11793
11359
9 36
6223
108911
1127 1
11852
11853
oume. Pge.
10
102
10
26
9
990
6
11 8
10
251
10
251
oard of Ta ppeas.
1 state ta decson.
Nonacqucsccncc pubshed n Cumuatve uetn 19 1-2, page 23, wthdrawn.
1 Parta nonacquescence pubshed n Cumuatve uetn 19 6-2, page 7, wthdrawn.
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The Commssoner does NOT acquesce n the foowng decsons:
Ta payer.
Docket No.
Report.
oume. Page.
braham, en|amn _
.
atten, arton, Durstne Osborn, Inc.
ass Co., Gus
C.
Carro, zabeth Sherman, e ecutr of estate of
Cayton Wam Sherman
Carter, Susan
dmont ote Co
Fchter, Pau
Godwyn, Samue
ooker, Roand M. _
.
F.
G.
.
M.
Mc ay, Products Corporaton, The.
Moore, bert .
Oden, Margaret T.
Oden Trust, Margaret T. .
Phadepha Transportaton Co.
R.
Ransohoffs Inc
Rons urdck unter Co
S.
Sherman, Cayton Wam, estate of
Smth, . R
W.
Wes Fargo ank Unon Trust Co., trustee of
Margaret T. Oden Trust
Whttesey, Inc., . Newton
6 31
8970
5 8
10175
11523
12327
7877
8770
13 85
98 6
76 8
76 9
76 7
9893
8930
11691
10175
13 53
76 7
86 2
10
9
9
10
9
10
10
10
9
10
10
9
1 Nonacquescence reates ony to the ssue Invovng the deductbty of a war oss under secton 127(a)(2)
of the Interna Revenue Code.
Nonacquescence reates ony to the ssue wth respect to the deducton for chartabe contrbutons for
e cess profts ta purposes.
state ta decson.
Gft ta decson.
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INCOM T RULINGS. P RT L
INT RN L R NU COD .
C PT R 1. INCOM T .
SU C PT R . G N R L PRO ISIONS.
P RT II. COMPUT TION OF N T INCOM .
S CTION 22(a). GROSS INCOM : G N R L
D FINITION.
Secton 29.22 (a)-1: What ncuded n gross
ncome.
( so Secton 22(k), Secton 29.22(k)-; Sec-
ton 51, Secton 29.51-1; Secton 101, Secton
29.101(18)-1; Secton 113(c), Secton
29.113(c)-; Secton 122, Secton 29.122- ;
Secton 165, Secton 29.1G5-7; Secton 207,
Secton 29.207-1; Secton 212, Secton
29.212-1; Secton 127(a), Secton 19.127(a)-,
Reguatons 103.)
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 19
ND P RT 29.
Mnor msceaneous errors corrected.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 5, D. C.
To Coectors of Interna Revenue and Others Concerned:
In order to correct certan mnor msceaneous errors n Reguatons
103 and Reguatons 111 26 CFR, Parts 19 and 29 , such reguatons
are amended as foows:
R GUL TIONS 103 20 CFR, P RT 19 .
Paragraph 1. Secton 19.127(a)-, added by Treasury Decson
5258, approved pr 13, 1913 C. . 1913, 15 26 CFR, 19.127(a)-
1 , s amended by strkng out, n the second undesgnated paragraph
thereof, the fourth, ffth, s th, and seventh sentences and nsertng n
eu thereof the foowng:
Ths oss s deductbe for ta abe years begnnng after December 31, 19 0, and
before anuary 1, 19 2, as an ordnary oss under the provsons of secton 23(f)
n the case of a corporaton and secton 23(e) (3) n the case of au ndvdua.
19 8-3-127 6
T. D. 5600
(5)
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29.22(a)- .
6
R GUL TIONS 111 26 CFR, P RT 29 .
Par. 2. Secton 29.22(a)-, as amended by Treasury Decson 5507,
approved pr 12. 19 6 C. ..19 6-1, 18 26 CFR, 29.22(a)- , s
further amended by strkng out n the ast sentence of the second un-
desgnated paragraph thereof the phrase artce 22 (a)-8 and n-
sertng n eu thereof secton 29.22(a)-8.
Par. 3. Secton 29.22 (k)-. as amended by Treasury Decson 5 25,
approved December 29, 19 C. . 19 5, 10 26 CFR, 29.22(k)- ,
s further amended by strkng out n paragraph (c) n e ampe 3 the
frst sentence of the thrd undesgnated paragraph and nsertng n
eu thereof the foowng:
For the ta abe year ended une 30, 19 2, pad 3,000, a of whch s de-
ductbe by snce It was pad n the wfe s frst ta abe year begnnng after
December 31, 19 1.
Par. . Secton 29.51-1, as amended by Treasury Decson 5 25 26
CFR, 29.51-1 , s further amended as foows:
( ) y nsertng before the perod n the headng n subparagraph
(2), whch s now entted Ta abe years begnnng after December
31, 191 , of paragraph (a) the words and before anuary 1,19 6.
( ) y nsertng n the frst sentence of subparagraph (2) after
December 31,19 3, the foowng: and before anuary 1,19 6, .
(C) y nsertng after subparagraph (2) of such secton as amended
above a new subparagraph (3) as foows:
(3) Ta abe years begnnng after December SI, 19 5. For each ta abe year
begnnng after December 31, 19 5, a return of ncome sha be made by each
ctzen of the Unted States, whether resdng at home or abroad, and every
ndvdua resdng wthn the Unted States though not a ctzen thereof, re-
gardess of famy or marta status, f such ctzen or resdent has for such
ta abe year a gross ncome of 500 or more, or a gross Income n e cess of the
credt aowed by secton 25(b) prorated as provded n secton 7(e).
Par. 5. Secton 29.101(18)-1, as amended by Treasury Decson
5 58, approved une 15,19 5 C. . 19 5, 5 26 CFR, 29.101 (18)-1 ,
s further amended by strkng out n the frst sentence of the second
undesgnated paragraph thereof Form 1120 and nsertng n eu
thereof Form 1065 (e cept for ta abe years begnnng before an-
uary 1,19 7, wth respect to whch returns were made on Form 1120).
Par. 6. Secton 29.113(c)- 26 CFR, 29.113(c)- s amended by
strkng out n the thrd sentence thereof the word from and n-
sertng n eu thereof the word to.
Pak. 7. Secton 29.122- 26 CFR, 29.122- s amended as foows:
( ) y nsertng n paragraph (c) n the frst sentence of subpara-
graph (3) thereof after net ncome the foowng: , and ad|usted
gross ncome for ta abe years begnnng after December 31, 19 3, .
( ) y strkng out n paragraph (c) a of subparagraph ( ) and
nsertng n eu thereof the foowng:
( ) ny deducton whch s mted n amount to a percentage of the ta -
payer s net ncome, or ad|usted gross ncome for ta abe years begnnng after
December 31, 19 3, sha be recomputed upon the bass of the net ncome or
ad|usted gross ucome, as the case may be, determned wth the ad|ustments
prescrbed n the precedng paragraph.
Par. 8. Secton 29.165-7 26 CFR, 29.165-7 s amended by strkng
out n the ast sentence thereof the word empoyee s where t frst
occurs and nsertng n eu thereof the word empoyer s.
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7
29.22(a)- .
Par. 9. Secton 29.207-1, as amended by Treasury Decson 5 97,
approved February 27, 19 6 C. . 19 6-1, 130 26 CFR, 29.207-1 ,
s further amended by strkng out n paragraph (c) n the second
sentence of the second undesgnated paragraph thereof the words
equa to the e cess of 2 per cent of that porton n e cess of 75,000
and nsertng n eu thereof equa to 2 per cent of that porton n
e cess of 75,000.
Par. 10. Secton 29.212-1, as amended by Treasury Decson 5 25
26 CFR, 29.212-1 , s further amended by addng n paragraph (b)
n the ast sentence of the second undesgnated paragraph thereof
after governments the words or of nternatona organzatons.
(Ths Treasury decson s ssued under the authorty contaned n
secton 62 of the Interna Revenue Code (53 Stat, 32; 26 U. S. C, 62).)
The amendments made heren correct mnor msceaneous technca
and cerca errors, and t s therefore found that t s unnecessary to
ssue ths Treasury decson wth notce and pubc procedure thereon
under secton (a) of the dmnstratve Procedure ct, approved
une 11, 19 6.
Wm. T. Sherwood,
ctng Commssoner of Interna Revenue.
pproved February 2, 19 8.
. L. M. Wggns,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster February 6, 19 8, 8. 8 a. m.)
Secton 29.22(a)-: What ncuded n gross 19 8-10-12803
ncome. Ct. D. 1698
INCOM T R NU CTS OF 1036 ND 1938 INT RN L R NU COD
D CISION OF SUPR M COURT.
1. Income Royates Under Patent Lcense oreements s-
sgnment op Royates to Wfe.
The ta payer, owner of certan patented Inventons, censed a
corporaton n whch he owned 1,780 and hs wfe 200 of Its 2,000
shares of outstandng stock to manufacture and se the devces
under agreements to pay a royaty equa to 10 per cent of the gross
saes prce. The cense agreements were for a mted perod and
were mutuay sub|ect to canceaton wthout abty on gvng a
prescrbed notce. Two of the agreements were n effect throughout
the ta abe years 1937 to 19 1, whe the other two were n e stence
at at pertnent tmes after une 20, 1939. The ta payer at varous
tmes assgned to hs wfe, wthout consderaton, a hs rght, tte,
and nterest n the contracts, gvng her e cusve tte and power
over the royates accrung. ed: The ta payer was the recpent
of the ncome from the contracts. The assgnments merey nvoved
a transfer of the rght to receve ncome rather than a compete ds-
poston of a hs nterest n the contracts and royates. The trans-
actons were smpy a reaocaton of ncome wthn the famy
group, a reaocaton whch dd not shft the ncdence of ncome ta
abty.
2. Res udcata.
In a proceedng n 1935 before the oard of Ta ppeas, coverng
the years 1929 to 1931, the oard had hed the ta payer not ta abe
on royates pad to hs wfe durng those years under the 1928 cense
agreement. The Ta Court n the nstant proceedng, coverng the
years 1937 to 19 1, hed that a the royates pad to the wfe from
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29.22(a)- .
8
1937 to 19 1 were part of the ta abe ncome of the ta payer wth
the e cepton of the royates pad n 1937 under the 1928 agreement,
appyng the prncpe of res |udcata to bar a dfferent resut as
to the royates pad pursuant to the same agreement durng 1937.
ed: Coatera estoppe shoud not have been used by The Ta
Court n the nstant proceedng to perpetuate the 1935 vewpont of
the assgnment, n the ght of the Cfford- orst ne of cases. The
prncpes whch have been recognzed and deveoped by the Cfford
and orst cases, and those foowng them, are drecty appcabe
to the transfer of patent cense contracts between members of the
same famy.
3. Decson Reversed.
Decson of the Unted States Crcut Court of ppeas, ghth
Crcut (161 Fed. (2d), 171), affrmng n part and reversng n part
the decson of The Ta Court (6 T. C, 31), reversed.
Supreme Court of the Unted States.
Commssoner of Interna Revenue, pettoner, v. oseph Sunnen.
On wrt of certorar to the Unted States Crcut Court of ppeas for the ghth Crcut.
pr 5, 19 8.
OPINION.
Mr. ustce Murphy, devered the opnon of the Court.
The probem of the Federa ncome ta consequences of Intrafamy assgn-
ments of ncome s brought nto focus agan by ths case.
The stpuated facts concern the ta abe years 1937 to 19 1, ncusve, and may
be summarzed as foows:
The respondent ta payer was an nventor-patentee and the presdent of the
Sunnen Products Co., a corporaton engaged n the manufacture and sae of
patented grndng machnes and other toos. e hed 89 per cent or 1,780 out
of a tota of 2,000 shares of the outstandng stock of the corporaton. s wfe
hed 200 shares, the vce presdent hed 18 shares and two others connected
wth the corporaton hed 1 share each. The corporaton s board of drectors
conssted of fve members, Incudng the ta payer and hs wfe. Ths board
was eected annuay by the stockhoders. vote of three drectors was requred
to take bndng acton.
The ta payer had entered nto severa none cusve agreements whereby the
corporaton was censed to manufacture and se varous devces on whch he
had apped for patents.1 In return, the corporaton agreed to pay to the ta -
payer a royaty equa to 10 per cent of the gross saes prce of the devces. These
agreements dd not requre the corporaton to manufacture and se any partcu-
ar number of devces; nor dd they specfy a mnmum amount of royates.
ach party had the rght to cance the censes, wthout abty, by gvng the
other party wrtten notce of ether s months or a year. In the absence of
canceaton, the agreements were to contnue n force for 10 years. The board
of drectors authorzed the corporaton to e ecute each of these contracts. No
1 The varous devces nvoved were as foows :
(1) cynder grnder. The,ta payer apped for a patent on November 17, 1927, and
was Issued one on December , 193 . The royaty agreement to manufacture and se ths
devce was dated anuary 10, 1928. Ths agreement e pred on anuary 10, 1938 ; a renewa
agreement n substantay the same terms was then e ecuted for the baance of the fe of
the patent, whch ends on December , 1951.
(2) pnhoe grnder. The ta payer apped for a patent on December , 1931, and
was ssued one on une 13, 1933. The royaty agreement to manufacture and se ths
devce was dated December 5, 1931.
(3) crankshaft grnder. The ta payer apped for a patent on May 22, 1939, and was
ssued one on May 6, 19 1. The royaty agreement to manufacture and se ths devce was
dated une 20, 1939.
( ) nother crankshaft grnder. The to payer apped for a patent on December 29,
1939. e assgned ths appcaton to hs wfe on December 29, 19 2, and she was ssued
a patent on anuary 20, 19 3. The royaty agreement to manufacture and se ths devce
was dated une 20. 1939.
The ta payer remaned the owner of the frst three patents throughout the year 19 1,
and be remaned the owner of the patent appcaton on the fourth devce throughout that
year.
S months notce was provded n the agreement dated anuary 10, 1928. coverng the
cynder grnder. The other three agreements provded for one year s notce of canceaton.
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9
29.22(a)- .
notces of canceaton were gven. Two of the agreements were In effect through-
out the ta abe years 1987-19 1, whe the other two were n e stence at a
pertnent tmes after une 20, 1939.
The ta payer at varous tmes assgned to hs wfe a hs rght, tte and
nterest In the varous cense contracts. She was ven e cusve tte and power
over the royates accrung under these contracts. the assgnments were wth-
out consderaton and were made as gfts to the wfe, those occurrng after 1932
beng reported by the ta payer for gft ta purposes. The corporaton was
notfed of each assgnment
In 1987 the corporaton, pursuant to ths arrangement, pad the wfe royates
n the amount of ,881.35 on the cense contract made n 1928; no other royates
on that contract were pad durng the ta abe years In queston. The wfe
receved royates from other contracts totang 15,518.68 n 1937, 17,318.80 n
1938, 25,2 3.77 n 1939, 50, 92.50 n 19 0, and 1 9,002.78 n 19 1. She ncuded
a these payments n her ncome ta returns for those years, and the ta es she
pad thereon have not been refunded.
Reyng upon ts own pror decson n state of Dodson v. Commssoner
(1 T. C, 16), The Ta Court hed that, wth one e cepton, a the royates pad
to the wfe from 1937 to 19 1 were part of the ta abe ncome of the ta payer.
(6 T. C, 31.) The one e cepton concerned the royates of ,881.35 pad n
1937 under the 1928 agreement. In an earer proceedng In 1935, the oard of
Ta ppeas deat wth the ta payer s ncome ta abty for the years 1929-
1931; t concuded that he was not ta abe on the royates pad to hs wfe durng
those years under the 1928 cense agreement. Ths pror determnaton by
the oard caused The Ta Court to appy the prncpe of res |udcata to bar a
dfferent resut as to the royates pad pursuant to the same agreement durng
1937.
The Ta Court s decson was affrmed n part and reversed n part by the
ghth Crcut Court of ppeas. (161 Fed. (2d), 171.) pprova was gven to
The Ta Court s appcaton of the res |udcata doctrne to e cude from the
ta payer s ncome the ,881.35 In royates pad n 1937 under the 1928 agree-
ment ut to the e tent that the ta payer had been hed ta abe on royates pad
to hs wfe durng the ta abe years of 1937-19 1, the decson was reversed on
the theory that such payments were not ncome to hm. ecause of that concu-
son, the Crcut Court of ppeas found t unnecessary to decde the ta payer s
addtona cam that the res |udcata doctrne apped as we to the other roya-
tes (those accrung apart from the 1928 agreement) pad In the ta abe years.
We then brought the case here on certorar, the Commssoner aegng that the
resut beow confcts wth pror decsons of ths Court.
If the doctrne of res |udcata s propery appcabe so that a the royaty
payments made durng 1937-19 1 are governed by the pror decson of the oard
of Ta ppeas, the ease may be dsposed of wthout reachng the merts of the
controversy. We accordngy cast our attenton ntay on that possbty, one
that has been e pored by The Ta Court and that has been fuy argued by the
partes before us.
It Is frst necessary to understand somethng of the recognzed meanng and
scope of res |udcata, a doctrne |udca n orgn. The genera rue of res |udcata
appes to repettous suts Invovng the same cause of acton. It rests upon con-
On anuary 8, 1929, the ta payer assgned to hs wfe a my rghts, tte and nterest
n and to the royaty whch sha accrue hereafter to me upon the royaty contract of
anuary 10, 1928, wth respect to the cynder grnder devce. Snce the Commssoner of
Interna Revenue rased some queston as to he suffcency and competeness of ths assgn-
ment, the ta payer e ecuted a further assgnment on December 21, 18.11. Ths second
assgnment confrmed the frst one and stated further that hs wfe was assgned a of my
rght, tte and nterest n and to sad royaty contract of anuary 10, 1928 .
nd I hereby state that the royates accrung under sad royaty contract have heretofore
been and are hereafter the soe and e cusve property of the sad Cornea Sunnen hs
wfe , and hereby decare that sad royates sha be pad to the sad Cornea Sunnen or
to her order, and that ahe sha have the soe rght to coect, receve, recept for, retan or
sue for sad royates.
ssgnments smar n form and substance to the assgnment of December 21, 1931, were
made as to the other three royaty contracts.
In the Dodson case, Dodson owned 51 per cent of the stock of a corporaton and hs wfe
owned the other 9 per cent. e was the owner of a formua and trade mark. Pursuant to
a contract whch he made wth the corporaton, the corporaton was gven the e cusve use
of the formua and trade-mark for fve years, renewabe for a ke perod. Dodson was to
receve n return a royaty measured by a certan percentage of the net saes. e then
assgned a one-haf Interest n the contract to hs wfe, retanng hs fu Interest In the
formua and trade-mark. The Ta Court hed that hs domnant stock poston permtted
hm to cance or modfy the contract at any tme, thus renderng hm ta abe on the Income
fowng from hs wfe s shure n the contract
796590 8 2
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29.22(a)- .
10
sderatons of economy of |udca tme and pubc pocy favorng the estabsh-
ment of certanty n ega reatons. The rue provdes that when a court of com-
petent |ursdcton has entered a fna |udgment on the merts of a cause-of ac-
ton, the partes to the sut and ther prves are thereafter bound not ony as to
every matter whch was offe|ed and receved to sustan or defeat the cam or
demand, but as to any other admssbe matter whch mght have been offered for
that purpose. (Cromwe v. County of Sac, 9 U. S., 351, 352.) The |udgment
puts an end to the cause of acton, whch can not agan be brought nto tgaton
between the partes upon any ground whatever, absent fraud or some other factor
nvadatng the |udgment. (Sec von Moschzsker, Res udcata, 38 Yae L. .,
299; Restatement of the Law of udgments, sectons 7, 8.)
ut where the second acton between the same partes s upon a dfferent cause
or demand, the prncpe of res |udcata s apped much more narrowy. In ths
stuaton, the |udgment n the pror acton operates as an estoppe, not as to
matters whch mght have been tgated and determned, but ony as to those
matters n ssue or ponts controverted, upon the determnaton of whch the
fndng or verdct was rendered. Cromwe v. County of Sac, supra, 353. nd
see Russe . Pace, 9 U. S., 606; Southern Pacfc R. Co. v. Unted States, 168
U. S., 1, 8; Mercod Corp. v. Md-Contnent Co., 320 U. S., 661, 671.) Snce the
cause of acton nvoved n the second proceedng s not swaowed by the |udg-
ment n the pror sut, the partes are free to tgate ponts whch were not at
ssue n the frst proceedng, even though suc ponts mght have been tendered
and decded at that tme. ut matters whch were actuay tgated and de-
termned n the frst proceedng can not ater be retgated. Once a party has
fought out a matter n tgaton wth the other party, he can not ater renew
that due. In ths sense, res |udcata s usuay and more accuratey referred to
as estoppe by |udgment, or coatera estoppe. (See Restatement of the Law of
udgments, sectons 68, 69, 70; Scott, Coatera stoppe by udgment, 56
arv. L. Rev., 1.)
These same concepts are appcabe n the Federa ncome ta fed. Income
ta es are eved on an annua bass. ach year s the orgn of a new abty
and of a separate cause of acton. Thus f a cam of abty or nonabty
reatng to a partcuar ta year s tgated, a |udgment on the merts s res
|udcata as to any subsequent proceedng nvovng the same cam and the
same ta year. ut f the ater proceedng s concerned wth a smar or unke
cam reatng to a dfferent ta year, the pror |udgment acts as a coatera
estoppe ony as to those matters n the second proceedng whch were actuay
presented and determned n the frst sut. Coatera estoppe operates, n
other words, to reeve the Government and the ta payer of redundant tga-
ton of the dentca queston of the statute s appcaton to the ta paver s
status. (Tat v. Western Md. R. Co., 289 U. S., 620, 62 Ct. D. 683, C. . II-1,
351, 352 (1933) .)
ut coatera estoppe s a doctrne capabe of beng apped so as to avod
an undue dsparty n the mpact of ncome ta abty. ta payer may secure
a |udca determnaton of a partcuar ta matter, a matter whch may recur
wthout substanta varaton for some years thereafter. ut a subsequent
modfcaton of the sgnfcant facts or a change or deveopment n the con-
trong ega prncpes may make that determnaton obsoete or erroneous, at
east for future purposes. If such a determnaton s then perpetuated each suc-
ceedng year as to the ta payer nvoved n the orgna tgaton, he s accorded
a ta treatment dfferent from that gven to other ta payers of the same cass.
s a resut, there are nequates n the admnstraton of the revenue aws,
dscrmnatory dstnctons n ta abty, and a ferte bass for tgous con-
fuson. (Compare Unted States v. Stone Downer Co., 27 U. S., 225, 235-236.)
Such consequences, however, are nether necesstated nor |ustfed by the prn-
cpe of coatera estoppe. That prncpe s desgned to prevent repettous
awsuts over matters whch have once been decded and whch have remaned
substantay statc, factuay and egay. It s not meant to create vested rghts
n decsons that have become obsoete or erroneous wth tme, thereby causng
nequtes among ta payers.
nd so where two cases nvove ncome ta es n dfferent ta abe years, co-
atera estoppe must be used wth ts mtatons carefuy n mnd so as to
avod n|ustce. It must be confned to stuatons where the matter rased n
the second sut s dentca n a respects wth that decded n the frst pro-
ceedng and where the controng facts and appcabe ega rues reman un-
changed. (Tat v. Western Md. R. Co., supra.) If the ega matters deter-
mned n the earer case dffer from those rased n the second case, coatera
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11
29.22(a)- .
estoppe has no bearng on the stuaton. (See Traveers Ins. Co. v. Comms-
toner, 161 Fed. (2d), 93.) nd where the stuaton s vtay atered between
the tme of the frst |udgment and the second, the pror determnaton s not
concusve. (See State Farm Ins. Co. v. Due, 32 U. S., 15 , 162 ; 2 Freeman on
udgments (ffth edton 1925), secton 713.) s demonstrated by ar v. Com-
mssoner (300 U. S., 5, 9 Ct D. 1205, C. . 1937-1,175,176 ), a udca decara-
ton ntervenng between the two proceedngs may so change the ega atmosphere
as to render the rue of coatera estoppe nappcabe. ut the ntervenng
decson need not necessary be that of a State court, as t was n the ar
case. Whe such a State court decson may be consdered as havng changed
the facts for Federa ta tgaton purposes, a modfcaton or growth n ega
prncpes as enuncated n ntervenng decsons of ths Court may aso effect
a sgnfcant change n the stuaton. Ta nequaty can resut as ready from
negectng ega moduatons by ths Court as from dsregardng factua changes
wrought by State courts. In ether event, the supervenng decson can not
|usty be gnored by bnd reance upon the rue of coatera estoppe. (Senrck-
sen v. Seward, 135 Fed. (2d), 986, 988-989 Ct. D. 1590, C. . 19 3, 11 7, 11 9-
1150 ; Peham a Co. v. assett, 1 7 Fed. (2d), 63, 68-69; Commssoner v.
runde- rooks Concrete Corp., 152 Fed. (2d), 225, 227; Corrgan v. Comms-
soner, 155 Fed. (2d), 16 , 165; and see West Coast Lfe Ins. Co. v. Merced Irr.
Dst., 11 Fed. (2d), 65 , 661-662; contra: Commssoner v. Western Unon Te.
Co., 1 1 Fed. (2d), 77 , 778.) It naturay foows that an nterposed ateraton
n the pertnent statutory provsons or Treasury reguatons can make the use
of that rue unwarranted. (Tat v. We ern Md. R. Co., supra, 625 C. . II-1,
352-353 (1933) . )
Of course, where a queston of fact essenta to the |udgment s actuay tgated
and determned n the frst ta proceedng, the partes are bound by that deter-
mnaton n a subsequent proceedng even though the cause of acton s dfferent.
(See The vergreens v. Nunan, 1 1 Fed. (2d), 927.) nd f the very same facts
and no others are Invoved n the second case, a case reatng to a dfferent ta
year, the pror |udgment w be concusve as to the same ega Issues whch
appear, assumng no ntervenng doctrna change. ut f the reevant facts n
the two cases are separabe, even though they be smar or dentca, coatera
estoppe does not govern the ega ssues whch recur n the second case.7 Thus
the second proceedng may nvove an nstrument or transacton dentca wth,
but n a form separabe from, the one deat wth n the frst proceedng. In that
stuaton, a court s free n the socond proceedng to make an ndependent
e amnaton of the ega matters at ssue. It may then reach a dfferent resut
or, f consstency n decson s consdered |ust and desrabe, reance may be
paced upon the ordnary rue of stare decss. efore a party can Invoke the
coatera estoppe doctrne n these crcumstances, the ega matter rased n
the second proceedng must nvove the same set of events or documents and the
same bunde of ega prncpes that contrbuted to the renderng of the frst
udgment. (Tat v. Western Md. R. Co., supra.) nd see Grswod, es udcata
n Federa Ta Cases, 6 Yae L. ., 1320; Pau and Zmet, es udcata n
Federa Ta aton, appearng In Pau, Seected Studes n Federa Ta aton
(second seres, 1938), page 10 .)
It s ready apparent n ths case that the royaty payments growng out of
the cense contracts whch were not nvoved In the earer acton before the
oard of Ta ppeas and whch concerned dfferent ta years are free from
the effects of the coatera estoppe doctrne. That s true even though those
contracts are dentca n a mportant respects wth the 1928 contract, the ony
one that was before the oard, and even though the ssue as to those contracts s
the same as that rased by the 1928 contract. For ncome ta purposes, what s
decded as to one contract s not concusve as to any other contract whch s not
then n ssue, however smar or dentca t may be. In ths respect, the nstant
case thus dffers vtay from Tat v. Western Md. R. Co., supra, where the two
proceedngs nvoved the same nstruments and the same surroundng facts.
more dffcut probem s posed as to the ,881.35 n royates pad to the
ta payer s wfe n 1937 under the 1928 contract. ere there s compete dentty
of facts, ssues and partes as between the earer oard proceedng and the
See aso cnrcksen v. ecard (135 Fed. (2d), 986) ; Monteth ros. Co. v. Unted States
(t 2 Fed. (2d), 139) ; Peham a Co. v. Iassett (1 7 Fed. (2d), 63) : Commssoner v.
runde- rooks Concrete Corp. (152 Fed. (2d), 225) ; Corrgan v. Commssoner (155 Fed.
(2d), 16 ). Compare randvcto Dary v. ones (157 Fed. (2d), 5).
nd see Commssoner v. Securty-Frst Nat. ank (1 8 Fed. (2d). 937).
7 Stoddard v. Commssoner (1 1 Fed. (2d), 76. 80) ; Campana Corporaton v. arrson
(135 Fed. (2d), 33 ) ; ngneer s Cub of Phadepha v. Unted States ( 2 Fed. Supp., 182).
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29.22(a)- .
12
Instant one. The Commssoner cams, however, that ega prncpes deveoped
n varous ntervenng decsons of ths Court have made pan the error of the
oard s concuson n the earer proceedng, thus creatng a stuaton ke that
Invoved In ar v. Commssoner, supra. Ths change n the ega pcture s
sad to have been brought about by such cases as everng v. Cfford (309 U. S.,
331 Ct D. 1 , C. . 19 0-1, 105 ) ; everng v. orst (311 U. S., 112 Ct. D.
72, C. . 19 0-2, 208 ) ; everng v. ubank (311 U. S., 122 Ct. D. 1 73, C. .
19 0-2, 209 ) ; arrson v. Schaffner (312 U. S., 579 Ct. D. 1503, C. . 19 1-1,
321 ) ; Commssoner v. Tocer (327 U. S., 280 Ct. D. 1670, C. . 19 6-1, 11 ) ;
and Lusthaus v. Commssoner (327 U. S., 293 Ct. D. 1669, C. . 19 6-1, 9 ).
These cases a mposed Income ta abty on transferors who had assgned or
transferred varous forms of ncome to others wthn ther famy groups, athough
none specfcay reated to the assgnment of patent cense contracts between
members of the same famy. It must therefore be determned whether ths
Cfford- orst ne of cases represents an ntervenng ega deveopment whch s
pertnent to the probem rased by the assgnment of the 1928 agreement and
whch makes manfest the error of the resut reached n 1935 by the oard.
If that s the stuaton, the doctrne of coatera estoppe becomes nappcabe.
dfferent resut s then permssbe as to the royates pad n 1937 under the
agreement In queston. ut to determne whether the Cfford- orst seres
of cases has such an effect on the nstant proceedng necessary requres nqury
Into the merts of the controversy growng out of the varous contract assgn-
ments from the ta payer to hs wfe. To that controversy we now turn.
ad the ta payer retaned the varous cense contracts and assgned to hs
wfe the rght to receve the royaty payments accrung thereunder, such pay-
ments woud ceary have been ta abe ncome to hm. It has ong been estab-
shed that the mere assgnment of the rght to receve ncome s not enough to
nsuate the assgnor from ncome ta abty. (Lucas v. ar, 281 U. S., I;
urnet v. Lennger, 285 U. S., 136.) s ong as the assgnor actuay earns
the ncome or Is otherwse the source of the rght to receve and en|oy the ncome,
he remans ta abe. The probem here s whether any dfferent resut foows
because the ta payer assgned the underyng contracts to hs wfe n addton
to gvng her the rght to receve the royaty payments.
It s the ta payer s contenton that the cense contracts rather than the patents
and the patent appcatons were the utmate source of the royaty payments
and consttuted ncome-producng property, the assgnment of whch freed the
ta payer from further ncome ta abty. We deem t unnecessary, however,
to meet that contenton n ths case. It s not enough to trace ncome to the
property whch s ts true source, a matter whch may become more metaphysca
than ega. Nor s the ta probem wth whch we are concerned necessary
answered by the fact that such property, f t can be propery dentfed, has
been assgned. The cruca queston remans whether the assgnor retans suff-
cent power and contro over the assgned property or over recept of the ncome
to make t reasonabe to treat hm as the recpent of the ncome for ta purposes.
s was sad n Corss v. ocers (281 U. S., 376, 378 Ct. D. 188, C. . I -1, 25 ,
255 (1930) ), ta aton s not so much concerned wth the refnements of tte
as t s wth nctua command over the property ta ed the actua beneft for
whch the ta s pad.
It s n the ream of ntrafamy assgnments and transfers that the Cfford-
orst ne of cases has pecuar appcabty. Whe specfcay reatng to
short-term famy trusts, the Cfford case makes cear that where the partes
to a transfer are members of the same famy group, speca scrutny s neces-
sary est what s n reaty but one economc unt be mutped nto two or
more by devces whch, though vad under State aw, are not concusve so far
as secton 22(a) s concerned. (309 U. S. at 335 C. . 19 0-1, 107 .) That
decson ponts out varous knds of documented and drect enefts whch, f
The pertnent statutory provsons are of tte hep to the matter n Issue. Secton
22(a) of the Revenue ct of 1936 ( 9 Stat., 16 8) and secton 22(a) of the Revenue ct
of 1938 (52 Stat., 7) cover the ta abe years n queston. Those sectons, whch are
Identca wth the current secton 22(a) of the Interna Revenue Code, defne cross
ncome to ncude gans, profts, and ncome derved from saares, wages, or compensa-
ton for persona servce, of whatever knd and n whatever form pad, or from professons,
vocatons, trades, busnesses, commerce, or saes, or deangs n property, whether rea or
persona, growng out of the ownershp or use of or Interest n such property; aso from
nterest, rent, dvdends, securtes, or the transacton of any busness carred on for gan
or proft, or for gans or profts and ncome derved from any source whatever. See aso
artce 22(a)- of Treasury Reguatons 9 , promugted under the 1986 ct; artce
22(a)- of Treasury Reguatons 101. promugated under the 1938 ct; and secton
19.22(a)- of Treasury Reguatons 103, promugated under the Interna Revenue Code.
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29.22(a)- .
retaned by the transferor of property, may cause hm to reman ta abe on the
ncome therefrom. nd It aso recognzes that the fact that the partes are
ntmatey reated, causng the ncome to reman wthn the famy group, may
make the transfer gve rse to Informa and ndrect benefts to the transferor
so as to make t even more cear that It Is ust to ta hm. ven more drecty
pertnent, however, s the orst case, together wth the accompanyng ubank
case. (See 2 Mertens, Law of Federa Income Ta aton (19 2), sectons 18.02,
18.1 .) It was there hed that the contro of the recept of ncome, whch causes
an assgnor of property to reman ta abe, s not mted to stuatons where the
assgnee s reazaton of ncome depends upon the future rendton of servces by
the assgnor. (See Lucas v. ar, supra; urnet v. Lennger, supra.) Such
may aso be the case where the assgnor contros the recept of ncome through
acts or servces precedng the transfer. Or t may be evdenced by the possbty
of some subsequent act by the assgnor, or some faure to act, causng the n-
come or property to revert to hm. Moreover, the orst case recognzes that
the assgnor may reaze Income f he contros the dsposton of that whch he
coud have receved hmsef and dverts payment from hmsef to the assgnee
as a means of procurng the satsfacton of hs wants, the recept of Income by
the assgnee merey beng the fruton of the assgnor s economc gan.
In arrson v. Schaffner, supra, 582 C. . 19 1-1, 323 , t was agan emphaszed
that one vested wth the rght to receve Income dd not escape the ta by any
knd of antcpatory arrangement, however skfuy devsed, by whch he pro-
cures payment of t to another, snce, by the e ercse of hs power to command
the ncome, he en|oys the beneft of the ncome on whch the ta s ad. nd t
was aso noted that ven though the gft of ncome be In form accompshed by
the temporary dsposton of the donor s property whch produces the ncome,
the donor retanng every other substanta Interest In It, we have not aowed
the form to obscure the reaty. (312 U. S., at 583 C. . 19 1-1, 323 .) Com-
mssoner v. Tower, supra, and ts companon case, Lusthaus v. Commssoner,
supra, reterated the varous prncpes ad down In the earer decsons and
apped them to ncome arsng from famy partnershps.
The prncpes whch have thus been recognzed and deveoped by the Cfford
and orst cases, and those foowng them, are drecty appcabe to the transfer
of patent cense contracts between members of the same famy. They are
gudeposts for those who seek to determne n a partcuar Instance whether
such an assgnor retans suffcent contro over the assgned contracts or over
the recept of ncome by the assgnee to make t far to Impose Income ta a-
bty on hm.
Moreover, the carfcaton and growth of these prncpes through the Cfford-
orst ne of cases consttute, n our opnon, a suffcent change In the ega
cmate to render nappcabe, n the nstant proceedng, the doctrne of coatera
estoppe reatve to the assgnment of the 1928 contract. True, these cases dd
not orgnate the concept that an assgnor s ta abe f he retans contro over
the assgned property or power to defeat the recept of Income by the assgnee.
ut they gave much added emphass and substance to that concept, makng t
more suted to meet the attenuated subtetes created by ta payers. So sub-
stanta was the ampfcaton of ths concept as to |ustfy a reconsderaton of
earer Ta Court decsons reached wthout the beneft of the e panded notons,
decsons whch are now sought to be perpetuated regardess of ther present cor-
rectness. Thus In the earer tgaton In 1935, the oard of Ta ppeas was un-
abe to brng to bear on the assgnment of the 1928 contract the fu breadth of the
deas enuncated In the Cfford- orst seres of cases. nd, as we sha see, a
proper appcaton of the prncpes as there deveoped mght we have produced
a dfferent resut, such as was reached by The Ta Court n ths case n regard
to the assgnments of the other contracts. Under those crcumstances coatera
estoppe shoud not have been used by The Ta Court n the nstant proceedng to
perpetuate the 1935 vewpont of the assgnment.
The nta determnaton of whether the assgnment of the varous contracts
rendered the ta payer mmune from ncome ta abty was one to be made by
The Ta Court. That s the agency desgnated by aw to fnd and e amne the
facts and to draw concusons as to whether a partcuar assgnment eft the
assgnor wth substanta contro over the assgned property or the ncome whch
accrues to the assgnee. nd t s we estabshed that ts decson s to be re-
spected on appea f frmy grounded In the evdence and f consstent wth
the aw. (Commssoner v. Scottsh mercan Co., 323 U. S., 119 Ct. D. 1619,
C. . 19 , 3 0 ; Dohson v. Commssoner, 820 U. S., 89 Ct. D. 1597, C. . 19 ,
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29.22(a)- .
1
56 .) That s the standard, therefore, for measurng the proprety of The Ta
Court s decson on the merts of the controversy n ths case.
The facts reatve to the asgnments of the contracts are undsputed. s to
the ega foundaton of The Ta Court s |udgment on the ta consequences of
the assgnments, we are unabe to say that ts nferences and concusons from
those facts are unreasonabe n the ght of the pertnent statutory or admnstra-
tve provsons or that they are nconsstent wth any of the prncpes enuncated
n the Cfford- orst ne of cases. Indeed, due regard for those prncpes eads
one nescapaby to The Ta Court s resut. The ta payer s purported assgn-
ment to hs wfe of the varous cense contracts may propery be sad to have eft
hm wth somethng more than a memory. e retaned very substanta nterests
n the contracts themseves, as we as power to contro the payment of royates
to hs wfe, thereby satsfyng the varous crtera of ta abty set forth n the
Cfford- orst group of cases. That fact s demonstrated by the foowng con-
sderatons :
(1) s presdent, drector and owner of 89 per cent of the stock of the corpora-
ton, the ta payer remaned n a poston to e ercse e tensve contro over the
cense contracts after assgnng them to hs wfe. The contracts a provded
that ether party mght cance wthout abty upon gvng the requred notce.
Ths gave the ta payer, n Ids domnant poston In the corporaton, power to
procure the canceaton of the contracts n ther entrety. That power was
nonetheess substanta because the ta payer had but one of the three drectors
votes necessary to sancton suc acton by the corporaton. Shoud a ma|orty
of the drectors prove unamenabe to hs desres, the frustraton woud ast no
onger than the date of the ne t annua eecton of drectors by the stockhoders,
an eecton whch the ta payer coud contro by reason of hs e tensve stock
hodngs. The wfe, as assgnee, and as a party to contracts e pressy termnabe
by the corporaton wthout abty, coud not prevent canceaton provded that
the necessary notce was gven.
nd t s not necessary to assume that such canceaton woud amount to a
fraud on the corporaton, a fraud whch coud be en|oned or otherwse prevented.
Canceaton concevaby coud occur because the ta payer and hs corporaton
were ready to make new cense contracts on terms more favorabe to the corpora-
ton, n whch case no fraud woud necessary be present. that we are con-
cerned wth here s the power to procure canceaton, not wth the possbty
that such power mght be abused. nd once t s evdent that such power e sts,
the concuson s unavodabe that the ta payer retaned a substanta Interest
n the cense contracts whch he assgned.
(2) The ta payer s controng poston n the corporaton aso permtted hm
to reguate the amount of royates payabe to hs wfe. The contracts specfed
no mnmum royates and dd not bnd the corporaton to manufacture and se
any partcuar number of devces. ence, by controng the producton and saes
poces of the corporaton, the ta payer was abe to ncrease or ower the roya-
tes ; or he coud stop those royates competey by emnatng the manufacture
of the devces covered by the royates wthout canceng the contracts.
(3) The ta payer remaned the owner of the patents and the patent appca-
tons. Snce the censes whch he gave the corporaton were none cusve n
nature, there was nothng to prevent hm from censng other frms to e pot
hs patents, thereby dvertng some or a of the royates from hs wfe.
( ) There Is absent any ndcaton that the transfer of the contracts effected
any substanta change n the ta payer s economc status. Despte the assgn-
ments, the cense contracts and the royaty payments accrung thereunder re-
maned wthn the ta payer s ntmate famy group. e was abe to en|oy, at
east ndrecty, the benefts receved by hs wfe. nd when that fact s added
to the ega contros whch he retaned over the contracts and the royates, t
can fary be sad that the ta payer retaned the substance of a the rghts whch
he had pror to the assgnments. (See crerng v. Cfford, supra, 335-336
C. . 19 0-1, 107 .)
These factors make reasonabe The Ta Court s concuson that the assgn-
ments of the cense contracts merey nvoved a transfer of the rght to receve
ncome rather than a compete dsposton of a the ta payer s nterest n the
contracts and the royates. The e stence of the ta payer s power to termnate
those contracts and to reguate the amount of the royates rendered neffectve
for ta purposes hs attempt to dspose of the contracts and royates. The
transactons were smpy a reaocaton of ncome wthn the famy group, a
reaocaton whch dd not shft the ncdence of ncome ta abty.
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15
29.22(a)-7.
The |udgment beow must therefore be reversed and the case remanded for
gach further proceedngs as may be necessary In ght of ths opnon.
Reversed.
Mr. ustce Frankfdbteb and Mr. ustce ackson beeve the |udgment of The
Ta Court s based on substanta evdence and Is consstent wth the aw, and
woud affrm that |udgment for reasons stated In Dobson v. Commssoner (320
D. S., 89 Ct. D. 1507, C. . 19 , 56 ), and Commssoner v. Scottsh mercan
Co. (323 U. S., 119 Ct. D. 1619, C. . 19 , 3 0 ).
Secton 29.22(a)-5: Gross ncome from, busness.
INT RN L R NU COD .
Tennessee tobacco ta coected by deaers and dstrbutors from
purchasers. (See I. T. 3906, page 33.)
Secton 29.22(a)-5: Gross ncome from busness.
INT RN L R NU COD .
Rhode Isand saes ta coected by retaer from purchaser. (See
I. T. 3909, page 3 .)
Secton 29.22(a)-7: Gross ncome of farmers. 19 8-13-12826
( so Secton 23(a), Secton 29.23(a)-; I. T. 3910
Secton 23(o), Secton 29.23(o)-; and Sec-
ton 23(q), Secton 29.23(q)-.)
INT RN L R NU COD .
The far market vaue of agrcutura products contrbuted by a
farmer or other producer to an organzaton descrbed n secton
23(o) or secton 23(q) of the Interna Revenue Code s ncudbe n
the gross ncome of the donor. Such far market vaue may be
deducted from gross ncome, sub|ect to the mtatons contaned n
secton 23(o) and secton 23(q) of the Code. penses of producton
are deductbe under secton 23(a) (1) ( ) of the Code as ordnary
and necessary busness e penses.
dvce s requested whether the far market vaue of agrcutura
products contrbuted by a farmer or other producer to an organzaton
descrbed n secton 23 (o) or secton 23 (q) of the Interna Revenue
Code s ncudbe n gross ncome for Federa ncome ta purposes,
and whether the donor s entted to a deducton under secton 23(o)
or secton 23 (q) of the Code wth respect to such contrbuton.
In the nstant case, a fanner who had on hand a quantty of wheat
rased on hs farm contrbuted part of such wheat to an organzaton
descrbed n secton 23(o) of the Code, such wheat to be used for reef
purposes. The organzaton, whch has been hed e empt from Fed-
era ncome ta under secton 101(6) of the Code, w process the
wheat and dstrbute t where t s needed. penses ncurred by the
farmer n rasng the wheat were deducted from gross ncome n
computng net ncome for Federa ncome ta purposes.
In everng v. Pau R. G. orst (311 U. S., 112, Ct. D. 1 72, C. .
19 0-2, 206), the owner of negotabe bonds detached nterest coupons
therefrom shorty before ther due date and devered them as a gft
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29.22(c)-8.
1G
to hs son, who procured ther payment. In support of the concuson
that the nterest was ncudbe n the gross ncome of the owner of
the bonds, the Court sad n part:
though the donor here, by the transfer of the coupons, has precuded any
possbty of hs coectng them hmsef he has nevertheess, by hs act, procured
payment of the nterest, as a vauabe gft to a member of hs famy. Such a
use of hs economc gan, the rght to receve ncome, to procure a satsfacton
whch can be obtaned ony by the e pendture of money or property, woud
seem to be the en|oyment of the ncome whether the satsfacton s the purchase
of goods at the corner grocery, the payment of hs debt there, or such nonmatera
satsfactons as may resut from the payment of a campagn or communty chest
contrbuton, or a gft to hs favorte son. ven though he never receves the
money he derves money s worth from the dsposton of the coupons whch he
has used as money or money s worth n the procurng of a satsfacton whch s
procurabe ony by the e pendture of money or money s worth. The en|oyment
of the economc beneft accrung to hm by vrtue of hs acquston of the coupons
Is reazed as competey as t woud have been f he had coected the nterest n
doars and e pended them for any of the purposes named.
The products of a farm are, from the begnnng, n the nature of
ncome (cf. I. T. 3815, C. . 19 6-2, 30, n whch t s hed n part that
where ctrus groves are sod wth frut on the trees, a porton of the
seng prce must, for Federa ncome ta purposes, be aocated to
the frut and the gan from the sae of the frut treated as ordnary
ncome), and t s beeved that the satsfacton derved from a con-
trbuton of such property to an organzaton descrbed n secton
23(o) or secton 23(q) of the Code resuts n the en|oyment of ncome
wthn the rue estabshed n everng v. Pau R. G. orst, supra.
penses ncurred n the producton of farm products are aowed
as deductons from gross ncome on the theory that they are ncurred n
the producton of ta abe ncome. It woud not appear to be proper
to aow a ta payer a deducton for the e pense of producng ncome,
permt hm to e cude such ncome from gross ncome, and, at the
same tme, permt hm to en|oy the beneft of a contrbuton deducton
under secton 23 (o) of the Code wth respect to the same ncome.
Secton 29.23(o)- of Reguatons 111, reatng to contrbutons or
gfts by ndvduas, provdes n part that f the contrbuton or gft s
other than money, the bass for cacuaton of the amount thereof
sha be the far market vaue of the property at the tme of the
contrbuton or gft.
In vew of the foregong, t s hed that the far market vaue of
agrcutura products contrbuted by a farmer or other producer to
an organzaton descrbed n secton 23 (o) or secton 23 (q) of the
Interna Revenue Code s ncudbe n the gross ncome of the donor.
Such far market vaue may be deducted from gross ncome, sub|ect
to the mtatons contaned n secton 23 (o) and secton 23 (q) of
the Code. penses of producton are deductbe under secton
23 (a) (1) ( ) of the Code as ordnary and necessary busness e penses.
S CTION 22(c). GROSS INCOM : IN NTORI S.
Secton 29.22 (c)-8: Inventores of reta 19 8-6-12766
merchants. T. D. 5605
( so Secton 19.22 (c)-8; Secton 22(d), Sec-
tons 29.22(d)-, 19.22(d)-, 29.22(d)-2, and
19.22(d)-2.)
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17
29.22(c)-8.
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 19
ND P RT 29.
Reguatons 103 and Reguatons 111 amended wth respect to
eectve nventory computatons.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 26, D. C.
To Coectors of Interna Revenue and Others Concerned:
On December 23, 19 7, notce of proposed rue makng regardng
eectve nventory computatons n the case of retaers was pubshed
n the Federa Regster (12 F. R., 8726). fter consderaton of a
such reevant matter as was presented by nterested persons regardng
the proposa, the amendments to Reguatons 103 26 CFR, Part 19
and to Reguatons 111 26 CFR, Part 29 set forth beow are hereby
adopted. The amendments are made n order to adapt the reta
nventory requrements of the reguatons to the eectve nventory
rncpe of secton 22(d) of the Interna Revenue Code as enuncated
y The Ta Court of the Unted States n utzer ros. Co. (8 T. C,
No. 3 page 1 ).
Paragraph 1. Secton 29.22(c)-8 of Reguatons 111 26 CFR,
29.22(c)-8 and secton 19.22(c)-8 of Reguatons 103 as amended
by Treasurv Decson 50 8, approved une 2, 19 1 C. . 19 1-1,
200 26 CFR, 19.22(c)-8 , are further amended as foows:
( ) y nsertng after the second paragraph n each case the
foowng (e cept that, n Reguatons 103, the cross-reference sha
be made to secton 19.22(d)-):
For further ad|ustments to be made n the case of a reta merchant usng
the eectve nventory method authorzed by secton 22(d), see secton
29.22(d)-.
( ) y strkng from the begnnng of the fourth paragraph n each
case the words ta payer, and by nsertng n eu thereof the
foowng:
ta payer (other than one usng the eectve nventory method)
(C) y strkng from the begnnng of the ast paragraph n each
case the words ta payer, and by nsertng n eu thereof the
foowng:
ta payer (other than one usng the eectve nventory method)
(D) y nsertng at the end thereof n each case the foowng:
ta payer usng the eectve Inventory method n con|uncton wth reta
computatons must ad|ust reta seng prces for mark-downs as we as mark-
ups. In order that there may be refected the appro mate cost of the goods on
hand at the end of the year, regardess of market vaues.
Par. 2. Secton 29.22(d)- of Reguatons 111, as amended by Treas-
ury Decson 5 07, approved October 9, 19 C. . 19 , 83 26
CFR, 29.22(d)- , and secton 19.22(d)- of Reguatons 103 26
CFR, 19.22(d)- are further amended by nsertng at the end thereof
n each case the foowng (e cept that, n Reguatons 103, the cross-
reference sha be made to secton 19.22 (c)-8):
If a ta payer usng the reta method of prcng nventores, authorzed by sec-
ton 29.22(c)-8, eects to use n connecton therewth the eectve nventory method
authorzed by secton 22(d) of the Code, the apparent cost of the goods on hand
at the end of the year, determned pursuant to secton 29.22(c)-8, sha be ad|usted
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29.22(d)- .
18
to the e tent of prce changes theren takng pace subsequent to the cose of the
precedng ta abe year. The amount of any apparent Inventory Increase or
decrease to be emnated n ths ad|ustment sha be determned by reference to
acceptabe prce ndces estabshed to the satsfacton of the Commssoner. Prce
ndces prepared by the Unted States ureau of Labor Statstcs whch are
appcabe to the goods n queston w be consdered acceptabe to the Comms-
soner. Prce ndces whch are based upon nadequate records, or whch are
not sub|ect to compete and detaed audt wthn the ureau, w not be approved.
Par. 3. Secton 29.22 (d)-2 of Reguatons 111, as amended by Treas-
ury Decson 550 , approved March 20, 19 6 C. . 19 6-1, 52 26
CFR, 29.22(d)-2 , s further amended by revsng that porton thereof
precedng the numbered paragraphs to read as foows:
Sec. 29.22(d)-2. Requrements Incdent to dopton and Use of ectve
Method. cept as otherwse provded n secton 29.22(d)- wth respect to
raw matera computatons and wth respect to reta nventory computatons,
the adopton and use of the eectve nventory method s, by secton 22(d) and
reguatons thereunder, made sub|ect to the foowng requrements:
Par. . Secton 19.22(d)-2 of Reguatons 103, as amended by Treas-
ury Decson 5199, approved December 10, 19 2 C. . 19 2-2, 8 26
CFR, 19.22(d)-2 , s further amended by revsng that porton thereof
precedng the numbered paragraphs to read as foows:
Sec. 19.22(d)-2. Requrements Incdent to dopton and Use of ectve
Method. cept as otherwse provded In secton 19.22(d)- wth respect to
reta nventory computatons, the adopton and use of the eectve nventory
method s, by secton 22(d) and reguatons thereunder, made sub|ect to the
foowng requrements:
Par. 5. The amendments made by ths Treasury decson sha be
appcabe to a ta abe years begnnng after December 31, 1938.
(Ths Treasury decson s ssued under the authorty contaned n
sectons 62 and 22(d) of the Interna Revenue Code (53 Stat., 32,11:
26U. S. C, 62, 22(d)).)
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved March ,19 8.
. L. M. Wggns,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster March 9, 19 8, 8.55 a. m.)
S CTION 22(d). GROSS INCOM : IN NTORI S-
L CTI M T OD .
Secton 29.22(d)-: Inventores under eec- 19 8-9-12791
tve method. L T. 390
( so Secton 19.22(d)-, Reguatons 103.)
nterna revenue code.
Prce ndces and data pubshed by the ureau of Labor Statstcs
under dates of February 3,19 8, and March 3,19 8, for use by depart-
ment stores empoyng the reta and eectve nventory methods.
The foowng prce ndces and data, pubshed by the ureau of
Labor Statstcs as shown n Tabes I, I , II, and III for use by depart-
ment stores empoyng the reta and eectve nventory methods, are
accepted by the ureau of Interna Revenue pursuant to Treasury De-
cson 5605 (page 16, ths uetn), approved March , 19 8, and
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10
29.22(d)- .
Mmeograph 62 (page 21, ths uetn), dated March 9, 19 8, for
approprate appcaton to nventores for ta abe years of 12 months
ended on une 30, uy 31, and December 31, for the years 19 1 to 19 7,
ncusve, and anuary 31, for the years 19 2 to 19 8, ncusve.
Tabe . ureau of Labor Statstcs, department store nventory prce nde es,
by department groups.
( anuary, 19 1 100.
Oroup.
I. Pece goods
n. 8boes
I. Underwear
I . Outerwear
. Men s wear
I. Furnture
II. ome furnshngs
III. ectrca equpment.
I . Notons.
Tota, Groups I. II, III, I ,
, I
Tota, Oroups I, II, III.
Store tota
Group.
anuary. uy
1O0.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
I. Pece goods
II. Shoes
III. Underwear
I . Outerwear
. Men s wear
I. Furnture
II. ome furnshngs
III. ectrca equpment
I . Noton
Tota, Oroups I. , III, I , , I
Tota. Groups I, II, III
Store tota
103.3
100.7
100.9
107.
102.1
107.2
106.0
102.0
100.3
102.6
106. 1
103.2
anuary. uy
120.3
108.7
116.7
117.9
112.9
121.0
109.0
118. 1
110.2
115.0
11 .
11 .8
131.3
115.
127 1
127.9
12 .3
125.3
112.6
118.
111.8
123.6
117.6
121.6
anu
uy.
136.8
119.2
131.3
128.7
129.8
126.2
113.7
121.8
112.7
127.5
119. 1
12 .9
136.9
119.7
133.8
136.1
131.6
127.7
11 .2
123.0
113.2
129.6
119.9
126.3
anuary. uy
1 . 1
122.2
136.3
1 1.3
139.
128.7
118.2
127.5
113.7
13 . 8
123.0
131.5
1 7.2
122.7
1 3.7
1 7.8
1 0.9
1 2.9
118.
131.8
120.6
138.7
128.1
135. 1
19 6.
anuary. uy
181.0
12 .6
1 5.0
1 7.7
1 .7
1 3.0
123.2
13 .6
121.2
153.9
126. 1
1 9.0
166. 1
1 6. 1
1 8.6
123.3
136.1
120.8
19 6.
anuary. uy
1 1.9
131.
138.9
1 3.8
133.3
1 0. 1
166.7
131. 1
1 7.0
155.8
161. 1
160.2
131.6
139.6
12a 5
1 8.6
138.9
1 6.7
167.6
135.5
161.3
162.7
161.6
162.3
13 .2
1 7.9
120.6
151.8
1 5.2
1 9.2
19 7.
anuary. uy.
196.
160.6
168.8
16 .7
178.9
168.9
1 8.
157.9
12 .6
nr, 7
156.7
163.6
anuary.
196.6
17 .8
169.2
17 .9
188.3
183.2
150.3
166.9
129.3
172.6
163.3
169. 1
19 8.
218.6
19a 3
178.2
181.3
oa o
18 .9
1 . . 5
170.1
1 0.5
18 .5
171.0
180.6
Note:
I. Pece goods, domestcs, and draperes.
II. Shoes.
III. Lades underwear.
I . Lades and grs outerwear.
. Men s and boys wear.
I. Furnture and beddng.
II. ome furnshngs.
I. Ma|or appaooes and eectrca goods.
I . Notons and toet artces.
Tabe I . ureau of Labor Statstcs, department store nventory prce nde es,
by department groups.
uy, 19 1-100.
Group.
uy,
19 1.
uy,
uy,
19 3.
uy,
uy,
uv,
19 6:
uy,
19 7.
19 2.
19 .
19 5.
100.0
127.2
132. 7
1 2.6
1 9.2
162. 5
190.6
100.0
11 .6
118.8
121.8
12 .2
13 . 6
173.6
oo.o
127.0
133.1
1 2.9
1 8. 2
150.6
168.
100.0
118.9
126.5
137. 1
1 . 1
151.2
162. 5
100.0
121.7
128.9
138.0
1 3. 1
158.2
18 .
.100.0
116.9
119. 1
133.3
138.6
151.
170.9
100.0
107 2
108.8
112.7
117.5
127.8
1 3. 1
oo.o
116.1
120.6
129.2
133.6
1 5. 1
163.6
100.0
I. 5
112.8
120.3
120.
120.3
129. 0
oao
120.6
111.9
117.7
126.5
11 .1
122.
135.3
121.9
131.0
1 11 2
1 8. 1
138. 1
1 .6
168.3
155. S
16 .0
100.0
100.0
126.8
135.8
I. Pece goods, domestcs, draperes
II. Shoes
III. Lades underwear
I . Lades and grs outerwear
Men s and boys wear
I Furnture and beddng
II. ome furnshngs. ...........
III Ma|or appances and eectrca goods..-
I . Notons and toet artces
Tota, Oroups I. I . ,I v...:
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29.22(d)- .
20
Tabe II. ureau of Labor Statstcs, annua percent ncrease n department
store nventory prce nde es, by department groups.
Group.
anuary to anuary.
I. Pece poods, domestcs, and
19 1 to
19 2.
19 2 to
19 3.
19 3 to
19 .
19 to
19 5.
19 5 to
19 6.
19 6 to
19 7.
19 7 to
19 8.
II. Shoes _.
draperes
20.3
8.7
16.7
13.7
9.7
12.5
5.3
2.5
3.8
.8
2.0
6
10.
5.2
1.
17.8
22.5
8.0
11.3
18.5
12.2
III. Lades underwear
I , Lades outerwear and grs
. Men s and boys wear
wear
17.9
1Z9
21.0
9.0
9.2
15.0
.3
.3
9.8
7.
2.0
.0
.5
3.8
11. 1
.3
5.5
.
5.0
6.8
5.7
18.
12.5
12.8
10.1
6.2
9.6
9.S
I. Furnture and beddng
II. ome furnshngs
III. Ma|or appances and eectrca
18.1
10.2
3.1
.7
.
66
3.7
-. 0
13.1
3.
7.7
12.8
I . Notons and toet artces
2.3
.9
Tota, Groups L II. I, I , , I ....
15.0
1 .
1 .8
10.9
.1
8.8
5.7
3.3
8.3
5.3
6.8
5.6
.7
12. S
12.8
12.3
10.7
9.1
10.3
Group.
uy to uy.
5.7
.9
19 1 to
19 2.
19 2 to
1913.
19 3 to
19 .
19 to
19 5.
19 5 to
19 6 to
19 7.
19 a
I. Pece goods, domestcs, and draperes .-
II. Shoes
27.2
1 .6
27.0
18.9
21.7
16.9
7.2
.3
3.7
.8
6.
5.9
1.8
1.5
3.9
1.2
7.5
2.5
7.
8.
7.1
11.9
3.6
7.1
66
.6
8.9
8.3
1.6
.9
17.3
29.0
11.8
III. Lades underwear
2.0
3.7
5.1
3.7
.0
.2
3.3
.1
I . Lades outerwear and grs wear
10.5
9.2
8.8
8.7
7.5
16.6
12.9
12.0
12.8
III. Ma|or appances and eectrca goods
a
11.5
-.1
7.2
Tota, Groups I, II, III.
20.6
11.9
17.7
.9
2.0
.0
7.0
68
7.0
3.6
.0
3.7
5.6
8.9
6.1
13.7
12.5
13.
Store tota
1 Incorrecty prnted as 8. n reease of anuary 7. 19 8.
Tabe III. ureau of Labor Statstcs, department store nventory prce nde es,
groupng of Controers Congress Departments.
LS group.
Controers Congress Department.
Number and name.
Num-
ber.
Name.
I. Pece goods, domestcs, and draperes.
11
12
13
1
15
18
7
7
67
36
37
38
39
2
3
3
61
52
63
6
65
67
69
Sks, vevets, and synthetcs.
Wooen dress goods.
Wash goods and nngs.
Lnens.
II. Shoes
Domestcs Musns, sheetngs, etc.
ankets, comfortabes, and spreads.
Draperes, curtans, and uphostery.
Women s and chdren s shoes.
Men s and boys shoes.
Corsets and brasseres.
Women s nnd chdren s hosery.
nt underwear.
Sk and musn underwear and sps.
Neggees and robes.
Infants wear.
Mnery.
Women s and msses coats and suts.
unor mss coats, suts, and dresses.
Women s and msses dresses.
ouses, skrts, and sportswear.
Ors wear.
prons, bouse dresses, and unforms.
Furs.
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21
29.22 (d)-2.
Tabe III. ureau of Labor Statstc , department store nventory prce nde es,
groupng of Controer Congress Departments Contnued.
LS group.
Controers Congress Department.
Number and name.
Num-
ber.
Name.
. Men s and boys wear..
I. Furnture and beddng
II. ome furnshngs
III. Ma|or appances and eectrca
I . Notons
. No nde computed.
61
62
65
66-C
66-F
71-M
71-U
71-0
73
73
76
7
79
R
75
77
8
21
23
2
25-9
25-C
25-F
26
27
2S
31
33
35
6
u
92-8
92-C
n
Men s cothng.
Men s furnshngs.
Men s hats.
oys cothng.
oys furnshngs.
Mattresses, sprngs, and studo beds.
Uphostered furnture.
Other furnture.
Orenta rugs.
Domestc foor coverngs.
Chna and gassware.
ousewares.
Gft shop.
Pctures, frames, and mrrors.
Lamps and shades.
Ma|or appances.
Rados, phonographs, and records.
Laces, trmmngs, and rbbons.
Notons.
Toet artces, and drug sundres.
Sverware and cocks.
Costume ewery.
Fne ewery and watches.
Umbreas.
rt needework.
ooks and statonery.
Neckwear and scarfs.
andkerchefs.
Women s and chdren s goves.
andbags and sma eather goods.
Toys and games.
Sportng goods,
ameras and photographc equpment.
Secton 29.22(d)-: Inventores under eec-
tve method.
( so Secton 19.22(d)-.)
INT RN L R NU COD .
Reguatons 103 and 111 amended. (See T. D. 5605, page 16.)
Secton 29.22(d)-2: Requrements ncdent to 19 8-7-12770
adopton and use of eectve method. Mm. 62
Use of eectve Inventory method by ta payers usng reta Inven-
tory method.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 26, D. C, March 9,19 8.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
eads of Fed Dvsons of the Technca Staff, and Others
Concerned:
1. Secton 22(d)(1) of the Interna Revenue Code provdes an
eectve method for nventoryng goods, commony referred to as the
ast-n, frst-out, or LIFO, nventory method. Secton 22(d) (2)
( ) of the Code provdes that the eectve method sha be apped
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29.22(d)-2.
22
ony wth respect to the goods specfed by the ta payer n an app-
caton fed wth the Commssoner. The Commssoner s reguatons
wth respect to the eectve nventory method have heretofore made
no provson for retaers to group such goods nto casses. The
ureau has hed that the use of the eectve nventory method was not
avaabe to ta payers whose nventory records are kept on the bass
of the reta nventory method permtted under secton 29.22(c)-8 of
Reguatons 111 and secton 19.22 (c)-8 of eguatons 103.
2. The Ta Court hed n the case of utzer ros. Co. v. Com-
mssoner (8 T. C., 1 ) that a ta payer usng the reta nventory
method s entted to use the eectve nventory method. The groupng
of goods by casses under the reta nventory method necessary n-
voves the use of some type of nde numbers for measurng the e tent
of prce changes n the varous casses of goods concerned. The de-
cson ad down no rue concernng the nature or type of nde num-
bers whc mght be proper, nor dd t prescrbe other detas of
methods for appyng the LIFO method n the case of reta merchants.
3. Treasury Decson 5605, approved March , 19 8 page 16, ths
uetn , amends Reguatons 103 and 111 to e pressy permt the use
of the eectve nventory method by ta payers usng the reta nven-
tory method. Certan prncpes are ad down for the appcaton of
the eectve nventory method by such ta payers. Frst, snce the eec-
tve method requres the use of cost, the reta seng prces of goods n-
cuded n the openng nventory and purchased durng the year must
be ad|usted for mark-downs as we as mark-ups durng the year wth-
out regard to the ta payer s prevous practce wth respect to mark-
downs under the reta method. Ths requrement does not appy to
retaers empoyng the reta nventory method wthout the use of the
eectve method. Second, the prce ndces empoyed n the ad|ustment
of the apparent cost of goods n the cosng nventory for prce changes
takng pace durng the year must be shown, to the satsfacton of
the Commssoner, to be acceptabe. ny prce ndces must be based
upon sound statstca prncpes of constructon and upon adequate
records to be kept avaabe for e amnaton by the ureau.
. rrangements have been made between representatves of the re-
ta trade and the Unted States ureau of Labor Statstcs for that
agency to compute and pubsh a seres of group nde numbers of reta
prces, on a country-wde bass, sutabe for use by ndvdua depart-
ment stores, whch w be acceptabe to the Commssoner. These nde
numbers w cover the perod from 19 1 to the present on a semannua
bass, and w appear semannuay n the future. The use of such
ndces of the ureau of Labor Statstcs s not mandatory; ndces
may be prepared by an ndvdua ta payer based upon hs own data
on prces and nventory quanttes, f adequate, and f proof s sub-
mtted that sound statstca methods have been empoyed that assure
reabe ndces, not ony for the partcuar year n queston, but for
subsequent years. Retaers who have fed, on the bass of the eectve
method, returns for past years whch are st open, and who used
ndces that are not acceptabe to the Commssoner, may fe amended
returns empoyng acceptabe ndces.
5. Inde numbers for the years ended anuary, 19 1 to 19 7, n-
cusve, were pubshed by the ureau of Labor Statstcs on anuary
7,19 8, and smar data for uy of those years was pubshed on Febru-
ary 3, 19 8. Semannua ndces for anuary 15 and uy 15 w be
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23
29.22(d)-2.
pubshed, n the future, n March and September of each year. In-
dces as of the 15th of a month w be deemed to be representatve of
prces at ether the begnnng or end of such month. These reeases of
the ureau of Labor Statstcs w aso be pubshed n the Interna
Revenue uetn.
6. The foowng groups have been used by the ureau of Labor
Statstcs as the bass for the preparaton of the ndces for past years
for use bv department stores:
L Pece goods, domestcs, and draperes.
II. Shoes.
III. Lades underwear.
I . Lades outerwear and grs wear.
. Men s and boys wear.
I. Furnture and beddng.
II. ome furnshngs.
III. Ma|or appances and eectrca goods.
I . Notons and toet artces.
egnnng wth anuary, 19 8, prce data w be gathered on add-
tona commodtes that may aow the segregaton of addtona
groups. The ureau of Labor Statstcs shows n Tabe III of ts
reease of anuary 7, 19 8, the coverage of each of the above groups,
by namng the departments of a typca department store, as descrbed
by the Controer s Congress of the Natona Reta Dry Goods sso-
caton, whch are ncuded n each group.
7. In usng such group ndces, a department store ta payer w
appy to the nventory .data for each of hs departments separatey, n
the manner descrbed beow, the nde for the group n whch the de-
partment ogcay beongs. gven group nde may be appcabe
to a number of departments n a store.
8. The probem arses of what ndces are to be empoyed for a de-
partment whch does not ft nto any one of the nne groups named
above. In ths case an nde shoud be empoyed whch represents an
average for the whoe of the remander of the store. For e ampe, ths
nde may be the store tota, as shown by the ureau of Labor Stats-
tcs, or that shown for appare, pece goods, and notons combned
(groups I, II, III, I , , and I ), whchever of these combnatons
more cosey represents the coverage of the nventory stock carred by
the store.
9. The method of makng the frst-year prce ad|ustments to the
cosng nventory vaues under the reta nventory method, combned
wth the eectve (LIFO) method, s ustrated n hbts and ,
hereafter set forth, for three hypothetca departments. In the frst
two departments there was an ncrease n the physca quantty of n-
ventory durng the year n queston, as shown by the comparson of the
ad|usted reta vaue at the end of the year and the reta vaue at the
begnnng of the year. In the frst department prces rose durng the
year, as shown by the nde , whe n the second, prces fe. In the
thrd department there was a decne n the physca quantty of
nventory.
10. To ustrate further the prncpes nvoved, hbts C and D
show the ad|ustments for two addtona years for department 1, the
data for the frst year beng repeated to show the contnuty. It s
assumed that the physca quantty of nventory ncreased n the frst
two years, but decreased n the thrd year, as ndcated by the ad|usted
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29.22(d)-2.
2
reta vaues. It s to be noted that the decrease n the thrd year em-
nated a of the second year ncrease, and part of the frst year s n-
crease, n that order, retanng n the cosng nventory the merchandse
appearng n the openng nventory n the order of acquston.
Thus, t s necessary under the eectve method to retan the dentty
of each annua ncrement to the nventory of each department. The
prce changes are measured by reference to the f ed prces at the
begnnng of the frst LTFO year and the reta nventory vaue on each
nventory date s ad|usted to the prce eve on that date.
11. These ustratons are ntended to show the man prncpes
nvoved n the LIFO ad|ustments to reta nventores, and are not
ntended to cover a accountng detas of computatons whch may
be requred, partcuary n ater years, under the eectve method.
12. Correspondence regardng ths mmeograph shoud refer to ts
number and the symbos ndcated for the approprate ureau offce
concerned: Coectors of nterna revenue, C: Co; nterna revenue
agents n charge, IT: IM; and heads of fed dvsons of the Tech-
nca Staff, TS: RM.
Geo. . Schoeneman,
Commssoner.
n T .
Method of computng LIFO, reta nventory, three departments, frst year.
Ptep
No.
Item or computaton.
Department No.
1. Women s
shoes.
2. Men s
furnshngs.
3. Lnens.
I. D T FROM T r T R 9 ROO 3.
t
1
Openng nventory reta vaue...
25,000
0,000
10,000
2
Openng nventory mark-on per cent
per cent..
3.6
5.2
.1
3
Openng nventory cost (1 reduced by 2)
1 ,100
21,920
5,690

Mark-on on year s purchases (see step 12a)

per cent..
.7
. 8
.6

Cosng nventory reta vaue

36,000
39, 00
10, 00
S
per cent..
.
.9
.
7
Cosng nventory cost (FIFO) (5 reduced by 6)
20, 016
21, 709
5,782
n. TRIC IND T D T .
s
Prce Inde , cose of year reatve to prces at begnnng of
frst LIFO year as 100 per cent
percent..
108.
96.3
113.7
m. Lro COMPUT TIONS.

Cosng nventory ad|usted reta vaue (5 8).
33, 210
0,91
9,1 7
ID
Increase (decrease) n year (9 1)
8,210
91
( 853)
11
Increase at current nrces (10 81 _
8,900
880
12n
126
13
Cost of ncrease (11 reduced by )
,922
86
Cost of decrease (10 reduced by 2)
( 77)
5,113
LIFO cosng nventory (3-f2a or 3-126)
19,022
22, 06
Notes. (a) Tho mark-ons n steps 2 and must be computed takng account of mark-downs as we as
mark-ups.
( ) In succeedng years the data to be used In steps 1, 2, and 3, to the e tent appcabe, w be taken from
the ta payer s books as of the begnnng of the frst year of the use of the UFO method, and w be dentca
wth those shown n the frst year s computaton.
(c) Steps 6 and 7 are shown to aow comparson of LIFO and FIFO nventores.
(rf) The nde n step S s I he nde of reta prces appcabe to the goods n cch department, showng
the eve of prces at the end of the year 1U8. per cent u department I) reatve to the begnnng of the
year (100 per cent).
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25
29.22(d)-2.
hbt .
ethod of computng LIFO, reta nventory, three departments, frst year.
Dept. I
f 6s ars
sta Pres sd|usmatr u|ustsd Current y-Coet meat
etan_ ntreaee r : / Co
I I I N mcr.M,
um
on
S.
Tear a
Purchases
.71
.
Prces
10e.t
Ste - I 2 3
Dspt. 2.
10

Prce d us
Mark
00
6.3
steo-. 2 3
Dept. 3.
121 13
Crt M/COtt tM
/
d|usted Current Cot of
nt) Reta Increase Prces , ncrease
nt on
.0
PT1C01
1 po
Inventory
t
of r er
10 II 12 13
/Coat oaeen
toers
r
.t
Tsar f
purchase
.CS
-M /at
fota:
create/ om
nd|fat.a- 1- ottmm
U I -t N
darn on
.
Inde
Of
Prcs
us.f
Lre
Inventory
at nd
of Tsar
.3op-e
I It
Osenof Inventory
nm
Cosnc nve tory
nro
LIFO
Cosng
Inventory
796500 8 3
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29.22(d)-2.
26
hbt C.
Method of computng LIFO, reta nventory, department No. 1, frst three years.
Step
No.
Item or computaton.
Frst
year.
Second
year.
Thrd
L D T FROM T T T R 8 OO S.
Openng Inventory frst LIFO year, reta
Openng Inventory frst LIFO year, mark-on percent per cent.
Openng nventory frst LIFO year, cost (1 reduced by 2)
Mark-on on year s purchases per cent.
Cosng nventory gven year reta vaue
D. PRIC IND D T .
Prce nde , cose of gven year reatve to prces at begnnng of frst
LIFO year as 100 per cent per cent..
ITI. LD70 COMPUT TIONS.
Cosng nventory-ad|usted reta vaue at prce eve of
Inventory for frst LIFO year (5 8)
Increase over openng nventory for frst LIFO year (9 1).
a. mount of ncrease attrbutabe to frst year
6. mount of ncrease attrbutabe to second year
Increase at prces e stng when acqured:
a. Frst year s ncrease (10a 108. per cent)
b. Second year s ncrease (106 U0.6 per cent)
Cost of ncreases:
o. Frst year s ncrease (f reduced by .7 per cent)..
6. Second year s ncrease (116 reduced by .8 per cent)
dd (3) above
LIFO cosng nventory (sum of 12 and 3).
2.1, 0O0
3.6
1 . 100
.7
36,000
108.
33, 210
8,210
8,210
8,900
,922
1 , 100
19,022
25,000
3.6
1 ,100
.8
3,000
110.6
38, S79
13.879
8,210
5,669
8,900
6,270
,922
3, 61
1 , 100
22, 83
2. . Mm
3.6
1 , 100
.9
3 . urn
11 .0
29. S2S
, 825
,625
5,230
2, S92
1 . 100
16,992
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27
29.22(d)-2.
hbt D.
Method of computng LIFO, reta nventory, department No. 1, frst three years.
Fr t Yew ma
on ana
IUU11
Tt r
trk on
.7
Cnmot
Prces
cr. p r ypCo c of Ibc
Incr. r .
LIFO
Cosnf
Inventory
10 II
Increase t PreM
cqured
Increase
Tear
1 - 1st Y r
Orgna
mun
InnaLory
1
Cosng
nv.
Reta
1 art
3.0 r
Tear
nark on
Increase at Preef
Men cqured
/ ark on, .79
pr. nde
.
uutM S: I r
Itt t
, , _ . f -CMC or Roundtr of
I N|t Ut Tt r ncrtu
c
sup I
10 II
12 II
Lra
Cosng
Inventory
Openng Inventory
nm Lra mr
Secton 29.22(d)-2: Requrements ncdent to
adopton and use of eectve method.
( so Secton 19.22(d)-2.)
INT RN L R NU COD .
Reguatons 103 and 111 amended. (See T. D. 5C05, page 16.)
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29.23 (a)-. 28
S CTION 22(n). GROSS INCOM : D FINITION OF
D UST D GROSS INCOM .
Secton 29.22(n)-: d|usted gross ncome.
INT RN L R NU COD .
Tennessee use ta pad by consumers wth respect to property used
n trade or busness. (See L T. 3905, page 32.)
Secton 29.22(n)-: d|usted gross ncome.
INT RN L R NU COD .
Tennessee tobacco ta pad by ndvdua n connecton wth to-
bacco products used n trade or busness. (See I. T. 3906, page 33.)
Secton 29.22(n)-: d|usted gross ncome.
INT RN L R NU COD .
Rhode Isand saes and use ta es pad by retaers or purchasers and
attrbutabe to a trade or busness. (See I. T. 3909, page 3 .)
Secton 29.22(n)-: d|usted gross ncome.
INT RN L R NU COD .
Msssspp gasone ta pad by ndvduas who use gasone n
trade or busness. (See G. C. M. 25579, page 36.)
S CTION 23(a). D DUCTIONS FROM GROSS
INCOM : P NS S.
Secton 29.23 (a)-: usness e penses. 19 8-6-12760
I. T. 389
INT RN L R NU COD .
mounts pad as qudated damages by an empoyer to the Unted
States under the Wash- eaey Pubc Contracts ct ( 9 Stat., 2036)
are deductbe for Federa ncome ta purposes to the e tent that such
amounts represent damages for mnmum wage and overtme voa-
tons.
mounts pad as qudated damages by an empoyer to the Unted
States on account of voatons of the chd abor provsons of the
Wash- eaey Pubc Contracts ct are not deductbe for Federa
ncome ta purposes.
dvce s requested as to the deductbty for Federa ncome ta
purposes of amounts pad as qudated damages by an empoyer to the
Unted States under the Wash- eaey Pubc Contracts ct ( 9 Stat.,
2036) wth respect to (1) mnmum wage and overtme voatons and
(2) chd abor voatons.
Secton 1 of the Wash- eaey Pubc Contracts ct provdes that
any contracts made by any agency or e ecutve department of the
Unted States sha ncude, nter aa, certan stpuatons reatve to
wages and hours and empoyment of mnors under specfed ages. Sec-
G
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29
29.23(a)- .
ton 2 provdes that any breach or voaton of any of the representa-
tons and stpuatons n any contract for the purposes set forth n
secton 1 sha render the party responsbe therefor abe to the Unted
States for qudated damages, n addton to damages for any other
breach of contract, n the sum of 10 per day for each chd abor voa-
ton and n a sum equa to the amount of any deductons, rebates, re-
funds, or underpayment of wages due to empoyees engaged n per-
formance of the contract. Such sums may be wthhed by the Govern-
ment from any amounts due on the contract or may be recovered n suts
brought n the name of the Unted States of merca by the ttorney
Genera. Secton 2 of the ct further provdes that a sums wthhed
or recovered as deductons, rebates, refunds, or underpayment of wages
sha be hed n a speca depost account and sha be pad, on order of
the Secretary of Labor, drecty to the empoyees who have been pad
ess than mnmum rates of pay as set forth n such contracts and on
whose account such sums were wthhed or recovered, sub|ect to a tme
mtaton for the fng of cams.
Secton 23(a) (1) ( ) of the Interna Revenue Code provdes n part
that n computng net ncome there sha be aowed as deductons:
the ordnary and necessary e penses pad or ncurred durng the ta -
abe year n carryng on any trade or busness
mounts pad as qudated damages by an empoyer to the Unted
States under the Wash- eaey Pubc Contracts ct are deductbe for
Federa ncome ta purposes to the e tent that such amounts represent
damages for mnmum wage and overtme voatons.
Fnes or penates, however, do not consttute tems of ordnary and
necessary busness e pense, and where a ta payer has voated a Federa
or State statute and ncurred a fne or penaty, he has not been per-
mtted a ta deducton for ts payment. (See Great Northern Raway
Co. v. Commssoner, 0 Fed. (2d), 372, certorar dened, 282 U. S., 855,
and urroughs udng Matera Co. v. Commssoner, 7 Fed. (2d),
178, Ct. D. 297, C. . -, 397 (1931).) In Commssoner v. en-
nger (320 U. S., 67, 73, Ct. D. 1596, C. . 19 , 8 , 86), the
Supreme Court of the Unted States ponted out that the Federa courts
from tme to tme have narrowed the generay accepted meanng of
the anguage used n secton 23(a) of the Code n order that ta
deducton consequences mght not frustrate sharpy defned Natona or
State poces proscrbng partcuar types of conduct. (See Scoto
Provson Co. v. Commssoner, 9 T. C, 39.)
In vew of the ceary defned natona pocy underyng the chd
abor provsons of the Wash- eaey Pubc Contracts ct and the
fact that sums pad on account of voatons thereof are penates for
an offense aganst the pubc |ustce of the State (cf. Tuntngton v.
ttr, 1 6 U. S., 657, 67 ), t s hed that amounts pad as qudated
damages by an empoyer to the Unted States on account of voatons
of the chd abor provsons of the ct are not deductbe for Federa
ncome ta purposes.
Secton 29.23(a)-: usness e penses.
INT RN L R NU COD .
Cost of Tennessee tobacco ta stamps purchased by deaers and
dstrbutors. (See I. T. 3906, page 33.)
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29.23 (a)-10.
30
Secton 29.23(a)- : usness e penses.
INT RN L R NU COD .
Rhode Isand saes ta pad by purchaser wth respect to property
purchased for use n trade or busness. (See I. T. 3909, page 3 .)
far amount of rent pad by a husband to hs wfe for the use of
Wsconsn rea estate owned by them as |ont tenants Is deductbe
as a busness e pense by the husband n hs separate Federa In-
come ta return where the husband uses the property n connecton
wth hs busness.
dvce s requested as to the deductbty of rent pad by a husband
to hs wfe for the use n hs busness of Wsconsn rea estate owned
by them as |ont tenants.
husband and wfe hodng Wsconsn rea estate as |ont tenants
may each report one-haf of the net ncome from such property n
separate Federa ncome ta returns. (See I. T. 375 , C. . 19 5,
1 3.) That concuson was based prmary on the provsons of
sectons 23 .21, 2 6.01, and 2 6.03 of the Wsconsn Statutes, 19 1.
Those provsons, whch are aso contaned n the Wsconsn Statutes,
23 .21. ctons etween Cotenants. One |ont tenant or tenant n common
and hs e ecutors or admnstrators may mantan an acton for money had and
receved aganst hs cotenant for recevng more than hs |ust proporton of the
rents or profts of the estate owned by them as |ont tenants or tenants n common.
2 6.01. Reaty of. The rea estate of every descrpton, ncudng a hed n
|ont tenancy wth her husband, and the rents, ssues and profts thereof of any
femae now marred sha not be sub|ect to the dsposa of her husband, but sha
be her soe and separate property as f she were unmarred.
2 0.03. Mat Receve, od and Convey Property. ny marred femae may
receve by nhertance or by gft, grant, devse or bequest from any person, hod
to her soe and separate use, convey and devse rea and persona property and
any nterest or estate theren of any descrpton, ncudng a hed n |ont
tenancy wth her husband, and the rents, ssues and profts thereof n the same
manner and wth ke effect as f she were unmarred, and the same sha not
be sub|ect to the dsposa of her husband nor be abe for hs debts. ny con-
veyance, transfer or en e ecuted by ether husband or wfe to or n favor of
the other sha be vad to the same e tent as between other persons.
It appears from the quoted provsons of aw that there s a defnte
obgaton on the part of the ta payer to pay to hs wfe at east one-
haf of the far renta vaue of the rea estate hed by them as |ont
tenants whch s used by hm n hs busness. To deny the ta payer
the rght to deduct far rent pad to hs wfe woud, n effect, dsregard
the wfe s rght of partcpaton n possesson and use of the property,
and woud confct wth the poston of the ureau that ncome from
property hed n |ont tenancy s ta abe to the tenants n proporton
to ther respectve nterests n the property.
In vew of the foregong, t s hed that a far amount of rent pad
by a husband to hs wfe for the use of Wsconsn rea estate owned
by them as |ont tenants s deductbe as a busness e pense by the hus-
band n hs separate Federa ncome ta return where the husband uses
the property n connecton wth hs busness.
Secton 29.23(a)-10: Rentas.
19 8-8-1278
I. T. 3901
INT RN L R NU COD .
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31
29.23(c)- .
Secton 29.23(a)-: penses of farmers.
INT RN L R NU COD .
mounts e pended n deveopment of farms, orchards, and ranches.
(See Mm. 6030, Suppement 1, page 2.)
Secton 29.23(a)-11: penses of farmers.
INT RN L R NU COD .
penses of producton of agrcutura products contrbuted by a
farmer or other producer to organzatons descrbed n secton 23(o)
or secton 23(q) of the Interna Revenue Code. (See I. T. 3910,
page 15.)
S CTION 23(c). D DUCTIONS FROM GROSS
INCOM : T S G N R LLY.
Secton 29.23(c)-: Ta es. 19 8-5-12755
I. T. 3892
INT RN L R NU COD ND R NU CT OF 1928.
The 3-eent ta mposed by the State of North Dakota on motor
vehce fue under the ntated measure approved on une 30, 192G,
as amended, s deductbe for Federa ncome ta purposes under
secton 23(c) (1) of the Interna Revenue Code by the deaer upon
whom t s mposed, and not by the consumer. I. T. 2519 (C. .
I -1,92 (1930)) revoked.
The addtona 1-cent ta mposed by the State of North Dakota
on motor vehce fue by chapter 170, Laws of North Dakota, 1939,
and subsequent egsaton s aso deductbe under secton 23(c) (1)
of the Code by the deaer upon whom t Is mposed.
The North Dakota motor vehce fue ta es are not reta saes
ta es and are not deductbe by the consumer under secton 23(c) (3)
of the Code.
Reconsderaton has been gven to I. T. 2519 (C. . I -1,92 (1930)),
n whch t was hed that the motor vehce fue (3-cent) ta mposed
by the State of North Dakota under the ntated measure approved
on une 30, 1926, as amended, s deductbe n the ncome ta return
of the consumer who pays t and to whom t s not refunded.
I. T. 2519, supra, was predcated on the provsons of the aw of the
State of North Dakota quoted theren, whch provsons seemed to m-
pose the motor vehce fue ta upon the purchaser of fues used for
the purpose of operatng motor vehces n whoe or n part upon any
of the pubc hghways of the State of North Dakota. n addtona
1-cent ta has been mposed by the State of North Dakota on motor
vehce fue from pr 1,1939, to the present date. (Laws of North
Dakota, 1939, chapter 170; Laws of North Dakota, 19 1, chapter 191;
Laws of North Dakota, 1 3, chapter 263 (see North Dakota Revsed
Code of 19 3, chapter 57- 3); Laws of North Dakota, 19 - 5, chapter
339, ntated measure approved November 7, 19 .)
The Supreme Court of North Dakota hed n Federa Land ank
of St. Pau v. DeRochford et a. (69 N. D., 382; 287 N. W., 522) that the
ega ncdence of the ta mposed by the terms of the North Dakota
ntated measure approved une 30, 1926, as amended, s upon the
deaer. Such beng the ega ncdence of the ta , t s not to be re-
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29.23(c)- .
32
garded as beng passed on, as such, to the purchaser merey because the
prce to the purchaser s ncreased because of the ta . The Supreme
Court of North Dakota aso hed n ng et a. v. aker, State udtor
(69 N. D., 581; 288 N. W., 565), foowng the reasonng n Federa
Land ank of St. Pau v. DeRochford et a., that the addtona cense
ta of 1 cent per gaon s not a ta upon a user of motor vehce fue.
The Supreme Court of the Unted States hed n Fedcra Land ank of
St. Pau v. smarck Lumber Co. et a. (31 U. S., 95) that the de-
termnaton of the ncdence of the ta by the Supreme Court of North
Dakota s controng wth respect to the queston whether a ta eved
by the State s mposed upon the vendor or the vendee.
In vew of the foregong, t s hed that the 3-cent ta mposed by
the State of North Dakota on motor vehce fue under the ntated
measure approved on une 30, 1926, as amended, s deductbe for
Federa ncome ta purposes under secton 23(c) (1) of the Interna
evenue Code by the deaer upon whom t s mposed, and not by the
consumer. I. T. 2519, supra, s revoked.
It s aso hed that the addtona 1-cent ta mposed by the State of
North Dakota on motor vehce fue by chapter 170, Laws of North
Dakota, 1939, and subsequent egsaton s deductbe under secton
23(c) (1) of the Code by the deaer upon whom t s mposed.
It s hed further that the North Dakota motor vehce fue ta es
are not reta saes ta es and are not deductbe by the consumer under
secton 23(c) (3) of the Code.
Deductbty for Federa ncome ta purposes of the use ta Im-
posed by the Tennessee Retaers Saes Ta ct approved anuary
2 19 7.
I. T. 3865 (C. . 19 7-2, 20) suppemented.
Further consderaton has been gven to the treatment for Federa
ncome ta purposes of the ta es mposed by the Tennessee Retaers
Saes Ta ct, approved anuary 2 , 19 7.
I. T. 3865 (C. . 19 7-2,20) deas wth the deductbty of the saes
ta mposed by the Tennessee aw. The same queston has aso arsen
wth respect to the use ta whch s eved by the same Tennessee aw.
Secton 3 of the Tennessee Retaers Saes Ta ct provdes that
every person s e ercsng a ta abe prvege who stores for use or
consumpton n the State any tem or artce of tangbe property and
mposes a ta for the e ercse of that prvege. Under the prov-
sons of rue 208 of the Tennessee reta saes and use ta reguatons,
the purchaser s requred to pay the use ta to the seer f the seer
s regstered wth the Department of Fnance and Ta aton and au-
thorzed to coect the ta , but f the seer s not so regstered and
authorzed, or fas to coect and remt the use ta to the State, the
purchaser must report and remt the use ta to the Commssoner of
Fnance and Ta aton.
It s apparent from the Tennessee aw and the reguatons there-
under that the use ta s mposed upon the consumer. ccordngy,
t s hed that the use ta mposed by the Tennessee Retaers Saes
Ta ct consttutes an aowabe deducton to the purchaser under
Secton 29.23 (c)-1 : Ta es.
( so Secton 22 (n), Secton 29.22 (n)-.)
19 8-9-12792
I. T. 3905
INT RN L NU COD .
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33
29.23(c)- .
secton 23(c) (1) of the Code, e cept that n the case of an ndvdua
who eects the optona standard deducton, no deducton s aowabe
f the use ta s not attrbutabe to a trade or busness carred on by
hm. Where the use ta s attrbutabe to a trade or busness carred
on by an ndvdua, the amount of such ta s deductbe from gross
ncome n computng ad|usted gross ncome. In the case of a other
ta payers, the use ta s deductbe from gross ncome n determnng
net ncome. The amount of use ta coected by a retaer from a pur-
chaser shoud not be ncuded n the retaer s gross ncome, and no
deducton s aowabe to the retaer wth respect to the amount of
use ta remtted by hm to the State.
Secton 29.23 (c)-: Ta es. 19 8-9-12793
( so Secton 22(a), Secton 29.22(a)-5; Sec- I. T. 3906
ton 22(n), Secton 29.22(n)-; Secton 23(a),
Secton 29.23 (a)-1.)
INT RN L R NU COD .
Treatment for Federa ncome ta purposes of the Tennessee
tobacco ta from and after March 11, 19 7.
dvce s requested wt respect to the deductbty of the Ten-
nessee tobacco ta n vew of secton 2 of Chapter No. 1C8, Pubc cts
of Tennessee, 19 7, readng as foows:
Sec. 2. e t further enacted, That the abty for, or the ncdence of, the
tobacco ta Is hereby decared to be a evy on the consumer. The dstrbutors
sha add the amount of tobacco ta es presenty eved to the prce of cgarettes
or other tobacco products and the dstrbutor may state the amount of the ta es
separatey from the prce of such cgarettes or other tobacco products on a prce
dspay sgns, saes or devery sps, bs and statements whch advertse or
ndcate the prce of such cgarettes or tobacco products. The provsons of ts
secton sha n no way affect the method of coecton of sad cgarette or
tobacco ta es as now provded by e stng aw.
Secton 1213.2 of the Tennessee Code provdes for the annua -
censng of every person engaged n the busness of seng, dstrbutng,
or handng tobacco products n the State, and t aso empowers the
Commssoner of Fnance and Ta aton to requre the cense app-
cants to e ecute a bond n favor of the State of Tennessee condtoned
upon the censee payng the ta and aff ng ta stamps to a pack-
ages or parces of tobacco products used, sod, dstrbuted, or handed
by hm. Secton 1213. provdes that every retaer or dstrbutor
of tobacco products s requred to pay a speca prvege ta at rates
theren specfed. Secton 1213.5 provdes that the ta sha be pad
by the purchase, from the Commssoner of Fnance and Ta aton, of
stamps of such desgn and denomnaton as may be prescrbed by hm.
Secton 1213.6 requres each dstrbutor or deaer to aff a stamp, pur-
chased from the Commssoner of Fnance and Ta aton, to each
package or parce of tobacco products.
It s hed n L T. 3616 (C. . 19 3, 136) that the Tennessee tobacco
ta mposed by secton 1213. of the Tennessee Code s not a reta
saes ta whch s deductbe by the purchaser of tobacco products
under secton 23(c)(3) of the Interna Revenue Code, but that t s
deductbe by the frst seer wthn the State of tobacco products to
whch he has aff ed ta stamps as requred by State aw.
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8 29.23(c)- .
3
Pursuant to the provsons of secton of Chapter No. 168, Pubc
cts of Tennessee, 19 7, secton 2, supra, s effectve from and after
March 11, 19 7. ccordngy, from and after March 11, 19 7, the
Tennessee tobacco ta , beng a evy upon the consumer, s deductbe
under secton 23(c) (1) of the Code by the consumer n computng net
ncome, e cept that n the case of an ndvdua who eects the optona
standard deducton (see secton 23(aa) of the Code), the ta s not
deductbe uness pad n connecton wth tobacco products used n a
trade or busness. In that event, the ta s deductbe from gross
ncome n computng ad|usted gross ncome (see secton 22 (n) (1) of
the Code).
From and after March 11,19 7, no deducton s aowabe to deaers
and dstrbutors on account of the purchase of tobacco ta stamps
from the Commssoner of Fnance and Ta aton and, accordngy, the
porton of the prce pad by purchasers to deaers and dstrbutors for
tobacco products whch represents the Tennessee tobacco ta s not
ncudbe n the gross ncome of the deaers and dstrbutors.
Deductbty for Federa ncome ta purposes of the saes ta and
the use ta mposed by sectons 17 and 23, respectvey, of the Rhode
Isand Saes and Use Ta ct, effectve uy 1, 19 7.
dvce s requested as to the treatment for Federa ncome ta pur-
poses of the ta es eved by the Rhode Isand Saes and Use Ta ct,
effectve uy 1,19 7.
The pertnent provsons of the act are as foows:
Sec. 17. ta s hereby mposed upon saes at reta n ths State, as heren
defned, at the rate of 1 per cent of the gross recepts of the retaer from such
saes. The ta sha be pad to the ta admnstrator by the retaer at the tme
and n the manner herenafter provded. The retaer sa add the ta hereby m-
posed to the sae prce or charge, and when added such ta sha consttute a part
of such prce or charge, sha be a debt from the consumer or user to the retaer,
and sha be recoverabe at aw n the same manner as other debts.

Sec. 23. n e cse ta s hereby mposed on the storage, use, or other consump-
ton n ths State of tangbe persona property purchased from any retaer at
the rate of 1 per cent of the sae prce of the property. very person storng,
usng, or otherwse consumng n ths State tangbe persona property purchased
from a retaer s abe for the ta . s abty s not e tngushed unt the
ta has been pad to ths State e cept that a recept from a retaer mantanng
a pace of busness n ths State or from a retaer who s authorzed by the ta
admnstrator to coect the tn under such rues and reguatons as he may
prescrbe, gven to the purchaser pursuant to the provsons of ths secton, s
suffcent to reeve the purchaser from further abty for the ta to whch the
recept refers. very retaer mantanng a pace of busness In ths State and
makng saes of tangbe persona property for storage, use, or other consumpton
n ths State, not e empted hereunder sha, at the tme of makng the saes or,
f the storage, use, or other consumpton of the tangbe persona property s not
then ta abe hereunder, at the tme the storage, use, or other consumpton becomes
ta abe, coect the ta from the purchaser and gve to the purchaser a recept
therefor n the manner and form prescrbed by the ta admnstrator.
Secton 29.23(c)- : Ta es.
19 8-10-1280
I. T. 3909
( so Secton 22(a), Secton 29.22 (a)-5; Sec-
ton 22 (n), Secton 29.22 (n)-; Secton
23(a), Secton 29.23(a)-1; Secton 2 , Sec-
ton 29.2 -2.)
INT RN L R NU COD .
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35
29.23(c)- .
Sec. 3 . The storage, use, or other consumpton n ths State of property, the
gross recepts from the sae of whch are requred to be ncuded n the measure
of the saes ta , sha be e empted from the use ta .

Sec. 37. For purposes of the saes ta a return sha be fed by every
person engaged n the busness of makng reta saes, the gross recepts from
whch are requred to be ncuded n the measure of the saes ta . p0r
purposes of the use ta a return sha be fed by every retaer mantanng a
pace of busness n the State and by every person purchasng tangbe persona
property, the storage, use, or other consumpton of whch s sub|ect to the use
ta , who has not pad the use ta due to a retaer requred to coect the
ta .
The Rhode Isand statute mposes two dstnct ta es, vz, a saes
ta (secton 17) and a use ta (secton 23). The saes ta s mposed
upon the retaer and s measured by hs gross recepts from reta
saes. It s unawfu for the retaer to advertse, hod out, or state
to the pubc or any customer, ether drecty or ndrecty, that the
saes ta or any part thereof s assumed or absorbed by hm or that he
w not add the ta to the seng prce or that the ta , f added, w be
refunded. The term saes ta , as used n secton 29.23(c)-1(6) of
Reguatons 111, reatng to State and oca saes ta es, means a ta
mposed by any State, Terrtory, dstrct, or possesson of the Unted
States, or any potca subdvson thereof, upon persons engaged n
seng tangbe persona property at reta, whch s measured by the
gross saes prce or the gross recepts from the sae, or whch s a
stated sum per unt of such property sod. The term aso ncudes a
ta mposed by such authortes upon persons engaged n furnshng
servces at reta, whch s measured by the gross recepts for furnsh-
ng such servces.
The saes ta mposed by the Rhode Isand Saes and Use Ta ct
s a reta saes ta wthn the meanng of secton 23(c) (3) of the
Code and the reated reguatons. To the e tent that the saes ta s
ad by the purchaser (otherwse than n connecton wth hs trade or
usness), t s deductbe under secton 23(c) (3) of the Code e cept
n the case of an ndvdua who eects to take the optona standard
deducton. Where the saes ta s pad wth respect to property pur-
chased for use n the purchaser s trade or busness, t s deductbe by
hm as a busness e pense f the cost of the property acqured s prop-
ery chargeabe to e pense, or t s to be treated as a capta tem
where the cost of the property s propery captazed. Where the
purchaser s an ndvdua and the saes ta s deductbe as a busness
e pense, the deducton must be taken n arrvng at hs ad|usted gross
ncome. (See secton 22(n) (1) of the Code.) In the case of a other
purchasers, the deducton s aowabe as a busness e pense n deter-
mnng net ncome. Snce the saes ta s mposed upon the retaer, t
s deductbe by hm under secton 23(c)(1) of the Code. If the
retaer s an ndvdua, the deducton must be taken n arrvng at
ad|usted gross ncome. (See secton 22(n) (1) of the Code.) In the
case of a other retaers, the deducton s aowabe n determnng
net ncome. The saes ta coected by a retaer from a purchaser
must be ncuded n the retaer s gross ncome for Federa ncome ta
purposes.
Tne use ta s mposed upon the person storng, usng, or otherwse
consumng n the State tangbe persona property purchased from
a retaer. s abty s not e tngushed unt the use ta has been
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29.23(c)-.
36
pad to the State e cept that a recept from a retaer mantanng
a pace of busness wthn the State, or from a retaer duy authorzed
by the ta admnstrator to coect the ta , gven to the purchaser -s
suffcent to reeve the purchaser from further abty for the use
ta to whch the recept refers. Persons purchasng tangbe persona
property whch s sub|ect to the use ta but who nave not pad the
use ta due to a retaer requred to coect the ta must fe a return
wth the ta admnstrator.
The use ta mposed by the Rhode Isand Saes and Use Ta ct
consttutes an aowabe deducton to the purchaser under secton
23(c) (1) of the Code, e cept that n the case of an ndvdua who
eects the optona standard deducton, no deducton s aowabe f
the use ta s not attrbutabe to a trade or busness carred on by
hm. Where the use ta s attrbutabe to a trade or busness carred
on by an ndvdua, the amount of such ta s deductbe from gross
ncome n computng ad|usted gross ncome. In the case of a other
ta payers, the use ta s deductbe from gross ncome n determnng
net ncome. The amount of use ta coected by a retaer from a
purchaser shoud not be ncuded n the retaer s gross ncome, and
no deducton s aowabe to the retaer wth respect to the amount
of use ta remtted by hm to the State.
Secton 29.23 (c)-: Ta es. 19 8-12-12818
( so Secton 22(n), Secton 29.22(n)-.) G. C. M. 25579
INT RN L R NU COD .
The gasone ta Imposed by the State of Msssspp under the
provsons of secton 6, chapter 26 , Msssspp Laws, 19 6, s de-
ductbe under secton 23(c) (1) of the Interna Revenue Code by the
consumer, n computng hs net ncome, e cept that n the case of an
ndvdua who eects the optona standard deducton, no deducton
Is aowabe uness the gasone ta s attrbutabe to a trade or
busness carred on by hm, In whch event the amount of such ta s
deductbe from gross Income n computng ad|usted gross Income.
n opnon s requested whether the gasone ta pad to the State
of Msssspp under the present State aw (secton 6, chapter 26 ,
Msssspp Laws, 19 6; secton 10013-06, 19 6 Cumuatve Suppe-
ment to Msssspp Code 19 2, nnotated) may be deducted by the
consumer n hs Federa ncome ta return.
The Msssspp statute referred to above provdes that dstrbutors
of gasone sha pay, for the prvege of engagng n such busness,
an e cse ta of s cents per gaon on a gasone stored, sod, ds-
trbuted, manufactured, refned, dsted, bended or compounded
n ths State, or receved n ths State for sae, use on the hghways,
storage, dstrbuton, use n nterna combuston engnes, or for any
purposes. The statute further provdes that the ta eved thereby
may be passed on to the utmate consumer and such consumer
n ascertanng hs net ncome for ncome ta purposes may deduct
any such ta es he has actuay pad, upon proof satsfactory to the
ncome ta admnstrator durng the year from hs gross ncome
Secton 10013-07, 19 6 Cumuatve Suppement to Msss-
spp Code 19 2, nnotated, provdes for monthy reports of purchases
of gasone by dstrbutors, whch reports serve as the bass for com-
putaton of the ta payabe by the dstrbutor to the State. Secton
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37
IS 29.23(c)- .
10013- 5, d., states the purpose and ntenton of the act to be the m-
poston of an e cse ta on a persons engaged n the busness of
mportng, recevng, purchasng, acqurng, usng, storng, manu-
facturng, refnng, dstng, bendng, compoundng, seng or ds-
trbutng gasone n the State of Msssspp
The same secton further provdes that t w bo prma face pre-
sumed that a gasone mported, receved, purchased,
n ths State s ntended for use n propeng motor vehces
on the pubc roads and hghways and that t s the purpose
of the act to provde for the refundng to the consumer of a ta
actuay pad, ess one cent (c) per gaon, on gasone not used n
propeng motor vehces on the pubc hghways and roads
Secton 10013-11, d., provdes for the refund to consumers of fve
cents per gaon on gasone used for agrcutura, martme, ndus-
tra, domestc, or nonhghway purposes.
The foregong provsons, partcuary the decaraton of purpose
and the provson reatng to refund to the consumer of ta es pad on
gasone used for specfed purposes, are strong ndcatons of egsa-
tve ntent to mpose the gasone ta upon the utmate consumer.
In State e re. Rce v. Repubc O Refnng Co. (32 So. (2d), 290),
the Supreme Court of Msssspp had under consderaton the pro-
vsons of chapter 1 , Msssspp Laws, 1938, codfed as sectons
10013-10066, Msssspp Code 19 2, nnotated. That statute was
repeaed and repaced by the present statute. The ony varance be-
tween the ta -evyng provson of the od statute and that of the
new, whch s here matera, s the added anguage authorzng the
dstrbutor to pass the ta on to the utmate consumer, and author-
zng the consumer to deduct, for State ncome ta purposes, ta es pad
thereunder. Ths added anguage strengthens the concuson that the
ta s ntended by the egsature to be mposed upon the utmate
consumer, and the decson n the Repubc O Refnng Co. case,
supra, woud appy a fortor to the new statute. In that case, decded
October 27,19 7, the court sad:
The s cents a gaon ta s not upon appeee or other dstrbutors ether at
whoesae or reta, but s upon the utmate consumer; s a use ta for the use
of the pubc hghways by the consumer and s not to be coected for uses other
than upon the pubc hghways. The reta deaer n seng to the consumer
adds the s cents to that whch woud otherwse be the prce of the gasone
provded the gasone s to be used on the pubc hghways, and the retaer
remts the s cents to the State, whch, In turn, remburses the whoesaer, such
as appeee, who has aready pad the ta n advance to the State.
Thus the ta s pad by the consumer as a use ta , the prevous
payment by the whoesaer beng n the nature of an advancement and to guar-
antee the State aganst any back market maneuvers between the tme the gasone
s receved by the whoesaer and then and there measured by the State s agent
on the ground and the tme t s receved and pad for by the egtmate consumer
at the pumps of the retaer.
In vew of the foregong nterpretaton of a substantay smar
pror statute by the Supreme Court of Msssspp, and n vew of the
apparent ntent of the Msssspp State Legsature to mpose the
gasone ta upon the consumer of gasone n the State of Msssspp,
t s the opnon of ths offce that the gasone ta mposed by the State
of Msssspp under the provsons of secton 6, chapter 26 , Msss-
spp Laws, 19 6, s deductbe under secton 23(c) (1) of the Interna
Revenue Code by the consumer, n computng hs net ncome, e cept
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29.23(k)-.
38
that n the case of an ndvdua who eects the optona standard de-
ducton, no deducton s aowabe uness the gasone ta s attrbut-
abe to a trade or busness carred on by hm, n whch event the amount
of such ta s deductbe from gross ncome n computng ad|usted
gross ncome.
The amount of the Msssspp gasone ta coected by the dstrbu-
tor or deaer shoud not be ncuded n hs gross ncome, and no deduc-
ton s aowabe wth respect to the amount of the ta remtted to
the State.
G. C. M. 15101 (C. . I -2, 65 (1935)) reates to a gasone ta
mposed by an earer Msssspp statute and has no present
appcaton.
Chares Ophant,
Chef Counse, ureau of Interna Revenue.
S CTION 23 (k). D DUCTIONS FROM GROSS
INCOM : D D TS.
Secton 29.23(k)-: ad debts. 19 8-8-12785
G. C. M. 25605
INT RN L R NU COD ND R NU CTS OF 1921, 192 , ND 1926.
The reserve method of accountng for bad debts In the case of
banks as provded n Mmeograph 6209 (C. . 19 7-2, 26) does not
appy to securtes as defned n secton 23(k) (3) of the Interna
Revenue Code. Deductons wth respect to securtes may be
taken ether for specfc bad debt osses wrtten off and camed or
through the estabshment of a separate reserve for bad debts wth-
out regard to Mmeograph 6209, supra.
G. C. M. 1887 (C. . I-2. 61 (1927)) modfed.
Reconsderaton has been gven to G. C. M. 1887 (C. . I-2, 61
(1927)) n connecton wth the provsons of Mmeograph 6209 (C. .
19 7-2, 26) whch mmeograph reates to the reserve method of ac-
countng for bad debts n the case of banks.
In G. C. M. 1887, supra, t was hed that a ta payer usng the reserve
method of deductng bad debts coud secure an aowance on account of
debts evdenced by bonds ony by way of an addton to a reserve for
bad debts. Mm. 6209, supra, authorzes banks usng the reserve
method of accountng for bad debts to estabsh a reserve for bad debt
osses wth respect to oans on a movng average percentage based
on 20 years.
It.s the opnon of ths offce that the reserve method of accountng
for bad debts n the case of banks as provded n Mmeograph 6209
(C. . 19 7-2, 26) does not appy to securtes as defned n secton
23(k) (3) of the Interna Revenue Code. Deductons wth respect to
securtes. may be taken ether for specfc bad debt osses wrtten
off and camed or through the estabshment of a separate reserve for
bad debts wthout regard to Mmeograph 6209, supra.
G. C. M. 1887 (C. . I-2,61 (1927)), n ts appcaton to banks, s
modfed accordngy.
Chares Ophant,
Chef Counse, ureau of Interna Revenue.
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39
29.23(m)-.
Secton 29.23 (k)-5: Reserve for bad debts. 19 8-7-12771
. Mm. 62 7
Permsson granted to certan banks to use reserve method of ac-
countng for bad debts.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C, March 16,19 8.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
Technca Staff, and Others Concerned:
1. Paragraph 7 of Mmeograph 6209, dated December 8,19 7 C. .
19 7-2, 26 , reatng to reserve method of accountng for bad debts n
the case of banks, provdes as foows:
7. Where a bank makng ts return on the bass of the caendar year 19 7
wshes to ava tsef of the provsons of ths mmeograph and to change from
the specfc charse-off to the reserve method of accountng for bad debts, the tme
for makng appcaton for such change under secton 29.23(k)-, Reguatons 111,
has been e tended to March 15, 19 8 (T. D. 559 , approved December 8, 19 7
C. . 19 7-2, 25 ). If such bank fes ts return on or before March 15, 19 8,
on the reserve method, and the return s accompaned by a wrtten statement
settng forth the eecton to use such method and e panng n deta the computa-
tons of the bad debt deducton shown n the return, such return w be accepted
as a tmey appcaton.
2. very bank whch, n makng and fng ts ncome ta return for
the caendar year 19 7 on or before March 15,19 8, eected the reserve
method n accordance wth the above-quoted provsons of paragraph
7 of Mmeograph 6209 s hereby granted permsson to empoy the re-
serve method of accountng for bad debts for Federa ncome ta pur-
poses, begnnng wth the ta abe year ended December 31,19 7.
3. Correspondence n regard to ths mmeograph shoud refer to ts
number and to the symbos IT: IM.
Geo. . Schoeneman,
Commssoner.
S CTION 23 (m). D DUCTIONS FROM GROSS
INCOM : D PL TION.
Secton 29.23(m)-: Depeton of mnes, o 19 8-6-12701
and gas wes, other natura deposts, and I. T. 3895
tmber; deprecaton of mprovements.
INT RN L revenue code.
ppcaton of G. C. M. 218 9 (C. . 19 6-1, 06).
G. C. M. 2 8 9 (C. . 19 6-1, 66) hods (syabus) that consdera-
ton receved for the assgnment of a short-ved n-o payment rght
carved out of any type of depetabe nterest n o and gas n pace
s ordnary ncome sub|ect to the depeton aowance where such con-
sderaton s not pedged for use n further deveopment.
Pursuant to authorty contaned n secton 3791(b) of the Interna,
Revenue Code, G. C. M. 2 8 9, supra, w be apped ony to such as-;
sgnments made on or after pr 1,19 6.
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved February 2 ,19 8.
. L. M. Wogns,
ctng Secretary of the Treasury.
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29.2 r-2. 0
S CTION 23(o). D DUCTIONS FROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS.
Secton 29.23 (o)-: Contrbutons or gfts by
ndvduas.
INT RN L R NU COD .
Contrbutons of agrcutura products to organzatons descrbed
n secton 23(o) of the Interna Revenue Code. (See I. T. 3910,
page 15.)
S CTION 23(q). D DUCTIONS FROM GROSS INCOM :
CONTRI UTIONS Y CORPOR TIONS.
Secton 29.23(q)-: Contrbutons or gfts by
corporatons.
nterna revenue code.
Contrbutons of agrcutura products to organzatons descrbed
n secton 23 (q) of the Interna Revenue Code. (See L T. 3910,
page 15.)
S CTION 2 . IT MS NOT D DUCTI L .
Secton 29.2 -2: Capta e pendtures. 19 8-2-12730
G. C. M. 25503
INT RN L R NU COD .
The entre cost pad or ncurred by a mne operator for con-
structon of a prvate sdng or spur track to ts mne s an e haust-
be capta e pendture even though tte to a or a porton of such
sdng or track Immedatey upon constructon vests In a raway
company. No part of such cost Is deductbe as a busness e pense
or as a oss when pad or ncurred, but the entre cost s deprecabe
or amortzabe by the mne operator over the estmated usefu fe
to It of the sdng or spur track.
Recommended that O. D. 1019 (C. . 5, 151 (1921)) and . R. R.
1008 (C. . 1-2,120 (1922)) be modfed.
n opnon s requested wth respect to the proper treatment for
Federa ncome ta purposes of the cost pad or ncurred by a coa
mne operator for constructon of a prvate sdng or spur track to
ts mne where tte to a porton of such track mmedatey upon con-
structon vests n a raway company.
In the nstant case a corporaton operatng a coa mne desred
drect ra servce to and from ts mne and entered nto contracts
wth a raway company for constructon of prvate sdngs or spur
tracks from the atter s man tracks to the mne. Under one of the
contracts, the mne operator agreed to pay for constructon of the
porton of the spur track beyond the raway company s man track
rght-of-way and the raway company agreed to pay for construc-
ton of the porton of the spur track on ts rght-of-way. Under an-
other contract, athough the entre sdng or spur track woud be on
the raway company s rght-of-way, the mne operator agreed to pay
for constructon of the porton of such track e tendng beyond the
pont of cearance of traffc on the man track. In other words, under
such contract the mne operator ncurred the cost of constructng the
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29.2 -2.
atter porton of the sdng or spur track even though tte thereto m-
medatey upon constructon vested n the raway company.
In O. D. 1019 (C. . 5, 151 (1921)), nvovng a smar case, t
was hed that deprecaton determnabe n accordance wth the facts
of the case was aowabe to the ta payer wth respect to the cost to
t of the porton of a sdng owned by t, but that the cost to t of por-
tons of the sdng owned by a raroad company was deductbe by
the ta payer as a busness e pense n the year ncurred, and no depre-
caton was aowabe to t wth respect to that cost. In . R. R. 1008
(C. . 1-2,120 (1922)), t was smary hed that the cost to the ta -
payer, a quarry operator, of the porton of a spur track owned by t
shoud be treated as a deferred cm rge and wrtten off pro rata over
the estmated remanng fe of the quarry from the date of construc-
ton of the spur track, but that the cost to t of the porton of the
spur track o vned by a raway company shoud be deducted as e pense
when ncurred.
In vew, however, of the decsons n Gauey Mountan Coa Co. v.
Commssoner (23 Fed. (2d), 57 ), Coony Coadk Coke Corporatons.
Commssoner (52 Fed. (2d), 923, Ct. D. 39, C. . I-1, 278 (1932)),
Crppe Creek Coa Co. v. Commssoner (63 Fed. (2d), 829, Ct. D. 731,
C. . II-2,192 (193 )), and The Lousve Fre rck Works, Inc.,
v. Commssoner ( 3 . T. ., 178, acquescence, C. . 19 1-1, 7) , ths
offce s of the opnon that the entre cost pad or ncurred by a mne
operator for constructon of a prvate sdng or spur track to ts mne
s an e haustbe capta e pendture even though tte to a or a por-
ton of such sdng or track mmedatey upon constructon vests n a
raw ay company. ccordngy, no part of such cost s deductbe as
a busness e pense or as a oss when pad or ncurred, but the entre
cost s deprecabe or amortzabe by the mne operator over the est-
mated usefu fe to t of the sdng or spur track.
It s recommended that O. D. 1019 and . R. R. 1008, supra, be mod-
fed to accord wth the foregong concuson. Such modfcaton s
consstent wth the poston taken by the ureau and the court n
Coony Coa Coke Corporaton v. C ommssoner, supra. That opn-
on was pubshed n the Interna Revenue uetn (C. . I-1, 278
(1932)). In that case the court hed that payments made by cor-
poratons, owners of coa propertes, to a raroad company for the
constructon of a branch ne to the propertes are capta e pendtures
amortzabe over the estmated productve fe of the coa propertes
and not deductbe as busness e penses or as a oss when made, even
though the branch ne woud be owned by the raroad company when
but.
Modfcaton of O. D. 1019 and . R. R. 1008, supra, w not mean,
however, that a mne operator who, consstent wth those rungs, has
deducted, n a ta abe year whch has become barred from ad|ustment
of ta abty, any contrbuton for or cost of constructng a sdng
or spur track tte to whch vested n a raway company, may aso
captaze the amount of such contrbuton or cost as a bass for deduc-
tons for deprecaton or amortzaton or gan or oss. construc-
ton of a ta ng statute permttng a dupcaton of deductons s not
favored by the courts. (Reabe Incubator rooder Co. v. Com-
mssoner, 6 T. C, 919; ank of Newberry v. Commssoner, 1 T. C,
796590 8
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29.2 -2.
2
Secton 29.2 -2: Capta e pendtures.
19 8-2-12731
I. T. 3886
INT RN L R NU COD ND R NU CT OF 1918.
In accordance wth the recommendaton n G. C. M. 25503 (page 0,
ths uetn), O. D. 1019 (C. 5, 151 (1921)) and . R. R. 1008
(C. . 1-2, 120 (1922)) are modfed to accord wth the concusons
reached n that memorandum.
mounts e pended n deveopment of farms, orchards, and ranches.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 26, D. C, anuary 8,19 f8.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
eads of Fed Dvsons of the Technca Staff, and Others Con-
cerned:
1. Reference s made to that porton of Mmeograph 6030 (C. .
19 6-2, 5), dated une 20,19 6, whch announced the rue that where,
wth respect to ta abe years begnnng pror to uy 1,19 6 (ncudng
the caendar year 19 6), ta payers have, n ther returns, treated pre-
paratory e pendtures ncdent to the deveopment of farms, orchards,
and ranches as ordnary and necessary e penses, such treatment woud
not be dsturbed, and the rue that such preparatory e pendtures must
be captazed woud be apped ony for ta abe years begnnng on or
after uy 1, 19 6.
2. In the case of a ta payer who, for the frst tme, n a ta abe year
begnnng pror to uy 1, 19 6, for whch no return had been fed
pror to the reease of Mmeograph 6030 (as, for e ampe, the ca-
endar year 19 6), was engaged n the deveopment of a farm, orchard,
or ranch, amounts e pended for preparatory tems of the type contem-
pated by the provsons of the mmeograph w be permtted as
aowabe deductons for such year.
3. In the case of a ta payer who, n a ta abe year begnnng pror
to uy 1,19 6, for whch no return had been fed pror to the reease
of Mmeograph 6030, engaged n a new pro|ect of the type contem-
pated by the provsons of that mmeograph, t s the poston of the
ureau that the deducton of preparatory costs w be permtted for
such year provded t had been the ta payer s practce, n hs returns
fed for precedng ta abe years, to treat such preparatory e pend-
tures wth respect to od or contnung pro|ects as ordnary and neces-
sary e penses.
Secton 29.2 -2: Capta e pendtures.
( so Secton 23(a), Secton
29.23 (a)-.)
19 8-3-127 0
Mm.6030
(Suppement 1)
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29.25-3.
. Where ta payers, n returns fed pror to the reease of Mmeo-
graph 6030, dd not cam deductons for preparatory costs represent-
ng capta tems, the method of accountng for preparatory costs n
such pror years must be adhered to for a years.
5. It s emphaszed, however, that the rue provded n Mmeograph
6030, that a preparatory e pendtures of the type contempated oy
that mmeograph must be captazed, w appy to amounts e pended
n a ta abe years begnnng on or after uy 1, 19 6, whether or not
appcabe to so-caed od or new pro|ects and regardess of
whether preparatory e pendtures n ta abe years begnnng pror to
uy 1,19 6, have been captazed or e pensed.
6. Correspondence from the foowng regardng ths mmeograph
shoud refer to the number hereof and to the symbos ndcated: Co-
ectors of nterna revenue, C:Co; nterna revenue agents n
charge, IT: IM; heads of fed dvsons of the Technca Staff,
TS: RM.
Geo. . Scoeneman,
Commssoner.
Secton 29.2 -2: Capta e pendtures.
INT RN L R NU COD .
Rhode Isand saes ta pad by purchaser wth respect to property
purchased for use n trade or busness. (See I. T. 3909, page 3 .)
S CTION 25. CR DITS OF INDI IDU L
G INST N T INCOM .
Secton 29.25-3: Persona e empton, surta 19 8-3-127 1
e emptons, and e emptons for both norma I. T. 3888
ta and surta .
INT RN L R NU COD .
Where a wdow remarred wthn the same caendar year n whch
her husband ded and she had no gross ncome and was not the
dependent of another ta payer durng such year, the fu marta
e empton ( 1,000) s aowabe on the fna separate Federa ncome
ta return fed on behaf of the deceased husband and aso on the
separate caendar year return fed by the second husband.
dvce s requested as to the status of a wfe s e empton for
Federa ncome ta purposes where she remarred wthn the same
caendar year n whch her frst husband ded, and she had no gross
ncome and was not the dependent of another ta payer durng such
year.
In the nstant case the frst husband ded n the eary part of 19 6,
and hs ta abe year covered the perod anuary 1, 19 6, to the date
of hs death. On the fna separate Federa ncome ta return ted
on behaf of the deceased husband, an e empton was camed for hs
wdow who had no gross ncome durng the entre caendar year 19 6.
The wdow, who remarred n the atter part of 19 6, was vng wth
the frst husband on the ast day of hs ta abe year (the date of hs
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29. 1-1.

death), and wth the second husband on the ast day of hs ta abe
year. The second husband fed a separate return for the caendar
year 19 6, camng an e empton for hs wfe.
Secton 25(b) of the Interna Revenue Code provdes n part as
foows:

(1) Credts. There sha be aowed for the purposes of both the norma
ta and the surta , the foowng credts aganst net ncome:
( ) n e empton of 500 for the ta payer;
( ) n e empton of 300 for the spouse of the ta payer f

(11) a separate return s made by the ta payer, and hs spouse
has no gross ncome for the caendar year n whch the ta abe year
of the ta payer begns and s not the dependent of another ta payer;

(2) Determnaton of status. The determnaton of whether an nd-
vdua s marred sha be made as of the ast day of the ta abe year, uness
hs spouse des durng the ta abe year, n whch case such determnaton
sha be made as of the date of hs spouse s deatb.
In the case under consderaton, the facts dscose that the spouse
of the deceased ta payer had no gross ncome durng the entre caen-
dar year 19 6 and was not the dependent of another ta payer durng
such year. In such a case, the determnaton of whether the deceased
ta payer was marred must be made as of the date of hs death, and the
marta e empton of 1,000 s aowabe on the fna separate return
fed on behaf of the decedent. The second husband of the decedent s
wdow s aso entted to the fu marta e empton on hs separate
return fed for the caendar year 19 6 for the reason that hs status as
a marred ndvdua must be determned as of December 31, 19 6.
It s accordngy hed that where a wdow remarred wthn the same
caendar year n whch her husband ded, and she had no gross ncome
and was not the dependent of another ta payer durng such year, the
fu marta e empton ( 1,000) s aowabe on the fna separate Fed-
era ncome ta return fed on behaf of the deceased husband and
aso on the separate caendar year return fed bv the second husband.
(Cf. I. T. 3832, C. . 19 7-1,28.)
P RT I . CCOUNTING P RIODS ND M T ODS OF CCOUNTING.
S CTION 1. G N R L RUL .
Secton 29. 1-1: Computaton of net ncome. 19 8-7-12772
( soSecton2(a),Secton29.112(a)-;Sec- Mm. G2 3
ton 117, Secton 29.117-1.)
Futures tradng and the Federa ncome ta .
Treasury Department,
Offce of Commssoner of Interna Revenue,
W ashngton 25, D. C, March 8,19 8.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
eads of Fed Dvsons of the Technca Staff, and Others
Concerned:
1. Wde pubcty has been gven to the statement of the Secretary of
grcuture, reeased to the press on December ,19 7, to the effect that
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5
29. 1-1.
certan futures transactons n commodtes appear fcttous n nature
and shoud be emnated. Specfcay, the Secretary referred to off-
settng purchases and saes n the same futures contract as a devce
used by specuators to postpone, reduce, or avod Federa ncome ta es.
2. Immedatey upon reease of Secretary nderson s statement, the
ureau undertook to determne what steps, f any, shoud be taken to
protect the revenue. The factua bass for the Secretary s statement
was the e stence of a arge number of traders accounts havng equa
offsettng purchases and saes of the same commodty n the same
market, whch transactons were beng hed open rather than baanced
off aganst each other and cosed out. These so-caed open pos-
tons were thus, as a matter of fact, cosed, e cept that the offset, as
a bookkeepng matter, had not been made. For e ampe, after a
purchase and ater sae at a gan of a commodty future (short-term
capta gan) a trader may nstruct hs broker to eave the entres
open on the broker s books and to postpone the sendng of a statement
unt a date s months after the purchase (thus cosng the transacton
as a ong-term capta gan) or unt a date after the start of a succeed-
ng ta abe year. Or, agan, after such an orgna purchase and sae,
the transacton may be hed open unt a ater smutaneous purchase
and sae are made. If the market has rsen, the ater purchase w be
offset aganst the eary sae and the ater sae aganst the eary pur-
chase. Thus, wthout nvovng any rsk whatever, a short-term cap-
ta gan appears to be converted nto one ong-term capta gan and
one short-term capta oss frequenty resutng n a net capta oss.
The ony transactons havng any substance n ether case are the frst
purchase and the frst sae. t the tme of the frst sae, the transac-
ton s cosed and gan or oss s reazed at that tme; a that remans
of the transacton s the understandng of broker and trader as to
when the trades are to be offset and the transacton sad to be formay
cosed. The ater smutaneous purchase and sae (n the second case)
aso add nothng of substance to the entre transacton. y makng
the purchases and saes through dfferent brokers, a smar resut may
be obtaned wthout the assstance of an understandng wth a broker
but t s not beeved that ths crcumstance affects the ta consequence
of the transactons.
3. It s we estabshed that fcttous or sham transactons may be
dsregarded n the determnaton of true ta abtes and that f,
upon an anayss of a transacton, t appears that substance rather
than form shoud govern, the form of the transacton may be dsre-
garded. (See Gregory v. everng. 293 U. S., 65, Ct. D. 911, C. .
I -1,193 (1935) : everng v. Cfford, 309 U. S., 331, Ct. D. 1 ,
C. . 19 0-1,105; Commssoner v. Tower, 327 U. S., 280, Ct. D. 1670,
C. . 19 6-1,11; azey v. Commssoner, 155 Fed. (2d), 237, affrmed,
331 U. S., 737, Ct. D. 1687, C. . 19 7-2, 79.)
. In ts audt of returns of ta payers tradng n commodty con-
tracts, the ureau w consder that offsettng trades n the same com-
modty n the same market for devery n the same contract perod
are cosed as of the moment the offsettng trade was made, and that
the gan s reazed or the oss s sustaned at that tme snce such
hodng accuratey refects the reates of commodty tradng. Fed
offcers of the ureau w be furnshed such nformaton as s ava-
abe whch may factate the audt of the Federa ncome ta returns
of traders n commodty futures.
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29. 2-2. 6
5. Correspondence n regard to ths mmeograph shoud refer to ts
number and to the symbos ndcated: Interna revenue agents n
charge, IT: IM; heads of fed dvsons of the Technca Staff,
TS: RM.
Geo. . Schoeneman,
Commssoner.
S CTION 2. P RIOD IN W IC IT MS OF
GROSS INCOM INCLUD D.
Secton 29. 2-2: Income not reduced to 19 8-9-1279
possesson. I. T. 39 7
INT RN L R NU COD .
Dvdends whch were determned and credted wth respect to
certan shares n the M Cooperatve udng ssocaton at ther
maturty n February, 19 7, and were then or thereafter avaabe
to the sharehoder wthout any substanta mtaton, restrcton,
or condton athough ony upon wthdrawa of the shares, are n-
cudbe, for Federa ncome ta purposes, n the sharehoder s gross
ncome for the caendar ta abe year 19 7, even though he makes
returns reguary on the bass of cash recepts and dsbursements
and eected not to wthdraw the shares and actuay receve the
dvdends n that year.
dvce s requested whether dvdends whch were determned and
credted wth respect to certan shares n the M Cooperatve udng
ssocaton at ther maturty n February, 19 7, and were then or
thereafter avaabe to the sharehoder but ony upon wthdrawa of
the shares, are ncudbe, for Federa ncome ta purposes, n the
sharehoder s gross ncome for the caendar ta abe year 19 7, athough
he makes returns reguary on the bass of cash recepts and dsburse-
ments and eected not to wthdraw the shares and actuay receve the
dvdends n that year.
In February, 1937, the ta payer subscrbed for shares of stock n
the assocaton, and for a perod of 10 years pad n doars each
month thereon, or an aggregate of 80a; doars. Under ts const-
tuton t the e praton of 10 years from the date of ssue of each
seres of stock, shares theren sha be consdered as matured and may
be wthdrawn or the sharehoder may eect to retan the shares, con-
tnung reguar monthy payments thereon unt wthdrawn ; When
wthdrawn at maturty or thereafter the prncpa sha be pad wth
the earnngs to date as determned by the board of drectors ;
upon wthdrawa before maturty, ny sharehoder sha
be entted to repayment wth per centum per annum
thereon or such other rate of nterest as the board of drectors may
determne , . e., to consderaby ess than normay e pected
earnngs; and On shares wthdrawn wthn s months from date
of ssue no nterest sha be aowed. In vew of the provsons for
payment of a substantay esser rate of earnngs upon wthdrawa
of the shares before ther maturty than at or after ther maturty,
t s cear that, n the absence of actua wthdrawa of the shares be-
fore ther maturty, there was no nterest or earnngs thereon ta -
abe to the ta payer before ther maturty. (G. C. M. 15565, C. .
I -2, 105 (1935); G. C. M. 17025, C. . -2, 155 (1936); and
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7
29. 2-2.
L T. 3103, C. . 1937-2, 11 .) The assocaton has stated that at
the end of each year the board of drectors determnes the amount of
dvdend to be pad to the seres then maturng ; that The amount
set at maturty woud not be reduced or ncreased by any changes n
earnngs after maturty ; and that the assocaton sets up a gross
abty of the earnngs on a shares.
In February, 19 7, the assocaton notfed the ta payer that the
ssue of ts stock hed by hm was then 10 years od; that the matured
shares mght be wthdrawn then or thereafter wth earnngs to date
of wthdrawa; and that t was then payng 5 per cent on matured
stock, cacuated on the amount of prncpa to the credt of the share-
hoder. ccordngy, the ta payer was entted at the maturty of
hs shares to wthdraw the aggregate amount whch he had pad n
thereon ( 80a; doars) pus earnngs of 120a; doars, or a tota of
600ar doars; but, f he dd not then thus wthdraw the shares, he
woud become entted to further earnngs wth respect thereto at
the current rate (then 5 per cent) unt and when he utmatey wth-
draws the shares, cacuated, however, ony on the prncpa amount
pad n thereon, athough none of the earnngs coud ever be wth-
drawn wthout wthdrawa of the shares n entrety (prncpa pad
n and a earnngs thereon). t the tme of the maturty of the ta -
payer s shares, new shares n the assocaton of ke knd coud have
been freey purchased, athough, as prevousy, on an nstament n-
vestment pan.
It s contended by the ta payer that, snce the earnngs of 120a;
doars were not wthdrawabe at the maturty of the shares uness the
aggregate prncpa amount pad n thereon up to that tme ( 80a
doars) was aso then wthdrawn, and f he had then made such entre
wthdrawa (of 600a; doars) the assocaton woud have accepted ony
reatvey sma monthy payments on new shares, the earnngs of
120a doars were not, n the absence of such entre wthdrawa, credted
or avaabe to hm wthout such restrcton as woud prevent the
amount from beng ta abe as ncome at the maturty of the shares
though not actuay receved by hm n hs ta abe year n whch the
shares matured. owever, the entre amount of GOOa; doars (ncud-
ng the earnngs of 120a; doars) was, at the maturty of the shares,
avaabe to the ta payer wthout any mtaton thereon or restrcton
on ts use or nvestment, ncudng nvestment n the same and/or any
other assocaton, or |ust as fuy and freey as any cash funds or ther
equvaent. so, at the maturty of the snares, the utmate prmary
ob|ectve of the stock nvestment contract had been attaned together
wth the ma mum rate of yed provded for theren on the nvest-
ment, and the amcunt of dvdends earned thereon at such tme was
defnte and f ed as we as f uy and mmedatey coectbe. There-
fore, the fact that the sharehoder, n order to obtan contnued earn-
ngs on the shares, vountary eects to retan them at maturty,
nstead of then wthdrawng them and the earnngs then credted wth
respect thereto, can not be permtted to postpone ta abty of such
avaabe earnngs, even though the eecton s made under an opton n
the nvestment contract. (G. C. M. 15565, supra.) Once ta ncdence
has been thus reached t can not be changed or deferred by the ta -
payer s choce nfuenced argey by such e traneous and fuctuatng
factors as the current nvestment market and hs need for funds.
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29. 3-2.
8
Secton 29. 2-2 of such reguatons provdes (n part) :
Income Not Reduced to Possesson. Income whch s credted to the account of
or set apart for a ta payer and whch may be drawn upon by hm at any tme s
sub|ect to ta for the year durng whch so credted or set apart, athough not
then actuay reduced to possesson. To consttute recept n such a case the
ncome must be credted or set apart to the ta payer wthout any substanta
mtaton or restrcton as to the tme or manner of payment or condton upon
whch payment s to be made, and must be made avaabe to hm so that t may
be drawn at any tme, and ts recept brought wthn hs own contro and
dsposton. Itacs supped.
Secton 29. 2-3 of such reguatons provdes (n part) :
ampes of Constructve Recept. Interest credted on savngs
bank deposts, even though the bank nomnay has a rue, sedom or never
enforced, that t may requre so many days notce before wthdrawas are per-
mtted, s Income to the depostor when credted. n amount credted to share-
hoders of a budng and oan assocaton, when such credt passes wthout
restrcton to the sharehoder, has a ta abe status as ncome for the year of the
credt. If the amount of such accumuatons does not become avaabe to the
sharehoder unt the maturty of a share, the amount of any share n e cess of
the aggregate amount pad n by the sharehoder s ncome for the year of the
maturty of the share.
The above-quoted sectons, both deang wth what consttutes suf-
fcent credtng or settng apart of ncome n a partcuar ta abe year
to sub|ect t to ta for that year, even though t s not reduced to
possesson n such year and the ta payer accounts and makes returns
on the bass of cash recepts and dsbursements, are n par matera
and must be construed together. ence, thereunder, the credtng or
settng apart of ncome need not be absoutey unmted, unrestrcted,
or uncondtona n order for t to be ta abe though not actuay
re ceved, but t s suffcent that the ncome s avaabe wthout any
substanta mtaton, restrcton, or condton.
In vew of the foregong, t s hed that the earnngs (of 120
doars) whch were determned and credted wth respect to the ta -
payer s shares at ther maturty n February, 19 7, and were then
avaabe to hm wthout any substanta mtaton, restrcton, or
condton, athough ony upon wthdrawa of the shares, are ncudbe
n hs gross ncome for the caendar ta abe year 19 7, even though
he eected not to wthdraw the shares and actuay receve such dv-
dends n that year.
S CTION 3. P RIOD FOR W IC D DUCTIONS
ND CR DITS T N.
Secton 29. 3-2: When charges deductbe. 19 8-2-12732
I. T. 3887
INT RN L R NU COD .
The New ersey corporaton busness ta mposed upon corpora-
tons by the Corporaton usness Ta ct of 10 5 (chapter 102,
Laws of New ersey, 19 5), as amended and suppemented by the act
of pr 15,19 7, for the prvege of havng or e ercsng a corporate
franchse n the State of New ersey, or for the prvege of dong
busness, empoyng or ownng capta or property, or mantanng
an offce n the State of New ersey, accrues, for Federa ncome
ta purposes, on anuary 1 of the prvege year, . e., the caendar
year n and for whch the ta s payabe f the corporaton s or
was engaged n busness on that date.
dvce s requested as to the date upon whch the New ersey cor-
poraton busness ta mposed by the Corporaton usness Ta ct
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9
29. 3-2.
of 19 5 (chapter 162, Laws of New ersey, 19 5), as amended and
suppemented by the act of pr 15,19 7, accrues for Federa ncome
ta purposes.
Under the provsons of the Corporaton usness Ta ct of 19 5,
as amended, every domestc or foregn corporaton whch s not
specfcay e empted s requred to pay an annua franchse ta for
the u prvege year 19 6 and each prvege year thereafter, for
the prvege of havng or e ercsng ts corporate franchse n the
State, or for the prvege of dong busness, empoyng or ownng
capta or property, or mantanng an offce n the State. In genera,
the ta for each prvege year s based on the net worth of the
ta payer at the cose of ts precedng Federa ncome ta ta abe
year. The prvege year s defned as the caendar year n and
for whch a ta s payabe.
Secton 15 of the act, as amended, provdes as foows:
The ta mposed by ths act sha be due and payabe wth respect to the
caendar year one thousand nne hundred and forty-s , and each year there-
after, measured by the ta payer s net worth as of the cose of the caendar year
or of ts fsca year ne t precedng the prvege year, e cept that n the case
of a ta payer whose fsca year ends not ater than une thrteth n the prvege
year such measure sha be as of the cose of such fsca year. For the purpose
of ths secton every ta payer sha use the same caendar or fsca year upon
whch t reports to the Unted States Treasury Department for Federa ncome
ta purposes.
ta payer reportng on the caendar year bass s requred to fe
a return and pay the ta for each prvege year on or before pr
15 of the prvege year. ta payer reportng on a fsca year
bass must fe a return and pay the ta on or before pr 15 or the
15th day of the fourth month foowng the cose of ts fsca year,
whchever s ater. The fng date of returns for the prvege year
19 7 whch were due on or before pr 15, 19 7, or May 15, 19 7, s
postponed unt May 31, 19 7.
Generay, t s the e ercse of the prvege of dong busness n the
State of New ersey whch makes the ta paver abe for the franchse
ta . In Unted State v. nderson et a. (269 U. S., 22, T. D. 3839.
C. . -, 179 (1926)), one of the eadng cases on the queston of
accrua of ta es, t s stated that n advance of the due date of a tu
a the events may occur whch determne the ta payer s abty for
the ta . The event whch gves rse to the abty for the New ersey
franchse ta s the e ercse of the desgnated functons durng the
prvege year. It was hed n I. T. 2726 (C. . II-2, 2 (1933))
that nasmuch as the Federa capta stock ta s an e cse ta eved
wth respect to (and s contngent upon) carryng on or dong
busness, the ta for the capta stock ta year ended une 30, 193 ,
accrued on uy 1,1933, the begnnng of that fsca year, n the case of
a corporaton dong busness on that date. (See aso I. T. 2827, C. .
III-2,130 (193 ).)
It s the opnon of ths offce that the contngency here s
whether the corporaton s or was engaged n busness n the State
of New ersey at the begnnng of the prvege year, whch s
the caendar year, athough the ta s measured by the net worth
of the corporaton for ts prevous Federa ncome ta ta abe year,
caendar or fsca, e cept that n the case of a ta payer whose fsca
year ends not ater than une 30 n the prvege year, such
measure s as of the cose of such fsca year. In other words, f the
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29. 6-1.
50
corporaton s or was engaged n busness on anuary 1 of the
prvege year, that fact f es the abty wthn the rue ad,
down n Unted States v. nderson et a., supra, even though, n.
the case of a fsca year endng after anuary 1 of the prvege
year and not ater than une 30, the e act amount of ta can not
be ascertaned unt the corporaton coses ts books at the end of
ts fsca year. The atter date s not controng as to accrua of
the ta ; t s merey the date as of whch the net worth s computed
and used as the measure of the ta .
ccordngy, t s hed that the New ersey corporaton busness
ta n queston accrues, for Federa ncome ta purposes, on anuary
1 of the prvege year, . e., the caendar year n and for whch
the ta s payabe f the-corporaton s or was engaged n busness
on that date.
S CTION 6. C NG OF CCOUNTING P RIOD.
Secton 29. 6-1: Change of accountng 19 8-11-12812
perod. T. D. 561
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 29.
INCOM T : T L Y RS GINNING FT R D C M R 31. 19 1.
Reguatons under Revenue ct of 19 8 change of accountng
perod of spouses where necessary to the makng of a |ont return;
e tenson of tme n certan cases.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph 1. Secton 29. 6-1 of Reguatons 111 26 CFR, 29. 6-1
provdes that a ta payer sha, before usng a new accountng perod
for ncome ta purposes, secure the consent of the Commssoner, and
sha make appcaton for permsson to change the accountng perod
drect to the Commssoner on Form 1128 at east 60 days pror to the
cose of the fractona part of the year for whch a return woud be
requred to effect the change. If a change of accountng perod of an
ndvdua s necessary n order that such ndvdua and hs spouse
may make a |ont return for a ta abe year endng n 19 8, and tho
appcaton under secton 29. 6-1 for such change s requred to be
made before uy 15, 19 8, such ndvdua may, nevertheess, make
an appcaton for permsson to begn hs accountng perod on the
same day as that of hs spouse by furnshng the nformaton requred
on Form 1128 on or before uy 15,19 8, where
(a) such appcaton s for permsson to change to a caendar
year begnnng on anuary 1,19 8, or to a fsca year begnnng n
19 8; or
(b) such appcaton s for permsson to change to an account-
ng perod begnnng on a day, other than anuary 1, n 19 7, on
whch begns the ast accountng perod of the ta payer s spouse
begnnng n 19 7.
If such ndvdua and hs spouse each make an appcaton descrbed
n (a) to change to a new accountng perod, such appcatons sha
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51
29. 6-1.
be submtted together. If ony one spouse makes an appcaton de-
scrbed n (a) or (b), such spouse sha furnsh, n addton to the
nformaton requred on Form 1128 wth respect to hs appcaton,
the nformaton caed for on Form 1128 wth respect to the nature,
source and amount of ncome, accountng perods, ta abe years, ana
returns of hs spouse. If an appcaton descrbed n (a) or (b) s
made and the return for the fractona part of the year resutng from
the change of accountng perod woud, wthout regard to ths para-
graph, be due before uy 15, 19 8, then
(1) the tme for fng such return sha, nevertheess, be uy
15,19 8 and
(2) the tme for payment of the ta for such fractona part
of the year sha (notwthstandng the provsons of secton
29.56-1 of Reguatons 111) be () the ast day prescrbed for pay-
ment of the ta for the ta abe year whch begns on the same day
as the begnnng of the fractona part of the year and whch, f
permsson to change the accountng perod of the ta payer s
not granted, s hs ta abe year, or () uy 15, 19 8, whchever
s the earer.
If on or before uy 15, 19 8, any amount has been pad on account
of the ta for a ta abe year begnnng on the same day as the begn-
nng of the fractona part of the year, or credted aganst such ta ,
and has not been refunded, the appcaton descrbed n (a) or (6)
w be granted ony f the ta payer submts a statement consentng
to the treatment of such amount as payment on account of the ta
(to the e tent thereof) for such fractona part of the year, and to the
treatment of the baance, f any, of such amount as payment on ac-
count of the estmated ta for the ne t ta abe year. Such a con-
sent w not be requred nor apped wth respect to an amount
deducted and wthhed on wages under Subchapter D of Chapter 9
durng the caendar year 19 8. Interest w be charged at the rate of
6 per cent per annum on the unpad ta for the fractona part of the
year from the due date determned under ths paragraph unt the ta
s pad. The provsons of cause (d) of subpart of Reguatons
111, mtng the authorty of the Commssoner to grant an e tenson
of tme n the case of an appcaton for permsson to change an ac-
countng perod, sha not be appcabe to an appcaton descrbed
n (a) or (b) of ths paragraph.
Par. 2. Secton 29. 6-1 of Reguatons 111 26 CFR, 29. 6-1 s
amended by nsertng mmedatey foowng the fourth sentence
thereof the foowng new sentence:
Where a tmey appcaton s made to compute the net ncome of an Indvdua
ta payer upon the bass of the same accountng perod as that of such ndvdua s
spouse, permsson so to compute net ncome w be granted even though such
permsson w aow the ndvdua and hs spouse to reduce ther ta es by
takng advantage of secton 12(d) (the so-caed ncome spttng provson)
through the fng of a |ont return, so ong as no other reason appears whch Is
consdered suffcent by the Commssoner for denyng such permsson.
Par. 3. ecause of the appcaton of secton 51(b), as amended by
the Revenue ct of 19 8, to ta abe years begnnng pror to the en-
actment of the ct, deay n the appcaton of the above reguatons
w adversey affect the opportunty of certan ta payers to ava
themseves of the prvege of fng |ont returns. It stheref ore found
mpractcabe to ssue ths Treasury decson wth notce and pubc
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29.51-1.1 52
procedure thereon under secton (a) and (b) of the dmnstratve
Procedure ct, approved une 11,19 6, or sub|ect to the effectve date
mtaton of secton (c) of sad ct.
Par. . Ths Treasury decson sha be effectve upon ts fng for
pubcaton n the Federa Regster.
(Ths Treasury decson s ssued under the authorty contaned n
sectons 6, 62, and 3791 of the Interna Revenue Code (53 Stat., 26,
32, 67; 26 U. S. C, 6, 62, 3791).)
Geo. . Scoeneman,
Commssoner of Interna Revenue.
pproved May 11, 19 8.
. L. M. Wggns,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster May 1 , 19 8, 8.5 a. m.)
P RT . R TURNS ND P YM NT OF T .
S CTION 51. INDI IDU L R TURNS.
Secton 29.51-1: Indvdua returns. 19 8-1-12723
I. T. 388
INT RN L R NU COD .
Revocaton of I. T. 3870 (C. . 19 7-2, 57) and I. T. 3879 (C. .
19 7-2, 58).
In vew of the decson of the Supreme Court of Pennsyvana,
Western Dstrct, rendered November 26,19 7, n Wco v. The Perm
Mutua Lfe Insurance Co., hodng that the Pennsyvana communty
property aw s whoy nvad, I. T. 3870 (C. . 19 7-2, 57) and
I. T. 3879 (C. . 19 7-2, 58), reatng to the treatment for Federa
ncome ta purposes of ncome derved on and.after September 1,
19 7, by a husband and wfe domced n the State of Pennsyvana,
are revoked.
Secton 29.51-1: Indvdua returns. 19 8- -127 8
I. T. 3890
INT RN L R NU COD .
Treatment for Federa ncome ta purposes of varous types of
Income under the Mchgan Communty Property ct ( ct No. 317 of
the 19 7 Pubc cts of the State of Mchgan), effectve uy 1,
19 7.
I. T. 3SG7 (C. . 19 7-2, 9) apped and ampfed.
dvce s requested as to the treatment for Federa ncome ta pur-
poses of (1) ncome receved on and after uy 1, 19 7, the effectve
date of the Mchgan Communty Property ct, for servces rendered
pror to that date n the case of a husband and wfe who are domced
n the State of Mchgan; (2) ncome derved on and after uy 1,
19 7, from a partnershp or ndvdua propretorshp n whch capta
and persona servces are matera ncome-producng factors: and (3)
earned ncome receved on and after uy 1,19 7, where a husband and
wfe domced n Mchgan agree that the earnngs of ether sha be
the separate ncome of the spouse whose abor produced such ncome.
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53
29.51-1.
The ureau hed n I. T. 3867 (C. . 19 7-2, 9) that a husband
and wfe who are domced n Mchgan are entted to ncude n ther
separate Federa ncome ta returns one-haf of ther communty n-
come receved or accrued on and after uy 1, 19 7, the effectve date
of the Mchgan Communty Property ct.
The Mchgan Communty Property ct provdes n part as foows:
Secton 1. (a) property of the husband, rea and persona, owned by hm
before marrage or before the effectve date of ths act, whchever s ater, am that
afterwards acqured by hm by gft. Inhertance, devse, or bequest, or receved by
hm as damages or compensaton for persona n|ures, and a property of every
knd, character, or descrpton derved orgnay from property so owned or
acqured, sha be hs separate property, sub|ect however to the rght of dower.

Sec. 2. (a) property of the wfe, rea and persona, owned by her before
marrage, or before the effectve date of ths act, whchever s ater, and that after-
wards acqured by her by gft, nhertance, devse, or bequest, or receved by
her as damages or compensaton for persona n|ures, and a property of every
bnd, character, or descrpton derved orgnay from property so owned or
acqured, sha be her separate property.

Sec. 3. (a) property owned by the husband and wfe before the effectve
date of ths act as tenants by the entrety or In any other manner recognzed by aw
whereby nether the husbnnd nor the wfe ndvduay has a separate property
nterest theren as defned n sectons 1 and 2 of ths act, ns we as that afterwards
owned by the husband and wfe In any such manner whch has been acqured by
gft, devse, or bequest or by the transfer of the separate property of ether the
husband or the wfe as defned n sectons 1 and 2 of ths act or of the Interest
of the husband and the wfe, or of ether of them, n communty property as
permtted by secton 8 of ths act, and a property of every knd, character, or
descrpton derved orgnay from property so owned or acqured, sha be the
separate property of the husband and wfe.

