dorttfU ICam ^rljnol Slihrarg CORNELL UNIVERSITY LIBRARY 3 1924 062 062 439 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/cu31924062062439 TRfiASURY DEPARTMENT UNITED STATES INTERNAL REVENUE REGULATIONS 63 (1922 EDITION) RELATING TO ESTATE TAX UNDER THE REVENUE ACT OF 1921 WASHINGTON GOVERNMENT PRINTING OFFICE 1922 V>^os2g These regulations apply to the estates of decedents dying after the effective date of Title IV of the Revenue Act of 1921. Estate Tax Regulations No. 37 (revised January, 1921) remain in full force and effect, subject to such modifica- tions and 'changes therein as are specified in Article 106, infra. (11) KEGIILATK>NS. ESTATE TAX TTNDEB TITLE rv OF THE RETENUE ACT OF 1921. TABLE OF CONTENTS. (The section- numbers ref-eif to the atatete, aad tke aitacfe mtiaibeFS to the reguiatloix^) Page. Section 400. Definitions^ , , 1 Section 40l. Uescription of tax 1 Article 1. ICke various statutes. 2 2. Transfers reached 2 ? Neitier a property nor an inheritance tax . . ., 2 4. Description of taxable estates 3 5. Definition of "resident" and "nonresident" 3 6. Manner of determining liability 4 7. Ilates of tax 4 8. Computation of tax .^ 5 9. Exempt estates 7 10. Exemption must be proved 8 Section 403.. Gross estate 9, Iff, 20, 22, 24,25 .Section 402. (a) Cfeneral.'. 9 Article 11. Character of interests incltided : 9 12. Specific property to be included 10 13-. Value 11 14. Rules for the valuation of property 11-16 (1) Eeal estate.. 11 (2) Stocis and bonds 11 (3^ Interest in business 13 (4) Notes, secured and unsecured 14 (5) Cash on hand or on deposit 14 (6) Patents, trade-marks, and copyrights 14 (7) Accounts receivable, claim's, judgmenta, etc 14 (8) Other property 14 (9) Household and personal effects — General pfo'visions 15, 16 (a) When value is less than $2,0W 15 (6) When value is more than 12,000' 16 (c) Appraisers and basis' of appTSisals. 16 15. Valuation of annuities, and of life and remainder interests 16 (m) IV / Page. Section 402. (b) Dower and curtesy 19 "^ Article 16. Dower and curtesy 19 Section 402. (c) Transfers by decedent in his lifetime 20 Article 17. Natiire and time of transfer 20 18. Transfers in contemplation of death.— Nature of transfer 20 19. Transfers intended to take effect at or after deatt — General 21 20. Reservation of income , 21 21. Power of revocation or control 22 22. Valuation of property transferred 22 Section 402. (d) Property held jointly 22 Article 23. Property held jointly or as tenants by the entirety 22 24. Taxable portion 23 Section 402. (e) Property passing under power of appointment 24 Article 25. General rules 24 26. Powers exercised before and after February 24, 1919 25 Section 402. (f) Insurance 25 Article 27. Taxable insurance 25 28. Insurance in favor of the estate 26 29. Insiu'ance receivable by other beneficiaries 26 30. Effective date of insui'ance provisions 26 31. Valuation of insurance 27 Section 403. Deductions 27,32,34,36,37 Section 403. (a) Deductions — ^Estates of residents 27, 32, 34, 36 Seotion403. (a) (1) General 27 Article 32. Deduction of claims, expenses, etc 27 33. Effect of court decree 28 34. Fifneral expenses 28 35. Administration expenses 29 36. Executor's commissions 29 37. Attorney's fees 30 38. Miscellaneous administration expenses 30 39. Claims against the estate 30 40. Taxes 31 41. Unpaid mortgages 31 42. Losses from casualty or theft 31 . 43. Support of dependents 32 Section 403. (a) (2) Property previously taxed 32 Article 44. Deduction of the value of transfers taxed within five years 32 45. Property originally received : 34 46. Property acquired in exchange 34 Section 403. (a) (3) Transfers for public, charitable, etc., uses 34 Article 47. Transfers for public, charitable, religious, etc., uses 35 48. Religious, charitable, scientific, and educational corpora- tions 35 49. Proof required 36 50. Conditional bequests 36 51. Effective date 36 Section 403. (a) (4) Specific exemption 36 Article 52. Specific exemption 36 Section 403. (b) Estates of nonresidents 37, 38 Article 53. Situs of property of nonresident decedents 37 Section 403. (b) (1) (2) (3) Deductions 37,38 Article 54. Net estate 38 55. Deduction of claims, expenses, etc 39 56. Deduction of value of transfers taxed witMn five years 40 57. Deduction of value of transfers for public,[cliaritable, religious, etc. , uses 40 58. Determination of net estate 40 59. Payment of tax 41 Section 404. Preliminary notice 41 Article 60. When notice required 41 61. Notice by executor or administrator 41 62. Notice by others than duly qualified executor or adminis- trator '. .". . 42 63. Exemption claimed on account of military service; notice required 42 64. Preliminary notice ; estates of nonresidents 42 65. Transfer agents' notice; estates of nonresidents 43 66. Transfer of stocks and bonds of nonresident decedents; how made 43 Section 404. The return 44 Article 67. When return required — Date of filing 44 68. Persons liable for return 45 69. Preparation of return 45 70. Supplemental data 45 71. Procedure where no return has been made 46 72. Investigation of returns 46 73. Return of estates of nonresidents 47 74. Estates of nonresidents — Supplemental data 47 75. Returns confidential 48 76. Disclosure to persons having material interest 48 77. Attorneys must have authorization 48 Section 405. Revised statutes, Sec. 3176. Return by collector or Comniissioner 49 Article 78. Return by collector or Commissioner 49 Section 406. Payment of tax and interest 49 Section 407 . Adjustment of tax^ — Interest 50 Article 79. Payment of tax; general 50 80. Payment by bonds or uncertified check ^ 51 81. The executor shall pay the tax 51 82. Extension of time for payment 52 83. Interest on tax 52 Section 408. Collection of tax 53 Article 84. Remedy not exclusive 53 Section 408. Beunbursement 53 Article 85. Right to reimbursement not enforcible by Commissioner. ..... 54 Section 409. lien— Remedy against transferee and insurance bene- ficiary 54 Section 407. Discharge of executor from personal liability 55 Article 86. Property subject to lien 55 87. Release of lien 56 VI Page. Section 410. Ite-viaed Statutes, Sec. 3176. PeaaltieB.. 56-57 Article 88. Nature of penalties 57 89. Penalties ioe false or fraittdulent notice or rettim ^ 57 90. Penalty for fadhire to file notice or return; , 57 91. Penalty for failure to exhibit records of property 58 Bevised Statutes, Sees. 3220, 3225, 3228. Claims fosr atoatemeixt and refund...., „„.... 59 Article 92. Kinds of relief 59 93. ClMa for abatement.- 59 94. Accrual of interest as affected by abatement claiaa .. — -.,, 59 95. Limitation of time to file claim for abatement of additional tax. . 59 96. Claim for refund 59 97. Payment of claims and interest ..- 60 Revised Statutes, Sees. 3229, d2S>2, 5293. Fcrwer to camptromise or remit penalties 61 Article 98, Power to compromise or remit 61 Revised Statutes, Sec. 8467. Personal lia>bliity of executor 62 Article 99. Extent of liability 62 Sections 1308, 1310. Exanunation of records and taking of testimony 62 Article 100. Securing evidence — Takinig testimony . 63 101- Power to compel comrpliance -..-.,. 63 Sections 1300, 1307. Bemedie»for coUeetion -.- 63 Article 102. Remedies for collection of tax.. .-,- ,.,--,-„ 63 103. Executor's duty to keep records. - -.-- 64 104. Executor's duty to render statements., - , 64 Section 411. Sstates administered in the TTnlted States Cooirt for China - ,-- --, 64 Section 1400. Scope of repeal 64-65 Article 105, Scope of repeal. - - - , , 65 106. Promulgation of fegutatiMks -- 65 Appendix..-- 66 Revenue act of 1 921 - - , 66 Revenue act of 1918 - 75 List of the several divisions and of locations of offices of inieraal revenue agents in charge 83 Index --- - , -..-.. 84 REGULATIONS. ESTATE TAX. [Except as otherwise specified, the section references are to the Revenue Act of 1921.] Sec. 400. That whea used in this title — The term " executor " means the executor or administrator of the decedeHt, or, if tl'»ere is no executor or administrator, any person in actual or constrictive possession of any property of the decedent ; Tbe term " n«t €state " means i thie met estaie a» determined under the provi^tons «rf seetioB 403 ; The term '* month " means calemdar mo^ith, ; gmd The term " collector " means tbe collector of intemal reveuue of the district in which was the domicile of the decedent at the time of hiis death, or, iE there was no s-nch domicile in the United States, then tlie collector o»f the district in which is S'ituiat«d the part of. the gross estate of the decedent in the Uaited Statesy or, if such part of the gross estate is situated in more than one district, then the collector of internal revenue of such district as may be designated by the Com- mnssioneT. Sec. 401. That,^ in lieu of the tax jmposed by Title IV of the Revenue Act of 1W8, a tax eqaal to the sum of tbe following percentages of the value of tbe net estate (determined as provided in section 403) is hereby imposed upon the transfer of the net estate of every dece- dent dying after the passage of this Act, whether a resident or non- resident of the tTnited States : 1 per GBBttim of tbe amoinnjt of the net estate not in excess of $50,000; 2 per centum of the amount by which the net estate exceeds $50,000 and does not exceed $150,000 ; 3 per centum of the amonnt by which the net estate exeee«fs $150,000 and does not exceed $250,000; 4 per centum of the amount by which, tbe net estate exceeds $250,000 and does not exceed $450,000; 6 per centum of the amount by which the net estate exceeds $450,000,- and does not exceed $750,000; 8 per centum of the amount by which the net estate exceeds $750,000 aiid does not exceed $1,000,000; 10 per centum ot the amorant by which the net estate exceeds $1,000,- 000 and does not exceed $1,500,000 ; 12 per centum of the amount by which the net estate exceeds $1,500,- 000 and does not exceed $2,000,000 ; 14 per centum- of the amo-tmt hy which the net estate exceeds $2,000,- 000 and does not exceed $3,000,000; 16 per cemtum of the amount by which the net estate exceeds $3,000,- 000 and does not exceed $4,000,000 ; 18 per centum of the amount by which the net estate exceeds $4,000,- 000 and does not exceed $5,000,000; (1) 20 per centum of the amount by wliicli the net estate exceeds $5,000,- 000 and does not exceed $8,000,000; 22 per centum of the amount by which the net estate exceeds $8,000,- 000 and does not exceed $10,000,000 ; and 25 per centum of the amount by which the net estate exceeds $10,- 000,000. The taxes imposed by this title or by 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 by Title IX of the Revenue Act of 1917, or by Title IV of the Revenue Act of 1918, shall not apply to the transfer of the net estate of any decedent who has died or may die from injuries received or disease contracted in line of duty while serving in the military or naval forces of the United States in the war against the German Government, or to the transfer of the net estate of any citizen of the United States who has died or may die from injuries received or disease contracted in line of duty while serving in the military or naval forces of any country while associated with the United States in the prosecution of such war, or prior to the entrance therein of the United States, and any tax collected upon such transfer shall be refunded to the estate of such decedent. Article 1. The various statutes. — The Federal estate tax was first imposed by the Act of September 8, 1916. This law was amended by the Act of March 3, 1917 (Title III), and the Act of October 3, 1917 (Title IX). These two statutes increased the rate of tax. The Revenue Act of 1918 (Title IV), which became effective 6.65 p. m., Washington, D. C. time, February 24, 1919, reduced the rates ap- plicable to the smaller net estates as compared with those of Title IX of the Revenue Act of 1917, and contained a number of provisions not found in any of the prior acts. The Revenue Act of 1921 (Title IV) became effective at 3.55 p. m., Washington, D. C. time, November 23, 1921. It reenacts without change the rates of Title IV of the Revenue Act of 1918, supplants all prior acts as to the estates of decedents dying after the effective date thereof, embodies numerous , changes, but continues many of the provisions of the earlier acts. It is herein referred to as " the statute." References to other statutes are specific. Aet. 2. Transfers reached. — The statute subjects to tax transfers by will and under intestate laws, and also transfers made by the decedent in his lifetime, when made in contemplation of death or intended to take effect in possession or enjoyment at or after his death, excepting, however, bona fide sales for a fair consideration in money or money's worth. Transfers of certain other property in- terests are also included. Aet. 3. Neither a property nor an inheritance tax. — The Federal estate tax is imposed upon the transfer of the net estate of every person dying after September 8, 1916, determined in the manner pre- scribed by the applicable law. (See Art. 1.) The tax is not laid upon the property, but upon its transfer from the decedent to others. The subject of tax is the transfer of the entire net estate, not any particular legacy, devise, or distributive share, and the relationship of the beneficiary to the decedent has no bearing upon the question of liability, or the extent thereof. The transfer of property is tax- able, although it escheats to the State for lack of heirs. ESTATES SUBJECT TO TAX. Art. 4. Description of taxable estates. — The tax is imposed upon the transfer of the net estate. The term " net estate " has a distinct meaning in the statute, signifying the difference between the total value of the gross estate and the total of the authorized deductions. One of the deductions authorized in the estate of a resident decedent is the specific sum of $50,000, and consequently there is no net estate where the gross estate does not exceed that amount. No such de- duction is authorized in the estate of a nonresident decedent. (See Arts. 53 to 58, inclusive.) Art. 5. Definition of " resident " and " nonresident." — The statute provides (paragraph (5) of section 2) that the term " United States," when used in a geographical sense, includes only the States, the Territories of Alaska and Hawaii, and the District of Columbia. A resident is one who, at the time of his death, had his domicile in the United States ; or one who was a citizen of the United States at time of death and with respect to whose property any probate or administration proceedings are had in the United States Court for China. (See Sec. 411.) A missionary who, at the time of death, was serving as such under a foreign missionary board of any re^- ligious denomination in the United States, will be presumed to have died a resident of the United States, if domiciled therein at the time of his or her commission and departure for such service, and not a nonresident merely by reason of his or her intention to perma- nently remain in such service. (See Sec. 403(b).) Subject to the foregoing exceptions, and the presumption applying in the case of such missionaries, all other persons are nonresidents. Except as stated above, and in section 400 of the statute in respect to the exemption accorded on account of military or naval service in the late war, the statute takes no account of the citizen- ship of the decedent, but prescribes different rules for the estates of residents and nonresidents. A citizen of the United States is a nonresident if his domi- cile is in Porto Eico, the Philippine Islands, or other foreign country, whereas a citizen of a foreign country is a resident if his domicile is in- th^s United States, A. person acquires a doroi- eife in a place by living there, for even a brief period er ciwrf. ■P-ereent. PeircenL isei-eoft $50,000 10ft eoft loSooo 1 i 2- f 2 4 1 3 iso'ooo" 150,000 250,000 S a 6 3' 259,800 ■ 45B,000- 2o«keco 4 a ; s 4 450,000 750,000' 300,000 5 75 10 6 rsBiOm 1,009,600 250,800 5 tI 10 & 1,000,000 1,500,000 500,000 6 9 12 10 i,seo,eeo 2,808,000: 3;oo,0e* 3,00(XOOO 10 15 20 20 8,000,000 9,000,000 1.000,000 10 15 22 22 »,8».Q00 i®,floo;,eBe: 1„00%009 10 15 22: 22: 10,000,000' 10 15 25 Z5 The rates prescribed by the different acts, as set forth above, apply to the estates of decedents dying within the following dates : Column 1, Revenue Act of 1916, efCective Sept. 9, 1916, to Mar. 2, 1917, inclusive. Column 2, amendment of Mar. 3, 1917, effective Mar. 3, 1917, to Oct. 3, 1917, inclusive. Column 3, Revenue Act of 1917, effective Oct. 4, 1917, to 6.55 p. m., Washing- ton, D. C, time, Feb. 24, 1919, inclusive. Column 4, Revenue Act of 1918, effective 6.55 p. ra., Feb. 24, 1919, to 3.55 p. m,, Nov. "23, 1921 (Washington, D. C, time), on which last named hour and date the Revenue Act of 1921 became effective. Art. 8. ComputatioH of tax, — For the purpose of computing the tax, the net estate is divisible into blocks, each block being taxed at a different and increasing rate- The preceding table gives the amount of the various blocks and the applicable rate of tax under each of the taxing acts. For example, the tax upon the net estate of $1,240,000 of a decedent dying on March 1. 1919, is computed as follows : Amount of first block $50,000 at 1 percent $500 Amount of second block 100,000 at 2 per cent 2,000 Amount of third block 100,000 at 3 per cent 3,000. Amount of fourth block 200,000 at 4 per cent 8,000 Amount of fifth block 300^0 at 6 per cent 18,000 Amount of sixth block 250,000 at 8 per cent 20,000 Remainder— . 240,000 at 10 per cent 24,000 Total net estate 1,240,000 Total tax__ 75,500 There is subjoined a table for ascertaining the tax without the detailed computation given above. An illustration of its use is as follows : The net estate of a decedent dying March 1, 1919, amounts to $1,240,000. By reference to the table it will be seen that the last complete block proceeding this amount is $1,000,000, and that the total tax computed on a million dollars under the rates in force amounts to $51,600. Upon the remainder of the net estate, $240,000, the tax is computed at the rate set out in the next following line, or at 10 per cent. The tax on this amount is consequently $24,000. The following result is thus obtained : Total tax on $l,O00,O0O=$51,50O Tax on 240,000= 24,000 Totals - : 1,240,000 75,500 3 (a. ■--. °3 "1 in ©fH CD -ad o 3 o OS ^ o c>S' ioiOif3U3io»omioio»n»0'0'ommio ^cqm^tDoooN^gooooggggj 50000QC Soooooc •» i-t eoio °S93g '4 CO to to 00 o> I- lOOOOO'SoOOOOOOOOO I~-0»OOiOI>-0000000000 e»r'^eOI>COOSOC iHMCO-^lOlOtDeDt-OOOSOOOOOO 00 ooo< S§S8S: 500000C 30QOQOC Soooooc ;8Sl |3 2 ® K W 30000QQOOOOOOO 3001000000000QO -0»000000 000 ^rH"c>fcQ'--jrio"'od'org' 000000 ^000000 t^owooSoooooo EXEMPT ESTATES— SERVICE IN WORLD WAR. Art. 9. Exempt estates. — The first exemption from estate tax, on account of military or naval service in the war against Germany, was contained in the Eevenue Act of 1917, and applied to the estate " of any decedent dying while serving in the military or naval forces of the United States, during the continuance of the war in which the United States is now engaged, or if death results from injuries received or disease contracted in such service, within one year after the termination of such war," and was limited to the increased rates of tax imposed thereby, and to the estates of decedents dying after its passage. In the Eevenue Act of 1918 the exemption was extended to include the estate "of any decedent who has died or may die while serving in the military or naval forces of the United States in the present war or from injuries received or disease contracted while in such service," and embodied a retroactive provision rendering the exemp- tion available under the former Acts, and authorized the refund of taxes collected under the provisions thereof from estates to which the exemption applied. Where such taxes have been paid or col- lected, a claim for refund on Form 843 should be filed accompanied by such of the proofs prescribed in Article 10 as may be applicable to the particular case. (See Arts. 63 and 96.) The Revenue Act of 1921 exempts from tax the estates of two classes of decedents, namely: (1) Where the decedent died from injuries received or disease contracted in line of duty while serving in the military or naval forces of the United States in the war against the German Government. The term "military or naval forces of the United States" includes, among other units, the Marine Corps, the Coast Guard, the Army Nurse Corps, Female, and the Navy Nurse Corps, Female ; but does not include personnel of the Public Health Service. (2) Where the decedent, a citizen of the United States, enlisted in the military or naval forces of any country asso- ciated with the United States in the prosecution of such war, and whose death resulted from injuries received or disease contracted in line of duty while serving in such forces, either prior to the en- trance of the United States into such war, or during the time such country was associated with the United States in the prosecution thereof. The estate of such a decedent is not deprived of the benefit of this exemption by reason of the fact that, as a condition precedent to his enlistment in the military or naval forces of any such country, the decedent was required to take an oath of allegiance to such country or to the reigning sovereign thereof. Under the retroactive provision of this Act the exemption, as will be noted, is made avail- able to the estates of those whose d.eaths resulted from injuries re- S' ceived or disease contracfed- "in line of duty" whife serving, as above set out, in the military or naval forces of such a foreign country. The exemption is conditioned, both with respect to service in the military or naval forces of the United States and such a foreign, country, upon death resulting, from injuries received or (Esease contracted "in line of duty" ; a condition which, in all cases, operates wherever the death occurred' subsequent to the effective date of this Act. (See Art. I.) The Act contains a refundment clause similar to that in tlie Efevenue Act of 1918. (See Arts. 6t and 96.) As to the United States, and so far as concerns the provisions of the various Revenue Acts imposing an estate tax, such- war ter- minated March 3, 1921, by virtue of the joint resolution of Congress approved on that date. Aet. 10. Exemption must be proTeff. — In every case where the ex- emption is claimed the right must be proved by the estate. Formal claim for exemption on Form 793, accompanied by supporting evi- dence, should be filed with the notice required by section 40i (see Art'. 63), or as soon thereafter as the necessary evidence may be secured, and in any case not later than one year after the decedenfs death. Where decedent died before his discharge from the military or naval forces of the United States, and it is claimed that his death resulted from injuries received or disease contracted in liiie of duty during the war with Germany, there should be submitted: (1) In the case of a soldier, a certificate of the Adfutant General of the Army ; in the case of a sailor, a certificate of the Surgeon General of the Navy ; in the case of a Marine,, a certificate of the Com- mandant of the Marine Corps; and in the case of a person who served in any auxiliary force comprehended within the term "military or naval forces of the United States,?'^ a certificate of the proper au- thority, lowing the occurrence of death while in th€ service, and whether, by the official records, it resulted from injuries received ev disease contracted in line of duty during such war. (2) In the event that the official records do not disclose all the per- tinent facts, then affidavits of officers or enlisted men will be consid- ered in connection with sucL records as to the incurrence of injury or disease in line of duty during such- war. Where the decedent died after discharge from the military or naval forces of the United States, there should be submitted : (1) Certificate of discharge from the service, or a duly verified copy of such certificate. (2) Certified copy of public record of death, showing cause of. death. (3) Affidavit or affidavits of the attending: physician or physicians, setting forth decedent's, medical history while under the treatment of such physician or physicians. f4) Affi^ai^ife of officers o^ enlisted men or aiher e^vidence bearing' upon the qia^stion wltethBer death resaJted from, imjaries! received or &ease coHitracted ia line of duty while serrimg ia the miStary or Haval forees; ©i the United States durimg: such war. Where it is cdaimedi that the deseedent, a citizen &^ the United Staites: wW esMsted iu'- the uMlitaTy or naval forces of any eoiintry stssociated with, the United States in the prosecution of such war, died from injuries receiAred or disease eontraeted m. line of duty wMle in. such fo9?eipi. service, as more fully expfajmed in the tbiEd pasa- graph of this article, there shalil be submitted t (1) Evidraace showinig' his citizen^p at the tiiKe of saeh eadisfc- mient. (^) A complete eopj of the official records of his service in the forces of the foreign c©miifery, certified by the custodi'an thesreof. Where, in a^ay case, it is: determined by the GoiBmissiionier that the estate is entitled to the exemption, the executor wiB be moti&d to that effect, and his duties with respect to the tax will cease. If the evidence' submitted m. support of the claim i& found not to be satis- factory, such fuither evideHiCe will be called for, or such invei^ga- tion instituted, as the Commissioner may dirmct. If it is determined that the esitate is not entitled to the exemption, the executor will b& requiired fa> file return and pay tax in the same manner as executors @i other taxable estatesi GROSS ESTATE— GENERAL. Sec. 4W. Tbat tim value ©f tbs gross estajte of the d«cedieii!t sinall be determined by including the vaiiie at the time of his deatb of atl property,, real or personal, tangible or intangible^ wherever situated — (a) To the extent of the Interest therein of the decedent at the time of Ms deatfr which after his death is suhjeet to the payment of the charges aigainst his estate and the expenses- of its admiwlstiratlo-n and is subject to dastrlbiatlom; as pa;rt of his estate ; Aet. II. eftaraeter at interests ineMded.^ — It is designed by the foregoing provisicm of the statute that there shall be included in the gross este-te the value of all property of the decedent whether real or personal, tangible or intangible, the beneficial ownership of which was in the decedent in his lifetime, and which, upon his d-eath, formedfhis estate. The test which determines whether the valtte of a given interest is to be so included, pursuant to the foregoing provision- of the statute, is that stated therein which recfuires that the property, after death, shall be subject tor (1) payment of the charges against the estate, (2) payment of the expenses of administration, and (3) distribution as a part of the estate. The value of a vested remainder should be included in the gross estatefr Nothing should be included, however, on account of a con- 10 tingent remainder where the contingency does not happen in the lifetime of the decedent, and the interest consequently lapses at his death. Nor should anything be included on account of an interest or an estate limited for the life of the decedent. There should be in- cluded, however, the value of an annuity payable to, or an interest or an estate vested in, the decedent for the life of another person who survives him. For rules in valuing such remainders, annuities, and interests or estates fur autre vie, see Article 16. Art. 12. Specific property to be included.— The value of all real property situated in the United States, and owned by the decedent at the date of his death, should be included in the gross estate, whether the decedent was a resident or a nonresident, and whether the property came into the possession and control of the executor or administrator or passed directly to heirs or devisees. The value of real property situated outside the United States should not be included, except as otherwise provided in Articles 56, 56, and 57, where deductions from gross estate are claimed and the decedent was a nonresident. Where the decedent was a resident, the value of all personal property owned by him should be included, wherever situated. Where decedent was a nonresident, the value of so much of his personal property as had its situs in the United States at the time of his death should be included, and the .value of his entire gross estate, wherever situated, if deductions are claimed. (See Arts. 55, 56, and 57.) As to the situs of the personal property of nonresident decedents, see Article 53. A cemetery lot owned by the decedent is part of his gross estate, but its value is limited to the salable value of such part of it as is not designed for the interment of the decedent or members of his family. Rents and interest which had accrued at the time of the decedent's death, whether then payable or not, and unpaid matured coupons, should be included. The value of notes or other claims held by the decedent should be included, though they are canceled by his will. As to the valuation of notes and claims, see Article 14, paragxaphs 4 and 7. All bonds, whether federal, state, or muni- cipal, and whether or not containing a tax-free covenant, should be' included. Dividends on either common or preferred stock should be included only where declared prior to the decedent's death and not reflected in the market value of the stock on the day of death. Thus divi- dends, both declared and payable to holders of record on a date prior to the decedent's death, should be included, provided the stock was selling " ex dividend " on the date of death. Example : A 5 per cent dividend upon stock is declared March 1, payable on April 1 to stockholders of record on March 15. If the death occurred on March 10 and the market value on that day was 11 90, the value to be returned for both stock and dividend is 90, the dividend being reflected in the market value of the stock. If the death occurred on March 20, the dividend is not reflected in the market value, and must be returned in addition to the market value of the stock on March 20. Aet. 13. Value. — Property of the decedent should be returned at its market or sale value at the time of the decedent's death. The crite- rion of such value is the price which a willing buyer will pay to a willing seller for the property in question under the circumstances existing at the date of the decedent's death or within such reasonable period thereafter as would afford proper opportunity for an examina- tion and sale thereof. Neither depreciation nor appreciation in value subsequent to the date of decedent's death is considered. Aet. 14. Eules for the valuation of property. — (1) Redi estate. — Where real property has been sold, the amount received will be taken as its value provided the sale met the conditions laid down in Article 13. Where no sale has been made, the criterion of value is the best price which could have been obtained within a reasonable period of the decedent's death. The property should not be returned at the local assessed value thereof unless such value represents the true market value at the date of decedent's death. All relevant facts and all elements of value should be considered in every case. (2). — Stocks and hands. — ^The value of stocks and bonds listed upon a stock exchange should be determined by taking the mean be- tween the highest and lowest quoted selling price upon the date of death. If there were no sales on the date of death the value should be determined by taking the mean between the highest and lowest sales upon the nearest date either before or after the date of death if within a reasonable period. If the decedent died on a Sunday or holiday, the transaction of the next previous business day will govern. If the security is listed upon more than one exchange, the records of the principal exchange should be employed. In general, in valuing listed stocks and bonds the executor should observe care to consult accurate records to obtain value as of the date of death. If the securities are not listed upon an exchange but are dealt in actively by brokers or have an active market, the value should be determined by taking the sale price as of the date of death or of the nearest date thereto if within a reasonable period. Securities which are not dealt in actively enough to establish market value clearly but in which there are occasional transactions should be valued upon the basi^ of the nearest sales to the date of death, provided such sales were in the normal course of business, between a willing buyer and a willing seller who were trying to make the best bargain possible. Where quotations are obtained from 94206°— 22 2 12 brokers or where evidence as to the sale of securities is obtained from the officers of the issuing companies, the executor is requested to preserve in his files the letters furnishing quotations for in- spection when the return is verified by an investigating officer. Where securities are actively quoted on a bid and asked basis and actual sales are not available, the bid price as of the date of death will be accepted as the value. In the case of corporate and other bonds where there is no active market, the value is to be de- termined by giving consideration to the soundness of the security, the interest yield, the date of maturity, and any other relevant factors. Where there is no active market for the stock or securities (whether listed or unlisted) owned by the estate, or where the sales thereof made from time to time are seriously disproportion- ate in number of shares sold to the holdings of the decedent, and the executor proceeds in good faith promptly and within a reason- able time to make a bona fide sale or sales of any of such stocks or securities, the amount so realized will be accepted as the value. Sales, however, of only a few shares out of a large holding, or sales made without a real effort to secure the widest market pos- sible, or sales made merely for the purpose of fixing value will not be considered as conclusive. If in connection with the value of any particular security condi- tions of sale or ownership are such that the market value deter- mined as indicated above would not afford a proper basis for the valuation of the decedent's securities the Commissioner on final audit will establish the value by considering all other factors relating to the case. In any case where the estate contends tiiat the value as established by the general rules stated above is not the fair market value for the security owned by the decedent on the date of his death, the evidence upon which it ba^s its contention should be filed with the return. Stock in corporations where there have been no bona fide sales within a reasonable period of a number of shares fairly comparable to the decedent's holdings should be valued at what a willing buyer would pay to a willing seller, both being fully informed of the financial condition of the company at the date of death* Where the decedent's holdings are relatively small, a copy of the balance sheet of the corporation nearest to the date of the decedent's death and a statement of the earnings and dividends for the five years preceding death should be submitted in duplicate with the return wherever practicable. Where the decedent's holdings are ' relatively large and it isi practicable to do so, the fullest financial data should be submitted in duplicate with the return, including in particular balance sheets of the corporation for the five years pre- 13 ceding deatli, a statement of the net earniags aaid dividen'ds paid by the eompajiy over this period or over a suffioieat number {&iiher greater or less) of years prior to the decedent's deaitJi to demonstrate the ©©arniai «aj-ning capacity of the corporation, and a summary of the marlset conditions and f utiu'e prospests of the company at ihe date of Uje deQedent'« .death, togefeer with a statement showing the relati^ii, if any, of the deeedent to tihe actual operation of the com- pany, the effect of Ms death thereon, and aay and ail other factors which may have a bearing upon the -value «f the stock. Where examinations of a oom-pany have been made by accountamts, emgi- Tieers, or other technical experts as of or a;bout the date of death, -copies ^f their reports shouM be filed with the return where they can be obta^ined without undue trouble ■or expense to the estate. In. ^neral, the -estate should s^how Ae basis of its return and submit any financial data that wiH enable the commissioner aocuratdy and in- telligently to review the case. The full value of securities pledged to secufe a loan should be included in the gross estate. If the deoedent had a tradiaig account with a broker, all securities befeng-ing to the decedent and held fey the broker at the date of death must be ineiuded at tJheir market value on that date. Securities purdaased on mar^n for the de- cedent's account and held by the broker should also be refam^iied at ■tJieir market value on the date of death. The amount of the de- 'cedent's inddbtedness !to the teoker, or ested, sFhetheir as partner or proprietor, A fair appraisal as of the date of death should be made of all the assets of tke business, taBgibl© aaad inta;ngible, and the business slioidd be given a net worth eqaal to i&e amouHt which a purchaser, whether an individual or corpora- tion, would be willisgto pay therefco" a± a normal sale in view of the siest value of the assets and tfaie demonstrated earniaag capacity. Spe- ^eial atteuilaon should be given to fixing an adequate figure for tlie yalue of ^e good wiH of itibe business in all cases where ihe decedent has neit, ior a fair considemtiam in money or money's worth, agreed sfchait hdsimtei«i^ thierein shall pass at his death to his sur^dvingpaatner or partners. In general, the railes stated above JMslative to the valuation of other property are applieafole to the -valuation of an interest as proprietor >ox partner in. a busiaese, and all evidenee bearing upon such valtia- Jtaon -Ao-mld be submitted with jthe return, includiBg copies of reports in any case where examinations of a business hav« been made by accountants, engineers, or other teekuioaJ exgperts as of or about the date of decedent's death. 14 (4) Notes, secured and wnsecured. — The value of notes, whether secured or unsecured, will be presumed to be the amount of unpaid principal, plus accrued interest to the date of decedent's death, unless the executor establishes the right to return them at a lower value, or as worthless. To establish such a right it must be shown by satis- factory evidence that the note, either in whole or in part, is uncol- lectible by reason of the insolvency of the party or parties liable, or for other cause, and that the property, if any, pledged or mortgaged as security is insufficient to satisfy it. (5) Cash on hand or on deposit. — ^The amount of cash belonging to the decedent, either in his possession at the date of death or in the possession of another, should be included. Bank accounts should be returned in the amount on deposit to the credit of the decedent at the date of death. If checks then outstanding, given in discharge of bona fide, legal obligations of the decedent, and not as transfers coming within the provisions of section 402 (c), are subsequently honored by the bank and charged to the account, the balance remaining may be returned, provided the payments effected thereby are not claimed as deductions from the gross estate. Interest which the bank agreed to pay upon condition that the money remain on deposit for a period of time which expired subsequent to the decedent's death, should not be included. (6) Patents, trade-marks, amd copyrights. — ^The basis for valua,- tion of an intangible asset of this character is the present worth of the estimated future earnings of the exclusive right during the rest of its existence. The return received by the decedent should be con- sidered in estimating future earnings. (7) Accounts weceivable, claims, judgments, etc. — ^A fair valuation for assets of this character at the time of death should be fixed by the executor according to the best information available to him. at the time of making return. A right of action which terminated with the death of the decedent should not be included in the gross estate. (8) Other property. — With respect to all other property, except- ing household and personal effects, concerning which see -paragraph (9) of this article, the executor should ascertain and return the fair market value thereof as of the day of decedent's death. As to prop- erty sold subsequent to death, see Article 13. Live stock, farm ma- chinery, harvested and growing crops, where of an aggregate value of $2,000 or more, should be valued, as of the date of decedent's- death, by one or more competent and disinterested appraisers, and their itemized appraisal thereof in writing, verified by the oath of each, should be filed in duplicate with the return on Form 706. The executor should also file in duplicate with the return his affidavit as to the completeness of the itemized lists of such property and of the dis- interested character and qualifications of the appraiser or appraisers. 15 (9) Household and personal effects — General provisions. — Exec- utors and administrators are required to have careful appraisal made of all household and personal effects of the decedent by one or more competent and disinterested appraisers, except as otherwise provided in subdivision (a) of this paragraph, and the appraisal thereof, re- duced to writing and verified by the oath or oaths of the appraiser or appraisers, should be filed in duplicate with the return on Form Y06, accompanied by the affidavit in duplicate of the executor as to the completeness of the itemized lists of such property and of the disinterested character and qualifications of the appraiser or ap- praisers. Where it is desired to effect distribution or sale of any portion of such property in advance of an investigation by a special officer of the Bureau of Internal Revenue, as provided in Article 72, notice thereof should be given to the Internal Revenue Agent in Charge for the Division wherein the decedent was domiciled at the date of his death, or, if such household and personal effects be not located in such Division, then to the Coiamissioner. If the return has not been filed, the notice shoiild be accompanied by a verified appraisal of such property, and an affidavit of the executor as pro- vided above. If personal inspection by a special officer of the Bureau is not deemed necessary, the executor will be so advised. This procedure is designed to facilitate disposition of such property and to obviate future expense and inconvenience to the estate by affording the Commissioner an opportunity to make an investigation, should one be deemed necessary, prior to the sale or distribution. (For location of the offices of the several Internal Revenue Agents in Charge, and the territory embraced in their Divisions, respectively, see Appendix.) {a) Whe.n value is less than $2fi00. — When the value of the per- sonalty involved is less than $2,000, the detailed lists may be prepared by the executor personally. A room by room appraisal is desirable; and all the articles should be named specifically, except those of small value, such as common bric-a-brac or cheap books. A separate value should be given for each article named, except that the values of a number of articles contained in the same room may be grouped. The value of an article worth more than $50 should be stated separately. Such an entry as the following would be acceptable : Dining room: Table, six chairs, three pictures (common prints), value $75 ; sideboard, $60 ; total, $135. If there should be included in the lot, however, jewelry or silver- ware of more than ordinary value, or articles having a marked ar- tistic value, the executor must furnish an appraisal by a person or persons thoroughly qualified by training and experience to judge of the value of such articles. m in itfee ^ase of :effeots hayi»g ii total value of less bkaa $2,90©, the eseeutor may f ursiak, as lam. Mteaiimtive reqairement, a sworja abate- ment im duf)lieate -of the €tggnegate total value of ^e property b^ a professional appraise or appraisers of Fecogniaed sbandmg and aWl- kry, or hj a iealer or dealers in th« .dass of personalty inv;olved. -i^i) WJben vidtie is tivore thanM^O. — When the value of ithe ef- fects is more Jbhan ^2, exceed 60 days. At the expira.tioH of the last extension period granted, a return as complete as possible must be filed, and the executor may thereafter file an amended return when the condition of the estate permits. An extension of time for filing the return does not operate to ex- tend the tiHae for the payment of the tax, which is due one year after the decedent's death unless an extension "of time in which to naake payment bae been obtained as provided in article 82. Akt. 68, Persons liable for return, — ^The statute provides that the dsuly qualified executor or administrator shall file the return. If there is more than one executor or administrator, the return must be made jointly by all. Where no executor or administrator has been ap- pointed, every person in actual ar constructive possession of any property of the decedent i& constitated by the staitute an executor for the p.urpoBes of the- tacs, and is reqiuired to make and file a return as prokvided by Section 404. Where, in any case, the executor is mmAbte to isaike a complete retuini as to ajiy part of the gross estate, he is required to give all the information he has as to such property, including a full description, and the name of every person holding a legal or beneficial interest in the property. Where the executor is unable ta make % return as to any property, the statute requires every person holding a legal or beneficial interest therein, upon notice from the collector, to make return as to such part of the gross estate.. For penalties for delinquency in filing return, or for filing a false or fraudulent return, see Articles 88 to 90, inclusive. Art. 69. Pi^aaraitica of retorit — The return m,ust be made on Form 706, copies of which will be supplied by the collector. It must con- tain an iteioaized inventory, by schedule, of the property constituting the gross estate, and of the deductions. The instructions printed on the form gfcoiuld be carefully followed. All doeumeats and voucheirs used in preparing the return should be retained by the executor, so as to be available for inspection whenever required. Duplicate eertified copies of the will, if any, must be submitted with the return, together with duplicate copies of the other documents requisred by the instructions printed on the fci'm, or any documents which the ex- ecutor m:ay desire to submit with the return in efxplanation thereof. Art. 70. S-itppleifififfltal data. — The statute p'rovides that the execu- tor, in addition to filing notice and return, shall furaiish such supple- 46 mental data as may be necessary to establish the correct tax. It is therefore the duty of the executor to furnish upon request copies of any documents in his possession relating to the estate, or on file in any court having jurisdiction over the estate, appraisal lists of any items included in the gross estate, copies of balance sheets or other financial statements relating to the value of stock, and any other information obtainable by him that may be found necessary in the determination of the tax. Failure to comply with such a request will render the execirtor liable to a fine not to exceed $500, and proceedings may be instituted in the proper United States court to secure compliance therewith. (See Sections 410 and 404.) Aet. 71. Procedure where no return has been made. — Section 405 of the statute provides that if no return is filed for the estate of a de- cedent, or if a return contains a false or incorrect statement of a material fact, the collector or deputy collector shall make a return. The Commissioner may amend this return from such knowledge or information as he can obtain, through testimony or otherwise. A return so made by the Commissioner, or made by the collector or deputy collector, is a s-ufficient basis for assessing the tax. Where a tax is found to be due upon such a return, both the estate and the executor will be liable for penalties as well as for the tax. Aet. 72. Investigation of returns. — An investigation of every return for estate tax will be conducted to verify its accuracy. The investi- gation will be made hy special officers of the Bureau. The fact that an investigation is mude does not reflect upon the competence or good faith of the exe(;utor, since investigations are required in all cases. The executor should cooperate with the examining officer in order that the tax liability may be correctly determined and the case closed. During the course of the investigation the examining officer will inspect the books and records of the estate, interview the executor and other persons having knowledge of the decedent's affairs, verify the value of the assets and the deductions, and take such other steps as may be necessary in order that the correct amount of tax may be determined. Upon completion of the investigation the executor will be ap- prised by the examining officer of his findings, and will be given an opportunity to discuss the case and present such data as he may desire the Commissioner to consider in connection with the examining officer's report. Upon the completion of a review and audit by the Commissioner, the executor will be informed by letter of the result thereof. If the letter contains notification of an amount of unpaid tax, such unpaid amount should be remitted promptly to the collector, and if not paid within the time specified by the applicable provisions of section 406 or section 407, interest will be added as required there- by. (See Art. 83.) 47 It is the purpose of the Cornmissioner to make these investigations as soon as practicable after the filing of the return. Where the executor files a complete return, and makes written application to the Com- missioner for a determination of the tax and discharge from personal liability therefor, the Commissioner will, within one year after receipt of such application, notify the executor of the amount of the tax, and, upon payment 'thereof, the executor will be dis- charged from personal liability for any additional estate tax there- after found to be due. (See Sec. 407.) This provision applies also to cases arising under the Revenue Act of 1918. Attention is here di- rected to Section 250 (d) of the statute which embodies a provision, " That in the case of income received during the lifetime of a de- cedent, all taxes due thereon shall be determined and assessed by the Commissioner within one year after written request therefor by the executor, administrator, or other fiduciary representing the estate of such decedent : * * *." THE RETURN— ESTATES OF NONRESIDENTS. Aet. 73. Return of estates of nonresidents. — ^A return on Form 706 must be filed in duplicate with the Commissioner of Internal Revenue, Washington, D. C, or with such collector of internal revenue as the Commissioner may designate, within one year after the date of death of every nonresident decedent, if any part of the gross estate of such decedent was situated in the United States at the time of his death. It is the duty of the duly qualified executor or administrator to file a return for the whole of that part of the gross estate situated in the United States, whatever its value. If the duly qualified executor or administrator is unable to make a complete return as to any part of the gross estate, he is required to give all the information available to him as to such part, including a description thereof and the name of every persoji holding a legal or beneficial interest therein. If de- ductions are claimed, see Articles 55, 56 and 57. If no executor or administrator has been appointed, all persons in actual or constructive possession of any property of the decedent situated in the United States are required to file a return for such portion of the gross estate as had its situs therein. (See Art. '53.) Art. 74. Supplemental data. — Pursuant to the provisions of Section 404, with respect to furnishing supplemental data, the duly qualifi.ed executor or administrator of a nonresident decedent is required to file with the return : (1) Certified copy of will, or, if the decedent left several wills, to govern in different jurisdictions, certified copy of each will. (2) Certified copy of inventory of property filed under a foreign estate, succession, or death-duty act; or, if no such inventory was filed, a certified copy of inventory filed with the foreign court of probate jurisdiction. 48 The specified information, is- required whetluer or not the executor wishes to claim the deductions- authorised in section 403(b). PRIVILEGED CHARACTER OF RETURNS. Art. T5. Eetarns conMeatial. — ^AU estate tax returns and notices are treated as privileged commiinieation® and May not be exhibited to any person other than the executor or his duly authorized agent, except as stated in Article 76. This requiTement of secrecy will be rigidly enforced, and extends to information of a private nature submitted or obtained in connection with a return or notice. The requirement does not operate to prevent internal revenue officers from^ disclosing the returned value of any item or the amount of any specific deduction, where such disclosure is necessary in order to arrive at a co-rrect determination of the tax. This right of dis- dosu-re, however, does not exten fide purchaser for value after paymeHt of the full amount of tax deter- mined by the Commissioner pursuant to a request of the executor, as authorized by Section 4'07, for discharge from personal liability (see Art. 12.) ;, (4) Such property as has been sold by any transferee or trtmtee to a bona fitie purchaser for a fair consideration in money or mtsney's worth, where sudi property was received' from the decedBnt a;s a transfer in contemplation of, or intendbd to take effect in possession or enjoymnt at or after, his death (except in the case of a bona fide sale for a fair considera»tion in maney or money's worth) ; (5) Where the Ccwnmissioner issues his certificate releasing such lien (see Art. 87). Art. 87.^ Release of liem — ^The statute provides that, if the Commis- sioner is satisfied that the tax liabilitj'^ of an estate has been fully discharged or provided for, h§ may issue his certificate releasing any or all property of the estate from the lien. The issuance of certifi- cates is a matter resting" within the discretion of the CommissioHer, and eerfcifieates will be issiied only in case therfr' is a'ctual' need there- for. In most cases the reeeipfe issued by the collector constitute suffi- cient acquittance. The tax will be considered fully diseharrged for the purpose of the issuance of a certificate only when investigation has been completed, ind payment of the tax, as determined by the Commissioner, has been made. A certificate of release of lien may be issned by the Comwuis^ sioner under these circumstances; a9 to any or all property of the estate, upon the filing by the executor of an application in duplicate on Form 791. The form must contain all the information called for. Where the tax liability has not been fully discharged^ as provided' above, no general certificate of release will b& granted', but releases of lien upon particular items of propertj;^ will be issued upon the filing with the Commissioner of such security, if any, as he may require. Where security is required,- a corporate indemnity bond must be fur- nished, or Liberty Bonds, or other bonds or notes' of the United States, must be deposited with th« coHeetor. In lieu of such security, the Commissionei' may in any case issue the release upon payment of the estimated tax upon the transfer of the property released, com- puted at the highest rate applicable to the estate. If, upon eonsiiJera- tion of the application, the Commissioner finds the issuance of the- certificate to be warranted, the collector will notify the essecutor of the amount of the bond, as fixed by the Commissioner. PEIich the net estate exceeds $250,000 and does not exceed $450,000; 6 per centum of the amount by which the net estate exceeds $450,000 and does not exceed $750,000; 8 per centum of the amount by which the net estate exceeas $750,000 and does not exceed $1,000,000; 10 per centum; of the amount by which the net estate exceeds $1,000,000 and does not exceed $1,500,000; 12 per centum of the amount by which the net estate exceeds $1,500,000 and does not exceed $2,000,000; 14 per centum of the amount by which the net estate exceeds $2,000,000 and does not exceed $3,000,000; 16 per centum of the amount by which the net estate exceeds $3,000,000 and does not exceed $4,000,000; 18 per centum of the amount by which the net estate exceeds $4,000,000 and does not exceed $5,000,000; 20 per centum of the amount by which the net estate exceeds $5,000,000 and does not exceed $8,000,000; 22 per centum of the amount by which the net estate exceeds $8,000,000 and does not exceed $10,000,000; and 25 per centum of the amount by which the net estate exceeds $10,000,000. The taxes imposed by this title or by 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 by Title IX of the Revenue Act of 1917, shall not apply to the transfer of the net estate of any decedent who has died or may die while serving in the military or naval forces of the United States in the present war or from injuries received or disease contracted while in such service, and any such tax collected upon such tra.nsf er shall be refunded to the executor. Sec. 402. That the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated — (a) To the extent of the interest therein of the decedent at the time of his death which after his death is subject to the payment of the charges against his estate and the expenses of its administration and is subject to distribution as part of his estate; (b) To the extent of any interest therein of the surviving spouse, existing at the time of the decedent's death as dower, courtesy, or by virtue of a statute creating an estate in lieu of dower or courtesy ; 77 (c) To the extent of any interest therein of which the decedent has at any time made a transfer, or with respect to which he has at any time created a trust, in contemplation of or intended to take effect in possession or enjoyment at or after his death (whether such transfer or trust is made or created before or after the passage of this Act), except in case of a bona fide sale for a fair consideration in money or money's worth. Any transfer of a material part of his property in the nature of a final disposition or distribution thereof, made by the decedent within two years prior to his death without such a consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of this title; (d) To the extent of the interest therein held jointly or as tenants in the entirety by the decedent and any other person, or deposited in banks or other institutions in their joint names and payable to either or the survivor, except such part thereof as may be shown to have originally belonged to such other person and never to have belonged to the decedent; (e) To the extent of any property passing under a general power of appointment exercised by the decedent (1) by will, or (2) by deed executed in contemplation of, or intended to take effect in possession or enjoyment at or after, his death, except in case of a bona fide sale for a fair consideration in money or money's worth ; and (f) To the extent of the amount receivable by the executor as insurance under policies taken out by the decedent upon his own life ; and to the extent of the excess over $40,000 of the amount receivable by all other beneficiaries as insurance under policies taken out by the decedent upon his own life. Sec. 403. That for. the purpose of the tax the value of the net estate shall be determined — (a) In the case of a resident, by deducting from the value of the gross estate — (1) Such amounts^ for funeral expenses, administration expenses, claims against the estate, unpaid mortgages, losses incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualty, or from theft, when such losses are not compen- sated for by insurance or otherwise, and such amounts reasonably required and actually expended for the support during the settlement of the estate of those dependent upon the dfecedent, as are allowed by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered, but not in- cluding any income taxes upon income received after the death of the decedent, or any estate, succession, legacy, or inheritance taxes; 78 (2) An amount equal to the value at the time jof the decedent's death of any property, real, personal, or mixed, which can be identi- fied as having been received by the decedent as a share in the estate of any person who died within five years prior to the death of the decedent, or which can be identified as having been acquired by the decedent in exchange for property so received, if an estate tax under the Revenue Act of 1917 or under this Act was collected from such estate, and if such property is included in the decedent's gross estate ; (3) The an^ount of all bequests, legacies, devises, or gifts, to or for the use of the United States, any State, Territory, any political sub- division thereof, or the District of Columbia, for exclusively public purposes, or to or for the use of any corporation organized and oper- ated exclusively for religious, charitable, scientific, literary, or edu- cational purposes, including the encoiiragement of art and the pre- vention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual, or to a trustee or trustees exclusiely for such religious, charitable, scientific, literary, or educational purposes. This deduction shall be made in case of the estates of all decedents who have died since December 31, 1917 ; and (4) An exemption of $50,000; (b) In the case of a nonresident, by deducting from the value of that part of his gross estate which at the time of his death is situated in the United States— (1) That proportion of the deductions specified in paragraph (1) of subdivision (a) of this section which the value of such part bears to the value of his entire gross estate, wherever situated, but in no case shall the amount so deducted exceed 10 per centum of the value of that part of his gross estate which at the time of his death is situated in the United States ; (2) An amount equal to the value at the time of the decedent's death of any property, real, personal, or mixed, which can be identi- fied as having been received by the decedent as a share in the estate of any person who died within five years prior to the' death of the decedent, or which can be identified as having been acquired by the decedent in exchange for property so received, if an estate tax under the Eevenue Act of 1917 or under this Act was collected from such estate, and if such property is included in that part of the decedent's gross estate which at the time of his death is situated in the United States; and (3) The amount of all bequests, legacies, devises, or gifts, to or for the use of the Uaited States, any State, Territory, any political subdivision thereof, or the District of Columbia, for exclusively public purposes, or to or for the use of any domestic corporation 79 organized and operated exclusively for religious, charitable, scien- tific, literary, or educational purposes, including the encouragement of art and 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 individual, or to a trustee or trustees exclusively for such religious, charitable, scientific, literary, or educational pur- poses within the United States. This deduction shall be made in case of the estates of all decedents who have died since December 31, 1917; and No deduction shall be allowed in the case of a nonresident unless the executor includes in the return required to be filed under section 404 the value at the time of his death of that part of the gross estate of the nonresident not situated in the United States. For the purpose of this title stock in a domestic corporation owned and h€ld by a nonresident decedent, and the amount receivable as insurance upon the life gf a nonresident decedent where the insurer is a domestic corporation, shall be deemed property within the United States, and any property of which the decedent has made a transfer or with respect to which he has created a trust, within the meaning of subdivision (c) of section 402, shall be deemed to be situated in the United States, if so situated either at the time of the transfer or the creation of the trust, or at the time of the decedent's death. In the case of any estate in respect to which the tax under existing law has been paid, if necessary to allow the benefit of the deduction under paragraph (3) of subdivision (a) or (b) the tax shall be rede- termined and any excess of tax paid shall be refunded to the executor. Sec. 404. That the executor, within sixty days after qualifying as such, or after coming into possession of any property of the decedent, whichever event first occurs, shall give written notice thereof to the collector. The executor shall also, at such times and in such manner as may be required by regulations made pursuant to law, file with the collector a return under oath in duplicate, setting forth (a) the value of the gross estate of the decedent at the time of his death, or, in case of a nonresident, of that part of his gross estate situated in the United States; (b) the deductions allowed under section 403; (c) the value of the net estate of the decedent as defined in section 403; and (d) the tax paid or payable thereon ; or such part of such information as may at the time be ascertainable and such supplemental data as may be necessary to establish the correct tax. Eeturn shall be made in all cases where the gross estate at the death of the decedent exceeds $50,000, and in the case of the estate of every nonresident any part of whose gross estate is situated in the United States. If the executor is unable to make a complete return as to any part of the gross estate of the decedent, he shall include in 80 his return a description of such part and the name of every person holding a legal or beneficial interest therein, and upon notice from the collector such person shall in like manner make a return as to such part of the gross estate. The Commissioner shall make all assessments of the tax under the authority of existing administrative special and general provisions of law relating to the assessment and collection of taxes. Seo. 405. That if no administration is granted upon the estate of a decedent, or if no return is filed as provided in section 404, or if a return contains a false or incorrect statement of a material fact, the collector or deputy collector shall make a return and the Commis- sioner shall assess the tax thereon. Sec. 406. That the tax shall be due one year after the decedent's death; but in any case where the Commissioner finds that payment of the tax within one year after the decedent's death would impose undue hardship upon the estate, he may grant an extension of time for the payment of the tax for a period not to exceed three years from the due date. If the tax is not paid within one year and 180 days after the decedent's death, interest at the rate of 6 per centum per annum from the expiration of one year after the dece- dent's death shall be added as part of the tax. Seo. 407. That the executor shall pay the tax to the collector or deputy collector. If the amount of the tax can not be determined, the payment of a sum of money sufficient, in the opinion of the col- lector, to discharge the tax shall be deemed payment in full of the tax, except as in this section otherwise provided. If the amount so paid exceeds the amount of the tax as finally determined, the Com- missioner shall refund such excess to the executor. If the amount of the tax as finally determined exceeds the amount so paid, the collector shall notify the executor of the amount of such excess and demand payment thereof. If such excess part of the tax is not paid within thirty days after such notification, interest shall be added thereto at the rate of 10 per centum per annum from the expiration of such thirty days' period until paid, and the amount of such excess shall be a lien upon the entire gross estate, except such part thereof as may have been sold to a bona fide purchaser for a fair consid- eration in money or money's worth. The collector shall grant to the person paying the tax duplicate receipts, either of which shall be sufficient evidence of such payment, and shall entitle the executor to be credited and allowed the amount thereof by any court having jurisdiction to audit or settle his accounts. Sec. 408. That if the tax herein imposed is not paid within 180 days after it is due, the collector shall, unless there is reasonable 81 cause for further delay, proceed to collect the tax under the provi- sions of general law, or •commence appropriate proceedings in any court of the United States, in the name of the United States, to subject the property of the decedent to be sold under the judgment or decree of the court. From the proceeds of such sale the amount of the tax, together with the costs and expenses of every description to be allowed by the court, shall be first paid, and the balance shall be deposited according to the order of the court, to be paid under its direction to the person entitled thereto. If the tax or any part thereof is paid by, or collected out of that part of the estate passing to or in the possession of, any person other than the executor in his capacity as such, such person shall be enti- tled to reimbursement out of any part of the estate still undistrib- uted or by a just and equitable contribution by the persons whose interest in the estate of the decedent would have been reduced if the tax had been paid before the distribution of the estate or whose interest is subject to equal or prior liability for the payment of taxes, debts, or other charges against the estate^ it being the purpose and intent of this title that so far as is practicable and unlesg otherwise directed by the will of the decedent the tax shall be paid out of the estate before its distribution. If any part of the gross estate con- sists of proceeds of policies of insurance upon the life of the decedent receivable by a beneficiary otber than the executor, the executor shall be entitled* to recover from such beneficiary such portion of the total tax paid as the proceeds, in excess of $40,000, of such policies bear to the net estate. If there is more than one such beneficiary the executor shall be entitled to recover from such beneficiaries in the same ratio. Seo. 409. That unless the tax is sooner paid in full, it shall be a lien for ten years upon the gross estate of the decedent, except that such part of the gross estate as is used for the payment of charges against the estate and expenses of its administration, allowed by any court having jurisdiction thereof, shall be divested of such lien. If the Commissioner is satisfied that the tax liability of an estate has been fully discharged or provided for, he may, under regulations prescribed by him with the approval of the Secretary, issue his cer- tificate releasing any or all property of such estate from the lien herein imposed. If (a) the decedent makes a transfer of, or creates a trust with respect to, any property in contemplation of or intended to take effect in possession or enjoyment at or after his death (except in the case of a bona fide sale for a fair consideration in money or money's worth) or (b) if insurance passes under a contract executed by the decedent in favor of a specific beneficiary, and if in either case 82 the tax in respect thereto is not paid when due, then the transferee, trustee, or beneficiary shall be personally' liable for such tax, and such property, to the extent of the decedent's interest therein at the time of such transfer, or to the extent of such beneficiary's interest under such contract of insurance, shall be subject to a like lien equal to the amount of such tax. Any part of such property sold by- such transferee or trustee to a bona fide purchaser for a fair consideration in money or money's worth shall be divested of the lien and a like lien shall then attach to all the property of such transferee or trustee, except any part sold to a bona fide purchaser for a fair consideration in money or money's worth. Sec. 410. That whoever knowingly makes any false statement in any notice or return required to be filed under this title shall be liable to a penalty of not exceeding $5,000, or imprisonment not exceeding one year, or both. Whoever fails to comply with any duty imposed upon him by section 404, or, having in his possession or control any record, file, or paper, containing or supposed to contain any information con- cerning the estate of the decedent, or, having in his possession or control any property comprised in the gross estate of the decedent, fails to exhibit the same upon request of the Commissioner or any collector or law officer of the United States, or his duly autho^zed deputy or agent, who desires to examine the same in the performance of his duties under this title, shall be liable to a peifalty of not exceeding $500, to be recovered, with costs of suit, in a civil action in the name of the United States. LIST OP THE SEVERAL DIVISIONS AND LOCATIONS OF OFFICES OP INTERNAL REVENUE AGENTS IN CHARGE. (Communications sliould be addressed ; United States Internal Revenue Agent in Charge, City. State. Name of division. Atlanta Baltimore Boston Buffalo Chicago Cincinnati... Cleveland... Columbia Denver Detroit Greensboro.. Honolulu Huntington. Indianapolis Louisville... Milwaukee.. Nashville. . . Newark New Haven. New Orleans. New York Oklahoma Omaha Philadelphia. . Pittsburgh , Portland Richmond St. Louis St. Paul Salt Lake City San Antonio. . . San Francisco. Seattle , Springfield Wichita.. Territory embraced. Florida and Georgia Delaware, District of Columbia, Maryland. Maine, Massachusetts, New Hamp- shire, and Vermont. Twenty-first and twenty-eighth col- lection districts of New York. First collection district of Illinois. . . First and eleventh collection districts of Ohio. Tenth and eighteenth collection dis- tricts of Ohio. South Carolina , Arizona, Colorado, New Mexico, and Wyoming. Michigan North Carolina Hawaii West Virginia Indiana Kentucky Wisconsin Alabama and Tennessee New Jersey Rhode Island, Connecticut, and fourteenth collection district. New York (except Westchester County, and the twenty-third and twenty- fourth wards of New York City). Louisiana and Mississippi First and second collection districts of New York, Westchester County and twenty-third and twenty- fourth wards of New York City being part of the fourteenth collec- tion district of New York. Arkansas and Oklahoma Iowa and Nebraska First and twelfth collection districts of Pennsylvania. Twenty-third collection district of Pennsylvania. Oregon Virginia Missouri Minnesota, North Dakota, and South Dakota. Idaho, Montana, and Utah Texas California and Nevada Washington and Alaska Eighth collection district of Illinois . (83) Location of office. Atlanta, Ga. Baltimore, Md. Boston, Mass. Buffalo, N. Y. .Chicago,-Ill. Cincinnati, Ohio. Cleveland, Ohio. Columbia,S. C. Denver, Colo. Detroit, Mich. Greensboro, N. 0. Honolulu, Hawaii. Huntington, W. Va. Indianapolis, Ind. Louisville, Ky. Milwaukee, Wis. Nashville, Tenn. Newark, N. J. New Haven, Conn. New Orleans, La. New York City. Oklahoma, Okla. Omaha, Nebr. Philadelphia, Pa. Pittsburgh, Pa. Portland, Oreg. Richmond, Va. St. Louis, Mo. St. Paul, Minn. Salt Lake City, Utah. San Antonio, Tex. San Francisco, Calif. Seattle, Wash. Springfield, 111. Wichita, Kans. INDEX. (An analytical Table of Contents precedes the Regtilations.) A. Article. Page. Abatement, claim. for , 92-95 58,59 Accountants, fees of — deductibility 38 30 Accounts, valuation of 14(7) 14 Additional tax: Abatement, claim for 92-95 59 Determination of 72 46 Discbarge from personal liability 72 46 Interest-on 83 52 Lien of .'. 86 55 Paymentof 79' 50 Personal liability for 81,99 51,62 Adjustment of tax 72 46 Administration expenses, definition of 38 30 Administrator (s€6 Section 400 and Executor) — 1 Ad valorem penalty 88 57 Advance payment, no discount because of 79 50 Advancem^ent, not necessarily taxable 18 20 Agent, transfer, ponresident estate, when to give notice of. 65 43 Alaska, included in the term "United States" 5 3 Allies (see Associated nation) 9 7 Animals, loss of during administration „ 42 31 Annuity: Created in connection with a transfer 20 21 Included in gross estate 11 9 Valuation of 15 16 Annuityinsurance, valuation of. 31 27 Antiques 14 (9b) 16 Appointment, property passing under power of 25,26 24,25 Appraisal: Assets of business 14(3) 13 Household and personal effects 14(9) 15 Other propea-ty 14(8) 14 Appraisers: Expert required 14(3,8,9) 14,15 Fees of— deductibility 38 30 Army Nurse Carps, female 9 7 Artistic value, articles of 14 (9b) 16 Assessment of estate tax 71,78, 93 29, 30, 46, ,49, 59 Assignee, personal liability of 99 62 Assignment of insurance policy 27 25 Associated nation, United States citizen serving in force of. 9 7 Attendance, power to require. 100,101 63 (84) 85 Article. Attorney, power of 77, 96 Attorney's fees, when deductible 35, 37 Auctioneers, fees of — deductibiKty 38 B. Bank deposits, amount to be included in gross estate 14 (5) Bankers (see Nonresident estates) 64 Beneficial interest, person holding, when required to make return: Nonresident estates 73 Resident estates 68 Beneficial ownership of decedent in his lifetime 11 Beneficial societies, fraternal, death benefits paid by 27 Beneficiary: Estate previously taxed, decedent a — of 44 See also Nonresident estates 56 Insurance 27-31 Insurance, legally bound to use proceeds for payment of taxes or charges against estate 28 Liability of 85, 86, 99 Benefits, death 27 Bequests: Conditional — when deductible 50 See alto Nonresident estates ' 57 In lieu of dower or like interest 16 In lieu of executor's commission 36 . Public or charitable 47-51,57 Betterments to property transferred 22 Bonds: All, whether Federal, State, or municipal, and whether or not containing a tax-free covenant 12 Estates of nonresidents 53, 65, 66 Of United States, payment of tax with 80 Valuation of 14 (2) Books: And records, production of 100, JOl Valuation of 14 (9) Bric-a-brac 14 (9) Broker's fee, deductibility of 38 Brokers in possession of securities or funds of nonresident decedent 64 Burial expenses, deductibility of charge for 34 Biisiness, valuation of interest in 14 (3) • C. Caring for property of the estate, expense of 38 Cash on hand or on deposit, valuation of 14 (5) Casualty, losses from 42 See also Nonresident estates 55 Cemetery lot, inclusion in gross estate 12 Charges against the estate, life insurance to provide for payment of 28 Charitable bequests 47-51, 57 48,59 29,30 30 14 42 47 45 9 25 32 40 25-27 26 54, 55, 62 25 36 40 19 29 35, 36, 40 22 10 37,43 51 11 ■ 63 15 15 30 42 28 13 30 14 31 39 10 26 35,36,40 86 Checks: Article. Page. Outstanding at date of death 14 (5) 14 Payment of tax with : 80 51 China — estate of United States citizen probated in United States Court for China 5 3 See also Section 411 — 64 Citizen of United States — estate of, probated in United States Court for China 5 3 See also Section 411 — 64 Citizen of the United States who served in the war against Germany ' 9,10 7,8 Citizenship not test of residence 5 3 Claims: Held by decedent 12 10 Valuation of 14(7) 14 Claims against estate, deduction of 39, 55 30, 39 See also 14(2) 11 Claims for abatement or refund 92-97 59-60 Clerk hire, deductibility 38 30 Close corporation, valuation of stock in 14 (2) 11 Coast Guard, re service in — exemption 9 7 Collection of tax 84, 102 53,-63 Commissions: See also Nonresident estates 55 39 Administrator's, executor's, trustee's 36 29 Broker's 38 30 Compromise of penalties or disputed tax 98 61 Computation of tax 6,8 4, 5 iSee afeo Nonresident estates 58 40 Conditional charitable, etc., bequests 50 36 See also Nonresident estates 57 40 Conditional deduction of attorney's, administrator's, or executor's fees 36, 37 29, 30 Constructive possession, person in 62, 73, 81, 99 42, 47, 51, 62 See also Nonresident estates 59, 64, 68 41, 42, 45 Coritemplatio%of death: Exercise of power of appointment in 25 24 Transfer in 17, 18, 22 20, 22 Contingent liability, deduction of 32 27 Contingent remainder 11, 15 9, 16 Contribution, by persons liable for the tax, to the person paying 85 54 Contribution to purchase price of property held jointly or as v tenants by the entirety 24 23 Control of corpus or income of property transferred — eSect of reservation of 21 22 Copyrights, valuation of 14 (6) 14 Corporation, nonresident estate, when to give notice of 65 43 Court costs, deduction of • 38 30 (See aZso Nonresident estates 55 39 Court decree, effect of, as fixing amounts deductible 33 28 Crops, valuation of growing 14 (8) 14 Curtesy 16 19 Custodians of property of nonresident decedents 64 42 87 D. Article. Page. Data, supplemental, to be fuinislied in behalf of the estate . 70, 74 45, 47 Date for filing: Return 67,73 44,47 Preliminary notice 61, 62, 64, 65 41, 42, 43 Death benefits, taxable as insurance 27 25 Death: Contemplation of 18 20 Transfer in contemplation of 17,18,22 20,22 Transfer intended to take effect in possession or enjoy- ment at or after death 17, 19-22 20, 21, 22 Value at date of, of property transferred 22 22 Debtor of decedent: Insolvency of 14(4) 14 Personal liability of... 99 62 Debts of decedent 32 27 See aZso Nom-esident estates 55 39 Decree, court, effect of, aa fixing amounts deductible 33 28 Deductions: Estates Qf nonresidents 4,54-58 3,38-40 Estates of residents 4, 32-52 3, 27-36 Delinquency — penalties 88,90 57 Dependents, support of 43 32 Depreciation afterdate of death 13,42 11, 31 Determination of net estate 4,6 3,4 iSee afoo Nonresident estates 55,58 39,40 Determination of tax 6-8, 79 4, 5, 50 See also Nonresident estates 54, 58 38,40 Devise for public, charitable, religious, etc., uses 47-51 35-36 Devise in lieu of dower or like interest 16 19 Discharge: Prom personal liability for tax 72 46 Of lien for tax ;. 86 55 Discount, none allowed on tax 79 50 Disease: Contracted in line of duty 9 7 Loss from, when deductible 42 31 Distraint, collection of tax by 102 63 Distributing estate, expenses of 38 30 jSec aZso Nonresident estates 55 39 Distribution of property, restrictions on 14(9) 15 District of Columbia — ^included in term "United States "... 5 3 Seealso 47 35 Dividends: Notice of nonresident decedent 65 43 When to be included in gross estate ' 12 10 Domestic corporations, stock in, part of estate of nonresident. 53 37 Domestic insurance company, insurance in, not a part of estate of nonresident 53 37 Domicile 5,60 3,41 Donee of power of appointment 25 24 Dower ' 16 19 Due date: Interest on tax from 83 52 Oftax 79 50 88 E. Article. Educational uses, transfers for 48 See also Nonresident estates 57 Effective dates of various statutes 1, 7 Election to take under will: See Dower; Curtesy .\ ■. 16 See Executor's commission 36 See Attorney's fee 37 Election under insurance policy 31 Enhancement of value subsequent to death ,13 Enhancement of value of property transferred 22 Engravings : . . 14(9b) Equitable {see Beneficial ownership) 11 Escheated property, transfer taxable 3 Estate, insurance in favor of 27, 28 Estate of decedent, what constitutes 11 Estate tax acts, 1921, 1918 — Estate tax, character of — ^not a property or legacy tax 3 Estates, by the entirety, joint, life, remainder and in reversion 15, 23, 24 Etchings 14(9b) Exchange, property acquired by — of property previously taxed 46 See also Nonresident estates 56 Ex dividend — stock selling 12 Executor: Commissions 35, 36 See also Nonresident estates 55 Defined 62 See also Nonresident estates : 64 Discharge from personal liability 72 Expense of holding property as trustee, by — not an ad- ministration expense 35 Failure. See Penalties. Final accounting, receipt for payment of tax, entitles him to credit 79 Foreign, directing transfer of securities 65 Insurance receivable by 27, 28 Legacy to, in lieu of commissions 36 Penalties 71,88,91 Personal Uability of | ^^'1}'.^^' Reimbursement by certain persons 85 Result of investigation — ^informed of . . . ._ 72 Should reserve sufficient assets to satisfy any additional tax 79 Executor's duties: Furnish copies .• 70 Give preliminary notice 61 See also Nonresident estates 64 Keep records 103 Page. 35 40 2,4 19 29 30 27 11 22 16 9 2 25,26 '9 66, 75 2 16, 22, 23 16 34 40 10 29 39 42 42 46 29 50 43 25,26 29 46, 57, 58 41, 46, 51, 62,63 54 46 50 45 41 42 64 89 Executor's duties — Continued. Article. Pay the tax 81 See also Nonresident estates 59 Render statements 104 Reserve sufficient assets to satisfy additional tax 79 Retain all documents and vouchers 69 Exempt estates: Less than $50,000, in case of doubt, file notice 60 Military, etc., exemption 9,10,63 Exemption, $40,000 of life insurance 27, 29 Exemption for military, etc., service, how claimed 10, 63 Exemption, specific 4, 52 None in nonresident estates 4, 54 Expectation of death 18 Expenses deductible 32-38 See also Nonresident estates 55 Extension of time for filing return , 67 Extension of time for payment of tax 82, 83 F. Farm machinery 14 '(8) Federal bonds: Payment of tax with 80 Transfer of taxable 12 Federal taxes upon income 40, 72 Fees, deductible 35, 38 Fiduciary, when to give preliminary notice 62, 64 Fires, losses from 42 Foreign country: Citizen of, may be a readent 5 Decedent a resident of. See Nonresident estates. Inventory filed in connection with proceedings in 74 Foreign military force, decedent who served with 9, 10 Fraternal beneficial societies, death benefits paid by 27 Fraud in return, effect of 83, 89 Funeral expense 32, 33, 34 Fiuniture, valuation of 14 (9) G. General power of appointment 25 Germany, war against 9 Gift: Joint tenancy or tenancy by the entirety 24 "^Tien taxable 17-22, 24 Gross estate 4, 11, 53, 54. Lien for tax on 86 H. Hawaii, included in the term "United States " 5 Heirs: Property passing directly to 12 When none, transfer by escheat to State is taxable .... 3 See also Liability. Household effects, valuation and distribution of 14 (9) Husband and wife. See Dower; Curtesy; Joint interests; Tenancy by the entirety; Previously taxed property. 51 41 64 50 45 41 7,8,42 25,26 8,42 3,36 3,38 20 27-30 39 44 52 14 51 10 31,46 29,30 42 31 47 7,8 24 52, 57 27,28 15 24 7 23 20-22, 23 3, 9, 37, 38 55 10 2 15 90 I. Income of property transferred, reservation of, in favor of Article. Page. grantor or of another 20, 47 21, 35 Incometax, Federal 40,72 31,46 Inheritance tax, estate tax is not an 3 2 Insurance: Life 27-31 25-27 Losses compensated by 42 31 Interest accrued at time of death — whether then payable or not 12 10 Interest on: ■-- Bank account 14 (5) 14 Bonds 12, 14 (4) 10, 14 Estate tax 82, 83, 94, 97 52, 59, 60 Mortgages against estate 41,106 31,65 Mortgages owned by estate. 12, 14 (4) 10, 14 Notes owned by estate 12, 14 (4) 10, 14 Refund 97 60 Internal revenue agents in charge, list of — 83 Inventory, of nonresident estate — power to require 74 47 Investigation of returns 72, 79 46, 50 J. Jewelry, valuation of 14 (9) 15 Joint accoimt in bank 23 22 Joint interests 23, 24 22, 23 Judgments in favor of decedent's estate 14 (7) 14 Judgments of local court — effect on deductions 33 28 li. Legacy, estate tax is not upon any particular 3 2 Legacy for public, charitable, religious, etc., uses 47-51 35-36 Legacy in lieu of com missions 33 2S Legal interest — ^person holding, when required to make return: Nonresident estates 73 47 Resident estates 68 45 Liability: Contingent, deduction of 32 27 Personal — of administrator, assignee, beneficiary-, per-l 59, 71, 85, 41, 46, 54, son in possession, transferee, trustee J 99, 102 62, 63 Liberty bonds: Payment of tax with *. 80 51 Transfer of taxable 12 10 Lien for the tax: Property subject to 86 55 Release of lien 87 56 Life estates 11, 15, 25 9, 16, 24 Life insurance, when taxable 27-31 25-27 Line of duty, service in military forces 9 7 Litigation to determine respective shares of beneficiaries.. 37 30 Live stock, valuation of 14 (8) 14 Lodge, death benefits paid by 27 25 Losses during administration 32, 42 27, 31 91 M. Article. Page. Machinery, fann 14(8) 14 Marir.e Corps, service in 9 7 Mausoleum 34 28 Military service — exemption because of 10 8 Military forces of United States or of an associated nation — exemption because of service in ; 9, 10 7, 8 Miscellaneous administration expenses 32, 35, 38 ,?7, 29, 30 Missionary, residence of 5 3 See also ^S (h) — 37 Mitigationof fines, penalties, or forfeitures 98 61 Modified articles of Regulations No. 37 106 ,65 Money due nonresident decedents, situs of . ., 53 ,37 Money in joint account ., 23, 24 22, 23 Money on deposit 14 (5) 14 Monument, deduction for 34 ,28 Mortgage owned by decedent . 14 (4) .14 Mortgage, deduction of 41,55,106 31,39,|g'5 Municipal bonds, transfer of, taxable 12 10 N. Naval forces of United States or of an associated nation 9 7 Net estate: Estates of residents 3, 4, 6, 32-52 2,3,4,27-36 See Deductions. See also Estates of nonresidents ". 54-58 '" ' '38^0 Nonresident estates (see, generally, titles imder general index) : Administrator shall pay tlie tax 59,81 41,51 Agents of nonresident decedent 64 42 Bankers 64 42 Beneficial interest, person holding, when required to make return 73 • 47 Bonds — Interest accrued prior to death 65 43 Situs of 53 37 Taxfree 12 10 Transfer after notice 66 43 Deductions 54^58 38-40 See also specific_titles under Deductions. Defined 5 3 Executor shall — Givenotice 61,64 41,42 Paythetax 59,81 41,51 Information concerning, requirement of 74 47 Instance in domestic company — not part of gross estate 53 37 Moneys due from domestic debtors — when part of gross estate 53 37 Moneys on deposit 53 37 Net estate — how determined 54-58 38-40 Notice 64-66 42-13 Payment of tax 59 41 94206°— 22 7 / 92 Nonresident estates — Continued. Article. Personal property — when included in gross estate 53 Person holding beneficial interest, when required to make return 73 Possession, persons in actual or constructive 64 Presumption 5 Property in the United States 12, 53, 64 Real property in the United States 12, 64 Real property outside the United States 12, 55-58 Return 55-58, 73 Specific exemption — none 4, 54 Stock in domestic corporation 53 Tax confined to estate in United States 54 Notes of United States, payment of tax with 80 Notes, valuation of ^ ^ .; 14 (4) Notice, preliminary 60-66 Failure to file 90 False or fraudulent 89 Nurse — exempt estates 9 O. Officers — list of Internal Revenue — Oriental rugs, valuation of 14 (9b) P. Paintings, valuation of 14 (9b) Partner, decedent's interest as 14 (3) Patents, valuation of 14 (6) Payment of tax: By certain bonds or notes of United States 80 By uncertified check 80 Executor shall make 81 Extension of time for 82 See also Nonresident estates 59 Proceedings to enforce , 102 Receipt for 79 Settlement of executor's accounts — receipt entitles to credit 79 Shown due by return — effect of 83 Time of 79 Penalties: Abatement 93 Ad valorem 88 Avoid, incase of doubt 60 Compromise 98 For delinquency 88,90 For failure to exhibit records 91 For failure to file notice or retmn 90 For failure to furnish copies of documents, upon request. 70 For false and fraudulent notice or return 89 Nature of '. . 88 Refund of 96,97 Remission of 98 Return not in good faith 83, 89 Page. 37 47 42 3 10, 37, 42 10,42 10, 39-40 39-40, 47 3,38 37 38 51 14 41-^3 57 57 7 83 16 16 13 14 51 51 51 52 41 63 50 50 52 50 59 57 41 61 57 58 57 45 57 57 59,60 61 52,57 93 Person in actual or constructive possession — when must file return: Article. Nonresident estates. 73 Resident estates 68 Personal effects, valuation and distribution of 14 (9) Personal liabiKty — ^persons subject to — administrator,! " assignee, beneficiary, executor, person in possession,! 'qq 109 transferee, trustee J ' Personal property, inclusion and valuation of I oq 04.' See also Nonresident estates 53 Philippine Islands, not included in term ' ' United States " . . 5 Policy of life insurance 27-31 Porto Rico, not included in term " United States" 5 Power of appointment, property passing under , . . . 25, 26 Power of attorney 96 Preliminary notice 60-66 Failure to file 90 False or fraudulent 89 Present worth of annuities and future interests 15 Presumptions; Assessment of estate tax correct 93 Consent decree 33 Property held jointly or as tenants by the entirety. ... 24 Residence 5 Taxability of transfers, if not rebutted (the value of transfers must be returned) 18 Two years of death, transfer within 18 When tax upon personal property becomes a personal obligation 40 Previously taxed property 44-46 See also Nonresident estatra 56 Prints, common 14 (9a) Privileged character of return and other records 75, 76 Proceeds of life insurance subject to lien for tax 86 Promulgation of regulations 106 Property previously taxed 44r-46 See also Nonresident estates 56 Property transferred — ^inclusion in gross estate 17-22 Property, valuation of 13-15, 22 Protest, payment of tax under 97 B. Rates of tax (sec. 401) 7, 8 Real property (generally) 11, 12, 14 (1) Assessment for local taxation not determinative of value. 14 (1) Devisee, taking directly 12 Entirety, estate by 23, 24 Jointly owned property 23, 24 Heirs taking directly 12 Life estate 11, 15 Mortgaged, full value to be returned 41 ! on 41, 55, 106 47 45 15 41, 46, 54, 62,63 9-16 22-23 37 3 25-27 ' 3 24, 25 59 41-^3 57 57 16 59 28 23 3 20 20 31 32-34 40 15 48 55 65 32-34 40 20-22 11-19, 22 60 4,5 9, 10, 11 11 10 22,23 22,23 10 9,16 31 31, 39, 65 94 Real property — Continued. Article. ■ Pago. f 12, 41, 10, 31, Outside the United States i f;';-';? 39^0 Taxeson 40 31 Valuation 14(1) 11 Rebuttal of presumption of taxability of transfers 18 20 Receipts granted upon payment of tax 79 50 Records: Executor, duty to keep 103 64 Exhibit, penalty for failure to 91 58 Production of 100, 101 63 Refunds, claims for 92, 96, 97 59, 60 Registrar, nonresident estate — when to give notice 65 43 Regulations No. 37, modified, revoked and superseded ar- ticles of 106 65 Reimbursement, for tax paid 85 54 Release of lien 87 56 Relief from excessive assessment or collection 92 58 Remainder interest 11, 15 9, 16 Remainder, interest in reversion or 11, 15 9, 16 Remedies for collection 102 63 Remission of penalties 98 61 Rents, accrued at time of death — whether then payable or not 12 10 Repeal of revenue act of 1918, scope of 105 65 Reservationof annuity or income from property transferred. 20 21 Resident decedent: Definition 5 3 See also Section 403b and section 411 — 37, 64 Presumption 5 3 Specific exemption 4, 52 3, 36 Return: Beneficial interest, person holding, when to make return 68, 73 45, 47 Commissioner or collector — Securing evidence 100, 101 63 When to make 71 46 Deductions 32-58 27^0 Delay in filing, none authorized 67 44 See also Penalties. Executor to file 68,71,73 45,46,47 Extension of time for filing. 67 44 False and fraudulent, penalty for 89 57 *ronresident estates 55-57, 73, 74 39-40, 47 Not filed in good faith 83,89 52,57 Penalties, delinquency in filing 71, 88, 90 46, 57 For false or fraudulent return 88,89 57 Persons liable for return — Nonresident estates 73 47 Resident estates 68 45 Privileged character of return 75, 76 48 Tax shown by, payment of 79-83 50-52 Transfers presumed to be taxable 18 20 Verification of 72,79,100,101 46,50,63 When required — Nonresident estates 73 47 Resident estates 67 44 — 66-75 — 83 21 22 106 65 14 (9b) 16 95 Article. Reveaueacts 1921, 1918 Revenue agents in charge, list of Revocation, reservation in connection with transfer — of power- of Revoked articles of Eegulations No. 37 Rugs, oriental, valuation of s- Safe deposit companies, duty with respect to nonresident estates 64 42 Sale of property as determining value at time of death 14 11 Sale of property subject to power of appointment 25 ' 24' Sale, when cost of, is an administration expense 38 30 . Scope of repeal of 1918 revenue act 105 65 , Securities of nonresident decedent: Person in possession of 64 42, Transfer on order of foreign executor 65 4!^ Settlement of estate : , , Losses during 42 .31 Support of dependents during 43 , 32 Shares of stock (see Stocks and bonds) 14(2) 11 Shipwreck, losses from 42 31 Silverware, valuation of 14 (9a, b) 15, 16 Situs of property ^. 12, 53 10, 37 Special power of appointment 25 24 Specific exemption 4, 52 3, 36 None in nonresident estates 4,54 3,38 Spouse surviving; 16, 24 19, 23 State bonds, transfer of, taxable 12 10 Statements, executor's duty to render 104 64 Statuary, valuation of 14 (9b) 16 Statutes (see Table of Contents, for analysis of Revenue Act, 1921, in front hereof ) 1,7 2,4 Stock dividends, when included 12 10 See also Nonresident estates 65 43 Stock of nonresident decedent, transfer of, after giving bond 66 43 Stock owned by nonresident decedent, situs of 53 37 Stocks and bonds, valuation of 14 (2) 11 Storms, losses from 42 31 Suit, collection of tax by 102 63 Superseded articles of Regulations 37 106 65 Supplemental data to be filed with return 70 45 Nonresident estates 74 47 Support of dependents 43 32 Surrogates' fees 38 30 Surviving partner succeeding to interest of the decedent. . . 14 (3) 13 Surviving spouse. (Sec Dower; Curtesy; Support of de- pendents; Tenants by the entirety). Survivorship, property passing by right of 23, 24 22, 23 96 T. Table of Contents (see front hereof). Article. Pago. Tables, annuity and remainder 15 16 Taxrates 7,8 4,6 Tax, estate: Additional 72 46 Collection of -■ 84, IM 53, 63 Computation of 6-8 4, 5 5ce oZso Nonresident estates 58 40 Executor shall pay the tax 81 51 See aZso Nonresident estates 59 41 Liability, manner of determining 6 4 Liability of certain persons. See Personal liability. Lien for 86, 87 55; 56 Life insurance proceeds subject to lien for 86 55 Life insurance, to provide for payment of 28 26 Natureof 3 2 Payment essential to deduction of previously taxed property 44 32 Payment of (for analysis see Payment of tax). Ratesof 7,8 4,5 Refund of tax and penalties 92,96,97 59,60 Tax, Federal income 40, 72 31, 46 Tax-free securities, transfer of, taxable 12 10 Taxation, local, assessment for, not determinative of value.. 14(1) 11 Taxes, rules determining deductibility 40 31 Tenants in common, joint, or by the entirety 23, 24 22, 23 Tenants, life , 11,15,25 9,16,24 Termination of World War 9 7 Testimony, taking 100,101 63 Theft, losses from 42 31 Time for payment of tax 79 50 Time, limitation of — for filing claim for abatement of addi- tionaltax 95 59 Time of transfer 17-19 20, 21 Title vested in decedent and one or more other persons 23,24 22,23 Tombstone 34 28 Trade-marks, valuation of 14 (6) 14 Transfer agent, nonresident estate, when to give notice of . . 65 43 Transfer of life insurance, when taxable 30 26 Transfer of net estate taxed , not the property 3 2 Transfer of securities directed by foreign executor, agent's notice 65 43 Transfers, by will or under intestate laws 2 2 Transfers made by decedent in his lifetime: Additions to property transferred 22 22 Betterments to property transferred ; 22 22 Checks outstanding at date of death 14 (5) 14 Consideration for 17-20 20,21 Date of transfer 17-20 20, 21 Deductibility of value, included in gross estate 44 (8), 47, 48 33, 35 See also Nonresident estates 57 40 General 2 2 In contemplation of death 18 20 97 Transfers made by decedent in his lifetime — Continued. Article. Income of property transferred, payable to third person. 20 Insurance policy 30 Intended to take effect in possession or enjoyment at or after death 19-22 Interest transferred by decedent 22 Liability, persons subject to tax | „„ nn'-inn Lien for tax. 86 Persons liable for tax on ] „„ Qo'-ino Property subject to lien for tax 86 Reimbursement of executor for tax paid on 85 Situs of property transferred by nonresident 53 Time of 17 Transferee — Personal liability of j ^^^^^^^2 Reimbursement of executor by, tor tax paid on transfer 85 Trust, property held in 21^ 53 Trustee, personal liability of 86, 99 Valuation of property transferred 17-20, 22 Transfers previously taxed 44 See also Nonresident estates 56 Trust company, money deposited with and payable to sur- vivor 23 Trustee, suit to enforce personal liability of 102 See also Transfers made by decedent in his lifetime; Personal liability. Trustee's commissions, not deductible 36 U. Uncertain liability, deduction of 32 United States: Mortgages on property outside — death before Act 1921. . 106 Use of term defined 5 See aZso Section 403b and section 411 — Use, personal, of nonincome bearing property, valuation of . . 15 V. Valuation, Rules for 14, 15 Life insurance 31 Previously taxed property 44 Transfers, property in certain 17-22 Value at the time of , death 13 See also Life insurance and transfers; Valuation. Vases, valuation of 14 (9b) )72 79 100 101 Vested remainder 11, 15 Vouchers, duty of executor to furnish copies and retain. . . 69, 70 Page; 21 26 21-22 22 51, 54, 55, 62, 63 55 51, 54, 55, 62, 63 55 54 37 20 51, 54, 55,62,63 54 22,37 55,62 20, 21, 22 32 40 22 63 29 27 65 3 37 ,64 16 11, 16 27 32 20 -22 11 16 46,50 ,63 9. ,16 45 98 w. Waiver of personal inspection of household and personal Article. Page. effects by officer of Bureau 14(9) 15 War, World 9 7 Warehouse companies, duties in connection with non- resident estates 64 42 Widow. See Dower; Support of dependents; Joint inter- ests; Previously taxed property; Tenants by the entirety. Will: Creating joint tenancy or tenancy by the entirety 24 23 Duplicate certified copies, to be filed with return. ... 49, 69 36, 45 jSce aZso Nonresident estates 74 47 Election to take under 16,36,37 19,29,30 , Exercise of power of appointment by 25 24 : Notes or other claims canceled by 12 10 Property acquired under and previously taxed 44 32 ySce aZso Nonresident estates 56 40 .. Transfer by, for public and similar uses..; 47,60 35,36 S«« ai!so Nonresident estates 57 40 Transfers by, taxable .2 2 World War, service in 9 7 Worthless notes, value of 14 (4) 13 o TREASURY DEPARTMENT UNITED STATES INTERNAL REVENUE REGULATIONS 70 \ (1926 EDITION) RELATING TO ESTATE TAX UNDER THE 11 ri ,-• r» •*"<■..■' ■• i REVENUE ACT OF 1926 WASHINGTON GOVERNMENT PRINTING OFFICE 1926 These regulations apply to the estates o(f decedents dying after the effec-- ftive date of Title III of the Revenue Act of 1926. Estate Tax Regulations 37 (revised January, 1921) ; Regulations 63 (1922 edition) and Regulations! 168 (1924 edition) remsin.ln force and. effect oidy im so far as indicated in. Article 110, infra. (n) REGULATIONS KELATINQ TO THE ESTATE ./ ' UNDER TW EE illl ©F'THE KSVENUE. itCT -OF X92& TABLE -OF -CONTENTS *:' ' ' 'ffhe section numbers refer to the etatute, and '*he article nwnabei-s to the regiilations) i ; .,i Section 3Q0. JJeflnitions ^.,._^ 1 SBction 3X11. Description of tax. 2 ^ Syticte L Tlie vatious statutes — . .^.^ 2 .2. Trajoafersaiad iaAesestBJtfiachad -.._ . --., 3 ,3. JS either, a jprojierty nor an inheritance tax 4 .4. JDeacriptifm of taacaJale estates_, , 4 5. JDefinitioo of "r^ident" aad "aonresideut" 4 6> JVSiuuier of determining liability g .7. -Kates._Df tax , , 5 8. -Comptttatjon of tax g 9. Ciedit-against estate tax — , ^ 9_3[1 (a) Credit, :for«statejABbei;itaHG«v,'legaG!5., or *su«ioessi6n .taxes ,--. ^^.^... 9 (b) -Cieditfox gift tftx-^ 11 «ectioa 3&2, Gxobs. estate ,--,-^ -,-, — — — Xl„2i, 22, 27, 29, 30, 32 Efectioa, 302. (a) fianeral __. 11 Article 10- Character of interests inaliHtod , H 11. Specific. pEQ^sttyjto -fee, itnekidad i2 12. JDeciJpSoaa.iflfijJifeperfcu'tlisted/Oii.retarii 13 13. Valuation , of property 14-19 (1) Genfiial 14 X2) 'EiEsal -.estate ■. .j^ ^3) -StQekafljirLb.Qnds 14 i()4) lintOTegfeJft bjaflinoBB ^ 15 S(|S)- Woifees, sBBMirediTSSad'uiiseeJir'ed Ig (6) Cash-onJiaadjQr on deposit 16 (7) Jjitajigilil.es .., Ig .(8) .Qtker^JEopfirty Ig ,(9)- .HoiUfiEhaId.-and)isersaEjarl>«fife8te-t . -^^ ifj ^10). -Anjuutiias,. life,-Eemaiader, isi/ad- fi^mektsmay. iinteresta. . 18 8e Transfer agents' notice.. u 49 62. Transfer of stocks and bonds of nonresident decedents! __ 50 Section 304. (a) (b) The return — Estates of residents r 50-54 Section 306. Examination of return : 51 Article 63. When return required — date of filing . 51 64. Persons liable for return 51 65. Preparation of return 62 66. Supplemental data ■.:■ 52 67. Investigation of returns .. 53 Revised Statutes section 3176 extension of time for filing return. _ 64 Article 68. Extension of time by collector .. 54 69. Extension of time by Commissioner : 54 70. Return of estates of nonresidents 55-56 71. Supplemental data 56 72. Returns confidential 56 73. Disclosure other than to executor 56 74. Attorneys must have authorization 57 Revised Statutes section 3176 return by collector or Com- missioner 57 Article 75. Where no return filed, or a false or fraudulent return filed 58 Section 307. Deficiency tax 58 Section 308. (a) Notice of Deficiency 58 Section 308. (e) Jurisdiction of Board :: 58 Section 308. (f) Mathematical error.. , 59 Section 318. (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) Determination of tax imposed by prior Acts 59 Article 76. Protests and petitions 62 Section 308. (b) (o) (d) (e) (f) (g) Assessment of tax 65 Section 310. (a) (b) Limitation on assessment 65 Section 311. (a) (b) (o) Collection by sxiit or distraint 66 Section 312. (a) (b) (c) (d) (e) (f) (g) (i) Jeopardy assessment.. 66 Section 318. (a) Assessment of tax imposed by prior Acts 67 Section 1109. (a) Collection of tax imposed by prior Acts 68 Article 77. Assessments 68 Section 305. (a) Due date for tax . 70 Section 308. (b) (c) Due date for deficiency tax: 70 Section 313. (a) Receipts for payment 70 ¥1 Pttge Section HI'S, .(a^ Paymeat by .diecbsaud boada . 7© , ^ Article 78. Payment of tax; general 70 79. The executor shall pay the tax 71 80. Pa,yment by check , 71 81. Payment by bonds and notes 72 Section 305. (b) (d) Payment maybe exteadad , , - 72 Section 308. (i) Payment of deficiency jaaay be extended 72 Article 82. Extension of time forpaymentotf. tax shown on the return.. 72 83. Extension of time for payment of dcficienoy tax 73 fiection S09. (a) (1) (3) Inteiest^upon taa disclosed on return , 74 iBection 305. (b) (c) Interest where payment exteaaded-; . 75 Section 308. (h) (i) (j) Interest upon deficiency „, 75 Section 309. (b) (c) Interest upon daficiency after a notice and , : demand for payment 75 Section 312. (f) (g) (i) (j) Interest where owlleetion of jaqpardy assessment is stayed 76 Article 84. Interest on tax dieolosed on return 76 , 85. Interest on deficiea^y tax , . 77 Section 314. (a) Collection of tax » * . ,. 80 Article 86. Remedy not exclusive . 80 Section 314. (b) Reimbursement , 80 Article 87. Right to reimbursement notenforoeable by Comsmissioner. 80 Section 315. (a) (b) Lien , 81 Section 313. (b) (c) Discharge from personal liability for deficdency tax - -_- 81 Article 88. Property subject to lien 82 89. Release of lien... _ _., 82 Secstion 320. (a) (b) Penalties 83 Section 1114. (a) (b) (c) (e) (f) Penalties 83 Section 1103. Ad valorem penalty 84 Article 90. Nature of penalties . 84 91. Penalties for false or fraudukffit noitiee or return 85 92. Penalty for failure to file notice or return .85 93. Penalty for failure to pay tax, exhibit property, keep or exhibit records, etc . , , 85 94. Penalty for assisting, procuring, or advising the prepara- tion or presentation of false or fraud uleat doouments 86 Section 312. (f) (g) (h) (i) (k) Stay of collection of jeopardy assess- ment 1. ^ ,_ 86 Article 95. Claim for. abatement 87 96. Collection of jeopardy asseasmeait Stayed by filing bomd, 8? 97. Accrual of interest as afifected by stay of collection laf jeopardy assessment , 88 98. Limitation of time to file bortd for stay €rf crflection of jeopardy assessment 88 gFection 319. (a) (b) (c) Befumd after filing petition !w4th Board of Tax Appeals ,_ , 88 Action 325,, .Tax paid umder jp-r&visioBS af Bevenue Act of lr9'24 prior to the enactment.of the Revenue Act of 192^6 , 8S Section 1 106. (a) (b) No refund in respect of taa: coUeoted aSfcer basr of the Statute of Limitation ^_„ 8(9 .Section 1111. Refund of taxes ©rroaeausly tu: illegal]^ oolfliected » 88 fiectionlllS. Limitations for refund _._„ , . r96 Article 99. Claim for refund 90 vn Page Section 1116. (a) Interest on refund « 92 Article 100. Payment of claims and interest 92 Revised Statutes, section 3229. Fewer to compromise or remit penalties 92 Article 101. Power to compromise or remit 93 Revised Statutes, section 3467. Personal liability of executor 93 Article 102. Extent of liability 93 Sections 1104, 1122. Examination of records and taking- of testi- mony 93 Article 103. Securing evidence — taking testimony 94 104. Power to compel compliance 94 Section 1100. Remedies for collection 95 Section 311. (b) Collection of tax by distraint or suit 95 Section 316. Liability of transferees and fiduciaries 95 Article 105. Remedies for collection of tax 96 Section 1102. (a) (b) (d) Records statements and special returns 97 Article 106. Executor's duty to keep records 97 107. Executor's duty to render statements 97 Section 321. (a) (b) Estates administered in. the United States Court for China 98 Section 317. Persons acting as fiduciary 98 Article 108. Notice of persons acting as fiduciary 98 Section 1200. Scope of repeal 99 Article 109. Scope of repeal 100 Section 1101. Power to prescribe regulations 100 Article 110. Promulgation of regulations 100 Appendix 103-118 Revenue act of 1924... 103 List of the several divisions and locations of offices of supervising internal revenue agents and internal revenue agents in charge 117 Index 119 REGULATIONS ESTATE TAX tExeept as otherwise spedfled, the section references are to the Revenue Act ot 1920] Title III. — Kstate Tax Sec. 300. When used in this title — (a) The term "executor" means the executor or administrator of the decedent, or, if there is no executor or administrator ap- pointed, qualified, and acting within the United States, then any person in actual or constructive possession of any property of the decedent ; (b) The term " net estate " means the net estate as determined under the provisions of section 303 ; (c) The term " month " means calendar month ; and (d) The term "collector" means the collector of internal revenue of the district in which was the domicile of the decedent at the time of his death, or, if there was no such domicile in the United States, then the collector of the district in which is situated the part of the gross estate of the decedent in the United States, or, if such part of the gross estate is situated in more than one district, then the col- lector of internal revenue of such district as may be designated by the Commissioner. Sec. 301. (a) In lieu of the tax imposed by Title III of the Reve- nue Act of 1924, a tax equal to the sum of the following percentages of the value of the net estate (determined as provided in section 303) is hereby imposed upon the transfer of the net estate of every decedent dying after the enactment of this act, whether a resident or nonresident of the United States ; 1 per centum of the amount of the net estate not in excess of $50,000 ; 2 per centum of the amount by which the net estate exceeds $50,000 and does not exceed $100,000 ; 3 per centum of the amount by which the net estate exceeds $100,000 and does not exceed $200,000 ; by which the net estate exceeds $200,000 by which the net estate exceeds $400,000 by which the net estate exceeds $600,000 4 per centum of the amount and does not exceed $400,000 5 per centum of the amount and does not exceed $600,000 6 per centum of the amount and does not exceed $800,000 7 per centum of the amount by which the net estate exceeds $800,000 and does not exceed $1,000,000; 8 per centum of the amount by which the net estate exceeds $1,000,000 and does not exceed $1,500,000 ; 9 per centum of the amount by which the net estate exceeds $1,500,000 and does not exceed $2,000,000 ; (1) 10 per centum of the amount by which the net estate exceeds $2,000,000 and does not exceed $2,500,000 ; 11 per centum of the amount by which tlie net estate exceeds $2,500,000 and does not exceed $3,000,000 ; 12 per centum of the amount by which the net estate exceeds $3,000,000 and does not e^o^ #8,509,009.;^ ■ 13 per centum of the amount by which the net estate exceeds $3,500,000 and does not exceed $4,609,099; 14 per centum of the amount by which the net estate exceeds $4,000,00© and does not exceed f any pi-operty iaciu^a 'in tS«e gross '^(tffte. 'Kie ereffiit allowed 'by tlds subeMvisi-on sha'H mat esoeed '8© per centmmi a* the t:ax impesed by tltis section, and shall intjlnde otfly sueih taxes -as weie actually paid and credit therefor claimed WiftBin tlh^iee yea«e after Hie filing of tlie ret)um Teqialred 'by -aeatSoB 304. Abtigle J.. .The uariaus statatesr— The Federal estate tax was first im]3i(sae4 fey tbe Act «i(f SfipteBjfeer S; J^Sl-S. Xbosflaw -was atawided by ttie Aot-ef Mareh 3, 1917 (TLlAe HI), tey MiOBeasing itb« >istffee of lax. The Act of October 3, 1917 (Title I'X), imposed a tax mpon the transfer of the net estate of deced'ents dying after October 3, 191.7„ xo. .addifcioii to the tax imposed by .the JBeyenue Act oi 1916, as aRiended. The Revenue Act of l&iS (TJiie IV),, ■rohiob beieame effeetiy* at ^rM ip-. t found in anj of the ,pjior Acts. The Revenue Act of 1921 (Title IV) tessiUM 'ejffijeefere at ,3 ;55 p. m., Waahasa^wn, D. ■ , , >■ ; Tfee iBevenue Aet of 1&26 .'(Title HI),, whidi.ijec^jne effectiye.aj; 10:25 a. 'Hi., Washington, jD.. iC.,; time), .Fsbr^arj' 26, 1926, increasec^ fcrom $SOyOGO to ,$X'00jQ®0 ith^e specific, exemption.; ijO; be deducted 4sfmi tbiB; gross estates of resideaat /iecetde^ts in 4eibermining.the net:€states fotr the purposes . of the tax sand, nmdie i-eif ecti ve rates ranging ,inom 1 ito 20 of tla« several rate is Matex of estate tttar Net estate t 2 : AoteiOf 3 4 s 19I8,l'B21, Amend- ' Act of aiUl 1924i Aetof. jneut of Act of 192ff (for as 1917 (cf- Mar. 3, . 1916 (ef- Exceeding .Nfflt ■ erceedliig . Amoimf of- blofck ante, see ' jtKDended, i^gofes 1917 <8*-, fective efJe?tivB Sept. d. below) effective dates, see 1917)' Mar. 3, 1917) Wl«. > 1 '■ , belaw)' ■ i Per cent Per cent Per cent Per cent ) ■ i i [ Per cent ; 1 i$S6iOOB 1 ,*B?,eno 1 1 1 ' ; 2 . )iU ■• .1-. $5oro6o"' .100,000 60,000 2 2 4 3 Z iw.ecoii ,i«ajoea, SO; 000 3 2 4 3 a' 1 150,000 200,000 50,000 3 3 6 iH 3 ZMiOeo ; 2SQ,-!00D , so, 000 4 i 1 « iH' 1 3 260,000 400,000 150,000 4 8 6 4 400,000. mtwo- aejoes i «i ! * '» - 6 « 460,000 eoaooo 150, 000 5 6 10 7J4 S r 6Qa,X)08. TSftiaM i60).ooa e, t. ; on ■. I ■ -^ , « 750, 000 800,000 60,000 e 8 10 *jy e ! soOjOeo , i,)(ReiOoa 200) 9001 7 a 10 : '' 7^ ' :t ■ 1,000,000' teoolooo 890,000 g 10 12 9 6 1,SOO,000 2,000,000 609*869 » 12 1 .]». - . 9>- . .!■. »• , 2,000,000 2,500,000 soa.ooo 10 14 14 low 7 2.600,000 3,000,000 600,000 11 14 14 10>l 7 S, 000, 000 3,-eao„oao 600,000 la .18 M. 12 8 3,500,000 4,fl00.'000 H)0,000- 13 1» 16 12 8 4,000.000 6,000,000 1, 000, 000 14 18 18 13^ 9 9,000,000 6,000,000 lt,000, 000 u 20 , 20 16 10 fl^SOOSOOO. ■ 7,000)000 1, 868^009 i w SO 1 2ff ts 10 7,000,000 8, 000, 000 1,000,000 17 20 20 16 10 kooBiJm. OjeosjooB' ^amtooa 1» 2» 22 m w , 9,000,000 10,000,000 1,000,000 1« 1 22, 22 n 10 : wooa,oi)a; 1' 2»: as 2B 16 Iff Tbs rates; ppescrilked by the different acts, as set forth in thw preeediiHg feeble, apply t© the estates of efeeedteHfts ^j'iHg irvShih the f oUowin^ dat«s : Oatoram 1,. RaiWBiiae Aet ©f 1^6, e!ffi«etiv« from amiJ after 10:25 », EQ^. Fehruary 2"6, ISSjB, WasMngtoB;, D. C, time. Column 2, Revenue Act of 1918, effiectiiTie frem 6t55 p. m., Wa^- iaagt&B, D. C^. time, F^muiaSy My 1&19, i® 3-:&5 p. m., Nievembei? "23, 1921 ; Bew^id©'. Act o£ 192-1, «fiectrve ifrem 3 :56 p. m^, Washigagtsim, D- G.,. tiiBfiy Mo-y«aaiiber 2S, 1921,^ to 4 :01 p.. m., Jane. 2^ 193^ WasStiing- ton,.D. C,: time,, aaid BewiHiiie Act. otf 19B4, ais>affla^ide, tirae. C!©luaa»a S, Rm^enme Act ojE 19i'J,- eSffietOT© f Eum ^Metaeip 4, 29111!,- 1® 6.:55. pi m,, Wiashiegfen, D. C~, ihwB, Fefenuairy ^, 1919, inclhisOTe. ,CelM!Km 4,y aMLejudiaafint of March 3, 1917, eff«etive. ivam March Si, 19^1'?, to Octfiber &, 1917, indusiye. ♦ CdiuBiiB, 5, Eewenue Act of 1946-, effective Septenb^ 9,. 1916, ten Maceh 2^ 1917, in^liisiisei , . , - ; . Abt. 8, Computation ; ol ta^.— FcK jBae, piippeKe ef csmglBti'fligj the tax, the net estate is divisible into blocks, each block being taxed at a diffiepenrf. and inereasing rate. "Mie preceding-: teble gives the amouni oi the vaxioas bfecks and the applfcaWle ral© of tax under each of- the. taxing- acts.. For example, the. tajc upoitthe net estate of $1,2I40,§» of a deeedesHfc dying on Jmly 1, 1926y is computed! as follows : AmouBt o£ first block $5»,OO0i at 1 pei:-;c(Sit_: $500 Amount of second block 50,000 at 2 per-'cent — 1,000 Amount- of, third Meek 5%eO0f ait 8 per ceait ■-„ L_ lj,500 Amount of fourth block. 56,000. a-t 3 par ce&it L j._ 11,500 Amount of ftWi blOct 50,000 at 4 per cent .— >.- ^000 ■ Amount of. sixth, block. 150,000 a± 4. per cent L_ 4,000 Amount of seTemth bloek 59)(}(ffi at 5 per cent 2,5(30 Amount of eighth; Mioek: 159;600 at 5 per cant '5,500 AmouBt 03E ninth bteek 150,000' at 6 per ^emt „ S|,000 ^ Amount of tentli block SSiiSGO. at 6 per'ceat_____ 3(,000 Amoimt of eleventh Moefc 2edjW0 at 7 per cent. i._ l^cOOO' Kemainder: 2iei000 at 8 per cent 19,200 Tt)talnet estate $1,240,000 Total tax $6T,700 On the itMO'wwig page will fee found a table for ascertaaning the tax without, the detailed computation given abovew An illustration of its use is as follo-ws-i The n^ eststte of a decedent dying Jttlit 1, 192^ amounts to $1^0,000. By reference to the table it willl ba seen that the Ifast'Oampfet© bfeek pseieeid&ng this amoantiis $1,(!)00,OIX]| and that the total tax computed on a' mElion dollaTSi under the rates in force amounts to $48,500. Upon the remainder of the nefi estate, $240jB®0, the taxis, computed: at the raie set o.u3t in tJie next foF. lowingiliifflST oiF at 8 ^p^ ^eat. The tax on this- amcfflat is consequenjtljp $19,200. The following result is- fei*»©baiined: ■ Tbta-l tax en $i,O©&,O0d =" $48,560- Tiis o» 240,000' = 19,260 \ Total*: $l,240,00a $67,700 8 I ^ "^ ^ cf^ ^a si a SSI ■as ■*ja P'^ CM© t^ a5|: ■OS ag «•=§ 3 o P3«g 3 o ««s •a o ■a o 8 S^i ggggggggggggggggs p4 C4 ^1 to (H m 1-4 OOi-^ i-l (-Tr-i COi— <•— lT~Hi— (i— 4t-4 wc4escoco-4<^u3tou3iocoot^t^ooooagggogo oooooo i-(»H »-l -V* kO to © to M u5 »o u5 kO 25 •HCom^^cDt^t«03a>oooacou3U3iAiaio 30Q00000000Q0QQO0 0OQOO SooSoooSoS.SooooooSoSSo 30000C goooc oSoc iggggggg m lO too >0>4i S Lnio is u P^M^lOt-HCOC^rHlOrHi-H^t-O-l.-ll-Hr-ti-IW^^'- •HtHWeopowotonsoooto-^^Ttt^sDo 1-t r-* CS CO CO ■* to 00 O ^ "iTt u 222200COQOQo5ooooS OiOOOOOOOOOOOOOOOOOOO _ — s cToo OQ^cTcT sr«t^aocoooSSQ^C4 rH 09 -^i to c4^to cf i-« "^GOooeoeoaoooMccec e^co m e* T-if-iC4c<3ec-4iorfo"CSOOO' •H ■« ■« iO U3 V to -^ LO CD t>- CO 0> •HClCOe<9^T^>OtOtOtOt«COO>0'-cC4CO^tocOt>aDO>0 gOQOOOOOOQOOOOC _2e2eosoc30Qoooc 3000000000C ooooooooooooo LQ 10>0 U3U31R1QIAIOIQQOO 222222° , __ooSoooo E.S O V *4^i-;NN^TS5oOOOOOOOOOOCOO C9 r-l ri n C4 ««< •« » t^ 00 O U3 O iO O >0 O O O O O O O CREDITS AGAINST ESTATE TAX Aet. 9. (a) Credit for estate, inheritance, legacy, or succession taxes. — TJAder the provisions of section 301 (b) the estate is entitled, under certain conditions, to a credit against tlie Federal estate tax for payments of estate, inheritance, legacy, or succession taxes actually made to any of the several States, Territories, or the District of Columbia. The credit allowed is limited to the estates of persons dying after the effective date of the Eevenue Act of 1924. The credit applying to the estates of persons dying after the effective date of the Revenue Act of 1924 and before the effective date of the Revenue Act of 1926 is limited to 25 per centum of the Federal estate tax. If the decedent's death occurred after the ef- fective date of the Revenue Act of 1926, the credit is limited to 80 per centum of the Federal estate tax. No credit may be taken or allowed for any part of such taxes unless the property in respect to which such taxes were imposed is included in the gross estate of the decedent for Federal estate tax. Where the decedent died after the effective date of the Revenue Act of 1926, the taxes allowed ■ as a credit are limited to such taxes as were actually paid and credit therefor claimed within three years after the filing of the return. The Federal estate tax is due and payable one year after the date of decedent's death, and in maldng payment of the amount shown by the return to be due the executor may claim credit, subject to the approval of the Commissioner upon audit of the return, of au estimated amount of any such taxes for which the estate will ulti- mately be entitled to a credit, and pay the balance of the tax dis- closed by the return. Where, however, such taxes have been paid prior to the date of payment of the Federal estate tax indicated by the return, the amount thereof actually paid, but not in excess of the 25 or 80 per centum, as the case may be, of the Federal estate tax, may be claimed. Where the executor, in filing the return and discharging the tax indicated thereby, takes credit for any such taxes which the Commissioner determines, either in whole or in part, are not an allowable credit within the meaning of the applicable statute, then such credit or portion thereof taken by the executor at the time of paying the Federal estate tax as is not allowed by the Commissioner should be paid promptly, together with interest thereon, if any has accrued. (See Art. 84.) The executor should exercise care to see that he does not claim a credit in excess of the correct amount. Where credits are allowed they will be applied against any unpaid tax, and if there then remains an amount not so applied the executor should file a claim for the refund of the amount of the Federal estate tax by which the credit exceeds the unpaid tax, or if the entire 96031°— 26— 2 1@ Federal estate tax 'has Iseen paid, a daam iEor TE^usnd should be filed for tlie lamaunfc oi the credit allowed. Before ihe Commissioner allows .Uny credit for any estate, inherit- ance, legacy, or succession taxes, there must be submitted -to him th« f oTlowing : (li) .A complete list of. ihe i»ropeiity In reagfict to which any such taxes were imposed, and the amount thereof j)aid,, certified «nder the hand and official seal of tlie officer of the taxing State or Territory haying custody of the records pertaining to such taxes. (2) The eertifieate eie5Bcy tax) then the .allowance oi the balance of the credit; will be ■deferred Mntil it is known that no petition has been or will be filed with the B©ai"d of Tax Appeals, or, if a petition is filed, until after tfee d«ci^on of the Boajd hasbecome final. (b) Credit for gift tax. — ^Ufidcr the provisions ®f section S22 &i the EeA^enue Act of 1-924 the estates of persons dying after the effec- tive date of the Revenue Act of 1®S4 MQ'd before the eiffiective date of the Sevenue Act of 1926, are ^entitled to credit on account of gift tax paid. This credit may be taik«L for amy part of the gift tax which was paid upon gifts made during the calendar years 1924 and 1925 by the d:eeedeaat in respect to property iaclu©yment of tke prer of an express or implied agreement. Where the decedent reserved out of the property transferred a definite annuity and the income from the property was indefinite, or indeterminable, or the property was nonincome bearing, there should be included in the gross estate that portion of the value of the property transferred (not to exceed the entire value as of the date of the decedent's death) equal to the capitalization of the an- nuity at 4 per cent. Example: The decedent transferred a farm valued at $35,000. to his son, the inconSe from the farm being un- certain and indefinite, the son agreeing to pay to the decedent $1,000 per annum during the decedent's lifetime. Capitalizing the annuity of $1,000 at 4 per cent a fund which will yield the annuity is determined to be of the value of $25,000. There should be in- cluded in the gross estate on account of the transfer $25,000. If the value of the farm was $20,000 the amount to be included is $20,000. Where in any case the transfer was made in contemplation of death, the value of the transferred property, as of the date of 96031°— 26— 3 26 the decedent's (feath, sbouM be iackided in the gross esteite wlifitker Mr iKjt tia© transfer was one intended to take effect in possession or enjoynient at <» 'after deada. (See Art. 16.) Wkere there was no reservation of income or an annuity but it was intended that possession or enjoyment of the transferred prop- erty, or a portion thereof, should be postponed until at or after decedent's death, then the value of the entire property or of such portion, as the ca^ may be, should be included in the gross estate. Thus a gift of the principal intended to take effect either in posses- sion or enjoyment at or after the decedent's death is taxable, although the income or annuity was payable during, the decedent's life to some one other than himself. Example: The decedent transferred property to his son, the latter to receive the income during the, decedent's life or agreeing to pay the income to Ids mother during the decedent's life. The transfer to the son in either case is taxable- TEANSFEES WHKKE ENJOYMENT STDBJECT TO CHANGE THROUGH JIOWSIB TO AilTSK, AMEND, CHS EEVOKE^ OE WHEEE SfTOH POWEK IS EEUNQtllSHED IN OONTEMrLATION OP DEATH Art. 19. Power to change enjoyment. — ^The value of property trans- ferred, other than by a bona fide sale for an adequate and full con- sideration in money or money^s worth, constitutes a part of the gross estate if at the time of the decedent's death the, enjoyment thereof was subject to any change through a power, exercisable either by the decedent alone or in conjunction with any person, to alter, amend, or revoke. Art. 20. Power relinquished in contemplation of death. — Where prc^- erty was transferred by the decedent, who reserved a power to alter, amend, or revoke the transfer, and such power was relin- quished in contemplation of death, the value of the property should be included in the gross estate. (See also Art. 16.) The relinquish- ment of any such power not admitted or shown to have, been in contemplation of death is deemed and held to have been made in contemplation of death within the meaning of the statute if such power was relinquished within two years prior to the decedent's death, but after the enactment of the Kevenue Act of 1926, with- out an adequate and full consideration in money or money's worth to the extent that the value of the interest of any one beneficiary affected at the time of the decedent's death exceeded $5,000 and such excess should be included in the gross estate. TRANSFERS — ^VALUATION Art. 21, Valuation of property transferred. — ^The value must be de- termined as of the date of the decedent's death, (See Art. 13.) 27 Wk«re ike ttansferee make® additions to the property, or better- ments, the enhanced value of the property at that date, due to such additions or betterments, is not to be included. . GROSS ESTATE— PKOPERTY HELD JOINTLY Sec. 302. The value of tlie gross estate of the decedent shall be determined by including the value at the time of his death (rf ail property, real or personal, tangible or intangible, wherever situ- ated— * * * (e) To the extent of the interest therela held as joint tenants by the decedent and any other person, or as tenants by the entirety by the decedent and spouse, or deposited, with any person carrying on the banking business, in their joint names and payable to either or the survivor, except such part thereof as may be shown to have originally belonged to such other person and never to Tiave been reeeired or acquired by the lattet from the decedent for less than an adequate and full consideration in money or money's wortJi : Promded, That where such property or any part thiweof, or part of the consideration with which such property was acquired, is shown to have been at any time acquired by such other person from the decedent for less than an adequate and full consideration in money or money's worth, there shall be excepted only such part of the value of such •property as . is proportionate to the considera- tiOQ fsjrnished by such other person : PrqvideA further, That where any property has been aoquifed by gift, bequest, devise, or inherit- ance, as a tenancy by the entirety by the decedent and spouse, then to the extent of one-half of the value thereof, or, where so acquired by the decedent and any other person as joint tenants and their interests are noft otherwise specified or fixed by law, then to the extent of the value of a fractional part to be deterinined biy dlvidiag the value Oif the property by &ie number of joint tenants; * * * Akt. 22. Property heH jointly «r as teaants by the esilarety. — ^The foregoing provisiMis of th« statute extend to ^oint ownership.s, wherein the right of siuryivordbiip exists, and specifically reaches property held jointly hj^ the decedent and any other pereon or per- sons, or by the decedrait and spouse as tenants by the entir^y, or deposited with any person or institution carrying on a banking busi- ness in the name of the decedent and any other person and payable to either or the survivor, provided the decedent contributed towards the acquisition of the property so held or deposited, or acquired it by gift, bequest, d-evise, or inheritance. The statute applies to all classes of property, whether real or personal, where the survivor takes the entire interest therein by right of survivorship, and no interest therein forms a part of the decedent^s estate for purposes of administration. It does not include property held by the decedent and any other person or persons as tenants in common. Art. 23. Taxable portion. — The entire value of such property is prima facie a part of the decedent's gross estate, but as it is not the intent of the statute that there should be so included a greater paa^t 28 or proportion thereof than is represented by an outlay of funds, which, in the first instance, were decedent's own, or more than a fractional part equal to that of the other joint owner where neither had parted with any consideration in its acquirement, facts, which in a given case bring it within any one of the exceptions enumerated in the statute, may be submitted by the executor. "Whether the value of the entire property, or only a part, or none of it, enters into the make-up of the gross estate, depends upon the following considerations: (1) So much of the property (whether the whole, or a part thereof) as originally belonged to the other joint owner, and which at no time in the past had been received or acquired by the latter from the decedent for less than an adequate and full consideration in money or money's worth, forms no part of the decedent's gross estate. (2) Where the facts are otherwise the same as in (1) , but the decedent paid to such other joint owner a con- sideration for the interest by him (the decedent) acquired in ihQ property, then such portion of the value of the property, proportion- ate to the consideration so paid, constitutes a part of the gross estate. (3) Where the property, or a part thereof, or a part of the consid- eration wherewith it was acquired^ had at any time been acquired by the other joint owner from the decedent as a gift, or for less than an adequate and full consideration in money or money's worth, then such portion of the value of the entire property, proportionate to the con- sideration, if any, which in the first instance was paid from such other joint owner's own funds, forms no part of the gross estate. (4) Where the property was acquired by the decedent and his or her surviving spouse as tenants by the entirety by gift, will, or in- heritance, then but one-half of the value of the property becomes a part of the gross estate. (5) Where acquired by the decedent and the other joint owner as joint tenants by gift, will, or in- heritance, and their interests are not otherwise specified, or fixed by law, then one-half only of the value of the property is a part of the gross estate; or, where so acquired by the decedent and two or more persons, and the interests of the several joint tenants are not otherwise determinable, then the decedent and the other joint tenants surviving him shall each be deemed the owner of an equal fractional part, and the value of one only of such fractional parts is to be included in the gross estate. The following are given as illustrative: (a) Where the decedent furnished the entire purchase price, the entire property shoxild be included in the gross estate; (6) where the decedent furnished a part only of the purchase price, only a corresponding portion of the property should be so included; (e) where the decedent, prior to the acquisition of the property by himself and the other joint owner, gave the latter a sum of money which later constituted such 29 other joint owner's entire contribution to the purchase price of the property, the entire value of the property should be included; (d) where the other joint owner, prior to the acquirement of the property, received from the decedent, for less than an adequate and full consideration in money or money's worth, property which there- after became, as such, or in a converted form, part of the purchase price of the property, the value of the property to be included, is to be reduced proportionately to the consideration furnished by the other joint owner in the original transaction; (e) wh«re the decedent fur- nished no part of the purchase price, no part of the property should be included ; (/) where the decedent and spouse acquired the property by will as tenants by the entirety, one-half of the value of the prop- erty should be included. GROSS ESTATE— PROPERTY PASSING UNDER POWER OF APPOINTMENT Sec. 302. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intan^bie, wherever situ- ated—* * * (f) To the extent of any property passing nader a general power of appointment exercised by the decedent (1) by will, or (2) by deed executed in contemplation of, or intended to take effect in pos- session or enjoyment at or after, his death, except in case of a bona fide sale for an adequate and full consideration in money or money's worth ; and * » * (i) If any one of the transfers, trusts, interests, rights, or powers, enumerated and described in subdivisions (c), (d), and (f) of this section is made, created, exercised, or relinquished for a considera- tion in money or money's worth, but is not a bona fide sale for an adequate and full consideration in money or money's worth, there shall be included in the gross estate only the excess of the fair market value at the time of death of the property otherwise to be included on account of such transaction, over the value of the consideration received therefor by the decedent Aet. 24. Greneral rules. — The value of all property passing under a general power of appointment must be included in the gross estate of the person exercising the power (known as the donee, or ap- pointor) where the power is exercised by will. It should also be so included when the power is exercised by deed or other instrument executed in contemplation of, or intended to take effect in posses- sion or enjoyment at or after, the death of the donee of the power. The statute, however, does not require inclusion within the gross estate of the value of the appointed property in the case of a bona fide sale thereof by the donee of the power for an adequate and full consideration in money or money's worth. 30 If die power is exercised for a consideration in money or monejr'a worth, but is not a bona fide sale for an adequate and full ecHMdera- frion in money or money's worth, there should be included in the gross estate only the excess of the fair market value, at the time of dece- dent's death, of the property passing under the power over the value of the consideration received by the decedent. Only property passing imder a general power should be included. Ordinarily a general power is one to api>oint to any person or per- sons in the discretion of the donee of the power. Where the donee is required to appoint to a specified person or class of per- sons, the property should not be included in his gross estate. Where the decedent died prior to the effective date of the Reveune Act of 1918, the value of the appointed property is not to be so included; Duphcate copies of the instrument granting the/power and of the instrument by which the power was exercised, one of each to be certi- fied or verified, must be filed with Form 706 in all cases, unless the decedent was a nonresident, in which case only one copy of each instrument, certified or verified, is required. GROSS ESTATE— INSURANCE Sec. 302. The value of the gr<»BS estate of the decedent shall be detei-mined by inflnose of the tax the value of the net estate shall be fleterminea — (a) In the case of a resident, by dedttcting from the value of the grSss estate — * * » (2) An amount equal to the value of any property (A) forming a part of the gross estate situated In the United States of any per- son who died within five years prior to the death of the decedent, or (B) transferred to the decedent by gift within five years iwior to his death, where such property can be identified as having been received by the decedent from such donor by gift or from such prior decedent by gift, bequest, devise, or inheritance, or which can be identified as having been acquired in exchange for property so received. This deduction shall be allowed only where a gift tax imposed under the Kevenue Aet of 1924, or an estate tax imposed under this or any prior Act of Congress was paid by or on behalf of the donor or the estate of such prior decedent as the case may be, and only in the amount of the value placed by the Commissioner on such ' property in deter- mining the value of the gift or the gross estate of such prior dece- dent, and only to the extent that the value of such property is in- cluded in the decedent's gross estate and not deducted under para- graph (1) or (3) of this subdivision ; * * * Art. 41. Deduction of the value of transfers previously taxed. — ;Where there is included in the decedent's gross estate the value of prop- 38 ra^y received by Mm by gift from any person wtthia five years pi'ior t© iiis e preven- tion of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual, or to a trustee or trustees, or a fraternal society, or€ property situated in the United Staites, th« whole thereof is deductible. The followiHg resuli is aesordingly o)>taiH«d : ■Gd'oss estate wittiin f.he UiiHeft States 20 per cent at $75,.0(«0 , . , *15, GOO Oliaritable beqiiaats for uge with-m tlie United States 1 25, 000 40, 000 Net estate „_. $160, 000 For the niana'er oi cosrapcKting tine tax on the net estate, see Artick 8. In the example ^ven, Mad the fiiwiecal expenses, admiaristration expenses aad elaians against tlfte estajte aiggregat«d $150,000, §0 -per cent thereof, or $30,000, woidd net have been dedluctiMe for tlie reasom that it woHikl ha-ve exceeded 10 per cent af tfe Tabie oi the pFs^rty situated in the Um-ted Btates; saeh 10 per cent being the BiaxiEaiim permitted by the stafcaie. The deduction would accord- ingly have been limited to 10 per cent of ^08/J©9, plus the charitable bequests, or a total of $45,000, smd tfee resultaiht net estate would have been,$liS,0OO, instead of th« amonjjit given ia the example. Akt. 56. Paiymeat of tas. — The provisioaas relatiosg to credits (see Art. 9) and te raies amd paymfisnt of the tax are the sam« in estates ctf nonresidents and of lesi^ients. The statirte provides tlaat the executor shali pay the ta,x. If there is no exaciator or administrator appointed, qualified, auad acting wiithiai the United States, every per- son in either tlie actual or constructive possessio® of any property of the decedent is ccMoistituted by tfee statute an executor for the purpose ai tax payment, aaid is liable for the tax to the extent of the prop- erty so in hie possession. (See Arts. t8 to 85, iueJusive.) Ail cfoeeiks, drafts, or money orifers ehould be made payable to the order ©if Collector of InifceiTnail Elevenue. PRELIMINARY NOTICE— ESTATES OF RESIDENTS Sec. 304. (a) The executor, within two months after the decedent's death, or within a like peria^' after qnalif yiag. as stieh, sliaU give wiit- tea notice thereof to the collector. * * * Art. 5Y. When notice reqiiiEed. — A preliminary notice is required to be filed in the casse of every resident decedent whose gross estaite exceeded $100,POO in value at the date of death, if the decedent died sabsequeet to the effective d&te of the ReveBue Act of 1926. If d^ith oecBrred prierto the effective dsrte of the RevieBue Act of W2%, Botiee is required if the gross ^tate exceeded $50,000 in value at tka date of dieafcia. Tlie aetiee m^ust be fiiled witium two jHsBniths' after the 48 decedent's death or within two months after the executor has quali- fied and must be filed in duplicate with the collector in whose dis- trict the decedent had his domicile at the time of death. Where there is doubt as to whether the gross estate exceeded $100,000, or exceeded $50,000, as the case may be, the notice should be filed as a matter of precaution in order to avoid the possibility of penalties attaching. Art. 58. Notice by executor or administrator. — The duly qualified executor or administrator is required to file such preliminary notice on Form 704, copies of which may be obtained from the collector, wijthin two months after qualifying as such, if notice has not already been filed. The primary purpose of the notice is to advise the Government of the existence of taxable estates, and filing should not be delayed beyond the two-months period because of uncertainty as to the exact value of the assets. Since the filing of the notice within the prescribed period is mandatory, the estimate of the gross estate called for by the notice is merely the best approximation of value which can be made within the time allowed. The instructions upon the back of the form should be read carefully before executing the notice. The signature of one executor or administrator upon Form 704 is sufficient. For penalties for delinquency in filing notice, or for filing a false or fraudulent notice, see Articles 91, 92, and 94. Aet. 59. Notice by others than duly qualified executor or administra- tor. — The term " executor " embraces any person in actual or con- structive possession of any property of the decedent at the time of the latter's death, where within two months after the decedent's death no executor or administrator qualifies. The notice on Form 704 must be filed by such persons in every case where an executor or administrator has not duly qualified within such period. Where, within the period mentioned, an executor or administrator qualifies, the duty of filing the notice devolves upon him, and all other persons are relieved therefrom. PRELIMINARY NOTICE— ESTATES OF NONRESIDENTS Akt. 60. Estates of nonresidents; preliminary notice. — In estates of nonresidents, notice on Form 705, copies of which may be obtained from the Commissioner of Internal Revenue, Washington, D. C, or from any United States Collector of Internal Revenue, upon ap- plication, is required in the case of every nonresident decedent any part of whose gross estate was situated (within the meaning of the statute, as to which see Art. 50), in the United States. The notice must be filed, in duplicate, by every appointed, qualified, and acting executor or administrator within the United States with the United States Collector of Internal Revenue of the district in which such 49 part of the gross estate was situated, or, if parts of the gross estate were situated in more than one district, or if the gross estate consists wholly of stock in a domestic corporation, then with the collector for the Second District of New York, Customhouse, New York, N. Y., or with such collector as the Commissioner may designate. The notice is necessary if any p^rt of the decedent's gross estate was situ- ated, within the meaning of the statute, in the United States, regard- less of the value of that part or of the entire gross estate. If no executor or administrator has qualified, notice must be filed within two months after the date of death by every person in either the actual or constructive possession of any property of the decedent so within the United States at the time of his death. If such person has no knowledge of the decedent's death within two months following its occurrence, he should file the notice immediately upon obtaining such knowledge. The term " person in actual or constructive pos- session of any property of the decedent " (Section 300) includes, among others, the decedent's agents and representatives ; safe-deposit companies, warehouse companies, and similar custodians of property in this country of . a nonresident decedent; brokers holding, as col- lateral, securities belonging to the decedent or investment funds owned by the decedent, and debtors of the decedent in this country. As to any moneys deposited by or for a nonresident decedent with any person, corporation, or association carrying on the banking business, no notice is required, unless, however, the decedent was engaged in business in the United States at the time of his death. Art. 61. Transfer agents' notice. — A notice on Form 714 is required to be filed whenever a corporation, its transfer agent, registrar, or paying agent, is called upon to make a transfer of stock or bonds, or to pay dividends or interest, to any successor in interest of a nonresident stockholder or bondholder who died after Sep- tember 6, 1916, unless the transfer is made upon the order of an executor or administrator appointed, qualified, and acting within the United States. The notice is required for dividends declared, and for interest which had accrued on bonds prior to the death of the decedent, although payable thereafter. Notice should be filed with the Commissioner of Internal Revenue at Washington, D. C, within two months following the date of death, or im- mediately upon receipt of the request for transfer or payment. A transfer agent should be vigilant to report all cases in which the fact of the death of a nonresident appears. "Where the securities are received without the personal assignment of the decedent, but with the transfer order of the- foreign executor, it is clear that the case should be reported. Where the securities bear the personal assignment of the decedent, the transfer should be reported if made 50 BjKiB ihe orcJer of a feseign exteator,' or if ififea-Baati'en is received m. any .other maimer that the record owner has died a noHresideat of the United Btartes. In ■order to preyenit loss of the tax rapom nowesident estates, it is eseentiai that transfer agents exercise great care in reporting all transfers cd the kind described. Their records will be examined from time to time by i«fceriBial-reTen.ue officers to determine whether this regulation is .being strictly ccanplied with. Faikire to file notice in the mannesr pyeseribed will rendiM: thie transfer agent liable to a fine. Aet. 62. Transfer M stocks and beads erf noaresideat dccedeBts. — Wherever a transfer agent is reqmred to fiie the notice as prc^ vided in Article 61, he shail not make transfer of any stocks .or bonds standing in thie name of a nonresideiat decedent until there has been delivered to such eoUector of internal revenue as may be desig- nated by the CommisaioneT the bond of the pai'ty to whom the stocks or bonds ai-e to be transferred with surety in an amount to be fixed by the Commissioner, not exceeding in amount iiie value of the stoeks or bonds to be transferred, eonditioiaed for the payment of t\m tax in an amount not in excess of tlie amount for which the bond is given. Upon receipt of such notice the Ck>miaissioner will at onoe, upon request, fix the amount for which the bond is .to be given. In lieu of stich bond a deposit, either of money or of bonds of the United States, of the aniiount so fixed may be made with such col- lector oi internal revenue as the CoBamissioner may designate. Where bonds of the United .States or moneys are deposited in lieu of the delivery of such boad, return will be made thereof to the depositor after payment in full of the tax. If, however, the tax be »ot paid in full on or beiiere the due date therieof, or within such period as payment may have been extended by the Com.!aaissioner, the eoliateral will be suibjeeted to payment of the tax, or the thea mipaid balance thereo-i, ajid the excess of the deposit, or of the proceeds theireof remaining, if aay, will be returned to the depoeitOT. In lieu of the provisions and resitrictions hereinbefore set forth, transfer ageaits are authorized to make transfer of stocks and bonds standing in the name of a nonresident decedent to the duly qualified ancillary executor or administrator within the United .States with- «H.it sjich transfer ag^iigivimg notice thereof in writing to tike Com- missioner of Internal Revenue. THE EETUEJSf— ESTATES OF RESIDENTS Sec. 3©i. (a) * * * The exec«itor sbaH also, at each times and in such maaner as may be required hy regulations made pursuant to law, file with the collector a return under oath in duplicate, setting forth (1) the value of the gross estate of the decedent at the time §1 : of Ilia death; or, i» case of a nonresident,, of that part of Uia groa* estate situated in the United States ; (2) the deductions allowed under section 303; (3)' the value of the net estate of the decedent as defined; ^ ita section 303; and (4) the tax paid Or payable thereon; or such part of SBch information as may at the time be ascertainable and' such su^lejaental data as may be necessary to establish the cor- rect tax. (b) Return shall be made in all cases where the gross estate at the death of the decedent exceeds $100,000, and in the case of the estate of every nonresident any part of whose gross estate is situated in the United Statjes. If the executor is unable to make a com- plete return as to any part of the gross estate of the decedent, he shall include in his return a description of such part 'and the name of every person holding a legal or beneficial interest therein,, and upoE notice from the collector such person shall in like manner make a return as to such part of the gross estate. Sec. 308. As soon as practicable after the return is filed the Com- missioner shall examine it and shall determine the correct amount of the tax. Art. eS. When return required— !Date oi ffiu^. — A return on Form 706 is required in the: case of every resident decedent whose gross estate, as defined in the statute, exceeded $100,000 in vahie at the date of his death. If the decedent died prior to 10 :25 a. m., Wash- ington, D: C, time, February 26, 1926, the return should be filed in case the gross estate exceeded $50,000 in value at date of death. This return must be filed with the collector for the district in which the decedent was domiciled at the time of his death. It must be filed in duplicate within one year after the daie of death, or, in any particular instance, at such time prior to the expiration of s»ch year as the Commissioner may designate. When the due date lor filing the return falls on a Sunday or on a legal holiday, the due date for filing will be the day following such Sunday or legal holiday. If placed in th« mails the Ketum should be posted' in ample time to reach the collector's office, under ordinary handling of the mails, on or before the date on which the return is required to be filed. If a return is made and placed in the mails in due course, properly ad- dressed, and postage paid, in ample time to reach the office of the collector on or beiore the due date, no penalty will attach should the return not be actually received by mdk officer until subsequent to that Akt. 64. Persons liable for return. — The Statiute provides thq,t the duly qualified executor or administrator shall file the return. If there is more than one executor or adrainistrator, the return must be made jointly by all. Where no executor oir administrator has been appointed, every perscffl.' in actual' or eonstructi'Ve possession of any I>i?