C3 3S A. 3-. 1 "'Si a (forn^ll 3Iam ^riyonl IGihtatg CORNELL UNIVERSITY LIBRARY 3 1924 103 378 729 The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924103378729 FEDERAL INCOME TAX LAWS CORRELATED AND ANNOTATED Being a Compilation and Annotation of All Federal Income Tax Laws Beginning 1861 and a Correlation of All Laws Beginning 1909 By WALTER E. BARTON Attorney at Law and Federal Tax Consultant and CARROLL W. BROWNING Senior Cost Accountant, United States Navy Department Members of the Bar oi the District of Columbia JOHN BYRNE & COMPANY Washington, D. C. 1922 1760-5 Copyright, 1922 By WALTER E. BARTON and CARROLL W. BROWNING PREFACE The Federal Income Tax System is admittedly complicated. This is in part due to the frequent changes which have been made in the law during the past few years. These changes are the result of evolution of a comparatively new system of taxation in this country and the exigencies of war and reconstruction. Although taxpayers are confronted with a new law every two or three years, they cannot disregard the prior ones. Some cases arising under the Act of 1917 are unsettled in the Bureau of Internal Revenue ; and the Federal Courts continue to hand down decisions growing out of the Acts of 1909 and 1913. Several books have been written on Federal Income Taxes, but no attempt has been made heretofore to compile the numerous laws into a convenient handbook for ready reference. Such is the purpose of this work. In preparing it three objects were kept in mind. (1) The inclusion of all Federal Income Tax Laws from 1861 to date; also the Revised Statutes of the United States applicable to Income Taxation. (2) The annotation of all Federal Income Tax Laws to date. (3) The correlation of the Acts of 1909, 1913, 1916, 1917, 1918 and 1921. The annotations are based upon Federal Court decisions which have arisen under the various laws since 1861. Where it is possible, the language of the acts and the an- notations applicable thereto appear upon the same page. The Index to Decisions and the Tables of Cases will assist in making the annotations valuable. In correlating the last six laws, it was necessary to place some sections and parts thereof out of their natural order. Where a section is divided into three parts, for in- stance, the respective parts are numbered [1], [2] and [3], and the subdivisions there- of, [al, [b] and [c]. It should be kept in mind that these interpolations form no part of the acts, but are merely inserted for convenience. The proper sequence of the sec- tions and the parts thereof may be determined by referring to the Index to Sections immediately following Part III. The column for the Act of 1917 contains the provisions of the Act of 1917, and also the unrepealed sections of the Act of 1916, which were still in effect in 1917. The sections of the Act of 1917 are indicated by footnotes and by the fact that no corre- sponding sections appear in the column for the Act of 1916. The provisions of the Act of 1916 which were in effect in 1917 appear in both columns. The Act of Feb- ruary 24, 1919, is designated as the "Act of 1918," inasmuch as it was retroactive to January 1, 1918. The Index to Acts is a detailed index to the correlated acts and the Revised Statutes of the United States only. It is not considered necessary to give a detailed index to III IV FEDERAL INCOME TAX LAWS the early acts and the miscellaneous ones contained in Parts II and III, respectively. These acts may be located by turning to "Acts of Congress" in the proper place in this index. In offering this work to the public, it i? with the hope and belief that it will save lawyers and accountants much unnecessary research and labor. If it does aid to some extent, the authors will feel that they have been rewarded for the many months of toil which they have spent in its preparation. Walter B. Barton, Southern Building, Washington, D. C. Carroll W. Browniistg, U. S. Navy Department, Washington, D. C. January 3, 1922. FOREWORD By Timothy T. Ansbeery Of the Bar of the District of Columbia Fot-mer Meniber of Congress and Judge of the Court of Appeals of Ohio Our first Income Tax Legislation arose out of the necessities of the Civil War, and resulted in nine different pieces of legislation, beginning with the Act of August 5, 1861, and ending with the Act of July 14, 1870. Thereafter came the Act of Au- gust 15, 1894, which was set aside by the Supreme Court in the well-known case of Pollock V. Farmers' Loan & Trust Company, 157 U. S. 429, affirmed on rehearing, 158 U. S. 601. The next legislation of this general character was the so-called Corporation Excise Tax Law of August 5, 1909, which, together with the numerous decisions aris- ing thereunder, is included in this book for the reason that (a) a large amount of lit- igation was precipitated by this legislation and some new pronouncements were made by the several Federal courts, which questions for reasons easily understood have appli- cation to all Income Tax Legislation; and (b) the fact that the excise taxation under this Act was based on the incomes of the corporations, — ^making these decisions and the language of the Congress in this law of particular value in interpreting the various later Income Tax Acts. Lawyers, accountants and others interested in Federal Income Taxation have felt the need of a compilation of these numerous laws and court decisions. This volume responds to that need to a greater degree than any book that has yet come to my notice. The comparative arrangement of the last six acts with the complete annotations will be of invaluable assistance in the preparation of returns and the determination of tax questions as they arise. Lawyers planning to seek remedies in the courts can easily ascertain whether similar cases have arisen under other laws, by the use of this book. It will be of great aid to lawyers and accountants who practice before the Bu- reau of Internal Eevenue, where cases frequently involve several acts. I heartily commend this book to all persons interested in Federal Income Tax questions. Timothy T. Ansbebey. Southern Building, Washington, D. C. January 3, 1922. TABLE OF CONTENTS (References are to pages) Preface .... Foreword III V Alphabetical Table of Cases IX Numerical Table of Cases XVII 403 ,.. 409 Index to Acts 421 Index to Sections Index to Decisions . PART I CORRELATION AND ANNOTATION OF THE FEDERAL INCOME TAX ACTS OF 1909, 1913, 1916, 1917, 1918 and 1921 GENERAL DEFINITIONS Income Tax General Provisions: Definitions Dividends Basis for Determining Gain or Loss.. Inventories - Net Losses Fiscal Years with Different Rates Parts of Income Subject to Rates for Different Years _ Capital Gain individuals: Normal Tax _ Additional Normal Tax for 1917 Surtax Surtax Beginning with 1922 Additional Surtax for 1917 Net Income Defined _ Gross Income Defined - Income Exempt from Law _ Deductions Allowed - Nonresident Aliens, Deductions Items not Deductible Credits Allowed - Personal Exemption Net Income of Nonresident Aliens Nonresident Aliens — Allowance of Deductions and Credits — Partnerships and Personal Service Corpora- tions - - - Alternative Tax on Personal Service Corpora- tions .— Estates and Trusts - Evasion of Surtaxes - - Payment of Tax at Source Withholding Tax at Source Credit for Taxes Individual Returns .... Time and Place for Filing Returns Partnership Returns - Fiduciary Returns Returns for Fractional Year... Understatement in Returns.. 2 6 6 8 14 22 22 26 30 bO b4 o6 36 44 52 -6 58 62 72 88 92 94 96 100 106 110 114 118 126 128 128 142 146 146 150 150 152 154 Incorporation of Individual or Partnership Business 154 Corporations: Income Tax 156 Excise Tax - 157 Additional Income Tax 164 Tax on Undistributed Income..... - 166 Conditional and Other Exemptions 168 N,et Income Defined 174 Gross Income Defined .*. 174 Deductions Allowed 176 Deductions Allowed Foreign Corporations 200 Items Not Deductible - 206 Credits Allowed 206 Payment of Tax at Source 210 Credit for Taxes 212 Corporation Returns - - 216 Time and Place for Filing Returns ,..._..... 220 Returns by Receivers 228 Consolidated Returns - 230 Consolidated Returns for 1917 236 Taxes on Insurance Companies 238 Administrative Provisions : Payment of Taxes _ 252 Assessment and Administration: Individuals - - 252,254 Corporations 254 Receipts for Taxes 274 Refunds - — 276 Interest on Refunds and Judgments _ 278 Penalties - 280 Returns of Payments of Dividends 284 Returns of Brokers 284 Information at Source 286 Returns to be Public Records 288 Publication of Statistics 290 Collection of Foreign Items 292 Citizens of United States Possessions _ 292 Porto Rico and Philippine Islands 294 Income from Sources Within the Possessions of the United States 296 Jurisdiction of Federal District Courts 298 Repeal of Former Laws _ _..302, 304 306 310 310 312 312 Saving Clause - - Examination of Books and Witnesses Uimecessary Examination Rules and Regulations Tax Simplification Board _ VII VIII FEDERAL INCOME TAX LAWS ADMINISTRATIVE PROVISIONS— Contrnwed!. Advisory Tax Board 312 Surety Bonds -.: 316 Pinal Examinations and Assessments 320 Administrative Review - 320 Assessments - 322 Special Excise Tax for January-February, 1913... 325 Effective Date of Acts 327 War-Profits and Excess-Profits Tax: General Definitions - 328 Imposition of Tax — Brackets 329 Maximum Profits Tax 331 Exempt Corporations - 333 Credits: ' War-Profits 334 Excess-Profits 338 Net Income - - 338 Invested Capital — 340 Relief Sections _ 344, 345 Reorganizations - 347 Imposition of Tax 329 Miscellaneous 350 PART II FEDERAL INCOME TAX ACTS PRIOR TO 1909 WITH ANNOTATIONS Act of Aug. 5, 1861 - 357 Act of July 1, 1862 358 Act of March 3, 1863 361 Act of June 30, 1864 363 Act of March 3, 1865 _ 367 Act of March 10, 1866 369 Act of July 13, 1866 370 Act of March 2, 1867 373 Act of July 14, 1870 376 Act of Aug. 15, 1894 380 PART III MISCELLANEOUS ACTS AND STATUTES WITH ANNOTATIONS Munitions Tax, Act of Sepit. 8, 1916 389 Excess-Profits Tax, Act of March 3, 1917 391 Child Labor Tax, Act of Nov. 23, 1921 392 Revised Statutes of the United States Applicable to Taxation 393 Provisions of Federal Constitution Applicable to Taxation 402 ALPHABETICAL TABLE OF CASES Abrast Realty Co. v. Maxwell.. Acorn Roofing C!o. et al. v. U. S Aetna Life Ins. Co. v. U. S Allen (Col.) V. Altheimer & Rawlins Inv. Co.. Allen (Col.) v. Nat. Bank of Commerce Alpha Portland Cement Co. v. U. S Altheimer & Rawlins Inv. Co. v. Allen (Col.) Anderson v. Brady. Anderson (Col.) v. Forty-Two Broadway. Anderson (Col.) v. Jacobs & Davies, Inc Anderson (Col.) v. Morris & E. R. Co.. Anderson (Col.) v. New York Life Ins. Co Anderson (Col.) v. New York Mail and News Trans. Co.. Anderson (Col.) v. Tyee Realty Co Associated Pipe Line Co. v. U. S Atlantic Ins. Co. v. Stockdale (Col.) - B Bailey v. N. Y. Cent. R. R. Co Baldwin Locomotive Works v. McCoach (Col.).. Baltic Mining Co. v. Stanton B. & O. R. R. Co. V. U. S Barnes v. Railroad Companies.. Benowitz v. U. S Biwabik Mining Co. v. U. S Black V. Bolen (Col.) Blake (Col.) v. Natl City Bank.. BJalock (Col.) V. Georgia Ry. & Electric Co... Bolen (Col.) v. Black. Boston & M- R- R. V. U. S 3Qston Terminal Co. v. Gill.... Brady y. Anderson- Brady (Col.) V. Dodga.... Brainard (Col.) v. Hubbard... Brewster v. Walsh (Col.) Brushaber v. U. P. R. R. Co... Bryant & May v. Scott (Col.). Bryce et al. v. Keith (Col.) BiiflBn^on (Col.) v. Day..... Butterick Cq. v. U. S Cambria Steel Co. v. McCoach (Col.).. Camp Bird Ltd. v. Howbert (Col.) Carbon Steel Co. v. Lewellyn (Col.) Carter (Col.) v. Union Hollywood Water Co Partier et al. v. I)oyle ,(Col.) Pary (Col.) v. San Francisco Savings Union.. Central National Bank v. U. S.. Central Trupt Co. v. Third Aye. R. R. .Co. et. al... Chemung Iron Co. v. Lynch (Col.) 1 Chicago Title & Trust Co. v. Smietanka (Col.) Christine Oil & Gas Co. v. U. S Cleveland, C, C. & St. L. Ry. Co. v. U. S Cohen V. Lowe (Col.)_ Collectors v. Traction Cos - Commercial Travelers' Life & Accident Assn. v. Rodway ... Commissioners v. U. S - '■ Conn. Gen. Life Ins. Co. v. Eaton (Col.). Conn. Mutual Life Ins. Co. v. Eaton (Col-) Continental Pass. Ry. Co. of Phila. v. McCoacJh Coulby v. U. S.. Craig (Col.) V. National Life & Accident Ins. Co.. Crjpcker et al. v. Ijlalley (Col.).. Cfi-utchley v. Kemper Military School Cryan v. Wardell (Col.) Footnote 90 (a), 205 (a) 121 (b) 109 (b) 104 (j), 107 (b) 89 (c), 109 (a), 126 104 (r) 104 (j),107 (b) 71 89 (c), 107 (a) -(b) 105 (b) 89 (c), 90 (a) 112 (d), 114, 128 204 (b) 15, 18, 69, 106 90 (m), 107 (b) 174, 195 179 104 (o),105 (€),107 (c) 15, 18, 50, 77, 111, 202 (d) 186 178, 181, 183 68 89 (c),112 (b) 27, 204 (a) 191 89 (c), 90 (f), 104 (d), 104 (f) 27, 204 (a) 107 (e) 90 (1) 71 204 (a) 165 9 (a), 11,14,26 (a) 15, 18, 37, 39, 50, 53, 60, 64, 69, 77,106, 202 (d), 204 (a) 90 (b) 44 (?) 172 32 (a), 156 90 (a) 89 (a), 89 (d),112 (b), 201 (a), 203 199 80,104 (e), 105 (h) 160, 162 (b) 176 166 78 90 (i) 85 (a), 86 (a) -(b) 103 104 (c), 104 (h)-(i) 45, 52 90 (a) 94 183, 184 104 (a) -(b), 114 104 (a), 105 (f), 110, 114 90 (a) 57 116 (b) 85 (b),86 (c),201 (d) 96,97,102 26 (c) Page 160, 401 218 183 177, 179 159, 182, 256 177 177, 179 149 159, 179 178 159, 160 187, 188, 264 400 35, 36, 146, 179 161, 179 370, 379 371 177, 178, 179 35, 36, 94, 156 186, 400 372 371 146 159, 186 59, 400 378 159, 161, 176 59, 400 179 161 149 400 363 9, 17, 34, 58 35, 36, 72, 94, 97 130, 138, 146 156, 179, 400 160 76 367 60, 324 160 159, 186 399, 400 389 157, 176, 178 329, 341 371 365 156 161 168 176 176, 177 78,96 160 168 371 176, 188 176, 178, 184, 188 160 110 189 158, 399 170, 171, 176 58 IX FEDERAL INCOME TAX LAWS D Darlington v. Gra,y (Col.) _ Davis V, State Line S. Ry. Co 1 ;D&,vis (Col.) V. Wjlkes-Barre & W. Va. Traction fco Day V. Buffington ! (Col.) _ Dayton Brass Castings Co. v. Gilligan (Col.) DeGanay v. Ledeter ( Col. ) DeLaski & Thropp' Circular Woven Tire Co. v. Iredell (Col.) Dodge: V. Brady (Col.) ,.., Dodge V. Osborn (Com.) Dderschuck et al. v. U. S Dollar Savings Bank v. U. S -. Doyle (Col.) v. Cartier et al Doyle (Col.) v. Grand Rapids & I. Ry. Co Doyle (Col.) v. Mjitchell Bros. Co Durey (Col.) v. iJaurentide Co. Ltd ; ! , ; ■ : E Eastern Kentucky) R. R. Co. v. Slack Eaton (Col.) v. Conn. Gen. Life Ins. Co Eaton (Col.) v. Cpnn. Mutual Life Ins. Co.. Eaton (CoL) V. Middlesex Banking Co Edwards v. Keith (Col.) (Edwards v. Goodrich... .'Edwards v. Lincoln Chem. Co Edwards v. New York Trust Co. et al Ehret Magnesia Mfg. Co. v. Lederer (Col.).. Eisner (Col.) v. Macomber...... Eisner v. Mente....L Eisner (Col.) v. Peabody Eisner V. Prentiss _ Eisner v. Towne , ; Eldorado Coal & Mining Co. v. Mager (Col.).. Eliot V. Freeman Eliot Nat. Bank v. Gill (Col.) Eitaery, Bird, Thayer Realty Co. v. U. S Equitable Trust Co. N. Y. v. Western Pacific Ry. Co. et al. Ei-ie Ry. Co. v. U. S ;. Evans v. Gore (Col.) Farm^ifs' lidan & Trust Co. v. Pollock.....,.; ...:.: Fink (Col.) v. Northwestern Mut. Life Ins. Coi.. 3Eirst Nat. Bank v. McNeil (Col.) First Trust Savings Bank v. Smietanka (Col.)... ■Flint .V. Stone Tracy Co _ , Forged Steel Wheel Co. v. Lewellyn (Col.).. Forty Fort Coal Co. v. Kirkendall (Col.) Forty-Two Broadway v. Anderson (Col.)....; Freeman v. Eliot _ Galm V. U. S ,......,.. Ga'uley Mountain Coal Co. v. Hays (Col.)., Gearin v. Miller (Col.).. .:Gen. Inspection & Loading Co. v. U. S Georgia Ry. & Electric Co. v. Blalock (Col.).. .Gill V. Boston Terminal Co _ Gill (Col.) V. Eliot Nat. Bank. Gill- (Col.) V. N. Y. Central & H. R. R. et al.. ■Gill (Col.) V. Old Colony Ry. Co. et al... Gilligan (Col.) v. Dayton Brass Castings Co .-. Gilligan v. Park....'. ; Goldfield Consolidated Mines Co. v. Scott (Col.).. Goodrich v. Edwiards (Col.) s Gore v. Evans _ : Gould v. Gould .: Grand Rapids Ry. Co. v. U. S Grand Rapids & 1. Ry. Co. v. Doyle (Col.).. Grant V. Hartford & N. H. R. R. Co Gray (Col.) v. Darlington.. Great Northern Ry. Co. v. Lynch (Col.).. Footnote 189 90 (a), 204 (b) 90 (a) 172 199 16 162 (a), 163 (b) 204 (a) 202 (e),204 (a) 8 (b) 175 160, 162 (b) 105 (g) 89 (c), 104 (h)-(i) 88, 90 (g) 192 104 (a) -(b), 114 104 (a), 105 (f), 110, 114 108 30 10 163 (c) 32 (g) 161 (a) -(b) 9 (a), 14,26 (b) 44 (b) Z9. (b) 43 32 (e) 10 82 109 (a), 126, 127 (b) 90 (a), 90 (n),201 '(c) 83 (a), 202 (c) 183 12 (b), 23 197 198 104' (a), 112 (c), 114, 116 (b) 109 (a) 70 79, 89 (a) -(d), 90 (d), 90 (o), 91, 121 (a) 199 112 (b) 89 (c), 107 (a)-(b) 82 164 89 (c), 104 (h)-(i), 104 (k) 26 (c) 90 (e) , 123 89 (c),90 (f),104 (d), 104 (f) 90 (1) 109 (a), 126, 127 (b) 90 (a) 90 (a) 199 8 (a), 8 (c) 112 (b) 10 12 (b), 23 28. 38 127 (a), 128 105 (g) 182 189 104 (h), 104 (m)-(n) Page 374 160, 400 160 367 389 35 341,, 344 400 400 8 370 329, 341 ,178 159, 176,; 177 159,, 161 378 176, 188 176, 178, 184, 188 180 59 16 344 .. 61 329 9, 34, 58 77 60 75 61 16 158 182, 256, 257 160, 161, 399 158, 400 371 34, 58 380, 384 176, 187, 188, 189 182 148 156, 159 160, 161, 218 389 186 159, 179 158 359 159, 176, 177 58 160, 254 159, 161, .176 161 182, 256, 257 160 160 389 8 186 16 34,58 .59, 72 257, 264 178 371 ' 374 176, 177 ALPHABETICAL TABLE OP CASES XI Greenport Basin & Con. Co. et al. v. U. S ; Guaranty Trust Co. of N. Y. v. Metropolitan St.; Ry. Co.. Guggenheim Exploration Co. v. U. S '. Gulf & I. Ey. Co. V. Walker (Col.) : Gulf Oil Corp. V. Lewellyn (Col.) Haight V. Pittsburg et al. R. R. Co....... Haiku Sugar Co. v. Johnstone Hartford & N. H. R. R. Co. v. Grant... Hartson v. Pacific B. & L. Assn Hays (Col.) v. Gauley Mountain Coal Co_ Heller Hirsch and Co., In re Harold (Col.) v. Mutual Benefit Life Insurance Co.. Herold (Col.) v. Parkview Bldg. Loan Assn Herold (Col.) v. Prudential Ins. Co. Herold v. Public Service Co Herold (Col.) v. Public Service Corp. of N. J.. Herold v. Public Service Electric Co Herold v. Public Service Gas Co _ „ Herold v. Public Service Ry. Co _ Holbrook v. Moore (Col.) Hornby v. Lynch... Houston Belt & Terminal Ry. Co. v. Howbert (Col.) v. Camp Bird Ltd... U. S.. Howbert (Col.) v. Stratton's Independence, Ltd.. Hubbard v. Brainard (Col.) Indianapolis & St. Louis R. R. Co. v. U. S.. Industrial Trust Co. v. Walsh (Col.) _... Ins. Co. of North America v. McCoach In re Heller Hirsch & Co.. Iredell (Col.)v.DeLaski & Thropp Circular Woven Tire Co Irwin (Col.) v. Rensselaer & S. R. Co Irwin (Col.) v. Laurentide Co. Ltd Jackson v. Northern Central Ry. Co Jackson v. Smietanka (Col.) -.... Jacobs & Davies, Inc. v. Anderson (Col.).. Jacobsen v. Smietanka (Col.).. Jasper & E. Ry. Co. v. Walker (Col.) Jewellers' Safety Fund Society v. Lowe (Col.). Johnstone v. Haiku Sugar Co Jones V. U. S — E Keith (Col.) v. Bryce et al Keith (Col.) v. Edwards. Kemper Military School v. Crutchley. Kentucky Improvement Co. v. Slack (Col.).. Kirkendall (Col.) v. Forty Fort Coal Co... Kirkendall (Col.) v. Markle et al...: L. & N. Ey. Co. V. U. S La Belle Iron Works v. U. S --:■ Lake Shore Mich. & Southern Ry. Co. v. Rose.. Laurentide Co. Ltd. v. Durey (Col.) Laurentide Co. Ltd. v. Irwin (Col.) Lawrence v. Wardell.. Lederer (Col.) v. De Ganay Lederer (Col.) v. Ehret Mfg. Co..^. Lederer v. Penn. Mutual Life Ins. Co Lederer (Col.) v. Phila. H. & P. E. Co. et al Lederer (Col.) v. Porter et al Lederer v. Stockton Lederer (Col.) v. Traylor Eng. & Mfg. Co Lederer (Col.) v. Worth Bros. Co„ Levy V. U. S - Footnote 133,161 (a) -(b), 205 (b) 78 104 (p) 104 (a), 105 (i) 32 (f) 169 84 182 95 (a) 89 (c), 104 (h)-(i), 104 (k) 81 (a) 104 (a), 105 (a), 114, 116 (a) 95 (b)-(c), 100 114, 116 (a) 206 132 90 (a) 90 (a), 206 90 (a), 204 (b), 206 29 32 (b) 90 (k), 104 (f) 89 (a), 89 (d),112 (b), 201 (a), 203 89 (c),90 (c),112 (b) 165 190 104 (o) 104 (a), 116 (b) 81 (a) 162 (a), 163 (b) 31, 83 (b) 90 (g). 169 21 105 (b) 12 (a) 90 (a) 117 84 170 44 (a) 30 96, 97, 102 177 112 (b) 202 (a) 190 87, 162 (c)-(d) 194 88, 90 (g) 90 (g) 13, 67 16 161 (a)-(b) 115 201 (b) 163 (a) 98, 99 200 199 136 Page 276, 329, 401 156 177 176, 179 61 366 158 371 170 159, 176, 177 157 176, 178 188, 189 170, 171 188, 189 401 276 160 160, 401 160, 400, 401 59 60 161, 176 159, 186 399, 400 159, 160, 186 363 378 177 176, 189 157 341, 344 60, 158 161 366 56 178 34 160 190 158 366 76 59 170, 171, 176 371 186 400 378 159, 341 379 159, 161 161 34, 142 35 329 189 399 344 171 389 389 280 XII FEDERAL INCOME TAX LAWS Lewellyn (Col.) v. Carbon Steel Co Lewellyn (Col.) v. Forged Steel Wheel Co- Lewellyn (Col.) v. Gulf Oil Corp.. Lewellyn (Col.) v. Pittsburgh B. & L. E. R. Co.. Lewellyn v. Woods _ Lincoln Chem. Co. v. Edwards Little Miami et al. E. R. Co. v. U. S Lormis (Col.) v. Wattles - Lowe (Col.) V. Cohen Lowe (Col.) V. Jewellers' Safety Fund Society. Lowe (Col.) V. Northern R. Co. of N. J Lowe (Col.) V. Peck & Co. Inc Lowe (Col.) V. Southern Paciiic Co.. Lumber Mut. Fire Ins. Co. v. Malley (Col.). Lynch (Col.) v. Chemung Iron Co Lynch (Col.) v. Great Northern Ry. Co Lynch v. Hornby.... Lynch (Col.) v. Turrish M Macomber v. Eisner (Col.) Mager (Col.) v. Eldorado Coal & Mining Co.. Malley (Col.) v. Crocker et al Malley (Col.) v. Lumber Mut. Fire Ins. Co..-. Malley (Col.) v. Old Colony Ry. Co. et al Malley (Col.) v. West End St. Ry. Co Markle et al. v. Kirkendall (Col.) Marquette, H. & O. R. R. Co. v. U. Maryland Casualty Co. v. U. S S.. Maxwell v. Abrast Realty Co McCoach (Col.) v. Baldwin Locomotive Works... McCoach (Col.) v. Cambria Steel Co McCoach V. Continental Pass. Ry. Co. of Phila.... McCoach V. Ins. Co. of North America McCoach (Col.) v. Mine Hill & S. H. R. Co McCoach (Col.) v. Northern Trust Co - McCoach (Col.) v. Phila. Traction Co McHatton et aJ. v. U. S McNeil (Col.) v. First Nat. Bank... Memphis & Charleston R. R. v. U. S Mente v. Eisner (Col.) Merchants' Loan & Trust Co. v. Smietanka (Col.) Metropolitan St. Ry. Co. v. Guaranty Trust Co. of N. Y.. Metropolitan St. Rv. Co. v. Morton Trust Co Mich. Cent. R. R. Co. v. Slack (Col.) Middlesex Banking Co. v. Eaton (Col.) Miles (Col.) V. Safe Deposit & Trust Co Military Const. Co. v. TJ. S Miller (Col.) v. Gearin Miller (Col.) v. Snake River V. Rwy. Co Mine Hill & S. H. R. Co. v. McCoach (Col.) Minneapolis Syndicate v. Zonne.. Minneapolis Threshing Machine Co. v. U. S.. Missouri River R. R. v. U. S Mitchell Bros. Co. v. Doyle (Col.) Moffett v. Public Service Ry. Co Moffett V. Public Service Corp. of N. J Mohawk Mining Co. v. Weiss (Col.) Moore v. Holbrook Moore (Col.) v. Stoifregen. Morris & E. R. Co. v. Anderson (Col.) Morton Trust Co. v. Metropolitan St. Ry. Co.. Muenter v. Southern Pacific R. R. Co Mutual Benefit Life Insurance Co. v. Herold N Nashville, C. & St. L. Ry. v. U. S Nat. Bank of Commerce v. Allen (Col.).. National City Bank v. Blake (Col.). National Life & Accident Ins. Co. v. Craig (Col.)., Footnote Page 199 389 199 389 32 (f) 61 90 (a), 90 (p) 160, 161 30, 69, 125 59, 146, 256 163 (c) 344 180, 183 371 32 (e), 204 (a) 61, 400 45,52 78, 96 117 190 31 60 15, 33 35, 61 32 (f) 61 104 (a), 114 176, 188 90 (i> 161 104 (h),104 (m)-(n) 176, 177 32 (b) 60 32 (d) 60 9 (a), 14, 26 (b) 9, 34, 58 10 16 85 (b), 86 (c), 201 (d) 158, 3"-- 104 (a), 114 176, 188 90 (a) 160 31. 90 (a) 60, 160 202 (a) 400 193 379 103. 104 (a), 113 (a) -(b), 176, 188, 189 116 (b)-(c), 204 (b), 400, 401 205 (c), 206 90 (a), 205 (a) 160, 401 104 (o),105 (e),107 (c) 177, 178, 179 90 (a) 160 90 (a) 160 104 (a), 116 (b) 176, 189 90 (a) 160 109 (a) 182 89 (c), 90 (a) 159, 160 20. 81 (b)-(c) 52, l^'T 109 (a) 182 167. 168 366 44 (b) 77 10, 25 (b), 73 16, 58, 150 78 156 78 156 183, 185 371, 372 108 180 22 58 121 (b) 218 26 (c) 58 90 (a) 160 90 (a) 160 90 (a) 160 127 (a), 128 257, 264 191 378 89 (c), 104 (h)-(i) 159, 176, 177 90 (a) 160 132 276 46 80 29 59 32 (h) 60 89 (c), 90 (a) 159, 160 78 l.'^6 107 (d) 179 104 (a), 105 (a), 114, 176, 178, 188. 116 (a) 189 112 (e), 126, 128 187, 256, 264 89 (c), 109 (a), 126 159, 182, 256 191 378 116 (b) 189 ALPHABETICAL TABLE OF CASES XIII N. Y. Central & H. R. R. et al. v. Gill (Col.)- N. Y. Cent. R. R. Co. v. Bailey... N. Y. City Ry. Co. v. Penn. Steel Co - New York Life Ins. Co. v. Anderson (Col.) New York Mail and News Trans. Co. v. Anderson... N. Y., N. H. & H. R. R. Co. v. U. S.. New York Trust Co. et al. v. Edwards (Col.)., Nipissing Mines Co. v. U. S.. Northern Central Ry. Co. v. Jackson. Northern R. Co. of N. J. v. Lowe (Col.) Northern Trust Co. v. McCoach (Col.) Northwestern Mut. Life Ins. Co. v. Fink (Col.)... O Old Colony Ry. Co. et al. v. Gill & Malley (Cols.).. Oregon-Washington R. & Nav. Co. v. U. S Osbom (Com.) v. Dodge Pacific B. & L. Assn. v. Hartson... Pacific Ins. Co. v. Soule. Pacific R. R. et al. v. U. S Park V. Gilligan Parkview Bldg. Loan Assn. v. Herold (Col.)., Peabody v. Eisner (Col.) Peck & Co., Inc. v. Lowe (Col.) Penn. Mutual Life Ins. Co. v. Lederer Penn. Steel Co. v. N. Y. City Ry. Co Phellis V. U. S Philadelphia B. & W. R. Co. v. U. S Phila. H. & P. R. Co. et al. v. Lederer (Col.) Philadelphia Knitting Mills Co. v. U. S Phila. Traction Co. v. McCoach (Col.) Pittsburg B. & L. E. R. Co. v. Lewellyn (Col.) Pittsburg et al. R. R. Co. v. Haight...; Pollock V. Farmers Loan & Trust Co Porter et al. v. Lederer (Col.) Prentiss v. Eisner (Col.) Prudential Ins. Co. v. Herold (Col.) Public Service Corp. of N. J. v. Herold and Moifett (Cols.) Public Service Co. v. Herold Public Service Electric Co. v. Herold Public Service Gas Co. v. Herold Public Service Ry. Co. v. Herold Public Service Ry. Co. v. Moflfett R Railroad Companies v. Barnes Rau V. U. S - Rensselaer & S. R. Co. v. Irwin (Col.) Rio Grande J. R. R. v. U. S Rockefeller v. U. S Rock Island, A. & L. R. R. v. U. S Rodway v. Commercial Travelers' Life & Accident Assn.. Rose V. Lake Shore Mich. & Southern Ry. .Co Safe Deposit & Trust Co. v. Miles (Col.) San Francisco & P. S. S. Co, v. Scott (Col.) San Francisco Savings Union v. Carey (Col.).... Sargent Land Co. et al. v. Von Baumbach (Col.)., Schwab V. Scott (Col.)., Scott (Col.) V. Bryant & May. - Scott (Col.) V. Goldfield Consolidated Mines Co.. Scott (Cd.) V. San Francisco & P. S. S. Co Scott (Col.) V. Schwab Scott V. Western Pacific Ry. Co Sibley v. Weeks... Sioux City & Pac. R. R. Co. v. U. S Skinner (Col.) v. Union Pacific Coal Co Slack V. Eastern Kentucky R. R. Co Slack (Col.) V. Kentucky Improvement Co.. FOOTNOT.S 90 (a) 179 78, 89 (c) 112 (d), 114, 128 204 (b) 89 (a), 89 (d), 107 (e) 32 (g) 90 (a), 112 (b) 169 31 109 (a) 104 (a), 112 (c), 114, 116 (b) 90 (a) 89 (c), 104 (q) 202 (e), 204 (a) 95 (a) 173, 188 187 8 (a), 8 (c) 95 (b)-(c), 100 32 (b) 15,33 115 78, 89 (c) 32 (c) 89 (c),90 (a), 104 (1), 104 (s) 201 (b) 105 (d) 89 (c), 90 (a) 90 (a), 90 (p) 169 197, 198 163 (a) 43' 114, 116 (a) 132 206 90 (a) 90 (a^,206 90 (a), 204 (b), 206 90 (a) 178, 181, 183 25 (a), 207 31, 83 (b) 90 (h) 32 (g) 204 (b) 94 194 22 -i"5 (c), 112 (a) 176 90 (J), 104 (g),112 (b) 104 (i) 90 (b) 112 (b) 105 (c), 112 (a) 104 (i) 83 (a), 202 (c) 58, 202 (b) 180 32 (b) 192 177 Page 160 371 156, 159 187, 188, 264 400 159, 179 61 160, 186 366 60 182 176, 187, 188, 189 160 159, 177 400 170 370, 373 372 8 170, 171 60 35, 61 189 156, 159 60 159, 160, 177 399 178 159, 160 160, 161 366 380, 384 344 75 188, 189 276 401 160 160, 401 160, 400, 401 160 371 58, 401 60, 158 161 '61 400 168 379 58 178, 186 371 161, 176, 186 177 160 186 178, 186 177 158, 400 118, 400 371 60 378 371 XIV FEDERAL INCOME TAX LAWS Slack (Col.) V. Michigan Cent. E. R. Co.... Smietanka v. Chicago Title & Trust Co.... Smietanka v. First Trust Savings Bank... Smietanka v. Jackson Smietanka (Col.) v. Jacobsen.. Smietanka (Col.) ;v. Merchants' Loan & Trust Co... Snake River V. Rwy. Co. v. Miller (Col.) Soule V. Pacific Insurance Co Southern Pacific Co. v. Lowe (Col.) Southern Pacific Ins. Co. v. Muenter Springer v. U. S Stanton v. Baltic Mining Co State Line & S. Ry. Co. v. Davis Stockdale (Col.) y. Atlantic Ins. Co.. Stockton V. Lederer (Col.) Stoffregen v. Moore (Col.) Stone Tracy Co. v. Flint Stratton's Independence, Ltd. v. Howbert (Col.). Third Ave. R. R. Co. et al. v. Central Trust Co.. Towne v. Eisner (Col.) Traction Cos. v. Collectors... Traylor Eng. & Mfg. Co. v. Lederer (Col.).. Turrish v. Lynch (Col.) _ Tyee Realty Co. v. Anderson (Col.) U Union Holljrwood Water Co. v. Carter (Col.).. Union Pacific Coal Co. v. Skinner (Col.) U. P. R. R. Co. V. Brushaber U. U. U. U. U. U. u. u. u. u. u. u. u. u. u. u. u. u. u. u. u. u. u. u. u. u. u. u. u. u. u. u. V. Acorn Roofing Co. et al V. Aetna Life Ins. Co V. Alpha Portland Cement Co V. Associated Pipe Line Co V. B. & O. R. R. Co V. Benowitz _ V. Biwabik Mining Co. V. Boston & M. R. R V. Butterick Co _ V. Central National Bank V. Christine Oil & Gas Co V. Cleveland, C, C. & St. L. Ry. Co... V. Commissioners V. Coulby V. Doerschuck et al V. Dollar Savings Bank V. Emery, Bird, Thayer Realty Co V. Erie Ry. Co v. Galm V. Gen. Inspection & Loading Co V. Grand Rapids Ry. Co V. Greenport Basin & Con. Co. et al V. Guggenheim Exploration Co V. Houston Belt & Terminal Ry. Co V. Indianapolis & St. Louis R. R. Co.. V. Jones V. L. & N. Ry. Co _ V. La Belle Iron Works V. Levy - V. Little Miami et al. R. R. Co v. Marquette, H. & O. R. R V. Maryland Casualty Co _ U. S. V. McHatton et al U. S. V. Memphis & Charleston R. R U. S. V. Military Const. Co U. S. V. Minneapolis Threshing Machine Co.. Footnote Page 183, 185 371, 372 85 (a), 86 (a)-(b) 158 70 148 21 56 12 (a) 34 10, 25 (b), 73 16, 58, 150 90 (a) 160 173, 188 370, 373 32 (f) 61 107 (d) 179 171 367 15, 18, 50, 77, 111, 202 (d) 35, 86, 94 156, 186, 400 90 (a) , 204 (b) 160, 400 174, 195 370, 379 98, 99 171 32 (b) 60 79, 89 (a)-(d),90 (d). 156, 159 90 (o), 91, 121 (a) 160, 161, 218 89 (c), 90 (c), 112 (b) 159, 160, 186 78 156 32 (e) 61 90 (a) 160 200 389 32 (d) 60 15, 18, 69, 106 35, 36, 146, 179 80, 104 (e), 105 (h) 157, 176, 178 32 (b) 60 15, 18, 37, 39, 50, 53, 60, 64, 35, 36, 72, 94 69, 77, 106, 202 (d). 97, 130, 138 204 (a) 146, 156, 179, 400 121 (b) 218 109 (h) 183 104 (r) 177 90 (m), 107 (b) 146, 156, 179, 400 186 372 68 146 89 (c), 112 (b) 159, 186 107 (e) 179 32 (a), 156 60, 324 166 365 103 176 104 (c), 104 (h)-(i) 176, 177 183, 184 371 57 110 8 (b) 8 175 370 90 (a), 90 (n), 201 (c) 160, 161, 399 183 371 164 359 90 (e), 123 160, 254 127 (a), 128 257, 264 133, 161 (a) -(b), 205 (b) 276, 329, 401 104 (p) 177 90 (k), 104 (f) 161, 176 190 378 170 366 190 378 87. 162 (c)-(d) 159, 341 186 280 180, 183 371 193 379 103, 104 (a), 113 (a) -(b). 176, 188 116 (b) -(c), 204 (b). 189, 400, 401 205 (c), 206 20, 81 (b)-(c) 52, 157 167, 168 366 121 (b) 218 127 (a), 128 257, 264 ALPHABETICAL TABLE OF CASES XV u. s. u. s. U.S. u. s. u. s. u. s. u. s. u. s. u. s. V. s. u. s. u. s. u. s. u. s. u. s. V. s. u. s. U.S. V. Missouri Eiver R. R V. Nashville, C. & St. L. Ry.. V. N. Y., N. H. & H. E. R. Co.. V. Nipissing Mines Co V. V, Oregon-Washington R. & Nav. . Pacific R. E. at al Phellis - Co.. V. Philadelphia, B. & W. R. Co.. V. Philadelphia Knitting Mills Co.... V. Rau V. Rockefeller. V. Rock Island, A. & L. R. R V. Rio Grande J. R. R V. Sioux City & Pac. R. R. Co V. Springer V. Western Union R. R. Co V. Whitridge V. Woodward Von Baumbach (Col.) v. Sargent Land Co. et al.. W I. Ey. Co.. Walker (Col.) v. Gulf Walker (Col.) v. Jasper & E. Ry. Co.. Walsh (Col.) V. Brewster,. Walsh (Col.) V. Industrial Trust Co Walsh (Col.) V. Waterbury Gas Light Co.. Warden (Col.) v. Cryan _ Warden v. Lawrence. Waterbury Gas Light Co. v. Walsh (Col.).. Wattles V. Lormis (Col.) Weeks v. Sibley... Weiss (Col.) V. Mohawk Mining Co West End St. Ry. Co. v. Malley (Col.) Western Pacific Ey. Co. v. Equitable Trust Co. N. Y.. Western Pacific Ey. Co. v. Scott. Western Union E. E. Co. v. U. S Whitridge v. U. S Wilkes-Barre & W. Va. Traction Co. v. Davis (Col.).... Woods V. Lewellyn (Col.) Woodward v. U. S Worth Bros. v. Lederer (Col.) Zonne v. Minneapolis Syndicate... Footnote Page 191 378 112 (e),126, 128 187, 256, 264 89 (a), 89 (d), 107 (e) 159, 179 90 (a), 112 (b) 160, 186 89 (c),104 (q) 159, 177 187 372 32 (c) 60 89 (c), 90 (a), 104 (1), 159, 160, 177 104 (s) 105 (d) 178 25 (a), 207 58, 401 32 (g) 61 204 (b) 400 90 (h) 161 180 371 171 367 190, 196 378, 379 78, 89 (c) 156, 159 42 74 90 (j),104 (g),112 (b) 161, 176, 186 104 (a), 105 (i) 176, 179 90 (a) 160 9 (a), 11, 14, 26 (a) 9, 17, 34, 58 104 (o) 177 90 (a) 160 26 (c) 58 13, 67 34, 142 90 (a) 160 32 (e), 204 (a) 61, 400 58, 202 (bX 118, 400 46 80 31, 90 (a) 60, 160 83 (a), 202 (c) 158, 400 83 (a), 202 (c) 158, 400 190, 196 378, 379 78, 89 (c) 156, 159 90 (a) 160 30, 69, 125 59, 146, 256 42 74 199 389 .. 90 (a) 160 NUMERICAL TABLE OF CASES 4 Ct. CI. 197 39 Ct. CI. 55 51 Ct. CI. 274 52 Ct. CI. 201 54 Ct. CI. 22 55 Ct. CI. 462 1 Fed. 97 1 Fed. 700 10 Fed. 612 15 Fed. 222 17 Fed. 719 19 Fed. 66 24 Fed. 577 33 Fed. 829 43 Appl. D. C 144 176 Fed. 471 192 Fed. 223 192 Fed. 670 193 Fed. 286 198 Fed. 199 198 Fed. 242 198 Fed. 201 Fed. 201 Fed. 202 Fed. 203 Fed. 204 Fed. 204 Fed. 204 Fed. 206 Fed. 206 Fed. 207 Fed. 207 Fed. 209 Fed. 210 Fed. 210 Fed. 211 Fed. 213 Fed. 214 Fed. 215 Fed. 215 Fed. 774 918 1011 803 876 153 157 657 333 431 419 423 991 577 933 743 777 511 991 967 216 Fed. 83 218 Fed. 188 218 Fed. 206 218 Fed. 457 218 Fed. 600 218 Fed. 905 219 Fed. 31 219 Fed. 184 219 Fed. 301 221 Fed. 59 221 Fed. 86 222 Fed. 177 222 Fed. 437 223 Fed. 472 223 Fed. 946 223 Fed. 984 223 Fed. 1022 224 Fed. 585 COURT OF CLAIMS Footnote 170 164 90 (h) 103,104 (a), 113 (a)- (b), 116 (b)-(c) 204 (b) 162 (d) FEDERAL REPORTS 187 180, 183 166 166 193 191 166 190 202 (e),204 (a) 78 90 (e) 90 (a) 78, 89 (c) 104 (a), 105 (a), 114 116 (a) 90 (a), 90 (n) 201 (c) 78, 89 (c) 114 95 (a) 112 (b) 95 (c) 121 (b) 121 (b) 123 90 (a), 205 (a) 90 (a) 89 (c),112 (b) 90 (j), 104 (g) 107 (b) 95 (b), 100 109 (a), 126, 127 (b) 109 (a) 107 (b) 90 (a) 109 (a) 104 (o), 105 (e) 107 (c) 89 (c), 90 (a) 104 (a) -(b), 114 104 (a), 105 (f), 110 114 90 (a) 109 fa), 126, 127 (b) 104 (a), 116 fb) 90 r.1),l04 (g) 90 (a) 90 (a), 204 (b>, 206 104 (o), 107 (c) 108 90 (a), 90 (p) 104 (o) 89 (c), 109 (a), 126 90 (a) 90 (a) 114 30 I Page 366 359 161 176, 188, 189 400 341 372 371 365 365 379 378 365 378 400 156 160 160 156, 159 176, 178 188, 189 160, 161, 399 156, 159 188 170 186 170 218 218 254 160, 401 160 159, 186 161, 176 179 170, 171 182, 256, 257 182 179 160 182 177, 178, 179 ■ 159, 160 176, 188 176, 178 184, 188 160 182, 256, 257 176, 189 161, 176 160 160, 400, 401 177, 179 180 160, 161 177 159, 182, 256 160 160 188 59 224 Fed. 657 224 Fed. 800 225 Fed. 278 225 Fed. 437 226 Fed. 875 227 Fed. 486 227 Fed. 490 227 Fed. 491 227 Fed. 494 227 Fed. 496 227 Fed. 500 228 Fed. 54 228 Fed. 246 228 Fed. 296 228 Fed. 505 229 Fed. 902 229 Fed. 1019 230 Fed. 110 231 Fed. 110 231 Fed. 223 233 Fed. 87 233 Fed. 704 233 Fed. 976 234 Fed. 125 234 Fed. 474 234 Fed. 590 235 Fed. 370 235 Fed. 686 236 Fed. 653 236 Fed. 661 236 Fed. 813 238 Fed, 238 Fed 238 Fed 238 Fed, 238 Fed. 847 239 Fed. 153 239 Fed. 184 239 Fed. 568 239 Fed. 739 240 Fed 240 Fed 242 Fed. 9 242 Fed. 18 242 Fed. 702 242 Fed. 709 245 Fed. 1 245 Fed. 792 246 Fed. 270 246 Fed. 387 246 Fed. 545 246 Fed. 625 246 Fed. 664 247 Fed 247 Fed 248 Fed, 248 Fed 249 Fed. 27 249 Fed. 103 249 Fed. 152 249 Fed. 678 249 Fed. 726 250 Fed. 1 250 Fed. 817 250 Fed. 856 251 Fed. 211 251 Fed. 524 231 329 533 659 539 665 559 681 568 688 _ Footnote 116 (b) 89 (c), 90 (a) 90 (a) 104 (h), 104 (i) 90 (b) 90 (a) 90 (a) 90 (a) 90 (a) 90 (a), 206 90 (a) 90 (a) 90 (a), 204 (b) 89 (c), 90 (f) 104 (d) 105 (b) 90 (a), 206 127 (a), 128 104 (i) 30 88, 90 (g) 108 112 (b) 90 (a) 33 45,52 204 (b) 94 104 (h)-(i) 32 (d) 32 (b) 83 (a), 202 (c) 104 (p) 80, 104 (e), 105 (h) 90 (a) 109 fa) 32 (f) 127 (a), 128 201 (b) 16 31, 83 (b> 32 (a), 156 71 89 (c). 112 (h1 104 (c), 104 (h)-(i) in.<> fff) 104 (i), 107 (b) 90 ff ) , 104 (f > 83 (a), 202 (c) 31, 90 (a) 90 (1) 115 114, 116 (a) 104 (a), 114, 116 (b) 104 (j), 107 (b) 89 (a), 89 (d), 203 84 32 (b) 126 31, 83 (b) 90 (k), 104 (f) 85 (b), 86 (c) 31 89 (c), 104 (q) 116 (b) Page 189 159, 160 160 176, 177 160 160 160 160 160 160, 401 160 160 160, 400 159, 161, 176 178 160, 401 257, 264 177 59 159, 161 180 186 160 61 78, 96 400 168 176, 177 60 60 158, 400 177 157, 176, 178 160 182 61 257, 264 399 35 60, 158 60, 3?4 IM 159, 1R« 176, 177 61 61 61 178 177, 179 161, 176 158, 400 60, 160 161 189 188, 189 176, 188, 189 177, 179 159, 400 158 60 256 60, 158 161, 176 158 60- 159, 177 189 XVII XVIII FEDERAL INCOME TAX LAWS 220 576 27 251 Fed. 982 252 Fed. 106 253 Fed. 854 255 Fed. 57 255 Fed. 364 256 Fed. 380 257 Fed. 133 257 Fed. 257 Fed. 258 Fed. 258 Fed. 81 258 Fed. 208 258 Fed. 225 258 Fed. 533 258 Fed. 800 260 Fed. 130 260 Fed. 333 260 Fed. 589 260 Fed. 261 Fed. 262 Fed. 262 Fed. 262 Fed. 837 339 114 173 188 262 Fed. 215 262 Fed. 223 262 Fed. 550 263 Fed. 248 263 Fed. 264 Fed. 264 Fed. 265 Fed. 265 Fed. 266 Fed. 266 Fed. 583 266 Fed. 602 266 Fed. 676 266 Fed. 876 267 Fed. 16 267 Fed. 267 Fed. 267 Fed. 267 Fed. 267 Fed. 527 232 502 331 578 161 498 739 872 932 968 268 Fed. 207 268 Fed. 230 268 Fed. 270 268 Fed. 377 268 Fed. 427 269 Fed. 58 269 Fed. 155 269 Fed. 351 269 Fed. 368 269 Fed. 458 269 Fed. 647 269 Fed. 885 269 Fed. 907 270 Fed. 682 399 942 142 271 Fed. 271 Fed. 272 Fed. 272 Fed. 970 273 Fed. 282 273 Fed. 405 273 Fed. 657 273 Fed. 822 273 Fed. 689 274 Fed. 94 274 Fed. 125 Footnote 57 30, 69, 125 105 (c), 112 (a) 104 ,(i) 199 104 (a), 114 44 (a) 90 (a) 128 57 115 81 (a) 26 (c) 199 90 (m), 107 (b) 25 (a), 207 109 (b) 43 107 (d) 104 (r) 112 (b), 201 (a) 98, 99 89 (c), 90 (a) 104 (1), 104 (s) 112 (d), 114 68 12 (b), 23 26 (c) 112 (d), 114 32 (b) 46 107 (e) 107 (e) 44 (b) 200 20, 81 (b)-(c) 98, 99 32 (e), 204 (a) 43 202 (a) 163 (a) 199 21 104 (a), 112 (c), 114 116 (b) 9 (a), 11, 14, 26 (a) 70 105 (d) 162 (a), 163 (b) 27, 204 (a) 133, 161 (a) -(b) 205 (b) 58, 202 (b) 112 (e), 126, 128 90 (i) 103 160, 162 (b) 104 (a), 105 (i) 89 (a), 89 (d) 107 (e) 13 200 136 163 (c) 21 132 13, 67 105 (d) 22 161 (a)-(b) 117 96, 97, 102 Page 110 59, 146, 256 178, 186 177 389 176, 188 76 160 264 110 189 157 58 389 161, 179 58, 401 183 75 179 177 186, 399 171 159, 160, 177 187, 188 146 34, 58 58 187, 188 60 80 179 179 77 389 52, 157 171 61, 400 75 400 344 389 56 176, 187 188, 189 9, 17, 34, 58 148 178 341, 344 59, 400 276, 329, 401 118, 400 187, 256, 264 161 176 329, 341 176, 179 159, 179 34 389 280 344 56 276 34, 142 173 58 329 190 170, 171, 176 274 Fed. 739 275 Fed. 60 6 Wall. 15 7 Wall. 262 7 Wall. 433 11 Wall. 113 12 Wall. 1. 15 Wall. 63 17 Wall. 294 17 Wall. 322 19 Wall. 227 20 Wall. 323 22 Wall. 38 22 Wall. 604' 23 Wall. 307 93 U. S. 225 95 U. S. 78 100 U. S. 595 100 U. S. 648 100 U. S. 659 101 U. S. 543 102 U. S. 586 106 U. S. 109 106 U. S. 327 108 U. S. 228 108 U. S. 277 110 U. S. 205 113 U.- S. 711 123 U. S. 722 137 U. S. 355 157 U. S. 429 158 U. S. 601 169 U. S. 253 220 U. S. 107 220 U. S. 178 220 U. S. 187 228 U. S. 295 231 U. S. 144 231 U. S. 399 231 U. S. 755 237 U. S. 28 239 U. S. 69 240 U. S. 1 240 U. S. 103 240 U. S. 115 240 U. 240 U. 242 U. 244 U. 245 U. 245 U. 246 U. 247 U. 247 U. 247 U. 247 U. 247 U. S. 118 S. 122 S. 503 S. 585 S. 151 S. 418 S. 671 S. 116 S. 126 S. 165 S. 179 S. 189 247 U. S. 195 Footnote 8 (b) 85 (a), 86 (b) U. S. REPORTS 169 169 173, 188 172 165 189 178, 181, 183 186 175 174, 195 176 179 191 182 194 183, 185 177 192 190, 196 171 179 183 167, 168 180 180 190 193 166 197, 198 197, 198 183, 184 79, 89 (a)-(d) 90 (d), 90 (o), 91 121 (a) 82 90 (a) 90 (a) 78, 89 (c) 89 (c), 90 (c) 112 (b) 114 90 (a), 90 (n) 201 (c) 89 (c), 107 (a) 107 (b) 15, 18, 37, 39, 50, 53 60, 64, 69, 77, 106 202 (d), 204 (a) 15, 18, 50, 77, 111 202 (d) 15, 18, 69, 106 202 (e), 204 (a) 204 (a) 90 (j), 104 (g) 112 (b) 116 (b) 28, 38 32 (e) 31, 83 (b), 90 (a) 112 (b) 112 (b) 15, 33 89 (c), 104 (h)-(i) 89 (c), 104 (h)-(i) 104 (k) 104 (h)-(i) Page 8 158 366 366 370, 373 367 363 374 371 372 370 370, 379 371 371 378 371 379 371, 372 371 378 378, 379 367 371 371 366 371 371 378 379 365 380, 384 380, 384 371 156, 159, 160 161, 218 158 160 160 156, 159 159, 160, 186 188 160, 161, 399 159, 179 35, 36, 72, 94 97, 130, 138 146, 156, 179 400 35, 36, 94 156, 186, 400 35, 36, 146 179 400 400 161, 176, 186 189 59, 72 61 60, 158, 160 186 186 35, 61 159, 176, 177 159, 176, 177 176, 177 NUMERICAL TABLE OF CASES XIX Footnote Page Footnote 247 U. S. 221 32 (d) 60 251 U. S. 507 199 247 U. S. 330 32 (f) 61 251 U. S. 509 199 247 U. S. 339 82 (b) 60 252 U. S. 189 9 (a), 14,26 (b) 247 U. S. 347 32 (b) 60 252 U. S. 523 115 248 U. S. 71 32 (f) 61 252 U. S. 570 32 (b) 248 U. S. 578 104 (j),107 (b) 177, 179 252 U. S. 579 112 (b),201 (a) 248 U. S. 590 203 400 253 U. S. 245 12 (b), 23 249 U. S. 223 85 (b), 86 (c) 158, 399 65 L. Ed. 445 10, 25 (b), 73 201 (d) 65 L. Ed. 449 10 250 U. S. 376 16 35 65 L. Ed. 450 10 250 U. S. 667 26 (c) 58 65 L. Ed. 451 9 (a), 11, 26 (a) 251 U. S. 342 103,104 (a), 113 (a)- 176, 188, 189 65 L. Ed. 604 87, 162 (c)-(d) (b), 116 (b)-(c) 400, 401 65 L. Ed. 728 42 204 (b), 205 (c) 206 Page 389 389 9, 34, 58 189 60 186, 399 34, 58 16, 58, 150 16 16 9, 17, 58 159, 341 74 PART I Acts of 1909,;i913, 1916, 1917, 1918 and 1921 Correlated and Annotated Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918, Act of 1917. Act of Nov. 23, 1921 (— Stat. L. — , C. — ) An Act To reduce and equalize taxation, to provide revenue, and for other purposes. Be it enacted hy the Senate and House of Representatives of the United States of America in Congress assembled, TITLE I.— GENERAL DEFI- NITIONS. Section 1. That this Act may- be cited as the ' ' Revenue Act of 1921." Sec. 2. That when used in this Act— (1) The term "person" in- cludes partnerships and corpo- rations, as well as individuals; (2) The term "corporation" includes associations, joint-stock companies, and insurance com- panies; (3) The term "domestic" when applied to a corporation or partnership means created or organized in the United States; (4) The term "foreign" when applied to a corporation or part- nership means created or organ- ized outside the United States; (5) The term "United States" when used in a geographical sense includes only the States, the Territories of Alaska and Hawaii, and the District of Co- lumbia ; (6) The term "Secretary" means the Secretary of the Treasury ; Act of Feb. 24, 1919 1 (40 Stat. L. 1057-96, C. 18) An Act To provide revenue, and for other purposes. Be it enacted hy the Senate and House of Representatives of the United States of America in Congress assembled, TITLE I.— GENERAL DEFI- NITIONS. Section 1. That when used in this Act — The term "person" includes partnerships and corporations, as well as individuals; The term "corporation" in- cludes associations, joint-stock companies, and insurance com- panies ; The term "domestic" when applied to a corporation or part- nership means created or organ- ized in the United States; The term "foreign" when ap- plied to a corporation or part- nership means created or organ- ized outside the United States; The term "United States" when used in a geographical sense includes only the States, the Territories of Alaska and Hawaii, and the District of Co- lumbia ; The term "Secretary" means the Secretary of the Treasury; Act of Sept. 8, 1916 (39 Stat. L. 756-77, C. 463) As amended by the Act op Oct. 3, 1917 2 (40 Stat. L. 300-38, C. 63) An Act To provide revenue to defray war expenses, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, TITLE I.— INCOME TAX 3 Part I. — On Individuals. TITLE I.— WAR INCOME TAX* Definition of "corpora- tion," "United States," "do- mestic," and "foreign." Sec. 200, p. 328. Sec. 15.5 That the word "State" or "United States" when used in this title shall be construed to include any Terri- tory, the District of Columbia, Porto Rico, and the Philippine Islands, when such construction is necessary to carry out its pro- visions. iKetroactive to January 1, 1918. Referred to hereafter as the Act of 1918. 2 This column contains the Act of 1917 and the unrepealed sections of the Act of 1916. The sec- tions of the Act of 1917 are identified by footnotes and the fact that no corresponding sections are Act of 1916, GENERAL DEFINITIONS Act of 1913. Act of 1909. Act of Sept. 8, 1916 (39 Stat. L. 756-77, C. 463) An Act To increase the revenue, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assemiled, TITLE I.- Paet I.- -INCOMB TAX. ■On Individuals. Sec. 15.5 That the word "State" or "United States" when used in this title shall be construed to include any Terri- tory, the District of Columbia, Porto Rico, and the Philippine Islands, when such construction is necessary to carry out its pro- visions. Act of Oct. 3, 1913 (38 Stat. L. 166-81, C. 16) An Act To reduce tariff duties and to provide revenue for the Government, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SECTION II. H. That the word "State" or "United States" when used in this section shall be construed to include any Territory, Alaska, the District of Columbia, Porto Rico, and the Philippine Islands, when such construction is neces- sary to carry out its provisions. Act of Aug. 5, 1909 (36 Stat. L. 113-18, C. 6) An Act To provide revenue, equalize duties and encourage the industries of the United States, and for other pur- poses. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, CHAPTER 7. found in the column for the Act of 1916. Further- more, the unrepealed sections of the Act of 1916 oc- cur in both columns. 3 Act of 1916. 4 Act of 1917. " Part III, General Administrative Provisions, Act of 1916. Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. (7) The term " Commissioner " means the Commissioner of In- ternal Eevenue; (8) The term "collector" means collector of internal rev- enue; (9) The term "taxpayer" in- cludes any person, trust or es- tate subject to a tax imposed by this Act; (11) The term "Government contract" means (a) a contract made with the United States, or with any department, bureau, officer, commission, board, or agency, under the United States and acting in its behalf, or with any agency controlled by any of the above if the contract is for the benefit of the United States, or (b) a subcontract made with a contractor performing such a contract if the products or serv- ices to be furnished imder the subcontract are for the benefit of the United States. The term "Government contract or con- tracts made between April 6, 1917, and November 11, 1918, both dates inclusive" when ap- plied to a contract of the kind referred to in clause (a) of this subdivision, includes all such contracts which, although en- tered into during such period, were originally not enforceable, but which have been or may be- come enforceable by reason of subsequent validation in pursu- ance of law. (10) The term "military or naval forces of the United States" includes the Marine Corps, the Coast Guard, the Army Nurse Corps, Female, and the Navy Nurse Corps, Female, but this shall not be deemed to . The term ' ' Commissioner ' ' means the Commissioner of In- ternal Eevenue; The term "collector" means collector of internal revenue ; The term "Eevenue Act of 1916" means the Act entitled "An Act to increase the revenue, and for other purposes," ap- proved September 8, 1916 ; The term "Eevenue Act of 1917" means the Act entitled "An Act to provide revenue to defray war expenses, and for other purposes," approved Oc- tober 3, 1917 ; The term "taxpayer" includes any person, trust or estate sub- ject to a tax imposed by this Act; The term "Government con- tract" means (a) a contract made with the United States, or with any department, bureau, officer, commission, board, or agency, under the United States and acting in its behalf, or with any agency controlled by any of the above if the contract is for the benefit of the United States, or (b) a subcontract made with a contractor performing such a contract if the products or serv- ices to be furnished under the subcontract are for the benefit of the United States. The term "Government contract or con- tracts made between April 6, 1917, and November 11, 1918, both dates inclusive" when ap- plied to a contract of the kind referred to in clause (a) of this paragraph, includes all such contracts which, although en- tered into during such period, were originally not enforceable, but which have been or may be- come enforceable by reason of subsequent validation in pursu- ance of law; The term "military or naval forces of the United States" in- cludes the Marine Corps, the Coast Guard, the Army Nurse Corps, Female, and the Navy Nurse Corps, Female, but this shall not be deemed to exclude Act of 1916. GENERAL DEFINITIONS Act of 1913. Act of 1909. FEDERAL INCOME TAX LAWS Act of 1921. Act of 1918. Act of 1917. exclude other units otherwise in- cluded within such terms; and TITLE II.— INCOME TAX. Part I. — General Provisions. DEFINITIONS. Sec. 200. That when used in this title — (1) The term "taxable year" means the calendar year, or the fiscal year ending during such calendar year, upon the basis of which the net income is com- puted under section 212 or sec- tion 232. The term "fiscal year" means an accounting pe- riod of twelve months ending on the last day of any month other than December. The first taxa- ble year, to be called the taxa- ble year 1921, shall be the cal- endar year 1921 or any fiscal year ending during the calendar year 1921 ; (2) The term "fiduciary" means a guardian, trustee, exec- utor, administrator, receiver, conservator, or any person act- ing in any fiduciary capacity for any person, trust or estate; (3) The term "withholding agent" means any person re- quired to deduct and withhold any tax under the provisions of section 221 or section 237 ; (5) The term "personal serv- ice corporation" means a corpo- ration whose income is to be as- cribed primarily to the activities of the principal owners or stock- holders who are themselves reg- ularly engaged in the active con- duet of the affairs of the corpo- ration and in which capital (whether invested or borrowed) is not a material income-produc- ing factor; but does not include any foreign corporation, nor any corporation 50 per centum or other units otherwise included within such term; The term "present war" means the war in which the United States is now engaged against the German Government. For the purposes of this Act the date of the termination of the present war shall be fixed by proclamation of the President. TITLE II.— INCOME TAX. Part I. — Gbneraij Provisions. DEFINITIONS. Sec. 200. That when used in this title — The term "taxable year" means the calendar year, or the fiscal year ending during such calendar year, upon the basis of which the net income is com- puted under section 212 or sec- tion 232. The term "fiscal year" means an accounting pe- riod of twelve months ending on the last day of any month other than December. The first taxa- ble year, to be called the taxable year 1918, shall be the calendar year 1918 or any fiscal year end- ing during the calendar year 1918; The term "fiduciary" means a guardian, trustee, executor, ad- ministrator, receiver, conserva- tor, or any person acting in any fiduciary capacity for any per- son, trust or estate; The term "withholding agent" means any person required to deduct and withhold any tax under the provisions of section 221 or section 237 ; The term "personal service corporation" means a corpora- tion whose income is to be as- cribed primarily to the activities of the principal owners or stock- holders who are themselves regu- larly engaged in the active con- duct of the affairs of the cor- poration and in which capital (whether invested or borrowed) is not a material income-produc- ing factor ; but does not include any foreign corporation, nor any corporation 50 per centum or Definition of "taxable year." Sec. 200, p. 328. Act of 1916. GENERAL DEFINITIONS Act of 1913. Act of 1909. Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. more of whose gross income con- sists either (1) of gains, profits, or income derived from trading as a principal, or (2) of gains, profits, commissions, or other in- come, derived from a Govern- ment contract or contracts made between April 6, 1917, and No- vember 11, 1918, both dates in- clusive. (4) The term "paid, "for the purposes of the deductions and credits under this title, means "paid or accrued" or "paid or incurred," and the terms "paid or incurred" and "paid or ac- crued" shall be construed ac- cording to the method of ac- counting upon the basis of which the net income is computed un- der section 212; and DIVIDENDS. Sec. 201. (a) That the term "dividend" when used in this title (except in paragraph (10) of subdivision (a) of section 234 and paragraph (4) of subdivi sion (a) of section 245) means any distribution made by a cor- poration to its shareholders or members, whether in cash or in other property, out of its earn ings or profits accumulated since February 28, 1913, except a dis tribution made by a personal service corporation out of earn ings or profits accumulated since December 31, 1917, and prior to January 1, 1922. (b) For the purposes of this Act every distribution is made out of earnings or profits, and from the most recently accumu- more of whose gross income con- sists either (1) of gains, profits or income derived from trading as a principal, or (2) of gains, profits, commissions, or other in- come, derived from a Govern- ment contract or contracts made between April 6, 1917, and No- vember 11, 1918, both dates in- clusive ; The term ' ' paid, ' ' for the pur- poses of the deductions and credits under this title, means "paid or accrued" or "paid or incurred," and the terms "paid or incurred" and "paid or ac- crued" shall be construed ac- cording to the method of ac- counting upon the basis of which the net income is com- puted under section 212. DIVIDENDS. Sec. 201. (a) That the term "dividend" when used in this title (except in paragraph (10) of subdivision (a) of section 234) means (1) any distribution made by a corporation, other than a personal service corpora- tion, to its shareholders or mem- bers, whether in cash or in other property or in stock of the cor- poration, out of its earnings or profits accumulated since Feb- ruary 28, 1913, or (2) any such distribution made by a personal service corporation out of its earnings or profits accumulated since February 28, 1913, and prior to January 1, 1918. (b) Any distribution shall be deemed to have been made from earnings or profits unless Sec. 1211. [5] "Sec. 31.6 (a) That the term 'dividends''' as used in this title shall be held to mean any distribution made or ordered to be made by a corpo- ration, joint-stock company, asso- ciation, or insurance company, out of its earnings or profits ac- crued since March first, nineteen hundred and thirteen, and pay- able to its shareholders, whether in cash or in stock of the cor- poration, joint-stock company, association, or insurance com- pany, which stock dividend shall be considered income, to the amount of the earnings or prof- its so distributed. "(b) Any distribution made to the shareholders or members of the corporation, joint-stock 6 Title I, Part III, Act of 1916, as amended by Sec. 1211, Title XII, Act of 1917. 7 Gross income includes "dividends," pp. 58, 59. 8(a) Money received in 1916 by a corporation in settlement of a claim for damages existent on March 1, 1913, is not profit arising since that date; hence, a dividend declared and paid to stockholders from said money so received in 1916, does not constitute tax- able income under the Act of 1916. Park v. Gilligan (Col.), (D. C, S. D. Ohio, W. D. 1921), — Fed. — . 8(b) Stockholders, receiving as dividends deben- ture bonds based upon undivided surplus, were re- quired to return as income under the Act of 1916, the portion of such bonds which represented the sur- plus accumulated after March 1, 1913. Debenture bonds are negotiable securities available for disposi- tion as cash, as distinguished from stock dividends which represent no income to the stockholder. Doer- schuck, et al. v. U. S., (D. C, E. D. N. Y. 1921) 274 Fed. 739. 8(c) The mere crediting of dividends to the ac- counts of stockholders, said dividends not being seg- regated or set apart from the other corporate assets in money or securities or other property, does "not Act of 1916. Sec. 2. (a) [2] Provided, That the term "dividends" 8 as used in this title shall be held to mean any distribution made or ordered to be made by a cor- poration, joint-stock company, association, or insurance com- pany, out of its earnings or profits accrued since March first, nineteen hundred and thir- teen, and paj^able to its share- holders, whether in cash or in stock of the corporation, joint- stock company, association, or insurance company, which stock dividend ^ shall be considered income, to the amount of its cash value. DIVIDENDS Act Of 1913. Act of 1909. constitute the receipt of income" by the stockhold- ers. Park V. Gilligan (Col.), (D. C, S. D. Ohio, W. D. 1921) — Fed. — . *(d) For additional cases on "dividends," see foot- note No. 32, p. 60. 9(a) A stock dividend declared from surplus which accrued after March 1, 1913, was not income to the stockholder, and, hence, not taxable under the Act of 1916. "We are clear that not only does a stock dividend really take nothing from the property of the corporation and add nothing to that of the shareholder, but * * * shows he has not realized or received any income in the transaction." A stock- holder's interest in the corporation evidenced by sur- plus or stock dividends is capital. To the extent, therefore, that the Act of 1916 imposes a tax upon stock dividends without apportionment, it is uncon- stitutional. Eisner (Col.) v. Macomber, (1920) 252 U. S. 189;' Walsh (Col.) v. Brewster, (1921) 65 L. Ed. 451, affirming Id., (D. C, D. Conn. 1920) 268 Fed. 207. 9(b) For additional cases on "stock : dividends," see footnote No. 32 (e), p. 61. 10 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. lated earnings or profits, to the extent of such earnings or prof- its accumulated since Feb- ruary 28, 1913; but any earnings or profits accumulated or increase in value of property accrued prior to March 1, 1913, may be distributed exempt from the tax after the earnings and profits accumulated since Feb- ruary 28, 1913, have been dis- tributed. If any such tax-free distribution has been made the distributee shall not be allowed as a deduction from gross in- come any loss sustained from the sale or other disposition of his stock or shares unless, and then only to the extent that, the basis provided in section 202 ex- ceeds the sum of (1) the amount realized from the sale or other disposition of such stock or shares, and (2) the aggregate amount of such distributions re- ceived by him thereon. (e) Ally distribution (wheth- er in cash or other property) made by a corporation to its shareholders or members other- wise than out of (1) earnings or profits accumulated since Feb- ruary 28, 1913, or (2) earnings or profits accumulated or in- crease in value of property ac- crued prior to March 1, 1913, shall be applied against and reduce the basis provided in sec- tion 202 for the purpose of ascertaining the gain derived or the loss sustained from the sale or other disposition of the stock or shares by the distributee. (d) A stock dividend shall not be subject to tax but if after the distribution of any such divi- dend the corporation proceeds to cancel or redeem its stock at such time and in such manner as to make the distribution and cancellation or redemption es- sentially equivalent to the dis- tribution of a taxable dividend, the amount received in redemp- tion or cancellation of the stock shall be treated as a taxable div- idend to the extent of the earn- all earnings and profits have first been distributed. Any dis- tribution made in the year 1918 or any year thereafter shall be deemed to have been made from earnings or profits accumulated since February 28, 1913, or, in the ease of a personal service corporation, from the most re- cently accumulated earnings or profits; but any earnings or profits accumulated prior to March 1, 1913, may be distrib- uted in stock dividends or other- wise, exempt from the tax, after the earnings and profits accumu- lated since February 28, 1913, have been distributed. (c) A dividend paid in stock of the corporation shall be consid- ered income to the amount of the earnings or profits distributed. Amounts distributed in the liquidation of a corporation shall be treated as payments in ex- change for stock or shares, and any gain or profit realized there- by shall be taxed to the distrib- utee as other gains or profits. (d) If any stock dividend (1) is received by a taxpayer be- tween January 1 and November company, or association, or in- surance company, in the year nineteen hundred and seven- teen, or subsequent tax years, shall be deemed to have been made from the most recently accumulated undivided profits or surplus, and shall constitute a part of the annual income of the distributee for the year in which received, and shall be taxed to the distributee at the rates prescribed by law for the years in which such profits or surplus were accumulated by the corporation, joint-stock com- pany, association, or insurance company, but nothing herein shall be construed as taxing any earnings or profits accrued prior to March first, nineteen hundred and thirteen, but such earnings or profits may be distributed in stock dividends or otherwise, exempt from the tax, after the distribution of earnings and profits accrued since March first, nineteen hundred and thirteen, has been made. This subdivision shall not apply to any distribution made prior to August sixth, nineteen hundred and seventeen, out of earnings or profits accrued prior to' March first, nineteen hundred and thirteen. Stock dividends consid- ered income. Sec. 1211. [5], p. 8. Act of 1916. DIVIDENDS Act of 1913. 11 Act of 1909. Stock dividends considered income. Sec. 2. (a) [2], p. 9. 12 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. ings or profits accumulated by such corporation after February 28, 1913. (e) For the purposes of this Act, a taxable distribution made by a corporation to its share- holders or members shall be in- cluded in the gross income of the distributees as of the date when the cash or other property is unqualifiedly made subject to their demands. (f) Any distribution made during the first sixty days of any taxable year shall be deem- ed to have been made from earn- ings or profits accumulated dur- ing preceding taxable years ; but any distribution made during the remainder of the taxable year shall be deemed to have been made from earnings or profits accumulated between the close of the preceding taxable year and the date of distribu- tion, to the extent of such earn- ings or profits, and if the books of the corporation do not show the amount of such earnings or profits, the earnings or profits for the accounting period within which the distribution was made shall be deemed to have been ac- cumulated ratably during such period. This subdivision shall not be in effect after December 31, 1921. 1, 1918, both dates inclusive, or (2) is during such period bona fide authorized or declared, and entered on the books of the cor- poration, and i§ received by a taxpayer after November 1, 1918, and before the expiration of thirty days after the passage of this Act, then such dividend shall, in the manner provided in section 206, be taxed to the re- cipient at the rates prescribed by law for the years in which the corporation accumulated the earnings or profits from which such dividend was paid, but the dividend shall be deemed to have been paid from the most recently accumulated earnings or profits. (e) Any distribution made during the first sixty days of any taxable year shall be deemed to have been made from earn- ings or profits accumulated dur- ing preceding taxable years ; but any distribution made during the remainder of the taxable year shall be deemed to have been made from earnings or profits accumulated between the close of the preceding taxable year and the date of distribu- tion, to the extent of such earn- ings or profits, and if the books of! the corporation do not show the amount of such earnings or profits, the earnings or profits for the accounting period within which the distribution was made shall be deemed to have been accumulated ratably during such period. Act of 1916. DIVIDENDS Act of 1913. 13 Act of 1909. 14 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. BASIS FOB DETERMINING GAIN OE LOSS. Sec. 202. (a) That the basis for ascertaining the gain de- rived or loss sustained from a sale or other disposition of prop- erty, real, personal, or mixed, acquired after February 28, 1913, shall be the cost of such property ; except that — (1) In the case of such prop- erty, which should be included in the inventory, the basis shall be the last inventory value thereof ; (2) In the case of such prop- erty, acquired by gift after De- cember 31, 1920, the basis shall be the same as that which it would have in the hands of the donor or the last preceding owner by whom it was not ac- quired by gift. If the facts necessary to determine such ba- sis are unknown to the donee, the Commissioner shall, if pos- sible, obtain such facts from such donor or last preceding owner, or any other person cog- nizant thereof. If the Commis- sioner finds it impossible to obtain such facts, the basis shall be the value of such property as found by the Commissioner as of the date or approximate date at which, according to the best in- formation the Commissioner is able to obtain, such property was acquired by such donor or last preceding owner. In the case of such property acquired by gift on or before December 31, 1920, the basis for ascertain- ing gain or loss from a sale or other disposition thereof shall be the fair market price or value of such property at the time of such acquisition; (3) In the case of such prop- erty, acquired by bequest, de- vise, or inheritance, the basis shall be the fair market price or value of such property at the time of such acquisition. The provisions of this paragraph shall apply to the acquisition of such property interests as are BASIS FOR DETERMINING GAIN OR LOSS. Sec. 202. (a) That for the purpose of ascertaining the gain derived or loss sustained from the sale or other disposition of property, real, personal, or mixed, the basis shall be — (2) In the case of property acquired on or after that date, the cost thereof; or the inven- tory value, if the inventory is made in accordance with section 203. The date referred to above is March 1, 1913. See (1) post. BASIS FOR DETERMINING GAIN OR LOSS 15 Act of 1916. Act of 1913. Act of 1909. 16 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. specified in subdivision (e) or (e) of section 402. (b) The basis for ascertaining the gain derived or loss sus- tained from the sale or other dis- position of property, real, per- sonal, or mixed, acquired before March 1, 1913, shall be the same as that provided by subdivision (a) ; but — (1) If its fair market price or value as of March 1, 1913, is in excess of such basis, the gain to be included in the gross income shall be the excess of the amount realized therefor over such fair market price or value ; (2) If its fair market price or value as of March 1, 1913, is lower than such basis, the deduc- tible loss is the excess of the fair market price or value as of March 1, 1913, over the amount realized therefor ; and (3) If the amount realized therefor is more than such basis but not more than its fair market price or value as of March 1, 1913, or less than such basis but not less than such fair market price or value, no gain shall be included in and no loss deducted from the gross in- come. (c) For the purposes of this title, on an exchange of prop- erty, real, personal or mixed, for any other such property, no gain or loss shall be recognized unless the property received in exchange has a readily real- izable market value ; but even if the property received in ex- change has a readily realizable market value, no gain or loss shall be recognized — (1) In the case of property acquired before March 1, 19'13, the fair market price or value of such property as of that date; and (b) When property is ex- changed for other property, the property received in exchange shall for the purpose of deter- mining gain or loss be treated as the equivalent of cash to the amount of its fair market value, if any; but when in connection with the reorganization, merger, or consolidation of a corporation a person receives in place of stock or securities owned by him Sec. 2. (e) For the purpose of ascertaining the gain 10 de- rived from the sale or other dis- position of property, real, per- sonal, or mixed, acquired before March first, nineteen hundred and thirteen, the fair market price or value of such property as of March first, nineteen hun- dred and thirteen, shall be the basis for determining the amount of such gain derived. Sec. 5. Fourth. [2] Provided, That for the purpose of ascer- taining the loss sustained from the sale or other disposition of property, real, personal, or mixed, acquired before March first, nineteen hundred and thir- teen, the fair market price or value of such property as of March first, nineteen hundred and thirteen, shall be the basis for determining the amount of such loss sustained; Also see Sec. 10. [3], p. 162. 10 The gain derived from a single, isolated sale of personal property, which has appreciated in value during a series of years, is not capital but income. It is income regardless of whether the recipient be en- gaged in the business of buying and selling (such as a merchant, real estate agent, or broker) or merely holding it as an investment. The amount taxable under the Act of 1916, as amended by the Act of 1917, in the case of property acquired prior to March I, 1913, is; (1) The difference between the selling price and the fair market value on March 1, 1913, when the fair market value on said date is greater than the cost thereof. Merchants' Loan & Trust Co. V. Smietanka (Ex-Col.), (1921) 65 L. Ed. 445; El- dorado Coal & M. Co. V. Mager (Col.), (1921) 65 L. Ed. 449; Goodrich v. Edwards (Col.), (1921) 65 L. Ed. 450. (2) The difference between the selling price and the cost thereof when the fair market value on March 1, 1913, is less than the cost thereof. Goodrich v. Edwards (Col.), (1921) 65 L. Ed. 450. BASIS FOR DETERMINING GAIN OR LOSS Act of 1916. Act of 1913. Act of 1909. 17 Sec. 2. (e) For the purpose of ascertaining the gain n derived from the sale or other disposi- tion of property, real, personal, or mixed, acquired before March first, nineteen hundred and thir- teen, the fair market price or value of such property as of March first, nineteen hundred and thirteen, shall be the basis for determining the amount of such gain derived. Sec. 5. (a) Fourth. [2]Pro- vided, That for the purpose of ascertaining the loss sustained from the sale or other disposi- tion of property, real, personal, or mixed, acquired before March first, nineteen hundred and thir- teen, the fair market price or valvie of such property as of March first, nineteen hundred and thirteen, shall be the basis for determining the amount of such loss sustained ; Also see Sec. 10 [3], p. 163. 11 The gain derived from a single, isolated sale of personal property, which has appreciated in value during a series of years, is not capital but income. It is income regardless of whether the recipient be engaged in the business of buying and selling (such as a merchant, real estate agent, or broker) or mere- ly holding it as an investment. The amount taxable under the Act of 1916, in the case of property\ ac- quired prior to March 1, 1913, is: (1) The difference between the selling price and the fair market value on March 1, 1913, when the fair market value on said date is greater than the cost thereof. Walsh (Col.) V. Brewster, (1921) 65 L. Ed. 451, reversing Id., (D. C, D. Conn. 1920) 268 Fed. 207. (2) The differ- ence between the selling price and the cost thereof when the fair market value on March 1, 1913, is less than the cost thereof. Walsh (Col.) v. Brewster, (1921) 65 L. Ed. 451. 18 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. (1) When any such property held for investment, or for pro- ductive use in trade or business (not including stock-in-trade or other property held primarily for sale), is exchanged for prop- erty of a like kind or iise ; (2) When in the reorganiza- tion of one or more corporations a person receives in place of any stock or securities owned by him, stock or securities in a corpora- tion a party to or resulting from such reorganization. The word "reorganization," as used in this paragraph, includes a mer- ger or consolidation (including the acquisition by one corpora- tion of at least a majority of the voting stock and at least a ma- jority of the total number of shares of all other classes of stock of another corporation, or of substantially all the proper- ties of another corporation), re- capitulation, or mere change in identity, form, or place of or- ganization of a corporation, (however effected) ; or (3) When (A) a person trans- fers any property, real, personal or mixed, to a corporation, and immediately after the transfer is in control of such corporation, or (B) two or more persons transfer any such property to a corporation, and immediately after the transfer are in control of such corporation, and the amounts of stock, securities, or both, received by such persons are in substantially the same proportion as their interests in the property before such trans- fer. For the purposes of this paragraph, a person is, or two or more persons are, "in con- trol" of a corporation when: owning at least 80 per centum of the voting stock and at least 80 per centum of the total number of shares of all other classes of stock of the corporation. Sec. 202. (d) (1) Where property is exchanged for other property and no gain or loss is recognized under the provisions new stock or securities of no greater aggregate par or face value, no gain or loss shaU be deemed to occur from the ex- change, and the new stock or se- curities received shall be treated as taking the place of the stock, securities, or property ex- changed. When in the ease of any such reorganization, merger or con- solidation the aggregate par or face value of the new stock or securities received is in excess of the aggregate par or face value of the stock or securities ex- changed, a like amount in par or face value of the new stock or securities received shall be treat- ed as taking the place of the stock or securities exchanged, and the amount of the excess in par or face value shall be treated as a gain to the extent that the fair market value of the new stock or securities is greater than the cost (or if acquired prior to March 1, 1913, the fair market value as of that date) of the stock or securities exchanged. BASIS FOR DETERMINING GAIN OR LOSS Act of 1916, Act of 1913. Act of 1909. 19 20 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. of subdivision (c), the property received shall, for the purposes of this section, be treated as tak- ing the place of the property ex- changed therefor, except as pro- vided in subdivision (e) ; (2) Where property is com- pulsorily or involuntarily con- verted into cash or its equivalent in the manner described in par- agraph (12) of subdivision (a) ef section 214 and paragraph (14) of subdivision (a) of sec- tion 234, and the taxpayer pro- ceeds in good faith to expend or seti aside the proceeds of such conversion in the form and in the manner therein provided, the property acquired shall, for the purpose of this section, be treated as taking the place of a like proportion of the property converted ; (3) Where no deduction is al- lowed for a loss or a part thereof under the provisions of para- graph (5) of subdivision (a) of section 214 and paragraph (4) of subdivision (a) of section 234, that part of the property acquired with relation to which such loss is disallowed shall for the purposes of this section be treated as taking the place of the property sold or disposed of. (e) Where property is ex- changed for other property which has no readily realizable market value, together with money or other property which has a readily realizable market value, then the money or the fair market value of the property having such readily realizable market value received in ex- change shall be applied against and reduce the basis, provided in this section, of the property exchanged, and if in excess of such basis, shall be taxable to the extent of the excess; but when property is exchanged for property specified in paragraphs (1), (2), and (3) of subdivision (c) as received in exchange, to- gether Avith money or other property of a readily realizable BASIS FOR DETERMINING GAIN OR LOSS 21 Act of 1916. Act of 1913. Act of 1909, 22 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. market value other than that specified iii such paragraphs, the money or the fair market value of such other property received in exchange shall be applied against and reduce the basis, provided in this section, of the property exchanged, and if in excess of such basis, shall be tax- able to the extent of the excess, (f) Nothing in this section shall be construed to prevent (in the case of property sold under contract providing for payment in installments) the taxation of that portion of any installment payment representing gain or profit in the year in which such payment is received. INVENTORIES. Sec. 203. That whenever in the opinion of the Commissioner the use of inventories is neces- sary in order clearly to deter- mine the income of any tax- payer, inventories shall be taken by such taxpayer upon such basis as the Commissioner, with the approval of the Secretary, may prescribe as conforming as nearly as may be to the best ac- counting practice in the trade or business and as most clearly reflecting the income. NET LOSSES. Sec. 204. (a) That as used in this section the term "net loss" means only net losses resulting from the operation of any trade or business regularly carried on by the taxpayer (including losses sustained from the sale or other disposition of real estate, machinery, and other capital as- sets, used in the conduct of such trade or business) ; and when so resulting means the excess of the deductions allowed by section 214 or 234, as the case may be, over the sum of the following: (1) the gross income of the tax- payer for the taxable year, (2) the amount by which the inter- est received free from taxation under this title exceeds so much of the interest paid or accrued INVENTORIES. Sec. 203. That whenever in the opinion of the Commissioner the use of inventories is neces- sary in order clearly to deter- mine ihe income of any taxpay- er, inventories shall be taken by such taxpayer upon such basis as the Commissioner, with the approval of the Secretary, may prescribe as conforming as near- ly as may be to the best account- ing practice in the trade or busi- ness and as most clearly reflect- ing the income. NET LOSSES. Sec. 204. (a) That as used in this section the term "net loss" refers only to net losses resulting from either (1) the operation of any business regularly carried on by the taxpayer, or (2) the bona fide sale by the taxpayer of plant, buildings, machinery, equipment or other facilities, constructed, installed or acquired by the taxpayer on or after April 6, 1917, for the production of articles contributing to the prosecution of the present war ; and when so resulting means the excess of the deductions allowed by law (excluding in the case of coporations amounts allowed as a deduction under paragraph (6) of subdivision (a) of section 234) over the sum of the gross Act of 1916. INVENTORIES AND NET LOSSES Act of 1913. 23 Act of 1909. 24 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. within, the taxable year on in- debtedness as is not permitted to be deducted by paragraph (2) of subdivision (a) of section 214 or by paragraph (2) of sub- division (a) of section 234, (3) the amount by which the deduc- tible losses not sustained in such trade or business exceed the tax- able gains or profits not derived from such trade or business, (4) amounts received as dividends and allowed as a deduction under paragraph (6) of subdi- vision (a) of section 234, and (5) so much of the depletion de- duction allowed with respect to any mine, oil or gas well as is based upon discovery value in lieu of cost. (b) If for any taxable year beginning after December 31, 1920, it appears upon the pro- duction of evidence satisfactory to the Commissioner that any taxpayer has sustained a net loss, the amount thereof shall be deducted from the net income of the taxpayer for the succeed- ing taxable year; and if such net loss is in excess of the net in- come for such succeeding tax- able year, the amount of such excess shall be allowed as a de- duction in computing the net in- come for the next succeeding taxable year; the deduction in all cases to be made under regu- lations prescribed by the Com- missioner with the approval of the Secretary. (c) The benefit 6f this section shall be allowed to the members of a partnership and the bene- ficiaries of an estate or trust, income plus any interest received free from taxation both under this title and under Title III. (b) If for any taxable year beginning after October 31, 1918, and ending prior to January 1, 1920, it appears upon the pro- duction of evidence satisfactory to the Commissioner that any taxpayer has sustained a net loss, the amount of such net loss, shall under regulations pre- scribed by the Commissioner with the approval of the Secre- tary be deducted from the net income of the taxpayer for the preceding taxable year ; and the taxes imposed by this title and by Title III for such preceding taxable year shall be redeter- mined accordingly. Any amount found to be due to the taxpayer upon the basis of such redeter- mination shall be credited or re- funded to the taxpayer in ac- cordance with the provisions of section 252. If such net loss is in excess of the net" income for such preceding taxable year, the amount of svich excess shall un- der regulations prescribed by the Commissioner with the ap- proval of the Secretary be al- lowed as a deduction in comput- ing the net income for the suc- ceeding taxable year. (c) The benefit of this section shall be allowed to the members of a partnership and the bene- ficiaries of an estate or trust un- Act of 1916. NET LOSSES Act of 1913. 25 Act of 1909. 26 Act of 1921, FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. and to insurance companies sub- ject to the tax imposed by sec- tion 243 or 246, under regula- tions prescribed by the Commis- sioner with the approval of the Secretary. (d) If it appears, upon the production of evidence satisfac- tory to the Commissioner, that a taxpayer having a fiscal year beginning in 1920 and ending in 1921 has sustained a net loss during such fiscal year, such tax- payer shall be entitled to the benefits of this section in respect to the same proportion of such net loss which the portion of such fiscal year falling within the calendar year 1921 is of the entire fiscal year. FISCAL YEARS 1920-1921 AND 1921-1922. Sec. 205. (a) That if a tax- payer makes return for a fiscal year beginning in 1920 and end- ing in 1921, his tax under this title for the taxable year 1921 shall be the sum of: (1) the same proportion of a tax for the entire period computed under Title II of the Revenue Act of 1918 at the rates for the calen- dar year 1920 which the portion of such period falling within the calendar year 1920 is of the entire period, and (2) the same proportion of a tax for the en- tire period computed under this title at the rates for the calen- dar year 1921, which the portion of such period falling within the calendar year 1921 is of the entire period. Any amount paid before or after the passage of this Act on account of the tax imposed for such fiscal year by Title II of the Revenue Act of 1918 shall be credited toward the payment of the tax imposed for such fiscal year by this Act, and if the amount so paid exceeds the amount of such tax imposed by this Act, the excess shall be credited or refunded in accord- ance with the provisions of sec- tion 252. der regulations prescribed by the Commissioner with the ap- proval of the Secretary. FISCAL YEAR WITH DIFFERENT KATES. Sec. 205. (a) That if a tax- payer makes return for a fiscal year beginning in 1917 and end- ing in 1918, his tax under this title for the first taxable year shaU be the sum of: (1) the same proportion of a tax for the entire period computed under Title I of the Revenue Act of 1916 as amended by the Revenue Act of 1917 and under Title I of the Revenue Act of 1917, which the portion of such period falling within the calendar year 1917 is of the entire period, and (2) the same proportion of a tax for the entire period com- puted under this title at the rates for the calendar year 1918 which the portion of such pe- riod falling within the calendar year 1918 is of the entire pe- riod : Provided, That in the case of a personal service corporation the amount to be paid shall be only that specified in clause (1). Any amount heretofore or hereafter paid on account of the tax imposed for such fiscal year by Title I of the Revenue Act of 1916 as amended by the Revenue Act of 1917, and by Title I of the Revenue Act of 1917, shall be credited towards the payment of the tax imposed for such fis- Computation of tax in case of fiscal year. Sec. 10. [3], p. 162. Individuals required to make return on calendar year basis. Sec. 8. (a), p. 146. Corporations authorized to make return on fiscal year basis. Sec. 13. (a), p. 216. Partnerships authorized to make return on fiscal year basis. Sec. 1204. [2], p. 110. FISCAL YEAR WITH DIFFERENT RATES 27 Act of 1916. Act of 1913. Act of 1909. Computation of tax in case of fiscal year. Sec. 10. [3], p. 163. Individuals required to make return on calendar year basis. Sec. 8. (a), p. 147. Corporations authorized to make return on fiscal year basis. Sec. 13. (a), p. 217. 28 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. (b) If a taxpayer makes re- turn for a fiscal year beginning in 1921 and ending in 1922, his tax under this title for the tax- able year 1922 shall be the sum of : (1) the same proportion of a tax for the entire period com- puted under this title (as in force on December 31, 1921) at the rates for the calendar year 1921 which the portion of such period falling within the calen- dar year 1921 is of the entire period, and (2) the same pro- portion of a tax for the entire period computed under this title (as in force on January 1, 1922) at the rates for the calen- dar year 1922 which the portion of such period falling within the calendar year 1922 is of the entire period: Provided, That in the case of a personal service corporation the amount to be paid shall be only that specified in clause (2). (c) If a fiscal year of a part- nership begins in 1920 and ends in 1921, or begins in 1921 and ends in 1922, then (1) the rates for the calendar year during which such fiscal year begins shall apply to an amount of each partner's share of such partner- ship net income (determined under the law applicable to such year) equal to the proportion which the part of such fiscal year falling within such calen- dar year bears to the full fiscal year, and (2) the rates for the calendar year during which such fiscal year ends shall appl:' to an amount of each partner's share of such partnership net in- come (determined under the law applicable to such calendar year) equal to the proportion cal year by this act, and if the amount so paid exceeds the amount of such tax imposed by this .act, or, in the case of a per- sonal service corporation, the amount specified in clause (1), the excess shall be credited or refunded in accordance with the provisions of section 252. (b) If a taxpayer makes a re- turn for a fiscal year beginning in 1918 and ending in 1919, the tax under this title for such fis- cal year shall be the sum of : (1) the same proportion of a tax for the entire period computed un- der this title at the rates speci- fied for the calendar year 1918 which the portion of such period falling within the calendar year 1918 is of the entire period, and (2) the same proportion of a tax for the entire period computed under this title at the rates spec- ified for the calendar year 1919 which the portion of such period falling within the calendar year 1919 is of the entire period. Personal service corpora- tion. Sec. 205. (a) supra, and (c) post. (c) If a fiscal year of a part- nership begins in 1917 and ends in 1918 or begins in 1918 and ends in 1919, then notwithstand- ing the provisions of subdivision (b) of section 218, (1) the rates for the calendar year during which such fiscal year begins shall apply to an amount of each partner's share of such partner- ship net income (determined un- der the law applicable to such year) equal to the proportion which the part of such fiscal year falling within such calendar year bears to the full fiscal year, and (2) the rates for the calen- dar year during which such fis- cal year ends shall apply to an amount of each partner's share of such partnership net income (determined under the law ap- FISCAL YEAR WITH DIFFERENT RATES Act of 1916. Act of 1913. Act of 1909. 29 so Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. which the part of such fiscal year falling within such calen- dar year bears to the full fiscal year. CAPITAL GAIN. Sec. 206. (a) That for the purpose of this title : (1) The term "capital gain" means taxable gain from the sale or exchange of capital as- sets consummated after Decem- ber 31, 1921 ; (2) The term "capital loss" means deductible loss resulting from the sale or exchange of capital assets consummated after December 31, 1921 ; (3) The term "capital deduc- tions ' ' means such deductions as are allowed under this title for plicable to such calendar year) equal to the proportion which the part of such fiscal year fall- ing within such calendar year bears to the full fiscal year : Pro- vided, That in the case of a per- sonal service corporation with respect to a fiscal year beginning in 1917 and ending in 1918, the amount specified in clause (1) shall not be subject to normal tax. PARTS OF INCOME SUBJECT TO RATES FOR DIFFERENT TEARS. Sec. 206. That whenever parts of a taxpayer's income are sub- ject to rates for different calen- dar years, the part subject to the rates for the most recent calen- dar year shall be placed in the lower brackets of the rate sched- ule provided in this title, the part subject to the rates for the next preceding calendar year shall be placed in the next higher brackets of the rate schedule ap- plicable to that year, and so on until the entire net income has been accounted for. In deter- mining the income, any deduc- tions, exemptions or credits of a kind not plainly and properly chargeable against the income taxable at rates for a preceding year shall first be applied against the income subject to rates for the most recent calen- dar year ; but any balance there- of shall be applied against the income subject to the rates of the next preceding year or years until fully allowed. Act of 1917. AQtof 1916. CAPITAL GAIN Act of 1913. 31 Act of 1909. 32 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. the purpose of computing net income and are properly alloc- able to or chargeable against items of capital gain as defined in this section ; (4) The term "capital net gain" means the excess of the total amount of capital gain over the sum of the capital deduc- tions and capital losses; (5) The term "ordinary net income" means the net income, computed in accordance with the provisions of this title, after ex- cluding all items of capital gain, capital loss, and capital deduc- tiohs; and (6) The term "capital assets" as used in this section means property acquired and held by the taxpayer for profit or invest- ment for more than two years (whether or not connected with his trade or business), but does not include property held for the personal use or consumption of the taxpayer or his family, or stock in trade of the taxpayer or other property of a kind which would properly be in- cluded in the inventory of the taxpayer if on hand at the close of the taxable year. (b) In the case of any tax- payer (other than a corpora- tion) who for any taxable year derives a capital net gain, there shall (at the election of the tax- payer) be levied, collected and paid, in lieu of the taxes im- posed by sections 210 and 211 of this title, a tax determined as follows : A partial tax shall first be computed upon the basis of the ordinary net income at the rates and in the manner provided in sections 210 and 211, and the to- tal tax shall be this amount plus 12l^ per centum of the capital net gain; but if the taxpayer elects to be taxed under this sec- tion the total tax shall in no such case be less than 12i/^ per centum of the total net income. The total tax thus determined shall be computed, collected and I Act of 1916. CAPITAL GAIN Act of 1913. 33 Act of 1909, 34 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. paid in the same manner, at the same time and subject to the same provisions of law, includ- ing penalties, as other taxes under this title. (e) In the ease of a partner- ship of an estate or trust, the proper part of each share of the net income which consists, re- spectively, of ordinary net in- come and capital net gain, shall be determined under rules and regulations to be prescribed by the Commissioner with the ap- proval of the Secretary, and shall be separately shown in the return of the partnership or estate or trust, and shall be taxed to the member or bene- ficiary or to the estate or trust as provided in sections 218 and 219, but at the rates and in the manner provided in subdivision (b) of this section. PART II.— INDIVIDUALS. NORMAL TAX. Sec. 210. That, in lieu of the tax imposed by section 210 of the Revenue Act of 1918, there shall be levied, collected, and paid for each taxable year upon the net income of every individ- ual a normal tax of 8 per centum of the amount of the net income in excess of the credits provided in section 216 : Provided, That in the case of a citizen or resident of the United States the rate upon the first $4,000 of such excess amount shall be 4 per centum. Part II. — Individuals. NORMAL TAX. Sec. 210. That, in lieu of the taxes imposed by subdivision (a) of section 1 of the Revenue Act of 1916 and by section 1 of the Revenue Act of 1917, there shall be levied, collected, and paid for each taxable year upon the net income of every individual a normal tax 12 at the following rates : (a) For the calendar year 1918, 12 per centum of the amount of the net income in ex- cess of the credits provided in section 216 : Provided, That in the case of a citizen 13 or resident of the United States the rate upon Sec. 1. (a) That there shall be levied, assessed, collected, and paid annually upon the entire net income received in the pre- ceding calendar year from all sources by every individual, a citizen or resident of the United States, a tax of two per centum upon such income; and a like tax shall be levied, assessed, col- lected, and paid annually upon the entire net income received in the preceding calendar year from all sources within the United States by every individ- ual, a nonresident alien, includ- ing interest on bonds, notes, or other interest-bearing obligations 12(a) In bankruptcy proceedings, Federal taxes have priority over the payment of dividends to cred- itors, but not priority over the administration ex- penses of the proceedings. Jacobsen v. Smietanka (Col.), (C. C. A., Seventh Cir. 1920) — Fed. — . 12(b) The Sixteenth Amendment did not extend the taxing power of Congress to new objects of taxa- tion, but merely removed the necessity for appor- tioning taxes laid on incomes. Evans v. Gore (Col.), (1920) 253 U. S. 245, affirming Id., (D. C, W. D. Kentucky 1919) 262 Fed. 550. 13 The Act of 1918 imposes an income tax upon a citizen of the United States who resides during the entire taxable year in the Philippine Islands. Law- rence v. Warden, (C. C. A., Ninth Cir. 1921) 273 Fed. 406, affirming Id., (D. C, N. D. Cal. 1920) 270 Fed. 682. 1* The Sixteenth Amendment did not add new objects of taxation. It merely removed the neces- sity for an apportionment of taxes laid on incomes. Eisner (Col.) v. Macomber, (1920) 252 U. S. 189; Act of 1916. NORMAL TAX Act of 1913. 35 Sec. 1. (a) That there shall be levied, assessed, collected, and paid annually upon the entire net income received in the pre- ceding calendar year from all sources by every individual, a citizen or resident of the United States, a tax l* of two per centum upon such income; and a like tax shall be levied, as- sessed, collected, and paid an- nually upon the entire net in- come received in the preceding calendar year from all sources within the United States by every individual, a nonresident alien, including interest on bonds, notes, or other interest- A. Subdivision 1. That there shall be levied, assessed, col- lected and paid annually upon the entire net income arising or accruing from all sources in the preceding calendar year to ev- ery citizen of the United States, whether residing at home or abroad, and to every person re- siding in the United States, though not a citizen thereof, a tax 15 of 1 per centum per an- num upon such income, except as hereinafter provided; and a like tax shall be assessed, levied, collected, and paid annually upon the entire net income from all property owned ^^ and of Act of 1909. Brewster v. Walsh (Col.), (D. C, D. Conn. 1920) 268 Fed. 207. 15 The Sixteenth Amendment to the Constitution does not add new objects of taxation ; it merely per- mits the taxation of incomes without apportionment. Brushaber v. U. P. R. R. Co., (1916) 240 U. S. 1; Stanton v. Baltic Mining Co., (1916) 240 U. S. 103; Tyee Realty Co. v. Anderson, (1916) 240 U. S. 115; Peck & Co. Inc. v. Lowe (Col.), (1918) 247 U. S. 165. 18 Income derived from stock? and bonds of cor- porations organized under the laws of the United States and bonds and mortgages secured on property in the United States, which were owned by a non- resident alien, but actually in the possession of his agent in the United States, under power of attorney to sell, assign, or transfer, and invest and reinvest the proceeds, was taxable as income derived from "property owned * * * in the United States," within the meaning of the Act of 1913. DeGanay v. Lederer (Col.), (1919) 250 U. S. 376, aifirming Id., Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. (5) The income of foreign governments received from in- vestments in the United States in stocks, bonds, or other domes- tic securities, owned by such for- eign governments, or from inter- est on deposits in banks in the United States of moneys, belong- ing to such foreign governments, or from any other source within the United States ; (6) Amounts received, through accident or health in- surance or under workmen's compensation acts, as compensa- tion for personal injuries or sickness, plus the amount of any damages received whether by suit or agreement on account of such injuries or sickness. (7) Income derived from any public utility or the exercise of any essential governmental func- tion and accruing to any State, Territory, or the District of Co- lumbia, or any political subdi vision of a State or Territory, or income accruing to the Govern- ment of any possession of the United States, or any political subdivision thereof. Whenever any State, Ter- ritory, or the District of Colum- bia, or any political subdivision of a State or Territory, prior to September 8, 1916, entered in good faith into a contract with any person, the object and pur- pose' of which is to acquire, con- struct, operate, or maintain a (5) The income of foreign gov- ernments received from invest- ments in the United States in stocks, bonds, or other domestic securities, owned by such foreign governments, or from interest on deposits in banks in the United States of moneys belonging to such foreign governments, or from any other source within the United States: ( 6 ) Amounts received, through accident or health insurance or under workmen's compensation acts, as compensation for per- sonal injuries or sickness, plus the amount of any damages re- ceived whether by suit or agree- ment on account of such injuries or sickness; (7) Income derived from any public utility or the exercise of any essential governmental func- tion and accruing to any State, Territory, or the District of Columbia, or any political sub- division of a State or Territory, or income accruing to the gov- ernment of any possession of the United States, or any political subdivision thereof. Whenever any State, Terri- tory, or the District of Colum- bia, or any political subdivision of a State or Territory, prior to September 8, 1916, entered in good faith into a contract with any person, the object and pur- pose of which is to acquire, con- struct, operate, or maintain a ferior courts of the United States now in office, and the compensa- tion of all offtcers and employees of a State, or any political sub- division thereof, except when such compensation is paid by the United States Government. ' ' Sec. 1211. [4] "Sec. 30.36 That nothing in section II of the Act approved October third, nineteen hundred and thirteen, entitled 'An Act to reduce tariff duties and to provide revenue for the Government, and for other purposes, ' or in this title, shall be construed as taxing the income of foreign governments received from investments in the United States in stocks, bonds, or other domestic securities, owned by such foreign govern- ments, or from interest on de- posits in banks in the United States of moneys belonging to foreign governments. Sec. 11. (b) There shall not be taxed under this title any in- come derived from any public utility or from the exercise of any essential governmental func- tion accruing to any State, Ter- ritory, or the District of Colum- bia, or any political subdivision of a State or Territory, nor any income accruing to the govern- ment of the Philippine Islands or Porto Rico, or of any political subdivision of the Philippine Islands or Porto Rico : Provided, That whenever any State, Ter- ritory, or the District of Colum- bia, or any political subdivision of a State or Territory, has, prior to the passage of this title, entered in good faith into a con- 38 Title I, Part III, Act of 1916, as amended by Sec. 1211, Title XII, Act of 1917. Act of 1916. INCOME EXEMPT FROM LAW Act of 1913. 69 Act of 1909. inferior courts of the United States now in office, and the compensation of all officers and employees of a State, or any po- litical subdivision thereof, ex- cept when such compensation is paid by the United States Gov- ernment. Sec. 11. (b) There shall not be taxed under this title any in- come derived from any public utility or from the exercise of any essential governmental func- tion accruing to any State, Ter- ritory, or the District of Colum- bia, or any political subdivision of a State or Territory, nor any income accruing to the govern- ment of the Philippine Islands or Porto. Rico, or of any political subdivision of the Philippine Islands or Porto Rico : Provided, That whenever any State, Terri- tory, or the District of Columbia, or any political subdivision of a State or Territory, has, prior to the passage of this title, entered in good faith into a contract with preme and inferior courts of the United States now in office, and the compensation of all officers and employees of a State or any political subdivision thereof ex- cept when such compensation is paid by the United States Gov- ernment. G. (a) [3] Provided further, That there shall not be taxed under this section any income de- rived from any public utility or from the exercise of any essen- tial governmental function ac- cruing to any State, Territory, or the District of Columbia, or any political subdivision of a State, Territory, or the District of Columbia, nor any income ac- cruing to the government of the Philippine Islands or Porto Rico, or of any political subdivision of the Philippine Islands or Porto Rico: Provided, That whenever any State, Territory, or the Dis- trict of Columbia, or any politi- cal subdivision of a State or Ter- ritory, has, prior to the passage 70 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. public utility, no tax shall be levied under the provisions of this title upon the income de- rived from the operation of such public utility, so far as the pay- ment thereof will impose a loss or burden upon such State, Ter- ritory, District of Columbia, or political subdivision; but this provision is not intended and shall not be construed to confer upon such person any financial gain or exemption or to relieve such person from the payment of a tax as provided for in this title upon the part or portion of such income to which such per- son is entitled under such con- tract ; (8) The income of a nonresi- dent alien or foreign corpora- tion which consists exclusively of earnings derived from the operation of a ship or ships doc- umented under the laws of a for- eign country which grants an equivalent exemption to citizens of the United States and to cor- porations organized in the United States; (9) Amounts received as compensation, family allot- ments and allowances under the provisions of the War Risk In- surance and the Vocational Re- habilitation Acts, or as pensions from the United States for serv- ice of the beneficiary or another in the military or naval forces of the United States in time of war ; (10) So much of the amoimt received by an individual, after December 31, 1921, and before January 1, 1927, as dividends or interest from domestic building and loan associations, operated exclusively for the purpose of making loans to members, as does not exceed $300 ; (11) The rental value of a public utility, no tax shall be levied under the provisions of this title upon the income de- rived from the operation of such public utility, so far as the pay- ment thereof will impose a loss or burden upon such State, Ter- ritory, District of Columbia, or political subdivision; but this provision is not intended to con- fer upon such person any finan- cial gain or exemption or to re- lieve such person from the pay- ment of a tax as provided for in this title upon the part or portion of such income to which such person is entitled under such contract; (8) So much of the amount received during the present war by a person in the military or naval forces of the United States as salary or compensation in any form from the United States for active services in such forces, as does not exceed $3,500. tract with any person or cor- poration, the object and pur- pose of which is to acquire, con- struct, operate, or maintain a public utility, no tax shall be levied under the provisions of this title upon the income de- rived from the operation of such public utility, so far as the pay- ment thereof will impose a loss or burden upon such State, Ter- ritory, or the District of Colum- bia, or a political subdivision of a State or Territory; but this provision is not intended to con- fer upon such person or corpora- tion any financial gain or exemp- tion or to relieve such person or corporation from the payment of a tax as provided for in this title upon the part or portion of the said income to which such person or corporation shall be entitled under such contract. Act of 1916. INCOME EXEMPT FROM LAW Act of 1913. 71 Act of 1909. any person or corporation, the object and purpose of which is to acquire, construct, operate, or maintain a public utility, no tax shall be levied imder the provi- sions of this title upon the in- come derived from the operation of such public utility, so far as the payment thereof will impose a loss or burden upon such State, Territory, or the District of Columbia, or a political sub- division of a State or Territory ; but this provision is not intended to confer upon such person or corporation any financial gain or exemption or to relieve such per- son or corporation from the pay- ment of a tax as provided for in this title upon the part or por- tion of the said income to which such person or corporation shall be entitled under such contract. of this Act, entered in good faith into a contract with any person or corporation, the object and purpose of which is to acquire, construct, operate or maintain a public utility, no tax shall be levied under the provisions of this Act upon the income derived from the operation of such pub- lic utility, so far as the payment thereof will impose a loss or bur- den upon such State, Territory, or the District of Columbia, or a political subdivision of a State or Territory; but this provision is not intended to confer upon such person or corporation any financial gain or exemption or to relieve such person or corpora- tion from the payment of a tax as provided for in this section upon the part or portion of the said income to which such per- son or corporation shall be enti- tled under such contract. 72 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. dwelling house and appurte- nances thereof furnished to a minister of the gospel as part of his compensation; (12) The receipts of shipown- ers' mutual protection and in- demnity associations, not organ- ized for profit, and no part of the net earnings of which inures to the benefit of any private stockholder or member, but such corporations shall be subject as other persons to the tax upon their net income from interest, dividends and rents. Sec. 213. (e) In the ease of a nonresident alien individual, gross income means only the gross income from sources with- in the United States, determined under the provisions of section 217. DEDUCTIONS ALLOWED INDIVID- UALS. Sec. 214. (a) That in comput- ing net income there shall be al- lowed as deductions: (1) All the ordinary and nec- essary expenses paid or incurred during the taxable year in car- rying on any trade or business, including a reasonable allowance for salaries or other compensa- tion for personal services actual- ly rendered; traveling expenses (including the entire amount ex- pended for meals and lodging) while away from home in the pursuit of a trade or business; and rentals or other payments required to be made as a condi- Sec. 213. (c) In the case of a nonresident alien individual, gross income includes only the gross income from Sources with- in the United States, including interest on bonds, notes, or other interest-bearing obligations of residents, corporate or other- wise, dividends from resident corporations, and including aU amounts received (although paid under a contract for the sale of goods or otherwise) rep- resenting profits on the manu- facture and disposition of goods within the United States. DEDUCTIONS ALLOWED Sec. 214. (a) That in comput- ing net income there shall be allowed as deductions: (1) All the ordinary and necessary expenses paid or in- curred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal serv- ices actually rendered, and in- cluding rentals or other pay- ments required to be made as a condition to the continued use or possession, for purposes of the trade or business, of property to which the taxpayer has not Income of nonresident aliens. ' Sec. 1. (a), p. 34; Sec. 8. (f ) , p. 148. DEDUCTIONS ALLOWED Sec. 5. That in computing net income in the case of a citizen or resident of the United States — (a) For the purpose of the tax there shall be allowed as de- ductions — First. The necessary expenses actually paid in carrying on any business or trade, not including personal, living, or family ex- penses ; 37 The provisions in the Act of 1913 permitting de- ductions by individuals for the purpose of the normal tax but not for the additional tax, were not wanting in "due process of law." Brushaber v. U. P. R. R. Co., (1916) 240 U. S. 1. *8 Alimony paid a divorced wife under order of court was not deductible from the gross income of the husband under the Act of 1913. Gould v. Gould, (1917) 245 U. S. 161. " The provision of the Act of 1913 denying to per- DEDUCTIONS ALLOWED INDIVIDUALS 73 Act of 1916. Act of 1913. Act of 1909. Income of nonresident aliens. Sec. 1. (a), p. 35; Sec. 8. (f), p. 149. DEDUCTIONS ALLOWED. Sec. 5. That in computing net Income ia the case of a citizen or resident of the United States — (a) For the purpose of the tax there shall be allowed as deduc- tions — First. The necessary expenses actually paid in carrying on any business or trade, not including personal, living, or family ex- penses ; Income of nonresident aliens. A. Subdiv. 1, p. 35. B. [4] That in computing net income for the purpose of the normal tax 37 there shall be allowed as deductions : B. [5] First, the necessary ex- penses actually paid in carrying on any business 38 not including personal, living, or family • ex- penses ; 39 sons the right to deduct personal, living, or family expenses, such as expenditures for rental and food, was not wanting in "due process of law," although persons who lived in their own houses or produced their own food were not required to return as in- come the value thereof, consumed as personal, liv- ing, or family expenses. Brushaber v. U. P. R. R. Co., (1916) 240 U. S. 1. 74 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. tion to the continued use or pos- session, for purposes of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity; (2) All interest paid or ac- crued within the taxable year on indebtedness, except on indebt- edness incurred or continued to purchase or carry obligations or securities (other than obliga- tions of the United States issued after September 24, 1917, and originally subscribed for by the taxpayer) the interest upon which is wholly exempt from taxation under this title ; (3) Taxes paid or accrued within the taxable year except (a) income, war-profits, and ex- cess-profits taxes imposed by the authority of the United States, (b) so much of the income, war- profits and excess-profits taxes, imposed by the authority of any foreign country or possession of the United States, as is allowed as a credit under section 222, (c) taxes assessed against local benefits of a kind tending to in- crease the value of the property assessed, and (d) taxes imposed upon the taxpayer upon his in- terest as shareholder or member of a corporation, which are paid by the corporation without re- imbursement from the taxpayer. For the purpose of this para- graph estate, inheritance, legacy, and succession taxes accrue on the due date thereof except as otherwise provided by the law taken or is not taking title or in which he has no equity ; Personal, living, or fam- ily . expenses not deductible Sec. 215. (a), p. 92. (2) All interest paid or ac- crued within the taxable year on indebtedness, except on indebted- ness incurred or continued to purchase or carry obligations or securities (other than obligations of the United States issued after September 24, 1917), the inter- est upon which is wholly exempt from taxation under this title as income to the taxpayer, or, in the case of a nonresident alien individual, the proportion of such interest which the amount of his gross income from sources within the United States bears to the amount of his gross in- come from all sources within and without the United States ; (3) Taxes paid or accrued within the taxable year imposed (a) by the authority of the United States,*^ except income, war-profits, and excess-profits taxes; or (b) by the authority of any of its possessions, except the amount of income, war- profits and excess-profits taxes allowed as a credit under sec- tion 222 ; or (c) by the authority of any State or Territory, or any county, school district, mii- nieipality, or other taxing sub- divison of any State or Terri- tory, not including those as- sessed against local benefits of a kind tending to increase the value of the property assessed; or (d) in the case of a citizen or resident of the United States, by the authority of any foreign country, except the amount of income, war-profits and excess- profits taxes allowed as a credit Sec. 1201. [1] (1)40 That paragraphs second and third of subdivision (a) of section five of such Act of September eighth, nineteen hundred and sixteen, are hereby amended to read as follows : "Second. All interest paid within the year on his indebted- ness except on indebtedness in- curred for the purchase of obli- gations or securities the interest upon which is exempt from tax- ation as income under this title ; ' ' Third. Taxes paid within the year imposed by the authority of the United States (except in- come and excess profits taxes) or of its Territorities, or posses- sions, or any foreign country, or by the authority of any State, county, school district, or mu- nicipality, or other taxing sub- division of any State, not in- cluding those assessed against local benefits;" 40 Title I, Part I, Act of 1916, as amended by Sec. 1201 (1), Title XII, Act of 1917. *i For cases arising on interest deductible by cor- porations under the Acts of 1913 and 1909, see foot- notes Nos. 106 and 107, p. 179. 42 Federal estate taxes imposed by the Act of Sept. 8, 1916, which accrue and are paid during the taxable year, are deductible from the gross income of the estate as "taxes paid or acqrued" under the DEDUCTIONS ALLOWED INDIVIDUALS 75 Act Of 1916. Act of 1913. Act of 1909. Second. All interest paid with- in the year on his indebtedness ; Third. Taxes paid within the year imposed by the authority of the United States, or its Ter- ritories, or possessions, or any foreign country, or under the authority of any State, county, school district, or municipality, or other taxing subdivision of any State, not including those assessed against local benefits; B. [6] second, all interest ^l paid within the year by a tax- able person on indebtedness; B. [7] third, all national. State, county, school, and muni- cipal taxes 43 paid within the year, not including those as- sessed against local benefits; Act of 1918. U. S. V. Woodward, (1921) — U. S. — , 65 L. Ed. 728. *8 A state legacy tax, which is a tax upon the tes- tator's right to dispose of his property, and which is deductible from the legacy before the latter vests in the legatee, is not a tax paid by the legatee. Hence it is not deductible from his gross income under the Act of 1913. Prentiss v. Eisner (Col.), (C. C. A., Second Cir. 1920) 267 Fed. 16, affirming Id., (D. C, S. D. N. Y. 1919) 260 Fed. 589. 76 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. of the jurisdiction imposing such taxes ; (4) Losses sustained during the taxable year and not com- pensated for by insurance or otherwise, if incurred in trade or business ; (5) Losses sustained during the taxable year and not com- pensated for by insurance or otherwise, if incurred in any transaction entered into for profit, though not connected with the trade or business; but in the case of a nonresident alien individual only if and tp the ex- tent that the profit, if such transaction had resulted in a profit, would be taxable under this title. No deduction shall be allowed under this paragraph for any loss claimed to have been sustained in any sale or other disposition of shares of stock or securities made after the pas- sage of this Act where it appears that within thirty days before or after the date of such sale or other disposition the taxpayer has acquired (otherwise than by bequest or inheritance) substan- tially identical property, and the property so acquired is held by the taxpayer for any period after such sale or other disposi- tion. If such acquisition is to the extent of part only of sub- stantially identical property, then only a proportionate part of the loss shall be disallowed ; under section 222; or (e) in the case of a nonresident alien in- dividual, by the authority of any foreign country (except income, war-profits and excess-profits taxes, and taxes assessed against local benefits of a kind tending to increase the value of the prop- erty assessed), upon property or business ; (4) Losses sustained during the taxable year and not compen- sated for by insurance or other- wise, if incurred in trade or busi- ness; (5) Losses sustained during the taxable year and not compen- sated for by insurance or other- wise, if incurred in any trans- action entered into for profit, though not connected with the trade or business ; but in the case of a nonresident alien individual only as to such transactions with- in the United States; Sec. 5. Fourth. [1] Losses ac- tually sustained during the year, incurred in his business or trade, or arising from fires, storms, shipwreck, or other casualty, and from theft, when such losses are not compensated for by insur- ance or otherwise; Fifth. In transactions entered into for profit but not connected with his business or trade, the losses actually sustained therein during the year to an amount not exceeding the profits arising therefrom ; 44(a) A taxpayer acquired stock in transactions carried on over a considerable period, which were complicated in character, involved a very large sum of money, and required much time and attention. The stock became worthless and was charged off on the taxpayer's books. This was permissible as a loss "incurred in trade" under the Act of 1913. Bryce et al. v. Keith (Col.), (D. C, E. D. N. Y. DEDUCTIONS ALLOWED INDIVIDUALS 77 Act of 1916. Act of 1913. Act of 1909. Fourth. [1] Losses actually sustained during the year, in- curred in his business or trade, or arising from fires, storms, shipwreck, or other casualty, and from theft, when such losses are not compensated for by in- surance or otherwise ; Fifth. In transactions entered into for profit but not connected with his business or trade, the losses actually sustained therein during the year to an amount not exceeding the profits aris- ing therefrom; B. [8] fourth, losses actually sustained during the year, in- curred in trade** or arising from fires, storms, or shipwreck, and not compensated for by insur- ance or otherwise; 1919) 257 Fed. 133. *4(b) Losses sustained by a member of a manu- facturing firm through dealings on the cotton ex- change were not "incurred in the trade" under the Act of 1913, and, hence, were not deductible. Mente V. Eisner (Col.), (C. C. A., Second Cir. 1920) 266 Fed. 161. 78 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. (6) Losses sustained during the taxable year of property not connected with the trade or bus- iness (but in the case of a non- resident alien individual only property within the United States) if arising from fires, storms, shipwreck, or other cas- ualty, or from theft, and if not compensated for by insurance or otherwise. Losses allowed under paragraph (4), (5), and (6) ot this subdivision shall be deduct- ed as of the taxable year in which sustained unless, in order to clearly reflect the income, the loss should, in the opinion of the Commissioner, be accounted for as of a different period. In case of losses arising from destruc- tion of or damage to property, where the property so destroyed or damaged was acquired before March 1, 1913, the deduction shall be computed upon the basis of its fair market price or value as of March 1, 1913; (7) Debts ascertained to be worthless and charged off within the taxable year (or, in the dis- cretion of the Commissioner, a reasonable addition to a reserve for bad debts) ; and when satis- fied that a debt is recoverable only in part, the Commissioner may allow such debt to be charged off in part ; (8) A reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolesence. In the case ot such property acquired before March 1, 1913, this de- duction shall be computed upon the basis of its fair market price or value as of March 1, 1913 ; (9) In the case of buildings, machinery, equipment, or other facilities, constructed, erected, installed, or acquired, on or after April 6, 1917, for the produc- tion of articles contributing to the prosecution of the war (6) Losses sustained during! the taxable year of property not connected with the trade or busi- ness (but in the case of a non- resident alien individual only property within the United States) if arising from fires, storms, shipwreck, or other cas- ualty, or from theft, and if not compensated for by insurance or otherwise ; (7) Debts ascertained to be worthless and charged off within the taxable year; (8) A reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for ob- solescence ; (9') In the case of buildings, machinery, equipment, or other facilities, constructed, erected, installed, or acquired, on or after April 6, 1917, for the pro- duction of articles contributing to the prosecution of the pres- Losses arising from cas- ualties. Sec. 5 Fourth. [1], p. 76. Sixth. Debts due to the tax- payer actually ascertained to be worthless and charged off with- in the year; Seventh. A reasonable allow- ance for the exhaustion, wear and tear of property arising out of its use or employment in the business or trade; 46 Under the Act of 1913, "depreciation" of build- ings held for rental covered wear and tear, which meant the physical deterioration of the buildings. It did not include "loss in rental value because of DEDUCTIONS ALLOWED INDIVIDUALS Act of 1916. Act of 1913. Act of 1909. 79 Losses arising from cas- ualties. Sec. 5. Fourth. [1], p. 77. Sixth. Debts due to the tax- payer actually ascertained to be worthless and charged off within the year; Seventh. A reasonable allow- ance for the exhaustion, wear and tear of property arising out of its use or employment in the business or trade ; Losses arising from cas- ualties. B. [8], p. 77. B. [9] fifth, debts due to the taxpayer actually ascertained to be worthless and charged off within the year; B. [10] sixth, a reasonable al- lowance for the exhaustion, wear and tear 45 of property arising out of its use or employment in .the business, the construction of more modem buildings with im- proved facilities, or due to a change in the neighbor- hood." Cohen v. Lowe (CoL), (D. C, S. D. N. Y. 1916) 234 Fed. 474. 