Sec. . property of every knd, character, or descrpton acqured by ether
the husband or the wfe, or both, after marrage, or on or after the effectve date
of ths act. whchever s ater, e cept that whch s defned as the separate prop-
erty of ether or the separate property of both n sectons 1, 2, and 3 of ths act,
sha be deemed the communty property of the husband and wfe, and each sha
be vested wth an undvded one-haf nterest theren. The respectve nterests of
the husband and the wfe n such communty property sha be present, e stng,
and equa nterests and sha arse as an Incdent of marrage.
Generay, the determnaton of property and ncome rghts of
husband and wfe under the communty property aw of a State s
governed by the decsons of the courts of that State. In the absence
of any such court decsons n the State of Mchgan, and n vew of the
above-quoted provsons of Mchgan aw, a ncome, regardess of the
source from whch derved, and a compensaton earned by ether
spouse pror to uy 1, 19 7, consttutes noncommunty ncome for
Federa ncome ta purposes regardess of when such ncome was or
s receved or reduced to possesson. (See I. T. 3792, C. . 19 G-1, 8G,
and cases cted theren.)
It s, therefore, hed that ncome receved on and after uy 1, 19 7,
the effectve date of the Mchgan Communty Property ct, by a
husband or wfe domced n the State of Mchgan consttutes com-
munty ncome for Federa ncome ta purposes ony to the e tent that
such ncome can be traced and dentfed as derved from persona serv-
ces rendered on and after the effectve date of the act or from com-
munty property as defned n the act.
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S 29.51-1.
5
In the case of ncome derved on and after the effectve date of the
Mchgan Communty Property ct from a partnershp or ndvdua
propretorshp n whch both capta and persona servces are matera
ncome-producng factors, the porton of the tota ncome whch rep-
resents a return on the separate nvestment of the partners or pro-
pretor and the porton whch represents compensaton for persona
servces must be determned n order to arrve at the noncommunty
and communty ncome of the partners or propretor.
Wth respect to ncome derved from a partnershp n whch both
capta and persona servces are matera ncome-producng factors,
G. C. M. 9825 (C. . -2,1 6 (1931)) sets forth a formua n whch
the return on nvestment and compensaton for persona servces, re-
spectvey, are evauated and the resutng ratos apped n determn-
ng the aocabe porton of ncome whch represents separate ncome
and the aocabe porton of ncome whch represents communty n-
come n the case of a husband and wfe domced n the communty
property State of Caforna. G. C. M. 9825 has been recognzed and
approved by The Ta Court of the Unted States. (See Cara .
Parker, ecutr , v. Commssoner, 31 . T. ., 6 , and /. Z. Todd
et a. v. Commssoner, 3 T. C, 6 3, remanded 153 Fed. (2d), 553, and,
on remand, 7 T. C, 399, affrmed by the Unted States Crcut Court of
ppeas for the Nnth Crcut on anuary 22, 19 8.) On the other
hand, resort to the formua set forth n G. C. M. 9825 has been hed
unnecessary where the partners had agreed among themseves as to
amounts aowabe to actve partners as compensaton for servces.
(See George W. an orst v. Commssoner, 7 T. C, 826, acquescence,
C. . 19 7-1, , and ugh . Tnng v. Commssoner, 7 T. C, 1393,
acquescence, C. . 19 7-1, .)
Secton 26.161, Mchgan Statutes nnotated ( ct 168,1855, n act
reatve to the rghts of marred women) provdes as foows:
Property of femae acqured before or after marrage; separate estate, abty
for debt of husband, rght of dsposa. Secton 1. The peope of the State of
Mchgan enact, That the rea and persona estate of every femae, acqured
before marrage, and a property rea and persona, to whch she may afterwards
become entted by gft, grant, nhertance, devse, or n any other manner,
sha ba and reman the estate and property of such femae, and sha not be
abe for the debts, obgatons and engagements of. her husband and may be
contracted, sod, transferred, mortgaged, conveyed, devsed or bequeathed by
her n the same manner and wth the ke effect as f she were unmarred.
In Mchgan a husband and wfe may contract wth each other when
the contract s not precuded by pubc pocy. (Randa v. Randa,
37 Mch., 563.)
Secton 8 of the Mchgan Communty Property ct provdes as
foows:
Sbo. 8. The husband may gve, grant, bargan, se, or convey drecty to hs
wfe, and the wfe may gve, grant, bargan, se, or convey drecty to her hus-
band or the husband and wfe may gve, grant, bargan, se, or convey drecty
to themseves, hs, her, or ther communty rght, tte, nterest, or estate n a or
any communty property, rea or persona. very such transfer sha operate to
dvest the property theren descrbed of every cam or demand as communty
property, and sha vest the same n the transferee or transferees as hs, her, or
ther separate property, as the case may be. No such transfer sha affect any
equty In favor of credtors e stng at the tme thereof.
Where a husband and wfe domced n the State of Mchgan fe
separate Federa ncome ta returns, the husband s requred to n-
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55
29.51-1.
eude hs share of communty ncome n the gross ncome reported n
hs separate return, and the wfe must ncude her share of the com-
munty ncome n her separate return. owever, n vew of the pro-
vsons of secton 26.161, Mchgan Statutes nnotated, supra, and
secton 8 of the Mchgan Communty Property ct, supra, an agree-
ment between such a husband and wfe whch provdes that the earn-
ngs of ether sha be the separate ncome of the spouse whose abor
produced the ncome w be recognzed for Federa ncome ta pur-
poses. (See G. C. M. 1888 , C. . 1937-2, 58; everng v. oward C.
ckman, 70 Fed. (2d), 985, Ct. D. 866, C. . III-2, 27 (193 );
Dae an very v. Commssoner, 108 Fed. (2d), 650, certorar dened,
309 U. S., 689; and dward . Sparkman v. Commssoner, 112 Fed.
(2d), 77 .) The cted cases nvove the aw of Caforna whch s
smar to the aw of Mchgan n so far as t reates to assgnments
of communty property nterests between husband and wfe. (See
aso the thrd ssue n I. T. 3792, supra, reatve to the same queston
under the communty property aw of awa.)
Secton 29.51-1: Indvdua returns. 19 8-7-12773
I. T. 3898
INT RN L R NU COD .
usband and wfe hodng rea property as tenants by the entrety
or as |ont tenants n the State of Indana shoud each report one-
haf of the Income from such property, as we as one-haf of the
gans or osses from the sae thereof, If separate Federa ncome
ta returns are fed.
dvce s requested whether ncome from property hed by hus-
band and wfe as tenants by the entrety or as |ont tenants n the
State of Indana may be dvded and reported equay n separate Fed-
era ncome ta returns. dvce s aso requested whether gans or
osses from the sae of such property may e so dvded and reported.
Sectons 56-111 and 56-112 of urns Indana Statutes nnotated
1933 (19 3 repacement) provde as foows:
56-111 13383 . states n Common. conveyances and devses of ands, or
of any nterest theren, made to two 2 or more persons, e cept as provded In
the ne t foowng secton, sha be construed to create estates n common and
not n |ont tenancy, uness It sha be e pressed theren that the grantees or
devsees shoud hod the same In |ont tenancy and to the survvor of them, or
It sha manfesty appear, from the tenor of the Instrument, that t was ntended
to create an estate n |ont tenancy. 1 R. S., 18T2, ch. 23, sec. 7, p. 232.
56-112 1338 . Mortgages Conveyances n Trust states by the n-
trety. The precedng sectons sha not appy to mortgnges, nor to conveyances
In trust, nor when made to husband and w fe; and every estate vested In e ecutors
or trustees, as such, sha be hed by them n |ont tenancy. 1 It. S. 1852, ch. 23,
sec. 8, p. 232. Itacs supped.
It has been hed n numerous cases by the courts of Indana that the
above-quoted sectons of aw e pressy ndcate the purpose of the egs-
ature not to abosh estates by the entrety n and, and that where rea
property s conveyed to a husband and wfe, the deed contanng no
quafyng words mtng the estate taken, an estate by the entrety s
created. (See Le Roy v. Wood, 113 Ind. pp., 397. 7 N. . (2d), 60 ;
Fnney v. randon et a., 78 Ind. pp., 50, 135 N. ., 10; Dotson v.
Faukenburg et a., 186 Ind., 17, 116 N. ., 577; Smons et a. v. o-
nger, 16 Ind., 83,56 N. ., 23; adock and Others v. Gray, 10 Ind.,
596, N. ., 167.) It has aso been hed by the Indana courts that
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29.51-1.
5G
the statutes e tendng the rghts of marred women dd not abosh
estates by the entrety wth respect to rea estate. (See Carver v.
Smth, 90 Ind., 222, 6 m. ep., 210; Thornburg et a. v. Wggns et
u ., 135 Ind., 178, 3 N. ., 999; aker v. Caor et a., 176 N. ., 85 ,
superseded on other grounds, 206 Ind., 0,186 N. ., 769.) owever,
the Indana courts have aso construed the above-quoted sectons of
aw to mean that where there are words n the deed whch so quafy or
defne the estate conveyed as to make t apparent that the partes n-
tended the grantees to hod as tenants n common or as |ont tenants,
such ntenton w preva and must be gven effect even though the
grantees are husband and wfe. (See rown et a. v. rown, 133 Ind.,
76,32 N. ., 1128; Dodds et a. v. Wnsow, 26 Ind. pp., 652,60 N. .,
58; Thornburg et a. v. Wggns et u ., supra; Wken et a. v. Young
et a., 1 Ind., 1, 1 N. ., 68; Rchards et a. v. Rchards, 60 Ind. pp.,
3 , 110 N. ., 103.) Thus, t s cear that Indana rea property may
be hed by husband and wfe as tenants by the entrety or as |ont
tenants.
Under the common aw the husband was entted durng the marta
reatonshp to a of the ncome derved from property hed wth hs
wfe as tenants by the entrety. Where the common-aw rue st
prevas, the husband aone has been hed ta abe wth respect to such
ncome. (See Cooey v. Commssoner, 75 Fed. (2d), 188, certorar
dened, 295 U. S., 7 7:1. T. 3878, C. . 19 7-2, 57.) It appears that
ths common-aw rue has been abrogated n the State of Indana. In
Sharp et a. v. aker et a. (51 Ind. pp., 5 7,96 N. ., 627), nvovng
the queston whether an estate n and hed by husband and wfe as
tenants by the entrety was sub|ect to e ecuton for ther |ont debt, the
court, durng the course of ts opnon, stated:
efore the marred woman s act, the husband durng coverture had
the rght to the possesson and contro of the rea estate owned by hs wfe, and
ts rght was hed to e tend to and by entretes. ( each v. oster, 3 un
(N. Y.), 519; a v. Stephens, 65 Mo., 670, 27 m. Rep., 302; Davs v. Cark, 26
Ind., 2 , 89 m. Dec., 71.) s he was, before the marred woman s act, the
absoute owner of the rents and profts of such estates durng the |ont ves of
hmsef and hs wfe, ths rght, accordng to the weght of authorty, coud be
sod on e ecuton for hs debts. ( mes v. Norman, Sneed (Tenn.), 683, 70 m.
Dec, 269; ennett v. Chd, 19 Ws., 362, 88 m. Dec., 692; Feck v. Zhaver,
117 Pa., 215, 12 t., 20; each v. oster, 3 un (N. Y.), 519; Snyder v.
Sponabe, 1 (N. Y.), 567; Farmers , etc., ank v. Gregory, 9 arb. (N. Y.),
155.)

y statutory enactment n ths State, marred women have been emancpated
from most of the common-aw dsabtes. s a resut of such statutes, the
husband s no onger entted to the possesson and contro of the separate rea
estate of hs wfe; and therefore he has no rght to the rents and profts thereof
(urng coverture. y force of the same reasonng, t must be true that the
husband, under our statute, Is not the owner of the rents and profts of estates
hed by hmsef and wfe as tenants by the entretes, and that he has no rght
to the e cusve possesson and contro thereof durng coverture. It has there-
fore been correcty hed In ths State, snce the enactment of the statutes re-
ferred to, that the husband has no separate rght to the possesson and proceeds of
entrety property whch he can ndvduay dspose of or ncumber, or whch can
be sod on e ecuton for hs debts. (Chander v. Cheney, 37 Ind., 391; ones v.
Chander, 0 Ind., 588.) It s accordngy hed that a crop rased on and hed by
husband and wfe as tenants by entretes s owned by them n the same manner
as the and tsef, and that such crop s not sub|ect to evy and sae on an e ecu-
ton aganst the husband.
The foregong statement wth respect to the effect of the marred
woman s act on the ownershp of the rents and profts derved from
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57
29.51-1.
estates by the entrety appears equay appcabe to an estate hed by
husband and wfe as |ont tenants. Furthermore, n Thornburg et
a. v. Wggns et u ., supra, nvovng a |ont tenancy between husband
and wfe, the statement s made that |ont tenancy s an estate hed
by two or more persons |onty, so that durng the ves of a they are
equay entted to the en|oyment of the and, or ts equvaent, n
rents and profts;
ccordngy, t s hed that husband and wfe hodng rea property
as tenants by the entrety or as |ont tenants n the State of Indana
shoud each report one-haf of the ncome from such property, as
we as one-haf of the gans or osses from the sae thereof, f separate
Federa ncome ta returns are fed.
Secton 29.51-1: Indvdua returns. 19 8-11-12813
G. C. M. 256 2
INT RN L R NU COD ND R NU CT OP 1928.
Where a husband and wfe domced n the State of Caforna are
members of a partnershp n whch capta s an ncome-producng
factor, the amount of profts attrbutabe to communty property con-
trbuted to the partnershp by ether spouse consttutes communty
ncome uness t appears from a the facts and surroundng crcum-
stances that the spouses ntended to change the communty property
nto separate property. partnershp agreement, n and of tsef,
s nsuffcent to effect a transmutaton of Caforna communty
property nvested n the partnershp nto separate property.
G. C. M. 9825 (C. . -2, 1 6 (1931)) modfed.
Reference s made to the decson n George W. an ont v. Com-
mssoner (7 T. C, 826, acquescence, C. . 19 7-1, ). That decson
s contrary to the porton of G. C. M. 9825 (C. . -2, 1 6 (1931))
hodng that where a husband and wfe domced n Caforna are
members of the same partnershp, they are ta abe n ther ndvdua
capactes, the same as other members of a partnershp, and no attempt
shoud be made to apporton the partnershp profts on any bass e -
cept on the bass of the percentage of nterest n the partnershp owned
by each member.
In the an orst case, the ta payer and hs wfe, resdents of Ca-
forna, were, wth severa other ndvduas, members of a partner-
shp. The ta payer owned a 28.80086 per cent nterest and hs wfe
owned a 2. 6253 per cent nterest. The assets contrbuted to the part-
nershp by the ta payer conssted of both separate and communty
property. Pursuant to the agreement of a the partners, the ta -
payer and another partner acted as managng partners and drew
f ed amounts as compensaton for ther servces. The profts reman-
ng after deducton of such dstrbutons were aocated to the varous
members of the partnershp n proporton to ther nterests. The ta -
payer and hs wfe made no agreement pror to or durng the ta abe
year to change any of ther communty property nvested n the
busness to separate property of one or the other, or to change separate
property to communty property. The Ta Court hed that the
partnershp arrangement dd not transmute nto separate property
that part of the ta payer s (husband s) nvestment whch was pre-
vousy communty property, that the amount wthdrawn by the ta -
payer for servces, as we as profts attrbutabe to hs communty
7S6590 8 5
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29.53-1.1
58
nvestment acqured after uy 29, 1927, consttuted dvsbe com-
munty ncome, and that profts attrbutabe to the remander of hs
nvestment were ta abe to the ta payer (husband).
Under the aw of Caforna, a husband and wfe may, by agreement,
change communty property to separate property. ut an agreement
deang wth the dstrbuton of partnershp profts s nsuffcent, n
and of tsef, to effect such a transmutaton. (See McCa v. McCa,
2 Ca. pp. (2d),92; 37 Pac. (2d), 96.) Therefore, where a husband
and wfe domced n the State of Caforna are members of a part-
nershp n whch capta s an ncome-producng factor, the amount of
profts attrbutabe to communty property contrbuted to the partner-
shp by ether spouse consttutes communty ncome uness t appears
from a the facts and surroundng crcumstances that the spouses
ntended to change the communty property nto separate property.
G. C. M. 9825, supra, s modfed n so far as t s nconsstent wth
the concuson reached heren.
Chares Ophant,
Chef Counse, ureau of Interna Revenue.
S CTION 53. TIM ND PL C FOR
FILING R TURNS.
Secton 29.53-1: Tme for fng returns. 19 8-11-12816
( so Secton 29.53-2; Secton 56, Secton T. D. 5616
29.56-2.)
TITL 26 INT RN L R NU . C PT R 1, SU C PT R , P RT 29.
INCOM T : T L Y RS GINNING FT R D C M R 31, 19 1.
Reguatons under Revenue ct of 19 8 tme for tng fna return
and payng ta of deceased spouse for whom ont return made;
e tenson of tme for makng returns and payng ta es for certan
ta abe years endng n 19 8.
Ikeasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2h, D. C.
To Coectors of Interna Revenue and Others Concerned;
Paragraph 1. Secton 29.53-1 of Reguatons 111, as amended bv
Treasury Decson 5396, approved ugust 11, 19 C. . 19 , t)
26 CFR, 29.53-1 s further amended by strkng out subdvsons ( )
and (5) and nsertng n eu thereof the foowng:
( ) In the case of n fna return of a decedent for a fractona part of a year,
on or before March 15 ne t foowng the cose of the caendar year n whch
occurred the death of the decedent, e cept as provded n (5).
(5) In the case of a fna return for a fractona part of a year of a decedent
who, at the moment precedng hs death, was on a fsca year bass and for whom
for such year a |ont return wth hs spouse s, on the bass of the facts appearng
at the tme of the decedent s death, permtted under secton 51(b), on or before
the 15th day of the thrd month foowng the cose of the 12-month perod wth
whch such fsca year woud have cosed.
(6) In the case of any return for a fractona part of a year, the Commssoner
may, upon a showng by the ta payer of unusua crcumstances, prescrbe a ater
tme for the fng of the return.
The operaton of subdvsons ( ) and (5) n cases where |ont returns are
fed s ustrated by the e ampes set forth beow. In these e ampes,
and W are ndvduas havng the status of husband and wfe under secton
51(b) (5) and nether (at any tme durng the ta abe year) s a nonresdent aen.
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59
29.53-1.
ampe (1). and W make ther returns on the caendar year bass. des
n 19 8. Under the rue In subdvson ( ), the return of for hs short ta abe
perod endng wth the date of hs death n 19 8 s due on or before March 15,
19 9. The return of W for the caendar year 19 8 s, under secton 53(a) (1),
due on the same date. |ont return for such ta abe years of and W may
be made as provded n secton 51 (b).
ampe (2). and W make ther returns on the bass of a fsca year end-
ng une 30. des on December 1, 19 7. Under the facts at the tme of the
death of , t woud appear that a |ont return coud be fed under secton 51(b),
as amended by the Revenue ct of 19 8, for the fractona year of and the
fsca year of W (endng on une 30, 19 8). ccordngy, under the rue n sub-
dvson (5), the return of for hs short ta abe perod endng December 1,
19 7, s due on or before September 15, 19 8. The return of W for her fsca year
s, under secton 53(a) (1), due on or before September 15, 19 8.
ampe (3). The facts n ths e ampe are the same as n e ampe (2), e cept
that ded n anuary, 19 8 (nstead of on December 1, 19 7). In such a
case, the due date for the return of and W, or ther |ont return, w be the
same as n e ampe (2).
ampe ( ). The facts are the same as In e ampe (2), e cept that W, the
survvng spouse, remarres (or changes her accountng perod) n 19 8, pror
to une 30. For ths reason a |ont return can not be made for and W under
secton 51(b). On the bass of the facts e stng at the date of the death of ,
however, t woud appear that under secton 51 (b), as amended by the Revenue
ct of 19 8, a |ont return coud be fed for and W for the ta abe year of each
begnnng on uy 1, 19 7. ccordngy, under the rue n subdvson (5), the
tme for fng the return of s on or before September 15, 19 8.
Par. 2. n e tenson of tme to uy 15, 19 8, s granted for the
fng of a |ont return under secton 51 (b) for a ta abe year endng n
19 8 where the ta based on such return s determned n whoe or n
part under the aw appcabe to a ta abe year begnnng on anuary
1, 19 8, f, wthout regard to ths paragraph, the tme for fng the
return of ether spouse (for whom the |ont return s made) woud
e pre before uy 15,19 8. In such cases an e tenson of tme to the
date the |ont return s fed or uy 15,19 8, whchever s the earer,
s aso granted for payng the ta on the bass of such |ont return for
the perod for whch the return s made. Ta payers who take ad-
vantage of ths e tenson of tme w be charged wth nterest at the
rate of 6 per cent per annum on the amount of ta due from the
orgna due date unt the ta s pad.
Par. 3. ecause of the appcaton of secton 51(b), as amended by
the Revenue ct of 19 8, to ta abe years begnnng pror to the enact-
ment of the ct, deay n the appcaton of the above reguatons w
adversey affect the opportunty of certan ta payers to ava them-
seves of the prvege of rng |ont returns. It s therefore found
mpractcabe to ssue ths Treasury decson wth notce and pubc
frocedure thereon under secton (a) and (b) of the dmnstratve
rocedure ct, approved une 11,19 6, or sub|ect to the effectve date
mtaton of secton (c) of sad ct.
Par. . Ths Treasury decson sha be effectve upon ts fng for
pubcaton n the Federa Regster.
(Ths Treasury decson s ssued under the authorty contaned
n sectons 62 and 3791 of the Interna Revenue Code (53 Stat., 32,
67 ; 26 U. S. C, 62, 3791).)
Geo. . Scoeneman,
Commssoner of Interna Revenue.
pproved May 20,19 8.
. L. M. Wggns,
ctng Secretary of the Treasury.
(Fed wth the Dvson of tne Federa Regster May 26, 19 8, 8. S a. m.)
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29.101(11)- .
CO
Secton 29.53-2: tensons of tme for fng
returns.
INT RN L R NU COD .
ont returns for certan ta abe years endng n 19 8. (See T. D.
5616, page 58.)
S CTION 56. P YM NT OF T .
Secton 29.56-2: tenson of tme for pay-
ment of the ta or nstament thereof.
INT RN L R NU COD .
Ta shown on |ont returns for certan ta abe years endng n 19 8.
(SeeT. D. 5616, page 58.)
SU C PT R C SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S OF T .
S CTION 101. MPTIONS FROM T
ON CORPOR TIONS.
Secton 29.101(11)-1: Mutua nsurance com- 19 8-1-1272
paues or assocatons. G. C. M. 25 97
INT RN L R NU COD .
The M Insurance Co. Is organzed wthout capta stock to wrte
fre, ghtnng, wndstorm, cycone or hgh wnd, tornado, e poson,
and ha nsurance. Pocyhoders are members entted to vote at
meetngs, and management s n a board of drectors eected by the
members. Pror to 19 0 a poces were wrtten on the assessment
pan, but begnnng wth the year 19 0 a poces have been wrtten
on the nonassessment pan. The company s rates are about 30 per
cent ess than those used by stock companes, are estabshed by the
company on the bass of ts e perence, and are sub|ect to approva
by the State commssoner of nsurance. Unearned premums have
been retaned for the payment of osses and e penses, but portons of
such premums may be returned to the pocyhoders. Upon ds-
souton, remanng assets woud be dstrbuted to members In pro-
porton to premums pad. Gross ncome each year Is ess than
75,000. ed, the ssuance of nonassessabe poces does not of
tsef affect the mutuaty of the company, and t s entted to e -
empton from Federa ncome ta under secton 101(11) of the
Interna Revenue Code.
Recommended that I. T. 3131 (C. . 1937-2, 129) be modfed.
n opnon s requested as to the status for Federa ncome ta
purposes of the M Insurance Co., whch wrtes poces on a nonassess-
abe pan.
The M Insurance Co. was ncorporated under the aws of the State
of R as a mutua nsurance company for the purpose of wrtng fre,
ghtnng, wndstorm, cycone or hgh wnd, tornado, e poson, and
ha nsurance. The company has no capta stock, and each pocy-
hoder s a member entted to one vote at company meetngs. The
management of the company s n the board of drectors eected by
the members.
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01
15 29.101(11)- .
Under the aws of the State of R reatng to mutua nsurance
companes, the company s permtted to wrte ether assessabe or
nonassessabe poces. Pror to 19 0 the company wrote a of ts
poces on the assessment pan. egnnng wth the year 19 0 a of
ts busness has been wrtten on the nonassessment pan, that s, by the
ssuance of nonassessabe f ed premum poces. Sub|ect to the ap-
prova of the commssoner of nsurance of the State of R, the com-
pany makes ts own rates on the bass of ts e perence. These rates
are about 30 per cent ess than the rates used by the stock companes.
The company has pad no dvdends to ts pocyhoders snce t
began ssung nonassessabe poces, unearned premums havng been
retaned for the payment of osses and e penses. though no pro-
vson s made n the charter of the company or ts by-aws for the
payment of dvdends, the company may return portons of the pre-
mums to the pocyhoders f ts e perence under the rates used war-
rants such acton. Upon dssouton, the assets of the company woud
be dstrbuted to the members pro rata on the bass of the tota amount
whch each member pad to the company durng hs membershp.
s requred by the aws of the State of R, the company mantans
a reserve fund for the payment of osses and e penses. of the
assets of the company, and the ncome therefrom, are used or hed
soey for the beneft and protecton of ts members through the pay-
ment of osses and e penses, and t appears that the assets accumuated
for that purpose are not unreasonabe n amount. Fnanca state-
ments fed by the company show that the gross ncome of the company
for each year s ess than 75,000.
Secton 101(11) of the Interna Revenue Code, pror to ts amend-
ment by secton 165(a) of the Revenue ct of 19 2, provded for the
e empton from ta aton of:
Farmers or other mutua ha, cycone, casuaty, or fre nsurance companes
or assocatons (ncudng nternsurers and recproca underwrters) the n-
come of whch s used or hed for the purpose of payng osses or e penses;
Secton 101(11) of the Code, as amended by secton 165(a) of the
Revenue ct of 19 2, provdes for the e empton of:
Mutua nsurance companes or assocatons other than fe or marne (ncud-
ng nternsurers and recproca underwrters) f the gross amount receved
durng the ta abe year from nterest, dvdends, rents, and premums (n-
cudng deposts and assessments) does not e ceed 75,000;
In I. T. 3131 (C. . 1937-2, 129), the rue was ad down that n
order for an nsurance company to quafy as a mutua nsurance com-
pany e empt from ta aton under sectons 101 (11) of the Revenue cts
of 193 and 1936 (whch sectons were dentca wth secton 101(11)
of the Interna Revenue Code pror to the amendment made by secton
165(a) of the Revenue ct of 19 2) there must be both mutuaty of
abty and partcpaton n profts by the pocyhoders, and that
mutuaty of abty e sted ony when the nsurance company ssued
ts poces on an assessabe bass.
L T. 3131, supra, s based on the decson n atmore qutabe
Socety v. Unted States (3 Fed. Supp., 27, Ct. D. 709, C. . II-2,
121 (1933), certorar dened, 290 U. S., 662), a case nvovng a fre
nsurance company organzed to ssue poces of nsurance to. ts
members on an assessabe bass but whch ssued term nsurance at
a f ed premum to nonmembers of the company. In hodng that
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29.101(11)- .I
62
the company was not entted to e empton from ta as a mutua
nsurance company under the provsons of sectons 101(11) of the
Revenue cts of 1926 and 1928, correspondng to secton 101(11) of
the Interna Revenue Code, the court stated as foows:
s to those who receved ths term nsurance at a f ed premum,
there was no mutuaty. They pad n advance for ther nsurance, and that was
the end of a payments and abtes so far as they were concerned.
They were not members, were not entted to any refund of premums
pad upon the surrender or canceaton of ther poces, or to share n the
dstrbuton of the earnngs and profts of the company. In short, so far as
those who hed poces for term nsurance were concerned, there was no
mutuaty.
Upon consderaton of atmore qutabe Socety v. Unted States,
supra, n the ght of subsequent decsons, ths offce s now of the
opnon that the decson n that case does not warrant the concuson
that the ssuance of nonassessabe poces automatcay dsquafes an
nsurance company from camng the e empton prvege granted
mutua nsurance companes by secton 101(11) of the Interna Reve-
nue Code and correspondng provsons of pror Revenue cts. It s
beeved that the case stands for the proposton that an nsurance
company, otherwse e empt from Federa ncome ta as a mutua
nsurance company, oses ts mutuaty when t ssues poces to non-
members. (See, n ths connecton, Order of Raway mpoye-s v.
Commssoner, 2 T. C, 607, acquescence, C. . 19 , 22; eystone
utomobe Cub Casuaty Co. v. Commssoner, 122 Fed. (2d), 886,
certorar dened, 315 U. S., 81 .)
In Mutua Fre Insurance Co. of Germantown v. Unted States (1 2
Fed. (2d), 3 , certorar dened, 323 U. S., 729), the court stated:
The earest mutua nsurance companes were of the assessment
type n whch each member was assessed for osses and e penses ether m-
medatey upon the happenng of the oss or at the end of the year.
t frst t was thought that a mutua companes had to operate upon the assess-
ment prncpe. The courts, however, soou accepted the vew that an nsurance
company coud be a mutua even though t receved the premum n cash n
advance and even though the pocyhoder was not sub|ect to assessment.
In Oho Farmers Indemnty Co. v. Commssoner (36 . T. ., 1152,
affrmed, 108 Fed. (2d), 665), t was hed that an nsurance company
whch ssued poces of nsurance ony n consderaton of cash pre-
mums ascertaned and payabe n advance was a mutua nsurance
company even though the poces were nonassessabe and carred no
contngent abty fof addtona premums.
In vew of the foregong, t s the opnon of ths offce that an
nsurance company may quafy as a mutua nsurance company wthn
the meanng of secton 101(11) of the Interna Revenue Code and
correspondng provsons of pror revenue aws athough t ssues non-
assessabe poces to ts members. ccordngy, t s recommended
that I. T. 3131, supra, be modfed to conform wth the vews stated
heren.
The queston remans whether the M Insurance Co. s, under the facts
presented here, a mutua nsurance company wthn the meanng of
secton 101(11) of the Interna Revenue Code both before and after
the amendment of the statute by secton 165(a) of the Revenue ct
of 19 2. In Mutua Fre Insurance Co. of Germantown v. Unted
States, supra, the court stated that one of the essenta characterstcs
cf a mutua nsurance company s that t provdes nsurance to ts
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63
29.101(11)- .
members substantay at cost. See, n ths connecton, Penn Mutua
Lfe Insurance Co. v. Lederer (252 U. S., 523, T. D. 30 6, C. . 3,
2 9 (1920)), n whch the Court stated that It s of the essence of
mutua nsurance that the e cess n the premum over the actua cost
as ater ascertaned sha be returned to the pocyhoder.
second essenta characterstc of a mutua nsurance company
was set out by the court n the Mutua Fre Insurance Co. of German-
town case, vz, the common equtabe ownershp by the members of the
assets of the company whch, at ther opton, may be transformed nto
a ega tte and reduced to possesson by the dssouton of the com-
pany. Thus, the court ponts out that, n a true mutua nsurance
company, the members, f they vote to wnd up and dssove the
company, are entted to receve ts net assets upon dssouton. See
aso mercan Insurance Co. of Te as v. Thomas (1 C Fed. (2d),
3 ), n whch t s stated as a characterstc of mutua nsurance com-
panes that there s no group e cept the pocyhoders who have
an nterest n t who have power over t. Membershp by a pocy-
hoders n the company or assocaton s, as ndcated above, a req-
uste for e empton as a mutua nsurance company under secton
101 (11) of the Code. (See eystone utomobe Cub Casuaty Co. v.
Commssoner, supra; Drsco v. Washngton County Fre Insurance
Co., 110 Fed. (2d), 85, Ct. D. 1 7 , C. . 19 0-2, 18 , certorar
dened, 311 U. S., 658.)
In eystone utomobe Cub Casuaty Co. v. Commssoner, supra,
the court, n hodng that a pocyhoders n a mutua nsurance
company must have a rght to vote n order for the company to be
entted to treatment as a mutua nsurance company for ncome ta
purposes, stated that democratc ownershp and contro by the members
s another fundamenta characterstc of a mutua nsurance com-
pany. In eystone Mutua Casuaty Co. v. Drsco (137 Fed. (2d),
907), the court ponted out that whe a mutua nsurance company
may mantan a reasonabe reserve, that reserve must be for the one
purpose of payng osses and e penses wth utmate return of any
e cess to the members. (See aso MacLaughn v. Phadepha Con-
trbutonshp for Insurance of ouses from Loss by Fre, 73 Fed.
(2d), 582, certorar dened, 29 U. S., 718.)
though n the present case no dvdends have been pad to pocy-
hoders snce 19 0, the nformaton submtted reveas that the company
s authorzed to return portons of the premums to the pocyhoders
f ts e perence under the rates used warrants such acton. In Penn
Mutua Lfe Insurance Co. v. Lederer, supra, the Court, n speakng
of a mutua nsurance company, stated: Dvdends may be made,
and by many of the companes have been made argey by way of
abatng or reducng the amount of the renewa premum. nd, n
the recent decson of The Ta Court n The Mutua Fre, Marne and
Inand Insurance Co. v. Commssoner (8 T. C, 1212, acquescence,
C. . 19 7-2, 3) t s stated (page 1220):
The makng of a dstrbuton, or the omsson to dstrbute, s not
concusve, as there may be good reasons for refranng for a tme to dstrbute,
as n Order of Raway mpoyees, 2 T. C, 607 (petton to revew dsmssed,
1 3 Fed. (2d), 597), or the payment may take the character of a dstrbuton of
profts rather than a rebate of premums, as n the case of the Phadepha Con-
trbutonshp, etc., supra. so, the use of hgh premum rates woud enabe a
company to make rebates, whe the use of ow rates mght make ths mpract-
cabe, n ether case the nsurance beng furnshed at cost.
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29.109-1.
6
assets of the M Insurance Co. are equtaby owned by the pocy-
hoders, and upon dssouton of the company, the assets woud be
dstrbuted among the pocyhoders. The mere fact that former
members of the company may not share n the assets on dssouton
does not affect ts status as a mutua nsurance company. (See
Mutua Fre, Marne and Inand Insurance Co. v. Commssoner,
supra.) The reserve funds of the company are hed or. used soey
for the payment of osses and e penses, and are not unreasonabe n
amount. It appears that the company s operatng e cusvey for
the purpose of furnshng nsurance at cost to ts pocyhoders, a
pocyhoders are members of the company, and each member s
entted to vote at company meetngs.
In vew of the foregong, t s the opnon of ths offce that the M
Insurance Co. s entted to e empton from Federa ncome ta under
the provsons of secton 101(11) of the Interna evenue Code.
Chabes Ophant,
Chef Counse, ureau of Interna Revenue.
Secton 29.101(11)-1: Mutua nsurance com- 19 8-1-12725
panes or assocatons. I. T. 3885
INT RN L R NU COD .
In accordance wth the recommendaton n G. C. M. 25 97 (page
60, ths uetn), I. T. 3131 (C. . 1937-2, 129) s modfed to accord
wth the concusons reached n that G. C. M.
S CTION 109. W ST RN MISP R TR D
CORPOR TIONS.
Secton 29.109-1: Western emsphere trade 19 8-8-12786
corporatons. I. T. 3902
( so Secton 119, Secton 29.119-1.)
nterna revenue code.
Gan ncuded n nsurance proceeds receved by a Western em-
sphere trade corporaton as a resut of te oss of goods n transt
from the Unted States to Cuba consttutes ncome from sources
wthn the Unted States. Costs drecty attrbutabe to the goods
ost may be taken nto account n determnng the net nsurance pro-
ceeds, provded such costs are ready dentfabe and are emnated
from the cost of goods sod or nventored.
dvce s requested whether gan whch s ncuded n nsurance
proceeds receved by a Western emsphere trade corporaton as a
resut of the oss of goods n transt from the Unted States to Cuba
consttutes ncome from sources wthn the Unted States.
In the nstant case, the ta payer, a Western emsphere trade cor-
poraton, shpped pharmaceutcas to ts consgnment agent n Cuba.
Due to pferage, a part of such shpment was ost n transt outsde
the Unted States and on the hgh seas. s a resut of such oss and
pursuant to the terms of an nsurance contract entered nto wth a
domestc nsurance company, the ta payer receved nsurance proceeds
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65
29.112(a)- .
whch ncuded an amount equa to the antcpated proft and seng
costs.
Under secton 15 of the Interna Revenue Code, a Western em-
sphere trade corporaton s e empt from the surta generay m-
posed on corporatons. To quaf y as a Western emsphere trade
corporaton, a domestc corporaton must meet severa tests, ncudng
the test that 95 per cent or more of ts gross ncome for the 3-year
perod mmedatey precedng the cose of the ta abe year (or for
such part of such perod durng whch the corporaton was n e st-
ence) was derved from sources wthout the Unted States. (Sec-
ton 109 of the Code.) The source of ncome for ths purpose s de-
termned pursuant to the provsons of secton 119 of the Code and
the reguatons prescrbed thereunder. (See secton 29.109-1 of Regu-
atons 111.)
Insurance proceeds are not mentoned n secton 119 of the Code
nor n the reguatons reatng thereto. The source of the gan n-
cuded n the nsurance proceeds receved by the ta payer n the
nstant case must, therefore, be determned by resort to genera
prncpes of aw.
For the purpose of ta aton of persona property, t s we estab-
shed that the stus of goods n transt remans at ther orgna stus
unt such tme as they have acqured a permanent stus esewhere.
(See Cooey, The Law.of Ta aton, fourth edton, voume 2, sectons
52, 53, and 5 ; Genera O Co. v. Cran, 209 U. S., 211; cUey v.
Ithoads, 188 U. S., 1.) It s beeved that ths rue offers a usefu gude
for the determnaton of probems arsng under Federa ncome ta
aws. Under the rue, t s cear that n the nstant case the stus of the
ost pharmaceutcas was st n the Unted States at the tme they
were ost. The stus of the property determnes the source of the gan
ncuded n the nsurance proceeds receved as a resut of the oss.
In vew of the foregong, t s hed that gan ncuded n nsurance
proceeds receved by a Western emsphere trade corporaton as a
resut of the oss of goods n transt from the Unted States to Cuba
consttutes ncome from sources wthn the Unted States. Costs
drecty attrbutabe to the goods ost may be taken nto account n de-
termnng the net nsurance proceeds, provded such costs are ready
dentfabe and are emnated from the cost of goods sod or
nventored.
SUPPL M NT . COMPUT TION OF N T INCOM .
S CTION 112(a). R COGNITION OF G IN OR
LOSS: G N R L RUL .
, Secton 29.112(a)-1: Saes or e changes.
INT RN L R NU COD .
Futures tradng and the Federa ncome ta . (See Mm. 62 3,
page .)
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29.113(a)(5)- .
S CTION 113(a). D UST D SIS FOR D T RMINING
G IN OR LOSS: SIS (UN D UST D) OF PROP RTY.
Secton 29.113(a) (5)-: ass of property ac- 19 8-13-12827
qured by bequest, devse, or nhertance. I. T. 3911
INT RN L R NU COD .
Determnaton of gan reazed upon the sae of rea property by
fe tenant and remandetraan.
dvce s requested as to the manner n whch gan resutng from
the sae of rea property by the fe tenant and the remanderman
shoud be determned.
In the case under consderaton, rea property was devsed to the
decedent s wdow for fe wth remander over to hs son. even
years after decedent s death, the fe tenant and the remanderman
sod ther respectve nterests for a ump sum, the prce beng n e cess
of the far market vaue of the property as of the date of the decedent s
death. From and after the death of the decedent and up to the date of
sae, the property was rented by the fe tenant who receved the
ncome.
The genera rue for determnng bass at the tme of the sae of a
fe nterest, a remander nterest, or both, n property transmtted at
death s provded n secton 29.113(a) (5)- of Reguatons 111. The
purpose of that secton of the reguatons s cear and may be brefy
stated. Frst, t s contempated that the bass of the fu property of
whch the fe estate and the remander are parts sha be determned
n accordance wth secton 113(a)(5) of the Interna Revenue Code
and that such bass sha be the unform bass on whch a subse-
quent computatons and ad|ustments are made. Secondy, the regua-
ton contempates that the proportonate parts of the unform bass
represented by the respectve nterests of the fe tenant and the re-
manderman are not forever f ed as of the tme those nterests are
created, but are ad|ustabe to the date of sae so as to refect the change
n the reatve vaues of such nterests on account of the passage of
tme. Fnay, the reguatons e pressy provde that the genera ad-
|ustments to bass on account of capta mprovements, deprecaton,
and smar tems, provded for n secton 113(b) of the Interna Rev-
enue Code, must be taken nto account.
I. T. 2076 (C. . III-2, 18 (192 )) sets forth the method of deter-
mnng the vaues of the fe and remander nterests at the tme of
ther creaton for the purpose of ascertanng gan or oss from the
sae of and. There s frst computed a hypothetca annuty at the
rate of per cent of the vaue of the fee on the date the nterests of
the fe tenant and remanderman came nto beng. The worth or
cash vaue of such annuty at the fe tenant s age s then computed.
For ths purpose, Tabe appearng on page 18 of Reguatons 63, re-
vsed, whch tabe s dentca to Tabe set forth n secton 81.10( )
of Reguatons 105, s utzed. The amount of the hypothetca an-
nuty s mutped by the fgure appearng n coumn 2 of Tabe
opposte the fe tenant s age; the product s the present worth or cash
vaue of the fe tenant s nterest n the fee. though I. T. 2076 es-
tabshes the method for aocaton of the unform bass between the re-
mander and the fe nterests at the tme of the creaton of those n-
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67
29.113(a)(5)- .
terests, t does not provde for ad|ustment of that aocaton as of the
tme of ther sae or transfer. s ponted out above, secton 29.113
(a)(5)- of Reguatons 111 contempates such ad|ustment n order
to refect the change n the reatve vaues of the nterests on account of
the passage of tme. In makng such ad|ustment, however, the method
of computaton outned n I. T. 2076 shoud be used.
Subsecton (/) of secton 29.113(a) (5)- of Reguatons 111 gves
an ustraton of the genera rue, summarzed n the precedng para-
graphs, n the case of the sae of a remander nterest, athough the
rue s equay appcabe to the sae of a fe nterest. The purpose of
the formua stated n the ast sentence of subsecton (/) s merey to
apporton between the fe tenant and the remanderman the sub-
sequent ad|ustments to the unform bass on account of capta m-
provements, deprecaton, or other tems provded for n secton 113 (b)
of the Code. That formua s e pressed, n the case of a sae of a fe
nterest, by the foowng equaton:
ass of fe tenant s nterest at Part of the unform bass attrb-
date of sae, 1. e., the Item to be utabe to the fe tenant s nter-
determned. _ est as of the date of sae.
ass of entre property deter- Unad|usted bass of entre prop-
mned n accordance wth see- erty determned n accordance
ton 113(a) (5) of I. R. C. (un- wth secton 113(a) (5) of I. R. C.
form bass), ad|usted to the (unform bass),
tme of sae for tems requred
by secton 113(b) of I. R. C.
s ndcated above, the bass of the remanderman s nterest at the
tme of sae s computed by the same formua. If a fe nterest or a
remander nterest n a dvded or undvded fracton of the entre
property s sod, t s necessary, as a premnary step, to aocate the
proper porton of the unform bass (ad|usted and unad|usted) to the
fractona nterest beng sod, n order to obtan the denomnators n
the above ustratve equaton.
specfc e ampe may be hepfu. Suppose mproved reaty worth
20,000 at the date of decedent s death on anuary 1, 19 2, s devsed
to for fe, wth remander over to . Four years ater, on anuary
1, 19 6, ses hs fe estate for 12,000. Durng each of the four
years 19 2 to 19 5, ncusve, was aowed a deducton of 300 for
deprecaton. s age was 35 at the date of decedent s death. To
compute s bass, t shoud frst be noted that the unform bass of
the property s 20,000, whch s ad|usted to 18,800 at the date of
the sae by reason of 1,200 aowed deprecaton. The part of the
unform bass attrbutabe to s fe nterest as of anuary 1, 19 6,
s computed by mutpyng 20,000 by per cent, gvng a hypothetca
annuty of 800. y reference to Tabe n secton 81.10 () of Regu-
atons 105, the annuty factor at age 39 s found to be 15.31722. That
factor, mutped by 800, gves 12,253.78 as the part of the unform
bass attrbutabe to s nterest as of the date of sae. Those fgures
may be convenenty arranged n the form of the foowng ustratve
equaton:
s bass 12,253.78
18,800 ( 20,000 ess 1,200 deprecaton) 20,000
s bass, 11,518.55 (the ad|usted bass of the property ( 18,800) mu-
tped by .612689, whch s the quotent of 12,253.78 (the part of the
unform bass attrbutabe to s fe estate at age 39) dvded by
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29.113 (a) (5)- .
68
20,000 (the unform bass of the property)), when subtracted from
12,000 (the proceeds of the sae of hs fe nterest) shows a ta abe
gan to of 81. 5. separate sae of the remander nterest woud
be computed by the same method.
Where the fe tenant and the remanderman |on n a sae and trans-
fer of ther entre nterest n rea property, each w reaze gan or
sustan oss measured by the dfference between the bass of hs re-
spectve nterest at the tme of the sae and the porton of the entre
proceeds of sae attrbutabe to such nterest. The part of the proceeds
attrbutabe to each nterest sha be n the same proporton to the entre
proceeds of sae as the bass of each such nterest at the tme of sae
bears to the ad|usted unform bass.
specfc e ampe may aso be hepfu here. Suppose, as n the frst
e ampe, that mproved reaty worth 20,000 at the date of decedent s
death on anuary 1,19 2, s devsed to , whose age s 35, for fe, wth
remander over to , and that four years ater, on anuary 1, 19 6,
and by |ont conveyance se the entre property for 30,000. Dur-
ng each of the four years 19 2 to 19 5, ncusve, the aowabe deduc-
ton for deprecaton amounted to 300, whch deducton was taken by
n hs Federa ncome ta returns under the authorty of secton
23(1) of the Code. The part of the unform bass attrbutabe to s
fe estate on the date of sae, anuary 1,19 6, for a person 39 years of
age s 12,253.78. (See the method of computaton set forth n the
frst e ampe.) The part of the unform Dass attrbutabe to s
remander on the date of sae, anuary 1,19 6, s obtaned by mutpy-
ng 20,000 (the vaue of the property at the tme of decedent s death)
by .372 1 (the fgure opposte the number of years nearest the actua
age of , the fe tenant, n coumn 3, Tabe , of secton 81.10() of
Reguatons 105). The part of the unform bass attrbutabe to s
remander nterest on anuary 1, 19 6, s, therefore, 7, 8.20
( 20,000 .372 1). The aggregate vaue of the unform bass attrbut-
abe to the fe and remander nterests s 19,701.98 ( 12,253.78
7, 8.20), 298.02 ess than the vaue of the property at the tme of
decedent s death. Ths dfference s due to the fact (as shown by the
respectve headngs for coumn 2 and for coumn 3 of Tabe ) that
the fe nterest vaue e tends ony to the end of the ast year survved
(whch corresponds to the begnnng of the year of death) and the
remander vaue commences at the end of the year of death.
though the use of bases computed from factors appearng n
Tabe s |ustfed n the case of a sae of a snge nterest (fe or
remander) n the property, where both nterests are beng sod by
|ont conveyance t s necessary to emnate the gap by fndng the
e act porton of the unform bass of the property ( 20,000) whch s
attrbutabe to each nterest. The e act part attrbutabe to s fe
nterest ( 12, 39.20) s obtaned by dvdng 12,253.78 (the part of
the unform bass attrbutabe to the fe estate) by 19,701.98 (the
aggregate vaue of the unform bass attrbutabe to the two nterests)
and mutpyng the quotent obtaned (.62196) by 20,000. The e act
part attrbutabe to s remander nterest s obtaned by use of the
same method ( 7, 8.20 h- 19,701.98 .3780 , whch, when mutped
by 20,000, equas 7,560.80). _
Usng the same equaton as n the frst e ampe, the resp -tve bases
of s fe nterest and s remander nterest at the date of sae are
11,692.85 ( 18,800 the quotent of 12, 39.20 20,000) and 7,107.15
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29.117-1.
( 18,800 the quotent of 7,560.80 -h 20,000), respectvey. The en-
tre proceeds of sae amounted to 30,000. The e act porton of such
proceeds attrbutabe to each nterest s obtaned by mutpyng the
sae prce by the percentage of nterest owned by each n the property
at the date of the sae. Thus, s proportonate share of the proceeds
of sae s 18,658.80 ( 30,000 62196) and s proportonate share of
the proceeds of sae s 11,3 1.20 ( 30,000 .3780 ). The reazed
gan attrbutabe to each nterest s obtaned by subtractng the bass
attrbutabe to each nterest from the part of the sae proceeds attrbut-
abe to each nterest. Therefore, s reazed gan s 6,965.95
( 18,658.80- 11,692.85) and s reazed gan s ,23 .05 ( 11,-
3 1.20 7,107.15).
S CTION 115. DISTRI UTIONS Y CORPOR TIONS.
Secton 29.115-3: arnngs or profts.
INT RN L R NU COD .
Instament transactons; vadty of the reguatons. (See Ct. D.
1697, page 82.)
S CTION 117. C PIT L G INS ND LOSS S.
Secton 29.117-1: Meanng of terms. 19 8- -127 9
I. T. 3891
INT RN L R NU COD .
Where securtes are acqured and hed by a deaer n securtes
soey for nvestment purposes, such securtes w be recognzed as
capta assets, asdefned n secton 117(a) (1) of the Interna Revenue
Code, even though such securtes are of the same type or of a
smar nature as those ordnary sod to the deaer s customers.
I. T. 3828 (C. . 19 e-2, 68) modfed.
Reconsderaton of I. T. 3828 (C. . 19 6-2, 68) has been requested.
In that rung the queston presented was whether a deaer n securtes
may treat as capta assets, as defned n secton 117(a)(1) of the
Interna Revenue Code, securtes acqured soey for nvestment
purposes.
In the case nvoved n I. T. 3828, supra, a partnershp dong busness
as a deaer n securtes nvests ts surpus funds n securtes soey
for the purpose of makng an nvestment of such funds. The secur-
tes thus acqured are segregated physcay and n the partnershp
accounts from securtes hed for sae to customers. They are not n-
cuded n the partnershp nventory, are never sod to customers, and
are not of a type ordnary sod to customers. The concuson was
reached (syabus) that:
deaer n securtes may treat as capta assets, as defned n secton 117(a) (1)
of the Interna Revenue Code, securtes acqured for nvestment purposes, pro-
vded t s estabshed that (1) such securtes are acqured and hed for nvest-
ment and are not part of those hed for sae to customers, and (2) they are not
of a type ordnary sod to the deaer s customers.
It s contended that the poston taken n I. T. 3828, supra, partcu-
ary requrement (2) that the nvestment securtes may not be of a
type ordnary sod to the deaer s customers s unwarranted and
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29.131-2.1
70
resuts n bona fde nvestment transactons not beng propery recog-
nzed as such for Federa ncome ta purposes.
fter carefu reconsderaton of the poston adopted n I. T. 3828,
supra, the ast two paragraphs of that rung are wthdrawn and the
foowng substtuted therefor:
Securtes hed for sae to customers In the ordnary course of busness are not
capta assets as defned above, and gans and osses on saes of such securtes
by deaers n securtes are not sub|ect to the mtatons of secton 117 (b), (c),
and (d) of the Code. owever, securtes owned by a deaer n securtes, f
acqured and hed for nvestment rather than for sae n the ordnary course of
busness, are capta assets sub|ect to the mtatons of secton 117 of the Code.
(See I. T. 2502, C. . 1II-2, 128 (1929).)
The securtes n the nstant case are orgnay acqured soey for nvestment,
are segregated physcay and n the partnershp accounts, are not ncuded n
the partnershp nventory, are never sod to the partnershp s customers, and are
not of a type ordnary sod to ts customers. They ceary quafy as capta
assets under the defnton contaned n secton 117(a) (1) of the Code and w
be recognzed as such for Federa ncome ta purposes. The same rue s app-
cabe even though the securtes acqured for nvestment are of the same type or
of a smar nature as those ordnary sod to the deaer s customers.
Secton 29.117-1: Meanng of terms.
INT RN L R NU COD .
Futures tradng and the Federa ncome ta . (See Mm. 62 3,
page .)
S CTION 119. INCOM FROM SOURC S WIT IN
UNIT D ST T S.
Secton 29.119-1: Income from sources wthn
the Unted States.
INT RN L R NU COD .
Gan ncuded n nsurance proceeds coverng oss of goods n transt.
(See. T. 3902, page 6 .)
SUPPL M NT C CR DITS G INST T .
S CTION 131. T S OF FOR IGN COUNTRI S ND
POSS SSIONS OF UNIT D ST T S.
Secton 29.131-2: Meanng of terms. 19 8-8-12787
I. T. 3903
INT RN L R NU COD .
The 3 per cent ta mposed by rtce I (b) of Cuban Mtary
Order 63 of 1900, as amended by rtce of Cuban ta aw
approved uy 6, 19 28, and the 20 per cent addtona ta mposed
by aw No. 28 dated September 8, 19 1, on gross revenues receved
for freght and passengers taken aboard n Cuban ports by foregn
(as to Cuba) shppng companes engaged n handng freght and
passengers between Cuban ports and foregn (as to Cuba) ports, are
ta es mposed n eu of an ncome ta wthn the meanng of sec-
ton 131(h) of the Interna Revenue Code, and such ta es may be
camed as a credt aganst Federa ncome ta for ta abe years
begnnng after December 31, 19 1.
dvce s requested whether the 3 per cent ta mposed by rtce
111(b) of Cuban Mtary Order 63 of 1900, as amended by rtce
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29.131-2.
of the Cuban ta aw approved uy 6,1928, and the 20 per cent ad-
dtona ta mposed by aw No. 28 dated September 8.19 1, are ta es
mposed n eu of an ncome ta wthn the meanng of secton 131(h)
of the Interna Revenue Code and may be camed as a credt aganst
Federa ncome ta .
rtce of the Cuban ta aw approved uy 6, 1928, provdes
as foows:
bt. . rtce III of Mtary Order 63 of 1900 sha be drawn as foows:
rt. III. The foowng sha pay ta es to the State at the rate of 6 per
centum of ther net profts:
(a) Raroads of genera servce, or namey, those destned to pubc e -
potaton for the transportaton of passengers and the traffc of merchandse,
ether beongng to companes or to prvate partes conformaby to egsaton n
force on the matter.
(6) Domestc shppng companes and foregn shppng companes author-
zed to do a coastwse busness.
Foregn shppng companes engaged n handng freght and passengers be-
tween domestc and foregn ports sha be e empt from the ta on profts, and
sha pay, n eu thereof, 3 per cent on the gross revenues receved for freght and
passengers taken aboard n domestc ports, contnung to be sub|ect to the payment
of ta es of other nature, n accordance wth the egsaton n force.
The ta sha be pad precsey by sad shppng companes or ther agents,
and can not be coected from shppers or passengers.
Condonaton s granted of the ta due accordng to secton (6) of rtce III
of Order No. 83 of 1900, by the companes whch are sub|ected by the present
artce of the ta on ther revenues.
Law No. 28, dated September 8,19 1, mposes a 20 per cent addtona
ta , thereby ncreasng the effectve rate of the ta on gross ncome m-
posed under the aw of uy 6,1928, to 3.6 per cent.
Secton 131 of the Interna Revenue Code provdes, n part, as
foows:
(a) owance op Credt. If the ta payer chooses to have the benefts of ths
secton, the ta Imposed by ths chapter, e cept the ta mposed under secton 102,
sha be credted wth :
(1) Ctzens and domestc corporatons. In the case of a ctzen of the
Unted States and of a domestc corporaton, the amount of any 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

(h) Credt for Ta es n Leu of Income, tc., Ta es. For the purposes of
ths secton and secton 23(c)(1), the term ncome, war-profts, and e cess-
profts ta es sha ncude a ta pad In eu of a ta upon ncome, war-profts,
or e cess-profts otherwse generay Imposed by any foregn country or by any
possesson of the Unted States.
Secton 131 (h) of the Code was added by secton 158(f) of the Revenue
ct of 19 2, and s appcabe for ta abe years begnnng after De-
cember 31, 19 1.
In vew of the foregong, t s hed that the 3 per cent ta mposed
by rtce 111(b) of Cuban Mtary Order 63 of 1900, as amended
by rtce of Cuban ta aw approved uy 6, 1928, and the 20
per cent addtona ta mposed by aw No. 28 dated September 8,19 1,
on gross revenues receved for freght and passengers taken aboard n
Cuban ports by foregn (as to Cuba) shppng companes engaged n
handng freght and passengers between Cuban ports and foregn (as
to Cuba) ports, are ta es mposed n eu of an ncome ta wthn the
meanng of secton 131(h) of the Interna Revenue Code, and such
ta es may be camed as a credt aganst Federa ncome ta for ta abe
years begnnng after December 31,19 1.
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29.1 1-1.1
72
Secton 29.131-5: Countres whch do or do 19 8-7-1277
not satsfy the smar credt requrement. I. T. 3899
INT RN L R NU COD .
gypt does not satsfy the smar credt requrement of secton
131(a) (3) of the Interna Revenue Code.
Sect on 29.131-5: Countres whch do or do 19 8-7-12775
not satsfy the smar credt requrement. I. T. 390O
INT RN L R NU COD .
Swtzerand and the Canton of Geneva, Swtzerand, satsfy the
smar credt requrement of secton 131(a) (3) of the Interna Reve-
nue Code.
SUPPL M NT D. R TURNS ND P YM NT OF T .
S CTION 1 1. CONSOLID T D R TURNS.
Secton 29.1 1-1: Consodated ncome and e cess 19 8-6-12762
profts ta returns of affated corporatons. I. T. 3896
( so Secton 23.2, Reguatons 10 .)
INT RN L R NU COD .
Partcpaton n the management of a corporaton through eecton
of drectors Is consdered the crteron of votng power, as that
term s used n secton 1 1(d) of the Interna Revenue Code. Where
a parent corporaton s ownershp n a subsdary conssts of 100 per
cent of the common stock whch possesses power to eect s of the
seven drectors and 55.5 per cent of the preferred stock whch pos-
sesses power to eect one drector, these beng the ony casses of
stock, the parent corporaton owns stock n the subsdary possessng
ess than 95 per cent of the votng power, and the subsdary s
not a member of the affated group wthn the meanng of secton
1 1(d) of the Code.
dvce s requested whether certan corporatons are affated
wthn the meanng of secton 1 1(d) of the Interna Revenue Code
under the crcumstances herenafter set forth.
The parent corporaton owns 100 per cent of the common stock and
55.5 per cent of the preferred stock of one of ts subsdares. The com-
mon stock hoders nave the rght to eect s of seven drectors and
have a other votng powers e cusvey, e cept that the preferred
stock hoders may eect (as a cass) one drector and must approve
(1) any change n the certfcate of ncorporaton e cept an ncrease
n common stock; (2) the dsposton of the company s property by
sae, merger, etc.; (3) the creaton of a mortgage or hen (not n-
cudng the acquston of property sub|ect to a en or a renewa of
an e stng mortgage); ( ) the ssuance of bonds n e cess of a cer-
tan amount; and (5) the authorzaton or ssuance of any stock out-
rankng the preferred stock or of any securty convertbe nto such
stock. The queston has been rased whether the preferred stock s
nonvotng stock whch s mted and preferred as to dvdends and,
as such, to be dsregarded n determnng whether the corporatons
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73
( 29.1 1-1.
are affated wthn the meanng of secton 1 1(d) of the Code, and
f t s not such nonvotng stock, how the votng power of the pre-
ferred stock s to be determned.
Secton 1 1(d) of the Interna Revenue Code provdes n part as
foows:
(d) Defnton of ff.at 11 Group. s used n ths secton, nn affated
group means one or more chans of Incudbe corporatons connected through
stock ownershp wth a common parent corporaton whch s an ncudbe
corporaton If

(2) The common parent corporaton owns drecty stock possessng at
east 9r per centum of the votng power of a casses of stock and at east
95 per centum of each cass of the nonvotng stock of at east one of the
other ncudbe corporatons.
s used In ths subsecton, the term stock does not Incude nonvotng stock
whch s mted and preferred as to dvdends.
Snce the preferred stock s ceary mted and preferred as to
dvdends, the frst queston to be determned s whether the stock
s nonvotng stock as that term s defned n secton 1 1(d) of the
Code.
There are numerous court decsons wth respect to what const-
tutes votng stock, as that term s used n secton 1 1(d) of the Code.
It s we estabshed that f preferred stock carres wth t the rght
to vote ony wth respect to matters pertanng to the rghts of pre-
ferred stockhoders, or f fu votng rghts are condtoned upon the
happenng of some event whch has not occurred, such stock s non-
votng stock for the purposes of secton 1 1(d) of the Code. (See
re Lghtng Co. v. Commssoner, 93 Fed. (2d), 883; ermont ydro-
ectrc Corporaton v. Commssoner, 29 . T. ., 1000, acquescence,
C. . III-1, 1G (193 ).) On the other hand, f preferred stock, be-
cause of dvdend arrearages or the happenng of some other cond-
ton, has obtaned fu votng rghts, t has been hed to be votng
stock. (See tantc Cty ectrc Co. et a. v. Commssoner, 288 U. S.,
152, Ct. D. 637, C . II-1, 281 (1933), and Pantnd ote Co. v.
Commssoner, 23 . T. ., 1207.) Lkewse, t has been hed that
where, by State aw, preferred stock has the prvege of votng for
drectors (but no other votng rghts), the stock s votng stock wthn
the meanng of secton 1 1 (t) of the Code. (See Rudoph Wurtzer
Co. et a. v. Commssoner, 29 . T. ., 3, affrmed, 81 Fed. (2d), 971,
certorar dened. 298 U. S., 670.)
It remans to be determned whether the preferred stock n the n-
stant case s votng stock because of ts rght as a cass to eect ony one
of the seven drectors. One possbe hodng s that stock s nonvotng
uness t has the rght to partcpate n the eecton of a drectors.
Such a rue must be re|ected snce t woud requre, n a case such as
the nstant one, a hodng that both the common and preferred stocks
are nonvotng f the common stock partcpates n the eecton of ony
s of the seven drectors. nother possbe concuson s that even
though the rght to partcpate n the eecton of a drectors s not nec-
essary, the rght to eect ony one drector of a tota of seven drectors
s not suffcent to gve the preferred stock any rea partcpaton n
the management of the corporaton, and that such preferred stock
shoud be consdered nonvotng stock for the purposes of secton
1 1 (d) of the Code. Suc a concuson woud be based on the fact that
7 I 5 U - 8 c
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29.1 1-1.
7
the s drectors eected by the common stock hoders woud so dom-
nate the board of drectors that the one drector eected by the pre-
ferred stock hoders woud have no substanta authorty. If such a
theory were foowed, however, t woud be e tremey dffcut to deter-
mne when such stock becomes votng stock. If the preferred stock
carred wth t the rght to eect three drectors and the common stock
four, the drectors eected by the common woud st be abe to dom-
nate the board, but t woud not be reasonabe to hod that n such a
case the preferred s nonvotng stock. Lkewse, t seems cear that f
the preferred stock had one vote n the eecton of a drectors and
the common stock had s votes, the preferred woud be consdered
votng stock havng one-seyenth of the votng power. though those
stuatons can be dstngushed from the nstant case, the basc concept,
whch requres a hodng that the preferred stock n those stuatons s
votng stock, s appcabe here. It s the opnon of ths offce, there-
fore, that any stock whch partcpates n the eecton of drectors s
votng stock wthn the ntendment of secton 1 1(d) of the Code.
Snce, n the nstant case, the preferred stock of the subsdary com-
pany s consdered votng stock for the purposes of secton 1 1(d)
of the Code, t s necessary to determne what percentage of such stock
must be owned by the parent n order for the subsdary to be a member
of the affated group. The Revenue ct of 192 provded that two or
more corporatons woud be deemed to be affated f one corporaton
owned at east 95 per cent of the votng stock of the others. In the
Revenue ct of 1926, the word votng was deeted and ownershp
of at east 95 per centum of the stock was requred for affaton.
It was provded that the term stock dd not ncude nonvotng
stock whch was mted and preferred as to dvdends. Secton
1 1(d) of the Revenue ct of 1928 contaned smar provsons. In
nderson-Cayton Securtes Corporaton v. Commssoner (35 . T.
., 795, acquescence, C. . 1937-2, 2), the oard of Ta ppeas
(now The Ta Court of the Unted States), n construng secton
1 1 (d) of the Revenue ct of 1928, hed that ownershp of 95 per cent
of the shares of stock of another corporaton was not requred for aff-
aton, but rather ownershp of 95 per cent of the capta stock of the
corporaton (e cudng nonvotng preferred), takng nto consdera-
ton the combned votng power of the stock owned. In that case, the
parent corporaton owned 100 per cent of the preferred stock and 6
per cent of the common stock of a subsdary. The preferred stock
at that tme had a votng power of 50 votes per share and the common
stock had a votng power of 1 vote per share. The oard hed that,
snce the preferred stock had a votng power of 2 0,000 votes and the
common stock a votng power of 6, 00 votes, the parent corporaton
owned 98.56 per cent of the votng power of the subsdary s stock and
the two corporatons were affated. The oard sad (page 800) :
nderson-Cayton Industres, Inc., hed ega tte to stock possessng
more than 95 per centum of the tota votng power and en|oyed a benefca
ownershp of more than 95 per centum of the capta stock.

t s ceary apparent that nderson-Cayton Industres, Inc., owned
more than 95 percent of the s companes. Our concuson s that (hey were
affated wth the pettoner durng the ta abe perod.
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75
29.1 1-1.
In the Revenue ct of 1932, the rght to fe consodated returns was
restrcted to certan raroad corporatons, but the stock ownershp
requrements remaned unchanged. The Second Revenue ct of 19 0,
whch enacted the e cess profts ta , added secton 730 to the Interna
Revenue Code, whch secton granted the prvege of fng consodated
e cess profts ta returns to affated groups as defned theren. Sec-
ton 730(d) of the Code, as so added, defned affated group as one
or more chans of ncudbe corporatons connected through stock
ownershp wth a common parent corporaton whch s an ncudbe
corporaton f t east 95 per centum of each cass of the stock of each
of the ncudbe corporatons (e cept the common parent corpora-
ton) s owned drecty by one or more of the other ncudbe corpora-
tons. Nonvotng stock whch was mted and preferred as to dv-
dends was specfcay e cuded from the term stock, as used theren.
It woud appear that Congress, n requrng ownershp of 95 per cent
of each cass of the stock, ntended to modfy the hodng n nderson-
C fay ton Securtes Corporaton v. Commssoner, supra, that owner-
shp of 95 per cent of the capta stock taken as a whoe was
suffcent.
The Revenue ct of 19 2 made secton 730 of the Code nappcabe
to years begnnng after December 31, 19 1, and amended secton 1 1
of the Code so as to e tend the prvege of fng consodated returns,
for ncome as we as e cess profts ta purposes, to any affated
group of corporatons. The defnton of an affated group n
secton 1 1(d) of the Code was amended to requre the ownershp of
stock possessng at east 95 per centum of the votng power of a
casses of stock and at east 95 per centum of each cass of the nonvotng
stock, e cudng nonvotng stock whch s mted and preferred as to
dvdends. It woud seem that Congress, n so aterng the anguage
of secton 1 1 (d) of the Code, ntended to abandon the requrement of
secton 730(d) of the Code that ownershp of 95 per cent of each cass
of stock was necessary for affaton and to foow the decson n the
nderson-CI ay ton Securtes Corporaton case whch requred merey
the ownershp of 95 per cent of the votng stock taken as a whoe.
owever, secton 1 1(d) of the Code, as amended, made e pct the
requrement that 95 per cent of each cass of nonvotng stock (whch
s not mted and preferred as to dvdends) must be owned by the
arent or one of the other ncudbe corporatons. Under the present
aw, therefore, t s not necessary for the parent to own 95 per cent of
each cass of votng stock of the subsdary n order for the atter to
be a member of the affated group, but t s suffcent f the parent
owns 95 per cent of the votng power of a casses of votng stock
taken together.
The ne t queston, therefore, s to determne the percentage of the
votng power of the stock owned by the parent corporaton n the
nstant case. Snce partcpaton n the management of the subsdary
corporaton through eecton of the board of drectors s consdered
the crteron of votng power, t s beeved that the common stock of
the subsdary shoud be hed to have s -sevenths, or 85.71 per cent,
of the votng power and the preferred one-seventh, or 1 .286 per cent.
The parent corporaton owns 100 per cent of the common stock but
ony 55.5 per cent of the preferred stock of the subsdary. Thus, t
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Regs. 10 , 23.11.
76
owns stock possessng 85.71 per cent pus 7.929 per cent (55.5 per cent
of 1 .286 per cent), or 93.6 3 per cent of the votng power of a casses
of stock. In order for the subsdary to become an ncudbe corpo-
raton of the affated group, the parent corporaton must own 65.01
per cent of ts preferred stock, whch woud represent 9.287 per cent
of the votng power and whch, when added to 85.71 per cent of the
votng power hed by vrtue of the common stock ownershp, woud gve
the parent at east 95 per centum of the votng power of a casses
of stock requred by secton 1 1 (d) of the Code.
Reguatons 10 , Secton 23.11: Consodated 19 8-5-12756
returns for subsequent years. I. T. 3893
INT RN L R NU COD .
ecton wth respect to fng separate Federa ncome ta returns
for fsca years endng n 19 8 by affated corporatons whch fed
consodated Federa ncome ta returns for fsca years ended
n 19 7.
dvce s requested whether affated corporatons whch fed
consodated Federa ncome ta returns for fsca years ended n 19 7
may eect to fe separate Federa ncome ta returns for fsca years
endng n 19 8.
Secton 1 1 (a) of the Interna Revenue Code, as amended, provdes
n part as foows:
(a) PRI IL G TO FIL CONSOLID T D INCOM ND C SS-P OFITS-Ta R -
TURNS. The makng of consodated returns sha be upon the condton
that the affated group sha make both a consodated ncome-ta return and a
consodated e cess-profts-ta return for the ta abe year, and that a corpora-
tons whch at any tme durng the ta abe year have been members of the
affated group makng a consodated ncome-ta return consent to a the con-
sodated ncome- and e cess-profts-ta reguatons prescrbed under subsecton
(b) pror to the ast day prescrbed by aw for the fng of such return.
Secton 23.11(a) of Reguatons 10 , as amended, reatng to con-
sodated ncome ta returns of affated corporatons, provdes n part
as foows:
(a) Consodated Returns Requred for Subsequent Tears.
If a consodated return s made under these reguatons for any ta abe
year, a consodated return must be made for each subsequent ta abe year
durng whch the affated group remans n e stence uness (2)
Chapter 1 of the Code to the e tent appcabe to corporatons, or these regua-
tons whch have been consented to, have been amended and any such amend-
ment s of a character whch makes ess advantageous to affated groups as a
cass the contnued fng of consodated returns,
It s hed that the aw appcabe to the fng of consodated Federa
ncome ta returns has been so amended as to make ess advantageous
to affated groups as a cass the contnued fng of such returns,
wthn the meanng of secton 23.11 (a) of Reguatons 10 , as amended,
for fsca years endng n 19 8. ccordngy, affated corporatons
whch fed consodated Federa ncome ta returns for fsca years
ended n 19 7 may, notwthstandng the fng of such returns, fe
separate Federa ncome ta returns for fsca years endng n 1918.
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29.1 3-1.
Reguatons 110, Secton 33.31: ases of ta 19 8-11-1281
computaton. T. D. 5615
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 33.
CONSOLID T D C SS PRO ITS T R TURNS.
Secton 33.31 (6) (2) of Reguatons 110 amended wth respect to
consodated net operatng oss deducton.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph 1. In order to emnate a technca defect appearng n
Reguatons 110 26 CFR, Part 33 , secton 33.31 (b) (2) of such regu-
atons, as added by Treasury Decson 52 5, approved March 13,19 3
C. . 19 3,801 , s amended by revsng that porton thereof foowng
the second parenthetca e presson to read as foows:
but sha not e ceed the amount of the consodated norma-ta net Income com-
puted wthout the beneft of such deducton and wthout the credt provded n
secton 26(e), reatng to ncome sub|ect to e cess profts ta ;
Par. 2. Inasmuch as the soe purpose of ths Treasury decson s to
emnate a technca defect n the Treasury decson conformng Reg-
uatons 110 to the provsons of the Revenue ct of 19 2, t s found
unnecessary to gve pror genera notce or to conduct pubc rue
makng procedure n connecton wth ths revson. The ssuance of
ths Treasury decson s accordngy found not to be sub|ect to the
provsons of secton (a) or (c) of the dmnstratve Procedure
ct, approved une 11,19 6.
Par. 3. The amendment made by ths Treasury decson sha be
effectve for ta abe years begnnng after December 31,19 1.
(Ths Treasury decson s ssued under the authorty contaned n
secton 1 1(b) of the Interna Revenue Code (53 Stat., 58, 56 Stat.,
858; 26 U.S. (and Sup., 1 1(b)).)
Geo. . Schoknkman,
Commssoner of Interna Revenue.
pproved May 11, 19 8.
. L. M. Wggns,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster May 17, 19 8, 8. 5 a. m.)
S CTION 1 3. WIT OLDING OF T T SOURC .
Secton 29.1 3-1: Wthhodng ta at source. 19 8-6-12703
( so Secton 1 , Secton 29.1 -1.) I. T. 3897
nterna revenue code.
Wthhodng agents n the Unted States are authorzed to reense
drecty to the French Government, or to the ank of France as agent
of that Government, Federa ncome ta es wthhed at the source
from Interest and dvdends whch became due and payabe on or
after uy 6, 19 7, the effectve date of French Decree No. 0-1(598,
on doar securtes owned by certan French natonas and others,
tte to whch was taken by the French Government pursuant to that
decree.
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29.1 3-2.
7S
dvce s requested reatve to the reease to the French Government
of Federa ncome ta es wthhed at the source from nterest and
dvdends on doar securtes owned by certan French natonas and
others, tte to whch was taken by the French Government by French
Decree No. 6-1698 of uy 26,19 6, whch became effectve on uy G,
19 7, by pubcaton on that date of Notce No. 1 0 of the French For-
egn change Contro oard.
Due to formates nvoved n the procedure under the requston,
devery of some of the securtes by the former owners to the French
authortes was deayed so that n many cases amounts of nterest and
dvdends whch became due and payabe on or after uy 6, 19 7,
were remtted to the former owners after the Federa ncome ta had
been wthhed therefrom. Upon devery of the requstoned secur-
tes, the former owners receved an ndemnty correspondng to the
vaue of the securtes as of uy 6, 19 7, the date of vestng. In
those cases n whch amounts of nterest and dvdends were coected
by such former owners after the date of vestng and pror to devery,
the amount actuay coected by them (the Federa ncome ta havng
been wthhed) was deducted from the ndemnty. Under such cr-
cumstances, Federa ncome ta was wthhed on ncome derved by
the French Government from the requstoned securtes.
Under secton 116(c) of the Interna Revenue Code, the ncome of
a foregn government from stocks, bonds, or other domestc securtes
s e empt from Federa ncome ta . It foows that ncome whch
accrued to the French Government on or after uy 6, 19 7, from se-
curtes requstoned as of that date s not sub|ect to wthhodng
under secton 1 3 or 1 of the Code. Wthhodng agents n the
Unted States are, therefore, authorzed to reease to the French Gov-
ernment, or to the ank of France as agent of that Government,
amounts of ncome ta wthhed from nterest and dvdends whch
became due and payabe on or after uy 6, 19 7, on such securtes,
provded the wthhodng agents are satsfed that the securtes be-
onged to the French Government at the tme the ta was wthhed
and that the nterest and dvdends formng the bass for the ta were
turned over to the French Government by the former owners of the
securtes.
Secton 29.1 6 -2: F ed or determnabe annua 19 8-3-127 2
or perodca ncome. I. T. 3889
( so Secton 1 , Secton 29.1 -1.)
INT RN L R NU COD .
Increment on Treasury bs ssued at a dscount consttutes n-
terest whch, when pad to a nonresdent aen ndvdua or a non-
resdent foregn corporaton, s sub|ect to wthhodng of ncome ta
at the source under sectons 1 3(b) and 1 of the Interna Revenue
Code. The prncpes set forth n O. 102 (C. . 2, 189 (1920)) and
I. T. 1398 (C. . 1-2, 1 9 (1922)), reatng to the treatment of ds-
count on bank acceptances, do not appy to such ncrement.
dvce s requested whether the ncrement on Treasury bs ssued
at a dscount consttutes nterest whch, when pad to a nonresdent
aen ndvdua or a nonresdent foregn corporaton, s sub|ect to
wthhodng of ncome ta at the source under sectons 1 3(a) and 1
of the Interna Revenue Code.
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79
29.1 3-2.
It s contended that the provson n secton 75 (b) of Tte 31,
Unted States Code nnotated, to the effect that dscount on Treasury
bs s to be treated as nterest, s soey for the purposes of the e -
empton granted by that secton, that such e empton has been nu-
fed by secton 7 2a of the same tte n the case of Treasury bs ssued
on or after March 28,19 2, and that, snce no other statute requres that
the orgna dscount on Treasury bs shoud be treated as nterest,
the prncpes ad down n 0.102 (C. . 2,189 (1920)) and I. T. 1398
(C. . 1-2, 1 9 (1922)), reatng to gan reazed from bank accept-
ances purchased at a dscount, are appcabe, and the ncrement on
Treasury bs s not nterest, nor s t annua or perodca ncome.
It s further contended that ths vewpont s confrmed by secton
2(c) of the Interna Revenue Code, reatng to accrua of dscount
on short-term obgatons ssued on a dscount bass.
s e paned n secton 29.117-1 of Reguatons 111, the Second
Lberty ond ct ( 0 Sat., 288) provdes that Treasury bs sha
be ssued on a dscount bass, and ths s at a tmes consdered as the
bass of ther ssue, athough, by reason of compettve bddng, the
ssue prce 6f a partcuar b may e ceed ts face amount. The au-
thorzng ct requres that these bs sha mature wthn one year, but
ther maturty s customary 91 days after the date of ssue.
The terms of secton 75 (b) of Tte 31, Unted States Code nno-
tated, referred to above, are found n severa cts. Secton 7 2a of
the same tte provdes that nterest upon obgatons of the Unted
States, wth e ceptons not hereto reevant, ssued on or after March
28,19 2, sha not have any e empton, as such, under Federa ta cts
then or thereafter enacted, and that oss from the sae or other ds-
poston of such obgatons sha not have any speca treatment under
such cts. It aso states that ts provsons sna, wth respect to such
obgatons, be consdered as amendatory of and suppementary to the
respectve cts or parts of cts authorzng the ssuance of such ob-
ct of 19 2 (56 Stat., 189, C. . 19 2-1, 397) s cted as the bass of
secton 7 2a of the Unted States Code nnotated, ts genera pro-
vsons, fuy appcabe to Treasury bs, were frst enacted as a
part of the Pubc Debt ct of 19 1 (55 Stat., 7, C. . 19 1-1, 5 0).
It shoud be noted that secton 757c(d) of Tte 31, Unted States
Code nnotated, provdes, as to savngs bonds and savngs certfcates,
that, for purposes of ta aton, any ncrement n vaue represented by
the dfference between the prce pad and the redempton vaue re-
ceved (whether at or before maturty) sha be consdered as nterest.
When sectons 75 (b) and 757c(d) are read together wth secton
7 2a, a genera egsatve scheme s reveaed, the purpose of whch s,
as regards ta aton, to treat as nterest the ncrement on a types of
Government obgatons whch are ssued at a dscount. Secton 2(c)
of the Interna Revenue Code does not ndcate anythng to the con-
trary, for that secton, whch was added by secton 115(a) of the
Revenue ct of 19 1, was adopted soey for the purpose of factatng
the bookkeepng procedure of the hoders of short-term Government
obgatons. (See Senate Report No. 673, Part 1, Seventy-seventh
Congress, frst sesson (C. . 19 1-2, 66, 90).)
In vew of the foregong, t s hed that ncrement on Treasury bs
ssued at a dscount consttutes nterest whch, when pad to a non-
resdent aen ndvdua or a nonresdent foregn corporaton, s sub-
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29.1 -1.
80
|ect to wthhodng of ncome ta at the source under sectons 1 3(b)
and 1 of the Interna Revenue Code. The prncpes set forth n
O. 102 , supra, and I. T. 1398, supra, reatng to the treatment of
dscount on bank acceptances, do not appy to such ncrement.
Secton 29.1 3-3: empton from wthhodng. 19 8-6-12768
T. D.5G07
TITL 2 INT RN L R NU . C PT R I, SU C PT R . P RT 29. IN-
COM T : T L Y RS GINNING FT R D C M R 31, 19 1.
mendng secton 29.1 3-3 of Reguatons 111, reatng to e emp-
ton from wthhodng.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 5, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph 1. Secton 29.1 3-3 of Reguatons 111, as amended by
Treasury Decson 5580, approved November 13, 19 7 C. . 19 7-2,
88 26 CFR, 29.1 3-3 , s further amended by strkng out the ffth
paragraph and nsertng n eu thereof the foowng:
The saary or other compensaton for persona servces of a nonresdent aen
ndvdua who enters or eaves the Unted States at frequent ntervas, sha not
be sub|ect to deducton and wthhodng of Income ta at the source f
(1) such nonresdent aen s a resdent of Canada or Me co, or
(2) such nonresdent aen s engaged n agrcutura abor as defned n
secton 1 26(h) of the Interna Revenue Code.
Par. 2. ecause the purpose of ths Treasury decson s to reeve
restrcton t s found that t s unnecessary to ssue such Treasury
decson wth notce and pubc procedure thereon under secton (a)
of the dmnstratve Procedure ct, approved une 11, 19 6, or
sub|ect to the effectve date mtaton of secton (c) of sad ct.
Par. 3. Ths Treasury decson sha be effectve upon ts fng for
pubcaton n the Federa Regster.
(Ths Treasury decson s ssued under the authorty contaned n
secton 62 of the nterna Revenue Code (53 Stat, 32; 26 U. S. C, 62).)
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved March 12,19 8.
. L. M. Wggns,
ctng Secretary of the Treasury.
(Fed wth the Dhson of the Federa Regster March 18, 19 8, 9.03 a. m.)
S CTION 1 . P YM NT OF CORPOR TION
INCOM T T SOURC .
Secton 29.1 -1: Wthhodng n the case of
nonresdent foregn corporatons.
INT RN L R NU COD .
Increment on Treasury bs ssued at a dscount,
page 78.)
(See I. T. 3889,
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81
Regs. 112, 35.718-2.
Secton 29.1 -1: Wthhodng n the case of
nonresdent foregn corporatons.
INT RN L R NU COD .
Reease of amounts wthhed from nterest and dvdends on secur-
tes requstoned by the French Government. (See I. T. 3897,
page 77.)
C PT R 2. DDITION L T S.
SU C PT R . C SS PROFITS T .
P RT L
S CTION 718. UITY IN ST D C PIT L.
Rf |uatons 112, Secton 35.718-2: Determna- 19 8-9-12795
ton of day equty nvested capta ccumu- I. T. 3908
ated earnngs and profts.
INT RN L R NU COD .
The post-wnr credt aowed under secton 780 of the Interna
Revenue Code accrued at the same tme as the e cess prots ta
upon whch t was based, and n the case of a ta payer whch kept ts
books and fed ts Federa ncome and e cess profts ta returns
on the accrua bass, the credt, for the purpose of secton 71c8(a) ( )
of the Code, s ncudbe n earnngs and profts as of the begnnng
of the ta abe year foowng the ta abe year for whch the ta was
mposed.
I. T. 3720 (C. . 19 5, 267) modfed.
In vew of the decson n tschu s Incorporated v. Commssoner
(9 T. C, 697, acquescence, page 1, ths uetn), the rung pubshed
as L T. 3720 (C. . 19 5, 2G7), n so far as t reates to the tme of
accrua of the post-war credt provded by secton 780 of the Interna
Revenue Code, has been reconsdered.
The queston n tschu s Incorporated v. Commssoner, supra, was
whether the post-war credt aowabe n respect of the e cess profts
ta for the ta abe year of the pettoner ended anuary 31, 19 3,
accrued as of anuary 31, 19 3, or as of the tme the ta was pad.
The court concuded that the credt accrued as of anuary 31, 19 3.
That concuson s contrary to I. T. 3720, supra.
In vew of the foregong, t s hed that the post-war credt aowed
under secton 780 of the Interna Revenue Code accrued at the same
tme as the e cess profts ta upon whch t was based, and n the case
of a ta payer whch kept ts books and fed ts Federa ncome and
e cess profts ta returns on the accrua bass, the credt, for the purpose
of secton 718(a) ( ) of the Code, s ncudbe n earnngs and profts
as of the begnnng of the ta abe year foowng the ta abe year
for whch the ta was mposed.
I. T. 3720, supra, s modfed accordngy.
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Regs. 112, 35.718-2.
82
Reguatons 112, Secton 35.718-2: Determ- 19 8-9-12796
naton of day equty nvested capta c- Ct. D. 1697
cumuated earnngs and profts.
( so Secton 115, Secton 29.115-3.)
C SS PROFITS T INT RN L R NU COD , S M ND D OPINION OF
SUPR M COURT.
quty Invested Capta ccumuated arnngs and Profts
Instament Saes adty of Reguatons.
For the purpose of the e cess profts ta for the ta abe year 19 3,
a corporaton whch computed ts ta abe ncome from nstament
saes on the nstament bass, as provded by secton of the
Interna Revenue Code, but computed ts accumuated earnngs and
profts from these same saes on the accrua bass, can ncude n
ts equty nvested capta ony that porton of ts profts from
nstament payments whch It had actuay receved nnd on whch
It had aready pad ncome ta es n the year of recept. Secton
29.115-3 of Reguatons 111, whch s appcabe to both the norma
ncome ta and the e cess profts ta and specfcay provdes that
a corporaton computng ncome on the nstament bass as pro-
vded n secton sha, wth respect to the nstament transactons,
compute earnngs and profts on such bass, s vad.
Supreme Court of the Unted States.
Commssoner of Interna Revenue, pettoner, v. South Te as Lumber Co.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Ffth Crcut.
March 29, 19 8.
opnon.
Mr. ustce ack devered the opnon of the Court.
Ths case rases a queston as to respondent s abty for the ta abe year 19 3
under the cess Profts Ta ct of 19 0 as amended. (5 Stat., 975, 26
U. S. C, secton 710, et seq.) The aw was passed to ta abnormay hgh profts
due to arge governmenta e pendtures about to be made from appropratons for
natona defense.1 The e cess profts ta was a graduated surta upon a porton
of corporate ncome, and was mposed In addton to the reguar ncome ta . It
apped to a corporate profts and gans over and above what Congress deemed to
be a far and norma return for the corporate busness ta ed.
Under the controng 19 3 aw the amount of ncome sub|ect to ths e cess
profts ta s computed by subtractng from the net Income sub|ect to reguar
ncome ta the amount of earnngs Congress deemed to be a ta payer s norma
and far return. Ths deductbe amount, caed the e cess profts credt, was
to be computed n one of two ways, whchever resuted n the esser ta . (Secton
712.) The frst, not used here, permts a deducton of an amount equa to the
company s average net ncome for the ta abe years 1936 to 1939 Incusve.
(Secton 713.) The second, used here, permts a deducton of an amount equa
to 8 per centum of the ta payer s nvested capta for the ta abe year. (Secton
71 .) n ncudbe eement of the nvested capta s the accumuated
earnngs and profts as of the begnnng of such ta abe year. It thus appears
that by ths method Congress ntended, wth mnor e ceptons not here reevant,
to mpose the e cess profts ta on a annua net ncome n e cess of 8 per cent of a
corporaton s workng capta, ncudng Its accumuated profts. The controversy
here s over the ta payer s cam that n computng ts 19 3 ta the statute aows
t to ncude In ths 8 per cent deducton Its accumuated profts from certan
nstament saes, whch profts the ta payer, n accordance wth an opton con-
ferred upon hm, had eected not to report as a part of ts ta abe ncome n
pror years.
II. R. No. 289 , Seventy-sTth Congress, thrd sesson, 1-2 C. . 19 0-2, 96 .
1 Other ad|ustments not here matera are provded, but the chef deducton or ad|ust-
ment Is the one noted above.
The stracht 8 per cent fgure of 19 0 was modfed In severa respects not here matera
n 19 1 and subsequent years. (50 Stat., 699 ; 56 Stat., 911; 58 Stat., 55.)
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83
Regs. 112, 35.718-2.
egnnng n 1937 and e tendng over a -year perod, respondent sod parces
of rea estate, gave deeds, and took nstament notes, whch were secured by
mortgages and vendors ens. It kept ts books generay on a caendar year
accrua bass of accountng, a bass under whch a obgatons of a company
appcabe to a year are sted as e pendtures, whether pad that year or not,
and a obgatons to t ncurred by others appcabe to the year are set up as
ncome on the same bass. Under 26 U. S. C., secton 1, an ncome ta payer
may report ncome and e pendtures ether on an accrua bass, or on a cash
bass under whch atter method annua net ncome s measured by the dfference
between actua cash receved and pad out wthn the ta abe year. In any event,
the bass used must, n the anguage of secton 1, ceary refect the ncome.
Respondent dd not report the vaue of ts and nstament notes as ncome
on the accrua bass as t coud have done under secton 1. Instead, from 1037
np to and ncudng 19 3, t has consstenty reported ts annua ncome from
the nstament saes on a thrd, or nstament bass, e pressy authorzed for
certan types of nstament saes by 26 U. S. C, secton . That secton per-
mts a ta payer to return as ta abe ncome for a gven year ony that proporton
of the nstament paymenta actuay receved n that year whch the gross proft
reazed or to be reazed when payment s competed, bears to the tota contract
prce. Thus respondent s nstament Income has actuay been reported for
ta es a aong substantay on a modfed cash recepts bass, and the ta payer s
net ncome, whch s sub|ected both to the norma ncome ta and to the e cess
profts ta , has not n any of these years refected the unpad baances on the
nstament notes, or any part of them. On the contrary, these baances were
sted on respondent s ta returns durng these years as Unreazed proft nsta-
ment saes.
On ts 19 3 e cess profts ta return respondent nevertheess reported as ac-
cumuated earnngs and profts the amount of Unreazed proft nstament
saes shown on ts books at the end of 19-12, and ncuded ths amount In n-
vested capta. It thus sought to deduct 8 per cent of ts theretofore desgnated
unrea zed proft n computng ts e cess profts ta . The Commssoner re-
determned the ta for 19 3 after emnatng ths tem from Invested capta.
The Ta Court sustaned the Commssoner s redetermnaton (7 T. C, 6t9),
reyng on ts opnon n nbre s ome Furnshngs Inc. (7 T. C, 339). The
Crcut Court of ppeas, wth one |ustce dssentng, reversed on the authorty
of ts decson n Commssoner v. Shenandoah Co. (138 Fed. (2d), 792). The
Government s petton for certorar aeged that the resut reached by the Crcut
Court of ppeas was counter to the Commssoner s reguatons and to ong-
standng ta practces recognzed by statutes and |udca opnons, under whch
practces a ta payer normay can not report ta abe ncome on one accountng
bass and ad|ustments of that ncome oa another. The questons thereby rnsed
are of mportance n ta admnstraton and we granted certorar to consder
them.
Treasury reguaton, set out n part beow, appcabe to both the norma
ncome ta and the e cess profts ta , specfcay provdes that a corporaton
computng ncome on the nstament bass as provded n secton sha, wth
respect to the nstament transactons, compute earnngs and profts on such
bass. Snce respondent computed ts ta abe ncome from Instament saes
In ts 19 3 return respondent aso reported the amount of such unreazed profts shown
on Its books as of the end of the two precedng years for purposes of cacuatng the e cess
profts credt carryover authorzed by secton 710(c).
The mbre case was subsequenty reversed but not on the contenton here urged.
(159 Fed. (2d). 608.)
Secton 29.115-3 of Reguatons 111: arnngs or Profts. In determnng the
amount of earnngs or profts (whether of the ta abe year, or accumuated pror to March 1,
1913) due consderaton must be gven to the facts, and whe mere bookkeepng entres
Increasng or decreasng surpus w not be concusve, the nmount of the earnngs or
profts In any case w be dependent upon the method of accountng propery empoyed n
computng net Income. For Instance, a corporaton keepng ts books and fng ts ncome
ta return under sectons 1, 2, and 3 on the cash recepts and dsbursements bass may
not use the accrua bass In determnng earnngs nnd profts ; a corporaton computng
Income on the Instament bass aa provded In secton sha, wth respect to the Insta-
ment transactons, compute earnngs and profts on such bass; .
The meanng of a terms used n the subchapter deang wth the Income ta was e -
pressy made appcabe to terms used In the e cess profts subchapter. (Secton 728.)
Treasury Reguatons 112 provded: In genera, the concept of accumuated
earnngs and profts for the purpose of the e cess profts ta s the same as for the purpose
of the Income ta . (Secton 35.718-2. See aso . R. No. 289 , Seventy-s th Congress,
thrd sesson, 1 C. . 19 0-2, 526 .)
Ths part of the reguatons was added as an amendment to Reguatons 103, secton
19.115-3, now secton 29.115-3 of Reguatons 111, after adopton of the 19 0 cess
Profts Ta Law. (T. D. 5059, uy 8,19 1 C. . 19 1-2, 125 .)
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Regs. 112. 35.718-2.
8
on the nstament or modfed cash recepts bass, but computed ts earnngs and
profts from these same saes on another bass, the accrua, t contends that the
reguaton s nvad because nconsstent wth the governng Code provsons.
adty of the reguaton Is therefore the cruca queston.
Ths Court has many tmes decared that Treasury reguatons must be sus-
taned uness unreasonabe and pany nconsstent wth the revenue statutes and
that they consttute contemporaneous constructons by those charged wth ad-
mnstraton of these statutes whch shoud not be overrued e cept for weghty
reasons. (See, e. g., Fawcus Machne Co. v. Unted States, 282 U. S., 375, 378
Ct. D. 278, C. . -, 2 , 25 (1931) .)
Ths reguaton s n harmony wth the ong-estabshed congressona pocy
that a ta payer generay can not compute ncome ta es by reportng annua n-
come on a cash bass and deductons on an accrua bass. Such a practce has been
unformy hed nadmssbe because t resuts n a dstorted pcture whch makes
a ta return fa truy to refect net ncome. Ths has been the constructon gven
ncome, estate, and prevous e cess profts ta aws by admnstratve offcas, the
oard of Ta ppeas, and the courts.
The reguaton s reasonabeness and consstency wth the statutes whch Im-
pose the e cess profts ta on ncomes s aso supported by pror egsatve and
admnstratve hstory. The present nvested capta deducton s patterned
after a smar provson n secton 326(a) of the Revenue ct of 1918 ( 0
Stat., 1057, 1088, 1092). That secton mposed a War profts and e cess profts
ta . Invested capta there Incuded pad In or earned surpus and undvded
profts. Under that aw the admnstraton, the oard of Ta ppeas, and
the courts have unformy hed that a ta payer, havng eected to adopt the
nstament bass of accountng, coud not thereafter dstort hs true e cess
profts ta ncome by ncudng uncoected nstament obgatons n hs n-
vested capta deducton base. ta payer, havng chosen to report hs ta -
abe Income from nstament saes on the nstament cash recepts pan, thereby
spreadng ts gross earnngs and profts from such saes over a number of years
and avodng hgh ta rates, was not permtted to obtan a further reducton
by shftng to an accrua pan and treatng uncoected baances on these n-
stament saes as though they had actuay been receved n the year of the
sae.
The hstory of the congressona adopton of the optona Instament bass
aso supports the power of the Commssoner to adopt the reguaton here n-
voved. Pror to 1926 the rght of a ta payer to report on the nstament pan
rested ony on Treasury reguatons. In 1925, the oard of Ta ppeas hed
these reguatons were wthout statutory support. Congress prompty, n sec-
ton 212(d) of the 1926 Revenue ct, adopted the present statutory authorty
for an eectve nstament bass for reportng Income, the Senate commttee
report on the measure desgnatng t as a thrd bass, the nstament bass.
Ths new statutory provson was strkngy smar to the Treasury regua-
tons prevousy hed unauthorzed by the oard of Ta ppeas. That the
Commssoner was partcuary ntended by Congress to have broad rue-mak-
ng power under the reguaton was manfested by the frst words In the new
nstament bass secton whch ony permtted ta payers to take advantage
of t Under reguatons prescrbed by the Commssoner wth the approva
of the Secretary . The cause s st contaned n secton of the
Code. Ths gves added reasons why nterpretatons of the ct and regua-
tons under t shoud not be overrued by the courts uness ceary contrary to
O C M 2951 (C. . TI-1, 100 (1928) ; I. T. 3253 (C. . 1939-1, 178) : Consodated
sphat Co. (1 . T. ., 79, 82) ; enry Reube ecutor (1 . T. .. 676. 678-680) ;
n Todd, Inc. (1 . T. ., 762. 766) ; ank of artsvc (1 . T. ., 920, 921) ; tantc
Coast Lne R. Co. (2 . T. ., 892, 89 -895) ; Unted States v. nderson (269 U. S., 22,
0 T. D. 3839, C. . -, 179, 182 (19261); acob ros. v. Commssoner (50 Fed.
(2d), 39 . 396) ; enkns . tgood (22 Fed. Supp., 16, 17-18, affrmed, 101 Fed. (2d). 17).
Schmoer d Mueer Pano Co. v. Unted States (67 C. Cs., 28) : ohn M. rant Co.
v Unted States ( 0 Fed. (2d), 120 Ct. D. 222, C. . I -2, 192 (1930)1) : Standard Com-
putng Scae Co. . Unted States (52 Fed. (2d). 1018) ; acob ros. . Commssoner (50
Fed (2d), 39 ) ; Tu Gbbs . Unted States ( 8 Fed. (2d), 1 8) ; um Inc. v. Comms-
soner (7 . T. ., 737, 771) ; New ngand Furnture t Carpet Co. . Commssoner (9 .
T. ., 33 ) ; Oreen Furnture Co. v. Commssoner (1 . T. ., 508) ; S. Davdson f ros,
v. Commssoner (21 . T. ., 638, 6 ) ; Federa St. t Peasant aey Passenger R. Co. v.
Commssoner (2 . T. .. 262, 266).
11 rtce 117 of Reguatons 33 (Revsed), promugated anuary 2, 1918, and rtce 2
of Reguatons 5, promugated pr 17, 1919.
11 . . Todd Inc. (1 . T. ., 762) ; . . Graves Co. (1 . T. ., R59) : oover ond Co.
(1 . T. ., 929) ; S undred and Ffty West nd venue Co. (2 . T. ., 958).
u S. Rept. No. 52, S ty-nnth Congress, frst sesson, 19, the Senate Fnance Commt-
tee s report on Revenue ct of 1920 ( Stat., 9, 23).
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85
Regs. 112, 35.718-2.
the w of Congress. (See urnet v. 8. L. dg. Corp., 288 U. S., 06, 15
Ct. D. 651, C. . II-1, 195, 198 (1933) .)
The nstament bass of reportng was enacted, as shown by Its hstory,
to reeve ta payers who adopted t from havng to pay an ncome ta n the
year of sae based on the fu amount of antcpated profts when n fact they
had receved n cash ony a sma porton of the saes prce. nother reason
was the dffcut and tme-consumng effort of apprasng the uncertan market
vaue of nstament obgatons. There Is no ndcaton n any of the con-
gressona hstory, however, that by passage of ths aw Congress contempated
that those ta payers who eected to adopt ths accountng method for ther
own advantage coud by ths means obtan a further ta advantage dened
a other ta payers, whereby they coud, as to the same ta abe transacton, re-
port n part on a cash recepts bass and In part on an accrua bass.
We fnd nothng unreasonabe n the reguatons here. (See Commssoner v.
Wheeer, 32 U. S., 5 2 Ct. D. 1637, C. . 19 5, 3 9 .)
It s argued that notwthstandng what has been sad, Congress by enactng
secton 501 of the 19 0 Second Revenue ct (5 Stat., 97 , 100 , 2( U. S. C,
secton 115(1)) had provded a defnton of earnngs and profts whch In-
cudes these unpad Instament obgatons and that the reguaton here con-
fcts wth secton 115(1), whch Is appcabe ake to both the ncome and
the e cess profts ta es. There are at east two reasons why we can not accept
ths argument. In the frst pace, nether secton 115(1) nor any other pur-
ports to ater the Commssoner s power to promugate reasonabe reguatons
whch requre ta payers who adopt the nstament bass of accountng to use
an accountng method that refects true Income. The hybrd method here
urged woud not accompsh that resut.
In the second pace, we can not agree wth the respondent s nterpretaton
of secton 115(1). e argues that earnngs and profts derved from a sae
of property are defned n secton 115(1) consdered n the ght of sectons 111,
112, and 113; that these sectons together d fne such earnngs and profts as
n gan reazed n the year of sae and recognzed under the aw ap-
pcabe to the year of sae; that a the antcpated profts from these nstament
saes were reazed when the saes were made because the nstament obga-
tons of the purchasers were receved by respondent n the year of sae and they
must be assumed to have been worth ther face vaue; that they were recog-
nzed as ta abe by secton 111(c), the aw appcabe to the year of sae; and
that consequenty, the Commssoner was compeed to accept these awfuy
reazed and recognzed accumuated profts as nvested capta for
e cess profts ta purposes, even though not prevousy reported as ta abe
ncome for ether Income ta or e cess profts ta purposes. Fnay respondent
contends that secton merey conferred upon t a prvege to defer payment
of ncome ta on ts ta recognzed profts reazed from nstament saes
nnt the unpad nstament obgatons were coected.
The congressona reports on secton 115(1) do not provde support for the
dea that gans not ncuded n ta abe ncome under the ta payer s method
of accountng may nevertheess be consdered reazed and recognzed
for computng ta ad|ustments or deductons so ong as they mght have entered
nto such computatons under a dfferent method of accountng. Furthermore,
nether sectons 111, 112, nor 113, requre a recognton of the fu face vaue
of nstament paper. It Is true that secton 111(b) does provde that gan or
8. Rept. No. 52, S ty-nnth Congress, frst sesson, 19 C. . 1939-1 (Part 2). 3 G ;
T I cufs v. Oradwoh (58 Fed. (2d), 587, 589-390 Ct. D. 52 , C. . I-2, 155, 158
(1932) ).
Secton 115(1) provdes : The gan or oss reazed from the sae or other dsposton
o property by a corporaton
(2) for the purpose of the eomputaton of earnngs and profts of the corporaton for
any perod begnnng after February 28, 1913. sha be determned by usng a the ad|usted
bass the ad|usted bass (under the aw appcabe to the year In whch the sae or other
dsposton was made) for determnng gan.
Gan or oss so reazed sha ncrease or decrease the earnngs and profts to. but not
beyond, the e tent to whch such a reazed gan or oss was recognzed n computng net
ncome under the aw appcabe to the year n whch such sae or dsposton was made.
The conference commttee report C. . 19 0-2. 5 8 on the Second Revenue ct of
18 0 (5 Stat., 97 ), sad wth reference to secton 115(1) : The provsons n the ouse
and Senate bs, that gnn or oss so reazed sha Increase or decrease the earnngs and
profts to, but not beyond, the e tent recognzed n computng net ncome under the aw
appcabe to the year n whch such sae or dsposton was made, are retaned. s used
n ths subsecton the term recognzed reates to a reazed gan or oss whch s
recognzed pursuant to the provsons of aw, for e ampe, see secton 112 of the Interna
Revenue Code. It does not reate to osses dsaowed or not taken nto account. (Con-
ference Report No. 3002, Seventy-s th Congress, thrd sesson, 00 C. . 19 0-2, 503 .)
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Msc.
86
oss reazed from the sae of property sha be measured by the sum of
any money receved pus the far market vaue of the property (other than
money) receved and secton 111(c) provdes that the e tent of gan or oss
sha be recognzed as determned under the provsons of secton 112. ut
secton 111(d) provdes that nothng n secton 111 sha be construed to prevent
(n the case of property sod under contract provdng for payment n nsta-
ments) the ta aton of that porton of any nstament payment representng gan
or proft n the year n whch such payment s receved. Ths means that where
a ta payer has vady reported ts ncome from nstament saes on the Insta-
ment bass provded by secton , that secton, not sectons 111, 112, and 113
prescrbes the e tent to whch recepts from such saes are recognzed as
ta abe and the year n whch such recepts are recognzed n computng
ta abe ncome. Secton provdes for the return as ncome n any ta abe
year that proporton of the nstament payments actuay receved n that year
whch the gross proft reazed or to be reazed when payment s competed,
bears to the tota contract prce. Unke secton 111, secton does not
recognze as sub|ect to ncome ta abty the market vaue of deferred
nstament obgatons. They may never be recognzed by a ta payer on the
nstament bass for ta purposes under secton or any other secton, for
they may never be pad, or may be pad ony n part. The antcpated profts
from these deferred obgatons are recognzed and ta abe under secton
ony f the obgatons are pad and when they are pad, uness they are sod or
transferred before payment. Thus whatever meanng s gven to the words
reazed and recognzed the reguaton here consdered s not n confct
wth sectons 115(1), 111, 112, and 113.
The reguaton s vad. The respondent can Incude n ts equty nvested
capta ony that porton of ts profts from nstament payments whch t has
actuay receved and on whch t has aready pad ncome ta es In the years
of recept
Reversed.
Mr. ustce Dougas and Mr. ustce urton dssent.
C SS PROFITS T COUNCIL.
19 8-13-12828
. P. C. 2
Constructve events and condtons under the push-back rue.
1. In . P. C. 21 C. . 19 7-2,136 the Counc modfed those pro-
vsons of the uetn on Secton 722 deang wth the push-back rue
whch were commony referred to as the capacty mtaton. Some-
what smar questons have arsen n cases, not nvovng any mta-
ton on capacty, where ta payers have requested reef under secton
722(b) ( ) and the push-back rue s nvoved.
2. In connecton wth the appcaton of the push-back rue, the
uetn on Secton 722 (e. g., page 88, G. P. O. prntng) states that
changes, nnovatons, addtons, new processes, new products, new
factes, or any other factor whch was not present actuay or con-
structvey under the commtment rue by December 31,1939, can not
be brought nto the pcture n determnng what consttutes the changed
busness for whch norma earnngs are to be estabshed.
3. It s the opnon of the Counc that such statements are not
proper nterpretatons of secton 722. Where the push-back rue s
nvoked and t resuts n a constructve ncrease n the eve of earn-
ngs as of December 31, 1939, t necessary nvoves the assumpton
of the e stence or occurrence of certan events or condtons. The
Counc hods that any such event or condton whch s an essenta
part of, or ntegra factor n, the deveopments whch ceary woud
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Msc.
have been e pected to resut from the commencement or change n the
character of a busness, by the end of the base perod, n the ordnary
course of the busness, under base perod condtons, had the com-
mencement or change been made two years earer, may be recognzed
n estabshng the constructve earnngs eve at the end of the base
perod. The fact that such event or condton, had t occurred pror
to anuary 1, 19 0, mght have served as a quafcaton for reef, s
not matera. The ta payer must ceary demonstrate that such change
or other crcumstance woud have resuted n the usua course of bus-
ness under base perod condtons had the quafyng event occurred
two years earer. There are no grounds for ookng beyond December
31, 1939, n a noncommtment stuaton, and the queston of whether
the constructve events or condtons dd or dd not actuay occur or
e st after December 31,1939, s rreevant.
. In the opnon of the Counc the push-back rue can not be used
to estabsh as a quafyng factor a change n the character of the
busness not made or commtted for unt after December 31, 1939.
Thus, f the bass upon whch reef s camed s a change n the char-
acter of the busness made n anuary, 19 0, whch was not commtted
for pror to anuary 1, 19 0, the ta payer can not quafy for the
benefts of secton 722 and the push-back rue may not be used to brng
a post-1939 event or condton nto the base perod to serve as a qua-
fyng factor. (See . P. C. 9 C. . 19 7-1,76 .)
enry . Merry,
Charman, cess Profts Ta Counc.
une 9,19 8.
19 8-13-12829
. P. C. 25
Under the facta gven, the Counc appes the prncpes set forth
n . P. C. 2 page 86, ths uetn , and t s hed, that the con-
structve eve of earnngs as of December 31, 1039, may contempate
earnngs from constructve saes of a by-product not actuay sod
pror to anuary 1, 19 0.
1. The Corporaton was organzed n 1925 and fed ncome ta
returns on the caendar year bass. It operated a manufacturng pant
n New ngand. In 1939, ta payer constructed a pant n a Southern
State. Ths new pant began operatons on November 1, 1939, pro-
ducng goods of the same genera type as those produced by the
Northern m. n appcaton for reef under the provsons of
secton 722 has been fed aegng that average base perod net n-
come s an nadequate standard of norma earnngs because of a change
n the capacty for producton occurrng n 1939.
2. The technque of recoverng by-product was known to the
Corporaton s management and had been standard practce at ts
New ngand pant and throughout the ndustry. owever, no at-
tempt was made to recover and commercaze ths by-product at the
new pant unt after December 31, 1939, because of the fact that
ta payer was prmary engaged n tranng ts abor force there. The
ta payer has estabshed that, f t had commenced operatons at ts
Southern pant two years before t actuay dd so (. e., on November
1,1937), t woud have acheved a eve of earnngs as of December 31,
1939, attrbutabe to the recovery and sae of by-product , equa to
10,000 a year.
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88
3. In accordance wth the prncpes set forth n . P. C. 2 page 86,
ths uetn , t s the opnon of the Counc that the ta payer s
entted under the push-back rue to ncude n ts constructve eve of
earnngs as of December 31, 1939, net ncome of 10,000 attrbutabe
to constructve saes of by-product . Such net ncome s a ceary
foreseeabe resut fowng drecty from the openng of the new pant.
It s an essenta part of the deveopments whch woud be e pected
to resut from the change, by the end of the base perod, n the ordnary
course of busness, under base perod condtons, had the change been
made two years earer.
enry . Merry,
Charman, cess Profts Ta Counc.
une 9,19 8.
19 8-13-12830
. P. C. 26
Under the facts gven, the Counc appes the prncpes stated
n . P. C. 2 page 86, ths uetn , and t s hed that n deter-
mnng the constructve eve of earnngs as of December 31,1939. the
push-back rue may not be e tended to ncude earnngs attrbutabe
to by-product Y.
1. The Corporaton, whch was organzed n 1930 and fed ncome
ta returns on the caendar year bass, has estabshed that t changed
the character of ts busness n 1937 by acqurng a cense to manufac-
ture product W by a patented process. It constructed a new pant
and began operatons under ths cense n ugust, 1939.
2. In une, 19 0, the Corporaton s research department, n at-
temptng to devse means to ncrease the purty of the product W
whch was beng produced, dscovered that, by makng certan mod-
fcatons n the process, by-product Y coud be recovered n commer-
ca quanttes from the operaton of the new pant. Pror to 19 0
nether the Corporaton nor any other censee for product W
knew that the recovery of by-product Y was commercay feasbe.
3. It has been urged that, n determnng the constructve eve of
earnngs for the Corporaton under the push-back rue, provson
shoud be made for constructve earnngs attrbutabe to saes of by-
product Y. In support of ths vew t has been estabshed that
but for the change n the character of the busness n 1937 ths ds-
covery woud not have been made and, further, that substanta earn-
ngs dd resut from the dscovery wthn two years after December
31, 1939.
. It s the vew of the Counc that, under the prncpes set forth
n . P. C. 2 page 86, ths uetn , the push-back rue can not be
e tended to embrace earnngs from the sae of by-product Y. Upon
the facts presented, t appears that ths dscovery was nether an essen-
ta part of, nor an ntegra factor n, the deveopments whch ceary
mght be e pected to resut from the change n character made n 1937.
It can not be cassed as an e pected consequence of procurng the cense
to produce product W. It depended upon an entrey separate
event whch woud not, under base perod condtons, be an antcpated
resut fowng from the quafyng change n the ordnary course of
busness. The fact that substanta earnngs dd resut from the sae
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89
Msc.
of by-prodnct u Y wthn two years after December 31, 1939, s
rreevant.
enry . Merry,
Charman, cess Profts Ta Counc.
une 9,19 8.
19 8-13-12831
. P. C. 27
In appyng the push-back rue under secton 722(b) ( ) to a ta -
payer that commenced busness durng the base perod, the construc-
tve eve of earnngs as of December 31, 1939, may contempate
constructve saes In terrtores not actuay served pror to anuary
1,19 0. ( . P. C. 2 page 86, ths uetn apped.)
1. The C Corporaton was organzed anuary 1, 1937, for the pur-
pose of manufacturng and seng a compound for househod use n
the aunderng of cothes. The product was sod from door-to-door
and was receved favoraby. Inta seng operatons were confned
to a snge State, but durng the remander of the base perod addtona
saes forces were organzed on a State-by-State bass. s of December
31, 1939, the end of the base perod, the C Corporaton was dong bus-
ness n 12 States, havng e panded ts saes terrtory by one addtona
State every few months.
2. The ta payer presented evdence whch estabshed that f the C
Corporaton had commenced busness two years before t actuay dd
so, t woud have been dong busness n 18 States by the end of the
base perod.
3. In appyng the push-back rue, operatons n a saes terrtory
comprsng 18 States shoud be consdered n determnng the con-
structve eve of earnngs at the end of the base perod, as one of the
steps n the ascertanment of norma earnngs. (See . P. C. 2 page
86, ths uetn .)
enry . Merry,
Charman, cess Profts Ta Counc.
une 9,19 8.
19 8-13-12832
. P. C. 28
Under the facts gven, the Counc appes the prncpes stated n
. P. O. 2 page 86, ths uetn and the constructve eve of earn-
ngs as of December 31, 1939, determned under the push-back rue,
contempates cost savngs attrbutabe to rebut machnes not actu-
ay n producton ne as of the end of the base perod.
1. The D Corporaton was organzed n 1912 and fed ts ncome
ta returns on the caendar year bass. s of the begnnng of the base
perod, technoogca mprovements n ts ndustry had paced the ta -
payer at a compettve dsadvantage whch became ncreasngy serous
n 1937 and 1938. Late n 1938 the board of drectors decded that
modernzaton was mperatve and that new management was neces-
sary n order to effectuate the proposed mprovement program.
2. On anuary 1, 1939, the presdent and treasurer of the corpora-
ton were repaced; a new genera manager and a new factory super-
ntendent were apponted. comprehensve survey of the pant was
790500 8 7
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90
made by the new management group and a pan of renovaton and re-
pacement drawn up by them was approved by the board of drectors
on March 1, 1939. Ths pan, among other thngs, recommended that
100 of the ta payer s semobsoete machnes be torn down, rebut, and
mproved n ts own machne shop. Ths change was to be made at the
rate of about machnes a month, so as to mnmze nterference wth
producton, and t had as ts prmary ob|ectves the mprovement of
quaty and the reducton of aoor costs. ctua capacty for produc-
ton woud not have been ncreased.
3. s of December 31, 1939, ta payer had rebut and renstaed 32
machnes and was n process of rebudng 5 others. It s admtted
that no commtment s nvoved and ta payer has estabshed that, had
the change n management occurred two years earer (. e., on anuary
1, 1937), the entre 100 machnes woud have been rebut and ren-
staed by December 31,1939.
. It s the vew of the Counc that, under the push-back rue, oper-
aton of the pant wth 100 rebut machnes s to be consdered n
determnng the constructve eve of earnngs as of December 31,1939.
(See . P. C. 2 page 86, ths uetn .)
enry . Merry,
Charman, cess Profts Ta Cownc.
une 9,19 8.
19 8-13-12833
. P. C. 29
The Corporaton was organzed and commenced busness n
anuary, 1939, and, therefore, s quafed for consderaton under
secton 722(b) ( ). For the ta abe year ended December 31, 1939,
t sustaned an operatng oss gvng rse to a net operatng oss de-
ducton appcabe to 19 0, ts frst e cess profts ta ta abe year.
ed, that constructve average base perod net ncome appcabe
to 19 0 must be determned n a manner that w compensate for
the effect of the net operatng oss deducton on net ncome for 19 0.
n acceptabe method s ustrated heren.
1. The Corporaton was organzed and commenced busness n
anuary, 1939, and fed returns on the bass of the caendar year. For
the year 1939 the corporaton sustaned a net operatng oss whch
gave rse to a 19,000 net operatng oss deducton for 19 0. Its net
ncome for 19 0, computed wthout regard to the net operatng oss de-
ducton, was 100,000.
2. The ta payer fed appcaton for reef under secton 722 for
19 0 and estabshed that ts constructve average base perod net
ncome appcabe to 19 0 woud be 0,000 f the net operatng oss
deducton for 19 0 propery coud be gnored.
3. If the amount of reef were computed wthout regard to the
net operatng oss deducton, dupcaton n ta benefts woud arse.
The operatng oss woud, n effect, be restored twce n the compu-
taton of the e cess profts ta for the year 19 0; frst, by reducng the
e cess profts net ncome for 19 0 and, second, by substtutng net n-
come for ths oss n computng constructve base perod net ncome to
form part of the e cess profts credt. Such doube countng woud
be contrary to the terms of secton 722(a), whch prescrbes that the
constructve average base perod net ncome sha be a far and |ust
amount for the purpose of comparng norma earnngs wth earnngs
durng an e cess profts ta perod.
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Ms3.
. In the crcumstances of ths case, the constructve average base
perod net ncome for 19 0 s obtaned by reducng the amount whch
woud be used n the absence of a net operatng oss deducton by a sum
equa to 100 nnety-ffths of the e cess of the net operatng oss de-
ducton for 19 0 over addtona 19 0 ncome ta that woud have
been payabe had no such deducton been aowabe. In short, the
ob|ect of the ad|ustment s to sub|ect to e cess profts ta an amount of
ad|usted e cess profts net ncome equa to the amount that woud
have been ta ed had there been no net operatng oss deducton.1
5. n acceptabe method of determnng the correct constructve
average base perod net ncome appcabe to 19 0 for the Corpo-
raton may be ustrated as foows:
Net ncome for 19 0 computed wthout regard to net operatng oss
deducton 100,000
Net operatng oss deducton 19,000
Net ncome 81,000
Income and defense ta (2 per cent) 19, 0
cess profts net ncome 61, 560
Constructve average base perod net Income (unad-
|usted) 0,000
Net operatng oss deducton 19, 000
Income and defense ta (2 per cent) , 560
cess 1 , 0
100/95 1 , 0 15,200
Constructve average base perod net Income (ad-
|usted) 2 ,800
95 per cent of ad|usted constructve average base perod net
ncome 23, 500
Specfc e empton 5, 000
28,560
d|usted e cess profts net ncome 33, 000
Proof:
Net ncome for 19 0 computed wthout regard to net operatng oss
deducton 100,000
Income and defense ta (2 per cent) 2 ,000
cess profts net ncome 76,000
Constructve average base perod net ncome 0,000
95 per cent of constructve average base perod net ncome 38,000
Specfc e empton 5,000
3,000
d|usted e cess profts net ncome 33, 000
enry . Merrt,
Charman, cess Profts Ta Counc.
une 9,19 8.
Ths e ampe nvoves ony the carry-over to 19 0 of a net operatng Iobb for 19S9.
smar ad|ustment a requred In determnng constructve average base perod net ncome
appcabe to 19 1 where a net operatng oss deducton for 19 1 orgnates n a base perod
ta abe year.
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92
19 8-13-1283
. P. C. 30
Iustraton of factors to be consdered In determnng constructve
average base perod net ncome.
1. The F Corporaton fed an appcaton for reef under the pro-
vsons of secton 722 n whch t aeged that ts average base perod
net ncome was an nadequate standard of norma earnngs because
operatons for 1937 were nterrupted by a fre.
2. Snce ts organzaton n 1925 the ta payer has been engaged n
the operaton of reta stores. t the begnnng of the base perod t
operated four separate stores ocated n dfferent sectons of a arge
cty n such a manner as to be noncompettve. In 1937 Store No. 1
was serousy damaged by a fre and t has been estabshed that the
earnngs of that store for 1937 were thereby depressed.
3. s of December 31, 1937, ta payer sod Store No. 2 and as of
October 31,1938, t sod Store No. 3. The proceeds of both saes were
dstrbuted to the sharehoders and these stores were thereafter oper-
ated by entrey dfferent nterests. It s stated by the ta payer that
t at no tme ntended to repace ether of the dscontnued unts.
. The arthmetc average of ta payer s actua base perod net
ncome was 5,000, whch was ncreased under the provsons of the
75 per cent rue of secton 713(e)(1) to 8,750. The actua base
perod net ncome, by stores, was as foows:
Store
No. 1
Store
No. 2
Store
No. 3
Store
No.
Tota
1936
17,000
3,000
6,000
18,000
13,000
16,000
15,000
17,000
8,000
17,000
19,000
10,000
22,000
62,000
5 ,000
2 ,000
0,000
1937
1938
1939
Tota
180,000
5,000
8,750
5. It s the contenton of the F Corporaton that reconstructed 1937
net ncome for Store No. 1 shoud be 23,000 and that t s entted to
use as ts constructve average base perod net ncome the resutng
genera average net ncome of 50,000 n eu of average base perod
net ncome of 8,750. The queston has arsen as to the effect, f any,
of the dscontnuance of Stores Nos. 2 and 3.
6. ased upon the facts stated, t s the opnon of the Counc that
constructve average base perod net ncome for the F Corporaton
can not be reconstructed smpy by correctng for the effects of the
fre n 1937. the crcumstances ndcate that the dscontnuance
of Stores Nos. 2 and 3 has resuted n a reatvey permanent change
n the eve of earnngs for ths ta payer at the end of the base perod.
It s the vew of the Counc that constructve average base perod
net ncome for the F Corporaton must represent norma earnngs for
the ta payer as t e sted at December 31, 1939, based on the opera-
ton of Stores Nos. 1 and ony.
enry . Merry,
Charman, cess Profts Ta Counc.
une 9,19 8.
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93
Msc.
19 8-13-12835
. P. C. 31
In the case of a ta payer entted to the push-back rue under
secton 722(b) ( ), the constructve eve of earnngs attaned at the
end of 1939 shoud be backcast over the entre base perod.
1. The G Corporaton fed appcatons for reef under secton 722
whch aeged that ts average base perod net ncome s an nadequate
standard of norma earnngs because of certan changes n management
durng the base perod.
2. The ta payer was ncorporated n 1920 by P and fed ncome ta
returns on the caendar year bass. P served as ts presdent and gen-
era manager from the date of ts organzaton unt hs death on
February 1,1937. Under P s management the G Corporaton attaned
a promnent poston n the ndustry, earned substanta profts, and
acheved a wde reputaton for far deang and quaty performance.
3. Foowng the death of P, the poston of genera manager was
occuped by , who had been pant superntendent. proved to be
ncapabe. e was unabe to mantan the standard of performance
set by P and t has been estabshed that he nsttuted certan unsuccess-
fu poces whch resuted n serous oss of saes and profts. y
1939 workng capta became serousy depeted as the resut of s
faures and recevershp was avoded ony because one of the stock-
hoders advanced substanta funds n the form of a ong-term oan.
Ths stockhoder demanded s remova and he was dscharged n
March, 1939. On pr 1, 1939, R was apponted genera manager
and under hs gudance the ta payer s busness began to mprove.
. For the entre year 1939 the G Corporaton had actua net ncome
of 30,000, refectng operatons under the eadershp of R for the ast
nne months ony. It s demonstrated that the ta payer s actua eve
of earnngs as of December 31,1939, may reasonaby be consdered as
0,000 per annum. It s further estabshed that hy empoyng the
push-back rue (and assumng that R had been engaged as genera
manager on pr 1,1937, nstead of on pr 1,1939) the constructve
eve of earnngs as of December 31,1939, woud be 50,000 per annum.
The 50,000 constructve eve of earnngs as of December 31, 1939,
has been converted to 7,000 constructve net ncome for the year
1939 by propery compensatng for seasona and other factors.
5. Reconstructon has been contnued by determnng constructve
earnngs for 1938 and for 11 months of 1937 under the assumpton
that R was genera manager durng those perods. The actua net
ncome earned under the management of P has been used for the year
1936 and for the month of anuary, 1937, to compete the -year base
perod.
6. In the opnon of the Counc, ths method of reconstructon s not
correct. The ob|ectve of the reconstructon s to estabsh, for the
entre base perod, constructve earnngs for the ta payer based on the
eve attaned at the end of 1939 under the management of R. It s
for ths reason that a constructve eve of earnngs as of December 31,
1939, has been estabshed under the push-back rue as the frst step
n reconstructon. The second step requres backcastng over the entre
base perod on the constructve eve thus ascertaned. Ths necess-
tates that reconstructed earnngs for the frst 13 months of the base
perod sha be used, and not the actua net earnngs for that perod.
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Msc.
9
Whe actua earnngs for the frst 13 months of the base perod w
furnsh the most reabe gude n determnng the economc fuctua-
tons that woud have been encountered and may aso, on a comparatve
bass, assst n evauatng the constructve earnngs attrbuted to the
management of R, they are not, as such, a proper eement to be
ncuded n norma earnngs for the G Corporaton.
enry . Merry,
Charman, cess Profts Ta Counc.
une 9,19 8.
19 8-13-12836
. P. C. 32
Under the facts gven, the ta payer Is entted to use the 2-year
push-back rue and the Counc appes the prncpes e pressed n
. P. C. 5 C. . 19 -2, 122 In determnng the constructve eve of
earnngs as of December 31, 1930.
1. The Corporaton, a manufacturer of offce furnture, fed
appcaton for reef under secton 722, aegng ts average base
perod net ncome to be an nadequate standard of norma earnngs
because of a change n the character of ts busness evdenced by the
openng, on October 1, 1938, of a new unt for the manufacture of a
dfferent ne of products.
2. The good w and trade name of the Corporaton were frmy
estabshed n the ndustry before the begnnng of the base perod,
and ts outets for dstrbuton of ts products aso were we estab-
shed. Operaton of the new unt nvoved no dfferent types of
machnery or manufacturng processes from those empoyed n the
unts aready n servce, and ta payer had suffcent traned personne
to operate the new unt from the outset wth a very short perod of
nta deveopment dffcutes. Saes of the product of the new unt
were made n the same manner and through the same outets as the
orgna products and the ta payer has demonstrated that the ntro-
ducton of the new ne had no depressng effect upon saes of the
orgna products.
3. y the end of 1938 the product of the new unt was seng
reatvey as we as the orgna products of the Corporaton, but
saes of ths new ne contnued to ncrease throughout 1939 more
rapdy than the saes of ts other products. It s ceary shown that,
had the suppy of ths partcuar ne of products been avaabe as
eary as October, 1936, ta payer woud, by the end of 1939, have n-
creased the saes of ths ne by more artces per annum than t
was actuay seng at that date, and that ts eve of earnngs woud
have been y doars hgher.
. The queston nvoved n appyng the push-back rue to ths case
mav, therefore, be summarzed as foows: Where the ta payer had
by December 31, 1939, overcome ts nta deveopment dffcutes n
the operaton of the new unt from the standpont of producton, and
where there were no sgnfcant deveopmenta dffcutes from the
standpont of saes, other than the promoton of consumer acceptance,
s the ta payer precuded from showng that the actua eve of saes
and the actua eve of earnngs as of December 31, 1939, are ower
than they woud have been had the new unt been paced n operaton
two years earer than t actuay was
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95
Regs. 116, 05.201.
5. In the opnon of the Counc, the appcabty of the push-back
rue can not be thus mted. Whenever the ta payer estabshes that
a hgher eve of earnngs woud have been reached by the end of the
base perod f the quafyng event had occurred two years earer than
t actuay occurred, the push-back rue shoud be apped. The ength
of the actua nta deveopment perod s mmatera n as much as
the Statute provdes that n a cases under the push-back rue the
commencement or change w be assumed to have occurred two years
earer.
6. The Counc n ths stuaton appes the prncpe e pressed n
. P. C. 5 C. . 19 6-2, 122 and approves a reconstructon whch
gves recognton to the constructve eve of earnngs attaned at
December 31, 1939, wth the ad of the push-back and, n computng
ths eve, approves the ncuson n constructve saes of the add-
tona artces per annum whch woud have been sod f the new
unt had been opened October 1,1936.
enry . Merry,
Charman, cess Profts Ta Counc.
une 9,19 8.
C PT R 9. MPLOYM NT T S.
SU C PT R D. COLL CTION OF INCOM T T SOURC ON
W G S.
S CTION 1622. INCOM T COLL CT D T SOURC .
Reguatons 116, Secton 05.201: Requrement 19 8-10-12805
of wthhodng. Mm. 6259
Wthhodng ta tabes for payro perods of 10 days and payro
perods of 28 days.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C, pr 21,19 8.
Coectors of Interna Revenue and Others Concerned:
1. The wthhodng tabes pubshed herewth, coverng payro
perods of 10 days and 28 days, have been constructed on the bass
of the Revenue ct of 19 8. The percentage method of wthhodng
and the reguar tabes coverng weeky, bweeky, semmonthy,
monthy, and day or msceaneous payro perods are found n
Crcuar WT-Revsed 19 8.
2. Coectors may reproduce the 10-day and 28-day payro perod
wthhodng tabes for dstrbuton to empoyers requestng them.
s ndcated on page 21 of Crcuar WT-Revsed 19 8, ths w be
the ony pan of dstrbuton of these tabes.
3. Correspondence reatve to the contents of ths mmeograph
shoud refer to ts nunber and to the symbos C: Co.
Wm. T. Sherwood,
ctng Commssoner.
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116 05 201. 96
If the payro perod wth respect to an empoyee s a 10-day perod
nd the wages are
t east
nd the number of wthhodng e emptons camed
0
1
2
3

6
6
7
8
9
10 or
ut ess
more
than
The amount of ta to be wthhed sha be
20.00
15 at
to
0
to
to
0
to
to
to
to
to
22.50....
3.00
.50
0
0
0
0
0
0
0
0
0
25.00
3.60
1.00
0
0
0
0
0
0
0
0
t
27.50....
.00
1.00
0
0
0
0
0
0
0
0
0
30.00
.60
1.50
0
0
0
0
0
0
0
0
0
32.50
.50
2,00
0
0
0
0
0
0
0
0
0
35.00....
6.00
2.60
0
0
0
0
0
0
0
0
0
37.60
5.50
2.60
0
0
0
0
0
0
0
0
0
0.00
6.00
3.00
.50
0
0
0
0
0
0
0
0
2.50
6.00
3.60
.50
0
0
0
0
0
0
0
0
5 0....
6.60
.00
1.00
0
0
0
0
0
0
0
0
7.50....
7.00
.00
1.80
0
0
0
0
0
0
0
0
50.00
7.50
.50
2.00
0
0
0
0
0
0
0
0
52.50....
7.50
5.00
2.00
0
0
0
0
0
0
0
0
65.00....
8.00
6.50
2.50
0
0
0
0
0
0
0
0
67.50--..
8.50
6.50
3.00
0
0
0
0
0
0
0

fo.oo
9.00
6.00
3.50
.60
0
0
0
0
0
0
0
62.50
9.00
6.50
3.80
1.00
0
0
0
0
0
0
0
05.00
9.50
7.00
.00
1.80
0
0
0
0
0
0
0
67.60
10.00
7.00
.60
1.50
0
0
0
0
0
0
0
70.00-...
10.50
7.50
6.00
2.00
0
0
0
0
0
0
0
72.50....
10.50
8.00
6.00
2.60
0
0
0
0
0
0
0
75.00
11.00
8.50
6.50
8.00
0
0
0
0
0
0
0
77.50....
11.50
8.60
6.00
3.00
.60
0
0
0
0
0
0
80.00
12.00
9.00
6.50
S.60
1.00
0
0
0
0
0
0
82.50
12.00
9.50
6.50
.00
1.00
0
0
0
0
0
0
86.00....
12.50
10.00
7.00
.50
1.60
0
0
0
0
0
0
87.50....
13.00
10.00
7.80
.60
zoo
0
0
0
0
0

90.00....
13.50
10.50
8.00
6.00
2.50
0
0
0
0
0
0
92.50....
13.50
11.00
8.00
560
2.50
0
0
0
0
0
e
95.00
1 .00
11.50
8.60
6.00
3.00
.60
0
0
0
0
a
97.50....
1 .60
11.50
9.00
6.00
3.50
.60
0
0
0
0
0
100 0---
15.00
12,00
9.60
6.60
.00
1.00
0
0
0
0

105.00...
16.50
12.80
10.00
7.00
.50
1.60
0
0
0
0

110.00...
16.00
13.50
10.60
8.00
6.00
2.50
0
0
0
0
0
115.00...
17.00
1 .00
11.50
8.50
6.00
3.00
.60
0
0
0
e
120.00...
17.50
16.00
12.00
9.60
6.60
.00
1.00
0
0
0
0
125.00...
18.80
16.60
13.00
10.00
7.60
.60
2.00
0
0
0
0
130.00...
19.00
16.50
13.60
11.00
8.00
5.60
2.60
0
0
0
0
135.00...
20.00
17.00
1 .60
11.60
9.00
6.00
3.60
.60
0
0
0
1 0.00...
2tt 60
18.00
16.00
12.50
9.50
7.00
.00
1.60
0
0
0
1 6.00...
21.60
18.50
16.00
13.00
10.60
7.60
500
2.00
0
0
0
150.00...
22.00
19.80
16.80
1 .00
11.00
8.50
6.80
3.00
0

0
156.00...
23.00
20.00
17.60
1 .50
12.00
9.00
6.50
3.50
1.00
0
0
100.00...
23.80
21.00
18.00
15.50
12.60
10.00
7.00
.60
1.60
0
0
165.00...
2 .50
21.50
19.00
16.00
13.50
10.60
8.00
6.00
2.60
0
a
170.00...
26.00
22. 50
19.60
17.00
1 .00
11.60
8.50
6.00
3.00
.60
0
175.00...
26.00
23.00
20.50
17.50
15.00
12.00
9.50
6.60
.00
1.00
a
180.00...
26.60
2 .00
21.00
18.60
15.50
13.00
10.00
7.60
.60
2.00
a
186.00--.
27.80
2 .50
22.00
19.00
16.80
13.60
11.00
8.00
8.60
2.60
0
190.00...
28.00
25.80
22.50
20.00
17.00
1 .60
11.50
9.00
6,00
.60
.CO
196.00...
29.00
26.00
23. 60
20.50
18.00
18.00
12.50
9.60
7.00
.00
1.50
200.00...
29.50
27.00
2 .00
21.60
18.60
16.00
13.00
10.60
7.60
5.00
2,00
210.00...
3a 50
28.00
25.00
22.50
19.50
17.00
1 .50
11. 60
9.00
6.00
3.60
220.00...
32.00
29.50
26.50
2 .00
21.00
18.50
15.60
13.00
10.60
7.80
6. 00
230.00...
33.50
31.00
28.00
25.50
22.60
20.00
17.00
1 .60
12.00
9.00
6. 60
2 0.00...
86.00
32.50
29.50
27.00
2 .00
21.50
18.60
16.00
13.60
10.60
8.00
250.00.--
36.50
3 .00
31.00
28.50
26.50
23.00
20.00
17.50
18.00
12.00
9.60
260.00...
38.00
35.50
32.60
30.00
27.00
2 .50
21.60
19.00
16.60
13.60
1LO0
270.00...
39.50
37.00
3 .00
31.50
28.60
26.00
23.00
20.50
18.00
15 00
12. 60
280.00
1.00
38.80
35.60
33.00
30.00
27.50
2 .60
22.00
19.60
16.60
1 .00
290 00
2.60
0.00
37.00
3 .80
31.60
29.00
26.00
23.60
20.60
18.00
16.50
300 0.11
.00
1.50
28.50
36.00
33.00
30.60
27.60
26.00
22.00
19.50
17.00
16 per cent of the e cess over 300 pus
over
8.00
2.00
39.50
36.50
3 .00
31.00
28.50.
25.50
23.00
20.50
17. 50
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97 Regs. 116, 05.201.
If the payro perod wth reaped to an empoyee s a 28-day perod
nd the wages are
nd the number
of wthhodng e emptons
camed s
0
1
a
S

5

1
8
9
10

t east
ut eas
than
The amou
t of ta
to be wthhed
Sh
I be-
more

56.00
16 of

to
10
0
10
to
0
to
to
n
tSf.OO
63.00
8. 0
1. 0
0
0
0
0
e
0
0
0
0
83.00
70.00
9.80
280
0
0
0
0
0
0
0
0
0
70.00
77.00
11.20
280
0
0
0
0
0
0
0
0
S77.00
8 .00
1160
.20
0
0
1
0
0
0
0
0
0
.00
91.00...-
1260
5.60
0
0
e
0
0
0
0
0
91.00
98.00....
1 .00
7.00
0
0
0
0
t
0
0
0
0
98.00
105.00...
15. 0
7.00
0
0
0
0
o
0
0
0
10100
11200...
16.80
8. 0
1. 0
0
0
0
0
0
0
0
112.00
119.00...
16 80
,. n
1. 0
0
0
9
0
0
0
0
119.00 ....
s2f.no...
18.20
11.20
280
0
0
0

0
9
126.00
133.00...
19.60
11.20
.20
0

0

0
0
9
133.00 ....
1 0.00...
21.00
1260
6.60
0
0
0
0
0
0
0
1 0.00 ...
1 7.00...
21.00
1 .00
5.60
0

0
0
0
6
9
1 7.00 ....
15 .00...
22 0
16. 0
7.00
0
0
0
0
0
0
9
15 .00 ....
161.00...
23.80
15. 0
8. 0
0
0
0
0
0

0
168.00...
25.20
16 80
9.80
1. 0
0
0
0
0
0
0
M 00
175.00...
25.20
18.20
9.80
280
0
0
o-
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9
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175.00
182.00...
26.60
19.60
11.20
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0
0
0
0
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1 r) I
189.00...
28.00
19.60
12 60
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0
0
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196.00...
29. 0
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196.00
203.00...
29. 0
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7.00
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203.00
210.00...
30.80
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15. 0
8 0
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210.00 ...
217.00...
32 20
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217.00
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33.60
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231.00...
33.60
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35.00
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19.60
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12 60
1260
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252.00...
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259.00...
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16. 0
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266.00...
39.20
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1680
a 0
1. 0
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266.00 ....
273.00...
tt 60
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1680
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1. 0
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273.00 ...
LWI III . .
2 00
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18 20
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3. 0
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19.60
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29 .00 ....
308.00...
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29. 0
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7.00
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308.00
322.00...
7.60
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322.00
336.00...
9.00
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336.00 . ..
350.00...
51.80
3. 0
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1260
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36 .00.--
53.20
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378.00...
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392.00...
57. 0
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06.00. -
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over 8 0 pus-
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380 .)
98
C PT R 38. MISC LL N OUS PRO ISIONS.
S CTION 380 . TIM FOR P RFORMING C RT IN
CTS POSTPON D Y R SON OF W R.
19 8-7-12776
T. D.5610
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 72.
R GUL TIONS UND R S CTION 380 OF T INT RN L R NU COD .
Treasury Decson 5279 O. . 19 3, 952 , reatng to perod of
tme dsregarded under secton 380 of the Interna Revenue Code n
determnng whether certan acts are tmey performed, amended to
conform to sectons 6, 13, and 1 of the ct approved ugust 8, 19 7
(Pubc Law 38 , ghteth Congress TO. . 19 7-2, 3 8 ).
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 26, D. C.
To Coectors of Interna Revenue and Others Concerned:
On December 5, 19 7, notce of proposed rue makng, regardng
amendments to the reguatons reatng to the postponement by reason
of the war of the tme for performng certan acts, made necessary
by certan provsons of the ct approved ugust 8, 19 7 (Pubc
Law 38 , ghteth Congress C. . 19 7-2, 3 8 ), was pubshed n
the Federa Regster (12 F. R., 8172). fter consderaton of a such
reevant matter as was presented by nterested persons regardng the
proposa, the amendments set fortn beow are hereby adopted. The
amendments are made n order to conform Treasury Decson 5279,
approved uy 10,19 3 C. . 19 3,952 26 CFR, Part 72 , reatng
to the perod of tme dsregarded under secton 380 of the Interna
Revenue Code n determnng whether certan acts are tmey per-
formed, to sectons 6, 13, and 1 of the ct approved ugust 8 19 7
(Pubc Law 38 , ghteth Congress). Such Treasury decson s
amended as foows:
Paragraph 1. Immedatey foowng the provsons of aw under
the capton Sec. 507. Tme for Performng Certan cts Post-
poned bt Reason of War. (Revenue ct of 19 2.) precedng
secton 72.0 26 CFR, 72.0 , the foowng s nserted:
S CTIONS 33 ND 1 OF T CT PPRO D UGUST 8, 19 7
(PU LIC L W 38 , IG TI T CONGR SS).
S C. 13. TIM FOR P RFORMING C RT IN CTS POSTPON D
Y R SON OF W R.
Secton 380 (c) of the Interna Revenue Code s hereby amended to
read as foows:
(c) Lmtaton on Tme To e Dsregarded. The perod of tme
dsregarded under ths secton sha not e tend beyond the date specfed
n cause (1) or cause (2) of ths subsecton, whchever s the earer:
(1) December 31, 19 7, or such date ater than December 31,
10 7, as the Commssoner may f n any case In whch he makes a
determnaton under subsecton (b) If such determnaton s made
after the date ths subsecton as amended takes effect and s based
on the e stence pror to anuary 1, 10 8, of one or more of the cr-
cumstances specfed n paragraph (1), (2), or (3) of subsecton
(b) ; or
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99
380 .
(2) In the case of an ndvdua wth respect to whom a perod
of tme s dsregarded under ths secton, the ffteenth day of the
thrd month foowng the month n whch an e ecutor, admnstra-
tor, or a conservator of the estate of such Indvdua quafes.
S C. 1 . C IN TR D CT CORPOR TIONS.
Secton 3805 of the Interna Revenue Code s hereby amended by strk-
ng out the ffteenth day of the s th month foowng the month n
whch the present war wth Germany, Itay, and apan s termnated,
as procamed by the Presdent and nsertng In eu thereof: Decem-
ber 31, 19 7.
Par. 2. Immedatey precedng the capton Soders and Saors
Cv Reef ct of 1910, as mended ut Secton 19 of Pubc Law
55 (Seventy-seventh Congress), pproved Mat 1 , 19 2, and Sec-
ton 18 of the Soders and Saors Cv Reef ct mend-
ments of 19 2, whch precedes secton 72.0 26 CFR, 72.0 , the
foowng s nserted:
CT PPRO D ULY 1. 19 (58 ST T, 079).
That the ct approved March 7, 19 2 ( 56 Stat. 1 3)
Pubc Law 90, 77th Congress , Is amended by changng
subsecton (a) (3) of secton 1, thereof to read as foows: (3) cvan
offcers and empoyees of departments durng such tme as they may be
assgned for duty or servng outsde the contnenta mts of the Unted
States or n aska, e cusve of part-tme or ntermttent empoyees or
natve abor casuay hred on an houry or per dem bass;

Sec. 7. That such ct s amended by addng at the end thereof a new
secton to read as foows:
Sec. 19. Ths ct may be cted as the Mssng Persons ct .