©perty of the decedent is constituted by the statute an executor for the purposes of the tax (section 3©0), and is required to ma-ke 52 and file a return as provided by section 304. T^Tiere, in any case, the executor is unable to make a complete return as to any part of the gross estate, he is required to give ail the information he has as to fcuch property, including a full description, and the name of every person holding a legal or beneficial interest in the property. "Where the executor is unable to make a return as to any property, the statute requires that every person holding a legal or beneficial interest tlierein shall, upon notice from the collector, make return as to such part of the gross estate. For penalties for delinquency in filing return, or for filing a false or fraudulent return, see Articles 91, 92, and 94. Akt. 66. Preparation of return. — The return must be made on Form 706,' copies of which will be supplied by the collector upon applica- tion. It must be filed in duplicate, under oath, and contain an itemized inventory, by schedule, of the property constituting the gross estate. The deductions must also be listed on the appropriate schedules. The instructions printed on the form should be carefully followed. All documents and vouchers used in preparing the return should be retained by the executor so as to be available for inspec- tion whenever required. Duplicate copies of the will, if the decedent died testate, one of which should be certified, must be submitted with the return, together with copies of such other documents as in Form 706 and in the applicable articles of these regulations are required. There may also be filed in duplicate copies of any documents which the executor may desire to submit with the return in explanation thereof. Art. 66. Supplemental data. — The statute provides that the exeon- tor, in addition to filing notice and return, shall furnish such sup- plemental data as may be necessary to establish the correct tax (sec. 304). It is therefore the duty of the executor to furnish upon re- quest copies of any documents in his possession relating to the estate, or on file in any court having jurisdiction over the astate, appraisal lists of any items included in the gross estate, copies of balance sheets or other financial statements relating to the value of stock, and any other information obtainable by him that may be found necessary in the determination of the tax. Failure to comply with such a request will render the executor liable to penalties (Art. 93), and proceed- ings may be instituted in the proper United States court to secure compliance therewith (sec. 1122 (a)). Persons having possession or control of any records or documents containing or supposed to contain any information concerning the estate, or having knowledge or information of any fact or facts of a material bearing upon the liability, or the extent of liability, of the estate to the tax, shall, upon request of the Commissioner or any 53 revenue agent or inspector designated by him for that purpose, make disclosure thereof. Failure on the part of any person to comply with such request will render him liable to penalties (Art. 93), and compliance with the request may be enforced in the proper United States court (sec. 1122 (a)). Art. 6Y. Investigation of returns. — An investigation of every return for estate tax will be conducted to verify its accuracy. The investi- gation will be made by special officers of the Bureau. The fact that an investigation is made does not reflect upon the competence or good faith of the executor, since investigations are required in all cases. The executor should cooperate with the examining officer in order that the tax liability may be correctly determined and the case closed. During the course of the investigation the examining officer will inspect the tangible property of the decedent and the books and records of the estate, interview the executor and other persons having knowledge of the decedent's affairs, verify the value of the assets and the amounts of the deductions, and take such other steps as may be necessary in order that the correct ajnount of tax may be deter- mined. Wherever it is practicable to do so, the Bureau will, in its discre- tion, or upoii the executor's request to the Commissioner, make its field investigation simultaneously and in cooperation with the officials having in charge the matter of determining the amount of tax due the State or Territory by virtue of the decedent's death. Such inves- tigation will extend to all questions in so far as they have bearing both upon the tax liability of the estate under the Federal estate tax law and the taxing act of the particular State or Territory, and com- prehend the disclosure to the agents of the State or Territory of information contained in the return as well as that obtained upon investigation, provided a like cooperation is given by the agency of the State or Territory. Such disclosure may be made by the field investigating officer or his superiors, either during the investigation or subsequent thereto. The investigations made in cooperation with the State or Territory are, like all others, limited to an ascertainment of information to aid the Commissioner, who alone under the law is empowered to determine the tax, in arriving at a conclusion as to the Federal estate tax liability of the estate. The Bureau often has access to information having a material bearing upon the value of property not available to its field agents, and hence it not infrequently happens that the value of an asset as determined by the Commissioner is more or less than that which would result from a determination based only upon information gathered by the field investigating officer of the Bureau. It is inani- fest, therefore, that whatever value is -placed upon an asset by the 5*- ^baiksi m- Territory officmls, or reD|c , * ■!; H: Sec. 318. (a) If a'fter the enactment of this Act the Commissioner determines that any assessment- should be made in respect of any e.state or gift tax imposed by the Revenue Act of WIT, the iRevenue .Act of 1918, the Revenue Act of 1S21, or tlie Revenue Actiof 1024, or by any such Act as amended, the Commissioner is authorized to send by registered mail to the person diable for such Jtax notice at ■•the amount proposed to )be assessed, which notice, shall, for the purposes of this Act, be considered a notice under subdivision (a) of ■section 308 of this Act. ' In ithe case of any such determination the amount which should be assesised '{wJiether as daficientqi' lOr additional tax or as interest, iwnalty, or lOfther addition to the tax) shall be computed as if (this Act 'had not >been enacted, but ithe amount so icomputed shall be jassessed, collected, and paid in the same manner and subject -to the same provisions and limitations (including the pr«- fltisionsincaseBf delinquency inpayment afiter notice and demand and the provisions 'prohibitifig idlaima and SMiits for ireSund) las'in the case of la-defleieaoy in the tax imposed iby this title, lexceptithat. in rthexase of an estate tax jimposed il>y the Revenue Act «f 1917, the Revenue Act of 1018, or the ' Revenue Aet of 1021, or by any sach A«t as ■amendedj the period ;of limitation ipreBcrlbed in i section 1109 of this Aet shall be applied :in ilieu ;of .ithe. :perted. prescribed sin subdiviaion •(aj of section aao. * * '♦.. ■ ■ :;(b) If baSore the enaetnierit of this Aat any person has appsaiied to the Board of Tax Aipipeals -under sulwiivision (a) of section 308 of -the Besenne Act of 1924 aay acasej wteeise it is prdpOsed to impuse'siaay 'penalty 64 mentioned in this paragraph without first advising the executor thereof, the recommendation of the General Counsel, Bureau of Inter- nal Revenue will be obtained prior to final determination of such penalty. Where a protest is filed, it must be accompanied by the additional evidence relied upon and may be accompanied by a brief. The pro- test must be filed in duplicate, and must contain (a) the name of the estate; (b)a reference to the date and symbols appearing on the letter containing the tentative findings; (c) an itemized statement of the findings to which the executor takes exception; (d) a summary statement of the grounds upon which the executor relies in connec- tion with each exception ; and (e) in case the executor desires a hear- ing, a statement to that effect. Protests and accompanying state- ments of fact, if any, must be under oath. "Where there is a hearing, should the executor not appear in person, his representative who appears must present a properly executed power of attorney. (See Art. 74.) In all cases where a deficiency in respect of a tax (including penalties or other additions to the tax provided by law) is finally determined by the Commissioner, a notice thereof will be sent to the executor by registered mail in accordance -with the provisions of Section 308 (a) of the statute even though a jeopardy assessment (See Art. 77) is made. If, subsequent to the mailing of such notice, a jeopardy assessment is made in respect of the deficiency to which such notice relates no svibsequent notice will be sent to the executor by the Commissioner, but if such jeopardy assessment is made; and the amount thereof is in excess of the deficiency to which the notice relates, the Commissioner will mail a notice to the executor as required by Section 308 (a) of the determination of such additional deficiency provided no petition has theretofore been filed with the Board of Tax Appeals. Within 60 days (not counting Sunday as the sixtieth day) after the mailing of the registered letter notifying him of the final deter- mination of a deficiency by the Commissioner, the executor may file a petition with the Board of Tax Appeals for a redetermination of the deficiency, other than a deficiency resulting from the correction of a mathematical error appearing upon the return (See Art. 77). The right to file a petition with the Board exists whether the dece- dent died prior or subsequent to the enactment of the Revenue Act of 1926. Where the executor acquiesces in the tentative or final determina- tion of the whole or any part of. the deficiency, the form of notice which will be forwarded with the letter of notification, waiving the restrictions on the assessment and collection provided in Section 308 (a,), should be executed by the executor and returned to the 65 Commissioner iii order to expedite assessment which stops the accrual of interest on the amount assessed until after notice and demand by the collector in all cases where the decedent died after the enactment of the Revenue Act of 1924. ASSESSMENT OF TAX Sec. 308. * * * (b) If the executor flies a petition with the • Board, the entire amount redetermined as the deficiency by the decision of the Board which has become final shall be assessed and shall be paid upon notice and demand from the collector. No part of the amount determined as a deficiency by the Commissioner but disallowed as such by the decision of the Board which has become final shall be assessed or be collected by distraint or by proceeding in court with or without assessment. (c) If the executor does not file a petition with the Board within the time prescribed in subdivision (a) of this section, the deficiency, notice of which has been mailed to the executor, shall be assessed, and shall be paid upon notice and demand from the collector. , (d) The executor shall at any time have the right, by a signed notice in writing filed with the Commissioner, to waive the restric- tions provided in subdivision (a) of this section on the assessment and collection of the whole or any part of the deficiency. (e) The Board shall have jurisdiction to redetermine the correct amount of the defldiency even i:f the amount so redetermined is greater than the amount of the deficiency, notice of which has been mailed to the executor, and to determine whether any additional amount or addition to the tax should be assessed, if claim therefor is asserted by the Commissioner at or before the hearing or a re- hearing. (f) If after the enactment of this Act the Commissioner has mailed to the executor notice of a deficiency as provided in sub- division (a), and the executor files i a petition with the Board within the time prescribed in such subdivision, the Commissioner shall have no right to determine any additional deficiency, except in the case of fraud, and except as provided in subdivision ,(e) of this section or in subdivision (c) of section 312. If the: executor is ndtifled that, on account of a mathematical error appearing upon the face of the return, an amount of tax in excess of that shown upon the return is due, and that an assessment of the tax has been or will be made on the basis of what would have been the correct amount of tax but for the mathematical error, such notice shall not be consid- eired, for the purposes of this subdivision or of subdivision (a) of this section* or of section 319, as a notice of a deficiency, and the executor shall have no right to file a petition with the Board of Tax Appeals based on such notice, nor shall such assessment or collection be pro- hibited by the provisions of subdivision (a) of this section. (g) For the purposes of this title the date on which a decision of the Board becomes final shall be determined according to the provisions of section 1005. Sec. 310. (a) Except as provided in section 311, the amount of the estate taxes imjiosed by this title shall be assessed wtihin three m yeaa-s after the retirm was filed, aad mo jM-ooeeiSing in oQiirt ■witbout assossHient far tbe collection of .such taxes shall be begun after the expiration of three years, after the return was filed. (b) The running of the statute of limtations provided in this section or in section 311 on the making of assessments and the be- ginning of distraint or a proeeedlng in court for collection, in respect of any deficiency, shall (after the mailing -of a notice under subdi- vision (a) of section SOS) be suspended for the jiteriod during which the ComaiissioDer Is prohibited from malcing the assessment or begiai* ning distraint or a proeeedi«g m icourt, and for 60 days ithei^eaSter. Sec. 311. (a^ la "Hie case of a false or fxaudulent return with intent to evade tax or -of a failure to file a return Hie tax may be assessed, or a proceediBg in court for the collection of such tax may be began without assessment, at any time. - • (b) Where the assessment of any tax imposed by this title or of any estaite or gift tax imposed by priar Act of Oo-jagress has lieen made (whether before or after the enactment of this 4-ct) within the statutory period of limitation properly applicable thereto, such tax may be collected by distraint or by a proceeding in court (began before or after the enactment of this Act), but only if ;begun (1) within six years after the assessment of the tax, or {2) prior to the expiration of any period for coDection agreed upon in writing by the Commissioner and the executor. (e) This section ^all not bar a distraint or proeeeiliug In 'Court begun before t!>e esactment of the lievenue Act of 1924; nor shall it authorize the assessment of a tax or the j penalty;, , or, otJiec -ad(iitip.n t;Q. th,^ tax) shall be computed as if this Act h^d not heen .^nactpd, font thie amount so comjiuted ShaJl be- a^ess«l, collected, " and paM in the same manner and subject to the same provisions and limitations 68 (including the provisions in case of delinquency in pajTnent after notice and demand and the provisions prohibiting claims and suits for refund) as in the case of a deficiency in the tax imposed by this title, except that in the case of an estate tax imposed by the Kevenue Act of 1917, the Revenue Act of 1918, or the Revenue Act of 1921, or by any such Act as amended, the period of limitation pre- scribed in section 1109 of this Act shall be applied in lieu of the period prescribed in subdivision (a) of section 310. Sec. 1109. (a) Except as provided in sections * • • 310, and 311— (1) Notwithstanding the provisions of section 3182 of the Revised Statutes or any other provision of law, all internal-revenue taxes shall (except as provided in paragraph (2) or (3) of this subdivi- sion) be assessed within four years after such taxes became due, and no proceeding in court without assessment for tlie collection of such taxes shall be begun after the expiration of five years after such taxes became due. (2) In case of a false or fraudulent return with intent to evade tax, of a failure to file a return within the time required by law, or of a willful attempt in any manner to defeat or evade tax, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time. (3) Where the assessment of any tax imposed by this Act or by prior Act of Congress has been made (whether before or after the enactment of this Act) within the statutory period of limitation properly applicable thereto, such tax may be collected by distraint or by a proceeding in court (begun before or after the enactment of this Act), but only if begun (A) within six years after the assess- ment of the tax, or (B) prior to the expiration of any period for collection agreed upon in writing by the Commissioner and the taxpayer. (b) This section shall not bar a distraint or proceeding in court begun before the enactment of the Revenue Act of 1924 ; nor shaU it authorize the assessment of a tax or the collection thereof by dis- traint or by proceeding in court if at the time of the enactment of this Act such assessment, distraint, or proceeding was barred by the statutory period of limitation properly applicable thereto, unless prior to the enactment of this Act the Commissioner and the taxpayer agreed in writing thereto. Art. 77. Assessments. — In any case where the Commissioner believes that the assessment or collection of a deficiency tax will be jeop- ardized by delay, he will make an immediate assessment thereof whether the decedent died before or after the passage of the Revenue Act of 1926. In such case the assessment may be made (1) prior to the mailing of the notice provided by Section 308 (a), or (2) ■within 60 days after the mailing of such notice, or (3) at any time prior to the filing of a petition for a review of a decision rendered by the Board. If the jeopardy assessment is made sub- 69 sequent to a decision of the Boards then the assessment is limited to the amount of the deficiency determined by the Board. Where the jeopardy assessment is made before any notice in respect of the deficiency to which the jeopardy assessment relates has been mailed under subdivision (a) of Section 308, the Commissioner will mail a notice as provided by such subdivision within 60 days after the making of such jeopardy assessment. If an amount of tax in excess of that shown upon the return is determined to be due as a result of the correction of a mathe- matical error appearing upon the face of the return, the executor will be duly notified and an assessment made of the tax which would have been the correct tax but for the mathematical error. The notice that the correct amount of the tax has been assessed will not be a notice of a deficiency within the meaning of subdivision (a) of Section 308 or Section 319 and the executor has no right to file a petition with the Board of Tax Appeals based upon such notice. Where a petition is filed with the Board, the entire amount redetermined as the deficiency by the decision of the Board which has become final will be assessed, except such portion as may have been assessed as a jeopardy assessment. If no petition is filed with the Board within the time prescribed in Section 308 (a), the deficiency, notice of which has been mailed to the executor, will be assessed. Where the executor by a signed notice in writing filed with the Commissioner waives the restrictions on the assess- ment and collection of the whole or any part of a deficiency, assess- ment of such whole or part will be made immediately. (As to payment, see articles 78 to 85, inclusive.) All assessments against executors (as to assessments against trans- ferees and fiduciaries, see Article 105), except in the case of a false and fraudulent return, or of a failure to file a return within the time required by law, must be made within three years after the return was filed (four years after the due date of the tax if the decedent died prior to the effective, date of the Revenue Act of 1924). If a petition is filed with the Board of Tax Appeals for a redetermination of the deficiency, then the period within which assessment thereof is required to be made is extended for the period during which the Conamissioner is prohibited from mak- ing the assessment and for 60 days thereafter. In case of a false or fraudulent return with intent to evade the tax, or of a failure to file a required return, the tax may be assessed, or proceedings in court for collection may be begun without assess- ment, at any time. ■70 PAYMENT OF A1ND RECEIPTS iEOR TAXES Sec. 305. (a) The tax. imposeirl by this title Shall be-due and payable one year after the decedent's death, and shall be paid by the executor to the collector. * * * Sec. 308. * * * (b) If the executor files a petition with the _ _ Board, the entire amount redetermined. a^ the deficiency ,ljy the decision, of the Board which has become final shall be 'assessed and shall be paid upon notice and -demand from the collector. * » ■* (e) If the exscutor does not file a petition with the Board within the time prescribed in subdivision (a) of this section, the deficiency, notice of which has been mailed to the executor, shall be assessed, and shall be paid upon notice and demand from the collector, * * » Sec. 313. (a) The collector shall grant to the person paying th,e tax duplicate receipts, either of which shall be sufficient evidence of sudh ' payment, and shall entitle the executor to be credited and allowed the amount thereof by any court having iuiisdiction to audit or settle his accounts. * * * ,,..>,/.., Sec. 1118. (a) Collectors may receive, * * * uncerti^ed cheeky , in payment of income, war-profits, and excefes-proflts taxes and any other taxes payable other than by stamp, during such time and under such rules and regulations as the Commissioner, with the approval of tlie Secietavy, shall prescribe;, but lif a.eheclc so received is not fpaid by the bank on which it is drawn the person b|y whom euch check has been tendered shall remain liable for the payment of the tax and , for all legal penalties and additions to the same extent as if sucli check had not been tendered. , i • Aet. 78. Payment of tax; General. — The tax is due and must be paid withia one year from the date of the decedent's death, unless an extension of time for paynient thereof has been granted hy the Commissioner. (See also Art. 9.) No discount will be allowed for payment in advance of the due daite. The coIlectQr will grant to tlie person paying the tax duplicate receipts, either of which wijl be sufficient evidence of such payment and entitle the exequtor to be credited with the amount by. any court having jurisdiction to audit or settle his accounts. Following an investigation of the return, the tax liability will be determined 'by the Commissioner. If the amount of tax shows on fhe return has been paid and exceeds the amount of tax as deter- mined, the Comniissioner will so advise the executor who shall be efftitled to a Tefund of such excess upon the filing of a claim therefor. Tf the amount of 'tax as ' deterniined exceeds the amount of tax already paid, but is less than the amount shown on the returUj, the Commissioner will notify the executor of the amount of the unpaid tax, and payment thereof may then'be made to the collector^ Where the audit of the return does not disclose a deficiency tax, the executor will 'be notified to that effect. Where, as a resiilt of the audi,t of the return, a deficiency in respect of the tax is finally 'd'eten-riined,and such deficiency is in whole or in part assessed (see Art. 77), the exec- 71 utoc; should pay the amount of the defiokncy 'assess^ upon notice and demand from the collector, except where a stayof the collection of a jeopardy assessment is obtained by the filing of a bond (see Art. 96), or whe^e an extensios?! of time foj? payment is granted (see A,rt. 83).. Until any tax deteripined by the Commissioner, includijig any deficiency, is assessed, the executor should reserve a sufficient pprtion of the estate to satisfy an.y unpaid, assessment,, ; ., , , , , Aex. 79. The executor sliall pay. the tax.— The statute provides that the executor shall pay the tax. This duty applies to the entire tax, regardless of the fact that the; gross estate cpnsist^e in, part of prop- erty which will nptconie into, bis possession. Where there is no duly qualified executor or administrator, all persons in fkct^al or con- structive possession of any property of the decedent are liable for and required to pay the tax to the extent of the value of such prop- erty. See, also. Article 88. As to the personal liabiUty of the exlec- utoE, see Article 102. Akt. 80. Payment by check, — Collectors may accept uncertified checfe in payment of the tax, provided such oheclis are collectible at par, that is^ for the full amount, witJiout any deduction for ex- change or other charges. The collector will stamp upon the face of each check before deposit thereof the. words " This.ph^clc is in pay- ment. of an dbligation to the United States and must be paid at par. No protest." This should be followed by his name and title. The day on which the check is received will be considered the date of payment so far as the taxpayer is concerned, unless the check is re- turned dishonored.. If the bank on which a check is, drawn should refuse to pay it at par, the check should be refcuraed through the depositary bank. All expenses incident to the attenipt to collect such a check and the return pf.it through the depositary bank.iilust be paid by, the drawer of the check to the bank on which it is-drawn. ,. (See sec. 3.210, of the Revised Statutes, as amended, reenacted. by see. 1128 (b) of the Rev- enue Act of 1926.) Where a check has been returned uncollected by the depositary bank, the collector should proceed to collect the tax as though no check had been given, and the taxpayer will re- riikiniiable for payment of the, tax and for all interest, legal penalties and additions, if aiij' attach, to the salne extent as though ^uch check ^^d hot been tendered: A taxpayct who tenders a ceff tified check in payihent of the tax is lipt released from his bbKgation until the check has been paid. (See ch. 191 o'f the Act of Mar. 2,1911.) "Treasury Departnient Circular No', 176, as amended, '-prestcribes detailed regulations governing tlfe^ deposit and collection of checks. Cbllector^ ' are referred to pai-'agraphs 13-16 and 'jMragr'aph 26 therepf as' to' the deposit ' of taxpayet-fe' checks'^hd the handling of ulcicbilected oflos^ ite'ra'sf"'" ' ' " '■"■ ' ''''" ''■ ' ' "' 72 Akt. 81. Payment by bonds or notes. — Payment of the tax may be made with bonds or notes of the United States issued under the provisions of the First Liberty Loan Act and the Second Liberty Loan Act, as amended, bearing interest at a higher rate than 4 per cent per annum, provided they were owned by the decedent con- tinuously for at least six months prior to the date of his death, and upon such date constituted a part of his estate. Such bonds and notes are receivable at par and interest accrued at the time of the payment. When such bonds or notes are to be tendered in payment of the tax, a copy of Department Circular No. 225, as heretofore or hereafter amended or supplemented, should be procured and the requirements thereof carefully noted. EXTENSION OF TIME FOR PAYMENT OF TAX Sec. 305. * * * (b) Where the Commissioner finds that the payment on the due date of any part of the amount determined by the executor as the tax would impose undue hardship upon the estate, the Commissioner may extend the time for payment of any such part not to exceed five years from the due date. In such case the amount in respect of which the extension is granted shall be paid on or before the date of the expiration of the period of the extension. * * * (d) The time for which the Commissioner may extend the time for payment of the estate tax imposed by Title IV of the Revenue Act of 1921 shall be five years. . Sec. 308. • * * (i) Where it is shown to the satisfaction of the Commissioner that the payment of a deficiency upon the date pre- scribed for the payment thereof will result in undue hardship to the estate, the Commissioner with the approval of the Secretary (except where the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent, to evade tax) may grant an extension for the payment of such deficiency or any part thereof for a period not in excess of two years. If an extension is granted, the Commissioner may require the executor to furnish a bond in such amount, not exceeding double the amount of the deficiency, and with such sureties, as the Commissioner deems necessary, conditioned upon the payment of the deficiency in accordance with the terms of the extension. * * * Art. 82. Extension of time for payment of tax shown on return, — In any case where the Commissioner finds that payment of the tax on the due date would impose undue hardship upon the estate, an extension or extensions of time will be granted for the payment of the tax for a period not to exceed in all five years from the due date, except that in cases arising under the Revenue Acts of 1916, 1917, and 1918, the extension is limited, to three years from the due date. Extensions of time for tax payment will be granted only in excep- tional cases, and where it is evident that the payment of the tax on or before the due date would impose upon the estate undue hard- 73 ship. The term " undue hardship " means more than an inconven- ience, and it must appear that substantial financial loss or sacrifice woitld result from making payment of the tax at the due date. An- application -for aii extension of time for the payment of the tax must contain sufficient information from which the Commis- sioner may determine whether undue hardship would result if the requested extension were refused. The extension will not be granted on a- general statement of hardship, but in each case there must be furnished a statement of the specific facts, under oath, showing what, if any, financial loss or sacrifice would result if no extension were granted. The first extension granted will be for a period of not less than six months from the due date of the tax, and no single extension for more -than one year will be granted. Application for extension of time for payment should be filed with the collector, who will refer it to the Commissioner with suitable recommendations. An extension of time to pay the tax does not relieve from the duty of filing' the return on or before the date fixled by the regulations, nor will it operate to- prevent the running of interest. (See Arts. 84 and 85.) Where the executor desires to obtain an additional extension, the application therefor must be filed with the collector on or before the date of the expiration of the previous extension ; otherwise the application must be denied. The granting of an extension of time for paying the tax is discre- tionary with the Commissioner and such authority will be exercised under such conditions as he may deem advisable. Art. 83. Eictension of time for payment of deficiency tax.— .-In any case where the Corrimissioner finds that payment of the deficiency tax upon the date prescribed for the payment thereof would impose un- due hardship upon the estate, an extension or extensions of time will be granted for payment, with the approval of the Secretary, for a period not to exceed in all two years from the date prescribed for the jjayment of the deficiency. This provision applies to all estates, regardless of the date of the decedent's death. The term " undue hardship " means more than an inconvenience, and it must appear that substantial financial loss or sacrifice would result from making payment of the deficiency at the time pre- scribed for the payment thereof. No extension will be granted where the deficiency is due to negligencB or intentional disregard of the rules and regulations^ or to fraud with intent to evade the tax. k.nj application for an extension of time for the payment of a deficiency must be accomj>anied by evidence under oath showing 96031°— 26 -6 7.4 thst undue hardship would result' if the exitension "WBre refused. The extension will not be granted on a general statement of ha-rdsliip, but in each case there must beifurnished a ptatmnenfr of the specific £a<^s sliwwing what, if any^ ^fi^lancial loss or sa(a'ifi!ce: would rewlt if no extension were granted, , i, Aa a condition to the gi-anting of such an extension the Commis- sioner jnny requixe that a penal bond be fui-nished in an amount not exceeding double the amount of the deficiency. Whei-e a bpnd is to. be .f urnislied it, must, be filed with the collector within 10 days after notification by the Commissioner that such boUd is required, and shall be conditioned upon the payment of the deficiency in accordance with the ieirms of the extension granted, including in- terest upon ;the defioiency, as pivescribed by the statute (See Ail. 85), nntil the deficieney is paid, and shali be, executed by a surety or sureties and shall be subject to the approval of the Commissioner, In lieu of such surety, or sureties the bond may be secui-ed by deposit of Liberty bonds or other bonds or notes of the United StateSi in a sum equal at theii- par value to the amount of such bond. }foi single extension for more than one year will be granted. Application for extension of time for payment should be filed with the collector. The .collector will refer tlie application to th« Commis^oner with suitable recommendations. Where the executor desires to obtain an additional extension, the application therefor must be filed with the collector on or before the date of the expiration of the previous extension; otherwise the application must be denied. An extension of time to pay the deficiency will not operate to pre' vait the running of interest. (See Art, 85;) No extension of time for paying . a deficiency will be granted until after , the; assessment thereof and notice and demand for payment has been made by &e ooliector. '• Consequently no application for extension . of time for payment of a deficiency, or any part thereof, should be made prior to the receipt of such notice and demand. The granting of an extension of time for paying the deficiency is discretionary with the Conunissioner, and such authority will be fisercised under such conditions as he may deem advisable. INTEREST ON TAX Sec. 309. (a) <1) Wliere tJie amount determined, by tt»e executor as the tax imposeil by this title, or any part of such amount, is not paid on the due date of the tax, there shall be collected a.s a part of the tax, interest upon such tinpai* amount at the rate of 1 per centum a month from the due date until it is paid. <2)(iWhere an extension of time for payment ot the atoonnt so determiBed as the tax by the executor has been granted, and the amount the time for payment of which has been extended, .and the .7^ ^g not pai,ql,W(futt;Pi'>ioi'r^;A« ejfpiiR^tiqnjOf tUe pewodt pf„tfeei extmr sion, then, in lieu of the intei-est provided for in paragv^iPtu (iO »f this subdivision, Interest at the rate of 1 p§r centum a month ^shall be collected on such unpaid amount from the date of the expiration of the period of the ei^jemsioa until it is piidi ■' '* '* * ■ Sec. 305. * * * payment is thus extended' there shall be ooUeoted, as a part of such aanountj inferest tihereon at the rate of 6 per centum per annum from the expiration of six months after tihe due date of the tax to the expiration of the period of the extension. * * * Sec. 308. * * * (h-) Interest upon the ^mount determined as a deficiency shall be assessed at the same tlm« as the deflcieiwy,. shall be paid upon notice and demand from t)ie coUector, aiid shall he col- lected as » part pf the tax, .^t the rate .of ,6 per centum per annum from the due date of the ,ta^ to the date.tbe. deflciency. i? g.«sei5sed, or, in the case of a vpaiver under subdivisicin (d)i of this section, to the thirtieth day after, tlie. flUng ,of such waiver or to the date the deflgiency ig assesed ■whichever is the earlier. (i), * * * tjie Oominission^r * * , * may gcant. an extension for the pa,yment of sjieh deiSciency or sjijiy part thereof for a^pepiod not in excess of two years. * * * In suc^ case there shall be collected, as a part of the tax, interest on th.e part of the deficiency the tune for payment of 'which is so extended,, at' the rate of ^ per ceatum jper^nnum for thejieriod of the extension, and np ether iiiterBst shall ,b|e collected on such pant of the deficiency for such .period,. If , the part of the deficiency the time for payment of which is so extended is not paid, in accordance with the terpis of the extension, there shaU be collected, as a part of the tax, interest on such unpaid amount at the.rate pf 1 per centum, a month for the period from the time fixed by the terms ,of the extension for }ts payment until it is paid, and no other interest shall be collected, on such awpaid amount for such j)eriod.. ... (j) The 50 per centum addition to the tax prq.yid^ bs section 3176 of the Revised Statutes, as amended, shall, wlien assessed .aiter the enactment of this Act in connection with an estate, tax, be assessed, collected, and paid in the same manner as if it were a deficiency, except that the provisions of sttbdJvision, (h) of thig section shall not be -applicable.,, , S^c. 809. * * * (b) AYhere a deficiency,, or any interest assessed ^"n connection therewith un^er subdivision (h) of sectjoB 3,08, or any addition to the tax provided for in sectiow 31,76 of the Revised, Statatesa, as amended, is not paid in full within 30 days from the date of notice land demand fi-ttm the oo^Ueetor, ttiere shall "be coUeetted' as pSirt^ of the tajE,, interest upenrthe' unpaid amount at .ttier rate af 1 per centum a jnonth fnopi the. date o£ such nojjce and- dfe^Laud, uatil it is.Qaidt 76 (c) If a bond is filed, as provided in section 312, the provisions of subdivision (b) of this section shall not apply to the amount covered by the bond. Sec. 312. * * * (f ) When a jeopardy assessment has been maae the executor, within 30 days after notice and demand from the collector for the payment of the amount of the assessment, may obtain a stay of collection of the whole or any part of the amount of the assessment by filing with the collector a bond in such amount, not exceeding dJouble the amount as to which the stay is desired, and with such sureties, as the collector deems necessary, conditioned upon the pay- ment of so much of the amount, the collection of which is stayed by the bond, as is not abated by a decision of the Board which has become final, together with interest thereon as provided in subdivision (j) of this section. (g) If the bond is given before the executor has filed his petition with the Board under subdivision (a) of section 308, the bond shall contain a further condition that, if a petition is not filed within the period provided in such subdivision, then the amount the collection of which is stayed by the bond will be paid on notice and demand at any time after the expiration of such period, together with interest thereon at the rate of 6 per centum per annum from the date of the jeopardy notice and demand to the date of notice and demand under this subdivision. • » * (i) When the petition has been filed with the Board and when the amount which should have been assessed has been determined by a decision of the Board which has become final, tlien any unpaid por- tion, the collection of which has been stayed by the bond, shall be collected as part of the tax upon notice and demand from the col- lector, and any remaining portion of the assessment shall be abated. If the amount already collected exceeds the amount determined as the amount which should have been assessed, such excess shall be refunded. If the amount determined as the amount which should have been assessed is greater than the amount actually assessed, ' then the difference shall be assessed and shall be collected as part of the tax upon notice and demand from the collector. (j) In the case of the amount collected under subdivision (i) there shall be collected at the same time as such amount, and as a part of the tax, interest at the rate of 6 per centum per annum upon such amount from the date of the jeopardy notice and demand to the date of notice and demand under subdivision (i) of this section, or, in the case of the amount collected in excess of the amount of the jeopardy assessment, interest as provided in subdivision (h) of section 308. If the amount included in the notice and demand from the collector under subdivision (i) of this section is not paid in full within 30 days after such notice and demand, then there shall be collected, as part of the tax, interest upon the unpaid amount at the rate of 1 per centum a month from the date of such notice and demand until it is paid. * * * Aet. 84. Interest on tax disclosed on return. — Where any portion of the tax indicated by the return, is not paid on or before the due date, and no extension of time for payment thereof has been 11 granted, such unpaid portion bears intetest at the rate of 1 per centuni a month from the due date until payment is received by the collector. Where, however, an extension of time has been granted for paying any portion of the tax shown upon the return, the statute requires the imposition of interest upon the amount, the time for payment of which has been extended, at the rate of 6 per centum per annum from the expiration of six months after the due date of the tax (one year after the date of the decedent's death) to the expiration of the period of the extension. If the amoimt of tax, the tinie for payment of which has been extended, and the interest thereon from six months after the due date of the tax, are not paid in full prior to the expira- tion of the extension, or extensions, granted by the Commissioner, interest accrues upon the total unpaid amount (tax and interest), at the rate of 1 per centum a month from the date of the expiration of the extension, or extensions, until payment is received by the col- lector. (For an exkniple of computation of interest at 1 per centum a montli, see Art. 85.) In any case where an extension of time is granted for paying the tax, interest will be added to the amount, the time for payment of which has been extended, from six months after the due date until the expiration of the period of extension, or extensions, even though paj'ment may be made before the expiration thereof. Art. 85. Interest on deficiency tax. — The statute provides that the deficiency shall bear interest at the rate of 6 per centum per annum from the due date for payment of the tax (one year after date of decedent's death) to the date the deficiency is assessed, ex- cept in the case of a waiver of the restrictions against the assess- ment and collection of the deficiency, and that such interest shall he assessed at the same time as the' deficiency of which it becomes an integral part. The deficiency in respect to which the restric- tions against the assessment and collection are waived under Sec- tion 308 (d) bears interest at the rate of 6 per centum per annum from the due date of the tax to the 30th day after the filing of such waiver or to the date the deficiency is assessed whichever is the earlier. The term " deficiency " includes any tax resulting from the correction of a mathematical error appearing upon the face of a return.. (See second paragraph of Art. 77.) Such portion of the deficiency assessed, except a deficiency with respect to which a jeopardy assessment is made and a petition to the Board is filed, as is not paid within 30 days from the date of notice and demand by the collector, bears interest at the rate of 1 per centum a month from the date of such notice and demand until payment is received by the collector unless, however, an extension 1m <4^ the payment jtb&ref^f ihas,be#B granted. "Wikere^an eKtetisioa of .,time^ for pa»ying tlie di^fijciie^y, '©cr any pertioB tlieMof, rhas be«n granted the statute requires the imposition of interest upon ! the amount, the tifne fer paymeiitt of which .has ib«em extended, at, 'the rarte oi 6 per centum p^r annum ior the period ©f th«e. >extenaon, tand.if not paid on ©r ,bef (H?e the expiration of the extension or es- ftensions interest acej/ues upon the total unpaid aimount. (tax, inter- est,, or additions thereto) at the rate ot 1 per centumia month frcan the date of the expiration i of the extensioin until payment is received by the coilectoj?. In any case where an exstenaLon ©f time is panted for paying the . deficiency, interest will be added to the ainouiit, the time for pay- .ment oi Tyiuoh has been extended, for the period of the exteauBwii, or extensions, even though payment may be made .belore the expira- tion thereof. Ex^^mple: A defieieney in the tax amounting to $500 was detec- mined and assessment thereof made: on the 15th day of July; ike due date of the tax being March 15 preceding.. The amount of the assessment in this inetance is $500, plus interest thereon at 6 per icentum per annum from and including March 16 to and induding July 15, amounting to $10.0S, computed upon Ithe basis of 3(i5i days to the year (or 366 days in a leap yeair), or a total asaessment oif $510.03, which thereupoa beooimes the amount of the deficiency. The date pf the notice and demamd by the collector for payment was August 1 following the assessment. Within 30 days there- after $255.02 was paid and request was made for an extension of time for paying the balance of the deficiency ($255.01), aaid aJi extension from August 1 to and including February 1 was granted for the payment thereof. This amoimt bears trater^t isot 6 per centum per annum for the period of the extension, amountimg to> $7.71. The remaining liaibility is, therefore, $262.72 ; (though ipaoad in full prioiT to the expiration > of the extension). The amounit lOtf liability in this^ instance was not paid until August 1 following the expiration of the. extension. Inasmuch as the $255.01, the time: for payment of which was-extended, was not. paid until afler tlie expirar 'tion! of the extensiani,, interest accrued thereon at the rate of 1 per centum a month for six months, amounting to $15.30i (The term " month " means calendar month, i.ie., a period 'terminating with thie day of the succeeding month numerically eorrffipLcmding to the day preceding the beginning of the period. If there is no smch ecerre- sponding-day of the succeeding 4aiQBi;hi,iithe last day of such sHecaect- iing month is the last day «f the period, i Where interftsfc at the rate of 1 per centuBi! a month is to be comiputed for a period of one or more months and a fraction of st month,iiit ghouM lae cofmpnted for the number of whole months, and then for the fraction of a month upon the basis of the goKubflir. ofjdays im.'tbe month which includes such fraction. Thus, for ^xamplCj ihe ,elapsed. F|erJ9d frpm February 14 to TVia^ih, 13, both d^^s ;in«^u^ad, rj^ one njoffl^h, and .the period frojpsi F«brjiarjr 1(| to Majfoh/il, both (dates induded^ is twenty-six tweiiity-eigfasdi.S'Oif:ainantih, exeept^that if' the year>'be a' leap year the pepioais t'wieftty-seven twenty -ninths of a month.) ' The'amOnnt due on August i' 'was; therefore, .$2^8.02 ($e55.qi-h7'.Tl-t;15.30). Any addition, to, £h^, tai resulting from, tl^ie imposition of an ad valorem penalty lUiiader the-ipwyisions of seotion 3l7iS), Revised 'Stat- utes} is subjeat to the same prayisionsof law reiatJing 'to the aSsess- mentj 'c0llection, and the acertial of interest, as the deficiency tax, excfept that such addition to tliie tAx is not subject to aixy interest between the due date for payment of the tax (one year after date of decedent's death) and the date of the assessment thereof. ' " Where d stay of the cblliectibn of a jeopatdy assessment of a d^. ficiency tax, or any addition to the tax resulting from the iriipositioh of an ad valorem penalty^ is obtd;^d tmd a petition for a redetermi- nation of the deficiency is filed with thj? Board of Tax Appals, inter- est accrues on such unpaid jiortion of the deficiency ,or penalty, if any,j dj^termined by a .decisian of the Boaard which is made fiual, ait the ratei of )6 per centum pev annum from the t ' • ' Abt. 88, Prttpeity subject to liLen.-i— This liea abtacties te every part Oi£ thfi gross estate, wtotker or n©t,4he property conies into the pos- session of the dnly, qualified executor or administjraior. It attaches to the extent of the tax sliown to be due by the return and of any deficiency tax found to be due upon review and audit. Tjae lien lipon the entire property constituting the gross estate con- tiniaes t&r a period of 10 years after the decedent's death, except — (1) Where the tax is pai^S in full before tile' exprratiott of such period J (2) Such portion of the grosS; estate as is used fej; the payment of charges, against the estate and expenses of its a^lministration allowed by any e©nrt having jurisdiction thereof ; (3) Such portion of the gross ' estate' as has parsed to a bona fide purchaser for value after payment of the full amount of tax deter- mined by the Commissioner pui-swant to a request of tlie exftcutor for .discharge from personal liability, as authorized by section 313 (b) and (c) (see Art. 67), but there is substituted a like lien apon the consideration received from such purchaser by the heirs, lega- teeSj devisees, or distributees. (4) Such property as was i-eceived from the decedent as a trans- fer by trust or otherwise in cojitemplation erf or intended to take effect in possessiion or enjoyment, at of af tM- bis death (except where the transfer was a bona fide sale for an adequate and f lill considera- tion in money or m6ne.y''s worth), and was sold by the transferee to a bona fide purchaser for such a consi deration. In such case the lien .attaches to all the property of the ti-aiasf eree except such thereof as may be sold to a bona fide pwrchasser for si'tch a eonside3?fttion. (5) Where the Commissioner issues his certificate releasing such lien (see Art. S9). Art. 89. Eelisase of liesB. — Th^ statute provides that where the Com- missioaer is satisfied that ,^e tax liability of an estate has been fully discharged or provided f^r he may issue his certificate releasing any' or all property* of tJie estate from the lien. T^e' issuance of certificates is a matter resting within tlie disci etion of the Commis- sioner, and certificates will be issued only in case there is actual need ther-efor. Ib saost cases the areceipte.iasmed by thie collector consti- tute sufficient acquittance. The tax will be considered fu'lly discharged fbr the purpose of the issuance of a certificate only whpn investigation has 'been completed, and payment of the tax, induding any defidency finally determined, has beeji made. A cwtifiicate of release of lien im^y be issued by the CoiHinaiissi0aer under; tljfise Qiirc.iiiiistan.ces' as to (Siny or lal-l, 'property of the esta-fe itpon'th© fi'Mn'g' by- the 'executor 'df an applieation in dupli- cate (Hi 'Form'fOl. The'rfonn must conta'iri all the information dalled for. .|^ .._ " ' ^ '. ,^, ' ' '^J -i ,, ' , ., Wher,a±he tax ,liabjlj^; liaiS npl' beep, f,ully discharged,,. as. proyided abo^e, no general certificate of release will toe granted, but releases of Ken upon particular items' of property will be issued 'upon the filing with the Commissioner of 'Such security, if any, as 'he may reqiiire. Where security i'^ required, an indemniljy bond must be furnished,. or J^besi'ty Bonds,, or oth^r bonds o,r notes of , the United States, must be deposited with the collector. Im.lieu of sueh security, the Commissioner may in any case issue the release upon payment of the estimated t'aX lipon the tranrfer of the ;prOgei^ty released, computcfd at, the higli,est j^-ate applicable to the estate. If, upon'con- siders-tion of tlie a,pplicaiion»:'the Commi^sipner finds the issuance of the .certrficate to be warrantesd, it will be issaed >and forwardsed to the collector who will make delivery' thereof' to the applicant when the conditions ti^on which delivery is to be'madfe arie met. '"'- PENALTIB'S Skc. 320. (a.) :WJieev«K knowiEtglF.Hialces. any false statem^t in any •potiee or: risiliura rseqwJBied^to be filed UBdef tbjs tiUe-shaJlbie, liable to a -penalty of. not eixoeediiiig .$5,000, or xmRrisiQHmeiit npt exceeding one jiear, or both. , , (b) Whoever fails t© coovply with any duty imposed upon him by section 304, or, having in his posssesaipji or coutrol any record, file; or •paper, coHitaining or sui^osed to contain any linfarnaatiiOii cancerniiig ithe estate of the decedent, or, having in his p ito bs- reoOTjWie^by civil aotiop. ^udi;a request iHU§t b?* granted ; wh«th#r c?; not be beiieveis that a eomjjliance therewith, is- BaatepiaJ. , n . Any person reqaired to. pay the taj^, keep aoy .records, or supply any infoiJination, ios the purpose of the i computation, assessment, PE.jeollection of the .taes, who willfully fails; to pay such, tax, Ij&ep aUeh recards, or supply such in^'ormfl^ion.j as .^-equiriefi by the law,^- ij^mlations, shall,:in addition ito. other, penalties,, bcoguilty ^^f a jsais- denieanor and, upon conviction tbjereof , >be fina(i- not niore tb^ap gilO,000, or imprisoned for not more thjaa one year, ox both,, together with the costs of prosecution. ■ Any persofl who willfully attempts in any manner to evade or .defeat th© tax or the payment thereof, shall, in addition to other penalties be guilty of a felony and, upon iconvic^ioji, thereicjkfjjbe fined not more than $10iOOQ, or imprisoned for pot more than five year^, or both, together .with the costs of prosecution. , Art. 94. Penalty for assistiug, pi;o.'-■ '■.<■ ' ■ > ' , .■ ■ ■ -hi ' iii) Upon the filing of the bond the colleotlon of bo: much of the ' amouB);. assessed as is covered, by the bond shall Jpe stayed. The ,eX(eciitori sl(all.,.ha,'»e.,t|he rigj^)i to waive such, ptay ,at any ^ time in respect of the whole or any part of the amoi^nt covered by, the bond, and if as a feSult of such waiver any' part oi the amount covered' by "■' the bond is paid, then tlie bond Shall,' at the request of the executor, !>■ te proportionately reduced. ,If' the Board detenrai-Hes that the amount asaesfsed is greater than, the amount which should have, been assessied, , , , tlj^B when, the decision of the Board i^ , rendered the,, bpud, shall, at t}ie reqijiest of the executor, be proportionately reduced. ' "(i) Wlien the petition has been filed with the Board and When the amount which should have been assessed has been' determiiied by a decision of the Board which has become flaal, then any umpaid portioB^ th« collection of which has been stayed) by tjie bond, shall be collected ;as part of the t£ix upon notice and demand ffom the collector, and any remaining portion of the assessment shall be abated. If the amount already collected exceeds the amount determined as the amount which Should have been assessed, such excess ^shall be refunded. If the • ■;amount dotermined as the amoumt: wMch should have been Assessed is i greater than the amount acbually assessed,, then the d,ifEer«acei shall be a^se^seid and shall be collected as part of the tax upon inotlGe and demantj from the collector. * * * (k) No claim in abatement shall be filed in respect of any' assess- ment made after the enactment of this Act in respect of any estate or gift tax. Art. 95. Claim for abatement. — No claim for abatement may be filed in respect of any assessment made after the eff ectiTe date of the Eevenue Act of 1926. The amount of any assessment directed to be abated by, the statute as the result of a decision of the Bo,ard of Tax Appeais which has become final will be abated by the Commissioner without action on the part of the exetJtitor. Art., ^6. Collection of jeopardy assessment stayed by filing boild. — ■ Where a jeopardy assessment has, been made, the executor, within 30 days after notice and demand from th« eolleot®r for payment of the amofflit of th« jeopardy assessment may obtain a stary of collec- tion of the whole, or any part, of the almount of such assessm'ent by filing with the collector a bond in such ^mount not exceeding double the amount, as to, whinph ,the stay is desired and with suqh, sureties as the oolleet0,r deems necessary, conditioned upon the payment ©if so muck' of the amourrt, the collection of -which is stayed by th© bond, as is not abated a^' a result of a decision of the Board which has beco^ne fijwl, together wit:h the interest thereon, as, provided in the stat|itp., .(See Art. 85,) In li«u of such sureties there may bie diepos- ited. Liberty) Bonds or other bonds, and notes of the United States in a sum equal at their par value to the amount of such bond. The 88 petition with the Board of Tax Appeals for redetermination of the deficiency in respect to which the jeopardy assessment was made must be filed within 60 days (not counting Sunday as the sixtieth day) after the mailing by the Commissioner of the notice of the final determination of the deficiency. (See Ai-t. 76.) If the bond is given before the petition is filed with the Board, the bond shall contain a furtlier condition that if a petition is not filed within the 60 -days, then the amount, the collection of which is stayed by the bond, shall be paid on notice and demand at any time after the expiration of such 60-day period together with interest thereon at the rate of 6 per centum per annum from the date of the jeopardy notice and demand made by the collector to the date of notice and demand made after the expiration of the 60-day period. Art. 97. Accrual of interest as affected by the stay of the collection of a jeopardy assessment. — For rules relating to the accrual of interest where the collection of a jeopardy assessment is stayed by the filing of a bond, see Article 85. Art. 98. Limitation of time to file bond to stay collection of jeopardy assessment. — If it is desired to stay the collection of the whole, or any , part, of the amount in respect to which a jeopardy assessment has been made, the bond referred to in Article 96 must be filed witlv the collector within 30 days after notice and demand by the collector for the payment of the amount of the jeopardy assessment. REFUNDS Sec. 319. (a) If the Commissioner has mailed to the executor a notice ef deficiency under subdivision (a) of section 308 and if the executor after the enactment of this Act files a petition with the Board of Tax Appeals within the time prescribed in such subdivision, no refund in respect of the tax shall be allowed or made and no suit for the recovery of any part of such tax shall be instituted in any court, except — (1) As provided in subdivision (c) of this section or in subdivi- sion (i) of section 312 or in subdivision (b), (e), or (g) of section 318 or in subdivision (d) of section 1001; and (2) As to any amount collected in excess of an amount computed in accordance with the decision of the Board which has become final; and (3) As to any amount collected after the statutory period of limi- tations upon the beginning of distraint or a proceeding in court for collection has expired; but in any such claim for refund or in any such suit for refund the decision of the Board which has become final, as to whether such period had expired before the notice of ■ deficiency was mailed, shall be conclusive. (b) All claims for the refunding of the tax imposed by this title alleged to have been erroneously or illegally assessed or collected must be presented to the Commissioner within three years next after the payment of Such tax. 89 (c) If the Board fincls that there is no deficiency and further finds that the executor has made an overpayment of tax, the Board shall have jurisdiction to determine the amount of such overpay- ment, and such amount shall, when the decision of the Board has become final, be credited or refunded to the executor as provided in section 3220 of the Revised Statutes, as amended. Such refund shall be made either (1) if claim therefor was filed vcithin the period of limitation provided for by law, or (2) if the petition was filed with the Board within four years after the tax was paid, or, in the case of a tax imposed by this title, within three years after the tax was paid. Sec. 325. Any tax that has been paid under the provisions of Title III of the Revenue Act of 1924 prior to the enactment of this Act in excess of the tax imi)osed by such title as amended by this Act shall be refunded without interest. Sec. 1106. («) The bar of the statute of limitations against the United States in respect of any internal-reventie tax shall not only operate to bar the remedy but shall extinguish the liability; but no credit or refund in respect of such tax shall be allowed unless the taxpayer has overpaid the tax. The bar of the statute of limitations against the taxpayer in respect of any internal-revenue tax shall not only operate to bar the remedy but shall extinguish the liability ; but no collection in respect of such tax shall be made unless the taxpayer has underpaid the tax. (b) If after a determination and assessment In any case the tax- payer has paid in whole any tax or penalty, or accepted any abate- ment, credit, or 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 Secretary, that such deter- mination and assessment shall be final and conclusive, then (exc^t upon a showing of fraud or malfeasance or misrepresentation of fact materially affecting the determination or assessment thus made) (1) the ease shall not be reopened or the determination and assess- ment modified by any oflScer, employee, or agent of the United States, and (2) no suit, action, or proceeding to annul, modify, or set aside such determination or assessment shall be entertained by any court of the United States. Sec. 1111. Section 3220 of the Revised Statutes, as amended, is amended to read as follows : " Sec. 3220. Except as otherwise provided in sections 284 and 319 of the Revenue Act of 1926 the Commissioner of Internal Revenue, 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 aU taxes that appear to be unjustly assessed or excessive in amount, or in any manner vnrongfuUy collected ; also to repay to any collector or deputy collector the full amount of such sums of money as may be recovered against him in any court, for any internal- revenue taxes collected by him, with the cost and expenses ©f suit; 96031°— 26— 7 m aiso all damages and cossts recovered against any assessor, assistant assessor, coltectoi, deputy collector, agent, or Inspector, in any suit brtiuglit against him. by reason of anything done in the due perform- ance of his officii duty, and shall make report to Congress at the beginning of each regular session of Congress of all transactl«iis under this section." Sec. 1112. Section 3228 of the Beyised Statutes, as ainen4ed, ia amended to read as follows : " Sec. 3228. (a) Ail claims for the refunding or creditinig of any internal-rerenue 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 liave been excessive or in any manner wrongfully collected must, except as provided in sections 284 and 319 of the Revenue Act of 192C, be presented to the Commis- sioner Qf Internal Revenue within four years next after the payment of such tax, penalty, or sum. "(b) Except as provided in section 284 of the Revenue Act of 1926, claims for credit or refund (other than clnim.s In respect of taxes imposed by the Revenue Act of 1916, the Revenue Act o'f 1917, or the Revenue Act of 1918) which at the time of the ena<'tm«it of the Revenue Act of 1921 were barred from allowance by the period of limitation then In exitjtence, shall not be allowed." Abt. 99. Claim for refund. — In the absence of an agreement made in accordance with the provisions of section 1106 of the Statute, a claim may be filed for refund of any tax, interest, or penalty, alleged to be excessive, or illegal, where the payment thereof has been made either upon the basis of the return or as a deficiency, except where, after the enactment of the Revenue Act of 1926, a petition is properly filed with the Board of Tax Appeals for a redetermination of the deficiency the amount that may be refunded is limited to the amount collected in excess of the amount computed in accordance with the decision of the Board which has become final or the amount computed in accordance with the final decision of the court where a petition for review of thft-decision of the Board is filed; A decision rendered by the Board ©f Tax Appeals after the enactment of the Revenue Act of 1926 upon an appeal filed prior to the passage of such act does not restrict the right of the executor to file a claim for refund. Claims for refund of estate tax imposed by the Revenue Act of 1920 must be pr^ented to the Cbmmissioner within three years next after the payment of the amount sought to be refunded^ except that a claim may thereafter be filed in any case for the refund of an overpayment computed in accordance with a decision of the Board of Tax Appeals which has become final provided the petition for redetermination of the defiici^icy was filed with the Board within three years next after payment of the tax. Where, however, the tax was imposed by the Estate Tax Title of any Revenue Act prior to 91 iba Kft'TOHue .Act,ef 1926 .tlie periad witihin wllich^tliie claim mmihe presented to the iCoaEoissiaaer is four jsears, except that a ejaim may ^.rea^ftiea:' be filed ior a, reiund of an overpayment determined by the .Board as m, remit: oi a petition filed with the Boaxd ^after the esaaetment et ihe Be:weMxe Act of 1926 ays the debts due to the United States from such person or estate, shall become answeraWe in his awn persoB and estate for the d«bts so due to the United States, or for so much thereof as may remain due and unpaid. Art. 102. Extent of liaMlity, — Tlie executor is personally liable for the payment of the tax if he pays any debts due by the decedent, or his estate, before he pays the tax. Where no executor or adminis- trator has been appointed, every person in actual or constructive pos- session of any property of the decedent is liable for the tax as an executor. EXAMINATION OF RECORDS AND TAKING OF TESTIMONY f Sec. 1104. The Commissioner, for the purpose of ascertaining the correctness of any retui'n or for the purpose of making a return where none has been made, is hereby authorized, by any revenue agent or inspector designated by hiin for that purpose, to examine any b«oks, papers, records, or memoranda bearing upon the mattei's required to be included in the return, and may require the attendance of the m IJersoa TendeiiQg the return er of laaaty effieer or emjfl'oyee of mi(Si -persoa, or the attendanoe 'of any .Qther persoa lismng Ifcniowledse 3n rtim premises, and may take his testimany witli reference to ttoe matter setpijred by Jaw to toe included (in igooh. .retvsrm, with pawer to ad- mima-ler aatlis to sneh pei'samor {teraeaas. Sec. .1122. osed by Title III of the Revenue Act of 1926, or by prior acts, whether shown on the return of the executor or determined as a deficiency in the tax, shall be assessed against such transferee or such fiduciary, as the case may be, and collected and paid, in the same manner and subject to the same provisions and limitations as in the case of a deficiency imposed by Title III of the Revenue Act of 1936, except as hereinafter provided. The provisions relating to the payment of the tax and interest, the authorization of distraint and proceedings in court for collection, the prohibition ef claims for abatement and claims and suits for refund, the filing of a petition with the Board of Tax Appeals and the filing of a petition for review of the board's decision, are included in various sections and articles relating to defi- ciencies in tax imposed by Title III. The term " transferee " as used in this article includes an heir, legatee, devisee, and distributee of an estate of a deceased person. The period of limitation for assessment of the liability of a trans- feree or of a fidiiciary, referred to in the first paragraph of this article, is as follows : (a) Within one year after the expiration ©f the period of limita- tion for assessment against the taxpayer. (See sections 308, 310, 311, 312, 318, and 1109, and Art. 77.) (b) If the period of limitation for assessment against the executor expired before tJie enactment of the Revenue Act of 1926 but assess- ment against the executor was made within such period, tb«i within 97 six years after the making of such assessment against the executor, but in no case later than one year after the enactment of the Revenue Act of 1926. • (c) If a court proceeding against the executor for the collection of the tax has been begun within the period of limitation for the bringing of such proceeding, then within one year after the return of execution in such proceeding. If a notice of the liability of a transferee, or the liability of a fidu- ciary, has been mailed to such transferee or to such fiduciary under the provisions of section 308 (a) (see Art. 76), then thfe running oi the statute of limitations shall be suspended for a period in which the Commissioner is prohibited from making the assessment and for 60 days thereafter. The provisions of section 316 do not apply in any suit or proceed- ing for the enforcement of the liability of a transferee, or a fiduciary under section 3467 of the Revised Statutes, which was pending at the time of the enactment of the Revenue Act of 1926. RECORDS, STATEMENTS, AKD SPECIAL RETURNS Sec. 1102. (a) BvCTy person Iia1»le to any tax imposed by this Act, or for the collection thereof, shall faeep such records, render under oath such statements, make such returns, and compty with such rules and regnlations, as the Cemmissloner, with the approval of the Sec- retary, may fiom time to fltime parescribe. (b) Whenever in the judgment of the ComBiissioBer necessary he may require any person, by notice served upon him, te make a return, render undei oath such statements, or keep soch records as the Com- missioner deems sufficient to show whether or BOt such person is liable to .tax. • * * (d) Any oath or affirmation required by the piovisions of fJiie Act or regulations made under authority thereof may be administered by any officer authorized to administer ea.ths for general purposes by t^ law of the United States or of any State, Territory, ©r possessioB ©1 the United States, wherein such oath or affirmation is administered, or by any consular officer of the United States. Aet. 106. Executor's duty te keep records. — It is the duty of the executor to keep such records as the Ciommissioner may require. Executors are required to keep such complete and detailed records of the affairs of the estate as will enable the Commissioner to deter- mine accurately the amount of the tax liability. Abt. 107. Executor's duty to render statements. — It is the duty of the executor not only to make the formal return, but also to render any other sworn statement which the Commissioner may require for the purpose of determining whether a tax liability exists and, if so, the extent thereof. ESTATES ADMINISTERED IN THE UNITED STATES COURT FOR CHINA Sec. 321. (a) The term "resident" as used in this title includes a citizen <«f (Hie United States with resiject to wtoose pi^perty siny ^obat« or adaunisitratioiB proceedijjgs are ib.a4 in the United States Court for China. WJiere no part of the gross estate of suich decedent is situated in the United States at the time of his death, the total amount of tax due under this title shall be paid to or collected by the cleric -of such court, but where any part of the gross «stat« of siich ^■eeedent is situated in the United Sta-tes at the time of his death, tine tax due vinder this title ghall he paid to or colieeted toy the collector of the district in which is situated the part of the gross estate in the United States, or, if such part is situated in more than oue district, then the collector of such district as may be designated by the Commissioner. (b) For the purpose of this section the clerk of the United States Ceurt for China ^lall be a collector for the territorial jurisdiction of Buch eoiort, and tasas s^mH be coUect«i by and iparid it© hiam in the same manner and subject to the samie provisions of law, including penalties, as the taxes collected by and paid to a collector in the United States. NOTICE OF PERSONS ACTING AS FIDUCIABY Sbo. 317. (a) Upott notice to the Commissioner that any person In acting as executor, such p«'si>n shall assume ISie powers, ri^its, duties, and privUegBs of an executor ia respect of a tax imposed by this title or by any prior estate tax Act, uatii notice is given that such person is no longer acting as executor. (b) Upon notice to the Commisrsioner tSiat any person is acting in a fiduciary capacity for a person subject to the liability specified in sec- tion 316, the fiduciary shall ajssume on belialf of such pei'son the pow- ers, rights, duties, and priyileges «f such person under such section (except that the llabiltty shall be collected from the estate of such per- son), until notice is giren that the fiduciary capacity has ternHJiated. (c) Notice under subdivision the <3®na!H»ssfiaji€r meed not be aQcompasBied hf «videinoe ©f the aui^©iiity of to fite-cwy fte ac* itf tfeere is alifeady ■on file with the doKHnissioaie'r ssridisfadbory -evMenee otf 'the swttksffiiy to adt.. Anf Slack warittea BGitiGe svhiiiehiiMia -heen filad with th® *C©mraissiota«r siaace tihe enaHjtHWiiA oif the fieyenae Act of 19E6 shall Ibe considered as sufficient notice to the OoiBiHiasaoner 'witkin tiae meaning of geetiom 317 if and when there is or has been filed with the Commi^iOBier tfae satisfactory evidence herein jsroTided tor. When the fiduciary capac- ity has terminated, the fiduciary^, in order to be relieved of any fur- ther .-duty or liabilitj as such, miust fik witti the CoHMmssioner writ- ten notice that the fiduciary capacity has itermini^ted as to him, aeoompaBiied by .satisfactory evidence :of the termination ©j£ the fldu- laiary capacity. Such written maiioe -shiajjld pstate sth© na»e and ,aJf dpess of ithe person, if any, who shae bm& suhs^taijsd as fiduciary. This .artiol«, dcaade .ander the ^a?0¥iisaons of section 317 ed the Seve^uc A<:t of IS^, shall J3iOt .be talien to a^bridige in any way this powers aiid .dixies of fiduciaries piioivided f-w in otfeer :eeetioiis iOf Tiy* III ©f tihe Aid, ar in any Jjcisff estate tax Act. SCOPE OF REPEAL • Seg.126©. (a) 1!be fei>a9w!inig jHitts of tbe SterenuKi jAist of 3S24 aafe ■ffl^jcalad, to take reagect (■exe^t *s ^aaervvise pneyided *a .this .Aet^ upon the enactment of this Act, subject to the limitatioAspwyided in subdivision (b) : .* * * , , « .# .j^ « Pm* I ffif TiiOie HI («aUe{l " Estsfbe SRax ") ; « * .* ' « .* -• m Sections 1604, 10(S, 1006, atid lOOT, suMlvi«i»n <&) ol secti27, 1028, 1029, lOSO, and MSI (beiflg -oertain aaanlBisJiWi- 'tive provisions). (b) The parts of the ■Revemie A.ct of 1924 wliiey's worth.'' The second and third sentences of the first paragraph of Article 52, Regulations 37 (Revised January, 1921) and the second sentence of the first paragraph of Article 46, Regulations 63, were amended by Article 109 of Regulations 68 to read as follows : " It is limited to OBe eichange, and consequently when the property originally received is sold the right to the deduction is limited to the proceeds of the sale. If, however, the proceeds are reiavested, more than one exchange lias been effected, aad the right to tbe dednctioH is lost." Section 322 (a) of the Revenue Act of 1926 amends section 301 (a) of the Revenue Act of 1924 and section 323 (a) of the Revenue 101 Act of 1926 repeals the last sentence of paragraph (3) of subdi- visions (a) and (b) of section 303 of the Revenue Act of 1924 (see appendix). In pursuance of such amendment and repeal^ Regulations 68 were amended by Treasury Decision 3842 in the fol- lowing respects : In lieu of the third sentence of Article 7, there was substituted the following : " The rates imposed by the Revenue Act of 1924, as originally en- acted, were different from those prescribed in any of the prior acts, but Section. 322 of the Revenue Act oi 1926 amends Section 301 (a) of the Revenue Act of 1924, effective as of June 2, 1924, so as to impose the same rates prescribed in the Revenue Acts of 1918 and 1921. The rates imposed by the Revenue Act of 1924, as amendedi, are applicable to the estates of decedents dying after the enactment thereof but before 10:25 a. m., Washington, D. C, time, February 26, 1926." The table appearing in Article 7 was amended by eliminating the rates of tax appearing in column 5 and substituting therefor the rates of tax appearing in column 4 of the table. Article 8, except the table for computing estate tax, was amended to read as follows: "Abt. 8. Computation of taa. — For the purpose of computing the tax, the net estate is divisible into blocks, each block being taxed at a dif- ferent and increasing rate. The preceding table gives the amount of the various blocks and the applicable rate of tax under each of the taxing acts. For examiile, the tax upon the net estate of $1,240,000 of a decedent dying on July 1, 1924, is computed as follows : Amount of First block $50, 000 at 1 per cent $500 Amount of Second block 100, 000 at 2 per cent 2, 000 Amount of Third block 100, 000 at 3 per eent__ 3, 000 Amount of Fourth block 200, 000 at 4 per cent 8, 000 Amount of Fifth block 300, 000 at 6 per cent 18, 000 Amount of Sixth block 250, 000 at 8 per c«it 20, 000 Remainder 240, 000 at 10 per cent 24, 000 Total net estate $1, 240, 000 Total tax $75, 508 On the following page will be found a table for ascertaioiBg the tax without the detailed computation given above. Aa illustration of its use is as follows : The net estate of a diecedent dying July 1, 1924, amounts to $1,240,000. By reference to the table it will be seen that the last complete block preceding this amount is $1,000,000^ and that the total tax computed on a million dvllars under the rates in force amounts to $51,500. Upon the remainder of the net estate, $240,000, the tax is computed at the rate set out in the nest following line, or at 10 per cent. The tax on this amount is consequently $24,000. The following result is thus obtained: Total tax on $1,000,000 = $51,600 Tax on 240,000 = 24,000 Totals $1, 240, 000 $75, 500 ' 102 The tafcle Sor -imm^m^^g estaie tax, appealing ;in .-ArtialiB 8, was aaaeoded fcy eliiHiHi«&ig thei^f Kffii (boIhhjhi S and by saunemdia® ►&« b^^d^ig of «olu3aiim 4 1@ sead as follows:: ""FroHi -6t55 p. m., 'Feb. 24, 1S19, to Mf25 a. in., 5i^. -26, 1986, in- elusive (KevenH* -Acts '&t t918, 1921 wad 1S24, a« amfena«a^.." Article 44 was amended by eliminatkig tterefrom tlie last para- ■.C. IE. Nash, Ad5mff 'C ommmsiowsr ^ Internal Revemie. Gakkard B. Wxnston^ . Acting Secretary of the Treasury. APPENDIX REVENUE ACT OF 1924, AS AMENDED (Amendments effective as of June 2, -1924) TITLE III Past I. — Estate Tax Sec. 300. When used in Part I of this title— The term " executor " means the executor or administrator of the decedent, or, if there is no executor or aduniaistrator appointed, qualified, and acting within the United States, then any person in actual or constructive possession of any property of the decedent; The term " net estate " means the net estate as determiaed under the pr©¥ision£ of section SOS ; The term " month " means calendar month; and The term " eollectM" " means the coUeebor of internal revenue ©f the district in which was the domicile of the decedent at the time of his death, or, if there was no such domiaeile in the United States, then the collector of the district in which is situated the part oi the gross estate of the decedent in the United States, or, if such part «f &e gross estate is situated in more than one district, then the collector of internal revenue of such district as may be desig- nated by the Commissioner. Ssa 301. ,(a) la lieu of the tax imposed by Title IV of the Revenue Act of 1921, a tax equal to the sum of the following per- centages of the value of. the net estate (determined as provided in section 303) is hereby uiiposed upon the transfer of the net estato oif every decedent dying after the enactment of this Act, whether a re^dent or noj^esident of the United States : 1 per centum of the amount of the ust, estate not is. excess of fHOfiOO; 2 per centum of the amount by which the net estate exceeds $50,000 and does not exceed $150^0; 3 per centum of &b amouat hey which the net estate exceeds $150,000 and 4om not exceed $250,000; 4 per centum of the amount by which the net estate exceeds $250,000 and does not exceed $450,000; 6 per centum of the amount by -which the net estate exceeds $4i5O^000 and does not exceed $730,000; (103) 104 8 per centum of the amount by which the net estate exceeds $750,000 and does not exceed $1,000,000; 10 per centimi of the amount by which the net estate exceeds $1,000,000 and does not exceed $1,500,000; 12 per centum of the amount by which the net estate exceeds $1,500,000 and does not exceed $2,000,000; 14 per centum of the amount by which the net estate exceeds $2,000,000 and does not exceed $3,000,000; 16 per centimi of the amount by which the net estate exceeds $3,000,000 and does not exceed $4,000,000; 18 per centum of the amount by which the net estate exceeds $4,000,000 and does not exceed $5,000,000; 20 per centum of the amount by which the net estate exceeds $6,000,000 and does not exceed $8,000,000; 22 per centum of the amount by which the net estate exceeds $8,000,000 and does not exceed $10,000,000; and 25 per centum of tlie amount by which the net estate exceeds $10,000,000. (b) The tax imposed by this section shall be credited with the amount of any estate, inheritance, legacy, or succession taxes actu- ally paid to any State or Territory or the District of Columbia, in respect of any property included in the gross estate. The credit allowed by this subdivision shall not exceed 25 per centum of the tax imposed by this section. Sec. 302. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situ- ated — (a) To the extent of the interest therein of the decedent at the time of his death which after his death is subject to the payment of the charges against his estate and the expenses of its adrhinistration and is subject to distribution as part of his estate; (b) To the extent of any interest therein of the surviving spouse, existing at the time of the decedent's death as dower, curtesy, or by virtue of a statute creating an estat« in lieu of dower or curtesy; (c) To the extent of any interest therein of which the decedent has at any time made a transfer, or with respect to which he has at any time created a trust, in contemplation of or intended to take effect in possession or enjoyment at or after his death, except in case of a bona fide sale for a fair consideration in money or money's worth. Any transfer of a material part of his property in the nature of a final disposition or distribution thereof, mskde by the decedent within two years prior to his death without such a con- sideration, shall, unless shown to the contrary, be deemed to have 105 been made in contemplation of death within the meaning of Part I of this title; (d) To the extent of any interest therein of which the decedent has at any time made a transfer, or with respect to which he has at any time created a trust, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power, either by the decedent alone or in conjunction with any person, to alter, amend, or revoke, or where the decedent relinquished any such power in contemplation of his death, except in case of a bona fide sale for a fair consideration in money or money's worth ; (e) To the extent of the interest therein held as joint tenants by the decedent and any other pterson, or as tenants by the entirety by the decedent and spouse, or deposited, with any person carrying on the banking business, in their joint names and payable to either or the survivor, except such part thereof as may be shown to have originally belonged to such other person and never to have been received or acquired by the latter from the decedent for less than a fair consideration in money or money's worth: Provided, That where such property or any part thereof, or part of the considera- tion with which such property was acquired, is shown to have been at any time acquired by such other person from the decedent for less than a fair consideration in money or money's worth, there shall be excepted only such part of the value of such property as is proportionate to the consideration furnished by such other person: Provided further, That where any property has been acquired by gift, bequest, devise, or inheritance, as a tenancy by the entirety by the decedent and spouse, then to the extent of one-half of the value thereof, or, where so acquired by the decedent and any other person as joint tenants and their interests are not otherwise specified or fixed by law, then to the extent of the value of a fractional part to be determined by dividing the value of the property by the number of joint tenants; (f) To the extent of any property passing under a general power of appointment exercised by the decedent (1) by will, or (2) by deed executed in contemplation of, or intended to take effect in possession or enjoyment at or after, his death, except in case of a bona fide sale for a fair consideration in money or money's worth; and (g) To the extent of the amount receivable by the executor as insurance under policies taken out by the decedent upon his own life; and to the extent of the excess over $40,000 of the amount receivaible by all other beneficiaries as insurance under policies taken out by the decedent upon his own life. 96031 °-^26 8 10^ (h) SuMmsioB* (b-), {c),,:{A)i. (e), (f), an-d (g) of thh B«cticai shall apply to the transfers, trusts, estates, interests, rights, powers, and reMnqulshment of powers, as severally enuHiej'ated aad described tibeirein, whether mad^,. created,, arising, existing, esei-cised, or reMaqai^^ tefore or after the enactment of this Aet. Sec. 3C^. For the purpose ©f the taix the* value of the net estate shall be detenam«d— (a) In the case of a resident^ by diedtucting from tlb« Talae oi the gross estate — (1) Such amosntB for funeral expenses^ adaMimistration expenses, claims against the estate, unpaiid rtiortgagee «po»', or any indebted- ness in respect to, property (except, in the case of a resident de- cedent, where such property is not situate^rl in the United States), to the extent that such claims, mortgages, or indebtedness were iTicurred! or contracted bona fide and for a fair consideration in money or money's worth, losses incurred during the settleni«nt of tdie estate arising from fires, storms, shipwreck, or other casualty, or from theft, when such losses are not compensated for by insiiranee' or otherwise, and such amounts reasonably reqxiired stnd actually ex- pended for the support during the settlement of the estate of those dependent upon the decedent, as are allowed by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered, but not including any income taxes upon income received after the death of the decedent, or any estate, succession, legacy, or inheritance taxes; (2') An amount equal to the value of any property (A) forming a part of the gross estate situated in the United States of any person who died within five years prior to the death of the decedent,' or (B) transferred to the decedent by gift within five years prior to his. death, where such property can be identified as having been re- ceived by the decedent from such donor by gift or from such prior decedeiit by gift, bequest, devise, or inheritance, or which can be identified as having been acquired in exchange for property so received. This deduction shall be allo'iyed only where a gift tax or an estate tax under this or any prior act of Congress was paid by or on behalf of the donor or the estate of such prior decedent as the case may be, and only in the amount of the value placed by the Oom- missioner on such property in determining the value of> the gift or the gross estate of such prior decedent, and only to the extent' that the value of such property is included in the decedent'^s gross estate and not deducted under paragraph (1) or (3) of this subdivision; (3) The amount of all bequests, legacies, devises, or transfers, except bona fide sales for a fair consideration in money or money's worth, in contemplation of or intended to take effect in possession or 107 enjoyment at or after .the decedent's d«a.tli, to or for the use of the United States, any State, Territory, any, political suhdi vision. thereo-f, or the Distriet of Columbia, for exclusively public purposes, or to or for the. use of any corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, including the encoviragement of art and the prevention of cruelty to children or animals, no part of the net earnings of which inures to the beBiOfit of any private stockholder or individual, or to a trustee or trustees, or a fraternal society, order, or association operating under the. lodge rsystem, but only if such contributions or gifts are to be used by such trustee or .trustees, or by such fraternal society, . order, or association, exclusively for religious, charitaible, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals; and (4) An exemption of $50,000. (b) In the case of a nonresident, by deducting from the value of that part of his gross estate which at the time of his death is situated in the United States — (1) That proportion of the deductions specified in paragraph (1) of subdivision (a) of this section which the value .of such part bears to the value of his entire gross estate, wherever situated, but in no case shall the amount so deducted exceed 10 per centum of the value of that part of his gross estate which at the time of his death is situated in the United States ; (2) An amount equal to tlie value of any property (A) forming a part t of the gross estate situated in the United States of any person who died wiihin five years prior to the death of the decedent, or (B) transferred to the decedent by gift within five years prior to his death, where such property can be identified as haying been received by the decedent from such donor by gift or from such prior decedent by .gift, bequest, devise, or inheritance, or which can be identified as h^^iig been acquired in exchange for property so received. This deduction shall be allowed only where a gift tax or an estate tax under this or any prior act of Congress was paid by or on beh.alf of the donor or the estate of such prior decedent as the case may be, and Only in the amount of the value placed by the Commissioner on such property in determining the value of the gift or the gross estate of such prior decedent, and only to the extent, that the value of such property is included in that part of the decedent's gross estate which .at the time of his death is situated in the United States and not deducted und«r paragraph (1) or (3) of this subdivision ; and (3) The amount of all bequests, legacies, dievises, or transfers, accept bona fide sales for a fair consideration, in money or money's 108 worth, in contemplation of or intended to take effect in possession or enjoyment at or after the decedent's death, to or for the use of the United States, any State, Territory, any political subdivision thereof, or the District of Columbia, for exclusively public pur- poses, or to or for the use of any domestic corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art and 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 individual, or to a trustee or trustees, or a fraternal society, order, or association operating under the lodge system, but only if such contributions or gifts are to be used within the United States- by such trustee or trustees, or by such fraternal society, order, or association, exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. (c) No deduction shall be allowed in the case of a nonresident vmless the executor includes in the return required to be- filed under section 304 the value at the time of his death of that part of the gross estate of the nonresident not situated in the United States. (d) For the purpose of Part I of this title, stock in a domestic corporation owned and held by a nonresident decedent shall be deemed property within the United States, and any property of which the decedent has made a transfer or with respect to which he has created a trust, within the meaning of subdivision (c) or (d) of section 302, shall be deemed to be situated in the United States, if so situated either at the time of the transfer or the creation of the trust, or at the time of the decedent's death. (e) The amount receivable as insurance upon the life of a non- resident decedent, and any moneys deposited with any person carry- ing on the banking business, by or for a nonresident decedent who was not engaged in business in the United States at the time of his death, shall not, for the purpose of Part I of this title, be deemed property within the United States. (f) Missionaries duly commissioned and serving under boards of foreign missions of the various religious denominations in the United States, dying while in the foreign missionary service of such boards, shall not, by reason merely of their intention to permanently remain in such foreign service, be deemed nonresidents of the United States, but shall be presumed to be residents of the State, the Dis- trict of Colunibia, or tife Territories of Alaska or Hawaii wherein they respectively resided at the time of their commission and their departure for such foreign service. Sec. 304. (a) The executor, within two months after the decedent's death, or within a like peroid after qualifying as such, shall give m •written notice thereof to the collector. The executor shall also, at such times and in such manner as may be required by regulations made pursuant to law, file with the collector a return under oath in duplicate, setting forth (1) the value of the gross estate of the de- cedent at the time of his death, or, in case of a nonresident, of that part of his gross estate situated in the United States; (2) the deduc- tions allowed under section 303; (3) the value of the net estate of the decedent as defined in section 303 ; and (4) the tax paid or pay- able thereon; or such part of such information as may at the time be ascertainable and such supplemental data as may be necessary to establish the correct tax. (b) Eeturn shall be made in all cases where the gross estate ai, the death of the decedent exceeds $50,000, and in the case of the estate of every nonresident any part of whose gross estate is situated in the United States. If the executor is unable to make a complete return as to any part of the gross estate of the decedent, he shall include in his return a description of such part and the name of every person holding a legal or beneficial interest therein, and upon notice from the collector such person shall in like manner make a return as to such part of the gross estate. , Sec. 305. (a) The tax imposed by Part I of this title shall be due and payable one year after the decedent V death, and shall be paid by the executor to the collector. (b) Where the Commissioner finds that the payment on the due date of any part of the amount determined by the executor as the tax would impose undue hardship upon the estate, the Commissioner may extend the time for payment of any such part not to exceed five years from the due date. In such case the amount in respect of which the extension is granted shall be paid on or before the date of the expiration of the period of the extension. (c) If the time for the payment is thus extended there shall be collected, as a part of such amount, interest thereon at the rate of 6 per centum per annum from the expiration of six months after the due date of the tax to the expiration of the period of the extension. (d) The time for which the Commissioner may extend the time for payment of the estate tax imposed by Title IV of the Revenue Act of 1921 is hereby increased from three years to five years. Sec. 306. As soon as practicable after the return is filed the Com- missioner shall examine it and shall determine the correct amount of the tax. Sec. 307. As used in Part I of this title the term " deficiency " means — (1) The amount by which the tax imposed by Part I of this title exceeds the amount shown as the tax by the executor upon his return ; £110 but, the aasooun-t ao shown tm t}i« retairn shall first be increased by tji* affliounts pcewously assessed^ or collected without assessment) as a defidency, and decreased by the amounts previously abated, re- funded, or other wise, repaid in respect of such tax; or (2) If no amount is shown as ithe tax by the executor upon his return, or if no return is made by the executor,, then the amount by which the tax exceeds the amounts previously assessed (or collected without assessment) as a deficiency; but sucli amounts previously assessed, or collected without assessment, shall first be decreased by the amounts previously abated, refunded, or otherwise repaid in respect of such tax. Sec. 308. (a) If tlie Commissioner determines that there is a deficiency in respect of the tax imposed by Part I of this title, the executor, except as provided in subdivision (d), shall be notified of such deficiency by registered mail, but such deficiency shall be assessed only as hereinafter provided. Within 60 days after such Botice is mailed the executor may file an appeal with the Board of Tax Api^eals established by section 900. (b) If the Board determines that there is a deficiency,, the amount so determined shall be assessed and shall be paid upon notice and demand from the collector. No part of the amount determined as a deficiency by the Commissioner but disallowed as such by the Board shall be assessed, but a proceeding in court may be begun, without assessment, for the collection of any part of the amount so dis- allowed. The court shall include in its judgment interest oipon the amount thereof at the rate of 6 per centum iper annum from the date prescribed for the payment of the tax to the date of the judgment. Such proceedings shall be begun within, one year after the final deci- sion of the Board, and, may be begun within such year even though the period of limitation prescribed in section 310 has expired. (c) If the executor does not file an appeal with the Board within the time prescribed in subdivision (a) of this section, the deficiency of which the executor has been notified shall be assessed, and shall be paid upon notice and demand from the collector. (d) If fhe Commissioner believes that the assessment or collection of a deficiency will be jeopardized by delay, such deficiency shall be assessed immediately and notice and demand shall be made by the collector for the payment tiiereof . In such case the assessment may be made (1) without giving the notice provided in subdivision (a) of this section, or (2) before the expiration of the 60-day period pro- vided in subdivision (a) of this; section even though such notice has been given, or (3) at any time prior to the final decision by the Board upon such deficiency even though the executor has filed an appeal. If the executor does not file a claim in abatement as provided in sec- Ill ftion 312, ,th©' deE.ci&ncy so assessed: (ar, if thj3 iclaiai so iileel coders only a part of th© d^ciency, then the amount not covered by the claim) shall be paid upon notice and, demand from the coliectoir. (e) Interest upon the amount determined as a deficienqy shall be assessed at the same time as the deficiency, shall be paid u|>on notice and demand from the collector, and shall be collected as a part of the tax, at the rate of 6 per centum per annum from the due date, of the tax to the date the deficiency is assessed. (f) Where it is shown to the satisfaction of the Comrnissiener that the payment of a deficiency upon the date prescribed for the payment thei-eof will result in undue hardship to the estate, the Com- missioner with the approval of the Secretary (except where .the de- ficiency is due to negligence, to intentional disregard of rules and (regulations, or to fraud with iafcent to evade- tax) may grant an extension forr the payment ^f sudh deficiency or any part thereof for a per>€>d not in excess of two years. If an extension is granted, the •Commissioner may require tiie executor to furnish a bond in such amount, not exceeding double the amount of the deficiency, and with such sureties, as the Conmiissioner deems necessaary, conditioned upon the payment of the deficiency in accordance with the terms of the extension . In such case there shall be collected, as a part of the tax,. inteE^ on the part of the deficiency the time for payment of which is so extended, at the rate of 6 per centum per anroim for the period of the esitension, and no other interest shall be collected on such part of the deficiency for such period.. If the part of the defieieBcy the time for payment of which is so extended is not paid in accordance with the terms of ike extension, there shall be col- lected, as a part 4)f the tax, interest &n such 'anpaid amount at. tiie rate of 1 per centum a month for the period from the time fixed by the terms of the extension for its payment until it is paid, and no other interest shall be collected on such unpaid aBaouat loo* such period. (g) The 50 per centum addition to the tax provided by section ^76 of the Revised Statutes, as amended,^ shall, when assessed after the enactment of this Act in connectioai with an estate tax, be ^assessed, collected, and paid in the same manner as if it were a deficiency, except that the provisions of gjubdivisioai! (e) of this sec- tion siiall not be applicable. Sec. 309. (a) (1) Where the amount determined by the executor as the tax imposed by Part I of this title, or any ;pftrt of s^ch amount, is not paid on the -due date of the tax, ithei'6 shall be collected as a part of the tax, interest upon such unpaid amount at the rate of 1 per cesntum a month ijsem the- due date until it is paid. 112 (2) Wkere an extension of time for payment of the amount so determined as the tax by the executor has been granted, and the amount the time for payment of which has been extended, and the interest thereon determined under subdivision (c) of section 305, is not paid in full prior to the expiration of the period of the extension, then, in lieu of the interest provided for in paragraph (1) of this subdivision, interest at the rate of 1 per centum a month shall be col- lected on such unpaid amount from the date of the expiration of the period of the extension until it is paid. (b) Where a deficiency, or any interest assessed in connection therewith under subdivision (e) of section 308, or any addition to the tax provided for in section 3176 of the Revised Statutes, as amended, is not paid in full within 30 days from the date of notice and demand from the collector, there shall be collected as part of the tax, interest upon the unpaid amount at the rate of 1 per centum a month from the date of such notice and demand until it is paid. (c) If a claim in abatement is filed, as provided in section 312, the provisions of subdivision (b) of this section shall not apply to the amount covered by the clai-in in abatement. Sec. 310. (a) Except as provided in section 311 and in subdi- vision (b) of section 308 and in subdi-vision (b) of section 312, the amount of the estate taxes imposed by Part I of this title shall be assessed within four years after the return was filed, and no proceed- ing in court for the collection of such taxes shall be begun after the expiration of five years after the return was filed. (b) The period within which an assessment is required to be made by subdivision (a) of this section in respect of any deficiency shall be extended (1) by 60 days if a notice of such deficiency has been mailed to the executor imder subdivision (a) of section 308 and no appeal has been filed with the Board of Tax Appeals, or (2) if an appeal has been filed, then by the number of days between the date of the mailing of such notice and the date of the final decision by the Board. Sec. 311. (a) In the case of a false or fraudulent return with in- tent to evade tax or of a failure to file a return the tax may be as- sessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time. (b) Where the assessment of the tax is made within the period prescribed in section 310 or in this section, such tax may be collected by distraint or by a proceeding in court, begun within six years after the assessment of the tax. Nothing in this Act shall be construed as preventing the beginning, without assessment, of a proceeding in court for the collection of the tax at any time before the expiration of the period within which an assessment may be made. 113 (c) This section shall not (1) authorize the assessment of a tax or the collection thereof by distraint or by a proceeding in court if at the time of the enactment of this Act such assessment, distraint, or proceeding was barred by the period of limitation then in existence, or (2) affect any assessment made, or distraint or proceeding in court begun, before the enactment of this Act. Sec. 312. (a) If a deficiency has been assessed under subdivision (d) of section 308, the executor, within 30 days after notice and demand from the collector for the payment thereof, may file with the collector a claim for the abatement of such deficiency, or any jjart thereof, or of any interest or additional amounts assessed in connection therewith, or of any part of any siich interest or addi- tional amounts. Such claim shall be accompanied by a bond, in such amount, not exceeding double the amount of the claim, and with such sureties, as the collector deems necessary, conditioned upon the payment of so much of the amount of the claim as is not abated^ together with interest thereon as provided in subdivision (c) of this section; Upon the filing of such claim and bond, the collection of so much of the amount assessed as is covered by such claim and bond shall be stayed pending the final disposition of the claim. (b) If a claim is filed as provided in subdivision (a) of this section the collector shall transmit the claim immediately to the Commissioner who shall by registered mail notify the executor of his decision on the claim. The executor may within 60 days after such notice is mailed file an appeal with the Board of Tax Appeals. If the claim is denied in whole or in part by the Commissioner (or by the Board in case an appeal has been filed) the amoiint, the claim for which is denied, shall be collected as part of the tax upon notice and demand from the collector, and the amount, the claim for which is allowed, shall be abated. A proceeding in court may be begun for any part of the amount, claim for which is allowed by the Board. Such proceeding shall be begun within one year after the final decision of the Board, and may be begun within such year even though the period of limitation prescribed in section 310 has expired. (c) If the claim in abatement is denied in whole or in part, there shall be collected, at the same time as the part of the claim denied, and as a part of the tax, interest at the rate of 6 per centum per annum upon the amount of the claim denied, from the date of notice and demand from the collector under subdivision (d) of section 308 to the date lof the notice and demand under subdivision (b) of 'this section. If the amount included in the notice and demand from the collector under subdivision (b) of this section is not paid in fuU within 30 days after such notice and demand, then there shall be collected, as part of the tax, interest upon the unpaid amount at the 114 tate of 1 per centum a. month fi-om the date of sticii notice and idemand until it is paid. (d) Except as provided in this section, no claim an abatement shall be filed in respect of any assessment made after the enactment ef this Act in respect of any estate tax. Sec. 313. (a) The collector shall grant to the person paying the tax duplicate receipts^ either of which shall be sufficieht evidence of such payment, and shall entitle tlie executor to be credited and allo'wed the amount thereof by any court having jurisdiction t& audit or settle his accounts. (b) If the executor makes ivritten applica-tion to the ComnoiS' sioner for determination of the amount of the tax and discharge from personal liability therefor, the Commissioner (as soon as possible, and in any event within one year after the making of such applica- tion, or, if the application is made before the return is filed, then within one year after the return is filed, but not after the expiration of the period prescribed for the assessment of the tax in section 310) shall notify the executor of the amount of the tax. The execu- tor, upon payment of the amount of which he is notified, shall be discharged from personal liability for any deficiency in tax there- after found to be due and shall be entitled to a receipt or writing ■showing such discharge. (c) The provisions of subdivision (b) shall not operate as a release of any part of the gross estate from the lien for any de- ficiency that may thereafter be determined to be 'due, unless the title to such part of the gross estate has passed to a bona fide ipur- cfaaser for value, in which case such part shall not be subject to a lien or to amy claim or demand for any such deficiency, but tlie lien shall attach to the considesration received from such purchaser by the heirs, legatees, devisees, or distributees. Sec. 314. (a) If the tax herein imposed is not paid on or before the due date thereof the collector shall, upon instruction from the 'Commissioner, proceed to coQleet the tax under the provisions of general law, or commence appropriate proceedings in any coiirt of the United States having jurisdiction, in the name of the United States, to subject the property of the decedent to be sold under tlie judgment or decree of, the court. From the proceeds of such sale the amount of the tax, together with the costs and expenses of every description to be allowed by the court, shall be first paid, and the balance shall be deposited according to the order' of the court, to te paid under its direction to the person entitled thereto. (b) If the tax or any pai^t thereof is paid by, or collected out of that part of the estate passing to or in ithe possession of, any person other than the executor in his capacity as such, such ;person shall be entitled to reimbursement out of any part of the estate still undis- ilS feibuted or by a. just aiwj, equitabje cojairil^uiion by. the persons whose iaterest in the estate oi the decedent wquJd. have been reduced if the tax had fcieeii paid before the distribution of the estate or whose interest is subject .to equal or prior liability for the pa-yment of taxe^ debts, or other charges against the egteitei, it being the purpose and intent of this title that so far as is practicable find unless otherwise directed by the will of the decc¥lent the tax shall be paid out of the estate beforp its distribution. If any part of the gross estate con- sists of proceeds of policies of insurance upon the life of the decedent receivable by a beneficiary pther thamthe executor, the executor shall be entitled to recover from such beneficiary such portion of the total ;tax paid as the proceeds, in excess of $40,00,0, of such policies bear to the, net estate. If tthere is more than one such beneficiary the exec- utor shall be entitled to recover from, such beneficiaries in the same ratio. Sec. 315. (a) Unless the tax is sooner paid in full, it shall be a lien for ten years upon the, gross estate of the decedent, except that such part of the gross -estate as ds used for the payment of charges -against the estate and expenses of its''administi'a,tion, allowed by any epurt having jurisdiction thereof, shall be divested of such .lien. If 4he Commissioner is satisfied that the tax liability of an estate has (been fully discharged or provided for, he may, under regulations prescribed by him with the approval of the Secretary, issue his certificate, releasing any or aU property of such estate from the lien Jserein imposed. (b) If (1) the decedent makes a transfer of, or creates a trust with respect to, any property in contemplation of or intended to take effect in possession or enjoyment at or after his death (except in the case of a bona fide sale for a fair consideration in money or money's woxth) or (2) if insurance passes under a contract executed by the decedent in favor of a specific beneficiary, and if in either case the tax in respect thereto is not paid when due, then the trans- feree, trustee, or beneficiary shall be personally liable for such tax, and such property, to the extent of the decedent's interest therein at the time of such transfer, or to tlie extent of such beneficiary's in- terest under such contract of insurance^, shall be subject to a like lien equal to th:e amount of such .tax. Any part of such property sold by such transferee or trustee to a bona fide purchaser for a fair con- sideration in money or money's worth shall be divested of the lien and a like lien shall then attach to all the piroperty of sucb transferee pr itpEstee, except any part sold to a bona fide purcbaser foir a fair censideration in money or money's worth. Sec. ,316. If after the enactment of this Act the Commissioner de- ;tjermines that any assessment should be made in respect of ,any es- tate tax imposed by the Revenue Act of' 1917, the Revenue Act <3f 116 1918, or the Keyenue Act of 1921, or by any such Act as amended, the amount which should be assessed (whether as deficiency or addi- tional tax or as interest, penalty, or other addition to the tax) shall be computed as if this Act had not been enScted, but the amount so computed shall be assessed, collected, and paid in the same manner and subject to the same provisions and limitations (including the provisions in case of delinquency in payment after notice and de- mand) as in the case of the taxes imposed by Part I of this title, except that the period of limitation prescribed in section 1009 shall be applied in lieu of the period prescribed in subdivision (a) of section 310. Sec. 317. (a) Whoever knowingly makes any false statement in any notice or return required to be filed under Part I of this title shall bo liable to a penalty of not exceeding $5,000, or imprisonment not exceeding one year, or both. (b) Whoever fails to comply with any duty imposed upon him by section 304, or, having in his possession or control any record, file, or puper, containing or supposed to contain any information con- cerning, the estate of the decedent, or, having in his possession or control any property comprised in the. gross estate of the decedent, fails to exhibit the same upon request to the Commissioner or any collector or law officer of the United States or his duly authorized deputy or agent, who desires to examine the same in the perform- ance of his duties under Part I of this title, shall be liable to a penalty of not exceeding $500, to be recovered, with costs of suit, in a civil action in the name of the United States. Sec. 318. (a) The term " resident " as used in this title includes a citizen of the United States with respect to whose property any pro- bate or administration proceedings are had in the Uilited States Court for China. Where no part of the gross estate of such dece- dent is situated in the United States at the time of his death, the total amount of tax due under Part I of this title shall be paid to or collected by the clerk of such court, but where any part of the gross estate of such decedent is situated in the United States at the time of his death, the tax due under Part I of this title shall be paid to or collected by the collector of the district in which is situated the part of the gross estate in the United States, or, if such part is situated in more than one district, then the collector of such, district as may be designated by the Commissioner. (b) For the purpose of this section the clerk of the United States Court for China shall be a collector for the territorial jurisdiction of such court, and taxes shall be collected by and paid to him in the same manner and subject to the same provisions of law, including penalties, as the taxes collected by and paid to a collector in the United States. H7 LIST OF THE SEVERAL DIVISIONS AND LOCATIONS OF OFFICES OF SUPERVISING INTERNAL REVENUE AGENTS AND INTERNAL REVENUE AGENTS IN CHARGE (Except as stated at bottom of page, communications should be addressed: United States Internal Revenue Agent in Charge, City State Territory embraced Nalne of division Location of oflice Alabama. Alaska Arizona. _ Arkansas. California Colorado Connecticut Delaware District of Columbia Florida.. ._ L ... Georgia ^ , Hawaii . Idaho. __ ._ : : Illinois:. - ; Counties of Henderson, Warren, Knox, Peoria, i Marshall, La Salle, Grundy, Kankakee, and counties north. Counties of Hancock, McDonough, Fulton, Tazewell, Woodford, Liv- ingston, Ford, Iroquois, and coun- ties south. Indiana Iowa. Nashville Seattle Denver Okl ahom a City San Francisco Denver New Haven... Baltimore ...do ........ Jacksonville... Atlanta Honolulu Salt Lake City. Chicago ' Kansas Kentucky Louisiana Maine Maryland Massachusetts . Michigan... Minnesota..... Missouri. Montana .. Nebraska . Nevada New Hampshire New Jersey New Mexico . New York: Manhattan Island, including Black- wells Island, Randalls Island and Wards Island, Westchester County and Bronx County (formerly Twenty-third and Twenty-fourth Wards of New York City). Counties of Kings, Nassau, Queens, Richmond and Suffolk. I'The officers in charge at these cities are designated as Supervising Internal Revenue Af;ent, and should be so addressed. Springfield Indianapolis.. Omaha Wichita Louisville ' New Orleans Boston Baltimore. . . Boston Detroit.. St. Paul New Orleans St. Louis 1... Salt Lake City - Omaha. San Francisco ' Boston Trenton Denver New York '. Brooklyn. Nashville, Tenn. Seattle, Wash. Denver, Colo. O klahoma Citv, Okla. San Francisco, Calif, Denver, Colo. New Haven, Curin,. ' Baltimore, Md. Do. Jacksonville. Fla. Atlanta, Ga.. - Honolulu, Hawaii. Salt- Lake City, Utah. Chicago, 111. SpringSeld, 111. Indianapolis, Ind. Omaha, Nebr. Wichita, Kans. Louisville, Ky. New Orleans, La. Boston, Mass. Baltimore, Md. Boston, Mass. Detroit, Mich. St. Paul, Minn. New Orleans, La. St. Louis, Mo. Salt Lake City, Utah, Omaha, Nebr. San Francisco, Calif. Boston, Mass. Trenton, N. J. Denver, Colo. Customhouse, New York City, N. Y. Brooklyn, N. Y. m Territory embraced Nfuue- of division Location of office New York — Continued. Counties of Albany, Clinton, Colum- bia, Dutchess, Essex, Fulton, Greene, Hamilton, Montgomery, Orange, Putnam, Rensselaer, Rockland, Saratoga, Schenect^ady, Scoharie, Sullivan, Ulster, Warren, and Washington. Counties of Franklin, Herkimer, Otsego, Delaware, and counties west. North Carolina North Dakota Ohio: Counties of Preble, Miami, Clark, Madison, Union, Marion, Morrow, Knox, Coshocton, Guernsey, No- ble, Washington, and counties south. Counties of Darke, Shelby, Cham- paign, Logan, Hardin, Wyandot, Crawford, Richmond, Ashland,. Holmes, Tuscarawas, Harrison, Jefferson, and counties north. Oklahoma Oregon Pennsylvania: Counties of Potter, Clinton, Center, Blair, Bedford and counties east. Counties of McKean, Cameron, Clearfield, Cambria, Somerset and counties west. Rhode Island South Carolina South Dakota : Tennessee Texas Utah.. Vermont Virginia Washington West Virginia Wisconsin Wyoming New Haven. Buffalo- Greensboro - St. Paul Cincinnati-- Cleveland Oklahoma City Seattle Philadelphia '. Pittsburgh! .. New Haven ._ Columbia St. Paul Nashville San Antonio-- Salt Lake City Boston Richmond Seattle Huntington.... Milwaukee '_. Denver ' New Haven, Conn, Buffalo, N. Y. Greensboro, N. G. St. Paul, Minn. Cincinnati, Ohio- Cleveland, Ohio. Oklalioma City, Okla. Seattle, Wash. Philadelphia,, Pa. Pittsburgh, Pa. New Haven, Conn. Columbia, S. ,C. St. Paul, Minn. Nashville, Tean. San Antonio, Tex. Salt Lake City,Utah, Bpstohj Mass. Richmond, Va. Seattle, Wash. Huntington, W. Va. Milwaukee, Wis. Denver, Colo. < The officers in charge at these Cities are designated as Supervising Internal Revenue A^nt, and should be so addressed. INDEX (An analytical Table of Contents precedes the Regntatlions) A Artfcle Page Abatement, cl.aim for &S 87 AiBcountants, fees of — deductibility 36 35 Aecounts, valuation of I3(S) IS Acquiescence in determination of deficiency 76,77 62,68 Aet, Part I, Title HI, Revenue Act of 1924 . _ . — 103 Act, Title III, Eevenue Act of 1926. See Analvfi-cal Table of Contents _..l . — iii Acts, prior to Act of 1926, regulations , 110 100 Acts, successive.- 1,110 2,100 Additional amounts. See Ad valorem penalties and interest on deficiency tax. iSidditional tax. See Deficiency tax. Adjustment of tax 67, 76,95, 96,99 53,62,37,90 Administration expenses 2S, 32-33 33,34-35 See also Nonresident estates 52 45 Administrator. See Executor. Ad valorem penaity 76, 90-«3 62,8.4-85 Advance pay naent, no discount because of 78 70 Advancement, not- necessarily taxable 16 23 Agents, Internal Revenue 67,76 53,62 List of — 117 Agent of decedent, preliminary notice 59,60 48 Agent, transfer, nonresident estate, when to give notice of 6i < 49 Agents, recognition and authorizaition' of 73,74,76,99 56^57,62,90 Agreement as to determination of deficiency tax 76 62 Afaska, included in the term '' United States " 5 4 Amendment of return by Commissioner 75- 58 Animals, loss of during administration 39,52 37,45 Anntrity: Created or reserved in connection with a trans- fer 18 25 Description on return of 12 13 Included in gross estate 11 12 Insurance 28 32 Valuation of. 13(10^,18 18,25 Aaatiques, valuation of 13(9) 17 Appeals to Board of Tax Appeals. See Petitions for ' redetermination of deficiency 9, 76, 77 9, 62, 68 Appointment, property passing under power of 24 29 See aiso Section 302 (h) — 32 Apportionment of tax, not made by Commissioner 87 80 Appraisal lists -_ .. 13(9), 66 17, 52 Appraisers 13(9) 17 Appraiser's fees, deductibility of 35 35 120 Article Assessment against persons other than the executor.. 105 Assessment of ad valorem penalty, mterest 85 Assessment of deficiency tax 76, 77, 85, 105 Interest, effect of — on accrual of interest 85 Assessment of tax shown on return filed by Commis- sioner, collector, or deputy collector or amended by Commissioner 75, 105 Assignee. See Personal liability. Assignment of insurance policy. 27 Attendance, power to require 103, 104 Attorney, power of 73, 74, 76, 99 Attorney's fees, when deductible 32, 34, 52 Attorneys, recognition and authorization of 73, 74, 76, 99 Auctioneers, fees of — deductibility 35 Audit of return 67, 76, 78 Authority for regulations. See Section 1101. B Balance sheets, copies may be required 66 Bank deposits: Checks ontstandiiig at date of death 13(6) Description of, on return 12 Interest on 13(6) Joint deposit 22, 23 Nonresident decedent 50 Valuation of — 13(6) Beneficial interest, person holding: Assessment against 105 Returns required from 64 See also Nonresident estates 70 Beneficial ownership in decedent in his lifetime 11 Beneficial societies, fraternal death benefits paid by. 25 Beneficiary: Assessment against 105 Estate previously taxed, decedent a — of 41 Gift previously taxed, decedent a — of 41 Insurance, life 25-27 See oZso Section 302 (h) — Insurance, life, when beneficiary legally bound to use proceeds for payment of taxes or charges against estate 26 LiabiUty of ,56, 87, 105 See also Executor; definition of 69, 60 Lien for tax on property of 88 Refund claim by 99 Return by 64, 70 Benefits, death 25 Bequests : Charitable 44^47,54,110 Estate tax is not on any particular: 3 In Ueu of dower or hke interest 14 In lieu of executor's commissions 33 Pubhc or charitable 44-47, 54, 110 Page 96 77 62,68,77,96 77 68,96 31 94 56,57,62,90 34, 35, 45 56,57,62,90 35 53, 62, 68 100 52 16 13 16 27 43 16 96 61 55 12 30 96 37 37 30-32 32 31 47, 80, 96 48 82 90 55 30 51 40-42,46,100 4 21 , 34 40-42,46,100 121 Article Page Betterment!^ to property, not administration expense. : ■ 35- • . 35 Betterments to property, transferred 21 2S fijllfr — Non resident estate — situs . 50 43 Board of Tax Appeals.^ j - - - - - S; 76, 77, 85 , 9,- 62, 68, 77 Bond of taxpayer required in connection with: Extension for time of payment.. , -83 . 73 Release of Hen. 1 i 89- .. 82 Stay of collection of jeopardy assessment . • 96 87 Bonds: Description, of , on return 12 13 Nonresident decedent, situs 50 • 43 Pledged to secure b, loan _,__; 13(3)- 14 Of United States, deposit of, in connection ■with — , .. Extension of time for payment 84 76 Release of lien ___._" ,89. 82 Stay of collection of jeopardy assessment -96. . 87 Of United States, payment of tax with 81 • 72 Situs of — ^nonresident decedent ;._ SO /, 43 Stay of collection of jeopardy assessment 77, 85, 96 68, 71, 87 Taxability of Federal, State, or municipal. I .11 , 12 Transfer of — of nonresident decedent 61,62, 49,59 Valuation of ^ 13(3).- 14 Books: Production of 103,104 94 Valuation of : 13(9) 17 Broker's fee, deductibility of ; : 35 35 Brokers in possession of securities or funds of dece- , dent. Notice and return . 59, 60' 64, 70. : 48,51,55 Burden of proof. See Presumptions and burden of proof. » , . Burial lot ^ — 11,31 Business, interest in 13(4) C Capitalization of an annuity 18 Caring for property of the estate, exi)ense of 35 Cashon hand or on deposit 13(6) Casualty, losses from 39 Cemetery lot 11, 31 Certificates of stock — nonresident estate — situs 50 Charges against th« estate, life insurance to provide for payment of 26 Charitable uses, transfer to — by will or inter vivos.. 44-47, 110 , See also Nonresident estates 64 Checks of decedent, outstanding 13(6) Checks, payment of tax with l_ 56, 80 China — estate of United States citizen probated in United States Court for China 5 /See aZso Section 321 (a) — Citizenship not test of residence -. 5 96031°— 26 9 12 ,34 15 25 35 16 37 12 ,34 43 31 40, 42, 100 46 16 47 ,71 4 32 4 122 CtSims held by decedent: Article Page Canceled by wiU - 11 12 Inclusion in gross estate 11 12 Valuation of ^ 13 14 Claims against estate, deduetion of 36, 52 36, 46 See also-. 13(3,6) 14,16 Claims for abatement , 95 87 Claims for refund 99,100 SO, 92 Clerk hire, deductibility .-. 35 35 Close corporation, valuation of stock in _.-._. • 13(3) 14 Collection of tax 77-8S, 96, 102, 105 68-80, 87, 93, 96 Collection of tar, stay of — after jeopardy assess^ ment . 77, 78, 85, 96 68,70r-77,87 Collections of coins and postage stamps 13(9) 17 Collector: Extension of time for filing return 68 54 Return made by. , 75 58 ■ To give information only when authorized 7S 56 Coins, collections of . 13(9) 17 Commfegioner: Determination of tax by-. -- 67j 76, 78 ' 53^62,70 Extension of time by. 69, 82, 83 54, 72, 73 Hearings before . -* 79 62 Return made or amended by 75 Sfe Commissions, administrator's, executor's, trustee's 33 34 See also Nonresident estates " 52 45 Committee on Enrollment and Disbarment 74 $7 Conditional bequest^, charitable, etc 47 45 )S^e aZso Nonresident estates 54 46 Conference L - 67,76 S3, 62 Consent to assessment of deficiency tax. See Waiver of limitations upon assessments. r Cbnsideration as affecting: Deduction- 29, 36, 38, 52 33, 36, 4? Inclusion in gross estate ^.. 2, 13<4, 6)15-20, 22-25, 27, 110 3,16,22,26. 27^30, 31, IWt Lien of tax — .... 88 S2 Constructive possession, person in 59, 64, 79 48,51, 71 See also Nonresident estates 56, 60, 70 47,48, 55 See aJso Penalties _ 90-93 84-85 Gontemplatioa of death: Change in insurance policy made in... ^.i.. 2.7 31 Exercise of power of appointment in. 24 29 EeltlMiui^tnent of power, made in... 20 26 Transfer in 15,16,18,20,24,27,110 22,23,25, 26, 31, 160 ConKngent liability, no deduction for 29 32 Contingent remainder 11 12 Contribution, by persons liable for the tax, to the person paying . 87 80 Contribution of decedent to fund, or to purchase price of property held jointly or by the entirety 23 27 Control of enjoyment of property transferred . 19, 20, 110 26, 100 1S3 ■ ■ Article Pas* Oboperation -with State officials ... 67, 73 53,, 59 Copyrights. iSe« Intangibles 13(7) 16 Corporations: eiiaritabfe.-... 45' 41 •^ Interest in business 13(4) 15 ' ' Nonresident estates . - . - 50, 61, -62. 43,. 49, 50 ■ Stocks and- bonds 13^(3) 14 Counsel, General — Bureau (rf Internal Revenue . 7& 62 Court decree, effect of — as fixing amounts deductible. 30' 33 Court costs, deduction of...- ; 35- 35 Cretitts against estate tax 9) 9 Credft in settlement of estate for estate tax paiid: . 7^' 70 Crops, valuation of....... ^_.... 13<8) 16 Curtesy.'. .. :..' 14 21 See aJso Section 302 (h) — 32 diistodians of- property, preliminary notice by 59;. 60 48 D t)ata, supplemental, may be required.'. .._--._ 46,66 41,52 iSiee also Nonresident estates : 71' 56 Date from which each act is effective r 1, T 2,5 _— . -._.^^.- — 32 Ikemption, specific .«..^^. ^^^ .,^ . 4,4* 4,42 None in nonresident estates'- _ .J. ■. : . 4,51- 4,44 Expectation of death ....... 15; Ifr, tS, 20', 24, 27, US' 22,23-25,26, 29, 31, 100 Expenses dedttetible ..,..^. ..-._.. 29-35' , 33-35 See also Nonresident estates. ^_..._ , 52' 45 Extension of time for: Assessmeat of tax ■ 77 68 Filing return ^ -...„ . eSirO* 54 See oZso Penalties..- , .- ,..^- 90^94 .•; .84-86 Payment" of deficiency tax 83,85 73r|i77 Paymenti of tax shown on return ^ 82,i84 72,, 76 Fair market value, definition of .i, ......^. U 14 See also Consideration.. 2,13(4, 6), 15-19, 22-25,29, 36,38,. 52^ 3,16,22-26, lie* 27-30, 33, ,36, 45,:, 100 False or fraudiaJent. documents — penalty 94 86 False or fraudulent return.... ..! 75-77,91, 94 ,6S-68v85.,86 Farm machinery.-. - 13(8) 16 federal bondsi transfer of taxable ^ -..«« 11 12 fees, deductible i .— -.._.„ 32=-3S, 52 34-35-, 45 Fiduciaries -.„.. 105,. 108 96^.98 Field investigation of return: -._ 67,76 53i.62 Final determination of tax by Commissioner.- 76 62 Fires, losses from . 39 37 Foreign country: Citizen of, may be a resideat , .. & 4 JSecedent a resident of. See Nonresident estates. inventory filed in connection with proceedings in. 71 86 Fraudulent dociiinents-r—penalty---j-- -..j^ . S]i,,94 8'6, 8(5 Fraudulent return 75, 77, 91, 94 S8,e8,85i8'6 Funeral expenses . 29,31, 52 33, 34, 45 Furniture, valuation of 13(9)> 17 G General Counsel, Bureau gf Internal Kerenme 76 62 General power of appointmeUli 24 29 See also Se-etion 302 (h>^-.-.-._ ' — 32 128 Gift: Article Page Advancement 16'. 23 Charitable 44r-47, 54, 110 40-42,46,100 ■^oint tenancy or tenancy by the entirety 22,23 27 Previously taxed... ^.._^ 41,53 37,46 Transfers....- 15-21 22-26 Gift tax: Credit for - 9(b) 11 ,i Deduction on account of payment of 41,53 37,46 Goodwill ^....,^. ......-- 13(4) 15 Gross estate : 4,10-28,110 4,11-32,100 See oZso Section 302 (h) — 32 See also Nonresident estates 11, 50 12, 43 Distribution of a material part of. ,.1S, 28, 44 Literary uses ^^^ .. . 44, 54 Litigation to determine respective shares- of bene- ficisries .l .. 34 Livestock, valuation of 13(8) Loan secured by pledge 13(5) Loan-, life insurance to'^securea ^ 25 Lodge, death benefits paid by 25' Lasses during administration 39; 52 73,. 82, 87 72 12 82,96 a5,40 12 18 30-32 13 43 25 45-4S- 33 90 12, 13» 18i 25, 32, 40 40-46 35 16 16 30 30 33, 45 ■ ■■■ M AfMcIb Machinery, farm ^.. 13(8), Margin, securities purchaaed? on-. 13(3) Kfer&et value 13 See also Consideratiqp.. 2, ISC*, 6):, t^m,.27r-2-5-,2%3&j:S&,:B2 Mathematical error, deficiency resulting fromt 77, 85 Mauaoleum , ^ 31 MiseeUaneous administration expenses 29, 32, 35 Missionary, residence of . 5- SeeoZso Se(Stion 303 (f).. , — Kfodified articles of Regulations 37, 63,. and 68i..^ 11© Money due niSdiresident decedent,, situs of 50' IHtoney in joint account 23i.23 See olso Section 302 (h) — Money on deposit , 13(6) Monument, deduction for 31- Mortgage owrted by decedent:. ■. 13(5): See oZso Nsanresident estates — situs 5ft Mortgage, deduction of ^ ^ 38, 52 Municipal bonds, transfer of, taxable -_ ri... 11 N Net estate 3', 4 Deductions. , _ 2D-48' Nonresident estates. '. 50-55 Ket losses during administration . 39 Nonresident estates (see, generally, titles under gen- eral index) : Agents of nonresident decedent 60 Bankers 60 Beneficial interest, person holding , 70,105 Bonds — Interest accrued to death . 61 Situsof . 50 Transfer after notice 62 ; Deductions 51-S4 See also specific titles under deductions. Defined .- 5 Executor shall — Give notice and make return 1 60, 70, 105 Pay the tax 56,81,.10i5 Gross estate • 11,50 Information concerning, requirement of 71 Insurance in domestic company — not part of gross estate 50 Missionaries,, residence df 5 _, See aZso Section 303 (f) — /jj Moneys due from donjestic debtors — when part of ■ ,. gross estate 50 Moneys on deposit 50 Net estate — how determined 51-5'5 Notice .- 60-62 Payment of tax and interest \ 56, 78-85 Page 16 14 14 3, 13, 16, 22i-26s, 22-30, 33 , 36, 45 68,77 34 33v, 34, 35 4 .43 110 43 27 32 18 34 , . .16 43 36 M 4 33-^2 43^6 37 48 48 S5,96 49 43 50 44-46 4 48,55 47 , 72-, 96 12,43 m 43 4 4-8 43 43 4-^-46 48-50 47,77 132 Nonresident estates — Continued. Article Person Holding beneficial inteiest, or in actual or constructive possession 56, 60, 70, 75, 79, 102, 105 Personal property — when included in gross • ., estate.. ,- 50 Property-in the United States 11, 50, 60 4 Real property in the United States 11,50 Re%l property outside the United States 11, 52. Return........ 1 52-55,70,71 Situs of property 50 Specific exemption, none 4,48, 51 Stock in domestic corporation 50 Supplemental data , 71 Transfer agent ... ■ 6L Transfer by decedent 50 . Notes: Csnceled'-by-will 11 Description of — on return 12 Nonresident estates — situs . 50 Valuation of , 13('5) Notes or bonds of the United States: Deposit of in connection with — • . , Extension for payment S3 Release of lien 89 -( Stay of collection of jeopardy assessment 96 Payment of tax with . 81 Transfer of — taxable 11 Notice: Failure to file preliminary 92 False or fraudulent 75,76,91 Fiduciary to give 108 Jeopardy assessment without prior 76, 77 Of final determination of tax .. 76, 78 Of jeopardy assessrtient 76, 77 Of requirement of bond 83 Of submission of question to general counsel 76 Of tentative deficiency tax 76 Of unpaid tax 67, 78 Preliminary 57-61 O Officers — list of Internal Revenue — Oral hearing on protest l 76 Oriental rugs ' 13(91 P Paintings, valuation of 13(9) Partner, decedent's interest as .13(4) Patents, valuation of. See Intangibles 13(7) Payment of claims and interest * 100 Payment of debts, expenses incident to 32 Payment of tax 78-85 By uncertified check 80 Credits against tax 9 Page 47, 48, 55, 58,71,93,96 43 12, 43, 48 ■ 12, 43 12, 45 45t46,55,56 43 . 4, 42, 44 43 56 49 43 12 13 43 16 73 82 87 72 12 85 58, 62, 85 98 62,68 62,70 62,68 73 62 62 53,70 47-49 117 62 17 17 15 16 92 ■34 70-77 71 9 133 Payment of tax — Continued. Disclosure in regard to ■Due datefor l Executor shall make Extension of time — Deficiency tax . . •_ Tax shown on return _ Nonresident estates Penalties Proceedings to enforce . 76,77,86,105 Receipt. Sor- -....'.:■ Settlement of executor's accounts — receipts en- titles to credit : Suit to enforce With certain bonds and notes of the United States : Penalties _^ Ad valorem Assertion and assessment ofl ... Avoid, in case of doubt ■-■i.. Check, tender of may not prevent Compromise of 1 _^_:. i For assisting, procuring, or advising the previa'- ration or presentation of false or fraudulent documents For delinquency For failure to exhibit records or pi-operty For failure to file notice or return For failure to furnish information or cppies of documents, upon requesti^.. ■ For failure to pay tax..;^-.::_- For false and fraudulent notice or return Interest on ad valorem penalty ■ Preparation or presentation- of false or fraudulent return =.^:....-.^ 1 Nature of ^ . . . ■ Refund of - .--- Remission of -. ^ Return, delinquency in connection with . Specific - -i-_- Person in actual or ' constructive possession — ^when must file notice or return 59, 60, 64, 70 See also Personal liability. Personal effects, valuation and distribution of Personal liability — persons subject to — administrator, assignee, beneficiary, devisee, distributee, executor, fiduciary, heir, legatee, person in possession, trans- feree, trustee: 56, 75, 79, 87, 88, 102, 105, 108 Article Page 72, 73 56 78 70 79 71 83 73 82- 72 56 47 80, 93 •'■ 71, 85 7, 86, 105 62,68,80,96 78 70 78 70 • 105 96 81 72 90-94 84-86 85,-90-98 • 77, 84-86 76,77 62-68 57 47 80 71 101 93 ^4 86 75, 90-94 58, 84-86 - 93 86 75,92 - 58-85 66 52 80,93 71,86 76, 91- 58,85 ,85 77 91,94 • 86, 86 90 84 99,100 90,92 101 93 75,91,92 58, 85 90-94 84-86 60, 64, 70 48, 51, 65 13(9) 17 ' See aZso Check not paid at par Personal property: Description of, on return See also Nonresident estates. Valuation of 80 12 50 13 47,58,71,80 82,93,96,98 71 13 43 14 J3^i Attlcle Pjtg*" Persons required tff give notice or make return 58i-61, 64, 70 48-l%51,55 Petition for redetermination of deficiency 9, 76,, .77 9,i 62, 68 Philippine Iskmds, not included in term "United States" 5 ,4 Medged securities 13(3) 14 Policy of life insurance ..-..-..._-... 12, 25-28 13, 30-32 Pbrto Rico, not-included in term "United States" S 4 Postponement of possession or enjoyment: Charitable dediMJtions 44 40 Transfers.^... 18 25 Valuation -...1 13<10) 18 Power of appofetment, property passing under 24 29 See also SeGtioni302 (h). Power of attorney ■ 73, 74,.76,.99 56,57;82,90 Power to change enjoyment of transfer 19,20,110 26,100 Power to use fund for nonchaxitable purpose 1 47 42^ Power tij- secure evideajce 104 94, Preldminary notice : 57-61 47-49 Failure tff file 90,92 84,85 False or fraudulent 11........ 90,91^94 84,85,86 Preparation of return 6S 52 Preparation or presentation, of. false or fraudulent documents, penalties -. ..-, 90,91,94 84,85,86 Present worth of annuities and future interests 13(10). 18 Presumption or Buiden of Proof: Conclusive --., .- 2,16. 3,23 Consent dfeeree> deductions 30 33 Property held jointly or by th» entirety 23, 27 Property taxed previously 41 37 Refund claim 99 90 Residence- 5. 4 Taxability of transfers, if not rebutted the value of transfers must be returned , , 16 23 Two years of death, transfer within. 2,16 3,23 Pi'eviously taxed property 41-43, llOr- , 37-39; 100 See oZso Nonresident estates 53s 46 Pid-vileged charaMter of return and other records 72-74 56-57 Procuring preparation or presentation- of false or fraudulent doBuments, penalties . 91,94 86,86 Production of evidence ^. 103,104 94 ProHMjlgation of regulaitions 110 100 Property, description of, on return . 12^, 13 Property previoud.y taxed .^ 41-43, llO^ 37-39, 100 /See oZso Nonresident estates -_ 5-S 4& Property, situs of .-.. ^ 11,50 12,43 Property subject to lien of t^c . 88 82 Property taix, estate- tax is: not a , 3, 4 Property, taxes on, deductibility 37 36 Property transferred — ^inclusion in gross estate 15-21, 110" 22-26, 100 See also Insurance, assignment of 27 32 Property, valuation of __. 13 14 Protest against proposed or tentative determination of deficiency.. -1 67,76 53,62 135 Q _ /■ . , , Ai'Hcle Page : Question of law, ruling on by ComimssioBer j. 73 58t R Rates of tax (pec. 301) :. 7 '5 Seal estate (genetally). 10^.11, 13(2) 11, 12, 14 Assessment for local tajfation not deteirmiriative , of value 13(2) U Devisee, tiaking diTBctly II 12 JJescription of, on return "12 13 Eiitirety, estate by 22,23 27 Heirs taking directly 11 12 Life estate ■..,.. . 11,13(10) 12,18 Mortgaged, full value to Be returned 38 . 36 Mortgage on.. 38,52 36,45 Outside the United States .... 11,38,52 12, 36„45 Remainder interest in.... 1_. ....... 11,13(10) 12,1$ Taxes on. See Deductions. 37 S6 Valuation of _ 13(2) 14 Receipts granted upon payment of tax . 78 70 Reciprocity with State oflloials 67 J5§ Recognition of attorneys, agents, and other repre- sentatives ^ . __. 73,74,76,99 56,57,62,90 Records: Dtity of person "having possession or control of _. 66,93 52,85 Executor, duty to. keep 106 97 Production of 106,107 97 Redetermination of deficiency. I.. ' 76 62 Refund . 99,100 90,92 Credit for State inheritance arid similar taxes allowed., 9 (a) \ 9 Determined tax less than amount paid 78 70 Of taxes for which credit was claimed," should be 9 reported S 49 Registrar, nonresident estate — when to give' notice. _ 61 100 Regulations, authority for 110. 100 Regi&ations 37, 63, and 68, modified 110 80 Reimbursement, for taxes paid 1 87 82 Retease Of lien . 88,89 4 Relationship of beneficiary does not affect taxability.. 3 Relief from excessive assessment or collection 95, 99 87, 90 Religious use J '•— 44,54 40,46 Relinquishment qf power to alter, amend, or revolie a transfer 1 20 26 Remaindpr, interest in reversion or: £)eductibility of 44 40 Inclusion of 11 12 Valuation of 13(10) 18 Remedies for collection 105 96 Rents, accrued at time of death — whether then pay- ^ ■ able or not.-- \ II 12 Repeal of Revenue Act of 1924, scope of . 109 100 Representatives of claimants, recognitron and" author- ization of '- - 73, 74, 76, 99 56,57,62,90 136 Article Page Representatives of decedent, preliminary notice 59, 60 48 Reservation of annuity or income in favor of grantor or of another made in connection witli a transfer 18 25 Reservation or retention of power to alter, amend, or revoke transfer -_..: 19,20,110 26,100 See oZso Section 302 (h) — 32 Resident decedent: Definition 5 ,4 Deductions 29-48 33-42" Gross Estate . 4,10-28 4,11,32 See aiso Section 302 (h) — 32 Presumption 5 4 Restrictions on assessment, waiver of 76,85 62,77 Specific exemption 4,48 4,42 Retroactive benefit of section 403, Revenue Act of 1921, not lost 41 37 Retroactive Provisions, Revenue Act, 1926, section 302(h) — 32 Retention of power to alter, amend, or revoke transfer. 19, 20, 110 ^ 26, 100 Return: Administrator to file 64, 70, 75 51, 55, 58 Auditof 76 62 Beneficial interest, person holding, when to make return 64,70,108 51,55,98 Commissioner or collector — Securing evidence " 103 When to make . - 75 Confidential . ._.. 72" Delay in filing, penalties 75, 90, 92 Deductions 29-48 Description of property on 12 Disclosure in regard to 67, 72, 73 Due date,- 63, 70 Executor to file 64, 70, 75 Extension of time for filing 68, 69 Failure to file, penalties - 75, 90, 92 False or fraudulent ^ i... 75, 76, 90, 91, 94 Filing 03, GS-70, 75 Interest on tax shown on 84 Investigation of 67 Mathematical error in ^_ . .,_ 77, 85 Nonresident estates . 52-54, 70, 71, 75 Nontaxable estates 4 Penalties 90-94 Persons liable for return — Nonresident estates 70 Resident estates 64 Preparation of 12, 65 See also Nonresident estates 70 Privileged character of return 72-74 Resident estates : 63-69 Tax shown by, payment of . 78, 82, 84 94 58 66 68, 84, 85 33,42 13 53,56 61,55 51, 55, 58 54 58, 84, 86 68,62 51,54-55,68 76 53 68, 77 45-46, 55, 56, 58 4 • 84-86 65 51 13,62 65. 56-67 51-64 70, 72, 76 137 Return — Continued. Article Page ■ ■ Transfers claimed to be not taxable.; -.-.. 16 23 Verification of 67 63 When required — Nonresident estates 70 55 Resident estates . 63 51 Wm to be filed with... 46,65,71 41,52,56 Reversionary interest, inclusion of.. 11 12 Revenue Act 1924, estate tax title — 103 Revenue Act 1926, Title III. See Analytical Table of Contents * — iii Revenue agents in charge, list of — 117 Revocable trust 19, 20, 110 26, 100 . Revocation, reservation in connection with trans- fer— of power of ... 1 19,20,110 26,100 Royalties, valuation of . See Intangibles 13(7) 16 Rugs, oriental, valuation of .. 13(9) 17 S Safe deposit companies, preliminary notice by 59,60 48 Salary due the decedent 11 12 Sale for less than an adequate and fuU consideration. See Transfers 16 23 Sale of property as indication of value at time of death 13(1)(3) 14 Sale of property under a power of appointment 24 29 Sale, when cost of, is an administration expense 35 35 Scope of repeal of Revenue Act of 1924 109 100 Securities of nonresident decent 50, 6 1-62 43, 49, 50 Secui'ities, valuation of 13(3) 14 Settlement of estate: Administration expenses... 29-35,37,52 33-35,36,45 Losses during 39 37 Support of dependents during 40 37 Tax paid, credit for, in 78 70 Shares of stock. (See Stocks and bonds) 13(3) 14 Shipwreck, losses from 39 37 Silverware, valuation of 13(9) 17 Situs of property 11,50 12,43 Special power of appointment 24 29 Specific exemption 4,48 4,42 None in nonresident estates 4,48,51 4,42,51 Specific penalty 76, 90-94 62, 84-86 Spouse survivings, (See Dower; Curtesy; Support of dependents; Jointly owned property.) Stamps, collections of 13(9) 17 State bonds, transfer of, taxable 11 12 State officials, cooperation with 67, 73 53, 56 State taxes: Cooperation with officials 67,73 53,56 Credit for estate, inheritance, legacy, or succes- sion...' 9(a) 9 Deduction of 37 36 Effect on charitable deduction , 44 40 96031°— 26 10 138 Article Statements, executor's duty to render.^ 107 Statuary, valuation of 13 (9) Statute, text of: 1924 — 1926. See Analytical Table of Contents — Stay bond... --. 77,, 85, 96 Stocks and bonds; Situs, nonresident estates 50 Transfer of, nonresident estates 61 Valuation of 13(3) Sufepoenas. See Evidence 103,104 Succession tax: Credit for ^(a) Cooperation with state officials 67, 73 Estate tax is not a -_i . 3 Suit, collection of tax by 86, 105 Supervising Internal Revenue Agent 67, 76 Supervising Internal Revenue Agents, list of — Supplemental data may be required 46, 66 Nonresident estates 71 Support of dependents 40 Surrogates' fees 35 Surviving partner succeeding to interest of ths de- -cedent 13(4) Surviving spouse. (. =..^_, 37 36 Taxes, life insurance to provide for payment of 26 31 Taxes, rules determining deductibility 37 36 Tenancy in common, joint, or by the entirety 22, 23 27 Tenants, Ufe. See Lifeestates or interests. Tentative finding of deficiency tax 67, 76 53, 62 Text of estate tax title Revenue Act of 1924 — 103 Text of estate tax title. Revenue Act 1924, for refer- ences to — see Table of Contents — m Testimony, taking 103, 104 94 Theft, losses from 39 37 Time: : REGULATIONS 70 (1929 EDITION) ■'-••; '■^■: ■■■■'•■>■• RELATING TO ESTATE TAX UNDER THE REVENUE ACT OF 1926 AS AMENDED AND SUPPLEMENTED BY TH2 REVENUE ACT OF 1928 '^liT ; UNITED STATES GOVERNMENT PRINTING OFFICE WASHINGTON; 1929 These regulations applj' to the estates of decedents dying after the efEec- tive date of Title HI of the Revenue Act of 1926. Estate Tax Regulations 37 (revised January, 1921) ; Regulations 63 (1922 edition) and Regulations 68 (1924 edition I remain in force and efEect only in so far as indicated in Article 110, inf7-a. (U) REGULATIONS RELATING TO THE ESTATE TAX UNDER TITLE III OF THE REVENUE ACT OF 1926 As Amended and Supplemented by the Revenue Act of 1928 TABLE OF CONTENTS (The section numbers refer to the statute, and the article numbers to the regulations) Page Section 300. Definitions 1 Section 301. (a) Description of tax 1 Article 1. The various statutes 2 2. Transfers and interests reached 3 3. Neither a property nor an inheritance tax 4 4. Description of taxable estates 4 5. Definition of "resident" and "nonresident" 4 6. Manner of determining liability ■_ 5 7. Rates of tax 5 8. Computation of tax 7 Section 301. (b) Credit for inheritance taxes 9 Section 404. Revenue Act of 1928. Credit of Gift tax 9 Section 323. Revenue Act of 1924. Revived 9 Article 9. Credit against estate tax 9-13 (a) Credit for estate, inheritance, legacy, or succession taxes ■ 9 (b) Credit for gift tax 11 Section 302. Gross estate 13 Section 302. (a) General 13 Article 10. Character of interests included 13 11. Specific property to be included 13 12. Description of property listed on return 15 13. Valuation of property 16-23 (1) General 16 (2) Real estate 16 (3) Stocks and bonds 16 (4) Interest in business 17 (6) Notes, secured and unecured 18 (6) Cash on hand or on deposit 18 (7) Intangibles 18 (8) Other property : 18 (9) Household and personal effects 19 (10) Annuities, life, remainder, and reversionary interests— 20 (III) IV Pace Section 802. (b) Dower and curtesy ^. : '_'.■ ■23 ' Article 14. Dower and curtesy . 23 Section 302. (c) (d) (i) Transfers by decedent in his lifetinae^.. 24 Article 15. Transfers during life ■ • ■ 26 16. Nature of transfer (in contemplation of death) 25 (1) Transfers made in contemplation of death _/. 26 (2) Transfers not admitted to have been made in contem- ■ plation of death i ^.i; ■ 26 17. General (transfers intended to take effect in possession or enjoyment at or after death) .__-^.. 27 18. Reservation of income or an annuity: .__.: 27 19. Power to change enjoyment- -1 . 28 20. Power relinquished in contemplation of death : 28 21. Valuation of property transferred : ..j. i 29 Section 302. (e) Property held jointly , ' 29 Article 22. Property held jointly or as tenants by- the entirety -__.- • '29 23. Taxable portion: i 30 Section 302. (f) (i) Property passing under power of appointment. 31 Article 24. General rules 32 Section 302. (g) Insurance ii.. 32 Article 25. Taxable insurance i.. 32 26. Insurance in favor of the estate : :.l_. 33 27. Insurance receivable by other beneficiaries '. ■ 33 28. Valuation of insurance i__ 34 Section 302. (h) Retroactive provisions , '34 Section 303. Deductions 34 Section 303. (a) Deductions — Estates of residents 34 Section 303. (a) (1) General 34 Article 29. Deduction of claims, expenses, etc 35 30. Effect of court decree 36 31. Funeral expenses 36 32. Administration expenses 36 33. Executor's commissions 36 34. Attorney's fees 37 35. Miscellaneous administration expenses 38 36. Claims against the estate 38 37. Taxes 38 38. Unpaid mortgages 38 39. Losses from casualty or theft , 39 40. Support of dependents 39 Section 303. (a) (2) Property previously taxed 39 Article 41. Deduction of the value of transfers previously taxed 40 42. Property originally received 42 43. Property acquired in exchange 42 Section 303. (a) (3) Transfers for public, charitable, religious, etc. , uses 42 Article 44. Transfers for public, charitable, religious, etc., uses 43 45. Religious, charitable, scientific, and educational corpora- tions, 43 46. Proof required 44 47. Conditional bequests 44 Section 303. (a) (4) Specific exemption 44 Article 48. Specific exemption 44 Face Section 303. (d) (e) (f) Estates of nonresidents-.... ^-. l- 45 < Article 49. Domicile . . : ■ ■ 45 50. Situs of property of nonresident decedents -45; Section 303. (b) (1) (2) (3) and (c) Deductions — Estates of non- residents 46-47 Section 401. (a) (b)' Revenue Act of 1928. Deductions — Estates of nonresidents.., 47 ' Article 51. Net estate >. 47 52. Deduction of claims, expenses, etc 47 53. Deduction of value of transfers previously taxed 48 54. Deduction of value of transfers for public, charitable, religious, etc., uses l.. 48 55. Determination of net estate 49 56. Payment of tax ^^_.__ 49 Section 304. (a) Preliminary notice — Estates of residents •. .50 . Article 57. When notice required 50 58. Notice by executor or administrator 50 59. Notice by others than duly qualified executor or admin- istrator ^ 50 60. Estates of nonresidents; preliminary notice ^ 51 61. Information return by corporation or transfer agent 52 62. Transfer certificates 52 Section 304. (a) (b) The return — Estates of residents 52-53 Section 306. Examination of return 53 Article 63. When return required — date of filing 53 64. Persons liable for return 53 65. Preparation of return 54 66. Supplemental data 54 67. Investigation of returns 55 Revised Statutes, section 31 76. Extension of time for filing return . 56 Article 68. Extension of time by collector 56 69. Extension of time by Commissioner 57 70. Return of estates of nonresidents 57 71. Supplemental data 58 72. Returns confidential 58 73. Disclosure other than to executor^ ^ 59 74. Attorneys must have authorization 59 Revised Statutes, section 3176. Return by collector or Commis- sioner 1 60 Article 75. Where no return filed, or a false or fraudulent return filed . . .. 60 Section 307. Deficiency tax 60 Section 308. (a) Notice of Deficiency 60 Section 308. (e) Jurisdiction of Board ' 61 Section 308. (f) Mathematical error 61 Section 318. (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) Determination of tax imposed by prior Acts 61-64 Section 606. (a) (b) (c) Revenue Act of 1928. Closing agreements __ 64-65 Article 76. Protests and petitions 65 Section 308. (b) (c) (d) (e) (f) (g) Assessment of tax 68 VI Page Section 310. (a) (b) Limitation on assessment.. . 68-69 Section 311. (a) (b) (c) Collection by suit or distraint 69 Section 312. (a) (b) (c) (d) (e) (f) (g) (i) Jeopardy assessment 69-70 Section 318. (a) Assessment of tax imposed by prior Acts 70 Section 1109. (a) Collection of tax imposed by prior Acts 71 Section 402. (a) (b) Revenue Act of 1928. Suspension of Limita- tions 71 Article 77. Assessments 72 Section 305. (a) Due date for tax 73 Section 308. (b) (c) Due date for deficiency tax 73 Section 313. (a) Receipts for payment 73 Section 1118. (a) Payment by checks and bonds 73 Article 78. Payment of tax; general 73 79. The executor shall pay the tax 74 80. Payment by check 74 81. Payment by bonds and notes 75 Section 305. (b) (d) Payment may be extended 75 Section 308. (i) Payment of deficiency may be extended 75 Article 82. Extension of time for payment of tax shown on the return.. 76 83. Extension of time for payment of deficiency tax 77 Section 309. (a) (1) (2) Interest upon tax disclosed on return.. 78 Section 305. (b) (c) Interest where payment extended 78 Section 308. (h) (i) (j) Interest upon deficiency 78-79 Section 309. (b) (c) Interest upon deficiency after a notice and demand for payment 79 Section 312. (f) (g) (i) (j) Interest where collection of jeopardy assessment is' stayed 79-80 Article 84. Interest on tax disclosed on return 80 85. Interest on deficiency tax 80 Section 314. (a) Collection of tax 83 Article 86. Remedy not exclusive 83 Section 314. (b) Reimbursement 83 Article 87. Right to reimbursement not enforceable by Commissioner. 84 Section 316. (a) (b) Lien . 84 Section 313. (b) (c) Discharge from personal liability for defi- ciency tax 85 Revised Statutes, section 3188 (c) (d) (e) as amended. Release of lien 85 Article 88. Property subject to lien 85 89. Release of lien 86 Section 320. (a) (b) Penalties 87 Section 1114. (a) (b) (c) (e) (f) Penalties 87-88 Section 1103. Ad valorem penalty 88 Section 916. Revenue Act 1928. Compromises. Concealment of assets 88 Article 90. Nature of penalties 88 91. Penalties for false or fraudulent notice or return 89 92. Penalty for failure to file notice or return 89 93. Penalty for failure to pay tax, exhibit property, keep or exhibit records, etc 89 94. Penalty for assisting, procuring, or advising the prepara- tion or presentation of false or fraudulent documents.. 90 VII Pasa Section 312. (f) (g) (h) (i) (k) Stay of collection of jeopardy assess- ment . 90-91 Article 95. Claim for abatement 91 96. Collection of jeopardy assessment stayed by filing bond.- 91 97. Accrual of interest as affected by stay of collection of jeopardy assessment 92 98. Limitation of time to file bond for stay of collection of jeopardy assessment 92 Section 310. (a) (b) (c) Refund after filing petition with Board of Tax Appeals 92-93 Section 326. Tax paid under provisions of Revenue Act of 1924 prior to the enactment of the Revenue Act of 1926 93 Section 1 1 06. (b) Closing agreements made prior to May 29, 1928__ 93 Section 606. (a) (b) (c) Revenue Act of 1928. Closing agreements made subsequent to May 28, 1028 93,94 Revised Statutes, section 3220, as amended. Refund of taxes er- • roneously or illegally collected 94 Revised Statutes, section 3228, as amended. Limitations on refund 94 Section 607. Revenue Act of 1928. Overpayment 94 Section 608. Revenue Act of 1928. Erroneous refund 95 Section 610. Revenue Act of 1928. Recovery of money erroneously refunded 95 Section 611. Revenue Act of 1928. Claim for abatement — over- payment 95 Section 612. Revenue Act of 1928. Repeal of section 1106 (a) of the Revenue Act of 1928 95 Article 99. Claim for refund ^ 95 Section 614. (a) (c) (d) Revenue Act of 1928. Interest on refunds. _ 98,99 Article 100. Payment of claims and interest 99 Revised Statutes, section 3229. Power to compromise or remit penalties 99- Article 101. Power to compromise or remit 99 Revised Statutes, section 3467. Personal liability of executor 100 Article 102. Extent of liability 100 Sections 1104, 1122. Examination of records and taking of testi- mony 100 Article 103. Securing evidence — taking testimony 101 104. Power to compel compliance 101 Section 1100. Remedies for collection 101 Section 311. (b) Collection of tax by distraint or suit 101 Section 316. Liability of transferees and fiduciaries 101 Section 403. (a) (b) Revenue Act of 1928. Suspension of limita- tions in transferee cases 102 Section 604. Revenue Act of 1928. Suits to restrain enforcement of liability of transferees : 102 Article 105. Remedies for collection of tax 103 Section 1102. (a) (b) (d) Records, statements, and special returns. . 