80 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. against the German Government and in the ease of vessels con- structed or acquired on or after such date for the transportation of articles or men contributing to the prosecution of such war, there shall be allowed, for any taxable year ending before March 3, 1924 (if claim therefor was made at the time of filing return for the taxable year 1918, 1919, 1920, or 1921) a reasona- ble deduction for the amortiza- tion of such part of the cost of such facilities or vessels as has been borne by the taxpayer, but not again including any amount otherwise allowed under this ti- tle or previous Acts of Congress as a deduction in computing net income. At any time before March 3, 1924, the Commissioner may, and at the request of the taxpayer shall, reexamine the re- turn, and if he then finds as a result of an appraisal or from other evidence that the deduc- tion originally allowed was in- correct, the income, war-profits, and excess-profits taxes for the year or years affected shall be redetermined; and the amount of tax due upon such redetermi- nation, if any, shall be paid upon notice and demand by the col- lector, or the amount of tax over- paid, if any, shall be credited or refunded to the taxpayer in ac- cordance with the provisions of section 252; (10) In the case of mines, oil • and gas wells, other natural de- posits, and timber, a reasonable allowance for depletion and for depreciation of improvements, according to the peculiar condi- tions in each case, based upon cost including cost of develop- ment not otherwise deducted: Provided, That in the case of such properties acquired prior to March 1, 1913, the fair mar- ket value of the property (or the ent war, and in the case of ves- sels constructed or acquired on or after such date for the trans- portation of articles or men con- tributing to the prosecution of the present war, there shall be allowed a reasonable deduction for the amortization of such part of the cost of such facilities or vessels as has been borne by the taxpayer, but not again in- cluding any amount otherwise allowed under this title or pre- vious Acts of Congress as a de- duction in computing net in- come. At any time within three years after the termination of the present war, the Commis- sioner may, and at the request of the taxpayer shall, reexamine the return, and if he then finds as a result of an appraisal or from other evidence that the deduction originally allowed was incorrect, the taxes imposed by this title and by Title III for the year or years affected shall b e redetermined ; and the amount of tax due upon such redetermination, if any, shall be paid upon notice and demand by the collector, or the amount of tax overpaid, if any, shall be credited or refunded to the tax- payer in accordance with the provisions of section 252; (10) In the case of mines, .oil and gas wells, other natural de- posits, and timber, a reasonable allowance for depletion and for depreciation of improvements, according to the peculiar condi- tions in each case, based upon cost including cost of develop- ment not otherwise deducted: Provided, That in the case of such properties acquired prior to March 1, 1913, the fair mar- ket value of the property (or the Eighth, (a) In the case of oil and gas wells a reasonable al- lowance for actual reduction in flow and production to be as- certained not by the flush flow, but by the settled production or regular flow ; (b) in the case of mines a reasonable allowance for depletion thereof not to exceed the market value in the mine of the product thereof, which has been mined and sold during the year for which the return and 46 Prior to March 1, 1913, a lessee entered into a lease of sufficient duration to permit removal of all the ore on the leased premises. The value of the ore in place on March 1, 1913, was 50 cents per ton. The royalty paid was 25 cents per ton. The lessee claimed as depletion allowance the difference be- DEDUCTIONS ALLOWED INDIVIDUALS 81 Act of 1916. Act of 1913. Act of 1909. Eighth, (a) In the case of oil and gas wells a reasonable allow- ance for actual reduction in flow and production to be ascertained not by the flush flow, but by the settled production or regular flow; (b) in the ca^e of mines a reasonable allowance for deple- tion 46 thereof not to exceed the market value in the mine of the product thereof, which has been mined and sold during the year for which the return and com- B. [11] not to exceed, in the case of mines, 5 per centum of the gross value at the mine of the output for the year for which the computation is made, but no deduction shall be made for any amount of expense of re- storing property or making good the exhaustion thereof for which an allowance is or has been made: tween the value of the ore in place on said date and the royalty paid. It was held that the lessor and not the lessee was entitled to depletion. Weiss (Col.) V. Mohawk Mining Co., (C. C. A., Sixth Cir. 1920) 264 Fed. 502. 82 Act of 1921. FEDERAL INCOME TAX LAWS Act Of 1918. Act of 1917. taxpayer's interest therein) on that date shall be taken in lieu of cost up to that date: Pro- vided further, That in the case of mines, oil and gas wells, dis- covered by the taxpayer, on or after March 1, 1913, and not ac- quired as the result of purchase of a proven tract or lease, where the fair mar/ket value of the property is materially dispro- portionate to the cost, the deple- tion allowance shall be based upon the fair market value of the property at the date of the discovery, or within thirty days thereafter: *And provided fur- ther, That such depletion allow- ance based on discovery value shall not 5xceed the net income, computed without allowance for depletion, from the property upon which the discovery is made, except where such net in- come so computed is less than the depletion allowance based on cost or fair market value as of March 1, 1913; such reasonable allowance in all the above cases to be made under rules and reg- ulations to be prescribed by the Commissioner, with the approval of the Secretary. In the ease of leases the deductions allowed by this paragraph shall be equita- bly apportioned between the les- sor and lessee; (11) Contributions or gifts made within the taxable year to orfortheuseof : (A) The United States, any State, Territory, or any political subdivision thereof, or the District of Columbia, for exclusively public purposes; (B) any corporation, or community chest, fund, or foundation, or- ganized and operated exclusively for religious, charitable, scien- tific, literary, or educational purposes, including posts of the American Legion or the women's auxiliary units thereof, or for the prevention of cruelty to chil- dren or animals, no part of the net earnings of which inures to taxpayer's interest therein) on that date shall be taken in lieu of cost up to that date : Provided further, That in the ease of mines, oil and gas Wells, discov- ered by the taxpayer, on or after March 1, 1913, and not ac- quired as the result of purchase of a proven tract or lease, where the fair market value of the property is materially dispro- portionate to the cost, the deple- tion allowance shall be based upon the fair market value of the property at the date of the discovery, or within thirty days thereafter; such reasonable al- lowance in all the above cases to be made under rules and regu- lations to be prescribed by the Commissioner with the approval of the Secretary. In the case of leases the deductions allowed by this paragraph shall be equitably apportioned between the lessor and lessee ; (11) Contributions or gifts made within the taxable year to corporations organized and op- erated exclusively for religious, charitable, scientific, or educa- tional purposes, or for the pre- vention of cruelty to children or animals, no part of the net earn- ings of which inures to the bene- fit of any private stockholder or individual, or to the special fund for vocational rehabilitation au- thorized by section 7 of the Vo- cational Rehabilitation Act, to an amount not in excess of 15 per centum of the taxpayer's net income as computed without the benefit of this paragraph. computation are made, such rea- sonable allowance to be made in the ease of both (a) and (b) under rules and regulations to be prescribed by the Secretary of the Treasury : Provided, That when the allowances authorized in (a) and (b) shall equal the capital originally invested, or in case of purchase made prior to March first, nineteen hundred and thirteen, the fair market value as of that date, no further allowance shall be made. No deduction shall be allowed for any amount paid out for new buildings, permanent improve- ments, or betterments, made to increase the value of any prop- erty or estate, and no deduction shall be made for any amount of expense of restoring property or making good the exhaustion thereof for which an allowance is or has been made. Sec. 1201. [2] (2)47 That section five of such Act of Sep- tember eighth, nineteen hundred and sixteen, is hereby amended by adding at the end of subdivi- sion (a) a further paragraph, numbered nine, to read as fol- lows: "Ninth. Contributions or gifts actually made within the year to corporations or associations or- ganized and operated exclusively for religious, charitable, scien- tific, or educational purposes, or to societies for the prevention of cruelty to children or animals, no part of the net income of which inures to the benefit of "Title I, Part I, Act of 1916, as amended by Sec. 1201 (2), Title XII, Act of 1917. DEDUCTIONS ALLOWED INDIVIDUALS Act of 1916. Act of 1913. Act of 1909. 83 putation are made, such reason- able allowance to be made in the ease of both (a) and (b) under rules and regulations to be pre- scribed by the Secretary of the Treasury: Provided, That when the allowances authorized in (a) and (b) shall equal the capital originally invested, or in case of purchase made prior to March first, nineteen hundred and thir- teen, the fair market value as of that date, no further allowance shall be made. No deduction shall be allowed for any amount paid out for new buildings, per- manent improvements, or better- ments, made to increase the value of any property or estate, and no deduction shall be made for any amount of expense of re- storing property or making good the exhaustion thereof for which an allowance is or has been made. B. [12] Provided, That no de- duction shall be allowed for any amount paid out for new build- ings, permanent improvements, or betterments, made to increase the value of any property or es- tate; 84 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. the benefit of any private stock- holder or individual; or (C) the special fund for vocational re- habilitation authorized by sec- tion 7 of the Vocational Rehabil- itation Act ; to an amount which in all of the above cases com- bined does not exceed 15 per centum of the taxpayer's net in- come as computed without the benefit of this paragraph. In ease of a nonresident alien indi- vidual this deduction shall be al- lowed only as to contributions or gifts made to domestic corpora- tions, or to community chests, funds, or foundations, created in the United States, or to such vo- cational rehabilitation fund. Such contributions or gifts shall be allowable as deductions only if verified under rules and regu- lations prescribed by the Com missioner, with the approval of the Secretary; (12) If property is compul- sorily or involuntarily converted into cash or its equivalent as a result of (A) its destruction in whole or in part, (B) theft or seizure, or (C) an exercise of the power of requisition or condem- nation, or the threat or immi- nence thereof; and if the tax- payer proceeds forthwith in good faith, under regulations pre- scribed by the Commissioner with the approval of the Secre- tary, to expend the proceeds of such conversion in the acquisi- tion of other property of a char- acter similar or related in serv- ice or use to the property so con- verted, or in the acquisition of 80 per centum or more of the stock or shares of a corporation owning such other property, or in the establishment of a replace- ment fund, then there shall be allowed as a deduction such por- tion of the gain derived as the portion of the proceeds so ex- pended bears to the entire pro- ceeds. The provisions of this paragraph prescribing the con- ditions under which a deduction may be taken in respect of the Such contributions or gifts shall be allowable as deductions only if verified under rules and regu- lations prescribed by the Com- missioner, with the approval of the Secretary. In the case of a nonresident alien individual this deduction shall be allowed only as to contributions or gifts made to domestic corporations, or to such vocational rehabilitation fund; any private stockholder or in- dividual, to an amount not in excess of fifteen per centum of the taxpayer's taxable net in- come as computed without the benefit of this paragraph. Such contributions or gifts shall be allowable as deductions only if verified under rules and regula- tions prescribed by the Com- missioner of Internal Revenue, with the approval of the Sec- retary of the Treasury." DEDUCTIONS ALLOWED INDIVIDUALS 85 Act of 1916. Act of 1913. Act of 1909. 86 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. proceeds or gains derived from the compulsory or involuntary conversion of property into cash or its equivalent, shall apply so far as may be practicable to the exemption or exclusion of such proceeds or gains from gross in- come under prior income, war- profits and excess-profits tax acts. (12) (a) At the time of filing return for the taxable year 1918 a taxpayer may file a claim in abatement based on the fact that he has sustained a substantial loss (whether or not actually realized by sale or other disposi- tion) resulting from any mate- rial reduction (not due to tem- porary fiuctuation) of the value of the inventory for such taxable year, or from the actual pay- ment after the close of such tax- able year of rebates in pursu- ance of contracts entered into during such year upon sales made during such year. In such case payment of the amount of the tax covered by such claim shall not be required until the claim is decided, but the tax- payer shall accompany his claim with a bond in double the amount of the tax covered by the claim, with sureties satisfactory to the Commissioner, conditioned for the payment of any part of such tax found to be due, with interest. If any part of such claim is disallowed then the re- mainder of the tax due shall on notice and demand by the col- lector be paid by the taxpayer with interest at the rate of 1 per centum per month from the time the tax would have been due had no such claim been filed. If it is shown to the satisfaction of the Commissioner that such substan- tial loss has been sustained, then in computing the tax imposed by this title the amount of such loss shall be deducted from the net income, (b) If no such claim is filed, but it is shown to the satis- faction of the Commissioner that; during the taxable year 1919 the DEDUCTIONS ALLOWED INDIVIDUALS 87 Act of 1916. Act of 1913, Act of 1909. 88 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. Sec. 214. (b) In the ease of a nonresident alien-individ- ual the deductions allowed in subdivision (a), except those allowed in paragraphs (5), (6), and (11), shall be al- lowed only if and to the ex- tent that they are connected with income from sources within the United States; and the proper apportionment and allo- cation of the deductions with re- spect to sources of income with- in and without the United States shall be determined as provided in section 217 under rules and regulations prescribed by the Commissioner with the approval of the Secretary. In the case of a citizen entitled to the benefits of section 262 the deductions shall be the same and shall be determined in the same manner as in the case of a nonresident alien individual. taxpayer has sustained a sub- stantial loss of the character above described then the amount of such loss shall be deducted from the net income for the tax- able year 1918 and the tax im- posed by this title for such year shall be redetermined according- ly. Any amount found to be due to the taxpayer upon the basis of such redetermination shall be credited or refunded to the taxpayer in accordance with the provisions of section 252. Sec. 214. (b) In the case of a nonresident alien individ- ual the deductions allowed in paragraphs (1), (4), (7), (8), (9), (10), and (12), and clause (e) of paragraph (3), of sub- division (a) shall be allowed only if and to the extent that they are connected with income arising from a source within the United States; and the proper apportionment and allocation of the deductions with respect to sources of income within and without the United States shall be determined under rules and regulations prescribed by the Commissioner with the approval of the Secretary. NONEESUJENT ALIENS. Sec. 6. That in computing net income in the case of a nonresi- dent alien — (a) For the purpose of the tax there shall be allowed as deduc- tions — First. The necessary expenses actually paid in carrying on any business or trade conducted by him within the United States, not including personal, Hving, or family expenses; Sec. 1202. [1]48 That (1) par- agraphs second and third of sub- division (a) of section 6 of such Act of September eighth, nine- teen hundred and sixteen, are hereby amended to read as fol- lows: "Second. The proportion of all interest paid within the year by such person on his indebted- ness (except on indebtedness in- curred for the purchase of obli- gations or securities the interest upon which is exempt from tax- ation as income under this title) which the gross amount of his income for the year derived from sources within the United States bears to the gross amount of his income for the year de- rived from all sources within and without the United States, but this deduction shall be al- lowed only if such person in- cludes in the return required by section eight all the information necessary for its calculation ; "Third. Taxes paid within the year imposed by the authority 48 Title I, Part I, Act of 1916, as amended by Sec. 1202, Title XII, Act of 1917. Act of 1916. NONRESIDENT ALIENS Act of 1913. 89 Act of 1909. NONRESIDENT ALIENS. Sec. 6. That in computing net income in the case of a non- resident alien — (a) For the purpose of the tax there shall be allowed as de- ductions — First. The necessary expenses; actually paid in carrying on any business or trade conducted by him within the United States, not including personal, living, or family expenses; Second. The proportion of all interest paid within the year by such person on his indebtedness which the gross amount of his income for the year derived from sources within the United States bears to the gross amount of his income for the year derived from all sources within and without the United States, but this de- duction shall be allowed only if such person includes in the re- turn required by section eight all the information necessary for its calculation; Third. Taxes paid within the year imposed by the authority of B. [15] The net income from property owned and business carried on in the United States by persons residing elsewhere shall be computed upon the basis prescribed in this para- graph and that part of para- graph G of this section relating to the computation of the net income of corporations, joint- stock and insurance companies, organized, created, or existing under the laws of foreign coun- tries, in so far as applicable. 90 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. of the United States (except in- come and excess profits taxes), or of its Territories, or posses- sions, or by the authority of any State, county, school district, or municipality, or other taxing subdivision of any State, paid within the United States, not in- cluding those assessed against local benefits ; ' ' Sec. 6. Fourth. Losses actually sustained during the year, in- curred in business or trade con- ducted by him -vYithin the United States, and -losses of property within the United States arising from fires, storms, shipwreck, or other casualty, and from theft, when such losses are not compen- sated for by insurance or other- wise: Provided, That for the purpose of ascertaining the amount of such loss or losses sustained in trade, or speculative transactions not in trade, from the same or any kind of prop- erty acquired before March first, nineteen hundred and thir- teen, the fair market price or value of such property as of March first, nineteen hundred and thirteen, shall be the basis for determining the amount of such loss or losses sustained; Fifth. In transactions entered into for profit but not connected with his business or trade, the losses actually sustained therein during the year to an amount not exceeding the profits arising therefrom in the United States ; Sixth. Debts arising in the course of business or trade con- ducted by him within the United States due to the taxpayer ac- tually ascertained to be worth- less and charged off within the year; Seventh. A reasonable allow- ance for the exhaustion, wear and tear of property within the United States arising out of its use or employment in the busi- ness or trade; (a) in the case of oil and gas wells a reasonable allowance for actual reduction in flow and production to be Act of 1916. NONRESIDENT ALIENS Act of 1913; 91 Act of 1909. the United States, or its Terri- tories, or possessions, or under the authority of any State, coun- ty, school district, or municipal- ity, or other taxing subdivision of any State, paid within the United States, not including those assessed against local bene- fits; Fourth. Losses actually sus- tained during the year, incurred in business or trade conducted by him within the United States, and losses of property within the United States arising from fires, storms, shipwreck, or other cas- ualty, and from theft, when such losses are not compensated for by insurance or otherwise: Tro- vided, That for the purpose of ascertaining the amount of such loss or losses sustained in trade, or speculative transactions not in trade, from the same or any kind of property acquired before March first, nineteen hundred and thirteen, the fair market price or value of such property as of March first, nineteen hun- dred and thirteen, shall be the basis for determining the amount of such loss or losses sustained ; Fifth. In transactions entered into for profit but not connected with his business or trade, the losses actually sustained therein during the year to an amount not exceeding the profits arising therefrom in the United States; Sixth. Debts arising in the course of business or trade con- ducted by him within the United States due to the taxpayer ac- tually ascertained to be worth- less and charged off within the year; Seventh. A reasonable allow- ance for the exhaustion, wear and tear of property within the United States arising out of its use or employment in the busi- ness or trade; (a) in the case of oil and gas wells a reasonable al- lowance for actual reduction in flow and production to be ascer- 92 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. ITEMS NOT DEDUCTIBLE. Sec. 215. (a) That in comput- ing net income no deduction shall in any case be allowed in respect of — (1) Personal, living, or family expenses ; (2) Any amount paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate; (3) Any amount expended in restoring property or in making good the exhaustion thereof for •which an allowance is or has been made; or ITEMS NOT DEDUCTIBLE. Sec. 215. That in computing net income no deduction shall in any case be allowed in respect of— (a) Personal, living, or family expenses ; (b) Any amount ^aid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate; (c) Any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made; or ascertained not by the flush flow, but by the settled production or regular flow; (b) in the case of mines a reasonable allowance for depletion thereof not to exceed the market value in the mine of the product thereof which has been mined and sold during the year for which the return and computation are made, such rea- sonable allowance to be made in the case of both (a) and (b) un- der rules and regulations to be prescribed by the Secretary of the Treasury: Provided, That when the allowance authorized in (a) and (b) shall equal the capital originally invested, or in case of purchase made prior to March first, nineteen hundred and thirteen, the fair market value as of that date, no further allowance shall be made. No de- duction shall be allowed for any amount paid out for new build- ings, permanent improvements, or betterments, made to increase the value of any property or es- tate, and no deduction shall be made for any amount of expense of restoring property or making good the exhaustion thereof for which an allowance is or has been made. (b) There shall also be al- lowed the credits specified by subdivisions (b) and (c) of sec- tion five. Sec. 5. (b) and (c), pp. 94 and 96. Personal, living, or family expenses. Sec. 5. (a) First., p. 72; Sec. 6. (a) First., p. 88. Amounts expended for permanent improvements. Sec. 5. (a) Eighth., p. 80; Sec. 6. (a) Seventh., p. 90. Act of 1916. ITEMS NOT DEDUCTIBLE Act of 1913. 93 Act of 1909. tained not by the flush flow, but by the settled production or reg- ular flow; (b) in the case of mines a reasonable allowance for depletion thereof not to exceed the market value in the mine of the product thereof which has been mined and sold during the year for which the return and computation are made, such rea- sonable allowance to be made in the case of both (a) and (b) un- der rules and regulations to be prescribed by the Secretary of the Treasury: Provided, That when the allowance authorized in (a) and (b) shall equal the capital originally invested, or in case of purchase made prior to March first, nineteen hundred and thirteen, the fair market value as of that date, no further allowance shall be made. No de- duction shall be allowed for any amount paid out for, new build- ings, permanent improvements, or betterments, made to increase the value of any property or es- tate, and no deduction shall be made for any amount of expense of restoring property or making good the exhaustion thereof for which an allowance is or has been made. (b) There shall also be al- lowed the credits specified by subdivisions (b) and (c) of sec- tion five. Sec. 5. (b) and (c), pp. 95 and 97. Personal, living, or fam- ily expenses. Sec. 5. (a) First., p. 73; Sec. 6. (a) First., p. 89. Amounts expended for permanent improvements Sec. 5. (a) Eighth., p. 81; Sec. 6. (a) Seventh., p. 91. Personal, living, or fam- ily expenses. B. [12], p. 83. Amounts expended for permanent improvements. B. [12], p. 83. 94 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. (4) Premiums paid on any life insurance policy covering the life of any officer or employee or of any person financially in- terested in any trade or business carried on by the taxpayer, when the taxpayer is directly or indi rectly a beneficiary under such policy. (b) Amounts paid under the laws of any State, Territory, District of Columbia, possession of the United States, or foreign country as income to the holder of a life or terminable interest acquired by gift, bequest, or in- heritance shall not be reduced or diminished by any deduction for shrinkage (by whatever name called) in the value of such in- terest due to the lapse of time, nor by any deduction allowed by this Act for the purpose of com- puting the net income of an es- tate or trust but not allowed un- der the laws of such State, Ter- ritory, District of Columbia, possession of the United States, or foreign country for the pur- pose of computing the income to which such holder is entitled. CREDITS ALLOWED INDIVIDUALS. Sec. 216. That for the purpose of the normal tax only there shall be allowed the following credits : (a) The amount received as dividends (1) from a domestic corporation other than a corpo- ration entitled to the benefits of section 262, or (2) from a for- eign corporation when it is shown to the satisfaction of the Commissioner that more than 50 per centum of the gross income of such foreign corporation for the three-year period ending with the close of its taxable year preceding the declaration of such dividends (or for such part of such period as the corpora- tion has been in existence) was derived from sources within the (d) Premiums paid on any life insurance policy covering the life of any officer or em- ployee, or of any person finan- cially interested in any trade or business carried on by the tax- payer, when the taxpayer is di- rectly or indirectly a beneficiary under such policy. CREDITS ALLOWED. Sec. 216. That for the purpose of the normal tax only there shall be allowed the following credits : (a) The amount received as dividends from a corporation which is taxable under this title upon its net income, and amounts received as dividends from a personal service corporation out of earnings or profits upon which income tax has been im- posed by Act of Congress ; Sec. 1211. [6]. "Sec. 32 49 That premiums paid on life in- surance policies covering the lives of officers, employees, or those financially interested in any trade or business conducted by an individual, partnership, corporation, joint-stock company or association, or insurance com- pany, shall not be deducted in computing the net income of such individual, corporation, joint-stock company or associa- tion, or insurance company, or in computing the profits of such partnership for the purposes of subdivision (e) of section nine. " CREDITS ALLOVTED. Sec. 5. (b) For the purpose of the normal tax only, the income embraced in a personal return shall be credited with the amount received as dividends upon the stock or from the net earnings of any corporation, joint-stock company or associa- tion, trustee, or insurance com- pany, which is taxable upon its net income as hereinafter pro- vided ; « Title I, Part III, Act of 1916, as amended by Sec. 1211, Title XII, Act of 1917. 60 The Act of 1913 was not wanting in "due pro- cess of law" in permitting individuals but not cor'^ . Act of 1916, CREDITS ALLOWED INDIVIDUALS Act of 1913. 95 Act of 1909. CREDITS ALLOWED. Sec. 5. (b) For the purpose of the normal tax only, the in- come embraced in a personal re- turn shall be credited with the amoimt received as dividends upon the stocfePor from the net earnings of any corporation, joint-stock company or associa- tion, trustee, or insurance com- pany, which is taxable upon its net income as hereinafter pro- vided : B. [13] seventh, the amount received as dividends 50 upon the stock or from the net earn- ings of any corporation, joint- stock company, association, or insurance company which is tax- able upon its net income as here- inafter provided; porations to deduct from gross income dividends Brushaber v. U. P. R. R. Co., (1916) 240 U. S. 1; received from corporations taxed under the Act. Stanton v. Baltic Mining Co., (1916) 240 U. S. 103. 96 Act of 1921. FEDERAL INCOi.iE TAX LAWS Act of 1918. Act of 1917. United States as determined un- der the provisions of section 217 ; (b) The amount received as interest upon obligations of the United States and bonds issued by the War Finance Corpora- tion, which is included in gross income under section 213; (c) In the case of a single per- son, a personal exemption of $1,000 ; or in the case of the head of a family or a marrie.d person living with husband or wife, a personal exemption of $2,500, unless the net income is in ex- cess of $5,000, in which case the personal exemption shall be $2,000. A husband and wife liv- ing together shall receive but one personal exemption. The amount of such personal exemp- tion shall be $2,500, unless the aggregate net income of such husband and wife is in excess of $5,000, in which case the amount of such personal exemption shall be $2,000. If such hus- band and wife make separate re- turns, the personal exemption may be taken by either or di- vided between them. In no case shall the reduction of the per- sonal exemption from $2,500 to $2,000 operate to increase the tax, which would be payable if the exemption were $2,500, by (b) The amount received as interest upon obligations of the United States and bonds issued by the War Finance Corpora- tion, which is included in gross income under section 213; (c) In the case of a single per- son, a personal exemption of $1,000, or in the case of the head of a family or a married person living with husband or wife, a personal exemption of $2,000. A husband and wife living together shall receive but one personal exemption of $2,000 against their aggregate net income; and in case they make separate re- turns, the personal exemption of $2,000 may be taken by either or divided between them ; (c) A like credit shall be al- lowed as to the amount of in- come, the normal tax upon which has been paid or withheld for payment at the source of the in- come under the provisions of this title. Sec. 1203. (1)51 That section seven of such Act of September eighth, nineteen hundred and sixteen, is hereby amended to read as follows : ' ' Sec. 7. That for the purpose of the normal tax only, there shall be allowed as an exemption in the nature of a deduction from the amount of the net in- come of each citizen or resident of the United States, ascertained as provided herein, the sum of $3,000, plus $l,OlO additional if the person making the return be a head of a family or a married man with a wife living with him, or plus the sum of $1,000 addi- tional if the person making the return be a married woman with a husband living with her; but in no event shall this additional exemption of $1,000 be deducted by both a husband and a wife: Provided, That only one deduc- tion of $4,000 shall be made from the aggregate income of both husband and wife when liv- Bi Title I, Part I, Act of 1916, as amended by Sec. 1203 (1), Title XII, Act of 1917. 62 Under the Act of 1913, the personal exemption of individuals was limited to the normal tax only. Cohen v. Lowe (Col.), (D. C, S. D. N. Y. 1916) 234 Fed. 474. Act of 1916. PERSONAL EXEMPTION Act of 1913. gr Act of 1909. (c) A like credit shall be al- lowed as to the amount of income, the normal tax upon which has been paid or withheld for payment at the source of the income under the provisions of this title. PERSONAL EXEMPTION. Sec. 7. (a) That for the pur- pose of the normal tax only, there shall be allowed as an ex- emption in the nature of a de- duction from the amount of the net income of each of said per- sons, ascertained as provided herein, the sum of $3,000, plus $1,000 additional if the person making the return be a head of a family or a married man with a wife living with him, or plus the sum of $1,000 additional if the person making the return be a married woman with a hus- band living with her; but in no event shall this additional ex- emption of $1,000 be deducted by^both a husband and a wife: Provided, That only one deduc- tion of $4,000 shall be made from the aggregate income of both husband and wife when liv- B. [14] eighth, the amount of income, the tax upon which has been paid or withheld for pay- ment at the source of the income, under the provisions of this sec- tion, provided that whenever the tax upon the income of a person is required to be withheld and paid at the source as hereinafter required, if such annual income does not exceed the sum of $3,000 or is not fixed or certain, or is indefinite, or irregular as to amount or time of accrual, the same shall not be deducted in the personal return of such per- son. C That there shall be de- ducted 52 from the amount of the net income of each of said per- sons, ascertained as provided herein, the sum of $3,000, plus $1,000 additional 53 if the per- son making the return be a mar- ried man with a wife living with him, or plus the sum of $1,000 additional if the person making the return be a married woman with a husband living with her ; but in no event shall this addi- tional exemption of $1,000 be deducted by both a husband and a wife : Provided, That only one deduction of $4,000 shall be made from the aggregate income of both husband and wife when living together. 58 The provision of the Act of 1913 permitting a greater deduction by individuals at the head of a family as compared with single individuals was not wanting in "due process of law." R. R. Co., (1916) 240 U. S. 1. Brushaber v. U. P 98 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. more than the amount of the net income in excess of $5,000 ; (d) $400 for each person (other than husband or wife) dependent upon and receiving his chief support from the tax- payer if such dependent person is under eighteen years of age or is incapable of self-support be- cause mentally or physically de- fective. Credits allowed benefici- aries. Sec. 219. (d) , p. 122. Credits allowed estates or trusts. Sec. 219. (c), p. 122. (e) In the case of a nonresi- dent alien individual or of a cit- izen entitled to the benefits of section 262, the personal exemp- tion shall be only $1,000, and he shall not be entitled to the credit provided in subdivision (d). (f) The credits allowed by subdivisions (c), (d), and (e) of this section shall be deter- mined by the status of the tax- payer on the last day of the pe- ried for which the return of in- come is made ; but in the case of (d) $200 for each person (other than husband or wife) dependent upon and receiving his chief support from the tax- payer, if such dependent person is under eighteen years of age or is incapable of self-support be- cause mentally or physically de- fective. Credits allowed benefici- aries. Sec. 219. (d) , p. 122. Credits allowed estates or trusts. Sec. 219. (c) , p. 122. Sec. 216. (e) In the case of a nonresident alien individual who is a citizen or subject of a coun- try which imposes an income tax, the credits allowed in subdivi- sions (c) and (d) shall be al- lowed only if such country al- lows a similar credit to citizens of the United States not residing in such country. ing together: Provided further, That if the person making the return is the head of a family, there shall be an additional ex- emption of $200 for each child dependent upon such person, if under eighteen years of age, or if incapable of self-support be- cause mentally or physically de- fective, but this provision shall operate only in the case of one parent in the same family: Pro- vided further, That guardians of trustees shall be allowed to make this personal exemption as to in- come derived from the property of which such guardian or trus- tee has charge in favor of each ward or cestui que trust: Pro- vided further, That in no event shall a ward or cestui que be al- lowed a greater personal exemp- tion than as provided in this sec- tion, from the amount of net in- come received from all sources. There shall also be allowed an exemption from the amount of the net income of estates of de- ceased citizens or residents of the United States during the pe- riod of administration or settle- ment, and of trust or other es- tates of citizens or residents of the United States the income of which is not distributed annual- ly or regularly under the provi- sions of subdivision (b) of sec- tion two, the sum of $3,000, in- cluding such deductions as are allowed under section five." Act of 1916. PERSONAL EXEMPTION Act of 1913. 99 Act of 1909. ing together: Provided further, That guardians or trustees shall be allowed to make this personal exemption as to income derived from the property of which such guardian or trustee has charge in favor of each ward or cestui que trust: Provided further, That in no event shall a ward or cestui que trust be allowed a greater personal exemption than $3,000, or, if married, $4,000, as provided in this paragraph, from the amount of net income received from all sources. There shall also be allowed an exemp- tion from the amount of the net income of estates of deceased persons during the period of ad- ministration or settlement, and of trust or other estates the in- come of which is not distributed annually or regularly under the provisions of paragraph (b), section two, the sum of $3,000, including such deductions as are allowed under section five. Personal exemption to nonresident alien individ- uals. Sec. 9. (b) [2], p. 133. Personal exemption to nonresident alien individu- als. Sec. E. [4], p. 133. 100 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. an individual who dies during the taxable year, such credits shall be determined by his status at the time of his death, and in such case full credits shall be al- lowed to the surviving spouse, if any, according to his or her status at the close of the period for which such survivor makes return of income. NET INCOME OP NONRESIDENT ^ ALIEN INDIVIDUALS. Sec. 217. (a) That in the case of a nonresident alien individual or of a citizen entitled to the benefits of section 262, the fol- lowing items of gross income shaU be treated as income from sources within the United States. (-1) Interest on bonds, notes, or other interest-bearing obliga- tions of residents, corporate or otherwise, not including (A) in- terest on deposits with persons carrying on the banking business paid to persons not engaged in business within the United States and not having an office or place of business therein, or (B) inter- est received from a resident alien individual or a resident foreign corporation when it is shown to the satisfaction of the Commis sioner that less than 20 per cen- tum of the gross income of such resident payor has been derived from sources within the United States, as determined under the provisions of this section, for the three-year period ending with the close of the taxable year of such payor, or for such part of such period immediately preced- ing the close of such taxable j^ear as may be applicable ; (2) The amount received as dividends (A) from a domestic corporation other than a corpo- ration entitled to the benefits of section 262, or (B) from a for- eign corporation unless less than 50 per centum of the gross in- come of such foreign corporation for the three-year period end- ing with the close of its taxable year preceding the declaration of such dividends (or for such NET INCOME OF NONRESIDENT ALIENS 101 Act of 1916. Act of 1913. Act of 1909. 102 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. part of such period as the corpo- ration has been in existence) was derived from sources within the United States as determined under the provisions of this sec- tion; (3) Compensation for labor or personal services performed in the United States; (4) Rentals or royalties from property located in the United Seates or from any interest in such property, including rentals or royalties for the use of or for the privilege of using in the United States, patents, copy- rights, secret processes and for- mulas, good will, trade-marks, trade brands, franchises, and other like property; and (5) Gains, profits, and income from the sale of real property located in the United States. (b) From the items of gi'oss income specified in subdivision (a) there shall be deducted the expenses, losses, and other de- ductions properly apportioned or allocated thereto and a ratable part of any expenses, losses, or other deductions which can not definitely be allocated to some item or class of gross income. The remainder, if any, shall be included in full as net income from sources within the United States. (c) The following items of gross income shall be treated as income from sources without the United States: (1) Interest other than that derived from sources within the United States as provided in paragraph (1) of subdivision (a); (2) Dividends other than those derived from sources with- in the United States as provided in paragraph (2) of subdivision (a); (3) Compensation for labor or personal service performed with- out the United States ; (4) Rentals or royalties from property located without the United States or from any in- terest in such property, includ- NET INCOME OF NONRESIDENT ALIENS 103 Act of 1916. Act of 1913. Act of 1909. 104 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. ing rentals or royalties for the use of or for the privilege of using without the United States, patents, copyrights, secret pro- cesses and formulas, good will, trade-marks, trade brands, fran- chises, and other like property; and (5) Gains, profits, and income from the sale of real property located without the United States. (d) From the items of gross income specified in subdivision (c) there shall be deducted the expenses, losses, and other de- ductions properly apportioned or allocated thereto, and a rata- ble part of any expenses, losses, or other deductions which can not definitely be allocated to some item or class of gross in- come. The remainder, if any, shall be treated in full as net income from sources without the United States. (e) Items of gross income, ex- penses, losses and deductions, other than those specified in sub- divisions (a) and (c), shall be allocated or apportioned to sources within or without the United States under rules and regulations prescribed by the Commissioner with the approval of the Secretary. Where items of gross income are separately allocated to sources within the United States, there shall be de- ducted (for the purpose of com- puting the net income there- from) the expenses, losses and other deductions properly ap- portioned or allocated thereto and a ratable part of other ex- penses, losses or other deduc- tions which can not definitely be allocated to some item or class of gross income. The remainder, if any, shall be included in full as net income from sources with- in the United States. In the case of gross income derived from sources partly within and partly without the United States, the net income may first be com- puted by deducting the expenses, losses or other deductions ap- NET INCOME OF NONRESIDENT ALIENS 105 Act of 1916. Act of 1913. Act of 1909. 106 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. portioned or allocated thereto and a ratable part of any ex- penses, losses or other deduc- tions which can not definitely be allocated to some item or class of gross income; and the por- tion of such net income attribut- able to sources within the Unit«d States may be determined by processes or formulas of general apportionment prescribed by the Commissioner with the approval of the Secretary. Gains, profits and income from (1) transporta- tion or other services rendered partly within and partly with- out the United States, or (2) from the sale of personal prop- erty produced (in whole or in part) by the taxpayer within and sold without the United States, or produced (in whole or in part) by the taxpayer with- out and sold within the United States, shall be treated as de- rived partly from sources with- in and partly from sources with- out the United States. Gains, profits and income derived from the purchase of personal prop- erty within and its sale without the United States or from the purchase of personal property without and its. sale within the United States, shall be treated as derived entirely from the coun- try in which sold. (f) As used in this section the words "sale" or "sold" in- clude "exchange" or "ex- changed"; and the word "pro- duced" includes "created," ' ' fabricated, " " manufactured, ' ' " extracted," " processed," "cured," or "aged." (g) A nonresident alien indi- vidual or a citizen entitled to the benefits of section 262 shall re- ceive the benefit of the deduc- tions and credits allowed in this title only by filing or causing to be filed with the collector a true and accurate return of his total income received from all sources corporate or otherwise in the United States, in the manner NONRESIDENT ALIENS ALLOW- ANCE OP DEDUCTIONS AND CREDITS Sec. 217. That a nonresident alien individual shall receive the benefit of the deductions and credits allowed in this title only by filing or causing to be filed with the collector a true and ac- curate return of his total income received from all sources corpo- rate or otherwise in the United States, in the manner prescribed by this title, including therein Sec. 1203. (2)1 Subdivision (b) of section seven of such Act of September eighth, nineteen hundred and sixteen, is hereby Sec. 1202. [2] (2)54 Section six of such Act of September eighth, nineteen hundred and sixteen, is also further amended by adding a new subdivision to read as follows 1 Sec. 1203. (2), Title XII, Act of 1917. B4 Title I, Part I, Act of 1916, as amended by NONRESIDENT ALIENS, DEDUCTIONS AND CREDITS 107 Act of 1916. Act of 1913. Act of 1909. Sec. 7. (b) A nonresident alien individual may receive the benefit of the exemption pro- vided for in this section only by filing or causing to be filed with the collector of internal revenue a true and accurate return of his total income, received from all sources, corporate or other- wise, in the United States, in the manner prescribed by this title ; Sec. 1202 (2), Title XII, Act of 1917. 108 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. prescribed in this title; includ- ing therein all the information which the Commissioner may deem necessary for the calcu- lation of such deductions and credits : Provided, That the bene- fit of the credit allowed in sub- division (e) of section 216 may, in the discretion of the Com- missioner, be received by filing a claim therefor with the with- holding agent. In case of fail- ure to file a return, the collec- tor shall collect the tax on such income, and all property belong- ing to such nonresident alien in- dividual or foreign trader shall be liable to distraint for the tax. all the information which the commissioner may deem neces- sary for the calculation of such deductions and credits: Pro- vided, That the benefit of the credits allowed in subdivisions (c) and (d) of section 216 may, in the discretion of the Commis- sioner, and except as otherwise provided in subdivision (e) of that section, be received by filing a claim therefor with the with- holding agent. In case of failure to file a return, the collector shall collect the tax on such in- come, and all property belong- ing to such nonresident alien in- dividual shall be liable to dis- traint for the tax. "(e) A nonresident alien in- dividual shall receive the benefit of the deductions and credits provided for in this section only by filing or causing to be filed with the collector of internal revenue a true and accurate re- turn of his total income, re- ceived from all sources, corpo- rate or otherwise, in the United States, in the manner prescribed by this title; and in case of his failure to file such return the collector shall collect the tax on such income, and all property belonging to such nonresident alien individual shall be liable to distraint for the tax." Sec. 3.55 That the taxes im- posed by sections one and two of this Act shall be computed, levied, assessed, collected, and paid upon the same basis and in the same manner as the similar taxes imposed by section one of such Act of September eighth, nineteen hundred and sixteen, except that in the case of the tax imposed by section one of this Act (a) the exemptions of $3,000 and $4,000 provided in section seven of such Act of September eighth, nineteen hundred and sixteen, as amended by this Act, shall be, respectively, $1,000 and $2,000, and (b) the returns re- quired under subdivisions (b) and (c) of section eight of such Act as amended by this Act shall be required in the case of net incomes of $1,000 or over, in the case of unmarried persons, and $2,000 or over in the case of married persons, instead of $3,000 or over, as therein pro- vided, and (c) the provisions of subdivision (c) of section nine of such Act, as amended by this Act, requiring the normal tax of individuals on income derived from interest to be deducted and withheld at the source of the in- come shall not apply to the new two per centum normal tax pre- ss Title I, Sec. 3, Act of 1917. PERSONAL EXEMPTIONS UNDER ACT OF 1917 109 Act of 1916. Act of 1913. Act of 1909. and in case of his failure to file such return the collector shall collect the tax on such income, and all property belonging to such nonresident alien individ- ual shall be liable to distraint for the tax. 110 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. PARTNERSHIPS AND PERSONAL SERVICE CORPORATIONS. Sec. 218. (a) That individuals carrying on business in partner- ship shall be liable for income tax only in their individual ca- pacity. There shall be included in computing the net income of each partner his distributive share, whether distributed or not, of the net income of the partnership for the taxable year, or, if his net income for such taxable year is computed upon the basis of a period different from that upon the basis of which the net .income of the partnership is computed, then his distributive share of the net income of the partnership for any accounting period of the partnership ending within the fiscal or calendar year upon the basis of which the partner 's net income is computed. (b) The partner shall, for the purpose of the normal tax, be allowed as credits, in addition to the credits allowed to him un- der section 216, his proportion- ate share of such amounts spe- cified in subdivisions (a) and (b) of section 216 as are received by the partnership. PARTNERSHIPS AND PERSONAL SERVICE CORPORATIONS. Sec. 218. (a) That individuals carrying on business in partner- ship shall be liable for income tax only in their individual ca- pacity. There shall be included in computing the net income of each partner his distributive share, whether distributed or not, of the net income of the partnership for the taxable year, or, if his net income for such taxable year is computed upon the basis of a period dif- ferent from that upon the basis of which the net income of the partnership is computed, then his distributive share of the net income of the partnership for any accounting period of the partnership ending within the fiscal or calendar year upon th basis of which the partner's net income is computed. The partner shall, for the purpose of the normal tax, be al- lowed as credits, in addition to the credits allowed to him under section 216, his proportionate share of such amounts specified in subdivisions (a) and (b) of section 216 as are received 1);\ the partnership. (b) If a fiscal year of a part- nership ends during a calendar year for which the rates of tax differ from those for the preced- scribed in section one of this Act until on and after January first, nineteen hundred and eighteen, and thereafter only one two per centum normal tax shall be de- ducted and withheld at the source under the provisions of such subdivision (c), and any further normal tax for which the recipient of such income is liable under this Act or such Act of September eighth, nineteen hun- dred and sixteen, as amended by this Act, shall be paid by such recipient. Sec. 1204. [2], amending Sec. 8. "(e) 56 Persons carrying on business in partnership shall be liable for income tax only in their individual capacity, and the share of the profits of the partnership to which any tax- able partner would be entitled if the same were divided, whether divided or otherwise, shall be returned for taxation and the tax paid under the pro- visions of this title: Provided, That from the net distributive interests on which the individual members shall be liable for tax, normal and additional, there shall be excluded their propor- tionate shares received from in- terests on the obligations of a State or any political or taxing subdivision thereof, and upon the obligations of the United States (if and to the extent that it is provided in the Act au- thorizing the issue of such obli- gations of the United States that they are exempt from taxa- tion), and its possessions, and that for the purpose of comput- ing the normal tax there shall be allowed a credit, as provided by section five, subdivision (b), for their proportionate share of the profits derived from divi- dends. Such partnership, when 68 Title I, Part I, Act of 1916, as amended by Sec. 1204 (1), Title XII, Act of 1917. *'' Members of a partnership being taxable "only in their individual capacity" were not required under the Act of 1913 to include as income dividends re- PARTNERSHIPS AND PERSONAL SERVICE CORPORATIONS 111 Act of 1916. Act of 1913. Act of 1909. Sec. 8. (e) Persons carrying on business in partnership shall be liable for income tax only in their individual capacity, and the share of the profits of the partnership to which any tax- able partner would be entitled if the same were divided, whether divided or otherwise, shall be returned for taxation and the tax paid under the provisions of this title: Provided, That from the net distributive interests on which the individual members shall be liable for tax, normal and additional, there shall be excluded their proportionate shares received from interest on the obligations of a State or any political or taxing subdivision thereof, and upon the obliga- tions of the United States and its possessions, and all taxes paid to the United States or to any possession thereof, or to any State, county, or taxing subdivi- sion of a State, and that for the purpose of computing the nor- mal tax there shall be allowed a credit, as provided by section five, subdivision (b), for their proportionate share of the prof- its derived from dividends. And such . partnership, when re- quested by the Commissioner of Internal Revenue, or any district D. [4] Provided further, That any persons carrying on business in partnership shall be liable for income tax only in their indi- vidual 57 capacity, and the share of the profits of a part- nership to which any taxable partner would be entitled if the same were divided, whether di- vided or otherwise, shall be re- turned for taxation and the tax paid, under the provisions of this section, and any such firm, when requested by the Commis- sioner of Internal Revenue, or any district collector, shall for- ward to him a correct statement of such profits and the names of the individuals who would be entitled to the same, if distrib- uted: ceived by the partnership from corporations paying income tax under said act. U. S. v. Coulby, (C. C. A., Sixth Cir. 1919) 258 Fed. 27, affirming Id., (D. C, N. D. Ohio, E. D. 1918) 251 Fed. 982. 112 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. (c) The net income of the partnership shall be computed in the same manner and on the same basis as provided in sec- tion 212 except that the deduc- tion provided in paragraph (11) of subdivision (a) of section 214 shall not be allowed. (d) Personal service corpora- tions shall not be subject to tax- ation under this title, but the uidividual stockholders thereof shall be taxed in the same man- ner as the members of partner- ships. All the provisions of this ' title relating to partnerships and the members thereof shall so far as practicable apply to personal service corporations and the stockholders thereof: Provided, That for the purpose of this sub- division amounts distributed by a personal service corporation during its taxable year shall be accounted for by the distribu- tees ; and any portion of the net income remaining undistributed at the close of its taxable year ing calendar year, then (1) the rates for such preceding calen- dar year shall apply to an amount of each partner's share of such partnership net income equal to the proportion which the part of such fiscal year fall- ing within such calendar year bears to the full fiscal year, and (2) the rates for the calendar year during which such fiscal year ends shall apply to the re- mainder. (c) In the ease of an individ- ual member of a partnership which makes return for a fiscal year beginning in 1917 and end- ing in 1918, his proportionate share of any excess-profits tax imposed upon the partnership under the Revenue Act of 1917 with respect to that part of such fiscal year falling in 1917, shall, for the purpose of determining the tax imposed by this title, be credited against that portion of the net income embraced in his personal return for the taxable year 1918 to which the rates for 1917 apply. (d) The net income of the partnership shall be computed in the same manner and on the same basis as provided in sec- tion 212 except that the deduc- tion provided in paragraph (11) of subdivision (a) of section 214 shall not be allowed. (e) Personal service corpora- tions shall not be subject to taxation under this title, but the individual stockholders thereof shall be taxed in the same man- ner as the members of partner- ships. AU the provisions of this title relating to partnerships and the members thereof shall so far as practicable apply to per- sonal service corporations and the stockholders thereof: Pro- vided, That for the purpose of this subdivision amounts distrib- uted by a personal service cor- poration during its taxable year shall be accounted for by the distributees ; and any portion of the net income remaining undis- requested by the Commissioner of Internal Revenue or any dis- trict collector, shall render a cor- rect return of the earnings, prof- its, and income of the partner- ship, except income exempt un- der section. four of this Act, set- ting forth the item of the gross income and the deductions and credits allowed by this title, and the names and addresses of the individuals who would be en- titled to the net earnings, profits, and income, if distributed. A partnership shall have the same privilege of fixing and making returns upon the basis of its own fiscal year as is accorded to cor- porations under this title. If a fiscal year ends during nineteen hundred and sixteen or a sub- sequent calendar year for which there is a rate of tax different from the rate for the preceding calendar year, then (1) the rate for such preceding calendar year shall apply to an amount of each partner's share of such partnership profits equal to the proportion which the part of such fiscal year falling within such calendar year bears to the full fiscal year, and (2) the rate for the calendar year during which such fiscal year ends shall apply to the remainder. PARTNERSHIPS AND PERSONAL SERVICE CORPORATIONS Act of 1916. Act of 1913. Act of 1909. 113 collector, shall render a correct return of the earnings, profits, and income of the partnership, except income exempt under sec- tion four of this Act, setting forth the item of the gross in- come and the deductions and credits allowed by this title, and the names and addresses of the individuals who would be en- titled to the net earnings, profits, and income, if distributed. 114 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. shall be accounted for by the stockholders of such corporation at the close of its taxable year in proportion to their respective shares. This subdivision shall not be in effect after December 31, 1921. In the case of a personal service corporation having a fiscal year beginning in 1921 and ending in 1922, amounts distributed prior to January 1, 1922, to its stock- holders out of earnings or profits accumulated after December 31, 1920, shall be taxed to the dis- tributees, and the stockholders of record on December 31, 1921, shall be taxed upon their dis- tributive shares of the difference (if any) between such distribu- tive profits and the portion of the corporation's net income as- signable to the calendar year 1921, determined in the manner provided in clause ( ] ) of sub- division (c) of section 205 of this Act. ALTERNATIVE TAX ON PERSONAL SERVICE CORPORATIONS. Sec. 1332.1 (a) That if either subdivision (e) of section 218 of the Revenue Act of 1918 or subdivision (d) of section 218 of this Act is by final adjudica- tion declared invalid, there shall, in addition to all other taxes, be levied, collected, and paid on the net income (as defined in section 232) received during the calendar years 1918, 1919, 1920, and 192i, by every personal service corporation (as defined in section 200) included within the provisions of such subdivi- sions, a tax equal to the taxes imposed by Titles II and III of the Eevenue Act of 1918 and, in the case of income received during the calendar year 1921, by Titles II and III of this Act. (b) In such event every such personal service corporation shall, on or before the fifteenth day of the sixth month follow- tributedatthe close of its taxable year shall be accounted for by the stockholders of such corpora- tion at the close of its taxable year in proportion to their re- spective shares. 1 Title Xin. ALTERNATIVE TAX ON PERSONAL SERVICE CORPORATIONS 115 Act of 1916. Act of 1913. Act of 1909. 116 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. ing the date of entry of decree upon such final adjudication, make a return of any income re- ceived during each of the cal- endar years 1918, IS'IO, 1920, and 1921 in the manner pre- scribed by the Revenue Act of 1918 (or in the manner pre- scribed by this Act, in the case of income received during the calendar year 1921). Such re- turn shall be made and the net income shall be computed on the basis of the taxpayer's annual accounting period (fiscal year or calendar year, as the case may be) in the manner provided for other corporations under the Eevenue Act of 1918 and this Act. (c) If either subdivision (e) of section 218 of the Revenue Act of 1918 or subdivision (d) of section 218 of this Act is so declared invalid, claims for credit or refund of taxes paid under both such sections shall be allowed, if made within the time provided in subdivision (f ) of this section. (d) In case the claims for credit or refund, filed within six months from such date of entry of decree, represent less than 30 per centum of the out- standing stock or shares in the corporation, the amount of taxes imposed by this section upon such corporation shall be re- duced to that proportion there- of which the number of stock or shares owned by the share- holders or members making such claims bears to the total number of stock or shares out- standing. (e) The tax imposed by this section shall be assessed, col- lected, and paid upon the same basis, in the same manner, and subject to the same provisions of law, including penalties, as the taxes imposed by sections 230 and 301 of the Revenue Act of 1918 (or by sections 230 and 301 of this Act, in the case of income received during the cal- endar year 1921), but no inter- ALTERNATIVE TAX ON PERSONAL SERVICE CORPORATIONS 117 Act of 1916. Act of 1913. Act of 1909. 118 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. est or penalties shall be due or payable thereon for any period prior to the date upon which the return is by this section re- quired to be made and the first installment paid. The amount of tax paid by any shareholder or member of a personal service corporation pursuant to the pro- visions of subdivision (e) of sec- tion 218 of the Revenue Act of 1918 or subdivision (d) of sec- tion 218 of this Act shall be credited against the tax due from such corporation under this section upon the joint writ- ten application of such corpora- tion and such shareholder or member or his representatives, heirs, or assigns, if such applica- tion is filed with the Commis- sioner within six months from such date of entry of decree. (f) Notwithstanding any other provision of law, no claim for a credit or refund of taxes paid under subdivision (e) of section 218 of the Revenue Act of 1918 or subdivision (d) of section 218 of this Act, may be filed after the expiration of six months from such date of entry of decree: Provided, however, That a personal service corpora- tion of which no shareholder or member has filed such claim within such period of six months shall not be subject to the tax imposed by this section. ESTATES AND TRUSTS. Sec. 219. (a) That the tax im- posed by sections 210 and 211 shall apply to the income of es- tates or of any kind of property held in trust, including — (1) Income received by es- tates of deceased persons during the period of administration or settlement of the estate; (2) Income accumulated in trust for the benefit of unborn or unascertained persons or per- sons with contingent interests; Estates and Trusts. Sec. 219. (a) That the tax imposed by sections 210 and 211 shall apply to the income of es- tates or of any kind of prop- erty held in trust,58 includ- ing— (1) Income received by es- tates of deceased persons during the period of administration or settlement of the estate; (2) Income accumulated in ti'ust for the benefit of unborn or unascertained persons or per- sons with contingent interests; Sec. 2. (b) [1] Income re- ceived by estates of deceased persons during the period of ad- ministration or settlement of the estate, shall be subject to the normal and additional tax and taxed to their estates, [2] and also such income of estates or any kind of property held in trust, including such in- come accumulated in trust for the benefit of unborn or unascer- tained persons, or persons with contingent interests, 88 The dissolution of a joint stock company and the transfer of its property to a trustee on trust such as is designated by Sec. 219, Act of 1918, is valid, when the transfer is permanent and made in Act of 1916. ESTATES AND TRUSTS Act of 1913. 119 Act of 1909. Sec. 2. (b) [1] income re- ceived by estates of deceased persons during the period of ad- ministration or settlement of the estate, shall be subject to the normal and additional tax and taxed to their estates, [2] and also such income of estates or any kind of property held in trust, including such in- come accumulated in trust for the benefit of unborn or unascer- tained persons, or persons with contingent interests. good faith, although the purpose is to avoid or lessen future taxation. Weeks v. Sibley, (D. C, N. D. Texas 1920) 269 Fed. 155. 120 FEDERAL INCOME TAX LAWS Act of 1921. Act of 1918. Act of 1917. (3) Income held for future distribution under the terms of the will or trust; and (4) Income which is to be dis- triljuted to the beneficiaries periodically, whether or not at regular intervals, and the income collected by a guardian of an infant to be held or distributed as the court may direct. Indemnification, (c), p. 130. Sec. 221. (b) The fiduciary shall be re- sponsible for making the return of income for the estate or trust for which he acts. The net in- come of the estate or trust shall be computed in the same man- ner and on the same basis as provided in section 212, except that (in lieu of the deduction authorized by paragraph (11) of subdivision (a) of section 214) there shall also be allowed as a deduction, without limita- tion, any part of the gross in- come which, pursuant to the terms of the will or deed creat- ing the trust, is during the tax- able year paid or permanently set aside for the purposes and in the manner specified in para- graph (11) of subdivision (a) of section 214. In cases in which there is any income of the class described in paragraph (4) of subdivision (a) of this section (3) Income held for future distribution under the terms of the will or trust ; and (4) Income which is to be dis- tributed to the beneficiaries periodically, whether or not at regular intervals, and the in- come collected by a guardian of an infant to be held or distrib- uted as the court may direct. Indemnification, (c), p. 130. Sec. 221. Sec. 219. (b) The fiduciary shall be responsible for making the return of income for the es- tate or trust for which he acts. The net income of the estate or trust shall be computed in the same manner and on the same basis as provided in section 212, except that there shall also be allowed as a deduction (in lieu of the deduction authorized by paragraph (11) of subdivision (a) of section 214) any part of the gross income which, pursu- ant to the terms of the will or deed creating the trust, is dur- ing the taxable year paid to or permanently set aside for the United States, any State, Terri- tory, or any political subdivi- sion thereof, or the District of Columbia, or any corporation organized and operated exclu- sively for religious, charitable, scientific, or educational pur- [3] and inconie held for future distribution under the terms of the will or trust shall be likewise taxed, the tax in each instance, except when the income is re- turned for the purpose of the tax by the beneficiary, to be as- sessed to the executor, adminis- trator, or trustee, as the case may be : [4] Provided, That where the income is to be distributed an- nually or regularly between ex- isting heirs or legatees, or bene- ficiaries the rate of tax and method of computing the same shall be based in each ease upon the amount of the individual share to be distributed. Such trustees, executors, ad- ministrators, and other fidu- ciaries are hereby idemnified against the claims or demands of every beneficiary for all pay- ments of taxes which they shall be required to make under the provisions of this title, and they shall have credit for the amount of such payments against the beneficiary or principal in any accounting which they make as such trustees or other fidu- ciaries. Act of 1916. ESTATES AND TRUSTS Act of 1913. ,121 Act of 1909. [3] and income held for fu- ture distribution under the terms of the will or trust shall be likewise taxed, the tax in each instance, except when the in- come is returned for the purpose of the tax by the beneficiary, to be assessed to the executor, ad- ministrator, or trustee, as the case may be : [4] Provided, That where the income is to be distributed an- nu?illy or regularly between ex- isting heirs or legatees, or bene- ficiaries the rate of tax and method of computing the same shall be based in each case upon the amount of the individual share to be distributed. Such trustees, executors, ad- ministrators, and other fiducia- ries are hereby indemnified against the claims or demands of every beneficiary for all pay- ments of taxes which they shall be required to make under the provisions of this title, and they shall have credit for the amount of such payments against the beneficiary or principal in any accounting which they make as such trustees or other fiducia- ries. 122 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. the fiduciary shall include in the return a statement of the income of the estate or trust which, pursuant to the instru- ment or order governing the dis- tribution, is distributable to each beneficiary, whether or not dis- tributed before the close of the taxable year for which the re- turn is made. (e) In cases under paragraphs (1), (2), or (3) of subdivision (a) or in any other case within subdivision (a) of this section except paragraph (4) thereof the tax shall be imposed upon the net income of the estate or trust and shall be paid by the fiduciary, except that in deter- mining the net income of the estate of any deceased person during the period of administra- tion or settlement there may be deducted the amount of any in- come properly paid or credited to any legatee, heir, or other beneficiary. In such cases the estate or trust shall, for the pur- pose of the normal tax, be al- lowed the same credits as are allowed to single persons under section 216. (d) In cases under paragraph (4) of subdivision (a), and in the case of any income of an estate during the period of ad- ministration or settlement per- mitted by subdivision (c) to be deducted from the net income upon which tax is to be paid by the fiduciary, the tax shall not be paid by the fiduciary, but there shall be included in com- puting the net income of each beneficiary that part of the income of the estate or trust for its taxable year which pursuant to the instrument or order governing the dis- tribution, is distributable to such beneficiary, whether distributed or not, or, if his taxable year is different from that of the estate poses, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or in- dividual; and in cases under paragraph (4) of subdivision (a) of this section the fiduciary shall include in the return a statement of each beneficiary's distributive share of such net in- come, whether or not distributed before the close of the taxable year for which the return is made. (c) In cases under paragraph (1), (2), or (3) of subdivision (a) the tax shall be imposed up- on the net income of the estate or trust and shall be paid by the fiduciary, except that in de- termining the net income of the estate of any deceased person during the period of administra- tion or settlement there may be deducted the amount of any in- come properly paid or credited to any legatee, heir or other beneficiary. In such cases the estate or trust shall, for the pur- pose of the normal tax, be al- lowed the same credits as are al- lowed to single persons under section 216. (d) In cases under paragraph (4) of subdivision (a), and in the case of any income of an estate during the period of ad- ministration or settlement per- mitted by subdivision (c) to be deducted from the net income apon which tax is to be paid by the fiduciary, the tax shall not be paid by the fiduciary, but there shall be included in com- puting the net income of each beneficiary his distributive share, whether distributed or not, of the net income of the es- tate or trust for the taxable year, or, if his net income for such taxable year is computed upon the basis of a period dif- ferent from that upon the basis of which the net income of the Credits allowed estates or trusts. Sec. 7, as amended by the Act of 1917, p. 96. Act of 1916. ESTATES AND TRUSTS Act of 1913. 123 Act of 1909. Credits allowed estates or trusts. Sec. 7. (a), p. 97. 124 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. or trust, then there shall be in- cluded in computing his net in- come his distributive share of the income of the estate or trust for its taxable year ending with- in the taxable year of the bene- ficiary. In such cases the bene- ficiaxy shall, for the purpose of the normal tax, be allowed as credits, in addition to the credits allowed to him under section 216, his proportionate share of such amounts specified in subdivisions (a) and (b) of section 216 as are received by the estate or trust. (e) In the ease of an estate or trust the income of which consists both of income of the class described in paragraph (4) of subdivision (a) of this section and other income, the net income of the estate or trust shall be computed and a return thereof made by the fiduciary in accord- ance with subdivision (b) and the tax shall be imposed, and shall be paid by the fiduciary in accordance with subdivision (e), except that there shall be allowed as an additional deduction in computing the net income of the estate or trust that part of its income of the class described in paragraph (4) of subdivision (a) which, pursuant to the in- strument or order governing the distribution, is distributable during its taxable year to the beneficiaries. In eases under this subdivision there shall be included, as provided in sub- division (d) of this section, in computing the net income of each beneficiary, that part of the income of the estate or trust which, pursuant to the instru- ment or order governing the dis- tribution, is distributable during the taxable year to such bene- ficiary. (f ) A ti'ust created by an em- ployer as a part of a stock bonus or profit-sharing plan for the exclusive benefit of some or all of his employees, to which con- tributions arc made by such em- estate or trust is computed, then his distributive share of the net income of the estate or trust for any accounting period of such estate or trust ending within the fiscal or calendar year upon the basis of which such beneficiary's net income is computed. In such eases the beneficiary shall, for the purpose of the normal tax, be allowed as credits in addition to the credits allowed to him un- der section 216, his proportion- ate share of such amounts speci- fied in subdivisions (a) and (b) of section 216 as are received by the estate or trust. Credits allowed benefici- aries. Sec. 7, as amended by the Act of 1917, p. 96. Act of 1916. ESTATES AND TRUSTS Act of 1913. 125 Act of 1909. Credits allowed benefi- ciaries. Sec. 7. (a) , p. 98. 126 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. ployer, or employees, or both, for the purpose of distributing to such employees the earnings and principal of the fund accumu- lated by the trust in accordance with such plan, shall not be tax- able under this section, but the amount actually distributed or made available to anj'- distribu- tee shall be taxable to him in the year in which so distributed or made available to the extent that it exceeds the amounts paid in by him. Such distributees shall for the purpose of the normal tax be allowed as credits that part of the amount so distrib- uted or made available as rep- resents the items specified in subdivisions (a) and (b) of sec- tion 216. EVASION OF SURTAXES BY IN- CORPOEATION. Sec. 220. That if any corpora- tion, however created or organ- ized, is formed or availed of for the purpose ofpreventingtheim- position of the surtax upon its stockholders or membersthrough the medium of permitting its gains and profits to accumulate instead of being divided or distributed, there shall be levied, collected, and paid for each taxable year upon the net income of such cor- poration a tax equal to 25 per centum of the amount thereof, which shall be in addition to the tax imposed by section 230 of this title and shall be computed, collected, and paid upon the same basis and in the same man- ner and subject to the same pro- visions of law, including penal- ties, as that tax : Provided, That if all the stockholders or mem- bers of such corporation agree thereto, the Commissioner may, in lieu of all income, war-profits and excess-profits taxes imposed upon the corporation for the tax- able year, tax the stockholders or members of such corporation up- on their distributive shares in the net income of the corpora- tion for the taxable year in the same manner as provided in sub- PEOFITS OF CORPORATIONS TAX- ABLE TO STOCKHOLDERS. Sec. 220. That if any corpora- tion, however created or organ- ized, is formed or availed of for the purpose of preventing the imposition of the surtax upon its stockholders or members through the medium of permit- ting its gains and profits to ac- cumulate instead of being di- vided or distributed, such cor- poration shall not be subject to the tax imposed by section 230, but the stockholders or members thereof shall be subject to taxa- tion under this title in the same manner as provided in subdivi- sion (e) of section 218 in the case of stockholders of a per- sonal service corporation, except that the tax imposed by Title III shall be deducted from the net income of the corporation before the computation of the propor- tionate share of each stockholder or member. The fact that any corporation is a mere holding company, or that the gains and profits are permitted to accumu- late beyond the reasonable needs of the business, shall be prima facie evidence of a purpose to escape the surtax; but the fact that the gains and profits are in any ease permitted to aecumn- ADDITIONAL TAX INCLUDES UN- DISTRIBUTED PROFITS. Sec 3. For the purpose of the additional tax, the taxable in- come of any individual shall in- clude the share to which he would be entitled of the gains and profits, if divided or dis- tributed whether divided or dis- tributed or not, of all corpora- tions, joint-stock companies or associations, or insurance com- panies, however created or or- ganized, formed or fraudulently availed of for the purpose of preventing the imposition of such tax through the medium of permitting suchi gains and profits to accumulate instead of being divided or distributed; and the fact that any such corporation, joint-stock company or associa- tion, or insurance company, is a mere holding company, or that the gains and profits are per- mitted to accumulate beyond the reasonable needs of the business shall'be prima facie evidence of a fraudulent purpose to escape such tax; but the fact that the gains and profits are in any case permitted to accumulate and be- come surplus shall not be con- strued as evidence of a purpose to escape the said tax in such case unless the Secretary of the Act of 1916. EVASION OP SURTAXES Act of 1913. 127 Act of 1909. ADDITIONAL TAX INCLUDES UN- DISTRIBUTED PROFITS. Sec. 3. For the purpose of the additional tax, the taxable in- come of any individual shall in- clude the share to which he would be entitled of the gains and profits, if divided or distrib- uted, whether divided or dis- tributed or not, of all corpora- tions, joint-stock companies or associations, or insurance com- panies, however created or or- ganized, formed or fraudulently availed of for the purpose of preventing the imposition of such tax through the medium of permitting such gains and prof- its to accumulate instead of being divided or distributed; and the fact that any such cor- poration, joint-stock company or association, or insurance com- pany, is a mere holding com- pany, or that the gains and profits are permitted to accumu- late beyond the reasonable needs of the business, shall be prima facie evidence of a fraudulent purpose to escape such tax; but the fact that the gains and prof- its are in any case permitted to accumulate and become surplus shall not be construed as evi- dence of a purpose to escape the said tax in such case unless the A. Subdiv. 2. [3] For the pur- pose of this additional tax the taxable injome of any individ- ual shall embrace the share to which he would be entitled of the gains and profits, if divided or distributed, whether divided or distributed or not, of all cor- porations, joint-stock companies, or associations however created or organized^ formed or fraudu- lently availed of for the purpose of preventing the imposition of such tax through the medium of permitting such gains and prof- its to accumulate instead of being divided or distributed; and the fact that any such cor- poration, joint-stock company, or association, is a mere holding company, or that the gains and profits are permitted to accumu- late beyond the reasonable needs of the business shall be prima facie evidence of a fraud- ulent purpose to escape such tax ; but the fact that the gains and profits are in any case per- mitted to accumulate and be- come surplus shall not be con- strued as evidence of a purpose to escape the said tax in such case unless the Secretary of the Treasury shall certify that in 128 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. division (a) of section 218 in the case of members of a part- nership. The fact that any cor- poration is a mere holding com- pany, or that the gains and profits are permitted to accumu- late beyond the reasonable needs of the business, shall be prima facie evidence of a purpose to escape the surtax; but the fact that the gains and profits are in any case permitted to accumu- late and become surplus shall not be construed as evidence of a purpose to escape the tax in such case unless the Commis- sioner certifies that in his opin- ion such accumulation is unrea- sonable for the purposes of the business. When requested by the Commissioner, or any col- lector, every corporation shall forward to him a correct state- ment of such gains and profits and the names and addresses of the individuals or shareholders who would be entitled to the same if divided or distributed, and of the amounts that would be payable to each. PAYMENT OF INDIVIDUAL'S TAX AT SOURCE. Sec. 221. (a) That all individ- uals, corporations, and partner- ships, in whatever capacity act- ing, including lessees or mort- gagors of real or personal prop- erty, fiduciaries, employers, and all officers and employees of the United States having the con- trol, receipt, custody, disposal, or payment of interest (except interest on deposits with persons carrying on the banking busi- ness paid to persons not engaged in business in the United States and not having an office or place of business therein), rent, sal- aries, wages, premiums, annui- ties, compensations, remunera- tions, emoluments, or other fixed or determinable annual or peri- odical gains, profits, and income, of any nonresident alien indi- vidual or partnership composed late and become surplus shall not be construed as evidence of a purpose to escape the tax in such case unless the Commis- sioner certifies that in his opin- ion such accumulation is unrea- sonable for the purposes of the business. WTien requested by the Commissioner, or any col- lector, every corporation shall forward to him a correct state- ment of such gains and profits and the names and addresses of the individuals or shareholders who would be entitled to the same if divided or distributed, and of the amounts that would be payable to each. Treasury shall certify that in his opinion such accumulation is un- reasonable for the purposes of the business. When requested by the Commissioner of Internal Revenue, or any district collec- tor of , internal revenue, such corporation, joint-stock company or association, or insurance com- pany shall forward to him a cor- rect statement of such gains and profits and the names and ad- dresses of the individuals or shareholders who would be en- titled to the same if divided or distributed. PAYMENT OF TAX AT SOUECE. Sec. 221. (a) That all indi- viduals, corporations and part- nerships, in whatever capacity acting, including lessees or mort- gagors of real or personal prop- erty, fiduciaries, employers, and all officers and employees of the United States, having the con- trol, receipt, custody, disposal, or payment, of interest, rent, sal- aries, wages, premiums, annui- ties, compensations, remunera- tions, emoluments, or other fixed or determinable annual or pe- riodical gains, profits, and in- come, of any nonresident alien individual (other than income received as dividends from a cor- poration which is taxable under this title upon its net income) shall (except in the cases pro- vided for in subdivision (b) and except as otherwise provided in Sec. 1205. [1] (1)59 That subdivisions (b), (c), (f), and (g) of section nine of such Act of September eighth, nineteen hundred and sixteen, are hereby amended to read as follows : "(b) All persons, corpora- tions, partnerships, associations, and insurance companies, in whatever capacity acting, in- cluding lessees or mortgagors of real or personal property, trus- tees acting in any trust capacity, executors, administrators, re- ceivers, conservators, employers, and all officers and employees, of the United States, having the control, receipt, custody, dis- posal, or payment of interest, rent, salaries, wages, premiums, annuities, compensation, remu- neration, emoluments, or other fixed or determinable annual or SB Title I, Part I, Act of 1916, as amended by Sec. 1205 (1), Title XII, Act of 1917. Act of 1916. PAYMENT OF TAX AT SOURCE Act of 1913. 129 Act of 1909. Secretary of the Treasury shall certify that in his opinion such accumulation is unreasonable for the purposes of the business. When requested by the Commis- sioner of Internal Revenue, or any district collector of in- ternal revenue, such corporation, joint-stock company or associa- tion, or insurance company shall forward to him a correct state- ment of such gains and profits and the names and addresses of the individuals or shareholders who would be entitled to the same if divided or distributed. Sec. 9. (b) [1] All persons, firms, copartnerships, companies, corporations, joint-stock com- panies, or associations, and in- surance companies, in whatever capacity acting, including les- sees or mortgagors of real or per- sonal property, trustees acting in any trust capacity, executors, administrators, receivers, con- servators, employers, and all of- ficers and employees of the United States having the control, receipt, custody, disposal, or payment of interest, rent, sal- aries, wages, premiums, an- nuities, compensation, remuner- ation, emoluments, or other fixed or determinable annual or periodical gains, profits, and in- come of another person, exceed- ing $3,000 for any taxable year, other than income derived from his opinion such accumulation is unreasonable for the purposes of the business. When requested by the Commissioner of Internal Revenue, or any district col- lector of internal revenue, such corporation, joint-stock com- pany, or association shall for- ward to him a correct statement of such profits and the names of the individuals who would be entitled to the same if distrib- uted. E. [3] All persons, firms, co- partnerships, companies, cor- porations, joint-stock companies or associations, and insurance companies, in whatever capacity acting, including lessees or mort- gagors of real or personal prop- erty, trustees acting in any trust capacity, executors, administra- tors, agents, receivers, conserva- tors, employers, and all officers and employees of the United States having the control, re- ceipt, custody, disposal, or pay- ment of interest, rent, salaries, wages, premiums, annuities, compensation, remuneration, emoluments, or other fixed or de- terminable annual gains, profits, and income of another person, exceeding $3,000 for any taxable year, other than dividends on capital stock, or from the net 130 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. in whole or in part of nonresi- dent aliens (other than income received as dividends of the class allowed as a credit by sub- division (a) of section 216) shall (except in the cases provided for in subdivision (b) and ex- cept as otherwise provided in regulations prescribed by the Commissioner under section 217) deduct and withhold from such annual or periodical gains, profits, and income a tax equal to 8 per centum thereof: Pro- videcL., That the Commissioner may authorize such tax to be de- ducted and withheld from the interest upon any securities the owners of which are not known to the withholding agent. (c) Every individual, corpora- tion, or partnership required to deduct and withhold any tax under this section shall make return thereof on or before March 1 of each year and shall on or before June 15 pay the tax to the ofScial of the United States Government authorized to receive it. Every such indi- vidual, corporation, or partner- ship is hereby made liable for such tax and is hereby indemni- fied against the claims and de- mands of any individual, cor- poration, or partnership for the amount of any payments made in accordance with the provi- sions of this section. (d) Income upon which any tax is required to be withheld at the source under this section shall be included in the return of the recipient of such income, but any amount of tax so with- held shall be credited against the amount of income tax as com- puted in such return. (e) If any tax required under this section to be deducted and withheld is paid by the recip- ient of the income, it shall not be recollected from the with- holding agent; nor in cases in which the tax is so paid shall any regulations prescribed by the Commissioner under section 217) deduct and withhold from such annual or periodical gains, profits, and income a tax equal to 8 per centum thereof: Pro- vided, That the Commissioner may authorize such tax to be de- ducted and withheld from the in- terest upon any securities the owners of which are not known to the withholding agent. (c) Every individual, corpo- ration, or partnership required to deduct and withhold any tax un- der this section shall make re- turn thereof on or before March first of each year and shall on or before June fifteenth pay the tax to the offlcial of the United States Government authorized to receive it. Every such individ- ual, corporation, or partnership is hereby made liable for such tax and is hereby indemnified against the claims and demands of any individual, corporation, or partnership for the amount of any payments made in accord- ance with the provisions of this section. (d) Income upon which any tax is required to be withheld at the source under this section shall be included in the return of the recipient of such income, but any amount of tax so withheld shall be credited against the amount of income tax as com- puted in such return. (e) If any tax required under this section to be deducted and withheld is paid by the recipient of the income, it shall not be re- collected from the withholding agent ; nor in cases in which the tax is so paid shall any penalty periodical gains, profits, and in- come of any nonresident alien individual, other than income de- rived from dividends on capital stock, or from the net earnings of a corporation, joint-stock company or association, or insur- ance company, which is taxable upon its net income as provided in this title, are hereby author- ized and required to deduct and withhold from such annual or periodical gains, profits, and in- come such sum as will be suffi- cient to pay the normal tax im- posed thereon by this title, and shall make return thereof on or before March first of each year and, on or before the time fixed by law for the payment of the tax, shall pay the amount with- held to the officer of the United States Government authorized to receive the same; and they are each hereby made personally lia- ble for such tax, and they are each hereby indemnified against every person, corporation, part- nership, association, or insur- ance company, or demand what- soever for all payments which they shall make in pursuance and by virtue of this title. 60 The provision in the Act of 1913 for collection at the source was not wanting in "due process of Act of 1916. PAYMENT OF TAX AT SOURCE Act of 1913. 131 Act of 1909. dividends on capital stock,, or from the net earnings of cor- porations and joint-stock com- panies or associations, or insur- ance companies, the income of which is taxable under this title, who are required to make and render a return in behalf of an- other, as provided herein, to the collector of his, her, or its dis- trict, are hereby authorized and required to deduct and with- hold from such annual or period- ical gains, profits, and income such sum as will be sufScient to pay the normal tax imposed thereon by this title, and shall pay the amount withheld to the officer of the United States Gov- ernment authorized to receive the same; and they are each hereby made personally liable for such tax, and they are each hereby indemnified against every person, corporation, asso- ciation, or demand whatsoever for all payments which they shall make in pursuance and by virtue of this title. earnings of corporations and joint-stock companies or associa- tions subject to like tax, who are required to make and render a return in behalf of another, as provided herein, to the collector of his, her, or its district, are hereby authorized and required to dedtict and withhold 60 from such annual gains, profits, and income such sum as will be suf- ficient to pay the normal tax im- posed thereon by this section, and shall pay to the officer of the United States Government authorized to receive the same; and they are each hereby made personally liable for such tax. l^W." Brushaber v, U, P. R. R. Co., (1916) 240 U. S. 1, 132 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. penalty be imposed upon or col- lected from the recipient of the income or the withholding agent for failure to return or pay the same, unless such failure was fraudulent and for the purpose of evading pajonent. Credits allowed nonresi- dent alien individuals. Sec. 216. (e), p. 98. be imposed upon or collected from the recipient of the income or the withholding agent for failure to return or pay the same, unless such failure was fraudulent and for the purpose of evading payment. Credits allowed nonresi- dent alien individuals. Sec. 216. (e),p. 98. Act of 1916. PAYMENT OF TAX AT SOURCE Act of 1913. 133 Act of 1909. Sec. 9. (b) [2] In all cases where the income tax of a person is withheld and deducted and paid or to be paid at the source, such person shall not receive the benefit of the personal exemption allowed in section seven of this title except by an application for refund of the tax unless he shall, not less than thirty days prior to the day on which the return of his income is due, file with the person who is required to withhold and pay tax for him a signed notice in writing claim- ing the benefit of such exemp- tion, and thereupon no tax shall be withheld upon the amount of such exemption: Provided, That if any person for the purpose of obtaining any allowance or re- duction by virtue of a claim for such exemption, either for him- self or for any other person, knowingly makes any false statement or false or fraudulent representation, he shall be liable to a penalty of not exceeding $300. And where the income tax is paid or to be paid at the source, no person shall be allowed the benefit of any deduction provided for in sections five or six of this title unless he shall, not less than thirty days prior to the day on which the return of his income is due, either (1) file with the person who is required to with- hold and pay tax for him a true and correct return of his gains, profits, and income from all other sources, and also the de- ductions asked for, and the showing thus made shall then become a part of the return to be made in his behalf by the per- son required to withhold and pay the tax, or (2) likewise make application for deductions to the E. [4] In all cases where the income tax of a person is with- held and deducted and paid or to be paid at the source, as aforesaid, such person shall not receive the benefit of the deduc- tion and exemption allowed in paragraph C of this section ex- cept by an application for re- fund of the tax unless he shall, not less than thirty days prior to the day on which the return of his income is due, file with the person who is required to with- hold any pay tax for him, a signed notice in writing claiming the benefit of such exemption and thereupon no tax shall be withheld upon the amount of such exemption: Provided, That if any person for the purpose of obtaining any allowance or reduction by virtue of a claim for such exemption, either for himself or for any other person, knowingly makes any false state- ment or false or fraudulent rep- resentation, he shall be liable to a penalty of $300 ; nor shall any person under the foregoing con- ditions be allowed the benefit of any deduction provided for in subsection B of this section un- less he shall, not less than thirty days prior to the day on which the return of his income is due, either file with the person who is required to withhold and pay tax for him a true and correct return of his annual gains, profits, and income from all other sources, and also the de- ductions asked* for, and the showing thus made shall then be- come a part of the return to be made in his behalf by the person required to withhold and pay the tax, or likewise make application for deductions to the collector of the district in which return is 134 Act of 1921, FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. Sec. 221. (b) In any ease where bonds, mortgages, or deeds of trust, or other simi- lar obligations 'of a corpora- tion contain a contract or pro- vision by which the obligor agrees to pay any portion of the tax imposed by this tit'.e upon the obligee, or to reimburse the obligee for any portion of the tax, or to pay the interest with- out deduction for any tax which the obligor may be required or permitted to pay thereon, or to retain therefrom under any law of the United States, the obligor shall deduct and withhold a tax equal to 2 per centum of the in- Sec. 221. (b) In any case where bonds, mortgages, or deeds of trust, or other similar obligations of a corporation con- tain a contract or provision by which the obligor agrees to pay any portion of the tax imposed by this title upon the obligee, or to reimburse the obligee for any portion of the tax, or to pay the interest without deduc- tion for any tax which the ob- ligor may be r'equired or per- mitted to pay thereon or to re- tain therefrom under any law of the United States, the ob- ligor shall deduct and withhold a tax equal to 2 per centum of Sec. 1205. [2], amending Sec. 9. "(c) 61 The amount of the normal tax hereinbefore im- posed shall also be deducted and withheld from fixed or deter- minable annual or periodical gains, profits and income de- rived from interest upon bonds and mortgages, or deeds of trust or other similar obligations of corporations, joint-stock com- panies, associations, and insur- ance companies, (if such bonds, mortgages, or other obligations contain a contract or provision by which the obligor agrees to pay any portion of the tax im- posed by this title upon the ob- ex Title I, Part I, Act of 1916, as amended by Sec. 1205 (1), Title XII, Act of 1917. Act of 1916. PAYMENT OF TAX AT SOURCE Act of 1913. 135 Act of 1909. collector of the district in whicli return is made or to be made for him: Provided, That when any amount allowable as a deduction is known at the time of receipt of fixed annual or periodical in- come by an individual subject to tax, he may file with the . per- son, firm, or corporation making the payment a certificate, under penalty for false claim, and in such form as shall be prescribed by the Commissioner of Internal Revenue, stating the amount of such deduction and making a claim for an allowance of the same against the amount of tax otherwise required to be deduct- ed and withheld at the source of the income, and such certificate shall likewise become a part of the return to be made in his be- half. If such person is absent from the United States, or is unable owing to serious illness to make the return and application above provided for, the return and ap- plication may be made by an agent, he making oath that he has sufficient knowledge of the affairs and property of his prin- cipal to enable him to make a full and complete return, and that the return and application made by him are full and com- plete. (c) The amount of the normal tax hereinbefore imposed shall be deducted and withheld from fixed or determinable annual or periodical gains, profits, and in- come derived from interest upon bonds and mortgages, or deeds of trust or other similar obliga- tions of corporations, joint-stock companies, associations, and in- surance companies, whether pay- able annually or at shorter or longer periods, although such in- terest does not amount to $3,000, subject to the provisions of this title requiring the tax to be withheld at the source and de- ducted from annual income and made or to be made for him: Provided further, That if such person is a minor or an insane person, or is absent from the United States, or is unable ow- ing to serious illness to make the return and application above provided for, the return and ap- plication may be made for him or her by the person required to withhold and pay the tax, he making oath under the penalties of this Act that he has sufficient knowledge of the affairs and property of his beneficiary to en- able him to make a full and com- plete return for him or her, and that the return and application made by him are full and com- plete : E. [5] Provided further. That the amount of the normal tax hereinbefore imposed shall be de- ducted and withheld from fixed and determinable annual gains, profits, and income derived from interest upon bonds and mort- gages, or deeds of trust or other similar obligations of corpora- tions, joint-stock companies or associations, and insurance com- panies, whether payable annual- ly or at shorter or longer pe- riods, although such interest does not amount to $3,000, sub- ject to the provisions of this sec- tion requiring the tax to be with- held at the source and deducted 136 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. terest upon such bonds, mort- gages, deeds of tmist, or other obligations, whether such inter- est is payable annually or at shorter or longer periods and whether payable to a nonresi- dent alien individual or to an in- dividual citizen or resident of the United States or to a part- nership: Provided, That the Commissioner may authorize such tax to be deducted and withheld in the case of interest upon any such bonds, mort- gages, deeds of trust, or other obligations, the owners of which are not known to the withhold- ing agent. Such deduction and withholding shall not be re- quired in the case of a citizen or resident entitled to receive such interest, if he files with the withholding agent on or be- fore February 1 a signed notice in writing claiming the benefit of the credits provided in sub- divisions (c) and (d) of section 216; nor in the case of a non- resident alien individual if so provided for in regulations pre- scribed by the Commissioner un- der subdivision (g) of section 217. the interest upon such bonds, mortgages, deeds of trust, or other obligations, whether such interest is payable annually or at shorter or longer periods and whether payable to a nonresi- dent alien individually or to an individual citizen or resident of the United States or to a part- nership: Provided, That the Commissioner may authorize such tax to be deducted and withheld in the case of interest upon any such bonds, mortgages, deeds of trust or other obliga- tions, the owners of which are not known to the withholding agent. Such deduction and withholding shall not be re- quired in the case of a citizen or resident entitled to receive such interest, if he files with the withholding agent on or before February 1, a signed notice in writing claiming the benefit of the credits provided in subdivi- sions (c) and (d) of section 216; nor in the case of a non- resident alien individual if so provided for in regulations pre- scribed by the Commissioner un- der section 217. ligee or to reimburse the obligee for any portion of the tax or to pay the interest without deduc- tion for any tax which the ob- ligor may be required or per- mitted to pay thereon or to re- tain therefrom under any law of the United States) whether payable annually or at shorter or longer periods and whether such interest is payable to a non- resident alien individual or to an individual citizen or resident of the United States, subject to the provisions of the foregoing subdivision (b) of this section requiring the tax to be with- held at the source and deducted from annual income and re- turned and paid to the Govern- ment, unless the person entitled to receive such interest shall file with the withholding agent, on or before February first, a signed notice in writing claim- ing the benefit of an exemption under section seven of this Title. Act of 1916. PAYMENT OF TAX AT SOURCE Act of 1913. 137 Act of 1909. returned and paid to the Grov- ernment. Sec. 9. (d) And likewise the amount of such tax shall be de- ducted and withheld from cou- pons, checks, or bills of exchange for or in payment of interest up- on bonds of foreign countries and upon foreign mortgages or like obligations (not payable in the United States), and also from coupons, checks, or bills of ex- change for or in payment of any dividends upon the stock or in- terest upon the obligations of foreign corporations, associa- tions, and insurance companies engaged in business in foreign countries. And the tax in such cases shall be withheld, deducted, and re- turned for and in behalf of any person subject to the tax here- inbefore imposed, although such interest or dividends do not ex- ceed $3,000, by (1) any banker or person who shall sell or other- from annual income and paid to the Government: E. [6] and likewise the amount of such tax shall be de- ducted and withheld from cou- pons, checks, or bills of exchange for or in payment of interest upon bonds of foreign countries and upon foreign mortgages or like obligations (not payable in the United States), and also from coupons, checks, or bills of exchange for or in payment of any dividends upon the stock or interest upon the obligations of foreign corporations, associa- tions, and insurance companies engaged in business in foreign countries; and the tax in each case shall be withheld and de- ducted for and in behalf of any person subject to the tax here- inbefore imposed, although such interest, dividends, or other com- pensation does not exceed $3,000, by any banker or person who shall sell or otherwise realize 138 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. Sec. 1205. [5] (2)62 Subdi- visions (d) and (e) of section nine of such Act of September eighth, nineteen hundred and sixteen, are hereby repealed. Sec. 1205. [4], amending Sec. 9. "(g)^^ The tax herein im- posed upon gains, profits, and incomes not falling under the foregoing and not returned and paid by virtue of the foregoing or as otherwise provided by law shall be assessed by personal re- turn under rules and regula- tions to be prescribed by the Commissioner of Internal Kev- enue and approved by the Secre- tary of the Treasury. The in- tent and purpose of this title is that all gains, profits, and in- come of a taxable class, as de- fined by this title, shall be charged and assessed with the corresponding tax, normal and additional, prescribed by this title, and said tax shall be paid by the owner of such income, or the proper representative hav- ing the receipt, custody, control, or disposal of the same. For the purpose of this title ownership or liability shall be determined as of the year for which a return is required to be rendered. 82 Title I, Part I, Act of 1916, as amended by Sec. 1205 (1), Title XII, Act of 1917. 83 Title I, Part I, Act of 1916, as amended by Sec. 1205 (1), Title XII, Act of 1917. 8* An unwarranted delegation of legislative au- Act of 1916. PAYMENT OP TAX AT SOURCE Act of 1913. 139 Act of 1909. wise realize coupons, checks, or bills of exchange drawn or made in payment of any such interest or dividends (not payable in the United States), and (2) any person who shall obtain payment (not in the United States), in behalf of another of such divi- dends and interest by means of coupons, checks, or bills of ex- change, and also (3) any dealer in such coupons who shall pur- chase the same for any such dividends or interest (not pay- able in the United States) , other- wise than from a banker or an- other dealer in such coupons. (e) Where the tax is withheld at the source, the benefit of the exemption and the deductions allowable under this title may be had by complying with the foregoing provisions of this sec- tion. (g) The tax herein imposed upon gains, profits, and income not falling under the foregoing and not returned and paid by virtue of the foregoing shall be assessed by personal return un- der rules and regulations to be prescribed by the Commissioner of Internal Revenue and ap- proved by the Secretary of the Treasury. The intent and pur- pose of this title is that all gains, profits, and income of a taxable class, as defined by this title, shall be charged and assessed with the corresponding tax, nor- mal and additional, prescribed by this title, and said tax shall be paid by the owner of such income, or the proper represen- tative having the receipt, cus- tody, control, or disposal of the same. For the purpose of this title ownership or liability shall be determined as of the year for which a return is required to be rendered. The provisions of this title re- lating to the deduction and pay-. coupons, checks, or bills of ex- change drawn or made in pay- ment of any such interest or dividends (not payable in the United States), and any person who shall obtain payment (not in the United States) , in behalf of another of such dividends and interest by means of coupons, checks, or bills of exchange, and also any dealer in such coupons who shall purchase the same for any such dividends or interest (not payable in the United States), otherwise than from a banker or another dealer in such coupons; but in each case the benefit of the exemption and the deduction allowable under this section may be had by comply- ing with the foregoing provi- sions of this paragraph. E. [8] Nothing in this sec- tion shall be construed to re- lease a taxable person from lia- bility for income tax, nor shall any contract entered into after this Act takes effect be valid in regard to any Federal income tax imposed upon a person liable to such payment. The tax herein imposed upon annual gains, profits, and in- come not falling under the fore- going and not returned and paid by virtue of the foregoing shall be assessed by personal return under rules and regulations to be prescribed by the Commis- sioner of Internal Revenue and approved by the Secretary of the Treasury.6* The provisions of this section relating to the deduction and thority was not made by the Act of 1913 because were conferred upon the Secretary of the Treasury, certain administrative powers to enforce the Act firushaher v.U. P. R. R. Co., (1916) 240 U. S. 1. 140 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. Return in case of with- holding. Sec. 221. (c), p. 130. Return in case of with- holding. Sec. 221. (c), p. 130. "The provisions of this sec- tion, except subdivision- (e), re- lating to the deduction and pay- ment of the tax at the source of income shall only apply to the normal tax hereinbefore im- posed upon nonresident alien in- dividuals. ' ' Sec. 1204. [3] (2)65 Subdi- vision (d) of section eight of such Act of September eighth, nineteen hundred and sixteen, is hereby repealed. Return in case of with- holding. Sec. 1205. (1) (b), p. 128. Sec. 1212.66 That any amount heretofore withheld by any with- holding agent as required by Title I of such Act of Septem- ber eighth, nineteen hundred and sixteen, on account of the tax imposed upon the income of any individual, a citizen or resi- dent of the United States, for the calendar year nineteen hun- dred and seventeen, except in the cases covered by subdivision (c) of section nine of such Act, as amended by this Act, shall be re- leased and paid over to such in- dividual, and the entire tax upon the income of such individual for such year shall be assessed and collected in the manner pre- scribed by such Act as amended by this Act. 86 Title I, Part I, Act of 1916, as amended by Sec. 1204 (2), Title XII, Act of 1917. Act of 1916. PAYMENT OF TAX AT SOURCE Act of 1913. 141 Act of 1909. ment of the tax at the source of income shall only apply to the normal tax hereinbefore im- posed upon individuals. Sec. 8. (d) All persons, firms, companies, copartnerships, cor- porations, joint-stock companies, or associations, and insurance companies, except as hereinafter provided, in whatever capacity acting, having the control, re- ceipt, disposal, or payment of fixed or determinable annual or periodical gains, profits, and in- come of another individual sub- ject to tax, shall in behalf of such person deduct and with- hold from the paymenj; an amount equivalent to the normal tax upon the same and make and render a return, as aforesaid, but separate and distinct, of the portion of the income of each person from which the normal tax has been thus withheld, and containing also the name and address of such person or stat- ing that the name and address or the address, as the case may be, are unknown: Provided, That the provision requiring the normal tax of individuals to be deducted and withheld at the source of the income shall not be construed to require the with- holding of such tax according to the two per centum normal tax rate herein prescribed until on and after January first, nineteen hundred and seventeen, and the law existing at the time of the passage of this Act shall gov- ern the amount withheld or to be withheld at the source until January first, nineteen hundred and seventeen. That in either case mentioned in subdivisions (c) and (d) of this section no return of income not exceeding $3,000 shall be re- quired, except as in this title provided. payment of the tax at the source of income shall only apply to the normal tax hereinbefore im- posed upon individuals. D. [3] and also all persons, firms, companies, copartnerships, corporations, joint-stock com- panies or associations, and insur- ance companies, except as here- inafter provided, in whatever ca- pacity acting, having the con- trol, receipt, disposal, or pay- ment of fixed or determinable annual or periodical gains, prof- its, and income of another per- son subject to tax, shall in be- half of such person deduct and withhold from the payment an amount equivalent to the nor- mal income tax upon the same and make and render a return, as aforesaid, but separate and distinct, of the portion of the income of each person from which the normal tax has been thus withheld, and containing also the name and address of such person or stating that the name and address or the address, as the case may be, are un- known : Provided, That the pro- vision requiring the normal tax of individuals to be withheld at the source of the income shall not be construed to require any of such tax to be withheld prior to the first day of November, nineteen hundred and thirteen: Provided further. That in either case above mentioned no return of income not exceeding $3,000 shall be required. 66 Title XII, Act of 1917. 142 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. CREDIT FOR TAXES IN CASE OF IN- DIVIDUALS. Sec. 222. (a) That the tax computed under Part II of this title shall be credited with: (1) In the case of a citizen of the United States, the amount of any income, war-profits and excess-profits taxes paid during the taxable year to any foreign country or to any possession of the United States ; and (2) In the case of a resident of the United States, the amount of any such taxes paid during the taxable year to any posses- sion of the United States; and (3) In the case of an alien resident of the United States, the amount of any such taxes paid during the taxable year to any foreign country, if the for- eign country of which such alien resident is a citizen or subject, in imposing such taxes, allows a similar credit to citizens of the United States residing in such country; and (4) In the case of any such in- dividual who is a member of a partnership or a beneficiary of an estate or trust, his propor- tionate share of such taxes of the partnership or the estate or trust paid during the taxable year to a foreign country or to any pos- session of the United States, as the case may be. (5) The above credits shall not be allowed in the case of a citizen entitled to the benefits of section 262; and in no other case shall the amount of credit taken under this subdivision ex- ceed the same proportion of the tax, against which such credit is taken, which the taxpayer's net income (computed without de- duction for any income, war- profits and excess-profits taxes imposed by any foreign country CREDIT FOR TAXES. Sec. 222. (a) That the tax computed under Part II of this title shall be credited with: (1) In the case of a citizen of the United States, the amount of any income, war-profits and excess-profits taxes paid during the taxable year to any foreign country, upon income derived from sources therein, or to any possession of the United States ; and (2) In the case of a resident of the United States, the amount of any such taxes paid during the taxable year to any posses- sion 67 of the United States ; and (3) In the case of an alien resident of the United States who is a citizen or subject of a foreign country, the amount of any such taxes paid during the taxable year to such country, upon income derived from sources therein, if such country, in imposing such taxes, allows a similar credit to citizens of the United States residing in such country; and (4) In the case of any such individual who is a member of a partnership or a beneficiary of an estate or trust, his propor- tionate share of such taxes of the partnership or the estate or trust paid during the taxable year to a foreign country or to any possession of the United States, as the case may be. BT Under the Act of 1918, a citizen of the United States residing in the Philippine Islands is required to pay the United States the difference between the tax imposed by the Act of 1918 and what he pays Act of 1916. CREDIT FOR TAXES Act of 1913, 143 Act of 1909. the Philippine Islands under the Acts of 1916 and 1917 which were continued in force there. Law- rence V. Warden, (C. C. A., Ninth Cir. 1921) 273 Fed. 405. 144 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. or possession of the United States) from sources without the United States bears to his entire net income (computed without such deduction) for the same taxable year. (b) If accrued taxes when paid differ from the amounts claimed as credits by the tax- payer, or if any tax paid is re- funded in whole or in part, the taxpayer shall notify the Com- missioner, who shall redetermine the amount of the tax due under Part II of this title for the year or years affected, and the amount of tax due upon such redeter- mination, if any, shall be paid by the taxpayer upon notice and demand by the collector, or the amount of tax overpaid, if any, shall be credited or refunded to the taxpayer in accordance with the provisions of section 252. In the case of such a tax accrued but not paid, the Commissioner as a condition precedent to the al- lowance of this credit may re- quire the taxpayer to g;ive a bond with sureties satisfactory to and to be approved by the Commissioner in such penal sum as the Commissioner may re- quire, conditioned for the pay- ment by the taxpayer of any amount of tax found due upon any such redetermination; and the bond herein prescribed shall contain such further conditions as the Commissioner may re- quire. (c) These credits shall be al- lowed only if the taxpayer fur- nishes evidence satisfactory to the Commissioner showing the amount of income derived from sources without the United States, and all other information necessary for the verification and computation of such credits. (d) If the taxpayer makes a return for a fiscal year begin- ning in 1920 and ending in 1921, the credit for the entire fiscal' year shall, notwithstanding any provision of this Act, be deter- mined under the provisions of this section; and the Commis- (b) If accrued taxes when paid differ from the amounts claimed as credits by the tax- payer, or if any tax paid is re- funded in whole or in part, the taxpayer shall notify the Com- missioner who shall redetermine the amount of the tax due un- der Part II of this title for the year or years affected, and the amount of tax due upon such re- determination, if any, shall be paid by the taxpayer upon notice and demand by the collector, or the amount of tax overpaid, if any, shall be credited or re- funded to the taxpayer in ac- cordance with the provisions of section 252. In the case of such a tax accrued but not paid, the Commissioner as a condition precedent to the allowance of this credit may require the tax- payer to give a bond with sure- ties satisfactory to and to be approved by the Commissioner in such penal sum as the Com- missioner may require, condi- tioned for the payment by the taxpayer of any amount of tax found due upon any such re-- determination; and the bond herein prescribed shall contain such further conditions as the Commissioner may require. (c) These credits shall be al- lowed only if the taxpayer fur- nishes evidence satisfactory to the Commissioner showing the amount of income derived from sources within such foreign country or such possession of the United States, and all other information necessary for the computation of such credits. Act of 1916. CREDIT FOR TAXES Act of 1913. 145 Act of 1909. 