The foregong amendments made by the ct approved uy 1,19 , are
effectve as f they had been enacted as a part of Pubc Law 90, 77th
Congress, approved March 7, 19 2.
S CTION 1 OF T CT PPRO D M T 16, 19 7 (PU LIC L W
6 , IG TI T CONGR SS).
That subsecton (a) (3) of secton 1 of Pubc Law 90 of the Seventy-
seventh Congress approved March 7,19 2 (56 Stat. 1 3), as amended by
Pubc Law 08 of the Seventy-eghth Congress approved uy 1, 19
(58 Stat 679), s hereby further amended to read as foows:
(3) cvan offcers and empoyees of departments and cvan
offcers and empoyees of the Unted States Nava Government of
Guam, durng such tme as they may be assgned for duty or servng
outsde the contnenta mts of the Unted States or n aska, e -
cusve of part-tme or ntermttent empoyees or natve abor
casuay hred on an houry or per dem bass; .
S CTION 6 OF T CT PPRO D UGUST 8,19 7 (PU LIC L W
38 , IG TI T CONGR SS).
S C. 6. T D F RM NTS OF S R IC P RSONN L.
Secton 13(c) (2) of the Mssng Persons ct (Pubc Law 90, Seventy-
seventh Congress; 56 Stat 1 6) Is hereby amended to read as foows:
(2) December 31, 10 7; or .
Par. 3. Secton 72.1( ) 26 CFR, 72.1(c) s amended by strk-
ng out the second sentence of the thrd paragraph and nsertng n
eu thereof the foowng:
Secton 380 (c), as amended by secton 13 of the ct approved ugust 8, 19 7
(Pubc Law 38 , ghteth Congress), provdes that the perod of tme ds-
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380 .1
100
regarded under secton 380 In respect of any ta abty sha n no event e -
tend beyond the date specfed n cause (1) or (2), beow, whchever s the
earer:
(1) December 31, 19 7, or such date ater than December 31, 19 7, as the
Commssoner of Interna Revenue may f n any case n whch he makes
a determnaton under secton 380 (b), f such determnaton s made after
ugust 8, 19 7, and s based on the e stence pror to anuary 1, 19 8, of one
or more of the crcumstances specfed In paragraph (1), (2), or (3) of
secton 380 (b) ; or
(2) n the case of an ndvdua wth respect to whom a perod of tme
s dsregarded under secton 380 , the 15th day of the thrd month foow-
ng the month n whch an e ecutor, admnstrator, or a conservator of
the estate of such ndvdua quafes.
Par. . Secton 72.101(6) 26 CFR, 72.101(b) s amended by
nsertng after the Women s rmy u ary Corps, the foowng:
the Women s rmy Corps, .
Par. 5. Secton 72.202, as amended by Treasury Decson 5 56,
approved une 9,19 5 C. . 19 5, 333 26 CFR, 72.202 , s further
amended as foows:
( ) y strkng out that porton of the frst sentence of para-
graph (b) whch precedes cause (1) and nsertng n eu thereof the
The due date for any ncome ta return and for any payment (ncudng any
nstament payment) of ncome ta s, sub|ect to the mtatons prescrbed n
paragraph (c), beow, postponed n the case of any ndvdua n the mtary
or nava forces of the Unted States servng on sea duty or outsde the contnenta
Unted States after December 6, 19 1, and pror to anuary 1, 19 8, n case
( ) y nsertng after become due n cause (1) of paragraph
(b) the foowng: (such day beng after December 6, 19 1, and
pror to anuary 1, 19 8).
(C) y nsertng after December 31,19 n cause (3) of para-
graph (b) a comma and the foowng: and such nnety-frst day
occurs pror to anuary 1,19 8.
(D) y nsertng after sea duty n cause ( ) of paragraph
(b) the foowng: after December 6, 19 1, and pror to anuary
1,19 8.
( ) y strkng out cause (2) of paragraph (c) and nsertng n
eu thereof the foowng:
(2) une 15, 19 8; or
Par. 6. Secton 72.203, as amended by Treasury Decson 5 56
26 CFR, 72.203 , s further amended as foows:
( ) y nsertng after December 6, 19 1, n paragraph (b)
the foowng: and pror to anuary 1,1918.
( ) y strkng out cause (2) of paragraph (c) and nsertng
n eu thereof the foowng:
(2) une 15, 19 8; or
Par. 7. Secton 72.502 s amended by nsertng after December
6, 19 1, n the frst sentence thereof the foowng: and pror to
anuary 1, 19 8, .
Par. 8. Secton 72.503 s amended as foows:
( y nsertng after mercas n cause (1) of paragraph
(a) the foowng pror to anuary 1,19 8.
( ) y strkng out cause (2) of paragraph (a) and nsertng
n eu thereof the foowng:
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101
380 .
(2) the ne t 90 days after the perod referred to In cause (1) ; or, If
the ast day of such 90-day perod fas after December 30, 19 7, the perod
begnnng mmedatey after the perod referred to n cause (1) and endng
on the 15th day of the s th month foowng the month In whch the perod
referred to n cause (1) termnates.
(C) y addng the foowng sentence at the end of paragraph (a):
In the appcaton of the precedng sentence, f the 15th day of the fourth month
foowng the month n whch the empoyee returns to the contnenta Unted
States fas after December 30, 19 7, the 15th day of the s th month sha be
substtuted for the 15th day of the fourth month n such sentence.
(D) y strkng out (sub|ect to the mtatons prescrbed n
secton 380 (c) (see paragraph (c), beow)) n cause (1) of para-
graph (6).
( ) y strkng out f any, n cause (2) of paragraph (b);
and by strkng out secton 380 (c) n such cause and nsertng
n eu thereof the foowng: paragraph (e), beow.
(F) y strkng out s provded n secton 380 (c), the n
paragraph (c) and nsertng n eu thereof The.
(G) y strkng out cause (1) of paragraph (c) and nsertng n
eu thereof the f ofowng:
(1) une 15, 19 8; or-
Par. 9. Secton 72.803 26 CFR, 72.803 s amended by strkng
out the thrd sentence and nsertng n eu thereof the foowng:
No perod pror to December 7, 19 1, sha be dsregarded, nor, In case the Com-
mssoner s determnaton was made on or before ugust 8, 19 7 (the date of
the enactment of Pubc Law 38 , ghteth Congress), sha a perod after
December 31, 19 7, be dsregarded. Such perod after December 31, 19 7, as the
Commssoner may f sha be dsregarded n any case In whch the Commssoner
makes a determnaton under ths subpart after ugust 8, 19 7, provded such
determnaton s based on the e stence pror to anuary 1, 19 8, of one or more
of the crcumstances specfed n cause (1), (2), or (3) of secton 72.802.
Par. 10. Secton 72.805 26 CFR, 72.805 s amended by strkng
out the 15th day of the thrd month foowng the month n whch the
present war wth Germany, Itay, and apan s termnated, as pro-
camed by the Presdent and nsertng n eu thereof the foowng:
December 31,19 7.
Par. 11. Secton 72.806 26 CFR, 72.806 s amended as foows:
( ) y strkng out n paragraph (a) the 15th day of the s th
month foowng the month n whch the present war wth Germany,
nsertng n eu thereof the foowng: December 31, 19 7.
( ) y strkng out n paragraph () the 15th day of the thrd
month foowng the month n whch the present war wth Germany,
Itay, and apan s termnated, as procamed by the Presdent and
nsertng n eu thereof the foowng: December 31, 19 7.
Par. 12. Secton 72.903 26 CFR, 72.903 s amended by strkng
out the thrd sentence and nsertng n eu thereof the foowng:
No perod pror to December 7, 19 1, sha be dsregarded, nor, n case the Com-
mssoner s determnaton was made on or before ugust 8, 19 7 (the date of the
enactment of Pubc Law 38 , ghteth Congress), sha a perod after December
31, 19 7, be dsregarded. Such perod after December 31, 19 7, as the Comms-
soner may f sha be dsregarded n any case n whch the Commssoner makes
a determnaton under ths subpart after ugust 8, 19 7, provded such determna-
ton s based on the e stence pror to anuary 1, 19 S, of one or more of the
crcumstances specfed n cause (1), (2), or (3) of secton 72.902. In no event,
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332 rt. 322-7.
102
however, sha the perod dsregarded e tend beyond the 15th day of the thrd
month foowng the month n whch an e ecutor, admnstrator, or a conservator
of the estate of the ndvdua quafes as such.
(Ths Treasury decson s ssued under the authorty contaned n
sectons 3791, 380 , and 3805 of the Interna Revenue Code (53 Stat.,
67, 56 Stat, 961, 963; 26 U. S. C, 19 0 ed., 3791, 26 U. S. C, 19 0 ed.,
Sup. , 380 , 3805) and sectons 6, 13, and 1 of the ct approved
ugust 8, 19 7 (Pubc Law 38 , ghteth Congress).)
ecause sectons 6, 13, and 1 of the ct approved ugust 8, 19 7
(Pubc Law 38 , ghteth Congress), beng the sectons nterpreted
or apped by ths Treasury decson, became effectve on that date, t
s hereby found that t s mpractcabe and unnecessary to ssue ths
Treasury decson sub|ect to the effectve date mtaton of secton
(c) of the dmnstratve Procedure ct, approved une 11,19 6.
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved March 15, 19 8.
. . Foey, r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster March 19, 19 8, 8.56 a. m.)
. R NU CT OF 1938.
SU TITL . G N R L PRO ISIONS.
P RT II. COMPUT TION OF N T INCOM .
S CTION 22(a). GROSS INCOM : G N R L
D FINITION.
rtce 22(a)-: What ncuded n gross ncome.
R NU CT OF 1938.
Royaty payments under patent cense contracts assgned to wfe.
(SeeCt. D. 1698, page 7.)
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT O. O RP YM NTS.
S CTION 322. R FUNDS ND CR DITS.
rtce 322-7: Lmtatons upon the credtng 19 8-2-12733
and refundng of ta es pad. Ct. D. 1695
INCOM T INT RN L R NU COD D CISION OF SUPR M COURT.
1. Cam fob Rotund Perod of Lmtaton.
ncome ta refund cms, whatever the reasons gvng rse
to the cams, must be fed wthn three years from the tme the
return was fed or wthn two years from the tme the ta was
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103
322, rt. 322-7.
pad, as provded n secton 322(b)(1) of the Interna Revenue
Code. The -year perod prescrbed by secton 3313 of the Code
s nappcabe to such cams. Snce respondent fed Its ncome
ta refund cam more than three years after fng the return and
more than two pears after payment of the ta , ts cam was out
of tme. That s true even though the cam aTose out of an n-
come ta aeged to have been erroneousy or egay assessed
or coected.
2. Decson Reversed.
Decson of the Unted States Crcut Court of ppeas, Tenth
Crcut (159 Fed. (2d), 316), affrmng decson of the Dstrct
Court, W. D. Okahoma (66 Fed. Supp., 25 ), reversed.
Supreme Court of the Unted States.
. C. ones, Coector of Interna Revenue, pettoner, v. The Lberty Gass Co.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Tenth Crcut.
December 22, 19 7.
opnon.
Mr. ustce Murphy devered the opnon of the Court.
Our concern here s wth the perod of mtatons appcabe to the fng of
cams for refund of Federa ncome ta es. Must such cams be fed wthn two
years after payment of the ta , as provded by secton 322(b) (1) of the Interna
Revenue Code, or wthn four years after payment of the ta , as provded by sec-
ton 3313 of the Code
The corporate ta payer, respondent heren, fed ts ncome and e cess profts
ta return for 1938, a return whch ndcated a ta abty of 1,193.25. Ths
sum, pus a sma addtona assessment, was pad n 1939. revenue agent ater
nvestgated the ta payer s abty agan, resutng n an addtona assessment
of 6,6 0.81. Payment of ths amount was made on March 8, 19 1. Over three
years ater, on March 30, 19 , the ta payer fed a cam for refund of 1,053. 9.
It was stated that the revenue agent erroneousy had faed to aow certan
credts for sums used by the ta payer n 1938 to reduce ts ndebtedness. Reance
was paced by the ta payer on the -year mtaton perod specfed n secton
3313. The Commssoner of Interna Revenue re|ected ths cam, pontng out
that secton 3313 specfcay e empts from ts appcaton ncome, war profts,
e cess profts, estate and gft ta es.
Ths sut was then brought by the ta payer n the dstrct court to recover
the amount aeged by the refund cam to be due. That court hed that secton
3313 was appcabe and gave |udgment for the ta payer. (66 Fed. Supp., 25 .)
The Tenth Crcut Court of ppeas, one |udge dssentng, affrmed the |udgment.
(159 Fed. (2d), 316.) The probem beng one of mportance n the admnstraton
of the revenue aws, we granted certorar.
Secton 322(b) (1) s to be found n Subtte of the Interna Revenue Code,
a subtte deang wth those ta es over whch The Ta Court has |ursdcton.
Such |ursdcton ncudes ncome, e cess profts, estate and gft ta es. More
specfcay, secton 322(b) (1) appears under Chapter 1 of the Code, pertanng
to ncome ta es. It s concerned wth overpayments of ncome ta es and provdes
qute smpy that no refund sha be aowed uness a cam for refund s fed by
the ta payer wthn three years from the tme the return was fed by the ta payer
or wthn two years from the tme the ta was pad. 1
Secton 3313, on the other hand, s ocated under Subtte of the Code, a sub-
tte devoted to msceaneous ta es. It s In Chapter 28, whch contans varous
provsons common to such ta es. nd t s among those provsons deang wth
the assessment, coecton and refund of the ta es. It reads as foows:
cams for the refundng or credtng of any Interna revenue ta aeged to have
been erroneousy or egay assessed or coected, or of any penaty aeged to
have been coected wthout authorty, or of any sum aeged to have been e ces-
sve or In any manner wrongfuy coected must, e cept as otherwse provded
by aw n the case of ncome, war profts, e cess profts, estate, and gft ta es, be
1 The return In ths case was fed n une, 1939. Snce the cam was fed on March 30,
19 , no contenton coud be made that It waa wthn the 3-year perod from the date the
return was fed.
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322, rt. 322-7.1
10
presented to the Commssoner wthn four years ne t after the payment of such
ta , penaty, or sum. The amount of the refund (In the case of ta es other than
Income, war profts, e cess profts, estate, and gft ta es) sha not e ceed the
porton of the ta , penaty, or sum pad durng the four years mmedatey pre-
cedng the fng of the cam, or f no cam was fed, then durng the four years
mmedatey precedng the aowance of the refund.
The substance of secton 3313 of the Code has ong been a part of Federa
statutory aw. Its ancestry can be traced back to 1872, when secton 3228 of the
Revsed Statutes was enacted.1 Secton 3228 estabshed a procedure for fng
cams for refund of any nterna revenue ta aeged to have been erroneousy
or egay assessed or coected and created a mtaton perod of two years
from the tme the cause of acton accrued, ater e tended n 1921 to four years
from the date of payment of the ta . ut soon after the entry of the ncome ta
nto the Federa scene n 1913, separate provson was made for the fng of
cams for the refund of ncome ta es pad n e cess of those propery due.
Secton 1 (a) of the Revenue ct of 1916 was the frst such provson and t
made cear that secton 3228 was nappcabe to cams of ths nature. Secton
252 of the Revenue ct of 1918, foowed by secton 252 of the 1921 ct, con-
tnued ths scheme of separate treatment. These ater provsons were wrtten
so as to ncude refund cams reatng to war profts and e cess profts ta es as
we as those Invovng ncome ta es; and a mtaton of fve years from the
date the return was due was paced on the fng of such cams. It was further
specfed that the procedure theren detaed was to be foowed notwthstandng
the provsons of secton 3228.
Secton 252, as t appeared n the 1921 ct, was then changed n 19235 so as
to permt cams for re/und of ncome and profts ta es pad n e cess of that
propery due to be fed wthn two years after the ta was pad, n addton
to the 5-year perod after the due date of the return. Ths change was made
so that the ta payer who has, by agreement wth the Treasury, permtted
the tme for the fna assessment of the ta es due from hm to be made after
the e praton of the 5-year perod, w not be barred from makng a cam for
a refund when such assessment s made and the ta payer aeges that the assess-
ment s ega. 8 mendng secton 252 rather than secton 3228 of the Revsed
Statutes to accompsh ths purpose was sgnfcant. It was an unequvoca nd-
caton that secton 252, n speakng of cams for refund of e cess payments
of ncome and profts ta es, was desgned by ts framers to ncude not ony
those payments growng out of errors n the preparaton of returns but aso
those payments resutng from ega or erroneous assessments. (See Graham
v. duPont, 262 U. S., 23 , 258 T. D. 3 86 (Ct. D. 33), C. . II-, 226, 228 (1923) .)
The Revenue ct of 192 transferred the substance of the former secton 252
to a new secton 281. -year perod of mtatons from the date of the pay-
ment of the ta was estabshed, a perod concdng n ength wth that pre-
scrbed by secton 3228. The reference to the type of payments nvoved was
recast; n pace of speakng of payments n e cess of that propery due,
1 Secton 3228 was n the nature of a revson of secton of the ct of une 6, 1872
(17 Stat., 230, 257).
Revenue ct of 1921, secton 1316 ( 2 Stat., 227, 31 ).
39 Stat., 756, 772. Ths provded that the cam for refund mght be presented not-
wthstandng the provsons of secton 3228 of the Revsed Statutes.
0 Stat., 1057, 1085.
2 Stat., 227, 268.
ct of March , 1923 ( 2 Stat., 150 , 1505). In amendng secton 252, the ct of
March , 1923, made menton of refunds of ncome ta es to wthhodng agents whch
mght be made under the provsons of secton 3228 of the Revsed Statutes. Ths was
an obvous reference to the practce of the Treasury Department, admtted to be of very
doubtfu egaty ( . Rept. No. 1 21, S ty-seventh Congress, fourth sesson, page 2
C. . 1939-1 (Part 2), 8 8, 850 ), of aowng a ta payer who had permtted an addtona
assessment after the 5-year perod from the due date of the return (specfed by secton
252 of the 1921 ct) to fe a cam for refund wthn four years after payment of the
ta (pursuant to secton 3228), even though the 5-year perod had eapsed. The Treasury
had nsttuted ths practce to prevent nequtes whch mght otherwse ensue to such
ta payers, but t was wthout egsatve sancton. It was to take care of the ta payers
who had taken advantage of the Treasury practce that the reference In queston In the
ct of March , 1923, was made. s to cams pendng on March . 1923, whch were
tmey fed under secton 3228, but not tmey under secton 252, refunds to wthhodng
agents were necessary to be made under secton 3228. Ths provson was not repeated
n subsequent egsaton and t was not ndcatve of a egsatve ntent to permt ncome
ta refund cams to be governed by secton 3228 n the future.
mphass added. ( . Rept. No. 1 2 , S ty-seventh Congress, fourth sesson, page 2;
S. ept. No. 1137, S ty-seventh Congress, fourth sesson, page 2 C. . 1939-1 (Part 2),
8 8, 850 .)
3 Stat., 253. 301.
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105
332, rt. 322-7.
on 281 used the smpe term overpayments. M nd nstead of statng n
secton 281 that ts provsons shoud appy notwthstandng the provsons
of secton 3228 of the Revsed Statutes, secton 3228 Itsef was amended to
make t appcabe to a cams for the refundng or credtng of any nterna
revenue ta e cept as provded n secton 281 of the Revenue ct of 192 .
Ths pacng of an e ceptve cause n secton 3228 was done to remove the
doubt whch now e sts as to whether or not the provsons of secton 3228,
Revsed Statutes, appy n any event to ncome ta es. In other words, the
statutory drafters Intended to make certan that secton 3228 was n no event
to appy to ncome ta refund cams. Such cams were to be governed e cu-
svey by secton 281.
The essence of secton 281 of the 192 ct has been carred through to the
present secton 322 of the Interna Revenue Code.13 The ony sgnfcant change
n the Interva, for our purposes, was a reducton n the perod of mtatons,
as measured from the payment of the ta , from four years to three years and
fnay to two years. nd secton 3228 of the Revsed Statutes, as amended to
state that t appes e cept as otherwse provded by aw n the case of Income,
war profts, e cess profts, estate, and gft ta es, has become the current secton
3313 of the Code.
Wth ths background In mnd, we fnd the pattern of mtaton perods for
ta refund cams to be cear. Secton 3313 of the Code estabshes a -year
perod for a nterna revenue ta es, e cept as otherwse provded by aw n
the case of specfed ta es. mong the atter Is the ncome ta , as to whch
secton 322(b) (1) makes provson otherwse by requrng that refund cams
be presented wthn two years of payment or wthn three years from the fng
of the return. Provsons are aso made otherwse n the case of the estate
ta (secton 910 of the Code) and the gft ta (secton 1027 of the Code).
The argument s made, however, that secton 322(b)(1) deas ony wth
ncome ta overpayments and not wth ncome ta es erroneousy or Iegay
assessed or coected. Overpayments are sad to refer soey to e cess pay-
ments resutng from errors by ta payers n the preparaton of ther returns or
n reated actvtes, whe erroneous or ega assessments and coectons are
camed to reate to varous knds of errors on the part of revenue agents. Snce
there s no provson otherwse for ncome ta refund cams nvovng the
atter type of errors, the concuson Is reached that the -year mtaton perod
of secton 3313 remans appcabe. We can not agree.
In the absence of some contrary ndcaton, we must assume that the framers
of these statutory provsons Intended to convey the ordnary meanng whch
s attached to the anguage they used. (See Rosenman v. Unted States, 323 U. S.,
658, 661 Ct. D. 1628, C. . 19 5, 10, 11 .) ence we read the word over-
payment n ts usua sense, as meanng any payment n e cess of that whch s
propery due. Such an e cess payment may be traced to an error n mathematcs
or n |udgment or n nterpretaton of facts or aw. nd the error may be com-
mtted by the ta payer or by the revenue agents. Whatever the reason, the
payment of more than Is rghtfuy due s what characterzes an overpayment.
That ths ordnary meanng s the one ntended by the authors of secton
322(b) (1) s qute evdent from the egsatve hstory whch we have detaed.
The word overpayment frst appeared n secton 281 of the 192 Revenue ct,
one of the drect ancestors of secton 322(b) (1). The word was there used as
a substtute for the prevous reference to payments n e cess of that propery
due, a phrase that s a perfect defnton of an overpayment and that s not
necessary confned to overpayments occasoned by errors made by ta payers.
The mmedate predecessor of secton 281 had empoyed that phrase and had
been enacted n 1923 wth the e pressed ntenton of ncudng cams growng
out of ega assessments. There was not the sghtest ndcaton that the sub-
Te Revenue ct of 192 ( 3 Stat. 253, 296) aso created a new secton 272, deang
wth overpayments of Income ta Instaments. Ths spoke of overpayments In the
sense of payments of more than the amount determned to be the correct amount of such
Instament. Ths provson now e sts as secton 321 of the Interna evenue Code.
3 Stat., 253. 3 2.
11 . ept. No. 179, S ty-eghth Congress, frst sesson, page 71 C. . 1939-1 (Part 2),
2 1, 265 ; S. ept. No. 398, S ty-eghth Congress, frst sesson, page C. . 1939-1
(Part 2), 266, 296 . Ths quotaton was taken verbatm by the congressona commttees
from the statement of . W. Gregg of the Treasury Department, Statement of the Changes
Made n the Revenue ct of 1921 by . R. 6715 and the Reasons Therefor (Senate commt-
tee prnt, S ty-eghth Congress, frst sesson, March 6, 192 , page 87).
Sec Revenue ct of 1926, secton 28 ( Stat., 0, 66) ; Revenue ct of 1928, secton
322 ( 5 Stat., 791, 861) ; Revenue ct of 1932, secton 322 ( 7 Stat., 169, 2 2) ; Revenue
ct of 193 , secton 322 ( 8 Stat., 680, 750).
796590 8 8
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322, rt. 322-7.
106
sttuton of the word overpayment was desgned to narrow the scope o
secton 281. It apparenty was a mere smpfcaton n phraseoogy. at t
does make cear the sense n whch the word was frst used n ths conte t. The
generc character of the word was emphaszed from the start, nd we see no
bass for makng t over nto a word of art at ths ate date.
The egsatve hstory further reveas a consstent ntenton to make a separate
and compete mtaton provson for ncome ta refund cams, whatever mght
be the underyng bass of the cams. Secton 322 and ts predecessors were
devsed n order to provde such an e cusve scheme. Cams reatng to tbe
ncome ta have at a tmes been e pcty e cuded from secton 3313.u Ths
arrangement s but part of the genera pan evdent n the Interna Revenue Code
of provdng separate treatment for the ncome, profts, estate and gft ta es, as
dstnct from the msceaneous ta es and the e cse, mport and temporary
ta es. We woud be dong unwarranted voence to ths cear demarcaton were
we to read the word overpayment so as to pace certan types of ncome ta
refund cams wthn the scope of secton 3313, a secton that has aways been
dvorced from the ncome ta porton of the revenue aws.
It s ponted out, however, that varous ower Federa courts, begnnng n
1939, have reached a contrary resut. They have hed that secton 3313 rather
than secton 322(b) (1) -governs refund cams for ncome ta es aeged to have
been erroneousy or egay assessed or coected. Snce Congress has sub-
sequenty convened from tme to tme and has amended secton 322 n otber
respects wthout e pressy dsapprovng ths nterpretaton, the contenton s
advanced that egsatve acquescence n the nterpretaton must be assumed.
ut the doctrne of egsatve acquescence s at best ony an au ary too for
use n nterpretng ambguous statutory provsons. (See everng v. Reynods,
313 U. S., 28, 32 Ct D. 1516, C. . 19 1-1, 371, 372 .) ere the anguage and
the purpose of Congress seem cear to us. The arrangement whereby a ncome
ta refund cams are to be governed by what s now secton 322(b)(1) was
estabshed n an unmstakabe manner neary a quarter of a century ago, an
arrangement that has been contnued through varous reenactments and changes
n the revenue aws. nd that arrangement had been consstenty recognzed
and foowed by the Treasury Department. Under those crcumstances, t
woud take more than egsatve sence n the face of rather recent contrary
decsons by ower Federa courts to overcome the factors upon whch we have
paced reance. (Cf. ectrc attery Co. v. Shmadzu, 307 U. S., 5, 1 ; Mssour
v. Ross, 299 U. S., 72, 75; Unted States v. gn, . d . R. Co., 298 U. S., 92, 500.)
We do not e pect Congress to make an affrmatve move every tme a ower court
nduges n an erroneous nterpretaton. In short, the orgna egsatve
anguage speaks ouder than such |udca acton.
Secton 272 of the 192 ct (now secton 321 of the Code) referred to overpayments
of Income ta nstaments as payments of more than the amount determned to be tbe
correct amount of such nstament. (See note 10, supra.) Such a defnton admts of
no dstncton between errors by the ta payer and errors by the revenue agents.
Reference shoud aso be made to the second sentence of secton 3313, provdng that
the amount of refund may not e ceed the amount of ta pad durng the -year perod.
There s a parenthetca phrase n ths sentence whch specfcay e cudes ncome, war
profts, e cess profts, estate and gft ta es. If the frst sentence of secton 3313, estabsh-
ng the -year mtaton perod, apped to ncome ta refund cams arsng out of ega
assessments, there woud be no mt on the amount of refund by reason of ths second
sentence. Such a resut Is wthout support n the purpose or hstory of the provsons
deang wth these refund cams.
untey v. Southern Oregon Soe (102 Fed. (2d), 538) was the frst case so hodng.
Subsequent decsons of the same tenor have reed n arge part upon the untey case.
(Osen v. Unted Statet, 32 Fed. Supp., 276 ; Unted States v. Lederer Termna W. Co., 139
Fed. (2d), 679) ; In re Tnde s state, 59 Fed. Supp., 667 ; affrmed per curam sub nom.
Pennsyvana Co. tor Insurances on Lves v. Unted States, 152 Fed. (2d), 757 ; Godfrey v.
Unted States, 61 Fed. Supp., 2 0; Nobe v. avanagh, 66 Fed. Supp., 258. affrmed per
curam, 160 Fed. (2d), 10 Sbarbaro v. Unted States, 73 Fed. Supp., 213.) See aso
Fawcett v. Unted States (70 Fed. Supp., 7 2). Compare Centra anover ank Trust
Co. v. Unted States (67 Fed. Supp., 920). In many cases, however, the appcabty of
secton 322(b)(1) to cams of the type here nvoved was assumed wthout queston and
wthout an e pct hodng on the pont See, for e ampe, Unted States v. Oarbutt O
Co. (302 U. S., 528 Ct. D. 1301, C. . 1938-1, 3701).
See I. T. 1 7 (C. . 1-2, 220 (1922)) ; T. D. 3 57 (C. . II-, 177 (1923)) and
T. D. 3 62, amendng Reguatons 62 (C. . II-. 180 (1923)) ; S. M. 1712 (C. . III-,
3 5 (192 )) ; 8. M. 2293 (C. . III-2, 310 (192 )) ; O. C. M. 3152 (C. . II-1, 153
(1928)) ; G. C. M. 13759 (C. . III-2, 102 (193 )) ; Mm. 81 (C. . 1938-2, 96);
I. T. 3 83 (C. . 19 1-1, 397).
The present Treasury vewpont s codfed n Treasury Reguatons 111, promugated
nnder the Interna Revenue Code, secton 29.322-3 and secton 29.322-7. See aso
Treasury Reguatons 103, promugated under the Code, secton 19.322-3 and secton
19.322-7. as amended by T. D. 5256 (-C. . 19 3, 550) : and Treasury Reguatons 101,
promugated under the Revenue ct of 1938, artces 322-3 and 322-7.
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107
IS 322, rt, 322-7.
We accordngy concude that a ncome ta refund cams, whatever the
reasons gvng rse to the cams, must be fed wthn three years from the tme
the retnrn was fed or wthn two years from the tme the ta was pad, as
provded n secton 322(b) (1). The -year perod prescrbed by secton 3313 s
nappcabe to such cams. Snce respondent fed ts Income ta refund cam
more than three years after fng the return and more than two years after
payment of the ta , ts cam was out of tme. That s true even though the
cam arose out of an ncome ta aeged to have been erroneousy or egs 1 y
assessed or coected.
Reversed.
Mr. ustce Dougas dssents.
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22(a) rt. 22(a)-.)
108
INCOM T RULINGS. P RT .
R NU CTS OF 1937 ND 1936.
SU TITL . G N R L PRO ISIONS.
P RT II. COMPUT TION OF N T INCOM .
S CTION 22(a). GROSS INCOM : G N R L
D FINITION.
rtce 22 (a)-1: What ncuded n gross ncome.
R NU CT OF 1936.
Royaty payments under patent cense contracts assgned to wfe.
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109
I 322, rt. 322-7.
INCOM T RULINGS. P RT III.
R NU CTS OF 1935 ND 193 OR PRIOR CTS.
SU TITL . G N R L PRO ISIONS.
P RT . R TURNS ND P YM NT OF T .
S CTION 51. INDI IDU L R TURNS.
rtce 51-1: Indvdua returns.
R NU CT OF 1928.
Profts from Caforna communty property nvested n a partner-
shp n whch both spouses are members. G. C. M. 9825 (C. . -2,
1 6 (1931)) modfed. (See G. C. M. 256 2, page 57.)
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT O. O RP YM NTS.
S CTION 322. R FUNDS ND CR DITS.
rtce 322-7: Lmtatons upon the credtng 19 8-2-1273
and refundng of ta es pad. Ct. D. 1696
INCOM T INT RN L R NU COD D CISION OF SUPR M COURT.
1. Cam fob Refund Perod or Lmtaton.
The 2-year perod of mtaton provded by secton 322(b) (1) of
the Interna Revenue Code, rather than the -year perod prescrbed
by secton 3313 of the Code, governs ncome ta refund cams. The
overpayment whch brngs secton 322(b)(1) nto operaton occurs
whenever the ta payer has pad an amount over and above hs true
abty. ence, assumng that the defcency assessment and co-
ecton n ths case were wthout ega authorty, the ta payer s
payment of that ega assessment was an overpayment wthn the
meanng of secton 322(b) (1), and he had two years from the date
of that payment wthn whch to fe a cam for refund. Snce he
dd not fe hs cam unt three and a haf years after payment,
the cam was out of tme.
2. Decson Reversed.
Decson of the Unted States Crcut Court of ppeas, S th
Crcut (160 Fed. (2d), 10 ), affrmng, per curam, decson of the
Dstrct Court, . D. Mch., S. D. (66 Fed. Supp., 2 8), reversed.
Supreme Court of the Unted States.
Ges avanagh, Coector of Interna Revenue, pettoner, v. . . Uobe.
On wrt of certorar to the Unted States Crcut Court of ppeas for the S th Crcut,
December 22, 19 7.1
opnon.
Mr. ustce Murphy devered the opnon of the Court
Ths case Is a companon to ones v. Lberty Gass Co., ante Ct. D. 1605, page
102, ths uetn .
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5 322, rt. 322-7.
110
The stpuated facts show that on March 16, 1936, the respondent ta payer
fed wth the coector of Interna revenue a |ont ndvdua Income ta return
for hmsef and hs wfe for the caendar year 1935. Ths dscosed a ta
abty of 8,017.01, whch was duy pad. In the return the osses and gans
from saes of capta assets by the ta payer and hs wfe were reported together,
the osses of the wfe beng deducted from the gans of the husband, resutng
n a net oss n e cess of 2,000. Ths amount (the aowabe mt of oss) was
deducted on the return.
On une 7,1937, the ta payer was advsed at a conference wth revenue agents
that there was addtona ncome ta due for the year 1935, aggregatng 21.80.
The ta payer s check, whch was tendered for that amount, was ater returned to
hm. Then by a etter dated une 11,1937, a revenue agent notfed the ta payer
that nstead of a defcency of 21.80 on the 1935 ncome ta return there was a
defcency of 19,973.93 .and the ta payer was furnshed a computaton showng
the bass for such determnaton. The agent reed upon artce 117-5, Regua-
tons 86, ater decared vod by ths Court In everng v. ancy (311 U. S., 189
Ct D. 1 79, C. . 19 0-2, 220 ). fter protest and further conference the
ta payer gave the agent a check for 21,527.70, coverng the then proposed defc-
ency assessment of 19,973.93, pus nterest of 1,553.77. Ths check was remt-
ted to the Unted States Treasury, after havng been receved by the coector on
uy 21, 1937.
On uy 1 ,1937, the ta payer and hs wfe e ecuted an agreement wavng cer-
tan statutory restrctons n ther favor and consentng to the mmedate assess-
ment and coecton aganst them of 1935 ncome ta n the prncpa sum of
19,973.93, pus defcency nterest of 1,553.77, whch the Commssoner thereafter
assessed. The agreement specfed n a footnote that t was not a fna cosng
agreement under secton 606 of the Revenue ct of 1928 and that t dd not there-
fore precude the asserton of a further defcency f one shoud be determned,
nor dd t e tend the statutory perod of mtaton for refund assessment or co-
ecton of the ta .
On anuary 28, 19 1, the ta payer and hs wfe fed a cam for refund of
21,105.90, pus nterest, on the ground that there had been an ega assessment
and coecton snce the revenue agents had refused to aow the osses of one
spouse aganst the gans of the other spouse n the |ont return of husband and
wfe. Reference was made to secton 3313 of the Interna Revenue Code, specfy-
ng a -year perod of mtatons. The Commssoner of Interna Revenue re-
|ected ths cam In reance upon secton 322(b) (1) of the Revenue ct of 193
(the same as secton 322(b)(1) of the Code), estabshng a 2-year perod of
mtatons; t was ponted out that secton 3313 specfcay e cudes ncome ta es
from those for whch a cam may be fed wthn four years after payment.
On uy 12,19 1, the ta payer fed hs ndvdua cam for refund of 21,527.70
pad wth respect to the year 1935. The cam was on the same grounds as the
cam prevousy fed by the ta payer and hs wfe. Ths cam was returned
wth the request that the wfe |on n the e ecuton of the cam; ths request was
refused and the cam was returned to the coector; once agan the cam was
returned to the ta payer.
The ta payer then brought ths sut aganst the coector to recover the amount
aeged to be due n the refund cam. The dstrct court hed that the decson of
the S th Crcut Court of ppeas n Unted States v. Lcderer Termna W. Co.
(139 Fed. (2d), 679), controed the case and made t cear that the -year perod
of secton 3313 was appcabe. Summary |udgment was therefore entered for
the ta payer. (66 Fed. Supp., 258.) The S th Crcut Court of ppeas affrmed
per curam (160 Fed. (2d), 10 ), ctng ts prevous decson n the Lederer
Termna case.
For reasons whch we have set forth n ones v. Lberty Gass Co., ante
Ct D. 1695, page 102, ths uetn , the decson can not stand. The 2-year
perod provded by secton 322(b) (1), rather than the -year perod of secton
3313, governs ncome ta refund cams. The overpayment whch brngs secton
322(b) (1) nto operaton occurs whenever the ta payer has pad an amount over
and above hs true abty. ence, f we assume that the defcency assessment
and coecton n ths case were wthout ega authorty, the ta payer s payment
of that ega assessment was an overpayment wthn the meanng of secton
322(b) (1). nd he had two years from the date of that payment wthn whch
to fe a cam for refund. Snce he dd not fe hs cam unt three and a haf
years after payment, the cam was out of tme.
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322, rt. 322-7.
It may we be that the ta payer s refund cam was prompted by ths Court s
decson n everng v. anney, supra, whch set asde the Treasury reguaton
upon whch the defcency assessment was based. That decson was rendered
on December 9, 19 0, and the ta payer fed hs frst refund cam on anuary 28,
19 1. ut assumng that the anney decson makes cear that the ta payer here
made an overpayment, the oss whch he now suffers from an appcaton of
secton 322(b) (1) s a oss whch s nherent n the appcaton of any perod of
mtatons. Such perods are estabshed to cut off rghts, |ustfabe or not, that
mght otherwse be asserted and they must be strcty adhered to by the |udcary.
(Rosenman v. Unted States, 323 U. S., 658, 661 Ct. D. 1G28, C. . 19 5, 10,
11 .) Remedes for resutng Inequtes are to be provded by Congress, not the
courts.
Moreover, t Is not our provnce to specuate as to why Congress estabshed a
shorter perod of mtatons reatve to the ncome ta than s the case of those
ta es governed by secton 3313. It s enough that secton 322(b) (1) creates a
2-year perod appcabe to a ncome tn refund cams and that the cam n
ths case s of that type.
Reversed.
Mr. ustce Do h.as dssents.
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MPLOYM NT T RULINGS.
INT RN L R NU COD .
C PT R 9, SU C PT R . F D R L INSUR NC CONTRI UTIONS
CT.
Secton 1 26: Defntons. 19 8-2-12735
Reguatons 106, Secton 02.208: grcutura Mm. 6219
abor.
( so Subchapter C (Federa Unempoyment Ta ct),
Secton 1607; Reguatons 107, Secton 03.208.)
Status, for Federa empoyment ta purposes, of servces per-
formed n the commerca handng of fruts and vegetabes.
Treascby Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C, December SI, Wtf.
To Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
1. It has been the poston of the ureau generay that servces per-
formed after December 31, 1939, n the empoy of any person n the
handng, dryng, packng, packagng, processng, gradng, storng,
or deverng to storage or to market or to a carrer for transportaton
to market of fruts and vegetabes consttute agrcutura abor
wthn the meanng of sectons 1 26(h)( ) and 1607(1) ( ) of the
Federa Insurance Contrbutons ct and the Federa Unempoyment
Ta ct, respectvey. No dstncton has been made as to the char-
acter of the empoyer, such as a producer, a producers cooperatve
organzaton or group or a commerca hander who obtans fruts and
vegetabes, by purchase or otherwse, from the producer thereof.
C S OF W TSON . MILL R, F D R L S CURITY DMINISTR TOR. PP LL NT,
v. M S P. URG R ND M UD L. URG R, US ND ND WIF , PP LL S
(161 F D. (2D), 992).
2. In the above-captoned case, decded une 5, 19 7, the Crcut
Court of ppeas for the Nnth Crcut hed that servces performed
after 1939 for a packng pant n connecton wth processng frut
whch the pant purchased from farmers do not consttute agr-
cutura abor wthn the meanng of the Soca Securty ct. Such
decson affrmed the decson of the Dstrct Court of the Unted
States, Southern Dstrct of Caforna, Northern Dvson, of May
15. 19 6, n ames F. urger and Maude L. urger, usband and,
Wfe, pantffs, v. Soca Securty oard, an gency of the Unted
States, rthur . tmeyer, George . gge, and en S. Woodward,
(113)
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Regs. 106, 02.208.
11
Members of and Consttutng Sad Soca Securty oard, defend-
ants. The factua stuaton rued upon dscoses that ames F. ur-
ger was empoyed both pror and subsequent to anuary 1,19 0, n the
Fresno Caf., packng pant operated by Rosenberg ros. Co.
s prncpa duty was to empty bo es or sacks of dred aprcots or
peaches nto the hoppers of gradng and processng machnes. The
company does not own or operate any farms or orchards but buys,
ses, and processes dred frut. Whe the company s argest bus-
ness s n rasns, t aso handes aprcots, peaches, nectarnes, fgs,
and prunes. Most saes are through brokers to whoesaers and |ob-
bers, but numerous saes are made drecty to the Government, and to
varous chan stores and bakeres. fter an order s receved at the
packng pant, the dred frut s processed, packed, and shpped to
the buyer. Frut s not processed ahead of order, but s stored n the
packng pant and n varous recevng statons unt saes orders ca
for processng and packagng. The company s functon s to receve,
grade, cean, wash, suphur, fumgate, package, and se dred frut.
3. The queston presented was whether the servces of ames F.
urger were e cepted from empoyment as agrcutura abor
wthn the meanng of secton 209(1) ( ) of the Soca Securty ct, as
amended.
. In ts decson the court stated, n part, as foows:
We agree wth that court that under the admtted facts n ths case, Rosen-
berg ros, pant was a termna market for the farmer producers who sod
and devered ther dred frut to that concern; that t was the market of
such farmer producers, or to state t n another way, the growers market
snce ths commerca pant was the pace where the farmer producer of dred
frut customary parted wth a of hs economc nterest n the frut, ts future
form or destny. The facts make abundanty cear that t was ony after the
farmer producer sod and devered the frut to Rosenberg ros, that urger s
servces (descrbed n the opnon of the dstrct court) were performed for
that commerca concern. In ths state of the record we regard hs servces
as beng performed after a agrcutura abor n connecton wth such dred
frut had ceased. ccordngy, the questoned 19 0 payments for urger s
servces shoud be treated as wages wthn the coverage of the ct.

Speakng through udge Stephens, ths court made pan Its vews about some
of the practca aspects of the probem we here confront In North Whtter
eghts Ctrus ssn. v. Natona Labor Reatons oard (109 Fed. (2d), 76),
we dscussed the nature and functons of commerca packng houses and gave
fu recognton to the prncpe that the nature of the work modfed by the
custom of dong It determnes whether the worker s or Is not an agrcutura
aborer. We ponted out that when the product of the so eaves the farmer,
as such, and enters a factory for processng and marketng t has entered upon
the status of ndustry. The packng house actvty Is much more
than mere treatment of the frut. When t reaches the packng house t s then
n the practca contro of a great seng organzaton whch accounts to the
ndvdua farmer under the terms of the statute aw and ts own by-aws.
Itacs supped.
The emphass s even greater n the case of wage earners empoyed In the
Rosenberg pant snce t was not (ke the pettoner n the North Whtter
case) a pant owned by an assocaton of member frut growers operatng
under corporate form. Rosenberg was a prvate busness corporaton organzed
under the aws of Caforna to conduct a purey commerca operaton n
the busness of buyng from farmers and thereafter seng the purchased
product for ts prvate proft after processng t aspects of a coopera-
tve venture are mssng n the reatons of the Rosenberg pant to ts em-
poyees |nd the farmer producers from whom t purchased the frut t processed
n ts pant
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115
Re s 106. 02.208
5. In vew of the opnon of the Unted States Crcut Court of
ppeas for the Nnth Crcut n the urger case, t appears neces-
sary to adopt a new poston wth respect to servces of the type
n queston. ccordngy, t w be the poston of the ureau
generay that servces performed on and after anuary 1, 19 0, n
the empoy of a commerca hander n the handng, dryng, pack-
ng, packagng, processng, gradng, storng, or deverng to stor-
age or to market or to a carrer for transportaton to market of
dred fruts purchased by such hander from the producer thereof,
do not consttute agrcutura abor wthn the meanng of sec-
tons 1 26(h)( ) and 1607(1) ( ) of the Federa Insurance Contr-
butons ct and the Federa Unempoyment Ta ct, respectvey.
The concuson of the court concdes wth the concuson reached by
the ureau reatve to the status of servces performed n the han-
dng, dryng, packng, packagng, processng, gradng, storng, or
deverng to storage or to market or to a carrer for transportaton
to market of dred vegetabes. ccordngy, ths mmeograph does
not modfy or change such concuson and the reef granted n para-
graph 8 s not appcabe wth respect to these servces.
6. The rung contaned heren reatve to the status of servces
performed n the handng, etc., of dred fruts aso s appcabe
to servces performed n the empoy of a commerca hander of
fresh fruts and vegetabes. ccordngy, t w be the poston of
the ureau generay that servces performed on and after anuary
1, 19 0, n the empoy of a commerca hander n the handng,
packng, packagng, processng, gradng, storng, or deverng to
storage or to market or to a carrer for transportaton to market
of fresh fruts and vegetabes purchased by such hander from the
producer thereof, do not consttute agrcutura abor for Fed-
era empoyment ta purposes.
7. No change s made n the ureau s poston reatve to servces
performed n the empoy of a farmer or of a farmers cooperatve
organzaton or group n the handng, etc., of fruts and vegetabes
produced by such farmer or members of such fanners organzaton
or group, or n the handng, etc., of fruts and vegetabes for the
account of the producer thereof.
8. Under the authorty granted n secton 3791(b) of the Interna
Revenue Code, the above rung w be apped wthout retroactve
effect to the e tent that an empoyer w not be requred to fe returns
or pay ta es under the Federa Insurance Contrbutons ct or under
secton 1622 of the Interna Revenue Code wth respect to wages pad
to empoyees pror to October 1, 19 7, or to fe returns or pay the
ta under the Federa Unempoyment Ta ct wth respect to wages
pad to such empoyees pror to anuary 1, 19 7. ny such ta es
whch have been pad by an empoyer, however, w not be refunded.
9. s a condton to the reef granted n paragraph 8 above, t s
necessary for an empoyer to fe wth the coector of nterna revenue
for hs dstrct returns or suppementa returns on Form SS-a, or
statements on Form SS-c to correct wage nformaton, reportng
each empoyee s account number, name, and wages pad pror to
October 1, 19 7. The Forms SS-a or Form SS-c must show the
amount of such wages pad durng each return perod ended pror
to October 1, 19 7, wth respect to whch ta es otherwse woud be
assessed. n empoyer s not requred to prepare Forms SS-a or a
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Regs. 106, 02.208.
116
Form SS-c, however, for any perod wth respect to whch the statu-
tory perod of mtaton has e pred. n empoyee who does not
have an account number shoud fe an appcaton therefor on Form
SS-5 wth the fed offce of the Soca Securty dmnstraton nearest
hs pace of empoyment. Copes of the necessary Forms SS-a or
Form SS-c, and such further nformaton as may be desred reatve
to the preparaton thereof, may be obtaned upon request from the
coector of nterna revenue.
10. Correspondence reatng to ths mmeograph shoud refer to ts
number and to the symbos mT: RR.
Geo. . Schoeneman,
Commssoner.
pproved December 31,19 7.
. L. M. Wggns,
ctng Secretary of the Treasury.
Secton 1 26: Defntons. 19 8-6-1276
Reguatons 106, Secton 02.208: grcutura Mm. 6239
abor.
( so Subchapter C (Federa Unempoyment Ta ct),
Secton 1607; Reguatons 107, Secton 03.208.)
Status, for Federa empoyment ta purposes, of servces per-
formed n the commerca handng of fresh fruts and vegetabes.
Mmeograph 6219 page 113, ths uetn modfed.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 26, D. C, March 1, 19 3.
Coectors of Interna Revenue and Others Concerned:
1. In Mmeograph 6219, dated December 31, 19 7 page 113, ths
uetn , rungs were made concernng the status generay of serv-
ces performed n the commerca handng of fruts and vegetabes.
Paragraph 6 of such mmeograph stated, n part, that servces per-
formed on and after anuary 1, 19 0, n the empoy of a commerca
hander n the handng, packng, packagng, processng, gradng,
storng, or deverng to storage or to market or to a carrer for trans-
portaton to market of fresh fruts and vegetabes purchased by such
hander from the producer thereof, do not consttute agrcutura
abor for Federa empoyment ta purposes.
2. The ureau has had occason to gve further consderaton to the
rung made n paragraph 6 of the aforementoned mmeograph.
s the resut thereof, t s now the opnon of the ureau that such
rung s too broad n scope and that a mtaton thereof s desrabe.
For ths purpose paragraph 6 of Mmeograph 6219 s hereby modfed
to read as foows:
6. The rung contaned heren reatve to the status of servces performed In
the handng, etc., of dred fruts aso s appcabe to servces performed n the
empoy of a commerca hander of fresh fruts and vegetabes, e cept to such
servces as are performed n the handng, packng, packagng, gradng, and
preparng of such fruts and vegetabes n ther raw or natura state pror to the
sae thereof, or devery thereof for shpment or sae, to a whoesaer or deaer
theren.
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117
Regs. 107, 03.208.
3. Correspondence reatng to ths mmeograph shoud refer to the
number thereof and to the symbos mT: RR.
Geo. . Schoeneman,
Commssoner.
C PT R 9, SU C PT R C F D R L UN MPLOYM NT T CT.
Secton 1607: Defntons.
Reguatons 107, Secton 03.208: grcutura abor.
Commerca handng of fruts and vegetabes. (See Mm. 6219,
page 113.)
Secton 1607: Defntons.
Reguatons 107, Secton 03.208: grcutura abor.
Commerca handng of fresh fruts and vegetabes. (See Mm.
6239, page 116.)
S CTION 3 66 OF T R IS D ST TUT S.
19 8-11-12815
Ct. D. 1699
federa ta es soca securty act revsed statutes decson of
supreme court.
1. Soca Secubtt Ta es Capta Stock Ta Prorty of Cam
of Unted States oveb State s Cam.
The Unted States has fu prorty, by vrtue of secton 3 66, Re-
vsed Statutes, for payment from an nsovent debtor s estate of
capta stock ta es, Federa Insurance contrbuton ta es under Tte
8 and unempoyment compensaton ta es under Tte 9 of the Soca
Securty ct, where the fund avaabe for dstrbuton s more than
suffcent to pay n fu ether the Tte 8 ta or the Tte 9 ta ,
though nadequate to pay both, as aganst a State s cam for un-
empoyment compensaton ta es mposed by Its statute conformng
to the Federa ct s requrements. The Tte 9 prorty s not
mted to 10 per cent of the cam.
2. Decson ffrmed.
Decson of the Unted States Crcut Court of ppeas, Frst Cr-
cut (160 Fed. (2d), 61 ), affrmng n part and reversng n part
decson of the Dstrct Court, Dstrct of Massachusetts (65 Fed.
Supp., 763), affrmed.
Supreme Court of the Unted States.
Commonweath of Massachusetts et a., pettoners, v. The Unted States
of merca.
On wrt of certorar to te Unted States Crcut Court of ppeas for the Frst Crcut.
pr 19, 19 8.
opnon.
Mr. ustce Rutedoe devered the opnon of the Court.
Ths case e for a practca purposes a renewa of the tgaton recenty
here n Inos v. Unted States, 328 U. S., 8 Ct. D. 1673, C. . 19 6-1, 230 , and
the companon case of Inos v. Campbe, 329 U. S., 362 Ct. D. 1680, C. .
19 7-1, 118 . The former unanmousy hed that the Unted States has prorty,
by vrtue of Revsed Statutes secton 3 66 (31 U. S. C, secton 191), for pay-
ment from an nsovent debtor s estate of Federa Insurance contrbuton ta es
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Regs. 107, 03.20S.
118
under Tte 8 and unempoyment compensaton ta es under Tte 9 of the Soca
Securty ct ( 9 Stat., 620), as aganst a State s cam.for unempoyment com-
pensaton ta es mposed by ts statute conformng to the Federa ct s requre-
ments. The Campbe case, whch was reargued on other ssues, rested on ths
rung for dsposton of the common ssue concernng the effect of secton 3 66.
The facts are substantay dentca wth those n Inos v. Unted States,1
e cept n two respects. One s that the fund avaabe here for dstrbuton Is
more than suffcent to pay ether the Tte 8 or the Tte 9 ta es, though nade-
quate to pay both, whe n Inos v. Unted States the fund was not arge
enough to satsfy ether ta n fu. ere too the debtor s assgnee has pad
to the Commonweath the fu amount of ts cam,1 whe n Inos cases the
fund remaned In the assgnee s hands for dstrbuton.
The dstrct court sustaned the Federa prorty for capta stock and Tte 8
ta es n fu, and for 10 per cent of the Tte 9 cam. It therefore deferred pay-
ment of any part of the State s cam unt those cams were fuy pad. ut the
court hed the Unted States not entted to prorty for the remanng 90 per
cent of the Tte 9 cam, on the ground that Tte 9, secton 902, gves the assgnee
the aternatve rght to pay that amount to an approved State unempoyment
fund. ccordngy the udgment ordered Massachusetts to pay over to the
Unted States, from the 803.72 receved from the assgnee, suffcent funds to
satsfy n fu the Federa prortes sustaned, and to retan the sma baance re-
manng after makng those payments to appy on ts cam for 90 per cent of the
Tte 9 ta es. (65 Fed. Supp., 763.) Ths acton was taken n the vew that, whe
our prevous decsons had sustaned the Federa prorty for the capta stock
and Tte 8 ta es, they had not determned the queston for Tte 9 cams.
owever, on appea by both partes, the Crcut Court of ppeas hed the Unted
States entted, under the Inos rungs, to prorty for the fu amount of a
ts cams, ncudng the Tte 9 ta es. That court therefore affrmed the dstrct
court s |udgment e cept n so far as t dened the Government s Tte 9 cam.
s to ths t reversed the dstrct court s rung. (160 ed. (2d), 61 .)
ecause of the obvous confuson concernng the effects of our pror decsons
and the asserted dfferences between ths case and the Inos cases, certorar
was granted. (332 U. S., 75 .)
I.
Massachusetts seeks to retan the entre 803.72 she has receved, In prorty to
a the Federa cams. She agrees wth the dstrct court that secton 902 gves
the ta payer an optona rght of payment, but does not accept ts aocaton
creatng prortes for a Federa cams e cept 90 per cent of the Tte 9 ta es.
To sustan ths broad cam woud requre reversa of both of the Inos decsons.
In no other way, on the facts, coud Massachusetts retan the whoe amount she
was pad.
1 ere as In that case, the debtor made a common-aw assgnment for the beneft of cred-
tors. The assgnee here reazed 1,135.11 from sae of the as ets. The cam of the
Unted States for Tte 9 ta es amounted to 903.08; for Tte 8 ta es. 090.05; and for
capta stock ta es, 21. The Commonweath s cam was for 803.72 n unempoyment
ta es. Wthn the tme aowed, but for nterventon of the nsovency, the assgnee pad
tho State s cam In fu and then pad the remanng assets of 331.39 to the coector.
e apped ths sum on account of the Tte 8 ta es, thus eavng unpad the Federa
cams for capta stock and Tte 9 ta es as we as 358.60 pus nterest on the Tte 8
cam.
The Commonweath n effect has undertaken to Indemnfy the assgnee, by payng over
to the Unted States the 803.72, If the payment to the State shoud turn out to have been
erroneousy made. The Unted States has agreed that f It prevas the |udgment sha
be mted to 803.72.
The orgna secton 902 ( 9 Stat., 039) provded that the ta payer mght credt aganst
Tte 9 ta es 90 per cent of hs contrbutons under an approved State program. Subsequent
amendments dd not ater the concepton of a basc 90 per cent credt. (See, e. g., notes
13, 15.) The present credt aganst ta secton s ncorporated n the Interna Revenue
Code (26 U. S. C, secton 1001).
The dstrct court thought that In Inos v. Unted States, the Tte 9 Issue had
become moot ether before or as of the tme the case reached ths Court, and that therefore
we had no occason to consder the probem whether as to 90 per cent of the amount due
for Tte I ta es the Unted States by secton 902 had not gven the ta payer the
opton to make payment to Inos nstead of to the Unted States. (65 Fed. Supp., 703,
765.) The court thus regarded the Tte 9 queston as eft open and ncey anayzed
to be one not of prorty but of aternatve obgaton. (Id. at 76 .)
Snce the nsovent s assets are not arge enough to pay ether the Tte 8 or the Tte
9 cam and eave enough to pay the State cam In fu. See note 1.
In the bref Massachusetts states the Federa queston as beng whether the assgnee
may make payment of the State unempoyment ta to the e cuson of the Federa Gov-
ernment cam for Tte I ta es or any other ta es due the Federa Government from the
ta payer Itacs for emphass.
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119
Regs. 107 03.208.
Inos as amcus curae takes a narrower poston, concedng that the Inos
cases stand as decsve ad|udcatons of prorty for Tte S ta es but dsputng
that effect for Tte 9 cams. Ths poston seeks an aocaton payng the
State s cam after the Tte 8 and other Federa cams, ncudng 10 per cent of
the Tte 9 ta es, but before or rather n satsfacton of the remanng 90
per cent of them.
Notwthstandng ther substanta dfferences, the two States rest ther respec-
tve postons on the same basc arguments, whch upon e amnaton turn out to
be dentca wth those vgorousy presented by Inos In the earer cases, e cept
for wordng and deta. Much s made of the fact that here the debtor s assgnee
has pad to the Commonweath the fu amount of ts cam, whe n Inos v.
Unted States, the fund remaned n the assgnee s hands. oth States urge that
secton 902 gves the ta payer, and here hs assgnee, the optona rght of
payment to the State. Moreover, wth respect to the requrement of Revsed
Statutes secton 3 60 that the debts due the Unted States sha be frst
satsfed, t s sad that payment to the State wth resutng credt to the
Unted States for 90 per cent of the Tte 9 cam satsfes the Government s
debt as much as payment to t n cash.
In the Inos cases the foundaton for the State s cam to bo pad In preference
to any of the Federa cams ay In the credt provson of secton 902, whch s
the dentca provson for optona payment. There was no queston what-
ever that secton 902 gave the ta payer the aternate rght. ut the precse
ssue n both cases was whether that rght had been cut off by Revsed Statutes
secton 3 66 when he became nsovent
Obvousy there coud have been but tte pont or effect to our decsons f,
despte them, the assgnee coud have turned around Immedatey and deprved
the Government of the prortes estabshed smpy by e ercsng a rght to make
the optona payment to the State. Nor woud the decsons have been much
more sensbe or effectve, had they purported to sustan the Federa prortes
when the assgnee has retaned the fund, but to dsaow them f he has pad
the State before the Federa cams are fed. We made no such neffectve or
caprcous rungs. The decson was broady that by nterventon of the n-
sovency and the consequent brngng of Revsed Statutes secton 3 06 nto pay,
the ta payer s rght to pay the State and take Federa credt had been cut
off.
Our decsons went to the merts of that rght and not merey to rue that
the State was not a proper party to enforce ts e ercse. The ta es due the
Unted States were hed to be debts; and by vrtue of secton 3 06 the debtor s
pror obgaton attachng as of the date of hs nsovency was to the Govern-
ment, not to the State. It foowed necessary that the assgnee coud not
satsfy t by payng the State and gvng the Government credt. Ths
was the very queston at ssue and the one ad|udcated. The aternate rght
contenton and the one that satsfed n secton 3 06 means credt are ony
verba redressngs of the basc ssue decded n the Inos cases.
II.
Ths s as true of the argument s bearng on Inos narrower poston as It
Is for Massachusetts broader one. ut Inos, apparenty wtb Massachusetts
support, brngs forward to sustan the ess sweepng attack the addtona con-
tenton that the Inos decsons dd not ad|udcate Tte 9 prorty, athough
purportng to do so. Moreover, the facts present ths narrower ssue of ds-
tngushng between Tte 9 and other Federa cams n sharper factua focus
than dd the Inos cases. For f the capta stock and Tte 8 cams are frst
pad n fu, as the dstrct court requred, a sma baance of the fund w
Inos has appeared wth eave, both by bref and n ora argument. It nether e pressy
dscams nor e pressy supports Massachusetts broad poston for reversa.
1 On the facts, see note 1, after payng the capta stock cam, the Tte 8 cam and 10
per cent of the Tte 9 cam, ths woud eave 327.75 to appy on the State s cam ; and
hence requre Massachusetts to pay over to the Unted States 75.97 pus nterest from
the 803.72 she has receved, In order to compete the payment n fu of the Tte 8 cam.
ctuay ths represents the dstrct court s specfc aocaton, not e acty that of e her
Massachusetts or Inos. ach woud appy a somewhat dfferent method of aocaton.
(See note 20.)
See Part III. The Federa prorty under secton 3 66 attaches from the tme the In-
sovent debtor transfers or oses contro over hs property. (Inos v. Campbe, 329
. S., 302, 370; Unted.Staes v. Wadd Co., 323 . S., 353, 355-358 Ct. D. 1G2 , C. .
19 5, 591 ; Unted States v. Okahoma, 261 U. S., 253, 260.)
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Regs. 107, 03.208.
120
reman, to be apped ether n part payment of the Federa Tte 9 cam or
n some form of aocaton between t and Massachusetts cam. Ths was not
true of Inos v. Unted States, or ndeed of Inos v. Campbe, n the posture
n whch that case was brought here.
The prncpa argument Is that the Tte 9 ta es, though tgated n the Inos
courts, were not Invoved on the facts n the Inos cases as they came to
and were decded by ths Court ence t Is sad we dd not acqure |ursdcton
over the Tte 9 cams. The argument Is correct concernng Inos v. Campbe.
ut t Is surprsng as apped to Inos v. Unted States, n vew of the State
supreme court s adverse decson on the Tte 9 ssue; Inos e pct appca-
ton for certorar on that Issue and argument on the merts here to reverse t;
the necessty on the facts for the State to brng the queston up and secure re-
versa n order to estabsh Its cam;u and fnay our opnon s cear and
e pct terms, ndeed emphass, n decdng the Tte 9 ssue, together wth the
Tte 8 one, aganst Inos.
The dea that the State court decded ony the Tte 8 Issue competey ms-
conceves ts acton, and serves ony to confuse the |udgment In that case wth
the one n Inos v. Campbe. Indeed t seeks to nfuse Into the former the
atter s dena of Tte 9 prorty. Not ony Is ths whoy ncompatbe wth
Inos earer poston; t gnores the fact that the State court dsposed of the
Tte 9 ssue n both cases, but n opposte ways on entre dfferent facts and
ega ssues.
In Inos v. Campbe, the State court dd not reach the basc queston of the
force of Revsed Statutes secton 3 66 to create prorty for Federa Tte 9 cams;
rather, It e pressy avoded decdng that queston. (391 III., 29, 32.) Ths was
because the nsovent s assets were n the hands of a court-apponted recever
(d., 31) and n that stuaton secton 602(b) of the Revenue ct of 19 3 ( 58 Stat.,
77) e pressy aowed the recever to pay the State and take credt up to 90
per cent of the Tte 9 ta . The Inos Supreme Court e pressy so hed, and on
ths ground aone dened the Federa Tte 9 cam. (391 111., 29, 3 .) The effect
was to rue that secton 602(b) created a egsatve e cepton to secton 3 66,
The State supreme court s udgment had sustaned the Federa prorty for Tte 8
ta es, orderng them pad frst and the sma remanng baance of about 150 to be pad
to the State. Ths eft the Tte 9 ta es unpad. The court dened prorty for that cam
because t fe wthn the e pct e cepton of secton 602(b) of the Revenue ct of 19 3.
(See te t nfra at notes 13, 1 .) The Government s faure to appy for certorar as to
the 150 emnated the Tte 9 ssue from the case In ths Court.
10 Inos amost unformy put the ssues as Invovng Tte 8 and Tte 9 ta es nds-
crmnatey. Thus, n statng The uestons Presented, the petton for certorar spoke
of prorty for Soca securty e cse ta es and capta stock ta es, necessary encom-
passng Tte 8 and Tte 9 eves. Ts was repeatedy true of the State s bref. Further,
the petton at one pont sod : In hodne that the cnm of the pettoner was suhorrtnate
to the cams of the Unted States for capta stock ta and for ta es arsng under Ttes
III and I of the Soca Securty ct, the Supreme Court of Inos ooked to form, not
substance, and dsregarded the character and sgnfcance of pettoner s cam. The Gov-
ernment s brefs were equay postve n seekng dsposton of the Tte 9 cam.
u The Federa cams asserted were as foows : Capta stock ta es. 58.73 ; Tte 8 ta es,
f1,065.52 ; Tte 9 ta es, 1,28 .36; a pus nterest from the date due. The Inos cam
for State unempoyment compensaton contrbutons was 721.29. nd the fund avaabe
to satsfy a these cams was 1,010.81.
Snce the assets were nsuffcent to pay n fu, ether the Tte 8 or the Tte 9 cam,
Inos had to overrde both to estabsh her cam. Inos recognzed ths both by ter
appcaton for revew and by the broad argument that the State cam was tantamount
to a Federa ta and the credt provsons of secton 902 e empted t competey from the
prorty of Revsed Statutes, secton 3 66 for a Federa ta es, not smpy one.
The opnon n Inos v. Unted States e pcty stated: The cam of the Unted
States s for Federa unempoyment compensaton ta es under Tte 9 and Federa nsur-
ance contrbutons ta es under Tte 8 of the Soca Securty ct ( 9 Stat., 620). (328
U. S., 8, 9.) The opnon throughout treated Tte 9 ta es on a party wth those under
Tte 8. We accepted fuy the State s vew that the credt or optona payment pro-
vson of secton 902 was desgned to stmuate the creaton of sound State systems. (328
U. S., 8, 10.) See Inos v. Campbe (329 U. S., 362, 367, n. 5). ut we re|ected the
argument that the State cam was tantamount to a Federa one and sad : ut we can
not agree that Congress thereby Intended n effect to amend secton 3 66. by makng ts
nrorty provsons nappcabe to State unempoyment ta cams. (328 U. S., 8, 11.)
Tho rung apped to both types of ta wthout dstncton
Ths secton was one of the rea ng amendments (see Part I , to Tte 9, secton 902,
of tho Soca Securty ct). For Tte 9 ta es due for the years 1939, 19 0, 19 1 and 19 2
t aowed credt up to 90 per cent, wthout regard to prevous faure to pay as requred,
f the assets of the debtor had been, durng the perod specfed, n the custody or contro
of a recever, trustee, or other fducary apponted by, or under the contro of, a court of
competent ursdcton.
Secton 602(a) of the 19 3 ct (58 Stat., 77) aso created a smar rea aton of secton
902. for Tte 9 ta es due for the years 1936. 1937 and 1938, wth credt mted however
to 81 per cent, when the State payments for those years were made after December 6, 19 0.
Ths secton formed the bass for a cam to credt n Inos v. Unted States re|ected by
the Inos court. (See noe 15.)
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121
Rep;. 107, 33.208.
mted to payments by such recevers, wthn the tmes and for the ta perods
specfed, up to 00 per cent of the Tte 9 ta es.1
ut secton 602(b) dd not appy n Inos v. Unted States, because the n-
sovent s assets were hed by a common-aw assgnee, not a court-apponted
offca.15 So hodng (391 111., at 37), the Inos court went on to rue that the
Federa cams for Tte 8 and Tte 9 ta es were debts wthn the meanng
of secton 3 06 and were therefore entted to prorty over the State s cam. It
not ony re|ected the argument that the credt provson of Tte 9, secton 902,
made that cam n reaty a cam of the Naton tantamount to a
cam of the Unted States, 10 but aso carefuy guarded the wordng of the
opnon s dspostve paragraphs and the drectons gven the tra court for
enterng the |udgments on remand so as to dfferentate the two cases and to
avod any drecton that the fund In Inos v. Unted Sates appy on ony one
of the Federa cams. The |udgment thus eft the Unted States free to appy
t n parta satsfacton of ether cam or both.
Ths was aso the effect of our own decson and |udgment. It generay and
wthout dstncton between the Tte 8 and Tte 9 cams ad|udcated prorty
for both. s n the Inos court s decson, no restrcton was paced upon
aocaton of the fund, nor Is any hnt to be found n the opnon that such an
aocaton was ntended. Indeed we were not asked to make one and to have
done so woud have dsregarded the basc poston of both partes, each of whch
sought a fu and favorabe dsposton of the controversy ncudng decson upon
a the ssues presented.
It s true that, as n the Inos Supreme Court, the decson and |udgment coud
have been made on the narrower bass that the Tte 8 cam was more than
suff ent to e haust the fund, and therefore to sustan the prorty for that cam
aone woud dspose of the case. I5ut ths woud have been equay true of the
Tte 9 cam. Nether cam was ether more or ess essenta to decson than
the other, ndeed decson upon both was necessary to a |udgment favorabe to
Inos. To have emnated ether woud have requred some ndcaton of that
purpose. Snce none was gven, t can not be sad that the |udgment rested on
the one ground or cam more than the other.
Whe therefore the case s one whch mght have been decded on ether of two
ndependent grounds favoraby to the Government, t s nether one n whch that
course was foowed nor one whch coud have been determned the opposte way
n that manner. Instead, as we were asked to do and rghty coud do on the
record and the ssues, we decded both ssues, and the |udgment rested as much
1 Sop aso Part I . Th court, however, n gvng drectons for the decree to be entered
by the tra court ordered t Federa Tte 8 cam pad frst In fu and any bnnnce
remanng to the State. (391 111., at 0; see aso d., 2.) Thus apparenty t nad-
vertenty ost sght of the fact, earer e pressy noted, d. 3 , . ). that secton 002(b)
aowed the recever to tpko credt ony up o ftO per cent of the Tte 9 ta es.
Ths oversght seemngy was responsbe for the court s faure to award prorty to the
Unted States for 10 per cent of ts Tte 9 cam, from the sma baance remanng after
payng the Tte 8 ta es. (Cf note 9.) ad ths amount, some 128, aso been awarded
to the Unted States, roughy ony 22 woud have been eft for the State. The opnon
gave no consderaton to ths queston, and by te Government s faure to appy for cer-
torar regardng t we were prevented from consderng t.
15 n addtona reason was that the ta es aganst whch credt was camed were not
ta es for the years to whch secton (102(b) e pressy mted the credt t aowed. In-
stead secton 602(a) of the 19 3 ct (see note 13) aowed condtona credt for the ta
years nvoved n Inos v. Unted States and the State sought to secure t. ut (e
Inos court hed secton 002(a) aso nappcabe on the facts and dened the 81 per cent
credt because the assets were In the hands of a common-aw assgnee, not n the custody
or contro of a court-apnonred recever or other offca as the secton requred for the
credt to be avaabe. (391 111., at 37.)
391 111., at 39. 0: cf. 328 II. S., at 11. The Inos court hed the fu amount
of the payro (Tte 9) ta es to he ta es due the Federa Government. In the frst
nstance, t sad, ths was true of 100 per cent of the ta es eved. whch contnues to
be ta es due the Federa Government ether unt t s a pad to the Federa Government,
or 90 per cent s pad to the State and the baance to the Federa Government. The
provsons for credt, the opnon contnued, do not change the character of the ta es
mposed They are st ta es due the Federa Government and consttute a debt due to
the Unted States wthn the purvew of secton 3 60 of the Revsed Statutes. (Id., 0. 1.)
391 111.. 2, 0.
Ibd. The order for tdgment In Inos v. Unted States merey reversed the tra
court s |udgment and remanded the cause wth drectons to enter a decree fndng that
the Unted States s entted to prorty of payment to the e tent of the funds on depost,
and orderng dstrbuton accordngy. (391 111., at 0.) Sec note 1 for the drectons
n the Campbe case.
See notes 10, 11. The cases were obvousy test ensr s desgned to sette tm queston of
prorty generay, 1. p., not merey for one but for a Federa aves and thus provde a
certan bass for admnstraton of the Soca Securty ct n both ts nsurance and un-
empoyment compensaton features.
79CD90 8 9
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Regs. 107, 03.208.
122
upon the one determnaton as the other. In such a ease the ad|udcaton Is
effectve for both. (Unted States v. Tte Ins. Co., 265 U. S., 72; Unon Pacfc
Co. v. Mason Cty Co., 190 U. S., 160; see Rchmond Co. v. Unted States, 275
U. S., 331, 3 0.)
III.
Fnay, t s urged that n Inos v. Unted States we had no occason to
consder and hence our opnon dd not dscuss whether n a case ke ths, where
the fund s more than suffcent to pay a Federa cams e cept 100 per cent of
the Tte 9 cam, the baance remanng after payng those other cams must
go frst to pay the Federa Tte 9 cam n fu, or may be aocated between that
cam and the State cam to pay 10 per cent of the Federa cam frst and then
to appy what remans on the State cam.
Cosey reated to ths, though not nvoved on the facts n Inos v. Unted
States or here, s the Government s apparent concesson that f a the Federa
cams are pad n fu, ncudng 100 per cent of the Tte 9 cam, and any baance
then remans n the fund, the nsovent ta payer s nevertheess gven the rght
by secton 902 to pay that baance to the State and receve credt on hs Federa
Tte 9 ta . In such a case, t s sad, the Government woud be overpad on
Tte 9 ta es and obgated to refund the e cess. Then the ta payer coud appy
the amount receved n further payment of the State cam, wth correspondng
Federa credt, overpayment and refund, ony to start the cyce agan and repeat
t unt he had pad the State ts cam n fu and receved the entre 90 per cent
credt.25 ence n ths stuaton, t s sad, short-cut dstrbuton mght we be
made to the State In the frst pace, to emnate the cyce.
The effect of the concesson, f t s vad, goes far toward cuttng the ground
from beneath the Government s basc poston.23 That effect s heghtened by the
further surprsng statement n ts bref that n a case ke ths, not covered by
the concesson, compance wth the credt condtons of secton 902 becomes
mpossbe not because secton 3 06 operates to e cude secton 902 or to nufy
t, but because the terms of secton 902 tsef deny t credt where no payment
can be made. The statement woud be understandabe, f t had been that
secton 3 66 and secton 902 both work to deny the credt n ths stuaton. ut
to say that secton 3 66 has no effect to cut off the rght to credt ether n the
present stuaton or n the dfferent hypothetca one stated s to take away the
basc groundng of a Federa prorty as aganst the State s cam.
The concessons can not be accepted. In the frst pace, the effect of secton
3 66 depends on the fact of nsovency, not on the degree of t as the frst con-
cesson seems to contempate. nd t s ony by force of secton 3 66 that the
Government has any prorty at a. Secton 902 may work to deny credt, f ts
condtons for credt are not fufed. ut t does not gve Federa prorty
over vad State cams. Moreover, both concessons are atogether nconsstent
wth the basc decsons n the Inos cases and the grounds on whch they
rested. The matter requres bref restatement. It s one whch goes funda-
mentay to the effect of Revsed Statute secton 3 66, as dstngushed from,
though not unreated to, secton 902 of the Soca Securty ct. These of course
are entrey dstnct statutes, wth dfferent functons.
Revsed Statutes secton 3 66 gves prorty e pcty for debts due to the
Unted States and the prorty gven s n terms absoute, not condtona. Once
attachng, t s fna and concusve. ong ne of decsons has hed that ta es
due the Government are debts wthn the meanng of the secton. 1 In the
20 Cf. the dstrct court s vew, note , supra; and note 7. Inos and Massachusetts
n tact urge dfferent methods of aocaton, each dfferng from the. one apped hy the
dstrct court. From the funds avaabe for Tte 9 dstrbuton, Massachusetts woud pay
the State cam frst and correspondngy reduce the Federa cam. Inos woud make a
ro rata dstrbuton of 10 per cent of the avaabe funds to the Federa Government and
0 per cent to the State, whe the dstrct court woud pay the Federa 10 per cent frst
and appy the baance remanng on the State cam.
21 Snce the fund was not argo enough n ether case to pay a the Federa cams In fu.
23 ypothetca e ampes are stated n the dstrct court s opnon (65 Fed. Supp., 763)
and n the brefs fed here.
M Possby the concesson was Intended as an argumentatve aternatve to other and
broader postons. In any event, we are not hound to accept It as ether sound or concu-
sve of the tgaton. It Is not, even n terms, a confesson of error.
These observatons appy equay to the Government s further damagng statement set
forth n the sentence foowng the one to whch ths footnote s appended.
2 The Federn prorty has been unformy sustaned for ta cams. Unted Stafes v.
Waht Co.. 323 U. S.. 353 (unempoyment compensaton ta es and a debt arsng out of
a Federa ousng dmnstraton transacton) : Unted States v. Te an, 31 U. S., 80
Ct. D. 153 . C. . 19 2-1. 3 51 (gasone ta es) : Sew York v. Macay. 288 U. S.. 290
Ct. D. 635, C. . II-1, 150 (1933) (Income ta es and a cam for e penses Incurred In
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123
Regs. 107, 03.208.
Inos cases we apped ths rung to Tte 8 and Tte 9 ta es as aganst the
State s cam for contrbutons. Pror decsons aso have hed that the
prorty attaches as of the tme of the nsovency,1 a rung aso apped n the
Inos cases.
ut f credt can be taken nfter secton 3 66 attaches, 1. e., after nsovency,
effectve to set asde the Federa prorty up to 90 per cent of the Tte 9 cam,
the prorty to that e tent becomes condtona, not absoute. Its effectveness
then becomes contngent upon the happenng of subsequent events, namey, the
concurrence of the condtons of secton C02 for payng the State and takng the
credt together wth the ta payer s eecton to do ths. In short, secton 3 G
never concusvey attached and secton 902 works retroactvey on occurrence
of those contngences to upset the prorty.
further effect mght be to make the statute appcabe beyond the scope of
the term debts due to the Unted States. For f the ta payer s subsequent
eecton can destroy the prorty retroactvey, not ony the prorty but the
dtbt tsef becomes contngent. nd t Is at east doubtfu on the statute s
wordng that obgatons whoy contngent for utmate maturty and obgaton
upon the happenng of events after nsovency can be sad to fa wthn the
reach of debts due as of the me of nsovency.M
owever ths may be, we know of no prevous appcaton of secton 3 (10
creatng such a condtona prorty. Nor do we see how one coud be made
consstenty wth the secton s terms or purposes. The ony such consstent
appcaton woud seem to be one gvng the Government the pror and Indefeasbe
rght to take the fund avaabe, up to the amount necessary to pay ts cam
as of the date the prorty attaches, not as t may be affected by ater con-
tngences other than payment. In enactng secton 3 66 Congress gave no
ndcaton whatever of ntent to create defeasbe prortes.
The defeasance conceded possbe by the Government, therefore, together wth
the further conceded neffectveness of secton 3 06 though not of secton 902
n crcumstances ke these to deny the rght to credt, destroys the fundamenta
character of the prorty created by secton 3 00 and thereby removes the
foundaton from the Government s basc poston, whch s that secton 3 68
appes as of the tme of nsovency to create the prorty t contempates.
Through these concessons thp secton s made, by vrtue of the effect of secton
902, to create ony a defeasbe Federa prorty us aganst cams for credt.
Ths actuay s but another way of makng secton 902 effectve as an e cepton
to Revsed Statutes secton 3 00, ke secton 602 (a) and (b) of th Revenue
ct of 19 3, noted above n Part II.
Ths of course was Inos earer poston, re|ected by ths Court. If that
poston s now to be accepted, we do not see how secton 3 I S can be regarded
as appyng to Tte 9 ta es or, ndeed, how the effect of treatng secton 902 as
the repacement of a buoy damaged by the Insovent) : Spokane County v. ntrd State ,
279 U. S.. 80 (ncome ta es and penates) : Prce v. Unted Mate . 2ft) . S 02 (ncome
ta es and customs dutes) ; Strpe v. Unted State , 269 U. S., 503 (ncome, e cess profts,
und capta stock ta es).
udgments recovered by the Unted States aso are debts entted to prorty. nted
State v. nott. 208 U. S., 5 (aganst surety on estreated ba bonds) ; unter v. Unted
State , 5 Pet.. 173 (aganst surety).
Other debts for whch the Government has been bod to have prorty under secton 3-tGf
are : Unted State v. Re.mund, 330 U. 8., 539 (emergency oans made by Farm Credt
dmnstraton) ; Unted State v. mory, 31 U. S., 23 (sum due on note hod under the
Natona ousng ct) ; ramwe v. U. S. Fdety Co., 260 U. S., 83 (Indan funds de-
posted In bank) : Unted State v. Ratona Surety Co., 25 U. S.. 73 (osses where con-
tractor defauted) : ayne v. Unted State , 93 L . S., 6 2 (msapproprated rmy paymaster
funds) : Lev v. Unted State . 92 U. S.. 018 (funds hed by Navy dsbursng ng-uts) :
Unted State v. Stute ank of North Carona, 0 Pet.. 29 (bonds for customs dutes) ;
Lntcd State v. F her, 2 Crunch. 358 (cam aganst endorser of protested b of e change).
a See note 8 supra.
M It has been hed that the term debts due to the Unted States shoud be construed
wth some beraty. (See e. g.. Prce v. Unted States. 269 U. S.. 92. 500 : Unted State
. mory, 31 U. S., 23. 26.) nd there s apparenty no decson e pressy rung the
matters of contngency of the obgaton or of the prorty upon subsequent events not
certan. (Cf. Unted State v. Marten. 307 U. S.. 200.) ut the fact nt the probem has
not squarey arsen n the the ong hstory of secton 3 66 and that n of the decsons
sustanng the prorty werp for debts ceary due and owng, adds force to the cear nfer-
ences Impct In the statute s wordng, vz, that Congress not ony created a concusve
prorty attachng as of the tme of nsovency but In dong so drew the ne for Its operaton
cose to. If not at, the commony accepted meanng of debt as dstngushed from other
forms of obgaton.
r- See notes 2 . 26.
gan the dstncton between payment and satsfacton becomes pertnent. To
construe the term satsfed n secton 3 66 as ben1; fufed by takng subsequent credt,
as the States urge, woud be to quafy the word debts so as to make t ncude cond-
tona obgatons.
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Regs. 107, 03.208.
12
an e cepton can be mted to Tte 9 ta es. For If secton 902 works as an
e cepton to secton 3-106, then Inos was rght n the frst pace, and the e -
cepton woud seem to appy to a Federa ta es, not |ust the one.10
ccordngy, the Government s concessons can not be accepted as consstent
ether wth our pror decsons or wth ts own basc poston In the Inos
cases and ths one. That poston, apart from the concessons, rests utmatey
on secton 3 66 and ts appcabty to these cams. Ths necessary denes
that secton 902 creates an e cepton to secton 3 66 or a quafcaton ncon-
sstent wth ts terms. The quafcatons now conceded are not consstent
wth those terms, for they do not contempate the tenuous, destructbe sort
of prorty the concessons nvove.
Moreover, the fact that n Inos v. Unted, States we dd not dscuss e pressy
the 10-90 per cent dstrbuton of Tte 9 ta es now suggested does not mean that
our decson dd not encompass that possbty. It e tended generay to a
cases where credt s sought after nsovency. It was Federa prorty attachng
as of the tme of nsovency that we ad|udcated, not somethng ess. s we
have ndcated, n makng the ad|udcaton we nether were nor coud have been
gnorant of secton 902 s aowance of the ta payer s eecton. Our decson
hed that rght cut off by the Incdence of secton 3 66 at the tme of nsovency.
ny other woud have been whoy nconsstent wth the rung that secton 3 60
appes as aganst the State s cam for contrbutons or the ta payer s ryht
to make them after the ncdence of hs nsovency.
I .
We have taken pans to state the effect of our prevous decsons, because of
the confuson concernng them and the fact that two States have earnesty pre-
sented the questons. Ordnary ths woud end the matter. ut, agan for
those reasons, we turn brefy to the merts and to the queston whether the
Inos decsons shoud now be reversed.
part from the arguments aready dscussed, two stand out as reasons for
the change sought. oth reterate contentons re|ected n the Inos cases.
The prmary one s that the ob|ects of the egsaton w be defeated uness
the change s made, namey, the encouragement of the State systems and cor-
respondngy of ta payers to make contrbutons to State funds, thereby nsur-
ng that the moneys so pad n w go out for unempoyment benefts rather
than nto the Treasury as revenue. The second s a heghtened emphass on
the subsequent amendments to secton 902 as showng Congress ntent to wave,
n progressvey broadenng scope though st ony n specfed stuatons, the
orgna mtatons of secton 902 upon securng credt. 0
From the second contenton s drawn the concuson that Congress, by ts
carefuy, even metcuousy drawn rea atons, meant credt to be gven not
ony n the crcumstances so carefuy prescrbed but aso n other stuatons
not wthn those prescrptons. Ths concuson when added to the frst argu-
ment amounts n sum to reteratng that the State e acton s tantamount to a
cam of the Unted States, and that not to dsregard the ta and credt struc-
ture In whch Congress moded the ct woud be to observe the form and gnore
the substance of the egsaton.
We sha not repeat the answers made n Inos v. Unted States, e cept to
say that whe the State and Federa Governments were to cooperate, the
underyng phosophy of the Federa ct was to keep the State and Federa sys-
tems separatey admnstered. (328 U. S., 8, 11.) To the consderatons there
stated, however, we now add the foowng ones, not e pressy mentoned n the
earer opnon, prefaced however wth the observaton that the groundng of
each pea for reversa affords bass for concuson aganst that acton as wtU
as n ts favor.
Congress, of course, coud provde for Federa prorty as to a ta es e cept Tte 9
cams. ut. apart from the e pct e ceptons created by secton 602 (a) and (b) of the
Revenue ct of 19 3 wth reference to funds of nsovents n the hand of court-apponted
offcas (see Part II. notes 13. 15). Congress has not done so ether by any wordng or ntent
of Revsed Statutes secton 3 0(, nor n our vew by secton 002 of the Soca Securty ct.
We do not thnk Unt t ntended to make the State s cam sub|ect to a other Federa
ta es, but pror to a but 10 per cent of the Tte 9 ta es. (See te t, nfra. Part I .) No
Instance has been found where secton 3 00 as been apped to create such a seectve
prorty as among Federa cams quafyng as debts wthn the m- nrng of secton 3 00.
w Of the severa amendments, none s appcabe to ths case. The ony ones reatng
e pressy to nsovents estates are those noted n Part II (see notes 13, 15 and te t, 31),
appyng to payments by court-apponted recevers, etc.
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125
Regs. 107, C3.238.
Thus the many rea atons whch Congress has made respectng the cond-
tons permtted for takng credt, by force of ther very number and carefu
mtaton, show that Congress was not offerng a broadsde e empton to bo
apped n stuatons, such as ths case, other than those specfcay defned.
Rather the ntenton dscosed s to mt the credt to the precse stuatons
specfed for aowng t. That vew accords wth Congress deberate choce
of the ta and condtona credt devces for framng the ct s structure. These
are we known technques, adopted apparenty n ths nstance for consttu-
tona as we as admnstratve reasons. ut those very motvatons warn us
to be wary of dsregardng the form whch Congress has chosen advsedy,
n order to substtute a substance we can ony be doubtfu t may have ntended. 3
ut t s sad that f payment to the State s not aowed and the rght to
receve credt s cut off, the money w not be pad out n unempoyment benefts
but w go nto the Treasury as genera revenue; the States w be compeed
to make payments to the nsovent s empoyees; and thus the prmary purposes
of the ct w be defeated. There are severa answers.
One s that Congress has guaranteed the sovency of the State funds and, f
need be, the revenues thus pad nto the Treasury w be avaabe for that
purpose.3 Moreover, but especay n vew of ths guaranty, t may be more
key that the funds, f pad nto the Treasury rather than to the State, w
be saved for appcaton to the ct s purposes. For there s no assurance, f
the State s pror rght to them s once estabshed, that they w go for th
payment of unempoyment benefts.
It must be remem ered that we are deang wth an nsovent s assets. nd
the States have statutes by whch such assets are dstrbuted accordng to oca
prortes whenever secton 3 0G s not operatve. Ony a few of them pace unem-
poyment benefts at the top.3 Dependng therefore upon the number and the
amounts of cams standng ahead of the unempoyment beneft cams In the
partcuar State woud be the certanty or probabty of payment of the atter.
In short, reversng our decsons and concedng the vadty of the State s poston,
ether as to Tte 9 ta es aone or as to a Federa ta es, woud gve no defnte
and certan assurance that the funds thus acqured by the States woud go to
satsfy the ct s purposes. In many cases payment to the State woud be the
means of dvertng them to whoy e traneous ob|ects. specay woud ths be
true when smaer empoyers wthn the ct s terms are nvoved, as they seem
to be much more often than others. In the absence of any e pct or mped
Thus, as has been noted, the provson for payment and credt Rven by the Revenue ct
of 19 3. sectons C02 (a)(3) and (b) (58 Stat., 77), s mted to stuatons where an In-
sovent s assets were under the contro of a court or ts apponted offca, not where they
were n the hands of a common-aw assgnee. Congress qute obvousy had the nsovent
ta payer In mnd. ut even so It e cuded non|udca custodans of hs assets by ts
faure to e tend the rea aton to them. The omsson can not be taken to have been un-
ntentona. The necessary effect n the one case was to create a egsatve e cepton to
secton 3 66, In the other to deny It by the wthhodng of the ke prvege. o aso wth
the other easng amendments.
13 Cf. Steward Machne Co. v. Dav (301 U. S., 5 8) Ct. D. 1230, C. . 1937-1. .
33 It s precsey n matters where Congress has used the ta and credt technque that
dsregardng the form chosen offers the gravest dangers of pervertng a statute s purposes.
We thnk that possbty s equay as great here from gnorng Congress e pressed n 1 out,
both In mtng the rght of credt to defned stuatons and In ts faure e pressy to quafy
the broad pocy of secton .1 06, ns woud be the other one of reachng ts purpose by gvng
effect to ts e pct mtatons.
Sectons 90 and 1201 of the Rocn Securty ct (58 Stat.. 7S ); 51 . S. C. pp. Smp.
, sectons 1600-1607, ns amended, Pubc Law No. 379, ghfeth Congress. frRt sesson,
sectons -5). Secton 90 estabshed a Federa empoyment account n the Unted States
Treasury, and approprated the e cess of T e 9 ta es over unempoyment admnstratve
e penses to such account. Secton 1201 authorzed oans from such account to the Sates
for unempoyment nsurance pnyments when a State s unempoyment nsurance fund be-
comes dangerousy ow, repayment of suc advances not beng requred uness the State
fund regans stabe condton. (See S. ept. No. 77, ghteth Congress, frst sesson,
9-10.)
MSee. e. g.. Mass. nn. Laws, c. 151 , secton 17 (19 2) ; Cn. Gen. Laws. ct 8780d,
secton 6 (19 ) ; Iowa Code, secton 90.1 (3) (19 0) ; Oka. Stat., tt. 0, secton 22 (c)
(19 1 ).
Uness n ths case we shoud undertake to say, as we have not been asked or authorzed
to do. that by mped force of secton 902, State prortes are reegated to a poston
nferor to the ta payer s rght to pay the State and take Federa credt. Nothng n the
statute suggests thnt Congress Intended to gve the ta payer or ths Court the power thus
to dsorder the State s schemes of prortes.
n If the tgated cases, of whch the ones that have come here seem to be typca, and
common observaton may be taken as fary accurate bases for |udgment.
It s true that n some cases of nsovency the busness contnues wthout beng wound
Dp. ut ths perhaps s much more often the case when operaton s contnued under
udca contro than otherwse. nd when that s the stuaton, n so far as the 19 3
amendment appes the payment may he made and credt obtaned. In so far as t does
r.ot appy the amendment s a cear mandate aganst aowng that to be done.
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Regs. 107, 03.208.
126
drecton we do not beeve that Congress ntended to requre that the State s
cam for unempoyment contrbutons take precedence over a other debts of the
nsovent or to authorze us to make ths a condton of aowng payment to the
State to be made from hs estate. There was no evdent purpose thus broady
to upset State schemes of prorty.
These e ampes are enough to show that the premses of the States contentons
are capabe of supportng other concusons than they draw from them. Other
e ampes mght be stated. ut n each nstance the nferences drawn by the
States are counterbaanced wth opposng ones qute or neary as tenabe. In
some they are of greater weght.
It foows that Massachusetts and Inos have not shown the cear Inconsst-
ency between the ct s e pct terms and our prevous decsons, on the one hand,
and achevng the ct s purposes, on the other, whch s necessary to make out
a case for reversa and thus for negatng the force of Revsed Statutes secton
3 66 as creatng Federa prortes for Tte 9 or other Federa ta cams.
The Inos decsons were advsedy made, after fu deberaton. There was
no dssent on the basc queston of prorty, even though the ssue seemed cose.
No substantay new argument or consderaton of pocy has been put forward.
The case for reversa s no more cear or convncng than Inos poston on the
merts n the earer tgaton.
Nor are we persuaded that our former decsons were erroneous. For the
strct pocy of secton 3 06 had permtted few e ceptons18 and, as we repeated n
Inos v. Unted States, quotng Unted States v. mory (31 U. S., 23, 33),
ony the panest Inconsstency woud warrant our fndng an mped e cepton
to the operaton of so cear a command ns that of secton 3 06. (328 U. S., 8,
12. See aso Unted States v. Remund, 330 U. S., 539, 5 .) There s no such
nconsstency here.
Unt the Federa cams for ta es, whether under Tte 8, Tte 9 or other ta -
ng provson are pad n fu, the States are not entted ether to coect or to
retan any part of the nsovent s debtor s assets. We do not antcpate that
any of the State unempoyment nsurance programs w fa or be serousy
mpared by reason of ths decson, or ther consequent faure to secure the sma
sums characterstcay at stake In ths e tended tgaton and, apparenty, In
other cases most key to produce smar controversy. Nor woud the Federa
Treasury have been rendered bankrupt by a contrary resut.
The |udgment of the Crcut Court of ppeas s
ffrmed.
Dssentng opnon by Mr. ustce ackson, wth whom Mr. ustce Frank-
furter, Mr. ustce Dougas, and Mr. ustce urton |on.
M The orgna departures Indeed dd not contempate that e ceptons were beng made.
They conceved that the funds or property affected, beng covered by mortgage, beonged n
fact to thrd persons, not to the nsovent debtor. (Thctusson v. Smth, 2 Wheat., 396. 26 ;
Conard v. tantc Ins. Co., 1 Pet., 386 ; rent . ank o Washngton, 10 Pet.. 596. 611 ;
see Savn / Socety v. Mutnomah County, 169 U. S 21. 28: cf. Unted States v. Fsher,
2 Cranch. 358 ; Unted States . ooe, 3 ( ranch, 73 The Court has been oath to e pand
these e ceptons (cf. Inos v. Campoe. 329 C. S., 362, 370) to ncude other types of
en. The cams of Massachusetts and Inos do not fa wthn the scope of those e cep-
tons or of others as to whch the Court Ims fet thnt subsequent egsaton authorzed
them. (Cf. Cook County Natona ank v. Unted States, 107 U. S., 5 ; Unted States
v. Guaranty Trust Co., 280 U. S., 78.)
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MISC LL N OUS T RULINGS.
ST T T .
INT RN L R NU COD .
Reguatons 105, Sectons 81.3 , 81.73, and 19 8-1-12726
81.96. T. D. 5590
TITL 26 INT RN L R NU .- C PT R I, SU C PT R , P RT 81.
R GUL TIONS R L TING TO ST T T .
Reguatons 10| amended Deducton of attorneys fees ncurred
n contestng an asserted defcency or n prosecutng a cam for
refund.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Coectors of Interna Revenue and Others Concerned:
On ugust 6, 19 7, notce of proposed rue makng, regardng the
deducton for estate ta purposes of attorneys fees ncurred n con-
testng an asserted defcency or n prosecutng a cam for refund, was
pubshed n the Federa Regster (12 F. R., 53 3). fter consdera-
ton of a such reevant matter as was presented by nterested persons
regardng the proposa, the foowng amendments to Reguatons 105
( 26 CFR, Part 81) are hereby adopted. These amendments are de-
sgned to carfy the reguatons as to the tme for camng a deducton
for attorneys fees ncurred n contestng an asserted defcency or n
prosecutng a cam for refund.
Paragraph 1. Secton 81.3 of Reguatons 105 20 CFR, 81.3 s
amended by nsertng mmedatey after the frst paragraph thereof
the foowng new paragraph:
deducton for attorneys fees Incurred : contestng an asserted defcency
or u prosecutng a cam for refund shoud b;; camed at the tme such defcency
s contested or suc refund cam s prosecuted. deducton for such fees sha
not be dened, and the suffcency of a cam for refund sha not bf questoned,
soey by reason of the fact that the amount of the fees to be pad was not estab-
shed at the tme that the rght to the deducton was camed.
Par. 2. Secton 81.73 of Reguatons 105, as amended by Treasury
Decson 5503, approved March 20,19 6 C. . 19 6-1, 156 26 CFR,
81.73 , s further amended by nsertng the foowng sentence at the
end of the fourth paragraph thereof:
For deducton of attorneys fees ncurred In contestng an asserted defcency,
see secton 81.3 .
Par. 3. Secton 81.96 of Reguatons 105, as amended by Treasury
Decson 5239, approved March 10, 19 3 C. . 19 3, 1081 26 CFR,
(127)
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Regs. 105, 81.3 , etc.) 128
81.96 , s further amended by nsertng the foowng sentence at the
end of the frst paragraph thereof:
For deducton of attorneys fees ncurred n prosecutng a cam for refund, see
secton S1.3 .
Par. . The amendments made n paragraphs 1, 2, and 3 to Regu-
atons 105 merey carfy the appcaton of certan provsons of such
reguatons. Ths s found to be good cause for makng such amend-
ments effectve for the entre perod covered by such reguatons, and
they are hereby made so effectve, n accordance wth the e cepton
appcabe under secton (c) of the dmnstratve Procedure ct.
(Ths Treasury decson s ssued under the authorty of secton 3791
of the Interna Revenue Code (153 Stat., 67, 26 T . S. C, 3791).)
Geo. . Schoenean,
Commssoner of Interna Revenue.
pproved December 22, 19 7.
. . Foey, r.,
ctng Secretary of the Treasury.
(Ped wth the Dvson of the Federa Uepster December 2 ), 1 M7, S. 7 a. m.)
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129
Regs. 1C8, S6.1, etc.
GIFT T .
Reguatons 108, Sectons 86.1, 86.2, and 86.3. 19 8-6-12767
T. D.5606
TITL 26 INT RN L R NU C PT R I, SU C PT R , P RT 8 . GIFT
T UND R C PT R OF T INT RN L R NU COD , S M ND D.
Reguatons 10S amended to conform to Pubc Law 112 ( ghteth
Congress) C. . 11) 7-2, 33 , reatng to reease of powers of
appontment and renqushment of power or contro under certan
dscretonary trusts.
Treasury Department,
Offce of Commssoner of Intf.rna Revenue,
Wa hngton 25, D. C.
To Coectors of Interna Revenue and Others Concerned:
On November 6, 19 7, notce of proposed rue makng, regardng
the gft ta provsons of Pubc Law 112 ( ghteth Congress, frst
sesson; 61 Stat., 178), approved une 25, 1917 C. . 19 7-2| 33 ,
was pubshed n the Federa Regster (12 F. R., 7265). No ob|ecton
to the rues proposed havng been receved, the foowng amendments
are hereby adopted. Such amendments are necessary n order to con-
form Reguatons 108 26 CFR, Part 8( to the gft ta provsons
of Pubc Law 112, reatng to reease of powers of appontment and
renqushment of power or contro under certan dscretonary trusts,
and are as foows:
Paragraph 1. There s nserted mmedatey foowng secton 502
of the Revenue ct of 19 3, whch was nserted n such reguatons by
Treasury Decson 5366, approved May 5, 19 C. . 19 , 583 , and
precedng secton 86.1, the foowng:
PU LIC L W 112 ( IG TI T CONGR SS, FIRST S SSION),
PPRO D UN 25, 15) 7.

Sec. 2. (a) Secton 1000(e) of the Interna Revenue Code (reatng
to certan dscretonary trusts) s hereby amended by strkng out
pror to anuary 1, 19 5, and nsertng n eu thereof on or before
December 31, 19 7 (or on a ater date n any case where t s shown
to the satsfacton of the Commssoner, n accordance wth reguatons
prescrbed by hm wth the approva of the Secretary, that faure to
renqush pror to such ater date was for reasonabe cause) .
(b) If any amount pad pror to the date of the enactment of ths
|ont resouton consttutes an overpayment of gft ta soey by reason
of the amendment made by ths secton, no nterest sha be aowed
or pad wth respect to the amount of such overpayment.
Par. 2. There s nserted mmedatey foowng Pubc Law 393
(Seventy-nnth Congress, second sesson) C. . 19 G-2, 260 , whch
was nserted n such reguatons by Treasury Decson 5521, approved
uy 2, 19 6 C. . 19 6-2, 165 , and mmedatey precedng secton
86.1, the foowng:
PU LIC L W 112 ( IG TI T CONGR SS, FIRST S SSION),
PPRO D UN 25, 19 7.
Resoved by the Senate and ouse of Representatves of the Unted
States of merca n Congress assembed, That secton 52(c)
of the Revenue ct of 19 2 s hereby amended to rend as foows:
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Regs. 108, 86.1, etc.
130
(c) Reease efore uy 1, 19 8.
(1) reease of a power to appont before uy 1, 19 8, sha
not be deemed a transfer of property by the ndvdua possessng
such power.
(2) Ths subsecton sha appy to a caendar years pror to 19 8
and to that part of the caendar year 19 8 pror to uy 1, 19 8.
Par. 3. Secton 86.1 s amended by strkng from the second sentence
March 1, 19 and nsertng n eu thereof uy 1, 19 8.
Par. . Secton 86.2(b), as amended by Treasury Decson 552 , ap-
proved uy 2,19 6, s further amended as foows:
( ) y strkng out uy 1.19 7 wherever t appears and nsert-
ng n eu thereof uy 1, 19 8.
( ) y strkng out as amended by Pubc Law 393 (Seventy-
nnth Congress), approved May 29, 19 6 wherever t appears and
nsertng n eu thereof as amended by Pubc Law 112 ( ghteth
Congress), approved une 25, 19 7.
Par. 5. Secton 86.3, as amended by Treasury Decson 5366, ap-
proved May 5, 19 , s further amended by changng the ast para-
graph to read as foows:
Secton 1000(e), as added by secton 502 of the Revenue ct of 19 3 and amended
by Pubc Law 112, ghteth Congress, provdes n the case of property trans-
ferred n trust before anuary 1, 1939, under whch the grantor, on and after such
date, retaned no power to revest tte to such property n hmsef, e ercsabe
by the grantor aone or n con|uncton wth any other person not havng a sub-
stanta adverse nterest n the dsposton of such property or the ncome there-
from, that the renqushment by the grantor on or after anuary 1, 19 0, and
pror to anuary 1,19 8 (or on a ater date f t s shown to the satsfacton of the
Commssoner, whose determnaton theren sha be concusve, that faure to
renqush pror to such ater date was for reasonabe cause), by an e ercse
or other termnaton, of a power to change the dsposton of the trust property,
whch competes the gft thereof, sha not be treated as a gft for the purpose
of the gft ta statute. owever, f the property had been transferred n tru t
wthout the grantor retanng power to revest tte to the property In hmsef, or f
such power prevousy retaned had been renqushed, whe a Federa gft ta
statute was n effect, the e empton provded by secton 1000(e) sha appy ony
f (1) gft ta had been pad wth respect to such pror transfer or renqush-
ment, and not credted or refunded, or a gft ta return had been fed wthn the
tme prescrbed on account of such pror transfer or renqushment but no gft
ta pad because of deductons or e cusons camed on such return, and (2) the
grantor agrees n wrtng to contnue to treat such pror transfer or renqushment
as competng the gft for a purposes of the gft ta statute e cept as herenafter
ndcated wth respect to ncome. Upon submsson of such wrtten agreement,
the Commssoner may make any necessary redetermnaton of the amount of
te net gfts for such pror year, and, uness assessment s barred by statutory
mtatons or rue of aw. assert any resutng defcency ta . The e empton
provded by secton 1000(e) sha not appy to any payment or other dsposton
of ncome whe the grantor retans the power of dsposton of the future ncome
from the trust property. For e ampe, f a donor created a trust n 1 0,
reservng a power to change the benefcares and ther proportonate nterests
wh respect to prncpa and ncome, but wthout retanng the power to revest
the property n hmsef, and termnates hs reserved power n 19 7, so that he s
no onger abe to change the benefcares or ther respectve nterests, the nterm
payment of ncome to any enecary or other surrender by the donor of contro
over such ncome pror to such termnaton s nevertheess a ta abe gft and to be
treated accordngy. The same resut foows f a smar trust was created
whe a gft ta aw was n effect and the donor, pror to anuary 1, 19 8,
termnated the aforesad reserved power, consentng to treat the orgna transfer
In trust In the caendar year n whch effected and for a perods thereafter as
havng been a transfer sub|ect to gft ta . In case a power of dsposton s
renqushed after December 31, 19 7, the queston whether faure to renqush
at an earer date was for reasonabe cause must necessary depend upon a
reevant facts and crcumstances. Reasonabe cause, for e ampe, may consst
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131
Regs. 1C8, 86.21.
of a dsabty whch serousy mts the opportunty for effectng a renqush-
ment pror to anuary 1.10 8. It may aso consst of an e cusabe ack of know-
edge of the e stence of the power or of ts sgnfcance n reaton to the gft ta
aw, or of a ack of knowedge of the provsons of secton 1000(e) e ceptng from
gft ta consequences a renqushment of the power pror to anuary 1, 10 8.
owever, a faure to renqush due to negect or to unwngness to abandon the
advantages of the power unt some ater date woud not be for reasonabe cause.
o nterest sha he aowed or pad on any overpayment resutng from the
mpcaton of the e empton provded by secton 1000(e).
Par. 6. Ths Treasury decson sha be effectve on the, thrty-frst
day after the date of ts pubcaton n the Federa Regster.
(Ths Treasury decson s ssued under authorty contaned n sec-
tons 1000 (c), (e), 1029. and 3791 of the Interna tevenue Code (56
Stat.. 952. 58 Stat., 71, 53 Stat., 157. 67; 26 U. S. C. and Sup., 1000 (c).
(e), 1029, 3791) and Pubc Law 112 ( ghteth Congress), approved
une 25,19 7.)
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved March , 19 8.
. L. M. Wggns,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster March 10,19 8.)
Reguatons 108, Secton 86.21: Donees and trustees 19 8-7-12778
requred to fe notce of gfts. T. D. 5608
TITL 20 INT RN L R NU . C TT R I, SU C PT R , P RT 8G. GIFT
T UND R C PT R OF T INT RN L R NU COD . S M ND D.
Pace of fng notce of gfts by donees and trustees. Secton 86.21,
Reguatons 108, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
W ashng ton 25, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph 1. Secton 86.21 of Reguatons 108 26 CFR, Part 801
s amended by strkng out the seventh sentence and nsertng n eu
thereof the foowng:
The notce sha be fed n dupcate, on or before the 15th day of March foow-
ng the cose of the caendar year n whch the transfer wras made, wth the
coector of nterna revenue for the dstrct n whch s ocated the ega res-
dence of the donor, or, f he has no ega resdence n the Unted States, then,
uness the Commssoner otherwse desgnates, wth the coector of Interna reve-
nue at atmore, Md.
Par. 2. ecause the purpose of ths Treasury decson s merey to
effect unformty wth respect to the pace of fng of a returns reat-
ng to a partcuar gft by requrng that nformaton returns of donees
and trustees be fed wth the coector for the dstrct n whch the
donor resdes, t s found that t s unnecessary to ssue ths Treasury
decson wth notce and pubc procedure thereon under secton (a)
of the dmnstratve Procedure ct, approved une 11, 19 6, or
sub|ect to the effectve date mtaton of secton (c) of sad ct.
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Regs. 1C8, 86.21. 132
Par. 3. Ths Treasury decson sha be effectve upon ts fng for
pubcaton n the Federa Regster.
(Ths Treasury decson s ssued under authorty of sectons 1029
and 3791 of the Interna Revenue Code (53 Stat., 157, 67; 26 U. S. C,
1029,3791).)
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved March 15,19 8.
. L. M. Wggns,
ctng Secretary of the Treasury.
(Fed wth the Dvson of te Federa Regster March 19,19 S, 8.57 a. n.)
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133
Regs. 71 (19 1), 113.20, etc.
MISC LL N OUS CIS T S.
ST MP T S.
Reguatons 71 (19 1), Sectons 113.20,
etc.
19 8-10-12806
T. D.5613
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 113.
DOCUM NT RY ST MP T S.
Reguatons 71 (19 1 dton) amended to conform to Pubc haw
387 ( ghteth Congress, frst sesson), approved ugust 8, 19 7
C. . 19 7-2, 351 .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Coectors of Interna Revenue and Others Concerned:
On February 0, 19 8, notce of proposed rue makng regardng
Pubc Law 387 ( ghteth Congress, frst sesson), approved ugust
8, 19 7 C. . 19 7-2, 351 , was pubshed n the Federa Regster
(13 F. R., 559). No ob|ecton to the rues proposed havng been
receved, the foowng amendments are hereby adopted. Such amend-
ments are necessary n order to conform Regufatons 71 (19 1 dton)
26 CFR, Part 113 to Pubc Law 387.
Paragraph 1. There s nserted mmedatey precedng secton
113.20 20 CFR, 113.20 the foowng:
PU LIC L W 3S7 ( IG TI T CONGR SS. FI ST S SSION),
PPRO D UGUST 8, 19 7.
e t enacted hy tc Senate and ouse of Representatves of the Unted
States of merca n Congress assembed. That secton 1802(a) of the
Interna Revenue Code s amended by deetng the perod at the end
of the ne t to the ast sentence and nsertng n eu thereof the foow-
ng: : Provded further, That where such certfcates (or shares, where
no certfcates are ssued) are ssued n a recaptazaton, the ta pay-
abe sha be that proporton of the ta computed on such certfcates
or shares ssued n the recaptazaton that the amount dedcated as
capta for the frst tme by the recaptazaton, whether by a transfer
of earned surpus or otherwse, hears to the tota par vaue (or actua
vaue f no par stock) of such certfcates or shares ssued n the
recaptazaton.

Par. 2. Secton 113.20 26 CFR, 113.20 s amended by addng at
the end thereof the foowng:
The ta aso appes to shares or certfcates ssued n a recaptazaton where
the recaptazaton resuts n the dedcaton of an amount us capta for the
frst tme. owever, n the case of shares or certfcates so ssued on or after
ugust 8, 19 7, the ta s sub|ect to the mtaton set forth n secton 113.23(e).
Par. 3. Secton 113.23 26 CFR, 113.23 s amended by addng at
the end thereof a new subsecton as foows:
(e) Stock ssued on or after ugust 8, 19//1, n a recaptazaton. Where
stock s ssued on or after ugust 8, 19 7, n a recaptazaton, the ta payabe
s that proporton of the tota ta computed wth respect to a the shares or
certfcates so ssued that the amount dedcated as capta for the frst tme
by the recaptazaton, whether by a transfer of earned surpus or otherwse,
bears to the tota par vaue (or actua vaue f no par stock) of the shares or
certfcates so ssued.
ta s not payabe wth respect to stock ssued n a recaptazaton uness
the recaptazaton resuts In the dedcaton of an amount as capta whch
amount s so dedcated for the frst tme. Thus, where a corporaton transferred
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Regs. 71 (19 1), 113.20, etc. 13
an amount from capta to capta surpus n a pror recaptazaton, and such
corporaton n a subsequent or second recaptazaton transfers such amount
from capta surpus to capta under such crcumstances that the amount so
restored to capta s ceary dentfabe, a ta s not payabe wth respect to
the amount so rededcated as capta. owever, the ta s payabe wth respect
to a transfer of capta surpus to capta by way of a recaptazaton where
the amount so transferred had not been prevousy dedcated as capta.
Where a recaptazaton Is effected n connecton wth, or as part of, some
other transacton, for e ampe an orgna or an addtona ssue of stock; a
merger; etc. the mtaton of the ta payabe to the proporton specfed n ths
subsecton appes ony to the stock ssued n that part of the transacton whch con-
sttutes a recaptazaton. Thus, where a corporaton makes a change n ts capta
structure by repacng an ssue of stock wth another ssue of stock and at the same
tme dsposes of part of the new stock by sae to underwrters, the tu mtaton s
appcabe ony to that porton of the new stock whc s ssued n e change for the
od stock retred thereby. In such case, the porton of the new stock sod to
the underwrters s ta abe n ts entrety wthout any ad|ustment on account
of the recaptazaton. Smary, where a corporaton retres ts preferred stock
by ssung common stock n e change therefor, and such e change s made n con-
necton wth a merger n whch the corporaton ssues common stock aso to the
former stockhoders of the merged company, the ta mtaton s appcabe ony
to the common stock ssued n e change for the preferred stock, and the shares
or certfcates of common stock ssued to the former stockhoders of the
merged company are sub|ect to ta wthout any ad|ustment on account of the
recaptazaton.
Par. . There s nserted mmedatey precedng secton 113.30 26
CFR, 113.30 the foowng:
PU LIC L W 387 ( IG TI T CONGR SS, FIRST S SSION),
PPRO D UGUST 8. 19 7.

Secton 1802(b) of the Interna Revenue Code s amended by nsertng
after the frst provso the foowng: Provded further, That upon any
transfer of an nterest n a partnershp ownng shares or certfcates of
stock, the ta sha be mted to an amount equa to that percentage
of a ta computed on the transfer of a of such shares or certfcates
of stock owned by the partnershp as the nterest transferred bears to
the tota nterests n the partnershp of a the partners: .
Secton 1802(b) of the Interna Revenue Code s amended by nsertng
n the second provso foowng the word deposted a comma and
the words nor upon mere oans of stock .

Par. 5. Secton 113.30 26 CFR, 113.30 s amended by addng at the
end thereof the foowng:
The ta aso appes upon any transfer of an nterest n a partnershp ownng
shares or certfcates of stock. owever, n the case of the transfer of any such
nterest on or after ugust 8, 19 7, the ta s sub|ect to the mtaton set forth
n secton 113.32(d). The ta does not appy to the return of stock oaned nor,
on or after ugust 8, 19 7, upon mere oans of stock.
Par. 6. Secton 113.32 26 CFR, 113.32 s amended by addng at
the end thereof a new subsecton as foows:
(d) Interest n a partnershp transferred on and after ugust 8, 79. 7. The
ta on the transfer on and after ugust 8, 19 7, of an nterest n a partnershp
ownng shares or certfcates of stock s mted to an amount equa to that
percentage of a ta computed on the transfer of a of such shares or certfcates
of stock owned by the partnershp as the nterest transferred bears to the tota
nterests n the partnershp of a the partners.
ta woud be payabe upon the transfer by one or more of the partners of hs
or ther nterest or nterests, ether n whoe or n part, n the partnershp, to
one or more of the remanng partners or to one or more new partners admtted to
the partnershp. owever, the changng or varabe nterests of the partners as
refected n ther respectve partnershp accounts, resutng from perodc or
varyng wthdrawas of earnngs, do not consttute a transfer of an nterest n
partnershp and no ta accrues as a resut of such changes.
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135
Regs. 71 (19 1), 113.23, etc.
Par. 7. Secton 113.33, as amended by Treasury Decson 5202, ap-
proved December 17, 19 2 C. . 19 2-2, 258 26 CFR, 113.33 , s
further amended by deetng tberefrom subparagraph (b) and by
changng the desgnatons of subparagraphs (c) to (n), ncusve, to
subparagraphs (b) to (m), respectvey.
Par. 8. Secton 113.35, as amended by Treasury Decson 5578, ap-
proved September 30, 19 7 C. . 19 7-2, 213 26 CFR, 113.35 , s
further amended by deetng therefrom subsecton (b) and nsertng n
eu thereof a new subsecton (b) as foows:
(6) Loans of stork and the return of stock oaned. The ta does not appy
to the return of stock oaned nor, on or after ugust 8, 19 7, upon mere oans of
stock ; but the person makng the oan of stock or returnng such stock sha fur-
nsh and attach to the certfcate an e empton certfcate n substantay the
form prescrbed n subsecton (ft).
Par. 9. There s nserted mmedatey precedng secton 113.60
20 CFR, 113.60 the foowng:
PU LIC L W 3S7 ( IG TI T CONGR SS, FIRST S SSION),
PPRO D UGUST 8, 19 7.