104 Article 106. Executor's duty to keep records 104 107. Executor's duty to render statements 104 Section 321. (a) (b) Estates administered in the United States Court for China 105 VIII Page Section 317. Persons acting as fiduciary 1 : 105 Article 108. Notice of persons acting as fiduciary 105 Section 1200. Scope of repeal - 106 Article 109. Scope of repeal - 107 Section 1101. Power to prescribe regulations. 107 Article 110. Promulgation of regulations 107 Appendix J.. 113-127 Revenue Act of 1924 ---- -, 113 List of the several divisions and locations of offices of internal- revenue agents in charge— 127 Index 129 REGULATIONS ESTATE TAX [Except as otherwise specified, the section references are to the Revenue Act of 1926] Title III. — Estate Tax Sec. 300. When used in this title — (a) The term "executor" means the executor or administrator of the decedent, or, if there is no executor or administrator ap- pointed, qualified, and acting within the United States, then any person in actual or constructive possession of any property "of the decedent ; (b) The term " net estate " means the net estate as determined under the provisions of section 303 ; (c) The term "month" means calendar month; and (d) The term " collector " means the collector of internal revenue of the district in which was the domicile of the decpdent at the time of his deathj or, if there was no such domicile in the United States, then the collector of the district in which is situated the part of the gross estate of the decedent in the United States, or, if such part of the gross estate is situated in more than one district, then the col- lector of internal revenue of such district as may be designated by the Commissioner. Sec. 301. (a) In lieu of the tax imposed by Title III of the Reve- nue Act of 1924, a tax equal to the sum of the following percentages of the value of the net estate (determined as provided in section 308) is hereby imposed upon the transfer of the net estate of every decedent dying after the enactment of this act, whether a resident or nonresident of the United States ; 1 per centum of the amount of the net estate not in excess of $50,000; 2 per centum of the amount by which the net estate exceeds $50,000 and does not exceed $100,000 ; 3 per centum nf the amount by which the net estate exceeds $100,000 and does not exceed $200,000; 4 per centum of the amount by which the net estate exceeds $200,000 and does not exceed $400,000; 5 per centum of the amount by which the net estate exceeds $400,000 and does not exceed $G00,000; 6 per centum of the amount by which the net estate exceeds $600,000 and does not exceed $800,000; 7 per centum of the amount by which the net estate exceeds $800,000 and does not exceed $1,000,000 ; 8 per centum of the amount by which the net estate exceeds $1,000,000 and does not exceed $1,500,000 ; 9 per centum of the amount by which the net estate exceeds $1,500,000 and does not exceed $2,000,000 ; (1) 10 per centum of the amount by which the net estate exceeds $2,000,000 and does not exceed $2,500,000 ; 11 per centum of the amount by which the net estate exceeds $2,500,000 and does not exceed $3,000,000 ; 12 per centum of the amount by which the net estate exceeds $3,000,000 and does not exceed $3,500,000 ; 13 per centum of the amount by which the net estate exceeds $3,500,000 and does not exceed $4,000,000 ; 14 per centum of the amount by which the net estate exceeds $4,000,000 and does not exceed $5,000,000 ; 15 per centum of the amount by which the net estate exceeds $5,000,000 and does not exceed $6,000,000 ; 16 per centum of the amount by which the net estate exceeds $6,000,000 and does not exceed $7,000,000 ; 17 per centum of the amount by which the net estate exceeds $7,000,000 and does not exceed $8,000,000 ; 18 per centum of the amount by which the net estate exceeds $8,000,000 and does not exceed $9,000,000 ; 19 per centum of the amount by which the net estate exceeds $9,000,000 and does not exceed $10,000,000 ; 20 per centum of the amount by wliich tlie net estate exceeds $10,000,000. Article 1. The various statutes. — The Federal estate tax was first imposed by the Act of September 8, 1916. This law was amended by the Act of March 3, 1917 (Title III), by increasing the rate of tax. The Act of October 3, 1917 (Title IX), imposed a tax upon the transfer of the net estate of decedents dying after October 3, 1917, in addition to the tax imposed by the Revenue Act of 1916, as amended. The Revenue Act of 1918 (Title IV), which became effective at 6.55 p. m., Washington, D. C, time, February 24, 1919, reduced the rates applicable to net estates below $1,500,000, as com- pared with those of Title IX of the Revenue Act of 1917, and con- tained a number of provisions not found in any of the prior Acts. The Revenue Act of 1921 (Title IV) became effective at 3.55 p. m., Washington, D. C, time, November 23, 1921. It reenacted without change the rates of Title IV of the Revenue Act of 1918 ; supplanted all prior Acts as to the estates of decedents dying after the effective date thereof; embodied numerous changes, but contained many of the provisions of the earlier Acts. The Revenue Act of 1924 (Part 1, Title III), which became effective at 4.01 p. m., Washington, D. C, time, June 2, 1924, as originally enacted, increased the rates applicable to net estates in excess of $100,000, as compared with those of Title IV of the Revenue Act of 1921; contained provisions not found in any of the prior Acts; but did not include all of the exemptions accorded by the Revenue Act of 1921. The Revenue Act of 1926 (Title III), which became effective at 10.25 a. m., Washington, D. C, time, February 26, 1926, increased from $50,000 to $100,000 the specific exemption to be deducted from the gross estates of resident decedents, in determining the net estates for the purpose of the tax and made effective rates ranging from 1 to 20 per cent. The Kevenue Act of 1926 amends the rates imposed by Part 1, Title III, of the Kevenue Act of 1924, by substituting for such rates the same rates imposed by the Revenue Acts of 1918 and 1921; allows a credit in estates of decedents dying after the enactment of the Revenue Act of 1926, on account of State inherit- ance, tax paid, not to exceed 80 per cent of the tax imposed by the Act; and contains provisions not found in the prior Acts. The Revenue Act of 1928 (Part 1, Title II), which became effective at 8 a. m., Washington, D. C, time, May 29, 1928, does not repeal Title III of the Revenue Act of 1926, but makes certain amendments to that title and amends and supplements the general administrative provisions of the Revenue Act of 1926. The Revenue Act of 1926, as amended and supplemented by the Act of 1928, is herein referred to as " the statute." References to other statutes are specific. Art. 2. Transfers and interests reached. — The statute subjects to tax transfers resulting from the decedent's death; transfers made by the decedent in his lifetime, when made in contemplation of or intended to take effect in possession or enjoyment at or after his death, excepting, however, bona fide sales for an adequate and full consideration in money or money's worth; transfers, other than those made bona fide for an adequate and full consideration in money or money's worth, by .the decedent in his lifetime where the enjoyment was subject at his death to any change through the exer- cise of a power, either by him alone or in conjunction with any per- son, to alter, amend, or revoke, or where any such power was relinquished by the decedent in contemplation of his death. Where, however, the decedent, within two years of his death, but subsequent to the enactment of the Revenue Act of 1926, without an adequate and full consideration in money or money's worth, made a transfer or transfers, by trust or otherwise, to any one or more persons in excess of $5,000, not admitted or shown to have been made in con- templation of death or intended to take effect in possession or enjoyment at or after death, the aggregate value of the property in excess of $5,000 transferred to each person shall be deemed and held to have been made in contemplation of death within the meaning of the statute. There is also subject to tax the homestead and other exemptions; dower, curtesy, or statutory estate in lieu thereof, of the surviving spouse ; property held by the decedent and another person or persons where the suvivor or survivors take by right of survivorship ; insur- ance receivable by the executor under policies taken out by the de- cedent upon his life, and insurance so taken out and receivable by all other beneficiaries to the extent that the aggregate amount thereof) exceeds $40,000. Art. 3. Neither a property nor an inheritance tax.-^The Federal; estate tax is imposed upon the transfer of the net estate of every person dying after September 8, 1916, determined in the manner prescribed by the applicable law. (See Art. 1.) The tax is not laid upon the property but upon the transfer of the entire net estate and' not any particular legacy, devise, or distributive share. The rela-: tionship of the beneficiary to the decedent has no bearing upon the question of liability or the extent thereof. The transfer of property is taxable although it escheats to the State for lack of heirs. ESTATES SUBJECT TO TAX Art. 4. Description of taxable estates. — The tax is imposed upon the transfer of the net estate. The term "net estate" has a distinct meaning in the statute, signifying the difference betweei^ the total value of the gross estate and the total of the authorized deductions. One of the deductions authorized in the estate of a resident decedent is the specific sum of $100,000 if the decedent died subsequent to 10.25 a. m., Washington, D. C, time, February 26, 1926, the effec- tive date of the Revenue Act of 1926. If the decedent died prior to the effective date of the Revenue Act of 1926, the specific amount authorized to be deducted is only $5O,Q00. No specific deduction is authorized in the estate of a nonresident decedent. There is no basis for tax where the value of the gross estate does not exceed the total amount of the authorized deductions, although the filing of a return is required if the decedent was a resident and the value of his gross estate at the date of his death exceeded the specific deduction as above mentioned, or, if a nonresident, any part of his gross estate was situated in the United States. As to the situs of property in estates of nonresidents, see Art. 50. Art.~5. Definition of "resident" and "nonresident." — The statute provides (paragraph (5) of section 2 (a)) that the term "United States," when used in a geographical sense, includes only the States, the Territories of Alaska and Hawaii, and the District of Columbia. A resident is one who, at the time of his death, had his domicile in the United States; or one who was a citizen of the United States at the time of death and with respect to whose property any probate or administration proceedings are had in the United States Court for China. (See Sec. 321 (a).) A missionary who, at the time of death, was serving as such under a foreign missionary board of any re- ligious denomination in the United States, will be presumed to have died a resident of the United States, if domiciled therein at the time of his r*(x>ooo>oooooo sooooQooooe 15 U3U3U se>4coeo>Otoaooa<-HC>i SOOOOOOOOQOOOQOOOOQQOOO H^^IOUSCDCOCOU Meo»'«-#cocDt^i^i>t^a90aoo?4Ncq'Oko>o«qkOU3 OSOOOOOOOOOOQOOC OOOOOOOOOOOOOOOC OOOOOOOOOOOOOOOC N-tflQcDOO<4-«rau5u3ioio>au -I 04 «4< IQ t-H CO C o a> ggogggggoggggggggggggog "SOO'O'OOOOOOOOOOOOOOOOOOO w^i^t^rA to pfoToT-s" (D o o o o o'o'o oo o"o"o" i-liOtOI— t^CJOOOMOOOC^M i-lN WN C4 W .-HNNeOCO'^'^tOtDQOOOOW ■»*<■* co)Ni o c o'o ooooooooooooooooo o'o oooooocooooooooooocoooo lO»'30»0»OiOO>CiO*OiOinO»OiOmiOiOiOiOiOU3»0 ^^Nco«i"*o5cooi5coo5coO'Or^ooa5«5 i-HtHCSMCO'QiCOOOS'-ICO O-O oo O O O O.O 0,0 OOOOQOOOOOOOC OOOOOOOOOOOOOOOOOOOC iQiOOOiOiOOOOOOOOOOOOOOC -ic^ro?o-*'!i<»o»fttDicr-gooso^Meo^*o«ot»-QOOso OOOOOOOCOOOOOOQQQOOOOOO OOOOOOOOOOOOOOOOOOOOOOO OOOOOOOOOOOOOOOOOOOOOOO 300 300 ^tOiOlOO OOOOOO OOOOOO OOOOOO _ OOOOOOOOOO OOOOOOOQOOOC Sooooooooooo -(NN:CTO'«'»OtOt»OOOJO gOOOOQQOQOOOOOOOOOOOOOC C30000000000000000Q000C lOOOOOOOOOOOOOOOOOOOOOOC I O O O O O O Q,0 O O ^ O'O OOOOOOOOOC |iOO'00"30350'OOOOOOOC^OOOOOO^ iears prior to his death but prior to the enactment of this Act, without such consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of this title ; (d) To the extent of any interest therein of which the decedent has at any timj made a transfer, by trust or otherwise, where the enjoy- ment thereof was subject at the date of his death to any change through the exercise of a power, either by the decedent alone or in conjunction with any person, to alter, amend, or revoke, or where the decedent relinquished any such power in contemplation of his death, except in case of a bona fide sale for an adequate and full considera- tion in money or money's worth. The relinquishment of any such power, not admitted or shown to have been in contemplation of the decedent's death, made within two years prior to his death but after the enactment of this Act vi-ithout such a consideration and affecting the Interest or interests (whether arising from one or more transfers or the creation of one or more trusts) of any one beneficiary of a value or aggregate value, at the time of such death, in excess of $5,000, then, to the extent of such excess, such relinquishment or relinquish- ments shall be deemed and held to have been made in contemplation of death within the meaning of this title ; "* * * (1) If any one of the transfers, trusts, interests, rights, or iwwers enumerated and described in subdivisions (c), (d), and (f) of this section is made, created, exercised, or relinquished for a consideration in money or money's worth, but is not a bona fide sale for an ade- quate and full consideration In money or money's wortli, there shall be 25 Included in the gross estate only the excess of the fair market value at the time of death of the property otherwise to be included on account of such transaction, over the value of the consideration received therefor by the decedent. Art. 15. Transfers during life. — Except bona fide sales for an ade- (juate and full consideration in money or money's worth, all trans- fers made by the decedent subsequent to September 8, 1916, are tax- able if made in contemplation of or intended to take effect in posses- sion or enjoyment at or after his death. If the enjoyment of the property or the interest transferred (whether the property or the in- terest was transferred by the decedent before or after passage of the Revenue Act of 1916) was subject at the date of the decedent's death to change by the exercise of any power to alter, amend, or revoke, or if any such power was relinquished by the decedent subsequent to the effective date of Part I, Title III, of the Revenue Act of 1924, in contemplation of death, the entire value of the property, or the interest transferred, as of the date of decedent's death must be in- cluded in the gross estate unless the transfer constituted a bona fide sale for an adequate and full consideration in money or money's worth. To constitute a bona fide sale for an adequate and full con- sideration in money or money's woi'th it must have been made in good ; faith, and the price must have been an adequate and full equivalent, and reducible to a money value. Where the price was less than an adequate and full equivalent only the excess of the fair market value of the property, as of the date of the decedent's death, over the price received by the decedent should be included in the gross estate. Where a transfer, by trust or otherwise, was made by a written instrument, duplicate copies thereof should be filed with the return. If of public record, one of the copies should be certified; if not of record, one copy should be verified. Where the decedent was a non- lesident, only one copy, certified or verified, need be filed. TRANSFEKS IN CONTEMPLATION OF DEATH Art. 16. Nature of transfer. — The words " in contemplation of death " do not mean, on the one hand, a general expectation of death such as all persons entertain, nor, on the other, is the meaning lim- ited to an expectation of immediate death. A transfer, however, is made in contemplation of death wherever the person making it is influenced to do so by such an expectation of death, arising from bodily or mental conditions, as prompts persons to dispose of their property to those whom they deem proper objects of their bounty: Such a transfer is taxable, although the decedent parts absolutely . and imirlediately with his title to and possession and enjoyment of the property. 7653°— 29 3 26 Transfers made by the decedent in his lifetime, other than trans- fers intended to take effect in possession or enjoyment at or after death (see Art. 17), excepting bona fide sales for an adequate and fuU consideration in money or money's worth, must be returned for tax, or disclosed in the return, as follows (see also Art. 20) : ^ (1) Transfers made in contemplation of death. — The executor must return for tax the value, as of the date of - the decedent's death, of all property transferred by the de- cedent subsequent to September 8, 1916, in contemplation of death. (2) Transfers w>t admitted to have been Tnade in con- fem,plation of death. — (a) The executor is required to disclose in the return all transfers made by the decedent subsequent to September 8, 1916, of an amount or value of $5,000, or more. Any such transfer made within two years of the decedent's death, but before the eifective date of the Eevenue Act of 1926, and con- stituting a material part of decedent's property and in the nature of a final disposition or distribution thereof, is deemed to have been made in contemplation of death within the meaning of the statute. Where the executor contends that the transfer was not made in contemplation of death he must file with the return sworn statements, in duplicate, of all the material facts, including, among other things, the decedent's motive in making the transfers and his mental and physical condition at that time, and one copy of the death certificate. (b) The executor is required to return for tax all trans- fers made by the decedent within two years prior to his death, but after the effective date of the Revenue Act of 1926, to the extent that the value thereof to any one person is in excess of $5,000, even though the transfer is not ad- mitted to have been made in contemplation of death. The entire value of the transfers should be disclosed in the return. Example: The decedent died April 15, 1926, having trans- ferred on March 1, 1926, a farm to his son A, and certain shares of stock to his son, B, the values as of date of death, being $20,000 and $30,000, respectively. Both transfers should be listed on the return and the entire value of the transfers disclosed but the taxable portion of the value of the transfers will be $15,000, and $25,000, respectively. This example is applicable only in case the transfer is not ad- mitted or shown to have been made in contemplation of death. 27 The fact that a gift was made as an advancement, to be taken into account upon the final distribution of the decedent's estate, is not, in and of itself, determinative of its taxability. TRANSFERS INTENDED TO TAKE EFFECT IN POSSESSION OR ENJOYMENT AT OR AFTER DEATH Art. 17. General. — All transfers made by the decedent subsequent to September 8, 1916, other than bona fide sales for an adequate and full consideration in money or money's worth, which were intended to take effect in possession or enjoyment at or after his death, are taxable, and the value, as of the date of the decedent's death, of property or interest so transferred must be returned as a part of the gross estate. Art. 18. Reservation of income or an annuity. — A transfer, not amounting to a bona fide sale for an adequate and full consideration in money or money's worth, is taxable where the decedent reserved to himself during life the entire income of the property transferred. In such a case the transfer of the principal takes effect in possession and enjoyment at the death of the decedent, and the value of the entire property should be included in the gross estate. Where the decedent reserved only a portion of the income, only a corresponding proportion of the value of the propertj' should be in- cluded in the gross estate, unless, however, the possession or enjoy- ment of the remaining portibn of the transferred property, or a part thereof, was postponed until at or after the decedent's death, in which case there should also be included in the gross estate such remaining portion or part thereof, as the case may be. Thus, for example, if the reservation was one-half of the income then one- half of the value of the transferred property should be included, and if, in addition to such reservation, it was intended by the de- cedent that possession or enjoyment of the remaining portion of the property should be postponed until at or after his death, then the value of the entire property should be included. The rule would be the same, as far as concerns the proportion of the property to be included in the gross estate, if an annuity were reserved, whether out of the property transferred or the income therefrom. Where the decedent reserved out of the property transferred a definite annuity and the income from the property was indefinite, or indeterminable, or the property was nonincome bearing, there should be included in the gross estate that portion of the value of the property transferred (not to exceed the entire value as of the date of the decedent's death) equal to the capitalization of the an- nuity at 4 per cent. Example: The decedent transferred a farm 28 valued at $36,000 to his son, the income from the fartn being un- certain and indefinite, the son agreeing to pay to the decedent $1,000 per annum during the decedent's lifetime. Capitalizing the annuity of $1,000 at i per cent a fund which will yield the annuity is determined to be of the value of $25,000. There should be in- cluded in the gross estate on account of the transfer $25,000. If the value of the farm was $20,000 the amount to be included is $20,000. Where in any case the transfer was made in contemplation of death, the value of the transferred property, as of the date of the decedent's death, should be included in the gross estate whether or not the transfer was one intended to take effect in possession or enjoyment at or after death. (See Art. 16.) Where there was no reservation of income or an annuity but it was intended that possession or enjoyment of the transferred prop- erty, or a portion thereof, should be postponed until at or after decedent's death, then the value of the entire property or of such portion, as the case may be, should be included in the gross estate. Thus a gift of the principal intended to take effect either in posses- sion or enjoyment at or after the decedent's death is taxable, although the income or annuity was payable during the decedent's life to some one other than himself. Example : The decedent transferred prop- erty to his son, the latter to receive the income during the decedent's life or agreeing to pay the income to his mother during the decedent's life. The transfer to the son in either case is taxable. TRANSFEKS — WHERE ENJOYMENT SUBJECT TO CHANGE THROUGH POWER TO ALTER, AMEND, OR REVOKE ; OR WHERE SUCH POWER IS RELINQUISHED IN CONTEMPLATION OF DEATH Art. 19. Power to change enjoyment. — The value of property trans- ferred, other than by a bona fide sale for an adequate and full con- sideration in money or money's worth, constitutes a part of the gross estate if at the time of the decedent's death the enjoyment thereof was subject to any change through a power, exercisable either by the decedent alone or in conjunction with any person, to alter, amend, or revoke. Art. 20. Power relinquished in contemplation of death. — Where prop- erty was transferred by the decedent, who reserved a power to alter, amend, or revoke the transfer, and such power was relinquished in contemplation of death, the value of the property should be included in the gross estate. (See also Art. 16.) The relinquishment of any such power not admitted or shown to have been in contemplation of death is deemed and held to have been made in contemplation of death within the meaning of the statute if such power was relih- 29 quished within two years prior to the decedent's death, but after the enactment of the Revenue Act of 1926, without an adequate and full consideration in money or money's worth to the extent that the value of the interest of any one beneficiary affected at the time of the decedent's death exceeded $5,000 and such excess should be included in the gross estate. TRANSFERS — VALUATION Art. 21. Valuation of property transferred. — The value must be determined as of the date of the decedent's death. (See Art. 13.) Where the transferee makes additions to the property, or better- ments, the enhanced value of the property at that date, due to such additions or betterments, is not to be included. GROSS ESTATE— PROPERTY HELD JOINTLY Sec. 302. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherevei' situ- ated— * * * (e) To the extent of the interest therein held as joint tenants by the decedent and any other person, or as tenants by the entirety by the decedent and spouse, or deposited, with any person carrying on the banking business, in their joint names and payable to either or the survivor, except such part thereof as may be shown to have originally belonged to such other person and never to have btien received or acquired by the latter from the decedent for less than an adequate and full consideration in money or money's worth : Provided, That where such property or any part thereof, or part of the con- sideration with which such property was acquired, is shown to have been at any time acquired by such other person from the decedent for less than an adequate and full consideration in money or money'.s worth, there shall be excepted only such part of the value of such property as is proportionate to the consideration furnished by such other person : Provided further, That where any property has been acquired by gift, bequest, devise, or inheritance, as a tenancy by the entirety by the decedent and spouse, then to the extent of one-half of the value thereof, or, where so acquired by the decedent and any other person as joint tenants and their interests are not otherwise specified or fixed by law, then to the extent of the value of a fractional part to be determined by dividing the value of the property by the number of joint tenants ; * * * Art. 22. Property held jointly or as tenants by the entirety. — The foregoing provisions of the statute extend only to joint ownerships based on the right of survivorship and created subsequent to September 8, 1916. The statute specifically reaches property held jointly by the decedent and any other person or persons, or by the decedent and spouse as tenants by the entirety, or 30 deposited with any person or institution carrying on a banking busi- ness in the name of the decedent and any other person and payable to either or the survivor, provided the decedent contributed toward the acquisition of the property so held or deposited, or acquired i1 by gift, bequest, devise, or inheritance. The statute applies to all classes of property, whether real or personal, where the ,survivoi takes the entire interest therein by right of survivorship, and no interest therein forms a part of the decedent's estate for purposes of administration. It does not include property held by the decedent and any other person or persons as tenants in common. Art. 23. Taxable portion. — The entire value of such property is prima facie a part of the decedent's gross estate, but as it is not the intent of the statute that there should be so included a greater part or proportion thereof than is represented by an outlay of funds, which, in the first instance, were decedent's own, or more than a fractional part equal to that of the other joint owner where neither had parted with any consideration in its acquirement, facts, which in a given case bring it within any one of the exceptions enumerated in the statute, may be submitted by the executor. Whether the value of the entire property, or only a part, or none of it, enters into the make-up of the gross estate depends upon the following considerations: (1) So much of the property (whether the whole, or a part thereof) as originally belonged to the other joint owner, and which at no time in the past had been received or acquired by the latter from the decedent for less than an adequate and full consideration in money or money's worth, forms no part of the decedent's gross estate. (2) Where the facts are otherwise the same as in (1) , but the decedent paid to such other joint owner a considera- tion for the interest by him (the decedent) acquired in the property, then such portion of the value of the property, proportionate to the consideration so paid, constitutes a part of the gross estate. (3) Where the property, or a part thereof, or a part of the consideration wherewith it was acquired, had at any time been acquired by the other joint owner from the decedent as a gift, or for less than an adequate and full consideration in money or money's worth, then such portion of the value of the entire property, proportionate to the con- sideration, if any, which in the first instance was paid from such other joint owner's own funds, forms no part of the gross estate. (4) Where the propertj' was acquired by the decedent and his or her surviving spouse as tenants by the entirety by gift, will, or in- heritance, then but one-half of the value of the property becomes a part of the gross estate. (5) Where acquired by the decedent and the other joint owner as joint tenants by gift, will, or inheritance, and their interests are not otherwise specified or fixed by law, then one-half only of the value of the property is a part of the gross 31 estate ; or, where so acquired by the decedent and two or more per- sons, and the interests of the several joint tenants are not otherwise determinable, then the decedent and the other joint tenants surviving him shall each be deemed the owner of an equal fractional part, and the value of one only of such fractional parts is to be included in the gross estate. The following are given as illustrative: (a) Where the decedent furnished the entire purchase price, the entire property should be included in the gross estate; (6) where the decedent furnished a part only of the purchase price, only a corresponding portion of the property should be so included; (c) where the decedent, prior to the acquisition of the property by himself and the other joint owner, gave the latter a sum of money which later constituted such other joint owner's entire contribution to the purchase price of the property, the entire value of the property should be included; (d) where the other joint owner, prior to the- acquirement of the property, received from the decedent, for less than an adequate and full con- sideration in money or money's worth, property which thereafter became, as such, or in a converted form, part of the purchase price of the property, the value of the property to be included is to be reduced proportionately to the consideration furnished by the other joint owner in the original transaction; (e) where the decedent fur- nished no part of the purchase price, no part of the property should be included ; (f) where the decedent and spouse acquired the property by will as tenants by the entirety, one-half of the value of the prop- erty should be included. GROSS ESTATE— PROPERTY PASSING UNDER POWER OF APPOINTMENT Seio. 302. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situ- ated — * * * (f) To the extent of any property passing under a general power of appointment exercised by the decedent (1) by will, or (2) by deed executed in contemplation of, or intended to take effect in pos- session or enjoyment at or after, his death, except in case of a bona fide sale for an adequate and full consideration in money or money's worth ; and * * * (i) If any one of the transfers, trusts, interests, rights, or powers, enumerated and described in subdivisions (c), (d), and (f) of this section Is made, created, exercised, or relinquished for a considera- tion in money or money's worth, but is not a bona fide sale for an adequate and full consideration in money or money's worth, there shall be included in the gross estate only the excess of the fair market value at the time of death of the property otherwise to be included on account of such transaction, over the value of the consideration received therefor by the decedent. 32 Art. 24. General rule. — The value of all property passing under a general power of appointment must be included in the gross estate of the person exercising the power (known as the donee, or ap- pointor) where the power is exercised by will. It should also be so included when the power is exercised by deed or other instrument executed in contemplation of, or intended to take effect in posses- sion or enjoyment at or after, the death of the donee of the power. The statute, however, does not require inclusion within the gross estate of the value of the appointed property in the case of a bona fide sale thereof by the donee of the power for an adequate and full consideration in money or money's worth. If the power is exercised for a consideration in money or money's worth, but is not a bona fide sale for an adequate and full considera- tion in money or money's worth, there should be included in the gross estate only the excess of the fair market value, at the time of dece- dent's death, of the property passing under the power over the value of the consideration received by the decedent. Only property passing under a general power should be included. Ordinarily a general power is one to appoint to any person or persons in the discretion of the donee of the power. Where the. donee is required to appoint to a specified person or class of persons, the property should not be included in his gross estate. Where the decedent died prior to the effective date of the Revenue Act of 1918, the value of the appointed property is not to be so included. Duplicate copies of the instrument granting the power and of the, instrument by which the power was exercised, one of each to be certified or verified, must be filed with Form 706 in all cases, unless the decedent was a nonresident, in which case only one copy of each instrument, certified or verified, is required. GROSS ESTATE— INSURANCE Sec. 3U2. The value of the gross estate of the decedent shall be deteimined by iucluding the value at the time of his death of all property, real or personal, tangible or intangible, wherever situ- ated— * * * (g) To the extent of the amount receivable by the executor as in- surance under policies taken out by the decedent upon his own life; and to the extent of the excess over ,$40,000 of the amount receivable by all other beneficiaries as insurance under policies taken out by the decedent upon his own life. * * * Art. 25. Taxable insurance. — The statute provides for the inclusion in the gross estate of insurance taken out by the decedent upon his own life, as follows: (a) All insurance receivable by, or for the benefit of, the estate; (6) all other insurance to the extent that ii exceeds in the aggregate $40,000. ' 33 The term " insurance " refers to life insurance of every descrip- tion, including death benefits paid by fraternal beneficial societies, operating ' under the lodge system. Insurance is deemed to be taken out by the decedent in all cases where he pays all the pre- miums, either directly or indirectly, whether or not he makes the application. On the other hand, the insurance is not deemed to be taken out by the decedent, even though the application is made by him, where all the premiums are actually paid by the beneficiary. Where a portion of the premiums were paid by the beneficiary and the remaining portion by the decedent the insurance will be deemed to have been taken out by the latter in the proportion that the premiums paid by him bear to the total of premiums paid. Aet. 26. Insurance in favor of the estate. — The provision requiring the inclusion in the gross estate of all insurance receivable by the executor, without any deduction, applies to policies made payable to the decedent's estate or his executor or administrator, and all insur- ance which is in fact receivable by, or for the benefit of, the estate. • It includes insurance taken out to provide funds to meet the estate tax, and any other taxes or charges which are enforceable against the estate. The manner in which the policy is drawn is immaterial so long as there is an obligation, legally binding upon the beneficiary, to use the proceeds in payment of such taxes or charges. Where the decedent took out insurance in favor of another person or corpora- tion as collateral security for a loan or other accommodation, and either directly or indirectly paid the premiums thereon, the insurance is deemed to be receivable for the benefit of the estate. The amount of the loan outstanding at decedent's death, with interest accrued thereon to that date, will be deductible in determining the net estate. (See Art. 29.) Art. 27. Insurance receivable by other beneficiaries. — All insurance in excess of $40,000 receivable by beneficiaries other than the estate, regardless of wlien taken out, must be included in the gross estate where the decedent during. his life retained legal incidents of owner- ship in the policies of insurance, as, for example, a power to change the beneficiary, to surrender or cancel the policies, to assign them, to revoke an assignment of them, to pledge them for loans, or to dispose otherwise of them and their proceeds for his own benefit, etc. However, irrespective of the retention of such legal incidents of ownership, all insurance in excess of $40,000 receivable by beneficiaries other than the estate must be included in the gross estate (1) of any decedent dying after the enactment of the Revenue Act of 1924, where such insurance was taken out, or the beneficiary receiving the proceeds was named, after the enactment of the Revenue Act of 1918, and (2) of any decedent dying after the passage of the Revenue Act of 1918, but before the effective date of Title III of the Revenue Act 34 of 1924, where such insurance was taken out, or the beneficiary re- ceiving the proceeds was named, after the enactment of the particular revenue act in force and effect at the time of such a decedent's death. The estate is entitled to only one exemption of $40,000 upon insur- ance receivable by beneficiaries other than the estate. For example, if the decedent left life insurance payable to three such beneficiaries in amoimts of $10,000, $40,000, and $50,000 (total, $100,000), the full amount should be listed on the return and therefrom subtracted the $40,000 exemption as provided in Schedule C of Form 706. The word "beneficiaries," as used in reference to the $40,000 exemption, means persons entitled to the actual enjoyment of the insurance money. Abt. 28. Valuation of insurance. — The amount to be returned where the policy is payable to or for the benefit of the estate is the amount receivable. Where the proceeds of a policy are payable to a bene- ficiary other than to or for the benefit of the estate, and all the premiums were paid by the decedent, the amount to be listed on Schedule C of the return is the full amount receivable, but where the proceeds are so payable and only a portion of the premiums were paid by the decedent, the amount to be listed on such schedule is that proportion of the insurance receivable which the premiums paid by the decedent bear to the total premiums paid. In cases where the proceeds of a policy are made payable to the beneficiary in the form of an annuity for life or for a term of years, the present worth of the annuity at the time of death should be included in the gross estate. For the method of computing the value of such an annuity, see Article 13, subdivision (10). Where the insurance contract gives the right to receive a fixed sum of money in lieu of an annuity, or other optional settlement, this fixed sum represents the value of the insurance for the purpose of the tax. GROSS ESTATE— RETROACTIVE PROVISIONS Sec. 302. * * * (h) Except as otherwise specifically provided therein subdivisions (b), (e), (d), (e), (f), and (g) of this section shall apply to the transfers, trusts, estates, interests, rights, powers, and relinquishment of powers, as severally enumerated and described therein, whether made, created, arising, existing, exercised, or relin- quished before or after the enactment of this Act. DEDUCTIONS— ESTATES OF RESIDENTS ADMINISTRATION EXPENSES, CLAIMS, ETC. Sec. 303. For the purpose of the tax the value of the net estate shall be determined — (a) In the case of a resident, by deducting from the value of the gross estate — (1) Such amounts for funeral expenses, administration expenses, claims against the estate, unpaid mortgages upon, or any indebtedness 35 In respect to, property (excek>t, In the case of a resident decedent, where such property Is not situated in the United States), to the ex- tent that such claims, mortgages, or indebtedness were incurred or contracted bona fide and for an adequate and full consideration in money or money's worth, losses incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualty, or from theft, when such losses are not compensated for by insurance or otherwise, and such amounts reasonably required and actually expended for the support during the settlement of the estate of those dependent upon the decedent, as are allowed by the laws of the juris- diction, whether within or without the United States, under which - the estate is being administered, but not including any income taxes upon Income received after the death of the decedent;, or any estate, succession, legacy, or inheritance taxes ; * * * Art. 29. Deduction of claims, expenses, etc. — In order to be deducti- ble under the foregoing provision of the statute, the item must fall within one of the several classes of deductions specifically enu- merated therein, and must also, except in the case of deductible losses during the administration of the estate, be one the payment of which out of the estate is authorized by the laws of the juris- diction under which the estate is being administered. Unless both of these conditions exist the item is not deductible. Where the item is not one of those described it is not deductible merely be- cause payment is allowed by the local law. Where the amount which may be expended for the particular purpose is limited by the local law no deduction in excess of such limitation is permis- sible. Where the amount sought as a deduction is a claim against the estate, or an unpaid mortgage, it is deductible to the extent only that liability therefor was incurred or contracted bona fide and for an adequate and full consideration in money or money's worth. An item may be entered on the return for deduction though the exact amount thereof is not then known, provided it is ascertain- able with reasonable certainty, and will be paid. No deduction may be taken upon the basis of a vague or uncertain estimate. In the event an uncertain or contingent liability was undetermined at the time of final audit of the return by the Commissioner, and, as a con- sequence, deduction was not allowed therefor in such audit, and sub- sequently the liability and the amount thereof becomes fixed and determined, relief may be sought as provided by Articles 76 and 99. Art. 30. Eflfeet of court decree. — The decision of a local court as to the amount of a claim or administration expense will ordinarily be accepted where the court passes upon the facts upon which deducti- bility depends. Where the court does not pass upon such facts its decree will, of course, not be followed. For example, where the quesfion before the court is whether a claim should be allowed, the decree allowing it will ordinarily be accepted as establishing the 36 validity and amount of the claim. The decree will not necessarily be accepted even where it purports to decide the facts upon which deductibility depends. It must appear that the court actually- passed upon the merits of the case. This will be presumed in all cases where there is an active and genuine contest. Where the result reached appears to be unreasonable, this is some evidence that there was not such a contest, but it may be rebutted by proof to the contrary. Where the decree was rendered by consent, it will be accepted, provided the consent was a bona fide recognition of the validity of the claim — not a mere cloak for a gift — and was accepted by the court as satisfactory evidence upon the merits. It will be presumed that the consent was of this character, and was so ac- cepted, where given by all parties having an interest adverse to the claimant. The decree will not be accepted where it is at variance with the law of the State ; as, for example, an allowance made to an executor in excess of that prescribed by statute. Art. 31. Funeral expenses. — An executor may deduct such amounts for funeral expenses as are actually expended by him and, under the laws of the local jurisdiction, are payable out of the decedent's estate. A reasonable expenditure by the executor for a tombstone^ monument, mausoleum, or for a burial lot, either for the decedent or his family, may be deducted under this heading, provided such an expenditure is allowable by the local law. Included in funeral expenses is the cost of transportation of the person bringing the body to the place of burial. Art. 32. Administration expenses. — The amounts deductible from the gross estate as " administration expenses " are such expenses as are actually and necessarily incurred in the administration of the estate; that is, in the collection of assets, payment of debts, and distribution among the persons entitled. The expenses contem- plated in the law are such only as attend the settlement of an estate by the legal representative preliminary to the transfer of the prop- erty to individual beneficiaries or to a trustee, whether such trustee is the executor or some other person. Expenditures not essential to the proper settlement of the estate, but incurred for the individual benefit of the heirs, legatees, or devisees, may not be taken as deduc- tions. Admiilistration expenses include (1) executor's commissions ; (2) attorney's fees; (3) miscellaneous expenses. Each of these classes is considered separately in Articles 33 to 35, inclusive. Art. 33. Executor's commissions. — The executor or administrator, in filing the return, may deduct his commissions in such an amount . as has actually been paid or which at that time it is reasonably expected will be paid, but no deduction may be taken if no commis- sions are to be collected. Where the amount of the commissions. 37 has not been fixed by decree of the proper courtj the deduction will be allowed on the final audit of the return provided: (1) JL'hat the Commissioner is reasonably satisfied that the commissions claimed will be paid; (2) that the amount entered as a deduction is within the amount allowable by the laws of the jurisdiction wherein the estate is being administered; and (3) that it is in accordance with the usually accepted practice in said jurisdiction in estates of similar size and character. Where the commissions claimed have not been awarded by the proper court the Commissioner on final audit may disallow the deduction in part or in whole, as the circumstances in his judgment justify, subject to such future adjustment as the facts may later require. If the deduction is allowed in advance of payment and payment is thereafter waived, it shall be the duty of the executor to notify the Conunissioner and pay the tax resulting therefrom, together with interest. Executors should note that the commissions received as compensation for their services constitute taxable inconie and that the amounts received or receivable by them as such . com- pensation are cross-referenced for income-tax purposes. A bequest or devise to. the executor in lieu of commissions is not deductible. Where, however, the decedent fixed by his will the com- pensation payable to the executor for services to be rendered in the administration of the estate, deduction may be taken to the extent that the amount so fixed does not exceed the compensation allowable •by the local law or practice. Amounts paid as trustees' commissions do not constitute expenses of administration and are not deductible, whether received by the executor acting in the capacity of a trustee or by a separate trustee as such. Art. 34. Attorney's fees. — The executor or administrator, in filing the return, may deduct such an amount as attorney's fees as have actually been paid or which at that time it is reasonably expected will be paid. If on the final audit of a return the fees claimed have not been awarded by the proper court and paid, the deduction will be allowed, provided the Commissioner is reasonably satisfied that the amount claimed will be paid and that it does not exceed a reason- able remuneration for the services rendered, taking into account the size and character of the estate and the local law and practice. AVhere the attorney's fees have not been paid at the time of the final audit of the return the Commissioner may disallow such part, or all, of the deduction as the circumstances may warrant, subject to such future adjustment as the facts may require. Attorney's fees incident to litigation instituted by the beneficiaries as to their respective interests do not constitute a proper deduction, inasmnch as expenses of this character are properly charges against 38 the beneficiaries personally and are not administration expenses as contemplated by the statute. Art. 35. Miscellaneous administration expenses. — This includes such expenses as court costs, surrogates' fees, accountants' fees, appraisers' fees, clerk hire, etc. Expenses necessarily incurred in preserving and distributing the estate are deductible, including the cost of storing or maintaining property of the estate, where it is impossible to effect immediate distribution to the beneficiaries. Expenses for preserving and caring for the property may not include additions or improvements; nor will such expenses be allowed for a longer period than the executor is required to retain the property. A brokerage fee for selling property of the estate is deductible where the sale is necessary in order to pay the decedent's debts, the ex- penses of administration, or to effect distribution. Other expenses attending the sale are deductible, such as the fees of an auctioneer, where it is reasonably necessary to employ one. Art. 36. Claims against the estate. — The amounts that may be deducted under this heading are such only as represent personal obligations of the decedent existing at the time of his death, whether then matured or not, but only to the extent that the liability there- for was incurred or contracted bona fide and for an adequate and full consideration in money or money's worth. Only claims enforceable against the estate may be deducted. A pledge or a subscription evi- denced by a promissory note or otherwise, even though enforceable against the estate, is deductible only to the extent such pledge or subscription was made for an adequate and full consideration in cash or its equivalent received therefor by the decedent. Art. 37. Taxes. — The deduction of property taxes upon realty and personalty is governed by the following provisions : (1) Where such taxes became a personal obligation of the dece- dent in his lifetime, the entire amount thereof is deductible. (See Art. 29.) (2) Where assessed during the administration of the estate, and the taxes are a proper administration expense, deduction of the entire amount may be taken. (See Arts. 32 and 35.) Federal taxes upon income received during the decedent's lifetime are deductible, but taxes upon income received after death are not deductible. No estate, succession, legacy, or inheritance tax is deductible. Art. 38. Unpaid mortgages. — The full amount of unpaid mortgages upon, or any indebtedness in respect to, property included in the gross estate may be deducted, including interest which had accrued at the time of death, whether payable at that time or not, but only to the extent that the liability for such mortgages or indebtedness 39 was incurred or contracted bona fide and for an adequate and full consideration in money or money's worth. The full value of the real estate, without any deduction for mortgages, must be returned as part of the gross estate. Keal property situated outside the United States is not a part of the "gross estate of a resident de- cedent. Hence no deduction may be taken of any mortgage upon, or any indebtedness in respect to, such property when owned by a resident decedent. Art. 39. Losses from casualty or theft. — ^There may be deducted under this heading losses incurred during the settlement of the estate arising from fires, storms, shipwrecks, or other casualty, or from theft, when such losses are not compensated for by insurance or otherwise. If the loss is partly compensated, the excess of the loss over such compensation may be deducted. Losses not of the nature described are not deductible. In order to be deductible a loss must occur during the settlement of the estate. Where a loss with respect to an asset occurs after distribution thereof to the distributee it may not be deducted. Art. 40. Support of dependents. — The support during the settlement of the estate of dependents of the decedent is deductible, but pursuant to the following rules : (1) In order to be deductible, the allowance must be authorized by the laws of the jurisdiction in which the estate is being adminis- tered, and not in excess of what is reasonably required. (2) The allowance for which deduction may be made is limited to support during the settlement of the estate. Any allowance for a more extended period is not deductible. (3) There must be an actual disbursement from the estate to the dependents, but after payment has been made the right of deduction is not affected by the fact that the dependents do not expend the entire amount for their support during the settlement of the estate. DEDUCTIONS— PROPERTY PREVIOUSLY TAXED Sec. 303. For the purpose of the tax the value of the net estate shall be determined — (a) In the case of a resident, by deducting from the value of the gross estate — * « * (2) An amount equal to the value of any property (A) forming a part of the gross estate situated in the United States of any per- son who died within five years prior to the death of the decedent, or (B) transferred to the decedent by gift within five years prior to his death, where such property can be identified as having been received by the decedent from such donor by gift or from such prior decedent by gift, bequest, devise, or Inheritance, or which can be identified as having been acquired in exchange for property so received. This 40 deduction shall be allowed only where a gift tax imposed under the Revenue Act of 1924, or an estate tax Imposed under this or any prior Act of Congress was paid by or on behalf of the donor or the estate of such prior decedent as the case may be, and only in the amount of the value placed by the Oommissloner on such property in determin- ing value of the gift or the gross estate of such prior decedent, and only to the extent that the value of such property is included in the decedent's gross estate and not deducted under paragraph (1) or (3) of this subdivision; » * * Art. 41. Deduction of the value of transfers previously taxed. — Where there is included in the decedent's gross estate the value of prop- erty received by him by gift from any-person within five years prior to his death, or received by gift, bequest, devise, or inheritance from any person who died within five years prior to his death, or the value of property acquired in exchange for property so received, the statute authorizes a deduction in behalf thereof, subject to the following conditions and limitations, namely: (1) The property respecting which the deduction is sought must have been received by the decedent as a gift within five years of the date of his death, or received by him by gift, bequest, devise, or in- heritance from a prior decedent who died within five years of the date of the decedent's death. (2) The property must be identified either as the same which the decedent so received or acquired in exchange therefor. (3) The property must have formed a part of the gross estate, situated in the United States, of such prior decedent, or have been included in the total amount of gifts of a donor. (4) An estate tax by or on behalf of the estate of such prior decedent, or a gift tax by or on behalf of the donor, must have actually been paid (the mere filing of a return for such estate or donor not being sufficient). (5) The property, or that acquired in exchange therefor, in so far as it constitutes a part of the decedent's gross estate, is, for the purpose of inclusion therein, to be valued as of the date of the dece- dent's death. (6) The deduction, however, is limited to the value which the Commissioner placed on the property in determining the value of the gross estate of the prior decedent or the total amount of gifts of the donor. (7) The deduction is also limited to the extent that the value of the property, or that acquired in exchange therefor, is included in , the decedent's gross estate. (See examples following the next para- graph..) (8) The deduction is further limited to the extent that the value of the property, or of that so acquired in exchange, is not deducted under paragraphs (1) or (3) of the subdivision (a) of section 303. 41 Example: The decedent's fathei' died January 1,1922. Included' in his gross estate was a tract of land comprising 200 acres upon which the Commissioner placed a. value for estate tax purposes of $20,000. The tax on the father's estate was paid. The son, having inherited the tract from his father, sold 100 acres thereof on January 1, 1923, for $20,000, and commingled the proceeds with his other funds. On the son's death, which occurred January 1, 1924, the re- maining one-half of the land was returned as a part of his gross ; estate at $20,000, which was the fair market value thereof as of the date of his death. Since only one-half of the tract was included in the son's gross estate, the deduction is limited to one-half of the value placed by the Commissioner upon the whole tract when determining the value of the father's gross estate, or $10,000. Example : On July 2, 1924, A transferred by gift to B bonds of the then value of $100,000. In due course a gift-tax return was filed by A and the tax paid on that basis. On August 1, 1924, B died, on which date the bonds were worth $80,000. In filing the return for the estate of B, the bonds were listed at a value of $80,000. Since the value of the bonds, as of the date of death of B, was $80,000, the deduction is limited to that amount. Under the provisions of the Revenue Act of 1918 the deduction' was available only where the prior decedent died after October 3, 1917, the date of the passage of the Revenue Act of 1917, and the decedent's death occurred subsequent to the effective date of the Revenue Act of 1918. But under the provisions of the Revenue Act. of 1921 the right to such deduction is made available to the estates of all decedents dying since September 8, 1916. Where, under the provisions of the Revenue Act of 1918, or any prior Act of Congress imposing an estate tax, the deduction was not available, the right thereto is to be determined in accordance with the provisions of paragraph (2) of subdivision (a) of section 403 of the Revenue Act of 1921, but where available under the Revenue Act of 1918, it is governed by paragraph (2) of subdivision (a) of section 403 of that Act. Section 1100 (c) of the Revenue Act of 1924 provides that the retroactive benefit of section 403 of the Revenue Act of 1921 is. not lost by the repeal thereof. Where the tax has been paid without taking the deduction, a claim for refund may be made, as provided by Article 99. The burden of proving that the estate is entitled to the deduction rests upon the executor, and in doing so it will be incumbent upon him to show that no part of the amount so claimed is also claimed as a deduction under either paragraphs (1) or (3) of subdivision (a), of section 303. 7653°— 29 4 42 Art. 42. Property originally received. — ^If the property originally received from a donor or prior decedent is included in the decedent's gross estate, the executor must describe it fully and prove its identity. Art. 43. Property acquired in exchange. — The deduction for substi- tuted property is not limited to property acquired by a single exchange of property received from the donor or the prior decedent, but extends to substituted property acquired by the process of ex- change, whether througii the medium of money or otherwise, irre- spective of the number of conversions involved, including the pro- ceeds of the sale or other disposition of property so received or acquired, as well as property acquired by purchase with the proceeds of the sale or other disposition of such property so long as such pro- ceeds can be conclusively identified as such and clearly traced to the property originally so received. The executor must describe and fully identify both the property originally received from the donor or the prior decedent and the substituted property for which deduction is claimed, giving the date and stating the nature of the transaction by which the substituted property was acquired, together with the name and address of the transferee. If the transaction was evidenced by written instrument of public record, precise reference to such record must be made, and if by instrument not of record, a verified copy thereof must be sup- plied. If there was no written instrument, there must be furnished the affidavit of one or more persons having personal knowledge of the matter, setting forth the facts in connection therewith. The burden of identifying property as acquired in exchange for property included in the gross estate of the prior decedent for Federal estate tax purposes rests upon the executor. DEDUCTIONS— TRANSFERS FOR PUBLIC, CHARITABLE, RELIGIOUS, ETC., USES Sec. 303. For the purpose of the tax the value of the net estate shall be determined — (a) In the case of a resident, by deducting from the value of the gross estate — * t * (3) The amount of all bequests, legacies, devises, or transfers, to or for the use of the United States, any State, Territory, any political subdivision thereof, or the District of Columbia, for exclusively public purposes, or to or for the use of any corporation organized and oi)er- • ated exclusively for religious, charitable, scientific, literary, or edu- cational purposes, including the encouragement of art and the preven- tion of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholdei" or individual, or to a trustee or trustees, or a fraternal society, order, or association operating under the lodge system, but only if such contributions or gifts are to be used by such trustee or trustees, or by such fraternal 43 society, order, or association, exclusively for, religious, charitable, sci- entific, literary, or educational purposes, or for the prevention of cruelty to children or animals. The amount of the deduction under this para- graph for any transfer shall not exceed the value of the transferred property required to be included in the gross estate ; and * * * Art. 44. Transfers for public, charitable, religious, etc., uses. — Deduc- tion may be taken of the value of all property transferred by will or by the decedent in his lifetime not to exceed the value of the transferred property required to be included in the gross estate where in either case the property was transferred (1) to or for the use of the United States, any State, Territory, any political subdivision thereof, or the District of Columbia, for exclusively public purposes; or (2) to or for the use of any corporation or association organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes (including the encouragement of art and the prevention of cruelty to children or animals) , where no part of the net earnings of the corporation or association inures to the benefit of any private stockholder or individual; or (Z) to a trustee or trustees, or a fraternal society, order, or association operating under the lodge system, where such transfers, legacies, bequests, or devises are to be used by such trustee, trustees, fraternal society, order, or association exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. Where a trust is created for both a charitable and a private pur- pose, deduction may be taken of the value of the beneficial interest in favor of the former only in so far as such interest is presently ascertainable, and hence severable from the interest in favor of the private use. Thus, when money or property is placed in trust to pay the income to an individual during his life, and then to pay or deliver the principal to a charitable corporation, or to apply it to a charitable purpose, the present value of the principal is deductible. For the manner of determining such value, see Article 13, subdivi- sion (10). The deduction is not limited, in the estates of resident dece- dents, to transfers to domestic corporations or associations, or to trustees for use within the United States. Art. 45. Religious, charitable, scientific, and educational corpora- tions. — A corporation or association to which such a transfer was made must meet three tests: (1) It must be organized and operated for one or more of the specified purposes; (2) it must be organized and operated exclusively for such purpose or purposes; and (3) no part of its net earnings shall inure to the benefit of private stock- holders or individuals. The estate is not deprived of the right to deduct the value of property so transferred by reason of the fact that private individuals are the recipients of the benefits which the corporation or associa- tion dispenses. Such right is, however, lost wherever any part of the; net earnings of the corporation or association inures to the. benefit of a private stockholder or individual. "Art. 46. Proof required. — In establishing the right of the estate to this deduction, the executor must submit : (1) Duplicate copies of the will of the decedent, and of the order admitting the will to probate, one copy of each of which should be certified. Duplicate copies of any instrument in writing by which the decedent made a transfer of property in his lifetime_ the value of which is required by the statute to be included in his gross estate, and if the instrument is of record one copy thereof should be certified, and if not of record, one copy should be verified. The certified or verified copy should be forwarded by the Collector to the Commissioner. (2) An affidavit by the executor stating whether any action has been instituted to contest the will, or any bequest, or devise therein, the deduction of which from the gross estate is claimed, and whether, according to his information and belief, any such action is designed or contemplated. (3) Such other documents or evidence as may be requested by the Commissioner. Art. 47. Conditional bequests. — Where the transfer is dependent upon the performance of some act or the happening of some event in order to become eifective, it is necessary that the performance of the act or the occurrence of the event shall have taken place before the deduction can be allowed. Where the legatee, devisee, donee, or trustee is empowered to divert the property or fund, in whole or in part, to a use or purpose which would have rendered it. to the extent that it is subject to such power, not deductible had it been directly so bequeathed, devised, or given by the decedent, deduction will be limited to that portion, if any, of the property or fund Avhich is exempt from an exercise of such power. SPECIFIC EXEMPTION Sbc. 303. For the purpose of the tax the value of the net estate Shall be determined — (a) In the case of a resident, by deducting from the value of the gross estate — * * * (4) An exemption of $100,000. * * * Art. 48. Specific exemption. — There may be deducted from the gross estate of all resident decedents who died subsequent to 10.25 a. m., 45 Washington, D. C, time, February 26, 1926, a specific exemption' of $100,000. Where a resident decedent died prior to 10.25 a m., F(^b- ruary 26, 1926, the specific exemption which may be deducted is only $50,000. If more than one return is made for purposes of the tax, the exemption may be talfen but once. No such exemption is allo-wed in the estate of nonresident decedents. ESTATES OF NONRESIDENTS Sec. 303. * * * (d) For the purpose of this title, stock in a domestic corporation owned and held by a nonresident decedent shall be deemed property within the United' States, and any property of which the decedent has made a transfer, by trust or otherwise, within the meaning of subdivision (c) or (d) of section 302, shall be deemed to be situated in the United States, if so situated either at the time of the transfer, or at the time of the decedent's death. (e) The amount receivable as insurance upon the life of a non- resident decedent, and any moneys deposited with any person carry- ing on the banking business, by or for a nonresident decedent who was not engaged in business in the United States at the time of his death, shall not, for. the purpose of this title, be deemed property within the United States. (f) Missionaries duly commissioned and serving under boards of foreign missions of the various religious denominations in the United States, dying while in the foreign missionary service of such boards, shall not, by reason merely of their intention to permanently remain in such foreign service, be deemed nonresidents of the United States, but shall be presumed to be residents of the State, the District of Columbia, or the Territories of Alaska or Hawaii wherein they respec- tively resided at the time of their commission and their departure for such foreign service. Akt. 49. Domicile. — For meaning of the terms " residents " and " nonresidents," and the presumption applying as to the residence of missionaries, see Article 5. vVkt. 50. Situs of property of nonresident decedents. — Eeal estate within the United States, certificates of stock, bonds, bills, notes, and mortgages, physically in the United States at date of death, moneys due on open accounts by domestic debtors, and stock of a corporation or association created or organized in the United States, constitute property having a situs in the United States. As to the meaning of the term " United States," see Article 5. On the other hand, insurance upon the life of a nonresident, and moneys de- posited by or for a nonresident not engaged in business in the United States at the time of his death with any person (for mean- ing of the term '' person," see section 2 (a) (1) of the statute) carry- ing on the banking business in the United States, are not to be regarded as property situated therein. 46 Property of which the decedent has made a transfer (1) in con- templation of or intended to take effect in possession or enjoyment at or after death, or (2) the enjoyment of which was subject, at the date of his death, to any change through a power, exercisable either by the decedent alone or in conjunction with any person, to alter, amend, or revoke, or where such power was relinquished in contemplation of death, is deemed to be situated in the United States is so situated either at the time of the transfer, or at the time of the decedent's death. (See Arts. 15 to 20, inclusive.) DEDUCTIONS— ESTATES OF NONRESIDENTS Sec. 303. For the purpose of the tax the value of the net estate shall be determined — * * * (b) In the case of a nonresident, by deducting from the value of that part of his gross estate which at the time of his death is situated In the United States — (1) That proportion of the deductions specified in paragraph (1) of subdivision (a) of this section which the value of such part bears to the value of his entire gross estate, wherever situated, but In no case shall the amount so deducted exceed 10 per centum of the value of that part of his gross estate which at the time of his death is situated in the United States ; (2) An amount equal to the value of any property (A) forming a part of the gross estate situated in the United States of any person who died within five years prior to the death of the decedent, or (B) transferred to the decedent by gift within five years prior to his death, where such property can be identified as having been received by the decedent from such donor by gift or from such prior decedent, by gift, bequest, devise, or inheritance, or which can be identified as having been acquired in exchange for property so received. This deduction shall be allowed only where a gift tax imposed under the Revenue Act of 1924, or an estate tax imposed under this or any prior Act of Ciongress was paid by or on behalf of the donor or the estate of such prior decedent as the case may be, and only in the amount of the value placed by the Commissioner on such property in determining the value of the gift or the gross estate of such prior decedent, and only to the extent that the value of such property is Included in that part of the decedent's gross estate which at the time of his death is situated in the United States and not deducted under paragraph (1) or (3) of this subdivision; and (3) The amount of all bequests, legacies, devises, or transfers, to or for the use of the United States, any State, Tjerritory, any politi- cal subdivision thereof, or the District of Columbia, for exclusively public purposes, or to or for the use of any domestic corporation organized and operated exclusively for religious, charitable, scien- tific, literary, or educational purposes, including the encouragment of art and 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 Individual, or to a trustee or trustees, or a fraternal society, order, or association operating under the lodge system, but 47 only if such contributions or gifts are to be used witliin the United States by sucli trustee or trustees, or by such fraternal society, order, or association, exclusively for religious, charitable, scientiiic, literary, or educational purposes, or for the prevention of cruelty to children or animals. The amount of the deduction under this paragraph for any transfer shall not exceed tlie value of the transferred property required to be included in the gross estate. (c) No deduction shall be allowed in the case of a nonresident unless the executor includes in ■ the return required to be filed under section 304 the value at the time of his death of that part of the gross estate of the nonresident not situated in the United States. Sec. 401, Revenue Act 1928. (a) Section 303 (b) (1) of the Revenue Act of 1926 (relating to deductions from the gross estate of a nonresi- dent decedent) is amended by striking out: ", but in no case shall the amount so deducted exceed 10 per centum of the value of that part of his gross estate which at the time of his death is situated in the United States." (b) Subsection (a) of this section shall apply in the case of nonresi- dent decedents dying after the enactment of this Act. Art. 51. Net estate.— The gross estate of a resident and of a non- i-esident are made up in the same way. In ascertaining the net estate, however, the transfer of which is subject to tax, there is a radical difference between the two cases. The net estate in the case of a resident is determined by making specified deductions from the entire gross estate, whereas the net estate in the case of a non- i-esident is determined by making the deductions from the value of so much of the gross estate as is situated in the United States. Thus, in substance, the statute imposes the tax only upon the transfer of so much of the estate of a nonresident as, under the terms of the stat- ute, had its situs in the United States. The estates of nonresidents are not entitled to the specific exemption of $50,000 or $100,000. (See Arts. 48 and 55.) Art. 52. Deduction of claims, expenses, etc. — In estates of nonresi- dents, deduction from the gross estate may be taken, subject to the limitations herein subsequently to be referred to, for funeral expenses, administration expenses, claims against the estate, un- paid mortgages, losses incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualty, or from theft, when such losses are not compensated for by insurance or otherwise, amounts reasonably required and actually expended for the support (luring settlement of the estate of those dependent upon the decedent, as are allowed by the laws of the jurisdiction under which the estate is being administered. Treatment of the several deductions enu- merated above will be found in Articles 29 to 40, inclusive. No de- duction may be taken of any income taxes upon income received after the death of the decedent, or of any estate, succession, legacy, or in- 48 heritance taxes. It is immaterial whether the amounts to be dediieted Avere incurred or expended within or without the United States, but> certain limitations are imposed which do not apply to estates of resident decedents, namely: (1) Only that proportion of the ag- gregate thereof is deductible which the value of that part of the gross estate situated (within the meaning of the statute) in the United States, bears to the value of tlie entire gross estate, wherever situated; and where the decedent died prior to the effective date of- the Revenue Act of 1928, no sum may be deducted in excess of 10 per cent of the value of that part of the gross estate situated in the United States. (See Art. 55.) The 10 per cent limitation does not apply to the deductions subsequently considered in Articles 53 and" 54. (2) No deduction whatever may be taken unless the executor includes in the return the value at the date of the nonresident's death of that part of the gross estate not situated in the United States. In order that the Commissioner may properly pass upon the items claimed as deductions, the executor should submit a certified copy of the schedule of liabilities, claims against the estate, and expenses of administration filed under the foreign death-duty act; or, if no such schedule was filed, a certified copy of the schedule of such liabilities, claims, and expenses filed with the foreign court in which adminis- tration was had; or, if items of deduction allowable under section 303 (b) (1) were not included in either such schedule, or if no such schedules were filed, then the affidavit of the fdreign executor setting forth the facts relied upon as entitling the estate to the benefit of the particular deduction or deductions. Art. 53. Deduction of value of transfers previously taxed.^The' right to deduct the value of property received by a nonresident decedent by gift from any person within five years prior to his death, or by gift, bequest, devise, or inheritance from any person who died within five years prior to his death, or of the value of property ac- quired in exchange for property so received, is governed by the same rules as those applying to estates of resident decedents (Arti- cles 41 to 43, inclusive), subject to the two following exceptions: (1) That such right is limited to the extent that the value of the property, or that acquired in exchange therefor, is not deducted under paragraphs (1) or (3) of subdivision (b) of section 303; (2) that such right is not available to any extent unless the executor includes in the return the value at the time of the decedent's death of that part of the gross estate not situated in the United States; (See Art. 52.) Art. 54. Deduction of value of transfers for public, charitable, reli- gious, etc., uses. — The right to deduct the value of property trans- 49 ferred by nonresidents for public, religious, charitable, scientific, lit-i erary, or educational purposes is governed by the same rules as those applying to estates of resident decedents (Arts. 44 to 47, inclusive), subject, however, to the two following exceptions, namely: (1) That the right is limited to transfers to corporations and associations created or organized in the United States, or to trustees for use within the United States, and, (2) is then available only where the executor includes in the return the value at the time of the non- resident decedent's death of that part of the gross estate not situated in the United States. Instead of duplicate copies of the documents specified in Article 46, only one copy is required to be filed. Art. 55. Detsrmination of net estate. — The following example will show the manner of determining the net estate of a nonresident decedent. The gross estate, wherever situated, amounts to $1,000,000, of which $200,000 represents the value of the property having its situs within the United States (the term " United States " including not only the several States, but also the Territories of Alaska and Hawaii, and the District of Columbia). The funeral expenses, administration expenses, and claims against the estate aggregate $150,000, and there are charitable bequests, for use within the United States, amounting to $25,000. Hence the property situated within the United States' constitutes 20 per cent of the entire gross estate wherever situated, and a like percentage of the $150,000 is $30,000. The following result is accordingly obtained: Gross estate within the United States $200,000 20 per cent of $150,000^ $30,000 Charitable bequests for use within the United Sta.es 25,000 55,000 Net estate 145,000 For the manner of computing the tax on the net estate, see Article 8. In the example given, had the decedent died prior to the effective date of the Revenue Act of 1928, 20 per cent of the funeral expenses, administration expenses and claims against the estate, or $30,000, would not have been deductible for the reason that it would have exceeded 10 per cent of the value of the property situated in the United States. The deduction in such case would have been limited to 10 per cent of $200,000, plus the charitable bequests, or a total of $45,000, "and the resultant net estate would have been $155,000, instead of the amount given in the example. Art. 56. Payment of tax. — The provisions relating to credits (see Art. 9) and to rates and payment of the tax- are the same ill estates 50 of nonresidents and of residents. The statute provides that the executor shall pay the tax. If there is no executor or administrator appointed, qualified, and acting within the United States, every per- son in either the actual or constructive possession of any property of the decedent is constituted by the statute an executor for the purpose of tax payment, and is liable for the tax to the extent of the prop- erty so in his possession. (See Arts. 78 to 85, inclusive.) All checks, drafts, or money orders should be made payable to the order of Collector of Internal Revenue. PRELIMINARY NOTICE— ESTATES OF RESIDENTS Sec. 304. (a) The executor, within two months after the decedent's death, or within a like period after qualifying as such, shall give writ- ten notice thereof to the collector. * * » Art. 57. When notice required. — A preliminary notice is required to be filed in the case of every resident decedent whose gross estate exceeded $100,000 in value at the date of death, if the decedent died subsequent to the effective date of the Revenue Act of 1926. If death occurred prior to the effective date of the Revenue Act of 1926, notice is required if the gross estate exceeded $50,000 in value at the date of death. The notice must be filed within two months after the decedent's death or within two months after the executor has quali- fied and must be filed in duplicate with the collector in whose district the decedent had his domicile at the time of death. Where there is doubt as to whether the gross estate exceeded $100,000, or exceeded $50,000, as the case may be, the notice should be filed as a matter of precaution in order to avoid the possibility of penalties attaching. Art. 58. Notice by executor or administrator. — The duly qualified executor or administrator is required to file such preliminary notice on Form 704, copies of which may be obtained from the collector, within two months after qualifying as such, if notice has not already been filed. The primary purpose of the notice is to advise the Gov- ernment of the existence of taxable estates, and filing should not be delayed beyond the two months' period because of uncertainty as to the exact value of the assets. Since the filing of the notice within the prescribed period is mandatory, the estimate of the gross estate called for by the notice is merely the best approximation of value which can be made within the time allowed. The instructions upon the back of the form should be read carefully before executing the notice. The signature of one executor or administrator upon Form 704 is sufficient. For penalties for delinquency in filing notice, or for filing a false or fraudulent notice, see Articles 91, 92, and 94. Art. 59. Notice by others than duly qualified executor or administra- tor. — The term "executor" embraces any person in actual or con- 51 structive possession of any property of the decedent at the time of the latter's death, where within two months after the decedent's death no executor or administrator qualifies. The notice on Form 704 must be filed by such persons in every case where an executor or administrator has not duly qualified within such period. Where, within the period mentioned, an executor or administrator qualifies, the duty of filing the notice devolves upon him, and all other persons are relieved therefrom. PRELIMINARY NOTICE— ESTATES OF NONRESIDENTS Art. 60. Estates of nonresidents; preliminary notice. — In estates of nonresidents, notice on Form 705, copies of which may be obtained from the Commissioner of Internal Revenue, Washington, D. C, or from any United States Collector of Internal Revenue, upon ap- plication, is required in the case of every nonresident decedent any part of whose gross estate was situated (within the meaning of the statute, as to which see Art. 50), in the United States. The notice must be filed, in duplicate, by every appointed, qualified, and acting executor or administrator within the United States with the United States Collector of Internal Revenue of the district in which such part of the gross estate was situated, or, if parts of the gross estate were situated in more than one district, or if the gross estate consists wholly of stock in a domestic corporation, then with the collector for the Second District of New York, Customhouse, New York, N. Y., or with such collector as the Commissioner may designate. The notice is necessary if any part of the decedent's gross estate was situ- ated, within the meaning of the statute, in the United States, regard- less of the value of that part or of the entire gross estate. If no executor or administrator has qualified, notice must, be filed within two months after the date of death by every person in either the actual or constructive possession of any property of the decedent so within the United States at the time of his death. If such person has no knowledge of the decedent's death within two months following its occurrence, he should file the notice immediately upon obtaining such knowledge. The term "person in actual or constructive pos- session of any property of the decedent " (sec. 300) includes, among others, the decedent'^ agents and representatives; safe-deposit com- panies, warehouse companies, and similar custodians of property in this country of a nonresident decedent; brokers holding, as col- lateral, securities belonging to the decedent or investment funds owned by the decedent, and debtors of the decedent in this country. As to any moneys deposited by or for a nonresident decedent with any person, corporation, or association carrying on the banking business, no notice is required, unless, however, the decedent was engaged in business in the United States at the time of his death. 52 Art. 61. Information return by corporation or transfer agent.— Upon notification from the Bureau of Internal Revenue a corporation (organized or created in the United States) , or its transfer agent -will be required to file a return disclosing the following information pertaining to stocks or bonds registered in the name of a nonresident decedent: (1) Name of decedent as registered; (2) date of death, residence, place of death, and names and addresses of executors, attor- neys, or other representatives within and without the United States, if known; and (3) a description of the securities and the number of shares or bonds and the par values. Treasury Department Form 714, which will be supplied by the Bureau upon request, may be used for the return. Art. 62. Transfer certificates. — Certificates permitting the transfer of property of nonresident decedents without liability will be issued by the Commissioner when he is satisfied that the tax imposed upon the estate, if any, has been fully discharged or provided for. The tax, will be considered fully discharged for the purpose of the issuance of a transfer certificate only when investigation has been completed and payment of the tax including any deficiency finally determined has been made. Where the tax liability has not been fully discharged transfer certificates may be issued permitting the transfer of particu- lai' items of property without liability upon the filing with the Commissioner of such security as he may require. No corporation or its transfer agent should transfer stock or bonds registered in the name of a nonresident decedent without first requiring this transfer certificate covering all of the decedent's stock and bonds of the corpo- lation and showing that such transfer may be made without liability. A bank, trust company, or other custodian in possession of bills, notes, cash, mortgages, securities, money due on open accounts by domestic debtors, or any other property situated in the United States of a non- resident decedent's estate should also require the certificate before transferring such property. Corporations, transfer agents, banks, trust companies, or other custodians can insure avoidance of liability for tax and penalties only by demanding and receiving transfer certificates prior to transfer of property of nonresident decedents. The requirements of this and the preceding article do not apply where there is an executor or administrator appointed, qualified and acting within the United States. THE RETURN— ESTATES OF RESIDENTS Sec. 304. (a) * * * The executor shall also, at such times and in such manner as may be required by regulations made pursuant to law, file with the collector a return under oath in duplicate, setting forth (1) the value of the gross estate of the decedent at the time of his death, or, in case of a nonresident, of that part of his gross 53 estate situated in the United States ; (2) the deductions allowed under section 303,; (3) the value of the net estate of the decedent as defined ill section 303; and (4) the tax paid or payable thereon; or such part of such information as may at the time be ascertainable and such supplemental data as may be necessary to establish the cor- rect tax. (b) Return shall be made in all cases where the gross estate at the death of the decedent exceeds $100,000, and in the case of the estate of every nonresident nny part of whose gross estate is situated in the United States. If the executor is unable to make a com- plete return as to any part of the gross estate of the decedent, he shall include in his return a description of such part and the name of every person holding a legal or beneficial interest therein, and upon notice from the collector such person shall in like manner make a return as to such part of the gross estate. Sec. 306. As soon as practicable after the return is filed the Con>- missloner shall examine it and shall determine the correct amount of the tax. Art. 63. When return required— Date of filing. — A return on Form 706 is required in the case of every resident decedent whose gross estate, as defined in the statute, exceeded $100,000 in value at the date of his death. If the decedent died prior to 10.25 a. m., Wash- ington, D. C, time, February 26, 1926, the return should be filed in case the gross estate exceeded $50,000 in value at date of death, This return must be filed with the collector for the district in which tlie decedent was domiciled at the time of his death. It must be filed in duplicate within one year after the date of death, or, in any particular instance, at such time prior to the expiration of such year as the Commissioner may designate. When the due date for filing the return falls on a Sunday or on a legal holiday, the due date for filing will be the day following such Sunday or legal holiday. If placed in the mails the return should be posted in ample time to reach the collector's office, under ordinary handling of the mails, on or before the date on which the return is required to be filed. If a return is made and placed in the mails in due course, properly ad- dressed, and postage paid, in ample time to reach the office of the collector on or before the due date, no penalty will attach should the return not be actually received by such officer until subsequent to that date. Art. 64. Persons liable for return. — The statute provides that the duly qualified executor or administrator shall file the return. If there is more than one executor or administrator, the return must be made jointly by all. Where no executor or administrator has been appointed, every person in actual or constructive possession of any property of the decedent is constituted by the statute an executor for the purposes of the tax (sec. 300), and is required to make and file a return as provided by section 304. Where, in any case, the 54 executor is unable to make a complete return as to any part of the gross estate, he is required to give all the information he has as to such property, including a full description, and the name of every person holding a legal or beneficial interest in the property. Where the executor is unable to make a return as to any property, the statute requires that every person holding a legal or beneficial interest therein shall, upon notice from the collector, make return as to such part of the gross estate. For penalties for delinquency in filing return, or for filing a false or fraudulent return, see Articles 91, 92, and 94. Art. 66. Preparation of return.— The return must be made on Form 706, copies of which will be supplied by the collector upon applica- tion. It must be filed in duplicate, under oath, and contain an itemized inventory, by schedule, of the property constituting the gross estate. The deductions must also be listed on the appropriate schedules. The instructions printed on the form should be carefully followed. All documents and vouchers used in preparing the return should be retained by the executor so as to be available for inspec- tion whenever required. Duplicate copies of the will, if the decedent died testate, one of which should be certified, must be submitted with the return, together with copies of such other documents as in Form 706 and in the applicable articles of these regulations are required. There may also be filed in duplicate copies of any documents which the executor may desire to submit with the return in explanation thereof. Art. 66. Supplemental data. — The statute provides that the execu- tor, in addition to filing notice and return, shall furnish such sup- plemental data as may be necessary to establish the correct tax (sec. 304). It is therefore the duty of the executor to furnish upon request copies of any documents in his possession relating to the estate, or on file in any court having jurisdiction over the estate, appraisal lists of any items included in the gross estate, copies of balance sheets or other financial statements relating to the value of stock, and any other information obtainable by him that may be found necessary in the determination of the tax. Failure to comply with such a request will render the executor liable to penalties (Art. 93), and proceedings may be instituted in the proper United States court to secure compliance therewith (sec. 1122 (a)). Persons having possession or control of any records or documents containing or supposed to contain any information concerning the estate, or having knowledge or information of any fact or facts of a material bearing upon the liability, or the extent of liability, of the estate to the tax, shall, upon request of the Commissioner or any revenue agent or inspector designated by him for that purpose, make 55 disclosure thereof. Failure on the part of any person to comply with such request will render him liable to penalties (Art. 93), and compliance with the request may be enforced in the proper United States court (sec. 1122 (a)). Art. 67. Investigation of returns. — An investigation of every return for estate tax will be conducted to verify its accuracy. The investi- gation will be made by special officers of the Bureau. The fact that an investigation is made does not reflect upon the competence or good faith of the executor, since investigations are required in all cases. The executor should cooperate with the examining officer in order that the tax liability may be correctly determined and the case closed. During the course of the investigation the examining officer will inspect the tangible property of the decedent and the books and records of the estate, interview the executor and other persons having knowledge of the decedent's affairs, verify the value of the assets and the amounts of the deductions, and take such other steps as may be necessary in order that the correct amount of tax may be deter- mined. Wherever it is practicable to do so, the Bureau will, in its discre- tion, or upon the executor's request to the Commissioner, make its field investigation simultaneously and in cooperation with the officials having in charge the matter of determining the amount of tax due the State or Territory by virtue of the decedent's death. Such inves- tigation will extend to all questions in so far as they have bearing both upon the tax liability of the estate under the Federal estate tax law and the taxing act of the particular State or Territory, and com- prehend the disclosure to the agents of the State or Territory of information contained in the return as well as that obtained upon investigation, provided a like cooperation is given by the agency of the State or Territory. Such disclosure may be made by the field- investigating officer or his superiors, either during the investigation or subsequent thereto. The investigations made in cooperation with the State or Territory are, like all others, limited to an ascertainment of information to aid the Commissioner, who alone under the law is empowered to determine the tax, in arriving at a conclusion as to the Federal estate tax liability of the estate. The Bureau often has access to information having a material bearing upon the value of property not available to its field agents, and hence it not infrequently happens that the value of an asset as determined by the Commissioner is more or less than that which would result from a determination based only upon information gathered by the field investigating officer of the Bureau. It is mani- fest, therefore, that whatever value is placed upon an asset by the State or Territory officials, or recommended to the Bureau by its 56 field agent, can not be accepted unless such value is confirmed by the Commissioner. Upon completion of every investigation the executor will, except; a/s otherwise provided in Article 76, be apprised by the investigating officer of his findings, and will be given an opportunity to protest against the findings and an oral hearing before the internal revenue agent in charge will be granted in connection with the protest. The provisions relating to protests and hearings are set forth in detail in Article 76. Upon the completion of a review and audit by the Com- missioner, the executor will be informed of the result thereof by letter or certificate of overassessment. If the executor is notified of an amount of unpaid tax, such unpaid amount should be remitted to the collector. It is the purpose of the Commissioner to make all investigations as soon as practicable after the filing of the return and to determine the tax with the least possible delay. Where the executor makes written application to the Commissioner for a determination of the tax and discharge from personal liability therefor the Commissioner will within one year after receipt of such application, or if appli- cation is made before the return is filed, then within one year after the return is filed, notify the executor of the amount of the tax, and upon payment thereof, the executor will be discharged from per- sonal liability for any deficiency in the tax thereafter found to be due. (See sec. 313 (b) and (c).) The executor and the Commis- sioner (or any officer or employee authorized by him), subject to approval of the Secretary or the Undersecretary of the Treasury, may enter into a closing agreement relating to the tax liability of the estate which will be final and conclusive except upon a showing of fraud or malfeasance, or misrepresentation of a material fact. (See Art. 76.) EXTENSION OF TIME FOR FILING RETURN Revised Statutes, Sec. 3176, as araeiided by Sec. 1103, Revenue Act, 1926: * * * If the failure to file a return (other than a return uiidt;i- Title II of the Revenue Act of 1024 or Title II of the Revenue Act of 1926) or a list is due to sickness or absence, the collector may aUovi such further time, not exceeding 30 days, for making and filing the return or list as he deems proper. * * * Aet. 68. Extension of time by collector. — In case of sickness or absence,' collectors are authorized to grant an extension of time for filing the return for a period not in excess of 30 days from the due date, which extension may be granted either before or after the due date. An extension of time for filing the return does not in itself operate to extend the time'ior the payment of the tax, which is due 57 and payable one year after the date of the decedent's death. For extension of time of payment, see Article 82. Art. 69. Extension of time by Commissioner. — If it is impossible for the executor to file a reasonably complete return within one year from the date of death, the Commissioner may, upon application from the executor showing good and sufficient cause, grant an exten- sion of time not to exceed six months from the due date. Before the expiration of the extension period granted a return as complete as possible must be filed, and the executor may thereafter file an amended return when the condition of the estate permits. An ex- tension of time for filing the return does not operate to extend the time for the payment of the tax, which is due one year after the decedent's death. An extension of time in which to make payment of the tax may be secured as provided in Article 82. THE RETURN— ESTATES OF NONRESIDENTS Art. 70. Return of estates of nonresidents,- — A return on Form 706, copies of which may be obtained from the Commissioner of Internal Eevenue, Washington, D. C, or from any United States" Collector of Internal Revenue, upon application, is required in the case of every nonresident decedent any part of whose gross estate was situated (within the meaning of the statute, as to which see Art. 50), in the United States. The return must be filed with the United States Collector of Internal Revenue of the district in which such part of the gross estate was situated, or, if parts of the gross estate were situated in more than one district or if the gross estate con- sists wholly of stock in a domestic corporation, then with the Col- lector for the second district of New York, Customhouse, New York, N. Y., or with such collector as the Commissioner may otherwise designate. The return must be filed in duplicate and under oath within one year after the decedent's death, or, in any particular in- stance, at such time prior to the expiration of such year as the Com- missioner may designate, unless an extension is obtained pursuant to Article 68 or 69. When the due date for filing the return falls on a Sunday or on a legal holiday, the due date for filing will be the day following such Sunday or legal holiday. If placed in the mails the return should be posted in ample time to reach the col- lector's office, under ordinary handling of the mails, on or before , the date on which the return is required to be filed. If a return is made and placed in the mails in due course, properly addressed, and postage paid, in ample time to reach the office of the collector on or before the due date, no penalty will attach should the return not be actually received by such officer until subsequent to that 7653°— 29 5 58 date. The return should be made and filed by the executor or admin- istrator appointed, qualified, and acting within the United States, or, if none, then by any person in actual or constructive possession of any property of the decedent situated (within the meaning of the statute) in the United States, whatever its value. If the qualified executor or administrator is unable to make a complete return as to any part of the gross estate, he is required to give all the informa- tion available to him as to such part, including a description thereof and the name of every person holding a legal or beneficial interest therein. As to the meaning of the term " person in actual or construc- tive possession of any property of the decedent," see Article 60. Art. 71. Supplemental data. — Pursuant to the provisions of section 304 (a), with respect to furnishing supplemental data, the executor of the will of a nonresident decedent is required to file with the return : (1) A certified copy of will, if decedent died testate, or, if the decedent left several wills to govern in different jurisdictions, cer- tified copy of each will. (2) If any deductions are claimed, copy of inventory of property filed under the foreign death-duty act; or, if no such inventory was filed, a certified copy of inventory filed with the foreign court of probate jurisdiction. The Commissioner may require the documents specified in para- graph No. (2) regardless of whether deductions are claimed. For requirements dealing with the duty to furnish other documents or information relating to the tax liability of the estate, and penalties in connection therewith, see Article 66. PRIVILEGED CHARACTER OF RETURNS Art. 72. Returns confidential. — All estate tax returns and notices are treated as privileged communications and may not be exhibited other than to the executor or his duly authorized agent, except as stated in Articles 67 and 73.. This requirement will be rigidly en- forced, and extends to information of a private nature submitted or obtained in connection with a return or notice. The requirement does not operate to prevent internal revenue officers from disclosing the returned value of any item or the amount of any specific deduc- (sion, where such disclosure is necessary in order to arrive at a correct determination of the tax. This right of disclosure, however, does not extend to such information as the amount of the estate, the amount of tax, or other general data. Nor are the records in pos- session of the Bureau, whether on file with the Commissioner or 59 the collector, open to inspefction, except as provided in Articles 67 and 73. Where a copy of the return is desired because no copy was retained by the executor or the retained copy has been lost or de- stroyed, or for other satisfactory reasons, such copy may be furnished by the Commissioner to the executor, or his authorized attorney, upon payment of the fee prescribed. Art. 73. Disclosure other than to executor. — Where any person other than the executor has a material interest in ascertaining any fact disclosed by the return, or in obtaining information as to the pay- ment of the tax, or where an officer of a State or Territory requires information contained in a return or obtained upon investigation for his official use in connection with an estate, inheritance, legacy, or succession tax of the State or Territory, he shall make a written application to the Commissioner of Internal Revenue for such infor- mation, setting forth the nature of his interest and the purpose of the application. The Commissioner will review the application, and, if it is approved, the collector will be directed to exhibit the return to the applicant, or give him siich information as is specified, or the Commissioner may permit an inspection of or furnish a copy of the return on file in the Bureau, or may furnish such information as he deems advisable. Under no circumstances shall the collector give information to persons other than the executor except upon the written order of the Commissioner, and then only to the extent authorized by such order. If an attorney or other person asks a ruling on a question of law arising in a specific case, the Commissioner will require satisfactory evidence of the right to obtain such ruling. Hypothetical questions, however, can not be answered. Art. 74. Attorneys must have authorization. — In all cases where information is sought regarding an estate, or an interview is asked, by an attorney or by any agent of the executor or administrator, the information or interview will be denied unless the attorney or agent presents a duly executed power of attorney from the executor or administrator authorizing the attorney or agent to act in his behalf. No attorney or agent will be recognized as representing an estate or executor unless such attorney or agent is enrolled to represent claimants or others before the Treasury Department. For regulations governing enrollment, reference should be made to Treasury Depart- ment Circular No. 230, as revised, copies of which may be obtained upon application to the Secretary of the Committee on Enrollment and Disbarment, Treasury Department, Washington, D. C. 60 RETURN BY COLLECTOR OR COMMISSIONER Kevised Statutes, section 3176, as amended by section 1103, Revenue Act of 1926 : If any person, corporation, company, or association fails to make and file a return or list at tlie time prescribed by law or by regulation made under authority of law, or makes, willfully or other- wise, a false or fraudulent return or list, the collector or deputy col- lector shall make the return or list from his own knowledge and from such information as he can obtain through testimony or otherwise. In any such case the Commissioner of Internal Revenue may, from his own kno'wledge 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 collector. Any return or list so made and subscribed by the Ciommissioner, or by a collector or deputy col- lector and approved by the Commissioner, shall be prima facie good and suflScient for aU legal purposes. ♦ * * Akt. 75. Where no return filed, or a false or fraudulent return filed.— Section 3176 of the Kevised Statutes provides that if any person fails to make and file a returii at the time required, or makes, will- fully or otherwise, a false or fraudulent return, the collector or deputy collector shall make a return. The Commissioner may also make a return or amend any return made by a collector or deputy collector. A return so made by the Commissioner, or made by the collector or deputy collector and approved by the Commissioner, shall be prima facie good and sufficient for all legal purposes. Where a tax is found to be due upon such a return, both the estate and the executor will be liable for penalties as well as for the tax. DEFICIENCY TAX Sec. 307. As used in this title in respect of a tax imposed by this title the term " deficiency " means — (1) The amount by which the tax imposed by this title exceeds the amount shown as the tax by the executor upon his return; but the amount so shown on the return shall first be increased by the amounts previously assessed (or collected without assessment) as a deficiency, and decreased by the amounts previously abated, refunded, or otherwise repaid in respect of such tax ; or (2) If no amount is shown as the tax by the executor upon his return, or if no return is made by the executor, then the amount by which the tax exceeds the amounts previously assessed (or collected without assessment) as a deficiency; but such amounts previously assessed, or collected without assessment, shall first be decreased by the amounts previously abated, refunded, or otherwise repaid in respect of such tax. PROTESTS AND PETITIONS Sec. 308. (a) If the Commissioner determines that there Is a defi- ciency in respect of the tax imposed by this title, the Commissioner is authorized to send notice of such deficiency to the executor by regis- tered mail. Within 60 days after such notice is mailed (not counting 61 Sunday as the sixtieth day), the executor may file a petition with the Board of Tax Appeals for a redetermination of the deficiency. Except as otherwise provided in subdivision (d) or (f) of this section or in section 312 or 1001, no assessment of a deficiency in respect of the tax imposed by this title and no distraint or proceeding in court for its collection shall be made, begun, or prosecuted until such notice has been mailed to the executor, nor until the expiration of such 60-day period, nor, if a petition has been filed with the Board, until the decision of the Board has become final. Notwithstanding the provisions of section 3224 of the Revised Statutes the making of such assessment or the beginning of such proceeding or distraint during the time such prohibition is in force may be enjoined by a proceeding in the proper court. * * * (e) The Board shall have jurisdiction to redetermine the correct amount of the deficiency, even if the amount so redetermined is greater than the amount of the deficiency, notice of which has been mailed to the executor, and to determine whether any additional amount or addition to the tax should be assessed, if claim therefor is asserted by the Commissioner at or before the hearing or a rehearing. (f ) If after the enactment of this Act the Commissioner has mailed to the executor notice of a deficiency as provided in subdivision (a), and the executor files a petition with the Board within the time pre- scribed in such subdivision, the Commissioner shall have no right to determine any additional deficiency, except in the case of fraud, and except as provided in subdivision (e) of this section or in subdivision (c) of section 312. If the executor is notified that, on account of a mathematical error appearing upon the face of the return, an amount of tax in excess of that shown upon the return is due, and that an assessment of the tax has been or will be made on the basis of what would have been the correct amount of tax but for the mathematical error, such notice shall not be considered, for the purposes of this subdivision or of subdivision (a) of this section, or of section 319, as a notice of a deficiency, and the executor shall have no right to file a petition with the Board of Tax Appeals based on such notice, nor shall such assessment or collection be prohibited by the provisions of subdivision (a) of this section. * * • ******* Sec. 318. (a) If after the enactment of this Act the Commissioner determines that any assessment should be made in respect of any estate or gift tax imposed by the Revenue Act of 1917, the E,evenue Act of 1918, the Revenue Act of 1921, or the Revenue Act of 1924, or by any such Act as amended, the Commissioner is authorized to send by registered mall to the person liable for such tax notice of the amount proposed to be assessed, which notice shall, for the purposes of this Act, be considered a notice under subdivision (a) of section 308 of this Act. In the case of any such determination the amount which should be assessed (whether as deficiency or additional tax or as interest, penalty, or other addition to the tax) shall be computed as if this Act had not been enacted, but the amount so computed shall be assessed, collected, and paid in the same manner and subject to the same provisions and limitations (Including the pro- visions in case of delinquency in payment after notice and demand and the provisions prohibiting claims and suits for refund) as in the case 62 of a deficiency in the tax imposed l)y this title, except that in the case of an estate tax imposed by the Revenue Act of 1917, the Revenue Act of 1918, or the Revenue Act of 1921, or by any such Act as amended, the period of limitation prescribed in section 1109 of this Act shall be applied in lieu of the period prescribed in subdivision (a) of section 310. • * * (b) If before the enactment of this Act any person has appealed to the Board of Tax Appeals under subdivision (a) of section 308 of the Revenue Act of 1924 (if such appeal relates to a tax imposed by Title III of such Act or to so much of an estate tax imposed by any of tlie prior Acts enumerated in subdivision (a) of this section as was not assessed before June 3, 1924), and the appeal is pending before the Board at the time of the enactment of this Act, the Board shall have jurisdiction of the appeal. In all such cases the powers, duties, rights, and privileges of the Commissioner and of the person who has brought the appeal, and the jurisdiction of the Board and of the courts, shall be determined, and the computation of the tax shall be made, in the same manner as provided in subdivision (a) of this section, except as provided in subdivision (h) of this section and except that the person liable for the tax shall not be subject to the provisions of subdivision (a) of section 319. (c) If before the enactment of this Act the Commissioner has mailed to any person a notice under subdivision (a) of section 308 of the Revenue Act of 1924 (whether in respect of a tax imposed by Title III of such Act or in respect of so much of an estate tax Imposed by any of the prior Acts enumerated in subdivision (a) of this section as was not assessed before June 3, 1924), and if the 60-day period referred to in such subdivision has not expired before the enactment of this Act and no appeal has been filed before the enactment of this Act, such person may file a petition with the Board in the same manner as if a notice of deficiency had been mailed after the enactment of this Act in respect of a deficiency in a tax imposed by this title. In such eases the 60-day period referred to in sub- division (a) of section 308 of this Act shall begin on the date of the enactment of this Act, and the powers, duties, rights, and privileges of the Commissioner and of the person entitled to file the petition, and the jurisdiction of the Board and of the courts, shall, whether or not the petition is filed, be determined, and the computation of the tax shall be made, in the same manner as provided in subdivision (a) of this section. (d) If any deficiency in any estate tax imposed by the Revenue Act of 1917, the Revenue Act of 1918, or the Revenue Act of 1921, or by any such Act as amended, was assessed before June 3, 1924, but was not paid in full before the date of the enactment of this Act, and if the Commissioner, after the enactment of this Act, finally deter- mines the amount of the deficiency, he is authorized to send by registered mail to the person liable for such tax notice of such defi- ciency, which notice shall, for the purposes of this Act, be considered a notice under subdivision (a) of section 308 of this Act. In the case of any such final determination the amount of yie tax (whether as deficiency or additional tax or as interest, penalty, or other addi- tion to the tax) shall be computed as if this Act had not been enacted, but the amount so computed shall be assessed, collected, and 63 paid in the same manner and subject to the same provisions and limitations (including the provisions in cases of delinquency in payment after notice and demand, and the provisions relating to claims and suits for refund) as in the case of a deficiency in the tax imposed by this title, except as otherwise provided in subdivision (g) of this section, and except that the period of limitation pre- scribed in section 1109 of this Act shall be applied in lieu of the period prescribed in subdivision (a) of section 310. (e) If any deficiency in any estate tax imposed by the Revenue Act of 1917, the Revenue Act of 1918, or the Revenue Act of 1921, or by any such Act as amended, was assessed before June 3, 1924, but was not paid in full before that date, and if the Commissioner after June 2, 1924, but before the enactment of this Act, finally determined the amount of the deficiency, and if the person liable for such tax appealed before the enactment of this Act to the Board of Tax Appeals and the appeal is pending before the Board at the time of the enactment of this Act, the Board shall have jurisdiction of the appeal. In all such cases the powers, duties, rights, and privileges of the Commissioner and of the i)erson who has brought the appeal, and the jurisdiction of the Board and of the courts, shall be deter- mined, and the computation of the tax shall be made, in the same manner as provided in subdivision (d) of this section, except as provided in subdivision (h) of this section and except that the per- son liable for the tax shall not be subject to the provisions of subdi- vision (a) of section 319. (f ) If any deficiency in any estate tax imposed by the Revenue Act of 1917, the Revenue Act of 1918, or the Revenue Act of 1921, or by any such Act as amended, was assessed before June 3, 1924, but was not paid in full before the date of the enactment of this Act, and if the Commissioner after June 2, 1924, finally determined the amount of the deficiency, and notified the person liable for such tax to that effect less than 60 days prior to the enactment of this Act and no appeal has been filed before the enactment of this Act, the person so notified may file a petition with the Board in the same manner as if a notice of deficiency had been mailed after the enactment of this Aft in respect of a deficiency in a tax imposed by this title. In such cases the GO-day period referred to in subdivision (a) of section 308 of this Act shall begin on the date of the enactment of this Act, and, wliether or not the petition is filed, the powers, duties, rights, and privileges of the Commissioner and of the person who is so notified, and the jurisdiction of the Board and of the courts, shall be deter- mined, and the computation of the tax be made, in the same manner as provided in subdivision (d) of this section. (g) In cases within the scope of subdivision (d), (e), or (f), if the Commissioner Ijelieves that the collection of the deficiency will be jeopardized by delay, he may, despite • the provisions of subdivi- sion (a) of section 308 of this Act, instruct the collector to proceed to enforce the payment of the unpaid portion of the deficiency, and notice and demand shall be made by the collector for the payment thereof. Within 30 days after such jeopardy notice and demand the person liable for the tax may obtain a stay of collection of the whole or any part of the amount included in the notice and demand by filing with the collector a bond in lil£e manner, under the same conditions, 64 and with the same effect, as in the case of a bond to stay the collection of a jeopardy assessment under section 312 of this Act. (h) In cases within the scope of subdivision (b) or (e) of this section where any hearing before the Board has been held before the enactment of this Act and the decision is rendered after the enact- ment of this Act, such decision shall, for the purposes of this title, be considered to have become final upon the date when it is rendered, and neither party shall have any right to petition for a review of the decision. The Commissioner may, within' one year from the time the decision is rendered, begin a proceeding in court for the collection of any part of the amount disallowed by the Board, unless the statu- tory period of limitations properly applicable thereto has expired before the appeal was taken to the Board. The court shall include in its judgment interest upon the amount thereof in the same cases, at the same rate, and for the same period, as if such amount were col- lected otherwise than by proceeding in court. In any such proceeding by the Commissioner or in any suit by the taxpayer for a refund, the findings of the board shall be prima facie evidence of the facts therein stated. (i) Where before the enactment of this Act a jeopardy assessment has been made under subdivision (d) of section 308 of the Revenue Act of 1924 (whether of a deficiency in the tax imposed by Title III of such Act or of a deficiency in an estate tax imposed by any of the prior Acts enumerated in subdivision (a) of this section) all proceed- ings after the enactment of this Act shall be the same as under the Revenue Act of 1924 as amended by this Act, except that — (1) A decision of the Board rendered after the enactment of this Act where no hearing has been held by the Board before the enactment of this Act may be reviewed in the same manner as provided in this Act in the case of a tax imposed by this title ; (2) Where no hearing has been held by the Board before the enact- ment of this Act, the Commissioner shall have no right to begin a pro- ceeding in court for the collection of any part of the deficiency disal- lowed by the Board ; and (3) In the consideration of the case the jurisdiction and powers of the Board shall be the same as provided in this Act in the case of a tax imposed by this title. (j) In the case of any estate or gift tax imposed by prior Act of Congress, in computing the period of limitations provided in section 310 or 311 of this Act on the making of assessments and the beginning of distraint or a proceeding in court, the running of the statute of limitations shall be considered to have been suspended (in addition to the period of suspension provided for in subdivision (b) of sec. 310) for any period of time prior to the enactment of this Act during which the Commissioner was prohibited from making the assessment or beginning distraint or proceeding in court. Section 606. Revenue Act, 1928 : (a) Authorization. — The Commissioner (or any officer or employee of the Bureau of Internal Revenue, including the field service, author- ized in writing by the Commissioner) is authorized to enter into an agreement in writing with any person relating to the liability of such person (or of the person or estate for whom he acts) in respect of any 65 internal-revenue tax for any taxable period 'ending prior to the date of the agreement. (b) Finality of agreements. — If such agreement is. approved by the Secretary, or the Undersecretary, within such time as may be stated In such agreement, or later agreed to, such agreement shall be final and conclusive, and, except upon a shovying of fraud or malfeasance, or misrepresentation of a material fact — (1) the ease shall not be reopened as to the matters agreed upon or the agreement modified, by any officer, employee, or agent of the United States, and (2) in any suit, action, or proceeding, such agreement, or any determination, assessment, collection, payment, abatement, refund, or credit made in accordance therewith, shall not be annulled, modi- fied, set aside, or disregarded. (c) Section 1106(b) of the Revenue Act of 1926 is repealed, effective on the expiration of 30 days after the enactment of this Act, but such repeal shall not affect any agreement made before such repeal takes effect. Abt. 76. Protests and petitions. — Upon completion of the investiga- tion of the return (See Art. 67) the executor will be advised by the Internal Revenue Agent in Charge by letter of the result of the in- vestigation, unless the time within which an assessment may be made will expire within 90 days, in which event the report of the investiga- tion will be forwarded to the Commissioner immediately. Within 30 days from the date of such letter, or within 60 days where the executor is a nonresident or a resident of Alaska or Hawaii, the executor, if he desires to protest any part or all of the investigating agent's proposed findings, must file the protest with the Internal Revenue Agent in Charge. If a hearing is desired, request therefore must be made in the protest and the hearing must be held in the office of the Internal Revenue Agent in Charge who will thereafter forward to the Com- missioner his recommendation, together with the report of any con- ference, the report of the investigating officer, the original copy of the protest, and any additional evidence or briefs submitted. If no such protest is filed within the prescribed time, the report of the investigating officer will be forwarded to the Commissioner with the recommendation of the Internal Revenue Agent in Charge. Upon the Bureau's receipt of the investigating officer's report, -the return will be audited in the Miscellaneous Tax Unit and the executor will be advised by letter of any tentatively determined de- ficiency in respect of the tax unless the time within which an assess- ment may be made will expire within 60 days, in which event the deficiency will be finally determined and notice thereof sent to the executor by registered mail. Within 30 days from the date of any letter from the Bureau setting forth the deficiency tax as tentatively determined, or within 60 days where the executor is a nonresident or a resident of Alaska or Hawaii, the executor may file a protest with. 66 or request a hearing in, the Miscellaneous Tax Unit, but such hear- ing will be granted (1) only where a protest, with the supporting evidence relied upon, was filed with and a hearing was had before the Internal Revenue Agent in Charge, or, (2) where the executor was not accorded an opportunity for a hearing before the Internal Revenue Agent in Charge; except that for good cause shown the Commissioner may in any case grant a hearing in the Miscellaneous Tax Unit. If in the course of any investigation it appears that any false statement in any notice or return has been knowingly made, or a willful attempt has been made to evade tax, the report of the in- vestigation will be forwarded to the Commissioner without advising the executor of the proposed findings of the investigating officer. Upon the Bureau's receipt of such report, the return will be audited in the Miscellaneous Tax Unit and the executor will be advised by letter as to such taxes and penalties as may tentatively be deter- mined, and furnished a statement showing the computation of tax and penalties, unless the time within which an assessment may be made will expire within 60 days, in which event the deficiency will be finally determined and notice thereof sent to the executor by reg- istered mail. Within 30 days from the date of any letter from the Bureau setting forth the tentatively determined tax and penalties, or within 60 days where the executor is a nonresident or a resident of Alaska or Hawaii, the executor may file a protest with the Mis- cellaneous Tax Unit and a hearing will be granted if requested in the protest. In any case where it is proposed to assert the ad valorem penalty for fraud, the hearing on the protest of the executor will be under the supervision of the General Counsel, Bureau of Internal Revenue, whose recommendation as to the assertion of any penalty will be obtained prior to final determination of the deficiency. In any case where it is proposed to impose any penalty mentioned in this paragraph without first advising the executor thereof, the reo ommendation of the General Counsel, Bureau of Internal Revenue, will be obtained prior to final determination of such penalty. Where a protest is filed, it must be accompanied by the additional evidence relied upon and may be accompanied by a brief. The pro- test must be filed in duplicate, and must contain {a) the name of the estate; (b) a reference to the date and symbols appearing on the letter containing the tentative findings; (c) an itemized statement of the findings to which the executor takes exception; (d) a sum- mary statement of the grounds upon which the executor relies in connection with each exception; and (e) in case the executor desires a hearing, a statement to that effect. Protests and accompanying statements of fact, if any, must be under oath. Every affidavit, 67 argument, brief, or statement of facts, prepared or filed by an at- torney or agent as argument or evidence in the matter of a protest, must have therein a statement signed by such attorney or agent showing whether or not he prepared such document and whether or not the attorney or agent knows of his own knowledge that the facts contained therein are true. Where there is a hearing, should the executor not appear in person, his representative who appears must , present a properly executed power of attorney and must be enrolled to practice before the Treasury Department. (See Art. 74.) In all cases where a deficiency in respect of a tax (including penal- ties or other additions to the tax provided by law) is finally deter- mined by the Commissioner, a notice thereof will be sent to the executor by registered mail in . accordance with the provisions of section 308 (a) of the statute even though a jeopardy assessment (see Art. 77) is made. If, subsequent to the mailing of such notice, a jeopardy assessment is made in respect of the deficiency to which such notice relates no subsequent notice will be sent to the executor by the Commissioner, but if such jeopardy assessment is made, and the amouiit thereof is in excess of the deficiency to which the notice relates, the Commissioner will mail a notice to the executor as re- quired by section 308 (a) of the determination of such additional deficiency provided no petition has theretofore been filed with the Board' of Tax Appeals. Within 60 days (not counting Sunday as the sixtieth day) after the mailing of the registered letter notifying him of the final deter- mination of a deficiency by the Commissioner, the executor may file a petition with the Board of Tax Appeals for a redetermination of the deficiency, other than a deficiency resulting from the correc- tion of a mathematical error appearing upon the return. (See Art. 77.) The right to file a petition with the Board exists whether the decedent died prior or subsequent to the enactment of the Revenue Act of 1926. Where the executor acquiesces in the tentative or final determina- tion of the whole or any part of the deficiency, the form of notice which will be forwarded with the letter of notification, waiving the restrictions on the assessment and collection provided in section 308 (a), should be executed by the executor and returned to the Commissioner in order to expedite assessment which stops the ac- crual of interest on the amount assessed until after notice and demand by the collector. If the executor agrees to the tax liability as either tentatively or finally determined and desires to enter into a closing agreement authorized by section 606 of the Revenue Act of 1928, in order that the matter of the tax will not be reopened, an offer to enter into such 68 an agreement should be submitted to the Bureau. In order to facili- tate such closing agreements Internal Revenue Agents in Charge and investigating officers will advice and assist the executor in respect thei'eof. ASSESSMENT OF TAX Sec. 308. * * * (b) If the executor files a petition with the Board, the entire amount redetermined as the deficiency by the decision of the Board which has become final shall be assessed and shall be paid upon notice and demand from the collector. No part of the amount determined as a deficiency by the Commissioner but disallowed as such by the decision of the Board which has become final shall be assessed or be collected by distraint or by proceeding in court with or without assessment. (c) If the executor does not file a petition with the Board within the time prescribed in subdivision (a) of this section, the deficiency, notice of which has been mailed to the executor, shall be assessed, and shall be paid upjn notice and demand from the collector. (d) The executor shall at any time have the right, by a signed notice in vnriting filed with the Commissioner, to waive the restric- tions provided in subdivison (a) of this section on the assessment and collecton of the whole or any part of the deficiency. (e) The Board shall have jurisdiction to redetermine the correct amount of the deficiency even if the amount so redetermined is gi-eater than the amount of the deficiency, notice of which has been mailed to the executor, and to determine whether any additional amount or addition to the tax should be assessed, if claim therefor is asserted by the Commissioner at or before the hearing or a rehearing. (f ) If after the enactment of this Act the Commissioner has mailed to the executor notice of a deficiency as provided in subdivision (a), and the executor files a petition with the Board within the time pre- scribed in such subdivision, the Commissioner shall have no right to determine any additional deficiency, except in the case of fraud, and except as provided in subdivision (e) of this section or in subdivision (c) of section 312. If the executor is notified that, on account of a mathematical error appearing upon the face of the return, an amount of tax in excess of that shown upon the return is due, and that an assessment of the tax has been or will be made on the basis of what would have been the correct amount of tax but for the mathematical error, such notice shall not be considered, for the purposes of this sub- division or of subdivision (a) of this section, or of section 319, as a notice of a deficiency, and the executor shall have no right to file a peti- tion with the Board of Tax Appeals based on such notice, nor shall such assessment or collection be prohibited by the provisions of sub- division (a) of this section. (g) For the purposes of this title the date on which a decision of the Board becomes final shall be determined according to the provisions of section 1005. Sec. 310. (a) Except as provided in section 311, the amount of the estate taxes imposed by this title shall be assessed within three years after the return was filed, and no proceeding in court without assess- 69 ment for the collection of such taxes shall be begun afler the expira- tion of three years after the return was filed. (b) The running of the statute of limitations provided in this section or in section 311 on the making of assessments and the beginning of distraint or a proceeding in court for collection, in respect of any deficiency, shall (after the mailing of a notice under subdivision (a) of section 308) be suspended for the period during which the Commis- sioner Is prohibited from making the assessment or beginning dis- traint or a proceeding in court, and for 60 days thereafter. Sec. 311. (a) In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return the tax may be assessed, or a proceeding in court for the collection of such tax may be begun withou!: assessment, at any time. (b) Where the assessment of any tax imposed by this title or of any estate or gift tax imposed by prior Act of Congress has been made (whether before or after the enactment of this Act) wi.hin the statutory period of limitation properly applicable thereto, such tax may be collected by distraint or by a proceeding in court (begun before or after the enactment of this Act), but only if begun (1) within six years after the assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the Commissioner and the executor. (c) This section shall not bar a distraint or proceeding in court begun before the enactment of the Revenue Act of 1924; nor shall it authorize the assessment of a tax or the collection thereof by dis- traint or by proceeding in court (1) if at the time of the enactment of this Act such assessment, distraint, or proceeding was barred by the statutory period of limitation properly applicable thereto, unless prior to the enactment of this Act the Commissioner and the executor agreed in writing (hereto, or (2) contrary to the provisions of subdivision (a) of section 308 of this Act. Sec. 312. (a) If the Commissioner believes that the assessnlent or collection of a deficiency will be jeopardized by delay, he shall imme- diately assess such deficiency (together with all interest, additional amounts, or additions to the tax provided for by law) and notice and demand shall be made by the collector for the payment thereof. (b) If the jeopardy assessment is made before any notice in respect of the tax to which the jeopardy assessment relates has been mailed under subdivision (a) of section 308, then the Com- missioner shall mail a notice under such subdivision within 60 days after the making of the assessment. (c) The jeopardy assessment may be made in respect of a defi- ciency greater or less than that notice of which has been mailed to the executor, despite the provisions of subdivision (f) of section 308 and whether or not the executor has theretofore filed a petition with the Board of Tax Appeals. The Commissioner shall notify the Board of the amount of such assessment, if the petition is filed with the Board before the making of the assessment or is subse- quently filed, and the Board shall have jurisdiction to redetermine the entire amount of the deficiency and of all amounts assessed at the same time in connection therewith. 70 (d) If the jeopardy assessment is made after the decision of the Board is rendered such assessment may be made only in respect of the deficiency determined by the Board in Its decision. (e) A jeopardy assessment may not be made after the decision of the Board has become final or after the executor has filed a petition for review of the decision of the Board. (f) When a jeopardy assessment has been made the executor, within 30 days after notice and demand from the collector for the payment of the amount of the assessment, may obtain a stay of col- lection of the whole or any part of the amount of the assessment by filing with the collector a bond in such amount, not exceeding double the amount as to which the stay is desired, and with such sureties, as the collector deems necessary, conditioned upon the payment of so much of the amount, the collection of which is stayed by the bond, as is not abated by a decision of the Board which has become final, together with interest thereon as provided in subdivision (j) of this section. (g) If the bond is given before the executor has filed his petition with the Board under subdivision (a) of section 308, the bond shall contain a further condition that if a petition is not filed within the period provided in such subdivision, then the amount the collection of which is stayed by the bond will be paid on notice and demand at any time after the expiration of such period, together with interest thereon at the rate of 6 per centum per annum from the date of the jeopardy notice and demand to the date of notice and demand under this subdivision. * * * (1) When the i)etition has been filed with the Board and when the amount which should have been assessed has been determined by a decision of the Board which has become final, then any unpaid por- tion, the collection of which has been stayed by the bond, shall be collected as part of the tax upon notice and demand from the col- lector, and any remaining portion of the assessment shall be abated. If the amount already collected exceeds the amount determined as the amount which should have been assessed, such excess shall be refunded. If the amount determined as the amount which should have been assessed is greater than the amount actually assessed, then the difference shall be assessed and shall be collected as part of the tax upon notice and demand from the collector. ******* Sbo. 318. (a) If after the enactment of this Act the Commissioner determines that any assessment should be made in respect of any estate or gift tax imposed by the Revenue Act of 1917, the Revenue Act of 1918, the Revenue Act of 1921, or the Revenue Act of 1924, or by any such Act as amended, the Commissioner is authorized to send by registered mail to the persson liable for such tax notice of the amount proposed to be assessed, which notice shall, for the purposes of this Act, be considered a notice under subdivision (a) of section 308 of this Act. In the case of any such determination the amount which should be assessed (whether as deficiency or additional tax or as in- terest, penalty, or other addition to the tax) shall be computed as if this Act had not been enacted, but the amount so computed shall be assessed, collected, and paid in the same manner and subject to the same provisions and limitations (including the provisions in case of 71 delinquency in payment after notice and demand and the provisions prohibiting claims and suits for refund) as In the case of a deficiency in the tax imposed by this title, except that in the case of an estate tax imposed by the Revenue Act of 1917, the Revenue Act of 1918, or the Revenue Act of 1921, or by any such Act as amended, the period of limitation prescribed in section 1109 of this Act shall be applied in lieu of the period prescribed in subdivision (a) of section 310. * * « * :t; A * Sec. 1109 as amended by section 619 (a) of the Revenue Act of 1928. (a) Except in the case of * * * estate, and gift taxes — (1) Notwithstanding the provisions of section 3182 of the Revised Statutes or any other provision of law, all internal-revenue taxes shall (except as provided in paragraph (2) or (3) of this subdivision) be assessed within four years after such taxes became due, and no pro- ceeding in court without assessment for the collection of such taxes shall be begun after the expiration of five years after such taxes became due. (2) In case of a false or fraudulent return with intent to evade tax, of a failure to file a return within the time required by law, or of a willful attempt in any manner to defeat or evade tax, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time. (3) Where the assessment of any tax imposed by this Act or by prior Act of Congress has been made (whether before or after the enactment of this Act) within the statutory period of limitation properly applicable thereto, such tax may be collected by distraint or by a proceeding in court (begun before or after the enactment of this Act), but only if begun (A) within six years after the assessment of the tax, or (B) prior to the expiration of any period for collection agreed upon in writing by the Commissioner and the taxpayer. (b) This section shall not bar a distraint or proceeding in court begun before the' enactment of the Revenue Act of 1924 ; nor shall it authorize the assessment of a tax or the collection thereof by dis- traint or by proceeding in court if at the time of the enactment of this Act such assessment, distraint, or proceeding was barred by the statu- tory period of limitation properly applicable thereto, unless prior to the enactment of this Act the Commissioner and the taxpayer agreed in writing thereto. Section 402, Revenue Act of 1928. (a) Section 310 (b) of the Revenue Act of 1926 is amended to read as follows : "(b) The running of the statute of limitations provided in this section or in section 311 on the making of assessments and the beginning of distraint or a proceeding in court for collection, in respect of any deficiency, shall (after the mailing of a notice under subdivision (a) of section 808) be suspended for the period during which the Commis- sioner is prohibited from making the assessment or beginning distraint or a proceeding in court (and in any event, if a proceeding in respect of the deficiency is placed on the docket of the Board, until the decision of the Board biecomes final), and for 60 days thereafter." (b) Subsection (a) of this section shall apply in all cases where the period of limitation has not expired prior to the enactment of this Act. 72 Art. 77. Assessments. — ^In any case where the Commissioner believes that the assessment or collection of a deficiency tax will be jeop- ardized by delay, he will make an immediate assessment thereof whether the decedent died before or after the passage of the Revenue Act of 1926. In such case the assessment may be made (1) prior to the mailing of the notice provided by section 308 (a), or (2) within 60 days after the mailing of such notice, or (3) at any time prior to the filing of a petition for a review of a decision ren- dered by the Board. If the jeopardy assessment is made subsequent to a decision of the Board, then the assessment is limited to the amount of the deficiency determined by the Board. Where the jeopardy assessment is made before any notice in respect of the deficiency to which the jeopardy assessment relates has been mailed under subdivision (a) of section 308, the Commissioner will mail a notice as provided by such subdivision within 60 days after the^ making of such jeopardy assessment. If an amount of tax in excess of that shown upon the return is determined to be due as a result of the correction of a mathe- matical error appearing upon the face of the return, the executor will be duly notified and an assessment made of the tax which would have been the correct tax but for the mathematical error. The notice that the correct amount of the tax has been assessed will not be a notice of a deficiency within the meaning of subdivision (a) of section 308 or section 319 and the executor has no riglit to file a petition with the Board of Tax Appeals based upon such notice. Where a petition is filed with the Board, the entire amount redetermined as the deficiency by the decision of the Board which has become final will be assessed, except such portion as may have been assessed as a jeopardy assessment. If no petition is filed with the Board within the time prescribed in section 308 (a), the deficiency, notice of which has been mailed to the executor, will be assessed. Where the executor by a signed notice in writing filed with the Commissioner waives the restrictions on the assess- ment and collection of the whole or any part of a deficiency, assess- ment of such whole or part will be made immediately. (As tO payment, see articles 78 to 85, inclusive.) All assessments against executors (as to assessments against trans- ferees and fiduciaries, see Art. 105), except in the case of a false and fraudulent return, or of a failure to file a return withm the time required by law, must be made within three years after the return was filed (four years after the due date of the tax if the flecedent died prior to the effective date of the Revenue Act of 1924). If notice of a deficiency is mailed in accordance with the 73 provisions of subdivision (a) of section 308, then the period within "which assessment thereof is required to be made is extended for the period during which the Commissioner is prohibited from making the assessment and for 60 days thereafter. If a proceeding in re- spect of the deficiency is placed on the docket of the Board the period within which assessment is required to be made is extended until the decision of the Board becomes final and for 60 days thereafter. In case of a false or fraudulent return with intent to evade the tax, or of a failure to file a required return, the tax may be assessed, or proceedings in court for collection may be begun without assess- ment, at any time. PAYMENT OF AND RECEIPTS FOR TAXES Sec. 305. (a) The tax imposed by this title shall be due and payable one year after the decedent's death, and shall be paid by the executor to the eollector. » * * Sec. 308. * * * (b) If the executor files a petition with the Board, the entire amount redetermined as the deficiency by the ^iecision of the Board which has become final shall be assessed and shall be paid upon notice and demand from the collector. * * * (c) If the executor does not file a petition with the Board within the time prescribed in subdivision (a) of this section, the deficiency, notice of which has been mailed to the executor, shall be assessed, and shall be paid upon notice and demand from the collector. * * * Sec. 313. (a) The collector shall grant to the person paying the tax duplicate receipts, either of which shall be sufficient evidence of such payment, and shall entitle the executor to be credited and allowed the amount thereof by any court having jurisdiction to audit or settle his accounfs. * * * Sec. 1118. (a) Collectors may receive, * * * 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 rules and regulations as the Commissioner, with the approval of the Secretary, 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 to the same extent as if such check had not been tendered. Art. 78. Payment of tax; General. — The tax is due and must be paid within one year from the date of the decedent's death, unless an extension of time for payment thereof has been granted by the Commissioner^ (See also Art. 9.) No discount will be allowed for payment in advance of the due date. The collector will grant to the person paying the tax duplicate receipts, either of which will be sufficient evidence of such payment and entitle the executor to be credited with the amount by any court having jurisdiction to audit or settle his accounts. 