146 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. sioner is authorized to disallow, in whole or part, any such credit which he finds has already been taken by the taxpayer. INDIVIDUAL EETUENS. Sec. 223. (a) That the follow- ing individuals shall each make under oath a return stating spe- cifically the items of his gross income and the deductions and credits allowed under this title — (1) Every individual having a net income for the taxable year of $1,000 or over, if single, or if married and not living with husband or wife; (2) Every individual having a net income for the taxable year of $2,000 or over, if married and living with husband or wife ; and (3) Every individual having a gross income for the taxable year of $5,000 or over, regardless of the amount of his net income. (b) If a husband and wife liv- ing together have an aggregate net income for the taxable year of $2,000 or over, or an aggre- gate gross income for such year of $5,000 or over— (1) Each shall make such a return, or (2) The income of each shall be included in a single joint re- turn, in which case the tax shall be computed on the aggregate income. (c) If the taxpayer is unable to make his own return, the re- turn shall be made by a duly authorized agent or by the guardian or other person charged with the care of the person or property of such tax- payer. TIME AND PLACE FOE FILING INDI- VIDUAL, PAETNEESHIP, AND FIDUCIAEY EETUENS. Sec. 227. (a) That returns (except in the case of nonresi- INDIVIDUAL EETUENS. Sec 223. That every individ- ual having a net income for the taxable year of $1,000 or over if single or if married and not liv- ing with husband or wife, or of $2,000 or over if married and living with husband or wife, shall make under oath 68 a re- turn stating specifically the items of his gross income and the deductions and credits al- lowed by this title. If a hus- band and wife living together have an aggregate net income of $2,000 or over, each shall make such a return unless the income of each is included in a single joint return. If the taxpayer is unable to make his own return, the return shall be made by a duly au- thorized agent or by the guardian or other person charged with the care of the per- son or property of such tax- payer. time AND PLACE FOB FILING EE- TUENS. Sec. 227. (a) That returns shall be made on or before the Sec. 8. (a) The tax shall be computed upon the net income, as thus ascertained, of each per- son subject thereto, received in each preceding calendar year ending December thirty-first. (b) On or before the first day of March, nineteen hundred and seventeen, and the first day of March in each year there- after, a true and accurate re- turn under oath shall be made by each person of lawful age, except as hereinafter provided, having a net income of $3,000 or over for the taxable year to the collector of internal revenue for the district in which such per- son has his legal residence or principal place of business, or if there be no legal residence or place of business in the United States, then with the collector of internal revenue at Balti- more, Maryland, in such form as the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, shall prescribe, setting forth specifically the gross amount of income from all separate sources, and from the total thereof de- ducting the aggregate items of allowances herein authorized : Provided, That the Commis- sioner of Internal Revenue shall have authority to grant a rea- sonable extension of time, in meritorious cases, for filing re- turns of income by persons re- siding or traveling abroad who are required to make and file returns of income and who are unable to file said returns on or before March first of each year : Provided further, That the aforesaid return may be made 88 The oath in making returns requir.ed by Sec. 223, Act of 1918, may be administered by any per- son authorized by local law to administer oaths. D. N. Y. 1919) 262 U. S. v. Benowitz, (D. C, S. Fed. 223. 89 The retroactivity of the Act of 1913 to the date RETURNS, TIME AND PLACE FOR FILING 147 Act of 1916. Act of 1913. Act of 1909. Sec. 8. (a) The tax shall be computed upon the net income, as thus ascertained, of each per- son subject thereto, received in each preceding calendar year ending December thirty-first. (b) On or before the first day of March, nineteen hundred and seventeen, and the first day of March in each year thereafter, a true and accurate return under oath shall be made by each per- son of lawful age, except as hereinafter provided, having a net income of $3,000 or over for the taxable year to the collector of internal revenue for the dis- trict in which such person has his legal residence or principal place of business, or if there be no legal residence or place of business in the United States, then with the collector 'of inter- nal revenue at Baltimore, Mary- land, in such form as the Com- missioner of Internal Revenue, with the approval of the Secre- tary of the Treasury, shall pre- scribe, setting forth specifically the gross amount of income from all separate sources, and from the total thereof deducting the aggregate items of allowances herein authorized : Provided, That the Commissioner of Inter- nal Revenue shall have authority to grant a reasonable extension of time, in meritorious cases, for filing returns of income by per- sons residing or traveling abroad who are required to make and file returns of income and who are unable to file said returns on or before March first of each year: Provided further, That the aforesaid return may be made by an agent when by rea- D. [1] The said tax shall be computed upon the remainder of said net income of each person subject thereto, accruing during each preceding calendar year ending December thirty-first : Provided however, That for the year ending December thirty- first, nineteen hundred and thir- teen, said tax shall be computed on the net income accruing from March first 69 to December thirty-first, nineteen hundred and thirteen, both dates inclu- sive, after deducting five-sixths only of the specific exemptions and deductions herein provided for. On or before the first day of March, nineteen hundred and fourteen, and the first day of March in each year thereafter, a true and accurate return, under oath or affirmation, shall be made by each person of lawful age, ex- cept as hereinafter provided, subject to the tax imposed by this section, and having a net in- come of $3,000 or over for the taxable year, to the collector of internal revenue for the district in which such person resides or has his principal place of busi- ness, or, in the case of a person residing in a foreign country, in the place where his principal business is carried on within the United States, in such form as the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, shall prescribe, setting forth spe- cifically the gross amount of in- come from all separate sources and from the total thereof, de- ducting the aggregate items or expenses and allowance herein authorized ; guardians, trus- of the 16th Amendment did not render the act in- U. S. 115; Woods v. Lewellyn (Col.), (C. C. A., Third valid. Brushaber v. U. P. R. R. Co., (1916) 240 Cir. 1918) 252 Fed. 106. U. S. 1; Tyee Realty Co. v. Anderson, (1916) 240 148 FEDERAL INCOME TAX LAWS Act of 1921. Act of 1918. Act of 1917. dent aliens) shall be made on or before the fifteenth day of the third month following the close of the fiscal year, or, if the return is made on the basis of the calendar year, then the re- turn shall be made on or before the 15th day of March. In the case of a nonresident alien indi- vidual returns shall be made on or before the fifteenth day of the sixth month following the close of the fiscal year, or, if the re- turn is made on the basis of the calendar year, then the return shall be made on or before the 15th day of June. The Commis- sioner may grant a reasonable extension of time for filing re- turns whenever in his judgment good cause exists and shall keep a record of every such extension and the reason therefor. Ex- cept in the case of taxpayers who are abroad, no such extension shall be for more than six months. (b) Keturns shall be made to the collector for the district in which is located the legal resi- dence or principal place of busi- ness of the person making the return, or, if he has no legal resi- dence or principal place of busi- ness in the United States, then to the collector at Baltimore, Maryland. fifteenth day of the third month following the close of the fiscal year, or, if the return is made on the basis of the calendar year, then the return shall be made on or before the fifteenth day of March. The Commis- sioner may grant a reasonable extension of time for filing re- turns whenever in his judgment good cause exists and shall keep a record of every such extension and the reason therefor. Except in the case of taxpayers who are abroad, no such extension shall be for more than six months. (b) Returns shall be made to the collector for the district in which is located the legal resi- dence or principal place of busi- ness of the person making the return, or, if he has no legal residence or principal place of business in the United States, then to the collector at Balti- more, Maryland. by an agent when by reason of illness, absence, or nonresidence the person liable for said re- turn is unable to make and ren- der the same, the agent assum- ing the responsibility of making the return and incurring pen- alties provided for erroneous, false, or fraudulent return. Sec. 8. (f) In every return shall be included the income de- rived from dividends on the cap- ital stock or from the net earn- ings of any corporation, joint- stock company or association, or insurance company, except that in the case of nonresident aliens such income derived from sources without the United States shall not be included. TO A trustee was not required to make a return of income received by him under the terms of a will, where the beneficiary thereto was not determi- nable until the happening of a future contingency. There was no "person" in existence who, if acting in his own behalf, would have been required to make return. First Trust Savings Bank v. Smietanka (Col.), (C. C. A., Seventh Cir. 1920), 268 Fed. 230. RETURNS, TIME AND PLACE FOR FILING Act of 1916. Act of 1913. Act of 1909. 149 son of illness, absence, or non- residence the person liable for said return is unable to make and render the same, the agent assuming the responsibility of making the return and incurring penalties provided for erroneous, false, or fraudulent return. tees,'<'0 executors,''! administra- tors, agents, receivers, conserva- tors, and aU persons, corpora- tions, or associations acting in any fiduciary capacity, shall make and render a return of the net income of the person for whom they act, subject to this tax, coming into their custody or control and management, and be subject to all the provisions of this section which apply to in- dividuals : Skc. 8. (f) In every return shall be included the income de- rived from dividends on the capital stock or from the net earnings of any corporation, joint-stock company or associa- tion, or insurance company, ex- cept that in the case of nonresi- dent aliens such income derived from sources without the United States shall not be included. D. [5] Provided further, That persons liable for the normal in- come tax only, on their own ac- count or in behalf of another, shall not be required to make return of the income derived from dividends on the capital stock or from the net earnings of corporations, joint-stock com- panies or associations, and in- surance companies taxable upon their net income as hereinafter provided. Any person for whom return has been made and the tax paid, or to be paid as ''I The executor of a person who died between a return of income of such person. Brady v. Ander- March 1, 1913, and Oct. 3, 1913, the date of the son (Col.), (C. C. A., Second Cir. 1917) 240 Fed. passage of the Act of 1913, .was required to make 665. 150 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. PARTNERSHIP RETURNS. Sec. 224. That every partner- ship shall make a return for each taxable year, stating specifically the items of its gross income and the deductions allowed by this title, and shall include in the return the names and addresses of the individuals who would be entitled to share in the net in- come if distributed and the amount of the distributive share of each individual. The return shall be sworn to by any one of the partners. FIDUCIARY RETURNS. _ Sec. 225. (a) That every fidu- ciary (except a receiver ap- pointed by authority of law in possession of part only of the property of an individual) shall make under oath a return for any of the following individuals, estates, or trusts for which he acts, stating specifically the items of gross income thereof and the deductions and credits allowed under this title — (1) Every individual having a net income for the taxable year of $1,000 or over, if single, or if married and not living with husband or wife; (2) Every individual having a net income for the taxable year of $2,000 or over, if mar- ried and living with husband or wife; (3) Every individual having a gross income for the taxable year of $5,000 or over, regard- less of the amount of his net income ; (4) Every estate or trust the net income of which for the tax- able year is $1,000 or over ; and (5) Every estate or trust of which any beneficiary is a non- resident alien. PARTNERSHIP RETURNS. Sec. 224. That every partner- ship shall make a return for each taxable year, stating specifically the items of its gross income and the deductions allowed by this title, and shall include in the re- turn the names and a&dresses of the individuals who would be en- titled to share in the net income if distributed and the amount of the distributive share of each in- dividual. The return shall be sworn to by any one of the part- ners. fiduciary RETURNS. Sec. 225. That every fiduciary (except receivers appointed by authority of law in possession of part only of the property of an individual) shall make under oath a return for the individual, estate or trust for which he acts (1) if the net income of such in- dividual is $1,000 or over if sin- gle or if married and not living with husband or wife, or $2,000 or over if married and living with husband or wife, or (2) if the net income of such estate or trust is $1,000 or over or if any beneficiary of such estate or trust is a nonresident alien, stat- ing specifically the items of the gross income and the deductions and credits allowed by this title. Under such regulations as the Commissioner with the approval of the Secretary may prescribe, a return made by one of two or more joint fiduciaries and filed in the office of the collector of the district where such fiduciary resides shall be a sufficient com- pliance with the above require- ment. The fiduciary shall make oath that he has sufficient knowl- edge of the affairs of such indi- Partnership returns for war excess-profits tax. Sec. 211, p. 352. Sec. 1204. [1] (1)72 That sub- divisions (c) and (e) of section eight of such Act of September eighth, nineteen hundred and sixteen, are hereby amended to read as follows: "(c) Guardians, trusteeSj^S executors, administrators, re- ceivers, conservators, and all persons, corporations, or associa- tions, acting in any fiduciary ca- pacity, shall make and render a return of the income of the per- son, trust, or estate for whom or which they act, and be subject to all the provisions of this title which apply to individuals. Such fiduciary shall make oath that he has sufficient knowledge of the affairs of such person, trust, or estate to enable him to make such return and that the same is, to the best of his knowledge and belief, true and correct, and be subject to all the provisions of this title which apply to indi- viduals : Provided, That a return made by one of two or more joint fiduciaries filed in the dis- trict where such fiduciary re- sides, under such regulations as the Secretary of the Treasury 72 Title I, Part I, Act of 1916, as amended by Sec. 1204 (1), Title XII, Act of 1917. 73 A testamentary trustee is a taxable person under the Act of 1917. Merchants' Loan and Trust PARTNERSHIP AND FIDUCIARY RETURNS Act of 1916. Act of 1913. Act of 1909. 151 (c) Guardians, trustees, ex- ecutors, administrators, re- ceivers, conservators, and all persons, corporations, or asso- ciations acting in any fiduciary- capacity, shall make and render a return of the income of the person, trust, or estate for whom or which they act, and be sub- ject to all the provisions of this title which apply to individuals. Such fiduciary shall make oath that he has sufficient knowledge of the affairs of such person, trust, or estate to enable him to make such return and that the same is, to the best of his knowl- edge and belief, true and cor- rect, and be subject to all the provisions of this title which ap- ply to individuals: Provided, That a return made by one of two or more joint fiduciaries filed in the district where such fiduciary resides, under such regulations as the Secretary of the Treasury may prescribe, shall be a suificient compliance with the requirements of this paragraph. aforesaid, shall not be required to make a return unless such person has other net income, but only one deduction of $3,000 shall be made in the ease of any such person. D. [2] Provided, That a re- turn made by one of two or more joint guardians, trustees, execu- tors, administrators, agents, re- ceivers, and conservators, or other persons acting in a fidu- ciary capacity, filed in the dis- trict where such person residesy or in the district where the will or other instrument under which he acts is recorded, under such regulations as the Secretary of the Treasury may prescribe, shall be a sufficient compliance with the requirements of this paragraph ; Co. v. Smietanka (Ex-Col.), (1921) — U. S. — , 65 L. Ed. 445. 152 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. (b) Under such regulations as the Commissioner with the ap- proval of the Secretary may prescribe a return made by one of two or more joint fiduciaries and filed in the office of the col- lector of the district where such fiduciary resides shall be suffi- cient compliance with the above requirement. Such fiduciary shall make oath (1.) that he has sufficient knowledge of the af- fairs of the individual, estate or trust for which the return is made, to enable him to make the return, and (2) that the return is, to the best of his knowledge and belief, true and correct. Any fiduciary required to make a re- turn under this Act shall be sub- ject to all the provisions of this Act which apply to individuals. RETURNS FOR A PERIOD OF LESS THAN TWEIjVE MONTHS. Sec. 226. (a) That if a tax- payer, with the approval of the Commissioner, changes the basis of computing net income from fiscal year to calendar year a separate return shall be made for the period between the close of the last fiscal yeiar for which return was made and the fol- lowing December 31. If the change is from calendar year to fiscal year, a separate return shall be made for the period be- tween the close of the last cal- endar year for which return was made and the date designated as the close of the fiscal year. If the change is from one fiscal year to another fiscal year a sep- arate return shall be made for the period between the close of the former fiscal year and the date designated as the close of the new fiscal year. (b) In all cases where a sep- arate return is made for a part of a taxable year the net income shall be computed on the basis of such period for which sep- arate return is made, and the tax shall be paid thereon at the rate for the calendar year in which such period is included. vidual, estate or trust to enable him to make the return, and that the same is, to the best of his knowledge and belief, true and correct. Fiduciaries required to make returns under this Act shall be subject to all the provisions of this Act which apply to indi- viduals. RETURNS WHEN ACCOUNTING PERIOD CHANGED. Sec. 226. That if a taxpayer, with the approval of the Com- missioner, changes the basis of computing net income from fiscal year to calendar year a separate return shall be made for the pe- riod between the close of the last fiscal year for which return was made and the following Decem- ber thirty-first. If the change is from calendar year to fiscal year, a separate return shall be made for the period between the close of the last calendar year for which return was made and the date designated as the close of the fiscal year. If the change is from one fiscal year to another fiscal year a separate return shall be made for the period between the close of the former fiscal year and the date designated as the close of the new fiscal year. If a taxpayer making his first re- turn for income tax keeps his ac- counts on the basis of a fiscal year he shall make a separate return for the period between the beginning of the calendar year in which such fiscal year ends and the end of such fiscal year. In all of the above cases the may prescribe, shaU be a suffi- cient compliance with the re- quirements of this paragraph: Provided further, That no re- turn of income not exceeding $3,000 shall be required except as in this title otherwise pro- vided. Act of 1916. RETURNS FOR FRACTIONAL YEAR Act of 1913. 153 Act of 1909. 154 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. (e) In the case of a return for a period of less than one year the net income shall be placed on an annual basis by multiply- ing the amount thereof by twelve and dividing by the number of months included in such period ; and the tax shall be such part of a tax computed on such an- nual basis as the number of months in such period is of twelve months. UNDEESTATEMENT IN EETUENS; Sec. 228. That if the collector or deputy collector has reason to believe that the amount of any income returned is understated, he shall give due notice to the taxpayer making the return to show cause why the amount of the return should not be in creased, and upon proof of the amount understated, may in- crease the same accordingly Such taxpayer may furnish sworn testimony to prove any relevant facts and if dissatisfied with the decision of the collector may appeal to the Commissioner for his decision, under such rules of procedure as may be pre- scribed by the Commissioner with the approval of the Secre- tary. INCOEPOEATION OP INDIVIDUAL OE PAETNERSHIP BUSINESS. Sec. 229. That in the case of the organization as a corporation within four months after the passage of this Act of any trade or business in which capital is a material income-producing fac- tor, and which was previously owned by a partnership or in- dividual, the net income of such trade or business from January 1, 1921, to the date of such or- ganization may at the option of the individual or partnership be taxed as the net income of a cor- net income shall be computed on the basis of such period for which separate return is made, and the tax shall be paid thereon at the rate for the calendar year in which such period is in- cluded ; and the credits provided in subdivisions (c) and (d) of section 216 shall be reduced re- spectively to amounts which bear the same ratio to the full credits provided in such subdivisions as the number of months in such period bears to twelve months. UNDERSTATEMENT IN RETURNS. Sec. 228. That if the collector or deputy collector has reason to believe that the amount of any income returned is understated, he shall give due notice to the taxpayer making the return to show cause why the amount of the return shoLild not be in- creased, and upon proof of the amount understated, may in- crease the same accordingly. Such taxpayer may furnish sworn testimony to prove any relevant facts and if dissatisfied with the decision of the collector may appeal to the Commissioner for his decision, under such rules of procedure as may be prescribed by the Commissioner with the approval, of the Secre- tary. Sec. 19.74 The collector or deputy collector shall require every return to be verified by the oath of the party rendering it. If the collector or deputy collec- tor have reason to believe that the amount of any income re- turned is understated, he shall give due notice to the person making the return to show cause why the amount of the return should not be increased, and upon proof of the amount under- stated may increase the same ac- cordingly. Such person may furnish sworn testimony to prove any relevant facts, and, if dissatisfied with the decision of the collector, may appeal to the Commissioner of Internal Rev- enue for his decision under such rules of procedure as may be prescribed by regulation. 74 Part III, Act of 1916. Act of 1916, UNDERSTATEMENT IN RETURNS Act of 1913. 155 Act of 1909. Sec. 19.74 The collector or deputy collector shall require every return to be verified by the oath of the party rendering it. If the collector or deputy collector have reason to believe that the amount of any income returned is understated, he shall give due notice to the person making the return to show cause why the amount of the re- turn should not be increased, and upon proof of the amount understated may increase the same accordingly. Such person may furnish sworn testimony to prove any relevant facts, and, if dissatisfied with the decision of the collector, may appeal to the Commissioner of Internal Revenue for his decision under such rules of procedure as may be prescribed by regulation. D. [6] The collector or dep- uty collector shall require every list to be verified by the oath or affirmation of the party render- ing it. If the collector or dep- uty collector have reason to be- lieve that the amount of any income returned is understated, he shall give due notice to the person making the return to show cause why the amount of the retm'n should not be in- creased, and upon proof of the amount understated may in- crease the same accordingly. If dissatisfied with the decision of the collector, such person may submit the case, with all the papers, to the Commissioner of Internal Revenue for his de- cision, and may furnish sworn testimony of witnesses to prove any relevant facts. 156 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. poration is taxed under Titles II and III ; in which event the net income and invested capital of such trade or business shall be computed as if such corporation had been in existence on and after January 1, 1921, and the undistributed profits or earnings of such trade or business shall not be subject to the surtaxes imposed in section 211, but amounts distributed on and after January 1, 1921, from the earn- ings or profits of such trade or business accumulated after De- cember 31, 1920, shall be taxed to the recipients as dividends; and all the provisions of Titles II and III relating to corpora- tions shall so far as practicable apply to such trade or business : Provided, That this section shall not apply to any trade or busi- ness, the net income of which for the taxable year 1921 was less than 20 percentiun of its invested capital for such year : Provided further, That any taxpayer who takes advantage of this section shall pay the tax imposed by section 1000 of the Revenue Act of 1918 as if such taxpayer had been a corporation on and after January 1, 1921. Part III. — Coepokations. TAX ON CORPORATIONS. Sec. 230. That, in lieu of the tax imposed by section 230 of the Revenue Act of 1918, there shall be levied, collected, and paid for each taxable year upon the net income of every corpora- tion a tax at the following rates : Part III. — Corporations. TAX on corporations. Sec. 230. (a) That, in lieu of the taxes imposed by section 10 of the Revenue Act of 1916, as amended by the Revenue Act of 1917, and by section 4 of the Revenue Act of 1917, there shall be levied, collected, and paid Part II. — On Corporations.75 Sec. 1206. [1] (1)76 That the first paragraph of section ten of such Act of September eighth, nineteen hundred and sixteen, is hereby amended to read as fol- lows: "Sec. 10. (a) That there 75 Title I, Act of 1916. 76 Title I, Part II, Act of 1916, as amended by Sec. 1206 (1), Title XII, Act of 1917. 77 The uniformity required by the constitution is a geographical uniformity; hence, the exemption of a part or all of the income of certain designated per- sons, classes, and corporations, did not render the Act of 1913 unconstitutional. Brushaber v. U. P. R. R. Co., (1916) 240 U. S. 1; Stanton v. Baltic Mining Co., (1916) 240 U. S. 103. 78 Sec. 38, Act of 1909, did not apply to corpora- tions in receivership. U. S. v. Whitridge et al., (1913) 231 U. S. 144, affirming Penn. Steel Co. v. N. Y. City Ry. Co., Morton Trust Co. v. Metropolitan St. Ry. Co., Guaranty Trust Co. of N. Y. v. Metropolitan St. Ry. Co., and Central Trust Co. v. Third Ave. R. R. Co., et al., (C. C. A., Second Cir. 1912) 1^ Fed. 774, and Id., (D. C, S. D. N. Y. 1912) 193 Fed. 286, and Id., (C. C, S. D. N. Y. 1910) 176 Fed. 471. 79 Joint stock companies and associations were properly classified with corporations under Sec. 38, Act of 1909. Flint v. Stone-Tracy' Co., (1911) 220 U. S. 107. Act of 1916. INCOME TAX ON CORPORATIONS Act of 1913. 157 Act of 1909. Part II. — On Coepoeations. Sec. 10. [1] That there shall be levied, assessed, collected, and paid annually upon the total net income received in the preceding calendar year from all sources by every eorporation,8l joint- stock company or association, or G. (a) [1] That the normal tax 77 hereinbefore imposed upon individuals likewise shall be levied, assessed, and paid an- nually upon the entire net in- come arising or accruing from all sources during the preceding SPECIAL EXCISE TAX ON CORPORATIONS. Sec. 38. [FIRST.] [1] That every corporation,78 joint-stock company 79 or association, or- ganized for profit and having a capital stock represented by shares,80 and every insurance company, now or hereafter or- SO A public utility corporation "organized for profit and. having a capital stock represented by shares" is not distinguishable from other business corpora- tions under Sec. 38, Act of 1909. Union Hollywood Water Co. v. Carter (Col.), (C. C. A., Ninth Cir. 1917) 238 Fed. 329. 81(a) A trustee of a bankrupt corporation who was not "operating the property or business" of the corporation, was not required under the Act of 1916 to pay an income tax on funds received by him in 1916 as the result of a compromise of an old claim which the bankrupt corporation had against another corporation. In re Heller, Hirsch & Co., (C. C. A., Second Cir. 1919) 258 Fed. 208. 81(b) A corporation cannot avoid income taxation by dissolution. U. S. v. McHatton et al., (D. C, D. Mont. 1920) 266 Fed 602. 81(c) Stockholders who received all the assets ot the corporation in liquidation were liable for an as- sessment made against the corporation subsequently to the dissolution, which resulted from the retroac- tivity of the Act of 1916. U. S. v. McHatton et al., (D. C, D. Mont. 1920) 266 Fed. 602. 158 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. (a) For the calendar year 1921, 10 per centum of the amount of the net income in ex- cess of the credits provided in section 236; and (b) For each calendar year thereafter, 121/^ per centum of such excess amount. Definition of corporation. Sec. 1, p. 2. for each taxable year upon the net income of every corporation a tax at the following rates : (1) For the calendar year 1918, 12 per centum of the amount of the net income in ex- cess of the credits provided in section 236 ; and (2) For each calendar year thereafter, 10 per centum of such excess amount. Definition of corporation. Sec. 1, p. 2. shall be levied, assessed, col- lected, and paid annually upon the total net income received in the preceding calendar year from all sources by every cor- poration, joint-stock company or association, or insurance company, organized in the United States, no matter how created or organized, but not in- cluding partnerships, a tax 87 of two per cent upon such in- 82 To be taxable under Sec. 38, Act of 1909, it was necessary that an association be organized under a statute of the United States, State or Territory thereof; therefore, a real estate trust created by deed under the common law of the State was not taxable. Eliot v. Freeman, (1911) 220 U. S. 178. 83(a) The income of corporations in receivership was not taxable under the Act of 1913. Only re- ceivers of individuals, mentioned in sub-paragraphs S and E, Sec. II, were required to make returns. Scott V. Western Pacific Ey. Co., (C. C. A., Ninth Cir. 1917) 246 Fed. 545, affirming Equitable Trust Co. of N. Y. V. Western Pacific Ry. Co., (D. C, N. D. Cal., S. D. 1915) 236 Fed. 813. 83(b) A corporation was taxable under the Act of 1913, although not engaged in business. Rensselaer S. R. Co. V. Irwin (Col.), (C. C. A., Second Cir. 1918) 249 Fed. 726, affirming Id., (D. C, N. D. N. Y. 1917) 239 Fed. 739, Certiorari denied, (1918) 246 U. S. 671. 8* Where a number of corporations were organized under the law of Hawaii, permitting corporations to form a partnership, there being no changeability of ownership, transferrability of shares, or capital stock, and where the organization was managed by a board of managers made up of individual repre- sentatives of the respective corporations — subh an arrangement did not constitute a joint stock com- pany under the Act of 1913. Haiku Sugar Co. et al. V. Johnstone, (C. C. A., Ninth Cir. 1918) 249 Fed. 103. 8B(a) The owners of the stock of five railway cor- porations entered into an agreement whereby for unitary control the legal title of the stock was transferred to trustees who were to do certain speci- fied things, a committee of the stockholders being authorized to control the power of the trustees in voting the capital stock of the companies. The lan- guage of the agreement read very much like the old corporation law of Illinois. This arrangement was an association and not a partnership under the Act of 1913. Chicago Title & Trust Co. v. Smietanka (Col.), (D. C, N. D. 111., E. D. 1921) 275 Fed. 60. 86(b) Where trustees were appointed for the whole term of the trust, the beneficiaries not having the power of removal but merely the privilege of filling vacancies caused by death or resignation, and otherwise limited in power to consenting to changes in the terms of the trust, the trustees in fact having the power of owners, such an arrangement was tax- able as a trust and not as an association under the Act of 1913. Malley (Col.) v. Crocker, (1919) 249 U. S. 223, reversing Id., (C. C. A., First Cir. 1918) 250 Fed. 817. 88(a) The words "no matter how created or oi- ganized" in Sec. II, Par. G(a), Act of 1913, apply not only to insurance companies, but also relate back to the words "every corporation, joint stock com- pany or association." Chicago Title & Trust Co. v. Smietanka (Col.), (D. C, N. D. 111., E. D. 1921) — Fed. — . 86(b) An association may be organized inde- pendently of any statute, and when so organized is subject to the tax imposed by the Act of 1913. Chi- cago Title & Trust Co. v. Smietanka (Col.), (D. C, N. D. 111., E. D. 1921) 275 Fed. 60. 88(c) Under Par. II, G. (a), Act of 1913, an asso- ciation organized under the common as well as statu- Act of 1916. INCOME TAX ON CORPORATIONS Act of 1913. 159 Act of 1909. insurance company, organized in the United States, no matter how created or organized but not in- cluding partnerships, a tax of two per centum upon such in- come; and a like tax shall be levied, assessed, collected, and paid annually upon the total net income received in the preceding calendar year from all sources within the United States by ev- ei'y corporation, joint-stock corn- calendar year to every corpora- tion,83 joint-stock company 84 or association,85 and every insur- ance company, organized in the United States, no matter how created or organized,86 not in- cluding partnerships; but if or- ganized, authorized, or existing under the laws of any foreign country, then upon the amount of net income accruing from business transacted 88 and capi- ganized under the laws 82 of the United States or under the Acts of Congress applicable to Alaska or the District of Columbia, or now or hereafter organized un- der the laws of any foreign country and engaged in business in any State or Territory of the United States or in Alaska or in the District of Columbia,, shall be subject to pay annually a special excise tax 89 -yyith respect tory law was taxable. Crocker v. Malley (Col.), (C. C. A., First Cir. 1918) 250 Fed. 817. This case was reversed by the Supreme Court in Id., (1919) 249 U. S. 223, on other reasoning, "assuming" that the above holding was correct. 87 The uniformity required by Section 8, Art. I, of the Federal Constitution is a geographical uni- formity. LaBelle Iron Works v. U. S., (1921) — U. S. — , 65 L. Ed. 604, affirming Id., (1920) 55 Ct. CI. 462. 88 A Canadian corporation which employed solici- tors to sell its paper product in the United States, paid their expenses, maintained desk room, paid rent, used storage rooms, kept funds, and entered into contracts in the United States through its agents, subject to the approval of the corporation in Canada, "transacted" business within the Unitea States. The income derived therefrom was taxable under the Act of 1913. Laurentide Co. Ltd. v. Durey (Col.), (D. C, N. D. N. Y. 1916) 231 Fed. 223. 89(a) The uniformity required by the Federal Con- stitution in the laying of excise taxes is a geograph- ical uniformity. Flint v. Stone-Tracy Co., (1911) 220 U. S. 107; Camp Bird Ltd. v. Howbert (Col.), (C. C. A., Eighth Cir. 1918) 249 Fed. 27; N. Y., N. H. & H. E. R. Co. V. U. S., (C. C. A., Second Cir. 1920) 269 Fed. 907. 88(b) The tax imposed by Sec. 38, Act of 1909, did not take property "without due process of law." Flint V. Stone-Tracy Co., (1911) 220 U. S. 107. 89(c) The tax imposed by Sec. 38, Act of 1909, was not a direct tax on the franchise or the property of the corporation, but an excise on the privilege of doing business in a corporate capacity. Flint v. Stone-Tracy Co., (1911) 220 U. S. 107; U. S. v. Whitridge, et al., (1913) 231 U. S. 144, affirming Penn. Steel Co. v. N. Y. City Ry. Co., (C. C. A., Second Cir. 1912) 198 Fed. 774, and Id., (D. C, S. D. N. Y. 1912) 193 Fed. 286; Stratton's Independence, Ltd. V. Howbert (Col.), (1913) 231 U. S. 399, affirm- ing Id., (D. C, D. Colo. 1912) 207 Fed. 419; Ander- son (Col.), V. Morris &. E. Ry. Co., (C. C. A., Second Cir. 1914) 216 Fed. 83; Nat'l Bank of Com- merce V. Allen, (C. C. A., Eighth Cir. 1915) 223 Fed. 472; Phila. Traction Co. v. McCoach (Col.), (D. C, E. D. Penn. 1915) 224 Fed. 800; Blalock (Col.) v. Georgia Ry. & Electric Co., (C. C. A., Fifth Cir. 1915) 228 Fed. 296; Anderson (Col.) v. Forty-two Broadway, (1915) 239 U. S. 69; Biwabik Mining Co. V. U. S., (C. C. A., Sixth Cir. 1917) 242 Fed. 9; Hays (Col.) v. Gauley Mountain Coal Co., (1918) 247 U. S. 189; U. S. v. Oregon R. & Navigation Co., (C. C. A., Second Cir. 1918) 251 Fed. 211; Doyle (Col.) v; Mitchell Bros. Co., (1918) 247 U. S. 179; U. S. V. Phila. B. & W. Ry. Co., (D. C, E. D. Penn. 1920) 262 Fed. 188. 89(d) The tax imposed by Sec. 38, Act of 1909, which differentiated between certain classes of cor- porations and individuals by exempting some was "uniform" within the meaning of the Federal Con- stitution, that requirement being a geographical uni- formity. Flint V. Stone-Tracy Co., (1911) 220 U. S. 107; Camp Bird Ltd. v. Howbert (Col.), (C. C. A., Eighth Cir. 1918) 249 Fed. 27; N. Y., N. H., & H. R. R. Co. V. U. S., (C. C. A., Second Cir. 1920) 269 Fed. 907. 160 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. Sec. 233. (b) In the case of a foreign corporation, gross in- come means only gross income from sources within the United States, determined (except in the case of insurance companies subject to the tax imposed by section 243 or 246) in the man- ner provided in section 217. Sec. 233. (b) In the case of a foreign corporation gross in- come includes only the gross in- come from sources within the United States, including the in- terest on bonds, notes, or other interest-bearing obligations of residents, corporate or other- wise, dividends from resident corporations, and including all amounts received (although paid under a contract for the sale of goods or otherwise) represent- ing profits on the manufacture come; and a like tax shall be levied, assessed, collected, and paid annually upon the total net income received in the preceding calendar year from all sources within the United States by every corporation, joint-stock company, or association, or in- surance company, organized, au- thorized, or existing under the laws of any foreign country, in- cluding interest on bonds, notes, or other interest-bearing obli- gations of residents, corporate or 9* (a) A corporation which leased its property to another, to be operated and maintained by the lessee, the lessor discontinuing activities, and only main- taining its corporate existence, was not thereafter "doing business" under Sec. 38, Act of 1909, although (1) it collected rents from the lessee and distributed dividends to its stockholders, or (2) the lessee paid the rents directly to the stockholders of the lessor corporation in accordance with the terms of the leas- ing agreement. Zonne v. Minneapolis Syndicate, (1911) 220 U. S. 187; McCoach (Col.) v. Mine Hill & S. H. E. R. Co., (1913) 228 U. S. 295, affirming Id., (C. C, E. D. Penn. 1912) 192 Fed. 670; U. S. v. Nipissing Mines Co., (C. C. A., Second Cir. 1913) 206 Fed. 431; Wilkes-Barre & W. Va. Traction Co. v. Davis (Col.), (D. C, M. D. Penn. 1914) 214 Fed. 511; Anderson (Col.) v. Morris & E. Ry. Co., (C. C. A., Second Cir. 1914) 216 Fed. 83; Maxwell v. Abrast Realty Co., (C. C. A., Second Cir. 1914) 218 Fed. 457, affirming Id., (D. C, E. D. N. Y. 1913) 206 Fed. 333; N. Y. Cent. & H. R. R. Co., et al. v. Gill (Col.), (C. C. A., First Cir. 1915) 219 Fed. 184; Public Service Ry. Co. V. Herold, (D. C, D. N. J. 1915) 219 Fed. 301; U. S. V. Emery, Bird, Thayer Realty Co., (1915) 237 U. S. 28, afiarming Id., (D. C, W. D. Mo., W. D. 1912) 198 Fed. 242; Lewellyn (Col.) v. Pittsburgh, B. & L. E. R. Co., (C. C. A., Third Cir. 1915) 222 Fed. 177; Miller (Col.) v. Snake River Valley Ry. Co., (C. C. A., Ninth Cir. 1915) 223 Fed. 946; Traction Cos. v. Collectors, (C. C. A., Sixth Cir. 1915) 223 Fed. 984; McCoach (Col.) v. Continental Pass. Ry. Co. of Phila., (C. C. A., Third Cir. 1916) 233 Fed. 976, af- firming Phila. Traction Co. v. McCoach (Col.), (D. C, E. D. Penn. 1915) 224 Fed. 800; Cambria Steel Co. V. McCoach (Col.), (D. C, E. D. Penn. 1915) 225 Fed. 278; Public Service Gas Co. v. Herold, (D. C, D. N. J. 1915) 227 Fed. 496; Public Service Ry. Co. v. Herold, (D. C, D. N. J. 1915) 227 Fed. 500; Water- bury Gas Light Co. v. Walsh (Col.), (D. C, D. Conn. 1915) 228 Fed. 54; State Line & S. Ry. Co. v. Davis, (D. C, M. D. Penn. 1915) 228 Fed. 246; Public Serv- ice Ry. Co. V. Herold, (C. C. A., Third Cir. 1916) 229 Fed. 902, reversing [Public Service Electric Co. v. Hereld, (D. C, D. N. J. 1915) 227 Fed. 486; Public Service Ry. Co. v. Herold, (D. C, D. N. J. 1915) 227 Fed. 490; Public Service Electric Co. v. Herold, (D. C, D. N. J. 1915) 227 Fed. 491; and Public Service Ry. Co. V. Moffett, (D. C, D. N. J. 1915) 227 Fed. 494]; Jasper & E. Ry. Co. v. Walker (Col.), (C. C. A., Fifth Cir. 1917) 238 Fed. 533; West End Street Ry. Co. V. Malley (Col.), (C. C. A. First Cir. 1917) 246 Fed. 625, Certiorari denied. Id., (1918) 246 U. S. 671; Old Colony Ry. Co. et al. v. Gill and Malley (Cols.), (D. C, D. Mass. 1916) 257 Fed. 220; U. S. v. Phila. B. & W. R. Co., (D. C, E. D. Penn. 1920) 262 Fed. 188. 9''(b) Where a foreign corporation sold its prop- erty to a domestic company on partial payments, re- tained title as security, maintained an agent and at- torney in compliance with State law but no office in the U. S., and received remittances in London directly from the vendee, such corporation thereafter was not "doing business" under Sec. 38, Act of 1909. Bryant & May Ltd. v. Scott (Col.), (D. C, N. D. Calif., S. D. 1914) 226 Fed. 875. 90(0) Mining corporations engaged solely in min- ing upon their own premises were "doing business" under Sec. 38, Act of 1909. Stratton's Independence, Ltd. V. Howbert (Col.), (1913) 231 U. S. 399. 9''(d) A corporation which was organized for the purpose of doing business, and actually engaged in such activities as leasing property, collecting rents, managing office buildings, making investments of profits, leasing ore lands, collecting royalties, manag- ing wharves and dividing profits, was "doing busi- ness" under Sec. 38, Act of 1909. Flint v. Stone- Tracy Co., (1911) 220 U. S. 107. 90(e) A corporation which did business through the taxable year could not avoid the tax imposed by Sec. 38, Act of 1909, by dissolving prior to the time of making return. U. S. v. General Inspection & Loading Co., (D. C, D. N. J. 1911) 192 Fed. 223. Act of 1916. INCOME TAX ON CORPORATIONS Act of 1913. 161 Act of 1909. pany or association, or insurance company organized, authorized, or existing under the laws of any foreign country, including inter- est on bonds, notes, or other in- terest-bearing obligations of res- idents, corporate or otherwise, and including the income de- rived from dividends on capital stock or from net earnings of res- ident corporations, joint-stock companies or associations, or in- surance Companies whose net in- come is taxable under this title. tal invested within the United States during such year. to carrying on or doing business^O by such corporation, joint-stock company or association, or in- surance company, equivalent to one per centum upon the entire net income ^^ over and above five thousand dollars received by it from all sources during such year, exclusive of amounts re- ceived by it as dividends upon stock of other corporations, joint-stock companies, or asso- ciations, or insurance companies, subject to the tax hereby im- 90(f) A corporation which did business during a part of 1912 was subject to the tax imposed by Sec. 38, Act of 1909. Blalock (Col.) v. Georgia Ry. & Electric Co., (C. C. A., Fifth Cir. 1916) 228 Fed. 296; also Id., (C. C. A., Fifth Cir. 1917) 246 Fed. 387. ^"(g) A Canadian corporation which employed solicitors to sell its paper produce in the U. S., paid their expenses, maintained desk room, paid rent, used storage rooms, kept funds, and entered into con- tracts in the United States through its agents, sub- ject to the approval of the corporation in Canada, was "doing business" in the United gtates under Sec. 38, Act of 1909. Laurentide Co. Ltd. v. Durey (Col.), and Id. v. Irwin (Col.), (D. C, N. D. N. Y. 1916) 231 Fed. 223. 90(h) A corporation which was formed for the sole purpose of building and leasing a junction rail- way and which collected and distributed rental, was "doing business" under Sec 38, Act of 1909. Rio Grande Junction Ry. Co. v. U. S., (1916) 51 Ct. CI. 274. 90 (i) A corporation, lessee of ore lands, which sub- leased the same for mining purposes, received roy- alty, explored for oil, and supervised the operation of the sub-lease was "doing business" under Sec. 38, .Act of 1909. Chemung Iron Co. v. Lynch (Col.), (C. C. A.,, Eighth Cir. 1920) 269 Fed. 368. 90 (j) A corporation which leased part of the land which it owned, for mining purposes, distributed the rental, inspected the work of the lessee, sold real estate and stumpage, and explored for oil was "or- ganized for profit" and "doing business" under Sec. 38, Act of 1909. Von Baumbach (Col.) v. Sargent Land Co. et al., (1917) 242 U. S. 503, affirming Id., (C. C. A., Eighth Cir. 1914) 219 Fed. 31, and Id., (D. C, D. Minn. 1913) 207 Fed. 423. 90 (k) A terminal company which was organized for the purpose of rendering terminal service for four railway companies, .which were its stockholders, having been legally organized as a corporation capa- ble of earning and paying dividends, was "doing business" under Sec. 38, Act of 1909, although it was organized by the railway companies merely to provide a convenient joint agency for the perform- ance of certain of their duties as carriers without any idea of deriving a profit. Houston Belt & Ter- minal Ry. Co. V. U. S., (C. C. A., Fifth Cir. 1918) 250 Fed. 1. 90(1) A porporation which built, owned, and leased rights to the use of a terminal, to five railway companies, receiving as rental the direct payment by the lessees of maintenance, administration, interest on outstanding bonds, and dividends, and also re- ceiving income from renting facilities to others, was "doing business" under Sec. 38, Act of 1909. Boston Terminal Co. v. Gill, (C. C. A., First Cir. 1917) 246 Fed. 664. 90 (m) A corporation which was formed by two other corporations to acquire, own, maintain and operate pipe lines, and which actually acquired and constructed pipe lines, transported oil, borrowed money, and made a profit, was "doing business" un- der Sec. 38, Act of 1909. Associated Pipe Line Co. V. U. S., (C. C A., Ninth Cir. 1919) 258 Fed. 800. 90 (n) Under Sec. 38, Act of 1909, it was neces- sary that the corporation be organized for the pur- pose of "doing business" and also that it actually be engaged in that business. U. S. v. Emery, Bird, Thayer Realty Co., (1915) 237 U. S. 28, affirming Id., (D. C, W. D. Mo., W. D. 1912) 198 Fed. 242. 90 (o) The term "business" as used in Sec. 38, Act of 1909, "is a comprehensive term and embraces everything about which a person can be employed." Flint v. Stone-Tracy Co., (1911) 220 U. S. 107. 90(p) "Doing business" is synonymous with "en- gaged in business" and "carrying on business" in Sec. 88, Act of 1909. These expressions convey the idea of progression, continuity, or sustained activity. Lewellyn (Col.) v. Pittsburgh, B. & L. E. R. Co., (C. C. A., Third Cir. 1915) 222 Fed. 177. 91 The tax imposed by Sec. 38, Act of 1909, was properly measured by the "entire net income" which included income from non-taxable property. Flint V. Stone-Tracy Co., (1911) 220 U. S. 107. 162 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. 26. Fiscal year. Sec. 205, p. and disposition of goods within the United States. Fiscal year. Sec. 205, p. 26. Determination of loss and gain. Sec. 202. (a), p. 14. Dividends. Sec. 201. (a), p. 8. Determination of loss and gain. Sec. 202. (a), p. 14. Dividends, p. 8. Sec. 201. (a). otherwise, and including the in- come derived from dividends on capital stock or from net earn- ings of resident corporations, joint-stock companies or associa- tions, or insurance companies, whose net income is taxable un- der this title." Sec. 10. [3] The foregoing tax rate shall apply to the total net income received by every taxable corporation, joint-stock company or association, or insurance com- pany in the calendar year nine- teen hundred and sixteen and in each year thereafter, except that if it has fixed its own fiscal year under the provisions of existing law, the foregoing rate shall ap- ply to the proportion of the total net income returned for the fiscal year ending prior to December thirty-first, nineteen hundred and sixteen, which the period be- tween January first, nineteen hundred and sixteen, and the end of such fiscal year bears to the whole of such fiscal year, and the rate fixed in Section II of the Act approved October third, nineteen hundred and thirteen, entitled ' ' An Act to reduce tariff duties and to provide revenue for the Grovernment, and for other purposes," shall apply to the remaining portion of the to- tal net income returned for such fiscal year. For the purpose of ascertain- ing the gain derived or loss sus- tained from the sale or other disposition by a corporation, joint-stock company or associa- tion, or insurance company, of property, real, personal, or mixed, acquired before March first, nineteen hundred and thir- teen, the fair market price or value of such property, as of March first, nineteen hundred and thirteen, shall be the basis for determining the amount of such gain derived or loss sus- tained. Dividends. Sec. 1211. [5], p. 8. Act of 1916. INCOME TAX ON CORPORATIONS Act of 1913. 163 Act of 1909. Sec. 10. [3] The foregoing tax rate shall apply to the total net income received by every taxable corporation, joint-stock company or association, or insurance com- pany in the calendar year nine- teen hundred and sixteen and in each year thereafter, except that if it has fixed its own fiscal year under the provisions of existing law, the foregoing rate shall ap- ply to the proportion of the total net income returned for the fiscal year ending prior to De- cember thirty-fifst, nineteen hundred and sixteen, which the period between January first, nineteen hundred and sixteen, and the end of such fiscal year bears to the whole of such fiscal year, and the rate fixed in Sec- tion II of the Act approved Oc- tober third, nineteen hundred and thirteen, entitled "An Act to reduce tariff duties and to provide revenue for the Govern- ment, and for other purposes," shaU apply to the remaining por- tion of the total net income re- turned for such fiscal year. For the purpose of ascertain- ing the gain derived or loss sus- tained from the sale or other dis- position by a corporation, joint- stock company or association, or insurance company, of prop- erty, real, personal, or mixed, acquired before March first, nineteen hundred and thirteen, the fair market price or value of such property as of March first, nineteen hundred and thirteen, shall be the basis for determin- ing the amount of such gain de- rived or loss sustained. [2] Provided, That the term "dividends" as used in this title shall be held to mean any dis- tribution made or ordered to be made by a corporation, joint- posed ; or if organized under the laws of any foreign country, up- on the amount of net income over and above five thousand dollars received by it from busi- ness transacted and capital in- vested within the United States and its Territories, Alaska, and the District of Columbia during such year, exclusive of amounts so received by it as dividends upon stock of other corporations, joint-stock companies or asso- ciations, or insurance companies, subject to the tax hereby im- posed: 164 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. Sec. 4.92 That in addition to the tax imposed by subdivision (a) of section ten of such Act of September eight, nineteen hundred and sixteen, as amended by this Act, there shall be levied, assessed, collected, and paid a like tax of four per cen- tum upon the income received in the calendar year nineteen hun- dred and seventeen and every calendar year thereafter, by every corporation, joint-stock company or association, or in- surance company, subject to the tax imposed by that subdivision of that section, except that if it has fixed its own fiscal year, the tax imposed by this section for the fiscal year ending dur- ing the calendar year nineteen hundred and seventeen shall be levied, assessed, collected, and paid only on that proportion of its income for such fiscal year which the period between Janu- ary first, nineteen hundred and seventeen, and the end of such fiscal year bears to the whole of such fiscal year. The tax imposed by this sec- tion shall be computed, levied, assessed, collected, and paid up- on the same incomes and in the same manner as the tax imposed by subdivision (a) of section ten of such Act of September eighth, nineteen hundred and sixteen, as amended by this Act, except that for the purpose of the tax imposed by this section the income embraced in a re- turn of a corporation, joint- 92 Additional Normal Tax, Act of 1917. ADDITIONAL INCOME TAX ON CORPORATIONS Act of 1916. Act of 1913. Act of 1909. 165 stock company, association, or insurance company, out of its earnings or profits accrued since March first, nineteen hundred and thirteen, and payable to its shareholders, whether in cash or in_ stock of the corporation, joint-stock company, association, or insurance company, which stock dividend shall be consid- ered income, to the amount of its cash value. 166 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. stock company or association, or insurance company, shall be credited with the amount re- ceived as dividends upon the stock or from the net earnings of any other corporation, joint- stock company or association, or insurance company, which is taxable upon its net income as provided in this title. Sec. 1206. [2] (2)93 Section ten of such Act of September eighth, nineteen hundred and sixteen, is hereby further amended by adding a new sub- division as follows: "(b) In addition to the in- come tax imposed by subdivision (a) of this section there shall be levied, assessed, collected, and paid annually an additional tax of ten per centum upon the amount, remaining undistrib- uted six months after tie end of each calendar or fiscal year, of the total net income of every corporation, joint-stock com- pany or association, or insurance company, received during the year, as determined for the pur- poses of the tax imposed by such subdivision (a), but not includ' ing the amount of any income taxes paid by it within the year imposed by the authority of the United States. ' ' The tax imposed by this sub- division shall not apply to that portion of such undistributed net income which is actually in- vested and employed in the busi- ness or is retained for employ- ment in the reasonable require- ments of the business or is in- vested in obligations of the United States issued after Sep- tember first, nineteen hundred and seventeen: Provided, That if the Secretary of the Treas- ury ascertains and finds that any portion of such amount so retained at any time for em- ployment in the business is not so employed or is not reasonably required in the business a tax 98 Title I, Part II, Act of 1916, as amended by Sec. 1206 (2), Title XII, Act of 1917. INCOME TAX ON UNDISTRIBUTED EARNINGS 167 Act of 1916. Act of 1913. Act of 1909. 168 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. CONDITIONAL AND OTHER EXEMP- TIONS OP CORPORATIONS. Sec. 231. That the following organizations shall be exempt from taxation under this title — (1) Labor, agricultural, or horticultural organizations ; (2) Mutual savings banks not having a capital stock represent- ed by shares; (3) Fraternal beneficiary so- cieties, orders, or associations, (a) operating under the lodge Sec. 230. (b) For the pur- poses of the Act approved March 21, 1918, entitled "An Act to provide for the operation of transportation systems while un- der Federal control, for the just compensation of their owners, and for other purposes," five- sixths of the tax imposed by paragraph (1) of subdivision (a) and four-fifths of the tax imposed by paragraph (2) of subdivision (a) shall be treated as levied by an Act in amend- ment of Title I of the Revenue Act of 1917. CONDITIONAL AND OTHER EXEMPTIONS. Sec. 231. That the following organizations shall be exempt from taxation under this title — (1) Labor, agricultural, or horticultural organizations ; (2) Mutual savings banks not having a capital stock represent- ed by shares; (3) Fraternal beneficiary so- cieties, orders, or associations, (a) operating under the lodge of fifteen per centum shall be levied, assessed, collected, and paid thereon. "The foregoing tax rates shall apply to the undistributed net income received by every taxable corporation, joint-stock company or association, or in- surance company in the calen- dar year nineteen hundred and seventeen and in each year thereafter, except that if it has fixed its own fiscal year under the provisions of existing law, the foregoing rates shall apply to the proportion of the taxable undistributed net income re- turned for the fiscal year end- ing prior to December thirty- first, nineteen hundred and seventeen, which the period be- tween January first, nineteen hundred and seventeen, and the end of such fiscal year bears to the whole of such fiscal year. ' ' CONDITIONAL AND OTHER EXEMPTIONS. Sec. 11. (a) That there shall not be taxed under this title any income received by any — First. Labor, agricultural, or horticultural organization; Second. Mutual savings bank not having a capital stock repre- sented by shares; Third. Fraternal beneficiary society, order, or association, operating under the lodge sys- 94 Under Sec. 38, Act of 1909, the test of whether an association engaged in the insurance business was a fraternal beneficiary society lay in the fraternal nature of the work and the objects which it was or- Act of 1916. EXEMPT CORPORATIONS Act of 1913. 169 Act of 1909. CONDITIONAL AND OTHER EX- EMPTIONS. Sec. 11. (a) That there shall not be taxed under this title any income received by any — First. Labor, agricultural, or horticultural organization ; Second. Mutual savings bank not having a capital stock rep- resented by shares ; .Third. Fraternal beneficiary society, order, or association, operating under the lodge sys- G. (a) [2] Provided however, That nothing in this section shall apply to [a] labor, agricultural, or horticultural organizations, or [b] to mutual savings banks not having a capital stock rep- resented by shares, or to [c] fraternal beneficiary so- cieties, orders, or associations operating under the lodge sys- [FIRST.] [2] Provided, how- ever. That nothing in this sec- tion contained shall apply to [a] labor, agricultural or horticultural organizations, or to [b] fraternal beneficiary 84 societies, orders, or associations operating under the lodge sys- ganized to promote rather than the fact that it made no profit. Commercial Travelers' Life & Accident Ass'n v. Rodway, (D. C, N. D. Ohio, E. D. 1913) 235 Fed. 370. 170 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. system or for the exclusive ben- efit of the members of a fra- ternity itself operating under the lodge system; and (b) pro- viding for the payment of life, sick, accident, or other benefits to the members of such society, order, or association or their de- pendents ; (4) Domestic building and loan associations siibstantially all the business of which is con- fined to making loans to mem- bers; and cooperative banks -without capital stock organized and operated for mutual pur- poses and without profit ; (5) Cemetery companies owned and operated exclusively for the benefit of their members or which are not operated for profit; and any corporation chartered solely for burial pur- poses as a cemetery corporation and not permitted by its charter to engage in any business not necessarily incident to that pur- pose, no part of the net earnings of which inures to the benefit of any private stockholder or indi- vidual ; (6) Corporations, and any community chest, fund, or foun- dation, organized and operated exclusively for religious, charit- able, scientific, literary, or edu- cational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the system or for the exclusive ben- efit of the members of a fra- ternity itself operating under the lodge system, and (b) pro- viding for the payment of life, sick, accident, or other benefits to the members of such society, order, or association or their de- pendents ; (4) Domestic biiilding and loan associations and cooperative banks without capital stock or- ganized and operated for mutual purposes and without profit; (5) Cemetery companies owned and operated exclusively for the benefit of their members; tem or for the exclusive benefit of the members of a fraternity itself operating under the lodge system, and providing for the. payment of life, sick, accident, or other benefits to the members of such society, order, or associa- tion or their dependents ; Fourth. Domestic building and loan association and cooperative banks without capital stock or- ganized and operated for mutual purposes and without profit ; Fifth. Cemetery company owned and operated exclusively for the benefit of its members; (6) Corporations organized and operated exclusively for re- ligious, charitable, scientific, or educational 96 purposes, or for the prevention of cruelty to chil- dren or animals, no part of the net earnings of which inures to the benefit of any private ^"^ stockholder or individual; Sixth. Corporation or associa- tion organized and operated ex- clusively for religious, charita- ble, scientific, or educational purposes, no part of the net in- come of which inures to the ben- efit of any private stockholder or individual; 9B(a) A building and loan association which loaned money to non-members and issued preferred or in- terest paying stock that shared on dissolution, was not exempt from taxation under Sec. 38, Act of 1909. Pacific B. & L. Assn. v. Hartson, (D. C, W. D. Wash., S. D. 1913) 201 Fed. 1011. 9B(b) A building and loan association is not ex- cluded from the exemption allowed ''mutual" associa- tions solely from the fact that it issued prepaid and installment stock, the prepaid stock being limited to a fixed dividend, payable only out of profits. Suit arose under Sec. 38, Act of 1909. Herold (Col.) v. Park View B. & L. Assn., (C. C. A., Third Cir. 1914) 210 Fed. 577. 95(c) An organization formed solely for making building loans to its members, who were entitled to vote according to membership and not by virtue of stockholdings, was a "mutual building and loan as- sociation," and, hence, exempt under Sec. 38, Act of 1909. Park View Bldg. and Loan Assn. v. Herold (Col.), (D. C, D. N. J. 1913) 203 Fed. 876. 96A corporation organized for the purpose of con- ducting a military school for profit, the stock of which is owned entirely by the officers, directors, and teachers of the institution, is not exempt from in- come tax as an educational institution, no part of the net earnings of which inures to the benefit of any private stockholder or individual, within the meaning of Sec. 231, Par.. 6, Act of 1918. Kempqr Act of 1916. tem or for the exclusive benefit of the members of a fraternity itself operating under the lodge system, and providing for the payment of life, sick, accident, or other benefits to the members of such society, order, or asso- ciation or their dependents; Fourth. Domestic building and loan association and coop- erative banks without capital stock organized and operated for mutual purposes and without profit ; Fifth. Cemetery company owned and operated exclusively for the benefit of its members; Sixth. Corporation or associa- tion organized and operated ex- clusively for religious, chari- table,98 scientific, or educational pjirposes, no part of the net in- come of which inures to the benefit of any private stock- holder or individual; EXEMPT CORPORATIONS Act of 1913. 171 Act of 1909. tem or for the exclusive benefit of the members of a fraternity itself operating under the lodge system, and providing for the payment of life, sick, accident, and other benefits to the mem- bers of such societies, orders, or associations and dependents of such members, nor to [d] domestic building and loan associations, nor to [e] cemetery companies, or- ganized and operated exclusively for the mutual benefit of their members, nor to [f] any corporation or asso- ciation organized and operated exclusively for religious, chari- table,99 scientific, or educational purposes, no part of the net in- come of which inures to the benefit of any private stock- holder or individual, nor to tem, and providing for the pay- ment of life, sick, accident, and other benefits to the members of such societies, orders, or asso- ciations, and dependents of such members, nor to [e] domestic building and loan associations,^^ organized and operated exclusively for the mutual benefit of their members, [d] nor to any corporation or association organized and op- erated exclusively for religious, charitable or educational pur- poses, no part of the net income of which inures to the benefit of any private stockholder or individual. "JO Military School v. Crutchley, (D. C, W. D. Mo., W. D. 1921) 274 Fed. 125. 97 The word "private" in Sec. 231, Act of 1918, is used as the antonym of "public," a private stock- holder as distinguished from the general public. Pri- vate pecuniary profit and gain is the test to be ap- plied. Kemper Military School v. Crutchley, (D. C, W. D. Mo., W. D. 1921) 274 Fed. 125. 88 Income received by a trustee, which at the end of the trust is payable to an exempt charitable in- stitution, is not required to be returned by the trustee under the Act of 1916. Lederer (Col.) v. Stockton, (C. C. A., Third Cir. 1920) 266 Fed. 676, affirming Id., (D. C, E. D. Penn. 1919) 262 Fed. 173. 99 Income received by a trustee, which at the end of the trust was payable to an exempt charitable in- stitution, was not required to be returned by the trustee under the Act of 1913. Lederer (Col.) v. Stockton, (C. C. A., Third Cir. 1920) 266 Fed. 676, affirming Id., (D. C, E. D. Penn. 1919) 262 Fed. 173. 109 The expression "no part of the net income of which inures to j the benefit of any private stock- holder or individual" found in Sec. 38, Act of 1909, applies as a limitation only to the class of corpora- tions "organized and operated exclusively for relig- ious, charitable, or educational purposes." Herold (Col.) V. Park View Bldg. and Loan Assn., (C. C. A., Third Cir. 1914) 210 Fed. 577. 172 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. benefit of any private stock- holder or individual; (7) Business leagues, cham- bers of commerce, or boards of trade, not organized for profit and no part of the net earnings of which inures to the benefit of any private stockholder or indi- vidual ; (8) Civic leagues or organiza- tions not organized for profit but operated exclusively for the promotion of social welfare ; (9) Clubs organized and oper- ated exclusively for pleasure, recreation, and other nonprofita- ble purposes, no part of the net earnings of which inures to the benefit of any private stock- holder or member ; (10) Farmers' or other mu- tual hail, cyclone, or fire insur ance companies, mutual ditch or irrigation companies, mutual or cooperative telephone compa- nies, or like organizations of a purely local character, the in- come of which consists solely of assessments, dues, and fees col- lected from members for the sole purpose of meeting expenses ; (11) Farmers', fruit grow- ers', or like associations, organ- ized and operated as sales agents for the purpose of marketing the products of members and turn- ing back to them the proceeds of sales, less the necessary selling expenses, on the basis of the quantity of produce furnished by them ; or organized and oper- ated as purchasing agents for the purpose of purchasing sup- plies and equipment for the use of members and turning over such supplies and equipment to such members at actual cost, plus necessary expenses; (12) Corporations organized for the exclusive purpose of holding title to property, collect- ing income therefrom, and turn- ing over the entire amount thereof, less expenses, to an or- ganization which itself is exempt from the tax imposed by this title J (7) Business leagues, cham- bers of commerce, or boards of trade, not organized for profit and no part of the net earnings of which inures to the benefit of any private stocklaolder or individual ; (8) Civic leagues or organiza- tions not organized for profit but operated exclusively for the pro- motion of social welfare ; (9) Clubs organized and oper- ated exclusively for pleasure, recreation, and other nonprofita- ble purposes, no part of the net earnings of which inures to the benefit of any private stock- holder or member; (10) Farmers' or other mu- tual hail, cyclone, or fire insur- ance companies, mutual ditch or irrigation companies, mutual or co-operative telephone companies or like organizations of a purely local character, the income of which consists solely of assess- ments, dues, and fees collected from members for the sole pur- pose of meeting expenses; (11) Farmers', fruit growers', or like associations, organized and operated as. sales agents for the purpose of marketing the products of members and turn- ing back to them the proceeds of sales, less the necessary selling expenses, on the basis of the quantity of produce furnished by them; (12) Corporations organized for the exclusive purpose of holding title to property, collect- ing income therefrom, and turn- ing over the entire amount thereof, less expenses, to an or- ganization which itself is exempt from the tax imposed by this title ; Seventh. Business league, chamber of commerce, or board of trade, not organized for profit and no part of the net income of which inures to the benefit of any private stocltholder or indi- vidual ; Eighth. Civic league or organ- ization not organized for profit but operated exclusively for the promotion of social welfare ; Ninth. Club organized and operated exclusively for pleas- ure, recreation, and other non- profitable purposes, no part of the net income of which inures to the benefit of any private stockholder or member; Tenth. Farmers' or other mu- tual hail, cyclone, or fire insur- ance company, mutual ditch or irrigation company, mutual or cooperative telephone company, or like organization of a purely local character, the income of which consists solely- of assess- ments, dues, and fees collected from members for the sole pur- pose of meeting its expenses; Eleventh. Farmers', fruit growers', or like association, or- ganized and operated as a sales agent for the purpose of market- ing the products of its members and turning back to them the proceeds of sales, less the ne,ces- sary selling expenses, on the basis of the quantity of produce furnished by them ; Twelfth. Corporation or asso- ciation organized for the exclu- sive purpose of holding title to property, collecting income therefrom, and turning over the entire amount thereof, less ex- penses, to an organization which itself is exempt from the tax im- posed by this title ; or Act of 1916. EXEiMPT CORPORATIONS Act of 1913. 173 Act of 1909. Seventh. Business league, chamber of commerce, or board of trade, not organized for prof- it and no part of the net income of which inures to the benefit of any private stockholder or in- dividual ; Eighth. Civic league or or- ganization not organized for profit but operated exclusively for the promotion of social wel- fare; Ninth. Club organized and operated exclusively for pleas- ure, recreation, and other non- profitable purposes, no part of the net income of which inures to the benefit of any private stockholder or member ; Tenth. Farmers' or other mutual hail, cyclone, or fire in- surance company, mutual ditch or irrigation company, mutual or cooperative telephone com- pany, or like organization of a purely local character, the in- come of which consists solely of assessments, dues, and fees col- lected from members for the sole purpose of meeting its ex- penses ; Eleventh. Farmers', fruit growers', or like association, or- ganized and operated as a sales agent for the purpose of mar- keting the products of its mem- bers and turning back to them the proceeds of sales, less the necessary selling expenses, on the basis of the quantity of produce furnished by them ; Twelfth. Corporation or asso- ciation organized for the exclu- sive purpose of holding title to property, collecting income thprefrom, and turning over the entire amount thereof, less ex- penses, to an organization which itself is exempt from the tax im- posed by this title ; or [g] business leagues, nor to chambers of commerce or boards of trade, not organized for prof- it or no part of the net income of which inures to the benefit of the private stockholder or indi- vidual; nor to any [h] civic league or organiza- tion not organized for profit, but operated exclusively for the pro- motion of social welfare ; 174 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. (13) Federal land banks and national farm-loan associations as provided in section 26 of the Act approved July 17, 1916, en- titled "An Act to provide capi- tal for agricultural development, to create standard forms of in- vestment based upon farm mort- gage, to equalize rates of inter- est upon farm loans, to furnish a market for United States bonds, to create Government de- positaries and financial agents for the United States, and for other purposes"; (14) Personal service corpo- rations. This subdivision shall not be in effect after December 31, 1921. NET INCOME OF COEPOEATIONS DEFINED. Sec. 232. That in the case of a corporation subject to the tax imposed by section 230 the term "net income" means the gross income as defined in section 233 less the deductions allowed by section 234, and the net income shall be computed on the same basis as is provided in subdivi- sion (b) of section 212 or in sec- tion 226. In the case of a for- eign corporation or of a corpora- tion entitled to the benefits of section 262 the computation shall also be made in the manner pro- vided in section 217. GROSS INCOME OF CORPORATIONS DEFINED. Sec. 233. (a) [1] That in the case of a corporation subject to the tax imposed by section 230 the term "gross income" means the gross income as defined in sections 213 and 217, except that Sec. 233. (a) [2], p. 192. Sec. 233. (b), p. 160. (13) Federal land banks and national farm-loan associations as provided in section 26 of the act approved July 17, 1916, en- titled "An Act to provide capi- tal for agricultural development, to create standard forms of in- vestment based upon farm mort- gage, to equalize rates of interest upon farm loans, to furnish a market for United States bonds, to create Government deposita- ries and financial agents for the United States, and for other pur- poses"; (14) Personal service corpora- tions. NET INCOME DEFINED. Sec. 232. That in the case of a corporation subject to the tax imposed by section 230 the term "net income" means the gross income as defined in section 233 less the deductions allowed by section 234, and the net income shall be computed on the same basis as is provided in subdivi- sion (b) of section 212 or in sec- tion 226. GROSS INCOME DEFINED. Sec. 233. (a) That in the ease of a corporation subject to the tax imposed by section 230 the term "gross income" means the gross income as defined in sec- tion 213, except that: Sec. 233. (a) (1), p. 190; Sec. 233. (a) (2), p. 192; Sec. 233. (b), p. 160. Thirteenth. Federal land banks and national farm-loan associa- tions as provided in section twenty-six of the Act approved July seventeenth, nineteen hun- dred and sixteen, entitled "An Act to provide capital for agri- cultural development, to create standard forms of investment based upon farm mortgage, to equalize rates of interest upon farm loans, to furnish a market for United States bonds, to cre- ate Government depositaries and financial agents for the United States, and for other purposes. ' ' Fourteenth. Joint stock land banks as to income derived from bonds or debentures of other joint stock land banks or any Federal land bank belonging to such joint stock land bank. Sec. 25.101 That income on which has been assessed the tax imposed by Section II of the Act entitled "An Act to reduce tariff duties and to provide rev- enue for the Government, and for other purposes," approved October third, nineteen hundred and thirteen, shall not be con- sidered as income within the meaning of this title : Provided, That this section shall not con- flict with that portion of section ten, of this title, under which a taxpayer has fixed its own fiscal year. 101 Title I, Part III, Act of 1916. INCOME OF CORPORATIONS DEFINED Act of 1916. Act of 1913. Act of 1909. 175 Thirteenth. Federal land banks and national farm-loan as- sociations as provided in section twenty-six of the Act approved July seventeenth, nineteen hun- dred and sixteen, entitled "An Act to provide capital for agri- cultural development, to create standard forms of investment based upon farm mortgage, to equalize rates of interest upon farm loans, to furnish a market for United States bonds, to create Government depositaries and financial agents for the United States, and for other purposes. ' ' Fourteenth. Joint stock land banks as to income derived from bonds or debentures of other joint stock land banks or any Federal land bank belonging to such joint stock land bank. Sec. 25.101 That income on which has been assessed the tax imposed by Section II of the Act entitled ' ' An Act to reduce tariff duties and to provide revenue for the Government, and for other purposes, ' ' approved Octo- ber third, nineteen hundred and thirteen, shall not be considered as income within the meaning of this title: Provided, That this section shall not conflict with that portion of section ten, of this title, under which a tax- payer has fixed its own fiscal year. 176 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. DEDUCTIONS ALLOWED CORPOEA- TIONS. Sec. 234. (a) That in comput- ing the net income of a corpora- tion subject to the tax imposed by section 230 there shall be al- lowed as deductions : (1) All the ordinary and nec- DEDUCTIONS ALLOWED. Sec. 234. (a) That in comput- ing the net income of a corpora- tion subject to the tax imposed by section 230 there shall be al- lowed as deductions : 102 (1) All the ordinary and nec- DEDUCTIONS. Sec. 12. (a) In the case of a corporation, joint-stock com- pany or association, or insurance company, organized in the United States, such net income shall be ascertained by deduct- ing from the gross amount of its income received within the year from all sources — First. All the ordinary and 1*2 In a suit in court, a taxpayer cannot claim for the first time as a deductible expense an item which it did not claim in its return or present to the Com- missioner in its claim for refund. Kemper Military- School V. Crutchley, (D. C, W. D. Mo., W. D. 1921) 274 Fed. 125. 108 Income "accrued" but not "received" was not taxable to corporations under the Act of 1913. Maryland Casualty Co. v. U. S., (1920) 251 U. S. 342, affirming Id., (1917) 52 Ct. CI. 201; U. S. v. Christine Oil and Gas Co., (D. C, W. D. La. 1920) 269 Fed. 458. 104(a) Sec. 38, Act of 1909, taxed income whicn had been "received," but did not tax Income which had "accrued" merely. Mutual Benefit Life Ins. Co. V. Herold (Col.), (D. C, D. N. J. 1912) 198 Fed. 199; Conn. Gen. Life Ins. Co. v. Eaton (Col.), (D. C, D. Conn. 1914) 218 Fed. 188; Conn. Mutual Life Ins. Co. v. Eaton (Col.), (D. C, D. Conn. 1914) 218 Fed. 206; Ins. Co. of N. A. v. McCoach (Col.), (D. C, E. D. Penn. 1914) 218 Fed. 905; Lumber Mutual Fire Ins. Co. V. Malley (Col.), (D. C, Mass. 1916) 256 Fed. 380; Fink (Col.) v. Northwestern Mutual Life Ins. Co., (C. C. A., Seventh Cir. 1920) 267 Fed. 968, affirming Id., (D. C, E. D. Wise. 1917) 248 Fed. 568; Maryland Casualty Co. v. U. S., (1920) 251 U. S. 342, affirming Id., (1917) 52 Ct. CI. 201; Walker (Col.) v. Gulf & I. Ry. Co., (C. C. A., Fifth Cir. 1921) 269 Fed. 885. 104(b) As used in Sec. 38, Act of 1909, "'income' may be defined as the gain derived from capital or from labor, or from both combined." Conn. General Life Ins. Co. v. Eaton (Col.), (D. C, D. Conn. 1914) 218 Fed. 188. 104(c) The term "income" used in the Act of 1909, has the same meaning that it had in prior laws im- posing a tax on income Cleveland C, C. & St. L. Ry. Co. v. U. S., (C. C. A.. Sixth Cir. 1917) 242 Fed. 18. 104(d) Where a corporation was "doing business" a part of the year, the measure of the tax under Sec. 38, Act of 1909, was the net income received during the entire year, including income received after it discontinued business. Blalock (Col.) v. Georgia Ry. & Electric Co., (C. C. A., Fifth Cir. 1916) 228 Fed. '296. 104(e) Money paid by consumers of water to a public utility corporation for service connections and pipe extensions were a part of its gross income un- der Sec. 38, Act of 1909. Union Hollywood Water Co. V. Carter (Col.), (C. C. A., Ninth Cir. 1917) 238 Fed. 329. 104(f) Where a corporation rented its property to a lessee, and the latter (1) paid the rental directly to the stockholders of the lessor, or (2) paid the in- terest on outstanding bonds of the lessor directly to the mortgagor, such payments were income to the lessor under Sec. 38, Act of 1909. Blalock (Col.) v. Georgia Ry. & Electric Co., (C. C. A., Fifth Cir. 1917) 246 Fed. 387; Houston Belt & Terminal Ry. Co. V. U. S., (C. C. A., Fifth Cir. 1918) 250 Fed. 1. 104 (g) Payments made by a lessee to a lessor at a certain rate per ton for ore removed were royalties or rentals, and, hence, income to the lessor under Sec. 38, Act of 1909. Von Baumbach (Col.) v. Sar- gent Land Co. et al., (1917) 242 U. S. 603, reversing Id., (C. C. A., Eighth Cir. 1914) 219 Fed. 31, and Id., (D. C, D. Minn. 1913) 207 Fed. 423, which held that the transaction amounted to a sale of capital assets and that the profit therefrom was not in- come. 104(h) Under Sec 38, Act of 1909, the measure of returnable income realized from the sale of capi- tal assets acquired prior to Jan. 1, 1909, was the difference between the selling price and the fair market value thereof on said date. Hays (Col.) v. Gauley Mountain Coal Co., (1918) 247 U. S. 189; U. S. V. Cleveland C. C. & St. L. R. Co., (1918) 247 U. S. 195, affirming Id., (C. C. A., Sixth Cir. 1917) 242 Fed. 18; Doyle (Col.) v. Mitchell Bros. Co., (1918) 247 U. S. 179, affirming Id., (C. C. A., Sixth Cir. 1916) 235 Fed. 686, and Id., (D. C. W. D. Mich S. D. 1915) 225 Fed. 437; Great Northern Ry. Co. V. Lynch (Col.), (D. C, D. Minn. 1921) — Fed. — . DEDUCTIONS ALLOWED CORPORATIONS 177 Act of 1916. Act of 1913. Act of 1909. DEDUCTIONS. Sec. 12. (a) In the case of a corporation, joint-stock com- pany or association, or insurance company, organized in the United States, such net income shall be ascertained by deducting from the gross amount of its in- come received within the year from all sources — First. All the ordinary and G. (b) [1] Such net incomeios shall be ascertained by de- ducting from the gross amount of the income of such corpora- tion, joint-stock company or as- sociation, or insurance company, received within the year from all sources, G. (b) [2], (first) all the or- NET INCOME — HOW DETERMINED. SECOND. [1] Such net in- come shall be ascertained by de- ducting from the gross amount of the income ^9* of such corpo- ration, joint-stock company or association, or insurance com- pany, received within the year from all sources, [2] (first) all the ordinary 10* (i) Under Sec. 38, Act of 1909, a corporation which derived a profit from the sale of capital as- sets owned for a number of years was ■ required to return as income, in the year received, the amount of such gain that accrued subsequent to Jan. 1, 1909. Doyle (Col.) v. Mitchell Bros. Co., (1918) 247 U. S. 179, affirming Id., (C C. A., Sixth Cir. 1916) 235 Fed. 686, and Id., (D. C, W. D. Mich., S. D. 1915) 225 Fed. 437; Hays (Col.) v. Gauley Mountain Coal Co., (1918) 247 U. S. 189, reversing Id., (C. C. A., Fourth Cir. 1915) 230 Fed. 110; Cleve- land C. C. & St. L. R. Co., V. U. S., (1918) 247 U. S. 195, aflHrming Id., (C. C. A., Sixth Cir. 1917) 242 Fed. 18; Scott (Col.) v. Schwab, (C. C. A., Ninth Cir. 1919) 255 Fed. 57. 10* (j) Although the amount of interest deductible from gross income as an expense was limited under Sec. 38, Act of 1909, all interest received was a part of the gross income. Altheimer & Rawlins Inv. Co. V. Allen (Col.), (C. C. A., Eighth Cir. 1918) 248 Fed. 688, affirming Id., (D. C, E. D. Mo., E. D. 1917) 246 Fed. 270, Certiorari denied, (1918) 248 U. S. 578. 10* (k) In determining net income received as gain from the sale of property, interest on investment may not be added to purchase price to obtain cost. Hays (Col.) v. Gauley Mountain Coal Co., (1918) 247 U. S. 189. 101(1) Under Sec. 38, Act of 1909, dividends de- clared subsequently to Jan. 1, 1909, and based on earnings made prior to that date, are income to the stockholder in the year received. U. S. v. Phila- delphia B. & W. R. Co., (D. C, E. D. Penn. 1920) 262 Fed. 188. 10* (m) Obligations of the taxpayer which accrued prior to Jan. 1, 1909, and on becoming outlawed in 1910, were entered on its books as a profit, were re- quired to be returned as income, in the year written oflf, under the Act of 1909. Great Northern Ry. Co- V. Lynch (Col.), (D. C, D. Minn. 1921) — Fed. — . 10* (n) Where a corporation purchased stock in 1899 for $300,000, entered the same on its books in 1908 for $75,000, and in 1909 sold the same for $95,000, the difference of $20,000 was income re- quired to be returned under the Act of 1909. Great Northern Ry. Co. v. Lynch (Col.), (D. C, D. Minn. 1921) — Fed. — . 10* (o) Appreciation in value of assets which were not disposed of did not represent income under Sec. 38, Act of 1909, although the corporation made such an adjustment on its books. McCoach (Col.) v. Baldwin Locomotive Works, (C. C. A., Third Cir. 1915) 221 Fed. 59, affirming Id., (D. C, E. D. Penn. 1914) 215 Fed. 967; Industrial Trust Co. v. Walsh (Col.), (D. C, D. Conn. 1915) 222 Fed. 437. The basis of the decision in the last case seemed to be the fact that the appreciation accrued over a period of years, and that the taxpayer was not a trader. 10* (p) In determining income under Sec. 38, Act of 1909, a corporation was permitted to show that the book value did not represent the actual value of assets sold. U. S. v. Guggenheim Exploration Co., (D. C, S. D. N. Y. 1917) 238 Fed. 231. 10* (q) Debts released to a corporation by its stockholders are capital contributions and not in- come to the corporation under Sec. 38, Act of 1909. U. S. V. Oregon-Washington R. & Nav. Co., (C. C. A., Second Cir. 1918) 251 Fed. 211. 10* (r) A corporation pursuant to a scheme of re- capitalization, organized another corporation, con- veyed all of its assets to the new corporation, receiv- ing therefor all the stock of the new corporation, except directors' qualifying shares, of greater par value than it originally paid for the assets. It for- mally valued them at par, and distributed them among its own stockholders, immediately effecting a merger between the two corporations. There was no income under Sec. 38, Act of 1909. Alpha Port- land Cement Co. v. U. S., (C. C. A., Third Cir. 1919) 261 Fed. 339. 10* (s) Stock dividends were not a part of the gross income of the stockholders under Sec. 38, Act of 1909. U. S. V. Philadelphia B. & W. R. Co., (D. C, E. D. Penn. 1920) 262 Fed. 188. 178 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. essary expenses paid or incurred during the taxable year in car- rying on any trade or business, including a reasonable allowance for salaries or other compensa- tion for personal services actual- ly rendered, and including ren- tals or other payments required to be made as a condition to the continued use or possession of property to which the corpora- tion has not taken or is not tak- ing title, or in which it has no equity ; (2) All interest paid or ac- crued within the taxable year on its indebtedness, except on in- debtedness incurred or con- tinued to purchase or carry ob- ligations or securities (other than obligations of the United States issued after September 24, 1917, and originally sub- scribed for by the taxpayer) the interest upon which is wholly exempt from taxation under this title ; essary expenses paid or incurred during the taxable year in carry- ing on any trade or business, in- cluding a reasonable allowance for salaries or other compensa- tion for personal services ac- tually rendered, and including rentals or other payments re- quired to be made as a condition to the continued use or posses- sion of property to which the corporation has not taken or is not taking title, or in which it has no equity; (2) All interest paid or ac- crued within the taxable year on its indebtedness, except on in- debtedness incurred or continued to purchase or carry obligations or securities (other than obliga- tions of the United States issued after September 24, 1917) the interest upon which is wholly ex- empt from taxation under this title as income to the taxpayer, or, in the case of a foreign cor- poration, the proportion of such necessary expenses paid within the year in the maintenance and operation of its business and properties, including rentals or other payments required to be made as a condition to the con- tinued use or possession of prop- erty to which the corporation has not taken or is not taking title, or in which it has no equity. Sec. 1207. [1] (1)1 That paragraphs third and fourth of subdivision (a) of section twelve of such Act of September eighth, nineteen hundred and sixteen, are hereby amended to read as follows : "Third. The amount of inter- est paid within the year on its indebtedness (except on in- debtedness incurred for the pur- chase of obligations or securities the interest upon which is ex- 1 Title I, Part 11, Act of 1916, as amended by Sec. 1207 (1), Title XII, Act of 1917. 106(a) Ordinary annual replacement of furni- ture and office equipment was deductible as "ordi- nary and necessary expenses'' under Sec. 38, Act of 1909. Mutual Benefit Life Ins. Co. v. Herold (Col.), (D. C, D. N. J. 1912) 198 Fed. 199. 105(1)) Payments made by a corporation on the basis of stockholdings to its stockholding officers, not being compensation for services rendered, were not deductible as "ordinary and necessary expenses" un- der Sec. 38, Act of 1909. Jacobs & Davies, Inc. v. Anderson (Col.), (C. C. A., Second Cir. 1915) 228 Fed. 505. 106(c) Under Sec. 38, Act of 1909, "maintenance means the upkeep or preserving the condition of the property to be operated" and "includes the cost of ordinary repairs necessary and proper from time to time for that purpose." San Francisco & P. S. S. Co. V. Scott (Col.), (D. C, N. D. Cal., S. D. 1918) 253 Fed. 854. 106(d) An amount fixed by the board of directors as salary is presumptively valid as "ordinary and necessary expenses" under Sec. 38, Act of 1909; and while the Government can not say that such amount is too large as salary, it can show that all or a por- tion thereof is not salary at all, but that it is in fact profits diverted to a stockholding oflicer under the guise of salary. U. S. v. Philadelphia Knitting Mills Co., (C. C. A., Third Cir. 1921) 273 Fed. 657, affirm- ing Id., (D. C, E. D. Penn. 1920) 268 Fed. 270, on the principle of law involved, but reversing judg- ment on its application to the evidence adduced. 106(e) Under Sec. 38, Act of 1909, bad debts charged off and contributions to charity were not "ordinary and necessary expenses" actually "paid within the year." Neither were they specifically mentioned in the statute as otherwise deductible. Bq,ldwin Locomotive Works v. McCoach (Col.), (D. C, E. D. Penn. 1914) 215 Fed. 967. los(f) Amounts expended by a corporation in en- larging or making improvements in its offices or premises, not in the nature of permanent improve- ments to the property but merely to facilitate the transaction of growing business, were deductible as "ordinary and necessary expenses" under Sec. 38, Act of 1909. Conn. Mutual Life Ins. Co. v. Eaton (Col.), (D. C, D. Conn. 1914) 218 Fed. 206. 106(g) Sums expended on additions and better- ments are capital expenditures, and, hence, not de- ductible as an "ordinary and necessary expense," under Sec. 38, Act of 1909. Grand Rapids & I. Ry. Co. V. Doyle (Col.), (D. C, W. D. Mich., S. D. 1915) 246 Fed. 792. 106(h) Money expended by a public utility cor- poration for service connections and pipe extensions, although not permitted to be included in the valua- tion of the company's plant under the regulations DEDUCTIONS ALLOWED CORPORATIONS Act of 1916. Act of 1913. Act of 1909. 179 necessary expenses paid within the year in the maintenance and operation of its business and properties, including rentals or other payments required to be made as a condition to the con- tinued use or possession of prop- erty to which the corporation has not taken or is not taking title, or in which it has no equity ; Third. The amount of inter- est paid within the year on its indebtedness to an amount of such indebtedness not in excess of the sum of (a) the entire amount of the paid-up capital stock outstanding at the close of the year, or, if no capital stock, the entire amount of capital em- ployed in the business at the close of the year, and (b) one- half of its interest-bearing in- debtedness then outstanding : dinary and necessary expenses paid within the year in the maintenance and operation of its business and properties, in- cluding rentals or other pay- ments required to be made as a condition to the continued use or possession of property; G. (b) [4], (third) the amount of interest^06accruedand paid within the year on its in- debtedness to an amount of such indebtedness not exceeding one- half of the sum of its interest bearing indebtedness and its paid-up capital stock outstand- ing at the close of the year, or if no capital stock, the amount of interest paid within the year on an amount of its indebted- ness not exceeding the amount and necessary expenses ^05 ac- tually paid within the year out of income in the maintenance and operation of its business and properties, including all charges such as rentals or fran- chise payments, required to be made as a condition to the con- tinued use or possession of prop- erty; [4] (third) interest ">7 ac- tually paid within the year on its bonded or other indebted- ness to an amount of such bonded or other indebtedness not exceeding the paid-up capi- tal stock of such corporation, joint-stock company or associa- tion, or insurance company, outstanding at the close of the year, and in the case of a bank, banking association or trust company, all interest actually of the Railroad Commission of the State, were capi- tal expenditures, and hence, not deductible as "ordi- nary and necessary expenses" under Sec. 38, Act of 1909. Union Hollywood Water Co. v. Carter (Col.), (C. C. A., Ninth Cir. 1917) 238 Fed. 329. 105 (i) Money advanced by one corporation to an- other which it organized and controlled is not de- ductible as "ordinary and necessary expenses," un- der Sec. 38, Act of 1909. Walker (Col.) v. Gulf & I. Ry. Co., (C. C. A., Fifth Cir. 1921) 269 Fed. 885. 106 The limitation on the amount of interest de- ductible from gross income of corporations in the Act of 1913 did not render the Act wanting in "due propess of law." Brushaber v. U. P. R. R. Co., (1916) 240 U. S. 1; Tyee Realty Co. v. Anderson, (1916) 240 U. S. 115. 107(a) The limitation placed upon the amount of interest deductible under Sec. 38, Act of 1909, was not repugnant to the Constitution. Anderson (Col.) V. Forty-two Broadway, (1915) 239 U. S. 69. I0'''(b) Where the indebtedness of a corporation was in excess of the paid-up capital stock, interest paid on such excess was not deductible as an "ordi- nary and necessary" expense under Sec. 38, Act of 1909. Anderson (Col.) v. Forty-two Broadway, (1915) 239 U. S. 69, reversing Id., (C. C. A., Second Cir. 1914) 213 Fed. 777, and Id., (D. C, S. D. N. Y. 1913) 209 Fed. 991; Altheimer & Rawlins Inv. Co. V. Allen (Col.), (C. C. A., Eighth Cir. 1918) 248 Fed. 688, affirming Id., (D. C, E. D. Mo., E. D. 1917) 246 Fed. 270, Certiorari denied, (1918) 248 U. S. 578; Associated Pipe Line Co. v. U. S., (C. C. A., Ninth Cir. 1919) 258 Fed. 800. I0''(c) A corporation sold bonds at a discount which matured in thirty-one years. It was not per- mitted to pro-rate the discount over two years, and then deduct the pro-rated amounts from the gross income of said respective years under Sec. 38, Act of 1909. It did not represent "expenses actually paid" within the taxable year. Baldwin Locomotive Works V. McCoach (Col.), (C. C. A., Third Cir. 1915) 221 Fed. 59, afftrming Id., (D. C, E. D. Penn. 1914) 215 Fed. 967. 107 (d) Amortization of bond discount was not de- ductible under Sec. 38, Act of 1909. It did not rep- resent a "loss sustained" or "interest paid" within the taxable year. Southern Pacific R. R. Co. v. Muenter, (C. C. A., Ninth Cir. 1919) 260 Fed. 837. lO'i'(e) The interest deductible under Sec. 38, Act of 1909, is the interest on an amount of indebted- ness equivalent to the paid-up capital stock, par value, although the stock was sold at a premium. Boston & M. R. R. v. U. S., (C. C. A., First Cir. 1920) 265 Fed. 578; N. Y., N. H. & H. R. R. Co. v. U. S., (C. C. A., Second Cir. 1920) 269 Fed. 907, affirming Id., (D. C, D. Conn. 1919) 265 Fed. 331. 180 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. interest which the amount of its gross income from sources within the United States bears to the amount of its gross income from all sources within and without the United States ; empt from taxation as income under this title) to an amount of such indebtedness not in excess of the sum of (a) the entire amount of the paid-up capital stock outstanding at the close of the year, or, if no capital stock, the entire amount of capital em- ployed in the business at the close of the year, and (b) one- half of its interest-bearing in- debtedness then ou.tstanding : Provided, That for the purpose of this title preferred capital stock shall not be considered in- terest-bearing indebtedness, and interest or dividends paid upon this stock shall not be deductible from gross income: Provided further, That in cases wherein shares of capital stock are issued without par or nominal value, the amount of paid-up capital stock, within the meaning of this section, as represented by such shares, will be the amount of cash, or its equivalent, paid or transferred to the corporation as a consideration for such shares : Provided further, That in the case of indebtedness wholly se- cured by property collateral, tangible or intangible, the sub- ject of sale or hypothecation in the ordinary business of such corporation, joint-stock company or association as a dealer only in the property constituting such collateral, or in loaning the funds thereby procured, the to- tal interest paid by such cor- poration, company, or associa- tion within the year on any such indebtedness may be deducted as a part of its expenses of doing business, but interest on such in- debtedness shall only be deducti- ble on an amount of such in- debtedness not in excess of the actual value of such property collateral : Provided further, That in the case of bonds or other indebtedness, which have been issued with a guaranty that 108 Interest paid by a banking corporation on de- benture bonds issued by it was not deductible as interest paid "on deposits" under Sec. 38, Act of 1909. Middlesex Banking Co. v. Eaton (CcJ.), (C. DEDUCTIONS ALLOWED CORPORATIONS 181 Act of 1916. Act of 1913. Act of 1909. Provided, That for the purpose of this title preferred capital stock shall not be considered in- terest-bearing indebtedness, and interest or dividends paid upon this stock shall not be deductible from gross income: Provided further, That in cases wherein shares of capital stock are is- sued without par or nominal value, the amount of paid-up capital stock, within the mean- ing of this section, as repre- sented by such shares, will be the amount of cash, or its equiva- lent, paid or transferred to the corporation as a consideration for such shares: Provided further. That in the case of in- debtedness wholly secured by property collateral, tangible or intangible, the subject of sale or hypothecation in the ordinary business of such corporation, joint-stock company or associa- tion as a dealer only in the prop- erty constituting such collateral, or in loaning the funds thereby procured, the total interest paid by such corporation, company, or association within the year on any such indebtedness may be deducted as a part of its ex- penses of doing business, but in- terest on such indebtedness shall only be deductible on an amount of such indebtedness not in ex- cess of the actual value of such property collateral : Provided further, That in the case of bonds or other indebtedness, which have been issued with a guaranty that the interest pay- able thereon shall be free from taxation, no deduction for the payment of the tax herein im- posed, or any other tax paid pur- suant to such guaranty, shall be allowed; and in the case of a bank, banking association, loan or trust company, interest paid within the year on deposits or on moneys received for invest- ment and secured by interest- of capital employed in the busi- ness at the close of the year: Provided, That in case of in- debtedness wholly secured by collateral the subject of sale in ordinary business of such cor- poration, joint-stock company, or association, the total interest secured and paid by such com- pany, corporation, or association within the year on any such in- debtedness may be deducted as a part of its expense of doing business : Provided further. That in the case of bonds or other in- debtedness, which have been is- sued with a guaranty that the interest payable thereon shall be free from taxation, no deduc- tion for the payment of the tax herein imposed shall be allowed ; and in the case of a bank, bank- ing association, loan, or trust company, interest paid within the year on deposits or on moneys received for investment and secured by interest-bearing certificates of indebtedness is- sued by such bank, banking as- sociation, loan or trust com- pany; paid by it within the year on deposits ; 108 C. A., Second Cir. 1916) 233 Fed. 87, affirming Id., (D. C, D. Conn. 1915) 221 Fed. 86. 182 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. (3) Taxes paid or accrued within the taxable year except (a) income, war -profits, and ex- cess-profits taxes imposed by the authority of the United States. (b) so much of the income, war- profits and excess-profits taxes imposed by the authority of any foreign country or possession of the United States as is allowed as a credit under section 238, and (c) taxes assessed against local benefits of a kind tending to increase the value of the property assessed. In the case of obligors specified in subdivi- sion (b) of section 221 no deduc- tion for the payment of the tax imposed by this title, or any other ,tax paid pursuant to the contract or provision referred to in that subdivision, shall be al- lowed, nor shall such tax be in- cluded in the gross income 'of the obligee. The deduction al- lowed by this paragraph shall be allowed in the case of taxes im- posed upon a shareholder or member of a corporation upon his interest as shareholder or member, which are paid by the corporation without reimburse- ment from the shareholder or member, but in such cases no de- duction shall be allowed the (3) Taxes pa,id or accrued within the taxable year imposed (a) by the authority of the United States, except income, war-profits and excess-profits taxes; or (b) by the authority of any of its possessions, except the amount of income, war-profits and excess-profits taxes allowed as a credit under section 238 ; or (c) by the authority of any State or Territory, or any county, school district, municipality, or other taxing subdivision of any State or Territory, not including those assessed against local bene- fits of a kind tending to increase the value of the property as- sessed; or (d) in the case of a domestic corporation, by the au- thority of any foreign country, except the amount of income, war-profits and excess-profits taxes allowed as a credit under section 238; or (e) in the case of a foreign corporation, by the authority of any foreign coun- try (except income, war-profits and excess-profits taxes, and taxes assessed against local bene- fits of a kind tending to increase the value of the property as- sessed), upon the property or business: Provided, That in the ease of obligors specified in sub- the interest payable thereon shall be free from taxation, no deduction for the payment of the tax herein imposed, or any other tax paid pursuant to such guaranty, shall be allowed; and in the case of a bank, banking as- sociation, loan or trust company, interest paid within the year on deposits or on moneys received for investment and secured by interest-bearing certificates of indebtedness issued by such bank, banking association, loan or trust company shall be de- ducted ; "Foui'th. Taxes paid within the year imposed by the author- ity of the United States (except income and excess profits taxes), or of its Territories, or posses- sions, or any foreign country, or by the authority of any State, county, school district, or munici- pality, or other taxing subdivi- sion of any State, not including those assessed against local bene- fits." 109(a) State taxes assessed against shareholders but paid directly by the corporation in their behalf were not taxes imposed under the authority of a State against the corporation under Sec. 38, Act of 1909. Northern Trust Co. v. McCoach, (D. C, E. D. Penn. 1914) 215 Fed. 991; Eliot Nat'l Bank v. Gill (Col.), (C. C. A., First Cir. 1914) 218 Fed. 600, affirming Id., (D. C, D. Mass. 1913) 210 Fed. 933; National Bank of Commerce v. Allen (Col.), (C. C. A., Eighth Cir. 1915) 223 Fed. 472, affirming Id., DEDUCTIONS ALLOWED CORPORATIONS Act of 1916. Act of 1913. Act of 1909. 183 bearing certificates of indebted- ness issued by such bank, bank- ing association, loan or trust company ; Fourth. Taxes paid within the year imposed by the authority of the United States, or its Ter- ritories, or possessions, or any foreign country, or under the authority of any State, county, school district, or municipality, or other taxing subdivision of any State, not including those assessed against local benefits. G. (b) [5] (fourth) all sums paid by it within the year for taxes imposed under the au- thority of the United States or of any State or Territory there- of, or imposed by the Govern- ment of any foreign country : [5] (fourth) all sums paid by it within the year for taxes 109 imposed under the authority of the United States or of any State or Territory thereof, or imposed by the government of any foreign country as a condi- tion to carrying on business therein ; (D. C, E. D. Mo., E. D. 1914) 211 Fed. 743; First National Bank v. McNeil (Col.), (C. C. A., Fifth Cir. 1917) 238 Fed. 559. 109(b) Under Sec. 38, Act of 1909, a corporation, which owned stock of another corporation, was not entitled to deduct from its gross income, taxes paid on its stock in its behalf by the latter corporation, when it did not include such taxes in its gross in- come. U. S. V. Aetna Life Ins. Co., (D. C, D. Conn. 1919) 260 Fed. 333. 184 FEDERAL INCOME TAX LAWS Act of 1921. Act of 1918. Act of 1917. shareholder or member for the amount of such taxes. For the purpose of this paragraph, es- tate, inheritance, legacy, and succession taxes accrue on the due date thereof except as other- wise provided by the law of the jurisdiction imposing such taxes ; Sec. 234. (a) (4) Losses sus- tained during the taxable year and not compensated for by in- surance or otherwise; unless, in order to clearly reflect the in- come, the loss should in the opin- ion of the Commissioner be ac- counted for as of a different pe- riod. No deduction shall be al- lowed for any loss claimed to have been sustained in any sale or other disposition of shares of stock or securities riiade after the passage of this Act where it ap- pears that within 30 days before or after the date of such sale or. other disposition the taxpayer has acquired (otherwise than by bequest or inheritance) substan- tially identical property. And the property so acquired is held by the taxpayer for any period after such sale or other disposi- tion, unless such claim is made by a dealer in stock or securities and with respect to a transac- tion made in the ordinary course of its business. If such acquisi- tion is to the extent of part only of substantially identical prop- erty, then only a proportionate part of the loss shall be disal- lowed. In case of losses arising from destruction of or damage to property, where the property so destroyed or damaged was ac- quired before March 1, 1913, the deduction shall be computed upon the basis of its fair market price or value as of March 1, 1913: division (b) of section 221 no deduction for the payment of the tax imposed by this title or any other tax paid pursuant to the contract or provision referred to in that subdivision, shall be allowed ; Sec. 234. (a) (4) Losses sus- tained during the taxable year and not compensated for by in- surance or otherwise ; Sec. 12. (a) Second. [1] AU losses actually sustained and charged off within the year and not compensated by insurance or otherwise, including 110 Under Sec. 38, Act of 1909, a corporation which sustained a loss through the sale of capital assets was permitted to deduct the same from gross income. DEDUCTIONS ALLOWED CORPORATIONS 185 Act Of 1916. Act of 1913. Act of 1909. Sec. 12. (a) Second. [1] All losses actually sustained and charged off within the year and not compensated by insurance or otherwise, including G. (b) [3] [a] (second) all losses actually sustained within the year and not compensated, by insurance or otherwise, in- cluding Second. [3] (second) [a] all losses 1^0 actually sustained with- in the year and not compensated by insurance or otherwise, in- cluding Conn. Mutual Life Ins. Co. v. Eaton (CoL), (D. C, D. Conn. 1914) 218 Fed. 206. 186 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. (7) A reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence. In the case of such property ac- quired before March 1, 1913, this deduction shall be computed upon the basis of its fair mar- Itet price or value as of March 1, 1913 ; (9) In the case of mines, oil and gas wells, other natural de- posits, and timber, a reasonable allowance for depletion and for depreciation of improvements, according to the peculiar condi- tions in each case, based iipon cost including cost of develop- ment not otherwise deducted: Provided, That in the case of such properties acquired prior to March 1, 1913, the fair mar- ket value of the property (or the taxpayer's interest therein) on that date shall be taken in lieu of cost up to that date: Pro- vided further, That in the case of mines, oil and gas wells, dis- covered by the taxpayer, on or after March 1, 1913, and not ac- quired as the result of purchase of a proven tract or lease, where the fair market value of the property is materially dispro- portionate to the cost, the deple- tion allowance shall be based upon the fair market value of the property at the date of the discovery, or within thirty days thereafter: And provided fur- ther, That such depletion allow- ance based on discovery value (7) A reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obso- lescence : (9) In the case of mines, oil and gas wells, other natural de- posits, and timber, a reasonable allowance for depletion and for depreciation of improvements, according to the peculiar condi- tions in each case, based upon cost including cost of develop- ment not otherwise deducted: Provided, That in- the ease of such properties acquired prior to March 1, 1913, the fair mar- ket value of the property (or the taxpayer's interest therein) on that date shall be taken in lieu of cost up to that date: Pro- vided further. That in the case of mines, oil and gas wells, dis- covered by the taxpayer, on or after March 1, 1913, and not acquired as the result of pur- chase of a proven tract or lease, where the fair market value of the property is materially dis- proportionate to the cost, the de- pletion allowance shall be based upon the fair market value of the property at the date of the discovery, or within thirty days thereafter; such reasonable al- lowance in all the above cases to be made under rules and regu- [2] a reasonable allowance for the exhaustion, wear and tear of property arising out of its use or employment in the busi- ness or trade; [3] (a) In case of oil and gas wells a reasonable allowance for actual reduction in flow and pro- duction to be ascertained not by the flush flow, but by the settled production or regular flow; (b) in the case of mines a reasonable allowance for depletion thereof not to exceed the market value in the mine of the product there- of which has been mined and sold during the year for which the return and computation are made, such reasonable allowance to be made in the ease of both (a) and (b) under rules and regulations to be prescribed by the Secretary of the Treasury: Provided, That when the allow- ance authorized in (a) and (b) shall equal the capital originally invested, or in case of purchase made prior to March first, nine- teen hundred and thirteen, the fair market value as of that date, no further allowance shall be made; and 111 The provision in the Act of 1913 limiting min- ing companies to a deduction of 5 per cent of the gross value at the mine of the output for exhaustion, wear, and tear of their property was not without "due process of law," although other corporations and individuals were given a "reasonable allowance" therefor. Stanton v. Baltic Mining Co., (1916) 240 U. S. 103. 112 (a) Under Sec. 38, Act of 1909, "depreciation" is the lessening in value of property due to obsoles- cence, inadequacy, decay, gradual decline from nat- ural causes, and wear and tear, which cannot be overcome by ordinary current repairs. San Fran- cisco & P. S. S. Co. V. Scott (Col.), (D. C, N. D. Cal., S. D. 1918) 253 Fed. 854. 112(b) Exhaustion of ore through mining was not deductible as "depreciation" under Sec. 38, Act of 1909. Stratton's Independence Ltd. v. Howbert (Col.), (1913) 231 U. S. 399, affirming Id., (D. C, D. Colo. 1912) 207 Fed. 419; Von Baumbach (Col.) v. Sargent Land Co., (1917) 242 U. S. 503; U. S. v. Biwabik Mining Co., (1918) 247 U. S. 116, reversing Id., (C. C. A., Sixth Cir. 1917) 242 Fed. 9; Goldfleld Consolidated Mines Co. v. Scott (Col.), (1918) 247 U. S. 126; Camp Bird Ltd. v, Howbert (CoL), (C. C. A., Eighth Cir. 1919) 262 Fed. 114, Certiorari de- DEDUCTIONS ALLOWED CORPORATIONS Act of 1916. Act of 1913. Act of 1909. 187 [2] a reasonable allowance for the exhaustion, wear and tear of property arising out of its use or employment in the business or trade ; [3] (a) in the case of oil and gas wells a reasonable allowance for actual reduction in flow and production to be ascertained not by the flush flow, but by the set- tled production or regular flow ; (b) in the case of mines a rea- sonable allowance for depletion thereof not to exceed the market value in the mine of the product thereof which has been mined and sold during the year for which the return and computa- tion are made, such reasonable allowance to be made in the ease of both (a) and (b) under rules and regulations to be prescribed by the Secretary of the Treas- ury : Provded, That when the al- lowance authorized in (a) and (b) shall equal the capital origi- nally invested, or in case of pur- chase made prior to March first, nineteen hundred and thirteen, the fair market value as of that date, no further allowance shall be made ; and [b] a reasonable allowance for depreciation by use, wear and tear of property, if any ; and [c] in the case of mines a rea- sonable allowance for depletion of ores and all other natural de- posits, not to exceed 5 per cen- tum 111 of the gross value at the mine of the output for the year for which the computation is made; and [b] a reasonable allowance for depreciation 112 of property, if any, and nied, (1920) 252 U. S. 579. Contra: U. S. v. Nipis- sing Mines Co., (D. C, S. D. N. Y. 1912) 202 Fed. 803; Forty Fort Coal Co. v. Kirkendall (Col.), (D. C, M. D. Penn. 1915) 233 Fed. 704. 112(c) Amortization of premiums on bonds pur- chased was not deductible as "depreciation" under Sec. 38, Act of 1909. Fink (Col.) v. N. W. Mutual Life Ins. Co., (C. C. A., Seventh Cir. 1920) 267 Fed. 968. 112 (d) Under Sec. 38, Act of 1909, an insurance company, the greater portion of whose assets con- sisted of stock, bonds and other securities, was en- titled to a deduction of the amount of the market depreciation of such securities during the taxable year. New York Life Ins. Co. v. Anderson (Col.), (C. C. A., Second Cir. 1920) 263 Fed. 527, reversing Id., (D. C, S. D. N. Y. 1919) 262 Fed. 215. 112(e) The measure of depreciation of railroad property under Sec. 38, Act of 1909, is the differ- ence in the intrinsic value of the property as a whole at the beginning and end of the year; and the en- hanced value of parts through repairs and replace- ments should be set off against depreciation of other parts not repaired or replaced. Nashville, C. & St. L. Ry. Co. V. U. S., (C. C. A., Sixth Cir. 1920) 269 Fed. 351. 188 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. shall not exceed the net income, computed without allowance for depletion, from the property upon which the discovery is made, except where such net in- come so computed is less than the depletion allowance based on cost or fair market value as of March 1, 1913; such reasonable allowance in all the above cases to be made under rules and reg- ulations to be prescribed by the Commissioner with the approval of the Secretary. In the case of leases the deductions allowed by this paragraph shall be equita- bly apportioned between the lessor and lessee ; (10) In the case of insurance companies (other than life in- surance companies), in addition to the above (unless otherwise allowed) : (A) The net addition required by law to be made with- in the taxable year to reserve funds (including in the case of assessment insurance companies the actual deposit of sums with State or Territorial officers pur- suant to law as additions to guar- antee or reserve funds) ; and (B) the sums other than dividends paid within the taxable year on lations to be prescribed by the Commissioner with the approval of the Secretary. In the case of leases the deductions allowed by this paragraph shall be equi- tably apportioned between the lessor and lessee; (10) In the case of insurance companies, in addition to the above: (a) The net addition re- quired by law to be made with- in the taxable year to reserve funds (including in the case of assessment insurance companies the actual deposit of sums with State or Territorial officers pur- suant to law as additions to guarantee or reserve funds) ; and (b) the sums other than dividends paid within the tax- able year on policy and annuity contracts ; [4] (c) in the case of insur- ance companies, the net addition, if any, required by law to be made within the year to re- serve funds and the sums other than dividends paid within the year on policy and annuity con- tracts : 113(a) Reserves required by regulations of the In- surance Department of a State, when reasonably adapted to the enforcement of the law which the In- surance Department had statutory authority to en- force, were required by the "law" of a State under the Act of 1913. Maryland Casualty Co. v. U. S., (1920) 251 U. S. 342, reversing Id., (1917) 52 Ct. CI. 201. 113(b) Under the Act of 1913, insurance com- panies were not permitted to deduct from gross in- . come, sums set aside as reserves to meet obligations created by policies, when such reserves were not re- quired by State law. Maryland Casualty Co. v. U. S., (1920) 251 U. S. 342, affirming Id., (1917) 52 Ct. CI. 201. 11* So-called "dividends," paid annually to policy- holders by a mutual life insurance company doing business on the level premium plan, which represent the excess of premiums collected in previous years, over actual cost of insurance, when applied by them respectively in the reduction or abatement of re- newal premiums, were not taxable as part of the company's "net income received by it * * * dut- ing such year," under Sec. 38, Act of 1909. They were taxed previously in the years when received. Neither were they "dividends" paid to policyholders, the word "dividends" being used in said Act in its ordinary sense as representing profits. Herold. (Col.) v. Mutual Benefit Life Ins. Co., (C. C. A., Third Cir. 1913) 201 Fed. 918, affirming Id., (D. C, D. N. J. 1912) 198 Fed. 199, Certiorari denied, (1913) 231 U. S. 755; Eaton (Col.) v. Conn. Gen. Life Ins. Co. and Eaton (Col.) v. Conn. Mutual Life Ins. Co., (C. C. A., Second Cir. 1915) 223 Fed. 1022, affirming Id., (D. C, D. Conn. 1914) 218 Fed. 188 and 206, re- spectively. In 218 Fed. 188, the company was a stock company maintaining a mutual department. Prudential Ins. Co. v. Herold (Col.), (D. C, D. N. J. 1918) 247 Fed. 681, in which case the so-called "dividends" were paid voluntarily by the company on non-participating policies. Lumber Mutual Fire Ins. Co. V. Malley (Col.), (D. C, D. Mass. 1916) 256 Fed. 380; New York Life Ins. Co. v. Anderson (Col.), (C. C. A., Second Cir. 1920) 263 Fed. 527, affirming Id., (D. C, S. D. N. Y. 1919) 262 Fed. 215; Fink (Col.) v. Northwestern Mutual Life Ins. Co., DEDUCTIONS ALLOWED CORPORATIONS Act of 1916. Act of 1913. Act of 1909. 189 [4] (c) in the case Of insur- ance companies, the net addition, if any, requred by law to be made within the year to reserve funds and the sums other than dividends paid within the year on policy and annuity contracts : [d] in case of insurance com- panies the net addition, if any, required by law 113 to be made within the year to reserve funds and the sums other than divi- dends 115 p^id within the year on policy and annuity contracts ; [c] in the case of insurance companies the sums other than dividends,ll4 paid within the year on policy and annuity con- tracts and the net addition, if any, required by law to be made within the year to reserve funds; 116 (C. C. A., Seventh Cir. 1920) 267 Fed. 968, affirm- ing Id., (D. C, E. D. Wise. 1917) 248 Fed. 568. iiB Under the Act of 1913, so-called "dividends," paid annually to policyholders by a mutual life in- surance company doing business on the level pre- mium plan, which arose from the excess of pre- miums collected in former years over actual cost o± insurance, could not be excluded from the gross in- come of the company unless they were applied by the respective policyholders in the year received toward the abatement or reduction of renewal pre- miums payable by them to the company during the same year. Penn. Mutual Life Ins. Co. v. Lederer (Col.), (1920) 252 U. S. 523, affirming Id., (C. C. A., Second Cir. 1919) 258 Fed. 81, reversing Id., (D. C, E. D. Penn. 1918) 247 Fed. 559. 116(a) Sums set aside and credited to a reserve fund in compliance with law to meet obligations on policies on which premiums were not received, were deductible from gross income under Sec. 38, Act of 1909. Mutual Benefit Life Ins. Co. v. Herold (Col.), (D. C, D. N. J. 1912) 198 Fed. 199; Prudential Ins. Co. V. Herold (Col.), (D. C, D. N. J. 1918) 247 Fed. 681. 118(b) Under Sec. 38, Act of 1909, insurance com- panies were not permitted to deduct from gross in- come sums set aside as reserves to meet obligations created by policies, when such reserves were not re- quired by State law. McCoach v. Ins. Co. of N. A., (1917) 244 U. S. 585, reversing Id., (C. C. A., Third Cir. 1915) 224 Fed. 657, and affirming Id., (D. C, E. D. Penn. 1914) 218 Fed. 905; National Life & Accident Ins. Co. v. Craig (Col.), (C. C. A., Sixth Cir. 1918) 251 Fed. 524; Maryland Casualty Co. v. U. S., (1920) 251 U. S. 342, affirming Id., (1917) 52 Ct. CI. 201; Fink (Col.) v. N. W. Mutual Life Ins. Co., (C. C. A., Seventh Cir. 1920) 267 Fed. 968, reversing Id., (D. C, E. D. Wise. 1917) 248 Fed. 668. 