Secton 3 81(a) of the Interna Revenue Code s amended by nsert-
ng after Provded the foowng: That upon any transfer of an
nterest n a partnershp ownng such nstruments, the ta sha be mted
to an amount equa to that percentage of a ta computed on the transfer
of a of such nstruments owned by the partnershp as the nterest trans-
ferred bears to the tota nterests n the partnershp of a the partners:
Provded further, .
Par. 10. Secton 113.00 26 CFR, 113.60 s amended by addng at
the end thereof the foowng:
The ta aso appes upon any transfer of an nterest n a partnershp ownng
bonds. owever, n the case of the transfer of any such nterest on or after
ugust 8, 19 7, the ta s sub|ect to the mtaton set forth n secton 113.62.
Par. 11. Secton 113.62 26 CFR, 113.62 s amended by addng at
the end thereof two new paragraphs as foows:
The ta on the transfer on and after ugust 8, 19 7, of an Interest n a partner-
shp ownng bonds s mted to an amount equa to that percentage of a ta
computed on the transfer of a of such bonds owned by the partnershp as the
nterest transferred bears to the tota nterests n the partnershp of a the
partners.
ta woud be payabe upon the transfer by one or more of the partners of
hs or ther nterest or nterests, ether n whoe or n part, n the partnershp, to
one or more of the remanng partners or to one or more new partners admtted to
te partnershp. owever, the changng or varabe nterests of the partners as
refected n ther respectve partnershp accounts, resutng from perodc or vary-
ng wthdrawas of earnngs, do not consttute a transfer of an nterest n a part-
nershp and no ta accrues as a resut of such changes.
Par. 12. Secton 113.63, as amended by Treasury Decson 5202 26
CFR, 113.63 , s further amended by deetng therefrom the second
sentence n the second paragraph and nsertng n eu thereof the
foowng:
Loans of bonds ncudng ntraoffce borrowngs and the return of bonds oaned
are sub|ect to the ta mposed under secton 3 81.
Par. 13. Secton 113.65, as amended by Treasury Decson 5202
26 CFR, 113.65 , s further amended by changng the second para-
graph thereof to read as foows:
The mere oan of bonds and the return of bonds oaned are not e empt from
the bond transfer ta . ence, subsecton (6) of secton 113.35 does not appy
to bond transactons.
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Regs. 71 (19 1), 113.33.
136
(Ths Treasury decson s ssued under the authorty contaned n
secton 3791 of the Interna Revenue Code (53 Stat., 67; 26 U. S. C,
3791).)
ecause the amendments to the Interna Revenue Code made by
Pubc Law 387 became effectve on ugust 8, 19 7, the date of enact-
ment of such pubc aw, t s found that t s unnecessary to ssue ths
Treasury decson sub|ect to the effectve date mtaton of secton
(c) of the dmnstratve Procedure ct, approved une 11, 19 6.
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved pr 27, 19 8.
. . Foey, r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster May 3, 19 8, 8.50 a. m.)
S CTIONS 1802(b) ND 3 81(a), S M ND D. C PIT L STOC ( ND
SIMIL R INT R STS) S L S ND TR NSF RS.
Reguatons 71 (19 1), Secton 113.33: Saes 19 8-13-12837
and transfers sub|ect to ta . M. T. 27
ppcabty of documentary stamp ta under secton 1802(b),
Interna Revenue Code, on transfers of rghts to subscrbe for, or
rghts to receve, stock n connecton wth convertbe securtes.
dvce s requested wth respect to the appcabty of the docu-
mentary stamp ta under secton 1802(b) of the Interna Revenue
Code on transfers of rghts to subscrbe for, or rghts to receve, stock
n the case of securtes whch are convertbe nto stock.
Secton 1802(b) of the Interna Revenue Code mposes a transfer
ta On a saes, or agreements to se, or memoranda of saes or de-
veres of, or transfers of ega tte to any of the shares or certfcates
mentoned or descrbed n subsecton (a), or to rghts to subscrbe for
or to receve such shares or certfcates. .
The questons presented and the answers thereto are as foows:
ueston 1. In the transfer of a convertbe debenture, . e., a de-
benture whch, under certan specfed condtons, may be converted
nto stock at the opton of the hoder, are there two transfer ta es pay-
abe, namey, the ta under secton 3 81(a) of the Interna Revenue
Code on the transfer of the debenture tsef, and a ta under secton
1802(b) of the Code on the transfer of a rght to subscrbe for, or a
rght to receve, the stock nto whch the debenture s convertbe In
such case, does t make any dfference whether the stock avaabe for
such converson s ssued or unssued stock
nswer 1. Whe the hoder of a convertbe debenture may acqure
stock upon converson of the debenture, the prvege of makng such
converson s not a rght to subscrbe for, or to receve, the stock.
Rather, the converson prvege gves the debenture hoder the rght
to acqure a rght to subscrbe for or to receve stock by an eecton to
e ercse the prvege of convertng the debenture nto stock. In other
words, the rght to subscrbe for or to receve the stock does not come
nto e stence uness and unt the debenture hoder eects to e ercse hs
rght of convertng the debenture nto stock. ccordngy, the trans-
fer of a convertbe debenture s sub|ect ony to the ta mposed under
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137
tcgs. 3 (19 1), 101.5, etc.
secton 3 81(a) of the Code upon the transfer of the debenture tsef.
In the appcaton of ths rung, t s mmatera whether the stock
nto whch the debenture s convertbe s ssued or unssued stock.
ueston 2. In the transfer of convertbe preferred stock, . e.,
preferred stock whch under certan specfed condtons may be
converted nto common stock at the opton of the hoder, are there two
transfer ta es payabe, namey, the ta under secton 1802(b) of the
Code on the transfer of the preferred stock tsef, and another ta
under the same secton of the Code on the transfer of a rght to sub-
scrbe for, or a rght to receve, the common stock nto whch the
preferred stock s convertbe In such case, does t make any df-
ference whether the common stock avaabe for such converson s
ssued or unssued stock
nswer 2. Whether the prvege of convertng one cass of securty
nto another cass s contaned n a debenture or n preferred stock s
not a dstngushng factor, snce the converson prvege s essentay
the same n both cases. ence the prncpes e pressed n the answer to
the precedng queston appy wth equa force to the nstant queston.
ccordngy, the transfer of convertbe preferred stock s sub|ect ony
to the transfer ta on the preferred stock tsef, and does not nvove
a ta abe transfer of a rght to subscrbe for or to receve the common
stock nto whch the preferred stock s convertbe. In the appca-
ton of ths rung, t s mmatera whether the common stock nto
whch the preferred stock s convertbe s ssued or unssued stock.
DMISSIONS T .
Reguatons 3 (19 1), Sectons 101.5, 101.15, 19 8-7-12780
and 101.18. T. D. 5611
TITL 26 INT RN L R NU . C r-T R I, SU C PT R C, P RT 101.
T S ON DMISSIONS, DU S, ND INITI TION F S.
Reguatons 3 (19 1 edton) amended to conform to secton 11
of Pubc Law 38 ( ghteth Congress) C. . 19 7-1, 3 8 , n ct
To termnate certan ta provsons before the end of Word War II.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Coectors of Interna Revenue and Others Concerned:
In order to conform Reguatons 3 (19 1 edton) 26 CFR, Part
101 , to secton 11 of Pubc Law 38 ( ghteth Congress), approved
ugust 8, 19 7 C. . 19 7-2, 3 8 , such reguatons are amended as
foows:
Paragraph 1. There s nserted mmedatey precedng secton 101.2
the foowng:
PU LIC L W 38 ( IG TI T CONGR SS), PPRO D UGUST
8, 19 7.
S C. 11. T ON DMISSIONS.
(a) Secton 1700(a)(1) of the Interna Revenue Code s hereby
amended by strkng out (e cept bona fde empoyees, muncpa offcers
on off a busness, chdren under tweve years of age, members of the
796590 8 10
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Regs. 3 (19 1), 101.5, etc. 138
mtary or nava forces of the Unted States when n unform, members
of mtary or nava forces of any of the Unted Natons, when n un-
form, and members of the Cvan Conservaton Corps when In un-
form) , and nsertng n eu thereof: (e cept bona fde empoyees,
muncpa offcers on offca busness, and chdren under tweve years
of age) , and by strkng out the ast sentence.
(b) The amendments made by subsecton (a), nsofar as appcabe
wth respect to amounts pad for admsson, sha be appcabe to
amounts pad after December 31, 19 7, and, nsofar as appcabe to
free admssons, sha be appcabe wth respect to such admssons
after December 31, 19 7.
Par. 2. Secton 101.5, as amended by Treasury Decson 5170, ap-
proved September 25, 19 2 C. . 19 2-2, 2 6 26 CFR, 101.5 , s
further amended by addng at the end of the second paragraph of sub-
dvson ( ),the foowng sentence:
Three e emptons do not appy to admssons after December 31, 19 7. (See
secton 11 of Pubc Law 33 , ghteth Congress.)
Par. 3. The foowng s nserted mmedatey precedng secton
101.15:
PU LIC L W 38 ( IG TI T CONGR SS), PPRO D UGUST
8, 19 7.
S C. 11. T ON DMISSIONS.
(a) Secton 1700(a)(1) of the Interna Revenue Code s hereby
amended by strkng out the ast sentence.
(b) The amendments made by subsecton (a), nsofar as appcabe
wth respect to amounts pad for admsson, sha be appcabe to
amounts pad after December 31, 19 7, and, nsofar as appcabe to free
admssons, sha be appcabe wth respect to such admssons after
December 31, 19 7.
Par. . Secton 101.15, as amended by Treasury Decson 5170 26
CFR, 101.15 , s further amended by addng at the end of subdvson
(b) the foowng sentence:
Tuvse e ceptons are not appcabe to amounts pad after December 31, 19 7.
(See secton 11 of Pubc Law 38 , ghteth Congress.)
Par. 5. Secton 101.18 as amended by Treasurv Decson 53 9,
approved March 17,19 C. 13.19 ,639 26 CFR, 101.18 , s further
amended by addng at the end of the second paragraph of subdvson
(1), the foowng sentence:
fter December 31, 19 7, the foregong provsons are appcabe ony n the case
of chdren under 12 years of age. (See secton 11 of Pubc Law 38 , ghteth
Congress.)
(Ths Treasury decson s ssued pursuant to the authorty con-
taned n secton 3791 of the Interna Revenue Code (53 Stat., 67;
26 U. S. C., 3791).)
ecause of the technca nature of the amendments made heren,
t s found that t s unnecessary to ssue ths Treasury decson wth
notce and pubc procedure thereon under secton (a) of the dmn-
stratve Procedure ct, approved une 11,19 6, or sub|ect to the effec-
tve date mtaton of secton (c) of sad ct.
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved March 16,19 8.
. L. M. Wgg s,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster March 19, 19 8, 8.58 a. m.)
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139
Regs. 3 (19 1).
S CTION 1700(a), S M ND D. T ON DMISSIONS.
Reguatons 3 (19 1), as amended. 19 8-12-12819
M. T. 25
empton wth respect to an amount of ess than 10 cents pad
for the admsson of a chd under 12 years of age s not affected
by the amendment of secton 1700(a)(1) of the Interna Revenue
Code by Pubc Law 38 C. . 19 7-2, 3 8 .
dvce s requested whether the amendment of secton 1700(a) (1)
of the Interna Revenue Code by secton 11 of Pubc Law 38
( ghteth Congress), approved ugust 8, 19 7 C. . 19 7-2, 3 8 ,
termnated the e empton wth respect to amounts of ess than 10
cents pad for the admsson of a chd under 12 years of age.
Pubc Law 38 amended the provsons of secton 1700(a) (1) of
the Interna Revenue Code by strkng out (e cept bona fde em-
poyees, muncpa offcers on offca busness, chdren under 12 years
of age, members of the mtary or nava forces of the Unted States
when n unform, members of the mtary or nava forces of any of
the Unted Natons, when n unform, and members of the Cvan
Conservaton Corps when n unform), and nsertng n eu thereof
(e cept bona fde empoyees, muncpa offcers on offca busness, and
chdren under 12 years of age).
The foregong amendment merey termnated the e empton pre-
vousy afforded members of the mtary or nava forces of the Unted
States when n unform, members of the mtary or nava forces of
any of the Unted Natons when n unform, and members of the
Cvan Conservaton Corps when n unform, and dd not otherwse
affect any of the other e emptons authorzed by the aw.
Pubc Law 38 further amended secton 1700(a)(1) of the Code
by strkng out the ast sentence thereof. The sentence thus strcken
out s the one that was added to secton 1700(a) (1) by Pubc Law 676
(Seventy-seventh Congress), approved uy 23. 19 2 C. . 19 2-2,
331 , to provde an e empton wth respect to admssons to theatres
and other actvtes operated by or under the contro of the War De-
partment or the Navy Department, whch read as foows:
mounts pad on and after October 1, 19 1, for admsson to theatres and other
actvtes operated by or under the contro of the War Department or the Navy
Department wthn posts, camps, reservatons, and other areas mantaned by
the Mtary or Nava stabshment sha be e empt from the ta mposed by
ths secton: Provded, That the net proceeds from sad admsson charges are
used e cusvey for the wefare of the mtary or nava forces of the Unted
States.
Such further amendment smpy emnated the e empton wth
respect to admssons to theatres and other actvtes conducted at m-
tary posts, reservatons, etc., whch e empton had been added to the
aw n 19 2. ence, the further amendment smary dd not other-
wse affect any of the other e emptons authorzed by the aw.
ccordngy, t s to be noted that the amendments made by Pubc
Law 38 do not affect the e empton appcabe to amounts of ess than
10 cents pad for the admsson of a chd under 12 years of age, and
that such e empton s, therefore, st n force.
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Regs. 2 (19 2), 103.63.
1 0
TR NSPORT TION OF P RSONS.
Reguatons 2 (19 2), Secton 130.63: Mem- 19 8-5-12758
bers of mtary and nava servce. T. D. 560
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 130.
T S ON S F D POSIT O S ND ON C RT IN TR NSPORT TION ND
COMMUNIC TIONS S R IC S.
Reguatons 2 (10 2 edton) amended to conform to secton
12 of Pubc Law 3S ( ghteth Congress) C. . 19 7-2, 3 8 ,
n ct to termnate certan ta provsons before the end of
Word War II.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. G.
To Coectors of Interna Revenue and Others Concerned:
In order to conform Reguatons 2 (19 2 edton) 26 CFR, Part
130 to secton 12 of Pubc Law 38 , ghteth Congress, approved
ugust 8, 19 7 C. . 19 7-2, 3 8 , such reguatons are amended
as foows:
Paragraph 1. There s nserted mmedatey precedng secton
130.63 26 CFR, 130.63 the foowng:
PU LIC L W 38 ( IG TI T CONGR SS), PPRO D UGUST
8, 19 7.
S C. 12. TR NSPORT TION T MPTION OF MILIT RY
ND N L P RSONN L.
Secton 3 60(f)(2) of the Interna Revenue Code sha not be app-
cabe to amounts pad after December 31, 10 7.
Par. 2. Secton 130.63, as amended by Treasury Decson 5190,
approved November 30, 19 2 C. . 19 2-2, 237 26 CFR. 130.63 ,
s further amended by nsertng at the end thereof the foowng
paragraph:
y vrtue of the amendment of the Interna Revenue Code made by secton
12 of Pubc Law 38 ( ghteth Congress), the e emptons under secton
3 69(f) (2) as amended, do not appy to amounts pad after December 31, 10 7.
(Ths Treasury decson s ssued pursuant to the authorty con-
taned n sectons 3 72 and 3791 of the Interna Revenue Code (53
Stat., 23, 67, 55 Stat, 722; 26 U. S. C. and Sup., 3 72, 3791).)
ecause of the technca nature of the amendments made heren,
t s found that t s unnecessary to ssue ths Treasury decson wth
notce and pubc procedure thereon under secton (a) of the dmn-
stratve Procedure ct, approved une 11, 19 6, or sub|ect to the
effectve date mtaton of secton (c) of sad ct.
Wm. T. Serwood,
ctng Commssoner of Interna Revenue.
pproved February 25, 19 8.
. L. M. Wggns,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster March 1, 10 8, 8.52 a. m.)
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1 1
Regs. 113, 1 3.13.
TR NSPORT TION OF PROP RTY.
S CTION 3 75, S M ND D. TR NSPORT TION OF PROP RTY.
Reguatons 113, Secton 1 3.13: ppcaton 19 8-12-12820
of ta . M. T. 26
ppcaton of ta mposed by secton . 1 75 of the Interna Revenue
Code to amounts pad for the transportaton of vehces by ferry.
dvce s requested whether amounts pad for the transportaton of
vehces by ferry are sub|ect to ta under secton 3 75 of the Interna
Revenue Code, as amended.
Secton 3 75 of the Code mposes a ta equvaent to 3 per cent
upon amounts pad wthn the Unted States, to a person engaged n
the busness of transportng property for hre, for the transportaton
of property by ra, motor vehce, water, or ar, from one pont n the
Unted States to another, e cept that, n the case of coa, the rate of ta
s cents per short ton.
Secton 1 3.1 of Reguatons 113 provdes, n part, that the term
transportaton means the movement of property by a person en-
gaged n the busness a transportng property for hre, ncudng
nterstate, ntrastate, ard ntracty or other oca movements, as we
as towng, ferryng, swtchng, etc. owever, under the provsons of
secton 1 3.13 of such reguatons, the ta does not appy to an amount
pad by a carrer, a freght forwarder, e press company, or smar
person for transportaton wth respect to whch a ta s payabe to such
person.
It s hed that the transportaton of vehces by ferry consttutes
transportaton of property by water wthn the meanng of secton
3 75 of the Code and that an operator of a ferry s regarded as a per-
son engaged n the busness of transportng property for hre. c-
cordngy, amounts pad for the transportaton of vehces by ferry are
propery sub|ect to the ta .
It s further hed, however, that amounts pad by a carrer for the
transportaton of oaded trucks by ferry are rot sub|ect to the ta
when such transportaton servce s part of a contnuous transporta-
ton movement wth respect to whch ta has been pad by the shpper
or s payabe by the consgnee at destnaton. Lkewse, the ta does
not appy to ferry charges pad by a carrer for the transportaton of
an empty truck f the truck s proceedng to a oadng pont or return-
ng from an unoadng pont and such ferry charges are ncuded n
an amount pad to the carrer by the consgnor or consgnee for a
precedng or subsequent movement of the property.
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1 2
F D R L FIR RMS CT. (1938).
19 8-7-12779
T. D. 5609
TITL 26 INT RN L R NU C PT R I, SU C PT R C, P RT 315.
LIC NSING UND R T F D R L FIR RMS CT OF M NUF CTUR RS OF.
ND D L RS IN, FIR RMS OR MMUNITION.
Reguatons amended requrement of oath emnated .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C, March o, 19 8.
To Coectors of Interna Revenue and Others Concerned:
Treasury Decson 898, approved May 1,1939 C. . 1939-1 (Part
1), 36 , as amended by Treasury Decson 556 , approved May 23,
19 7 C. . 19 7-1, 180 (2 6 CFR, Part 315), s hereby further
amended by changng secton 315. thereof to read as foows:
Sec. 315. . ppucaton fob a Lcense. The appcaton for a cense sha be
made on Form 7 (Frearms), copes of whch may be procured from coectors.
The appcaton sha be fed wth the coector for the dstrct wthn whch the
prncpa pace of busness of the appcant s ocated. The appcaton must
contan a the nformaton requred by the form.
(Ths Treasury decson s ssued under the authorty contaned n
secton 7 of the Federa Frearms ct (52 Stat., 1252; 15 U. S. C,
907).)
ecause the purpose of ths Treasury decson s to reeve restrc-
ton, t s found that t s unnecessary to ssue such Treasury decson
wth notce and pubc procedure thereon under secton (a) of the
dmnstratve Procedure ct, approved une 11, 19 6, or sub|ect to
the effectve date mtaton of secton (c) of sad ct.
Ths Treasury decson sha be effectve upon ts fng for pubca-
ton n the Federa Regster.
. .Foey, r.,
ctng Secretary of the Treasury.
(Fed wt the Dvson of the Federa Regster March 19, 1C 8, 8.57 a. m.)
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MISC LL N OUS RULINGS.
S CTION 3 OF T INSON CT ( 8 ST T., 503, 505),
S M ND D.
19 8-7-12777
Mn. 0185
( mended)
Reports requred under proft-mtng provsons of the nson ct.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 5, D. C, March 8,19 ,8.
Coectors of Interna Revenue, Interna- Revenue gents n Charge,
eads of Fed Dvson of the Technca Staff, and Others
Co-ncemed:
The frst sentence of the fourth paragraph of Mmeograph 6185,
dated September 15, 19 7 C. IS. 19 7-2, 217 , s hereby amended to
read:
owever, a genera e tenson of tme Is hereby granted to contractors and sub-
contractors to and ncudng uy 15, 19 8, for fng annua reports of prot under
the proft-mtng provsons of the nson ct, as amended, for the caendar year
1 - ) and for fsca years ended n 19 7 pror to October 1, 19 7.
Geo. . Scoeneman,
Commssoner.
(1 3)
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1
MISC LL N OUS.
S CTION 36 OF T TR DING WIT T N MY CT.
19 8-9-12797
T. D. 5612
tte 26 nterna revenue. subchapter e admnstratve prov-
sons common to varous ta es. part 52a ta es under the trad-
ng wth the enemy act, as amended august 8, 19 6.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Coectors of Interna Revenue and Others Concerned:
On December 30, 19 7, notce of proposed rue makng regardng
the appcaton to nterna revenue of secton 36, added to the Tradng
Wth the nemy ct by the ct approved ugust 8, 19 G (60 Stat.,
925 Pubc Law 671, C. . 19 6-2, 286 ), was pubshed n the Fed-
era Regster (12 F. R., 8869). No ob|ecton to the rues proposed
havng been receved, ths Treasury decson, desgned to estabsh a
procedure reatve to the appcaton of secton 36 to the nterna reve-
nue, s hereby adopted.
Tabe of Contents.
Secton.
52a.20. Introductory.
52a.21. Defntons.
52a.22. ppcaton of part.
52a.23. Protecton of nterna revenue pror to ta determnaton.
52a.2 . Computaton of ta es.
52a.25. Payment of ta es.
52a.26. Interest and penates.
52a.27. Cams for refund or credt.
Secton 52a.20. Introductory. Secton 36, added to the Tradng
Wth the nemy ct by the ct approved ugust 8, 19 6 (Pubc
Law 671, Seventy-nnth Congress C. . 19 6-2, 286 ), provdes as
foows:
Sec. 36. (a) The vestng n or transfer to the en Property Custo-
dan of any property or nterest (other than any property or nterest
acqured by the Unted States pror to December 18, 10 1), or the re-
cept by hm of any earnngs, ncrement, or proceeds thereof sha not
render nappcabe any Federa, State, Terrtora, or oca ta for any
perod pror or subsequent to the date of such vestng or transfer, nor
render appcabe the e emptons provded n tte II of the Soca Se-
curty ct wth respect to servce performed n the empoy of the Unted
States Government or of any nstrumentaty of the Unted States.
(b) The en Property Custodan sha, notwthstandng the fng of
any cam or the nsttuton of any sut under ths ct, pay any ta nc-
dent to any such property or nterest, or the earnngs, ncrement, or pro-
ceeds thereof, at the earest tme appearng to hm to be not contrary
to the nterest of the Unted States. The former owner sha not be
abe for any such ta accrung whe such property, nterest, earnngs,
ncrement, or proceeds are hed by the en Property Custodan, uness
they are returned pursuant to ths ct wthout payment of such ta by
the en Property Custodan. very such ta sha be pad by the en
Property Custodan to the same e tent, as neary as may be deemed
practcabe, as though the property or nterest had not been vested n
or transferred to the en Property Custodan, and sha be pad ony
out of the property or nterest, or earnngs, ncrement, or proceeds
thereof, to whch they are ncdent or out of other property or nterests
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acqured from the same former owner, or earnngs, ncrement, or pro-
ceeds thereof. No ta abty may be enforced from any property or
nterest or tbe earnngs, ncrement, or proceeds thereof whe hed by
the en Property Custodan e cept wth hs consent. Where any prop-
erty or nterest s transferred, otherwse than pursuant to secton 9(a)
or 32 hereof, the en Property Custodan may transfer the property or
nterest free and cear of any ta , e cept to the e tent of any on for
a ta e stng and perfected at the date of vestng, and the proceeds of
such transfer sha, for ta purposes, repace the property or nterest
n the hands of the en Property Custodan.
(c) Sub|ect to the provsons of subsecton (b) hereof, the manner of
computng any Federa ta es, ncudng wthout mtaton by reason
of ths enumeraton, the appcabty n such computaton of credts, de-
ductons, and e emptons to whch the former owner s or woud be en-
tted, and the tme and manner of an.v payment of such ta es and the
e tent of an.v compance by the Custo dan wth provsons of Federa
Law and reguatons appcabe wth respect to Federa ta es, sha bo n
accordance wth reguatons prescrbed by the Commssoner of Interna
Revenue wth the approva of the Secretary of the Treasury to effectuate
ths secton. Statutes of mtatons on assessment, coecton, refund, or
credt of Federa ta es sha be suspended, wth respect to any vested
property or nterest, or the earnngs, ncrement or proceeds thereof,
whe vested and for s months thereafter: but no nterest sha be pad
upon any refund wth respect to any perod durng whch the statute
of mtatons s so suspended.
(d) The word ta as used In ths secton sha Incude, wthout
mtaton by reason of ths enumeraton, any property, ncome, e cess-
profts, war-profts, e cse, estate and empoyment ta , Import duty, and
speca assessment; and aso any nterest, penaty, addtona amount, or
addton thereto not arsng from any act, omsson, negect, faure,
or deay on the part of the Custodan.
(e) ny ta e empton accorded to the en Property Custodan by
specfc provson of e stng aw sha not be aTected by ths secton.
ecutve Order 9788, approved October 1 ,19 6 (11 F. R., 11981),
provdes as foows:
y vrtue of the authorty vested n me by the Consttuton and statutes, In-
cudng the Tradng Wth the nemy ct of October 6, 1917 ( 0 Stat., 11), as
amended, and the Frst War Powers ct, 1011 (.r 5 Stat., 838), as amended, and
as Presdent of the Unted States, t Is hereby ordered, n the Interest of the
nterna management of the Government, as foows:
1. The Offce of en Property Custodan In the Offce for mergency Manage-
ment of the ecutve Offce of the Presdent, estabshed by ecutve Order No.
909 ) of March 11, 10 2, Is hereby termnated ; and a authorty, rghts, prveges,
powers, dutes, and functons vested In such Ofce or In the en Property Custo-
dan or transferred or deegated thereto are hereby vested n or transferred or
deegated to the ttorney Genera, as the case may be, and sha be admnstered
by hm or under hs drecton and contro by such offcers and agences of the
Department of ustce as ho may desgnate.
2. property or nterests vested n or transferred to the en Property Custo-
dan or sezed by hm, and a proceeds thereof, whch are hed or admnstered
by hm on the effectve date of ths order are hereby transferred to the ttorney
Genera.
3. personne, property, records, and funds of the Offce of en Property
Custodan are hereby transferred to the Department of . ustce.
. Ths order supersedes a pror ecutve orders to the e tent that they are
n confct wth ths order.
5. Ths order sha become effectve on October 15,10 0.
Pursuant to the above-quoted provsons and secton 3791 of the
Interna Revenue Code and other provsons of such Code, the foow-
ng reguatons are hereby prescrbed:
Sec 2a.21. Defntons. When used n ths part (a) The term ttorney
Genera ncudes the en Property Custodan whose functons were trans-
ferred to the ttorney Genera pursuant to ecutve Order 9788 (11 F. It., 11081),
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and any other offcers and agences to whch such functons are transferred or
assgned pursuant to such ecutve order, or otherwse.
(6) The term Commssoner means the Commssoner of Interna Revenue.
(c) The term person ncudes an ndvdua, a trust, estate, partnershp, com-
pany, or corporaton, and any entty havng or camng an nterest n vested prop-
erty or abe or charged wth abty to nterna revenue ta n connecton wth
such property.
(d) The term former owner means the owner mmedatey pror to vestng
and any successor n nterest by nhertance, devse, bequest, or operaton of aw,
of such owner.
(e) The term Tradng Wth the nemy ct ncudes a amendments of such
ct, and a orders, rues, and reguatons ssued or prescrbed under such ct
or any such amendment.
(f) The term property ncudes money, the proceeds of propery, ncome, dv-
dends, nterest, annutes, and other earnngs, but does not ncude any property
or nterest or any of the foregong whch vested n the ttorney Genera or was
otherwse acqured by the Unted States pror to December IS, 19 1.
(g) The terms property vesed by the ttorney Genera and property vested
n the ttorney Genera ncude property conveyed, transferred, assgned, de-
vered, or pad to or hed or controed by or vested n the ttorney Genera, under
the Tradng Wth the nemy ct.
(ft) The term engaged n trade or busness n the Unted States ncudes
the managng and rentng of rea estate n the Unted States by an agent of the
Custodan or of the former owner duy authorzed to e ecute renta agreements
nnd to pay a ta es and charges ncdent to the repar and mantenance of such
property, but does not ncude the mere rentng or easng of property under agree-
ment requrng the essee or occupant to pay ta es and to make repars or m-
provements.
(f) The term ta has the meanng stated n secton 30(d) of the Tradng
Wth the nemy ct as added by the ct of ugust 8,19 (5. (See secton 52a.20.)
(;) term not defned heren sha have the meanng, f compatbe wth the
conte t, mputed thereto under the Interna Revenue Code.
Skc. 52a.22. ppcaton of Pabt. (a) Property covered. Ths part (that
s, ths Treasury decson) s appcabe n connecton wt property vested n
the ttorney Genera on and after December IS, 10 1. It s not appcabe n
connecton wth property or nterest n property so vested or acqured by the
Unted States pror to December 18, 19 1, whch property or nterest s governed
by Treasury Decson 108 C. . 1I-2 (1928), 131, as amended by Trensurv
Decson 51 , approved anuary 18, 193 . C. . I -1 (1935), 5 3 (20 CFR,
52.1- 52.10).
(b) Tare covered. cept as otherwse provded by specfc e empton
appcabe wth respect to the en Property Custodan, ths part appes, n the
crcumstances theren ndcated, to any nterna revenue ta appcabe n respect
of (1) property vested n the ttorney Genera or any acton or transacton
ncdenta to such property, or (2) any person whose property s so vested or any
acton or transacton of such person, whether the ta s appcabe n respect of the
perod of vestng or any other perod. Federa empoyment ta es are appcabe
wth respect to wages pad to a person not a reguar Government empoyee,
permanent or temporary, for servces mmedatey connected wth the operaton
of an enterprse under contro of the ttorney Genera such as mght be rendered
to a prvate operator.
Sec. 52a.23. Protecton of Interna Revenue Pror to Ta Determnaton.
(a) Suts and cams for return of vested property. (1) Genera. The pro-
vsons of ths paragraph (a) appy n cases where there has been no fna or
tentatve determnaton of nterna revenue ta abty. I such cases vested
property sha not be returned e cept n accordance wth ths paragraph.
(2) Notce to Commssoner. () Suts for recovery. Where sut for the
return of vested property has been nsttuted under secton 9 of the ct, wthn a
reasonabe tme after answer has been fed or after begnnng of the tra of the
case, the ttorney Genera sha n wrtng notfy the Commssoner of the
property nvoved and the name, address, ctzenshp, resdence, and busness
organzaton of the camant, and any other pertnent nformaton.
() Return cthout sut. t east nnety (90) days pror to any return of
vested property pursuant to secton 32 of the ct the ttorney Genera sha n
wrtng notfy the Commssoner n the manner prescrbed n (1).
(3) Return of property. () Wthout securty.- ested property, the sub|ect
of a sut or proceedng pursuant to the Tradng Wth the nemy ct, may be
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returned wthout securty pror to determnaton of appcabe Interna revenue
ta es and pror to the |udgment of the court or pubcaton of the oder of the
ttorney Genera drectng such return, to the foowng descrbed camants
under the condtons herenafter stated:
( ) Resdents and domestc enterprses. In the case of camants who at
the tme of return are (1) ndvduas permanenty resdent n the Unted
States snce December 7, 19 1, or (2) corpo rat ons or other busness enter-
prses organzed under the aws of the Unted States, or any State, Terrtory,
or possesson thereof, or the Dstrct of Coumba, or dong busness n the
Unted States, the ttorney Genera may return the property at any tme
wthout notce to the Commssoner of such return.
( ) Nonresdents, etc. In the case of camants who at the tme of return
are (1) ndvduas not permanenty resdent n the Unted States snce
December 7, 10 1, or (2) nondomestc corporatons or other noudomestc
busness enterprses not dong busness wthn the Unted States, the property
may be returned not ess than nnety (00) days after notce by the ttorney
Genera to the Commssoner n a case wthn (2) (), or not ess than s ty
(60) days after notce n a case wthn (2) (), uness wthn such tme the
ttorney Genera s advsed otherwse by the Commssoner.
() When securty requred. cept as provded n (), vested property sha
not be reeased pror to determnaton of ta abty wthout securty satsfac-
tory to the Commssoner, but determnaton of ta abty w be e pedted n
order that reease of the property or of the securty sha not be unnecessary
deayed.
( ) Securty. Securty when requred sha be such of the foowng as sha,
n the udgment of the Commssoner, be approprate:
() ond. bond of the camant condtoned upon payment of the fu
amount of nterna revenue ta es determned to be due, fed wth the coector
n such amount, and wth such suretes, as the Commssoner deems necessary.
The suretes may be ony surety companes certfed by the Secretary of the
Treasury as acceptabe.
(I) Coatera securty. Coatera authorzed by aw deposted by the
camant n eu of surety condtoned upon the payment of the fu amount of
nterna revenue ta determned to e due.
() Reservaton of assets. Moneys, or f the moneys are nsuffcent, so
much of the other property nvoved, to be reserved by the ttorney Genera,
as w be suffcent n the |udgment of the ttorney Genera to cover any
nterna revenue ta abty determned by the Commssoner.
(6) ested property sub|ect to debt cams. (1) Notce to Commssoner.
Wth respect to vested property avaabe for the payment of debt cams under
secton 3 of the ct, and wth respect to whch debt cams have been fed,
pror to the aowance of any such cams the ttorney Genera sha, In wrtng,
notfy the Commssoner of the property nvoved, the ctzenshp, resdence,
busness organzaton, and othef necessary nformaton concernng the debtor
and the aggregate of debt cams fed n respect thereof.
(2) cton by Commssoner. Upon recept of the notce provded In (1) the
Commssoner sha, as soon as practcabe and not ater than 120 days after
recept of notce, uness the tme s e tended by the Commssoner after notce to
the ttorney Genera: (1) Determne the ta es payabe by the ttorney Genera
n respect of the debtor, or () advse the ttorney Genera of the provson, f
any, to be made by hm for payment of ta es n respect of the debtor.
Sec. 52a.2 . Computaton of Ta es. (a) Deta of empoyees of the ureau
of Interna Revenue.- The Commssoner w deta for the assstance of the
ttorney Genera such empoyees of the ureau of Interna Revenue as may be
necessary to make the computatons under ths part prompty and accuratey.
(6) Reatonshp of ttorney Genera and former owner. In the computaton
of ta abty under ths part, e cept as otherwse provded heren, the vestng
of property sha be consdered as not affectng the ownershp thereof; and any act
of the ttorney Genera n respect of such property (ncudng the coecton or
operaton thereof and any nvestment, sae, or other dsposton and any payment
or other e pendture) sha be consdered as the act of the owner. Nevertheess,
e cept as otherwse provded n the ct or ths part, n so far as ta es are ncdent
to vested property durng the perod of vestng, they sha be payabe by the
ttorney Genera, e cept that to the e tent of the vaue of any of the property
returned to the former owner the atter sha be abe for such ta not pad by the
ttorney Genera. Whe ta ncdent to nonvested property s coectbe out
of both vested and nonvested property, the nonvested property w be regarded
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as the prmary source of coecton of such ta . In determnng the amount of
the abty to be pad out of property not vested by the ttorney Genera a com-
putaton sha be made coverng the ta payer s fu perod of abty, but wthout
regard to the vested property, or the ncome receved by, or the operatons of, the
ttorney Genera. The amount so computed sha be frst asserted aganst and
coected so far as practcabe from the ta payer or out of hs property whch s
not vested. Such part of the tota ta abty as s not pad by the ta payer or
coected out of property not vested sha be asserted aganst the vested property.
(See secton 52a.25 and secton 52a.27(6).)
(c) Laws appcabe to computaton. cept as otherwse specfcay provded
n ths part, the computaton under ths part of any nterna revenue ta abty
sha be n accordance wth the nterna revenue aw and reguatons appcabe
thereto, ncudng a amendments of such aw or reguatons enacted or promu-
gated pror to determnaton of the ta .
(d) Perods for whch computatons made. The amount of ncome, decared
vaue e cess profts, e cess profts, capta stock, empoyment, and e cse ta es
under the nterna revenue aws w be computed for each ta abe year or perod
durng a or part of whch property s vested pror to the return of the property.
( s to return of property pror to computaton of ta . see secton 52.23.) Where
vestng occurs durng a ta abe year or ta abe perod, any return fed or com-
putaton made coverng vested or nonvested property shoud nevertheess be for
the entre year or perod. (See paragraph (6).) Uness facts are avaabe
ndcatng a abty for ta es for a ta abe year or perod occurrng whoy pror
or subsequent to the perod of vestng of the property by the ttorney Genera,
the computatons under ths part, both tentatve and fna, w be made ony n
respect of years and perods durng a or part of whch the property s hed by
the ttorney Genera.
(e) Tentatve computaton. In order that the return of property or other ap-
proprate acton may not be deayed unt the amount of ta es payabe s fnay
computed and pad, a tentatve computaton of such amount w be made n every
case, uness there are crcumstances appearng to make such acton napproprate.
Such crcumstances woud ncude (1) return of the property n accordance wth
secton 52a.23, (2) notce to the Commssoner of Interna Revenue by the person
to whom the property s returnabe or by the ttorney Genera that such person
or the ttorney Genera, as the case may be, prefers that the return of the property
be postponed unt the amount of such ta es can be fnay computed, or (3) beef
on the part of the Commssoner that a fna computaton w not unduy deay
the return of the property or other approprate acton. In makng any such tenta-
tve computaton of ncome, profts, or estate ta , the gross ncome or the gross
estate, as the case may be, as shown by the records of the ttorney Genera
(e cudng therefrom tems e empt from ta aton) sha be consdered as the net
ncome or net estate, respectvey, uness a ta return has been fed or facts are
avaabe upon whch a more accurate computaton can be made. In any case n
whch a duy authorzed offcer or empoyee of the ureau of Interna Revenue
has otherwse computed the amount of ta es payabe n respect of any perod, such
computaton w be accepted as a tentatve computaton, uness the facts ceary
Indcate that a more accurate computaton can be made. -.
(f) Fna computaton. (1) Genera. fna computaton of the amount of
ta es payabe by the person to whom property s returnabe, or out of property to
be returned, w be made as soon as practcabe n every case. In any case n
whch the amount shown by a tentatve computaton has been pad, refund or
credt of any amount pad n e cess of the amount propery due w be made n
accordance, wth the fna computaton, even though a cam therefor has not been
fed, f the perod of mtaton appcabe to the fng of such cam has not
e pred. owever, f t s desred to protect the rght to any credt or refund
determned to be due, a cam for credt or refund shoud be fed. (See secton
52(1.27.) The suffcency of any such cam n respect of an amount pad n
accordance wth a tentatve computaton under ths part w not be questoned
soey because facts upon whch a more accurate computaton coud be made are
not avaabe or can not be estabshed at the tme such cam s fed. ny such
cam n respect of an amount pad n accordance wth a na computaton must,
however, ceary set forth n deta under oath a the facts reed upon n support
of the cam and must conform to the reguatons appcabe to an ordnary cam
for refund or credt. See, for e ampe, secton 29.322-2, Reguatons 111 (26 CFR,
20.322-2). ( nd see secton 52a.27.)
(2) Informaton requred. () Income and profts ta es. The foowng n-
formaton submtted under oath by or for the ta payer s necessary n eac case
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for a fna computaton, for each ta abe year for whch the computaton s to be
made:
( ) ncome (other than ncome receved by the ttorney Genera)
from sources wthn the Unted States, or f no such ncome has been re-
ceved, then a statement to that effect, e cept that n the case of a ctzen
or resdent of the Unted States, ncome from sources wthout as we as
wthn the Unted States must be shown.
( ) If a return of such ncome has been made, then the foowng data
n respect of such return:
(1) The ta abe year for whch the return was made and the ta
(whether ncome, decared vaue e cess profts, or e cess pn fts ta )
pad;
(2) The name of the ta payer for whom the return was made;
(3) The name of the agent or other person (f any) by whom such
return was made;
( ) The offce of the coector n whch such return was fed.
(C) Such other facts as may be requred, from tme to tme, by the Com-
mssoner of Interna Revenue.
() Other ta es. cept as otherwse provded n (), n order to make a
fna computaton of the amount of any nterna revenue ta payabe by return n
cny case, the usua return shoud e ted, together wth the supportng documents
requred by the reguatons pertanng to the ta .
Iff) Ta return . (1) Genera. In many cases aowance of deductons and
credts s contngent upon the makng of a return n accordance wth the app-
cabe nterna revenue aw. The submsson of evdence reatve to ncome or
profts ta n accordance wth paragraphs (f)(2) (I) ( ) and (C) w be con-
sdered as the makng of the return requred by any such aw, ony () for any
ta abe perod, endng on or before December 31, 19 6, durng a or part of whch
a or part of the property of the ta payer was hed by the ttorney Genera, or
() for any ta abe perod endng wthn one year from the date of the frst re-
turn to the ta payer, of any part of the property hed by the ttorney Genera,
whchever perod ends ater. In a other cases a return w be requred n
accordance wth the appcabe nterna revenue aw and reguatons. ( s to
returns where property s vested durng a ta abe year or perod, see secton
r,2a.2 ( f).)
(2) states and trusts. In the case of estates and trusts the fducares sha
fe returns, ncudng nformaton returns as requred by secton 1 7 of the
Interna Revenue Code.
(3) Income tu forms to be used. In the case of ta payers engaged n trade
or busness n the Unted States, Forms 10 0 and 1120, as may be approprate,
sha be used. Where the ta payer s not engaged n trade or busness n the
Unted States, Form 797M may be used n eu of Forms 10 0N and 1120N .
Sec. 52a.25. Payment of Ta es. (a) Pursuant to tentatve computatons.
The amount of ta es shown by a tentatve computaton sha be pad by the t-
torney Genera or the ta payer, as the case may be, to the coector of Interna
revenue as soon as practcabe after the tentatve computaton has been made.
It w not be necessary, however, for the payment by the ttorney Genera to be
made pror to the return of property f an amount suffcent to cover a nterna
revenue ta es s retaned therefrom by the ttorney Genera.
(6) Pursuant to fna computatons. Upon a fna computaton of nterna
revenue ta es propery payabe, the amount thereof remanng unpad sha be
pad by the ttorney Genera to the coector of nterna revenue as soon as prac-
tcabe after the fna computaton as bpen made, or, n case the property has
been returned to the former owner, by such owner. If the fna computaton shows
that the fu amount of nterna revenue ta es propery payabe s ess than the
amount prevousy pad, the dfference sha be credted or refunded n accordance
wth the provsons of these and other appcabe reguatons. fna com-
putaton w not prohbt a subsequent recomputaton If t s determned that
the amount shown by the fna computaton s erroneous.
(e) Defcency procedure. The ttorney Genera sha pay nterna revenue
ta es wthout regard to the provsons of aw reatng to the sendng of a de-
fcency notce by regstered ma, or to notce and demand.
Sec. 52a.26. Interest and Penates. (a) Labty for nterest and cv
penates. Under subsecton (d) of secton 36 of the Tradng Wth the nemy
ct there Is no abty for nterest or penaty on account of any act or faure
of the ttorney Genera. Such subsecton s not appcabe to nterest or p na-
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150
tes payabe n respect of any act or faure durng the perod pror to the vestng
of the property by the ttorney Genera, or after the return of the property, or
durng the perod durng whch the property was vested by the ttorney Genera
on account of an act or omsson of any person other than the ttorney Genera.
(6) In case of any assessment or coecton, or credt or refund of nterest
or a cv penaty contrary to the provsons of secton 36 (c) or (d), proper
ad|ustment sha be made.
Sec. 52a.27. Cams fob Refund on Credt. (a) Cams for refund or credt
must be fed wthn the perod prescrbed by secton 322 of the Interna Revenue
Code as modfed by secton 36(c) of the Tradng Wth the nemy ct ny
such cam must contan a detaed statement under oath of a the facts reed
upon n support of the cam and shoud be fed wth the coector of nterna
revenue of the dstrct n whch the ta was pad. (See secton 52a.2 (/) (1).)
(6) ny act of the ttorney Genera for, or on behaf of, a ta payer n respect
of any cam under ths part w be consdered as the act of such ta payer,
uness such ta payer notfes the Commssoner of Interna Revenue n wrtng,
by the fng of a cam for refund or credt or otherwse, that he does not ratfy
such act. (See aso secton 52a.2 (6).)
(c) refund of ta es pad by the ttorney Genera sha be made drecty to
that offca.
(Ths Treasury decson s ssued under the authorty contaned
n secton 3791(a) of the Interna Revenue Code (53 Stat., 67; 26
U. S. C, 3791). and secton 36, added to the Tradng Wth the nemy
ct approved ugust 8, 19 6 (Pubc Law 671, Seventy-nnth Con-
gress, 60 Stat., 925).)
Geo. . Scoe eman,
Commssoner of Interna Revenue.
pproved pr 9,19 8.
. . Foey, r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regstrr pr 15, 10 8. 8.57 a. m.)
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151
Regs. , 183.310, etc.
DISTILL D SPIRITS.
INT RN L R NU COD .
Reguatons , Sectons 183.310,183.312,
183.313, tc.
19 8- -12750
T. D. 5(501
TITL 26 INT RN L R NU C PT R I, SU C PT R C, P RT 183.
PRODUCTION OF DISTILL D SPIRITS.
To Dstrct Supervsors and Others Concerned:
1. On October 7, 19 7, a notce of proposed rue makng regardng
producton of dsted sprts was pubshed n the Federa Regster
(12F.R.,6598).
2. fter consderaton of such reevant matter as was presented by
nterested persons, the foowng added sectons 183.31 a and 183.328a,
and amendments of sectons 183.310,183.312,183.313, 183.31 , 183.315,
183.322, 183.323, 183.326, 183.327, 183.328, 183.329, 183.331, 183.332,
183.333, 183. 29, and 183. 30 of Reguatons , approved February 28,
19 0 ( 26 CFR, Part 183), are hereby adopted.
3. These amendments are desgned to smpfy the procedure govern-
ng the transfer n bond of dsted sprts from regstered dsteres
to nterna revenue bonded warehouses.
rtce I . Ta -Payment, Remova, and Transfer of Dsted Sprts
From Cstern Room.
depost n warehouse operated on dstery premses by the dster.
Sec. 183.310. Suffcency of Warehouse ond. Where the bond coverng the
operaton of an nterna revenue bonded warehouse on the dstery premses s
gven n ess than the ma mum pena sum of 200,000, as shown by the record
furnshed by the dstrct supervsor pursuant to Reguatons 10 (26 CFR, Part
183), the storekeeper-ganger n charge of the warehouse w see that the ta
abty on the quantty of sprts deposted n the wareho.se, pus the ta
abty on sprts represented by a outstandng approved Forms 230 (sectons
183.31 and 183.32S) s wthn the mts of the ena sum of the bond. (Sec.
3176, L R. C.)
D POSIT IN W R OUS OP R T D Y DISTILL R ON CONTIGUOUS PR MIS S.
Sec. 183.312. Suffcency of Warehouse ond. Where the bond coverng the
operaton of an nterna revenue bonded warehouse on premses contnguous to
the dstery premses s gven n ess than the ma mum pena sum of 200,000,
as shown by the record furnshed by the dstrct supervsor pursuant to Regu-
atons 10 (26 CFR, Part 185), and dsted sprts produced at the dstery are
deposted n such warehouse n accordance wth the procedure prescrbed In the
precedng secton, the storekeeper-gauger n charge of the warehouse w see that
the ta abty on the quantty of sprts deposted n the warehouse, pus the
a abty on sprts represented by a outstandng approved Forms 236
(sectons 183.31 and 183.328) s wthn the mts of the pena sum of the bond.
(Sec. 3176, I. R. C.)
mendng Reguatons .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
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Regs. , 183.310, etc.
152
TR NSF R TO W R OUS OFF DISTILL RY PR MIS S IN S M DISTRICT, C PT W R -
OUS OP R T D Y DISTILL R ON CONTIGUOUS PR MIS S.
Sec 183.313. ppcaton, Form 236. Where sprts are to be transferred to
and entered for depost In an nterna revenue bonded warehouse ocated off the
dstery premses In the same supervsory dstrct, and such warehouse s not
operated by the dster on premses contguous to the dstery premses, the
propretor of the recevng warehouse sha e ecute an appcaton for the transfer
of the sprts on Form 236. The appcant sha enter a appcabe data ndcated
by the form ncudng the ma mum quantty n ta gaons to be transferred n
any one truck, raroad car, or other vehce. e sha prepare an orgna and
fve copes of Form 236 and gve them to the storekeeper-gauger n charge of the
recevng warehouse. (Sees. 2S78, 2883, 3176, I. R. C.)
Sec. 183.31 . Storekeeper-Gauger s Certfcate of Suffcency of Warehouse
ond. Upon recept of Form 236 by the storekeeper-gauger n charge of the ware-
house, he w compare the pena sum of the bond as stated n the appcaton
wth hs record furnshed by the dstrct supervsor pursuant to Reguatons 10
(20 CFR, Part 185). If the bond s gven n the ma mum pena sum of 200,000,
he w certfy to the suffcency thereof on Form 236 and forward a s copes of
the form drect to the storekeeper-gauger n charge at the dstery. If the bond
s gven n ess than the ma mum pena sum, the storekeeper-gauger n charge w
determne from hs records whether the ta abty on the quantty of dsted
sprts represented by the Form 236, pus the quantty of dsted sprts stored
n the warehouse, pus the quantty represented by a outstandng approved
Forms 236, s wthn the mts of the pena sum of the transportaton and ware-
housng bond. If so, ho w certfy to the suffcency of the bond on Form 236,
record such certfcaton n hs records, and forward a s copes of the form
drect to the storekeeper-gauger n charge at the dstery. If the transportaton
and warehousng bond s not suffcent, he w certfy to that fact on Form 236
and return a s copes to the propretor. appcatons on Form 236 w
e pre 90 days (three caendar months) from the date of the e ecuton of the
storekeeper-gauger s certfcate of bond coverage, provded that the dstrct super-
vsor may authorze an e tenson of 10 days f the propretor furnshes a suffcent
bass for such e tenson and the defnte assurance that shpment w be made
wthn such tme. (Sec. 3170, I. R. C.)
Sec 183.31 a. Sprts to be Transferred. Upon recept of Form 236, the store-
keeper-gauger n charge at the dstery w mark one copy propretor s copy
and gve t to the propretor. e w fe the remanng fve copes n hs pendng
fe. When the propretor desres to make shpment, he w return hs copy of
Form 236 to the storekeeper-gauger n charge and furnsh hm a compete descrp-
ton of the sprts to be shpped. Where shpment s not made wthn the 93-day
perod, the dster w return hs copy of Form 236 to the storekeeper-gauger n
charge uness otherwse drected by the dstrct supervsor. In the event he fas
to do so, the storekeeper-gauger n charge w advse the propretor that Form
236 has e pred and request the return of the propretor s copy, uness otherwse
drected by the dstrct supervsor. The storekeeper-gauger n charge w then
send a s copes of Form 236 to the dstrct supervsor for canceaton and
return to the storekeeper-gauger n charge at the recevng warehouse for ad|ust-
ment of hs record and return to the appcant. (Sec. 3176, I. R. C.)
Sec 183.315. Report of Gauge. Uness prevousy packaged, the sprts desg-
nated by the propretor to he transferred w be drawn from the recevng csterns
Into casks or packages, gauged, marked, and branded, or nto a weghng tank,
gauged, and run by ppe ne nto a propery equpped raroad tank car. Ony
sprts produced at a proof n e cess of 159 degrees and reduced n the recevng
csterns to not more than 159 and not ess than 100 degrees of proof may be trans-
ported n raroad tank cars. The quantty transferred sha not e ceed the
ma mum stated n the appcaton. The detas of the gauge w be entered by
the storekeeper-ganger on s copes of Form 1520. (Sacs. 2878, 2S83, 3176,
017, I. R. C.)
Sec 183.322. Dster s ntry for Depost. When the sprts have b en
packaged, or run nto a raroad tank car and such tank car sea-ocked, the store-
keeper-ganger n charge w dever a s copes of Forms 236 and 1520 to
the dster. The dster sha, on the same date that the sprts are to be
removed from the dstery, e ecute on Form 236 the descrpton of the packages
or tank car to be transferred and on Form 1520 the entry for depost. e sha
mmedatey return a copes of such forms to the storekeeper-gauger In charge,
who w reease the sprts for shpment. (Sees. 2879(a), 3176, I. R. C.)
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153
Regs. , 183.310, eto.
Sec. 183.323. Storekeepf.b-Gauger s Certfcate of Remova. Upon remova
of the sprts, the storekeeper-gauger w e ecute hs certfcate of gauge and
remova on Form 236. The storekeeper-gauger n charge at the dstery w
attach one copy of Form 1520 to each copy of Form 236. e w retan one
copy of each form, furnsh one copy of each to the dster, forward one copy
of each to the supervsor-consgnor, and forward one copy of each to the propretor
of the recevng warehouse and two copes of each to the storekeeper-gauger n
charge at the recevng warehouse. When shpment s made by truck, one of
the two sets of forms for the storekeeper-gauger In charge at the recevng ware-
house w be seaed n an enveope addressed to such storekeeper-gauger n charge
and handed to the person In charge of the truck for devery to hm. (Sees. 287S,
2883, 3170. 317G, I. R. C.)
.Sec. 183.32G. Storekeeper-Gauge s Recept of Sprts at Warehouse. fter
the sprts have been deposted n the recevng warehouse, the storekeeper-
gauger w e ecute hs recept on both copes of Form 230. The storekeeper-
gauger n charge w retan one copy each of Forms 236 and 1520 and forward
one copy of each form to the dstrct supervsor. No wthdrawa or transfer n
bond of sprts receved at the warehouse w be made unt the two sets of
Forms 236 and 1520 have been receved by the storekeeper-gauger n charge.
(Sees. 2878, 2883, 3176, I. R. C.)
TR NSF R TO W R OUS OFF DISTILL RY PR MIS S, IN DIFF R NT DISTRICT.
Sec 183.327. ppcaton, Form 236. Where sprts are to be transferred to
and entered for depost n an Interna revenue bonded warehouse ocated n a
dfferent supervsory dstrct than the dstery, the propretor of the recevng
warehouse sha e ecute an appcaton for the transfer of the sprts on Form
236; The appcant sha enter a appcabe data ndcated by the form, ncud-
ng the ma mum quantty n ta gaons to be transferred n any one truck,
raroad car, or other vehce. e sha prepare an orgna and s copes of
Form 236 and gve them to the storekeeper-gauger n charge of the recevng
warehouse. (Sees. 2878, 2883, 3176, I. R. O.)
Sec. 183.328. Storekeeper-Ganger s Certfcate of Suffcency of Warehouse
ond. Upon recept of Form 236 by the storekeeppr-gauger n charge at the
warehouse, he w compare the p; a sum of the bond as stated n the appcaton
wth hs record furnshed by the dstrct supervsor pursuant to Reguatons 10
(26 CFR, Part 185). If the bond s gven n the ma mum pena sum of 200,000,
e w certfy to the suffcency thereof oh Form 236 and forward a seven copes
of the form drect to the storekee er-gauger n charge at the dstery. If the
bond s gven n ess than the ma mum pena sum, the storekeeppr-gauger n
charge w determne from hs records whether the ta abty on the quantty
of sprts represented by the Form 236, pus the quantty of sprts stored n the
warehouse, pus the quantty represented by a outstandng approved Forms 236,
s wthn the mts of the pena sum of the transportaton and warehousng bond.
If so, he w certfy to the suffcency of the bond on Form 236, record such
certfcaton n hs records, and forward a seven copes of the form drect to
the storekeeper-gauger n charge at the dstery. If the transportaton and
warehousng bond Is not sufcen he w certfy to that fact on Form 236 and
return a seven copes to the propretor. appcatons on Form 236 w
e pre 90 days (three caendar months) from the date of the e ecuton of the
storekeeper-ganger s certfcate of bond coverage, provded that the supervsor-
consgnor may authorze an e tenson of 10 days f the propretor furnshes a
suffcent bass for such e tenson and the defnte assurance that shpment w
te made wthn such tme. (Sec. 3176. I. R. C.)
Sec 183.328a. Sprts to be Transferred. Upon recept of Form 236, the
storekeeper-gauger n charge at the dstery w mark one copy propretor s
copy and gve It to the propretor. e w fe the remanng s copes n hs
pendng fe. When the propretor desres to make shpment, he w return hs
copy of Form 236 to the storekeeper-gauger n charge and furnsh hm a compete
descrpton of the sprts to be shpped. Where shpment s not made wthn the
00-day perod, the dster w return hs copy of Form 236 to the storekeeper-
gauger n charge uness otherwse drected by the supervsor-consgnor. In the
event he fas to do so, the storekeeper-gauger n charge w advse the propretor
that Form 236 has e pred and request the return of the propretor s copy, uness
otherwse drected by the supervsor-consgnor. The storekeeper-gauger n
charge w then send a seven copes of Form 236 to the supervsor-consgnor
700500 S 11
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Regs. , 183.310, etc.
15
for canceaton and return to the storekeeper-gauger n charge at the recevng
warehouse for ad|ustment of hs record and return to the appcant. (Sec
3176, I. R. C.)
Sec. 183.329. Report of Gauge. Uness prevousy packaged, the sprts
desgnated by the propretor to be transferred w be drawn from the recevng
csterns Into casks or packages, gauged, marked, and branded, or nto a weghng
tank, gauged, and run by ppe ne nto a propery equpped raroad tank car.
Ony sprts produced at a proof n e cess of 159 degrees and reduced n the
recevng csterns to not more than 159 and not ess than 100 degrees of proof
may be transported n raroad tank cars. The quantty transferred sha not
e ceed the ma mum stated n the appcaton. The detas of the gauge w
be entered by the storekeeper-gauger on seven copes of Form 1520. (Sees. 2878,
2883, 3176, 017. I. R. C.)
Sec. 183.331. Dster s ntry for Depost. When the sprts have been
packaged, or run nto a raroad tank car and such tank car sea-ocked, the
storekeeper-gauger n charge w dever a seven copes of Forms 236 and 1520
to the dster. The dster sha, on the same date that the sprts are to be
removed from the dstery, e ecute on Form 236 the descrpton of the pack-
ages or tank car to be transferred and on Form 1520 the entry for depost e
sha mmedatey return a copes of such forms to the storekeeper-gauger n
charge, who w reease the sprts for shpment. (Sees. 2879(a), 3176, I. R. C.)
Sec. 183.332. Storekeepee-G auger s Certfcate of Remova. Upon remova
of the sprts, the storekeeper-gauger w e ecute hs certfcate of gauge and
remova on Form 236. The storekeeper-gauger n charge at the dstery w
attach one copy of Form 1520 to each copy of Form 236. e w retan one copy
of each form, furnsh one copy of each to the dster, forward one copy of each
to the supervsor-consgnor, and forward one copy of each to the propretor of
the recevng warehouse and three copes of each to the storekeeper-gauger n
charge at the recevng warehouse. When shpment s made by truck, one of
the three sets of forms for the storekeeper-gauger n charge at the recevng
warehouse w be seaed In an enveope addressed to such storekeeper-ganger n
charge and handed to the person n charge of the truck for devery to hm. (Sees.
2878, 2883, 3170, 3176, 017, I. R. C.)
Sec. 183.333. Storekeeper-Gauqer b Recept of Sprts at Warehouse. The
storekeeper-gauger at the recevng warehouse w e amne the shpment upon
ts arrva and ascertan and note any osses or dscrepances as provded In sec-
tons 183.32 and 183.325. fter the sprts have been deposted, the storekeeper-
gauger w e ecute hs recept on the three copes of Form 236. The storekeeper-
gauger n charge w retan one copy each of Forms 236 and 1520, and forward
two copes of each form to the supervsor of hs dstrct. The dstrct super-
vsor w retan one copy of each form and forward the remanng copy of each
to the supervsor of the dstrct from whch the sprts were transferred. No
wthdrawa or transfer n bond of sprts receved at the warehouse w be made
unt the three sets of Forms 236 and 1520 have been receved by the storekeeper-
gauger n charge. (Sees. 2878, 2883, 3176, 1. R. C.)
rtce I . Concernng Locks and Seas.
Sf.c. 183. 29. Storekeeper-Gauoer s Record of Cap and Lock Seas. record
of cap and ock seas receved and used at eac regstered dstery w be kept
by storekeeper-gaugers on Form 289, Storekeeper-gauger s Record and Report of
Government Property, n accordance wth the ttes of the coumns and nes
and the nstructons on the form. Form 289 w be kept n the Government
cabnet when not n use. (Sec. 3176, I. R. C.)
Sec 183. 30. Storekeepeb-Gauoer s Report of Government Propertt. On or
before the 5th day of the month succeedng that for whch the transactons are
reported, the storekeeper-gauger w prepare a monthy report on Form 289,
Storekeep r-gauger s Record an Report of Government Property, of a Govern-
ment property at the regstered dstery. Form 2S9 w be prepared, n dup-
cate, n accordance wth the ttes of the coumns and nes and the nstructons on
the form. e w forward the orgna to the dstrct supervsor and retan the
copy for hs fes. (Sec. 3176, I. R. C.)
. Ths Treasury decson sha be effectve on the thrty-frst day
after the date of ts pubcaton n the Federa Regster.
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155
Regs. 5, 18 311. etc.
(Ths Treasury decson s ssued under the authorty contaned n
sectons 2878,2879(a), 2883. 3170, 3176, and 017 of the Interna Reve-
nue Code (U. S. C, Tte 2G, sectons 2878, 2879(a), 2883, 3170, 317G,
and 017).)
G O. . ScO N M N,
Commssoner.
pproved February ,19 8.
. L. M. Wggns,
ctng Secretary of the Treasury.
(Pubshed In the Federa Regster February 10, 19 8.)
Reguatons 5, Sectons 18 .311, 18 .313, 19 8- -12751
18 .31 , tc. T. D. 5602
TITL 20 INT RN L R NU . C PT R I, SU C PT R C, P RT 18 .
PRODUCTION O R NDY.
mendng Reguatons 5.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Dstrct Supervsors and Others Concerned:
1. On October 7, 19 7, a notce of proposed rue makng regardng
producton of brandy was pubshed n the Federa Regster (12 F. It.,
6600).
2. fter consderaton of such reevant matter as was presented by
nterested persons, the foowng added sectons 18 .315a and 18 .329a,
and amendments of sectons 18 .311,18 .313,18 .31 ,18 .315,18 .316,
18 .323, 18 .32 , 18 .327. 18 .328, 18 .329, 18 .330, 18 .332, 18 .333,
18 .33 , 18 . 6, and 18 . 7 of Reguatons 5, approved February 28,
19 0 (26 CFR, Part 18 ), are hereby adopted.
3. These amendments are desgned to smpfy the procedure gov-
ernng the transfer n bond of dsted sprts from frut dsteres
to nterna revenue bonded warehouses.
rtce . Ta -Payment, Remova, and Tbansfeu of randy From
Dstery.
depost warehouse operatkd on dstery premses by the dster.
Sec. 18 .311. Suffcency of S RF.nors ond. Where the bond coverng the
operaton of an Interna revenue bonded warehouse on the dstery premses a
gven In ess than the ma mum pena sum of 200,000, as shown by the record
furnshed by the dstrct supervsor pursuant to Reguatons 10 (26 CFR, Part
185), the storekeeper-gauger n charge of the warehouse w see that the ta
abty on the quantty of dsted sprts deposted n the warehouse, pus the
ta abty on dsted sprts represented by a outstandng approved Forms
236 (sectons 18 .315 and 18 .329) s .wthn the mts of the pena sum of the
bond. (Sec. 3170, I. R. O.)
D POSIT IN W R OUS OP R T D Y T DISTILL R ON CONTIGUOUS PR MIS S.
Sec 1S .313. Suffcency of Warehouse ond. Where the bond coverng the
operaton of an nterna revenue bonded warehouse on premses contguous to the
dstery premses s gven n ess than the ma mum pena sum of 200,000, as
shown by the record furnshed by the dstrct supervsor pursuant to Reguatons
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Regs. 5, 18 .311, etc/)
156
10 (26 CFR, Part 186), and brandy produced at the dstery Is deposted In such
warehouse n accordance wth the procedure prescrbed n the precedng secton,
the storekeeper-gauger In charge of the warehouse w see that the ta abty on
the quantty of dsted sprts deposted n the warehouse, pus the ta abty
on dsted sprts represented by a outstandng approved Forms 236 (sectons
18 :315 and 18 .329) s wthn the mts of the pena sum of the bond. (Sec. 3176.
I. R. C.)
TR NSF R TO W OUS OFF DISTILL RY PR MIS S IN S M DISTRICT, C PT
W R OUS OP R T D Y DISTILL R ON CONTIGUOUS PR MIS S.
Sec. 18 .31 . ppcaton, Fobm 236. Where brandy s to be transferred to
and entered for depost n an nterna revenue bonded warehouse ocated off
the dstery premses n the same supervsory dstrct, and such warehouse s
not operated by the dster on premses contguous to the dstery premses,
the propretor of the recevng warehouse sha e ecute an appcaton for the
transfer of the brandy on Form 236. The appcant sha enter a appcabe
data ndcated by the form ncudng the ma mum quantty In ta gaons to be
transferred n any one truck, raroad car, or other vehce. e sha prepare
an orgna and ve copes of Form 236 and gve them to the storekeeper-gauger
n charge of recevng warehouse. (Sees. 2878, 2883, 3176, I. R. C.)
Sec. 18 .315. Storekeeper-Gauoer s Certfcate of Suffcency of Wareho se
ond. Upon recept of Form 236 by the storekeeper-gauger n charge of the
warehouse, he w compare the pena sum of the bond as stated n the appca-
ton wth hs record furnshed by the dstrct supervsor pursuant to Reguatons
10 (26 CFR, Part 185). If the bond s gven n the ma mum pena sum of
200,000, he w certfy to the suffcency thereof on Form 236 and forward a
s copes of the form drect to the storekeeper-gauger n charge at the dstery.
If the bond s gven n ess than the ma mum pena sum, the storekeeper-gauger
n charge w determne from hs records whether the ta abty on the quan-
tty of brandy represented by the Form 236, pus the quantty of dsted sprts
stored In the warehouse, pus the quantty represented by a outstandng ap-
proved Forms 236, s wthn the mts of the pena sum of the transportaton
and warehousng bond. If so, he w certfy to the suffcency of the bond
on Form 236, record such certfcaton n hs records, and forward a s
copes of the form drect to the storekeeper-gauger n charge at the dstery.
If the transportaton and warehousng bond s not suffcent, he w certfy
to that fact on Form 236 and return a s copes to the propretor. ap-
pcatons on Form 236 w e pre 90 days (three caendar months) from the
date of the e ecuton of the storekeeper-ganger s certfcate of bond coverage,
provded that the dstrct supervsor may authorze an e tenson of 10 days
f the propretor furnshes a suffcent bass for such e tenson and the defnte
assurance that shpment w be made wthn such tme. (Sec. 3176, I. R. C.)
Sec. 18 .315a. randy to be Transferred. Upon recept of Form 236, the
storekeeper-gauger n charge at the dstery w mark one copy propretor
copy and gve t to the propretor. e w fe the remanng fve copes n
hs pendng fe. When the propretor desres to make shpment, he w return
hs copy of Form 236 to the storekeeper-gauger n charge and furnsh hm a
compete descrpton of the brandy to be shpped. Where shpment s not made
wthn the 90-day perod, the dster w return hs copy of Form 236 to the
storekeeper-gauger In charge uness otherwse drected by the dstrct supervsor.
In the event he fas to do so, the storekeeper-gauger n charge w advse the
propretor that Form 236 has e pred and request the return of the pro-
pretor s copy, uness otherwse drected by the dstrct supervsor. The store-
keeper-gauger n charge w then send a s copes of Form 236 to the dstrct
supervsor for canceaton and return to the storekeeper-gauger n charge at
the recevng warehouse for ad|ustment of hs record and return to the appcant.
(Sec. 3176, I. R. C.)
Sec. 18 .316. Report of Gauge Uness prevousy packaged, the brandy w
be drawn from the recevng or storage tanks Into packages, gauged, marked, and
branded, or Into a weghng tank, gauged, and run by ppe ne Into a propery
equpped raroad tank car. The quantty transferred sha not e ceed the ma -
mum stated n the appcaton. The detas of the gauge w be entered by the
storekeeper-gauger on s copes of Form 1520. If the packages to be transferred
were prevousy fed, the storekeeper-gauger w nspect them but w not re-
gauge the same, uness the crcumstances are such as to make a regauge advsabe.
Where packages prevousy fed are removed on the fng gauge, the storekeeper-
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157
Regs. 5, 18 .311, etc.
frauger w prepare s copes of Form 1520, copyng the detas from the report
of the fng gauge. (Sees. 2878, 2883, 3176, 017,1. R. C.)
Sec. 18 .323. Dster s ntry for Depost. When the brandy has been pack-
aged, or run nto a raroad tank car and such tank car sea-ocked, the store-
keeper-gauger n charge w dever a s copes of Forms 236 and 1520 to the
dster. The dster sha, on the same date that the brandy s to be removed
from the dstery, e ecute on Form 236 the descrpton of the packages-or tank
car to be transferred and on Form 1520 the entry for depost. e sha mme-
datey return a copes of such forms to the storekepper-gauger n charge, who
w reease the brandy for shpment. (Sees. 2879(a), 3176, I. . C.)
Sec. 18 .32 . Storekeeper-Gauger s Certfcate of Remova. Upon remova
of the brandy, the storekeeper-gauger w e ecute hs certfcate of gauge and
remova on Form 236. The storekeeper-gauger n charge w attach one copy cf
Form 1520 to each copy of Form 236. e w retan one copy of each form, fur-
nsh one copy of each to the dster, forward one copy of each to the supervsor-
consgnor, and forward one copy of each to the propretor of the recevng ware-
house and two copes of each to the storekeeper-gauger n charge at the recevng
warehouse. When shpment s made by truck, one of the two sets of forms for
the storekeeper-gauger n charge at the recevng warehouse w be seaed n an
enveops addressed to such storekeeper-gauger n charge and handed to the person
n charge of the truck for devery to hm. (Sees. 2878, 2883, 3170, 3176, Lt. C.)
Sec. 18 .327. Storekeeper-Gau.er s Recept of randy at Warehouse. fter
the brandy has been deposted In the recevng warehouse, the storekeeper-gauger
w e ecute hs recept on both copes of Form 236. The storekeeper-gauger n
charge w retan one copy each of Forms 236 and 1520 and forward one copy of
each form to the dstrct supervsor. No wthdrawa or transfer n bond of brandy
receved at the warehouse w be made unt the two sets of Forms 230 and 1520
have been receved by the storekeeper-gauger In charge. (Sees. 2878, 2S83, 3176,
I. R. C.)
transfer to warehouse off dstery premses n dfferent dstrct.
Sec. 18 .32 ppcaton, Form 236. Where brandy Is to be entered for de-
post n an nterna revenue bonded warehouse ocated n a dfferent su ervsory
dstrct than the dstery, the propretor of the recevng warehouse sha e ecute
an appcaton for the transfer of the brandy on Form 236. The appcant sha
enter a appcabe data ndcated by the form, ncudng the ma mum quantty
n ta gaons to be transferred n any one truck, raroad car, or other vehce.
e sha prepare an orgna and s copes of Form 236 and gve them to the store-
keeper-gauger n charge of the recevng warehouse. (Sees. 2878, 2883, 3176,
I. R. C.)
Sec. 18 .329. Storf.keepee-Gauoer s Certfcate ok Suffcency of Warehouse
ond. Upon recept of Form 230 by the storekeeper-gauger n charge of the
warehouse, he w compare the pena sum of the bond as stated n the appca-
ton wth hs record furnshed by the dstrct supervsor pursuant to Reguatons
10 (26 CFR, Part 185). If the bond s gven n the ma mum pena sum of
200,000. he w certfy to the suffcency thereof on Form 236 and forward a
seven copes of the form drect to the storekeeper-gauger n charge at the
dstery- If the bond s gven n ess than the ma mum pena sum, the store-
keeper-gauger n chnrge w determne from hs records whether the ta abty
on the quantty of brandy represented by the Form 236, pus the quantty of
sprts stored n the warehouse, pus the quantty represented by a outstandng
approved Forms 236, s wthn the mts of the pena sum of the transportaton
and warehousng bond. If so, he w certfy to the suffcency of the bond on
Form 236, record such certfcaton n hs records, and forward a seven copes
of the form drect to the storekeeper-gauger n charge at the dstery. If the
transportaton and warehousng bond s not suffcent, he w certfy to that fact
on Form 236 and return n seven copes to the propretor. appcatons on
Form 236 w e pre 90 days (three caendar months) from the date of the
e ecuton of the storekeeper-gauger s certfcate of bond coverage, provded that
the supervsor-consgnor may authorze an e tenson of 10 (ays f the propretor
furnshes a suffcent bass for such e tenson and the defnte assurance that
shpment w be made wthn such tme. (Sec. 3176, I. R. C.)
Sec. 18 .329a. randy to be Transferred. Upon recept of Form 236, the
storekeeper-gauger n charge at the dstery w mark one copy propretor s
copy and gve t to the propretor. e w fe the remanng s copes n hs
pendng fe. When the propretor desres to make shpment, he w return hs
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Regs. 5, 18 .311, etc.
158
copy of Form 236 to the storekeeper-gauger In charge and furnsh hm a compete
descrpton of the brandy to be shpped. Where shpment s not made wthn
the 90-day perod, the dster w return hs copy of Form 236 to the storekeeper-
gauger n charge uness otherwse drected by the supervsor-consgnor. In the
event he fas to do so, the storekeeper-gauger n charge w advse the propretor
that Form 236 has e pred and request the return of the propretor s copy, uness
otherwse drected by the supervsor-consgnor. The storekeeper-gauger n
charge w then send a seven copes of Form 236 to the supervsor-consgnor
for canceaton and return to the storekeeper-gauger In charge at the recevng
warehouse for ad|ustment of hs record and return to the appcant. (Sec.
3176, I. R. C.)
Sec. 18 .330. Report or Gauge. Uness prevousy packaged, the brandy w
be drawn from the recevng or storage tanks nto casks or packages, gauged,
marked, nnd branded, or nto a weghng tank, gauged, and run by ppe ne nto
a propery equpped raroad tank car. The quantty transferred sha not
e ceed the quantty stated n the appcaton. The detas of the gauge w be
entered by the storekeeper-gauger on seven copes of Form 1520. If the packages
to be transferred were prevousy fed, the storekeeper-gauger w nspect them
but w not regauge the same, uness the crcumstances are such as to make a
regauge advsabe. Where prevousy fed packages are removed on the fng
gauge, the storekeeper-gauger w prepare seven copes of Form 1520, copyng
the detas from the report of the fng gauge. (Sees. 2878, 2883, 3176, 017,
I. R. C.)
Sec. 18 .332. Dster s ntby fob Depost. When the brandy has been
packaged, or run nto a raroad tank car and such tank car sea-ocked, the store-
keeper-ganger n charge w dever a seven copes of Forms 236 and 1520 to
the dster. The dster sha, on the same date that the brandy s to be
removed from the dstery, e ecute on Form 236 the descrpton of the packages
or tank car to be transferred and on Form 1520 the entry for depost e sha
mmedatey return a copes of such forms to the storekeeper-gauger n charge,
who w reease the brandy for shpment. (Sees. 2879(a), 3176, I. R. G.)
Sec. 18 .333. Storekeeper-Gauger s Certfcate of Remova. Upon remova
of the brandy, the storekeeper-gauger w e ecute hs certfcate of gauge and
remova on Form 236. The storekeeper-gauger n charge w attach one copy
of Form 1520 to each copy of Form 236. e w retan one copy of each form,
furnsh one copy of each to the dster, forward one copy of each to the
supervsor-consgnor, and forward one copy of each to the propretor of the re-
cevng warehouse and three copes of each to the storekeeper-gauger n charge
at the recevng warehouse. When shpment s made by truck, one of the three
sets of forms for the storekeeper-gauger n charge at the recevng warehouse
w be seaed n an enveope addressed to such storekeeper-gauger n charge and
handed to the person n charge of the truck for devery to hm. (Sees. 2878,
2883, 3170, I. R. C.)
Sec. 18 .33 . Storekeeper-Gauoer s Recept of randt at Warehouse. The
storekeeper-gauger at the recevng warehouse w e amne the shpment upon
ts arrva and ascertan and note any osses or dscrepances as provded n sec-
tons 1S .325 and 18 .326. fter the brandy has been deposted, the storekeeper-
gauger w e ecute hs recept on the three copes of Form 236. The storekeeper-
gauger n charge w retan one copy each of Forms 236 and 1520, and forward
two copes of each form to the supervsor of hs dstrct. The dstrct supervsor
w retan one copy of each form and forward the remanng copy of each to the
supervsor of the dstrct from whch the brandy was transferred. No wth-
drawa or transfer n bond of brandy receved at the warehouse w be made
unt the three sets of Forms 236 and 1520 have been receved by the storekeeper-
gauger n charge. (Sees. 2878, 2SS3, 3170, 3176, I. . C.)
rtce LI. Concernng Locks and Seas.
Sec. 18 . 0. Storekeeper-Gauger s Record of Cap and Lock Seas. record
of cap and ock seas receved and used at each frut dstery w be kept by
storekeeper-gangers on Form 289, Storekeeper-ganger s Record and Report of
Government Property, n accordance wth the ttes of the coumns and nes
and the nstructons on the form. Form 289 w be kept n the Government cab-
net when not n use. (Sec. 3176,1. R. C.)
Sec. 18 . 7. Storekeeper-Gauger s Report of Government Property. On or
hefore the 5th day of the month suceedng that for whch the transactons are
reported, the storekeeper-gauger w prepare a monthy report on Form 289.
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159
Regs. 10, 185.15 , etc.
Storekeeper-gauger s Rpcord and Report of Government Property of a Gov-
ernment property at the frut dstery. Form 289 w be prepared, n dupcate,
n accordance wth the ttes of the coumns and nes and the nstructons on the
form. e w forward the orgna to the dstrct supervsor and retan the
copy for hs fes. (Sec. 3176, I. R. C.)
. Ths Treasury decson sha be effectve on the thrty-frst day
after the date of ts pubcaton n the Federa Regster.
(Ths Treasury decson s ssued under the authorty contaned n
sectons 2878,2879(a), 2883,3170,317G, and 017 of the Interna Reve-
nue Code (U. S. C, Tte 26, sectons 2878, 2879(a), 2883, 3170, 3176,
and 017).)
Geo. . Scuoeneman,
Commssoner.
pproved February ,19 8.
. L. M. Wggns,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster February 10, 19 8.)
Reguatons 10, Sectons 185.15 , 185.155, 19 8 -12752
185.215, tc. T. D. 5603
TITL 28 INT RN L R NU . C PT R I, SU C PT R C, P RT 185.
W R OUSING OF DISTILL D SPIRITS.
mendng Reguatons 10.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Dstrct Supervsors and Others Concerned:
1. On October 7, 19 7, a notce of proposed rue makng regardng
warehousng of dsted sprts was pubshed n the Federa Regster
(12 F. R., 6602) .
2. fter consderaton of such reevant matter as was presented
by nterested persons, the foowng added sectons 185.112a, 185.298a,
185.298b, 185.312a, 185.312b, and 185.312c, and amendments of sectons
185.15 , 185.155, 185.215, 185.272, 185.298, 185.299, 185.300, 185.301,
185.302, 185.310, 185.311, 185.312, 185.313, 185.31 , 185.366, 185. 71,
185. 9 , and 185. 95 of Reguatons 10, approved May 20, 19 0 (26
CFR Part 185), are hereby adopted.
3. These amendments are desgned to smpfy the procedure gov-
ernng the transfer n bond of dsted sprts from regstered and
frut dsteres to nterna revenue bonded warehouses and transfers
n bond between nterna revenue bonded warehouses.
rtce . cton by Dstrct Supervsor.
orgna estabshment.
Sec. 185.112a. Notce of Pena Sum op ond. The dstrct supervsor w n-
form the storekeeper-gauger n charge of each nterna revenue bonded ware-
house n hs dstrct of the pena sum of the approved transportaton and ware-
housng bond. The dstrct supervsor w advse the storekeeper-gauger cur-
renty of any change n the pena sum of such bond. (Sec. 3170, I. R. C.)
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Regs. 10 185.15 , etc.
160
TICI. I . Depost of Sprts n Warehouse,
SPIRITS R C I D IN C S S OR OT R PPRO D CONT IN RS.
Sec. 185.15 . Dsposton of Depost Forms. Where sprts are receved from
a dstery operated by the propretor on the same or contguous premses, the
storekeeper-gauger n charge at the recevng warehouse w retan the copy
of Form 1520 coverng the depost of the sprts. Upon the depost of sprts
receved from a dstery not operated by the propretor of the warehouse on the
same or contguous premses, or from another bonded warehouse, the storekeeper-
gauger at, the recevng warehouse w, after ascertanng and notng osses or
dscrepances as provded n sectons 185.151, 185.152, and 185.153, e ecute hs
certfcate of recept on each copy of Form 236 receved from the storekeeper-
gauger n charge at the dstery or shppng warehouse. The storekeeper-
gauger n charge w retan one copy of such form, wth Form 1520, 1619, or 1620
attached, and forward the remanng copes of each form, one n the case of sprts
receved from dsteres and warehouses n the same dstrct and two n the
case of sprts receved from dsteres and warehouses n other dstrcts, to
the supervsor of hs dstrct. The dstrct supervsor w retan one copy of
each form, and, where the dstery or warehouse from whch the sprts were
receved s ocated n another dstrct, w transmt one copy of each form to
the supervsor of such dstrct. Where cases of botted-n-bond sprts are re-
ceved from the bottng-n-bond department, the storekeeper-gauger In charge
w retan Form 1620. (Sec. 3176, I. R. C.)
SUFFICI NCY OF OND.
Sec. 185.155. Storekeepeh-Gauger to be Informed. Where sprts are receved
for depost from a dstery operated by the propretor of the warehouse on the
same or contguous premses, and the pena sum of the transportaton and ware-
housng bond s ess than the ma mum of 200,000, as shown by the record fur-
nshed by the dstrct supervsor pursuant to secton 185.112a, the storekeeper-
gauger n charge of the warehouse w see that the ta abty on the quantty of
sprts deposted n the warehouse, pus the ta abty on the sprts represented
by a outstandng approved Forms 236 (sectons 185.298a and 185.312a) s wthn
the mts of the pena sum of the bond. Such nformaton sha aso be fur-
nshed where brandes are bended under the provsons of secton 2801(e) (5),
I. R. C. (when the pena sum of the bond s ess than the ma mum), and the
storekeeper-gauger sha see that the pena sum of the bond s suffcent to cover
the addtona ta of 30 cents a proof gaon on a bended brandy on hand or In
transt to the warehouse at any one tme as we as the ta under secton
2500(a) (1). I. R. C, on a brandy on hand at any one tme. (Sees. 2801(e) (5),
2879, 3176, I. R. C.)
btce II. Losses of Dsted Sprts by Theft, ccdent, or Otherwse
Than by Leakage or vaporaton, n Warehouse or n Transt Thereto,
cept Losses From Storage Tanks or Stee Drums Fed Therefrom of
randy ob Frut Sprts Intended for Fortfcaton of Wne.
Sec. 185.215. amnaton of Cam. When an appcaton for remsson of ta
s receved by the dstrct supervsor, he w carefuy e amne the same to see
that a the requred nformaton has been furnshed, and w cause such nvest-
gaton to be made or requre such addtona evdence to be submtted as he may
deem necessary. Upon competon of hs nvestgaton, f any, the dstrct super-
vsor w forward one compete copy of the cam and accompanyng papers,
together wth any pertnent reports and documentary evdence, ncudng, n the
case of osses n transt to a bonded warehouse, a copy of the Form 1520, 1619,
1620 or a transcrpt of the storekeeper-gauger s notaton thereon, or other report,
to the Commssoner wth hs recommendaton n respect to the aowance or ds-
aowance of the cam. (Sec. 3176,1. R. C.)
rtce I. Wthdrawa of Dsted Sprts From Warehouse.
RF.CORDS ND R PORTS.
Sec 185.272. Fng of Wthdrawa Papers. copes of the wthdrawa
papers, Forms 179, 206, 236, 257, 5 3, 573, 655, 1518, 1519, 1520, 1619, and 1620,
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161
Regs. 10, 185.15 , etc.
retaned by the storekeeper-gauger upon the wthdrawa of dsted sprts from
the warehouse and the copy of Form 1685 retaned by hm upon competon of
brandy-bendng operatons, as herenafter provded, sha be fed by hm n the
manner prescrbed n sectons 185. 65 to 185. 71, ncusve. (Sees. 2801(e)(5),
3176, I. R. 3.)
ktc.e II. Transfers n ond etween Interna Revenue onded
Warehouses.
transfers between warehouses n same dstrct.
Sec. 1S5.298. ppcaton, Form 236. Where the transfer s to be made between
bonded warehouses n the same supervsory dstrct, the propretor of the recevng
warehouse sha e ecute an appcaton for the transfer of the sprts on Form
23(5. The appcant sha enter a appcabe data ndcated by the form, ncud-
ng the ma mum quantty n ta gaons to be transferred n any one truck,
raroad car, or other vehce. e sha prepare an orgna and ve copes of
Form 236 and gve them to the storekeeper-gauger n charge of the recevng ware-
house. ( Sees. 2875, 3176, 1. R. C.)
Sec. 185.298a. Storekeeper-Gauger s Certfcate of Suffcency of ond.
I pon recept of Form 236 by the storekeeper-gauger n charge, he w compare the
pena sum of the bond as stated n the appcaton wth hs record furnshed by
the dstrct supervsor pursuant to secton 185.112a. If the warehouse bond s
gven n the ma mum pena sum of 200,000, he w certfy to the suffcency
thereof on Form 236, and forward a s copes of the form drect to the store-
keeper-gauger n charge at the shppng warehouse. If the warehouse bond s
gven n ess than the ma mum pena sum, the storekeeper-ganger n chug:;
w determne from hs records whether the ta abty on the quantty of
dsted sprts represented by the Form 236, pus the quantty of dsted
sprts stored n the warehouse, pus the quantty represented by a outstandng
approved Forms 236, s wthn the mts of the pena sum of the transportaton
and warehousng bond. If so, he w certfy to the suffcency of the bond on
Form 236, record such certfcaton n hs records, and forward a s copes
of the form drect to the storekeeper-gauger n charge at the shppng warehouse.
If the transportaton and warehousng bond s not suffcent, he w certfy to
that fact on Form 236 and return a s copes to the propretor. appca-
tons on Form 230 w e pre 90 days (three caendar months) from the date
of the e ecuton of the storekeeper-gauger s certfcate of bond coverage, provded
that the dstrct supervsor may authorze an e tenson of 10 days If the
propretor furnshes a suffcent bass for such e tenson and the defnte assurance
that the shpment w be made wthn such tme. (Sees. 2875, 3170, I. R. C.)
Sec. 185.298b. Sprts to re Transferred. Upon recept of Form 236, the
storekeeper-gauger n charge at the shppng warehouse w mark one copy
propretor s copy and gve t to the propretor. e w fe the remanng
fve copes n Is pendng fe. When the propretor desres to make shpment,
he w return hs copy of Form 236 to the storekeeper-gauger n charge and
furnsh hm a compete descrpton of the sprts to be shpped. Where shpment
s not made wthn the 90-day perod, the propretor w return hs copy of
Form 236 to the storekeeper-gauger n charge uness otherwse drected by the
dstrct supervsor. In the event he fas to do so, the storekeeper-gauger n
charge w advse the propretor that Form 236 has e pred and request the
return of the propretor s copy, uness otherwse drected by the dstrct super-
vsor. The storekeeper-gauger n charge w then send a s copes of Form
236 to the dstrct supervsor for canceaton and return to the storekeeper-
gauger n charge at the recevng warehouse for ad|ustment of hs record and
return to the appcant. (Sees. 2875, 3176, I. R. C.)
Sec. 185.299. Transfers n Packages. If the sprts to be transferred are n
orgna packages or n packages fed from warehouse storage tanks, or are
bended brandes n packages fed n the brandy-bendng department, the store-
keeper-gauger sha nspect the packages desgnated by the propretor to be
transferred and supervse the weghng thereof as provded n the Gaugng
Manua. e w prepare an orgna and fve copes of Form 1619 coverng ony
the packages to be shpped. The quantty to be transferred sha not e ceed the
ma mum stated n the appcaton. In the case of bended brandes the store-
keeper-gauger sha aso show on Form 1619 the date and sera number of the
Form 1685 coverng the bendng of the brandes, the date of orgna entry of
the odest brandy n the bend, and the date of orgna entry of the youngest
brandy In the bend. The storekeeper-gauger In charge w gve a s copes
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Regs. 10, 185.15 , etc.) 162
of Forms 236 and 1619 to the propretor, who sha, on the same date that the
sprts are to be transferred, e ecute on the s copes of Form 236 the descrp-
ton of the packages to be transferred. e w then return the s copes of
the forms to the storekeeper-.gauger n charge. Immedatey after the packages
are weghed for transfer n bond, the propretor may, f he so desres, take the
proof of the sprts, provded such s done e pedtousy and addtona store-
keeper-gaugers w not be requred to supervse the operaton. The takng of
average of actua tare w not be permtted. If the warehouseman prepares a
record of such commerca gauge, two copes thereof w be gven to the store-
keeper-gauger, who w retan one copy and forward the other to the storekeeper-
gauger at the recevng warehouse, as herenafter provded, for reference f cam
s fed for oss by theft, accdent, or otherwse than by eakage or evaporaton,
or where cam s fed under secton 2801(e)(5), L R. C, for osses from
packages of bended brandes. Upon wthdrawa for transfer the packages w
be marked as provded n the Gaugng Manua. Forms 236 and 1619 w be
dsposed of n accordance wth secton 185.310. (Sees. 2801(e)(5), 2875, 3176.
I. R. C.)
Sec. 185.300. Transfers n Cases. If the sprts to be transferred were botted
n bond before ta -payment, the storekeeper-gauger w nspect the cases desg-
nated by the propretor to be transferred. e w prepare an orgna and fve
copes of Form 1620 coverng ony the cases to be snpped. The quantty to be
transferred sha not e ceed the ma mum stated n the appcaton. The store-
keeper-gauger n charge w gve a s copes of Forms 236 and 1620 to the pro-
pretor, who sha, on the same date that the sprts are to be transferred, e ecute
on the s copes of Form 236 the descrpton of the cases to be transferred. e
w then return the s copes of the forms to the storekeeper-gauger n charge.
Upon wthdrawa for transfer, the word Transferred foowed by the date of
transfer, the word To, the number of the recevng warehouse, and the State n
whch such warehouse s ocated, w be pany and duraby stenced or stamped
upon the Government sde of each case n etters and fgures not ess than three-
eghths nch n heght. These marks may be abbrevated as foows:
Trans. 3-29-1988
To I. R. . W. 25 N. T.
Where there s nsuffcent space on the Government sde of the case, these marks
may be paced upon another sde of the case. Forms 230 and 1620 w be dsposed
of n accordance wth secton 185.310. (Sees. 2875, 3176, I. R. C.)
Sec. 185.301. Transfer n Tank Cars. If the sprts to be transferred are n a
prevousy fed tank car desgnated by the propretor to be transferred, the
storekeeper-gauger w nspect the car and prepare an orgna and fve copes
of Form 1520, copyng the detas from the entry Form 1520, e cept that f the
contents of the tank car were prevousy regauged owng to evdence of oss of
sprts therefrom by theft, accdent, or otherwse than by eakng or evaporaton,
the transfer Form 1520 w show both the orgna contents and the contents ds-
cosed by the regauge. The quantty to be transferred sha not e ceed the ma -
mum stated n the appcaton. The storekeeper-gauger n charge w gve a
s copes of Forms 236 and 1520 to the propretor, who sha, on the same date
that the sprts are to be transferred, e ecute on the s copes of Form 236 the
descrpton of the tank car to be transferred. e w then return the s copes
of the forms to the storekeeper-gauger n charge. When the tank car s reeased,
the key of each sea ock thereon w be forwarded on the day of shpment by the
storekeeper-gnuger n charge at the transferrng warehouse to the storekeeper-
gauger n charge at the recevng warehouse. Forms 236 and 1520 w be dsposed
of n accordance wth secton 185.310. (Sees. 2S75, 3176, I. R. C.)
Sec. 185.302. Transfers From Storage Tanks, n Packages or Tank Cars. If
the sprts desgnated by the propretor to be transferred are n storage tanks
they w be drawn nto packages, gauged, marked, and branded, or run nto a
weghng tank, gauged, and conveyed by ppe ne nto a raroad tank car, con-
structed and marked as herenafter provded. The storekeeper-gauger w pre-
pare a report of the gauge on an orgna and fve copes of Form 1520, and note
on each copy of the form the proof at whch the sprts were dsted. The
quantty to be transferred sha not e ceed the ma mum stated n the appca-
ton. The storekeeper-gauger n charge w gve a s copes of Forms 236 and
1520 to the propretor, who sha, on the same date that the sprts are to be
transferred, e ecute on the s copes of Form 236 the descrpton of the packages
or tank car to be transferred. e w then return the s copes of the forms to
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163 Regs. 10, 185.15 , etc
the storekeeper-gauger n charge. Forms 236 and 1520 w be dsposed of n
accordance wth secton 185.310. (Sees. 2875, 3176, I. . C.)
Sec. 185.310. Storekeepeb-Gaugeb s Cebtfcate of Remova. Upon remova
of the sprts, the storekeeper-gauger w e ecute hs report of nspecton or
pauge and remova on the s copes of Form 236. Where the appcaton. Form
236, covers sprts n packages or tank car, the storekeeper-gauger w attach
one copy of Form 1520 or Form 1619, as the case may be, to each copy of Form
236. Where the appcaton covers sprts n cases, the storekeeper-gauger w
attach one copy of Form 1620 to each copy of Form 236. The storekeeper-gauger
n charge w retan one copy of each form, furnsh one copy of each form to
the propretor of the shppng warehouse, forward one copy of each form to the
supervsor-consgnor, forward one copy of each form to the propretor of the
recevng warehouse and two copes of each form to the storekeeper-gauger n
charge at such warehouse, wth a copy of the propretor s commerca gauge (f
any) of packages. Where shpment of packages or cases s made by truck, one
of the sets of Forms 236 and 1019, or 1620, for the storekeeper-gauger n charge
at the recevng warehouse w be seaed n an enveope addressed to such store-
keeper-gauger n charge and handed to the person n charge of the truck for
devery to hm. (Sees. 2875, 3170, 3170, I. R. C.)
Sec. 185.311. Storekeeper-Gauc.er s Recept of Sprts at Warehouse. Upon
recept of the sprts at the recevng warehouse, the storekeeper-gauger w
e amne the shpment and w ascertan and report osses or dscrepances, as
provded n sectons 185.151, 185.152, and 185.153. The propretor may wegh
and take the proof of the sprts, If desred, under the condtons specfed n
secton 185.150. The storekeeper-gauger w e ecute hs certfcate of recept
on each copy of Form 236, retan one copy each of Form 236 and Form 1520, Form
1619, or Form 1620, attached thereto, and forward one copy of each form to the
dstrct supervsor. No wthdrawa or transfer n bond of sprts receved at
the warehouse w be made unt the two sets of Form 236 and Form 1520, Form
1319, or Form 1620, as the case may be, have been receved by the storekeeper-
gauger n charge. The storekeeper-gauger w report on Form 1513 the orgna
ta gaons contaned n a packages receved regardess of any osses n transt.
owever, any package ost n transt w not be reported on Form 1513 but w
be reported by the dstrct supervsor n the warehouse account, Form 151 , for
the State In whch the recevng warehouse Is ocated, n the manner Indcated
by the form. (Sees. 2875, 3176, I. R. C.)
TR NSF RS IN OND TW N INT RN L RF. NU OND D W R OUS S IN DIFF R NT
DISTRICTS.
Sec. 185.312. ppcaton, Form 236. Where the transfer Is to be made between
warehouses n dfferent dstrcts, the propretor of the recevng warehouse sha
e ecute an appcaton or the transfer of the sprts on Form 238. The appcant
sha enter a appcabe data ndcated by the form, ncudng the ma mum
quantty n ta gaons to be transferred n any one truck, raroad car, or other
vehce. e sha prepare an orgna and s copes of Form 236 and gve them
to the storekeeper-gauger n charge of the recevng warehouse. (Sees. 2875,
3176, I. R. C.)
Sec. 185.312a. Certfcate of Suffcency of ond. Upon recept of Form 236
by the storekeeper-gauger In charge, he w compare the pena sum of the bond
as stated n the appcaton wth hs record furnshed by the dstrct super-
vsor pursuant to secton 185.112u. If the warehouse bond s gven n the ma -
mum pena sum of 200,000, he w certfy to the suffcency thereof on Form 236,
and forward a seven copes of the form drect to the storekeeper-gauger n
charge at the shppng warehouse. If the warehouse bond s gven n ess than
the ma mum pena sum, the storekeeper-gauger n charge w determne from
hs records whether the ta abty on the quantty of dsted sprts repre-
sented by the Form 236, pus the quantty of dsted sprts stored n the ware-
house, pus the quantty represented by a outstandng approved Forms 236,
s wthn the mts of the pena sura of the transportaton and warehousng
bond. If so, he w certfy to the suffcency of the bond on Form 236, record
such certfcaton n hs records, and forward a seven copes of the form drect
to the storekeeper-gauger n charge at the shppng warehouse. If the trans-
portaton and warehousng bond s not suffcent, he w certfy to that fact
on Form 236 and return a seven copes to the propretor. appcatons
on Form 236 w e pre 90 days (three caendar months) from the date of the
e ecuton of the storekeeper-gauger s certfcate of bond coverage, provded that
the supervsor-consgnor may authorze an e tenson of 10 days f the propretor
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Regs. 10, 185.15 , etc.
16
furnshes a suffcent bass for such e tenson and the defnte assurance that
shpment w be made wthn such tme. (Sees. 2875, 3176, I. R C.)
Sec. 185.312b. Sprts to be Transferred. Upon recept of Form 236, the
storekeeper-gauger In charge at the shppng warehouse w mark one copy
propretor s copy and gve It to the propretor. e w fe the remanng s
copes n hs pendng fe. When the propretor desres to make shpment, he w
return hs copy of Form 236 to the storekeeper-gauger n charge and furnsh hm
a compete descrpton of the sprts to be shpped. Where a shpment Is not made
wthn the 90-day perod, the propretor w return hs copy of Form 236 to the
storekeeper-gauger n charge uness otherwse drected by the supervsor-con-
sgnor. In the event he fas to do so, the storekeeper-gauger n charge w advse
the propretor that Form 236 has e pred, and request the return of the propr-
etor s copy, uness otherwse drected by the supervsor-consgnor. The store-
keeper-gauger n charge w then send a seven copes of Form 236 to the super-
vsor-consgnor for canceaton and return to the storekeeper-gauger In charge
at the recevng warehouse for ad|ustment of hs record and return to the app-
cant. (Sees. 2875, 3176, I. R. C.)
Sec. 185.312c. Transfers n Packages, Cases, and Tank Cab. Sprts n
orgna packages, or In packages fed from warehouse storage tanks, w be
transferred n accordance wth the provsons of secton 185.299, e cept that an
addtona copy of Form 1619 w be prepared. Sprts n cases, botted In bond
before ta -payment, w be transferred n accordance wth the provsons of sec-
ton 185.300, e cept that an addtona copy of Form 1620 w be prepared.
Sprts In a prevousy fed tank car w be transferred In accordance wth the
provsons of secton 185.301, e cept that an addtona copy of Form 1520 w be
prepared. If sprts to be transferred are In storage tanks, they w be drawn
nto packages or Into a tank car and then transferred In accordance wth the
provsons of secton 185.302, e cept that an addtona copy of Form 1520 w be
prepared. Forms 236 and 1520. 1619, or 1620 w be dsposed of In accordance
wth secton 185.313. (Sees. 2875, 3176, I. R. C.)
Sec.185.313. Stobekeeper-Gauger s Certfcate of Remova. Upon remova
of the sprts, the storekeeper-gauger w e ecute hs report of nspecton or
gauge and remova on the seven copes of Form 236. Where the appcaton,
Form 236, covers sprts In packages or tank cars, the storekeeper-gauger w
attach one copy of Form 1520 or Form 1619, as the case may be, to each copy
of Form 236. Where the appcaton covers sprts n cases, the storekeeper-
gauger w attach one copy of Form 1620 to each copy of Form 236. The store-
keeper-gauger n charge w then retan one copy of each form, furnsh one
copy of each form to the propretor of the shppng warehouse, forward one
copy of each form to the supervsor-consgnor, forward one copy of each form to
the propretor of the recevng warehouse, and three copes of each form to
the storekeeper-gauger In charge at such warehouse, wth a copy of the pro-
pretor s commerca gauge (If any) of packages. Where shpment of packages
s made by truck, one of the sets of Forms 236 and 1619 or 1620, for the store-
keeper-gauger n charge at the recevng warehouse w be seaed n an enveope
addressed to such storekeeper-gauger n charge and handed to the person n
charge of the truck for devery to hm. (Sees. 2875, 3176,1. R C.)
Sec. 185.31 . Stobekeeper-Gauger s Recept of Sprts at Recevng Ware-
house. Upon recept of the sprts at the recevng warehouse, the storekeeper-
gauger w e amne the shpment and w ascertan and report osses or
dscrepances, as provded n sectons 185.151, 185.152, and 185.153. The pro-
pretor may wegh and take the proof of the sprts, If desred, under the con-
dtons specfed n secton 185.150. The storekeeper-gauger w e ecute hs
certfcate of recept on each copy of Form 236, retan one copy of each Form
236 and Form 1520, Form 1619, or Form 1620 attached thereto and forward
two copes of each form to the supervsor of hs dstrct. The dstrct super-
vsor w retan one copy of each form and w forward one copy of each to
the supervsor of the dstrct from whch the shpment was made. No wth-
drawa or transfer n bond of sprts receved at the warehouse w be made
unt the three sets of Forms 236 and 1520, 1619, or 1620, as the case may be,
have been receved by the storekeeper-gauger n charge. The storekeeper-
gauger w report on Form 1513 the orgna ta gaons contaned n a
packages receved regardess of any osses n transt. owever, any package
ost n transt w not be reported on Form 1513 but w be reported by the
supervsor-epnsgnee In the warehouse account, Form 151 , for the State n
whch the recevng warehouse s ocated n the manner Indcated by the form.
(Sees. 2875, 3176,1. R. C.)
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165
Regs. 10, 185.15 , etc.
etcc e III. portaton of Dsted Sprts Feee of Ta .
OTTLING FO T MPOR Y STOR G FOR PORT TION.
Sec. 185.366. Transfer etween Warehouses. Whenever t s desred to
transfer dsted sprts, whch have been botted n bond for e port and whch
are stored n a bonded warehouse, to another nterna revenue bonded warehouse
for storage, pror to drect e portaton or transportaton for e port, the pro-
pretor of the recevng warehouse sha e ecute an appcaton for transfer of the
sprts on Form 236. If the transfer s to he made between bonded warehouses
n the same dstrct, an orgna and ve copes of Form 236 w be prepared,
and f the transfer s to be made between bonded warehouses n dfferent ds-
trcts, an orgna and s copes of Form 236 w be prepared. The appcant
w enter a appcabe data ndcated by the form, and w aso enter thereon
the statement, To be receved and deposted for storage for e port. The Forms
230 w be fed and dsposed of n accordance wth secton 185.298 or 185.312,
as the case may be. The cases w be nspected, transferred, receved, e -
amned, and reported n the manner provded by sectons 185.297 to 185.31 ,
ncusve, n so far as they reate to the transfer of sprts botted n bond before
ta payment. (Sees. 2875, 3176, I. R. C.)
rtce L. Storekeeper-G. tc,eh 8 Fes and Records.
Sec. 185. 71. Fng of Wthdrawa Forms and ppcatons. The copes of
the reports of the wthdrawa gauge, Form 1520, or the reports of remova for
transfer n bond, Form 1619 or Form 1620, as the case may be, retaned by the
storekeeper-gauger w be fed separatey, n chronoogca order, accordng to
the date of wthdrawa noted at the bottom of the forms. The storekeeper-
gauger s copes of wthdrawa appcatons, Forms 179, 206, 236, 257, 5 3, 573,
655, 1518, 1519, and 1685, may be ted together or separatey by form number, n
chronoogca order n the same manner as the wthdrawa forms. The wth-
drawa reports and appcatons for each month w be separated n the fe by
proper markers, and each fe w be appropratey marked to show the knd Of
forms contaned theren and the perod covered thereby. (Sees. 2801(e) (5),
3176, I. R. C.)
rtce L . Concernng Locks and Seas.
Sec. 1S5. 9 . Storekeepeb-Gacger s Record of Cap and Lock Seas. record
of cap and ock seas receved and used at each nterna revenue bonded ware-
house w be kept by storekeeper-gaugers on Form 289, Storekeeper-ganger s
Record and Report of Government Property, n accordance wth the ttes of
the coumns and nes and the nstructons on the form. Form 289 w be kept
n the Government cabnet when not n use. (Sec. 3176, I. R. C.)
Sec. 185. 95. Storekeeper-Gager s Report of Government Property. On or
before the 5th day of the month succeedng that for whch the transactons are
reported, the storekeeper-gauger w prepare a monthy report on Form 289,
Storekeeper-gauger s Record and Report of Government Property, of a Gov-
ernment property at the warehouse. Form 289 w be prepared, n dupcate, n
accordance wth the ttes of the coumns and nes and the nstructons on the
form. e w forward the orgna to the dstrct supervsor and retan the copy
for hs fes. (Sec. 3176, I. R. C.)
2. Ths Treasury decson sha he effectve on the thrty-frst day
after the date of ts pubcaton n the Federa Regster.
(Ths Treasury decson s ssued under the authorty contaned n
sectons 2801 (e) (o), 2875,2879,3170. and 3176 of the Interna Revenue
Code (U. S. C, Tte 26, sectons 2801(e)(5), 2875, 2879, 3170, and
3176).)
Geo. . Schoeneman,
Comma.voner.
pproved February , 19 8.
. L. M. Wggns,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster February 10, 19 8.)
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Regs. 11, 189.11, etc.
166
Reguatons 11. Sectons 189.11, 189.18a, 19 8-2-12736
189.128, and 189.129. T. D. 5597
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 189.
OTTLING OF T -P ID SPIRITS.
mendng Reguatons 11.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 5, D. C.
To Dstrct Supervsors and Others Concerned:
1. The ct of uy 1 , 19 7 (Pubc Law 185, ghteth Congress
C. . 19 7-2, 336 ), amends subsecton (b) of secton 3179 of the
Interna Revenue Code to read as foows:
(b) Drawback. Upon the e portaton of dsted sprts and wnes
manufactured or produced n the Unted States on whch an nterna-
revenue ta has been pad, and whch are contaned n any cask or
package or n bottes packed n cases or other contaners, there sha
be aowed, under reguatons to be prescrbed by the Commssoner,
wth the approva of the Secretary, a drawback equa n amount to the
ta found to have been pad on such dsted sprts and wnes: Provded,
That such dsted sprts and wnes have been packaged or botted
especay for e port, under reguatons prescrbed by the Commssoner,
wth the approva of the Secretary. The Commssoner, wth the ap-
prova of the Secretary, s authorzed to prescrbe reguatons governng
the determnaton and payment of drawback of nterna-revenue ta
on dsted sprts and wnes, ncudng the requrement of such notces,
bonds, bs of adng, and other evdence of payment of ta and e -
portaton as sha be deemed necessary.
2. On October 10, 19 7, notce of proposed rue-makng regardng
drawback on dsted sprts and wnes was pubshed n the Federa
Regster (12 F. R., 6695).
3. fter consderaton of such reevant matter as was presented by
nterested persons Reguatons 11, approved May 20, 19 0 ( 26 CFR,
Part 189) are amended by addng secton 189.18a and amendng sec-
tons 189.11,189.128, and 189.129.
. These amendments are desgned to e tend the provsons of the
reguatons to cover the packagng as we as the bottng of dsted
sprts and wnes especay for e port wth beneft of drawback.
Sec. 189.11. port Storage Room. If the propretor ntends to botte or
package dsted sprts or wnes for e port wth beneft of drawback, a separate
room for the storage of such products e cusvey must be provded and a sgn must
be paced over the entrance door bearng the words port Storage Room. The
room must be constructed of substanta, sod materas: Provded, That the
parttons separatng such room from other parts of the ta -pad bottng house
may be constructed of e panded meta or woven wre of not ess than 9-gauge
nor more than 2-nch mesh, e tendng from the oor to the ceng or roof.
wndows, doors or other openngs must be so constructed that they may
be securey ocked or fastened from the nsde, e cept the entrance door, whch
must be so constructed that t may be securey ocked from the outsde of the
room wth a Government sea ook. (Sees. 2803, 2871, 3176, 3179(b), as amended,
I. R. C.)
Skc. 180.18a. Package Fng Tanks Where dsted sprts or wnes are
to be packaged especay for e port wth beneft of drawback, tanks sutabe
for the purpose, and constructed and equpped n accordance wth the provsons
and requrements of secton 180.18 governng the constructon and equpment of
bottng tanks sha be provded by the botter. The bottng tank may be used
as the package fng tank, provded t s equpped wth an approved outet for
fng packages and such outet Is equpped for ockng wth a Government
sea ock when not n use. (Sees. 2803, 2871, 3176, 3179(b), as amended, I. R. C.)
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167
Regs. 11, 189.131, etc.
rtce III. ottng and Packagng of Dsted Sprts and Wnes
specay for port Wth eneft or Drawback.
Sec. 1S9.128. Genera. Under the aw, dsted sprts and wnes manufactured
or produced In the Unted States and on whch the nterna revenue ta has been
pad may be botted or packaged especay for e port at a ta -pad bottng
house, and upon the e portaton of the sprts or wnes there may be aowed a
drawback equa In amount to the ta found to have been pad thereon. (Sees.
2S03, 2871, 3176, 3179(b), as amended, I. R. C.)
Sec. 189.129. Procedure. The bottng and packagng of dsted sprts and
wnes especay for e port at a ta -pad bottng house, the storage of the sprts
and wnes pendng e portaton, the e portaton of the sprts or wnes, ncudng
the adng thereof on vesses for use as shp s suppes and on arcraft for use
as arcraft s suppes, and the aowance of drawback thereon, sha be n accord-
ance wth the provsons of Reguatons 28 (26 CFR, Part 176). (Sees. 2803,
2871, 3176, 3179(b), as amended, I. R. C.)
5. Ths Treasury decson sha be effectve upon pubcaton n the
Federa Regster. (Sees. 2803, 2871, 3176, and 3179(b), as amended,
I. R. C. (U. S. C, Tte 26, 2803, 2871. 3176, and 3179(b)).)
Geo. . Scoeneman,
Commssoner of Interna Revenue.
pproved anuary 13,19 8.
. L. M. Wggns,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster anuary 20, 19 8.)
Reguatons 11, Sectons 189.131 and 189.135. 19 8-13-12838
T. D.5619
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 189.
OTTLING OF T -P ID DISTILL D SPIRITS.
mendng Reguatons 11.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Dstrct Supervsors and Others Concerned:
1. On March 2 , 19 8, notce of proposed rue makng, regardng
bottng of ta -pad dsted sprts, was pubshed n the Federa
Regster (12 F. R., 156 ). No ob|ectons to the rues proposed havng
been receved, the foowng amendments of sectons 189.131 and
189.135 of Reguatons 11 are hereby adopted. Such amendments are
necessary n order to provde the Commssoner wth a copy of Form
52-D, Monthy Record and Report of Ta -Pad ottng ouse
Operatons, as a necessary ad n the contro of operatons of ta -pad
bottng houses and to make avaabe requred statstca nformaton.
2. Sectons 189.131 and 189.135 of Reguatons 11, ottng of
Ta -Pad Dsted Sprts, approved May 20, 19 0 (26 CFR, Part
189) are hereby amended to read as foows:
rtce . Propretor s Records and Reports.
Sec. 189.131. Record, Form 52-D. very propretor of a ta -pad bottng house
sha keep a record and render a monthy report, n dupcate, on Form r 2-D,
Monthy Record and Report of Ta -Pad ottng ouse Operatons, of a
dsted sprts receved, dumped for bottng, botted, and dsposed of at hs
bottng house. (Sees. 2803, 2871, 3170, I. R. C.)
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Regs. 15, 190.26, etc
168
Sec. 189.135. Reports. cept as otherwse provded heren, the propretor
sha fe, day, fu and compete transcrpts, n dupcate, of form 52-D (Part 3)
on Form 52-D (Part 3) and fu and compete transcrpts of Record 52 on Forms
52- and 52- (one copy of each) wth the dstrct supervsor, by deverng or
mang them to such offcer on the date the transactons entered theren oc-
curred : Provded, That n any case n whch the dstrct supervsor sha drect,
the transcrpts sha be so fed wth the nvestgator n charge nstead of wth
the dstrct supervsor. The transcrpts sha bear the foowng certfcaton
sgned by the person or offcer authorzed to e ecute Form 338 or 52-D:
I hereby certfy that these transcrpts, consstng of pa|es, dscose a
the transactons whch occurred durng the perod covered thereby, and that each
entry s correct.
If n any case the dstrct supervsor sha so authorze, the transcrpts. In
eu of beng fed day, may be fed wth hm on or before the 10th day of the
month succeedng the month n whch the transactons occurred. In such event,
transactons w be entered on Form 52-D and Record 52 n accordance wth
the provsons of secton 189.133. fu and compete transcrpt, n dupcate, of
Form 52-D (e cept Part 3 where such part s fed day) sha be prepared and
forwarded to the dstrct supervsor on or before the 10th day of the month
succeedng the month n whch the transactons occurred. Where Record 52
s kept, a monthy summary report on Form 338 sha be prepared n dupcate,
one copy of whch w be retaned on fe and the orgna forwarded to the ds-
trct supervsor on or before the 10th day of the month succeedng the month n
whch the transactons occurred. Records kept on Form 52-D and Record 52 sha
be preserved for a perod of four years, and durng such perod sha be avaabe
durng busness hours for nspecton and the takng of abstracts by the Com-
mssoner or any nterna revenue offcer. (Sees. 2803, 2857, 2871, 3176, I.R.C.)
3. Ths Treasury decson sha be effectve on the thrty-frst day
after the date of ts pubcaton n the Federa Regster.
(Ths Treasury decson s ssued under the authorty contaned n
sectons 2803, 2857, 2871, and 3176 of the Interna Revenue Code
(U. S. C, tte 26, sectons 2803, 2857, 2871, and 3176).)
Wt T. Sherwood,
ctng Commssoner.
pproved May 28,19 8.
. L. M. Wggns,
ctng Secretary of the Treasury.
(Pubshed In the Federa Regster une 9, 19 8.)
Reguatons 15, Sectons 190.26, 190. 0a, 19 8-2-12737
190.292, 190.29 a, 190.337, 190.338, and T. D. 5598
190.339.
TITL 20 INT RN L R NU . C PT R I, SU C PT R C, P RT 190.
R CTIFIC TION OF SPIRITS ND WIN S.
mendng Reguatons 15.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Dstrct Supervsors and Others Concerned:
1. The ct of uy 1 , 19 7 (Pubc Law 185, ghteth Congress
C. . 19 7-2, 336 ), amends subsecton (b) of secton 3179 of the
Interna Revenue Code to read as foows:
(b) Drawback. Upon the e portaton of dsted sprts and wnes
manufactured or produced In the Unted States on whch an nterna-
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169
Regs. 15, 190.26, etc
revenue ta has been pad, and whch are contaned n any cask or pack-
age or n bottes packed n cases or other contaners, there sha be
aowed, under reguatons to be prescrbed by the Commssoner, wth
the approva of the Secretary, a drawback equa n amount to the ta
found to have been pad on such dsted sprts and wnes: Provded,
That such dsted sprts and wnes have been packaged or botted espe-
cay for e port, under reguatons prescrbed by the Commssoner, wth
the approva of the Secretary. The Commssoner, wth the approva of
the Secretary, s authorzed to prescrbe reguatons governng the deter-
mnaton and payment of drawback of nterna revenue ta on domestc
dsted sprts and wnes, ncudng the requrement of such notces,
bonds, bs of adng, and other evdence of payment of ta and e porta-
ton as sha be deemed necessary.
2. On October 10, 19 7, notce of proposed rue-makng regardng
drawback on dsted sprts and wnes was pubshed n the Federa
Regster (12 F. R., 6696).
3. fter consderaton of such reevant matter as was presented by
nterested persons, Reguatons 15, approved May 20, 19 0 ( 26 CFR,
Part 190), are hereby amended by addng sectons 190. 0a and 190.29 a
and amendng sectons 190.26,190.292,190.337,190.338, and 190.339.
. These amendments are desgned to e tend the provsons of the
reguatons to cover the packagng as we as the bottng of dsted
sprts and wnes especay for e port wth beneft of drawback.
Sec. 190.26. pobt Storage Room. If the rectfer ntends to botte or package
dsted sprts or wnes for e port, a separate room for the storage of such
products e cusvey must be provded and desgnated port Storage Room.
The room must be constructed of substanta, sod materas: Provded, That
the parttons separatng such room from other parts of the rectfyng pant
may be constructed of e panded meta or woven wre of not eas than 9-gauge
nor more than 2-nch mesh, e tendng from the foor to the ceng or roof.
wndows, doors, or other openngs must be so constructed that they may be
securey ocked or fastened from the nsde, e cept the entrance door, whch
must be so constructed that t may be securey ocked from the outsde of the
room wth a Government sea ock. (Sees. 2801(e) (1), 3170, 3179(b), as amended,
I. R. C.)
Sec. 190. 0a. Package Fng Tanks. Where dsted sprts or wnes are
to be packaged especay for e port wth beneft of drawback, tanks sutabe
for the purpose, and constructed and equpped n accordance wth the provsons
and requrements of secton 190.39 governng the constructon and equpment of
bottng tanks, sha be provded by the rectfer. The bottng tank may be used
as the package fng tank, provded t s equpped wth an approved outet for
fng packages and such outet s equpped for ockng wth a Government
ock when not n use. (Sees. 2801(e)(1), 2829, 3176, 3179(b), as amended,
I. R. C.)
Sec. 190.292. Remttance op Ta fob Packages. cept as provded n sec-
ton 190.29 a, for the ta -payment of sprts and wnes n packages fed espe-
cay for e port wth beneft of drawback, f the rectfed sprts are to be ta -
pad n packages, the rectfer sha, upon recept of Form 237, duy approved,
forward a copes to the coector wth remttance for the ta due on the sprts.
The remttance sha be n the form set forth n secton 190.361c. (Sees. 2801
(e) (1), 3176, 3179(b), as amended, I. It. C.)
Sec. 190.29 a. Sprts Packageo specay for port Wth eneft of
Drawback. If Form 237 covers sprts, wnes, cordas, or queurs drawn nto
barres, casks, drams, or other approved contaners, contanng not ess than 5
wne gaons, especay for e port wth beneft of drawback, the rectfer sha,
upon recept of Form 237, duy approved, cance the necessary stamps n the
e act amount of the ta due n the manner provded by secton 190.361d. e
sha then attach the stamps to Form 237 and return a copes to the Govern-
ment offcer. The Government offcer sha compete the canceaton of the
stamps as provded by secton 190.361(1 and sha e ecute the certfcate on Form
237 evdencng the recept and canceaton of stamps for the amount of tn es
due. e sha then return a copes of the Form 237 and the canceed stamps
to the rectfer who sha stenc the words rectfcaton ta pad on each
796590 8 12
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Regs. 28, 176.3(fc)a, etc. 170
package, attach the canceed stamps to the orgna of the Form 237 by means
of stape, eyeet, or smar devce and forward the orgna and the addtona
copy of the Form 237 to the dstrct supervsor. (Sees. 2801(e)(1), 3176,
3179(b), as amended, I. R. C.)
Sec. 190.337. Genera. Under the aw (1) any dsted sprts and wnes on
whch the nterna revenue ta has been pad may be rectfed and botted or
packaged especay for e port at a rectfyng pant or rectfed at a rectfyng
pant for bottng or packagng especay for e port by a quafed botter or
packer other than the rectfer, and (2) unrectfed domestc dsted sprts
and wnes on whch the nterna revenue ta has been pad may be botted or
packaged especay for e port n a rectfyng pant. (Sees. 2801(e)(1), 3176,
3179(b), as amended, I. R. C.)
Sec. 190.338. tent of Drawback owance. Upon the e portaton of
dsted sprts and wnes so manufactured or produced and ta -pad n the
Unted States and botted or packaged especay for e port, there may be
aowed a drawback equa n amount to the ta found to have been pad thereon.
(Sees. 2801(e) (1), 3176, 3179(b), as amended, I. R. C.)
Sec. 190.339. Procedure. The rectfcaton, bottng, and packagng of ds-
ted sprts and wnes especay for e port, the rectfcaton of dsted sprts
and wnes to be botted or packaged especay for e port by a quafed botter
or packer other than the rectfer, the bottng and packagng of unrectfed
domestc dsted sprts and wnes especay for e port, the storage pendng
e portaton of dsted sprts and wnes botted or packaged especay for
e port, the e portaton of the sprts or wnes, ncudng the adng thereof on
vesses for use as shp s suppes and on arcraft for use as arcraft s suppes, and
the aowance of drawback thereon sha be n accordance wth the provsons of
Reguatons 28 (26 CFR, Part 176). (Sees. 2801(e)(1), 3176, 3179(b), aa
amended, I. R. C.)
5. Ths Treasury decson sha be effectve upon pubcaton n the
Federa Regster. (Sees. 2801(e) (1), 3176, and 3179(b), as amended,
I. R. C. (U. S. C, Tte 26, Sees. 2801(e) (1), 3176, and 3179(b)).)
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved anuary 13, 19 8.
. L. M. Wggns,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster anuary 20, 19 8.)
Reguatons 28. Sectons 176.3( ) a, tc. 19 8-2-12738
T.D.5599
TITL 20 INT RN L R NU O rT R I, SU C PT R C, P RT 176.
DR W C ON DISTILL D SPIRITS ND WIN S.
mendng Reguatons 28.
Tbeasurt Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. O.
To Dstrct Supervsors and Others Concerned:
1. The ct of uy 1 , 19 7 (Pubc Law 185, ghteth Congress
C. . 19 7-2, 336 ), amends subsecton (b) of secton 3179 of the
Interna Revenue Code to read as foows:
(b) Drawback. Upon the e portaton of dsted sprts and wnes
manufactured or produced n the Unted States on whch an nterna-
revenue ta has been pad, and whch are contaned n any cask or
package or n bottes packed n cases or other contaners, there sha be
aowed, under reguatons to be prescrbed by the Commssoner, wth
the approva of the Secretary, a drawback equa n amount to the ta
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171 Regs. 28, 176.3(/)a, etc.
found to have been pad on such dsted sprts and wnes: Provded,
that such dsted sprts and wnes have been packaged or botted es-
pecay for e port, under reguatons prescrbed by the Commssoner,
wth the approva of the Secretary. The Commssoner, wth the ap-
prova of the Secretary, Is authorzed to prescrbe reguatons governng
the determnaton and payment of drawback of nterna-revenue ta on
domestc dsted sprts and wnes, ncudng the requrement of such
notces, bonds, bs of adng, and other evdence of payment of ta and
e portaton as sha be deemed necessary.
2. On October 10, 19 7, notce of proposed rue-makng regardng
drawback on dsted sprts and wnes was pubshed n the Federa
Regster (12 F. R., 0689).
3. fter consderaton of such reevant matter as was presented by
nterested persons, Reguatons 28, approved ugust 29, 19 0 (26
CFR, Part 176), are hereby amended n these respects:
(a) Subsectons 176.16(6) (2) and 176.19(6) are revoked;
(6) Subsecton 176.3( )a and sectons 176.17a, 176.17b, 176.17c,
176.17d, I76.17e, I76.17f, I76.17g. 176.7h, 176.17, I76.7|, 176.17k,
176.17m, I76.17n, 176.17o, and I76.17p are added; and sectons 176.1,
176.11(a), 176.12, 176.13, 176.1 , 176.15, 176.16(6), 176.18, 176.19,
176.20, 176.21, 170.2 , 176.31, 176.32, 176.3 , 176.35(a), 170.36, 170.37,
176.39, 170. 1, 170. 2(a), 170. 0, 170. 8, 176. 9, 176.52(a), 176.53,
176.56,176.57, and 176.58 are amended.
. These amendments are desgned to e tend the provsons of the
reguatons to cover the packagng as we as the bottng of dsted
sprts and wnes especay for e port wth beneft of drawback.
rtce I. Scope of Reguatons.
Sec. 176.1. Drawback on Dsted Sprts and Wnks. These reguatons are
prescrbed pursuant to the provsons of aw governng the aowance of drawback
of Interna revenue ta on (1) domestc acoho used n the manufacture or produc-
ton of favorng e tracts, and medcna or toet preparatons (ncudng per-
fumery), upon the e portaton of such products, (2) dsted sprts and wnes
packaged, or botted, especay for e port, upon the e portaton thereof, and (3)
dsted sprts e ported n dsters orgna packages contanng not ess than
20 wne gaons each. (Sees. 2887, 3170, 3176. 3179, as amended, 33.11 (e), 3301 (c),
as amended. 3791, 0 1, I. It. C, and Sees. 309 fa), (b), (e), (d) and 313 (d), (1)
of the Tarff ct of 1930, as amended (19 U. S. C, Sup. , 1309 (a), (b), (c), (d)
and 1313 (d), ()).)

rtce III. Defntons.
Sec. 176.3. Defntons.

( )a Package sha mean any cask, barre, drum or other approved contaner,
contanng 5 wne gaons or more.

rtce . Dbawback on Dsted Sprts and Wnes otted or Packaged
specay for port.
Sec. 176.11. Drawback uthorzed. (a) orance upon e portaton. The
reguatons n sectons 176.11 to 176.07, Incusve, are prescrbed for the packagng
and bottng, especay for e port, of dsted sprts and wnes manufactured or
produced n the Unted States on whch an nterna revenue tu has been pad,
and for the aowance, upon the e portaton thereof, of a drawback equa n
amount to the ta found to have been pad thereon.

Sec. 176.12. portaton. n e portaton s an act defned by secton 176.3(g).
The provsons of sectons 176.11 to 176.67, ncusve, reatng to the packagng
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Regs. 28, 176.3(/)a, etc.
172
and bottng of dsted sprts and wnes especay for e port, and the e porta-
ton thereof wth beneft of drawback, and the forms prescrbed for use In
connecton therewth, sha appy to ke packagng, bottng, remova, and shp-
ment to mercan Samoa, Guam, Puerto co, the rgn Isands, and the Panama
Cana Zone. There s no authorty of aw for the packagng or bottng of
dsted sprts and wnes especay for e port, wth beneft of drawback, for
shpment to aska, awa, ngman s Reef, the Mdway Isands, or Wake
Isand. (Sees. 3179(b), as amended, 3351(c), 3361(c), as amended, I. It. C, and
sees. 309 (a), (b), (c), (d) of the Tarff ct of 1930, as amended (19 U. S. C,
Sup. , 1309 (a), (b), (c), (d .)
OTTLING ND P C GING SP CI LLY FOR POItT.
Sec. 170.13. Persons uthorzed to otte ob Package. (a) Dsted sprts
and wnes. Persons who are authorzed to botte dsted sprts under the
provsons of the Federa coho dmnstraton ct, and who have quafed
ether as a rectfer or propretor of a ta -pad bottng house under nterna
revenue aws and reguatons, may botte or package, especay for e port wth
beneft of drawback, dsted sprts or wnes, or both, manufactured or produced
n the Unted States on whch an nterna revenue ta has been pad.
(ft) Wnes. Duy quafed wnemakers and propretors of bonded storerooms
operatng ta -pad premses may botte or package, especay for e port wth
beneft of drawback, at ther ta -pad premses, wnes manufactured or produced
n the Unted States on whch an nterna revenue ta has been pad. (Sec.
3179(b), as amended, I. R. C, and sec. 309 (a), (b), (c), (d) of the Tarff ct
of 1930, as amended (19 U. S. C, Sup. , 1309 (a), (b), (c), (d)).)
Sec. 176.1 . Other Reguatons ppcabe. The provsons of Reguatons
11 (26 CFR, Part 189) and Reguatons 15 (26 CFR, Part 190) n so far as
they are appcabe and not nconsstent wth the provsons of these reguatons,
sha govern the bottng and packagng of dsted sprts and wnes to be
e ported wth beneft of drawback by propretors of ta -pad bottng houses
and rectfers.
Sec. 176.15. port Storage Room. (a) Constructon. Wnemakers and pro-
pretors of bonded storerooms, ntendng to botte or package ta -pad wnes
especay for e port wth beneft of drawback, sha provde, at ther ta -pad
premses, an e port storage room sutabe for the storage of such wnes pendng
ther remova for e port. The room must be so stuated and constructed that
the wnes w be propery protected pendng ther remova for e portaton.
Such room sha be equpped for ockng wth a Government sea ock, the key
of whch sha be kept by the storekeeper-gauger or desgnated offcer, and sha
be ocked and kept ocked e cept .when necessary open for the proper conduct
of the e port busness.
(5) Notce of ntenton to botte or package. When an e port storage room
has been provded n accordance wth the precedng paragraph, the wnemaker
or propretor of a bonded storeroom, ether before or at the tme of fng appca-
ton to dump wnes for bottng or packagng especay for e port, as herenafter
provded, sha fe wth the dstrct supervsor a wrtten notce of hs ntenton
to botte or package wnes especay for e port at hs ta -pad premses. Such
notce sha aso show the ocaton and nature of constructon of the e port
storage room. (Sec. 3179(b), I. R. C, as amended, and sec. 309 (a), (b), (c),
(d) of the Tarff ct of 1930, as amended (19 U. S. C, Sup. , 1309 (a), (b),
(c), (d)).)
bottng or packagng wthout rectfcaton.
Sr. 170.16. ottng ok Dsted Sprts or Wnes Wthout Rectfcaton
ey Rectfers and Propretors of Ta -Pad ottng ouses.

(6) pprova of Form 230. The botter sha submt a copes of the appca-
ton (Form 230) to the storekeeper-ganger. The offcer sha e amne the pack-
ages descrbed n the appcaton and the scaped portons of ta -pad stamps,
or the affdavt or statement n eu thereof attached to the orgna of the
form, and f he fnds that the sprts or wnes to be botted especay for e port
are as descrbed and have been awfuy ta -pad, and a copes of the form
are propery prepared, he sha e ecute hs certfcate and the authorzaton for
bottng, and return a copes to the botter.

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173
Regs. 28, 176.3(/)a, etc.
P C GING OF DISTILL D SPIRITS ND WIN S WIT OUT R CTIFIC TION.
Sec. 176.17a. Packagng of Dsted Sprts and Wnes. (a) ppcaton,
Form 168 - Where unrectfed sprts or wnes, or sprts and wnes whch have
been prevousy rectfed, are to be dumped for packagng especay for e port
by a rectfer or propretor of a ta -pad bottng house, or where unrectfed
wnes or wnes whch have been prevousy rectfed are to be dumped for packag-
ng especay for e port by a wnemaker, the packer sha prepare a separate
appcaton on Form 168 , n trpcate, for each ot of sprts or wnes to be
packaged, gvng a the data caed for by the headngs of the coumns and
nes and nstructons prnted on the form. ach Form 168 sha be gven a
sera number, begnnng wth 1 for the 1st day of anuary of each year and
runnng consecutvey thereafter to December 31, ncusve.
(6) Sprts or wnes prevousy rectfed. Where sprts or wnes to be cumped
have been rectfed, there must be attached to the Form 168 Forms 122 and
237 coverng the dumpng, rectfcaton, and orgna packagng of the quors. In
the event mported sprts or wnes entered nto the orgna producton of the
quors. Form 1583, procured from the coector of customs at the port of entry
and showng nterna revenue ta had been coected thereon, must be attached
to the Form 168 . The Form 168 sha make reference to the Forms 122 and
237 coverng the orgna dumpng and rectfcaton of the sprts or wnes. (Sec.
3170(b), I. R. C, as amended, and sec. 309 (a), (b), (c), (d) of the Tarff ct
of 1930, as amended (19 U. S. C, Sup. , 1309 (a), (b), (c), (d)).)
Sec. 176.17b. vdence of Ta -Payment to be ttached to Form. (a)
Stamps. If dsted sprts to be dumped are contaned n stamped packages,
the stamps thereon must be scaped and securey attached to the appcaton.
(6) Lost or mutated stamps. Where a stamp has been ost or mutated
so that the requred porton thereof can not be returned, an affdavt, settng forth
a the facts n the case, sha be made by the appcant and attached to the
orgna copy of the appcaton.
(c) Form, 1595. If sprts to be packaged were receved n a tank car, or by
ppe ne, the appcaton sha show, n addton to other requred data, the
sera number of the certfcate of ta -payment (Form 1595) and the date t was
submtted to the dstrct supervsor.
(d) Form 230. Where the sprts or wnes to be packaged have been dumped
from the stamped contaner n whch receved, the appcaton sha show, n
addton to other requred data, the date and sera number of the Form 230
pursuant to whch the sprts or wnes were dumped.
(e) Wne stamps. Snce t s mpractcabe to cut out or scap wne stamps,
the appcant sha, whenever wnes are to be dumped from propery stamped
contaners, certfy to such fact by wrtng the words wne stamps attached to
the contaners n the coumn provded for the descrpton of stamps on the
Form 168 . If the wne to be dumped s In an unstamped contaner, the appcant
sha attach to each copy of the Form 168 a statement e panng the absence
of wne stamps.
(f) Dsted sprts or wnes n stamped bottes. Domestcay produced
sprts and wnes may be dumped from bottes for packagng ony when they
are contaned In cases as orgnay packed and the ta -pad status Is propery
shown. In the case of rectfed products there must be attached to the Form 168
Forms 122 and 237 coverng the dumpng, rectfcaton, and orgna bottng
of the quors. In the case of ta -pad dsted sprts or wnes, whch have
been botted wthout rectfcaton, Form 230 coverng the orgna bottng of the
quors must be attached to the Form 168 . In the event mported sprts or
wnes entered Into the orgna producton of the quors, Form 1583, procured
from the coector of customs at the port of entry and showng nterna revenue
ta had been coected thereon, must be attached to the Form 168 . The Form
168 sha make reference to the Forms 122, 230, and 237 coverng the orgna
dumpng and rectfcaton or bottng of the sprts or wnes.
(g) cton by storekeeper-gaugcr. Where scaped portons of stamps denotng
payment of nterna revenue ta are not attached by reason of facts or crcum-
stances descrbed In paragraphs (6), (c), (d), (e), and (/) of ths secton, the
dsted sprts or wnes must be nspected by the storekeeper-gauger before
beng dumped. The offcer must satsfy hmsef that the dsted sprts or
wnes have been awfuy ta -pad, and sha attach to each copy of the Form 168
a statement, over hs sgnature, settng forth (1) the reason why the scaed
portons of the stamps are not attached and (2) the facts upon whch he based
hs fndngs. (Sec. 3179(b), I. R. C, as amended, and sec. 309 (a), (b), (c), (d)
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Regs. 28. 176.3(/)a, etc.
17
of the Tarff ct of 1930, as amended (19 U. S. C, Sup. , 1309 (a), (b), (c),
(d)).)
Sec. 170.17c. pprova of Form 168 . The packer sha submt a copes of
the appcaton (Form 108 ) to the storekeeper-gauger. The offcer sha e -
amne the contaners descrbed on the form and the scaped portons of the
ta -pad stamps or the affdavt or statement In eu thereof, attached to each
copy of the form.- If he fnds the dsted sprts or wnes to be awfuy ta -pad
and not sub|ected to any act of rectfcaton after dumpng by the packer and
fnds the entres on the appcaton are propery and correcty gven, he sha
e ecute hs certfcate and the authorzaton for packagng and return a copes
of the form to the rectfer. (Sec. 3179(b), I. R. C, as amended, and sec. 309 (a),
(b), (c), (d) of the Tarff ct of 1930, as amended (19 U. S. C, Sup. , 1309 (a),
(b), (c), (d)).)
Sec. 176.17d. Transfer of Sprts or Wnes to Package F-no Tank.
Upon approva of the Form 168 by the storekeeper-gauger, as provded n secton
170.17c, the dsted sprts or wnes sha be transferred to a package fng tank
where, after reducton to the desred proof (f reduced n proof) the packer sha
gauge the dsted sprts or wnes n accordance wth the appcabe provsons
of secton 176.17| and enter the detas of hs gauge (corrected to voume n ac-
cordance wth Tabe 7 of the Gaugng Manua (26 CFR, Part 186)) on a copes
of the Form 168 and attach one copy of the form to the tank: Provded, That
(1) where the dumpng and reducng tank s constructed n accordance wth
the provsons of secton 190. 0a of Reguatons 15 (26 CFR, Part 190) or secton
189.18a of Reguatons 11 (26 CFR, Part 189), as the case may be, and s
equpped for ockng wth Government ocks, or (2) where the bottng tank s
equpped wth an approved outet for fng packages and such outet s equpped
for ockng wth a Government ock when not n use, such tank may be used as
the package fng tank. The proof determned by gaugng the contents of the
tank sha be regarded as the proof of the sprts run nto a packages fed
from the tank. cept as provded n secton 176.17f, a unrectfed sprts and
wnes packaged especay for e port sha be packaged from an approved package
rng tank, dumpng and reducng or bottng tank. (Sec. 3179(b), I. R. C, as
amended, and sec. 309 (a), (b), (c), (d) of the Tarff ct of 1930, as amended
(19 U. S. C, Sup. , 1309 (a), (b), (c), (d)).)
Sec. 176.17e. Reducton n Proof of Sprts. Unrectfed dsted sprts may
be reduced n proof pror to beng drawn nto packages. The reducton n
proof or the. ncrease n voume of rectfed sprts on whch the rectfcaton ta
has been pad s prohbted by aw, uness the sprts are agan rectfed nnd the
rectfcaton ta agan pad thereon. owever, a restoraton of the proof and
voume of rectfed sprts upon whch the rectfcaton ta has been pad, by the
addton of water, preparatory to beng drawn nto packages, sha not be deemed
a reducton n proof or an Increase n voume wthn the meanng of secton
2S01(b) of the Interna Revenue Code. Secton 2801(b) of the Interna Revenue
Code s not appcabe to the reducton In proof of domestcay rectfed sprts
e empt from rectfcaton ta . (Sees. 2801 (b), (e)(1), 3176, 3179(b), as
amended, I. R. C.)
Sec. 176.17f. Packagng From Orgna Contaner. Where authorzed by
the dstrct supervsor, wnes, cordas, and queurs that requre packagng from
the orgna contaner may be s| packaged. packer desrng to package such
quors from the orgna contaners must request approva of the dstrct super-
vsor, n wrtng, descrbng the quors and showng the necessty for packagng
the same from the orgna contaner. The dstrct supervsor w authorze the
packagng from the orgna contaner of any wnes, cordas, and queurs whch
t s mpractcabe to package from an approved fng tank. (Sees. 3176, 3179(b),
as amended, I. R. C.)
Sec. 176.17g. Locknq of the Fng Tank. t the tme of openng the
Inet to the fng tank, the dumpng and reducng tank, or bottng tank, as the
case may be, the storekeeper-gauger sha ock the outet thereof. The outet
must reman cosed and ocked unt the sprts or wnes have been transferred
to the tank, the net cosed and ocked, and the quantty of sprts or wnes n
the tank determned. The net of the tank must reman ocked unt a sprts
or wnes wthn the tank have been drawn nto packages and the outet has been
cosed and ocked. (Sees. 2801(e) (1), 3170, 3179(b), as amended, I. R. C.)
Sec. 176.17h. Rnsng of arbes, Destructon of Stamps, Marks, tc.
When sprts or wnes are dumped for packagng wthout rectfcaton the prov-
sons of sectons 190.192, 190.19 , 190.195, and 190.238 of Reguatons 15 (26
CFR, Part 190) and sectons 189.85,189.86, and 189.87 of Reguatons 11 (26 CFR,
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Regs. 28. 176.3( )a, etc.
Part 189), respectng the destructon of stamps and marks and brands, the rnsng
of barres and woodchps contaned theren, and dsposton of woodchps, when
packages are dumped, sha be appcabe. (Sees. 3176, 3179(b), as amended,
L R. C.)
Sec. 176.171. Fng of Packages. Packages of dsted sprts or wnes,
for e portaton wth beneft of drawback, may be fed ony under the mmedate
persona supervson of the storekeeper-gauger. The packages sha be fed pur-
suant to the rues prescrbed In the Gaugng Manua (26 CFR, Part 186) and sha
be fed to capacty, e cept (1) where the Commssoner authorzes a certan
wantage n each package for e panson and (2) where there are Insuffcent
sprts or wnes at the end of the operaton to f the ast package, n whch
case the remanng quor may be removed for domestc purposes or drawn nto
a remnant package contanng not ess than 5 wne gaons for e portaton.
Proper notuton sha be made on Form 168 of the dsposton of any sprts or
wnes not drawn nto packages for e portaton. (Sees. 3176,3179(b), as amended,
I. R. C.)
Sec. 176.17|. Gaugng of Sprts and Wnes. (a) Determnng proof of
unsweetened sprts. The proof of dsted sprts and rectfed sprts to whch
saccharne or other sod matter has not been added sha be determned by the
use of a standard hydrometer.
(6) Determnng acohoc content of wnes and proof of sweetened sprts.
The acohoc content (1) of bended whskes contanng more than 0.(5 gram
or GOO mgrams of sods per 100 mters derved from bendng materas
such as sherry wne, prune |uce, carame, gycerne, etc., and (2) of wnes,
cordas, queurs, and other products contanng saccharne or other sod matter
w be determned by the use of an approved ebuometer or a sma aboratory
st provded by the packer. When usng such Instruments the packer must
foow cosey the nstructons furnshed therewth n order that accurate deter-
mnatons may be made. Instructons reatve to the use of sma aboratory
sts (or wne sets) and the foowng ebuometers: rnado-Saa (wth
shed), raun, uerst, Lefco, L huometer Levesque (wth shed), Magand
(wth shed), Saeron-Du|ardn, T G (wth shed), and . . Torno (wth
shed), are aso set forth n the ppend to Reguatons 7, WnL 19 5 (26
CFR, Part 178). The acohoc content of bended sprts contanng not more
than 0.6 gram or 600 mgrams of sods per 100 mters derved from bendng
materas w be determned by the use of a standard hydrometer or a sma
st. If determned by a standard hydrometer an obscuraton correcton factor
may be added to the apparent proof n order to obtan the true proof of the
bended sprts. perence has shown that 0.1 gram or 100 mgrams of
sods per 100 mters w obscure the true proof 0. of 1 of proof. For
e ampe, f a bended whsky contans 0.25 grans or 250 mgrams of sods
per 100 mters and the apparent proof corrected to 60 Fahrenhet s found
to be proof by a standard hydrometer, a correcton factor of 1 of proof
(2.5 tmes 0. ) due to the sods may be added to the apparent proof, hence
the true proof woud be 90 . The sods In bended sprts due to bendng
materas w be determned by evaporatng 25 mters of the bended sprts
In a weghed dsh on a steam bath and then heatng for 30 mnutes at the
temperature of bong water n a dryng oven. The sods thus determned,
mutped by , w gve the sods In 100 mters of bended sprts. The
correcton factor to be used then w be determned on the bass that every 100
mgrams of sods w obscure the proof 0. of 1 of proof. The ebuometer
shoud not be used n determnng the acohoc content of bended sprts con-
tanng not more than 0.6 gram or 600 mgrams of sods per 100 mters.
(c) Determnng contents oy weght. Unrectfed sprts and rectfed sprts
contanng not more than 0.6 gram or 61 ) mgrams of saccharne or other sod
matter per 100 mters whch are drawn nto packages may be gauged by
weght n accordance wth the offca Gaugng Manua. To ths end accurate
scaes must be provded. Government offcers sha frequenty test, by means
of the test weghts provded by the rectfer or propretor of the ta -pad bottng
house, the accuracy of the scaes used for weghng packages.
(d) Determnng contents hy measure. Packages of rectfed sprts, wnes,
cordas, queurs, and other products contanng saccharne and other sod matter
sha be gauged by measure to determne the wne-gaon content (corrected to
voume n accordance wth Tabe 7 of the Gaugng Manua) ; the proof-gaon
content sha then be determned by mutpyng the wne-gaon content by the
proof (ponted off n two decma paces) of the sprts. The capacty of each
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Regs. 28, 176.3(h)a, etc. 176
package must be ascertaned before the quors are paced theren, or the quantty
to be paced In each package must frst be ascertaned by actua measure n
another vesse provded for that purpose: Provded, however, That the quantty
n wne gaons of any quor paced n packages may be determned by weght
f te specfc gravty of the quor s ascertaned and used n cacuatng the
voume. (Sees. 3170, 317C, 3170 (b), as amended, I. R. C.)
Sec. 176.17k. Stamps Not Requred on Packages. No rectfer s stamps or
whoesae quor deaer s stamps sha be aff ed to packages of dsted sprts
or wnes fed especay for e port wth beneft of drawback. (Sec. 3179(b),
I. R. C, as amended.)
Sec. 176.17m. erfcaton by Storekeeper-Gauger. The storekeeper-gauger
sha, upon competon cf the process of fng of packages, ncudng the markng
and brandng of the packages, compete hs verfcaton of the packer s certfcate
on Form 168 and supervse the remova of the sprts or wnes to the e port
storage room. (Sec. 3179(b), as amended, I. R. C, and sees. 300 (a), (b), (c),
(d) and 313 (d), () of the Tarff ct of 1930, as amended (19 U. S. C, Sup. ,
1309 (a), (b), (c), (d)).)
Sec. 176.17n. Dsposton of Form 168 . Immedatey after the competon of
the packagng and the proper competon of Form 168 , the packer sha forward
two copes of the Form 168 (one, the orgna wth the ta -pad stamps or
other evdence of ta -payment attached) to the dstrct supervsor and sha
retan the remanng copv. (See. 3179(b), as amended, I. R. C, and sees. 309 (a),
(h, (c), (d) and 313 (d), () of the Tarff ct of 1930, as amended (19 U. S. C,
Sup. , 1309 (a), (b), (c), (d)).)
Sec. 176.17o. cton by the Dstrct Supervsor. Upon recept of the Form
1(58 the dstrct supervsor sha prepare Form 1600 usng as a bass therefor
the dumpng and packagng record, Form 168 . e sha then forward the Form
1600 to the Commssoner wth a copy of the Form 168 . The Forms 168 and
1600 w be retaned by the Commssoner for use n connecton wth e amna-
ton and certfcaton of the cams for drawback on such sprts or wnes. (Sec.
3179(b), as amended, I. R. C, and sees. 309 (a), (b), (c), (d) and 313 (d), ()
of the Tarff ct of 1930, as amended (19 U. S. C, Sup. , 1309 (a), (b), (c), (d)
ad 1313 (d), ()).)
Sec. 176.17p. Transfer and Storage Pendng portaton. Sprts or wnes
packaged especay for e port under the provsons of the reguatons n ths
part may be transferred from the e port storage room pursuant to Form 1656
to another e port storage room at the port of e portaton, for storage pendng
reease for drect e portaton or use as suppes on vesses or arcraft. Such
e port storage room at the port of e portaton may be estabshed by the
propretor of a ta -pad bottng house or a rectfyng pant, under the prov-
sons of Reguatons 11 (26 CFR, Part 189) or Reguatons 15 (26 CFR, Part
190) whether or not the propretor ntends to package dsted sprts or wnes
especay for e port. Form 1656 sha be e ecuted n quadrupcate (or qun-
tupeate, f the sprts or wnes are to be transferred to another supervsory ds-
trct) by the packer or e porter after approprate arrangements have been made
by hm wth the propretor of the e port storage room at the port of e portaton
for such storage. copes of the form w then be submtted to the dstrct
supervsor, or desgnated offcer, for approva. On approva thereof, the sprts
or wnes may be reeased by the Government offcer for transfer. The offcer
sha reta one copy for hs fes, furnsh one copy to the packer, forward one
copy to the dstrct supervsor, and forward one copy to the consgnee. If the
sprts or wnes are transferred to another dstrct, the storekeeper-gauger sha
forward one copy to the dstrct supervsor of such dstrct. Sprts or wnes
so transferred and stored w be entered for drawback and marked and reeased
for e portaton, etc., n accordance wth the procedure prescrbed n sectons
176.3. ) and 176.38, ncusve. (Sec. 3179(b), as amended, I. R. C, and sees. 309
(a), (b), (c), (d) and 313 (d), () of the Tarff ct of 1930, as amended (19
U. S. C, Sup. , 1309 (a), (b), (c), (d) and 1313 (d), ()).)
rectfcaton and bottng or packagng.
Sec. 176.18. ppcaton. Form 122. Rectfers sha prepare a separate ap-
pcaton on Form 122, Rectfer s ppcaton to Dump Sprts, Wnes, or other
Lquors, and Return of Gauge. n trpcate, for each ot of sprts or wnes to
be rectfed before beng botted or packaged for e portaton wt beneft of draw-
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177 Regs. 28, 176.3 tft)a, etc.
back. The rectfer sha nsert n each copy of the form, after the descrpton of
the packages to be dumped for rectfcaton, a notce of ntenton as foows:
The above-descrbed sprts (or wnes) w, after rectfcaton, be
botted (or packaged) pursuant to approva of Form 237 especay
for e port wth beneft of drawback.
(Sec. 3179(b), as amended, I. R. C, and sec. 309 (a), (b), (c), (d) of the
Tarff ct of 1930, as amended (19 D. S. C, Sup. , 1309 (a), (b), (c), (d)).)
Sec. 176.19. pprova of Fobm 122. copes of the Form 122 sha be sub-
mtted for approva of the storekeeper-gauger assgned to supervse rectfyng
operatons. The storekeeper-gauger sha e amne the packages descrbed n
the appcaton and the scaped portons of the ta -pad stamps or the affdavt
or statements n eu thereof, attached to the orgna of the form, and, f he
fnds that the sprts or wnes to be dumped for rectfcaton and bottng or
packagng especay for e port are as descrbed, and have been awfuy ta -
pad, and the forms are propery prepared, he sha e ecute hs certfcate and
authorze the rectfer to dump the packages descrbed n the appcaton and
return a copes of the form to the rectfer. Immedatey after dumpng
the sprts or wnes, the rectfer sha forward two copes of the Form 122
(one, the orgna, wth the cut-out portons of the ta -pad stamps, or other
prescrbed evdence of ta -pnymont, attached) to the dstrct supervsor, and
retan the remanng copy of such form on fe at the rectfyng pant. (Sec.
3179(b). as amended, I. R. C, and sec. 309 (a), (b), (c), (d) of the Tarff
ct of 1930, as amended (19 . S. C, Sup. , 1309 (a), (b), (c), (d)).)
Sec. 176.20. M ng of Dsted Sprts ob Wnes Ta -Pad at Dfferent
Rates. When a rectfer manufactures dsted sprts to be botted or packaged
especay for e port wth beneft of drawback by a process of rectfcaton n-
vovng the m ng of dsted sprts and wnes upon whch basc ta es were
pad at dfferent rates (. e., acoho and wne, brandy and wne, etc.), he sha
note on Form 122 the number of proof gaons of each knd of sprts and the
number of wne gaons, and percentage of acoho, of the wne m ed together
n the processng receptace, and no further m ng of such sprts or wnes wth
sprts or wnes contaned n any other receptace sha be made uness a smar
notaton s made on Form 122. (Sec. 3179(b), as amended, I. R. C, and sec.
309 (a), (b), (c), (d) of the Tarff ct of 1930. as amended (19 U. S. C, Sup. ,
1309 (a), (b), (c), (d)).)
Sec. 176.21. ppcaton, Form 237. (a) Procedure. The rectfer sha make
appcaton on Form 237 to botte or package rectfed sprts especay for e por
or package such sprts for subsequent bottng especay for e port In accord-
ance wth the appcabe provsons of sectons 190.270 to 190.309, ncusve, of
Reguatons 15 (26 CFR Fart 190), and an addtona copy of such form sha
be prepared n each case. notce of Intenton sha be nserted by the rectfer
n each copy of Form 237, after the descrpton of the sprts or wnes, as foows:
The above-descrbed sprts (or wnes), rectfed pursuant to
Form 122. sera number dated 19...__. are
to be botted (or were packaged) especay tor e port wth beneft
of drawback.
When the process of manufacturng sprts or wnes n accordance wth the pro-
vsons of secton 176.20 has been competed, the rectfer sha note on Form 237
the quanttes of dsted sprts, or wnes, or both (cacuated on a proof-gaon
bass as to sprts and on a wne-gaon bass as to wnes) used n manufacturng
the sprts or wnes. If commerca favorng e tracts, contanng acoho, not
prepared by the rectfer on hs rectfyng premses, are used n manufacturng
the sprts or wnes, the rectfer sha aso show on Form 237, as to each knd
of favorng matera, the quantty thereof n wne gaons, the percentage of
acoho by voume n such favorng e tracts, and whether drawback under
secton 3250(1), Interna Revenue Code, has been or w be camed on the acoho
contaned theren. The rectfcaton ta and wne ta , f due, w then be pad
and Form 237 dsposed of n accordance wth the appcabe provsons of sectons
190.276 to 190.309, ncusve, of Reguatons 15 (26 CFR, Part 190). The add-
tona copy of Form 237 w be forwarded to the dstrct supervsor wth the
orgna copy of Form 237. Upon competon of the bottng or packagng opera-
tons, the storekeeper-gauger sha supervse the depost of the sprts or wnes
n the e port storage room, e cept as provded by secton 176.22.
(1) ach package of dsted sprts or wnes fed by rectfers for e port
wth beneft of drawback sha be marked and branded n accordance wth the
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Regs. 28, 176.3(/)a, etc.
178
provsons of secton 176.31 and n addton sha bear the words For e port from
U. S. . If the sprts or wnes are to be e ported by a person other than the
rectfer, the name and address of the e porter, preceded by the words For or
Packaged for, may aso be marked upon the package.
(ft) Tu -pad certfcate. Upon recept of Form 122, as provded by secton
176.19, and the Form 237, as heren provded, the dstrct supervsor sha pre-
pare Form 1600, usng as a bass therefor the dumpng and bottng or packagng
records, Forms 122 and 237. e w then forward the Form 1600 to the Com-
mssoner wth a copy each of the Forms 122 and 237, and Form 1583, f any.
Forms 122, 237, 1583, and 1600 w be retaned by the Commssoner for use n
connecton wth the e amnaton and certfcaton of the cam for drawback
on such sprts or wnes.
(c) Transfer and storage pendng e portaton. Sprts and wnes botted or
packaged especay for e port under the provsons of ths secton may be trans-
ferred from the e port storage room of the botter or rectfer, pursuant to Form
1656, to another e port storage room at the port of e portaton for storage pend-
ng reease for drect e portaton or use as suppes on vesses or arcraft, n
accordance wth the procedure prescrbed n secton 176.16(f). Such e port
storage room at the port of e portaton may be estabshed by the propretor of
a ta -pad bottng house or a rectfer, under the provsons of Reguatons 11
(26 CF , Part 189) or 15 (26 CFR, Part 190) whether or not the propretor of
the ta -pad bottng house or the rectfer ntends to botte or package dsted
sprts or wnes especay for e port. (Sec. 3179(b), as amended, I. R. C, and
sec. 309 (a), (b), (c), (d) of the Tarff ct of 1930, as amended (19 T . S. C,
Sup. , 1309 (a), (b), (c), (d)).)
S P R T OTTLING ND P C GING.
Sec. 176.2 . Separate ottng and Packagng. The bottng or packagng of
dsted sprts or wnes especay for e port wth beneft of drawback at rectfy-
ng pants and at ta -pad bottng premses, and such packagng or bottng of
wnes at ta -pad premses of wnemakers and propretors of bonded storerooms,
sha be conducted separatey from the bottng or packagng of sprts or wnes
for domestc purposes: Protnded, That where sma ots are packaged or botted,
necesstatng the dumpng of not ess than the contents of one or more fu barres,
n the ease of unrectfed sprts or wnes, or the mnmum number of fu barres
whch may be dumped n the case of sprts whch are to be rectfed, the remanng
portons of such ots not removed for e port may be removed for domestc pur-
poses. In the case of rectfed sprts or wnes, rectfed and botted or packaged
by rectfers, the remnant may be further rectfed, f desred, for domestc purposes
sub|ect to payment of the rectfcaton ta on the fnshed product resutng from
such addtona rectfcaton. ny sprts or wnes to be so removed for domestc
purposes must be reported as a separate tem on Forms 122, 230, 237, or 168 , as
the case may be.
(a) Cam requred on Form 1582. Where dsted sprts and wnes are m ed
n the process of rectfcaton, for bottng or packagng especay for e port wth
beneft of drawback, cam for drawback of the dsted sprts ta , the rectfca-
ton ta , and the ta under secton 3030(a), Interna Revenue Code, as amended,
sha be made on Form 1582.
Separate cam on Form 1582- w not be requred In such cases. (Sec.
3179(b), as amended, I. R. C, aud sec. 309 (a), (b), (c), (d) of the Tarff ct of ,
1930, as amended (19 U. S. C, Sup. , 1309 (a), (b), (c), (d)).)
maskng of cases and packages.
Sec. 176.31. Requred Marks by Rectfers and Propretors of Ta -Pad ot-
tng ouses. (a) Cases. ach case of dsted sprts or wnes fed by rect-
fers for e port wth beneft of drawback sha bear on one sde the markngs
requred by Reguatons 15 (26 CFR, Part 190) ; and each case fed for the same
purpose by propretors of ta -pad bottng houses sha bear on one sde the
markngs requred by Reguatons 11 (26 CFR, Part 189). ach case sha aso
bear on the same sde the words For e port from U. S. . If the sprts or
wnes are to e ported by a person other than the botter, the name and address
of the e porter, preceded by the words For, otted for, or otted e pressy
for, may aso be marked upon the case. The method of markng the cases sha
be n accordance wt the appcabe provsons of Reguatons 15 or 11, as the
case may be.
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179 Regs. 28, 176.3( )a, etc.
( ) Packages of dsted sprts. ach package of dsted sprts fed for
e port wth beneft of drawback sha be numbered seray begnnng wth 1
for the frst package fed: Provded, That such sera numbers sha be n sequence
to the seres In current use at e stng pants for the numberng of cases or other
packages: nd provded further, That, where cases and packages are fed smu-
taneousy and t s mpractcabe to number the cases and packages consecutvey,
separate seres of numbers foowed by an dentfyng etter may be used for the
packages. In addton to the sera number, there sha be pany and duraby
burned, cut, mprnted, or stenced on the Government head of each barre or
smar contaner of dsted sprts (1) the knd of sprts; (2) the wne gaon
content; (3) the proof of sprts; ( ) the proof gaon content; (5) the tare Of
the contaner; (6) the date of fng; (7) the name of the packer; (8) the oca-
ton (cty or town and State) of the pant where packaged; and (9) the words
For e port from U. S. . If the sprts are to be e ported by a person other
tan the packer the name and address of the e porter, preceded by the words
For, Packaged for, or Packaged e pressy for, may aso be marked upon
the package.
(c) Packages of wnes. The packer sha pace marks upon packages of wne
smar to the marks requred by the foregong paragraph to be paced upon
packages of dsted sprts, e cept: The tare need not be marked on the pack-
ages ; the acohoc content of the wne sha be shown n percentage by voume
n eu of the proof, and, n the case of unrectfed wne, the proof gaons may
be omtted. (Sec. 3179(b), as amended, I. R. C, and sec. 309 (a), (b), (c), (d)
of the Tarff ct of 1930, as amended (19 U. S. C, Sup. , 1309 (a), (b), (c),
(d)).)
Sec. 176.S2. Requred Marks by Wnemakers and Propretors of onded
Storerooms. (a) Cases. ach case of wnes fed by wnemakers and propre-
tors of bonded storerooms for e port wth beneft of drawback sha be numbered
seray, begnnng wth number 1 for the frst case fed, and sha be marked
wth the name of the botter, the ocaton of the bottng estabshment (by cty
or town and State), the knd and acohoc content (ta abe grade) of the wne, the
contents of the case n wne gaons, and the words For e port from U. S. . :
Provded, That the botter may n eu of hs name, and the ocaton of the
bottng estabshment, pace upon the case the regstry number of hs bonded
wnery or bonded storeroom, preceded by the etters . W. or . S., respec-
tvey, and foowed by symbos ndcatng the State n whch the bonded wnery
or bonded storeroom s ocated, as . W. No. 2-NY, for the name and address
of the propretor of onded Wnery No. 2 ocated n New York State. If the wnes
are to be e ported by a person other than the botter, the name and address of
the e porter, preceded by the words For, otted for, or otted e pressy
for, may aso be paced upon the case. The requred marks w be duraby and
pany prnted, stamped, or stenced on one sde of the ease n a coor con-
trastng wth the background of the case, and n etters and fgures not ess thun
one-haf Inch n heght.
(6) Packages. Packages of wnes fed by wnemakers or propretors of
bonded storerooms for e port wth beneft of drawback sha be marked n
accordance wth the provsons of secton 176.31(c). (Sec. 3179(b), as amended,
I. R. C, and sec. 309 (a), (b), (c), (d) of the Tarff ct of 1930, as amended
(19 U. S.C., Sup. , 1309 (a), (b), (c), (d)).)
bottng and packng records.
Sec. 176.3 . Record of Sprts and Wnes otted or Packaged specay
fob port. (o) y rectfer , and propretors of ta -pad bottng houses. The
recept, rectfcaton, bottng, packagng, and dsposton of dsted sprts am
wnes botted or packaged especay for e port, wth beneft of drawback, sha
be entered by the rectfer on Form 5, Rectfer s Monthy Record and Report.
appcabe nformaton ndcated by the headngs of the coumns and nes and
the nstructons prnted on the form w be entered thereon. The recept, bottng,
packagng and dsposton of dsted sprts or wnes botted or packaged espe-
cay for e port wth beneft of drawback, by propretors of tu pad bottng
houses, sha be entered on Form 52-D, Monthy Record and Report of Ta -Pad
attng ouse Operatons. appcabe Informaton ndcated by the head-
ngs of the coumns and nes, and the nstructons prnted on the form, w be
entered thereon.
(6) y wnemakers and propretors of bonded storerooms. The recept
bottng, packagng, and dsposton of wne botted or packaged especay for
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Regs. 23, 176.3(ft)a, etc. ISO
e port wth beneft of drawback sha be entered by wnemakers and propretors
of bonded storerooms on Form 52-D, Monthy Record and Report of Ta -Pad
ottng ouse Operatons. appcabe nformaton caed for by the head-
ngs of the coumns and nes, and nstructons prnted on the form, sha be en-
tered thereon. Transcrpts of Form 52-D sha be forwarded to the dstrct
supervsor on or before the 10th day of the succeedng month.
NTRY FOR DR W C .
Sec. 176.35. Cam and ntry. (a) Form 1582 or Form 1582- . Cam for
aowance of drawback of nterna revenue ta es on dsted sprts or wnes
manufactured or produced n the Unted States and botted or packaged especay
for e port, and entry for the e portaton of such sprts or wnes wth beneft
of drawback, sha be prepared by the e porter on Form 15S2, n quadrupcate,
for dsted sprts, and Form 1582- , n quadrupcate, for wnes. copes
of Form 1582 or Form 1582- , wth Part 1 and Part 2, e ecuted, sha be fed by
the e porter wth the dstrct supervsor of the dstrct wheren s ocated the
e port storage room n whch the sprts or wnes are stored at the tme of e por-
taton. the nformaton caed for, as ndcated by the headngs of the
coumns, and the nes of the form, and the nstructons prnted on the form,
sha be furnshed.

Sec. 176.30. uthorty to Reease Lquors. If the dstrct supervsor fnds
that the cam and entry are propery e ecuted, and the sprts or wnes de-
scrbed n the entry have, accordng to the records of hs offce, been botted or
packaged especay for e port, he sha e ecute Part 3 of Form 1582, or Part 3
of Form 1582- , as the case may be, authorzng the Government offcer to whom
t s addressed to reease the sprts or wnes for shpment. (Sec. 3179(b), a3
amended, I. R. C, and sec. 309 (a), (b), (c), (d) of the Tarff ct of 1930, as
amended (19 T . S. C, Sup. , 1309 (a), (b), (c), (d)).)
Sec 176.37. Inspecton Marks. efore the sprts or wnes are reeased, the
foowng marks n pan, durabe etters and fgures must be stenced or marked
upon the case or package:
Drawback camed by
(Name of camant)
Supervsory Dstrct No.
Inspected , 19
(Name of camant)
S. G.
The frst two nes must be fed n by the e porter (or by the packer or botter
for hm) and the ast two by the Government offcer. The name of the Govern-
ment offcer may be paced on the case or package by means of a rubber stamp.
(Sec. 3179(b), as amended, I. R. C, and sec. 309 (a), (b), (c), (d) of the Tarff
ct of 1930, as amended (19 U. S. C, Sup. , 1309 (a), (b), (e), (d)).)
C RTIFIC T OF COLL CTOR OF CUSTOMS OF T ON IMPORT D SPIRITS.
Sec 176.39. Certfcate, Form 1583. Where sprts or wnes manufactured
(rectfed) n the Unted States from mported sprts or wnes are botted or
packaged especay for e port wth beneft of drawback, the coector of customs
at the port where the entry or wthdrawa for consumpton was made sha, upon
appcaton n wrtng by the rectfer, e ecute a certfcate on Form 1583, In
trpcate, showng that nterna revenue ta has been coected on the mported
sprts or wnes descrbed n the appcaton. Two copes of the certfcate sha
be forwarded by the coector of customs to the dstrct supervsor of the coho
Ta Unt dstrct n whch the sprts were rectfed. The remanng copy sha
be retaned by the coector of customs. Such certfcates sha be seray num-
bered, begnnng wth number 1 for each customs dstrct. (Sec. 3179(b), as
amended, I. R C, and sec. 309 (a), (b), (c), (d) of the Tarff ct of 1930, as
amended 19 U. S. C, Sup. , 1309 (a), (b), (c), (d)).)
Sec 176. 1. Certfcate Requred efore pprova of Cam. The Com-
mssoner w not approve a cam for drawback on sprts or wnes manu-
factured from mported sprts or wnes and botted or packaged especay for
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181
Regs. 28, 176.3(ft)a, etc.
e port pror to the recept of the certfcate, Form 1583, of the coector of cus-
toms, showng that nterna revenue ta has been coected on such mported
sprts or wnes. (Sec. 3179(b), as amended, I. R. C, and sec. 309 (a), (b), (c),
(d) of the Tarff ct of 1930, as amended (19 U. S. C, Sup. , 1300 (a), (b), (c),
(d)).)
DR W C OND.
Sec. 176. 2. Drawback ond. (a) cept as provded by secton 176. 5, the
e porter sha, ether before or at the tme of the e ecuton of hs frst entry for
drawback on Form 1582 or Form 1582- , fe wth the dstrct supervsor n draw-
back bond on Form 1581, n trpcate, for dsted sprts, or Form 1581- , In trp-
cate, for wnes, to nsure bona fde e portaton of the sprts or wnes on whch
drawback s camed, and the procurement and submsson of the requred
evdence of the andng of such sprts or wnes at the desgnated foregn port,
or the use thereof as suppes on vesses or arcraft n accordance wth secton
176.11 (b), or the oss of such sprts or wnes after shpment outsde the |ursdc-
ton of the Unted States, wthout faut or neggence on the part of the e porter.
The bond must be furnshed wth acceptabe corporate surety or Indvdua
suretes or secured by the depost of proper coatera. Where bond s furnshed
on Form 1581, revsed May, 19 2, or Form 1581- , revsed anuary, 19 2, or on
pror ssues of such forms, to cover sprts or wnes n bottes, consent of surety
must be furnshed to e tend the condtons of the bond to cover such sprts or
wnes n packages.

Sec. 176. 6. ond Prerequste to Cam owance. No cam for aowance
of drawback on dsted sprts or wnes botted or packaged especay for e -
port, and e ported, w be approved unt the camant has furnshed the pre-
scrbed bond, e cept as provded by secton 176. 5. (Sec. 3179(b), as amended,
I. R. C, and see. 309 (a), (b), (c), (d) of the Tarff ct of 1930, as amended
(19 U. S. C, Sup. , 1309 (a), (b), (c), (d)).)
S IPM NT OR D LI RY FOR PORT.
Sec. 170. 8. Consgnment. very case or package of dsted sprts or wnes,
ntended for e port wth beneft of drawback sha be consgned to the coector
of customs at the port of e portaton, e cept that when the shpment s to a con-
tguous foregn terrtory t sha be consgned to the foregn consgnee at destna-
ton, but stenced or marked n care of the coector of customs or deputy co-
ector of customs at the port of e port. In the case of shpment to contguous
foregn terrtory, the carrer sha dever the sprts or wnes for customs nspec-
ton at the port of e port before transportng the same to the foregn destnaton.
(Sec. 3179(b), as amended, I. R. C, and sec. 309 (a), (b), (c), (d) of the Tarff
ct of 1930, as amended (19 U. S. C, Sup. , 1309 (a), (b), (c), (d)).)
Skc 176. 9. Drect Devery for Customs Inspecton. (a) of adng.
If the e port storage room where the dsted sprts or wnes are stored s o-
cated at the port of e portaton, the e porter sha dever the shpment drecty
for customs nspecton and supervson of adng. The drawback entry must
be fed wth the coector of customs at east s hours pror to the adng of the
sprts or wnes n order to aow opportunty for customs nspecton. The
e porter must fe a copy of the e port b of adng wth the dstrct supervsor.
The b of adng must show the e porter as the shpper, the sera numbers of
the cases or packages, as the case may be, and the quantty shpped n wne
gaons.

customs procedure.
Sec. 176.52. Customs Inspecton. (a) The coector of customs, upon recept
of the drawback entry on Form 1582, or Form 1582- , shu cause the date and
hour of recept to be stamped on each copy of the form and sha e ecute Part 5,
the order for Inspecton and adng. The customs nspector to whom the order
s devered sha nspect the e port contaners of sprts or wnes. e sha
e amne the contents of such contaners as are found broken, dnmaged, or
tampered wth, or whch he s ed to suspect do not contan the sprts or wnes
orgnay packed theren, and sha make a speca report thereon. The customs
Inspector sha note In hs report any defcency n quantty or dscrepancy
between the merchandse nspected and that descrbed n the entry. fter
havng comped wth the order of nspecton, and after the sprts or wnes have
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Regs. 28, 176.3( )a, etc. 182
been duy aden on board the e portng vesse, arcraft, car, or other con-
veyance, the customs nspector sha compete and sgn Part 6, hs certfcate ot
nspecton and adng on each copy of the form. If the customs Inspector has
reason to beeve that the merchandse s not the same as that orgnay packet
n the contaners or dscovers any other evdence of fraud, he sha detan the
merchandse and notfy the coector of customs, who sha nform the dstrct
supervsor of the coho Ta Unt dstrct n whch the port s ocated. The
dstrct supervsor w take approprate acton and mmedatey report the facts
to the Commssoner.
(1) uk contaners to be gauged. Packages of dsted sprts must be
carefuy gauged, and the voume and percentage of acoho of wne determned,
by a customs gauger and n detaed report of such gauge sha be made on Form
696. n dupcate, modfed to show the name of the packer n eu of the name
of the dster. In preparng the report, the customs gauger sha make entry
thereon as to each package n accordance wth the coumn headngs. copy
of the gauger s report of gauge sha be attached to each copy of the entry for
e portaton, Form 1582, and devered to the coector of customs.

Sec. 170.53. Certfcaton of Nonnspecton. Sprts or wnes n casks, bar-
res, drums, or other approved contaners contanng not ess than 5 wne gaons
must be gauged and nspected by customs ofcers at the port of e portaton. In
the case of botted dsted sprts and wnes, whenever the nspectng offcer
s unabe to certfy to the actua nspecton and adng of the sprts or wnes,
he sha make hs return on Part 7 of Form 1582, or Part 7 of Form 1582- ,
statng theren the reasons why the sprts or wnes were not nspected by hm
and aden under hs supervson. The offcer sha, after the vesse, arcraft,
car, or other conveyance has ceared, e amne the records of the deverng
and e portng steamshp, or transport nes for the purpose of verfyng the
partcuars stated n the drawback entry, and w make hs certfcaton accord-
ngy. If the records e amned show that contaners of smar descrpton were
aden on the e portng vesse, arcraft, car, or other conveyance for the desg-
nated port, the offcer sha set forth n hs certfcaton, n addton to other
data ndcated by the form, the date and hour of adng. (Sec. 3179(b), as
amended, I. R. C, and sec. 309 (a), (b), (c), (d) of the Tarff ct of 1930, as
amended (19 U. S. ( ., Sup. , 1309 (a), (b). (c), (d)).)
Sec. 176.56. owance n Cases of Nonnspecton. Where sprts or wnes
n casks, barres, drums or other approved contaners contanng not ess than
5 wne gaons are not nspected by a customs offcer at the port of e port and
oaded on the e portng vesse, arcraft, raroad car, motor truck, or other con-
veyance under hs supervson, a cam for drawback thereon sha not be aowed.
Where botted sprts or wnes were not nspected by a customs offcer at the
port of e port, and oaded on the e portng vesse, arcraft, raroad car, motor
truck, or other conveyance under hs supervson, the cam for drawback may,
nevertheess, be aowed, provded that the aw and reguatons were comped
wth n other respects and the e portaton wthout customs nspecton and
supervson of adng was not the faut of the e porter or carrer or the agent
of ether. (Sec. 3179(b), as amended, I. R. C, and sec. 309 (a), (b), (c), (d)
of the Tarff ct of 1930, as amended (19 U. S. C, Sup. , 1309 (a), (b), (c),
(d)).)
Sec. 176.57. cton on Cam. The Commssoner w, upon recept of the
cam, Form 15S2 or Form 1582- , from the dstrct supervsor, e amne the
cam and the records of hs offce. Forms 122, 230, 237, 1583, 1600, and 10S
prevousy furnshed hm as provded by sectons 176.16 to 176.23, ncusve, to
determne whether the sprts or wnes descrbed n the cam have been fuy
ta -pad. If the Commssoner fnds that such sprts or wnes have been
fuy ta -pad he w approve the cam and schedue t for payment. If the
cam s dsaowed, the Commssoner w so notfy the camant and state
the reasons therefor. (Sec. 3179(b), as amended, I. R. C, and sec. 309 (a), (b),
(c), (d) of the Tarff ct of 1930, as amended (19 U. S. C, Sup , 1309 (a), (b),
(c), (d)).)
PROOF OF PORT TION, TC.
Sec. 176.58. Landng Certfcate. ach camant for drawback on dsted
sprts or wnes e ported must agree n the requred bond that he w procure
and furnsh wthn s months (or such addtona e tensons of tme as may
be granted by the dstrct supervsor or Commssoner), evdence satsfactory
to the dstrct supervsor or Commssoner that such dsted sprts or wnes
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183 Regs. 28, 176.3( )a, etc.
have been anded at the desgnated foregn port or that after shpment the same
were ost on and or at sea, outsde the |ursdcton of the Unted States, wthout
faut or neggence on the part of the e porter. Proof of the foregn andng
of the sprts or wnes sha, n every case, consst of a duy e ecuted andng
certfcate e cept as otherwse provded heren. The andng certfcate must
gve such descrpton of the sprts or wnes as w ready dentfy the shp-
ment to whch t reates. It w be n substantay the foowng form:
Port of
I of ,
do hereby certfy that the merchandse herenafter descrbed,
shpped by , on or about the
day of , 19 , has been anded at
ths port on or about the day of , 19
uantty.
Marks and numbers.
Number of cases
or packages.
Name of artce.
Wne
gaons.
Proof
gaons.1
1 In case of wnes, show ta abe grade n eu of proof gaons.
S L
Subscrbed and sworn to before me ths day of
19
S L
(Name.)
(Tte.)
5. Ths Treasury decson sha be effectve upon pubcaton n the
Federa Regster. (Sees. 2887, 3170, 3170, 3179(b), 3351(c), 3361 (c),
3791, and 0 1,1. R. C. (U. S. C, Tte 26, 2887, 3170, 3176, 3179(b),
3351(c), 3361(c), 3791. and 0 1) and sees. 309 (a), (b), (c), (d) and
313 (d), () of the Tarff ct of 1930, as amended (19 U. S. ( ., Sup.
, 1309 (a), (b), (c), (d) and 1313 (d), ()).)
Geo. . ScIO N M N,
Commssoner of Interna Revenue.
Frank Dow,
ctng Commssoner of Customs.
pproved anuary 13, 19 8.
. L. M. WGoNS,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster anuary 20, 18.)
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Regs. No. .
1S1
MISC LL N OUS.
INTO IC TING LI UORS.
Reguatons No. , coho Ta ct. 19 8-13-128 0
T. D.5618
TITL 27 INTO IC TING LI UORS. C PT R 1, P RT . L LING ND
D RTISING OF WIN .
mendng Reguatons No. , under the Federa coho dmn-
straton ct.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. G.
To Dstrct Supervsors and Others Concerned:
notce of a pubc hearng: to be hed n Washngton, D. C, on
anuary 15, 19 7, and n San Francsco, Caf., on anuary 31, 19 7,
wth respect to certan proposas to amend Reguatons No. , Reatng
to Labeng and dvertsng of Wne, was pubshed rthe Federa
Regster on December 27,19 6 (voume 11, No. 251, page 1 69 ).
Upon the concuson of the sad hearng and after consderaton of
a reevant matera submtted by nterested partes n connecton
therewth regardng proposas numbered 1- , 6-25, each ncusve, of
sad notce, the foowng amendments to rtce I (g) and (|), sec-
ton 21, casses 1, , 5, 6,7, and 8, secton 22 (b) and (c), secton 2 ( ),
secton 32(6) (5), secton 3 (a), secton 35 (a) and (6), secton 36,
secton 38(), secton 39 (a) and (b), secton 6 (c) and (t), secton
72(a), and secton 80 of sad Reguatons No. are hereby adopted, to
become effectve as stated.
Wth respect to paragraphs numbered 3 and 7 hereof, n so far as
they authorze an ncrease n the amount of added sugar and water
souton n the producton of certan standard oganberry, currant,
and gooseberry wnes, and permt the omsson of the abeng state-
ment Made wth over 35 per cent sugar souton, wth respect to
such wnes, t s found that compance wth the notce, pubc rue
makng procedure, and effectve date requrements of the dmnstra-
tve Procedure ct (Pubc Law 0 , Seventy-nnth Congress) s m-
practcabe, unnecessary, and contrary to the pubc nterest for the
reason that the ct of uy 1 , 19 7 (Pubc Law_ 186, ghteth
Congress, frst sesson C. . 19 7-2, 336 ) specfcay authorzed such
an ncrease and rendered nvad the former and nconsstent requre-
ments of these reguatons.
1. In order to substtute the term added brandy or acoho for
the term fortfyng sprts so that the atter term may be deeted
from the standards of dentty, subsecton (g) of rtce I (27 CFR,
.1(g)) s amended to read:
(g) s used n the phrase added brandy or acoho the term brandy
means brandy or wne sprts for use n the fortfcaton of wne as permtted by
nterna revenue aw. The term acoho means ethy acoho dsted at or
above 190 proof.
Ths amendment sha become effectve on the thrty-frst day after
the date of ts pubcaton n the Federa Regster.
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185
Regs. No. .
2. In order to conform the defnton of the term gaon as used
n these reguatons to that used for nterna reveue purposes, r-
tce I(;) (27 CFR, .1(|)) s amended to read:
(/) The term gaon means Unted States gaon of 231 cubc Inches of aco-
hoc beverage at 60 F. other qud measures used are subdvsons of the
gaon as so defned.
Ths amendment sha become effectve on the thrty-frst day after ts
pubcaton n the Federa Regster.
3. In order to authorze red, pnk (rose), amber, or whte wne to be
desgnated as such; to deete the term fortfyng sprts ; to author-
ze wnes contanng no added sprts or acoho to be desgnated as
natura ; to authorze ght wnes to be aso desgnated as tabe
wnes; to estabsh standards of dentty for dessert wnes; to
authorze certan dessert wnes to be desgnated as angeca, ma-
dera, muscate, sherry, and port, requrng n some cases
such desgnaton to be quafed by the word ght ; and to em-
nate the present standards for red wne. whte vne, natura
wne, angeca, madera, muscate, port, sherry, ght
port, and ght sherry ; to recognze the provsons of secton of
the ct of uy 1 , 19 7 (Pubc Law 18G, ghteth Congress, frst
sesson), ncreasng, under certan crcumstances, the amount of sugar
and water souton whch may be added n the case of oganberry,
currant, or gooseberry wnes; casses 1, , 5, and C of secton 21 (27
CFR, Cum. Supp., .21 (a), (d), (e), and (f)) are amended to read
as foows:
Cass 1. Grape cnc. (a) Grape wne s wne produced by the norma
acohoc fermentaton of the |uce of sound, rpe grapes (ncudng restored or
unrestored pure condensed grape must), wth or wthout the addton, after
fermentaton, of pure condensed grape must, and wth or wthout added grape
brandy or acoho, but wthout other addton or abstracton e cept as may occur
n cear treatment: Provded, That the product may be ameorated before,
durng, or after fermentaton by ether of the foowng methods:
(1) Iy addng, separatey or n combnaton, dry sugar, or such an amount
of sugar and water souton as w not ncrease the voume of the resutng
product more than 35 per cent; but n no event sha any product so ameo-
rated have an acohoc content, derved by fermentaton, of more than 13
per cent by voume, or a natura acd content, f water has been added, of
ess than 5 parts per thousand, or an unfermented resdua sugar content,
derved from added su ar, of more than 15 per cent by weght.
(2) y addng, separatey or n combnaton, not more than 15 per cent
by weght of dry sugar, or not more than 10 per cent by weght of water.
The ma mum voate acdty, cacuated as acetc acd and e cusve of suphur
do de, sha not be for natura red wne more than 0.1 gram, and for other
grape wne more than 0.12 gram, per 100 cubc centmeters (20 C.).
Grape wne dervng ts characterstc coor or ack of coor from the presence
or absence of the red coorng matter of the skns, |uce, or pup of grapes may
be desgnated as red wne, pnk (or rose) wne, amber wne, or whte
wne, as the case may he.
ny grape wne contanng no added grape brandy or acoho may be further
desgnated as natura.
(6) Tabe wne s grape wne havng an acohoc content not n e cess of
1 per cent by voume. Such wne may aso be desgnated as ght wne, red
tabe wne, ght whte wne, sweet tabe wne, etc., as the case may be.
(c) Dessert wne s grape wne havng an acohoc content n e cess of
1 per cent but not n e cess of 2 per cent by voume. Dessert wne havng the
taste, aroma, and characterstcs generay attrbuted to sherry and nn acohoc
content, derved n part from added grape brandy or acoho, of not ess than
17 per cent by voume, may be desgnated as sherry. Dessert wnes havng the
taste, aroma, and characterstcs generay attrbuted to angeca, madera, musca-
79;,-)00 8 13
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Regs. No. .
186
te, and port and an acohoc content, derved n part from added grape brandy
or acoho, of not ess than 18 per cent by voume, may be desgnated as angeca,
madera, muscate, or port, respectvey. Dessert wnes havng the taste,
aroma, and characterstcs generay attrbuted to any of the above products and
an acohoc content, derved n part from added grape brandy or acoho, n
e cess of 1 per cent by voume but, n the ease of sherry, ess than 17 per cent,
or, n other cases, ess than 18 per cent by voume, may be desgnated as ght
sherry, ght angeca, ght madera, ght muscate, or ght port,
respectvey.
Cass . Ctrus wne. (a) Ctrus wne or ctrus frut wne s wne
produced by the norma acohoc fermentaton of the |uce of sound, rpe ctrus
frut (ncudng restored or unrestored pure condensed ctrus must), wth or
wthout the addton, after fermentaton, of pure condensed ctrus must, and
wth or wthout added ctrus brandy or acoho, but wthout any other addton
or abstracton e cept as may occur n cear treatment: Provded, That the prod-
uct may be ameorated before, durng, or after fermentaton by addng, separatey
or n combnaton, dry sugar, or such an amount of sugar and water souton as
w not ncrease the voume of the resutng product more than 35 per cent,
but n no event sha any product so ameorated have an acohoc content,
derved by fermentaton, of more than 13 per cent by voume, or n natura acd
content, f water as been added, of ess than 5 parts per thousand, or an un-
fermented resdua sugar content, derved from added sugar, of more than 15
per cent by weght.
The ma mum voate acdty, cacuated as acetc acd and e cusve of su-
phur do de, sha not be, for natura ctrus wne, more than 0.1 gram, and
for other ctrus wne, more than 0.12 gram, per 100 cubc centmeters (20 C.).
ny ctrus wne contanng no added brandy or acoho may be further desg-
nated as natura.
(6) Ctrus tabe wne or ctrus frut tabe wne s ctrus wne havng
an acohoc content not n e cess of 1 per cent by voume. Such wne may
aso be desgnated ght ctrus wne. ght ctrus frut wne, ght sweet
ctrus frut wne, etc., as the case may be.
(c) Ctrus dessert wne or ctrus frut dessert wne s ctrus wne bavns
an acohoc content n e cess of 1 per cent but not n e cess of 2 per cent by
voume.
d) Ctrus wne derved whoy (e cept for sugar, water, or added acoho)
from one knd of ctrus frut, sha be desgnated by the word wne quafed
by the name of such ctrus frut, e. g., orange wne, grapefrut wno. Ctrus
wne not derved whoy from one knd of ctrus frut sha he desgnated as
ctrus wne or ctrus frut wne quafed by a truthfu and adequate state-
ment of composton appearng n drect con|uncton therewth. Ctrus wne
rendered effervescent by carbon do de resutng soey from the secondary fer-
mentaton of the wne wthn a cosed contaner, tank, or botte sha be further
desgnated as sparkng ; and ctrus wne rendered effervescent by carbon
do de otherwse derved sha be further desgnated as carbonated.
Cass 5. Frut u-ne. (a) Frut wne s wne (other than grape wne or
ctrus wne) produced by the norma acohoc fermentaton of the |uce of sound,
rpe frut (ncudng restored or unrestored pure condensed frut must), wth
or wthout the addton, after fermentaton, of pure condensed frut must, and
wth or wthout added frut brandy or acoho, but wthout other addton or
abstracton e cept as may occur n cear treatment: Provded. That the product
may be ameorated before, durng, or after fermentaton by addng, separatey
or In combnaton, dry sugar, or such an amount of sugar and water souton as
w ncrease the voume of the resutng product, n the case of wnes produced
from oganberres, currants, or gooseberres, havng a norma acdty of 20
parts or more per thousand, not more than 00 per cent, and n the case of other
frut wnes, not more than 3. per cent, but n no event sha any product so
ameorated have an acohoc content, derved by fermentaton, of more than
13 per cent by voume, or a natura acd content, f water has been added, of
ess than f parts per thousand, or an unfermented resdua sugar content, derved
from added sugar, of more than 15 per cent by weght.
The ma mum voate acdty, cacuated as acetc acd and e cusve of suphur
do de, sha not be, for natura frut wne, more than 0.1 gram, and for other
frut wne, more than 0.12 gram, per 100 cubc centmeters (20 C).
ny frut wne contanng no added brandy or acoho may be further desg-
nated as natura.
(6) I erry wne s frut wne produced from berres.
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187
Itegs. No. .
(e) Frut tabe wne or berry tabe wne s frut or berry wne havng
an acohoc content not n e cess of 1 per cent by voume. Such wne may aso
be desgnated ght frut wne, or ght berry wne.
(d) Frut dessert wne or berry dessert wne s frut or berry wne hav-
ng an acohoc content n e cess of 1 per cent but not n e cess of 2 per cent
by voume.
(e) Frut wne derved whoy (e cept for sugar, water, or added acoho)
from one knd of frut sha be desgnated by the word wne quafed by the
name of such frut, e. g., peach wne, backberry wne. Frut wne not de-
rved whoy from one knd of frut sha be desgnated as frut wne or berry
wne, as the case may be, quafed by a truthfu and adequate statement of com-
poston appearng n drect con|uncton therewth. Frut wnes whch are de-
rved whoy (e cept for sugar, water, or added acoho) from appes or pears
may be desgnated cder and perry, respectvey, and sha be so desgnated
f ackng n vnous taste, aroma, and characterstcs. Frut wne rendered effer-
vescent by carbon do de resutng soey from the secondary fermentaton of
the wne wthn a cosed contaner, tank, or botte sha be further desgnated as
sparkng ; and frut wne rendered effervescent by carbon do de otherwse
derved sha be further desgnated as carbonated.
Cass 6. Wne from other agrcutura products. (a) Wne of ths cass s
wne (other than grape wne, ctrus wne, or frut wne) made by the norma
acohoc fermentaton of sound fermentabe agrcutura products, cther fresh
or dred, or of the restored or unrestored pure condensed must thereof, wth the
addton, before or durng fermentaton, of a voume of water not greater than the
mnmum necessary to correct natura mosture defcences n such products,
wth or wthout the addton, after fermentaton, of pure condensed must, and
wth or wthout added acoho or such other sprts as w not ater the character
of the product, but wthout other addton or abstracton e cept as may occur n ce-
ar treatment: Provded, That the product may be ameorated before, durng, or
afrer fermentaton by addng, separatey or n combnaton, dry sugar, or such an
amount of sugar and water souton as w not ncrease the voume of the resutng
product more than 3 per cent, but n no event sha any product so ameorated
have an acohoc content, derved by fermentaton, of more than 13 per cent by
voume, or a natura acd content, f water has been added, of ess than 5 parts per
thousand, or an unfermented resdua sugar content, derved from added sugar,
of more than 15 per cent by weght
The ma mum voate acdty, cacuated as acetc acd and e cusve of su-
phur do de, sha not be, for natura wne of ths cass, more than 0.1 gran, and
for other wne of ths cass, more than 0.12 gram, per 100 cubc centmeters
(20 C).
Wne of ths cass contanng no added acoho or other sprts may be further
desgnated as natura.
(6) Tabe wne of ths cass s wne havng an acohoc content not n e cess
of 1 per cent by voume. Such wne may aso be desgnated as ght.
(c) Dessert wne of ths cass Is wne havng an acohoc content n e cess
of 1 per cent but not n e cess of 2 per cent by voume.
(d) Rasn wne s wne of ths cass made from dred grapes.
(e) Sake s wne of ths cass produced from rce In accordance wth the
commony accepted method of manufacture of such product.
(/) Wne of ths cass derved whoy (e cept for sugar, water, or added
acoho) from one knd of agrcutura product sha, e cept n the case of
sake, be desgnated by the word wne quafed by the name of such agr-
cutura product, e. g., honey wne, rasn wne, dred backberry wne.
Wne of ths cass not derved whoy from one knd of agrcutura product
sha be desgnated as wne quafed by a truthfu and adequate statement
of composton appearng In drect con|uncton therewth. Wne of ths cass
rendered effervescent by carbon do de resutng soey from the secondary
fermentaton of wne wthn a cosed contaner, tank, or botte sha be further
desgnated as sparkng ; and wne of ths cass rendered effervescent by
carbon do de otherwse derved sha be further desgnated as carbonated.
Ths amendment reeves restrctons formery contaned n the regu-
atons and sha become effectve on the date of ts pubcaton n the
Federa Regster.
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Regs. No. .
188
. In order to estabsh a standard of dentty for apertf wnes as
a cass of wnes and for vermouth as a type of apertf wne, cass 7 of
secton 21 (27 CFR, Cum. Supp., .21(g)) s amended to read:
Cass 7. pcrtf wne. (a) pertf wne s wne havng an acohoc con-
tent of not ess than 15 per cent by voume, compounded from grape wne contan-
ng added brandy or acoho, favored wth herbs and other natura aromatc
favorng materas, wth or wthout the addton of carame for coorng pur-
poses, and possessng the taste, aroma, and characterstcs generay attrbuted
to apertf wne and sha be so desgnated uness desgnated as vermouth
under subsecton (6) hereof.
(6) ermouth s a type of apertf wne compounded from grape wne,
havng the taste, aroma, and characterstcs generay attrbuted to vermouth,
and sha be so desgnated.
Ths amendment sha become effectve on the thrty-frst day after ts
pubcaton n the Federa Regster.
5. In order (1) to emnate the present standard for concentrate
wne and to ncude such wnes wthn the standard for mtaton
wnes, and (2) to ncude wthn the standard for substandard
wnes wnes to whch have been added e cessve amounts of sugar and
water souton, and to requre such wnes to be so desgnated, cass 8
of secton 21 (27 CFR, Cum. Supp., .21(h)) s amended to read:
Cass 8. Imtaton, and substandard wne. (a) Imtaton wne sha bear
as a part of ts desgnaton the word mtaton, and sha ncude:
(1) ny wne contanng synthetc materas.
(2) ny wne made from a m ture of water wth resdue remanng after
thorough pressng of grapes, frut, or other agrcutura products.
(3) ny cass or type of wne the taste, aroma, coor, or other character-
stcs of whch have been acqured, n whoe or n part, by treatment wth
methods or materas of any knd, f the taste, aroma, coor, or other charac-
terstcs of norma wnes of such cass or type are acqured wthout such
treatment.
( ) nv wne made from must concentrated at any tme to more than
80 ( ang).
(6) Substandard wne sha bear as a part of ts desgnaton the word
substandard, and sha ncude:
(1) ny wne havng a voate acdty n e cess of the ma mum pre-
scrbed therefor n ths artce.
(2) ny wne for whch no ma mum voate acdty s prescrbed n ths
artce, havng a voate acdty, cacuated as acetc acd and e cusve of
suphur do de, n e cess of 0.1 gram per 100 cubc centmeters (20 C).
(3) ny wne for whch a standard of dentty s prescrbed n ths art-
ce, whch, through dsease, decomposton, or otherwse, fas to have
the composton, coor, and cean vnous taste and aroma of norma wnes
conformng to such standard.
( ) ny grape wne, ctrus wne, frut wne, or wne from other
agrcutura products to whch has been added sugar and water souton
n an amount whch s n e cess of the mtatons prescrbed n the stand-
ards of dentty for these products, uness, n the case of ctrus wne,
frut wne and wne from other agrcutura products the norma acd-
ty of the matera from whch such wne s produced s 20 parts or more
per thousand and the voume of the resutng product has not been ncreased
more than 60 per cent by such addton.
Ths amendment sha become effectve on the thrty-frst day after
the date of ts pubcaton n the Federa Regster.
6. In order to emnate the present requrement of the reguatons
that, of the tota of 350 parts per mon of suphur do de or su-
phtes e pressed as suphur do de permtted to be present n fn-
shed wne wthout resutng n an ateraton of the cass or type
thereof, not more than 70 of such parts be n a free state, the pro-
vso n paragraph numbered (1) of subsecton () of secton 22 (27
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189
Regs. No. .
CFR, Cum. Supp., .22(b) (1)) s amended by emnatng therefrom
the foowng parenthetca phrase:
(not more than 70 of such parts beng n a free state);
Ths amendment reeves a restrcton prevousy contaned n the reg-
uatons and sha become effectve on the date of ts pubcaton n the
Federa Regster.
7. In order to recognze secton of the ct of uy 1 ,19 7 (Pubc
Law 186, ghteth Congress, frst sesson), authorzng, under cer-
tan crcumstances, an ncrease n the amount of sugar and water sou-
ton that may be added n the case of oganberry, currant, and goose-
berrv wnes, paragraph numbered (5) of subsecton (b) of secton 22
(27 CFR, Cum. Supp., .22(b) (5)) s amended to read:
(5) Treatment of any cass or type of wne for whch a standard of den-
tty s prescrbed n ths artce wth sugar or water n e cess of the quan-
ttes specfcay authorzed by such standard: Provded, That the cass
or type thereof sha not be deemed to be atered (1) where such wne
(other than grape wne) s derved from frut, or other agrcutura prod-
ucts, havng a hgh norma acdty, f the unfermented resdua sugar
content, derved from added sugar, s not more than 20 per cent by weght,
and the content of natura ncd s not ess than 7.5 parts per thousand,
and (2) where such wne s derved e cusvey from frut, or other agr-
cutura products, the norma acdty of whch Is 20 parts or more per thou-
sand, f the voume of the resutng product has been Increased not more
than 60 per cent by the addton of sugar and water souton, for the soe
purpose of correctng natura defcences due to such acdty, and (e cept
n the case of such wnes when produced from oganberres, currants, or
gooseberres) there s stated as a part of the cass and type desgnaton
the phrase Made wth over 35 per cent sugar souton.
Ths amendment reeves a restrcton formery contaned n the regu-
atons and sha become efFectve on the date of ts pubcaton n the
Federa Regster.
8. In order to carfy the present reguatons authorzng, as per-
mtted cear treatment, norma and customary pasteurzaton and
refrgeraton treatments, paragraphs numbered (2) and (3) of sub-
secton (c) of secton 22 (27 CFR, Cum. Supp., .22(c) (2) and (3))
are amended to read:
(2) Treatment wth pasteurzaton as necessary to perfect the wnes to
commerca standards n accordance wth acceptabe cear practce but ony
n such a manner and to such an e tent as not to change the basc com-
poston of the wne nor to emnate any of ts characterstc eements.
(3) Treatment wth refrgeraton as necessary to perfect the wne to com-
merca standards n accordance wth acceptabe cear practce but ony
n such a manner and to such an e tent as not to change the basc com-
oston of the wne nor to emnate any of ts characterstc eements.
Ths amendment reeves restrctons contaned n, and s nterpreta-
tve of, present reguatons and sha become effectve on the date of
ts pubcaton n the Federa Regster.
9. In order to further mt the use of semgenerc cass or type
names of geographc sgnfcance upon wnes of an orgn dfferent
from that ndcated by the name by specfcay provdng that such
names may ony b6 used upon wnes havng the taste, aroma, and
characterstcs generay attrbuted to wnes of such cass or type, sub-
secton ( ) of secton 2 (27 CFR, Cum. Supp., .2 (b)) s amended
to read:
( ) name of geographc sgnfcance, whch s aso the desgnaton of a
cass or type of wne, sha be deemed to have become semgenerc ony If so
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Regs. No. .
190
found by the Deputy Commssoner. Semgenerc desgnatons may be used to
desgnate wnes of an orrn other than that Indcated by such name ony f there
appears n drect con|uncton therewth an approprate appeaton of orgn
dscosng the true pace of orgn of the wne, and f the wne so desgnated
conforms to the standard of dentty, f any, for such wne contaned n these
reguatons, or, f there be no such standard, to the trade understandng of such
cass or type.
Ths amendment sha become effectve on the thrty-frst day after
the date of ts pubcaton n the Federa Regster.
10. In order to permt the omsson of the type desgnaton
tabe or dessert from the requred desgnaton of these wnes
and to recognze the emnaton of the standards for red, whte, and
natura wnes as types of wne, the frst sentence of subsecton (a) of
secton 3 (27 CFR, Cum. Supp., .3 (a)) s amended to read:
(a) The cass of the wne sha be stated and such statement sha be n con-
formty wth rtce II of these reguatons f the wne s defned theren, e cept
that tabe ( ght ) and dessert wnes need not be desgnated as such.
Ths amendment reeves restrctons formery contaned n the regu-
atons and sha become effectve on the date of ts pubcaton n the
Federa Regster.
11. In order to requre, n conformty wth the requrements of pres-
ent Interna Revenue reguatons (Reguatons 7, secton 178.228. 26
CFR, 19 5 Supp., 178.228), that, n the event the pace of bottng
or packng s not stated upon the abes of domestc wne botted or
packed n nterna revenue bonded premses, the nterna revenue reg-
stry number of such premses be stted, the frst paragraph of sub-
secton (a) of secton 35 (27 CFR, .35(a)) s amended to read:
(a) Domestc wne. On abes of contaners of domestc wne there sha be
stated the name of the botter or packer and the pace where botted or packed
(or n eu of such pace, the prncpa pace of busness of the botter or packer
f n the same State where the wne was botted or packed, and, f botted or
packed on nterna revenue bonded premses, the nterna revenue regstry number
of such premses) mmedatey preceded by the words, otted by or Packed
by e cept that
Ths amendment sha become effectve on the thrty-frst day after
the date of ts pubcaton n the Federa Regster.
12. In order to permt botters or packers of wne who have aso
treated the wne n such manner as to change the cass thereof (e. g.,
by makng apertf wne out of grape wne or by carbonatng st wne)
to descrbe themseves as producers of the wne n the requred name
and address statement, paragraph numbered (1) -of subsecton (a)
of secton 35 (27 CFR, .35 (a) (1)) s amended to read:
(1) If the botter or packer s aso the person who made not ess than 75
per cent of such wne by crushng the grapes or other materas, fermentng
the must and carfyng the resutng wne, or f such person treated the
wne In such manner as to change the cass thereof, there may be stated, n
eu of the words otted by or Packed by, the words Produced and
botted by or Produced and packed by.
Ths amendment reeves restrctons formery contaned n the regu-
atons and sha become effectve on the date of ts pubcaton n the
Federa Regster.
13. In order to restrct the use of the word manufactured n re-
qured or optona name and address statements on the abes of wne
to the abes of mtaton wne, paragraphs numbered (2) and (3) of
subsecton (a) and the frst paragraph of subsecton (6) of secton 35
(27 CFR, .35 (a) (2) and (3) and (b)) are amended to read:
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191
Regs. No. .
(2) If the botter or pucker has aso ether made or treated the wne,
otherwse than as descrbed n (1) above, there may be stated, n eu of
the words otted by or Packed by, the phrases ended and botted
(packed) by, Rectfed and botted (packed) by, Prepared and botted
(packed) by, Made and botted (packed) by, as the case may be, or, n
the case of Imtaton wne ony, Manufactured and botted (packed) by.
(3) In addton to the name of the botter or packer and the pace where
botted or packed (but not n eu thereof) there may be stated the name
and address of any other person for whom such wne s botted or packed,
Immedatey preceded by the words otted for or Packed for or
Dstrbuted by or other smar statement; or the name and prncpa
pace of busness of tn; rectfer, bender, or maker, mmedatey preceded
by the words Rectfed by, ended by, or Made by, respectvey, or,
n the case of mtaton wne ony, Manufactured by.
(6) Imported wne. On abes of contaners of mported wne, there sha
be stated the words Imported by or a smar approprate phrase, and mme-
datey thereafter the name of the permttee who s the Importer, agent, soe ds-
trbutor, or other person responsbe for the Importaton, together wth the
prncpa pace of busness n the U nted Staes of such erson. In addton, but
not n eu thereof, there may be stated the name and prncpa pace of busness
of the foregn producer, bender, rectfer, maker, botter, packer, or shpper,
preceded by the phrases Produced by, ended by, Rectfed by, Made
by, otted by, Packed by, Shpped by, respectvey, or, n the case of
mtaton wne ony, Manufactured by.
Ths amendment sha become effectve on uy 1,19 9.
1 . In order to permt, n the name and address statement requred
to appear on the abes of mported wne botted or packed after m-
portaton by the person responsbe for the mportaton, a statement of
the address of such person s prncpa pace of busness n eu of the
address of the pace where such wne was botted or packed, paragraph
numbered (1) of subsecton (b) of secton 35 (27 CFR, .35(b) (1))
s amended to read:
(1) If the wne s botted or packed n the Unted States, there sha be
stated, n addton, the name of the botter or packer and the pace where
botted or packed mmedatey preceded by the words otted by or
Packed by. If, however, the wne s botted or packed n the Unted
States by the-person responsbe for the mportaton, there may be stated,
n eu of the above requred statements, the name and prncpa pace of
busness n the Unted States of such person, Immedatey preceded by the
phrase Imported and botted (packed) by or a smar approprate phrase.
Ths amendment reeves restrctons formery contaned n the regu-
atons and sha become effectve on the date of ts pubcaton n the
Federa Regster.
15. In order to requre that tabe ( ght ) wnes be so desg-
nated f they do not bear a statement of acohoc content, paragraph
numbered (5) of secton 32 (27 CFR, Cum. Supp., .32(b) (1)) and
subsecton (a) of secton 36 (27 CFR, .30(a)) are amended to read:
(5) cohoc content, or type desgnaton n eu thereof, n accordance
wth secton 6 beow.