7653°— 29 6 74 ; .Following an investigation of the return, the tax liability will be determined by the Commissioner. If the amount of tax shown on the return has been paid and exceeds the amount of tax as determined^ a certificate of overassessment will be prepared and issued except where such issuance is barred by the statute of limitations, or other- wise, regardless of whether or not a claim for refund of such excess payment is filed. If the amount of tax as determined exceeds the amount of tax already paid but is less than the amount shown on .the return, the executor will be notified of the amount of the unpaid tax and payment thereof should be made to the collector. Where the audit of the return does not disclose a deficiency tax or overpay- ment the executor will be notified to that effect. Where, a^ a result of the audit of the return, a deficiency in respect of the tax is finally determined and such deficiency is in whole or in part assessed (see Art. 77), the executor should pay the amount of the deficiency assessed upon notice and demand from the collector, except where a stay of the collection of a jeopardy assessment is obtained by the filing of a bond (see Art. 96), or where an extension of time for- payment is granted (see Art. 83). Until any tax determined by the Commissioner, including any deficiency, is assessed, the executor should reserve a sufficient portion of the estate to satisfy any unpaid assessment. Art. 79. The executor shall pay the tax. — The statute provides that the executor shall pay the tax. This duty applies to the entire tax, regardless of the fact that the gross estate consists in part of prop- erty which will not come into his possession. Where there is no duly qualified executor or administrator, all persons in actual or con- structive possession of any property of the decedent are liable for and required to pay the tax to the extent of the value of such prop- erty. See, also, Article 88. As to the personal liability of the exec- utor, see Article 102. Akt. 80. Payment by check. — Collectors may accept uncertified checks in payment of the tax, provided such checks are collectible at par, that is, for the full amount, without any deduction for ex- change or other charges. . The collector will stamp upon the face of each check before deposit thereof the words " This check is in pay- ment of an obligation to the United States and must be paid at par. No protest." This should be followed by his name and title. The day on which the check is received will be considered the date of payment so far as the taxpayer is concerned, unless the check is re- turned dishonored. If the bank on which a check is drawn should refuse to pay it at par, the check should be returned through the depositary bank. 75 All expenses incident to the attempt to collect such a check and the return of it through the depositary bank must be paid by the drawer of the check to the bank on which it is drawn. (See sec. 3210 of the Revised Statutes, as amended, reenacted by sec. 1128 (b) of the Rev- enue Act of 1926.) Where a check has been returned uncollected by the depositary bank, the collector should proceed to collect the tax as though no check had been given, and the taxpayer will re- main liable for payment of the tax and for all interest, legal penalties and additions, if any attach, to the same extent as though such check had not been tendered. A taxpayer who tenders a certified check in payment of the tax is not released from his obligation until the check has been paid. (See ch. 191 of the Act of Mar. 2, 1911.) Treasury Department Circular No. 176, as amended, prescribes detailed regulations governing the deposit and collection of checks. Collectors are referred to paragraphs 13-16 and paragraph 26 thereof as to the deposit of taxpayers' checks and the handling of uncollected or lost items. Art. 81. Payment by bonds or notes, — Payment of the tax may be made with bonds or notes of the United States issued under the provisions of the First Liberty Loan Act and the Second Liberty Loan Act, as amended, bearing interest at a higher rate than 4 per cent per annum, provided they were owned by the decedent con- tinuously for at least six months prior to the date of his death, and upon such date constituted a part of his estate. Such bonds and notes are receivable at par and interest accrued at the time of the payment. When such bonds or notes are to be tendered in payment of the tax, a copy of Department Circular No. 225, as heretofore or hereafter amended or supplemented, should be procured and the requirements thereof carefully noted. EXTENSION OF TIME FOR PAYMENT OP TAX Sec. 305. * * ♦ (b) Where the Commissioner finds that the payment on the due date of any part of the amount determined by the executor as the tax would impose undue hardship upon the estate, the Commissioner may extend the time for payment of any such part not to exceed five years from the due date. In such case the amount in respect of which the extension is granted shall be paid on or before the date of the expiration of the period of the extension. * * * (d) The time for which the Commissioner may extend the time for payment of the estate tax imposed by Title IV of the Revenue Act of 1921 shall be five years. Sec. 308. * * * (i) Where it is shown to the satisfaction of the Commissioner that the payment of a deficiency upon the date pre- scribed for the payment thereof will result in undue hardship to the estate, the Commissioner vnth the approval of the Secretary (except 76 where the deficiency is due to negligence, to intentional disiegaid of rules and regulations, or to fraud with intent to evade tax) may grant an extension for the payment of such deficiency or any part thereof for a period not in excess of two years. If an extension is granted, the Commissioner may require the executor to furnish a bond in such amount, not exceeding double the amount of the deficiency, and with such sureties, as the Commissioner deems necessary, conditioned upon the payment of the deficiency in accordance with the terms of the extension. * * * Aht. 82. Extension of time for payment of tax shown on return. — In any case where the Commissioner finds that payment of the tax on the due date would impose undue hardship upon the estate, an ex- tension or extensions of time will be granted for the payment of the tax for a period not to exceed in all five years from the due date, except that in eases arising under the Revenue Acts of-1916, 1917, and 1918, the extension is limited to three years from the due date. Extensions of time for tax payment will be granted only in excep- tional cases, and where it is evident that the payment of the tax on or before the due date would impose upon the estate undue hard- ship. The term " undue hardship " means more than an inconven- ience, and it must appear that substantial financial loss or sacrifice would result from making payment of the tax at the due date. An application for an extension of time for the payment of the tax must contain sufficient information from which the Commis- sioner may determine whether undue hardship would result if the requested extension were refused. The extension will not be granted on a general statement of hardship, but in each case there must be. furnished a statement of the specific facts, under oath, showing what, if any, financial loss or sacrifice would result if no extension were granted. The first extension granted will be for a period of not less than six months from the due date of the tax, and no single extension for more than one year will be granted. Application for extension of time for payment should be filed with the collector, who will refer it to the Commissioner with suitable recommendations. An extension of time to pay the tax does not relieve from the duty of filing the return on or before the date fixed by the regula- tions, nor will it operate to prevent the running of interest. (See Arts. 84 and 85.) Where the executor desires to obtain an additional extension, the application therefor must be filed with the collector on or before the date of the expiration of the previous extension; otherwise the application must be denied. The granting of an extension of time for paying the tax is discre- tionary with the Commissioner and such authority will be exercised under such conditions as he may deem advisable. 77 Art. 83. Extension of time for payment of deficiency tax. — In any case where the Commissioner finds that payment of the deficiency tax upon the date prescribed for the payment thereof would impose un- due hardship upon the estate, an extension or extensions of time will be granted for payment, with the approval of the Secretary, for a period not to exceed in all two years from the date prescribed for the payment of the deficiency. This provision applies to all estates, regardless of the date of the decedent's death. The term " undue hardship " means more than an inconvenience, and it must appear that substantial financial loss or sacrifice would result from making payment of the deficiency at the time prescribed for the payment thereof. No extension will be granted where the deficiency is due to negligence or intentional disregard of the rules and regulations, or to fraud with intent to evade the tax. Any application for an extension of time for the payment of a deficiency must be accompanied by evidence under oath showing that undue hardship would result if the extension were refused. The extension will not be granted oh a general statement of hardship, but in each case there must be furnished a statement of the specific facts showing what, if any, financial loss or sacrifice would result if no extension were granted. As a condition to the granting of such an extension the Commis- sioner may require that a penal bond be furnished in an amount not exceeding double the amount of the deficiency. Where a bond is to be furnished it must be filed with the collector within 10 days after notification by the Commissioner that such bond is required, and shall be conditioned upon the payment of the deficiency in accordance with the terms of the extension granted, including in- terest upon the deficiency, as presci'ibed by the statute (see Art. 85), until the deficiency is paid, and shall be executed by a surety or sureties and shall be subject to the approval of the Commissioner. In lieu of such surety or sureties the bond may be secured by deposit of Liberty bonds or other bonds or notes of the United States in a sum equal at their par value to the amount of such bond. No single extension for more than one year will be granted. Application for extension of time for payment should be filed with the collector. The collector will refer the application to the Commissioner with suitable recommendations. Where the executor desires to obtain an additional extension, the application therefor must be filed with the collector on or before the date of the expiration of the previous extension; otherwise the application must be denied. An extension of time to pay the deficiency will not operate to pre- vent the running of interest. (See Art. 85.) No extension of time 78 for paying a deficiency will be granted until after the assessment thereof and notice and demand for payment has been made by the collector. Consequently no application for extension of time for payment of a deficiency, or any part thereof, should be made prior to the receipt of such notice and demand. The granting of an extension of time for paying the deficiency is discretionary with the Commissioner, and such authority will be exercised under such conditions as he may deem advisable. INTEREST ON TAX Sec. 309. (a) (1) Where the amount determined by .the executor as the tax imposed by this title, or any part of such amount, is- not paid on the due date of the tax, there shall be collected as a part of the tax, interest upon such unpaid amount at the rate of 1 per centum a month from the due date until it is paid. (2) Where an extension of time for payment of the amount so determined as the tax by the executor has been granted, and the amount the time for payment of which has been extended, and the interest thereon determined under subdivision (c) of section 305, is not paid in full prior to the expiration of the period of the exten- sion, then, in lieu of the interest provided for in paragraph (1) of this subdivision, interest at the rate of 1 per centum a month shall be collected on such unpaid amount from the date of the expiration of the period of the extension until it is paid. * * * Sec. 305. * * * (b) Where the Commissioner finds that the payment on the due date of any part of the amount determined by the executor us the tax would Impose undue hardship upon the estate, the Commissionei- may extend the time for payment of any such part not to exceed five years from the due date. In such case tht^ amount in respect of which the extension is granted shall be paid on or before" the date of the expiration of the period of the extension. (c) If the time for the payment is thus extended there shall be collected, as a part of such amount, interest thereon at the rate of 6 per centum per annum from the expiration of six months after the due date of the tax to the expiration of the period of the extension. * * * * * * til * * * Sec. 308. * * * (h) Interest upon the amount determined as a deficiency shall be assessed at ttfe same time as the deficiency, shall be paid upon notice and demand from the collector, and shall be col- lected as a part of the tax, at the rate of 6 per centum per annum from the due date of the tax to the date the deficiency is assessed, or, in the case of a waiver under subdivision (d) of this section, to the thirtieth day after the filing of such waiver or to the date the deficiency is assessed whichever is the earlier. (i) * * * the Commissioner * * * may grant an extension for the payment of such deficiency or any part thereof for a period not in excess of two years. * " * In such ease there shall be collected, as a part of the tax, interest on the part of the deficiency the time for payment of which is so extended, at the rate of 6 per centum per annum for the period of the extension, and no other interest shall be collected on such part of the deficiency for such period. If the part 79 of the deficiency the time for payment of which is so extended is not paid in accordance with the terms of the extension, there shall be col- lected, as a part of the tax, interest on such unpaid amount at the rate of 1 per centum a month for the period from the time fixed by the terms of the extension for its payment until it is paid, and no other interest shall be collected on such unpaid amount for such period. (j) The 50' per centum addition to the tax provided by section 3176 of the Revised Statutes, as amended, shall, vehen assessed after the enactment of this Act in connection with an estate tax, be assessed, collected, and paid in the same manner as if it were a deficiency, except that the provisions of subdivision (h) of this section shall not be applicable. Sec. 309. * * * (b) Where a deficiency, or any interest assessed in connection therewith under subdivision (h) of section 308, or any addition to the tax provided for In section 3176 of the Revised Statutes, as amended, is not paid in full within 30 days from the date of notice and demand from the collector, there shall be collected as part of the tax, interest upon the unpaid amount at the rate of 1 per centum a month from the date of such notice and demand until it is paid. (c) If a bond is filed, as provided in section 312, the provisions of subdivision (b) of this section shall not apply to the amount covered by the bond. Sec. 312. * • • (f) When a jeopardy assessment has been made the executor, within 30 days after notice and demand from the collector for the payment of the amount of the assessment, may obtain a stay of collection of the whole or any part of the amount of the assessment by filing with the collector a bond in such amount, not exceeding double the amount as . to which the stay is desired, and with such sureties, as the collector deems necessary, conditioned upon the pay- ment of so much of the amount, (he collection of which is stayed by the bond, as is -not abated by a decision of the Board which has become final, together with interest thereon as provided in subdivision (j) of this section. (g) If the bond is given before the executor has filed his petition with the Board under subdivision (a) of section 308, the bond shall contain a further condition that if a petition is not filed within the period provided in such subdivision, then the amount the collection of which Is stayed by the bond will be paid on notice and demand at any time after the expiration of such period, together with interest thereon at the rate of 6 per centum per annum from the date of the jeopardy notice and demand to the date of notice and demand under this subdivision. • <= * (i) When the petition has been filed with the Board and when the amount which should have been assessed has been determined by a decision of the Board which has become final, then any unpaid por- tion, the collection of which has been stayed by the bond, shall be collected as part of the tax upon notice and demand from the col- lector, and any remaining portion of the assessment shall be abated. If the amount already collected exceeds the amount determined as the amount which should have been assessed, such excess shall be refunded. If the amount determined as the amount which should have been assessed is greater than the amount actually assessed, 80 then the difference shall be assessed and shall be collected as part of the tax upon notice and demand from the collector. (j) In the case of the amount collected under subdivision (i) there shall be collected at the same time as such- amount, and as a part of the tax, Interest at the rate of 6 per centum per annum upon such amount from the date of the jeopardy notice and demand to the date of notice and demand under subdivision (i) of this section, or, in the case of the amount collected in excess of the amount of the jeopardy assessment, interest as provided in subdivision (h) of section 308. If the amount included in the notice and demand from the collector under subdivision (i) of this section is not paid in full within 30 days after such notice and demand, then there shall be collected, as part of the tax, interest upon the unpaid amount at the rate of 1 per centum a month from the date of such notice and demand until it is paid. * * * Art. 84. Interest on tax disclosed on return. — Where any portion of the tax indicated by the return is not paid on or before the due date, and no extension of time for payment thereof has been granted, such unpaid portion bears interest at the rate of 1 per cent a month from the due date until payment is received by the collector. Where, however, an extension of time has been granted for paying any portion of the tax shown upon the return, the statute requires the imposition of interest upon the amount, the time for payment of which has been extended, at the rate of 6 per cent per annum from the expiration of six months after the due date of the tax (one year after the date of the decedent's death) to the expiration of the period of the extension. If the amount of tax, the time for payment of ^vhich has been extended, and the interest thereon from six months after the due date of the tax, are not paid in full prior to the expira- tion of the extension, or extensions, granted by the Commissioner, interest accrues upon the total unpaid amount (tax and interest), at the rate of 1 per cent a month from the date of the expiration of the extension, or extensions, until payment is received by the col- lector. (For an example of computation of interest at 1 per cent a month, see Art. 85.) In any case where an extension of time is granted for paying -the tax, interest will be added to the amount, the time for payment of which has been extended, from six months after the due date until the expiration of the period of extension, or extensions, even though payment may be made before the expiration thereof. Art. 85. Interest on deficiency tax. — The statute provides that the deficiency shall bear interest at the rate of 6 per cent per annum from the due date for payment of the tax (one year after date of decedent's death) to the date the deficiency is assessed, except in the case of a waiver of the restrictions against the assessment and collection of the deficiency, and that such interest shall be assessed .81 at the same time as the deficiency of. which it becomes an integral part. The deficiency in respect to which the restrictions against the assessment and collection are waived under section 308 (d) bears interest at the rate of 6 per cent per annum from the diie date of the tax to the 3Qth day after the filing of such waiver or to the date the deficiency is assessed whichever is the earlier. The term "defi- ciency " includes any tax resulting from the correction of a mathe- matical error appearing upon the face of a return. (See second para- graph of Art. 77.) Such portion of the deficiency assessed, except a deficiency with respect to which a jeopardy assessment is made and a petition to the Board is filed, as is not paid within 30 days from the date of notice and demand by the collector, bears interest at the rate of 1 per cent a month from the date of such notice and demand until payment is received by the collector unless, however, an extension for the payment thereof has been granted. Where an extension of time for paying the deficiency, or any portion thereof, has been granted the statute requires the imposition of interest upon the amount, the time for payment of which has been extended, at the rate of 6 per cent per annum for the period of the extension, and if not paid on or before the expiration of the extension or exten- sions interest accrues upon the total unpaid amount (tax, interest, or additions thereto) at the rate of 1 per cent a month from the date of the expiration of the extension until payment is received by the collector. In any case where an extension of time is granted for paying the deficiency, interest will be added to the amount, the time for pay- ment of which has been extended, for the period of the extension, or extensions, even though payment may be made before the expira- tion thereof. Example: A deficiency in the tax amounting to $500 was deter- mined and assessment thereof made on the 15th day of July; the due date of the tax being March 15 preceding. The amount of the assessment in this instance is $500, plus interest thereon at 6 per cent per annum from and including March 16 to and including July 15, amounting to $10.03, computed upon the basis of 365 days to the year (or 366 days in a leap year), or a total assessment of $510.03, which thereupon becomes the amount of the deficiency. The date of the notice and demand by the collector for payment was August 1 following the assessment. Within 30 days thereafter $255.02 was paid and request was made for an extension of time for paying the balance of the deficiency ($255.01), and an extension from August 1 to and including February 1 was granted for the payment thereof. This amount bears interest at 6 per cent per annum for the 82 period of the extension, amounting to $7.71. The remaining liability is, therefore, $262.72 (though paid in full prior to the expiration of the extension) . The amount of liability in this instance was not paid until August 1 following the expiration of the extension. Inasmuch as the $255.01, the time for payment of which was extended, was not paid until after the expiration of the extension, interest accrued thereon at the rate of 1 per cent a month for six months, amounting to $15.30. (The term " month " means calendar month ; i. e., a period terminating with the day of the succeeding month numerically cor- responding to the day preceding the beginning of the period. If there is no such corresponding day of the succeeding month, the last day of such succeeding month is the last day of the period. Where interest at the rate of 1 per cent a month is to be computed for a period of one or more months and a fraction of a month, it should be computed for the number of whole months, and then for the fraction of a month upon the basis of the number of days in the month which includes such fraction. Thus, for example, the elapsed period from February 14 to March 13, both dates included, is one month, and the period from February 14 to March 11, both dates included, is twenty-six twenty-eighths of a month, except that if the year be a leap year the period is twenty-seven twenty-ninths of a month.) The amount due on August 1 was, therefore, $278.02 $255.01 + 7.71 + 15.30). Any addition to the tax resulting from the imposition of an ad valorem penalty under the provisions of section 3176, Revised Stat- utes, is subject to the same provisions of law relating to the assess- ment, collection, and the accrual of interest, as the deficiency tax, except that such addition to the tax is not subject to any interest between the due date for payment of the tax (one year after date of decedent's death) and the date of the assessment thereof. Where a stay of the collection of a jeopardy assessment of a de- ficiency tax, or any addition to the tax resulting from the imposition of an ad valorem penalty, is obtained and a petition for a redetermi- nation of the deficiency is filed with the Board of Tax Appeals, inter- est accrues on such unpaid portion of the deficiency or penalty, if any, determined by a decision of the Board which is made final, at the rate of 6 per cent per annum from the date of the notice and demand from the collector following the jeopardy assessment to the date of the notice and demand by the collector subsequent to .the final action taken on the petition filed with the Board. If the amount which the Board determines should have been assessed is not paid in full within 30 days after such notice and demand subsequent to the decision of the Board which has become final, interest accrues upon the unpaid amount at the rate of 1 per cent 83 a month from the date of such notice and demand until it is paid. If the amount (exclusive of any ad valorem penalty) determined by the Board as the amount which should have been assessed is greater than the amount actually assessed the difference bears in- terest at the rate of 6 per cent per annum from the due date of the tax until assessment of such difference. Where the collection of the jeopardy assessment is stayed, and no petition is filed with the Board for a redetermination of the deficiency, interest accrues upon the deficiency so assessed at the rate of 6 per cent per annum from the date of the jeopardy notice and demand to the date of the notice and demand made by the collector after the expiration of the 60 days from the mailing by the Commissioner of the notice of the deficiency, and if not paid within 30 days after such second notice and demand by the collector interest accrues at the rate of 1 per cent a month from the date of such second notice and demand until paid. COLLECTION OF TAX Sec. 314. (a) If the tax herein imposed is not paid on or before the due date thereof the collector shall, upon instruction from the Commissioner, proceed to collect the tax under the provisions of gen- eral law, or commence appropriate proceedings in any court of the United States having jurisdiction, in the name of the United States, to subject the property of the decedent to be sold under the judg- ment or decree of the court. From, the proceeds of such sale the amount of the tax, together with the costs and expenses of every description to be allowed by the court, shall be first paid, and tlie balance shall be deposited according to the order of the court, to be paid under its direction to the person entitled thereto. This sub- division in so far as it applies to the collection of a deficiency shall be subject to the provisions of section 308. Akt. 86. Remedy not exclusive. — The remedy by action, here pro- vided, is not exclusive. For other available Remedies for the col- lection of the tax, see Article 105. REIMBURSEMENT Sec. 314. * * * (b) If the tax or any part thereof is paid by, or collected out of that part of the estate passing to or in the possession of, any person other than the executor in his capacity as such, such person shall be entitled to reimbursement out of any part of the estate still undistributed or by a just and equitable contribution by the persons whose interest in the estate of the decedent would have been reduced if the tax had been paid before the distribution of the estate or whose interest is subject to equal or prior liability for the pa\- ment of taxes, debts, or other charges against the estate, it being the purpose and intent of this title that so far as is practicable and unless otherwise directed by the will of the decedent the tax shall be paid out of the estate before its distribution. If any part of the gross 84 estate consists of proceeds of policies of insurance upon the life of the decedent receivable by a beneficiary other than the executor, the executor shall be entitled to recover from such beneficiary such por- tion of the total tax paid as the proceeds, in excess of $40,000, of such policies bear to the net estate. If there is more than one such bene- ficiary the executor shall be entitled to recover from such beneficiaries in the same ratio. Art. 87. Right to reimbursement not enforceable by Commissioner. — Where any portion of the tax is paid by or collected out of that part of the estate passing to, or in the possession of, any person other than the duly qualified executor or administrator, such person may be entitled to reimbursement, either out of the undistributed estate or by contribution from other beneficiaries whose shares or interests in the estate would have been reduced had the tax been paid before distribution of the estate, or whose shares or interests are sub- ject either to an equal or prior liability for the payment of taxes, debts, or other charges against the estate. The executor is entitled to require beneficiaries under insurance policies to bear their propor- tion of the tax. These provisions, however, are not designed to curtail the right of the Commissioner to collect the tax from any person, or out of any property, liable therefor. The Commissioner can not be required to apportion the tax among the persons liable, nor to enforce any right to reimbursement or contribution. LIEN Sec. 315 as amended by section 613 (b) of the Revenue Act of 1928. (a) Unless the tax is sooner paid in full, it shall be a lien for ten years upon the gross estate of the decedent, except that such part of the gross estate as is used for the payment of charges against the estate and expenses of its administration, allowed by any court having jurisdiction thereof, shall be divested of such lien. (b) If (1) the decedent makes a transfer, by trust or otherwise, of any property in contemplation of or intended to take effect in pos- session or enjoyment at or after his death (except in the case of a bona fide sale for an adequate and full consideration in money or money's worth) or (2) if insurance passes under a contract executed by the decedent in favor of a specific beneficiary, and if in either case the tax in respect thereto is not paid when due, then the transferee, trustee, or beneficiary shall be personally liable for such tax, and such property, to the extent of the decedent's interest therein at the time of such transfer, or to the extent of such beneficiary's interest under such contract of insurance, shall be subject to a like lien equal to the amount of such tax. Any part of such property sold by such trans- feree or 'trustee to a bona fide purchaser for an adequate and full consideration in money or money's worth shall be divested of the lien and a like lien shall then attach to all the property of such transferee or trustee, except any part sold to a bona fide purchaser for an adequate and full consideration in money or money's worth. 85 Sec. 313. * • * (b) If the executor makes written application to the Commissioner for determination of the amount of the tax and discharge from personal liability therefor, the Commissioner (as soon as possible, and in any event within one year after the making of such application, or, if the application is made before the return is filed, then within one year after the return is filed, but not after the expiration of the period prescribed for the assessment of the tax in section 310) shall notify the executor of the amount of the tax. The executor, upon payment of the amount of which he is notified, shall be discharged from personal liability for any deficiency in tax there- after found to be due and shall be entitled to a receipt or writing showing such discharge. (c) The provisions of subdivision (b) shall not operate as a release of any part of the gross estate from the lien for any deficiency that may thereafter be determined to be due, unless the title to such part of the gross estate has passed to a bona fide purchaser for value, in which case such part shall not be subject to- a lien or to any claim or demand for any such deficiency, but the lien shall attach to the con- sideration received from such purchaser by the heirs, legatees, devisees, or distributees. Revised Statutes, section 3186 as amended by section 613 (a), Rev- enue Act of 1928. * * * "(c) Subject to such regulations as the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, may prescribe, the collector of internal revenue charged with an assessment in respect of any tax — "(1) May issue a certificate of release of the lien if the collector finds that the liability for the amount assessed, together with all inter- est in respect thereof, has been satisfied or has become unenforceable. "(2) May issue a certificate of release of the lien if there is fur- nished to the collector and accepted by him a bond that is conditioned upon the payment of the amount assessed, together with all interest in respect thereof, within the time prescribed by law (including any extension of such time), and that is in accordance with such require- ments relating to terms, conditions, and form of the bond and sureties thereon, as may be specified in the regulations. "(3) May issue a certificate of partial discharge of any part of the property subjec-t to the lien if the collector finds that the fair market value of that part of such property remaining subject to the lien is at least double the amount of the liability remaining unsatisfied ■ in respect of such tax and the amount of all prior liens upon such property. "(d) A certificate of release or of partial discharge issued under this section shall be held conclusive that the lien upon the property covered by the certificate is extinguished. "(e) The Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, may by regulation provide for the accept- ance of a single bond complying both with the requirements of section 272 (j) of the Revenue Act of 1928 (relating to the extension of time for the payment of a deficiency), or of any similar provisions of any prior law, and the requirements of subsection (c) of this section." Art. 88. Property subject to lien. — This lien attaches to every part of the gross estate, whether or not the property comes into the pos- 86 session of the duly qualified executor or administrator. It attaches to the extent of the tax shown to be due by the return and of any deficiency tax found to be due upon review and audit. The lien upon the entire property constituting the gross estate continues for a period of 10 years after the decedent's death, except — (1) Where the tax is paid in full before the expiration of such period. (2) Such portion of the gross estate as is used for the payment of charges against the estate and expenses of its administration allowed by any court having jurisdiction thereof. (3) Such portion of the gross estate as has passed to a bona fide purchaser for value after payment of the full amount of tax deter- mined by the Commissioner pursuant to a request of the executor for discharge from personal liability, as authorized by section 313 (b) and (c) (see Art. 67), but there is substituted a like lien upon the consideration received from such purchaser by the heirs, legatees, devisees, or distributees. (4) Such property as was received from the decedent as a transfer by trust or otherwise in contemplation of or intended to take effect in possession or enjoyment at or after his death (except where the transfer was a bona fide sale for an adequate and full consideration in money or money's worth), and was sold by the transferee to a bona fide purchaser for such a consideration. In such case the lien attaches to all the property of the transferee except such thereof as may be sold to a bona fide purchaser for such a consideration. (5) Where the collector issues his certificate releasing such lien. (See Art. 89.) Art. 89. Eelease of lien. — The statute provides that subject to such regulations as the Commissioner of Internal Revenue, with the ap- proval of the Secretary of the Treasury, may prescribe, the Col- lector of Internal Revenue charged with an assessment in respect of any tax may issue a certificate of release of the lien after the collector finds that the liability for the amount assessed, together with all interest in respect thereof, has been satisfied or has become unenforce- able ; that the collector may issue a certificate of release of the lien if there is furnished to the collector and accepted by him a bond that is conditioned upon the payment of the amount assessed, together with all interest in respect thereof, within the time prescribed by law, including extensions granted, provided that the bond is in accordance with such requirements relating to the terms, conditions, and form of the bond and sureties thereon as may be specified in the regulations prescribed by the Commissioner ; and that the collector may issue a 87 certificate of partial discharge of any part of the property subject to the lien if the collector is satisfied that the fair market value of that part of such property remaining subject to the lien is at least double the amount of the tax liability remaining unsatisfied, together with the amount of all prior liens upon such property. The regulations provided for will be separately promulgated. PENALTIES Sec. 320. (a) Whoever knowingly makes any false statement in any notice or return required to be filed under this title shall be liable to a penalty of not exceeding $5,000, or imprisonment not exceeding one year, or both. (b) Whoever fails to comply with any duty imposed upon him by section 304, or, having in his possession or control any record, file, or paper, containing or supposed to contain any information concerning the estate of the decedent, or, having in his possession or control any property comprised in the gross estate of the decedent, fails to exhibit the same upon request to the Commissioner or any collector or law officer of the United States or his duly authorized deputy or agent, who desires to examine the same in the performance of his duties under this title, shall be liable to a penalty of not exceeding $500, to be recovered, with costs of suit, in a civil action in the name of the United States. Sec. 1114. (a) Any person required under this Act to pay any tax, or required by law or regulations made under authority thereof to make a return, keep any records, or supply any information, for the purposes of the computation, assessment, or collection of any tax imposed by this Act, who willfully fails to pay such tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other pen- alties provided by law, be guilty of a misdemeanor and, upon convic- tion thereof, be fined not more than $10,000, or imprisoned for not more than one year, or both, together with the costs of prosecution. (b) Any person required under this Act to collect, account for and pay over any tax imposed by this Act, who willfully fails to collect or truthfully account for and pay over such tax, Eind any person who willfully attempts in any manner to evade or defeat any tax imposed by this Act or the payment thereof, shall, in addition to other pen- alties provided by law, be guilty of a felony and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution. (c) Any person who, willfully aids or assists in, or procures, coun- sels, or advises, the preparation or presentation under, or in connec- tion with any matter arising under, the internal-revenue laws, of a false or fraudulent return, affidavit, claim, or document, shall (whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document) be guilty of a felony and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution. * » * 88 (e) Any person in jwssession of property, or rights to property, subject to distraint, upon which a levy has been made, shall, upon demand by the collector or deputy collector making such levy, sur- render such property or rights to such collector or deputy,, unless such property or right is, at the time of such demand, subject to an attachment or execution under any judicial process. Any person who fails or refuses to so surrender any of such property or rights shall be liable in his own person and estate to the United States in a sum equal to the value of the property or rights not so surrendered, but not exceeding the amount of the taxes (including penalties and interest) for the collection of which such levy has been made, to- gether with costs and interest from the date of such levy. (f ) The term " person " as used in this section includes an officer or employee of a corporation or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs. Seic. 1103. Section 3176 of the Revised Statutes, as amended, is amended to read as follows : " Sec. 3176 * * * In case of any failure to make and file a return or list vnthin the time prescribed by law, or prescribed by the Commissioner of Internal Revenue or the collector in pursuance of law, the Commissioner 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 reason- able cause and not to willful neglect, no such addition shall be made to the tax. In case a false or fraudulent return or list is willfully made, the Commissioner shall add to the tax 50 per centum of its amount. " The amount so added to any tax shall be collected at the same time and in the same manner and as a 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." Section 616, Revenue Act of 1928. Any x>erson who, in connection with any compromise under section 3229 of the Revised Statutes, as amended, or offer of such compromise, or in connection with any closing agreement under section 606 of this Act, or offer to enter into any such agreement, willfully (1) conceals from any officer or employee of the United States any property belonging to the estate of a taxpayer or other person liable. in respect of the tax, or (2) receives, destroys, mutilates, or falsifies any book, document, or record, or makes under oath any false statement, relating to the estate or financial condition of the taxpayer or other person liable in respect of the tax, shall, upon conviction thereof, be fined not more than ,$10,000 or imprisoned for not more than one year, or both. Art. 90. Nature of penalties. — Two kinds of penalties are provided for delinquency with respect to the duties imposed by the statute: (1) A specific penalty, to be recovered by suit, unless previously paid or adjusted by the acceptance of an offer in compromise; and (2) A penalty of a certain percentage of the tax, to be added to and collected in the same manner as the tax. In any case where more than one penalty is provided the Govern- ment may assert any one or more thereof. 89 Art. 91. Penalties for false or fraudulent notice or return. — Where any statement in the notice or return is knowingly false, the person making it is subject to a penalty not exceeding $5,000, or imprison- ment for not exceeding one year, or both, and for a false or fraudu- lent return, 50 per cent will be added to the amount of the tax. Any person required to file any notice or make a return who willfully fails to do so at the time required shall be guilty of a misdemeanor and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than one year, or both, together with the costs of prosecution. Any person who willfully aids or assists in th6 preparation or presentation of a false or fraudulent notice or return, or procures, counsels, or advises the preparation or presentation of such a notice or return, whether such falsity or fraud is with or without the knowledge or consent of the person required to make the notice or return, will be guilty of a felony and, upon conviction thereof, fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution. Art. 92. Penalty for failure to file notice or return. — For failure to file the notice or return within the time prescribed, the person in default is subject to a penalty not exceeding $600; and, for failure to file the return within the time prescribed, 25 per cent will be added to the amount of the tax, except that when a return is filed after such time and it is shown that the failure so to file was due to a reasonable cause and not to willful neglect no such addition will be made to the tax. The ad valorem penalty of 25 per cent of the tax will not be asserted where an extension of time for filing the return was granted by the collector pursuant to the provisions of Article 68, and the return is actually filed within the period of extension granted. Art. 93. Penalty for failure to pay tax, exhibit property, keep or exhibit records, etc., and for ccneealment of assets. — Any person in pos- session or control of any record, file, or paper, containing or supposed to contain information relating to the estate, or having in his posses- sion or control property comprised in the gross estate of the decedent, who fails to exhibit the same upon the request of the Commissioner or any collector or • law officer of the United States, or his duly authorized deputy or agent, in the performance of his duties, or having knowledge or information of any fact or facts of a material bearing upon the liability, or the extent of liability, of the estate to the tax, who fails to make disclosure thereof upon request of the Ck)mmissioner or any revenue agent or inspector designated by him for that purpose, is liable to a penalty not to exceed $500, to be 7653°— 29 7 90 recovered by civil action. Such a request must be granted whethei or not he believes that a compliance therewith is material. Any person required to pay the tax, keep any records, or supplj any information, for the purpose of the computation, assessment or collection of the tax, who willfully fails to pay such tax, keep such records, or supply such information, as required by the law or regulations, shall, in addition to other penalties, be guilty of a mis- demeanor and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than one year, or both, together with the costs of prosecution. Any person who willfully attempts in any manner to evade or defeat the tax or the payment thereof, shall, in addition to other penalties, be guilty of a felony and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution. Any person who in connection with any compromise entered into or offer made under the provisions of section 3229 of the Revised Statutes as amended, or, who in connection with any closing agree- ment under section 606 of the Revenue Act of 1928, or the offer to enter into any such agreement, willfully conceals from any officer- or employee of the United States any property belonging to the estate, or any person liable in respect of the tax, or receives, destroys, mutilates, or falsifies any book, document, or record, or makes under oath any false statement, relating to the estate or its value or the financial condition of any person liable in respect of the tax, shall, upon conviction thereof, be fined not more than $10,000, or im- prisoned for not more than one year, or both. Art. 94. Penalty for assisting, procuring, or advising the preparation or presentation of false or fraudulent documents. — Any person who willfully aids or assists in, or procures, counsels, or advises, the prep- a ration or presentation under, or in connection with any matter arising under, the internal revenue laws, of a false or fraudulent affidavit, claim, or document, shall, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such affidavit, claim, or document, be guilty of a felony, and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution. ABATEMENT AND STAY OF COLLECTION OF JEOPARDY ASSESSMENT Sec. 312. * * * (f) When a Jeopardy assessment has been made the executor, within 30 days after notice and demand from the col- lector for the payment of the amount of the assessment, may obtain a stay of collection of the whole or any part of the amount of the assessment by filing with the collector a bond in such amount, not 91 exceeding double the amount as to which the stay Is desired, and with such sureties, as the collector deems necessary, conditioned upon the payment of so much of the amount, the collection of which is stayed by the bond, as is not abated by a decision of the Board which has become final, together with interest thereon as provided in sub- division (j) of this section. (g) If the bond is given before the executor has filed his petition with the Board under subdivision (a) of section 308, the bond shall contain a further condition that if a petition is not filed within tlie period provided in such subdivision, then the amount the collection of which is stayed by the bond will be paid on notice and demand at any time after the expiration of such period, together with interest thereon at the rate of 6 per centum per annum from the date of the jeopardy notice and demand to the date of notice and demand under this subdivision. (h) Upon the filing of the bond the collection of so much of the amount assessed as is covered by the bond shall be stayed. The exec- utor shall have the right to waive such stay at any time in respect of the whole or any part of the amount covered by the bond, and if as a result of such waiver any part of the amount covered by the bond is paid, then the bond shall, at the request of the executor, be proportionately reduced. If the Board determines that the amount as- sessed is greater than the amount which should have been assessed, then when the decision of the Board is rendered the bond shall, at the request of the executor, be proportionately reduced. (i) When the petition has been filed with the Board and when the amount which should have been assessed has been determined by a decision of the Board which has become final, then any unpaid por- tion, the collection of which has been stayed by the bond, shall be col- lected as part of the tax upon notice and demand from the collector, and any remaining portion of the assessment shall be abated. If the amount already collected exceeds the amount determined as the amount which should have been assessed, such excess shall be re- funded. If the amount determined as the amount which should have been assessed is greater than the amount actually assessed, then the 'difference shall be assessed and shall be collected as part of the tax upon notice and demand from the collector. * * * (k) No claim in abatement shall be filed in respect of any assess- ment made after the enactment of this Act in respect of any estate or gift tax. Art. 95. Claim for abatement. — No claim for abatement may be filed in respect of any assessment made after the effective date of the Revenue Act of 1926. The amount of any assessment directed to be abated by the statute as the result of a decision of the Board of Tax Appeals which has become final and all overassessments deter- mined as a result of audit or examination of returns will be abated by the Commissioner without action on the part of the executor. Art. 96. Collection of jeopardy assessment stayed by filing bond. — Where a jeopardy assessment has been made, the executor, within 80 days after notice and demand from the collector for payment of 92 the amount of the jeopardy assessment may obtain a stay of collec- tion of the whole, or any part, of the amount of such assessment by filing with the collector a bond in such amount not exceeding double the amount as to which the stay is desired, and with such sureties as the collector deems necessary, conditioned upon the payment of so much of the amount, the collection of which is stayed by the bond, as is not abated as a result of a decision of the Board which has become final, together with the interest thereon, as provided in the statute. (See Art. 85.) In lieu of such sureties there may be depos- ited Liberty Bonds or other bonds and notes of the United States in a sum equal at their par value to the amount of such bond. The petition with the Board of Tax Appeals for redetermination of the deficiency in respect to which the jeopardy assessment was made must be filed within 60 days (not counting Sunday as the sixtieth day) after the mailing by the Commissioner of the notice of the final determination of the deficiency. (See Art. 76.) If the bond is given before the petition is filed with the Board, the bond shall contain a further condition that if a petition is not filed within the 60 days, then the amount, the collection of which is stayed by the bond, shall be paid on notice and demand at any time after the expiration of such 60-day period, together with interest thereon at the rate of 6 per cent per annum from the date of the jeopardy notice and demand made by the collector to the date of notice and demand made after the expiration of the 60-day period. Art. 97. Accrual of interest as affected by the stay of the collection of a jeopardy assessment. — For rules relating to the accrual of interest where the collection of a jeopardy assessment is stayed by the filing of a bond, see Article 85. Akt. 98. limitation of time to file bond to stay collection of jeopardy assessment. — If it is desired to stay the collection of the whole, or any part, of the amount in respect to which a jeopardy assessment has been made, the bond referred to in Article 96 must be filed with the collector within 30 days after notice and demand by the collector for the payment of the amount of the jeopardy assessment. REFUNDS Sec. 319. (a) If the Commissioner has mailed to the executor a notice of deficiency under subdivision (a) of section 308 and if the executor after the enactment of this Act files a petition with the Board of Tax Appeals within the time prescribed in such subdivision, no refund in respect of the tax shall be allowed or made and no suit for the recoverey of any part of such tax shall be instituted in any court, except — (1) As provided in subdivision (c) of this section or in subdivi- sion (i) of section 312 or in subdivision (b), (e), or (g) of section 318 or in subdivision (d) of section 1001; and 93 (2) As to any amount collected in excess of an amount computed in accordance with the decision of the Board which has become final; and (3) As to any amount collected after the statutory period of limi- tations upon the beginning of distraint or a proceeding in court for collection has expired ; but in any such claim for refund or in any such suit for refund the decision of the Board which has become final, as to whether such period had expired before the notice of deficiency was mailed, shall be conclusive. (b) All claims for the refunding of the tax imposed by this title alleged to have been erroneously or illegally assessed or collected must be presented to the Commissioner within three years next after the payment of such tax. (c) If the Board finds that there is no deficiency and further finds that the executor has made an overpayment of tax, the Board shall have jurisdiction to determine the amount of such overpay- ment, and such amount shall, when the decision of the Board has become final, be credited or refunded to the executor as provided in section 3220 of the Revised Statutes, as amended. Such refund shall be made either (1) if claim therefor was filed within the period of limitation provided for by law, or (2) if the petition was filed with the Board within four years after the tax was paid, or, in the case of a tax imposed by this title, within three years after the tax was paid. ******* Sec. 325. Any tax that has been paid under the provisions of Title III of the Revenue Act of 1924 prior to the enactment of this Act in excess of the tax imposed by such title as amended by this Act shall be refunded without interest. Sec. 1106. * * * (b) If after a determination and assessment in any case the tax- payer has paid in whole any tax or penalty, or accepted any abate- ment, credit, or 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 Secretary, that such deter- mination and assessment shall be final and conclusive, then (except upon a showing of fraud or malfeasance or misrepresentation of fact materially affecting the determination or assessment thus made) (1) the case shall not be reopened or the determiif&tion and assessment modified by any oflScer, employee, or agent of the United States, and (2) no suit, action, or proceeding to annul, modify, or set aside such determination or assessment shall be entertained by any court of the United States. Section 606, Revenue Act, 1928. (a) Authorization. — The Commis- sioner (or any oflicer or employee of the Bureau of Internal Revenue, including the field service, authorized in writing by the Commissioner) is authorized to enter into an agreement in writing with any person relating to the liability of such person (or of the person or estate for whom he acts) in respect of any internal-revenue tax for any taxable period ending prior to the date of the agreement. (b) Finality of agreements. — If such agreement is approved by the Secretary, or the Undersecretary, within such time as may be stated in such agreement, or later agreed to, such agreement shall be final and 94 conclusive, and except upon a showing of fraud or malfeasance or misrepiesentation of a material fact — (1) the case shall not be reopened as to the matters agreed upon or the agreement modified, by any officer, employee, or agent of the United States, and (2) in any suit, action, or proceeding, such agreement, or any deter- mination, assessment, collection, payment, abatement, refund, or credit made in accordance therewith, shall not be annulled, modified, set aside, or disregarded. (c) Section 1106(b) of the Revenue Act of 1926 is repealed, effective on the expiration of 30 days after the enactment of this Act, but such repeal shall not affect any agreement made before such repeal takes effect. Revised Statutes, section 3220 as amended by section 3, Act of May 29, 1928 [Public No. 611-70th Gong.]. The Commissioner of Internal Revenue, subject to regulations prescribed by the Secretary of the Treas- ury, is authorized to remit, refund, and pay back all taxes erroneously or illegally assessed or collected, all penalties collected without author- ity, and all taxes that appear to be unjustly assessed or excessive in amount, or in any manner wrongfully collected; also to repay to any collector or deputy collector the full amount of such sums of money as may be recovered against him in any court, for any internal-revenue taxes collected by him, with the cost and expense of suit ; also all dam- ages and cost recovered against any assessor, assistant assessor, col- lector, deputy collector, agent, or inspector, in any suit brought against him by reason of anything done in the due performance of his ofiScial duty, and shall make report to Congress, by internal-revenue districts and alphabetically arruuged, of all refunds in excess of $500, at the beginning of each regular session of Congress of all transactions under this section. Revised Statutes, section 3228 as amended by section 619 (c), Revenue Act, 1928. (a) All claims for the refunding or crediting of any internal-revenue 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 collected must, except as otherwise provided by law in the case of income, war-profits, excess-profits, estate, and gift taxes, be presented to the Commissioner of Internal Revenue within four years ne\t after the payment of such tax, penalty, or sum. (b) Except as provided in section 284 of the Revenue Act of 1926, claims for credit or refund (other than claims in respect of taxes imposed by the Revenue Act of 1916, the Revenue Act of 1917, or the Revenue Act of 1918) which at the time of the enactment of the Revenue Act of 1921 were barred from allowance by the period of limitation then in existence, shall not be allowed. Section 607, Revenue Act, 1928, Any tax (or any interest, penalty, additional amount, or addition to such tax) asisessed or paid (whether before or after the enactment of this Act) after the expiration of the period of limitation properly applicable thereto shall be considered an overpayment and shall be credited or refunded to the taxpayer if claim therefor is filed within the period of limitation for filing such claim. 95 Section 608, Revenue Act, 1928. A refund of any portion of an inter- nal-revenue tax (or any Interest, penalty, additional amount, or addition to such tax) made after the enactment of this Act, shall be considered erroneous — (a) if made after the expiration of the period of limitation for filing claim therefor, unless within such period claim was filed ; or (b) in the ease of a claim filed within the proper time and disallowed by the Commissioner after the enactment of this Act, if the refund was made after the expiration of the period of limitation for filing suit, unless — (1) within such period suit was begun by the taxpayer, or (2) within such period, the taxpayer and the Commissioner agreed In writing to suspend the running of the statute of limita- tions for filing suit from the date of the agreement to the date of final decision in one or more named cases then pending before the United States Board of Tax Appeals or the courts. Section 610, Revenue Act, 1928. (a) Any portion of an internal-reve- nue tax (or any interest, penalty, additional amount, or addition to such tax) refund of which is erroneously made, within the meaning of section 608, after the enactment of this Act, may be recovered by suit brought in the name of the United States, but only if such suit is begun within two years after the making of such refund. (b) Any portion of an internal-revenue tax (or any interest, penalty, additional amount, or addition to such tax) which has been erroneously refunded (if such refuhd would not be considered as erroneous under sec. 608) may be recovered by suit brought in the name of the United States, but only if such suit is begun before the expiration of two years after the making of such refund or before May 1, 1928, whichever date is later. Section 611, Revenue Act, 1928. If any internal-revenue tax (or any interest, penalty, additional amount, or addition to such tax) was, within the period of limitation properly applicable thereto, assessed prior to June 2, 1924, and if a claim in abatement was filed, with or without bond, and if the collection of any part thereof was stayed, then the payment of such part (made before or within one year after the enactment of this Act) shall Jiot be considered as an overpayment under the provisions of section 607, relating to payments made after the expiration of the period of limitation on assessment and collection. Section 612, Revenue Act, 1928. Section 1106 (a) of the Revenue Act of 1926 is repealed as of February 26, 1926. Akt. 99. Claim for refund. — A claim for refund of estate tax, or for refund of interest or penalties, erroneously or illegally collected should be made on the form prescribed by the Treasury Department (Form 843), and should be filed with the collector of internal revenue, although a claim will not be considered defective solely by reason of the fact that it is not made on the form or that it is filed with the Commissioner of Internal Revenue. The claim must set forth in detail and under oath each ground upon which a refund is claimed, and facts sufficient to apprise the Commissioner of the exact basis thereof. Any claim which does not comply with the requirements 96 of the preceding sentence will not be considered for any purpose as a claim for refund. Claims for refund of estate tax imposed by the Revenue Act of 1926 must be filed within three years next after the payment of the amount sought to be refunded, except that a claim may thereafter be filed in any case for the refund of an overpayment computed in accordance with a decision of the Board of Tax Appeals which has become final provided the petition for redetermination of the deficiency was filed with the Board within three years next after payment, of the tax. Where, however, the tax was imposed by the Estate Tax Title of any Revenue Act prior to the Revenue Act of 1926 the period within which the claim must be filed is four years, except that a claim may thereafter be filed for a refund of an overpayment determined by the Board as a result of a petition filed with the Board after the enactment of the Revenue Act of 1926 and within four years from date of payment. Any tax imposed by Title III of the Revenue Act of 1924 which was paid prior to the enactment of the Revenue Act of 1926 in excess of the amount of tax imposed by the Rev- enue Act of 1924 as amended by the Revenue Act of 1926 is not deemed to have been erroneously or illegally collected and hence a claim for the refund of such excess is not subject to the four-year limitation set out in the next preceding sentence. Furthermore, the four-year limitation of time within which claims for refund must be filed does not apply in a case where a refund is sought under the provisions of the last paragraph of sections 401 and 403 of the Revenue Act of 1921. The amount of the refund shall not exceed' the portion of the tax paid during the three or four year period, as the case may be, im- mediately preceding the filing of the claim, or the filing of the petition with the Board of Tax Appeals. The collector will there- after present the claim to the Commissioner for consideration. Upon receipt, by the Commissioner, of any claim for refund, other than a claim for refund of an overpayment determined in accordance with a decision of the Board of Tax Appeals which has become final, the return of the estate will be reaudited and only the excess payment determined by the Commissioner as a result of considera- tion of the claim and reaudit will be refunded. If the reaudit re- veals that the tax has been underpaid, the amount of such under- payment will be collected unless the collection thereof is barred. Except a claim for refund of an overpayment computed in accord- ance with a decision of the Board of Tax Appeals which has become final, the burden of proof rests upon the claimant and all facts relied upon in support of the claim must be clearly set forth under oath. Every affidavit, argument, brief, or statement of facts, pre- pared or filed by an attorney or agent as argument or evidence in the matter of a protest, must have therein a statement signed by such 97 attorney or agent showing whether or not he prepared such docu- ment and whether or not the attorney or agent knows of his own knowledge that the facts contained therein are true. Where there is a hearing, should the executor not appear in person, his repre- sentative who appears must present a properly executed power of attorney and be enrolled to practice before the Treasury Depart- ment. (See Art. 74.) With all claims there should be submitted : (1) Where the claim is made by an executor or administrator, a certificate of the court must be furnished showing that the appoint- ment remains in full force and effect. (2) Where the executor or administrator has been discharged and no administrator de bonis non has been appointed and qualified, there should be submitted, in lieu of the certificate above mentioned, (a) a certified copy of the court order granting the discharge, and (b) a certified copy of the order of distribution, or, if such order does not fully disclose the identity of the person or persons entitled to receive any amount that may be refunded and the percentage or proportion thereof to which each, if more than one, is entitled, there should be submitted a certified copy of the decedent's will, if any, and such further proof as may be requisite to establish both the identity of such person or persons and the percentage or proportion of the amount sought to be refunded to which each, where there are more than one, is entitled. (3) Where a claim is filed after the administration of the estate lias been closed, and is signed by one only, or by less than all, of a number of beneficiaries entitled to share in the refund, or is signed by a person acting as attorney or agent for the interested parties, there must accompany the claim, in addition to the proof required in paragraph (2) above, a power of attorney, duly executed by all beneficiaries entitled to any portion of the repayment, authorizing the claimant or claimants to present the matter before the Bureau. If upon audit of the return filed by the executor the Commissioner determines that an overassessment has been made on account of the tax, a certificate of overassessment will be prepared and issued except in cases where such issuance is barred by the statute of limitations, or otherwise, even though claim for refund of such excess payment has not been filed. The certificate of overassessment when issued will be addressed to the executor and the executor will be required to file the documentary evidence, as set out above, identifying the person or persons entitled to receive the refund. A refund is erroneous if made after the enactment of the Revenue Act of 1928, when made after the expiration of the period of limita- tion for filing claim therefor, unless within such period claim was filed. In the case where a claim was filed within the proper time and such claim was disallowed by the Commissioner after the enact- ment of the Revenue Act of 1928, and the period of limitation for filing suit by the executor had expired prior to the making of the refund, a refund based upon such claim is erroneous unless suit was begun by the executor within the period of limitation for filing suit, or unless within such period the executor and the Commissioner agreed in writing to suspend the running of the statute of limitations for filing suit from the date of the agreement to the date of final de- cision of one or more named cases then pending before the Board of Tax Appeals or the courts. Erroneous refunds, as above described, may be recovered by suit brought in the name of the United States within two years after the making of such refunds. An erroneous refund if not considered as erroneous under Section 608 (see page 95) may be recovered in the same manner if the suit is begun within two years after the making of such refund or before May 1, 1928, whichever date is later. A claim for the payment of a judgment rendered against a Col- lector of Internal Revenue representing Federal estate tax, penalties, or other siuns collected in connection therewith should be made on Form 843 and filed with the Commissioner of Internal Revenue, Washington, D. C. The claimant should state the names of all par- ties to the action, the date of its commencement, the date of the judgment, the court in which it was recovered, its amount, and the fact that the action related to Federal estate tax or interest or penalties in connection therewith. To the claim there should be annexed two certified copies of the final judgment, a certificate of probable cause (see Section 989 of the Revised Statutes) and, if refund is claimed, an itemized bill of the costs paid receipted by the clerk or other proper officer of the court. A claim for the payment of a judgment rendered against the United States representing Federal estate tax, penalties, or other sums collected in connection therewith should be made on Form 843 in the manner prescribed in the preceding paragraph, except that — (a) a certificate of probable cause is not required, (b) the claims shall be executed in duplicate, and (c) in the case of a judgment rendered by the Court of Claims there may be submitted, in place of a certified copy of the final judg- ment, a certificate of the judgment issued by the Clerk of the Court and two copies of the court's opinion, if any was rendered. INTEREST ON REFUNDS Section 614, Revenue Act of 1928. (a) Interest shall be allowed and paid upon any overpayment in respect of any internal-revenue tax, at the rate of 6 per cent per annum, as follows : 99 (2) In the case of a refund, from the date of the overpayment to a date preceding the date of the refund check by not more than 30 days, such date to be determined by the Commissioner. ******* (c) Section 1116 of the Revenue Act of 1926 is repealed. (d) Subsections (a), (b), and (c) shall take effect on the expiration of 30 days after the enactment of this Act, and shall be applicable to any credit taken or refund paid after the expiration of such period, even though allowed prior thereto. Abt. 100. Payment of claims and interest. — Under the law warrants in payment of claims allowed can only be drawn payable to the per- son or persons entitled to the proceeds, and consequently can not be drawn payable to attorneys or agents. If the claimants are indebted to the United States for taxes, such taxes must be paid before the warrants are delivered. (Act of March 3, 1875 (18 Stats. 481).) Upon the allowance of a claim for refund of any tax or penalty paid the statute provides for the payment of interest upon the total amount of such refund at the rate of 6 per cent per annum from the date such tax or penalty was paid to a date preceding the date of the refund check by not more than 30 days, such date to be determined by the Commissioner. POWER TO COMPROMISE OR REMIT PENALTIES Revised Statutes, Sec. 3229 (Comp. Sts., 1916, Sec. 5952). The Com- missioner 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 com- promise is made in any case there shall be placed on file in the office of the Commissioner the opinion of the Solicitor of Internal Revenue, or of the oflScer acting as such, with his reasons therefor, with a state- ment of the amount of tax assessed, the amount of additional tax or penalty Imposed by law in consequence of the neglect or delinquency of the person against whom the tax is assessed, and the amount actu- ally paid in accordance with the terms of the compromise. Art. 101. Power to compromise or remit. — The Commissioner, with the advice and consent of the Secretary of the Treasury, may com- promise any civil or criminal case arising under the internal- revenue laws instead of commencing suit thereon, and with the advice and consent of the Secretary, and upon the recommendation of the At- torney General, may compromise any such case after suit thereon has been commenced by the United States. Accordingly, the power to compromise extends to (a) both civil and criminal cases; (h) cases whether before or after suit; and (c) both taxes and penalties, except that taxes legally due from a solvent taxpayer may not be com- 100 promised. Refunds can not be made of accepted offers in compro- mise in cases where it is subsequently ascertained that no violation of law was involved. PERSONAL LIABILITY OF EXECUTOR Revised Statutes, Sec. 3467 (Comp. Sts., 1916, Sec. 6373). Every executor, administrator, or assignee, or other person, who pays any debts due by the person or estate from [for] whom or for which he acts before he satisfies and pays the debts due to the United States from such person or estate, shall become answerable in his own person and estate for the debts so due to the United States, or for so much thereof as may remain due and unpaid. Art. 102. Extent of liability. — The executor is personally liable for the payment of the tax if he pays any debts due by the decedent, or his estate, before he pays the tax. Where no executor or adminis- trator has been appointed, every person in actual or constructive pos- session of any property of the decedent is liable for the tax as an executor. EXAMINATION OF RECORDS AND TAKING OF TESTIMONY Sec. 1104 as amended by Sec. 618, Kevenue Act 1928, The Commis- sioner, for the purpose of ascertaining the correctness of any return or for the purpose of making a return where none has been made, is hereby authorized, by any officer or employee of the Bureau of Internal Revenue, including the field service, designated by him for that pur- pose, 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 reference to the matter required by law to be included in such return, with power to administer oaths to such person or persons. Sec. 1122. (a) If any person is summoned under this Act to appear, to testify, or to produce books, papers, or other data, the dis- trict court of the United States for the district in which such person resides shall have jurisdiction by appropriate process to compel such attendance, testimony, or production of books, papers, or other data. (b) The district courts of the United States at the instance of the United States are hereby invested 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 republlca, orders appointing receivers, and such other orders and process, and to render such judgments and decrees, 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 addi- tion to and not exclusive of any and all other remedies of the United States in such courts or otherwise to enforce such provisions. (c) The paragraph added by section 1310 of the Revenue Act of 1921 at the end of paragraph Twentieth of section 24 of the Judicial 101 Code, relating to the jurisdiction of districts courts, as amended. Is reenacted without change, as follows : " Concurrent with the Court of Claims, of any suit or proceeding, commenced after the passage of the Revenue Act of 1921, for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority or any sum alleged to have been excessive or in any manner wrongfully collected, under the Internal- revenue laws, even if the claim exceeds $10,000, if the collector of internal revenue by whom such tax, penalty, or sum was collected is dead or is not in office as collector of internal revenue at the time such suit or proceeding is commenced." Art. 103. Securing evidence — Taking testimony. — In order to ascer- tain the correctness of a return, or to make a return where none has been made, the Commissioner has power to require the attend- ance, and to take the testimony, of the person rendering the return, or any officer or employee of such person, or any other person having knowledge in the premises. Such persons may be required to pro- duce any relevant book, paper, or other record. This power may be exercised by any revenue agent or inspector designated for the purpose. (For penalties, see Art. 93.) Abt. 104. Power to compel compliance. — Where any person is sum- moned to appear and testify, or to produce books, papers, or other data, the District Court of the United States for the district in which such person resides has power to compel the giving of the testimony, the production of the books, papers, or data, and to issue any appropriate process, writ, or order. REMEDIES FOR COLLECTION Seo. 1100. All administrative, special, or stamp provisions of law, including the law relating to the assessment of taxes, so far as appli- cable, are hereby extended to and made a part of this Act. Sec. 311. * * * (b) Where the assessment of any tax imposed by this title or of any estate or gift tax imposed by prior Act of Con- gress has been made (whether before or after the enactment of this Act) within the statutory period of limitation properly applicable thereto, such tax may be collected by distraint or by a proceeding in court (begun before or after the enactment of this Act), but only if begun (1) within six years after the assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the Commissioner and the executor. Seo. 316. (a) The amounts of the following liabilities shall, ex- cept as hereinafter in this section provided, be assessed, collected, and paid in the same manner and subject to the same provisions and limitations as in the case of a deficiency in a tax imposed by this title (including the provisions in case of delinquency in payment after notice and demand, the provisions authorizing distraint and proceedings in court for collection, and the provisions prohibiting claims and suits for refunds) : 102 (1) The liability, at law or in equity, of a transferee of property of a decedent or donor, in respect of tlie tax (including interest, additional amounts, and additions to the tax provided by law) im- posed by this title or by any prior estate tax Act or by any gift tax Act. (2) The liability of a fiduciary under section 3467 of the Revised Statutes in respect of tlie payment of any such tax from the estate of the decedent or donor. Any such liability may be either as to the amount of tax shown on the return or as to any deficiency in tax. (b) The period of limitation for assessment of any such liability of a transferee or fiduciary shall be as follows : (1) Within one year after the expiration of the period of limita- tion for assessment against the executor or donor ; or (2) If the period of limitation for assessment against the executor expired before the enactment of this Act but assessment against the executor was made within such period, — ^then within six years after the making of such assessment against the executor, but in no case later than one year after the enactment of this Act. (3) If a court proceeding against the executor or donor for the collection of the tax has been begun within either of the above periods, — then within one year after return of execution in such pro- ceeding. (c) The running of the period of limitation upon the assessment of the liability of a transferee or fiduciary shall, after the mailing of the notice under subdivision (a) of section 308 to the tranferee or fiduciary, be suspended for the period during which the Commis- sioner is prohibited from making the assessment in respect of the liability of the transferee or flduc iary, and for 60 days thereafter. (d) This section shall not apply to any suit or other proceeding for the enforcement of the liability of a transferee or fiduciary pend- ing at the time of the enactment of this Act. (e) As used in this section the term "transferee" includes heir, legatee, devisee, and distributee. Section 403, Revenue Act of 1928. (a) Section 316 (c) of the Reve- nue Act of 1926 is amended to read as follows : "(c) The running of the statute of limitations upon the assessment of the liability of a transferee or fiduciary shall, after the mailing of the notice under subdivision (a) of section 308 to the transferee or fiduciary, be suspended for the period during which the Commissioner is prohibited from making the assessment in respect of the liability of the transferee or fiduciary (and in any event, if a proceeding in respect of the liability is placed on the docket of the Board, until the decision of the Board becomes final), and for 60 days thereafter." (b) Subsection (a) of this section shall apply in all eases where the period of limitation has not expired prior to the enactment of this Act. Section 604, Revenue Act, 1928. No suit shall be maintained in any court for the purpose of restraining the assessment or collection of (1) the amount of the liability, at law or in equity, of a transferee of property of a taxi>ayer in i-espect of any income, war-profits, excess- profits, or estate tax, or (2) the amount of the liability of a fiduciary under section 3467 of the Revised Statutes In respect of any such tax. 103 Abt. 105. Remedies for collection of tax and claims against transferred assets. — Three remedies are provided for the collection of the tax : (1) Collection hy distramt. — The collector may issue warrant of distraint authorizing the seizure and sale of any or all of the assets of the estate. (See R. S. sees. 3187 et seq., as amended by sec. 1016 of the Revenue Act of 1924.) (2) Collection hy suit to subject the jyroferty to sale. — The col- lector may commence in any court of the United States appropriate proceedings, in the name of the United States, to subject the property of the decedent to sale under the judgment or decree of the court. (3) Collection by suit for personal liabiUty. — The personal lia- bility of the executor, of the transferee or trustee of property trans- ferred in contemplation of or intended to take effect in possession or enjoyment at or after decedent's death, and of the beneficiary of life insurance, may be enforced by any appropriate action. (4) Claims against transferred, assets. — The amount for which a transferee of the property of a decedent is liable, at law or in equity, and the amount of the personal liability of a fiduciary under sectioij 3467 of the Revised Statutes, in respect of any estate tax imposed by Title III of the Revenue Act of 1926, or by prior acts, whether shown on the return of the executor or determined as a deficiency in the tax, shall be assessed against such transferee or such fiduciary, as the case may be, and collected and paid, in the same manner and subject to the same provisions and limitations as in the case of a deficiency imposed by Title III of the Revenue Act of 1926, except as hereinafter provided. The provisions relating to the payment of the tax and interest, the authorization of distraint and proceedings in court for collection, the prohibition of claims for abatement and claims and suits for refund, the filing of a petition with the Board of Tax Appeals, and the filing of a petition for review of the Board's -decision, are included in various sections and articles relating to defi- ciencies in tax imposed by Title III. The term " transferee " as used in this article includes an heir, legatee, devisee, and distributee of an estate of a deceased person. The period of limitation for assessment of the liability of a trans- feree or of a fiduciary, referred to in the first paragraph of this article, is as follows : (a) Within one year after the expiration of the period of limita- tion for assessment against the taxpayer. (See sees. 308, 310, 311, 312, 318, and 1109, and Art. 77.) (b) If the period of limitation for assessment against the executor expired before the enactment of the Revenue Act of 1926 but assess- ment against the executor was made within such period, then within six years after the making of such assessment against the executor, 104 but in no case later than one year after the enactment of the Revenue Act of 1926. (c) If a court proceeding against the executor for the collection of the tax has been begun within the period of limitation for the bringing of such proceeding, then within one year after the return of execution in such proceeding. If a notice of the liability of a transferee, or the liability of a fidu- ciary, has been mailed to such transferee or to such fiduciary under the provisions of section 308 (a) (see Art. 76), then the running of the statute of limitations shall be suspended for a period in which the Commissioner is prohibited from making the assessment (and in' any event, if a proceeding in respect of the liability is placed on the docket of the Board, until the decision of the Board becomes final), and for 60 days thereafter. The provisions of section 316 do not apply in any suit or proceed- ing for the enforcement of the liability of a transferee, or a fiduciary under section 3467 of the Revised Statutes, which was pending at the time of the enactment of the Revenue Act of 1926. RECORDS, STATEMENTS, AND SPECIAL RETURNS Sec. 1102 (a) Every person liable to any tax imposed by this Act, or for the collection thereof, shall keep such records, render under oath such statements, make such returns, and comply with such rules and regulations, as the Commissioner, with the approval of the Secre- tary, may from time to time prescribe. (b) Whenever in the judgment of the Commissioner necessary he may require any pei'son, by notice served upon him, to make a return, render under oath such statements, or keep such records as the Com- missioner deems sufficient to show whether or not such person is liable to tax. «• * » (d) Any oath or affirmation required by the provisions of this Act or regulations made under authority thereof may be administered by any officer authorized to administer oaths for general purposes by the law of the United States or of any State, Territory, or possession of the United States, wherein such oath or affirmation is administered, or by any consular officer of the United States. Art. 106. Executor's duty to keep records. — It is the duty of the executor to keep such records as the Commissioner may require. Executors are required to keep such complete and detailed records of the affairs of the estate as will enable the Commissioner to deter- mine accuratelj' the amount of the tax liability. Art. 107. Executor's duty to render statements. — It is the duty of the executor not only to make the formal return, but also to render any other sworn statement whiclf the Commissioner may require for the purpose of determining whether a tax liability exists and, if so, the extent thereof. 105 ESTATES ADMINISTERED IN THE UNITED STATES COURT FOR CHINA Seo. 321. (a) The term "resident" as used in this title includes a citizen of the United States with respect to whose property any probate or administration proceedings are had in the United States Court for China. Where no part of the gross estate of such decedent is situated in the United States at the time of his death, the total amount of tax due under this title shall be paid to or collected by the clerk of such court, but where any part of the gross estate of such decedent is situated in the United States at the time of his death, the tax due under this title shall be paid to or collected by the collector of the ^ district in which is situated the part of the gross estate in the United States, or, if such part is situated in more than one district, then the collector of such district as may be designated by the Commissioner, (b) For the purpose of this section the clerk of the United States Court for China shall be a collector for the territorial .jurisdiction of such coui-t, and taxes shall be collected by and paid to him in the same manner and subject to the same provisions of law, including penalties, as the taxes collected by and paid to a collector in the United States. NOTICE OF PERSONS ACTING AS FIDUCIARY Sec. 317. (a) Upon notice to the Commissioner that any person is acting as executor, such person shall assume the powers, rights, duties, and privileges of an executor in respect of a tax imposed by this title or by any prior estate tax Act, until notice is given that such person is no longer acting as executor. (b) Upon notice to the Commissioner that any person is acting in a fiduciary capacity for a person subject to the liability specified in sec- tion 316, the fiduciary shall assume on behalf of such person the powers, rights, duties, and privileges of such person under such section (except that the liability shall be collected from the estate of such person), until notice is given that the fiduciary capacity has terminated. (c) Notice under subdivision (a) or (b) shall be given in accordance with regulations prescribed by the Commissioner with the approval of the Secretary. (d) In the absence of any notice to the Commissioner under sub- division (a) or (b), notice under this title of a deficiency or other liability, if addressed in the name of the decedent or other person sub- ject to liability and mailed to his last known address, shall be sufficient for the purposes of this title. Art. 108. Notice ofipersons acting as Muciary. — The "notice to the Commissioner " provided for in section 317 shall be in writing signed by the fiduciary and filed with the Commissioner, setting forth the name and address of the person for whom he is acting in a fiduciary capacity and also the nature of the liability of such person, accompanied by satisfactory evidence of his authority to act for such person in the fiduciary capacity. If the fiduciary capac- ity exists by order of court, a certified copy of the order of the court may be regarded as such satisfactory evidence. The written notice 7653°— 29 8 106 to the Commissioner need not be accompanied by evidence of the authority of the fiduciary to act if there is already on file with the Commissioner satisfactory evidence of the authority to act. Any such written notice which has been filed with the Commissioner since the enactment of the Revenue Act of 1926 shall be considered as sufiicient notice to the Commissioner within the meaning of section 317 if and when there is or has been filed with the Commissioner the satisfactory evidence herein provided for. When the fiduciary capac- ity has terminated, the fiduciary, in order to be relieved of any fur- ther duty or liability as such, must file with the Commissioner writ- ten notice that the fiduciary capacity has terminated as to him, accompanied by satisfactory evidence of the termination of the fidu- ciary capacity. Such written notice should state the name and ad- dress of the person, if any, who has been substituted as fiduciary. This article, made under the provisions of section 317 of the Revenue Act of 1926, shall not be taken to abridge in any way the powers and duties of fiduciaries provided for in other sections of Title III of the Act or in any prior estate tax Act. SCOPE OF REPEAL Sec. 1200. (a) The following parts of the Revenue Act of 1924 are repealed, to take effect (except as otherwise provided in this Act) upon the enactment of this Act, subject to the limitations provided in subdivision (b) : ^ * * * * 4t * Part I of Title III (called " Estate Tax ") ; * * * 41 « Ht * Sections 1004, 1005, 1006, and 1007, subdivision (a) of section 1008, sections 1009, 1010, 1011, 1012. 1014. 1018, 1019, and 1020, subdivisions (a) and (b) of section 1021, subdivision (c) of section 1025, and sec- tions 1026. 1027, 1028, 1029, 1030, and 1031 (being certain administra- tive provisions). (b) The parts of the Revenue Act of 1924 which are repealed by this Act .shall (except as provided in sections 283 and 318 and except as otherwise specifically provided In this Act), remain in force for the assessment and collection of all taxes imposed by Such Act, and for the assessment, imposition, and collection of all interest, penalties, or forfeitures which have accrued or may accrue in relation to any such taxes and for the assessment and collection, to the extent pro- vided in the Revenue Act of 1924, of all taxes imp'osed by prior income, war profits, or excess profits tax acts, and for the assessment, imposi- tion, and collection of all interest, penalties, or forfeitures which have accrued or may accrue In relation to any such taxes. In the case of any tax imposed by any part of the Revenue Act of 1924 repealed 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 correspond- ing tax under this Act takes effect under the provisions of this Act. Section 714, Revenue Act, 1928. The parts of the Revenue Act of , 1926 which are repealed by this Act shall remain in force for the assessment and collection of all taxes imposed thereby and for the 107 assessment, imposition, and collection of all Interest, penalties, or forfeitures which have accrued or may accrue in relation to any such taxes. , Art. 109. Scope of repeal. — The Eevenue Act of 1926 retains in force (except as provided in sec. 318) the provisions of Part I, Title III, of the Revenue Act of 1924, and the provisions of estate tax titles of all prior Acts, for the assessment and collection of all taxes accruing thereunder and for tlie imposition and collection of all penalties which have accrued or may accrue in relation to any such taxes. The Revenue Act of 1928 to the same extent, and for the same purpose, retains in force the parts of the Revenue Act of 1926 repealed by the Eevenue Act of 1928. RULES AND REGULATIONS Sec. 1101. The Commissioner, with the approval of the Secretary, shall piescribe and publish all needful rules and regulations for the enforcement of this Act. Art. 110. Promulgation of regulations. — In pursuance of the statute, the foregoing regulations are hereby made and promulgated, and all rulings inconsistent therewith are hereby revoked, except as in this article indicated. These regulations apply to all pending estate-tax cases except where a particular question is governed by a specific provision of the earlier statutes differing from the Revenue Act of 1926, as amended and supplemented by the Revenue Act of 1928, in which cases the provisions of the applicable statute control and Regu- lations 37 (Revised January, 1921), Regulations 63, Regulations 68, and Regulations 70 (1926 Edition), to that extent remain in full force and effect, subject to the following changes : Article 26, Regulations 37, and Article 21, Regulations 63, have been amended by Treasury Decision 3487 to read as follows : " Reservation of powers. — Where a transfer by trust or otherwise is subject to revocation by the donor, or the terms thereof may be altered or amended by him, or he reserves to himself the right to take or assume either full or partial control of the transferred property, or to direct or control the management thereof, all facts and circumstances bearing upon the donor's intent are to be considered, and if It appears that he intended the transfer to take effect in possession or enjoyment at or after his death, then the value of the transferred property should be Included in the gross estate, unless it further appears that the transfer was a bona fide sale for a fair consideration in money or money's worth." Article 27 of Regulations 37 (revised January, 1921), and Article 23, Regulations 63, were amended by Treasury Decision 3951 to read as follows : " Property held, jointly or as tenants by the entirety. — The statute provides for the inclusion in the gross estate of interests held jointly 108 by the decedent and any other person or persons, and of estates by the entirety. This provision applies only to a joint tenancy, or a tenancy by the entirety, created subsequent to the passage of the Revenue Act in force and effect at the time of the decedent's death. This class of property includes all Interests, whether in real or per- sonal property, where the survivor takes the entire property by right of survivorship, and consequently the decedent's interest therein forms no part of his estate for purposes of administration. It does not include interests held as tenants in common, where the interest of each tenant passes free from any right of survivorship. " The following are examples of this class : Real estate held by joint tenants; real estate held by husband and wife (known as an estate by the entirety) ; money deposited in a bank or trust company in the joint names of the decedent and another and payable to either or the survivor ; and, in general, all securities and other personal prop- erty, where the title thereto was vested in the decedent and one or more other persons, subject to the right of survivorship. " These amendments apply only to the estates of decedents who died prior to the effective date of the Revenue Act of 1924." Articles 17, 18, and 19 of Regulations 63 were amended by Treas- ury Decision 4064 to read as follows : "Art. 17. Transfers during life. — Except bona fide sales for a fair consideration in money or money's worth, all transfers made by the decedent subsequent to September 8, 1916, are taxable if made in con- templation of or intended to take effect in possession or enjoyment at or after his death. (As to transfers made prior to September 9, 1916, which were intended to take effect in possession or enjoyment at or after decedent's death, and with respect to which the decedent reserved the power to alter, amend, or revoke, see Art. 19.) To constitute a bona fide sale for a fair consideration in money or money's worth, it must have been made in good faith, and the price must have been a fair equivalent and reducible to a money value. " Where a transfer, by trust or otherwise, was made by written instrument, duplicate copies thereof should be filed with the return. If of public record, one of the copies should be certified ; if not of record, one copy should be verified. Where the decedent was. a non- resident, only one copy, certified or verified, need be filed. TBANSFEaiS IN CONTEMPLATION OF DEATH "Art. 18. Nature of transfer. — The words ' In contemplation of death ' do not mean, on the one hand, a general expectation of death such as all persons entertain, nor, on the other, is the meaning limited to an expectation of immediate death. A transfer, however, is made in con- templation of death wherever the person making it is Influenced to do so by such an expectation of death, arising from bodily or mental conditions, as prompts persons to dispose of their property to those whom they deem proper objects of their bounty. Such a transfer is taxable, although the decedent parts absolutely and immediately with his title to and possession and enjoyment of the property. Any trans- fer made by a decedent subsequent to September 8, 1916, and within two years prior to his death, without a fair consideration In money 109 or money's worth, Is presumed to be taxable if of a material part of his property and in the nature of a final disposition or distribution thereof. The executor must return the value, as of the date of de- cedent's death, of all property transferred by the decedent subsequent to September 8, 1916, in contemplation of death, where the transfer was not a bona fide sale for a fair consideration in money or money's worth, and must disclose in the return all transfers of a material part of decedent's property made subsequent to September 8, 1916, without such consideration, but need not include In the gross estate the value of such thereof as he contends were not made in contemplation of death, jn which event he may submit with the return evidence of all material facts tending to disclose the decedent's motive at the time, his then anticipation of death, and mental, and physical condition. " The presumption of taxability of a transfer made within the two- year period may be rebutted by proof that it was not made under the conditions stated in the statute, and such' proof must be filed with the return. Unless proof is submitted which is sufficient to rebut the presumption the transfer will be included in the gross estate in com- puting the tax. " The fact that a gift was made as an advancement, to be taken into account upon the final distribution of the decedent's estate, is not enough, standing alone, to establish taxability. TEANSFEES INTENDED TO TAKE EFFECT AT OE AFTER DEATH "Art. 19. General. — ^AU transfers made by the decedent subsequent to September 8, 1916, other than bona fide sales for a fair consideration in money or money's worth, which were intended to talie effect in pus- session or enjoyment at or after his death, are taxable, and the value, as of the date of the decedent's death, of property or interest so trans- ferred must be returned as part of the gross estate. " Where a transfer (whether made before or after the passage of the Revenue Act of 1916) was intended to take effect in possession or enjoyment at or after the decedent's death, and the enjoyment of the property or the interest transferred wa.s subject at the date of the decedent's death to change by the exercise of any power to alter, amend, or revoke, the value, as of the date of the decedent's death, of the property or interest so transferred must be returned as a part of the gross estate. Articles 15, 16, and 17 of Regulations 68 were amended by Treas- ury Decision 4065 to read as follows: "Aet. 15. Transfers During Life.— Ejs.c&^t bona fide sales for a fair consideration in money or money's worth, all transfers made by the decedent subsequent to September 8, 1916, are taxable if made in con- templation of or intended to take effect in possession or enjoyment at or after his death. If the enjoyment of the property or the interest transferred (whether the property or the interest was transferred by the decedent before or after passage of the Revenue Act of 1916) was subject at the date of the decedent's death to change by the exercise of any power to alter, amend, or revoke, or if any such power was relinquished by the decedent subsequent to the effective date of Part no I, Title III, of the Revenue Act of 1924,, in contemplation of death, the entire value of the property, or the interest transferred, as of the date of decedent's death must be included in the gross estate unless the transfer constituted a bona fide sale for a fair consideration in money or money's worth. To constitute a bona fide sale for a fair considera- tion in money or money's worth, it must have been made in good faith, and the price must have been a fair equivalent, and reducible to a money value. " Where a transfer, by trust or otherwise, was made by written instrument, duplicate copies thereof should be filed with the return. If of public record, one of the copies should be certified; if not of record, one copy should be verified. Where the decedent was a non- resident, only one copy, certified or verified, need be filed. TKASrSFBBS IN CONTEMPLATION OP DEATH "Abt. 16. Nature of tramfer. — The words ' in contemplation of death ' do not mean, on the one hand, a general expectation of death such as all persons entertain, nor, on the other, Is the meaning limited to an expectation of immediate death. A transfer, however, Is made in contemplation of death wherever the person making it Is infiuenced to do so by such an expectation of death, arising from bodily or mental conditions, as prompts persons to dispose of their property to those whom they deem proper objects of their bounty. Such a transfer is taxable, although the decedent parts absolutely and imme- diately with his title to and possession and enjoyment of the property. Any transfer made by a decedent within two years prior to his death, without a fair consideration in money or money's worth, is deemed to have been made in contemplation of death if of a material part of his property and in the nature of a final disposition or distribution thereof. The executor must return the value, as of the date of decedent's death, of all property transferred by the decedent subsequent to September 8, 1916, in contemplation of death, where the transfer was not a bona fide sale for a fair consideration -in money or money's worth, and must disclose in the return all transfers of a material part of decedent's property made subsequent to September 8, 1916, even though such transfer was made more than two years^ prior to death without such consideration. The executor is also required to report any transfer of an amount or value of $1,000 or more made by the decedent within two years of his death and not constituting a bona fide sale for a fair consideration in money or money's worth. The executor iieed not include in the gross estate the value of such transfers as he contends were not made in contemplation of death. Where the executor contends that any transfer of a material part of the de- cedent's property, made within two years of death, is not taxable he must file with the return sworn statements in duplicate of all the material facts, including, among other things, the decedent's motive in mailing the transfer and his mental and physical condition at that time ; also one certified copy of the death certificate. ( See also Art. 20.) " The fact that a gift was made as an advancement, to be taken into account upon the final distribution of the decedent's estate, is not, In and of itself, determinative of its taxability. Ill TBANSFER8 INTENDED TO TAKE EaTl'BOT, IN POSSESSION -OB ENJOYMENT AT OB AFTER DEATH "Abt. 17. General. — All transfers made by the decedent subsequent to September 8, 1916, other than bona flde sales for a fair consideration lu, money or money's worth, which were intended to take effect in possession or enjoyment at or after his death, are taxable, and the value, as of the date of the decedent's death, of property or interest so transferred must be returned as a part of the gross estate." Section 322 (a) of the Revenue Act of 1926 amends section 301 (a) of the Revenue Act of 1924 and section 323 (a) of the Revenue Act of 1926 repeals the last sentence of paragraph (3) of subdi- visions (a) and (b) of section 303 of the Revenue Act of 1924 (see appendix). In pursuance of such amendment and repeal, Regulations 68 were amended by Treasury Decision ,3842 in the fol- lowing respects: In lieu of the third sentence of Article 7, there was substituted the following: " The rates imposed by the Revenue Act of 1924, as originally en- acted, were different from those prescribed in any of the prior acts* but section 322 of the Revenue Act of 1926 amends section 301 (a) of the Revenue Act of 1924, effective as of June 2, 1924, so as to impose the same rates prescribed in the Revenue Acts of 1918 and 1921. The rates imposed by _the Revenue Act of 1924, as amended, are applicable to the estates of decedents dying after the enactment thereof but before 10.25 a., m., Washington, D. C, time, February 26, 1926." The table appearing in Article 7 was amended by eliminating the rates of tax appearing in column 5 and substituting therefor the rates of tax appearing in column 4 of the table. Article 8, except the table for computing estate tax, was amended to read as follows: "Aet. 8. Computation of tax. — ^For the purpose of computing the tax, the net estate iw divisible into blocks, each block being taxed at a dif- ferent and increasing rate. The pi'eceding table gives the amount of the various blocks and the applicable rate of tax under each of the taxing acts. For example, the tax upon the net estate of $1,240,000 of a decedent dying on July 1, 1924, is computed as follows; Amount of first block $50, 000 at 1 per cent $500 Amount of second block 100, OOO at 2 per cent 2, 000 Amount of third block 100, 000 at 3 per cent 3, 000 Amount of fourth block 200, 000 at 4 per cent 8, 000 Amount of fifth block 300, 000 at 6 per cent 18, 000 Amount of sixth block 250, 000 at 8 per cent 20, 000 Remainder 240, 000 at 10 per cent 24, OOO Total net estate 1, 240, 000 Total tax 75, 500 " On the following page will be found a table for ascertaining the tax without the detailed computation given above. An illustration 112 of its use is as follows: The net estate of a decedent dying July 1, 1924, amounts to $1,240,000. By reference to the table it will be seen that the last complete block preceding this amount is $1,000,000, and that the total tax computed on a million dollars under the rates in force amounts to $51,500. Upon the remainder of the net estate, $240,000, the tax is computed at the rate set out in the next following line, or at 10 per cent. The tax on this amount is consequently $24,000. The following result is thus obtained : Total tax on $1, 000, 000 = $51, 500 Tax on 240, 000 = 24, 000 Totals 1, 240, 000 75. 500 " The table for computing estate tax, appearing in Article 8, was amended by eliminating therefrom column 5 and by amending the heading of column 4 to read as follows : " From 6.55 p. m., February 24, 1919, to 10.25 a. m., February 26, 1926, inclusive (Revenue Acts of 1918, 1921, and 1924, as amended)." Article 44 was amended by eliminating therefrom the last para- graph. Article 20 of Regulations 63 was by Treasury Decision 4183 amended by striking out the sixth sentence of its first paragraph and inserting in lieu thereof the following sentence: "A transfer is taxable in accordance with these principles whether the decedent reserved the annuity out of the property transferred or the income therefrom." Article 18 of Regulations 68 was by Treasury Decision 4184 amended by striking out its third paragraph and inserting in lieu thereof the following sentence: • " The rule would be the same, so far as concerns the proportion of the property to be included in the gross estate, if an annuity were reserved whether out of the property transferred or the income there- from." D. H. Blaik, Cormmission&r of Internal Revenue. Approved March 23, 1929. A. W. Mellon, Secretary of the Treasury. APPENDIX REVENUE ACT OF 1924, AS AMENDED (Amendments effective as of June 2, 1924) TITLE III Paet I. — Estate Tax Sec. 300. When used in Part I of this title— The term " executor " means the executor or administrator of the decedent, or, if there is no executor or administrator appointed, qualified, and acting within the United States, then any person in actual or constructive possession of any property of the decedent; The term " net estate " means the net estate as determined under the provisions of section 303 ; The term " month " means calendar month ; and The term " collector " means the collector of internal revenue of ihe district in which was the domicile of the decedent at the time of his death, or, if there was no such domicile in the United States, then the collector of the district in which is situated the part of the gross estate of the decedent in the United States, or, if such part of the gross estate is situated in more than one district, then the collector of internal revenue of such district as may be desig- nated by the Commissioner. Sec. 301. (a) In lieu of the tax imposed by Title IV of the Revenue Act of 1921, a tax equal to the sum of the following per- centages of the value of the net estate (determined as provided in section 303) is hereby imposed upon the transfer of the net estate of every decedent dying after the enactment of this- Act, whether a resident or nonresident of the United States : 1 per centum of the amount of the net estate not in excess of $50,000; 2 per centum of the amount by which the net estate exceeds $60,000 and does not exceed $150,000; 3 per centum of the amount by which the net estate exceeds $150,000 and does not exceed $250,000; 4 per centum of the amount by which the net estate exceeds $250,000 and does not exceed $450,000; 6 per centum of the amount by which the net estate exceedis $450,000 and does not exceed $750,000; (113) 114 8 per centum of the amount by which the net estate exceeds; $750,000 and does not exceed $1,000,000; 10 per centum of the amount by which the net estate exceeds $1,000,000 and does not exceed $1,500,000; 12 per centum of the amount by which the net estate; exceeds $1,500,000 and does not exceed $2,000,000 ; 14 per centum of the amount by which the net estate exceeds $2,000,000 and does not exceed $3,000,000; 16 per centum of the amount by which the net estate exceeds $3,000,000 and does not exceed $4,000,000 ; 18 per centum of the amount by which the net estate exceeds $4,000,000 and does not exceed $5,000,000; 20 per centum of the amount by which the net estate exceeds $5,000,000 and does not exceed $8,000,000; 22 per centum of the amount by which the net estate exceeds $8,000,000 and does not exceed $10,000,000 ; and 25 per centum of the amount by which the net estate exceeds $10,000,000. (b) The tax imposed by this section shall be credited with the amount of any estate, inheritance, legacy, or succession taxes actu- ally paid to any State or Territory or the District of Columbia, in respect of any property included in the gross estate. The credit allowed by this subdivision shall not exceed 25 per centum of the tax imposed by this section. Sec. 302. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situ- ated — (a) To the extent of the interest therein of the decedent at the time of his death which after his death is subject to the payment of the charges against his estate and the expenses of its administration and is subject to distribution as part of his estate; (b) To the extent of any interest therein of the surviving spouse, existing at the time of the decedent's death as dower, curtesy, or by virtue of a statute creating an estate in lieu of dower or curtesy; (c) To the extent of any interest therein of which the decedent has at any time made a transfer, or with respect to which he has at any time created a trust, in contemplation of or intended to take effect in possession or enjoyment at or after his death, except in case of a bona fide sale for a fair consideration in money or money's worth. Any transfer of a material part of his property in the nature of a final disposition or distribution thereof, made by the decedent within two years prior to his death without such a con- sideration, shall, unless shown to the contrary, be deemed to have 115 been made in contemplation of dbath within the meaning of Part I of this title ; (d) To the extent of any interest therein of which the decedent has at any time made a transfer, or with respect to which he has at any time created a trust, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power, either by the decedent alone or in conjunction with any pei-son, to alter, amend, or revoke, or where the decedent relinquished any such power in contemplation of his death, except in case of a bona fide sale for a fair consideration in money or money's worth ; (e) To the extent of the interest therein held as joint tenants by the decedent and any other person, or as tenants by the entirety by the decedent and spouse, or deposited, with any person carrying on the banking business, in their joint names and payable to either or the survivor, except such part thereof as may be shown to have originally belonged to such other person and never to have been received or acquired by the latter from the decedent for less than a fair consideration in money or money's worth: Provided, That where such property or any part thereof, or part of the considera- tion with which such property was acquired, is shown to have been at any time acquired by such other person 'from the decedent for less than a fair consideration in money or money's worth, there shall be excepted only such part of the value of such property as is proportionate to the consideration furnished by such other person : Provided further, That where any property has been acquired by gift, loequest, devise, or inheritance, as a tenancy by the entirety by the decedent and spouse, then to the extent of one-half of the value thereof, or, where so acquired by the decedent and any other person as joint tenants and their interests are not otherwise specified or fixed by law, then to the extent of the value of a fractional part to be determined by dividing the value of the property by the number, of joint tenants; (f ) To the extent of any property passing under a general power of appointment exercised by the decedent (1) by will, or (2) by deed executed in contemplation of, or intended to take effect in possession or enjoyment at or after, his death, except in case of a bona fide sale for a fair consideration in money or money's worth; and (g) To the extent of the amount receivable by the executor as insurance under policies taken out by the decedent upon his own life; and to the extent of the excess over $40,000 of the amount receivable by all other beneficiaries as insurance under policies taken out by the decedent upon his own life. 116 (h) Subdivisions (b), (c), (d), (e), (f), and (g) of this section shall apply to the transfers, trusts, estates, interests, rights, powers, and relinquishment of powers, as severally enumerated and described therein, whether made, created, arising, existing, exercised, or relinquished before or after the enactment of this Act. Sec. 303. For the purpose of the tax the value of the net estate shall be determined — (a) In the case of a resident, by deducting from the value of the gross estate — (1) Such amounts for funeral expenses, administration expenses, claims against the estate, unpaid mortgages upon, or any indebted- ness in respect to, property (except, in the case of a resident de- cedent, where such property is not situated in the United States), to the extent that such claims, mortgages, or indebtedness were incurred or contracted bona fide and for a fair consideration in money or money's worth, losses incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualty, or from theft, when such losses are not compensated for by insurance or otherwise, and such amounts reasonably required and actually ex- pended for the support during the settlement of the estate of those dependent upon the decedent, as are allowed by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered, but not including any income taxes upon income received after the death of thp decedent, or any estate, succession, legacy, or inheritance taxes; (2) An amount equal to the value of any property (A) forming a part of the gross estate situated in the United- States of any person who died within five years prior to the death of the decedent, or (B) transferred to the decedent by gift within five years prior to his death, where such property can be identified as having been re- ceived by the decedent from such donor by gift or from such prior decedent by gift, bequest, devise, or inheritance, or which can be identified as having been acquired in exchange for property so received. This deduction shall be allowed only where a gift tax or an estate tax under this or any prior act of Congress was paid by or on behalf of the donor or the estate of such prior decedent as the case may be, and only in the amount of the value placed by the Com- missioner on such property in determining the value of the gift or the gross estate of such prior decedent, and only to the extent that the value of such property is included in the decedent's gross estate and not deducted under paragraph (1) or (3) of this subdivision; (3) The amount of all bequests, legacies, devises, or/ transfers, except bona fide sales for a fair consideration in money or money's worth, in contemplation of or intended to take effect in possession or 117 enjoyment at or after the decedent's death, to or for the use of the United States, any State, Territory, any political subdivision thereof, or the District of Columbia, for exclusively public purposes, or to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art and 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 individual, or to a trustee or trustees, or a fraternal society, order, or association operating under the lodge system, but only if such contributions or gifts are to be used by such trustee or trustees, or by such fraternal society, order, or association, exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals; and (4) An exemption of $50,000. (b) In the case of a nonresident, by deducting from the value of that part of his gross estate which at the time of his death is situated in the United States — (1) That proportion of the deductions specified in paragraph (1) of subdivision (a) of this section which the value of such part bears to the value of his entire gross estate, wherever situated, but in no case shall the amount so deducted exceed 10 per centum of the value of that part of his gross estate which at the time of his death is situated in the United States ; (2) An amount equal to the value of any property (A) forming a part of the gross estate situated in the United States of any person who died within five years prior to the death of the decedent, or (B) transferred to the decedent by gift within five years prior to his death, where such property can be identified as haying been received by the decedent from such donor by gift or from such prior decedent by gift, bequest, devise, or inheritance, or which can be identified as having been- acquired in exchange for property so received. This deduction shall be allowed only where a gift tax or an estate tax under this or any prior act of Congress was paid by or on behalf of the donor or the estate of such prior decedent as the case may be, and only in the amount of the value placed by the Commissioner on such property in determining the value of the gift or the gross estate of such prior decedent, and only to the extent that the value of such property is included in that part of the decedent's gross estate which at the time of his death is situated in the United States and not deducted under paragraph (1) or (3) of this subdivision; and (3) The amount of all bequests, legacies, devises, or transfers, except bona fide sales for a fair consideration, in money or money's 118 worth, in contempJation of or intended to. take, effert in possession or enjoyment at or after the decedent's death, to or for the use of the United States, any State, Territory, any political subdivision thereof, or the District of Columbia, for exclusively public pur- poses, or to or for the use of any domestic corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art and 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 individual, or to a trustee or trustees, or a fraternal society, order, or association operating under the lodge system, but only if such contributions or gifts are to be used within the United States by such trustee or trustees, or by such fraternal society, order, or association, exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. (c) No deduction shall be allowed in the case of a nonresident unless the executor includes in the return required to be filed under section 304 the value at the time of his death of that part of the gross estate of the nonresident not situated in the United States. (d) For the purpose of Part I of this title, stock in a domestic corporation owned ajid held by a nonresident decedent shall be deemed property within the United States, and any property of which the decedent has made a transfer or with respect to which he has created a trust, within the meaning of subdivision (c) or (d) of section 302, shall be deemed to be situated in the United States, if so situated either at the time of the transfer or the creation of the trust, or at the time of the decedent's death. (e) The amount receivable as insurance upon the life of a non- resident decedent, and any moneys deposited with any person carry- ing on the banking business, by or for a nonresident decedent who was not engaged in business in the United States at the time of his death, shall not, for the purpose of Part I of this title, be deemed property within the United States. (f) Missionaries duly commissioned and serving under boards of foreign missions of the various religious denominations in the United States, dying while in the foreign missionary service of such boards, shall not, by reason merely of their intention to permanently remain in such foreign service, be deemed nonresidents of the United States, but shall be presumed to be residents of the State, the Dis- trict of Columbia, or the Territories of Alaska or Hawaii wherein they respectively resided at the time of their commission and their departure for such foreign service. Sec. 304. (a) The executor, within two months after the decedent's death, or within a like period after qualifying as such, shall give 119 written notice thereo-f to tlie^ collector. The executor shall also, at such times and in such manner as may be required by regulations ■ made pursuant to law, file with the collector a return under oath in duplicate, setting forth (1) the value of the gross estate of the de- cedent at the time of his death, or, in case of a nonresident, of that part of his gross estate situated in the United States; (2) the deduc- tions allowed under section 303; (3) the value of the net estate of the decedent as defined in section 303 ; and (4) the tax paid or pay- able thereon; or such part of such information as may at the time- be ascertainable and such supplemental data as may be necessary to es^tablish the correct tax. (b) Return shall be made in ail cases where the gross estate at the death of the decedent exceeds $50,000, and in the case of the estate of every nonresident any part of whose gross estate is situated ill the United States. If the executor is unable to inake'a complete return as to any part of the gross estate of the decedent, he shall include in his return a description of such part and the name of every person holding a legal or beneficial interest therein, and upon notice from the collector such person shall in like manner make a return as to such part of the gross estate. ^ Sec. 305. (a) The tax imposed by Part I of this title shall be due and payable one year after the decedent's death, and shall be paid by the executor to the collector. (b) Where the Commis^oner finds that the payment on the due date of any part of the amount determined by the executor as the tax would impose undue hardship upon the estate, the Commissioner may extend the time for payment of any such part not to exceed five years from the due date. In such case the amount in respect of which the extension is granted shall be paid on or before the date of the expiration of the period of the extension. (c) If the time for the payment is thus extended there shall be collected, as a part of such amount, interest thereon at the rate of 6 per centum per annum from the expiration of six months after the due date of the tax to the expiration of the period of the extension. (d) The time for which the Commissioner may extend the time for payment of the estate tax imposed by Title IV of the Revenue Act of 1921 is hereby increased from three years to five years, ^ Sec. 306. As soon as practicable after the return is filed the Com- missioner shall examine it and shall determine the correct amount ,of the tax. Sec. 307. As used in Part I of this title the teim " deficiency " means — (1) The amount by which the tax imposed by Part I of this title exceeds the amount shown as the tax by the executor upon his return ; 120 but the amount so shown on the return shall first be increased by the amounts previously assessed (or collected without assessment) as a deficiency, and decreased by the amounts previously abated, re- funded, or otherwise repaid in respect of such tax ; or (2) If no amount is shown as the tax by the executor upon his return, or if no return is made by the executor, then the amount by which the tax exceeds the amounts previously assessed (or collected without assessment) as a deficiency; but such amounts previously • assessed, or collected without assessment, shall first be decreased by the amounts previously abated, refunded, or otherwise repaid in respect of such tax. Sec. 308. (a) If the Commissioner determines that there is a deficiency in respect of the tax imposed by Part I of this title, the executor, except as provided in subdivision (d), shall be notified of such deficiency by registered mail, but such deficiency shall be assessed only as hereinafter provided. Within 60 days after such notice is mailed the executor may file an appeal with the Board of Tax Appeals established by section 900. (b) If the Board determines that there is a deficiency, the amount so determined shall be assessed and shall be paid upon notice and demand from the collector. No part of the amount determined as a deficiency by the Commissioner but disallowed as such by the Board shall be assessed, but a proceeding in court may be begun, without assessment, for the collection of any part of the amount so dis- allowed. The court shall include in its judgment interest upon the amount thereof at the rate of 6 per centum per annum from the date prescribed for the payment of the tax to the date of the judgment. Such proceedings shall be begun within one year after the final deci- sion of the Board, and may be begun within such year even though the period of limitation prescribed in section 310 has expired. (c) If the executor does not file an appeal with the Board within the time prescribed in subdivision (a) of this section, the deficiency of which the executor has been notified shall be assessed, and shall be paid upon notice and demand from the collector. (d) If the Commissioner believes that the assessment or collection of a deficiency will be jeopardized by delay, such deficiency shall be assessed immediately and notice and demand shall be made by the collector for the payment thereof. In such case the assessment may be made (1) without giving the notice provided in subdivision (a) of this section, or (2) before the expiration of the 60-day period pro- vided in subdivision (a) of this section even though such notice has been given, or (3) at any time prior to the final decision by the Board upon such deficiency even though the executor has filed an appeal. If the executor does not file a claim in abatement as provided in sec- tion, 312, the- deSeiency so assejssed- (or, , if. the olaini so .filed covers only a part of the deficiency, then the amount not covered by the claim) shall be paid upon notice and demand from the; collector. (e) Interest upon th,e amount determined as a deficiency shall be assessed at the same time as the deficiency, shall be paid upon notice and; demand from the colleptor, and shall be collected, as, a part of the tax, at the rate of 6 per centum per annum from the due date of the tax to the date the deficiency is assessed. (f) Where it is shown to the satisfaction of the Commissioner that the payftient of a deficiency upon the date prescribed for the payment thereof will result in undue, hardship to the estat^, the Com- missioner with the approval of the Secretary (except where the de- ficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax) may grant an extension for the payment of such deficiency or any part thereof for a period not in excess of two years. If an extension is granted, the Commissioner may require the executor to furnish a bond in such amount, not exceeding double the amount of the deficiency, and with such sureties, as the Commissioner deems necessary, conditioned upon the payment of the deficiency in accordance with the terms of the extension . In such case there shall be collected, as a part of the tax,' interest on the part of the deficiency the time for payment of which is, so extended, at the rate of 6 per centum. per annum for the period of the extension, and no other interest shall be collected on such part of the deficiency for such period. If the part of the deficiency the time for payment of which is so extended is not paid in accordance with the terms of the extension, there shall be col- lected, as a part of the tax, interest on such unpaid amount at the rate of 1 per centum a month for the period from the time fixed by the terms of the extension for its payment until it is paid, and no other interest shall be collected on such unpaid amount for such period. (g) The 50 per centum addition to the tax provided by section 3176 of the Revised Statutes, as amended, shall, when assessed after the enactment of this Act in connection with an estate tax, be assessed, collected,, and paid in the same manner as if it were a deficiency, except that the provisions of subdivision (e) of this. sec- tion shall not be applicable. Sec. 309. (a) (1) Where the amount determined by the executor as the tax imposed, by Part I of this title, or any part of such amount, is not paid on the due date of the tax, there shall be collected as a part of the tax, interest upon such unpaid amoimt at the rate of 1 per centum a month from the, due date until it is paid. 7653°— 29 9 122 (2) Where an extension of time for payment of the amount so determined as the tax by the executor has been granted, and the amount the time for payment of which has been extended, and the interest thereon determined under subdi vision (c) of section 305,. is not paid in full prior to the expiration of the period of the extension, then, in lieu of the interest provided for in paragraph (1) of this subdivision, interest at the rate of 1 per centum a month shall be col- lected on such unpaid amount from the date of the expiration of the period of the extension until it is paid. (b) Where a deficiency, or any interest assessed in connection therewith under subdivision (e) of section 308, or any addition to the tax provided for in section 3176 of the Revised Statutes, as amended, is not paid in full within 30 days from the date of notice and demand from the collector, there shall be collected as part of the tax, interest upon the unpaid amount at the rate of 1 per centum a month from the date of such notice and demand until it is paid. (c) If a claim in abatement is filed, as provided in section 312, the provisions of subdivision (b) of this section shall not apply to the amount covered by the claim in abatement. Sec. 310. (a) Except as provided in section 311 and in subdi- vision (b) of section 308 and in subdivision (b) of section 312, the amount of the estate taxes imposed by Part I of this title shall be assessed within four years after the return was filed, and no proceed- ing in court for the collection of such taxes shall be begun after the expiration of five years after the return was filed. (b) The period within which an assessment is required to be made by subdivision (a) of this section in respect of any deficiency shall be extended (1) by 60 days if a notice of such deficiency has been mailed to the executor under subdivision (a) of section 308 and no appeal has been filed with the Board of Tax Appeals, or (2) if an appeal has been filed, then by the number of days between the date of the mailing of such notice and the date of the final decision by the Board. Sec. 311. (a) In the case of a false or fraudulent return with in- tent to evade tax or of a failure to file a return the tax inay be as- sessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time. (b) Where the assessment of the tax is made within the period prescribed in section 310 or in this section, such tax may be collected by distraint or by a proceeding in court, begim within six years after the assessment of the tax. Nothing in this Act shall be construed as preventing the beginning, without assessment, of a proceeding ia court for the collection of the tax at any time before the expiration of the period within which an assessment may be made. 123 (c) This section shall not (1) authorize the assessment of a tax or the collection thereof by distraint or by a proceeding in court if at the time of the enactment of this Act such assessment, distraint, or proceeding was barred by the period of limitation then in existence, or (2) affect any assessment made, or distraint or proceeding in court begun, before the enactment of this Act. Sec. 312. (a) If a deficiency has been assessed under subdivision (d) of section 308, the executor, within 30 days after notice and demand from the collector for the payment thereof, may file with the collector a claim for the abatement of such deficiency, or any part thereof, or of any interest or additional amounts assessed in connection therewith, or of any part of any such interest or addi- tional amounts. Such claim shall be accompanied by a bond, in such amount, not exceeding double the amount of the claim, and with such sureties, as the collector deems necessary, conditioned upon the payment of so much of the amount of the claim as is not abated, together with interest thereon as provided in subdivision (c) of thia section. Upon the filing of such claim and bond, the collection' of so much of the amount assessed as is covered by such claim and bond shall be stayed pending the final disposition of the claim. (b) If a claim is filed as provided in subdivision (a) of thia section the collector shall transmit the claim immediately to the Commissioner who shall by registered mail notify the executor of his decision on the claim. The executor may within 60 days after such notice is mailed file an appeal with the Board of Tax Appeals. If the claim is denied in whole or in part by the Commissioner (or by the Board in case an appeal has been filed) the amount, the claim for which is denied, shall be collected as part of the tax upon notice and demand from the collector, and the amount, the claim for which is allowed, shall be abated. A proceeding in court may be begun for any part of the amount, claim for which is allowed by the Board. Snch proceeding shall be begun within one year after the final decision of the Board, and may be begun within such year even though the period of limitation prescribed in section 310 has expired. ' (c) If the claim in abatement is denied in wholie or in part, there shall be collected, at the same time as the part of the claim denied, and as a part of the tax, interest at the rate of 6 per centum per annum upon the amount of the claim denied, from the date of notice and demand from the collector under subdivision (d) of section 308 to the date of the notice and demand under subdivision (b) of this section. If the amount included in the notice and demand from the collector Under subdivision (b) of this section is not paid in full within 30 days after such notice and demand, then there shall be collected, as part of the tax, interest upon the unpaid amount at the 124 rate of 1 per centum a month from the date of such notice ^nd demand until it is paid. , , ■ 1 (d) Except as provided in this section, no claim in abatement shall be filed in respect of any assessment made after the enactment of this Act in respect of any estate tax. Sec. 313. (a) The collector shall grant to the person paying the tax duplicate receipts, either of which shall be guiScient evidencfrof such payment, and shall entitle the executor to be credited and allowed the amount thereof by any court having jurisdiction to audit or settle his accounts. s (b) If the executor makes written application to the Commis- sioner for determination of the amount of the tax and discharge from personal liability therefor, the Commissioner (as soon as possible, and in any event within one year after the making of such applica- tion, or, if the application is made before the return is filed, then within one year after the return is filed, but not after the expiration of the period prescribed for the assessment of the tax in section 310) shall notify the executor of the amount of the tax. The execu- tor, upon payment of the amount of which he is notified, shall be discharged from personal liability for any deficiency in tax there- after found to be due and shall be entitled to a receipt or writiag showing such discharge. (c) The provisions of subdivision (b) shall not operate as a release of any part of the gross estate from the lien for any de- ficiency that may thereafter be determined to be due, unless the title to such part of the gross estate has passed to a bona fide pur- chaser for value, in which case such part shall not be subject to » lien or to any claim or demand for any such deficiency, but the lien shall attach to the consideration received from such purchaser by the heirs, legatees, devisees, or distributees. Sec. 314. (a) If the tax herein imposed is not paid on or before the due date thereof the collector shall, upon instruction from the Commissioner, proceed to collect the tax under the provisions of general law, or commence appropriate proceedings in any court of the United States having jurisdiction, in the name of the United States, to subject the property of the decedent to be sold under the judgment or decree of the court. From the proceeds of such sale the amount of the tax, together with the costs and expenses of every description to be allowed by the court, shall be first paid, and the balance shall be deposited according to the order of the court, to be paid under its direction to the person entitled thereto. (b) If the tax or any part thereof is paid by, or collected out of that part of the estate passing to or in the possession of, any person other than the executor in his capacity as sucb, such person shall be entitled to reimbursement out of any part of the estate still imdis- 125 tribiiited or by a just and equitable contribution by the persons whose interest in the estate of the decedent would have been reduced if the tax had been paid before the distribution of the estate or whose interest is subject to equal or .prior liability for the payment of taxes,, debts, or other charges against the estate, it being the purpose and intent of this title that so far as is practicable and unless otherwise directed by the will of the decedent the tax shall be paid out of the estate before its distribution. If any part of the gross estate con- sists of proceeds of policies of insurance upon the life of the decedent receivable by a beneficiary other than the executor, the executor shall be entitled to recover from such beneficiary such portion of the total tax paid as the proceeds, in excess of $40,000, of such policies bear to the net estate. If there is more than one such beneficiary the exec- utor shall be entitled to recover from such beneficiaries in the same ratio. Sec. 315. (a) Unless the tax is sooner paid in full, it shall be a lien for ten years upon the gross estate of the decedent, except that such part of the gross estate as is used for the payment of charges against the estate and expenses of its administration, allowed by any court having jurisdiction thereof, shall be divested of such lien. If the Commissioner is satisfied that the tax liability of an estate has been fully discharged or provided for, he may, under regulations prescribed by him with the approval of the Secretary, issue his certificate, releasing any or all property of such estate from the lien herein imposed. (b) If (1) the decedent makes a transfer of, or creates a trust with respect to, any property in contemplation of or intended to take effect in possession or enjoyment at or after his death (except in the case of a bona fide sale for a fair consideration in money or money's worth) or (2) if insurance passes under a contract executed by the decedent in favor of a specific beneficiary, and if in either case the tax in respect thereto is not paid when due, then the trans- feree, trustee, or beneficiary shall be personally liable for such tax, and such property, to the extent of the decedent's interest therein at the time of such transfer, or to the extent of such beneficiary's in- terest under such contract of insurance, shall be subject to a like lien equal to the amount of such tax. Any part of such property sold by such transferee or trustee to a bona fide purchaser for a fair con- sideration in money or money's worth shall be divested of the lien and a like lien shall then attach to all the property of such transferee or trustee, except any part sold to a bona fide purchaser for a fair consideration in money or money's worth. Seo. 316. If after the enactment of this Act the Commissioner de- termines that any assessment should be made in respect of any es- tate tax imposed by the Revenue Act of 1917, the Revenue Act of 126 1918, or the Revenue Act of 1921, or fey' any such Act as amended, the amount which should be assessed (whether as deficiency or addi- tional tax or as interest, penality, or other addition to the tax) shall be computed as if this Act had not been enacted, but the amount so computed shall be assessed, collected, and paid in the same manner and subject to the same provisions and limitations (including the provisions in case of delinquency in payment after notice and de- mand) as in the case of the taxes imposed by Part I of this title, except that the period of limitation prescribed in section 1009 shall be applied in lieu of the period prescribed in subdivision (a) of section 310. Sec. 317. (a) Whoever knowingly makes any false statement in any notice or return required to be filed under Part I of this title shall be liable to a penalty of not exceeding $5,000, or imprisonment not exceeding one year, or both. (b) Whoever fails to comply with any duty imposed upon him by section 304, or, having in his possession or control any record, file, or paper, containing or supposed to contain any information con- cerning the estate of the decedent, or, having in his possession or control any property comprised in the gross estate of: the decedent, fails to exhibit the same upon request to the Commissioner or any collector or law officer of the United States or his duly authorized deputy or agent, who desires to examine the same in the perform- ance of his duties under Part I of this title, shaU be liable to a penalty of not exceeding $500, to be recovered, with costs of suit, in a civil action in the name of the United States. Stic. 318. (a) The term "resident" as used in this title includes a citizen of the United States with respect to whose property any pro- bate or administration proceedings are had in the United States Court for China. Where no part of the gross estate of such dece- dent is situated in the United States at the time of his death, the total amount of tax due under Part I of this title shall be paid to or collected by the clerk of such court, but where any part of the gross estate of such decedent is situated in the United States at the time of his death, the tax due under Part I of this title shall be paid to or collected by the collector of the district in which is situated the part of the gross estate in the United States, or, if such part is situated in more than one district, then the collector of such district as may be designated by the Commissioner. (b) For the purpose of this section the clerk of the United States Court for China shall be a collector for the territorial jurisdiction of such court, and taxes shaill be collected by and paid to him in the same manner and subject to the same provisions of law, including penalties, as the taxes collected by and paid to a collector in the United States. LIST OF THE SEVERAL DIVISIONS AND LOCATIONS OF OFFICES OF INTERNAL REVENUE AGENTS IN CHARGE (Communications should be addressed: United States Internal Revenue Agent in Charge, City state V Territory embraced Name of division Location of office Alabama . Nashville Seattle Denver.; Oklahoma San Francisco. Denver New Haven... Baltimore do....... Nashville, Tenn. Alaska Seattle, Wash. Arizona Denver, Colo. Arkansas .. . . . Oklahoma City, Okla. California San Francisco, Calif. Colorado . _ . Denver, Colo. Connecticut ... New Haven, Conn. Delaware _. Baltimore, Md. District of Columbia . ... Do. Florida . - .. Jacksonville... Atlanta. Honolulu Salt Lake Chicago Springfield Indianapolis.. Omaha, Wichita Louisville New Orleans. - Boston Baltimore Boston Detroit St. Paul New Orleans.. St. Louis Salt Lake Omaha . San Francisco. Boston Newark Denver Second New York. Brooklyn Jacksonville, Fla. Georgia _ . _ Atlanta, Ga. Hawaii Honolulu, Hawaii. Idaho _.' - ... Salt Lake City, Utah. Illinois : Counties of Henderson, Warren, Knox, Peoria, Marshall, La Salle, Grundy, Kankakee, and counties north. Counties of Hancock, McDonpugh, Fulton, Tazewell, Woodford, Liv- ingston, Ford, Iroquois, and coun- ties south. Indiana. . _. . .. Chicago, 111. Springfield, 111. Indianapolis, Ind. Iowa ... . Omaha, Nebr. Kansas _ . ... Wichita, Kans. Kentucky .. Louisville, Ky. Louisiana . -. New Orleans, La. Boston, Mass. Maryland _. _._ .. Baltimore, Md. Massachusetts _._. . Boston, Mass. Detroit, Mich. Minnesota St. Paul, Minn. New Orleans, La. Missouri _ St. Louis, Mo. Montana -t Salt Lake City, Utah, Omaha, Nebr. San Francisco, Calif. Boston, Mass. New Jersev Newark, N. J. Denver, Colo. New York: County of New York, north to and including Twenty-third Street. Counties of Kings, Nassau, Queens, Richmopd, and Suffolk. Customhouse, New York City, N. Y. Brooklyn, N. Y. (127) 128 List of the several divisions and locations of offices of internal revenue agents in charge — Continued Territory embraced Name of division Location of office New York — Continued. County qf New York, nortVof 23d Upper New 250 West Fifty- Street, and counties of Albapy,'.' . York. seventh Street, New Bronx, Clinton, Columbia, Dutch-" York, N. Y. ess, Essex, Fulton, Greene, Ham- ilton, Montgomery, Orange, Put- nam, Rensselaer, Rockland, Sara- toga, Schenectady, Scoharie, Sullivan, Ulster, Warren, Wash- ington, and Westchester. ^Counties of Franklin, Herkimer, Buffalo Buflfalo, N. Y. Otsego, Delaware, and counties west. North Carolina Greensboro St. Paul Greensboro, N. 0. North Dakota St. Paul, Minn. Ohio: Counties of Preble, Miami, Clark, Cincinnati Cincinnati, Ohio. Madison, Union, Marion, Mor- row, Knox, Coshocton, Guernsey, Noble, Washington, and counties south. Counties of Darke, Shelby, Cham- paign, Logan, Hardin, Wyandot, Cleveland Cleveland, Ohio. • Crawford, Richland, Ashland, Holmes, Tuscarawas, Harrison, Jefferson, and counties north. Oklahoma Oklahoma Oklahoma City, Okla. Oregon Seattle Seattle, Wash. Pennsylvania: Counties of Potter, Clinton, Center, Philadelphia.- Philadelphia, Pa. Blair, Bedford, and counties east. Counties of McKean, Cameron, Pittsburgh Pittsburgh, Pa. Clearfield, Cambria, Somerset, and counties west. Rhode Island L New Haven Columbia St. Paul Nashville Dallas Salt Lake..... New Haven, Conn. South Carolina Columbia, S. C. South Dakota St. Paul, Minn. Tennessee Nashville, Tenn. Texas Dallas, Tex. Utah Salt Lake City, Utah. Boston, Mass. Vermont Boston Richmond Seattle Huntington Milwaukee _._ Denver Virginia Richmond, Va. Washi ngton Seattle, Wash. West Virginia Huntington, W. Va. Milwaukee, Wis. Wisconsin Wyoming Denver, Colo. \ INDEX (An analytical Table of Contents precedes the Regulations) A ■ ■ , . Article Page Abatement, claim for 95-98 91-92 Accountants, fees of — deductibility 35 38 Accounts, valuation of 13(8) 18 Acquiescence in determination of deficiency - _76, 77 66, 72 Act, Part I, Title III, Revenue Act of 1924 ' — 113 Act, Title III, Revenue Act of 1926, as amended and supplemented by the Revenue Act of 1928. See Analytical Table of Contents ^ — iii Acts, prior to Act of 1926, regulations 110 107 Acts, successive ^ 1, 110 2, 107 Additional amounts. See Ad valorem penalties and interest on deficiency tax. Additional tax. See Deficiency tax. Adjustment of tax 67, 76, 95, 96, 99 55,65,91,95 Administration expenses 29, 32-35 35, 36-38 See also Nonresident estates '. 52 47 Administrator. See Executor. Ad valorem penalty 76,90-93 65, 88-89 Advance payment, no discount because of 78 73 Advancement, not necessarily taxable 16 25 Agents, Internal Revenue 67,76 55,66 List of „ — 127 Agent of decedent, preliminary notice 59, 60 50, 61 Agent of corporation, nonresident estates 61, 62 52 Agents, recognition and authorization of 73, 74, 76, 99 69, 65, 95 Agreement as to tax , 67,76,93 65,65,89 Alaska, included in the term " United States " 5 4 Alien 11 13 Alter, transfer subject to power to 15 26 Amend, transfer subject to power to 15 25 Amendment of return by Commissioner 75 60 Animals, loss of during administration 39, 52 39, 47 Annuity: Created or reserved in connection with a trans- fer 18 27 Description on return of 12 15 Included in gross estate 11,12 13 Insurance 28 34 Valuation of 13(10), 18 20,27 Antiques, valuation of 13(9) 19 Appeals to Board of Tax Appeals. See Petitions for redetermination of deficiency 9, 76, 77, 85, 95, 99 9,65,72,80, 91,95 Appointment, property passing under power of 24 32 iSee oiso Section 302 (h) — 34 (129) 130 Article Pags Apportionment of tftx, not made by Commissioner. . 87 84 Appraisal lists '.. 13(9), 66 19, 54 Appraisers 13(9) 19 Appraiser's fees, deductibility of 35 38 Assessment against persons other than the executor. . 105 103 Assessment of ad valorem penalty, interest 85 80 Assessment of deficiency tax 76, 77, 85, 105 65,72,80,103 Interest, effect of — on accrual of interest 85 80 Assessment of tax shown on return filed by Commis- sioner, collector, or deputy collector or amended by Commissioner 75,105 60,103 Assets, concealment of 93 89 Assignee. See Personal liability. Attendance, power to require 103,104 101 Attorney, power of 73, 74,76,99 59,65,95 Attorney's fees, when deductible 32, 34, 52 36, 37, 47 Attorneys, recognition and authorization of 73, 74, 76, 99 59, 65, 95 Auctioneers, fees of — deductibility 35 38 Audit of return 67,76, 78 55,65,73 Authority for regulations. See Section 1101. B Balance sheets, copies may be required 66 54 Bank deposits: Checks outstanding at date of death 13(6) 18 Description of, on return 12 15 Interest on 13(6) 18 Joint deposit 22,23 29,30 Nonresident decedent 50, 62 45, 52 Transferor 62 52 Valuation of 13(6) 18 Beneficial interest, person holding: Assessment against 105 103 Returns required from ; 64 53 See also Nonresident estates 70 87 Beneficial ownership in decedent in his lifetime 10 13 Beneficial societies, fraternal death benefits paid by.. 25 32 Beneficiary : Assessment against 105 103 Estate previously taxed, decedent a — of 41 40 Gift previously taxed, decedent a — of 41 40 Insurance, life 25-27 32-33 See aZso Section 302 (h) — 34 Insurance, life, when beneficiary legally bound to use proceeds for payment of taxes or charges ' against estate 26 33 Liability of 56,87, 105 49,84, 103 See aZso Executor; definition of 59,60 50,51 Lien for tax on property of 88 85 Refund claim by . 