116(c) Reserves required by regulations of the In- surance Department of a State, when reasonably adapted to the enforcement of the law, which the Insurance Department has statutory authority to enforce, are required by the "law" of a State, within the meaning of Sec. 38, Act of 1909. Maryland Casualty Co. v. U. S., (1920) 251 U. S. 342, revers- ing Id., (1917) 52 Ct. CI. 201. 190 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. policy and annuity contracts. After December 31, 1921, this subdivision shall apply only to mutual insurance companies other than life insurance com- panies ; Taxation of life insurance companies. Sec. 242, p. 238. (13) In the case of mutual in- surance companies (including in- ter-insurers and reciprocal un- derwriters, but not including mutual life or mutual marine in- surance companies) requiring their members to make premium deposits to provide for losses and expenses, there shall be al- lowed, in addition to the deduc- tions allowed in paragraphs (1) to (10), inclusive, and para- graph (14), unless otherwise al- Sec. 233. (a) (1) In the case of life insurance companies there shall not be included in gross income such portion of any actual premium received from any individual policy- holder as is paid back or cred- ited to or treated as an abate- ment of premium of such policy- holder within the taxable year. Nondeductibility of capital expenditures. Sec. 235, p. 206; Sec. 215. (b) and (b), p. 92. Sec. 234. (a) (13) in the case of mutual insurance companies (other than mutual life or mu- tual marine insurance com- panies) requiring their members to make premium deposits to provide for losses and expenses, there shall be allowed, in addi- tion to the deductions allowed in paragraphs (1) to (10), inclu- sive, (unless otherwise allowed under such paragraphs) the amount of premium deposits re- Sec. 12. (e) In the case of as- sessment insurance companies, whether domestic or foreign, the actual deposit of sums with State or Territorial officers, pursuant to law, as additions to guaran- tee or reserve funds shall be treated as being payments re- quired by law to reserve funds. Sec. 12. (a) Second. [8] and life insurance companies shall not include as income in any j"ear such portion of any actual premium received from any in- dividual policyholder as shall have been paid back or credited to such individual policyholder, or treated as an abatement of premium of such individual policyholder, within such year; [5] Provided, That no deduc- tion shall be allowed for any amount paid out for new build- ings, permanent improvements, or betterments made to increase the value of any property or es- tate, and no deduction shall be made for any amount of ex- pense of restoring property or making good the exhaustion thereof for which an allowance is or has been made: [6] Provided further, That mutual fire and mutual employ- ers' liability and mutual work- men's compensation and mutual casualty insurance companies re- quiring their members to make premium deposits to provide for losses and expenses shall not re- turn as income any portion of the premium deposits returned to their policyholders, but shall return as taxable income all in- come received by them from all li' A corporation, organized to insure its member.s,' which requires each member to deposit in advance a limited to jewelers, against loss or damage from fire, definite sum sufficient to cover estimated losses and theft, barratry, embezzlement, and transportation, expenses for the ensuing year, the balance being re- DEDUCTIONS ALLOWED CORPORATIONS Act of 1916. Act of 1913. Act of 1909. 191 Sec. 12. (c) In the case of as- sessment insurance companies, whether domestic or foreign, the actual deposit of sums with State or Territorial officers, pursuant to law, as addtions to guarantee or reserve funds shall be treated as being payments required by law to reserve funds. Sec. 12. (a) Second. [8] and life insurance companies shall not include as income in any year such portion of any actual premium received from any in- dividual policyholder as shall have been paid back or credited to such individual policyholder, or treated as an abatement of premium of such individual pol- icyholder, within such year ; [5] Provided, That no deduc- tion shall be allowed for any amount paid out for new build- ings, permanent improvements, or betterments made to increase the value of any property or es- tate, and no deduction shall be made for any amount of expense of restoring property or making good the exhaustion thereof for which an allowance is or has been made: [6] Provided further, That mutual fire and mutual em- ployers' liability and mutual workmen 's compensation and mutual casualty insurance com- panies requiring their members to make premium deposits to provide for losses and expenses shall not return as income any portion of the premium deposits returned to their policyholders, but shall return as taxable in- come all income received by them G. (b) [6] [h] In the case of assessment insurance companies, whether domestic or foreign, the actual deposit of sums with State or Territorial officers, pur- suant to law, as additions to guarantee or reserve funds shall be treated as being payments re- quired by law to reserve funds. G- (b) [3] [g] and life insur- ance companies shall not include as income in any year such por- tion of any actual premium re- ceived from any individual pol- icyholder as shall have been paid back or credited to such individ- ual policyholder, or treated as an abatement of premium of such individual policyholder, within such year; G. (b) [3] [e] Provided, That mutual fire insurance com- panies 11'!' requiring their mem- bers to make premium deposits to provide for losses and ex- penses shall not return as in- come any portion of the pre- mium deposits returned to their policyholders, but shall return as taxable income all income re- ceived by them from all other sources plus such portions of the premium deposits as are re- Foreign corporations. SECOND. [7] [g],p. 207. turned to the member, was a mutual fire insurance company within the meaning of the Act of 1913. Jewelers' Safety Fund Society v. Lowe (CoL), (D. C, S. D. N. Y. 1920) 274 Fed. 94. 192 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917, lowed, the amount of premium deposits returned to their policy- holders and the amount of pre- mium deposits retained for the payment of losses, expenses, and reinsurance reserves; (12) In the case of mutual marine insurance companies, there shall be allowed, in addi- tion to the deductions allowed in paragraphs (1) to (10), inclu- sive, and paragraph (14), unless otherwise allowed, amounts re- paid to policyholders on account of premiums previously paid by them, and interest paid upon such amoimts between the ascer- tainment and the payment thereof ; Sec. 233. (a) [2] mutual ma- rine insurance companies shall include in gross income the gross premiums collected and received by them less amounts paid for reinsurance. Sec. 234. (a) (5) Debts ascer- tained to be worthless and charged off within the taxable year (or in the discretion of the Commissioner, a reasonable addi- tion to a reserve for bad debts) ; and when satisfied that a debt is recoverable only in part, the Commissioner may allow such debt to be charged off in part; (6) The amount received as dividends (A) from a domestic corporation other than a corpo- ration entitled to the benefits of section 262, or (B) from any foreign corporation when it is shown to the satisfaction of the Commissioner that more than 50 per centum of the gross income of such foreign corporation for the three-year period ending with the close of its taxable year preceding the declaration of such dividends (or for such part of such period as tne foreign corpo- ration has been in existence) was derived from sources within the United States as determined under section 217 ; turned to their policyholders and the amount of premium de- posits retained for the payment of losses, expenses, and reinsur- ance reserves; (12) In the ease of mutual ma- rine insurance companies, there shall be allowed, in addition to the deductions allowed in para- graphs (1) to (10), inclusive, amounts repaid to policyholders on account of premiums pre- viously paid by them, and inter- est paid upon such amounts be- tween the ascertainment and the payment thereof: Sec. 233. (a) (2) Mutual ma- rine insurance companies shall include in gross income the gross premiums collected and received by them less amounts paid for reinsurance. Sec. 234. (a) (5) Debts ascer- tained to be worthless and charged off within the taxable year; (6) Amounts received as divi- dends from a corporation which is taxable under this title upon its net income, and amounts re- ceived as dividends from a per- sonal service corporation out of earnings or profits upon which income tax has been imposed by Act of Congress; other sources plus such portions of the premium deposits as are retained by the companies for purposes other than the payment of losses and expenses and rein- surance reserves : [7] Provided further, That mutual marine insurance com- panies shall include in their re- turn of gross income gross pre- miums collected and received by them less amounts paid for re- insurance, but shall be entitled to include in deductions from gross income amounts repaid to policyholders on account of pre- miums previously paid by them and interest paid upon such amounts between the ascertain- ment thereof and the payment thereof. DEDUCTIONS ALLOWED CORPORATIONS Act of 1916. Act of 1913. Act of 1909, 193 from all other sources plus such portions of the premium de- posits as are retained by the companies for purposes other than the payment of losses and expenses and reinsurance re- serves : [7] Provided further, That mutual marine insurance com- panies shall include in their re- turn of gross income gross pre- miums collected and received by them less amounts paid for re- insurance, but shall be entitled to include in deductions from gross income amounts repaid to policyholders on account of premiums previously paid by them and interest paid upon such amounts between the ascer- tainment .thereof and the pay- ment thereof, tained by the companies for purposes other than the pay- ment of losses and expenses and reinsurance reserves : [f] Provided further, That mutual marine insurance com- panies shall include in their re- turn of gross income gross pre- miums collected and received by them less amounts paid for re- insurance, but shall be entitled to include in deductions from gross income amounts repaid to policyholders on account of premiums previously paid by them and interest paid upon such amounts between the ascer- tainment thereof and the pay- ment thereof Second. [6] (fifth) all amounts received by it within the year as dividends upon stock of other corporations, joint-stock companies or associations, or in- surance companies, subject to the tax hereby imposed : 194 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. (8) In the case of buildings, machinery, equipment, or other facilities, constructed, erected, installed, or acquired, on or after April 6, 1917, for the pro- duction of articles contributing to the prosecution of the war against the German Government, and in the case of vessels con- structed or acquired on or after such date for the transportation of articles or men contributing to the prosecution of such war, there shall be allowed, for any taxable year ending before March 3, 1924 (if claim therefor was made at the time of filing re- turn for the taxable year 1918, 1919, 1920, or 1921) a reasonable deduction for the amortization of such part of the cost of such facilities or vessels as has been borne by the taxpayer, but not again including any amount otherwise allowed under this ti- tle or previous Acts of Congress as a deduction in computing net income. At any time before March 3, 1924, the Commis- sioner may, and at the request of the taxpayer shall, reexamine the return, and if he then finds as a result of an appraisal or from other evidence that the de- duction originally allowed was incorrect, the income, war- profits, and excess-profits taxes for the year or years affected shall be redetermined and the amount of tax due upon such re- determination, if any, shall be paid upon notice and demand by the collector, or the amount of tax overpaid, if any, shall be credited or refunded to the tax- payer in accordance with the provisions of section 252; (11) In the case of corpora- tions (except those taxed under section 243) issuing policies cov- ering life, health, and accident insurance combined in one pol- icy issued on the weekly pre- mium payment plan continuing for life and not subject to can- cellation, in addition to the above, such portion of the net (8) In the case of buildings, machinery, equipment, or other facilities, constructed, erected, installed, or acquired, on or after April 6, 1917, for the production of articles contributing to the prosecution of the present war, and in the case of vessels con- structed or acquired on or after such date for the transportation of articles or men contributing to the prosecution of the present war, there shall be allowed a rea- sonable deduction for the amorti- zation of such part of the cost of such facilities or vessels as has been borne by the taxpayer, but not again including any amount otherwise allowed under this title or previous Acts of Congress as a deduction in computing net in- come. At any time within three years after the termination of the present war the Commis- sioner may, and at the request of the taxpayer shall, reexamine the return, and if he then finds as a result of an appraisal or from other evidence that the deduc- tion originally allowed was in- correct, the taxes imposed by this title and by Title III for the year or years affected shall be redeter- mined and the amount of tax due upon such redetermination, if any, shall be paid upon notice and demand by the collector, or the amount of tax overpaid, if any, shall be credited or re- funded to the taxpayer in ac- cordance with the provisions of section 252; (11) In the ease of corpora- tions issuing policies covering life, health, and accident insur- ance combined in one policy, issued on the weekly premium payment plan continuing for life and not subject to cancellation, in addition to the above, such portion of the net addition (not required by law) made within DEDUCTIONS ALLOWED CORPORATIONS 195 Act of 1916. Act of 1913. Act of 1909. 196 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. addition (not required by law) made within the taxable year to reserve funds as the Commis- sioner finds to be required for the protection of the holders of such policies only. This subdi- vision shall not be in effect after December 31, 1921 ; the taxable year to reserve funds as the Commissioner finds to be required for the protection of the holders of such policies only ; (14) (a) At the time of filing return for the taxable year 1918 a taxpayer may file a claim in abatement based on the fact that he has sustained a substantial loss (whether or not actually realized by sale or other disposi- tion) resulting from any ma- terial reduction (not. due to tem- porary fluctuation) of the value of the inventory for such tax- able year, or from the actual payment after the close of such taxable year of rebates in pur- suance of contracts entered into during such year upon sales made during such year. In such case payment of the amount of the tax covered by such claim shall not be required until the claim is decided, but the tax- payer shall accompany his claim with a bond in double the amount of the tax covered by the claim, with sureties satis- factory to the Commissioner, conditioned for the payment of any part of such tax found to be due, with interest. If any part of such claim is disallowed then the remainder of the tax due shall on notice and demand by the collector be paid by the taxpayer with interest at the rate of 1 per centum per month from the time the tax would have been due had no such claim been filed. If it is shown to the satisfaction of the Commissioner that such substantial loss has been sustained, then in comput- ing the taxes imposed by this title and by Title III the amount of such loss shall be deducted from the net income, (b) If no such claim is filed, but it is shown to the satisfaction of the Commissioner that during the taxable year 1919 the taxpayer DEDUCTIONS ALLOWED CORPORATIONS 197 Act of 1916. Act of 1913. Act of 1909. 198 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. (14) If property is eompul- sorily or involuntarily convert- ed into cash or its equivalent as a result of (A) its destruction in whole or in part, (B) theft or seizure, or (C) an exercise of the power of requisition or condem- nation, or the threat or immi- nence thereof; and if the tax- payer proceeds forthwith in good faith, under regulations pre- scribed by the Commissioner with the approval of the Secre- tary, to expend the proceeds of such conversion in the acquisi- tion of other property of a char- acter similar or related in serv- ice or use to the property so con- verted, or in the acquisition of 80 per centum or more of the stock or shares of a corporation owning such other property, or in the establishment of a replace- ment fund, then there shall be allowed as a deduction such por- tion of the gain derived as the portion of the proceeds so ex- pended bears to the entire pro- ceeds. The provisions of this paragraph prescribing the con- ditions under which a deduction may be taken in respect of the proceeds or gains derived from the compulsory or involuntary conversion of property into cash or its equivalent, shall apply so far as may be practicable to the exemption or exclusion of such proceeds or gains from gross in come under prior income, war- profits and excess-profits tax Acts. has sustained a substantial loss of the character above described then the amount of such loss shall be deducted from the net income for the taxable year 1918 and the taxes imposed by this title and by Title III for such year shall be redetermined ac- cordingly. Any amount found to be due to the taxpayer upon the basis of such redetermina- tion shall be credited or re- funded to the taxpayer in ac- cordance with the provisions of section 252. DEDUCTIONS ALLOWED CORPORATIONS 199 Act of 1916. Act of 1913, Act of 1909. 200 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. Sec. 234. (b) In the ease of a foreign corporation or of a cor- poration entitled to the benefits of section 262 the deductions al- lowed in subdivision (a) shall be allowed only if and to the extent that they are connected with income from sources within the United States; and the proper apportionment and allocation of the deductions with respect to sources within and without the United States shall be deter- mined as provided in section 217 under rules and regulations pre- scribed by the Commissioner with the approval of the Secre- tary. Sec. 234. (b) In the case of a foreign corporation the deduc- tions allowed in subdivision (a), except those allowed in para- graph (2) and in clauses (a), (b), and (c) of paragraph (3), shall be allowed only if and to the extent that they are con- nected with income arising from a source within the United States; and the proper appor- tionment and allocation of the deductions with respect to sources of income within and without the United States shall be determined under rules and regulations prescribed by the Commissioner with the approval of the Secretary. Sec. 12. (b) In the case of a corporation, joint-stock com- pany or association, or insurance company, organized, authorized, or existing under the laws of any foreign country, such net income shall be ascertained by deducting from the gross amount of its income received within the year from all sources within the United States- First. All the ordinary and necessary expenses actually paid within the year out of earnings in the maintenance and opera- tion of its business and prop- erty within the United States, including rentals or other pay- ments required to be made as a condition to the continued use or possession of property to which the corporation has not taken or is not taking title, or in which it has no equity. Second. All losses actually sus- tained within the year in busi- ness or trade conducted by it within the United States and not compensated by insurance or otherwise, including a rea- sonable allowance for the exhaus- tion, wear and tear of property arising out of its use or em- ployment in the business or trade; (a) and in the case (a) of oil and gas wells a reasonable allowance for actual reduction in flow and production to be as- certained not by the flush flow, but by the settled production or regular flow; (b) in the case of mines a reasonable allowance for depletion thereof not to exceed the market value in the mine of the product thereof which has been mined and sold during the year for which the return and computation are made, such rea- sonable allowance to be made in the case of both (a) and (b) under rules and regulations to be prescribed by the Secretary of the Treasury: Provided, That when the allowance au- thorized in (a) and (b) shall DEDUCTIONS ALLOWED FOREIGN CORPORATIONS 201 Act of 1916. Act of 1913. Act of 1909. Sec. 12. (b) In the case of a corporation, joint-stock company or association, or insurance com- pany, organized, authorized, or existing under the laws of any foreign country, such net income shall be ascertained by deduct- ing from the gross amount of its income received within the year from all sources within the United States — First. All the ordinary and necessary expenses actually paid within the year out of earnings in the maintenance and opera- tion of its business and property within the United States, includ- ing rentals or other payments re- quired to be made as a condition to the continued use or posses- sion of property to which the corporation has not taken or is not taking title, or in which it has no equity. Second. All losses actually sus- tained within the year in busi- ness or trade conducted by it within the United States and not compensated by insurance or otherwise, including a reasonable allowance for the exhaustion, wear and tear of property aris- ing out of its use or employment in the business or trade ; (a) and in the case (a) of oil and gas wells a reasonable allowance for actual reduction in flow and pro- duction to be ascertained not by the flush flow, but by the settled production or reguar flow; (b) in the case of mines a reasonable allowance for depletion thereof not to exceed the market value in the mine of the product thereof which has been mined and sold during the year for which the return and computation are made, such reasonable allowance to be made in the case of both (a) and (b) under rules and regulations to be prescribed by the Secretary of the Treasury: Provided, That when the allow- ance authorized in (a) and (b) G. (b) [6] [a] Provided, That in the ease of a corporation, joirt-stock company or associa- tion, or insurance company, or- ganized, authorized, or existing under the laws of any foreign country, such net income shall be ascertained by deducting from the gross amount of its in- come accrued within the year from business transacted and capital invested within the United States, [6] [b] (first) all the ordi- nary and necessary expenses ac- tually paid within the year out of earnings in the maintenance and operation of its business and property within the United States, including rentals or other payments required to be made as a condition to the continued use or possession of property; [6] [c] (second) all losses ac- tually sustained within the year in business conducted by it with- in the United States and not compensated by insurance or otherwise, including a reasonable allowance for depreciation by use, wear and tear of property, if any, and in the case of mines a reasonable allowance for deple- tion of ores and all other natural deposits, not to exceed 5 per centum of the gross value at the mine of the output for the year for which the computation is made; SECOND. [7] Provided,That in the case of a corporation, joint- stock company or association, or insurance company, organized under the laws of a foreign country, such net income shall be ascertained by deducting from the gross amount of its income received within the year from business transacted and capital invested within the United States and any of its Territories, Alaska, and the District of Columbia, [7] [a] (first) all the ordi- nary and necessary expenses ac- tually paid within the year out of earnings in the maintenance and operation of its business and property within the United States and* its Territories, Alaska, and the District of Co- lumbia, including all charges such as rentals or franchise pay- ments required to be made as a condition to the continued use or possession of property; [7] [b] (second) all losses ac- tually sustained within the year in business conducted by it with- in the United States or its Ter- ritories, Alaska, or the District of Columbia not compensated by insurance or otherwise, including a reasonable allowance for de- preciation of property, if any. 202 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. equal the capital originally in- vested, or in case of purchase made prior to March first, nine- teen hundred and thirteen, the fair market value as of that date, no further allowance shall be made; and (c) in the ease of insurance companies, the net ad- dition, if any, required by lavr to be made within the year to reserve funds and the sums other than dividends paid within the year on policy and annuity con- tracts: Provided, That no de- duction shall be allowed for any amount paid out for new build- ings, permanent improvements, or betterments, made to increase the value of any property or es- tate, and no deduction shall be made for any amount of expense of restoring property or mak- ing good the exhaustion thereof for which an allowance is or has been made: Provided, further, That mutual fire and mutual em- ployers ' liability and mutual workmen's compensation and mutual casualty insurance com- panies requiring their members to make premium deposits to provide for losses and expenses shall not return as income any portion of the premium deposits returned to their policyholders, but shall return as taxable in- come all income received by them from all other sources plus such portions of the premium deposits as are retained by the companies for purposes other than the payment of losses and expenses and reinsurance re- serves: Provided further, That mutual marine insurance com- panies shall include in their re- turn of gross income gross pre- miums collected and received by them less amounts paid for re- insurance, but shall be entitled to include in deductions from gross income amounts repaid to policyholders on account of premiums previously paid by them, and interest paid upon such amounts between the ascer- tainment thereof and the pay- DEDUCTIONS ALLOWED FOREIGN CORPORATIONS 203 Act of 1916. Act of 1913. Act of 1909. shall equal the capital originally invested, or in case of purchase made prior to March first, nine- teen hundred and thirteen, the fair market value as of that date, no further allowance shall be made; and (c) in the case of in- surance companies, the net addi- tion, if any, required by law to be made within the year to re- serve funds and the sums other than dividends paid within the year on policy and annuity con- tracts : Provided, That no deduc- tion shall be allowed for any amount paid out for new build- ings, permanent improvements, or betterments, made to increase the value of any property or es- tate, and no deduction shall be made for any amount of expense of restoring property or making good the exhaustion thereof for which an allowance is or has been made: Provided further, That mutual fire and mutual em- ployers ' liability and mutual workmen's compensation and mutual casualty insurance com panics requiring their members to make premium deposits to provide for losses and expenses shall not return as income any portion of the premium deposits returned to their policyholders but shall return as taxable in- come all income received by them from all other sources plus such portions of the premium deposits as are retained by the companies for purposes other than the pay- ment of losses and expenses and reinsurance reserves: Provided further, That mutual marine in- surance companies shall include in their return of gross income gross premiums collected and re- ceived by them less amounts paid for reinsurance, but shall be en- titled to include in deductions from gross income amounts re- paid to policyholders on account of premiums previously paid by them, and interest paid upon such amounts between the ascer- tainment thereof and the pay- ment thereof, and life insurance [6] [d] and in case of insur- ance companies the net addition, if any, required by law to be made within the year to reserve funds and the sums other than dividends paid within the year on policy and annuity contracts : [6] [e] Provided further, That mutual fire insurance com- panies requiring their members to make premium deposits to provide for losses and expenses shall not return as income any portion of the premium deposits returned to their policyholders, but shall return as taxable in- come all income received by them from all other sources plus such portions of the premium de- posits as are retained by the com- panies for purposes other than the payment of losses and ex- penses and reinsurance reserves : Provided further, That mutual marine insurance companies shall include in their return of gross income gross premiums collected and received by them less amounts paid for reinsur- ance, but shall be entitled to in- clude in deductions from gross income amounts repaid to policy- holders on account of premiums previously paid by them, and in- terest paid upon such amounts between the ascertainment there- of and the payment thereof and life insurance companies shall not include as income in any year such portion of any actual [7] [c] and in the case of in- surance companies the' sums other than dividends, paid with- in the year on policy and an- nuity contracts and the net addition, if any, required by law to be made within the year to re- serve funds: 204 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. ment thereof, and life insurance companies shall not include as income in any year such portion of any actual premium received from any individual policy- holder as shall have been paid back or credited to such indi- vidual policyholder, or treated as an abatement of premium of such individual policyholder, within such year; Sec. 1207. [2] (2) us Para- graphs third and fourth of sub- division (b) of section twelve of such Act of September eighth, nineteen hundred and sixteen, are hereby amended to read as follows : "Third. The amount of inter- est paid within the year on its indebtedness (except on in- debtedness incurred for the pur- chase of obligations or securities the interest upon which is ex- empt from taxation as income under this title) to an amount of such indebtedness not in ex- cess of the proportion of the sum of (a) the entire amount of the paid-up capital stock outstand- ing at the close of the year, or, if no capital stock, the entire amount of the capital employed in the business at the close of the year, and (b) one-half of its in- terest-bearing indebtedness then outstanding, which the gross amount of its income for the year from business transacted and capital invested within the United States bears to the gross amount of its income derived from all sources within and with- out the United States : Provided, That in the case of bonds or other indebtedness which have been issued with a guaranty that the interest payable thereon shall be free from taxation, no deduc- tion for the payment of the tax herein imposed or any other tax paid pursuant to such guaranty shall be allowed ; and in case of a bank, banking association, loan or trust company, or branch 118 Title I, Part II, Act of 1916, as amended by Sec. 1207 (2), Title XII, Act of 1917. DEDUCTIONS ALLOWED FOREIGN CORPORATIONS 205 Act of 1916. Act of 1913. Act of 1909. companies shall not inelnde as income in any year such portion of any actual premium received from any individual policy- holder as shall have been paid back or credited to such individ- ual policyholder, or treated as an abatement of premium of such individual policyholder, within such year ; Third. The amount of interest paid within the year on its in- debtedness to an amount of such indebtedness not in excess of the proportion of the sum of (a) the entire amount of the paid- up capital stock outstanding at the close of the year, or, if no capital stock, the entire amount of the capital employed in the business at the close of the year, and (b) one-half of its interest- bearing indebtedness then out- standing which the g r,o s s amount of its income for the year from business transacted and capital invested within the United States bears to the gross amount of its income derived from all sources within and without the United States : Pro- vided, That in the case of bonds or other indebtedness which have been issued with a guar- anty that the interest payable thereon shall be free from taxa- tion, no deduction for the pay- ment of the tax herein imposed or any other tax paid pursuant to such guaranty shall be al- lowed; and in case of a bank, banking association, loan or trust company, or branch there- of, interest paid within the year on deposits by or on moneys re- ceived for investment from either citizens or residents of the United States and secured by interest-bearing certificates of indebtedness issued by such bank, banking association,, loan or trust company, or branch thereof ; premium received from any indi- vidual policyholder as shall have been paid back or credited to such individual policyholder, or treated as an abatement of pre- mium of such individual policy- holder, within such year ; [6] [f] (third) the amount of interest accrued and paid with- in the year on its indebtedness to an amount of such indebted- ness not exceeding the propor- tion of one-half of the sum of its interest bearing indebtedness and its paid-up capital stock outstanding at the close of the year, or if no capital stock, the capital employed in the busi- ness at the close of the year which the gross amount of its income for the year from busi- ness transacted and capital in- vested within the United States bears to the gross amount of its income derived from all sources within and without the United States: Provided, That in the case of bonds or other indebted- ness which have been issued with a guaranty that the interest pay- able thereon shall be free from taxation, no deduction for the payment of the tax herein im- posed shall be allowed; [7] [d] (third) interest ac- tually paid within the year on its bonded or other indebtedness to an amount of such bonded and other indebtedness, not ex- ceeding the proportion of its paid-up capital stock outstand- ing at the close of the year which the gross amount of its income for the year from busi- ness transacted and capital in- vested within the United States and any of ifs Territories, Alas- ka, and the District of Columbia bears to the gross amount of its income derived from all sources within and without the United States ; 206 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. ITEMS NOT DEDUCTIBLE BY COR- PORATIONS. Sec. 235. That in computing net income no deduction shall in any case be allowed in respect of any of the items specified in section 215. CREDITS ALLOWED CORPORATIONS. Sec. 236. That for the pur- pose only of the tax imposed by section 230 there shall be al- lowed the following credits : (a) The amount received as interest upon obligations of the United States and bonds issued by the War Finance Corpora- tion, which is included in gross income under section 233 ; ITEMS NOT DEDUCTIBLE. Sec. 235. That in computing net income no deduction shall in any case be allowed in respect of any of the items specified in section 215. CREDITS ALLOWED. Sec. 236. That for the purpose only of the tax imposed by sec- tion 230 there shall be allowed the following credits: (a) The amount received as interest upon obligations of the. United States and bonds issued by the War Finance Corpora- tion, which is included in gross income under section 233 ; thereof, interest paid within the year on deposits by or on moneys received for investment from either citizens or residents of the United States and secured by interest-bearing certificates of indebtedness issued by such bank, banking association, loan or trust company,- or branch thereof ; "Fourth. Taxes paid within the year imposed by the author- ity of the United States (except income and excess profits taxes) or of its Territories, or posses- sions, or by the authority of any State, county, school district, or municipality, or other taxing subdivision of any State, paid within the United States, not in- cluding those assessed against local benefits." Act of 1916. CREDITS ALLOWED CORPORATIONS Act of 1913. 207 Act of 1909. Fourth. Taxes paid within the year imposed by the authority of the United States, or its Ter- ritories, or possessions, or un- der the authority of any State, county, school district, or muni- cipality, or other taxing sub- division of any State, paid with- in the United States, not in- cluding those assessed against local benefits; [6] [g] (fourth) all sums paid by it within the year for taxes imposed under the au- thority of the United States or of any State or Territory there- of or the District of Columbia. [7] [e] (fourth) the sums paid by it within the year for taxes imposed under the au- thority of the United States or of any State or Territory there- of; [7] [f] (fifth) all mounts re- ceived by it within the year as dividends upon stock of other corporations, joint-stock com- panies or associations, and insur- ance companies, subject to the tax hereby imposed. [7] [g] In the case of assess- ment insurance companies the actual deposit of sums with State or Territorial officers, pur- suant to law, as additions to guaranty or reserve funds shall ^e treated as being paym,ent re- quired by law to reserve funds. 208 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. (c) The amount of any war- profits and excess-profits taxes imposed by Act of Congress for the same taxable year. The credit allowed by this subdivi- sion shall be determined as fol- lows: (1) In the case of a corpora- tion which makes return for a fiscal year beginning in 1920 and ending in 1921, in comput- ing the income tax as provided in subdivision (a) of section 205, the portion of the war- profits and excess-profits tax computed for the entire period under clause (1) of subdivision (a) of section 335 shall be cred- ited against the net income com- puted for the entire period as provided in clause (1) of sub- division (a) of section 205, and the portion of the war-profits and excess-profits tax computed for the entire period under clause (2) of subdivision (a) of section 335 shall be credited against the net income computed for the entire period as provided in clause (2) of subdivision (a) of section 205.. (2) In the case of a corpora- tion which makes return for a fiscal year beginning in 1921 and ending in 1922, in computing the income tax as provided in subdivision (b) of section 205, the war-profits and excess-profits tax computed under subdivision (b) of section 335 shall be cred- ited against the net income com- puted for the entire period as provided in clause (1) of sub- division (b) of section 205. (b) In the case of a domestic corporation the net income of which is $25,000 or less, a spe- cific credit of $2,000 ; but if the net income is more than $25,000 the tax imposed by section 230 shall not exceed the tax which would be payable if the $2,000 credit were allowed, plus the amount of the net income in ex- cess of $25,000; and (b) The amount of any taxes imposed by Title III for the same taxable year: Provided, That in the case of a corpora- tion which makes return for a fiscal year beginning in 1917 and ending in 1918, in comput- ing the tax as provided in sub- division (a) of section 205, the tax computed for the entire period under Title II of the Rev- enue Act of 1917 shall be cred- ited against the net income com- puted for the entire period un- der Title I of the Revenue Act of 1916 as amended by the Rev- enue Act of 1917 and under Title I of the Revenue Act of 1917, and the tax computed for the entire period under Title III of this Act at the rates pre- scribed for the calendar year 1918 shall be credited against the net income computed for the entire period under this title; and (c) In the case of a domestic corporation, $2,000. Sec. 1211. [3] "Sec. 29.119 That in assessing income tax the net income embraced in the re- turn shall also be credited with the amount of any excess profits tax imposed by Act of Congress and assessed for the same cal- endar or fiscal year upon the tax- payer, and, in the case of a member of a partnership, with his proportionate share of such excess profits tax imposed upon the partnership. 119 Title I, Part III, Act of 1916, as amended by Sec. 1211, Act of 1917. CREDITS ALLOWED CORPORATIONS 209 Act of 1916. Act of 1913. Act of 1909. THIRD. [1] There shall be deducted from the amount of the net income of each of such corporations, joint-stock com- panies or associations, or insur- ance companies, ascertained as provided in the foregoing para- graphs of this section, the sum of five thousand dollars : 210 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. PAYMENT OP CORPORATION IN- COME TAX AT SOURCE. Sec. 237. That in the case of foreign corporations subject to taxation under this title not en- gaged in trade or business with- in the United States and not having any office or place of business therein, there shall be deducted and withheld at the source in the same manner and upon the same items of income as is provided in section 221 a tax equal to 121^ per centum thereof (but during the calendar year 1921 only 10 per centum), and such tax shall be returned and paid in the same manner and subject to the same condi- tions as provided in that section : Provided, That in the case of interest described in subdivision (b) of that section the deduction and withholding shall be at the rate of 2 per centum. PAYMENT OP TAX AT SOURCE. Sec 237. That in the case of foreign corporations subject to taxation under this title not en- gaged in trade or business with- in the United States and not hav- ing any office or place of busi- ness therein, there shall be de- ducted and withheld at the source in the same manner and upon the same items of income as is provided in section 221 a tax equal to 10 per centum thereof, and such tax shall be returned and paid in the same manner and subject to the same conditions as provided in that section: Provided, That in the ease of interest described in sub- division (b) of that section the deduction and withholding shall be at the rate of 2 per centum. Sec. 1208.120 That subdivi- sion (e) of section thirteen of such Act of September eighth, nineteen hundred and sixteen, is hereby amended to read as fol- lows: "(e) All the provisions of this title relating to the tax au- thorized and required to be de- ducted and withheld and paid to the officer of the United States Government authorized to re- ceive the same from the income of nonresident alien individuals from sources within the United States shall be made applicable to the tax imposed by subdivi- sion (a) of section ten upon in- comes derived from interest up- on bonds and mortgages or deeds of trust or similar obligations of domestic or other resident cor- porations, joint-stock companies or associations, and insurance companies by nonresident alien firms, copartnerships, companies, corporations, joint-stock com- panies or associations, and in- surance companies, not engaged in business or trade within the United States and not having any office or place of business therein. ' ' Sec. 13. (f ) Likewise, all the provisions of this title relating to the tax authorized and re- quired to be deducted and with- held and paid to the officer of the United States Government authorized to receive the same from the income of nonresident alien individuals from sources within the United States shall be made applicable to income derived from dividends upon the capital stock or from the net earnings of domestic or other resident corporations, joint-stock companies or associations, and insurance companies by non- resident alien companies, cor- porations, joint-stock companies or associations, and insurance 120 Title I, Part II, Act of 1916, as amended by Sec. 1208, Act of 1917. Act of 1916. PAYMENT OF TAX AT SOURCE Act of 1913. 211 Act of 1909. Sec. 13. (e) All the provisions of this title relating to the tax authorized and required to be deducted and withheld and paid to the officer of the United States Government authorized to re- ceive the same from the income of nonresident alien individuals from sources within the United States shall be made applicable to incomes derived from interest upon bonds and mortgages or deeds of trust or similar obliga- tions of domestic or other resi- dent corporations, joint-stock companies or associations, and insurance companies by nonresi- dent alien firms, copartnerships, companies, corpoi'ations, joint- stock companies or associations, and insurance companies not en- gaged in business or trade with- in the United States and not having any office or place of bus- iness therein ; (f) Likewise, all the provi- sions of this title relating to the tax authorized and required to be deducted and withheld and paid to the officer of the United States Government authorized to receive the same from the income of nonresident alien individuals from sources within the United States shall be made applicable to income derived from divi- dends uporf the capital stock or from the net earnings of domes- tic or other resident corpora- tions, joint-stock companies or associations, and insurance com- panies by nonresident alien com- panies, corporations, joint-stock companies or associations, and insurance companies not en- 212 FEDERAL INCOME TAX LAWS Act of 1921. Act of 1918. Act of 1917. CREDIT rOR TAXES IN CASE OF COR- PORATIONS. Sec. 238. (a) That in the case of a domestic corporation the tax imposed by this title, plus the war-profits and excess- profits taxes, if any, shall be credited with the amount of any income, war-profits, and excess- profits taxes paid during the same taxable year to any foreign country, or to any possession of the United States: Provided, That the amount of credit taken under this subdivision shall in no case exceed the same propor- tion of the taxes, against which such credit is taken, which the taxpayer's net income (com- puted without deduction for any income, war-profits, and excess- profits taxes imposed by any for- eign country or possession of the United States) from sources without the United States bears to its entire net income (com- puted without such deduction) for the same taxable year. In the case of domestic insurance companies subject to the tax im- posed by section 243 or 246, the term "net income" as used in this subdivision means net in- come as defined in sections 245 and 246 respectively. (b) If accrued taxes when paid differ from the amounts claimed as credits by the corpo- ration, or if any tax paid is re- funded in whole or in part, the corporation shall at once notify the Commissioner, who shall re- determine the amount of the in- come, war-profits and excess- profits taxes for the year or years affected, and the amount of taxes due upon such redetermi- nation, if any, shall be paid by the corporation upon notice and demand by the collector, or the amount of taxes overpaid, if any, shall be credited or refunded to. the corporation in accordance credit for taxes. Sec. 238. (a) [1] That in the case of a domestic corporation the total taxes imposed for the taxable year by this title and by Title III shall be credited with the amount of any income, war- profits and excess-profits taxes paid during the taxable year to any foreign country, upon in- come derived from sources therein, or to any possession of the United States. [2] If accrued taxeswhenpaid differ from the amounts claimed as credits by the corporation, or if any tax paid is refunded in whole or in part, the corpora- tion shall at once notify the Commissioner who shall redeter- mine the amount of the taxes due under this title and under Title III for the year or years affected, and the amount of taxes due upon such redetermination, if any, shall be paid by the cor- poration upon notice and de- mand by the collector, or the amount of taxes overpaid, if any, shall be credited or refunded to the corporation in accordance companies not engaged in busi- ness or trade within the United States and not having . any of- fice or place of business therein. CREDIT FOR TAXES ALLOWED CORPORATIONS Act of 1916. Act of 1913. Act of 1909. 213 gaged in business or trade with- in the United States and not having any office or place of bus- iness therein. 214 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. with the provisions of section 252. In the case of such a tax accrued but not paid, the Com- missioner as a condition prece- dent to the allowance of this credit may require the corpora- tion to give a bond with sureties satisfactory to and to be ap- proved by him in such penal sum as he may require, condi- tioned for the payment by the taxpayer of any amount of taxes found due upon any such rede- termination ; and the bond here- in prescribed shall contain such further conditions as the Com- missioner may require. (c) These credits shall be al- lowed only if the taxpayer fur- nishes evidence satisfactory to the Commissioner showing the amount of income derived from sources without the United States, and all other information necessary for the verification and computation of such credit. (d) If a domestic corporation makes a return for a fiscal year beginning in 1920 and ending in 1921, the credit for the entire fiscal year shall, notwithstanding any provision of this Act, be de- termined under the provisions of this section ; and the Commis- sioner is authorized to disallow, in whole or in part, any such credit which he finds has already been taken by the taxpayer. (e) For the purposes of this section a domestic corporation which owns a majority of the voting stock of a foreign corpo- ration from which it receives dividends (not deductible under section 234) in any taxable year shall be deemed to have paid the same proportion of any income, war-profits, or excess-profits taxes paid by such foreign cor- poration to any foreign country or to any possession of the United States, upon or with re- spect to the accumulated profits of such foreign corporation from which such dividends were paid, which the amount of such divi- dends bears to the amount of such accumulated profits: Pro- with the provisions of section 252. In the case of such a tax accrued but not paid, the Com- missioner as a condition prece- dent to the allowance of this credit may require the corpora- tion to give a bond with sureties satisfactory to and to be ap- proved by him in such penal sum as he may require, condi- tioned for the payment by the taxpayer of any amount of taxes found due upon any such rede- termination ; and the bond here- in prescribed shall contain such further conditions as the Com- missioner may require. (b) This credit shall be al- lowed only if the taxpayer fur- nishes evidence satisfactory to the Commissioner showing the amount of income derived from sources within such foreign country or such possession of the United States, as the case may be, and all other information necessary for the computation of such credit. (c) If a domestic corporation makes a return for a fiscal year beginning in 1917 and ending in 1918, only that proportion of this credit shall be allowed which the part of such period within the calendar year 1918 bears to the entire period. CREDIT FOR TAXES ALLOWED CORPORATIONS 215 Act of 1916. Act of 1913. Act of 1909. 216 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. vided, That the credit allowed to any domestic corporation under this subdivision shall in no ease exceed the same proportion of the taxes against which it is credited, which the amount of such dividends bears to the amount of the entire net income of the domestic corporation in which such dividends are in- cluded. The term ' ' accumulated profits" when used in this sub- division in reference to a for- eign corporation, means the amount of its gains, profits, or income in excess of the income, war-profits, and excess-profits taxes imposed upon or with re- spect to such profits or income; and the Commissioner with the approval of the Secretary shall have full power to determine from the accumulated profits of what year or years such divi- dends were paid; treating divi- dends paid in the first sixty days of any year as having been paid from the accumulated profits of the preceding year or years (un- less to his satisfaction shown otherwise) , and in other respects treating dividends as having been paid from the most recent- ly accumulated gains, profits, or earnings. In the case of a for; eign corporation, the income, war-profits, and excess-profits taxes of which are determined on the basis of an accounting period of less than one year, the word 'year" as used in this subdivi- sion shall be construed to mean such accounting period. (f) For the purposes of this section a corporation entitled to the benefits of section 262 shall be treated as a foreign corpora- tion. CORPOKATION EETURNS. Basis of return, p. 174. Fiscal year Sec. 205, p. 26. Sec. 232, authorized. CORPORATION RETURNS. Basis of return. Sec. 232, p. 174. Fiscal year authorized. Sec. 205, p. 26. RETURNS. Sec. 13. (a) The tax shall be computed upon the net income, as thus ascertained, received within each preceding calendar year ending December thirty- first: Provided, That any cor- poration, joint-stock company or association, or insurance com- Act of 1916. CORPORATION RETURNS Act of 1913. 217 Act of 1909. RETURNS. Sec. 13. (a) The tax shall be computed upon the net in- come, as thus ascertained, re- ceived within each preceding calendar year ending December thirty-first: Provided, That any corporation, joint-stock company or association, or insurance com- G. (c) [1] The tax herein im- posed shall be computed upon its entire net income accrued within each preceding calendar year ending December thirty- first: Provided however, That for the year ending December thirty-first, nineteen hundred THIRD. [2] and said tax shall be computed upon the remain- der of said net income of such corporation, joint-stock company or association, or insurance com- pany, for the year endingDecem- ber thirty-first, nineteen hundred 218 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917, . Sec. 239. (a) [1] That every corporation subject to taxation under this title and every per- sonal service corporation shall make a return, stating specifi- cally the items of its gross in- come and the deductions and credits allowed by this title. The return shall be sworn to by the President, Vice-President, or other principal officer and by the Treasurer or Assistant Treas- urer. If any foreign corpora- tion has no office or place of bus- iness in the United States but has an agent in the United States the return shall be made by the agent. Sec. 239. [1] That every cor- poration subject to taxation un- der this title and every personal service corporation shall make a return, stating specifically the items of its gross income and the deductions and credits allowed by this title. The return shall be sworn to by the president, vice president, or other principal offi- cer and by the treasurer or as- sistant treasurer. If any foreign corporation has no office or place of business in the United States but has an agent in the United States, the return shall be made by the agent. pany, subject to this tax, may designate the last day of any month in the year as the day of the closing of its fiscal year and shall be entitled to have the tax payable by it computed upon the basis of the net income ascer- tained as herein provided for the year ending on the day so desig- nated in the year preceding the date of assessment instead of upon the basis of the net income for the calendar year preceding the date of assessment; and it shall give notice of the day it has thus designated as the closing of its fiscal year to the collector of the district in which its princi- pal business office is located at any time not less than thirty days prior to the first day of March of the year in which its return would be filed if made upon the basis of the calendar year; (b) [1] Every corporation, joint-stock company or associa- tion, or insurance company, sub- ject to the tax herein imposed, shall, on or before the first day of March, nineteen hundred and seventeen, and the first day of March in each year thereafter, or, if it has designated a fiscal year for the computation of its tax, then within sixty days after the close of such fiscal year end- ing prior to December thirty- first, nineteen hundred and six- teen, and the close of each such fiscal year thereafter, render a true and accurate return of its annual net income in the man- 121(a) The requirement of ordinary and reason- able returns under Sec. 38, Act of 1909, did not violate the unreasonable search and seizure provision of the Fourth Amendment to the Federal Constitu- tion. 107. Flint V. Stone-Tracy Co., (1911) 220 U. S. 121(b) Corporations specified in Sec. 38, Act of Act of 1916. CORPORATION RETURNS Act of 1913. 219 Act of 1909. party, subject to this tax, may- designate the last day of any month in the year as the day of the closing of its fiscal year and shall be entitled to have the tax payable by it computed upon the basis of the net income ascer- tained as herein provided for the year ending on the day so designated in the year preced- ing the date of assessment in- stead of upon the basis of the net income for the calendar year preceding the date of as- sessment ; and it shall give notice of the day it has thus designated as the closing of its fiscal year to the collector of the district in which its principal business office is located at any time not less than thirty days prior to the first day of March of the year in which its return would be filed if made upon the basis of the calendar year; (b) [1] Every corporation, joint-stock company or associa- tion, or insurance company, sub- ject to the tax herein imposed, shall, on or before the first day of March, nineteen hundred and seventeen, and the first day of March in each year thereafter, or, if it has designated a fiscal year for the computation of its tax, then within sixty days after the close of such fiscal year end- ing prior to December thirty- first, nineteen hundred and six- teen, and the close of each such fiscal year thereafter, render a true and accurate return of its annual net income in the man- and thirteen, said tax shall be imposed upon its entire net in- come accrued within that por- tion of said year from March first to December thirty-first, both dates inclusive, to be ascer- tained by taking five-sixths of its entire net income for said calendar year : Provided further, That any corporation, joint- stock company or association, or insurance company subject to this tax may designate the last day of any month in the year as the day of the closing of its fiscal year and shall be entitled to have the tax payable by it computed upon the basis of the net income ascertained as here- in provided for the year ending on the day so designated in the year preceding the date of as- sessment instead of upon the basis of the net income for the calendar year preceding the date of assessment ; and it shall give notice of the day it has thus des- ignated as the closing of its fis- cal year to the collector of the district in which its principal business office is located at any time not less than thirty days prior to the date upon which its annual return shall be filed. [2] All corporations, joint- stock companies or associations, and insurance companies sub- ject to the tax herein imposed, computing taxes upon the in- come of the calendar year, shall, on or before the first day of March, nineteen hundred and fourteen, and the first day of March in each year thereafter, and all corporations, joint-stock companies or associations, and insurance companies, computing taxes upon the income of a fiscal year which it may designate in the manner hereinbefore pro- vided, shall render a like return within sixty days after the close and nine, and for each calendar year thereafter; [3] and on or before the first day of March, 1910, and the first day of March in each year there- after, a true and accurate re- turn 121 under oath or affirma- tion of its president, vice presi- dent, or other principal officer, and its treasurer or assistant treasurer, shall be made by each of the corporations, joint-stock companies or associations, and insurance companies, subject to the tax imposed by this section, to the collector of internal rev- enue for the district in which such corporation, joint-stock company or association, or in- surance company, has its prin- 1909, were required to file returns regardless of C, W. D. Mo. 1913) 204 Fed. 153; U. S. v. Acorn whether they had sufficient net income to render them Roofing Co. et al., (D. C, E. D. N. Y. 1912) 204 subject to the tax. U. S. v. Military Const. Co., (D. Fed. 157. 220 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. Time of making return. Sec. 227, p. 146. TIME AND PLACE FOE FILING COE- POEATE EETUENS. Sec. 241. (a) That returns of corporations shall be made at the same time as is provided in subdivision (a) of section 227 except that in the ease of for eign corporations not having any office or place of business in the United States returns shall be made at the same time as pro- vided in section 227 in the case of a nonresident alien individ- ual. (b) Returns shall be made to the collector of the district in which is located the principal place of business or principal of- fice or agency of the corporation, or, if it has no principal place of business or principal ofSce or agency in the United States, then to the collector at Balti- more, Maryland. Time of making return. Sec. 227, p. 146. TIME AND PLACE FOE FILING EETUENS.' Sec. 241. (a) That returns of corporations shall be made at the same time as is provided in sub- division (a) of section 227. (b) Returns shall be made to the collector of the district in which is located the principal place of business or principal office or agency of the corpora- tion, or, if it has no principal place of business or principal office or agency in the United States, then to the collector at Baltimore, Maryland. ner and form to be prescribed by the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, and containing such facts, data, and information as are appro- priate and in the opinion of- the commissioner necessary to deter- mine the correctness of the net income returned and to carry out the provisions of this title. The return shall be sworn to by the president, vice president, or other principal officer, and by the treasurer or assistant treas- urer. The return shall be made to the collector of the district in which is located the principal office of the corporation, com- pany, or association, where are kept its books of account and other data from which the return is prepared, or in the case of a foreign corporation, company, or association, to the collector of the district in which is located its principal place of business in the United States, or if it have no principal place of business, office or agency in the United States, then to the collector of internal revenue at Baltimore, Maryland. TIME AND PLACE FOR FILING RETURNS 221 Act of 1916, Act of 1913. Act of 1909. ner and form to be prescribed by the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, and containing such facts, data, and information as are appro- priate and in the opinion of the commissioner necessary to de- termine the correctness of the net income returned and to carry out the provisions of this title. The return shall be sworn to by the president, vice presi- dent, or other principal officer, and by the treasurer or assist- ant treasurer. The return shall be made to the collector of the district in which is located the principal office of the corpora- tion, company, or association, where are kept its books of ac- count and other data from which the return is prepared, or in the case of a foreign corporation, company, or association, to the collector of the district in which is located its principal place of business in the United States, or if it have no principal place of business, office, or agency in the United States, then to the col- lector of internal revenue at Bal- timore, Maryland. of its said fiscal year, and with- in sixty days after the close of its fiscal year in each year there- after, or in the case of a cor- poration, joint-stock company or association, or insurance com- pany, organized or existing un- der the laws of a foreign coun- try, in the place where its prin- cipal business is located within the United States, in such form as the Commissioner of Inter- nal Revenue, with the approval of the Secretary of the Treas- ury, shall prescribe, shall render a true and accurate return un- der oath or affirmation of its president, vice president, or other principal officer, and its treasurer or assistant treasurer, to the collector of internal rev- enue for the district in which it has its principal place of busi- ness, setting forth : G. (c) [3] (first) the total amount of its paid-up capital stock outstanding, or if no capi- tal stock, its capital employed in business, at the close of the year ; [4] (second) the total amount of its bonded and other indebted- ness at the close of the year ; [5] (third) the gross amount of its income, received during such year from all sources, and if organized under the laws of a foreign country the gross amount of its income received eipal place of business, or, in the case of a corporation, joint- stock company or association, or insurance company, organized under the laws of a foreign country, in the place where its principal business is carried on within the United States, in such form as the Commissioner of In- ternal Revenue, with the ap- proval of the Secretary of the Treasury, shall prescribe, set- ting forth: THIRD. [4] (first) the total amount of the paid-up capital stock of such corporation, joint- stock company or association, or insurance company, outstanding at the close of the year ; [5] (second) the total amount of the bonded and other in- debtedness of such corporation, joint-stock company or associa- tion, or insurance company at the close of the year ; [6] (third) the gross amount of the income of such corpora- tion, joint-stock company or as- sociation, or insurance company, received during such year from all sources, and if organized ""- 222 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. Act of 1916. RETURNS FOR 1913 AND 1909 Act of 1913. 223 Act of 1909. within the year from business transacted and capital invested within the United States ; [6] (fourth) the total amount of all its ordinary and necessary expenses paid out of earnings in the maintenance and operation of the business and properties of such corporation, joint-stock company or association, or insur- ance company within the year, stating separately all rentals or other payments required to be made as a condition to the con- tinued use or possession of prop- erty, and if organized under the laws of a foreign country the amount so paid in the mainte- nance and operation of its busi- ness within the United States ; [7] (fifth) the total amount of all losses actually sustained during the year and not compen- sated by insurance or otherwise, stating separately any amounts allowed for depreciation of prop- erty, and in case of insurance companies the net addition, if any, required by law to be made within the year to reserve funds and the sums other than divi- dends paid within the year on policy and annuity contracts: Provided further, That mutual fire insurance companies requir- ing their members to make pre- mium deposits to provide for losses and expenses shall not re- turn as income any portion of the premium deposits returned der the laws of a foreign coun- try the gross amount of its in- come received within the year from business transacted and capital invested within the United States and any of its Ter- ritories, Alaska, and the District of Columbia ; also the amount re- ceived by such corporation, joint-stock company or associa- tion, or insurance company, within the year by way of divi- dends upon stock of other cor- porations, joint-stock companies or associations, or insurance companies, subject to the tax im- posed by this section ; [7] (fourth) the total amount of all the ordinary and necessary expenses actually paid out of earnings in the maintenance and operation of the business and properties of such corporation, joint-stock company or associa- tion, or insurance company, within the year, stating sepa- rately aU charges such as rentals or franchise payments required to be made as a condition to the continued use or possession of property, and if organized un- der the laws of a foreign coun- try the amount so paid in the maintenance and operation of its business within the United States and its Territories, Alaska, and the District of Columbia ; [8] (fifth) the total amount of all losses actually sustained ' during the year and not compen- sated by insurance or otherwise, stating separately any amounts allowed for depreciation of prop- erty, and in the case of insurance companies the sums other than dividends, paid within the year on policy and annuity contracts and the net addition, if any, re- quired by law to be made within the year to reserve funds; and in the case of a corporation, joint-stock company or associa- tion, or insurance company, or- ganized under the laws of a for- eign country, all losses actually sustained by it during the year in business conducted by it with- 224 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. Act of 1916. RETURNS FOR 1913 AND 1909 Act of 1913. 225 Act of 1909. to their policyholders, but shall return as taxable income all in- come received by them from all other sources plus such portions of the premium deposits as are retained by the companies for purposes other than the payment of losses and expenses and rein- surance reserves: Provided fur- ther, That mutual marine insur- ance companies shall include in their return of gross income gross premiums collected and re- ceived by them less amounts paid for reinsurance, but shall be en- titled to include in deductions from gross income amounts re- paid to policyholders on account of premiums previously paid by them, and interest paid upon such amounts between the ascer- tainment thereof and the pay- ment thereof and life insurance companies shall not include as income in any year such portion of any actual premium received from any individual policy- holder as shall have been paid back or credited to such individ- ual policyholder, or treated as an abatement of premium of such individual policyholder, within such year ; and in case of a cor- poration, joint-stock company or association, or insurance com- pany, organized under the laws of a foreign country, all losses actually sustained by it during the year in business conducted by it within the United States, nQt compensated by insurance or otherwise, stating separately any amounts allowed for deprecia- tion of property, and in ease of insurance companies the net ad- dition, if any, required by law to be made within the year to reserve funds and the sums other than dividends paid within the year on policy and annuity contracts : Provided further, That mutual fire insurance com- panies requiring their members to make premium deposits to provide for losses and expenses shall not return as income any portion of the premium de- in the United States or its Terri- tories, Alaska, and the District of Columbia, not compensated by insurance or otherwise, stating separately any amounts allowed for depreciation of property, and in the ease of insurance compa- nies the sums other than divi- dends, paid within the year on policy and annuity contracts and the net addition, if any, required by law to be made within the year to reserve fund ; 226 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. Act of 1916. RETURNS FOR 1913 AND 1909 Act of 1913. 227 Act of 1909. posits returned to their policy- holders, but shall return as, taxa- ble income all income received by them from all other sources plus such portions of the pre- mium deposits as are retained by the companies for purposes other than the payment of losses and expenses and reinsurance re- serves: Provided further, That mutual marine insurance compa- nies shall include in their return of gross income gross premiums collected and received by them less amounts paid for reinsur- ance, but shall be entitled to in- clude in deductions from gross income amounts repaid to policy- holders on account of premiums previously paid by them and in- terest paid upon such amounts between the ascertainment there- of and the payment thereof and life insurance companies shall not include as income in any year such portion of any actual premium received from any indi- vidual policyholder as shall have been paid back or credited to such individual policyholder, or treated as an abatement of pre- mium of such individual policy- holder, within such year; G. (c) [8] (sixth) the amount of interest accrued and paid within the year on its bonded or other indebtedness not exceeding one-half of the sum of its interest bearing indebtedness and its paid up capital stock outstanding at the close of the year, or if no capital stock, the amount of in- terest paid within the year on an amount of indebtedness not ex- ceeding the amount of capital employed in the business at the close of the year, and in the case of a bank, banking association, or trust company, stating sepa- rately all interest paid by it within the year on deposits ; or in case of a corporation, joint- stock company or association, or insurance company, organized under the laws of a foreign coun- try, interest so paid on its bond- ed or other indebtedness to an THIRD. [9] (sixth) the amount of interest actually paid within the year on its bonded or other indebtedness not exceeding the paid-up capital stock of such corporation, joint-stock company or association, or insurance com- pany, outstanding at the close of the year, and in the case of a bank, banking association or trust company, stating separate- ly all interest paid by it within the year on deposits; or in case of a corporation, joint-stock company or association, or insur- ance company, organized under the laws of a foreign country, in- terest so paid on its bonded or other indebtedness to an amount of such bonded and other in- debtedness not exceeding the proportion of its paid-up capital stock outstanding at the close of the year, which the gross amount 228 Act of 1921. FEDERAL INCOME TAX LA-MfS Act of 1918. Act of 1917. Sec. 239. (a) [2] In cases where receivers, trustees in bankruptcy, or assignees are operating the property or busi- ness of corporations, such re- ceivers, trustees, or assignees shall make returns for such cor-' porations in the same manner and form as corporations are re- quired to make returns. Any! tax due on the basis of such re- turns made by receivers, trus- tees, or assignees shall be col- lected in the same manner as it collected from the corporations of whose business or property they have custody and control Sec. 239. [2] In cases where: receivers, trustees in bankruptcy,: or assignees are operating the! property or business of corpora-, tions, such receivers, trustees, or' assignees shall make returns for such corporations in the same manner and form as corpora- tions are required to make re- turns. Any tax due on the basis of such returns made by receiv- ers, trustees, or assignees shall be collected in the same manner as if collected from the corpora-, tions of whose business or prop- erty they have custody and con- trol. Sec. 13. (b) [2] All such re- turns shaU as received be trans- mitted forthwith by the collector to the Commissioner of Internal Revenue ; (c) In cases wherein receivers, trustees in bankruptcy, or as- signees are operating the prop- erty or business of corporations, joint-stock companies or associa- tions, or insurance companies, subject to tax imposed by this title, such receivers, trustees, or assignees shall make returns of net income as and for such cor- porations, joint-stock companies or associations, and insurance companies, in the same manner and form as such organizations are hereinbefore required to make returns, and any income tax due on the basis of such re- turns made by receivers, trus- tees, or assignees shall be as- sessed and collected in the same manner as if assessed directly Act of 1916. RETURNS BY RECEIVERS, ETC. Act of 1913. 229 Act of 1909. Sec. 13. (b) [2] All such re- turns shall as received be trans- mitted forthwith by the collec- tor to the Commissioner of In- ternal Kevenue; (c) In cases wherein receivers, trustees in bankruptcy, or as- signees are operating the prop- erty or business of corporations, joint-stock companies or associa- tions, or insurance companies, subject to tax imposed by this title, such receivers, trustees, or assignees shall make returns of net income as and for such cor- porations, joint-stock companies or associations, and insurance companies, in the same manner and form as such organizations are hereinbefore required to make returns, and any income tax due on the basis of such re- turns made by receivers, trus- tees, or assignees shall be as- sessed and collected in the same manner as if assessed directly amount of such bonded or other indebtedness not exceeding the proportion of its paid-up capital stock outstanding at the close of the year, or if no capital stock, the amount of capital employed in the business at the close of the year, which the gross amount of its income for the year from bus- iness transacted and capital in- vested within the United States bears to the gross amount of its income derived from all sources within and without the United States ; [9] (seventh) the amount paid by it within the year for taxes imposed under the author- ity of the United States and separately the amount so paid by it for taxes imposed by the Government of any foreign country ; [10] (eighth) the net income of such corporation, joint-stock company or association, or in- surance company, after making the deductions in this subsec- tion authorized. [11] All such returns shall as received be transmitted forth- with by the collector to the Com- missioner of Internal Eevenue. of its income for the year from business transacted and capital invested within the United States and any of its Territories, Alaska, and the District of Co- lumbia, bears to the gross amount of its income derived from all sources within and without the United States ; [10] (seventh) the amount paid by it within the year for taxes imposed under the au- thority of the United States or any State or Territory thereof, and separately the amount so paid by it for taxes imposed by the government of any foreign country as a condition to carry- ing on business therein ; > . [11] (eighth) the net income of such corporation, joint-stock company or association, or in- surance company, after making the deductions in this section authorized. [12] All such returns shall as received be transmitted forth- with by the collector to the Com- missioner of Internal Eevenue. 230 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. (b) Returns made under this section shall be subject to the provisions of sections 226 and 228. When return is made un- der section 226 the credit pro- vided in subdivision (b) of sec- tion 236 shall be reduced to an amount which bears the same ra- tio to the full credit therein pro- vided as the number of months in the period for which such re- turn is made bears to twelve months. (c) There shall be included in the return or appended thereto a statement of dueh facts as will enable the Commissioner to de- termine the portion of the earn- ings or profits of the corpora- tion (including gains, profits and income not taxed) accumu- lated during the taxable year for which the return is made, which have been distributed or ordered to be distributed, respectively, to its stockholders or members during such year. CONSOLIDATED RETURNS OF COR- PORATIONS. Sec. 240. (a) That corpora- tions which are affiliated within the meaning of this section may, for any taxable year beginning on or after January 1, 1922, make separate returns or, under regulations prescribed by the Commissioner with the approval of the Secretary, make a con- [3] Returns made under this section shall be subject to the provisions of sections 226 and 228. When return is made un- der section 226 the credit pro- vided in subdivision (c) of sec- tion 236 shall be reduced to an amount which bears the same ratio to the full credit therein provided as the number of months in the period for which such return is made bears to twelve months. CONSOLIDATED RETURNS. Sec. 240. (a) That corpora- tions which are affiliated within the meaning of this section shall, under regulations to be pre- scribed by the Commissioner with the approval of the Secre- tary, make a consolidated return of net income and invested capi- tal for the purposes of this title against the organizations of whose businesses or properties they have custody and control; (d) A corporation, joint-stock company or association, or in- surance company, keeping ac- counts upon any basis other than that of actual receipts and dis- bursements, unless such other basis does not clearly reflect its income, may, subject to regula- tions made by, the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, make its return upon the basis upon which its ac- counts are kept, in which case the tax shall be computed upon its income as so returned : CONSOLIDATED RETURNS 231 Act of 1916. Act of 1913. Act of 1909. against the organizations of whose businesses or properties they have custody and control; (d) A corporation, joint-stock company or association, or in- surance company, keeping ac- counts upon any basis other than that of actual receipts and dis- bursements, unless such other basis does not clearly reflect its income, may, subject to regula- tions made by the Commissioner of Internal Bevenue, with the approval of the Secretary of the Treasury, make its return upon the basis upon which its ac- counts are kept, in which case the tax shall be computed upon its income as so returned; 232 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. solidated return of net income for the purpose of this title, in which case the taxes thereunder shall be computed and deter- mined upon the basis of such re- turn. If return is made on either of such bases, all returns thereafter made shall be upon the same basis unless permission to change the basis is granted by the Commissioner. (b) In any case in which a tax is assessed upon the basis of a consolidated return, the total tax shall be computed in the first instance as a unit and shall then be assessed upon the respec- tive affiliated corporations in such proportions as may be agreed upon among them, or, in the absence of any such agree- ment, then on the basis of the net income properly assignable to each. There shall be allowed in computing the income tax only one specific credit com- puted as provided in subdivision (b) of section 236. (c) For the purpose of this section two or more domestic cor- porations shall be deemed to be affiliated (1) if one corporation owns directly or controlsthrough closely affiliated interests or by a nominee or nominees substan- and Title III, and the taxes thereunder shall be computed and determined upon the basis of such return: Provided, That there shall be taken out of such consolidated net income and in- vested capital, the net income and invested capital of any such affiliated corporation organized after August 1, 1914, and not successor to a then existing busi- ness, 50 per centum or more of whose gross income consists of gains, profits, commissions, or other income, derived from a Government contract or con- tracts made between April 6, 1917, and November 11, 1918, both dates inclusive. In such ease the corporation so taken out shall be separately assessed on the basis of its own invested cap- ital and net income and the re- mainder of such affiliated group shall be assessed on the basis of the remaining consolidated in- vested capital and net income. In any case in which a tax is assessed upon the basis of a con- solidated return, the total tax shall be computed in the first in- stance as a unit and shall then be assessed upon the respective affiliated corporations in such proportions as may be agreed upon among them, or, in the ab- sence of any such agreement, then on the basis of the net in- come properly assignable to each. There shall be allowed in computing the income tax only one specific credit of $2,000 (as provided in section 236) ; in" computing the war-profits credit (as provided in section 311) only one specific exemption of $3,000; and in computing the excess-profits credit (as pro- vided in section 312) only one specific exemption of $3,000. (b) For the purpose of this section two or more domestic corporations shall be deemed to be affiliated (1) if one corpora- tion owns directly or controls through closely affiliated inter- ests or by a nominee or nominees Act of 1916. CONSOLIDATED RETURNS Act of 1913. 233 Act of 1909. 234 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. tially all the stock of the other or others, or (2) if substantially all the stock of two or more corporations is owned or con- trolled by the same interests. (d) For the purposes of this section a corporation entitled to the benefits of section 262 shall be treated as a foreign corpora- tion : Provided, That in any case of two or more related trades or businesses (whether unincor- porated or incorporated and whether organized in the United States or not) owned or con- trolled directly or indirectly by the same interests, the Commis- sioner may consolidate the ac- counts of such related trades and businesses, in any proper case, for the purpose of making an accurate distribution or ap- portionment of gains, profits, income, deductions, or capital between or among such related trades or businesses. (e) Corporations which are af- substantially all the stock of the other or others, or (2) if sub- stantially all the stock of two or more corporations is owned or controlled by the same interests. (c) For the purposes of sec- tion 238 a domestic corporation which owns a majority of the voting stock of a foreign cor- poration shall be deemed to have paid the same proportion of any income, war-profits and excess- profits taxes paid (but not in- eluding taxes accrued) by such foreign corporation during the taxable year to any foreign country or to any possession of the United States upon income derived from sources without the United States, which the amount of any dividends (not deductible under section 234) re- ceived by such domestic corpora- tion from such foreign corpora- tion during the taxable year bears to the total taxable income of such foreign corporation upon or with respect to which such taxes were paid : Provided, That in no such case shall the amount of the credit for such taxes ex- ceed the amount of such divi- dends (not deductible under sec- tion 234) received by such do- mestic corporation during the taxable year. Act of 1916. CONSOLIDATED RETURNS Act of 1913. 235 Act of 1909. 236 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. . Act of 1917. filiated within the meaning of this section shall make consoli- dated returns for any taxable year beginning prior to Janu- ary 1, 1922, in the same man- ner and subject to the same con- ditions as provided by the Eeve- nue Act of 1918. CONSOLIDATED RETURNS FOR YEAR 1917. Sec. 1331.1 (a) That Title II of the Eevenue Act of 1917 shall be construed to impose the taxes, therein mentioned upon the basis of consolidated returns of net income and invested capital in the case of domestic corporations and domestic partnerships that were affiliated during the calen- dar year 1917. (b) For the purpose of this section a corporation or partner- ship was affiliated with one or more corporations or partner- ships (1) when such corpora- tion or partnership owned di- rectly or controlled through closely affiliated interests or by a nominee or nominees all or substantially all the stock of the other or others, or (2) when sub- stantially all the stock of two or more corporations or the busi- ness of two or more partnerships was owned by the same inter- ests: Provided, That such cor- porations or partnerships were engaged in the same or a closely related business, or one corpora- tion or partnership bought from or sold to another corporation or partnership products or serv- ices at prices above or below the current market, thus effecting an artificial distribution of profits, or one corporation or partner- ship in any way so arranged its financial relationships with an- other corporation or partner- ship as to assign to it a dispro- portionate share of net income or invested capital. For the pur- poses of this section, public serv- ice corporations which (1) were operated independently, (2) 1 Title XIII. Act of 1916. CONSOLIDATED RETURNS FOR 1917 Act of 1913. Act of 1909. 237 238 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. were not physically connected or merged and (3) did not receive special permission to make a con- solidated return, shall not be construed to have been affiliated ; but a railroad or other public utility which was owned by an industrial corporation and was operated as a plant facility or as an integral part of a group organization of affiliated cor- porations which were required to file a consolidated return, shall be construed to have been affiliated. (c) The provisions of this sec- tion are declaratory of the pro- visions of Title II of the Eeve- nue Act of 1917. TAXES ON INSURANCE COMPANIES. Sec. 242. That when used in this title the term "life insur- ance company" meajis an in- surance company engaged in the business of issuing life insur- ance and annuity contracts (in- cluding contracts of combined life, health, and accident insur- ance), the reserve funds of which held for the fulfillment of such contracts comprise more than 50 per centum of its total reserve funds. Sec. 243. That in lieu of the taxes imposed by sections 280 and 1000 and by Title III, there shall be levied, collected, and paid for the calendar year 1921 and for each taxable year there- after upon the net income of every life insurance company a tax as follows: (1) In the case of a domestic life insurance company the same percentage of its net income as is imposed upon other corpora- tions by section 230; (2) In the case of a foreign life insurance company the same percentage of its net income from sources within the United States as is imposed upon the net income of other corporations by section 230. Sec. 244. (a) That in the case of a life insurance company the tei-m "gross income" means the TAXES ON LIFE INSURANCE COMPANIES COMPANIES 239 Act of 1916. Act of 1913. Act of 1909. 240 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. gross amount of income received during the taxable year from in- terest, dividends, and rents. (b) The term "reserve funds required by law" includes, in the case of assessment insurance, sums actually deposited by any company or association with State or Territorial ofSeers pur- suant to law as guaranty or re- serve funds, and any funds maintained- under the charter or articles of incorporation of the company or association exclu- sively for the payment of claims arising under certificates of membership or policies issued upon the assessment plan and not subject to any other use. Sec. 245. (a) That in the case of a life insurance company the term "net income" means the gross income less — (1) The amount of interest received during the taxable year which under paragraph (4) of subdivision (b) of section 213 is exempt from taxation under this title ; (2) An amount equal to the excess, if any, over the deduction specified in paragraph (1) of this subdivision, of 4 per centum of the mean of the reserve funds required by law and held at the beginning and end of the tax- able year, plus (in case of life insurance companies issuing pol- icies covering life, health, and accident insurance combined in one policy issued on the weekly premium payment plan, continu- ing for life and not subject to cancellation) 4 per centum of the mean of such reserve funds (not required by law) held at the beginning and end of the taxable year, as the Commis- sioner finds to be necessary for the protection of the holders of such policies only; (3) The amount received as dividends (A) from a domestic corporation other than a cor- poration entitled to the benefits of section 262, or (B) from any foreign corporation when it is shown to the satisfaction of the DEDUCTIONS ALLOWED LIFE INSURANCE COMPANIES 241 Act of 1916. Act of 1913. Act of 1909. 242 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. Commissioner that more than 50 per centum of the gross income of such foreign corporation for the three-year period ending with the close of its taxable year preceding the declaration of such dividends (or for such part of such period as the foreign corporation has been in exist- ence) was derived from sources within the United States as de- termined under section 217 ; (4) An amount equal to 2 per centum of any sums held at the end of the taxable year as a reserve for dividends (other than dividends payable during the year following the taxable year) the payment of which is deferred for a period of not less than five years from the date of the policy contract; (5) Investment expenses paid during the taxable year: Pro- vided, That if any general ex- penses are in part assigned to or included in the investment expenses, the total deduction under this paragraph shall not exceed one-fourth of 1 per cen- tum of the book value of the mean of the invested assets held at the beginning and end of the taxable year ; (6) Taxes and other expenses paid during the taxable year ex- clusively upon or with respect to the real estate owned by the company, not including taxes assessed against local benefits of a kind tending to increase the value of the property assessed, and not including any amount paid out for new buildings, or for permanent improvements or betterments made to increase the value of any property. The de- duction allowed by this para- graph shall be allowed in the case of taxes imposed upon a shareholder or member of a com- pany upon his interest as share- holdetr or member, which are paid by the company without reimbursement from the share- holder or member, but in such cases no deduction shall be al- lowed the shareholder or mem- DEDUCTIONS ALLOWED LIFE INSURANCE COMPANIES 243 Act of 1916. Act of 1913. Act of 1909. 244 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. ber for the amount of such taxes ; (7) A reasonable allowance for the exhaustion, wear and tear of property, including a reasonable allowance for obso- lescence. In the case of prop- erty acquired before March 1, 1913, this deduction shall be computed upon the basis of its fair market price or value as of March 1, 1913; (8) All interest paid or ac- crued within the taxable year on its indebtedness, except on indebtedness incurred or con- tinued to purchase or carry ob- ligations or securities (other than obligations of the United States issued after September 24, 1917, and originally sub- scribed for by the taxpayer) the interest upon which is wholly exempt from taxation under this title; (9) In the case of a domestic life insurance company, the net income of which (computed without the benefit of this po,ra- graph) is $25,000 or less, the sum of $2,000; but if the net income is more than $25,000 the tax imposed by section 243 shall not exceed the tax which wcsuld be payable if the $2,000 credit were allowed, plus the amount of the net income in excess of $25,000. Sec. 245. (b) No deduction shall be made under paragraphs (6) and (7) of subdivision (a) on account of any real estate owned and occupied in whole or in part by a life insurance com- pany unless there is included in the return of gross income the rental value of the space so occu- pied. Such rental value shall be not less than a sum which in ad- dition to any rents received from other tenants shall provide a net income (after deducting taxes, depreciation, and all other expenses) at the rate of 4 per centum per annum of the book value at the end of the taxable year of the real estate so owned or occupied. DEDUCTIONS ALLOWED LIFE INSURANGE COMPANIES 245 Act of^ 1916. Act of 1913. Act of 1909. 246 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. (c) In the case of a foreign, life insurance company the amount of its net income for any taxable year from sources with- in the United States shall be the same proportion of its net in- come for the taxable year from sources within and without the United States, which the reserve funds required by law and held by it at the end of 'the taxable year upon business transacted within the United States is of the reserve funds held by it at the end of the taxable year upon all business transacted. Sec. 246. (a) That, in lieu of the taxes imposed by sections 230 and 1000, there shall be levied, collected and paid for the cal- endar year 1922, and for each taxable year thereafter, upon the net income of every insur- ance company (other than a life or mutual insurance company) a tax as follows : (1) In the case of such a domestic insurance company the same percentage of its net in- come as is imposed upon other corporations by section 230; (2) In the case of such a for- eign insurance company the same percentage of its net in- come from sources within the United States as is imposed up- on the net income of other cor- porations by section 230. (b) In the case of an insur- ance company subject to the tax imposed by this section — (1) The term "gross income" means the combined gross amount, earned during the tax- able year, from investment in- come and from underwriting in- come as provided in this sub- division, computed on the basis of the underwriting and invest- ment exhibit of the annual state- ment approved by the National Convention of Insurance Com- missioners ; (2) The term "net income" means the gross income as de- fined in paragraph (1) of this subdivision less the deductions allowed by section 247 ; Act of 1916. TAXES ON INSURANCE COMPANIES Act of 1913. 247 Act of 1909. 248 Act of 1921, FEDERAL INCOME TAX LAWS Act of 1918. ^# of 1917, (3) The term "investment in- come" means the gross amount of income earned during the taxable year from interest, divi- dends and rents, computed as follows : To all interest, dividends and rents received during the tax- able year, add interest, dividends and rents due and accrued at the end of the taxable year, and deduct all interest, dividends and rents due and accrued at the end of the preceding taxable year; (4) The term "underwriting income" means the premiums earned on insurance contracts during the taxable year less losses incurred and expenses in- curred ; (5) The term "premiums earned on insurance contracts during the taxable year" means an amount computed as follows : From the amount of gross premiums written on insurance contracts during the taxable year, deduct return premiums and premiums paid for reinsur- ance. To the result so obtained add unearned premiums on out- standing business at the end of the preceding taxable year and deduct unearned premiums on outstanding business at the end of the taxable year; (6) The term "losses in- curred" means losses incurred during the taxable year on in- surance contracts, computed as follows : To losses paid during the tax- able year, add salvage and re- insurance recoverable outstand- ing at the end of the preceding taxable year, and deduct salv- age and reinsurance recoverable outstanding at the end of the taxable year. To the results so obtained add all unpaid losses outstanding at the end of the taxable year and deduct unpaid losses outstanding at the end of the preceding taxable year; (7) The term "expenses in- curred" means all expenses shown on the annual statement Act of 1916. DEFINITION OF'INSURANCE TERMS Act of 1913. 249 Act of 1909. 250 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. approved by the National Con- vention of Insurance Commis- sioners, and shall be computed as follows: To all expenses paid during the taxable year add expenses unpaid at the end of the taxable year and deduct expenses un- paid at the end of the preceding taxable year. For the purpose of computing the net income subject to the tax imposed by this section there shall be de- ducted from expenses incurred as defined in this paragraph all expenses incurred which are not allowed as deductions bv section 247. Sec. 247. (a) That in comput- ing the net income of an insur- ance company subject to the tax imposed by section 246 there shall be allowed as deductions: (1) All ordinary and neces- sary expenses incurred, as pro- vided in paragraph (1) of sub- division (a) of section 234; (2) All interest as provided in paragraph (2) of subdivision (a) of section 234; (3) Taxes as provided in paragraph (3) of subdivision (a) of section 234; (4) Losses incurred; (5) Bad debts in the nature of agency balances and bills re- ceivable ascertained to be worth- less and charged off within the taxable year; (6) The amount received as dividends from corporations as provided in paragraph (6) of subdivision (a) of section 234; (7) The amount of interest earned during the taxable year which under paragraph (4) of subdivision (b) of section 213 is exempt from taxation under this title, and the amount of inter- est allowed as a credit under sub- division (a) of section 236; (8) A reasonable allowance for the exhaustion, wear and tear of property, as provided in paragraph (7) of subdivision (a) of section 234; (9) In the case of such a domestic insurance company, the DEDUCTIONS ALLOWED INSURANCE COMPANIES 251 Act of 1916. Act of 1913. Act of 1909. 252 FEDERAL INCOME TA|X LAWS Act of 1921. Act of 1918. 4ct of 1.91,7. net income of which (computed without the benefit of this para- graph) is $25,000 or less, the sum of $2,000; but if the net income is more than $25,000 the tax imposed by section 246 shall not exceed the tax which would be payable if the $2,000 credit were allowed, plus the amount of the net income in excess of $25,000. (b) In the case of a foreign corporation the deductions al- lowed in this section shall be al- lowed to the extent provided in subdivision (b) of section 234. (c) Nothing in this section or in section 246 shall be construed to permit the same item to be twice deducted. Part IV. — Administrative Pro- visions, payment of taxes. Part IV. — Administrative Pro- visions, payment of taxes. ASSESSMENT AND ADMINISTRA- TION. Sec. 9. (a) 122 That aU as- sessments shall be made by the Commissioner of Internal Rev- enue and all persons shall be notified of the amount for which they are respectively liable on or before the first day of June of each successive year, and said amounts shall be paid on or be- fore the fifteenth day of June, except in cases of refusal or neglect to make such return and in cases of erroneous, false, or fraudulent returns, in which cases the Commissioner of In- ternal Revenue shall, upon the discovery thereof, at any time within three years after said re- turn is due, or has been made, make a return upon information obtained as provided for in this title or by existing law, oj* re- quire the necessary corrections to be made, and the assessment made by the Commissioner of In- ternal Revenue thereon shall be paid by such person or persons immediately upon notification of the amount of such assessment; and to any sum or sums due and unpaid after the fifteenth day of June in any year, and for ten 123 Title I, Part I, Act of 1916. ASSESSMENT AND ADMINISTRATION Act of 1916. Act of 1913, Act of 1909. .253 ASSESSMENT - AND ADMINISTRA- TION. Sec. 9. (a),122 That aU as- sessments shall be made by the Commissioner of Internal Rev- enue and all persons shall be notified of the amount for which they , are respectively liable on or before the first day of June of each successive year, and said amounts shall be paid on or be- fore the fifteenth day of June, except in cases of refusal or neglect to make such return and in cases of erroneous, false,, or fraudulent returns, in which cases the Commissioner of In-, ternal Revenue shall, upon the discovery thereof, at any time within three years after said re- turn is due, or has been made,, make a return upon information obtained as provided for in this title or by existing law, or re- quire the necessary corrections to be made, and the assessment made by the Commissioner of Internal Revenue thereon shall be paid by such person or per- sons immediately upon notifica- tion of the amount of such as- sessment; and to any sum or sums due and unpaid after the fifteenth day of June in any E. [1] That all assessments shall be i^ade by the Commis- sioner of Internal Revenue and all persons shall be notified of the amount for which they are respectively liable on or before the first day of June of each suc- cessive year, and said assess- ments shall be paid on or before the thirtieth day of June, ex- cept in cases of refusal or neg- lect to make such return and in cases of false or fraudulent returns, in which cases the Com- missioner of Internal Revenue shall, upon the discovery there- of, at any time within three years after said return is due, make a return upon informa- tion obtained as provided for in this section or by existing law, and the assessment made by the Commissioner of Internal Rev- enue thereon shall be paid by such person or persons imme- diately upon notification of the amount of such assessment; [2] and to any sum or sums due and unpaid after the thir- tieth day of June in any year, and for ten days after notice and demand thereof by the col- 254 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. Sec. 250. (a) [1] That ex- cept as otherwise provided in this section and sections 221 and 237 the tax shall be paid in four installments, each consisting of one-fourth of the total amount of the tax. The first installment shall be paid at the time fixed by law for filing the return, and the second installment shall be paid on the fifteenth day of the third month, the third install- ment on the fifteenth day of the sixth month, and the fourth in- stallment on the fifteenth day of the ninth month, after the timi- fixed by law for filing the return. Sec. 250. (a) [1] That ex- cept as otherwise provided in this section and sections 221 and 237 the tax shall be paid in four installments, each consisting of one-fourth of the total amount of the tax. The first installment shall be paid at the time fixed by law for filing the return, and the second installment shall be paid on the fifteenth day of the third month, the third install- ment on the fifteenth day of the sixth month, and the fourth in- stallment on the fifteenth day of the ninth month, after the days after notice and demand thereof by the collector, there shall be added the sum of five per centum on the amount of tax unpaid, and interest at the rate of one per centum per month upon said tax from the time the same became due, except from the estates of insane, deceased, or insolvent persons. ASSESSMENT AND ADMINISTRA- TION. Sec. 14. (a) [1] All assess- ments shall be made and the sev- eral corporations, jbint-stoek companies or associations, and insurance companies shall be notified of the amount for which they are respectively liable on or before the first day of June of each successive year, and said assessment shall be paid on or before the fifteenth day of Jime : Provided, That every corpora- tion, joint-stock company or as- sociation, and insurance com- pany, computing taxes upon the income of the fiscal year which it may designate in the manner hereinbefore provided, shall pay the taxes due under' its assess- ment within. one hundred and five days after the date upon which it is required to file its list or return of income for as- sessment ; Sec. 1009.184 That the Sec- retary of the Treasury, under rules and regulations prescribed by him, shall permit taxpayers liable to income and excess prof- its taxes to make payments in advance in installments or in whole of an amount not in ex- cess of the estimated taxes which will be due from them, and upon determination of the taxes actually due any amount paid in excess shall be refunded as taxes erroneously collected: Provided, That when pajonent is made in installments at least one-fourth of such estimated tax 123 Notice of assessment mailed in a franked en- velope, properly addressed to the taxpayer at its principal office at the time of dissolution, and not returned, is presumptive evidence of receipt. Suit ASSESSMENT AND ADMINISTRATION Act of 1916. Act of 1913. Act of 1909. 255 year, and for ten days after notice and demand thereof by the collector, there shall be added the sum of five per cen- tum on the amount of tax un- paid, and interest at the rate of one per centum per month upon said tax from the time the same became due, except from the es- tates of insane, deceased, or in- solvent persons. ASSESSMENT AND ADMINISTRA- TION. Sec. 14. (a) [1] All assess- ments shall be made and the sev- eral corporations, joint-stock companies or associations, and insurance companies shall be notified of the amount for which they are respectively liable on or before the first day of June of each successive year, and said assessment shall be paid on or before the fifteenth day of June : Provided, That every corpora- tion, joint-stock company or as- sociation and insurance com- pany, computing taxes upon the income of the fiscal year which it may designate in the manner hereinbefore provided, shall pay the taxes due under its assess- ment within one hundred and five days after the date upon which it is required to file its list or return of income for as- sessment : lector, there shall be added the sum of 5 per centum on the amount of tax unpaid, and in- terest at the rate of 1 per cen- tum per month upon said tax from the time the same became due, except from the estates of insane, deceased, or insolvent persons. G. (c) [12] All assessments shall be made and the several corporations, joint-stock com- panies or associations, and in- surance companies shall be noti- fied of the amount for which they are respectively liable on or before the first day of June of each successive year, and said assessment shall be paid on or before the thirtieth day of June : Provided, That every corpora- tion, joint-stock company or as- sociation, and insurance com- pany, computing taxes upon the income of the fiscal year which it may designate in the manner hereiabefore provided, shall pay the taxes due under its assess- ment within one hundred and twenty days after the date upon which it is required to file its list or return of income for as- sessment ; FIFTH. [2] All assessments shall be made and the several corporations, joint-stock com- panies or associations, or insur- ance companies, shall be noti- fied 123 of the amount for which they are respectively liable on or before the first day of June of each successive year, and said assessments shall be paid on or before the thirtieth day of June, to recover taxes due under Sec. 38, Act of 1909. U. S. V. General Inspection and Loading Co., (D. C, D. N. J. 1913) 204 Fed. 657. 124 Title X, Act of 1917. 256 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. (a) [3] The tax may at the op- tion of the taxpayer be paid in a single payment instead of in installments, in which case the total amount shall be paid on or before the time fixed by law for filing the return, or, where an extension of time for filing the return has been granted, on or before the expiration of the period of such extension. Sec. 250. (d) The amount of income, excess-profits, or war- profits taxes due under any re- turn made under this Act for the taxable year 1921 or succeeding taxable years shall be determined and assessed by the Commis- sioner within four years after the return was filed, and the amount of any such taxes due imder any return made under this Act for prior taxable years or under prior income, excess- time fixed by law for filing the return. (a) [3] The tax may at the option of the taxpayer be paid in a single payment instead of in installments, in which case the total amount shall be paid on or before the time fixed by law for filing the return, or, where an extension of time for filing the return has been granted, on or before the expiration of the period of such extension. Sec. 250. (d) Except in the case of false or fraudulent re- turns with intent to evade the tax, the amount of tax due under any return shall be determined and assessed by the Commisioner within five years after the re- turn was due or was made, and no suit or proceeding for the collection of any tax shall be begun after the expiration of five years after the date when the return was due or was made. shall be paid before the expira- tion of thirty days after the close of the taxable year, at least an additional one-fourth within two months after the close of the taxable year, at least an additional one-fourth within four months after the close of the taxable year, and the remainder of the tax due on or before the time now fixed by law for such payment : Provided further, That the Secretary of the Treasury, under rules and regulations prescribed by him, may allow credit against such taxes so paid in advance of an amount not exceeding three per centum per annum calculated upon the amount so paid from the date of such payment to the date now fixed by law for such payment; but no such credit shall be allowed on payments in excess of taxes determined to be due, nor on payments made after the expiration of four and one- half months after the close of the taxable year. All penalties provided by existing law for failure to pay tax when due are hereby made applicable to any failure to pay the tax at the time or times required in this section. Sec. 14. (a) [2] except in eases of refusal or neglect to make such return, and in cases of erroneous, false, or fraudu- lent returns, in which cases the Commissioner of Internal Rev- enue shall, upon the discovery thereof, at any time within three years after said return is due, make a return upon information obtained as provided for in this title or by existing law ; and the assessment made by the Com- 126 The word false" in the Act of 1913 does not mean "fraudulent," for it is used in opposition to that word, which is also used in the act. It means "not true or incorrect." Woods v. Lewelljm (Col.), (C. C. A., Third Cir. 1918) 252 Fed. 106. i28The expression "false" or fraudulent"^ used in Sec. 38, Act of 1909, is not limited to cases which are "intentionally" or "fraudulently" false. It also applies to cases in which errors result from an hon- est mistake. Eliot Nat'l Bank v. Gill (Col.), (C. C. A., First Cir. 1914) 218 Fed. 600, affirming Id., (D. C, D. Mass. 1913) 210 Fed. 933; Nat'l Bank of Commerce v. Allen (Col.), (C. C. A., Eighth Cir. 1915)- 223 Fed; 472; Nashville "C; & St. L. Ry. v. U. S;, (C. C. A., Sixth Cir. 1920) 269 Fed. 351, affirm- ing Id., (C. C. A., Sixth Cir. 1918) 249 Fed. 678. ASSESSMENT AND ADMINISTRATION 257 Act of 1916. Act of 1913. Act of 1909. (a) [2] except in cases of re- fusal or neglect to make such return, and in cases of erro- neous, false, or fraudulent re- turns, in which cases the Com- missioner of Internal Revenue shall, upon the discovery there- of, at any time within three years after said return is due, make a return upon information obtained as provided for in this title or by existing law ; and the assessment made by the Com- G. (c) [13] except in cases of refusal or neglect to make such return, and in cases of false ^25 or fraudulent returns, in which cases the Commissioner of Inter- nal Revenue shall, upon the dis- covery thereof, at any time within three years after said re- turn is due, make a return upon information obtained as pro- vided for in this section or by existing law, and the assessment made by the Commissioner of [3] except in cases of refusal or neglect to make such return, and in cases of false or fraudu- lent ^ 26 returns, in which cases the Commissioner of Internal Revenue shall, upon the discov- ery thereof, at any time within three years 127 after said return is due, make a return upon in- formation obtained as above provided for, and the assessment made by the Commissioner of Internal Revenue thereon shall 127(a) The three-year limitation in Sec. 38, Act of 1909; does not bar the right of the United States to sue at any time, it being a limitation only against collection by summary procedure. U. S. v. Minneap- olis Threshing Machine Co., (D. C, D. Minn., F. D. 1915) 229 Fed. 1019; U. S. v. Grand Rapids Ry. Co., (D. C, W. D. Mich., S. D. 1915) 239 Fed. 153. 127(b) The Commissioner was authorized by Sec. 38, Act of 1909, to make assessment at any time be- fore or after three years from the time the return was due, provided discovery was made within said three-year period. Eliot Nat'l Bank v. Gill (Col.), (C. C. A., First Cir. 1914) 218 Fed. 600, affirming Id., (D. C, D. Mass. 1913) 210 Fed. 933. 258 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. -profits, or war-profits tax Acts, or under section 38 of the Act entitled ' ' An Act to provide rev- enue, equalize duties, and en- courage the industries of the United States, and for other purposes," approved August 5, 1909, shall be determined and assessed within five years after the return was filed, unless both the Commissioner and the tax- paj^er consent in writing to a later determination, assessment, and collection of the tax; and no suit or proceeding for the collection of any such taxes due under this Act or under prior income, excess-profits, or war- profits tax Acts, or of any taxes due under section 38 of such Act of August 5, 1909, shall be begun, after the expiration of five years after the date when such return was filed, but this shall not affect suits or j)roceed- ings begun at the time of the |)assage of this Act: Provided, That in the case of income re- ceived during the lifetime of a decedent, all taxes due thereon shall be determined and assessed by the Commissioner within one year after written request there- for hy the executor, administra- tor, or other fiduciarj^ represent- ing the estate of such decedent: Provided further, That in the case of a false or fraudulent re- turn with intent to evade tax, or of a failure to file a required return, the amount of tax due may be detei-mined, assessed, and collected, and a suit or pro- ceeding for the collection of such amount may be begun, at any time after it becomes due: Pro- vided further. That in eases coming within the scope of para- f^raph (9) of subdivision (a) of section 214, or of paragraph (8) of subdivision (a) of sec- tion 234, or in cases of final set- tlement of losses and other de- ductions tentatively allowed by the Commissioner pending a de- termination of the exact amount deductible, the amount of tax iir deficiency in tax due may be In the case of such false or fraudulent returns, the amount of tax due may be determined at any time after the return is filed, and the tax niay be collected at anv time after it becomes due. missioner of Internal Revenue thereon shall be paid by such corporation, joint-stock company or association, or insurance com- pany immediately upon notifica- tion of the amount of such as- sessment : ASSESSMENT AND ADMINISTRATION Act of 1916. Act of 1913. Act of 1909. 259 missioner of Internal Kevenue thereon shall be paid by such corporation, joint-stock com- pany or association, or insur- ance company immediately upon notification of the amount of such assessment: Internal Revenue thereon shall be paid bj^ such corporation, joint-stock company or associa- tion, or insurance company im- mediately upon notification of the amount of such assessment; be paid by such corporation, joint-stock company or associa- tion, or insurance company im- mediately upon notification of the amount of such assessment; 260 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. determined, assessed, and col- lected at any time ; but prior to the assessment thereof the tax- payer shall be notified and given a period of not less than thirty days in which to file an appeal and be heard as hereinafter pro- vided in this subdivision. If upon examination of a re- turn made under the Eevenue Act of 1916, the Revenue Act of 1917, the Revenue Act of 1918, or this Act, a tax or a deficiency in tax is discovered, the tax- payer shall be notified thereof and given a period of not less than thirty days after such notice is sent by registered mail in which to file an appeal and show cause or reason why the tax or deficiency should not be paid. Opportunity for hearing shall be granted and a final de- cision thereon shall be made as quickly as practicable. Any tax or deficiency in tax then deter- mined to be due shall be assessed and paid, together with the pen- alty and interest, if any, appli- cable thereto, within ten days after notice and demand by the collector as hereinafter pro- vided, and in such eases no claim in abatement of the amount so assessed shall be entertained: Provided, That in cases where the Commissioner believes that the collection of the amount due will be jeopardized by such de- lay he may make the assessment without giving such notice or awaiting the conclusion of such hearing. Sec. 250. (a) [2] Where an extension of time for filing a re- turn is granted the time for payment of the first installment shall be postponed until the date of the expiration of the period of the extension, but the time for payment of the other install- ments shall not be postponed un- less the Commissioner so pro- vides in granting the extension. In any case in which the time for the payment of any install- ment is at the request of the taxpayer thus postponed, there Sec. 250. (a) [2] AVhere an ex- tension of time for filing a re- turn is granted the time for pay- ment of the first installment shall be postponed until the date of the expiration of the period of the extension, but the time for payment of the other install- ments shall not be postponed un- less the Commissioner so pro- vides in granting the extension. In any ease in which the time for the payment of any installment is at the request of the taxpayer thus postponed, there shall be Sec. 14. (c) [2] Provided, That the Commissioner of Inter- nal Revenue shall have author- ity, in the ease of either corpora- tions or individuals, to grant a 'reasonable extension of time in meritorious cases, as he may deem proper. ASSESSMENT AND ADMINISTRATION 261 Act of 1916. Act of 1913. Act of 1909. Sec. 14. (c) [2] Provided, That the Commissioner of Inter- nal Revenue shall have author- ity, in the case of either corpora- tions or individuals, to grant a reasonable extension of time in meritorious cases, as he may deem proper. 262 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. shall be added as part of such installment interest thereon at the rate of one-half of 1 per cen- tum per month from the time it would have been due if no ex- tension had been granted, until paid. If any installment is not paid when due, the whole amount of the tax unpaid shall become due and payable upon notice and demand by the col- lector. (e) If any tax remains unpaid after the date when it is due, and for ten days after notice and demand by the collector, then, except in the case of es- tates of insane, deceased, or in- solvent persons, there shall be added as part of the tax the sum of 5 per centuui on the amount due but unpaid, plus interest at the rate of 1 per centum per month upon such amount from the time it became due: Pro^ vided, That as to any such amount which is the subject of a bona fide claim for abatement filed within ten days after notice and demand by the collector, where the taxpayer has 'not had the benefit of the provisions of subdivision (d), such sum of 5 per centum shall not be added and the interest from the time the amount was due until the claim is decided shall be at the rate of one-half of 1 per centum per month on that part of the claim rejected. In the case of the first in- stallment provided for in sub- division (a) the instructions printed on the return shall be sufficient notice of the date when the tax is due and sufficient de- mand, and the taxpayer's com- putation of the tax on the re- turn shall be sufficient notice of the amount due. In the case of each subsequent installment the collector may, within thirty days and not later than ten days be- fore the installment becomes due, mail to the taxpayer notice of the amount of the instalbnent and the date on wliieh it is due I'or piivment. Such notice of added as part of such install- ment interest thereon at the rate of 1/^ of 1 per centum per month from the time it would have been due if no extension had been granted, until paid. If any in- stallment is not paid when due, the whole amount of the tax un- paid shall become due and pay- able upon notice and demand by the collector. (e) If any tax i-emains unpaid after the date when it is due, and for ten days after notice and demand by the collector, then, except in the case of es- tates of insane, deceased, or in- solvent persons, there shall be added as part of the tax the sum of 5 per centum on the amount due but unpaid, plus interest at the rate of 1 per centum per month upon such amount from the time it became due: Pro- vided, That as to any such amount which is the subject of a bona fide claim for abatement such sum of 5 per centum shall not be added and the interest from the time the amount was due until the claim is decided shall be at the rate of % of 1 per centum per month. In the case of the first install- ment provided for in subdivision (a) the instructions printed on the return shall be deemed suf- ficient notice of the date when the tax is due and sufficient de- mand, and the taxpayer's com- putation of the tax on the return shall be deemed sufficient notice of the amount due. (a) [3] and to any sum or sums due and unpaid after the fifteenth day of June in any year, or after one hundred and five days from the date on which the return of income is required to be made by the taxpayer, and after ten days' notice and de- mand thereof by the collector, there shall be added the sum of five per centum on the amount of tax unpaid and interest at the rate of one per centum per month upon said tax from the time the same becomes due : ASSESSMENT AND ADMINISTRATION Act of 1916. Act of 1913. Act of 1909. 