(a) cohoc content sha he stated n the case of wnes contanng more than
1 per cent of acoho by voume, and, n the case of wne contanng 1 per cent
or ess of acoho by voume, ether the type desgnaton tabe wne ( ght
wne) or the acohoc content sha be stated. ny statement of acohoc con-
tent sha be made as prescrbed n (h) beow.
Ths amendment sha become effectve on uy 1,19 9.
16. In order to ncrease the permtted toerance n statements of
acohoc content for tabe wne ony from 1 to 1.5 per cent by voume,
subsecton ( ) of secton 36 (27 CFR, .36(b)) s amended to read:
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Regs. No. .
192
(6) cohoc content sha be stated n terms of percentage of acoho by
voume, and not otherwse, as provded n ether subparagraph (1) or (2) beow :
(1) coho per cent by voume. cept as provded n (c)
beow, a toerance of 1 per cent, n the case of wnes contanng more than 1
per cent of acoho by voume, and of 1.5 per cent, n the case of wnes con-
tanng 1 per cent or ess of acoho by voume, w be permtted ether above
or beow the stated percentage.
(2) coho per cent to per cent by voume. cept as
provded n (c) beow, a range of not more than 2 per cent, n the case of
wnes contanng more than 1 per cent of acoho by voume, and of not
more than 3 per cent, n the case of wnes contanng 1 per cent or ess of
acoho by voume, w be permtted between the mnmum and ma mum
percentages stated, and no toerances w be permtted ether beow such
mnmum or above such ma mum.
Ths amendment reeves restrctons formery contaned n the regu-
atons and sha become effectve on the date of ts pubcaton n the
Federa Regster.
17. In order to prohbt acohoc content statements on the abes
of wne whch, because of permtted toerances or otherwse, ndef-
ntey or ncorrecty ndcate the cass, type, or ta abe grade of such
wne, secton 36 (27 CFR, .36) s further amended by addng the
foowng new subsecton (c) at the end thereof:
( ) Regardess of the type of statement used and regardess of toerances
normay permtted n drect statements and ranges normay permtted n
ma mum and mnmum statements, acohoc content statements, whether re-
qured or optona, sha defntey and correcty ndcate the cass, type, and
ta abe grade of the wne so abeed and nothng n ths secton sha e con-
strued as authorzng the appearance upon the abes of any wne of an acohoc
content statement In terms of ma mum and mnmum percentages whch over-
aps a prescrbed mtaton on the acohoc content of any cass, type, or ta abe
grade of wne, or a drect statement of acohoc content whch ndcates that the
acohoc content of the wne s wthn such a mtaton when n fact t Is not.
Ths amendment sha become effectve on the thrty-frst day after
the date of ts pubcaton n the Federa Regster.
18. In order to requre that statements of acohoc content on the
abes of botted wne appear n scrpt, type, or prntng not arger
than 8-pont Gothc caps, subsecton ( ) of secton 38 (27 CFR,
.38(b)) s amended to read:
(6) Sze of type. statements (other than acohoc content statements
upon abes of contaners havng a capacty of 1 gaon or ess) requred on abes
by ths artce, shabe n ready egbe scrpt, type, or prntng not smaer than
8-pont oothc caps, e cept that f contaned among other descrptve or e pana-
tory readng matter, the scrpt, type, or prntng of a requred matera sha
be of a sze substantay more conspcuous than such other descrptve or e pana-
tory readng matter: Provded. That n the case of abes of contaners havng a
capacty of ess than one-haf pnt, such scrpt, type, or prntng thereon need not
be n S-pont Gothc caps, but sha be ready egbe under ordnary condtons.
cohoc content statements, whether requred or optona, on abes on con-
taners havng a capacty of 1 gaon or ess sha be ready egbe under ordnary
condtons, but sha not appear n scrpt, type, or prntng arger or more con-
spcuous than 8-pont Gothc caps.
Ths amendment sha become effectve on uy 1,19 9.
19. In order to prevent the use on wne abes, n brand name or cass
and type desgnatons, of any coned word or name whch smuates or
mtates the name of any cass, type, or permtted desgnaton of wne
uness the wne so abeed s entted to such desgnaton, subsecton
(a) of secton 39 (27 CFR. .39(a)) s amended by addng at the
end thereof the foowng new subparagraph numbered (8) :
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193
Regs. No. .
(8) ny coned word or name n the brand name or cass and type desg-
naton whch smuates, mtates, or whch tends to create the mpresson
that the wne so abeed s entted to bear any cass, type, or permtted
desgnaton recognzed by these reguatons uness such wne conforms to
the requrements prescrbed wth respect to such desgnaton and s n fact
so desgnated on ts abes.
Ths amendment sha become effectve on uy 1,19 9.
20. In order to permt n the abeng and advertsng of wne gen-
era nconspcuous references to methods of wne producton, ncudng
agng, of an nformatve nature
. Subsecton (b) of secton 39 (27 CFR, .39(b)) s amended by
addng at the end thereof, the foowng new subparagraph ( ) :
( ) Truthfu references of a genera and nformatve nature reatng to
methods of wne producton nvovng storage or agng, such as Ths wne
has been meowed n oak casks, Stored n sma barres, or Matured
at reguated temperatures n our cears, may appear, but ony n an ncon-
spcuous manner and then ony on back abes or on other matter accompany-
ng the contaner.
. Subsecton (c) of secton 6 (27 CFR, .6 (c)) s amended by
addng at the end thereof the foowng new subparagraph num-
bered (3) :
(3) Truthfu references of a genera and nformatve nature reatng to
methods of wne producton nvovng storage or agng, such as Ths wne
has been meowed n oak casks, Stored n sma barres, or Matured at
reguated temperatures n our cears, may be made.
Ths amendment reeves restrctons formery contaned n the
reguatons and sha become effectve upon the date of ts pubcaton
n the Federa Regster.
21. In order to carfy any ambguty n the provson of the regu-
atons mtng the use of the word mporter or smar words n
advertsements of wne by makng t cear that the provson reates
ony to domestc wnes, subsecton () of secton 6 ( 27 CFR, .6 ())
s amended to read:
() Use of the word mporter or smar tcorda. The word mporter or
mar words sha not appear n advertsements of domestc wne e cept as
part of the bona fde name of a permttee by or for whom, or of a retaer for
whom, such wne s botted or pneked: Provded, That In a cases where such
words are used as part of such name, there sha be stated the words Product of
the Unted States or smar words to negate any mpresson that the product s
mported, and such negatng statements sha appear n the same sze and knd
of prntng as such name.
Ths amendment s carfyng and nterpretatve of present reguatons
and sha become effectve on the date of ts pubcaton n the Federa
Regster.
22. In order to authorze, as addtona standards of f, 1 pnt for
a casses and types of wne, gaon for effervescent wnes ony,
and 6 quart for apertf wnes ony, subsecton (a) of secton 72
(27 CFR, Cum. Supp., .72(a)) s amended to read:
(a) The standards of f for wne sha be the foowng, sub|ect to the toer-
ances herenafter aowed
(1) For a wnes:
.9 gaons, 1 pnt.
3 gaons, pnt.
1 gaon, pnt.
gaon, ounces.
1 quart, 3 ounces.
quart, 2 ounces
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Regs . No. 5.
19
(2) In addton, for sparkng and carbonated wnes ony: gaon.
(3) In addton, for apertf wnes ony: quart.
Ths amendment reeves restrctons formery contaned n the regu-
atons and sha become effectve on the date of ts pubcaton n the
Federa Regster.
(Ths Treasury decson s ssued pursuant to and under the author-
ty contaned n secton 5 (e) and (f) of the Federa coho dmn-
straton ct, as amended (27 U. S. C, 205 (e) and (f)),
Reorganzaton Pan No. I, paragraph 2 (5 Stat., 1232), secton
3170 of the Interna Revenue Code (53 Stat., 373) and secton 161 of
the Revsed Statutes (5 U. S. C, 22).
Carro . Meaey,
Deputy Commssoner of Interna Revenue.
pproved May 28,19 8.
G O. . Sc O N M N,
Commssoner of Interna Revenue.
. L. M. Wggns,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster une 5, 19 8.)
Reg atons No. 5 ( coho Ta ct) . 19 8-13-128 1
T. D.5617
TITL 27 INTO IC TING LI UORS. C PT R 1, P RT 6 L LING ND
D RTISING OF DISTILL D SPIRITS.
mendng Reguatons No. 5, under the Federa coho dmn-
straton ct.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Dstrct Supervsors and Others Concerned:
notce of a pubc hearng to be hed n Washngton, D. C, on
anuary 13, 19 7, and n San Francsco, Caf., on anuary 30, 19 7,
wth respect to certan proposas to amend Reguatons No. 5. Reatng
to Labeng and dvertsng of Dsted Sprts, was pubshed n
the Federa Regster on December 27, 19 0 (voume 11, No. 251, page
1 096).
Upon the concuson of the sad hearng and after consderaton
of a reevant matera submtted by nterested persons n connec-
ton therewth regardng proposas numbered 1, 5-9, 1 -17, 19-21,
each ncusve, and 2 of sad notce, the foowng amendments to
rtce 1(h), secton 21, cass , secton 3 (d) and (e), secton
35(c)(3), secton 38(d), secton 39 (a) and (o), and secton 80 of
sad Reguatons No. 5 are hereby adopted, to become effectve as
suted.
1. In order to conform the defnton of the term gaon as used
n these reguatons to that used for nterna revenue purposes, rtce
1( ) (27 CFR, 5.1 (h)) s amended to read:
G
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195
Regs. No. 5.
(h) The term gaon means Unted States gaon of 231 cubc Inches of
acohoc beverage at 60 P. other qud measures used are subdvsons
of the gaon as so defned.
Ths amendment sha become effectve on the thrty-frst day after
the date of ts pubcaton n the Federa Regster.
2. In order to ncrease from 20 per cent to 30 per cent the per-
centages of ees and ees brandy whch may be used n the producton
of frut brandy and, n the case of frut brandy dsted from
|uce or wne, to permt the addton of 20 per cent by weght of
pomace to such |uce or wne, secton 21, cass (a) (27 CFR, Cum.
Supp., 5.21(d) (1)) s amended to read:
(a) Frut brandy s brandy dsted soey from the uce or mnsh of
whoe, sound, rpe frut, or from standard grape, ctrus, or other frut wne,
havng a voate acdty, cacuated as acetc acd and e cusve of suphur
do de, not n e cess of 0.20 gram per 100 cubc centmeters (20 C), wth
or wthout the addton of not more than 20 per cent by weght of the pomace
of such |uce or wne, or 30 per cent by voume of the ees of such wne, or
both (cacuated pror to the addton of water to factate fermentaton or
dstaton), and sha ncude m tures of such brandy wth not more than 30
per cent (cacuated on a proof bass) of ees brandy. Frut brandy, derved
e cusvey from grapes, bha be desgnated as grape brandy or brandy.
Frut brandy, other than grape brandy, derved e cusvey from one varety
of frut, sha be desgnated by the word brandy quafed by the name of
such frut (e. g., peach brandy, appe brandy, orange brandy ), e cept
that appe brandy may be desgnated appe|ack. Frut brandy derved
from more than one varety f frut sha be desgnated as frut brandy,
quafed by a truthfu and adequate statement of composton (e. g., frut
brandy a bend of 90 per cent grape brandy and 10 per cent backberry
brandy ).
Ths amendment reeves restrctons formery contaned n the regu-
atons and sha become effectve on the date of ts pubcaton n the
Federa Regster.
3. In order to provde an ncusve desgnaton for brandes produced
for use n the trade from severa dfferent types of dstng matera
derved from the same frut, secton 21, cass (27 CFR, Cum. Supp.,
5.21(d)), s further amended by nsertng the foowng new sub-
secton (ee) between subsectons (e) and (/) thereof:
(ee) Resdue brandy s brandy dsted whoy or n part from the resdue
of frut or wne, and sha be desgnated as resdue brandy quafed by the
name of the frut from whch derved. randy dsted whoy or n part from
resdue materas whch conforms to any of the standards set forth n sub-
sectons (a), (c), ( t), and (e) hereof may, regardess of such fact, be desg-
nated resdue brandy by the dster thereof; but the use of ths desgnaton
sha be concusve, precudng any ater change of desgnaton.
Ths amendment reeves restrctons formery contaned n the regu-
atons and sha become effectve on the date of ts pubcaton n the
Federa Regster.
. In order to permt a standard brandy to be produced from wnes
havng a voate acdty of 0.20 gram or ess per 100 cubc centmeters
athough such brandy was dsted at not more than 170 proof,
cause (1) of subsecton (g) of secton 21, cass (27 CFR, Cum.
Supp., 5.21(d) (7) ()) s amended to read:
(1) ny brandy dsted from |uce, mash, or wne havng a voate
acdty, cacuated as acetc acd and e cusve of suphur do de, n e cess
of 0.20 gram per 100 cubc centmeters (20 C.) ; measurements of voate
acdty under ths paragraph sha be cacuated e cusve of water added
to factate dstaton.
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Regs. No. 5.
U96
Ths amendment reeves restrctons formery contaned n the regu-
atons and sha become effectve on the date of ts pubcaton n the
Federa Regster.
5. In order to ncude as substandard, brandy dsted from
deterorated resdue matera, cause (2) of subsecton (g) of secton
21, cass (27 CFR, Cum. Supp., 5.21(d) (7) ()) s amended to read :
(2) ny brandy whch has been dsted from unsound, mody, dseased,
or decomposed |uce, mash, wne, ees, pomace, or resdue, or whch shows n
the fnshed product any taste, aroma, orcharacterste assocated wth
products dsted from such matera.
Ths amendment sha become effectve on the thrty-frst day after the
date of ts pubcaton n the Federa Regster.
6. In order to carfy the present reguatons by removng any
mpcaton that any of the types of corn whsky may, regardess
of abeng statements, be treated wth charred wood chps, secton
M(d) (27 CFR, Cum. Supp., 5.3 (d)) s amended by changng the
perod at the end thereof to a coon and addng the foowng provso:
Provded, That ths subsecton sha not be construed as authorzng the treat-
ment of any of the types of corn whsky wth charred wood chps.
Ths amendment s nterpretatve of the present reguatons and sha
become effectve on the date of ts pubcaton n the Federa Regster.
7. In order to provde that whsky dsted at not e ceedng 160
proof from a fermented mash of not ess than 80 per cent corn gran,
not sub|ected to treatment wth charred wood chps, and stored n
reused cooperage, be desgnated as one of the types of corn whsky and
to prevent such products from beng desgnated as Whsky, dsted
from bourbon mash, secton 3 (e) (27 CFR, 5.3 (e)) s amended
by changng the perod at the end thereof to a coon and addng the
foowng provso thereto:
Provded, however, That any product conformng to the standard of dentty
prescrbed for one of the types of corn whsky (secton 21, cass 2 (a), (d)(2),
(ft), and (f)) sha, notwthstandng the provsons of ths subsecton, be desg-
nated n accordance wth such standard.
Ths amendment sha become effectve on the thrty-frst day after
the date of ts pubcaton n the Federa Regster.
8. In order to authorze, on abes of dsted sprts botted after
mportaton by the mporter, a statement of the address of the m-
porter s prncpa pace of busness n eu of the address of the pace
of bottng, cause (3) of subsecton (c) of secton 35 (27 CFR,
5.35(c) (3)) s amended to read:
(3) On abes of mported dsted sprts botted after mportaton by
the person responsbe for the mportaton, there sha be stated the words
Imported and botted by, Imported and botted e cusvey by, or a
smar approprate phrase, and mmedatey thereafter the name of such
person and the address of the pace where botted or the address of such
person s prncpa pace of busness.
Ths amendment reeves a restrcton formery found n the regua-
tons and sha become effectve on the date of ts pubcaton n the
Federa Regster.
9. In order to authorze, n eu of the statement artfcay co-
ored where such statement has formery been requred to appear on
abes of dsted sprts coored by the addton of carame aone, the
statement coored wth carame or some smar statement, sec-
ton 38((/) (27 CFR, Cum. Supp., 5.38(d)) s amended to read:
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197
Regs. No. 5.
(d) There sha be stated the words artfcay coored on the abe of any
dsted sprts contanng synthetc coorng materas, or natura materas,
other than carame, the prmary contrbuton of whch s coor, as we as upon
the abe of any dsted sprts, the abeng of whch s such as to convey the
mpresson that the coor of the product s derved from a gven source, f such
coor s, n whoe or n part, not so derved. In the case of dsted sprts
to whch no coorng matera other than carame has been added the words
coored wth carame or a substantay smar statement may appear n eu
of the words artfcay coored : Provded, That no such statement sha be
requred by reason of the use of carame n any brandy or rum or n any type
of whsky other than straght whsky : nd provded further, That where such
statement woud be requred by reason of the use of natura favorng materas
soey, there may be stated n eu of artfcay coored a truthfu and ade-
quate statement of the source of the coor,, such as coor derved from (name
of frut, pant, etc., the name of whch the produc t bears) and other fruts (pants,
herbs, etc., or the name of such other fruts, pants, or herbs).
Ths amendment reeves a restrcton formery found n the regua-
tons and sha become effectve on the date of ts pubcaton n the
Federa Regster.
10. In order to authorze (1) the omsson of age statements from
the abes of whskes four years or more od and to requre an age
statement to appear on the abes of a whskes n whoe or n part
ess than four years od, regardess of the country of orgn; and (2)
the use on the abes of certan whskes of an age statement substan-
tay the same as, though not dentca wth, the statement formery
requred
. Secton 39(a) (1) and (2) (27 CFR, 5.30(a) (1) and (2)) s
amended to read:
(a) Statements of age and percentage for whsky. cept n the case of
straght whsky botted under the ottng n ond ct of the Unted States
and foregn or domestc whsky (whether or not m ed or bended, but con-
tanng no neutra sprts) a of whch s four ears or more od, there sha he
stated the foowng:
(1) Whsky, r|/c whsky, cte., and bended or unbended Scotch, Irsh,
and Canadan whsky. In the case of whsky defned n secton 21. cass
2 and cass 2 (a), (k), (I), and (m), f not m ed, the age of the whsky; f
m ed, the age of the youngest whsky. The statement of nge n both cases
under ths paragraph sha be substantay as foows: Ths whsky s (years and/or months) od.
(2) Straght whsky. In the case of any of the types of straght whsky,
the age of the straght whsky. The statement of nge n cases under ths
paragraph sha be substantay as foows: Ths whsky s (years
and/or months) od.
. Secton 39(a) (27 CFR, 5.39(a)) s further amended by add-
ng the foowng new subparagraph (7) to foow mmedatey sub-
paragraph (6) thereof:
(7) In the case of straght whsky botted under the ottng n ond
ct of the Unted States and foregn or domestc whsky (whether or not
m ed or bended but contanng no neutra sprts) a of whch s four
years or more od, statements of age sha be optona but, f made, sha
appear n the form specfed for the approprate cass and type.
C. Secton 39(6) (27 CFR, Cum. Supp., 5.39(b)) s aso amended
to read:
(6) Statements of age for rum and brandy.
(1) ge may, but need not, be stated on abes of rums and brandes:
Provded, That an approprate statement wt respect to age sha appear
on the brand abe n the case of any brandy not aged for a perod of at
east two years.
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Regs. No. 5.
198
(2) If age s stated, t sha be substantay as foows: Ths rum
Is years od ; Ths brandy s years od ; the banks to be
fed n wth the age of the youngest dsted sprts n the product.
These amendments sha become effectve on uy 1,19 9.
11. In order to permt, on the abes of sprt whsky, a state-
ment of age and percentage for each of the whskes contaned theren,
secton 39(a) (5) (27 CFR, 5.39(a) (5)) s amended to read:
(5) Sprt whsky. In the case of sprt whsky, the age of the whsky
or straght whsky (or, f there be two or more whskes or straght whskes,
then the a|;e of the youngest whsky or straght whsky, or, f there be
both whsky and straght whsky, then the age of the youngest whsky)
together wth the percentage by voume of the whsky or straght whsky
and the percentage by voume of neutra sprts. Such statements sha be
as foows: The whsky (straght whsky) n ths product s (years
and/or months) od; per cent whsky (or per cent straght
whsky and, f there be other whsky or whskes, per cent whsky)
and per cent neutra sprts (contnung n accordance wth the re-
qurements of secton 38(a) to state the commodty from whch the neutra
sprts s derved). If there be more than one whsky or (f there be no
whsky) more than one straght whsky n the product, the statement of
age sha read: The whskes (straght whskes) n ths product are
(years and/or months) or more od foowed by the statement of
percentages and of the commodty from whch the neutra sprts s derved.
In addton (but not as a substtute for the foregong requred statements)
a statement may be made of the ages and percentages of a of the whskes
and straght whskes n the product. Such statement, f made, sha be n
the foowng form: per cent straght whsky, years od,
per cent straght whsky, years od, per cent whsky,
years od and per cent whsky, years od. The age
and percentage banks sha be fed wth the respectve ages and percentages
of each of the straght whskes and whskes n the product.
Ths amendment reeves restrctons formery found n the regua-
tons and sha become effectve on the date of ts pubcaton n the
Federa Regster.
(Ths Treasury decson s ssued pursuant to and under the au-
thorty contaned n secton 5(e) of the Federa coho dmnstra-
ton ct, as amended (27 U. S. C, 205(e)), Reorganzaton Pan No.
I, paragraph 2 (5 Stat., 1232), secton 3170 of the Interna Reve-
nue Code (53 Stat., 373) and secton 161 of the Revsed Statutes (5
U. S. C., 22).
Carro . Meaet,
Deputy Commssoner of Interna Revenue.
pproved May 28, 19 8.
Geo. . Scoeneman,
Commssoner of Interna Revenue.
. L. M. Wggns,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster une 5, 19 8.)
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Msc.
Gaugng Manua, rtces II and III. 19 8-13-12839
T. D. 56-20
TITL 26 INT RN L R NU C PT R I, SU C PT R C, P RT 186.
G UGING M NU L.
mendng the Gaugng Manua.
Treasury Department,
Offce of Commssoner of Interna Revenue.
Washngton 25, D. C.
To Dstrct Supervsors, Coectors of Interna Revenue, and Others
Concerned:
1. The purpose of ths amendment s to authorze the storekeeper-
gauger, n eu of the dstrct supervsor, to prepare the abe to be
aff ed to the head of the new package where a change of package s
made n the nterna revenue bonded warehouse to prevent oss by
eakage or to effect a change n the knd of cooperage.
2. ecause the provsons of ths Treasury decson reate to dutes
of reau personne, not affectng the warehouseman, t s found
that t s unnecessary to ssue such Treasury decson wth notce and
pubc procedure thereon under secton (a) of the dmnstratve
Procedure ct, approved une 11,19 6, or sub|ect to the effectve date
mtaton of secton (c) of the sad ct.
3. Paragraphs 6 and 67 of the Gaugng Manua, approved No-
vember 21, 1938 (26 CFR, Part 186) are hereby amended to read as
foows:
rtce II. Change of Package n Interna Revenue onded Warehouse
to Prevent Loss by Leakage.
Par. 0 . The storekeeper-gauger w take the tare of the new package before
transfer of the sprts, and upon competon of the transfer w prepare and sgn a
abe to be aff ed to the head of the new package n the manner heren prescrbed
for the aff ng of ta -pad stamps. The abe sha be n the foowng form :
The sprts contaned n ths package, sera No. , were transferred to
new barre under date of Upon wthdrawa of ths package, the
storekeeper-gauger w determne the tota tare by addng the soakage aow-
ance to pounds, the weght of ths barre before sprts were paced theren,
uness actua tare s taken.
(Storekeeper-gauger.)
Dstrct No.
owance for soakage w be made ony for the new barre when wthdrawn.
No aowance w be made for so:knge n the orgna barre.
rtce III. Change n nd of Cooperage n Interna Revenue onded
Warehouse.
Par. 67. ach new package w be gven the same sera number, marks, and
brands as the orgna package, and w contan ony sprts from one package.
The storekeeper-gauger w take the tare of the new package before the transfer,
and upon competon of the transfer w prepare and sgn a abe to be aff ed by
the propretor to the head of each new package n the manner heren prescrbed
for the aff ng of ta -pad stamps. The abe sha be n the foowng form:
The sprts contaned n ths package, sera No. , were transferred
to new barre under date of
( nd of cooperage.)
by authorty of Department etter dated .
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Msc 200
The package from whch the sprts heren were transferred was a
( nd of
barre. Upon wthdrawa of ths package the storekeeper-
cooperage. )
gauger w determne the tota tare by addng the soakage aowance to
pounds, the weght of ths barre before sprts were paced theren, uness actua
tare s taken.
(Storekeeper-gauger.)
Dstrct No.
owance for soakage w be made ony for the new barre when
wthdrawn. No aowance w be made for soakage n the orgna
barre.
. Ths Treasury decson sha be effectve upon pubcaton n the
Federa Regster.
(Ths Treasury decson s ssued under the authorty contaned n
sectons 2808 and 3176 of the Interna Revenue Code (U. S. C, tte
26, sectons 2808 and 3176).)
Geo. . Schoeneman.
Commssoner.
pproved une ,19 8.
. L. M. Wggns,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster une 10, 19 8.)
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201
Msc.
OL OM RG RIN .
1918-3-127 3
MS. 318
Schedue of oeomargarne produced and materas used durng the month of
November, 19. /7, as compared wth November, 19 6.
November,
19 7.
November.
19 6.
Tota producton of uncoored oeomargarne
Pounds.
7 .097.608
Pounds.
55.678.603
Tota wthdrawn ta -pad ..
7 .286. 668
5 ,983.819
Ingredent schedue of uncoored oeomargarne:
125
220
36
utter favor _
281
Corn o ...
178.93
22.890
1,717,71
126, 59
166
100,360
12,622,033
87.9 1
2 , 18
2 5,628
335,586
57, 8
125, 56
2,2 5,680
57,587
6,620
17,101,183
11,710
7 ,130
Cottonseed o.... .
26,369,67
9 . 597
99
67.1 9
9.163. 770
63. 75
198, 351
322.818
217.990
7,975
708.515
1,712,310
39,276
Dervatve of gycerne
Dacetv _ _
Lecthn
Mk
Monostearne .
Neutra ard
Oeo o
Oeo stearne
Oeo stock _
Peanut o _
Sat
Soda (benzoate of)
Sodum supbo acetate _
Soya bean o
17,026.175
9.96
tamn concentrate
Tota
75, 587,090
56.517.328
7,708,182
7. 283. 96
Tota wthdrawn ta -pad
3,962,373
1,866, 218
Ingredent schedue of coored oeomargarne:
66
11
Coor
1,811, 0
,162
169
3,013
2. 27.935
9. C2
66
6,760
1.296,751
. 0
3, 29
1,71
6,600
2 7,209
3.208
1,972, 561
10,575
921
,060,122
,357
52
Corn o
Cottonseed fakes .
Cottonseed o
731, 5 5
6, 92
271
5,696
1,2 5,331
5,187
19,296
12,199
95
Der vat ve of gycerne
Daccty _
Lecthn
Mk
Oeo o
Sat
238.787
3. 293
1,022.7 3
Soya bean stearne
1,2 0
Tota
7,810,383
7,356.717
fgures are sub|ect to revson unt pubshed In the Commssoner s annua report.
1 Of the amount produced, 2, 26 pounds were reworked.
Of the amount produced. 370 pounds were reworked.
793,963 pounds of ths o used n oeomargarne manufactured for e port by, or from, the Unted States
and 1,196, 11 pounds used n producton of the product for domestc consumpton.
790590 8 1
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Msc.
202
19 8-1-12753
MS. 319
Schedue of oeomargarne produced and materas used durng the month of
December, 19 7, as compared tcth December, 19- 6.
December.
19 7.
December.
10 6.
Tota producton of uncoored oeomargarne
Pou-nt.
72,357,095
Pound).
5 , 83tt 725
Ingredent schedue of uncoored oeomargarne:
69.317.856
55. SI0, 22
Ctrc acd
296
391
Coconut o1
7 0
178
33.611
5S0
Cottoned o
0,185.133
27
2 .606.751
Pacetv
117.811
28
96, 6 5
12, 29(1. SSf
76, 369
01. 37
3 11.615
2 9. 130
71,100
51
88,383
76
Lecthn
68.788
9. 212, 713
0 .892
303,20
527, 101
309.36.
72, 00
757.826
1,696, 567
39.20
Mk
Neutra ard
Oeo stearne
Oeo stock
T eanut o
2.227. 10
55,7 2
5,002
17. 7,319
Soya bean o
17. 556. 515
.050
9.396
Taow
1 .76
Tota
73,621.2 8
55.752.181
Tota producton of coored oeomargarne
6, 652.878
.935. 507
Ingredent schedue of coored oeomargarne:
3. 506. 230
1.872, 172
251
25
Coor
1.538,5
. 559
1 7
2,199, 872
2,618
27
672,039
,731
S
3,760
806.581
2,029
21, 715
15,957
Dervatve- of gycerne
2.182,69
9, 58
60
5.91
1.13 , 1
3,387
22,9 2
15,3 6
2. 00
1, 100
215. 250
3,322
1,591.38
823
Lecthn
Mk
M onostearne __
Neutra ard
Oeo o
Oeo stock
eanut o
1,200
16 , 62
2,90
1.136. 2 8
Sat -
Soda (benzoate of)
Soya bean o
610
Tota
6,731,993
5,035.073
or the amount produced, 3,789 pounds were reworked.
Of the amount produced, 1 ,78 pounds were reworked.
092,800 pounds of ths o used n oeomargarne manufactured for e port by, or from, the Unted State
and 8 0, 8 pounds used n producton of the product for domestc consumpton.
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203
Msc.
19 8-6-12765
MS. 320
Schedue of oeomargarne produced and materas used durng the month of
anuary, 19 8, as compared wth anuary, 19 7.
anuary,
19 8.
Tota producton of uncoored oeomargarne.
Tota wthdrawn ta -pad
Ingredent schedue of uncoored oeomargarne:
utter favor
Ctrc acd
Coconut o
Corn o
Cottonseed fakes
Cottonseed o
Dervatve of gycerne
Dacety
Lecthn
Mk
Monostearne. _ .
Neutra ard
Oeo o
Oeo stearn
Oeo stock
Peanut o
Sat
Soda (ben oate of) -
Sodum supho acetate
Soya bean o
Soya bean stearne -
tamn concentrate
Tota.
Tota producton of coored oeomargarne.
Tota wthdrawn ta -pad
Ingredent schedue of coored oeomargarne:
utter favor
Coor..-
Com o -
Coconut o
Cottonseed fakes
Cottonseed o
Dervatve of gycerne
Dacety
Lecthn...
Mk
Monostearne
Neutra ard
Oeo o
Oeo stock
Peanut o
Sat.
Soda
oof)
Soya bean o
tamn concentrate..
Tota
Pound .
80.080.712
82, 228,398
313
1.730
32,899
0 (1, 836
128. 31
7,230
112. 553
632,009
9 , 395
S, 073
16,810
296.986
71,8 0
m. m
937.200
60,038
,877
21 ,198
12, 128
7, 853, 272
5,025, R77
81
5,105
235
2, 135, 532
2,
, 671, 170
7,988
131
10,329
,3 3. 32
, 170
33, 353
28.775
5. 00
15.9 9
252, 287
3,9 7
, 18, 3
7,937,30
1 Of the amount produced, 7,317 pounds were reworked.
s Of the amount produced, 2,539 pounds were reworked.
7 ,703 pounds of ths o used n oeomargarne manufactured for e port by, or from, the Unted States,
and 1,662,559 pounds used n producton of the product for domestc consumpton.
1 377, 3 pounds of ths o used n oeomargarne manufactured for e port by, or from, the Unted States,
and 77,960 pounds used n the producton of the poduct for domestc consumpton.
1 Of the amount produced, 100 pounds were reworked.
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Msc.
20
19 8-8-12788
MS. 321
Schedue of oeomargarne produced and materas used durng the month of
February, 19 /8, as compared wth February, 19 7.
February, 19 8. February, 19 7.
Tota producton of uncoored oeomargarne.
Tota wthdrawn ta -pad _
Ingredent schedue of uncoored oeomargarne:
utter cuture.
utter favor
Ctrc acd.. ---
Coconut o
Corn o
Cottonseed t
Cottonseed o,.
Cottonseed stearne
Dervatve of gyccrc.
Dacety
Lecthn
Mk
Monos earne
Neutra ard
Oeo o
Oeo stearne
Oeo stock
Peanut o
8at_
Soda (beuoate of)
Soya bean o
Sodum supho acetate.
Soya bean stearne
tamn concentrate
Tota-
Tota producton of coored oeomargarne.
Tota wthdrawn ta -pad _
Ingredent schedue of coored oeomargarne:
utter favor
Coconut o
Coor
Corn o
Cottonseed o _
Dervatve of gycerne
Dacety
Lecthn
Mk
Monostearne
Neutra ord
Oeo o
Oeo stock
Peanut o -
Sat
Soda (benoateof)
Soya bean o _
tamn concentrate
Tota..
Pounds.
73, 765, 28
68,298, 862
305
22 ,115
3,306
39, 980,077
36
126,569
362
109,729
12,280,277
71.286
13,3 2
311,217
221,79
27,565
25,899
2,2 1,710
56,020
18, 0 , 2
,679
12,877
7 ,915,607
6,662,892
. S7.3W
95
05 ,265
6,17
28
799.0 9
8,296
20
8,627
109,818
2,1 7
19,101
13,9 9
2,000
16,203
210, 7
3,995
57, 75
827
6, 713,3 8
Of the amount produced, , 95 pounds were reworked.
Of the amount produced, 1,965 pounds were reworked.
3137,299 pounds of ths o used n oeomargarne manufactured for e port by, or from, the Unted States,
and 1,1 1,081 pounds used n producton of the product for domestc consumpton.
380,6 7 pounds of ths o used n oeomargarne manufactured for e port by, or from, the Unted States,
and 1,223,575 pounds used n producton of tc product for domestc consumpton.
1 Of the amount produced 33 pounds were reworked.
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205
Msc.
19 8-10-12807
MS. 322
Schedue of oeomargarne produced and materas used durng the month of
March, 191)8, as compared wth March, 19 1.
March, IMS.
March, 19 7.
Pounds.
65,797,195
Pounds.
65.115,590
Ingredent schedue of uncoored oeomargarne:
68,07 ,218
6 ,031,055
utter favor
208
6S9
217
L 593,365
COS. 379
2, 120
23,582, 782
111
109, 21
237
79,937
11. 12 ,365
69. 7
239.686
306.960
352, .5 9
56.265
2,892,83
2,032. 170
5. 03
2 ,020,869
82.985
79, 32
35, 75,931
ot ,
109, 235
313
9 ,855
11,06 ,605
6 .789
201.318
1 1.636
252,253
16.152
873.159
2,000,690
8.31
16,16 ,918
,056
Soya bean stearnc . . .
10,208
17. 60
10, 71
66.685,063
66,9 2.76
6,020,032
,896,558
Tota wthdrawn ta -pad......... .. . - ........
s, mo , na
2,635,78
Ingredent schedue of coored oeomargarne:
utter favor _. _.
37
108
Coconut o
23 .220
.1 9
,539
1, 93,267
3,761
11,655
735
891, 78
9, 13
8
Coor
Corn o
Cottonseed fakes
Cottonseed o.
3.251,9 6
10, 98
11
Dacety
Lecthn
7,0 6
1,016.059
2,592
18.280
10,79
300
3,30
182,509
3,812
1.289,677
569
, .506
792. 871
1.316
1 . 216
11.798
850
95,580
167.176
2, 325
1, 6.221
591
Oeoo
Peanut o
Sat -
Tota
6,080, 1 2
.937,903
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Msc.
206
19 -12-12823
MS. 323
Schedue of oeomargarne produced and materas used durng the month of
pr, 19 8, as compared cth pr, 19 7.
pr, 19 8.
Tota producton of uncoored oeomargarne-
Tota wthdrawn ta -pad
Ingredent schedue of uncoored oeomargarne:
utter cuture
utter favor
Ctrc acd
Coconut o
Corn o
Cottonseed fakes.
Cottonseed o
Cottonseed stearne
Dervatve of gycerne
Dacety
Lecthn
Mk
Monostearne
Neutra ard
Oeoo
Oco stearne
Oeo stock
Peanut o
Sat
Soda (benzoate of)---
Soya bean o
Sodum supho acetate
Soya bean stearne -
tamn concentrate
Tota..
Tota producton of coored oeomargarne.
Tota wthdrawn a -pad
Ingredent schedue of coored oeomargarne:
utter favor
Coconut o
Coor
Corn o
Cottonseed fakes
Cottonseed o
Dervatve of gycerne
Dacety
Lecthn
Mk
Monostearne
Neutra ard
Oeo o
Oeo stock
Peanut o
Sat
Soda (benzoate of) -
Soya bean o --
tamn concentrate
Tota
Pounds.
61.139.509
62,711.670
7 ,082
30,027.151
10 , 932
326
96,988
10,176, 670
6,537
11,177
19.256
175,159
600
1.138,377
1,702.029
3,860
18,108,323
1,287
9, 2
61,750, 295
12.939,625
12, 351. 363
193,990
.
, 10
6, 152, 566
10,78
20
15,002
2,193,706
19,206
260.329
391,682
10.310
3.90 , 718
1,837
., 163.039
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207
Msc.
TO CCO.
19 8-1-12727
T. 201
Statement of manufactured tobacco produced, by cashes, durng the month of
October, 19 ft, as compared wth October, 19 6.
October,
19 7.
October,
19 6.
Pounds.
6,1 2,711
532, 616
365, 82
, 26, 1 8
11,682.931
.100. 581
Pounds.
Pug
,821,026
561,30
3 8,311
,626, 963
11,676,290
3, 639, 658
Twut
Smong
Snuff
Tota
21). 250.811
25,073,552
1958-3-127
T. 203
Statement of manufactured tobacco produced, bp casses, durng the month of
November, 19 7, as compared wth ovember, 19|6.
November,
19 7.
November,
19 0.
Pounds.
Pounds.
,0 . 51
62, 111 5
31 , 978
3, 7 M, 033
11.266, 186
3,302, 793
Pug
3,868, 11
13,689
. 297.557
3, 5,318
Twst
Fne-cut chowntf _
Scrap chewng
Smokng...... ..............
7. RS7. 765
2, SS3, 105
Tota
18, S15, 8 5
23,236, 56
19 8-5-12759
T. 206
Statement of manufactured tobacco produced, bp casses, durng the month of
December, If, as compared wth December, /.u. f.
December,
19 7.
Decern her,
19 6.
Png
Pounds.
3,220.933
03,733
329,669
3,200,221
6,998, 33
3,130,2 1
Pounds.
3, 119. f
397. WW
295,851
3, 2 ,987
7, 09,977
3, 332. 136
Twst
SnufT
Tota -.
17,283,230
18,360,0 8
fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
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Msc.
208
19 8-7-12781
T. 207
Statement of manufactured tobacco produced, by casses, durng the month of
anuary, 19 8, as compared wth anuary, 19 7.
anuary,
19 8.
anuary,
19 7
Pug
Pou rf .
3, 516,378
6 , 117
Poundt.
,380,358
98,779
311,362
3,679, 902
7,788,8 2
3, 7, 28
Twst _
363,35
3, 383, 002
8,016,503
3, 88, 97
Smokng
Snuff
Tota
19,232,328
20, 106, 669
19 8-9-12800
T. 209
Statement of manufactured tobacco produced, by casses, durng the month of
February, 19 8, as compared wth February, 19 7.
February,
19 8.
February.
19 7.
Pug
Pound .
3, 521, 797
53,913
33 ,305
3,183,326
7,791,083
3, 26 ,989
Pound .
3,762,103
2,037
272, 52
3,326,8 5
6.960,722
2,9 7, 752
Snuf
Tota
18,5 9, 13
17, 711,911
19 8-12-12821
T.211
Statement of manufactured tobaccco produced, by casses, durng the month of
March, 19 8, as compared wth March, 19 7.
March, 19 8.
March, 19 7.
Pug
Pound).
3,910,307
73, 297
322,188
3, 560,150
8,910. 08
3,878,937
Pounds.
3,592, 0
33,863
2 8,08
3, 28,908
8, 309, 512
3,199, 588
Twst. -
Snuff
Tota
21,055,237
19,212,395
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209
Msc.
CIG R TT S.-
19 8-1-12728
T. 202
Premnary statement of sma cgarettes removed for consumpton durng the
month of November, 19 7, as compared wth removas for the same month of
39 6.
Removas.
November, 19 7.
November, 19 6.
Ta -pad _
Number.
27,0 , 002, 530
2,536,055,510
Number.
27,360.115,030
3,165,329,951
Tota
29, 580, 118,0 0
30,525, ,981
Premnary statement of sma cgarettes removed for consumpton durng the
month of December, 19 7, as compared wth removas for the same month of
19 6.
19 8-3-127 5
T. 20
Removas.
December, 19 7.
December, 19 6.
Ta -pad ---
Number.
2 .St 5.712.201
2, 997, 209, 786
Number.
22, 688. 232, 870
2, 958, 769,035
Ta -free -
Tota - -- -
27,9 2,921,987
25,6 7,001,705
19 8-5-12757
T. 205
Premnary statement of sma cgarettes removed for consumpton durng the
month of anuary, 19 8, as compared wth removas for the same month of
19 7.
Removas.
anuary, 19 8.
anuary, 19 7.
Number.
27. 273, ISO, 851
3,212. 577,867
Number
28, 70,99 ,735
3. 518, 703, 725
Tota
30, 85, 758. 718
31,9 1. 698. G0
19 8-7-12782
T. 208
Premnary statement of sma cgarettes removed for consumpton durng the
month of February, 19 8, as compared wth removas for the same month
of 19 1.
Removas.
February, 19 8.
February, 19 7.
Ta -pad
Number.
23, 72, 8 . 851
3, 577, 822, 0
Number.
25,59 ,115,730
2, 722, 912, 109
Tota
27, 050,307, 255
28,317,027,839
U fgures are sub|ect to revson unt pubshed n the Commssoner s annua re|wrt.
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210
19 8-9-12801
T.210
Premnary statement of sma cgarettes removed for consumpton durng the
month of March, 19 8, as compared wth removas for the same month of 19 ft.
Remova .
March, 19 8.
March, 19 7.
Number.
29,252.188,770
3,ICG, 672,680
Number.
26.9 5, 827, Ifo
3,2 2. 873. 899
Tota
32, 8,859, 50
30,188,701,Ot
19 8-12-12822
T. 212
Premnary statement of sma cgarettes removed for consumpton durng the
month of pr, 19 8, as compared wth removas for the same month of 19 7.
Removas.
pr, 19 S.
pr, 19 7.
Ta -pad
Number.
31,617,679,2 5
2, 22,121,631
Number.
27, 2 ,132. 03
2,80 ,976,676
Tota
3 ,039,800,876
30,0 9, 109,08
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L GISL TION.
R NU CT OF 10 8.
19 8-9-12798
. R. 790. PU LIC L W 71, IG TI T CONGR SS
C P R 168, S COND S SSION .
n ct To reduce ndvdua ncome ta payments, and for other
purposes.
e t enacted bt the Senate and ou e of Representatves of the Unted States
of merca n Congress assembed. That ths ct, dvded nto ttes and sectons
accordng to the foowng Tabe of Contents, may be cted as the Revenue
ct of 19 8 :
T L O CONT NTS.
Tte I Income Ta Reducton.
Sec. 101. Reducton of norma ta and surta .
Sec. 102. Reducton n Suppement T ta .
Sec. 103. I ome of husband and wfe.
Sec. 10 . Technca amendments.
Sec. 105. Ta abe years to whch amendments appcabe.
Tte II Credts ganst Net Income for Norma Ta and Surta .
Sec. 201. ddtona credts aganst net ncome for norma ta and surta .
Sec. 202. Technca amendments.
Sec. 203. Ta abe years to whch amendments appcabe.
Tte III usband and Wfe.
P RT I INCOM T .
Sec. 301. Spttng of ncome.
Sec. 3(12. Standard deducton.
Sec. 303. ont returns of husband and wfe.
Sec. 30 . Deducton for medca e penses.
Sec. 30T). Ta abe years to whch amendments appcabe.
P T II ST T T .
SU P RT 1 R P L OF 19 2 COMMUNITY PROP RTY M NDM NTS.
Sec. So. Repea of communty property estate ta amendments.
SU P RT 2 M RIT L D DUCTION FOR U STS, TC., TO SPOUS .
Sec. 361. Marta deducton.
Sec. 302. Property prevousy ta ed.
Sec. 363. Credt for gft ta .
Sec. 36 . Optona vauaton.
Sec. 305. Labty of fe nsurance benefcares, etc.
Sec. 306. ass of survvng spouse s nterest n communty property.
P RT III GIFT T .
Sec. 371. Gfts of communty property.
Sec. 372. Marta deducton.
Sec. 373. Technca amendment.
Sec. 37 . Gft of husband or wfe to thrd party.
Tte I d|usted Gross Income of Less Than 5,000.
Sec. 01. Indvduas wt ad|usted gross Incomes of ess than 5,000.
(211)
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212
Tte Reducton n Wthhodng of Ta at Source on Wages.
Sec. 501. Percentage method.
Sec. 502. Wage bracket wthhodng.
Sec. 503. ffectve date.
Tte I Fsca Tear Ta payers.
Sec. 601. Fsca year ta payers.
TITL I INCOM T R DUCTION.
S C. 101. R DUCTION OF NORM L T ND SURT .
Secton 12(c) of the Interna Revenue Code Is hereby amended to read as
foows:
(c) Reducton of Tentatve Norma Ta and Tentatve Surta .
(1) The combned norma ta and surta under secton 11 and sub-
secton (b) of ths secton sha be the aggregate of the tentatve norma
ta and tentatve surta , reduced as foows:
If the aggregate s: The reducton sha be:
Not over 00 17 of the aggregate.
Over 00 but not over 100,000___ 68 pus 12 of e cess over 00.
Over 100,000 12,020 pus 9.75 of e cess over 100,000.
(2) In no event sha the combned norma ta and surta e ceed 77
per centum of the net ncome.
S C. 102. R DUCTION IN SUPPL M NT T T .
For reducton n the ta under Suppement T of Chapter 1 of the Interna
Revenue Code (ta tabe whch may be used by ta payer at hs eecton, f
hs ad|usted gross ncome s ess than 5,000), see secton 01.
S C. 103. INCOM OF US ND ND WIF .
For ta n case of |ont return of husband and wfe (the so-caed spttng
of ncome ), see secton 301.
S C. 10 . T C NIC L M NDM NTS.
(a) Secton 11 of the Interna Revenue Code (reatng to the norma ta
on ndvduas) s hereby amended by strkng out by 5 per centum thereof
and nsertng n eu thereof as provded n secton 12(c) .
(b) Secton 12(b) of the Interna Revenue Code (reatng to the rate of
surta on ndvduas) s hereby amended by strkng out by 5 per centum
thereof and nsertng n eu thereof as provded n subsecton (c) of ths
secton .
(c) Subsectons (d), (e), (f), (g), and (h) of secton 12 of the Interna
Revenue Code are amended to read as foows:
(e) Computaton of Ta Wthout Regard to Credts ganst Ta . In
the appcaton of ths secton, the combned norma ta and surta sha be
computed wthout regard to the credts provded n sectons 31, 32, and 35.
(f) scertanment of Norma Ta and Surta Separatey. Whenever
t Is necessary to ascertan the norma ta and the surta separatey, the surta
sha be an amount whch s the same proporton of the combned norma ta
and surta as the tentatve surta s of the aggregate of the tentatve norma
ta and tentatve surta ; and the norma ta sha be the remander of such
combned norma ta and surta .
(g) Cross Refkrences.
(1) ternatve ta . For aternatve ta whch may be eected f ad-
|usted gross ncome s ess than 5,000, see Suppement T.
(2) Ta n case of capta gans. For rate and computaton of aterna-
tve ta n eu of norma ta and surta n the case of capta gan from
the sae or e change of capta assets hed for more than 6 months, see
secton 117(c).
(3) Ta on persona hodng companes. For surta on persona hod-
ng companes, see secton 500.
( ) vodance of surta es by ncorporaton. For surta on corpora-
tons whch accumuate surpus to avod surta on sharehoders, see secton
102.
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213
(5) Sae of on. or gas propertes. For mtaton of surta attrbutabe
to the sae of o or gas propertes, see secton 105.
S C. 105. T L T RS TO W IC M NDM NTS PPLIC L .
The amendments mnde by ths tte sha be appcabe wth respect to ta abe
years begnnng after December 31, 19 7. For treatment of ta abe years begn-
nng In 19 7 and endng n 19 8, see secton 601.
TITL II CR DITS G INST N T INCOM FOR NORM L T ND
SURT .
S C. 201. DDITION L CR DITS G INST N T INCOM FOR NORM L
T ND SURT .
Paragraphs (1) and (2) of secton 25(b) of the Interna Revenue Code are
hereby amended to read as foows:
(1) Credts. There sha be aowed for the purposes of both the norma
ta and the surta , the foowng credts aganst net ncome:
( ) n e empton of 600 for the ta payer; and an addtona e emp-
ton of 600 for the spouse of the ta payer f a separate return s made
by the ta payer, and f the spouse, for the caendar year n whch the
ta abe year of the ta payer begns, has no gross ncome and s not the
dependent of another ta payer;
( ) () n addtona e empton of 600 for the ta payer f he has
attaned the age of 65 before the cose of hs ta abe year; and
() n addtona e empton of 600 for the spouse of the ta payer
f a separate return s made by the ta payer, and f the spouse has
attaned the age of 65 before the cose of such ta abe year, and, for
the caendar year n whch the ta abe year of the ta payer begns, has
no gross ncome and s not the dependent of another ta payer;
(C) () n addtona e empton of 000 for the ta payer f he Is
bnd at the cose of hs ta abe year; and
(11) n addtona e empton of 600 for the spouse of the ta payer
f a separate return s made by the ta payer, and f the spouse s bnd
and, for the caendar year n whch the ta abe year of the ta payer
begns, has no gross ncome and s not the dependent of another ta payer.
For the purposes of ths cause the determnaton of whether the spouse
s bnd sha be made as of the cose of the ta abe year of the ta payer,
uness the spouse des durng such ta abe year. In whch case such
determnaton sha be made as of the tme of such death;
() For the purposes of ths subparagraph an ndvdua s bnd
ony f ether: hs centra vsua acuty does not e ceed 20/200 In the
better eye wth correctng enses, or hs vsua acuty s greater than
20/200 but s accompaned by a mtaton n the feds of vson such
that the wdest dameter of the vsua fed subtends an ange no greater
than 20 degrees;
(D) n e empton of 600 for each dependent whose gross Income
for the caendar year In whch the ta abe year of the ta payer begns
s ess than 500, e cept that the e empton sha not be aowed n respect
of a dependent who has made a |ont return wth hs spouse under sec-
ton 51 for the ta abe year begnnng n such caendar year.
(2) Determnate of status. For the purposes of ths subsecton
( ) the determnaton of whether an ndvdua s marred sha be
made as of the cose of hs ta abe year, uness hs spouse des durng
hs ta abe year, n whch case such determnaton sha be made as of
the tme of such death ; and
( ) an ndvdua egay separated from hs spouse under a decree
of dvorce or of separate mantenance sha not be consdered as marred.
S C. 202. T C NIC L M NDM NTS.
(a) Decaraton of stmated Ta . Secton 58(a) of the Interna Revenue
Code (reatng to requrement of decaraton of estmated ta ) Is hereby amended
to read as foows:
(a) Requrement of Decaraton. very Indvdua (other than an estate
or trust and other than a nonresdent aen wth respect to whose wages, as
dtfned n secton 1621(a), wthhodng under Subchapter D of Chapter 9 s not
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21
made appcabe) sha, at the tme prescrbed n subsecton (d), make a decara-
ton of hs estmated ta for the ta abe year f
(1) hs gross ncome from wages (as denned n secton 1621) can reason-
aby be e pected to e ceed the sum of ,500 pus 600 wth respect to eac
e empton provded n secton 25(b) ; or
(2) hs gross ncome from sources other than wages (as defned n secton
1621) can reasonaby be e pected to e ceed 100 for the ta abe year and hs
gross ncome to be 600 or more.
(b) Wthhodng emptons.
(1) In. gf.ner.v. Secton 1022(h)(1) of the Interna Revenue Code s
hereby amended to read as foows:
(1) In genera. n empoyee recevng wages sha on any day be
entted to the foowng wthhodng e emptons:
( ) n e empton for hmsef.
( ) One addtona e empton for hmsef f, on the bass of facts
e stng at the begnnng of such day, there may reasonaby be e pected
to be aowabe an e empton under secton 25(b) (1) ( ) () (reatng
to od age) for the ta abe year under Chapter 1 n respect of whch
amounts deducted and wthhed under ths subchapter n the caendar
year n whch such day fas are aowed as a credt.
(C) One addtona e empton for hmsef f, on the bass of facts
e stng at the begnnng of such day, there may reasonaby be e pected
to be aowabe an e empton under secton 25(b) (1.) (C) () (reatng
to the bnd) for the ta abe year under Chapter 1 n respect of whch
amounts deducted and wthhed under ths subchapter n the caendar
year n whch such day fas are aowed as a credt.
(D) If the empoye; s marred, any e empton to whch hs spouse
s entted, or woud be entted f such spouse were an empoyee
recevng wages, under subparagraph ( ), ( ), or (C), but ony f
such spouse does not have n effect a wthhodng e empton certfcate
camng such e empton.
( ) n e empton for each ndvdua wth respect to whom, on
the bass of facts e stng at the begnnng of such day, there may
reasonaby be e pected to be aowabe an e empton under secton
25(b) (1) (D) for the ta abe year under Chapter 1 n respect of whch
amounts deducted and wthhed under ths subchapter n the caendar
year n whch such day fas are aowed as a credt.
(2) Status determnaton date. In the case of an ndvdua entted to an
addtona wthhodng e empton under secton 1622(h)(1) of the Interna
Revenue Code by reason of the amendment made thereto by paragraph (1)
of ths subsecton, the term status determnaton date as used n secton
1622(h) (3) ( ) of such Code ncudes aso the nneteth day after the date
of the enactment of ths ct.
(c) Requrement of Returns.
(1) Indvdua returns. Secton 51(a) of the Interna Revenue Code
(reatng to the requrement of ndvdua returns) s hereby amended by
strkng out 500 and nsertng n eu thereof 600 .
(2) Fducary returns. Secton 112(a) of such Code (reatng to the
requrement of fducary returns) s hereby amended by strkng out 500
wherever appearng theren and nsertng n eu thereof . 600 .
(3) Informaton returns. Secton 1 7(a) of such Code (reatng to
returns of nformaton) s hereby amended by strkng out 500 where-
ever appearng theren and nsertng n eu thereof 300 .
(d) Credt of state ganst Net Income. Secton 163(a)(1) of such
Code (reatng to credts aganst net ncome of an estate) s hereby amended
by strkng out 500 and nsertng n eu thereof 300 .
(e) Repea of Deducton or nd Indvduas. ffectve wth respect to
ta abe years begnnng after December 31, 19 7, secton 23(y) of such Code
(reatng to speca deducton for bnd ndvduas) s repeaed.
S C. 203. T L T RS TO W IC M NDM NTS PPLIC L .
The amendments made by ths tte sha be appcabe wth respect to ta abe
years begnnng after December 31, 7. For treatment of ta abe years
begnnng n 19 7 and endng n 10 8, see secton 601.
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TITL III US ND ND WIF .
Part I Income Ta .
S C. 301. SPLITTING OF INCOM .
Secton 12 of the Interna Revenue Code (reatng to surta of ndvduas) s
hereby amended by addng after subsecton (c) of such secton the foowng
new subsecton:
(d) Ta n Case of ont Return. In the case of a ont return of husband
and wfe under secton 51(b), the combned norma ta and surta under secton
11 and subsecton (b) of ths secton sha be twce the combned norma ta
and surta that woud be determned f the net ncome and the appcabe credts
aganst net ncome provded by secton 25 were reduced by one-haf.
S C. 302. ST ND RD D DUCTION.
(a) INI OF ST ND RD D DUCTION IN C S OF OINT R TURN OR R TURN nY
Unmarred Person. Secton 28(aa)()( ) of the Interna Revenue Code
(reatng to the standard deducton) Is hereby amended to read as foows:
( ) d|usted Gross Income 5,000 or More. If hs ad|usted gross
ncome Is 5,000 or more, the standard deducton sha be 1,000 or
an amount equa to 10 per centum of the ad|usted gross ncome,
whchever s the esser, e cept that n the case of a separate return by a
marred ndvdua, the standard deducton sha he 500.
(b) ecton by usband and Wfe. Secton 23(aa)( ) of such Code s
hereby amended to read as foows:
( ) usband and wfe. In the case of husband and wfe, the standard
deducton sha not be aowed to ether f the net ncome of one of the
spouses s determned wthout regard to the standard deducton.
(c) Determnaton of Status. Secton 23(aa) of such Code s hereby
amended by addng at the end thereof the foowng new paragraph:
(6) Determnaton of status. For the purposes of ths subsecton
( ) the determnaton of whether an ndvdua s marred sha
be made as of the cose of hs ta abe year, uness hs spouse des durng
hs ta abe year, In whch case such determnaton sha be made as of
the tme of such death; and
( ) an ndvdua egay separated from hs spouse under a decree
of dvorce or of separate mantenance sha not be consdered as marred.
S C. 303. OINT R TURN S OF US ND ND WIF .
Secton 51(b) of the Interna Revenue Code (reatng to |ont returns) s hereby
amended to read as foows:
(b) usband and Wfe.
(1) In genera. husband and wfe may make a snge return |onty.
Such a return may be made even though one of the spouses has nether gross
ncome nor deductons. If a |ont return s made the ta sha be computed
on the aggregate ncome and the abty wth respect to the ta sha be ont
and severa.
(2) Nonresdent aen. No |ont return may be made f ether the
husband or wfe at any tme durng the ta abe year s a nonresdent aen.
(3) Dfferent ta abe years. No |ont return sha be made f the
husband and wfe have dfferent ta abe years; e cept that f such ta abe
years begn on the same day and end on dfferent days because of the death of
ether or of both, then the |ont return may be made wth respect to the ta -
abe year of each. The above e cepton sha not appy f the survvng spouse
remarres before the cose of hs ta abe year, nor f the ta abe year of
ether spouse s a fractona part of a year under secton 7(a).
( ) ont return after death. In the case of the death of one spouse or
both spouses the ont return wth respect to the decedent may be made ony
by hs e ecutor or admnstrator; e cept that n the case of tbe death of one
spouse the |ont return may be made by the survvng spouse wth respect to
both hmsef and the decedent f ( ) no return for the ta abe year has been
made by the decedent, ( ) no e ecutor or admnstrator has been apponted,
and (C) no e ecutor or admnstrator s apponted before the ast day pre-
scrbed by aw for fng tbe return of the survvng spouse. If an e ecutor
or admnstrator of the decedent s apponted after the makng of the |ont
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216
return by the survvng spouse, the e ecutor or admnstrator may dsaffrm
such |ont return by makng, wthn one year after the ast cay prescrbed
by aw for fng the return of the survvng spouse, a separate return for
the ta abe year of the decedent wth respect to whch the |ont return was
made, n whch case the return made by the survvor sha consttute hs
separate return.
(5) Determnaton of status. For the purposes of ths secton
( ) the status as husband and wfe of two ndvduas havng ta abe
years begnnng on the same day sha be determned
(1) f both have the same ta abe year as of the cose of
such year; and
() f one des before the cose of the ta abe year of the other
as of the tme of such death; and
( ) an ndvdua who s egay separated from hs spouse under a
decree of dvorce or of separate mantenance sha not be consdered as
marred.
(6) Ta n case of |ont return. For determnaton of combned norma
ta and surta under secton 11 and secton 12(b) n case of |ont return
under ths subsecton, see secton 12(d). For ta n case of |ont return of
husband and wfe eectng to pay the ta under Suppement T, see secton 00.
S C. 30 . D DUCTION FOR M DIC L P NS S.
Secton 23( ) of the Interna Revenue Code (reatng to deducton of medca,
etc., e penses) s hereby amended by strkng out the second and thrd sentences
thereof and nsertng In eu thereof the foowng: The deducton sha not be
n e cess of 1,250 mutped by the number of e emptons aowed under sec-
ton 25(b) for the ta abe year (e cusve of e emptons aowed under secton
25(b)(1) ( ) or (C)), wth a ma mum deducton of 2,500, e cept that the
ma mum deducton sha be 5,000 n the case of a |ont return of husband and
wfe under secton 51(b).
S C. 305. T L Y RS TO W IC M NDM NTS PPLIC L .
The amendments made by sectons 301, 302, 303, and 30 sha be appcabe wth
respect to ta abe years begnnng after December 31, 19 7. The amendment
made by secton 303 sha aso be appcabe to ta abe years of both husband and
wfe begnnng on the same day n 19 7 f at east one of such ta abe years ends
n 19 8. For treatment of ta abe years begnnng In 19 7 and endng n 19 8,
see secton 601.
Part II state Ta .
Subpart 1 Repea or 19 2 Communty Property mendments.
S C. 351. R P L OF COMMUNITY PROP RTY ST T T M ND-
M NTS.
(a) ffectve wth respect to estates of decedents dyng after December 31,
19 7, sectons 811(d) (5), 811(e) (2) and 811(g) ( ) of the Interna Revenue Code
(reatng to communty property) are hereby repeaed.
(b) Such secton 811(e) s further amended
(1) by strkng out of the headng of such subsecton the words and
Communty ; and
(2) by strkng out of paragraph (1) the foowng: ont nterests.
(c) Notwthstandng the repea of sectons 811(d)(5), 811(e)(2), and
811(g) ( ) provded n subsecton (a), the ta es mposed under chapter 3 of the
Interna Revenue Code upon the transfer of the net estate of any decedent dyng
after December 31, 19 7, and on or before the date of the enactment of ths ct
sha not e ceed the ta es whch woud have been mposed under such chapter 3
upon such transfer f ths secton had not been enacted.
Subpart 2 Marta Deducton for equests, tc., to Spouse.
S C. 361. M RIT L D DUCTION.
(a) Secton 812 of the Interna Revenue Code (reatng to deductons n com-
putng net estate n the case of a ctzen or resdent of the Unted States) Is
hereby amended by addng at the end thereof a new subsecton to read as foows:
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217
(e) equests. tc., to Sobvvnq Spouse.
(1) owance of marta deducton.
( ) In Genera. n amount equa to the vaue of any nterest
n property whch passes or has passed from the decedent to hs sur-
vvng spouse, but ony to the e tent that such nterest s ncuded n
determnng the vaue of the gross estate.
( ) Lfe state or Other Termna Interest. Where, upon the
apse of tme, upon the occurrence of an event or contngency, or upon
the faure of an event or contngency to occur, such nterest passng
to the survvng spouse w termnate or fa, no deducton sha be
aowed wth respect to such nterest
() f an nterest n such property passes or has passed (for
ess than an adequate and fu consderaton n money or money s
worth) from the decedent to any person other than such survvng
spouse (or the estate of such spouse) ; and
() f by reason of such passng such person (or hs hers or
assgns) may possess or en|oy any part of such property after such
termnaton or faure of the nterest so passng to the survvng
spouse:
and no deducton sha be aowed wth respect to such Interest (even
If such deducton s not dsaowed under causes () and (11))
() f such Interest Is to be acqured for the survvng spouse,
pursuant to drectons of the decedent, by hs e ecutor or by the
trustee of a trust.
For the purposes of ths subparagraph, an nterest sha not be con-
sdered as an nterest whch w termnate or fa merey because It
s the ownershp of a bond, note, or smar contractua obgaton, the
dscharge of whch woud not have the effect of an annuty for fe or
for a term.
(C) Interest In Undentfed ssets. Where the assets (Incuded
In the decedent s gross estate) out of whch, or the proceeds of whch,
an nterest passng to the survvng spouse may be satsfed ncude a
partcuar asset or assets wth respect to whch no deducton woud be
aowed f such asset or assets passed from the decedent to such spouse,
then the vaue of such nterest passng to such spouse sha, for the
purposes of subparagraph ( ), be reduced by the aggregate vaue of
such partcuar assets.
(D) Interest of Spcuse Condtona on Survva For Lmted Pe-
rod. For the purposes of subparagraph ( ) an Interest passng to the
survvng spouse sha not be consdered as an nterest whch w term-
nate or fa upon the death of such spouse f
(I) such death w cause a termnaton or faure of such
nterest ony f t occurs wthn a perod not e ceedng s months
after the decedent s death, or ony f t occurs as a resut of a
common dsaster resutng n the death of the decedent and the
survvng spouse, or ony f t occurs n the case of ether such
event; and
() such termnaton or faure does not n fact occur.
( ) auaton Of Interest Passng To Survvng Spouse. In de-
termnng for the purposes of subparagraph ( ) the vaue of any n-
terest n property passng to the survvng spouse for whch a deduc-
ton Is aowed by ths subsecton
(I) there sha be taken nto account the effect whch a ta
mposed by ths chapter, or any estate, successon, egacy, or In-
hertance ta , has upon the net vaue to the survvng spouse of
such nterest; and
() where such Interest or property s ncumbered n any
manner, or where the survvng spouse ncurs any obgaton Im-
posed by the decedent wth respect to the passng of such nterest,
such ncumbrance or obgaton sha be taken Into account n the
same manner as f the amount of a gft to such spouse of such n-
terest were beng determned.
(F) Trust Wth Power Of ppontment In Survvng Spouse.
In the case of an nterest In property passng from the decedent In
trust, f under the terms of the trust hs survvng spouse s entted
for fe to a the ncome from the corpus of the trust, payabe an-
780590 8 15
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218
nuay or at more frequent ntervas, wth power In the survvng spouse
to appont the entre corpus free of the trust (e ercsabe In favor of
such survvng spouse, or of the estate of such survvng spouse, or In
favor of ether, whether or not n each case the power s e ercsabe
n favor of others), and wth no power n any other person to appont
any part of the corpus to any person other than the survvng spouse
(1) the nterest so passng sha, for the purposes of subpara-
graph ( ), be consdered as passng to the survvng spouse; and
() no part of the nterest so passng sha, for the purposes
of subparagraph ( )(), be consdered as passng to any person
other than the survvng spouse.
Ths subparagraph sha be appcabe ony f, under the terms of the
trust, such power n the survvng spouse to appont the corpus,
whether e ercsabe by w or durng fe, s e ercsabe by such spouse
aone and n a events.
(G) Lfe Insurance Wth Power of ppontment n Survvng
Spouse. In the case of proceeds of nsurance upon the fe of the de-
cedent recevabe n annua or more frequent nstaments commenc-
ng wthn one year after the decedent s death, f under the terms of
the pocy a amounts payabe durng the fe of the survvng spouse
are payabe ony to such spouse, and f such spouse has the power to
appont a amounts payabe after such spouse s death (e ercsabe n
favor of the estate of such spouse, whether or not the power s e er-
csabe n favor of others)
() such proceeds sha, for the purposes of subparagraph ( ),
be consdered as passng to the survvng spouse, and
(I) no part of such proceeds sha, for the purposes of sub-
paragraph ( )(), be consdered as passng to any person other
than the survvng spouse.
Ths subparagraph sha be appcabe ony f, under the terms of the
pocy, such power n the survvng spouse to appont, whether e ercsab e
by w or durng fe, Is e ercsabe by such spouse aone and n a
events.
( ) Lmtatton On ggregate Of Deducatons. The aggregate
amount of the deductons aowed under ths paragraph (computed
wthout regard of ths subparagraph) sha not e ceed 50 per centum
of the vaue of the ad|usted gross estate, as denned In paragraph (2).
(2) Commutaton of ad|usted gross estate.
( ) Genera Rue. cept as provded n subparagraph ( ) of ths
paragraph the ad|usted gross estate sha, for the purposes of paragraph
(1) (II), be computed by subtractng from the entre vaue of the gross
estate the aggregate amount of the deductons aowed by suhsecton (b
of ths secton.
( ) Speca Rue In Cases Invovng Communty Property. If the
decedent and hs survvng spouse at any tme hed property as com-
munty property under the aw of any State, Terrtory, or possesson
of the Unted States, or of any foregn country, then the ad|usted gross
estate sha, for the purposes of paragraph (1)( ), be determned by
subtractng from the entre vaue of the gross estate the sum of:
() the vaue of property whch s at the tme of the death of
the decedent hed as such communty property; and
() the vaue of property transferred by the decedent durng
hs fe, f at the tme of such transfer the property was hed as such
communty property; and
() the amount recevabe as nsurance under poces upon
the fe of the decedent to the e tent purchased wth premums or
other consderaton pad out of property hed as such communty
property; and
(v) an amount whch bears the same rato to the aggregate
of the deductons aowed under subsecton (b) of ths secton whch
the vaue of the property Incuded n the gross estate, dmnshed
by the amount subtracted under causes (), (), and () of ths
subparagraph, bears to the entre vaue of the gross estate.
For the purposes of causes (), (), and () communty property
(e cept property whch s consdered as communty property soey by
reason of the provsons of subparagraph (C) of ths paragraph) sha be
consdered as not hed as such communty property as of any moment
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at tme, f, n case of the death of the decedent at such moment, such
property (and not merey one-haf thereof) woud be or woud have been
ncudbe n determnng the vaue of hs gross estate wthout regard
to the provsons of secton 811(e)(2). The amount to be subtracted
under cause (1), (), or () sha not e ceed the vaue of the nterest
n the property descrbed theren whch s ncuded n determnng the
vaue of the gross estate.
(C) Same Converson Into Separate Property.
() If durng the caendar year 19 2 or after the date of the
enactment of the Revenue ct of 1918, property hed as such
communty property (uness consdered by reason of subparagraph
( ) of ths paragraph ns not so hed) was by the decedent and the
survvng spouse converted, by one transacton or a seres of trans-
actons, nto separate property of the decedent and hs spouse
(ncudng any form of co-ownershp by them), the separate property
so acqured by the decedent and any property acqured at any tme
by the decedent n e change therefor (by one e change or a seres of
e changes) sha, for the purposes of causes (), (), and () of
subparagraph ( ), be consdered as hed as such communty
property .
(I) Where the vaue (at the tme of such converson) of the
separate property so acqured by the decedent e ceeded the vaue
(at such tme) of the separate property so acqured by the decedent s
spouse, the rue n cause (1) sha be apped ony wth respect to the
same porton of such separate property of the decedent as the porton
whch the vaue (as of such tme) of such separate property so
acqured by the decedent s spouse s of the vaue (as of such tme)
of the separate pror erty so acqured by the decedent.
(3) Defnton. For the purposes of ths subsecton an nterest n
property sha be consdered as passng from the decedent to any person f
and ony f
( ) such nterest s bequeathed or devsed to such person by the
decedent; or
( ) such nterest s nherted by such person from the decedent;
or
(C) such nterest Is the dower or curtesy nterest (or statutory
nterest n eu thereof) of such person as survvng spouse of the
decedent; or
(D) such nterest has been transferred to such person by the
decedent at any tme; or
( ) such nterest was, at the tme of the decedent s death hed by
such person and the decedent (or by them and any other person) n |ont
ownershp wth rght of survvorshp; or
(F) the decedent had a power (ether aone or n con|uncton wth
any person) to appont such nterest and f he apponts or has apponted
such nterest to such person, or f such person takes such nterest n
defaut upon the reease or none orcse of suc power; or
(G) such nterest conssts of proceeds of nsurance upon the fe of
the decedent recevabe by such person.
cept as provded n subparagraph (F) or (G) of paragraph (1), where
at the tme of the decedent s death t s not possbe to ascertan the par-
tcuar person or persons to whom an nterest n property may pass from
the decedent, such nterest sha, for the purposes of causes () and ()
of subparagraph ( ) of paragraph (1), be consdered as passng from the
decedent to a person other than the survvng spouse.
( ) Dscamers.
( ) y Survvng Spouse. If under ths subsecton an nterest
woud, n the absence of a dscamer by the survvng spouse, be con-
sdered as passng from the decedent to such spouse, and f a dscamer
of such nterest s made by such spouse, then such nterest sha, for the
purposes of ths subsecton, be consdered as passng to the person or
persons ented to receve such nterest as a resut of the dscamer.
( ) Dscamer y ny Other Person. If under ths subsecton an
Interest woud, n the absence of a dscamer by any person other than
the survvng spouse, be consdered as passng from the decedent to
such person, and If a dscamer of such nterest s made by such per-
son and as a resut of such dscamer the survvng spouse s entted
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to receve such nterest, then such nterest shaM, for the purposes of
ths subsecton, be consdered as passng, not to the survvng spouse,
but to the person who made the dscamer, n the same manner as If
the dscamer had not been made.
(b) The amendment made by subsecton (a) of ths secton sha be app-
cabe ony wth respect to estates of decedents dyng after December 31, 19 7.
S C. 362. PROP RTY PR IOUSLY T D.
(a) Secton 812(c) of the Interna Revenue Code (reatng to the deducton
for property prevousy ta ed) s hereby amended by addng after the frst
paragraph two new paragraphs to read as foows:
The foowng property sha not, for the purposes of ths subsecton, be con-
sdered as property wth respect to whch a deducton may be aowed: ( )
property receved from a pror decedent who ded after December 31, 19 7, and
was at the tme of such deatb the decedent s spouse, ( ) property receved by
gft after the date of the enactment of the Revenue ct of 19 8 from a donor
who at the tme of the gft was the decedent s spouse, and (C) property acqured
n e change for property descrbed n cause ( ) or ( ).
Where, under the provsons of secton 1000(f), a gft receved by the decedent
was consdered as made one-haf by the donor and one-haf by the donor s spouse,
one-haf of the gft sha be consdered as receved by the decedent from each
such spouse.
(b) Secton 812(c) s further amended by strkng out subsectons (a) and
(d) and nsertng n eu thereof subsectons (a), (d), and (e) .
S C. 363. CR DIT FOR GIFT T .
(a) Secton 813(a)(2)( ) of the Interna Revenue Code (reatng to credt
for gft ta ) s hereby amended by nsertng before the perod at the end
thereof the foowng: reduced by the aggregate amount of the deductons
aowed under subsectons (d) and (e) of secton 812 .
(b) Subparagraph ( ) of secton 813(a)(2) of the Interna Revenue Code
(reatng to credt for gft ta ) s hereby amended to read as foows:
( ) In appyng, wth respect to any gft, the rato stated In sub-
paragraph ( ), the vaue at the tme of the gft or at the tme of the
death, referred to n such rafo, sha be reduced
() by such amount as w propery refect the amount of such
gft whch was e cuded n determnng (for the purposes of sec-
ton 1003(a), or of secton 50 (a) of the Revenue ct of 1932) the
tota amount of gfts made durng the year n whch the gft was
made;
(t) f a deduoon wth respect to such gft s aowed under
secton 812(e) (the so-caed marta deducton ) then by an
amount whch bears the same rato to such vaue (reduced as pro-
vded n cause (1) of ths subparagraph) as the aggregate amount
of the marta deductons aowed under secton 812(e) bears to the
aggregate amount of such marta deductons computed wthout re-
gard to subparagraph ( ) of secton 812(e) (1) ; and
() f a deducton wth respect to such gft s aowed under
secton 812(d) (the so-caed chartabe deducton ) then by the
amount of such vaue, reduced as provded In cause () of ths
subparagraph.
(C) Where the decedent was the donor of the gft but, under the
provsons of secton 1000(f), the gft was consdered as made one-haf
by hs spouse
() the term the amount of the ta pad under chapter , as
used n subparagraph ( ) of ths paragraph, Incudes the amounts
pad wth respect to each haf of such gft, the amount pad wth
respect to each beng computed In the manner provded n subpara-
graph (D);and
() n appyng, wth respect to such gft, the rato stated n
subparagraph ( ) of ths paragraph, the vaue at the tme of the
gft or at the tme of the death, referred to n such rato, ncudes
such vaue wth respect to each haf of such gft, each such vaue
beng reduced as provded In cause () of subparagraph ( ) of
ths paragraph.
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(D) () For the purposes of subparagraph ( ), the amount of ta
pad under chapter , or under Tte III of the Revenue ct of 1932, wth
respect to any gft sha be an amount whch bears the same rato to the
tota ta pad for the year n whch the gft was made as the amount of
such gft bears to the tota amount of net gfts (computed wthout deduc-
ton of the spectc e empton) for such year.
() For the purposes of cause () the amount of such gft sha be
the amount ncuded wth respect to such gft n determnng (for the
purposes of secton 1003(a), or of secton 50 (a) of the Revenue ct of
1932) the tota amount of gfts made durng such year, reduced by the
amount of any deducton aowed wth respect to such gft under secton
100 (a) (2), or under secton 505(a) (2) of the Revenue ct of 1932 (the
so-caed chartabe deducton ), or under secton 100 (a)(3) (the
so-caed marta deducton ).
C) Secton 936(b) (1) of the Interna Revenue Code (reatng to credt for gft
ta ) Is hereby amended by nsertng after the words entre gross estate n
cause ( ) thereof the foowng: reduced by the aggregate amount of the de-
ductons aowed under subsectons (d) and (e) of secton 812 .
(d) Paragraph (2) of secton 936(b) of the Interna Revenue Code (reatng to
credt for gft ta ) s hereby amended to read as foows:
(2) In appyng, wth respect to any gft, the rato stated n cause ( )
of paragraph (1), the vaue at the tme of the gft or at the tme of the death,
referred to n such rato, sha be reduced
( ) by such amount as w propery refect the amount of such gft
whch was e cuded In determnng (for the purposes of secton 1003(a),
or of secton 50 (a) of the Revenue ct of 1032) the tota amount of gfts
made durng the year n whch the gft was made;
( ) If a deducton wth respect to such gft s aowed under secton
812(e) (the so-caed marta deducton ) then by an amount whch
bears the same rato to such vaue (reduced ns provded n subparagraph
( ) of ths paragraph) as the aggregate amount of the marta deduc-
tons aowed under secton S12(e) bears to the aggregate amount of such
marta deductons computed wthout regard to subparagraph ( ) of
secton 812(e) (1) ; and
(C) If a deducton wth respect to such gft Is aowed under secton
812(d) (the so-caed chartabe deducton ) then by the amount of
such vaue, reduced as provded In subparagraph ( ) of ths paragraph.
(3) Where the decedent was the donor of the gft but, under the provsons
of secton 1000(f), the gft was consdered as made one-haf by hs spouse
( ) the term the amount of the ta pad under chapter . as used n
paragraph (1) of ths subsecton, ncudes the amounts pad wth respect
to each haf of such gft, the amount pad wth respect to each beng
computed n the manner provded n paragraph ( ) ; and
( ) In appyng, wth respect to such gft, the rato stated n cause
( ) of paragraph (1), the vaue at the tme of the gft or at the tme of
the death, referred to n such rato, ncudes such vaue wth respect to
each haf of such gft, each such vaue beng reduced as provded n sub-
paragraph ( ) of paragraph (2).
( ) ( ) For the purposes of paragraph (1), the amount of ta pad under
chapter , or under Tte III of the Revenue ct of 1932, wth respect to any
gft sha be an amount whch bears the same rato to the tota ta pad for the
year n whch the gft was made as the amount of such gft bears to the tota
amount of net gfts (computed wthout deducton of the specfc e empton
for such year.
( ) For the purposes of subparagraph ( ) the amount of such gft sha
be the amount ncuded wth respect to such gft n determnng (for the pur-
poses of secton 1003(a), or of secton 50 (a) of the Revenue ct of 1932)
the tota amount of gfts made durng such year, reduced by the nmount of any
deducton aowed wth respect to such gft under secton 100 (a)(2), or
under secton 505(a) (2) of the Revenue ct of 1932 (the so-caed chartabe
deducton ), or under secton 100 (a)(3) (the so-caed marta deduc-
ton ).
(e) The amendments made by ths secton sha he appcabe ony wth respect
to the estates of decedents dyng after December 31, 10 7.
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S C. 36 . OPTION L LU TION.
(a) The ast sentence of secton 811 (|) of the Interna Revenue Code (reatng
h optona vauaton) s hereby amended to read as foows: In case of an eec-
ton made by the e ecutor under ths subsecton, then
( ) for the purposes of the deducton under secton 812(d) or secton
861(a) (3). any bequest, egacy, devse, or transfer enumerated theren,
and
( ) for the purposes of the deducton under secton 812(e), any nter-
est n property passng to the survvng spouse, sha be vaued as of the
date of the decedent s death wth ad|ustment for any dfference n vaue
(not due to mere apse of tme or the occurrence or nonoccurrence of a
contngency) of the property as of the dae one year after the decedent s
death (substtutng, n the case of property dstrbuted by the e ecutor
or trustee, or sod, e changed, or otherwse dsposed of, durng such
one-year perod, the date thereof).
(b) The amendment made by ths secton sha be appcabe ony wth respect
to estates of decedents dyng after December 31,1917.
S C. 365. LI ILITY OF LIF INSUR NC N FICI RI S. TC.
(a) Secton 826(c) of the Interna Revenue Code (reatng to abty of fe
nsurance benefcares) s hereby nmended by addng at the end thereof the foow-
ng new sentence: In the case of such proceeds recevabe by the survvng spouse
of the decedent for whch a deducton s aowed under secton 812(e) (the so-
caed marta deducton ), ths subsecton sha not appy to such proceeds e cept
as to the amount thereof n e cess of the aggregate amount of the marta deduc-
tons aowed under such subsecton.
(b) Secton 826(d) of the Interna Revenue Code (reatng to abty of
recpent of property over whch decedent had power of appontment) s hereby
amended by addng at the end thereof the foowng new sentence: In the case
of such property receved by the survvng spouse of the decedent for whch a
deducton s aowed under secton 812(e) (the so-caed marta deducton ),
ths subsecton sha not appy to such property e cept as to the vaue thereof
reduced by an amount equa to the e cess of the aggregate amount of the marta
deductons aowed under secton 812(e) over the amount of proceeds of nsurance
upon the fe of the decedent recevabe by the survvng spouse for whch proceeds
a marta deducton s aowed under such subsecton.
(c) The amendments made by ths secton sha be appcabe ony wth respect
to estates of decedents dyng after December 31, 19 7.
S C. 306. SIS OF SUR I ING SPOUS S INT R ST IN COMMUNITY
PROP RTY.
(a) Secton 113(a)(5) of the Interna Revenue Code (reatng to bass of
property transmtted at death) s hereby amended by addng at the end thereof
the foowng new sentences: For the purposes of ths paragraph the survvng
spouse s one-haf share of communty property hed by the decedent and the
survvng spouse under the communty property aws of any State, Terrtory or
possesson of the Unted States or any foregn country sha be consdered to be
property acqured by bequest, devse, or nhertance from the decedent, f the
death of the decedent was after December 31, 10 7, and f at east one-haf of the
whoe of the communty nterest n such property was ncudbe n determnng
the vaue of the decedent s gross estate under secton 811. In the case of property
hed by a decedent and hs survvng spouse under the communty property aws
of any State, Terrtory, or possesson of the Unted States or any foregn country,
f the vaue of any part of the survvng spouse s one-haf share of such property
was ncuded n determnng the vaue of the gross estate of the decedent and a
ta under chapter 3 was payabe upon the transfer of the net estate of the
decedent, then for the purposes of ths paragraph such part of such one-haf share
of the survvng spouse sha be consdered to be property acqured by bequest,
devse, or nhertance from the decedent, f the death of the decedent was after
the date of the enactment of the Revenue ct of 19 2 and on or before December 31,
19 7; but nothng n ths sentence sha reduce bass beow that whch woud e st
f the Revenue ct of 19-18 had not been enacted.
(b) If the aowance of a credt or refund of any overpayment of ta resutng
from the appcaton of ths secton s prevented on the date of the enactment of
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ths ct, or wthn one year from such date, by the operaton of any aw or rue
of aw (other than secton 3761 of the Interna Revenue Code, reatng to
compromses), credt or refund of such overpayment may, nevertheess, be
aowed or made f cam therefor s fed wthn one year from the date of the
enactment of ths ct. No nterest sha be pad on any overpayment resutng
from the appcaton of the ast sentence of secton 113(a) (5) of such code, as
amended by ths secton, f such overpayment s for a ta abe year begnnng
before anuary 1,19-18.
Part III Gft Ta .
S C. 371. GIFTS OF COMMUNITY PROP RTY.
Secton 1000(d) of the Interna Revenue Code (reatng to gfts of property
hed as communty property) s amended by addng at the end thereof a new
sentence to read as foows: Ths subsecton sha be appcabe ony to gfts
made after the caendar year 19 2 and on or before the date of the enactment of
the Revenue ct of 19 8.
S C. 372. M RIT L D DUCTION.
Secton 100 (a) of the Interna Revenue Code (reatng to deductons In com-
putng net gfts In the case of a ctzen or resdent of the Unted States) s hereby
amended by addng at the end thereof a new paragraph to read as foows:
(3) Gut to spouse.
( ) In Genera. Where the donor transfers durng the caendar
year (and after the date of the enactment of the Revenue ct of 19 8)
by gft an nterest n property to a donee who at the tme of the gft
s the donor s spouse an amount wth respect to such nterest equa to
one-haf of Its vaue.
( ) Lfe state or Other Termnabe Interest. Where, upon the
apse of tme, upon the occurrence of an event or contngency, or upon
the faure of an event or contngency to occur, such Interest transferred
to the spouse w termnate or fa, no deducton sha be aowed wth
respect to such nterest
(I) f the donor retans n hmsef, or transfers or has transferred
(for ess than an adequate and fu consderaton n money or
money s worth) to any person other than such donee spouse (or the
the estate of such spouse), an nterest n such property, and If by
reason of such retenton or transfer the donor (or hs hers or
assgns) or such person (or hs hers or assgns) may possess or
en|oy any part of such property after such termnaton or faure of
the Interest transferred to the donee spouse; or
(11) If the donor mmedatey after the transfer to the donee
spouse has a power to appont an nterest n such property whch
he can e ercse (ether aone or n con|uncton wth any person) In
such manner that the appontee may possess or en|oy any part of
such property after such termnaton or faure of the nterest
transferred to the donee spouse. For the purposes of ths cause
the donor sha be consdered as havng mmedatey after the trans-
fer to the donee spouse such power to appont even though such power
cannot be e ercsed unt after the apse of tme, upon the occurrence
of an event or contngency, or upon the faure of an event or
contngency to occur.
n e ercse or reease at any tme by the donor, ether aone or n con-
|uncton wth any person, of a power to appont an nterest n property,
even though not otherwse a transfer, sha, for the purposes of cause ()
of ths subparagraph, be consdered as a transfer by hm. cept ns
provded n subparagraph ( ), where at the tme of the transfer t s
Impossbe to ascertnn the partcuar person or persons who may receve
from the donor an nterest n property so transferred by hm, such
nterest sha, for the purposes of cause () of ths subparagraph, be
consdered as transferred to a person other than the donee spouse.
(C) Where the assets out of whch, or the proceeds of whch, the
nterest transferred to the donee spouse may be satsfed ncude a
partcuar asset or assets wth respect to whch no deducton woud be
aowed f such asset or assets were transferred from the donor to such
spouse, then the vaue of te nterest transferred to suc spouse sha,
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22
for the purposes of subparagraph ( ), be reduced by the aggregate vaue
of such partcuar assets.
(D) ont Interests. If the Interest s transferred to the donee spouse
as soe |ont tenant wth the donor or as tenant by the entrety, the n-
terest of the donor n the property whch e sts soey by reason of the
possbty that the donor may survve the donee spouse, or that there
may occur a severance of the tenancy, sha not be consdered for the
purposes of subparagraph ( ) as an nterest retaned by the donor n
hmsef.
( ) Trust Wth Power Of ppontment In Donee Spouse. Where
the donor transfers n trust an nterest n property, f under the terms of
the trust hs spouse s entted for fe to a the ncome from the corpus
of the trust, payabe annuay or at more frequent ntervas, wth power
n the donee spouse to appont the entre corpus free of the trust (e er-
csabe n favor of such donee spouse, or of the estate of such donee
spouse, or n favor of ether, whether or not n each case the power s
e ercsabe n favor of others), and wth no power n any other person
to appont any part of the corpus to any person other than the donee
spouse
() the nterest so transferred n trust sha, for the purposes of
subparagraph ( ), be consdered as transferred to the donee spouse,
and
() no part of the nterest so transferred n trust sha, for the
purposes of subparagraph ( ) (), be consdered as retaned n the
donor or transferred to any person other than the donee spouse.
Ths subparagraph sha be appcabe ony f, under the terms of the
trust, such power n the donee spouse to appont the corpus, whether e er-
csabe by w or durng fe, s e ercsabe by such spouse aone and n
a events.
(F) Communty Property.
() deducton otherwse aowabe under ths paragraph sha
be aowed ony to the e tent that the transfer can be shown to
represent a gft of property whch s not, at the tme of the gft,
hed as communty property under the aw of any State, Terrtory,
or possesson of the Unted States, or of any foregn country.
() For the purposes of cause (), communty property (e cept
property whch s consdered as communty property soey by reason
of the provsons of cause ()) sha not be consdered as hed as
communty property f the entre vaue of such property (and not
merey one-haf thereof) s treated as the amount of the gft.
() If durng the caeudar year 19 2 or after the date of the
enactment of the Revenue ct of 19 8, property hed as such com-
munty property (uness consdered by reason of cause () as not
so hed) was by the donor and the donee spouse converted, by one
transacton or a seres of transactons, nto separate property of the
donor and such spouse (Incudng any form of co-ownershp by them),
the separate property so acqured by the donor and any property
acqured at any tme by the donor n e change therefor (by one
e change or a seres of e changes) sha, for the purposes of cause
(), be consdered as hed as communty property .
(v) Where the vaue (at the tme of such converson) of the
separate property so acqured by the donor e ceeded the vaue (at
such tme) of the separate property so acqured by such spouse, the
rue n cause () sha be apped ony wth respect to the same
porton of such separate property of the donor as the porton whch
the vaue (as of such tme) of such separate property so acqured
by such spouse s of the vaue (as of such tme) of the separate
property so acqured by the donor.
S C. 373. T C NIC L M NDM NT.
Secton 100 (c) of the Interna evenue Code s hereby amended to read as
foows:
(c) tent of Deductons. The deductons provded n subsecton (a) (2) or
(3) or n subsecton (b) sha be aowed ony to the e tent that the gfts theren
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225
specfed are Incuded n the amount of gfts aganst whch such deductons are
apped.
S C. 37 . GIFT OP US ND OR WIF TO T IRD P RTY.
Secton 1000 of the Interna Revenue Code (reatng to mposton of gft ta )
s hereby amended by addng at the end thereof a new subsecton to read as
foows:
(f) Gft or usband or Wfe to Thrd Partt.
(1) Consdered as made one-haf bt each.
( ) In Genera. gft made after the date of the enactment of
the Revenue ct of 19 8 by one spouse to any person other than hs
spouse sha, for the purposes of ths chapter, be consdered as made
one-haf by hm and one-haf by hs spouse, but ony f at the tme
of the gft each spouse s a ctzen or resdent of the Unted States. Ths
subparagraph sha not appy wth respect to a gft by a spouse of an
nterest n property f he creates n hs spouse a power of appontment,
as defned n subsecton (c) of ths secton, over such nterest. For the
purposes of ths subsecton an ndvdua sha be consdered as the
spouse of another ndvdua ony f he s marred to such ndvdua at
the tme of the gft and does not remarry durng the remander of the
caendar year.
( ) Consent of oth Spouses. Subparagraph ( ) sha be appcabe
ony f both spouses have sgnfed (n accordance wth the reguatons
provded for n paragraph (2)) ther consent to the appcaton of sub-
paragraph ( ) n the case of a such gfts made durng the caendar
year by ether whe marred to the other.
(2) Manner and tme of sgnfyng consent.
( ) Manner. consent under ths subsecton sha be sgnfed n
such manner as Is provded under reguatons prescrbed by the Com-
mssoner wth the approva of the Secretary.
( ) Tme. Such consent may be so sgnfed at any tme after the
cose of the caendar year n whch the gft was made, sub|ect to the
foowng mtatons
() the consent may not be sgnfed after the 15th day of March
foowng the cose of such year, uness before such 15th day no
return has been fed for such year by ether spouse, n whch case
the consent may not be sgnfed after a return for such year s
fed by ether spouse;
() the consent may not be sgnfed after a notce of defcency
wth respect to the ta for such year has been sent to ether spouse
In accordance wth secton 1012(a).
(3) Revocaton of consent. Revocaton of a consent prevousy sgnfed
sha be made n such manner as Is provded under reguatons prescrbed
by the Commssoner wth the approva of the Secretary, but the rght to
revoke a consent prevousy sgnfed wth respect to a caendar year
( ) sha not e st after the 15th day of March foowng the cose
of such year f the consent was sgnfed on or before such 15th day; and
( ) sha not e st f the consent was not sgnfed unt after such
15th day.
( ) ont and severa abty fob ta . If the consent requred by
paragraph (1)( ) s sgnfed wth respect to a gft made n any caendar
year the abty wth respect to the entre ta mposed by ths chapter of
each spouse for such year sha be ont and severa.
TITL I D UST D GROSS INCOM OF L SS T N 5,000.
S C. 01. INDI IDU LS WIT D UST D GROSS INCOM S OF L SS
T N 5,000.
(a) In Genera. Secton 00 of the Interna Revenue Code (reatng to op-
tona ta on ndvduas wth ad|usted gross ncomes of ess than 5,000) s
hereby amended to read as foows:
S C. 00. IMPOSITION OF T .
In en of the ta es mposed by sectons 11 and 12, there sha be eved, co-
ected, and pad for each ta abe year upon the net ncome of each ndvdua
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226
whose ad|usted gross Income for such year s ess than 5,000, and who has
eected to pay the ta mposed by ths suppement for such year, a ta as foows:
(b) Ta abe Years to Whch ppcabe. The amendment made by ths
secton sha be appcabe wth respect to ta abe years begnnng after December
31, 19 7. For treatment of ta abe years begnnng n 19 7 and endng n 19 8,
see secton 601.
TITL R DUCTION IN WIT OLDING OF T T SOURC
ON W G S.
S C. 501. P RC NT G M T OD.
Secton 1622(a) and secton ( 22(b) (1) of the Interna Revenue Code (reat-
ng to percentage method of wthhodng) are hereby amended to read as foows:
(a) Requrement of Wthhodng. very empoyer makng payment of
wages sha deduct and wthhod upon such wages a ta equa to 15 per centum
of the amount by whch the wages e ceed the number of wthhodng e emptons
camed mutped by the amount of one such e empton as shown n subsecton
(b)(1).
(b) (1) The tabe referred to In subsecton (a) s as foows:
Percentage method wthhodng tabc.
1 ay-ro perod.
mount of onp
wthhod ns
eempton.
Weeky
Iweeky 1
Semmonthy
Monthy
uartery - -
Semannua
nnr --
D or msceaneous (per day of such peror-
a. 00
2S.O0
51 . 00
167.00
833.00
667.00
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S C. 502. W G R C T WIT OLDING.
The tabes contaned n secton 1622(c) (1) of the Interna Revenue Code (re-
atng to wage bracket wthhodng) are hereby amended to read as foows:
If ad|usted
gross n-
come s
nd the number
of e emptons s
If ad|usted
cross n-
come s
nd the number of e emptons b
-
2
3
ut
ess
than
nd If
nd
If a
|ont
return
Is ted
nd If
other
t turn a
ont
return
s ded
nd
If a
t
east
or
ut
ess
than
other
than a
|ont
return
s fed
8 or
more
1
2
3
1

5
The ta sha be
more
t
east
The ta sha be
|ont
return
s ed
G
7

to
SO
to
2,350
250
150
150
50
50
so
10
0
to
675
0
2, 325
0
675
700
3
0
0
0
2.350
2.375
253
15
15
5
5
a
0
0
0
0
TOO
72S
7
0
0
0
2,375
2, 00
257
157
157
58
58
0
u
0
0
0
72. .
750
11
0
0
0
2, 00
2. 25
261
161
161
62
62
0
0
0
0
750
775
1
0
0
0
2. 25
2. 50
265
155
165
65
65
0
0
0
0
0
775
800
18
0
0
0
2. 50
2, 75
268
169
169
69
69
0
0
0
0
0
y
825
22
0
0
(1
2, 75
2,500
272
172
172
73
73
0
0
0
0
0
vr,
850
26
0
0
0
2.5011
2.525
276
176
170
77
77
0
1)
0
0
0
)
875
29
0
0
0
2,525
2,550
2 0
180
180
80
80
0
0
0
II
0
S75
900
33
0
0
(1
2.550
2.675
283
18
18
8
8
0
0
0
0
)
I
925
37
0
0
0
2,575
2,600
287
187
187
88
88
0
0
0
0
n
925
950
0
0
0
0
2,000
2,625
291
191
191
92
92
0
0
II
0
0
350
975

0
0
0
1,625
2,650
29
195
195
95
95
0
0
0
0
0
976
1,000

0
0
0
2,650
2,675
298
199
199
99
99
0
0
II
0
0
1.000
1.025
62
II
0
0
2.075
2,700
302
202
202
103
103
3
0
0
0
0
1.026
1,050
55
0
0
0
2,700
2,725
306
20
200
106
106
7
0
0
0
0
1.090
1,075
59
0
0
0
2.725
2,750
309
210
210
110
110
11
0
0
0
0
1.075
1. 100
63
0
0
0
2, 750
2,775
313
21
21
11
11
1 1
0
0
0
0
1.100
1.125
67
0
0
0
2,775
2,800
317
217
217
118
118
18
0
0
0
0
1.125
1.150
70
0
0
0
2. SOI)
2.825
321
221
221
121
121
22
0
0
0
0
1.150
1, 175
7
0
0
0
2.825
2,850
32
225
225
125
125
26
0
0
0
0
1.175
1,200
7
0
0
0
2,850
2.875
328
228
228
129
129
29
0
a
0
0
1.200
1.225
82
I)
0
0
2,875
2.900
332
232
232
133
133
33
0
0
0
0
1.225
1.250
85
0
0
0
2,900
2.925
336
236
236
136
136
37
0
0
1)
0
1.250
1,275
89
0
0
0
2,925
2.950
3 0
2 0
2 0
1 0
1 0
0
0
0
0
0
1.275
1.300
93
0
0
0
2,950
2,975
3 5
2 3
2 3
1
1

0
0
0
0
1.300
1.325
96
0
0
0
2.976
3.000
3 9
2 7
2 7
1 8
1 8
8
0
0
0
0
1.325
1.350
100
1
0
0
3,000
3,050
356
253
253
153
153
5
0
0
0
0
1.3501 1,375
10

0
0
3.050
3. 100
36
260
260
161
161
61
0
0
0
0
1.376
1, 00
108
8
0
0
3,100
3,150
373
268
268
168
168
68
0
0
0
0
1. O0 1. 25
111
12
0
0
3, 150
3,200
382
276
275
176
176
76
0
0
0
0
1. 25
1, 50
116
16
0
0
3,200
3,250
391
283
283
183
183
83
0
0
0
0
1. 50
1. 75
119
19
0
0
3.250
3,300
399
290
290
190
190
91
0
0
II
0
1. 75
1.500
123
23
0
0
3,300
3.350
08
298
298
198
198
98
0
1)
0
0
1.500
1.525
126
27
0
0
3.350
3. 00
17
305
305
205
205
106
6
0
0
0
1.526
1.550
130
31
0
0
3.100
3. 50
2 .
312
312
213
213
113
11
0
0
0
1.53d
1.575
13
3
0
0
3, 50
3,900
3
320
320
220
220
121
21
0
0
0
1,576
1.600
138
38
0
0
3,500
3.550
3.550
3
327
327
228
228
128
29
0
0
0
1.600
1,625
1 1
2
0
0
3.600
52
335
335
235
235
136
36
0
0
0
1,625
1.650
1.650
1 5
6
0
0
:.m
3,650
60
3
3 2
213
2 3
1 3
II
0
0
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1.725
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3.800
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1.750
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228
If the pay-ro perod wth respect to an empoyee s weeky
nd the wages a
nd the number of wthhodng e emptons camed Is-
0
1
2
3

6
t
7
8
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The amount of ta to be wthhed sha be
more
16 o

0
0
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0
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to
0

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. 0
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2.60
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0
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0
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0
2.80
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0
0
0
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0
0
0
0
2.90
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0
0
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L 10
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0
0
0
0
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3.20
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0
0
0
0
0
0
3. 0
1. 0
0
0
0
0
0
0
0
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3.50
1.60
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0
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a
0
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1.70
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1.90
0
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0
0
0
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II
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0
0
10
2.20
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0
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0
0
0
.30
2.30
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0
0
0
0
0
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0
0
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0
0
0
0
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2.60
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2. 80
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0
0
0
0
0
0
0
0
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2.90
1.00
0
0
0
0
0
0
0
0
6.00
3.10
1.20
0
0
0
0
0
0
0
0
6.20
3.20
1.30
0
0
0
0
0
0
0
0
6.30
3. 0
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0
0
0
0
0
0
0
0
6.60
3.60
1.60
0
0
0
0
0
0
0
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6.60
3.70
1.80
0
0
0
0
0
0
0
0
6.80
3.80
1.60
0
0
0
0
0
0
0
0
6.90
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2. 10
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0
0
0
0
0
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2.20
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0
0
0
0
0
0
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6.20
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0
0
0
0
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6.30
. 0
2.60
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0
0
0
0
0
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6.50
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2.70
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0
0
0
0
0
0
0
6.60
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2.80
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0
0
0
0
0
0
0
6.80
.90
3.00
1.10
0
0
0
0
0
0
0
6.90
6.00
3. 10
1.20
0
0
0
0
0
0
0
7.10
5.20
3.30
1. 0
0
0
0
0
0
0
0
7.20
6.30
3. 0
1.50
0
0
0
0
0
0
0
7. 0
6.60
3.60
1.60
0
0
0
0
0
0
0
7.60
6.60
3.70
1.80
0
0
0
0
0
0
0
7.70
6.80
3.60
1.60
0
0
0
0
0
0
0
7.80
6.90
.00
2.10
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0
0
0
0
0
0
aoo
6.10
.20
2.20
.30
0
0
0
0
0
0
8.10
6.20
.30
2. 0
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0
0
0
0
0
0
8.30
6. 0
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2.60
.60
0
0
0
0
0
0
8. 0
6.60
.60
2.70
.80
0
0
0
0
0
0
8.60
6.70
.80
2.80
.60
0
0
0
0
0
0
8.70
6.80
.90
3.00
1.10
0
0
0
0
0
0
8.60
7.00
6. 10
3. 10
1.20
0
0
0
0
0
0
9.10
7.20
5.30
3. 0
1.60
0
0
0
0
0
0
9. 0
7.60
6.60
3. 70
1.80
0
0
0
0
0
0
9.70
7.80
5.60
.00
2. (M
.10
0
0
0
0
0
10.00
8.10
6.20
.30
2.30
. 0
0
0
0
0
0
10.30
8. 0
6.50
.60
2.60
.70
0
0
0
0
0
10.00
a 70
6.80
.90
2.90
1.00
0
0
0
0
0
10.90
9.00
7.10
5.20
3.20
1.30
0
0
0
0
0
11.20
9.30
7. 0
6.50
3.60
1.60
0
0
0
0
0
11.50
9.60
7.70
5.80
3.80
1.60
0
0
0
0
0
11.80
9.90
8.00
6.10
.10
2.20
.30
0
0
0
0
12.10
10.20
8.30
6. 0
. 0
250
.60
0
0
0
0
12. 0
10.60
8.60
6.70
.70
2.80
.90
0
0
0
0
12.70
10.80
8.90
7.00
6.00
3.10
1.20
0
0
0
0
13.00
11.10
9.20
7.30
6.30
3. 0
1.50
0
0
0
0
13.30
11. 0
9.60
7.60
6.60
8.70
1.80
0
0
0
0
13.60
11.70
9.80
7.80
6.90
.00
2.10
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0
0
0
13.00
12.00
10. 10
8.10
6.20
.30
2. 0
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0
0
0
1 .20
12.30
10. 0
8. 0
6.60
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2.70
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0
0
0
1 .50
12.60
10.70
8.70
6.80
.90
3.00
1.10
0
0
0
1 .80
12.90
11.00
6.00
7.10
6.20
3.30
1. 0
0
0
0
16.30
13. 0
11.50
6.60
7.70
6.70
3.80
1.60
0
0
0
16.10
1 . 1(1
12.20
10.30
8. 0
6.60
.t6
2.70
.70
0
0
16.80
1 .90
13.00
11.10
9.10
7.20
5.30
3. 0
1.50
0
0
17.60
15.60
13. 70
11.80
9. 90
8.00
6.10
. 10
2.20
.30
0
18.30
16. 0
1 . 50
12.60
10.60
8.70
6.80
.90
3.00
1.10
0
19.00
17. 10
15. . (1
13.30
11. 0
9.60
7.60
6.60
3.70
1.80

19.80
17.90
16.00
1 .00
12. 10
10.20 I
8.30
6. 0
.60
2.60
t east
ut os1
than
to..
13.
1
15.
16.
17.
18.
19.
20.
21.
22.
23.
2 .
25.
26.
27.
28.
29.
30.
31.
32.
33.
3 .
35.
36.
37.
38.
39.
0.
1.
2.
3.
.
5.
6.
7.
8..
9.
50..
51..
52
53..
5 .
55.
56.
57.
58..
59.
0.
62.
6 ..
66.
68..
70.
72.
7 ..
76.
78.
80.
82.
8 .
86.
88.
90..
62..
9 .
96.
98..
100
105
110
115
120
125
130
13..
1 ..
16-.
16..
17..
18-.
16..
20..
21..
22..
23..
2 ..
25..
26..
27..
28..
29..
30..
31..
32..
33..
1 ..
35..
36..
37..
38..
39..
0..
1..
2..
3..
..
5..
6..
7..
8..
9..
50..
51..
52..
53..
5 ..
55..
56..
57..
58..
59..
60..
66..
68..
70..
72..
7 ..
76..
78..
80,.
82..
8 . _
80..
88..
90..
92..
9 ..
06..
98. _
100.
106.
110.
115.
120.,
125.
130.
135..
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229
1 If the pay-ro perod wth respect to an empoyee s weeky Contnued.
nd the wages are
nd the number of wthhodng e emptons camed s
t east
ut ess
than

1
2
3

5
6
7
8
9
10 or
mora
The amount of tat to be wthhed sha be
SI 35
1 0.
20. 50
18 60
16.70
1 .80
12.90
11.00
11.70
12.50
13.60
15. 10
16.60
9. 10
9. 80
10.50
11.70
13.20
1 .70
16. 10
17.90
7. 10
5.20
3.30
.10
1. 0
1 0
1 5
21.30
22.00
23. 20
2 .70
26. 10
27.60
23. 10
19. 0
17. . 0
15.50
16 30
17. 0
18.90
20. 0
21 90
23. 0
13.60
1 . 0
15.50
17. CO
18.50
20.00
21.50
7.00
8.60
9.70
11.20
12.70
1 20
If. 70
6.00
6.70
7.80
9.30
10.80
12.30
13.80
2. 10
2.90
.00
1
150
20. 10
21.20
22.70
2 .20
25.70
27.20
18. 20
19.30
20. 80
22,30
23.80
25. 30
.80
5.90
7. 0
8 90
10. 0
11.90
M
160
160
170
5. .50
7.00
8.50
10.00
170
180

18. 10
100 . .
1
15 per cent of the e cess over 200 pus
19. 60
200 and over
29.90
28.00
26.00
2 .10
22.20
20. 30
18. 0
18.50
1 .00
12.60
10.70
1 If the pay-ro perod wth respect to an empoyee s bweeky-
nd the wages are
nd the number of wthhodng e emptons camed Is
t east
ut ess
than
0
1
2
3

5
6
7
8
9
10 or
more
The amount of ta to be wthhed sha be
0 ...
.-.
28...
30...
32...
3 ...
36...
38...
0...
2...
..
6...
8...
50
52...
5 -
56..
58.-
60...
62..
8 ...
66..
68-
70..
72-
7 ..
76..
78-
80..
82-
S ..
86..
90
92-
9
96
98
100
102
10
106
108
.-
15 nf
0
0
0
0
0
0
0
0
0
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28
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0
0
0
0
0
0
0
0
0
30
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0
0
0
0
0
0
0
0
0
32
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0
0
0
0
0
0
0
0
(1
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1. 10
0
0
0
0
0
0
0
0
0
36
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1. 0
0
0
0
0
0
0
0
0
0
38
5.50
1.70
o
0
0
0
0
0
0
0
0
0 ....
5.80
2.00
0
0
0
0
0
3
0
0
0
2
6. 10
2.30
0
0
0
0
0
0
0
0
0

6. 0
2.60
0
0
0
0
0
0
0
0
0
6 . ...
6.70
2.90
0
0
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0
0
0
0
0
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8
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0
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0
0
0
0
0
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3.50
0
0
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0
0
0
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0
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7.60
3.80
0
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0
0
0
0
0
0
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0
0
0
0
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0
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1.50
0
0
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0
0
0
0
6 .
9. 0
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1.80
0
0
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0
0
0
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6
9.70
5.90
2.00
0
0
0
0
0
0
0
0
88-- ,.
10.00
6.20
2.30
0
0
0
0
0
0
0
0
70-
10.30
6.60
2.60
0
0
0
0
0
0
0
0
72
10.60
6.80
2.90
0
0
0
0
0
0
0
0
7
10.90
7. 10
3.20
0
0
0
0
0
0
0
0
76
11.20
7. 0
3.50
0
0
0
0
0
0
0
n
78
11.50
7. 70
3.80
0
0
0
0
0
0
0
0
80
11.80
8.00
. 10
.30
0
0
0
0
0
0
(1
82.
12.10
8.30
. 0
.60
0
0
0
0
0
0
(1
8
12. 0
8.60
.70
.90
0
0
0
0
0
0
1)
86
12.70
8.90
5.00
1.20
0
0
0
0
0
0
0
88
13.00
9.20
5.30
1.50
0
0
0
0
0
0
0
90
13.30
9.50
5.60-
1.80
0
0
0
0
0
0
0
2
13.60
9.80
5.90
2. 10
0
0
0
0
0
0
0
13.90
10. 10
6.20
2. 0
0
0
0
0
0
0
0
96
1 .20
10. 0
6 50
2.70
0
0
0
0
0
0
0
98
1 .50
10.70
6.80
3.00
0
0
0
0
0
0
0
100 .
1 .80
11.00
7. 10
3.30
0
0
0
0
0
0
0
102
18.10
11.30
7. 0
3.60
0
0
0
0
0
0
0
10
15. 0
11.60
7.70
3.90
.10
0
0
0
0
0
1)
106-
15.70
11.90
8.00
.20
. 0
0
0
0
0
0
0
108
16 00
1120
8 30
.50
.70
0
0
0
0
0
0
110
16 30
12 50
860
.80
1.00
0
0
0
0
0
0
112
16.60
12 80
aoo
5.10
1.30
0
0
0
0
0
(1
11
16 90
13.10
9.20
5. 0
1.60
0
0
0
0
0
0
116
17.20
13. 0
9.50
5.70
1.90
0
0
0
0
0
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-Contnued.
nd the wages are
nd the number of wthhodng e emptons camed s
t east
R ess
than
1
2
3

6
6
1 1 1
The amount of ta to be wthhed sha be-
10 or
118
17.50
13. 60
9. SO
6.00
2.20
0
0
to
0
0
0
120
17.80
13.90
10.10
6.30
2.50
0
0
0
0
0
0
12
18.20
11. 0
10.60
6.70
2.90
0
0
0
0
0
0
128
18. 80
15.00
11. 20
7.30
3.50
0
0
0
0
0
0
132
19. 0
15. 60
11.80
7.90
. 10
.30
0
0
0
0
0
130
20.00
16. 20
12. 0
8. SO
.70
.90
0
0
0
0
0
1 0
20.60
16. 80
13.00
9.10
6.30
1.50
0
0
0
0
0
1
21.20
17. 0
13. 60
9.70
5.90
2.10
0
0
0
0
0
1 8
21.80
18 00
1 .20
10.30
6.50
2.70
0
0
0
0
0
152
22. 0
18.60
1 .70
10.90
7.10
3.30
0
0
0
0
0
156
23.00
19.20
15.30
11.60
7.70
3.90
0
0
0
0
0
160
23. CO
19.80
15.90
12.10
8.30
.50
.60
0
0
0
0
16 -
2 .20
20. 0
16.50
12.70
8.90
5.00
1.20
0
0
0
0
168
2 .80
21.00
17.10
13.30
9.50
5.60
1. 80
0
0
0
0
172
25. 0
21.60
17. 70
13.90
10.10
6.20
2. 0
0
0
0
0
176
28.00
22.20
18.30
1 .50
10.70
6.80
3.00
0
0
0
0
180
20.60
22. 80
18.90
15.10
11.30
7. 0
3. 60
0
0
0
0
18
27. 20
23. 0
19. 50
15. 70
11.90
8.00
.20
. 0
0
0
0
188
27.80
2 .00
20.10
16.30
12.50
8.60
.80
1.00
0
0
0
182
28. 0
2 . 60
20. 70
10.90
13. 10
9.20
5. 0
1.60
0
0
0
196
20.00
25.20
21.30
17. 50
13.70
9.80
6.00
2.20
0
0
0
200
29.60
25.80
21.90
18. 10
1 .30
10. 0
6.00
2.80
0
0
0
210
30. 00
26.80
23.00
19. 10
15. 30
11.50
7.60
3.80
0
0
0
220
32. 10
28.30
2 .50
20.60
16. SO
13.00
9. 10
5.30
1.50
0
0
230
33.60
29.80
26.00
22. 10
18.30
1 . 50
10. 60
6.80
3.00
0
0
2 0
35. 10
31.30
27. 0
21.60
19.80
16.00
12.10
8.30
. 60
.60
0
250
36.60
32.80
28.90
25. 10
21.30
17. 0
13.60
9.80
6.00
2 10
0
200
38. 10
3 .30
30. 0
26.60
22.80
18.90
15. 10
11.30
7.50
3.60
0
270
39.60
35.80
31.90
28. 10
2 .30
20. 0
16.60
12. M
8.90
5.10
L30
280
1. 10
37.30
33. 0
29.60
25.80
21.90
18. 10
1 .30
10. 0
6.60
280
290
2. 00
38. 70
3 .90
31.10
27.30
23. 0
19.60
15.80
11.90
8. 10
.30
300
. 10
0.20
36. 0
32.60
28.70
2 .90
21. 10
17.30
13. 0
9.60
5.80
320
6. 30
2.50
38. 70
3 .80
31.00
27.20
23.30
19.50
15.70
11.80
8.00
3 0 ....
9.30
5.50
1.60
37.80
3 .00
30. 10
26.30
22.50
18.70
1 .80
11.00
360 ...
52.30
8.50
.60
111. M)
37.00
33. 10
29.30
25.50
21.00
17.80
1 .00
380
55.30
51. 0
7.60
3.80
0.00
36. 10
32.30
28.50
2 .60
20.80
17.00
00. .
58.30
5 . 0
60.60
6.80
2.90
39. 10
35.30
31.50
27.60
23.80
20.00
116.
118
120
121.
128.
132.
136
1 0.
S1U
1 8.
152
156.
160.
16 .
168
172.
176.
180.
18 .
188
192
196.
200
210.
220.
230
2(0
250.
260
TO
: n.
290
300
320
3 0
360
380.
16 per cent of the e cess over 100 pus
1
59. SO 1 55. 90
1
52 10
8 30
. 0
0.60
36.80
32 90 29. 10
1
25.30
21.50
If the pay-ro perod wth respect to an empoyee s semmonthy
ud the wages
nd the number of wthhodng e emptons camed s-
t east
ut ess
than
The amount of ta to be wthhed sha be
32.
31.
30.
38.
0
12
.
6.
8.
50.
52.
6 .
56
58.
28.
30.
32.
3
36
38
0
2.
.
6
8.
50..
52..
5
56..
15 of
so
0
0
0
. 0
0
0
0
0
10
. 30
.20
0
0
0
0
0
0
0
0
0
.60
.50
0
0
0
0
0
0
0
0
0
.90
.80
0
0
0
0
0
0
0
0
I
5.20
L 10
0
0
0
0
0
0
0
0
0
5.50
1. 0
0
0
0
0
0
0
0
0
0
5.80
1.70
0
0
0
0
0
0
0
0
0
6. 10
200
0
0
0
0
0
0
0
0
0
6. 0
2 30
0
0
0
0
0
0
0
0
0
6.70
2.00
0
0
0
0
0
0
0
0
0
7.00
2 90
0
0
0
0
0
0
0
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7.30
3.20
0
0
0
0
0
0
0
0
0
7.60
3.50
0
0
0
0
0
0
0
0
0
7.90
3.80
0
0
0
0
0
0
0
0
0
8.20
. 10
0
0
0
0
0
0
0
0
8.50
. 0
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0
0
0
0
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8 80
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0
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231
If the pay-ro perod wth respect to an empoyee s semmonthy Contnued.
nd the wages are
nd the number ot wthhodng e emptons camed s
t east
ut ess
Tuo amount of ta to be wthhed sha be
62
9.10
5.00
0.80
0
0
0
0
0
0
0
0
tM
9. 0
5.30
1.10
0
0
0
0
0
0
0
0
166
9.70
5.60
LS
0
0
0
0
0
0
0
0
68
10.00
5.90
1.70
0
0
0
0
0
0
0
0
70
10.30
6.20
2.00
0
0
0
0
0
0
0
0
72.
10.60
6.50
2.30
0
0
0
0
0
0
0
0
7
10.90
6.80
2.60
0
0
0
0
0
0
0
0
70
11.20
7.10
2.90
0
0
0
0
0
0
0
0
78.
11.50
7. 0
3.20
0
0
0
0
0
0
0
0
80
11.80
7.70
3.50
0
0
0
0
0
0
0
0
83
12.10
8.00
3.80
0
0
0
0
0
0
0
0
8
12. 0
8.30
. 10
0
0
0
0
0
0
0
0
SC
12.70
8.50
. 0
.20
0
0
0
0
0
0
0
88
13.00
a so
.70
.50
0
0
0
0
0
0
0
90
13.30
9. 10
5.00
.80
0
0
0
0
0
0
0
13.60
9. 0
5.30
1.10
0
0
0
0
0
0
0
9
13. 90
9. 70
5.60
1 0
0
0
0
0
0
0
0
96
1 .20
10.00
6.90
1.70
0
0
0
0
0
0
0
S98
1 .50
10. 30
6.20
2.00
0
0
0
0
0
0
0
100
1 .80
10.60
6.50
2.30
0
0
0
0
0
0
0
102
15. 10
10.90
6.80
2. GO
0
0
0
0
0
0
0
10
15. 0
11.20
7.10
2.90
0
0
0
0
0
0
0
100
15. 70
11.50
7. 0
3.20
0
0
0
0
0
0
0
108
16.00
11.80
7.70
3. 50
0
0
0
0
0
0
0
110
16.30
12. 10
8.00
3.80
0
0
0
0
0
0
0
112
16.60
12. 0
8.30
. 10
0
0
0
0
0
0
0
11
16.90
12.70
8.60
. 0
.30
0
0
0
0
0
0
116
17.20
13.00
8.90
. 7(1
.60
0
0
0
0
0
0
118
17.50
13.30
U. 20
5.00
.90
0
0
0
0
0
0
120
17.80
13.60
9.50
a. 30
1.20
0
0
0
0
0
0
12
13.20
1 . 10
9. 90
5.80
1.60
0
0
0
0
0
0
128
18.80
1 . 70
10.50
0. 0
2.20
0
0
0
0
0
0
132
19. 0
15.30
11.10
7.00
2.80
0
0
0
0
0
0
136
20.00
15.90
11.70
7.60
3. 0
0
0
0
0
0
0
1 0
20.60
16.50
12.30
8.20
.00
0
0
0
0
0
0
1
21.20
17. 10
12.90
8.80
.60
.60
0
0
0
0
0
1 8
21.80
17.70
13.50
9. 0
5.20
1. 10
0
0
0
0
0
152
22. 0
18.30
1 .10
10.00
5.80
1.70
0
0
0
0
0
156
23.00
18.90
1 .70
10.60
6. 0
2.30
0
0
0
0
0
160
23.60
19 50
15.30
11 20
7.00
2 . O
0
0
0
0
0
16
2 . 20
20. 10
16.90
11.80
7. CO
3.50
0
0
0
0
0
168
2 .80
20. 70
16. 0
12. 0
8.20
.10
0
0
0
0
0
172
25. 0
21.20
17. 10
12.90
8.80
.60
.60
0
0
0
. 0
176
26.00
21.80
17. 7U
13.50
9. 0
5.20
1.10
0
0
0
0
180
26.60
22. 0
18.30
1 . 10
10.00
5.80
1.70
0
0
0
0
18
27.20
23.00
18.90
1 .70
10.60
6. 0
2.30
0
0
0
0
188
27.80
23.60
19.60
15.30
11.20
7.00
2.90
0
0
0
0
192
28. 0
2 .20
20. 10
15.00
11.80
7.60
3.50
0
0
0
0
196
29.00
2 .80
20.70
16.50
12, 0
8.20
. 10
0
0
0
a
200
29 60
25. 0
21.30
17. 10
13.00
8.80
.70
.60
0
0
0
210
30.60
20.50
22.30
18 20
1 .00
9.90
5.70
1.60
0
0
0
220
32. 10
28.00
23.80
19.70
15.50
11. 0
7.20
3. 10
0
0
0
230
33.60
20.50
25.30
21.20
17.00
12.90
8.70
.60
. 0
0
0
2 0
35. 10
31.00
26.80
22.70
18.60
1 . 0
10.20
6.10
1.90
0
a
250
36.60
32.50
28.30
29.80
2 .20
20.00
15.90
11.70
7.60
3. 0
0
0
200
38.10
33.90
31.30
25.00
21.50
17.30
13.20
9.00
.90
.70
0
270
39.60
35. 0
32.80
27.10
23.00
18.80
1 .70
10.50
6. 0
2.20
a
280
1.10
36. 90
3 .30
28.60
21.50
20.30
18.20
12.00
7.90
3.70
0
290
2.60
38. 0
35.80
30.10
26.00
21.80
17.70
13.50
9. 0
5.20
1.10
300
. 10
39.90
38.00
31.60
27.50
23 30
19.20
15.00
10.90
f.70
2.00
320
a 30
2.20
1.00
33.90
29.70
25.60
21. 0
17.30
13.10
9.00
.80
3 0
9.30
5.20
.00
36.90
32.70
28.60
2 . 0
20.30
10.10
12.00
7.80
360
52.30
8 10
7.00
39.80
35.70
31.50
27. 0
23.20
19. 10
1 .90
10.80
380
65.30
51.10
2.80
38.70
3 50
30. 0
26.20
22. 10
17.90
13.80
00
58.30
6 .10
60.00
5.80
1.70
37.50
33. 0
29.20
25. 10
29.90
1I . 80
120
61.30
57.10
53.00
8.80
.70
0.50
36. 0
32.20
28. 10
23.90
19. SO
0
6 .20
60.10
66.90
51.80
7.60
3.50
39.30
35.20
31.00
26.90
22. 70
60
67.20
63.10
68.90
5 .80
50.60
6.50
2.30
38.20
3 .00
29.90
26.70
80
70.20
66. 10
61.90
57.80
53.60
9.50
5.30
1.20
37.00
32.90
28.70
5500
73.20
69.10
6 .90
60.80
56.60
52.50
8.30
.20
0.00
35.90
31.70
handover
15 per cent of the ccess over 500 pus
7 .70 70.00
9.80
5.70
1.50
37. 0 1
33 20
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232
If the pay-ro perod wth respect to an empoyee s monthy
nd the wages are
nd the number of wthhodng e emptons camed s
0
1
2
3

5
6
7
8
9
10 or
more
The amount of ta to be wthhed sha be
16 of
O
0
so
0
0
to
SO
0
0
to
18. 70
. 0
0
0
0
0
0
0
0
0
0
9.30
1.00
0
0
0
0
0
0
0
0
0
9.90
1.60
0
0
0
0
0
0
0
0
0
10.50
2.20
0
0
0
0
0
0
0
0
0
11.10
2.80
0
0
0
0
0
0
0
0
0
11.70
3. 0
0
0
0
0
0
0
0
0
0
12.30
.00
0
0
0
0
0
0
0
0
0
12.80
.60
0
0
0
0
0
0
0
0
0
13. 0
5.10
0
0
0
0
0
0
0
0
0
1 .00
5.70
0
0
0
0
0
0
0
0
0
1 .80
6.30
0
0
0
0
0
0
0
0
0
16.20
6. O
0
0
0
0
0
0
0
0
0
16.80
7.80
0
0
0
0
0
0
0
0
0
16. 0
8.10
0
0
0
0
0
0
0
0
0
17.00
8.70
. 0
0
0
0
0
0
0
0
0
17.60
9.30
1.00
0
0
0
0
0
0
0
0
18.20
9.90
1.60
0
0
0
0
0
0
0
0
18.80
10.50
2.20
0
0
0
0
0
0
0
0
19. 0
11. 10
2.80
0
0
0
0
0
0
0
0
20.00
11.70
3. 0
0
0
0
0
0
0
0
0
20.60
12.30
.00
0
0
0
0
0
0
0
0
21.20
12.90
.60
0
0
0
0
0
0
0
0
21.80
13.50
5.20
0
0
0
0
0
0
0
0
22. 0
1 . 10
5.80
0
0
0
0
0
0
0
0
23.00
1 .70
6. 0
0
0
0
0
0
0
0
0
23.60
15.30
7.00
0
0
0
0
0
0
0
0
2 .20
15.90
7.60
0
0
0
0
0
0
0
0
2 .80
16.50
8.20
0
0
0
0
0
0
0
0
26. 0
17.10
8.80
.60
0
0
0
0
0
0
0
26.00
17.70
I. 0
1.10
0
0
0
0
0
0
0
26.60
18.30
10.00
1.70
0
0
0
0
0
0
0
27. 20
18.90
10.60
2.30
0
0
0
0
0
0
0
27.80
10.50
11.20
2.90
0
0
0
0
0
0
0
28. 0
20.10
11.80
3.60
0
0
0
0
0
0
0
29.00
20.70
12. 0
.10
0
0
0
0
0
0
0
29.00
21.30
13.00
.70
0
0
0
0
0
0
0
30.20
21.90
13.60
6.30
0
0
0
0
0
0
0
30.80
22.60
1 .20
5.00
0
0
0
0
0
0
0
31. 0
23. 10
1 .80
6.60
0
0
0
0
0
0
0
32.00
23.70
16. 0
7.10
0
0
0
0
0
0
0
32.60
2 .30
16.00
7.70
0
0
0
0
0
0
0
33.20
2 .90
16.60
8.30
0
0
0
0
0
0
0
33.80
25.50
17.20
8.90
.60
0
0
0
0
0
0
3 . 0
26. 10
17.80
9.60
1.20
0
0
0
0
0
0
36.00
26.70
18. 11
10.10
1.80
0
0
0
0
0
0
36.60
27.30
19.00
10.70
2. 0
0
0
0
0
0
0
36.60
28.20
19.90
11.60
3.30
0
0
0
0
0
0
37.60
29.30
21.00
12.70
. 0
0
0
0
0
0
0
38.80
30.50
22.20
13.90
6.60
0
0
0
0
0
0
0.00
31.70
23. 0
15. 10
6.80
0
0
0
0
0
0
1.20
32.90
2 .60
16.30
8.00
0
0
0
0
0
0
2. 0
3 .10
26.80
17.50
9.20
.90
0
0
0
0
0
3.60
35.30
27.00
18.70
10. 0
2. 10
0
0
0
0
0
.80
36.50
28.20
19.90
11.60
3.30
0
0
0
0
0
6.00
37.70
29. 0
21. 10
12.80
.60
0
0
0
0
0
7.20
38.90
30.60
22.30
1 .00
5.70
0
0
0
0
0
8. 0
0.10
31.80
23.60
15.20
6.90
0
0
0
0
0
9.60
1.30
33.00
2 .70
16. 0
8.10
0
0
0
0
0
60.80
2.50
3 .20
26.90
17.60
9.30
1.00
0
0
0
0
52.00
3.70
35. 0
27. 10
18.80
10.50
2.20
0
0
0
0
63.20
90
36.00
28.30
20.00
11.70
3. 0
0
0
0
0
51. 0
6.10
37.80
29.50
21.20
12.90
.60
0
0
0
0
66.60
7.30
39.00
30.70
22. 0
1 . 10
680
0
0
0
0
56.80
8.50
0.20
31.90
23.60
15.30
7.00
0
0
0
0
58.00
9.70
1. 0
33.10
2 .80
16.60
8.20
0
0
0
0
59.20
50.90
2.60
3 .30
26.00
17.70
9. 0
1.10
0
0
0
61.30
53.00
.70
36. 0
28.10
19.80
11.60
3.20
0
0
0
6 .20
65.90
7.60
39.30
31.00
22.70
1 . 0
6.10
0
0
0
67.20
58.90
60.60
2.30
3 .00
26.70
17. 0
9.10
.80
0
0
70.20
61.90
53.60
5.30
37.00
28.70
20. 0
12.10
3.80
0
0
73.20
6 .90
56.60
8.30
0.00
31.70
23. 0
15.10
6.80
0
0
76. 20
67.90
59.60
51.30
3.00
3 .70
26. 0
18.10
9.80
1.50
0
79.20
70.90
62.60
6 .30
6 00
37.70
29. 0
21. 10
12.80
.50
0
62.20
73.90
65.60
67.30
9.00
0.70
32. 0
2 .10
16.80
7.50
0
t east
u ess
than
to..
too.
6 .
tea:...
t76___.
t80....
t8 ....
88....
t92....
96....
tOO...
10 ..
108...
112...
116...
120...
12 ...
128...
132..
136..
1 0..
1 ..
1 8..
152..
156-
160-
16 ..
168..
172-
176..
180..
18 ..
1 8
192..
196..
200..
20 ..
2118..
212..
216..
220..
22 ..
228-
232-
236-
210..
2 8..
256..
26 ..
272-
280..
288..
296..
30 ..
312..
320..
328..
336..
3 -
352..
360..
368..
376..
38 ..
392..
00..
20..
0..
60..
1S0
500..
520 .
5 0-
212.
216-.
2211-
22 .
228-
232.
2 ,
2 (1
2 8.
266
26 .
272.
280.
288..
296.
30 .
312.
320.
t328.
336.
3 .
352.
360.
368.
376.
33 ..
392.
00.
20.
0.
60.
80.
5P0.
520.
5 0.
500.
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233
If the pay-ro perod wth respect to an empoyee s monthy Contnued.
nd the wages are
nd the number of wthhodng e emptons camed s
0
1
2
3

5
6
7
8
9
10 or
t east
ut ess
than
The amount of ta to be wthhed sha be
more
Uft
580
85.20
76
to
08.60
60.30
52.00
3. 70
35. 0
27.10
18.80
10. 50
2.20
UfO
800
88. 10
7t
80
71.50
63.20
5 .90
6.60
38.30
30.00
21. 70
13. 0
6.10
600
16 0
82.60
8
I
7d 00
67. 70
60. 0
51. 10
2.80
3 .50
26.20
17.90
9.60
6 0.
680
98.60
DO
30
82.00
73.70
66. 0
67.10
8.80
0. 60
32.20
23.90
15.60
m
720
10 60
86.
n
88.00
79.70
71. 0
63. 10
6 .80
6.60
38.20
29.90
21.60
720
760
110. 60
102
. ,(1
9 .00
85.70
77. 0
69.10
60.80
52.60
.20
35.90
27.60
IT60
800
116 50
108
10
00.90
91.60
83. 30
76.00
6C.70
58. 0
60.10
1.80
33. 50
two
8 0
122.50
11
20
105.90
97.60
89.30
81.00
72.70
6 . 0
56. 10
7.80
39. 60
18 0
880
128.50
120
20
111.90
103.60
96.30
87.00
78.70
70. 0
62.10
63.80
6 60
8S0
920
13 . 50
136
10
117.90
109.60
101.30
93.00
8 .70
76. 0
68. 10
69.80
61.80
s
9G0
1 (1 10
132
111
123.80
115.60
107. 20
98.90
90.60
82.30
7 .00
65.70
67. 0
1,000
1 6 0
138. 10
120.80
121. 60
113.20
10 .90
96.60
88.30
80.00
71. 70
63. 0
15 per cent of the e cess over 1,000 pus
1,000 and over
1 0. 0
1
11
132.80
12 . 50
116. 20
107.90
99.60
91.30
83.00
7 70
66 0
If the pay-ro perod wth respect to an empoyee s a day pay-ro perod or a
msceaneous pay-ro perod
nd the
wages d-
nd the number of wthhodng e emptons camed s

vded by
the num-
ber of da
srs n such
0
1
2
3

6
6
7
8
9
10 or
perods a
re
more
1 t macr
ut ess
The amount of tu to be wthhed sha be the foowng amount mutped by
trfSt
than
the number of days In such perod
0 .
2.00
15 of
0
0
0
0
0
0
0
0
0
0
.00
2.25
tu m
.06
0
0
0
0
0
0
0
0
0
2.25
2.50
.35
. 10
0
0
0
0
0
0
0
0
0
2.50
2.75
. 0
.10
0
0
0
0
0
0
0
0
0
2.75
3.00
. 6
.15
0
0
0
0
0
0
0
0
0
3.00
3.25
. 6
.20
0
0
0
0
0
0
0
0
(1
3.25
3.60
.60
.25
0
0
0
0
0
0
0
0
0
3.50
3.75
.65
.25
0
0
0
0
0
0
0
0
0
3.75
.00
.60
.30
.06
0
0
0
0
0
0
0
0
.00
.25
.60
.35
.05
0
0
0
0
0
0
0
0
.25
.50
.65
. 0
. 10
0
0
0
0
0
0
0
0
.50
.75
.70
. 0
. 15
0
0
0
0
0
0
0
0
.75...
6.00
.75
. 6
.20
0
0
0
0
0
0
0
0
5.00
6.25
.75
.60
.20
0
0
0
0
0
0
0
0
525
5.50
.80
.65
.26
0
0
0
0
0
0
0
0
6.50
5.75
.85
.66
.30
0
0
0
0
0
0
0
0
6.76
6.00
.90
.60
.35
.05
0
0
0
0
0
0
0
6.00
6.25
.90
.66
.36
.10
0
0
0
0
0
0
0
6.25
6.50
.95
.70
. 0
.16
0
0
0
0
0
0
0
S0
0.75
1.00
.70
. 5
.15
0
0
0
0
0
0
0
6.75
7.00
1.05
.76
.60
.20
0
0
0
0
0
0
0
7 DO
7.25
1.05
.80
.50
.26
0
0
0
0
0
0
0
7.25
17.50
1.10
.85
.55
.30
0
0
0
0
0
0
0
7.50
7.75
1. 16
.85
.60
.30
.06
0
0
0
0
0
0
7.75
8.00
1.20
.90
.65
.35
.10
0
0
0
0
0
0
8.00
8.25
1.20
.85
.65
. 0
.10
0
0
0
0
0
0
8.50 ....
1.25
1.00
.70
. 6
.16
0
0
0
0
0
0
8.50
8.75
1.30
1.00
.76
. 6
.20
0
0
0
0
0
0
8.75
9 00
1.35
1.05
.80
.50
.26
0
0
0
0
0
0
9.oo:::. .;
9 25
1.35
1. 10
.80
.66
.25
0
0
0
0
0
0
9.25
9.50
1. 0
1.15
.85
.60
.30
.05
0
0
0
0
0
9.60
9.75
1. 5
1.15
.90
.60
.36
.05
0
0
0
0
0
9.76
10.00...
1.60
1.20
.95
.66
. 0
.10
0
0
0
0
0
10.00
1050 ...
1.65
1.26
1.00
.70
. 6
.16
0
0
0
0
0
10.60
11.00 ...
1.60
1.35
1.06
.80
.60
.26
0
0
0
0
0
11.00
11.60 ...
1.70
1. 0
1.15
.85
.60
.30
.06
0
0
0
0
11.60
12.00 ...
1.75
1.50
1.20
.95
.65
. 0
.10
0
0
0
0
1200 ....
12.50 ...
1.86
1.55
1.30
1.00
.76
. 5
.20
0
0
0
0
12.50. ..
13.00...
1.90
1.65
1.35
1.10
.80
.55
.26
0
0
0
0
790530 8 10
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23
If the pay-ro perod wth respect to an empoyee s a day pay-ro perod or a
msceaneous pay-ro perod Contnued.
nd the
wages d-
nd the number of wthhodng e emptons camed s

vue uy me num-
ber of days n such
10 or
mora
perods are
0
1
2
3

6
6
7
8
9
t east
nt ess
than
The amount of ta to he wthhed sha be the foowng amount mutped by
the number of days n such perod
1300
13.60...
2.00
1.70
1. 5
1.15
0.90
0.60
0.35
0.05
0
0
0
13.60
1 .00....
2.05
1.80
1.50
1.25
.95
.70
. 0
.15
0
0
0
1 .00
1 .50...
2.15
1.86
1.60
1.30
1.05
.75
.60
.20
0
0
a
1 .50
15.00...
2.20
1.95
1.65
1. 0
1.10
.85
.66
.30
0
0
0
15.00
15.50...
2.30
2.00
1.75
1. 5
1.20
.90
.65
.36
.10
0
0
t.S.SO
16.00
2.85
2.10
1.80
1.65
1.25
1.00
.70
. 5
.15
0
0
16.00
16 50...-
2. 5
2.15
1.90
1.60
1.35
1.05
.80
.50
.25
0
0
16.50
17.00....
2.60
2.25
1.95
1.70
1. 0
1.15
.85
.60
.30
.06
0
17.00
17.50....
2.60
2.30
2.05
1.75
1.60
1.20
.95
.65
. 0
.10
0
17.50
18 00....
2.65
2. 0
2. 10
1.85
1.65
1.30
1.00
.75
. 5
.20
0
18.00
18.50....
2.75
2. 5
2.20
1.90
1.65
1.36
1.10
.80
.86
.25
0
18.50
19.00..-.
2.80
2.55
2.25
2.00
1.70
1. 6
1.15
.90
.60
.35
.05
19.00
19.50....
2.90
2.60
2.35
2.05
1.80
1.50
1.25
.96
.70
. 0
.15
10.50
20.00....
2.95
2 70
2. 0
2.15
1.85
1.60
1.30
1.05
.75
.50
.20
20.00
21.00
3.05
2.80
2.50
2.25
1.95
1. 70
1. 6
1.15
.90
.60
.35
21.00
22.00 ...
3.20
2 95
2.65
2. 0
2.10
1.85
1.55
1.30
1.05
.76
.50
22.00
23.00....
3.35
3. 10
2.80
2.55
2.26
2.00
1.70
1. 5
1.20
.90
.65
23.00
2 .00....
3.50
3.25
2.95
2.70
2. 0
2.15
1.85
1.60
1.35
1.05
.80
2 .00
25.00-
3.65
3. 0
3. 10
2.85
2.55
2.30
2.00
1.75
1.50
1.20
.05
25.00
26.00....
3.80
3.55
3.25
3.00
2.70
2. 5
2.15
1.90
1.65
1.35
1.10
26.00
27.00..-.
3.95
3.70
3. 0
3.15
2.85
2.60
2.30
2.05
1.80
1.50
1.25
27.00
28.00.
.10
3.85
3.55
3.30
3.00
2.75
2. 5
2.20
1.95
1.65
1 0
28.00
29.00....
.25
.00
3.70
3. 5
3.15
290
2.60
2.35
2.05
1.80
1.55
28.00
30.00
. 0
.15
3.85
3.60
3.30
3.05
2.75
2.50
2.20
1.95
1.70
15 per cent of the e cess over
(Opus-
.50
.20
3.96
3.65
3. 0
3.10
2.85
2.55
2.30
2.06
1.75
S C. 503. FF CTI D T .
The amendments made by ths tte sha be appcabe ony wth respect to
wages pad on or after May 1, 19 3.
TITL I FISC L Y R T P Y RS.
S C. 601. FISC L Y R T P Y RS.
Secton 108 of the Interna Revenue Code Is hereby amended by strkng out
(d) at the begnnng of subsecton (d) and nsertng n eu thereof (e) , and
by Insertng after subsecton (c) the foowng:
(d) Ta abe Tears of Indvduas GNNtNo n 19 7 and ndnq n 19 8.
In the case of a ta abe year of an ndvdua begnnng n 19 7 and endng a
1 ) S, the ta mposed by sectons 11, 12, and 00 sha be an amount equa to
the sum of
(1) that porton of a ta , computed as f the aw appcabe to ta abe
years begnnng on anuary 1, 19 7, were appcabe to such ta abe year,
whch the number of days n such ta abe year pror to anuary 1, 1918,
bears to the tota number of days n such ta abe year, pus
(2) that porton of a ta , computed as f the aw appcabe to ta abe
years begnnng on anuary 1, 19 8, were appcabe to such ta abe year,
whch the number of days n such ta abe year after December 31, 19 7,
bears to the tota number of days n such ta abe year.
oseph W. Martn, r.,
Speaker of the ouse of Representatve .
. II. andendkro,
Presdent of the S.nate pro tempore.
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235
In the odse op Representatves, T . S.,
pr 2, 19 8.
The ouse of Representatves havng proceeded to reconsder the b ( . R,
790) entted n ct to reduce ndvdua Income ta payments, and for other
purposes. returned by the Presdent of the Unted States wth hs ob|ectons,
to the ouse of Representatves, In whch It orgnated, t was
Resoved, That the sad b pass, two-thrds of the ouse of Representatves
agreeng to pass the same.
ttest:
ohn ndrews,
Cerk.
I certfy that ths ct orgnated n the ouse of Representatves.
ohn ndrews,
Cerk.
In the Senate of the Unted States,
pr 2 (egsatve day, March 29), 19 t8.
The Senate havng proceeded to reconsder the b ( . R. 790) n ct to
reduce ndvdua ncome ta payments, and for other purposes . returned by
the Presdent of the Unted States wth hs ob|ectons, to the ouse of Rep-
resentatves, n whch t orgnated, and passed by the ouse of Representatves
on reconsderaton of the same, t was
Resoved, Tat the sad b pass, two-thrds of the Senators present havng
voted n the nrmatve.
ttest:
Car . Loeffeb,
Secretary.
19 8-10-12808
. R. 2208. PU LIC L W 78, IG TI T CONGR SS
C PT R 180, S COND S SSION .
n ct To amend the Interstate Commerce ct, as amended, and
for other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed,

Sec. 2. Part I of the Interstate Commerce ct, as amended, s
amended by addng after secton 20a the foowng new secton:
Sec. 20b. (1)

(12) The provsons of sectons 1801, 1802, 3 81, and 3 82 of the Interna
Revenue Code and any amendments thereto, uness specfcay provdng to the
contrary, sha not appy to the ssuance, transfer, or e change of securtes or
the makng or devery of conveyances to make effectve any ateraton or mod-
fcaton effected pursuant to ths secton.

pproved pr 9, 19 8.
19 8-10-12809
. R. 50. 2. PU LIC L W 92, IG TI T CONGR SS
C PT R 222, S COND S SSION .
n ct To e cude certan vendors of newspapers or magaznes
from certan provsons of the Soca Securty ct and Interna Rev-
enue Code.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That (a) secton
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236
209(b) (15) of the Soca Securty ct, as amended (U. S. C, 19 0
edton, Supp. , tte 2, sec. 09(b) (15)), and secton 1 26(b) (15)
of the Interna Revenue Code, as amended, are hereby amended to
read as foows:
(15) ( ) Servce performed by an ndvdua under the age of eghteen
n the devery or dstrbuton of newspapers or shoppng news, not ncud-
ng devery or dstrbuton to any pont for subsequent devery or dstrbu-
ton ;
( ) Servce performed by an ndvdua n, and at the tme of, the sae
of newspapers or magaznes to utmate consumers, under an arrangement
under whch the newspapers or magaznes are to be sod by hm at a f ed
prce hs compensaton beng based on the retenton of the e cess of such
prce over the amount at whch the newspapers or magaznes are charged to
hm, whether or not he s guaranteed a mnmum amount of compensaton
for such servce, or s entted to be credted wth the unsod newspapers or
magaznes turned back; or.
(b) The amendment made by subsecton (a) to secton 209(b) (15)
of the Soca Securty ct sha be appcabe wth respect to servces
performed after the date of the enactment of ths ct, and the amend-
ment made to secton 1 26(b) (15) of the Interna Revenue Code sha
be appcabe wth respect to servces performed after December 31,
1939.
Sec. 2. (a) Secton 1607(c) (15) of the Interna Revenue Code, as
amended, s hereby amended to read as foows:
(15) ( ) Servce performed by an ndvdua under the age of eghteen n
the devery or dstrbuton of newspapers or shoppng news, not Incudng
devery or dstrbuton to any pont for subsequent devery or dstrbuton ;
( ) Servce performed by an ndvdua n, and at the tme of, the sae
of newspapers or magaznes to utmate consumers, under an arrangement
under whch the newspapers or magaznes are to be sod by hm at a f ed
prce, hs compensaton beng based on the retenton of the e cess of such
prce over the amount at whch the newspapers or magaznes are charged
to hm, whether or not he s guaranteed a mnmum amount of compensa-
ton for such servce, or s entted to be credted wth the unsod newspapers
or magaznes turned back;.
(b) The amendment made by subsecton (a) sha be appcabe
wth respect to servces performed after December 31, 1939, and-, as
to servces performed before uy 1, 19 6, sha be apped as f such
amendment had been a part of secton 1607(c) (15) of the Interna
Revenue Code as added to such code by secton 611 of the Soca
Securty ct mendments of 1939.
Sec. 3. If any amount pad pror to the date of the enactment of
ths ct consttutes an overpayment of ta soey by reason of an
amendment made by ths ct, no refund or credt sha be made or
aowed wth respect to the amount of such overpayment.
oseph W. Martn, r.,
Speaker of the ome of Representatves.
. . ande bero,
Presdent of the Senate pro tempore.
In the ouse or Representatves, U. S.,
pr U, 19 8.
The ouse of Representatves havng proceeded to reconsder the
b ( . R. 5052) entted n ct to e cude certan vendors of news-
papers or magaznes from certan provsons of the Soca Securty
ct and Interna Revenue Code , returned by the Presdent of the
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237
Unted States wth hs ob|ectons, to the ouse of Representatves,
n whch t orgnated, t was
Resoved, That the sad b pass, two-thrds of the ouse of Repre-
sentatves agreeng to pass the same.
ttest:
ohn ndrews,
Cerk.
I certfy that ths ct orgnated n the ouse of Representatves.
ohn ndrews,
Cerk.
In the Senate of the Unted States,
pr 20 (egsatve day, March 29), 19 8.
The Senate havng proceeded to reconsder the b ( . R. 5052) n
ct to e cude certan vendors of newspapers or magaznes from cer-
tan provsons of the Soca Securty ct and Interna Revenue
Code , returned by the Presdent of the Unted States wth hs ob|ec-
tons, to the ouse of Representatves, n whch t orgnated, and
passed by the ouse of Representatves on reconsderaton of the same,
t was
Resoved, That the sad b pass, two-thrds of the Senators present
havng voted n the affrmatve.
ttest:
Car . Loeffer,
Secretary.
19 8-10-12810
. R. 5 8. PU LIC L W 51 , IG TI T CONGR SS
C PT R 257, S COND S SSION .
. n ct To amend sectons 212(b) and 231(d) of the Interna
Revenue Code.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That (a) secton
212(b) of the Interna Revenue Code (reatng to ncome of non-
resdent aen ndvduas) s hereby amended to read as foows:
(b) cusons. The foowng tems sha not be ncuded n gross ncome
of a nonresdent aen ndvdua and sha be e empt from ta aton under ths
chapter:
(1) Shps under foreon fag. arnngs derved from the operaton of
a shp or shps documented under the aws of a foregn country whch grants
an equvaent e empton to ctzens of the Unted States and to corporatons
organzed n the Unted States;
(2) rcraft of foregn regstry. arnngs derved from the operaton
of arcraft regstered under the aws of a foregn country whch grants an
equvaent e empton to ctzens of the Unted States and to corporatons
organzed n the Unted States.
(b) Secton 231(d) of the Interna Revenue Code (reatng to n-
come of foregn corporatons) s hereby amended to read as foows:
(d) cusons. The foowng tems sha not be ncuded In gross ncome of
a foregn corporaton and sha be e empt from ta aton under ths chapter:
(1) Shps under foregn fag. arnngs derved from the operaton of a
shp or shps documented under the aws of a foregn country whch grants
G
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238
an equvaent e empton to ctzens of the Unted States and to corporatons
organzed In the Unted States;
(2) ntcR FT of foregn regstry. arnngs derved from the operaton
of arcraft regstered under the aws of a foregn country whch grants an
equvaent e empton to ctzens of the Unted States and to corporatons
organzed n the Unted States.
Sec. 2. The amendments made by ths ct sha be appcabe wth
respect to ta abe years begnnng after December 31,19 5.
pproved May , 19 8.
19 8-12-1282
. R. 6226. PU LIC L W 5 7, IG TI T CONGR SS
C PT R 333, S COND S SSION .
n ct Makng suppementa appropratons for the natona
defense for the fsca year endng une 30, 19 8, and for other
purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed,