99 95 Return by 64,70 58,57 Benefits, death 25 32 131 Bequests: "^ " Article Pago, Charitable...... ■.....-.- .... 44-47,' 54, 110 43-44,48,10:( Estate taxis not on any particular 3 4 In lieu of (Jower or like interest 14 23 In lieu of executor's commissions 33 36 ; Public or (jfiaritable - 44-47, 54, 110 43-44,48,107 Betterments to property, not administration expense. 35 38 iSetterments to property, transferred 21 29 Bills — Nonresident estate — situs 50 45 Board of Tax Appeals ..:.... 9, 76, 77, 85, 95, 99 9, 65, 72, 80, 91, 95 Bond of taxpayer required in connection with; Extension' for time of payment 83 77 Release of lien 89 ' 86 Stay of collection of jeopardy assessment 96 .91 Bonds: Description of, on return 12 15 ' Extension of time for payment of tax 83 77 .' Nonresident decedent 50,62 45,52 Pledged to secure a loan 13(3) 16 Of United States, deposit of, in connection with — Extension of time for payment 84 80 Release of lien 89 86 Stay of collection of jeopardy assessment,,. 96 91 Of United States, payment of tax with 81 75 Of United States or of War Finance Corporation owned by nonresident alien 11 13 Release of lien wJien bond filed 89 86 Situs of — nonresident decedent 50 45 Stay of collection of jeopardy assessment 77,85,96 72,80,91 Taxability of Federal, State, or municipal 11 13 Transfer of — of nonresident decedent 62 52 Valuation of 13(3) 16 Books: Falsification of 93 89 Production of 103,104 101 Valuation of . 13(9) 19 Broker's fee, deductibility of 35 38 Brokers in possession of securities or funds of dece- : dent. Notice and return , 59,60,64,70 50,51,53,57 Burden of proof. .See Presumptions and burden of proof. Burial lot 11,31 13,36 Business, interest in 13(4) 17 C Capitalization of an annuity 18 27 Caring for property of the estate, expense of 35 38 Cash on hand or on deposit 13(6) 18 Casualty, losses from 39 39 Cemetery lot 11,31 18,36 Certificate of indebtedness of the United States owned by nonresident alien 11 13 132 Article Page Certificate of o verassessment 67, 78, 99 55, 73, 95 Certificate of release of lien 1 .. 89 88 Certificate permitting transfer of property of non- resident decedent 62 52 Certificates of stock — nonresident estate — situs 50 45 Charges against the estate, life insurance to provide for payment of . 26 33 Charitable uses, transfer to — by will or inter vivos __ 44-47, 110 43-44, 107 See also Nonresident estates 54 48 Checks of decedent, outstanding ___. 13(6) 18 Checks, payment of tax with 56, 80 49, 74 China — estate of United States citizen probated in United States Court for China 5 4 See also Section 321 (a) — 105 Citizenship not test of residence 5 4 Claims held by decedent: Canceled by will 11 13 Inclusion in gross estate 11 13 Valuation of 13 16 Claims against estate, deduction of 36, 52 38, 47 See also 13(3,6) 16,18 Claims for abatement. 95-98 91-98 Claims for refund 99,100 99 Clerk hire, deductibility 35 38 Close corporation, valuation of stock in 13(3) 16 Closing agreements 67, 76, 93 55, 65, 89 Collection of tax 77-86, 96, 102, 105 72-83, 91, 100, 103 Collection of tax, stay of — after jeopardy assessment. 77, 78, 85, 96 72, 73, 80, 91 Collections of coins and postage stamps 13(9) 19 Collector: Extension of time for filing return 68 56 Release of lien by 89 86 Return made by 75 60 To give information only when authorized 73 59 Coins, collections of 13(9) 19 Commissioner: Agreements with respect to the tax 67, 76, 93, 101 55, 65, 89, 99 Certificate permitting transfer of property of nonresident 62 52 Determination of tax by 67,76,78 55,65,73 Extension of time by 69,82^83 57,76,77 Hearings before ' 76 65 Return made or amended by 75 6C Commissions, administrator's, executor's, trustee's. _ 32, 33 36 See also Nonresident estates 52 47 Committee on Enrollment and Disbarment 74 59 Compromise of liability 93,101 89,99 Concealment of assets 93 89 Conditional bequests, charitable, etc 47 44 See also Nonresident estates 54 48 Conference 67,76 55,65 Consent to assessment of deficiency tax. _ — n Retroactive provisions, see Section 302 (h) — 34 Special provisions 10,110 13,107 See also Section 302 (h)-.. — 34 Credit for gift tax.:.... ........11. _'...„. 9(b) 11 Deductions, nonresident estates.!.... _._-J. 52 47 Dower, curtesy, etc . 1"..' 14 23 Insurance 27 . 33 Property passing under power of appoint- ment - 24 32 Property previously taxed 41 40 Successive Acts 7,110 6,107 Transfers 15-17, 20, 110 25-27,28,107 Election to take under will. See Dower, Curtesy, etc. 14 23 Election under insurance policy 28 34 Enhancement of value subsequent to death 13(1) 16 Enhancement of value of property transferred 21 29 Engravings 13(9) 19 Enrollment and Disbarment, Committee on 74 59 Entirety, property held by the 22, 23 29, 30 See aiso Section 302 (h) . , — ,34 Equitable (see Beneficial ownership) 10 13 Error, deficiency resulting from mathematical.. 77 72 Escheated propert y , transfer taxable 3 4 Estate, insurance in favor of .. 25-27 32-33 Estate, for life of another, owned by the decedent 11, 12 13, 15 Estate of decedent, what constitutes 10 13 Estate tax. Act 1924 — 113 Estate tax, Act 1926. See Analytical Table of Con- tents — III Estate tax, prior acts, regulations 110 107 Estate tax. See Tax, estate. Estate taxes imposed by States, etc ^.......-. 9(a), 67, 73 9, 55, 59 Estates, by the entirety, joint, life, remainder, and in remainder or reversion 11, 13(10), 22, 23 13, 20, 29, 30 See aJso Section 302 (h) — 34 Etchings 13(9) • 19 Evidence . 103,104 101 See also Presumptions or burden of proof. - Examination ol Return: Generally Household and personal effects 1. Tax determined after Excess of tax paid over tax determined : Exchange, property acquired by — of property pre- viously taxed.-- 41,43, See also Nonresident estates Ex-dividend — stock selling Executor ; Apprised of result of investigation Commission of . See also Nonresident estates _- i----i- Definition of term for purposes of the Act .._ Discharge from personal liability Duties of — Appraisals File return Furnish supplemental data Give preliminary notice Keep records Pay the tax.. See also Nonresident estates Render statements. ...i .l ....... Reserve suflBcient assets to satisfy total tax. Retain all documents and vouchers.. Retain evidence as "to values _i_i__^ Expense of holding property as trustee, by — not an administration expense 33 36 Failure. See Penalties.- Final accounting, receipt for payment of tax, entitles him to credit ....... Insurance receivable by Legacy to, in lieu of commissions ' Liability of 56, 64, 75, 78, 90-94, 102, Exempt ptates, resident, decedents .. Exemption, $40, 000 of life insurance Exemption, hpmestead or other See also Section 302 (h)__ Exemption, specific . ... None in nonresident estates... Expectation of death ...i... 15, 16, IS, 20, 24, Expenses deductible See also Nonresident estates Extension of time for: Assessment of tax . Filing return See also Penalties—".! , Payment of deficiency tax Payment of tax shown oh return 7653°— 29 10 Article Page 67 55 13(9) 19 76 " 6S 78,99 73,95 tl, 43, 110 40, 42, 107 53 48 11 13 67 55 32, 33 36 52 47 56, 59, 60 49, 50, 51 67,88 55, 85 13(9) 16 64,70 53,57 66,71 54, -58 58, 60 50,61 67, 108 56, 104 79 74 56 49 107 104 78 78 66 54 18(3) 16 78 73 25,26 32 33 36 )2, 105 49,53,60,73 88-90,100, 103 4,57 4,50 25,27 32,33 2 3 — 34 4,48 4,44 4,51 4,47 24, 110 25, 27, 28, 32, 107 29-35 35-38 52 47 77 72 68,69 56,57 90-94 88-90 83, 85" 77, 80 82,84 76,80 138 F ATtlde Plot Padr market value, definition of IS 16 See also Consideration 2, 3 13(4, 6), 15-19, 22-25, 29, 36, 38. 52, HO L7^18,25-28, 29-32^35, aSi 47; 107 False or fraudulent documents — penalty 93,94 89,90 False or fraudulent return 75-77, 91, 94 60-72, 8S, 90 Farm machinery 13(8) 18 Federal bonds, transfer of taxable 11 13 Fees, deductibiBL - 32-35,52 36-38,47 Fiduciaries ,_ 10^ 108 103, 105 Field investigatioD of return ^ 67, 76 55, 65 Final determination of tax by Commissioner 76 65 Fires, losses from 39 39 Foreign country: Citizen of, may be a resident 5 4 Decedent a resident of. See Nonresident estates. , Inventory filed in connection with proceeding? ia. 71 58 Fraudulent docnmeitts — penalty 91,94 89,90 Fraudulent retmn _. .. 75, 77, 91, 94 60,72, 89, 90 Funeral expenses 29,31,52 35,36,47 Furniture, valuation of 13(9) 19 Future interest,, retained by decedent but terminated by his deaths! -..,.-... U 13 Future interest, valuation of 13(10); 20 G General Counsel, Bureau of Internal Revenue 76 66 General power of appointment , 24 32 See aZso Section 302 (h) — 34 Gift: Advancenaent 1 ^® 26 Charitable 1.1---- 4^47, 54, 110 43-44,48,107 Joint tenancy or tenancy by the entirety 22,23 29,30 Previously taxed 41,53 40,48 Transfers : ^-- 15-21 25-29 Gift tax ^^ -.1.. 9(b), 41,53 ll', 40. 4* Goodwill : i^^-'!:l ' I3(4> 17 Gross estate -'11- 4, 10-28, 110 4, 13^3^4, 107 See aZso Section 302 (h) ' — 34 . See also Nonresident estates! — II, 50 1?, 45 Distribution of a. material part of. See Trans- fers 16 25 Every part subject to lien of tax 88 85 Itemized on return .--- 66 54 Release of lien- - — — 1- 88,89 86,86 H Hawaii included in term " United States " 5 4 Hearings in the field or before Comihissioner or Gen- eral Counsel- - -.---:- 67,76,99 6ff, 65, 96 Heir, liabiUty of --_---- 1 . ' ' 106 ' 103 Heirs, real property passing directly to II 13 139 ■ Article P»g» Heirs, when none, transfer by esc.h,eat to State Is taxable ^ 3 4 Homestead arid other exemptions 2 3 See aiso Section 302 (h) — 34 Household effects 13(9) 19 Husband and wife. See Dower; Curtesy; Joint Interests; Tenancy by the Entirety. (See aZso Section 302 (h) — 34 Hypothecated securities ... .. 13(3) 16 Hypothetical annuity, use of, in certain cases 13(10) 20 Hypothetical questions not answered 73 59 I Improvements to estate, expenses of... 35 38 Improvements to property transferred .■ 21 29 Income of property transferred, reservation of, in , favor of grantor or of another 18 27 Income, right to receive, valuation of 13(10) 20 Income tax. Federal: Deduction for 37 38 See also Executor, commission of. 33 36 " In contemplation of death " 15, 16, 18, 20, 24, 1 10 25, 27, 28, 32, 107 Indebtedness of decedent. See Debts. Information concerning estate, duty of person havihgj 66, 103, 104 64, 101 Information return ... . 61 62 Inheritance tax: Cooperation with State officials in charge of 67,73 66 Credit for 9(a) 9 Estate tax is not an....' 3 4 Inheritance: Property acquired by, previously taxed 41 40 Tenancy by the entirety or joint tenancy in property acquired by 23 30 Insurance: Life. (See Life insurance 25-28 See also Section 302 (h) — Losses not compensated by 39 Inspection of return .. 67, 72, 73 Intangible property 10, 13(7) Interest: Accrued at time of death whether ;then payable or not.. .. .... , 11, 13(5, 6) Ad valorem penalty . 85 Bank deposits 12, 13(6) ,,: Bonds... . 12, 13(3) Ceasing at decedent's death ... 11,17 Credit against estate tax claimed in excessive amount ^, — -h-J- 9 Deficiency ta,x.-- r-- 76,83,85 Deposit In banlc 13(6) Estate tax 76,82-85 See also Credit against estate tax claimed in excessive amount 9 32-34 34 39 55 , 58, 59 13, 18 13,18 80 15, 18 15, 16 13,27 9 65, 77,80 18 65, 76-80 140 Interest — Continued. Article Page Extension of time for paying tax 82-86 76-80 In business _. 13(4^ 17 Jeopardy assessments- ^ 8S 80 Mathematical error. ^ 85 80 Mortgages against estate 38,52 38,47 Mortgages owned by decedent. 11, 12, 13(5) 13^ 15^ 18 Notes owned by decedent _ 11, 12> 13(5) 13,18 Penalty ... 85 80 Rate of — ^ as affecting value of obligation 13(5) 18 Refund.. . 99,100 95,99 Stay bond j. , 85 80 Tax shown on return 82,84 76,80 See aho Credit against estate tax claimed in excessive amount .-, 9 9 Taxable, general statement 2,10 3^13 Internal Revenue Agent 67, 76 66, 65 Internal Revenue Agents in Charge, list of — 127 Intestate laws, transfers under, taxable 2 3 Inventory filed in connection with proceedings in foreign country , 71 68 Inventory itemized. See Return 66 64 lavesMgation of Return: Generally 67 66 , Household and personal effects 13(3) 19 Tax determined after ... . 76,78 65,73 Irrevocable trust 19,110 28,107 J Jeopardy assessment 76-78, 85, 95, 96 66-73, 80, 91 Jewelry 13(9)' ' 19 Jiointly owned property. , 22,23 29,30 iSee aJso Section 302 (h) , ,. — 34 Joint interest or deposit 22,23 29,30 /See aJso Section 302 (h) — 34 Judgment in suit for recovery of tax , 99 95 Judgment of local court, effect on deductions.., 30 35 Judgment owned by decedent 12 15 See oiso Valuation — Intangibles 13(7) 18 L Land contract, description of 12 1!5 Legacy, estate tax is not upon any particular 3 4 Legacy for public, charitable, religious, etc., uses 44-47,54 48-44,48 Legacy in lieu of commissions 33 ' 36 Legacy tax: Cooperation with state oflBcials in charge of 67, 73 55, 59 Credit for.. . 9(a) 9 Estate tax is not a .. ..I..: 3 4 Legal interest — person holding required to make return -.. 64,70 63,67 56, 75, 79, 49, 60, 74 87, 102, 105, 84, 100, 103 108 105 141 Liability: Articis Page Contingent, deduction of 29 36 Of administrator, assignee, beneficiary, devisee> distributee, executor, lieir, legatee, person in possession, transferee, trustee --, Penalties. 90-94 88-90 Liberty Bonds: Deposit of in connection with extensions of time, release of lien, or stay of collection 83, 89, 96 77, 86, 91 Payment of tax with 81 75 Transfer of taxable 11 13 Lien for the tax, and release of 88, 89, 105 85, 86, 103 Life estates or interests : Created or reserved in connection with a trans- fer 18,44 27,43 Taxable— 11,12 13,15 Valuation of 13(10) 20 Life insurance 25-28 32-34 See oJso Section 302 (h). 34 Description on return of policy of 12 15 Nonresident decedent.. 50 45 Life, income of property transferred, reserved for 18 27 Limitation of deductions in nonresident estates 52-55 47-49 Limitation of local law on deductible expenses 29,30 35 Limitation of time, claim forrefund 99 95 Limitations, statute of 36, 77, 99, 105 38,72,95, 103 Limited estates and annuities. 11, 12, 13(10), 18, 28, 44 13, 15, 20, 27, 34, 43 Literary uses . . 44,54 43,48 Litigation to determine respective shares" of bene- ficiaries .-..:_... ---- 34 37 Livestock, valuation of 13(8) 18 Loan secured by pledge 13(5) 18 Loan, life insurance to secure a 25 32 Lodge, death benefits paid by 25 32 Losses during administration 39, 52 39, 47 M Machinery, farm 13(8) 18 Margin,, securities purchased on 13(3) 16 Market value 13 16 See also Consideration. 2, 13 (4, 6), 15-19, 22-25,29, 36, 38, 52 3, 17, 18, 25-28,29-32, 35, 38, 47 Mathematical error, deficiency resulting fr6m 77, 85 72, 80 Mausoleum 31 36 Miscellaneous administration expenses — >- 29, 32, 35 36, 36, 38 Missionary, residence of 5 4 See also Section 303 (f). - — 45 Modified articles of Regulations 37, 63, and 68. 110 107 Money due nonresident decedent, situs of 50 46 Money in joint account — .. 22,23 29,30 See ai«o Section 302 (h) — 34 Money on deposit 13(6) 18 Monument, deduction for — 31 36 Mortgage owned by decedent 13(5) 18 See aJso Nonresident estateft— situs 50 46 142 Mortgage, dednction of Miuiicipal bonds, trailer of, taxable . N Net estate , Deductions Nonresident estates Net losees during administration Nonresident estates (see, generally, titles under gen- eral index) : Agent, transfer Agents of nonresident decedent Bankers—- ' Beneficial interest, person holding Bonds--- . 11, 50, 61, 62 Certificates permitting transfer of stocks, bonds, or other property Deductions See aiso specific titles under deductions. Defined. 1 6 Executor shall — Give notice and make return Pay the tax 66,81 Gross estate Information concerning, requirement of Information return Insurance in domestic company — not part of gross estate . Missionaries, residence of See also Section 303 (f) Moneys due from domestic debtors — when part of gross estate Moneys on deposit Net estate — ^faow determined Notice - Payment of tax and interest Person holdi-ng beneficial interest, or in actual or constructive possession 56, 60-62, TO, 76, 79, 102, 106 Personal property-^ When included in gross estate Property in the United States Eeal property in the United States-- Real property outside the United States Beturn -.i. ^ Situs of property Specific exemption, none Stock in domestic corporation Supplemental data - ' • .Transfer agent ^ Transfer by decedent - :.; Transfer certificates _,- _ . , :■ United States; bonds, notes and certificates of - : indebtedness , . War Finance Corporation, bonds i_j .- Article F««e „ ,,, 38,62 38,47 11 13 3,4 4 29-48 25-44 61-56 47-49 39 39 61,62 52 60 51 60,62 51,52 70, 105 57, 103 50, 61, 62 13, 44, 52 62 52 61-64 47-48 10, 70, 105 61, 67, 103 i6, 81, 105 49, 75, 103 11,60 13, 45 61, 70, 71 52, 57, 58 61 52 60 45 5 4 — 45 50 46 60 46 51-55 47-49 60-62 51-52 56, 78-85 49, 73-80 », 102, 106 49,61^2,57, 60,74,100,103 60 45 11, 50, 60 13, 45, 51 11,60 13,45 11,62 13,47 61, 70, 71 52, 57, 58 50 45 4,48,51 4,44,47 60 45 71 68 61, 62 52 50 45 62 52 11 13 11 13 143 Notes: Article Pags Canceled by will 11 18 Description of — on return 12 16 Nonresident estates — situs 60 46 Valuation of 13(5) 18 Notes or bonds of the United States : Deposit of in connection with — Extension for payment 83 76 Release of lien 89 86 Stay of collection of jeopardy assessment 96 91 Payment of tax with 81 75 Transfer of — taxable 11 13 Notice : Failure to file preliminary 92 89 False or fraudulent-. 76,91 65,89 Fiduciary . 105,108 103,105 Jeopardy assessment without prior 76,77 65,72 Of final determination of tax... 67, 76, 78, 105 55,65,73,103 ' Of jeopardy assessment 76,77 65,72 Of requirement of bond 83 77 ' Of tentative deficiency tax. 67, 76, 78, 105 55,65,73,103 Of unpaid tax , 67,78 55,73 Preliminary .... 57-61 50,52 Transferee or fiduciary 105, 108 103, 105 O Officers — list of Internal Revenue ; — 127 Oral hearing on protest 76 66 Oriental rugs 13(9) 19 Overassessment, Certificate of 67, 78, 99 65, 73,95 P Paintings, valuation of 13(9) 19 Partner, decedent's interest as 13(4) 17 Patents, valuation of. See Intangibles 13(7) 18 Payment of claims and' interest 100 99 Payment of debts, expenses incident to . 32 36 Payment of tax 78-85 '73-80 By uncertified check 80 74 ;' Credits against tax 9 9 Disclosure in regard to .. 72,73 58,59 Due date for... ^ 78 73 Exe6utor shall' make 79 74 Extension of time — Deficiency tax 83 77 Tax shown on return 82 76 I... Nonresident estates 56 49 Penalties J — - 80,93 74,89 Proceedings to enforce . . 76, 77, 86, 105 65,72,83,103 Receipt for . ." -., -— , 78 73 Settlement of executor's accounts — receipts for estate tax entitle to credit in 78 73 Suit to enforce .".r-.-J--...... 105 103 With certain bonds and notes of the United States .-.:...:...:.-..-.. si 7S 144 Article Penalties ----- -- 90-94 Ad valorem «S, 90-93 Assertion and assessment of 76, 77 Check , tender of may not prevent 80 Compromise of 101 For assisting, procuring, or advising the prepa- ration or presentation of false or fraudulent documents 94 For delinquency 75, 90-94 For failure to exhibit records or property 93 For failure to file notice or return 67, 75, 92 For failure to furnish information or copies of documents, upon request 66 For failure to pay tax 80, 93 For false and fraudulent notice or return 75, 91 Interest on ad valorem penalty 86 Nature of 90 Notice, delinquency in connection with 57, 92 Preparation or presentation of false or fraudulent return 1 91, 94 Refund of 99, 109 Remission of 101 Return, delinquency in connection with 76, 91, 92 Specific 57,90-94 Person in actual or constructive possession — when, must file notice or return or information return. 59, 60, 61, 64, 70 See also Personal liability. Personal effects, valuation and distribution of 13(9) Personal liability — persons subject to — administrator assignee, bank, beneficiary, custodian, devisee, dis- tributee, executor, fiduciary, heir, legatee, person , in possession, transferee, trust company, trustee.. 56, 61, 75j 79, . 87, 88, 102, 105, 108 See also Check not paid at par 80 Personal property: Description of, on return 12 See also Nonresident estates . -^ SO Valuation of 11, 13 Persons required to give notice or make return !58-61, 62, 64, 70 Petition for redetermination of deficiency 9, 76, 77, 86, 95, 99 Philippine Islands, not included in term "United States" 5 Pledge - 36 Pledged securities ■ 13(3) Policy of life insurance 12,25-28 Porto Rico, not included in term "United States"... 5 Postponement of possession or enjoyment: Charitable deductions 44 Transfers 18 Valuation. I 13(10) Page 88-90 80, 88-89 65,72 74 99 90 60, 88-90 89 50, 60, 89 54 74,89 60,89 80 88 60,89 89,90 95,99 99 60,89 50, 88-90 50, 51, 62, 53, 57 19 49,51,60,74, 84, 85, 100, 103, 106 74 16 44 13,16 50-62, 53, 57 9, 66, 72, 80, 91, 96 4 38 16 15, 32-34 4 48 27 20 145 Article Power of appointment, property passing under 24 See also Section 302 (h) — Power of attorney 73, 74, 76, 99 Power to change enjoyment of transfer 19, 20, 110 Power to use fund for noncharitable purpose 47 Power to secure evidence 104 Preliminary notice 57-60 Failure to file, 90,92. False or fraudulent 90, 91, 94 Preparation of return. 1, 2, 41, 43, 46, 61, 65, 70 Preparation or presentation of false or fraudulent docimients, penalties 90, 91, 94 Present worth, of annuities and future interests 13(10) Presumption or Burden of Proof: . Conclusive 2, 16 Consent decree, deductions 30 Property held jointly or by the entirety 23 Property taxed previously 41, 43 Refund claim ; 99 Residence 5 Taxability of transfers, if not rebutted the value of transfers must be returned 16 .'] Two yeaus of death, transfer within 2,16 Previously taxed property ; 41-43, 110 See also Nonresident estates 53 Privileged character of return and other records 72-74 Procuring preparation or presentation of false or fraudulent documents, penalties 91, 94 Production of evidence 103, 104 Promulgation of regulations 110 Proofs. See Presumption or Burden of Proof. Property, description of, on return 12 Property previously taxed , 41-43, IIQ See also Nonresident estates 53 Property, situs of , 11,50 Property subject to lien of tax . 88 Property tax, estate tax is not a 3 Property, taxes on, deductibility 37 Property transferred — inclusion ^n gross estate 15-21, 1 10 Property, valuation of 13 Protest against proposed or tentative determination of deficiency.. ...J... 67, 76 Q Question of law, ruling on by Commissioner ... 73 R Rates of tax (sec. 301) ^., . . . . 7 Real estate (generally),^..^.--' 1 .. 10, ll, 13(2) Assessment for local taxation not determinative of value - — 13(2) -, Devisee, taking directly... 11 Description of, on return . 1. _. 12 Entirety, estate by 22, 23 Page . .: 32 34 59, 65, 95 28, 107 44 101 50-51 88, 89 88, 89, 90 2, 3, 40, 42, 44, 52, 54, 57 88, 89, 90 20 3 35 30 40, 42 95 4 25 3,25 40-42, 107 48 58-59 89,90 101 107 13 40-42, 107 48 13,46 85 4 38 26-29, 107 16 65, 66 59 5 13,16 16 13 16 29,30 146 Real estate (generally) — Continued. Article Page Heirs taking directly 11 18 Life estate 11,13(10) 13,20 , Mortgaged, full value to be returned 38 38 Mortgage on 38,52 38,47 Outside the United States 11, 38, 52-54 13, 38, 47-48 Remainder interest in 11,13(10) 13,20 Taxes on. See Deductions 37 38 VaJuatiQpof 13(2) 16 Receipts granted upon payment of tax 78 73 Reciprocity with State officials- 67 55 Recognition of attorneys, agents, and other repre- sentatives 73, 74, 76, 99 69, 65, 95 Records: Duty of person having possession or control of_- 66, 93 64, 89 Executor, duty to keep 106 104 Falsification of 93,94 89,90 Production of 103,104 101 Redeterimination of deficiency , 76 65 Refund . 99,100 95,99 Credit for State inheritance and similar taxes allowed 9(a) ■ 9 Determined tax less than amount paid 78 73 Of taxes for which credit was claimed, should be reported 9 9 Registrar, nonresident estate — when to file informa- tion return • 61 52 Regulations, authority for ._ 110 107 Regulations 37, 63, and 68, modified 110 107 Reimbursement, for payment of estate tax 87 84 Release of lien 88,89 86,86 Relationshipof beneficiary does not affect taxability.. 3 4 Relief from excessive assessment or collection 95-99 91-96 Religious use - . 44,54 43,48 Relinquishment of power to alter, amend, or revoke a transfer 15,20 25,28 Relinquishment of right power or interest. See see. 302(h) ^ 34 Remainder, interest in reversion or: Death of grantor terminating. 11 13 Deductibility of . 44 43 Inclusion of 11 13 Valuation of ..'...:.: 13(10) 20 Remedies for coUebtion '. 106 103 Rents, accrued at time of death — whether then pay- able or not _-_--- 11 13 Repeal of Revenue Act of 1924, and of certain parts' of the Revenue Act of 1926, scope of 109 107 Representatives of claimants, recognition and author- ization of -- ---- 73,74,76,99 59,65,95 Representatives of decedent, preliminary notice 59, 60 50, 61 Reservation of annuity or income in favor of grantor or of another made in coiihectioh with a transfer 18 27 147 Reservation or retefttlon of power to alter, amend, or Artide Page revoke transfer 19,20,110 28,107 ' See aZso Sfe'ction 302 (h) — 84 Resident decedent: Definition. _•_ 5 4 ■ Deductions..- 29-48 25-44 " Gross Estate ^ 4,10-28 4,13-34 " /See oZso Section 302 (h) — 34 Presumption i. 5 4 Restrictions on assessment, waiver of . 76, 85 65, 80 Specific exemption .^i 4,48 4,44 Retention of power to alter, amend, or revoke trans- fer -. 19,20, 110 28, 107 Retroactivc/Or retrospective provisions 1, 9, 15, 16, 17, 2, 9, 25, 27, 22,27,41,99,110 29,33,40,95, 107 See aZso Section 302 (h) .-. — 34 Return: ' Administrator to file 64,70,75 53,67,60 Audit ofll .- 76 66 Beneficialinterest, person holding, when to make return.'.: 64,70,108 53,57,105 Charitable bequest 46 44 Commissioner or collector — Securing evidence 103 101 When to make ..- '.'- 75 60 Confidential 72 58 Copy of_L ^ 72 58 Delay in filing, penalties 75,90,92 60,88,89 Deductions , -— - -- 29-48 35-44 Description of property on . ■, 12 15 Disclosuie in regard to - _- 67,72,73 55,58,59 . Due date— l._i.. — •63,68-70 53,56-57 Examination of ..^, — -.. 13(9), 67, 77 19,55,72 Executor to file 64^70,75 53,57,60 jEistensiom of time for filing.. ^ 68,69 56,57 Failure to file, penalties 75,90,92 60,88,89 .: False or fradulent _. 75,76,90,91,94 60,65,88, Y 89,90 Filing...---^ 63,68^70,75 63,56-57,60 ' ; Information return 61 52 Interest on tax shown on 84 80 Investigation, of 67 56 Mathematical error in..... 76,77,85 65,72,80 .■ . Nonresident estates ... 61,70,71,75 51,57,68,60 Nontaxable estates ,4,6 4 ., Ptenalties..-1.^--,- 90-94 88,90 Persons liable for return — Nonresident estates .- : 61,70 62,57 Resident estates..; ....... 64 53 Preparation of , ^- — 12,65 16,53 See aZso JNonresident estates 61,70 61,57 Privileged cTiaracter of return . 72-74 58-59 Property previously taxed ........ ... 41-43 40-4*2 Resident estates 63-69 63-57 148 Return — Continued. Article Page Tax shown by, payment of 78-82,84 73-76,80 Transfers claimed to be not taxable - . 16 25 Verification of ^ 67 55 When required — Nonresident estates 61, 70 62, 57 Resident estates 63 53 Will to be filed with-.. ... 46,65,71 44,54,58 Reversionary interest, inclusion of 11 13 Revenue Act 1924, estate tax title — 113 Revenue Act 1926, Title III, as amended and sup- plemented by the Revenue Act of 1928. See Analytical Table of Contents — in Revenue agents in charge, list of — -v 127 Revocable trust 15, 19, 20, 110 26, 28, 107 See aiso Section 302 (h) — 34 Revocation, reservation in connection with trans- fer— of power of 15, 19,20, 110 26,28, 107 See aiso Section 302 (h)._. — 34 Royalties, valuation of. See Intangibles 13(7) 18 Rugs, oriental, valuation of _. 13(9) 19 S Safe deposit companies, preliminary notice by 59, 60 50, 51 Salary due the decedent 11 13 Sale for less than an adequate and full consideration. See Transfers 16 25 Sale of property as indication of value at time of death... 13(1)(3) 16 Sale of property under a power of appointment 24 32 Sale, when cost of, is an administration expense 35 38 Scope of repeal of Revenue Act of 1924 109 107 Securities of nonresident decedent ^ 50, 61, 62 45, 52 Securities, valuation of 13(3) 16 Settlement of estate: Administration expenses 29-35, 37, 62 86-38, 47 Losses during . 39 39 Support of dependents during ..^^ ^.. 40 39 Tax paid, credit for, in 78 73 Shares of stock. See Stocks and bonds 13(3) 16 Shipwreck, losses from 39 39 Silverware, valuation of 13(9) 19 Situs of property 11,50 13,45 Special power of appointment 24 32 Specific exemption..! . =. 4,48 4,44 None in nonresident estates 4,48,51 4,44,47 Specific penalty.:. 76, 90-94 65, 88-89 Spouse surviving. (See Dower; Curtesy; Home- stead and other exemptions; Previously taxed property; Support of dependents; Jointly owned property; Tenants by the entirety.) Stamps, collections of 13(9) 19 State bonds, transfer of, taxable 1 11 18 149 ..',■■•• Article 1 Page State ofBcials, cooperation with -- 67, 73 55, 59 State taxes: Cooperation with officia,l8- 67,73 55,59 Credit for estate, inheritance, legacy, or succes- sion : 9(a) 9 Dedaction of ^ _.... 37 38 Statements, executor's duty to render 107 104 Statuary, valuation of 13(9) 19- Statute of limitations 36,77,99 38, 72, 95 Statute, text of: 1924 . — 113 1926, as amended and supplemented by the Rev- enue Act of 1928. See Annalytical Table of Contents — ■ in Stay bond . 77, 85, 96 72, 80, 91 Stocks and bonds: , Nonresident estates 60,61,62 46,52 Valuation of. _^ 13(3) 16 Subpoenas. See Evidence— ---. 103, 104 101 Subscription.. ■.^;.^ . 36 38 Succession tax; Credit for 9(a) 9 Cooperation with state officials 67, 73, 65, 59 Estate tax is not a 3 4 Suit, collection of tax by .... ... . . . 86, 105 83, 103 Supplemental data may be required 46,66 44,54 Nonresident estates - .,. 71 58 Support of dependents j. 40 39 Surrogates' fees 35 38 Surviving partner, succeeding to interest of the de- ; cedent-..- — -„-.---- .--4- 13(4) 17 Surviving spouse. (See Dower; Curtesy; Homestead and other exemptions; Previously taxed property; Support of dependents; Jointly owned property; TenSints by the entirety.) Survivorship, property passing by right of 22,23 29,30 5ee aiso Section 302 (h) — 34 T liable: Annuity and remainder .....l 13(10) '20 ' Computation of tax 8 7 Of contents (see front hereof) . — in Taxrates- 7 5 Tax Appeals, Board of.-. - — 9, 76, 77, 85, 95, 99 9, 65, 72, 80,91,9.5 Tax, Federal estate : Abatement 95 91 Act 1924- Jr -----T . — 113 Act 1926, as amended and supplemented by the Revenue Act of 1928. See Analytical Ta,ble of Contents --U — t'-V--- — m Acts, regulations respecting prior 110 107 AotSi successive* 1 2 150 Tax, Federal estate — Continued. Artiota Bjge Additions to. (See Interest on deficiency, and ' ad valorem penalty.) Agreement as to 67,76,93 66,66,89 Assessment of deficiency 77 72 Character of 3 4 Collection of 77-86, 96, 102, 105 72-83, 91, 100, 103 Computation of 6-8 6-6 Credits against 9 9 Deduction on account of payment of previous. . 41 40 Deductions generally 29-48 35-44 See a/so Nonresident estates 52-54 47-48 Deficiency tax. (See Deficiency tax.) Determination of --. 6-8,55 4-7,49 Bureau procedure 67,76,78 66,85,73 Disclosure in regard to amount or payment of. _ 72,73 58,59 Due date of 78 73 Executor shall pay the tax 79, 105 74, 103 See also Nonresident estates 56,62 49, 62 Gross estate 4,10-28 4,13-34 See also Nonresident estates 50 46 Interest on — Deficiency 76,85 65,80 Refund 100 99 Tax shown on return 9,82,84 9,76,80 Liability, manner of determining 6 5 Liability of persons and property 56,62, 49,52 76, 79, 87, 88, 102, 105, 108 66,74,84, 85, 100, 103, 105 Lien for 88,89 86,86 Life insurance, to provide for payment of 26 - 33 Nature of '. 3 4 Payment essential to deduction for • previously taxed property . 41 40 Payment of. (For analysis, see Payment of tax). 9,78,85, 9,73-80 87-80 84^86 See also Nonresident estates . 56 49 Penalty for failure to pay 93 89 Rates of 7 5 Refund of tax and penalties.. 99,,109 95,99 Return, filing of l.: ...._._. 63, 68-70, 7^ '53, 56-57, 60 Shown on return. (For analysis, see Tax shown on return.) ..... 9,78-82,84 9,73-76,80 Text of Act. See Analytical Table of Contents. . — iil Text of Part I, Title III, Revenue Act of 1924.; — 113 Tax, federal gift tax 9(b), 41, 53 U, 40, 48 Tax, federal income 37 38 Tax liability: ' Determination of 67,76 55,66 Discharge of 67, 78-81, 89 55, 73-75, 86 Persons and property subject to 56, 62, 49, 52 75, 79, 87, 88, 102, 105, 108 60,74,84,85, ' 100,103,106 76 9,76, 80 85, 86 9,49,73-76, 89 95, 99 9,73, 80 4 151 Article Page Tax shown on return: Extension of time for payment 82 Interest on. 9,82,84 Lien of... J 88,89 Payment of 9,56,78-82,93 Refund of-.-. 99,100 Undischarged . 9,78,84 Taxable estates 4 Taxation, locaJi assessment for, not determinative of value ..-_. , 13(2) 16 Taxes, credit for estate, legacy, inheritance, or suc- cession — levied b-y other sovereignties 9(a) 11 Taxes, deduction of 37 38 Taxes due the United States, payment of before refund of Estate Tax '. 100 99 Taxes, estate, inheritance, legacy, or succession — levied by other sovereignties: ., Cooperative investigation 67,73 . 65,59 Credit for.'- . 9(a) 9 Deduction, none for 37 38 Taxes, life insurance to provide for payment of 26 33 Taxes, rules determining deductibility 37 38 Tenancy in oonimon, joint, or by the entirety 22, 23 29, 30 Tenants, life. iSee Life estates or interests. Tentative finding of deficiency tax 67,76 55.65 Text of estate tax title Revenue Act of 19241..: — 113 Text of esta,te tax title. Revenue Act 1926 as amended and supplernented'by Revenue Act of 1928, for , references to — see Table of Contents ■ — iii ■testimony, taking ..'1.....-L... 103,104 101 Theft, losses from ... j . . 39 39 Time: See Retrospective provisions, section 302 (h)_ — 34 '„ See also— ' Acts, successive .. ... 1,110 2,107 Dower and cm-tesy 14 23 Effective dates of the successive Acts 7 5 General., . 1.- .' 2, 10 3, 13 Insurance ..... 25,27 32,33 Notice ,. 67,60 50,51 , ■ , Payment of tax 78 73 Power of appointment .. 24 32 Property previously taxed 41 40 Refund... 99 ' 95 Return 63,70 53,57 Transfer 15-17,110 25-27,107 Time, deposits 13(6) ■ 18 Title vested in decendent and one or more other per- sons., 22,23 29,30 .Tombstone . . 31 36 "I^ade-marks, valuation of. See Intangibles.' . 13(7) ' 18 Transfer agent, nonresident estate, when to file Information return.' 61 52 152 Article Pago Transfer certificate permitting the transfer of prop- erty of nonresident decedent 62 52 Transfer of net estate taxed, nottlie property 3 4 Transfer of securities, nonresident decedent 62 52 Transferee, 87, 88, 105, 108 84, 86, 103, 106 (See aZso Executor; definition of 59,60 51 Transfers, by will or under intestate laws 2 3 Transfers made by decedent in his lifetime 15,21 25,29 Additions or betterments to property transferred. 21 29 Charitable uses 44-47,54 43-44,48 Checks outstanding at date of death 13(6) 18 Consideration for 2, 16-19, 110 3, 26-28, 107 Date of transfer L. 15, 17, 110 25, 27, 107 See aiso Section 302 (h) — 34 Deductibility of value included in gross estate, when for charitable uses 44-47,64 43,44,48 Future interest retained by grantor and termi- nated by his death 11 13 General : 15-21 26-29 In contemplation of death 15, 16, 18, 20, 110 26,27,28,107 In excess of $5,000 2,16,20 3,25,28 Income of property transferred, payable to decedent or to third person . 17 27 Intended to take effect in possession or enjoy- ment at or after death 11, 15, 17-19 13, 26, 27-28 Interest retained by grantor and terminated by his death 1.--. 11 13 Liability and lien for tax 87, 88, 106, 108 85,. 86, 103,105 See oJso Executor; definition of 69,60 50,51 Nonresident making 50 45 Presumption. See Transfers; deemed or held to be taxable 16 25 Property subject to lien for tax 88 85 Reimbursement for tax paid on 87 84 Remainder interest retained by transferor, ter- minated by his death 11 13 Retrospective provisions 15,17 25,27 See also Section 302 (h) ... — 34 Situs of property transferred by nonresident 60 45 Time of 2,15,16 3,25 See also Section 302 (h) . — Transferee 87,88,105,108 84,85, 103, 106 When an "executor" . 69,60,70 50,61 Trust, property held in.. 15,88 25,85 Trustee 87, 88, 105, 108 84, 85, 103,' 105 When an "executor" 59,60,70 50,51,57 Valuation of property transferred.., 18,21 27,29 153 Article Page Transfers previously taxed 41-43, 53, 110 40-42,48,107 Treasury Decisions 3487, 3842, 3951, 4064, 4065 110 107 Trust company, money deposited with and payable to survivor 22 29 Trust company, nonresident estate 61,62 52 Trust, revocable or irrevocable 19, 110 28, 107 Trustee 87, 88, 105, 108 84, 85 103, 105 When an "executor" 59,60 50,51 Trustee's commissions, not deductible 33 36 U Uncertain liability, deduction for 29 35 United States Board of Tax Appeals 9, 76, 77, 85, 95, 99 9, 65, 72, 80, 91, 95 United States, nonresident alien owning certain obli- gations of , 11 13 United States, use of term in the Act - 5 4 Undischarged tax 67, 78, 83, 84, 85 55, 73, 77-80 Use, personal, or nonincome-bearing property, valu- ation of 13(10) 20 V Valuation, rules for 13 16 Life insurance 28 34 Previously taxed property 41 40 Transfers, property in certain 18,21 27,29 Vases, valuation of 13(9) 19 Verification of return,. 67, 76, 78, 103, 104 55,65,73,101 Vested remainder .. 11,13(10) 13,20 Vouchers, duty of executor to retain 65 54 W Waiver : Release of lien... ^ 88,89 86 Transfer certificate, nonresident decedent 62 52 Waiver of restrictions upon assessments 76,85 65,80 Waiver of personal inspection of household and per- sonal effects by officer of Bureau 13(9) 19 War Finance Corporation 11 13 Warehouse companies, duties in connection with nonresident estates 59, 60 50, 51 Widow. {See Dower; Homestead and other exemp- tions; Joint interest; Previously taxed property; Support of dependents; Tenants by the entirety.) Will: Canceling obligations due the decedent 11 13 Copies to be filed with return 46, 65, 71 44, 54,58 Creating joint tenancy or tenancy by the en- tirety 23 30 Election to take under 14 23 Exercise of power of appointment by 24 32 T653°— 29 11 154 Will — Continued. Article Notes or other claims canceled by 11 Property acquired under and previously taxed. _ 41, 53 Return, copies of will to be filed with 46, 65, 71 Transfer by, for public, charitable, and similar uses 44, 54 Transfers by, taxable 2 Willful. See Penalties. Witnesses, examination of 103, 104 101 Works of art, valuation. -- ._ 13(9) 19 Page 13 40,48 44, 54, 58 43,48 3 ADDITIONAL COPIES 0» THIS PUBLICATION MAT BB PHOCDEBD FBOU THS SDPERINTENDJENT OF D0CCHEM18 V. 8. GOVERNMENT FEINTING OFnCE IVASHINQTON, D. C. iT 26 CENTS PEB COPY V U.S. TREASURY DEPARTMENT BUREAU OF INTERNAL REVENUE REGULATIONS 80 (1934) RELATING TO ESTATE TAX INCLUDING ESTATE TAXES UNDER THE REVENUE ACTS OF 1926 AND 1932 AS AMENDED UNITED STATES GOVERNMENT PRINTING OFFICE WASHINGTON : 1934 ^ For sale by the Superintendent of Documents. Washington, D. C. --------._.,_ Price 15 cents REGULATIONS 80 KBXATING TO THE ESTATE TAX TJNDEB TITLE III OF THE REVENUE ACT OF 1926 As Amended and Supplemented by the Revenue Acts of 1928, 1932, and 1934 AND THE ESTATE TAX TJNDEK TITLE II OF THE REVENUE ACT OF 1932 ANB THE REVENUE ACT OF 1932 AS AMENDED BY THE REVENUE ACT OF 1934 TABLE OF CONTENTS (The section numbers refer to the statute, and the article numbers to the regulations) Page Section 300. Definitions 1 Section 301. (a) Description of tax 1 Section 401. Revenue Act of 1932 2 Section 405. Revenue Act of 1934 4 Article 1. The various statutes S 2. Transfers and interests reached 7 3. Neither a property nor an inheritance tax 7 4. Description of taxable estates 8 5. Definition of "citizen," "resident" and "nonresident" 8 6. Manner of determining liability 9 7. Rates of tax 10 8. Computation of tax 10 Section 801. Revenue Act of 1932. Credit for gift tax 17 Section 402. (b) Revenue Act of 1932 17 Section 404. Revenue Act of 1928. Credit for gift tax 18 Section 322. Revenue Act of 1924. Revived 18 Section 301. (b) Credit for inheritance taxes 18 Section 802. Revenue Act of ?932. Credit for inheritance taxes.. 19 Section 402. (a) Revenue Act of 1932 19 Article 9. (a) Credit for gift tax 19 (b) Creditforestate, inheritance, legacy, or succession taxes. 21 Section 302. Oross estate 24 Section 302. (a) General 24 Section 404. Revenue Act of 1934 24 Article 10. Character of interests included 24 11. Specific property to be included 24 (ni) IV Section 404, Revenue Act of 1934 — Continued. Page Article 12. Description of property listed on return 26 13. Valuation of property 27 (1) General 27 (2) Real estate 27 (3) Stocks and bonds 27 (4) Interest in business 29 (5) Notes, secured and unsecured 29 (6) Cash on hand or on deposit 29 (7) Intangibles 30 (8) Other property 30 (9) Household and personal effects 30 (10) Annuities, life, remainder, and reversionary interests. 31 Section 302. (b) Dower and curtesy 35 Section 404. Revenue Act of 1934 35 Article 14. Dower and curtesy 35 Section 302. (c) (d) (i) Transfers by decedent in his lifetime 36 Joint Resolution of March 3, 1931 (Public No. 131 — 71st Congress). 37 Section 803. (a) Revenue Act of 1932 37 Section 804. Revenue Act of 1932 37 Section 401. Revenue Act of 1934 38 Section 404. Revenue Act of 1934 38 Article 15. Transfers during life 38 16. Transfers in contemplation of death 40 17. Transfers conditioned on survivorship 41 18. Transfers with possession or enjoyment retained 41 19. Transfers with right retained to designate who shall possess or enjoy 42 20. Power to change enjoyment 42 21. Power relinquished in contemplation of death 43 Section 302. (e) Property held jointly 44 Section 804. Revenue Act of 1932 44 Section 404. Revenue Act of 1934 44 Article 22. Property held jointly or as tenants by the entirety 44 23. Taxable portion 45 Section 302. (f) Property passing under power of appointment 46 Section 803. (b) Revenue Act of 1932 47 Section 302. (i) 47 Section 804. Revenue Act of 1932 47 Section 404. Revenue Act of 1934 47 Article 24. Property passing under general power of appointment 47 Section 302. (g) Insurance 48 Article 25. Taxable insurance 48 26. Insurance in favor of the estate 49 27. Insurance receivable by other»beneficiaries 49 28. Valuation of insurance 50 Section 302. (h) Retroactive provisions 50 Section 303. (a) (1) Deductions — Estates of citizens or residents.. 51 Section 805. Revenue Act of 1932 51 Section 804. Revenue Act of 1932 52 Section 403. (a) Revenue Act of 1934 62 Article 29. Deduction of administration expenses, claims, etc 52 30. Effect of court decree 52 Section 403. (a) Revenue Act of 1934— Continued. Page Article 31. Funeral expenses 53 32. Administration expenses 53 33. Executor's commissions 53 34. Attorney's fees 54 35. Miscellaneous administration expenses 56 36. Claims against the estate 55 37. Taxes— 65 38. Unpaid mortgages 55 39. Losses from casualties or theft 56 40. Support ot dependents 56 Section 303. (a) (2) Property previously taxed 56 Section 806. (a) Revenue Act of 1932 57 Section 402. Revenue Act of 1934 57 Section 403. (a) Revenue Act of 1934 58 Article 41. Deduction of the value of transfers previously taxed 58 42. Property originally received- - .. 63 43. Property acquired in exchange 63 Section 303. (a) (3) Transfersfor public, charitable, religious, etc., uses 63 Section 807. Revenue Act of 1932 64 Section 403. (a) Revenue Act of 1934 64 Section 406. Revenue Act of 1934 .. 64 Article 44. Transfers for public, charitable, religious, etc., uses 64 45. Religious, charitable, scientific, and educational corpora- tions 66 46. Proof required 66 47. Conditional bequests 66 Section 303. (a) (4) Specific exemption 67 Section 401. (c) Revenue Act of 1932 67 Section 403. (a) Revenue Act of 1934 67 Article 48. Specific exemption 67 Section 303. (d) (e) (f) Estates of nonresident aliens '___ 67,68 Section 403. (d) Revenue Act of 1934 68 Article 49. Gross estate 68 50. Situs of property 68 Section 303. (b) (c) Deductions — Estates of nonresident aliens. _ 69, 70 Section 401. (a) (b) Revenue Act of 1928 70 Section 806. (b) Revenue Act of 1932 70 Section 807. Revenue Act of 1932 70 Section 402. Revenue Act of 1934. 71 Section 403. (b) (c) Revenue Act of 1934 71 Section 406. Revenue Act of 1934 71 Article 51. Net estate 71 52. Deduction of administration expenses, claimsj etc., 71 53. Deduction of the value of property previously taxed 72 54. Deduction of value of transfers for public, charitable, rehgious, etc., uses 73 55. Determination of net estate 73 56. Payment of tax 74 Section 304. (a) Preliminary notice — Estates of residents or citi- zens - - 74 VI Page Section 403. Revenue Act of 1932 74 Article 57. When notice required 74 58. Notice by executor or administrator 75 59. Notice by others than duly qualified executor or adminis- trator 75 60. Estates of nonresident aliens; preliminary notice 76 61. Information return by corporation or transfer agent 76 62. Transfer certificates 77 Section 304. (a) (b) The return — Estates of residents or citizens.. 77, 78 Section 403. Bevenue Act of 1932 78 Section 403. (e) (f) Revenue Act of 1934 78 Article 63. When return required — date of filing 78 64. Persons liable for return 79 65. Preparation of return 79 66. Supplemental data 80 Section 306. Determination of taz by Commissioner 81 Section 313. (b) 81 Article 67. Examination of return and determination of tax by the Commissioner 81 Revised Statutes, section 3176. Extension of time for filing return 82 Article 68. Extension of time by collector 82 69. Extension of time by Commissioner 82 70. Return of estates of nonresidents 83 71. Supplemental data 84 72. Returns confidential 84 73. Disclosure other than to executor 85 74. Attorneys must have authorization 85 Revised Statutes, section 3176. Return by collector or Commis- sioner 85 Article 75. No return filed, or a false or fraudulent return filed 86 Section 307. Deficiency tax 86 Section 308. (a) Notice of Deficiency 86 Section 308. (e) Jurisdiction of Board 87 Section 308. (f) Mathematical error 87 Section 318. Determination of tax imposed by prior Acts 87-90 Section 606. (a) (b) (c) Revenue Act of 1928. Closing agree- ments - 90, 91 Article 76. Deficiency, petitions, and closing agreements 91 Section 308. (b) (c) (d) (e) (f) (g) Assessment of tax.. 92,93 Section 310. (a) (b) Limitation on assessment 93 Section 311. (a) (b) (c) Collection by suit or distraint 93,94 Section 312. (a) (b) (c) (d) (e) (f) (g) (i) Jeopardy assessment 94,95 Section 318. (a) Assessment of tax imposed by prior Acts 95 Section 1 1 09. Collection of tax imposed by prior Acts 95, 96 Section 402. (a) (b) Revenue Act of 1928. Suspension of limita- tions 96 Section 403. Revenue Act of 1932 96 Section 808. Revenue Act of 1932 96, 97 Article 77. Assessments 97 Section 305. (a) Due date for tax 98 Section 308. (b) (c) Due date for defi.ciency tax 98 Section 313. (a) Receipts for payment 99 vn Page Section 1118. (a) Payment by checks ._ -- 99 Article 78. Payment of tax; general 99 79. The executor shall pay the tax 100 80. Payment by check __. 100 81. Payment by bonds or notes 100 Section 808. Revenue Act of 1932. Extension of time for pay- ment of tax 101 Section 811. Revenue Act of 1932 102 Article 82. (a) Extension of time for payment of tax shown on the return 102 (b) Extension of time for payment of tax attributable to a reversionary or remainder interest 103 83. Extension of time for payment of deficiency tax 106 Section 309. (a) (1) (2) Interest upon tax disclosed on return 108 Section 305. (c) Interest where payment extended 108 Section 308. (h) (i) (j) Interest upon deficiency 108 Section 309. (b) (c) Interest upon deficiency after a notice and demand for payment 109 Section 312. (f) (g) (i) (j) Interest where collection of jeopardy assessment is stayed 109 Section 811. (a) Revenue Act of 1932 110 Article 84. (a) Interest on tax disclosed on return 110 (b) Interest on tax attributable to a reversionary or re- mainder interest... 110 86. Interest on deficiency tax 111 Section 314. (a) Collection of tax 113 Article 86. Remedy not exclusive ^ 113 Section 314. (b) Reimbursement 113 Article 87. Right to reimbursement not enforceable by Commissioner. 114 Section 315. (a) (b) as amended. Iiien 114 SectionSlS. (b) (c)Dischargefrompersonalliabilityfordeficiencytax 115 Article 88. Property subject to lien 115 89. Release of lien 116 Section 320. (a) (b) Penalties 117 Section 1114. (a) (b) (c) (e) (f) Penalties 117 Section 1103. Ad valorem penalty 118 Section 616. Revenue Act of 1928. Compromises. Concealment of assets 118 Section 403. Revenue Act of 1932^ 119 Article 90. Nature of penalties 119 91. Penalties for false or fraudulent notice or return 119 92. Penalty for failure to file notice or return 119 93. Penalty for failure to pay tax, exhibit property, keep or ex- hibit records, etc 120 94. Penalty for assisting, procuring, or advising the prepara- tion or presentation Of false or fraudulent documents. . 121 Section312. (f) (g) (h) (i) (k)Stayof ooUectionof jeopardyassessment. 121 Article 95. Claim for abatement 122 96. Collection of jeopardy assessment stayed by filing bond.. 122 97. Accrual of interest as affected by stay of collection of jeopardy assessment! 123 98. Limitation of time to file bond to stay collection of jeop- ardy assessment __ 123 vm Page Section 319. (a) (b) (c) Refund after filing petition with Board of Tax Appeals 123 Section 810. Revenue Act of 1932 124 Section 504. (d) (e) Revenue Act of 1934 124 Section 325. Tax paid under provisions of Revenue Act of 1924 prior to the enactment of the Revenue Act of 1926 124 Section 1106. (b) Closing agreements made prior to May 29, 1928_ 124 Section 606. (a) (b) (o) Revenue Act of 1928. Closing agreements made subsequent to May 28, 1928 125 Revised Statutes, section 3220, as amended. Refund of taxes er- roneously or illegally collected 125 Revised Statutes, section 3228, as amended. Limitations on refund 125 Section 607. Revenue Act of 1928. Overpayment 126 Section 608. Revenue Act of 1928. Erroneous refund 126 Section 503. Revenue Act of 1934 126 Section 610. Revenue Act of 1928. Recovery of money erroneously refunded 126 Section 502. Revenue Act of 1934 127 Section 611. Revenue Act of 1928. Claim for abatement — over- payment 127 Section 612. Revenue Act of 1928. Repeal of section 1106 (a) of the Revenue Act of 1926 127 Section 1103. Revenue Act of 1932 127 Section 1104. Revenue Act of 1932 128 Article 99. Claim for refund 128 Section 614. (a) (c) (d) Revenue Act of 1928. Interest on refunds 131 Section 802. (a) Revenue Act of 1932 131 Article 100. Payment of claims and Interest 132 Revised Statutes, section 3229. Power to compromise or remit penalties 132 Article 101. Compromise of taxes and penalties 132 Section 518. Revenue Act of 1934. Personalliability of executor-- 133 Article 102. Extent of liability 133 Section 1104. Examination of records and taking of testimony.., 133 Section 1122 133 Section 507. Revenue Act of 1934 134 Article 103. Securing evidence — taking testimony 134 104. Power to compel compliance 134 Section 1100. Remedies for collection 135 Section 311. (b) Collection of tax by distraint or suit 135 Section 316. Liability of transferees and fiduciaries 135 Section 403. (a) (b) Revenue Act of 1928. Suspension of limita- tions in transferee cases 136 Section 604. Revenue Act of 1 928. Suits to restrain enforcement of liability of transferees 136 Section 808. Revenue Act of 1932 136 Section 403. Revenue Act of 1932 136 Article 105. Remedies for collection of tax and claims against trans- ferred assets 137 IX Page Section 1102. (a) (b) (d) Records, statements, and special returns. - 138 Article 106. Executor's duty to keep records 139 107. Executor's duty to render statements 139 Section 321. (a) (b) Estates administered in the United States Court for China 139 Section 317. Persons acting as fiduciary 139 Article 108. Notice of persons acting as fiduciary 140 Section 1200. Scope of repeal 140 Section 714. Revenue Act of 1928 141 Article 109. Scope of repeal 141 Section 1101. Power to prescribe regulations 141 Section 506. Revenue Act of 1934 141 Article 110. Promulgation of regulations 141 Appendix - 143 Revenue Act of 1926 143 Revised Statutes, section 3186, as amended. Release of lien 174 List of the several divisions and locations of ofiices of internal- revenue agents in charge 177 Index- 179 REGULATIONS 80 ESTATE TAX [Except as otherwise specified, the section references are to the Revenue Act of 1926] Tiw-K III. — Estate Tax Seo. 300. When used in this title — (a) The term "executor" means the executor or administrator of the decedent, or, if there is no executor or administrator ap- pointed, qualified, and acting within the United States, then any person in actual or constructive possession of any property of the decedent ; (b) The term "net estate" means the net estate as determined under the provisions of section 303 ; (c) The term "month" means calendar month; and (d) The term "collector" means the collector of internal revenue of the district in which was the domicile of the decedent at the time of his death, or, if there was no such domicile in the United States, then the collector of the district in which is situated the part of the gross estate of the decedent in the United States; or, if such part of the gross estate is situated in more than one district, then the col- lector of internal revenue of such district as may be designated by the Commissioner. Sew. 301. (a) In lieu of the tax imposed by Title III of the Reve- nue Act of 1924, a tax equal to the sum of the following i)ercentages of the value of the net estate (determined as provided in section 303) is hereby imposed upon the transfer of the net estate of every decedent dying after the enactment of this act, whether a resident or nonresident of the United States ; 1 per centum of the amount of the net estate not in excess of $50,000 ; 2 per centum of the amount by which the net estate exceeds $50,000 and does not exceed $100,000 ; 3 per centum of the amount by which the net estate exceeds $100,000 and does not exceed $200,000; 4 per centum of the amount by which the net estate exceeds $200,000 and does not exceed $400,000; 5 per centum of the amount by which the net estate exceeds $400,000 and does not exceed $600,000 ; 6 per centum of the amount by which the net estate exceeds $600,000 and does not exceed $800,000 ; 7 per centum of the amount by which the net estate exceeds $800,000 and does not exceed $1,000,000; 8 per centum of the amount by which the net estate exceeds $1,000,000 and does not exceed $1,500,000 ; (1) 9 per centum of the amount by which the net estate exceeds $1,500,000 and does not exceed $2,000,000; 10 per centum of the amount by which the net estate exceeds $2,000,000 and does not exceed $2,500,000 ; 11 per centum of the amount by which the net estate exceeds $2,500,000 and does not exceed $3,000,000 ; 12 per centum of the amount by which the net estate exceeds $3,000,000 and does not exceed $3,500,000; 13 per centum of the amount by which the net estate exceeds $3,500,000 and does not exceed $4,000,000 ; 14 per centum of the amount by which the net estate exceeds $4,000,000 and does not exceed $5,000,000 ; 15 per centum of tlie amount by which the net estate exceeds $5,000,000 and does not exceed $6,000,000 ; 16 per centum of the amount by which the net estate exceeds $6,000,000 and does not exceed $7,000,000 ; 17 per centum of the amount by which the net estate exceeds $7,000,000 and does not exceed $8,000,000 ; 18 per centum of the amount by which the net estate exceeds $8,000,000 and does not exceed $9,000,000 ; 19 per centum of the amount by which the net estate exceeds $9,000,000 and does not exceed $10,000,000 ; 20 per centum of the amount by which the net estate exceeds $10,000,000. Title II. — ADDnioNAi, Estate Tax. (Revenue Act of 1932.) Sec. 401. Revenue Act of 1932. (a) In addition to the estate tax imposed by section 301(a) of the Revenue Act of 1926, there is hereby imposed upon the transfer of the net estate of every decedent dying after the enactment of this Act, ^^•hether a resident or nonresident of the United States, a tax equal to the excess of — (1) the amount of a tentative tax computed under subsection (b) of this section, over (2) the amount of the tax imposed by section 301(a) of the Rev- enue Act of 1926, computed without regard to the provisions of this title. (b) The tentative tax referred to in subsection (a) (1) of this sec- tion shall equal the sum of the following percentages of the value of the net estate : Upon net estates not in excess of $10,000, 1 per centum. $100 upon net estates of $10,000; and upon net estates in excess of $10,000 and not in excess of $20,000, 2 per centum in addition of such excess. $300 upon net estates of $20,000 ; and upon net estates in excess of $20,000 and not in excess of $80,000, 3 per centum in addition of such excess. $600 upon net estates of $30,000; and upon net estates in excess of $80,000 and not in excess of $40,000, 4 per centum in addition of such excess. $1,000 upon net estates of $40,000 ; and upon net estates in excess of $40,000 and not in excess of $50,000, 5 per centum in addition of such excess. $1,500 upon net estates of $50,000; and upon net estates in excess of $50,000 and not in excess of $100,000, 7 per centum in addition of such excess. $5,000 upon net estates of $100,000; and upon net estates in excess of $100,000 and not in excess of $200,000, 9 per centum in addition of such excess. $14,000 upon net estates of $200,000 ; and upon net estates in excess of $200,000 and not in excess of $400,000, 11 per centum in addition of such excess. $36,000 upon net estates of $400,000 ; and upon net estates in excess of $400,000' and not in excess of $600,000, 13 per centum in addition of such excess. $62,000 upon net estates of $600,000 ; and upon net estates in excess of $600,000 and not in excess of $800,000, 15 per centum in addition of such excess. $92,000 upon net estates of $800,000; and upon net estates in excess of $800,000 and not in excess of $1,000,000, 17 per centum in addition of such excess. $126,000 upon net estates of $1,000,000; and upon net estates in excess of $1,000,000 and not in excess of $1,500,000, 19 per centum in addition of such excess. $221,000 upon net estates of $1,500,000; and upon net estates in excess of $1,500,000 and not in excess of $2,000,000, 21 per centum in addition of such excess. $326,000 upon net estates of $2,000,000; and upon net estates in excess of $2,000,000 and not in excess of $2,500,000, 23 per centum in addition of such excess. $441,000 upon net estates of $2,500,000; and upon net estates in excess of $2,500,000 and not in excess of $3,000,000, 25 per centum in addition of such excess. $566,000 upon net estates of $3,000,000; and upon net estates in excess of $3,000,000 and not in excess of $3,500,000, 27 per centum in addition of such excess. $701,000 upon net estates of $3,500,000; and upon net estates in excess of $3,500,000 and not in excess of $4,000,000, 29 per centum in addition of such excess. $846,000 upon net estates of $4,000,000; and upon net estates in excess of $4,000,000 and not In excess of $4,500,000, 31 per centum in addition of such excess. $1,001,000 upon net estates of $4,500,000; and upon net estates in excess of $4,500,000 and not in excess of $5,000,000, 33 per centum in addition of such excess. $1,166,000 upon net estates of $5,000,000 ; and upon net estates in excess of $5,000,000 and not in excess of $6,000,000, 35 per centum in addition of such excess. $1,516,000 upon net estates of $6,000,000; and upon net estates in excess of $6,000,000 and not in excess ®f $7,000,000, 37 per centum in addition of such excess. $1,886,000 upon net estates of $7,000,000; and upon net estates in excess of $7,000,000 and not in excess of $8,000,000, 39 per centum in addition of such excess. $2,276,000 upon net estates of $8,000,000; and upon net estates in excess of $8,000,000 and not in excess of $9,000,000, 41 per centum in addition of such excess. $2,686,000 upon net estates of $9,000,000; and upon net estates in excess of $9,000,000 and not in excess of $10,000,000, 43 per centum in addition of sucli excess. $3,116,000 upon net estates of $10,000,000; and upon net estates in excess of $10,000,000, 45 per centum in addition of such excess. (c) For the purposes of this section the value of the net estate shall be determined as provided in Title III of the Revenue Act of 1926, as amended, except that in lieu of the exemption of $100,000 provided in section 303 (a) (4) of such Act, the exemption shall be $50,000. Sec. 405. Revenue Act of 1934. (a) Section 401 (b) of the Revenue Act of 1932 is amended to read as follows : "(b) The tentative tax referred to in subsection (a) (1) of this section shall equal the sum of the foUovring percentages of the value of the net estate: " Upon net estates not in excess of $10,000, 1 per centum. " $100 upon net estates of $10,000 ; and upon net estates in excess of $10,000 and not in excess of $20,000, 2 per centum in addition of such excess. " $300 upon net estates of $20,000 ; and upon net estates in excess of $20,000 and not in excess of $30,000, 3 per centum in addition of such excess. " $600 upon net estates of $30,000 ; and upon net estates In excess of $30,000 and not in excess of $40,000, 4 per centum in addition of such excess. " $1,000 upon net estates of $40,000 ; and upon net estates in excess of $40,000 and not in excess of $50,000, 6 per centum in addition of such excess. "$1,500 upon net estates of $50,000; and upon net estates in excess of $50,000 and not in excess of $70,000, 7 per centum in addition of such excess. " $2,900 upon net estates of $70,000 ; and upon net estates in excess of $70,000 and not in excess of $100,000, 9 per centum in addition of such excess. " $5,600 upon net estates of $100,000; and upon net estates in excess of $100,000 and not in excess of $200,000, 12 per centum in addition of such excess. " $17,600 upon net estates of $200,000 ; and upon net estates in excess of $200,000 and not in excess of $400,000, 16 per centum in addition of such excess. " $49,600 upon net estates of $400,000 ; and upon net estates in excess of $400,000 and not in excess of $600,000, 19 per centum in addition of such excess. " $87,600 upon net estates of $600,000 ; and upon net estates in excess of $600,000 and not in excess of $800,000, 22 per centum in addition of such excess. " $131,600 upon net estates of $800,000 ; and upon net estates in ex- cess of $800,000 and not in excess of $1,000,000, 25 per centum in addi- tion of such excess. " $181,600 upon net estates of $1,000,000 ; and upon net estates in excess of $1,000,000 and not in excess of $1,500,000, 28 per centum in addition of such excess. "$321,e00 upon net estates of $1,500,000; and upon net estates in excess of $1,500,000 and not in excess of $2,000,000, 31 per centum in addition of such excess. " $476,600 upon net estates of $2,000,000 ; and upon net estates in excess of $2,000,000 and not in excess of $2,500,000, 34 per centum in addition of such excess. " $646,600 upon net estates of $2,500,000 ; and upon net estates in excess of $2,500,000 and not in excess of $3,000,000, 37 per centum in addition of such excess. "$831,600 upon net estates of $3,000,000; and upon net estates in excess of $3,000,000 and not in excess of $3,500,000, 40 per centum in addition of such excess. " $1,031,600 upon net estates of $3,500,000 ; and upon net estates in excess of $3,500,000 and not in excess of $4,000,000, 43 per centum in . addition of such excess. " $1,246,600 upon net estates of $4,000,000 ; and upon net estates in excess of $4,000,000 and not in excess of $4,500,000, 46 per centum in addition of such excess. " $1,476,600 upon net estates of $4,500,000 ; and upon net estates in excess of $4,500,000 and not in excess of $5,000,000, 48 per centum in addition of such excess. " $1,716,600 upon net estates of $5,000,000 ; and upon net estates in excess of $5,000,000 and not in excess of $6,000,000, 50 per centum in addition of such excess. " $2,216,600 upon net estates of $6,000,000 ; and upon net estates in excess of $6,000,000 and not in excess of $7,000,000, 52 per centum in addition of such excess. " $2,736,600 upon net estates of $7,000,000 ; and upon net estates in excess of $7,000,000 and not in excess of $8,000,000, 54 per centum in addition of such excess. "$3,276,600 upon net estates of . $8,000,000 ; and upon net estates in excess of $8,000,000 and not in excess of $9,000,000, 56 per centum in addition of such excess. " $3,836,600 upon net estates of $9,000,000 ; and upon net estates in excess of $9,000,000 and not in excess of $10,000,000, 58 per centum in addition of such excess. " $4,416,600 upon net estates of $10,000,000 ; and upon net estates in excess of $10,000,000, 60 per centum in addition of such excess." (b) The amendment made by this section shall be effective only with respect to transfers of estates of decedents dying after the date of the enactment of this Act. Article 1. The various statutes. — The Federal estate tax was first imposed by the Act of September 8, 1916. This law was amended by the Act of March 3, 1917 (Title HI), by increasing the rate of tax. The Act of October 3, 1917 (Title IX), imposed a tax upon the transfer of the net estate of decedents dying after October 3, 1917, in addition to the tax imposed by the Revenue Act of 1916, as amended. The Revenue Act of 1918 (Title IV), which became effective at 6.55 p. m., eastern standard time, February 24, 1919, reduced the rates applicable to net estates below $1,500,000, as com- pared with those of Title IX of the Revenue Act of 1917, and con- tained a number of provisions not found in any of the prior Acts. The Revenue Act of 1921 (Title IV) became effective at 3.55 p. m., eastern standard time, November 23, 1921. It reenacted without change the rates of Title IV of the Revenue Act of 1918; supplanted all prior Acts as to the estates of decedents dying after the effective date thereof; embodied numerous changes, but contained many of the provisions of the earlier Acts. The Revenue Act of 1924 (Part I, Title III), which became effective at 4.01 p. m., eastern stand- ard time, June 2, 1924, as originally enacted, increased the rates applicable to net estates in excess of $100,000, as compared with those of Title IV of the Revenue Act of 1921 ; contained provisions not found in any of the prior Acts; but did not include all of the exemptions accorded by the Revenue Act of 1921. The Revenue Act of 1926 (Title III), which became effective at 10.25 a. m., eastern standard time, February 26, 1926, increased from $50,000 to $100,000 the specific exemption to be deducted from the gross estates of resident decedents in determining the net estates for the purpose of the tax and made effective rates ranging from 1 to 20 per cent. The Revenue Act of 1926 amends the rates imposed by Part 1, Title III, of the Revenue Act of 1924, by substituting for such rates the same rates imposed by the Revenue Acts of 1918 and 1921; allows a credit in estates of decedents dying after the enactment of the Revenue Act of 1926, on account of State inherit- ance tax paid, not to exceed 80 per cent of the tax imposed by the Act; and contains provisions not found in the prior Acts. The Revenue Act of 1928 (Part 1, Title II), which became effective at 8 a. m., eastern standard time, May 29, 1928, does not repeal Title III of the Revenue Act of 1926, but makes certain amendments to that title and amends and supplements the general administrative provisions of the Revenue Act of 1926. Public Resolution No. 131, Seventy-first Congress, approved 10.30 p. m., eastern standard time, March 3, 1931, amends certain provisions of the Revenue Act of 1926. The Revenue Act of 1932, which became effective at 5 p. m., eastern standard time, June 6, 1932, by Title II, imposes a tax upon the net estates of decedents dying after the effective date thereof, in addition to the tax imposed by the Revenue Act of 1926, to be assessed, collected, and paid and subject to the same provisions of law as the tax imposed by the Revenue Act of 1926, the net estate for the purposes of such additional tax being determined by deducting a specific exemption of only $50,000 and against such additional tax no credit is allowed on account of State estate, inheritance, legacy, or succession taxes paid. The Revenue Act of 1932 also, by Title VI, amends and supplements the provisions of the Revenue Act of 1926. The Revenue Act of 1934 amends the Revenue Act of 1932 by increasing the rates for the computation of the additional tax (imposed upon estates of decedents dying on or after May 11, 1934), and also by Title II and Title III amends and supplements certain provisions of the Kevenue Act of 1926 and the Revenue Act of 1932, effective 11.40 a. m., eastern standard time. May 10, 1934. The Revenue Act of 1926, as amended and supple- mented by the Revenue Act of 1928, the Joint Resolution (Public, No. 131, Seventy-first Congress) of March 3, 1931, the Revenue Act of 1932, and the Revenue Act of 1934, is herein referred to as " the statute." References to other statutes are specific. Art. 2. Transfers and interests reached. — The statute subjects to tax transfers resulting from the decedent's death. Except bona fide sales for an adequate and full consideration in money or money's worth, it also subjects to tax transfers made by the decedent in his lifetime (1) if made in contemplation of death; or (2) if intended to take effect in possession or enjoyment at or after his death, as, fpr example, in the case he retained the income of the transferred prop- erty or the right thereto for his life, or for any period not ascertain- able without reference to his death, or for any period of such dura- tion as to evidence an intention to retain the enjoyment throughout his life; or (3) if he retained for any such period, either alone or in conjunction with any other person or persons, the right to desig- nate those who should possess or enjoy the transferred property or the income therefrom; or (4) if at his death the enjoyment of the transferred property was subject to any change through the exer- cise of a power by him alone or in conjunction with any other per- son or persons to alter, amend, or revoke, or in the case such a power was relinquished by him in contemplation of his death. There are also subject to tax the homestead and other exemptions ; dower, curtesy, or statutory estate in lieu thereof, of the surviving spouse; property held by the decedent and another person or per- sons if the survivor or survivors take by right of survivorship; property passing under a general power of appointment exercised by the decedent; insurance receivable by the executor under policies taken out by the decedent upon his life, and insurance so taken out and receivable by all other beneficiaries to the extent that the aggre- gate amount thereof exceeds $40,000. Art. 3. Neither a property nor an inheritance tax.— The Federal estate tax is imposed upon the transfer of the net estate of every person dying after September 8, 1916, determined in the manner prescribed by the applicable law. (See article 1.) The tax is not laid upon the property but upon the transfer of the entire net estate and not any particular legacy, devise, or distributive share. The rela- tionship of the beneficiary to the decedent has no bearing upon the question of liability or the extent thereof. The transfer of property is taxable although it escheats to the State for lack of heirs. 182133°— 34 2 ESTATES SUBJECT TO TAX Art. 4. Descriptien of taxable estates. — The tax is imposed upon the transfer of the net estate. The term " net estate " has a distinct meaning in the statute, signifying the difference between the total value of the gross estate and the total of the authorized deductions. One of the deductions authorized in the case of the estate of a resi- dent of the United States is a specific exemption. A specific ex- emption is also an authorized deduction in the case of the estate of a citizen of the United States regardless of residence, if the decedent died after 11.40 a. m., eastern standard time. May 10, 1934. For detailed information regarding the specific exemption, see article 48. There is no basis for tax if the value of the gross estate does not exceed the total amount of the authorized deductions. Whether taxable or not, a return must be filed in every case, except in tlie case the value of the gi-oss CvState at the date of death does not exceed the amount of the specific exemption allowable. For detailed infor- mation regarding returns, see articles 63, 64, 65, and 70. Art. 6. Definition of " citizen," " resident," and " nonresident." — The statute provides (paragraph (5) of section 2 (a)) that the term " United States," when used in a geographical sense, includes only the States, the Territories of Alaska and Hawaii, and the District of Columbia. A resident is one who, at the time of his death, had his domicile in the United States; or one who was a citizen of the United States at the time of death and with respect to whose property any probate or administration proceedings are had in the United States Court for China. (See section 321 (a).) A missionary who, at the time of death, was serving as such under a foreign missionary board of any religious denomination in the United States, will be presumed to have died a resident of the United States, if domiciled therein at the time of his or her commission and departure for such service, and not a nonresident merely by reason of his or her intention to permanently remain in such service. (See section 303 (f).) All persons not resi- dents of the United States as above defined, or to whom the presump- tion just stated does not apply, are nonresidents. A citizen of the United States is a nonresident if his domicile is in Puerto Rico, the Philippine Islands, or other foreign country, whereas a subject or a citizen of a foreign country is a resident if his domicile is in the United States. A person acquires a domicile in a place by living there, for even a brief period of time, with no definite pres- ent intention of later removing therefrom. Residence without the requisite intention to remain indefinitely will not sufSce to consti- tute domicile, nor will intention to change domicile effect such a change unless accompanied by actual removal. 9 Every person born or naturalized in the United States (including citizens and residents of possessions of the United States who have been made citizens of the United States by treaty or Act of Con- gress) who owes his allegiance to or is entitled to the protection of the United States is a citizen thereof. When any naturalized citizen has left the United States and resided for two years in the foreign country from which he came or five years in any other foreign coun- try, it is presumed that he has ceased to be a citizen of the United States. This presumption does not apply, however, to residents abroad when the United States was at war, nor does it apply in the case of individuals born in the United States. For example, if a subject of the King of Sweden, after being naturalized in the United States, returned to Sweden and resided there for two years prior to April 6, 1917, he is presumed once more to be an alien. However, even though an individual born in the United States of either citizen or alien parents resided in a foreign country for a number of years, he would still be a citizen of the United States unless he had become naturalized in or taken an oath of allegiance to the foreign country of residence or some other foreign state. A person who has filed his declaration of intention of becoming a citizen of the United States but who has not yet received his final citizenship papers is an alien. Subsequent to the enactment of the amendments to the Revenue Act of 1926 made by the Revenue Act of 1934 different provisions control the determination of the tax liability of the estates of citizens or residents of the United States and the estates of nonresidents not citizens of the United States. Prior to the enactment of the amend- ments contained in the Revenue Act of 1934 the tax liability of estates of residents and nonresidents was controlled by different pro- visions without regard to citizenship except as to estates admin- istered in the United States Court for China as in this article indicated. DETERMINATION OF TAX LIABILITY Art. 6. Manner of determining liability. — The first step in the deter- mination of tax liability is to ascertain the total value of the dece- dent's gross estate. (See articles 10 to 28, inclusive; also article 50.) The second step is to subtract from the value of the gross estate the total amount of the deductions authorized in order to arrive at the value of the net estate. (See articles 29 to 48, inclusive, and articles 51 to 65, inclusive.) The third step is the computation of the tax and any allowable credits. (See articles 7, 8, and 9.) If the specific exemption is applicable and the decedent died after the enactment of the Revenue Act of 1932, the net estate must be determined on the basis of a specific exemption of $100,000 for 10 the computation of the tax imposed by the Revenue Act of 1926, and the net estate must also be determined on the basis of a specific exemption of $50,000 for the computation of the additional tax imposed by the Revenue Act of 1932 and the additional tax imposed by such Act as amended by the Revenue Act of 1934. Art. 7. Rates of tax. — ^The Revenue Act of 1916, the amendment thereto of March 3, 1917, the Revenue Act of 1917, the Revenue Act of 1918, and the Revenue Act of 1924, as originally enacted, each imposed different rates of tax. The rates imposed by the Revenue Act of 1921 are the same as those prescribed in the Revenue Act of 1918. The rates imposed by the Revenue Act of 1924, as originally enacted, were different from those prescribed in any of the prior Acts, but section 322 (a) of the Revenue Act of 1926 amends section 301 (a) of the Revenue Act of 1924, effective as of June 2, 1924, so as to impose the same rates prescribed by the Revenue Acts of 1918 and 1921. The rates imposed by the Revenue Act of 1926 are differ- ent from those prescribed in any of the prior Acts and are appli- cable to the estates of decedents dying after 10.25 a m., eastern standard time, February 26, 1926, no change in rates being made by the provisions of the Revenue Act of 1928. An additional tax is im- posed by the Revenue Act of 1932 which is the excess of the amount computed at the rates set forth in the Revenue Act of 1932 over the tax imposed by the Revenue Act of 1926. The rates set forth in the Revenue Act of 1932 are applicable to estates of decedents dying after 5 p. m., eastern standard time, June 6, 1932, and before May 11, 1934. The rates prescribed for the computation of the additional tax by the Revenue Act of 1934 are applicable to estates of decedents dying on or after May 11, 1934. See " Table I " and " Table II " for the rates, and the following article for an explana- tion for the use of the tables. Art. 8. Computation of tax. — The tax imposed by the Revenue Act of 1926 and earlier Acts is computed on the value of the net estate at progressively graduated rates. The additional tax imposed by the Revenue Act of 1932 and by the Revenue Act of 1934 in amend- ment thereof is obtained by subtracting the tax imposed by the Revenue Act of 1926 from the tax computed at the rates set. forth either in the Revenue Act of 1932 or that of 1934, as the case may require. The remainder resulting from such subtraction is the addi- tional tax imposed. In certain cases arising after the enactment of the Revenue Act of 1924, the tax is reduced by authorized credits. (See article 9.) If credits are authorized, the tax computed at the rates prescribed by the Revenue Act of 1924 and the Revenue Act of 1926 and the additional tax computed under the provisions of 11 the Eevenue Act of 1932 or the Revenue Act of 1934 is the gross tax or the tax before reduction by credits. The difference between the gross tax and the credits is the net tax. Table I shows the tax and rates in effect under the Revenue Acts of 1934, 1932, and 1926. Table II shows the tax and rates in effect prior to the enactment of the Revenue Act of 1926 and after the enactment of the Revenue Act of 1916. Column (1) of Table I sets forth the total taxes imposed by the Revenue Act of 1926 and the Revenue Act of 1932 as amended by the Revenue Act of 1934 — ^that is, the tax imposed by section 301 (a) of the Revenue Act of 1926 and the additional tax imposed by section 401 of the Revenue Act of 1932, as amended by section 405 of the Revenue Act of 1934, upon speci- fied amounts and the rates for the total taxes upon the excess of such amounts. Column (2) of Table I sets forth the total taxes imposed by the Revenue Act of 1926 and the Revenue Act of 1932, prior to the enactment of the Revenue Act of 1934, upon specified amounts and the rates for the total taxes upon the excess of such amounts. Column (3) of Table I sets forth the tax imposed by the Revenue Act of 1926 upon specified amounts and the rates for the tax upon the excess of such amounts. Columns (1) to (4), inclu- sive, of Table II set forth the tax on specified amounts and the rates for the tax upon the excess of such amounts, in effect for the periods shown in the headings. Column (A) of each table sets forth the specified amounts upon which the tax is shown in the first subcolumn of each of the numbered columns. It also indicates the respective minimum limits to which the rates shown in the second subcolumn of each of the numbered columns are applicable. Column (B) of each table indicates the respective maximum limits to which the rates shown in the second subcolumn of each of the numbered columns are applicable. The computation under each column must be based on the appli- cable net estate. The net estate of a resident decedent computed for the purpose of the additional tax imposed by the Revenue Act of 1932 differs from the net estate computed for the purpose of the tax imposed by the Eevenue Act of 1926 because of the difference in the specific exemption. 12 "an ^ CO S SfeS jsa HINIMM'^iOtDl^OOOOT-llNeO'^THincOt^OOCiO ooooooooooooooooooooooooo ooooooooooooooooooooooooo WTi<"c-(C<>CQ'*oocoooeoa5cDeoo>o.-iooto>o T-lT-lNNCO-^iOCOOOOSi-HCO l4 o o H o o g M * ® S a ■"" a°3 g Sega" ■si ^^< ; ^ -H ,-H ,-1 1-1 CI cq (N IM (M ra CO CO CO N ■* Tf -^ ooooooooooooooooooooooooo ooooooooooooooooooooooooo r-ieocoo>oo500ooooooooooooooooo 69 ........^^. __..._._... i-Hi-h(NW3^COC^C^COt— icOt-icDt-hcDt-(CDOCDOCD<0 ,-iCOtDa»NNINTHcOO-*OtO.-ooo>-iioooNto>-i T-H rH r-l tH N C5 CO iiil 3 a* a So °=S ■S.S Si 1^ H.-i.-icot~cO'-i i-ii-ieonttDooocooe»o ooooooooooooooooooooooooo ooooooooooooooooooooooooo ooooooooooooooooooooooooo oooc>'oo'"oooo"oo"o''o"o"o'"oo"o'"o'"o~o''o''o"o'' rilNCOTtliOt^OOOOOOOOOOOOOOOOOOO c« >-iiNTtioooo>ooioo>oomoooooo <.-l(N(NC0e0^^>OCDl>0005O 13 i-H V) SIS oatnw » fipj 5 gi-KNM'^iOiOOtOl^OOaiOOO U i-H r-H i-H ooooooooooooo ooooooooooooo coi>m-*'i<-* T-H i-H CS M CO 00 .aI>rci-« toW o3 S?o53 05 9 3*0 ° d as ooooooooooooo ooooooooooooo 99 ___..-_>_.__ iMO>OOOOQQOOO eer-i(N-*t>0'noooooo >-Hi-lNCO'*uOOOO »J ooooooooooooo ooooooooooooo ooooooooooooo o"c5'o"o''o"q''o"o"o''o''o''o"o'" >oioioioiooooooooo e«.-iiM-*t>oiooooooo >-ri-H~cfco"ririnoo'"o'' 14 An illustration of the tables' use is as follows: The net estate of a decedent who died July 1, 1931, amounts to $1,240,000. By refer- ence to Table I it will be seen that the specified amount in column (A) nearest to the value of the decedent's net estate but less than such value is $1,000,000. The tax upon this amount as indicated in column (3) opposite $1,000,000 in colunm (A) is $48,500. Upon the re- mainder of the net estate, $240,000, the tax is computed at the rate of 8 per cent set out in the second subcolumn of column (3) opposite $1,000,000 in column (A). The. tax on this remainder is, conse- quently, $19,200. The following result is thus obtained : Tax on $1, 000, 000=$48, 500 Tax on 240,000= 19,200 Total 1, 240, 000 67, 700 Example (in the case the transfer of the net estate is subject to the tax imposed by the Revenue Act of 1926 and also to the additional tax imposed by the Eevenue Act of 1932 as amended by the Revenue Act of 1934, and if credit for State inheritance tax is involved) : A resident decedent died August 15, 1934, leaving a net estate of the value of $210,000 after deducting the specific exemption of $100,000 allowed by the Revenue Act of 1926. The tax shown in the first subcolumn of coluinn (3) of Table I on a net estate equal- ing $200,000 is $4,500. As $210,000 exceeds $200,000 and falls be- low $400,000, the tax on the excess of $10,000 is computed at the rate of 4 per cent, the rate shown in the second subcolumn of column (3). The $400 tax on such excess added to $4,500 gives $4,900, the gross tax computed under the Revenue Act of 1926. (Credit for gift tax is not involved in this example.) It will be assumed that the maximum amount of credit, $3,920, or 80 per cent of $4,900, is allowed for State inheritance tax. The net tax imposed by the Revenue Act of 1926 is the difference between $4,900 and $3,920, or $980. For the purpose of the additional tax imposed by the Revenue Act of 1934 the decedent's net estate after deducting the specific exemption of $50,000 is $260,000. The total gross taxes imposed by the Revenue Act of 1926 and the Revenue Act of 1934 shown in the first subcolumn of column (1) on a net estate equaling $200,000 is $17,600. As $260,000 exceeds $200,000 and falls below $400,000, the tax on the excess of $60,000 is computed at 6 per cent, the rate shown in the second subcolumn of column (1). The tax on such excess is, consequently, $9,600. The $9,600 added to the $17,600 gives $27,200, the tax computed upon the net estate of $260,000 at the rates set forth in the Revenue Act of 1934. The difference between the total gross taxes imposed by the Revenue Act of 1926 and the Revenue Act of 1934, $27,200, and the gross tax, $4,900, imposed by the Revenue Act of 1926, is $22,300, the additional tax imposed by the Revenue 15 Act of 1934. As in this example no credit for gift tax is involved, the amount of the gross additional tax imposed by thfe Revenue Act of 1934 i^ the same as the net additional tax imposed by the Revenue Act of 1934. The net tax imposed by the Revenue Act of 1926, $980, added to the net additional tax imposed by the Revenue Act of 1934, $22,300, results in a total net tax of $23,280. A tabulation of this example is as follows: Gross tax imposed by 1926 Act $4, 900 Credit for gift tax imposed by 1924 and/or 1932 Act Gross tax, less credit for gift tax 4, 900 Credit for estate, inheritance, legacy, or succession tax 3, 920 Net tax imposed by 1926 Act $980 Total gross taxes imposed by 1926 and 1934 Acts 27,200 Gross tax imposed by 1926 Act 4, 900 Gross additional tax imposed by 1934 Act 22,300 Credit for gift tax imposed by 1932 Act Net additional tax imposed by 1934 Act 22, 300 Total net tax_ 23, 280 Example (if the transfer of the net estate is subject only to the additional tax imposed by the Revenue Act of 1934) : The gross estate of a resident decedent who died September 1, 1934, amounts to $85,000. Deductions for administration expenses and claims against the estate are allowed in the amount of $10,000, leaving $75,000 before the deduction of the specific exemption authorized by the Revenue Act of 1926. As that exemption is $100,000, it is apparent that the estate is not subject to the estate tax imposed by such Act. However, as the specific exemption authorized by the Revenue Act of 1934 is only $50,000, the estate is subject to the additional estate tax imposed by the latter Act. For the purpose of such additional estate tax the net estate amounts to $25,000. The tax shown in the first subcolumn of column (1) of Table I on a net estate equaling $20,000 is $300. As $25,000 exceeds $20,000 and falls below $30,000, the tax on the excess of $5,000 is computed at 3 per cent, the rate shown in the second subcolumn of column (1) . The tax on such excess is, consequently, $150. The $150 added to the $300 gives $450, the tax computed upon the net estate of $25,000 at the rates prescribed by the Revenue Act of 1934. Inasmuch as, in this example, the e3tate is not subject to the tax imposed by the Revenue Act of 1926, $450 is the gross additional tax imposed by the Revenue Act of 1934. As credit for gift tax is not involved in this example, the gross additional tax is the same as the net additional tax. It 16 will be noted that credit for State or Territorial estate, inheritance, legacy, or succession taxes is not allowable against the additional tax imposed by the Revenue Act of 1934. Example (if the transfer of the net estate is subject to the tax imposed by the Revenue Act of 1926 and to the additional tax imposed by the Revenue Act of 1932, and if credits for gift tax and for State inheritance taxes are involved) : The value of the gross estate of a resident decedent who died September 15, 1932, is $400,000 and the value of the net estate for the purpose of the tax impos,ed by the Revenue Act of 1926 is $225,000. The gross tax imposed by the Revenue Act of 1926 is $5,500. (See illustration for use of table in computing the tax). On July 1, 1932, the de- cedent, in contemplation of death, transferred certain real property to his daughter as a gift. The value of the real property as of the date of the gift, and as of the time of death, was $155,000. As a result of this gift, a gift tax was paid in the amount of $3,625, gift tax on net gift of $100,000 after exclusion of $5,000 and deduction of $50,000 specific exemption. (See Gift Tax Act of 1932.) As the value of the transferred real property is included in the decedent's gross estate, a credit for gift tax is allowed against the gross tax imposed by the Revenue Act of 1926 in such amount as does not exceed an amount which bears the same ratio to the gross tax, $5,500, as the value at which the taxable gift ($155,000 less the gift tax exclusion of $5,000) is included in the gross estate bears to the value of the entire gross estate. (See article 9 (a).) This ratio, which is ascertained by dividing $150,000 by $400,000, ig .375. The credit for gift tax is, therefore, allowed in the amount which results from multiplying $5,500 by .375, or $2,062.50. The gross tax, $5,500, less the credit for gift tax, is $3,437.50. It will be assumed that State inheritance taxes paid equal or exceed the maxi- mum amount of the credit (80 per cent of the gross tax less the gift tax credit) allowable therefor. Accordingly, $2,750 is allowed as the credit for State inheritance taxes. The difference between $3,437.50 and $2,750 is $687.50, which is the net tax imposed by the Revenue Act of 1926. The net estate for the purpose of the additional tax imposed by the Revenue Act of 1932 is $275,000. The total gross taxes imposed by the Revenue Act of 1926 and the Revenue Act of 1932 computed in accordance with the table is $22,250. The difference between such total gross taxes and $5,500, the gross tax computed under the Revenue Act of 1926, is $16,750, the gross addi- tional tax imposed by the Revenue Act of 1932. The credit for gift tax against such gross additional tax (1) can not exceed an amount which bears the same ratio to the gross additional tax com- puted under the Revenue Act of 1932 as the value at which the tax- able gift is included in the gross estate bears to the value of the entire 17 gross estate ($16,750, the gross tax, multiplied by .375, the factor, equals $6,281.25), and (2) can not exceed the difference between the total amoimt of the gift tax and the credit for gift tax allowed against the gross tax computed under the Revenue Act of 1926. The credit here allowed is $3,625 less $2,062.50, or $1,562.50. A tabula- tion of this example is as follows : Gross tax imposed by 1926 Act $5, 500. 00 Credit for gift tax imposed by 1924 and/or 1982 Act 2, 062. 50 Gross tax less credit for gift tax 3, 437. 50 Credit for estate, inheritance, legacy, or succession tax__ 2, 750. 00 Net tax imposed by 1926 Act $687. 50 Total gross taxes imposed by 1926 and 1932 Acts 22, 250. 00 Gross tax imposed by 1926 Act 5, 500. 00 Gross additional tax imposed by 1932 Act 16, 750. 00 Credit for gift tax imposed by 1932 Act 1, 562. 50 Net additional tax imposed by 1932 Act 15, 187. 50 Total net tax 15, 875. 00 CREDITS AGAINST ESTATE TAX (Gift Tax Credit) Seo. 801. Revenue Act of 1932. Section 301 of the Bevenue Act of 1926 is amended by inserting after subdivision (a) a new subdivision to read as follows: "(b) (1) If a tax has been paid under Title III of the Revenue Act of 1932 on a gift, and thereafter upon the death of the donor any amount in respect of such gift is required to be included in the value of the gross estate of the decedent for the purposes of this title, then there shall be credited against the tax imposed by sub- division (a) of this section the amount of the tax paid under such Title III with respect to so much of the property which constituted the gift as is included in the gross estate, except that the amount of such credit shall not exceed an amount which bears the same ratio to the tax imposed by subdivision (a) of this section as the value (at the time of the gift or at the time of the death, whichever is lower) of so much of the property which constituted the gift as is included in the gross estate, bears to the value of the entire gross estate. "(2) For the purposes of paragraph (1), the amount of tax paid for any year under Title III of the Revenue Act of 1932 with respect to any property shall be an amount which bears the same ratio to the total tax paid for such year as the value of such prop- erty bears to the total amount of net gifts (computed without deduction of the specific exemption) for such year." Sec. 402. Revenue Act of 1932. (Pertaining to additional estate tax.) ******* 18 (b) (1) If a tax has been paid under Title III of this Act on a gift, and thereafter upon the death of the donor any amount in respect of such gift is required to be included in the value of the gross estate of the decedent for the purposes of this title, then there shall be credited against the tax imposed by section 401 of this Act the amount of the tax paid under such Title III with respect to so much of the property which constituted the gift as is included in the gross estate, except that the amount of such credit (A) shall not exceed an amount which bears the same ratio to the tax imposed by section 401 of this Act as the value (at the time of the gift or at the time of the death, whichever is lower) of so much of the property which constituted the gift as is included in the gross estate, bears to the value of the entire gross estate, and (B) shall not exceed the amount by which the gift tax paid under Title III of this Act with respect to so much of the property ,as constituted the gift as is included in the gross estate, exceeds the amount of the credit under section 301 (b) of the Revenue Act of 1926, as amended by this Act. (2) For the purposes of paragraph (1), the amount of tax paid for any year under Title III of this Act with respect to any property shall be an amount which bears the same ratio to the total tax paid for such year as the value of such property bears to the total amount of net gifts (computed without deduction of the specific exemption) for such year. Sec. 404. Revenue Act of 1928. Section 322 of the Revenue Act of 1924 (relating to the credit of gift tax against estate tax where the amount of the gift is required to be included in the gross estate of the decedent) is revived as of January 1, 1926 (the effective date of its repeal by the Revenue Act of 1926). Such section shall also be applied in the case of the estate tax imposed by Title III of the Revenue Act of 1926, in the same man- ner and to the same extent as in the case of the estate tax imposed by Title III of tlie Revenue Act of 1924. Sec. 322. Revenue Act of 1924. In case a tax has been imposed under section 319 upon any gift, and thereafter upon the death of the donor the amount thereof is required by any provision of Part I of this title to be included in the gross estate of the decedent then there shall be credited against and applied in reduction of the estate tax, which would otherwise be chargeable against the estate of the decedent under the provisions of section 301, an amount equal to the tax paid with respect to such gift ; and in the event the donor has in any year paid the tax imposed by section 319 with respect to a gift or gifts which upon the death of the donor must be included in his gross estate and a gift or gifts not required to be so included, then the amount of the tax which shall be deemed to have been paid with respect to the gift or gifts required to be so included shall be that proportion of the entire tax paid on account of all such gifts which the amount of the gift or gifts required to be so included bears to the total amount of gifts in that year. (INHEKITANCB TAX CeEDIT) Sec. 301. * * * (b) The tax imposed by this section shall be credited with the amount of any estate, inheritance, legacy, or succession taxes actually 19 paid to any State or Territory or the District of Columbia, in respect of any property included in the gross estate. The credit allowed by this subdivision shall not exceed 80 per centum of the tax imposed by this section, and shall include only such taxes as were actually paid and credit therefor claimed within three years after the filing of the return required by section 304. Sbo. 802. Revenue Act of 1932. (a) Section 301(b) of the Revenue Act of 1926 is amended to read as follows : "(c) The tax imposed by subdivision (a) of this section shall be credited with the amount of any estate, inheritance, legacy, or suc- cession taxes actually paid to any State or Territory or the District of Columbia, in respect of any property included in the gross estate (not including any such taxes paid with respect to the estate of a person other than the decedent). The credit allowed by this subdi- vision shall not exceed 80 per centum of the tax imposed by subdivi- sion (a) (after deducting from such tax the credits provided by subdi- vision (b)), and shall include only such taxes as were actually paid and credit therefor claimed within four years after the filing of the return required by section 304, except that — "(1) If a petition for redetermination of a deficiency has been filed with the Board of Tax Appeals within the time prescribed in section 308, then within such four-year period or before the expiration of 60 days after the decision of the Board becomes final. "(2) If, under subdivision (b) of section 305 or subdivision (i) of section 308, an extension of time has been granted for payment of the tax shown on the return, or of a deficiency, then within such four-year period or before the date of the expiration of the period of the extension. Refund based on the credit may (despite the provisions of section 319) be made if claim therefor is filed within the period above pro- vided. Any such refund shall be made without interest, except that where the overpayment was made prior to the enactment of the Rev- enue Act of 1932, then interest shall be allowed andi paid on the amount refunded at the rate of 6 per centum per annum from the date of the overpayment to the date of such enactment." (b) If any return required by section 304 of the Revenue Act of 1926 was filed more than three years before the enactment of this Act (except in cases where a petition for redetermination of a deficiency has been filed with the Board of Tax Appeals within the time pre- scribed in section 308) the credit for estate, inheritance, legacy, or succession taxes shall be determined as if this section had not been enacted. Seo. 402. Revenue Act of 1932. (Pertaining to additional estate tax.) (a) The credit provided in section 301(c) of the Revenue Act of 1926, as amended (80 per centum credit), shall not be allowed in respect of such additional tax. Art. 9. (a) Credit for gift tax. — The estate is entitled with certain limitations to credit against the estate tax for Federal gift tax paid by the decedent in respect of property included in his gross estate. (1) Credit against estate tax imposed by the Bevenue Aet of 19^6. — In accordance with the provisions of section 301 (b) of 20 the Revenue Act of 1926 as amended by section 801 of the Eevenue Act of 1932 credit for gift tax paid under the Gift Tax Act of 1932 is allowed against the estate tax imposed by section 301 (a) of the Revenue Act of 1926. Such credit can not exceed an amount which bears the same ratio to the gross estate tax computed under the provisions of the Revenue Act of 1926 as the value of the property which was the subject of the gift and included in the gross estate bears to the value of the entire gross estate. For this purpose the value of the property which was the subject of the gift and included in the gross estate, is the value at the date of the gift or at the time of the decedent's death, whichever is the lower. In accordance with section 322 of the Revenue Act of 1924 as revived and extended by section 404 of the Revenue Act of 1928, credit for the entire amount of gift tax paid under the Revenue Act of 1924 in respect of property included in the gross estate is allowed against the estate tax imposed by section 301 (a) of the Revenue Act of 1926. (2) Credit against additiotial estate tax imposed iy the Revenvie Acts of 1932 and 193^. — In accordance with section 402 of the Revenue Act of 1932 credit for gift tax paid under the Gift Tax Act of 1932 is allowed against the additional estate tax imposed by section 401 of the Revenue Act of 1932. Such credit can not exceed an amount which bears the same ratio to the additional gross estate tax computed under the provisions of the Revenue Act of 1932 as the value of the property which was the subject of the gift and included in the gross estate bears to the value of the entire gross estate. For this purpose the value of the property which was the subject of the gift and included in the gross estate, is the value at the time of the gift or at the time of the death, whichever is the lower. Fur- thermore, such credit can not exceed the difference between the total amount of the gift tax paid in respect of the property included in the gross estate and the amount of the credit for gift tax paid under the Gift Tax Act of 1932 allowed against the estate tax imposed by the Revenue Act of 1926. No credit for gift tax paid under the Revenue Act of 1924 is allowed against the additional estate tax imposed by the Revenue Act of 1932. In accordance with section 322 of the Revenue Act of 1924 credit for gift tax paid under the Revenue Act of 1924 is allowed against the estate tax imposed by the Revenue Act of 1924. If only a part of the property subjected to a gift tax during a calendar year is included in the decedent's gross estate for the pur- pose of the estate tax, gift tax paid in respect of the property in- 21 eluded in the gross estate is an amount which bears the same ratio to the total gift tax paid for such calendar year as the value of such part of the property bears to the total amount of the net gifts (com- puted without deduction of the specific exemption) for such year. For the purpose of computing this proportion the values finally de- termined for the purpose of the gift tax control, irrespective of any increase or decrease in value between the date of the gift and the date of the decedent's death. If all of the property subjected to a gift tax during a calendar year is included in the decedent's gross estate for the purpose of the estate tax, the gift tax paid in respect of the property included in the gross estate is the amount of the gift tax paid for that calendar year. Example : On July 15, 1932, a resident donor gave his son a yacht valued at $50,000 as a wedding present. On August 15, 1932, the decedent donated $50,000 in cash to a charitable organization. On December 1, 1932, he transferred to his wife real property valued at $100,000 in contemplation of death. The total amount of gifts for the year 1932 for the purpose of the gift tax is $185,000, $5,000 for each of the three donees being excluded from the total gifts under the provisions of the Gift Tax Act. After deducting $50,000 spe- cific exemption and $45,000 for the gift to the charitable organiza- tion, the net gifts amount to $90,000. The gift tax on the net gifts, $3,125, was paid. The donor died on December 10, 1932, and the value of the real property transferred in contemplation of death is included in his gross estate for the purpose of the estate tax. The gift tax paid in respect of the property included in the gross estate is an amount which bears the same ratio to $3,125 as $95,000 bears to $140,000, or $2,120.54. Note that $95,000 is the portion of the real property subject to gift tax ($100,000 less the excluded $5,000) and that $140,000 is the amount of the net gifts computed without deduction of the specific exemption, $50,000. For examples illustrating the computation of credit in accordance with the limitations set forth in paragraphs (1) and (2) of this subdivision, see article 8. (b) Credit for estate, inheritance, legacy, or succession taxes. — ^Under the provisions of section 301 (c) of the Revenue Act of 1926, as amended, the estate is entitled, under certain conditions, to a credit against the Federal estate tax for estate, inheritance, legacy, or suc- cession taxes actually paid with respect to the estate of the decedent to any of the several States, Territories, or the District of Columbia. The credit allowed is limited to the estates of persons dying after the effective date of the Revenue Act of 1924. The provision of section 301 (c), prohibiting the allowance as a credit of any such 22 taxes paid with respect to the estate of a person other than the de- cedent, is applicable alike to estates of persons dying after the enact- ment of the Revenue Act of 1924 and the Revenue Act of 1926. The credit applying to the estates of persons dying after the effective date of the Revenue Act of 1924 and before the effective date of the Revenue Act of 1926 is limited to 26 per cent of the Fed- eral estate tax, after the deduction of any credit for gift tax im- posed by the Revenue Act of 1924. If the decedent's death occurred after the effective date of the Revenue Act of 1926, the credit is lim- ited to 80 per cent of the tax imposed by section 301 (a) of the Revenue Act of 1926, after deduction of the credit allovsred, if any, against such tax for gift taxes paid. No credit for payment of estate, inheritance, legacy, or succession taxes is allowed against the additional tax imposed by the Revenue Acts of 1932 and 1934. Credit which may be taken or allowed on account of estate, inheritance, legacy, or succession taxes paid to any State, Territory, or the Dis- trict of Columbia is limited to the amount of such taxes paid in respect of property the value of which is included in the gross estate of the decedent for Federal estate tax purposes. If the decedent died after the effective date of the Revenue Act of 1926, the taxes allowed as a credit are limited to such as were actually paid and credit therefor claimed within four years after the filing of the return, except as otherwise provided in this paragraph. If a petition was filed with the Board of Tax Ap- peals for the redetermination of a deficiency within the time pre- scribed by section 308 (see article 76), the credit is limited to such taxes as were actually paid and credit therefor claimed within four years after the filing of the return of before the expiration of 60 days after the decision of the Board becomes final. If the re- turn was filed after, or less than three years before, the enactment of the Revenue Act of 1932 and an extension of time was granted for payment of the tax shown on the return or of a deficiency, the credit is limited to such taxes as were actually paid and credit therefor claimed within four years after the filing of the return or before the date of the expiration of the extension. If the return was filed more than three years before the enactment of the Revenue Act of 1932, except in cases in which a petition for redetermination of a deficiency has been filed with the Board of Tax Appeals within the time prescribed by section 308, the credit is limited to such taxes as were actually paid and credit therefor claimed within three years after the filing of the return. Should the executor, in accordance with the provisions of section 811 of the Revenue Act of 1932, elect to postpone the payment of the Federal estate tax attributable to a reversionary or remainder interest, the credit allowable against the Federal estate tax attributable to such interest is limited to estate. 23 inheritance, legacy, or succession taxes attributable to such interest as are actually paid to any State, Territory, or the District of Colum- bia and credit therefor claimed prior to the expiration of 60 days after the termination of the precedent interest. (See article 82 (b).) Refund based on the credit, despite the provisions of section 319, will be made if claim therefor is filed within the period provided for filing claim for credit. Such refunds will be made without interest unless the overpayment was made prior to the enactment of the Eevenue Act of 1932, in which case interest upon the amount refunded is allowable on the amount of the refund at the rate of 6 per cent per annum from the date of the overpayment to the date of the enactment of the Revenue Act of 1932. Before the Commissioner allows any credit for any estate, inherit- ance, legacy, or succession taxes, there must be submitted to him the following : (1) Certificate of the proper oiRcer of the taxing State or Terri- tory showing : (a) the total amount of tax imposed (before adding interest and penalties and before allowing discount) ; (b) the amount of discount allowed; (c) the amount of penalties and interest imposed or charged ; (d) the total amount actually paid in cash ; and (e) the date of payment. (2) A certificate of the above-mentioned officer showing whether (a) a claim for refund of such taxes or any part thereof is pending and (b) whether a refund of such taxes or any part thereof has been authorized. If any refund has been made, the date, the amount thereof, and a description of the property or interest in respect to which such refund was mad© must be shown in the certificate. The evidence described above should be filed with the return, but if that is not convenient or possible, then it should be submitted to the investigating officer verifying the return, or, if the investigation of the estate has been completed, it should be transmitted to the Commissioner. The Commissioner may require the submission of such additional proof as is deemed necessary to establish the right to the credit. For example, he may require an itemized list of the property in respect to which any such taxes were imposed, certified by the officer having custody of the records pertaining to such taxes for the State or Territory involved, and an affidavit of the executor stating whether any litigation has been instituted, or appeal taken, or any such action is designed or contemplated by him, or, to his knowledge, by any beneficiary or other person, the final determination of which may affect the amount of such State or Territorial taxes. If, subsequent to the allowance of a credit by the Commis- sioner, a refund is made of any such estate, inheritance, legacy, or 182135°— 34 3 24 succession taxes, the executor, or if the refund is made after the executor's discharge, then any person or persons to whom the refund is made, is required to advise the Commissioner of the date of the refund and the amount thereof, furnish the Commissioner with a description of the property or interest in respect to which the refund was made, and pay the Federal estate tax, if any, due as a result of such refund, together with interest. GROSS ESTATE— GENERAL Sec. 302. The value of the gross estate of the decedent shall be de- termined by including the value at the time of his death of all property, real or personal, tangible or intangible, vyherever situated — (a) To the extent of the interest therein of the decedent at the time of his death. Sec. 404. Revenue Act of 1934. So much of section 302 of the Revenue Act of 1926 as reads as follows : " The value of the gross estate of the decedent shall be de- termined by including the value at the time of his death of all prop- erty, real or personal, tangible or intangible, wherever situated " is amended to read as follows : " The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated, except real property situated outside the United States". Art. 10. Character of Interests included. — It is designed by the fore- going provision of the statute that there shall be included in the gross estate the value of all property of the decedent whether real or per- sonal, tangible or intangible, the beneficial ownership of which was in the decedent at the time of his death, except real property situated outside the United States. If the decedent died prior to 10.25 a. m., eastern standard time, February 26, 1926, the test which determines that the value of a given interest is to be included in the gross estate under the pro- visions of subdivisions (a) of the corresponding sections of the Revenue Acts prior to that of 1926, is whether the property, after death, shall be subject to: (1) Payment of the charges against the estate; (2) payment of the expenses of administration; and (3) dis- tribution as a part of the estate. This test is not applicable if the decedent died subsequent to the effective date of the Revenue Act of 1926. Art. 11. Specific property to be included. — The value of all real property situated in the United States and owned by the decedent at the date of his death should be included in the gross estate, whether the decedent was a resident or a nonresident, a citizen or an alien, and whether the property came into the possession and control of the executor or administrator or passed directly to heirs or devisees. If the decedent was a resident, or a nonresident citizen who died after the enactment of the Revenue Act of 1934, the value of all 25 personal property owned by him should be included, wherever situ- ated. If the decedent was a nonresident alien, or, regardless of citizenship, was a nonresident who died prior to the enactment of the Kevenue Act of 1934, the value of so much of his personal prop- erty as had its situs in the United States at the time of his death should be included, and the value of his entire gross estate, wherever situated, should be disclosed, if deductions are claimed. (See articles 52 to 54.) As to the situs of the personal property of nonresident alien decedents, or nonresident decedents, regardless of citizenship, who died prior to the enactment of the Revenue Act of 1934, see article 50. The value of a vested remainder should be included in the gross estate. Nothing should be included, however, on account of a con- tingent remainder in the case the contingency does not happen in the lifetime of the decedent, and the interest consequently lapses at his death. Nor should anything be included on account of an interest or an estate limited for the life of the decedent. There should be included, however, the value of a reversionary interest retained by the decedent, which reverts upon the termination of a particular estate or in case of his prior death passes to others. There should also be included the value of an annuity payable to, or an interest or an estate vested in, the decedent for the life of another person who survives him. For rules in valuing such remainders, annuities, and interests or estates jmr autre vie, see article 13, subdivision (10). A cemetery lot owned by the decedent is part of his gross estate, but its value is limited to the salable value of such part of it as is not designed for the interment of the decedent or members of his family. Salary due the decedent, and rents and interest ac- crued at the time of his death, whether then payable or not, and unpaid matured coupons, should be included. The value of notes or other claims held by the decedent should be included, though they are canceled by his will. As to the valuation of notes and claims, see article 13, subdivisions (1) and (5). All bonds, including Fed- eral, State, and municipal, should be included. (See article 12 for manner of listing and describing property returned.) In case the decedent was a nonresident alien not engaged in business in the United States, bonds, notes, and certificates of indebtedness of the United States, and bonds of the War Finance Corporation, benefi- cially owned by such alien, should not be included. Dividends on either common or preferred stock should be in- cluded only if declared prior to the decedent's death, and not reflected in the market value of the stock on the day of death. Thus dividends, both declared and payable to holders of record on a date 26 prior to the decedent's death should be included, provided the stock is valued " ex dividend " on the date of death. Example: A 5 per cent dividend upon stock is declared March 1, payable on April 1, to stockholders of record on March 15. If the death occurred on March 10, and the market value on that day was 90, the value to be returned for both stock and dividend is 90, the dividend being reflected in the market value of the stock. If the death occurred on March 20, the dividend is not reflected in the mar- ket value, and must be returned in addition to the market value of the stock on March 20. Art. 12. Description of property listed on return. — In listing upon the return the property constituting the gross estate (other than household and personal effects, as to which see subdivision (9) of article 13), the description thereof should be such that the property may be readily identified. Thus, a legal description should be given of each parcel of real estate, and if located in a city the name of street and number, its area, and, if improved, a short statement of the character of the improvements. Description of bonds should include number held, principal amount, name of obligor, date of maturity, rate of interest, date or dates on which interest is payable, series number if there is more than one issue, the exchange upon which listed, or the principal business office of the corporation, if unlisted. Description of stocks should include number of shares, whether common or preferred, and, if preferred, what issue thereof, par value, quotation at which returned, exact name of corporation, and, if the stock is unlisted, the location of the principal business office and State in which incorporated and the date of incorporation. If a listed security, state principal exchange upon which sold. Descrip- tion of notes should include name of maker, date on which given, date of maturity, amount of principal, amount of principal unpaid, rate of interest and whether simple or compound, date to which interest has been paid and amount of unpaid interest. Description of land contracts received should include name of vendee, date of contract, description of property, sale price, initial payment, amounts of installment payments, unpaid balance of principal and accrued interest, interest rate and date prior to decedent's death to which interest had been paid. Description of bank accounts should dis- close name and address of depository, amount on deposit, whether a checking, savings, or a time-deposit account, rate of interest, if any payable, amount of interest accrued and payable, and serial number. Description of life insurance should give the name of the insurer, number of policy, face value, name of beneficiary, and amount paid or payable thereunder. In describing an annuity, the name and address of the grantor of the annuity should be given, or if payable 27 out of a trust or other funds such a description as will fully identify it. If payable for a term of years, the duration of the term and the date on which it began should be given, and if payable for the life of a person other than the decedent, the date of birth of such person should be stated. Judgments should be described by giving the title of the cause and the name of the court in which rendered, date of judgment, name and address of judgment debtor, amount of judgment, rate of interest to which subject, whether any payments have been made thereon, and, if so, when and in what amounts. VALUATION OF PROPERTY Art. 13. Valuations. — (1) General. — The value of all property in- cludible in the gross estate is the fair market value thereof at the time of decedent's death. The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell. The fair market value of a particular kind of property includible in the gross estate is not to be determined by a forced sale price or by an estimate of what a whole block or aggregate would fetch if placed upon the market at one and the same time. Such value is to be determined by ascertaining as a basis the fair market value at the time of the decedent's death of each unit of the property. For example, in the case of shares of stock or bonds, such unit of property is a share or a bond. All relevant facts and elements of value as of the time of the decedent's death should be considered in every case. Depreciation or appreciation in value subsequent to the time of the decedent's death are not relevant factors and will not be considered. (2) Real estate. — The property should not be returned at the local assessed value thereof unless such value represents the fair market value as of the date of decedent's death. (See article 12 for manner of listing and describing real estate.) (3) Stocks and hands. — ^The value at the date of the decedent's death in the case of stocks and bonds, within the meaning of the statute, is the fair market value per share or bond on the date of death. The value of stocks and bonds listed upon a stock exchange shall be obtained by taking the mean between the highest and lowest quoted selling prices upon the date of death. If the decedent died on a Sunday or a legal holiday, the transactions of the next previous business day will govern. If there were no sales on the date of death, the value shall be determined by taking the mean between the highest and lowest sales upon the nearest date either before or after the date of death, if within a reasonable period thereof. If the security was listed upon more than one exchange, the records of the exchange where the security is principally dealt in should be em- 28 ployed. In valuing listed stocks and bonds the executor should observe care to consult accurate records to obtain values as of the date of death. If the securities are not listed upon an exchange, but are dealt in through brokers, or have a market, the value shall be determined by taking the mean between the highest and lowest selling prices as of the date of death, or, if there were no sales on that date, of the nearest date either before or after the date of death upon which sales were made, if within a reasonable period. If quotations are obtained from brokers, or evidence as to the sale of securities is obtained from the officers of the issuing companies, the executor should preserve in his files the letters furnishing such quotations or evidence of sale for inspection when the return is verified by an investigating officer. In the case securities are quoted on a bona fide bid and asked basis, and actual sales are not available, the mean between the bid and asked prices as of the date of death, or the nearest date thereto if within a reasonable time thereof, will be accepted as the value. In the case of the stock of a close corporation, the value shall be determined on the basis of the company's net worth, earning power, and dividend-paying capacity, and all other relevant factors bearing upon the value of the stock. Complete financial and other data upon which the estate bases its valuation should be submitted in duplicate with the return. In the case of the stock of other corporations where the shares are not quoted on a bona fide bid and asked basis and no bona fide sales thereof have been made within a reasonable time of the decedent's death, the value should be determined and supported in the manner indicated in this paragraph. In the case of corporate or other bonds which are not quoted on a bona fide bid and asked basis and if no bona fide sales thereof have been made within a reasonable time of the decedent's death, the value is to be determined by giving consideration to the soundness of the security, the interest yield, the date of maturity, and other relevant factors. In exceptional cases in which it is established by clear and con- vincing evidence that the value per bond or share of any security determined upon the basis of selling or bid and asked prices as herein provided does not reflect the fair naarket value thereof, other relevant facts and elements of value will be considered in determin- ing the fair market value. The size of holdings of any security to be included in the gross estate is not a relevant factor and will not be considered in such determination. The full value of securities pledged to secure a loan should be included in the gross estate. If the decedent had a trading account with a broker, all securities belonging to the decedent and held by 29 the broker at the date of death must be included at their fair market value on that date. Securities purchased on margin for the de- cedent's account and held by the broker should also be returned at their fair market value on the date of death. The amount of the decedent's indebtedness to the broker or other person with whom securities were pledged will be allowed as a deduction from the gross estate in accordance with articles 29, 36, and 52. (See article 12 for manner of listing and describing stocks and bonds.) (4) Interest m business. — Care should be taken to arrive at an accurate valuation of any business in which the decedent was inter- ested, whether as partner or proprietor. A fair appraisal as of the date of death should be made of all the assets of the business, tan- gible and intangible, including good will, and the business should be given a net value equal to the amount which a willing purchaser, whether an individual or corporation, would pay therefor to a will- ing seller in view of the net value of the assets and the demonstrated earning capacity. Special attention should be given to fixing an ade- quate figure for the value of the good will of the business in all cases in which the decedent has not agreed, for an adequate and full consid- eration in money or money's worth, that his interest therein shall pass at his death to his surviving partner or partners. The factors hereinbefore stated relative to the valuation of other property, if applicable, will be considered in determining the valuation of an interest in a business held as proprietor or partner. All evidence bearing upon such valuation should be submitted with the return, including copies of reports in any case in which examina- tions of the business have been made by accountants, engineers, or any technical experts as of or near the date of decedent's death. (5) Notes, secured) and unsecured. — The value of notes, whether secured or unsecured, will be presumed to be the amount of unpaid principal, plus accrued interest to the date of decedent's death, unless the executor establishes a lower value, or it is shown that they are worthless. Unless returned at face value, plus accrued interest, it must be shown by satisfactory evidence that the note is worth less than the unpaid amount because of the interest rate, or date of maturity, or other cause, or that it is uncollectible, either in whole or in part, by reason of the insolvency of the party or parties liable, or for other cause, and that the property, if any, pledged or mort- gaged as security is insufficient to satisfy it. (6) Cash on Jumd or on deposit. — The amount of cash belonging to the decedent, either in his possession at the date of death or in the possession of another, should be included, together with such interest, if any, accrued thereon at the date of the decedent's death. Bank accounts should be returned in the amount on deposit to the credit of the decedent at the date of death. If checks then outstand- 30 ing, given in discharge of bona fide, legal obligations of the decedent, incurred for an adequate and full consideration in money or money's worth, and not as transfers coming within the provisions of section 302 (c) or (d), are subsequently honored by the bank and charged to the account, the balance remaining may be returned, provided the payments effected thereby are not claimed as deductions from the gross estate. Interest which the bank agreed to pay upon condition that the money remain on deposit for a period of time which ex- pired subsequent to the decedent's death, should not be included. (7) Intangibles. — Intangibles should be valued in accordance with the rule laid down under subdivision (1) of this article. (8) Other property. — ^With respect to all other property, except- ing household and personal effects, concerning which see subdivision (9) of this article, the executor should ascertain and return the fair market value thereof as of the date of decedent's death. Livestock, farm machinery, harvested and growing crops should be itemized and the value of each item separately returned. (9) Household and personal effects. — ^AU household and personal effects of the decedent should be included at the price which a will- ing buyer would pay to a willing seller. A room by room itemiza- tion is desirable. All the articles should be named specifically, except that a number of articles contained in the same room, none of which has a value in excess of $50, may be grouped. A separate value should be given for each article named. The executor may furnish, in lieu of an itemized list, a sworn statement, in duplicate, setting forth the aggregate value of the property as appraised by a competent appraiser, or appraisers of recognized standing and ability, or by a dealer or dealers in the class of personalty involved. If, however, there is included among the household and personal effects, articles having marked artistic or intrinsic value of a total value in excess of $2,000, such as jewelry, silverware, paintings, etchings, engravings, antiques, books, statuary, vases, oriental rugs, collections of coins and stamps, the appraisal of an expert or experts, under oath, should be filed with the return on Form 706, accom- panied by the affidavit, in duplicate, of the executor as to the com- pleteness of the itemized list of such property and of the disinterested character and the qualifications of the appraiser or appraisers. If it is desired to effect distribution or sale of any portion of the household or personal effects in advance of an investigation by a special officer of the Bureau of Internal Revenue, information to that effect should be given to the internal revenue agent in charge for the division wherein the decedent was domiciled at the date of his death, or if such household and personal effects were not located in such division, then to the Commissioner. The statement to the internal revenue agent in charge should be accompanied by a verified 31 appraisal of such property and an affidavit of the executor as to the completeness of the list of such property and the qualifications of the appraiser, as already referred to, but such an appraisal and affidavit need not be in duplicate. If a personal inspection by a special officer of the Bureau is not deemed necessary, the executor will be so advised. This procedure is designed to facilitate disposition of such property and to obviate future expense and inconvenience to the estate by affording the Commissioner an opportunity to make an investigation should one be deemed necessary prior to sale or dis- tribution. (For location of the offices of the internal revenue agents in charge and the territory embraced in each division, see Appendix.) If expert appraisers are employed care should be taken to see that they are reputable and of recognized competency to appraise the particular class of property involved. In the appraisal, books in sets by standard authors should be listed in separate groups. In listing paintings having artistic value, the size, subject, and artist's name should be stated. In the case of oriental rugs, the size, make, and general condition should be given. Sets of silverware should be listed in separate groups. Groups or individual pieces of silverware should be weighed and the weights given in troy ounces. In arriving at the value of silverware, the appraisers should take into considera- tion its antiquity, utility, desirability, condition, and obsolescence. (10) Annuities, life, remainder, and reversionary interests. — In the case the decedent was entitled to receive an annuity of a defi- nite amount during the lifetime of another person, payable at the end of annual periods, its present worth at the time of the decedent's death must be computed upon the basis of the value of a life an- nuity at the age of the other person. The table marked "A," a part of this subdivision, should be used for this computation. The amount payable annually should be multiplied by the figure in column 2 of the table opposite the number of years in column 1 nearest to the actual age of the other person. Example: The decedent received under the terms of his father's vidll an annuity of $10,000 for the life of his elder brother. The brother at the decedent's death was 40 years 8 months old. By reference to the table the figure in column 2 opposite 41 years, the number nearest to the brother's age, is found to be 14.86102. The present worth of the annuity is therefore $148,610.20. If the decedent was entitled to receive the annuity during a specified number of years, the table marked "B," a part of this subdivision, should be used. Example: The decedent received under the terms of his father's will an annuity of $10,000 for a period of 20 years, 15 of which had expired at the decedent's death. By reference to the table it is found that the figure in column 2 opposite 5 years, the unexpired 32 portion of the 20-year period, is 4.45182. The present worth of the annuity is, therefore, $44,518.20 (4.45182 multiplied by 10,000). If the decedent was entitled to receive the entire income of certain property during the life of another person, or for a term of years, and the annual rate of income for a period equal to or ex- ceeding the life expectancy of such other person or such term of years, is fixed or definitely determinable at the time of the decedent's death, then the present worth of decedent's right to such income should be computed as explained above in the case of an annuity. Example: The decedent's father placed $100,000 in trust, with directions that it be invested in State and municipal bonds and the entire income paid to the decedent during the life of his elder brother, who was 41 years old at the decedent's death. Before the de- cedent's death the money was invested in State and municipal bonds maturing at dates beyond such elder brother's life expectancy, and yielding annually an income of $5,000. In this case the rate of income is definitely determinable. By reference to the table, it is found that the present worth of an income of $5,000, dependent upon the life of a person 41 years of age, is $74,305.10 (14.86102 multiplied by 5,000). If the rate of annual income is not determinable, or where the decedent was entitled merely to the personal use of nonincome- bearing property, a hypothetical annuity at a rate of 4 per cent of the value of the property should be made the basis of the calculation. Example : The decedent died before a fund of $100,000, of which he was entitled to receive the income during the life of a person 41 years old, had been invested by the trustees. The value of a hypothetical annuity of $4,000, dependent upon the life of such a person, is indi- cated by the table to be $59,444.08 (14.86102 multiplied by 4,000). If the decedent had a remainder interest in property subject to the life estate of another, and such interest constituted an asset of his estate, the present worth of the remainder interest at the time of death should be obtained by multiplying the value of the property at the time of death by the figure in column 3 of Table A opposite the number of years nearest to the age of the life tenant. If the remainder interest is subject to an estate for a term of years Table B should be used. Example: The decedent was entitled to receive property worth $50,000 upon the death of his elder brother, to whom the income for life had been bequeathed. The brother at the time of the decedent's death was 31 years old. By reference to the table it is found that the figure in column 3, opposite 31 years, is 0.31262. The present worth of the remainder interest is, therefore, $15,631, If an annuity or the income which the decedent was entitled to receive is payable semiannually, quarterly, or monthly, the value of the annuity or of the right to receive the income should be deter- 33 mined by multiplying the aggregate amount to be paid within a year by the figure in column 2 of Table A opposite the number of years in column 1 nearest the actual age of the person whose life measures the annuity or the right to the income, or the figure in column 2 of Table B opposite the number of years the annuity or income is payable, as the case may be, and then multiplying the product by 1.01820 for monthly payments, by 1.01488 for quarterly payments, or by 1.00990 for semiannual payments. Example: If, in the first example above given, the annuity is payable semiannually, the factor 14.86102, should be multiplied by 1.00990 and the product multiplied by 10,000. The present worth of the annuity is, therefore, $150,081.44 (14.86102X1.00990X10,000). If the first payment of an annuity for the life of an individual is to be paid at once, the value of the annuity is the sum of the first payment plus the present worth of a similar annuity, the first payment of which is not to be made until the end of the first period. Example : The decedent was entitled to receive an annuity of $50 a month payable during the life of another. The decedent died on the day payment is due. At the date of his death the person whose life measures the duration of the annuity is then 50 years of age. The value of the annuity at the date of decedent's death is $50 plus the product of $50 X 12 X 12.47032 (see Table A) X 1.01820 (see preced- ing paragraph), or $7,668.37 [$60 plus ($50X12X12.47032X1.01820)]. If the first payment of an annuity for a definite number of years is to be paid at once, the applicable factor is the product of the factor shown in Table B multiplied by 1.02154 for monthly pay- ments, by 1.02488 for quarterly payments, by 1.03980 for semiannual payments, or by 1.04 for annual payments. The decedent was the beneficiary of an annuity of $60 'a month. On the day a pay- ment was due, the decedent died. There were 300 payments to be made, including the 'payment due. The value of the annuity as of the date of decedent's death is the product of $50 X 12 X 15.62208 (see Table B) X 1.02154 (see preceding paragraph), or $9,675.15 ($50X12X15.62208X1.02154). If the annuity is payable during the life of an individual and in any event for a definite number of years, or for more than one life, or in any other manner rendering inapplicable Table A or Table B (also a part of this subdivision), the case may be stated to the Commissioner, who will thereupon make the computation and advise the executor thereof. In making such calculations, when life inter- ests or remainders upon life interests are involved, use will be made of the Actuaries' or Combined Experience Table of Mortality, as extended (that being the basis of Table A), with interest at 4 per cent per annum compounded annually. 34 Table A Table, single life, 4 per cent, showing the present worth of an annuity, or a life interest, and of a reversionary interest 1 2 3 I a 3 Annuity, or Reversion, or Annuity, or Eeversion, or present value present value present value present value of $1 due at of $1 due at of $1 due at of $1 due at Age the end of each the end of the Age the end of each the end of the year during tlie year of death of year during the year of death of life of a person a person of speci- life of a person a person of speci- of specified age fied age of specified age fied age Annuily Seversion Annuity Reversion $14. 72829 $0. 39507 51 $12. 17919 $0. 49311 1 17. 30771 . 29586 52 11. 88408 . 50446 2 18. 69578 . 24247 53 11. 58531 . 51595 3 19. 15901 . 22465 54 11. 28325 . 52757 4 19. 41226 . 21491 55 10. 97789 . 53931 S 19. 55301 . 20950 56 10. 66982 .55116 6 19. 61731 . 20703 57 10. 35931 . 56310 7 19. 62502 . 20673 58 10. 04630 . 57514 8 19. 61097 . 20727 59 9. 73131 . 58726 9 19. 53413 . 21022 60 9. 41474 . 59943 10 19. 45359 . 21332 61 9. 09765 . 61163 11 19. 36943 . 21656 62 8. 78062 . 62383 12 19. 28184 . 21993 63 8. 46412 . 63600 13 19. 19065 . 22344 64 8. 14888 . 64812 14 19. 09590 . 22708 65 7. 83552 . 66017 15 18. 99764 . 23086 66 7. 52476 . 67212 16 18. 89569 . 23478 67 7. 21699 . 68397 17 18. 79010 . 23884 68 6. 91298 . 69565 18 18. 68070 . 24305 69 6. 61301 . 70719 19 18. 56751 . 24740 70 6. 31716 . 71857 20 18. 45038 . 25191 71 6. 02612 . 72976 21 18. 32932 . 25656 72 5. 74003 . 74077 22 18. 20416 . 26138 73 5. 45928 . 75157 23 18. 07471 . 26636 74 5. 18402 . 76215 24 17. 94097 . 27150 75 4. 91463 . 77251 25 17. 80274 . 27682 76 4. 65125 . 78264 26 17. 65984 . 28231 77 4. 39383 . 79254 27 17. 51224 . 28799 78 4. 14286 . 80220 28 17. 35968 . 29386 • 79 3. 89858 . 81159 29 17. 20225 . 29991 80 3. 66071 . 82074 30 17. 03961 . 30617 81 3. 42900 . 82965 31 16. 87176 . 31262 82 8. 20258 . 83836 32 16. 69846 . 31929 83 2. 98024 . 84691 33 16. 51964 . 32617 84 2. 76106 . 85534 34 16. 33503 . 33327 85 2. 54366 . 86371 35 16. 14437 . 34060 86 2. 32795 . 87200 ■ 36 15. 94755 . 34817 87 2. 11384 . 88024 37 15. 74427 . 35599 88 1. 90115 . 88842 38 15. 53421 . 36407 89 1. 69107 . 89650 39 15. 31722 . 37241 90 1. 48540 . 90441 40 15. 09295 . 38104 91 1. 28432 . 91214 41 14. 86102 . 38996 92 1. 09024 . 91961 42 14. 62122 . 39918 93 . 90647 . 92667 43 14. 37356 . 40871 94 . 73687 . 93320 44 14. 11860 . 41852 95 . 58435 . 93906 45 13. 85713 . 42857 96 . 46182 . 94378 46 13. 58958 . 43886 97 . 36698 . 94742 47 13. 31698 . 44935 98 . 24038 . 95229 48 13. 03942 . 46002 99 . 00000 . 96154 49 12. 75716 . 47088 50 12. 47032 . 48191 35 Table B Table showing the present worth at 4 per cent of an annuity for a term-certain, and of a reversionary interest postponed for a term-certain 1 3 Present worth of 3 1 2 Present worth of 3 Num- an annuity of $1, Present worth of Num- ber of an annuity of $1, Present worth of payable at tbe $1, payable at the payable at the $1, payable at the oer 01 end of each year, end of a certain end of each year, end of a certain ye&rs for a certain number of years number of years years for a certain number of years number of years Annuity Reversion Annuity Reversion 1 $0. 96154 SO. 961538 16 $11. 65229 $0. 533908 2 1. 88t)09 . 924556 17 12. 16567 . 513373 3 2. 77509 . 888996 18 12. 65929 . 493628 4 3. 62989 . 854804 19 13. 13394 . 474642 5 4. 45182 . 821927 20 13. 59032 . 456387 6 5. 24214 . 790314 21 14. 02916 . 438834 7 6. 00205 . 759918 22 14. 45111 . 421955 8 6. 73274 . 730690 23 14. 85684 . 405726 9 7. 43533 . 702587 24 15. 24696 . 390121 10 8. 11089 . 675564 25 15. 62208 .375117 11 8. 76047 . 649581 26 15. 98277 . 360689 12 9. 38507 . 624597 27 16. 32958 . 346816 13 9. 98565 . 600574 28 16. 66306 . 333477 14 10. 56312 . 577475 29 16. 98371 . 320651 15 11. 11839 . 555265 30 17. 29203 . 308319 GROSS ESTATE— DOWER AND CURTESY Sec. 302. The value of the gross estate of the decedent shall be deter- mined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated — * * * (b) To the extent of any interest therein of the surviving spouse, existing at the time of the decedent's death as dower, curtesy, or by virtue of a statute creating an estate in lieu of dower or curtesy ; * * * Sec. 404. Revenue Act of 1934. So much of section 302 of the Revenue Act of 1926 as reads as fol- lows : " The value of the gross estate of the decedent shall be deter- mined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated " is amended to read as follows : " The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situ- ated, except real property situated outside the United States ". Art. 14. Dower and curtesy. — The provision of section 302 (b) in- cludes dower and curtesy and all interests created by statute in lieu thereof, although the estate or interest so created is different in char- acter. The effect of the provision is to require the inclusion of the full value of the property, without deduction of the value of the in- terest of the surviving husband or wife, and without regard to the time when the right to such an interest arose. This provision does not apply to the estate of any decedent dying after September 8, 1916, 36 and prior to 6.55 p. m., February 24, 1919 (the effective date of Title IV of the Revenue Act of 1918), unless the property has itg situs in a jurisdiction wherein dower, curtesy, or the statutory inter- est in lieu thereof is subject to the payment of charges against the estate, the expenses of its administration, and is subject to distribu- tion as part of the estate, or unless there has been an election to take property devised or bequeathed in lieu of dower, curtesy, or such statutory interest, and the property so taken has its situs in a jurisdic- tion by the laws of which it is subject to the payment of such charges and expenses, and to distribution as a part of the estate. GROSS ESTATES— TRANSFERS BY DECEDENT IN HIS LIFETIME Sec. 302. The value of the gross estate of the decedent shall be deter- mined by including the value at the time of his death of all property, real or personal, tangible or intangible, vyherever situated — * * * (c) To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death, except in case of a bona fide sale for an adequate and full consideration in money or money's worth. Where within two years prior to his death but after the enactment of this Act and without such a consideration the decedent has made a transfer or transfers, by trust or otherwise, of any of his property, or an interest therein, not admitted or shown to have been made in contemplation of or in- tended to take effect in possession or enjoyment at or after his death, and the value or aggregate value, at the time of such death, of the property or interest so transferred to any one person is in excess of- $5,000, then, to the extent of such excess, such transfer or transfers shall be deemed and held to have been made in contemplation of death within the meaning of this title. Any transfer of a material part of his property in the nature of a final disposition or distribution thereof, made by the decedent within two years prior to his death but prior to the enactment of this Act, without such consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of this title ; (d) To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, where the enjoy- ment thereof was subject at the date of his death to any change through the exercise of a jwwer, either by the decedent alone or in conjunction with any person, to alter, amend, or revoke, or where the decedent relinquished any such power in contemplation of his death, except in case of a bona fide sale for an adequate and full considera- tion in money or money's worth. * * * (i) If any one of the transfers, trusts, interests, rights, or powers enumerated and described in subdivisions (c), (d), and (f) of this section Is made, created, exercised, or relinquished for a consideration in money or money's worth, but is not a bona fide sale for an ade- quate and full consideration in money or money's worth, there shall be included in the gross estate only the excess of the fair market value 37 at the time of death of tlie property otherwise to be included on account of such transaction, over the value of the consideration received therefor by the decedent. Joint Resolution of March 3, 1931 (Public, No. 131 — Seventy-first Congress) : Resolved iy the Senate and House of Representatives of the United States of America in Cowjress assembled, That the first sentence of subdivision (c) of section 302 of the Revenue Act of 1926 is amended to read as follows: " To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death, including a transfer under which the transferor has retained for his life or any period not ending before his death (1) the possession or enjoyment of, or the income from, the property or (2) the right to designate the persons who shall possess or enjoy the property or the income therefrom ; except in case of a bona fide sale for an adequate and full consideration in money or money's worth." Sec. 803. Revenue Act of 1932. (a) Section 302(c) of the Revenue Act of 1926, as amended by the Joint Resolution of March 3, 1931, is amended to read as follows : "(e) To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contempla- tion of or intended to take effect in possession or enjoyment at or after his death, or of which he has at any time made a transfer, by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death (1) the iWssession or en- joyment of, or the right to the income from, the property, or (2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income there- from ; except in case of a bona fide sale for an adequate and full con- sideration in money or money's worth. Any transfer of a material part of his property in the nature of a final disposition or distribution thereof, made by the decedent vrithin two years prior to his death without such consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the mean- ing of this title." Sec. 804. Revenue Act of 1932. Section 303(d) of the Revenue Act of 1926 is amended by adding at the end thereof a new sentence to read as follows : " For the purposes of this title, a relinquishment or promised relin- quishment of dower, curtesy, or of a statutory estate created in lieu of dower or curtesy, or of other marital rights in the decedent's prop- erty or estate, shall not be considered to any extent a consideration ' in money or money's worth '." Seo. 401. Revenue Act of 1934. Section 302(d) of the Revenue Act of 1926 is amended to read as follows : "(d) (1) To the extent of any interest therein of which the dece- dent has at any time made a transfer, by trust or otherwise, where the 38 enjoyment thereof was subject at the date of his death to any change through the exercise of a power, either by the decedent alone or in conjunction with any person, to alter, amend, or revoke, or where the decedent relinquished any such power in contemplation of his death, except in case of a bona fide sale for an adequate and full considera- tion in money or money's worth. "(2) For the purposes of this subdivision the power to alter, amend, or revoke shall be considered to exist on the date of the decedent's death even though the exercise of the power is subject to a precedent giving of notice or even though the alteration, amendment, or revo- cation takes effect only on the expiration of a stated period after the exercise of the power, whether or not on or before the date of the decedent's death notice has been given or the power has been exer- cised. In such cases proper adjustment shall be made representing the interests which would have been excluded from the power if the decedent had lived, and for such purpose if the notice has not been given or the power has not been exercised on or before the date of his death, such notice shall be considered to have been given, or the power exercised, on the date of his death. "(3) The relinquishment of any such power, not admitted or sliown to have been in contemplation of the decedent's death, made within two years prior to his death without such a consideration and affecting the interest or interests (whether arising from one or more transfers or the creation of one or more trusts) of any one beneficiary of a value or aggregate value, at the time of such death, in excess of $5,000, then, to the extent of such excess, such relinquishment or relinquish- ments shall, unless shown to the contrai^y, be deemed to have been made in contemplation of death vrithin tLe meaning of this title ; " Sec. 404. Revenue Act of 19S4. So much of section 302 of the Revenue Act of 1926 as reads as fol- lows : " The value of the gross estate of the decedent shall be deter- mined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated " is amended to read as follows : " The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever sit- uated, except real property situated outside the United States ". Art. 15. Transfers during life. — -The following transfers made by the decedent during his life, by trust or otherwise, other than bona fide sales for an adequate and full consideration in money or money's worth, are subject to the tax: (1) transfers subsequent to the enact- ment of the Revenue Act of 1916 made in contemplation of death (see article 16) ; (2) transfers resulting from an arrangement, whether made before or after the enactment of the Revenue Act of 1916, if title was not to pass from the decedent to the beneficiary unless the latter survived the former, or title, having passed, was to be divested and the property returned to the decedent if the beneficiary predeceased him (see article 17) ; (3) transfers made 39 after the enactment of the Revenue Act of 1916 in the case posses- sion or enjoyment was retained by the decedent (see article 18 and the exception stated therein) ; (4) transfers in which the decedent retains, either alone or in conjunction with any person or persons, the right to designate who shall possess or enjoy the property or the income thereof, if made after the enactment of the Eevenue Act of 1916 (see article 19 and the exceptions stated therein) ; and (5) transfers made before or after the enactment of the Revenue Act of 1916 in which the enjoyment of the transferred property was subject at decedent's death to any change through the exercise, either by decedent alone or with other person or persons, of a power to alter, amend, or revoke, or if after the enactment of the Revenue Act of 1916 such a power was relinquished by the decedent in con- templation of death (see articles 20 and 21). The value of transferred property includible in the gross estate is the v^lue at the date of decedent's death. If a portion only of the property is so transferred as to come within the terms of the statute, only a corresponding proportion of the value of the property should be included in the gross estate. If the transferee makes addi- tions to the property, or betterments, the enhanced value of the property at date of decedent's death, due to such additions or better- ments, should not be included. To constitute a bona fide sale for an adequate and full considera- tion in money or money's worth it must have been made in good faith, and the price must have been an adequate and full equivalent, and reducible to a money value. If the price was less than an adequate and full equivalent only the excess of the fair market value of the property, as of the date of the decedent's death, over the price received by the decedent should be included in the gross estate. For the purposes of the estate tax a relinquishment or promised relin- quishment of dower, curtesy, or of a statutory estate created in lieu of dower or curtesy, or of other marital rights in the decedent's property or estate, is not to any extent a consideration in money or money's worth. In the case a transfer, by trust or otherwise, was made by a written instrument, duplicate copies thereof should be filed with the return. If of public record, one of the copies should be certified; if not of record, one copy should be verified. If the decedent was a non- resident, only one copy, certified or verified, need be filed. All transfers made by the decedent during his life of an amount of $5,000 or more, except bona fide sales for an adequate and full consideration in money or money's worth, must be disclosed in the return, whether the executor regards such transfers as subject to the 182135°— 34 i 40 tax or not. If the executor believes that sfuch a transfer is not subject to the tax a brief statement of the pertinent facts should be made. Art. 16. Transfers in contemplation of death. — Transfers in contem- plation of death made by the decedent after September 8, 1916, other than bona fide sales for an adequate and full consideration in money or money's worth, must be included in the gross estate. A transfer in contemplation of death is subject to the tax although the decedent parted absolutely and immediately with his title to, and possession and enjoyment of, the property. A transfer in contemplation of death is a disposition of property prompted by the thought of death. The phrase " contemplation of death " as used in the statute is not limited to contemplation of imminent death or to an apprehension that death is near at hand. Death must be " contemplated," that is, the motive which induces the transfer must be such that leads to testamentary disposition. A gift inter vivos which springs from a motive essentially associated with life rather than with death is not made in contemplation of death. As the phrase " transfer in contemplation of death " is applicable to many varying transactions, the circumstances of each case must be examined to ascertain the motive which induced the decedent to make the transfer. If the transfer results from mixed mo- tives, one of which is the thought of death, the more compelling motive controls. A condition of the mind or body of the transferor (whether occasioned by old age or disease) which naturally prompts a testamentary disposition to a proper object of his bounty, will be considered a decisive test of contemplation of death in the absence of proof of the existence of purposes associated with life as the dominant motive for the transfer. Any transfer without an adequate and full consideration in money or money's worth, made by the decedent within two years of his death, of a material part of his property in the nature of a final disposition or distribution thereof, is, unless shown to the contrary, deemed to have been made in contemplation of death. This pro- vision applies even though the decedent died subsequent to the effective date of the Revenue Act of 1926 and prior to the effective date of the Revenue Act of 1932. (The conclusive presumption of contemplation of death as described in the second sentence of sec- tion 302 (c) has been held to be void by the Supreme Court of the United States.) If the executor contends that the value of a transfer of $5,000 or more made by the decedent subsequent to September 8, 1916, 41 should not be included in the gross estate because he considers that such transfer was not made in contemplation of death, he should file sworn statements with the return, in duplicate, of all the ma- terial facts and circumstances, including those directly or indirectly indicating the decedent's motive in making the transfer and his mental and physical condition at that time, and one copy of the death certificate. The fact that a gift was made as an advancement to be taken into account upon the final distribution of the decedent's estate is not, in "and of itself, determinative of its taxability. Art. 17. Transfers conditioned on survivorship. — The expression, " a transfer * * * intended to take effect in possession or enjoy- ment at or after his death," includes a transfer resulting from the execution of a written instrument or the making of an oral ar- rangement, without an adequate and full consideration in money or money's worth, whereby title was not to pass from the decedent to the beneficiary (or, if title passed it was to be defeated) unless he survived the decedent, and, should he not so survive, the prop- erty is to be restored to the decedent or become a part of his estate. The tax applies without regard to the time when the instrument was executed or the oral arrangement was made, whether before or after the enactment of the Revenue Act of 1916. Thus the gift of a life estate with provision made that upon the death of the life tenant the property is to be returned to the de- cedent, if then living,, otherwise to pass to another, the value of the entire property (less the value at the decedent's death of the life estate, if such estate was then outstanding and had not been transferred by the decedent in contemplation of his death) consti- tutes a part of the gross estate. It is unimportant whether the decedent's interest be denominated a reversion or a possibility of reverter, and whether the interest of the remainderman is contin- gent or vested subject to be divested. (See article 15.) Art. 18. Transfers with possession or enjoyment retained. — (ai) Tnmsfers inclvded,. — The statutory phrase, "a transfer * * * intended to take effect in possession or enjoyment at or after his death," includes a transfer, whether in trust or otherwise, made subject to the reservation by the decedent of the use, or the posses- sion, or the rents or other income of the transferred property, or any part thereof, for his life, or for a period ascertainable only by reference to his death, or for a period of such duration as to evidence his intention to retain the enjoyment (in whole or in part) of the transferred property throughout his life. (See article 15.) 