263 (a) [3] and to any sum or sums due and unpaid after the fifteenth day of June in any year, or after one hundred and five days from the date on which the return of income is required to be made by the taxpayer, and after ten days' notice and de- mand thereof by the collector, there shall be added the sum of five per centum on the amount of tax unpaid and interest at the rate of one per centum per month upon said tax from the time the same becomes due. G. (c) [14] and to any sum or sums due and unpaid after the thirtieth day of June in any year, or after one hundred and twenty days from the date on which the return of income is required to be made by the tax- payer, and after ten days' no- tice and demand thereof by the collector, there shall be added the sum of 5 per centum on the amount of tax unpaid and inter- est at the rate of 1 per centum per month upon said tax from the time the same becomes due. ' FIFTH. [4] and to any sum or sums due and unpaid afterthe thirtieth day of June in any year, and for ten days after no- tice and demand thereof by the collector, there shall be added the sum of five per centum on the amount of tax unpaid and interest at the rate of one per centum per month upon said tax from the time the same becomes due. 264 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. the collector shall be sufficient notice and sufficient demand un- der this section. Skc. 250. (b) As soon as prac- ticable after the return is filed, the Commissioner shall examine it. If it then appears that the correct amount of the tax is greater or less than that shown in the return, the installments shall be recomputed. If the amount already paid exceeds that which should have been paid on the basis of the install- ments as recomputed, the excess so paid shall be credited against the subsequent installments ; and if the amount already paid ex- ceeds the correct amount of the tax, the excess shall be credited or refunded to the taxpayer in accordance with the provisions of section 252. If the amount already paid is less than that which should have been paid, the difference, to the extent not covered by any cred- its due to the taxpayer under section 252 (hereinafter called "deficiency"), together with in- terest thereon at the rate of one- half of 1 per centum per month from the time the tax was due (or, if paid on the installment basis, on the deficiency of each installment from the time the installment was due), shall be paid upon notice and demand by the collector. If any part of the deficiency is due to negli- gence or intentional disregard of authorized rules and regulations with knowledge thereof, but without intent to defraud, there shall be added as part of the tax 5 per centum of the total amount of the deficiency in the tax, and interest in such a case shall be collected at the rate of 1 per centum per month on the amount of such deficiency in the tax from the time it was due Sec. 250. (b) As soon as prac- ticable after the return is filed, the Commissioner shall examine it. If it then appears that the correct amount of the tax is greater or less than that shown in the return, the installments shall be recomputed. If the amount already paid exceeds that which should have been paid on the basis of the install- ments as recomputed, the excess so paid shall be credited against the subsequent installments ; and if the amount already paid exceeds the correct amount of the tax, the excess shall be cred- ited or refunded to the taxpayer in accordance with the provi- sions of section 252. If the amount already paid is less than that which should have been paid, the difference shall, to the extent not covered by any credits then due to the taxpayer under section 252, be paid upon notice and demand by the col- lector. In such case if the re- turn is made in good faith and the understatement of the amount in "the return is not due to any fault of the taxpayer, there shall be no penalty be- cause of such understatement. If the understatement is due to negligence on the part of the taxpayer, but without intent to defraud, there shall be added as part of the tax 5 per centum of the total amount of the defi- ciency, plus interest at the rate of 1 per centum per month on the amount of the deficiency of each installment from the time the installment was due. If the understatement is false or fraudulent with intent to evade the tax, then, in lieu of the penalty provided by section 128 The provision for the collection of excise taxes by assessment under Sec. 38, Act of 1909, not being exclusive, the government is entitled to bring a com- mon law action of debt to collect taxes due under said Act, even though no assessment is made. U. S. V. Minneapolis Threshing Machine Co., (D. C, D. Minn., F. D. 1915) 229 Fed. 1019; U. S. v. Grand Act of 1916. ASSESSMENT AND ADMINISTRATION Act of 1913. Act of 1909. 265 FIFTH. [1] All returns shall be retained by the Commissioner of Internal Revenue, who shall make assessments thereon ; 128 and in case of any return made with false or fraudulent intent, he shall add one hundred per centum of such tax, and in case of a refusal or neglect to make a return or to verify the same as aforesaid he shall add fifty per centum of such tax. In case of neglect occasioned by sickness or absence of an officer of such corporation, joint-stock com- pany or association, or insurance company, required to make said return, or for other sufficient reason, the collector may allow such further time for making and delivering such return as he may deem necessary, not ex- ceeding thirty days. The amount so added to the tax shall be col- lected at the same time and in the same manner as the tax orig- inally assessed unless the refusal, neglect, or falsity is discovered after the date for payment of said taxes, in which case the amount so added shall be paid by the delinquent corporation, joint- stock company or association, or insurance company, immediately upon notice given by the col- lector. Rapids By. Co., (D. C, W. D. Mich., S. D. 1915) 239 Fed. 153; New York Life Ins. Co. v. Anderson (Col.), (D. C, S. D. N. Y. 1919) 257 Fed. 576; Nashville C. & St. L. Ry. V. U. S., (C. C. A., Sixth Cir. 1920) 269 Fed. 851, affirming Id., (C. C. A., Sixth Cir. 1918) 249 Fed. 678. 266 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. (or, if paid on the installment basis, on the amount of the de- ficiency in each installment from the time the installment was due) , which penalty and interest shall become due and payable upon notice and demand by the collector. If any part of the deficiency is due to fraud with intent to evade tax, then, in lieu of the penalty provided by sec- tion 3176 of the Eevised Stat- utes, as amended, for false or fraixdulent returns willfully made, but in addition to other penalties provided by law for false or fraudulent re- turns, there shall be added as part of the tax 50 per centum of the total amount of the de- ficiency in the tax. In such case the whole amount of the tax unpaid, including the penalty so added, shall become due and payable upon notice and de- mand bj' the collector. (c) If the return is made pur- suant to section 3176 of the Ee- vised Statutes as amended, the amount of tax determined to be due under such return shall be paid upon notice and demand by the collector. (f) In the case of any de- ficiency (except where the de- ficiency is due to negligence or to fraud with intent to evade tax) where it is shown to the satisfaction of the Commissioner that the payment of such de- ficiency would result in undue hardship to the taxpayer, the Commissioner may, with the ap- proval of the Secretary, extend the time for the payment of such deficiency or any part thereof for such period not in excess of eighteen months from the pas- sage of this Act as the Commis- sioner may determine. In such case the Commissioner may re- quire the taxpayer to furnish a bond with sufficient sureties con- ditioned upon the payment of the deficiency in accordance with the terms of the extension granted. There shall be added in lieu of other interest provided 3176 of the Eevised Statutes, as amended, for false or fraudu- lent returns willfully made, but in addition to other penalties provided by law for false or fraudulent returns, there shall be added as part of the tax 50 per centum of the amount of the deficiency. (e) If the return is made pur- suant to section 3176 of the Ee- vised Statutes as amended, the amount of tax determined to be due under such return shall be paid upon notice and demand by the collector. Act of 1916. ASSESSMENT AND ADMINISTRATION Act of 1913. Act of 1909. 267 268 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. by law, as a part of such de- ficiency, interest thereon at the rate of two-thirds of 1 per cen- tum per month from the time such extension is granted; ex- cept where such other interest provided by law is in excess of interest at the rate of two-thirds of 1 per centum per month. If the deficiency or any part there- of is not paid in accordance with the terms of the extension granted, there shall be added as part of the deficiency, in lieu of other interest and penalties pro- vided by law, the sum of 5 per centum of the deficiency and interest on the deficiency at the rate of 1 per centum per month from the time it becomes pay- able in accordance with the terms of such extension. Sec. 250. (g) If the Commis- sioner finds that a taxpayer de- signs quickly to depart from the United States or to remove his property therefrom, or to conceal himself or his property therein, or to do any other act tending to prejudice or to render wholly or partly ineffectual proceedings to collect the tax for the taxable year then last past or the tax- able year then current unless such proceedings be brought without delay, the Conunis- sioner shall declare the taxable period for such taxpayer imme- diately terminated and shall cause notice of such finding and declaration to be given the tax- payer, together with a demand for immediate payment of the tax for the taxable period so declared terminated and of the tax for the preceding taxable year or so much of said tax as is unpaid, whether or not the time otherwise allowed by law for filing return and paying the tax has expired ; and such taxes Sec. 250. (f) In any case in which in order to enforce pay- ment of a tax it is necessary for a collector to cause a warrant of distraint to be served, there shall also be added as part, of the tax the sum of $5. (g) If the Commissioner finds that a taxpayer designs quickly to depart from the United States or to remove his property there- from, or to conceal himself or his property therein, or to do any other act tending to prejudice or to render wholly or partly in- effectual proceedings to collect the tax for the taxable year then last past or the taxable year then current unless such proceedings be brought without delay, the Commissioner shall declare the taxable period for such taxpayer terminated at the end of the cal- endar month then last past and shall cause notice of such finding and declaration to be given the taxpayer, together with a de- mand for immediate payment of the tax for the taxable period so declared terminated and of the tax for the preceding taxable year or so much of said tax as is unpaid, whether or not the time otherwise allowed by law for filing return and paying the Act of 1916. ASSESSMENT AND ADMINISTRATION 269 Act of 1913. Act of 1909. 270 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. shall thereupon become imme- diately due and payable. In any action or suit brought to en- force payment of taxes made due and payable by virtue of the provisions of this subdivi- sion the finding of the Commis- sioner, made as herein provided, \\'hether made after notice to the taxpayer or not, shall be for all purposes presumptive evidence of the taxpayer's design. J'l taxpayer who is not in default in making any return or paying income, war-profits, or excess- profits tax under any Act of Congress may fui'nish to the United States, under regulations to be prescribed by the Com- missioner with the approval of the Secretary, security approved by the Commissioner that he will duly make the return next thereafter required to be filed and pay the tax next thereafter required to be paid. The Com- missioner may approve and ac- cept in like manner security for return and payment of taxes made due and payable by vir- tue of the provisions of this sub- division, provided tne taxpayer has paid in full all other in- come, war-profits, or excess- profits taxes due from him un- der any Act of Congress. If security is approved and ac- cepted pursuant to the provi- sions of this subdivision and such further or other security with respect to the tax or taxes covered thereby is given as the Commissioner shall from time to time find necessary and re- quire, payment of such taxes shall not be enforced by any pro- ceedings under the provisions of this subdivision prior to the ex- piration of the time otherwise allowed for paying such respec- tive taxes. In the case of a citi- zen of the United States about to depart from the United States the Commissioner may, at his discretion, waive any or all of the requirements placed on the taxpayer by this subdivision. No alien shall depart from the tax has expired ; and such taxes shall thereupon become immedi- ately due and payable. In any action or suit brought to enforce payment of taxes made due and payable by virtue of the provi- sions of this subdivision the find- ing of the Commissioner, made as herein provided, whether made after notice to the tax- payer or not, shall be for all pvir- poses presumptive evidence of the taxpayer's design. A tax- payer Avho is not in default in making any return or paying in- come, war-profits, or excess- profits tax under any Act of Congress may furnish to the United States, under regulations to be prescribed by the Commis- sioner with the approval of the Secretary, security approved by the Commissioner that he will duly make the return next there- after required to be filed and pay the tax next thereafter re- quired to be paid. The Commis- sioner may approve and accept in like manner security for re- turn and payment of taxes made diie and payable by virtue of the provisions of this subdivision, provided the taxpayer has paid in full all other income, war- profits, or excess-profits taxes due from him under any Act of Congress. If security is ap- proved and accepted pursuant to the provisions of this subdivision and such further or other secu- rity with respect to the tax or taxes covered thereby is given as the Commissioner shall from time to time find necessai'y and require, payment of such taxes shall not be enforced by any pro- ceedings under the provisions of this subdivision prior to the ex- piration of the time otherwise allowed for paying such respec- tive taxes. Act of 1916. ASSESSMENT AND ADMINISTRATION 271 Act of 1913. Act of 1909. 272 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. United States unless he first se- cures from the collector or agent in charge a certificate that he has complied with all the obli- gations imposed upon him by the income, war-profits, and ex- cess-profits tax laws. If a tax- payer violates or attempts to vio- late this subdivision there shall, in addition to all other penal- ties, be added as part of the tax 25 per centum of the total amount of the tax or deficiency in the tax, together with interest at the rate of 1 per centum per month from the time the tax became due. (h) The provisions of subdivi- sions (e), (f) and (g) of this section shall apply to the assess- ment and collection of taxes which have accrued or may ac- crue under the Revenue Act of 1917, the Eevenue Act of 1918 or this Act. FRACTIONAL PARTS OF A CENT. Sec. 1306.1 That in the pay- ment of any tax under this Act not payable by stamp a frac- tional part of a cent shall be disregarded unless it amounts to one-half cent or more, in which case it shall be increased to 1 cent. PAYMENT OF TAXES BY CHECK OR UNITED STATES SECURITIES. Sec. 1325.1 That collectors may receive, at par with an adjust- ment for accrued interest, notes or certificates of indebtedness issued by the United States and uncertified checks in payment of income, war -profits and excess- profits taxes and any other taxes payable other than by stamp, during such time and under such regulations as the Commissioner, with the approval of the Secre- tary, shall prescribe; but if a check so received is not paid by the bank on which it is drawn the person by whom such check has been tendered shall remain liable for the payment of the tax Sec. 1313.129 That in the pay- ment of any tax under this Act not payable by stamp a frac- tional part of a cent shall be dis- regarded unless it amounts to one-half cent or more, in which case it shall be increased to 1 cent. Sec. 1314.129 That collectors may receive, at par with an ad- justment for accrued interest, certificates of indebtedness is- sued by the United States and uncertified checks in payment of income, war-profits and excess- profits taxes and any other taxes payable other than by stamp, during such time and under such regulations as the Commissioner, with the approval of the Secre- tary, shall prescribe; but if a check so received is not paid by the bank on which it is drawn the person by whom such cheek has been tendered shall remain liable for the payment of the tax Sec. 1008.130 That in the pay- ment of any tax under this Act not payable by stamp a frac- tional part of a cent shall be dis- regarded unless it amounts to one-half cent or more, in which case it shall be increased to one cent. Sec. 1010.130 That under the rules and regulations prescribed by the Secretary of the Treas- ury, collectors of internal reve- nue may receive, at par and ac- crued interest, certificates of in- debtedness issued under section six of the Act entitled "An Act to authorize an issue of bonds to meet expenditures for the na- tional security and defense, and, for the purpose of assisting in the prosecution of the war, to extend credit to foreign govern- ments, and for other purposes," approved April twenty-fourth, ttineteen hundred and seventeen, and any subseque]|it Act or Acts, % Titj? xin, 129 Title XIII, Act of 1918. Act of 1916. MEDIUM OF PAYMENT OF TAX Act of 1913. 273 Act of 1909. 130 Title X, Act of 1917. 274 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. and for all legal penalties and additions the same as if such cheek had not been tendered. RECEIPTS FOR TAXES. Sec. 251. That every collector to whom any payment of any tax is made under the provi- sions of this title shall upon re- quest give to the person mak- ing such payment a full writ- ten or printed receipt, stating the amount paid and the par- ticular accbunt for which such payment was made; and when- ever any debtor pays taxes on account of payments made or to be made by him to separate creditors the collector shall, if requested by such debtor, give a separate receipt for the tax paid on account of each creditor in such form that the debtor can conveniently produce such re- ceipts separately to his several creditors in satisfaction of their respective demands up to the amounts stated in the receipts; and such receipt shall be suffi- cient evidence in favor of such debtor to justify him in with- holding from his next payment to his creditor the amount there- in stated ; but the creditor may, upon giving to his debtor a full written receipt acknowledging the payment to him of any sum actually paid and accepting the amount of tax paid as aforesaid (specifying the same) as a further satisfaction of the debt to that amount, require the sur- and for all legal penalties and additions the same as if such cheek had not been tendered. RECEIPTS FOR TAXES. Sec. 251. That every collector to whom any payment of any tax is made under the provisions of this title shall upon request give to the person making such pay- ment a full written or printed receipt, stating the amount paid and the particular account for which such payment was made, and whenever any debtor pays taxes on account of payments made or to be made by him to separate creditors the collector shall, if requested by such debtor, give a separate receipt for the tax paid on account of each cred- itor in such form that the debtor can conveniently produce such receipts separately to his several creditors in satisfaction of their respective demands up to the amounts stated in the receipts; and such receipt shall be suffi- cient evidence in favor of such debtor to justify him in with- holdng from his next payment to his creditor the amount therein stated; but the creditor may, upon giving to his debtor a full written receipt acknowledging the payment to him of any sum actually paid and accepting the amount of tax paid as aforesaid (specifying the same) as a fur- ther satisfaction of the debt to that amount, require the surren- and uncertified cheeks in pay- ment of income and excess- profits taxes, during such time and under such regulations as the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, shall prescribe ; but if a check so received is not paid by the bank on which it is drawn the person by whom such check has been tendered shall remain liable for the payment of the tax and for all legal penalties and additions the same as if such check had not been tendered. Sec. 17.131 That it shall be the duty of every collector of in- ternal revenue, to whom any payment of any taxes is made under the provisions of this title, to give to the person making such payment a full written or printed receipt, expressing the amount paid, and the particular account for which such payment was made; and whenever such payment is made such collector shall, if required, give a separate receipt for each tax paid by any debtor, on account of payments made to or to be made by him to separate creditors in such form that such debtor can convenient- ly produce the same separately to his several creditors in satis- faction of their respective de- mands to the amounts specified in such receipts ; and such re- ceipts shall be sufficient evidence in favor of such debtor to justify him in withholding the amount therein expressed from his next payment to his creditor; but such creditor may, upon giving to his debtor a full written re- ceipt, acknowledging the pay- ment to him of whatever sum. may be actually paid, and ac- cepting the amount of tax paid as aforesaid (specifying the same) as a further satisfaction of the debt to that amount, re- 181 Part III, Act of 1916. Act of 1916. RECEIPT FOR TAXES Act of 1913. 275 Act of 1909. Sec. 17.131 That it shall be the duty of every collector of inter- nal revenue, to whom any pay- ment of any taxes is made under the provisions of this title, to give to the person making such payment a full written or print- ed receipt, expressing the amount paid and the particular account for which such payment was made; and whenever such pay- ment is made such collector shall, if required, give a separate re- ceipt for each tax paid by any debtor, on account of payments made to or to be made by him to separate creditors in such form that such debtor can con- veniently produce the same sepa- rately to his several creditors in satisfaction of their respective demands to the amounts speci- fied in such receipts; and .such receipts shall be sufficient evi- dence in favor of such debtor to justify him in withholding the amount therein expressed from his next payment to his creditor ; but such creditor may, upon giv- ing to his debtor a full written receipt, acknowledging the pay- ment to him of whatever sum may be actually paid, and ac- cepting the amount of tax paid as aforesaid (specifying the same) as a further satisfaction of the debt to that amount, re- J. That it shall be the duty of every collector of internal reve- nue, to whom any payment of any taxes other than the tax rep- resented by an adhesive stamp or other engraved stamp is made under the provisions of this sec- tion, to give to the person mak- ing such payment a full written or printed receipt, expressing the amount paid and the partic- ular account for which such pay- ment was made; and whenever such payment is made such col- lector shall, if required, give a separate receipt for each tax paid by any debtor, on account of payments made to or to be made by him to separate credi- tors in such form that such debtor can conveniently produce the same separately to his sev- eral creditors in satisfaction of their respective demands to the amounts specified in such re- ceipts ; and such receipts shall be sufficient evidence in favor of such debtor to justify him in withholding the amount therein expressed from his next payment to his creditor ; but such creditor may, upon giving to his debtor a full written receipt, acknowledg- ing the payment to him of what- ever sum may be actually paid, and accepting the amount of tax paid as aforesaid (specifying the 276 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. render to him of such collector's receipt. REFUNDS. Sec. 252. That if, upon exami- nation of any return of income made pursuant to this Act, the Act of August 5, 1909, entitled "An Act to provide revenue, equalize duties, and encourage the industries of the United States, and for other purposes, ' ' the Act of October 3, 1913, en- titled "An Act to reduce tariff duties and to provide revenue for the Government, and for other purposes," the Revenue Act of 1916, as amended, the Revenue Act of 1917, or the Revenue Act of 1918, it appears that an amount of income, war- profits or excess-profits tax has been paid in excess of that prop- erly due, then, notwithstanding the provisions of section 3228 of the Revised Statutes, the amount of the excess shall be credited against any income, war-profits o r excess-profits taxes, or installment thereof, then due from the taxpayer un- der any other return, and any balance of such excess shall be immediately refunded to the taxpayer: Provided, That no such credit or refund shall be allowed or made after five years from the date when the return was due, unless before the ex- piration of such five years a claim therefor is filed by the tax- payer: Provided further, That if upon examination of any re- der.to him of such collector's re- ceipt. REFUNDS. Sec. 252. That if, upon exami- nation of any return of income made pursuant to this Act, the Act of August 5, 1909, entitled "An Act to provide revenue, equalize duties, and encourage the industries of the United States, and for other purposes," the Act of October 3, 1913, en- titled "An Act to reduce tariff duties and to provide revenue for the Government, and for other purposes," the Revenue Act of 1916, as amended, or the Revenue Act of 1917, it appears that an amount of income, war- profits or excess-profits tax has been paid in excess of that prop- erly due, then, notwithstanding the provisions of section 3228 of the Revised Statutes, the amount of the excess shall be credited against any income, war-profits or excess-profits taxes, or install- ment thereof, then due from the taxpayer under any other re- turn, and any balance of such excess shall be immediately re- funded to the taxpayer : Pro- vided, That no such credit or re- fund 133 shall be allowed or made after five years from the date when the return was due, unless before the expiration of such five years a claim therefor is filed by the taxpayer. quire the surrender to him of such collector's receipt. Sec. 14. (a) [4] Provided, That upon the examination of any return of income made pur- suant to this title, the Act of Au- gust fifth, nineteen hundred and nine, entitled, "An Act to pro- vide revenue, equalize duties and encourage the industries of the United States, and for other purposes", and the Act of Octo- ber third, nineteen hundred and thirteen, entitled, ' ' An Act to re- duce tariff duties and to provide revenue for the Government, and for other purposes", if it shall appear that amounts of tax have been paid in excess of those properly due, the taxpayer shall be permitted to present a claim for refund thereof notwithstand- ing the provisions of section thirty-two hundred and twenty- eight of the Revised Statutes ; 132 The provision in Sec. 14. (a), Act of 1916, au- thorizing the taxpayer under certain circumstances to file claim for refund for taxes paid under prior acts, does not have the effect of reviving the right to sue for taxes paid, where such suits are already barred by the statute of limitations. (Sec. 3227 R. S.) Public Service Corporation of N. J. et al. v. Herold and Moffett (Cols.), (D. C, D. N. J. 1921) 273 Fed. 282. 133 Under Sec. 252, Act of 1918, "the refund is a matter of right, without proof of duress or protest." Greenport Basin & Con. Co. et al. v. U. S., (D. C, E. D. N. Y. 1920) 269 Fed. 58. 13* An act to provide for refund or abatement, un- der certain conditions, of penalty taxes imposed by Section 38 of the Act of August 5, 1909, known as the Special Excise Corporation Tax Law, approved March 3, 1913 (37 Stat., 734). Be it enacted, etc., That any corporation, joint- stock company, association, or any insurance com- pany subject to the special excise tax provided by section thirty-eight of the act of August fifth, nine- teen hundred and nine, known as the special excise corporation-tax law, which has been or may be com- Act of 1916. REFUNDS Act of 1913. 277 Act of 1909. quire the surrender to him of such collector's receipt. Sec. 14. (a) [4] Provided, That upon the examination of any return of income made pur- suant to this title, the Act of Au- gust fifth, nineteen hundred and nine, entitled, "An Act to pro- vide revenue, equalize duties and encourage the industries of the United States, and for other pur- poses", and the Act of October third, nineteen hundred and thirteen, entitled, ' ' An Act to re- duce tariff duties and to provide revenue for the Government, and for other purposes", if it shall appear that amounts of tax have been paid in excess of those properly due, the taxpayer shall be permitted to present a claim 132 for refund thereof not- withstanding the provisions of section thirty-two hundred and twenty-eight of the Revised Statutes ; same) as a further satisfaction of the debt to that amount, re- quire the surrender to him of such collector 's receipt. Special Act pertaining to refunds for taxes paid under the Act of 1909.13* pelled to pay or become liable for any additional tax within the provisions of subsection five of said sec- tion thirty-eight, which additional tax has been or may hereafter be imposed for neglect to file a re- turn as provided in said corporation-tax law on or before the first of March of any year, may, within one year after the passage of this act or within one year after the date of notice of assessment where such notice is given after the passage of this act, make application to the Commissioner of Internal Revenue for a refund of such additional tax. And the Commissioner of Internal Revenue, with the ad- vice and consent of the Solicitor of Internal Reve- nue, is hereby directed to remit, abate, or pay back all such additional taxes in excess of $100 for any single year whenever in any case it appears to his satisfaction that the additional tax was assessed or imposed solely because of a neglect to make a re- turn at the time or times specified in said act, and without any intention or design on the part of any officer of such corporation, joint-stock company, as- sociation, or insurance company to hinder or delay the United States in the collection of the tax orig- inally assessed. 278 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. turn of income made pursuant to the Revenue Act of 1917, the Revenue Act of 1918, or this Act, the invested capital of a taxpayer is decreased by the Commissioner, and such de- crease is due to the fact that the taxpayer failed to take adequate deductions in previous years, with the result that an amount of income tax in excess of that properly due was paid in any previous year or years, then, notwithstanding any other pro- vision of law and regardless of the expiration of such five-year period, the amount of such ex- cess shall, without the filing of any claim therefor, be credited or refunded as provided in this section: And provided further, That nothing in this section shall be construed to bar from allowance claims for refund filed prior to the passage of the Reve- nue Act of 1918 under subdivi- sion (a) of section 14 of the Revenue x\et of 1916, or filed prior to the passage of this Act under section 252 of the Reve- nue Act of 1918. INTEREST ON REFUNDS AND JUDGMENTS. Sec. 1324.1 (a) That upon the allowance of a claim for the re- fund of or credit for internal revenue taxes paid, interest shall be allowed and paid upon the total amount of such refund or credit at the rate of one-half of 1 per centum per month to the date of such allowance, as fol- lows: (1) if such amount was paid under a specific protest set- ting forth in detail the basis of and reasons for su^.h protest, from the time when such tax was paid, or (2) if such amoant was not paid under protest but pur- suant to an additional assess- ment, from the time such addi- tional assessment was paid, or (3) if no protest was made and the tax was not paid pursuant to an additional assessment, from 1 Title Xin. INTEREST ON REFUNDS AND JUDGMENTS 279 Act Of 1916. Act of 1913. Act of 1909. 280 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. six months after the date of fil- ing of such claim for refund or credit. The term "additional assessment" as used in this sec- tion means a further assessment for a tax of the same character previously paid in part. (b) Section 177 of the Judi- cial Code is amended to read as follows : "Sec. 177. No interest shall he allowed on any claim up to the time of the rendition of judg- ment by the Court of Claims, unless upon a contract expressly stipulating for the payment of interest, except that interest may be allowed in any judgment of any court rendered after the passage of the Revenue Act of 1921 against the United States for any internal-revenue tax er- roneously or illegally assessed or collected, or for any penalty col- lected without authority or any sum which was excessive or in any manner wrongfully collect- ed, under the internal-revenue laws." PENALTIES. Sec. 253. That any individual, corporation, or partnership re- quired under this title to pay or collect any tax, to make a return or to supply informa- tion, who fails to pay or col- lect such tax, to make such re- turn, or to supply such informa- tion at the time or times re- quired under this title, shall be liable to a penalty of not more than $1,000. Any individual, corporation, or partnership, or any officer or employee of any corporation or member or em- ployee of a partnership, who willfully refuses to pay or col- lect such tax, to make such re- turn, or to supply such infor- mation at the time or times re- quired under this title, or who willfully attempts in any man- ner to defeat or evade the tax imposed by this title, shall be penalties. Sec. 253. That any individual, corporation, or partnership re- quired under this title to pay or collect any tax, to make a re- turn or to supply information, who fails to pay or collect such tax, to make such return, or to supply such information at the time or times required under this title, shall be liable to a penalty of not more than $1,000. Any individual, corporation, or partnership, or any officer or employee of any corporation or member or employee of a part- nership, who willfully refuses to pay or collect such tax, to make such return, or to supply such information at the time or times required under this title, or who willingly attempts in any manner to defeat or evade the tax imposed by this title, shall be guilty of a misdemeanor Sec. 1004.135 That whoever fails to make any return required by this Act or the regulations made under authority thereof within the time prescribed or who makes any false or fraudulent re- turns,136 and whoever evades or attempts to evade any tax im- posed by this Act or fails to collect or truly to account for and pay over any such tax, shall be subject to a penalty of not more than $1,000, or to impris- onment for not more than one year, or both, at the discretion of the court, and in addition thereto a penalty of double the tax evaded, or not collected, or accounted for and paid over, to be assessed and collected in the same manner as taxes are as- sessed and collected, in any case in which the punishment is not otherwise specifically provided. 136 Title X, Act of 1917. 136 Under the Act of 1917, an officer of a corpora- tion who made a false "amended" return with intent to defeat or evade the tax was subject to the penalty Act of 1916. PENALTIES Act of 1913. 281 Act of 1909. the same as if it were an "original" return. Levy v. U. S., (C. C. A., Third Cir. 1921) 271 Fed. 942. 282 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. guilty of a misdemeanor and shall be fined not more than $10,000 or imprisoned for not more than one year, or both, to- gether with the costs of prosecu- tion. and shall be fined not more than $10,000 or imprisonment for not more than one year, or both, to- gether with the costs of prose- cution. Sec. 14. (c) [1] "7 if any of the corporations, joint-stock companies or associations, or in- surance companies aforesaid shall refuse or neglect to make a return at the time or times hereinbefore specified in each year, or shall render a false or fraudulent return, such corpora- tion, joint-stock company or as- sociation, or insurance company shall be liable to a penalty of not exceeding $10,000. Sec. 1209.138 That section eighteen of such Act of Septem- ber eighth, nineteen hundred and sixteen, is hereby amended to read as follows: "Sec. 18. That any person, corporation, partnership, asso- ciation, or insurance company, liable to pay the tax, to make a return or to supply informa- tion required under this title, who refuses or neglects to pay such tax, to make such return or to supply such information at the time or times herein specified in each year, shall be liable, ex- cept as otherwise specially provided in this title, to a pen- alty of not less than $20 nor more than $1,000. Any indi- vidual or any officer of any cor- poration, partnership, associa- tion, or insurance company, re- quired by law to make, render, sign, or verify any return or to supply any information, who makes any false or fraudulent return or statement with intent to defeat or evade the assess- ment required by this title to be made, shall be guilty of a misdemeanor, and shall be fined not exceeding $2,000 or be im- prisoned not exceeding one jeav, or both, in the discretion of the court, with the costs of prosecu- tion ; Provided, That where any tax heretofore due and payable has been duly paid by the tax- payer, it shall not be re-collected from any withholding agent re- quired to retain it at its source. 18T Part II, Title I, Act of 1916. 138 Part III, Title I, Act of 1916, as amended by Act of 1916. PENALTIES Act of 1913. 283 Act of 1909. Sec. 14. (c) [1] 137 if any of the corporations, joint-stock companies or associations, or in- surance companies aforesaid shall refuse or neglect to make a return at the time or times here- inbefore specified in each year, or shall render a false or fraudu- lent return, such corporation, joint-stock company or associa- tion, or insurance company shall be liable to a penalty of not ex- ceeding $10,000 : Sec. 18. That if any individual liable to make the return or pay the tax aforesaid shall refuse or neglect to make such return at the time or times hereinbefore specified in each year, he shall be liable to a penalty of not less than $20 nor more than $1,000. Any individual or any officer of any corporation, joint-stock com- pany or association, or insurance company required by law to make, render, sign, or verify any return who makes any false or fraudulent return or statement with intent to defeat or evade the assessment required by this title to be made shall be guilty of a misdemeanor, and shall be fined not exceeding $2,000 or be imprisoned not exceeding one year, or both, in the discretion of the court, with the costs of prosecution : Provided, That where any tax heretofore due and payable has been duly paid by the taxpayer, it shall not be re-collected from any person or corporation required to retain it at its source, nor shall any pen- alty be imposed or coltected in such cases from the taxpayer, or such person or corporation whose duty it was to retain it, for failure to return or pay the same, unless such failure was fraudulent and for the purpose of evading payment. G. (d) [2] If any of the cor- porations, joint-stock companies or associations, or insurance companies aforesaid, shall refuse or neglect to make a return at the time or times hereinbefore specified in each year, or shall render a false or fraudulent re- turn, such corporation, joint- stock company or association, or insurance company shall be lia- ble to a penalty of not exceeding $10,000. F. That if any person, cor- poration, joint-stock company, association, or insurance com- pany liable to make the return or pay the tax aforesaid shall re- fuse or neglect to make a return at the time or times hereinbefore specified in each year, such per- son shall be liable to a penalty of not less than $20 nor more than $1,000. Any person or any offi- cer of any corporation required by law to make, render, sign, or verify any return who makes any false or fraudulent return or statement with intent to de- feat or evade the assessment re- quired by this section to be made shall be guilty of a misdemeanor, and shall be fined not exceeding $2,000 or be imprisoned not ex- ceeding one year, or both, at the discretion of the court, with the costs of prosecution. EIGHTH. [1] If any of the corporations, joint-stock com- panies or associations, or insur- ance companies, aforesaid, shall refuse or neglect to make a re- turn at the time or times herein- before specified in each year, or shall render a false or fraudu- lent return, such corporation, joint-stock company or associa- tion, or insurance company, shall be liable to a penalty of not less than one thousand dol- lars and not exceeding ten thou- sand dollars. [2] Any person authorized by law to make, render, sign, or ver- ify any return who makes false or fraudulent return, or state- ment, with intent to defeat, or evade the assessment required by this section to be made, shall be guilty of a misdemeanor, and shall be fined not exceeding one thousand dollars or be impris- oned not exceeding one year, or both, at the discretion of the court, with the costs of prose- cution. Title XII, Act of 1917. 284 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. RETURNS OF PAYMENTS OF DIVI- DENDS. Sec. 254. That every corpora- tion subject to the tax imposed by this title and every personal service corporation shall, vi^hen required by the Commissioner, render a correct return, duly verified under oath, of its pay- ments of dividends, stating the name and address of each stock- holder, the number of shares owned by him, and the amount of dividends paid to him. returns op brokers. Sec. 255. That every individ- ual, corporation, or partnership doing business as a broker shall, when required by the Commis- sioner, render a correct return duly verified under oath, under such rules and regulations as the Commissioner, with the ;i])- returns of payments op divi- dends. Sec. 254. That every corpora- tion subject to the tax imposed by this title and every personal service corporation shall, when required by the Commissioner, render a correct return duly verified under oath, of its pay- ments of dividends, stating the name and address of each stock- holder, the number of shares owned by him, and the amount of dividends paid to him'. RETURNS OF BROKERS. Sec. 255. That every individ- ual, corporation, or partnership doing business as a broker shall, when required by the Commis- sioner, render a correct return duly verified under oath, under sueli rules and regulations as tlie Commissioner, with the nor shall any penalty be imposed or collected in such cases from the taxpayer, or such withhold- ing agent whose duty it was to retain it, for failure to return or pay the same, unless such failure was fraudulent and for the pur- pose of evading payment. ' ' Sec. 1210.138 That section twenty-six of such Act of Sep- tember eighth, nineteen hundred and sixteen, as amended by the Act entitled "An Act to pro- vide increased revenue to defray the expenses of the increased ap- propriations for the Army and Navy and the extensions of for- tifications, and for other pur- poses," approvied March third, nineteen hundred and seventeen, is hereby amended to read as follows : "Sec. 26. Every corporation, joint-stock company or associa- tion, or insurance company sub- ject to the tax herein imposed, when required by the Commis- sioner of Internal Eevenue, shall render a correct return, duly verified under oath, of its pay- ments of dividends, whether made in cash or its equivalent or in stock, including the names and addresses of stockholders and the number of shares owned by each, and the tax years and the applicable amounts in which such dividends were earned, in such form and manner as may be prescribed by the Commis- sioner of Internal Revenue, with the approval of the Secretary of the Treasury." Sec. 1211. [1] 138 That Title I of such Act of September eighth, nineteen hundred and sixteen, is hereby amended by adding to Part III six new sec- tions, as follows: "Sec. 27. That every person, corporation, partnership, or as- 138 Part III, Title I, Act of 1916, as amended by Title XII, Act of 1917. Act of 1916. INFORMATION AT SOURCE Act of 1913, 285 Act of 1909. 286 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. proval of the Secretary, may prescribe, showing the names of customers for whom such indi- vidual, corporation, or partner- ship has transacted any business, with such details as to the prof- its, losses, or other information which the Commissioner may re- quire, as to each of such custom- ers, as will enable the Com- missioner to determine whether all income tax due on profits or gains of such customers has been paid. INFORMATION AT SOURCE. Sec. 256. That all individuals, corporations, and partnerships, in whatever capacity acting, in- cluding lessees or mortgagors of real or personal property, fidu- ciaries, and employers, making payment to another individual, corporation, or partnership, of interest, rent, salaries, wages, premiums, annuities, compensa- tions, remunerations, emolu- ments, or other fixed or deter- minable gains, profits, and in- come (other than payments de- scribed in sections 254 and 255), of $1,000 or more in any tax- able year, or, in the ease of such payments made by the United States, the officers or employees of the United States having in- formation as to such payments and required to make returns in regard thereto by the regula- tions hereinafter provided for, shall render a true and accu- rate return to the Commissioner, under such regulations and in such form and manner and to such extent as may be prescribed by him with the approval of the Secretary, setting forth the approval of the Secretary, may prescribe, showing the names of customers for whom such individual, corporation, or part- nership has transacted any business, with such details as to the profits, losses, or other in- formation which the Commis- sioner niay require, as to each of such customers, as will enable the Commissioner to determine whether all income tax due on profits or gains of such cus- tomers has been paid. INFORMATION AT SOURCE. Sec. 256. That all individuals, corporations, and partnerships, in whatever capacity acting, in- cluding lessees or mortgagors of real or personal property, fidu- ciaries, and employers, making payment to another individual, corporation, or partnership, of interest, rent, salaries, wages, premiums, annuities, compensa- tions, remunerations, emolu- ments, or other fixed or deter- minable gains, profits, and in- come (other than payments pre- scribed in sections 254 and 255) , of $1,000 or more in any taxable year, or, in the case of such payments made by the United States, the officers or employees of the United States having in- formation as to such payments and required to make returns in regard thereto by the regulations hereinafter provided for, shall render a true and accurate re- turn to the Commissioner, under such regulations and in such form and manner and to such extent as may be prescribed by him with the approval of the Secretary', setting forth the sociation, doing business as a broker on any exchange or board of trade or other similar place of business shall, when required by the Commissioner of Internal Revenue, render a correct re- turn duly verified under oath, under such rules and regulations as the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, may prescribe, showing the names of customers for whom such person, corporation, part- nership, or association, has transacted any business, with such details as to the profits, losses, or other information which the commissioner may re- - quire, as to each of such custom- ers, as will enable the Commis- sioner of Internal Revenue to de- termine whether aU income tax due on profits or gains of such customers has been paid. [2] "Sec. 28. That all per- sons, corporations, partnerships, associations, and insurance com- panies, in whatever capacity act- ' ing, including lessees or mort- gagors of real or personal prop- erty, trustees acting in any trust capacity, executors, administra- tors, receivers, conservators, and employers, making payment to another person, corporation, partnership, association, or in- surance company, of interest, rent, salaries, wages, premiums, annuities, compensation, remu- neration, emoluments, or other fixed, or determinable gains, profits, and income (other than payments described in sections twenty-six and twenty-seven), of $800 or more in any taxable year, or, in the case of such pay- ments made by the United States, the officers or employees of the United States having in- formation as to such payments and required to make returns in regard thereto by the regula- tions hereinafter provided for, are hereby authorized and re- quired to vender a true and ac- Act of 1916. INFORMATION AT SOURCE Act of 1913. 287 Act of 1909. 288 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. amount of such gains, profits, and income, and the name and address of the recipient of such payment. Such returns may be required, regardless of amounts, (1) in the case of payments of interest up- on bonds, mortgages, deeds of trust, or other similar obliga- tions of corporations, and (2) in the case of collections of items (not payable in the United States) of interest upon the bonds of foreign countries and interest upon the bonds of and dividends from foreign corpora- tions by individuals, corpora- tions, or partnerships, undertak- ing as a matter of business or for profit the collection of for- eign payments of such interest or dividends by means of cou- pons, checks, or bills of ex- change. When necessary to make ef- fective the provisions of this section the name and address of the recipient of income shall be furnished upon demand of the individual, corporation, or part- nership paying the income. The provisions of this section shall apply to the calendar year 1921 and each calendar year thereafter, but shall not apply to the payment of interest on ob- ligations of the United States. RETURNS TO BE PUBLIC RECORDS. Sec. 257. That returns upon which the tax has been deter- mined by the Commissioner shall constitute public records; but they shall be open to inspec- amount of such gains, profits, and income, and the name and address of the recipient of such payment. Such returns may be required, regardless of amounts, (1) in the case of payments of inter- est upon bonds, mortgages, deeds of trust, or other similar obli- gations of corporations, and (2) in the case of collections of items (not payable in the United States) of interest upon the bonds of foreign countries and interest upon the bonds of and dividends from foreign corpora- tions by individuals, corpora- tions, or partnerships, under- taking as a matter of business or for profit the collection of foreign payments of such inter- est or dividends by means of coupons, checks, or bills of ex- change. When necessary to make ef- fective the provisions of this section the name and address o^ the recipient of income shall be furnished upon demand of the individual,' corporation, or part- nership paying the income. The provisions of this section shall apply to the calendar year 1918 and each calendar year thereafter, but shall not apply to the payment of interest on obligations of the United States. RETURNS TO BE PUBLIC RECORDS. Sec. 257. That returns upon which the tax has been deter- mined by the Commissioner shall constitute public records, but they shall be open to inspection curate return to the Commis- sioner of Internal Revenue, un- der such rules and regulations and in such form and manner as may be prescribed by him, with the approval of the Secretary of the Treasury, setting forth the amount of such gains, profits, and income, and the name and address of the recipient of such payment. Provided, That such returns shall be required regard- less of amounts, in the case of payments of interest upon bonds and mortgages or deeds of trust or other similar obligations of corporations, joint-stock com- panies, associations, and insur- ance companies, and in the case of collections of items (not pay- able in the United States) of interest upon the bonds of for- eign countries and interest from the bonds and dividends from the stock of foreign corporations by persons, corporations, part- nerships, or associations, under- taking as a matter of business or for profit the collection of for- eign payments of such interest or dividends by means of cou- pons, checks, or bills of ex- change. "When necessary to make ef- fective the provisions of this sec- tion the name and address of the recipient of income shall be furnished upon demand of the person, corporation, partnership, association, or insurance com- pany paying the income. "The provisions of this sec- tion shall apply to the calendar year nineteen hundred and seventeen and each calendar year thereafter, but shall not ap- ply to the payment of interest on obligations of the United States. Sec. 14. (b)l39 When the as- sessment shall be made, as pro- vided in this title, the returns, together with any corrections thereof which may have been 189 Part II, Title I, Act of 1916. Act of 1916. RETURNS TO BE PUBLIC RECORDS Act of 1913. 289 Act of 1909. Sec. 14. (b)l39 When the as- sessment shall be made, as pro- vided in this title, the returns, together with any. corrections thereof which may have been G. (d) [1] When the assess- ment shall be made, as provided in this section, the returns, to- gether with any corrections thereof which may have been SIXTH. When the assessment shall be made, as provided in this section, the returns, together with any corrections thereof which may have been made by 290 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. tion only upon order of the President and under rules and regulations prescribed by the Secretary and approved by the President: Provided, That the proper ofScers of any State im- posing an income tax may, upon the request of the governor thereof, have access to the re- turns of any corporation, or to an abstract thereof showing the name and income of the corpora- tion, at such times and in such manner as the Secretary may prescribe : Provided further, That all bona fide stockholders of record owning 1 per centum or more of the outstanding stock of any corporation shall, upon making request of the Commis- sioner, be allowed to examine the annual income returns of such corporation and of its subsidi- aries. Any stockholder who pur- suant to the provisions of thi^ section is allowed to examine the return of any corporation, and who makes known in any man- ner whatever not provided by law the amount or source of in- come, profits, losses, expendi- tures, or any particular thereof, set forth or disclosed in any such return, shall be guilty of a mis- demeanor and be punished by a fine not exceeding $1,000, or by imprisonment not exceeding one year, or both. The Commissioner shall as soon as practicable in each year cause to be prepared and made available to public inspection in such manner as he may deter- mine, in the office of the collec- tor in each internal-revenue dis- trict and in such other places as he may determine, lists contain- ing the names and the post- office addresses of all individuals making income-tax returns in such district. PUBLICATION OF STATISTICS. Sec. 258. That the Commis- sioner, with the approval of the only upon order of the Presi- dent and under rules and regu- lations prescribed by the Secre- tary and approved by the Presi- dent : Provided, That the proper officers of any State imposing an income tax may, upon the re- quest of the governor thereof, have access to the returns of any corporation, or to an abstract thereof showing the name and income of the corporation, at such times and in such manner as the Secretary may prescribe : Provided further. That all bona fide stockholders of record own- ing 1 per centum or more of the outstanding stock of any corpo- ration shall, upon making request of the Commissioner, be allowed to examine the annual income re- turns of such corporation and of its subsidiaries. Any stockholder who pursuant to the provisions of this section is allowed to ex- amine the return of any corpora- tion, and who makes known in any manner whatever not pro- vided by law the amount or source of income, profits, losses, expenditures, or any particular thereof, set forth or disclosed in any such return, shall be guilty of a misdemeanor and be pun- ished by a fine not exceeding $1,000, or by imprisonment not exceeding one year, or both. The Commissioner shall as soon as practicable in each year cause to be prepared and made available to public inspection in such manner as he may deter- mine, in the office of the collector in each internal-revenue district and in such other places as he may determine, lists containing the names and the post-office ad- dresses of all individuals making income-tax returns in such dis- trict. PUBLICATION OF STATISTICS. Sec. 258. That the Commis- sioner, with the approval of the made by the Commissioner, shall be filed in the office of the Com- missioner of Internal Eevenue and shall constitute public rec- ords and be open to inspection as such : Provided, That any and all such returns shall be open to inspection only upon the order of the President, under rules and regulations to be prescribed by the Secretary of the Treasury and approved by the President : Provided further. That the proper officers of any State im- posing a general income tax may, upon the request of the governor thereof, have access to said re- turns or to an abstract thereof, showing the name and income of each such corporation, joint- stock company or association, or insurance company, at such times and in such manner as the Secretary of the Treasury may prescribe ; Sec 21. That the preparation and publication of statistics rea- liO Provided, That any and all such returns shall be open to inspection only upon the order of the President under rules and regulations to be pre- Act of 1916. PUBLICATION OF STATISTICS Act of 1913. 291 Act of 1909. made by the commissioner, shall be filed in the office of the Com- missioner of Internal Revenue and shall constitute public rec- ords and be open to inspection as such : Provided, That any and aU such returns shall be open to inspection only upon the order of the President, under rules and regulations to be prescribed by the Secretary of the Treasury and approved by the President : Provided further, That the proper officers of any State im- posing a general income tax may, upon the request of the governor thereof, have access to said re- turns or to an abstract thereof, showing the name and income of each such corporation, joint- stock company or association, or insurance company, at such times and in such manner as the Secretary of the Treasury may prescribe ; Sec. 21. That the preparation and publication of statistics rea- made by the commissioner, shall be filed in the office of the Com- missioner of Internal Revenue and shall constitute public rec- ords and be open to inspection as such : Provided, That any and all such returns shall be open to inspection only upon the order of the President, under rules and regulations to be prescribed by the Secretary of the Treasury and approved by the President : Provided further, That the proper officers o£ any State im- posing a general income tax may, upon the request of the governor thereof, have access to said re- turns or to an abstract thereof, showing the name and income of each such corporation, joint- stock company, association or in- surance company, at such times and in such manner as the Sec- retary of the Treasury may pre- scribe. the Commissioner, shall be filed in the office of the Commissioner of Internal Revenue and shall constitute public records and be open to inspection as such. 1*0. scribed by the Secretary of the Treasury and ap- proved by the President. (Act of June 17, 1910.) 292 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. Secretary, shall prepare and publish annually statistics rea- sonably available with respect to the operation of the income, war- profits and excess-profits tax laws, including classifications of taxpayers and of income, the amounts allowed as deductions, exemptions, and credits, and any other facts deemed pertinent and valuable. COLLECTION OF FOREIGN ITEMS. Sec. 259. That all individuals corporations, or partnerships undertaking as a matter of busi- ness or for profit the collection of foreign payments of interest or dividends by means of cou- pons, checks, or bills of exchange shall. obtain a license from the Commissioner and shall be sub- ject to such regulations enabling the Government to obtain the in- formation required under this title as the Commissioner, with the approval of the Secretary, shall prescribe; and whoever knowingly undertakes to collect such paj'^ments without having obtained a license therefor, or without complying with such regulations, . shall be guilty of a misdemeanor and shall be fined not more than $5,000, or impris- oned for not more than one year, or both. citizens op possessions of the united states. Sec. 260. That any individual ■who is a citizen of any posses- sion of the United States (but not otherwise a citizen of the United States) and who is not a resident of the United States, shall be subject to taxation un- der this title only as to income derived from sources within the Secretary, shall prepare and publish annually statistics rea- sonably available with respect to the operation of the income, war- profits and excess-profits-tax laws, including classifications of taxpayers and of income, the amounts allowed as deductions, exemptions, and credits, and any other facts deemed pertinent and valuable. COLLECTION OF FOREIGN ITEMS. Sec. 259. That all individuals, corporations, or partnerships undertaking as a matter of busi- ness or for profit the collection of foreign payments of interest or dividends by means of cou- pons, cheeks, or bills of exchange shall obtain a license from the Commissioner and shall be sub- ject to such regulations enabling the Government to obtain the in- formation required under this ti- tle as the Commissioner, with the approval of the Secretary, shall prescribe; and whoever know- ingly undertakes to collect such payments without having ob- tained a license therefor, or with- out complying with such regula- tions, shall be guilty of a mis- demeanor and shall be fined not more than $5,000, or imprisoned for not more than one year, or both. citizens OF UNITED STATES POS- SESSIONS. Sec. 260. That any individual who is a citizen of any posses- sion of the United States (but not otherwise a citizen of the United States) and who is not a resident of the United States, shall be subject to taxation un- der this title only as to income derived from sources within the sonably available with respect to the operation of the income tax law and containing classifica- tions of taxpayers and of income, the amounts allowed as deduc- tions and exemptions, and any other facts deemed pertinent and valuable, shall be made annual- ly by the Commissioner of In- ternal Revenue with the ap- proval of the Secretary of the Treasury. Sec. 1205. [3], amending Sec. 9. " (f)l41 All persons, corpora- tions, partnerships, or associa- tions, undertaking as a matter of business or for profit the collec- tion of foreign payments of in- terest or dividends by means of coupons, checks, or bills of ex- change shall obtain a license from the Commissioner of Inter- nal Revenue, and shall be sub- ject to such regulations enabling the Government to obtain the in- formation required under this title, as the Commissioner of In- ternal Revenue, with the ap- proval of the Secretary of the Treasury, shall prescribe; and whoever knowingly undertakes to collect such payments as aforesaid without having ob- tained a license therefor, or with- out complying with such regula- tions, shall be deemed guilty of a misdemeanor and for each of- fense be fined in a sum not ex- ceeding $5,000, or imprisonment for a term not exceeding one year, or both, in the discretion of the court. 1" Sec. 9, Part I, Title I, Act of 1916, as amended by Sec. 1205 (1), Title XII, Act of 1917. Act of 1916. COLLECTIONS OP FOREIGN ITEMS Act of 1913. 293 Act of 1909. sonably available with respect to the operation of the income tax law and containing classifications of taxpayers and of income, the amounts allowed as deductions and exemptions, and any other facts deemed pertinent and val- uable, shall be made annually by the Commissioner of Internal Revenue with the approval of the Secretary of the Treasury. Sec. 9. (f) 1*2 All persons, firms, or corporations undertak- ing as a matter of business or for profit the collection of foreign payments of such interest or div- idends by means of coupons, checks, or bills of exchange shall obtain a license from the Com- missioner of Internal Revenue, and shall be subject to such regu- lations enabling the Government to ascertain and verify the due withholding and payment of the income tax required to be with- held and paid as the Commis- sioner of Internal Revenue, with the approval of the Secretary of the Treasury, shall prescribe; and any person who shall know- ingly undertake to collect such payments as aforesaid without having obtained a license there- for, or without complying with such regulations, shall be deemed guilty of a misdemeanor and for each offense be fined in a sum not exceeding $5,000, or impris- oned for a term not exceeding one year, or both, in the discre- tion of the court. E. [7] All persons, firms, or corporations undertaking as a matter of business or for profit the collection of foreign pay- ments of such interest or divi- dends by means of coupons, checks, or bills of exchange shall obtain a license from the Com- missioner of Internal Revenue, and shall be subject to such reg- ulations enabling the Govern- ment to ascertain and verify the due withholding and payment of the income tax required to be withheld and paid as the Com- missioner of Internal Revenue, with the approval of the Secre- tary of the Treasury, shall pre- scribe ; and any person who shall knowingly undertake to coUect such payments as aforesaid with- out having obtained a license therefor, or without complying with such regulations, shall be deemed guilty of a misdemeanor and for each offense be fined in a sum not exceeding $5,000, or im- prisoned for a term not exceed- ing one year or both, in the dis- cretion of the court. "2 Part I, Title I, Act of 1916. 294 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. United States, and in such case the tax shall be computed and paid in the same manner and subject to the same conditions as in the case of other persons who are taxable only as to in- come derived from siieh sources. Nothing in this section shall be construed to alter or amend the provisions of the Act en- titled "An Act making appro- priations for the naval service for the fiscal year ending June 30, 1922, and for other pur- poses," approved July 12, 1921. relating to the imposition of in- come taxes in the Virgin Islands of the United States. PORTO RICO AND PHILIPPINE ISLANDS. Sec. 261. That in Porto Eico and the Philippine Islands the income tax shall be levied, as- sessed, collected, and paid as provided by law prior to the passage of this Act. United States, and in such case the tax shall be computed and paid in the same manner and subject to the same conditions as in the case of other persons who are taxable only as to income de- rived from such sources. PORTO RICO AND PHILIPPINE ISLANDS. Sec. 261. That in Porto Rico and the Philippine Islands the income tax shall be levied, as- sessed, collected, and paid in ac- cordance with the provisions of the Revenue Act of 1916 as amended. Returns shall be made and taxes shall be paid under Title I of such Act in Porto Rico or the Philippine Islands, as the case may be, by (1) every individual who is a citizen or resident of Porto Rico or the Philippine Islands or derives income from sources therein, and (2) every corporation created or organized in Porto Rico or the Philippine Islands or deriving income from sources therein. An individual who is neither a citizen nor a resident of Porto Rico or the Philippine Islands but derives income from sources therein, shall be taxed in Porto Rico or the Philippine Islands as a non- resident alien individual, and a corporation created or organized outside Porto Eico or the Phil- ippine Islands and deriving in- come from sources therein shall be taxed in Porto Eico or the Philippine Islands as a foreign corporation. For the purposes of section 216 and of paragraph (6) of subdivision (a) of section 234 a tax imposed in Porto Eico Sec. 23. That the provisions of this title shall extend to Porto Rico and the Philippine Islands : Provided, That the administra- tion of the law and the collection of the taxes imposed in Porto Rico and the Philippine Islands shall be by the appropriate in- ternal-revenue officers of those governments, and all revenues collected in Porto Rico and the Philippine Islands thereunder shall accrue intact to the general Governments thereof, respective- ly: Provided further, That the jurisdiction in this title con- ferred upon the district courts of the United States shall, so far as the Philippine Islands are concerned, be vested in the courts of the first instance of said islands: And provided fur- ther. That nothing in this title shall be held to exclude from the computation of the net income the compensation paid any offi- cial by the governments of the District of Columbia, Porto Rico, and the Philippine Islands, or the political subdivisions thereof. PORTO RICO AND PHILIPPINE ISLANDS 295 Act of 1916. Act of 1913. Act of 1909. Sec. 23. That the provisions of this title shall extend to Porto Rico and the Philippine Islands : Provided, That the administra- tion of the law and the collec- tion of the taxes imposed in Porto Rico and the Philippine Islands shall be by the appro- priate internal-revenue officers of those governments, and all revenues collected in Porto Rico and the Philippine Islands there- under shall accrue intact to the general Governments thereof, re- spectively : Provided further, That the jurisdiction in this title conferred upon the district courts of the United States shall, so far as the Philippine Islands are concerned, be vested in the courts of the first instance of said islands: And provided fur- ther, That nothing in this title shall be held to exclude from the computation of the net income the compensation paid any offi- cial by the governments of the District of Columbia, Porto Rico, and the Philippine Islands, or the political subdivisions thereof. M. That the provisions of this section shall extend to Porto Rico and the Philippine Islands : Provided, That the administra- tion of the law and the collec- tion of the taxes imposed in Porto Rico and the Philippine Islands shall be by the appro- priate internal-revenue officers of those governments, and all revenues collected in Porto Rico and the Philippine Islands thereunder shall accrue intact to the general governments thereof, respectively : And provided fur- ther, That the jurisdiction in this section conferred upon the dis- trict courts of the United States shall, so far as the Philippine Islands are concerned, be vested in the courts of the first instance of said islands: And provided further, That nothing in this sec- tion shall be held to exclude from the computation of the net income the compensation paid any official by the governments of the District of Columbia, Porto Rico and the Philippine Islands or the political subdivi- sions thereof. 296 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. The Porto Rican or Philippine Legislature shall have ptiwer by- due enactment to amend, alter, modify, or repeal the income tax laws in force in Porto Rico or the Philippine Islands, respec- tively. INCOME PROM SOURCES WITHIN THE POSSESSIONS OF THE UNITED STATES. Sec. 262. (a) That in the case of citizens of the United States or domestic corporations, satis- fying the following conditions, gross income means only gross income from sources within the United States — (1) If 80 per centum or more of the gross income of such citi- or the Philippine Islands upon the net income of a corporation shall not be deemed to be a tax under this title. The Porto Rican or Philippine Legislature shall have power by due enactment to amend, alter, modify, or repeal the income tax laws in force in Porto Rico or the Philippine Islands, respec- tively. Sec. 1400. (b) [2] "3 Title I of the Revenue Act of 1916 as amended by the Revenue Act of 1917 shall remain in force for the assessment and collection of the income tax in Porto Rico and the Philippine Islands, except as may be otherwise provided by their respective legislatures. Sec. 5. That the provisions of this title shall not extend to Porto Rico or the Philippine Islands, and the Porto Rican or Philippine Legislature shall have power by due enactment to amend, alter, modify, or repeal the income tax laws in force in Porto Rico or the Philippine Islands, respectively. 143 Title XIV, Act of 1918. POSSESSIONS OF THE UNITED STATES 297 Act of 1916. Act of 1913. Act of 1909. SEVENTH. It shall be un- lawful for any collector, deputy collector, agent, clerk, or other officer or employee of the United States to divulge or make known in any manner whatever not pro- vided by law to any person any information obtained by him in the discharge of his official duty, or to divulge or make known in any manner not provided by law any document received, evidence taken, or report made under this section except upon the special direction of the President; and any offense against the foregoing provision shall be a misdemeanor and be punished by a fine not exceeding one thousand dollars, or by imprisonment not exceed- ing one year, or both, at the dis- cretion of the court. 298 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. zen or domestic corporation (computed without the benefit of this section) for the three- year period immediately preced- ing the close of the taxable year (or for such part of buch period immediately preceding the close of such taxable year as may be applicable) was deiived from sources within a possession of the United States; and (2) If, in the case of such cor- poration, 50 per centum or more of its gross income (computed without the benefit of this sec- tion) for such period or such part thereof was derived froin the active conduct of a trade or business within a possession of the United States ; or (3) If, in the case of such citi- zen, 50 per centum or more of his gross income (computed without the benefit of this sec- tion) for such period or such part thereof was derived from the active conduct of a trade or business within a possession of the United States either on his own account or as an employee or agent of another. (b) Notwithstanding the pro- visions of subdivision (a) there shall be included in gross in- come all amounts received by such citizens or corporations within the United States, whether derived from sources within or without the United States. (c) As used in this section the term "possefssion of the United States" does not include the Virgin Islands of the United States. EFFECTIVE DATE OF TiTLE. Sec. 263. That this title shall ■take effect as of January 1, 1921 JURISDICTION OP COURTS. Sec. 1310.1 (a) That if any person is summoned tinder this Act to appear, to testify, or to produce books, papers or other data, the district court of the United States for the district in Sec. 1318.1 That if any person is summoned under this Act to appear, to testify, or to produce books, papers or other data, the district court of the United States for the district in which Sec. 20. That jurisdiction is hereby conferred upon the dis- trict courts of the United States for the district within which any person summoned under this title to appear to testify or to 1 Title XIII. Act of 1916. JURISDICTION OF COURTS Act of 1913. 299 Act of 1909. Sec. 20. That jurisdiction is hereby conferred upon the dis- trict courts of the United States for the district v/ithin which any person summoned under this ti- tle to appear to testify or to pro- K. Tliat jurisdiction is hereby conferred upon the district courts of the United States for the district within which any person summoned under this section to appear to testify or to EIGHTH. [4] Jurisdiction is hereby conferred upon the cir- cuit and district courts of the United States for the district within which any person sum- moned under this section to ap- 300 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. which such person resides shall have jurisdiction by appropriate process to compel such attend- ance, testimony, or production of boolfs, papers, or other data. (b) The district courts of the United States at the instance of the United States are heieby in- vested with such jurisdiction to make and issue, both in actions at law and suits in equity, writs and orders of injuncLion, and of ne exeat republica, orders ap- pointing receivers, and such other orders and process, and to render such judgments and decrees, granting in proper eases both legal and equitable relief together, as may be neces- sary or appropriate for the en- forcement of the provisions o£ this Act. The remedies hereby provided are in addition to and not exclusive of any and all other remedies of the United States in such courts or other- wise to enforce such provisions. (c) Paragraph "twentieth" of section 24 of the Judicial Code is amended by adding at the end thereof the following new paragraph: "Concurrent with the Court of Claims, of any suit or pro- ceeding, commenced after the passage of the Eeveuue Act of 1921, for the recovery of any internal-revenue tax alleged to have been erroneously or illegal- ly assessed or collected, or of any penalty claimed to have been collected without authority or any sum alleged to have been ex- cessive or in any manner wrong- fully collected, under the inter- nal-revenue laws, even if the claim exceeds $10,000, if the col- lector of internal revenue by whom such tax, penalty, or sum such suit or proceeding is com- was collected is dead at the time menced. ' ' such person resides shall have jurisdiction by appropriate proc- ess to compel such attendance, testimony, or production of books, papers, or other data. The district courts of the United States at the instance of the United States are hereby in- vested with such jurisdiction to make and issue, both in actions at law and suits in equity, writs and orders of injunction, and of ne exeat republica, orders ap- pointing receivers, and such other orders and process, and to render such judgments and de- crees, granting in proper cases both legal and equitable relief to- gether, as may be necessary or appropriate for the enforcement of the provisions of this Act. The remedies hereby provided are in addition to and not exclusive of any and all other remedies of the United States in such courts or otherwise to enforce svich provi- sions. produce books shall reside, to compel such attendance, produc- tion of books, and testimony by appropriate process. Act of 1916. JURISDICTION OF COURTS Act of 1913. 301 Act of 1909. duce books shall reside, to com- pel such attendance, production of books, and testimony by ap- propriate process. produce books shall reside, to compel such attendance, produc- tion of books, and testimony by appropriate process. pear to testify or to produce books, as aforesaid, shall reside, to compel such attendance, pro- duction of books, and testimony by appropriate process. 302 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. TITLE XIV.— GENERAL PROVISIONS, REPEALS. Sec. 1400. (a) That the fol- lowing parts of the Revenue Act of 1918 are repealed, to take effect (except as otherwise pro- vided in this Act) on January 1, 1922, subject to the limita- tions provided in subdivision (b): Title II (called "Income Tax") as of January 1, 1921; Title III (called "War-Prof- its and Excess-Profits Tax") as of January 1, 1921 ; Title IV (caUed "Estate Tax") on the passage of fnis Act; Title V (called "Tax on Transportation and Other Fa- cilities, and on Insurance") ; Sections 628, 629, and 630 of Title VI (being the taxes on soft drinks, ice cream, and simi- lar articles) ; Title VII (called "Tax on Cigars, Tobacco and Manufac- tures Thereof") ; Title VIII (called "Tax on Admissions and Dues") ; Title IX (called "Excise Taxes") • Title 'x (called "Special Taxes") ■ Title 'XI (called "Stamp Taxes) ; Title XII (called "Tax on Employment of Child Labor") as of January 1, 1921 ; and Sections 1314, 1315, 1316, 1317, 1319, and 1320 of Title XIII (being certain adminis- trative provisions) on the pas- sage of this Act. TITLE XIV.— GENERAL PROVISIONS. Sec. 1400. (a) That the follow- ing parts of Acts are hereby re- pealed, subject to the limitations provided in subdivision (b ) : (1) The following titles of the Revenue Act of 1916 : Title I (called "Income Tax") ■ Title' II (eaUed "Estate Tax"); Title III (called "Munitions Manufacturers' Tax"), as amended ; Title IV (called "Miscella- neous Taxes"). (2) The following parts of the Act entitled ' ' An Act to provide increased revenue to defray the expenses of the increased appro- priations for the Army and Navy and the extensions of for- tifications, and for other pur- poses, ' ' approved March 3, 1917 : Title III (called "Estate Tax"); Section 402 (called "Returns of Dividends"). (3) The following titles of the Revenue Act of 1917 : Title I (called "War Income Tax") ; Title II (called "War Excess- Profits Tax") ; Title III (called "War Tax on Beverages") ; Title IV (called "War Tax on Cigars, Tobacco, and Manufac- tures Thereof") ; Title V (called "War Tax on Facilities Furnished by Public Utilities, and Insurance") ; Title VI (called "War Excise Taxes"); Title VII (called "War Tax on Admissions and Dues") ; Title VIII (called "War Stamp Taxes") ; Title IX (called "War Estate Tax"); Title X (called "Administra- tive Provisions") ; Sec. 24. That Section II of the Act approved October third, nineteen hundred and thirteen, entitled ' ' An Act to reduce tariff duties and to provide revenue for the Government, and for other purposes," is hereby re- pealed, except as herein other- wise provided, and except that it shall remain in force for the as- sessment and collection of all taxes which have accrued there- under, and for the imposition and collection of all penalties or forfeitures which have accrued or may accrue in relation to any of such taxes, and except that the unexpended balance of any appropriation heretofore made and now available for the admin- istration of such section or any provision thereof shall be avail- able for the administration of this title or the corresponding provision thereof. Sec. 1301.145 That Title I of the Act entitled ' ' An Act to pro- vide increased revenue to defray the expenses of the increased ap- propriations for the Army and Navy and the extension of forti- fications, and for other pur- poses," approved March third, nineteen hundred and seventeen, be, and the same is hereby, re- pealed. 144 Sec. IV, Act of 1913. i« Title XIII, Act of 1917. Act of 1916. REPEAL OF PREVIOUS ACTS Act of 1913. 303 Act of 1909. Sec. 24. That Section II of the Act approved October third, nineteen hundred and thirteen, entitled ' ' An Act to reduce tariff duties and to provide revenue for the Government, and for other purposes," is hereby re- pealed, except as herein other- wise provided, and except that it shall remain in force for the assessment and collection of all taxes which have accrued there- under, and for the imposition and collection of all penalties or forfeitures which have accrued or may accrue in relation to any of such taxes, and except that the unexpended balance of any appropriation heretofore made and now available for the admin- istration of such section or any provison thereof shall be availa- ble for the administration of this title or the corresponding provi- sion thereof. S. [1] 144 That, except as here- inafter provided, sections one to forty-two, both inclusive, of an Act entitled "An Act to provide revenue, equalize duties, and en- courage the industries of the United States, and for other pur- poses," approved August fifth, nineteen hundred and nine, and all Acts and parts of Acts incon- sistent with the provisions of this Act, are hereby repealed: Pro- vided, That nothing in this Act shall be construed to permit any oaths to be demanded or fees to be charged except as provided. in this Act or in section twenty- eight hundred and sixty-two of the Revised Statutes of the United States. 304 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. (b) The parts of the Revenue Act of 1918 which are repealed by this Act shall (unless other- wise specifically provided in this Act) remain in force for the as- sessment and collection of all taxes which have accured under the Revenue Act of IMS at the time such parts cease to be in effect, and for the imposition and collection of all penalties or forfeitures which have ac- crued or may accrue in relation to any such taxes. In the case of any tax imposed by any part of the Revenue Act of 1918 re- pealed by this Act, if there is a tax imposed by this Act in lieu thereof, the provision imposing such tax shall remain in force until the corresponding tax un- der this Act takes effect under the provisions of this Act. The unexpended balance of any ap- propriation heretofore made and now available for the adminis- tration of any such part of the Revenue Act of 1918 shall be available for the administration of this Act or the corresponding provision thereof. Title XII (called "Income- Tax Amendments " ) . (b) [1] Such parts of Acts shall remain in force for the as- sessment and collection of all taxes which have accrued there- under, and for the imposition and collection of all penalties or forfeitures which have accrued and may accrue in relation to any such taxes, and except that the unexpended balance of any appropriation heretofore made and now available for the ad- ministration of any such part of an Act shall be available for the administration of this Act or the corresponding provision thereof : Provided, That, except as other- wise provided in this Act, no taxes shall be collected under Title I of the Revenue Act of 1916 as amended by the Revenue Act of 1917, or Title I or II of the Revenue Act of 1917, in re- spect to any period after Decem- ber 31, 1917 : Provided further, That the assessment and collec- tion of all estate taxes, and the imposition and collection of all penalties or forfeitures, which have accrued under Title II of the Revenue Act of 1916 as amended by the Act entitled "An Act to provide increased revenue to defray the expenses of the increased appropriations for the Army and Navy and the extensions of fortifications, and for other purposes," approved March 3, 1917, or Title IX, of the Revenue Act of 1917, shall be according to the provisions of Title IV of this Act. In the case of any tax imposed by any part of an Act herein repealed, if there is a tax imposed by this Act in lieu thereof, the provision imposing such tax shall remain in force until the corresponding tax under this Act takes effect under the provisions of this Act. Sec. 22. That all^ administra- tive, special, and general provi- sions of law, including the laws in relation to the assessment, re- mission, collection, and refund of internal-revenue taxes not heretofore specifically repealed and not inconsistent with the provisions of this title, are here- by extended and made applicable to all the provisions of this title and to the tax herein imposed. 146 Sec. IV, Act of 1913. EXTENSION OF ADMINISTRATIVE PROVISIONS 305 Act of 1916. Act of 1913. Act of 1909. Sec. 22. That all administra- tive, special, and general provi- sions of law, including the laws in relation to the assessment, re- mission, collection, and refund of internal-revenue taxes not here- tofore specifically repealed and not inconsistent with the provi- sions of this title, are hereby ex- tended and made applicable to all the provisions of this title and to the tax herein imposed. L. That aU administrative, special, and general provisions of law, including the laws in rela- tion to the assessment, remission, collection, and refund of inter- nal-revenue taxes not heretofore specifically repealed and not in- consistent with the provisions of this section, are hereby extended and made applicable to all the provisions of this section and to the tax herein imposed. S. [2] 146 Provided further, That all excise taxes upon cor- porations imposed by section thirty-eight, that have accrued or have been imposed for the year ending December thirty- first, nineteen hundred and twelve, shall be returned, as- sessed, and collected in the same manner, and under the same provisions, liens, and penalties as if section thirty-eight continued in full force and effect : [4] 146 but the repeal of exist- ing laws or modifications thereof embraced in this Act shall not affect any act done, or any right accruing or accrued, or any suit or proceeding had or commenced in any civil case before the said repeal or modification; but all rights and liabilities under said laws shall continue and may be enforced in the same manner as if said repeal or modifications had not been made. Any offenses committed and all penalties or forfeitures or liabilities incurred prior to the passage of this Act under any statute embraced in or changed, modified, or repealed by this Act may be prosecuted or punished in the same manner and with the same effect as if this Act had not been passed. No Acts of limitation now in force, whether applicable to civil causes and proceedings or to the prosecution of offenses or for the recovery of penalties or forfeit- ures embraced in or modified. EIGHTH. [3] All laws relat- ing to the collection, remission, and refund of internal revenue taxes, so far as applicable to and not inconsistent with the provi- sions of this section, are hereby extended and made applicable to the tax imposed by this section. 306 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. Sec. 1403. That if any provi- sion, of this Act, or the applica- tion thereof to any person or circumstances, is held invalid, the remainder of the Act, and the application of such provi- sion to other persons or circum- stances, shall not be affected thereby. Sec. 1402. That if any clause, sentence, paragraph, or part of this Act shall for any reason be adjudged by any court of compe- tent jurisdiction to be invalid, such judgment shall not affect, impair, or invalidate the re- mainder of this Act, but shall be confined in its operation to the clause, sentence, paragraph, or part thereof directly involved in the controversy in which such judgment has been rendered. Sec. 1403. That the Eevenue Act of 1916 is hereby amended by adding at the end thereof a section to read as follows : "Sec. 903. That this Act maiy be cited as the 'Revenue Act of 1916.' " Sec. 1404. That the Revenue Act of 1917 is hereby amended by adding at the end thereof a section to read as follows : ' ' Sec. 1303. That this Act may be cited as the 'Revenue Act of 1917.' " Sec. 1405. That this Act may be cited as the "Revenue Act of 1918." Sec. 1408. That every person who on or after April 6, 1917, has entered into any contract, undertaking, or agreement, with the United States, or with any department, bureau, officer, com- mission, board, or agency under the United States or acting in its behalf, or with any other person haying contract relations with the United States, for the per- formance of any work or the supplying of any materials or property for the use of or for Sec. 1300.147 That if any clause, sentence, paragraph, or part of this Act shall for any reason be adjudged by any court of competent jurisdiction to be invalid, such judgment shall not affect, impair, or invalidate the remainder of said Act, but shall be confined in its operation to the clause, sentence, paragraph, or part thereof directly involved in the controversy in which such judgment shall have been ren- dered. l« Title XIII, Act of 1917. 148 Title IX, Act of 1916. Act of 1916. Sec. 900.148 That if any clause, sentence, paragraph, or part of this Act shall for any reason be adjudged by any court of competent jurisdiction to be invalid, such judgment shall not affect, impair, or invalidate the remainder of said Act, but shaU be confined in its operation to the clause, sentence, paragraph, or part thereof directly involved in the controversy in which such judgment shall have been ren- dered. SAVING CLAUSE Act of 1913. 307 changed, or repealed by this Act shall be affected thereby so far as they affect any suits, proceed- ings, or prosecutions, whether civil or ci'iminal, for causes aris- ing or acts done or committed prior to the passage of this Act, which may be commenced and prosecuted within the same time and with the same effect as if this Act had not been passed. T.149 If any clause, sentence, paragraph, or part of this Act shall for any reason be adjudged by any court of competent juris- diction to be invalid, such judg- ment shall not affect, impair, or invalidate the remainder of said Act, but shall be confined in its operation to the clause, sentence, paragraph, or part thereof di- rectly involved in the contro- versy in which such judgment shall have been rendered. Act of 1909. i« Title IV, Act of 1913. 308 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. TITLE XIII.— GENERAL AD- MINISTRATIVE PRO- VISIONS. LAWS MADE APPLICABLE. Sec. 1300. That all administra- tive, special, or stamp provi- sions of law, including the law relating to the assessment of taxes, so far as applicable, are hereby extended to and made a part of this Act, and every per- son liable to any tax imposed by this Act, or for the collection thereof, shall keep such records and render, under oath, such statements and returns, and shall comply with such regula- tions as the Commissioner, with the account of the United States, shall, within thirty days after a request of the Commissioner therefor, file with the Commis- sioner a true and correct copy of every such contract, under- taking, or agreement. Whoever fails to comply with such request of the Commissioner shall be guilty of a misdemeanor and shall be punished by a fine of not more than $1,000, or by imprisonment for not more than one year, or both. The Commissioner shall (when not violative of the technical mil- itary or naval secrets of the Gov- ernment) have access to all in- formation and data relating to any such contract, undertaking, or agreement, in the possession, control or custody of any depart- ment, bureau, board, agency, offi- cer or commission of the United States, and may call upon any such department, bureau, board, agency, officer or commission for a full statement and description of any allowance for amortiza- tion, obsolescence, depreciation or loss, or of any valuation, ap- praisal, adjustment or final set- tlement, made in pursuance of any such contract, undertaking, or agreement. Sec. 1305.150 That all admin- istrative, special, or stamp provi- sions of law, including the law relating to the assessment of taxes, so far as applicable, are hereby extended to and made a part of this Act, and every per- son liable to any tax imposed by this Act, or for the collection thereof, shall keep such records and render, under oath, such statements and returns, and shall comply with such regulations as the Commissioner, with the ap- Sec. 1001.151 That all admin- istrative, special, or stamp provi- sions of law, including the law relating to the assesment of taxes, so far as applicable, are hereby extended to and made a part of this Act, and every per- son, corporation, partnership, or association liable to any tax im- posed by this Act, or for the col- lection thereof, shall keep such records and render, under oath, such statements and returns, and shall comply with such regula- 150 Title XIII, Act of 1918. 151 Title X, Act of 1917. EXTENSION OF ADMINISTRATIVE PROVISIONS 309 Act of 1916. Act of 1913. Act of 1909. 310 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. the approval of the Secretary, may from time to time prescribe. RETURNS. . Sec. 1307. That whenever in the judgment of the Commis- sioner necessary he may require any person, by notice served upon him, to make a return or such statements as he deems suf- ficient to show whether or not such person is liable to tax. EXAMINATION OF. BOOKS AND WITNESSES. Sec. 1308. .That the Commis- sioner, for the purpose of ascer- taining the correctness of any return or for the purpose of making a return where none has been made, is hereby avxthorized. by any revenue agent or inspec- tor designated by him for that purpose, to examine any books, papers, records, or memoranda bearing upon the matters re- quired to be included in the re- turn, and may require the at- tendance of the person render- ing the return or of any officer or employee of such person, or the attendance of any other per- son having knowledge in the premises, and may take his tes- timony with reference to the matter required by law to be in- cluded in such return, with power to administer oaths to such person or persons. UNNECESSARY EXAMINATIONS. Sec. 1309. That no taxpayer shall be subjected to unnecessary examinations or investigations, and only one inspection of a tax- paj'cr's books of account shall be made for each taxable year un- less the taxpayer requests other- wise or unless the Commissioner, after investigation, notifies the taxpaj'er in writing that an ad- ditional inspection is necessary. proval of the Secretary, may from time to time prescribe. Whenever in the judgment of the Commissioner necessary he may require any person, by no- tice served upon him, to make a return or such statements as he deems sufficient to show whether or not such person is liable to tax. The Commissioner, for the purpose of ascertaining the cor- rectness of any return or for the purpose of making a return where none has been made, is hereby authorized, by any reve- nue agent or inspector desig- nated by him for that purpose, to examine any books, papers, records or memoranda bearing upon the matters required to be included in the return, and may require the attendance of the person rendering the return or of any officer or employee of such person, or the attendance of any other person having knowledge in the premises, and may take his testimony with ref- erence to the matter required by law to be included in such re- turn, with power to administer oaths to such person or persons. tions as the Commissioner of In- ternal Revenue, with the ap- proval of the Secretary of the Treasury, may from time to time prescribe. EXAMINATION OF BOOKS AND WITNESSES 311 Act of 1916. Act of 1913. Act of 1909. FOURTH. Whenever evidence shall be produced before the Commissioner of Internal Rev- enue which in the opinion of the Commissioner justifies the be- lief that the return made by any corporation, joint-stock company or association, or insurance com- pany, is incorrect, or whenever any collector shall report to the Commissioner of Internal Rev- enue that any corporation, joint- stock company or association, or insurance company, has failed to make a return as required by law, the Commissioner of In- ternal Revenue may require from the corporation, joint- stock company or association, or insurance company making such return, such further informa- tion with reference to its capi- tal, income, losses, and expendi- tures as he may deem expedient ; and the Commissioner of In- ternal Revenue, for the purpose of ascertaining the correctness of such return or for the purpose of making a return where none has been made, is hereby au- thorized, by any regularly ap- pointed revenue agent specially ' designated by him for that pur- pose, to examine any books and papers bearing upon the matters required to be included in the return of such corporation, joint-stock company or associa- tion, or insurance company, and to require the attendance of any offlcer or employee of such cor- poration, joint-stock company or association, or insurance com- pany, and to take his testimony with reference to the matter re- quired by law to be included in such return, with power to ad- minister oaths to such person or persons; and the Commissioner of Internal Revenue may also invoke the aid of any court of the United States having juris- diction to require the attend- 312 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. EULES AND REGULATIONS. Sec. 1303. [1] That the Com- missioner, with the approval of the Secretary, is hereby author- ized to make all needful rules and regulations for the enforce- ment of the provisions of this act. EETEOACTIVB REGULATIONS. Sec. 1314. That in case a reg- ulation or Treasury decision re- lating to the internal- revenue laws made by the Commissioner or the Secretary, or by the Com- missioner with the approval of the Secretary, is reversed by a subsequent regulation or Treas- ury decision, and such reversal is not immediately occasioned or required by a decision of n court of competent jurisdiction, such subsequent regulation or Ti'itas- ury decision may, in the discre- tion of the' Commissioner, with the approval of the Secretary, be applied Avithout retroactive effect. TAX SIMPLIFICATION BOARD. Sec. 1327. (a) That there is hereby established in the De- partment of the Treasury a board to be known as the "Tax Simplification Board" (herein- after in this section called the "Board"), to be composed as follows : (1) Three members who shall represent the public, to be ap- pointed by the President ; and (2) Three members who shall Sec. 1309.152 That the Com- missioner, with the approval of the Secretary, is hereby author- ized to make all needful rules and regulations for the enforce- ment of the provisions of this Act. Sec. 1301.1 (d) (i) There is hereby created a board to be known as the "Advisory Tax Board," hereinafter called the Board, and to be composed of not to exceed six members to be appointed by the Commis- sioner with the approval of the Secretary. The Board shall cease to. exist at the expiration of two years after the passage of this Act, or at such earlier Sec. 1005.153 That the Com- missioner of Internal Revenue, with the approval of the Secre- tary of the Treasury, is hereby authorized to make all needful rules and regulations for the en- forcement of the provisions of this Act. Sec. 1003.153 That in all cases where the method of collecting the tax imposed by this Act is not specifically provided, the tax shall be collected in such man- ner as the Commissioner of In- ternal Revenue with the ap- proval of the Secretary of the Treasury may prescribe. 1B2 Title XIII, Act of 1918. 153 Title X, Act of 1917. Act of 1916. RULES AND REGULATIONS Act of 1913. 313 Act of 1909. ance of such officers or em- ployees and the production of such books and papers. Upon the information so acquired the Commissioner of Internal Rev- enue may amend any return or make a return where none has been made. All proceedings taken by the Commissioner of Internal Revenue under the pro- visions of this section shall be subject to the approval of the Secretary of the Treasury. 1 Title XIII. 314 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. represent the Bureau of Internal Revenue and shall be ofQcers or employees of the United States serving in such Bureau, to be appointed by the Secretary. (b) Any vacancy in the Board shall be filled in the same man- ner as the original appointment. The members representing the public shall serve without com- pensation except reimbursement for traveling, subsistence, and other necessary expenses in- curred in the performance of the duties vested in them by this sec- tion. The members representing the Bureau of Internal Revenue shall serve without compensa- tion in addition to that received for their service in such Bureau. (c) The Secretary shall fur- nish the Board with such clerical assistance, quarters and station- ery, furniture, office equipment, and other supplies as may be necessary for the performance of the duties vested in them by this section. (d) It shall be the duty of the Board to investigate the proce- dure of and the forms used by the Bureau in the administration of the internal-revenue laws, and to make recommendations in re- spect to the simplification there- of. The Board shall make a re- port to the Congress on or before the first Monday of December in each year. (e) The expenditures of the Board shall be paid upon vouchers approved by the Board and signed by the chairman thereof. For the expenditures of the Board for the fiscal year ending June 30, 1922, there is authorized to be appropriated, out of any money in the Treas- ury not otherwise appropriated, the sum of $10,000. (f) The Board shall cease to exist on December 31, 1924. time as the Commissioner with the approval of the Secretary may designate. Vacancies in the membership of the Board shall be filled in the same manner as an original appointment. Any member shall be subject to removal by the Commissioner with the ap- proval of the Secretary. The Commissioner with the approval of the Secretary shall designate the chairman of the Board. Each member shall receive an annual salary of $9,000, payable monthly, together with actual necessary expenses when absent from the District of Columbia on official business. (2) The Commissioner may, and on the request of any tax- payer directly interested shall, submit to the Board any ques- tion relating to the interpreta- tion or administration of the in- come, war-profits or excess- profits tax laws, and the Board shall report its findings and recommendations to the Commis- sioner. (3) The Board shall have its office in the Bureau of Internal Revenue in the District of Co- lumbia. The expenses and sal- aries of members of the Board shall be audited, allowed, and paid out of appropriations for collecting internal revenue, in the same manner as expenses and salaries of employees of the Bu- reau of Internal Revenue are audited, allowed, and paid. (4) The Board shall have the power to summon witnesses, take testimony, administer oaths, and to require any person to produce books, papers, documents, or other data relating to any mat- ter under investigation by the Board. Any member of the Board may sign subpoenas and members and employees of the Bureau of Internal Revenue designated to assist the Board, when authorized by the Board, may administer oaths, examine witnesses, take testimony and re- ceive evidence. Act of 1916. TAX BOARDS Act of 1913. 315 Act of 1909. 316 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. DEPOSIT OF UNITED STATES BONDS OR NOTES IN LIEU OF SURETY. Sec. 1329. That wherever by the laws of the United States or regulations made pursuant thereto, any person is required to furnish any recognizance, stipulation, bond, guaranty, or undertaking, hereinafter called "penal bond", with surety or sureties, such person may, in lieu of such surety or sureties, deposit as security with the offi- cial having authority to approve such penal bond. United States Liberty bonds or other bonds or notes of the United States in a sum equal at their par value to the amount of such penal bond required to be furnished, to- gether with an agreement au- thorizing such official to collect or sell such bonds or notes so de- posited in ease of any default in the performance of any of the conditions or stipulations of such penal bond. The acceptance of such United States bonds or notes' in lieu of surety or sure- ties required by law shall have the same force and effect as in dividual or corporate sureties, or certified checks, bank drafts, post-office money orders, or cash, for the penalty or amount of such penal bond. The bonds or notes deposited hereunder, and such other United States bonds or notes as may be substituted therefor from time to time as such security, may be deposited with the Treasurer of the United States, a Federal reserve bank, or other depositary duly desig- nated for that purpose by the Secretary, which shall issue re- ceipt therefor, describing such bonds or notes so deposited. As soon as security for the perform- ance of such penal bond is no longer necessary, such bonds or notes so deposited, shall be re- turned to the depositor: Pro- vided, That in case a person or persons supplying a contractor Sec. 1320.154 That wherever by the laws of the United States or regulations made pursuant thereto, any person is required to furnish any recognizance, stipulation, bond, guaranty, or undertaking, hereinafter called "penal bond," with surety or sureties, such person may, in lieu of such surety or sureties, de- posit as security with the offi- cial having authority to approve such penal bond. United States Liberty bonds or other bonds of the United States in a sum equal at their par value to the amount of such penal bond required to be furnished, together with an agreement authorizing such of- ficial to collect or sell such bonds so deposited in ease of any de- fault in the performance of any of the conditions or stipulations of such penal bond. The accept- ance of such United States bonds in lieu of surety or sure- ties required by law shall have the same force and effect as in- dividual or corporate sureties, or certified checks, bank drafts, post-office money orders, or cash, for the penalty or amount of such penal bond. The bonds deposited hereunder, and such other United States bonds as may be substituted therefor from time to time as such security, may be deposited with the Treas- urer, or an Assistant Treasurer of the United States, a Gov- ernment depository. Federal Re- serve bank, or member bank, which shall issue receipt there- for, describing such bonds so deposited. As soon as security for the performance of such penal bond is no longer neces- sary, such bonds so deposited, shall be returned to the deposi- tor: Provided, That in case a person or persons supplying a contractor with labor or material as provided by the Act of Con- is* Title XIII, Act of 1918. Act of 1916. PENAL BONDS Act of 1913. 317 Act of 1909. 318 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. with labor or material as pro vided by the Act of Congress, approved February 24, 1905 (33 Stat., 811), entitled "An Act to amend an Act approved August thirteenth, eighteen hundred and ninety-four, entitled 'An Act for the protection of persons furnishing materials and labor for the construction of public works, ' ' ' shall file with the obli- gee, at any time after a default in the performance of any con- tract subject to said Acts, the application and affidavit therein provided, the obligee shall not deliver to the obligor the depos- ited bonds or notes nor any sur- plus proceeds thereof until the expiration of the time limited by said Acts for the institution of suit by such person or persons, and, in ease suit shall be insti- tuted within such time, shall hold said bonds or notes or pro- ceeds subject to the order of the court having jurisdiction there- of : Provided further, That noth- ing herein contaijied shall affect or impair the priority of the claim of the United States against the bonds or notes depos- ited or any right or remedy granted by said Acts or by this section to the United States for default upon any obligation of said penal bond : Provided fur- ther, That all laws inconsistent with this section are hereby so modified as to conform to the provisions hereof : And provided further, That nothing contained herein shall affect the authority of courts over the security, where such bonds are taken as security in judicial proceedings, or the authority of any adminis- trative officer of the United States to receive United States bonds for security in cases au- thorized by existing laws. The Secretary may prescribe rules and regulations necessary and proper for carrying this section into effect. gress, approved February 24, 1905 (33 Stat., 811), entitled "An Act to amend an Act ap- proved August thirteenth, eighteen hundred and ninety- four, entitled 'An Act for the protection of persons furnishing materials and labor for the con- struction of public works,' " shall file with the obligee, at any time after a default in the per- formance of any contract sub- ject to said Acts, the application and affidavit therein provided, the obligee shall not deliver to the obligor the deposited bonds nor any surplus proceeds there- of until the expiration of the time limited by said Acts for the institution of suit by such per- son or persons, and, in case suit shall be instituted within such time, shall hold said bonds or proceeds subject to the order of the court having jurisdiction thereof: Provided further, That nothing herein contained shall affect or impair the priority of the claim of the United States against the bonds deposited or any right or remedy granted by said Acts or by this section to the United States for default upon any obligation of said penal bond: Provided further. That all laws inconsistent with this section are hereby so modi- fied as to conform to the pro- visions hereof: And provided further, That nothing contained herein shall affect the authority of courts over the security, where such bonds are taken as security in judicial proceedings, or the authority of any admin- istrative officer of the United States to receive United States bonds for security in cases au- thorized by existing laws. The Secretary may prescribe rules and regulations necessary and proper for carrying this section into effect. Act of 1916. PENAL BONDS Act of 1913. 319 Act of 1909. 320 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. PINAL EXAMINATIONS AND AS- SESSMENTS. Sec. 1312. That if after a de- termination and assessment in any case the taxpayer has with- out protest paid in whole any tax or penalty, or accepted any abatement, credit, cr refund based on such determination and assessment, and an agreement is made in writing between the taxpayer and the Commissioner, with the approval of the Secre- tary, that such determination and assessment shall be final and conclusive, then (except upon a showing of fraud or malfeasance or misrepresentation of fact ma- terially affecting the determina- tion or assessment thus made) (1) the case shall not be re- opened or the determination and assessment modified by any offi- cer, employee, or agent of the United States, and (2) no suit, action, or proceeding to annul, modify, or set aside such deter- mination or assessment shall be entertained by any court of the United States. ADMINISTRATIVE EEVIBW. Sec. 1313. That in the absence of fraud or mistake in mathe- matical calculation, the findings of facts in and the decision of the Commissioner upon (or in case the Secretary is authorized to approve the same, then after such approval) the merits of any claim presented under or au- thorized by the internal-revenue laws shall not be subject to re- view by any other administra- tive ofBcer, employee, or agent of the United States. Sec. 1320. That no suit or pro- ceeding for the collection of any internal revenue tax shall be be- gun after the expiration of five years from the time such tax was due, except in the case of fraud with intent to evade tax, or willful attempt in any man- ner to defeat or evade tax. This section shall not apply to suits or proceedings for the collection of taxes under section 250 of this FINAL DETERMINATION OF TAX LIABILITY 321 Act of 1916. Act of 1913. Act of 1909. 322 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. Act, nor to suits or proceedings begTui at the time of the passage of this Act. Sec. 1321. (a) That the Act entitled "An Act to limit the time within which prosecutions may be instituted against per- sons charged with violating in- ternal-revenue laws," approved July 5, 1884, is amended to read as follows: "That no person shall be pros- ecuted, tried, or punished for any of the various offenses aris- ing under the internal-revenue laws of the United States unless the indictment is found or the information instituted within three years next after the com mission of the offense : Provided, That the time during which the person committing the offense is absent from the district wherein the same is committed shall not be taken as any part cf the time limited by law for the com- mencement of such proceedings: Provided further, That the pro- visions of this Act shall not ap- ply to offenses committed prior to its passage : Provided further, That where a complaint shall be instituted before a commissioner of the United States within the period above limited, the time shall be extended until the dis- charge of the grand jury at its next session within the district: And provided further, That this Act shall not apply to offenses committed by officers of the United States." (b) Any prosecution or pro ceeding under an indictment found or information instituted prior to the passage of this Act shall not be affected in any man- ner by this amendment, but such prosecution or proceeding shall be subject to the limitations imposed by law prior to the pas- sage of this Act. ASSESSMENTS. Sec. 1322, That all internal- revenue taxes, except as pro- vided in section 250 of this Act, shall, notwithstanding the provi- Act of 1916. CRIMINAL PROSECUTION Act of 1913. 323 Act of 1909. 324 * Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. sions of section 3182 of the Re- vised Statutes or any other pro- vision of law, be assessed within four years after such taxes be: came due, but in the case of fraud with intent to evade tax or willful attempt in any man- ner to defeat or evade tax, such tax may be assessed at any time. "6 Sec. IV, Act of 1913. 1B6A holding company which endorsed the notes of a subsidiary was not "doing business" during the months of January and February, 1913, under the "^ EXCISE TAX OF JANUARY AND FEBRUARY, 1913 325 Act of 1916. Act of 1913. Act of 1909. S. [3] 155 _^nd provided fur- ther, That a special excise tax with respect to the carrying on or doing of business,!^^ equiva- lent to 1 per centum upon their entire net income, shall be leviedj assessed, and collected upon cor-, porations, joint-stock companies or associations, and insurance companies, of the character de-! scribed in section thirty-eight of the Act of August fifth, nineteen hundred and nine, for the period from January first to February twenty-eighth, nineteen hundred and thirteen, both dates inclu- sive, which said tax shall be computed upon one-sixth of the entire net income of said cor- porations, joint-stock companies or associations, and insurance companies, for said year, said net income to be ascertained in accordance with the provisions of subsection G of section two of this Act: Provided further, That the provisions of said sec- tion thirty-eight of the Act of August fifth, nineteen hundred and nine, relative to the collec- tion of the tax therein imposed shall remain in force for the collection of the excise tax here- in provided, but for the year nineteen hundred and thirteen it shall not be necessary to make more than one return and assess- ment for all the taxes imposed herein upon said corporations, joint-stock companies or asso- ciations, and insurance com- panies, either by way of income or excise, which return and as- sessment shall be made at the times and in the manner pro- vided in this Act: Act of 1913, Butterick Co. v. U. S., (D. C, S. D. N. Y. 1917) 240 Fed. 539, 326 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. Effective date of Income Tax Provisions. Sec. 263, p. 298. Effective date. Sees. 353 and 1404, p. 353. Effective date. Sec. 1409, p. 353. Effective date. Sec. 1302, p. 353. 157 Title IX, Act of 1916. 158 Sec. IV, Act of 1913. EFFECTIVE DATES OF ACTS 327 Act of 1916. Act of 1913. Act of 1909. Sec. 902.157 That unless otherwise herein specially pro- vided, this Act shall take effect on the day following its pas- sage, and all provisions of any Act or Acts inconsistent with the provisions of this Act are hereby repealed. Approved, Sept. 8, 1916. U.158 That unless otherwise herein specially provided, this Act shall take effect on the day following its passage. Approved, 9:10 p. m., Oct. 3, 1913. Approved, Aug. 5, 1909. 328 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. TITLE III.— WAR-PROFITS AND EXCESS-PROFITS TAX FOR 1921. Part I. — General Definitions. Sec. 300. That when used in this title the terms "taxable year," "fiscal year," "personal service corporation," "paid or accrued, ' ' and ' ' dividends ' ' shall have the same meaning as provided for the purposes of in- come tax in sections 200 and 201. TITLE III.~WAR-PROFITS AND EXCESS-PROFITS TAX Part I. — General Definitions. Sec. 300. That when used in this title the terms "taxable year," "fiscal year," "personal service corporation," "paid or accrued," and "dividends" shall have the same meaning as provided for the purposes of in- come tax in sections 200 and 201. The first taxable year for the purposes of this title shall be the same as the first taxable year for the purposes of the income tax under Title II. TITLE II.— WAR EXCESS PROFITS TAX Sec. 200. That when used in this title — ■ The term "corporation" in- cludes joint-stock companies or associations and insurance com- panies ; The term "domestic" means created, under the law of the United States, or of any State, Territory, or District thereof, and the term "foreign" means created under the law of any other possession of the United States or of any foreign coun- try or government ; The term "United States" means only the States, the Terri- tories of Alaska and Hawaii, and the District of Columbia ; The term "taxable year" means the twelve months ending December thirty -first, excepting in the case of a corporation or partnership which has fixed its own fiscal year, in which case it means such fiscal year. The first taxable year shall be the year ending December thirty-first, nineteen hundred and seventeen, except that in the case of a cor- poration or partnership which has fixed its own fiscal year, it shall be the fiscal year ending during the calendar year nine- teen hundred and seventeen. If a corporation or partnership, prior to March first, nineteen hundred and eighteen, makes a return covering its own fiscal year, and includes therein the income received during that part of the fiscal year falling within the calendar year nineteen hun- dred and sixteen, the tax for such taxable year shall be that proportion of the tax computed upon the net income during such full fiscal year which the time from January first, nineteen hundred and seventeen, to the end of such fiscal year bears to the full fiscal year ; and WAR- AND EXCESS-PROFITS TAXES 329 Act of 1921. Act of 1918. Act of 1917. Paet II. — Imposition of Tax. Sec. 301. (a) That in lieu of the tax imposed by Title III of the Revenue Act of 1918, but in addition to the other taxes im- posed by this Act, there shall be levied, collected and paid for the calendar year 1921 upon the net income of every corporation (ex- cept corporations taxable under subdivision (b) of this section) a tax equal to the sum of the following : FIRST BRACKET. 20 per centum of the amount of the net income in excess of the excess-profits credit (deter- mined under section 312) and Sec. 310.159 That as used in this title the term "prewar pe- riod" means the calendar years 1911, 1912, and 1913, or, if a corporation was not in existence during the whole of such period, then as many of such years dur- ing" the whole of which the cor- poration was in existence. Part II. — Imposition of Tax. Sec. 301. (a) That in lieu of the tax imposed by Title II of the Eevenue Act of 1917, but in addition to the other taxes im- posed by this Act, there shall be levied, collected, and paid for the taxable year 1918 upon the net income of every corporation a tax equal to the sum of the following : FIRST BRACKET. 