Sec. 3. (a) contracts n e cess of 1,000 entered nto under the
authorty of ths ct, obgatng funds approprated hereby, obgatng
funds consodated by ths ct wth funds approprated hereby, or
entered nto through contract authorzatons heren granted, and a
subcontracts thereunder n e cess of 1,000 sha contan the foowng
artce:
Rknegotaton rtce. Ths contract s sub|ect to the Renegotaton ct of
19 and the contractor hereby t.grees to nsert a ke artce In a contracts or
purchase orders to make or furnsh any artce or to perform a or any part of the
work requred for the performance of ths contract.
(b) Whenever n the opnon of the Secretary of Defense e cessve
profts are refected under any contract or contracts or subcontract or
subcontracts requred to contan the Renegotaton rtce prescrbed
n subsecton (a), the Secretary s authorzed and drected to renego-
tate such contracts and subcontracts for the purpose of emnatng
e cessve profts. e sha endeavor to make an agreement wth the
contractor or subcontractor wth respect to the amount, f any, of such
e cessve profts and to ther emnaton. If no such agreement s
reached, the Secretary sha ssue an order determnng the amount, f
any, of such e cessve profts and sha emnate them by any of the
methods set forth n subsecton (c) (2) of the Renegotaton ct of
February 25, 19 , as amended. In emnatng e cessve profts the
Secretary sha aow the contractor or subcontractor credt for Federa
ncome and e cess profts a es as provded n secton 3806 of the
Interna Revenue Code. The powers hereby conferred upon the Secre-
tary sha be e ercsed wth respect to the aggregate of the amounts
receved or accrued under a such contracts and subcontracts by the
contractor or subcontractor durng hs fsca year or upon such other
bass as may be mutuay agreed upon; e cept that ths secton sha not
be appcabe n the event that the nggregate of the amounts so receved
or accrued s ess than 100,000 durng any fsca year.
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239
(c) For the purpose of admnsterng ths secton the Secretary of
Defense sha have the rght to audt the books and records of any
contractor or subcontractor sub|ect to ths secton. In the nterest
of economy and the avodance of dupcaton of nspecton and audt,
the servces of the ureau of Interna Revenue sha, upon request
of the Secretary of Defense and wth the approva of the Secretary
of the Treasury, be made avaabe to the e tent determned by the
Secretary of the Treasury for the purpose of makng e amnatons
and audts under ths secton.
(d) The provsons of ths secton sha not appy to any of the
contracts or subcontracts specfed n subsecton () (1) of the Renego-
taton ct of February 25, 19 , as amended, and the Secretary of
Defense n hs dscreton may e empt from the provsons of ths
secton any other contract or subcontract both ndvduay and by
genera casses or types.
(e) greements or orders determnng e cessve profts sha be
fna and concusve n accordance wth ther terms and e cept upon
a showng of fraud or mafeasance or wfu msrepresentaton of a
matera fact sha not be annued, modfed, reopened, or dsregarded,
e cept that n the case of orders determnng e cessve profts the
amount of the e cessve profts, f any. may be redetermned by The
Ta Court of the Unted States n the manner prescrbed n subsecton
(e) (1) of the Renegotaton ct of February 25, 19 . as amended,
e cept that such redetermnaton sha be sub|ect to revew to the e tent
and n the manner provded by subchapter of Chapter 5 of the
Interna Revenue Code.
(f) The Secretary of Defense sha promugate and pubsh n the
Federa Regster reguatons nterpretng and appyng ths secton
and prescrbng standards and procedures for determnng and em-
natng e cessve profts hereunder usng so far as he deems practcabe
the prncpes and procedures of the Renegotaton ct of February 25,
19 , as amended, havng regard for the dfferent economc condtons
e stng on or after the effectve date of ths ct from those prevang
durng the perod 19 2 to 19 5. In any case n whch the contract prce
of any such contract or subcontract was based upon estmated costs,
then the Secretary of Defense sha determne the dfference between
such estmated costs and actua costs and sha, n emnatng e cessve
profts, take nto consderaton as an eement the e tent to whch such
dfference s the resut of the effcency of the contractor or sub-
contractor.
(g) The powers and dutes hereby conferred upon the Secretary of
Defense may be deegated by hm to any offcer (mtary or cvan)
or agency of the Natona Mtary stabshment.
(h) ny person who wfuy fas or refuses to furnsh any n-
formaton, records, or data requred of hm under ths secton, or who
knowngy furnshes any such nformaton, records, or data contan-
ng nformaton whch s fase or mseadng n any matera respect,
sha, upon convcton thereof, be punshed by a fne of not more than
10,000 or mprsonment for not more than two years, or both.
() Ths secton may be cted as the Renegotaton ct of 19 8 .
Sec. . Ths ct may be cted as the Suppementa Natona
Defense ppropraton ct, 19 8 .
pproved May 21, 19 8.
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COMMITT R PORTS.
19 8-8-12789
R NU CT OP 10 8.
ouse of Representatves Report No. 127 , ghteth Congress. Second Sesson.
anuary 27,10 8
Mr. uutson, from the Commttee on Ways and Means, submtted the foowng
report to accompany . R. 790 :
The Commttee on Ways and Means, to whom was referred the b ( . R. 701))
to reduce ndvdua ta payments and for other purposes, havng had the same
under consderaton, reported back to the ouse wth amendments and recom-
mend that the b, as amended, do pass. The commttee amendments are shown
n append .
I. Genera Statement.
. R. 790 provdes ta reducton, reef, and equazaton. It reduces the
present e tremey hgh rates of the ndvdua ncome ta . These rates were a
product of wartme condtons, and consttute a serous obstace to the ncrease
n producton needed to reeve current nfatonary pressures. The reducton of
these rates aso s essenta to the ong-run mprovement n the mercan
standard of vng.
Reef from the present hgh cost of vng s provded by an ncrease n e emp-
tons under the ndvdua Income ta . Ths reef s heavy concentrated
among ta payers n the ow-ncome brackets. Such ta payers aso receve
preferenta treatment n the percentage ta reductons made by ths b. dd-
tona reef s granted to persons 65 and over and to the bnd.
quazaton s provded for the ta burdens of marred coupes n common-aw
and communty-property States. The b, wth commttee amendments to be
offered on the foor, corrects e stng nequates under the estate and gft ta es,
as we as the ndvdua ncome ta .
s a resut of ths b coectons n the fsca year 19 9 w be reduced (or
refunds ncreased) by 7.1 bon, eavng a surpus of at east 2 to 3
bon. Suffcent funds w reman to provde a debt reducton of between 10
bon and 11 bon durng the fsca years 19 8 and 19 9.
Tabe I. comparson of the effectve ndvdua ncome tuw rates under present
aw and . R. 790.
Combned net ncome before
persona eempton.
Snge person, no
dependents.
Marred person,
no dependents,
entre Income
earned by 1
spouse.
Marred person,
2 dc )endcnts.
entre ncome
earned by 1
spouse.
Marred person, 2
dependents,
wtn ncome
dvded a fo-
ows: SO per cent
and 50 per cent
: r,
Present
aw.
. R.
790.
Present
aw.
n. R.
790.
Present
aw.
. R.
790.
Present
aw
. R
790.
Per cent.
Per ad.
Percent.
Per cent.
Percent.
Per cent.
Percent.
Per cent.
woo
3.17
8. 3
8.33
7.12
1700
1.90
2.86
3.33
WOO
(2 1)
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2 2
Tabe I. comparson of the effectve ndvdua ncome ta rates under present
aw and . R. 790 Contnued.
Sn e person, no
dependents.
Marred person,
no dependents,
entre ncome
earned by 1
spouse.
Marred person,
2 dependents,
entre ncome
earned by 1
spouse.
Marred person, 2
dependents,
wth ncome
dvded as fo-
ows: 50 per cent
and 50 per cent.
Combned net ncome before
persona e empton.
Present
aw.
. .
790.
Present
aw.
. R.
790.
Present
aw.
. R.
Present
aw.
. R.
790.
7 a
Per cent.
Percent.
Per cent.
Per cent.
Per cent.
Percent.
Percent.
Percent.
900
8.
. 3
1,000
9.50
6.32
1.200
11.03
6.66
3.17
1.500
12.67
7.98
6.33
2.66
1.800
13.72
9.61
8.
. 3
2,000
1 .28
a 6
9.50
5.32
15.20
11.62
11. 0
6.92
3.80
0.S3
3.80
0.53
3,000
16.18
12.36
12.67
7.98
6.33
2.66
6 33
2.66
,000
17.3
13. 6
1 .72
10.6
9.80
5.32
0.50
6.32
5,000
IS. 3
1 .6
15.96
11.65
11.78
7.72
11. 0
7.72
6,000
19. 7
15.83
17. 2
1-2.30
13.30
9.12
1283
9.12
7,000
20. 9
16.9
18. 6
12.99
1 .93
10.12
13.8
a 12
3,000
21. 9
18.03
19.71
13. 8
16.16
10.9
1 .73
10 9
22. 8
19.03
20.69
13.82
17.62
11.89
16. 1
11.69
10,000
23. 7
20.03
21.86
1 .68
18.62
12.10
If. 15
1 10
11,000
2 .
2a 98
22.80
16.2
19.86
12.82
a75
12.82
12.000
25. 1
21.9
23.91
18.83
20.90
13.60
17. 2
13.60
13,000
26. 2
22.88
2 .86
16.32
22. 07
1 .27
17.98
1 .27
27. 5
23.87
25.99
16.9
23.07
1 .8
18.69
1 .8
28. 7
2 .82
26.98
17.62
2 .26
18. 7
19.13
16. 7
20.000
33.23
29.28
31.97
20.03
29. 8
18.28
21.88
18.29
25.000
37. 8
33.18
36.33
22.36
3 .09
20.80
2 . 0
2a 80
30,000
0.88
36.38
39.90
2 .82
37.9
23.26
27.0
23.26
10.000
6.06
1.10
5.2
29.28
3.60
27.92
31.97
27.92
50.000
50.27
.96
9.89
33.18
8.22
31.97
36.33
31.97
0,I O0
53.75
8.13
53. 15
36. 35
61.96
36.29
39.90
35.29
70,000
56.63
60.76
66.10
38.91
55.05
37.95
2.78
37.95
59.16
63.06
58.67
1.11
57.71
0.22
8.2
0.22
90.000
61. 3
66.12
60.99
3.12
60.10
2.31
7.82
2.31
63.5
67.03
63.13
.96
6130
.23
9.89
.23
150,000
70.8
63.38
70.26
61.97
69.69
51. 2
57. 6
61. 2
200,000
7 .28
6a 77
7 .06
57.03
73.63
66.59
63.13
saw
250,000
76.71
68.97
76.6
60.8
76.19
60. 7
67. 0
60. 7
300,000
78.33
70. 5
78.19
63.3S
77.90
63.08
70.28
63.08
00,000
80.36
72.29
80.26
66.77
80.0
66 6
7 .08
68.6
500,000
81.58
73.39
81. 9
68.97
81.32
68.79
7a 6
68.79
750,000
83.20
7 .86
83. 15
71.92
S3.03
71.79
79.8
71.79
1,000,000
8 .01
75.60
83.97
73.39
83.88
73. 30
81. 9
73.30
86.23
76.70
88.21
75.60
85.17
75.55
83.97
75.65
5,000.000
86.60
77.00
86.50
76.92
86.80
76.90
88. 6
76.90
Source: Staff of the ont Commttee on Interna Revenue Ta aton.
II. Summary of Changes n stng Law.
. R. 970 Is both a ta -reducton and ta -equazaton b. The ta -reducton
features appy soey to the ndvdua ncome ta . They ncude a genera n-
crease n e emptons, a reducton n a ta rates but wth the reef concentrated
n the ower ncome brackets, and speca e emptons for those over 65 and the
bnd. The ta -equazaton features of the b appy to the ndvdua ncome ta
and the estate and gft ta es. They, combned wth an amendment whch your
commttee ntends to offer on the foor of the ouse, are desgned to produce
unform treatment for resdents of common-aw and communty-property States.
comparson of the effectve ndvdua ncome ta rates under the b wth
those under present aw s shown n tabe L The changes n the rates and
e emptons of the ndvdua ncome ta under ths b are effectve anuary 1,
19 8. The wthhodng tabes w become effectve on pr 1, 19 8. Over-
wthhodng durng the frst three months of 19 8, whch s not offset by decreased
payments on estmated ta es or fna returns, w of course be refunded to the
ta payer. The changes n the estate and gft ta become aw on the date of
enactment of ths b. bref descrpton of the changes provded by your
commttee s b s gven beow.
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2 3
. INDI IDU L INCOM T S.
1. Persona and dependency e emptons are ncreased from 500 per capta
to 600 per capta.
2. Ta reductons rangng from 30 per cent to 10 per cent accordng to the
sze of the ncome are provded for a ta payers. Tabe II presents these reduc-
tons n summary fashon. The dstrbuton of these ta reductons s as foows:
(o) Persons wth net ncomes of 1,000 or ess after e empton receve a
30 per cent reducton n ther ta .
(6) Persons wth net ncomes of 1,000 to about 1, 00 after e emptons re-
ceve a reducton of from 30 per cent to 20 per cent n ther ta .
(c) Persons wth net ncomes of from about 1, 00 to ,000 after e emptons
receve a reducton of 20 per cent n ther ta .
( /) Persons wth net ncomes n e cess of ,000 after e emptons receve a
reducton of 20 percent on the tt mposed on ther frst ,000 of net ncome
after e emptons, and 10 per cent on the ta mposed on any remanng net
ncome after e emptons.
Tabe II. 1 erccntage reductons n ndvdua ncome tares provded by
. R. ,790.
Surta net ncome.
Tentatve norma
ta and surta.
Reductons n tentatve
norma ta and surta .
Reductons t present aw
ta .
0 o 1,000
0 to 200
30 per cent.
1,000 to S1.395.S3
2uf to 279.17
7
3(1 per cent to 20 per cent
20 per cent.
1,385.83 to ,0OU
,000 and over.
279.17 to 8 0
2 per cent-
8 0 and over
2 per cent of the tentatve
ta on the frst ,000 of
surta net ncome pus
1 .5 per cent of e cess.
20 per cent of the present aw
ta on the frst ,003 o
ncome pus 10 per cent of
the e cess.
8ource: Start of the ont Commttee on Interna Revenue Ta aton.
3. usbands and wves are permtted to spt ther ncome for ta purposes.
Those who ava themseves of ths opportunty fe |ont returns, dvde ther
net ncome and e emptons by 2, compute ther ta on ths bass, and mutpy
the resut by 2. Snce n ths change the ma mum standard deducton for
marred coupes s ncreased to 1,000, the ma mum standard deducton for snge
persons s aso ncreased to 1,000.
. n addtona e empton s granted to ta payers who are 05 or over. If
both husband and wfe have attaned the age of 65, the 000 e empton s granted
to each spouse.
5. n addtona 000 e empton s granted to ta payers who are,bnd. If
both husband and wfe are bnd, the 000 e empton s grunted to each spouse.
bnd person 05 or over may cam ths e empton n addton to that based
on age.
. ST T ND GIFT T S.
1. The 19 2 amendments to the estate and gft ta whch provded speca rues
for communty-property States are repeaed for persons dyng after the emct-
ment of ths b. Generay, ths restores the rue by whch estate and gft ta
abtes are dependent upon the ownershp of the property under State aw.
Thus, In communty-property States, rrespectve of whch spouse des frst, ony
one-haf of the communty property s ncuded n the gross estate. Smary,
one-haf of a gft made out of communty property s ta abe to the husband
and one-haf to the wfe, snce under State aw each owns a one-haf nterest n
the propery.
2. commttee amendment w be offered on the foor of the ouse to provde
for estate and gft ta spttng n common-aw States. Ths amendment aso
w appy to persons dyng after the enactment of ths b, so that both the
communty-property States and the common-aw States may be paced on an
1 More accuratey, surta not ncomes. For cearer understandng, however, the term
nc-r ncome af.er e emptons w be used hereafter n ths report.
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2
equa bass at the same tme. Thus, n these States property passng from a
decedent to hs spouse s e cuded from the decedent s estate-ta base up to a
mt of 50 per cent of the vaue of hs estate. In a smar fashon husbands and
wves may treat gfts made currenty as beng made one-haf by each spouse.
Resdents of communty-property States may aso take advantage of ths provson.
If they do so, the effect w be to e tend ths spttng to ther separate
property. The repea of the 19 2 amendment aready gves them the rght to
spt communty property. In effect, these amendments represent the adopton
of a new natona system for ascertanng Federa estate and gft ta abty.
The adopton of these amendments w e tend substanta benefts to resdents
of both communty-property and common-aw States. The deay n the prepara-
ton of ths amendment s due to the nherent dffcutes of the sub|ect.
III. Summary of stmated Revenue ffect of Ta Reducton.
. FF CT ON T U ILITI .
Indvdua ncome ta abtes under your commttee s b are estmated
at 1 ,731 mon n a fu year of operaton assumng a persona Income eve
of 20 ) bon. Ths represents a reducton of 6,550 mon n the Indvdua
ncome ta abtes under present aw. Under the b as reported the abty
reducton on the account of the estate and gft ta es w be neggbe. The
effect of . R. 790 on Indvdua ncome ta abtes s summarzed In the
foowng tabe:
Tabe III. stmated ndvdua ncome ta abty under present aw and
. R. 0, assumng persona ncome eve of 209 bon.
In mons of doars.
stmated ta abty under1
Present aw 21,281
. R. 790 1 , 731
Reducton n abty under . R. 790 6, 550
Source : Staff of the ont Commttee on Interna Revenue Ta aton.
ta reducton e pressed on n abty bass, such as the one shown n the
above tabe, ndcates the decre.-ssc n obgatons ncurred by ta payers durng
a year. owever, for the purposes of determnng the effect of . R. 790 on
the budget, t s necessary to present revenue estmates on a coecton bass.
. FF CT ON T COLL CTIONS.
-
ta reducton e pressed on a coecton bass ndcates the actua oss In
recepts of the Government n a specfc year. Usuay n the year n whch a ta
reducton s made, the effect of the reducton n abtes s not refected fuy n
the coectons because of the ag In coectons behnd the ncurrng of the ta
abty. Thus, athough the ta reducton under your commttee s b s
effectve durng haf of the fsca year 19 8, ony about 30 per cent of the reducton
n abtes s refected n the coectons durng that year.
Tabe I presents the effects of the ta reducton proposed by your commttee
on coectons durng the fsca years 19 8 and 19 9. persona ncome eve of
209 bon n the caendar year 19 8 has been assumed. On ths bass, . R
790 woud reduce coectons n the fsca year 19 8 by 1 bon, reduce coectons
and ncrease refunds n the fsca 19 9 by 7.1 bon. The revenue oss n the
fsca year 19 9 s n e cess of the estmated reducton n abtes of 6.5 bon
prmary because t was not possbe to pass ths b before anuary 1, 19 8.
s a resut there w be overwthhodng of the Income ta n anuary, February,
and March of ths year, whch n the fsca year 19 9 w decrease payments of
1 Some further reducton In abtes w occur f the proposed door nmendment reatng
to the estate and cft ta es s adopted. owever, ths w have no effect on the budget n
the fsca years 10 8 or 19 9.
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estmated ta and payments wth fna returns, and w ncrease the ta refunds
requred.
Tabus I . ffect of . R. 790 on tota recepts, assumng persona ncome of
20 ) bon n the caendar year 19|8.
In mons or doars.
Fsca year.
stmated recepts under
10 8.
19 9.
1 90
, 60
7,317
1 0.287
Reducton under n. R. 790
1.0 0
7,060
1 Ths ncudes an aowance (or addtona refunds.
Source: Stan of tbe ont Commttee on Interna Revenue Ta aton
I . The Fsca. Outook n 19 8 and 19 9.
. FISC L YZ 10 8.
The surpus for the fsca year 19 8 forecast by the Presdent n hs udget
message transmtted to Congress on nnuary 12 s 7, 83 mon. Ths contrasts
wth an estmate of 75 mon based on the Presdent s udget message of
anuary, 19 7, a year ago, and an estmate of .7 bon made by hm ast
ugust. Ths ncrease of neary tenfod n the estmated sze of the surpus
durng the past year s dne to a very substanta underestmate of revenues n
the Presdent s udget message of anuary, 19 7. t that tme revenues were
estmated at 38, 82 mon 3 as contrasted wth 5,210 mon n hs recent
udget document. oth the Secretary of the Treasury and the Drector of the
ureau of the udget recenty testfed before your commttee that ths under-
estmate arose from a very conservatve assumpton as to the eve of ncome.
Your commttee ponted out n ts report on . R. 1 n March of Inst year that the
admnstraton : revenue estmates were based on too ow an ncome eve and
stated that the contnuance of the then current hgh eve of busness mght be
e pected to produce recepts n the fsca year 19 8 of at east 3 bon.
The recent udget message of the Presdent contans the foowng statement
wth respect to the revenue estmates presented n It:
1 The estmates assume contnuaton of the present hgh eves of busness
actvty and ncomes, contnued fu empoyment, and stabe prces cose to the
present eve.
The Secretary of the Treasury Informed your commttee that the estmates
were based on a persona ncome eve of 200 bon. owever, the conomc
Report of the Presdent shows that persona ncome n the fourth quarter of
19 7 was runnng at an annua rate of 205.3 bon and ndcates a rsng trend.
Ths suggests that the Treasury revenue estmates for the fsca year 19 8 at
current eves are about 1 bon too ow. Your commttee beeves that the
trend n persona ncome w contnue for at east the frst few months of the
caendar year 19 8, and because of ths trend, It s estmated that recepts for
the fsca year 19 8 w be 6, 90 mon. Combned wth the Presdent s est-
mate of e pendtures of 37,728 mon, tese revenues w produce a surpus of
8,762 mon for the fsca year 19 8.
It s cear that the ta reducton proposed under your commttee s b eaves
an ampe surpus n the fsca year 19 8. s ndcated n part III, . R. 790 s
e pected to reduce recepts In the fsca year 19 8 by 1,0 0 mon. Thus, there
w be a surpus of about 7.8 bon after the ta reducton provded n . R.
790. Ths amount w be avaabe for debt retrement and shoud be so apped.
fter ad|ustment for contnuaton of wnr e cse tu rates.
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. FISC L Y R 19 9.
Tabe whch foows shows the effect of . R. 790 upon the budget of the
Federa Government n the fsca year 19 9 wth an assumed persona ncome
eve of 209 bon under two dfferent assumptons as to the cuts Congress w
make n the e pendtures proposed by the Presdent:
Tabe . ffect of . R. 190 upon the budget for the fsca year 19 9 wth vary-
ng assumptons as to eve of e pendtures (assumng persona ncome n the
caendar year 19 8 of 209 bon).
Id bons of doars.
. ssumng a reducton n e pendtures of 2 bon:
Recepts under present aw (staff estmate) 7.3
pendtures (Presdeut s budget of 39.7 cut by 2 bon) 37. 7
Surpus before ta reducton 9. 6
Ta reducton under . R. 790 1 7.1
Surpus after ta reducton 2. 5
. ssumng a reducton n e pendtures of 3 bon:
Recepts under present aw (staff estmate) 7. 3
pendtures (Presdent s budget of 39.7 bon cut by 3 bon). 36. 7
Surpus before ta reducton 10. 6
Ta reducton under . R. 790 1 7.1
Surpus after ta reducton 3. 5
1 Incudes refunds due to overwthhodng In fsca year 1 9 IS.
Wth an e pendture reducton of 2 bon, tabe ndcates that there w
be a surpus after the ta reducton of 2.5 bon. Wth an e pendture re-
ducton of 3 bon, there woud be a surpus after the ta reducton of 3.5
bon. For each addtona reducton n e pendtures of 1 bon there w
be an addtona 1 bon ncrease n the surpus.
Thus, on the bass of the ta reducton provded by . R. 790 t woud be pos-
sbe to reduce the debt n the two fsca years 19 8 and 19 9 by 10 bon to
11 bon.
Your commttee has purposey used what t consders to be conservatve as-
sumptons both as to the amount by whch Congress w reduce the Presdent s
proposed e pendtures and the eve of persona ncome on whch the recepts are
based. It beeves that the Presdent s e pendtures w be cut by at east 3
bon. Nevertheess, to be sure that a conservatve vew s taken, the effect of
the revenue oss under . R. 790 s aso shown wth a cut of ony 2 bon n
e pendtures.
In hs revew of the udget ast ugust the Presdent admtted that cuts
n the 19 8 udget for whch Congress was responsbe amounted to 1,520
mon. It s beeved, however, that ths very substantay understates the
savngs made by Congress. Nevertheess, n vew of the arger sze of the 19 9
udget, the acknowedged congressona reductons n the 19 8 udget ndcate
that cuts of 2 bon or 3 bon n 19 9 are atogether wthn reason.
Ths s especay true n vew of the fact that the Presdent s proposas for
new egsaton n hs current udget message ca for e pendtures n the fsca
year 19 9 of 5,735 mon. Ths contrasts wth proposed new egsaton In
the udget message of ast year cang for a net ncrease of e pendtures n
the fsca year 19 8 of ony 8 mon. It s a we-recognzed fact that the
possbty of reducng e pendtures whch requre new egsaton Is much greater
than n the case of e pendtures based on e stng aw. The atter represent
Tne assumed eve of persona ncome shown s for the caendar year 10 S snce th Is
the most Important perod as far as coectons In the fsca year 10 9 arc concerned.
If the proposed emnaton of the posta defct Is offset aganst the proposed egsaton
whch caed for ncreased e pendtures the proposed egsaton of the Presdent In the fsca
year 19 8 woud have ncreased e pendtures In that year of ony ;2 mon.
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programs aready accepted by Congress, whe on the former Congress has not
as yet e pressed ts vews. Thus, snce the effect of the proposed egsaton
ncuded n the current udget on fsca year 19 9 e pendtures s neary 12 tmes
as arge as the effect of the proposed egsaton contaned In ast year s udget
on fsca year 19 8 e pendtures, t s apparent that there s a greater opportunty
for e pendture cuts n 19 9 than n 19 8.
The persona ncome eves, e pressed as annua rates, on whch your commttee
based ts revenue estmates are:
Frst haf of caendar year 19 8 212 bon.
Second haf of caendar year 19 8 205 bon.
Frst haf of caendar year 19 9 195 bon.
The above fgures produce an average persona ncome of 209 bon for the
caendar year 19 8 and 200 bon, for the fsca year 19 9. Of these two
fgures, that for the caendar year 19 8 s the most sgnfcant, snce a arge
porton of the coectons n the fsca year 19 9 arse from abtes ncurred
durng the caendar year 19 8.
These assumptons represent an attempt to be reastc, yet conservatve, n
arrvng at a bass for the revenue estmates presented In ths report. It s
now qute generay agreed that for some tme at east ncome eves not ony
w reman hgh, but w contnue to rse. The Presdent s recent conomc
Report gves every e pectaton of a rsng ncome throughout 19 8. usness
forecasters are amost unanmousy agreed that at east n the frst few months
of 19 8 there w be a contnuaton of the current rsng trend n persona n-
comes. ence, t s unreastc to assume anythng other than a rsng ncome
eve n the fore pnrt of 10 S.
Persona ncome n the ast quarter of 19 7 was runnng at an annua rate of
205 bon and premnary data ndcate that It reached a eve of 206.5 bon
n December. Ths represents an ncrease of 11.6 bon n the four months
snce ast ugust. If ths trend contnues for ony three or four months more,
persona ncome w average we above the 212 bon assumed n ths report
for the frst s months of IMS.
For the purposes of the revenue estmates, t as been assumed that ncomes
woud decne durng the second haf of 19 S and the frst haf of 19 9. Ths
s not to be taken as a forecast of the most key course of events, but rather
as a cautous assumpton we wthn the mts of reasonabeness, and n con-
formty wth your commttee s desre to pace ts ta pocy on a conservatve
bass.
The Secretary of the Treasury In hs recent appearance before your commttee
ndcated that the Treasury estmates of revenue ost under . R. 790 n the
fsca year 19 9, as we as the revenue estmates whch appear n the Presdent s
udget recenty presented to Congress, assume current eves of ncome.
When pressed tor the actua fgures used, the Secretary ndcated that persona
ncomes were assumed to be 200 bon throughout the 18-month perod from
anuary, 19 8, to uy, 19 9. Ths s not the current eve as ndcated by the
Presdent s conomc Report. There persona ncome payments for the fourth
quarter of 19 7 are estmated to be at an annua rate of 205.3 bon. The ast
Department of Commerce fgure pubshed s for November and shows a eve
of 20 .9 bon. s ndcated above, the Presdent s conomc Report mpes
that the eve n December s 200.5 bon.
part from the fact that the Treasury s assumpton as to persona ncome s
consderaby beow the current eve, t does not n the opnon of your commttee
represent a reastc bass for revenue estmates. Of necessty, the Treasury
estmate assumes an abrupt and mmedate drop from current ncome eves.
Snce persona ncome n December was at an annua rate of 20o.5 bons, and
snce there s no evdence of an mportant decne n anuary, the Treasury must
be forecastng a sharp drop beow 200 bon n February, or an even sharper
fa n March, f persona ncome s to average 200 bon durng the frst quarter
ven If proposed e pendtures for nternatona affars and fnance are eft out of account
n both budgets, e pendtures based on proposed egsaton n 19 9 are neary eght tmes
the sze of such tems n 19 8.
1 The premnary ftsrure of persona ncome for December was Indrecty presented In the
Presdent s recent conomc eport whch estmated persona ncome n the ast quarter
of 19 7 at an annua rate of 205.3 h on. Srce the October and November fgures of
5201 bon and 20 .9 bon, respectvey, are avaabe n Pepartmeut of Commerce
matera, was possbe to compute the estmate used for December.
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of 19 8, as the Treasury assumes that t w. Ths appears to be a cear-cut
contradcton of the admnstraton s frequenty e pressed fear of the contnua-
ton of nfatonary pressures.
The faure of the Treasury to take nto account the strong kehood of a
hgh ncome eve n the frst haf of caendar year 19 8 coud of tsef resut In a
serous understatement of coectons n the fsca year 19 9. Ths woud be true
even f the ncome eve for the entre 18-month perod shoud average no more
than 200 bon, snce the ncome eve In the fore part of the caendar year
19 8 s of partcuar sgnfcance wth respect to coectons In the fsca year
19 9.
. Ta Reducton and Infaton.
The queston of the effect of a ta cut at ths tme on e stng nfatonary
pressures has been wdey dscussed. It appears to be a centra ssue n much
of the dscusson over both the Presdent s ta proposa and your commttee s
b.
. T P SID NT PROPOS L.
The Presdent In hs messages to Congress and the Secretary of the Treasury
n hs recent appearance before your commttee have supported Indvdua
ncome ta reducton. They have contended, however, that n order to prevent
an ncrease n nfatonary pressures, the oss n ndvdua ncome ta es shoud
be made up by ncreasng corporate ta es. In the hearngs before your com-
mttee the Secretary fnay made t cear that the admnstraton, n recom-
mendng an ncrease In corporate ta es, was sponsorng an e cess profts ta .
The Presdent s program s nfatonary n effect and t s tme that ths fact
be known and generay understood. Contrary to the genera mpresson, the
mposton of an e cess profts ta woud not produce suffcent revenue n
the fsca years 19 8 and 19 9 to offset the decrease n the ndvdua ncome ta
proposed by the Presdent. The Secretary of the Treasury admtted n the hear-
ngs before your commttee that the Presdent s ta proposa w reduce co-
ectons by 3 bon n the fsca years 19 8 and 19 9. Ths oss occurs because
coectons ag behnd changes n abtes to a much greater e tent In the case
of corporaton ta es than s true of ndvdua ncome ta es. Thus the Pres-
dent s tn proposa, despte the camoufage, s a revenue-reducton measure as
far as the fsca years 19 8 and 19 9 are concerned. y decreasng the budget
surpuses t tends to ncrease the nfatonary pressures n those years. Of
course, greater coectons from corporate ta es woud be reazed n the fsca
years 1950 and 1951. owever, even the Presdent s economc advsers have
not as yet so much as ntmated that the defatonary pressures, resutng from
the ncreased corporate ta coectons n 1950 and 1951, woud be desrabe.
The type of reducton n ndvdua ncome ta es proposed by the Presdent,
taken aone, woud be most nfatonary. most a of the proposed reduc-
ton woud be concentrated n the hands of persons who spend neary a of ther
current ncome. very sma part woud go to ndvduas who mght save
and nvest a substanta porton. It s dffcut to see how a more e posvey
nfatonary type of ndvdua ncome ta reducton coud be devsed. Your
commttee s b recognzes the necessty of offerng reef to those bearng the
brunt of the hgh cost of vng, but your commttee s b aso provdes ncentves
for greater producton.
The proposa of the Presdent to mpose an e cess profts ta , taken aone, s
aso hghy nfatonary. It dscourages productve effort on the part of corporate
enterprse and the prvate nvestment n corporate stocks whch s necessary for
busness e panson and, therefore, greater producton. On ths pont your com-
mttee wshes to quote the words of the former Secretary of the Treasury, and
aso a former member of the Ways and Means Commttee, Chef ustce nson,
when he appeared before the Senate Fnance Commttee n 19 5 n support of the
repea of the wartme e cess profts ta :
Ceary, the repea of the e cess profts ta w stmuate producton. To-day
we are starved for new houses, new cars, new rados, and the ke. The best
s a resut of oar wthhodng tn system n Urge porton of ndvdua ncome ta es are
coected very shorty after the abty s nourr-d. Corporate ta es, however, are not doe
unt two and one-haf months after the end of the corporaton s ta year and even then
the payment s usuay spread out n four nstaments whch are not competed for neary
another fu year.
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defense aganst the use of our wartme savngs to bd up prces on these scarce
tems s to remove the scarcty. Producton and more producton s the key.
To ths end emnaton of the repressve nfuence of the e cess profts ta
w make a rea contrbuton.
The mposton of an e cess profts ta woud aso ead to waste n the use of
materas and manpower. Ths has aways been a consequence of e cess profts
ta aton. It was apparent durng the war. It woud surey appear n an
aggravated form f such a ta were mposed n a nonwar perod when patrotc
motves are not as strong. The resut woud be a dverson of productve re-
sources nto nonessenta channes, and an over-a reducton n the voume of
output. oth of these factors woud Increase nfatonary pressures.
Snce both portons of the Presdent s program, taken aone, are nfatonary,
the program as a whoe s hghy undesrabe.
. TOU COMMITT S ILL.
The postve effect of your commttee s b on the Incentves to produce s
mportant n consderng ts nfuence on present Infatonary pressures. ecause
of the mportance of ths sub|ect, t s dscussed at ength n the ne t secton
of ths report It s suffcent to say here that your commttee beeves that
ncreased producton s the most satsfactory answer to the hgh prces resutng
from the pressure of pent-up demand on a mted suppy. So far as ths method
of attackng nfaton s avaabe, ts use s preferabe to the arbtrary reducton
of demand to ft a ower eve of producton. y owerng ta rates n both
the ower and upper ncome brackets, your commttee s b w ncrease the
ncentves of abor and management to produce, and w ncrease Investors
wngness to assume busness rsks. For- these reasons . . 790 w Increase
producton. Ths n turn w decrease nfatonary pressures.
Crtcs of your commttee s b who stress Its aeged nfatonary effects gnore
the fact that szabe reductons n the Federa Government s e pendtures may
be e pected to accompany ths ta reducton. Your commttee beeves that
fsca year 19 9 e pendtures w be reduced by at east 3 bon. owever,
even If It s assumed that e pendtures w be cut by ony 2 bon, there st
woud be a surpus of 2.5 bon n the fsca year 19 9 after the ta reducton
provded by . R. 790.
Ths s a arger surpus than the admnstraton apparenty beeves s re-
qured n the fsca year 19 9. The Presdent s udget message estmated that
on the bass of admnstraton e pendture proposas, the surpus woud be
.8 bon. owever, ths must be reduced by 2. bon, the amount by whch,
accordng to the Secretary of the Treasury, the Presdent s ta proposa woud
reduce fsca year 19 9 coectons. Ths woud eave a surpus of ony 2.
bon accordng to the admnstraton s own cacuatons.
So far attenton has been drected ony to the effect of . R. 790 on the ord-
nary budget surpus. The Presdent s recent conomc Report contans a tabe
showng the surpus on a cash bass for the caendar years 19 6, 19 7, and 19 8.
s the conomc Report Indcates, ths presents a better pcture of the mme-
date effect of the Federa budget on consumer and busness demand than the
ordnary budget Ths s true because recepts and e pendtures whch, from
the standpont of the economy as a whoe, are mere accountng entres are em-
nated. The tabe foows:
Tabe I. Federa cash surpus, caendar years 19 6,19 7, and 19 8.
ons of doars.
Recepts or payments.
19 6.
19 7
19 8.
Recepts
5.8
6.3
16.9
1.3
9.2
0.
.2
5.6
8.8
ased on actua data through md-December.
1 ssumes no changes n ta egsaton and contnued hgh eves of empoyment and Income, and Incudes
antcpated Presdenta recommendatons for new egsaton.
Source- conomc Report of the Presdent, anuary, 19 8, p. 99.
796590 s 8 II
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250
pparenty the cash surpus In the caendar year 19 8 w be much arger than
n 19 7. Ths occurs not ony because of a arge e cess of ordnary recepts over
ordnary e pendtures, but aso because arge nonrecurrent termna-eave pay-
ments were made n 19 7.
It s antcpated that In the caendar year 19 8, . R. 790 w reduce revenues
by 3.6 bon. owever, f t s assumed that one-haf of a 2 bon to 3
bon cut n fsca year 19 9 e pendtures s effectve n the frst haf of the year,
there woud be a cash surpus after the enactment of . R. 970 of 6.2 bon to
6.7 bon as compared to 5.6 bon n 19 7. In the opnon of your commtteo
the dfference w be even greater because, as ndcated esewhere, there s good
reason to beeve that the revenue estmates for the fsca years 19 8 and 19 9 used
n the budget are consderaby understated. Thus even after the proposed ta
reducton, the cash surpus w be substantay greater n 19 8 than n 19 7.
Ths means that the 19 8 budget after provson for your commttee s ta b w
be a stronger curb on nfaton than the budget of 19 7.
Some w st contend that . R. 790, vewed wthout the accompanyng
e pendture decrease, w have a temporary Infatonary effect It mght even
be contended that ths w be so despte the b s stmuatng effect on produc-
ton ncentves. To such crtcs your commttee can best repy by quotng a state-
ment from the Presdent s conomc Report whch, athough ntended to appy to
the Presdent s proposa, fts your commttee s b much more apty because t
contans some rea ta revson:
ny net change one way or the other n the effect of these ta revsons upon
nfaton s outweghed by the manfest equty of the revsons proposed.
I. The Percentage Reducton n Ta es and Incentves.
In the opnon of your commttee producton must be the utmate answer
both to the mmedate Infatonary probem and the ong-run goa of achevng a
hgher standard of vng. Increased producton requres the whoehearted
cooperaton of a segments of our economy. To accompsh ths goa the pro-
ductvty of abor must be ncreased, the ntatve of our busness managers must
be stmuated, and profts after ta es must be of suffcent sze to attract nvestors
nto rsk-takng enterprse. Your commttee beeves that the present hgh war-
tme ta rates represent one of the chef obstructons to the achevement of ths
hgher eve of producton.
. P OnUCTION IN mmedate future.
The Secretary of the Treasury n hs testmony before your commttee, wth ths
year and ast, stated hs beef that ndustry was and s runnng at fu capacty.
Therefore, he coud see no mmedate need to remove the hgh ta rates whch
obstruct producton. Despte hs statement ast year the output of goods and
servces dd ncrease n 19 7. The recent conomc Report of the Presdent est-
mates that 19 7 producton e ceeded that of 19 0 by neary 5 per cent athough
the ncrease dd not qute reach the goa set a year ago. Moreover, the report
sets up the ob|ectve of a further 3 per cent rse n the output of goods and servces
of the nonagrcutura parts of our economy n 19 8. Thus t s apparent that the
Secretary s opnon that we have reached a temporary mt In our productve
effort s not we founded.
Increases n the productvty of abor and the remova of bottenecks n varous
ndustra processes represent the two chef means of ncreasng producton n the
mmedate future. Our e perence after the Frst Word War eads to the con-
cuson that a arge ncrease n productvty can be e pected n such perods.
fter Word War I productvty ncreased by more than 10 per cent a year for a
perod of three years. The absence of any such ncrease foowng Word War II
can be accounted for to a consderabe e tent by such obstructons as the present
hgh ta rates. The absence of adequate monetary ncentves s one of the m-
portant causes of the bottenecks and the current ow rate of ncrease n pro-
ductvty. Your commttee refuses to accept the concuson that we have reached
even a temporary mt to our productve effort, and beeves that ower ta rates
w be benefca In stmuatng producton n the mmedate future.
asc Fncta on mpoyment and Producton. Senate Commttee Prnt No. , 79th Cons-
st se8S.t September 1, 19 5, p. 6.
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251
The repressve effects of the e stng ta rates are fet not ony In manufac-
turng and trade, but In farmng as we. vdence of ths can be found n the
reports that some farmers have been unwng to move ther crops to market
durng the cosng months of a year In whch they had aready accrued arge ta
abtes. These farmers were hodng back ther crops unt the turn of the
year n order to avod the hgh repressve surta rates. Obvousy ta reductons
n these cases woud produce an mmedate ncrease n the suppy of farm
products.
. PRODUCTION IN T LONG UN ND T SC RCITY OF RIS C PIT L.
The avaabty of suffcent rsk capta to meet the needs of busness Is a
sgnfcant factor In ncreasng producton In the mmedate future, and the
paramount consderaton for the ong run. ecause your commttee had receved
reports of shortages of such capta, t asked the Secretary of Commerce to testfy
on ths sub|ect at ts recent hearngs. The Secretary took the poston that ampe
fnnds are avaabe to meet current busness needs, and found no evdence of a
shortage of savngs.
owever, the Secretary s emphass was on the over-a needs for busness funds,
and not on the pont wth whch your commttee was prmary concerned, the
avaabty of venture capta). The nadequate suppy of ths rsk capta s
abundanty shown by the Secretary s own statement. t the hearngs the Secre-
tary presented the 19 7 data whch appear n tabes and III. The reman-
ng data shown n these tabes were supped on request by the Drector of the
Offce of usness conomcs of the Department of Commerce. From these data
and other evdence submtted by the Secretary at the hearngs on ths b, the
foowng facts emerge:
Tabe II. Changes n corporate securtes outstandng and n ther ownershp,
19 6 and 191,1.
mounts In bons of doars-
3
19 6.
19 7.
mount.
Per cent
of new
ssues.
mount.
Per cent
of new
ssues.
Net ssues1 by Industry group
2.3
100.0
R.9
100.0
Industra and msceanoous
2.5
.3
-.8
108.7
13.1
-21.7
1.9
8.7
61.3
2.0
0
0
Net Issues by type of securty
2.3
100.0
3.9
100.0
preferred stock;::::::::::::::::::::::::::::::::::::::::::::
.9
.
1.0
39.1
17.
3.6
.8
.5
2.0
20.
12.8
66.7
Net purchases by varous groups
2.3
100.0
3.9
oo.o
.3
.1
13.0
8.7
.2
.2
5.1
6.1
66.7
0
Lfe nsurance companes
2.0
-.2
87.0
-8.7
0
.6
Domestc mdvduas , etc
0
0
.9
23.1
1 Premnary data.
1 Data do not add to totas because of roundng-
1 New Issues ess retrements.
1 Purchases ess saes.
Source: The amounts shown for 19-17 were taken from the statement of W. vere arrman, Secretary
of Commerce, before the Commttee on Ways and feans of the ouse of Roprosentatves, an. 19. 19 8.
The amounts shown for 19 C were supped on request by the Department of Commerce.
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252
Tabe III. Source of corporate funds n 19 1,19 6, and 19 7
mounts n bons of doars.I
19 1.)
10 6.
19 7.
mount.
Per cent
of tota.
mount.
Per cent
of tota.
mount.
Per cent
of tota
16.3
100.0
23.6
100.0
26.0
100.0
Retaned profts
.7
.3
-.8
-2.0
2.9
.6
.1
.1
1.
30.7
28.1
-6.2
-13.1
19.0
30.1
.7
.7
9.2
6.6
.6
27.5
19.5
1.3
25.8
12.7
-10.6
.0
9.7
1 .0
10.0
.8
-1.0
2.0
1.0
1.6
.
3.9
3.3
38 5
18.5
-3.8
7.7
3.8
6.2
1.5
Deprecaton, etc
Cash (on hand and In banks)
.3
6.1
3.0
-2.6
Payabes (trade)
Federa ncome ta abtes
Other current abtes
.0
2.3
3.3
Net new ssues

1 Unted States corporatons, e cusve of banks and nsurance companes.
Data for these years are premnary.
1 Data do not add to totas because of roundng.
Source: The amounts shown were supped on request by the Department of Commerce
1. The amount of busness Investment fnanced by retaned profts represented
an unusuay arge proporton of the tota n 19 7. Specfcay, retaned profts
were 38.5 per cent of tota nvestment n 19 7 as compared to 27.5 per cent n
19 6 and 30.7 per cent n 19 1. It s beeved that ths heavy dependence on
nterna fnancng was not a matter of choce, but was forced on corporatons
by the dffcuty of foatng new securty ssues.
2. The mportant roe payed by undstrbuted profts n 19 7 produced a sub-
norma reatonshp between dvdends and corporate profts. tabuaton
made from Department of Commerce data ndcates that n 19 7 dvdends repre-
sented about 55 per cent of tota profts10 as compared wth the 70 to 75 per cent
customary dstrbuted.10 Ths, of course, has the effect of makng new stock
ssues ess attractve to prospectve nvestors, whch n turn accentuates the
need for fnancng out of undstrbuted profts.
3. Of the new ssues marketed n 19 7, an unusuay arge proporton took
the form of f ed-ncome securtes rather than stock. In that year bonds and
notes represented 86.7 per cent of the tota, as compared to 3.5 per cent n 19 6.
. ccordng to the Secretary the amount of rsk-bearng common stocks ssued
In 19 7 was 10 per cent ess than n 19 6. Tabe II shows that n terms of tota
new securtes ssued n 19 7, common stock represented ony 20.5 per cent of
the tota, as compared to 39.1 per cent n 19 6. Ths reduced emphass on
common stocks, together wth the heavy reance on debt fnancng, refects the
dffcuty e perenced by corporatons n obtanng rsk capta.
5. Lfe nsurance companes are takng a very arge proporton of the new
securtes, and ndvduas, who must be the chef source of rsk capta, ate
buyng a reatvey sma proporton. In both 19 6 and 19 7 the fe nsurance
companes and banks, whch must pace ther funds n securtes wth a ow
degree of rsk, accounted for the great buk of the net purchases of securtes,
76.9 per cent n 19 7 and actuay 108.7 per cent n 19 6. On the other hand,
domestc Indvdua buyers accounted for 0.0 per cent of the net purchases n
19 6 and ony 23.1 per cent n 19 7. Ths s st another ndcaton that those
buyng securtes to-day are for the most part seekng reatvey rskess
nvestments.
6. Net securtes ssues by the rsk-takng ndustras (prmary manu-
facturng) n 19 7 dropped, whe safer net ssues of the uttes ncreased sub-
10 In these computatons profts have been ad|usted for Inventory revauaton.
11 In 19 6 the net decrease n the hodngs of securtes by foregners and the 0 net pur-
chases by ndvduas, etc., accounts for the fact that the net purchases of the banks and
Insurance companes represent more than 100 per cent of net purchases.
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253
stantay. In 19 7 the ndustras accounted for 8.7 per cent of the tota nud
uttes 51.3 per cent In 19 6 the fgures were 108.7 per cent and 13.1 per
cent, respectvey.
If any further evdence s needed of the scarcty of venture capta attenton
need ony be turned to the unprecedented e stence of a suggsh stock market
n an nfatonary perod. ere too there s a marked preference for securtes
wth a ow degree of rsk. The average yed on new securtes has been n-
creasng for some tme, and the spread between the rates pad on ssues n-
vovng a greater degree of rsk and those of the gt-edged varety s now
substantay arger than t was a year or so ago. Ths ncreasng premum
whch must be pad for rsk capta s st another ndcaton of ts ncreasng
scarcty.
New and sma busnesses are fndng t partcuary dffcut to obtan rsk
capta. Large we-estnbsed enterprses wth good credt ratngs are faced
wth much ess dffcuty n foatng new securtes. Ths addtona advantage,
en|oyed by arge frms, strengthens the tendency toward monopoy and concen-
traton. vdence of the Increasng fnanca dffcutes encountered by sma
manufacturers s found n the statstcs of busness faures. Records of the
frst 10 months of 19 7 show that there were 2,8 6 faures among sma manu-
facturers as compared wth 885 n a ke perod of 19 6.
O. T FF CT OF PR S NT T T S ON INC NTI S.
Your commttee beeves the present hgh ndvdua ncome ta rates deter
Increases n the productvty of abor, the openng of botte-necks by manage-
ment, and the wngness of nvestors to assume rsks. Ceary, ths eads to the
concuson that the hgh wartme ndvdua ncome ta rates shoud be owered
substantay n order to aevate the present nfatonary condtons and to
assure a rsng standard of vng for the mercan peope n the years to come.
. R. 790 s a step n ths drecton.
The repressve effect of present ta rates can be shown by e amnng the
amount of spendabe Income remanng after ta es for ta payers at dfferent
ncome eves. For e ampe, a marred coupe wth two chdren havng a net
ncome of 1,000 under present aw has 90 per cent of ths Income eft after
payng ta es. Under your commttee s b they woud have 95 per cent If
ther ncome were 10,000, they woud have 81 per cent eft under present aw,
and 88 per cent under your commttee s b. marred coupe wth two depend-
ents havng 30,000 of ncome retans ony 62 per cent of ther Income under
present aw, but 77 per cent under . R. 790. If they had an ncome of 70,000
they woud retan ony 5 per cent under present aw but 62 per cent under the
proposed egsaton. Tabe I shows the spendabe Income ert after ta es
at varous eves for a marred coupe wth two dependents and the per cent
ths s of ncome before ta es under both present aw and your commttee s b.
Tabes I , , and C n part I show the same nformaton for ta payers
havng a dfferent e empton status.
13 In 19 6 Industras accounted for more than 100 per cent of the securtes Issued
because of a net decrease n ssues by raroads.
u The credt house of Dun radstreet n ther summary of ndustra faures for the
frst 10 months of 19 7 as compared wth 19 6 prove concusvey that Federa ta es and
other dscrmnatng egsatve nequtes arc teray squeezng the febood out of sma
concerns. Records n the frst 10 months prove that sma manufacturers suffered faures
amountng to 2,8 6 or au ncrease of 222 per cent over a ke perod n 19 6 whch regstered
ony 885 faures.
The tota abtes of these concerns that faed In the 10-month perod of 19 7 amounted
to 179,20 ,000 as compared wth ony 5 0,733,000 n the same perod for 19 6, an aarm-
ng ncrease of about 3 0 per cent, and ths s what Washngton terms a prosperous vear.
Wth the e cepton of the sod South, the ncrease n faures occurred n a sectons
of the Unted States but greater through the Northeast Centra, the Northwest Centra, the
Mdde tantc, and the Pacfc States.
though It Is conceded that sma busnesses are the keystone n the free enterprse
system, ther destructon contnues unabated. It s a 3-way squeeze. They are beng bank-
rupted by competton of ta -free cooperatves, e orbtant Federa ta es, and the strat-
|acket Government reguatons, ke the wagc-and-hour aw.
Provdng Congress fas to recognze the urgency, and negects to take prompt acton to
emnate the cause for ths crushng msfortune, commerca faures w not decrease but
ncrease, and sma manufacturers w In a kehood be destroyed or obterated.
e ampes assume the entre ncome was earned by one pouse and that the coupe
Is resdent n a common-aw State.
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25
Tabe I . Comparson of amount of spendabe ncome after ta es under present
aw and . R. 790 nvtson b).
M RRI D P RSON TWO D P ND NTS NTIR INCOM RN D Y ON
SPOUS .
mount of spendabe Income
under-
Por cent of It
toncon
Net Income before persona e empton.
Present aw.
. R. 790.
Present aw.
. R. 780.
Per cent.
Pfr cent.
2,000
2,000.00
2,000.00
100.00
100.00
2, 05.00
2, 86. 70
96.20
99. 7
3,G00
2,810.00
2,920.20
93.66
97.3
,000... k
8,620. 00
3.787.20
90.60
9 .
5,000
, 11.00
.61 .00
88.22
92.2
6,000
6, 202. 00
5, 52. 80
86.70
90. ft
7,000
6,055. 00
6,291.68
86.07
89.8-
8,000
6,70 . n
7,12 . 8
83.85
89.06
7, 23.00
7,957. 28
82. 8
88. 1
10,000.
8,138.00
8,790.08
81.38
87.90
11,000
8,815.00
9, 589. 82
80.1
87.18
12,000
9. (12. 00
10,367 52
79.10
86. 0
10.131.00
11,1 6. 22
77.93
85.73
1 ,000
10, 770. 00
, 922. 92
76.93
89.16
11,361.50
12,6S0. 10
75. 7
8 .53
20,000
1 ,110. 00
16,3 2.88
70.55
81.71
25,000. . .
16, 78. 50
19,800. 6
66.91
78.20
18. 619.00
23,022.06
62.06
76.7
0.000
22,858.00
28,832 56
56. 0
72.08
50.000
25.889.00
3 . 013. 78
51.78
68.03
28,821.00
38,825.6
8.0
6 . 71
31, 68.00
3. 32.30
.95
02.05
80.000
33, S30.00
7, 820.08
2.29
59.78
80,000
35,907.00
51,920.58
39.90
57.6S
100,000
37,699 00
55, 77 . 8
37.70
65.77
150,000
5, 62.00
72,871. 02
30.31
a 68
200.000
52,731.00
86.827.6
26.37
3. 1
59, 625.00
98,821.18
23.81
38.53
66.300.00
110.773.68
22 111
36.92
00,000
79.850.00
133. 8 . 20
19.96
33. 6
500.000
93. 00.00
156,059 72
18.68
31.21
750.000.
127, 275.00
211,5 7.22
16 97
28.21
1,000,000
161. 150. 00
267, 03 72
16.12
26.70
2,000,000
296. 66a 00
88.98 . 72
1 .83
2 . 5
5,000,000
725.000.00
1. 15 .83 . 72
1 .50
23.10
Source: Staff of the ont Commttee on Interna Rovenue Ta aton.
Margna tn rates, thnt s the ta rate pad n the top doar of Income,
ordnary ndcate the ncentve whch e sts under a gven ta rate schedue to
earn addtona ncome or to reaze t through nvestments, tnder . R. 790
they do not, however, show the entre Increase n ncentves brought about by
the b, snce they do not refect the efTect of the ncome spttng provson.
For e ampe, assume that the husband earns the entre Income of a famy unt.
ecause of the ncome spttng provson the margna rate whc woud
appy n ths case s the rate appyng to an ncome of one-haf the sze of that
earned by the husband. Despte the shortcomngs of margna rate tabes n
refectng the fu reducton under your commttee s b, such rates are presented
n tabe for both your commttee s b and the Presdent s ta proposa. They
refect ceary the fact that the Presdent s 0 ta credt has practcay no
effect on ncentves. The ast two coumns of tabe show the effect of . R.
790 and . R. 968 on the margna ta rates. There s a substanta decrease
n the margna ta rate a down the ne under your commttee s b even
though the effect of ncome spttng s not refected n the rates shown n the
tabe. Under the Presdent s proposa, however, there s no decrease n the
margna rate and, therefore, no ncentve provded by the pan.
15 Techncay there Is n decrease In the narsna ta rates under the Presdent s proposa
for net Incomes after e emptons up to the eve of about 210 where the 0 ta credt
.becomes fuy effectve.
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255
Tabe . Comparson of margna rates under present aw, . R. 190 ( nutson
t), and . R. 968 (Dngc b and Presdent s proposa).
Net Income after e emptons.
Margna rates.
Percentage-pont de-
crease ( ) or ncrease
( ) n rates compared
wth present aw.
ceedng
Not e ceedng
Present
aw.
. R. 790.
. R. 968.
. R. 790.
. R.
968.
SO
S .ooo
11. 00
2.000
,000
f,000
5S.0OO
10,000
12,000
1 ,000
t 8,000-
518,000
M .0110
122 mo
126.000
132,000
O8.000
.000
S50.00O
80 W0
70,000
S0,0OO.
1,000...
1,100 ..
2,000...
,000...
0,000...
8.000...
S 10.000..
12.000..
1 .000..
10,000-.
18,000..
20.000..
22,000..
28,000..
32.000..
38,000..
,000..
50.000..
60,000..
70,000..
80.000..
90.000..
100,000.
160,000.
200,000.
Per cent.
19.00
19.00
19.00
20.90
2 .70
28.60
32.30
36. 10
0.85
. 5
7.60
50. 35
53.20
56.05
.8.90
61. 75
65.65
68. 0
71.25
7 .10
78. 95
79.80
82. 65
8 .55
85.60
86. 5
Per ant.
13. 300
( )
15.200
16.720
22. 230
25. 850
29.070
32. 90
38.765
0. 185
2.750
5.315
7.880
50. 5
53.010
55.575
.58.905
61.680
6 .125
60.690
09. 256
71.820
7 . 3 5
76.095
76. 950
77.805
Per cent.
19.00
19.00
19.00
20.90
2 .70
28.60
32.30
36. 10
0. 85
. .65
7.50
50.35
53.20
56. 05
68.90
61.76
65.55
68. 0
71.25
7 . 10
76. 95
79.80
82.65
8 .55
85.50
86. 5
Per cent.
-5.700
( )
-3.800
- .180
-2. 70
-2.850
-3.230
-3.610
- .085
- . 65
- .750
-5.035
-5.320
-5.605
-5.890
-6.175
-6.655
-6.8 0
-7.125
-7. 10
-7.695
-7.980
-8.265
-8. 65
-a 550
-8.6 5
1 Desgnate notch area nnder IT. R. 790. The e net upper mt of the notch area s 1,395.83.
Ta s sub|ect to tho foowng ma mum effectve rae mtatons: Under present aw, 86.5 per cent;
under . R. 790.77 per crat.
1 Incomes n ths bracket receve, a fat reducton of 87 n tho tentatve ta .
There s a decrease In the margna ta rates under the Dngo b for net ncomes after e emptons up
to the eve of about 210 where the 0 ta credt becomes fuy effectve.
Source: Sta of the ont Commttee on Interna Revenue Ta aton.
The reason for ths ack of ncentve effect under the Presdent s proposa s
the fact that once a ta of 0 Is reached, there s no further reducton of the
ta on any addtona ncome. Thus an ndvdua havng a net ncome after
e emptons of about 210 obtans the ma mum reef. Irrespectve of how much
ncome he may earn In e cess of that amount, there s no further ta reducton
and thus no ncrease n Incentve under ths proposa.
It has been shown that the 0 tu credt proposed by the Presdent has no
postve effect on producton and nvestment ncentves. The remposton of the
e cess profts ta under the Presdent s pan actuay mposes new restrctons on
productve effort and on the wngness of nvestors to assume busness rsks.
ven a we-drafted e cess profts ta can not dstngush between profts whch
are the reward for unusua enterprse or the payment for a great rsk, on one
hand, and profts resutng from a monopoy poston or unusua shortages, on
the other. In ths connecton the former Secretary of the Treasury, Chef ustce
nson, had the foowng to say at the hearngs before the Senate Fnance Com-
mttee on the Revenue ct of 19 5:
The over-a Impact whch ths ta s key to have on busness pannng as
we as busness profts consttutes a serous threat to our postwar empoyment
ob|ectves. The testmony of busnessmen s that they are unabe to take the rsk
of fu peacetme busness e panson unt ths ta has been removed. That
testmony comes not ony from corporatons sub|ect to the e cess profts ta ;
Indee , t cones prmary from busnessmen contempatng organzaton and
e panson u competton wt estabshed corporatons.
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Unfortunatey the e cess profts ta proposed by the Presdent can not quafy
as a we-drafted ta . It s nothng more than the od e cess profts ta
dressed up wth a 35 per cent ncrease n the credts and an ncreased specfc
e empton. The od dscrmnatons whch had to be borne durng the war woud
st be there. New dscrmnatons woud appear because of the antquty of the
1936-39 base whch represents the prmary measure of e cessve profts. The
report on the Revenue ct of 19 5 of the Senate Fnance Commttee of the
Seventy-nnth Congress had the foowng to say concernng the effect of usng
ths base n the e cess profts ta on rsk-takng:
The onger the e cess profts ta s retaned the ess the ncome of 1936-39
base perod s a proper measure of e cessve profts. Ths base perod w be
a partcuary poor measure of earnngs n the postwar perod when many corpora-
tons w be enterng new feds of enterprse or e pandng ther busnesses.
There are, of course, many frms whch do not have any base perod e perence
at a. These w be drven to use the nvested capta base, whch s ess gen-
erous for most busness, and are therefore apt to receve harsh treatment. new
frm n a busness requrng an especay sma amount of nvested capta may
fnd practcay a of ts profts above the e empton ta ed as e cessve.
part from the queston of the merts of the partcuar e cess profts ta
presented by the admnstraton, the adopton of any such ta n tmes of peace
Is undesrabe. precedent for the peacetme use of ths ta woud be estab-
shed, and ts permanent retenton woud be a serous rsk. Ths woud be most
unfortunate snce the ta paces a speca penaty upon the reatvey specuatve
busness ventures whch are essenta to the matera progress of our socety.
II. emptons and the gh Cost of Lvng.
The cost of vng has Increased from 156 per cent of the 1935-39 average ast
March when your commttee reported out . R, 1, to 165 per cent n November,
shorty before . R. 790 was frst ntroduced. Ths 9-pont ncrease represents
amost a 6 per cent rse n the cost of vng. Furthermore, there s evdence that
ncome after ta es, athough It has ncreased very consderaby durng the past
two years, has not kept pace wth the cost of vng. On a per capta bass and n
19 7 doars, ncome after ta es has shrunk from an average of 1,280 n the frst
quarter of 19 6 to 1,188 n the fourth quarter of 19 7, a drop of neary 100.
. T INC S IN G N R L MPTIONS.
Ths Increase n the cost of vng Is the reason your commttee s b provdes
a 100 per capta ncrease n e emptons from 500 to 600. Of the tota reduc-
ton n ta abtes resutng from ths ncrease n the persona e empton,
about 90 per cent Is receved by ta payers wth net ncome of ess than 5,000.
It shoud be remembered that the e empton ncrease s n addton to the reduc-
ton of 30 per cent n the ta of the owest ta abe Income group. gher
Income groups receve the same ncrease In e emptons, but receve ta reductons
of ony 10 to 20 per cent.
. T SP CI L MPTION FO P SONS G D 85 ND O R.
Lke the ta -reducton bs of the ast sesson, . R. 790 provdes an addtona
e empton for persons who have attaned the age of 65. Ths addtona e emp-
ton of 600 s granted f the ta payer s 65 or over by the end of the year. Ths
provson w beneft 3,700,000 ta payers and w remove 1, 00,000 persons from
the ta ros.
s a resut of the rse n the cost of vng the need for a speca e empton
for persons over 65 s even more pressng now than n the sprng of 19 7. There
s a very heavy concentraton of sma ncomes among persons n ths age group
refectng the fact that the group as a whoe s handcapped In an economc, f
not n a physca sense. Persons In ths age group suffered wth unusua severty
as a resut of the rse In the cost of vng and the ncrease n ta es whch occurred
durng the war, as we as the addtona prce ncreases of the mmedate postwar
perod. Unke younger persons, the buk of those over 05 coud not compensate
for these changes In prces and ta es by acceptng fu-tme |obs at prevang
hgh rates of wages.
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O. T SP CI L MPTION FO T LIND.
Your commttee s b aso provdes a speca e empton of 600 for bnd persons.
nd persons 65 or oyer may cam ths e empton n addton to that based on age.
The speca e empton of 600 for the bnd s a substtute for a 500 deducton
aowed under present aw. nd persons receve matera benefts from ths
change. The amount aowed s, of course, arger and, In addton, the substtu-
ton of an e empton for a deducton n Itsef has some very rea advantages.
ecause of ths change bnd persons do not forfet the rght to use the standard
deducton as they do when they cam the speca deducton under e stng aw.
Ths Is mportant because n most cases the temzed deductons of bnd persons,
other than the speca deducton, w aggregate consderaby ess than the stand-
ard deducton. Moreover, an e empton can be taken Into account n wthhodng,
whe a deducton can not Thus wth an e empton, the reef provded w be
effectve throughout the year. nd persons w not have to wat for a refund
after the cose of the year n order to obtan the reef whch the aw provdes.
III. quazaton of Ta ubdens of Resdents of Communty-Pbopf.bty
and Common-Law States.
ma|or porton of ths b Is devoted to the geographc equazaton of the
Income, estate, and gft ta es.
a. ncome ta es.
Under e stng aw the treatment accorded fames earnng the same amount
of ncome s very dfferent If they happen to ve In States usng the communty-
property system or n States whch use common aw. Chefy ths s due to the
fact that under the communty-property system the earnngs of a marred coupe
are consdered to be one-haf the property of each. Income arsng out of an
accumuaton whch took pace durng the marrage Is dvded n the same manner,
and n some communty-property States the same dvson s made of ncome
from assets whch are the separate property of one of the spouses. No smar
dvson takes pace under common aw. The earnngs of the husband are
regarded as hs and ta ed to hm. The ncome from hs property s hs ncome
and s ta ed as such.
Snce the rates apped under the Income ta are steepy progressve, the same
famy ncome dvded In two haves by communty property aw w be ta ed
far ess severey than n a common-aw State where the whoe Income Is apt to
be ta ed to one spouse. The dfference Is greatest when the entre earnngs of
the coupe n the common-aw State are receved by one spouse, and when, under
communty-property aw, none of the ncome s the separate Income of ether
spouse Tabe I compares the ta due under these assumptons n communty-
property and common-aw States under present aw wth Incomes of varous szes.
Ths tabe shows that the dfference between the ta due In communty-property
and common-aw States appears as soon as the ncome of the coupe rses above
the frst ta bracket, 1. e., as soon as the rates become progressve. On a per-
centage bass the dfference Increases as the Income grows arger. t 10,000
the coupe In the common-aw State pays a ta whch Is neary 19 per cent greater
than that pad n the communty-property State. t 25,000 the ta n the
common-aw State Is about 1 per cent arger. Thereafter, the percentage begns
to decne as the margna rate under the ta approaches the 86.5 per cent
ma mum. owever, even on an Income of 150,000 the ta n the common-aw
State Is more than 21 per cent arger than that n the communty-property State.
t the opposte e treme Is the case where In the common-aw State Incomes of
the two spouses are appro matey equa. ere, the resuts under common nw
and communty property woud be smar. For most coupes nether of these
e treme assumptons Is competey reastc. owever, In the great ma|orty
of cases the ncome of one spouse predomnates.
One consequence of the substanta dfference In the amount of ta due on
smar ncomes n communty-property and common-aw States has boon an
attempt to deveop In the common-aw States technques whch w dvde the
M ote that the tabe assumes that a of the Income was earned by the husband.
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Income of a marred coupe n appro matey the same way that ncome a dvded
n the communty-property States by the operaton of State aw. Chef among
these devces are gfts, ether outrght or n trust, ont tenances and famy
partnershps. Confuson has resuted from attempts to use trusts, tenances, and
partnershps for such purposes, and the present status of the aw and reguatons
on these ponts s most unsatsfactory. Your commttee has under study now a
number of proposas for the revson of the ncome ta treatment of trusts and
famy partnershps and s mpressed wth the dffcutes whch these probems
present
Tabe I. Dfference n amount and percentage of ncome ta n communty-
property and common-aw States.
For a marred coupe wth no dependents.
Net Income before persona eempton.
Ta paynbe In
Communty-
property
States.
Common-aw
Staes.
ecs. of ta
n common-
aw State
over ta n
communty-
property
States.
1.000
1,200
1,500
2.000
2,500
3.000
-1,000
5,000
8.000
7,000
8.000
9.000
10,000
15,000---
25,000.---
50.000
100,000 ..
150,000 ..
200,000 ...
250,000.-.
500.1 10 --
750,000 --
1,000,000-.
2,ooo.r
5,000.000..
38.00
85.00
190.00
285.00
380.00
670.00
760.00
969.00
1,178.00
1,387.00
1,596.00
1,8 3.00
3,15 .00
6, 60. 00
18,72 .50
50,27 . 00
86,953.60
127,081.60
169,337.50
383, 6 3.60
599,668.50
815,793.50
1.6S0.293.50
,273,793.60
38.00
95.00
190.00
285.00
380.00
589.00
798.00
1,0 5.00
1.292.00
1, 577.00
1,862.00
2,186.00
,0 7.00
9,082.00
2 , 795.00
63,127.60
106,383.60
1 8,12 .00
191,339.50
07. 6 .50
623,689. 60
839, 71 .50
1,70 .21 .50
,276,000.00
19.00
38.00
76.00
11 .00
190.00
266.00
3 2.00
893.00
2,622.00
6,070.80
12,853.60
18, 30.00
21,012.50
22,002.00
23.921.00
23,921.00
23,921.00
23,921.00
1,206.60
ntre Income reported by husband on ont return.
Source: Staff o the ont Commttee on Interna Revenue Ta aton.
Whe the ack of geographca equazaton n the treatment of the ncome of
marred coupes has been recognzed for a ong tme, crcumstances have arsen
recenty whch necesstate mmedate acton. For a good many years the Income
ta advantages ncdent to the communty-property system were confned to eght
States. In each of these communty property antedated the enactment of the
Federa ncome ta . In each, the use of ths partcuar form of aw coud be
traced to Spansh or French antecedents.
Recenty, however, a number of States have shfted from the common-aw to
the communty-property system. In these cases benefts under the Federa Income
ta whch resdents of the State woud obtan under the communty-property
system were argey responsbe for the abandonment of common aw. fter one
fase start, Okahoma |oned the communty-property group n 19 5. Oregon,
Mchgan, Nebraska, and Pennsyvana were added to the st n 19 7. owever,
the Pennsyvana aw has snce been found to be unconsttutona.
The geographca dfferences n the mpact of the ndvdua ncome ta resut-
ng from the fact that 12 States use communty property rases a serous probem,
rzona, Caforna, Idaho, Lousana, Nevada, New Me co, Te as, and Washngton.
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259
but the fact whch makes acton at the present sesson mperatve s the potenta
rapd e tenson of communty property to a arge number of other common-aw
States. The adopton of communty property has been advocated wdey n spte
of a growng awareness of the substanta dfferences between communty property
and common aw whch makes a transton from one system to the other e tremey
dffcut. It s now recognzed that ths transton w be a perod of e treme
confuson durng whch the courts, the admnstratve offcas and the egsa-
ture w be workng out the detaed appcaton of a new and strange system
of property aw. Nevertheess, many responsbe State offcas have readed the
concuson that the dfference between the mpact of the Federa ncome ta as t
appes n communty-property and common-aw |ursdctons s so great that
the use of communty property can not be avoded.
Ths s partcuary true n common-aw States yng ad|acent to communty-
property |ursdctons. In such common-aw States there s a vey fear that the
ta advantages of communty property w produce a mgraton of the reatvey
we-to-do ta payers. Ths fear undoubtedy payed a ma|or roe n the adopton
of communty property by Okahoma and Oregon, and s an e ceptonay strong
factor In States ke rkansas. ut even n cases where such mgraton s ess
key, as n Mchgan and Pennsyvana, the ta consequences of retanng the
common aw were suffcent to produce egsaton.
Many States are watng to see what Congress w do about the probem of
geographca equazaton. If the necessary acton s not taken, there w be a
food of -advsed State egsaton ntended to produce the same resuts, but
dong so n a manner whch has most unfortunate consequences, not ony for the
ta payers nvoved, but aso for a the persons who must use or admnster the
property aws of the States whch rush nto the communty-property system.
Tour commttee beeves that the best answer to the probem of geographca
equazaton s the spttng of the combned ncome of the husband and wfe.
Income spttng s effected under . R. 790 by gvng husbands and wves n a
States the opton to e ont returns. In these returns ther combned net ncome
and ther combned e emptons are dvded by 2. ta Is computed on ths
bass, and mutped by 2.
Income spttng w produce the same resut In common-aw States whch now
obtans In a communty-property State when the entre ncome of both spouses
Is communty ncome. If, however, spouses n communty-property States have
separate ncome, ths aso can be spt by eectng to fe a |ont return. Under
e stng aw, separate ncome n communty-property States s ta ed n fu to the
spouse who receves t. Thus, the type of souton emboded n . It. 700 benets
resdents of both common-aw and communty-property States.
Geographca equazaton n the ta aton of marred coupes aso requres an
ad|ustment In the standard deducton and In the deducton for unusua medca
e penses. Under e stng aw a ta payer wth ad|usted gross ncome of 5,000
may eect a standard deducton of 500, or 10 per cent of hs ad|usted gross ncome,
whchever s esser, nstead of temzng hs deductons. In communty-property
States the husband and wfe w normay fe separate returns. ence each
may be egbe for a 500 standard deducton and the coupe may cam an aggre-
gate deducton of 1,000. To make equa treatment avaabe n common-aw
States, . R. 700 of necessty must provde that a coupe eectng to spt ther
ncome by fng a |ont return Is aso egbe for a standard deducton of 1,000,
or 10 per cent of the ad|usted gross ncome, whchever s esser.
The fact that marred coupes n a States may receve a ma mum standard
deducton of 1,000 presents a probem of equazng the treatment accorded mar-
red persons wth snge ndvduas. To provde equaty of ta treatment It Is
necessary to rase the ma mum standard deducton for snge persons to 1,000.
Ths s done under your commttee s b.
Under e stng aw a speca deducton Is aowed for medca e pendtures to
the e tent that they e ceed 5 per cent of the ta payer s ad|usted gross Income.
owever, ths deducton Is sub|ect to a ceng of 1,250 a year n the case of a
ta payer who cams ony one e empton, and 2,500 f he cams more than one.
If both partes to a marrage n a communty-property State fe separate returns,
each spouse camng one dependent, the ceng on ther medca deducton s
5,000. If ony one cams a dependent, ther ma mum medca deducton s
3,750. . R. 790 rases the ceng for a marred coupe fng a |ont return
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260
to 3,750 f they have one dependent, and 5,000 If they have two or more. Tbs
equazes the treatment n common-aw and communty-property States.
dopton of these ncome-spttng provsons w prodtfce substanta geo-
graphca equazaton n the mpact of the ta on ndvdua net ncomes. The
unfortunate and mpetuous enactment of communty-property egsaton by
States that have ong used the common aw w be forestaed. The ncentve
for marred coupes n common-aw States to attempt the reducton of ther ta es
by the dvson of ther ncome through such devces as trusts, |ont tenances,
and famy partnershps w be reduced materay. dmnstratve dffcutes
stemmng from the use of such devces w be dmnshed, and there w be ess
need for metcuous egsaton on the ncome ta treatment of trusts and famy
partnershps.
. T ST T ND GIFT T S.
The basc dfferences between communty and common aw nterpretatons of
property rghts have aso resuted n geographca nequates n the appcaton
of the estate and gft ta es. Pror to 19 2 the ta aton of transfers made by
marred persons depended upon the property aw of the State n whch the transfer
took pace. In communty-property States ony haf of the communty property
beonged to one spouse. ence ony haf coud pass at hs death, fnd ony haf
coud be sub|ected to the estate ta . Smary, gfts out of communty assets
were regarded as one-haf the gft of the husband and one-haf the gft of the
wfe. No smar dvson of assets occurred under common aw because, n most
cases, practcay a the property was the husband s under State aw. Snce
both estate and gft ta es have sharpy progressve rates and are equpped wth
arge e emptons, the consequence was a substantay ower ta on transfers n
communty-property States than on transfers of smar sze n common-aw States.
In 19 2 the Congress attempted to produce more neary equa resuts. mend-
ments were passed whch provded that n communty-property States the entre
communty property was to be treated as the estate of the frst spouse to de,
e cept such porton as coud be shown to have been receved as compensaton
for persona servces actuay rendered by the survvng spouse, or derved
orgnay from such compensaton, or from the separate property of the survvng
spouse. The appcaton of ths rue n communty-property States was sub|ect
to the mtaton that the estate of the frst of the spouses to de was never to be
ess than the vaue of the property over whch that spouse had a testamentary
power of dsposton. Ths meant that the estate of the spouse who ded frst
coud never be ess than one-haf of the communty property.
The Revenue ct of 19 2 made a smar amendment n the gft ta . ence-
forth a gfts out of communty property were to be ta ed as though they had
been made by the husband, uness t coud be estabshed that the assets trans-
ferred had been receved by the wfe as compensaton for persona servces
actuay rendered or derved from her separate property.
Unfortunatey, the 19 2 amendments dd not produce compete geographca
equazaton. Cases e st n whch transfers of communty property are ta ed
more heavy than transfers under common aw. Conversey, there are nstances
n whch transfers n the common-aw States are ta ed more heavy.
case n pont occurs when the husband des frst, eavng hs entre estate to
hs wfe, who n turn on her death eaves her entre estate to a chd. Under
common aw the husband can gve hs wfe a fe estate n the property, provdng
n hs w that upon her death the assets go to the chd. ere an estate ta
woud be due upon the death of the husband, but there woud be no ta upon the
death of the wfe. Under communty property the husband can pace ony hs
haf of the communty property n a smar fe estate for the beneft of hs wfe.
Thus, In the communty-property State the whoe estate woud be sub|ect to ta
upon the husband s death, |ust as n the common-aw State, but at the death of
the wfe there woud be an addtona ta upon her share of the communty
property.1
nother e ampe s provded by the case n whch a wfe des frst, eavng her
rghts In the communty assets to her husband, who n turn eaves the entre com-
Te assumpton s made here that the wfe s death occurred more than fve years after
the death of the husband.
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201
munty to a survvng chd. Under the 19 2 amendments there woud be a ta
on one-haf the communty at the tme of the wfe s death, and a ta on the entre
communty at the death of the husband. Under smar crcumstances n a
common-aw State there s apt to be tte or no ta due at the death of the wfe,
snce most of the famy assets w be the husband s property.
case n whch the transfer n the common-aw State s ta ed more harshy
occurs when the wfe des frst, and most of the property beongs to the husband.
Under common aw there woud be no ta due on the wfe s death and the entre
property woud be ta abe at the death of the husband. If these same assets were
communty property, one-haf woud be ta abe at the death of the wfe and the
other at the death of the husband. ecause the rates apped are progressve
and the e empton substanta, the resut Is a arger aggregate ta n the common-
aw States than n communty-property |ursdctons.
cepton aso has been taken to the so-caed tracng probem. Ths arses
under the 19 2 amendments because of the need for dentfyng the portons of
the communty contrbuted by each spouse. stabshng the fact that partcuar
assets derved from compensaton for persona servces actuay rendered by
the survvor s partcuary dffcut. Moreover, the precse nterpretaton of
compensaton whch the ureau of Interna Revenue w appy In a gven
stuaton s by no means cear. Under the 19 2 amendment ths tracng probem
s of far arger dmensons n communty-property States than n common-aw
|ursdctons, where t s mted prmary to |ont tenances, tenances by the
entrety, and |ont bank accounts.
Your commttee does not beeve that a satsfactory souton to the probem of
geographca equazaton can be reached by the tactcs apped In the 19 2 amend-
ments. ence the repea of these amendments s recommended, effectve wth
the enactment of ths b. Your commttee woud be unwng, however, to repea
the amendments wthout correctve egsaton. Repea aone woud reproduce
the pre-19 2 condtons whch are even further from equazaton than e stng
aw.
Wth the repea of the 19 2 amendments your commttee recommends an app-
caton of the spttng technque used under the ncome ta . Ths provson
s not contaned n the b whch Is beng reported, but w be covered by a foor
amendment. In the case of the estate ta , spttng means an e empton
n common-aw States of up to one-haf of the decedent s estate f t passes
outrght to the survvng spouse. No such e empton Is needed for communty
property snce, n the absence of the 19 2 amendments, the decedent w be
ta abe on ony one-haf the communty assets. owever, the e empton w
appy In communty-property States to separate property of the decedent whch
passes to hs survvng spouse.
Ths spttng technque s aso apped under the gft ta . In the case
of gfts between spouses (other than the donor s nterest n communty property)
ths technque requres that ony one-haf the vaue of the gft be ta ed snce
under the spttng technque the donee spouse n effect aready owned one-
haf of the property. When a gft Is made to some one other than a spouse, the
husband and wfe may eect to have the gft treated as though each had made
one-haf of the gft.
The amendments to the estate and gft ta es contaned n . R. 790 (ncud-
ng the commttee amendment) w produce appro mate geographca equaty
n these ta es |ust as the ncome-spttng amendment w In the case of the
Income ta .
I . Statstca Data Reatno to . R. 790.
The reducton In ncome ta abtes resutng from the varous provsons
of . R. 790 Is shown n tabe II. These estmates are based on an assumed
persona Income of 209 bon. The percentage ta reductons account for 57
per cent of the tota, and the Increase n e emptons for 31 per cent. It shoud
be borne n mnd that a arge part of the reducton of 601 mon resutng
from ncome spttng w occur whether or not . R. 790 s enacted. ute
a few of the States, ncudng some of the argest, have ndcated ther nten-
ton to adopt communty property If provson for ncome spttng s not made
by the Federa Government.
The assumpton Is made here that the wfe s death occurred more than fve years after
the death of the husband.
y
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262
Tabe II. Dstrbuton of the reducton n ncome ta abtes resutng from
the varous provsons of . R. 790.
ssumng persona ncome of 209 bon.
Increase n the per capta e empton to 600
ddtona e empton for persons over 65
Speca provson for the bnd _.
owng marred coupes to spt ther ncomes
Increase the standard deducton 1
Percentage reductons
Tota decrease In ta abtes under . R. 790.
1 Ths ncudes the reducton n ta abtes for marred coupes as we as snge ndvduas.
Source: Staff of the ont Commttee on Interna Revenue Ta aton.
Tabe III compares the dstrbuton of the ndvdua ncome ta abty
under present aw wth that under . R. 790, and shows the reducton n n-
come ta abty under . It. 790. These data are dstrbuted accordng to the
ncome casses for whch . It. 790 provdes percentage ta reductons, and are
cacuated on the bass of an assumed ncome of 209 bon. The tabe nd-
cates that 72 per cent of the reducton under your commttee s b goes to nd-
vduas wth net ncomes after e emptons of ,000 or ess. bout 6 per cent
of the reducton goes to ndvduas wth net ncomes ater e emptons, whch are
beow 1, 00.
Tabe I compares the estmated dstrbuton among varous ncome casses
of the number of ta payers and the estmated ta abty under present aw
and under . R. 790, and shows the decrease n ta abty under . R.
790. Ths tabe, ke tabes II and III, s based on an assumed persona
ncome of 209 bon.
Tabe presents the ta burdens for varous net-ncome eves (after deduc-
tons but before e emptons). It shows the amount of ta payabe under present
aw and under . R. 790. There are eght parts to tabe , showng the ta
burdens under dfferent assumptons as to marta status, number of dependents,
and the dstrbuton of ncome between the partners to the marrage. parts
of tabe are cacuated under the assumpton that nether the ta payer nor
hs spouse s over (55 years of age.
Tabe III. Comparson of the ndvdua ncome ta abty n a fu year of
operaton under present aw wth that under . R. 790 by ncome casses to
whch the percentage ta reductons appy.
ssumng persona ncome of 209 bon.
Net Income after persona e empton and credt for
dependents.
Ta abty under-
Reducton In abty
under . R. 790.
Present
. R. 790.
mount.
Percent-
age ds-
trbuton.
aw.
Mons of
doars.
2,959.9
,030.5
6,000.9
Mons of
doars.
1,693.0
2, 397.1
3,29 .2
Mons of
doars.
1,362.9
1.633.
1, 706. 7
20. 81
2 M
26.06
11,987.3
9,293.2
7,28 .3
7, 6. 9
,703.0
1.8 6.3
71. 81
28. 19
21, 280. 5
1 ,731.2
6,5 9. 3
U (.|
0- 1,000
1,000 1,396
,396- ,000
Tota under ,000
,000 and over
Grand tota
Source: Staff of the ont Commttee on Interna Revenue Ta aton.
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263
Tabe I . Comparson of the ndvdua ncome ta abty n a fu year of
operaton under present aw wth that under . R. . 790.
ssumng persona Incomes 0/ 209 bon.
Net Income cass (before per-
sona e empton and credt
for dependents).
stmated number of
ta payers under-
stmated ta abty
under-
Reducton n ta -
abty under . R.
790.
Present
aw.
. R. 790.
Present
aw.
n. It. 790.
mount.
Perrent-
trbuton.
v- ,OO0
Thov|andt.
2. 70S. 7
18.01 .8
17. 199. 1
9,066. 8
5.225. 3
Thouandt.
2.691.1
1 ,76 .9
1 , 836. 9
7,961.7
, 751.0
Mon of
doars.
2 .7
Mont of
doar .
100.0
1,5 3.
2, 355.1
1,658.8
1,617.6
Mons of
doar.
1 .7
1, 127.3
1, 632. 8
1,003.
782.8
2.21
17.21
2 . 91
15.33
11.96
S ,0OO- 2.000
2, 670.7
2.000- 3,000
3, 987.9
2, 062. 2
2, 00.
3.OOO- ,0O0
,00 5.000
Tota under 5,000
52, 30 . 7
,005.0
11,985.9
7, 27 . 9
,691.0
71.63
5.O0O-S10.0O0
1, 577. 9
672.1
128 3
30.2
8.6
.8
.
.1
1, 576 9
672. 1
128.3
36.2
8.6
.8
.
1,691.8
2, 606.9
2, 130. 2
1. 08.8
97 .6
227.7
1 9 0
125.6
1, 238. 5
2,02 . 5
1.731.6
1,172.1
8 0. 1
200.
131.6
112.
53. 3
577.
393. 6
236.7
13 .5
27.3
17.6
6.93
8.83
6.09
3.61
2.06
. 3
.27
.20
10.000- 25,000
25,00O- 60.000
60, OO- 100,000
oo,ooo- 3on.ooo-
30O.OO0- 500,000
300,000- 1,000,000
13.
1,000,000 and over
Tota over 5,000..
2, 2 .
5). T2S a
2, 23.
9, 31 .6
7, 58,1
1,858.3
28.38
Grand tota
7, 329. 0
21.280.5
1 ,731.2
6,5 9.8
100.0
Source: Staff of the ont Commttee on Interna Revenue Ta aton.
Snce Indvduas aged 60 and over receve an addtona 600 e empton,
ther ta burdens dffer from those shown In tabe . Tabes I and
show the ta burdens under e stng aw and . R. 790 for a snge person 65
years of age and over and a marred coupe wth no dependents. The atter tabe
Is cacuated on the assumptons that both spouses are over 65 and that a the
ncome Is earned by one of them.
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26
Tabe - . Comparson of ndvdua ncome ta tender present ate and
. R. 790 ( nvtson b).
SINOL P RSON NO D P ND NTS.
Net Income before persona e empton.
mount of ta .
Ta reducton dar
00
Present aw.
. . 790.
mount.
Per cent.
MM
t9.00
19.00
on. oo
700.
.moo
13.30
2 .70
65.00
750
7.50
19.95
27.55
68.00
67.00
26.60
30. 0
53.33
990....
76.00
39.90
36.10
7.60
95.00
53.20
1.80
.00
1,200
133.00
79.80
53.20
0.00
1,100-
190.00
119. 70
70.30
37.00
2 7.00
173. 00
7 .00
29.96
2,000
285.00
212.80
72.20
25.33
380.00
288.80
91.20
2 .00
3,000.
8 .50
370.88
113.62
23. 5
093.50
538. OS
155. 2
22. 1
921. 50
727.32
19 . 18
21.07
1,168. 50
9 9.62
218.88
18.73
7,000.
1, 3 . 50
1, 185.60
2 8.90
17.35
8,000
1,719. 50
1, 2. 10
277. 0
16.13
9,000-.
2,023. 50
1, 712.28
311.22
15.38
2, 3 6. 50
2. 002. 98
3 3.52
1 .6
11,(100-
2. 6SS. 50
2,307. 36
381.1
1 . IS
12,000
3, 0 9. 50
2,032.26
17.2
13.68
3, 3 . 25
2. 97 . 26
59.99
13.39
3, 8 2. 75
3,3 1.91
500.8
13.03
, 270. 25
3, 723. 2
5 7.01
12.81
6, 6 5. 25
5, MS. 61
7S9.6
11.88
25,000
9,362.25
8,295.78
1,066. 7
.S .
30.000-.
12, 20 . 50
10,905. 2
1,359. 26
11.08
10,000--
1.8, 25. 25
16, 3.93
1.9S1.32
10.75
25, 137. 00
22. 81. 9
2,655.06
10.56
32, 2 7. 75
28, 879. 05
3. 368. 70
10. 5
39. 6 3. 50
35, 32. W
,110. 8
10.37
7,32 . 25
2, 2. 77
. 8S1. 8
10.31
55, 290. 00
9.609. 38
6, 680. 62
10.27

63, 5 0. 75
57, 012. 9
6,508.26
10.2
105, 806. 25
95,069. 73
10. 731 52
10.15
1 8.551.50
133. 539. 60
15,011.90
10.11
191, 771. 75
172, 36.97
19. 33 . 78
10.08
23 , 990 75
211. 9. 7
23, 657. 28
10.07
321. 0. 75
289, 1 . 7
32.302. 28
10.05
07,890. 75
366. 9 9. 7
0, 9 7. 28
10.0
750,000
62 , 021. 75
561, 61.97
62, 559. 78
1O03
8 0, 1 6 75
755,97 . 7
8 , 172. 28
10.02
2,000,000
1, 70 , 6 6. 75
1, 53 , 02 7
170, 622. 28
10.01
5,000,000 ..
,276,000.00
3, 850, 000. 00
25,000.00
9.9
Source: Staff of the ont Commttee on Interna Revenue Ta aton.
Tabe II shows the amount of spendabe Income remanng after ta under
present aw and . R. 790. The amount of spendabe ncome remanng s
shown by net-ncome casses (after deductons but before e emptons) and Is
aso e pressed as a per cent of net Income. Tabe II- reates to a snge
person wth no dependents and II- to a marred person wth no dependents
(t beng assumed that the entre ncome s earned by one spouse). Tabe I ,
whch appears n Secton I above, shows the effects of . R. 700 on the spendabe
ncome of a marred person wth two dependents (the entre ncome beng earned
by one spouse).
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2G5
Tabe - . Comparson of ndvdua ncome ta under present ane and
. R. 790 ( nutson b).
SINGL P RSON ON D P ND NT.
Net ncome before persona
e empton.
mount of ta .
Ta reducton under
. R. 790.
11,000
Present aw.
. R. 790.
mount.
Per cent.
38.00
38.00
100.00
1,500
95.00
39.90
65.10
58.00
1,800
152.00
70.80
72.20
7.50
2,000.
190.00
100. 0
83.60
.00
285.00
193.00
02.00
32.28
3,000
380.00
273. 60
106. 0
28.00
,000.
589.00
37.78
151.2
25.88
798.00
60 .96
193.0
2 .19
6 000
1,0 5.00
816.2
228.76
21.89
1,292.00
1,038. 5
253. 6
19. 62
1,577.00
1.2S8.20
288.80
18.31
9 000
1,862.00
1.5 . 70
317.30
17.0
10 000
2,185.00
1,828.50
356.
16.31
2,508.00
2,119.26
388.7
15.60
2,869.00
2, 37. 32
31.68
15.05
3.230.00
2,762.22
67.78
1 . 8
1 ,000
3,638. 50
3,121.32
517.18
1 .22
16,000- - -
,0 7.00
3, 88.97
658.03
13.79
20.000
6,393. 50
6,683. 72
809.78
12.67
9,082. 00
7,993.11
1,088.89
11.99
11,970.00
10, 687.18
1,382.82
11.55
0.000
18,097.50
16.0S9.96
2,007.5
11.09
2 ,795.00
22,112.68
2,682. 2
10.82
60.000
31,891.60
39,273. 00
28, 9-1. 30
35,132.52
3,397.20
,1 0. 8
10.65
10.5
70,000
3 0.000
6,939.50
2,027.2
,912.26
10. 7
90.000
...
6 ,891.00
9,178. 6
6.712.5
10. 1
63,127. 50
66,686.18
6,5 1.32
10.36
150.000-
106.383. 50
9 ,613.16
10.770.3
10.22
1 8,12 .00
133,077.90
15,0 6.10
10. 16
2 0.000
191.339.50
171,970.1
19,369.36
10. 12
23 , 66 . 50
210,872.6
23,691.86
10.10
00,000 - -
321,01 .50
288,677.6
32,336.86
10.07
07, 6 . 50
36f. 82. 6
0,981.86
10.06
623, 689. 50
560.995.1
62,59 . 36
10.0
839.71 .50
755,507. 6
8 ,206.86
10.03
2,000.000 -
1,70 ,21 .50
1,533,557.6
170,656.86
10.01
6,000,000
, 275,000. CO
3,860,000.00
25,000.00
9.9
Source: Staff of the ont Commttee on Interna Revenue Ta aton
706590 8 18
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266
Tabe -C. Comparson of ndvdua ncome ta under present ac and
. R. 790 ( nutton b).
M RRI D P RSON NO D P ND NTS- NTIR INCOM RN D Y ON SPOUS .
Combned net Income before persona
e empton.
mount of ta .
Ta reducton under
. R. 790.
Present aw.
. R. 700.
mount
Percent.
1,200
38.00
38.00
100.00
.sn( -
95.00
39.90
55.10
53.00
1.8(10
152.00
79.80
72.20
7.50
190 00
106. 0
83.60
. O
12.100
2S5.O0
172.90
112.10
39.33
sso.oo
239. 0
1 0.60
37.00
589.00
25.60
163. 0
27.7
798.00
577.60
220. 0
27.82
1.0 5.00
7 1. 76
803.2
29.02
1,292.00
908.98
333.0
29.65
1,577.00
1,076.16
500.8
31.78
1, 802. 00
1,2 3.36
618.0
33.22
2.185.00
1, 5 . 6
730.36
31 3
2.508.00
1,676.9
831.06
33.1
2. SCO. 00
1. 890. 2
969.76
33.80
3. 230. 00
2,121.6
1,103. 6
3 .32
1 ,000
3,633. 50
2,371.20
1, 267.30
8 .83
, 0 7.00
2,627.70
1, 19.30
35.07
0.393. 50
,005.96
2. 387. 5
37.3
9,082.00
5. 589. 2
3, 92 58
38. 6
11,970.00
7, 6. 8
, 523. 52
37.79
18,097.60
11,711.22
6,386.28
35.29
. 0,000
2 . 795.00
16.591.56
8,203.
33.09
31,891.50
21.810. 8
10.081.02
81.61
39, 273.00
27,23 .60
12.038. 0
30.63
6.939. 50
32,8S7. 86
1 .051. 6
29.9
5 ,891.00
3S.807.88
16,083.12
29.30
63. 127. 50
, 963.88
18.163.62
28.77
105.383. 50
77,960.0
27, 23. 6
26.02
1 3. 12 00
11 ,06 .98
3 ,039. 02
22.99
191.339. 50
152,091.83
39, 2 7.62
2tt 51
23 .56 .50
190, 139. 6
, 25.0
18.9
321.01 .50
267, 079. 20
53.935.30
18.80
500.000
07, 6 . 50
3 . 873.9
62.590. 6
13.36
750.000
623. 589. 50
539,380.
8 ,203.08
18.30
1.000,000
839.71 .50
733. 898. 9
105. 815. 56
12.80
2,000,000
1,701,21 .50
1.511,9 8.9
192. 265. 58
11.28
, 275.000.00
3. 8 0.098.9
28,901.06
10.03
Source: Sta of the ont Commttee on Interna Revenue Ta aton.
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267
-Tabs -D. Comparson of ndvdua ncome ta under present aw and
. R. 790 ( nutson b).
M RRI D P RSON NO D P ND NTS WIT INCOM DI ID D S FOLLOWS:
70 P R C NT ND 30 P R C NT.
1,000.
1,200.
1,500
1,800.
2,000.
f2,500.
ooo.
-,oo
before persona
monnt of ta .
Present aw.
. R. 790.
Ta reducton under
II. R. 790.
mount. Per cent
S .| 0
15,000.
20.000
25,000
30,000
0.000
9t ,v
90,000
100.000
150,000
200,000
pao|ooo.
300,000.
00,000
500,000
7.50,000.
,000
38.00
95.00
152.00
190.00
285.00
380.00
575. 70
779.00
982.30
1,200.80
1, 30.70
1,86 . 0
1,919.00
2,181. 20
2, 3. 0
2,728. 0
3.017.20
3,306.00
6,011. 25
6,992.00
9,186. SO
1 ,136. 00
IS, 651.00
25, 388. 75
31,616.00
38,199. 50
,95 . 00
61,908.00
89, 75. 75
129, 599.00
170, 653. 26
212, 81. 76
298,1 8. 00
38 ,028.00
699, 688. 50
815, 793. 50
1,680, 293. SO
, 26 , 896. 75
39.90
79.80
106. 0
172.90
239. 0
25.60
677.60
7 1. 76
908.96
1, 076. 16
1,2 3.36
1, 5 . 6
, 678. 9
1, W 2
2,121.5
2.371.20
2,627. 70
,005. 96
6, 689. 2
7, 6. 8
11,711.22
16, 691.
21. 810. 8
27,23 .60
32,887. 86
38, 807. 88
, 963. 88
77, 960. 0
11 , 06 . 98
152,091.88
190, 139. 6
267, 079. 20
3 , 873. 9
539, 386.
733, 898. 9
1,611,9 8.9
3,8 6,098. 9
38.00
55. 10
72.20
83.80
112 10
1 0.80
160. 10
201. 0
2 0.6
291.8
21 0
6 .36
50 .26
6 .16
606.86
6 6.00
678.30
1,005.29
1, 02.68
1, 7 0. 02
2, 2 . 78
2.969.
3, 678. 27
,381. 0
6,311.6
6, 1 6. 12
6, 9 . 12
11,616.71
16, 63 . 02
18,661,37
22.3 2. 29
31,068.80
39,16 . 06
60. 282.06
81,89 . 66
188,3 . 66
18, 797. 81
Source: Staff of the ont Commttee on Interna Revenue Ta aton.
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268
Tabe - . Comparson of ndvdua ncome ta under present aw and
. R. 790 ( nutson b).
M RRI D P RSON NO D P ND NTS WIT INCOM DI ID D S FOLLOWS:
60 P R C NT ND 60 P R C NT.
Combned net ncome before persona
e empton.
mount of ta .
Present aw.
. R. 790.
Ta reducton ur
. R. 790.
1,000
S,200
1,500
1,800
2,000
2.500
3,000
,000
5,000
6,000
7,000
8,000
9,000
10,000....
11.000....
12,000..-.
13,000..-.
1 ,000....
15.000...
20,000....
25,000....
30,000....
0,000....
50,000....
60,000....
70,000....
80,000....
90,000....
100,000...
150,000...
200,000...
250,000...
W n. .
100,000...
500.000...
750.000...
1,000,000.
2.000.000..
5,000,000.
1
1,
1,
1,
2,
2,
2
3,
3,
,
6,
8.
13,
s.
2 ,
30,
38.
3,
60,
86,
127,
169,
211,
297,
383,
599,
815,
1.6S0,
, 273,
38.00
95.00
152.00
190.00
285.00
380.00
670.00
760.00
969.00
178.00
387.00
596.00
8 3.00
090.00
337.00
68 .00
869.00
15 .00
693.00
10.00
6 0.60
290.60
72 .50
529.00
561.50
850.60
3 .00
27 .00
953.50
081.60
337.50
612.50
103.00
5 3.50
668.50
793.50
293.50
793.50
1
1
1,
1
1
2
2,
2,
,
I
7,
u,
16,
21
27.
32,
38,
,
77,
11 ,
152,
190,
267,
3 .
639,
733,
1.511,
3,8 6,
39.90
79.80
106. 0
172.90
239. 0
25.60
677.60
7 1.76
908.98
076.18
2 3.36
5 .6
676.9
899.2
121.5
371.20
627.70
005.96
589. 2
6. 8
711. 22
591.66
810. 8
23 .60
887.86
807.88
963.88
960.0
06 .98
091.88
139. 6
079.20
873.9
386.
898.9
9 8.9
098.9
38.00
65.10
72.20
83.60
112.10
1 0.60
1 . 0
182. 0
227.2
209.0
310.8
352.6
388.38
13.08
37. 76
62. 8
97.80
526.30
687.0
870.68
1,09 .02
L 579.28
2,132.9
2,718. 52
3,326. 90
3,962. 6
, 626.12
5, 310.12
8, 993. 6
13.016.52
17,2 5.62
21, 73.0
30,023.80
38. 669. 56
60,282.06
81,89 .66
168,3 . 66
27,89 .66
Source: Staf of tho ont Commttee on Interna Rovenue Ta aton.
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269
Tabe -F. Comparson of ndvdua ncome ta under present aw and
. R. , t nutson b).
M RRI D P RSON 2 D P ND NTS NTIR INCOM RN D Y ON SPOUS .
1 net noome before persona
e empton.
mount of ta .
Present aw.
II. R. 700.
Ta reducton under
. R. 790.
mount.
Per cent.
I,
1,
1,
1,
SI
2,
2,
3,
3.
6,
8,
11.
17.
2 ,
31,
38,
0,

62,
10 .
117,
190,
233.
320,
06.
622,
838,
1,703,
, 275,
95.00
190.00
380.00
5 9.00
798.00
0 5.110
282.00
577.00
802.00
185.00
508.00
gas. oo
230. 00
638. 50
890.00
521.50
381.00
2.00
111.00
179.00
532.00
170.00
093.00
301.00
538.00
209.00
75.00
700.00
150.00
600.00
725.00
850.00
350.00
000.00
1,
1,
1.
1,

.
3,
5.
.
s,

38,
38,
.
n,
113,
151.
189,
268,
3 3,
538.
732,
1.511,
3,8 5,
13. 30
79.80
212.80
386.00
5 7.20
708. 32
875. 52
0 2. 72
209. 92
10.18
632. 8
8.5 . 78
077.08
319. 90
857. 12
199. .5
977.9
167.
986. 22
17 . 36
587.70
179. 92
079. 2
225. 16
128.98
172.36
178.82
226.32
165.80
9 11,28
52. 78
965.28
015.28
165. 28
81. 70
110.20
167.20
203.00
250.80
336.68
16. 8
53 .28
652.08
77 . 82
875. 52
1.01 :22
1,152. 92
1.318.60
2, 232. 88
3. 321. 96
, 03. 00
6, 27 . 66
8,12 . 78
10,00 . 6
11,96 .30
13, 990. 08
16,013. 58
18,075. 8
27. 09. 02
3 ,096. 6
39, 296. 18
, 73. 68
53, 99 . 20
62. 859. 72
8 , 272. 22
105, 88 . 72
192,33 .72
29, 83 . 72
86.00
68.00
.00
3 . 7
31. 3
32.22
32.2
33. 8S
35. 02
35. 6
3 . 91
35.35
36. 69
36.2
37.81
38.98
35. (
35.97
33.70
32.09
31.05
30.30
29.60
29.01
26.22
23. 15
20. 63
19.03
16 87
15. 1
13 53
12.62
11.29
10.05
Source: Staff of the ont Commttee on Interna Revenue Ta aton.
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270
present aw and
Tabu -G. Comparson of ndvdua ncome toss under
. R. 790 ( nutson b).
M RRI D P RSON 2 D P ND NTS WIT INCOM DI ID D S FOLLOWS: 70
C NT ND 30 P R C NT.
Combned net ncome before persona
e empton.
mount of ta .
Present aw. II. n. 790.
Ta reducton under
. R. 790.
5,000
te.ooo
7,000
8,000
9,000
10,000
11,000
12,000
13,000
1 ,000
16,000
20,000
25,000
30.000
0,000
50,000
oo,ono
70,000
80,000
00,000
100,000.-.
150,000...
200,000...
250,000...
300,000...
00,000...
1500,000...
760,000...
1.000,000..
2,000,000..
6,000,000..
1
1,
1,
1,
2.
2,
2,
2,
,
8,
8,
1 ,
18,
80,
37,
.
51.
88,
128,
188,
211.
297,
383,
6 S.
81 .
678.
26 ,
95.00
190.00
380.00
570.00
773.30
978.60
183.70
17. 0
653.00
896.20
16S. 0
20.60
69 .20
983.00
602.75
517.00
668. 75
5 7.00
933.50
733.25
932.00
87.00
213.00
167.00
630.25
753.50
798.25
617.25
283.50
163.50
80 .00
929.00
29.00
896.75
13.30
79.80
212.80
386.00
5 7.20
708.32
875. 62
1,0 2.72
1,209.92
1, 10.18
1, 632. 8
1, 85 . 78
2,077.08
2,319.90
3, 657.12
5,199. 5
G, 977. 9
11,167.
15, 986. 22
21,17 .36
26.567.70
32, 179.92
38,079. 2
, 225.16
77,128. 98
113,172.36
151,178 82
189,226.32
266,155. 80
3 3, 9 0.28
538. 52. 78
732, 965. 28
1, 511.015.28
3, 8 5,165. 28
81.70
110.20
167.30
18 .00
226.10
268.28
308.18
37 .68
3.08
86.02
525.92
565.82
617.13
663.10
9 5.53
1,317. 6
1,690.81
2,379.58
2,9 7.28
3.558.89
,38 .30
5,307.08
6,133. 58
6,9 1.8
11,501.27
15. 681.1
18,619. 3
22,390. 93
31,127.70
39, 223. 22
60.351.22
81,903.72
168, 13.72
19,731. 7
Source: Stan of the ont Commttee on Interna Revenue Ta aton.
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271
Tabe - . Comparson of ndvdua ncome ta under present aw and
. R. 790 nutsan b).
M RRI D P RSON 2 D P ND NTS WIT INCOM DI ID D S FOLLOWS: 50 P R
C NT ND 60 P R C NT.
Combned net Income before persona
e empton.
mount of ta .
Present aw. . R. 790
Ta reducton under
. R. 790.
mount.
3,000-.
,000-.
tS|OOO .
6,000-.
7,000-.
S,000..
9,001
10,000.
11,000.
12,000.
13,000.
1 ,000.
15,000.
20,000
2.1,000.
30,000
0 )
MU 0
60,000.
70,000.
00,000.
0.000.
150,000.
0,000-
0,000...
1750,000 ..
1,000,000.
2,000.000 .
5,000,000.
95.00
190.00
380.00
570.00
769.50
969.00
1,178.00
1,387.00
1,616.00
1,8 3.00
2,090.00
2,337.00
2,603.00
2,869.00
,370.00
6,099.00
8,113.00
12,787.00
18,16 .00
23,9 0.00
29,9 .00
36.195.00
2, 76 . 26
9,590.00
86,18 .00
126,255.00
168, 92.00
210,767.00
296,2 8.00
382,679.00
698.80 .00
81 ,929.00
1,679, 29.00
, 272,929.00
13.30
79.80
212.80
386.00
6 7.20
708.32
875. 62
1,0 2.72
1,209.92
1, 10.18
1,632. 8
1,85 .78
2,077.08
2,319.90
3, 667.12
6,199.5
6,977.9
11,167.
15,986.22
21,17 .36
26,667.70
32,179.92
38,079. 2
,226.16
77,128.98
113,172.36
151,178.82
189,226.32
266,155. 80
3 3,9 0.28
638, 52.78
732,965.28
1,511,015.28
3,8 5,165.28
81.70
110.20
167.20
18 .00
222.30
260.68
302. 8
3 .28
05.08
32.82
57.62
82.22
525.92
5 9.10
712.88
899. 6
1,136.06
1,619.56
2,177.78
2,766.6
3,376.30
,015.08
,68 .83
6,36 .8
9,055.02
13,082. 6
17.313.18
21,5 0.68
30.092. 20
38. 738.72
60,351.22
81,963.72
168, 13.72
27. 763. 72
Source: Staff of the ont Commttee on Interna Revenue Ta aton.
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272
Tabe I- . Comparson of Indvdua ncome ta under present aw and
. R. 790 for persons 65 years of age and over.
8IN L P RSON NO D P ND NTS.
Net ncome before persona e empton.
mount of ta .
Present aw.
. R. 790.
mount of
ta reduc-
ton, . R.
790.
Per cent ta
reducton,
.R. 79a
19.00
3S.00
57.00
76.00
95.00
133.00
190.00
2 7.00
285.00
380.00
8 .50
693.50
921.50
163.50
719.60
3 6.50
0 9.50
270.25
6 6.25
362.25
20 .50
137.00
6 3.50
5 0. 76
996.75
896.76
1 6.75
6 8.76
000.00
39.90
79.80
106. 0
193.00
273.60
37.76
60 .96
816.2
1.288.20
1.828.68
2, 37.33
3, 88. 97
5, 583. 72
7,993.11
10. 587.18
22,112. 58
35.132. 52
56,580.18
210, 872. 0
366, 82. 6
755,607. 6
1, 533, 557. 6
3,867, 707. 6
19.00
38.00
57.00
76.00
95.00
133.00
150.10
167.20
178.60
187.00
210.90
255.7
316.5
352.28
31. 30
517.9
612.18
781.28
1,061.63
1.369.1
1.677.32
3,02 . 2
.510.98
6,95 .57
2 ,12 .11
1, 1 .11
8 , 639.11
171.089.11
07,292. 36
100.00
100.00
100.00
100.0O
38.88
3 .38
30. IS
25.0
22.07
20.07
18.30
16.97
1 .62
13.68
12.03
11.38
10.95
10.27
10.15
10.07
10.0
Source: Sta of the ont Commttee on Interna Revenue Ta aton.
Tabe I- . Comparson of ndvdua ncome ta under present aw and under
. R. 790 for persons 65 years of age and over.
M RRI D P RSONS ( OT O R 65)-NO D P ND NTS.
Net Income before persona e empton.
mount of ta .
Present aw.
. R. 790.
mount of
ta reduc-
ton. . R.
790.
Per cent tar
reducton,
. R. 7S0.
38.00
95.00
152.00
190.00
285.00
380.00
toO. 00
798. 00
1.0 5.00
1.577.00
2,186.00
2.869.00
,0 7.00
6,393.50
9,082.00
11,970.00
2 ,795.00
39,273.00
63,127.50
23 , 66 . 50
07, 6 .50
839, 71 .60
1,70 , 21 .50
,275,000.00
13 30
79.80
212.80
388.00
5 7.20
875. 52
1,209.92
1.632. 8
2,319.90
3, 657.12
6.199. 5
6,977.9
15,086.22
667. 70
.225.16
189.226.32
3 3,9 0. 28
732,965.28
1.611.016.28
3,8 6,166.28
38.00
95.00
152.00
190.00
271.70
300.20
376.20
12.00
97.80
701. 8
975.08
1.236.52
1,727.10
2,736.38
3,882. 8
.992.06
8,808.78
12,706.30
18. 902.3
5.338.18
63, 62 . 22
106. 7 9. 22
193.199.22
29,83 . 72
100.00
100.00
100.00
100.00
96.33
79.00
63.87
61.63
7.6
. 8
.63
3.10
2.68
2,80
2.78
1.70
35.53
3135
29.9
19.33
15.69
12,71
11.3
10.06
1 ssumes a ncome earned by one spouse.
Source: Staff of the ont Commttee on Interna Revenue Ta aton.
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273
Tabu: II- . Comparson of amount of spendabe ncome after tames under
present aw and . R. 190 ( nutson b).
SINGL P RSON NO D P ND NTS.
mount of spendabe Income
under-
Per cent of Income after
ta to ncome before ta
Net Income before porsoon e empton.
Present aw.
. R. 790.
Present aw.
. R. 790
500
500.00
500.00
100.00
100.00
600
681.00
600.00
96.83
100.00
71(0
662.00
686.70
9 .67
98.10
750
702.80
730.06
93.67
97.3
800
7 3.00
773. 0
92.88
96.68
800 .
82 .00
860.10
91.56
96.67
1,000
905.00
9 6.80
90.50
9 .68
1 200
1,067.00
1,120.20
88.92
93.35
1,500
1,310.00
1,380.30
87.33
92.02
1 800
1,553.00
1,627.00
86. 28
90.39
2 000
1,715.00
1,787.20
85.75
89.36
2 500 _
2,120.00
2,211.20
8 .80
88. 5
3,00 1
2,515.60
2,629.12
83.50
87.6
| 000
3,308.60
3, 61.92
82.66
86.55
5 00f)
,078.60
, 272 68
81.67
86. 6
,831.60
6,050.38
80.63
8 .17
7.000
5,666.50
5,81 . 0
79. 51
83.06
SS.OO0
6,280.60
6, 557.90
78. 51
81.97
0 00
8,976.60
7. 287. 72
77.62
80.97
7,653.60
7,997.02
76.5
79.97
8.311.60
8.892.6
75.56
79.02
12 00
8,950.60
9.367. 7
7 .69
78.06
9,565. 75
10,025. 7
73.58
77.12
10,157. 25
10, 858.09
72.55
76.13
10, 729.75
11,276.76
71.53
76.18
13,85 .75
1 ,1 .39
66.77
70.72
16,637.75
16, 70 . 22
62.55
66.82
17,735.50
19.09 .76
69.12
63.65
21.67 .76
23,656.07
53.9
58.89
2 ,863.00
27,618.06
9.73
55.0
27.752. 25
31,120.95
6.25
51.87
30,356.60
3 , 67.3
3.37
9.2
32,675. 75
37, 557. 23
0.8
6.95
(00,000... _ _
3 ,710.00
0.390. 62
38.57
.88
36, 59.25
2,987.51
38. 6
2.97
,193.75
5 ,930.27
29. 6
30.62
51, 8.60
66, 60. 0
26.72
33.23
68,228.25
77,563.03
22.09
31.03
300 000
66.003.25
88,860.53
21.67
29.65
00,000
78, 563.25
110,855.53
19.6
27.71
92,103.25
133,060.63
18. 2
28.61
750.000
126,978.25
188,538.03
16.80
25.1
169.853.25
2 .025.53
15.99
2 . 0
2,000,000
296,353. 25
66. 975. 53
1 .77
23.30
5,000 00
725,000.00
1.160.000.00
1 .50
23 00
Source: Staff of the ont Commttee on Interna Revenue Ta aton
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Tabe II- . Comparson of amount of spendabe ncome after ta es under
present aw and . R. 700 ( nutson b).
M RRI D P RSON NO D P ND NTS, NTIR INCOM O ON SPOUS .
Net Income before persona e empton.
mount of spendabe Income
Per cent of Income after
under
ta to ncome before ta
Present aw.
. R. 790.
Present aw.
. R. 790.
1,000.00
1,000.00
100.00
100.00
1,182.00
1.200.00
96.83
100.00
1. 05.00
1, 60.10
93.67
97.3
1,5 8.00
1,720.20
91.68
95.87
1,810.00
1.893.60
90.50
9 .88
2,21500
2.327.10
88.80
s-s
2, 620.00
2,760 60
87.33
3. 11.00
3,57 . 0
85.28
89.38
.202.00
, 22. 0
8 .0
88. 5
.955.00
6.258.2
82.58
87.6
5,708.00
6.091.0
81.5
6, 23.00
6.923.8
80.29
MM
7,138.00
7,756.6
79.31
88.18
7.816.00
8,6 5.36
78.15
85. 8
8. 92.00
9.323.06
77.20
8 .78
9,131.00
10,100. 76
76.09
8 .17
9. 770.00
10.878. 6
75.15
83.68
10.361.60
11.628.80
7 .01
83.06
10,953.00
12.372.30
73.02
82. S
13.606.50
15.99 .0
68.03
79.97
15,918.00
19, 10.68
63.67
77.6
18.030.00
22. 553. 52
80.10
75.18
21.002.50
28.288.78
5 .76
70.72
25,205.00
33. 08.
50. 1
66.83
28.10S. 50
38.189.52
8.85
63.68
30,727.00
2. 765. 0
3.90
61.09
33,080.50
7.112.1
1.33
58.89
35,109.00
51.192.12
39.01
58. 8
36,872. 50
55.036.12
36.87
58.0
,616.50
72.039.96
29.7
8.03
51,876.00
85.935.02
25.9
2.97
58,600. 50
97.008.12
23. 6
39.16
66, 35. 50
109. 860. 5
. 21.81
36.62
78.985. 50
132.920. 80
19.75
33.23
92. 535. 60
155.126.06
18. 51
31.03
126. 10. 50
210.613. 56
16.85
28.08
160. 285. 50
266. 101.06
16.03
26.61
295. 785. 60
88.051.06
1 .76
2 . 0
725,000.00
1,153,001.06
1 .50
23.08
Source: Staff of the ont Commttee on Interna Revenue Ta aton.
D T IL D DISCUSSION OF T T C NIC L PRO ISIONS OF T ILL.
Tte I. Income Ta Reducton.
secton o. reducton or norma ta and surta .
Under e stng aw, the Income ta on Indvduas s determned by frst com-
putng a tentatve ta at the rates specfed In sectons 11 and 12 of the Interna
Revenue Code and then reducng the tentatve ta es by 5 per cent thereof. Ths
secton of the b provdes reductons n the norma ta and surta on Indvduas
by substtutng a arger percentage reducton than 5 per cent of the tentatve
ta es. Ths secton provdes for reducton of the aggregate of the tentatve
norma ta and the tentatve surta as foows:
(1) If the aggregate of the tentatve ta es s 200 or ess, such aggregate
s reduced by 33 a Per cent thereof, a reducton of 30 per cent of the ta
under e stng aw;
(2) If the aggregate of the tentatve ta es Is over 200 but not over 279.17,
such aggregate Is reduced by 67, a reducton varyng from 30 to 20 per cent
of the ta under e stng aw;
(3) If the aggregate of the tentatve ta es Is over 279.17 but not over
810, such aggregate s reduced by 2 per cent thereof, a reducton of 20
per cent of the ta under e stng aw;
( ) If the aggregate of the tentatve ta es s n e cess of 8 0, the frst
3 0 thereof s reduced by 2 per cent (a 20 per cent reducton of such
porton of the aggregate of the tentatve ta es after the 5 per cent reducton
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275
trader e stng aw), and the amount of such aggregate In e cess of S 0
s reduced by 1 per cent, a reducton of 10 per cent of such porton afer
the 5 per cent reducton under e stng aw.
These reductons are provded In secton 12(c) of the Code as amended by the
b; the e stng provsons of secton 12(c) of the Code are amended and set
forth n secton 12(g) (2) of the Code, as provded n secton 10 of the b.
stng aw (secton 12(g) of the Code) provdes, as an over-a mtaton
npon the combned norma ta and surta n the case of ndvduas, that such
combned ta sha not e ceed 85 per cent of the net Income of the ta payer.
The b nserts such a mtaton nto secton 12(c) of the Code, as amended,
substtutng 77 per cent for the present percentage fgure n order to conform
wth the reducton n ta above descrbed.
S CTION 102. R DUCTION. IN SUPPL M NT T T .
Ths secton s a cross-reference to secton 01 of the b, whch amends secton
00 of the Code, reatng to the ta under Suppement T of ndvduas wth
ad|usted gross ncomes of ess than 5,000. Reductons n such ta are provded
under Suppement T correspondng to the reductons provded by secton 101 of
the b for ta payers computng ther ta under sectons 11 and 12 of the Code.
S CTION 103. INCOM O US ND ND W .
Ths secton s a cross-reference to secton 301 of the b, whch provdes for
the determnaton of the combned norma ta and surta n the case of a |ont
return of husband and wfe (the so-caed sptttng of ncome provsons).
S CTION 10 . T C NIC L M NDM NTS.
Ths secton of the b provdes varous technca amendments.
In vew of the fact that there are certan provsons of the Code, such as
sectons 105 and 100, whch make t necessary to determne the surta separatey
from the norma ta , secton 12(f) of the Code, as amended by tte b, provdes
a speca rue for makng such computatons. Under th.s rue the surta sha
be an amount whch s the same proporton of the combned norma ta and
surta as the tentatve surta s of the aggregate of the tentatve norma ta
and tentatve surta .
S CTION 106. T L Y RS TO W IC M NDM NTS PPLIC L .
Ths secton provdes that the amendments made by ths tte of the b sha
be appcabe wth respect to ta abe years begnnng ater December 81, 19 7.
Speca provson s made n secton 601 of the b for ta abe years begnnng
n 10 7 and endng n 19 8.
Tte II. Credts ganst Net Income fob Norma Ta and Surta .
S CTION 201. DDITION L CR DITS G INST N T INCOM FOR NORM L T ND SURT .
Ths secton amends secton 25(b) of the Code reatng to e emptons aowed
as credts for both norma ta and surta . The amendments dea wth the
foowng credts:
( ) The so-caed persona e empton.
( ) Od-age e empton.
(C) empton for the bnd.
(D) The e empton for each dependent.
Subparagraph ( ) of secton 25(b) (1) of the Code, as amended by ths secton
of the b, repaces subparagraphs ( ) and ( ) of secton 25(b) (1) of e stng
aw. The e stng aw provdes a persona e empton of 500 for the ta payer
and a persona e empton of 500 for the spouse of the ta payer. The 500
e empton for the spouse of the ta payer s aowed f a |ont return Is made by
the ta payer and hs spouse under secton 51 (n whch case the aggregate e emp-
ton of the spouses s 1,000 under e stng aw) or a separate return s made
by the ta payer and hs spouse has no gross Income for the caendar year n
whch the ta abe year of the ta payer begns and s not the dependent of another
ta payer. Secton 25(b) (1) ( ), as proposed to be amended, provdes a persona
e empton of 600 for the ta payer. It aso provdes an addtona e empton to
the ta payer of 600 for hs spouse, f a separate return s made by the ta payer,
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276
and f the spouse, for the caendar year n whch the ta abe year of the ta payer
begns, has no gross Income and s not the dependent of another ta payer. Your
commttee consdered t unnecessary to provde specfcay for the persona
e emptons for husband and wfe on a ont return snce, n the case of a |ont
return, there are two ta payers (athough under secton 51(b) of the Code, there
Is ony one ncome for the two ta payers on the |ont return 1. e., ther aggre-
gate ncome). Inasmuch as secton 25(b)(1)( ) of the Code, as amended n
the b, provdes an e empton of 600 for the ta payer, on a |ont return two
e emptons are aowed, one for each ta payer spouse, |ust as under e stng aw.
Thus, under the b, on a |ont return the aggregate of the persona e empton
for the spouses sha be 1,200.
Secton 25(b) (1) ( ), as amended by the b, contnues n carfed form the
rue of e stng aw (secton 25(b) (1) ( ) ()) under whch the ta payer Is
aowed the e empton for hs spouse, f a separate return s made by the ta -
payer, ony f the spouse, for the caendar year n whch the ta abe year of the
ta payer begns, has no gross ncome and s not the dependent of another ta -
payer. Thus, a ta payer who makes hs returns for a fsca year endng une 30
may, under e stng aw and under secton 25(b)(1)( ), as amended, take an
e empton for hs spouse ony f such spouse has no gross ncome for the caendar
year n whch begns the ta abe year of the ta payer begnnng on uy 1, and
s not for such caendar year the dependent of another ta payer.
Secton 25(b) (1) ( ) of the Code, as amended by ths secton of the b, pro-
vdes an addtona e empton of 600 for the ta payer f he has attaned the age
of 65 before the cose of hs ta abe year. n addtona e empton of 600 Is
aowed to the ta payer for hs spouse f a separate return s made by the ta -
payer and If the spouse has attaned the age of 65 before the cose of such ta abe
year, and, for the caendar year In whch the ta abe year of the ta payer begns,
the spouse has no gross ncome and s not the dependent of another ta payer.
If a husband and wfe make a |ont return an od-age e empton of 600 w be
aowed as to each ta payer spouse who has attaned the age of 65 before the
cose of the ta abe year for whch the |ont return s made. The e empton
under secton 25(b) (1) ( ) Is n addton to the persona e empton under secton
25(b)(1)( ).
In determnng the age of an ndvdua for the purposes of the e empton for
od age, the ast day of the ta abe year of the ta payer s the controng date.
Thus, n the event of a separate return by a husband no addtona e empton for
od age may be camed for hs spouse uness such spouse has attaned the age of
65 on or before the cose of the ta abe year of the husband. In no event sha
the addtona e empton for od age be aowed on a separate return of the ta -
payer wth respect to a spouse who des before attanng the age of 65 even
though such spouse woud have attaned the age of C5 before the cose of the
ta abe year of the ta payer. For the purposes of the od-age e empton, an
Indvdua attans the age of 65 on the frst moment of the day precedng hs
s ty-ffth brthday. ccordngy, an ndvdua whose s ty-ffth brthday fas
on anuary 1 n a gven year attans the age of 65 on the ast day of the caendar
year mmedatey precedng.
Secton 25(b) (1) (C) of the Code, as added by the b, provdes an addtona
e empton of 600 for the bnd. Ths e empton w repace the speca deduc-
ton for bnd ndvduas now provded n secton 23(y) of the Code. The present
deducton s 500. The e empton provded for the bnd under the b s 600
for the ta payer and 600 for the spouse of the ta payer f a separate return Is
made by the ta payer and f the spouse s bnd. Under the b as ntroduced
the bnd e empton was not aowed wth respect to a person entted to the od-
age e empton. The commttee amendments remove ths mtaton so that the
e empton for the bnd under secton 25(b) (1) (C) s aowed wth respect to a
bnd person athough he has attaned the age of 65 (In addton to the od-age
e empton wth respect to such person). The bnd e empton for the spouse
of the ta payer s aowed the ta payer ony f, for the caendar year n whch
the ta abe year of the ta payer begns, such spouse has no gross Income and s
not the dependent of another ta payer. If a husband and wfe make a |ont
return an e empton of 600 for the bnd w be aowed as to each ta payer
spouse who s bnd at the cose of the ta abe year for whch the |ont return Is
made.
The determnaton of whether the ta payer Is bnd s made as of the cose of
hs ta abe year. The determnaton of whether the spouse of the ta payer s
bnd (for the purpose of the ta payer s takng the bnd e empton wth respect
to such spouse when the ta payer fes a separate return) sha be made as of
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277
the cose of the ta abe year of the ta payer, uness the spouse des durng such
ta abe year, n whch case such determnaton sha be made as of the tme of
such death. It shoud be noted that the date for determnng whether an nd-
vdua s bnd dffers from that prescrbed n secton 23(y) whch now provdes
the speca deducton for bnd Indvduas and whch s repeaed by secton 202(e)
of the b. Under secton 23(y) the status of an ndvdua for the purpose of
the bnd deducton s determned as of uy 1 of the ta abe year uness the
ta abe year does not Incude uy 1, n whch case such status Is determned as
of the ast day of the ta abe year. The defnton of an ndvdua who s bnd
now contaned n secton 23(y) of the Code Is retaned for the purposes of the
e empton under secton 25(b)(1)(C), wth ony a forma modfcaton n the
ntroductory cause.
Secton 25(b) (1) (D) of the Code, as added by the b, corresponds to secton
25(b) (1) (C), under e stng aw, and reates to the e empton for a dependent
of the ta payer. Secton 25(b) (1) (D) ncreases the e empton for each depend-
ent from 500, under e stng aw, to 600, but contnues to mt the e empton
for dependents to dependents whose gross ncome for the caendar year n whch
the ta abe year of the ta payer begns s ess than 500.
Secton 25(b) (2) of the Code, as amended by ths secton of the b, corresponds
to secton 25(b) (2) of e stng aw and reates to the determnaton of marta
status for the purposes of the credts provded wth respect to a spouse n secton
25(b). Secton 25(b) (2) provdes two rues. The frst rue s that the determna-
ton of whether an ndvdua s marred s to be made as of the cose of hs
ta abe year, uness hs spouse des durng the ta abe year of such Indvdua,
n whch case such determnaton sha be made as of the tme of such death.
Ths rue s, n substance, the same as that provded for In e stng aw for the
purposes of secton 25(b). The second rue Is that an ndvdua egay separated
(athough not absoutey dvorced) from hs spouse under a decree of dvorce or of
separate mantenance sha not be consdered as marred. Smar rues for the
determnaton of status are provded n secton 23(aa) (6) of the Code (as added
by secton 302(c) of the b), reatng to the standard deducton, and n secton
51(b)(5) of the Code (as added by secton 303 of the b) reatng to ont
returns. unform constructon of a these provsons s ntended. The rue
wth respect to the marta status of an ndvdua egay separated from hs
spouse under a decree of dvorce or of separate mantenance s derved from a
correspondng provson n secton 22(k) of the Code, reatng to the ta treatment
of amony and ke payments.
The new e emptons provded n secton 25(b) (1) ( ) and (C) of the Code, as
amended by secton 201 of the b, do not appy to a nonresdent aen who s not
a resdent of a contguous country, to a ctzen of the Unted States who s entted
to the benefts of secton 251 of the Code reatng to ncome from sources wthn
possessons of the Unted States, or to a ctzen of a possesson of the Unted
States (other than the rgn Isands) not otherwse a ctzen of the Unted
States and not a resdent of the Unted States.
S CTION 202. T C NIC L M NDM NTS.
Ths secton of the b contans varous techuca amendments made necessary
by the addtona credts provded under secton 25(b) of the Code by secton 201
of the b. Secton 58(a) of the Code, reatng to the requrement of decara-
ton of estmated ta , s amended. stng aw requres a decaraton of est-
mated ta f the ta payer s gross ncome from wages sub|ect to wthhodng may
be e pected to e ceed 5,000, pus 500 for each e empton to whch he s entted,
e cept hs own e empton. The b amends secton 58(a)(1) to gve effect to
the addtona e emptons provded n the b. Under the amendment a decara-
ton w be requred If the antcpated wages e ceed ,500, pus 600 for each
e empton to whch the ta payer s entted. Under e stng aw, a snge person
who has no dependents and s under 65 years of age and who derves hs ncome
soey from wages sub|ect to wthhodng s requred to fe a decaraton f hs
antcpated wages for the caendar year e ceed 5,000. Under the amendment
such a person s requred to fe a decaraton f hs antcpated wages for the
caendar year e ceed 5,100 ( ,500, pus 600 for hs own e empton). Under
the amendment f the same ndvdua s over the age of 65 the decaraton woud
not be requred uness hs antcpated wages for the caendar year e ceed 5,700
( ,500, pus 600 for hs own e empton pus 600 for hs od-age e empton).
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Smary under e stng aw, a snge person under the age of 65 who has one
dependent s not requred to fe a decaraton uness hs antcpated wages e ceed
5,500 ( 5,000, pus 500 for the dependent). Under the amendment, such a
snge person under the age of 65 wth one dependent s not requred to fe a
decaraton uness hs antcpated wages e ceed 5,700 ( ,500 pus 600 for hs
own e empton pus 600 for hs dependent).
Secton 58(a)(2) of the Code requres a decaraton of estmated ta n the
case of an Indvdua whose gross ncome from sources other than wages can
reasonaby be e pected to e ceed 100 for the ta abe year and hs gross ncome
to be 500 or more. In accordance wth the ncrease n e emptons for nd-
vduas provded n secton 25(b) (1) ( ) of the b, the amount of 500 under
ths requrement of an estmate s ncreased to 600.
Subsecton (b) of secton 202 of the b provdes technca amendments wth
respect to the wthhodng e empton necessary by reason of the addtona credts
provded n secton 25(b) of the Code as amended by the b. Secton 1622(h) (1)
of the Code, reatng to wthhodng e emptons, s amended. The amendment
contnues the present provson for an e empton for the empoyee. The amend-
ment adds n secton 1622(h) (1) ( ) and (C) addtona e emptons correspond-
ng to the e empton under secton 25(b) (1) ( ) (), reatng to od age, and the
e empton under secton 25(b) (1) (C) (), reatng to the bnd. ach such add-
tona wthhodng e empton s aowed to the empoyee f on the bass of facts
e stng at the begnnng of any day for whch (he e emptons are beng determned
there may reasonaby be e pected to be aowabe to hm the correspondng e emp-
ton under secton 25(b) for the ta abe year under Chapter 1 n respect of whch
amounts deducted and wthhed n the caendar year n whch such day fas are
aowed as a credt Secton 1622(h)(1)(D) corresponds to secton 1622(h)
(1) ( ) of e stng aw under the Code. It provdes that f the empoyee s
marred, the empoyee Is entted to any e empton to whch hs spouse s en-
tted, or woud be entted, f such spouse were an empoyee recevng wages,
under subparagraph ( ), ( ), or (C) of secton 1622(h) (1), but ony f such
spouse does not have n effect a wthhodng e empton certfcate camng such
e empton. If both husband and wfe are empoyees recevng wages sub|ect to
wthhodng and the wfe s over the age of 65 and has n effect a wthhodng
e empton certfcate camng ony one e empton, then her husband may cam
one e empton for her on hs certfcate.
Secton 1622(h) (1) ( ) of the Code, under the b, reates to the wthhodng
e empton for dependents and s the same, e cept for a cerca change, as secton
1622(h) (1) (C) of the Code under e stng aw.
Paragraph 2 of secton 202(b) of the b provdes a speca status-determna-
ton date for the purpose of gvng effect to the ncreased e emptons provded
under secton 1622(h) (1) wt respect to wthhodng by empoyers. Under e -
stng aw (secton 1622(h)(3)( )), a wthhodng e empton certfcate fur-
nshed the empoyer In a case n whch a prevous such certfcate s n effect takes
effect wth respect to the frst payment of wages made on or after the frst status-
determnaton date whch occurs at east 30 days from the date on whch such
certfcate s so furnshed (uuess the empoyer eects to make the certfcaton
effectve at an earer date after the furnshng of such certfcate). Under e -
stng aw the status-determnaton date s anuary 1 or uy 1 of each year.
In order to make the ncreased wthhodng e emptons provded for under the b
effectve as soon as possbe (consstent wth the aowance of suffcent tme to
provde for the dstrbuton of wthhodng e empton certfcates and the fng
thereof by empoyees) the b provdes n secton 202(b) (2) that for the purpose
of secton 1622(h)(3)( ) the term status-determnaton date ncudes aso
the nneteth day after the date of enactment of the b.
Secton 202(c) of the b provdes technca amendments reatng to return
requrements n order to conform to the ncrease n the ndvdua e empton
from 500 to 600. Secton 51(a) (1) of the Code Is amended to ncrease the
amount of gross ncome for a ta abe year necessary before a return s requred
from 500 to 600. Secton 1 2(a) of the Code s amended to provde a cor-
respondng ncrease where under e stng aw a fducary return s requred to
be fed where the gross ncome s 500 or over. Secton 1 7(a) of the Code s
amended to ncrease from 500 to 000 the mnmum amount of payments whch
w make necessary the fng of an nformaton return. Secton 103(a)(1) of
the Code s amended so as to Increase the credt aganst net ncome of an estate
(correspondng to the persona e empton) from 500 to 600.
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S CTION 203. T L T RS TO W IC M NDM NTS PPLIC L .
The amendments made by ths tte of your commttee b are appcabe
wth respect to ta abe years begnnng after December 31, 19 7. speca rue
wth respect to ta abe years begnnng n 19 7 and endng n 19 8 s provded
n secton 601 of the b.
Tte III. usband and Wfe.
P T I. INCOM T .
S CTION 301. SPLITTING OP INCOM .
Ths secton amends secton 12 of the Code, reatng to surta on ndvduas,
by addng a new subsecton (d) whch provdes for computaton of ta under the
pan for the so-caed ncome spttng between husband and wfe. Ths subsecton
appes ony f a |ont return for the ta abe year nvoved s made as provded
under secton 51(b) of the Code as amended by the b. Under the provsons
of secton 12(d), the combned norma ta and surta under secton 11 and
secton 12(b) of the Code n the case of the husband and wfe makng the |ont
return sha be twce the combned norma ta and surta that woud be deter-
mned f the net ncome and the appcabe credts provded by secton 25 of the
Code were reduced by one-haf.
It s contempated that under ths provson the gross Income and ad|usted
gross ncome of husband and wfe on the |ont return w be computed by the
same method as under e stng aw (that s, n an aggregate amount), and that
the deductons aowed and the net ncome w kewse be computed on an
aggregate bass. Deductons mted to a percentage of the ad|usted gross n-
come, such as the deducton for chartabe contrbutons under secton 23(o),
w be aowed wth reference to such aggregate ad|usted gross Income. Sm-
ary, n the case of a |ont return, osses of husband and wfe from saes or
e changes of capta assets are combned and such combned osses are aowed
under secton 117(d) (2) ony to the e tent of the combned gans of the spouses
from such saes or e changes, pus the net ncome of 1,000 whchever s smaer.
The net ncome referred to n secton 117(d)(2) s the net ncome com-
puted before reducton by one-haf for the purposes of ncome spttng and s
such net Income computed wthout regard to gans and osses from saes or
e changes of capta assets. though there are two ta payers on a |ont
return, there s ony one net ncome.
The method of computng, under secton 12(d), the ta of husband and
wfe, n the case of a |ont return, s as foows:
Frst, the net ncome and appcabe credts aganst net ncome are reduced
by one-haf. Second, the tentatve norma ta and tentatve surta are de-
termned as provded n secton 11 and secton 12(b), by usng the net ncome
and appcabe credts so reduced. Thrd, the tentatve norma ta and tenta-
tve surta so determned are aggregated and ths aggregate tentatve ta s
then reduced as provded n secton 12(c). Fourth, ths reduced aggregate,
whch s the combned norma ta and surta that woud be determned f the
net ncome and the appcabe credts aganst net ncome provded by secton
25 were reduced by one-haf, s then mutped by 2, to produce the ta mposed
n the case of the |ont return.
The mtaton (very rarey appcabe) under secton 12(c) of the combned
norma ta and surta to an amount not n e cess of 77 per cent of the net
ncome s to be apped before the fourth step above, that Is, the mtaton s
to be apped upon the combned norma ta and surta determned under secton
12(c) as 77 per cent of one-haf of the net Income (such one-haf of the net
ncome beng the actua aggregate net ncome of the spouses reduced by one-
haf). fter such mtaton Is apped, then the combned norma ta and
surta so mted s mutped by 2, as provded n secton 12(d).
The appcaton of secton 12(d) s ustrated by the foowng e ampes n
whch Is used to refer to the husband and W s used to refer to hs wfe wth
whom a |ont return Is fed for the caenSar year 19 8. has a saary of 8,000
for 19 8 and pays durng 19 8 oca property ta es on hs resdence n the amount
of 100 and medca e penses for hmsef and W In the amount of 700. W has
ncome for 19 8 from dvdends of 2,000 and durng 19 8 makes gfts to char-
tabe organzatons (descrbed n secton 23(o) of the Code) n the amount of
1,600. and W are not entted to any e emptons other than the persona
e empton of each. The ta on the |ont return of and W for 10 8 s 1,109.60,
determned as foows:
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1. Saary 8,000. 00
2. Other ncome 2,000. 00
3. d|usted gross Income 10,000. 00
. Deductons:
(a) Chartabe contrbutons (mted to 15 per cent of
ad|usted gross Income) 1,500
(6) Ta es 100
(c) Medca e penses (n e cess of 5 per cent of
ad|usted gross ncome (secton 23( ) of the
Code) ; e cess of 700 over 5 per cent of
10,000) 200
1,800. 00
5. Net ncome 8,200. 00
G. Net ncome reduced by one-haf ,100. 00
7. Credts aganst net ncome under secton 25 (2 persona e emptons
under secton 25(b) (1) ( ) of the Code as amended n ths b). 1,200. 00
8. Credts n tem 7 reduced by one-haf 600. 00
9. Net ncome reduced by one-haf (tem 6) mnus credts reduced
by one-haf (tem 8) 3,500.00
10. Tentatve norma ta computed under secton 11 of Code on amount
n tem 9 (3 per cent of 3,500) 105. 00
11. Tentatve surta computed under secton 12(b) of the Code on
amount n tem 9 ( 3 0 pus 19 per cent of e cess of 3,500
over 2,000) 625. 00
12. ggregate of the tentatve norma ta and tentatve surta 730. 00
13. Combned norma ta and surta determned under secton 12(c)
of the Code ( 730 reduced to 2 per cent of 730) 55 . 80
1 . Twce the combned norma ta and surta determned n tem 13- 1,109. 60
If the aternatve ta Is computed under secton 117(c) (2) of the Code, reat-
ng to the aternatve ta where a ta payer (other than a corporaton) has a
net ong-term capta gan In e cess of a net short-term capta oss, the parta
ta sha be computed under sectons 11 and 12 as stated above but wthout
ncuson of such e cess In net ncome, and the tota ta sha be such parta
ta pus 50 per cent of such e cess as provded In secton 117(c) (2).
If the husband and wfe makng a ont return eect to pay the ta under
Suppement T of the Code, the ta on the |ont return s computed as provded
n secton 00 of the Code, as amended n Tte I of ths b. These provsons
are dscussed herenafter.
S CTION 302. ST ND RD D DUCTION
Ths secton provdes for amendments to secton 23(aa) of the Code, reatng
to the standard deducton. Secton 23(aa)()( ) of the Code s amended
to ncrease the standard deducton where the ad|usted gross ncome Is 5,000
or more n case of a |ont return by husband and wfe and In the case of a re-
turn by an unmarred person. In such cases under the amendment the standard
deducton sha be 1,000 or an amount equa to 10 per cent of the ad|usted gross
ncome whchever s the esser. The Increase In the standard deducton n the
case of a ont return of husband and wfe Is to accord them the same treatment
on a |ont return as s provded n effect In the case of spouses wth ncome fng
separate returns. The ncrease n the deducton does not appy In the case
of a separate return by a marred ndvdua, n whch case the ma mum stand-
ard deducton remans at 500 as under e stng aw. In the case of a |ont
return, as under e stng aw, there Is ony one ad|usted gross Income and ony
one standard deducton. For e ampe, f a husband has an ncome of 15,000
and the spouse has an ncome of 12,000 for the ta abe year for whch they
fe a |ont return, and they have no deductons aowabe for the purposes of
computng ad|usted gross ncome, the ad|usted gross ncome s 27,000, and the
standard deducton aowabe on such return s 1,000 (and not 2,000).
Under subsectons (b) and (c) of secton 302 of the b secton 23(aa) ( )
of the Code Is separated nto two paragraphs, namey ( ) and (6). The new
paragraph ( ) requres both husband and wfe to Itemze ther deductons, rather
than to take the standard deducton, If one of them so temzes. Ths Is the
same rue as contaned In the frst sentence of the present provsons of secton
23(aa)( ), e cept that under the e stng aw ths rue appes ony If the
husband and wfe are vng together.
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The new paragraph (6) contans provsons substantay the same as those
contaned n the ast sentence of secton 23(aa) ( ) of e stng aw reatng to
the determnaton of the status of ndvduas as husband and wfe. Under
ths paragraph the determnaton of whether an Indvdua s marred s made,
for the purpose of the aowance of the standard deducton, as of the cose of hs
ta abe year, uness hs spouse des durng hs ta abe year, n whch case the
determnaton s made as of the tme of such death. The new paragraph (6)
aso provdes that for the purpose of the aowance of the standard deducton, an
ndvdua egay separated (athough not absoutey dvorced) from hs spouse
under a decree of dvorce or separate mantenance sha not be consdered mar-
red. Ths s te same test as s provded n secton 22(k) of the Code, reatng
to amony and ke payments, where spouses are egay separated or dvorced.
Ths provson s aso ntended to appy the same test as s provded In secton
51(b) of the Code, as proposed to be amended by secton 303 of the b, so that
the determnaton of marred Indvduas w be the same for the purpose of the
standard deducton as for the purpose of egbty to make a |ont return.
S CTION 303. OINT R TURNS OF US ND ND WIF .
Ths secton provdes for an e tensve revson of secton 51(b) of the Code,
reatng to |ont returns by husband and wfe, to refect changes necessary under
the so-caed spt-ncome pan. s under e stng aw, a ont return may not
be made by a husband and wfe for a ta abe year f a separate return has been
fed by one of the spouses and the tme for fng the return of such spouse has
e pred. Smary, f a |ont return was fed, separate returns may not be
made by the spouses after the tme for fng the return of ether has e pred.
Under the b, however, In certan crcumstances, an e ecutor may make a ate
separate return for a deceased spouse after the survvng spouse has made a
tmey |ont return for hmsef and the deceased spouse. Ths e cepton to the
above genera rue s provded n secton 51(b)( ) of the Code, as proposed
to be added by ths secton of the b, and s further dscussed herenafter.
Paragraph (1) of secton 51(b), as proposed to be amended, contans the
e stng genera provsons whch permt the makng of a |ont return and pro-
vdes that on such return the ta sha be computed on the aggregate ncome
and the abty wth respect to the ta sha be |ont and severa.
Paragraph (2), of secton 51(b) as proposed to be amended, provdes that no
|ont return may be made If ether the husband or wfe at any tme durng the
ta abe year s a nonresdent aen. Ths provson Is the same as that now
contaned n secton 51(b) of the Code wth the addton of the phrase at any
tme. The addton s a carfcaton whch represents the unform constructon
of the e stng aw.
Paragraph (3) of secton 51(b) contnues the e stng provson that no |ont
return sha be made f the husband and wfe have dfferent ta abe years but
makes an mportant e cepton n the case of spouses whose ta abe years begn
on the same day and end on dfferent days because of the death of ether or both.
Under secton 7(g) of the Code, the ta abe year of a ta payer coses as of the
date of hs death. The e cepton thus s ntended to appy where, but for the
deat of ether or both spouses, the ta abe years of the spouses woud be the
same. In such a case, t s proposed to aow a |ont return to be made wth
respect to the ta abe year of each spouse. Ths provson s desgned to prevent
spouses beng dened the prvege of makng a |ont return by reason of the
death of one spouse durng the ta abe year. |ont return may not be made
for a decedent spouse and the survvor for any ta abe year of the survvor
begnnng after the death of the decedent spouse.
The provson aowng a |ont return to be made for the ta abe year n whch
the death of ether or both spouses occurs s sub|ect to two e ceptons, n the case
of each of whch the genera rue w contnue to appy, namey, that the |ont
return can not be made by the husband and wfe because they have dfferent
ta abe years. The frst e cepton s that f the survvng spouse remarred
before the cose of hs ta abe year, he may not make a |ont return wth the
frst spouse who ded durng the ta abe year. In such a case, however, the
survvng spouse may make a |ont return wth hs new spouse provded that
the other requrements of secton 51(b) are met. The second e cepton s that
the survvng spouse aso may not make a |ont return wth the deceased spouse
f the ta abe year of ether spouse s a fractona part of a year under secton
7(a) of the Code, reatng to change of accountng perod. For e ampe, f a
husband and wfe make ther returns on the caendar year bass and the we
700090 8 19
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des on March 1,19 8, and thereafter the husband receves permsson to change
hs accountng perod to a fsca year begnnng uy 1, 19 8, no |ont return
may be made for the short ta abe year endng une 30, 19 8. Smary, If a
husband and wfe who make ther returns on a caendar year bass receve per-
msson to change to a fsca year begnung uy 1, 19 8, and the wfe des on
une 1,19 8, no |ont return may be made for the fsca year endng une 30,19 8.
Paragraph ( ), of secton 51(b) as proposed to be amended, provdes for
the method of makng a |ont return after the death of a spouse. Ths paragraph
appes not ony n those cases n whch the death of one spouse coses hs ta abe
year but aso In those cases n whch one spouse des after the cose of hs ta abe
year but before hs return s fed. The genera rue provded In such paragraph
( ) s that, n the case of the death of one spouse, or of both spouses, the |ont
return wth respect to the decedent may be made ony by hs e ecutor or ad-
mnstrator. y ths s meant the person or persons who are actuay apponted
e ecutor or admnstrator and not merey a person who may be n charge of the
property of the decedent. n e cepton s made from ths genera rue whereby,
n the case of the death of one spouse, the |ont return may be made by the
survvng spouse wth respect to both hmsef and the decedent f a the foowng
condtons e st:
( ) No return has been made by the decedent for the ta abe year n
respect to whch the |ont return s made.
( ) No e ecutor or admnstrator has been apponted at or before the
tme of the makng of such |ont return.
(C) No e ecutor or admnstrator s apponted before the ast day pre-
scrbed by aw for fng the return of the survvng spouse.
Those condtons are to be apped wth respect to the return for each of the
ta abe years of the decedent for whch a |ont return may be made f more
than one such ta abe year s nvoved. Thus, n the case of husband and wfe
on the caendar-year bass, f the wfe des n anuary, 19 9, a |ont return for
the husband and wfe for 19 8 may be made f the condtons set forth above are
satsfed wth repsect to such return. |ont return may aso be made by the
survvor for both hmsef and the deceased spouse for the caendar year 19 9
f It s separatey determned that the condtons set forth above are satsfed
wth respect to the return for such year. In determnng whether an e ecutor
or admnstrator s apponted before the ast date prescrbed by aw for fng
the return of the survvng spouse, an e tenson of tme for makng the return
Is ntended to be ncuded.
The condton set forth n ( ) above Is desgned to prevent a |ont return
beng made by the survvor for hmsef and the deceased spouse where the de-
censed spouse had aready made a separate return for the ta abe year for
whch the |ont return s sought to be made. Thus, f, n the case of a spouse
who ded n February, 19 9, such spouse had made pror to her death a separate
return for 19 8 (ether on a Form W-2 or Form 10 0) or had made a |ont re-
turn wth her spouse for 19 8, the survvng spouse may not thereafter make a
|ont return for hmsef nnd the deceased spouse for 19 8. If, n such case, a
|ont return for 19 8 had been made by such spouses durng the fe of both
spouses, such return s the return of the spouses for 19 8. For the purposes of
( ) above no return sha be consdered as made by the decedent uness t
was made before her death by her or her agent or guardan. If an e ecutor
or admnstrator has been apponted wthn the tme provded In ( ) and (C)
of secton 51(b)( ), the survvng spouse can not make a |ont return for hm-
sef and the deceased spouse whether or not a separate return for the deceased
spouse s made by such e ecutor or admnstrator, for, at that tme, the |ont
return, f one Is to be made for the deceased spouse, must be made by the
e ecutor or admnstrator.
If the survvng spouse makes the |ont return provded for above, and there-
after an e ecutor or admnstrator of the decedent s apponted, the e ecutor
or admnstrator (n order to reeve the decedent s estate from |ont and
severa abty for the whoe ta , or for any other reason) may dsaffrm
such |ont return. Ths dsaffrmance, In order to be effectve, must be made
wthn one year after the ast day prescrbed by aw for fng the return of
the survvng spouse (ncudng any e tenson thereof) and must be made n
the form of a separate return for the ta abe year of the decedent wth respect
to whch the |ont return was made. In the event of such proper dsaffrmance,
the return made by the survvor sha consttute hs separate return, that s,
the |ont return made by hm sha be treated as hs return and the ta thereon
sha be computed by e cudng a tems propery ncudbe n the return of
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283
the deceased spouse. The separate return made by the e ecutor or admnstra-
tor sha consttute the return of the deceased spouse for the ta abe year. The
tme aowed the e ecutor or admnstrator to dsaffrm the |ont return by the
makng of a separate return Is not Intended to estabsh a new due date for the
return of the deceased spouse. ccordngy, the provsons of sectons 291 and
29 of the Code, reatng to denquent returns and denquency In payment of ta ,
w be appcabe to such return made by the e ecutor n dsaffrmance of the
|ont return.
Paragraph (5), of secton 51(b) as amended n the b, provdes for the
determnaton of status of ndvduas for the purpose of makng |ont returns.
In accordance wth the e tenson of the |ont return prvege to cases In whch a
spouse ded durng the ta abe year, the status determnaton of ndvduas
as husband and wfe n such a case s to be made as of the tme of the death
of such spouse. In ths and In other respects the determnaton of status for
the purposes of secton 51 s the same as that provded under secton 23(aa) (G),
as added by secton 302 of the b wth respect to the aowance of the standard
deducton, e cept that the determnaton of status appes under secton 51 ony
where two ndvduas have ta abe years begnnng on the same day.
Paragraph (6), of secton 51(b) as amended In the b, contans cross-ref-
erences to secton 12(d) of the Code and to secton 00 of the Code.
S CTION 30 . D DUCTIONS FO M DIC L P NS S.
Ths secton amends secton 23( ) of the Code, reatng to deducton for
medca e penses. Under e stng aw the ma mum deducton s 1,250 for the
ta abe year f ony one e empton s aowed under secton 25(b), and 2,500
f more than one e empton s aowed. Under the proposed amendment these
mtatons w st be appcabe In the case of separate returns. The mta-
tons w aso be appcabe n the case of |ont returns where there are not more
than two e emptons, but If, In the case of a |ont return, there are three e emp-
tons aowed, the ma mum deducton sha be 3,750, and If, In the case of a
|ont return, there are four or more e emptons aowed, the ma mum deducton
sha be 5,000. The e emptons referred to do not Incude e emptons aowed
under secton 25(b)(1) ( ) or (C), reatng to the e emptons for Indvduas
who have attaned the age of 05 and for bnd Indvduas. s under e stng aw
the deducton s aowed for medca e penses under secton 23( ) to the e tent
that such e penses e ceed 5 per cent of the ad|usted gross ncome, or 5 per cent
of the aggregate ad|usted gross ncome n the case of a |ont return.
S CTION 805. T L Y RS TO W IC M NDM NTS PPLIC L .
Ths secton provdes that the amendments made by ths tte of the b, pro-
vdng for ncome spttng, sha be appcabe wth respect to ta abe years
begnnng after December 31, 19 7. The requrements of secton 51(b) of the
Code as amended by the b wth respect to the fng of a |ont return are aso
made appcabe to ta abe years of both husband and wfe begnnng on the
same day n 19 7 If at east one such ta abe year ends In 19 8. Thus, a |ont
return by the husband and wfe for a fsca year begnnng n 19 7 and endng In
19 8 can not be made uness permtted by the provsons of secton 51(b) as
amended by the b. If a husband and wfe, as of the cose of ther fsca year
begnnng n 19 7 and endng n 19 8, are egay separated under a decree of
separate mantenance, they can not make a |ont return for such fsca year
under the provsons of secton 51(b) as amended by the b (athough under
e stng aw they coud make a |ont return). owever, n the case of a husband
and wfe who have been makng ther returns on the bass of a fsca year endng
une 30, f the wfe ded before une 30, 19 8, and after the begnnng of ther
ta abe years begnnng uy 1, 19 7, a ont return may be made, under secton
51(b) as amended by the b, for the deceased spouse and the survvor for the
ta abe year of each begnnng uy 1,19 7 (athough under e stng aw a |ont
return coud not be made In such a case).
Tte III. usband and Wfe.
P RT II. ST T ND GIFT T .
S CTION 351. ST T T T N8F S OF COMMUNITY PROP RTY IN CONT MPL TION
OF D T , TC.
Ths secton repeas, effectve wth respect to estates of decedents dyng afteT
the date of enactment of ths b, secton 811(d) (5) of the Code, reatng to
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transfers durng fe of communty property Incudbe In the gross estate under
secton 811 (c) or (d) of the Interna Revenue Code (such as transfers In con-
tempaton of death, etc.). The e tent to whch any such transfer of communty
property s Incudbe In the gross estate of the transferor s determned under the
aw at the date of hs death (that Is. wth respect to decedents dyng after the
date of the enactment of ths b, wthout regard to secton 811(d) (5)).
S CTION 352. ST T T OINT ND COMMUNITY INT R STS.
Ths secton repeas, effectve wth respect to estates of decedents dyng after
the date of enactment of ths b, secton 811 (e) (2) of the Interna Revenue Co e,
reatng to Incuson of communty property In the gross estate of the decedent.
In the case of decedents dyng after the date of enactment of ths b, the e tent
to whch communty property hed by the decedent and hs spouse at the death
of the decedent s to be Incuded n hs gross estate w be determned wthout
regard to secton 811(e) (2). Cerca amendments are aso made by ths secton
to renstate the form of secton 811(e) pror to the enactment of the Revenue
ct of 19 2.
S CTION 353. ST T T PROC DS OF LIF INSUR NC .
Ths secton repeas, effectve wth respect to estates of decedents dyng after
the date of enactment of ths b, secton 811(g) ) of the Code, reatng to
communty property n the case of fe Insurance. Snce secton 811(g) was
competey rewrtten n the Revenue ct of 19 2, the repea prospectvey of
secton 811(g)( ) makes appcabe to decedents dyng after the date of enact-
ment of ths b the rues of secton 811(g) whch woud be appcabe had
paragraph ( ) never been contaned n secton 811(g).
S CTION 35 . GUT T GIFTS OP COMMUNITY PROP RTY.
Secton 1000(d) of the Interna Revenue Code provdes a speca rue for
treatment of transfers of communty property by gft. Ths secton of the b
provdes that secton 1000(d) sha be appcabe ony to gfts made after the
caendar year 19 2 (when the gft ta provsons of the Revenue ct of 19 2 frst
became effectve) and on or before the date of enactment of ths b. Thus, n
the case of a gft of communty property after the date of enactment of ths b
the e tent to whch the gft s that of the husband and wfe sha be determned
wthout regard to secton 1000(d) of the Code. owever, for the purpose of
the computaton of ta under secton 1001 of the Code, secton 1000(d) sha be
appcabe n determnng net gfts wth respect to gfts of communty property
made after the caendar year 19 2 and on or before the date of the enactment of
ths b. The net gfts for such perod are ncuded n the net gfts for precedng
caendar years, to whch are added the net gfts made for a current caendar year
n order to determne the rate at whch the net gfts for the current caendar
year w be ta ed. The above appcaton of secton 1000(d) s mted to the
purposes of the gft ta and does not appy In determnng the e tent to whch
transfers of communty property are transfers by the decedent under the
estate ta .
Tte I . d|ustf.d Gross Income of Less Than 5,000.
S CTION 01. INDIYIDT/ IS WIT D UST D GROSS INCOM S OF L SS T N 5,000.
Ths secton of the b amends secton 00 of the Code, reatng to the optona
ta on ndvduas wth ad|usted gross ncomes of ess than 5,000. Instead of one
ta tabe for computng the ta n the case of such ndvduas, as under e stng
aw, the b amends secton 00 of the Code to provde two ta tabes. oth ta
tabes gve effect to the reductons n ta and addtona e emptons provded n
Ttes I and II of the b. owever, the frst tabe s appcabe ony for the
purpose of computng the ta other than n the case of a |ont return of husband
and wfe under secton 51 of the Code. The second tabe, whch gves effect not
ony to the provsons of Ttes I and II but aso to the ncome-spttng provsons
of Tte III of the b, s appcabe ony for the purpose of computng, under
secton 00, the ta n the case of a |ont return of husband and wfe under
secton 51 of the Code.
The amendments made by ths secton of the b are appcabe wth respect
to ta abe years begnnng after December SI, 19 7. Speca provson Is nmde
n secton 601 of the b for ta abe years begnnng n 19 7 and endng n 19 8.
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Ttus . Reducton n Wthhodng of Ta at Source on Wages.
S CTION 501. P RC NT G M T OD.
Ths secton of the b amends secton 1622 (a) and (b) (1) of the Interna
Revenue Code, reatng to the percentage method of wthhodng, to refect the
reductons In ta provded n Ttes I and II of the b.
S CTION 502. W G R C T WIT OLDING.
Ths secton of the b amends secton 1022(c) (1) of the Code, reatng to wage
bracket wthhodng, by changng the ta tabes contaned n that secton of the
Code n order to refect the reducton n ta provded n Ttes I and II of the b.
S CTION 503. FF CTI D T .
Ths secton provdes that the amendments made by ths tte sha be appcabe
ony wth respect to wages pad on or after pr 1,10 8.
Tte I. Fsca Year Ta payers.
S CTION 001. FISC L Y R T P Y RS.
Ths secton of the b makes the usua speca provson for computaton of
the ta n the case of ta payers makng returns on a fsca year bass, n ths case
for fsca years begnnng n 19 7 and endng In 19 8.
19 8-9-12799
R NU CT OF 19 8.
Senate Report No. 1013, ghteth Congress, Second Sesson. Caendar No. 1055.1
March 16, 19 8 (egsatve day, March 15), 19 8.
Mr. Mkn, from the Commttee on Fnance, submtted the foowng report
to accompany . R. 790 .
The Commttee on Fnance, to whom was referred the b ( . R. 790) to
reduce ndvdua ta payments, and for other purposes, havng had the same
under consderaton, report favoraby thereon wth amendments and recom-
mend that the b, as amended, .o pass.
I. Genera Statement.
Your commttee s b Is desgned to provde a stmuus to abor, management,
and venture capta; an ad|ustment for the ncrease n the cost of vng; and
the geographca equazaton of the burden of the ncome, estate, and gft
ta es.
The heavy ndvdua ncome-ta rates now n effect consttute a serous
restrcton upon new nvestment, nhbt the Incentves of management, and pre-
vent the norma ncrease In productvty of abor. These rates mpede the pro-
ducton whch s so necessary In the mmedate future n order to stabze our
economy and whch n the ong run Is essenta to an Increase In the mercan
standard of vng. Your commttee s b s a step toward the deveopment of a
ta -rate schedue whch s consstent wth the mantenance of a heathy mer-
can economy.
d|ustment for the present hgh cost of vng Is made by an ncrease n
e emptons under the ndvdua ncome ta . Ths reef s heavy concen-
trated among ta payers n the ow-ncome brackets. Such ta payers aso re-
ceve preferenta treatment n the percentage ta reductons made by ths b.
ddtona reef s granted to persons 65 and over and to the bnd.
quazaton s provded for the ta burdens of marred coupes n common-
aw and communty-property States. The b corrects e stng Inequates
under the estate and gft ta es, as we as the ndvdua Income ta .
The reducton n ta abtes provded by your commttee s b amou:U
to .8 bon In a year of fu operaton, or about 2 bon ess than the ouse
b. Ths decrease was deemed advsabe n order to pace ta reducton on
a more conservatve bass, and to provde addtona assurance of ampe
surpuses for debt reducton and contngences n the current year and n years
to come.
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Tabe I. comparson of the effectve ndvdua ncome ta rates under present
aw, under the ouse b, and the Senate Fnance Commttee b.
Fnae person, no
dependents.
Marred
person.
no de-
Marred
person.
2 de-
Income after
pendents, entre Income
earned by 1 spouse.
pendents, entre ncome
earned by 1 spouse.
deductons but
. R.
P. R.
. R.
teforc e emptons.
. R.
790
. R.
790
. R.
790
Present
790
(Fnance
Present
760
(Fnance
Present
700
(Fnance
aw.
( ouse
Com-
aw.
(nouse
Com-
aw.
( ouse
Com-
b).
mttee
bU).
mttee
b).
mttee
b).
b).
b).
Per cent.
Per tnt.
Per ernt.
Per cent.
Per cent.
Per cent.
Per cent.
Per cent.
Per cent.
MOO
3.17
.
700
5. 3
1.90
2.37
750
6 33
2. 6
3.32
C00
7.12
3.33
.15
00
8.
. 3
1,000
9. 5 0
5.32
6.6
1/200
11.08
6.66
8.30
3.17
1 .. 00
12. 07
7. 98
9.96
6.33
2.66
3 32
1,800
13. 72
9.61
11.07
8.
. 3
6.63
2,000
1 25
10.6
11.62
9.60
5.32
6 6
2 O0
16.20
11.52
12.02
11. 0
6 92
8.63
3.80
0.63
0.66
3.0O0._
16. 15
12. 36
13.65
12 67
7.98
9.96
6.33
2.66
3.32
(,000
17.3
13. 5
15.08
1 .72
10 6
11.62
9.50
6.S2
6.6
5,000..
18. 3
1 . 5
10. 21
15.90
11.55
12.62
11.78
7.72
8.63
6,000
19. 7
15.83
17.33
17 12
12. 36
13. 66
13.30
6.12
9.96
7,000
20. 9
16. 9
18.32
18. 6
12. 99
1 . 6
1 .93
10.12
11.15
8.000...
21. 9
18.03
19.33
19. 71
13. 5
15.08
16.15
10 9
12.17
9,000
22 S
19.03
20.27
20 69
13.82
15.55
17. 62
11.59
12.97
10,000
23. 7
20.03
21.2
21.85
1 .56
10. 21
18.62
12.10
13. 61
11,000
2 .
20.98
22. 15
22.80
15.2
16. 82
19.86
12.82
1 .32
12.000
25. 1
21.9
21.09
23.91
15.83
17.33
20.90
13.60
15.0
3,000
26. 2
22. S8
2 .03
2 .85
16 32
17. 75
22.07
1 .27
15.6
1 ,000
27. 5
23.87
26.01
25.99
16 9
18. 32
23.07
1 .8
16.16
15.000.
28. 7
2 .82
25. 90
2C.98
17. 62
s sr.
2 .26
15. 7
16.75
20.000
33 23
29.28
30.
31.97
20.03
21.2
29. 5
18.29
19.
25.000
37. 5
33.18
3 . 0
36.33
22.36
23.51
3 .09
20.80
21.90
30,000
0.88
36. 35
37.62
39. 90
2 .82
25.96
37.9
23.26
2 .35
0,000
6.06
1.10
2. 7
5.2
29.28
30.
3.60
27.92
29.05
50,000
50 27
.96
6. 0
9.59
33.18
3 . 0
8.22
31.97
33.16
00,000
63.75
8.13
9.6
63.15
36.35
37.62
51.96
35.29
36 53
70,000
60.63
60. 76
52.33
6. 10
38.91
0.22
55.06
37.95
39.2
80,000
59.16
53.05
6 .68
58.67
1.11
2. 7
57.71
0.22
1.66
66,000..
01. 3
65.12
66.80
60.99
3.12
.52
60.10
2.31
3.69
100.000
63.5
57.03
68.76
63. 13
.96
0. 0
62.30
.23
5.6
150.000
70. 5
63.38
65.
70.20
51.97
53.58
69.69
51. 2
63.01
tmooo
7 .28
60.77
69.39
7 .06
57.03
58.76
73.63
66.59
68.30
250.000..
76.71
68.97
71.93
76.5
60.8
62.67
76.19
60. 7
62.29
n oo.ooo
78.33
70. 5
73.63
78.19
63.38
65.
77.90
63.08
66.12
00,000
80.36
72.29
75.76
80.26
66.77
69.39
80.0
66.6
69.1
1600,000
81.68
73.39
77.00
81. 9
OS . 7
71.93
81.32
6S.79
71.7
750.000
83.20
7 .86
77.00
83. 15
71.92
75.33
83.03
71.70
76.20
1,000,000
8 .01
76.00
77.00
83.97
73.39
77.00
83.88
73.30
76.93
Source: Staff of tbe ont Commttee on Interna Revenue Ta aton.
II. Summary of Changes n stng Law.
II. R. 7f0, ns amended, s both a ta -reducton and ta -equazaton b. The
ta -reducton features appy soey to the ndvdua ncome ta . They ncude
a genera ncrease n e emptons, a reducton n a ta rates, but wth the arger
part of the reef u the ower ncome brackets, and speca e emptons for those
over 65 and the bnd. The ta -equazaton features of the b appy to the
ndvdua ncome ta and the estate and gft ta es. They are desgned to
produce unform treatment for resdents of common-aw and communty-property
States.
comparson of the effectve ndvdua ncome ta rates under your com-
mttee s b, under the b as passed by the ouse, and under present aw Is
shown n tabe I. The changes n the rates and e emptons of the Indvdua
ncome ta under ths b are effectve anuary 1, 19 8. The changes n wth-
hodng rates w become effectve on May 1, 19 8. Overwthhodng durng the
frst four months of 19 8, whch s not offset by decreased payments on estmated
ta es or fna returns, w of course be refunded to the ta payer. The changes
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287
In the estate and gft ta become aw on the date of enactment of ths b.
bref descrpton of the changes provded by your commttee s b Is gven beow.
. INDI IDU L INCOM T S.
1. Persona and dependency e emptons are Increased from 500 per capta to
600 per capta.
2. Percentage ta reductons rangng from 2.6 per cent to 5 per cent, accordng
to the sze of the Income, are provded for a ta payers. Tabe II compares these
percentage reductons wth those n the b as passed by the ouse.
Whe the percentage reducton from the present aw ta are carred out to
one decma pace n two Instances, the reductons n tentatve ta are n even
percentages as far as the buk of the ta payers are concerned. Snce these reduc-
tons are the percentages whch appear on the ta form, your commttee beeved
that t was Important to have the reductons n tentatve ta e pressed as even
percentages n the ower brackets. Moreover, your commttee s reductons are
made In a form whch avods the necessty of usng the notch rate of 67
appearng n the ouse b. Ths s accompshed by makng the reducton n
the owest bracket avaabe to a ta payers wth correspondng ad|ustment In
the reductons aowed wth respect to addtona ncome. Ths change removes
the ony serous admnstratve probem rased by the Commssoner of Interna
Revenue at your commttee s hearngs.
The percentage reductons n your commttee s b are as foows:
(a) Persons wth ncomes of 2,000 or ess after deductons and e emptons
receve a 12.6 per cent reducton n ther ta .
(6) Persons wth ncomes of 2,000 to about 136,700 after deductons and
e emptons receve a reducton of 12.0 per cent of the ta on the frst 2,000 of
ther net Incomes after e emptons and a reducton of 7. per cent of the baance
of ther ta .
(c) Persons wth ncomes In e cess of about 136,700 receve a reducton of 12.8
per cent of the ta on the frst 2,000 of ther ncomes after deductons and e emp-
tons, a reducton of 7. per cent of the ta on the ne t 13 ,700, and a reducton
of 5 per cent of the baance of ther ta .
Tabe II. Percentage reductons n ndvdua ncome ta es provded under your
commttee s b and under the b as passed by the ouse.
Income after ded no-
tons and e emp-
tons.
Tentatve ta .
Reductons In tentatve ta .
Reductons In present aw ta .
. R DUCTIONS UND R YOUR COMMITT S ILL.
10 to 2,000
0 to 00
17 per cent
12.8 per cent.
2,000 to 130,719.10..
00 to 100,000....
100,000 and over-
17 per cent of the tentatve ta
on the frst 2,000 of surta
net Income pus 12 per cent
of the tentatve ta on the
e cess.
12.6 per cent of the present aw
ta on the frst 2,000 of sur-
ta net Income, pus 7. per
cent of tho present aw ta on
the e cess.
136,719.10 and over.
17 per cent of the tentatve ta
on the frst 2,000 of surta
net Income, pus 12 per cent
of the tentatve ta on about
the ne t 13 ,700 pus 9.75
per cent of the tentatve ta
on tho e cess.
12.6 per cent of thepresent aw
ta en the frst 2,000 of sur-
ta net Income, 7. per cont
of the present aw ta on
about the ne t 13 ,700, pus
6 per cent of the present aw
ta on the ccess.
. R DUCTIONS UND R T OUS ILL.
0 to 1,000
1,000 to 1,396.83...
1,395.83 to ,000...
,000 and over
0 to 200
200 to 279.17
279.17 to 8 0
8 0 and over.
33.5 per cent...
87
2 per cent
2 per cent of the tentatve ta
on the frst ,000 of surta
net Income pus 1 .5 per cent
of the tentatve ta on the
30 per cent.
30 per cent to 20 per oent.
20 per cent.
20 per cent of the present aw
ta on the frst ,000 of sur-
ta net Income pus 10 per
cent of the present aw ta on
thee
More correcty, tentatve norma ta and surta . The term tentatve refers to the ta computaton
before the 6 per cent reducton provded by present aw or the percentage reductons provded under ths
MIL
1 More accuratey, surta net Incomes. For cearer understandng, however, the term
ncomes after deductons and e emptons w be used hereafter In ths report.
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288
3. usbands and wves are permtted to spt ther ncome for ta purposes.
Those who ava themseves of ths opportunty fe |ont returns, dvde ther
net ncome and e emptons by 2, compute ther ta on ths bass, and mutpy the
resut by 2. Snce n ths change the ma mum standard deducton for marred
coupes s Increased to 1,000, the ma mum standard deducton for snge persons
Is aso ncreased to 1,000.
. n addtona e empton s granted to ta payers who are 65 or over. If
both husband and wfe have attaned the age of 65, the 600 e empton s granted
to each spouse.
5. n addtona 600 e empton Is granted to ta payers who are bnd. If
both husband and wfe are bnd, the 600 e empton Is granted to each spouse.
bnd person 65 or over may cam ths e empton In addton to that based
on age.
. ST T ND GOT T S.
1 . The 19 2 amendments to the estate and gft ta es whch provded speca
rues n the case of communty property are repeaed for persons dyng and as to
gfts made after the date of the enactment of ths b. Generay, ths restores
the rue by whch estate- and gft-ta abtes are dependent upon the owner-
shp of the property under State aw. Thus, n communty-property States,
rrespectve of whch spouse des frst, ony one haf of the communty property
s Incuded n the gross estate. Smary, a gft made out of communty property
Is ta abe one-haf to the husband and one-haf to the wfe, snce under State aw-
each owns a one-haf nterest In the property.
2. Provson Is made for estate and gft ta spttng of noncommunty
property. Ths provson aso w appy to persons dyng after the date of the
enactment of ths b, so that communty property and noncommunty property
may be paced on an equa bass at the same tme. Under ths provson property
passng outrght n a common-aw State from a decedent to the survvng spouse
s deducted from the decedent s gross estate up to a mt of 50 per cent of the
vaue of the decedent s gross estate ess deductons for funera e penses, debts,
and other cams aganst the estate. In a smar fashon husbands and wves, In
common-aw States, may treat ther gfts as beng made one-haf by each spouse.
Resdents of communty-property States may aso take advantage of the estate
and gft ta spttng provsons wth respect to transfers of ther separate
property. The same spttng effect s acheved for communty property by the
repea of the 19 2 amendments.
C. C PIT L G INS T .
Under your commttee s b property receved by the survvng spouse as hs
Interest n the communty s gven the same bass for gan or oss on a subsequent
sae as It woud have had f the nterest had been acqured by bequest, devse, or
nhertance from the decedent spouse. Wth the repea of the 19 2 amendments
ths means that the bass for cacuatng capta gan or oss w be the vaue as
of the date of death, or the optona vauaton date, for the entre communty
nterest
III. Summary of stmated Revenue ffect of Ta Reducton.
a. effect of bu on ta abtes.
Indvdua ncome-ta abtes under your commttee s b are estmated at
16,88 mon In a fu year of operaton, assumng a persona ncome eve of
208 bon. Ths compares wth abtes of 1 ,999 mon under the b as
passed by the ouse and 21, 58 mon under present aw. Thus your com-
Present aw provdes that a standard deducton may be used by a ta payer In eu of
Itemzng bs deductons. ta payer wth an Income before deductons or e emptons of
ess than 0,000 who uses the Suppement T ta tabe automatcay Is aowed a standard
deducton equa to about 10 per cent of hs Income. For an Indvdua whose Income before
deductons or e emptons s 5,000 or more a standard deducton of 500 Is aowed. Your
commttee s b w aow a marred coupe who fes a ont return, or a snge person,
whose ncome before deductons or e emptons Is between 5,000 and 10,000, a standard
deducton equa to 10 per cent of ncome. If the Income before deductons or e emptons
of such a person s 10,000 or more he s aowed a standard deducton of 1,000.
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289
mttee s b provdes for a reducton of ,57 mon n the ndvdua ncome-
ta abtes as compared wth 6, 59 mon under the ouse b. Under
both your commttee s b and the ouse b there Is aso a reducton of 199
mon In estate and gft ta abtes. ence, the tota reducton n abtes
under the commttee s b s ,773 mon as compared wth 6,G58 mon under
the ouse b.
The effect of your commttee s b and the ouse b on Indvdua Income ta
and estate and gft ta abtes Is summarzed In tabe III, whch foows:
Tabe I. stmated tact abtes under present ata, under your commttee s
b, and the ouse b, assumng a persona ncome eve of 208 bon.
In mons of doars.)
Present
aw.
Fnance
Commt-
tee s b.
ouse
b.
21, 68
820
16,88
,87
621
199
,773
1 .999
8, 59
621
199
6,6 8
Tota reducton In ta abtes under . . 790
Source: Staff of tbo ont Commttee on Interna Revenue Ta aton.
. DIFF R NC rW N LI ILITI S ND COLL CTIONS.
ta reducton e pressed on a abty bass, such as the ones shown In the
above tabe, ndcates the decrease In obgatons ncurred by ta payers durng a
year. owever, for the purpose of determnng the effect of your commttee s
b on the budget, t Is necessary to present revenue estmates on a coecton
bass.
ta reducton e pressed on a coecton bass ndcates the actua oss n
recepts of the Government n a specfc year. Usuay In the year In whch
a ta reducton Is made, the effect of the reducton In abtes s not refected
fuy In the coectons because of the ag In coectons behnd the Incurrng
of the ta abty. Thus, athough the ta reducton under your commttee s
b s effectve durng haf of the fsca year 19 8, ony about 23 per cent of the
haf-year reducton n abtes Is refected In the coectons durng that year.
Usuay, n the year after the ta reducton the oss n coectons e ceeds the
abty reducton. Ths s because the abnorma ag of coectons behnd a-
btes In the year of the reducton s argey made up n the year after the
reducton. In the second year after the reducton, the coectons are about the
same as the abtes.
C FF CT OF ILL ON T COLL CTIONS.
Tabe I presents the effects of the ta reducton proposed by your commt-
tee and that contaned In the ouse b on coectons durng the fsca years
19 8 and 19 9. persona ncome eve of 208 bon In the caendar year 19 8
has been assumed. On ths bass, your commttee s b woud reduce coec-
tons n the fsca year 19 8 by 558 mon, and reduce coectons and ncrease
refunds n the fsca year 19 9 by 5,100 mon. On a smar bass the ouse b
woud reduce coectons n 19 S by 1,020 mon and n 19 9 by 6,903 mon.
The revenue oss n the fsca year 19 9 s n e cess of the estmated reducton
n abtes n both your commttee s b and the ouse b, prmary because
. R. 790 s beng acted on after anuary 1, 19 8, the date when the chance
n abtes s effectve. s a resut there w be overwthhodng of the n-
come ta n the eary months of ths year, whch n the fsca yenr 19 9 w de-
crease payments of estmated ta and payments wth fna returns, and w
ncrease the ta refunds requred.
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Tabe I . ffect on tota recepts n the fsca years 19 8 and 19 9 of your com-
mttee s b and the ouse b, assumng persona ncome of 208 bon n the
caendar year 19 8.
In mons of doars.
stmated
recepts
under
Reducton
n recepts
under .
. 790-
. For the fsca year 19 8:
6,3
6,786
5,318
53
1,026
ouse b
. For the fsca year 19 9:
7,266
1 2,166
0,293
1 6,100
6,963
ouse b
1 Ths ncudes an aowance for addtona refunds.
Source: Staff of the ont Commttee on Interna Revenue Ta aton.
I . The Fsca Outook n 19 8 and 19 9.
. INCOM SSUMPTIONS US D IN C LCUL TING NU STIM T S.
The persona ncome eves, e pressed as annua rates, on whch your com-
mttee based ts revenue estmates for the fsca years 19 8 and 19 9 are:
ons.
Frst haf of caendar year 19 7 (actua) 191
Second haf of caendar year 19 7 (actua) 203
Frst haf of caendar year 19 8 (assumed) 210
Second haf of caendar year 19 8 (assumed) 205
Frst haf of caendar year 19 9 (assumed) 195
The above fgures produce an average of 197 bon for the caendar year 19 7
and 208 bon for the caendar year 19 8. The average for the fsca year 19 8
s 207 bon and for the fsca year 19 9 200 bon. For the purpose of est-
matng revenues the caendar year averagps are the more sgnfcant because a
arge porton of the coectons In the fsca year s based on abtes ncurred
In the precedng caendar year. For nstance, the buk of the coectons n the
fsca year 19 9 arse from abtes ncurred n the caendar year 19 8.
The haf-year ncome eves assumed for 19 8 and 19 9 are the same as those
appearng In the ouse report on . R. 790, wth the e cepton of the assump-
ton for the frst haf of the caendar year 19 8. Ths was ad|usted downward
by 2 bon to take nto account the recent break n commodty prces. Whe
ths appears to represent a bera aowance for the effects of these prce decnes,
your commttee woud prefer to understate rather than overstate revenues n
consderng a ta -reducton b. It was not necessary to change the ouse
assumptons for the two remanng haf-year perods, snce bera ad|ustments had
aready been made for a commodty prce decne n these two haf-year perods.
The assumpton of a 210 bon persona ncome eve for the frst haf of
the caendar year 19 8 s very conservatve. ctua performance may we
e ceed ths eve. t the tme the ouse report was prepared, a premnary
estmate for December ndcated that persona ncome n that month was
runnng at an annua rate of 200.5 bon. owever, the correct fgure for
December turned out to be 210. bon; and the fgure for anuary, whch has
|ust been made avaabe, s 210.8 bon. Snce both are sghty above your
commttee s assumpton for the frst haf of the caendar year 19 8, the atter
Is n fact ony a pro|ecton of the current ncome eve. It does not take nto
account any rse whch may very we take pace durng the comng months.
The fgures of 205 bon for the second haf of the caendar year 19 8 and 195
bon for the frst haf of the caendar year 19 9 are substantay beow
current eves. In fact, they assume a recesson whch t s hoped w not take
pace. of these assumptons were purposey made on a conservatve bass to
demonstrate to even the most pessmstc that there s room n the budget for
a ta cut.
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The persona Income eve assumed n the Presdent s udget presented In
anuary was 200 bon for the caendar year 19 8 and the frst haf of the
caendar year 19 9. Purported to be the current ncome eve, t was n fact
more than 10 bon beow the eves of December, 19 7, and anuary, 19 8,
and over 5 bon beow the eve n the fourth quarter of 19 7. Ony by
gong back to the thrd quarter of 19 7 s t possbe to fnd a current eve
n the neghborhood of 200 bon.
It s Interestng to note that the Secretary of the Treasury n hs statement
before your commttee no onger caed 200 bon the current persona
Income eve, but smpy sad that t woud not seem prudent to estmate
revenues on a hgher eve. It was not made cear, however, why t s prudent
to assume an mmedate drop In the persona Income eve of consderaby more
than 10 bon durng the remanng three months of ths haf year. Tour
commttee fnds t most dffcut to reconce ths drop In persona ncomes, whch
the Treasury nssts on assumng, wth the admnstraton s contnung demand
for ant-nfatonary egsaton, and wth the Secretary of Commerce s e pressed
re|ecton of the need for a stmuus to Investment. In ths connecton t a
approprate to reca that ast year the Secretary of the Treasury nssted on
usng a eve of Income payments whch was some 8 bon beow the then
current eve.
. OUTLOO IN FISC L T S 10 8.
Tabe shows the effect of . R. 790, as amended by your commttee, upon
the udget of the Federa Government n the fsca year 19 8, assumng the
Presdent s estmate of e pendtures s Increased In 19 8 by a 3 bon budgetary
e pendture to a trust fund In 19 8 whch w be avaabe for e pendture for
the uropean Recovery Program In 19 9. Ths 3 bon transacton has aready
been approved by the Senate. owance has aso been made for addtona
foregn ad e pendtures not n the budget. Tabe foows :
Tabe . ffect of 11. R. 700, as amended by your commttee, upon the budget
n the fsca year 19 S, assumng a S3 bon e pendture n D / to a trust fund
avaabe for e pendture under the uropean Recovery Program n 10 /9.1
In mon .
Recepts under present aw (staff estmates) 0,3
pendtures:
udget tota 37,728
RP trust fund e pendture 3,000
ddtona foregn ad not n budget 3
0.7G2
Surpus before ta reducton 5,582
Ta reducton under your commttee s b 558
Surpus after ta reducton 5,02
The persona Income eve In the caendar year 19 7 was 197 bon and In the frst
hat of the caendar year 19 8 s assumed to run at an annua rate of 210 bon.
Thus there w be a surpus of 5 bon In the fsca year 19 8 after the enact-
ment of your commttee s proposed ta reducton and takng Into account tho
3 bon trust fund e pendture and foregn-ad e pendtures not In the udget.
Your commttee beeves ths eaves ampe room for adequate debt retrement and
contngences n the current fsca year.
Your commttee s estmate of revenue coectons In the current fsca year of
6.3 bon e ceeds the estmate In the Presdent s budget by 1.1 bon amost
entrey because of a dfference n the assumpton used as to the eve of persona
ncome n the frst haf of the caendar year 19 8. The udget assumes that on an
annua bass ths w be 200 bon and your commttee assumes t w reman
at the current eve of about 210 bon.
C. OUTLOO IN FISC L T S 19 9.
Tabe I shows the effect of . R. 790, as amended by your commttee, upon
the udget of the Federa Government n the fsca year 19 9. persona Income
eve of 208 bon Is assumed n the caendar year 19 8. Two dfferent assump-
tons are made as to congressona cuts In e pendtures proposed by the Presdent.
owance has aso been made for addtona foregn-ad e pendtures not n the
udget Tabe I foows:
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Tabe I. ffect of . R. 790, as amended by your commttee, upon the budget
n the fsca year 19 f, under two assumptons as to the eve of e pendture .
On the bass of a persona ncome eve of 208 bon n caendar year 10 8.
. ssumng ony the 3 bon reducton n budgetary e pendtures n
19 9 resutng from 19 8 trust fund e pendtures of ths amount
avaabe for the RP n 19 9: n m m
Recepts under present aw (staff estmates) 7,256
pendtures:
Presdent s udget 39,669
RP trust fund e pendture n 19 8 3,000
ddtona foregn ad not n udget 811
36,9SO
Surpus before ta reducton 10, 276
ffect of your commttee s b 5,10O
Surpus after ta reducton 5,176
. ssumng the 3 bon reducton In budgetary e pendtures n 19 9
resutng from 19 8 trust fund e pendtures of ths amount ava-
abe for the RP n 19 9 and the 2.5 bon cut recommended by
Congress:
Recepts under present aw (staff estmates) 7,256
pendtures:
Presdent s udget 39,669
RP trust fund e pendture n 19 8 3,000
Recommended cong .vssona cut 2,500
ddtona foregn ad not In udget 311
3 . SO
Surpus before ta reducton 12, 776
ffect of your commttee s b 15,10O
Surpus after ta reducton : 7,676
1 Incudes refunds due to overwthhodng n the fsca year 10 8.
Thus there w be a surpus of 5.2 bon under the mnmum assumpton as
to e pendture reducton n the fsca year 19 9, or a surpus of 7.7 bon f the
e pendture cut of 2.5 bon recommended by Congress s made. Your com-
mttee beeves that on ether bass there s ampe room for adequate debt
retrement and other contngences.
Your commttee s estmate of revenue coectons n the fsca year 19 9 e ceeds
the estmate n the Presdent s udget by 2.8 bon. Ths s due amost entrey
to your commttee s assumpton of a persona Income eve of 206 bon n the
caendar year 19 8 whe the udget assumed a eve of 200 bon.
. Ta Reducton and usness Prospects.
Ths ta b s beng presented at a tme when the future of busness condtons
s e tremey dffcut to predct. On the one hand, the admnstraton appears to
be frmy wedded to the concuson that the economc probem of the year ahead
s nfaton. On the other hand, there s a growng body of opnon among busness
economsts that there w be a down-turn around the mdde of the current
caendar year. Your commttee has heard e pert wtnesses who reached ths
concuson. owever, t s worth notng that n each case t was ponted out that
the down-turn woud not be of ma|or dmensons.
In order to pace ts revenue estmates on a conservatve bass your commttee
has taken the more pessmstc aternatve and assumed some decne durng the
ast haf of 19 8 and the frst haf of 19 9. Ths Is not ntended to be a forecast
of the more key course of events, but merey represents a desre to avod the
possbty of overstatng the probabe budget surpus.
On the other hand, t may be argued that nfaton w be the probem of the
comng year and that some part of the .8 bon ta reducton provded by your
commttee s b w have Infatonary effects. owever, t shoud be borne n
mnd that the reatvey sma sze of the reducton eaves surpuses whch are
suffcent n amount to mpement a pocy of contractng credt through debt
retrement shoud that prove desrabe. so the stmuus to productve effort
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293
provded by your commttee s b w act as a deterrent to Infatonary pressures.
ddtona ant-nfatonary effects w be eecured by the e pendture reducton
recommended by Congress.
From the pont of vew of the Immedate effects of ths debt retrement upon
the economy, a better pcture woud be obtaned f the Government s budgetary
accounts were kept on a strcty cash bass. Ths s true because on such a bass
recepts and e pendtures whch, from the pont of vew of the economy as a whoe,
are mere accountng entres, are emnated. The Presdent s udget shows
recepts and e pendtures on a cash bass for the fsca years 19 7,19 8, and 19 9.
The resutng cash surpuses are compared wth the correspondng budgetary
surpuses n tabe II whch foows:
Tabe II. Comparson of cash and budgetary surpuses of the Federa
Government as shoum n the Presdent s udget.
In bons of doars.
Fsca year.
Surpus on
cash bass.
udgetary
surpus.
19 7
6.7
7.7
7.1
0.8
7.5
.8
19 8
19 9
Source: Comped from the Dudgct of the Unted States Government for the fsca year endng une 30,
It s evdent that the surpuses In 19 7 and 19 9 are very much arger when
fgured on a cash bass. The fuct that the dfference n 19 8 s smaer Is due
to the cashng of termna-eave bonds whch ncreased the cash dsbursements
but not the budgetary e pendtures. It Is evdent, therefore, that the mmedate
effects upon the economy of the debt retrement possbe under your commttee s
b woud be very much greater than s ndcated by an e amnaton of the
budgetary surpus aone. Ths s partcuary true of the fsca year 19 9 when
the redempton of termna-eave bonds s a mnor factor.
The arge amount of debt retrement whch can be made after provson for
your commttee s b consttutes a desrabe hedge aganst the possbty of con-
tnued nfatonary pressure. It w pace the fsca and monetary authortes
In a poston where they can, f they wsh, e ert a sharp defatonary pressure
upon the economy through propery managed debt retrement. s was ponted
out at the hearngs before your commttee, the defatonary effects of debt retre-
ment depend upon whose bonds are beng retred. The east defatonary effect
resuts from the purchase of securtes hed by ndvduas; a more defatonary
effect s obtaned from the purchase of securtes hed by commerca banks; the
ma mum effect s obtaned when the securtes are purchased from the Federa
Reserve System.
Durng 19 7 the admnstraton s pocy was to retre prmary debt hed
by commerca banks. Whe ths s ceary defatonary n effect, the same
resut coud have been acheved wth a smaer debt reducton by shftng some-
what more of the purchases to securtes hed by the Federa Reserve System.
The arge amounts remanng for debt retrement n the fsca years 19 8 and
19 9 after provson for your commttee s b, pus the possbty of concentratng
a somewhat arger proporton of the purchases upon securtes hed by the Federa
Reserve anks, provde ampe opportunty for ncreasng defatonary pressures
shoud that pocy prove desrabe.
In addton to the arge debt retrement possbe after provson for your
commttee s b, the stmuus whch the ta cut appes to producton must be
sted among the factors tendng to counteract nfatonary pressures. ecause of
the mportance of ths sub|ect, not ony for the Immedate future but aso for
the ong run, t s dscussed at ength n the ne t secton of ths report. It Is
suffcent here to e press your commttee s beef that ncreased producton s
the most satsfactory answer to hgh prces resutng from the pressure of pant-
up demand on a mted suppy. So far as ths method of attackng nfaton s
avaabe, Its use s preferabe to the arbtrary reducton of demand to ft a ower
eve of producton. y decreasng ta rates n a Income brackets, your com-
mttee s b w ncrease the ncentves of abor and management to produce,
and the nvestors wngness to assume busness rsks. The resutng ncrease
In producton w be a substanta offset aganst Infatonary pressures.
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Moreover, Congress has aready e pressed ts ntenton of reducng the 19 9
e pendtures by 2.5 bon. Such a reducton n e pendtures w aso offset
nfatonary pressure.
If, however, the probem of the mmedate future turns out to be not nfaton
but the avodance of defaton, Immedate ta reducton becomes mperatve,
and rapd debt retrement e tremey dangerous. In the absence of the ta cut,
as much as 15.9 bon to 18. bon mght be avaabe for debt retrement Id
the fsca years 19 8 and 19 9. These amounts are so arge that In the event of
a downturn the defatonary effects woud be e tremey serous. Under your
commttee s b the amount whch mght be avaabe for debt retrement woud
be cut to between 10.2 bon and 12.7 bon. To a arge e tent the defaton-
ary effect of debt retrement of ths sze can be offset f the persons n charge of
debt management substtute for the purchase of bank-hed securtes the purchase
of securtes hed by ndvduas. It woud be much more dffcut to offset the
defatonary effects of a debt reducton of the sze resutng from the contnuance
of the present ta aw, even though the debt managers shfted as arge a porton
of the debt retrement as possbe outsde the bankng system.
Shoud busness begn to taper off, the effects of the ta reducton upon n-
centves to work and to nvest woud be e tremey mportant, as woud aso the
addtona purchasng power generated by the ncrease n e emptons.
I. Ta Reducton and Incentves.
In the opnon of your commttee, producton must be the utmate answer
both to the mmedate probem of busness stabty and the ong-run goa of
achevng a hgher standard of vng. Increased producton requres the whoe-
hearted cooperaton of a segments of our economy. To accompsh ths goa
the productvty of abor must be Increased, the ntatve of our busness managers
must be stmuated, and profts after ta es must be of suffcent sze to attract
nvestors nto rsk-takng enterprse. Your commttee beeves that the present
hgh ta rates represent one of the chef obstructons to the achevement of ths
hgher eve of producton.
. PRODUCTION IN T IMM DI T FUTUR .
The Secretary of the Treasury n hs testmony before your commttee, both
ths year and ast, stated hs beef that ndustry was and s runnng at vrtua
capacty. Therefore, he coud see no Immedate need to remove the hgh ta
rates whch obstruct producton. Despte hs statement ast year, the output of
goods and servces dd ncrease n 19 7. The recent conomc Report of the
Presdent estmates that 19 7 producton e ceeded that of 19 6 by neary 5 per
cent. Moreover, the report sets up the ob|ectve of a further 3 per cent rse n
the output of goods and servces of the nonagrcutura parts of our economy n
19 8. Thus t s apparent that the Secretary s opnon that we have reached a
temporary mt n our productve effort Is not we-founded.
Increases n productvty and the remova of bottenecks In varous ndustra
processes represent the two chef means of ncreasng producton In the mme-
date future. Our e perence after the Frst Word War eads to the concuson
that a arge ncrease In productvty can be e pected n such postwar perods.
fter Word War I productvty ncreased by more than 10 per cent a year for
a perod of three years. The absence of any such Increase foowng Word
War II can be accounted for to a consderabe e tent by such obstructons as
the present hgh ta rates. The absence of adequate monetary ncentves s
one of the mportant causes of the bottenecks and the current ow rate of n-
crease n productvty. Your commttee refuses to accept the concuson that
we have reached even a temporary mt to our productve effort, and beeves
that ower ta rates w be benefca n stmuatng producton n the mme-
date future.
. PRODUCTION IN T LONG RUN ND T SC RCITY OF RIS C PT I..
The avaabty of suffcent rsk capta to meet the needs of busness s a
sgnfcant factor n Increasng producton n the mmedate future, and the
paramount consderaton for the ong run. ecause your commttee had re-
ceved reports of shortages of such capta, t asked the Secretary of Ooru-
1 asc Facts on npoympnt and Producton, Senate Commttee Prnt No. , Seventy-
nnth Congress, frst sesson, September 1, 19 5, page 6.
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295
merce to testfy on ths sub|ect at Its recent hearngs. The Secretary took the
poston that ampe funds are avaabe to meet current busness needs, and
found no evdence of a shortage of savngs.
owever, the Secretary s emphass was on the over-a need for busness funds,
and not on the pont wth whch your commttee was prmary concerned, the
avaabty of venture capta. The Inadequate suppy of ths rsk capta s
abundanty shown by the Secretary s own statement. t the hearngs the Sec-
retary presented the 19 6 and 10 7 data whch appear n tabe III and the
19 7 data whch appear n tabe I . The remanng data shown n these tabes
were supped by the Drector of the Offce of usness conomcs of the De-
partment of Commerce.
Tabe III. Changes n corporate securtes outstandng and n ther ownershp,
19/,6 and 101,1.
mounts Ln bon of doars.
Net Issues by ndustry group.
Industra and msceaneous
Pubc utty (and teephone)
Raroad
Net ssues by typo of securty
Common stock...
Preferred stock...
onds and notes.
Net purchases 1 by varous groups ..
Commerca bonks ._
Mutua savngs banks
Lfe Insurance companes
Foregners
Domestc ndvduas, etc
19 0
19 7
mount.
Per cent of
net ssues.1
momt.
Tor cent of
net
Issues.1
2.3
100.0
.1
100.0
2.5
.3
-.5
108.7
13.0
-21.7
2.0
2.1
0
8.8
61.2
0
2.3
100.0
.1
100.0
1.0
.3
1.0
3.5
13.0
3.5
.
.
22.0
9.8
68.3
2.8
2.3
100.0
.1
100.0
.3
.2
13.0
8.7
.2
.2
.9
.9
73.2
0
2.0
-.2
87.0
-8.7
0
3.0
0
0
.7
17.1
Data do not add to totas because or roundng.
New ssues ess retrements.