42 (6) TaxabilUy. — Every such transfer (not amounting to a bona fide sale for an adequate and fujl consideration in money or money's worth), made by the decedent subsequent to September 8, 1916, is taxable, and the value of the property or interest so transferred shall be included in the gross estate of the decedent. The provisions of this subdivision do not apply (1) if the transfer was made prior to 10.30 p. m., eastern standard time, March 3, 1931, and (2) if the decedent died prior to 5 p. m., eastern standard time, June 6, 1932. See section 506 of the Eevenue Act of 1934. Art. 19. Transfers with right retained to designate who shall possess or enjoy. — (a) Transfers inchided. — The statutory phrase, "a trans- -fgj. * * * intended to take effect in possession or enjoyment at or after his death," includes a transfer, by trust or otherwise, in connection with which the decedent retained, either to himself alone or in conjunction with any other person or persons, the right for his life, or for a period ascertainable only by reference to his death, or for a period of such duration as to evidence an intention that such right should continue throughout his life, to designate the person or persons who should possess or enjoy the transferred prop- erty (in whole or in part), or any of the income thereof. (See article 15.) {b) TcKRoMUty. — Such a transfer (not amounting to a bona fide sale for an adequate and full consideration in money or money's worth), in connection with which the right so to designate is limited to possession, enjoyment, or income for the period of decedent's life, or one ascertainable only by reference to his death, or for one evidencing intent that it should extend for at least the duration of decedent's life, is taxable if made subsequent to the enactment of the Revenue Act of 1916. If, however, the right to designate is not so limited, but is sub- ject to such an exercise as would determine the ultimate disposition of the property or any part thereof or interest therein, then to that extent the transfer is taxable whether made before or after the enactment of the Revenue Act of 1916. The provisions of the first paragraph of this subdivision are sub- ject to the same exception as stated in subdivision (&) of article 18. Art. 20. Power to change enjoyment. — The value of the property transferred, other than by a bona fide sale for an adequate and full consideration in money or money's worth, constitutes a part of the gross estate, whether the transfer was made before or after the enactment of the Revenue Act of 1916, if at the time of the dece- dent's death the enjoyment thereof was subject to any change through 43 a power, exercisable either by the decedent alone or in conjunction with any person, to alter, amend, or revoke. The power to alter, amend, or revoke is considered to exist on the date of the decedent's death though the exercise of the power is sub- ject to a precedent giving of notice, or though the alteration, amend- ment, or revocation takes effect only on the expiration of a stated period after the exercise of the power, whether or not on or before the date of the decedent's death notice has been given or the power has been exercised, or though the exercise of the power is restricted to a particular time or the happening of a particular event which has not arrived or occurred at decedent's death. In such cases, in determining the value to be included in the gross estate, the full value of the property transferred subject to the power should be discounted for the period required to elapse between the date of the decedent's death and the date upon which the alteration, amend- ment, or revocation could take effect. (See article 13 (10).) For the purpose of determining such period required to elapse (for in- stance, a power the exercise of which is restricted to a particular time which does not in fact occur until after the decedent's death) , if the notice has not been given or the power exercised on or before the time of the decedent's death, such notice shall be considered to have been given, or the power exercised, on the date of decedent's death. (See article 15.) Art. 21. Power relinquished in contemplation of death. — In the case property was transferred by the decedent, who reserved a power to alter, amend, or revoke the transfer, and such power was relinquished in contemplation of death subsequent to September 8, 1916, the value of the property should be included in the gross estate, unless such relinquishment constitutes a bona fide sale for an adequate and full consideration in money or money's worth. If the consideration for such relinquishment was less than an adequate and full equiva- lent, only the excess of the fair market value of the property as of the date of the decedent's death over the price consideration received by the decedent should be included in the gross estate. If the re- linquishment of any such power, without such consideration, is not admitted or shown to have been in contemplation of death, but was made within two years prior to decedent's death, and affected the interest or interests (whether arising from one or more transfers or the creation of one or more trusts) of any one beneficiary of a value or aggregate value, at the time of such death, in excess of $5,000, then, to the extent of such excess, such relinquishment is, unless shown to the contrary, deemed to have been made in con- templation of death. (See article 15.) 44 GROSS ESTATE^PROPERTY HELD JOINTLY Sec. 302. The value of the gross estate of the decedent shall be deter- mined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated — * * » (e) To the extent of the interest therein held as joint tenants by the decedent and any other person, or as tenants by the entirety by the decedent and spouse, or deposited, with any person carrying on the banking business, in their joint names and payable to either or the survivor, except such part thereof as may be shown to have originally belonged to such other person and never to have been i-e- ceived or acquired by the latter from the decedent for less than an adequate and full consideration in money or money's worth : Provided, That where such property or any part thereof, or part of the con- sideration with which such property was acquired, is shown to have been at any time acquired by such other person from the decedent for less than an adequate and full consideration in money or money's worth, there shall be excepted only such part of the value of such property as is proportionate to the consideration furnished by such other person: Provided further, That where any property has been acquired by gift, bequest, devise, or inheritance, as a tenancy by the entirety by the decedent and spouse, then to the extent of one-half of the value thereof, or, where so acquired by the decedent and any other person as joint tenants and their interests are not otherwise specified or fixed by law, then to the extent of the value of a fractional part to be determined by dividing the value of the property by the number of joint tenants ; * * * Sec. 804. Revenue Act of 1932. Section 303(d) of the Revenue Act of 1926 is amended by adding at the end thereof a new sentence to read as follows: " For the purposes of this title, a relinquishment or promised relin- quishment of dower, curtesy, or of a statutory estate created in lieu of dower or curtesy, or of other marital rights in the decedent's prop- erty or estate, shall not be considered to any extent a consideration ' in money or money's worth '." Sec. 404. Revenue Act of 1934. So much of section 302 of the Revenue Act of 1926 as reads as follows : " The value of the gross estate of the decedent shall be de- termined by including the value at the time of his death of all property, real or i)ersonal, tangible or intangible, wherever situated " is amended to read asi follows : " The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated, except real property situated outside the United States ". Art. 22. Property held jointly or as tenants by the entirety. — The fore- going provisions of the statute extend to joint ownerships wherein the right of survivorship exists, regardless of when such ownersships were created. The statute specifically reaches property held jointly by the decedent and any other person or persons, or by the decedent and spouse as tenants by the entirety, or deposited with any person 45 or institution carrying on a banking business in the name of the decedent and any other person and payable to either or the survivor, provided the decedent contributed toward the acquisition of the property so held or deposited, or acquired it by gift, bequest, devise, or inheritance. This section of the statute applies to all classes of property, whether real or personal, in the case the survivor takes the entire interest therein by right of survivorship, and no interest therein forms a part of the decedent's estate for purposes of admin- istration. It has no reference to property held by the decedent and any other person or persons as tenants in common. Art. 23. Taxable portion. — The entire value of such property is prima faxiie a part of the decedent's gross estate. But it is not the intent of the statute that there should be so included a greater part or proportion thereof than is represented by an outlay of funds, which, in the first instance, were decedent's own, or more than a fractional part equal to that of the other joint owner should neither have parted with any consideration in its acquirement. Facts, which in a given case bring it within any one of the exceptions enumerated in the statute, may be submitted by the executor. Whether the value of the entire property, or only a part, or none of it, enters into the make-up of the gross estate depends upon the following considerations: (1) So much of the property (whether the whole, or a part thereof) as originally belonged to the other joint owner, and which at no time in the past had been received or acquired by the latter from the decedent for less than an adequate and full consideration in money or money's worth, forms no part of the decedent's gross estate. (2) If the facts are otherwise the same as in (1), but the decedent paid to such other joint owner a consider- ation for the interest by him (the decedent) acquired in the property, then such portion of the value of the property, proportionate to the consideration so paid, constitutes a part of the gross estate. (3) If the property, or a part thereof, or a part of the consideration wherewith it was acquired, had at any time been acquired by the other joint owner from the decedent as a gift, or for less than an adequate and full consideration in money or money's worth, then such portion of the value of the entire property, proportionate to the con- sideration, if any, which in the first instance was paid from such other joint owner's own funds, forms no part of the gross estate. (4) If the property was acquired by the decedent and his or her surviving spouse as tenants by the entirety by gift, will, or in- heritance, then but one-half of the value of the property becomes a part of the gross estate. (5) If acquired by the decedent and the other joint owner as joint tenants by gift, will, or inheritance. 46 and their interests are not otherwise specified or fixed by law, then one-half only of the value of the property is a part of the gross estate; or, if so acquired by the decedent and two or more per- sons, and the interests of the several joint tenants are not otherwise determinable, then the decedent and the other joint tenants surviving him shall each be deemed the owner of an equal fractional part, and the value of one only of such fractional parts is to be included in the gross estate. The following are given as illustrative: (a) If the decedent furnished the entire purchase price, the entire property should be included in the gross estate; (i) if the decedent furnished a part only of the purchase price, only a corresponding portion of the property should be so included; (erty or the income therefrom; except in case of a bona fide sale for an adequate and full consideration in money or money's worth ; and " * * * Sec. 302. * * * (i) If any one of the transfers, trusts, interests, rights, or powers, enumerated and described in subdivisions (c), (d), and (f) of this section is made, created, exercised, or relinquished for a considera- tion in money or money's worth, but is not a bona fide sale for an adequate and full consideration in money or money's worth, there shall be included in the gross estate only the excess of the fair mar- ket value at the time of death of the property otherwise to be included on account of such transaction, over the value of the consideration received therefor by the decedent. Seo. 804. Revenue Act of 1932. Section 303(d) of the Revenue Act of 1926 is amended by adding at the end thereof a new sentence to read as follows : "For the purposes of this title, a relinquishment or promised relin- quishment of dower, curtesy, or of a statutory estate created in lieu of dower or curtesy, or of other martial rights in the decedent's property or estate, shall not be considered to any extent a consideration ' in money or money's worth'." Seo. 404. Revenue Act of 1934. So much of section 302 of the Revenue Act of 1926 as reads as follows : " The value of the gross estate of the decedent shall be de- termined by including the value at the time of his death of all prop- erty, real or personal, tangible or intangible, wherever situated " is amended to read as follows : " The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated, except real property situated outside the United States " Akt. 24. Property passing under general power of appointment. — The value of all property passing under a general power of appointment must be included in the gross estate of the person exercising the power (known as the donee, or appointor) if the power is exercised by will and such donee dies after the enactment of the Revenue Act of 1918. It should be so included if the power is exercised by deed or other instrument executed subsequent to September 8, 1916, in con- templation of death. (See article 16.) It should also be so included 48 if the power is exercised by deed or other instrument with the intent that the transfer shall take effect in possession or enjoyment at or after the death of the donee of the power. (For description of transfers included in the phrase, " intended to take effect in posses- sion or enjoyment at or after * * * death," and the taxability thereof with reference to when made and when the death occurred, see articles 17, 18, and 19.) The statute, however, does not require inclusion in the gross estate of the value of the appointed prop- erty in the case of a bona fide sale thereof by the donee of the power for an adequate and full consideration in money or money's worth. Only property passing under a general power should be included. Ordinarily a general power is one to appoint to any person or persons in the discretion of the donee of the power. If the donee is required to appoint to a specified person or class of persons, the property should not be included in his gross estate. If the decedent died prior to the effective date of the Revenue Act of 1918, the value of the appointed property is not to be so included. Duplicate copies of the instrument granting the power and of the instrument by which the power was exercised, one of each to be certified or verified, must be filed with Form 706 in all cases, unless the decedent was a nonresident, in which case only one copy of each instrument, certified or verified, is required. GROSS ESTATE— INSURANCE Seo. 302. The value of the gross estate of the decedent shall be deter- mined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated — * * * (g) To tlie extent of the amount receivable by the executor as in- surance under policies taken out by the decedent upon his own life; and to the extent of the excess over $40,000 of the amount receivable by all other beneficiaries as insurance under policies taken out by the decedent upon his own life. * * * Art. 25. Taxable insurance. — The statute provides for the inclusion in the gross estate of insurance taken out by the decedent upon his own life, as follows: (a) All insurance receivable by, or for the benefit of, the estate; (i) all other insurance to the extent that it exceeds in the aggregate $40,000. The term " insurance " refers to life insurance of every descrip- tion, including death benefits paid by fraternal beneficial societies, operating under the lodge system. Insurance is considered to betaken out by the decedent in all cases, whether or not he makes the applica- tion, if he pays the premiums either directly or indirectly, or they are paid by a person other than the beneficiary, or decedent possesses any of the legal incidents of ownership in the policy. Legal inci- dents of ownership in the policy include, for example: The right 49 of the insured or his estate to its economic benefits, the power to change the beneficiary, to surrender or cancel the policy, to assign it, to revoke an assignment, to pledge it for a loan, or to obtain from the insurer a loan against the surrender value of the policy, etc. The decedent possesses a legal incident of ownership if the rights of the beneficiaries to receive the proceeds are conditioned upon the bene- ficiaries surviving the decedent. Art. 26. Insurance in favor of the estate. — The provision requiring the inclusion in the gross estate of all insurance receivable by the executor, without any exemption, applies to policies made payable to the decedent's estate or his executor or administrator, and all insur- ance which is in fact receivable by, or for the benefit of, the estate. It includes insurance taken out to provide funds to meet the estate tax, and any other taxes or charges which are enforceable against the estate. The manner in which the policy is drawn is immaterial so long as there is an obligation, legally binding upon the beneficiary, to use the proceeds in payment of such taxes or charges. The time when the policy was executed and delivered is also immaterial, the proceeds being includible in the gross estate though the policy was issued prior to the enactment of the Revenue Act of 1918. If the decedent took out insurance in favor of another person or corpora- tion as collateral security for a loan or other accommodation, and either directly or indirectly paid the premiums thereon, the insurance is considered to be receivable for the benefit of the estate. The amount of the loan outstanding at decedent's death, with interest accrued thereon to that date, will be deductible in determining the net estate. (See article 29.) Art. 27. Insurance receivable by other beneficiaries. — ^The statute requires the inclusion in the gross estate of the decedent of the proceeds of any policy, or the aggregate proceeds of all policies, not receivable by or for the benefit of decedent's estate, to the extent that such proceeds exceed $40,000, regardless of when the policy was or the policies were issued, if the decedent possessed at the time of his death any of the legal incidents of ownership. The estate is entitled to only one exemption of $40,000 upon insur- ance receivable by beneficiaries other than the estate. For example, if the decedent left life insurance payable to three such beneficiaries in amounts of $10,000, $40,000, and $50,000 (total, $100,000), the full amount should be listed on the return and therefrom subtracted the $40,000 exemption as provided in Schedule C of Form 706. The word " beneficiaries," as used in reference to the $40,000 exemption, means persons entitled to the actual enjoyment of the insurance money. 50 Art. 28. Valuation of insurance. — ^Tbe amount to be returned if the policy is payable to or for the benefit of the estate is the amount receivable. If the proceeds of a policy are payable to a bene- ficiary other than to or for the benefit of the estate, the amount to be listed on Schedule C of the return is the full amount receivable. (For taxable portion see article 27.) In case the proceeds of a policy are made payable to the beneficiary in the form of an an- nuity for life or for a term of years, there should be listed on Sched- ule C the one sum payable at death under an option which could have been exercised either by the insured or by the beneficiary, or if no option was granted, the sum used by the insurance company in determining the amount of the annuity. With the return there should be filed a certificate from the in- surance company showing, with respect to each policy, the following; (a) The face amount of the policy. (&) The amount of any indebtedness to the company which re- duced the amount otherwise payable. (e) The amount of accumulated dividends. (d) The amount of postmortem dividends. (e) Any other facts affecting the value. (See next paragraph.) (/) The value as of the date of death of the insured of the benefits payable under the policy. In the case of any policy providing for deferred payments (other than payments measured by the facts disclosed under (a), (6), (c), and {d) , above) , the certificate should include the following informa- tion: (ff) The provisions with respect to the deferred payments or to the installments. (h) The amounts of the deferred payments or installments. (i) If the number of installments to be paid may be measured by the life of any individual, the date of birth of such individual. (j) The amount applied by the insurance company as a single premium representing the purchase of the installment benefits. (k) The basis (Mortality Table and rate of interest) employed by the insurance company in valuing the installment benefits. GROSS ESTATE— RETROACTIVE PROVISIONS Sec. 302. * * * (h) Except as otherwise specifically provided therein subdivisions (b), (c), (d), (e), (f), and (g) of this section shall apply to the transfers, trusts, estates, interests, rights, povyers, and relinquishment of powers, as severally enumerated and described therein, whether made, created, arising, existing, exercised, or relin- quished before or after the enactment of this Act. 51 DEDUCTIONS— ESTATES OF CITIZENS OR RESIDENTS ADMINISTRATION EXPENSES, CLAIMS, ETC. Sec. 303. For the purpose of the tax the value of the net estate shall be determined — (a) In the case of a resident, by deducting from the value of the gross estate — (1) Such amounts for funeral expenses, administration expenses, claims against the estate, unpaid mortgages upon, or any indebtedness in respect to, property (except, in the case of a resident decedent, vyhere such property is not situated in the United States), to the ex- tent that such claims, mortgages, or indebtedness were incurred or contracted bona fide and for an adequate and full consideration in money or money's worth, losses incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualty, or from theft, when such losses are not compensated for by insurance or otherwise, and such amounts reasonably required and actually expended for the support during the settlement of the estate of those dependent upon the decedent, as are allowed by the laws of the juris- diction, whether within or without the United States, under which the estate Is being administered, but not including any income taxes upon income received after the death of the decedent, or any estate, succession, legacy, or inheritance taxes ; * * *. Sec. 805. Revenue Act of 1932. Section 303(a)(1) of the Revenue Act of 1926, as amended, is amended to read as follows: "(1) Such amounts— "(A) for funeral expenses, "(B) for administration expenses, "(0) for claims against the estate, "(D) for unpaid mortgages upon, or any indebtedness in respect to, property where the value of decedent's interest therein, undiminished by such mortgage or indebtedness, is included in the value of the gross estate, and "(E) reasonably required and actually expended for the support during the settlement of the estate of those dependent upon the decedent, as are allowed by the laws of the jurisdiction, whether within or with- out the United States, under which the estate is being administered, but not including any income taxes upon income received after the death of the decedent, or property taxes not accrued before his death, or any estate, succession, legacy, or inheritance taxes. The deduction herein allowed in the case of claims against the estate, unpaid mortgages, or any indebtedness shall, when founded upon a promise or agree- ment, be limited to the extent that they were contracted bona fide and for an adequate and full consideration in money or money's worth. There shall also be deducted losses incurred during the settle- ment of estates arising from fires, storms, shipwrecks, or other casual- ties, or from theft, when such losses are not compensated for by in- surance or otherwise, and if at the time of the filing of the return such losses have not been claimed as a deduction for income tax pur- poses in an income tax return." 52 Sew. 804. Revenue Act of 1932. Section 303(d) of the Revenue Act of 1926 is amended by adding at the end thereof a new sentence to read as follows : " For the purposes of this title, a relinquishment or proiliised relin- quishment of dower, curtesy, or of a statutory estate created in lieu of dower or curtesy, or of other marital rights in the decedent's property or estate, shall not he considered to any extent a consideration ' in money or money's worth '." Sex3. 403. Revenue Act of 1934. (a) Section 303(a) of the Revenue Act of 1926, as amended, is amended by striking out " In the case of a resident " and inserting in lieu thereof " In the case of a citizen or resident of the United States " Art. 29. Deduction of administration expenses, claims, etc. — In order to be deductible under the foregoing provision of the statute, the item must fall within one of the several classes of deductions specifi- cally enumerated therein, and must also, except in the case of deduc- tible losses during the administration of the estate, be one the pay- ment of which out of the estate is authorized by the laws of the jurisdiction under which the estate is being administered. Unless both of these conditions exist the item is not deductible. If the item is not one of those described it is not deductible merely because payment is allowed by the local law. If the amount which may be expended for the particular purpose is limited by the local law no deduction in excess of such limitation is permissible. If a claim against the estate, an unpaid mortgage, or an indebtedness is founded upon a promise or agreement, the deduction therefor is limited to the extent that the liability was contracted bona fide and for an adequate and full consideration in money or money's worth. A relinquishment or promised relinquishment of dower, curtesy, or of a statutory estate created in lieu of dower or curtesy, or of other marital rights in the decedent's property or estate, is not to any extent a consideration in money or money's worth. An item may be entered on the return for deduction though the exact amount thereof is not then known, provided it is ascertain- able with reasonable certainty, and will be paid. No deduction may be taken upon the basis of a vague or uncertain estimate. In the event the amount of the liability was unascertainable at the time of final audit of the return by the Commissioner, and, as a con- sequence, deduction was not allowed therefor in such audit, and sub- sequently the amount of the liability is ascertained, relief may be sought as provided by articles 76 and 99. Art. 30. Effect of court decree. — The decision of a local court as to the amount of a claim or administration expense will ordinarily be accepted if the court passes upon the facts upon which deductibility 53 depends. If the court does not pass upon such facts its decree will, of course, not be followed. For example, if the question before the court is whether a claim should be allowed, the decree allowing it will ordinarily be accepted as establishing the validity and amount of the claim. The decree will not necessarily be accepted even though it purports to decide the facts upon which deductibility de- pends. It must appear that the court actually passed upon the merits of the case. This will be presumed in all cases of an active and genuine contest. If the result reached appears to be unreason- able, this is some evidence that there was not such a contest, but it may be rebutted by proof to the contrary. If the decree was rendered by consent, it will be accepted, provided the consent was a bona fide recognition of the validity of the claim — not a mere cloak for a gift — and was accepted by the court as satisfactory evidence • upon the merits. It will be presumed that the consent was of this character, and was so accepted, if given by all parties having an interest ad- verse to the claimant. The decree will not be accepted if it is at variance with the law of the State; as, for example, an allowance made to an executor in excess of that prescribed by statute. Art. 31. Funeral expenses. — An executor may deduct such amounts for funeral expenses as are actually expended by him and, under the laws of the local jurisdiction, are payable out of the decedent's estate. A reasonable expenditure by the executor for a tombstone, monument, mausoleum, or for a burial lot, either for the decedent or his family, may be deducted under this heading, provided such an expenditure is allowable by the local law. Included in funeral expenses is the cost of transportation of the person bringing the body to the place of burial. Art. 32. Administration expenses. — The amounts deductible from the gross estate as " administration expenses " are such expenses as are actually and necessarily incurred in the administration of the estate; that is, in the collection of assets, payment of debts, and distribution among the persons entitled. The expenses contem- plated in the law are such only as attend the settlement of an estate by the legal representative preliminary to the transfer of the prop- erty to individual beneficiaries or to a trustee, whether such trustee is the executor or some other person. Expenditures not essential to the proper settlement of the estate, but incurred for the individual benefit of the heirs, legatees, or devisees, may not be taken as deduc- tions. Administration expenses include (1) executor's commissions; (2) attorney's fees; (3) miscellaneous expenses. Each of these classes is considered. separately in articles 33 to 35, inclusive. Art. 33. Executor's commissions. — The executor or administrator, in filing the return, may deduct his commissions in such an amount 54 as has actually been paid or which at that time it is reasonably expected will be paid, but no deduction may be taken if no commis- sions are to be collected. In the case the amount of the commissions has not been fixed by decree of the proper coiirt, the deduction will be allowed on the final audit of the return provided: (1) That the Commissioner is reasonably satisfied that the commissions claimed will be paid; (2) that the amount entered as a deduction is within the amount allowable by the laws of the jurisdiction wherein the estate is being administered; and (3) that it is in accordance with the usually accepted practice in said jurisdiction in estates of similar size and character. In the case the commissions claimed have not been awarded by the proper court the Commissioner on final audit may disallow the deduction in part or in whole, as the circumstances in his judgment justify, subject to such future adjustment as the facts may later require. If the deduction is allowed in advance of pay- ment and payment is thereafter waived, it shall be the duty of the executor to notify the Commissioner and pay the tax resulting there- from, together with interest. Executors should note that the com- missions received as compensation for their services constitute tax- able income and that the amounts received or receivable by them, as such compensation are cross-referenced for income-tax purposes. A bequest or devise to the executor in lieu of commissions is not deductible. If, however, the decedent fixed by his will the com- pensation payable to the executor for services to be rendered in the administration of the estate, deduction may be taken to the extent that the amount so fixed does not exceed the compensation allowable by the local law or practice. Amounts paid as trustees' commissions do not constitute expenses of administration and are not deductible, whether received by the executor acting in the capacity of a trustee or by a separate trustee as such. Art. 34. Attorney's fees. — The executor or administrator, in filing the return, may deduct such an amount as attorney's fees as has actually been paid or which at that time it is reasonably expected will be paid. If on the final audit of a return the fees claimed have not been awarded by the proper court and paid, the deduction will be allowed, provided the Commissioner is reasonably satisfied that the amount claimed will be paid and that it does not exceed a reason- able remuneration for the services rendered, taking into account the size and character of the estate and the local law and practice. If the attorney's fees have not been paid at the time of the final audit of the return the Commissioner may disallow such part, or all, of the deduction as the circumstances may warrant, subject to such future adjustment as the facts may require. 55 Attorney's fees incident to litigation instituted by the beneficiaries as to their respective interests do not constitute a proper deduction, inasmuch as expenses of this character are properly charges against the beneficiaries personally and are not administration expenses as contemplated by the statute. Art. 35. Miscellaneous administration expenses. — This includes such expenses as court costs, surrogates' fees, accountants' fees, appraisers' fees, clerk hire, etc. Expenses necessarily incurred in preserving and distributing the estate are deductible, including the cost of storing or maintaining property of the estate, if it is impossible to effect immediate distribution to the beneficiaries. Expenses for preserving and caring for the property may not include additions or improvements; nor will such expenses be allowed for a longer period than the executor is required to retain the property. A brokerage fee for selling property of the estate is deductible if the sale is necessary in order to pay the decedent's debts, the ex- penses of administration, or to effect distribution. Other expenses attending the sale are deductible, such as the fees of an auctioneer, if it is reasonably necessary to employ one. Art. 36. Claims against the estate. — ^The amounts that may be deducted under this heading are such only as represent personal obligations of the decedent existing at the time of his death, whether then matured or not, and any interest thereon which had accrued at time of death. Only claims enforceable against the estate may be deducted. If the claim is founded upon a promise or agree- ment the deduction therefor is limited to the extent that the liability was contracted bona fide and for an adequate and full consideration in money or money's worth. A pledge or a subscription, evidenced by a promissory note or otherwise, even though enforceable against the estate, is deductible only to the extent such pledge or subscription was made bona fide and for an adequate and full consideration in cash or its equivalent. See article 29 as to relinquishment or prom- ised relinquishment of dower and similar interests. Liabilities imposed by law or arising out of torts are deductible. Art. 37. Taxes. — The deduction for property taxes is limited to such taxes as accrued prior to the date of decedent's death. Property taxes accrue on the date the ownership of the property determines the liability for such taxes. Taxes upon income received during the decedent's lifetime are deductible, including interest accrued thereon at time of death, but taxes upon income received after death are not deductible. No estate, succession, legacy, or inheritance tax is deductible. Art. 38. Unpaid mortgages. — The full amount of unpaid mortgages upon, or any indebtedness in respect to, property included in the 182135°— 34 5 56 gross estate may be deducted, including interest which had accrued at the time of death, whether payable at that time or not, but only to the extent that the liability for such mortgages or indebtedness was contracted bona fide and for an adequate and full consideration in money or money's worth. The full value of the property, without any deduction for mortgages or indebtedness, must be returned as part of the gross estate. Real property situated outside the United States does not form a part of the gross estate, and no deduction may be taken of any mortgage thereon, or any indebtedness in respect thereto. Aet. 39. Losses from casualties or theft. — There may be deducted under this heading losses incurred during the settlement of the estate arising from fires, storms, shipwrecks, or other casualties, or from theft, if such losses are not compensated for by insurance or otherwise. In the case of a decedent who died subsequent to the effective date of the Revenue Act of 1932, such losses are not deduct- ible if, at the time of the filing of the estate tax return, such losses had been claimed as a deduction for income tax purposes in- an income tax return. If the loss is partly compensated, the excess of the loss over such compensation may be deducted. Losses not of the nature described are not deductible. In order to be deductible a loss must occur during the settlement of the estate. If a loss with respect to an asset occurs after distribution thereof to the distributee it may not be deducted. Art. 40. Support of dependents. — The support during the settlement of the estate of dependents of the decedent is deductible, but pursu- ant to the following rules : (1) In order to be deductible, the allowance must be authorized by the laws of the jurisdiction in which the estate is being adminis- tered, and not in excess of what is reasonably required. (2) The allowance for which deduction may be made is limited to support during the settlement of the estate. Any allowance for a more extended period is not deductible. (3) There must be an actual disbursement from the estate to the dependents, but after payment has been made the right of deduction is not affected by the fact that the dependents do not expend the entire amount for their support during the settlement of the estate. DEDUCTIONS— PROPERTY PREVIOUSLY TAXED Sec. 303. For the purpose of the tax the value of the net estate shall be determined — (a) In the case of a resident, by deducting from the value of the gross estate — * * * (2) An amount equal to the value of any property (A) forming a part of the gross estate situated in the United States of any per- 57 son who died within five years prior to the death of the decedent, or (B) transferred to the decedent by gift within five years prior to his death, where such property can be Identified as having been received by the decedent from such donor by gift or from such prior decedent by gift, bequest, devise, or inheritance, or which can be identified as having been acquired in exchange for property so received. This deduction shall be allowed only where a gift tax imposed under the Revenue Act of 1924, or an estate tax imposed under this or any prior Act of Congress was paid by or on behalf of the donor or the estate of such prior decedent as the case may be, and only in the amount of the value placed by the Commissioner on such property in determin- ing the value of the gift or the gross estate of such prior decedent, and only to the extent that the value of such property is included in the decedent's gross estate and not deducted under paragraph (1) or (3) of this subdivision ; * * *. Seo. 806. Revenue Act of 1932. (a) Section 303(a) (2) of the Revenue Act of 1926 is amended to read as follows : "(2) An amount equal to the value of any property (A) form- ing a part of the gross estate situated in the United States of any person who died within five years prior to the death of the decedent, or (B) transferred to the decedent by gift within five years prior to his death, where such property can be identified as having been received by the decedent from the donor by gift, or from such prior decedent by gift, bequest, devise, or inheritance, or which can be identified as having been acquired in exchange for property so received. This deduction shall be allowed only where a gift tax imposed under the Revenue Act of 1932, or an estate tax imposed under this or any prior Act of Congress, was finally determined and paid by or on behalf of such donor, or the estate of such prior decedent, as the case may be, and only in the amount finally determined as the value of such property in determining the value of the gift, or the gross estate of such prior decedent, and only to the extent that the value of such property is included in the decedent's gross estate. Where a deduction was allowed of any mortgage or other lien in determining the gift tax, or the estate tax of the prior decedent, which was paid in whole or in part prior to the decedent's death, then the deduction allowable under this paragraph shall be reduced by the amount so paid. The deduc- tion allowable under this paragraph shall be reduced by an amount which bears the same ratio to the amounts allowed as deductions under paragraphs (1), (3), and (4) of this subdivision as the amount otherwise deductible under this paragraph bears to the value of the decedent's gross estate. Where the property referred to in this paragraph consists of two or more items the aggregate value of such items shall be used for the purpose of computing the deduction." Seo. 402. Revenue Act of 1934. Paragraph (2) of subdivision (a) and paragraph (2) of subdi- vision (b) of section 308 of the Revenue Act of 1926, as amended, are amended by inserting before the period at the end of the second sentence of each such paragraph a comma and the following: "and 58 only a in determining the value of the net estate of the prior decedent no deduction was allowable under this paragraph in respect of the property or property given in exchange therefor ". Sec. 403. Revenue Act of 1934. (a) Section 303 (a) of the Revenue Act of 1926, as amended, is amended by striking out " In the case of a resident " and inserting in lieu thereof " In the case of a citizen or resident of the United States ". Art. 41. Deduction of the value of transfers previously taxed. — Should there be included in the decedent's gross estate the value of prop- erty received by him by gift from any person within five years prior to his death, or received by gift, bequest, devise, or inheritance from any person who died within five years prior to his death, or the value of property acquired in exchange for property so received, the statute authorizes a deduction in behalf thereof, subject to the following conditions and limitations, namely : (a) Conditions. — (1) The property respecting which the deduction is sought must have been received by the decedent as a gift within five years of the date of his death, or received by him by gift, bequest, devise, or in- heritance from a prior decedent who died within five years of the date of the decedent's death. (2) The property must be identified either as the same which the decedent so received or acquired in exchange therefor. (3) The property must have formed a part of the gross estate, situated in the United States, of such prior decedent, or have been included in the total amount of gifts of a donor. (4) An estate tax by or on behalf of the estate of such prior decedent, or a gift tax by or on behalf of the donor, must have actually been paid (the mere filing of a return for such estate or donor not being sufficient). (5) If the decedent died after 11.40 a. m., eastern standard time. May 10, 1934, no such deduction, in respect to the property or property given in exchange therefor, must have been allowable in determining the value of the net estate of the prior decedent. (6) LwnitatioTis. — (A) If the decedent died prior to 5 p. m., eastern standard time, June 6, 1932— (1) The deduction is limited to the value of the property, as finally determined, in determining the value of the gift or the gross estate of the prior decedent, and the value, of such prop- erty, included in the decedent's gross estate, whichever is lower. (2) The deduction, as limited in (1), is reduced by the total amount paid prior to the decedent's death on any mortgage or other lien on the property previously taxed, provided such mort- 59 gage or other lien was deducted in determining the estate tax of the prior decedent or the gift tax of the donor. (3) The deduction for property previously taxed, or that ac- quired in exchange therefor, is not diminished by amounts de- ducted under paragraph (1) or (3) of subdivision (a) of sec- tion 303 merely because such amounts were paid out of said property. On the other hand, however, the deduction is di- minished to the extent that the value of the property so taxed, or of that acquired in exchange therefor, is deducted under said paragraph (1) or (3) on account of such losses arising from casualty or theft as are incurred with respect to said property during the settlement of the estate, or on account of such trans- fers of specific items of said property as the decedent made in his lifetime or by his will, for public, religious, charitable, scientific, literary, or educational purposes, and the deduction is further diminished to the extent that the amounts allowed under said paragraph (1) or (3), other than those relating to said losses or transfers, are in excess of the value of the decedent's property not previously taxed but subject to debts and charges. The burden of proving that the estate is entitled to the deduc- tion rests upon the executor. The provisions of this paragraph apply in like manner to cases controlled by the Revenue Acts of 1921 and 1924. (B) If the decedent died after 5 p. m., eastern standard time, June 6, 1932— (1) The deduction is limited to the value of the property, or if there are two or more items of such property then to the aggregate value of such items, as finally determined, in deter- mining the value of the gift or the gross estate of the prior decedent, and the value of such property, or aggregate value if there are two or more items of such property, included in the decedent's gross estate, whichever is lower. (2) The deduction, as limited in (1), is reduced by the total amount paid prior to the decedent's death on any mortgage or other lien on the property previously taxed, provided such mort- gage or other lien was deducted in determining the estate tax of the prior decedent or the gift tax of the donor. (3) The deduction is further reduced on account of the de- ductions allowed under paragraphs (1), (3), and (4) of sub- division (a) of section 303. This deduction is that proportion of such deductions which the amount otherwise deductible for property previously taxed bears to the value of the decedent's gross estate. 60 Under the provisions of the Revenue Act of 1918 the deduction was available only in the case the prior decedent died after October 3, 1917, the date of the passage of the Revenue Act of 1917, and the decedent's death occurred subsequent to the effective date of the Revenue Act of 1918. But under the provisions of the Revenue Act of 1921 the right to such deduction is made available to the estates of all decedents dying since September 8, 1916. If, under the provisions of the Revenue Act of 1918, or any prior Act of Congress imposing an estate tax, the deduction was not available, the right thereto is to be determined in accordance with the provisions of paragraph (2) of subdivision (a) of section 403 of the Revenue Act of 1921, but if available under the Revenue Act of 1918, it is governed by paragraph (2) of subdivision (a) of section 403 of that Act. Section 1100 (c) of the Revenue Act of 1924 provides that the retroactive benefit of section 403 of the Revenue Act of 1921 is not lost by the repeal thereof. If the tax has been paid without taking the deduction, a claim for refund may be made, as provided by article 99. Example: The decedent died June 15, 1931. The value of his gross estate for the purpose of the estate tax is $1,000,000, of which $200,000 is the value of insurance in excess of $40,000 payable to beneficiaries other than the estate, $600,000 is the value of property previously taxed, and $200,000 is the value of stocks and bonds not previously taxed. The property previously taxed was inherited from the decedent's father, who died on June 1, 1929. The tax on the father's estate was paid. The property previously taxed may be set forth as follows : Decedent's estate Prior estate Lower value Item 1 $160,000 40,000 110,000 130,000 90,000 80,000 $100,000 86,000 125,000 120,000 115,000 60,000 $100,000 Item 2 40,000 Item 3 110,000 Item 4 120, OOO 90,000 Item 6 60,000 Totals 600,000 695,000 610,000 Item 1, $150,000, is specifically bequeathed to a charitable organi- zation. Administration expenses and debts of the decedent amount to $250,000. The decedent having died prior to 5 p. m., eastern standard time, June 6, 1932, the deduction is limited to the value of each item placed upon it by the Commissioner in the prior estate or gift, or to the value of each item included in the decedent's gross estate, whichever is the lower. Accordingly, the total amount of the dedue- 61 tion thus ascertained is $510,000. In accordance with paragraph (A) (3) of this article the deduction must be diminished to the extent of the value of any specific item bequeathed to a charitable organization. As item 1 was so bequeathed the amount of $510,000 is diminished by $100,000, the value of item 1 as included in the deduction for property previously taxed. Also, in accordance with paragraph (A) (3) of this article the deduction must be further diminished to the extent that the deductions for administration ex- penses and debts, or $250,000, exceed the value of the decedent's prop- erty subject to debts and charges and not previously taxed, or $200,000. This excess is $50,000. The deduction for property pre- viously taxed is, therefore, further diminished by $50,000, and the amount of the deduction allowable for property previously taxed is $360,000. The total deductions of $860,000 (administration expenses and debts, $250,000 ; charitable bequest, $150,000 ; property previously taxed, $360,000; and specific exemption, $100,000) subtracted from the total gross estate of $1,000,000 leaves a net estate of $140,000. Example: The decedent died June 15, 1932. The value of his gross estate for the purpose of the estate tax is $1,000,000, of which $200,000 is the value of insurance in excess of $40,000 payable to beneficiaries other than the estate, $600,000 is the value of property previously taxed, and $200,000 is the value of stocks and bonds not so taxed. The property previously taxed was inherited from the decedent's father who died on June 1, 1929. The tax on the father's estate was paid. The property previously taxed may be set forth as follows : ;Decedent's estate Prior estate Item 1 $150,000 40,000 110,000 130,000 90,000 80,000 $100, 000 85, 000 Item 3._ 125, 000 Item 4 120, 000 Items 115,000 Item 6 - _ - 50,000 600,000 695,000 Item 1, $150,000, is specifically bequeathed to a charitable organi- zation free of estate, inheritance, legacy, or succession taxes. Ad- ministration expenses and debts of the decedent amount to $150,000. At the time of the father's death there was an unpaid mortgage of $60,000 on item 5 which was deducted in determining the estate tax liability of the father's estate. This mortgage was entirely paid before the son's death. The decedent having died after 5 p. m., eastern standard time, June 6, 1932, the deduction for property previously taxed is limited 62 to the aggregate value of the items constituting such property as finally determined in the case of the prior decedent or donor, or to the aggregate value of such property included in the decedent's gross estate, whichever is the lower. Accordingly, the amount of the deduction for property previously taxed thus ascertained is $595,000. In accordance with paragraph (B) (2) of this article this deduction is reduced by $60,000, the amount paid in the discharge of the mort- gage on item 5. The deduction thus reduced is $535,000. The deduction is further reduced by a proportionate amount com- puted under the provisions of paragraph (B) (3) of this article. As the amount of the specific exemption authorized by the Revenue Act of 1926 is greater than the amount of the specific exemption authorized by the Eevenue Act of 1932, the amount so computed in determining the deduction for the purpose of the estate tax imposed by the Revenue Act of 1926 differs from the amount so computed in determining the deduction for the purpose of the additional tax imposed by the Revenue Act of 1932. In the present example the deductions, except for property previ- ously taxed, amount to $400,000, as follows: $150,000 for the chaf- itable bequest, $150,000 for administration expenses and debts, and $100,000 for the specific exemption authorized by the Revenue Act of 1926. ' The proportionate amount by which the deduction for prop- erty previously taxed is further reduced for the purpose of the estate tax imposed by the Revenue Act of 1926 is ascertained by multiplying the above mentioned $400,000 by .535, the ratio which the said $535,- 000 bears to the value of the gross estate, $1,000,000, and amounts to $214,000. The difference between $535,000 and $214,000 is $321,000, the amount in which the deduction for property previously taxed is allowable in determining the tax imposed by the Revenue Act of 1926. The total amount of the deductions, $721,000, subtracted from the value of the gross estate, $1,000,000, leaves a net estate of $279,000 the transfer of which is subject to the tax imposed by the Revenue Act of 1926. The Revenue Act of 1932 provides for a specific exemption of $50,000. Accordingly, the deductions, other than the deduction for property previously taxed, allowable under that Act amount to $350,000, and .535 of that amount is $187,250, the proportionate amount by which the deduction for property previously taxed is fur- ther reduced for the purposes of the additional tax imposed by the Revenue Act of 1932. The difference between $535,000 and $187,250 is $347,750, the amount in which the deduction for property previ- ously taxed is allowable in determining the additional tax imposed by the last-mentioned Act. The total amount of the deductions, $697,750, subtracted from the value of the gross estate, $1,000,000, 63 leaves a net estate of $302,250, the transfer of which is subject to the additional tax imposed by the Eevenue Act of 1932. Art. 42. Property originally received.— If the property originally received from a donor or prior decedent is included in the decedent's gross estate, the executor must describe it fully and prove its identity. Art. 43. Property acquired in exchange.— The deduction for substi- tuted property is not limited to property acquired by a single ex- change of property received from the donor or the prior decedent, but extends to substituted property acquired by the process of ex- change, whether through the medium of money or otherwise, irre- spective of the number of conversions involved, including the pro- ceeds of the sale or other disposition of property so received or acquired, as well as property acquired by purchase with the proceeds of the sale or other disposition of such property so long as such pro^ ceeds can be conclusively identified as such and clearly traced to the property originally so received. The executor must describe and fully identify both the property originally received from the donor or the prior decedent and the substituted property fox which deduction is claimed, giving the date and stating the nature of the transaction by which the substituted property was acquired, together with the name and address of the transferee. If the transaction was evidenced by written instrument of public record, precise reference to such record must be made, and if by instrument not of record, a verified copy thereof must be sup- plied. If there was no written instrument, there must be furnished the affidavit of one or more persons having personal knowledge of the matter, setting forth the facts in connection therewith. The burden of identifying property as acquired in exchange for property included in the gross estate of the prior decedent for Federal estate tax purposes rests upon the executor. DEDUCTIONS— TRANSFERS FOR PUBLIC, CHARITABLE RELIGIOUS, ETC., USES Sbc. 303. For the purpose of the tax the value of the net estate shall be determined — (a) In the case of a resident, hy deducting from the value of the gross estate — * * * (3) The amount of all bequests, legacies, devises, or transfers, to or for the use of the United States, any State, Territory, any political subdivision thereof, or the District of Columbia, for exclusively public purposes, or to or for the use of any corporation organized and oper- ated exclusively for religious, charitable, scientific, literary, or educa- tional purposes, including the encouragement of art and 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 individual, or to a trustee or trustees, or a fraternal society, order, or association operat- 64 ing tmder the lodge system, but only if such contributions or gifts are to be used by such trustee or trustees, or by such fraternal society, order, or association, exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. The amount of the deduction under this para- graph for any transfer shall not exceed the value of the transferred property required to be included in the gross estate ; and * * *. Sec. 807. Revenue Act of 1932. Sections 303(a) (3) and 803(b) (3) of the Revenue Act of 1926 are amended by inserting after the first sentence of each a new sen- tence to read as follows: " If the tax imposed by section 301, or any estate, succession, legacy, or inheritance taxes, are, either by the terms of the will, by the law of the jurisdiction under which the estate is administered, or by the law of the jurisdiction imposing the particular tax, payable in whole or in part out of the bequests, legacies, or devises otherwise deduc- tible under this paragi'aph, then the amount deductible under this paragraph shall be the amount of such bequests, legacies, or devises reduced by the amount of such taxes." Sbc. 408. Revenue Act of 1934. (a) Section 303 (a) of the Revenue Act of 1926, as amended, is amended by striking out " In the case of a resident " and inserting in lieu thereof " In the case of a citizen or resident of the United States ". Sbc. 406. Revenue Act of 1934. Section 303 (a) (3) and section 303 (b) (3) of the Revenue Act of 1926, as amended, are amended by inserting after " individual ", ■wherever appearing therein, a comma and the following : " and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation ". Akt. 44. Transfers for public, charitable, religious, etc., uses. — ^Deduc- tion may be taken of the value of all property transferred by will or by the decedent in his lifetime not to exceed the value of the transferred property required to be included in the gross estate if in either case the property was transferred (1) to or for the use of the United States, any State, Territory, any political subdi- vision thereof, or the District of Columbia, for exclusively public purposes; or (2) to or for the use of any corporation or association organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes (including the encouragement of art and the prevention of cruelty to children or animals), if no part of the net earnings of the corporation or association inures to the benefit of any private stockholder or individual, and no substan- tial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation; or (3) to a trustee or trustees, or a fraternal society, order, or association operating under the lodge system, if such transfers, legacies, bequests, or devises are to be used by such trustee, trustees, fraternal society, order, or asso- ciation exclusively for religious, charitable, scientific, literary, or 65 educational purposes, or for the prevention of cruelty to children or animals. If a trust is created for both a charitable and a private pur- pose, deduction may be taken of the value of the beneficial interest in favor of the former only in so far as such interest is presently ascertainable, and hence severable from the interest in favor of the private use. Thus, if money or property is placed in trust to pay the income to an individual during his life, or for a term of years, and then to pay or deliver the principal to a charitable corporation, or to apply it to a charitable purpose, the present value of the re- mainder is deductible. To determine the present value of such remainder use the appropriate factor in column 3 of Table A or B of article 13. The deduction is not limited, in the estates of residents (or of citizens who died after the enactment of the Revenue Act of 1934), to transfers to domestic corporations or associations, or to trustees for use within the United States. If the decedent died after 5 p. m., eastern standard time, June 6, 1932, and under the terms of the will, or the law of the jurisdiction wherein the estate is administered, or the law of the jurisdiction imposing the particular tax, the Federal estate tax (in- cluding the additional estate tax imposed by the Revenue Act of 1932), or any estate, succession, legacy, or inheritance tax is payable in whole or in part out of any bequest, legacy, or devise deductible under section 303 (a) (3), the sum deductible is the amount of such bequest, legacy, or devise so reduced. Thus, if $50,000 is be- queathed for a charitable purpose and is subjected to a State in- heritance tax of $5,000, the amount deductible is $45,000 ; or if a life estate is bequeathed to an individual with remainder over to a charitable corporation, and by the local law the legacy tax upon the life estate is taken out of the corpus with the result that the chari- table corporation will be entitled to receive only the amount of the fund less the tax, the deduction is limited to the present worth, as of the date of the testator's death, of the remainder of the fund so reduced ; or if the testator bequeaths his residuary estate, or a portion thereof, to charity, and his will contains a direction that certain inheritance taxes, otherwise payable from legacies in respect to which they were laid, shall be payable out of such residuary estate, the deduction may not exceed the bequest to charity thus reduced pur- suant to the direction of the will ; or if a residuary estate, or a por- tion thereof, be bequeathed to charity, and by the local law the Fed- eral estate tax is payable out of the residuary estate, the deduction may not exceed that portion of the residuary estate bequeathed to charity as reduced by the Federal estate tax. Should the executor 66 desire a verification of his own computation befoi-e filing the return on Form 706, or should he wish the Bureau to make the computation for him in the first instance, he should accompany his request with a statement of the material facts. Art. 45. Religious, charitable, scientific, and educational corpora- tions. — A corporation or association to which such a transfer was made must meet four tests: (1) It must be organized and operated for one or more of the specified purposes; (2) it must be organized and operated exclusively for such purpose or purposes; (3) no part of its net earnings shall inure to the benefit of private stockholders or individuals; and (4) no substantial part of its activities shall be carrying on propaganda, or otherwise attempting, to influence legislation. The estate is not deprived of the right to deduct the value of property so transferred by reason of the fact that private individuals are the recipients of the benefits which the corporation or associa- tion dispenses. Such right is, however, lost if any part of the net earnings of the corporation or association inures to the benefit of a private stockholder or individual. Art. 46. Proof required. — In establishing the right of the estate to this deduction, the executor must submit: (1) Duplicate copies of the will of the decedent, and of the order admitting the will to probate, one copy of each of which should be certified. Duplicate copies of any instrument in writing by which the decedent made a transfer of property in his lifetime the value of which is required by the statute to be included in his gross estate, and if the instrument is of record one copy thereof should be cer- tified, and if not of record, one copy should be verified. The certified or verified copy should be forwarded by the collector to the Commissioner. (2) An affidavit by the executor stating whether any action has been instituted to contest the will, or any bequest, or devise therein, the deduction of which from the gross estate is claimed, and whether, according to his information and belief, any such action is designed or contemplated. (3) Such other documents or evidence as may be requested by the Commissioner. Art. 47. Conditional bequests. — If the transfer is dependent upon the performance of some act or the happening of some event in order to become effective, it is necessary that the performance of the act or the occurrence of the event shall have taken place before the deduction can be allowed. If the legatee, devisee, donee, or trustee is empowered to divert the property or fund, in whole or in part, to a use or purpose which 67 •would have rendered it, to the extent that it is subject to such power, not deductible had it been directly so bequeathed, devised, or given by the decedent, deduction will be limited to that portion, if any, of the property or fund which is exempt from an exercise of such power. SPECIFIC EXEMPTION Sbo. 303. For the purpose of the tax the value of the net estate shall be determined — (a) In the case of a resident, by deducting from the value of the gross estate — * * * (4) An exemption of $100,000. * * * Sec. 401. Revenue Act of 1932. * * * (c) For the purposes of this section the value of the net estate shall be determined as provided in Title III of the Revenue Act of 1926, as amended, except that in lieu of the exemption of $100,000 provided in section 303 (a) (4) of such Act, the exemption shall be $50,000. Sbo. 403. Revenue Act of 1934. (a) Section 303 (a) of the Revenue Act of 1926, as amended, is amended by striking out " In the case of a resident " and inserting in lieu thereof " In the case of a citizen or resident of the United States ". Art. 48. Specific exemption. — A specific exemption should be de- ducted in determining the net estate in the case of the estate of a resident. A specific exemption should also be deducted in the case of the estate of a citizen, regardless of residence, if the decedent died after 11.40 a. m., eastern standard time, May 10, 1934. The specific exemption deductible in determining the net estate upon which the tax is imposed by the Revenue Act of 1926 (in effect after 10.25 a. m., eastern standard time, February 26, 1926), is $100,000. The spe- cific exemption deductible in determining the net estate upon which the additional tax is imposed by the Revenue Act of 1932 (in effect after 5 p. m., eastern standard time, June 6, 1932), is $50,000. If the decedent died prior to the enactment of the Revenue Act of 1926, the specific exemption is $50,000. No specific exemption is au- thorized in the case of the estate of a nonresident alien, and no specific exemption is authorized in the case of the estate of a non- resident, regardless of citizenship, if the decedent died prior to 11.40 a. m., eastern standard time. May 10, 1934. ESTATES OF NONRESIDENT ALIENS Sbo. 303. * * * (d) For the purpose of this title, stock in a domestic corporation owned and held by a nonresident decedent shall be deemed property within the United States, and any property of which the decedent has made a transfer, by trust or otherwise, within the meaning of subdivision (c) or (d) of section 302, shall be deemed to be situated in the United States, if so situated either at the time of the transfer, or at the time of the decedent's death. * * * 68 (e) The amount receivable as insurance upon the life of a non- resident decedent, and any moneys deposited with any person carry- ing on the banking business, by or for a nonresident decedent who was not engaged in business in the United States at the time of his death, shall not, for the purpose of this title, be deemed projierty within the United States. (f) Missionaries duly commissioned and serving under boards of foreign missions of the various religious denominations in the United States, dying while in the foreign missionary service of such boards, shall not, by reason merely of their intention to permanently remain in such foreign service, be deemed nonresidents of the United States, but shall be presumed to be residents of the State, the District of Columbia, or the Territories of Alaska or HawaU wherein they respec- tively resided at the time of their commission and their departure for such foreign service. Sbo. 403. Revenue Act of 1934. • * * (d) Section 303 (d) and (e) of such Act, as amended, are amended by striking out the phrase " nonresident decedent " wherever such phrase appears in such subdivisions and inserting in Ueu thereof in each case " nonresident not a citizen of the United States ". Art. 49. Gross estate. — ^The gross estate of a citizen, alien, resi- dent, and nonresident are made up in the same way. For computa- tion of net estate of a nonresident alien (or a nonresident, regardless of citizenship, if death occurred prior to the enactment of the Revenue Act of 1934), see article 51. For meaning of the terms " citizens," " residents," and " nonresidents," and the presumption applying as to the residence of missionaries, see article 5. Aet. 50. Situs of property. — Eeal estate and tangible personal prop- erty are situated in the United States if physically therein. Cer- tificates of stock, bonds, bills, notes, and other written evidences of intangible property which are treated as being the property itself are property situated in the United States if physically situated therein. Except as provided in section 303 (e) intangible personal property has a situs within the United States if consisting of a property right issuing from or enforceable against a corporation (public or private) organized in the United States or a person who is a resi- dent of the United States. As examples, the following may be given : Corporate stock issued by such a corporation, or a simple debt, bond, note, or other chose in action for which such a corporation or indi- vidual is liable. Under the provisions of section 303 (e) the amount receivable as insurance upon the life of a nonresident decedent (non- resident alien decedent if death occurred after the enactment of the Revenue Act of 1934) and any moneys deposited with any person carrying on the banking business by or for such a decedent not en- gaged in business ia the United States at the time of his death shall not be deemed property within the United States. 69 Property of which the decedent has made a transfer taxable under the provisions of article 15 of these regulations is deemed to be situated in the United States if so situated either at the time of the transfer or at the time of the decedent's death. (See articles 15 to 21, inclusive.) DEDUCTIONS— ESTATES OF NONRESIDENT ALIENS Seo. 303. For the purpose of the tax the value of the net estate shall be determined — * * * (b) In the case of a nonresident, by deducting from the value of that part of his gross estate which at the time of his death is situated in the United States — (1) That proportion of the deductions specified in paragraph (1) of subdivision (a) of this section which the value of such part bears to the value of his entire gross estate, wherever situated, but in no case shall the amount so deducted exceed 10 per centum of the value of that part of his gross estate which at the time of his death is situated in the United States ; (2) An amount equal to the value of any property (A) forming a part of the gross estate situated in the United States of any person who died within five years prior to the death of the decedent, or (B) transferred to the decedent by gift within five years prior to his death, where such property can be identified as having been received by the decedent from such donor by gift or from such prior decedent by gift, bequest, devise, or inheritance, or which can be identified as having been acquired in exchange for property so received. This deduction shall be allowed only where a gift tax imposed under the Revenue Act of 1924, or an estate tax imposed under this or any prior Act of Congress was paid by or on behalf of the donor or the estate of such prior decedent as the case may be, and only in the amount of the value placed by the Commissioner on such property in determining the value of the gift or the gross estate of such prior decedent, and only to the extent that the value of such property is included in that part of the decedent's gross estate which at the time of his death is situated in the United States and not deducted under paragraph (1) or (3) of this subdivision; and (3) The amount of all bequests, legacies, devises, or transfers, to or for the use of the United States, any State, Territory, any politi- cal subdivision thereof, or the District of Columbia, for exclusively public purposes, or to or for the use of any domestic corporation organized and operated exclusively for religious, charitable, scien- tific, literary, or educational purposes, including the encouragement of art and the prevention of cruelty to children or anunals, no part of the net earnings of which inures to the benefit of any private stockholder or individual, or to a trustee or trustees, or a fraternal society, order, or association operating under the lodge system, but only if such contributions or gifts are to be used within the United States by such trustee or trustees, or by such fraternal society, order, or association, exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. The amount of the deduction under this paragraph for any 70 transfer shall not exceed the value of the transferred property required to be Included in the gross estate. (c) No deduction shall be allowed in the case of a nonresident unless the executor includes in the return required to be filed under section 304 the value at the time of his death of that part of the gross estate of the nonresident not situated in the United States. Sec. 401. Revenue Act of 1928. (a) Section 303 (b) (1) of the Revenue Act of 1926 (relating to deductions from the gross estate of a nonresident decedent) is amended by striking out : ", but in no case shall the amount so deducted exceed 10 per centum of the value of that part of his gross estate which at the time of his death is situated in the United States." (b) Subsection (a) of this section shall apply in the case of nonresi- dent decedents dying after the enactment of this Act. Sbo. 806. Revenue Act of 1932. * * * (b) Section 303 (b) (2) of the Revenue Act of 1926 is amended to read as follows : "(2) An amount equal to the value of any property (A) form- ing a part of the gross estate situated in the United States of any person who died within five years prior to the death of the decedent, or (B) transferred to the decedent by gift within five years prior to his death, where such property can be identified as having been received by the decedent from the donor by gift, or from such prior decedent by gift, bequest, devise, or inheritance, or which can be identified as having been acquired in exchange for property so received. This deduction shall be allowed only where a gift tax imposed under the Revenue Act of 1932, or an estate tax imposed under this or any prior Act of Congress, was finally determined and paid by or on behalf of such donor, or the estate of such prior decedent, as the case may be, and only in the amount finally determined as the value of such property in determining the value of the gift, or the gross estate of such prior decedent, and only to the extent that the value of such prop- erty is included ia that part of the decedent's gross estate which at the time of his death Is situated in the United States. Where a deduction was allowed of any mortgage or other lien in deter- mining the gift tax, or the estate tax of the prior decedent, which was paid in whole or in part prior to the decedent's death, then the deduction allowable under this paragraph shall be re- duced by the amount so paid. The deduction allowable under this paragraph shall be reduced by an amount which bears the same ratio to the amounts allowed as deductions under paragraphs (1) and (3) of this subdivision as the amount otherwise deduct- ible under this paragraph bears to the value of that part of the decedent's gross estate which at the time of his death is situated in the United States. Where the property referred to in this paragraph consists of two or more items the aggregate value of such items shall be used for the purpose of computing the deduc- tion." Sec. 807. Revenue Act of 1932. Sections 303(a) (3) and 303(b) (3) of the Revenue Act of 1926 are amended by inserting after the first sentence of each a new sentence to read as follows : 71 " If the tax imposed by section 301, or any estate, succession, legacy, or inheritance taxes, are, either by the terms of the will, by the law of the jurisdiction under which the estate is administered, or by the law of the jurisdiction imposing the particular tax, payable in whole or in part out of the bequests, legacies, or devises otherwise deductible under this paragraph, then the amount deductible under this paragraph shall be the amount of such bequests, legacies, or devises reduced by the amount Of such taxes." Seo. 402. Revenue Act of 1934. Paragraph (2) of subdivision (a) and paragraph (2) of subdivision (b) of section 303 of the Revenue Act of 1926, as amended, are amended by inserting before the period at the end of the second sentence of each such paragraph a comma and the following : " and only if in determining the value of the net estate of the prior decedent no deduc- tion was allowable under this paragraph in respect of the property or property given in exchange therefor ". Sec. 403. Revenue Act of 1934. * * * (b) Section 303(b) of such Act, as amended, is amended by striking out " In the case of a nonresident " and inserting in lieu thereof " In the case of a nonresident not a citizen of the United States ". (c) Section 303(c) of such Act, as amended, is amended by striking out " in the case of a nonresident " and Inserting in lieu thereof " in the case of a nonresident not a citizen of the United States "- Seo. 406. Revenue Act of 1934. Section 303(a) (3) and section 303(b) (3) of the Revenue Act of 1926, as amended, are amended by inserting after " individual ", wherever appearing therein, a comma and the following : " and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation ". Abt. 51. Net estate.— The statute imposes the tax upon the transfer of only the portion of the estate of a nonresident alien (or of a non- resident, regardless of citizenship, if the decedent died prior to the enactment of the Revenue Act of 1934) that was situated in the United States. In determining the net estate, the deductions spe- cifically authorized for this class of cases may be taken from the portion of the gross estate situated in the United States. Art. 52. Deduction of administration expenses, claims, etc. — In estates of nonresident aliens (or of nonresidents, regardless of citizenship, if the decedents died prior to the enactment of the Revenue Act of 1934), deductions from the gross estate may be taken, subject to the limitations herein subsequently to be referred to, for funeral expenses, administration expenses, claims against the estate, unpaid mortgages, losses incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualty, or from theft, if such losses are not compensated for by insurance or otherwise, amounts reasonably required and actually expended for the support during settlement of the estate of those dependent upon the decedent, as are allowed by the laws of the jurisdiction 182135°— 34 72 under which the estate is being administered. Treatment of the several deductions enumerated above will be found in articles 29 to 40, inclusive. No deduction may be taken of any income taxes upon income received after the death of the decedent, or of any estate, .succession, legacy, or inheritance taxes. It is immaterial whether the amounts to be deducted were incurred or expended within or without the United States, but certain limitations are imposed which do not apply to estates of residents or citizens (or of residents only, without regard to citizenship, if the decedents died prior to the enactment of the Revenue Act of 1934), namely: (1) Only that proportion of the aggregate thereof is deductible which the value of that part of the gross estate situated (within the mean- ing of the statute) in the United States, bears to the value of the entire gross estate, wherever situated; and if the decedent died prior to the effective date of the Revenue Act of 1928, no sum may be deducted in excess of 10 per cent of the value of that part of the gross estate situated in the United States. (See article 55.) The 10 per cent limitation does not apply to the deductions subsequently considered in articles 53 and 54. (2) No deduction whatever may be taken unless the executor includes in the return the value at the date of the decedent's death of that part of the gross estate not situated in the United States. In order that the Commissioner may properly pass upon the items claimed as deductions, the executor should submit a certified copy of the schedule of liabilities, claims against the estate, and expenses of administration filed under the foreign death-duty act; or, if no such schedule was filed, a certified copy of the schedule of such liabilities, claims, and expenses filed with the foreign court in which adminis- tration was had; or, if items of deduction allowable under section 303 (b) (1) were not included in either such schedule, or if no such schedules were filed, then the affidavit of the foreign executor setting forth the facts relied upon as entitling the estate to the benefit of the particular deduction or deductions. Art. 53. Deduction of the value of property previously taxed. — The right to deduct the value of property received by a nonresident alien decedent (or by a nonresident, regardless of citizenship, if the dece- dent died prior to the enactment of the Revenue Act of 1934) by gift from any person within five years prior to his death, or by gift, bequest, devise, or inheritance from any person who died within five years prior to his death, or of the value of property acquired in exchange for property so received, is governed by the same rules as those applying to estates of residents (articles 41 to 43, inclusive), subject to the three following exceptions: (1) The deduction is decreased on account of the deductions allowable under the provisions of paragraphs (1) and (3) of subdivision (b). of 73 section 303 in lieu of the deductions allowable under paragraphs (1) and (3) of subdivision (a) of such section, or paragraphs (1), (3), and (4) of subdivision (a) if the decedent died after the eflPective date of the Eevenue Act of 1932; (2) the property for which the deduction is claimed must be included in that part of the decedent's gross estate situated in the United States at the time of his death ; and (3) the deduction is not available to any extent unless the executor includes in the return the value at the time of the decedent's death of that part of the gross estate not situated in the United States. (See article 62.) Art. 54. Deduction of value of transfers for public, charitable, reli- gious, etc., uses. — The right to deduct the value of property trans- ferred by nonresident aliens (or nonresidents, regardless of citizen- ship, if decedents died prior to the enactment of the Eevenue Act of 1934) for public, religious, charitable, scientific, literary, or educational purposes is governed by the same rules as those apply- ing to estates of resident decedents (articles 44 to 47, inclusive), subject, however, to the two following exceptions, namely: (1) That the right is limited to transfers to corporations and associations created or organized in the United States, or to trustees for use within the United States, and (2) is then available only if the executor includes in the return the value at the time of the decedent's death of that part of the gross estate not situated in the United States. Instead of duplicate copies of the documents specified in article 46, only one copy is required to be filed. Art. 55. Determination of net estate. — The following example will show the manner of determining the net estate of a nonresident alien. The gross estate, wherever situated, amounts to $1,000,000, of which $200,000 represents the value of the property having its situs within the United States (the term " United States " including not only the several States, but also the Territories of Alaska and Hawaii, and the District of Columbia). The funeral expenses, administration expenses, and claims against the estate aggregate $160,000, and there are charitable bequests, for use within the United States, amounting to $26,000. Hence the property situated within the United States constitutes 20 per cent of the entire gross estate wherever situated, and a like percentage of the $160,000 is $30,000. The following result is accordingly obtained: Gross estate within the United States $200, 000 20 per cent of $150,000 $30, 000 Charitable bequests for use within the United States 25, 000 55, 000 Net estate 145, 000 74 For the manner of computing the tax on the net estate, see article 8. In the example given, had the decedent died prior to the effective date of the Revenue Act of 1928, 20 per cent of the funeral expenses, administration expenses, and claims against the estate, or $30,000, would not have been deductible, for the reason that it would have exceeded 10 per cent of the value of the property situated in the United States. The deduction in such case would have been limited to 10 per cent of $200,000, plus the charitable bequests, or a total of $45,000, and the resultant net estate would have been $155,000, instead of the amount given in the example. Abt. 66. Payment of tax. — The provisions relating to credits (see article 9) and to rates and payment of the tax are the same in estates of nonresident aliens (or of nonresidents, regardless of citizenship, if the decedents died prior to the enactment of the Revenue Act of 1934) and of residents or citizens (or of residents only, without regard to citizenship, if the decedents died prior to the enactment of the Revenue Act of 1934). The statute provides that the executor shall pay the tax. If there is no executor or administrator appointed, qualified, and acting within the United States, every per- son in either the actual or constructive possession of any property of the decedent is constituted by the statute an executor for the purpose of tax payment, and is liable for the tax to the extent of the prop- erty so in his possession. (See articles 78 to 85, inclusive.) All checks, drafts, or money orders should be made payable to the order of Collector of Internal Revenue. PRELIMINARY NOTICE— ESTATES OF RESIDENTS OR CITIZENS Sna 304. (a) The executor, within two months after the decedent's death, or within a like period after qualifying as such, shall give writ- ten notice thereof to the collector. * * * Sbo. 403. Revenue Act of 1932. Except as provided in section 402, the tax imposed by section 401 of this Act shall be assessed, collected, and paid, in the same manner, and shall be subject to the same provisions of law (including penal- ties), as the tax imposed by section 301 (a) of the Revenue Act of 1926, except that in the case of a resident decedent a return shall be required if the value of the gross estate at the time of the decedent's death exceeds $50,000. Art. 57. When notice required. — A preliminary notice is required to be filed in the case of every resident or citizen (or of a resident only, without regard to citizenship, if the decedent died prior to the enactment of the Revenue Act of 1934) whose gross estate exceeded $50,000 in value at the date of death, except that if the decedent died 75 subsequent to the effective date of the Kevenue Act of 1926 (10.25 a. m., eastern standard time, February 26, 1926) and prior to the effective date of the Revenue Act of 1932 (5 p. m., eastern standard time, June 6, 1932), notice is required if the gross estate exceeded $100,000 in value at the date of death. The notice must be filed in duplicate within two months after the decedent's death or within two months after the executor has qualified. In the case of a resi- dent, it must be filed with the collector in whose district the decedent had his domicile at the time of death. In the case of a nonresident citizen, it must be filed with the collector in whose district the gross estate in the United States was situated ; or, if the gross estate in the United States was situated in more than one district, or, if no part of the gross estate was situated in the United States, it must be filed with the collector for the second district of New York, or with such collector as the Commissioner may designate. If there is doubt as to whether the gross estate exceeded $50,000, or exceeded $100,000, as the case may be, the notice should be filed as a matter of precaution in order to avoid the possibility of penalties attaching. Akt. 58. Notice by executor or administrator. — The duly qualified executor or administrator is required to file such preliminary notice on Form 704, copies of which may be obtained from the collector, within two months after qualifying as such, if notice has not already been filed. The primary purpose of the notice is to advise the Gov- ernment of the existence of taxable estates, and filing should not be delayed beyond the two months' period because of uncertainty as to the exact value of the assets. Since the filing of the notice within the prescribed period is mandatory, the estimate of the gross estate called for by the notice is merely the best approximation of value which can be made within the time allowed. The instructions upon the back of the form should be read carefully before executing the notice. The signature of one executor or administrator upon Form 704 is suffi- cient. For penalties for delinquency in filing notice, or for filing a false or fraudulent notice, see articles 91, 92, and 94. Akt. 59. Notice by others than duly qualified executor or administra- tor. — The term " executor " embraces any person in actual or con- structive possession of any property of the decedent at the time of the latter's death, if within two months after the decedent's death no executor or administrator qualifies. The notice on Form 704 must be filed by such persons in every case in which an executor or administrator has not duly qualified within such period. If, within the period mentioned, an executor or administrator qualifies, the duty of filing the notice devolves upon him, and all other persons are relieved therefrom. 76 PRELIMINARY NOTICE— ESTATES OF NONRESIDENT ALIENS Art. 60. Estates of nonresident aliens; preliminary notice. — In estates of nonresident aliens (or of nonresidents, regardless of citizen- ship, if the decedent died prior to the enactment of the Revenue Act of 1934), notice on Form 705, copies of which may be obtained from the Commissioner of Internal Revenue, Washington, D. C, or from any United States collector of internal revenue, upon application, is required if any part of the gross estate was situated (within the meaning of the statute, as to which see article 50) in the United States. The notice must be filed, in duplicate, by every appointed, qualified, and acting executor or administrator within the United States with the United States collector of internal revenue of the district in which such part of the gross estate was situated, or, if such part of the gross estate was situated in more than one district, it must be filed with the collector for the second district of New York, or with such collector as the Commissioner may designate. The notice is necessary if any part of the decedent's gross estate was situ- ated, within the meaning of the statute, in the United States, regard- less of the value of that part or of the entire gross estate. If no executor or administrator has qualified, notice must be filed within two months after the date of death by every person in either the actual or constructive possession of any property of the decedent so within the United States at the time of his death. If such person has no knowledge of the decedent's death within two months following its occurrence, he should file the notice immediately upon obtaining such knowledge. The term "person in actual or constructive pos- session of any property of the decedent " (section 300) includes, among others, the decedent's agents and representatives; safe-de- posit companies, warehouse companies, and similar custodians of property in this country; brokers holding, as collateral, securities belonging to the decedent or investment funds owned by the de- cedent, and debtors of the decedent in this country. As to any moneys deposited by or for a decedent of this class with any person, corporation, or association carrying on the banking business, no notice is required, unless, however, the decedent was engaged in business in the United States at the time of his death. Art. 61. Information return by corporation or transfer agent. — ^Upon notification from the Bureau of Internal Revenue a corporation (organized or created in the United States), or its transfer agent will be required to file a return disclosing the following information pertaining to stocks or bonds registered in the name of a nonresident decedent (regardless of citizenship) : (1) Name of decedent as regis- tered; (2) date of death, residence, place of death, and names and addresses of executors, attorneys, or other representatives, within 77 and without the United States, if known ; and (3) a description of the securities and the number of shares or bonds and the par values. Treasury Department Form 714, which will be supplied by the Bureau upon request, may be used for the return. Art. 62. Transfer certificates. — Certificates permitting the transfer of property of nonresident decedents (regardless of citizenship) without liability will be issued by the Commissioner when he is satisfied that the tax imposed upon the estate, if any, has been fully discharged or provided for. The tax will be considered fully discharged for the purpose of the issuance of a transfer certificate only when investigation has been completed and payment of the tax, including any deficiency finally determined, has been made. If the tax liability has not been fully discharged transfer certifi- cates may be issued permitting the transfer of particular items of property without liability upon the filing with the Commis- sioner of such security as he may require. No corporation or its transfer agent should transfer stock or bonds registered in the name of a nonresident decedent without first requiring this transfer certificate covering all of the decedent's stock and bonds of the corpo- ration and showing that such transfer may be made Tyithout liability. A bank, trust company, or other custodian in possession of bills, notes, cash, mortgages, securities, money due on open accounts by domestic debtors, or any other property situated in the United States of a non- resident decedent's estate should also require the certificate before transferring such property. Corporations, transfer agents, banks, trust companies, or other custodians can insure avoidance of liability for tax and penalties only by demanding and receiving transfer certificates prior to transfer of property of nonresident decedents (regardless of citizenship). The requirements of this and the preceding article do not apply if there is an executor or administrator appointed, qualified, and acting within the United States. THE RETURN— ESTATES OF RESIDENTS OR CITIZENS Sec. 304. (a) * * * The executor shall also, at such times and in such manner as may be required by regulations made pursuant to law, file with the collector a return under oath in duplicate, setting forth (1) the value of the gross estate of the decedent at the time of his death, or, in case of a nonresident, of that part of his gross estate situated in the United States; (2) the deductions allowed under section 303 ; (3) the value of the net estate of the decedent as defined in section 303; and (4) the tax paid or payable thereon; or such part of such information as may at the time be ascertainable and such supplemental data as may be necessary to establish the cor- rect tax. 78 (b) Return shall be made in all cases where the gross estate at the death of the decedent exceeds $100,000, and in the case of the estate of every nonresident any part of whose gross estate is situated in the United States. If the executor is unable to make a complete re- turn as to any part of the gross estate of the decedent, he shall include in his return a description of such part and the name of every person holding a legal or beneficial interest therein, and upon notice from the collector such person shall in like manner make a return as to such part of the gross estate. Sec. 403. Revenue Act of 1932. Except as provided in section 402, the tax imposed by section 401 of this Act shall be assessed, collected, and paid, in the same manner, and shall be subject to the same provisions of law (including penalties) , as the tax imposed by section 301 (a) of the Revenue Act of 1926, except that in the case of a resident decedent a return shall be required if the value of the gross estate at the time of the decedent's death exceeds $50,000. Sbk. 403. Revenue Act of 1934. * * * (e) Section 304(a) and (b) of such Act, as amended, are amended by striking out " nonresident " wherever such word appears and in- serting in lieu thereof in each case " nonresident not a citizen of the United States" (f) Section 403 of the Revenue Act of 1932 is amended by striking out " resident decedent " and inserting in lieu thereof " citizen or resident of the United States "- Art. 63. When return required — Date of filing. — A return on Form 706 is required in the case of every resident or citizen (or resident, without regard to citizenship, if the decedent died prior to the en- actment of the Revenue Act of 1934) , whose gross estate, as defined in the statute, exceeded $50,000 in value at the date of death, except that if the decedent died subsequent to the effective date of the Revenue Act of 1926 (10.25 a. m., eastern standard time, February 26, 1926) and prior to the effective date of the Rev- enue Act of 1932 (5 p. m., eastern standard time, June 6, 1932), the return is required if the gross estate exceeded $100,000 in value at the date of death. In the case of a resident, the return must be filed with the collector in whose district the decedent had his domi- cile at the time of death. In the case of a nonresident citizen, it must be filed with the collector in whose district the gross estate in the United States was situated ; or, if the gross estate in the United States was situated in more than one district, or, if no part of the gross estate was situated in the United States, it must be filed with the collector for the second district of New York, or with such col- lector as the Commissioner may designate. It must be filed in duplicate within one year after the date of death, or, in any par- ticular instance, at such time prior to the expiration of such year as the Commissioner may designate. If the due date for filing 79 the return falls on a Sunday or on a legal holiday, the due date for filing will be the day following such Sunday or legal holiday. If placed in the mails the return should be posted in ample time to reach the collector's office, under ordinary handling of the mails, on or before the date on which the return is required to be filed. If a return is made and placed in the mails in due course, properly addressed, and postage paid, in ample time to reach the office of the collector on or before the due date, no penalty will attach should the return not be actually received by such officer until subsequent to that date. Art. 64. Persons liable for return.— The statute provides that the duly qualified executor or administrator shall file the return. If there is more than one executor or administrator, the return must be made jointly by all. If no executor or administrator has been appointed, every person in actual or constructive possession of any property of the decedent is constituted by the statute an executor for the purposes of the tax (section 300) , and is required to make and file a return as provided by section 304. If, in any case, the executor is unable to make a complete return as to any part of the gross estate, he is required to give all the information he has as to such property, including a full description, and the name of every person holding a legal or beneficial interest in the property. If the executor is unable to make a return as to any property, the statute requires that every person holding a legal or beneficial interest therein shall, upon notice from the collector, make return as to such part of the gross estate. For penalties for delinquency in filing return, or for filing a false or fraudulent return, see articles 91, 92, and 94. Art. 65. Preparation of return. — The return must be made on Form 706, copies of which will be supplied by the collector upon applica- tion. It must be filed in duplicate under oath and contain an item- ized inventory by schedule of the property constituting the gross estate and lists of the deductions under the appropriate schedules. The return must set forth (1) the value of the gross estate (see articles 10-28), (2) the deductions allowed (see articles 29-48), (3) the value of the net estate, and (4) the tax paid or payable thereon. If the decedent died subsequent to the effective date of the Rev- enue Act of 1932 (5 p. m., eastern standard time, June 6, 1932), the return must set forth both the net estate determined in accord- ance with the provisions of the Eevenue Act of 1926 and the net estate for the purposes of the additional tax imposed by the Revenue Act of 1932, which should be determined in the same manner except that in lieu of the exemption of $100,000 provided in section 303 (a) 80 (4) of the Revenue Act of 1926, the exemption is $50,000 (see article 48), and both the tax imposed by the Revenue Act of 1926 and the additional tax imposed by the Revenue Act of 1932. The tax payable upon a return filed for an estate subject to both the tax imposed by the Revenue Act of 1926 and the additional tax imposed by the Revenue Act of 1935 is the total of said taxes. The instructions printed on the form should be carefully followed. All documents and vouchers used in preparing the return should be retained by the executor so as to be available for inspec- tion whenever required. Duplicate copies of the will, if the decedent died testate, one of which should be certified, must be submitted with the return, together with copies of such other documents as in Form 706 and in the applicable articles of these regulations are required. There may also be filed in duplicate copies of any documents which the executor may desire to submit with the return in explanation thereof. In every case of an estate of a nonresident citizen who died after the date of the enactment of the Revenue Act of 1934, the executor should file the following documents with the return: (1) A copy of the inventory of property and the schedule of liabilities, claims against the estate and expenses of administration filed with the foreign court of probate jurisdiction, certified by a proper official of such court. (2) A copy of the return filed under the foreign inherit- ance, estate, legacy, or succession tax act, certified by a proper official of the foreign tax department, if the estate is subject to such a foreign tax. Art. 66. Supplemental data. — The statute provides that the execu- tor, in addition to filing notice and return, shall furnish such sup- plemental data as may be necessary to establish the correct tax (sec- tion 304). It is therefore the duty of the executor to furnish upon request copies of any documents in his possession relating to the estate, or on file in any court having jurisdiction over the estate, appraisal lists of any items included in the gross estate, copies of balance sheets or other financial statements relating to the value of stock, and any other information obtainable by him that may be found necessary in the determination of the tax. Failure to com- ply with such a request will render the executor liable to penalties (article 93), and proceedings may be instituted in the proper United States court to secure compliance therewith (section 1122 (a)). Persons having possession or control of any records or documents containing or supposed to contain any information concerning the estate, or having knowledge or information of any fact or facts of a material bearing upon the liability, or the extent of liability, of the 81 .estate to the tax, shall, upon request of the Cominissioner or any revenue agent or inspector designated by him for that purpose, make disclosure thereof. Failure on the part of any person to comply with such request will render him liable to penalties (article 93), and compliance with the request may be enforced in the proper United States court (section 1122 (a)). DETERMINATION OF TAX BY COMMISSIONER Seo. 306. As soon as practicable after the return is filed the Com- missioner shall examine it and shall determine the correct amount of the tax. Sec. 313. * * * (b) If the executor makes written application to the Commissioner for determination of the amount of the tax and discharge from personal liability therefor, the Commissioner (as soon as possible, and in any event within one year after the making of such application, or, if the application is made before the return is filed, then within one year after the return is filed, but not after the expiration of the period prescribed for the assessment of the tax in section 310) shall notify the executor of the amount of the tax. The executor, upon payment of the amount of which he is notified, shall be discharged from personal liability for any deficiency in tax there- after found to be due and shall be entitled to a receipt or writing showing such discharge. Art. 67. Examination of return and determination of tax by the Com- missioner. — As soon as practicable after returns are filed, they will be examined and the amount of the tax determined by the Commis- sioner under the procedure specifically prescribed in this article and under such further procedure as may be prescribed from time to time by the Commissioner. (See article 77.) If it is practicable to do so, the Bureau will, in its discretion, or upon the executor's request to the Commissioner, make its field investigation simultaneously and in cooperation with the offi- cials having in charge the matter of determining the amount of tax due the State or Territory by virtue of the decedent's death. Such investigation will extend to all questions in so far as they have bear- ing both upon the tax liability of the estate under the Federal estate tax law and the taxing act of the particular State or Territory, and comprehend the disclosure to the agents of the State or Territory of information contained in the return as well as that obtained upon investigation, provided a like cooperation is given by the agency of the State or Territory. Such disclosure may be made by the field investigating officer or his superiors, either during the investigation or subsequent thereto. The investigations made in cooperation with the State or Territory are, like all others, limited to an ascertain- ment of information to aid the Commissioner, who alone under the 82 law is empowered to determine the tax, in arriving at a conclusion as to the Federal estate tax liability of the estate. If the executor makes written application to the Commis- sioner for a determination of the tax and discharge from personal liability therefor, the Commissioner will within one year after re- ceipt of such application, or if application is made before the return is filed, then within one year after the return is filed, notify the executor of the amount of the tax, and upon payment thereof, the executor will be discharged from personal liability for any defi- ciency in the tax thereafter found to be due. (See section 313 (b) and (c).) EXTENSION OF TIME FOR FILING RETURN Revised Statutes, section 3176 (as amended by section 1103, Revenue Act of 1926, and section 619 (d), Revenue Act of 1928 [U. S. C, Sup. VII, title 26, section 1524]). * * * If the failure to file a return (other than a return of in- come tax) or a list is due to sickness or absence, the collector may allow such further time, not exceeding 30 days, for making and filing the return or list as he deems proper. * * * Art. 68. Extension of time by collector. — In case of sickness or absence, collectors are authorized to grant an extension of time for filing the return for a period not in excess of 30 days from the due date, which extension may be granted either before or after the due date. An extension of time for filing the return does not in itself operate to extend the time for the payment of the tax, which is due and payable one year after the date of the decedent's death. For extension of time of payment, see article 82. Art. 69. Extension of time by Commissioner. — -If it is impossible for the executor to file a reasonably complete return within one year from the date of death, the Commissioner may, upon application from the executor showing good and sufficient cause, grant an exten- sion of time not to exceed six months from the due date. Before the expiration of the extension period granted a return as complete as possible must be filed. The return thus filed will be the return required by section 304 (a) and any tax shown thereon will be the " amount determined by the executor as the tax " referred to in sec- tion 305 (b) and section 307. Such return can not thereafter be amended although supplemental information may subsequently be filed that may result in a finally determined tax different from the amount shown as the tax by the executor upon his return. An ex- tension of time for filing the return does not operate to extend the time for the payment of the tax, which is due one year after the decedent's death. An extension of time in which to make payment of the tax may be secured as provided in article 82. 83 THE RETURN— ESTATES OF NONRESIDENT ALIENS Art. 70. Return of estates of nonresidents. — A return on Form T06, copies of which may be obtained from the Commissioner of Internal Kevenue, Washington, D. C, or from any United States collector of internal revenue, upon application, is required in the case of every nonresident alien (or nonresident, regardless of citizenship, if the decedent died prior to the enactment of the Eevenue Act of 1934) any part of whose gross estate was situated (within the meaning of the statute, as to which see article 50) in the United States. The return must set forth an itemized list of that part of the gross estate situated in the United States and the total value thereof (see article 51), the deductions claimed, if any (see articles 52-54), the value of the net estate (see article 55), and the tax paid or payable thereon. If the decedent died subse- quent to the effective date of the Eevenue Act of 1932 (5 p. m., east- ern standard time, June 6, 1932) and the value of the net estate exceeds $10,000, the return must set forth both the tax imposed by the Eevenue Act of 1926 and the additional tax imposed by the Eevenue Act of 1932. The return must be filed with the United States collector of internal revenue of the district in which such part of the gross estate was situated, or, if ^uch part of the gross estate was situated in more than one district, it must be filed with the collector for the second district of New York, or with such collector as the Commissioner may designate. The return must be filed in duplicate and under oath within one year after the decedent'g death, or, in any particular instance, at such time prior to the expiration of such year as the Commissioner may designate, unless an extension is obtained pursuant to article 68 or 69. If the due date for filing the return falls on a Sunday or on a legal holiday, the due date for filing will be the day following such Sunday or legal holiday. If placed in the mails the return should be posted in ample time to reach the col- lector's office, under ordinary handling of the mails, on or before the date on which the return is required to be filed. If a return is made and placed in the mails in due course, properly addressed, and postage paid, in ample time to reach the office of the collector on or before the due date, noi penalty will attach should the return not be actually received by such officer until subsequent to that date. The return should be made and filed by the executor or admin- istrator appointed, qualified, and acting within the United States, or, if none, then by any person in actual or constructive possession of any property of the decedent situated (within the meaning of the statute) in the United States, whatever its value. If the qualified executor or administrator is unable to make a complete return as 84 to any part of the gross estate, he is required to give all the informa- tion available to him as to such part, including a description thereof and the name of every person holding a legal or beneficial interest therein. As to the meaning of the term " person in actual or con- structive possession of any property of the decedent," see article 60. Art. 71. Supplemental data. — Pursuant to the provisions of section 304 (a), with respect to furnishing supplemental data, if the decedent is a nonresident alien (or a nonresident, regardless of citizenship, jf the decedent died prior to the enactment of the Revenue Act of 1934), the executor is required to file with the return : (1) A certified copy of will, if decedent died testate, or, if the decedent left several wills to govern in diflFerent jurisdictions, cer- tified copy of each will. (2) If any deductions are claimed, copy of inventory of property filed under the foreign death-duty act ; or, if no such inventory was filed, a certified copy of inventory filed with the foreign court of probate jurisdiction. The Commissioner may require the documents specified in para- graph (2) regardless of whether deductions are claimed. For re- quirements dealing with the duty to furnish other documents or in- formation relating to the tax liability of the estate, and penalties in connection therewith, see article 66. PRIVILEGED CHARACTER OF RETURNS Art. 72. Returns confidential. — ^AU estate tax returns and notices are treated as privileged communications and may not be exhibited other than to the executor or his duly authorized agent, except as stated in articles 67 and 73. This requirement will be rigidly en- forced, and extends to information of a private nature submitted or obtained in connection with a return or notice. The requirement does not operate to prevent internal revenue ofiicers from disclosing the returned value of any item or the amount of any specific deduc- tion, if such disclosure is necessary in order to arrive at a correct determination of the tax. This right of disclosure, however, does not extend to such information as the amount of the estate, the amount of tax, or other general data. Nor are the records in pos- session of the Bureau, whether on file with the Commissioner or the collector, open to inspection, except as provided in articles 67 and 73. If a copy of the return is desired because no copy was retained by the executor or the retained copy has been lost or de- stroyed, or for other satisfactory reasons, such copy may be furnished by the Commissioner to the executor, or his authorized attorney, upon payment of the fee prescribed. 85 Art. 73. Disclosure other than to executor. — If any person other than the executor has a material interest in ascertaining any fact disclosed by the return, or in obtaining information as to the pay- ment of the tax, or if an officer of a State or Territory requires information contained in a return or obtained upon investigation for his official use in connection with an estate, inheritance, legacy, or succession tax of the State or Territory, he shall make a written application to the Commissioner of Internal Eevenue for such infor- mation, setting forth the nature of his interest and the purpose of the application. The Commissioner will review the application, and, if it is approved, the collector will be directed to exhibit the return to the applicant, or give him such information as is specified, or the Commissioner may permit an inspection of or furnish a copy of the return on file in the Bureau, or may furnish such information as he deems advisable. Under no circumstances shall the collector give information to persons other than the executor except upon the written order of the Commissioner, and then only to the extent authorized by such order. If an attorney or other person asks a ruling on a question of law arising in a specific case, the Commissioner will require satisfactory evidence of the right to obtain such ruling. Hypothetical questions, however, can not be answered. Art. 74. Attorneys must have authorization. — In all cases in which information is sought regarding an estate, or an interview is asked, by an attorney or by any agent of the executor or administrator, the information or interview will be denied unless the attorney or agent presents a duly executed power of attorney from the executor or administrator authorizing the attorney or agent to act in his behalf. No attorney or agent will be recognized as representing an estate or executor unless such attorney or agent is enrolled to represent claimants or others before the Treasury Department. For regula- tions governing enrollment, reference should be made to Treasury Department Circular No. 230, as revised, copies of which may be obtained upon application to the Secretary of the Committee on En- rollment and Disbarment, Treasury Department, Washington, D. C. RETURN BY COLLECTOR OR COMMISSIONER Revised Statutes, section 3176 (as amended by section 1103, Rev- enue Act of 1926 [U. S. C, Sup. VII, title 26, section 1512 (a)-(c)]). If any person, corporation, company, or association 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 86 the return or list from his own knowledge and from such information as he can obtain through testimony or otherwise. In any such case the Commissioner of Internal Revenue may, from his own knowledge and from such information as he can obtain through testimony or other- wise, make a return or amend any return made by a collector or deputy collector. Any return or list so made and subscribed by the Commissioner, or by a collector or deputy collector and approved by the Commissioner, shall be prima facie good and sufficient for all legal purposes. * * * Art. 75. Wo return, filed, or a false or fraudulent return filed. — Section 3176 of the Revised Statutes (U. S. C, Sup. VII, title 26, section 1512 (a)-(c)) provides that if any person fails to make and file a return at the time required, or makes, willfully or otherwise, a false or fraudulent return, the collector or deputy collector shall make a return. The Commissioner may also make a return or amend any return made by a collector or deputy collector. A return so made by the Commissioner, or made by the collector or deputy collector and approved by the Commissioner, shall be prima facie good and sufficient for all legal purposes. If a tax is found to be due upon such a return, both the estate and the executor will be liable for penalties as well as for the tax. DEFICIENCY TAX Sbo. 307. As used in this title in respect of a tax imposed by this title the term " deficiency " means — (1) The amount by which the tax imposed by this title exceeds the amount shown as the tax by the executor upon his return ; but the amount so shown on the return shall first be increased by the amounts previously assessed (or collected without assessment) as a deficiency, and decreased by the amounts previously abated, refunded, or otherwise repaid in respect of such tax; or (2) If no amount is shown as the tax by the executor upon his return, or if no return is made by the executor, then the amount by which the tax exceeds the amounts previously assessed (or collected without assessment) as a deficiency; but such amounts previously assessed, or collected without assessment, shall first be decreased by the amounts previously abated, refunded, or otherwise repaid in respect of such tax. Sec. 308. (a) (As amended by section 501, Kevenue Act of 1934.) If the Commissioner determines that there is a deficiency in respect of the tax imposed by this title, the Commissioner is authorized to send notice of such deficiency to the executor by registered mail. Within 90 days after such notice is mailed (not counting Sunday or a legal holiday in the District of Columbia as the ninetieth day), the executor may file a petition with the Board of Tax Appeals for a redetermination of the deficiency. Except as otherwise provided in subdivision (d) or (f) of this section or in section 312 or 1001, no assessment of a deficiency in respect of the tax imposed by this title and no distraint or proceeding in court for Its collection shall be 87 made, begun, or prosecuted until such notice has been mailed to the executor, nor until the expiration of such 90-day period, nor, if a petition has been filed with the Board, until the decision of the Board has become final. Notwithstanding the provisions of section 3224 of the Revised Statutes the making of such assessment or the beginning of such proceeding or distraint during the time such prohibition is in force may be enjoined by a proceeding in the proper court. 4: ^ 4: 4: * * ^• (e) The Board shall have jurisdiction to redetermine the correct amount of the deficiency, even if the amount so redetermined Is greater than the amount of the deficiency, notice of which has been mailed to the executor, and to determine whether any additional amount or addition to the tax should be assessed, if claim therefor is asserted by the Commissioner at or before the hearing or a rehearing. (f ) If after the enactment of this Act the Commissioner has mailed to the executor notice of a deficiency as provided in subdivision (a), and the executor files a petition with the Board within the time pre- scribed in such subdivision, the Commissioner shall have no right to determine any additional deficiency, except in the case of fraud, and except as provided in subdivision (e) of this section or in subdivision (c) of section 312. If the executor is notified that, on account of a mathematical error appearing upon the face of the return, an amount of tax in excess of that shown upon the return is due, and that an assessment of the tax has been or will be made on the basis of what would have been the correct amount of tax but for the mathematical error, such notice shall not be considered for the purposes of this subdivision or of subdivision (a) of this section, or of section 319, as a notice of a deficiency, and the executor shall have no right to file a petition with the Board of Tax Appeals based on such notice, nor shall such assessment or collection be prohibited by the provisions of subdivision (a) of this section. Seo. 318. (a) If after the enactment of this Act the Commissioner determines that any assessment should be made in respect of any estate or gift tax imposed by the Revenue Act of 1917, the Revenue Act of 1918, the Revenue Act of 1921, or the Revenue Act of 1924, or by any such Act as amended, the Commissioner is authorized to send by registered mail to the person liable for such tax notice of the amount proposed to be assessed, which notice shall, for the purposes of this Act, be considered a notice under subdivision (a) of section 308 of this Act. In the case of any such determination the amount which should be assessed (whether as deficiency or additional tax or as interest, penalty, or other addition to the tax) shall be computed as if this Act had not been enacted, but the amount so computed shall be assessed, collected, and paid in the same manner and subject to the same provisions and limitations (including the pro- visions in case of delinquency in payment after notice and demand and the provisions prohibiting claims and suits for refund) as in the case of a deficiency in the tax imposed by this title, except that in the case of an estate tax imposed by the Revenue Act of 1917, the Revenue Act of 1918, or the Revenue Act of 1921, or by any such Act as amended, the period of limitation prescribed in section 1109 of this 182135°— 34 7 88 Act shall be applied in Ueu of the period prescribed in subdivision (a) of section 310. (b) If before the enactment of this Act any person has appealed to the Board of Tax Appeals onder subdivision (a) of section 308 of the Revenue Act of 1924 (if such appeal relates to a tax imposed by Title III of such Act or to so much of an estate tax imposed by any of the prior Acts enumerated in subdivision (a) of this section as veas not assessed before June 3, 1924), and the appeal is pending before the Board at the time of the enactment of this Act, the Board shall have jurisdiction of the appeal. In all such cases the powers, duties, rights, and privileges of the Commissioner and of the person who has brought the appeal, and the jurisdiction of the Board and of the courts, shall be determined, and the computation of the tax shall be made, in the same manner as provided in subdivision (a) of this section, except as provided in subdivision (h) of this section and except that the person liable for the tax shall not be subject to the provisions of subdivision (a) of section 319. (c) If before the enactment of this Act the Commissioner has mailed to any person a notice under subdivision (a) of section 308 of the Revenue Act of 1924 (whether in respect of a tax imposed by Title III of such Act or in respect of so much of an estate tax imposed by any of the prior Acts enumerated in subdivision (a) of this section as was not assessed before June 3, 1924), and if the 60-day period referred to in such subdivision has not expired before the enactment of this Act and no appeal has been filed before the enactment of this Act, such person may file a petition with the Board in the same manner as if a notice of deficiency had been mailed after the enactment of this Act in respect of a deficiency in a tax imposed by this title. In such cases the 60-day period referred to in sub- division (a) of section 308 of this Act shall begin on the date of the enactment of this Act, and the powers, duties, rights, and privileges of the Commissioner and of the person entitled to file the petition, and the jurisdiction of the Board and of the courts, shall, whether or not the petition is filed, be determined, and the computation of the tax shall be made, in the same manner as provided in subdivision (a) of this section. (d) If any deficiency in any estate tax imposed by the Revenue Act of 1917, the Revenue Act of 1918, or the Revenue Act of 1921, or by any such Act as amended, was assessed before June 3, 1924, but was not paid in full before the date of the enactment of this Act, and if the Commissioner, after the enactment of this Act, finally deter- mines the amount of tlie deficiency, he is authorized to send by registered mail to the person liable for such tax notice of such defi- ciency, which notice shall, for the purposes of this Act, be considered a notice under subdivision (a) of section 308 of this Act. In the case of any such final determination the amount of the tax (whether as deficiency or additional tax or as interest, penalty, or other addi- tion to the tax) shall be computed as if this Act had not been enacted, but the amount so computed shall be assessed, collected, and paid in the same manner and subject to the same provisions and limitations (including the provisions in cases of delinquency in payment after notice and demand, and the provisions relating to claims and suits for refunds) as in the case of a deficiency in the tax 89 imposed by this title, except as otherwise provided in subdivision (g) of this section, and except that the period of limitation pre- scribed in section 1109 of this Act shall be applied in lieu of the period prescribed in subdivision (a) of section 310. (e) If any deficiency in any estate tax imposed by the Revenue Act of 1917, the Revenue Act of 1918, or the Revenue Act of 1921, or by any such Act as amended, was assessed before June 3, 1924, but was not paid in full before that date, and if the Commissioner after June 2, 1924, but before the enactment of this Act, finally determined the amount of the deficiency, and if the person liable for such tax appealed before the enactment of this Act to the Board of Tax Appeals and the appeal is pending before the Board at the time of the enactment of this Act, the Board shall have jurisdiction of the appeal. In all such cases the powers, duties, rights, and privileges of the Commissioner and of the person who has brought the appeal, and the jurisdiction of the Board and of the courts, shall be deter- mined, and the computation of the tax shall be made, in the same manner as provided in subdivision (d) of this section, except as provided in subdivision (h) of this section and except that the per- son liable for the tax shall not be subject to the provisions of subdivi- sion (a) of section 319. (f) If any deficiency in any estate tax imposed by the Revenue Act of 1917, the Revenue Act of 1918, or the Revenue Act of 1921, or by any such Act as amended, was assessed before June 3, 1924, but was not paid in full before the date of the enactment of this Act, and if the Commissioner after June 2, 1924, finally determined the amount of the deficiency, and notified the person liable for such tax to that efCect less than 60 days prior to the enactment of this Act and no appeal has been filed before the enactment of this Act, the person so notified may file a petition with the Board in the same manner as if a notice of deficiency had been mailed after the enactment of this Act in respect of a deficiency in a tax imposed by this title. In such cases the 60-day period referred to in subdivision (a) of section 308 of this Act shall begin on the date of the enactment of this Act, and, whether or not the petition is filed, the powers, duties, rights, and privileges of the Commissioner and of the person who is so notified, and the jurisdiction of the Board and of the courts, shall be deter- mined, and the computation of the tax be made, in the same manner as provided in subdivision (d) of this section. (g) In cases within the scope of subdivision (d), (e), or (f), if the Commissioner believes that the collection of the deficiency will be jeopardized by delay, he may, despite the provisions of subdivi- sion (a) of section 308 of this Act, instruct the collector to proceed to enforce the payment of the unpaid portion of the deficiency, and notice and demand shall be made by the collector for the payment thereof. Within 30 days after such jeopardy notice and demand the person liable for the tax may obtain a stay of collection of the whole or any part of the amount included In the notice and demand by filing with the collector a bond in like manner, under the same conditions, and with the same effect, as in the case of a bond to stay the collection of a jeopardy assessment under section 312 of this Act. (h) In cases within the scope of subdivision (b) or (e) of this section where any hearing before the Board has been held before the 90 enactment of this Act and tlie decision is rendered after the enact- ment of this Act, such decision shall, for the purposes of this title, be considered to have become final upon the date when it is rendered, and neither party shall have any right to petition for a review of the decision. The Commissioner may, within one year from the time the decision is rendered, begin a proceeding in court for the collection of any i)art of the amount disallowed by the lioard, unless the statu- tory period of limitations properly applicable thereto has expired before the appeal was taken to the Board. The court shall include in its judgment interest upon the amount thereof in the same cases, at the same rate, and for the same period, as if su<* amount were col- lected otherwise than by proceeding in court. In any such proceeding by the Commissioner or in any suit by the taxpayer for a refund, the findings of the Board shall be prima facie evidence of the facts therein stated. (i) Where before the enactment of this Act a jeopardy assessment has been made under subdivision (d) of section 308 of the Revenue Act of 1924 (whether of a deficiency in the tax imposed by Title III of such Act or of a deficiency in an estate tax imposed by any of the prior Acts enumerated in subdivision (a) of this section) all proceed- ings after the enactment of this Act shall be the same as tinder the Revenue Act of 192i as amended by this Act, except that — (1) A decision of the Board rendered after the enactment of this Act where no hearing has been held by the Board before the enactment of this Act may be reviewed in the same manner as provided in this Act in the case of a tax imposed by this title ; (2) Where no hearing has been held by the Board before the enact- ment of this Act, the Commissioner shall have no right to begin a pro- ceeding in court for the collection of any part of the defiidency disal- lowed by the Board ; and (3) In the cousideratiMi of the case the jurisdiction and powers of the Board shall be the same as provided in this Act in the case of a tax imposed by this title. (j) In the ease of any estate or gift tax imposed by prior Act of Congress, in computing the period of limitations provided in section 310 or 311 of this Act on the making of assessments and the beginning of distraint or a proceeding in court, the running at the statute of limitations shall be considered to have been suspended (in addition to the period of suspension provided for in subdivision (b) of section 310) for any period of time prior to the enactment of this: Act during which the Commissioner was prohibited from making the assessment or beginning distraint or proceeding in court. Sec. 606. Revenue Act of 1928. (a) Authorization. — The Commissioner (or any officer or employee of the Bureau of Internal Revenue, including the field service, author- ized in writing by the Commissioner) is authorized to enter into an agreement in writing with any person relating to the liability of such person (or of the person or estate for whom he acts) In respect of any internal-revenue tax for any taxable period ending prior to the date of the agreement. (h) Finality of agreement. — If such agreement is approved by the Secretary, or the Undersecretary, within such time as may be stated 91 in such agreement, or later agreed to, such agreement shall be final and conclusive, and, except upon a showing of fraud or malfeasance, or misrepresentation of a material fact — (1) the case shall not be reopened as to the matters agreed upon or the agreement modified, by any oflicer, employee, or agent of the United States, and (2) in any suit, action, or proceeding, such agreement, or any determination, assessment, collection, payment, abatement, refund, or credit made in accordance therewith, shall not be annulled, modified, set aside, or disregarded. (c) Section 1106(b) of the Revenue Act of 1926 is repealed, effective on the expiration of 30 days after the enactment of this Act, but such repeal shall not afEect any agreement made before such repeal takes effect. Art. 76. Deficiency, petitions, and closing agreements. — Section 307 by its definition of the word " deficiency " provides a term which will apply to any amount of tax determined to be due in excess of the amount of tax reported by the executor, or in excess of the amount reported by the executor as adjusted by way of prior assess- ments, abatements, refunds, or collections without assessment. In defining the term " deficiency " section 307 recognizes two classes of cases — one, in which the executor makes a return showing some tax liability ; the other, in which the executor makes a return showing no tax liability, or in which the executor fails to make a return. Addi- tional tax, resulting from supplemental information filed after the return has been filed, is a deficiency within the meaning of the Act. When a case is considered for the first time, the deficiency is the excess of the amount determined to be the correct amount of the tax over the amount shown as the tax by the executor on his return, or, if it is a case in which no tax was reported by the executor, the de- ficiency is the amount determined to be the correct amount of the tax. Subsequent information sometimes discloses that the amount previously determined to be the correct amount of the tax is less than the correct amount, and that a redetermination of the tax is necessary. In such a case the deficiency on redetermination is the excess of the amount determined to be the correct amount of the tax over the sum of the amount of tax reported by the executor and the deficiency assessed in connection with the previous determination. If it is a case in which no tax was reported by the executor, the defi- ciency is the excess of the amount determined to be the correct amount of the tax over the amount of the deficiency disclosed by the previous determination. If the previous determination resulted in a refund to the executor, the deficiency upon the second determi- nation is the excess of the amount determined to be the correct amount of the tax over the amount of tax reported by the executor decreased by the amount of the refund. 