30 per centum of the amount of the net income in excess of the excess-profits credits (deter- mined under section 312) and The term "prewar period" means the calendar years nine- teen hundred and eleven, nine- teen hundred and twelve, and nineteen hundred and thirteen, or, if a corporation or partner- ship was not in existence or an individual was not engaged in a trade or business during the whole of such period, then as many of such years during the whole of which the corporation or partnership was in existence or the individual was engaged in the trade or business. The terms "trade" and "business" include professions and occupations. The term "net income" means in the case of a foreign corpora- tion or partnership or a nonresi- dent alien individual, the net in- come received from sources with- in the United States. Sec. 201. [1] That in addition to the taxes under existing law and under this act there shall be levied, assessed, collected, and paid for each taxable year upon the income of every corporation, partnership,l60 or individual, a tax (hereinafter in this title re- ferred to as the tax) equal to the following percentages of the net income : Twenty per centum of the amount of the net income in ex- cess of the deduction 161 (deter- mined as hereinafter provided) "9 Part III, Title III. 180 Income from a single timberland deal received by a partnership engaged in the business of bujnng, selling and dealing in timber, lumber and other for- est products, is a part of its taxable income under the Act of 1917. Cartier, et al. v. Doyle (Col.), (D. C, W. D. Wash., N. D. 1920) 269 Fed. 647. 181(a) Under Sec. 201, Act of 1917, the excess profits credit is not deductible from the total net income before the computation of the tax, which would result in saving taxes on an amount of net in- come equivalent to the credit computed at the high rate, but it is deductible from that portion of the net income to which the low (twenty per cent) rate applies. Greenport Basin & Con. Co. et al. v. U. S., (D. C, E. D. N. Y. 1920) 269 Fed. 58; Ehret Mag- nesia Mfg. Co. V. Lederer (Col.), (D. C, E. D. Penn. 1921) 273 Fed. 689. 181(b) If the excess profit credit mentioned in Sec. 201, Act of 1917, exceeds fifteen per cent of the in- vested capital, such excess is not deductible. Green- port Basin & Con. Co. et al. v. U. S., (D. C, E. D N. Y. 1920) 269 Fed. 58; Ehret Magnesia Mfg. Co! V. Lederer (Col.), (D. C, E. D. Penn. 1921) 273 Fed. 689. 330 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. not in excess of 20 per centum of the invested capital; SECOND BRACKET. 40 per centum of the amount of the net income in excess of 20 per centum of the invested cap- ital. (b) For the calendar year 1921 there shaU be levied, col- lected, and paid upon the net in- come of every corporation which derives in such year a net in- come of more than $10,000 from any Government contract or con- tracts made between April 6, 1917, and November 11, 1918, both dates inclusive, a tax equal to the sum of the following : (1) Such a portion of a tax computed at the rates specified in subdivision (a) of section 301 of the Revenue Act of 1918, as the part of the net income at- tributable to such Government contract or contracts bears to the entire net income. In com- puting such tax the excess-profits not in excess of 20 per centum of the invested capital ; SECOND BRACKET. 65 per centum of the amount of the net income in excess of 20 per centum of the invested cap- ital; THIRD BRACKET. The sum, if any, by which 80 per centum of the amount of the net income in excess of the war- profits credit (determined under section 311) exceeds the amount of the tax computed under the first and second brackets. (b) For the taxable year 1919 and each taxable year thereafter there shall be levied, collected, and paid upon the net income of every corporation (except cor- porations taxable under subdivi- sion (c) of this section) a tax equal to the sum of the follow- ing: FIRST BRACKET. 20 per centum of the amount of the net income in excess of the excess-profits credit (determined under section 312) and not in excess of 20 per centum of the invested capital; SECOND BRACKET. 40 per centum of the amount of the net income in excess of 20 per centum of the invested capital. (c) For the taxable year 1919 and each taxable year thereafter there shall be levied, collected, and paid upon the net income of every corporation, which de- rives in such year a net income of more than $10,000 from any Government contract or eon- tracts made between April 6, 1917, and November 11, 1918, both dates inclusive, a tax equal to the sum of the following: (1) Such a portion of a tax computed at the rates specified in subdivision (a) as the part of the net income attributable to such Government contract or contracts bears to the entire net income. In computing such tax the excess-profits credit and the and not in excess of fifteen per centum of the invested capital for the taxable year; Twenty-five per centum of the amount of the net income in ex- cess of fifteen per centum and not in excess of twenty per centum of such capital ; Thirty-five per centum of the amount of the net income in ex- cess of twenty per centum and not in excess of twenty-five per centum of such capital ; Forty-five per centum of the amount of the net income in ex- cess of twenty-five per centum and not in excess of thirty-three per centum of such capital; and Sixty per centum of the amount of the net income in ex- cess of thirty-three per centum of such capital. Act of 1921. RATES OF TAX Act of 1918. 331 Act of 1917. credit and the war-profits credit which would be applicable to such calendar year under the Revenue Act of 1918 if it had been continued in force, shall be used ; (2) Such a portion of a tax computed at the rates specified in subdivision (a) of this section as the part of the net income not attributable to such Government contract or contracts bears to the entire net income. For the purpose of determin- ing the part of the net income attributable to such Government contract or contracts, the proper apportionment and allocation of the deductions with respect to gross income derived from such Government contract or con- tracts, and from other sources, respectively, shall be determined under rules and regulations pre- scribed by the Commissioner with the approval of the Secre- tary. (c) In any case where the full amount of the excess-profits credit is not allowed under the first bracket of subdivision (a), by reason of the fact that such credit is in excess of 20 per cen- tum of the invested capital, the part not so allowed shall be de- ducted from the amount in the second bracket. Sec. 302. That the tax im- posed by subdivision (a) of sec- tion 301 shall in no case be more than 20 per centum of the amount of the net income in ex- cess of $3,000 and not in excess of $20,000, plus 40 per centum of the amount of the net income war-profits credit applicable to the taxable year shaU be used; (2) Such a portion of a tax computed at the rates specified in subdivision (b) as the part of the net income not attribut- able to such Government con- tract or contracts bears to the entire net income. For the purpose of determin- ing the part of the net income attributable to such Government contract or contracts, the proper apportionment and allocation of the deductions with respect to gross income derived from -such Government contract or con- tracts and from other sources, respectively, shall be determined under rules and regulations pre- scribed by the Commissioner with the approval of the Secre- tary. (d) In any case where the full amount of the excess-profit credit is not allowed under the first bracket of subdivision (a) or (b) , by reason of the fact that such credit is in excess of 20 per centum of the invested capi- tal, the part not so allowed shall be deducted from the amount in the second bracket. (e) For the purposes of the Act approved March 21, 1918, entitled "An Act to provide for the operation of transportation systems while under Federal control, for the just compensa- tion of their owners, and for other purposes," the tax im- posed by this title shall be treated as levied by an Act in amendment of Title II of the Revenue Act of 1917. Sec. 302. That the tax imposed by subdivision (a) of section 301 shall in no case be more than 30 per centum of the amount of the net income in excess of $3,000 and not in excess of $20,- 000, plus 80 per centum of the amount of the net income in 332 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917, in excess of $20,000; and the limitations imposed by section 302 of the Eevenue Act of 1918 (upon taxes computed under subdivision (c) of section 301 of that Act) are hereby made ap- plicable to taxes computed under subdivision (b) of section 301 of this Act. Nothing in this sec- tion shall be construed in such manner as to increase the tax imposed by section 301 of this Act. Sec. 303. That if part of the net income of a corporation is derived (1) from a trade or bus- iness (or a branch of a trade or business) in which the employ- ment of capital is necessary, and (2) a part (constituting not less than 30 per centum of its total net income) is derived from a separate trade or business (or a distinctly separate branch of the trade or business) which if con- stituting the sole trade or busi- ness would bring it within the class of "personal service cor- porations," then (under regula- tions prescribed by the Commis- sioner with the approval of the Secretary) the tax upon the first part of such net income shall be separately computed (allowing in such computation only the same proportionate part of the credits authorized in section 312), and the tax upon the sec- ond part shall be the same per- centage thereof as the tax so computed upon the first part is of such first part: Provided, That the tax upon such second part shall in no case be less than 20 per centum thereof, unless the tax upon the entire net in- come, if computed without bene- fit of this section, would consti- tute less than 20 per centum of such entire net income, in which event the tax shall be determined upon the entire net income, with- excess of $20,000; the tax im- posed by subdivision (b) of sec- tion 301 shall in no case be more than 20 per centum of the amount of the net income in ex- cess of $3,000 and not in excess of $20,000, plus 40 per centum of the amount of the net income in excess of $20,000; and the above limitations shall apply to the taxes computed under sub- divisions (a) and (b) of section 301, respectively, when used in subdivision (c) of that section. Nothing in this section shall be construed in such manner as to increase the tax imposed by sec- tion 301. Sec. 303. That if part of the net income of a corporation is derived (1) from a trade or (business (or a branch of a trade or business) in which the em- ployment of capital is necessary, and (2) a part (constituting not less than 30 per centum of its total net income) is derived from a separate trade or busi- ness (or a distinctly separate branch of the trade or busi- ness) which if constituting the sole trade or business would bring it within the class of ' ' per- sonal service corporations, ' ' then (under regulations prescribed by the Commissioner with the approval of the Secretary) the tax upon the first part of such net income shall be separately computed (allowing in such com- putation only the same propor- tionate part of the credits au- thorized in sections 311 and 312), and the tax upon the sec- ond part shall be the same per- centage thereof as the tax so computed upon the first part is of such first part : Provided, That the tax, upon such second part shall in ho case be less than 20 per centum thereof, unless the tax upon the entire net income, if computed without ;benefit of this section, would^ constitute less than 20 per centum of such entire net income, in which event the tax shall be determined Act of 1921. EXEMPT CORPORATIONS Act of 1918. 333 Act of 1917. out reference to this .section, as other taxes are determined under this title. The total tax com- puted under this section shall be subject to the limitations pro- vided in section 302. Sec. 304. (a) That the corpo- rations enumerated in section 231 shall, to the extent that they are exempt from income tax un- der Title II, be exempt from tax- ation under this title. (b) Any corporation whose net income for thfe taxable year is less than $3,000 shall be ex- empt from taxation under this title. (c) In the cas^^of any corpo- ration engaged iii'the mining of gold, the portion 'of the net in- come derived front the mining of upon the entire net income, without reference to this section, as other taxes are determined under this title. The total tax computed under this section shall be subject to the limita- tions provided in section 302. Sec. 304. (a) That the cor- porations enumerated in sec- tion 231 shall, to the extent that they are exempt from income tax under Title II, be exempt from taxation under this title. (b) Any corporation whose net income for the taxable year is less than $3,000 shall be ex- empt from taxation under this title. (c) In the case of any cor- poration engaged, in the mining of gold, the portion of ^he net income derived from the min- Sec. 201 [2] For the purpose of this title every corporation or partnership not exempt under the provisions of this section shall be deemed to be engaged in business, and all the trades and businesses in which it is engaged shall be treated as a single trade or business, and all its incomej from whatever source derived shall be deemed to be received from such trade or business. This title shall apply to all trades or businesses of whatever idescription, whether continu- ously carried on or not, except — (a) In the ease of officers and employees under the United jStates, or any State, Territory, or the District of Columbia, or 'any local subdivision thereof, ithe compensation or fees re- jeeived by them as such officers or employees ; (b) Corporations exempt from tax under the provisions of sec- tion eleven of Title I of such Act of September eighth, nineteen hundred and sixteen, as amended by this Act, and part- nerships and individuals carry- ing on or doing the same busi- ness, or coming within the same description; and (c) Incomes derived from the business of life, health, and ac- cident insurance combined in one policy issued on the weekly pre- mium payment plan. Sec. 202. That the tax shall not be imposed in the ease of the trade or business of a foreign corporation or partnership or a nonresident alien individual, the net income of which trade or business during the taxable year is lesg than $3,000. 334 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. gold shall be exempt from the tax imposed by this title or any tax imposed by Title II of the Eevenue Act of 1917, and the tax on the remaining portion of the net income shall be the same proportion of a tax computed without the benefit of this sub- division which such remaining portion of the net income bears to the entire net income. Sec. 305. That if a tax is com- puted under this title for a pe- riod of less than twelve months, the specific exemption of $3,000, wherever referred to in this title, shall be reduced to an amount which is the same proportion of $3,000 as the number of months in the period is of twelvemonths. ing of gold shall be exempt from the tax imposed by this title, and the tax on the remaining portion of the net income shall be the proportion of a tax com- puted without the benefit of this subdivision which such remain- ing portion of the net income bears to the entire net income. Sec. 305. That if a tax is com- puted under this title for a period of less than twelve months, the specific exemption of $3,000, wherever referred to in this title, shall be reduced to an amount which is the same pro- portion of $3,000 as the number of months in the period is of twelve months. Paet III. — Credits. ; Sec. 311. (a) That the war- profits credit shall consist of the sum of: (1) A specific exemption of $3,000; and (2) An amount equal to the average net income of the cor- poration for the prewar period, plus or minus, as the ease may be, 10 per centum of the differ- ence between the average in- vested capital for the prewar period and the invested capital for the taxable year. If the tax is computed for a period of less than twelve months such amount shall be reduced to the same pro- portion thereof as the number of months in the period is of twelve months. (e) A foreign corporation Sec. 203. That for the pur- poses of this title the deduction shall be as follows, except as otherwise in this title provided — (a) In the case of a domestic corporation, the sum of (1) an. amount equal to the same per- centage of the invested capital for the taxable year which the average amount of the annual net income of the trade or busi- ness during the prewar period was of the invested capital for the prewar period (but not less than seven or more than nine per centum of the invested capital for the taxable year), and (2) $3,000 ; (b) In the case of a domestic ipartnership or of a citizen or resident of the United States, the sum of (1) an amount equal to the same percentage of the invested capital for the taxable year which the average amount of the annual net income of the trade or business during the pre- war period was of the invested capital for the prewar period (but not less, than seven or more than nine per centum of the in- vested capital for the taxable year), and (2) $6,000; (c) In the case of a foreign Act of 1921. WAR-PROFITS CREDIT Act of 1918. 336 Act of 1917. shall not be entitled to a specific exemption of $3,000. (b) [1] If the corporation had no net income for the prewar period, or if the amount com- puted under paragraph (2) of subdivision (a) is less than 10 per centum of its invested capi- tal for the taxable year, [2] then the war-profits cred- it shall be the sum of: [3] (1) A specific exemption of $3,000; and (2) An amount equal to 10 per centum of the invested capi- tal for the taxable year.- corporation or partnership, or of a nonresident alien individ- ual, an amount ascertained in the same manner as provided in subdivisions (a) and (b) with- out any exemption of $3,000 or $6,000. (d) If the Secretary of the Treasury is unable satisfactorily to determine the average amount of the annual net income of the trade or business during the pre- war period, the deduction shall be determined in the same man- ner as provided in section two hundred and five. Sec. 205. (a) That if the Sec- retary of the Treasury, upon complaint finds either (1) that during the prewar period a domestic corporation or part- nership, or a citizen or resident of the United States, had no net income from the trade or busi- ness, or (2) that during the pre- war period the percentage, which the net income was of tKe in- vested capital, was low as com- pared with the percentage, which the net income during such period of representative corporations, partnerships, and individuals, engaged in a like or similar trade or business, was of their invested capital, then the deduction shall be the sum of (1) an amount equal to the same percentage of its invested capital for the taxable year which the average deduction (determined in the same manner as provided in section two hun- dred and three, without includ- ing the $3,000 or $6,000 there- in referred to) for such year of representative corporations , partnerships, or individuals, en- gaged in a like or similar trade or business, is of their average invested capital for such year plus (2) in the case of a domes- tic corporation $3,000, and in the case of a domestic partnership or a citizen or resident of the United States $6,000. The percentage which the net income was of the invested capi- tal in each trade or business 336 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918, Act of 1917. Sec. 311. (c) If the corpora- tion was not in existence during the whole of at least one calen- dar year during the ' pfewar period, then, except as provided in subdivision (d), the war-prof- its credit shall be the sum of : (1) A specific exemption of $3,000; and shall be determined by the Com- missioner of Internal Revenue, in accordance with regulations prescribed by him, with the ap- proval of the Secretary of the Treasury. In the case of a cor- poration or partnership which has fixed its own fiscal year, the percentage determined by the calendar year ending during such fiscal year shall be used. (b) The tax shall be assessed upon the basis of the deduction determined as provided in sec- tion two hundred and three, but the taxpayer claiming the benefit of this section may at the time of making the return file a claim for abatement of the amount by which the tax so as- sessed exceeds a tax computed upon the basis of the deduction determined as provided in this section. In such event, collec- tion of the part of the tax cov- ered by such claim for abate- ment shall not be made until the claim is decided, but if in the judgment of the Commissioner of Internal Revenue, the inter- ests of the United States would be jeopardized thereby he may require the claimant to give a bond in such amount and with such sureties as the commis- sioner may think wise to safe- guard such interests, conditioned for the payment of any tax found to be due, with the inter- est thereon, and if such bond, satisfactory to the commissioner, is not given within such time as he prescribes, the full amotint of tax assessed shall be collected and the amount overpaid, if any, shall upon final decision of the application be refunded as a tax erroneously or illegally col- lected. Sec. 204. [1] That if a cor- poration or partnership was not in existence, or an individual was not engaged in the trade or busi- ness, during the whole of any one calendar year during the prewar period, the deduction shall be an amount equal to eight per centum of the invested capi- Act of 1921. WAR-PROFITS CREDIT Act of 1918. 337 Act of 1917. (2) An amount equal to the same percentage of the invested capital of the taxpayer for the taxable year as the average per- centage of net income to invested capital, for the, prewar period, of corporations engaged in a trade or business of the same general class as that conducted by the taxpayer; but such amount shall in no case be less than 10 per centum of the in- vested capital of the taxpayer for the taxable year. Such aver- age percentage shall be deter- mined by the Commissioner on the basis of data contained in re- turns made under Title II of the Revenue Act of 1917, and the average Imown as the median shall be used. If such average percentage has not been deter- mined and published at least 30 days prior to the time when the return of the taxpayer is due, then for purposes of such re- turn 10 per centum shall be used in lieu thereof ; but such average percentage when determined shall be used for the purposes of section 250 in determining the correct amount of the tax. (d) The war-profits credit shall be determined in the man- ner provided in subdivision (b) instead of in the manner pro- vided in subdivision (c), in the case of any corporation which was not in existence during the whole of at least one calendar year during the prewar period if (1) a majority of its stock at any time during the taxable year is owned or controlled, directly or indirectly, by a corporation which was in existence during the whole of at least one calen- dar year during the prewar pe- riod, or if (2) 50 per centum or more of its gross income (as computed under section 233 for income tax purposes) consists of gains, profits, commissions, or other income, derived from a government contract or contracts made between April 6, 1917, and November 11, 1918, both dates inclusive. tal for the taxable year, plus in the case of a domestic corpora- tion $3,000, and in the case of a domestic partnership or a citizen or resident of the United States $6,000. 3S8 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. Part III. — Excess-Profits Credit. Sec. 312. That the excess- profits credit shall consist of a specific exemption of $3,000 plus an amount equal to 8 per centum of the invested capital for the taxable year. A foreign corporation or a corporation entitled to the bene- fits of section 262 shall not be entitled to the specific exemp- tion of $3,000. Part IV. — Net Income. Sec. 320. [1] That for the purpose of this title the net in- come of a corporation shall be ascertained and returned [2] for the taxable year upon the same basis and in the same manner as provided for income tax purposes in Title II of this Act. Sec. 312. That the excess- profits credit shall consist of a specific exemption of $3,000 plus an amount equal to 8 per centum of the invested capital for the taxable year. A foreign corporation shall not be entitled to the specific exemp- tion of $3,000. Part IV. — Net Income. Sec. 320. (a) That for the purpose of this title the net in- come of a corporation shall be ascertained and returned — (1) For the calendar years 1911 and 1912 upon the same basis and in the same manner as provided in section 38 of the Act entitled "An Act to provide rev- enue, equalize duties, and en- courage the industries of the United States, and for other pur- poses," approved August 5, 1909, except that taxes imposed by such section and paid by the corporation within the year shall be included ; (2) For the calendar year 1913 upon the same basis and in the same manner as provided in Sec- tion II of the Act entitled "An Act to reduce tariff duties and to provide revenue for the Gov- ernment, and for other pur- poses," approved October 3, 1913, except that taxes imposed by section 38 of such Act of August 5, 1909, and paid by the corporation within the year shall be included, and except that the amounts received by it as divi- dends upon the stock or from the net earnings of other corpora- tions subject to the tax imposed by Section II of such Act of Oc- tober 3, 1913, shall be deducted ; and (3) For the taxable year upon the same basis and in the same manner as provided for income tax purposes in Title II of this Act. Sec. 206. That for the pur- poses of this title the net income of a corporation shall be ascer- tained and returned (a) for the calendar years nineteen hundred and eleven and nineteen hundred and twelve upon the same basis and in the same manner as pro- vided in seetionthirty-eightof the Act entitled "An Act to provide revenue, equalize duties, and en- courage the industries of the United States, and for other pur- poses," approved August fifth, nineteen hundred and nine, ex- cept that income taxes paid by it within the year imposed by the authority of the United States shall be included; (b) for the calendar year nineteen hundred and thirteen upon the same basis and in the same manner as pro- vided in section II of the Act en- titled "An Act to reduce tariff duties and to provide revenue for the Government, and for other purposes," approved Oc- tober third, nineteen hundred and thirteen, except that income taxes paid by it within the year imposed by the authority of the United States shall be included, and'except that the amounts re- ceived by it as dividends upon the stock or from the net earn- ings of other corporations, joint- stock companies or associations, or insurance companies, subject to the tax imposed by section II of such Act of October third, nineteen hundred and thirteen, shall be deducted; and (c) for EXCESS-PROFITS CREDIT AND NET INCOME 339 Act of 1921. Act of 1918. Act of 1917. (b) The average net income for the prewar period shall be determined by dividing the num- ber of years within that period during the whole of which the corporation was in existence into the sum of the net income for such years, even though there may have been no net income for one or more of such years. the taxable year upon the same basis and in the same manner as provided in Title I of the Act entitled ' ' An Act to increase the revenue, and for other pur- poses, ' ' approved September eighth, nineteen hundred and sixteen, as amended by this Act, except that the amounts received by it as dividends upon the stock or from the net earnings of other corporations, joint-stock companies or associations, or in- surance companies, subject to the tax imposed by Title I of such Act of September eighth, nineteen hundred and sixteen, shall be deducted. The net income of a partner- ship or individual shall be ascer- tained and returned for the cal- endar years nineteen hundred and eleven, nineteen hundred and twelve, and nineteen hun- dred and thirteen, and for the taxable year, upon the same basis and in the same manner as pro- vided in Title I of such Act of September eighth, nineteen hun- dred and sixteen, as amended by ;this Act, except that the credit allowed by subdivision (b) of section five of such Act shall be deducted. There shall be al- lowed (a) in. the ease of a do- mestic partnership the same de- ductions as allowed to individ- uals in subdivision (a) of section five of such Act of September eighth, nineteen hundred and sixteen, as appended by this Act ; and (b) in the case of a foreign partnership the same deductions as allowed to individuals in sub- division (a) of section six of such Act as amended by t>>'" Act. 340 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. Paet V. — Invested Capital. Sec. 325. (a) That as used in this title — The term "intangible proper- ty" means patents, copyrights, secret processes and formulae, good will, trade-marks, trade- brands, franchises, and other like property; The term "tangible jproperty" means stocks, bonds, notes, and other evidences of indebtedness, bills and accounts receivable, leaseholds, and other property other than intangible property; The term "borrowed capital" means money or other property borrowed, whether represented by bonds, notes, open accounts, or otherwise; The term "inadmissible as- sets" means stocks, bonds, and other obligations (other than ob- ligations of the United States), the dividends or interest from which is not included in comput- ing net income, but where the income derived from such assets consists in part of gain or profit derived from the sale or other disposition thereof, or where aU or part of the interest derived from such assets is in effect in- eluded in the net income because of the limitation on the deduc- tion of interest under paragraph (2) of subdivision (a) of section 234, a corresponding part of the capital invested in such assets shall not be deemed to be inad- missible assets; The term "admissible assets" means all assets other than inad- missible assets, valued in accord- ance with the provisions of sub- division (a) of section 326 and section 331. (b) For the purposes of this title the par value of stock or shares shall, in the case of stock or shares issued at a nominal value or having no par value, be deemed to be the fair market value as of the date or dates of issue of such stock or shares. Sec. 326. (a) That as used in this title the term "invested cap- Paet V. — Invested Capital. Sec. 325. (a) That as used in this title — The term "intangible prop- erty" means patents, copyrights, secret processes and formulae, good will, trade-marks, trade- brands, franchises, and other like property ; The term "tangible property" means stocks, bonds, notes, and other evidences of indebtedness, bills and accounts receivable, lease-holds, and other property other than intangible property; The term "borrowed capital" means money or other property borrowed, whether represented by bonds, notes, open accounts, or otherwise ; The term "inadmissible as- sets" means stocks, bonds, and other obligations (other than ob- ligations of the United States), the dividends or interest from which is not included in comput- ing net income, but where the in- come derived from such assets consists in part of gain or profit derived from the sale or other disposition thereof, or where all or part of the interest derived from such assets is in effect in- cluded in the net income because of the limitation on the deduc- tion of interest under paragraph (2) of subdivision (a) of section 234, a corresponding part of the capital invested in such assets shall not be deemed to be inad- missible assets ; The term "admissible assets" means all assets other than inad- missible assets, valued in accord- ance with the provisions of sub- division (a) of section 326, sec- tion 330, and section 331. (b) For the purposes of this title, the par value of stock or shares shall, in the case of stock or shares issued at a nominal value or having no par value, be deemed to be the fair market value as of the date or dates of issue of such stock or shares. Sec. 32^ (a) That as used in this title the term "invested cap- Sec. 207. [1] That as used in this title, the term "invested Act of 1921. INVESTED CAPITAL Act of 1918. 341 Act of 1917. ital" for any year means (ex- cept as provided in subdivisions (b) and (c) of this section) : (1) Actual cash bona fide paid in for stock or shares ; (2) Actual cash value of tan- gible property, other than cash, bona fide paid in for stocki or shares, at the time of such pay- ment, but in no case to exceed the par value of the original stock or shares specifically issued therefor, unless the actual cash value of such tangible property at the time paid in is shown to the satisfaction of the Commis- sioner to have been clearly and substantially in excess of such par vahie, in which case such ex- cess shall be treated as paid-in surplus: Provided, That the Commissioner shall keep a rec- ord of aU cases in which tangible property is included in invested capital at a value in excess of the stock or shares issued there- for, containing the name and ad- dress of each taxpayer, the busi- ness in which engaged, the amount of invested capital and net income shown by the return, the value of the tangible prop- ital" for any year means (ex- cept as provided in subdivision (b) and (e) of this section) : (1) Actual cash bona fide paid in for stock or shares ; (2) Actual cash value of tan- gible property, other than cash, bona fide paid in for stock or shares, at the time of such pay- ment, but in no case to exceed the par value of the original stock or shares specifically issued therefor, unless the actual cash value of such tangible property at the time paid in is shown to the satisfaction of the Commis- sioner to have been clearly and substantially in excess of such par value, in which case such excess shall be treated as paid-in surplus: Provided, That the Commissioner shall keep a rec- ord of all cases in which tangible' property is included in invested capital at a value in excess of the stock or shares issued there- for, containing the name and ad- dress of each taxpayer, the busi- ness in which engaged, the amount of invested capital and net income shown by the return, the value of the tangible prop- capital" 162 for any year means the average invested capital for the year, as defined and limited in this title, averaged monthly. [3] (a) In the case of a cor- poration or partnership: (1) actual cash paid in. [4] (2) the actual cash value of tangible property paid in other than cash, for stock or shares in such corporation or partnership, at the time of such payment (but in case such tan- gible property was paid in prior to January first, nineteen him- dred and fourteen, the actual cash value of such property as of January first, nineteen hun- dred and fourteen, but in no case to exceed the par value of the original stock or shares spe- cifically issued therefor), and 162(a) In 1917 a corporation owned patents of great value which it acquired many years before for a consideration of $1.00. Inasmuch as "no stock of the plaintiff company was issued therefor, nor were these patents specifically paid for in cash or tangible property," they could not be included in in- vested capital under Sec. 207, Act of 1917. De Laski & Thropp Circular Woven Tire Co. v. Iredell (Col.), (D. C, D. N. J. 1920) 268 Fed. 377. 162(b) Where a partnership borrowed money from a bank on its own notes, a member of the firm en- dorsing the same and pledging his own property of greater par value than the loans, the property so pledged is a part of the invested capital of the part- nership under the Act of 1917. Cartier, et al. v. Doyle (Col.), (D. C, W. D. Wash., N. D. 1920) 269 Fed. 647. 182(c) Section 207 of the Act of 1917 defining and Hmiting invested capital for income tax purposes is not so arbitrary and discriminatory as to be want- ing in "due process of law." LaBelle Iron Works V. U. S., (1921) — U. S. — , 65 L. Ed. 604. 162 (d) In 1912, ,a corporation owning ore lands of known value greatly in excess of the purchase price paid several years before, appraised the same at their actual value, and readjusted the books of account. The outstanding stock was surrendered simultane- ously with the book adjustment, and new stock of equal par value, share for share, was issued there- for. Likewise, a stock dividend was declared and paid, representing the appreciation in value of the lands. The value of the property in 1917, the tax- able year, was at least as great as it was in 1912. It was held that the increase or appreciation in value of the lands, although the result of extensive development and exploration work, did not represent "paid in or earned surplus and undivided profits." Neither could the increased value of the lands or the old shares of stock be regarded as tangible property "paid in for'' the new shares within the meaning of Sec. 207, Act of 1917. This was "an in- ternal transaction, in which the company received nothing from the stockholders any more than they received anything from it." Neither the apprecia- tion in value nor the stock dividend could be included in invested capital. LaBelle Iron Works v. U. S., (1921) — U. S. — , 65 L. Ed. 604, affirming Id., (1920) 55 Ct. CI. 462. 342 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. erty at the time paid in, the par value of the stock or shares spe- cifically issued therefor, and the amount included under this par- agraph as paid-in surplus. The Commissioner shall furnish a copy of such record and other detailed information with re- spect to such cases when re- quired by resolution of either House of Congress, without re- gard to the restrictions con- tained in section 257; (3) Paid-in or earned surplus and undivided profits, not in- cluding surplus and undivided profits earned during the year; (4) Intangible property bona fide paid in for stock or shares prior to March 3, 1917, in an amount not exceeding (a) the actual cash value of such prop erty at the time paid in, (b) the par value of the stock or shares issued therefor, or (c) in the ag- gregate 25 per centum of the par value of the total stock or shares of the corporation outstanding on March 3, 1917, whichever is lowest ; (5) Intangible property bona fide paid in for stock or shares on or after March 3, 1917, in an amount not exceeding (a) the actual cash value of such prop- erty at the time paid in, (b ) the par value of the stock or shares issued therefor, or (c) in the ag- gregate 25 per centum of the par value of the total stock or shares of the corporation outstanding at the beginning of the taxable year, whichever is lowest: Pro- vided, That in no case shall the total amount included under paragraphs (4) and (5) exceed in the aggregate 25 per centum of the par value of the total stock or shares of the corpora, tion outstanding at the begin- ning of the taxable year; but erty at the time paid in, the par value of the stock or shares spe- cifically issued therefor, and the amount included under this par- agraph as paid-in surplus. The Commissioner shall furnish a copy of such record and other detailed information with re- spect to such cases when re- quired by resolution of either House of Congress, without re- gard to the restrictions con- tained in section 257 ; (3) Paid-in or earned surplus and undivided profits; not in- cluding surplus and undivided profits earned during the year; (4) Intangible property bona fide paid in for stock or shares prior to March 3, 1917, in an amount not exceeding (a) the actual cash value of such prop- erty at the time paid in, (b) the par value of the stock or shares issued therefor, or (c) in the ag- gregate 25 per centum of the par value of the total stock or shares of the corporation outstanding on March 3, 1917, whichever is lowest ; (5) Intangible property bona fide paid in for stock or shares on or after March 3, 1917, in an amount not exceeding (a) the ac- tual cash value of such property at the time paid in, (b) the par value of the stock or shares is- sued therefor, or (c),in the ag- gregate 25 per centum of the par value of the total stock or shares of the corporation outstanding at the beginning of the taxable year whichever is lowest: Provided, That in no case shall the total amount included under para- graphs (4) and (5) exceed in the aggregate 25 per centum of the par value of the total stock or shares of the corporation out- standing at the beginning of the taxable year ; but Sec. 207. [5] (3) paid in or earned surplus and undivided profits used or employed in the business, exclusive of undivided profits earned during the taxa- ble year: [6] Provided, That (a) the actual cash value of patents and copyrights paid in for stock or shares in such corporation or partnership, at the time of such payment, shall be included as in- vested capital, but not to exceed the par value of such stock or shares at the time of such pay- ment, and (b) the good will, trade-marks, trade brands, the franchise of a corporation or partnership, or other intangible property, shall be included as invested capital if the corpo- ration, or partnership made pay- ment bona fide therefor spe- cifically as such in cash or tan- gible property, the value of such good will, trade-mark, trade brand, franchise, or intangible property, not to exceed the ac- tual cash or actual cash value of the tangible property paid therefor at the time of such pay- ment; but good will, trade- marks, trade brands, franchise of a corporation or partnership, or other intangible property, bona fide purchased, prior to March third, nineteen hundred and seventeen, for and with in- terests or shares in a partner- ship or for and with shares in the capital stock of a corpora- tion (issued prior to March Act of 1921. INVESTED CAPITAL Act of 1918. 343 Act of 1917. Sec. 326. (b) As used in this title the term "invested capital" does not include borrowed cap- ital. (c) There shall be deducted from invested capital as above defined a percentage thereof equal to the percentage which the amount of inadmissible as- sets is of the amount of admissi- ble and inadmissible assets held during the taxable year. (d) The invested capital for any period shall be the average invested capital for such period, but in the case of a corporation making a return for a fractional part of a year, it shall be the same fractional part of such average invested capital. Sec. 326. (b) As used in this title the term "invested capital" does not include borrowed capi- tal. (c) There shall be deducted from invested capital as above defined a percentage thereof equal to the percentage which the amount of inadmissible assets is of the amount of admissible and inadmissble assets held during the taxable year. (d) The invested capital for any period shall be the average invested capital for such period, but in the case of a corporation making a return for a fractional part of a year, it shall (except for the purpose of paragraph (2) of subdivision (a) of section 311) bq the same fractional part of such average invested capital. The average invested capital for the prewar period shall be determined by dividing the num- ber of years within that period during the whole of which the corporation was in existence into the sum of the average invested capital for such years. ' third, nineteen hundred and sev- enteen), in an amount not to ex- ceed, on March third, nineteen htuidred and seventeen, twenty per centum of the total interests or shares in the partnership or of the total shares of the capital stock of the corporation, shall be included in invested capital at a value not to exceed the ac- tual cash value at the time of such purchase, and in case of issue of stock therefor not to ex- ceed the par value of such stock ; [2] As used in this title "in- vested capital ' ' does not include stocks, bonds (other than obli- gations of the United States), or other assets, the income from which is not subject to the tax imposed by this title nor money or other property borrowed, and means, subject to the above limi- tations : [7] (b) In the case of an in- dividual, (1) actual cash paid into the trade or business, and (2) the actual cash value of tangible property paid into the trade or business, other than cash, at the time of such pay- ment (but in case such tangible property was paid in prior to January first, nineteen hundred and fourteen, the actual cash value of such property as of January first, nineteen hundred and fourteen), and (3) the ac- 844 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. tual cash value of patents, copy- rights, good will, trade-marks, trade brands, franchises, or other intangible property, paid into the trade or business, at the time of such payment, if pay- ment was made therefor specifi- cally as such in cash or tangible property, not to exceed the ac- tual cash or actual cash value of the tangible property bona fide paid therefor at the time of such payment. In the case of a foreign corpo- ration, or partnership, or of a nonresident alien individual the term "invested capital" means that proportion of the entire in- vested capital, as defined and limited in this title, which the net income from sources within the United States bears to the en- tire net income. Sec. 209. That in the case of a trade or business having no invested capital l'S3 or not more than a nominal capital ^83 there shall be levied, assessed, collected and paid, in addition to the taxes under existing law and under this Act, in lieu of the tax im- posed by section two hundred and one, a tax equivalent to eight per centum of the net in- come of such trade or business in excess of the following de- les (a) The word "capital" used in Sec. 209, Act of 1917, means money or property as distinguished from labor or personal service. The section is ap- plicable to "cases in which money or property plays no part in the source of the income, or such small part as to be practically negligible." A partnership engaged in the commission business in which- capital was not required or used was taxable under Sec. 209, although (1) in isolated transactions growing out of war conditions, they bought and sold on their own account, and (2) the profits accumulated and were kept intact for the partners, without being used in the business. Porter et al. v. Lederer (Col.), (D. C, E. D. Penn. 1920) 267 Fed. 739. 183(b) In 1917 a corporation had a capital and surplus of $12,000 which was used merely to ad- vance salaries, provide oflSce furniture, etc. It owned patents which it took over for $1.00 several years previously. These patents were leased to others and returned $105,000 royalties in 1917, which were the sole income of the corporation. It was held that the patents represented the skill of the corpora- tion, and, therefore, that it "was engaged in render- ing a personal service, and was not employing 'capi- tal,' and certainly no more than a 'nominal capital,' " under Sec. 209, Act of 1917. The term "capital" does not comprehend patents. De Laski & Thrapp Circular Woven Tire Co. v. Iredell (Col.), (D. C, D. N. J. 1920) 268 Fed. 377. 163(c) A corporation which was organized for the purpose of extracting a chemical from cocoa shells, with a capital stock of $10,000, and which showed on Jan. 1, 1917, "earned surplus" of at least $2,000, had more than a "nominal capital"; and, hence, should not be assessed under Sec. 209, Act of 1917. The court without deciding assumed that "nominal capi- tal" meant "nominal invested capital." Lincoln Chemical Co. v. Edwards (Col.), (D. C, S. D. N. Y. 1921) 272 Fed. 142. Act of 1921, SPECIAL ASSESSMENT Act of 1918. 345 Act of 1917. Sec. 327. That in the follow ing cases the tax shall be deter- mined as provided in section 328: (a) Where the Commissioner is unable to determine the in- vested capital as provided in section 326; (b) In the case of a foreign corporation or of a corporation entitled to the benefits of section 262; (c) Where a mixed aggregate of tangible property and intangi- ble property has been paid in for stock or for stock and bonds and the Commissioner is unable satisfactorily to determine the respective values of the several classes of property at the time of payment, or to distinguish the classes of property paid in for stock and for bonds, respectively ; (d) Where upon application by the corporation the Commis- sioner finds and so declares of record that the tax if deter- mined without benefit of this section would, owing to abnor- mal conditions affecting the cap- ital or income of the corporation, work upon the corporation an exceptional hardship evidenced by gross disproportion between the tax computed without benefit of this section and the tax com- puted by reference to the rep- resentative corporations speci- fied in section 328. This subdi- vision shall not apply to any case (1) in which the tax (com- puted without benefit of this sec- tion) is high merely because the corporation earned within the taxable year a high rate of profit upon a normal invested capital, nor (2) in which 50 per centum or more of the gross income of the corporation for the taxable year (computed under section Sec. 327. That in the following cases the tax shallbe determined as provided in section 328 : (a) Where the Commissioner is unable to determine the in- vested capital as provided in sec- tion 326 ; (b) In the case of a foreign corporation ; (c) Where a mixed aggregate of tangible property and intan- gible property has been paid in for stock or for stock and bonds and the Commissioner is unable satisfactorily to determine the respective values of the several classes of property at the time of payment, or to distinguish the classes of property paid in for stock and for bonds, re- spectively ; (d) Where upon application by the corporation the Commis- sioner finds and so declares of record that the tax if determined without benefit of this section would, owing to abnormal con- ditions affecting the capital or income of the corporation, work upon the corporation an excep- tional hardship evidenced by gross disproportion between the tax computed without benefit of this section and the tax com- puted by reference to the rep- resentative corporaions specified in section 328. This subdivision shall not apply to any case (1) in which the tax (computed without benefit of this section) is high merely because the cor- poration earned within the tax- able year a high rate of profit upon a normal invested capital, nor (2) in which 50 per centum or more of the gross income of the corporation for the taxable year (computed under section 233 of Title II) consists of gains, profits, commissions, or other in- come, derived on a cost-plus ductions : In the case of a domes- tic corporation $3,000, and in the case of a domestic partner- ship or a citizen or resident of the United States $6,000 ; in the case of all other trades or busi- ness, no deduction. Sec. 210. [1] That if the Sec- retary of the Treasury is unable in any case satisfactorily to de- termine the invested capital, the amount of the deduction shall be 346 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. 233 of Title II) consists of gains, profits, commissions, or other in- come, derived on a cost-plus basis from a Government con- tract or contracts made between April 6, 1917, and November 11, 1918, both dates inclusive. Sec. 328. (a) That in the cases specified in. section 327 the tax shall be the amount which bears the same ratio to the net income of the taxpayer (in excess of the specific exemption of $3,000) for the taxable year, as the average tax of representative corpora- tions engaged in a like or similar trade or business, bears to their average net income (in excess of the specific exemption of $3,000) for such year. In the case of a foreign corporation or of a cor- poration entitled to the benefits of section 262 the tax shall be computed without deducting the specific exemption of $3,000 either for the taxpayer or the representative corporations. In computing the tax under this section the Commissioner shall compare the taxpayer only with representative corporations whose invested capital can be satisfactorily determined under section 326 and which are, as nearly as may be, similarly cir- cumstanced with respect to gross income, net income, profits per unit of business transacted and capital employed, the amount and rate of war profits or excess profits, and all other relevant facts and circumstances. (b) For the purposes of sub- division (a) the ratios between the average tax and the average net income of representative corporations shall be determined by the Commissioner in accord- ance with regulations prescribed by him with the approval of the Secretary. basis from a Government con- tract or contracts made between April 6, 1917, and November 11, 1918, both dates inclusive. Sec. 328. (a) In the c^ses specified in section 327 the tax shall be the amount which bears the same ratio to the net income of the taxpayer (in excess of the specific exemption of $3,000) for the taxable year, as the average tax of representative corpora- tions engaged in a like or simi- lar trade or business, bears to their average net income (in ex- cess of the specific exemption of $3,000) for such year. In the case of a foreign corporation the tax shall be computed without deducting the specific exemption of $3,000 either for the taxpayer or the representative corpora- tions. In computing the tax under this section the Commissioner shall compare the taxpayer only with representative corporations whose invested capital can be satisfactorily determined under section 326 and which are as nearly as may be', similarly cir- cumstanced with respect to gross income, net income, profits per unit of business transacted and capital employed, the amount and rate of war profits or excess profits, and all other relevant facts and circumstances. (b) For the purposes of sub- division (a) the ratios between the average tax and the average net income of representative cor- porations shall be determined by the Commissioner in accordance with regulations prescribed by him with the approval of the Secretary. In cases in which the tax is to be computed under this sec- tion, if the tax as computed without the benefit of this sec- tion is less than 50 per centum of the net income of the tax- payer, the installments shall in the first instance be computed [2] the sum of (1) an amount equal to the same proportion of the net income of the trade or business received during the tax- able year as the proportion which the average deduction (determined in the same man- ner as provided in section two hundred and three, without in- eluding the $3,000 or $6,000 therein referred to) for the same calendar year of representative corporations, partnerships, and individuals, engaged in a like or similar trade or business, bears to the total net income of the trade or business received by such corporations, partnerships, and individuals, plus (2) in the case of a domestic corporation $3,000, and in the case of a domestic partnership or a citi- zen or resident of the United States $6,000. [3] For the purpose of this section the proportion between the deduction and the net in- come in each trade or business shall be determined by the Com- missioner of Internal Revenue in accordance with regulations pre- scribed by him, with the ap- proval of the Secretary of the Treasury. In the case of a cor- poration or partnership which has fixed its own fiscal year, the proportion determined for the calendar year ending during such fiscal year shall be used. Act of 1921. REORGANIZATIONS Act of 1918. 347 Act of 1917. (c) The Commissioner shall keep a record of all cases in which the tax is determined in the manner prescribed in subdi- vision (a), containing the name and address of each taxpayer, the business in which engaged, the amount of invested capital and net income shown by the re- turn, and the amount of invested capital as determined under such subdivision. The Commis- sioner shall furnish a copy of such record and other detailed information with respect to such cases when required by resolu- tion of either House of Congress, without regard to the restric- tions contained in section 257. Part VI. — Reorganizations. Sec. 331. That in the case of the reorganization, consolidation, or change of ownership of a trade or business, or change of ownership of property, after March 3, 1917, if an interest or control in such trade or business or property of 50 per centum or more remains in the same per- sons, or any of them, then no asset transferred or received from the previous owner shall for the purpose of determining invested capital, be allowed a greater value than would have upon the basis of such tax; but if the tax so computed is 50 per centum or more of the net income, the installments shall in the first instance be computed upon the basis of a tax equal to 50 per centum of the net income. In any case, the actual ratio when ascertained shall be used in determining the correct amount of the tax. If the cor- rect amount of the tax when de- termined exceeds 50 per centum of the net income, any excess of the correct installments over the amounts actually paid shall on notice and demand be paid to- gether with interest at the rate of % of 1 per centum per month on such excess from the time the installment was due. (c) The Commissioner shall keep a record of all cases in which the tax is determined in the manner prescribed in sub- division (a), containing the name and address of each tax- payer, the business in which en- gaged, the amount of invested capital and net income shown by the return, and the amount of invested capital as determined under such subdivision. The Commissioner shall furnish a copy of such record and other detailed information with re- spect to such cases when re- quired by resolution of either House of Congress, without re- gard to the restrictions con- tained in section 257. Part VI .^Reorganizations. Sec. 330. That in the case of the reorganization, consolida- tion, or change of ownership after January 1, 1911, of a trade or business now carried on by a corporation, the corporation shall for the purposes of this title be deemed to have been in existence prior to that date, and the net income and invested capital of such predecessor trade or business for all or any part of the prewar period prior to the organization of the corpora- tion now carrying on such trade Sec. 204. [2] A trade or busi- ness carried on by a corporation, partnership, or individual, al- though formally organized or re- organized on or after January second, nineteen hundred and thirteen, which is substantially a continuation of a trade or busi- ness carried on prior to that date, shall, for the purposes of this title, be deemed to have been in existence prior to that date, and the net income and invested cap- ital of its predecessor prior to that date shall be deemed to have 848 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. been allowed under this title in computing the invested capital of such previous owner if such asset had not been so transferred or received: Provided, That if such previous owner was not a corporation, then the value of any asset so transferred or re- ceived shall be taken at its cost of acquisition (at the date when acquired by such previous owner) with proper allowance for depreciation, impairment, betterment or development, but no addition to the original cost shall be made for any charge or expenditure deducted as expense or otherwise on or after March 1, 1913, in computing the net in- come of such previous owner for purposes of taxation. or business shall be deemed to have been the net income and invested capital of such corpora- tion. If such predecessor trade or business was carried on by a partnership or individual the net income for the prewar period shall, under regulations pre- scribed by the Commissioner with the approval of the Secre- tary, be ascertained and re- turned as nearly as may be upon the same basis and in the same manner as provided for corpora- tions in Title II, including a rea- sonable deduction for salary or compensation to each partner or the individual for personal serv- ices actually rendered. In the case of the organization as a corporation before July 1, 1919, of any trade or business in which capital is a material in- come-producing factor and which was previously owned by a part- nership or individual, the net in- come of such trade or business from January 1, 1918, to the date of such reorganization may at the option of the individual or partnership be taxed as the net income of a corporation is taxed under Titles II and III ; in which event the net income and invested capital of such trade or business shall be computed as if such corporation had been in ex- istence on and after January 1, 1918, and the undistributed profits or earnings of such trade or business shall not be sub,ject to the surtax imposed in section 211, but amounts distributed on or after January 1, 1918, from the earnings of such trade or business shall be taxed to the recipients as dividends, and aU the provisions of Titles II and III relating to corporations shall so far as practicable apply to such trade or business: Pro- vided, That this paragraph shall not apply to any trade or busi- ness the net income of which for the taxable year 1918 was less than 20 per centum of its in- been its net income and invested capital. Act of 1921. REORGANIZATIONS Act of 1918. 349 Act of 1917. vested capital for such year: Provided further, That any tax- payer who takes advantage of this paragraph shall pay the tax imposed by section 1000 of this Act and by the first subdivision of section 407 of the Eevenue Act of 1916, as if such taxpayer had been a corporation on and after January 1, 1918, with a capital stock having no par value. If any asset of the trade or business in existence both dur- ing the taxable year and any pre- war year is included in the in- vested capital for the taxable year but is not included in the invested capital for such prewar year, or is valued on a different basis in computing the invested capital for the taxable year and such prewar year, respectively, then under rules and regulations to be prescribed by the Commis- sioner with the approval of the Secretary such readjustments shall be madeas are necessary to place the computation of the in- vested capital for such prewar year on the basis employed in determining the invested capital for the taxable year. Sec. 331. In the case of the re- organization, consolidation, or change of ownership of a trade or business, or change of owner- ship of property, after March 3, 1917, if an interest or control in such trade or business or prop- erty of 50 per centum or more remains in the same persons, or any of them, then no asset trans- ferred or received from the pre- vious owner shall, for the pur- pose of determining invested capital, be allowed a greater value than would have been al- lowed under this title in com- puting the invested capital of such previous owner if such as- set had not been so transferred or received: Provided, That if such previous owner was not a corporation, then the value of any asset so transferred or re- ceived shall be taken at its cost Sec. 208. That in case of the reorganization, consolidation or change of ownership of a trade or business after March third, nineteen hundred and seventeen, if an interest or control in such trade or business of fifty per centum or more remains in con- trol of the same persons, cor- porations, associations, partner- ships, or any of them, then in as- certaining the invested capital of the trade or business no asset transferred or received from the prior trade or business shall be allowed a greater value than would have been allowed under this title in computing the in- vested capital of such prior trade or business if such asset had not been so transferred or received, unless such asset was paid for specifically as such, in cash or tangible property, and 350 FEDERAL INCOME TAX LAWS Act of 1921. Act of 1918. Act of 1917. Part VII. — Miscellaneous. Sec. 335. (a) That if a corpo- ration (other than a personal service corporation) makes re- turn for a fiscal year beginning in 1920 and ending in 1921, the war-profits and excess-profits tax for the taxable year 1921 shall be the sum of : (1) the same pro- portion of a tax for the entire period computed under the Eev- enue Act of 1918, which the por- tion of such period falling with- in the calendar year 1920 is of the entire period, and (2) the same proportion of a tax for the entire period computed under this title, which the portion of such period falling within the calendar year 1921 is of the en- tire period. Any amount here- tofore or hereafter paid on ac- count of the tax imposed for such taxable year by the Rev- enue Act of 1918 shall be cred- ited towards the payment of the tax as above computed, and if the amount so paid exceeds the amoiuit of such tax, the excess shall be credited or refunded to the corporation in accordance with the provisions of section 252 of this Act. (b) If a corporation (other than a personal service corpora- tion) makes a return for a fis- cal year beginning in 1921 and ending in 1922, the war-profits and excess-profits tax for the portion of the year falling within the calendar year 1921 shall be an amount equivalent to of acquisition (at the date when acquired by such previous owner) with proper allowance for depreciation, impairment, betterment or development, but no addition to the original cost shall be made for any charge or expenditure deducted as expense or otherwise on or after March 1, 1913, in computing the net in- come of such previous owner for purposes of taxation. Part VII. — ^Miscellaneous. Sec. 335. (a) That if a cor- poration (other than a personal service corporation) makes re- turn for a fiscal year beginning in 1917 and ending in 1918, the tax for the first taxable year un- der this title shall be the sum of (1) the same proportion of a tax for the entire period computed under Title II of the Eevenue Act of 1917 which the portion of such period falling within the calendar year 1917 is of the en- tire period, and (2) the ^ame proportion of a tax for the en- tire period computed under this title at the rates specified in sub- division (a) of section 301 which the portion of such period fall- ing within the calendar year 1918 is of the entire period. Any amount heretofore or hereafter paid on account of the tax im- posed for such fiscal year by Ti- tle II of the Revenue Act of 1917 shall be credited toward the payment of the tax imposed for such fiscal year by this title, and if the amount so paid ex- ceeds the amount of the tax im- posed by this title, the excess shall be credited or refunded to the corporation in accordance with the provisions of section 252. (b) If a corporation makes re- turn for a fiscal year beginning in 1918 and ending in 1919, the tax for such fiscal year under this title shall be the sum of: (1) the same proportion of a tax for the entire period computed under subdivision (a) of section 301 which the portion of such then not to exceed the actual cash or actual cash value of the tangible property paid therefor at the time of such payment. Act of 1921. MISCELLANEOUS Act of 1918. 351 Act of 1917. the same proportion of a tax for the entire period computed under this title, which the por- tion of such period falling within the calendar year 1921 is of the entire period. Sec. 336. That every corpora- tion, not exempt under section 304, shall make a return for the purposes of this title. Such re- turns shall be made, and the taxes imposed by this title shall be paid, at the same times and places, in the same manner, and subject to the same conditions, as is provided in the case of re- turns and payment of income tax by corporations for the pur- poses of Title II, and aU the pro- visions of that title not inap- plicable, including penalties, are hereby made applicable to the taxes imposed by this title. Sec. 337. That in the case of a bona fide sale of mines, oil or gas wells, or any interest there- in, where the principal value of the property has been demon- strated by prospecting or ex- ploration and discovery work done by the taxpayer, the por- tion of the tax imposed by this title attributable to such sale shall not exceed 20 per centum period falling within the calen- dar year 1918 is of the entire period, and (2) the same pro- portion of a tax for the entire period computed under subdivi- sion (b) or (c) of section 301 which the portion of such period falling within the calendar year 1919 is of the entire period. (c) If a partnership or a per- sonal service corporation makes return for a fiscal year begin- ning in 1917 and ending in 1918, it shall pay the same proportion of a tax for the entire period computed under Title II of the Revenue Act of 1917 which the portion of such period falling within the calendar year 1917 is of the entire period. Any tax paid by a partnership or personal service corporation for any period beginning on or after January 1, 1918, shall be immediately refunded to the partnership or corporation as a tax erroneously or illegally col- lected. Sec. 336. That every corpora- tion, not exempt under section 304, shall make a return for the purposes of this title. Such re- turns shall be made, and the taxes imposed by this title shall be paid, at the same times and places, in the same manner, and subject to the same conditions, as is provided in the case of re- turns and payment of income tax by corporations for the pur- poses of Title IIj and all the provisions of that title not inap- plicable, including penalties, are hereby -made applicable to the taxes imposed by this title. Sec. 337. That in the case of a bona fide sale of mines, oil or gas wells, or any interest there- in, where the principal value of the property has been demon- strated by prospecting or explor- ation and discovery work done by the taxpayer, the portion of the tax imposed by this title at- tributable to such sale shall not exceed 20 per centum of the sell- 352 Act of 1921. FEDERAL INCOME TAX LAWS Act of 1918. Act of 1917. of the selling price of such prop- erty or interest. ing price of such property or in- terest. Sec. 211. That every foreign partnership having a net income of $3,000 or more for the taxa- ble year, and every domestic partnership having a net income of $6,000 or more for the taxable year, shall render a correct re- turn of the income of the trade or business for the taxable year, setting forth specifically the gross income for such year, and the deductions allowed in this ti- tle. Such returns shall be ren- dered at the same time and in the same manner as is prescribed for income-tax returns under Title I of such Act of September eighth, nineteen hundred and sixteen, as amended by this Act. Sec. 212. That all administra- tive, special, and general provi- sions of law, including the laws in relation to the assessment, re- mission, collection, and refund of internal-revenue taxes not heretofore specifically repealed, and not inconsistent with the provisions of this title are here- by extended and made applica- ble to all the provisions of this title and to the tax herein im- posed, and all provisions of Title I of such Act of September eighth, nineteen hundred and sixteen, as amended by this Act, relating to returns and payment of the tax therein imposed, in- cluding penalties, are hereby made applicable to the tax im- posed by this title. Sec. 213. That the Commis- sioner of Internal Revenue, with the approval of the Secretary of the Treasury, shall make all nec- essary regulations for carrying out the provisions of this title, and may require any corpora- tion, partnership, or individual, subject to the provisions of this title, to furnish him with such facts, data, and information as in Act of 1921. MISCELLANEOUS Act of 1918. 353 Act of 1917. EFFECTIVE DATE OF TITLE. Sec. 338. That this title shall take effect as of January 1, 1921. EFFECTIVE DATE OF ACT. Sec. 1404. That except as otherwise provided, this Act shall take effect upon its pas- sage. Approved, 3 :55 p. m., Novem- ber 23, 1921. Sec. 1409. That unless other- wise herein specially provided, this Act shall take effect on the day following its passage. Approved, 6 :55 p. 24, 1919. m., Feb. his judgment are necessary to collect the tax imposed by this title. Sec. 214. That Title II (sec- tions two hundred to two hun- dred and seven, inclusive) of the Act entitled "An Act to provide increased revenue to defray the expenses of the increased appro- priations for the Army and Navy, and the extensions of for- tifications, and for other pur- poses," approved March third, nineteen hundred and seventeen, is hereby repealed. Any amount heretofore or hereafter paid on account of the tax imposed by such Title II, shall be credited toward the pay- ment of the tax imposed by this title, and if the amount so paid exceeds the amount of such tax the excess shall be refunded as a tax erroneously or illegally col- lected. Subdivision (1) of section three hundred and one of such Act of September eighth, nine- teen hundred and sixteen, is hereby amended so that the rate of tax for the taxable year nine- teen hundred and seventeen shall be ten per centum instead 'of twelve and one-half per centum as therein provided. Subdivision (2) of such sec- tion is hereby amended to read as follows: "(2) This section shall cease to be of effect on and after Jan- uary first, nineteen hundred and eighteen. ' ' Sec. 1302. That unless other- wise herein specially provided, this Act shall take effect on the day following its passage. Approved, Oct. 3, 1917. PART II Acts of 1861, 1862, 1863, 1864, 1865, 1866, 1867, 1870 and 1894 Annotated ACT OF 1861 357 ACT OF AUGUST 5, 1861 (12 STAT. L. 292-313, C. 45). An Act To provide increased revemie from im- ports, to pay interest on the public debt, and for other purposes. Sec. 49. And be it further enacted. That, from and after the first day of January next, there shall be levied, collected, and paid, upon the annual income of every person residing in the United States, whether such income is derived from any kind of property, or from any profes- sion, trade, employment, or vocation carried on in the United States or elsewhere, or from. any other source whatever, if such annual income exceeds the sum of eight hundred dollars, a tax of three per centum on the amount of such ex- cess of such income above eight hundred dollars : Provided, That upon such portion of said income as shall be derived from interest upon treasury notes or other securities of the United States, there shall be levied, collected, and paid a tax of one and one-half per centum. Upon the in- come, rents, or dividends accruing upon any property, securities, or stocks owned in the United States by any citizen of the United States residing abroad, there shall be levied, collected and paid a tax of five per centum, excepting that portion of said income derived from interest on treasury notes and other securities of the Gov- ernment of the United States, which shall pay one and one-half per centum. The tax herein provided siall be assessed upon the annual in- come of the persons hereinafter named for the year next preceding the time for assessing said tax, to wit, the year next preceding the first of January, eighteen hundred and sixty-two; and the said taxes, when so assessed and made public, shall become a lien on the property or other sources of said income for the amount of the same, with the interest and other expenses of collection until paid: Provided, That, in esti- mating said income, all national, state, or local taxes assessed upon the property, from which the income is derived, shall be first deducted. Sec. 50. And he it further enacted, That, it shall be the duty of the President of the United States, and he is hereby authorized, by and with the advice and consent of the Senate, to appoint one principal assessor and one principal collec- tor in each of the States and Territories of the United States, and in the District of Columbia, to assess and collect the internal duties or in- come tax imposed by this act, with authority in each of said of&cers to appoint so many assist- ants as the public service may require, to be approved by the Secretary of the Treasury. The said taxes to be assessed and collected under such regulations as the Secretary of the Treas- ury may prescribe. The said collectors, herein authorized to be appointed, shall give bonds, to the satisfaction of the Secretary of the Treas- ury, in such sums as he may prescribe, for the faithful performance of their respective duties. And the Secretary of the Treasury shall pre- scribe such reasonable compensation for the as- sessment and collection of said internal duties or income tax as may appear to him just and proper ; not, however, to exceed in any case the sum of two thousand five hundred dollars per annum for the principal officers herein referred to, and twelve hundred per annum for an as- sistant. The assistant collectors herein pro- vided shall give bonds to the satisfaction of the principal collector for the faithful performance of their duties. The Secretary of the Treasury is further authorized to select and appoint one or more depositaries in each State for the de- posit and safe-keeping of the moneys arising from the taxes herein imposed when collected, and the receipt of the proper officer of such de- pository to the collector for the moneys de- posited by him shall be the proper voucher for such collector in the settlement of his account at the Treasury Department. And he is further authorized and empowered to make such ofiicer or depositary the disbursing agent of the Treas- ury for the payment of all interest due to the citizens of such State upon the treasury notes or other Government securities issued by author- ity of law. And he shall also prescribe the forms of returns to be made to the department by all assessors and collectors appointed under the authority of this act. He shall also pre- scribe the form of oath or obligation to be taken by the several officers authorized or directed to be appointed and commissioned by the Presi- dent under this act, before a competent magis- trate duly authorized to administer oaths, and the form of the return to be made thereon to the Treasury Department. Sec. 51. And be it further enacted, That the tax herein imposed by the forty-ninth section of this act shall be due and payable on or be- fore the thirtieth day of June, in the year eighteen hundred and sixty-two, and all sums due and unpaid at that day shall draw interest thereafter at the rate of six per centum per an- num ; and if any person or persons shall neglect or refuse to pay after due notice said tax as- sessed against him, her, or them, for the space of more than thirty days after the same is due and payable, it shaU be lawful for any collector or assistant collector charged with the duty of collecting such tax, and they are hereby author- ized, to levy the same on the visible property of any such person, or so much thereof as may be sufficient to pay such tax, with the interest due thereon, and the expenses incident to such levy 358 FEDERAL INCOME TAX LAWS and sale, first giving thirty daj^s' public notice of the time and place of the sale thereof; and in case of the failure of any person or persons authorized to act as agent or agents for the col- lection of the rents or other income of any per- son residing abroad shall neglect or refuse to pay the tax assessed thereon (having had due notice) for more than thirty days after the thirtieth of June, eighteen hundred and sixty- two, the collector or his assistant, for the dis- trict where such property is located, or rents or income is payable, shall be and hereby is au- thorized to levy upon the property itself, and to sell the same, or so much thereof as may be necessary to pay the tax assessed, together with the interest and expenses incident to such levy and sale, first giving thirty days' public notice of the time and place of sale. And in all cases of the sale of property herein author- ized, the conveyance by the officer author- ized to make the sale, duly executed, shall give a valid title to the purchaser, whether the property sold be real or personal. And the sev- eral collectors and assistants appointed under the authority of this act may, if they find no property to satisfy the taxes assessed upon any person by authority of the forty-ninth section of this act, and which such person neglects to pay as hereinbefore provided, shall have power, and it shall be their duty, to examine under oath the person assessed under this act, or any other person, and may sell at public auction, after ten days' notice, any stock, bonds, or choses in action, belonging to said person, or so much thereof as will pay such tax and the ex- penses of such sale; and in case he refuses to testify, the said several collectors and assistants shall have power to arrest such person and com- mit him to prison, to be held in custody until the same shall be paid, with interest thereon, at the rate of six per centum per annum, from the time when the same was payable as aforesaid, and all fees and charges of such commitment and custody. And the place of custody shall in all cases be the same provided by law for the custody of persons committed for any cause by the authority of the United States, and the war- rant of the collector, stating the cause of com- mitment, shall be sufficient authority to the proper officer for receiving and keeping such person in custody imtil the amount of said tax and interest, and all fees and the expense of such custody, shall have been fully paid and discharged ; which fees and expenses shall be the same as are chargeable under the laws of the United States in other cases of commitment and custody. And it shall be the duty of such collector to pay the expenses of such custody, and the same, with his fees, shall be allowed on settlement of his accounts. And the person so committed shall have the same right to be dis- charged from such custody as may be allowed by the laws of the State or Territory, or the District of Columbia, where he is so held in cus- tody, to persons committed under the laws of such State or Territory, or Distric^ of Colum- bia, for the nonpayment of taxes, and in the manner provided by such laws; or he may be discharged at any time by order of the Secre- tary of the Treasury. ACT OF JULY 1, 1862 (12 STAT. L. 432-489, C. 119). An Act To provide internal revenue to support the Government and to pay interest on the public debt. RAILROAD BONDS. Sec. 81. And be it further enacted, That on and after the first day of July, eighteen hun- dred and sixty-two, any person or persons own- ing or possessing, or having the care or manage- ment of any railroad company or railroad cor- poration, being indebted for any sum or sums of money for which bonds or other evidences of in- debtedness have been issued, payable in one or more years after date, upon which interest is, or shall be, stipulated to be paid, or coupons representing the interest shall be or shall have been issued to be paid, and all dividends in scrip or money or sums of money thereafter declared due or payable to stockholders of any railroad company, as part of the earnings, profits, or gains of said companies, shall be subject to and pay a duty of three per centum on the amount of all such interest or coupons or dividends whenever the same shall be, paid ; and such rail- road companies or railroad corporations, or any person or persons owning, possessing, or having the care or management of any railroad com- pany or railroad corporation, are hereby author- ized and required to deduct and withhold from all payments made to any person, persons or party, after the first day of July, as aforesaid, on account of any interest or coupons or divi- dends due and payable as aforesaid, the said duty or sum of three per centum ; and the duties deducted as aforesaid, and certified by the president or other proper officer of said com- pany or corporation, shall be a receipt and dis- charge, according to the amount thereof, of said railroad companies or railroad corporations, and the owners, possessors, and agents thereof, on dividends and on bonds or other evidences of their indebtedness, upon which interest or coupons ai'c payable, holden by any person or ACT OF 1862 359 party whatsoever, and a list or return shall be made and rendered within thirty days after the time fixed when said interest or coupons or divi- dends become due or payable, and as often as every six months, to the Commissioner of Inter- nal Revenue, which shall contain a true and faithful account of the duties received and chargeable, as aforesaid, during the time when such duties have accrued or should accrue, and remaining unaccounted for; and there shall be annexed to every such list or return a declara- tion under oath or affirmation, in manner and form as may be prescribed by the Commissioner of Internal Revenue, of the president, treasurer, or some proper officer of said railroad company or railroad corporation, that the same contains a true and faithful account of the duties so withheld and received during the time when such duties have accrued or should accrue, and not accounted for, and for any default in the making or rendering of such list or return, with the declaration annexed, as aforesaid, the per- son or persons owning, possessing, or having the care or management of such railroad company or railroad corporation, making such default, shall forfeit, as a penalty, the sum of five hun- dred dollars ; and in case of any default in mak- ing or rendering said list, or of any default in the payment of the duty, or any part thereof, accruing or which should accrue, the assessment and collection shall be made according to the general provisions of this act. BANKS, TRUST COMPANIES, SAVINGS INSTITUTIONS, AND INSUEANCB COMPANIES. Sec. 82. And he it further enacted, That on and after the first day of July, eighteen hun- dred and sixty-two, there shall be levied, col- lected, and paid by all banks, trust companies, and savings institutions, and by all fire, marine, life, inland, stock, and mutual insurance com- panies, under whatever style or name known or called, of the United States or Territories, specially incorporated or existing under general laws, or which may be hereafter incorporated or exist as aforesaid, on all dividends in scrip or money thereafter declared due or paid to stock- holders, to policy holders, or to depositors, as part of the earnings, profits, or gains of said banks, trust companies, savings institutions, or insurance companies, and on all sums added to their surplus or contingent funds, a duty of three per centum: Provided, That the duties upon the dividends of life insurance companies shall not be deemed due, or to be collected until such dividends shall be payable by such com- panies. And said banks, trust companies, sav- ings institutions, and insurance companies are hereby authorized and required to deduct and withhold from all payments made to any person, persons, or party, on account of any dividends, or sums of money that may be due and payable, as aforesaid, after the first day of July, eighteen hundred and sixty-two, the said duty of three per centum. And a list or return shall be made and rendered within thirty days after the time fixed when such dividends or sum of money shall be declared due and payable, and as often as every six months, to the Commissioner of In- ternal Revenue, which shall contain a true and faithful account of the amount of duties ac- crued or which should accrue from time to time, as aforesaid, during the time when such duties remain unaccounted for, and there shall be an- nexed to every such list or return a declaration, under oath or affirmation, to be made in form and manner as shall be prescribed by the Com- missioner of Internal Revenue, of the president, or some other proper officer of said bank, trust company, savings institution, or insurance com- pany, respectively, that the same contains a true and faithful account of the duties which have accrued or should accrue, and not ac- counted for, and for any default in the delivery of such list or return, with such declaration an- nexed, the bank, trust company, savings institu- tion, or insurance company making such default shall forfeit, as a penalty, the sum of five hun- dred dollars. SALAEIES AND PAY OP OFFICEES AND PERSONS IN THE SERVICE OP THE UNITED STATES, AND PASS- PORTS. Sec. 86. And be it further enacted. That on and after the first day of August, eighteen hun- dred and sixty-two, there shall be levied, col- lected, and paid on all salaries of officers,164 or payments to persons in the civil, military, naval, or other employment or service of the United States including senators and represent- atives and delegates in Congress, when exceed- ing the rate of six hundred dollars per annum, a duty of three per centum on the excess above the said six hundred dollars ; and it shall be the duty of all paymasters, and all disbursing offi- cers, under the Government of the United States, or in the employ thereof, when making any payments to officers and persons as afore- said, or upon settling and adjusting the ac- counts of such officers and persons, to deduct and withhold the aforesaid duty of three per centum, and shall, at the same time, make a 164 "Pay and commutation subsistence for travel" received by an army officer was taxable as income under Sec. 86, Act of 1862. 39 Ct. CI. 55. Galm V. U. S., (1903) 360 FEDERAL INCOME TAX LAWS certificate stating the name of the officer or per- son from whom such deduction was made, and the amount thereof, which shall be transmitted to the office of the Commissioner of Internal Eevenue, and entered as part of the internal duties; and the pay-roll, receipts, or account of officers or persons paying such duty, as afore- said, shall be made to exhibit the fact of such payment. INCOME DUTY. Sec. 89. And he it further enacted, That for the purpose of modifying and reenacting, as hereinafter provided, so much of an act, enti- tled "An Act to provide increased revenue from imports to pay interest on the public debt, and for other purposes" approved fifth of August, eighteen hundred and sixty-one, as relates to income tax; that is to say, sections forty-nine, fifty, (except so much thereof as relates to the selection and appointment of depositaries,) and fifty-one, be, and the same are hereby, repealed. Sec. 90. And be it further enacted, That there shall be levied, collected, and paid an- nually, upon the annual gains, profits, or in- come of every person residing in the United States, whether derived from any kind of prop- erty, rents, interest, dividends, salaries, or from any profession, trade, employment, or vocation carried on in the United States or elsewhere, or from any other source whatever, except as here- inafter mentioned, if such annual gains, profits or income exceed the sum of six hundred dol- lars, and do not exceed the sum of ten thousand dollars, a duty of three per centum on the amount of such annual gains, profits, or income over and above the said sum of six hundred dol- lars; if said income exceeds the sum of ten thousand dollars, a duty of five per centum upon the amount thereof exceeding six hundred dollars; and upon the annual gains, profits, or income, rents, and dividends accruing upon any property, securities and stocks owned in the United States by any citizen of the United States residing abroad, except as hereinafter mentioned, and not in the employment of the Government of the United States, there shall be levied, collected, and paid a duty of five per centum. Sec. 91. And he it further enacted. That in estimating said annual gains, profits, or income, whether subject to a duty, as provided in this act, of three per centum, or five per centum, all other national, state and local taxes, lawfully assessed upon the property or other sources of income of any person as aforesaid, from which said annual gains, profits, or income of such person is or should be derived, shall be first de- ducted from the gains, profits, or income of the person or persons who actually pay the same. whether owner or tenant, and all gains, profits, or income derived from salaries of officers, or payments to persons in the civil, military, naval, or other service of the United States, including senators, representatives, and delegates in Con- gress, above six hundred dollars, or derived from interest or dividends on stock, capital, or de- posits in any bank, trust company, or savings institution, insurance, gas, bridge, express, tele- graph, steamboat, ferry-boat, or railroad com- pany, or corporation, or on any bonds or other evidences of indebtedness of any railroad com- pany or other corporation, which shall have been assessed and paid by said banks, trust companies, savings institutions, insurance, gas, bridge, telegraph, steamboat, ferry-boat, ex- press, or railroad companies, as aforesaid, or de- rived from advertisements, or on any articles manufactured, upon which specific, stamp or ad valorem duties shall have been directly as- sessed or paid, shall also be deducted; and the duty herein provided for shall be assessed and collected upon the income for the year ending the thirty-first day of December next preceding the time for levying and collecting said duty, that is to say, on the first day of May, eighteen hundred and sixty-three, and in each year there- after : Provided, That upon such portion of said gains, profits, or income, whether subject to a duty as provided in this act of three per centum or of five per centum, which shall be derived from interest upon notes, bonds, or other securi- ties of the United States, there shall be levied, collected, and paid a duty not exceeding one and one-half of one per centum, anything in this act to the contrary notwithstanding. Sec. 92. And be it further enacted, That the duties on incomes herein imposed shall be due and payable on or before the thirtieth day of June, in the year eighteen hundred and sixty- three, and in each year thereafter until and in- cluding the year eighteen hundred and sixty- six and no longer ; and to any sum or sums an- nually due and unpaid for thirty days after the thirtieth of June, as aforesaid, and for ten days after demand thereof by the collector, there shall be levied in addition thereto, the sum of five per centum on the amount of duties unpaid, as a penalty, except from the estates of deceased and insolvent persons ; and if any person or per- sons, or party, liable to pay such duty, shall neglect or refuse to pay the same, the amount due shall be a lien in favor of the United States from the time it was so due until paid, with the interest, penalties, and costs that may accrue in addition thereto, upon all the property, and rights to property, stocks, securities, and debts of every description from which the income upon which said duty is assessed or levied shall ACT OF 1863 361 have accrued, or may or should accrue; and in default of the payment of said duty for the space of thirty days, after the same shall have become due, and be demanded, as aforesaid, said lien may be enforced by distraint upon such property, i-ights to property, stocks, securities, and evidences of debt, by whomsoever holden; and for this purpose the Commissioner of In- ternal Kevenue, upon the certificate of the col- lector or deputy collector that said duty is due and unpaid for the space of ten days after no- tice duly given of the levy of such duty, shall issue a warrant in form and manner to be pre- scribed by said Commissioner of Internal Reve- nue, under the directions of the Secretary of the Treasury, and by virtue of such warrant there may be levied on such property, rights to prop- erty, stocks, securities, and evidences of debt, a further sum, to be fixed and stated in such war- rant, over and above the said annual duty, in- terest, and penalty for non-payment, sufficient for the fees and expenses of such levy. And in all cases of sale, as aforesaid, the certificate of such sale by the collector or deputy collector of the sale, shall give title to the purchaser, of all right, title, and interest of such delinquent in and to such property, whether the property be real or personal; and where the subject of sale shall be stocks, the certificate of said sale shall be lawful authority and notice to the proper corporation, company, or association, to record the same on the books or records, in the same manner as if transferred or assigned by the per- son or party holding the same, to issue new cer- tificates of stock therefor in lieu of any original or prior certificates, which shall be void whether cancelled or not; and said certificate of sale of the collector or deputy collector, where the sub- ject of sale shall be securities or other evidences of debt, shall be good and valid receipts to the person or party holding the same, as against any person or persons, or other party holding, or claiming to hold, possession of such securities or other evidences of debt. Sec. 93. And he it further enacted, That it shall be the duty of all persons of lawful age, and all guardians and trustees, whether such trustees are so by virtue of their office as execu- tors, administrators, or other fiduciary capac- ity, to nrake return in the list or schedule, as provided in this act, to the proper officer of in- ternal revenue of the amount of his or her in- come, or the income of such minors or persons as may be held in trust as aforesaid, according to the requirements hereinbefore stated, and in case of neglect or refusal to make such return, the assessor or assistant assessor shall assess the amount of his or her income, and proceed there- after to collect the duty thereon in the same manner as is provided for in other cases of neg- lect and refusal to furnish lists or schedules in the general provisions of this act, where not otherwise incompatible, and the assistant asses- sor may increase the amount of the list or return of any party making such return, if he shall be satisfied that the same is understated ; Provided, That any party, in his or her own behalf, or as guardian or trustee, as aforesaid, shall be per- mitted to declare, under oath or affirmation, the form and manner of which shall be prescribed by the Commissioner of Internal Revenue, that he or she was not possessed of an income of six hundred dollars, liable to be assessed according to the provisions of this act, or that he or she has been assessed elsewhere and the same year for an income duty, under authority of the United States, and shall thereupon be exempt from an income duty ; or, if the list or return of any party shall have been increased by the as- sistant assessor, in manner as aforesaid, he or she may be permitted to declare, as aforesaid, the amount of his or her annual income, or the amount held in trust, as aforesaid, liable to be assessed, as aforesaid, and the same so declared shall be received as the sum upon which duties are to be assessed and collected. ACT 0¥ MARCH 3, 1863 (12 STAT. L. 713-731, C. 74). An Act to amend an Act entitled "An Act to provide internal revenue to support the Oov- emment and pay interest on the public debt," approved July first, eighteen hundred and sixty-two, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of Amer- ica in Congress assembled, That "An Act to provide internal revenue to support the Gov- ernment and pay interest on the public debt," approved July first, eighteen hundred and sixty-two, be, and the same hereby is, amended as hereinafter set forth, namely: [Sec. 91.] That section ninety-one be amend- ed by striking out the word "gas" wherever it occurs, and by striking out the words "or on any articles manufactured" after the word "ad- vertisements. ' ' [Sec. 93.] That section ninety-three be amended so that in case of neglect or refusal to make the returns referred to in said section the proceedings thereafter for the assessment and 362 FEDERAL INCOME TAX LAWS collection of the duty shall be in the same man- ner as provided for in other cases of neglect. Seo. 8. And be it further enacted, That, on and after the passage of this act, any person or persons owning or possessing, or having the care or management of any canal company or canal navigation or slack-water corporation, or turnpike companies, being indebted for any sum or sums of money for which bonds or other evi- dences of indebtedness have been issued, pay- able in one or more years after date, upon which interest is, or shall be, stipulated to be paid, or coupons representing the interest, shall be or shall have been issued to be paid; and all divi- dends in scrip or money, or sums of money thereafter declared due or payable to stock- holders of any canal navigation, or slack-water or turnpike company, as part of the earnings, profits, or gains, of said companies, shall be subject to and pay a duty of three per centum on the amount of all such interest, or coupons, or dividends, whenever the same shall be paid ; and said canal companies or canal navigation, or slack-water corporations, or turnpike com- panies, or any person or persons owning, possess- ing, or having the care or management of any canal company, or canal navigation or slack- water corporation, or turnpike company, are hereby authorized and required to deduct and withhold from all payments made to any person, persons, or party, after the first day of July, as aforesaid, on account of any interest, or cou- pons, or dividends due and payable, as afore- said, the said duty or sum of three per centum ; and the duties deducted, as aforesaid, and cer- tified by the President or other proper officer of said company or corporation, shall be a re- ceipt and discharge, according to the amount thereof, of said canal companies or canal navi- gation, or slack-water corporations, or turnpike companies, and the owners, possessors, and agents thereof, on dividends and on bonds or other evidences of their indebtedness upon which interest or coupons are payable holden by any person or party whatsoever, and a list or return shall be made and rendered within thirty days after the time fixed when said interest or coupons or dividends become due or payable, and as often as every six months, to the com- missioner of internal revenue, which shall con- tain a true and faithful account of the duties received and chargeable, as aforesaid, during the time when such duties have accrued or should accrue, and remaining unaccounted for; and there shall be annexed to every such list or return a declaration, under oath or affirmation, in manner and form as may be prescribed by the commissioner of internal revenue, of the presi- dent, treasurer, or some proper officer of said canal company or canal or navigation and slack- water corporation or turnpike companies, that the same contains a true and faithful, account of the duties so withheld and received during the time when such duties have accrued or should accrue, and not accounted for ; and for any de- fault in the making or rendering of such list or return, with the declaration annexed, as afore- said, the person or persons owning, possessing, or having the care or management of such canal company or canal, navigation or slack-water corporation or turnpike companies, making such default, shall forfeit, as a penalty, the sum of five hundred dollars ; and in case of any default in making or rendering said list, or of any de- fault in the payment of the duty, or any part thereof, accruing or which should accrue, the assessment and collection shall be made accord- ing to the general provisions of the act to which this act is an amendment. Sec. 11. And be it further enacted, That in estimating the annual gains, profits, or income, of any person, under the act to which this act is an amendment, the amount actually paid by such person for the rent- of the dwelling-house or estate on which he resides shall be first de- ducted from the gains, profit, or income of such person. Sec. 14. And be it further enacted, That every incorporated bank, or other bank legally authorized to issue notes as circulation, which shall neglect or omit to make dividends or addi- tions to its surplus or contingent funds as often as once in six months, shall, in lieu thereof, make returns, under oath, to the commissioner of internal revenue, on the first days of January and July in each year, or within thirty days thereafter, of the amount of profits which have accrued or been earned and received by said bank during the six months next preceding said first days of January and July ; and, at the time of making such returns, shall pay to the com- missioner of internal revenue a duty of three per cent on such profits, and shall be subject to the provisions of the eighty-second section of the act to which this is an addition: Provided, That the return for the first of January, eigh- teen hundred and sixty-three, shall be made within thirty days after the passage of this act. ACT OF 1864 S63 ACT OF JUNE 30, 1864 (13 STAT. L. 223, C. 173). An Act To provide internal revenue to support the Government, to pay interest on the public debt, and for other purposes. Sec. 116. And he it further enacted, That there shall be levied, collected, and paid annually upon the annual gains, profits, or income of every person residing in the United States, or of any citizen of the United States residing abroad, whether derived from any kind of property, rents, interests, dividends, salaries, or from any profession, trade, employment, or vocation, car- ried on in the United States or elsewhere, or from any other source whatever, except as here- inafter mentioned, if such annual gains, profits, or income, exceed the sum of six hundred dol- lars, a duty of five per centum on the excess over six hundred dollars and not exceeding five thousand dollars ; and a duty of seven and one- half of one per centum per annum on the ex- cess over five thousand dollars and not exceed- ing ten thousand dollars ; and a duty of ten per centum on the excess over ten thousand dollars. And the duty herein provided for shall be as- sessed, collected, and paid upon the gains, profits, or income for the year ending the thirty- first day of December next, preceding the time for levying, collecting, and paying said duty: Provided, That income derived from interest upon notes, bonds, and other securities of the United States, shall be included in estimating incomes under this section: Provided, That only one deduction of six hundred dollars shall be made from the aggregate incomes of all the members of any family composed of parents and minor children, or husband and wife, ex- cept in cases where such separate income shall be derived from the separate and individual es- tate, gains, or labor of the wife or child: And provided further, That net profits realized by sales of real estate purchased within the year for which income is estimated, shall be charge- able as income ; and losses on sales of real estate purchased within the year, for which income is estimated, shall be deducted from the income of such year. Skc. 117. And be it further enacted, That in estimating the annual gains, profits, or income of any person, all national, state, and municipal taxes, other than the national income tax, law- fully assessed within the year upon the property or sources of income of any person, as aforesaid. from which said annual gains, profits, or income is or should be derived, shall be deducted, in addition to six hundred dollars, from the gains, profits, or income of the person who has ac- tually paid the same, whether owner, tenant, or mortgagor; also the salary or pay received for services in the civil, military, naval, or other service of the United States, including senators, representatives, and delegates in Congress, above the rate of six hundred dollars per an- num; and there shall also be deducted the in- come derived from dividends on shares in the capital stock of any bank, trust company, sav- ings institution, insurance, railroad, canal, turn- pike, canal navigation, or slack-water company, and the interest on any bonds or other evidences of indebtedness of any such corporation or com- pany, which shall have been assessed and the tax paid, as hereinafter provided; also the amount paid by any person for the rent of the homestead used or occupied by himself or his family, and the rental value of any homestead used or occupied by any person, or by his fam- ily, in his own right or in the right of his wife, shall not be included and assessed as part of the income of such person. In estimating the an- nual gains, profits, or income of any person, the interest over and above the amount of interest paid upon all notes, bonds, and mortgages, or other forms of indebtedness, bearing interest, whether due and paid or not, if good and col- lectible, shall be included and assessed as part of the income of such person for each year ; and also all income or gains derived from the pur- chase and sale of stocks or other property, real or personal, and the increased value of live- stock, whether sold or on hand, and the amount of sugar, wool, butter, cheese, pork, beef, mut- ton, or other meats, hay, and grain, or other vegetable or other productions of the estate of such person sold, not including any part thereof unsold or on hand during the year next preced- ing the thirty-first of December, shall be in- cluded and assessed as part of the income of such person for each year, and the gains and profits, of all companies, whether incorporated or partnership, other than the companies speci- fied in this section, shall be included in estimat- ing the annual gains, profits, or income of any person entitled to the same, whether divided or otherwise.165 in estimating deductions from in- come, as aforesaid, when any person rents 16B Under Sec. 117, Act of 1864, a stockholder was taxable on his ratable interest in the undivided prof- its of the corporation which were used by the latter to purchase real estate, machinery, and raw ma- terials, and also to pay the corporate debts. The court said "Congress possesses the power to lay and collect taxes, duties, imposts and excises, and it is as competent for Congress to tax the annual gains and profits before they are divided among the holders of the stock as afterwards." Brainard (Col.) v. Hub- bard, (1871) 12 Wall. 1. 364 FEDERAL INCOME TAX LAWS buildings, lands, or other property, ' or hires labor to carry on land, or to conduct any other business from which such income is actually derived, or pays interest upon any actual in- cumbrance thereon, the amount actually paid for such rent, labor, or interest shall be de- ducted; and also the amount paid out for usual or ordinary repairs, not exceeding the average paid out for such purposes for the preceding five years, shall be deducted, but no deduction shall be made for any amount paid out for new buildings, permanent improvements, or better- ments, made to increase the value of any prop- erty or estate : Provided, That in cases where the salary or other compensation paid to any per- son in the employment or service of the United States, shall not exceed the rate of six hundred dollars per annum, or shall be by fees, or un- certain or irregular in the amount or in the time during which the same shall have accrued or been earned, such salary or other compensa- tion shall be included in estimating the annual gains, profits, or income of the person to whom the same shall have been paid, in such manner as the commissioner of internal revenue, under the direction of the Secretary of the Treasury, may prescribe. Sec. 118. And he it furflier enacted, That it shall be the duty of all persons of lawful age, and all guardians and trustees, whether such trustees are so by virtue of their office as execu- tors, administrators, or in other fiduciary capacity, to make a list or return under oath or afSrmation, in such form and man- ner as may be prescribed by the commis- sioner of internal revenue, to the assistant assessor of the district in which he resides, of the amount of his or her income, or the in- come of such minors or persons as may be held in trust as aforesaid, according to the require- ments hereinbefore mentioned, stating the sources from which said income is derived, whether from any kind of property, or the pur- chase and sale of property, rents, interest, divi- dends, salaries, or from any profession, trade, employment, or vocation, or otherwise. And in case of neglect or refusal to make such return, the assessor or assistant assessor shall assess the amount of his or her income, and the duty thereon, in the same manner as is provided for in other eases of neglect and refusal to furnish lists or returns in the provisions of this act, where not otherwise incompatible; and the as- sistant assessor may increase the amount of the list or return, or of any party making such re- turn, if he shall be satisfied that the same is understated: Provided, That any party, in his or her own behalf, or as guardian or trustee, as aforesaid, shall be permitted to declare, under oath or afSrmation, the form and manner of which shall be prescribed by the commissioner of internal revenue, that he or she was not pos- sessed of an income of six hundred dollars, liable to be assessed according to the provisions of this act, or may declare that he or she has been assessed elsewhere in the same year for, and has paid an income duty under authority of the United States, and shall thereupon be exempt from income duty in said district; or, if the list or return of any party shall have been increased by the assistant assessor, in man- ner as aforesaid, such party may be permitted to declare, under oath or afSrmation, the amount of annual income, or the amount held in trust, as aforesaid, liable to be assessed, and the same, so declared, shall be received by such assistant assessor as true, and as the sum upon which duties are to be assessed and collected, except that the deductions claimed in such cases shall not be made or allowed until approved by the assistant assessor. But any person feeling aggrieved by the decision of the assistant as- sessor in such cases, may appeal to the assessor of the district, and his decision thereon shall be final ; and the form, time, and manner of pro- ceedings shall be subject to rules and regula- tions to be prescribed by the commissioner of internal revenue. Sec. 119. And he it further enacted, That the duties on incomes herein imposed shall be levied on the first day of May, and be due and payable on or before the thirtieth day of June, in each year, until and including the year eigh- teen hundred and seventy, and no longer; and to any sum or sums annually due and unpaid for thirty days after the thirtieth of June, as aforesaid, and for ten days after demand there- of by the collector, there shall be levied in addi- tion thereto the sum of ten per centum on the amount of duties unpaid, as a penalty, except from the estates of deceased and insolvent per- sons. And if any person liable to pay such duty shall neglect or refuse to pay the same, after such demand, the amount due shall be a lien in favor of the United States from the time it was due until paid, with the interest, penal- ties, and costs that may accrue in addition thereto, upon all the property and rights to property belonging to such person; and in de- fault of the payment of said duty aforesaid, said lien may be enforced by distraint upon such property, rights to property, stocks, securi- ties, and evidences of debt, by whomsoever holden ; and for this purpose the collector, after demands duly given, as aforesaid, shall issue a warrant, in form and manner to be prescribed by the commissioner of internal revenue, under the directions of the Secretary of the Treasury, ACT OF 1864 365 and by virtue of such warrant there may be levied on such property, rights to property, stocks, securities, and evidences of debt, a fur- ther sum, to be fixed and stated in such warrant, over and above the said annual duty, interest, and penalty for non-payment, sufficient for the fees, costs, and expenses of such levy. And in all cases of sale, as aforesaid, the certificate of such sale by the collector shall vest in the pur- chaser all right, title, and interest of such de- linquent in and to such property, whether the property be real or personal; and where the subject of sale shall be stocks, the certificate of said sale shall be lawful authority and notice to the proper corporation, company; or association, to record the same on the books or records, in the same manner as if transferred or assigned by the person or party holding the same, to issue new certificates of stock therefor in lieu of any original or prior certificates, which shall be void whether cancelled or not. And said certificates of sale of the collector, where the subject of sale shall be securities or other evi- dences of debt, shall be good and valid receipts to the person holding the same, as against any person holding, or claiming to hold, possession of such securities or other evidences of debt. Sec. 120. And ie it further enacted, That there shall be .levied and collected a duty of five per centum on all dividends in scrip or money thereafter declared due,l66 and whenever the same shall be payable, to stockholders, pol- icy-holders, or depositors, as part of the earn- ings, income, or gains of any bank, trust com- pany, savings institution, and of any fire, ma- rine, life, inland insurance company, either stock or mutual, under whatever name or style known or called, in the United States or terri- tories, whether specially incorporated or exist- ing under general laws, and on all undistributed sums, or sums made or added during the year to their surplus or contingent funds; and said banks, trust companies, savings institutions, and insurance companies shall pay the said duty, and are hereby authorized to deduct and with- hold from all payments made on account of any dividends or sums of money that may be due and payable as aforesaid, the said duty of five per centum. And a list or return shall be made and rendered to the assessor or assistant asses- sor in duplicate, and one of said lists or re- turns shall be transmitted, and the duty paid to the commissioner of internal revenue within thirty days after the time when any dividends or sums of money become due or payable as aforesaid; and said list or return shall contain a true and faithful account of the amount of duties as aforesaid ; and there shall be annexed thereto a declaration of the president, cashier, or treasurer of the bank, trust company, sav- ings institution, or insurance company, under oath or affirmation, in form and manner as may be prescribed by the commissioner of internal revenue, that the same contains a true and faithful account of the duties as aforesaid. And for any default in the making or rendering of such list or return, with such declaration an- nexed, the bank, trust company, savings insti- tution, or insurance company, making such de- fault, shall forfeit as a penalty the sum of one thousand dollars ; and in case of any default in making or rendering said list or return, or of any default in the payment of the duty as re- quired, or any part thereof, the assessment and collection of the duty and penalty shall be in accordance with the general provisions of law in other cases of neglect and refusal : Provided, That the duty upon the dividends of life insur- ance companies, shall not be deemed due or to be collected until such dividends shall be pay- able by such companies, nor shall the portion of premiums returned by mutual life insurance companies to their policy holders be considered as dividends or profits under this act. Sec. 121. And he it further enacted. That any bank legally authorized to issue notes as circu- lation, which shall neglect or omit to make divi- dends or additions to its surplus or contingent fund as often as once in six months, shall make a list or return in duplicate, under oath or affirmation of the president or cashier, to the assessor or assistant assessor of the district in which it is located, on the first day of January and July in each year, or within thirty days thereafter, of the amount of profits which have accrued or been earned and received by said bank during the six months next preceding said first days of January and July; and shall pre- 188 (1) A national bank was taxable under Sec. 120, Act of 1864, for all dividends "declared," al- though such dividends were in fact not paid from earnings, the directors at the time of the declara- tion thereof being ignorant of embezzlement by one of the officials which resulted in a loss. "The law conclusively assumes, in such a case, that a dividend declared and paid is a dividend earned." (2) Where the state law imposed a capital stock tax on the stockholders, payable directly by the bank and de- ductible from their respective dividends, the bank was required to include such amount so paid as a part of the dividends "declared." Central National Bank v. U. S., (1890) 137 U. S. 355, affirming Id., (C. C, S. D. N. Y. 1885) 24 Fed. 577, the latter re- versing Id., (D. C, S. D. N. Y. 1883) 15 Fed. 222, and Id., (D. C, S. D. N. Y. 1882) 10 Fed. 612. S66 FEDERAL INCOME TAX LAWS sent one of said lists or returns and pay to the collector of the district a duty of five per centum on such profits; and in ease of default to make such list or return and payment within the thirty days as aforesaid, shall be subject to the provisions of the foregoing section of this act: Provided, That when any dividend is made wliich includes any part of the surplus or con- tingent fund of any bank, trust company, sav- ings institution, insurance or railroad company, which has been assessed and the duty paid thereon, the amount of duty so paid on that portion of the surplus or contingent fund may be deducted from the duty on such dividend. Sec. 122. And be it further enacted, That any railroad, canal, turnpike, canal navigation, or slack-water company indebted for any money for which bonds or other evidences of indebted- ness have been issued, payable in one or more years after date, upon which interest is stipu- lated to be paid, or coupons representing the in- terest, or any such company that may have de- clared any dividend in scrip, or money due or payable to its stockholders, as part of the earn- ings, profits, income, or gains of such company, and all profits of such company carried to the account of any fund, or used for construction, shall be subject to and pay a duty of five per centum on the amount of all such interest,^67 or coupons, dividends,^68 or profits, whenever the same shall be payable; and said companies are hereby authorized to deduct and withhold from all payments, on account of any inter- est,l69 or coupons and dividends due and pay- able as aforesaid, the duty of five per centum ; and the payment of the amount of said duty so deducted from the interest, or coupons, or divi- dends, and certified by the president or treasurer of said company, shall discharge said company from that amount of the dividend, of interest, or coupon, on the bonds or other evidences of their indebtedness so held by any person or party whatever, except where said companies may have contracted otherwise. And a list or return shall be made and rendered to the assessor or assistant assessor in duplicate, and one of said lists or returns shall be transmitted and the duty paid to the commissioner of internal reve- nue within thirty days after the time when said interest, coupons, or dividends become due and payable, and as often as every six months; and said list or return shall contain a true and faithful account of the amount of the duty, and there shall be annexed thereto a declaration of the president or treasurer of the company, un- der oath or affirmation, in form and manner as may be prescribed by the commissioner of in- ternal revenue, that the same contains a true and faithful account of the said duty. And for any default in making or rendering such list or return, with the declaration annexed, or of the payment of the duty as aforesaid, the com- pany making such default shall forfeit as a pen- alty the sum of one thousand dollars; and in case of any default in making or rendering said list or return, or of the payment of the duty, or any part thereof, as aforesaid, the assessment and collection of the duty and penalty shall be made according to the provisions of law in other eases of neglect or refusal. Sec. 123. And he it further enacted, That there shall be levied, collected, and paid, on all salaries of officers,l''0 or payments for services to persons in the civil, military, naval, or other employment or service of the United States, in- cluding senators and representatives and dele- gates in Congress, when exceeding the rate of six hundred dollars per annum, a duty of five per centum on the excess above the said six hundred dollars ; and it shall be the duty of all paymasters, and all disbursing officers, under the Government of the United States, or in the employ thereof, when making any payments to officers and persons as aforesaid, or upon set- tling and adjusting the accounts of such officers and persons, to deduct and withhold the afore- said duty of five per centum, and shall, at the same time, make a certificate stating the name IST The tax imposed by Sec. 122, Act. of 1864, ap- plied to interest paid in cash and not to interest funded in second mortgage bonds. Memphis and Charleston E. R. v. U. S., (1883) 108 U. S. 228. 168 A railroad company was required to pay the income tax imposed by Sec. 122, Act of 1864, on dividends, although the earnings accrued, and the declaration and payment of the dividends were made, within the Confederate lines. Memphis and Charles- ton R. R. Co. v. U. S., (1883) 108 U, S. 228. 