Source: Department of Commerce.
Tabe I . Sources of corporate funds n 19 1, 19 fG, and 19 ft.
mounts n bons of doars.
19 1
19 6
19 7
mount.
Per cent
of tota.
mount.
Per cent
of tota.
mount.
Per cent
of tota.
15.3
100.0
23.8
100.0
26.7
100.0
Retaned profts
.7
.3
-.8
-2.0
2.9
.8
.1
.1
1.
30.7
28.1
-5.2
-13.1
19.0
30.1
.7
.7
9.2
8.6
.8
27.6
19.6
1.3
25.8
12.7
-10.6
.0
9.7
1 .0
10.1
.3
-1.0
1.5
1.0
2.3
.7
.1
3.7
37.8
16.1
-3.7
5.6
3.7
8.6
2.6
15.
13.
Payabes (trade)
.3
6.1
3.0
-2.6
Federa Income ta abtes
Other current abtes
.0
2.3
3.3
ank oans
Unted States corporatons, e cusve of banks and nsurance companes.
Data for these years are premnary.
Data do not add to totas because of roundng.
Source: Department of Commerce.
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296
From these data and other evdence submtted by the Secretary at the hearngs
on ths b, the foowng facts emerge:
1. The amount of busness nvestment fnanced by retaned profts represented
an unusuay arge proporton of the tota In 19 7. Specfcay, retaned profts
were 37.8 per cent of tota nvestment n 19 7, as compared to 27.5 per cent n 19 6
and 30.7 per cent n 19 1. It s beeved that ths heavy dependence on nterna
fnancng was not a matter of choce, but was forced on corporatons by the
dffcuty of foatng new securty ssues.
2. The Important roe payed by undstrbuted profts n 19 7 produced a sub-
norma reatonshp between dvdends and corporate profts. tabuaton made
from Department of Commerce data ndcates that n 19 7 dvdends represented
about 58 per cent of tota profts as compared wth the 65 to 80 per cent cus-
tomary dstrbuted. Ths, of course, has the effect of makng new stock ssues
ess attractve to prospectve nvestors, whch n turn accentuates the need for
fnancng out of undstrbuted profts.
3. Of the new ssues marketed n 19 7, an unusuay arge proporton took the
form of f ed-ncome securtes rather than stock. In that year bonds and notes
represented 68.3 per cent of the tota, as compared to 3.5 per cent n 19 6.
. The amount of rsk-bearng common stocks ssued n 19 7 was 10 per cent
ess than n 19 6. Tabe III shows that n terms of tota new securtes ssued
In 19 7, common stock represented ony 22.0 per cent of the tota as compared to
3.5 per cent n 19 6. Ths reduced emphass on common stocks, together wth
the heavy reance on debt fnancng, refects the dffcuty e perenced by corpora-
tons n obtanng rsk capta.
5. Lfe nsurance companes are takng a very arge proporton of the new
securtes, whe ndvduas, who must be the chef source of rsk capta, are
buyng a reatvey sma proporton. The fe Insurance companes and banks,
whch must pace ther funds n securtes wth a ow degree of rsk, accounted
for 83 per cent of the net purchases In 19 7 and were the ony net purchasers n
19 6. On the other hand, domestc ndvdua buyers accounted for none of the
net purchases n 19 6 and ony 17.1 per cent n 19 7. Ths s st another Indca-
ton that those buyng securtes to-day are for the most part seekng reatvey
rskess Investments.
6. Net securtes ssued by the rsk-takng Industras (prmary manufactur-
ng) n 19 7 dropped, whe safer net Issues of the uttes ncreased substantay.
In 19 7 the ndustras accounted for 8.8 per cent of the tota and uttes 51.2
per cent. In 19 6 the retrement of raroad securtes more than offset the ssues
of other uttes. Therefore, the ony net Issues whch occurred In that year
were those of the Industra group.
If any further evdence s desred of the scarcty of venture capta attenton
need ony be turned to the unprecedented e stence of a suggsh stock market
In a perod of boomng busness. ere too there s a marked preference for
securtes wth a ow degree of rsk. The average yed on new securtes has
been ncreasng for some tme, and the spread between the rates pad on Issues
nvovng a greater degree of rsk and those of the gt-edged varety s now sub-
stantay arger than t was a year or so ago. Ths ncreasng premum whch
must be pad for rsk capta s st another ndcaton of ts ncreasng scarcty.
C. T FF CT OF YOU COMMITT S ILL ON INC NTI S.
Tour commttee beeves the present hgh ndvdua ncome ta rates deter
ncreases n the productvty of abor, the breakng of bottenecks by management,
and the wngness of nvestors to assume rsks. Ceary, ths eads to the con-
cuson that the hgh wartme ndvdua ncome ta rates shoud be owered
substantay n order to stabze busness condtons now and to assure a rsng
standard of vng for the mercan peope In the years to come. Your com-
mttee s b s a step In ths drecton.
The repressve effect of present ta rates can be shown by e amnng the
amount of spendabe ncome remanng after ta es for ta payers at dfferent
ncome eves. For e ampe, a marred coupe wth two chdren havng an
Income, after deductons but before e emptons, of ,000 under present aw has
90 per cent of ths ncome eft after payng ta es. Under your commttee s b
they woud have 93 per cent. If ther Income were 10,000, the same coupe woud
have 81 per cent eft under present aw and 86 per cent under your commttee s
b. marred coupe wth two dependents havng 30,000 of ncome retans ony
In these computatons profts have been ad|usted for Inventory revauaton.
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297
62 percent of ther Income under present aw, but 76 per cent under . It. 790,
as amended. If they had an Income of 70,000 they woud retan ony 5 per cent
under present aw but 61 per cent under the proposed egsaton. Tabe shows
the spendabe ncome eft after ta es at varous eves for a marred coupe wth
two dependents and the per cent ths Is of ncome before ta es under both present
aw and your commttee s b. Tabes III , , and C n Part I show the
same Informaton for ta payers havng a dfferent e empton status.
Tabe . Comparson of amount of spendabe ncome after ta es under present
aw, under the ouse b, and the Fnance Commtee b.
M RRI D P R80N 2 D P ND NTS NTIR INCOM RN D Y ON SPOUS
Income after
but before
mount of spendabe Income
Present
aw.
ouse bu.
Fnance
Commt-
tee b.
Per cent of ncome after ta to
Income before ta .
Present
aw.
ITousc
b.
12,000.00
2, 06.00
2,810.00
3,620.00
, 11.00
6.202.00
6,955.00
0. 708.00
7, 23.00
8,138.00
8,815.00
9, 92.00
10,131.00
10,770.00
11,361.60
1 ,110.00
16, 78. 60
18,619.00
22, 658.00
25,889.00
28,821.00
31, 68.00
33,830.00
36,907.00
37,699.00
5, 62.00
62,731.00
59,525.00
66,300.00
79,850.00
93, 00.00
127,275.00
161,160.00
2,000.00
2, 86.70
2,920.20
3, 787.20
,61 .00
5, 62.80
6,291.68
7,12 . 8
7,957.28
8,790.08
9, 689.82
10,367.62
11,1 5.22
11,922.92
12,680.10
16,3 2.88
19,800. 6
23,022.06
28,832. 56
8 ,013.78
38,825.6
3, 32.30
7,820.08
61,920.68
56,77 .8
72,871.02
86,827.6
98,821.18
110,773.68
133,8 .20
156,059.72
211,5 7.22
207,03 .72
2, oon. no
2, 83. 0
2, 900. 0
3,73 . 0
,668. 0
6, 02. 0
6,219.8
7,026. 2
7,832.6
8,639.0
9, 2 .32
10,195. 62
10, 966. 72
11,737.92
12. 88.00
16,111.68
19,52 .16
22,693.76
28,381.76
33, 22.08
38,082.2
2,531.20
0, 75 .88
60,682.88
6 ,367.
70, 91.52
83,39 .2
9 ,276. 8
10 ,632.6
123, 29.30
1 1,32a 6
186,00 .72
230,685.98
Per cent.
100.00
96.20
93.66
90.50
88.22
86.70
85.07
83.85
82. 8
81.38
80.1
79.10
77.93
76.93
76.7
70.66
65.91
62.06
66. 0
61.78
8.0
.96
2.29
39.90
37.70
30.81
26.37
23.81
22.10
19.96
18.68
16.97
16.12
Per cent.
100.00
99. 7
97.3
9 .68
92.28
90.88
89.88
M. n;
88. 1
87.90
87.18
86. 0
85.73
86.10
8 .63
81.71
70.20
76.7
72.08
68.03
6 .71
62.06
69.78
67.69
55.77
8.68
3. 1
39.53
36.92
33. 6
31.21
28.21
26.70
Source: Sta of the ont Commttee on Interna Revenue Ta aton.
To a arge e tent the repressve effect of the present ta rates Is a product
of the war perod. It Is often overooked how much ess a ta payer has eft
after ta es at the present tme than he woud have under the prewar ta rates.
The addtona ncome whch It Is necessary to have to-day n order to produce
the same Income after ta es as n 1930 s very substanta. Ths Is shown by
the data presented n tabe I. For e ampe, a marred Indvdua wth two
chdren, havng an Income after deductons but before e emptons of 5,000
n 1939 must have an ncome of 5,68 to-day to have the same ncome eft
after ta es as he had n 1939. To match a 10,000 Income In 1939 t s necessary
to have a 12,257 ncome to-day. To match a 25,000 Income n 1939 t s neces-
sary to have an ncome of over 0,000 to-day, and a 50,000 Income In 1939
represents the equvaent of an ncome of neary 12 ,000 to-day. ta payer
recevng a 100,000 ncome n 1939 must have an ncome of neary 313,000 to
have the same ncome eft after ta es to-day, and an ncome of over 1,200,000
e ampes assume the entre Income was earned by one spouse and that the coupe
s resdent In a common-aw State.
79G590 18 20
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woud be requred to-day to have the same ncome after ta es as an ncome of
500,000 woud have produced n 1939. These fgures do not take nto consd-
eraton the 70 per cent rse n the cost of vng snce 1939.
These data demonstrate ceary the e tent to whch ta burdens ncreased
durng the war perod. In reaty, the repressve effect of the present rates on
ncentves has ony recenty been tested under peacetme condtons. It s your
commttee s beef that the evdence ndcates that these rates do not eave
suffcent spendabe ncome to Induce nvestors to provde the venture capta
needed for our economy to-day.
Tabe I. Comparson of ta burdens n 1939 and 19 7: Income after deducton
out before e emptons requred to gve an equvaent ncome after ta es, n
1939 and 191,7.
M RRI D COUPL WIT 2 D P ND NTS.
1039 Income before ta es : 19 1 equvaent. 1039 Income before ta es : 19 7 equvaent.
2,000 2, 000 20,000 29, 720
2,500 2,617 25,000 0,33
3,000 3,235 0,000 81,696
5,000 5,68t 50,000 123,573
6,000 6,9 8 75,000 228.891
8,000 9,550 100,000 312,568
10,000 12,257 500,000 1,260,38
15,000 .20,119 1,000,000 2,183,867
Source: Sta of the ont Commttee on Interna Revenue Ta aton.
Margna ta rates that s, the ta rate pad on the top doar of Income
ordnary ndcate the ncentve whch e sts under a gven ta -rate schedue
to earn addtona ncome or to reaze t through nvestments. Under . . 790
as amended the margna rates do not, however, show the entre ncrease n n-
centves brought about by the b, snce they do not ndcate the effect of the
ncome spttng provson. For e ampe, assume that the husband earns the
entre ncome of a famy unt. ecause of the ncome spttng provson
the margna rate whch woud appy n ths case s the rate appyng to an ncome
of one-haf the sze of that earned by the husband. Despte the shortcomngs
of margna rates In reveang the effect of your commttee s- b on Incentves,
such rates are presented n tabe II. Ths tabe shows that under your com-
mttee s b there s a net decrease n the margna rate a down the ne, even
though the effects of ncome spttng are not taken nto account.
D. T FF CT OF T PR SID NT S PROPOS L ON INC NTI S.
The Secretary of the Treasury advsed your commttee to substtute for . R.
790 the Presdent s ta program. Ths conssted of a 0 ta credt under the
ndvdua ncome ta and the remposton of a modfed verson of the war-
tme e cess profts ta . The effect of the adopton of the Presdent s program
upon ncentves woud be most unfortunate. Tabe II Indcates that the ta
credt has practcay no effect on margna rates. ence the effect of the credt
on Incentves s vrtuay zero.
The reason the Presdent s proposed ta credt has practcay no ncentve
effect Is that once a ta of 0 s reached, there s no further reducton of the
ta on any addtona Income. Thus a snge ndvdua havng an ncome after
deductons and e emptons of about 210 obtans the ma mum reef. Irrespec-
tve of how much ncome he may earn n e cess of that amount, there Is no
further ta reducton and thus no Increase n ncentve under ths proposa.
It has been shown that the 0 ta credt proposed by the Presdent has no
postve effect on producton and nvestment Incentves. The remposton of
the e cess profts ta under the Presdent s pan actuay mposes new restrctons
on productve effort and on the wngness of Investors to assume busness rsks.
Techncay there Is a decrease In the marenn ta rntos tnder the Presdent s proposa
for ncomes after deductons and e emptons up to the eve of about 210 for snge persons
where the 0 ta credt becomes fuy effectve.
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Tabe II. Comparson of margna rates under present aw, the Senate Fnance
Commttee b, and the Presdent s ta aw proposa.
Income , v .- deductons and e emptons.
Margna rates.
Percentage pont
decrease In rates
compared wth
present aw.
Not e ceedng
Present
ow.
Fnance
Commttee
b.
Pres-
dent s
proposa.
Fnance
Com-
mttee
b.
Pres-
dent s
pro-
posa.
u
n.noo
o.ooo
70,000.
80.000
90.000
100,000
136,719.10
150,000
200,000 and over
Per cent.
19.00
20.90
2 .70
28.50
32.30
30. 10
0.85
. 65
7.50
50.35
53.20
56.05
58.00
61.75
65. 51
68. 0
71.25
7 . 10
76.95
79.80
82.65
8 .65
8 .65
85.50
86. 5
Per cent.
16.606
19.353
22.872
26.391
29.910
33. 29
37.827
1.3 6
3.985
6. 62
9.263
51.902
5 .5 1
57.181
00.699
03.338
05.978
68.017
71.256
73.895
76. 53
78.293
80. 323
81.225
82. 12S
Per cent.
19.00
20.90
2 .70
28.50
32.30
30.10
0.85
.05
7.50
50.35
63.20
56.05
58.90
61.75
65.65
68. 0
71.26
7 . 10
76.95
79.80
82. 05
8 . 55
8 .55
S5. 50
86. 5
2.39
1.5 7
1.828
2. 109
2.390
2.671
3.023
3.30
3.616
3. 728
3. 937
. 1 8
.359
.569
.851
5.062
6. 272
6. 83
5.69
5. 905
6. 116
6.257
.227
.275
.322
0
0
0
0
0
0
0
0
II
0
0
0
0
(I
(I
0
0
0
0
0
0
0
I)
0
0
Ta s sub|ect to the foowng ma mum effectve rate mtatons: Under present aw and the Pres
dent s proposa, 85.5 per cent; under your commttee s b, 77 per cent.
1 There s a decrease In the margna ta rates under the Presdent s proposed b for net ncomes after
e emptons up to the eve of about 210 where the 0 ta credt becomes fuy effectve for a snge person.
Source: Staff of the ont Commttee on Interna Revenue Ta aton.
ven a we-drafted e cess profts ta can not dstngush between profts whch
are the reward for unusua enterprse or the payment for a great rsk, on one
hand, and profts resutng from a monopoy poston or unusua shortages, on
the other. In ths connecton, the former Secretary of the Treasury, Chef
ustce nson, had the foowng to say at the hearngs before your commttee
on the Revenue ct of 19 5:
The over-a mpact whch ths ta : s key to have on busness pannng as
we as busness profts consttutes a serous threat to our postwar empoyment
ob|ectves. The testmony of busnessmen s that they are uuabe to take the
rsk of fu peacetme busness e panson unt ths ta has been removed. That
testmony cones not ony from corporatons sub|ect to the e cess profts ta ;
ndeed, t comes prmary from busnessmen contempatng organzaton and
e panson n competton wth estabshed corporatons.
Unfortunatey the e cess profts ta proposed by the Presdent can not quafy
as a we drafted ta . It s nothng more than the od e cess profts ta
dressed up wth a 35 per cent ncrease n the credts and an ncreased specfc
e empton. The od dscrmnatons whch had to be borne durng the war woud
st be there. New dscrmnatons woud appear because of the antquty of the
1930-39 base whch represents the prmary measure of e cessve profts. The
report on the Revenue ct of 19 5 of your commttee had the foowng to say
concernng the effect on rsk-takng of usng ths base n the e cess profts ta :
The onger the e cess profts ta Is retaned the ess the ncome of 1930-39
base perod s a proper measure of e cessve profts. Ths base perod w be
a partcuary poor measure of earnngs In the postwar perod when many
corporatons w be enterng new feds of enterprse or e pandng ther
busnesses.
There are, of course, many frms whch do not have any base-perod e perence
at a. These w be drven to use the uvested-capta base, whch s ess gen
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erous for most busnesses, and are.therefore apt to receve harsh treatment.
new frm In a busness requrng an especay sma amount of Invested capta
may fnd practcay a of ts profts above the e empton ta ed as e cessve.
The tendency of the ta to restrct competton was recognzed by the ate Carter
Gass, who, n the nnua Report of the Secretary of the Treasury for 1919,
stated that the e cess profts ta dscourages new ventures and confrms od
ventures n ther monopoes.
part from the queston of the merts of the partcuar e cess profts ta
presented by the admnstraton, the adopton of any such ta In tmes of peace
s undesrabe. precedent for the peacetme use of ths ta woud be estab-
shed, and Its permanent retenton woud be a serous rsk. Ths woud be most
unfortunate, snce the ta paces a speca penaty upon the reatvey specuatve
busness ventures whch are essenta to the matera progress of our socety.
ven the adopton of such a ta for a short perod woud be key to have a
permanent effect on Investment Incentves. usnessmen n pannng ther In-
vestments coud no onger fee confdent that such a penaty ta mght not
subsequenty be remposed under peacetme condtons.
II. emptons and the gh Cost of Lvng.
The cost of vng has Increased from 156 per cent of the 1935-39 average ast
May, when your commttee reported out . R. 1, to 169 per cent n anuary 19 8,
the atest fgure avaabe. Ths 13-pont Increase represents an 8 per cent rse
n the cost of vng. Furthermore, there s evdence that ncome after ta es,
athough t has ncreased very consderaby durng the past two years, has
not kept pace wth the cost of vng. On a per capta bass and n 19 7 doars.
Income after ta es has shrunk from an average of 1,285 n the frst quarter of
19 6 to 1,188 n the fourth quarter of 19 7, a drop of neary 100.
. T INCR S IN G N R L MPTIONS.
Ths Increase n the cost of vng Is an mportant reason why your commttee s
b provdes a 100 per capta ncrease n e emptons from 500 to 600. s a
resut of ths genera Increase n e emptons, about 6,000,000 persons w be
e empted from ta aton entrey. It shoud be remembered that the e empton
Increase s In addton to the reducton of 12.6 per cent n the ta of the owest
ta abe Income group. Of the tota reducton n ta abtes, about 71 per
cent s receved by ta payers wth ncomes after deductons but before e emptons
of ess than 5,000.
. T SP CI L MPTION FOR P RSONS G D 05 ND O R.
Lke the ta -reducton bs of the ast sesson, . R. 790 as amended provdes
an addtona e empton for persons who have attaned the age of 65 or over by
the end of the ta abe year. Ths provson w beneft 3,700,000 ta payers and
w remove 1, 00,000 persons from the ta ros.
s a resut of the rse n the cost of vng the need for a speca e empton for
persons over 65 Is even more pressng now than n the sprng of 19 7. There Is a
very heavy concentraton of sma Incomes among persons In ths age group,
refectng the fact that the group as a whoe s handcapped n an economc, f not
In a physca sense. Persons In ths ace group suffered wth unusua severty
as a resut of the rse n the cost of vng and the Increase n ta es whch
occurred durng the war, as we as the addtona prce Increases of the mmed-
ate postwar perod. Unke younger persons, the buk of those over 65 coud not
compensate for these changes In prces and ta es by acceptng fu-tme |obs at
prevang hgh rates of wages.
C. T SP CI L MPTION FOR T UND.
Tour commttee s b aso provdes a speca e empton of 600 for bnd persons.
nd persons 65 or over may cam ths e empton n addton to that based
on age.
The speca e empton of 600 for the bnd s a substtute for a 500 deduc-
ton aowed under present aw. nd persons receve matera benefts from
ths change. The amouut aowed s, of course, arger and, In addton, the sub-
sttuton of an e empton for a deducton In Itsef has some very rea advantages.
ecause of ths change, bnd persons do not forfet the rght to use the standard
deducton as they do when they cam the speca deducton under e stng aw.
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Ths a Important, because n most cases the Itemzed deductons of bnd persons,
other than the speca deducton, w aggregate consderaby ess than the
standard deducton. Moreover, an e empton can be taken nto account n wth-
hodng, whe a deducton can not. Thus wth an e empton, the reef provded
w be effectve throughout the year. nd persons w not have to wat for a
refund after the cose of the year In order to obtan the reef whch the aw
provdes.
v. equazaton of ta burdens of resdents of commnty-pbopebty and
Common-Law States.
ma|or porton of ths b s devoted to the geographc equazaton of ncome,
estate, and gft ta es.
. INCOM T S.
Under e stng aw the treatment accorded fames earnng the same amount
of Income s very dfferent f they happen to ve n States usng the communty-
property system or n States whch use common aw. Chefy ths s due to the
fact that under the communty-property system the earnngs of a marred coupe
are consdered to be one-haf the property of each. Income arsng out of an
accumuaton whch took pace durng the marrage s dvded In the same
manner, and n some communty-property States the same dvson s made of
ncome from assets whch are the separate property of one of the spouses. No
smar dvson takes pace under common aw. The earnngs of the husband
are hs own and ta ed to hm. The ncome from hs property s hs ncome and
Is ta ed as such.
Snce the rates apped under the ncome ta are steepy progressve, the same
famy ncome dvded n two haves by communty-property aw w be ta ed far
ess severey than n a common-aw State where the whoe Income Is apt to be
ta ed to one spouse. The dfference Is greatest when the entre earnngs of the
coupe n the common-aw State are receved by one spouse, and when, under
communty-property aw, none of the ncome Is the separate Income of ether
spouse. Tabe III compares the ta due under these assumptons In communty-
property and common-aw States under present aw for ncomes of varous szes.
Tabe III. Dfference n amount and percentage of ncome ta n communty-
property and common-aw States under present aw.
For a marred coupe wth no dependents.
Ta payabe n
cess of ta
n common-
aw States
over ta In
communty-
property
States.
Per ceDtby
whch ta
n common-
aw States
Income after deductons, but before e empton.
Communty-
property
States.
Common-
aw States.
e ceeds
that n com-
munty-
property
States.
38.00
85.00
190.00
285.00
380.00
670.00
760.00
969.00
1,178.00
1,387.00
1,696.00
1,8 3.00
3,15 .00
6, 80.00
18,72 . 50
60,27 .00
86,953. 50
127,081.50
169,337.50
383, 5 3.50
699,668.50
816,793.50
38.00
95.00
190.00
285.00
380.00
589.00
798.00
1,0 5.00
1,292.00
1,577.00
1,802.00
2,185.00
,0 7.00
9,082.00
2 .796.00
63,127. 50
105,383. SO
1 8,12 .00
191,339. 50
07. 6 . 50
623,589.50
839,71 .50
Per cent.
2,000
19.00
38.00
76.00
11 .00
190.00
266.00
3 2.00
893.00
2, 622.00
6,070.50
12,853. 50
18. 30.00
21,0 2.50
22,002.00
23, 921.00
23,921.00
23,921.00
3.33
6.00
7
9.68
13. 70
16.67
18.56
28.31
0.59
32. 2
25.57
21.20
16.56
12.99
6. 2
3.99
2.93
6,000
10,000.- -
80,000
100,000.--
500,000
750 000 - -

1 ntre ncome reported by husband on |ont return.
Source: Sta of the ont Commttee on Interna Revenuo Ta aton.
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Ths tabe shows that the dfference between the ta due n communty-property
and common-aw States appears as soon as the ncome of the coupe rses above
the frst ta bracket, 1. e., as soon as the rates become progressve. On a per-
centage bass the dfference ncreases as the ncome grows arger. t 10,000 the
coupe n the common-aw State pays a ta whch s neary 19 per cent greater
than that pad n the communty-property State. t 25,000 the ta In the
common-aw State Is about 1 per cent arger. Thereafter, the percentage begns
to decne as the margna rate approaches the 85.5 per cent ma mum. owever,
even on an ncome of 150,000 the ta n the common-aw State s more than 21
per cent arger than that n the communty-property State. t the opposte
e treme Is the case where In the common-aw State ncomes of the two spouses
are appro matey equa. ere, the resuts under common aw and communty
property woud be smar. owever, n the great ma|orty of cases the Income
of one spouse predomnates.
One consequence of the substanta dfference n the amount of ta due on
smar ncomes n communty-property and common-aw States has been an
attempt to deveop In the common-aw States technques whch w dvde the
Income of a marred coupe n appro matey the same way that ncome s dvded
n the communty-property States by the operaton of State aw. Chef among
these devces are gfts, ether outrght or n trust, ont tenances, and famy
partnershps. Confuson has resuted from attempts to use trusts, tenances, and
partnershps for such purposes, and the present status of the aw and reguatons
on these ponts s most unsatsfactory. number of proposas for the revson
of the ncome ta treatment of trusts and famy partnershps are under study.
The dffcutes whch these probems present are mpressve.
Whe the ack of geographca equazaton In the treatment of the Income of
marred coupes has been recognzed for a ong tme, crcumstances have arsen
recenty whch necesstate Immedate acton. For a good many years the ncome
ta advantages ncdent to the communty-property system were confned to eght
States. In each of these communty property antedated the enactment of the
Federa ncome ta . In each, the use of ths partcuar form of aw coud be
traced to Spansh or French antecedents.
Recenty, however, a number of States have shfted from the common-aw to
the communty-property system. In these cases benefts under the Federa n-
come ta whch resdents of the State woud obtan under the communty-prop-
erty system were argey responsbe for the abandonment of common aw. fter
one fase start, Okahoma |oned the communty-property group n 19 5. Oregon,
Mchgan, Nebraska, and Pennsyvana were added to the st n 19 7. owever,
the Pennsyvana aw has snce been found to be unconsttutona.
The geographca dfferences n the Impact of the Indvdua ncome ta resut-
ng from the fact that 12 States use communty property rases a serous probem,
but the fact whch makes acton at the present sesson mperatve s the potenta
rapd e tenson of communty property to a arge number of other common-aw
States. The adopton of communty property has been advocated wdey n spte
of a growng awareness of the substanta dfferences between communty prop-
erty and common aw whch make a transton from one system to the other e -
tremey dffcut. It s now recognzed that ths transton w be a perod of
e treme confuson durng whch the courts, the admnstratve offcas, and the
egsatures w be workng out the detaed appcaton of a new and strange
system of property aw. Nevertheess, many responsbe State offcas have
reached the concuson that the dfference between the mpact of the Federa
Income ta as t appes n communty-property and common-aw |ursdctons s
so great that the use of communty property can not be avoded.
Ths s partcuary true In common-aw States yng ad|acent to communty-
property |ursdctons. In such common-aw States there Is a vey fear that the
ta advantages of communty property w produce a mgraton of the reatvey
we-to-do ta payers. Ths fear undoubtedy payed a ma|or roe In the adopton
of communty property by Okahoma and Oregon, and Is an e ceptonay strong
factor In States ke rkansas. ut even n cases where such mgraton Is ess
key, as In Mchgan and Pennsyvana, the ta consequences of retanng the
common aw were suffcent to produce egsaton.
Many States are watng to see what Congress w do about the probem of
geographca equazaton. If the necessary acton Is not taken, there w be a
1 Note thnt the tabe assumes that a of the ncome was earned by one pouse.
rzona, Caforna, Idaho, Lousana, Nevada, New Me co, Te as, and Washngton.
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food of State egsaton ntended to produce the same resuts, but dong so In a
manner whch has most unfortunate consequences, not ony for the ta payers
nvoved, but aso for a the persons who must use or admnster the property
aws of the States whch rush Into the communty-property system.
our commttee beeves that the best answer to the probem of geographca
equazaton s the spttng of the combned ncome of the husband and wfe.
Income spttng s effected under . R. 790, as amended, by gvng husbands
and wves n a States the opton to fe |ont returns. In these returns ther
combned net ncome and ther combned e emptons are dvded by 2. ta
s computed on ths bass, and mutped by 2.
Income spttng w produce the same resut n common-aw States whch now
obtans n a communty-property State when the entre Income of both spouses
s communty ncome. If, however, spouses n communty-property States have
separate ncome, they may spt ther ncome by eectng to fe a |ont return.
Under e stng aw, separate Income n communty-property States s ta ed n fu
to the spouse who receves t. Thus, the type of souton emboded n . R.
790, as amended, benefts resdents of both common-aw and communty-prop-
erty States.
It Is emphaszed that the rght of eecton to use or not to use the |ont return
prevas n both common-aw and communty-property States.
Geographca equazaton In the ta aton of marred coupes aso requres
an ad|ustment n the standard deducton and n the deducton for unusua medca
e penses. Under e stng aw a ta payer wth ad|usted gross ncome of over
5,000 may eect a standard deducton of . 500 nstead of temzng hs deductons.
In communty-property States the husband and wfe w normay fe separate
returns. ence each may be egbe for a . 500 standard deducton and the
coupe may cam an aggregate deducton of 1,000. To make equa treatment
avaabe n common-aw States, . R. 790, as amended, of necessty must provde
that a coupe wth an ncome of more than 5,000, eectng to spt ther ncome
by fng a |ont return Is aso egbe for a standard deducton of 1,000, or 10
per cent of the ad|usted gross Income, whchever Is esser.
The fact that marred coupes n a States may receve a ma mum standard
deducton of 1,000 presents a probem of equazng the treatment accorded
marred persons wth snge ndvduas. To provde equaty of ta treatment
t s necessary to rase the ma mum standard deducton for snge persons to
1,000. Ths s done under your commttee s b.
Under e stng aw a speca deducton s aowed for medca e pendtures
to the e tent that they e ceed 5 per cent of the ta payer s ad|usted gro.cs ncome,
but sub|ect to a ceng of 1,250 a year n the case of a ta payer who cams
ony one e empton, and 2,500 f he cams more than one. If both partes
to a marrage n a communty-property State fe separate returns, each spouse
camng one dependent, the ceng on ther medca deductons Is 5,000. If
ony one cams a dependent, ther ma mum medca deducton s 3,750. Your
commttee s b rases the ceng for a marred coupe fng a |ont return
to 3,750 f they have one dependent, and 5,000 f they have two or more.
Ths equazes the treatment n common-aw and communty-property States.
dopton of these ncome-spttng provsons w produce substanta geo-
graphca equazaton n the Impact of the ta on ndvdua ncomes. The
mpetuous enactment of communty-property egsaton by States that have
ong used the common aw w be forestaed. The ncentve for marred coupes
In common-aw States to attempt the reducton of ther ta es by the dvson
of ther ncome through such devces as trusts, ont tenances, and famy
partnershps w be reduced materay. dmnstratve dffcutes stemmng
from the use of such devces w be dmnshed, and there w be ess need
for metcuous egsaton on the ncome ta treatment of trusts and famy
partnershps. In effect, these amendments represent the adopton of a new
natona system for ascertanng Federa ncome ta abty. The adopton
of these amendments w e tend substanta benefts to resdents of both com-
munty-property and common-aw States.
. T ST T NO GIFT T S.
The basc dfferences between property rghts n communty-property and non-
comruunty-property States have aso resuted n geographca nequates n the
effect of the estate and gft ta es. In communty-property States husbands and
wves have an undvded one-haf nterest n the communty property. Pror
to 19 2, upon the death of a spouse hs one-haf nterest n the communty
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30
property, over whch he had the power of testamentary dsposton, was sub|ect
to the estate ta . Smary, a gft of communty property was ta abe as though
one-haf of the vaue was the gft of the husband and one-haf the gft of the
wfe. On the other hand, n common-aw States nether spouse had an un-
dvded nterest In the property of the other spouse. Snce both estate and
gft ta es have sharpy progressve rates, wth arge specfc e emptons, the
consequence was a substantay ower ta on transfers In communty-property
States than on transfers of smar sze n common-aw States, where the usua
case was that practcay a the weath of the marred coupe was the property
of the husband.
In 19 2 the Congress attempted to provde more neary equa resuts under
the estate and gft ta es. The estate ta amendments of that year provde
that the entre communty property be ncuded In the decedent s gross estate,
e cept such porton as can be shown to have been receved as compensaton
for persona servces actuay rendered by the survvng spouse or derved
orgnay from such compensaton or from separate property of the survvng
spouse. Under ths rue, the entre communty property Is ta abe to the frst
spouse to de uness some porton of the communty Is economcay attrbutabe
to the survvor. owever, the 19 2 amendments further provde that regardess
of whch spouse was responsbe for the acquston of the communty, at east
one-haf of the vaue of the communty s ncudbe In the decedent s gross
estate. The bass for ths rue Is the fact that rghts to at east one-haf the
communty are transferred on the death of ether spouse. The rue Is necessary,
snce the share of the spouse dyng frst may not be transferred to the survvng
spouse and the communty assets may not be economcay attrbutabe to the
decedent spouse. In such a case, If no ta were mposed, the property woud
avod the estate ta for one generaton.
Smary the Revenue ct of 19 2 amended the gft ta wth respect to com-
munty property. gfts of communty property were made ta abe to the
husband, uness It coud be estabshed that the property transferred was
economcay attrbutabe to the other spouse.
Unfortunatey, a number of probems have arsen under the 19 2 amendments.
Most mportant of these s the fact that geographca equazaton has not been
reazed n a typca stuaton. Furthermore, the probem of determnng the
economc contrbuton of the survvng spouse to the communty has resuted
In an e tremey dffcut probem of tracng. Severe hardshp aso resuts
where, because the entre communty property Is Incudbe n hs gross estate,
the estate ta of the decedent s arger than the communty property sub|ect
to hs power of dsposton. For e ampe, f a decedent Is economcay re-
sponsbe for the entre communty ths average ta rate on hs estate may
e ceed 50 per cent. owever, ony haf of the communty Is sub|ect to hs power
of dsposton. Thus the share of the communty aready beongng to hs spouse
may be requred to bear part of the ta athough the spouse does not nhert
any property under State aw.
The most obvous Instance of the faure to attan equazaton resuts from
the wdespread use of fe tenances In the common-aw States. In ths stuaton,
the husband transfers or bequeaths to hs wfe a fe estate, wth remander over
to the chdren. t hs death the whoe of the estate Is ta ed, but at the wfe s
death there s no ta on the cessaton of her fe estate. On the other hand, n
a communty-property State, the husband may not by hs w dspose of hs wfe s
nterest n communty property. If he bequeaths hs one-haf Interest In the com-
munty to hs wfe for fe wth remander over to the chdren, the entre com-
munty may be ncuded In hs gross estate, and on the death of the wfe, one-haf
the communty s aso ncuded n her estate. Thus the common-aw coupe s
sub|ect ony to a snge transfer ta , whereas the communty-property coupe
pays two transfer ta es, one on an estate of equa sze and one on an estate of
haf the sze of that passng n the common-aw State.
The tracng probem arses under the 19 2 amendments because of the need
for dentfyng portons of the communty contrbuted by each spouse. stab-
shng the fact that partcuar assets of the communty are derved from com-
pensaton for persona servces actuay rendered by the survvor ,
s mpossbe n a great many stuatons. Under the 19 2 amendments ths trac-
ng probem s of far arger dmensons n communty-property States than n
common-aw ursdctons, where t Is mted prmary to |ont tenances, ten-
ances by the entrety, and |ont bank accounts.
ssumng that the deducton for property prevousy ta ed s not appcabe.
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305
Tour commttee does not beeve that a satsfactory souton to the probem of
geographca equazaton or the dffcutes of tracng can be found under the
19 2 amendments or amendments usng a smar theoretca approach. ence
the repea of these amendments Is recommended, effectve wth respect to gfts
made after the date of enactment of ths b and wth respect to the estates of
decedents dyng after the date of such enactment. Your commttee woud be
unwng, however, merey to repea the 19 2 amendments. Repea aone woud
reproduce the pre-19 2 resuts, whch are even further from equazaton than
e stng aw.
Wth the repea of the 19 2 amendments your commttee recommends estate
and gft ta spttng whch s smar In ts effects to the spttng of the ncome
ta provded for n ths b. It s recognzed that compete equazaton of the
estate and gft ta es can not be acheved because of the nherent dfferences be-
tween communty property and noncommunty property. owever, the new
provsons w resut n equaty In the mportant stuatons.
Under the estate-ta provson of your commtte s b a decedent spouse s
aowed a marta deducton from hs gross estate In the amount of the vaue of
a nterests n property passng outrght from the decedent to the survvng
spouse by way of bequest, devse, transfer, rght of survvorshp n onty hed
property, etc. The deducton s mted to an amount not n e cess of 50 per cent
of the ad|usted gross estate.
Under the gft-ta provsons of your commttee s b a donor spouse s aowed
a deducton for every outrght transfer by gft to hs spouse, such deducton to be
an amount equa to one-haf of the vaue of the nterest transferred. In the case
of a transfer by gft by a marred person to persons other than hs spouse, the
nterest transferred may be consdered as made one-haf by each, f the spouses
so eect.
Under both the estate and gft ta es the marta deducton does not appy to
the decedent s or the donor s nterest In communty property. Ths e cepton
was necessary because after the repea of the 19 2 amendments the survvng
spouse In a communty property State w receve one-haf of the communty
property ta -free. Smary, a donor spouse w be ta abe on ony one-haf the
vaue of any gfts made out of the communty property. though the marta
deducton does not appy to communty property, t w appy, n genera, to the
separate property of a decedent or a donor n a communty-property State.
In the precedng paragraphs It has been stated that the Interest n property
must pass outrght to the survvng or donee spouse to quafy for the marta
deducton. Ths s ntended to restrct the deducton to those cases where the
decedent or donor passes to hs spouse a of hs nterest In the property. Ths
w equate the decedent n the common-aw State wth the decedent In the com-
munty-property State who cannot by hs w effect In any way the survvng
spouse s nterest In the communty property. Thus, a deducton w not be
aowed under the amendments If the ony Interest gven a spouse Is In property
n whch the decedent or donor aso gave an nterest to some one ese who may
possess or en|oy the property after the donee spouse des. owever, If the ony
nterest the husband has n the property s a termnabe Interest, such as a ease,
and he gves hs wfe hs entre nterest n the property, then the deducton s
permtted.
mong the e ceptons to ths rue Is the recognton of one of the customary
modes of transfer of property In common-aw States. The deducton s appcabe
where the decedent or donor creates a trust, the ncome of whch the benefcary
or donee spouse Is entted to for hs fe, wth a ta abe power of appontment
over the corpus of such trust In the spouse. Thus the property sub|ect to the
ta abe power of appontment w be Incudbe n the gross estate of the bene-
fcary or donee spouse uness It has been dsspated n the Interva.
For the purposes of the estate ta , the same prncpes underyng the marta
deducton as to powers of appontment are aso appcabe to proceeds of nsur-
ance on the fe of the decedent. The marta deducton may be obtaned If under
the terms of the pocy the survvng spouse s entted to receve such proceeds
The ad|usted gross estate a determned by subtractng from the gross estate the debts
and charges provded for In secton 812(b) of the Interna Revenue Code.
There Is, however, In Caforna some communty property whch Is not recognzed as
such for the purposes of the Federa estate and gft ta es. Ths Is property acqured In
Caforna before the passage of a Caforna aw In 1927 whch gave the wfe a vested
Interest In communty assets. Under your commttee s b the marta deducton w be
appcabe to the decedent s or donor s nterest In such property. It w be treated In the
same manner as separate property.
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306
In annua or more frequent Instaments, wth the rght to desgnate her estate
or other persons as the benefcary of the unpad baance of such proceeds.
Your commttee has ong had under study the revson of the present aw as to
powers of appontment. It Is not Intended that aowance of the marta deduc-
ton wth respect to the creaton of a power of appontment w precude such
future revson as may be consdered advsabe.
dopton of these portons of your commttee s b w estabsh a new natona
system for ascertanng Federa estate and gft ta abtes. Ths w e tend
substanta benefts to resdents of both communty-property and common-aw
States.
C. T C PIT L G INS T .
In order to gve persons recevng communty property the same bass for
determnng gan or oss on a sae of property after death as s gven to the
recpents of property passng under the common aw, an amendment Is beng
made to the capta gans provsons of the ncome ta . Under e stng aw prop-
erty acqured by bequest, devse, or nhertance has as ts bass for capta
gans purposes the far market vaue of the property at the tme of the decedent s
death or the far market vaue at the optona vauaton date. Your commttee s
b provdes that the survvng spouse n a common-aw State may receve up to
one-haf of the estate of the decedent free of estate ta . In so far as such prop-
erty passes from the decedent to the survvng spouse by bequest, devse, or
nhertance, the survvng spouse w have as a bass the far market vaue at the
tme of the decedent s death or the far market vaue at the optona vauaton
date. On the other hand, under e stng aw the one-haf nterest of the survv-
ng spouse n communty property s not property receved by bequest, devse, or
nhertance. s a resut, under present aw the survvng spouse n a com-
munty-property State must use as a bass for hs share of the communty assets
the cost to the communty. Your commttee s b provdes that the survvng
spouse s Interest In communty property sha be deemed to have been acqured
by bequest, devse, or nhertance from the decedent, thus gvng the assets a
bass equa to the far market vaue as of the date of the frst spouse s death or the
far market vaue at the optona vauaton date. Ths equazes the ta es on
capta gans n common-aw and communty-property States.
Ths provson Is effectve wth respect to communty property acqured by the
survvng spouse from a decedent dyng after the date of enactment of ths act.
I . Statstca Data Reatng to Youb Commttee s .
The reducton n Income ta abtes resutng from the varous provsons of
your commttee s b Is shown In tabe I .
Tabe I . Dstrbuton of the ta reducton resutng from the varous pro-
vsons of the ouse b and the Fnance Commttee b.
ssumng persona ncome of 208 bon.

Reducton
. ouse
Reducton,
Fnance
b
Commttee bU.
In mons
of doars.
In per
cent of
tota.
In mons
of doars.
In per
cent of
tota.
Per
Per
cent.
cent.
Increase In tho per capta e empton to MOO
2,000.1
30.0
2,000.1
1.9
163.8
2.8
163.8
3.
0.1
598.2
( )
9.0
0.1
5S0.3
0)
u.s
59.
0.9
S9.
1.2
3, 637. 2
5 .6
1.799.7
37.7
Decrease In Income ta abtes
6, 58.9
97.0
, 73.S
93.8
189.1
3.0
199.1
.2
Tota decrease In ta abtes
6.658.0
100.0
,772.0
100.0
Less than 0.05 per cent.
1 Ths Incudes the reducton n ta abtes for marred coupes as we as snge ndvduas.
Source: Staff of the ont Commttee on Interna Revenue Ta aton.
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307
Ths tabe s based on an assumed persona ncome of 208 bon. The per-
centage ta reductons account for 38 per cent of the tota, and the ncrease In
e emptons for 2 per cent. It shoud be borne n mnd that a arge part of the
reducton of 550 mon resutng from ncome spttng w occur whether
or not your commttee s b s enacted. ute a few of the States, Incudng some
of the argest, have ndcated ther ntenton to adopt communty property If
provson for ncome spttng s not made by the Federa Government.
Tabe shows the estmated dstrbuton among the varous Income casses
of the change n ta abtes from present aw, under your commttee s b and
tnder the ouse b. It aso shows the number of ta payers under present aw
and under . R. 790; the number of ta payers reeved of ta under . R.
790; the ncome after deductons but .before e emptons; and the reducton In
ta abty under the ouse b and under your commttee s b. The
tabe Indcates that 71 per cent of the reducton under your commttee s b goes
to ndvduas wth ncomes after deductons but before e emptons of 5,000
or ess.
Tabe . stmated number of ta payers, ther ncome after deductons but
before e emptons, and ther ta abty under present aw compared wth
that under the ouse b and the Fnance Commttee b, n a fu year of
operaton (assumng persona ncome of 208 bon).
Income cass after
deductons but be-
fore e emptons.
Ta payers
under-
Ta pay-
ers re-
eved
of ta
under
n. R.
Incomo
after In-
ductons
but
before
e emp-
tons.
Ta abty under
Fnance
Com-
mttee
b.
Reducton n
ta abty
under
Fnance
Com-
mttee
b.
Present
aw.
. R.
790.
790.
Present
aw.
ouse
b.
ITouse
b.
(000)
Number of ta payers n thousands, money amounts n mons.
Cnder
3.638.6
17,537.3
16.78 .
8,993.0
, 857. 3
3, 39 . 2
15,175.
1 .305.9
7,761.9
,096.8
5 .
3,2 1.9
2 3.2
2, 65 . 0
3,962. 7
2,6 5. 2
2,38 .8
98.8
1, 16.8
2, 39. 6
1,709.1
1,638.6
118 9
1 3.
12 .3
77 .7
1,053.8
702.
570.6
51- 2
2,361.9
2, 78. 6
1,231.1
700.5
25,693. 7
38.969.1
23,990.3
18,000.9
1,879.3
2.608.9
1,9 2.8
1,81 .3
1,237.2
1, 623.1
936.1
7 6.2
52- C
- .
- 5
Tota under
5
52,110.6
, 73 .3
7,376. 5
109,895.9
11,889.6
7,303.9
8,66 . 2
, 586.0
3,225.7
5- 10
1,57 . 1
668.8
128.2
36.1
8.6
.8
.
.1
1,672.2
668.8
128.2
36.1
8.6
.8
.
.1
1.9
9,71 .9
9,508.0
6,003.6
2,608.7
1,368.3
221.8
207.9
172.1
1,681.1
2,651.8
2,168. 5
1, 62.3
1,029.
201.5
187.0
166.3
1,200.
2,05 .1
1,813.
1,2 2.7
897.0
179.
167. 3
1 1.0
1,362.9
2,196. 9
1,905.9
1,298.0
9 0.5
18 , 3
177.0
1 9.6
80.7
597.7
385.1
219.6
132.
22.1
19.7
15.3
318.2
6 .9
292.6
16 .3
88.9
12.2
10.0
.7
10- 25
25- 50
fO- 10D
10O- 3O0
)
v)
30O- 5O0
S500 ,000
v)
1.000 and o ver
( )
Totaover 5.
2. 17.2
2. 1.5.3
1.9
28, 695. 2
9. 567. 9
7. 695. 3
8,220. 1
1,872.6
1.3 7.8
rand tota..
6 ,627.9 7,1 S.6
P RC NT G DISTRI UTION.
7,378.
138,501.1
21, 57.6
1 ,998.6
. M.U
6, 58.9 ,573.5
(000)
0-
7.22
32.16
30.78
16. 0
8.91
2.88
1.23
.2
.06
.01
( )
7.20
32.19
30.3
16. 6
8.69
3.33
1. 2
.27
.08
.01
7.38
32. 02
33.58
16.69
10.30
.02
2.3
1. 13
0.67
9.
16.27
11.39
10.63
8.00
13.70
12.09
8.28
5.98
1.20
1.11
.9
0.70
11. 13
17.22
11.51
10.75
8.07
13.01
11.29
7.69
5.57
1.12
1.05
.89
222
19.16
23.58
1 . 9
11.65
7. 6
9.2
6.96
3. 0
2.05
.3
.81
.2
2.72
16.9
23.0
15.36
12. 7
6.96
9.9
6. 0
3.59
1.9
.27
.22
.15
- ..
18.6
28.12
17.31
11.99
7.00
6.87
3.61
1.81
.98
.16
.15
.12
12.37
18. 7
12.33
11.11
7.8
12.35
10.26
6. 82
.79
.6
.87
.73
2-13
3-
-S5
5- 10
0- 25
2S- 50
W
60- 100
1
O- 300
8
1
300- 500
500- I,000
52
( )
1,000 and over
Tota
100.00
100.00
100.00
100. 00
100.00
100.00
100.00
100.00
100.00
See footnotes at end o tabe
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308
Tabe . stmated number of ta payers, ther ncome after deductons but
before e emptons, and ther ta abty under present aw compared wth
that under the ouse b and the Fnance Commttee b, n a fu year of
operaton (assumng persona ncome of 208 bon) Contnued.
P RC NT G DISTRI UTION CUMUL T D FROM LOW ST TO IG ST N T
INCOM CL SS.
Reducton n
Ta payers
Ta pay-
Income
Ta abty under
ta abty
under-
ers re-
after de-
under
Income cnss after
eved
ductons
deductons but bo-
of ta
but
fore e emptons.
under
before
Fnance
Fnance
Present
. R.
. R.
e emp-
Present
ouse
Com-
ouse
Com-
aw.
790.
790.
tons.
aw.
b.
mttee
b.
mttee
(000)
Number of ta payers n thousands, money amounts n mons.
WU.
bO.
Under 1
7.22
7.20
7.38
2.3
1.13
0.07
0.70
2.22
2. 72
Under 2__._
30.38
39.39
39. 0
20.88
13.50
10.11
11.83
21.38
19.66
70.16
69.73
72.98
9.00
31.97
20.38
29.05
.98
3.70
Under
86.65
86.19
89.07
66.31
.30
37.77
0.56
69. 5
68-06
Under 5
95.57
9 .88
99.97
79.30
55. 1
8.70
51.31
71.00
70.53
Under 10
98. 5
98.21
99.99
86.30
63.25
16. 70
59.38
78. 6
77. 9
Under 25
99.68
99.63
(s)
93.17
75.60
70. 0
72.39
87.70
87. 3
Under 50
99.92
99.90
( )
96.78
85.86
82. 9
83.68
93.66
93.33
Under 100
99.98
99.98
(v
98.59
92.67
90.77
91.37
97.06
97. 2
Under 300
99.99
99.99
m
99.67
97. 6
96.75
96.9
99.11
99.35
Under 500
ff
( )
v)
99;73
98. 0
97.95
98.06
99. 5
99.63
Under 1,000

( )
()
99.88
99.27
99.06
99.11
99.76
99.85
Tota
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100-00
Incudes norma ta , surta , and aternatve ta on net ong-term capta gns.
Less than 50.
Increase ess than 0.01 per cent.
Note. Fgures are rounded and w not necessary add to totas.
Source: Staff of the ont Commttee on Interna Revenue Ta aton.
Tabe I presents the ta burdens for varous Income eves after deductons
but before e emptons. It shows the amount of ta payabe under present aw,
the ouse b, and your commttee s b. There are eght parts to tabe I,
showng the ta burdens under dfferent assumptons as to marta status,
number of dependents, and the dstrbuton of ncome between the partners to the
marrage. parts of tabe I are cacuated under the assumpton that
nether the ta payer nor hs spouse s over 65 years of age or bnd.
Snce Indvduas aged 65 and over receve an addtona 600 e empton
under both your commttee s b and the ouse b, ther ta burdens dffer from
those shown In tabe I. Tabe II and shows the ta burdens under
e stng aw, the ouse b and your commttee s b for a snge person 05 years
of age or over, and for a marred coupe wth no dependents. Part Is cacuated
under the assumpton that both spouses are over 65 and that a of the ncome
s earned by one of them. The fgures shown n tabe II aso appy to bnd
persons under 65.
Tabe III and shows the amount of spendabe ncome remanng after
ta under present aw, the ouse b, and your commttee s b. The amount
of spendabe ncome remanng Is shown by ncome casses after deductons but
before e emptons and Is aso e pressed as a per cent of the Income. Part reates
to a snge person wth no dependents and part to a marred person wth no
dependents (t beng assumed that the entre ncome s earned by one spouse).
Tabe , whch appears n Secton I above, shows the effects of the ouse b
and your commttee s b on the spendabe ncome of a marred person wth two
dependents (the entre ncome beng earned by one spouse).
G
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309
Tabe I- . Comparson of ndvdua ncome taw under present aw, and
under ouse b and the Fnance Commttee b.
SINGL P RSON NO D P ND NTS.
Income after deduc-
tons bat before e -
emptons.
mount of ta .
Present
aw.
.R. 790.
ouse
b.
Fnance
Commttee
b.
mount of ta reduc-
ton, . . 780.
ouse
b.
Fnance
Commttee
b.
Percent ta reduc-
ton, . R. 700.
ouse
b.
500...
600
700
750
M) -
900...
1,000-
1,200-
1,600.
1,800.
f
2,501.
ffcOSO.
,000
5,000.
Per cent.
7,110(1 .
m|m. -
tut 9
10,000.
11,000.
12,000-
13,000.
1 ,000.
15,000-
10,000.
1150,000-.
,000_
),000.
0,000.
0,000.
0,000.
750,0
19.00
38.00
7.50
57.00
76.00
95.00
133.00
190.00
2 7.00
285.00
380.00
8 .60
693.60
921.60
L 168. 60
1, 3 .60
1,719. 60
2,023.60
2,3 6. 50
2,688. 50
3,0 9.50
S. 3 . 29
3,8 2. 75
,270.25
6,6 6. 25
9,362. 25
12,26 .60
18, 25. 25
26,137. 00
32, 2 7. 75
89,6 3. 60
7, 32 . 25
66,290.00
63,6 0.76
105,806. 25
1 8, 551. 60
191, 771. 75
28 ,986. 76
321, 6. 76
07, 896. 76
62 .021. 76
8 0,1 6. 75
13.30
19.95
26.60
39.90
53.20
79.80
119. 70
173.00
212.80
288.80
370.88
638.08
727.32
9 9.62
1,185. 60
1, 2.10
1,712. 28
2,002.98
2, 307. 36
2,632.26
2,97 . 26
3. 3 1.91
9,723. 2
5,855.61
8, 295. 7
10,905. 2
16, 3.93
22, 81.9
28,879.05
36, 532. 66
2, 2. 77
9, 609. 38
57,032. 9
96,069.73
133, 639. 60
172, 36.97
211,339. 7
289,1 . 7
366, 9 9. 7
661, 61. 97
765,97 . 7
16.60
2 .90
33.20
9.80
66. 0
99.60
1 9. 0
199.20
232. 0
316. 0
09.
603.0
810.72
1,039.52
1,282. 0
1,6 6. 0
1,82 . 8
2,123.68
2, 36.96
2, 771. 36
8,123. 36
8, 601. 76
3, 89 . 2
6,088.96
8,600. 8
11,286.2
16,986. 88
23,201.
29, 785. 60
36,633. 76
3,7 5. 92
61,122.08
58,762. 2
98,165.61
138, 772, 70
179,831.03
220, 89 . 78
803,022.28
885,000.00
677, 600.00
770,000.00
19.00
2 .70
27.56
30. 0
36.10
1.80
63.20
70.80
7 .00
72.20
91.20
113.62
155. 2
19 .18
218.88
2 8.90
277. 0
311.22
3 3.52
381.1
17.2
69.99
500.8
6 7.01
789.6
1, 066. 7
1,359.26
1,981. 32
2,666.06
3.38 . 711
,110.8
,881. 8
6, 0 0. 02
6,608.26
10, 736. 52
15,011.90
19,83 . 78
23, 657. 28
32,302.28
0,9 7. 28
62, 669. 78
8 ,172. 28
19.00
21. 0
22.60
23.80
26.20
28.60
33. 0
0.60
7.80
62.60
6160
76.06
90. 8
110. 78
128.98
162.10
173.10
m. 02
222.82
251.5
278.1
310. 89
3 0.99
376.01
668.29
761.77
978.26
1, 38. 37
1,935. 56
2, 62 15
3,009.7
3,678.33
,167.92
,778.61
7,6 0.6
9,778.80
11,9 0.72
1 ,101.97
18, 2 . 7
22, 898. 76
6, 621. 76
70,1 6. 75
100.00
65.00
58.00
63.33
7.50
.00
0.00
87.00
29.96
26.33
2 .00
23. 5
22. 1
21.07
18.73
17.36
16.13
16.38
1 .6
1 .18
13.68
13.39
13.03
12. 81
11.88
11.39
11.08
10.76
10.66
10. 5
10. 87
10.31
10.27
10.2
10.16
10.11
10.08
10.07
10.05
10.0
10.03
10.02
Source: Staff of the ont Commttee on Interna Revenue Ta aton.
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310
Tabe I- . Comparson of ndvdua ncome ta under present aw, and
under ouse b and the Fnance Commttee b.
SINGL P RSON ON D P ND NT.
Income after deduc-
tons but before e -
emptons.
mount of ta .
Tresent
. R. 790.
nu e
b.
Fnance
Commttee
b.
mount of ta reduo-
ton, . R. 790.
ouse
b.
Fnance
Commttee
b.
Per cent ta reduc-
ton, . R. 790.
ouse
b.
Per cent.
38.00
95.00
152.00
190.00
285.00
380.00
589.00
798.00
1,0 5.00
1,292.00
1,577.00
1,862.00
2,185.00
2,508.00
2,869. 00
3,230.00
3,638.50
,0 7. 00
0, 393. 50
9,082.00
11,970.00
18,097.50
2 , 795.00
31,891.50
39.273. 00
6. 939. 50
51,891.00
63,127. 60
105. 383. 50
1 8, 12 .00
191,339.50
23 ,56 . 50
321,01 .50
07, 5 . 50
623,589.50
839, 71 . 50
39.90
79.80
106. 0
193.00
273.60
37. 78
60 .96
816,2
1,038. 5
1,288.20
1, 5 . 70
1, 828. 56
2,119.20
2, 37.32
2,762.22
3,121.32
3, 88. 97
6, 583. 72
7,993. 11
10, 587. 18
16,089. 90
22,112.58
28, 9 . 30
35,132. 52
2,027. 2
9,178. 6
66,5S. IS
9 , 613.16
133,077.90
171, 970.1
210, 872. 6
288.677.6
366, 82 6
660, 995. 1
755, 507. 6
9.80
99.90
132.80
215.80
298.80
36.88
680. 8
902 2
1.131.0
1.388.00
1,652.00
1,9 .16
2,2 3. 36
2, 670. 72
2,905.12
3, 27 . 72
3,653. 12
5. 809. 12
8,288. 96
10.958 88
16.622. 66
22.821.28
29. 389. 00
30. 221. 92
3, 318. 2
SO, 678,50
58.302.88
97,683. 68
138.285.35
179,338.27
220, 02. 02
302, 5:29. 52
38 ,657.02
677, 500. 00
770,000.00
38.00
65.10
72.20
83.60
92.00
106. 0
161.2
193.0
228.76
253. 6
288.80
317.30
356.
388.7
31.68
67.78
517.18
658.03
809.78
1,088.89
1,382.82
2,007. 5
2, 682. 2
3, 397. 20
,1 0. 3
.912. 26
6, 712. 5
6, 5 1. 32
10, 770. 3
IS, 0 0 10
19,369. 36
23.691.86
32,336.86
0,981.86
82,69 .36
8 ,206.86
38.00
5.20
62. 0
57.20
69.20
81.20
102.12
117.52
1 3. 78
160.96
189.00
210.00
2 0.8
26 .6
293.28
32 .88
383.78
: , ) 83
68 .33
793. 0
1,011.12
1, 7 .9
1,973.72
2.501.90
3.051.03
3, 621. 26
, 212.
. 82 . 62
7,699.82
9. 838. 65
12,001.23
1 ,162. 8
18, 8 .98
22. 807. 8
6,089. 50
69,711 50
100.00
68.00
7.50
.00
32.28
28.00
25.68
2 .19
21.89
19.62
18. 31
17.0
16.31
15.50
15 05
1 . 8
1 .22
13.79
12.67
11.99
11.55
11.09
10.82
10.85
10.5
10. 7
10. 1
10.38
10.22
10.16
10.12
10.10
10.07
10.06
10.0
10.03
Source: Staff of the
ont Commttee on Interna Revenue Taaton.
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311
Tabe I-C. Comparson of ndvdua ncome taw under present aw, and
under ouse b and the Fnance Commttee b.
M RI D P RSON NO D P ND NTS NTIR INCOM RN D Y ON SPOUS .
I1
mount of ta .
mount of ta reduc-
ton, . R. 790.
Percent ta reduc-
ton, . . 790.
Income after deduc-
tons but before e -
emptons.
Present
aw.
. R
790.
ouse
b.
Fnance
Commttee
b.
ouse
b.
Fnance
Com-
mttee
b.
ouse
b.
Fnance
1,000
Commttee
b.
Per cent.
Per cent.
saoo I
38.00
38.00
38.00
100.00
100.00
SI.500
05.00
39.96
9.80
66.10
5.20
68.00
7.68
1.800
152.00
79.80
119.60
72.20
52. 0
7.50
3 . 7
2,000
190.00
106. 0
1.12.80
83.60
67.20
.00
30.11
2.600
285.00
172.90
215.80
112. 10
69.20
39.33
2 .28
3.000
380.00
239. 0
298.80
1 0.60
81.20
37.00
21.37
.000
689,00
26.60
6 .80
163. 0
12 .20
27.7
21.09
5,000
798.00
577.60
630.80
220. 0
167.20
27.62
20.95
6,000
1,0 5.00
7 1. 76
818.88
303.2
226.12
29.02
21.6
7.000
1,292.00
s
1,012. 8
383.0
279.52
29.65
21.63
3,000
1,577.00
1,076.16
1,206.08
500.8
370.92
31.76
23.62
9.000
1,862.00
1,2 3.36
1,399.68
618.6
62.32
33.22
2 .83
10.000
2,185.00
1, 5 .6
1.621.
730.36
663.66
33. 3
25.79
11,000
2.508.00
1,676.9
1,850.2
831.06
667.76
33.1
26.23
12,0011
2,869.00
1.899.2
2,079.0
969.76
789.96
: .s )
27.53
13,000
3, 230.00
2.121.6
2,307.8
1,108. 0
922.16
3 .32
28.55
M,000
3,638.50
2,371.20
2,56 .80
1,267.30
1,073.70
3 .83
29.51
15.000
,0 7.00
2,627. 70
2,828.80
1, 19.30
1.218.20
35.07
30.10
30.000
6,393.50
,005. 97
,2 7.36
2.3S7.5
2,1 6.1
37.3
33.67
25,000
9,082.00
6, 689. 2
6,877.12
3, 92. 68
3.20 .88
38. 6
35.29
30,000
11,970.00
7, 6. 8
7,788. 8
, 623.62
,181.62
37.79
3 .93
MO.000
18,097.50
11,711.22
12,177.92
6,386.28
6,919.68
35.29
32.71
50.000
2 ,795.00
16,691.66
17, 200. 96
8,203.
7,69 .0
33.09
30.63
00.000
31,801.60
21.810. 8
22. 572. 8
111. CM (12
(. ao 02
31.61
29.22
70,000
39, 273. CO
27,23 .60
28,165.20
12.038. 0
11,117.80
SO. 65
28.31
80.000
6,939. 60
32, 887. 86
33. 973. 76
1 ,051.6
12,965 7
29.9
27.02
90.000
6 ,891.00
38, 807.88
0,066.88
16,083.12
1 ,82 .12
29.30
27.01
100,000
63, 127.60
,963.88
6. 02.88
18,163.62
16,72 .62
28.77
20. 9
150.000
105.383.50
77.960.0
80,363.8
27, 23. 6
26,019.66
26.02
23.7
200,1100
1 8,12 .00
11 .06 .98
117,52 . 8
3 ,069.02
30, 599. 62
22.99
20.66
2. M
191,339.60
152.091.88
166,663.36
39, 2 7.62
3 ,676.1
20. 61
18.12
23 ,66 50
321,01 .60
07, 6 .60
623.680.80
839, 71 . 60
190,139. 6
267.079.2O
3 , 873.9
639.386.
733,898.9
196,331.22
277.6 5. 0
369,662.06
66 , 980. 82
770,000.00
, 26.0
38,233.28
3, 09.10
7.802.
68.608.08
69,71 .50
18.9
16.80
18.36
13.50
12.60
18.30
13.5
11.73
9. 0
8.30
,ooooo
63,935.30
62.690.66
8 ,203.06
106,815.66
Source Staff of the ont Commttee on Interna Revenue Ta aton.
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312
Tabe I-D. Comparson of ndvdua ncome ta under present aw, and
under ouse b and the Fnance Commttee b.
M RRI D P RSON NO D P ND NTS WIT INCOM DI ID D S FOLLOWS:
TO P R C NT ND 30 P R C NT.
mount of ta .
mount of ta reduc-
ton, . R. 790.
Per cent ta reduc-
ton, . R. 790.
Income after deduc-
tons but before e -
emptons.
. R. 790.
Fnance
Commttee
Fnance
rresent
aw.
ouse
oom
Com-
ons
b.
Fnance
b.
ba-
ML
1,000
Commttee
ML
Per cent.
Per cent.
1,200
38.00
96.00
152.00
190.00
285.00
380.00
575. 70
779.00
982.30
1,200.80
1, 30.70
1,66 . 0
1,919.00
2,181.20
2, 3. 0
2,728. 0
3,017.20
3,306.00
5, 011.28
6,992.00
9,186.60
1 ,136. 00
19, 551. 00
25,388. 75
31,616.00
38,199. 50
,95 .00
61,908. 00
89, 75. 75
129,599.00
170.653.25
212, 81. 75
29 , 1 8.00
38 ,028.00
599,668. 50
815,793. 50
38.00
85.10
72.20
83.60
112.10
1 0.60
150.10
201. 0
2 0.5
291.8
35 .5
21.0
6 .36
60 .26
6 .16
608.88
6 6.00
678.30
1,005.29
1, 02.58
1,7 0.02
2, 2 .78
2,959.
3,578.27
,381. 0
5,311.6
6,1 6.12
6,9 .12
11,515.71
15, 53 . 02
18.561.37
22,3 2.29
31,068.80
39,15 .06
60,282.06
81,89 .58
rn 00
5.20
62. 0
67.20
60.20
81.20
110.90
1 8.20
183. 3
188.32
22 .62
28 .72
297.56
330.96
36 .36
20.56
52. 0
77.20
763.89
1.11 . 88
1,398.02
1,968.08
2,350.0
2,816.27
3, 60. 80
,226. 7
,887.12
5,506.12
9,111.91
12,07 .62
13,989.89
16,150. 53
20,602.60
2 .365.9
3 ,687.68
5.793.50
100.00
58.00
7.60
.00
39.33
37.00
26.07
25.85
2 .
2 .30
2 .78
25.30
2 .20
23.13
22.27
22.2
21. 1
20.62
20.08
20.06
18.9
17.15
15.1
1 .00
13.88
13.90
13.67
13.38
12.87
11.99
10.88
10.51
10. 3
10.20
10.05
10.0
100.00
7.58
3 . 7
30.11
2 .28
21.87
18.26
19.02
16.6
15.88
18.70
15.90
15.51
16.17
1 .91
18. 1
1 .90
1 . 3
15.23
15.93
15.22
13.85
1Z02
11.09
10 95
11.06
10.87
10.61
1018
9.33
8.20
7.60
6.91
ft.
5.78
8.61
2,000
39.90
79.80
106. 0
17190
239. 0
25.60
577.60
7 1.76
908.96
1,07.1. 16
1,2 3.38
1, 5 .6
1,676.9
1,899.2
2,121.5
2,371.20
2,627.70
,005.98
5,589. 2
7, 6. 8
11,711.22
16,691.58
21,810. 8
27,23 0
32.887.86
38,807.88
, 963.88
77,960.0
11 ,06 .98
162,091.88
190, 139. 8
267,079.20
3 .873.9
539,386.
733,898.9
9.80
99.60
132.80
216.80
208.80
6 .80
030.80
818.88
1,012. 8
1,206.08
1,399.68
1,621.
1,850.2
2,079.0
2,307.8
2,56 .80
2,828.80
,2 7.36
6,877.12
7,788. 8
12,177.92
17,200.96
22,572. 8
28,165. 20
33,973.76
0,066.88
6, 02.88
80,363.8
117,62 . 8
156.663.36
196,331.22
277, 5 5. 0
359.662.06
58 .980.82
770.000.00
2,500
7,000
8,000
1 ,000
15,000
20,000
25,000
30,000
0,000
50,000
60.000
70,000
80,000
90.000
100,000
150,000
200,000
250.000
300,000
00,000
500,000..
750,000
1,000,000
Source: Staff of the ont Commttee on Interna Revenue Ta aton.
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313
Tabe I- . Comparson of ndvdua ncome ta under present aw, and
under ome b and the Fnance Commttee b.
M RRI D P RSON NO D P ND NTS WIT INCOM DI ID D S FOLLOWS:
50 P R C NT ND 50 P R C NT.
Income after deduc-
tons but before e-
mount of ta .
. R
700.
mount of ta reduc-
ton, . R. 790.
Per cent a reduc-
ton, . R. 790.
Present
aw.
ouse
b.
Fnance
Commttee
b.
ouse
b.
Fnance
Commttee
b.
ouse
b.
Fnance
Com-
mttee
b.
1,000
Per cent.
Per cent.
1,200
38.00
38. 00
38. 00
100.00
100.00
1,500
95.00
39 50
9.80
55.10
5.20
58.00
7.58
1,800._
152.00
79.80
99.60
72.20
52. 0
7.50
3 . 7
2,000.
190.00
106. 0
132. 80
83.60
67.20
. 00
30. 11
2,500
285.00
172.90
215.80
112. 10
69.20
39. 33
2 28
3.000
380.00
239. 0
238.80
1 0.60
81. 20
37.00
21. 37
,000
570.00
25. 60
6 . 80
1 1 0
106. 20
25.33
18. 6
5,000
760.00
577. CO
saa so
182. 0
129.20
2 .00
17.00
6,000
989.00
7 1.76
MS
227.2
150. 12
23. 5
15. 9
7,000
1,178.00
908.98
1.012. 8
269.0
165.52
22.8
1 .05
8,000
1,387.00
1.076. 18
1.206.08
310.8
180.92
22. 1
13.0
9.000
1,598.00
1,2 3. 36
1, 399. 68
352.6
196.32
22. 10
12 30
10,000
1.8 3.00
1, 5 .6
1,621.
388.36
221.56
21.07
12.02
11,000
2.090.00
1,676.9
1, 850. 2
13. I
239.76
19.76
11. 7
12,000
2. 337. 00
1. 899. 2
2,079.0
37. 76
257.96
18.73
11.0
13.000
2.58 .00
2,121.51
2.307. 8
62. 6
276. 16
17.90
111.69
2, 809. 00
2,371.20
2,56 .80
97. 80
30 .20
17.35
10. 60
15.000.
3.15 .00
2.627. 70
2.828. 80
526. 30
325.20
16.69
10.31
20.000
.693.00
.006.96
.2 7. 36
C87.0
5.6
1 .6
9.50
25,000
6. 80.00
5.589. 2
6.877. 12
870. 58
682.88
13. 8
9.02
30,1100
8,5 0.50
7, 6. 8
7,788. 8
1.09 .02
752. 02
12.81
8.81
0.000
13,290.50
11,711.22
12,177. 92
1,679 28
1,112.58
11.88
8.37
50,000
18. 72 . 50
16.591.56
17,200.96
2. 132. 9
1,523.5
11.39
8.1
60.000
2 . 629. 00
21. 810. 8
22. 572. 8
2.718.52
1,9.56.52
11.08
7.98
70,000
30.601.50
27.23 .60
28, 155. 20
3. 326. 90
2, 06. 30
10.89
7.87
mono
36.850.50
32. 887. 86
33.973. 76
3,962. 6
2. 876. 7
10.75
7.81
U 0
3. 3 . 00
38, 807. 88
0,066. 88
,62a 12
3,367. 12
10.65
7.75
on.ooo
50. 27 . 00
.963.88
6, 02. 88
5,310.12
3,871. 12
10. .56
7.70
150,000
86,953. 50
77.960.0
80.363. 8
8,993. 6
6.589.66
10.3
7. 58
200,000
127,081.50
11 ,06 .98
117.52 . 8
13,016.52
9. 557. 02
10.2
7.52
250,000
169.337. 50
152,091.88
166.663.36
17, 2 5. 62
12.117 .1
10.18
7. 8
300,000
211,612.50
190.139. 6
196.331.22
21, 73.11
15,281.28
10. 15
7.22
00.000.
297, 103.00
287, 079. 20
277. 5 5. 0
30.023. w
19. 557 60
10. II
6.58
500,000
383. 6 3. 50
3 . 873. 9
359. 662. 06
38, 669. 60
23. 881.
10.08
6.23
750,000
699. 668. 50
539, 386.
56 . 980. 82
I. 2s: . n
3 , 687. 68
10. 05
5.79
1,000.000..
815. 793. 50
733, 898. 9
770, 000. 00
81,89 .56
5, 793. 50
10.0
5.61
Source: Sua of the ont Commttee of Interna Revenue Ta aton.
798590 18 21
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31
Tabf.k I-F. Comparson of ndvdua ncome ta under present aw, and
under ouse b and the Fnance Commttee b.
M RRI D P RSON-2 D P ND NTS NTIR INCOM RN D Y ON SPOUS .
Income after deduc-
tons but before e -
emptons.
mount of ta .
. R
790.
mount of ta reduc-
ton, . R. 790.
Per cent ta reduc-
ton, . R. 790.
P resent
aw.
ouse
b.
Fnance
Commttee
b.
ouse
b.
Fnance
Commttee
b.
ouse
b.
Fnance
Com-
mttee
b.
2,000-
Per cent.
Percent.
2.500
95.00
13.
30
16.60
81.70
78. 0
86.00
82.53
3.000
190.00
79.
80
99.60
110.20
90. 0
58.00
7.58
.000
3S . 00
212.
80
265.60
167.20
11 . 0
.00
30.11
5.000
5 9. 00
386.
00
31.60
203.00
157. 0
3 . 7
26.72
6.000
798.00
6 7.
20
597.60
250.80
200. 0
31. 3
25.11
7,000
1
0 5.00
708.
32
780. 16
336.68
26 M
32.22
25.3
8.000
1
292.00
875
52
973. 76
16. 8
318. 2
32.2
2 .63
9,000
1
577. 00
I,
012
72
1,167.36
53 .28
09.6
33.88
25.98
ro )
1
862.00
1,
20
92
1. 360. 96
652.08
601.0
35.02
26.91
11,000
2
1 5.00
1,
10
18
1, 575. 68
77 . 82
609 32
35. 6
27.89
12,000
2
508.00
1,
832
8
1, 80 . 8
875. 2
703.52
3 .91
28.05
13,000
2
00
1,
35
7S
2, 033. 28
1.01 .22
835. 72
35.35
29. 13
1 .000
3
230. 00
2,
077
08
2. 262. 08
1.152. 92
967.92
35. 69
29.97
16,000
3
638.50
2,
319
90
2, 512. I )
1,318.60
1,126. 50
36.2
30.96
20.000
5
M. I
3
887
12
3, 88S. 32
2. 232. 88
2,001.68
37.91
33.98
25.000
8
521.50
6,
199
:.
6, 75.8
3,321.96
3, 0 5. 66
38.98
35.7
30,000
11
3 1.00
6.
977.
9
7. 306. 2
, 03.06
.07 . 76
38.69
35.80
0,000
17
2.00
11,
167
1
11.618.2
6, 27 . 56
6, 823. 76
35. 97
33.39
50,000
2
111.00
15.
988.
22
16, 577.92
8,12 . 78
7.533.08
33.70
31.2
60.000
31
179.00
21.
:t
36
21.917.76
10,00 . 6
9. 261. 2
32.09
29.70
70,000
38
532.00
20,
567.
70
27, 6a 80
11,96 .30
11.053.20
31.05
28.71
80,000
6
170.00
32.
179
92
33. 2 5. 12
13,990. 08
12. 92 . 88
30.30
27.99
90,000
5
093.. 00
38,
79.
2
39.317. 12
16.013.68
1 , 775. 88
29.60
27.32
100,000
62
301.00
.
228.
16
5, 6 2. 50
18.075. 8
16, 658.
29.01
26.7
150,000
10
538. 00
77,
128
m
79. 503. 8
27. 09. 02
25, 029. 62
26.22
23.9
200.000.
1 17
269. 00
113,
172
36
116,605.76
3 . 096. 6
30. 663. 2
23. 15
20.82
250,000
ISO
75.00
151,
ITS
82
155. 723. 52
39. 296. 18
3 , 751. 8
20.63
18.2
300.000
233
700.00
189,
228:
32
195, 367.36
. 73. 68
38.332. 6
19.03
16. 0
00,000
320
150.00
206.
188
90
276, 570. 70
63, 99 . 20
3, 579.30
16.87
13.61
500,000
06
600.00
3 3.
9 0
28
358, 676. 5
62, 659. 72
7. 923. 6
15. 1
11.79
750.000
822
725.00
38,
82.
78
563. 995. 28
8 , 272. 22
58. 729. 72
13.53
9. 3
1,000,000
838,
850.00
732,
988.
28
769,31 .0
106, 88 . 72
69, 535. 96
12.62
8.29
Source: Sta of the ont Commttee on Interna Revenue Ta aton.
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315
Tabe I-G. Comparson of ndvdua ncome ta under present aw, and
under Iouse b and the Fnance Commttee b.
M RRI D P RSON 2 D P ND NTS WIT INCOM DI ID D S FOLLOWS:
70 P R C NT ND 30 P R C NT.
Income after deduc-
tons but before e -
mount of ta .
. R. 790.
mount of ta reduc-
ton, . R. 790.
Per cent ta reduc-
ton, D. R. 790.
Present
aw.
ouse
b.
Fnance
Commttee
b.
nousc
Fnance
Iouse
b.
Fnance
Commttee
b.
b.
mttee
b.
2.000
Per cent.
Percent.
h, |
95.00
13.30
16.60
81.70
78. 0
86.00
82.53
S3.000
190.00
79.80
99.60
110.20
90. 0
58.00
7.58
.000
380.00
212.80
265.60
167.20
11 . 0
.00
30.11
5.000
870.00
386.00
31.60
18 .00
138. 0
32.28
2 .28
5,000
773.30
5 7.20
597.60
226.10
175. 70
29.2
22.72
s o00--- -
1.183.70
970.60
708.32
780.18
268.28
196.
27. 7
20.11
875.52
973.76
308.18
209.9
26.0
17.7
9.000
1, 17. 0
1,0 172
1,167.38
37 .68
250.0
28. 3
17.6
10.000-
1,653.00
1, 209. 92
1,360.90
3.08
292.0
26.80
17.67
11.000
1,898.20
1, 10.18
1,575.68
86.02
320.52
25.63
16.90
12 )00
2,158. 0
1.632. 8
1,80 . 8
525.92
363.92
2 .37
16. 0
13.000
2, 20.60
1,85 .78
2,033. 28
565.82
387.32
23.38
16.00
1 .000
2,69 . 20
2,077.08
2, 262.08
617.12
32. 12
22.91
16.0
15,000
2,983.00
2.319.90
2,512.00
663.10
71.00
22.23
15.79
20.000_-
,602.75
3,657.12
3,888.32
9 5.63
71 . 3
20.5
15.52
25,000
6,517.00
5,199. 5
5, 75.8
1,317. 8
1,0 1.16
20.22
15.98
30,000
8,668. 75
8,977. 9
7,306. 2
1,890.81
1,382.51
19.50
15.72
0.000
13, 5 7.00
11,167.
11,618.2
2.379. 58
1,928.78
17.57
1 .2
S50.000
18, 933. 50
15,986.22
16, 577.92
2.9 7.28
2,355.58
15.57
12.
SoO.000
2 ,733.25
21,17 .36
21,917.78
3, 558.89
2,815. 9
1 .39
11.33
70.000
30,932.00
26,567.70
27, 68.80
,36 . 30
3, 63.20
1 . 11
11.20
80.000
37, 87.00
32,179. 92
33,2 5. 12
5,307.08
,2 1.88
1 .16
11.33
90,000
,213.00
3S. 079. 2
39,317.12
8,133. 58
, 895. 88
13.87
11.07
100,000..
61, 167.00
. 225.16
5,8 2. 58
6,9 1.8
5. 62 .
13.57
10.80
150.000
88,630. 25
77,128.98
79,508. 8
11,501.27
9.121. 77
12.93
10.29
200,000
128, 753. 50
113. 172.38
116,805.76
15, 581.1
12,1 7. 7
12.10
9. 3
250.000
169, 798. 25
151,178.82
155, 723. 62
18,619. 3
1 ,07 .73
10.97
8.29
S3O0.000
211,617.25
189, 226.32
195,387.36
22,390.93
18, 2 9. 89
10.58
7.68
00.000
297, 283.50
268, 155.80
276, 570. 70
31, 127. 70
20, 712.80
n. 7
6.97
500,000
3S3, 163. 50
3 3, 9 0. 28
358,676. 5
39.223.22
2 , 88.98
10.2
6.39
750,000
698,80 .00
538, 62.78
563, 995. 28
60,351. 22
3 .808.72
10.08
6.81
1,000,000
81 ,929.00
732,905.28
709,31 .0
81, 963. 72
5,61 .98
10.03
5.80
Source: Staff of tbe ont Commttee on Interna Revenue Taaton.
786590 8 22
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316
Tabe I- . Comparson of ndvdua ncome ta under present aw, and
under ouse b and the Fnance Commttee b.
M RRI D P RSON 2 D P ND NTS WIT INCOM DI ID D S FOLLOWS:
60 P R C NT ND 60 P R C NT.
Income after ueduo
ons but before e -
emptons.
mount of ta .
Present
aw.
ITouse
b.
Fnance
Commttee
b.
mount of ta reduc-
ton, . R. 790.
ouse
b.
Fnance
Commttee
b.
Per cent ta reduc-
ton, . R. 790.
ouse
b.
r. .ooo
2,500.
Per cent.
3,000.
,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
1 ,000
16,000
20,000
25,000
30,000
0,000
60,000
60,000
70,000
80,000
90,000
100,000...
150,00(1 ..
200,000...
250,000...
300,000...
00,000...
500,000...
750,000...
1,000,000..
12,
18,
21.
29.
M,
2.
9,
88,
138,
168,
210,
296,
882,
598,
81 ,
95.00
190.00
380.00
670.00
769.50
969.00
178.00
387.00
615.00
8 3.00
090.00
337.00
603.00
SMI. 00
370.00
099.00
113.00
787.00
16 .00
9 0.00
9 .00
195.00
76 .26
590.00
18 .00
255.00
92.00
767.00
2 8.00
679.00
80 .00
920.00
13.30
79.80
212.80
386.00
6 7.20
708.32
875. 52
1,0 2.72
1,209.92
1, 10.18
1,632. 8
1,85 .78
2,077. 08
2,319.90
3,657.12
6,199. 6
6,977.9
11,167.
15,986.22
21,17 .36
26,667. 70
82,179.92
38,079. 2
, 225.16
77,128.98
113,172.36
161,178.82
189,226.32
266,166.80
3 3,9 0. 28
638, 52. 78
732, 965. 28
16.60
99.60
265.60
31.60
597.60
780.16
973.76
1,167.36
1,360 96
1,575.68
1,80 . 8
2,033.28
2, 262. 08
2,512.00
3,888.32
6, 75.8
7,306. 2
11,618.2
16,677.92
21,917.76
27, 68.80
33,2 5.12
39,317.12
5, 6 2. 56
79,608. 8
116,605.76
156,723. 62
196,367.36
278,670. 70
368,676. 6
663,995. 28
769,31 .0
81.70
110.20
167.20
18 .00
222.30
260.68
302. 8
3 .28
05.08
32.82
67.52
82.22
525.92
5 9.10
712.88
899. 6
1,135.06
1,619.66
2,177.78
2,766.6
3,376. 30
,016.08
,68 .83
5,36 . 8
9,055.02
18,082. 6
17,313.18
21,6 0.68
30,092.20
38, 738. 72
60,361.22
81,963. 72
78 0
90. 0
11 . 0
138. 0
171.90
188.8
20 .2
219.8
26 .0
267.32
286.62
303.72
3 0.92
367.00
81.68
623.16
806.76
1,168. 76
1,586.08
2,022.2
2, 75. 20
2,9 9. 88
8, 7.13
3, 9 7.
8, 675. 52
8,6 9. 2
12,768. 8
15, 399. 6
19,677.80
2 ,002. 6
3 , 808. 72
6, 61 . 96
86.00
68.00
.00
32.28
28.89
26.90
25.68
2 .82
26.08
23. 8
21.89
20.63
20.20
19.1
16.31
1 .75
13.99
12.67
11.99
11.65
11.28
11.09
10.96
10.82
10.61
10.36
10.28
10.22
n. 16
10.12
10.08
10.06
Source: Staff of tht ont Commttee on Interna Revenue Ta aton.