92 In all cases in which a deficiency in respect of a tax (including penalties or other additions to the tax provided by law) is determined by the Conunissioner, a notice thereof will be sent to the executor by registered mail in accordance with the provisions of section 308 (a) of the statute even though a jeopardy assessment (see article 77) is made. If, subsequent to the mailing of such notice, a jeopardy assessment is made in respect of the deficiency to which such notice relates no subsequent notice will be sent to the executor by the Commissioner, but if such jeopardy assessment is made, and the amount thereof is in excess of the deficiency to which the notice relates, the Commissioner will mail a notice to the executor as re- quired by section 308 (a) of the determination of such additional deficiency provided no petition has theretofore been filed with the Board of Tax Appeals. If a deficiency is determined in respect of both the tax imposed by the Revenue Act of 1926 and the addi- tional tax imposed by the Revenue Act of 1932, notice of both de- ficiencies may be incorporated in the same communication. Within 90 days (not counting Sunday or a legal holiday in the District of Columbia as the ninetieth day) after the mailing of the registered letter notifying him of the final determination of a deficiency by the Commissioner, the executor may file a petition with the Board of Tax Appeals for a redetermination of the de- ficiency, other than a deficiency resulting from the correction of a mathematical error appearing upon the return. If notice of the deficiency is mailed prior to, or within 30 days after, the enact- ment of the Revenue Act of 1934, the period within which a peti- tion may be filed with the Board is 60 days (not counting Sunday as the sixtieth day) after mailing of the notice. (See article 77.) The right to file a petition with the Board exists whether the decedent died prior or subsequent to the enactment of the Revenue Act of 1926. The executor and the Commissioner (or any officer or employee authorized by the Commissioner), subject to approval by the Secre- tary or the Under Secretary of the Treasury, may, under the pro- visions of section 606 of the Revenue Act of 1928, enter into a closing agreement in writing relating to the tax liability of the estate which will be final and conclusive except upon a showing of fraud or mal- feasance, or misrepresentation of a material fact. ASSESSMENT OF TAX Sec. 308. * * * (b) If the executor files a petition with the Board, the entire amount redetermined as the deficiency by the decision of the Board which has become final shall be assessed and shall be paid upon notice and demand from the collector. No part of the amount determined as a deficiency by the Commissioner but disallowed 93 as such by the dectsion of the Board. which has become final shall be assessed or be collected by distraint or by proceeding in court with or without assessment. (c) If the executor does not file a petition with the Board within the time prescribed in subdivision (a) of this section, the deficiency, notice of which has been mailed to the executor, shaU be assessed, and shall be paid upon notice and demand from the collector. (d) The executor shall at any time have the right, by a signed notice in writing filed with the Commissioner, to waive the restric- tions provided in subdivision (a) of this section on the assessment and collection of the whole or any part of the deficiency. (e) The Board shall have jurisdiction to redetermine the correct amount of the deficiency even if the amount so redetermined is greater than the amount of the deficiency, notice of which has been mailed to the executor, and to determine whether any additional amount or addition to the tax should be assessed, if claim therefor is asserted by the Commissioner at or before the hearing or a rehearing. (f) If after the enactment of this Act the Commissioner has mailed to the executor notice of a deficiency as provided in subdivision (a), and the executor flies a petition with the Board within the time pre- scribed in such subdivision, the Commissioner shall have no right to determine any additional deficiency, except in the case of fraud, and except as provided in subdivision (e) of this section or in subdivision (c) of section 312. If the executor is notified that, on account of a mathematical error appearing upon the face of the return, an amount of tax in excess of that shown upon the return is due, and that an assessment of the tax has been or will be made on the basis of what would have been the correct amount of tax but for the mathematical error, such notice shall not be considered, for the purposes of this sub- division or of subdivision (a) of this section, or of section 319, as a notice of a deficiency, and the executor shall have no right to file a peti- tion with the Board of Tax Appeals based on such notice, nor shall such assessment or collection be prohibited by the provisions of sub- division (a) of this section. (g) For the purposes of this title the date on which a decision of the Board becomes final shall be determined according to the provisions of section 1005. Sbo. 310. (a) Except as provided in section 311, the amount of the estate taxes imposed by this title shall be assessed within three years after the return was filed, and no proceeding in court without assess- ment for the collection of such taxes shall be begun after the expira- tion of three years after the return was filed. (b) The running of the statute of limitations provided in this section or in section 811 on the making of assessments and the beginning of distraint or a proceeding in court for collection, in respect of any deficiency, shall (after the mailing of a notice under subdivision (a) of section 308) be- suspended for the period during which the Commis- sioner is prohibited from making the assessment or beginning dis- traint or a proceeding in court, and for 60 days thereafter. Sec. 311. (a) In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time. 94 (b) Where the assessment of. any tax imposed by this title or of any estate or gift tax imposed by prior Act of Congress lias been made (whether before or after the enactment of this Act) within the statutory period of limitation properly applicable thereto, such tax may be collected by distraint or by a proceeding in court (begun before or after the enactment of this Act), but only if begun (1) within six years after the assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the Commissioner and the executor. (c) This section shall not bar a distraint or proceeding in court begun before the enactment of the Revenue Act of 1924; nor shall it authorize the assessment of a tax or the collection thereof by dis- traint or by proceeding in court (1) if at the time of the enactment of this Act such assessment, distraint, or proceeding was barred by the statutory period of limitation properly applicable thereto, unless prior to the enactment of this Act the Commissioner and the executor agreed in writing thereto, or (2) contrary to the provisions of subdivision (a) of section 308 of this Act. Sec. 312. (a) If the Commissioner believes that the assessment or collection of a deficiency will be jeopardized by delay, he shall imme- diately assess such deficiency (together with all interest, additional amounts, or additions to the tax provided for by law) and notice and demand shall be made by the collector for the payment thereof. (b) If the jeopardy assessment is made before any notice in respect of the tax to which the jeopardy assessment relates has been mailed under subdivision (a) of section 308, then the Commissioner shall mail a notice under such subdivision within 60 clays after the making of the assessment. (c) The jeopardy assessment may be made in respect of a defi- ciency greater or less than that notice of which has been mailed to the executor, despite the provisions of subdivision (f) of section 308 and whether or not the executor has theretofore filed a petition with the Board of Tax Appeals. The Commissioner shall notify the Board of the amount of such assessment, if the petition is filed with the Board before the making of the assessment or is subsequently filed, and the Board shall have jurisdiction to redetermine the entire amount of the deficiency and of all amounts assessed at the same time in connection therewith. (d) If the jeopardy assessment is made after the decision of the Board is rendered such assessment may be made only in respect of the deficiency determined by the Board in its decision. (e) A jeopardy assessment may not be made after the decision of the Board has become final or after the executor has filed a petition for review of the decision of the Board. (f ) When a jeopardy assessment has been made the executor, within 30 days after notice and demand from the collector for the payment of the amount of the assessment, may obtain a stay of collection of the whole or any part of the amount of the assessment by filing with the collector a bond in such amount, not exceeding double the amount as to which the stay is desired, and with such sureties, as the collector deems necessary, conditioned upon the payment of so much of the amount, the collection of which is stayed by the bond, as is not abated 95 by a decision of tlie Board which has become final, together with interest thereon as provided in subdivision (j) of this section. (g) If the bond is given before the executor has filed his petition with the Board under subdivision (a) of section 308, the bond shall contain a further condition that if a petition is not filed within the period provided in such subdivision, then the amount the collection of which is stayed by the bond will be paid on notice and demand at any time after the expiration of such period, together with interest thereon at the rate of 6 per centum per annum from the date of the jeopardy notice and demand to the date of notice and demand under this subdivision. ******* (i) When the petition has been filed with the Board and when the amount which should have been assessed has been determined by a decision of the Board which has become final, then any unpaid por- tion, the collection of which has been stayed by the bond, shall be collected as part of the tax upon notice and demand from the col- lector, and any remainin'g portion of the assessment shall be abated. If the amount already collected exceeds the amount determined as the amount which should have been assessed, such excess shall be refunded. If the amount determined as the amount which should have been assessed is greater than the amount actually assessed, then the difference shall be assessed and shall be collected as part of the tax upon notice and demand from the collector. Sec. 318. (a) If after the enactment of this Act the Commissioner determines that any assessment should be made in respect of any estate or gift tax imposed by the Revenue Act of 1917, the Revenue Act of 1918, the Revenue Act of 1921, or the Revenue Act of 1924, or by any such Act as amended, the Commissioner is authorized to send by registered mail to the person liable for such tax notice of the amount proposed to be assessed, which notice shall, for the purposes oi this Act, be considered a notice under subdivision (a) of section 308 of this Act. In the case of any such determination the amount which should be assessed (whether as deficiency or additional tax or as in- terest, penalty, or other addition to the tax) shall be computed as if this Act had not been enacted, but the amount so computed shall be assessed, collected, and paid in the same manner and subject to the same provisions and limitations (including the provisions in case of delinquency in payment after notice and demand and the provisions prohibiting claims and suits for refund) as in the case of a deficiency in the tax imposed by this title, except that in the case of an estate tax imposed by the Revenue Act of 1917, the Revenue Act of 1918, or the Revenue Act of 1921, or by any such Act as amended, the period of limitation prescribed in section 1109 of this Act shall be applied in lieu of the period prescribed in subdivision (a) of section 310. Sec. 1109 (as amended by section 619 (a). Revenue Act of 1928). (a) Except in the case of * * * estate, and gift taxes— (1) Notwithstanding the provisions of section 3182 of the Revised Statutes or any other provision of law, all internal-revenue taxes shall (except as provided in paragraph (2) or (3) of this subdivision) be assessed within four years after such taxes became due, and no pro- ceeding in court without assessment for the collection of such taxes 96 shall be begun after the expiration of five years after such taxes became due. (2) In case of a false or fraudulent return with intent to evade tax, of a failure to file a return within the time required by law, or of a willful attempt in any manner to defeat or evade tax, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time. (3) Where the assessment of any tax imposed by this Act or by prior Act of Congress has been made (whether before or after the enactment of this Act) within the statutory period of limitation prop- erly applicable thereto, such tax may be collected by distraint or by a proceeding in court (begun before or after the enactment of this Act), but only if begun (A) within six years after the assessment of the tax, or (B) prior to the expiration of any period for collection agreed upon in writing by the Commissioner and the taxpayer. (b) This section shall not bar a distraint or proceeding in court begun before the enactment of the Revenue Act of 1924 ; nor shall it authorize the assessment of a tax or the collection thereof by dis- traint or by proceeding in court if at the time of the enactment of this Act such assessment, distraint, or proceeding was barred by the statu- tory period of limitation properly applicable thereto, unless prior to the enactment of this Act the Commissioner and the taxpayer agreed in writing thereto. Sec. 402. Revenue Act of 1928. (a) Section 310 (b) of the Revenue Act of 1926 is amended to read as follows : "(b) The running of the statute of limitations provided in this section or in section 311 on the making of assessments and the begin- ning of distraint or a proceeding in court for collection, in respect of any deficiency, shall (after the mailing of a notice under subdivision (a) of section 308) be suspended for the period during which the Com- missioner is prohibited from making the assessment or beginning dis- traint or a proceeding in court (and in any event, if a proceeding in respect of the deficiency is placed on the docket of the Board, until the decision of the Board becomes final), and for 60 days thereafter." (b) Subsection (a) of this section shall apply in all cases where the period of limitation has not expired prior to the enactment of this Act. Sec. 403. Revenue Act of 1932. Except as provided in section 402, the tax imposed by section 401 of this Act shall be assessed, collected, and i)aid, in the same manner, and shall be subject to the same provisions of law (including i)en- alties), as the tax imposed by section 301 (a) of the Revenue Act of 1926, except that in the case of a resident decedent a return shall be required if the value of the gross estate at the time of the decedent's death exceeds $50,000. Sec. 808. Revenue Act of 1932. (a) Section 305 (b) of the Revenue Act of 1926 is amended to read as follows : "(b) Where the Commissioner finds that the payment on the due date of anj^ part of the amount determined by the executor as the tax would impose undue hardship upon the estate, the Commissioner may extend the time for payment of any such 97 part not to exceed eight years from the due date. In such case the amount In respect of which the extension is granted shall be paid on or before the date of the expiration of the period of the extension, and the running of the statute of limitations for assess- ment and collection, as provided in sections 310 (a) and 311 (b), shall be suspended for the period of any such extension. * * * " (b) Section 808 (i) of the BevenTie Act of 1926 is amended to read as follows : "(i) Where it is shown to the satisfaction of the Commissioner that the payment of a deficiency upon the date prescribed for the payment thereof will result in undue hardship to the estate, the Commissioner, with the approval of the Secretary (except where the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax), may grant an extension for the payment of such deficiency or any part thereof for a period not in excess of four years. If an exten- sion is granted, the Commissioner may require the executor to furnish a bond in such amount, not exceeding double the amount of the deficiency, and with such sureties as the Commissioner deems necessary, conditioned upon the payment of the deficiency in accordance with the terms of the extension. In such case the running of the statute of limitations for assessment and collec- tion, as provided in sections 310 (a) and 311 (b), shall be sus- pended for the period of any such extension, * * *." Art. 77. Assessments. — In any case in which the Commissioner be- lieves that the assessment or collection of a deficiency tax will be jeopardized by delay, he will make an immediate assessment thereof whether the decedent died before or after the passage of the Revenue Act of 1926. In such case the assessment may be made before the mailing of the notice provided by section 308 (a), or at any time thereafter prior to the filing of a petition for a review by the court of a decision rendered by the Board. If the jeopardy assess- ment is made subsequent to a decision of the Board, then the assess- ment is limited to the amount of the deficiency determined by the Board. If the jeopardy assessment is made before any notice in respect of the deficiency to which the jeopardy assessment relates has been mailed under subdivision (a) of section 308, the Com- missioner will mail a notice as provided by such subdivision within 60 days after the making of such jeopardy assessment. If an amount of tax in excess of that shown upon the return is determined to be due as a result of the correction of a mathematical error appearing upon the face of the return, the executor will be duly notified and an assessment made of the tax which would have been the correct tax but for the mathematical error. The notice that the correct amount of the tax has been assessed will not be a notice of a deficiency within the meaning of subdivision (a) of sec- tion 308 or section 319 and the executor has no right to file a petition with the Board of Tax Appeals based upon such notice. 98 If a petition is filed with the Board, the entire amount redeter- mined as the deficiency by the decision of the Board which has become final will be assessed, except such portion as may have been assessed as a jeopardy assessment. If no petition is filed with the Board within the time prescribed in section 308 (a), the deficiency, notice of which has been mailed to the executor, will be assessed. If the executor by a signed notice in writing filed with the Commissioner waives the restrictions on the assess- ment and collection of the whole or any part of a deficiency, assess- ment of such whole or part will be made immediately. (As to payment, see articles 78 to 85, inclusive.) All assessments against executors (as to assessments against trans- ferees and fiduciaries, see article 105), except in the case of a false or fraudulent return, or of a failure to file a return within the time required by law, must be made within three years after the return was filed (four years after the due date of the tax if the decedent died prior to the effective date of the Revenue Act of 1924). If notice of a deficiency is mailed in accordance with the provisions of subdivision (a) of section 308, then the period within which assess- ment thereof is required to be made is extended for the period during which the Commissioner is prohibited from making the assessment and for 60 days thereafter. If a proceeding in respect of the defi- ciency is placed on the docket of the Board, the period within which assessment is required to be made is extended until the decision of the Board becomes final and for 60 days thereafter. If an extension of time for payment of the tax is granted in accordance with sec- tion 305 (b) or section 308 (i) as amended by section 808 of the Revenue Act of 1932, the period within which assessment is required to be made is extended by the time covered by such extension. In case of a false or fraudulent return with intent to evade the tax, or of a failure to file a required return, the tax may be assessed, or proceedings in court for collection may be begun without assess- ment, at any time. PAYMENT OF AND RECEIPTS FOR TAXES Sbo. 305. (a) The tax imposed by this title shall be due and payable one year after the decedent's death, and shall be paid by the executor to the collector. * * * Sbo. 308. * * * (b) If the executor files a petition with the Board, the entire amount redetermined as the deficiency by the decision of the Board which has become final shall be assessed and shall be paid upon notice and demand from the collector. * * * (c) If the executor does not file a petition with the Board within the time prescribed in subdivision (a) of this section, the deficiency, notice of which has been mailed to the executor, shall be assessed, and shall be paid upon notice and demand from the collector. * * * 99 Sbx3. 313. (a) The collector shall grant to the person paying the tax duplicate receipts, either of which shall be sufficient evidence of such payment, and shall entitle the executor to be credited and allowed the amount thereof by any court having jurisdiction to audit or settle his accounts. * * * Sec. 1118. (a) Collectors may receive, * * * 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 rules and regulations as the Commissioner, with the approval of the Secretary, 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 to the same extent as if such check had not been tendered. Art. 78. Payment of tax; General. — The tax is due and must be paid within one year from the date of the decedent's death, unless an extension of time for payment thereof has been granted by the Commissioner. (See also article 9.) No discount will be allowed for payment in advance of the due date. The collector will grant to the person paying the tax duplicate receipts, either of which will be sufficient evidence of such payment and entitle the executor to be credited with the amount by any court having jurisdiction to audit or settle his accounts. Following an investigation of the return, the tax liability will be determined by the Commissioner. If the amount of tax shown on the return has been paid and exceeds the amount of tax as determined, a certificate of overassessment will be prepared and issued, regard- less of whether or not a claim for refund of such excess payment is filed unless refundment of such excess is barred by the statute of limitations, or such excess is otherwise not refundable, as in the case of a compromise (see article 101), a closing agreement (see arti- cle 76) conclusively fixing the amount of tax liability, or an estoppel. If the amount of tax as determined exceeds the amount of tax already paid but is less than the amount shown on the return, the executor will be notified of the amount of the unpaid tax and payment thereof should be made to the collector. If the audit of the return does not disclose a deficiency tax or overpayment the executor will be notified to that effect. If, as a result of the audit of the return, a deficiency in respect of the tax is finally determined and such de- ficiency is in whole or in part assessed (see article 77), the executor should pay the amount of the deficiency assessed upon notice and demand from the collector, except in the case a stay of the collection of a jeopardy assessment is obtained by the filing of a bond (see article 96), or an extension of time for payment is granted (see article 83). Until any tax determined by the Commissioner, 100 including any deficiency, is assessed, the executor should reserve a sufficient portion of the estate to satisfy any unpaid assessment. Art. 79. The executor shall pay the tax. — ^The statute provides that the executor shall pay the tax. This duty applies to the entire tax, regardless of the fact that the gross estate consists in part of prop- erty which will not come into his possession. If there is no duly qualified executor or administrator, all persons in actual or con- structive possession of any property of the decedent are liable for and required to pay the tax to the extent of the value of such prop- erty. (See also article 88. As to the personal liability of the exec- utor, see article 102.) Art. 80. Payment by check. — Collectors may accept uncertified checks in payment of the tax, provided such checks are collectible at par, that is, for the full amount, without any deduction for ex- change or other charges. The collector will stamp upon the face of each check before deposit thereof the words " This check is in pay- ment of an obligation to the United States and must be paid at par. No protest." This should be followed by his name and title. The day on which the check is received will be considered the date of payment so far as the taxpayer is concerned, unless the check is re- turned dishonored. If the bank on which a check is drawn should refuse to pay it at par, the check should be returned through the depositary bank. All expenses incident to the attempt to collect such a check and the return of it through the depositary bank must be paid by the drawer of the check to the bank on which it is drawn. (See section 3210 of the Revised Statutes, as amended, reenacted by section 1128 (b) of the Eevenue Act of 1926.) In the case a check has been returned un- collected by the depositary bank, the collector should proceed to col- lect the tax as though no check had been given, and the taxpayer will remain liable for payment of the tax and for all interest, legal penal- ties and additions, if any attach, to the same extent as though such check had not been tendered. A taxpayer who tenders a certified check in payment of the tax is not released from his obligation until the check has been paid. (See ch. 191 of the Act of March 2, 1911.) Treasury Department Circular No. 176, as amended, prescribes detailed regulations governing the deposit and collection of checks. Collectors are referred to paragraphs 13—16 and paragraph 26 thereof as to the deposit of taxpayers' checks and the handling of uncollected or lost items. Art. 81. Payment by bonds or notes. — Payment of the tax may be made with bonds or notes of the United States issued under the provisions of the First Liberty Loan Act and the Second Liberty Loan Act, as amended, bearing interest at a higher rate than 4 per 101 cent per annum, provided they were owned by the decedent con- tinuously for at least six months prior to the date of his death, and upon such date constituted a part of his estate. Such bonds and notes are receivable at par and interest accrued at the time of the payment. "When such bonds or notes are to be tendered in payment of the tax, a copy of Department Circular No. 225, as heretofore or hereafter amended or supplemented, should be procured and the requirements thereof carefully noted. EXTENSION OF TIME FOR PAYMENT OP TAX Sbo. 808. Revenue Act of 1932. (a) Section 305(b) of the Revenue Act of 1926 is amended to read as follov7s: "(b) Where the Commissioner finds that the payment on the due date of any part of the amount determined by the executor as the tax would impose undue hardship upon the estate, the Commissioner may extend the time for payment of any such part not to exceed eight years from the due date. In such case the amount in respect of which the extension is granted shall be paid on or before the date of the expira- tion of the period of the extension, and the running of the statute of limitations for assessment and collection, as provided in sections 310(a) and 311(b), shall be suspended for the period of any such extension. If an extension is granted, the Commissioner may require the executor to furnish a bond in such amount, not exceeding double the amount in respect of which the extension is granted, and with such sureties as the Commissioner deems necessary, conditioned upon the payment of the amount in respect of which the extension is granted in accord- ance with the terms of the extension." (b) Section 308(1) of the Revenue Act of 1926 is amended to read as follows: "(i) Where it is shown to the satisfaction of the Commissioner that the payment of a deficiency upon the date prescribed for the payment thereof will result in undue hardship to the estate, the Commissioner, with the approval of the Secretary (except where the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with Intent to evade tax), may grant an extension for the pay- ment of such deficiency or any part thereof for a period not in excess of four years. If an extension is granted, the Commissioner may require the executor to furnish a bond in such amount, not exceeding double the amount of the deficiency, and with such sureties as the Commissioner deems necessary, conditioned upon the payment of the deficiency in accordance with the terms of the extension. In such case the running of the statute of limitations for assessment and collection, as provided in sections 810(a) and 311(b), shall be suspended for the period of any such extension, and there shall be collected, as a part of the tax, interest on the part of the deficiency the time for payment of which is so extended, at the rate of 6 per centum per annum for the period of the extension, and no other interest shall be collected on such part of the deficiency for such period. If the part of the deficiency the time for payment of which is so extended is 102 not paid in accordance with the terms of the extension, there shall be collected, as a part of the tax, interest on such unpaid amount at the rate of 1 per centum a month for the period from the time fixed by the terms of the extension for its payment until it is paid, and no other interest shall be collected on such unpaid amount for such period." Sec. Sll. Revenue Act of 1932. (a) Section 3(^ of the Revenue Act of 1926 is amended by adding at the end thereof a new subdivision to read as follows: "(e) Where there is included in the value of the gross estate the value of a reversionary or remainder interest in property, the payment of the part of the tax imposed by this title attributable to such interest may, at the election of the executor, be postponed until six months after the termination of the precedent interest or interests in the property, and the amount the payment of which is so postponed shall then be payable, together with interest thereon at the rate of 4 per centum per annum from eighteen months after the date of the dece- dent's death until such amount Is paid. Tlie postponement of payment of such amount shall be under such regulations as the Commissioner with tiie approval of the Secretary may prescribe, and shall be upon condition that the executor, or any other person liable for the tax, shall furnish a bond in such an amount, and with such sureties, as the Com- missioner deems necessary, conditioned upon the payment within six months after the termination of such precedent interest or interests of the amount the payment of which is so postponed, together with interest thereon, as above provided. Such part of any estate, in- heritance, legacy, or succession taxes allowable as a credit against the tax imposed by this title as is attributable to such reversionary or remainder interest may be allowed as a credit against the tax attributable to such interest, subject to the percentage limitation con- tained in section 301(c), if such part is paid, and credit therefor claimed, at any time prior to the expiration of 60 days after the termination of the precedent interest or interests in the property." (b) The amendment to section 305 of the Revenue Act of 1926 made by subsection (a) of this section, shall not apply, in the case of estates of decedents dying prior to the date of the enactment of this Act, to that part of any payment of Federal estate taxes made prior to such date which is attributable to a reversionary or remainder interest in property. Art. 82. (a) Extension of time for payment of tax shown on retui'n. — In any case in which the Commissioner finds that payment, on the due date, of the tax shown on the return would impose undue hard- ship upon the estate, an extension or extensions of time will be granted for the payment of the tax for a period not to exceed in all eight years from the due date. Extensions of time for tax payment will be granted only in exceptional cases, and those in which it is evident that the payment of the tax on or before the due date would impose upon the estate undue hardship. What constitutes " undue hardship " depends upon the facts in the particular case. An application for an extension of time for the payment of the tax must be in writing and must contain, or be supported by, sufficient 103 information under oath from which the Commissioner may deter- mine whether undue hardship would result if the requested extension were refused. As a condition to the granting of such an extension the Commis- sioner may require that a penal bond be furnished in an amount not exceeding double the amount for which the extension is desired. If a bond is to be furnished it must be filed with the collector within 10 days after notification by the Commissioner that such bond is required, and shaU be conditioned upon the payment, in ac- cordance with the terms of the extension granted, of the tax involved, including any interest thereon, and shall be executed by a surety or sureties, and shall be subject to the approval of the Commissioner. In lieu of such surety or sureties the bond may be secured by deposit of Liberty bonds or other bonds or notes of the United States in a sum equal at their par value to the amount of such bond. No single extension for more than one year will be granted. Application for extension of time for payment should be filed with the collector, who will refer it to the Commissioner with suitable recommendations . An extension of time to pay the tax does not relieve the executor from the duty of filing the return on or before the date fixed by the regulations, nor will it operate to prevent the running of interest. (See articles 84 and 85.) An extension of time to pay the tax may extend the period within which taxes allowed as a credit by section 301 (c) are required to be paid and the credit therefor claimed. (See article 9.) The running of the statute of limitations for assess- ment and collection, as provided in sections 310 (a) and 311 (b) , is suspended for the period of the extension. (See articles 77 and 105.) All applications for extensions of time for payment of tax must be made before the due date of such tax. If the executor de- sires to obtain an additional extension, the application therefor must be filed with the collector on or before the date of the expira- tion of the previous extension. The granting of an extension of time for paying the tax is discre- tionary with the Commissioner and such authority will be exercised under such conditions as he may deem advisable. (b) Extension of time for payment of tax attributable to a reversionary or remainder interest. — In the case there is included in the value of the gross estate the value of a reversionary or remainder interest in property, the payment of the part of the tax attributable to such interest, except such part of such tax as was paid prior to the enact- ment of the Revenue Act of 1932, may, at the election of the executor, be postponed until six months after the termination of the precedent 182135°— 34 8 104 interest or interests in the property. This provision is limited to cases in which the reversionary or remainder interest is included in the decedent's gross estate as such and does not extend to cases in which the decedent creates future estates by his own testamentary act. Notice of the exercise of the election to postpone the payment of the tax attributable to a reversionary or remainder interest should be filed with the Commissioner before the date prescribed for payment of the tax. There should be filed with the notice of election a certi- fied copy of the will or other instrument under which the reversionary or remainder interest was created. The Commissioner may require the submission of such additional proof as is deemed necessary to disclose the complete facts. If the duration of the precedent interest is dependent upon the life of any person, the application must show the date of birth of such person. As a prerequisite to the postponement of the payment of the tax attributable to a reversionary or remainder interest, a bond must be furnished in such an amount (at least double the amount of the tax and interest for the estimated duration of the precedent interest), and with such sureties as the Commissioner deems necessary, con- ditioned upon the payment of the tax and interest accrued thereon within six months after the termination of the precedent interest. In case the duration of the precedent interest is dependent upon the life or lives of any person or persons, or is otherwise indefinite, the bond must be furtiier conditioned upon the principal or surety promptly notifying the Commissioner when such precedent interest terminates and upon the principal or surety notifying the Commis- sioner during the month of September of each year as to the con- tinuance of the precedent interest. If after the acceptance of a bond it is determined that the amount of the tax attributable to the rever- sionary or remainder interest was understated in the bond, a new bond or a supplemental bond may be required, or such tax to the extent of the understatement may be collected. If the decedent's gross estate consists of both a reversionary or remainder interest in property and other property the tax at- tributable to the reversionary or remainder interest within the meaning of section 811 of the Eevenue Act of 1932 and this article is an amount which bears the same ratio to the total tax which the value of the reversionary or remainder interest bears to the entire gross estate, subject to the following qualification: In determining the ratio the value of the reversionary or remainder interest should be reduced by (1) the amount of claims, mortgages, and indebted- ness which are a lien upon such interest; (2) losses in respect of such interest during the settlement of the estate which are deductible under the provisions of subdivisions (a) (1) and (b) (1) of sec- 105 tion 303; (3) any amount in respect of such interest identified as previously taxed property under the provisions of subdivisions (a) (2) and (b) (2) of section 303; (4) any amount deductible on ac- count of devises or bequests of such interests to charitable, etc., uses as described in subdivisions (a) (3) and (b) (3) of section 303. In determining the ratio, the gross estate should likewise be reduced by such deductions having similar relationship to items in the gross estate other than the remainder or reversionary interest. If the time for payment of the Federal estate tax attributa- ble to a reversionary or remainder interest in property is postponed, all estate, inheritance, legacy, or succession taxes allowable as a credit under the provisions of section 301 (c) of the Revenue Act of 1926, as amended, which are paid and for which credit is claimed within the period provided in such section, will be allowed not to exceed 80 per cent, respectively, of that portion of the Federal estate tax attributable to such interest and to that portion attributa- ble to the other property, and will be applied first to the respective portion of the Federal estate tax which is attributable to the same interests in property to which the estate, inheritance, legacy, or succession taxes are attributable. Estate, inheritance, legacy, or succession taxes, as described in section 301 (c) of the Eevenue Act of 1926, as amended, which are attributable to the reversionary or remainder interest and which are paid and for which credit is claimed after the expiration of the period provided in section 301 (c) will also be allowed as a credit against the Federal estate tax attributable to such interest (limited by the requirement that the total credit may not exceed 80 per cent of the total Federal estate tax) if such taxes are paid and credit therefor is claimed prior to the expiration of 60 days after the termination of the preceding interest or interests in the property. Example : The Federal estate tax attributable to the reversionary or remainder interest is $5,000, and that attributable to all other property is $10,000. The estate, inheritance, legacy, or succession taxes paid to the State within the 4-year period are $9,000, all attributable to property other than the reversionary or remainder interest. Of this $9,000, the maximum of $8,000 is credited against the Federal estate tax of $10,000 attributable to property other than the reversionary or remainder interest, and the balance of $1,000 is credited to the Federal estate tax attributable to the reversionary interest. Accordingly, the estate will be required to pay $2,000 (Federal estate tax of $10,000 attributable to property other than the reversionary or remainder interest, minus the credit of $8,000) at once, and an extension will be allowed for payment of $4,000 (Federal estate tax of $5,000 attributable to the reversionary inter- 106 est, minus credit of $1,000). After expiration of the 4-year period, but before expiration of 60 days after termination of the life estate or precedent interest, the estate pays additional State estate, interit- ance, legacy, or succession taxes of $5,000 attributable to the re- versionary or remainder interest. As the maximum credit is $12,000 (80 per cent of $15,000, the total Federal estate tax) and $9,000 has already been allowed, there will be an additional allowance of $3,000, and the estate will be required to pay $1,000 at the end of the extension period. If any estate, inheritance, legacy, or succession taxes are im- posed by any of the several States, Territories, or the District of Columbia upon a reversionary or a remainder interest in property and other property, without definitely apportioning the tax between such classes of property, for the purposes of this article the amount of such estate, inheritance, legacy, or succession taxes which will be deemed to be attributable to the reversionary or remainder interest will be an amount which bears the same ratio to the total of such taxes as the value of such property bears to the value of the decedent's entire estate upon which the estate, inheritance, legacy, or succes- sion tax was imposed. In determining the ratio, reduction will be made in the value of the reversionary or remainder interest and the value of the gross estate as previously provided in this article for determining the Federal estate tax attributable to the reversionary or remainder interest. If any part of the tax was paid prior to the enactment of the Eevenue Act of 1932, and the gross estate consists of both a reversionary or remainder interest and other property, the portion of the tax so paid attributable to the reversionary or remainder inter- est is an amount which bears the same ratio to the total tax so paid which the entire tax attributable to the remainder or reversion- ary interest, computed as provided in this article, bears to the total tax. The amount of tax the payment of which is postponed under the provisions of section 811 of the Revenue Act of 1932 bears interest at the rate of 4 per cent per annum from 18 months after the date of the decedent's death until such amount is paid. (See article 84 (b).) Art. 83. Extension of time for payment of deficiency tax. — sin any case in which the Commissioner finds that payment of the deficiency tax upon the date prescribed for the payment thereof would impose undue hardship upon the estate, an extension or extensions of time will be granted for payment, with the approval of the Secretary, for a period not to exceed in all four years from the date prescribed for 107 the payment of the deficiency. Extension of time for such payment will be granted only in exceptional cases and those in which it is evident that payment on or before the date prescribed for payment of the deficiency would impose undue hardship. This provision ap- plies to all estates, regardless of the date of the decedent's death. What constitutes " undue hardship " depends upon the facts in the particular case. No extension will be granted where the deficiency is due to negligence or intentional disregard of the rules and regula- tions, or to fraud with intent to evade the tax. Any application for an extension of time for the payment of a deficiency must be in writing and must contain, or be supported by, information under oath showing wherein undue hardship would result if the extension were refused. As a condition to the granting of such an extension the Commis- sioner may require that a penal bond be furnished in an amount not exceeding double the amount of the deficiency. If a bond is to be furnished it must be filed with the collector within 10 days after notification by the Commissioner that such bond is required, and shall be conditioned upon the payment of the deficiency in accordance with the terms of the extension granted, including in- terest upon the deficiency, as prescribed by the statute (see article 85), until the deficiency is paid, and shall be executed by a surety or sureties and shall be subject to the approval of the Commissioner. In lieu of such surety or sureties the bond may be secured by deposit of Liberty bonds or other bonds or notes of the United States in a sum equal at their par value to the amount of such bond. No single extension for more than one year will be granted. Application for extension of time for payment should be filed with the collector. The collector will refer the application to the Commissioner with suitable recommendations. Application for extension of time for payment of a deficiency must be made on or before the date prescribed for payment thereof, as shown by the notice and demand from the collector. If the executor desires to obtain an additional extension, the application therefor must be filed with the collector on or before the date of the expiration of the previous extension. An extension of time to pay the deficiency will not operate to pre- vent the running of interest. (See article 85.) An extension of time to pay the deficiency may extend the period within which taxes al- lowed as a credit by section 301 (c) are required to be paid and the credit therefor claimed. (See article 9.) The running of the statute of limitations for assessment and collection, as provided in sections 310 (a) and 311 (b), is suspended for the period of the extension. 108 (See articles 77 and 105.) No extension of time for paying a de- ficiency will be granted until after the assessment thereof and notice and demand for payment has been made by the collector. The granting of an extension of time for paying the deficiency is discretionary with the Commissioner and the Secretary, and such authority will be exercised under such conditions as may be deemed advisable. INTEREST ON TAX Sec. 309. (a) (1) Where the amount determined by the executor as the tax imx)osed by this title, or any part of such amount, is not paid on the due date of the tax, there shall be collected as a part of the tax, interest upon such unpaid amount at the rate of 1 per centum a month from the due date until it is paid. (2) Where an extension of time for payment of the amount so determined as the tax by the executor has been granted, and the amount the time for iJayment of which has been extended, and the interest thereon determined under subdivision (c) of section 305, is not paid in full prior to the expiration of the period of the exten- sion, then, in lieu of the interest provided for in paragraph (1) of this subdivision, interest at the rate of 1 per centum a month shall be collected on such unpaid amount from the date of the expiration of the period of the extension until it is paid. Sec. 305. * * * (c) If the time for the payment is thus extended there shall be collected, as a part of such amount, interest thereon at the rate of 6 per centum per annum from the expiration of six months after the due date of the tax to the expiration of the period of the extension. Seo. 308. * * * (h) Interest upon the amount determined as a deficiency shall be assessed at the same time as the deficiency, shall be paid upon notice and demand from the collector, and shall be col- lected as a part of the tax, at the rate of 6 per centum per annum from the due date of the tax to the date the deficiency is assessed, or, in the case of a waiver under subdivision (d) of this section, to the thirtieth day after the filing of such waiver or to the date the deficiency is assessed whichever is the earlier. (i) * * * the Commissioner * * * jj^^y grant an extension for the payment of such deficiency or any part thereof * * *. In such case there shall be collected, as a part of the tax, interest on the part of the deficiency the time for payment of which is so extended, at the rate of 6 per centum per annum for the period of the extension, and no other interest shall be collected on such part of the deficiency for such period. If the part of the deficiency the time for payment of which is so extended is not paid in accordance with the terms of the extension, there shall be collected, as a part of the tax, interest on such unpaid amount at the rate of 1 per centum a month for the period from the time fixed by the terms of the extension for its pay- ment until it is paid, and no other interest shall be collected on such unpaid amount for such period. (j) The 50 per centum addition to the tax provided by section 3176 of the Kevised Statutes, as amended, shall, when assessed after the enactment of this Act in connection with an estate tax, be assessed. 109 collected, and paid in the same manner as if it were a deficiency, except that the provisions of subdivision (h) of this section shall not be applicable. SEa 309. * * * (b) Where a deficiency, or any interest assessed in connection therevfith under subdivision (h) of section 308, or any addition to the tax provided for in section 3176 of the Revised Statutes, as amended, is not paid in full within 30 days from the date of notice and demand from the collector, there shall be collected as part of the tax, interest upon the unpaid amount at the rate of 1 i)er centum a month from the date of such notice and demand until it is paid. (c) If a bond is filed, as provided In section 312, the provisions of subdivision (b) of this section shall not apply to the amount covered by the bond. Seo. 312. * * * (f) -RTiien a jeopardy assessment has been made the executor, within 30 days after notice and demand from the collector for the payment of the amount of the assessment, may obtain a stay of collection of the whole or any part of the amount of the assessment by filing with the collector a bond in such amount, not exceeding double the amount as to which the stay is desired, and with such sureties, as the collector deems necessary, conditioned upon the pay- ment of so much of the amount, the collection of which is stayed by the bond, as is not abated by a decision of the Board which has become final, together with interest thereon as provided in subdivision (j) of this section. (g) If the bond is given before the executor has filed his petition with the Board under subdivision (a) of section 308, the bond shall contain a further condition that if a petition is not filed within the period provided in such subdivision, then the amount the collection of which is stayed by the bond will be paid on notice and demand at any time after the expiration of such period, together with interest thereon at the rate of 6 per centum per annum from the date of the jeopardy notice and demand to the date of notice and demand under this subdivision. (i) When the petition has been filed with the Board and when the amount which should have been assessed has been determined by a decision of the Board which has become final, then any unpaid por- tion, the collection of which has been stayed by the bond, shall be collected as part of the tax upon notice and demand from the col- lector, and any remaining portion of the assessment shall be abated. If the amount already collected exceeds the amount determined as the amount which should have been assessed, such excess shall be refunded. If the amount determined as the amount which should have been assessed is greater than the amount actually assessed, then the difference shall be assessed and shall be collected as part, of the tax upon notice and demand from the collector. (j) In the case of the amount collected under subdivision (i) there shall be collected at the same time as such amount, and as a part of the tax, interest at the rate of 6 per centum per annum upon such amount from the date of the jeopardy notice and demand to the date of notice and demand under subdivision (i) of this section, or, in the case of the amount collected in excess of the amount of the jeopardy assessment, interest as provided in subdivision (h) of section 308. If the amount included in the notice and demand from 110 the collector under subdivision (i) of this section is not paid in full within 30 days after such notice and demand, then there shall be collected, as part of the tax, interest upon the unpaid amount at the rate of 1 per centum a month from the date of such notice and demand until it is paid. Sec. 811. Kevenue Act of 1932. (a) Section 305 of the Kevenue Act of 1926 is amended by adding at the end thereof a new subdivision to read as follows : "(e) Where there is Included in the value of the gross estate the value of a reversionary or remainder Interest in property, the pay- ment of the part of the tax imposed by this title attributable to such interest may, at the election of the executor, be postponed until six months after the termination of the precedent interest or interests in the property, and the amount the payment of which is so postponed shall then be payable, together with interest thereon at the rate of 4 per centum per annum from eighteen months after the date of the decedent's death until such amount is paid. * * *" Art. 84. (a) Interest on tax disclosed on return. — ^If any por- tion of the tax indicated by the return is not paid on or before the due date, and no extension of time for payment thereof has been granted, such unpaid portion bears interest at the rate of 1 per cent a month from the due date until payment is received by the collector. If, hovrever, an extension of time has been granted for paying any portion of the tax shown upon the return, the statute requires the imposition of interest upon the amount, the time for payment of which has been extended, at the rate of 6 per cent per annum from the expiration of six months after the due date of the tax (one year after the date of the decedent's death) to the expiration of the period of the extension. If the amount of tax, the time for payment of which has been extended, and the interest thereon from six months after the due date of the tax, are not paid in full prior to the expira- tion of the extension, or extensions, granted by the Commissioner, interest accrues upon the total unpaid amount (tax and interest), at the rate of 1 per cent a month from the date of the expiration of the extension, or extensions, until payment is received by the col- lector. For an example of computation of interest at 1 per cent a month, see article 85. In any case in which an extension of time is granted for paying the tax, interest will be added to the amount, the time for payment of which has been extended, from six months after the due date until the expiration of the period of extension, or extensions. (b) Interest on tax attributable to a reversionary or remainder in- terest. — If the time for the payment of the tax attributable to a reversionary or remainder interest is postponed in accordance with the provisions of section 811 of the Eevenue Act of 1932, the amount the payment of which is so postponed will bear interest at the rate Ill of 4 per cent per annum from 18 months after the date of the decedent's death until such amoimt is paid. Aet. 85. Interest on deficiency tax. — The statute provides that the deficiency shall bear interest at the rate of 6 per cent per annum from the due date for payment of the tax (one year after date of decedent's death) to the date the deficiency is assessed, except in the case of a waiver of the restrictions against the assessment and collection of the deficiency, and that such interest shall be assessed at the same time as the deficiency of which it becomes an integral part. The deficiency in respect to which the restrictions against the assessment and collection are waived under section 308 (d) bears interest at the rate of 6 per cent per annum from the due date of the tax to the thirtieth day after the filing of such waiver or to the date the deficiency is assessed whichever is the earlier. The term " deficiency " includes any tax resulting from the correction of a mathematical error appearing upon the face of a return. (See second paragraph of article 77.) Such portion of the deficiency assessed, except a deficiency with respect to which a jeopardy assessment is made and a petition to the Board is filed, as is not paid within 30 days from the date of notice and demand by the collector, bears interest at the rate of 1 per cent a month from the date of such notice and demand until payment is received by the collector unless, however, an extension for the payment thereof has been granted. If an extension of time for paying the deficiency, or any portion thereof, has been granted the statute requires the imposition of interest upon the amount, the time for payment of which has been extended, at the rate of 6 per cent per annum for the period of the extension, and if not paid on or before the expiration of the extension or exten- sions interest accrues upon the total unpaid amount (tax, interest, or additions thereto) at the rate of 1 per cent a month from the date of the expiration of the extension until payment is received by the collector. In any case in which an extension of time is granted for paying the deficiency, interest will be added to the amount, the time for pay- ment of which has been extended, for the period of the extension, or extensions. Example: A deficiency in the tax amounting to $500 was deter- mined and assessment thereof made on the 15th day of July, the due date of the tax being March 15 preceding. The amount of the assessment in this instance is $500, plus interest thereon at 6 per cent per annimi from and including March 16 to and including July 15, amounting to $10.03, computed upon the basis of 365 days to the year (or 366 days in a leap year), or a total assessment of 112 $510.03, which thereupon becomes the amount of the deficiency. The date of the notice and demand by the collector for payment was August 1 following the assessment. Within 30 days thereafter $255.02 was paid and request was made for an extension of time for paying the balance of the deficiency ($255.01), and an extension from August 1 to and including February 1 was granted for the payment thereof. This amount bears interest at 6 per cent per annum for the period of the extension, amounting to $7.59. The remaining liability is, therefore, $262.60. The amount of liability in this instance was not paid until August 1 following the expiration of the extension. Inas- much as the $255.01, the time for payment of which was extended, was not paid until after the expiration of the extension, interest accrued thereon at the rate of 1 per cent a month for six months, amounting to $15.30. (The term " month " means calendar month; i. e., a period terminating with the day of the succeeding month numerically cor- responding to the day preceding the begiiming of the period. If there is no such corresponding day of the succeeding month, the last day of such succeeding month is the last day of the period. If interest at the rate of 1 per cent a month is to be computed for a period of one or more months and a fraction of a month, it should be computed for the number of whole months, and then for the fraction of a month upon the basis of the number of days in the month which includes such fraction. Thus, for example, the elapsed period from February 14 to March 13, both dates included, is one month, and the period from February 14 to March 11, both dates included, is twenty-six twenty-eighths of a month, except that if the year be a leap year the period is twenty-seven twenty-ninths of a month.) The amount due on August 1 was, therefore, $277.90 ($255.01-1-7.59+15.30). Any addition to the tax resulting from the imposition of an ad valorem penalty under the provisions of section 3176, Revised Stat- utes, is subject to the same provisions of law relating to the assess- ment, collection, and the accrual of interest, as the deficiency tax, except that such addition to the tax is not subject to any interest between the due date for payment of the tax (one year after date of decedent's death) and the date of the assessment thereof. If a stay of the collection of a jeopardy assessment of a de- ficiency tax, or any addition to the tax resulting from the imposition of an ad valorem penalty, is obtained and a petition for a redeter- mination of the deficiency is filed with the Board of Tax Appeals, interest accrues on such unpaid portion of the deficiency or penalty, if any, determined by a decision of the Board which is made final, at the rate of 6 per cent per annum from the date of the notice and demand from the collector following the jeopardy assessment to the 113 date of the notice and demand by the collector subsequent to the final action taken on the petition filed with the Board. If the amount which the Board determines should have been assessed is not paid in full within 30 days after such notice and demand subsequent to the decision of the Board which has become final, interest accrues upon the unpaid amount at the rate of 1 per cent a month from the date of such notice and demand until it is paid. If the amount (exclusive of any ad valorem penalty) determined by the Board as the amount which should have been assessed is greater than the amount actually assessed the difference bears interest at the rate of 6 per cent per annum from the due date of the tax until assessment of such difference. If the collection of the jeopardy assessment is stayed, and no petition is filed with the Board for a redetermina- tion of the deficiency, interest accrues upon the deficiency so assessed at the rate of 6 per cent per annum from the date of the jeopardy notice and demand to the date of the notice and demand made by the collector after the expiration of the 60 days from the mailing by the Commissioner of the notice of the deficiency, and if not paid within 30 days after such second notice and demand by the collector interest accrues at the rate of 1 per cent a month from the date of such second notice and demand until paid. COLLECTION OF TAX Sec. 314. (a) If the tax herein imposed is not paid on or before the due date thereof the collector shall, upon instruction from the Com- missioner, proceed to collect the tax under the provisions of general law, or commence appropriate proceedings in any court of the United States having jurisdiction, in the name of the United States, to sub- ject the property of the decedent to he sold under the judgment or decree of the court. From the proceeds of such sale the amount of the tax, together with the costs and expenses of every description to be allowed by the court, shall be first paid, and the balance shall be deposited according to the order of the court, to be paid under its direc- tion to the person entitled thereto. This subdivision in so far as it applies to the collection of a deficiency shall be subject to the provi- sions of section 308. Art. 86. Remedy not exclusive. — The remedy by action, here pro- vided, is not exclusive. For other available remedies for the col- lection of the tax, see article 105. REIMBURSEMENT Sec. 314. * * * (b) If the tax or any part thereof is paid by, or collected out of that part of the estate passing to or in the possession of, any person other than the executor in his capacity as such, such person shall be entitled to reimbursement out of any part of the estate still undistributed or by a just and equitable contribution by the persons whose interest in the estate of the decedent would have been 114 reduced if the tax had been paid before the distribution of the estate or whose interest is subject to equal or prior liability for the pay- ment of taxes, debts, or other charges against the estate, it being the purpose and intent of this title that so far as is practicable and unless otherwise directed by the wiU of the decedent the tax shall be paid out of the estate before its distribution. If any part of the gross estate consists of proceeds of policies of insurance upon the life of the decedent receivable by a beneficiary other than the executor, the executor shall be entitled to recover from such beneficiary such por- tion of the total tax paid as the proceeds, in excess of $40,000, of such policies bear to the net estate. If there is more than one such bene- ficiary the executor shaU be entitled to recover from such beneficiaries in the same ratio. Art. 87. Right to reimbursement not enforceable by Commissioner. — If any portion of the tax is paid by or collected out of that part of the estate passing to, or in the possession of, any person other than the duly qualified executor or administrator, such person may be entitled to reimbursement, either out of the undistributed estate or by contribution from other beneficiaries whose shares or interests in the estate would have been reduced had the tax been paid before distribution of the estate, or whose shares or interests are sub- ject either to an equal or prior liability for the payment of taxes, debts, or other charges against the estate. The executor is entitled to require beneficiaries under insurance policies to bear their propor- tion of the tax. These provisions, however, are not designed to curtail the right of the Commissioner to collect the tax from any person, or out of any property, liable therefor. The Commissioner can not be required to apportion the tax among the persons liable, nor to enforce any right to reimbursement or contribution. LIEN Seo. 315 (as amended by section 613 (b) of the Revenue Act of 1928, and as further amended by section 803 (c) and section 809 of the Revenue Act of 1932). (a) Unless the tax is sooner paid in full, it shall be a lien for ten years upon the gross estate of the decedent, except that such part of the gross estate as is used for the payment of charges against the estate and expenses of its administration, allowed by any court having jurisdiction thereof, shall be divested of such lien. If the Commis- sioner is satisfied that the tax liability of an estate has been fully discharged or provided for, he may, under regulations prescribed by him with the approval of the Secretary, issue his certificate, releasing any or all property of such estate from the lien herein imposed. (b) If (1) except in the case of a bona fide sale for an adequate and full consideration in money or money's worth, the decedent makes a transfer, by trust or otherwise, of any property in contem- plation of or intended to take effect in possession or enjoyment at or after his death, or makes a transfer, by trust or otherwise, under 115 which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death (A) the possession or enjoyment of, or the right to the income from, the property, or (B) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom, or (2) if in- surance passes under a contract executed by the decedent in favor of a specific beneficiary, and if in either case the tax in respect thereto is not paid when due, then the transferee, trustee, or beneficiary shall be personally liable for such tax, and such property, to the extent of the decedent's interest therein at the time of such transfer, or to the extent of such beneficiary's interest under such contract of insur- ance, shall be subject to a like lien equal to the amount of such tax. Any part of such property sold by such transferee or trustee to a bona fide purchaser for an adequate and full consideration in money or money's worth shall be divested of the lien and a like lien shall then attach to all the property of such transferee or trustee, except any part sold to a bona fide purchaser for an adequate and full consideration in money or money's worth. Sec. 313. * * * (b) If the executor makes written application to the Commissioner for determination of the amount of the tax and discharge from personal liability therefor, the Commissioner (as soon as possible, and in any event within one year after the making of such application, or, if the application is made before the return is filed, then within one year after the return is filed, but not after the expiration of the period prescribed for the assessment of the tax in section 310) shall notify the executor of the amount of the tax. The executor, upon payment of the amount of which he is notified, shall be discharged from personal liability for any deficiency in tax there- after found to be due and shall be entitled to a receipt or writing showing such discharge. (c) The provisions of subdivision (b) shall not operate as a release of any part of the gross estate from the lien for any deficiency that may thereafter be determined to be due, unless the title to such part of the gross e.state has passed to a bona fide purchaser for value, in which case such part shall not be subject to a lien or to any claim or demand for any such deficiency, but the lien shall attach to the con- sideration received from such purchaser by the heirs, legatees, devisees, or distributees. Art. 88. Property snbject to lien. — ^The lien imposed by section 315 of the Revenue Act of 1926 attaches at the date of the decedent's death to every part of the gross estate, whether or not the property comes into the possession of the duly qualified executor or admin- istrator. It attaches to the extent of the tax shown to be due by the return and of any deficiency tax found to be due upon review and audit. The lien upon the entire property constituting the gross estate continues for a period of 10 years after the decedent's death, except — (1) If the tax is paid in full before the expiration of such period. 116 (2) Such portion of the gross estate as is used for the payment of charges against the estate and expenses of its administration allowed by any court having jurisdiction thereof. (3) Such portion of the gross estate as has passed to a bona fide purchaser for value after payment of the full amount of tax deter- mined by the Commissioner pursuant to a request of the executor for discharge from personal liability, as authorized by section 313 (b) and (c) (see article 67) , but there is substituted a like lien upon the consideration received from such purchaser by the heirs, Itegatees, devisees, or distributees. (4) Such property as was received from the decedent as a transfer by trust or otherwise in contemplation of or intended to take effect in possession or enjoyment at or after his death, or under which he has retained for his life or for any period not ascertainable without ref- erence to his death or for any period which does not in fact end before his death (A) the possession or enjoyment of, or the right to the income from, the property, or (B) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom (except in case the transfer was a bona fide sale for an adequate and full consid- eration in money or money's worth), and was sold by the trans- feree to a bona fide purchaser for such a consideration. In such case the lien attaches to all the property of the transferee except such thereof as may be sold to a bona fide purchaser for such a consid- eration. (5) If a certificate releasing such lien is issued. (See article 89.) Art. 89. Eelease of lien. — ^The statute provides that if the Com- missioner is satisfied that the tax liability of an estate has been fully discharged or provided for, he may issue his certificate releasing any or all property of the estate from the lien. The issuance of certifi- cates releasing such lien is a matter resting within the discretion of the Commissioner, and certificates will be issued only in case there is actual need therefor. The primary purpose of such release is not to evidence payment or satisfaction of the tax, but to permit the transfer of property free from the lien in case it is necessary to clear title. Eeceipts for payment of the tax are issued by the collector. If the tax liability has been fully discharged a certificate may be issued releasing the lien as to any or all property of the estate. If the tax liability has not been fully discharged, no general re- lease of all property of the estate will be granted but certificates releasing the lien upon particular items of property may be issued by the Commissioner who may require as a prerequisite, in such an amount as he may designate, a partial payment of tax or the furnish- ing of an indemnity bond with such surety or sureties as he deems 117 necessary. In lieu of such surety or sureties the indsmnity bond may be secured by deposit of Liberty bonds or other bonds or notes of the United States in a sum equal at their par value to the amount of such bond. The tax will be considered fully discharged only when investigation has been completed and payment of the tax, including any deficiency finally determined, has been made. The application for a release should be filed with the Commis- sioner and should explain the circumstances that require the release, fully describe the particular items for which the release is desired, and show the applicant'^s relationship to the estate, such as executor, heir, devisee, legatee, beneficiary, transferee, or purchaser. If the return, Form 706, has not been filed, an afiidavit may be required showing the value of the property to be released, the basis for such valuation, the approximate value of the gross estate, the approximate value of the total real property included in the gross estate, and in case the property is to be sold or transferred, the name and address of the purchaser or transferee and the consideration to be received. PENALTIES Sec. 320. (a) Whoever knowiugly makes any false statement in any notice or return required to be filed under this title shall be liable to a penalty of not exceeding $5,000, or imprisonment not exceeding one year, or both. (b) Whoever fails to comply with any duty imposed upon him by section 304, or, having in his possession or control any record, file, or paper, containing or supposed to contain any information concerning the estate of the decedent, or, having in his possession or control any property comprised in the gross estate of the decedent, fails to exhibit the same upon request to the Commissioner or any collector or law officer of the United States or his duly authorized deputy or agent, who desires to examine the same in the performance of his duties under this title, shall be liable to a penalty of not exceeding $500, to be recovered, with costs of suit, in a civil action in the name of the United States. Sec. 1114. (a) Any person required under this Act to pay any tax, or required by law or regulations made under authority thereof to make a return, keep any records, or supply any information, for the purposes of the computation, assessment, or collection of any tax imposed by this Act, who willfully fails to pay such tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other pen- alties provided by law, be guilty of a misdemeanor and, upon convic- tion thereof, be fined not more than $10,000, or imprisoned for not more than one year, or both, together with the costs of prosecution. (b) Any person required under this Act to collect, account for and pay over any tax imposed by this Act, who willfully fails to collect or truthfully account for and pay over such tax, and any person who willfully attempts in any manner to evade or defeat any tax imposed by this Act or the payment thereof, shall, in addition to other pen- 118 alties provided by law, be guilty of a felony and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution. (c) Aay person who willfully aids or assists in, or procures, coun- sels, or advises, the preparation or presentation under, or in connec- tion with any matter arising under, the internal-revenue laws, of a false or fraudulent return, afiidavit, claim, or document, shall (whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document) be guilty of a felony and, upon conviction thereof, be fined not more than $10,000, or Imprisoned for not more than five years, or both, together with the costs of prosecution. '^ ill i^ * * * * (e) Any person in possession of property, or rights to property, subject to distraint, upon which a levy has been made, shall, upon demand by the collector or deputy collector making such levy, sur- render such property or rights to such collector or deputy, unless such property or right is, at the time of such demand, subject to an attachment or execution under any judicial process. Any person who fails or refuses to so surrender any of such property or rights shall be liable in his own person and estate to the United States in a sum equal to the value of the property or rights not so surrendered, but not exceeding the amount of the taxes (including penalties and inter- est) for the collection of which such levy has been made, together with costs and interest from the date of such levy. (f) The term "person" as used in this section includes an officer or employee of a corporation or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs. Sbo. 1103. Section 3176 of the Revised Statutes, as amended, is amended to read as follows : " Sec. 3176 * * * in case of any failure to make and file a return or list within the time prescribed by law, or prescribed by the Commissioner of Internal Revenue or the collector in pursuance of law, the Commissioner 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 reason- able cause and not to willful neglect, no such addition shall be made to the tax. In case a false or fraudulent return or list is willfully made, the Commissioner shall add to the tax 50 per centum of its amount. " The amount so added to any tax shall be collected at the same time and in the same manner and as a 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. 616. Revenue Act of 1928. Any person who, in connection with any compromise under section 3229 of the Revised Statutes, as amended, or offer of such compromise, or in connection with any closing agreement under section 606 of this Act, or offer to enter into any such agreement, willfully (1) conceals from any officer or employee of the United States any property be- longing to the estate of a taxpayer or other person liable in respect of the tax, or (2) receives, destroys, mutilates, or falsifies any book, 119 document, or record, or makes under oath any false statement, relating to the estate or financial condition of the taxpayer or other person liable in respect of the tax, shall, upon conviction thereof, be fined not more than $10,000 or imprisoned for not more than one year, or both. Sec. 403. Revenue Act of 1932. Except as provided in section 402, the tax imposed by section 401 of this Act shall be assessed, collected, and paid, in the same manner, and shall be subject to the same provisions of law (including penal- ties), as the tax imposed by section 301 (a) of the Revenue Act of 1926, except that in the case of a resident decedent a return shall be required if the value of the gross estate at the time of the decedent's death exceeds $50,000. Aet. 90. Nature of penalties. — Two kinds of penalties are provided for delinquency with respect to the duties imposed by the statute: (1) A specific penalty, to be recovered by suit, unless previously paid or adjusted by the acceptance of an offer in compromise; and (2) A penalty of a certain percentage of the tax, to be added to and collected in the same manner as the tax. In any case in which more than one penalty is provided the Gov- ernment may assert any one or more thereof. Aet. 91. Peiialties for false or fraudulent notice or return. — In the case any statement in the notice or return is knowingly false, the person making it is subject to a penalty not exceeding $5,000, or imprison- ment for not exceeding one year, or both, and for a false or fraudu- lent return, 50 per cent will be added to the amount of the tax. Any person required to file any notice or make a return who willfully fails to do so at the time required shall be guilty of a misdemeanor and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than one year, or both, together with the costs of prosecution. Any person who willfully aids or assists in the preparation or presentation of a false or fraudulent notice or return, or procures, counsels, or advises the preparation or presentation of such a notice or return, whether such falsity or fraud is with or without the knowledge or consent of the person required to make the notice or return, will be guilty of a felony and, upon conviction thereof, fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution. Art. 92. Penalty for failure to file notice or return. — For failure to file the notice or return within the time prescribed, the person in default is subject to a penalty not exceeding $500; and, for failure to file the return within the time prescribed, 25 per cent will be added to the amount of the tax, except that if a return is filed after such time and it is shown that the failure so to file was due to 182135° — 34 9 120 a reasonable cause and not to willful neglect no such addition will be made to the tax. The ad valorem penalty of 25 per cent of the tax will not be asserted if an extension of time for filing the return was granted by the collector pursuant to the provisions of article 68, and the return is actually filed within the period of extension granted. Art. 93. Penalty for failure to pay tax, exhibit property, keep or exhibit records, etc., and for concealment of assets. — Any person in pos- session or control of any record, file, or paper, containing or supposed to contain information relating to the estate, or having in his posses- sion or control property comprised in the gross estate of the decedent, who fails to exhibit the same upon the request of the Commissioner or any collector or law officer of the United States, or his duly authorized deputy or agent, in the performance of his duties, or having knowledge or information of any fact or facts of a material bearing upon the liability, or the extent of liability, of the estate to the tax, who fails to make disclosure thereof upon request of the Commissioner or any revenue agent or inspector designated by him for that purpose, is liable to a penalty not to exceed $500, to be recovered by civil action. Such a request must be granted whether or not he believes that a compliance therewith is material. Any person required to pay the tax, keep any records, or supply any information, for the purpose of the computation, assessment, or collection of the tax, who willfully fails to pay such tax, keep such records, or supply such information, as required by the law or regulations, shall, in addition to other penalties, be guilty of a mis- demeanor and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than one year, or both, together with the costs of prosecution. Any person who willfully attempts in any manner to evade or defeat the tax or the payment thereof, shall, in addition to other penalties, be guilty of a felony and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution. Any person who in connection with any compromise entered into or offer made under the provisions of section 3229 of the Kevised Statutes as amended, or, who in connection with any closing agree- ment under section 606 of the Revenue Act of 1928, or the offer to enter into any such agreement, willfully conceals from any officer or employee of the United States any property belonging to the estate, or any person liable in respect of the tax, or receives, destroys, mutilates, or falsifies any book, document, or record, or makes under oath any false statement, relating to the estate or its value or the 121 financial condition of any person liable in respect of the tax, shall, upon conviction thereof, be fined not more than $10,000, or impris- oned for not more than one year, or both. Art. 94. Penalty for assisting, procuring, or advising the preparation or presentation of false or fraudulent documents. — Any person who AvillfuUy aids or assists in, or procures, counsels, or advises, the prep- aration or presentation under, or in connection with any matter arising under, the internal revenue laws, of a false or fraudulent affidavit, claim, or document, shall, whether or not such falsity or fraud is with the knowledge or consent of the person, authorized or required to present such affidavit, claim, or document, be guilty of a felony, and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution. ABATEMENT AND STAY OF COLLECTION OF JEOPARDY ASSESSMENT Sec. 312. * * * (f) When a jeopardy assessment has been made the executor, within 30 days after notice and demand from the collector for the payment of the amount of the assessment, may obtain a stay of collection of the whole or any part of the amount of the assessment by filing with the collector a bond in such amount, not exceeding double the amount as to which the stay is desired, and with such sureties, as the collector deems necessary, conditioned upon the pay-, ment of so much of the amount, the collection of which is stayed by the bond, as is not abated by a decision of the Board which has become final, together with interest thereon as provided in subdivision (j) of this section. (g) If the bond is given before the executor has filed his petition with the Board under subdivision (a) of section 308, the bond shall contain a further condition that if a petition is not filed within the period provided in such subdivision, then the amount the collection of which is stayed by the bond will be paid on notice and demand at any time after the expiration of such period, together with interest thereon at the rate of 6 per centum per annum from the date of the jeopardy notice and demand to the date of notice and demand under this subdivision. (h) Upon the filing of the bond the collection of so much of the amount assessed as is covered by the bond shall be stayed. The exec- utor shall have the right to waive such stay at any time in respect of the whole or any part of the amount covered by the bond, and if as a result of such waiver any part of the amount covered by the bond is paid, then the bond shall, at the request of the executor, be propor- tionately reduced. If the Board determines that the amount assessed is greater than the amount which should have been assessed, then when the decision of the Board is rendered the bond shall, at the request of the executor, be proportionately reduced. (i) When the petition has been filed with the Board and when the amount which should have been assessed has been determined by a de- 122 cision of the Board which has become final, then any unpaid portion, the collection of which has been stayed by the bond, shall be collected as part of the tax upon notice and demand from the collector, and any remaining jwrtion of the assessment shall be abated. If the amount already collected exceeds the amount determined as the amount which should have been assessed, such excess shall be refunded. If the amount determined as the amount which should have been assessed is greater than the amount actually assessed, then the difference shall be assessed and shall be collected as part of the tax upon notice and demand from the collector. * * * (k) No claim in abatement shall be filed in respect of any assess- ment made' after the enactment of this Act in respect of any estate * * * tax. Akt. 95. Claim for abatement. — No claim for abatement may be filed in respect of any assessment made after the effective date of the Kevenue Act of 1926. The amount of any assessment directed to be abated by the statute as the result of a decision of the Board of Tax Appeals which has become final and all overassessments deter- mined as a result of audit or examination of returns will be abated by the Commissioner without action on the part of the executor. Art. 96. Collection of jeopardy assessment stayed by filing bond. — If a jeopardy assessment has been made, the executor, within 30 days after notice and demand from the collector for payment of the amount of the jeopardy assessment may obtain a stay of collec- tion of the whole, or any part, of the amount of such assessment by filing with the collector a bond in such amount not exceeding double the amount as to which the stay is desired, and with such sureties as the collector deems necessary, conditioned upon the payment of so much of the amount, the collection of which is stayed by the bond, as is not abated as a result of a decision of the Board which has become final, together with the interest thereon, as provided in the statute. (See article 85.) In lieu of such sureties there may be de- posited Liberty bonds or other bonds and notes of the United States in a sum equal at their par value to the amount of such bond. The petition with the Board of Tax Appeals for redetermination of the deficiency in respect to which the jeopardy assessment was made must be filed within 90 days (not counting Sunday or a legal holi- day in the District of Columbia as the ninetieth day) after the mailing by the Commissioner of the notice of the final determina- tion of the deficiency. (See article 76.) If the bond is given be- fore the petition is filed with the Board, the bond shall contain a further condition that if a petition is not filed within the 90 days, then the amount, the collection of which is stayed by the bond, shall be paid on notice and demand at any time after the expiration of such 90-day period, together with interest thereon at the rate of 6 per 123 cent per annum from the date of the jeopardy notice and demand made by the collector to the date of notice and demand made after the expiration of the 90-day period. Akt. 97. Accrual of interest as affected by the stay of the collection of a jeopardy assessment. — For rules relating to the accrual of interest where the collection of a jeopardy assessment is stayed by the filing of a bond, see article 85. Aet. 98. limitation of time to file bond to stay collection of jeopardy assessment. — ^If it is desired to stay the collection of the whole, or any part, of the amount in respect to which a jeopardy assessment has been made, the bond referred to in article 96 must be filed with the collector within 30 days after notice and demand by the collector for the payment of the amount of the jeopardy assessment. REFUNDS Sec. 319. (a) If the Commissioner has mailed to the executor a notice of deficiency under subdivision (a) of section 308 and if the executor after the enactment of this Aet files a petition with the Board of Tax Appeals within the time prescribed in such subdivision, no refund in respect of the tax shall be allowed or made and no suit for the recovery of any part of such tax shall be instituted in any court, except — (1) As provided in subdivision (c) of this section or in subdivi- sion (i) of section 312 or in subdivision (b), (e), or (g) of section 318 or in subdivision (d) of section 1001 ; and (2) As to any amount collected in excess of an amount computed in accordance with the decision of the Board which has become final ; and (3) As to any amount collected after the statutory period of limi- tations upon the beginning of distraint or a proceeding in court for collection has expired ; but in any such claim for refund or in any such suit for refund the decision of the Board which has become final, as to whether such period had expired before the notice of deficiency was mailed, shall be conclusive. (b) All claims for the refunding of the tax imposed by this title alleged to have been erroneously or illegally assessed or collected must be presented to the Commissioner within three years next after the payment of such tax. (c) If the Board finds that there is no deficiency and further finds that the executor has made an overpayment of tax, the Board shall have jurisdiction to determine the amount of such overpay- ment, and such amount shall, when the decision of the Board has become final, be credited or refunded to the executor as provided in section 3220 of the Revised Statutes, as amended. Such refund shall be made either (1) if claim therefor was filed within the period of limitation provided for by law, or (2) if the petition was filed with the Board within four years after the tax was paid, or, in the case of a tax imposed by this title, within three years after the tax was paid. 124 Sec. 810. Revenue Act of 1932. (a) Section 319(b) of the Revenue Act of 1926 is amended to read as follows : "(b) All claims for the refunding of the tax Imposed by this title alleged to have been erroneously or illegally assessed or collected must be presented to the Commissioner within three years next after the payment of such tax. The amount of the refund shall not exceed the portion of the tax paid during the three years immediately preceding the filing of the claim, or if no claim was filed, then during the three years immediately preceding the allowance of the refund." (b) The last sentence of section 319(e) of the Revenue Act of 1926 is amended to read as follows: " No such refund shall be made of any portion of the tax paid more than four years (or. in the case of a tax imposed by this title, more than three years) before the filing of the claim or the filing of the petition, whichever is earlier." (c) Title III of the Revenue Act of 1924 is amended by Inserting after section 318 a new section to read as follows : " Seo. 318%. The amount of any refund of the tax imposed by Part I of this title shall not exceed the portion of the tax paid during the four years immediately preceding the filing of the claim, or if no claim was filed, then during the four years immediately preceding the allowance of the refund." (d) Section 319(b) of the Revenue Act of 1926, as amended by this Act, and section 318% of the Revenue Act o"f 1924, as added by this Act, shall not bar from allowance a claim for refund filed prior to the enactment of this Act which but for such enactment would have been allowable. Sec. 504. Revenue Act of 1934. * * * (d) The last sentence of section 319(c) of the Revenue Act of 1926, as amended, is amended to read as follows : " No such refund shall be made of any jwrtion of the tax unless the Board determines as part of its decision that it was paid within four years (or in the case of a tax imposed by this title, within three years) before the filing of the claim or the filing of the petition, whichever is earlier." (e) The amendments made by subsections (a), (b), (c), and (d) of this section shall have no effect in the case of any proceeding before the Board on a petition if any hearing by the Board thereon has been held prior to 30 days after the date of the enactment of this Act. Seo. 325. Any tax that has been paid under the provisions of Title III of the Revenue Act of 1924 prior to the enactment of this Act in excess of the tax imposed by such title a^ amended by this Act shall be refunded without interest. Sec. 1106. * * * (b) If after a determination and assessment in any case the tax- payer has paid in whole any tax or penalty, or accepted any abate- ment, credit, or 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 Secretary, that such deter- mination and assessment shall be final and conclusive, then (except upon a showing of fraud or malfeasance or misrepresentation of fact materially affecting the determination or assessment thus made) (1) 125 the case shall not be reopened or the determination and assessment modified by any officer, employee, or agent of the United States, and (2) no suit, action, or proceeding to annul, modify, or set aside such determination or assessment shall be entertained by any court of the United States. Sec. 606. Revenue Act of 1928. (a) Authorization. — The Commissioner (or any officer or employee of the Bureau of Internal Revenue, including the field service, author- ized in writing by the Commissioner) is authorized to enter Into an agreement in writing with any person relating to the liability of such person (or of the person or estate for whom he acts) in respect of any internal-revenue tax for any taxable period ending prior to the date of the agreement. (b) Finality of agreements. — If such agreement is approved by the Secretary, or the Undersecretary, within such time as may be stated In such agreement, or later agreed to, such agreement shall be final and conclusive, and except upon a showing of fraud or malfeasance, or misrepresentation of a material fact — ■ (1) the case shall not be reopened as to the matters agreed upon or the agreement modified, by any officer, employee, or agent of the United States, and (2) in any suit, action, or proceeding, such agreement, or any deter- mination, assessment, collection, payment, abatement, refund, or credit made in accordance therewith, shall not be annulled, modified, set aside, or disregarded. (e) Section 1106(b) of the Revenue Act of 1926 is repealed, effective on the expiration of 30 days after the enactment of this Act, but such repeal shall not affect any agreement made before such repeal takes efeect. Revised Statutes, section 3220 (as amended by section 3, Act of May 29, 1928, Public, No. 611 — 70th Congress). The Commissioner of Inter- nal Revenue, subject to regulations prescribed by the Secretary of the Treasury, is authorized to remit, refund, and pay back all taxes errone- ously 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 repay to any collector or deputy collector the full amount of such sums of money as may be recovered against him in any court, for any internal-revenue taxes collected by him, with the cost and expense of suit ; also all dam- ages and cost recovered against any assessor, assistant assessor, col- lector, 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, by internal-revenue districts and alphabetically arranged, of all refunds in excess of $500, at the beginning of each regular session of Congress of all transactions under this section. Revised Statutes, section 3228 (as amended by section 619 (c), Revenue Act of 1928 [U. S. C, Sup. VII, title 26, section 1433]). (a) All claims for the refunding or crediting of any internal-revenue 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 wrong- 126 fully collected must, except as otherwise provided by law in the case of income, war-profits, excess-profits, estate, and gift taxes, be pre- sented to the Commissioner of Internal Revenue within four years next after the payment of such tax, penalty, or sum. (b) Except as provided in section 284 of the Revenue Act of 1926, claims for credit or refund (other than claims in respect of taxes imposed by the Revenue Act of 1916, the Revenue Act of 1917, or the Revenue Act of 1918) which at the time of the enactment of the Reve- nue Act of 1921 were barred from allowance by the period of limitation then in existence, shall not be allowed. Sec. 607. Revenue Act of 1928. Any tax (or any interest, penalty, additional amount, or addition to such tax) assessed or paid (whether before or after the enactment of this Act) after the expiration of the period of limitation properly applicable thereto shall be considered an overpayment and shall be credited or refunded to the taxpayer if claim therefor is filed within the period of limitation for filing such claim. Sec. 608. Revenue Act of 1928. A refund of any portion of an internal-revenue tax (or any interest, penalty, additional amount, or addition to such tax) made after the enactment of this Act, shall be considered erroneous — (a) if made after the expiration of the period of limitation for filing claim therefor, unless within such period claim was filed; or (b) in the case of a claim filed within the proper time and disallowed by the Commissioner after the enactment of this Act, if the refund was made after the expiration of the period of limitation for filing suit, unless — (1) within such period suit was begun by the taxpayer, or (2) within such period, the taxpayer and the Commissioner agreed in writing to suspend the running of the statute of limita- tions for filing suit from the date of the agreement to the date of final decision in one or more named cases then pending before the United States Board of Tax Appeals or the courts. Sec. 503. Revenue Act of 1934. Section 608(b) (2) of the Revenue Act of 1928 is amended by add- ing at the end thereof a new. sentence to read as follows : " If such agreement has been entered into, the running of such statute of limitations shall be suspended in accordance with the terms of the agreement." Sec. 610. Revenue Act of 1928. (a) Any portion of an internal-revenue tax (or an.v interest, penalty, additional amount, or addition to such tax) refund of which is erro- neously made, within the meaning of section 608, after the enactment of this Act, may be recovered by suit brought in the name of the United States, but only if such suit is begun within two years after the making of such refund. (b) Any portion of an internal-revenue tax (or any interest, penalty, additional amount, or addition to such tax) which has been erroneously refunded (if such refund would not be considered as erroneous under section 608) may be recovered by suit brought in the name of the United States, but only if such suit is begun before the expiration of two years after the making of such refund or before May 1, 1928, whichever date is later. 127 Sem. 502. Revenue Act of 1934. (a) Section 610 of the Revenue Act of 1928 is amended by adding at the end thereof a new subsection to read as follows : "(c) Despite the provisions of subsections (a) and (b) such suit may be brought at any time within five years from the making of the refund if it appears that any part of the refund was induced by fraud or the misrepresentation of a material fact." (b) The amendment made by subsection (a) of this section shall not apply to any suit which was barred on the date of the enactment of this Act. Sec. 611. Revenue Act of 1928. If any internal-revenue tax (or any interest, penalty, additional amount, or addition to such tax) was, within the period of limitation properly applicable thereto, assessed prior to June 2, 1924, and if a claim in abatement was filed, with or without bond, and if the collec- tion of atoy part thereof was stayed, then the payment of such part (made before or within one year after the enactment of this Act) shall not be considered as an overpayment under the provisions of section 607^, relating to payments made after the expiration of the peri«d of limitation on assessment and collection. Sec. 612. Revenue Act of 1928. Section 1106 (a) of the Revenue Act of 1926 is repealed as of February 26, 1926. Seo. 1103. Revenue Act of 1932. (a) Section 3226 of the Revised Statutes, as amended, is amended to read as follows : " Sb». 3226. No suit or proceeding shall be maintained in any court for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected until a claim for refund or credit has been duly filed with the Commissioner of Internal Revenue, according to the provisions of law in that regard, and the regulations of the Secretary of the Treasury established in pursuance thereof; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. No such suit or proceeding shall be begun before the expiration of six months from the date of filing such claim unless the Commissioner renders a decision t'hereon within that time, nor after the expiration of two years from the date of mailing by registered mail by the Commissioner to the taxpayer of a notice of the disallow- ance of the part of the claim to which such suit or proceeding relates." (b) Suits or proceedings instituted before the date of the enactment of this Act shall not be affected by the amendment made by subsection (a) of this section to section 3226 of the Revised Statutes. In the case of suits or proceedings instituted on or after the date of the enact- ment of this Act where the part of the claim to which such suit or proceeding relates was disallowed before the date of the enactment of this Act, the statute of limitations shall be the same as provided by such section 3226 before its amendment by subsection (a) of this section. 128 Seo. 1104. Revenue Act of 1932. Where the Commissioner has (before or after the enactment of this Act) signed a schedule of overassessments in respect of any internal revenue tax imposed by this Act or any prior revenue Act, the date on which he first signed such schedule (if after May 28, 1928) shall be considered as the date of allowance of refund or credit in respect of such tax. Akt. 99. Claim for refund. — A claim for refund of estate tax, or for refund of interest or penalties, erroneously or illegally collected should be made on the form prescribed by the Treasury Department (Form 843) , and should be filed with the collector of internal revenue, although a claim will not be considered defective solely by reason of the fact that it is not made on the form or that it is filed with the Commissioner of Internal Revenue. The claim must set forth in detail and under oath each ground upon which a refund is claimed, and facts sufficient to apprise the Commissioner of the exact basis thereof. Any claim which does not comply with the requirements of the preceding sentence will not be considered for any purpose as a claim for refund. Claims for the refund of estate tax imposed by the Eevenue Act of 1926 and the additional estate tax imposed by the Revenue Act of 1932, or the Revenue Act of 1932 as amended by the Revenue Act of 1934, must be filed within three years next after the payment of the amount sought to be refunded. If, however, the tax was imposed by the estate tax title of any of the Acts prior to the Reve- nue Act of 1926 the period within which the claim must be filed is four years after payment of the tax. Any tax imposed by Title III of the Revenue Act of 1924 which was paid prior to the enact- ment of the Revenue Act of 1926 in excess of the amount of tax im- posed by the Revenue Act of 1924 as amended by the Revenue of 1926 is not deemed to have been erroneously or illegally collected and hence a claim for the refund of such excess is not subject to the 4-year limitation set out in the next preceding sentence. Furthermore, the 4-year limitation of time within which claims for refund must be filed does not apply in a case in which a refund is sought under the provisions of the last paragraphs of sections 401 and 403 of the Revenue Act of 1921. The amount of the refund shall not exceed the portion of the tax paid during the three or four year period, as the case may be, im- mediately preceding the filing of the claim, or the filing of the petition with the Board of Tax Appeals. Upon receipt of any claim for refund, other than a claim for refund of an overpay- ment determined in accordance with, a decision of the Board of Tax Appeals which has become final, the return of the estate will be reaudited and only the excess payment determined by the Com- 129 missioner as a result of consideration of the claim and reaudit will be refunded. If the reaudit reveals that the tax has been underpaid, the amount of such underpayment will be collected unless the col- lection thereof is barred. If a petition was filed with the Board of Tax Appeals for the redetermination of a deficiency, as provided by section 308, and the Board finds that the executor has made an overpayment of the tax, and further determines as part of its decision that any por- tion of the overpayment was made within three years (or, within four years, in a case of a tax imposed by an Act prior to the Reve- nue Act of 1926) before the filing of the claim or the filing of the petition, whichever is earlier, the amount of such portion of the overpayment will be refunded. The portion of the overpayment made within such period will be refunded, even though the Board has not determined as part of its decision that the overpayment was so made, if a hearing upon the petition was held by the Board prior to the expiration of 30 days after the date of the enactment of the Revenue Act of 1934. Save in the case of a claim for refund of an overpayment com- puted in accordance with a decision of the Board of Tax Appeals which has become final, the burden of proof rests upon the claimant and all facts relied upon in support of the claim must be clearly set forth under oath. Every affidavit, argument, brief, or statement of facts, prepared or filed by an attorney or agent as argument or evi- dence in the matter of a protest, must have therein a statement signed by such attorney or agent showing whether or not he prepared such document and whether or not the attorney or agent knows of his own knowledge that the facts contained therein are true. In the case there is a hearing, should the executor not appear in person, his repre- sentative who appears must present a properly executed power of attorney and be enrolled to practice before the Treasury Depart- ment. (See article 74.) With all claims there should be submitted : (1) If the claim is made by an executor or administrator, a certificate of the court must be furnished showing that the appoint- ment remains in full force and effect. (2) If the executor or administrator has been discharged and no 'administrator de bonis non has been appointed and qualified, there should be submitted, in lieu of the certificate above mentioned, (a) a certified copy of the court order granting the discharge, and (b) a certified copy of the order of distribution, or, if such order does not fully disclose the identity of the person or persons entitled to receive any amount that may be refunded and the percentage or proportion thereof to which each, if more than one, is entitled, there should be submitted a certified copy of the decedent's will, if any, and such 130 further proof as may be requisite to establish both the identity of such person or persons and the percentage or proportion of the amount sought to be refunded to which each, in the case there are more than one, is entitled. If upon audit of the return filed by the executor the Commissioner determines that an overassessment has been made on account of the tax, a certificate of overassessment will be prepared and issued, even though claim for refund of such excess payment has not been filed, except as provided in article 76. The certificate of overassessment, issued if no claim for refund has been filed, will be addressed to the executor and the documentary evidence, as set out above, identifying the person or persons entitled to receive the refund will be required. A refund is erroneous if made after the enactment of the Revenue Act of 1928, when made after the expiration of the period of limita- tion for filing claim therefor, unless within such period claim was filed. In the case a claim was filed within the proper time and such claim was disallowed by the Commissioner after the enact- ment of the Revenue Act of 1928, and the period of limitation for filing suit by the executor had expired prior to the making of the refund, a refund based upon such claim is erroneous unless suit was begun by the executor within the period of limitation for filing suit, or unless within such period the executor and the Commissioner agreed in writing to suspend the running of the statute of limitations for filing suit from the date of the agreement to the date of final de- cision of one or more named cases then pending before the Board of Tax Appeals or the courts. Erroneous refunds, as above described, may be recovered by suit brought in the name of the United States within two years after the making of such refunds. An erroneous refund, though not considered as erroneous under section 608 of the Revenue Act of 1928, may be recovered in the same manner if the suit is begun within two years after the making of such refund or before May 1, 1928, whichever date is later. Erroneous refunds, whether erroneous under the provisions of section 608 of the Reve- nue Act of 1928 or otherwise, may be recovered by suit brought within five years of the making of the refund if it appears that any part of the refund was induced by fraud or misrepresentation of a material fact and suit for recovery was not barred on the date of the enactment of the Revenue Act of 1934. A claim for the payment of a judgment rendered against a col- lector of internal revenue representing Federal estate tax, penalties, or other sums collected in connection therewith should be made on Form 843 and filed with the Commissioner of Internal Revenue, 131 Washington, D. G. The claimant should state the names of all par- ties to the action, the date of its commencement, the date of the judgment, the court in which it was recovered, its amount, and the fact that the action related to Federal estate tax or interest or penal- ties in connection therewith. To the claim there should be annexed two certified copies of the final judgment, a certificate of probable cause (see section 989 of the Revised Statutes [IT. S. C, title 28, sec. 842]) and, if refund is claimed, an itemized bill of the costs paid, receipted by the clerk or other proper officer of the court. A claim for the payment of a judgment rendered against the United States representing Federal estate tax, penalties, or other sums collected in connection therewith should be made on Form 843 in the manner prescribed in the preceding paragraph, except that — (a) a certificate of probable cause is not required, (b) the claims shall be executed in duplicate, and (c) in the case of a judgment rendered by the Court of Claims there may be submitted, in place of a certified copy of the final judg- ment, a certificate of the judgment issued by the clerk of the court and two copies of the court's opinion, if any was rendered. INTEREST ON REFUNDS Sec. 614. Revenue Act of 1928. [Amended by section 319, Public, No. 212— 72d Congress, and section 2 of Title II, Public, No. 325— 72d Congress. Section 614, Revenue Act of 1928, restored as originally enacted, by section 14, Public, No. 428 — 72d Congress.] (a) Interest sbaU be allowed and paid upon any overpayment in respect of any internal-revenue tax, at the rate of 6 per centum per annum, as follows : Hi # * * * * * (2) In the case of a refund, from the date of the overpayment to a date preceding the date of the refund check by not more than 30 days, such date to be determined by the Commissioner. ******* (c) Section 1116 of the Revenue Act of 1926 is repealed. (d) Subsections (a), (b), and (c) shall take effect on the expiration of 30 days after the enactment of this Act, and shall be applicable to any credit taken or refund paid after the expiration of such period, even though allowed prior thereto. Sec. 802. Revenue Act of 1932. (a) Section 301 (b) of the Revenue Act of 192© is amended to read as follows : «»/^\ * * * "(2) * * * Refund based on the credit may (despite the provisions of section 319) be made if claim therefor is filed within the period above pro- vided. Any such refund shall be made without interest, except that where the overpayment was made prior to the enactment of the Reve- 132 nue Act of 1932, then interest shall be allowed and paid on the amount refunded at the rate of 6 per centum per annum from the date of the overpayment to the date of such enactment." Art. 100. Payment of claims and interest. — Under the law warrants in payment of claims allowed can only be drawn payable to the per- son or persons entitled to the proceeds, and consequently can not be drawn payable to attorneys or agents. If the claimants are indebted to the United States for taxes, such taxes must be paid before the warrants are delivered. (U. S. C, Sup. VII, title 31, sec. 227.) Upon the allowance of the claim for refund of any tax or penalty paid, unless the refund results from the allowance of a credit for payment of estate, inheritance, legacy, or succession taxes, the statute provides for the payment of interest upon the total amount of such refund at the rate of 6 per cent per annum from the date such tax or penalty was paid to a date preceding the date of the refund check by not more than 30 days, such date to be determined by the Commissioner. If a refund is based upon the credit for payment of estate, inheritance, legacy, or succession taxes allowed by subdivision (b) of section 301, as amended by section 802 of the Revenue Act of 1932 (see article 9), the refund will be made without interest unless the overpayment was made prior to the enactment of the Revenue Act of 1932, in which case interest will be paid upon the amount of such overpayment at the rate of 6 per cent per annum from the date of payment to the date of the enactment of such Act. POWER TO COMPROMISE OR REMIT PENALTIES Revised Statutes, section 3229 (Comp. Sts., 1916, sec. 5952) [U. S. C, Sup. VII, title 26, sec. 1661]. 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 office of the Commissioner the opinion of the Solicitor of Internal Revenue, or of the officer acting as such, with his reasons therefor, with a statement of the amount of tax assessed, the amount of addi- tional tax or penalty imposed by law in consequence 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. Art. 101. Compromise of taxes and penalties. — Offers in compromise should be filed with the appropriate collector of internal revenue. No offer in compromise of tax, interest, and ad valorem penalty col- lectible as part of the tax will be accepted unless there is a substan- tial doubt as to either liability or collectibility. (The functions pre- scribed for the " Solicitor of Internal Revenue " by section 3229 of 133 the Revised Statutes are now exercised by the "Assistant General Counsel for the Bureau of Internal Revenue." See section 1201 (a) of the Revenue Act of 1926 and section 512 of the Revenue Act of 1934.) PERSONAL LIABILITY OF EXECUTOR Sec. 518. Revenue Act of 1934. (a) Section 3467 of the Revised Statutes (U. S. C, title 31, ch. 6, sec. 192) is amended to read as follows: " Seo. 8467. Every executor, administrator, or assignee, or other person, who pays, in whole or in part,, any debt due hy the person or estate for whom or for which he acts before he satisfies and pays the debts due to the United States from such person or estate, shall become answerable in his own person and estate to the extent of such payments for the debts so due to the United States, or for so much thereof as may remain due and unpaid." (b) The amendment made by subsection (a) shall be applicable in the case of payments made after June 6, 1932. Art. 102. Extent of liability. — If the executor, before paying all the estate tax, pays, in whole or in part, any debt due by the decedent or the decedent's estate, or distributee any portion of the estate, he is personally liable, to the extent of such payment or distribution, for so much of the estate tax as remains due and unpaid. The term executor includes every person in actual or construc- tive possession of any property of the decedent if there is no appointed, qualified, and acting personal representative within the United States. For provisions of the statute and regulations pre- scribing conditions authorizing release of the executor from hjs personal liability for payment of the tax, see section 313 (b) and article 67. EXAMINATION OF RECORDS AND TAKING OF TESTIMONY Sec. 1104 (as amended by section 618, Revenue Act of 1928). The Commissioner, for the purpose of ascertaining the correctness of any re- turn or for the purpose of making a return where none has been made, is hereby authorized, by any officer or employee of the Bureau of Internal Revenue, including the field service, designated by him for that pur- pose, 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 reference to the matter required by law to be included in such return, with power to administer oaths to such person or jwrsons. SEO. 1122. (a) If any person is summoned under this Act to appear, to testify, or to produce books, papers, or other data, the dis- trict court of the United States for the district in which such person resides shall have jurisdiction by appropriate process to compel such attendance, testimony, or production of books, papers, or other data. 134 (b) The district courts of the United States at the instance of the United States are hereby invested 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 repubUca, orders appointing receivers, and such other orders and process, and to render such judgments and decrees, 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 addi- tion to and not exclusive of any and all other remedies of the United States in such courts or otherwise to enforce such provisions. Sec. 507. Kevenue Act of 1934. The Commissioner, for the purpose of determining the liability at law or in equity of a transferee of the property of any person with respect to any Federal taxes imposed upon such person, is hereby authorized, by any officer or employee of the Bureau of Internal Keve- nue, including the field service, designated by him for that purpose, to examine any books, papers, records, or memoranda bearing upon such liability, and may require the attendance of the transferor or transferee, or of any officer or employee of such person, or the at- tendance of any other person having knowledge in the premises, and may take his testimony with reference to the matter, with power to administer oaths to such person or persons. Art. 103. Securing evidence — Taking testimony. — In order to ascer- tain the correctness of a return, or to make a return if none has been made, the Commissioner has power to require the attend- ance, and to take the testimony, of the person rendering the return, or any officer or employee of such person, or any other person having knowledge in the premises. Such persons may be required to pro- duce any relevant book, paper, or other record. The Commissioner also is authorized, for the purpose of determining the liability at law or jn equity of a transferee of the property of any person with respect to any Federal taxes imposed upon such person, to exam- ine any books, papers, records, or memoranda bearing upon such liability and may require the attendance of the transferor or trans- feree, or any officer or employee of such person and take his testi- mony with reference to the matter. The Commissioner has the authority to administer oaths to the persons required to testify. The power and authority herein described may be exercised by any officer or employee of the Bureau of Internal Revenue, including the field force designated by the Commissioner for that purpose. (For penalties, see article 93.) Art. 104. Power to compel compliance. — If any person is sum- moned to a^ppear and testify, or to produce books, papers, or other data, the District Court of -the United States for the district in which such person resides has power to compel the giving of the testimony, the production of the books, papers, or data, and to issue any appropriate process, writ, or order. 135 REMEDIES FOR COLLECTION Sec. 1100. All administrative, special, or stamp provisions of law, including the law relating to the assessment of taxes, so far as appli- cable', are hereby extended to and made a part of this Act. Sec. 311. * * * (b) Where the assessment of any tax imposed by this title or of any estate or gift tax imposed by prior Act of Con- gress has been made (whether before or after the enactment of this Act) within the statutory period of- limitation properly applicable thereto, such tax may be collected by distraint or by a proceeding in court (begun before or after the enactment of this Act), but only if begun (1) within six years after the assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the Commissioner and the executor. Sec. 316. (a) The amounts of the following liabilities shall, except as hei;9Jnafter in this section provided, be assessed, collected, and paid in the same manner and subject to the same provisions and limitations as in the case of a deficiency in a tax imposed by this title (including the provisions in case of delinquency in payment after notice and demand, the provisions authorizing distraint and pro- ceedings in court for collection, and the provisions prohibiting claims and suits for refunds) : (1) The liability, at law or in equity, of a transferee of property of a decedent or donor, in respect of the tax (including interest, additional amounts, and additions to the tax provided by law) im- posed by this title or by any prior estate tax Act or by any gift tax Act (2) The liability of a fiduciary under section 3467 of the Revised Statutes in respect of the payment of any such tax from the estate of the decedent or donor. Any such liability may be either as to the amount of tax shown on the return or as to any deficiency in tax. (b) The period of limitation for assessment of any such liability of a transferee or fiduciary shall be as follows : (1) Within one year after the expiration of the period of limita- tion for assessment against the exe(iutor or donor ; or (2) If the period of limitation for assessment against the executor expired before the enactment of this Act but assessment against the executor was made within such period, — then within six years after the making of such assessment against the executor, but in no case later 'than one year after the enactment of this Act. (3) If a court proceeding against the executor or donor for the collection of the tax has been begun within either of the above periods, — then within one year after return of execution in such proceeding. (e) The running of the period of limitation upon the assessment of the liability of a transferee or fiduciary shall, after the mailing of the notice under subdivision (a) of section 308 to the transferee or fiduciary, be suspended for the period during which the Commis- sioner is prohibited from making the assessment in respect of the liability of the transferee or fiduciary, and for 60 days thereafter. 182135°— 34 10 136 (d) This section shall not apply to any suit or other proceeding for the enforcement of the liability of a transferee or fiduciary pend- ing at the time of the enactment of this Act. (e) As used in this section the term "transferee" includes heir, legatee, devisee, and distributee. Sec. 403. Revenue Act of 1928. (a) Section 316 (c) of the Revenue Act of 1926 is amended to read as follows: "(c) The running of the statute of limitations upon the assessment of the liability of a transferee or fiduciary shall, after the mailing of the notice under subdivision (a) of section 308 to the transferee or fiduciary, be suspended for the period during which the Commissioner is prohibited from making the assessment in respect of the liability of the transferee or fiduciary (and in any event, if a proceeding in respect of the liability is placed on the docket of the Board, until the decision of the Board becomes final), and for 60 days thereafter." (b) Subsection (a) of this section shall apply in all cases where the period of limitation has not expired prior to the enactment of this Act. Sec. 604. Revenue Act of 1928. No suit shall be maintained in any court for the purpose of restrain- ing the assessment or collection of (1) the amount of the liability, at law or in equity, of a transferee of property of a taxpayer in respect of any income, war-profits, excess-profits, or estate-tax, or (2) the amount of the liability of a fiduciary under section 8467 of the Revised Statutes in respect of any such tax. Sec. 808. Revenue Act of 1932. (a) Section 305(b) of the Revenue Act of 1926 is amended to read as follows : "(b) Where the Commissioner finds that the payment on the due date of any part of the amount determined by the executor as the tax would impose undue hardship upon the estate, the Commissioner may extend the time for payment of any such part * * *. In such case the amount in respect of which the extension is granted shall be paid on or before the date of the expiration of the period of extension, and the running of the statute of limitations for assessment and collec- tion, as provided in sections 310 (a) and 311 (b), shall be suspended for the period of any such extension. * * * » (b) Section 308 (i) of the Revenue Act of 1926 is amended to read as follows : "(i) Where it is shown to the satisfaction of the Commissioner that the payment of a deficiency upon the date prescribed for the pay- ment thereof will result in undue hardship to the estate, the Commis- sioner, with the approval of the Secretary (except where the de- ficiency is due to negligence, to intentional disregard of rules and regulatioins, or to fraud with intent to evade tax), may grant an ex- tension for the payment of such deficiency * * *. In such case the running of the statute of limitations for assessment and collection as provided in sections 310 (a) and 311 (b), shall be suspended for the period of any such extension * * *." Sec. 403. Revenue Act of 1932. Except as provided in section 402, the tax imi>osed by section 401 of this Act shall be assessed, coUected, and paid, in the same manner, and shall be subject to the same provisions of law (including pen- 137 alties), as the tax imposed by section 301 (a) of the Revenue Act of 1926, except that in the case of a resident decedent a return shall be required If the value of the gross estate at the time of the decedent's death exceeds $50,000. Art. 105. Eemedies for collection of tax and claims against transferred assets. — Three remedies are provided for the collection of the tax : (1) Collection ty distraint. — The collector may issue warrant of distraint authorizing the seizure and sale of any or all of the assets of the estate. (See R. S. sees. 3187 et seq., as amended by section 1016 of the Eevenue Act of 1924; U. S. C, Sup. VII, title 26, sec. 1581.) (2) Collection iy smt to subject the property to sale. — The col- lector may commence in any court of the United States appropriate proceedings, in the name of the United States, to subject the prop- erty of the decedent to sale under the judgment or decree of the court. (3) Collection hy suit for personal Uaiility. — The personal lia- bility of the executor, of the transferee or trustee of property trans- ferred in contemplation of or intended to take effect in possession or enjoyment at or after decedent's death, and of the beneficiary of life insurance, may be enforced by any appropriate action. (4) Claims against transferred assets. — The amount for which a transferee of the property of a decedent is liable, at law or in equity, and the amount of the personal liability of a fiduciary under section 3467 of the Revised Statutes, as amended (see section 518 of the Revenue Act of 1934), in respect of any estate tax imposed by Title III of the Revenue Act of 1926, or by prior Acts, whether shown on the return of the executor or determined as a defi- ciency in the tax, shall be assessed against such transferee or such fiduciary, as the case may be, and collected and paid, in the same manner and subject to the same provisions and limi- tations as in the case of a deficiency imposed by Title III of the Revenue Act of 1926, except as hereinafter provided. The pro- visions relating to the payment of the tax and interest, the authoriza- tion of distraint and proceedings in court for collection, the pro- hibition of claims for abatement and claims and suits for refund, the filing of a petition with the Board of Tax Appeals, and the filing of a petition for review of the Board's decision, are included in various sections and articles relating to deficiencies in tax imposed by Title III. The term " transferee " as used in this article includes an heir, legatee, devisee, and distributee of an estate of a deceased person. The period of limitation for assessment of the liability of a trans- feree or of a fiduciary is as follows : 138 (a) Within one year after the expiration of the period of limita- tion for assessment against the taxpayer. (See sections 308, 310, 311, 312, 318, and 1109, and article 77.) (&) If the period of limitation for assessment against the executor expired before the enactment of the Revenue Act of 1926 but assess- ment against the executor was made within such period, then within six years after the making of such assessment against the executor, but in no case later than one year after the enactment of the Revenue Act of 1926. (c) If a court proceeding against the executor for the collection of the tax has been begun within the period of limitation for the bringing of such proceeding, then within one year after the return of execution in such proceeding. If a notice of the liability of a transferee, or the liability of a fidu- ciary, has been mailed to such transferee or to such fiduciary under the provisions of section 308 (a) (see article 76), then the running of the statute of limitations shall be suspended for the period in which the Commissioner is prohibited from making the assessment (and in any event, if a proceeding in respect of the liability is placed on the docket of the Board, until the decision of the Board becomes final), and for 60 days thereafter. The provisions of section 316 do not apply in any suit or proceed- ing for the enforcement of the liability of a transferee, or a fiduciary under section 3467 of the Revised Statutes, as amended (see sec. 518 of the Revenue Act of 1934), which was pending at the time of the enactment of the Revenue Act of 1926. The period of limitation, except in case of fraud or in case no re- turn was filed, for collection of the tax by distraint or suit referred to in paragraphs (1), (2), and (3) of this article is six years after assessment if assessment of the tax was made within the statutory period of limitation or prior to the expiration of any period for collection agreed upon in writing by the Commissioner and the ex- ecutor. If an extension of time for payment of the tax is granted under the provisions of section 305 (b) or section 308 (i), as amended, the period within which collection by distraint or suit may be made is extended by the period of the extension granted for payment of the tax. RECORDS, STATEMENTS, AND SPECIAL RETURNS Sec. 1102. (a) Every person liable to any tax imposed by tbig Act, or for tbe collection thereof, sball keep such records, render under oath such statements, make such returns, and comply with such rules and regulations, as the Commissioner, with the approval of the Secre- tary, may from time to time prescribe. (b) Whenever in the judgment of the Commissioner necessary he may require any person, by notice served upon him, to make a return, 139 render under oath such statements, or keep such records as the Com- missioner deems sufficient to show whether or not such person is liable to tax. ******* (d) Any oath or affirmation required by the provisions of this Act or regulations made under authority thereof may be administered by any officer authorized to administer oaths for general purposes by the law of the United States or of any State, Territory, or possession of the United States, wherein such oath or affirmation is administered, or by any consular officer of the United States. Art. 106. Executor's duty to keep records. — It is the duty of the executor to keep such records as the Commissioner may require. Executors are required to keep such complete and detailed records of the affairs of the estate as will enable the Commissioner to deter- mine accurately the amount of the tax liability. Art. 107. Executor's duty to render statements. — It is the duty of the executor not only to make the formal return, but also to render any other sworn statement which the Commissioner may require for the purpose of determining whether a tax liability exists and, if so, the extent thereof. ESTATES ADMINISTERED IN THE UNITED STATES COURT FOR CHINA Sec. 321. (a) The term "resident" as used in this title includes a citizen of the United States with respect to whose property any probate or administration proceedings are had in the United States Court for China. Where no part of the gross estate of such decedent is situated in the United States at the time of his death, the total ainount of tax due under this title shall be paid to or collected by the clerk of such court, but where any part of the gross estate of such decedent is situated in the United States at the time of his death, the tax due under this title shall be paid to or collected by the collector of the district in which is situated the part of the gross estate In the United States, or, if such part is situated in more than one district, then the collector of such district as may be designated by the Commissioner. •(b) For the purpose of this section the clerk of the United States Court for China shall be a collector for the territorial jurisdiction of such court, and taxes shall be collected by and paid to him in the same manner and subject to the same provisions of law, including penalties, as the taxes collected by and paid to a collector in the United States. NOTICE OP PERSONS ACTING AS FIDUCIARY SEC. 317. (a) Upon notice to the Commissioner that any person is acting as executor, such person shall assume the powers, rights, duties, and privileges of an executor in respect of a tax imposed by this title or by any prior estate tax Act, until notice is given that such person is no longer acting as executor. (b) Upon notice to the Commissioner that any person is acting in a fiduciary capacity for a person subject to the liability specified in sec- tion 316, the fiduciary shall assume on behalf of such person the powers, 140 rights, duties, and privileges of such person under such section (except that the liability shall be collected from the estate of such person), until notice is given that the fiduciary capacity has terminated. (c) Notice under subdivision (a) or (b) shall be given in accordance with regulations prescribed by the Commissioner with the approval of the Secretary. (d) In the absence of any notice to the Commissioner under sub- division (a) or (b), notice under this title of a deficiency or other liability, if addressed in the name of the decedent or other person sub- ject to liability and mailed to his last known address, shall be suflacient for the purposes of this title. Art. 108. Notice of persons acting as fiduciary. — The " notice to the Commissioner " provided for in section 317 shall be in writing signed by the fiduciary and filed with the Commissioner, setting forth the name and address of the person for whom he is acting in a fiduciary capacity and also the nature of the liability of such person, accompanied by satisfactory evidence of his authority to act for such person in the fiduciary capacity. If the fiduciary capacity exists by order of court, a certified copy of the order of the court may be regarded as such satisfactory evidence. The written notice to the Commissioner need not be accompanied by evidence of the authority of the fiduciary to act if there is already on file with the Commis- sioner satisfactory evidence of the authority to act. Any such writ- ten notice which has been filed with the Commissioner since the enactment of the Revenue Act of 1926 shall be considered as suffi- cient notice to the Commissioner within the meaning of section 317 if and when there is or has been filed with the Commissioner the satisfactory evidence herein provided for. When the fiduciary capac- ity has terminated, the fiduciary, in order to be relieved of any fur- ther duty or liability as such, must file with the Commissioner writ- ten notice that the fiduciary capacity has terminated as to him, accompanied by satisfactory evidence of the termination of the fidu- ciary capacity. Such written notice should state the name and ad- dress of the person, if any, who has been substituted as fiduciary. This article, made under the provisions of section 317 of the Revenue Act of 1926, shall not be taken to abridge in any way the powers and duties of fiduciaries provided for in other sections of Title III of the Act or in any prior estate tax Act. SCOPE OF REPEAL Sbo. 1200. (a) The following parts of the Revenue Act of 1924 are repealed, to take effect (except as otherwise provided in this Act) upon the enactment of this Act, subject to the limitations provided in subdivision (b) : ******* Part I of Title III (called "Estate Tax") ; ******* 141 Sections 1004, 1005, 1006, and 1007, subdivision (a) of section 1008, sections 1009, 1010, 1011, 1012, 1014, 1018, 1019, and 1020, subdivisions (a) and (b) of section 1021, subdivision (c) of section 1025, and sec- tions 1026, 1027, 1028, 1029, 1030, and 1031 (being certain administra- tive provisions). (b) The parts of the Revenue Act of 1924 which are repealed by this Act shall (except as provided In sections 283 and 318 and except as otherwise specifically provided In this Act), remain In force for the assessment and collection of all taxes Imposed by such Act, and for the assessment, imposition, and collection of all interest, penalties, or forfeitures which have accrued or may accrue in relation to any such taxes and for the assessment and collection, to the extent pro- vided in the Revenue Act of 1924, of all taxes Imposed by prior Income, war profits, or excess profits tax acts, and for the assessment, imposi- tion, and collection of all Interest, penalties, or forfeitures which have accrued or may accrue in relation to any such taxes. In the case of any tax imposed by any part of the Revenue Act of 1924 repealed 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 correspond- ing tax under this Act takes effect under the provisions of this Act. Sec. 714. Revenue Act of 1928. The parts of the Revenue Act of 1926 which are repealed by this Act shall remain In force for the assessment and collection of all taxes Imposed thereby and for the assessment, imposition, and collection of aU Interest, penalties, or forfeitures which have accrued or may accrue in relation to any such taxes. Art. 109. Scope of .repeal. — The Revenue Act of 1926 retains in force (except as provided in section 318) the provisions of Part I, Title III, of the Revenue Act of 1924, and the provisions of estate tax titles of all prior Acts, for the assessment and collection of all taxes accruing thereunder and for the imposition and collection of all penalties which have accrued or may accrue in relation to any such taxes. The Revenue Act of 1928 to the same extent, and for the same purpose, retains in force the parts of the Revenue Act of 1926 re- pealed by the Revenue Act of 1928. RULES AND REGULATIONS Sec. 1101. The Commissioner, with the approval of the Secretary, shall prescribe and publish all needful rules and regulations for the enforcement of this Act. Sec. 506. Revenue Act of 1934. Section 1108(a) of the Revenue Act of 1926, as amended, is amended to read as follows : "(a) The Secretary, or the Commissioner with the approval of the Secretary, may prescribe the extent, if any, to which any ruling, regu- lation, or Treasury Decision, relating to the Internal revenue laws, shall be applied without retroactive effect." Art. 110. Promulgation of regulations. — In pursuance of the statute, the foregoing regulations are hereby made and promulgated. The 142 regulations relating to the provisions of law (including penalties) as to assessment, collection, and payment of the tax imposed by Title III of the Eevenue Act of 1926 apply to the additional estate tax im- posed by Title II of the Kevenue Act of 1932 and the tax imposed by the Revenue Act of 1932 as amended by the Revenue Act of 1934. The regulations also apply to all pending estate tax cases unless a particular question is governed by a specific provision of the earlier statutes differing from the Revenue Act of 1926, as amended and supplemented by the Revenue Act of 1928, the Reve- nue Act of 1932, and the Revenue Act of 1934, in which case the provisions of the applicable statute control, and Regulations 37 (revised January, 1921), Regulations 63, Regulations 68, and Regu- lations 70 (1929 Edition), as amended by Treasury Decisions relating thereto, to that extent remain in full force and effect, Wkight Maithews, Acting Com/missionsr of Internal Bevenue. Approved November 7, 1934. T. J. COOLIDGE, Acting Secretan/ of the Treaswry. APPENDIX REVENUE ACT OF 1926 (As originally enacted, with references to pages showing amenedments) TITLE III.— ESTATE TAX Sec. 300. When used in this title — (a) The term "executor" means the executor or administrator of the decedent, or, if there is no executor or administrator appointed, qualified, and acting within the United States, then any person in actual or constructive possession of any property of the decedent ; (b) The term "net estate" means the net estate as determined under the provisions of section 303 ; (c) The term " month " means calendar month; and (d) The term "collector" means the collector of internal revenue of the district in which was the domicile of the decedent at the time of his death, or, if there was no such domicile in the United States, then the collector of the district in which is situated the part of the gross estate of the decedent in the United States, or, if such part of the gross estate is situated in more than one district, then the collector of internal revenue of such district as may be designated by the Commissioner. Sec. 301. (a) In lieu of the tax imposed by Title III of the Revenue Act of 1924, a tax equal to the sum of the following percentages of the value of the net estate (determined as provided in section 303) is hereby imposed upon the transfer of the net estate of every decedent dying after the enactment of this act, whether a resident or nonresident of the United States ; 1 per centum of the amount of the net estate not in excess of $50,000 ; 2 per centum of the amount by which the net estate exceeds $50,000 and does not exceed $100,000; 3 per centum of the amount by which the net estate exceeds $100,000 and does not exceed $200,000; 4 per centum of the amount by which the net estate exceeds $200,000 and does not exceed $400,000 ; 5 per centum of the amount by which the net estate exceeds $400,000 and does not exceed $600,000; 6 per centum of the amount by which the net estate exceeds $600,000 and does not exceed $800,000; 7 per centum of the amount by which the net estate exceeds $800,000 and does not exceed $1,000,000; 8 per centum of the amount by which the net estate exceeds $1,000,000 and does not exceed $1,500,000 ; 9 per centum of the amount by which the net estate exceeds $1,500,000 and does not exceed $2,000,000 ; 10 per centum of the amount by which the net estate exceeds $2,000,000 and does not exceed $2,500,000; 11 per centum of the amount by which the net estate exceeds $2,500,000 and does not exceed $3,000,000; (143) 144 12 per centum of the amount by which the net estate exceeds $3,000,000 and does not exceed $3,500,000 ; 13 per centum of the amount by which the net estate exceeds $3,500,000 and does not exceed $4,000,000; 14 per centum of the amount by which the net estate exceeds $4,000,000 and does not exceed $5,000,000; 15 per centum of the amount by which the net estate exceeds $5,000,000 and does not exceed $6,000,000 ; 16 per centum of the amount by which the net estate exceeds $6,000,000 and does not exceed $7,000,000; 17 per centum of the amount by which the net estate exceeds $7,000,000 and does not exceed $8,000,000; 18 per centum of the amount by which the net estate exceeds $8,000,000 and does not exceed $9,000,000; 19 per centum of the amount by which the net estate exceeds $9,000,000 and does not exceed $10,000,000 ; 20 per centum' of the amount by which the net estate exceeds $10,000,000.' (b) The tax imposed by this section shall be credited with the amount of any estate, inheritance, legacy, or succession taxes actually paid to any State or Territory or the District of Columbia, in respect of any property included in the gross estate. The credit allowed by this subdivision shall not exceed 80 per centum of the tax imposed by this section, and shall include only such taxes as were actually paid and credit therefor claimed within three years after the filing of the return required by section 304.^ Seo. 302. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated — ' (a) To the extent of the interest therein of the decedent at the time of his death; (b) To the extent of any interest therein of the surviving spouse, existing at the time of the decedent's death as dower, curtesy, or by virtue of a statute creating an estate in lieu of dower or curtesy; (c) To the extent of any interest thei-ein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death, except in case of a bona fide sale for an adequate and full consideration in money or money's worth. Where within two years prior to his death but after the enactment of this Act and without such a consideration the decedent has made a transfer or transfers, by trust or otherwise, of any of his property, or an interest therein, not admitted or shown to have been made in con- templation of or intended to take effect in possession or enjoyment at or after his death, and the value or aggregate value, at the time of such death, of the property or interest so transferred to any one person is in excess of $5,000, then, to the extent of such excess, such transfer or transfers shall be deemed and held to have been made in contemplation of death within the meaning of this title. Any transfer of a material part of his property in the nature of a final disposition or distribution thereof, made by the decedent within two years prior to his death but prior to the enactment of this Act, without such consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of this title;* (d) To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power, 1 See pages 2, 4, 17. = See pages 17, 18, 19. = See page 24. * See page 37. 145 either by the decedent alone or in conjunction with any person, to alter, amend, or revoke, or where the decedent relinquished any such power in con- templation of his death, except in case of a bona fide sale for an adequate and full consideration in money or money's worth. The relinquishment of any such power, not admitted or shown to have been in contemplation of the decedent's death, made within two years prior to his death but after the enactment of this Act without such a consideration and affecting the Interest or interests (whether arising from one or more transfers or the creation of one or more trusts) of any one beneficiary of a value or aggregate value, at the time of such death, in excess of $5,000, then, to the extent of such excess, such relinquishment or relinquishments shall be deemed and held to have been made in contemplation of death within the meaning of this title;' (e) To the extent of the interest therein held as joint tenants by the decedent and any other person, or as tenants by the entirety by the decedent and spouse, or deposited, with any person carrying on the banking business, in their joint names and payable to either or the survivor, except such part thereof as may be shown to have originally belonged to such other person and never to have been received or acquired by the latter from the decedent for less than an adequate and full consideration in money or money's worth : Provided, That where such property or any part thereof, or part of the consideration with which such property was acquired, is shown to have been at any time acquired by such other person from the decedent for less than an adequate and full consideration in money or money's worth, there shall be excepted only such part of the value of such property as is proportionate to the consideration furnished by such other person : Provided further, That where any property has been acquired by gift, bequest, devise, or inheritance, as a tenancy by the entirety by the decedent and spouse, then to the extent of one-half of the value thereof, or, where so acquired by the decedent and any other person as joint tenants and their interests are not otherwise specified or fixed by law, then to the extent of the value of a fractional part to be determined by dividing the value of the property by the number of joint tenants ; (f ) To the extent of any property passing under a general power of appoint- ment exercised by the decedent (1) by will, or (2) by deed executed in contem- plation of, or intended to take effect in possession or enjoyment at or after, his death, except in case of a bona fide sale for an adequate and full consideration in money or money's worth; and" (g) To the extent of the amount receivable by the executor as insurance under policies taken out by the decedent upon his own life; and to the extent of the excess over $40,000 of the amount receivable by all other beneficiaries as insurance under policies taken out by the decedent upon his own life. (h) Except as otherwise specifically provided therein subdivisions (b), (c), (d), (e), (f), and (g) of this section shall apply to the transfers, trusts, estates, interests, rights, powers, and relinquishment of powers, as severally enumerated and described therein, whether made, created, arising, existing, exercised, or relinquished before or after the enactment of this Act. (i) If any one of the transfers, trusts, interests, rights, or powers, enumerated and described in subdivisions (c), (d), and (f) of this section is made, created, exercised, or relinquished for a consideration in money or money's worth, but is not a bona fide sale for an adequate and full consideration in money or money's worth, there shall be included in the gross estate only the excess of the fair market value at the time of death of the property otherwise to be included on account of such transaction, over the value of the consideration received therefor by the decedent. 1 See page 38. " s«> page 47. 146 Sec. 303. For the purpose of the tax the value of the net estate shall be determined — (a) In the case of a resident, by deducting from the value of the gross estate — ' (1) Such amounts for funeral expenses, administration expenses, claims against the estate, unpaid mortgages upon, or any indebtedness in respect to, property (except, in the case of a resident decedent, where such property is not situated in the United States), to the extent that such claims^ mortgages, or indebtedness were incurred or contracted bona fide and for an adequate and full consideration in money or money's worth, losses incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualty, or from theft, when such losses are not compensated for by insurance or otherwise, and such amounts reasonably required and actually expended for the support during the settlement of the estate of those dependent upon the decedent, as are allowed by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered, but not Including any Income taxes upon income received after the death of the decedent, or any estate, succession, legacy, or inheritance taxes ; ' (2) An amount equal to the value of any property (A) forming a part of the gross estate situated in the United States of any person who died within five years prior to the death of the decedent, or (B) transferred to the decedent by gift within five years prior to his death, where such prop- erty can be identified as having been received by the decedent from such donor by gift or from such prior decedent by gift, bequest, devise, or inherit- ance, or which can be identified as having been acquired in exchange for prop- erty so received. This deduction shall be allowed only where a gift tax imposed under the Revenue Act of 1924, or an estate tax imposed under this or any prior Act of Congress was paid by or on behalf of the donor or the estate of such prior decedent as the case may be, and only in the amount of the value placed by the Commissioner on such property dn determining the value of the gift or the gross estate of such prior decedent, and only to the extent that the value of such property is included in the decedent's gross estate and not deducted under paragraph (1) or (3) of this subdivision ; ° (3) The amount of all bequests, legacies, devises, or transfers, to or for the use of the United States, any State, Territory, any political subdivision thereof, or the District of Columbia, for exclusively public purposes, or to or for the use of any corporation organized and operated exclusively for religious, chari- table, scientific, literary, or educational purposes, including the encouragement of art and 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 individual, or to a trustee or trustees, or a fraternal society, order, or asso- ciation operating under the lodge system, but only if such contributions or gifts are to be used by such trustee or trustees, or by such fraternal society, order, or association, exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. The amount of the deduction under this paragraph for any transfer shall not exceed the value of the transferred property required to be included in the gross estate ; and * (4) An exemption of $100,000." (b) In the case of a nonresident, by deducting from the value of that part of his gross estate which at the time of his death is situated in the United States—' page 52. ^ See page 51. • See page 57. * See page 64. ^ See page 67. » See page 71. 147 (1) That proportion of the deductions specified in paragraph (1) of sub- division (a) of this section which the value of such part bears to the value of his entire gross estate, wherever situated, but in no case shall the amount so deducted exceed 10 per centum of the value of that part of his gross estate which at the time of his death is situated in the United States ;' (2) An amount equal to the value of any property (A) forming a part of the gross estate situated in the United States of any person who died within five years prior to the death of the decedent, or (B) transferred to the decedent by gift within five years prior to his death, where such property can be identified as having been received by the decedent from such donor by gift or from such prior decedent by gift, bequest, devise, or inheritance, or which can be identified as having been acquired in exchange for property so received. This deduction shall be allowed only where a gift tax Imposed under the Kevenue Act of 1924, or an estate tax imposed under this or any prior Act of Congress was paid by or on behalf of the donor or the estate of such prior decedent as the case may be, and only in the amount of the value placed by the Commissioner on such property in determining the value of the gift or the gross estate of such prior decedent, and only to the extent that the value of such property is included in that part of the decedent's gross estate which at the time of his death is situated in the United States and not deducted under paragraph (1) or (3) of this subdivision; and' (3) The amount of all bequests, legacies, devises, or transfers, to or for the use of the United States, any State, Territory, any political subdivision thereof, or the District of Columbia,^ for exclusively public purposes, or to or for the use of any domestic corporation organized and operated exclusively for reli- gious, charitable, scientific, literary, or educational purposes, including the encouragement of art and 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 individual, or to a trustee or trustees, or a fraternal society, order, or association operating under the lodge system, but only if such con- tributions or gifts are to be used within the United States by such trustee or trustees, or by such fraternal society, order, or association, exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. The amount of the deduction under this paragraph for any transfer shall not exceed the value of the transferred property required to be included in the gross estate.' (c) No deduction shall be allowed in the case of a nonresident unless the executor includes in the return required to be filed under section 304 the value at the time of his death of that part of the gross estate of the nonresident not situated in the United States.'' (d) For the purpose of this title, stock in a domestic corporation owned and held by a nonresident decedent shall be deemed property within the United States, and any property of which the decedent has made a transfer, by trust or otherwise, within the meaning of subdivision (c) or (d) of section 302, shall be deemed to be situated in the United States, if so situated either at the time of the transfer, or at the time of the decedent's death.' (e) The amount receivable as insurance upon the life of a nonresident de- cedent, and any moneys deposited with any person carrying on the banking business, by or for a nonresident decedent who was not engaged in business in the United States at the time of his death, shall not, for the purpose of this title, be deemed property within the United States.* (f ) Missionaries duly commissioned and serving under boards of foreign mis- sions of the various religious denominations in the United States, dying while igee page 70. ^ gee Daerfi 71 aS"" — '-— *>' 68. < See page 68. 