169 A mortgage stipulation that the principal and interest were payable "without any deduction" for taxes or assessments whatever should not be con- strued to require the mortgagor (railroad com- pany) to pay the duty imposed by Sec. 122, Act of 1864, on the interest due the bondholder, the tax being an income tax on the bondholder and not on the railroad company. Haight v. The Pittsburg et al. R. R. Co., (1868) 6 Wall. 15; The Northern Central Ry. Co. v. Jackson, (1869) 7 Wall. 262. iTOln a suit by an army officer against the United States to recover salary due him, the judg- ment could not be reduced in the amount of income taxes imposed on said salary by Sec. 123, Act of 1864. Jones v. U. S., (1868) 4 Ct. CI. 197. ACT OF 1865 367 of the officer or person from whom such deduc- tion was made, and the amount thereof, which shall be transmitted to the office of the commis- sioner of internal revenue, and entered as part of the internal duties ; and the pay-roll, receipts, or account of officers or persons paying such duty, as aforesaid, shall be made to exhibit the fact of such payment. And it shall be the duty of the several auditors of the Treasury Depart- ment, when auditing the accounts of any pay- master or disbursing officer, or when settling or adjusting the accounts of any such officer, to re- quire evidence that the duties or taxes men- tioned in this section have been deducted or paid over to the commissioner of internal revenue: Provided, That payments of prize money shall be regarded as income from salaries, and the duty thereon shall be adjusted and collected in like manner. Sec. 178. And he it further enacted, That consuls of foreign countries in the United States, who are not citizens thereof, shall be, and hereby are, exempt from any income tax imposed by this act which may be derived from their official emoluments, or from property in such countries : Provided, That the governments which such consuls may represent shall extend similar exemption to consuls of the United States. ACT OF MARCH 3, 1865 (13 STAT. L. 469-487, C. 78). An Act To amend an act entitled "An Act to provide internal revenue to support the Gov- ernment, to pay interest on the public debt, and for other purposes," approved June thirtieth, eighteen hundred and sixty-four. Be it enacted by the Senate and House of Representatives of the United States of Amer- ica in Congress assembled. That the act entitled "An act to provide internal revenue to support the Government, to pay interest on the public debt, and for other purposes," approved June thirtieth, eighteen hundred and sixty-four, be, and the same is hereby, amended as hereinafter set forth, namely: — [Sec. 116.] That section one hundred and sixteen be amended by striking out all after the enacting clause, and inserting in lieu thereof the following: "That there shall be levied, col- lected, and paid annually upon the annual gains, profits, and income,!''! of every person ^72 residing in the United States, or of any citizen of the United States residing abroad, whether derived from any kind of property, rents, in- terest, dividends, or salaries, or from any pro- fession, trade, employment, or vocation, carried on in the United States or elsewhere, or from any other source whatever, a duty of five per centum on the excess over six hundred dollars and not exceeding five thousand dollars, and a duty of ten per centum on the excess over five thousand dollars; and in ascertaining the in- come of any person liable to an income tax, the amount of income received from institutions whose officers, as required by law, withhold a per centum of the dividends made by such in- stitutions and pay the same to the commissioner of internal revenue, or other officer authorized to receive the same, shall be included; and the amount so withheld shall be deducted from the tax which otherwise would be assessed upon such person. And the duty herein provided for shall be assessed, collected, and paid upon the gains, profits, and income for the year ending the thirty-first day of December next preceding the time for levying, collecting, and paying said duty: Provided, That incomes derived from in- terest upon notes, bonds, and other securities of the United States, and also all premiums on gold and coupons shall be included in estimating in- comes under this section. Provided further. That only one deduction of six hundred dollars shall be made from the aggregate incomes of all the members of any family composed of parents and minor children, or husband and wife : And provided further. That net profits realized by sales of real estate purchased within the year for which income is estimated, shall be charge- able as income ; and losses on sales of real estate purchased within the year for which income is estimated, shall be deducted from the income of such year. [Sec. 117.] That section one hundred and seventeen be amended by striking out all after the enacting clause, and inserting in lieu there- of the following: "That in estimating the an- 171 The income tax imposed by the Act of 1865 was not direct; but an excise or duty. Only direct taxes are subject to apportionment under the Constitution and they comprehend capitation taxes and taxes on real estate only. Springer v. U. S., (1881) 102 U. S. 586. 172 Congress cannot, under the Constitution of the United States, impose an income tax upon the salary of a state judicial officer. Suit arose under Sec. 116, as amended. Act of 1865. Buffington (Col.) v. Day, (1871) 11 Wall. 113, citing Dobbins v. Erie Co., (1842) 16 Pet. 435, which held that a state can- not impose a tax upon a federal office. 368 FEDERAL INCOME TAX LAWS nual gains, profits, and income of any person, all national, state, county, and municipal taxes paid within the year shall be deducted from the gains, profits, or income of the person who has actually paid the same, whether owner, tenant, or mortgagor; also the salary or pay received for services in the civil, military, naval, or other service of the United States, including senators, representatives, and delegates in Congress, above the rate of six hundred dollars per annum; also the amount paid by any person for the rent of the homestead used or occupied by himself or his family, and the rental value of any home- stead used or occupied by any person or by his family, in his own right or in the right of his wife, shall not be included and assessed as part of the income of such person. In estimat- ing the annual gains, profits, or income of any person, the interest received or accrued upon all notes, bonds, and mortgages, or. other forms of indebtedness bearing interest, whether paid or not, if good and collectible, less the interest paid by or due from such person, shall be included and assessed as part of the income of such per- son for each year; and also all income or gains derived from the purchase and sale of stocks or other property, real or personal, and of live- stock, and the amount of livestock, sugar, wool, butter, cheese, pork, beef, mutton, or other meats, hay and grain, or other vegetable or other productions, being the growth or produce of the estate of such person sold, not including any part thereof unsold or on hand during the year next preceding the thirty-first of December, until the same shall be sold, shall be included and assessed as part of the income of such per- son for each year, and his share of the gains and profits of all companies, whether incorpo- ra»ted or partnership, shall be included in esti- mating the annual gains, profits, or income of any person entitled to the same, whether di- vided or otherwise. In estimating deductions from income, as aforesaid, when any person rents buildings, lands, or other property, or hires labor to cultivate land, or to conduct any other business from which such income is ac- tually derived, or pays interest upon any actual incumbrance thereon, the amount actually paid for such rent, labor, or interest, shall be de- ducted; and also the amount paid out for usual or ordinary repairs, not exceeding the average paid out for such purposes for the preceding five years, shall be deducted, but no deduction shall be made for any amount paid out for new buildings, permanent improvements, or better- ments, made to increase the value of any prop- erty or estate: Provided, That in cases where the salary or other compensation paid to any person in the employment or service of the United States shall not exceed the rate of six hundred dollars per annum, or shall be by fees, or uncertain or irregular in the amount or in the time during which the same shall have ac- crued or been earned, such salary or other com- pensation shall be included in estimating the annual gains, profits, or income of the person to whom the same shall have been paid, in such manner as the commissioner of internal revenue, under the direction of the Secretary of the Treasury may prescribe." [Sec. 118.] That section one hundred and eighteen be amended by striking out all after the enacting clause, and inserting in lieu there- of the words: "That it shall be the duty of all persons of lawful age to make and render a list or return, in such form and manner as may be prescribed by the commissioner of internal revenue, to the assistant assessor of the district in which they reside, of the amount of their in- come, gains, and profits, as aforesaid; and all guardians and trustees, whether as executors, administrators, or in any other fiduciary capac- ity, shall make and render a list or return, as aforesaid, to the assistant assessor of the district in which such guardian or trustee resides, of the amount of income, gains, and profits of any minor or person for whom they act as guardian or trustee; and the assistant assessor shall re- quire every list or return to be verified by the oath or affirmation of the party rendering it, and may increase the amount of any list or re- turn, if he has reason to believe that the same is understated; and in case any person, guardian, or trustee shall neglect or refuse to make and render such list or return, or shall render a false or fraudulent list or return, it shall be the duty of the assessor or the assistant assessor to make such list, according to the best information he can obtain, by the examination of such per- son, and his books and accounts, or any other evidence, and to add twenty-five per centum as a penalty to the amount of the duty due on such list in all cases of wilful neglect or refusal to make and render a list or return, and, in all cases of a false or fraudulent list or return hav- ing been rendered, to add one hundred per centum, as a penalty, to the amount of duty as- certained to be due, the duty and the additions thereto as penalty to be assessed and collected in the manner provided for in other cases of wilful neglect or refusal to render a list or re- turn, or of rendering a false and fraudulent re- turn: Provided, That any party, in his or her own behalf, or as guardian or trustee, shall be permitted to declare, under oath or affirmation, the form and manner of which shall be pre- scribed by the commissioner of internal revenue, that he or she, or his or her ward, or beneficiary, ACT OF 1866 369 was not possessed of an income of six hundred dollars, liable to be assessed according to the provisions of this act ; or may declare that he or she has been assessed and paid an income duty elsewhere in the same year, under authority of the United States, upon his or her gains and profits, as prescribed by law, and if the assistant assessor shall be satisfied of the truth of the declaration, shall thereupon be exempt from in- come duty in said district; or if the list or re- turn of any party shall have been increased by the assistant assessor, such party may exhibit his books and accounts, and be permitted to prove and declare, under oath or affirmation, the amount of annual income liable to be as- sessed ; but such oaths and evidence shall not be considered as conclusive of the facts, and no de- ductions claimed in such cases shall be made or allowed until approved by the assistant assessor. Any person feeling aggrieved by the decision of the assistant assessor in such cases may appeal to the assessor of the district, and his decision thereupon, unless reversed by the commissioner of internal revenue, shall be final, and the form, time, and manner of proceedings shall be sub- ject to rules and regulations to be prescribed by the commissioner of internal revenue." [Sec. 119.] That section one hundred and nineteen be amended by striking out the words "for thirty days," and, after the words "for ten days after," inserting the words "notice and." [Sec. 120.] That section one hundred and twenty be amended by striking out, at the end thereof, the word "act," and inserting in lieu thereof the word "section." ACT OF MARCH 10, 1866 (14 STAT. L. 4-5, C. 15). An Act To declare the meaning of certain parts of the internal revenue act, approved June thirty, eighteen hundred and sixty-four, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of Amer- ica in Congress assembled. That in section one hundred and twenty of the act entitled, "An act to provide internal revenue to support the Government, to pay interest on the public debt, and for other purposes, ' ' approved June thirty, eighteen hundred and sixty- four, the words: "all dividends in scrip, or money thereafter de- clared due, and whenever the same shall be pay- able, to stockholders, policy-holders or deposi- tors, ' ' are hereby declared to mean all dividends in scrip or money wherever payable, and all stockholders, policy-holders, depositors, or parties whatsoever, including non-residents, whether citizens or aliens. Sec. 2. And he it further enacted, That in section one hundred and twenty-two of said act the word "stockholders" is hereby declared to mean all persons or parties whatsoever that are or may be stockholders, including non-residents, whether citizens or aliens; and the words "all such interest or coupons, dividends or profits, whenever the same shall be payable," are hereby declared to apply to all such interest or coupons, dividends or profits wherever the same are or may be payable, and to whatsoever party or per- son the same are or may be payable, including non-residents, whether citizens or aliens. Sec. 3. And he it further enacted, That it shall be the duty of all persons required to make returns or lists of income and articles or objects charged with any duty or tax, as pro- vided by the act aforesaid, or any act amenda- tory thereof, to declare in such returns whether the several rates and amounts therein contained ' are stated according to their values in legal tender currency; and in ease of neglect or re- fusal so to state, to the satisfaction of the as- sistant assessor receiving such returns or lists, such assistant assessor is hereby required to make returns or lists for such persons so neg- lecting or refusing, as in case of persons neg- lecting or refusing to make the lists or returns required by the acts aforesaid, and to assess the duty thereon, and to add thereto the amount of penalties imposed by law in case of such neglect or refusal. Sec. 4. And he it further enacted, That when- ever the rates and amounts contained in the lists or returns as aforesaid shall be stated in coined money, it shall be the duty of each as- sessor, receiving the same to reduce such rates and amounts to their equivalent in legal tender currency according to the value of such coined money in said currency at the time when and place where said lists or returns are receivable, and which value the same assessor shall deter- mine. And the lists required by law to be fur- nished to collectors by assessors shall in all cases contain the several amounts of taxes or duties assessed, estimated, or valued in legal tender cur- rency only. Sec. 5. And he it further enacted, That the provisions of this act shall, so far as necessary, apply to all returns, lists, assessments, and col- lections required by the acts aforesaid in addi- tion to those above mentioned, by whomsoever made, returned, assessed, or collected, in any mode or for any purpose whatever. And the commissioner of internal revenue, under the di- rection of the . Secretary of the Treasury, is hereby authorized to make all necessary rules and regulations for carrying this act into effe"*;. 370 FEDERAL INCOME TAX LAWS ACT OF JULY 13, 1866 (14 STAT. L. 98-173, C. 184). An Act To reduce internal taxation and to amend an Act entitled, "An Act to provide internal revenue to support the Government, to pay- interest on the public debt, and for other pur- poses," approved June thirtieth, eighteen hundred and sixty-four, and Acts amenda- tory thereof. Sec. 9. And be it further enacted, That the act entitled "An Act to provide internal revenue to support the Government, to pay interest on the public debt, and for other purposes," ap- proved June thirty, eighteen hundred and sixty- four, as amended by the Act of March third, eighteen hundred and sixty-five, be, and the same is hereby, amended as follows, viz : [Sec. 116.] That section one hundred and sixteen be amended by inserting after the words "on the excess over five thousand dollars," the following: and a like tax shall be levied, col- lected, and paid annually upon the gains, profits and income of every business, trade, ,or profes- sion carried on in the United States by persons residing without the United States, not citizens thereof. [Sec. 119.] That section one hundred and nineteen be amended by striking out all after the enacting clause and inserting in lieu thereof the following : That the taxes on incomes here- in imposed shall be levied on the first day of May, and be due and payable on or before the thirtieth day of June, in each year, until and including the year eighteen hundred and sev- enty, and no longer; and to any sum or sums annually due and unpaid after the thirtieth of June as aforesaid, and for ten days after notice and demand thereof by the collector, there shall be levied, and in addition thereto, the s.um of ten per centum on the amount of duties unpaid, as a penalty, except from the estates of de- ceased or insolvent persons. [Sec. 120.] That section one hundred and twenty be amended by striking out all after the enacting clause and inserting in lieu there- of the following: That there shall be levied and collected a tax 173 of five per centum on all dividends in scrip or money thereafter de- clared due, wherever and whenever the same shall be payable, to stockholders, policyholders, or depositors or parties whatsoever, including non-residents, whether citizens or aliens, as part of the earnings, income, or gains of any bank, trust company, savings institution, and of any fire, marine, life, inland insurance company, either stock or mutual, under whatever name or style known or called, in the United States or Territories, whether specially incorporated or existing under general laws, and on all un- distributed sumSjl''* or sums made or added during the year to their surplus or contingent funds; 175 and said banks, trust companies, sav- ings institutions, and insurance companies shall pay the said tax, and are hereby author- ized to deduct and withhold from all pay- ments made on account of any dividends or suras of money that may be due and payable as aforesaid the said tax of five per centum. And a list or return shall be made and ren- dered to the assessor or assistant assessor on or before the tenth day of the month follow- ing that in which any dividends or sums of money become due or payable as aforesaid ; and said list or return shall contain a true and faithful account of the amount of taxes as aforesaid; and there shall be annexed thereto a declaration of the president, cashier, or treas- urer of the bank, trust company, savings insti- tution, or insurance company, under oath or affirmation in form and manner as may be pre- scribed by the commissioner of internal reve- . nue, that the same contains a true and faith- ful account of the taxes as aforesaid. And for any default in the making or rendering of such list or return, with such declaration annexed, the bank, trust company, savings institution, or insurance company making such default shall forfeit as a penalty the sum of one thou- sand dollars; and in case of any default in making or rendering said list or return, or of any default in the payment of the tax as re- quired, or any part thereof, the assessment and collection of the tax and penalty shall be 173 It was not the intent of the framers of the Constitution that a tax should be considered direct which could not be apportioned equitably. The in- come tax imposed by Sec. 120, as amended. Act of 1866, could not be apportioned equitably, therefore, it was "not a direct tax, but a duty or excise." Pa- cific Ins. Co. V. Soule, (1869) 7 Wall. 433. 174 Sec. 120, as amended. Act of 1866, taxed all earnings of the corporation whether divided or un- divided and made it the duty of the corporation to pay the tax. Stockdale (Col.) v. The Atlantic Ins. Co., (1874) 20 Wall. 323. I'i'B The proviso of • Sec. 120, as amended, Act of 1866, exempted interest paid to depositors by savings banks, but did not exempt such banks from the pay- ment of the tax imposed upon "undistributed sum or sums made and added during the year to their surplus or contingent funds." The Dollar Savings Bank v. U. S., (1874) 19 Wall. 227. ACT OF 1866 371 in accordance with the general provisions of law in other cases of neglect and refusal: Pro- vided, That the tax upon the dividends of life insurance companies shall not be deemed due until such di\adends are payable; nor shall the portion of premiums returned by mutual life insurance companies to their policyholders, nor the annual or semi-annual interests 176 al- lowed or paid to the depositors in savings banks or savings institutions, be considered as divi- dends. [Sec. 122.] That section one hundred and twenty-two be amended by striking out all after the enacting clause and inserting in lieu there- of the following: That any railroad,177 canal, turnpike, canal navigation, or slack-water corn- ice where a savings bank contracted with its de- positors that nine-tenths of the net profits would be appropriated for "dividends" to be declared and paid upon the capital stock and deposits, the sums so paid to the depositors were not interest but divi- dends; hence, they were not exempt under the pro- viso of Sec. 120, as amended, Act of 1866. Gary (Col.) V. The San Francisco Savings Union, (1875) 22 Wall. 38. i''' A company which engaged in mining and man- ufacturing, and also was authorized to condemn land and construct and operate a railroad, was a railroad company, and subject to the tax imposed by Sec. 122, as amended. Act of 1866. Kentucky Improve- ment Co. V. Slack (Col.), (1880) 100 U. S. 648. 178 Sec. 122, as amended, Act of 1866, taxed divi- dends "declared" from profits accruing during the last six months of 1869, although the same were not payable or paid until 1870, after the Act expired. Barnes v. Railroad Companies, (1873) 17 Wall. 294. 1'" Sec. 122, as amended, Act of 1866, taxing scrip dividends was valid. Congress has the power to tax scrip as well as cash dividends. Bailey v. N. Y. Cent. R. R. Co., (1882) 106 U. S. 109, affirming Id., (1875) 22 Wall. 604, but modifying the later judg- ment so as to tax scrip dividends representing earn- ings only which accrued since the act became oper- ative. 180 Under Sec. 122, as amended, Act of 1866, in determining the amount of "profits carried to the account of any fund, or used for construction," the corporation was permitted to deduct as expenses, (1) "depreciation in book accounts and choses in action," (2) "depreciation in the value of bonds," (3) "depreciation in value of the 'street connection track,' " and (4) "depreciation in the value of" stock of another corporation. Little Miami et al. R. R. Co. v. U. S., (1883) 108 U. S. 277, reversing Id., (C. C, S. D. Ohio 1880) 1 Fed. 700. No deduction pany, indebted for any money for which bonds • or other evidence of indebtedness have been is- sued, payable in one or more years after date, upon which interest is stipulated to be paid, or coupons representing the interest, or any such company that may have declared I'J'S any dividend in scrip 179 or money due or payable to its stockholders, including non-residents, whether citizens or aliens, as part of the earn- ings, profits, income, or gains of such company, and all profits 180 of such company carried to the account of any fund,18l or used for con- struction,i82 shall be subject to and pay a tax 183 of five per centum on the amount of all such interest, or coupons, dividends,l84 or prof- its, whenever and wherever the same shall be could be made of sums carried to a sinking fund to meet accruing interest on subsidy bonds, but such sums were taxable. Sioux City & Pac. R. R. Co. v. U. S., (1884) 110 U. S. 205. 181 A corporation was required to pay the tax in 1869 imposed by Sec. 122, as amended. Act of 1866, upon profits accruing in 1869 and carried to. the ac- count of an interest and dividend fund, although the interest and dividends were not declared, pay- able or paid until 1870. Barnes v. Railroad Com- panies, (1873) 17 Wall. 294. 182 The expiiession "profits * * * used in con- struction" found in Sec. 122, as amended. Act of 1866, did not embrace earnings expended on repairs to keep the property up to its normal condition; but it had reference to new constructions adding per- manently to the capital; and when these were made to take the place of prior structures, it included only the increased value of the new over the old when in good repair. Grant v. Hartford & N. H. R. R. Co., (1876) 93 U. S. 225. 183 The tax imposed by Sec. 122, as amended. Act of 1866, was a tax on the earnings of the corporation and not on the bondholder or stockholder. Barnes v. Railroad Companies, (1873) 17 Wall. 294; U. S. v. Little Miami, et al. R. R. Co., (C. C, S. D. Ohio 1880) 1 Fed. 700; Commissioners v. U. S., (1898) 169 U. S. 253; U. S. v. Erie Ry. Co., (1882) 106 U. S. 327; Michigan Cent. R. R. Co. v. Slack (Col.), (1880) 100 U. S. 595. 184 A state municipality, as stockholder, could not recover taxes paid by a corporation on profits car- ried to a fund or used for construction, although such payment reduced pro tanto a stock dividend subsequently issued and paid to the municipality. A stock dividend did not effect a distribution of sur- plus or convey property to the municipality. It was no richer or poorer than it was before. Commis- sioners V. U. S., (1898) 169 U. S. 253. 372 FEDERAL INCOME TAX LAWS payable, and to whatsoever party or person the same may be payable, including non-resi- dents,l85 whether citizens or aliens; and said companies are hereby authorized to deduct and withhold from all payments on account of any interest,186 or coupons, and dividends, due and payable as aforesaid, the tax of five per cen- tum; and the payment of the amount of said tax so deducted from the interest, or coupons, or dividends, and certified by the president or treasurer of said company, shall discharge said company from that amount of the dividend, or interest, or coupon on the bonds or other evi- dences of their indebtedness so held by any person or party whatever, except where said companies may have contracted otherwise. And a list or return shall be made and rendered to the assessor or assistant assessor on or before the tenth day of the month following that in which said interest, coupons, or dividends become due and payable, and as often as every six months; and said list or return shall contain a true and faithful account of the amount of tax, and there shall be annexed thereto a declaration of the president or treasurer of the company, under oath or affirmation in form and manner as may be prescribed by the commissioner of internal revenue, that the same contains a true and faith- ful account of said tax. And for any default in making or rendering such list or return, with the declaration annexed, or of the payment of the tax as aforesaid, the company making such default shall forfeit as a penalty the sum of one thousand dollars; and in case of any default in making or rendering said list or return, or of the payment of the tax or any part thereof, as aforesaid, the assessment and collection 18'' of the tax and penalty shall be made according to the provisions of law in other cases of neglect or refusal. That section one hundred and twenty-two be further amended by adding thereto the following proviso: Provided, That whenever any of the companies mentioned in this section shall be un- able to pay the interest on their indebtedness, and shall in fact fail to pay such interest, that in such cases the tax levied by this section shall not be paid to the United States until said com- pany resume the payment of interest on their indebtedness. [Sec. 123.] That section one hundred and twenty-three be amended by striking out all after the enacting clause and inserting in lieu thereof the following : That there shall be levied, collected, and paid on all salaries of officers, or payments for services to persons in the civil, military, naval, or other employment or service of the United States, including senators and representatives and delegates in Congress, when exceeding the rate of six hundred dollars per annum, a tax of five per centum on the excess above the said six hundred dollars, and a tax of ten per cent on the excess over five thousand dollars ; and it shall be the duty of all paymasters and all disbursing officers, under the government of the United States, or persons in the employ thereof, when making any payment to any of- ficers or persons as aforesaid, or upon settling and adjusting the accounts of such officers or persons, to deduct and withhold the aforesaid tax, and they shall, at the same time, make a certificate stating the name of the officer or person from whom such deduction was made, and the amount thereof, which shall be trans- mitted to the office of the commissioner of in- ternal revenue, and entered as part of the in- ternal tax; and the pay-roll, receipts, or ac- count of officers or persons paying such tax, as aforesaid, shall be made to exhibit the fact of such payment. And it shall be the duty of the several auditors of the Treasury Depart- ment, when auditing the accounts of any pay- master or disbursing officer, or any officer with- holding his salary from moneys received by him, or when settling or adjusting the accounts of any such officer, to require evidence that the taxes mentioned in this section have been de- ducted and paid over to the commissioner of internal revenue, or other officer authorized to receive the same: Provided, That payments of prize money shall be regarded as income from salaries, and the tax thereon shall be adjusted and collected in like manner : Provided further, That this section shall not apply to payments 18B The provision of Sec. 122, as amended, Act of 1866, authorizing the withholding of the tax from non-resident bondholders and stockholders was valid. Mich. Cent. R. R. Co. v. Slack (Col.), (1880) 100 U. S. 595. 186 In a suit by the United States to recover the tax imposed by Sec. 122, as amended, Act of 1866, on interest payable to the City of Baltimore, it was held that the tax was "in substance and in law a tax upon the creditor or stockholder.'' The tax did not apply to interest payable to a state municipality. U. S. V. B. & 0. R. R. Co., (1873) 17 Wall. 322. 187 Where a railroad owning land at the time the tax accrued, disposed of it to an innocent purchaser before assessment was made, no lien attached to en- force payment of the tax imposed by Sec. 122, Act of 1866. The assessmeht was a prerequisite to the establishment of a lien although not a prerequisite to suit. U. S. V. Pacific R. R. et al., (1880) 1 Fed. 97. ACT OF 1867 373 made to mechanics or laborers employed upon public works. Sec. 9. (bis.) That an act entitled "An act to declare the meaning of certain parts of the internal revenue act approved June thirty, eighteen hundred and sixty-four, and for other purposes," approved March tenth, eighteen hundred and sixty-six, be amended by striking out sections three, four and five of said act, and inserting in lieu thereof the following: That it shall be the duty of all persons required to make returns or lists of income and articles or objects charged with an internal tax, to declare in such returns or lists whether the several rates and amounts therein contained are stated according to their values in legal tender currency or ac- cording to their values in coined money; and in case of neglect or refusal so to declare to the satisfaction of the assistant assessor receiving such returns or lists, such assistant assessor is hereby required to make returns or lists for such persons so neglecting or refusing, as in cases of persons neglecting or refusing to make the returns or lists required by the acts aforesaid, and to assess the tax thereon, and to add thereto the amount of penalties imposed by law in cases of such neglect or refusal. And whenever the rates and amounts contained in the returns or lists as aforesaid shall be stated in coined money, it shall be the duty of each assessor receiving the same to reduce such rates and amounts to their equivalent in legal tender currency,l88 ac- cording to the value of such coined money in said currency for the time covered by said re- turns. And the lists required by law to be fur- nished to collectors by assessors shall in all cases contain the several amounts of taxes assessed, estimated, or valued in legal tender currency only. Sec. 19. And he it further enacted, That no suit shall be maintained in any court for the recovery of any tax alleged to have been errone- ously or illegally assessed or collected, until ap- peal shall have been duly made to the commis- sioner of internal revenue according to the pro- visions of law in that regard, and the regulations of the Secretary of the Treasury established in pursuance thereof, and a decision of said com- missioner shall be had thereon, unless such suit shall be brought within six months from the time of said decision, or within six months from the time this act takes effect : Provided, That if said decision shall be delayed more than six months from the date of such appeal, then said suit may be brought at any time within twelve months from the date of such appeal. Sec. 70. And he it further enacted, That this act shall take effect, where not otherwise pro- vided, on the first day of August, eighteen hun- dred and sixty-six, and all provisions of any former act inconsistent with the provisions of this act are hereby repealed : Provided however, That all the provisions of said acts shall be in force for collecting all taxes, duties and licenses properly assessed or liable to be assessed, or ac- cruing under the provisions of acts, the right to which has already accrued or which may here- after accrue under said acts, and for maintaining and continuing liens, fines, penalties, and for- feitures incurred under and by virtue thereof, and for carrying out and completing all proceed- ings which have been already commenced, or that may be commenced, to enforce such fines, pen- alties, and forfeitures, or criminal proceedings under said acts, and for the punishment of crimes of which any party shall be or has been found guilty: And provided further. That whenever the duty imposed by any existing law shall cease in consequence of any limitation therein con- tained before the respective provisions of this act shall take effect, the same duty shall be, and is hereby, continued until such provisions of this act shall take effect; and where any act is here- by repealed, no duty imposed thereby shall be held to cease, in consequence of such repeal, un- til the respective corresponding provisions of this act shall take effect. ACT OF MARCH 2, 1867 (14 STAT. L. 471-487, C. 169). An Act To amend existing laws relating to in- ternal revenue, and for other purposes. Be it enacted hy the Senate and House of Rep- resentatives of the United States of America in Congress assemhled, That all acts in relation to the assessment, return, collection, and payment of the income tax, special tax, and other annual taxes now by law required to be performed in the month of May, shall hereafter be performed on the corresponding days in the month of March in each year; all acts required to be performed in the month of June, in relation to the collec- tion, return, and payment of said taxes, shall hereafter be performed on the corresponding days of the month of April of each year. Sec. 13. And he it further enacted, That the 188 Sec. 9 (bis.), Act of 1866, requiring taxpayers to pay income tax based upon their income meas- ured in legal tender currency was within the prov- ince of Congress. This merely prescribed a \mi- form basis of taxation. Pacific Ins. Co. v. Soulo (1869) 7 Wall. 433. 374 FEDERAL INCOME TAX LAWS act entitled ' ' An act to provide internal revenue to support the government, to pay interest on the public debt, and for other purposes," ap- proved June thirty, eighteen hundred and sixty- four, and as subsequently amended, be further amended as follows, namely: Income. [Sec. 116.] That section one hundred and six- teen be amended by striking out all after the enacting clause and inserting, in lieu thereof, as follows : That there shall be levied, collected, and paid annually upon the gains,l89 profits, and income of every person residing in the United States, or of any citizen of the United States residing abroad, whether derived from any kind of property, rents, interest, dividends, or salaries, or from any profession, trade, em- ployment, or vocation, carried on in the United States, or elsewhere, or from any other source whatever, a tax of five per centum on the amount so derived over one thousand dollars, and a like tax shall be levied, collected, and paid annually upon the gains, profits, and income of every business, trade, or profession carried on in the United States by persons residing with- out the United States, and not citizens thereof. And the tax herein provided for shall be as- sessed, collected, and paid upon the gains, prof- its, and income for the year ending the thirty- first day of December next preceding the time for levying, collecting, and paying said tax. [Sec. 117.] That section one hundred and seventeen be amended by striking out all after the enacting clause and inserting, in lieu there- of, the following: That in estimating the gains, profits, and income of any person, there shall be included all income derived from interest upon notes, bonds, and other securities of the United States; profits realized within the year from sales of real estate purchased within the year or within two years previous to the year for which income was [is] estimated; interest received or accrued upon old [all] notes, bonds, and mortgages, or other forms of indebtedness bearing interest, whether paid or not, if good and collectible, less the interest which has be- come clue from said person during the year ; the amount of all premium on gold and coupons; the amount of sales of live stock, sugar, wool, butter, cheese, pork, beef, mutton, or other meats, hay and grain, or other vegetable or other pro- ductions, bc^ng the growth or produce of the estate of such person, not including any part thereof consumed directly by the family; all other gains, profits, and income derived from any source whatever, except the rental value of any homestead used or occupied by any person or by his family in his own right or in the right of his wife ; and the share of any person of the gains and profits of all companies, whether in- corporated or partnership, who would be en- titled to the same, if divided, whether divided or otherwise, except the amount of income re- ceived from institutions or corporations whose officers, as required by law, withhold a per cen- tum of the dividends made by such institutions, and pay the same to the ofSeer authorized to re- ceive the same; and except that portion of the salary or pay received for services in the civil, military, naval, or other service of the United States, including senators, representatives, and delegates in Congress, from which the tax has been deducted. And in addition to one thou- sand dollars exempt from income tax, as here- inbefore provided, all national. State, county, and municipal taxes paid within the year shall be deducted from the gains, profits, or income of the person who has actually paid the same, whether such person be owner, tenant, or mort- gagor ; losses actually sustained during the year arising from fires, shipwreck, or incurred in trade, and debts ascertained to be worthless, but excluding all estimated depreciation of values and losses within the year on sales of real estate purchased two years previous to the year for which income is estimated; the amount actually paid for labor or interest by any person who rents lands or hires labor to cultivate land, or who conducts any other business from which in- come is actually derived; the amount actually paid by any person for the rent of the house or premises occupied as a residence for himself or his family; the amount paid out for usual 189 Gains resulting from the sale of bonds which had been held four years were not taxable under Sec. 116, as amended. Act of 1867. That act, with the exception of gains resulting from the sale of real estate and gains resulting from trade and com- merce, taxed only annual gains or profits which were realized from business transactions begun and com- pleted during the same year. "The advance in the value of property during a series of years, can, in no just sense, be considered the gains, profits, or in- come of any one particular year of the series al- though the entire amount of the advance be at one time turned into money by a sale of the property." * * * "The mere fact that property has ad- vanced in value between the date of its acquisition and sale does not authorize the imposition of the tax on the amount of the advance. Mere advance in value in no sense constitutes the gains, profits or in- come specified in the statute. It constitutes and can be treated merely as increase of capital." Gray (Col.) V. Darlington, (1872) 15 Wall. 63. ACT OF 1867 375 or ordinary repairs: Provided, That no deduc- tion shall be made for any amount paid out for new buildings, permanent improvements or betterments, made to increase the value of any property or estate : And provided further, That only one deduction of one thousand dollars shall be made from the aggregate income of all the members of any family, composed of one or both parents, and one or more minor children, or husband and wife; that guardians shall be al- lowed to make such deduction in favor of each and every ward, except that in case where two or more wards are comprised in one family, and have joint property interest, only one deduction shall be made in their favor: And provided further. That in cases where the salary or other compensation paid to any person in the em- ployment or service of the United States shall not exceed the rate of one thousand dollars per annum, or shall be by fees, or uncertain or ir- regular in the amount or in the time during which the same shall have accrued or been earned, such salary or other compensation shall be included in estimating the annual gains, profits, or income of the person to whom the same shall have been paid. [Sec. 118.] That section one hundred and eighteen be amended by striking out all after the enacting clause and inserting in lieu there- of the following: That it shall be the duty of all persons of lawful age to make and render a list or return, on or before the day prescribed by law, in such form and manner as may be prescribed by the commissioner of internal rev- enue, to the assistant assessor of the district in which they reside, of the amount of their in- come, gains, and profits, as aforesaid; and all guardians and trustees, executors and adminis- trators, or any person acting in any other fidu- ciary capacity, shall make and render a list or return, as aforesaid, to the assistant assessor of the district in which such person acting in a fiduciary capacity resides, of the amount of in- come, gains, and profits of any minor or person for whom they act; and the assistant assessor shall require every list or return to be verified by the oath or affirmation of the party render- ing it, and may increase the amount of any list or return, if he has reason to believe that the same is understated; and in case any such per- son shall neglect or refuse to make and render such list or return, or shall render a false or fraudulent list or return, it shall be the duty of the assessor or the assistant assessor to make such list, according to the best information he can obtain, by the examination of such person, or his books or accounts or any other evidence, and to add fifty per centum as a penalty to the amount of the tax due on such list in all cases of wilful neglect or refusal to make and render a list or return; and, in all cases of a false or fraudulent list or return having been rendered, to add one hundred per centum, as a penalty, to the amount of tax ascertained to be due, the tax and the additions thereto as a penalty to be assessed and collected in the manner pro- vided for in other cases of wilful neglect or refusal to render a list or return, or of render- ing a false and fraudulent return: Provided, That any party, in his or her own behalf, or as such fiduciary, shall be permitted to declare, under oath or affirmation, the form and manner of which shall be prescribed by the commissioner of internal revenue, that he or she, or his or her ward or beneficiary was not possessed of an income of one thousand dollars, liable to be assessed according to the provisions of this act ; or may declare that he or she has been assessed and paid an income tax elsewhere in the same year, under authority of the United States, upon his or her income, gains, and profits, as pre- scribed by law ; and if the assistant assessor shall be satisfied of the truth of the declaration, shall thereupon be exempt from income tax in the said district; or if the list or return of any party shall have been increased by the assistant asses- sor, such party may exhibit his books and ac- counts, and be permitted to prove and declare, under oath or affirmation, the amount of in- come liable to be assessed; but such oaths and evidence shall not be considered as conclusive of the facts, and no deductions claimed in such cases shall be made or allowed until approved by the assistant assessor. Any person feeling aggrieved by the decision of the assistant asses- sor in such cases may appeal to the assessor of the district, and his decision thereon, unless reversed by the commissioner of internal reve- nue, shall be final, and the form, time, and man- ner of proceedings shall be subject to rules and regulations to be prescribed by the commis- sioner of internal revenue: Provided further. That no penalty shall be assessed upon any per- son for such neglect or refusal, or for making or rendering a false or fraudulent return, ex- cept after reasonable notice of the time and place of hearing, to be regulated by the commis- sioner of internal revenue, so as to give the per- son charged an opportunity to be heard. [Sec. 119.] That section one hundred and nineteen be amended by striking out all after the enacting clause and inserting in lieu thereof the following: That the taxes on incomes here- in imposed shall be levied on the first day of March, and be due and payable on or before the thirtieth day of April, in each year, until and including the year eighteen hundred and seventy, and no longer ; and to any sum or sums 376 FEDERAL INCOME TAX LAWS annually due and unpaid after the thirtieth of April, as aforesaid, and for ten days after notice and demand thereof by the collector, there shall be levied in addition thereto the sum of five per centum on the amount of taxes unpaid and interest at the rate of one per centum per month upon said tax from the time the same became due, as a penalty, except from the estates of deceased, insane, or insolvent persons : Provided, That the tax on incomes for the year eighteen hundred and sixty-six shall be levied on the day this takes effect. [Sec. 123.] That section one hundred and twenty-three be amended by striking out all after the enacting clause and inserting in lieu thereof the following: That there shall be levied, collected, and paid on all salaries of officers, or payments for services to persons in the civil, military, naval or other employment or service of the United States, including senators and representatives and delegates in Congress, when exceeding the rate of one thousand dollars per annum, a tax of five per centum on the excess above the said one thousand dollars; and it shall be the duty of all paymasters and all dis- bursing officers, under the government of the United States, or persons in the employ thereof, when making any payment to any officers or per- sons as aforesaid, whose compensation is deter- mined by a fixed salary, or upon settling or ad- justing the accounts of such officers or persons to deduct and withhold the aforesaid tax of five per centum; and the pay-roll, receipts, or ac- count of officers, or persons paying such tax as aforesaid shall be made to exhibit the fact of such payment. And it shall be the duty of the accounting officers of the Treasury Department, when auditing the accounts of any paymaster or disbursing officer, or any officer withholding his salary from moneys received by him, or when settling or adjusting the accounts of any such officer, to require evidence that the taxes men- tioned in this section have been deducted and paid over to the treasurer of the United States, or other officer authorized to receive the same: Provided, That payments of prize money shall be regarded as income from salaries, and the tax thereon shall be adjusted and collected in like manner: Provided further. That this sec- tion shall not apply to payments made to me- chanics or laborers employed upon public works : And provided further. That in case it should become necessary for showing the true receipts of the government under the operations of this section upon the books of the Treasury Depart- ment, the requisite amount may be carried from unappropriated moneys in the treasury to the credit of said account; and this section shall take effect upon salary and compensation for the month of March, eighteen hundred and sixty- seven. ACT OF JULY 14, 1870 (16 STAT. L. 256-262, C. 255). An Act To reduce internal taxes, and for other purposes. Sec. 6. And he it further enacted, That there shall be levied and collected annually, as here- inafter provided, for the years eighteen hundred and seventy, and eighteen hundred and .seventy- one, and no longer, a tax of two and one-half per centum upon the gains, profits, and income of every person residing in the United States, and of every citizen of the United States re- siding abroad, derived from any source what- ever, whether within or without the United States, except as hereafter provided, and a like tax annually upon the gains, profits and in- come derived from any business, trade, or pro- fession carried on in the United States by any person residing without the United States and not a citizen thereof, or from rents of real estate within the United States owned by any person residing without the United States, and not a citizen thereof. Sec. 7. And he it further enacted. That in estimating the gains, profits, and income of any person, there shall be included all income de- rived from any kind of property, rents, interest received or accrued upon all notes, bonds, and mortgages, or other forms of indebtedness bear- ing interest, whether paid or not, if good and collectible, interest upon notes, bonds, or other securities of the United States ; and the amount of all premium on gold and coupons ; the gains, profits, and income of any business, profession, trade, employment, office, or vocation ; including any amount received as salary or pay for serv- ices in the civil, military, naval, or other serv- ice of the United States, or as senator, repre- sentative or delegate in Congress; except that portion thereof from which, under authority of acts of Congress previous hereto, a tax of five per centum shall have been withheld; the share of any person of the gains and profits, whether divided or not, of all companies or partnerships, but not including the amount received from any corporations whose officers, as authorized by law, withhold and pay as taxes a per centum of the dividends made, and of interest or coupons paid by such corporations ; profits realized within the year from sales of real estate purchased, within two years previous to the year for which income is estimated; the amount of sales of live stock, ACT OP 1870 377 sugar, wool, butter, cheese, pork, beef, mutton, or other meats, hay and grain, fruits, vegetables, or other productions being the growth or produce of the estate of such person, but not including any part thereof consumed directly by the fam- ily; and all other gains, profits, and income drawn from any source whatever, but not in- eluding the rental value of the homestead used or occupied by any person, or by his family. Sec. 8. And he it further enacted, That mili- tary or naval pensions allowed to any person under the laws of the United States, and the sum of two thousand dollars of the gains, prof- its and income of any person, shall be exempt from said income tax, in the manner hereinafter provided. Only one deduction of two thousand dollars shall be made from the aggregate in- come of all the members of any family composed of one or both parents and one or more minor children, or of husband and wife; but when a wife has by law a separate income, beyond the control of her husband, and is living separate and apart from him, such deduction shall then be made from her income, gains, and profits; and guardians and trustees shall be allowed to make the deduction in favor of each ward or bene- ficiary except that in a ease of two or more wards or beneficiaries comprised in one family, having joint property interest, only one deduc- tion shall be made in their favor. For the pur- pose of allowing said deduction from the income of any religious or social community holding all their property and the income therefrom jointly and in common, each five of the persons composing such society, and any remaining frac- tional number of such persons less than five over such groups of five, shall be held to constitute a family, and a deduction of two thousand dol- lars shall be allowed for each of said families. Any taxes on the incomes, gains, and profits of such societies, now due and unpaid, shall be as- sessed and collected according to this provision, except that the deduction shall be only one thou- sand dollars for any year prior to eighteen hun- dred and seventy. Sec. 9. And he it further enacted, That in addition to the exemptions provided in the pre- ceding section, there shall be deducted from the gains, profits, and income of any person all na- tional. State, county, and municipal taxes paid by him within the year, whether such person be owner, tenant, or mortgagor; all his losses ac- tually sustained during the year arising from fires, floods, shipwreck, or incurred in trade, and debts ascertained to be worthless, but excluding all estimated depreciation of values ; the amount of interest paid during the year, and the amount paid for rent or labor to cultivate land, or to conduct any other business from which income is derived; the amount paid for the rent of the house or premises occupied as a residence for himself or his family, and the amount paid out for usual and ordinary repairs. No deduction shall be made for any amount paid out for new buildings, permanent improvements, or better- ments made to increase the value of any prop- erty or estate. Sec. 10. And he it further enacted. That the tax hereinbefore provided shall be assessed upon the gains, profits, and income for the year end- ing on the thirty-first day of December next pre- ceding the time for levying and collecting said tax, and shall be levied on the first day of March, eighteen hundred and seventy-one, and eighteen hundred and seventy-two, and be due and pay- able on or before the thirtieth day of April in each of said years. And in addition to any sum annually due and unpaid after the thirtieth day of April, and for ten days after notice and de- mand thereof by the collector, there shall be levied and collected, as a penalty, the sum of five per centum on the amount unpaid, and in- terest on said amount at the rate of one per centum per month from the time the same be- came due, except from the estates of deceased, insane, or insolvent persons. Sec. 11. And he it further enacted, That it shall be the duty of every person of lawful age, whose gross income during the preceding year exceeded two thousand dollars, to make and ren- der a return on or before the day designated by law, to the assistant assessor of the district in which he resides of the gross amount of his income, gains, and profits as aforesaid; but not including the amount received from any corpora- tion whose officers, as authorized by law, with- hold and pay as taxes a per centum of the divi- dends made and of the interest or coupons paid by such corporation, nor that portion of the salary or pay received for services in the civil, military, naval, or other service of the United States, or as senator, representative, or delegate in Congress, from which tax has been deducted, nor the wages of minor children not received; and every guardian and trustee, executor or administrator, and any person acting in any other fiduciary capacity, or as resident agent for, or copartner of, any non-resident alien, de- riving income, gains, and profits from any busi- ness, trade, or profession carried on in the United States, or from rents of real estate situated therein, shall make and render a return as aforesaid to the assistant assessor of the district in which he resides of the amount of income, gains, and profits of any minor or person for whom he acts. The assistant assessor shall re- quire every such return to be verified by the oath of the party rendering it, and may increase 378 FEDERAL INCOME TAX LAWS the amount of any return, after notice to such party, if he has reason to believe that the same is understated. In case any person having a gross income as above, of two thousand dollars or more, shall neglect or refuse to make and render such return, or shall render a false or fraudulent return, the assessor or the assistant assessor shall make such return, according to the best information he can obtain by examina- tion of such person, or of his books or accounts, or by any other evidence, and shall add, as a penalty, to the amount of the tax due thereon, fifty per centum in all cases of wilful neglect or refusal to make and render a return, and one hundred per centum in all cases of a false or fraudulent return having been rendered. The tax and the addition thereto as penalty shall be assessed and collected in the manner provided for in eases of wilful neglect or refusal to render a return, or of rendering a false or fraudulent return. But no penalty shall be assessed upon any person for such neglect or refusal, or for making or rendering a false or fraudulent re- turn, except after reasonable notice of the time and place of hearing, to be regulated by the commissioner of internal revenue, so as to give the person charged an opportunity to be heard : Provided, That no collector, deputy collector, assessor, or assistant assessor shall permit to be published in any manner such income returns, or any part thereof, except such general satis- tics, not specifying the names of individuals or firms, as he may make public, under such rules and regulations as the commissioner of internal revenue shall prescribe.! Sec. 12. And be it further enacted, That when the return of anj' person is increased by the as- sistant assessor, such person may exhibit his books and accounts and be permitted to prove and declare, under oath, the amount of income liable to be assessed; but such oath and evi- dence shall not be conclusive of the facts, and no deductions claimed in such cases shall be al- lowed until approved by the assistant assessor. Any person may appeal from the decision of the assistant assessor, in such cases, to the assessor of the district, and his decision thereon, unless reversed by the commissioner of internal reve- nue, shall be final. The form, time, and manner of proceedings shall be subject to regulations to be prescribed by the commissioner of internal revenue. Sec. 13. And ie it further enacted, That any person, in his own behalf, or as such fiduciary or agent, shall be permitted to declare, under oath, that he, or his ward, beneficiary, or prin- cipal, was not possessed of an income of two thousand dollars, liable to be assessed according to the provisions of this act ; or may declare that an income tax has been assessed and paid else- where in the same year, under authority of the United States, upon his income, gains, and prof- its, or those of his ward, beneficiary, or princi- pal, as required by law; and if the assistant assessor shall be satisfied of the truth of the declaration, such person shall thereupon be ex- empt from income tax in the said district. Sec. 14. And he it further enacted. That con- suls of foreign governments who are not citi- zens of the United States shall be exempt from any income tax imposed by this act which may be derived from their official emoluments, or from property in foreign countries: Provided, That the governments which such consuls may represent shall extend similar exemption to con- suls of the United States. Sec. 15. And ie it further enacted, That there shall be levied and collected for and during the year eighteen hundred and seventy-one a tax of two and one-half per centum on the amount of all interest ^^o or coupons paid on bonds, or other evidences of debt issued and payable in one or more years after date, by any of the corporations in this section hereinafter enumerated, and on the amount of all dividends of earnings, income or gains hereafter declared,!^! by any bank, trust company, savings institution, insurance company, railroad company,192 canal . company, turnpike company, canal navigation company, and slack-water company, whenever and wherever the same shall be payable, and to whatsoever person the same may be due, includ- ing non-residents, whether citizens or aliens, and on all undivded profits of any such corporation which have accrued and been earned and added 190 Sec. 15, Act of 1870, taxed interest paid dur- ing 1871, but did not tax interest which was neither payable nor paid until 1872, after the Act expired. Western Union R. R. Co. v. U. S., (1880) 101 U. S. 543; U. S. V. Indianapolis & St. Louis R. R. Co., (1885) 113 U. S. 711; U. S. v. L. & N. Ry. Co., (C. C, D. Ky. 1888) 33 Fed. 829. 191 Dividends declared and payable during the last five months of 1870, were taxable under Sec. 15, Act of 1870. Blake (Col.) v. Nat'l City Bank, (1875) 23 Wall. 307; Missouri River R. R. v. U. S., (C. C, W. D. Mo., W. D. 1884) 19 Fed. 66. 192 A company .organized to "construct a railroad with all the privileges and rights to such corpora- tion," was a railroad company, and, therefore, tax- able under Sec. 15, Act of 1870. Eastern Kentucky R. R. Co. V. Slack, (1880) 100 U. S. 659. ACT OF 1870 379 to any surplus, contingent, or other fund,l93 and every such corporation having paid the tax as aforesaid, is hereby authorized to deduct and withhold from any payment on account of in- terest, coupons, and divdends an amount equal to the tax of two and one-half per centum on the same ; and the payment to the United States, as provided by law, of the amount of tax so de- ducted from the interest, coupons, and dividends aforesaid, shall discharge the corporation from any liability for that amount of said interest, coupons, or dividends, claimed as due to any per- son, except in cases where said corporations have provided otherwise by an express contract : Pro- vided, That the tax upon the dividends of in- surance companies shall not be deemed due until such dividends are payable, either in money or otherwise ; and that the money returned by mu- tual insurance companies to their policyholders, and the annual or semi-annual interest allowed or paid to the depositors in savings banks or sav- ings institutions, shall not be considered as divi- dends; and that when any dividend is made, or interest as aforesaid is paid, which includes any part of the surplus or contingent fund of any corporation which has been assessed and the tax paid thereon, or which includes any part of the dividends, interest or coupons received from other corporations whose officers are au- thorized by law to withhold a per centum on the same, the amount of tax so paid on that portion of the surplus or contingent fund, and the amount of tax which has been withheld and paid on dividends, interest, or coupons so received, may be deducted from the tax on such dividend or interest. Sec. 16. And he it further enacted, That every person having the care or management of any corporation liable to be taxed under the last pre- ceding section, shall make and render to the assessor or assistant assessor of the district in which such person has his office for conducting the business of such corporation, on or before the tenth day of the month following that in which any dividends or sums of money become due or payable as aforesaid, a true and complete return, in such form as the commissioner of in- ternal revenue may prescribe, of the amount of income and profits and of taxes as aforesaid; and there shall be annexed thereto a declaration of the president, cashier, or treasurer of the qor- poration, under oath, that the same contains a true and complete account of the income and profits and of taxes as aforesaid. And for any default in the making or rendering of such re- turn, with such declaration annexed, the corpora- tion so in default shall forfeit, as a penalty, the sum of one thousand dollars ; and in case of any default in making or rendering said return, or of any default in the payment of the tax as re- quired, or of any part thereof, the assessment and collection of the tax and penalty shall be in ac- cordance with the general provisons of law in other cases of neglect and refusal. Sec. 17. And he it further enacted, That sec- tions one hundred and twenty, one hundred and twenty-one, one hundred and twenty-two,19* and one hundred and twenty-three of the act of June thirty, eighteen hundred and sixty-four, entitled "An act to provide internal revenue to support the government, to pay interest on the public debt, and for other purposes," as amended by the act of July thirteen, eighteen hundred and sixty-six, and the act of March two, eighteen hundred and sixty-seven, shall be construed 1^5 to impose taxes therein mentioned to the first day of August, eighteen hundred and seven- ty^ise but after that date no further taxes shall be levied or assessed under said sections; and all acts and parts of acts relating to the taxes herein repealed, and that all the provisions of said acts, shall continue in full force for levy- ing and collecting all taxes properly assessed or liable to be assessed, or accruing under the pro- visions of former acts, or drawbacks, the right to which has already accrued or which may here- after accrue under said acts, and for maintain- ing and continuing liens, fines, penalties, and forfeitures incurred under and by virtue there- 193 Profits "used for construction'' were not tax- able under Sec. 15, Act of 1870, inasmuch as this expression which had been employed in former acts, was omitted from said Sec. 15. Marquette, H. & O. R. R. Co. V. U. S., (1887) 123 U. S. 722, reversing Id., (C. C, W. D. Mich., N. D. 1883) 17 Fed. 719. 19* A railroad company was required to pay the tax imposed by Sec. 122, Act of 1866, on interest paid on July 10, 1870, said section being extended by See. 17, Act of 1870. The Lake Shore, Mich. & Southern Ry. Co. V. Rose (Col.), (1877) 95 U. S. 78. 185 Sec. 17, Act of 1870, construing certain sec- tions of former acts to extend the tax to the year 1870, was valid, because it was not an attempt to exercise judicial power by construing a statute for the court; but it was a mode of continuing or re- viving a tax which might have been supposed to have expired. It was within the legislative power of Congress to impose the tax retroactively. Stockdale (Col.) V. The Atlantic Ins. Co., (1874) 20 Wall. 323. 196 Sec. 17, Act of 1870, extended Sec. 120 of former acts so as to impose a tax on interest falling due on Aug. 1, 1870. Western Union R. R. Co. v. U. S., (1880) 101 U. S. 543. 380 FEDERAL INCOME TAX LAWS of. And this act shall not be construed to affect any act done, right accrued, or penalty incurred under former acts, but every such right is here- by saved. And for carrying out and completing all proceedings which have been already com- menced or that may be commenced to enforce such fines, penalties, and forfeitures, or criminal proceedings under said acts, and for the punish- ment of crimes of which any party shall be or has been found guilty. ACT OF AUGUST 15, 1894 (28 STAT. L. 553-69, C. 349). An Act To reduce taxation, to provide revenue for the Government, and for other pui'poses. Be it enacted hy the Senate and House of Rep- resentatives of the United States of America in Congress assembled, Sec. 27. That from and after the first day of January, eighteen hundred and ninety-five, and until the first day of January, nineteen hundred, there shall be assessed, levied, collected, and paid annually upon the gains, profits, and income re- ceived in the preceding calendar year by every citizen of the United States, whether residing at home or abroad, and every person residing therein, whether said gains, profits or income be derived from any kind of property, rents, inter- est, dividends, or salaries, or from any profes- sion, trade, employment, or vocation carried on in the United States or elsewhere, or from any other source whatever, a tax of two per centum on the amount so derived over and above four thousand dollars and a like tax shall be levied, collected, and paid annually upon the gains, profits and income from all property owned and of every business, trade, or profession carried on in the United States by persons residing without the United States. And the tax here- in provided for shall be assessed, by the com- missioner of internal revenue and collected, and paid upon the gains, profits, and income for the year ending the thirty-first day of December next preceding the time for levying, collecting, and paying said tax. Sec. 28. That in estimating the gains, profits, and income of any person there shall be included all income ^^"^ derived from interest upon notes, bonds, and other securities, except such bonds of the United States the principal and interest of which are by the law of their issuance exempt from all Federal taxation ; profits realized with- in the year from sales of real estate purchased within two years previous to the close of the year for which income is estimated; interest re- ceived or accrued upon all notes, bonds, mort- gages, or other forms of indebtedness bearing interest, whether paid or not, if good and col- lectible, less the interest which has become due from said person or which has been paid by him during the year; the amount of all premium on bonds, notes or coupons; the amount of sales of live stock, sugar, cotton, wool, butter, cheese, pork, beef, mutton, or other meats, hay, and grain or other vegetable or other productions, being the growth or produce of the estate of such person, less the amount expended in th« purchase or production of said stock or produce, and not including any part thereof consumed directly by the family ; money and the value of all personal property acquired by gift or in- heritance; all other gains, profits, and income derived from any source whatever except that portion of the salary, compensation, or pay re- ceived for services in the civil, military, naval, or other service of the United States, including senators, representatives, and delegates in Con- gress, from which the tax has been deducted, and except that portion of any salary upon which the employer is required by law to with- hold, and does withhold the tax and pays the same to the ofScer authorized to receive it. In computing incomes the necessary expenses ac- tually incurred in carrying on any business, oc- cupation, or profession shal be deducted and also all interest due or paid within the year by such person on existing indebtedness. And all na- tional. State, county, school, and municipal taxes, not including those assessed against local benefits, paid within the year shall be deducted from the gains, profits, or income of the person who has actually paid the same, whether such person be owner, tenant or mortgagor; also losses actually sustained during the year, in- curred in trade or arising from fires, storms, or shipwreck, and not compensated for by in- surance or otherwise, and debts ascertained to be worthless, but excluding all estimated deprecia- 19'' A tax upon income from realty or personality is a direct tax, and, hence, unconstitutional unless apportioned among the several States. A tax upon income from municipal bonds is repugnant to the Constitution in that it taxes the power of a state or its instrumentality to borrow money — a necessary at- tribute of sovereignty. The tax imposed on the in- come from realty and personalty being unconstitu- tional because not apportioned, Sees. 27 to 37, in- clusive. Act of 1894, were all void because they con- stituted one entire scheme of taxation. Pollock v. Farmers' Loan and Trust Co., (1895) 158 U. S. 601, affirming Id., (1895) 167 U. S. 429, on rehearing. ACT OF 1894 381 tion of values and losses within the year on sales of real estate purchased within two years previ- ous to the year for which income is estimated: Provided, That no deduction shall be made for any amount paid out for new buildings, per- manent improvements, or betterments, made to increase the value of any property or estate: Provided further, That only one deduction of four thousand dollars shall be made from the ag- gregate income of all the members of any fam- ily, composed of one or both parents, and one or more minor children, or husband and wife; that guardians shall be allowed to make a de- duction in favor of each and every ward, ex- cept that in case where two or more wards are comprised in one family, and have joint prop- erty interests, the aggregate deduction in their favor shall not exceed four thousand dollars: And provided further, That in eases where the salary or other compensation paid to any per- son in the employment or service of the United States shall not exceed the rate of four thousand dollars per annum, or shall be by fees, or un- certain or irregular in the amount or in the time during which the same shall have accrued or been earned, such salary or other compensa- tion shall be included in estimating the annual gains, profits, or income of the person to whom the same shall have been paid, and shall include that portion of any income or salary upon which a tax has not been paid by the employer, where the employer is required by law to pay on the excess over four thousand dollars: Provided also. That in computing the income of any per- son, corporation, company, or association there shall not be included the amount received from any corporation, company, or association as divi- dends upon the stock of such corporation, com- pany, or association if the tax of two per centum has been paid upon its net profits by said cor- poration, company, or association as required by this Act. Sec. 29. That it shall be the duty of all per- sons of lawful age having an income of more than three thousand five hundred dollars for the taxable year, computed on the basis herein prescribed, to make and render a list or return, on or before the day provided by law, in such form and manner as may be directed by the commissioner, of internal revenue, with the ap- proval of the Secretary of the Treasury, to the collector or a deputy collector of the district in which they reside, of the amount of their in- come, gains, and profits, as aforesaid; and all guardians and trustees, executors, administra- tors, agents, receivers, and all persons or cor- porations acting in any fiduciary capacity, shall make and render a list or return, as aforesaid, to the collector or a deputy collector of the dis- trict in which such person or corporation acting in a fiduciary capacity resides or does business, of the amount of income, gains and profits of any minor or person for whom they act, but per- sons having less than three thousand five hun- dred dollars income are not required to make such report; and the collector or deputy col- lector, shall require every list or return to be verified by the oath or affirmation of the party rendering it, and may increase the amount of any list or return if he has reason to believe that the same is understated; and in ease any such person having a taxable income shall neglect or refuse to make and render such list and return, or shall render a wilfully false or fraudulent list or return, it shall be the duty of the col- lector or deputy collector, to make such list, ac- cording to the best information he can obtain, by the examination of such person, or any other evidence, and to add fifty per centum as a pen- alty to the amount of the tax due on such list in all cases of wilful neglect or refusal to make and render a list or return; and in all cases of a wilfully false or fraudulent list or return hav- ing been rendered to add one hundred per cen- tum as a penalty to the amount of tax ascer- tained to be due, the tax and the additions there- to as a penalty to be assessed and collected in the manner provided for in other cases of wil- ful neglect or refusal to render a list or return, or of rendering a false or fraudulent return: Provided, That any person, or corporation in his, her, or its own behalf, or as such fiduciary, shall be permitted to declare, under oath or af- firmation, the form and manner of which shall be prescribed by the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, that he, she, or his or her, or its ward or beneficiary, was not possessed of an income of four thousand doUai's, liable to be assessed according to the provisions of this Act ; or may declare that he, she, or it, or his, her, or its ward or beneficiary has been assessed and has paid an income tax elsewhere in the same year, under authority of the United States, upon all his, her, or its income, gains or profits, and upon all the income, gains, or profits for which he, she, or it is liable as such fiduciary, as pre- scribed by law; and if the collector or deputy collector shall be satisfied of the truth of the declaration, such person or corporation shall thereupon be exempt from income tax in the said district for that year; or if the list or re- turn of any person or corporation, company or association shall have been increased by the col- lector or deputy collector, such person or cor- poration, company, or association may be per- mitted to prove the amount of income liable to be assessed ; but such proof shall not be consid- 382 FEDERAL INCOME TAX LAWS ered as conclusive of the facts, and no deduc- tions claimed in such cases shall be made or al- lowed until approved by the collector or deputy collector. Any person or company, corporation, or association feeling aggrieved by the decision of the deputy collector, in such cases may ap- peal to the collector of the district, and his de- cision thereon, unless reversed by the Commis- sioner of Internal Revenue, shall be final. If dissatisfied with the decision of the collector such person or corporation, company, or association may submit the case, with all the papers, to the Commissioner of Internal Revenue for his de- cision, and may furnish the testimony of wit- nesses to prove any relevant facts having served notice to that effect upon the Commissioner of Internal Revenue as herein prescribed. Such notice shall state the time and place at which, and the officer before whom, the testimony will be taken ; the name, age, residence and busi- ness of the proposed witness, with the questions to be propounded to the witness, or a brief state- ment of the substance of the testimony he is expected to give: Provided, That the Govern- ment may at the same time and place take tes- timony upon like notice to rebut the testimony of the witnesses examined by the person taxed. The notice shall be delivered or mailed to the Commissioner of Internal Revenue a sufficient number of days previous to the day fixed for taking the testimony, to allow him, after its re- ceipt, at least five days, exclusive of the period required for mail communication with the place at which the testimony is to be taken, in which to give, should he so desire, instructions as to the cross-examination of the proposed witness. Whenever practicable, the affidavit or depo- sition shall be taken before a collector or dep- uty collector of internal revenue, in which case reasonable notice shall be given to the collector or deputy collector of the time fixed for taking the deposition or affidavit: Provided further, That no penalty shall be as- sessed upon any person or corporation, company, or association for such neglect or refusal or for making or rendering a wilfully false or fraudu- lent return, except after reasonable notice of the time and place of hearing, to be prescribed by the Commissioner of Internal Revenue so as to give the person charged an opportunity to be heard. Sec. 30. The taxes on incomes herein im- posed shall be due and payable on or before the first day of July in each year; and to any sum or sums annually due and unpaid after the first day of July as aforesaid, and for ten days after notice and demand thereof by the collector, there shall be levied, in addition thereto, the sum of five per centum on the amount of taxes un- paid, and interest at the rate of one per centum per month upon said tax from the time the same becomes due, as a penalty, except from the es- tates of deceased, insane, or insolvent persons. Sec. 31. Any non-resident may receive the benefit of the exemptions hereinbefore provided for by filing with the deputy collector of any district a true list of all his property and sources of income in the United States and complying with the provisions of section twenty-nine of this Act as if a resident. In computing in- come he shall include all income from every source, but unless he be a citizen of the United States he shall only pay on that part of the income which is derived from any source in the United States. In case such non-resident fails to file such statement, the collector of each district shall collect the tax on the income derived from property situated in his district, subject to in- come tax, making no allowance for exemptions, and all property belonging to such non-resident shall be liable to distraint for tax: Provided, That non-resident corporations shall be subject to the same laws as to tax as resident corpora- tions, and the collection of the tax shall be made in the same manner as provided for col- lections of taxes against non-resident persons. Sec. 32. That there shall be assessed, levied, and collected, except as herein otherwise pro- vided, a tax of two per centum annually on the net profits or income above actual operating and business expenses, including expenses for ma- terials purchased for manufacture or bought for resale, losses, and interest on bonded and other indebtedness of all banks, banking institutions, trust companies, saving institutions, fire, marine, life, and other insurance companies, railroad, canal, turnpike, canal navigation, slack-water, telephone, telegraph, express, electric-light, gas, water, street-railway companies, and all other corporations, companies, or associations doing business for profit in the United States, no mat- ter how created and organized, but not includ- ing partnerships. That said tax shall be paid on or before the first day of July in each year ; and if the presi- dent or other chief officer of any corporation, company, or association, or in the case of any foreign corporation, company, or association, the resident manager or agent shall neglect or re- fuse to file with the collector of the internal revenue district in which said corporation, com- pany, or association shall be located or be en- gaged in business, a statement verified by his oath or affirmation, in such form as shall be pre- scribed by the Commissioner of Internal Reve- nue, with the approval of the Secretary of the Treasury, showing the amount of net profits or income received by said corporation, company, ACT OF 1894 383 or association during the whole calendar year last preceding the date of filing said statement as hereinafter required, the corporation, com- pany, or association making default shall forfeit as a penalty the sum of one thousand dollars and two per centum on the amount of taxes due, for each month until the same is paid, the pay- ment of said penalty to be enforced as provided in other cases of neglect and refusal to make return of taxes under the internal revenue laws. The net profits or income of all corporations, companies, or associations shall include the amounts paid to shareholders, or carried to the account of any fund, or used for construction, enlargement of plant, or any other expenditure or investment paid from the net annual profits made or acquired by said corporations, com- panies, or associations. That nothing herein contained shall apply to States, counties, or municipalities; nor to cor- porations, companies, or associations organized and conducted solely for charitable, religious, or educational purposes, including fraternal beneficiary societies, orders, or associations oper- ating upon the lodge system and providing for the payment of life, sick, accident, and other benefits to the members of such societies, orders, or associations and dependents of such members ; nor to the stocks, shares, funds, or securities held by any fiduciary or trustee for charitable, religious, or educational purposes ; nor to build- ing and loan associations or companies which make loans only to their shareholders; nor to such savings banks, savings institutions or so- cieties as shall, first, have no stockholders or members except depositors and no capital ex- cept deposits; secondly, shall not receive de- posits to an aggregate amount, in any one year, of more than one thousand dollars from the same depositor; thirdly, shall not allow an accumu- lation or total of deposits, by any one depositor, exceeding ten thousand dollars; fourthly, shall actually divide and distribute to its depositors, ratably to deposits, all the earnings over the nec- essary and proper expenses of such bank, insti- tution, or society, except such as shall be applied to surplus; fifthly, shall not possess, in any form, a surplus fund exceeding ten per centum of its aggregate deposits; nor to such savings banks, savings institutions, or societies com- posed of members who do not participate in the profits thereof and which pay interest or divi- dends only to their depositors ; nor to that part of the business of any savings bank, institution, or other similar asoeiation having a capital stock, that is conducted on the mutual plan solely for the benefit of its depositors on such plan, and which shall keep its accounts of its business conducted on such mutual plan sep- arate and apart from its other accounts. Nor to any insurance company or association which eondiicts all its business solely upon the mutual plan, and only for the benefit of its pol- icyholders or members, and having no capital stock and no stock or shareholders, and holding all its property in trust and in reserve for its policyholders or members; nor to that part of the business of any insurance company having a capital stock and stock and shareholders, which is conducted on the mutual plan, sep- arate from its stock plan of insurance, and solely for the benefit of the policyholders and members insured on said mutual plan, and hold- ing all the property belonging to and derived from said mutual part of its business in trust and reserve for the benefit of its policyholders and members insured on said mutual plan. That all State, county, municipal, and town taxes paid by corporations, companies, or asso- ciations, shall be included in the operating and business expenses of such corporations, com- panies, or associations. Sec. 33. That there shall be levied, collected, and paid on all salaries of officers, or payments for services to persons in the civil, military, naval, or other employment or service of the United States, including senators and represent- atives and delegates in Congress, when exceed- ing the rate of four thousand dollars per an- num, a tax of two per centum on the excess above the said four thousand dollars; and it shall be the duty of all paymasters and disbursing offi- cers under the Government of the United States, or persons in the employ thereof, when making any payment to any officers or persons as afore- said, whose compensation is determined by a fixed salary, or upon settling or adjusting the accounts of such officers or persons, to deduct and withhold the aforesaid tax of two per cen- tiun; and the pay roll, receipts, or account of officers or persons paying such tax as aforesaid shall be made to exhibit the fact of such pay- ment. And it shall be the duty of the account- ing officers of the Treasury Department, when auditing the accounts of any paymaster or dis- bursing officer, or any officer withholding his salary from moneys received by him, or when settling or adjusting the accounts of any such officer, to require evidence that the taxes men- tioned in this section have been deducted and paid over to the Treasurer of the United States, or other officer authorized to receive the same. Every corporation which pays to any employee a salary or compensation exceeding four thou- sand dollars per annum shall report the same to the collector or deputy collector of bis district and said employee shall pay thereon, subject to 584 FEDERAL INCOME TAX LAWS the exemptions herein provided for, the tax of two per centum on the excess of his salary over four thousand dollars: Provided, That salaries due to State, county, or municipal officers shall be exempt from the income tax herein levied. Sec. 35. That every corporation, company or association doing business for profit shall make and render to the collector of its collection dis- trict, on or before the first Monday of March in every year, beginning with the year eighteen hundred and ninety-five, a full return,l98 veri- fied by oath or affirmation, in such form as the Commissioner of Internal Eevenue may pre- scribe, of all the following matters for the whole calendar year last preceding the date of such return : First. The gross profits of such corporation, company, or association, from all kinds of busi- ness of every name and nature. Second. The expenses of such corporation, company, or association, exclusive of interest, annuities, and dividends. Third. The net profits of such corporation, company, or association, without allowance for interest, annuities, or dividends. Fourth. The amount paid on account of in- terest, annuities, and dividends, stated sep- arately. Fifth. The amount paid in salaries of four thousand dollars or less to each person employed. Sixth. The amount paid in salaries of more than four thousand dollars to each person em- ployed and the name and address of each of such persons and the amount paid to each. Sec. 36. That it shall be the duty of every cor- poration, company, or association doing business for profit to keep full, regular, and accurate books of account, upon which all its transactions shall be entered from day to day, in regular order, and whenever a collector or deputy col- lector of the district in which any corporation, company, or association is assessable shall be- lieve that a true and correct return of the in- come of such corporation, company, or associa- tion has not been made, he shall make an affi- davit of such belief and of the grounds on which it is founded, and file the same with the Com- missioner of Internal Revenue, and if said Com- missioner shall, on examination thereof, and after full hearing upon notice given to all parties. conclude there is good ground for such belief he shall issue a request in writing to such corpora- tion, company, or association to permit an in- spection of the books of such corporation, com- pany, or association to be made ; and if such cor- poration, company, or association shall refuse to comply with such request, then the collector or deputy collector of the district shall make from such information as he can obtain an estimate of the amount of such income and then add fifty per centum thereto, which said assessment so made shall then be the lawful assessment of such income. Sec. 37. That it shall be the duty of every col- lector of internal revenue; to whom any pay- ment of any taxes other than the tax repre- sented by an adhesive stamp or other engraved stamp is made under the provisions of this Act, to give the person making such payment a full written or printed receipt, expressing the amount paid and the particular account for which such payment was made ; and whenever such payment is made such collector shaU, if required, give a separate receipt for each tax paid by any debtor, on account of payments made to or to be made by him to separate creditors in such form that such debtor can conveniently produce the same separately to his several creditors in satisfaction of their respective demands to the amounts speci- fied in such receipts; and such receipts shall be sufficient evidence in favor of such debtor, to justify him in withholding the amount therein expressed from his next payment to his credi- tor ; but such creditor may, upon giving to his debtor a full written receipt, acknowledging the payment to him of whatever sum may be actually paid, and accepting the amount of tax paid as aforesaid (specifying the same) as a further satisfaction of the debt to that amount, require the surrender to him of such collector's receipt. Sec. 72. All Acts and parts of Acts incon- sistent with the provisions of this Act are here- by repealed, but the repeal of existing laws or modifications thereof embraced in this Act shall not affect any act done, or any right accruing or accrued, or any, suit or proceeding had or commenced in any civil cause before the said repeal or modifications; but all rights and lia- bilities under said laws shall continue and may be enforced in the same manner as if said repeal 198 The court will entertain a stockholder's bill filed to prevent a trust company from voluntarily making returns for the imposition and payment of a tax, when there is no question involved of assess- ment and collection of the tax ; such bill alleging that the tax is unconstitutional, and a showing is made that the voluntary compliance with the law on the part of the corporation threatens a multiplicity of suits and irreparable injury; and when the objec- tion of adequate remedy at law or jurisdiction has not been raised. (Sec. 3224, R. S., prohibits the filing of a suit to enjoin the assessment or collection of any tax.) Pollock v. Farmers' Loan and Trust Co., (1895) 157 U. S. 429, afiirmed on rehearing, Id., (1895) 158 U. S. 601. ACT OF 1894 386 or modifications had not been made. Any oi- fenses committed and all penalties or forfeitures or liabilities incurred prior to the passage of this Act under any statute embraced in or changed, modified, or repealed by this Act may be prosecuted or punished in the same manner and with the same effect as if this Act had not been passed. All Acts of limitation, whether ap- plicable to civil causes and proceedings or to the prosecution of offense^i or for the recovery of penalties or forfeitures embraced in or modified, changed, or repealed by this Act shall not be affected thereby; and all suits, proceedings, or prosecutions, whether civil or criminal, for causes arising or acts done or committed prior to the passage of this Act, may be commenced and prosecuted within the same time and with the same effect as if this Act had not been passed. PART III Miscellaneous Acts, Provisions of the Federal Constitution and Revised Statutes of the United States Applicable to Income Taxatidn MUNITION MANUFACTURER'S TAX ACT OF SEPTEMBER 8, 1916 (39 STAT. L. 780-782, C. 463). 389 An Act To increase the revenue, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, TITLE III.— MUNITION MANUFAC- TURER'S TAX. Sec. 300. That when used in this title — The term "person" includes partnerships, corporations, and associations ; The term "taxable year" means the twelve months ending December thirty-first. The first taxable year shall be the twelve months ending December thirty-first, nineteen hundred and six- teen; and The term "United States" means only the States, the Territories of Alaska and Hawaii, and the District of Columbia. Sec. 301. (1)1 That every person manufactur- ing 199 (a) gunpowder and other explosives, ex- cepting blasting powder and dynamite used for industrial purposes; (b) cartridges, loaded and unloaded, caps or primers, exclusive of those used for industrial purposes; (c) projectiles, shells, or torpedoes of any kind, including shrap- nel, loaded or unloaded, or fuses, or complete rounds of ammunition; (d) firearms of any kind and appendages, including small arms, cannon, machine guns, rifles, and bayonets; (e) electric motor boats, submarine or submersible vessels or boats ; or (f ) any part i^^ of any of the articles mentioned in (b), (c), (d), or (e) ; shall pay for each taxable year, in addition to the income tax imposed by Title I, an excise tax of twelve and one-half per centum upon the entire net profits actually received or accrued for said year from the sale or disposition of such articles man- ufactured within the United States: Provided, however. That no person shall pay such tax up- on net profits received during the year nineteen hundred and sixteen derived from the sale and delivery of the articles enumerated in this sec- tion under contracts executed and fully per- formed by such person prior to January first, nineteen hundred and sixteen. (2)1 This section shall cease to be of effect at the end of one year after the termination of the present European war, which shall be evidenced by the proclamation of the President of the United States declaring such war to have ended. Sec. 302. That in computing net profits under the provisins of this title, for the purpose of the tax there shall be allowed as deductions from the gross amount received or accrued for the taxable year from the sale or disposition of such articles manufactured within the United States, the following items: (a) The cost of raw materials entering into the manufacture: (b) Running expenses 200 after expenses in- cluding rentals, cost of repairs and maintenance, heat, power, insurance, management, salaries, and wages; (c) Interest paid within the taxable year on debts or loans contracted to meet the needs of the business, and the proceeds of which have been actually used to meet such needs ; (d) Taxes of all kinds paid during the tax- able year with respect to the business or prop- erty relating to the manufacture; (e) Losses actually sustained within the tax- able year in connection with the business of man- ufacturing such articles, including losses from fire, flood, storm, or other casualty, and not com- pensated for by insurance or otherwise ; and 189 A corporation which entered into a contract for the manufacture and delivery of shells to a foreign government, doing only a portion of the manufac- turing itself (subcontractors doing the balance) but actually delivering and collecting for the finished product under the terms of the contract, was "manu- facturing" shells under Sec. 301, Act of 1916. It was taxable on the entire net income derived there- from. Carbon Steel Co. v. Lewellyn (Col.), (1920) 251 U. S. 501, affirming Id., (C. C. A., Third Cir. 1919) 258 Fed. 533, and Id., (D. C, W. D. Penn. 1919) 255 Fed. 364. The subcontractors were "manufacturing • • • part" of shells and were likewise taxable. Worth Bros. Co. v. Lederer (Col.), (1920) 251 U. S. 507, affirming Id., (C. C. A., Third Cir. 1919) 258 Fed. 533; Forged Steel Wheel Co. V. Lewellyn (Col.), (1920) 251 U. S. 509, affirming Id., (C. C. A., Third Cir. 1919) 258 Fed. 533; and Dayton Brass Castings Co. v. Gilligan (Col.), (D. C, S. D. Ohio, W. D. 1920) 267 Fed. 872. 200 Two individuals advanced a portion and the corporation the balance of the necessary expenses in- curred by the latter in securing a war contract. An agreement was entered into whereby each was to share in the profits proportionately. The corpora- tion secured the contract, manufactured the shells, and fulfilled the contract. It was required to return the entire contract price as gross income. It was not permitted to deduct as "running expenses" the shares paid the individuals under the agreement. Traylor Engineering & Mfg. Co. v. Lederer (Col.), (C. C. A., Third Cir. 1921) 271 Fed. 399, affirming Id., (D. C, E. D. Penn. 1920) 266 Fed. 583. 1 Amended by Sec. 214, Act of 1917, p. 858. 390 FEDERAL INCOME TAX LAWS (f) A reasonable allowance according to the conditions pecidiar to each concern, for amorti- zation of the values of buildings and machinery, account being taken of the exceptional deprecia- tion of special plants. Sec. 303. If any person manufactures any ar- ticle specified in section three hundred and one and, during any taxable year or part thereof, whether under ainy agreement, arrangement, or understanding, or otherwise, sells or disposes of any such article at less than the fair market price obtainable therefor, either (a) in such manner as directly or indirectly to benefit such person or any person directly or indirectly in- terested in the business of such person, or (b) with intent to cause such benefit, the gross amount received or accrued for such year or part thereof from the sale or disposition of such ar- ticle shall be taken to be the amount which would have been received or accrued from the sale or disposition of such article if sold at the fair market price. Sec. 304. On or before the first day of March, nineteen hundred and seventeen, and the first day of March in each year thereafter, a true and accurate return under oath shall be made by each person manufacturing articles specified in section three hundred and one to the col- lector of internal revenue for the district in which such person has his principal office or place of business, in such form as the Commis- sioner of Internal Revenue, with the approval of the Secretary of the Treasury, shall prescribe, setting forth specifically the gross amount of in- come received or accrued from the sale or dis- position of the articles specified in section three hundred and one, and from the total thereof de- ducting the aggregate items of allowance au- thorized in section three hundred and two, and such other particulars as to the gross receipts and items of allowance as the Commissioner of In- ternal Revenue, with the approval of the Sec- retary of the Treasury, may require. Sec. 305. All such returns shall be transmitted forthwith by the collector to the Commissioner of Internal Revenue, who shall, as soon as prac- ticable, assess the tax found due and notify the person making such return of the amount of tax for which such person is liable, and such person shall pay the tax to the collector on or before thirty days from the date of such notice. Sec. 306. If the Secretary of the Treasui"y or the Commissioner of Internal Revenue shall have reason to be dissatisfied with the return as made, or if no return is made, the commissioner is authorized to make an investigation and to de- termine the amount of net profits and may as- sess the proper tax accordingly. He shall notify the person making, or who should have made, such return and shall proceed to collect the tax in the same manner as provided in this title, unless the person so notified shall file a written request for a hearing with the commisisioner within thirty days after the date of such notice; and on such hearing the burden of establishing to the satisfaction of the commissioner that the gross amount received or accrued or the amount of net profits, as determined by the commissioner, is incorrect, shall devolve upon such person. Sec. 307. The tax may be assessed on any per- son for the time being owning or carrying on the business, or on any person acting as agent for that person in carrying on the business, or where a business has ceased, on the person who owned or carried oh the business, or acted as agent in carrying on the business immediately before the time at which the business ceased. Sec. 308. For the purpose of carrying out the provisions of this title the Commissioner of In- ternal Revenue is authorized, personally or by his agent, to examine the books, accounts, and records of any person subject to this tax. Sec. 309. No person employed by the United States shall communicate, or allow to be com- municated to any person not legally entitled thereto, any information obtained under the pro- visions of this title, or allow any such person to inspect or have access to any return furnished under the provisions of this title. Sec. 310. Whoever violates any of the provi- sions of this title or the regulations made there- under, or who knowingly makes false statements in any return, or refuses to give such informa- tion as may be called for, is guilty of a mis- demeanor, and upon conviction shall, in addition to paying any tax to which he is liable, be fined not more than $10,000, or imprisoned not ex- ceeding one year, or both, in the discretion of the court. Sec. 311. All administrative, special, and gen- eral provisions of law, relating to the assessment and collection of taxes not specifically repealed, are hereby made to apply to this title so far as applicable and not inconsistent with its provi- sions. Sec. 312. The Commissioner of Internal Reve- nue, with the approval of the Secretary of the Treasury, shall make aU necessary regulations for carrying out the provisions of this title, and may require any person subject to such provi- sions to furnish him with further information whenever in his judgment the same is necessary to collect the tax provided for herein. EXCESS-PROFITS TAX 391 ACT OF MARCH 3, 1917 (39 STAT. L. 1000-1002, C. 159). An Act To provide increased revenue to defray the expenses of the increased appropriations for the Army and Navy and the extensions of fortifications, and for other purposes. Be it enacted by the Senate and House of Rep- resentatives of the United States of America in Congress assembled, TITLE II.— EXCESS PROFITS TAX. Sec. 200. That when used in this title — The term "corporation" includes joint-stock (companies or associations, and insurance com- • panics ; The term "United States" means only the States, the Territories of Alaska and Hawaii, and the District of Columbia ; and The term "taxable year" means the twelve months ending December thirty-first, except in the case of a corporation or partnership allowed to fix its own fiscal year, in which case it means such fiscal year. The first taxable year shall be the year ending December thirty-first, nine- teen hundred and seventeen. Sec. 201. That in addition to the taxes under existing laws there shall be levied, assessed, col- lected, and paid for each taxable year upon the net income of every corporation and partnership organized, authorized, or existing under the laws of the United States, or of any State, Territory, or District thereof, no matter how created or organized, excepting income derived from the business of life, health, and accident insurance combined in one policy issued on the weekly premium payment plan, a tax of eight per cen- tum of the amount by which such net income exceeds the sum of (a) $5,000 and (b) eight per centum of the actual capital invested. Every foreign corporation and partnership, including corporations and partnerships of the Philippine Islands and Porto Rico, shall pay for each taxable year a like tax upon the amount by which its net income received from all sources within the United States exceeds the sum of (a) eight per centum of the actual capital invested and used or employed in the business in the United States, and (b) that proportion of $5,000 which the entire actual capital invested and used or employed in the business in the United States bears to the entire actual capital invested ; and in case no such capital is used or employed in the business in the United States the tax shall be imposed upon that portion of such net in- come which is in excess of the sum of (a) eight per centum of that proportion of the entire ac- tual capital invested and used or employed in the business which the net income from sources within the United States bears to the entire net income, and (b) that proportion of $5,000 which the net income from sources within the United States bears to the entire net income. Sec. 202. That for the purpose of this title, actual capital invested means (1) actual cash paid in, (2) the actual cash value, at the time of payment, of assets other than cash paid in, and (3) paid in or earned surplus and undivided profits used or employed in the business; but does not include money or other property bor- rowed by the corpration or partnership. Sec. 203. That the tax herein imposed upon corporations and partnerships shall be computed upon the basis of the net income shown by their income tax returns under Title I of the Act entitled "An Act to increase the revenue, and for other purposes, ' ' approved September eighth, nineteen hundred and sixteen, or under this .title, and shall be assessed and collected at the same time and in the same manner as the in- come tax due under Title I of such Act of Sep- tember eighth, nineteen hundred and sixteen: Provided, That for the purpose of this title a partnership shall have the same privilege with reference to fixing its fiscal year as is accorded corporations under section thirteen (a) of Title I of such Act of September eighth, nineteen hundred and sixteen: And provided further. That where a corporation or partnership makes return prior to March first, nineteen hundred and eighteen, covering its own fiscal year and in- cludes therein any income received during the calendar year ending December thirty-first, nine- teen hundred and sixteen, the tax herein imposed shall be that proportion of the tax based upon such full fiscal year which the time from January first, nineteen hundred and seventeen, to the end of such fiscal year bears to the full fiscal year. Sec. 204. That corporations exempt from tax under the provisions of section eleven of Title I of the Act approved September eighth, nine- teen hundred and sixteen, and partnerships carrying on or doing the same business shall be exempt from the provisions of this- title, and the tax imposed by this title shall not attach to incomes of partnerships derived from agricul- ture or from personal services. Sec. 205. That every corporation having a net income of $5,000 or more for the taxable year making a return under Title I of such Act of September eighth, nineteen hundred and six- teen, shall for the purposes of this title include in such return a detailed statement of the actual capital invested. Every partnership having a net income of $5,000 or more for the taxable year shall render a correct return of the income of the partner- 392 FEDERAL INCOME TAX LAWS ship for the taxable year, setting forth specifi- cally the actual capital invested and the gross income for such year and the deductions herein- after allowed. Such returns shall be rendered at the same time and in the same manner and form as is prescribed for income-tax returns under Title I of such Act of September eighth, nineteen hundred and sixteen. In computing net income of a partnership for the purposes of this title there shall be allowed like deductions as are allowed to individuals in sections five (a) and six (a) of such Act of September eighth, nineteen hundred and sixteen. Sec. 206. That all administrative, special, and general provisions of law, including the laws in relation to the assessment, remission, collec- tion, and refund of internal-revenue taxes not heretofore specifically repealed and not incon- sistent with the provisions of this title are here- by extended and made applicable to all the pro- visions of this title and to the tax herein im- posed, and all provisions of Title I of such Act of September eighth, nineteen hundred and six- teen, relating to returns and payment of the tax therein imposed, including penalties, are hereby made applicable to the tax required by this title. Sec. 207. That the Commissioner of Internal Ee venue, with the approval of the Secretary of the Treasury, shall make all necessary regula- tions for carrying out the provisions of this title, and may require any corporation or partner- ship subject to the provisions of this title to fur- nish him with such facts, data, and information as in his judgment are necessary to collect the tax provided for in this title. Ketukns of Dividends. Sec. 402. That Title I of the Act entitled "An Act to increase the revenue, and for other pur- poses," approved September eighth, nineteen hundred and sixteen, be amended by adding to Part III a new section, as follows : "Sec. 26. Every corporation, joint-stock com- pany or association, or insurance company sub- ject to the tax herein imposed, when required by the Commissioner of Internal Revenue, shall render a correct return, duly verified under oath, of its payments of dividends, whether made in cash or its equivalent or in stock, including the names and addresses of stockholders and the number of shares owned by each, in such form and manner as may be prescribed by the Com- missioner of Internal Revenue, with the ap- proval of the Secretary of the Treasury." ACT OF NOVEMBER 23, 1921. Title XII. — Tax on Employment of Child Labor. Sec. 1200. That every person (other than a bona fide boys' or girls' canning club recognized by the Agricultural Department of a State and of the United States) operating (a) any mine or quarry situated in the United States in which children under the age of sixteen years have been employed or permitted to work during any por- tion of the taxable year; or (6) any mill, can- nery, workshop, factory, or manufacturing es- tablishment situated in the United States in which children under the age of fourteen years have been employed or permitted to work, or children between the ages of fourteen and six- teen have been employed or permitted to work more than eight hours in any day or more than six days in any week, or after the hour of seven o'clock post meridian, or before the hour of six o'clock ante meridian, during any portion of the taxable year, shall pay for each taxable year, in addition to all other taxes imposed by law (but in lieu of the tax imposed by section 1200 of the Revenue Act of 1918), an excise tax equivalent to 10 per centum of the entire net profits received or accrued for such year from the sale or disposition of the product of such mine, quarry, mill, cannery, workshop, factory, or manufacturing establishment. Sec. 1201. That in computing net profits un- der the provisions of this title, for the purpose of the tax there shall be allowed as deductions from the gross amount received or accrued for the taxable year from the sale or disposition of such products manufactured within the United States the following items: (a) The cost of raw materials entering into the production ; (&) Running expenses, including rentals, cost of repairs, and maintenance, heat, power, in- surance, management, and a reasonable allow- ance for salaries or other compensations for per- sonal services actually rendered, and for depre- ciation ; (c) Interest paid within the taxable year on debts or loans contracted to meet the needs of the business, and the proceeds of which have been actually used to meet such needs; (d) Taxes of all kinds paid during the tax- able year with respect to the business or prop- erty relating to the production ; and (e) Losses actually sustained within the tax- able year in connection with the business of pro- ducing such products, including losses from fire, flood, storm, or other casualties, and not com- pensated for by insurance or otherwise. Sec. 1202. That if any such person during any taxable year or part thereof, whether under any REVISED STATUTES OF THE UNITED STATES 393 agreement, arrangement, or understanding or otherwise, sells or disposes of any product of such mine, quarry, mill, cannery, workshop, fac- tory, or manufacturing establishment at less than the fair market price obtainable therefor either (a) in such manner as directly or indirectly to benefit such person or any person directly or indirectly interested in the business of such per- son; or (b) with intent to cause such benefit; the gross amount received or accrued for such year or part thereof from the sale or disposi- tion of such product shall be taken to be the amount which would have been received or ac- crued from the sale or disposition of such prod- uct if sold at the fair market price. Sec. 1203. (a) That no person subject to the provisions of this title shall be liable for the tax herein imposed if the only employment or per- mission to work which but for this section would subject him to the tax has been of a child as to whom such person has in good faith procured at the time of employing such child or permitting him to work, and has since in good faith relied upon and kept on file a certificate, issued in such form, under such conditions and by such persons as may be prescribed by a board con- sisting of the Secretary, the Commissioner, and the Secretary of Labor, showing the child to be of such age as not to subject such person to the tax imposed by this title. Any person who knowingly makes a false statement or presents false evidence in or in relation to any such cer- tificate or application therefor shall be punished by a fine of not less than $100, nbr more than $1,000, or by imprisonment for not more than three months, or by both such fiue and imprison- ment, in the discretion of the court. In any State designated by such board an employment certificate or other similar paper as to the age of the child, issued under the laws of that State, and not inconsistent with the pro- visions of this title, shall have the same force and effect as a certificate herein provided for. (b) The tax imposed by this title shall not be imposed in the case of any person who proves to the satisfaction of the Secretary that the only employment or permission to work which but for this section would subject him to the tax, has been of a child employed or permitted to work under a mistake of fact as to the age of such child, and without intention to evade the ^ tax. Sec. 1204. That on or before the first day of the third month following the close of each tax- able year, a true and accurate return under oath shall be made by each person subject to • the provisions of this title to the collector for the district in which such person has his principal office or place of business, in such form as the Commissioner, with the approval of the Secre- tary, shall prescribe, setting forth specifically the gross amount of income received or accrued during such year from the sale or disposition of the product of any mine, quarry, mill, cannery, workshop, factory, or manufacturing establish- ment, in which children have been employed subjecting him to the tax imposed by this title, and from the total thereof deducting the aggre- gate items of allowance authorized by this title, and such other particulars as to the gross re- "pipts and items of allowance as the Commis- sioner, with the approval of the Secretary, may require. Sec. 1205. That all such returns shall be trans- mitted forthwith by the collector to the Com- missioner, who shall, as soon as practicable, assess the tax found due and notify the person making such return of the amount of tax for which such person is liable, and such person shall pay the tax to the collector on or before thirty days from the date of such notice. Sec. 1206. That for the purposes of this Act the Commissioner, or any person duly authorized by him, shall have authority to enter and inspect at any time any mine, quarry, mill, cannery, workshop, factory, or manufacturing establish- ment. The Secretary of Labor, or any person duly authorized by him, shall, for the purpose of complying with a request of the Commis- sioner to make such an inspection, have like au- thority, and shall inake report to the Commis- sioner of inspections made under such authority in such form as may be prescribed by the Com- missioner with the approval of the Secretary of the Treasury. Any person who refuses or obstructs entry or inspection authorized by this section shall be punished by a fine of not more than $1,000, or by imprisonment for not more than one year, or both. Sec. 1207. That as used in this title the term "taxable year" shall have the same meaning as provided for the purposes of income tax in sec- tion 200. REVISED STATUTES OF THE UNITED STATES Sec. 3164. [As amended, reenacted without change hy Sec. 1311, Act of Nov. 23, 1921.] It shall be the duty of every collector of internal revenue jiiaving knowledge of any willful vio- lation of any law of the United States relating to the revenue, within thirty days after coming into possession of such knowledge, to file with the District Attorney of the district in which any fine, penalty, or forfeiture may be incurred, a statement of all the facts and circumstances of 394 FEDERAL INCOME TAX LAWS the ease within his knowledge, together with the names of the witnesses, setting forth the pro- visions of law believed to be so violated on which ■reliance may be had for condemnation or con- viction. Sec. 3165. [As amended, reenacted without change by Sec. 1311, Act of Nov. 23, 1921.] Every collector, deputy collector, internal-reve- nue agent, and internal-revenue officer assigned to duty under an internal-revenue agent, is au- thorized to administer oaths and to take evidence touching any part of the administration of the internal-revenue laws with which he is charged, or where such oaths and evidence are authorized by law or regulation authorized by law to be taken. Sec. 3166. Any officer of internal revenue may be specially authorized by the Commissioner of Internal Revenue to seize any property which may by law be subject to seizure, and for that purpose such officer shall have all the power conferred by law upon collectors ; and such spe- cial authority shall be limited in respect of time, place, and kind and class of property, as the Commissioner may specify Provided, That no collector shall be detailed or authorized to dis- charge any duty imposed by law upon any other collector. Sec. 3167. [As amended, reenacted without change hy Sec. 1311, Act of Nov. 23, 1921.] It shall be unlawful for any collector, deputy col- lector, agent, clerk, or other officer or employee of the United States to divulge or to make knoAvn in any manner whatever not provided by law to any person the operations, style of work, or apparatus of any manufacturer or producer visited by him in the discharge of his official duties, or the amount or source of income, prof- fits, losses, expenditures, or any particular there- of, set forth or disclosed in any income return, or to permit any income return or copy thereof or any book containing any abstract or particu- lars thereof to be seen or examined by any per- son except as provided by law; and it shall be unlawful for any person to print or publish in any manner whatever not provided by law any income return, or any part thereof or source of income, profits, losses, or expenditures appear- ing in any income return; and any offense against the foregoing provision shall be a mis- demeanor and be punished by a fine not exceed- ing $1,000 or by imprisonment not exceeding one year, or both, at the discretion of the court ; and if the offender be an officer or employee of the United States he shall be dismissed from of- fice or discharged from employment. Sec. 3172. [As amended, reenacted without change hy Sec. 1311, Act of Nov. 23, 1921.] Every collector shall, from time to time, cause his deputies to proceed through every part of his district and inquire after and concerning all persons therein who are liable to pay any inter- nal-revenue tax, and all persons oMming or hav- ing the care and management of any objects lia- ble to pay any tax, and to make a list of such persons and enumerate said objects. Sec. 3173. [As amended, reenacted without change by Sec. 1311, Act of Nov. 23, 1921.] It shall be the duty of any person, partnership,' firm, association, or corporation, made liable to any duty, special tax, or other tax imposed by law, when not otherwise provided for, (1) in case of a special tax, on or before the thirty-first day of July in each year, and (2) in other cases before the day on which the taxes accrue, to make a list or return, verified by oath, to the collector or a deputy collector of the district where located, of the articles or objects, includ- ing the quantity of goods, wares, and merchan- dise, made or sold and charged with a tax, the several rates and aggregate amount, according to the forms and regulations to be prescribed by the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, for which such person, partnership, firm, association, or corporation is liable: Provided, That if any person liable to pay any duty or tax, or owning, possessing, or having the care or management of property, goods, wares, and merchandise, article or objects liable to pay any duty, tax, or license, shall fail to make and exhibit a list or return required by law, but shall consent to disclose the particulars of any and all the property, goods, wares, and merchandise, articles, and objects liable to pay any duty or tax, or any business or occupation liable to pay any tax as afore- said, then, and in that case, it shall be the duty of the collector or deputy collector to make such list or return, which, being distinctly read, con- sented to, and signed and verified by oath by the person so owning, possessing, or having the care and management as aforesaid, may be re- ceived as the list of such person: Provided further, That in case no annual list or' return has been rendered by such person to the col- lector or deputy collector as required by law, and the person shall be absent from his or her residence or place of business at the time the collector or a deputy collector shall call for the annual list or return, it shall be the duty of such collector or deputy collector to leave at such place of residence or business, with some one of suitable age and discretion, if such be present, otherwise to deposit in the nearest post office, a note or memorandum addressed to such person, requiring him or her to render to such collector or deputy colector the list or