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317
Tabe II- . Comparson of ndvdua ncome ta under present ac, under
the ouse b and the Fnance Commttee b for persons G5 years of age and
over.
SINOL P RSON NO D P ND NTS.
Income after deduc-
tons but before e-
mount of ta .
. R. 790.
mount.
Ta reducton under
Ter cent.
Present
aw.
ouse
b.
Fnance
Commttee
b.
ouse
b.
Fnance
Commttee
b.
ouse
b.
Fnanco
Com-
mttee
b.
soo
Per cent.
Per cent.
600
19.00
38.00
67.00
76.00
95.00
133.00
160.00
2 7.00
286.00
380. 00
8 .50
693.60
921.50
1, 168. 60
1,719. 60
2.3 6. 50
19.00
38.00
57.00
76.00
95.00
133.00
150.10
167.20
178.60
187.00
210.90
255.7
318.6
352.28
31.30
617.9
612.18
781.28
1,061.53
1,369.1
1,677.32
10.00
38.00
67.00
76.00
95.00
133. 00
1 0.20
1 7. 0
152.20
16 .20
185. 70
206.63
2 1.02
268.26
331.50
02.3
78. 78
617.13
838.13
1,073.29
1,305. 63
2.315.72
3, 31.08
6,237. 87
1 , 59 .73
23. 239. 73
70,1 8. 75
100.00
100.00
100.00
100.00
100.00
100.00
79.00
67.69
62.67
9.21
3.53
36.88
3 .38
30. 15
25.08
22.07
20.07
18.30
15.97
1 .63
13.68
1203
11.38
10.99
10.27
10. 15
10.07
100.00
100.00
100.00
100.00
100.00
1110. M
73.79
59.68
53. 0
3. 21
38.33
29.79
26.16
22.79
19.28
17.15
15.70
1 . 9
12.68
11. 6
10.69
9. 21
8.62
8.2
6.21
5.70
8.39
700
800
000
1,000
1,200
1,600
39.90
79.80
106. 0
193.00
273.60
37. 78
60 .96
818.2
1,288.20
1,828. 68
2. 37.32
3, 88.97
6,583. 72
7. 993.11
10, 587.18
22,112.68
35, 132.52
56.586. 18
210,872.6
366, 82. 6
755, 507. 8
9.80
99.60
132.80
215.80
298.80
86.88
680. 8
902.2
1,388. 00
1.9 .18
2, 570. 73
3,653.13
5. 809.13
8,288.96
10,958.88
22,821.28
36, 221. 92
58.302.88
220, 02.02
38 ,867. 02
770,000.00
1.800
2.000
2,500
3.000
,000
5,000
8,000
8.000
10.000
12,000
3, 0 9. 60
15,000 -
, 270. 29
6,6 5. 25
9, 362. 25
20,000
25.000
30.000
12, 26 . 60
25.137. 00
39. 6 3. 50
63. 5 0. 75
23 ,996. 76
07, 896. 75
8 0,1 6. 76
50,000
3, 02 . 2
70,000
, 510. 98
8, 95 . 57
100,000
300.000
2 , 12 . 11
1, 1 .11
8 ,639.11
500,000
1,000,000
Source: Staff of tbe ont Commttee on Interna Revenue Ta aton.
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318
Tabe II- . Comparson of ndvdua ncome ta under present ac, and
under ouse b and the Fnance Commttee b for persons 65 pears of age
and over.
M RRI D P RSONS ( OT O R 65) NO D P ND NTS.
Income after deduc-
tons but before e -
emptons.
mount of ta .
. R. 790.
mount
Ta reducton under
Per cent
Present
aw.
ouse
b.
Fnance
Commttee
b.
ouse
bU.
Fnance
Commttee
b.
ouse
b.
Fnance
Com-
mttee
b.
1,000
Per cent.
Per cent.
1,200
38.00
95.00
152.00
190.00
285.00
380.00
589.00
798.00
1,0 5.00
1,677.00
2,185. 00
2,869.00
,0 7.00
6, 393. 50
9, 082. 00
11, 970. 00
2 , 795. 00
39,273.00
63, 127. 50
23 , 56 . 50
07, 6 . 50
839, 71 . 50
38.00
95.00
152.00
190.00
271.70
300.20
376.20
12.00
97.80
701. 8
975.08
38.00
95.00
162.00
190.00
268. 0
280. 0
323. 0
366. 0
7. 6
603.2
82 .0
1,06 . 52
L 635. 00
605.18
3,606.16
. 683. 76
8, 217. 08
11,80 .20
17, 8 .9
39,197. 1
8. 787. 98
70, 00. 6
100.00
100.00
100.00
100.00
95.33
79.00
63.87
61.63
7.6
. 8
.63
3.10
2.68
2.80
2.76
1. 70
35.53
32.35
29.9
19.33
15.59
12. 71
100.00
100.00
100.00
100.00
9 .18
73.79
6 .91
6.91
2.81
38.25
37.71
37.10
37.93
39.18
39.71
38.96
33.1
30.06
27.70
16.71
11.87
8.38
1,500
1.800
2,000
13.30
79.80
212.80
386.00
6 7.20
875. 62
1, 209. 92
1,632 8
2.319.90
3, 667. 12
8, 199. 6
6, 977, 9
16.986.22
26, 667. 70
, 226. 16
189. 228. 32
3 3,9 0.28
732. 905. 28
16.60
99.60
265.60
31. 60
697. 60
973. 78
6,000
8,000
10,000
1, 360. 98
1,80 . 8
1, 236. 52
1,727.10
15,000
2, 612. 00
3,888.32
20,000
2, 736. 38
3,882. 6
,992 06
8.808.78
25,000
6, 75. 8
30,000
7, 306. 2
16, 677. 92
27, 68. 80
6. 6 2. 66
60,000.-.
70,000.-
12, 705. 30
18,902. 3
6. 338.18
63, 62 . 22
106, 7 9. 22
100.000.
31 1,000..
195, 367. 36
368, 676. 5
769, 31 . 0
500,000
1,000,000
ssumes a Income earned by one spouse.
Source: Staff of the ont Commttee on Interna Revenue Ta aton.
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319
Tabe III- . Comparson of amount of spendabe ncome after ta es under
present aw, and under the ouse b and the Fnance Commttee b.
8INOL P RSON NO D P ND NTS.
mount of spendabe ncome under-
Per cent of ncome after ta to
ncome before ta .
Present
aw.
ouse
Fnance
Commttee
b.
rresent
aw.
ouse
b.
Fnance
Commt-
tee b.
b.
Per cent.
Per cent.
Per cent.
1500
500 00
500.00
500.00
100.00
100
00
100.00
600
581.00
600.00
000.00
96.83
100
00
100.00
662.00
686.70
683. 0
9 .67
98
10
97.63
750
702.50
730.06
725.10
93.67
97
3
98.68
7 3.00
773. 0
766.80
92.88
96
68
06.85
woo
82 .00
SCO. 10
M) 20
01. .56
95
17
9 . 7
905.00
9 6.80
933.60
90.60
9
68
93.36
1,200 ,
1.067.00
1,120.20
1.100. 0
88.92
93
35
91.70
S .500 ..
1,310.00
1,380.30
1,360.60
87.33
92
02
90.0
1.800
1,553.00
1,027.00
1,600.80
86.28
90
M
88.93
1,715.00
1,787.20
1,767.60
85.76
89
U
88.38
2,120.00
2,211.20
2,18 .60
8 .80
88
5
87.38
s|.000
2,515.50
2,629.12
2, 590. 56
83.60
87

86.35
3,306.50
3, 61.92
3,396.96
82.66
86
5.5
8 .92
,078.50
.272. 68
.189. 28
81.57
86
5
83.79
6.000
,831.50
6,050.38
, OO. 8
80.63
8
17
8167
5, 565.50
5,81 . 0
6, 717.60
79.61
83
on
81.68
s.ooo
6,280.50
0,557.90
6, 53. 60
78.61
81
07
O 07
6,978.50
7, 287. 72
7,175.62
77.62
80
07
79.73
7, 653.50
7,997.02
7,876.32
76.6
79
97
78.76
8,311.50
8,692. 6
8. 503.0
75.66
79
1)2
77.85
8,950.50
9,367. 7
9,228.6
7 .59
78
06
76.91
13,000
9, 565. 76
10,025.7
9,878. 6
73.68
77
12
75.97
1 ,000
10,157.25
10, 658.09
10, 98. 2
72.66
78
13
7 .99
15,000
10.729.76
11,276.76
11,105. 78
71.63
75
18
7 .0
20,000
13,36 . 75
1 ,1 .39
13,011.0
68.77
70
72
69.66
26,000
15,637.76
18,70 .22
16,399. 62
62.66
66
S3
6.5.60
30,000
17,735.50
19,09 .76
18, 713. 76
69.12
63
U
62.38
0,000
21,57 .75
23,556.07
23,013.12
53.9
68

57.63
50,000
2 .863.00
27,618.06
26, 798. 56
9.73
66
0-1
63.60
IfO.OOO
27. 752. 26
31,120. 96
30, 21 . 0
6.25
51
87
60.36
70,000
30,366. 60
3 , 67.3
33,366.2
3.37
9
21
7. 67
80,000
32,675.75
37,657. 23
36,25 .08
0.8
6
05
5.32
90,000
3 ,710.00
0.390. 62
38,877.92
38.57

SS
3.20
100,000
36, 59. 25
2,967.61
1,237. 76
38. 6
2
97
1.2
150.000
,193. 75
5 ,930.27
51, 83 . 39
29. 8
36
02
3 .66
200.000
51, 8.60
66, 60. 0
61,227.30
25. 72
33
2.1
30.81
250,000
58, 228. 25
77, 663.03
70,168. 97
22.09
31
08
28.07
300,000
65,003. 25
88,660.53
79,105. 22
21.67
29
55
26.37
00.000
78,653.25
110,866.63
96,977.72
19.6
27
71
2 .2
500,000
92,103. 26
133,050.63
115,000.00
18. 2
26
n
23.00
750 000
126,978.26
188.638.03
172,500.00
16.80
25
1
23.00
159,853.25
2 ,026.53
230,000.00
15.99
2
0
23.00
Source: Staff of the ont Commttee on Interna Revenue Ta aton.
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320
Tabe III- . Comparson of amount of spendabe ncome after ta es under
present aw, and under the ouse M and the Fnance Commttee b.
M RRI D P RSON NO D P ND NTS, NTIR INCOM OF ON SPOUS .
mount of spendabe ncome under
Per cent of ncome after ta to
ncome before ta .
Income after deductons but before
e empton .
;,ooo.
;,2O0.
;,coo.
;,soo..
2,000.
3,500.
,000
7,000
8,000
9,000
10,000
11,000.-..
12,000..-.
13,000....
1 ,000.-.-
15,000..-
20,000....
25,000....
30,000
0,000
60,000...-
60,000
70,000----
80.000....
90,000.-..
100,000 -.
150,000 ..
200,000...
250,000 --
300,000---
00,000...
500,000--.
750,000...
1,000,000..
Present
aw.
ouse
b.
Fnance
Commttee
b.
Present
aw.
ouse
b.
Fnance
Commt-
tee b.
Per cent.
Per cent.
Per cent.
1,000.00
1,000.00
1,000.00
100.00
100.00
100.00
1,162.00
1,200.00
1,200.00
96.83
100.00
100.00
1, 05.00
1, 60.10
1, 60.20
93.67
97.3
96.68
1,6 8.00
1,720.20
1,700. 0
91.66
95.57
9 . 7
1,810.00
1.893.60
1,867.20
90.60
9 .68
93.36
2,215.00
2.327.10
2,28 .20
88.60
93.08
1.37
2,620.00
2,760.60
2,701.20
87.33
92.02
90.0
3, 11.00
8, 67 . 0
3,536.20
85.28
89.36
88.88
, 202 00
, 22. 0
,369.20
8 .0
88. 5
87.38
,955.00
6,258.2
6,181.12
82.68
87.6
86,35
6,708.00
6,091.0
6,987.52
81.6
87.01
85.6
6, 23.00
6,923.8
6,793.92
80.29
86.55
8 .92
7,138.00
7,756.6
7,600.32
79.31
86. 18
8 . 5
7,815.00
8,6 5.36
8,378. 66
78.15
86. 6
83.79
8, 92.00
9,323.06
9,1 9.76
77.20
8 .76
83.18
9,131.00
10,100.76
9,920.96
76.09
8 .17
82.67
9,770.00
10,878. 6
10,692.16
75.15
83.68
82.25
10,361.60
11,628.80
11, 36.20
7 .01
83.06
81.68
10,953.00
12,372.30
12,171. 20
73.02
82. 8
81.1
13,606.50
16,99 .0
16,752 6
68.03
79.97
78.76
16,918.00
19, 10.68
19,122.88
63.67
77.6
78. 9
18,030.00
22, 553.62
22,211.62
80.10
76.18
7 .0
21,902.69
28,288.78
27,822.08
6 .76
7a 72
69.66
25,205.00
33, 08.
32,799.0
60. 1
60.82
66.60
28,108.50
38,189.62
37, 27. 62
6.86
63.66
62.38
30,727.00
2,766. 0
1,8 .80
3.90
61.09
68.78
33,060.60
7,112.1
6,026. 2
1.33
68.89
67.63
36,109.00
61,192.12
9,933.12
39.01
66.88
66. 8
36,872.50
56,036.12
63, 697.12
36.87
55.0
63.60
,616.50
72,039.96
69,636. 16
29.7
8.03
6. 2
61,876.00
85,936.02
82, 75.62
26.9
2.97
1.2
58,660.60
97,908.12
93,336.6
23. 6
39.16
37.33
66, 35.60
109,860. 6
103,668. 78
21.81
36.62
3 .66
78,986.50
132,920.80
122, 6 .60
19.75
33.23
3a 61
92.635.60
155,126.06
1 0,337.9
18.61
31.03
28.07
126, 10.60
210,613.66
186,019.18
16.85
28.08
2 .67
160,285.60
266,101.06
230,000.00
16.03
26,61
23.00
Sonrcc: Staff of the ont Commttee on Interna Revenue Ta aton.
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321
Tabe III-C. Comparson of amount of spendabe ncome after ta es under
present aw, and under ouse b and the Fnance Commttee b.
M RRI D P RSON 2 D P ND NTS NTIR INCOM RN D Y ON SPOUS .
Income after deductons but before
e emptons.
mount of spendabe ncome under-
Por cent of Income after ta to
ncome before ta .
Present aw.
ouse b.
Fnance
Commttee
b.
Present
aw.
ouso
b.
Fnance
Commt-
tee b.
rer cent.
Per cent.
Per cent.
2,000.00
2,000.00
100.00
100.00
100.00
2, 05.00
2, 86. 70
2. 83. 0
90.20
99. 7
99.3
3,000
2,810.00
2,920.20
2,900. 0
93.66
97.3
96.68
,000
3,620.00
3, 787. 20
3,73 . 0
90.60
9 .68
93.38
5,000
, 11.00
,61 .00
,568. 0
88.22
92.28
91.37
5,202.00
5, 52.80
5, 02. 0
88.70
90.88
90.0
5,955.00
6,291.68
6,219.8
85.07
89.88
88.85
8.000-
0,708.00
7,12 . 8
7.026. 2
83.85
89 (
87.83
9,000
7, 23.00
7,957.28
7,832.6
82. 8
88. 1
87.03
8,138.00
8,790.08
8,639.0
81.38
87.90
86.39
11.000 _
8,815.00
9,589.82
9, 2 .32
80.1
87.18
85.68
9, 92.00
10.367.52
10,195. 62
79.10
86. 0
8 .98
10,131.00
11,1 5.22
10,966. 72
77.93
85.73
8 .36
1 ,000
10,770.00
11,922.92
11,737.92
76.93
85.16
83.8
15,000
11,361. 0
12,680.10
12, 88.00
75. 7
8 .63
83.25
1 ,110.00
16,3 2.88
16,111.68
70.65
81.71
80.56
16, 78. 50
19,800. 6
19,52 .16
65.91
79.20
78.10
30.000
18,619.00
23,022.06
22,693. 76
62.08
76.7
76.65
22,558.00
28.832.56
28.381.76
66. 0
72.08
70. 95
50,000
25.889.00
3 ,013.78
33, 22.08
61.78
68.03
66.8
60,000
28,821.00
38,825.6
38,032.2
8.0
6 .71
63. 7
31, 68.00
3, 32.30
2,531.20
.95
62.05
60. 78
80,000
33,830.00
7,820.08
6, 75 .88
2.29
69.78
58.
00,000
35,907.00
51,920.58
60,682.88
39.90
67.69
56.31
100,000
37.699.00
65,77 .8
5 ,357.
37.70
55.77
5 .36
5, 62.00
72,871.02
70. 91.52
30.31
8.58
6.99
86.827.6
83,39 .22
26.37
3. 1
1.70
250.000
59.525.00
98,821.18
9 , 276. 8
23.81
39.53
37.71
66,300.00
110.773.68
10 ,632.6
22.10
36.92
3 .88
79,850.00
133,8 .20
123. 29.30
19.98
33. 6
30.86
500,000
93, 00. 00
156,059.72
1 1,323. 6
18.68
31.21
28.26
127,275.00
211,5 7.22
186,00 .72
16.97
28.21
2 .80
1 000 000
161,150.00
267,03 .72
230, 685. 96
16.12
28.70
23.07
Source: Staff of the ont Commttee on Interna Revenue Ta aton.
D T IL D DISCUSSION OF T T C NIC L PRO ISIONS OF T ILL.
Tte I. Income Ta Reducton.
S CTION 101. R DUCTION OF NORM L T ND SURT
Under e stng aw, the Income ta on ndvduas s determned by frst com-
putng a tentatve ta at the rates specfed n sectons 11 and 12 of the Interna
Revenue Code and then reducng the tentatve ta es by 5 per cent thereof. Ths
secton of the b provdes reductons In the norma ta and surta on ndvduas
by substtutng a arger percentage reducton than 5 per cent of the tentatve
ta es.
The percentage reducton pan under your commttee b dffers n the amount
of the reducton and n the wdth of the brackets as compared wth the pan
of the ouse b. Under the b as amended, three brackets nstead of four
are provded. The frst bracket s 00 of aggregate tentatve norma ta and
tentatve surta and the notch for aggregate tentatve ta es between 200
and 270.17 under the ouse b s emnated. The reductons of the aggregate
of the tentatve norma ta and the tentatve surta provded n ths secton of
the b as amended are as foow:
(1) If the aggregate of the tentatve ta s 00 or ess, such aggregate s re-
duced by 17 per cent thereof, a reducton of 12.6 per cent of the ta after the 5
per cent reducton under e stng aw;
(2) If the aggregate of the tentatve ta es s n e cess of 00 but not n e cess
of 100,000, the frst 00 thereof s reduced by 17 per cent (a 12.6 per cent
reducton of such porton of the aggregate of the tentatve ta es after the 5 per
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322
cent reducton under e stng aw) and the amount of such aggregate In e cess
of 00 and not In e cess of 100,000 Is reduced by 12 per cent, a 7. per cent
reducton of such porton after the 5 per cent reducton under e stng aw;
(3) If the aggregate of the tentatve ta es s n e cess of 100,000, the frst
100,000 thereof Is reduced by 12.6 per cent (a 7. per cent reducton of such
porton of the aggregate of the tentatve ta es after the 5 per cent reducton
under e stng aw) and the amount of such aggregate n e cess of 100,000 s
reduced by 9.75 per cent, a 5 per cent reducton of such porton after the 5 per cent
reducton under e stng aw.
These reductons are provded n secton 12(e) of the Code as amended by the
b; the e stng provsons of secton 12(c) of the Code are amended and set
forth n secton 12(g) (2) of the Code, as provded n secton 10 of the b.
stng aw (secton 12(g) of the Code) provdes, as an over-a mtaton
upon the combned norma ta and surta n the case of ndvduas, that such
combned ta sha not e ceed 85 per cent of the net ncome of the ta payer.
The b nserts such a mtaton nto secton 12(c) of the Code, as amended,
substtutng 77 per cent for the present percentage fgure n order to conform
wth the reducton n ta above descrbed.
S CTION 102. R DUCTION IN SUPPL M NT T T .
Ths secton s a cross-reference to secton 01 of the b, whch amends secton
00 of the Code, reatng to the ta under Suppement T of ndvduas wth
ad|usted gross Incomes of ess than 5,000. Reductons In such ta are provded
under Suppement T correspondng to the reductons provded by secton 101 of
the b for ta payers computng ther ta under sectons 11 and 12 of the Code.
S CTION 103. INCOM OF US ND ND WIF .
Ths secton Is a cross-reference to secton 301 of the b, whch provdes for
the determnaton of the combned norma ta and surta n the case of a |ont
return of husband and wfe (the so-caed spttng of ncome provsons).
S CTION 10 . T C NIC L M NDM NTS.
Ths secton of the b provdes varous technca amendments.
In vew of the fact that there are certan provsons of the Code, such as
sectons 105 and 106 whch make It necessary to determne the surta separatey
from the norma ta , secton 12(f) of the Code, as amended by the b, provdes
a speca rue for makng such computatons. Under ths rue the surta sha
be an amount whch s the same proporton of the combned norma ta and
surta as the tentatve surta s of the aggregate of the tentatve norma ta
and tentatve surta .
S CTION 105. T L Y RS TO W IC M NDM NTS PPLIC L .
Ths secton provdes that the amendments made by ths tte of the b sha
be appcabe wth respect to ta abe years begnnng after December 31, 19 7.
Speca provson s made n secton 601 of the b for ta abe years begnnng
n 19 7 and endng In 19 8.
Tte II. Credts ganst Net Income fob Norma Ta and Surta .
S CTION 201. DDITION L CR DITS G INST N T INCOM FOR NORM L T ND SURT .
Ths secton amends secton 25(b) of the Code, reatng to e emptons aowed
as credts for both norma ta and surta . The amendments dea wth the
foowng credts:
( ) The so-caed persona e empton.
( ) Od-age e empton.
(C) empton for the bnd.
(D) The e empton for each dependent.
Subparagraph ( ) of secton 25(b) (1) of the Code, as amended by ths secton
of the b, repaces subparagraphs ( ) and ( ) of secton 25(b) (1) of e stng
aw. The e stng aw provdes a persona e empton of 500 for the ta payer
and a persona e empton of 500 for the spouse of the ta payer. The 500 e -
empton for the spouse of the ta payer s aowed f a |ont return Is made by the
ta payer and hs spouse under secton 51 (In whch case the aggregate e empton
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of the spouses s 1,000 under e stng aw) or a separate return s made by the
ta payer and hs spouse has no gross ncome for the caendar year In whch the
ta abe year of the ta payer begns and Is not the dependent of another ta payer.
Secton 23(b) (1) ( ), as proposed to be amended, provdes a persona e empton
of 600 for the ta payer. It aso provdes an addtona e empton to the ta payer
of 600 for hs spouse, If a separate return Is made by the ta payer, and f the
spouse, for the caendar year In whch the ta abe year of the ta payer begns,
as no gross Income and Is not the dependent of another ta payer. Your com-
mttee consdered t unnecessary to provde specfcay for the persona e emp-
tons for husband and wfe on a |ont return snce, In the case of a ont return
there are two ta payers (athough under secton 51(b) of the Code there s
ony one ncome for the two ta payers on the ont return . e., ther aggregate
ncome). Inasmuch as secton 25(b)(1)( ) of the Code, as amended n the
b, provdes an e empton of 600 for the ta payer, on a ont return two e -
emptons are aowed, one for each ta payer spouse, |ust as under e stng aw.
Thus, under the b, on a ont return the aggregate of the persona e empton
for the spouses sha be 1,200.
Secton 25(b) (1) ( ), as amended by the b, contnues n carfed form the
rue of e stng aw (secton 25(b) (1) ( ) (11)) under whch the ta payer s
aowed the e empton for hs spouse, f a separate return s made by the ta -
payer, ony f the spouse, for the caendar year In whch the ta abe year of the
ta payer begns, has no gross ncome and s not the dependent of another ta -
payer. Thus, a ta payer who makes hs returns for a fsca year endng une
30 may, under e stng aw and under secton 25(b) (1) ( ), as amended, take an
e empton for hs spouse ony f such spouse has no gross ncome for the caendar
year n whch begns the ta abe year of the ta payer begnnng on uy 1, and s
not for such caendar year the dependent of another ta payer.
Secton 25(b)(1)( ) of the Code, as amended by ths secton of the b, pro-
vdes an addtona e empton of 600 for the ta payer f he has attaned the
age of 65 before the cose of hs ta abe year. n addtona e empton of 600
s aowed to the ta payer for hs spouse If a separate return s made by the ta -
payer and f the spouse has attaned the age of 65 before the cose of such ta abe
year, and, for the caendar year In whch the ta abe year of the ta payer begns,
the spouse has no gross Income and Is not the dependent of another ta payer.
If a husband and wfe make a |ont return an od-age e empton of 600 w be
aowed as to each ta payer spouse who has attaned the age of 65 before the
cose of the ta abe year for whch the |ont return Is made. The e empton
under secton 25(b) (1) ( ) s n addton to the persona e empton under secton
25(b)(1)( ).
In determnng the age of an ndvdua for the purposes of the e empton for
od age, the ast day of the ta abe year of the ta payer Is the controng date.
Thus, n the event of a separate return by a husband no addtona e empton for
od age may be camed for hs spouse uness such spouse has attaned the age of
65 on or before the cose of the ta abe year of the husband. In no event sha
the addtona e empton for od age be aowed on a separate return of the ta -
payer wth respect to a spouse who des before attanng the age of 65 even though
such spouse woud have attaned the age of 65 before the cose of the ta abe
year of the ta payer. For the purposes of the od-age e empton, an ndvdua
attans the age of 65 on the frst moment of the day precedng hs s ty-ffth brth-
day. ccordngy, an ndvdua whose s ty-ffth brthday fas on anuary 1
n a gven year attans the age of 65 on the ast day of the caendar year mmed-
atey precedng.
Secton 25(b) (1) (C) of the Code, as added by the b, provdes an addtona
e empton of 600 for the bnd. Ths e empton w repace the speca deduc-
ton for bnd ndvduas now provded n secton 23(y) of the Code. The present
deducton s 500. The e empton provded for the bnd under the b s 600
for the ta payer and 600 for the spouse of the ta payer f a separate return s
made by the ta payer and f the spouse Is bnd. Under the b as Introduced
the bnd e empton was not aowed wth respect to a person entted to the od-
age e empton. The commttee amendments remove ths mtaton so that the
e empton for the bnd under secton 25(b) (1) (C) Is aowed wth respect to a
bnd person athough he has attaned the age of 65 (n addton to the od-age
e empton wth respect to such person). The bnd e empton for the spouse
of the ta payer Is aowed the ta payer ony If, for the caendar year n whch
the ta abe year of the ta payer begns, such spouse has no gross ncome and
Is not the dependent of another ta payer. If a husband and wfe make a |ont
790500 8 23
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return an e empton of 600 for the bnd w be aowed as to each ta payer
spouse who Is bnd at the cose of the ta abe year for whch the ont return Is
made.
The determnaton of whether the ta payer s bnd s made as of the cose of
hs ta abe year. The determnaton of whether the spouse of the ta payer
s bnd (for the purpose of the ta payer s takng the bnd e empton wth respect
to such spouse when the ta payer fes a separate return) sha be made as of the
cose of the ta abe year of the ta payer, uness the spouse des durng such ta -
abe year, n whch case such determnaton sha be made as of the tme of such
death. It shoud be noted that the date for determnng whether an Indvdua
s bnd dffers from that prescrbed n secton 23(y), whch now provdes the
speca deducton for bnd ndvduas and whch s repeaed by secton 202(e)
of the b. Under secton 23(y) the status of an Indvdua for the purpose of
the bnd deducton s determned as of uy 1 of the ta abe year uness the
ta abe year does not Incude uy 1, n whch case such status Is determned as
of the ast day of the ta abe year. The defnton of an Indvdua who Is bnd
now contaned n secton 23(y) of the Code s retaned for the purposes of the
e empton under secton 25(b)(1)(C), wth ony a forma modfcaton In the
ntroductory cause.
Socton 25(b) (1) (D) of the Code, as added by the b, corresponds to secton
25(b) (1) (C), under e stng aw, and reates to the e empton for a dependent
of the ta payer. Secton 25(b)(1)(D) Increases the e empton for each de-
pendent from 500, under e stng aw, to 600, but contnues to mt the e -
empton for dependents to dependents whose gross Income for the caendar
year n whch the ta abe year of the ta payer begns s ess than 500.
Secton 25(b)(2) of the Code, as amended by ths secton of the b, corre-
sponds to secton 25(b)(2) of e stng aw and reates to the determnaton of
marta status for the purposes of the credts provded wth respect to a spouse
In secton 25(b). Secton 25(b) (2) provdes two rues. The frst rue s that
the determnaton of whether an ndvdua Is marred s to be made as of the
cose of hs ta abe year, uness hs spouse des durng the ta abe year of such
ndvdua, n whch case such determnaton sha be made as of the tme of
such death. Ths rue s, n substance, the same as that provded for n e stng
aw for the purposes of secton 25(b). The second rue Is that an Indvdua
egay separated (athough not absoutey dvorced) from hs spouse under a
decree of dvorce or of separate mantenance sha not be consdered as mar-
red. Smar rues for the determnaton of status are provded n secton
23(aa) (6) of the Code (as added by secton 302(c) of the b), reatng to the
standard deducton, and In secton 51(b) (5) of the Code (as added by secton
303 of the b) reatng to ont returns. unform constructon of a these
provsons s ntended. The rue wth respect to the marta status of an In-
dvdua egay separated from hs spouse under a decree of dvorce or of
separate mantenance s derved from a correspondng provson n secton
22(k) of the Code, reatng to the ta treatment of amony and ke payments.
The new e emptons provded n secton 25(b) (1) ( ) and (C) of the Code,
as amended by secton 201 of the b, do not appy to a nonresdent aen who
Is not a resdent of a contguous country, to a ctzen of the Unted States who
Is entted to the benefts of secton 251 of the Code reatng to ncome from
sources wthn possessons of the Unted States, or to a ctzen of a possesson of
the Unted States (other than the rgn Isands) not otherwse a ctzen of
the Unted States and not a resdent of the Unted States.
S CTION 202. T C NIC L M NDM NTS.
Ths secton of the b contans varous technca amendments made necessary
by the addtona credts provded under secton 25(b) of the Code by secton
201 of the b. Secton 58(a) of the Code reatng to the requrement of decara-
ton of estmated ta s amended. stng aw requres a decaraton of est-
mated ta If the ta payer s gross ncome from wages sub|ect to wthhodng
may be e pected to e ceed 5,000, pus 500 for each e empton to whch he s
entted, e cept hs own e empton. The b amends secton 58(a) (1) to gve
effect to the addtona e emptons provded n the b. Under the amendment
a decaraton w be requred If the antcpated wages e ceed ,500, pus 600
for each e empton to whch the ta payer Is entted. Under e stng aw, a
snge person who has no dependents and s under 65 years of age and who derves
hs ncome soey from wages sub|ect to wthhodng Is requred to fe a decara-
ton f hs antcpated wages for the caendar year e ceed 5,000. Under the
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amendment such a person Is requred to fe a decaraton If hs antcpated
wages for the caendar year e ceed 5,100 ( ,500, pus 600 for hs own e -
empton). Under the amendment, If the same Indvdua Is over the age of 05
the decaraton woud not be requred uness hs antcpated wages for the ca-
endar year e ceed 5,700 ( ,500, pus 600 for hs own e empton pus 600 for
hs od-age e empton). Smary, under e stng aw, a snge person under
the age of 65 who has one dependent s not requred to fe a decaraton uness
hs antcpated wages e ceed 5,500 ( 5,000, pus 500 for the dependent). Under
the amendment, such a snge person under the age of 65 wth one dependent Is
not requred to fe a decaraton uness hs antcpated wages e ceed 5,700
( ,500 pus 600 for hs own e empton pus 600 for hs dependent).
Secton 58(a)(2) of the Code requres a decaraton of estmated ta In the
case of an ndvdua whose gross ncome from sources other than wages can
reasonaby be e pected to e ceed 100 for the ta abe year and hs gross ncome
to be 500 or more. In accordance wth the Increase n e emptons for Indvd-
uas provded n secton 25(b) (1) ( ) of the b, the amount of 500 under ths
requrement of an estmate s Increased to 600.
Subsecton (b) of secton 202 of the b provdes technca amendments wth
respect to the wthhodng e empton necessary by reason of the addtona
credts provded In secton 25(b) of the Code as amended by the b. Secton
1622(h) (1) of the Code, reatng to wthhodng e emptons, Is amended. The
amendment contnues the present provson for an e empton for the empoyee.
The amendment adds n secton 1022(h)(1) ( ) and (C) addtona e emp-
tons correspondng to the e empton under secton 25(b) (1) ( ) (1), reatng to
od age, and the e empton under secton 25(b) (1) (C) (1), reatng to the bnd.
ach such addtona wthhodng e empton Is aowed to the empoyee If on
the bass of facts e stng at the begnnng of any day for whch the e emptons
are beng determned there may reasonaby be e pected to be aowabe to hm
the correspondng e empton under secton 25(b) for the ta abe year under
Chapter 1 In respect of whch amounts deducted and wthhed n the caendar
year n whch such day fas are aowed as a credt. Secton 1622(h) (1) (D)
corresponds to secton 1622(h) (1) ( ) of e stng aw under the Code. It pro-
vdes that f the empoyee s marred, the empoyee s entted to any
e empton to whch hs spouse s entted, or woud be entted, If such spouse
were an empoyee, recevng wages, under subparagraph ( ), ( ), or (C) of sec-
ton 1622(h) (1), but ony If such spouse does not have In effect a wthhodng
e empton certfcate camng such e empton. If both husband and wfe are
empoyees recevng wages sub|ect to wthhodng and the wfe s over the age of
65 and has In effect a wthhodng e empton certfcate camng ony one e -
empton, then her husband may cam one e empton for her on hs certfcate.
Secton 1622(h) (1) ( ) of the Code, under the b, reates to the wthhodng
e empton for dependents and Is the same, e cept for a cerca change, as sec-
ton 1622(h) (1) (C) of the Code under e stng aw.
Paragraph 2 of secton 202(b) of the b provdes a speca status-determna-
ton date for the purpose of gvng effect to the Increased e emptons provded
under secton 1622(h)(1) wth respect to wthhodng by empoyers. Under
e stng aw (secton 1022(h) (3) ( )), a wthhodng e empton certfcate fur-
nshed the empoyer n a case n whch a prevous such certfcate s n effect takes
effect wth respect to the frst payment of wages made on or after the frst status
determnaton date whch occurs at east 30 days from the date on whch such
certfcate s so furnshed (uness the empoyer eects to make the certfcaton
effectve at an earer date after the furnshng of such certfcate). Under e -
stng aw, the status determnaton date s anuary 1 or uy 1 of each
year. In order to make the ncreased wthhodng e emptons provded for
under the b effectve as soon as possbe (consstent wth the aowance of
suffcent tme to provde for the dstrbuton of wthhodng e empton cer-
tfcates and the fng thereof by empoyees), the b provdes n secton 202
(b) (2) that for the purpose of secton 1622(h) (3) ( ) the term status deter-
mnaton date ncudes aso the nneteth day after the date of enactment of
the b.
Secton 202(c) of the b provdes technca amendments reatng to return
requrements n order to conform to the Increase n the ndvdua e empton from
500 to 600. Secton 51 (a) (1) of the Code s amended to Increase the amount of
gross Income for a ta abe year necessary before a return s requred from 500
to 600. Secton 1 2(a) of the Code Is amended to provde a correspondng In-
crease where under e stng aw a fducary return s requred to be fed where
the gross ncome s 500 or over. Secton 1 7(a) of the Code s nmended to
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ncrease from 500 to 600 the mnmum amount of payments whch w make
necessary the fng of an nformaton return. Secton 163(a) (1) of the Code
s amended so as to ncrease the credt aganst net ncome of an estate (corre-
spondng to the persona e empton) from 500 to 600.
S CTION 203. T L Y RS TO W IC M NDM NTS PPLIC L .
The amendments made by ths tte of your commttee b are appcabe wth
respect to ta abe years begnnng after December 81,19 7. speca rue wth
respect to ta abe years begnnng n 19 7 and endng n 19 8 s provded n
secton 601 of the b.
Tte III. usband and Wfe.
P RT I. INCOM T .
S CTION 301. 8PLITTINO OF INCOM .
Ths secton amends secton 12 of the Code, reatng to surta on ndvduas,
by addng a new subsecton (d) whch provdes for computaton of ta under the
pan for the so-caed ncome spttng between husband and wfe. Ths subsec-
ton appes ony f a ont return for the ta abe year nvoved s made as pro-
vded under secton 51(b) of the Code as amended by the b. Under the prov-
sons of secton 12(d), the combned norma ta and surta under secton 11 and
secton 12(b) of the Code n the case of the husband and wfe makng the ont
return sha be twce the combned norma ta and surta that woud be deter-
mned f the net Income and the appcabe credts provded by secton 25 of the
Code were reduced by one-haf.
It s contempated that under ths provson the gross ncome and ad|usted
gross ncome of husband and wfe on the ont return w be computed by the
same method as under e stng aw (that s, n an aggregate amount), and that
the deductons aowed and the net ncome w kewse be computed on an aggre-
gate bass. Deductons mted to a percentage of the ad|usted gross ncome,
such as the deducton for chartabe contrbutons under secton 23(o), w be
aowed wth reference to such aggregate ad|usted gross ncome. Smary, n
the case of a ont return, osses of husband and wfe from saes or e changes of
capta assets are combned and such combned osses are aowed under secton
117(d) (2) ony to the e tent of the combned gans of the spouses from such saes
or e changes, pus the net Income or 1,000 whchever s smaer. The net
ncome referred to n secton 117(d) (2) s the net Income computed before
reducton by one-haf for the purposes of ncome spttng and s such net ncome
computed wthout regard to gans and osses from saes or e changes of capta
assets. though there are two ta payers on a ont return, there s ony one
net ncome.
The method of computng, under secton 12(d), the ta of husband and wfe,
In the case of a ont return, s as foows:
Frst, the net ncome and appcabe credts aganst net Income are reduced by
one-haf. Second, the tentatve norma ta and tentatve surta are determned
as provded In secton 11 and secton 12(b), by usng the net Income and app-
cabe credts so reduced. Thrd, the tentatve norma ta and tentatve surta so
determned are aggregated and ths aggregate tentatve ta s then reduced as
provded n secton 12(c). Fourth, ths reduced aggregate, whch s the com-
bned norma ta and surta that woud be determned f the net ncome and the
appcabe credts aganst net ncome provded by secton 25 were reduced by one-
haf, s then mutped by 2, to produce the ta mposed n the case of the ont
return.
The mtaton (very rarey appcabe) under secton 12(c) of the combned
norma ta and surta to an amount not n e cess of 77 per cent of the net ncome
s to be apped before the fourth step above, that s, the mtaton Is to be ap-
ped upon the combned norma ta and surta determned under secton 12(c)
as 77 per cent of one-haf of the net ncome (such one-haf of the net Income
beng the actua aggregate net ncome of the spouses reduced by one-haf). fter
such mtaton s apped, then the combned norma ta and surta so mted
s mutped by 2, as provded n secton 12(d).
The appcaton of secton 12(d) s ustrated by the foowng e ampe n
whch Is used to refer to the husband and W s used to refer to hs wfe wth
whom a |ont return s fed for the caendar year 19 8. has a saary of 8,000
for 19 S and pays durng 19 8 oca property ta es on hs resdence n the-amount
of 100 and medca e penses for hmsef and W n the amount of 700. W has
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Income for 10 8 from dvdends of 2,000 and durng 19 8 makes gfts to char-
tabe organzatons (descrbed In secton 23(o) of the Code) n the amount of
1,600. and W are not entted to any e emptons other than the persona
e empton of each. The ta on the |ont return of and W for 10 8 Is 1,2 .80,
determned as foows:
1. Saary 8,000.00
2. Other ncome 2,000.00
8. d|usted gross Income 10, 000. 00
. Deductons:
(a) Chnrtabe contrbutons (mted to 13 per cent of
ad|usted gross ncome) 1,500
(6) Ta es 100
(c) Medca e penses (In e cess of 5 per cent of ad|usted
gross ncome (secton 23( ) of the Code) ; e cess
of 700 over 5 per cent of 10,000) 200
1,800.00
5. Net ncome 8,200.00
0. Net ncome reduced by one-haf ,100. 00
7. Credts aganst net Income under secton 25 (2 persona e emptons
under secton 25(b) (1) ( ) of the Code as amended n ths b). 1, 200. 00
8. Credts n tem 7 reduced by one-haf 600.00
9. Net Income reduced by one-h:Uf (Item 6) mnus credts reduced
by one-haf (Item 8) 3,500.00
10. Tentatve norma ta computed under secton 11 of Code on amount
n tem 9 (3 per cent of 3,500) 105. 00
11. Tentatve surta computed under secton 12(b) of the Code on
nmount n tem 9 ( 3 0 pus 19 per cent of e cess of 3,500
over 2,000) 625.00
12. ggregate of the tentatve norma ta and tentatve surta 730. 00
13. Combned norma ta and surta determned under secton 12 (c)
of the Code ( 730 reduced by 68 pus 12 per cent of the e cess
of 730 over 100) 622. 0
1 . Twce the combned norma ta and surta determned In Item 13__ 1, 2 . 80
If the aternatve ta s computed under secton 117(c)(2) of the Code, re-
atng to the aternatve ta where a ta payer (other than a corporaton) as
a net ong-term capta gan n e cess of a net short-term capta oss, the parta
ta sha be computed under sectons 11 and 12 as stated above but wthout
ncuson of such e cess In net Income, and the tota ta sha be such parta
ta pus 50 per cent of such e cess as provded n secton 117(c) (2).
If the husband and wfe makng a |ont return eect to pay the ta under
Suppement T of the Code, the ta on the ont return Is computed as provded
In secton 00 of the Code, as amended In Tte I of ths b. These provsons
are dscussed herenafter.
SUCTION 302. ST ND D D DUCTION.
Ths secton provdes for amendments to secton 23(aa) of the Code, reatng
to the standard deducton. Secton 23(aa)()( ) of the Code Is amended to
ncrease the standard deducton where the ad|usted gross ncome s 5,000 or
more n case of a ont return by husband and wfe and In the case of a return
by an unmarred person. In such cases under the amendment the standard
deducton sha be 1,000 or an amount equa to 10 per cent of the ad|usted gross
ncome whchever s the esser. The ncrease In the deducton does not appy
n the case of a separate return by a marred ndvdua, n whch case the ma -
mum standard deducton remans at 500 as under e stng aw. In the case
of a ont return, as under e stng aw, there s ony one ad|usted gross n-
come and ony one standard deducton. For e ampe. If a husband has an n-
come of 15,000 and the spouse has an Income of 12,000 for the ta abe year
for whch they fe a |ont return, nnd they have no deductons aowabe for
the purposes of computng nd|usted gross Income, the ad|usted gross ncome s
27,000, and the standard deducton aowabe on such return s 1,000 (and
not 2,000).
Under subsectons (b) and (c) of secton 302 of the b secton 23(aa)( 1
of the Code Is separated nto two paragraphs, namey, ( ) and (6). The new
paragraph ( ) requres both husband and wfe to temze ther deductons, rather
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328
than to take the standard deducton, If one of them so temzes. Ths s the
same rue as contaned n the frst sentence of the present provsons of secton
23(aa) ( ), e cept that under the e stng aw ths rue appes ony f the hus-
band and wfe are vng together.
The new paragraph (6) contans provsons substantay the same as those
contaned n the ast sentence of secton 23(aa) ( ) of e stng aw reatng to
the determnaton of the status of ndvduas as husband and wfe. Under ths
paragraph the determnaton of whether an ndvdua s marred s made, for the
purpose of the aowance of the standard deducton, as of the cose of hs ta abe
year, uness hs spouse des durng hs ta abe year, In whch case the determna-
ton s made as of the tme of such death. The new paragraph (6) aso provdes
that for the purpose of the aowance of the standard deducton, an ndvdua
egay separated (athough not absoutey dvorced) from hs spouse under a
decree of dvorce or separate mantenance sha not be consdered marred.
Ths s the same test as s provded In secton 22(k) of the Code, reatng to a-
mony and ke payments, where spouses are egay separated or dvorced. Ths
provson s aso Intended to appy the same test as s provded n secton 51 (b
of the Code, as proposed to be amended by secton 303 of the b, so that the
determnaton of marred ndvduas w be the same for the purpose of the
standard deducton as for the purpose of egbty to make a ont return.
S CTION 803. OINT R TU NS OF US ND ND WIF .
Ths secton provdes for an e tensve revson of secton 51(b) of the Code,
reatng to |ont returns by husband and wfe, to refect changes necessary under
the so-caed spt-ncome pan. s under e stng aw, a |ont return may not
be made by a husband and wfe for a ta abe year f a separate return has been
fed by one of the spouses and the tme for fng the return of such spouse
has e pred. Smary, If a ont return was fed, separate returns may not
be made by the spouses after the tme for fng the return of ether has e pred.
Under the b, however, n certan crcumstances, an e ecutor may make a ate
separate return for a deceased spouse after the survvng spouse has made a
tmey |ont return for hmsef and the deceased spouse. Ths e cepton to the
above genera rue s provded In secton 51(b) ( ) of the Code, as proposed to
be added by ths secton of the b, and Is further dscussed herenafter.
Paragraph (1) of secton 51(b), as proposed to be amended, contans the e st-
ng genera provsons whch permt the makng of a |ont return and pro-
vdes that on such return the ta sha be computed on the aggregate ncome
and the abty wth respect to the ta sha be |ont and severa.
Paragraph (2), of secton 51(b) as proposed to be amended, provdes that no
|ont return may be made If ether the husband or wfe at any tme durng the
ta abe year s a nonresdent aen. Ths provson s the same as that now con-
taned n secton 51(b) of the Code wth the addton of the phrase at any tme.
The addton s a carfcaton whch represents the unform constructon of the
e stng aw.
Paragraph (3) of secton 51(b) contnues the e stng provson that no |ont
return sha be made f the husband and wfe have dfferent ta abe years but
makes an Important e cepton In the case of spouses whose ta abe years begn on
the same day and end on dfferent days because of the death of ether or both.
Under secton 7(g) of the Code the ta abe year of a ta payer coses as of the
date of hs death. The e cepton thus s Intended to appy where, but for the
death of ether or both spouses, the ta abe years of the spouses woud be the
same. In such a case, t Is proposed to aow a ont return to be made wth
respect to the ta abe year of each spouse. Ths provson s desgned to prevent
spouses beng dened the prvege of makng a ont return by reason of the death
of one spouse durng the ta abe year. |ont return may not be made for a
decedent spouse and the survvor for any ta abe year of the survvor begnnng
after the death of the decedent spouse.
The provson aowng a |ont return to be made for the ta abe year n whch
the death of ether or both spouses occurs s sub|ect to two e ceptons, n the case
of each of whch the genera rue w contnue to appy, namey, that the |ont
return can not be made by the husband and wfe because they have dfferent
ta abe years. The frst e cepton s that If the survvng spouse remarred
before the cose of hs ta abe year, he may not make a ont return wth the frst
spouse who ded durng the ta abe year. In such a case, however, the survvng
spouse may make a ont return wth hs new spouse provded that the other
requrements of secton 51(b) are met. The second e cepton s that the survv-
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329
ng spouse aso may not mnke a |ont return wth the deceased spouse If the
ta abe year of ether spouse Is a fractona part of a year under secton 7(a) of
the Code, reatng to change of accountng perod. For e ampe, If a husband
and wfe make ther returns on the caendar year bass and the wfe des on
March 1, 10 8, and thereafter the husband receves permsson to change hs
accountng perod to a fsca year begnnng uy 1, 19 8, no ont return may be
made for the short ta abe year endng une 30,19 8. Smary, If a husband and
wfe who make ther returns on a caendar year bass receve permsson to
chance to a fsca year begnnng uy 1, 19 8, and the wfe des on une 1, 19 8,
no |ont return may be made for the fsca year endng une 30,19 8.
Paragraph ( ), of secton 51(b) as proposed to be amended, provdes for the
method of makng a |ont return after the death of a spouse. Ths paragraph
appes not ony n those cases n whch the death of one spouse coses hs ta abe
year but aso In those rases n whch one spouse-dee after the cose of hs ta abe
year but before hs return s fed. The (|euera rue provded n such paragraph
( ) s that, n the case of the death of one spouse, or of both spouses, the |ont
return wth respect to the decedent may be made ony by hs e ecutor or admns-
trator. y ths Is meant the person or persons who are actuay apponted e ecu-
tor or admnstrator and not merey a person who may be n charge of the property
of the decedent. n e cepton Is made from ths genera rue whereby, n the
case of the death of one spouse, the ont return may be made by the survvng
spouse wth respect to both hmsef and the decedent If a the foowng cond-
tons e st:
( ) No return has been made by the decedent for the ta abe year In
respect of whch the |ont return Is made.
( ) No e ecutor or admnstrator has been apponted at or before the tme
of the makng of such ont return.
(C) No e ecutor or admnstrator s apponted before the ast day pre-
scrbed by aw for fng the return of the survvng spouse.
These condtons are to be apped wth respect to the return for each of the
ta abe years of the decedent for whch a |ont return may be made f more than
one such ta abe year Is Invoved. Thus, In the case of husband and wfe on the
caendar year bass, If the wfe des n anuary, 19 9, a |ont return for the hus-
band and wfe for 19 8 may be made f the condtons set forth above are satsfed
wth respect to such return. |ont return may aso be made by the survvor
for both hmsef and the deceased spouse for the caendar year 19 9 f t s
separatey determned that the condtons set forth above are satsfed wth
respect to the return for such year. In determnng whether an e ecutor or
admnstrator s apponted before the ast date prescrbed by aw for fng the
return of the survvng spouse, an e tenson of tme for makng the return s
ntended to be ncuded.
The condton set forth In ( ) above s desgned to prevent a |ont return beng
made by the survvor for hmsef and the deceased spouse where the deceased
spouse had aready made a separate return for the ta abe year for whch the
ont return s sought to be made. Thus, If, In the case of a spouse who ded
n Febnary, 19 9, such spouse had made pror to her death a separate return for
19 8 (ether on a Form W-2 or Form 10 0) or had made a ont return wth her
spouse for 19 8, the survvng spouse may not thereafter make a |ont return for
hmsef and the deceased spouse for 19 8. If an e ecutor or admnstrator as
been apponted wthn the tme provded n ( ) and (C) of secton 51(b)( ),
the survvng spouse can not make a |ont return for hmsef and the deceased
spouse whether or not a separate return for the deceased spouse s made by such
e ecutor or admnstrator, for, at that tme, the |ont return, f one Is to be
made for the deceased spouse, must be made by the e ecutor or admnstrator.
If the survvng spouse makes the |ont return provded for above, and there-
after an e ecutor or admnstrator of the decedent s apponted, the e ecutor
or admnstrator (In order to reeve the decedent s estate from |ont and
severa abty for the whoe ta , or for any other reason) may dsaffrm such
ont return. Ths dsaffrmance, n order to be effectve, must be made wthn
one year after the ast day prescrbed by aw for fng the return of the sur-
vvng spouse ncudng any e tenson thereof) and must be made n the form
of a separate return for the ta abe year of the decedent wth respect to whch
the |ont return was made. In the event of such proper dsaffrmance, the return
made by the survvor sha consttute hs separate return, that s, the |ont
return made by hm sha be treated as hs return and the ta thereon sha
be computed by e cudng a Items propery ucudbe n the return of the
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330
deceased spouse. The separate return made by the e ecutor or admnstrator
sha consttute the return of the deceased spouse for the ta abe year. The
tme aowed the e ecutor or admnstrator to dsaffrm the |ont return by the
makng of a separate return s not ntended to estabsh a new due date for the
return of the deceased spouse. ccordngy, the provsons of sectons 291
and 20 of the Code reatng to denquent returns and denquency n payment
of ta w be appcabe to such return made by the e ecutor n dsaffrmance of
the |ont return.
Paragraph (5), of secton 51(b) as amended n the b, provdes for the deter-
mnaton of status of ndvduas for the purpose of makng |ont returns. In
accordance wth the e tenson of the ont return prvege to cases n whch a
spouse ded durng the ta abe year, te status determnaton of ndvduas as
husband and wfe n such a case s to be made as of the tme of the death of
such spouse. In ths and n other respects the determnaton of status for the
purpose of secton 51 s the same as that provded under secton 23(aa) (6), as
added by secton 302 of the b wth respect to the aowance of the standard
deducton, e cept that the determnaton of status appes under secton 51 ony
where two ndvduas have ta abe years begnnng on the same day.
Paragraph (6), of secton 51(b), as amended In the b, contans cross
references to secton 12(d) of the Code and to secton 00 of the Code
S CTION 30 . D DUCTIONS FO M DIC L P NS S.
Ths secton amends secton 23 ( ) of the Code, reatng to deducton for medca
e penses. Under e stng aw the ma mum deducton s 1,250 for the ta abe
year f ony one e empton s aowed under secton 25(b), and 2,500 f more
than one e empton s aowed. Under the proposed amendment these m-
tatons w st be appcabe In the case of separate returns. The mtatons
w aso be appcabe n the case of ont returns where there are not more than
two e emptons, but f, n the case of a ont return, there are three e emptons
aowed, the ma mum deducton sha be 3,750, and f, n the case of a ont
return, there are four or more e emptons aowed, the ma mum deducton sha
be 5,000. The e emptons referred to do not ncude e emptons aowed under
secton 25(b)(1) ( ) or (C), reatng to the e emptons for ndvduas who
have attaned the age of 65 and for bnd ndvduas. s under e stng aw the
deducton s aowed for medca e penses under secton 23( ) to the e tent that
such e penses e ceed 5 per cent of the ad|usted gross ncome, or 5 per cent
of the aggregate ad|usted gross Income In the case of a ont return.
S CTION 305. T L Y RS TO W IC M NDM NTS PPLIC L .
Ths secton provdes that the amendments made by ths tte of the b,
provdng for ncome spttng, sha be appcabe wth respect to ta abe
years begnnng after December 31, 19 7. The requrements of secton 51(b)
of the Code as amended by the b wth respect to the fng of a |ont return
are aso made appcabe to ta abe years of both husband and wfe begnnng
on the same day n 19 7 f at east one such ta abe year ends In 19 8. Thus, a
ont return by the husband and wfe for a fsca year begnnng In 19 7 and
endng n 19 8 can not be made uness permtted by the provsons of secton
51(b) as amended by the b. If a husband and wfe, as of the cose of ther
fsca year begnnng n 19 7 and endng n 19 8, are egay separated under a
decree of separate mantenance, they can not make a |ont return for such fsca
year under the provsons of secton 51(b) as amended by the b (athough
under e stng aw they coud make a ont return). owever, In the case of
a husband and wfe who have been makng ther returns on the bass of a fsca
year endng une 30, f the wfe ded before une 30, 19 8, and after the begn-
nng of ther ta abe years begnnng uy 1, 19 7, a |ont return may be made,
under secton 51(b) as amended by the b, for the deceased spouse and the
6urvvor for the ta abe year of each begnnng uy 1, 19 7 (athough under
e stng aw a |ont return coud not be made n such a case).
P RT II ST T T
ND
P RT III GIFT T .
The detaed dscusson of these parts of Tte III w be found n a suppe-
menta report to be fed ater.
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Tte I . d|usted Gross Income of Less Than 5,000.
S CTION 01. INDI IDU LS WIT D UST D GROSS INCOM S OF L SS T N 5,000.
Ths secton of the b amends secton 100 of the Code, reatng to the optona
ta on ndvduas wth ad|usted gross ncomes of ess than 5,000. Under
e stng aw, there s ony one ta tabe for computng the ta n the case of
such ndvduas. In the b as passed by the ouse, two tabes were provded,
the frst appcabe ony for the purpose of computng the ta on a separate
return and the second appcabe ony for the purpose of computng the ta
on a |ont return of husband and wfe under secton 51(b). The second tabe
was provded to gve effect to the Income-spttng provsons of Tte III
of the b. oth tabes gave effect to the reducton n ta and ncreased e emp-
tons provded n Ttes I and II of the b. The b, as amended, provdes the
approprate reductons In ony one tabe, whch combnes the features of the two
tabes. The snge tabe gves effect to ncome-spttng by doube coumns
n tho genera area on the tabe where the ta on a |ont return of husband and
wfe under secton 51 (b) s dfferent from that of any person on a separate return
wth the same number of e emptons.
The amendments made by ths secton of the b are appcabe wth respect
to ta abe years begnnng after December 81, 19 7. Speca provson s made
n secton 001 of the b for ta abe years begnnng n 19 7 and endng n 19 8.
Tte . Reducton n Wthhodng on Ta at Source on Wages.
S CTION 801. P RC NT G M T OD.
Ths secton of the b amends secton 1G22 (a) and (b) (1) of the Interna
Revenue Code, reatng to the percentage method of wthhodng, to refect the
reductons n ta provded n Ttes I and II of the b. The b, as amended,
provdes ony one wthhodng rate (15 per cent) nstead of the graduated rates
over three brackets as provded n the ouse b.
S CTION 502. W G . R C T WIT OLDING.
Ths secton of tho b amends secton 1622(c)(1) of the Code, reatng to
wage bracket wthhodng, by changng the ta tabes contaned In that secton
of the Code n order to refect the reducton n ta provded In Ttes I and II
of the b.
S CTION 503. FF CTI D T .
Ths secton provdes that the amendments made by ths tte sha be appcabe
ony wth respect to wages pad on or after May 1, 19 8, Instead of pr 1, as
under the ouse b.
Ttu: I. Fsca Year Ta payers.
S CTION 601. FISC L T R T P Y RS.
Ths secton of the b makes the usua speca provson for computaton of the
ta n the case of ta payers makng returns on a fsca year bass, In ths case
for fsca years begnnng n 19 7 and endng In 19 8.
R NU CT OF 19 8.
Senate Report No. 1018 (Part 2), ghteth Congress, Second Sesson. Caendar
No. 1055.
March 17 (egsatve day, March 15), 19 8.
Mr. Mnkn, from the Commttee on Fnance, submtted the foowng suppe-
mentary report to accompany . R. 790 :
On page 59 of Report No. 1013, to accompany the b . R. 790 page 211, ths
uetn , t was stated that a suppementa report woud be fed ater contanng
a detaed dscusson of the provsons of Parts II and III of Tte III of the
b, reatng to estate ta and gft ta . ccordngy, ths suppementa report
s now fed.
798590 18 2
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Past II state Ta .
SU P RT 1 R P L OF 19 2 COMMUNITY PROP RTY M NDM NTS.
CTION 851. ST T T T NSF 8 Or COMMUNITY PROP RTY IN CONT MPL TION
OF D T , TC.
Ths secton, whch Is unchanged from the b as passed by the ouse, repeas,
effectve wth respect to estates of decedents dyng after the date of enactment
of ths b, secton 811(d) (5) of the Code, reatng to transfers durng fe of
communty property Incudbe In the gross estate under secton 811 (c) or (d)
of the Interna Revenue Code (such as transfers In contempaton of death, etc.).
The e tent to whch any such transfer of communty property Is Incudbe In
the gross estate of the transferor s determned under the aw at the date of
hs death (that s, wth respect to decedents dyng after the date of the enact-
ment of ths b, wthout regard to secton 811(d) (5)).
S CTION 882. ST T T OINT ND COMMUNITY INT R STS.
Ths secton, whch s unchanged from the b as passed by the ouse, repeas,
effectve wth respect to estates of decedents dyng after the date of enactment
of ths b, secton 811(e)(2) of the Interna Revenue Code, reatng to the
ncuson of communty property In the gross estate of the decedent. In the case
of decedents dyng after the date of enactment of ths b, the e tent to whch
communty property hed by the decedent and hs spouse at the death of the
decedent s to be ncuded n hs gross estate w be determned wthout regard
to secton 811(e) (2). Cerca amendments are aso made by ths secton to ren-
state the form of secton 811 (e) pror to the enactment of the Revenue ct of 19 2.
S CTION 858. ST T T PROC DS OF LIF INSUR NC .
Ths secton, whch Is unchanged from the b as passed by the ouse, repeas,
effectve wth respect to estates of decedents dyng after the date of enactment
of ths b, secton 811(g) ( ) of the Code,.reatng to communty property n the
case of fe Insurance. Snce secton 811(g) was competey rewrtten n the
Revenue ct of 19 2, the repea prospectvey of secton 811(g) ( ) makes ap-
pcabe to decedents dyng after the date of enactment of ths b the rues of
secton 811 (g) whch woud be appcabe had paragraph ( ) never been contaned
n secton 811(g).
SU P RT 2 M RIT L D DUCTION FOR U STS, TC., TO SPOUS
S CTION 861. M RIT L D DUCTION.
Ths secton amends secton 812 of the Code, reatng to deductons n computng
the net estate of a ctzen or resdent of the tTnted States, by addng a new sub-
secton, desgnated (e), provdng for a so-caed marta deducton, appcabe
wth respect to estates of decedents dyng after the date of enactment of the b.
The deducton s not aowed n computng the net estate of a nonresdent not a
ctzen of the Unted States. In genera, under ths new subsecton a deducton
Is aowed for an amount equa to the vaue of any nterest n property whch
passes or has passed from the decedent to hs survvng spouse but the aggregate
amount of such deductons Is mted to 50 per cent of the vaue of the ad|usted
gross estate. There are, however, certan mportant quafcatons and mta-
tons, whch are dscussed beow.
S CTION 812(e) (1), (8), ND ( ), INT R ST IN PROP RTY P SSING FROM T D C D N
TO IS SU I INO SPOUS .
Subparagraph ( ) of secton 812(e)(1) s the basc rue under whch the
marta deducton s aowed. Under ths rue a deducton s aowed for an
amount equa to the vaue of any Interest n property whch passes or has passed
from the decedent to hs survvng spouse, but ony to the e tent that such Interest
Is Incuded In determnng the vaue of the decedent s gross estate.
The concept of the passng of an Interest n property from the decedent as used
In secton 812(e) s e pressed n the defnton n paragraph (3) of secton 812(e).
Such paragraph (3) defnes as so passng, nterests whch commony woud be
consdered as passng from the decedent, namey, Interests bequeathed, devsed,
or transferred by the decedent or Inherted from the decedent, or the dower or
curtesy nterest (or statutory nterest n eu thereof) of the decedent s survvng
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spouse. The Interest of a survvng wfe In property hed as communty property
under the aw of Caforna n effect pror to uy 29, 1927, s an nterest whch
under the defnton n secton 812(e) (3) s consdered as passng to her from the
decedent. In addton, under subparagraph ( ) of secton 812(e)(8) there s
treated as an nterest passng from the decedent to hs survvng spouse the
nterest hed at the tme of the decedent s death by the decedent and hs spouse
n a |ont tenancy, tenancy by the entrety, a |ont bank account, or any other
coownershp wth rght of survvorshp to whch secton 811(e) of the Code
appes. Under subparagraph (F) of secton 812(e) (3) an Interest Is consdered
as passng to any person from the decedent If the decedent had a power (whether
or not e ercsabe aone) to appont such nterest and f he apponts or has
apponted such nterest to such person, or f such person takes such nterest n
defaut upon the reease or none ercse of such power. Under subparagraph (G)
of secton 812(e) (3) an Interest s consdered as passng from the decedent to the
person entted to receve the proceeds of nsurance upon the fe of the decedent
regardess of whether the decedent had prevousy assgned the pocy or pad the
premums by way of gft
The defnton of an Interest passng from the decedent s broad enough to cover
a the nterests ncuded n determnng the vaue of the decedent s gross estate
under the varous subsectons of secton 811 of the Code. The defnton aso
appes n the appcaton of a of the provsons of secton 812(e) (In addton
to Its appcaton In paragraph (1) ( )), and because of such appcaton, as w
be e paned ater, may cover nterests other than those ncuded n determnng
the vaue of the decedent s gross estate.
n nterest n property does not pass to the survvng spouse from the decedent
wthn the defnton n secton 812(e) (3) by reason of a cam aganst the estate,
or any Indebtedness, In favor of the survvng spouse for whch a deducton s
aowed by secton 812(b). Nether the payments made In satsfacton of such
a cam or debt nor the amounts e pended n accordance wth the oca aw for
support of such survvng spouse durng the settement of the estate pass to such
survvng spouse from the decedent wthn the meanng of secton 812(e) (3).
Whe the deducton Is aowed under subparagraph ( ) wth respect to any
Interest n property, certan e ceptons are provded under the other subpara-
graphs of secton 812 (e)(1) whch are e paned herenafter. Generay, a power
of appontment s not an nterest n property. ccordngy, no deducton Is
aowed wth respect to a power to appont gven to a survvng spouse, e cept as
provded In the speca rues In subparagraphs (F) and (G) of secton 812(e) (1),
n the case of certan trust and Insurance proceeds where the survvng spouse Is
gven a power to appont.
In order to gve rse to the marta deducton wth respect to any Interest
passng to the survvng spouse, the vaue of such nterest must be Incuded
n determnng the vaue of the decedent s gross estate. Thus, If the survvng
spouse Inherts foregn rea estate from the decedent (not Incuded In the vaue
of the gross estate under secton 811) or acqured property of the decedent by
a transfer durng the decedent s fe for a fu and adequate consderaton n
money or money s worth, no deducton w resut from such Interests passng
to the spouse.
The terras Interest and property, as used n secton 812(e) have separate
and dstnct meanngs. The term property s used n a comprehensve sense
and ncudes a ob|ects or rghts whch are susceptbe of ownershp. The
term nterest refers to the e tent of ownershp, that s, to the estate or the
quaty and quantum of ownershp by the survvng spouse or other person, of
partcuar property. For e ampe, f the survvng spouse s specfcay devsed
an estate for her fe n a farm, the nterest passng to her Is the fe estate,
and the property n whch such nterest e sts s the farm. Generay the
property In whch any person s consdered as havng an Interest s the property
out of whch, or the proceeds of whch, such nterest may be satsfed. Thus,
In the case of a bequest, devse, or transfer of an Interest whch may be satsfed
out of, or wth the proceeds of, any property of the decedent s genera estate
or of a trust, the Interest so bequeathed, devsed, or transferred Is an Interest
n any and a of such property. If the decedent s genera estate or the trust
conssts of assets whch are themseves Interests n property (such as eases),
the Interest so bequeathed, devsed, or transferred s an Interest n such property.
The amount of the marta deducton Is determned by the vaue at the date
of the decedent s death of the Interest n property whch passes or has passed
to the survvng spouse, uness the vaue of the gross estate s determned under
the optona vauaton rue In secton 811 (|) of the Code, In whch case the vaue
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s determned as of such date wth ad|ustment as Is provded n secton 811 ( ).
(See secton 36 of the b for an amendment to secton 811 ( ) appcabe n
vaung any nterest In property wth respect to whch a marta deducton Is
aowed.) Subparagraph (C) of secton 812(e)(1), whch s dscussed subse-
quenty, contans a speca rue reducng the amount of the marta deducton
n certan cases where the nterest passng to the survvng spouse Is an nterest
n undentfed assets.
The foowng e ampe Iustrates the determnaton of the marta deducton
under secton 812(e)(1)( ) : The decedent s w drects the e ecutor to se
certan descrbed rea estate and wth the proceeds thereof to purchase stock
of the Corporaton and to turn such stock over to the wdow. The vaue
of the rea estate at the decedent s death was 10,000 but t wa sod by the
e ecutor pror to one year after the decedent s death for 12,000. The stock
was purchased for 12,000 but had a far market vaue of 8,000 at the death
of the decedent If the gross estate Is vaued at the date of the decedent s
death, the marta deducton Is 10,000 (the vaue of the rea estate at the tme
of death) snce such vaue was the vaue of the Interest Incuded In determnng
the vaue of the gross estate. If the vaue of the gross estate s determned
under the optona vauaton rue of secton 811(|), the marta deducton Is
12,000, the vaue of the rea estate at the tme of the sae wthn the 1-year perod.
If the survvng spouse takes under the decedent s w, the nterest passng
to her s determned from the w. In ths connecton proper regard shoud be
gven to Interpretatons of the w rendered by a court n a bona fde adversary
proceedng. If, as a resut of a controversy nvovng a bequest or devse to the
survvng spouse, such spouse assgns or surrenders an nterest In property
pursuant to a compromse agreement n settement of such controversy, the
amount so assgned or surrendered s not deductbe as an nterest passng to
such spouse. Moreover, any nterest receved by the survvng spouse under a
settement whch does not refect her rghts under the oca aw does not pass
to the survvng spouse from the decedent owever, f the survvng spouse
eects to take her share of the decedent s estate under the oca aw nstead of
takng an Interest under the w, the Interest she takes under the oca aw
Is by the defnton n secton 812(e) (3) consdered as passng from the decedent
to te survvng spouse. The faure of a wdow to eect to take under the oca
aw s not consdered to any e tent as a purchase by her of the Interest she
takes under the w.
Paragraph ( ) of secton 812(e) provdes a speca rue In the case of a
dscamer of an Interest passng from the decedent. Ths paragraph was not
n the b as passed by the ouse. dscamer s a compete and unquafed
refusa to accept the rghts to whch one s entted. If a person uses these
rghts for hs own purposes as by recevng a consderaton for hs forma ds-
camer he has not refused the rght to whch he was entted. There can be
no dscamer after an acceptance of such rghts, e pressy or mpedy.
In genera, for the purpose of secton 812(e), an nterest dscamed by the
survvng spouse s not consdered to pass to her, but an Interest dscamed by
a person other than the survvng spouse Is consdered to pass to such person
n the same manner as If the dscamer had not been made. For e ampe, f
the survvng spouse dscams a bequest of the decedent to her and the property
fas nto the resdue passng to other persons, no marta deducton s permtted
wth respect to such property. The property s consdered as passng from
(he decedent to the resduary egatees. If, In such a case, however, the survvng
spouse s the resduary egatee, the nterest whch she so dscamed s consdered
as passng to her from the decedent (as a resut of the dscamer) for the
purposes of the marta deducton.
If an nterest In property Is receved by the survvng spouse as a resut of
a dscamer made by any other person, such nterest s not consdered as passng
to the survvng spouse from the decedent. Thus, f a bequest of an Interest
In property to a person other than the survvng spouse s dscamed and such
nterest fas Into the resdue of the estate bequeathed to the survvng spouse,
such Interest Is not consdered as passng to the survvng spouse from the dece-
dent for the purpose of determnng the marta deducton. nother e ampe
Is a case n whch there s Incuded In the vaue of the gross estate property
wth respect to whch the decedent has a power of appontment and n whch
the survvng spouse s the taker n defaut of a vad appontment. If the
decedent s appontee dscams any nterest under the attempted appontment
and the property s receved by the survvng spouse, no marta deducton resuts
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because under secton 812(e)( ) the property Is consdered as passng from
the decedent to the appontee as If the dscamer had not been made.
If durng the fetme of the decedent he attempted to make a gft of property
to a person who, however, refused any nterest In the property so that no gft
n fact was made, and, thereafter, the decedent by hs w bequeathed the prop-
erty to hs survvng spouse, a marta deducton Is not prohbted by the ds-
camer provsons of secton 812(e) ( ). Whether or not the renuncaton of a
w and the eecton of a survvng spouse to take under the ntestate aw s
consdered as a dscamer, ony the nterest taken by the survvng spouse under
the aw s consdered to pass to her from the decedent.
Subparagraph ( ) of secton 812(e) (1) specfcay provdes for the appca-
ton n determnng the vaue of any Interest In property passng to the sur-
vvng spouse of rues whch are generay appcabe n determnng the net
vaue of any gft or bequest. Cause () of such subparagraph requres that
there sha be taken nto account the effect whch the amount of any estate,
successon, egacy, or nhertance ta may have upon the net vaue of any Interest
In property passng to a survvng spouse. Ths provson Is desgned to prevent
any mpcaton that such ta es shoud not be taken nto account where such
ta es and the marta deducton are mutuay nterdependent. Ths provson
s substantay the same as that provded n secton 812(d) of the Code, reatng
to bequests, etc., to charty. The rue appes where the burden of a death ta
fas upon the survvng spouse or the property n whch an nterest passes to
the survvng spouse.
Cause (II) of such subparagraph ( ) drects that In determnng the vaue of
any nterest passng from the decedent to the survvng spouse, ncumbrances or
obgatons sha be taken nto account n the same manner as If the vaue of a
gft to the spouse of the Interest passng were beng determned. Ths Is a
carfcaton whch was not e pressed In the b as passed by the ouse. If the
decedent by hs w eaves to hs survvng spouse rea estate sub|ect to a mort-
gage (whether or not such mortgage was a persona abty of the decedent),
the vaue of the nterest passng to the survvng spouse does not under ths
secton ncude the mortgage. If, however, the decedent by hs w drects the
e ecutor to pay off the mortgage, such payment consttutes an addtona Interest
passng to the survvng spouse. If the decedent bequeaths certan property to
hs survvng spouse sub|ect, however, to her agreement, or a charge on the
property, for payment of 1,000 to , the vaue of the bequest (and, accordngy,
the vaue of the nterest passng to the survvng spouse) s the vaue, reduced by
1,000, of such property.
The nterest passng to the survvng spouse from the decedent s ony such
Interest as the decedent can gve. If the decedent by hs w eaves the resdue
of hs estate to the survvng spouse and she pays, or f the estate ncome Is used
to pay, cams aganst the estate so as to ncrease the resdue, such ncrease n
the resdue s acqured by purchase and not by bequest. ccordngy, the vaue
of any such addtona part of the resdue passng to the survvng spouse can
not be ncuded In the amount of the marta deducton.
In case there s ncuded n the decedent s gross estate a reversonary or re-
mander Interest In property and the e ecutor eects, as provded In secton 925
of the Code, to postpone the payment of the part of the estate ta attrbutabe
to such nterest, n determnng such part t s contempated that proper effect
sha be gven to any marta deducton aowed.
The status of an Indvdua as the decedent s survvng spouse s determned
at the tme of the decedent s death. ega separaton whch has not (at the
tme of the decedent s death) termnated the marrage does not affect such status
for the purposes of secton 812(e)(1). transfer by the decedent durng hs
fetme to an ndvdua to whom he was not marred at the tme of the transfer
but to whom he s marred at the tme of hs death and who survves hm s a
transfer by the decedent to hs survvng spouse. If an nterest n property
passes from the decedent to a person who was hs spouse but Is not marred to
hm at the tme of hs death, the nterest s not consdered as passng to the
decedent s survvng spouse even though such person survves the decedent.
S CTION 812(e)(1) ( ) ND (C). N TU OF INT R ST P SSING; T RMIN L
INT R ST TTL .
Subparagraph ( ) of secton 812(e)(1) dsaows the marta deducton wth
respect to certan termnabe Interests. Where, upon the apse of tme, upon the
occurrence of an event or contngency, or upon the faure of an event or con-
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tngency to occur, the nterest passng to the survvng spouse w termnate
or fa, the marta deducton w be dsaowed under such subparagraph ( )
f the condtons of causes () and (11), or of cause () of such subparagraph
are met. It s not necessary under such subparagraph ( ) that the contngency
or event must occur or fa to occur n order to make the Interest termnabe.
Thus a termnabe Interest under such subparagraph Incudes an Interest be-
queathed to the survvng spouse as ong as she resdes n Washngton, D. C. On
the other hand, t ncudes Interests whch w n a events termnate, such as
an estate for the fe of the survvng spouse.
Subparagraph ( ) s ntended to be a-encompassng wth respect to varous
knds of contngences and condtons. Thus, t s Immatera whether the
nterest passng to the survvng spouse s consdered as a vested nterest sub|ect
to dvestment or as a contngent Interest. Subparagraph ( ) appes whether
the terms of the nstrument or the theory of ther appcaton are conceved as
creatng a future nterest whch may fa to rpen or vest or as creatng a
present nterest whch may termnate. The occurrence of a contngency ncudes
the endng of a condton. Thus, an nterest gven to the survvng spouse as
ong as she remans unmarred s a termnabe nterest.
owever, the nterest of the survvng spouse s not consdered a termnabe
nterest merey because her possesson or en|oyment may be affected by events
not provded for by the terms of the bequest Thus, a fee-smpe nterest s not
a termnabe nterest merey because the physca possesson and en|oyment of
the property by the survvng pouse w termnate at her death. Nor s such
an nterest, or any other nterest, consdered as a termnabe nterest merey
because the survvng spouse may ose t by a re or earthquake or t may be
taken by condemnaton or for nonpayment of ta es. n nterest n property
s not a termnabe nterest merey because t may be consumed. Thus, a be-
quest of 50,000 or of a herd of 50 catte s not a bequest of a termnabe nterest
On the other hand, an nterest may be a termnabe nterest under subparagraph
( ), secton 812(e), even though such nterest s the entre property. Thus,
If the property n whch the survvng spouse has an nterest, or a of the
nterest, s termnabe, the nterest of the survvng spouse s a termnabe n-
terest ampes of such termnabe Interests are patents, copyrghts, and
annuty contracts.
s prevousy stated, t s necessary for the purposes of secton 812(e) (1) to
dstngush between an nterest n property and the property n whch such
Interest s an nterest Thus, f the decedent devses ackacre to hs wfe for
fe wth remander to , then has an Interest n the property ( ackacre) n
whch the survvng spouse has an nterest. If the prncpa vaue of ackacre
was a coa mne whch may be e pected to be e hausted durng the survvng
spouse s fe, nevertheess both the survvng spouse and have an nterest n
the property, whch s ackacre. If the decedent devses ackacre to hs son n
fee but sub|ect to a charge on the rents of ackacre In favor of hs survvng
spouse for her fe, the survvng spouse and the son have an Interest n the
same property ( ackacre). In the case of a trust or fund, the Income bene-
fcares and the persons who may receve any part of the corpus have an nterest
n the property represented by the assets of the trust or fund as of the date of
the decedent s death.
On the other hand, subparagraph ( ) does not appy merey because another
person has an nterest n property n whch the survvng spouse has an Interest.
There s no need to appy such subparagraph uness the nterest passng to the
survvng spouse Is a termnabe nterest. Thus, f the decedent by hs w
devses ackacre to for fe wth the remander to hs survvng spouse, sub-
paragraph ( ) s not appcabe Inasmuch as the nterest passng to the sur-
vvng spouse s not a termnabe Interest Smary, f the decedent by hs w
devses ackacre to hs wfe and son as tenants n common, the marta deducton
s aowed, snce the survvng spouse s nterest s not a termnabe nterest.
Cause (I) of subparagraph ( ) appes ony If an nterest n the property
(n whch the survvng spouse s termnabe nterest s an nterest) passes or
has passed (for ess than an adequate and fu consderaton n money or money s
worth) from the decedent to any person other than such survvng spouse or her
estate. It s not necessary, however, for the nterest so passng to another person
to pass at the same tme as the nterest passng to the survvng spouse. n
nterest whch passes to the estate of the survvng spouse w not cause the
dsaowance of the deducton, but an nterest whch passes from the decedent
to the hers of such spouse by purchase, where the State aw does not gve effect
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to the rue In Sheey s case, Is an Interest passng to persons other than the
survvng spouse for the purposes of causes () and (11).
Cause (11) of subparagraph ( ) appes ony f, by reason of the passng of an
Interest descrbed In cause (1), such other person (or hs hers or assgns) may
possess or en|oy any part of the property after the termnaton or faure of the
termnabe Interest passng to the survvng spouse n the same property. The
term possess or en|oy any part of such property s Intended to be broady
construed. It s Immatera under ths provson whether such other person
possessed or en|oyed any part of the property pror to the termnaton of the
Interest of the survvng spouse. Thus, as ong as such other person may possess
or en|oy any part of the property after the termnaton of the survvng spouse s
nterest, cause (11) appes even though such possesson or en|oyment s a
contnuaton from a tme pror to such termnaton.
It shoud be noted that both causes, () and (), use some form of the term
passng, whch Is ntended to have the technca meanng gven to t by the
defnton n paragraph (3) of secton 812(e). s used n such causes, however,
the term passng s not confned to the passng of an nterest ncuded n
determnng the vaue of the decedent s gross estate.
Under subparagraph (C) of secton 812(e)(3), the dower or curtesy nterest
of the survvng spouse (or statutory nterest n eu thereof) s defned as an
Interest passng from the decedent. If such nterest s a termnabe Interest,
such as a fe estate, the marta deducton woud nevertheess be dsaowed
under subparagraph ( ) of secton 812(e) (1).
Under the defnton In subparagraph (F) of secton 812(e) (3), f the decedent
e ercses a ta abe power of appontment over ony a porton of the property
sub|ect to the power, a Interests n the property sub|ect to the power are never-
theess consdered as passng from the decedent. Thus, f the decedent has a
ta abe power of appontment (under secton 811(f) of the Code) over the
property, whch, to the e tent not apponted, s to pass to , and the decedent
by hs w apponts ony a fe estate to hs wfe, an nterest n the same
property s nevertheess consdered as passng from the decedent to . The
defnton of passng, however, e tends to any case n whch the decedent
possessed a power to appont (even though not a ta abe power of appontment)
and e tends to e ercses and reeases of any such power durng fe. n e ampe
s a case n whch a decedent n 19 0 was gven a power of appontment over
ackacre e ercsabe ony n favor of hs survvng spouse, hs chdren, and
the chdren of (a stranger, not the creator of the power) ; to the e tent not
apponted ackacre was to go to Y. The decedent n 19 1 reeased hs power
e cept wth respect to the power to appont the ncome from ackacre for 20
years; and at hs death the decedent apponted such ncome Interest to hs sur-
vvng spouse. The power at the tme of the parta reease was not a ta abe
power. owever, under the defnton of passng, an nterest n ackacre
passed (upon the reease n 19 1) from the decedent to Y and accordngy the
nterest apponted to the survvng spouse does not quafy for a deducton under
the termnabe nterest provsons.
The appcaton of causes () and (11) s further Iustrated by the foowng
e ampes:
ampe ( ). The decedent owned the entre nterest n ackacre. e trans-
ferred ackacre by gft to hs son but retaned a ease for 20 years. t hs death
the decedent bequeathed the ease to hs survvng spouse. No marta deducton
s aowed because the Interest passng to the survvng spouse s a termnabe
nterest n ackacre n whch an nterest aso passed from the decedent to hs
son who can possess or en|oy the property after the e praton of the ease. The
facts of ths case may be vared, but as ong as an nterest n ackacre passed
at any tme by gft from the decedent to a person other than the survvng spouse,
and the ease (whether retaned or reacqured by the decedent) was bequeathed
or transferred from the decedent to the survvng spouse no marta deducton
w be aowed wth respect to such ease. If, however, the decedent had sod
ackacre to any person for an adequate and fu consderaton n money or
money s worth and retaned or purchased a 20-year ease n ackacre whch
he subsequenty bequeathed to the survvng spouse, the marta deducton wth
respect to the ease passng to the survvng spouse s not dsaowed under
subparagraph ( ).
ampe (2). The decedent by hs w devsed ackacre to hs wfe and
daughter as |ont tenants. oth the wfe and daughter have termnabe nterests
n the same property, ackacre. The daughter may (f she survves the wfe)
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possess or en|oy such property after the termnaton of the wfe s Interest c-
cordngy, no marta deducton s aowed wth respect to the Interest passng
to the survvng spouse. It s mmatera that the daughter may not possess or
en|oy a of ackacre In the event of a severance of the |ont Interest. It Is
suffcent under cause (II) that any part of the property may (by any possbty)
be possessed or en|oyed by the daughter after the termnaton or faure of the
wfe s nterest. Smary, f the property were bequeathed In trust for the ont
beneft of the wfe and daughter wth the corpus passng to the survvor, no
marta deducton woud be aowed. The daughter, by survvng the spouse,
may possess or en|oy the property after the termnaton of the spouse s nterest.
In determnng whether an nterest In property Is a termnabe nterest and
whether the condtons of causes () and (11) are met, the stuaton s vewed
as at the date of the decedent s death, athough effect must be gven to Interests
whch have passed pror to the decedent s death. Thus, f the decedent trans-
ferred ackacre, In contempaton of death to hs wfe, Mary, for her fe wth
remander to If survvng Mary, f not, to Mary s estate, and des pror to
the decedent s death and whe Mary Is st vng, the nterest passng to Mary
(the survvng spouse) s, vewed at the tme of the decedent s death, not ds-
quafed for deducton under subparagraph ( ). nother e ampe Is a case
where the decedent durng hs fetme transferred property by gft n contempa-
ton of death to hs wfe for her fe and then to her chdren and where, pror to
the decedent s death, the chdren by sae or gft transferred the remander n-
terest to the survvng spouse. In ths case the ony Interest passng to the survv-
ng spouse from the decedent s a termnabe nterest n property In whch an
Interest passed to the chdren. ewed as of the date of the decedent s death,
no person other than the survvng spouse (or her estate) may possess or en|oy the
property. owever, such spouse s an assgnee of other persons (the chdren) to
whom an nterest passed and accordngy the marta deducton Is dsaowed
under cause () of subparagraph ( ).
The eecton of the e ecutor to determne the vaue of the gross estate as of
a date subsequent to the decedent s death, as provded In secton 811 ( ) of the
Code, does not e tend to such ater date the tme for determnng the character
of the Interest passng to the survvng spouse and Its deductbty under sub-
paragraph ( ). Secton 811 ( ) reates ony to vauaton and appes ony wth
respect to Interests at the date of the decedent s death. For e ampe, In the case
of a gft, In contempaton of death, of a fe estate to the survvng spouse wth
remander to the survvor of such spouse and , the marta deducton s not
aowed for any nterest passng to such spouse, even though des wthn 12
months after the decedent s death and the e ecutor eects to use secton 811(|).
The deducton s determned wth respect to nterests whch the decedent spe-
cfcay drected the survvng spouse to have, out of estate assets or Is determned
wth respect to the nterest of the survvng spouse n the property represented
by assets n the genera estate out of whch, or the proceeds of whch, the nterest
passng to her may be satsfed. Therefore, e cept as provded n cause () of
subparagraph ( ), conversons of property after the decedent s death are Im-
matera to the deducton. The foowng e ampes serve to Iustrate ths pont.
ampe (1). The decedent by hs w bequeathed a fe estate to hs survvng
spouse, wth remander to hs son, n certan property and thereafter the survv-
ng spouse made a vad sae of her fe estate for cash. The marta deducton
Is dsaowed under subparagraph ( ) because the Interest passng from the
decedent was the fe estate wth remander to the son In the same property.
The resut woud be the same If the e ecutor gave cash to the survvng spouse
Instead of the fe estate.
ampe (2). The decedent by hs w devsed ackacre to hs wfe for fe,
remander to hs son. The son transferred hs remander nterest by gft to the
survvng spouse, and by merger of the survvng spouse s Interests, she hed the
fee In the property. No marta deducton Is aowed n ths case wth respect
to any part of the property, for the fe estate s a termnabe nterest wth respect
to whch no marta deducton Is aowed under subparagraph ( ). The re-
mander nterest dd not pass to the survvng spouse from the decedent.
If the decedent by hs w bequeaths a termnabe nterest for whch a deduc-
ton s not aowed and the survvng spouse takes In accordance wth the w,
the marta deducton Is not aowed even though under the oca aw the nterest
whch such spouse coud have taken aganst the w was a fee Interest for whch
a deducton woud be aowed. ny theory that the nterest whch she coud
have taken under the oca aw dd pass to her In such a case and was used by
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her to purchase the Interest under the w s contrary to the ntended appcaton
of ths secton.
Where, under a bequest, etc., a future nterest may pass to some one other
than the survvng spouse, but t s not possbe at the tme of the decedent s death
to ascertan the partcuar person or persons to whom such Interest w pass,
a new sentence added at the end of secton 812(e) (8) makes t certan that such
future nterest sha, for the purposes of causes (I) and (II) of subparagraph
( ), be consdered as passng to a person other than the survvng spouse. c-
cordngy, under such provson an Interest s consdered to pass to a person other
than the survvng spouse and such other person s consdered as a person who
may possess or en|oy the property after the termnaton or faure of the sur-
vvng spouse s nterest. Ths provson, however, s not appcabe to an nterest
whch the survvng spouse may appont If, by appcaton of subparagraph (F)
or (G), such nterest Is consdered as passng to such spouse. The foowng
e ampes ustrate the appcaton of the speca provson reatng to such
future nterests:
ampe (1). The decedent by hs w devsed ackacre to hs wfe for fe
and then to such of hs grandchdren as survve the wfe but f no grandchdren
survve the wfe then to the estate of the survvng spouse. No marta deducton
s aowabe wth respect to ether the fe estate or the contngent remander to
the survvng spouse s estate. n nterest n the property s consdered to pass to
the grandchdren and some of them may possess or en|oy ackacre upon the
death of the spouse. It s mmatera that the grandchdren are not n beng
at the tme of the death of the decedent.
ampe (2). The decedent by hs w devsed ackacre to hs survvng
spouse for fe and then to such of the survvng spouse s hers as apponts,
n defaut of appontment, however, to . n nterest s consdered to pass from
the decedent to persons other than the survvng spouse. In ths case or the
appontees of may possess or en|oy ackacre after the death of the spouse.
Cause () of subparagraph ( ) appes If any person (other than the sur-
vvng spouse) or hs hers or assgns may by any possbe crcumstances under
the terms of te bequest possess or en|oy any part of the property n whch the
survvng spouse s Interest s an nterest. Thus, n e ampe (1), set forth
mmedatey above, persons other than the survvng spouse (or her estate) may
possess or en|oy the property after her death. Ths concept, of course, does not
e tend to the possesson or en|oyment whch persons may obtan by purchase
or gft from the survvng spouse, nasmuch as an Interest so obtaned does not
pass from the decedent cept as provded In subparagraphs (F) and (G),
however, f the survvng spouse s gven an Interest In property and a power to
appont any part of such nterest, the possbe appontees and takers n defaut
of appontment are consdered as persons to whom an Interest passed from the
decedent.
In the case of certan property whch s termnabe, a marta deducton may
be aowed, even though cause () appes, as ong as cause (11) does not appy.
Thus, f the decedent bequeaths a the nterest he ever had n a patent to hs
wfe and daughter as tenants In common, the marta deducton Is aowed wth
respect to the nterest of the wfe n the patent. If, however, the patent were
bequeathed to them for ther |ont ves and then to the survvor, the marta
deducton woud not be aowed.
The same prncpes appy In the case of Insurance proceeds and annuty
contracts, as ustrated by the foowng e ampes:
ampe ( ). The entre proceeds of an Insurance pocy on the fe of the
decedent are payabe to the survvng spouse and the vaue of such proceeds s
Incuded n determnng the vaue of the gross estate. marta deducton s
aowed wth respect to the vaue of the proceeds because no person other than
the survvng spouse has an nterest In the proceeds. The resut w be the same
whether such proceeds are payabe In a ump sum; are payabe n Instaments
td the survvng spouse, her hers, or assgns, for a term; or are payabe to the
survvng spouse for her fe wth no refund of the undstrbuted proceeds or wth
such a refund to her estate. It Is aso Immatera whether any such mode of pay-
ment Is determned by an opton e ercsed by the decedent or e ercsed by the
survvng spouse.
ampe (2). The decedent durng hs fetme purchased an annuty contract
under whch the annuty was payabe durng hs fe and then to hs spouse
durng her fe f she survved hm. The vaue of the nterest of the decedent s
survvng spouse n such contract at the death of the decedent s Incuded n
determnng the vaue of hs gross estate. marta deducton s aowed wth
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respect to the vaue of such nterest so passng to the decedent s survvng spouse
nasmuch as no other person has an nterest n the contract. If upon the death
of the survvng spouse the annuty payments were to contnue for a term to
her estate, or the undstrbuted porton thereof was to be pad to her estate,
the deducton s nevertheess aowabe wth respect to such entre nterest.
If, however, upon the death of the survvng spouse, the payments are to corf rne
to another person (not through her estate) or the undstrbuted fund s to be
pad to such other person, no marta deducton s aowabe nasmuch as an
nterest passed from the decedent to such other person.
marta deducton s aso dsaowed for the nterest passng to the survvng
spouse as an ncome benefcary or annutant under a trust n whch other persons
have an Interest, e cept as provded In subparagraph (F) of secton 812(e) (1).
Cause ( ) dsaows the marta deducton n cases where pursuant to the
decedent s drecton termnabe nterests are to be acqured for the survvng
spouse. Thus, under ths provson, f the decedent drects the e ecutor of hs
estate to purchase an annunty contract for the decedent s survvng spouse for
a term of years or for her fe, no marta deducton s aowed for the Interest
fo passng to the survvng spouse. In such a case It Is mmatera whether or
not other persons have, under causes (I) and (II), an Interest n the contract.
It s aso Immatera whether the decedent (n addton to drectng the purchase
of the annuty contract) desgnated or dd not desgnate the assets to be used
for the purchase. Cause ( ) aso appes to the acquston by a trustee, at the
drecton of the decedent, of a termnabe nterest for the survvng spouse.
The ast sentence of subparagraph ( ) contans a speca provson wth respect
to termnabe property. Under ths provson, an Interest Is not to be consdered
a termnabe Interest merey because t Is the ownershp of a bond, note, or
smar contractua obgaton, the dscharge of whch woud not have the effect of
an annuty for fe or for a term. Ths provson does not prevent the operaton
of subparagraph ( ) upon a parta Interest (such as a fe estate) of the sur-
vvng spouse In bonds or notes, wth respect to whch the marta deducton may
be dsaowed under causes () and (). Ths provson, however, has speca
appcaton n cases under cause ( I). n e ampe of a case n whch the
nterest of the survvng spouse n a note s not taken out of the category of a
termnabe nterest by reason of the ast sentence of subparagraph ( ), s a case
In whch the e ecutor s drected to end money to a trust and acqure Its note for
the survvng spouse wth terms provdng for the payment of prncpa and
nterest to the survvng spouse In equa nstaments over a term of years.
If the decedent drects hs e ecutor or trustee to purchase bonds or notes for
the survvng spouse, the marta deducton s not dsaowed under cause ( I),
uness the decedent drects the purchase of bonds or notes the dscharge of whch
has the effect of an annuty. owever, the marta deducton In such case may
aso be dsaowed If the survvng spouse s nterest In such bonds or notes s not
the compete nterest and causes () and (II) are appcabe by reason of an
nterest passng to another person.
Subparagraph (C) contans a speca rue, whch was not In the b as t passed
the ouse, wth respect to the survvng spouse s Interest In undentfed assets.
Ths rue Is addressed generay to stuatons n whch the survvng spouse s
a pecunary or resduary egatee or Is a benefcary of a trust created by the
decedent durng fe or by w, or Is the her of an Intestate decedent. In such
cases there has passed to the survvng spouse an nterest n property represented
by a the assets Incuded In the decedent s genera estate (whch does not ncude
assets named by the decedent to pass under specfc bequests) or ncuded In the
trust. owever, under the rue of subparagraph (C), If any such assets (In the
genera estate or trust) woud, f specfcay passng to the survvng spouse,
not be deductbe, the vaue of such asset sha be apped n reducton of the
amount otherwse deductbe for the genera or resduary bequest or transfer
n trust.
The appcaton of subparagraph (C) s ustrated by the foowng e ampes:
ampe (). The decedent bequeaths 50,000 to hs survvng spouse. The
genera estate ncudes a term for years (vaued at 60,000 n determnng the
vaue of the decedent s gross estate) n ackacre an nterest retaned by the
decedent after a gft of ackacre to hs son. ccordngy, the marta deducton
wth respect to the bequest of 50,000 s reduced to zero. It Is Immatera whether
the survvng spouse actuay receves the term for years.
ampe (2). The decedent durng hs fe created a trust reservng the
ncome for hmsef (and hs estate). The trust was to termnate upon the death
of the survvor of hmsef and hs wfe, at whch tme the corpus was to be pad
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to hs chdren. The decedent ded wth hs wfe survvng and the Income
nterest fe nto the resdue of hs estate. The decedent bequeathed one-haf of
the resdue to hs survvng spouse. The amount of the marta deducton for
the vaue of one-haf of the resdue s to be decreased by the vaue at the tme
of the decedent s death of such ncome nterest n the trust (and for any other
termnabe nterest ncuded n such resdue for whch a marta deducton woud
not be aowed f specfcay bequeathed or devsed to the decedent s survvng
spouse).
Subparagraph (C) appes to trusts n whch the survvng spouse has the re-
mander nterest and trusts under subparagraph (F) n whch the survvng
spouse has a power to appont the corpus. In such cases the marta deducton
wth respect to the vaue of the corpus Is reduced as provded In subparagraph
(C). In the case of a trust created durng the decedent s fetme, subparagraph
(C) appes to the trust assets as of the date of the decedent s death.
In determnng the assets out of whch the Interest passng to the survvng
spouse may be satsfed, such assets are determned pror to payment of any
genera cams, but wthout Incudng named property specfcay bequeathed
or devsed.
The dscamer provsons of paragraph ( ) of secton 812(e) are aso app-
cabe In con|uncton wth the termnabe Interest rue of secton 812(e) (1) ( ), as
Iustrated by the foowng e ampe:
ampe. The decedent devses ackacre to hs survvng spouse for fe and
remander to hs son. The son dscams the devse to hm and the remander
nterest fas nto the resdue of the estate whch s aso bequeathed to the sur-
vvng spouse. No marta deducton s aowed because under secton 812(e) ( )
the remander nterest s consdered as passng to the son as If the dscamer
bad not been made.
though secton 812(e) ( ) must be apped n determnng an Interest passng
to the survvng spouse and other persons, subparagraph (C) of secton 812(e) (1)
may reduce the amount of the marta deducton aowed after appcaton of
such paragraph ( ).
S CTION 812(e)(1) (D), ( ), (F), ND ( ). C PTIONS TO T T RMIN L
INT R ST RUL .
Subparagraph (D) of secton 812(e) (1) provdes an e cepton to the termnabe
nterest rue under subparagraph ( ) of such secton. Ths e cepton s for the
purpose of aowng the marta deducton n certan cases where there Is a con-
tngency wth respect to the nterest passng to the survvng spouse under a
common-dsaster cause or smar cause n the decedent s w. Under the
rue In the b as It passed the ouse, a marta deducton Is aowed wth respect
to an nterest whch does pass to the survvng spouse even though such Interest
woud have termnated or faed upon the death of such pouse, as ong as such
termnaton or faure coud have resuted ony f such death had occurred wthn
a perod not e ceedng s months after the decedent s death. Ths provson Is
amended n your commttee b so as to e tend the appcaton of the rue to
cases n whch the death of the survvng spouse woud cause a termnaton or
faure of her Interest ony f It occurred as a resut of a common dsaster resutng
In the death of the decedent and the survvng spouse. Your commttee b makes
subparagraph (D) appcabe aso In cases n whch death ether wthn the
6-month perod or as the resut of a common dsaster woud aone deprve the
survvng spouse of her Interest. In a such cases, subparagraph (D) appes ony
f such spouse does not In fact de wthn such perod or as a resut of such
common dsaster, as the case may be.
n e ampe of the appcaton of subparagraph (D) s a case In whch the
decedent s w provdes that a hs property sha pass to hs spouse If she
survves hm by three months; but f she does not survve hm such property
sha pass to the charty. In ths case the nterest of the survvng spouse
w termnate or fa ony If she des wthn three months foowng the date
of the decedent s death. If In fact she does not de before the e praton of
such perod (and accordngy the property passes to her under the terms of the
decedent s w), the marta deducton Is aowabe. It shoud be noted n
ths case that a contngent nterest n the property passed to the charty
and, but for the provsons of subparagraph (D) of secton 812(e)(1), the
marta deducton woud be dsaowed under subparagraph ( ) of secton
812(e)(1).
If the decedent s w provdes that the property otherwse bequeathed or
devsed under hs w to hs survvng spouse sha pass to other named persons
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If such spouse des as a resut of a common dsaster In whch he meets hs death,
and If at the moment of hs death the possbty e sts that such spouse w
de as a resut of such a common dsaster, then subparagraph (D) s appcabe.
In such a case the deducton w be aowed f under the oca aw the survvng
spouse does take the property, whether because t s determned that n fact
she dd not or coud not de In the dsaster In whch the decedent met hs death
or whether under the oca aw t s presumed that death more than s months
after the decedent s death can not resut from the dsaster n whch the decedent
met hs death. If no possbty e sts at the moment of the decedenfs death
that hs survvng spouse w de as a resut of a common dsaster, the mere
fact that there s a cause n hs w whch woud prevent the passng of an
nterest n property to her f she dd so de does not make her nterest termnabe.
If a cause n the decedent s w provdes that the property bequeathed or
devsed to hs spouse sha not pass to her If t can not be determned whether
she survved hm (whether or not they meet ther deaths n a common dsaster)
such cause does not make the nterest of the survvng spouse termnabe If
she In fact survves.
The rue of such subparagraph (D) does not appy to an ordnary fe estate,
such as under a devse of ackacre to the wfe for her fe wth remander to
. Whe t s true that death of the wfe wthn the 6-month perod w cause
a termnaton or faure of her Interest, It s aso true that her death at any
tme w aso cause such termnaton or faure and accordngy the case does
not meet the test of cause (I) of subparagraph (D).
Subparagraph (F) of secton 812(e)(1) aso provdes an e cepton to the
termnabe nterest provsons of subparagraph ( ) of such secton. Ths e -
cepton s for the purpose of aowng the marta deducton In the case of certan
trusts where the survvng spouse has a power of appontment. The other
provsons of secton 812(e) (1) are st appcabe generay to nterests passng
to the survvng spouse In trust. For e ampe, If the decedent by a transfer n
contempaton of death creates a trust provdng for a the ncome thereof to
be pad to hs spouse for 10 years and upon the end of such 10-year perod or the
pror death of the spouse the trust s to termnate and the corpus s to be pad
to hs spouse or her estate, the marta deducton s aowabe, even though at
the tme of death the trust Is st n effect In ths case, athough the nterest
of the spouse n the trust for 10 years Is a termnabe nterest, no person other
than the survvng spouse has an nterest n the trust. The vaue of the spouse s
nterest n the corpus s Incudbe In the marta deducton under subparagraph
( ) of secton 812(e) (1) nasmuch as t s not a termnabe Interest.
The provsons of subparagraph (F) of secton 812(e) (1) under the b as It
passed the ouse have been e panded In your commttee b. These provsons
have the effect of aowng a marta deducton wth respect to the vaue of
property transferred n trust by or at the drecton of the decedent where the
survvng spouse, by reason of her rght to the Income and a power of appontment,
Is the vrtua owner of the property. Ths provson Is desgned to aow the
marta deducton for such cases where the vaue of the property over whch the
survvng spouse has a power of appontment w (f not consumed) be sub|ect
to ether the estate ta or the gft ta n the case of such survvng spouse.
In order for the Interest In property transferred n trust to quafy for a
marta deducton under subparagraph (F), the foowng condtons must be met:
(1) The trust must be created by a transfer of property by the decedent durng
hs fetme or by hs drecton under hs w.
(2) Under the terms of the trust the survvng spouse must be entted for her
fe to a the ncome from the corpus of the trust. The term ncome s used
here n the same sense as It s used n secton 1C2 of the Code, reatng to Income
of estates and trusts. It s not necessary that the trust sha termnate upon
the death of the survvng spouse. The trust may termnate at an earer date
by reason of the e ercse of a power of appontment by the survvng spouse n
favor of any person or by reason of the appontment by any person of the corpus
of the trust to the survvng spouse. The requrement that the survvng spouse
be entted for fe to a the ncome from the corpus refers ony to the ncome
from the corpus as ong as the trust Is In e stence. If any person other than
the survvng spouse Is entted to any part of the Income from the corpus of the
trust durng the fe of such survvng spouse (other than ncome derved by such
person from any part of the corpus apponted by the survvng spouse), the trust
does not quafy.
(3) The survvng spouse must be entted to the ncome from the corpus of the
trust annuay, or at more frequent ntervas. Ths requrement dsquafes any
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trust the ncome of whch s requred to be accumuated or may, n the dscreton
of the trustee, be accumuated.
( ) The survvng spouse must have power to appont the entre corpus free
of trust, and such power must be e ercsabe n favor of such survvng spouse
or n favor of her estate. power to appont the corpus Incudes any power
whch In substance and effect s such a power regardess of the nomencature
used n creatng the power and oca property aw connotatons. If the power
s e ercsabe ony at death, the trust s not dsquafed merey because the
survvng spouse aso has the power to nvade ony part of the corpus durng her
fetme. It s aso mmatera f, n addton to the power to appont the entre
corpus free of trust, the survvng spouse has a esser power, such as to appont
any part of the corpus n trust for the beneft of others. owever, the survvng
spouse must have power to appont the entre corpus to hersef, or f she does not
have such a power she must have power to appont the entre corpus to her
estate. If one such power s her ony power, the requrement s met. She may
aso have any combnaton of addtona powers.
(5) If any person other than the survvng spouse had a power to appont
any part of the corpus, suc power must be e ercsabe ony In favor of the
survvng spouse.
(6) The power possessed by the survvng spouse to appont the entre corpus
free of trust must be e ercsabe aone and In a events. Nevertheess, the
trust Is not dsquafed merey because the power s e ercsabe ony durng
fe or ony by w. n e ampe of a power whch does not meet the requre-
ments s a power whch (uness sooner e ercsed or reeased) w termnate
on anuary 1, 1950, or on the date of death of the survvng spouse, whchever
occurs frst. n e ampe of a testamentary power not e ercsabe n a events
s a power e ercsabe by w ony f the survvng spouse does not remarry.
If the survvng spouse has a power to appont the corpus of a trust created dur-
ng the decedent s fe, the power must be e ercsabe, when vewed as of the
date of the decedent s death, n a events. The trust does not quafy under
subparagraph (F) f the survvng spouse s power to appont the corpus free
of trust s e ercsabe ony In con|uncton wth, or wth the consent of, another
person. ther the power possessed by the survvng spouse to appont durng
fe or her power to appont at death must meet both tests of beng e ercsabe
aone and In a events. If one such power meets the requrements, the m-
tatons or condtons on any other power are mmatera. If the survvng spouse
has ony the power to nvade corpus for her own beneft but such power s
e ercsabe ony n con|uncton wth, or wth the consent of another person, the
trust does not quafy.
If a the tests of subparagraph (F) are met, then the Interest n property-
transferred upon the creaton of the trust sha, for the purpose of the marta
deducton, be consdered as passng to the survvng spouse, and no part of the
Interest so passng sha be consdered as passng to any person other than the
survvng spouse. For e ampe, n the case of a trust to whch subparagraph
(F) appes, If the corpus of the trust, upon the faure of the survvng spouse
to e ercse the power of appontment, Is to pass to the decedent s chdren, the
entre Interest In such corpus Is nevertheess consdered to pass to the survv-
ng spouse, and no part of the Interest n trust s consdered as passng to any
other person.
ven though a trust meets a the tests of subparagraph (F), the provsons
of subparagraph ( ) (1) and () may dsaow the marta deducton where
the trust corpus conssts, In whoe or In part, of termnabe Interests. Thus, f
the decedent made a gft of ackacre to , reservng a term for 20 years, and
thereafter created a trust (quafyng under subparagraph (F)) over such
term n ackacre, a marta deducton s not aowed. Smary, subpara-
graph (C) may reduce the marta deducton otherwse aowabe under sub-
paragraph (F) n cases where the decedent merey drects the creaton of a
trust, the corpus of whch may consst of a termnabe Interest n the decedent s
genera estate.
The dscamer provsons of paragraph ( ) of secton 812(e) appy to the
dscamer by the survvng spouse of any Interest n property whch, under
subparagraph (F) or (G) of secton 812(e)(1), s consdered as passng from
the decedent to such spouse.
Subparagraph (G) of secton 812(e)(1), whch was not contaned In the
b as passed by the ouse, aso provdes an e cepton to the termnabe Interest
provsons of subparagraph.( ) of secton 812(e) (1). Ths e cepton s for the
purpose of aowng the marta deducton n the case of proceeds of fe nsur-
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ance upon the fe of the decedent where the survvng spouse Is entted to Insta-
ments of the proceeds and has the same type of power possessed by the survvng
spouse In the case of a trust to whch subparagraph (F) appes. Subparagraph
(G) appes ony If the proceeds of the nsurance are recevabe n nstaments,
commencng wthn one year after the decedent s death. The amounts payabe
to the survvng spouse must be nstaments whch have the effect of reducng
durng her fetme the aggregate proceeds of the pocy avaabe for future
payments.
S CTION 812(e) (1)( ) ND (2). LIMIT TION OF O P R C NT OP T
D UST D G 08S ST T .
Subparagraph ( ) of secton 812(e) (1) provdes that the aggregate amount
of the deductons (computed wthout regard to such subparagraph ( )) sha
not e ceed 50 per cent of the vaue of the ad|usted gross estate. The term
ad|usted gross estate s a new concept n the estate ta and s defned In
paragraph (2) of secton 812(e). Its use s confned soey to the computaton of
the 50 per cent mtaton.
Subparagraph ( ) of secton 812(e) (2) provdes the genera rue for compu-
taton of the ad|usted gross estate. Ths genera rue s the ony rue whch
w be appcabe n most cases, for t appes e cept where the decedent and tho
survvng spouse at any tme hed property as communty property. Under ths
genera rue the ad|usted gross estate s computed by subtractng from the entre
vaue of the gross estate the aggregate amount of the deductons aowed under
secton 812(b) of the Coda The vaue of the gross estate referred to In ths
rue s the vaue at the date of the decedent s death or, f the vaue of the gross
estate for the purpose of the ta s determned under the optona vauaton rue
of secton 811 ( ), the vaue so determned.
Under such subparagraph ( ), f the vaue of the decedent s gross estate Is
100,000 and the aggregate amount of deductons aowed under secton 812(b)
s 10,000, the aggregate deducton under secton 812(e) s mted to 50 per
cent of 90,000. If the aggregate vaue of the nterests passng to the survvng
spouse for whch deductons are aowed under secton 812(e)(1)( ) does not
e ceed 5,000, the entre vaue of the nterests so passng s deductbe n com-
putng the net estate. If the aggregate vaue of such nterests e ceeds 5,000,
the aggregate amount of deductons under secton 812(e) Is mted to 5,000.
In ths and other smar cases by reason of the specfc e empton aowed In
computng the net estate, no estate ta may be payabe. owever, t shoud
be noted that wherever the gross estate e ceeds the e empton of 30,000 pro-
vded n secton 935(c) of the Code, an estate ta return must be fed.
Subparagraph ( ) of secton 812(e)(2) provdes a speca rue for comput-
ng the ad|usted gross estate n cases nvovng communty property. Ths rue
appes ony f the decedent and hs survvng spouse at any tme hed property aa
communty property under the aw of any State, Terrtory, or possesson of
the Unted States, or of any foregn country. The genera effect of ths speca
rue Is to compute the ad|usted gross estate by subtractng from the vaue of
the gross estate the vaue of communty property ncuded n the gross estate
and the deductons under secton 812(b) whch are not aocated to such com-
munty property. The property, the vaue of whch s to be subtracted, s
specfed n causes (I), (11), and ( I), reatng, respectvey, to communty
property hed at death, communty property transferred durng fe, and nsurance
on the fe of the decedent purchased out of communty property. If premums
or other consderaton pad for nsurance on the fe of the decedent were pad
n part out of property hed as such communty property by the decedent and
hs survvng spouse and n part out of other property, the amount recevabe aa
such nsurance purchased wth such communty property s such porton of the
tota amount recevabe as the amount of such communty property so pad bears
to the tota amount of the premums or other consderaton pad. The amount
to be subtracted on account of deductons under secton 812(b) Is to be computed
by a mathematca cacuaton as provded n cause (v).
In ths connecton, t may be ponted out that secton 812(e) (1) appes to an
Interest n communty property (and n property formery hed as communty
property) and a marta deducton may be aowed wth respect to such an nterest.
owever, by means of the 50 per cent mtaton, the deducton may be reduced
or emnated. Thus, If a decedent s gross estate Incudes separate property n
addton to hs nterest n communty property, the marta deducton Is aowabe
to the e tent of the vaue of the separate property reduced (as provded n cause
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(v) of such subparagraph ( )) by a porton of the deductons under secton
812(b). If the vaue of a decedent s gross estate s 300,000, consstng of
200,000 for hs nterest n separate property (whch s not for the purpose of
secton 812(e) (2) ( ) consdered as communty property) and 100,000 for hs
nterest In communty property, and the decedent by hs w bequeaths 100,000
to hs survvng spouse, a marta deducton s aowed n an amount not n e cess
of 50 per cent of the baance of 200,000 remanng after subtractng the amount
computed under cause (v) for deductons. It s mmatera whether the decedent
bequeaths hs nterest n separate property or communty property to the survvng
spouse. owever, f the ony property Incuded n determnng the vaue of the
decedent s gross estate Is the vaue of hs Interest n communty property, no
marta deducton w be aowed because the ad|usted gross estate w be zero.
The property hed as such communty property, referred to n causes (),
(), and () of subparagraph ( ) s communty property wth certan e -
cusons and addtons. y reason of the ne t to the ast sentence of subparagraph
( ), such communty property does not ncude property hed as communty
property where the Interests of the spouses are determned under the aw of
Caforna n effect pror to uy 29, 1927. Such communty property aso does
not ncude property merey because It was once hed as communty property by
the decedent and a person who s not the decedent s survvng spouse.
owever, under subparagraph (C) there Is ncuded n the category of property
hed as such communty property certan separate property acqured by the
decedent as a resut of a converson of communty property (not e cudttd under
the rues prevousy stated). If the decedent and and hs survvng spouse at any
tme hed property as communty property, t w be necessary to estabsh such
part of the vaue of any separate property ncuded In the gross estate whch s
not to be consdered hed as such communty property. owever, ony con-
versons of communty property to separate property n the caendar year
19 2 and such conversons after the date of enactment of the b come wthn
the rue. The separate property acqured by the decedent n such a converson
and any property at any tme acqured after such converson by the decedent In
e change for such separate property (by one e change or a seres of e changes)
s consdered as hed as such communty property. Ths rue appes to part-
tons and other conversons of communty property, ncudng conversons to a
|ont tenancy, tenancy by the entrety or any other form of coownershp, whether
the partton or other converson s effected by one transacton or a seres of
transactons. Thus, f n 19 9 a husband transfers to hs spouse a of hs nterest
n ackacre hed by them as communty property and such spouse at the same
tme (or any other tme under an arrangement desgned to effect a partton)
transfers a of her nterest n other communty property to her husband, sub-
paragraph (C), upon the death of one spouse, s appcabe to the separate prop-
erty so acqured by the decedent. If n such a case, the vaue of the separate
property each spouse so acqured by such transacton (or seres of transactons)
s equa at the tme of ther acquston, the entre separate property so acqured
by the decedent s consdered as hed as such communty property.
Subparagraph (C) (11) has a speca rue appcabe to cases where the vaue
(at the tme of the converson) of the separate property so acqured by the
decedent e ceeded the vaue (at such tme) of the separate property so acqured
by the decedent s spouse. In such a case, ony that part of such separate property
(acqured by the decedent by such converson) whch s equa to such vaue of the
separate property so acqured by such spouse s consdered as hed as such
communty property. The porton of such separate property so consdered s
not merey an amount equa to the vaue of the spouse s separate property but
s a fractona part of the property, and the same fractona part of every prop-
erty acqured by the decedent In e change (by one e change or a seres of
e changes) for such separate property s to be consdered hed as such com-
munty property. If the decedent s spouse transfers to the decedent durng hs
fetme a her Interest n communty property and such property s Incuded
n determnng the vaue of the decedent s gross estate, then no part of the vaue
of such property Is consdered hed as such communty property and no part
of such vaue Is to be subtracted from the vaue of the gross estate n computng
the vaue of the ad|usted gross estate.
The foowng e ampe w ustrate the appcaton of cause (II). ack-
acre and 100 shares of stock were hed by and W, hs spouse, as communty
property, and n 19 2 receved the shares of stock as hs separate property
and W receved ackacre as her separate property. t the tme of the con-
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verson, the shares of stock were worth 100,000, and ackacre was worth
30,000. Thereafter sod the shares of stock and nvested the proceeds n
Whteacre, whch he owned at the tme of hs death In 19 9. Ony 30 per cent
of Whteacre s consdered as property hed as such communty property, for
upon appcaton of cause () such 30 per cent s obtaned n dvdng 30,000
(vaue of property receved by W) by 100,000 (vaue of property receved
by the decedent at the tme of the converson).
Separate property consdered under subparagraph (C) as property hed as
such communty property s consdered so hed for the purposes of causes
(), (), and () and the appcaton of the amount subtracted under such
causes n the rato n cause (v). Ths rue for treatng certan separate
property as communty property, however, does not appy to separate property
(and separate property acqured n e change therefor) acqured by a converson
to separate property of communty property where the nterests of the spouses
n such communty property s determned under the Caforna aw n effect
pror to uy 29, 1927. On the other hand, the rue does appy (sub|ect to the
mtatons as to tme and the porton of property consdered hed as such
communty property ) to separate property acqured by converson of any other
communty property hed by the decedent and hs survvng spouse, no matter
bow or from whom such other communty property was obtaned.
S CTION 302. P OP RTT PR IOUSLY T D.
The prncpa amendment made by ths secton generay dsaows wth
respect to property passng between spouses the deducton under secton 812(c)
of the Code for property prevousy ta ed. The deducton w not be aowed
wth respect to property receved by a decedent (for whose estate the deducton
under secton 812(c) s beng computed) from a pror decedent who ded after
the date of enactment of the b or from a donor by gft after such enactment,
f such pror decedent at the tme of death, or donor at the tme of the gft,
was the spouse of the decedent.
The deducton wth respect to any property s dsaowed f such property a
dsquafed under ( ), ( ), or (C) of the frst new paragraph added to secton
812 (c). deducton Is not prohbted under ( ) wth respect to property receved
from the decedent s spouse by a gft made pror to the enactment of the b.
owever, the deducton wth respect to such property w not be aowed f the
property s dsquafed as property receved from a pror decedent under ( ),
regardess of whether an estate ta was pad by the estate of the pror decedent.
Thus In the case of such a gft the deducton w not be aowed wth respect to
such property If It Is requred to be Incuded n the donor s gross estate, where
such donor ded after the enactment of the b and pror to the decedent s death,
and such donor at the tme of the donor s death was the spouse of the subsequent
decedent.
The deducton under secton 812(c) s dsaowed under ths amendment re-
gardess of whether a marta deducton was aowed under secton 812(e)
In computng the net estate of the pror decedent or under secton 100 (a)(3)
n computng the net gfts of the donor. The amendment s not appcabe under
secton 801(a) (2) n computng the deducton for property prevousy ta ed In
the case of estates of nonresdents not ctzens of the Unted States.
The dsquafcaton (for the deducton) e tends to property acqured by the
decedent n e change (whch Incudes a seres of e changes) for property ds-
quafed under ( ), ( ), or (C) of the frst new paragraph added to secton
812(c). Where property s hed at the tme of the pror decedent s death In
|ont ownershp wth rght of survvorshp, the nterest of the survvng spouse
s consdered receved from such pror decedent to the e tent of the part of such
property Incuded n determnng the vaue of the pror decedent s gross estate.
If property s gven by a thrd party to a husband and wfe as ont tenants
and upon the death of the husband one-haf of such property Is ncuded In
determnng the vaue of hs gross estate, then one-haf of such property Is re-
ceved by the survvng spouse from the husband and one-haf s receved from the
donor.
nother provson added n your commttee b Identfes the donor n the
case of a gft to the decedent where such gft s, by reason of the provsons
of secton 1000(f) of the Code (as added by secton 37 of ths b), consdered
made one-haf by a husband and one-haf by hs wfe. The gft ta rue under
secton 1000(f) Is to be apped and each spouse s consdered as the donor to the
e tent of one-haf the gft. Thus, a gft from an ndvdua of 50,000 to the de-
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cedent w be consdered for purposes of secton 812(c) as a gft of 25,000 from
such ndvdua and of 25,000 from hs spouse f the gft Is so consdered for gft
ta purposes. In such a case, f the husband pad a gft ta wth respect to any
part of the 25,000 consdered as a gft by hm but gft ta was not pad wth
respect to the 25,000 consdered as a gft by hs spouse (by reason of the
30,000 e empton under the gft ta ), the deducton under secton 812(c) Is
aowed ony wth respect to the 25,000 gft (or property acqured n e change
therefor) from the husband.
nother amendment to secton 812(c) of the Code provdes that the deducton
otherwse aowabe for property prevousy ta ed (as In the case of property
receved from a person not the decedent s spouse) Is to be reduced by a pro-
portonate part of the amount of the marta deducton aowed under secton
812(e) n computng the decedent s net estate. Ths reducton s consstent wth
the reducton under e stng aw on account of the deductons for cams, etc.,
under secton 812(b) and bequests to charty under secton 812(d).
S CTION 80S. CR DIT FO GIFT T ,
Ths secton, whch was not contaned In the b as t passed the ouse,
amends sectons 813(a) (2) and 936(b) of the Code, reatng to the credt aganst
the estate ta for certan gft ta es pad wth respect to property ncuded n
determnng the vaue of the gross estate of the decedent These amendments
gve effect In computng the credt for the gft ta to the estate and gft ta
provsons for a marta deducton under sectons 812(e) and 100 (a) (3) of the
Code, as added by the b, and to the gft ta provsons for spttng of gfts
of spouses to thrd partes under secton 1000(f) of the Code, as added by the b.
The credt for the gft ta provded n secton 813(a)(2) s sub|ect to two
mtatons: The frst mtaton s that now contaned n subparagraph ( ) of
such secton, and the second mtaton Is that now contaned n subparagraph
( ) of such secton. The frst mtaton Is contnued, e cept for carfyng
changes n anguage, In cause (1) of a new subparagraph (D). Under ths
mtaton, the credt for gft ta pad wth respect to any gft s the amount
whch bears the same rato to the tota ta pad for the year In whch the gft
was made as the amount of such gft bears to the tota amount of net gfts
(computed wthout deducton of the specfc e empton) for such year. Cause
(t) of the new subparagraph (D) Is a new provson whch s appcabe for
the purpose of the rue contaned In subparagraph (D)(1). Under ths cause
(II), the amount of the gft whch Is used n the rato for determnng the tota
ta pad attrbutabe to a gft does not ncude the amount of the annua e -
cuson ( 3,000 under e stng aw) aowed wth respect to such gft. The
amount of the gft aso does not ncude the amount aowed wth respect to such
gft as a chartabe deducton or as a marta deducton. Thus, for the purpose
of the computaton under new subparagraph (D), f the ony gft of the donor
to hs spouse durng a caendar year, and after the enactment of the Revenue
ct of 19 8, was 10,000, the amount of such gft for the purpose of the com-
putaton under subparagraph (D) s 2,000; that s, the 10,000 reduced by
the 3,000 annua e cuson and further reduced by the 5,000 marta deducton.
The provsons of cause (), to the e tent that they emnate from the amount
of the gft the annua e cuson and the chartabe deducton, represent e stng
aw.
The second mtaton on the amount of the credt for gft ta s contnued
n subparagraph ( ) of secton 813(a) (2) wth certan quafcatons. In
genera, under e stng aw ths provson mts the credt to (1) an amount
whch bears the same rato to (2) the basc estate ta as (3) the vaue of so
much of the property whch consttutes the gft as s Incuded n the gross
estate bears to ( ) the vaue of the entre gross estate. The ony change n such
subparagraph ( ) tsef s the emnaton from ( ), the vaue of the entre
gross estate, of the aggregate amount of the deductons aowed under secton
812 (d) and (e) (reatng respectvey to the chartabe deducton and the
marta deducton). The effect of ths provson Is to make the amount In ( )
smaer and accordngy to aow, generay, a arger credt for the gft ta
where ths mtaton s appcabe than woud be aowed If ths change were
not made. . .
The amount n (3), the vaue of so much of the property whch consttutes the
gft as Is Incuded n the gross estate, In the rato stated n subparagraph ( )
Is to be reduced as provded n new subparagraph ( ). The vaue (whch s the
vaue at the tme of the gft or at the tme of the death, whchever s ower)
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s to be reduced frst by such amount as w propery refect the amount of such
gft whch was e cuded on account of the annua e cuson In determnng the
tota amount of gfts made durng the year n whch the gft was made. Ths
reducton has ong been prescrbed by Treasury reguatons and represents
e stng aw.
The amount n Item (3) In the rato s aso to be reduced f a marta deducton
wth respect to the gft s aowed under secton 812(e). If the 50 per cent
mtaton on the deducton under 812(e) Is not appcabe (because the aggregate
deductons for the vaue of the nterests passng to the survvng spouse does not
e ceed 50 per cent of the ad|usted gross estate), then the amount n tem (3) Is
zero and consequenty no credt for the gft ta wth respect to such gft s
aowed. If, however, the 50 per cent mtaton s appcabe, then the amount
by whch the vaue In Item (3) Is to be reduced wth respect to each gft for
whch there s a marta deducton under secton 812(e) (1) (wthout regard to
subparagraph ( ) thereof) Is to be determned by the rato n cause () of
subparagraph ( ) of secton 813(a) (2). The amount of the reducton n such
case s an amount whch bears the same rato to such vaue In tem (3) (before
ths reducton but after the reducton for the annua e cuson under cause ())
as the aggregate amount of the marta deductons under secton 812(e) (after
the 50 per cent mtaton) bears to the aggregate amount of such marta
deductons computed wthout regard to such 50 per cent mtaton.
The reducton of the vaue to be used In the rato where an estate ta marta
deducton Is aowed wth respect to the gft s ustrated by a case In whch
property wth a vaue of 103,000 (at the tme of the gft and at death) Is trans-
ferred n fee by the decedent by gft n 19 9 n contempaton of death to hs
spouse and Incuded In the decedent s gross estate. If, n addton, bequests to
the survvng spouse for whch marta deductons are aowabe under secton
812(e) (1) ( ) were made In an amount equa to 297,000, and the vaue of the
ad|usted gross s 600,000, the aggregate amount of deductons permtted under
secton 812(e) Is 300,000. In such a case, the vaue of so much of the property
whch consttuted the gft as s Incuded In the gross estate, before reducton
of such vaue as provded n new subparagraph ( ) of secton 813(a)(2), s
103,000. It shoud be noted that ths amount Is the vaue of the property wthout
regard to any marta deducton whch may have been aowed for gft ta
purposes wth respect to the gft to the spouse. The amount of 103,000 a,
however, reduced (assumng ths was the frst or ony gft by the decedent durng
the year to hs spouse) by 3,000 on account of the e cuson under the gft ta
(the vaue of the property not havng changed), as provded n cause (1). The
baance of 100,000 s further reduced, as provded n cause (11), by the porton
of such amount for whch a marta deducton s aowed. Ths porton s
75,000, whch s that part of 100,000 whch 300,000 (the tota amount deducted
under secton 812(e)) bears to 00,000 (the aggregate marta deductons wth-
out regard to the 50 per cent mtaton).
The gft referred to n cause () wth respect to whcf a marta deducton s
aowed s not ntended to ncude gfts of property whch, soey by reason
of beng brought Into the gross estate (such as a gft In contempaton of death
whch s not tsef deductbe under secton 812(e)), ncreased the ad|usted gross
estate and hence the aggregate amount of deductons under secton 812(e).
If a so-caed chartabe deducton Is aowed wth respect to a gft, the amount
n Item (3) Is to be reduced so as to not aow any credt for the gft ta wth
respect to such gft. case n whch ths provson woud be appcabe s the
foowng: The decedent durng hs fe transferred In contempaton of death
property n trust to pay the ncome to for hs fe and, upon the death of .
to termnate the trust and dstrbute the corpus to the Y Foundaton. The Y
Foundaton at the tme of the gft, dd not quafy as a chartabe nsttuton
for whch a deducton was aowabe under secton 100 (a) (2) for the purpose of
the gft ta , but at the tme of the decedent s death dd quafy as a chartabe
nsttuton under secton 812(d) for whch a deducton n computng the net
estate s aowabe. In such a case, n appyng the mtaton n subparagraph
( ) for the purpose of determnng the credt wth respect to the gft to the
Y Foundaton, the amount n tem (3) of the rato w be reduced to zero.
In appyng causes () and (III) of subparagraph ( ) such gft referred
to theren, for whch a marta deducton or chartabe deducton Is aowed,
as the case may be, Is the gft to the survvng spouse or the gft to the charty
and does not ncude a gft to any other person even though such person and
the survvng spouse (or the charty) receved an nterest n property under the
same deed of gft. Thus, n the e ampe gven n the precedng paragraph of the
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transfer to for fe and then to the Y Foundaton, there are two gfts, one
to and the other to Y; and the amount of such vaue to be reduced as
provded In cause ( ) Is the vaue whch woud be Incuded n tem (3) of the
rato wth respect to e gft to Y.
Under the provsons of the b the computaton of credt for gft ta (under
both mtatons) s requred separatey wth respect to each gft and the aw
s ntended to operate on the bass of such separate computaton.
In the case of a gft to a spouse of an nterest as soe ont tenant wth the
donor or as a tenant by the entrety, a marta deducton equa to oue-haf of
the vaue of such nterest s aowed n computng net gfts by reason of the
provsons of secton 100 (a) (3) (C) of the Code (as added by secton 372 of the
b). In such a case, n computng the credt for the gft ta under the mtaton
n new subparagraph (D) of secton 813(a)(2), the amount of the gft used
n the rato under such mtaton does not ncude the amount of the marta
deducton aowed under secton 100 (a) (3) wth respect to the gft. In com-
putng the credt for the gft ta under the mtaton n subparagraph ( ) of
secton 813(a) (2), the vaue of so much of the property whch consttuted the
gft as s ncuded n the gross estate s (before reducton of such vaue as
provded n subparagraph ( )) the vaue, at the tme of the gft or at the tme
of the death, whchever s ower, of the nterest gven as |ont tenant or as
tenant by the entrety.
The mtatons on the credt n the case of a gft of a ont nterest s Iustrated
by a case In whch a donor n 10 9 purchases ackacre, havng a vaue of 206,000,
for hmsef and hs spouse as |ont tenants. e thereby makes a gft of 103,000
for whch a gft ta marta deducton of 51,500 s aowed. The amount of the
gft for the purposes of the credt for gft ta pad wth respect to such gft,
computed under new subparagraph (D), Is 8,500 (that s, 103,000 reduced by
the 3,000 e cuson and 51,500 marta deducton). ssumng that the vaue
of ackacre remaned unchanged at the donor s death, 206,000 s Incuded n hs
gross estate wth respect to ackacre and a marta deducton s aowed n the
amount of 206,000 under secton 812(e)(1)( ) (before appcaton of the
50 per cent mtaton). owever, the vaue to be used n the rato for computng
the mtaton under subparagraph ( ) (before reducton under subparagraph
( )) s 103,000, whch was the vaue of the Interest transferred by gft. ssume
the decedent s ad|usted gross estate (ncudng the vaue of the ont tenancy)
was 1,000,000, of whch 59 ,000 (n addton to the survvorshp nterest) passed
to hs survvng spouse. The aggregate amount of marta deductons, therefore,
s mted to 500,000. In such case, the credt for the gft ta pad, determned
under the mtaton n subparagraph ( ), s that porton of the estate ta used
n the rato whch 37,500 bears to 500,000 (the gross estate reduced by the mar-
ta deductons aowed). The amount 37,500 s obtaned by reducng 103,000
frst by the 3,000 e cuson and by reducng the baance, 100,000, by 62,500; that
s, that porton of 100,000 whch 500,000 (the aggregate amount of marta de-
ductons aowed under secton 812(e) bears to 800,000 (the aggregate marta
deductons under secton 812(e) computed wthout the 50 per cent mtaton).
new subparagraph (C) s added to secton 813(a)(1) for determnng the
credt for the gft ta n the case of gfts whch, for purposes of the gft ta (under
secton 1000(f) of the Code, as added by secton 37 of the b) are consdered
made one-haf by the decedent and one-haf by hs spouse. The prncpa effect
of ths provson s to aow the estate of a decedent who was the actua donor
of the gft a gft ta credt wth respect to the entre gft.
It s contempated under ths provson that the credt w be computed wth
respect to both haves of the gft. Thus, wth respect to the haf consdered a
gft by the decedent for gft ta purposes, the credt s computed as provded
n new subparagraph (D) for the proportonate part of the gft ta of the
decedent pad wth respect to such haf. credt s aso aowed such decedent s
estate for the proportonate part of the gft ta of hs spouse pad wth respect to
the haf consdered as a gft made by her, aso computed by appyng new sub-
paragraph (D). In determnng the mtaton n subparagraph ( ) wth respect
to the porton of the estate ta attrbutabe to the gft actuay made by the
decedent, such mtaton s apped wth respect to the combned vaue of the two
haves of such gft, the vaue of each haf beng frst separatey reduced as provded
In subparagraph ( ).
In the case of property hed by the decedent and hs spouse onty a gft of
Ruch property by them resuts, f secton 1000(f) of the Code Is made appcabe
by a proper consent, In a gft by each spouse of one-haf of hs undvded nterest
and of one-haf of hs spouse s undvded Interest. In such a case, the decedent
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s entted to a credt for the gft ta pad wth respect to hs Interest n the
property whch can be ncuded n the vaue of hs gross estate. Therefore, the
credt s aowed n the case of such a decedent for the gft ta pad wth respect
to the haf of hs nterest consdered a gft by hm and for the other haf of hs
nterest consdered a gft by hs spouse.
Thus, f a husband and wfe each contrbute 20,000 to purchase ackacre
(havng a vaue of 0,000) as |ont tenants, and convey ackacre by gft to ther
son, and secton 1000(f) of the Code Is made appcabe, each s consdered as
havng made a gft of 20,000. ach spouse has gven 10,000 of hs haf nterest
n ackacre, and 10,000 of hs spouse s haf nterest n ackacre. ssumng
20,000 s Incuded n the husband s gross estate by reason of the transfer, hs
estate s entted to credt for the gft ta pad for the gft of 10,000 consdered
made by hm of haf of hs nterest n ackacre and for the gft of 10,000 con-
sdered made by hs spouse out of the other haf of the decedent s nterest n
ackacre. The credt wth respect to such 10,000 gft consdered made by hs
spouse s computed under new subparagraph (D) as apped to the gft ta of
such spouse. Thus, f by reason of the e empton aowed n computng net
gfts, no gft ta s pad wth respect to the gft by the spouse of the decedent, the
decedent s estate Is entted to a credt ony wth respect to the gft ta pad wth
respect to hs gft of 10,000 out of hs haf Interest n ackacre, even though
he aso pays a gft ta wth respect to the 10,000 gft consdered made by hm
out of hs spouse s haf Interest. The effect of the provson, therefore, s to
aow the decedent s estate a credt upon the average gft-ta rate as between the
spouses wth respect to the gft of the |onty hed property. If an e empton or
an e cuson s aowed, wth respect to the transfer of the ont property by gft,
n computng net gfts of a spouse, the amount so aowed sha be consdered
aowed one-haf wth respect to the gft made by such spouse out of hs nterest
n the property and one-haf wth respect to the gft consdered made by such
spouse out of the other spouse s Interest In the property.
mendments correspondng to those made n secton 813(a) (1) are aso made
In secton 936(b), reatng to the credt aganst the addtona estate ta for gft
ta es pad.
The amendments made by ths secton are appcabe wth respect to estates of
decedents dyng after the date of enactment of the b. These amendments are
appcabe n computng the credt aganst the estate ta In the case of estates
of nonresdents not ctzens of the Unted States (athough the amendments wth
respect to gfts for whch a marta deducton s aowed w have mted effect
because such deducton Is not aowed In the case of a nonresdent aen donor
and a nonresdent aen decedent).
S CTION 36 . OPTION L LU TION.
The amendment made by ths secton to secton 811 (|) of the Code, reatng to
the optona method of determnng the vaue of the gross estate, s made neces-
sary by secton 301 of the b provdng for a marta deducton In computng the
net estate.
Ths amendment e tends to the vauaton of an nterest In property for whch
a marta deducton s aowed substantay the same rue as s appcabe under
e stng aw In determnng under the optona vauaton method the vaue of
any chartabe bequest for whch a deducton s aowed under secton 812(d) of
the Code.
S CTION 365. LI ILITY OF LIF INSUR NC N FICI RI S, TC.
Secton 826 (c) and (d) of e stng aw provdes a rue of apportonment wth
respect to the contrbuton on nccount of estate ta pad whch the e ecutor may
coect from the benefcares of nsurance poces on the decedent s fe and from
the recpents of property over whch the decedent had a power of appontment.
Ths secton of the b, whch was not contaned In the b as t passed the ouse,
s desgned to gve proper effect, n apportonng any abty under secton 826
(c) or (d) n the case of the decedent s survvng spouse, to the marta deducton
aowed under secton 812(e) of the Code (as added by secton 361 of the b)
wth respect to such nsurance proceeds or property (sub|ect to the power) whch
passed to her.
If the aggregate amount of marta deductons under secton 812(e) s aowed
(wthout mtaton under secton 812(e) (1) ( ) to 50 per cent of the ad|usted
gross estate) secton 826(c) and secton 826(d) do not appy to such nsurance
proceeds or property (sub|ect to the power) for whch a marta dfaucton Is
aowed. If the 50 per cent mtaton s appcabe, au order of prorty s estab-
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351
shed by the amendment for determnng the porton of the nsurance proceeds
or property (sub|ect to the power) recevabe by the survvng spouse for whch
the marta deducton was aowed. In such a case, the marta deducton s con-
sdered aowed frst wth respect to the nsurance proceeds to the e tent of the
amount of such proceeds so recevabe, and second (the baance of the marta
deducton) s consdered aowed wth respect to the property (sub|ect to the
power) to the e tent of the vaue of such property. The amendments, however,
do not change the apportonment under e stng aw n the case of nsurance
proceeds or property (sub|ect to the power) recevabe by the survvng spouse
(or any other person) for whch no marta deducton s aowed.
S CTION 366. SIS OF SUR I ING SPOUS S INT R ST IN COMMUNITY PROP RTY.
Ths secton, not contaned n the ouse b, amends secton 113(a) (5) of the
Code, reatng to the bass for determnng gan or oss for ncome ta purposes.
The amendment prescrbes for the survvng spouse, after the death of the de-
cedent, a new bass for her porton of the property hed, at the tme of such death,
by the decedent and hs spouse as communty property. Under e stng aw, the
survvng spouse s bass for such property s the same after the death of the de-
cedent as before. Under the amendment, the survvng spouse s regarded, after
such death, as acqurng such porton of the communty property by devse,
bequest, or nhertance, wth the same bass as f so acqured from the decedent.
cept n the case of certan foregn persona hodng company stock, ths bass
s the far market vaue of the property at the tme of the decedent s death, or
n case the e ecutor of the decedent s estate eects the optona vauaton date
under secton 811 (|), such vaue at such date.
The amendment appes ony f at east one-haf of the whoe of the communty
Interest n such property was ncudbe In determnng the vaue of the decedent s
gross estate under secton 811. Thus a husband w not have a new bass for hs
part of the communty property upon the death of hs wfe n those stuatons n
whch her nterest n ther communty property Is not sub|ect to the estate ta
because of the mted nature of her nterest, as s the case wth communty prop-
erty under the aw of Nevada and New Me co, and certan communty property,
under the aw of Caforna, acqured by the communty pror to pr 16,1023.
The amendment appes ony wth respect to communty property where the
decedent ded after the date of the enactment of the b.
Part III Gft Ta .
S CTION 371. GIFTS OF COMMUNITY PROP RTY.
Secton 1000(d) of the Interna Revenue Code provdes a speca rue for
treatment of transfers of communty property by gft. Ths secton of the b,
whch s the same as secton 35 of the b passed by the ouse, provdes that
secton 1000(d) sha be appcabe ony to gfts made after the caendar year
19 2 (when the gft ta provsons of the Revenue ct of 19 2 frst became effec-
tve) and on or before the date of enactment of ths b. Thus, n the case of a
gft of communty property after the date of enactment of ths b the e tent to
whch the gft Is that of the husband and wfe sha be determned wthout regard
to secton 1000(d) of the Code. owever, for the purpose of the computaton of
ta under secton 1001 of the Code, secton 1000(d) sha be appcabe n deter-
mnng net gfts wth respect to gfts of communty property made after the
caendar year 19 2 and on or before the date of the enactment of ths b. The
net gfts for such perod are ncuded In the net gfts for precedng caendar years,
to whch are added the net gfts made for a current caendar year n order to
determne the rate at whch the net gfts for the current caendar year w be
ta ed. The above appcaton of secton 1000(d) s mted to the purposes of
the gft ta and does not appy In determnng the e tent to whch transfers of
communty property are transfers by the decedent under the estate ta .
S CTION 372. M RIT L D DUCTIONS.
Ths secton adds a new paragraph (3) to secton 100 (a) of the Code so as to
provde a marta deducton n computng net gfts of ctzens and resdents of
the Unted States. Ths gft ta marta deducton corresponds to the estate ta
marta deducton provded under secton 812(e) of the Code, as added by secton
361 of the b. The provsons of secton 100 (a) (3) are ntended to be construed
n the same manner as the correspondng estate ta provsons.
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The marta deducton wth respect to any gft Is aowed ony for gfts after
the date of enactment of the b. It s not aowed In the case of gfts by
nonresdent aens, but s aowed In the case of a gft by a ctzen or resdent to
hs nonresdent aen spouse.
The genera rue for the gft ta marta deducton Is set forth n subparagraph
( ) of secton 100 (a) (3). Under ths rue, the marta deducton Is an amount
equa to one-haf the vaue of any gft of an Interest n property to a donee
who at the tme of the gft Is the donor s spouse. Ths genera rue corresponds)
to the genera rue under secton 812(e)(1)( ) In the case of the estate ta
marta deducton. It shoud be noted, however, that the gft ta marta deduc-
ton s mted to haf the vaue of the gft of an nterest In property, whe the
correspondng estate ta deducton s aowed for the entre vaue of an nterest
n property passng, but a mtaton of 50 per cent of the vaue of the ad|usted
gross estate s paced on the aggregate amount of marta deductons under the
estate ta .
The marta deducton aowed under secton 100 (a) (3) Is determned wth
respect to each gft to a spouse. The marta deducton wth respect to any gft
s determned wthout regard to the annua e cuson ( 3,000 under e stng
aw) aowed n computng the tota amount of gfts to the donee spouse.
Thus, f, after the enactment of the b, the frst gft (n the caendar year) of a
donor to hs spouse s 10,000, there w be aowed an e cuson of 3,000 and
a marta deducton of 5,000 (one-haf of 10,000). mtaton on the tota
marta deductons aowed for each year to the tota amount of the gfts for
whch such deductons are aowabe Is provded by an amendment made by
secton 373 of the b to secton 100 (c) of the Code.
The deducton Is aowed ony wth respect to a gft to a donee who at the tme
of the gft s the donor s spouse. Thus no marta deducton s aowed wth
respect to a gft to an ndvdua who was not the donor s spouse at the tme of
the gft even though such ndvdua was the donor s spouse some other tme
durng the caendar year for whch the gft was made or any other tme.
The genera rue of subparagraph ( ) s sub|ect to the e ceptons provded In
the subsequent subparagraphs of secton 100 (a)(3). Subparagraph ( ) con-
tans an e cepton wth respect to fe estates and other termnabe nterests gen-
eray correspondng to the provsons of secton 812(e)(1)( ). Cause (1) of
subparagraph ( ) corresponds to the provsons of causes (1) and (11) of secton
812(e)(1)( ) In dsaowng the marta deducton wth respect to termnabe
nterests In property In whch the donor aso transfers or has transferred an
Interest to a person other than hs spouse or her estate.
In addton, cause (1) of secton 100 (a) (3) ( ) dsaows a marta deducton
In the case of a gft of a termnabe nterest f the donor retans n hmsef an
nterest n the property and If by reason of such retenton the donor (or hs hers
or assgns) may possess or en|oy any part of such property after the termnaton
or faure of the nterest transferred to the donee spouse. The same concepts are
appcabe n determnng whether the donor has retaned an nterest n the prop-
erty In whch he gves an Interest to hs spouse as are appcabe n the case of a
transfer by hm of an nterest to any other person. For e ampe, f a donor
purchases an annuty contract payabe to hs wfe for her fe wth refund of any
undstrbuted porton of the fund to the donor or hs estate, no marta deducton
Is aowed. If the donor purchases an annuty contract provdng for payments
to be made frst to the donor for hs fe and then to hs spouse for her fe, f
survvng the donor, and for no refund of any unpad porton of the fund, no
marta deducton s aowed; for the donor may, f he survves hs spouse, possess
or en|oy hs retaned nterest after the faure of her Interest If the contract
provdes for a refund to the spouse s estate of any unpad porton of the fund, a
marta deducton s not aowed; for the rght to any refund may termnate
pror to the donor s death.
Speca rues are aso provded In subparagraph ( ) In cases n whch the donor
has or retans a power to appont an nterest n property. For the purposes of
cause (1), an e ercse or reease at any tme by the donor, ether aone or n con-
|uncton wth any person of a power to appont an nterest n property, even
though not otherwse a transfer, s consdered as a transfer by the donor. Ths
rue s appcabe, for e ampe, n a case n whch the donor was the soe benefcary
of the ncome from a trust and had the power to appont the corpus of the trust
upon ts termnaton. If the donor reeased hs power to appont (hs spouse not
beng the taker n defaut of appontment) and assgned hs entre ncome nterest
to hs spouse, the marta deducton s not aowed wth respect to the gft to the
spouse. The reease of the power s consdered a transfer by the donor to the
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taker In defaut. It Is Immatera whether the power so reeased Is a power of
appontment wthn the defnton In secton 1000(c) of the code or whether such
reease was for gft ta purposes (other than cause ()) consdered a transfer,
or whether the power was reeased any tme before or at the same tme as the gft
to the spouse. reease of a power ncudes the faure to e ercse a power to the
e tent such faure has the effect of termnatng the power.
Cause (11) of secton 100 (a) (3) ( ) has a speca rue for treatng a power
to appont possessed by the donor mmedatey after the gft to hs spouse as an
Interest n property retaned by the donor. Thus, f the donor has a power of
appontment over -ackacre and apponts a fe estate n ackacre to hs spouse,
retanng the power to appont the remander Interest, a marta deducton s not
aowed wth respect to the gft to hs spouse. The retaned power need not be
a ta abe power of appontment under secton 1000(c) n order to dsquafy the
nterest gven to hs spouse for the marta deducton.
The donor s consdered as havng mmedatey after the transfer to hs spouse
a retaned power to appont even though such power to appont can not be e er-
csed unt after the apse of tme, upon the occurrence of an event or contngency,
or upon the faure of an event or contngency to occur. Under ths provson the
donor s consdered as havng mmedatey a power to appont where he has a
power the e ercse of whch can be made effectvey ony n the future. Thus, f
the donor s entted to the Income of a trust for 10 years wth power to appont
the corpus after such perod, a gft of the ncome Interest to hs spouse does not
quafy for a marta deducton. If a husband gves the entre nterest n prop-
erty to hs spouse and, by what s In effect a part of the transacton, she gves
hm a power to appont any nterest n such property, the marta deducton s
not aowed wth respect to the gft by the husband.
Subparagraph (C) of secton 100 (a)(3) corresponds to subparagraph (C) of
secton 812(e)(1) under the estate ta . Ths provson has partcuar appca-
ton under the gft ta to gfts n trust under whch the donor s spouse has the
remander Interest or the trust Income and a power to appont to hersef or her
estate. In such cases ths provson has the effect of reducng the marta deduc-
ton on account of the vaue of assets transferred by the donor n trust for whch
a marta deducton woud not be aowed f such assets were transferred by gft
from the donor to such spouse.
Subparagraph (D) of secton 100 (a) (3) takes out of the rue for termnabe
nterests a gft by a donor to hs spouse as |ont tenant wth the donor or as
tenant by the entrety, and permts a marta deducton. If the spouse s not the
soe ont tenant wth the donor, the rues of subparagraph ( ) operate to ds-
aow entrey the deducton for the gft to the spouse of an nterest In the |ont
tenancy.
Subparagraph ( ) of secton 100 (a) (3) aso contans an e cepton from the
termnabe Interest rue, appcabe In the case of certan gfts In trust wth a
power of appontment n the donee spouse. Ths provson corresponds to secton
812(e) (1) (F), wth respect to the estate ta marta deducton.
Subparagraph (F) of secton 100 (a) (3) dsaows the marta deducton In
the case of gfts of the donor s nterest n communty property and of hs nterest
n certan separate property whch s, for the purposes of ths provson, consd-
ered as communty property. The rues n ths subparagraph for determnng
such separate property whch s consdered as communty property correspond
generay to smar provsons contaned n secton 812(e) (2) ( ) and (C) wth
respect to the estate ta marta deducton. The communty property referred
to s property hed as communty property wth the person who s the donor s
spouse at the tme of the gft. Thus the rue s not appcabe wth respect to
separate property whch never was hed as communty property wth the donee
spouse athough It may have been hed as communty property wth a former
spouse of the donor.
The gft ta amendments provdng for a marta deducton do not contan nny
provson correspondng to the dscamer provsons under the estate ta marta
deducton (secton 812(e)( ) of te Code, as added by secton 361 of the b).
Such provsons are unnecessary under the gft ta for the reason that f any
person dscams or refuses an attempted gft a transfer by gft s not consdered
made.
S CTION 373. T C NIC L M NDM NT.
Ths secton amends secton 100 (c) of the Code, reatng to the e tent of deduc-
tons aowed n computng net gfts. The amendment has the effect of mtng
the marta deducton wth respect to gfts to a spouse n any caendar year to the
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35

amount of such gfts Incuded for the purposes of computng net gfts. Thus If
the ony gft by a donor to hs spouse durng a caendar year s 5,000, an e cu-
son of 3,000 s aowed so that the amount ncuded n net gfts s 2,000.
marta deducton s aowed In the amount of 2,500 by secton 100 (a) (3) but
mted by secton 100 (c) to 2,000. Secton 100 (c) appes ony to the tota
deductons aowed under any one paragraph of secton 100 n computng net
gfts. Its operaton s ustrated by the foowng case: donor transferred
,000 by gft to hs spouse n anuary, 19 9, and ,000 by gft to her n uy,
19 9, and made no other gfts to her durng the year. The marta deductons
aowed under secton 100 (a)(3) n such a case (wthout regard to secton
100 (c)) tota ,000 (that s, two deductons of 2,000 each). Snce ony one
3,000 annua e cuson s aowed for the gfts to the donee spouse, the e tent
to whch the two gfts (tota 8,000) are ncuded n the amount of gfts for the
purpose of determnng net gfts s 5,000. ccordngy, snce the tota marta
deductons ( ,000) do not e ceed 5,000, the marta deductons are aowed
n fu.
S CTION 87 . GIFT T US ND O WIF TO T I D P TT.
Ths secton amends secton 1000 of the Code, reatng to the mposton of
the gft ta , by addng a new subsecton, desgnated (f), provdng for the
so-caed spttng between spouses of gfts made to thrd partes. Subpara-
graph ( ) of secton 1000(f)(1) provdes the genera rue whereby a gft by
one spouse to any person other than hs spouse Is consdered (If consent has
been sgnfed as herenafter e paned) as made one-haf by hm and one-haf
by hs spouse. Ths rue appes ony to gfts made after the enactment of the
b and ony f at the tme of the gft each spouse s a ctzen or resdent of the
Unted States. n ndvdua Is consdered as the spouse of another ndvdua
for the purpose of ths rue ony If he s marred to such ndvdua at the
tme of the gft and does not remarry durng the remander of the caendar year.
Thus, If an Indvdua who s not marred makes a gft to and ater In the
same caendar year marres Y, the gft to can not be consdered as a gft
made one-haf by such ndvdua and one-haf by Y n ther gft ta returns for
the caendar year n whch the gft was made.
provson s added n your commttee b whch appes n the case of a
gft of an nterest n property over whch the donor creates In hs spouse a
power of appontment, as defned In secton 1000(c) of-the Code. n e ampe
of a case to whch ths provson appes Is a case n whch a husband creates
a trust, the ncome of whch s to be accumuated, and provdes that hs spouse
sha have a testamentary power of appontment e ercsabe In favor of any
person, but In the event of a faure to e ercse such power the property sha
pass free of the trust to . In such a case, no part of the Interest sub|ect to
the spouse s power of appontment may for the purposes of secton 1000(f) of
the Code be consdered as a gft to a thrd party.
The spttng of gfts made by ether spouse to thrd partes s not mandatory
but s permtted ony f both spouses consent. The consent f made wth respect
to any gft durng the caendar year appes wth respect to a gfts made to
thrd partes durng such caendar year. consent sgnfed wth respect to
gfts made n a caendar year s effectve wth respect to such gfts n computng
the gft ta for a future caendar years n whch such gfts enter nto the base
for computng the ta for such future years.
The consent f made wth respect to any gft durng the year appes to a
gfts to thrd partes durng the caendar year made out of communty property,
or property hed by the spouses as |ont tenants or as tenants by the entrety.
In such a case each spouse s consdered to have made a gft of one-haf of hs
Interest n |ont property gven and one-haf of hs spouse s nterest n the
|ont property gven. consent sgnfed does not have the effect of spttng
any gft to the donor s spouse, even though no marta deducton s aowed under
secton 100 (a) (3) for such gft.
The consent whch s sgnfed s effectve to spt the gfts of a spouse ony
for the purpose of the gft ta e cept as e pressy provded esewhere. Thus a
consent sgnfed for gft ta purposes does not affect the bass for Income ta
purposes under secton 113(a)(2) of the Code of the thrd party donee wth
respect to the property gven. Secton 812(c) of the Code s amended by secton
362 of the b to provde speca rues gvng effect to such spttng of gfts
In determnng for the purposes of the estate ta the deducton for property
prevousy ta ed under the gft tu . Secton 813(a) (2) of the Code s amended
by secton 303 of the b to permt the decedent s estate a credt for gft ta
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355
pad wth respect to property ncuded n the decedent s gross estate but con-
sdered for gft ta purposes as gven one-haf by hs spouse.
Paragraphs (2) and (3) of secton 1000(f) provde speca rues reatng to
the tme and manner of sgnfyng the consent and the revocaton of a consent.
These rues are modfcatons of correspondng provsons In the b as passed
by the ouse. consent and the revocaton of a consent sha be sgnfed n
such manner as s provded under reguatons prescrbed by the Commssoner
wth the approva of the Secretary. The tme wthn whch such consent or
revocaton may be sgnfed, however, s sub|ect to certan speca rues. Inas-
much as the Commssoner s authorzed to provde by reguatons the manner
n whch the consent may be sgnfed, the Commssoner may requre the consent
to be sgnfed on the returns of the spouses.
Under subparagraph ( ) of secton 1000(f) (2) the consent may be sgnfed
at any tme after the cose of the caendar year n whch the gft was made,
sub|ect to mtatons of tme beyond whch the consent may not be sgnfed.
The genera rue s that the consent may not be sgnfed after the 15th day
of March foowng the cose of the caendar year n whch the gft was made.
n e cepton to ths rue s made n cases where before such date no return
was fed for such year by ether spouse. In such cases the consent may not
be sgnfed after a return for such year s fed by ether spouse. Under ths
rue f an e tenson of tme s obtaned for both spouses for fng ther returns
for the caendar year n whch the gft was made, the consent may be sgnfed
at any tme on or before the day the return of the spouse frst to fe s fed.
mtaton on the e cepton s provded n cases n whch a notce of defcency
wth respect to the ta for the year n_whch the gft was made s, before both
spouses have sgnfed the consent, sent to ether spouse In accordance wth
secton 1012(a) of the Code. In such cases the consent can not be sgnfed
after the defcency notce s maed.
The rght to revoke a consent prevousy sgnfed wth respect to a caendar
year s sub|ect to the tme mtatons prescrbed n paragraph (3) of secton
1000(f). The frst mtaton s that a consent sgnfed on or before the 15th
day of March foowng the cose of the caendar year n whch the gft was
made can not be revoked after such 15th day. The second mtaton s that
a consent sgnfed after such 15th day can not be revoked. Thus f the spouses
obtan an e tenson of tme for fng ther returns to a date after March 15 and
fe the consent after March 15, such consent can not be revoked regardess of
when the returns are fed.
Paragraph ( ) of secton 1000(f) provdes that f the consent Is sgnfed wth
respect to a gft In any caendar year the abty wth respect to. the entre
ta mposed by Chaper of the Code of each spouse for such year sha be |ont
and severa. The consent referred to In ths provson s a consent whch s
vady sgnfed and not revoked. It s not contempated under ths provson
that where one spouse pays the entre ta abty of both spouses any gft ta
w resut by reason of payment of the abty of the other spouse. The prov-
son for ont and severa abty appes wth respect to the entre ta of
each spouse for the caendar year and appes, therefore, wth respect to gfts
made between the spouses and aso appes wth respect to gfts of communty
property and property hed In other forms of coownershp.
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IND .
ccountng perod of spouses, change
dmssons ta . (See Msceaneous ta es: dmssons, etc.)
ffated corporatons, consodated ncome and e cess profts
ta returns
grcutura products, far vaue, contrbuted, ta abty
mendments:
Gaugng Manua, rtces II and III
Reguatons 111
Sectons 29.22(c)-8, 29.22(d)-, and 29.22(d1-2
Sectons 29.22(k)-, 29.51-1, 29.101 (18)-1, 29.113(c)-
1, 29.122- , 29.165-7, 29.207-1, 29.212-1
Secton 29.1 3-3- -- -
Secton 29. 6-1
Secton 29.53-1
Reguatons 110, secton 33.31(b)(2)
Reguatons 108
Sectons 86.1, 86.2, and 80.3
Secton 86.21 -.
Reguatons 105, sectons 81.3 , 81.73, and 81.96-.
Reguatons 103
Secton 19.22(d)-2
Secton 19.127(a)-
Reguatons 71 (19 1), sectons 113.20, 113.23, 113.30,
113.32, 113.33, 113.35, 113.60, 113.62, 113.63, 113.65
Reguatons 3 (19 1), sectons 101.5, 101.15, and 101.18-.
Reguatons 2 (19 2), secton 130.63
Reguatons 28, sectons 176.1, 176.11(a), 176.12-176.15,
ncusve, 176.16(6), 176.16(6)(2) (revoked), 176.17a to
176.17k and 176.17m to 176.17p, ncusve (added),
176.18, 176.19(6) (revoked), 176.20, 176.21, 176.2 ,
176.32, 176.3 , 176.35(a), 176.36, 176.37, 176.39, 176. 1,
176. 2(a), 176. 6, 176. 8, 176. 9, 176.52(a), 176.53,
176.56, 176.67, and 176.58
Reguatons 15, sectons 190.26, 190. 0a (added), 190.292,
190.29 a (added), 190.337, 190.338, and 190.339
Reguatons 11
Sectons 189.11, 189.18a (added), 189.128, and 189.129.
Sectons 189.131 and 189.135 --
Reguatons 10, sectons 185.112a (added), 185.15 , 185.155,
185.215, 185.272, 185.298, 185.298a-185,298b (added),
185.299, 186.300, 185.301, 185.302, 185.310, 185.311,
185.312, 185.312a (added), 185.312b (added), 185.312c
(added), 185.313, 185.31 , 185.366, 185. 71, 185. 9 ,
185. 95
Reguatons 5, sectons 18 .311, 18 .313, 18 .31 , 18 .315,
18 .315a (added), 18 .316, 18 .323, 18 .32 , 18 .327,
18 .328, 18 .329, 18 .329a (added), 18 .330, 18 .332,
18 .333, 18 .33 , 18 . 6, 18 . 7
Reguatons No. 5, coho Ta ct
Reguatons , sectons 183.310, 183.312, 183.313, 183.31 ,
183.31 a (added), 183.315, 183.322, 183.323, 183.326,
183.327, 183.328, 183.328a (added), 183.329, 183.331,
183.332, 183.333, 183. 29, 183. 50. .
Rung No.
12812
12762
12826
12839
12766
127 6
12768
12812
12816
1281
12767
12778
12726
12706
127 6
12806
12780
12758
12738
12737
12736
12838
12752
12751
128 1
12750
(357)
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358
mendments Contnued.
Reguatons No. , coho Ta ct
Tradng Wth the nemy ct Secton 30 added
Treasury Decsons
898 (C. . 1939-1 (Part 1), 36 )
5279 (C. . 19 3, 952) -
mmunton and frearms, manufacturers of and deaers fn,
reguatons amended
ppontment, reease of power of, under certan dscretonary
trusts, Reguatons 108 amended
ssets, capta, securtes acqured soey for nvestment, treat-
ment
ttorneys fees, estate ta , deductbty
.
ad debts:
anks, reserve method of accountng
Reserve method of accountng, securtes
anks, reserve method of accountng for bad debts
ase perod net ncome, constructve average:
Determnaton to compensate for the effect of net operat-
ng oss deductons
Factors to be consdered
randy, producton of, Reguatons 5 amended
udng assocaton, cooperatve, dvdends credted to certan
shares, gross ncome
usness e penses:
Lqudated damages pad Unted States by empoyer under
Wash- eaey ct, deductbty
Rent pad by husband for use of rea estate, |ont tenants...
C.
Caforna, husband and wfe, members of partnershp, commu-
nty ncome
Capta e pendtures:
mounts e pended n deveopng farms, orchards, and
ranches
Constructon of spur tracks by coa mne operator for use
n coa mnng operaton
Capta gans and osses:
Futures tradng, saes or e changes, treatment for ncome
ta purposes
Securtes acqured and hed soey for nvestment, treat-
ment
Change of accountng perod
Cgarettes:
Statement of remova of, for consumpton
November, 19 7 and 19 6
December, 19 7 and 19 6
anuary, 19 8 and 19 7
February, 19 8 and 19 7.
March, 19 8 and 19 7
pr, 19 8 and 19 7
Cam for refund, perod of mtaton
Coa mne, constructon of spur track by operator for use n
mnng coa, treatment
Commttee reports:
ghteth Congress -
ouse of Representatves Report No. 127
Senate Report No. 1013
Communty ncome, profts from partnershp, treatment -.
Rung No.
128 0
18
12797
1
12779
1 2
12776
98
12779
1 2
12767
129
127 9
69
12726
127
12771
39
12785
38
12771
39
12833
90
1283
92
12751
155
1279
6
12760
28
1278
30
12813
57
127 0
2
12731
2
12772

127 9
69
12812
50
12728
209
127 5
209
12757
209
12782
209
12801
210
12822
210
12733
102
1273
109
12730
0
12731
2
12789
2 1
12799
285
12813
57
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359
Communty property:
Mchgan, ncome of varous types, treatment for Federa
ncome ta purposes
Pennsyvana Communty Property ct, hed nvad by
State supreme court, effect
Computatons, eectve nventory, reguatons amended
Consodated returns fed by affated corporatons fsca years
ended n 19 7, eecton to fe separate returns for 19 8
Contrbutons, agrcutura products, far market vaue
Conventon, ta , between Unted States and Unted ng-
dom, Reguatons 111 amended
Corporaton busness ta , New ersey, accrua date for Federa
ncome ta purposes
Corporatons:
ffated
Consodated ncome and e cess profts ta returns
ecton to fe separate ncome ta returns
Mutua nsurance companes or assocatons, e empton
status
Nonresdent
Income ta wthhed at source, treatment
Increment, Treasury bs ssued at dscount, ta wth-
hed at source
Western emsphere trade, goods ost n transt, nsur-
ance receved, gan or oss
Court decsons:
Commssoner v. South Te as Lumber Co
Commssoner v. Sunnen
Commonweath of Massachusetts et a. v. Unted Staes
ones, Coector, . Lberty Gass Co
avanaugh, Coector, v. Nobe
Lberty Gass Co.; ones, Coector, v
Nobe; avanaugh, Coector, v
South Te as Lumber Co.; Commssoner v
Sunnen; Commssoner v
Unted States; Commonweath of Massachusetts e a. v
Credts:
Post-war, treatment
Ta mposed by Cuban Mtary Order 63 of 1900, etc
Use ta mposed by Tennessee Retaers Saes Ta ct...
Cuba, ta es mposed by rtce III (b) of Cuban Mtary Order
63 of 1900, etc., deductbty -
D.
Deductons:
mounts e pended n deveopng farms, orchards, and
ranches
ttorneys fees n certan estate ta cases
ad debts, reserve method of accountng, securtes
Damages (qudated) pad Unted States by empoyer
under Wash- eaey ct
Msssspp gasone ta
New ersey corporaton busness ta , accrua date
North Dakota motor fue o ta , treatment
Depeton:
O and gas wes, short-ved n-o payment rghts
Rent pad by husband, rea estate owned as |ont tenants.
Rhode Isand saes and use ta es
Tennessee
Tobacco ta -
Use ta
Rung No.
127 8
12723
12766
12756
12826
12768
12732
12762
12756
1272
12725
12763
127 2
12786
12796
12803
12815
12733
1273
12733
1273
12796
12803
12815
12795
12787
12792
12787
127 0
12726
12785
12760
12818
12732
12755
12761
1278
1280
12793
12792
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360
Dsted sprts:
ottng ta -pad, Reguatons 11 amended
randy, producton of, Reguatons 5 amended
Drawback on wnes and, Reguatons 28 amended
Gaugng Manua, rtces II and III amended
Producton of, Reguatons amended
Rectfcaton of wnes and, Reguatons 15 amended
Reguatons No. , coho Ta ct, amended
Reguatons No. 5, coho Ta ct, amended
Reguatons 11, sectons 189.131 and 189.135 amended
Warehousng of, Reguatons 10 amended
Dvdends from budng assocaton shares, treatment
Due date, ncome ta , members of armed forces and others
outsde the mercas, postponed
Dues. (See Msceaneous ta es: dmssons, etc.)
.
gypt does not satsfy smar credt requrement
mpoyment ta es:
Federa nsurance contrbutons ta es, prorty of Unted
States cams
Interna Revenue Code
cepted servces
grcutura abor, fruts and vegetabes, com-
merca handng
quty nvested capta:
ccumuated earnngs and profts nstament saes
Post-war credt, treatment
rrors, mnor cerca and technca, Reguatons 111 and Regu-
atons 103 amended
state ta , Reguatons 105 amended
cess profts, nson ct, reports requred under profts-mt-
ng provsons
cess Profts Ta Counc:
Constructve average base perod net ncome
Determnaton to compensate for the effect of net
operatng oss deductons
Factors to be consdered
Push-back rue
Constructve events and condtons under
Constructve eve of earnngs
ack cast over the entre base perod
Constructve saes n terrtores not actuay
served pror to anuary 1, 19 0
Constructve saes of a by-product, earnngs
Cost savngs attrbutabe to rebut machnes
Determnaton
arnngs attrbutabe to by-product, determna-
ton
emptons:
Mutua Insurance companes or assocatons
Wdow, remarred same caendar year frst husband ded,
status for ncome ta purposes
tenson of tme, reports of profts under nson ct
F.
Farms, orchards, and ranches, amounts e pended n deveop-
ment of, deductbty
Fees, attorneys , certan estate ta cases, deductbty
Rung Is o.
12736
12751
12738
12839
12750
12737
128 0
128 1
12838
12752
1279
12776
1277
12815
12735
1276
12796
12795
127 6
12726
12777
12833
1283
12828
12835
12831
12829
12832
12836
12830
1272
12725
127 1
12777
127 0
12726
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361
Frearms and ammunton, manufacturers of and deaers n,
reguatons amended
France, wthhodng agents, Unted States, authorzed to re-
ease to French Government, etc., ncome ta es wthhed at
source on certan securtes, etc
Futures tradng, saes or e changes, gan or oss
G.
Gan or oss:
Futures tradng, saes or e changes
usband and wfe, Indana, tenants by the entrety, sepa-
rate returns, treatment
Insurance receved for goods ost n transt, Western em-
sphere trade corporatons
Sae of rea property by fe tenant and remanderman
Gasone ta , Msssspp, deductbty
Gaugng Manua, rtces II and III amended
Gfts, fng notce of, by donees and trustees, Reguatons 108
amended
Gross ncome:
mount pad Unted States by empoyer as qudated
damages under Wash- eaey ct, deductbty
anks, reserve for bad debts, accountng
Depeton, o and gas wes, short-ved n-o payment
rghts, deductbty
Dvdends from cooperatve budng assocaton shares,
treatment
ectve nventory method, use of
Far market vaue of agrcutura products contrbuted,
treatment
Mnor cerca and technca errors, Reguatons 111 and
Reguatons 103 amended
Prce ndces and data pubshed by ureau of Labor
Statstcs, acceptabty
.
usband and wfe:
Caforna, communty ncome profts from partnershp,
treatment
Indana, rea property hed as tenants by the entrety,
gans or osses, treatment for ncome ta purposes
Mchgan, ncome of varous types, treatment for Federa
ncome ta purposes
Indana, husband and wfe, tenants by the entrety, rea prop-
erty, separate returns
Indvduas, nonresdent, ncrement, Treasury bs ssued at ds-
count, ta wthhed at source
Intaton fees. ( See Msceaneous ta es: dmssons, etc.)
Insurance companes or assocatons, mutua, ta abty
Insurance contrbutons ta es, Federa, prorty of Unted
States cams
Inventory computatons, eectve, reguatons amended
Inventory method, eectve, use of
ont return, change of accountng perod of spouses I 12812
Rung No.
12779
12763
12772
12772
12773
12786
12827
12818
12839
12778
12760
12771
12761
1279
12770
12826
127 6
12791
12813
12773
127 8
12773
127 2
1272
12725
12815
12766
12770
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362
Rung No.
Legsaton:
ghteth Congress
Pubc Law No. 71
Pubc Law No. 78
Pubc Law No. 92
Pubc Law No. 51
Pubc Law No. 5 7 --
Lmtaton perod, cam for refund or credt
M.
Mchgan, communty property, Income of varous types, treat-
ment for Federa ncome ta purposes
Mtary and nava servces, termnaton of certan e cse ta
e emptons to members of
Mnes, coa, constructon of spur tracks by operator for use n
mnng coa, treatment
Msceaneous ta es:
dmssons, dues, and ntaton fees, Reguatons 3 (19 1)
amended
dmssons ta , chd under 12 years of age
state ta , Reguatons 105 amended
Gft ta -
Fng notce of gfts by donee and trustees, Regua-
tons 108 amended
Reguatons 2 (19 2) amended
Stamp ta es
Convertbe securtes, transfer of rghts to subscrbe
or receve stock
Reguatons 71 amended
Transportaton of property, vehces by ferry
Msssspp, gasone ta , deductbty
Motor fue ta , North Dakota, deductbty
12798
12808
12809
12810
1282
12733
1273
127 8
12758
12730
12731
N.
Net ncome, ta payer remarred same caendar year spouse ded,
credts aganst
New ersey, corporaton busness ta , accrua date for ncome
ta purposes
North Dakota, motor fue ta , deductbty
O.
O and gas wes, depcton, short-ved n-o payment rghts...
Oeomargarne:
Statstcs of producton and materas used
November, 19 7 and 19 G
December, 19 7 and 19 6_.
anuary, 19 8 and 19 7...
February, 19 8 and 19 7...
March, 19 8 and 19 7
pr, 19 8 and 19 7
Operatng oss deducton, consodated net, Reguatons 110
amended
P.
Patent cense agreements, royates; assgnment of royates
Pennsyvana, Communty Property ct hed nvad by State
supreme court, effect
Powers of appontment, reease of, under certan dscretonary
trusts, reguatons amended
Prce ndces and data pubshed by ureau of Labor Statstcs,
acceptabty
12780
12819
12726
12767
12778
12758
12837
12806
12820
12818
12755
127 1
12732
12755
12761
127 3
12753
12765
12788
12807
12823
1281
12803
12723
12767
12791
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363
Rung No.
Producton of dsted sprts, Reguatons amended 12750
Pubc Laws:
ghteth Congress
No. 71, reducng ndvdua ncome ta payments, etc. 12798
No. 78, amendng the Interstate Commerce ct, as
amended, etc 12808
No. 92, e cudng certan vendors of newspapers or
magaznes from certan provsons of Soca Securty
ct and Interna Revenue Code 12809
No. 51 , amendng sectons 212(b) and 231(d) of the
Interna Revenue Code 12810
No. 5 7, makng suppementa appropratons for the
natona defense for the fsca year endng une 30,
19 8, etc 1282
Push-back rue, cess Profts Ta Counc:
Constructve events and condtons under 12828
Constructve eve of earnngs, determnaton 12836
Constructve saes n terrtores not actuay served pror to
anuary 1, 19 0 12831
Constructve saes of a by-product, earnngs | 12829
Cost savngs attrbutabe to rebut machnes 12832
arnngs attrbutabe to by-product, determnaton 12830
R.
Rea property, sae by fe tenant and remanderman, deter-
mnaton of gan 12827
Refunds and credts, mtaton upon credtng and refundng of 12733
ta 1 1273
Reguatons:
See mendments: Reguatons.
Tme for performng certan acts postponed by reason of
war 12776
Tradng Wth the nemy ct. 12797
Returns:
ffated corporatons, eecton to fe separate ncome ta
returns for 19 8 fsca years 12756
Consodated ncome and e cess profts ta , affated cor-
poratons 12762
Indvdua, Pennsyvana Communty Property ct hed
nvad by State supreme court, effect 12723
Revenue ct of 19 8 (Pubc Law 71, ghteth Congress) 12798
(See aso Commttee reports.)
Rhode Isand, saes and use ta es, deductbty 1280
S.
Saes ta , Rhode Isand, deductbty 1280
Securtes acqured and hed soey for nvestment, gan or oss,_ 127 9
Securtes, bad debts, deductbty 12785
Securtes, convertbe, transfer of rghts to subscrbe or receve
stock 12837
Smar credt requrement:
gypt 1277
Swtzerand and Canton of Geneva 12775
Spouse, deceased, tme for fng fna returns, Reguatons 111
amended 12816
Stamp ta es. ( See aso Msceaneous ta es.)
Reguatons 71 amended -- 12806
Swtzerand, satsfes smar credt requrement 12775
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36
T.
Ta Court of the Unted States, The:
Decsons of, st of acquescences and nonacquescences
Ta tabes, wthhodng, 10-day and 28-day perods
Tennessee:
Tobacco ta , deductbty
Use ta , deductbty
Tobacco:
Statement of manufactured, produced, bv casses
October, 19 7 and 19 6
November, 19 7 and 1P 6
December, 19 7 and 19 6
anuarv, 19 8 and 19 7
February, 19 8 and 19 7
March, 19 8 and 19 7 ..
Tobacco ta , Tennessee, deductbty
Tradng Wth the nemy ct, secton 36 added
Transportaton of property, transportaton of vehces by ferry,
appcaton of ta
U.
Unted States and Unted ngdom, ta conventon, Regua-
tons 111 amended
Use ta es:
Rhode Isand, deductbty.
Tennessee, deductbty
.
nson ct, reports requred under profts-mtng provsons.
w.
Warehousng dsted sprts, Reguatons 10 amended
Western emsphere trade corporatons, nsurance receved,
goods ost n transt, gan or oss..
Wdow, remarred same caendar year frst husband ded, status
for ncome ta purposes
Wnes:
Drawback on dsted sprts and, Reguatons 28 amended
Rectfcaton of dsted sprts and, Reguatons 15
amended
Wsconsn, husband and wfe, |ont tenants, rent pad by
husband, deductbty
Wthhodng of ta at source:
Increment on Treasury bs ssued at dscount receved by
nonresdent aen ndvdua or corporaton, treatment..
Reease to French Government of Federa ncome ta es
wthhed on securtes hed by French natonas and
others
Wthhodng ta tabes, 10-day and 28-day perods...
ung No.
12825
12805
12793
12792
12727
127
12759
12781
12800
12821
12793
12797
12820
12768
1280
12792
12777
12752
12786
127 1
12738
12737
1278
127 2
12763
12805
o
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