return, required by law within ten days from the date of such note or memorandum, verified by oath. REVISED STATUTES OF THE UNITED STATES 395 And if any person, on being notified or required as aforesaid, shall refuse or neglect to render such list or return within the time required as aforesaid, or whenever any person who is re- quired to deliver a monthly or other return of objects subject to tax fails to do so at the time required, or delivers any return which, in the opinion of the collector, is erroneous, false, or fraudulent, or contains any undervaluation or understatement, or refuses to allow any regularly authorized Government officer to examine the books of such person, firm, or corporation, it shall be lawful for the collector to summon such per- son, or any other person having possession, cus- tody, or care of books of account containing entries relating to the business of such person or any other person he may deem proper, to appear before him and produce such books at a time and place named in the summons, and to give testimony or answer interrogatories, under oath, respecting any objects or income liable to tax or the returns thereof. The collector may summon any person residing or found within the State or Territory in which his district lies ; and when the person intended to be summoned does not reside and can not be found within such State or Territory, he may enter any collection district where such person may be found and there make the examination herein authorized. And to this end he may there exercise all the authority which he might lawfully exercise in the district for which he was commissioned: Provided, That "person, ' ' as used in this section, shall be construed to include any corporation. Joint-stock company or association, or insurance company when such construction is necessary to carry out its provisions. Sec. 3176. [As amended, reenacted without change iy Sec. 1311, Act of Nov. 23, 1921.] If any person, corporation, company, or associa- tion fails to make and- file a return or list at the time prescribed by law or by regulation made under authority of law, or makes, willfully or otherwise, a false or fraudulent return or list, the collector or deputy collector shall make the return or list from his own knowledge and from such information as he can obtain through tes- timony or otherwise. In any such case the Com- missioner may, from his own knowledge and from such information as he can obtain through testimony or otherwise, make a return or amend any return made by a collector or deputy col- lector. Any return or list so made and sub- scribed by the Commissioner, or by a collector or deputy collector and approved by the Com- missioner, shall be prima facie good and suffi- cient for all legal purposes. ^ If the failure to file a return or list is due to sickness or absence, the collector may allow such further time, not exceeding thirty days, for mak- ing and filing the return or list as he deems proper. The Commissioner of Internal Revenue shall determine and assess all taxes, other than stamp taxes, as to which returns or lists are so made under the provisions of this section. In case of any failure to make and file a return or list with- in the time prescribed by law, or prescribed by the Commissioner of Internal Revenue or the collector in pursuance of law, the Commissioner of Internal Revenue shall add to the tax 25 per centum of its amount, except that when a return is filed after such time and it is shown that the failure to file it was due to a reasonable cause and not to willful neglect, no such addition shall be made to the tax. In case a false or fraudu- lent return or list is willfully made, the Com- missioner of Internal Revenue shall add to the tax 50 per centum of its amount. The amount so added to any tax shall be col- lected at the same time and in the same manner and as part of the tax unless the tax has been paid before the discovery of the neglect, falsity, or fraud, in which case the amount so added shall be collected in the same manner as the tax. Sec. 3179. Whenever any person delivers or discloses to the collector or deputy any false or fraudulent list, return, account, or statement, with intent to defeat or evade the valuation, enumeration, or assessment intended to be made, or, being duly summoned to appear to testify, or to appear and produce such books as aforesaid, neglect to appear or to produce said books, he shall be fined not exceeding one thousand dol- lars, or be imprisoned not exceeding one year, or both, at the discretion of the court, with costs of prosecution. Sec. 3182. The Commissioner of Internal Rev- enue is hereby authorized and required to make the inquiries, determinations, and assessments of all taxes and penalties imposed by this Title, or accruing under any former internal-revenue act, where such taxes had not been duly paid by stamp at the time and in the manner provided by law, and shall certify a list of such assess- ments when made to the proper collectors re- spectively, who shall proceed to collect and ac- count for the taxes and penalties so certified. Whenever it is ascertained that any list which has been or shall be delivered to any .collector, is imperfect or incomplete in consequence of the omission of the name of any person liable to tax, or in consequence of any omission, or understate- ment, or undervaluation, or false or fraudulent statement contained in any return made by any person liable to tax, the Commissioner of Inter- nal Revenue may, at any time within fifteen months from the time of the delivery of the list to the collector as aforesaid, enter on any monthly 396 FEDERAL INCOME TAX LAWS or special list the name of such person so omitted, together with the amount of tax for which he may have been or shall become liable, and also the name of any such person in respect to whose return, as aforesaid, there has been or shall be any omission, undervaluation, understatement, or false or fraudulent statement, together with the amount for which such person may be liable, above the amount for which he may have been or shall be assessed upon any return made as aforesaid; and he shall certify and return such list to the collector as required by law. And all provisions of law for the ascertainment of lia- bility to any tax, or the assessment or collection thereof, shall be held to apply, so far as may be necessary, to the proceedings herein author- ized and directed. Sec. 3183. [Amended iy sec. 3, act of March 1, 1879 (20 Stat., 327) .] It shall be the duty of the collectors, or their deputies, in their respec- tive districts, and they are authorized, to collect all the taxes imposed by law, however the same may be designated. And every collector and deputy collector shall give receipts for all sums collected by him, excepting only when the same are in payment for stamps sold and delivered; but no collector or deputy collector shall issue a receipt in lieu of a stamp representing a tax. Sec. 3184. Where it is not otherwise provided, the collector shall in person or by deputy, within ten days after receiving any list of taxes from the Commissioner of Internal Eevenue, give no- tice to each person liable to pay any taxes stated therein, to be left at his dwelling or usual place of business, or to be sent by mail, stating the amount of such taxes and demanding payment thereof. If such person does not pay the taxes within ten days after the service or the sending by mail of such notice, it shall be the duty of the collector or his deputy to collect the said taxes with a penalty of five per centum addi- tional upon the amount of taxes, and interest at the rate of one per centum a month. Sec. 3186. lAmended by sec. 3, act of March 1, 1879 (20 Stat., 327) and act of March 4, 1913 (37 Stat., 1016).] If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the United States from the time when the assess- ment-list was received by the collector, except when otherwise provided, until paid, with the interest, penalties, and costs that may accrue in addition thereto, upon all property and rights to property belonging to such person: Provided however, That such lien shall not be valid as against any mortgages, purchaser, or judgment creditor until notice of such lien shall be filed by the collector in the ofSce of the clerk of the district court of the district within which the property subject to such lien is situated: Pro- vided further, Whenever any State by appro- priate legislation authorizes the filing of such notice in the office of the registrar or recorder of deeds of the counties of that State, or in the State of Louisiana in the parishes thereof, then such lien shall not be valid in that State as against any mortgagee, purchaser, or judgment creditor, until such notice shall be filed in the office of the registrar or recorder of deeds of the county or counties, or parish or parishes in the State of Louisiana, within which the property subject to the lien is situated. Sec. 3187. If any person liable to pay any taxes neglects or refuses to pay the same within ten days after notice and demand, it shall be lawful for the collector or his deputy to collect the said taxes, with five per centum additional thereto, and interest as aforesaid, by distraint and sale, in the manner hereafter provided, of the goods, chattels, or effects, including stocks, securities, and evidences of debt, of the person delinquent as aforesaid: Provided, That there shall be exempt from distraint and sale, if be- longing to the head of a family, the school-books and wearing apparel necessary for such family; also arms for personal use, one cow, two hogs, five sheep and the wool thereof, provided the aggregate majket-value .of said sheep shall not exceed fifty dollars ; the necessary food for such cows, hogs, and sheep, for a period not exceeding thirty days; fuel to an amount not greater in value than twenty-five dollars ; provisions to an amount not greater than fifty dollars ; household furniture kept for use to an amount not greater than three hundred dollars; and the books, tools, or implements, of a trade or profession, to an amount not greater than one hundred dollars shall also be exempt ; and the officer making the distraint shall summon three disinterested house- holders of the vicinity, who shall appraise and set apart to the owner the amount of property herein declared to be exempt. Sec. 3188. In such case of neglect or refusal, ■ •the collector may levy, or by warrant may au- thorize a deputy collector to levy, upon all prop- erty and rights to property, except such as are exempt by the preceding section, belonging to such person, or on which the said lien exists, for the payment of the sum due as aforesaid, with interest and penalty for non-payment, and also of such further sum as shall be sufficient for the fees, costs, and expenses of such levy. Sec. 3189. All persons, and officers of com- panies or corporations, are required, on demand of a collector or deputy collector about to dis- train or having distrained on any property, or rights of property, to exhibit all books contain- ing evidence or statements relating to the sub- REVISED STATUTES OF THE UNITED STATES 397 ject of distraint, or the property or rights of property liable to distraint for the tax due as aforesaid. Sec. 3190. When distraint is made, as afore- said, the officer charged with the collection shall make or cause to be made an account of the goods or effects distrained, a copy of which, signed by the officer making such distraint, shall be left with the owner or possessor of such goods or ef- fects, or at his dwelling or usual place of busi- ness, with some person of suitable age and dis- cretion, if any such can be found, with a note of the sum demanded, and the time and place of sale; and the said officer shall forthwith cause a notification to be published in some newspaper within the county wherein said distraint is made, if a newspaper is published in said county, or to be publicly posted at the post-office, if there be one within five miles, nearest to the residence of the person whose property shall be distrained, and in not less than two other public places. Such notice shall specify the articles distrained, and the time and place for the sale thereof. Such time shall not be less than ten nor more than twenty days from the date of such notification to the owner or possessor of the property and the publication or posting of such notice as here- in provided, and the place proposed for the sale shall not be more than five miles distant from the place of making such distraint. Said sale may be adjourned from time to time by said officer, if he deems it advisable, but not for a time to exceed in aU thirty days. Sec. 3191. When property subject to tax, but upon which the tax has not been paid, is seized upon distraint and sold, the amount of such tax shall, after deducting the expenses of such sale, be first appropriated out of the proceeds thereof to the payment of the tax. And if no assessment of such tax has been made upon such property, the collector shall make a return there- of in the form required by law, and the Commis- sioner of Internal Eevenue shair assess the tax thereon. Sec. 3192. When any property advertised for sale under distraint, as aforesaid, is of a kind subject to tax, and the tax has not been paid, and the amount bid for such property is not equal to the amount of the tax, the collector may purchase the same in behalf of the United States for an amount not exceeding the said tax. All property so purchased may be sold by the col- lector, under such regulations as may be pre- scribed by the Commissioner of Internal Rev- enue. The collector shall render to the Commis- sioner a distinct account of all charges incurred in such sales, and, in case of sale, shall pay into the Treasury the surplus, if any there be, after defraying all lawful charges and fees. Sec. 3193. In any case of distraint for the pay- ment of the taxes aforesaid, the goods, chattels, or effects so distrained shall be restored to the owner or possessor, if, prior to the sale, pay- ment of the amount due is made to the proper officer charged with the collection, together with the fees and other charges; but in case of non- payment as aforesaid, the said officer shall pro- ceed to sell the said goods, chattels, or effects at public auction, (and shall retain from the pro- ceeds of such sale the amount demandable for the use of the United States, and a commission of five per centum thereon for his own use, with the fees and charges for distraint and sale, ren- dering the overplus, if any there be, to the per- son who may be entitled to receive the same). Sec. 3194. In all cases of sale, as aforesaid, the certificate of such sale shall be prima facie evi- dence of the right of the officer to make such sale, and conclusive evidence of the regularity of his proceedings in making the sale, and shall transfer to the purchaser all right, title, and in- terest of such delinquent in and to the prop- erty sold; and where such property consists of stocks, said certificate shall be notice, when received, to any corporation, company, or as- sociation of said transfer, and shall be author- ity to such corporation, company, or association to record the same on their books, and records in the same manner as if transferred or assigned by the party holding the same, in lieu of any original or prior certificates, which shall be void, whether canceled or not. And said certificates, where the subject of sale is securities or other evidences of debt, shall be good and valid re- ceipts to the person holding the same, as against any person holding, or claiming to hold, posses- sion of such securities or other evidences of debt., Sec. 3195. When any property liable to dis- traint for taxes is not divisible, so as to enable the collector by a sale of part thereof to raise the whole amount of the tax, with all feosts, charges, and commissions, ' the whole of such property shall be sold, and the surplus of the proceeds of the sale, after satisfying the tax, costs, and charges, shaU be paid to the person legally enti- tled to receive the same; or, if he can not be found, or refuses to receive the same, shall be deposited in the Treasury of the United States, to be there held for his use until he makes appli- cation therefor to the Secretary of the Treasury, who, upon such application and satisfactory proofs in support thereof, shall, by warrant on the Treasury, cause the same to be paid to the applicant. j ' Sec. 3196. When goods, chattels, or effects sufficient to satisfy the taxes imposed upon any person are not found by the collector or deputy 398 FEDERAL INCOME TAX LAWS collector, he is authorized to collect the same by seizure and sale of real estate. Sec. 3197. [Amended by sec. 3, act of March 1, 1879 (20 Stat., 327).] The ofdcer makhig the seizure mentioned in the preceding section shall give notice to the person whose estate it is pro- posed to seU by giving him in hand, or leaving at his last or usual place of abode, if he has any such within the collection district where the said estate is situated, a notice, in writing, stating what particular estate is to be sold, describing the same with reasonable certainty, and the time when and place where said officer proposes to seU the same ; which time shall not be less than twenty nor more than forty days from the time of giving said notice. The said officer shall also cause a notification to the same effect to be published in some newspaper within the county where such seizure is made, if any such there be, and shall also cause a like notice to be posted at the post-office nearest to the estate seized, and in two other public places within the county; and the place of said sale shall not be more than five miles distant from the estate seized, except by special order of the Commissioner of Internal Revenue. At the time and place appointed, the officer making such seizure shall proceed to sell the said estate at public auction, offering the same at a minimum price, including the expense of making such levy, and all charges for adver- tising and an officer's fee of ten dollars. When the real estate so seized consists of several dis- tinct tracts or parcels, the officer making sale thereof shall offer each tract or parcel for sale separately, and shall, if he deem it advisable, ap- portion the expenses, charges, and fees afore- said to such several tracts or parcels, or to any of them, in estimating the minimum price afore- said. If no person offers for said estate the amount of said minimum price, the officer shall declare the same to be purchased by him for the United States; otherwise the same shall be de- clared to be sold to the highest bidder. And in case the same shall be declared to be purchased for the United States, the officer shall immediately transmit a certificate of the pur- chase to the Commissioner of Internal Revenue, and, at the proper time, as hereafter provided, shall execute a deed therefor, after its prepara- tion and the indorsement of approval as to its form by the United States district attorney for the district in which the property is situate, and shall without delay cause the same to be duly re- corded in the proper registry of deeds, and im- mediately thereafter shall transmit such deed to the Commissioner of Internal Revenue. And said sale may be adjourned from time to time by said officer for not exceeding thirty days in all, if he shall think it advisable so to do. If the amount bid shall not be then and there paid, the officer shall forthwith proceed to again sell said estate in the same manner. And it is hereby provided, That aU certificates of purchase, and deeds of property purchased by the United States under the internal-revenue laws, on sales for taxes, or under executions issued from United States courts, which now are, or hereafter may be, found in the office of any collector. United States marshal, or United States district attorney, shall be immediately transmitted by such officers respectively to the Commissioner of Internal Revenue. Sec. 3198. Upon any sale of real estate, as pro- vided in the preceding section, and the payment of the purchase money, the officer making the seizure and sale shall give to the purchaser a certificate of purchase, which shall set forth the real estate purchased, for whose taxes the same was sold, the name of the purchaser, and the price paid therefor; and if the said real estate be not redeemed in the manner and within the time hereafter provided, the said collector or deputy collector shall execute to the said pur- chaser, upon his surrender of said certificate, a deed of the real estate purchased by him as aforesaid, reciting the facts set forth in said cer- tificate, and in accordance with the laws of the i State in which such real estate is situate upon the subject of sales of real estate under execu- tion. Sec. 3199. The deed of sale given in pursuance of the preceding section shall be prima facie evi- dence of the facts therein stated ; and if the pro- ceedings of the officer as set forth have been sub- , stantially in accordance with the provisions of ■law, shall be considered and operate as a con- ! veyance of all the right, title, and interest the party delinquent had in and to the real estate thus sold at the time the lien of the United States attached thereto. Sec. 3200. Any collector or deputy collector may, for the collection of taxes imposed upon ; any person, and committed to him for collection, seize and sell the lands of such person situated ;in any other collection district within the State in which such officer resides; and his proceed- ings in relation thereto shall have the same effect as if the same were had in his proper collection district. Sec. 3201. Any person whose estate may be ; proceeded against as aforesaid shall have the right to pay the amount due, together with the costs and charges thereon, to the collector or deputy collector at any time prior to the sale thereof, and all further proceedings shall cease from the time of such payment. Sec. 3202. The owners of any real estate, sold as aforesaid, their heirs, executors, or adminis- REVISED STATUTES OF THE UNITED STATES 899 trators, or any person having any interest there- in, or a lien thereon, or any person in their be- half, shall be permitted to redeem the land sold, or any particular tract thereof, at any time within one year after the sale thereof, upon pay- ment to the purchaser, or, in ease he can not be found in the county in which the land to be re- deemed is situate, then to the collector of the district in which the land is situate, for the use of the purchaser, his heirs or assigns, the amount paid by the said purchaser and interest thereon at the rate of twenty per centum per annum. Sec. 3207. In any case where there has been a refusal or neglect to pay any tax, and it has be- come necessary to seize and sell real estate to satisfy the same, the Commissioner of Internal Eevenue may direct a bill in chancery to be filed, in a district (or circuit) court of the United States, to enforce the lien of the United States for tax upon any real estate, or to subject any 1 eal estate owned by the delinquent, or in which he has any right, title, or interest, to the pay- ment of such tax. All persons having liens upon or claiming any interest in the real estate sought to be subjected as aforesaid, shall be made par- ties to such proceedings, and be brought into court as provided in other suits in chancery therein. And the said court shall, at the term next after the parties have been duly notified of the proceedings, unless otherwise ordered by the court, proceed to adjudicate all matters involved therein, and finally determine the merits of all claims to and liens upon the real estate in ques- tion, and, in all cases where a claim or interest of the United States therein is established, shall decree a sale of such real estate, by the proper officer of the court, and a distribution of the proceeds of such sale according to the findings of the court in respect to the interests of the par- ties and of the United States. Sec. 3213. It shall be the duty of the collectors, in their respective districts, subject to the pro- visions of this title, to prosecute for the recovery of any sums which may be forfeited by law. All suits for fines, penalties, and forfeitures, where not otherwise provided for, shall be brought in the name of the United States, in any proper form of action, or by any appropriate form of proceeding, qui tam or otherwise, before any dis- trict court of the United States for the district within which said fine, penalty, or forfeiture may have been incurred, or before any other court of competent jurisdiction; and taxes may be sued for and recovered in the name of the United States, in any proper form of action, be- fore any circuit or district court of the United States for the district within which the liability to such tax is incurred, or where the party from whom such tax is due resides at the time of the commencement of the said action. Sec. 3214. No suit for the recovery of taxes, or of any fine, penalty, or forfeiture, shall be commenced unless the Commissioner of Internal Eevenue authorizes or sanctions the proceedings : Provided, That in case of any suit for penalties or forfeitures brought upon information received from any person, other than a collector or dep- uty collector, the United States shall not be sub- ject to any costs of suit. Sec. 3216. All judgments and moneys recov- ered or received for taxes, costs, forfeitures, and penalties, shall be paid to collectors as internal taxes are required to be paid. Sec. 3220.201 [As amended, reenacied with- out change by Sec. 1315, Act of Nov. 33, 1921.'] The Commissioner of Internal Eevenue, subject to regulations prescribed by the Secretary of the Treasury, is authorized to remit, refund, and pay back all taxes erroneously or illegally assessed or collected, all penalties collected without authority, and all taxes that appear to be unjustly assessed or excessive in amount, or in any manner wrongfully collected ; also to re- pay to any collector or deputy collector the full amount of such sums of money as may be recov- ered against him in any court, for any internal 201(a) When a corporation is entitled to recover taxes erroneously assessed and paid under Sec. 38, Act of 1909, it is also entitled to recover penalty and interest which it may have paid in connection there- with. Camp Bird, Ltd. v. Howbert (Col.), (C. C. A., Eighth Cir. 1919) 262 Fed. 114, Certiorari denied, (1920) 252 U. S. 579. 201(b) To recover taxes erroneously assessed and paid, the remedy is a suit against the collector who erroneously collected the taxes, and not against his successor in ofHce. The basis of the suit is as- sumpsit on an implied contract. The taxes involved were imposed by Sec. 38, Act of 1909. Phila. H. & P. R. Co. et al. v. Lederer (Col.), (D. C, E. D. Penn. 1917) 239 Fed. 184. 201(0) Authority to sue the collector to recover taxes erroneously assessed and paid is not exclusive, but the taxpayer may sue the United States directly. Suit for taxes paid under Sec. 38, Act of 1909. U. S. v. Emery, Bird, Thayer Realty Co., (1915) 237 U. S. 28, affirming Id., (D. C, W. D. Mo., W. D. 1912) 198 Fed. 242, 201 (d) Where a collector of internal revenue erro- neously assessed a taxpayer as an association and not as a trust as he should have done, in a suit by the taxpayer to recover the tax erroneously as- sessed, the collector may retain what he should have assessed against the taxpayer as a trust. Malley (Col.) V. Crocker, (1919) 249 U. S. 223. 400 FEDERAL INCOME TAX LAWS revenue taxes collected by him, with the cost and expenses of suit ; also all damages and costs re- covered against any assessor, asistant assessor, collector, deputy collector, agent, or inspector, in any suit brought against him by reason of anything , done in the due performance of his official duty, and shall make report to Congress at the beginning of each regular session of Con- gress of. all transactions under this section. Sec. 3224.203 No suit for the purpose of re- straining the assessment or collection of any. tax shall be maintained in any court. Sec. 3225.203 [^s amended, reenacted with- out change ly Sec. 1323, Act of Nov. 23, 1921.^ "When a second assessment is made in case of any list, statement, or return, which in the opinion of the collector or deputy collector was false or fraudulent, or contained any understatement or undervaluation, such assessment shall not be remitted, nor shall taxes collected under such assessment be refunded, or paid back, or recov- ered by any suit, unless it is proved that such list, statement, or return was not willfully false or fraudulent and did not contain any willful understatement or undervaluation. Sec. 3226.204 {Amended hy Sec. 1318, Act of Nov. 23, 1921.'] No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erro- neously or illegally assessed or collected, or of any penalty claimed to have been collected with- out authority, or of any sum alleged to have been excessive or in any manner wrongfuUy collected until a claim for refund or credit has been duly 202(a) Unless it appears clear beyond doubt that property seized or about to be seized to satisfy in- come taxes due is not liable therefor, the court will not interfere to restrain distraint and sale. Sec. 3224, R. S. Markle et al. v. Kirkendall (Col.), (D. C, M. D. Penn. 1920) 267 Fed. 498. 202(b) A suit in equity may be maintained by a beneficiary of a trust to enjoin the trustee from voluntarily making return and paying the tax im- posed by the Act of 1918. Weeks v. Sibley, (D. C, N. D. Texas 1920) 269 Fed. 155. 202(c) Receivers of corporations were not pro- hibited by Sec. 3224 R. S. from asking instructions from the court with respect to making returns of in- come of the insolvent corporations. Scott v. West- em Pacific Ry. Co., (C. C. A., Ninth Cir. 1917) 246 Fed. 545, affirming Equitable Trust Co. of N. Y. v. Western Pacific Ry. Co., (D. C, N. D. Cal., S. D. 1915) 236 Fed. 813. 202(d) Sec. 3224 R. S. does not prohibit a stock- holder from enjoining the corporation from volun- tarily paying the income tax imposed by the Act of 1913, on the ground of alleged unconstitutionality. Brushaber v. U. P. R, R. Co., (1916) 240 U. S. 1; Stanton v. Baltic Mining Co. et al., (1916) 240 U. S. 103. 202(e) Sec. 3224 R. S. prohibits the bringing of suit in any court to enjoin the collection of federal taxes. Suit arose under the Act of 1913. Dodge v. Osbom (Com.), (1916) 240 U. S. 118, affirming Id., (1915) 43 App. D. C. 144. 203 When a corporation proves that an understate- ment or undervaluation was made unintentionally. Sec. 3225 R. S. does not bar recovery. Howbert (Col.) V. Camp Bird Ltd., (1918) 248 U. S. 590, reversing Id., (C. C. A., Eighth Cir. 1918) 249 Fed. 27. 204(a) Sec. 3226 R. S. requires the filing of a claim for refund as a condition precedent to suit to recover taxes erroneously and illegally assessed and paid. Suit arose under the Act of 1913. Dodge v. Osbom (Com.), (1916) 240 IJ. S. 118, affirming Id., (1915) 43 App. D. C. 144. In Dodge v.,Brady (Col.), (1916) 240 U. S. 122, later proceedings in the above case, the Supreme Court, due to the exceptional cir- cumstances, held that there was no reversible error by the lower court in giving judgment against the taxpayer on the merits, where he sued to recover taxes paid, but made no allegation that a claim for refund had been filed. The questions on the merits were disposed of adversely to his contentions in Brushaber v. U. P. R. R. Co., (1916) 240 U. S. 1. Contra: Lormis (Col.) v. Wattles, (C. C. A,, Eighth Cir. 1920) 266 Fed. 876. In Black v. Bolen (Col.), (D. C, W. D. Okla. 1920) 268 Fed. 427, it was held that it was not necessary to file a claim for refund before bringing suit to recover taxes erro- neously and illegally assessed and paid, where the Commissioner in rejecting the claim for abate- ment told the taxpayer it would be unnecessary to file claim for refund. 204(b) The filing of a claim for refund with the Commissioner of Internal Revenue is a condition precedent to suit for recovery of taxes alleged to have been illegally assessed and collected. Sec. 3226. R. S., Public Service Ry. Co. v. Herold (CoL), (D. C, D. N. J. 1915). 219 Fed. 301; State Line & S. Ry. Co. v. Davis, (D. C, M. D. Penn. 1915) 228 Fed. 246; New York Mail & News Trans. Co. v. Ander- son (Col.), (C. C. A., Second Cir. 1916) 234 Fed. 590; Maryland Casualty Co. v. U. S., (1920) 251 U. S. 342; Rock Island, A. & L. R. R. v. U. S., (1920) U. S. , affirming Id., (1918) 54 Ct. CI. 22. This is true notwithstanding the, previous filing and rejection of a, claim for abatement in- volving the same questions which would be.ra' " by the claim for refund. REVISED STATUTES OF THE UNITED STATES 401 filed with the Commissioner of Internal Reve- nue, according to the provisions of law in that regard, and the regulations of the Secretary of the Treasury established in pursuance thereof. No such suit or proceeding shall be begun be- fore the expiration of six months from the date of filing such claim unless the Commissioner renders a decision thereon within that time, nor after the expiration of five years from the date of the payment of such tax, penalty, or sum. Sec. 3227.205 No suit or proceeding for the recovery of any internal tax alleged to have been erroneously or illegally assessed or collected, or of any penalty alleged to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully col- lected, shall be maintained in any court, unless the same is brought within two years next after the cause of action accrued: Provided, That actions for such claims which accrued prior to June 6, 1872, may be brought within one year from said date; and that where any such claim^ was pending before the Commissioner, as pro- vided in the preceding section, an action there- on may be brought within one year after such decision, and not after. But no right of action which was already barred by any statute on the said date shall be revived by this section. [The above section was repealed by Sec. 1319, Act of Nov. 23, 1921, which is as follows: "Sec. 1319. That section 3227 of the Revised Statutes is hereby repealed, but such repeal shall not affect any suit or proceeding instituted prior to the passage of this act."] Sec. 3228.206 [Amended ly Sec. 1316, Act of Nov. 23, 1921.'] All claims for the refunding cr crediting of any internal revenue tax alleged 1o have been erroneously or illegally assessed or collected, or of any penalty alleged to have been collected without authority, or of any sum al- leged to have been excessive or in any manner wrongfully collected, must be presented to the Commissioner of Internal Revenue within four years next after payment of such tax, penalty or sum. [This section, except as modified by section 252, shall apply retroactively to claims for re- fund under the Revenue Act of 1916, the Reve- nue Act of 1917, and the Revenue Act of 1918. {Sec. 1316, Act of Nov. 23, 1921.)] Sec. 3229.207 The Commissioner of Internal Revenue, with the advice and consent of the Secretary of the Treasury, may compromise any civil or criminal case arising under the Internal Revenue laws instead of commencing suit thereon ; and, with the advice and consent of the said Secretary and the recommendation of the Attorney General, he may compromise any such case after a suit thereon has been commenced. Whenever a compromise is made in any case there shall be placed on file in the ofSce of the Commissioner the opinion of the Solicitor of In ternal Revenue, or of the ofScer acting as such, with his reasons therefor, with a statement of the amount of the tax assessed, the amount of additional tax or penalty imposed by law in con- sequence of the neglect or delinquency of the person against whom the tax is assessed, and the amount actually paid in accordance with the terms of the compromise. 205(a) In a suit to recover taxes assessed and paid under Sec. 38, Act of 1909, it was held that when the terms of protest are understood and sufficiently ex- pressed to be brought to the notice of the govern- ment, suit can be brought to recover. Abrast Eealty Co. v. Maxwell, (D. C, E. D. N. Y. 1913) 206 Fed. 333. 206 (b) The objection by a taxpayer when the com- putation of taxes is made, followed by the filing of a claim for abatement, is sufficient protest to authorize the filing of a suit. Further protest when the tax is paid is unnecessary. Greenport Basin and Con. Co. et al. V. U. S., (D. C, E. D. N. Y. 1920) 269 Fed. 58. 205(c) The filing of an amended return does not permit the recovery of taxes paid under the original return, which are already barred by the statute of limitations. Maryland Casualty Co. v. U. S., (1920) 251 U. S. 342. 208 Sec. 3228 E. S. renders it necessary to file claim for refund within two years after the cause of action accrues. The cause of action accrues when the tax is paid. Public Service Co. v. Herold (Col.), (D. C, D. N. J. 1915) 219 Fed. 301; Public Service Gas Co. et al. v. Herold, (D. C, D. N. J. 1915) 227 Fed. 496; Public Service Ry. Co. v. Herold, (C. C. A., Third Cir. 1916) 229 Fed. 902; Maryland Casualty Co. v. U. S. (1920) 251 U. S. 342 [Sec. 3228, prior to amendment by the Act of 1921, required the claim for refund to be presented to the Commissioner "within two years next after the cause of action accrued."] 207 Where the Commissioner compromises a civ:l or criminal case under 3229 R. S., by the acceptance of the tax and penalty, and the promise of no fur- ther action, such compromise is a bar against crim- inal prosecution. Eau v. U. S., (C. C. A., Second Cir. 1919) 260 Fed. 130. 402 FEDERAL INCOME TAX LAWS CONSTITUTIONAL PROVISIONS APPLICABLE TO INCOME TAXATION Art. 1, Sec. 2, CI. 3 : " Representatives and di- rect taxes shall be apportioned among the sev- eral States which may be included within this Union, according to their respective numbers Art. 1, Sec. 8, 01. 1 : "The Congress shall have power to lay and collect taxes, duties, imposts, iind excises * * *; but all duties, imposts, and excises shall be uniform throughout the United States." Art. 1, Sec. 9, 01. 4: "No capitation or other direct tax shall be laid, unless in proportion to the census or enumeration hereinbefore directed to be taken. ' ' Art. 1, Sec. 9, 01. 5: "No tax or duty shall be laid on articles exported from any State. ' ' Amend. Art. 16: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration. ' ' INDEX TO SECTIONS ACT OF 1921 Sec. Page TITLE I— GENERAL DEFINITIONS 1 „ 2 2 (l)-(ll) - - 2, 4 TITLE II— INCOME TAX PART I— GENERAL PROVISIONS 200 (1) - (3 ) 6 (4) 8 (5) 6 201 (a) -(f) 8, 10, 12 202 (a) (l)-(3) 14 (b) (l)-(3) 16 (c) (l)-(3) 16, 18 (d) (l)-(3) 18, 20 (e) - (f ) 20, 22 203 22 204:'M-(d) ZIZZZZIIZZZIZZZ'Z 22724, 26 205 (a)-(c) 26, 28 206 (a) (l)-(6) 30, 32 (b)-(c) 32, 34 210 - 34 Sec. 234 (a) (b) 211 (a) (b) 212 (a)- 213 (a) (b) (c) 214 (a) (b) 215 (a) (b) 216 (a)- 217 (a) (b) (c) (d) 218 (a) 219 (a) (b) 220 221 (a) (b) (c)- 222 (a) (b) 223 (a) (b) (c) 224 225 (a) (b) 226 (a) 227 (a) 228 229 (1) (2) (c) PART II— INDIVIDUALS 36 44 50 56 „ 58 (l)-(7) 62, 64, 68 ( 8 ) - { 12 ) 70, 72 . _ 72 (l)-(9) -.. 72, 74, 76, 78 (10) -(12) 80, 82, 84 8S (i):(4r"iizzzizz:zi:zz 92, 94 94 (f) 94, 96, 98 (l)-(5) 100, 102 102 (i)-(5) 102, 104 (e) - 104, 106 (d) 110, 112 (l)-(4) ....._ 118, 120 (f) 120, 122, 124 126 128 134 130 142 144 146 -(e) (l)-(5) -(d) (l)-(3) ... -(2) : l^ 150 150 152 (l)-(5) (c) 152, 154 -(b) ■::= !*«' \f, ZZZ....- - 154 PART III— CORPORATIONS 230 (a)-(b) 156, 231 (l)-(6) .-• 168, (7) - (14) 172, 232 - - 233 (a) i ii [2] - - (b) 234 (a) (l)-(2) 176, (3)-(4) 182, (5) -(6) 158 170 174 174 174 192 160 178 184 192 (7) (8) (9)-(10) (11) (12) (13) (14) 235 236 (a) (b) (c) PAGE 186 194 186, 188 194 191 190 198 200 206 206 208 (i). (2) - 208 ^ ' ^ ' 210 237 238 "(a)-(f r -Zz::::: - 212, 214, 216 239 (a) .[_lj 218 'ZZZZZZZZZ. 230 (b) 240 (a)- 241 (a) 242 243 (1)- 244 (a) 245 (a) (b) 246 (a) (b) 247 (a) (b)- [1] [2] .(c) Ye) 230, 232, 234 .(b) zzz:::i::: 220 ^ ' 238 .(2)' 238 .(b) - 238, 240 (l)-(9) ZZ 240, 242, 244 .(c) 244, 246 (1) - (2) - 246 (l)-(7) 246, 248 (1) - (9) - ^ (c) 2o2 PART iV- 250 (a) [1] -ADMINISTRATIVE PROVISIONS [2] [3] 251 252 253 254 255 256 257. 258 259 260 261 262 263 (b) (c) (d) (e) (f) (g)-(h) (a) (l)-(3) 296, (b)-(c) 254 260 256 264 266 256 262 266 268, 270, 272 274 276 280 284 284 286 288 290 292 292 294 298 298 298 TITLE III— WAR-PROFITS AND EXCESS- PROFITS TAX FOR 1921 PART I— GENERAL DEFINITIONS 300 328 PART II— IMPOSITION OF TAX 301 (a) - 329 (b) (l)-(2) 330, 331 (c .' 331 302 331 303 - 332 304 (a) - (c) 333 305 - 334 312 PART III— EXCESS-PROFITS CREDIT 338 PART IV — NET INCOME 320 [1] - [2] 338 403 404 FEDERAL INCOME TAX LAWS Sec. Page part v— invested capital 325 (a) -(b) 340 326 (a) (l)-(5) 340, 341, 3^^ (b) - (d) „.... 343 327 (a) - (d) 3-45 328 (a) -(c) 346, 347 PART VI— REORGANIZATIONS 331 347 PART VII— MISCELLANEOUS 335 (a) - (b) - 350 336 351 337 351 338 .„ „ 352 TITLE XIII— GENERAL ADMINISTRATIVE PROVISIONS 1300 308 1303 [1] „ 312 1306 - 272 1307 310 Sec. 1308 1309 1310 (a)-(c) 1312 1313 1314 1320 Page 310 310 298, 300 320 320 312 320 1321 (a) - (b) .: 322 1322 322 1324 (a)-(b) 278, 280 1325 ; 272 1327 (a) (l)-(2) 312 (b) - (f ) 314 1329 „. _ 316 1331 (a) -(c) 236, 238 1332 (a) -(f) : 114, 116, 118 TITLE XIV— GENERAL PROVISIONS 1400 (a) -(b) 1403 1404 302, 304 306 353 ACT OF 1918 Sec. Page TITLE I— GENERAL DEFINITIONS 1 2 200. TITLE II— INCOME TAX PART I— GENERAL PROVISIONS 6 201 (a)-(e) 8, 10, 12 202 (a) (1) 16 (2) - 14 (b) 16 203 22 204 (a) -(c) ... 205 (a) -(c) 206 PART II— INDIVIDUALS 22, 24 26, 28 30 210 (a) -(b) 211 (a) .- (b) 212 (a) -(b) 213 (a) 34, 36 ...... 36 50 ...... 56 58 (b) (l)-(8) 62, 64, 68, 70 (c) 72 214 (a) (l)-(9) 72, 74, 76, 78 (10) -(12) - 80, 82, 86 (b) - 88 215 (a) -(d) 92, 94 216 (a) -(e) 94, 96, 98 217 106 218 (a) -(e) 110, 112 219 (a) (l)-(4) 118, 120 (b)-(d) 120, 122 220 126 221 (a) 128 (b) 134 (c) - (e) 130 222 (a) (l)-(4) 142 (b) -(c) - - 144 223 .-.. - — - 146 224 - - - ■:- 150 ooc ;.„„ 150 ^^^ 152 146, 148 154 226 227 (a) -(b) 228 Sec. part iii— corporations 230 (a) (l)-(2) (b) 231 (l)-(6) .(7)-(14) 232 233 (a) (b) (1) (2) 234 (a) (l)-(2) (b) (3) -(4) (5)- (6) (7) (8) (9)-(10) . (11) (12) ._ (13) 235 236 (a) -(c) 237 Page 156, 158 168 168, 170 172,174 174 174 190 192 160 176, 178 182, 184 192 186 194 186, 188 194 192 190 200 206 206, 208 210 238 (a) [l]-[2] 212 (b) - (c) 214 239 [1] 218 [2]-[3] 228, 230 240 (a)-(c) 230, 232, 234 241 (a) -(b) .' 220 PART IV— ADMINISTRATIVE PROVISIONS 250 (a) ri] [2] [3] :::; (b) - (c) 264 (d) (e) (f)-(g) 251 252 : 253 254 255 256 . 257 ..... 254 260 256 , 266 256 262 268 274 276 280 284 284 286 288 INDEX TO SECTIONS 405 Sec. 258 259 260 261 Page . 290 . 292 . 292 . 294 TITLE III— WAR-PROFITS AND EXCESS- PROFITS TAX PART I— GENERAL DEFINITIONS 300 .„ 328 PART II— IMPOSITION OF TAX 301 (a)-(b) 312 302 303 (c) (l)-(2) (d)-(e) .._ 304 (a)-(c) 305 310 311 (a) (l)-(2) PART III— CREDITS 329, 330 330, 331 331 . 331 ,. 332 333 334 329 334 (b) [l]-[3] 335 (c) (l)-(2) _ 336, 337 (d) 337 (e) ...._ ™ 334 338 PART IV— NET INCOME 320 (a) (l)-(3) .„ 338 (b) _ 339 PART V— INVESTED CAPITAL 825 (a)-(b) ....- 340 326 (a) (l)-(5) -..._ 340,341,342 Sec. I"*™ 326 (b)-(d) 345 327 (a) - (d) - 345 328 (a) -(c) ....- 346, 347 330 331 PART VI— REORGANIZATIONS 347 349 PART VII— MISCELLANEOUS 335 (a) -(c) 350, 351 336 351 337 - — 351 TITLE XIII— GENERAL ADMINISTRATIVE PROVISIONS 1301 (d) (l)-(4) - 312, 314 308 1305 1309 1313 1314 1318 1320 TITLE XIV— GENERAL PROVISIONS 1400 (a) 1402 1403 .... 1404 .. 1405 1408 „ 1409 (b) [1] [2] 312 272 272 298 316 302 304 296 306 306 306 306 306 353 Sec. ACT OF 1917 TITLE I— WAR INCOME TAX 2 „ 3 .. 4 5 Page 36 52 108 164 296 TITLE II— WAR EXCESS-PROFITS TAX 200 201 202 203 204 205 206 207 [1] - [2] (a)-(c) (a)-(d) [1] [2] (a)-(b) 334, "335, [1] [2] [3]-[4i - --[6J 208 209 210 211 212 213 214 [5]- [7] [l]-[3] 345, 328 329 333 333 335 336 347 336 338 340 343 341 342 343 349 344 346 352 352 352 353 TITLE X— ADMINISTRATIVE PROVISIONS 1001 - - - ^^^ 1003 1004 -•- - 1005 - - - ■- ■ 1008 ■ ~ - " — 312 280 312 272 Sec 1009 1010 .... Page . 254 . 272 TITLE XII— INCOME TAX AMENDMENTS 1200 [l]-[2] _.. 58, 60 1201 [1] ._ _ 74 [2] 82 1202 [1] 88 [2] 106 1203 ( 1 ) 96 (2) 1204 [1' [2; [3 1205 [1 [2: [3] [4: 1206 [1 [2- 1207 [1] -[5] 1208 1209 1210 1211 [2]- 106 150 110 140 128 134 292 138 156 166 178 204 210 282 284 :i]-[2] 284, 286 3] - ..- 208 4] — 68 5] - — -. 8 .6] _ „ _ 94 1212 — .„ 140 TITLE XIII— GENERAL PROVISIONS 1300. 306 1301 -. 302 1302 ZZ: 36i 406 FEDERAL INCOME TAX LAWS ACT OF 1916 Sec. 1 (a) TITLE I— INCOME TAX. PART I— ON INDIVIDUALS Page . . ; 35 (h) [1] 37 [2] 53 (c) 53 (a) tl] 59 [2] 9 (b) [l]-[4] 119, 121 (c) 17 : : J ; 127 [1] -[5] 63, 67 (a) First 73 Second .'. 75 Third 75 Fourth f 1] 77 [2] 17 Fifth 77 Sixth 79 Seventh 79 Eighfii 81 (b) - (c) 95, 97 ...... 89 93 97 ... 107 ... 147 ... 151 ... 141 ... Ill ... 149 57 ... 253 ... 129 .. 133 (a) (b) (a) (b) 8 (a)-(b) (c) (d) (e) (f) (g) 9 (a) (b) [1] [2] ' (c)-(e) (f) (g) 135, 137, 139 293 139 10 [1] PART II— ON CORPORATIONS 157 Sem. Page 11 (a) First-Sixth 169, 171 Seventh-Fourteenth „ 173, 175 (b) 69 12 (a) First 177 Second [l]-[4] 185, 187, 189 [5] - [6] 191 (b) (c) 13 (a) Third Fourth [7] [8] 193 191 179 183 201 191 217 (b) [1] 219 [2] 229 (c)- (d) ." 229, 231 (e) - (f ) 211 14 (a) [l]-[2] 255, 257 [3] 263 [4] 277 (b) 289 (c) [1] 283 [2] 261 PART, III— GENERAL ADMINISTRATIVE PROVISIONS 15 ... 17 .... 18 ... 19 .... 20 ... 21 . 22 . 23 .... 24 . 25 . [2]-[3] 163 900 902 . TITLE IX 3 275 283 155 299 291 305 295 303 175 307 327 Sec. ACT OF 1913 Page Sec. A Subdiv. 1 SECTION II 35 2 [1] [2] 37 53 [3] B [1] 127 59 11 12 [13 15 16' 17' C D [1] [2- [3 [4; [5] [2]-[3] 63 [4]-[5] 73 r6]-[7] 75 8] 77 9] - [10] 79 81 83 ■ [14] 95, 97 89 63 67 97 147 151 „ 141 :...... Ill 149 D 6] E 1 3 41 5 6 7 [8] [2] F G (a) (b) Page 155 253 129 133 135 137 293 139 : 283 157 [a]-[h] 169, 171, 173 69 177 179 a]-[d] 185, 187, 189 191 [e] If] [g] 193 , , .=. - 191 [4] - — 179 [5] 183 [6] fan -re] 201 [d]-[e] ._„ 203 [f] ■■■■■■■ ■■■■ ■ 205 INDEX TO SECTIONS 407 Sec. Page G (b) [6] [g] _ 207 [h] 191 (c) [l]-[2] 217, 219 3] -[7] - -. 221 223, 225 _8]-[ll] ..._ 227, 229 ;i2]-[13] 255, 257 14] 263 ( d) [1] 289 [2] 283 H 3 J - 275 Sec. Page K „ - 299 L - 305 M .._ 295 SECTION IV S [l]-[2] 303, 305 [3] 325 [4] 305 T 307 U 327 ACT OF 1909 Sec. Page CHAPTER 7 SECTION 38 FIRST [1] 157 2] [a]-[d] 169, 171 SEC0ND[l]-[2] 177, 179 3] [a] 185 [b] ;. 187 [c] 189 [4] 179 [5] _ 183 [6] 193 m [a]-[b] 201 [c] 203 [d] 205 Sec. Page SECOND [7][e]-[g] 207 THIRD [1 [2: [4] [9" 209 -[3] 217, 219 -[8] 221, 223 -[12] 227, 229 P^OURTH 311 FIFTH [1] 265 [2] -[3] _ 255, 257 [4] 263 SIXTH 289 SEVENTH 297 EIGHTH [1] - [2] 283 [3] 305 [4] 299 INDEX TO DECISIONS ACCOUNTING METHODS— Retroactivity of change in ACCRUAL BASIS OF ACCOUNTING— Retroactivity of change in ACCRUED INCOME— Taxability _ ALIEN— Income from property owned in the U. S. by nonresident. ALIMONY— Deductibility as expense Taxability as income « AMENDED RETURN— Penalty for false Statute of limitations against suit as affected by... AMORTIZATION— Bond discount... Bond premiums ARMY OFFICER— Taxability of income of... APPORTIONMENT— Direct taxes. APPRECIATION IN VALUE OF ASSETS- Eflect on income Effect on invested capital ASSOCIATION— Building and loan, exemption of. Corporation properly classified with... Organized independently of statute... Organized under statute Partnership distinguished from Trust distinguished from ASSESSMENT— Not prerequisite to suit by Government.. Prerequisite to attachment of lien B BAD DEBTS— Deductibility when charged off... BANKRUPTCY— Priority of federal taxes... Taxability of corporation in.. BANK— Taxability of dividends to national BENEFICIARY OF TRUST— Suit to restrain collection of tax by. BOND DISCOUNT— Deductibility ~ ~ BONDHOLDER— Taxability of interest to BONDS— Deductibility of depreciation on. Premiums on, amortization Footnote Page 21 21 103, 104 (a) 16 38 28 136 205 (c) 107 (c)-(d) 112 (c) 164 171, 173, 197 104 (o) 162 (d) 95 (a)-(c) 79 86 (b)-(c) 82 85 (a) 85 (b) 128, 187 187 105 (e) 12 (a) 81 (a) 166 202 (b) 107 (c)-(d) 169 180 112 (c) 56 56 176 35 72 59 280 401 179 187 369 367, 370, 380 177 341 170 156 158 158 158 158 264, 372 372 178 34 157 365 400 179 366 371 187 400 410 FEDERAL INCOME TAX LAWS BOOK ADJUSTMENTS— Effect on income when assets disposed of. Effect on income when assets not disposed of.,.., BUILDING AND LOAN ASSOCIATIONS— Exemption '. BUSINESS— Definition Transacted in U. S. by foreign corporation.. C CAPITAL— Definition Corporation employing. Partnership not employing. CAPITAL ASSETS— Income from sale of, taxability. Losses from sale of, deductibility. j... CAPITAL CONTRIBUTONS— . Release to corporation of debts due stockholders... CAPITAL EXPENDITURES— Deductibility i Taxability CARRYING ON BUSINESS- ■ Definition CASH BASIS OP ACCOUNTING— Retroactivity of change in CHARITABLE INSTITUTION— Taxability of income to trustee of. CHARITY— Contributions to, deductibility CITIZEN— Residing in Philippine Islands ;. CLAIM FOR REFUND— Not dependent upon proof of protest or duress... Prerequisite to suit.. Statute of limitations on.. COLLECTOR— Suit against, to recover tax... COLLECTION OP TAX— At source, constitutionality... Judgement against U. S., set off of taxes due. Lien, assessment prerequisite to attachment of Statute of limitations against summary procedure... Stockholder's bill to restrain Suit, assessment not prerequisite to .' Suit to enjoin COMMISSIONS— Accruing on policies written prior to Mar. 1, 1913, taxability of COMMUTATION— Taxability as income to army officer COMPENSATION PAID— Deductibility of, when fixed by board of directors... Deductibility, when on basis of stockholdings...., compromise- As bar to criminal prosecution. Footnote 104 (n),104 (p) 104 (o) 95 (a) -(c) 90 (o) 88 Page 163 (b) 163 (b) 163 (a) 10, 11, 104 (h)-(i), 189 110 177 177 170 161 159 844 344 344 t04 (q) 105 182 (g)- (b) 90 (P) 21 98, 99 105 (e) 13, 57 133 204 132, (a)- 206 (b) 201 (a)- (d) 60 170 187 127 202 187 198 (a)- (d) 202 (b) (a)-(e) 30 164 105 (d) 105 (b), 105 (d) 207 16,17,176,177,374 184 177 178 371 161 56 171 178 34, 142 276 400 276, 401 130 366 372 257 400 372 384, 400 59 359 178 178 401 INDEX TO DECISIONS 411 CONSTITUTION— Sixteenth amendment, effect of. - CONSTITUTIONALITY— Collection of tax at source. Delegation of authority to make rules and regulations... Direct tax, apportionment. Excise tax Interest, limitation on amount deductible Invested capital, limitations on Progressive rates Requirement for return of income Retroactivity of revenue law.. Tax measured by income from non-taxable property... Tax on income from foreign commerce Tax on income from realty or personalty when not apportioned ,. Tax on income to state municipality Tax on income from municipal bonds Uniformity Variations in deductions.. Withholding of tax of nonresidents.. CONSTRUCTION— Definition and taxability of expenditures for new.. CONTRACTOR— Prime, liability for munitions tax.. Sub-contractor, liability for munitions tax.. CONTRIBUTIONS— Capital Charity, deductibility ~, CORPORATION— , Bankrupt, taxability of trustee of. Capital contribution, release of debt by stockholder... Deductions, "running expenses" for munitions tax Dissolution to avoid tax Dividends, taxability "Doing business" Employing capital Excess-profits tax .. Income divided or undivided, taxability. Income, release of debt by stockholder....... Income, in case of reorganization and merger. Joint stock company and association, classified with Lessor, income .to, where dividends are paid by lessee directly to stockholders of. - Liability of stockholders for tax after liquidation Money advanced to subsidiary. No matter how created or organized. "Organized for profit" "Organized or treated," etc Public utility, taxability Receivership, taxability when in.. Required to file ' return COST— Interest on investment as part of CREDIT— Excess-profits tax, bracket deducted from.. CRIMINAL PROSECUTION— Compromise as bar to D DEBENTURE BONDS— Distinguished from stock dividends.. Interest paid on, deductibility. Taxability as dividends Footnote Pi WE 12 (b), 14, 15 34, 35 60 130 64 138 171, 173 367, 370 171 367 106, 107 (a) 179 162 (c) 341 18 36 121 (a) 218 20, 69, 195 52, 146, 379 91 161 33 61 197 380 186 372 197 380 77, 87, 89 (a). 89 (d) 156, 159, 159 37, 39, 50, 53, 111 72, 94. 97, 186 185 372 182 199 389 199 389 104 (q) 177 105 (e) 178 "^1 (a) 157 104 (q) 177 200 389 81 (b), 90 (e) 157, 160 168, 178 366, 371 83 (b),89 (c),90 (a)-{d). 158, 159, 160, 90 (f)-(n),104 (d),156 161, 176, 324 163 (b) 344 161 (a)-(b), 162 (a). 329, 341, 344 162 (c)-(d), 163 (a) -(b) 174, 181 370, 371 104 (q) 177 104 (r) 177 79 156 31, 104 (f) 60, 176 81 (c) 157 105 (i) 179 86 (a) 158 90 (j) 161 86 (a) 158 80, 104 (e) 157, 176 78. 83 (a) 156, 158 121 (b) 218 26 (a), 104 (k) 58, 177 161 (a) -(b) 329 207 401 8 (b) 8 108 180 8 (b) 8 371 412 FEDERAL INCOME TAX LAWS DEBTS— Bad, deductibility when charged off. Released to corporation by stockholders.. DEDUCTIONS— Alimony Amortization — Bond discount Bond premiums Bad debts charged off. Banks, interest on debenture bonds... Bond discount Bond premiums Capital expenditures Contributions to charity... Constitutionality of variations in.- Depletion, lessor and lessee Depreciation on book accounts and choses in action Depreciation does not include depletion „ Depreciation of railroad property... Depreciation of securities owned by insurance companies Improvements not permanent. Limitation on amount of interest deductible. Losses from sale of capital assets. Losses incurred in trade.. Footnote Money advanced to subsidiary corporation Not allowable if not claimed prior to suit Replacement of furniture and equipment. Reserves of insurance companies Running' expenses for munitions tax Salary fixed by board of directors Salary or compensation paid on basis of stock holdings.. "So-called" dividends of insurance companies Suit, deductions must be claimed before Taxes, federal estate Taxes, state ; Taxes, state legacy. _ Variations in, constitutionality. DEFINITION— "Business" "Capital" „_ "Carrying on business".., "Depreciation" "Doing business" _ "Engaged in business"., "False" "Fraudulent" "Income" "Maintenance" 'Mutual fire insurance company"... "New construction" "Private stockholder" "Railroad company" DELEGATION OF AUTHORITY— Constitutionality of. DEPLETION— Allowable between lessor and lessee... Not included in depreciation DEPRECIATION— Amortization of premiums on bonds... Book accounts and choses in action Depletion not included... _ Definition Railroad property - Securities owned by insurance companies... 105 (e) 104 (q) DIRECT TAX— Apportionment . 107 (c)-(d) 179 112 (c) 187 105 (e) 178 108 180 107 (c)-(d) 179 112 (c) 187 105 (g)-(h) 178 105 (e) 178 37, 39, 50, 53, 111 72, 94, 97, 186 46 80 180 371 112 (b) 186 112 (e) 187 112 (d) 187 105 (f) 178 107 (b), 107 (e) 179 110 184 44 (a) -(b) 76, 77 105 (i) 179 102 176 105 (a) 178 113 {a)-(b), 116 (a)-(c) 188, 189 200 389 105 (d) 178 105 (b), 105 (d) 178 114, 115 188, 189 102 176 42 74 109 (a) -(b) 182, 183 43 75 37, 39, 50, 53, 111 72, 94, 97, 186 90 (o) 161 163 (a) 344 90 (p) Ifil 45, 112 (a) 78, 186 90 (p) 161 90 (p) 161 125, 126 256 126 256 25 (b),26 (b),104 (b)-(c) 58, 176 105 (c) 178 117 190 182 371 97, 100 171 177, 192 371, 378 64 46 112 (b) 112 (c) 180 112 (b) 45, 112 (a) 112 (e) 112 (d) 171, 173, 197 Page 178 177 72 1:18 80 187 371 186 78, 186 187 187 367, 370, 380 INDEX TO DECISIONS 413 DISSOLUTION- By corporatioon to avoid tax. By joint stock company and creation of trust to lessen taxation _ DIVIDED OR UNDIVIDED INCOME— Taxability to corporation DIVIDENDS— Corporation taxable on if subject to laws of U. S.. Credited, but not set apart, taxability. Debenture bonds, taxable as Final liquidating, taxability. National bank, taxability to bank- Paid in stock of new corporation created from surplus of old Savings-banks, taxability to Scrip, taxability "So-called," of insurance companies excluded from gross income... Stock, taxability when declared from surplus accrued after Mar. 1, 1913 Stock, taxability when declared from surplus accrued prior to Mar. 1, 1913 Stock, taxability Taxability to controlling corporation in case of merger... Taxability to corporation.. Taxability when paid during January and February, 1913 Taxability to partners. Taxability when merely credited and not segregated... Taxability when paid from corporate earnings accrued prior to January 1, 1909 Taxability when paid from corporate earnings accrued prior to March 1, 1913 "DOING BUSINESS"— Definition Taxability of corporation.. DUE PROCESS OF LAW— Collection of tax at source Limitation in amount of deductible interest.. Progressive rates of tax Taking property without Variations in allowable deductions E EDUCATIONAL INSTITUTION— Exemption EMBEZZLED MONEY— Taxability to embezzler. ENGAGED IN BUSINESS— Definition ENTIRE NET INCOME— Taxability EQUITY— Bill in, to enjoin collection of tax... ESTATE TAXES— Deductibility of federal EXCESS-PROFITS TAX— Capital, corporation employing. Capital, definition Capital, partnership not employing.. Credit, bracket deducted from. Income of partnership Footnote 81 (b),90 (e) 68 174, 181 168 8 (c) 8 (b) 32 (d) 166 32 (g) 176 179 114, 115 9 32 (e) 104 (a), 184 32 (f) 178 32 (a) 57 8 (c) 104 (1) 8 (a), 32 (b) 90 (p) 83 (b),89 (c),90 (a)-(d), 90 (f)-(n), 104 (d),156 60 106, 107 (a) 18 91 37, 39, 50, 53, 111 96 25 (a), 27 90 (p) 89 (b) 198,202 (a) -(e) 42 163 (b) 163 (a) 163 (a) 161 (a)-(b) 160 Page 157, 160 118 370, 371 366 8 8 60 365 61 371 371 188, 189 9 61 176, 371 61 371 60 110 8 177 8,60 161 158, 159, 160, 161, 176, 324 130 179 36 161 72, 94, 97, 186 170 58, 59 161 159 384, 400 74 344 344 344 329 329 414 FEDERAL INCOME TAX LAWS Excess-Pbopits Tax — Continued Invested capital, appreciation in value of property Invested capital, constitutionality of limitations on... Invested capital of partnership — Invested capital, patents EXECUTOR— Return of, where testator died between March 1, 1913, and passage of Act of 1913 EXEMPTION— Building and loan associations Educational institutions _... Personal, limited to normal tax EXCISE TAX— ' Not subject to apportionment EXPENSES— Capital expenditures, deductibility Contributions to charity, deductibility. „ Improvements not permanent, deductibility. Money advanced to subsidiary corporation, deductibility Interest deductible under the act of 1909 Replacement of furniture and equipment, deductibility '. Salary fixed by board of directors, deductibility. Salary or compensation paid on basis of stockholdings, deductibility. FALSE— Amended return, penalty. Definition FEDERAL JUDGES— Taxability of salaries of. FINAL LIQUIDATING DIVIDEND— Taxability :... FOREIGN COMMERCE— Taxability of income from FOREIGN CORPORATION— Business transacted in U. S "Doing business" FRATERNAL BENEFICIAL SOCIETY— Nature of FRAUDULENT— Definition FURNITURE AND EQUIPMENT— Replacement of,' deduction as expense. ! H HAWAII— Joint stock company or partnership organized under law of..) IMPROVEMENTS— Not permanent, deductibility of expenditures for... INCOME— Accrued but not received, taxability. Alimony, taxability - - - ~. Appreciation of • assets, effect on.. Army officer, pay and commutation, taxability.. Book adjustments, effect on Capital assets, profit from sale of, taxability. Footnote 162 (d) 162 (c) 162 (b) 162 (a) 71 95 (a) -(c) 96 52 171 105 (g)-(h) 1.05 (e) 105 (f) 105 (i) 107 (b), 107 (e) 105 (a) 105 (d) 105 (b), 105 (d) 136 125, 126 23 32 (d) 33 88 90 (b), 90 (g) 94 126 105 (a) 84 105 (f) pAoe 103, 104 (a) 176 28 59 104 (0) 177 164 359 104 (n), 104 (p) 177 10, 11, 104 (h)-(i), 189 16,17,176,177,374 341 841 341 341 149 170 170 96 367 178 178 178 179 179 178 178 178 280 256 58 60 61 159 160, 161 168 266 178 158 178 INDEX TO DECISIONS 415 Income — Continued Commissions accruing on policies written prior to March 1, 1913, taxability.... Corporation, in case of reorganization and merger, taxability Corporation, release of debts by stockhd^^^^ taxability Definition Divided or undivided, taxability to corporation Dividends credited but not set apart, taxability. Debenture bonds, taxability Dividends paid from earnings accrued prior to Jan. 1, 1909, taxability...... Dividends paid during January and Februarv. 1913, taxability .'..._ Dividends paid from corporate earnings accrued prior to March 1, 1913 taxability Dividends, taxability to controlling corporation in case of merger. Entire net, taxability Federal judges, salaries of, taxability. Foreign commerce, taxability when derived from.. Interest received, taxability. Interest, taxability to bondholder Interest, taxability when paid in cash Legal tender, requirement that income be measured in... Lessor, when building is constructed by lessee... Lessor corporation, when dividends are paid directly by lessee... Liquidating dividend, taxability of final Money embezzled, taxability of. Municipal bonds, interest on, taxability. Nonresident alien, from property owned in U. Non-taxable property, as measure of....._ Outlawed obligations, taxability to debtor. Partners, taxability as to dividends Partnership, for excess-profits tax... Profits not received, because embezzled.. Realty or personalty taxability before Sixteenth Amendment Royalties, taxability to lessor... Salary account credited after Mar. 1, 1913, for overdraft prior to that date Scrip dividend, taxability. State municipality, taxability Stock dividends, taxability. Stock dividends declared from surplus accrued after March 1, 1913 Stock dividends declared from surplus accrued prior to March 1, 1913 Stockholder, liquidating dividend.. Stockholder on reorganization and issue of new stock - Stockholder, taxability on stock received from new corporation created from surplus of old... Stockholder, undivided profit of corporation Stock subscription right, sale of. Trust, created to lessen tax.. Trustee, when charitable institution is beneficiary... Validity of measure of income in legal tender. INCURRED IN TRADE— Losses INSURANCE COMPANIES— Deductibility of reserves by. Depreciation on securities owned by. "So-called" dividends excluded from gross income of... INTEREST— Bondholder, taxability to Deductibility of, limitation. _ „_ Funded in mortgage bonds, taxability Footnote 30 104 (r) 104 (q) 25 (b), 26 (b), 104 (b)-(c) 174, 181 8 (c) 8 (b) 104 (1) 32 (a) 8 (a), 32 (b) 32 (f) 61 89 (b) 159 23 58 33 61 104 (j) 177 169 366 167 366 188 3.73 26 (c) 58 31, 104 (f) 60, 176 32 (d) 60 25 (a) 58 197 380 16 35 89 (b) 159 104 (m) 177 57 110 160 329 27 59 197 380 104 (g) 176 29 59 179 371 186 372 104 (s), 184 177, 371 9 9 32 (e) 61 32 (d) 60 32 (c) 60 32 (g) 61 165 363 22 58 .■58 118 98. 99 171 188 373 44 (a) -(b) 76, 77 113 (a)-(b), 116 (a)-(c) 188, 189 112 (d) 187 114, 115 188, 189 169 366 107 (b),107 (e) 179 167 36fi Page 69 177 177 58, 176 370, 371 8 8 177 60 8, 60 416 FEDERAL INCOME TAX LAWS Interest — Continued Gross income, to include. „ - Limitation in amount deductible, constitutionality _. On debenture bonds, deductibility _ On investment as part of cost Paid in cash, taxability. Recoverable in suit. - Received, taxability ....; INVESTED CAPITAL— Appreciation in value of assets, effect on Limitations on, constitutionality Partnership, partner's property pledged for loan of... Patents _ JOINT STOCK COMPANY— Corporation and association classified with Dissolution and creation of trust to lessen taxation... Partnership organized under laws of Hawaii, taxability as JUDGES— Federal, taxability of salaries... State, taxability of salaries LEGAL TENDER— Validity of law requiring income to be measured in.. LESSEE — Depletion, allocation between lessor and LESSOR— Building constructed by lessee as income to Depletion, allocation between lessee and... Dividends paid directly by lessee to stockholders of lessor, as income to lessor. Royalties as income to „ LIEN FOR TAX— Assessment prerequisite to LIMITATION— Amount of interest deductible.. Invested capital Statute of — Claim for refund... Summary procedure Suit to recover tax erroneously paid.. LIQUIDATING DIVIDEND— Taxability of final LOSSES— Incurred in trade, deductibility... Resulting from sale of capital assets, deductibility... M MAINTENANCE— Definition MEASURE OF INCOME IN LEGAL TENDER— Validity of statute requiring MERGER— Income to corporation in case of.~...... — ™ MONEY— Advanced to subsidiary corporation, deductibility..- MUNICIPAL BONDS— Income derived from, taxability FOOTNOTK 104 (j) 106, 107 (a) 108 26 (a), 104 (k) 167 201 (a) 104 (j) 162 (d) 162 (c) 162 (b) 162 (a) 79 58 84 23 172 188 46 26 (c) 46 31, 104 (f) 104 (g) 187 106, 107 (a) 162 (c) 132, 206 127 (a)-(b) 205 (c) 32 (d) 44 (a) -(b) 110 105 (c) 188 104 (r) 105 (i) 197 Page 177 179 180 58, 177 366 399 177 341 341 341 341 156 118 158 58 367 373 80 58 80 60, 176 176 372 179 341 276, 401 257 401 60 76, 77 184 178 373 177 179 380 INDEX TO DECISIONS 417 MUNITIONS MANUFACTURERS' TAX— Persons subject to Running expenses MUTUAL FIRE INSURANCE COMPANY- Definition N NATIONAL BANK— Taxability of dividends to... NEW CONSTRUCTION— Definition NOMINAL CAPITAL— Corporation employing NONRESIDENT ALIEN— Income from property owned in U. S.. Withholding of tax of, validity. NON-TAXABLE PROPERTY— Tax measured by income from NORMAL TAX— Personal exemption limited to. NOTICE— Mailing of, presumptive receipt O OATH— Authority to administer OUTLAWED OBLIGATIONS— Income to debtor. ORGANIZATION— Change in form of to lessen tax _ ORGANIZED FOR PROFIT— Corporation organized- No matter how created or, as to corporations, etc.. P PARTNERS— Dividends, taxability to. - PARTNERSHIP— Association distinguished from Capital not employed by- Income for excess-profits tax- Partner's property pledged for loan of, as invested capital PATENTS— Invested capital PENALTY— For false "amended" return.. Recoverable in suit. PERSONALTY— Tax on income from, before Sixteenth Amendment... PERSONAL EXEMPTION— Limited to normal tax PHILIPPINE ISLANDS— Citizen of U. S. residing in _ PREMIUMS ON BONDS— Amortization of, as depreciation...... Footnote Page 199, 200 200 117 166 182 163 (b) 16 185 91 52 123 68 104 (m) 58 90 (j) 86 (a) 57 85 163 160 a) (a) 162 (b) 162 (a) 136 201 (a) 197 52 13, 67 112 (c) 389 389 190 365 371 344 35 372 161 96 254 146 177 118 161 158 110 158 '344 329 341 341 280 399 380 96 34, 142 187 418 FEDERAL INCOME TAX LAWS PRIVATE STOCKHOLDER— Definition PROFIT— Corporation organized for... Undistributed, taxability to savings banks... PROGRESSIVE RATES— Constitutionality PROPERTY— Income from non-taxable, as measure of tax... PROTEST— Prerequisite to suit to recover taxes paid PUBLIC UTILITY CORPORATION— Taxability of R RAILROAD COMPANY- Definition Depreciation RATES— Progressive, constitutionality REALTY— Tax on income from, before Sixteenth Amendment... RECEIVERS— Bill to enjoin collection RECEIVERSHIP— Corporation in, taxability of REFUND— Claim for, not dependent upon proof of protest or duress Claim for, effect on statute of limitations against suit... Claim for, prerequisite to suit Statute of limitations on claim for Suit, understatement of tax Suit for, protest on payment of tax Suit for, statute of limitations on Suit to recover. REGULATIONS— Delegation of authority to make, constitutionality.. REORGANIZATION— Income to corporation in case of REPLACEMENT— Furniture and equipment, deduction as expense RESERVES OF INSURANCE COMPANIES— Deductibility RETROACTIVITY— Change in accounting methods Revenue law, constitutionality... RETURN— Amended, effect upon statute of limitations. "Amended," penalty for false Corporation Executor, where testator dies between March 1, 1913, and passage of Act of 1913 Requirement for, constitutionality. Trustee, when beneficiary is undetermined Footnote 97, 100 90 (j) 175 18 89 (b) 205 (a) -(b) 80, 104 (e) 177, 192 112 (e) 18 197 Page 202 (c) 78, 83 (a i) 133 132 204 (a)-(b) 206 203 205 (a)-(b) 205 (c) 201 (a)-(d) 64 171 161 370 36 159 401 157, 176 371, 378 187 36 380 400 156, 158 276 276 400 401 400 401 401 399 138 104 (r) 177 105 (a) 178 113 (a)-(b),116 (a)-(c) 188, 189 21 20, 69, 195 56 52, 146, 379 205 (c) 136 121 (b) 401 280 218 71 121 (a) 70 149 218 148 INDEX TO DECISIONS ROYALTIES— Taxability to lessor RUNNING EXPENSES- Munitions tax SALARY— ^ Credited after March 1, 1913, for overdraft made prior to said date Deductibility when fixed by board of directors Deductibility when on basis of stock-holdings Federal judges, taxability. State judges, taxability Z~~'~'Z SAVINGS BANKS— Dividends, taxability to. Undistributed profits, taxability ioZZZZZIIIZ SCRIP DIVIDEND— Taxability SECURITIES— Depreciation on SIXTEENTH AMENDMENT— Effect of _ "SO-CALLED" DIVIDENDS— Excluded from gross income of insurance companies... SOCIETY— = Fraternal beneficial, nature of STATE— Income to, taxability. STATE JUDGES— Taxability of salaries of STATE MUNICIPALITY— Income to, taxability STATE TAXES— Deductibility STATUTE OF LIMITATIONS— Claim for refund _ Summary procedure Suit to recover taxes erroneously paid STOCK— Of another corporation paid as dividend, taxability... STOCK DIVIDENDS— Debenture bonds, distinguished from... Declared from surplus accrued prior to March 1, 1913.. Declared from surplus accrued after March 1, 1913 Taxability STOCKHOLDER— Bill by, to enjoin collection Dividends declared from surplus accrued prior to January 1, 1909, as income to Final liquidating dividend as income to Liquidating dividend, taxability '. Liability for tax after liquidation Private, definition _ Release by, of debts to corporation... Reorganization and issue of new stock, as income to.. Stock dividends as income to Stock in new corporation created from surplus of old as income to. Undivided profits of corporation as income to Footnote 104 (g) 200 29 105 (d) 105 (b), 105 (d) 23 172 176 175 179 112 (d) 12 (b), 14, 15 114, 115 94 186 172 186 43, 109 (a) -(b) 132, 206 127 (a) -(b) 205 (c) 32 (g) 419 Page 176 389 59 178 178 58 367 371 370 371 187 34, 35 188, 189 168 372 367 372 75, 182, 183 276, 401 257 401 61 8 (b) 32 (e) 9 104 (s). 184 202 (d) 104 (1) 32 (d) 32 (d) 81 (c) 97, 100 104 (q) 32 (c) 104 (s). 184 32 (g) 165, 181 8 61 9 177, 371 400 177 60 60 157 171 177 60 177, 371 61 363, 871 420 FEDERAL INCOME TAX LAWS STOCKHOLDINGS— Salaries paid on basis of STOCK SUBSCRIPTION RIGHT— Income from sale of. SUBCONTRACTOR— Liability for munitions tax SUBSIDIARY CORPORATION— Money advanced to, as deductible expense by parent corporation SUIT— Appeal to Commissioner prerequisite to.. Assessment not prerequisite to... Deductions must be claimed prior to.. Penalty recoverable in... Protest prerequisite to, to recover tax- Statute of limitations against. To enjoin collection of tax.. To recover taxes erroneously paid... Understatement of tax as bar to SUMMARY PROCEDURE— Statute of limitations against collection by. T TAXES— Dissolution by corporation to avoid Federal estate, deductibility of Federal, priority of in bankruptcy proceedings... Lien for, assessment prerequisite to. State, deductibility TRADE— Losses incurred in, deductibility... TRUST— Creation of, to lessen tax... Organized under common law, taxability of... Distinguished from association TRUSTEE— Bankrupt corporation, taxability of Income to, exempt when beneficiary is charitable institution Return, when beneficiary is undetermined... Testamentary, taxability of. U UNDERSTATEMENT OF INCOME— Bar to recovery by suit - UNDISTRIBUTED PROFITS— Taxability to corporation Taxability to savings banks _ UNDIVIDED PROFITS OP CORPORATION— Taxability to stockholder. UNIFORMITY— Required by constitution UNITED STATES— Suit against, for recovery of taxes erroneously paid... V VARIATIONS— In deductions, constitutionality. W WITHHOLDING TAX— Of nonresidents, validity. Footnote 105 (b),105 (d) 22 199 105 (i) 204 (a) -(b) 128, 187 102 201 (a) 205 (a)-(b) 205 (c) 198, 202 (a)-(e), 203 (a)-(c) 201 (a) -(d) 203 127 (a) -(b) 81 (b), 42 12 (a) 187 43, 109 90 (e) (a)-(b) 44 (a)- (b) 58 82 85 (b) 81 (a) 98,99 70 73 Page 178 58 389 179 400 264, 372 176 399 401 401 384, 400 399 400 267 157, 160 74 34 372 75, 182, 183 203 174, 175, 181 175 165 77, 87, 89 (a), 89 (d) 201 (a) -(c) 37, 39, 50 ,53, 111 185 76, 77 118 158 158 157 171 148 150 400 370, 371 370 363 156, 159 899 72, 94, 97, 186 372 INDEX TO ACTS A ABATEMENT— Page Claim in ^ ] ; 262 Loss in inventory or f rim rSatesII!II'ZI^I'IIII"ZI 86, 196 Not allowed in case of 30 days' notice of proposed assessment. 260 To stay penalty _ 262 ABSCONDING PERSONS— Assessment of tax, in case of design to defeat collection. 268 Security for payment of tax of, may be accepted by the commissioner _ 270 ABSENCE— Extending time for iiling return in case of 146 Of taxpayer, return may be made by agent 146, 218 ACCIDENT INSURANCE— Taxability of proceeds of policy of _. 68 ACCOUNTING METHODS— Income to be computed upon basis of. 56, 174, 230 ACCOUNTING PERIOD— Change of, may be authorized by commissioner 56, 152 Income to be computed upon basis of annual 56, 152 Returns required when changed _ 152 ACCRUAL BASIS— Of computing net income. _ _ 56, 174, 230 ACCUMULATED PROFITS OF CORPORATIONS— Definition 216 Taxable to corporation when intended to defeat surtax 126, 166 Taxable to stockholders when intended to defeat surtax 126 ACTION OR SUIT— Appeal to commissioner by taxpayer prerequisite to - -..- 400 Collector authorized to bring. 899 Compromise of, by commissioner , 401 Distraint to collect tax 268, 396 Jurisdiction of federal courts 298 Restraining assessment or collection prohibited , 400 Statute of limitations against — Collection of tax by government , 256, 258, 320 Criminal action by government against taxpayer 322 Recovery of tax by taxpayer _ _.... 401 ACTS OF CONGRESS— August 5, 1861 357 July 1, 1862 368 March 3, 1863 361 June 30, 1864 - 363 March 3, 1865 367 March 10, 1866 369 July 13, 1866 - 370 March 2, 1867 373 July 14, 1870 - 376 August 15, 1894 380 August 5, 1909, et seq 2 Munition Manufacturer's Tax (1916) 389 March 3, 1917 391 Repeal of - - 353 Child Labor Tax (1921) 392 Revised Statutes , 893 ADDITIONAL TAX— See Surtax. Income tax on corporations, imposed by Act of 1917 ~ _ 164 Normal tax on individuals, imposed by Act of 1917 - 36 Surtax on individuals, imposed by Act of 1917 52 421 ^22 FEDERAL INCOME TAX LAWS ADDITIONAL TAX—Continued PaoE Undistributed profits of corporation — Taxability to corporation, in case of attempt to evade surtax on stockholders _ 126 Accumulation for 6 months, Act bf 1917 _ 166 Taxability to stockholders in case of attempt to evade surtax _ 126 ADDITIONS AND BETTERMENTS— Amounts expended for, not deductible 82, 92, 190 ADMINISTRATION OF ESTATES— See Estates and Trusts. ADMINISTRATIVE PROVISIONS— See Abatment; Assessment; Collection; Credits; Information at Source; Payment of Taxes; Penalties; Returns. ADMINISTRATORS— See Estates and Trusts. Liability for payment of tax of estate 122 Responsibility for making return for estate _ 120, 150 ADMISSIBLE ASSETS— Definition _ 340 ADVISORY TAX BOARD— Creation, duties and powers of. 312 AFFILIATED CORPORATIONS— Consolidated returns _ 230 Definition 232 Excess-profits credits 232 Invested capital _ 230 Net income _ 230 Returns 230, 236 War-profits credits - 232 AFFIRMATION OR OATH— , " " Returns to be verified by. 146 150 218 ■ AGENTS— License to collect foreign items _ 292 Returns by, for principal _ ZIIZZ 146 218 Withholding, returns by. 'Z"''~Z~. ' 130 AGREEMENT BETWEEN COMMISSIONER AND TAXPAYER— That assessment and determination of tax be final 258 320 AGRICULTURAL ORGANIZATIONS— Exemption of Igg ALIENS— See Nonresident Aliens; Resident Aliens. ALLOCATION— Of stock dividends to surplus or earnings... 10 ALTERNATIVE TAX— On personal service corporations 114 AMORTIZATION— Cost, the basis for _ 7g 194 Deduction for, by corporations ' 194 Deduction for, by individuals „ _ 73 Period of time for which deductible „. .ZZZZl 78 194 ANNUAL ACCOUNTING PERIOD— Income to be computed upon basis of .._ 56 152 Change in, may be authorized by commissioner. ..._ 56| 152 APPEAL TO COMMISSIONER— Condition precedent to suit by taxpayer 4OO INDEX TO ACTS 423 APPORTIONMENT— Between lessor and lessee of depletion allowance.. Of income, when partly personal service corporation Of specific exemption for war- and excess-profits taxes.. Of taxes between parent and affiliated corporations ARMY AND NAVY— Exemption of soldiers' and sailors' compensation Exemption of salaries paid to persons in ASSESSMENT— Of absconding persons Commissioner to make Of excess-profits tax Of income tax... For local benefit, not deductible... Restraining', proliibited Page 82, 188 332 334 232 70 70 268 252, 320, 395 329, 345 252, 254 74, 182 400 256, 322 340 16, 347 Statute of limitations against _ _ ASSETS— See Capital Assets. Admissible and inadmissible for invested capital Valuation upon reorganization _ ASSIGNEE— Of taxpayer, return to be made by 150, 228 ASSOCIATIONS— Classified with corporations. 2 Definition _ .„ 2, 328 Exemption of certain classes of - 168 AUDIT— Of books of taxpayer may be made by collector 395 Of books of taxpayer may be made by commissioner. 310 Of returns of taxpayer to be made by commissioner 264 AUTHORITY TO MAKE REGULATIONS— Given the commissioner, subject to the approval of the secretary 312, 352 AVERAGE INVESTED CAPITAL— For prewar period 334, 337, 3'lf! For taxable year 343 B BAD DEBTS— Deductible, when charged off 78, 192 BANKS— Cooperative, exemption of. ..>. 168 Federal land, exemption of. 174 Mutual savings, exemption of. - 168 BASIS OF COMPUTING NET INCOME— Cash or accrual 56, 174, 230 In case of sale or exchange of capital assets 32 BASIS OF DETERMINING GAIN OR LOSS— From destruction of property. _ 78, 184 From sale or exchange of property — Acquired before March 1, 1913 16, 162 Acquired after March 1, 1913 14 Acquired by gift :. 14 Acquired by bequest, devise or inheritance. 14 Capital Assets. See Capital Assets. Held for investment .. -.. „. 18 Involuntarily or compulsorily converted .- 20 Subject to inventories — ,..-.. 14 Transferred to a corporation in return for stock 18 BENEFICIARIES— See Estates and Trusts. 424 FEDERAL INCOME TAX LAWS BENEFICIARY SOCIETIES— Page Exemption of 168 BEQUESTS— Not to be included in gross income... :...: 62 Treatment of loss or gain when property acquired by 14 BETTERMENTS— Amounts expended for, not deductible 82, 92, 190 BOARDS OF TRADE— Exemption of : ;.: ; 172 BOOKS OF TAXPAYER— District court may compel production of - 298 Examination of, by commissioner 310 By collector _ _ 895 BONDS— \ ' ' As tangible property 340 Issued under Federal Farm Loan Act, interest from, exempt 62 Issued by War Finance Corporation, interest from, exempt....... 64 As security for payment of tax 316 Penal 316 Tax-free covenant _ - 134 BORROWED CAPITAL— Definition _ 340 Not a part of invested capital - i 343 BROKERS— Information at the source by. 284 May be required to make returns of customers' transactions 284 BUILDING AND LOAN ASSOCIATIONS— Dividends paid by, exempt _ 70 Exemption of - - 170 BURDEN OF PROOF— In case of suit to recover taxes paid under second assessment. 400 BUSINESS— Definition 329 BUSINESS EXPENSES— Deductions for 72, 176 BUSINESS LEAGUES— Exemption of- 172 C CALENDAR YEAR— Basis of return 56, 216 CAPITAL— See Invested Capital. Nominal 344 CAPITAL ASSETS— Definition - 32 Determination of tax on income from sale or exchange of '. 32 CAPITAL DEDUCTIONS— Definition 30 CAPITAL EXPENDITURES— Not deductible 82, 92, 190 CAPITAL GAIN— Definition _ 30 CAPITAL LOSS— Definition - 30 INDEX TO ACTS 425 CAPITAL NET GAIN— Page Defmition _ __ 32 CAPITAL STOCK— See Stock. CARRIERS UNDER FEDERAL CONTROL— Income tax jgg Excess-profits tax .'.!..' ■-■—ZIZ^ZZZZZIIIIZIIZZIZZIZIIZZ. 331 CASH— Basis _ of computing net income ^ 56, 1Y4, 230 Paid in, as invested capital 341, 343 Value of tangible property paid in 341, 343 CASUALTY— Deduction of losses resulting from 78 CEMETERY COMPANIES— Exemption of 170 CERTIFICATES OF INDEBTEDNESS— As medium of payment of tax 272 CHAMBERS OF COMMERCE— Exemption of 172 CHANGE— In accoimting methods may be authorized by commissioner. 56, 152, 230 CHARITABLE CONTRIBUTIONS— Deduction of 82 CHARITABLE CORPORATIONS— Exemption of - 170 CHECKS— Uncertified, used in payment of tax 272 When given to pay tax and later dishonored 272 CHILD LABOR^ Excise tax on 392 CHILDREN— Credits for dependent - 98 CITIZENS— Credit for taxes - - - J^f Of Porto Rico or Philippine Islands - : - - ^a* Of possessions of United States — 292 Rate of normal tax - - ^* CIVIC LEAGUES— Exemption of " ■'•'^ CIVIL CASES— Compromise of, by commissioner , 401 CIVIL WAR ACTS— See Acts of Congress. CLAIM IN ABATEMENT— _ . , _....; (Mil Of taxes 262 Of penalties -■ ■■■ -■■■-■■ - " "■"■■• „^ ^^a Of loss in inventory or from rebates - - o"' ^^^ CLAIM FOR CREDIT- _ Of over-payment of taxes - ^^^ Prerequisite to .suit ; - ~ - Statute of limitations against - ^ '"' ^"^ 426 FEDERAL INCOME TAX LAWS CLAIM FOR REFUND— Page Of taxes and penalties erroneously paid....„.. .._ 276 Prerequisite to suit._ _ _ _.. _ 400 Statute of limitations against _ 276, 401 CLUBS— Exemption of - 172 COLLECTION— By collector 396 By distraint - 396 Of foreign items * 288, 292 Lien for impaid taxes,. 396 Limitation on time for — Assessment _ 256, 322 Collection by suit - 256, 258, 320 Notice by collector 262, 396 Restraining, prohibited ; 400 Seizure of property of taxpayer to enforce 394, 397 Suit by United States to enforce 256, 258, 320, 399 COLLECTION AT SOURCE— Income of nonresident aliens, tax on 128, 141 Penalty for failure to collect. 280 Return to be made by person withholding tax. 130 COLLECTORS— Authorized to administer oaths _ 394 Authorized to take evidence 394 Collect tax, duty to 396 Definition 4 Distraint for unpaid taxes. _ 396 Extension of time for filing return, in case of sickness _ 395 Notice of assessment to be given by. 262, 396 Payment of taxes to be made to. 262 Penalty for divulging information in returns _ ;. _ _ - 394 Records of taxpayer, authorized to examine. * 395 Required to give receipts when requested 274, 396 To ascertain persons subject to tax 394 Returns, authorized to make, when none submitted _ 154, 395 Revenue law, duty to report violation of. _ - _ 393 Seizure of property for collection of tax - __ 394 Suit by, to collect tax 399 Taxpayers may be examined by. 395 COMMISSIONER— Agreement between, and taxpayer as to final determination of tax liability 258, 320 Appeal to, by taxpayer in case of understatement in return ~Z^ZZIZZ ' 154 Appeal to, a condition precedent to suit to recover taxes paid " 400 Assessment of taxes by „ ' ..~'Z''I~~. 252, 320, 395 Authority to abate and refund taxes 276 399 Authority to compromise taxes and penalties 'ZZIZZ ' 401 Authority to make regulations " 312, 352 Consent to change of accounting methods. Z'ZZZIZ. 56, 174*, 230 Definition , ' ' 4 Examination of taxpayers' books„ „ Z~Z. 310 Taxpayers' return ...._ 264 Extension of time by, for filing returns. _ ' . "~ 145 220 260 Of time for payment of tax. ZZZZZ'. '260' 266 Findings not subject to review in certain cases ZZIZ'i ' 820 May require persons to make returns to determine tax liability. ' 3IO Regulations may be retroactive in certain cases _ „ "ZZZZ 812 Waiver of penalty for nonpayment in case of deceased, insane and insolvent personsZIIIII 262 COMPENSATION— Of federal employees and officers, taxability of. 5r Paid, deductibility as expense _ 72, 178 Received, taxability - _ ' 53 State officers or employees, taxability to "gg INDEX TO ACTS 427 COMPROMISE— Page Of suits by commissioner..,- - - — 401 Of penalties by commissioner 401 COMPULSORY CONVERSION— Of property, loss or gain from 20 Deductions in case of 84, 198 COMPUTATION OF NET INCOME— Of corporations for excess-profits tax 338 Of corporations for income tax 174 Of individuals for income tax 56 Of partnerships for income tax _ 110 Of personal service corporations for income tax 112 CONDITIONAL EXEMPTIONS— Of certain corporations 168 CONSENT OF COMMISSIONER— To change of accounting methods _ 56 152 To change of accounting period I'ZZIZ hS, 152 CONSOLIDATED RETURNS— Of corporations 230 Of corporations for year 1917. L1~.Z~ZZZZZZIIZZZZ. 236 CONSOLIDATION OF BUSINESSES— For excess-profits tax purposes 347 349 CONSTITUTIONAL LAW— Provisions of Federal Constitution applicable to income taxation 402 Saving clause ' '. " 306 CONTRACT WITH UNITED STATES MADE DURING WAR— Amortization in case of - ,. 78, 194 Definition „ 4 Excess-profits tax on income from _ 330 Filing copies of, with commissioner. _ 306 CONTRIBUTIONS— Deductibility .-. - _ 82 CONTROL OF CORPORATION— Definition - 18 COOPERATIVE ASSOCIATIONS— Exemption of - 172 COPIES OF GOVERNMENT CONTRACTS— To be filed with commissioner 306 CORPORATIONS— Accumulation of unreasonable profits, taxability. 126, 166 Additional income tax on, for 1917 164 Affiliated : 230 Apportionment of specific exemption for fractional year — 334 Assessments against — - 252, 320 Associations classified with - ~ 2 Calendar year, basis of computation of tax on 216 Conditional and other exemptions of 168 Consolidated returns 230 For year 1917.. 236 Control of, by persons. 18 Credits allowed - - 206,212,334,338 Deductions allowed ~ 176 Definition. - - • -..——" •• ™..<~ ".- — " — — — • — ———■••—• — - „„«»„__ .&, 0^8 Domestic, owning majority of stock in foreign corporation, credits for taxes... 214 Excess-profits tax. See Excess-Profits Tax. Excise tax on, imposed by Act of 1909 - - — - - > • . 157 Exempt for excess-profits tax 333 Exempt for income tax. - 168 Fiscal year, basis of computation of tax on 216, 350 428 FEDERAL INCOME TAX LAWS CORPORATIONS— CoMiOTwed Page Foreign, deductions allowed , 200 Gold mining, excess-profits tax on 333 Gross income, definition 174 Income tax on ._ 156, 238 Information at source by. „ ....„ _ 284, 286 Items not deductible by 206 Net income, definition • 174 Nonresident foreign, filing return of 218 Normal income tax of 156, 164 Notice to, and demand for payment of tax by collector. 262 Payment of income tax at source by. 128, 141, 210 Penalties for non-payment of tax by. - 280 Personal service, exemption of 174 Profits taxable to stockholders in certain cases _ 126 Rates of income tax on 158, 164 Returns, general 216 Of accumulated profits of 128 Apportionment of credits of, when return is made for fractional year 230 Assignees .__. 228 Consolidated '...... : 230 Of dividend payments 284 Extension of time for filing „ 220, 260 By foreign corporations - 218 By personal-service corporations -.... 218 Place for filing 220 By receivers 228 Time for filing _. 220 By trustees . 228 Transfer of property to, in exchange for stock, taxability of transaction _ 18 Transportation, under federal control — • 168, 33 1 Undistributed profits, additional tax on , _ -_ 126, 166 War-profits tax. See Excess-Profits Tax. COURTS— Jurisdiction of federal 298 CREDIT— Claim for, in case of over-payment of tax _ 276 CREDITS ALLOWED— Beneficiaries of trusts 97^ 124, 142 Corporations — For income taxes _ 206, 212 For war-profits taxes _ 334 For excess-profits taxes 333 Portion deductible from second bracket. 33I Dividends from tax-paying corporations _ 94, 192, 240 Domestic corporations 192, 206, 212 Estates and trusts 97, 124, 142 I'oreign corporations _ 206, 334, 338 Income, on which tax is paid at source gg Individuals "94^ 108, 124, 142 Nonresident alien individuals 94, 93, iqs, 132 Partners - llo[ 142 Personal exemption 9g jQg Alien nonresident, prerequisites to. II'Z'Z". ' 132 Date for determining status as to , ' gg Stockholders of personal-service corporations. ~II~'ZZ 112 Taxes paid — By corporations 208 212 Domestic, owning majority stock in foreign corporation .' ' gi 4 By estates and trusts ■■'"■■ -1^22 142 By individuals "" ' j^g By partnership "ZZZZ. 142 CRIMINAL CASES— Compromise of, by commissioner „ — ..; „ . . Statute of limitations against. "ZZZl 322 CRIMINAL LIABILITY— Of stockholder for divulging information in corporation return „„„ For making false or fraudulent return Z~Z. 266 282 INDEX TO ACTS 429 »EBTS- "" P^GE Worthless, deductible when charged oiT 78 192 Reserve for, when bad, deductibility .". _ _ _.. IZZZ 78,' 192 DECEASED PERSONS— Penalty_for delay in payment waived 262 DECEDENTS' ESTATES— See Estates and Trusts. DEDUCTING AND WITHHOLDING TAX AT SOURCE— See Collection at Source; Information at Source. DEDUCTIONS— Additions, expenditures for, not deductible 82, 92, 190 Amortization 78 194 Assessments for local benefits not deductible ZZ....Z1I~~Z~'ZZ'~Z~Z1 14, 182 Bad debts " 78 192 Betterments, expenditures for, not deductible Z..II~Z~III~~ZIIIZZZIZ~I. 82, 92^ 190 Business expenses 72, 176 Capital expenditures, not deductible 82, 92^ 190 Casualty, losses from _ ...„ „ 78 Compensation paid : """ _ 72, 178 Compulsory conversion of property. .! 84, 198 Contributions _ , 82 Corporations, allowance to 176 Depletion ""' [__ 80, 186 Depreciation ._ 78, 186 "Dividends," so-called, of insurance companies _ 188, 240, 248 Dividends from tax-paying corporations 192, 240 Estates and trusts, allowance to ._ _ 120 Estate taxes paid 74, 182 Excess-profits tax, credit for purpose of income tax 208 Excess-profits taxes paid, not deductible as expense 74, 182 Family expenses, not deductible. _ 72, 92 Fire, losses from _._ 78 Foreign corporatipns, allowance to 200 Gifts : 82 Improvements, expenditures for, not deductible 82, 92, 190 Income taxes paid, not deductible 74, 182 Individuals, allowance to. 72 Inheritance taxes - -._ 74, 182 Insurance companies, allowance to 188, 194, 240, 250 Interest paid - _ 74, 178 Inventory, loss in.... _.„ 86, 196 Legacy taxes paid 74, 182 Life insurance companies - -... 240 Life insurance premiums on employees, not deductible _ -. 94, 206 Living expenses, not deductible - 72, 92 Losses, general - -. 76, 184 Nonresident alien individuals, allowance to. - 88, 104, 106 Obsolescence - — - ■. _ 78, 186 Ordinary and necessary expenses -. 72, 17ri Personal and family expenses, not deductible - 72, 92 Personal services, compensation paid for — . 72, 178 Reserves of insurance companies - 188, 194, 240 Shipwreck, losses from - -.._ 78 Shrinkage in life or terminable interest. 94 State taxes paid ■. 74, 182 Stock or securities, losses from sale of - -...__ 76, 184 Succession taxes paid - 74, 182 Taxes paid 74, 182 Trusts, allowance to - •• — • 120 War-profits tax, credit for purpose of income tax - _ 208 War-profits taxes paid, not deductible. 74, 132 Worthless debts - _ 78, 192 DEFICIENCY IN TAX— Payment and penalty for. - — 264 430 FEDERAL INCOME TAX LAWS DEFINITIONS— Page "Accumulated profits" 216 "Admissible assets" 340 "Affiliated corporations" 232 "Associations" 2, 328 "Borrowed capital" 340 "Business" 329 "Capital assets" 32 "Capital gain" „ 30 "Capital loss" 30 "Capital deductions" 30 "Capital net gain" 32 "Collector" 4 "Commissioner" 4 "Control of corporation" 18 "Corporation" 2, 328 "Dividends" 8, 162, 328 "Domestic" 2, 328 "Fiduciary" 6 "Fiscal year" 6, 328 "Foreign" 2, 328 "Government contract" 4 "Gross income" 58, 174, 240, 246 "Inadmissible assets" 340 "Individuals" 2 "Insurance company" ' 238, 328 "Intangible property" 340 "Invested capital" 340 "Joint-stock companies" .-. _ 2, 328 "Life insurance company" 238 "Military forces" 4 "Naval forces" 4 "Net income" :. 56, 174, 240,246,329 "Net losses" , 22 "Ordinary net income" 32 "Paid" 8 "Paid or accrued" 8, 328 "Paid or incurred" 8 "Partnership" 2 "Person" , 2 "Personal-service corporation" 6, 328 "Present war" 6 "Prewar period" 329 "Reserve funds required by law" 240 "Revenue Act of 1921" 2 "Revenue Act of 1918" 306 "Revenue Act of 1917" 4, 306 "Revenue Act of 1916" 4, 306 "Secretary" 2 "State" 2 "Tangible property" 340 "Taxable year" 6, 328 "Taxpayer" „ 4 "Trade" ; 329 "United States" 2, 328 "Withholding agent" _ 6 DELAY— In filing return, penalty for 280, 395 In payment of tax, penalty for 262, 396 DEMAND— By collector for payment of tax 262, 396 DEPENDENTS— Credit for 98 DEPLETION— Apportionment between lessor and lessee 82, 188 Deduction 80, 186 Property acquired prior to March 1, 1913 80, 186 INDEX TO ACTS 431 DEPRECIATION- p^GE Amortization 70 104 Deduction IIIZIIZIIZZIZZZIIZ 78 Hq Property acquired prior to March 1, 1913 1..ZIZZZZZZ.ZZIZZII 78^ 186 DESTRUCTION OF PROPERTY— Basis for determining loss or gain 78, 184 DEVISE— Not included in gross income 62 Treatment of loss or gain from property acquired by 64 DISBURSEMENTS AND RECEIPTS— Basis of keeping accounts. 56, 174, 230 DISCLOSURE— Of income tax return of corporation by stockholder _ _ 290 Of income tax return by collector, penalty _ 394 DISCOVERY— Mine, oil or gas wells — Effect as to surtax. kq Effect as to excess-profits tax "Z.ZZ' ~ 35I DISHONORED CHECKS— Payment of tax with 272 DISTRAINT— Collection of tax by. 395 Property exempt from sale, in case of 396 Real estate subject to 397 DISTRIBUTIONS— Constituting taxable dividends 8 Not constituting taxable dividends ' 10 DISTRICT COURTS— Jurisdiction of 298 DISTRICT OF COLUMBIA— Taxability of interest on obligations of .„ 62 Income of, exempt _ 68 DIVIDENDS— Credits _ _ 94 Deduction by corporation receiving ..._ , _" 192 240 Definition _ 8, 162^ 328 Distributions — From earnings accrued prior to March 1, 1913 jO From earnings accrued after February 28, 1913 ."_ ' ' '" g Within first 60 days of taxable year ' j2 Subsequent to first 60 days of taxable year \ 12 Gross income includes _ 32, 148 Information at source as to 284 Nonresident alien individuals, taxability to 52, 94 Personal-service corporation, return of, as to 284 Presumption of taxability of - 8 Return of information at source as to 284 "So-called" of insurance companies, deductibility 188, 240 248 Stock dividends, taxability. ' iq Surtax on 52, 94 Tax-free distribution, from surplus accrued before March 1, 1913 „ _ 10 DOMESTIC CORPORATIONS— See Corporations. Credits 206, 212,334, 338 Definition - , 2, 328 Owning majority stock in foreign corporation 214 DONATIONS— To charity, deductibility ...._ 82 432 FEDERAL INCOME TAX LAWS EARNED SURPLUS— Page As invested capital 342 EDUCATIONAL CORPORATIONS— Exemption of ' 170 EFFECTIVE DATE— Income tax 298, 825, 353 Excess-profits tax 353 EMPLOYEES— Alien, information at source as to payments to 128, 284 Federal, taxability of salaries of. 58 Information at source as to payments to 128, 284 ENGAGED IN BUSINESS— Corporations and partnerships presumed to be , 333 ESTATE TAXES— Deductibility of 74, 182 ESTATES AND TRUSTS— Credits '.. 97, 124, 142 Deductions 120 Fiduciary defined 6 Liability for normal tax and surtax _ 118 Net losses, allowances for 24- Returns of 120, 150 Taxability of beneficiary. 122 Treatment as unit 122 Withholding tax at source 128 EVASION OF SURTAXES— By unreasonable accumulation of corporate profits 126, 166 EVIDENCE— Collector authorized to take _ _ 39 EXAMINATION— By collector of taxpayer „. _ 395 By commissioner — Of taxpayer's books _ 310 Of return of taxpayer. _ 264 Unnecessary, not permitted „ 310 EXCESS-PROFITS TAX— Abatement, claim for _ 262 Affiliated corporations - 230 Credits _.._ 230 Invested capital 230 Prewar net income. _ 232, 338, 347 Returns, consolidated , 230, 236 Allocation of net income to particular source. 332 Apportionment of specific exemption 334 Assessment 329, 345 Brackets 329 Capital, nominal 344 Computation of tax _.... 329 Consolidated return 230 Consolidations 347 Credil^ Excess-profits 338 Portion deductible from second bracket. 33 1 War-profits 334 Exempt corporations — 333 Fiscal year, different rates 350 Foreign corporations ■ 345 Gas wells, income from sale of 351 Gold mines, computation of tax 333 Government contracts, income from 33O Individuals, credit for war-profits tax 142 INDEX TO ACTS 433 EXCESS-PROFITS TAX— Continued PAGE Intangible property, definition 340 Invested capital. See Invested Capital. Limitation on amount of :. 331 Mmeral deposits, income from sale of .„.- 'ZZZ 351 Net income for the purpose of 338 Oil wells, income from sale of 351 Paid, deductibility 74, 182 Partnership, credit for war-profits tax paid jjy ' 112 Return, for purpose of, 1917 352 Personal service, computation of net income and invested capital when in part from...ZZ'.l.. 332 Prewar period — Average invested capital • 334, 337, 343 Definition '"'" ' 329 Net income '~~IIII~''IZIIIZ'IZ^'ZZZIIZ~~':ZI~Z 334, 337 Rates 329 Reorganizations " " 347 Returns for ZZZIZZZZZZZZ~ZZZZZZZZZZZZZZZZIZZZZZ'ZZ"ZZ 351, 352 Special assessment ^ 345 Special cases _ ZZZZ. 345 Specific exemption ZZZZ'. 334,338 Tangible property, definition . 340 Transportation system under federal control 331 EXCHANGE OF PROPERTY— Basis for determining gain or loss 16 EXCISE TAXES— Corporations under Act of 1909 _ 157 On income from child labor 392 On corporations for first two months of 1913 325 Munitions manufacturers tax 389 EXECUTOR— Liability for payment of tax 122 Returns by 120, 150 EXEMPTIONS— Accident insurance, amounts received from 68 Bequests - 62 Building and loan associations, dividends of. ' 70 Compensation of — Judges of federal courts __ 66 OflScers and employees of States 68 President of LTnited States .;.. -— 66 Corporations — For income tax ; « : 168 For excess-profits tax _ - 333 Devises _ - 62 Excess-profits tax 333, 334 Foreign governments, income of _ 68 Gifts - •. ' 62 Head of family ■. 96, 108 Health insurance, amounts received from 68 Interest — Federal land bank obligations ■. 62 Federal farm loan bank obligations -.....• ,..„ 62 Liberty bonds 62 State obligations -. 62 United States obligations - ■ 62 War Finance Corporation obligations •_ _ 64 Life insurance, proceeds of • •• 62 Military and naval forces, compensation received in 70 Minister of Gospel, rental value of dwelling. •._ 70 Nonresident alien individuals, prerequisite to personal •- 106 Income from vessels of foreign registry. • • 70 Pensions — ,.„ 70 Personal ■ - — ^ — 96, 108 Personal-service corporations „ v-.- ■ ■• 174 Possessions of the United States, income of 68 Premium, excess over cost of insurance .' '. 1.......'... 62 Property exempt from sale in case of distraint _.... 396 434 FEDERAL INCOME TAX LAWS EXEMPTIONS— CowtWMed Page Public utility, income from, accniing to United States, State, Territory, etc.- _ - 68 Shipowners' mutual associations, income of - - 72 Soldiers' and sailors' compensation „ _ 70 Specific, to corporations — For income tax 208 For excess-profits tax ...- - 338 For war-profits tax. 334, 338 States, income of. 68 Officers and employees, compensation of 68 Territories, income of. 68 Vocational rehabilitation, compensatioh and allowances — 70 War Risk Insurance, compensation and allotment. 70 Workmen's compensation insurance funds 68 EXHAUSTION OF PROPERTY— See Depreciation. EXPENSES— Betterments, not deductible 82, 92, 190 Business, deductibility 72, 176 Corporations 176 Estates and trusts 120 Family, not deductible - 72, 92 Improvements, not deductible _ 82,92,190 Individuals _ 72 Interest, deductibility _ 74, 178 Living, not deductible _ 72, 92 Nonresident alien individuals 88, 104, 106 Not deductible 72,92 Personal, not deductible 72, 92 Salaries paid, deductibility 72, 176 EXTENSION— Of existing statutes 304, 308, 352 Time for filing returns __ 148, 220, 260, 395 Of time for payment of tax 260, 266 EVASION OF SURTAX— Taxability of corporate profits in case of attempt at 126, 166 F FAILURE— To make return of income, penalty for. 130, 280, 395 To pay tax when due, penalty for _._ 262, 280, 396 To return information at source, penalty for 280, 395 FAIR MARKET VALUE— Of property on March 1, 1913 14, 16. 78, 186 FALSE RETURN— Penalty for making ™ - - 266, 282, 395 Understatement of income, penalty for. 154 FAMILY EXPENSES— Not deductible 72, 92 FARMERS' COOPERATIVE ASSOCIATIONS— Exemption of — 172 FEDERAL— Control, tax on transportation corporatiotts under _ 168, 331 Officers and employees, taxability of salaries 58 Taxes, deductibility — -... 74, 182 FEDERAL COURTS— Jurisdiction - 298 FEDERAL LAND BANKS— Exemption of 174 INDEX TO ACTS 435 FIDUCIARIES— Page Definition _ 6 Information at source by. -...- - 120, 150 Eetums by _. _ _ 120, 150, 228 Taxability in case of estates and trusts _...._ 118 FINAL DETERMINATION OF TAX LIABILITY— Agreement between taxpayer and commissioner 258, 320 FIRE— Deduction of losses occasioned by 78 FIRE INSURANCE COMPANIES— Mutual, exemption of 172 FISCAL YEAR— Basis of return 56, 216, 350 Definition 6, 328 Different rates of tax. ,26, 28, 30, 110, 350 Distributive share of partner 112 Partnership return 112 Privilege of fixing 56, 112, 216 Returns made on basis of, time for filing. 146, 220 FOREIGN CORPORATIONS— Computation of excess-profits tax 345 Credits 206, 334, 338 Deductions _ - ■. - 200 Definition _ -...- 2, 328 Gross income of. 160 Information at source as to foreign items - 288 Invested capital 344 Returns of 218 Information as to payments to 288 Withholding tax of, at source. - 210 FOREIGN GOVERNMENTS— Taxability .of income 68 FOREIGN ITEMS— Collection of 288, 292 License to collect required _ 292 Return of information of. 288 FOREIGN TAXES— Credits for ■-.- 142, 212 FRACTIONAL PART OF CENT— When to be disregarded - 272 FRACTIONAL PART OF YEAR— Return for 152, 230 FRATERNAL BENEFICIARY SOCIETIES— Exemption of - - - 1^8 FRAUDULENT RETURNS- Penalty for 266,282,395 FRUIT GROWERS' ASSOCIATIONS— Exemption of 172 G GAIN— See Basis for Determining Loss or Gain. GAS WELLS— Depletion --■■ ---;• - - -■- - — 80, 186 Excess-profits tax on sale of _ - - — . tfol Surtax on sale of ■• - 50 436 FEDERAL INCOME TAX LAWS GIFTS — Page Deduction of 82 Exemption from taxation 62 To charity, deductibility , _ 82 Loss or gain resulting from, treatment of. 14 GOLD MINING— Limit on amount of excess-profits tax - 333 Limit on amount of surtax _ _ 50 GOOD WILL— Invested capital _ 342 GOVERNMENT CONTRACTS- Definition 4 Excess-profits tax on income from 330 Filing of copies of, with commissioner _._ 306 GOVERNMENTS— Taxability of income to foreign _ 68 GROSS INCOME— Capital assets 32 Compensation for personal services 58 Deductions from. See Deductions. Defined 58, 174, 240, 246 Dividends 148 Exclusions _ 62 Foreign corporations - 160 Insurance companies _ ....._ 238, 246 Insurance policies, proceeds of, not a part of. _ 62 Life insurance companies - 238 Nonresident alien individuals _ 72 GUARDIANSHIPS— See Estates and Trusts. H HEAD OF FAMILY— Personal exemption of. 96, 108 HORTICULTURAL ORGANIZATIONS— Exemption of 168 HUSBAND AND WIFE— Personal exemption of. 96, 108 Returns by - 146 I IMPROVEMENTS— Deductions - - : 82,92,190 INADMISSIBLE ASSETS— Definition 340 INCOME— See Capital Assets; Net Income; Gross Income. Credit for, on which tax is paid at source _ 96 Exempt from law - 62 From sources within the possessions of the U. S — - 296 INCOME TAX— By individuals -. - 34 By corporations - - - 156, 164 Effective date of law 298, 325, 353 Paid, deductibility 74, 182 Possessions of United States, citizens of 292 INCOME TAX ACTS— See. Acts of Congress. INCORPORATION— Of individual or partnership business - : 18, 154 INDEX TO ACTS 437 INDEMNITY Page Bonds 316 INDIVIDUALS— Credits allowed 92, 94, 96, 108, 142 Deductions allowed "^2 Definition : - 2 Gross income of 58 Incorporating „ 154 Net income of. - - 56 Normal tax on 34, 36 Returns by _ . 146,339 ■Surtax _ 36 Additional for 1917 52 For 1922 and thereafter 44 War excess-profits tax for 1917 329 INFORMATION AT SOURCE— Brokers _ _ „ _ 284 Dividends paid 284 Fiduciaries - _ 120, 150 Foreign items _ 288 Interest paid 286 Partnerships - _ _ 110, 150 Payments made in excess of fixed amounts _ __ 286 Penalty for failure to make return of 280 Personal service corporations _ _ 284, 286 Withholding tax „ - 130, 280 inheritance- Loss or gain on property acquired by. 14 Not to be included in gross income - •. •• ..- 62 INHERITANCE TAXES— Deductibility 74, 182 INJUNCTION— Against collection of tax prohibited - 400 INSANE PERSONS— Penalty for delay in payment of tax waived - 262 INSOLVENT PERSONS— Penalty for delay in payment of tax waived - - .i 262 INSPECTION— Of books of taxpayer by commissioner - 310 Of returns of corporation by stockholders — - 290 Of returns, by state officers - 290 Of returns by commissioner - , - 264 INSTALLMENTS— Payment of tax by. 254 Postponement of - - - ■^''"' ''^^ INSURANCE COMPANIES— Deductions allowed ^^^' ^^*' 1^' IIr Definition - - - tWfe. Gross income of - - ^^' ^t Mutual, exemption - - ~ \\^ Reserves, deduction for .■■■ ..■■■■■■-- -- 1»8. 194, ^4U Premiums, deduction on refund to policyholders -. loo, ^w, Z4» Taxes on _ - 238, 246 INTANGIBLE PROPERTY— Definition - - - „.„ „.„ Paid in, as invested capital - •'*^' *^^^ INTEREST- Credits - - - - - -•• 96' 206 Deductions by— Corporations ■ - — ^'° Individuals - 74 438 FEDERAL INCOME TAX LAWS INTEREST— Confmwed Page Federal land bank, taxability of amount paid by .., 62 Gross income includes _ „ _ 58 Liberty bonds, taxability „ 62 National Farm Loan Association, taxability of amount paid by. 62 On refunds and judgments 278 Return of information as to amounts paid 286 State obligations, taxability of amount paid on 62 Taxes when not paid on due date, to bear 262, 396 United States obligations, taxability of 62 War Finance Corporation bonds, credits 64, 96 INVENTORY— Basis of determining loss or gain on property subject to 14 Commissioner may require 22 Losses, deduction for. _ 86, 196 Claim in abatement for _ 86, 196 INVESTED CAPITAL— Admissible assets - 340 Affiliated corporations 232 Apportionment when partly personal service business 332 Average, for prewar period 334, 337, 343 For taxable year 343 Borrowed capital not allowed as 343 Cash paid in as _ 341, 343 Computation of excess-profits tax 329 Consolidations, effect upon. — 347, 349 Definition 340 Foreign corporations ,. 3.44 Good will 342 Inadmissible assets ■ 340 Intangible property, definition - 340 Paid in -. 342, 343 Nominal capital 344 Patents 342 Percentage of inadmissible assets ■. 343 Prewar period ■. 334, 337, 343 Reorganizations •. 347, 349 Special assessments ■. 345 Surplus, paid in or earned 342 Tangible property, definition 340 Inadmissible assets 340 Mixture of tangible and intangible property. 345 Paid in - 341, 343 Value in excess of par value of stock 341 Undivided profits ' 342 INVOLUNTARY CONVERSION— Of property, loss or gain from 20 Deductions in case of. 84, 198 J JOINT EXEMPTIONS— Married persons 96, 108 JOINT RETURNS— Husband and wife 146 JOINT STOCK COMPANIES— Classified with corporations 2, 328 Definition 2, 328 JOINT STOCK LAND BANKS— Exemption of 174 JUDGES— Federal, salaries as taxable income — 68 JUDGMENTS— Interest on - .• ■- — — - 278 JURISDICTION— District Courts ~ 298 index to acts 439 Labor organizations— page Exemption of _...„... _... 168 LESSOR AND LESSEE— Apportionment of depletion allowance between 82, 188 LAWS— Extension of, for collection, etc 304 308, 852 Kevenue, prior to 1909. See Acts of Congress. LEGACY TAXES— Deductibility 74^ 182 LIBERTY BONDS— Deposit in lieu of surety bonds 3I6 Interest on, taxability [JJ~ZZIZIZ~ZZZ~1~ZZ. 62 LICENSE— Collection of foreign items 292 LIEN— For unpaid taxes 396 LIFE INSURANCE— Premiums paid on life of officer or employee of business' or corporation, deductibility. 94, 206 Premiums paid back to policyholders 188, 240, 248 Proceeds from, taxability. 62 Reserves, deductibility ' I88, 194, 240 LIFE INSURANCE COMPANIES— Deductions allowed 188, 240 Definition „ 238 Gross income 238 Net income 240 Reserve funds required by law, definition 240 Taxes on _ 238 LIFE INTEREST— Deduction for shrinkage in , 94 LIMITATION OF ACTIONS— Assessment of tax 266, 322 Claim for credit _ 276, 401 Claim for refund - 276, 401 Collection of taxes by government 256, 258, 320 Criminal suit by government 322 Recovery of taxes erroneously collected 401 LIMITATIONS— Excess-profits tax on income from sale of mines, etc 35I Maximum excess-profits tax - - - 331 Surtax on income from sale of mines, etc. , 50 LIVING EXPENSES— Deductibility 72, 92 LOAN ASSOCIATIONS— Exemption of - ... 170 LOCAL BENEFITS— Assessments in the nature of, deductibility. 74, 182 LODGES— Exemption of 168 LOSSES— See Basis for Determining Loss or Gain. Capital, definition 30 Casualty, deductibility _.. 78 Deductions for „ 76, 184 Exchange of property 16 Fire, deductibility „ 78 Inventories, claim in abatement for .7 86, 196 440 FEDERAL INCOME TAX LAWS LOSSES— Continued PAGE Net loisses 22 Nonresident alien individuals . 88 Obsolescence, deductibility - 78, 186 Shipwreck, deductibility _ „ - 78 Stock or securities _ . 76, 184 Storm, deductibility 78 Theft, deductibility 78- M MARCH 1, 1913— Basis for determining loss or gain — In case of property acquired before 16, 78, 162, 184 In case of property acquired after. 14, 78, 184 Basis for determining depreciation and obsolescence 78, 186 MARINE INSURANCE COMPANIES— Mutual, deductions allowed 192 MARKET VALUE— Assets as of March 1, 1913 14, 16, 78, 186 MARRIED PERSONS— Personal exemption 96, 108 MAXIMUM— Excess-profits tax 331 MEDIUM OF PAYMENT OF TAX— Certiiicates of indebtedness 272 Uncertified checks - 272 MILITARY FORCES— Definition , 4 MILITARY SERVICE— Exemption of compensation received in 70 MINES— Depletion .„ 80, 186 Excess-profits tax on profits derived from sale of _ - 351 Surtax on profits derived from sale of. _ - 50 MINISTER OF GOSPEL— Rental value of dwelling, exempt. 70 MUTUAL INSURANCE COMPANIES— Deductions 190 Exemption of 172 Reserves, deductions 188 MUNITIONS TAX— Act of Sept. 8, 1916 389 MUTUAL SAVINGS BANKS— Exemption of _ 168 N NATIONAL FARM LOAN ASSOCIATIONS— Exemption of 174 Taxability of income received from 62 NAVAL FORCES— Definition NAVAL SERVICE— Exemption of compensation received in 70 NEGLIGENCE— In making return 280 In paying tax when due 262, 280 Understatements in return _.; . 154 INDEX TO ACTS 441 NET INCOME— PAGE Average for prewar period 334, 337, 339 Basis for determining loss or gain 14, 16, 78, 184 Capital assets, sale of 32 Computed on basis of annual accounting period 56, 174 Defined 56, 174, 240, 246, 329 Excess-profits tax 338 Income 56, 174 Individuals _ 56 Insurance companies 240, 246 Life insurance companies 240 Nonresident aliens 100, 106 Ordinary, definition 32 Partnerships 110 Personal service corporations 112 Subject to rates for different years .26, 28, 30, 112, 350 War-profits tax _ 338 NET LOSSES— Allowance 24 Definition '_ 22 NOMINAL CAPITAL— War excess-profits taxes 344 NONRESIDENT ALIENS— Credits allowed 94 Prerequisite to 106, 132 Deductions 88, 104 Prerequisite to 106 Gross income 72 Determination of amount from sources within the U. S 100 Determination of amount from sources without the U. S - 102 Exemption of income from vessels of foreign registry. 70 Information at the source as to payments to - 128, 284 Net income of 100, 106 Personal exemption, claim for 98, 106, 132 Rate of normal tax 34 Return of 106 Surtax on dividends 52, 94 Withholding tax at source 128, 141 NONRESIDENT FOREIGN CORPORATIONS— Filing return, 218 Withholding at the source, payments made to - 210 NORMAL TAX— Individuals - 34 Additional for 1917 36 Corporations 156 Additional for 1917 164 NOTES— Invested capital 340 NOTICE— By collector to pay tax 262, 396 Thirty days' notice to taxpayer prior to assessment. 260 Instructions on return notice of due date of first installment 262 O OATH— Collector to administer 394 OBSOLESCENCE— Deduction for ..- - II' lit Determination in case of property acquired prior to March 1, 1913 - 78, 18b OIL WELLS— Depletion _ - -....- - 80, 186 Excess-profits tax on sale of _ 351 Surtax on sale of 50 442 FEDERAL INCOME TAX LAWS ORDINARY AND NECESSARY EXPENSES— Page Corporations, deductibility - 1'^^ Individuals, deductibility _. ™ ORDINARY NET INCOME— Definition _ „ - 32 P PAID— Definition - 8 PAID OR ACCRUED— Definition 8, 328 PAID OR INCURRED— Definition _ 8 PAID-IN SURPLUS— Included in invested capital _ 342 PARTNERSHIPS— Computation of net income of 110 Constructive receipt of distributive shares by partners 110 Credits of partners 110 Credits to partners for taxes paid 112, 142 Definition ' Incorporating and transferring assets to corporation - 18 Information at source 110> 150 Net income and invested capital of corporation, predecessor a partnership 347 Net losses allowed - - 24 Option as to taxation on incorporation - 154 Bates for different years, parts of income subject to 110 Returns 150 Returns for war excess-profits tax of 1917 339, 352 Taxability of partners 110, 329 PATENTS— Classified as intangible property. 340 Invested capital 342 PAYMENT OF TAXES— Assessment 252, 320, 395 At source 128, 141, 210 Checks, uncertified, used in 272 Certificates of indebtedness as medium of ^72 Compromise 401 Delay in, penalty„ 262, 280, 396 Interest on 396 Demand for, by collector. 262, 396 Dishonored checks, given in payment for 272 Distraint, by collector 396 Estates and trusts _ 118 Extension of time for 260, 266 Evidence of design to evade. 268 Fractional part of cent 272 Installments - - 254 Postponement of 260, 262 Lien for 396 Notice and demand for. _ 260, 262, 396 Penalty for nonpayment 262, 280, 396 Real estate subject to seizure and sale 397 Receipt for 274, 396 Refunds. See Refunds. | . , Time for- ~ - .- 252, 254 Uncertified checks, given in payment for. 272 PENAL BONDS— To be given in certain cases _ 816 May consist of U. S. bonds as collateral , . 316 PENALTY— Collection of foreign items, without license — — — - 292 Compromise of - - 401 INDEX TO ACTS 443 PENALTY— Cemtrnwed-... p^gg Deficiency in returns. _ _ «« j Delay in— ~ " - ^^* Filing return ..„„_ _ _ 280 395 Payment of tax """ " ~ " " 262 280' 396 Di^osure of corporation retiims bf "^ocSoideMliriZIIIIirZri; 77"'. '■'" ' ' 290 Of information, by collector™ 394 Failure or refusal to file returns 280 ^c,'i Failure or refusal to pay tax Zi::::::::::::::. il2', 280 If alse returns o^- „o„' oqc; Si^p^^'toftax ::::;::::::::::::;::::z::::::::::::::::::::::::::::::::::^ Refusal to produce books and records 395 Kefund of, by commissioner. 399 Understatement in return I54 PENSIONS— Exempt from income tax 70 PERSON— Definition 2 PERSONAL EXEMPTION— Credit for purpose of normal tax 96 Credit for purpose of additional normal tax of 1917 108 Nonresident alien, prerequisite to 132 PERSONAL EXPENSES— Deductibility of 72, 92 PERSONAL INJURIES— Insurance or damages received for, taxability. 68 PERSONAL SERVICE— See Compensation. Compensation paid for, deductibility 72, 178 Computation of net income and invested capital when part of income of corporation is from _ 332 PERSONAL SERVICE CORPORATIONS— Alternative tax on _ 114 Constructive receipt of distributive shares 112 Credits allowed stockholders ; 112 Definition _ 6, 328 Dividends paid by _ 284 Exempt from excess-profits tax 333 Exempt from income tax 174 Net income, computation 112 Net income, allocation, when partly from personal service 332 Return by 218, 284 Taxable to stockholders as partners 112 PHILIPPINE ISLANDS— Income tax law of ,. 294 Income of, exempt 68 PLACE— For filing returns 146, 220 POLITICAL SUBDIVISIONS— Employees and oificers of, taxability of compensation received by 68 Exemption of income of...... - 68 Interest upon obligations of, taxability. 62 Of foreign governments, taxability of income to 68 Profit from contract with, as taxable income 68 PORTO RICO— Income tax law of. _ 294 Income of, exempt _ - 68 POSSESSIONS OF UNITED STATES— Credit for taxes paid or accrued to _ _._ _ 142, 212 Exemption of income of. ..._ ...,„ ._ _...~.~-.. „ 68 Income from sources within 296 Status of citizens of , _ _ "" 292 Virgin Islands, not included ~ 298 444 FEDERAL INCOME TAX LAWS PREMIUMS— PAGE Paid on insurance of employees and officers, deductibility. 94, 206 PRESENT WAR— Definition „_ __ 6 PRESIDENT OF THE UNITED STATES— Salary as taxable income 58 PRESUMPTION OF TAXABILITY— Dividends declared and paid 8 PREWAR PERIOD— Definition 329 Invested capital during 334, 337, 343 Net income during 334, 337, 389 PROMISSORY NOTES— Invested capital 340 PUBLIC RECORDS— Returns to be 288 PUBLIC UTILITY— Earnings of, income accruing to U. S., State, Territory, etc 68 PUBLICATION— Of statistics of income 290 R RATES OF TAX— Corporations — Income tax 158, 164 Excess-profits tax 329, 350 War-profits tax 330 Individuals — Normal 34 Additional, for 1917 _ 36 Surtax - 36 Additional, for 1917 5^ War e-^cpss-nrofits tax for 1917 329 Withheld at source 134 ,140, 210 REAL ESTATE— Seizure and sale of, for nonpayment of taxes 397 REBATES— Deductions 86, 196 RECEIPT BASIS— Computation of net income 56, 174, 230 RECEIPTS— For taxes paid 274, 396 RECEIVERS— Returns by 120, 150, 228 RECORDS— Accounting, necessity of maintaining. 56, 174 Of taxpayers, Commissioner authorized to inspect _ 264 Collector authorized to examine 395 REFUND— Authority of Commissioner to 276, 399 Claim for, prerequisite to suit 400 Statute of limitations against 276, 401 Filing claim for 400 Interest on 278 REGULATIONS— Authority for :. 312, 352 Commissioner authorized to make 312, 352 May be made retroactive in certain cases 312 INDEX TO ACTS 445 RELIEF SECTIONS, EXCESS-PROFITS TAX— Page Special assessment _ _ - 345 RELIGIOUS CORPORATIONS— Exemption of _..... 170 REORGANIZATIONS— Excess-profits tax in case of. 347, 349 Income tax in case of ;. ZZZIZZIZZZZZIIIIIZZZZ 18 Loss or gain resulting from, basis for determining. ZZZZZZZZZZZZZZIZ'Z'ZZZ 18 REPEALING SECTIONS— Of various laws 302 RESERVE FUNDS REQUIRED BY LAW— Definition 240 RESERVES— For bad or worthless debts, deductibility 78, 192 Insurance companies, deductibility. ZZZ". ZZZZZZ 188, 194, 240 RESIDENT ALIENS— Credit for taxes paid 142 Required to furnish certificate of payment on lea-Wng 117 sII"'ZIZIIZII" 270 RESIDENTS— Rate of normal tax 34 RESTRAINING ASSESSMENT OR COLLECTION— Of tax, prohibited 400 RETROACTIVE REGULATIONS— Authorized in certain cases _ _ ,. i...., 312 RETURNS— Accounting period changed, when 56, 152 Afiiliated corporations 230 Agents for principal 146, 218 Assignees _ ., 150, 228 Basis of 56, 174, 216, 230 Brokers 284 Collector directed to make in certain cases 154, 395 Consolidated - 230, 236 Corporations 128, 216, 286 Deficiency in, penalty for - 264 Delay in filing, penalty for 280, 395 Disclosure of by stockholders, penalty for 290 By collector - - :.: 394 Dividends to be included in 148 Information as to payments of. 284 Estates and trusts - - 120, 150 Examination of, by commissioner 264 By collector _ 395 Excess-profits taxes 351, 352 Extension of time for filing .,. 148, 220, 260, 395 Failure to file, penalty for. - - ~ 280, 395 False, penalty for. •••• 266, 282, 395 Fiduciaries 120, 150, 228 Fiscal year - 56, 216, 350 Foreign corporations 218 Fractional part of year. — - 152 Guardians 120, 150 Husband and wife • 146 Individuals 146, 339 Information at source 120, 130, 150, 284 Inspection of 290 Fay be required of persons to determine taxability. - ~ - 310 Neglect to file 280, 395 Nonresident alien individuals .,• 106 Foreign corporation _ 218 Partners ,. 110 Partnerships 150 Partnerships, for war excess-profits tax, 1917 - 339, 352 Personal service corporations , _ 218,284 446 FEDERAL INCOME TAX LAWS RETURNS— Cowtwtted Page Place for filing _ _ -....- 146,220 Provisions of general l»w, where specific acts do not require.- 894 Public records , ; - - 288 Receivers ™ _ 120, 150, 228 Refusal to file „. .'. 280,395 Surtax, for purpose of. 53 Time for filing 146,220 Travelers abroad, extension of time for filing. 148,220 Trustees .„. 120,150,228 Understatement of income 154 Unreasonable accumulation of profits 128 Verification of 146,150,218,284,351 Withholding tax at source, to be made in case of. - 130, 141 REVENUE ACTS PRIOR TO 1909— See Acts of Congress. REVENUE ACT OF 1916— Definition : 4, 306 REVENUE ACT OF 1917— Definition 4, 306 REVENUE ACT OF 1918— Definition .._ 306 REVENUE ACT OF 1921— Definition 2 REVIEW— Other administrative officers may not review findings of fact made by commissioner ex- cept in certain cases 320 REVISED STATUTES— Sections applicable to income taxation 393 S SAILORS— See Soldiers and Sailors. SALARIES— See Compensation. SALES— Basis for determining gain or loss from , 14 Mineral deposits, excess-profits tax on income from sale of 351 Mineral deposits, surtax on income from - 50 SAVINGS BANK— Mutual, exemption of 168 SAVING CLAUSES— Constitutionality of Acts 306 SCIENTIFIC CORPORATIONS— Exemption of 170 SECRETARY— Definition 2 SECOND ASSESSMENT— Refund '.. 400 SECURITIES OR STOCK— Losses from sale of. _ 76, 184 SEIZURE— By collector to defray tax 394, 397 SHIPOWNERS' MUTUAL ASSOCIATIONS— Income to, exempt 72 INDEX TO ACTS 447 SHIPWRECK— PAGE Deduction of losses resulting from , 78 SHRINKAGE IN VALUE— Of life or terminable interest , 94 SIMPLIFICATION TAX BOARD— Creation and duties 312 SOLDIERS AND SAILORS— Exemption of compensation , 70 SOURCE— Payment of tax at. 128,141,210 Withholding of tax at 128, 134. 141, 210 SPECIAL ASSESSMENT— Taxpayers subject to, etc 345 STATES— Definition „ 2 Exemption of income to '.!."' .'1ZZIZZZZZZ~ZZZZ '. '. 68 Inspection of returns by officers of Z~Z. 290 Interest upon obligations of, taxability 62 Officers or employees of, taxability of compensation received by 68 Taxes, deductibility 74, 182 STATISTICS OF INCOME— Publication of _ _ 290 STATUTE OF LIMITATIONS— See Limitation of Actions. STOCK— Invested capital _ 340 Dividends as taxable income. . 10 Gain or loss on exchange for other stock or property 16 STOCK OR SECURITIES— Losses from sale of 76, 184 STOCKHOLDERS— Inspection of returns by. ._. - _ 290 Personal-service corporation, taxability of „_ 112 Profits of corporation taxable to, in certain cases 126 STORM— Deduction of losses from 78 SUCCESSION TAXES— Deductibility 74, 182 SUIT OR ACTION— See Action or Suit. SURPLUS AND UNDIVIDED PROFITS— Additional tax on corporations in case of unreasonable accumulations 126, 166 Additional tax on stockholders in case of unreasonable accumulations 126 Earned surplus as invested capital - 342 Paid-in surplus as invested capital 342 SURTAX— Accumulation of gains and profits with purpose to escape, taxability. - 126, 166 Additional, for 1917 - - 52 Dividends subject to -■• oZ, 94 Net income for purpose of. _ 36, 52 Rates of - : 86, 44, 62 Returns, for purpose of. , ._ 53 Sale of mines, oil and gas wells - 60 448 FEDERAL INCOME TAX LAWS •T TANGIBLE PROPERTY— Page Definition „ 340 Paid in as invested capital , 341, 343 TAXABLE YEAR— Definition 6, 328 Termination in case of absconding persons 268 TAX BOARDS— Advisory, creation, duties and powers of - 312 Simplification, creation and duties of. 312 TAXES— Assessment 252, 320, 395 Credits for, when paid 122, 142, 206, 212 Credit for, when paid at source. 130 Deductions 74, 182 Delay in payment, interest on 396 Penalty for -.- 396 Distraint for, by collector — - 396 Excise, corporations, 1909 157 First two months of 1913 '■ 325 Extension of time for payment of 260, 266 Foreign countries, credits when paid to 142, 212, 214 Insurance companies — 238, 246 Lien for 396 Local benefits, deductions 74, 182 Maximum excess-profits 331 Nonresident alien individuals, deductions by 88, 104, 106 Paid, credit for _ 142,206,212,214 Payment at source 128, 141, 210 Penalties for nonpayment of 262, 280, 396 Possessions of United States, deduction when paid to 142, 206, 212 Receipts for 274, 396 Refunds, commissioner authorized to make 276, 399 State, deduction for 74, 182 War-profits taxes, not deductible _.. 74, 182 Withholding at source 128, 141, 210 TAX-FREE COVENANT CLAUSE IN BONDS— Withholding tax at source 134 TAX-FREE DISTRIBUTION— Of dividends from surplus accrued before March 1, 1913 .^ 10 TAXPAYER— Ag^reement between, and commissioner as to final tax liability. 258, 320 Definition - 4 Examination of books of, by commissioner 310 By collector 395 Examination of returns of, by commissioner _., 264- Not subject to unnecessary examinations 310 TERMINABLE INTEREST— Deduction for shrinkage in _ 94 TERMINATION OF TAXABLE YEAR^ In case of absconding persons 268 TERRITORIES— Exemption of income of 68 Interest on obligations of, taxability.. 62 THEFT— Losses resulting from 78 TIMBER— Depletion allowance 80, 186 ; ' INDEX TO ACTS 449 ■TIME- p^^^ Assessment of -tax, limitation on 256 322 Filing returns ;::;::.:: 146; 220 Nonresident foreign corporation .... 218 ' Payment of taxes , 252 254 TRADE— Definition 329 Losses incurred in 1Z'ZZ"ZZZZZ7 ZZZZZZZZZZZZZIZZIZZZZZZZZZZI 76 184 TRANSFER OF PROPERTY— To corporation in returiV for stock 18 TRANSPORTATION CORPORATIONS- 1 Under federal control ..., 168, 331 TRAVELERS ABROAD— Extension of time for filing returns of 148, 220 TREASURY CERTIFICATES OF INDEBTEDNESS— As medium of payment of taxes 272 TRUSTS— See Estates arid Trusts. TRUSTEES— Returns by ..: 120, 150, 228 . U UNCERTIFIED CHECKS— Payment of tax with r, 272 UNCONSTITUTIONALITY— Of a portion of Act does not render whole Act void 306 UNDERSTATEMENT— Of income in return.. 154^ 400 UNDIVIDED PROFITS— "Invested capital .: '. : 342 Taxability to corporation 126, 166 Taxability to stockholders 126 UNNECESSARY EXAMINATIONS— .Taxpayers not subject to 310 UNITED STATES— Credit of interest on obligations of Definition ^ ." Deduction of interest paid to carry obligations of \ Employees and officers of, taxability of salaries Exemption of interest on obligations of. Possessions of, taxability of income of Status of citizens of President, salary of, as taxable income Taxability of interest received upon obligations of Taxes levied by, deductibility UNREASONABLE ACCUMULATION OF PROFITS— Taxability to corporation Taxability to stockholders V VALUATION OF ASSETS— Upon reorganization of business 347 VALUE— Fair market as of March 1, 1913 14, 16, 78, 186 VIRGIN ISLANDS— "Possession of the U. S." does npt inpJude, , , .„, ■■■,,■ ■•, 29§ 96 2, 328 74, 178 58 62 68 292 58 62 :, 96 74, 182 26, 166 126 450 FEDERAL INCOME TAX LAWS VERIFICATION— PAGE Of returns 146^150,218,284,351 VICTORY NOTES— Interest on, taxability 62, 96 VOCATIONAL REHABILITATION ACT— Amounts received under, exempt , 70 W WAR— Termination of present „ 6 WAR FINANCE CORPORATION— Credit of interest on bonds of 96 Exemption of interest on bonds of 64 WAR-PROFITS TAX— See Excess-Profits Tax. WAR RISK INSURANCE ACT— Amounts ■ received under, exempt 70 WEAR AND TEAR OF PROPERTY— Deduction for 78, 186 WELLS— Oil and gas, depletion 82, 188 WITHHOLDING AGENT— Definition , 6 WITHHOLDING TAX AT SOURCE— Credit for income upon which tax is paid at source - 96 Foreign corporations 210 Information at source 130, 280 Nonresident alien individuals 128, 141 Nonresident foreign corporations 210 Penalty for failure to make return of tax withheld 280 Rate of tax on amount withheld 134, 140, 210 Return of tax withheld 130, 141 Tax-free covenant clauses in bonds, etc 134 WORKMEN'S COMPENSATION— Taxability of amount received as insurance 68 WORTHLESS DEBTS— Deductibility when charged off 78, 192 Reserve for, deductibility , ,...., ,..,.,..,, 78, 193 KF 6335 A3 1922 1 • JSS- — ' Author Vol. - U.S. LaHS, statutes, etc. T'Barton' s Fed . tax laws corral- copy ated. ThT CON