148 in the foreign missionary service of such boards, shall not, by reason merely of their intention to permanently remain in such foreign service, be deemed non- residents of the United States, but shall be presumed to be residents of the State, the District of Columbia, or the Territories of Alaska or Hawaii wherein they respectively resided at the time of their commission and their departure for such foreign service. Sbw. 304. (a) The executor, within two months after the decedent's death, or within a like period after qualifying as such, shall give written notice thereof to the collector. The executor shall also, at such times and in such manner as may be required by regulations made pursuant to law, file with the collector a return under oath in duplicate, setting forth (1) the value of the gross estate of the decedent at the time of his death, or, in case of a nonresident, of that part of his gross estate situated In the United States; (2) the deductions allowed under section 303; (3) the value of the net estate of the decedent as defined in section 303; and (4) the tax paid or payable thereon; or such part of such information as may at the time be ascertainable and such supplemental data as may be necessary to establish the correct tax.' (b) Return shall be made In all cases where the gross estate at the death of the decedent exceeds $100,000, and in the case of the estate of every nonresident any part of whose gross estate Is situated in the United States. If the executor is unable to make a complete return as to any part of the gross estate of the decedent, he shall Include in his return a description of such part and the name of every person holding a legal or beneficial interest therein, and upon notice from the collector such person shall in like manner make a return as to such part of the gross estate." Seo. 305. (a) The tax imposed by this title shall be due and payable one year after the decedent's death, and shall be paid by the executor to the collector. (b) Where the Commissioner finds that the payment on the due date of any part of the amount determined by the executor as the tax would impose undue hardship upon the estate, the Commissioner may extend the time for payment of any such part not to exceed five years from the due date. In such case the amount in respect of which the extension is granted shall be paid on or before the date of the expiration of the period of the extension. (c) If the time for the payment is thus extended there shall be collected, as a part of such amount, interest thereon at the rate of 6 per centum per annum from the expii-ation of six months after the due date of the tax to the date of the expiration of the period of the extension.' (d) The time for which the Commissioner may extend the time for payment of the estate tax imposed by Title IV of the Revenue Act of 1921 shall be five years. Sec. 806. As soon as practicable after the return is filed the Commissioner shall examine it and shall determine the correct amount of the tax. Sec. 307. As used in this title in respect of a tax imposed by this title the term " deficiency " means — (1) The amount by which the tax Imposed by this title exceeds the amount shown as the tax by the executor upon his return ; but the amount so shown on the return shall first be increased by the amounts previously assessed (or collected without assessment) as a deficiency, and decreased by the amounts previously abated, refunded, or otherwise repaid in respect of such tax ; or (2) If no amount is shown as the tax by the executor upon his return, or if no return is made by the executor, then the amount by which the tax: exceeds the amounts previously assessed (or collected without assessment) as a de- ficiency; but such amounts previously assessed, or collected without assess- 1 See page 78. * See page 74. » See pages 101, 102. 149 ment, shall first be decreased by the amounts previously abated, refunded, or otherwise repaid in respect of such tax. Seo. 308. (a) If the Commissioner determines that there is a deficiency in respect of the tax imposed by this title, the Commissioner is authorized to send notice of such deficiency to the executor by registered mail. Within 60 days after such notice is mailed (not counting Sunday as the sixtieth day), the executor may file a petition with the Board of Tax Appeals for a rede- termination of the deficiency. Except as otherwise provided in subdivision (d) or (f) of this section or in section 312 or 1001, no assessment of a deficiency in respect of the tax imposed by this title and no distraint or proceeding in court for its collection shall be made, begun, or prosecuted until such notice has been mailed to the executor, nor until the expiration of such 60-day period, nor, if a petition has been filed with the Board, until the decision of the Board has become final. Notwithstanding the provisions of section 3224 of the Revised Statutes the making of such assessment or the beginning of such proceeding or distraint during the time such prohibition is in force may be enjoined by a proceeding in the proper court.^ (b) If the executor files a petition with the Board, the entire amount rede- termined as the deficiency by the decision of the Board which has become final shall be assessed and shall be paid upon notice and demand from the collector. No part of the amount determined as a deficiency by the Commis- sioner but disallowed as such by the decision of the Board which has become final shall be assessed or be collected by distraint or by proceeding in cooirt with or without assessment. (c) If the executor does not file a petition with the Board within the time prescribed in subdivision (a) of this section, the deficiency, notice of which has been mailed to the executor, shall be assessed, and shall be paid upon notice and demand from the collector. (d) The executor shall at any time have the right, by a signed notice in writing filed with the Commissioner, to waive the restrictions provided in subdivision (a) of this section on the assessment and collection of the whole or any part of the deficiency. (e) The Board shall have jurisdiction to redetermine the correct amount of the deficiency even if the amount so redetermined is greater than the amount of the deficiency, notice of which has been mailed to the executor, and to determine whether any additional amount or addition to the tax should be assessed, if claim therefor is asserted by the Commissioner at or before the hearing or a rehearing. (f) If after the enactment of this Act the Commissioner has mailed to the executor notice of a deficiency as provided in subdivision (a), and the executor files a petition with the Board within the time prescribed in such subdivision, the Commissioner shall have no right to determine any additional deficiency, except in the case of fraud, and except as provided in subdivision (e) of this section or in subdivision (c) of section 312. If the executor is notified that, on account of a mathematical error appearing upon the face of the return, an amount of tax in excess of that shown upon the return is due, and that an assessment of the tax has been or will be made on the basis of what would have been the correct amount of tax but for the mathematical error, such notice shall not be considered, for the purposes of this subdivision or of subdivision (a) of this section, or of section 319, as a notice of a deficiency, and the executor shall have no right to file a petition with the Board of Tax Appeals based on such notice, nor shall such assessment or collection be prohibited by the provisions of subdivision (a) of this section. 1 See page 86. 150 (g) For the purposes of this title tlie date on which a decision of the Board becomes final shall be determined according to the provisions of section 1005. (h) Interest upon the amount deteimined as a deficiency shall be assessed at the same time as the deficiency, shall be paid upon notice and demand from the collector, and shall be collected as a part of the tax, at the rate of 6 per centum per annum from the due date of the tax to the date the deficiency is assessed, or, in the case of a waiver under subdivision (d) of this section, to the thirtieth day after the filing of such waiver or to the date the deficiency is assessed whichever is the earlier. (1) Where it is shown to the satisfaction of the Commissioner that the pay- ment of a deficiency upon the date prescribed for the payment thereof will result in undue hardship to the estate, the Commissioner with the approval of the Secretary (except where the deficiency is due to negUgence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax) may grant an extension for the payment of such deficiency or any part thereof for a period not In excess of two years. If an extension is granted, the Commis- sioner may require the executor to furnish a bond in such amount, not exceeding double the amount of the deficiency, and with such sureties, as the Commis- sioner deems necessary, conditioned upon the payment of the deficiency in accordance with the terms of the extension. In such case there shall be col- lected, as a part of the tax, interest on the part of the deficiency the time for payment of which is so extended, at the rate of 6 per centum per annum for the period of the extension, and no other interest shaU be collected on such part of the deficiency for such period. If the part of the deficiency the time for payment of which is so extended is not paid in accordance with the terms of the extension, there shall be collected, as a part of the tax, interest on such unpaid amount at the rate of 1 per centum a month for the period from the time fixed by the terms of the extension for its payment until it is paid, and no other interest shall be collected on such unpaid amount for such period.^ (j) The 50 per centum addition to the tax provided by section 3176 of the Revised Statutes, as amended, shall, when assessed after the enactment of this Act in connection with an estate tax, be assessed, collected, and paid in the same manner as if it were a deficiency, except that the provisions of subdivi- sion (h) of this section shall not be applicable. Seo. 309. (a) (1) Where the amount determined by the executor as the tax imposed by this title, or any part of such amount, is not paid on the due date of the tax, there shall be collected as a part of the tax, interest upon such unpaid amount at the rate of 1 per centum a month from the due date until it is paid. (2) Where an extension of time for payment of the amount so determined as the tax by the executor has been granted, and the amount the time for payment of which has been extended, and the interest thereon determined under subdivision (c) of section 305, is not paid in full prior to the expiration of the period of the extension, then, in lieu of the Interest provided for in paragraph (1) of this subdivision, interest at the rate of 1 per centum a month shall be collected on such unpaid amount from the date of the expiration of the period of the extension until it is paid. (b) Where a deficiency, or any interest assessed in connection therewith under subdivision (h) of section 308, or any addition to the tax provided for in section 3176 of the Revised Statutes, as amended, is not paid in full within 30 days from the date of notice and demand from the collector, there shall be collected as part of the tax, interest upon the unpaid amount at 1 See page 101. 151 the rate of 1 per centum a month from the date of such notice and demand until it is paid. (c) If a bond is filed, as provided in section 312, the provisions of sub- division (b) of this section shall not apply to the amount covered by the bond. Sec. 310. (a) Except as provided in section 311, the amount of the estate taxes imposed by this title shall be assessed within three years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be b^un after the expiration of three years after the return was filed. (b) The running of the statute of limitations provided in this section or in section 311 on the making of assessments and the beginning of distraint or a proceeding in court for collection, in respect of any deficiency, shall (after the mailing of a notice under subdivision (a) of section 308) be suspended for the period during which the Commissioner is prohibited from making the assess- ment or beginning distraint or a proceeding in court, and for 60 days thereafter.^ Sbxx 311. (a) In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return the tax may be assessed, or a proceeding in court for the collection of such tax may be b^un without assessment, at any time. (b) Where the assessment of any tax imposed by this title or of any estate or gift tax imposed by prior Act of Congress has been made (whether before or after the enactment of this Act) within the statutory period of limitation properly applicable thereto, such tax may be collected by distraint or by a proceeding in court (begun before or after the enactment of this Act), but only if begun (1) within six years after the assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the Commissioner and the executor. (c) This section shall not bar a distraint or proceeding in court begun before the enactment of the Revenue Act of 1924; nor shall it authorize the assess- ment of a tax or the collection thereof by distraint or by proceeding in court (1) if at the time of the enactment of this Act such assessment, distraint, or proceeding was barred by the statutory period of limitation properly applicable thereto, unless prior to the enactment of this Act the Commissioner and the executor agreed in writing thereto, or (2) contrary to the provisions of sub- division (a) of section 308 of this Act. SBO. 312. (a) If the Commissioner believes that the assessment or collection of a deficiency Will be jeopardized by delay, he shall immediately assess such deficiency (together with all interest, additional amounts, or additions to the tax provided for by law) and notice and demand shall be made by the collector for the payment thereof. (b) If the jeopardy assessment is made before any notice in respect of the tax to which the jeopardy assessment relates has been mailed under subdivision (a) of section 308, then the Commissioner shall mail a notice under such sub- division within 60 days after the making of the assessment. (c) The jeopardy assessment may be made in respect of a deficiency greater or less than that notice of which has been mailed to the executor, despite the provisions of subdivision (f) of section 308 and whether or not the executor has theretofore filed a petition with the Board of Tax Appeals. The Commis- sioner shall notify the Board of the amount of such assessment, if the petition iSee page 96. 182135°— 34 11 152 is filed with the Board before the making of the assessment or is subsequently filed, and the Board shall have jurisdiction to redetermine the entire amount of the deficiency and of all amoimts assessed at the same time in connection therewith. (d) If the jeopardy assessment is made after the decision of the Board is rendered such assessment may be made only in respect of the deficiency deter- mined by the Board in its decision. (e) A jeopardy assessment may not be made after the decision of the Board has become final or after the executor has filed a petition for review of the decision of the Board. (f) When a jeopardy assessment has been made the executor, within 30 days after notice and demand from the collector for the payment of the amount of the assessment, may obtain a stay of collection of the whole or any part of the amount of the assessment by filing vnth the collector a bond in such amount, not exceeding double the amount as to which the stay is desired, and with such sureties, as the collector deems necessary, cMiditioned upon the pay- ment of so much of the amount, the collection of which is stayed by the bond, as is not abated by a decision of the Board which has become final, together with interest thereon as provided in subdivision (j) of this section. (g) If the bead is given before the executor has filed his petition with the Board under subdivision (a) of section 308, the bond shall contain a further condition that if a petition is not filed within the period provided in such sub- division, then the amount the collection of which is stayed by the bond will be paid on notice and demand at any time after the expiration of such period, together with interest thereon at the rate of 6 per centum per annum from the date of the jeopardy notice and demand to the date of notice and demand under this subdivision. (h) Upon the filing of the bond the collection of so much of the amount assessed as is covered by the bond shall be stayed. The executor shall have the right to waive such stay at any time in respect of the whole or any part of the amount covered by the bond, and if as a result of such waiver any part of the amount covered by the bond is paid, then the bond shall, at the request of the executor, be proportionately reduced. If the Board determines that the amount assessed is greater than the amount which should have been assessed, then when the decision of the Board is rendered the bond shall, at the request of the executor, be proportionately reduced. (i) When the petition has been filed with the Board and when the amount which should have been assessed has been determined by a decision of the Board which has become final, then any unpaid portion, the collection of which has been stayed by the bond, shall be collected as part of the tax upon notice and demand from the collector, and any remaining portion of the assessment shall be abated. If the amount already collected exceeds the amount deter- mined as the amount which should have been assessed, such excess shall be refunded. If the amount determined as the amount which should have been assessed is greater than the amount actually assessed, then the difference shall be assessed and shall be collected as part of the tax upon notice and demand from the collector. (j) In the case of the amount collected under subdivision (i) there shall be collected at the same time as such amount, and as a part of the tax, interest at the rate of 6 per centum per annum upon such amount from the date of the jeopardy notice and demand to the date of notice and demand under sub- division (i) of this section, or, in the case of the amount collected in excess of the amount of the jeopardy assessment, interest as provided in subdivision 153 (h) of section 308; If the amount included in the notice and demand from the collector under subdivision (1) of this section is not paid in full within 30 days after such notice and demand, then there shall be collected, as part of the tax, interest upon the unpaid amount at the rate of 1 per centum a month from the date of such notice and demand until it is paid. (k) No claim in abatement shall be filed in respect of any assessment made after the enactment of this Act in respect of any estate or gift tax. Sbo. 313. (a) The collector shall grant to the person paying the tax duplicate receipts, either of which shall be sufficient evidence of such payment, and shall entitle the executor to be credited and allowed the amount thereof by any court having jurisdiction to audit or settle his accounts. (b) If the executor makes written application to the Commissioner for determination of the amount of the tax and discharge from personal liability therefor, the Commissioner (as soon as possible, and in any event within one year after the making of such application, or, it the application is made before the return is filed, then within one year after the return is filed, but not after the expiration of the period prescribed for the assessment of the tax in section 310) shall notify the executor of the amount of the tax. The executor, upon payment of the amount of which he is notified, shall be discharged from personal liability for any deficiency in tax thereafter found to be due and shall be entitled to a receipt or writing showing such discharge. (c) The provisions of subdivision (b) shaU not operate as a release of any part of the gross estate from the lien for any deficiency that may there- after be determined to be due, unless the title to such part of the gross estate has jjassed to a bona fide purchaser for value, in which case such part shall not be subject to a lien or to any claim or demand for any such deficiency, but the lien shall attach to the consideration received from such purchaser by the heirs, legatees, devisees, or distributees. Seki 314. (a) If the tax herein imposed is not paid on or before the due date thereof the collector shall, upon instruction from the Commissioner, pro- ceed to collect the tax under the provisions of general law, or commence appropriate proceedings in any court of the United States having jurisdiction, in the name of the United States, to subject the property of the decedent to be sold under the judgment or decree of the court. Prom the proceeds of such sale the amount of the tax, together with the costs and expenses of every description to be allowed by the court, shall be first paid, and; the balance shall be deposited according to the order of the court, to be i>aid under its direction to the person entitled thereto. This subdivision in so far as it applies to the collection of a deficiency shall be subject to the provisions of section 30«. (b) If the tax or any part thereof is paid by, or collected out of that' part of the estate passing to or in the possession of, any person other than the executor in his capacity as such, such person shall be entitled to reim- bursement out of any part of the estate still undistributed or by a just and equitable contribution by the persons whose interest in the estate of the decedent would have been reduced if the tax had been paid before the distri- bution of the estate or whose interest is subject to equal or prior liability for the payment of taxes, debts, or other charges against the estate, it being the purpose and Intent of this title that so for as is practicable and imless otherwise directed by the will of the decedent the tax shall be paid out of the estate before its distribution. If any part of the gross estate consists of proceeds of policies of insurance upon the life of the decedent receivable by a beneficiary other than the executor, the executor shall be entitled to recover from such beneficially such portion of the total tax paid as the proceeds, in 154 excess of $40,000, of such policies bear to the net estate. If there is more than one such beneficiary the executor shall be entitled to recover from such beneficiaries in the same ratio. Sec. 315. (a) Unless the tax is sooner paid in full, it shall be a lien for ten years upon the gross estate of the decedent, except that such part of the gross estate as is used for the payment of charges against the estate and expenses of its administration, allowed by any court having jurisdiction thereof, shall be divested of such lien. If the Commissioner is satisfied that the tax liability of an estate has been fully discharged or provided for, he may, under regulations prescribed by him vrith the approval of the Secretary, issue his certificate, releasing any or all property of such estate from, the lien herein imposed. (b) If (1) the decedent makes a transfer, by trust or otherwise, of any property in contemplation of or intended to take effect in possession or en- joyment at or after his death (except in the case of a bona fide sale for an adequate and full consideration in money or money's worth) or (2) if insur- ance passes under a contract executed by the decedent in favor of a specific beneficiary, and If In either ease the tax in respect thereto is not paid when due, then the transferee, trustee, or beneficiary shall be personally liable for such tax, and such property, to the extent of the decedent's interest therein at the time of such transfer, or to the extent of sucla beneficiary's interest under such contract of insurance, shall be subject to a like lien equal to the amount of such tax. Any part of such property sold by such transferee or trustee to a bona fide purchaser for an adequate and full consideration in money or money's worth shall be divested of the lien and a like lien shall then attach to all the property of such transferee or trustee, except any part sold to a bona fide purchaser for an adequate and full consideration in money or money's worth.' Sexj. 316. (a) The amounts of the following liabilities shall, except as here- inafter in this section provided, be assessed, collected, and paid in the same manner and subject to the same provisions and limitations as in the case of a deficiency in a tax imposed by this title (including the provisions in case of delinquency in payment after notice and demand, the provisions authorizing distraint and proceedings in court for collection, and the provisions prohibiting claims and suits for refunds) : (1) The liability, at law or in equity, of a transferee of property of a de- cedent or donor, in respect of the tax (including interest, additional amounts, and additions to the tax provided by law) imposed by this title or by any prior estate tax Act or by any gift tax Act. (2) The liability of a fiduciary under section 3467 of the Revised Statutes in respect of the payment of any such tax from the estate of the decedent or donor. Any such liability may be either as to the amount of tax shown on the return or as to any deficiency in tax. (b) The period of limitation for assessment of any such liability of a trans- feree or fiduciary shall be as follows : (1) Within one year after the expiration of the period of limitation for assessment against the executor or donor ; or (2) If the period of limitation for assessment against the executor expired before the enactment of this Act but assessment against the executor was made within such period, — then within six years after the making of such assessment against the executor, but in no case later than one year after the enactment of this Act. 1 See page 114. 155 (3) If a court proceeding against the executor or donor for the collection of the tax has been begun within either of the above periods, — then within one year after return of execution in such proceeding. (c) The running of the period of limitation upon the assessment of the lia- bility of a transferee or fiduciary shall, after the mailing of the notice under subdivision (a) of section 308 to the transferee or fiduciary, be suspended for the period during which the Commissioner is prohibited from making the assessment in respect of the liability of the transferee or fiduciary, and for 60 days thereafter.' (d) This section shall not apply to any suit or other proceeding for the enforcement of the liability of a transferee or fiduciary pending at the time of the enactment of this Act. (e) As used in this section, the term "transferee" includes heir, legatee, devisee, and distributee. SEa 317. (a) Upon notice to the Commissioner that any person is acting as executor, such person shall assume the powers, rights, duties, and privileges of an executor in respect of a tax imposed by this title or by any prior estate tax Act, until notice is given that such person is no longer acting as executor. (b) Upon notice to the Commissioner that any person is acting in a fiduciary capacity for a person subject to the liability specified in section 316, the fidu- ciary shall assume on behalf of such person the powers, rights, duties, and privileges of such person under such section (except that the liability shall be collected from the estate of such person), until notice is given that the fiduciary capacity has terminated. (c) Notice under subdivision (a) or (b) shall be given in accordance with regulations prescribed by the Commissioner with the approval of the Secretary. (d) In the absence of any notice to the Commissioner under subdivision (a) or (b), notice under this title of a deficiency or other liability, if addressed in the name of the decedent or other person subject to liability and mailed to his last known address, shall be suffici«it for the purposes of this title. Seo. 318. (a) If after the enactment of this Act the Commissioner determines that any assessment should be made in respect of any estate or gift tax imposed by the Revenue Act of IMT, the Revenue Act of 1918, the Revenue Act of 1921, or the Revenue Act of 1924, or by any such Act as amMided, the Commissioner is authorized to send by registered mail to the person liable for such tax notice of the amount proposed to be assessed, which notice shall, for the purposes of this Act, be considered a notice under subdivision (a) of section 308 of this Act. In the case of any such determination the amount which should be assessed (whether as deficiency or additional tax or as interest, penalty, or other addition to the tax) shaU be computed as if this Act had not been enacted, but the amount so computed shall be assessed, collected, and paid in the same manner and subject to the same provisions and limitations (including the provisions in case of delinquency in payment after notice and demand and the provisions prohibiting claims and suits for refund) as in the case of a deficiency in the tax imposed by this title, except that in the case of an estate tax imposed by the Revenue Act of 1917, the Revenue Act of 1918, or the Revenue Act of 1921, or by apy such Act as amended, the period of limitation prescribed in section 1109 of this Act shall be applied in lieu of the period prescribed in subdivision (a) of section 310. (b) If before the enactment of this Act any person has appealed to the Board of Tax Appeals under subdivision (a) of section 308 of the Revenue Act of 1924 (if such appeal relates to a tax imposed by Title III of such Act 1 See page 136. 156 or to so mucli of an estate tax imposed by any of the prior Acts enumerated in subdivision (a) of this section as was not assessed before June 3, 1924), and the appeal is pending before the Board at the time of the enactment of this Act, the Board shall have jurisdiction of the appeal. In all such cases the powers, duties, rights, and privileges of the Commissioner and of the person who has brought the appeal, and the jurisdiction of the Board and of the courts, shall be determined, and the computation of the tax shall be made, in the same manner as provided in subdivision (a) of this section, except as provided in subdivision (h) of this section and except that the person liable for the tax shall not be subject to the provisions of subdivision (a) of section 319. (c) If before the enactment of this Act the Commissioner has mailed to any person a notice under subdivision (a) of section 308 of the Revenue Act of 1924 (whether in respect of a tax imposed by Title III of such Act or in respect of so much of an estate tax imposed by any of the prior Acts enumer- ated in subdivision (a) of this section as was not assessed before June 3, 1924), and if the 60-day period referred to in such subdivision has n87, 102, 105,114, 133, 137 possession, transferee, trustee ) 108 140 Penalties 90-94 119-121 Liberty bonds: Deposit of, in connection with extensions of time, release of lien, or stay of collection 83, 89, 96 106, 116, 122 Payment of tax with 81 100 Transfer of taxable 11 24 Lien for the tax, and release of 88, 89, 105 115, 116, 137 Life estates or interests: Created or reserved in connection with a trans- fer 18,44 41,64 Taxable 11,12 24,26 Valuation of 13(10) 31 Life, income of property transferred, reserved for " 18 41 Life insurance ----- 25-28 48-50 Description on return of policy of 12 26 Nonresident decedent 50 68 /See oZso section 302 (h) — 50 Limitation of deductions in nonresident estates 62-55 71-73 Limitation of local law on deductible expenses 29,30 52 Limitation of time, claim for refund 99 128 Limitation of time for filing credit evidence 9 19 Limitations, statute of 36, 77, 99, 106 65, 97, 128, 137 Limited estates and annuities 11, 12, 13 (10), 24, 26, 31, 18, 28, 44 41, 50, 64 Literary uses 44,64 64,66 Litigation to determine respective shares of bene- ficiaries 34 64 Live stock, valuation of 13(8) 30 Loan, life insurance to secure a 25 48 Loan secured by pledge 13(5) 29 Lodge, death benefits paid by 25 48 Losses during administration 39,52 56,71 192 M Article Page Machinery, farm 13(8) 30 Margin, securities purchased on 13(3) 27 Market value 13 27 See also Consideration.. 2, 13 (4, 6), 15-19, 22-24, 29, 36, 38, 7, 29, 38-42, 52 44-47,52,55, 71 Mathematical error, deficiency resulting from 76, 77, 85 91, 97, 111 Mausoleum 31 53 Miscellaneous administration expenses 29, 32, 35 52, 53, 55 Missionary, residence of 5 8 See aZso section 303 (f) — 147 Modified articles of Regulations 37, 63, 68, and 70. _ 110 141 Money due nonresident decedent, situs of 60 68 Money in joint account 22,23 44,45 See oiso section 302 (h) — 50 Money on deposit 13(6) 29 Monument, deduction for 31 53 Mortgage owned by decedent 13(5) 29 See o/so Nonresident estates — situs 50 , 64 Mortgage, deduction of 38, 52 55, 71 Municipal bonds, transfer of, taxable 11 28 N Net estate 3,4 7,8 Deductions 29-48 52-67 Nonresident estates 51-55 71-73 Net ] esses during administration 39 56 Nonresident estates (see, generally, titles under gen- eral index) : Agent, transfer 61,62 76,77 Agents of nonresident decedent 60 76 Bankers 60,62 76,77 Beneficial interest, person holding 70,105 83,137 Bonds 11, 50, 61, 62 24, 68, 76, 77 Certificates permitting transfer of stocks, bonds, or other property 62 77 Deductions 51-54 71-73 See also specific titles under deductions. Defined 5 8 Executor shaU — Give notice and make return 60, 70, 105 76, 83, 137 Pay the tax 56,81,105 74,100,137 Gross estate 11,50 24,68 Information concerning, requirement of 61,70,71 76,83,84 Information return 61 76 Insurance in domestic company — not part of gross estate 50 68 Intangibles, situs of 50 68 Missionaries, residence of 5 8 See aZso section 303 (f) — 147 19:; Nonresident estates — Continued. Moneys due from domestic debtors Moneys on deposit Mortgages, situs Net estate — how determined Notice Payment of tax and interest Person holding beneficial interest, or in actual or constructive possession. 56, 60-62, 70, 75, 79, 102, 105 Personal property — When included in gross estate Property in the United States Real property in the United States Real property outside the United States Return Situs of property Specific exemption, none Stock in domestic corporation Supplemental data Transfer agent Transfer by decedent Transfer certificates United States; bonds, notes and certificates of indebtedness War Finance Corporation, bonds Notes: Canceled by will Description of — on return Nonresident estates — situs Valuation of Notes or bonds of the United States: Deposit of, in connection with — Extension for payment Release of lien Stay of collection of jeopardy assessment Payment of tax with Transfer of — taxable Notice: Failure to file preliminary False or fraudulent Fiduciary Jeopardy assessment without prior Of final determination of tax 67, Of jeopardy assessment Of requirement of bond Of deficiency tax 76 Of unpaid tax Preliminary Transferee or fiduciary Article Page 50 68 50 68 50 68 51-55 71-73 60-62 76,77 56, 78-85 74, 99-111 '9, 102, 105 74, 76-77, 83, 86, 100, 133, 137 50 68 11,50,60 24, 68, 76 11,50 24,68 11,52 24,71 61, 70, 71 76, 83, 84 50 68 4, 48, 51 8, 67, 71 50 08 71 84 61,62 76,77 50 68 62 77 11 24 11 24 11 24 12 26 50 68 13(5) 29 83 106 89 116 96 122 81 100 11 24 92 119 91 119 105, 108 137, 140 76,77 91,97 76, 78, 105 81, 91, 99, 137 76,77 91,97 83 108 76, 78, 105 91, 99, 137 78 99 57-61 7^70 105, 108 137, 140 194 o Article Officers — list of Internal Revenue — - Oriental rugs 13(9) O verassessment, certificate of 78, 99 P Paintings, valuation of 13(9) Partner, decedent's interest as 13 (4) Patents, valuation of. See Intangibles 13(7) Payment of claims and interest 100 Payment of debts, expenses incident to 32 Payment of tax 78-85 By uncertified check 80 Credits against tax 9 Disclosure in regard to 72, 73 Due date for 78 Executor shaE make.. 79 Extension of time — ■ Deficiency tax 83 Tax shown on return 82 Nonresident estates 56 Penalties 80, 93 Proceedings to enforce 76,77,86,105 Receipt for 78 Remainder or reversionary interest '?(b),82(b) Settlement of executor's accounts— receipts for estate tax entitle to credit in 78 Suit to enforce 105 With certain bonds and notes of the United States 81 Penalties 90-94 Ad valorem --. 85, 90-93 Assertion and assessment of 76, 77 Check, tender of, may not prevent 80 Compromise of 101 For assisting, procuring, or advising the prepa- ration or presentation of false or fraudulent documents 94 For delinquency 75, 90-94 For failure to exhibit records or property 93 For failure to file notice or return 67, 75, 92 For failure to furnish information or copies of documents, upon request 66 For failure to pay tax 80, 93 For false and fraudulent notice or return 75, 91 Interest on ad valorem penalty 85 Nature of 90 Notice, delinquency in connection with 57, 92 Preparation or presentation of false or fraudulent return 91, 94 Refund of 99, 100 177-178 130 99, 128 30 29 30 132 53 99-111 100 119 84,85 99 100 106 102 74 100, 120 91, 97, 113, 137 99 21, 103 137 100 119-121 111,: 119- 120 91,97 100 132 121 86, 119-121 120 74, 86, 119 80 100, 120 86, 119 111 119 74, 119 119, 121 128, 132 195 Penalties — Continued. Article Remission of lOi Return, delinquency in connection with 75, 91 , 92 Specific 57, 90-94 Person in actual or constructive possession — when, must file notice or return or information return. 59, 60, 61, 64, 70 See also Personal liability. Personal effects, valuation and distribution of 13(9) Personal liability — persons subject to — administrator, assignee, bank, beneficiary, custodian, devisee, dis- tributee, executor, fiduciary, heir, legatee, person in possession, transferee, trust company, trustee., 56, 61, 75, 79, 87, 88, 102, 105, 108 See also Check not paid at par 80 Personal property: Description of, on return 12 See also Nonresident estates 50 Valuation of 11, 13 Persons required to give notice or make return 58-61, 62, 64, 70 Petition for redetermination of deficiency 9, 76, 77, 85, 95, 99 Philippine Islands, not included in term "United States" 5 Pledge 36 Pledged securities 13(3) Policy of life insurance 12, 25-28 Porto Rico, not included in term "United States" ._ 5 Postponement of possession or enjoyment: Charitable deductions 44 Transfers 18 Valuation 13(10) Power of appointment, property passing under 2, 24 See also section 302(h) — Power of attorney 73, 74, 99 Power to change enjoyment of transfer 19, 20 Power to use fund for noncharitable purpose 47 Power to secure evidence 104 Preliminary notice 57-60 Failure to file 90, 92 False or fraudulent 90, 91, 94 Preparation of return 1, 2, 12, 28, 65, 70, 71 Preparation or presentation of false or fraudulent documents, penalties 90, 91, 94 Presentworth of annuities and future interests 13(10) Presumption or burden of proof: Citizenship ^._ 5 Consent declee, deductions 30 Property held jointly or by the entirety 23 Property taxed previously 41, 43 Refund claim 99 Residence 5 Page 132 86, 119 74, 119-121 75,76,79,83 30 74, 76, 86, 100,114,115, 133,137,140 100 26 68 24,27 75-76, 77, 79,83 19, 91, 97, 111, 122, 128 8 65 27 26, 48-50 8 64 41 31 7,47 50 85, 128 42 66 134 74^76 119 119, 121 5, 7, 36, 50, 66, 79, 83, 84 119, 121 31 8 52 45 58,63 128 8 196 Article Page Previously taxed property 41-43 68-63 See also Nonresident estates 53 72 Privileged character of return and other records 72-74 84^85 Procuring preparation or presentation of false or fraudulent documents, penalties 91,94 119,121 Production of evidence 103,104 134 Promulgation of regulations 110 141 Proofs. See Presumption or burden of proof. Property, description of , on return 12 26 Property previously taxed 41-43 68-63 See also Nonresident estates 53 72 Property, situs of 11,50 "24,68 Property subject to lien of tax 88 115 Property tax, estate tax is not a 3 7 Property, taxes on, deductibility 37 55 Property transferred — inclusion in gross estate 15-21 38-43 Property, valuation of 13 27 Q Question of law, ruling on, by Commissioner 73 85 R Rates of tax (section 301) 7 Real estate (generally)---. 10, 11, 13(2) Assessment for local taxation not determinative of value 13(2) Description of, on return 12 Devisee, taking directly 11 Entirety, estate by 22, 23 Heirs taking directly 11 tifeestate 11, 13(10) Mortgaged, full value to be returned 38 Mortgage on 38, 62 Outside the United States 1 1, 38, 62-54 24, Remainder Interest in 11, 13(10) Taxeson. See Deductions 37 Valuation of 13(2) Receipts granted upon payment of tax 78 Reciprocity with State officials 67 Recognition of attorneys, agents, and other repre- sentatives 73, 74, 99 Records: Duty of person having possession or control of_. 66, 93 Executor, duty to keep 106 Falsification of 93, 94 Production of 103, 104 Redetermination of deficiency 76 Refund 99, 100 Credit for State inheritance and similar taxes aUowed 9(b) Determined tax less than amount paid 78 Of taxes for which credit was claimed, should be reported 9(b) 21 10 24,27 27 26 24 44,45 24 24,31 65 55,71 55, 71-73 24,31 65 27 99 81 86, 128 80, 120 139 120, 121 134 91 128, 132 21 99 197 Article Page Registrar, nonresident estate — when to file informa- tion return 61 76 Regulations, authority for 110 141 Regulations 37, 63, 68, and 70, modified .... 110 141 Reimbursement, for payment of estate tax 87 114 Release of lien 88,89 115,116 Relationship of beneficiary does not affect taxability. 3 7 Relief from excessive assessment or collection. . 95-99 122-128 Religious use 44,54 64,73 Relinquishment of power to alter, amend, or revoke atransfer 15,21 38,43 Relinquishment of right, power, or interest. See section 302 (h) — 50 Remainder, interest in reversion or: Credit for State inheritance or similar taxes ap- plicable thereto 9(b), 82(b) 21,103 Death of grantor terminating 11 24 Deductibility of 44 64 Inclusion of 11 24 Valuation of . 13(10) 31 Remedies for collection 105 137 Rents, accrued at time of death — whether then pay- able ornot 11 24 Repeal of Revenue Act of 1924, and of certain parts of the Revenue Act of 1926, scope of 109 141 Representatives of claimants, recognition and author- izationof 73,74,99 85,128 Representatives of decedent, preliminary notice 59, 60 75, 76 Reservation of income in favor of grantor made in connection with a transfer 18 41 Reservation or retention of power to alter, amend, or revoke transfer ._ 15,20,21 38,42,43 Reservation or retention of power to designate who shall possess or enjoy 19 42 See also section 302 (h) — 50 Resident decedent: Definition 5 8 Deductions 29-48 52-67 Gross estate 4,10-28 8,24-50 See aZso section 302 (h) — 50 Presumption 5 8 Restrictions on assessment, waiver of 85 111 Specific exemption 4,48 8,67 Retention of power to alter, amend, or revoke transfer 15, 20, 21 38, 42, 43 Retention of power to designate who shall possess or enjoy transferred property 19 42 Retroactive provisions. (See section 302 (h) — 60 Return: Administrator to file 64,70,75 79,83,86 Audit of 76 91 Beneficial interest, person holding, when to make return 64,70,108 79,83,140 198 Return — Continued. Article Charitable bequest 46 Commissioner or collector — Securing evidence 103 When to make 75 Confidential 72 Copy of 72 Delay in filing, penalties 75, 90, 92 Deductions 29-48 Description of property on 12 Disclosure in regard to 67, 72, 73 Due date 63, 68-70 Examination of 13(9), 67 Executor to file 64, 70, 75 Extension of time for filing 68, 69 Failure to file, penalties 75, 90, 92 False or fraudulent 75, 90, 91,94 FOing 63, 68-70, 75 Information return 61 Interest on tax shown on 84 Investigation of 67 Mathematical error in 77, 85 Nonresident estates 61, 70, 71, 75 N on taxable estates 4, 5 Penalties 90-94 Persons liable for return — Nonresident estates 61, 70 Resident estates 64 Preparation of return 12, 65 See also Nonresident estates 61, 70 Privileged character of return 72-74 Property previously taxed 41-43 Resident estates 63-69 Tax shown by, payment of 78-82, 84 Verification of 67 When required — Nonresident estates 61, 70 Resident estates 63 WiU to be filed with . 46, 65, 71 Reversionary interest, inclusion of 11 Postponement of payment of tax with respect to_ 82(b) Credit for estate, inheritance, legacy, or succes- sion taxes applicable thereto 9 (b) Revenue Act 1926, estate tax title — Revenue Act 1926, Title III, as amended and sup- plemented by the Revenue Acts of 1928, 1932, and 1934. (See Analytical Table of Contents — Revenue agents in charge, list of — Revocable trust 15, 20, 21 See also section 302 (h) — Revocation, reservation in connection with transfer— r of power of 15, 21 See also section 302 (h) — Page 66 134 86 84 84 86, 119 52-67 26 81, 84, 85 78, 82-83 30,84 79, 83, 86 82 86, 119 86, 119, 121 78, 82-83, 86 76 110 81 97, 111 76, 83, 84, 86 8 119-121 76,80 79 26,79 76,83 84^85 58-63 78-82 99-102, 110 81 76,83 78 66, 79, 84 24 103 21 143 III 177-178 38, 42, 43 50 38,43 50 199 Article Page Royalties, valuation of. See Intangibles 13(7) 30 Rugs, oriental, valuation of 13(9) 30 S Safe deposit companies, preliminary notice by 59,60 75,76 Salary due the decedent U 24 Sale for less than an adequate and full consideration. See Transfers 15-21 38-43 Sale of property as indication of value at time of death 13(1)(3) 27 Sale of property under a power of appointment 24 47 Sale, when cost of , is an administration expense 35 55 Scope of repeal of Revenue Act of 1924 109 141 Securities of nonresident decedent 50, 61, 62 68, 76, 77 Securities, valuation of 13(3) 27 Settlement of estate: Administration expenses 29-35, 52 52-55, 7 1 Losses during 39 56 Support of dependents duringJ 40 56 Tax paid, credit for, in 78 99 Shares of stock. See Stocks and bonds 13(3) 27 Shipwreck, losses from 39 56 Silverware, valuation of 13(9) 30 Situs of property 11,50 24,68 Special power of appointment 24 47 Specific exemption 4,48 8,67 None in nonresident estates 4,48 8,67 Specific penalty 76, 90-94 91, 119-121 Spouse surviving. (See Dower; Curtesy; Home- stead and other exemptions; Previously taxed property; Support of dependents; Jointly owned property; Tenants by the entirety.) Stamps, collections of 13(9) 30 State bonds, transfer of, taxable 11 24 State oflBcials, cooperation with 67, 73 81, 85 State taxes: Cooperation with officials 67,73 81,85 Credit for estate, inheritance, legacy, or succes- sion 9(b) 21 Deduction of 37 55 Statements, executor's duty to render 107 139 Statuary, valuation of 13(9) 30 Statute of limitations 36, 77, 99 55, 97, 128 Statute, text of: 1926 — 143 1926, as amended and supplemented by the Rev- enue Acts of 1928, 1932, and 1934. See An- alytical Table of Contents — iii Stay bond 77, 85, 96 97, 111, 122 Stocks and bonds: Nonresident estates 50,61,62 68,76,77 Valuation of 13(3) 27 182135°— 34 14 200 Article Subpoenas. See Evidence 103, 104 Subscription 36 Succession tax: Credit for 9(b) Cooperation with State officials 67, 73 Estate tax is not a 3 Suit, collection of tax by 86, 105 Supplemental data may be required 46, 66 Nonresident estates 71 Support of dependents 40 Surrogates' fees 35 Surviving partner succeeding to interest of the de- cedent 13(4) Surviving spouse. (See Dower; Curtesy; Homestead and other exemptions; Previously taxed property; Support of dependents; Jointly owned property; Tenants by the entirety.) Survivorship, property passing by right of 2, 22, 23 See also section 302 (h) — T Table: Annuity and remainder 13(10) Computation of tax 8 Of contents (see front hereof) — Tax Appeals, Board of... .9(b), 76, 77, 85, 95, 99 Tax rates 7 Tax, Federal estate: Abatement 95 Act 1926, as amended and supplemented by the Revenue Acts of 1928, 1932, and 1934. See Analytical Table of Contents — Acts, regulations respecting prior 110 Acts, successive 1 Additions to. (See Interest on deficiency, and ad valorem penalty.) Agreement as to 76, 93 Assessment of deficiency 77 Character of 3 Collection of 77-86, 96, 102, 105 Computation of 6-8 Credits against . 9 Deduction on account of payment of previous. . 41 Deductions generally . 29-48 See also Nonresident estates ., 52-54 Deficiency tax. (See Deficiency tax.) Determination of 6-8, 55 Bureau procedure 67, 76, 78 Disclosure in regard to amount or payment of. _ 72, 73 Due date of 78 Executor shall pay the tax 79, 105 See also Nonresident estates : 56,62 134 55 21 81,85 8 113, 137 66,80 84 56 55 29 7, 44, 45 50 31 10 III 21, 91, 97, 111, 122, 137 10 122 III 141 5 91, 120 97 7 97-113, 122, 133, 137 9-10 19 58 52-67 71-73 9-10, 73 81, 91, 99 84,85 99 100, 137 74,77 201 Tax, Federal estate — Continued. Article Page Gross estate _ 4,10-28 8,24^50 See aiso Nonresident estates 50,51 68,71 Interest on — Deficiency 76,85 91,111 Refund 100 132 Tax shown on return ..- 82,84 102,110 Liability, manner of determining 6 9 Liability of persons and property 56,62, 74,77, 76, 79, 87, 88, 102, 105, 108 91, 100, 114, 115,133, 137,140 Lien for ..- 88,89 115,116 Life insurance, to provide for payment of 26 49 Nature of _ 3 7 Payment essential to deduction for previously taxed property 41 58 Payment of. (For analysis, see Payment of tax) . 78, 85, 87-89 99, 111, 114-116 See also Nonresident estates 56 74 Penalty for failure to pay 93 120 Rates of 7 10 Refund of tax and penalties 99, 100 128, 132 Return, filing of 63, 68-70, 75 78, 82-83, 86 Shown on return. (For analysis, see Tax shown on return) 78-82,84 99-102,110 Text of Act. See Analytical Table of Contents — iii Waiver of restrictions on assessment and collec- tion 77 97 Tax, Federal gift.. 9(a). 41, 53 19, 58, 72 Tax, Federal income 37 56 Tax liability: | Determination of 6,67,76 9,81,91 Discharge of 67,78-81,89 81, 99-100, 116 Persons and property subject to 56,62, 74,77,86, 75, 79, 87, 88, 102, 105, 108 100, 114, 115, 133, 137, 138 Tax shown on return: Extension of time for payment 82 102 Interest on.. 82,84 102,110 Lien of 88,89 115,116 Payment of 66,78-82,93 74, 99-102, 120 Refund of 99,100 128,132 Undischarged - 78,84 99,110 Taxable estates 4 8 Taxation, local, assessment for, not determinative of value 13(2) 27 Taxes, credit for estate, legacy, inheritance, or suc- cession — ^levied by other sovereignties 9(b) 21 Taxes, deduction of 37 65 Taxes due the United States, payment of, before refund of estate tax 100 132 202 Taxes, estate, inheritance, legacy, or succession — levied by other sovereignties: Article Cooperative investigation 67, 73 Credit for 9(b) Deduction, none for 37 Taxes, life insurance to provide for payment of 26 Taxes, rules determining deductibility 37 Tenancy in common, joint, or by the entirety 22, 23 Tenants, life. See Life estates or interests. Tentative finding of deficiency tax 67, 76 Text of estate tax title, Revenue Act of 1926 — Text of estate tax title, Revenue Act 1926 as amended and supplemented by Revenue Acts of 1928, 1932, and 1934, for references to — see Table of Contents. — Testimony, taking 103, 104 Theft, losses from 39 Time. See Retrospective provisions, section 302 (h) - — See also — Acts, successive 1, 110 Credits for estate, inheritance, legacy, or succession taxes 9(b) Dower and curtesy 14 Effective dates of the successive Acts 7 General 2, 10 Insurance 25, 27 Notice 67, 60 Payment of tax 78 Power of appointment 24 Property previously taxed 41 Refund 99 Return 63, 70 Transfer 15-21 Time deposits 13(6) Title vested in decedent and one or more other per- sons 22,23 Tombstone 31 Trade-marks, valuation of. (See Intangibles 13(7) Transfer agent, nonresident estate, when to file information return 61 Transfer certificate permitting the transfer of prop- erty of nonresident decedent 62 Transfer of net estate taxed, not the property 3 Transfer of securities, nonresident decedent 62 Transferee 87, 88, 105, 108 See also Executor; definition of 59, 60 Transfers, by wiU or under intestate laws 2 Transfers made by decedent in his lifetime 15 Charitable uses 44^47, 54 Checks outstanding at date of death 13(6) Consideration for 2, 15-20 Date of transfer 15-20 See also section 302 (h) — Page 81,85 21 55 49 55 44,45 81,91 143 III 134 56 50 5,141 21 36 10 7,24 48,49 74,76 99 47 58 128 78,83 38-43 29 44,45 53 30 76 77 7 77 114, 115, 137, 140 75,76 7 38 64^66, 73 29 7, 38-42 38-42 50 20P 0005000 g rH ,H rH ,-1 r-lTH rt rH ,-H ,-H ,-H C<<(N (N 1 h 1-9 igooogoogooogogooooooooooooo 1 rtT-(iNiNM'*iocoooa>'-iroei3Ki 1 r-^i-^COCi (3) In effect from 6 p. m., eastern standard time, June 6, 1932, to May 10, 1934, inclusive. (Tentative tax, 1932 Act.) Total taxes imposed by 1926 Act and by 1932 Act Bate of tax on excess over amount in column (A) g tH rH rH rt -H N IN N N IM M eO M CO CO •* rH ■* rjf ■* 1? Is is igggoooooogggggggggggooooooo i^cocoomosooooooooooooooooooooo 1 ^.-HN>OTfto"cnj>OJrqtorocqiooOr-c*i>oc<550WOc^-*tDooooo ,-H ,-H rH N C*l (N CO CO CO -^ ■'^ ^ ■'il lO iO U3 lO UD CD CD CD 1 §2 1-9 looooooooooooooooooooooooooo lOOOOOOOOOOOOOOOOOOOOOOOOOOO J ,-H coco 01*3 05 CO CO CO CO CO CD CD CO CO CO CD COCO^COCDcDcDCOCDCD t ,-rrH'cfu3'b^ori>r,-H'iFH',-rco'co'i-r*H*co'co' Tl ,-H CO l^ CO 1-11-1 ,-1 1 1-1 ,-1 CO ■* CD 00 O N ■* J>(N 1> « CO 1* ■* 1* 1 •H',-rrt"rt'(NiOOOT-lTi(J>OCOC003i-lCOl01>050 .„ iH rt T-l 1-H (N N CSl IN CO CO CO I*! 1* ■* tt) lO in lO CD CO CO CO CO l> 1-9 lOOOOOOOOOOOOOOOOOOOOOOOOOOO lOOOOOOOOOOOOOOOOOOOOOOOOOOO iC«COC■~cfl^^^-"^-"c<^lN"(N~N"cfN■ci^lN■" 1 (N CO 1-1 CO IN 00 U5 Ttl in !>. O «0 IN 00 t^ 00 1-1 CO CD CO 1 rH rt 1-4" rH IN COCO^-tH rt cf 1 iHCO (B) Net estate not exceeding— OOOOOOOOOOOOOOOOOOOOOOOOOOO 1 OOOOOOOpOQOOOOOOOOOOOOOOOOO 1 OOOOOOOOOOOOOOOOOOOOOOOOOOO 1 ooo~o~o~oo'oo"o~o~o'"o"o"o'o"o''o~o''o'"o'"o'"o'"o'"o''(Do'' 1 rt(NcOitl>Ot»OOOOOOOOOOOOOOOpOOOOO 1 89 i-lCQi*CD00O»OO"5 OiOOiOOOO OOOOO i i-rrH~iN(N"eo~co"^~'*incD"i>oo~05"o''o"o'" 1 iH cqiO 1 (A) Net estate equaling— lOOOOOOOOOOOOOOOOOOOOOOOOOOO ;gggogogggoogoooooooggggoogg i 2 § s iW| 1 1"| 1 1 1 1 1 1 1 1 If 1 1 1 1 1 1 1 1 i-ri4'iNcsrco-co"'!tr'*>oco"t-'"oo'"os"o~o"o" 1 iH INld 16 (4) In effeot from Sept. 9, 1916, to Mar. 2, 1917, inclusive. Revenue Act of 191P Rate of tax on excess over amount in column (A) g .-< i-H tH 1 Is ' 1 ^ 1 fife 1 >-l 0 Til T|l Til 1 rHrt(NeC5O00 (3) In effect from Mar. 3, 1917, to Oct. 3, 1917, inclusive. Revenue Act of 1916 as amended by Act of Mar. 3, 1917 Rate of tax on excess over amount in column (A) r-(MTl0>OSO«MiO«5iO 1 |2 iiOiOOiOiOOOOOOOOO 1 1> ».- (N N t>>f5 >o to lo lo in lo >n 1 y^ 1 coQoo'cC*50000IMiO 1 |2 B 1.9 1 .-TlOr-TlClCNNNIN'" fffN csTcf i» rtlMi000Tiio.*O0000(N 1 i-H (N eo in lo N t- I T-H",-i (1) In effect from 6.66 p. m., east- ern standard time, Feb. 24, 1919, to 10.26 a. m., eastern standard time, Feb. 26, 1926. Revenue Acts o 1918, 1921, and 1924 Rate of tax on excess over amount in column (A) j-KNCCThOOOON-^tOOOOINiO 1 1^ ii 1 ^IN ineC rtrt~rH~TH~rt~rt"^"rt"r-r 1 1-1 e<5 in o to o to Tji T)( 00 1 i-< i-H m 'ii to N CD 1 ,-H r-i g u s.a 1 OOOOOOOOOOOOO 1 OOOOOOOOOOOOO 1 OOOOOOOOOOOOO 1 o~o"o~o"o'"o'"o"o"o"o''o'"o'"o p io»n»oio»ooooooooo 1 s«-i-ieiit^oiooooooo i l-^7-^l:i'm■^laoo but only if begun (1) within six years after the assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the Commissioner and the executor. (c) This section shall not bar a distraint or proceeding In court begun before the enactment of the Eevenue Act of 1924; nor shall it authorize the assessment of a tax or the collection thereof by dis- traint or by proceeding in court (1) if at the time of the enactment of this Act such assessment, distraint, or proceeding was barred by the statutory period of limitation properly applicable thereto, unless prior to the enactment of this Act the Commissioner and the executor agreed in writing thereto, or (2) contrary to the provisions of subdivision (a) of section 308 of this Act. Sec. 312. (a) If the Commissioner believes that the assessment or collection of a deficiency will be jeopardized by delay, he shall imme- diately assess such deficiency (together' with all Interest, additional amounts^ or additions to the tax provided for by law) and notice and demand shall be made by the collector for the payment thereof. (b) If the jeopardy assessment is made before any notice in respect of the tax to which the jeopardy assessment relates has been mailed under subdivision (a) of section 308, then the Commissioner shall mail a notice under such subdivision within 60 days after the making of the assessment. (c) The jeopardy assessment may be made in respect of a defi- ciency greater or less than that notice of which has been mailed to the executor, despite the provisions of subdivision (f) of section 308 and whether or not the executor has theretofore filed a petition with the Board of Tax Appeals. The Commissioner shall notify the Board of the amount of such assessment, if the petition is filed with the Board before the making of the assessment or is subsequently filed, and the Board shall have jurisdiction to redetermine the entire amount of the deficiency and of all amounts assessed at the same time in connection therewith. (d) If the jeopardy assessment is made after the decision of the Board is rendered such assessment may be made only in respect of the deficiency determined by the Board in its decision. (e) A jeopardy assessment may not be made after the decision of the Board has become final or after the executor has filed a petition for review of the decision of the Board. (f) When a jeopardy assessment has been made the executor, within 30 days after notice and demand from the collector for the payment of the amount of the assessment, may obtain a stay of col- lection of the whole or any part of the amount of the assessment by filing with the collector a bond in such amount, not exceeding double the amount as to which the stay is desired, and with such sureties, as 113 the collector deems necessary, conditioned upon the payment of so much of the amount, the collection of which is stayed by the bond, as is not abated by a decision of the Board which has become final, together with interest thereon as provided in subdivision (j) of this section. (g) If the bond is given before the executor has filed his petition with the Board under subdivision (a) of section 308, the bond shall contain a further condition that if a petition is not filed within the period provided in such subdivision, then the amount the collection of which is stayed by the( bond will be paid on notice and demand at any time after the expiration of such period, together with interest thereon at the rate of 6 per centum per annum from the date of the jeopardy notice and demand to the date of notice and demand under this subdivision. ******* (i) When the petition has been filed with the Board and when the amount which should have been assessed has been determined by a decision of the Board which has become final, then any unpaid por- tion, the collection of which has been stayed by the bond, shall be collected as part of the tax upon notice and demand from the col- lector, and any remaining portion of the assessment shall be abated. If the amount already collected exceeds^ the amount determined as the amount which should have been assessed, such excess shall be refunded. If the amount determined as the amount which should have been assessed is greater than the amount actually assessed, then the difiEerence shall be assessed and shall be collected as part of the tax upon notice and demand from the collector. * * * SEa 318. (a) If after the enactment of this Act the Commissioner determines that any assessment should be made in respect of any estate or gift tax imposed by the Revenue Act of 1&17, the Revenue Act of 1918, the Revenue Act of 1921, or the Revenue Act of 1924, or by any such Act as amended, the Commissioner is authorized to send by registered mail to the person liable for such tax notice of the amount proposed to be assessed, which notice shall, for the purposes of this Act, be considered a notice under subdivision (a) of section 308 of this Act. In the case of any such determination the amount which should be assessed (whether as deficiency or additional tax or as in- terest, penalty, or other addition to the tax) shall be computed as if this Act had not been enacted, but the amount so computed shall be assessed, collected, and paid in the same manner and subject to the same provisions and limitations (including the provisions in case of delinquency in payment after notice and demand and the provisions prohibiting claims and suits for refund) as in the case of a deficiency in the tax imposed by this title, except that in the case of an estate tax imposed by the Revenue Act of 1917, the Revenue Act of 1918, or the Revenue Act of 1921, or by any such Act as amended, the period of limitation prescribed in section 1109 of this Act shall be applied in lieu of the period prescribed in subdivision (a) of section 310. * * * Sec. 1109 (as amended by section 619 (a). Revenue Act of 1928). (a) Except in the case of * * * estate, and gift taxes — (1) Notwithstanding the provisions of section 3182 of the Revised Statutes or any other provision of law, all internal-revenue taxes shall (except as provided in paragraph (2) or (3) of this subdivision) be assessed within four years after such taxes became due, and no pro- 114 ceeding in court without assessment for the collection of such taxes shall be begun after the expiration of five years after such taxes became due. (2) In case of a false or fraudulent return with intent to evade tax, of a failure to file a return within the time required by law, or of a willful attempt in any manner to defeat or evade tax, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time. (3) Where the assessment of any tax imposed by this Act or by prior Act of Congress has been made (whether before or after the enactment of this Act) within the statutory period of limitation prop- erly applicable thereto, such tax may be collected by distraint or by a proceeding in court (begun before or after the enactment of this Act), but only if begun (A) within six years after the assessment of the tax, or (B) prior to the expiration of any period for collection agreed upon in writing by the Commissioner and the taxpayer. (b) This section shall not bar a distraint or proceeding in court begun before the enactment of the Revenue Act of 1924 ; nor shall it authorize the assessment of a tax or the collection thereof by dis- traint or by proceeding in court if at the time of the enactment of this Act such assessment, distraint, or proceeding was barred by the statu- tory period of limitation properly applicable thereto, unless prior to the enactment of this Act the Commissioner and the taxpayer agreed in writing thereto. Sec. 403. Revenue Act of 1932. Except as provided in section 402, the tax imposed by section 401 of this Act shall be assessed, collected, and paid, in the same manner, and shall be subject to the same provisions of law (including pen- alties), as the tax imposed by section 301 (a) of the Revenue Act of 1926, * ♦ *. SBC. 310. (b) (as originally enacted) The running of the statute of limitations provided in this section or in section 311 on the making of assessments and the beginning of distraint or a proceeding in court for collection, in respect of any deficiency, shall (after the mailing of a notice under subdivision (a) of section 308) be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or a proceeding in court, and for 60 days thereafter. Note. — The above subdivision was amended by section 402(a) of the Revenue Act of 1928, by inserting the following: "(and in any event, if a proceeding in respect of the deficiency is placed on the docket of the Board, until the decision of the Board becomes final)". Section 402(b) of the Revenue Act of 1928 reads as follows: "Subsection (a) of this section shall apply in all cases where the period of limitation has not expired prior to the enactment of this Act." Art. 77. Assessments. — In any case in which the Commissioner be- lieves that the assessment or collection of a deficiency tax will be jeopardized by delay, he will make an immediate assessment thereof. In such case the assessment may be made before the mailing 115 of the notice provided by sfection 308(a), or at any time there- after prior to the filing of a petition for a review by the court of a decision rendered by the Board. If the jeopardy assess- ment is made subsequent to a decision of the Board, then the assess- ment is limited to the amount of the deficiency determined by the Board. If the jeopardy assessment is made before any notice in respect of the deficiency to which the jeopardy assessment relates has been mailed under subdivision (a) -of section 308, the Com- missioner will mail a notice as provided by such subdivision within 60 days after the making of such jeopardy assessment. If an amount of tax in excess of that shown upon the return is determined to be due as a result of the correction of a mathematical error appearing upon the face of the return, the executor will be duly notified and an assessment made of the tax which would have been the correct tax but for the mathematical error. The notice that the correct amount of the tax has been assessed will not be a notice of a deficiency within the meaning of subdivision (a) of sec- tion 308 or section 319 and the executor has no right to file a petition with the Board of Tax Appeals based upon such notice. If a petition is filed with the Board, the entire amount redeter- mined as the deficiency by the decision of the Board which has become final will be assessed, except such portion as may have been assessed as a jeopardy assessment. If no petition is filed with the Board within the time prescribed in section 308 (a), the deficiency, notice of which has been mailed to the executor, will be assessed. If the executor by a signed notice in writing filed with the Commis- sioner waives the restrictions on the assessment and collection of the whole or any part of a deficiency, assessment of such whole or part wiU be made immediately, (As to payment, see articles 78 to 85, inclusive.) All assessments against executors (as to assessments against trans- ferees and fiduciaries, see article 105), except in the case of a false or fraudulent return, or of a failure to file a return within the time required by law, must be made within three years after the return was filed (four years after the due date of the tax if the decedent died prior to the effective date of the Kevenue Act of 1924). If notice of a deficiency is mailed in accordance with the provisions of subdivision (a) of section 308, then the period within which assess- ment thereof is required to be made is extended for the period during which the Commissioner is prohibited from making the assessment and for 60 days thereafter. If a proceeding in respect of the defi- ciency is placed on the docket of the Board, the period within which assessment is required to be made is extended until the decision of the Board becomes final and for 60 days thereafter. If an extension 116 of time for payment of the tax is granted in accordance with sec- tion 305(b) or section 308 (i), as amended by section 808 of the Reve- nue Act of 1932, the period within which assessment is required to be made is extended by the time covered by such extension. In case of a false or fraudulent return with intent to evade the tax, or of a failure to file a required return, the tax may be assessed, or proceedings in court for collection may be begun without assess- ment, at any time. PAYMENT OF AND RECEIPTS FOR TAXES Seo. 305. (a) (as amended by section 20S(a) of the Eevenue Act of 19S5) The tax imposed by this title shall be due and payable fifteen months after the decedent's death, and shall be paid by the executor to the collector. • ♦ » Seo. 308. * * * (b) If the executor flies a petition with the Board, the entire amount redetermined as the deflciency by the decision of the Board which has become final shall be assessed and shall be paid upon notice and demand from the collector. * * * (c) If the executor does not file a petition with the Board within the time prescribed in subdivision (a) of this section, the deflciency, notice of which has been mailed to the executor, shall be assessed, and shall be paid upon notice and demand from the collector. * * * Seo. 313. (a) The collector shall grant to the person paying the tax duplicate receipts, either of which shall be suflBcient evidence of such payment, and shall erititle the executor to be credited and allowed the amount thereof by any court having jurisdiction to audit or settle his accounts. • * * Seo. 1118. (a) Collectors may receive, * * * uncertifled 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 rules and regulations as the Commissioner, with the approval of the Secretary, 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 to the same extent as if such check had not been tendered. Sec. 305. (a) (as originally enacted) The tax imposed by this title shall be due and payable one year after the decedent's death, and shaU be paid by the executor to the collector. * * * NofTE. — The above subdivision was amended by section 203(a) of the Revenue Act of 1985 by substituting "fifteen months" for "one year". Section 203(c) of the Revenue Act of 1985 reads as follows : "The amendments made by this section shall be effective only with respect to transfers of estates of decedents dying after the date of the enactment of this Act." Ajrt. 78. Pasmient of tax; General. — The tax is due and must be paid within 15 months from the date of death if the decedent died on or after August 31, 1935, or within 1 year from the date of death if 117 the decedent died before August 31, 1935, unless an extension of time for payment thereof has been granted by the Commissioner. (See also article 82.) If the tax is due 15 months after the decedent's death, the due date is the day of the fifteenth calendar month after his death numerically corresponding to the day of the calendar month in which death occurred, except that, if there is no numeri- cally corresponding day in such fifteenth month, the last day of such fifteenth month is the due date. For example, if the decedent died on August 31, 1937, the due date is November 30, 1938. No discount will be allowed for payment in advance of the due date. The col- lector will grant to the person paying the tax duplicate receipts, either of which will be sufficient evidence of such payment and en- title the executor to be credited with the amount by any court having jurisdiction to audit or settle his accounts. Following an investigation of the return, the tax liability will be determined by the Commissioner. If the amount of tax shown on the return has been paid and exceeds the amount of tax as determined, a certificate of overassessment will be prepared and issued, regard- less of whether or not a claim for refund of such excess payment is filed unless refundment of such excess is barred by the statute of limitations, or such excess is otherwise not refundable, as in the case of a compromise (see article 101), a closing agreement (see arti- cle 76) conclusively fixing the amount of tax liability, or an estoppel. If the amount of tax as determined exceeds the amount of tax already paid but is less than the amount shown on the return, the executor will be notified of the amount of the unpaid tax and payment thereof should be made to the collector. If the audit of the return does not disclose a deficiency tax or overpayment the executor will be notified to that effect. If, as a result of the audit of the return, a deficiency in respect of the tax is finally determined and such de- ficiency is in whole or in part assessed (see article 77), the executor should pay the amount of the deficiency assessed upon notice and demand from the collector, except in the case a stay of the collection of a jeopardy assessment is obtained by the filing of a bond (see article 96), or an extension of time for payment is granted (see article 83). Until any tax determined by the Commissioner, including any deficiency, is assessed, the executor should reserve a sufficient portion of the estate to satisfy any unpaid assessment. Aet. 79. The executor shaU pay the tax. — The statute provides that the executor shall pay the tax. This duty applies to the entire tax, regardless of the fact that the gross estate consists in part of prop- erty which will not come into his possession. If there is no duly qualified executor or administrator, all persons in actual or con- structive possession of any property of the decedent are liable for 118 and required to pay the tax to the extent of the value of such prop- erty. (See section 300 (a). As to the personal liability of the exec- utor, see article 102.) Aet. 80. Payment by check. — Collectors may accept uncertified checks in payment of the tax, provided such checks are collectible at par, that is, for the full amount, without any deduction for ex- change or other charges. The collector will stamp upon the face of each check before deposit thereof the words "This check is in pay- ment of an obligation to the United States and must be paid at par. No protest." This should be followed by his name and title. The day on which the check is received will be considered the date of payment so far as the taxpayer is concerned, unless the check is re- turned dishonored. If the bank on which a check is drawn should refuse to pay it at par, the check should be returned through the depositary bank. All expenses incident to the attempt to collect such a check and the return of it through the depositary bank must be paid by the drawer of the check to the bank on which it is drawn. (See section 3210 of the Revised Statutes, as amended, reenacted by section 1128(b) of the Revenue Act of 1926.) In the case a check has been returned un- collected by the depositary bank, the collector should proceed to col- lect the tax as though no check had been given, and the taxpayer will remain liable for payment of the tax and for all interest, legal penal- ties and additions, if any attach, to the same extent as though such check had not been tendered. A taxpayer who tenders a certified check in payment of the tax is not released from his obligation until the check has been paid. (See U. S. C, 1934 edition, Title 26. section 1546(a).) Treasury Department Circular No. 176, as amended, prescribes detailed regulations governing the deposit and collection of checks. Collectors are referred to paragraphs 13-16 and paragraph 26 thereof as to the deposit of taxpayers' checks and the handling of uncollected or lost items. Art. 81. Payment with bonds of the United States. — ^Payment of the tax may be made with certain bonds of the United States in accord- ance with section 14 of the Second Liberty Bond Act, as amended (U. S. C, 1934 edition. Title 31, section 765), and Department Circu- lar 225, as amended and supplemented, issued pursuant thereto. Such bonds must bear interest at a higher rate than 4 per cent per annum, and are receivable at par value, together with interest accrued at the time of payment, provided they were owned by the decedent con- tinuously for at least six months prior to the date of his death, and upon such date constituted a part of his gross estate. 119 EXTENSION OF TIME FOR PAYMENT OF TAX Sec. 305. » * * (b) (as amended by section 808(a) of the Revenue Act of 1932) Where the Commissioner finds that the payment on the due date of any part of the amount determined by the executor as the tax would impose undue hardship upon the estate, the Com- missioner may extend the time for payment of any such part not to exceed eight years from the due date. In such case the amount in, respect of which the extension is granted shall be paid on or before the date of the expiration of the period of the extension, and the run- ning of the statute of limitations for assessment and collection, as provided in sections 310(a) and 311(b), shall be suspended for the period of any such extension. If an extension is granted, the Com- missioner may require the executor to furnish a bond in such amount, not exceeding double the amount in respect of which the extension is granted, and with such sureties as the Commissioner deems neces- sary, conditioned upon the payment of the amount in respect of which the extension is granted in accordance with the terms of the exten- sion. * * * (e) (as added by section 811(a) of the Revenue Act of 1932) Where there is included in the value of the gross estate the value of a rever- sionary or remainder interest in property, the payment of the part of the tax imposed by this title attributable to such interest may, at the election of the executor, be postponed until six months after the termi- nation of the precedent interest or interests in the property, and the amount the payment of which is so postponed shall then be payable, together with Interest thereon at the rate of 4 per centum per annum from eighteen months after the date of the decedent's death until such amount is paid. The postponement of payment of such amount shall be under such regulations as the Commissioner with the approval of the Secretary may prescribe, and shall be upon condition that the exec- utor, or any other person liable for the tax, shall furnish a bond in such an amount, and with such sureties, as the Commissioner deems necessary, conditioned upon the payment within six months after the termination of such precedent interest or interests of the amount the payment of which is so postponed, together with interest thereon, as above provided. Such part of any estate, inheritance, legacy, or succession taxes allowable as a credit against the tax imposed by this title as is attributable to such reversionary or remainder interest may be allowed as a credit against the tax attributable to such interest, subject to the percentage limitation contained in section 301(c), if such part is paid, and credit therefor claimed, at any time prior to the expiration of 60 days after the termination of the precedent interest or interests in the property. NoTa — Section 811(b) of the Revenue Act of 1932 reads as follows: "The amendment to section 305 of the Revenue Act of 1926 made by subsection (a) of this section, shall not apply, in the case of estates of decedents dying prior to the date of the enactment of this Act, to that part of any payment of Federal estate taxes made prior to such date which is attributable to a reversionary or remainder interest in property." 9172°— 37 9 120 Sec. 308. * * * (i) (as amended by section 808(b) of the Kev- enue Act of 1932) Where it is shown to the satisfaction of the Com- missioner that the payment of a deficiency upon the date prescribed for the payment thereof will result in undue hardship to the estate, the Commissioner, with the approval of the Secretary (except where the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax), may grant an extension for the payment of such deficiency or any part thereof for a period not in excess of four years. If an extension is granted, the Commissioner may require the executor to furnish a bond in such amount, not exceeding double the amount of the deficiency, and with such sureties as the Commissioner deems necessary, conditioned upon the payment of the deficiency in accordance with the terms of the extension. In such case the running of the statute of limitations for assessment and collection, as provided in sections 310(a) and 311(b), shall be suspended for the period of any such extension, and there shall be collected, as a part of the tax, interest on the part of the deficiency the time for payment of which is so extended, at the rate of 6 per centum per annum for the period of the extension, and no other interest shall be collected on such part of the deficiency for such period. If the part of the deficiency the time for payment of which is so extended is not paid in accordance with the terms of the extension,, there shall be collected, as a part of the tax, interest on such unpaid amount at the rate of 1 per centum a month for the period from the time fixed by the terms of the extension for its payment until it is paid, and no other interest shaU be collected on such unpaid amount for such period. Note. — Section 404 of the Revenue Act of 1935 had the effect of changing the rate of interest of 1 per centum a month provided In the above subdivision to 6 per centum per annum for any period after August 30, 1935. Such section 404 reads as follows : "Notwithstanding any provision of law to the contrary, interest accruing during any period of time after the date of the enact- ment of this Act upon any internal-revenue tax (including amounts assessed or collected as a part thereof) or customs duty, not paid when due, shall be at the rate of G per centum per annum." Aet. 82. (a) Extension of time for payment of tax shown on return. — In any case in which the Commissioner finds that payment, on the due date, of the tax shown on the return would impose undue hard- ship upon the estate, an extension or extensions of time will be granted for the payment of the tax for a period not to exceed in all eight years from the due date. Extensions of time for tax payment will be granted only in exceptional cases, and those in which it is evident that the payment of the tax on or before the due date would impose upon the estate undue hardship. What constitutes "undue hardship" depends upon the facts in the particular case. An application for an extension of time for the payment of the tax must be in writing and must contain, or be supported by, sufficient information under oath from which the Commissioner may deter- 121 mine whether undue hardship would result if the requested extension were refused. As a condition to the granting of such an extension the Commis- sioner may require that a penal bond be furnished in an amount not exceeding double the amount for which the extension is desired. If a bond is to be furnished it must be filed with the collector within 10 days after notification by the Commissioner that such bond is required, and shall be conditioned upon the payment, in ac- cordance with the terms of the extension granted, of the tax involved, including any interest thereon, and shall be executed by a surety or sureties, and shall be subject to the approval of the Commissioner. In lieu of such surety or sureties, the bond may be secured by the deposit of bonds or notes of the United States, any public debt obligations of the United States, or any bonds, notes, or other obli- gations which are unconditionally guaranteed as to both interest and principal by the United States, equal in their total par value to the amount of such bond. (See section 1126 of the Kevenue Act of 1926, as amended by section 7 of the Act of February 4, 1935, U. S. C, 1934 edition, Sup. II, Title 6, section 15.) No single extension for more than one year will be granted. Application for extension of time for payment should be filed with the collector, who will refer it to the Commissioner with suitable recommendations. An extension of time to pay the tax does not relieve the executor from the duty of filing the return on or before the date fixed by the regulations, nor will it operate to prevent the running of interest. (See articles 84 and 85.) An extension of time to pay the tax may extend the period within which taxes allowed as a credit by section 301(c) are required to be paid and the credit therefor claimed. (See article 9.) The running of the statute of limitations for assess- ment and collection, as provided in sections 310(a) and 311(b), is suspended for the period of the extension. (See articles 77 and 105.) All applications for extensions of time for payment of tax must be made before the due date of such tax. If the executor desires to obtain an additional extension, the application therefor must be filed with the collector on or before the date of the expiration of the previous extension. The granting of an extension of time for paying the tax is discre- tionary with the Commissioner and such authority will be exercised under such conditions as he may deem advisable. (b) Extension of time for payment of tax attributable to a reversionary or remainder interest. — In the case there is included in the gross estate a reversionary or remainder interest in property, the payment of the part of the tax attributable to such interest, except such part of such tax as was paid prior to the enactment of the Eevenue Act of 122 1932, may, at the election of the executor, be postponed until six months after the termination of the precedent interest or interests in the property. This provision is limited to cases in which the reversionary or remainder interest is included in the decedent's gross estate as such and does not extend to cases in which the decedent creates future estates by his own testamentary act. Notice of the exercise of the election to postpone the payment of the tax attributable to a reversionary or remainder interest should be filed with the Commissioner before the date prescribed for payment of the tax. There should be filed with the notice of election a certi- fied copy of the will or other instrument under which the reversionary or remainder interest was created. The Commissioner may require the submission of such additional proof as is deemed necessary to disclose the complete facts. If the duration of the precedent interest is dependent upon the life of any person, the application must show the date of birth of such person. As a prerequisite to the postponement of the payment of the tax attributable to a reversionary or remainder interest, a bond must be furnished in such an amount (at least double the amount of the tax and interest for the estimated duration of the precedent interest), and with such sureties as the Commissioner deems necessary, con- ditioned upon the payment of the tax and interest accrued thereon within six months after the termination of the precedent interest. In case the duration of the precedent interest is dependent upon the life or lives of any person or persons, or is otherwise indefinite, the bond must be further conditioned upon the principal or surety promptly notifying the Commissioner when such precedent interest terminates and upon the principal or surety notifying the Commis- sioner during the month of September of each year as to the con- tinuance of the precedent interest. If after the acceptance of a bond it is determined that the amount of the tax attributable to the rever- sionary or remainder interest was understated in the bond, a new bond or a supplemental bond may be required, or such tax to the extent of the understatement may be collected. If the decedent's gross estate consists of both a reversionary or remainder interest in property and other property, the tax at- tributable to the reversionary or remainder interest, within the meaning of section 305(e) and this article, is an amount which bears the same ratio to the total tax which the value of the rever- sionary or remarader interests bears to the entire gross estate, sub- ject to the following qualification: In determining the ratio, the value ot the reversionary or remainder interest should be reduced by (1) the amount of claims, mortgages, and indebtedness which is a lien upon such interest; (2) losses in respect of such interest dur- ing the settlement of the estate which are deductible under thfe pro- 123 visions of subdivisions (a)(1) and (b)(1) of section 303; (3) aJtiy amount in respect of such interest identified as previously taxed property under the provisions of subdivisions (a) (2) and (b) (2) of section 303; (4) any amount deductible on account of devises or be- quests of such interests to charitable, etc., uses as described in sub- divisions (a) (3) and (b) (3) of section 303. In determining the ratio, the gross estate should likewise be reduced by such deductions having similar relationship to items in the gross estate other than the remainder or reversionary interest. If the time for. payment of the Federal estate tax attributa- ble to a reversionary or remainder interest in property is postponed, all estate, inheritance, legacy, or succession taxes allowable as a credit under the provisions of section 301(c) of the Eevenue Act of 1926, as amended, which are paid and for which credit is claimed within the period provided in such section, wiH be allowed not to exceed 80 per cent, respectively, of that portion of the Federal estat© tax attributable to such interest and to that portion attributa- ble to the other property, and will be applied first to the respective portion of the Federal estate tax which is attributable to the same interests in property to which the estate, inheritance, legacy, or succession taxes are attributable. Estate, inheritance, legacy, or succession taxes, as described in section 301(c) of the Revenue Act of 1926, as amended, which are attributable to the reversionary or remainder interest and which are paid and for which credit is claimed after the expiration of the period provided in section 301 (c) will also be allowed as a credit against the Federal estate tax attributable to such interest (limited by the requirement that the total credit may not exceed 80 per cent of the total Federal estate tax) if such taxes are paid and credit therefor is claimed prior to the expiration of 60 days after the termination of the preceding interest or interests in the property. Example: The Federal estate tax attributable to the reversionary or remainder interest is $5,000, and that attributable to all other property is $10,000. The estate, inheritance, legacy, or succession taxes paid to the State within the 4-year period are $9,000, all attributable to property other than the reversionary or remainder interest. Of this $9,000, the maximum of $8,000 is credited against the Federal estate tax of $10,000 attributable to property other than the reversionary or remainder interest, and the balance of $1,000 is credited to the Federal estate tax attributable to the reversionary interest. Accordingly, the estate will be required to pay $2,000 (Federal estate tax of $10,000 attributable to property other than the reversionary or remainder interest, minus the credit of $8,000) at once, and an extension will be allowed for payment of $4,000 124 (Federal estate tax of $5,000 attributable to the reversionary inter- est, minus credit of $1,000). After expiration of the 4-year period, but before expiration of 60 days after termination of the life estate or precedent interest, the estate pays additional State estate, inherit- ance, legacy, or succession taxes of $5,000 attributable to the re- versionary or remainder interest. As the maximum credit is $12,000 (80 per cent of $15,000, the total Federal estate tax) and $9,000 has already been allowed, there will be an additional allowance of $3,000, and the estate will be required to pay $1,000 at the end of the extension period. If any estate, inheritance, legacy, or succession taxes are im- posed by any of the several States, Territories, or the District of Columbia upon a reversionary or a remainder interest in property and other property, without definitely apportioning the tax between such classes of property, for the purposes of this article the amount of such estate, inheritance, legacy, or succession taxes which will be deemed to be attributable to the reversionary or remainder interest will be an amount which bears the same ratio to the total of such taxes as the value of such property bears to the value of the decedent's entire estate upon which the estate, inheritance, legacy, or succes- sion tax was imposed. In determining the ratio, reduction will be made in the value of the reversionary or remainder interest and the value of the gross estate as previously provided in this article for determining the Federal estate tax attributable to the reversionary or remainder interest. If any part of the tax was paid prior to the enactment of the Revenue Act of 1932, and the gross estate consists of both a reversionary or remainder interest and other property, the portion of the tax so paid attributable to the reversionary or remainder inter- est is an amount which bears the same ratio to the total tax so paid which the entire tax attributable to the remainder or reversionary interest, computed as provided in this article, bears to the total tax. The amount of tax the payment of which is postponed under the provisions of section 305 (e) bears interest at the rate of 4 per cent per annum from 18 months after the date of the decedent's death until such amount is paid. (See article 84(b).) Art. 83. Extension of time for payment of deficiency tax. — ^In any case in which the Commissioner finds that payment of the deficiency tax upon the date prescribed for the payment thereof would impose undue hardship upon the estate, an extension or extensions of time will be granted for payment, with the approval of the Secretary, for a period not to exceed in all four years from the date prescribed for the payment of the deficiency. Extension of time for such payment will be granted only in exceptional cases and those in which it is 125 evident that payment on or before the date prescribed for payment of the deficiency would impose undue hardship. This provision ap- plies to all estates, regardless of the date of the decedent's death. What constitutes "undue hardship" depends upon the facts in the particular case. No extension will be granted where the deficiency is due to negligence or intentional disregard of ihe rules and regula- tions, or to fraud with intent to evade the tax. Any application for an extension of time for the payment of a deficiency must be in writing and must contain, or be supported by, information under oath showing wherein undue hardship would result if the extenssion were refused. As a condition to the granting of such an extension the Commis- sioner may require that a penal bond be furnished in an amount not exceeding double the amount of the deficiency. If a bond is to be furnished it must be filed with the collector within 10 days after notification by the Commissioner that such bond is required, and shall be conditioned upon the payment of the deficiency in accordance with the terms of the extension granted, including in- terest upon the deficiency, as prescribed by the statute (see article 85), until the deficiency is paid, and shall be executed by a surety or sureties and shall be subject to the approval of the Commissioner. In lieu of such surety or sureties, the bond may be secured by the deposit of bonds or notes of the United States, any public debt obli- gations of the United States, or any bonds, notes, or other obligations which are unconditionally guaranteed as to both interest and princi- pal by the United States, equal in their total par value to the amount of such bond. (See section 1126 of the Eevenue Act of 1926, as amended by section 7 of the Act of February 4, 1935, U. S. C, 1934 edition, Sup. II, Title 6, section 15.) No single extension for more than one year will be granted. Application for extension of time for payment should be filed with the collector. The collector will refer the application to the Commissioner with suitable recommendations. Application for extension of time for payment of a deficiency must be made on or before the date prescribed for payment thereof, as shown by the notice and demand from the collector. If the executor desires to obtain an additional extension, the application therefor must be filed with the collector on or before the date of the expiration of the previous extension. An extension of time to pay the deficiency will not operate to pre- vent the running of interest. (See article 85.) An extension of time to pay the deficiency may extend the period within which taxes allowed as a credit by section 301(c) are required to be paid and the credit therefor claimed. (See article 9.) The running of the statute of limitations for assessment and collection, as provided in sections 126 310(a) and 311(b), is suspended for the period of the extension. (See articles 77 and 105.) No extension of time for paying a de- ficiency will be granted until after the assessment thereof and notice and demand for payment has been made by the collector. The granting of an extension of time for paj'ing the deficiency is discretionary with the Commissioner and the Secretary, and such authority will be exercised under such conditions as may be deemed advisable. INTEREST ON TAX Sec. 305. * * * (c) (as amended by section 203(b) of the Revenue Act of 1935) If the time for the payment is thus extended there shall be collected, as a part of such amount, interest thereon at the rate of 6 per centum per annum from the expiration of three months after the due date of the tax to the expiration of the period of the exten- sion. • * * Note. — Section 305(c) was amended by section 203(b) of the Revenue Act of 1935 by substituting "three months" for "six months". Section 203(c) of the Revenue Act of 1935 reads as follows: "The amendments made by this section shall be effective only with respect to transfers of estates of decedents dying after the date of the enactment of this Act." (e) (as added by section 811(a) of the Revenue Act of 1932) Where there is included in the value of the gross estate the value of a reversionary or remainder interest in property, the payment of the part of the tax imposed by this title attributable to such interest may, at the election of the executor, be postponed until six months after the termination of the precedent interest or interests in the property, and the amount the payment of which is so postponed shall then be payable, together with interest thereon at the rate of 4 per centum per annum from eighteen months after the date of the decedent's death until such amount is paid. * * * Sec. 308. • * ♦ (h) Interest upon the amount determined as a deficiency shall be assessed at the same time as the deficiency, shall be paid upon notice and demand from the collector, and shall be col- lected as a part of the tax, at the rate of 6 per centum per annum from the due date of the tax to the date the deficiency is assessed, or, in the case of a waiver under subdivision (d) of this section, to the thirtieth day after the filing of such waiver or to the date the deficiency is assessed whichever is the earlier. (i) (as amended by section 808(b) of the Revenue Act of 1932) Where it is shown to the satisfaction of the Commissioner that the payment of a deficiency upon the date prescribed for the payment thereof will result in undue hardship to the estate, the Commissioner, vrith the approval of the Secretary (except where the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax), may grant an extension for the payment of such deficiency or any part thereof for a period not in excess of four years. If an extension is granted, the Commissioner may require the executor to furnish a bond in such amount, not 127 exceeding double the amount of the deficiency, and with such sureties as the Commissioner deems necessary, conditioned upon the payment of the deficiency in accordance with the terms of the extension. In such case the running of the statute of limitations for assessment and collection, as provided in sections 310(a) and 311(b), shall be suspended for the period of any such extension, and there shall be collected, as a part of the tax, interest on the part of the deficiency the time for payment of which is so extended, at the rate of 6 per centum per annum for the period of the extension, and no other interest shall be collected on such part of the deficiency for such period. If the part of the deficiency the time for payment of which is so extended is not paid in accordance with the terms of the extension, there shall be collected, as a part of the tax, interest on such unpaid amount at the rate of 1 per centum a month for the period from the time fixed by the terms of the extension for its payment until it is paid, and no other interest shall be collected on such unpaid amount for such period. NoTH — Section 404 of the Revenue Act of 1935 had the effect of changing the rate of interest of 1 per centum a month provided in the above subdivision to 6 per centum per annum for any period after August 30, 1935. Such section 404 reads as follows: "Notwithstanding any provision of law to the contrary, interest accruing during any period of time after the date of the enact- ment of this Act upon any internal-revenue tax (including amounts assessed or collected as a part thereof) or customs duty, not paid when due, shall be at the rate of 6 per centum per annum." (j) The 50 per centum addition to the tax provided by section 3176 of the Revised Statutes, as amended, shall, when assessed after the enactment of this Act in connection with an estate tax, be assessed, collected, and paid in the same manner as if it were a deficiency, except that the provisions of subdivision (h) of this section shall not be applicable. Sec. 309. (a) (1) Where the amount determined by the executor as the tax imposed by this title, or any part of such amount, is not paid on the due date of the tax, there shall be collected as a part of the tax, interest upon such unpaid amount at the rate of 1 per centum a month from the due date until it is paid. (2) Where an extension of time for payment of the amount so determined as the tax by the executor has been granted, and the amount the time for payment of which has been extended, and the interest thereon determined under subdivision (c) of section 305, is not paid in full prior to the expiration of the period of the exten- sion, then, in lieu of the interest provided for in paragraph (1) of this subdivision, interest at the rate of 1 per centum a month shall be collected on such unpaid amount from the date of the expiration of the period of the extension until it is paid. Note. — See note under section 308 (i). (b) Where a deficiency, or any interest assessed in connection therewith under subdivision (h) of section 308, or any addition to the tax provided for in section 3176 of the Revised Statutes, as amended, is not paid in full within 30 days from the date of notice and demand from the collector, there shall be collected as part of the tax, interest 128 upon the unpaid amount at the rate of 1 per centum a month from the date of such notice and demand until it is paid. Note. — See note under section 308 (i). (e) If a bond is filed, as provided in section 312, the provisions of subdivision (b) of this section shall not apply to the amount covered by the bond. Sec. 312. * * * (f ) When a jeopardy assessment has been made the executor, within 30 days after notice and demand from the collector for the payment of the amount of the assessment, may obtain a stay of collection of the whole or any part of the amount of the assessment by filing with the collector a bond in such amount, not exceeding double the amount as to which the stay is desired, and with such sureties, as the collector deems necessary, conditioned upon the pay- ment of so much of the amount, the collection of which is stayed by the bond, as is not abated by a decision of the Board which has become final, together with interest thereon as provided in subdivision (j) of this section. (g) If the bond is given before the executor has filed his petition ■with the Board under subdivision (a) of section 308, the bond shaU contain a further condition that if a petition is not filed within the period provided in such subdivision, then the amount the collection of which is stayed by the bond will be paid on notice and demand at any time after the expiration of such period, together with interest thereon at the rate of 6 per centum per annum from the date of the jeopardy notice and demand to the date of notice and demand under this subdivision. * * • (i) When the petition has been filed with the Board and when the amount which should have been assessed has been determined by a decision of the Board which has become final, then any unpaid por- tion, the collection of which has been stayed by the bond, shall be collected as part of the tax upon notice and demand from the col- lector, and any remaining portion of the assessment shall be abated. If the amount already collected exceeds the amount determined as the amount which should have been assessed, such excess shall be refunded. If the amount determined as the amount which should have been assessed is greater than the amount actually assessed, then the difference shall be assessed and shall be collected as part of the tax upon notice and demand from the collector. (j) In the case of the amount collected under subdivision (i) there shall be collected at the same time as such amount, and as a part of the tax, interest at the rate of 6 per centum per annum upon such amount from the date of the jeopardy notice and demand to the date of notice and demand under subdivision (i) of this section, or, in the case of the amount collected in excess of the amount of the jeopardy assessment, interest as provided in subdivision (h) of section 308. If the amount included in the notice and demand from the collector under subdivision (i) of this section is not paid in full within 30 days after such notice and demand, then there shall be collected, as part of the tax, interest upon the unpaid amount at the rate of 1 per centum a month from the date of such notice and demand until it is paid. Note. — See note under section 308 (i). 129 Akt. 84. (a) Interest on tax shown on retiim.*^If any portion of the tax shown on the executor's return is not paid on or before the due date, and no extension of time for payment thereof has been granted, such unpaid portion bears interest from the due date until payment is received by the collector at the rate of 6 per cent per annum (ex- cept that during any part of such period of time prior to August 31, 1935, interest accrues at the rate of 1 per cent a month). If an extension of time has been granted for paying any portion of the tax shown on the executor's return, in accordance with article 82 (a) , interest accrues thereon at the rate of 6 per cent per annum from the expiration of 18 months after the decedent's death to the expiration of the period of the extension. If the amount of the tax, the time for payment of which has been extended, together with any interest accrued thereon, is not paid in full on or before that date of the expiration of the extension, the total unpaid amount (tax and any accrued interest) bears interest from the expiration of the ex- tension until payment is received by the collector at the rate of 6 per cent per annum (except that during any part of such period of time prior to August 31, 1935, interest accrues at the rate of 1 per cent a month). Interest at 6 per cent per annum is computed on the basis of 365 days to the year, or 366 days in a leap year. Interest at the rate of 1 per cent a month is computed on the basis of a calendar month, i. e., a period (save one beginning on the first day of a calendar month) terminating with the day of the succeeding calendar month numerically corresponding with the day preceding the beginning of the period. If there is no corresponding day of the succeeding cal- endar month, the last day of such succeeding month is the last day of the period. If interest at the rate of 1 per cent a month is to be computed for one or more months and a fraction of a month, it should be computed for the number of whole months, and then for the fraction upon the basis of the number of days of the calendar month in which the first day of the fraction falls. Thus, for ex- ample, a period beginning with February 14 and ending on March 13, is one month, and a period beginning with February 14 and ending on March 11, is twenty-six twenty-eighths of a month, except that if the year be a leap year the period is twenty-seven twenty-ninths of a month. (b) Interest on tax attributable to a reversionary or remainder inter- est. — If the time for the payment of the tax attributable to a rever- sionary or remainder interest is postponed in accordance with the provisions of section 305(e), as added by section 811(a) of the Kev- enue Act of 1932, the amount the payment of which is so postponed will bear interest at the rate of 4 per cent per annum from 18 months 130 after the date of the decedent's death until such amount is paid. However, if the amount of the tax, the time for payment of which is so postponed, together with interest accrued thereon, is not paid in full on or before the date of the expiration of the period of the postponement (six months after the termination of the precedent interest or interests in the property), the unpaid amount bears in- terest at the rate of 6 per cent per annum from the date of the expira- tion of the period of the postponement until payment is received by the collector. Akt. 86. Interest on deficiency tax. — ^The statute provides that any deficiency shall bear interest at the rate of 6 per cent per annum from the due date for payment of the tax (15 months after the date of death if the decedent died on or after August 31, 1935, or 1 year after the date of death if the decedent died before August 31, 1935) to the date the deficiency is assessed, except in the case of a waiver of the restrictions against the assessment and collection of the deficiency, and that such interest shall be assessed at the same time as the deficiency of which it becomes an integral part. The deficiency in respect to which the restrictions against the assessment and collection are waived under section 308(d) bears interest at the rate of 6 per cent per annum from the due date of the tax to the thirtieth day after the filing of such waiver or to the date the deficiency is assessed, whichever is the earlier. The term "deficiency" includes any tax re- sulting from the correction of a mathematical error appearing upon the face of a return. (See second paragraph of article 77.) If any portion of the deficiency assessed is not paid within 30 days from the date of the notice and demand issued by the collector (ex- cept a deficiency or any part thereof with respect to which a jeop- ardy assessment is made and collection is stayed by the filing of a bond), and no extension of time for payment thereof has been granted, such unpaid portion bears interest from the date of the notice and demand until payment is received by the collector at the rate of 6 per cent per annum (except that during any part of such period of time prior to August 31, 1935, interest accrues at the rate of 1 per cent a month). If an extension of time is granted for paying any portion of the deficiency assessed, in accordance with article 83, interest accrues thereon at the rate of 6 per cent per annum for the period of the extension, i. e., from the date prescribed for the payment (30 days after the date of the notice and demand) to the expiration of the period of the extension. If the amount of the deficiency, the time for payment of which has been extended, together with interest ac- crued thereon, is not paid in full on or before the date of the expira- tion of the extension, the total unpaid amount (tax, interest and any addition thereto) bears interest from the expiration of the extension 131 until payment is received by the collector at the rate of 6 per cent per annum (except that during any part of such period of time prior to August 31, 1935, interest accrues at the rate of 1 per cent a month) . Any addition to the tax resulting from the imposition of an ad valorem penalty under the provisions of section 3176, Eevised Stat- utes, as amended, or section 406 of the Revenue Act of 1935, is subject to the same provisions of law relating to the assess- ment, collection, and the accrual of interest, as the deficiency tax, except that such addition to the tax is not subject to any interest between the due date for payment of the tax (15 months after the date of death if the decedent died on or after August 31, 1935, or 1 year after the date of death if the decedent died before August 31, 1935) and the date of the assessment thereof. If a stay of the collection of a jeopardy assessment of a deficiency tax, or any addition to the tax resulting from the imposition of an ad valorem penalty, is obtained and a petition for a redetermination of the deficiency is filed with the Board of Tax Appeals, interest accrues on such unpaid portion of the deficiency or penalty, if any, determined by a decision of the Board which is made final, at the rate of 6 per cent per annum from the date of the notice and demand from the collector following the jeopardy assessment to the date of the notice and demand by the collector subsequent to the final action taken on the petition filed with the Board. If the amount which the Board determines should have been assessed is not paid in full within 30 days from the date of such notice and demand issued subsequent to the decision of the Board which has become final, interest accrues upon the unpaid amount from the date of such notice and demand until it is paid at the rate of 6 per cent per annum (except that dur- ing any part of such period of time prior to August 31, 1935, interest accrues at the rate of 1 per cent a month) . If the amount (exclusive of any ad valorem penalty) determined by the Board as the amount which should be assessed is greater than the amount actually assessed the difference bears interest at the rate of 6 per cent per annum from the due date of the tax until assessment of such difference. If the collection of the jeopardy assessment is stayed, and no petition is filed with the Board for a redetermination of the deficiency, interest ac- crues upon the deficiency so assessed at the rate of 6 per cent per annum from the date of the jeopardy notice and demand to the date of the notice and demand made by the collector after the expiration of the 90 days from the mailing by the Commissioner of the notice of the deficiency. If such amount is not paid within 30 days from the date of such further notice and demand, interest accrues upon the unpaid amount from the date of such further notice and demand until it is paid at the rate of 6 per cent per annum (except that during 132 any part of sucli period of time prior to August 31, 1935, interest accrues at the rate of 1 per cent a month) . For method of computing interest at 6 per cent per annum or at 1 per cent a month see last paragraph of article 84(a). COLLECTION OF TAX SbX3. 314. (a) If the tax herein imposed is not paid on or before the due date thereof the collector shall, upon instruction from the Com- missioner, proceed to collect the tax under the provisions of general law, or commence appropriate proceedings in any court of the United States having jurisdiction, in the name of the United States, to sub- ject the property of the decedent to be sold under the judgment or decree of the court. From the proceeds of such sale the amount of the tax, together with the costs and expenses of every description to be allowed by the court, shall be first paid, and the balance shall be deposited according to the order of the court, to be paid under its direc- tion to the person entitled thereto. This subdivision in so far as it applies to the collection of a deficiency shall be subject to the provi- sions of section 308. Aet. 86. Eemedy not exclusive. — The remedy by action, here pro- vided, is not exclusive. For other available remedies for the col- lection of the tax, see article 105. REIMBURSEMENT Sec. 314. * * * (b) If the tax or any part thereof is paid by, or collected out of that part of the estate passing to or in the possession of, any person other than the executor in his capacity as such, such person shall be entitled to reimbursement out of any part of the estate still undistributed or by a just and equitable contribution by the persons whose interest in the estate of the decedent would have been reduced if the tax had been paid before the distribution of the estate or whose interest is subject to equal or prior liability for the payment of taxes, debts, or other charges against the estate, it being the purpose and intent of this title that so far as is practicable and unless otherwise directed by the will of the decedent the tax shall be paid out of the estate before its distribution. If any part of the gross estate consists of proceeds of policies of insurance upon the life of the decedent re- ceivable by a beneficiary other than the executor, the executor shall be entitled to recover from such beneficiary such portion of the total tax paid as the proceeds, in excess of $40,000, of such policies bear to the net estate. If there is more than one such beneficiary the executor shall be entitled to recover from such beneficiaries in the same ratio. Aet. 87. Sight to reimbursement not enforceable by Commissioner. — If any portion of the tax is paid by or collected x)ut of that part of the estate passing to, or in the possession of, any person other than the duly qualified executor or administrator, such person may be entitled to reimbursement, either out of the undistributed estate or by contribution from other beneficiaries whose shares or interests in the 133 estate would have been reduced had the tax been paid before distri- bution of the estate, or whose shares or interests are subject either to an equal or prior liability for the payment of taxes, debts, or other charges against the estate. The executor is entitled to require benefi- ciaries under insurance policies to bear their proportion of the tax. These provisions, however, are not designed to curtail the right of the Commissioner to collect the tax from any person, or out of any prop- erty, liable therefor. The Commissioner can not be required to appor- tion the tax among the persons liable, nor to enforce any right to reimbursement or contribution. LIEN Sec. 315 (as amended by section 613(b) of the Revenue Act of 1928, and as further amended by section 80S(c) and section 800 of the Reve- nue Act of 1932). (a) Unless the tax is sooner paid in full, it shall be a lien for ten years upon the gross estate of the decedent, except that such part of the gross estate as is used for the payment of charges against the estate and expenses of its administration, allowed by any court having juris- diction thereof, shall be divested of such lien. If the Commissioner is satisfied that the tax liability of an estate has been fully discharged or provided for, he may, under regulations prescribed by him with the approval of the Secretary, issue his certificate, releasing any or all property of such estate from the lien herein Imposed. (b) If (1) except in the case of a bona fide sale for an adequate and full consideration in money or money's worth, the decedent makes a transfer, by trust or otherwise, of any property in contemplation of or intended to take effect in possession or enjoyment at or after his death, or makes a transfer, by trust or otherwise, under which he has re- tained for his life or for any period not ascertainable without refer- ence to his death or for any period which does not in fact end before his death (A) the possession or enjoyment of, or the right to the income from, the property, or (B) the right, either alone or in conjunc- tion with any person, to designate the persons who shall possess or enjoy the property or the income therefrom, or (2) if insurance passes under a contract executed by the decedent in favor of a specific bene- ficiary, and if in either case the tax in respect thereto is not paid when due, then the transferee, trustee, or beneficiary shall be personally liable for such tax, and such property, to the extent of the decedent's interest therein at the time of such transfer, or to the extent of such beneficiary's interest under such contract of insurance, shall be subject to a like lien equal to the amount of such tax. -Any part of such prop- erty sold by such transferee or trustee to a bona fide purchaser for an adequate and fuU consideration in money or money's worth shall be di- vested of the lien and a like lien shall then attach to all the property of such transferee or trustee, except any part sold to a bona fide pur- chaser for an adequate and full consideration in money or money's worth. Sec. 313. * * * (b) If the executor makes written application to the Commissioner for determination of the amount of the tax and discharge from personal liability therefor, the Commissioner (as soon 134 as possible, and in any event wltMn one year after the making of such application, or, if the application is made before the return is filed, then within one year after the return is filed, but not after the expiration of the period prescribed for the assessment of the tax in section 310) shall notify the executor of the amount of the tax. The executor, upon payment of the amount of which he is notified, shall be discharged from personal liability for any deficiency in tax thereafter found to be due and shall be entitled to a receipt or writing showing such discharge, (c) The provisions of subdivision (b) shall not operate as a release of any part of the gross estate from the lien for any deficiency that may thereafter be determined to be due, unless the title to such part of the gross estate has passed to a bona fide purchaser for value, in which case such part shall not be subject to a lien or to any claim or demand for any such deficiency, but the lien shall attach to the consider- ation received from such purchaser by the heirs, legatees, devisees, or distributees. Art. 88. Property subject to lien. — The lien imposed by section 315 attaches at the date of the decedent's death to every part of the gross estate, -whether or not the property comes into the possession of the duly qualified executor or administrator. It attaches to the extent of the tax shown to be due by the return and of any deficiency tax found to be due upon review and audit. The lien upon the entire property constituting the gross estate continues for a period of 10 years after the decedent's death, except — (1) If the tax is paid in full before the expiration of such period. (2) Such portion of the gross estate as is used for the payment of charges against the estate and expenses of its administration allowed by any court having jurisdiction thereof. (3) Such portion of the gross estate as has passed to a bona fide purchaser for value after payment of the full amount of tax deter- mined by the Commissioner pursuant to a request of the executor for discharge from personal liability, as authorized by section 313 (b) and (c) (see article 67) , but there is substituted a like lien upon the consideration received from such purchaser by the heirs, legatees, devisees, or distributees. (4) Such property as was received from the decedent as a transfer by trust or otherwise in contemplation of or intended to take effect in possession or enjoyment at or after his death, or under which he has retained for his life or fdr any period not ascertainable without ref- erence to his death or for any period which does not in fact end before his death (A) the possession or enjoyment of, or the right to the income from, the property, or (B) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom (except in case the transfer was a bona fide sale for an adequate and full considera- tion in money or money's worth), and was sold by the transferee to a 135 bona fide purchaser for such a consideration. In such case the lien attaches to all the property of the transferee except such thereof as may be sold to a bona fide purchaser for such a consideration, (5) If a certificate releasing such lien is issued. (See article 89.) Aet. 89. Eelease of lien. — The statute provides that if the Commis- sioner is satisfied that the tax liability of an estate has been fully discharged or provided for, he may issue his certificate releasing any or all property of the estate from the lien. The issuance of certifi- cates releasing such lien is a matter resting within the discretion of the Commissioner, and certificates will be issued only in case there is actual need therefor. The primary purpose of such release is not to evidence payment or satisfaction of the tax, but to permit the transfer of property free from the lien in case it is necessary to clear title. Receipts for payment of the tax are issued by the collector. If the tax liability has been fully discharged a certificate may be issued releasing the lien as to any or all property of the estate. If the tax liability has not been fully discharged, no general re- lease of all property of the estate will be granted but certificates releasing the lien upon particular items of property may be issued by the Commissioner who may require as a prerequisite, in such an amount as he may designate, a partial payment of tax or the furnish- ing of an indemnity bond with such surety or sureties as he deems necessary. In lieu of such surety or sureties, the bond may be secured by the deposit of bonds or notes of the United States, any public debt obligations of the United States, or any bonds, notes, or other obligations which are unconditionally guaranteed as to both interest and principal by the United States, equal in their total par value to the amount of such bond. (See section 1126 of the Eevenue Act of 1926, as amended by section 7 of the Act of February 4, 1935, U. S. C, 1934 edition. Sup. II, Title 6, section 15.) The tax will be considered fully discharged only when investigation has been completed and payment of the tax, including any deficiency finally determined, has been made. The application for a release should be filed with the Commis- sioner and should explain the circumstances that require the release, fully describe the particular items for which the release is desired, and show the applicant's relationship to the estate, such as executor, heir, devisee, legatee, beneficiary, transferee, or purchaser. If the return. Form 706, has not been filed, an affidavit may be required showing the value of the property to be released, the basis for such valuation, the approximate value of the gross estate, the approximate value of the total real property included in the gross estate, and in case the property is to be sold or transferred, the name and ad- dress of the purchaser or transferee and the consideration to be received. 9172°_37 10 136 PENALTIES Sec. 320. (a) Whoever knowingly makes any false statement in any notice or return required to be filed under this title shall be liable to a penalty of not exceeding $5,000, or imprisonment not exceeding one year, or both. (b) Whoever fails to comply with any duty imposed upon him by section 304, or, having in his possession or control any record, file, or paper, containing or supposed to contain any information concerning the estate of the decedent, or, having in his possession or control any property comprised in the gross estate of the decedent, fails to exhibit the same upon request to the Commissioner or any collector or law oflBcer of the United States or his duly authorized deputy or agent, who desires to examine the same in the performance of his duties under this title, shall be liable to a penalty of not exceeding $500, to be recovered, with costs of suit, in a civil action in the name of the United States. Sec. 1114. (a) Any person required under this Act to pay any tax, or required by law or regulations made under authority thereof to make a return, keep any records, or supply any information, for the purposes of the computation, assessment, or collection of any tax im- posed by this Act who willfully fails to pay such tax, make such re- turn, keep such records, or supply such information, at the time or times required by law or regulations, shall in addition to other penal- ties provided by law, be guilty of a misdemeanor and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than one year, or both, together with the costs of prosecution. (b) Any person required under this Act to collect, account for and pay over any tax Imposed by this Act, who willfully fails to collect or truthfully account for and pay over such tax, and any person who willfully attempts in any manner to evade or defeat any tax imposed by this Act or the payment thereof, shall, in addition to other penal- ties provided by law, be guilty of a felony and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution. (c) Any person who wiUfuUy aids or assists in, or procures, coun- sels, or advises, the preparation or presentation under, or in connection with any matter arising under, the internal-revenue laws, of a false or fraudulent return, affidavit, claim, or document, shall (whether or not such falsity or fraud is with the knowledge or consent of the per- son authorized or required to present such return, affidavit, claim, or document) be guilty of a felony and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution. ******* (e) Any person in possession of property, or rights to property sub- ject to distraint, upon which a levy has been made, shall, upon demand by the collector or deputy collector making such levy, surrender such property or rights to such collector or deputy, unless such property or right is, at the time of such demand, subject to an attachment or execution under any judicial process. Any person who fails or refuses to so surrender any of such property or rights, shall be liable in his own person and estate to the United States in a sum equal to 137 the value of the property or rights not so surrendered, but not exceed- ing the amount of the taxes (including penalties and interest) for the' collection of which such levy has been made, together with costs and Interest from the date of such levy. (f) The term "person" as used in this section includes an officer or employee of a corporation or a member or employee of a partner- ship, who as such officer, employee, or member is under a duty to per- form the act in respect of which the violation occurs. Sec. 3176. Revised Statutes (as amended by section 1103 of the Rev- enue Act of 1926 [U. S. C, 1984 edition, Title 26, section 1512 (d) and (e)]). * * * In case of any failure to make and file a return or list within the time prescribed by law, or prescribed by the Com- missioner of Internal Revenue or the collector in pursuance of law, the Commissioner 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 fraudulent return or list is willfully made, the Commissioner shall add to the tax 50 per centum of its amount. The amount so added to any tax shall be collected at the same time and in the same manner and as a 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. 406. Revenue Act of 1935. In the case of a failure to make and file an internal-revenue tax return required by law, within the time prescribed by law or pre- scribed by the Commissioner in pursuance of law, if the last date so prescribed for filing the return is after the date of the enactment of this Act, if a 25 per centum addition to the tax is prescribed by existing law, then there shall be added to the tax, in lieu of such 25 per centum ; 5 per centum if the failure is for not more than 30 days, with an additional 5 per centum for each additional 30 days or frac- tion thereof during which failure continues, not to exceed 25 per centum in the aggregate. Sec. 616. Revenue Act of 1928. Any person who, in connection with any compromise under section 3229 of the Revised Statutes, as amended, or offer of such compromise, or in connection with any closing agreement under section 606 of this Act, or offer to enter into any such agreement, willfully (1) conceals from any officer or employee of the United States any property belong- ing to the estate of a taxpayer or other person liable in respect of the tax, or (2) receives, destroys, mutUates, or falsifies any book, docu- ment, or record, or makes under oath any false statement, relating to the estate or financial condition of the taxpayer or other person liable in respect of the tax, shall, upon conviction thereof, be fined not more than $10,000 or imprisoned for not more than one year, or both. Sec. 403. Revenue Act of 1932. Except as provided In section 402, the tax imposed by section 401 of this Act shall be assessed, collected, and paid, in the same manner, and shall be subject to the same provisions of law (including penal- ties), as the tax imposed by section 301(a) of the Revenue Act of 1926, * * *. 138 Aet. 90. Nature of penalties. — Two kinds of penalties are provided for' delinquency with respect to the duties imposed by the statute : (1) A specific penalty, to be recovered by suit, unless previously paid or adjusted by the acceptance of an offer in compromise ; and (2) A penalty of a certain percentage of the tax, to be added to and collected in the same manner as the tax. In any case in which more than one penalty is provided the Gov- ernment may assert any one or more thereof. Aet. 91. Penalties for false or fraudulent notice or return, — In the case any statement in the notice or return is knowingly false, the person making it is subject to a penalty not exceeding $5,000, or imprison- ment for not exceeding one year, or both, and for a false or fraudu- lent return, 50 per cent will be added to the amount of the tax. Any person required to file any notice or make a return who willfully fails to do so at the time required shall be guilty of a misdemeanor and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than one year, or both, together with the costs of prosecution. Any person who willfully aids or assists in the preparation or presentation of a false or fraudulent notice or return, or procures, counsels, or advises the preparation or presentation of such a notice or return, whether such falsity or fraud is with or without the knowledge or consent of the person required to make the notice or return, will be guilty of a felony and, upon conviction thereof, fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution. Akt. 92. Penalty for failure to give notice or make and file return. — For failure to give the notice or make and file the return within the time prescribed, the person in default is subject to a penalty not exceeding $500. For failure to make and file the return within the time prescribed by the Commissioner, or within an extension of time granted by the Commissioner or the collector, 5 per cent will be added to the tax if the failure is for not more than 30 days, with an additional 5 per cent for each 30 days or fraction thereof during which failure con- tinues, not to exceed 25 per cent in the aggregate, except that if the last date allowed for filing the return is on or before August 30, 1935, 25 per cent will be added to the tax, and except that if the return is filed after the time allowed and it is shown that the failure to file within the time so allowed was due to a reasonable cause and not to willful neglect, no such addition will be made to the tax. Art. 93. Penalty for failure to pay tax, exhibit property, keep or exhibit records, etc., and for concealment of assets. — ^Any person in possession or control of any record, file, or paper, containing or supposed to contain information relating to the estate, or having in his posses- 139 sion or control property comprised in the gross estate of the decedent, who fails to exhibit the same upon the request of the Commissioner or any collector or law officer of the United States, or his duly authorized deputy or agent, in the performance of his duties, or having knowl- edge or information of any fact or facts of a material bearing upon the liability, or the extent of liability, of the estate to the tax, who fails to make disclosure thereof upon request of the Commissioner or any revenue agent or inspector designated by him for that purpose, is liable to a penalty not to exceed $500, to be recovered by civil action. Such a request must be granted whether or not he believes that a compliance therewith is material. Any person required to pay the tax, keep any records, or supply any information, for the purpose of the computation, assessment, or collection of the tax, who willfully fails to pay such tax, keep such records, or supply such information, as required by the law or regulations, shall, in addition to other penalties, be guilty of a mis- demeanor and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than one year, or both, together with the costs of prosecution. Any person who willfully attempts in any manner to evade or defeat the tax or the payment thereof, shall, in addition to other penalties, be guilty of a felony and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution. Any person who in connection with any compromise entered into or offer made under the provisions of section 3229 of the Revised Statutes as amended, or, who in connection with any closing agree- ment under section 606 of the Eevenue Act of 1928, or the offer to enter into any such agreement, willfully conceals from any officer or employee of the United States any property belonging to the estate or any person liable in respect of the tax, or receives, destroys, mutilates, or falsifies any book, document, or record, or makes under oath any false statement, relating to the estate or its value or the financial condition of any person liable in respect of the tax, shall, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than one year, or both. Aet. 94. Penalty for assisting, procuring, or advising the preparation or presentation of false or fraudulent documents. — ^Any person who willfully aids or assists in, or procures, counsels, or advises, the prep- aration or presentation under, or in connection with any matter arising under, the internal revenue laws, of a false or fraudulent afiidavit, claim, or document, shall, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such affidavit, claim, or document, be guilty of a felony, and, upon conviction thereof, be fined not more than $10,000, 140 or imprisoned for not more than five years, or both, together with the costs of prosecution. ABATEMENT AND STAY OF COLLECTION OF JEOPARDY ASSESSMENT Seo. 312. * * * (f ) When a jeopardy assessment has been made the executor, within 30 days after notice and demand from the collector for the payment of the amount of the assessment, may obtain a stay of collection of the whole or any part of the amount of the assessment by filing with the collector a bond in such amount, not exceeding double the amount as to which the stay is desired, and with such sureties, as the collector deems necessary, conditioned upon the pay- ment of so much of the amount, the collection of which is stayed by the bond, as is not abated by a decision of the Board which has become final, together with interest thereon as provided in subdivision (j) of this section. (g) If the bond is given before the executor has filed his petition with the Board under subdivision (a) of section 308, the bond shall contain a further condition that if a petition is not filed within the period provided in such subdivision, then the amount the collection of which is stayed by the bond will be paid on notice and demand at any time after the expiration of such period, together with interest thereon at the rate of 6 per centum per annum from the date of the jeopardy notice and demand to the date of notice and demand under this sub- division. (h) Upon the filing of the bond the collection of so much of the amount assessed as is covered by the bond shall be stayed. The exec- utor shall have the right to waive such stay at any time in respect of the whole or any part of the amount covered by the bond, and if as a result of such waiver any part of the amount covered by the bond is paid, then the bond shall, at the request of the executor, be propor- tionately reduced. If the Board determines that the amount assessed is greater than the amount which should have been assessed, then when the decision of the Board is rendered the bond shall, at the request of the executor, be proportionately reduced. (i) When the petition has been filed with the Board and when the amount which should have been assessed has been determined by a de- cision of the Board which has become final, then any unpaid portion, the collection of which has been stayed by the bond, shaU be collected as part of the tax upon notice and demand from the collector, and any remaining portion of the assessment shall be abated. If the amount already collected exceeds the amount determined as the amount which should have been assessed, such excess shall be refunded. If the amount determined as the amount which should have been assessed is greater than the amount actually assessed, then the difference shall be assessed and shall be collected as part of the tax upon notice and demand from the collector. * * * (k) No claim in abatement shall be filed in respect of any assess- ment made after the enactment of this Act in respect of any estate * * * tax. Ajrt. 95. Claim for abatement. — 'No claim for abatement may be filed in respect of any assessment made after the effective date of the 141 Revenue Act of 1926. The amount of any assessment directed to be abated by the statute as the result of a decision of the Board of Tax Appeals which has become final and all overassessments deter- mined as a result of audit or examination of returns will be abated by the Commissioner without action on the part of the executor. Art. 96. Collection of jeopardy assessment stayed by filing bond. — ■ If a jeopardy assessment has been made, the executor, within 30 days after notice and demand from the collector for payment of the amount of the jeopardy assessment may obtain a stay of collec- tion of the whole, or any part, of the amount of such assessment by filing with the collector a bond in such amount not exceeding double the amount as to which the stay is desired, and with such sureties as the collector deems necessary, conditioned upon the payment of so much of the amount, the collection of which is stayed by the bond, as is not abated as a result of a decision of the Board which has become final, together with the interest thereon, as provided in the statute. (See article 85.) In lieu of such sureties, the bond may be secured by the deposit of bonds or notes of the United States, any public debt obligations of the United States, or any bonds, notes, or other obligations which are unconditionally guaranteed as to both interest and principal by the United States, equal in their total par value to the amount of such bond. (See section 1126 of the Revenue Act of 1926, as amended by section 7 of the Act of February 4, 1935, U. S. C, 1934 edition, Sup. II, Title 6, section 15.) The; petition with the Board of Tax Appeals for redetermination of the deficiency in respect to which the jeopardy assessment was made must be filed within 90 days (not counting Sunday or a legal holiday in the District of Columbia as the ninetieth day) after the mailing by the Commissioner of the notice of the final determination of the defi- ciency. (See article 76.) If the bond is given before the petition is filed with the Board, the bond shall contain a further condition that if a petition is not filed within the 90 days, then the amount, the collec- tion of which is stayed by the bond, shall be paid on notice and demand at any time after the expiration of such 90-day period, together with interest thereon at the rate of 6 per cent per annum from the date of the jeopardy notice and demand made by the col- lector to the date of notice and demand made after the expiration of the 90-day period. Art. 97. Accrual of Interest as affected by the stay of the collection of a jeopardy assessment. — ^For rules relating to the accrual of interest where the collection of a jeopardy assessment is stayed by the filing of a bond, see article 85. Akt. 98. limitation of time to file bond to stay collection of jeopardy assessment.— If it is desired to stay the collection of the whole, or any part,, of the amount in respect to which a jeopardy assessment has 142 been made, the bond referred to in article 96 must be filed with the collector within 30 days after notice and demand by the collector for the payment of the amount of the jeopardy assessment. REFUNDS Sec. 319. (a) If the Commissioner has mailed to the executor a notice of deficiency under subdivision (a) of section 308 and if the executor after the enactment of this Act files a petition with the Board of Tax Appeals within the time prescribed in such subdivision, no refund in respect of the tax shall be allowed or made and no suit for the recovery of any part of such tax shall be instituted in any court, except — (1) As provided in subdivision (c) of this section or in subdivi- sion (i) of section 312 or in subdivision (b), (e), or (g) of section 318 or in subdivision (d) of section 1001; and (2) As to any amount collected in excess of an amount computed in accordance with the decision of the Board which has become final ; and (3) As to any amount collected after the statutory period of limi- tations upon the beginning of distraint or a proceeding in court for collection has expired ; but in any such claim for refund or in any such suit for refund the decision of the Board which has become final, as to whether such period had expired before the notice of deficiency was mailed, shall be conclusive. (b) (as amended by section 810(a) of the Revenue Act of 1932) All claims for the refunding of the tax imposed by this title alleged to have been erroneously or illegally assessed or collected must be pre- sented to the Commissioner within three years next after the payment of such tax. The amount of the refund shall not exceed the portion of the tax paid during the three years immediately preceding the filing of the claim, or if no claim was filed, then during the three years im- mediately preceding the allowance of the refund, (c) (as amended by section 810(b) of the Revenue Act of 1932 and by section 504(d) of the Revenue Act of 1934) If the Board finds that there is no deficiency and further finds that the executor has made an overpayment of tax, the Board shall have jurisdiction to determine the amount of such overpayment, and such amount shall, when the decision of the Board has become final, be credited or refunded to the executor as provided in section 3220 of the Revised Statutes, as amended. No such refund shall be made of any portion of the tax unless the Board determines as part of its decision that it was paid within four years (or in the case of a tax imposed by this title, within three years) before the filing of the claim or the filing of the petition, whichever is- earlier. Sbo. 325. Any tax that has been paid under the provisions of Title III of the Revenue Act of 1924 prior to the enactment of this Act in excess of the tax imposed by such title as amended by this Act shall be refunded without interest. Sec. 606. Revenue Act of 1928. (a) Authorization. — The Commissioner (or any oflScer or employee of the Bureau of Internal Revenue, including the field service, author- ized in writing by the Commissioner) is authorized to enter into an agreement in writing with any person relating to the liability of such 143 person (or of the person or estate for whom he acts) in respect of any internal-revenue tax for any taxable period ending prior to the date of the agreement. (b) Finality of agreements. — If such agreement is approved by the Secretary, or the Undersecretary, within such time as may be stated in such agreement, or later agreed to, such agreement shall be final and conclusive, and except upon a showing of fraud or malfeasance, or misrepresentation of a material fact — (1) the case shall not be reopened as to the matters agreed upon or the agreement modified, by any oflScer, employee, or agent of the United States, and (2) in any suit, action, or proceeding, such agreement, or any deter- mination, assessment, collection, payment, abatement, refund, or credit made in accordance therewith, shall not be annulled, modified, set aside, or disregarded. * * * Sho. 607. Revenue Act of 1928. Any tax (or any interest, penalty, additional amount, or addition to such tax) assessed or paid (whether before or after the enactment of this Act) after the expiration of the period of limitation properly applicable thereto shall be considered an overpayment and shall be credited or refunded to the taxpayer if claim therefor is filed within the period of limitation for filing such claim. Sec. 608. Kevenue Act of 1928. A refund of any portion of an internal-revenue tax (or any interest, penalty, additional amount, or addition to such tax) made after the enactment of this Act, shall be considered erroneous — (a) if made after the expiration of the period of limitation for filing claim therefor, unless within such period claim was filed; or (b) in the case of a claim filed within the proper time and disallowed by the Commissioner after the enactment of this Act, if the refund was made after the expiration of the period of limitation for filing suit, unless — (1) within such period suit was begun by the taxpayer, or (2) (as amended by section 503 of the Revenue Act of 1934) within such period, the taxpayer and the Commissioner agreed in writing to suspend the running of the statute of limitations for filing suit from the date of the agreement to the date of final decision in one or more named cases then pending before the United States Board of Tax Appeals or the courts. If such agreement has been entered into, the running of such statute of limitations shall be suspended in accordance with the terms of the agreement. Sec. 610. Revenue Act of 1928. (a) Any portion of an internal-revenue tax (or any interest, penalty, additional amount, or addition to such tax) refund of which is erro- neously made, within the meaning of section 608, after the enactment of this Act, may be recovered by suit brought in the name of the United States, but only if such suit is begun within two years after the making of such refund. (b) Any portion of an internal-revenue tax (or any interest, penalty, additional amount, or addition to such tax) which has been erroneously refunded (if such refund would not be considered as erroneous under section 608) may be recovered by suit brought in the name of the United States, but only if such suit is begun before the 144 expiration of two years after the making of such refund or before May 1, 1928, whichever date is later. (c) (as added by section 502(a) of the Revenue Act of 19S4) Despite the provisions of subsections (a) and (b) such suit may be brought at any time within five years from the making of the refund if it appears that any part of the refund was induced by fraud or the misrepresentation of a material fact. Note. — Section 5Q2(b) of the Revenue Act of 1934 reads as follows: "The amendment made by subsection (a) of this section shall not apply to any suit which was barred on the date of the enact- ment of this Act." (d) (as added by section 803 of the Revenue Act of 1986) Errone- ous refunds recoverable by suit under this section shall bear interest at the rate of 6 per centum per annum from the date of the payment of the refund. Sec. 611. Revenue Act of 1928. If any internal-revenue tax (or any interest, penalty, additional amount, or addition to such tax) was, within the period of limitation properly applicable thereto, assessed prior to June 2, 1924, and if a claim in abatement was filed, with or without bond, and if the collec- tion of any part thereof was stayed, then the payment of such part (made before or within one year after the enactment of this Act) shall not be considered as an overpayment under the provisions of section 607, relating to payments made after the expiration of the period of limitation on assessment and collection. Sec. 403. Revenue Act of 1932. Except as provided in section 402, the tax imposed by section 401 of this Act shall be assessed, collected, and paid, in the same manner, and shall be subject to the same provisions of law (including pen- alties), as the tax imposed by section 301(a) of the Revenue Act of 1926, * * *. Sec. 1104. Revenue Act of 1932. Where the Commissioner has (before or after the enactment of this Act) signed a schedule of overassessments in respect of any internal revenue tax Imposed by this Act or any prior revenue Act, the date on which he first signed such schedule (if after May 28, 1928) shall be considered as the date of allowance of refund or credit in respect of such tax. Sec. 177. Judicial Code (as amended by section 808 of the Revenue Act of 1936 [U. S. C, 1934 edition. Title 28, Sup. II, section 284(b)]). In any judgment of any court rendered (whether against the United States, a collector or deputy collector of internal revenue, a former collector or deputy collector, or the personal representative in case of death) for any overpayment in respect of any internal-revenue tax, interest shall be allowed at the rate of 6 per centum per annum upon the amount of the overpayment, from the date of the payment or collec- tion thereof to a date preceding the date of the refund check by not more than thirty days, such date to be determined by the Commis- sioner of Internal Revenue. The Commissioner is hereby authorized to tender by check payment of any such judgment, with interest as herein provided, at any time after such judgment becomes final, whether or not a claim for such payment has been duly filed, and such 145 tender shall stop the running of interest, whether or not such refund check is accepted by the judgment creditor. Seo. 3220. Revised Statutes (as amended by section 3, Act of May 29, 1928, Public, No. 611, Seventieth Congress [U. S. C, 1934 edition, Title 26, section 1670 (a)(1) and (b), and section 1676]). The Commis- sioner of Internal Revenue, 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 c(dlected, 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 repay to any collector or deputy collector the full amount of such sums of money as may be recovered against him in any court, for any internal-revenue taxes collected by him, with the cost and ex- pense of suit ; also all damages and cost recovered against any assessor, assistant 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, by internal-revenue districts and alphabetically arranged, of aU re- unds in excess of $500, at the beginning of each regular session of Congress of all transactions under this section. Sec. 3226. Revised Statutes (as amended by section 1103(a) of the Revenue Act of 1932 and by section 807(a) of the Revenue Act of 1936 [TJ. S. C, 1934 edition. Title 26, Sup. II, sections 1672-1673]). No suit or proceeding shall be maintained in any court for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected until a claim for refund or credit has been duly filed with the Commissioner of Internal Revenue, accord- ing to the provisions of law in that regard, and the regulations of the Secretary of the Treasury established in pursuance thereof; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. No such suit or pro- ceeding shall be begun before 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 two years from the date of mailing by registered mail by the Commissioner to the taxpayer of a notice of the disallowance of the part of the claim to which such suit or proceeding relates. Any consideration, reconsid- eration, or action by the Commissioner with respect to such claim following the mailing of a notice by registered mail of disallowance shall not operate to extend the period within which suit may be begun. Sec. 3228. Revised Statutes (as amended by section 619(c) of the Revenue Act of 1928 [U. S. C, 1934 edition, Title 26, section 1433]). (a) All claims for the refunding or crediting of any internal-revenue 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 wrong- fully collected must, except as otherwise provided by law in the case of Income, war-profits, excess-profits, estate, and gift taxes, be pre- sented to the Commissioner of Internal Revenue within four years next a:fter the payment of such tax, penalty, or sum. (b) Except as provided in section 284 of the Revenue Act of 1926, claims for credit or refund (other than claims in respect of taxes 146 imposed by the Revenue Act of 1916, the Revenue Act of 1917, or the Revenue Act of 1918) which at the time of the enactment of the Reve- nue Act of 1921 were barred from allowance by the period of limitation then in existence, shall not be allowed. Sec. 319. (b) (as originally enacted) All claims for the refunding of the tax imposed by this title alleged to have been erroneously or illegally assessed or collected must be presented to the Commissioner within three years next after the payment of such tax. Sec. 319. (c) (as originally enacted) If the Board finds that there is no deficiency and further finds that the executor has made an over- payment of tax, the Board shall have jurisdiction to determine the amount of such overpayment, and such amount shall, when the decision of the Board has become final, be credited or refunded to the executor as provided in section 3220 of the Revised Statutes, as amended. Such refund shall be made either (1) if claim therefor was filed within the period of limitation provided for by law, or (2) if the petition was filed with the Board within four years after the tax was paid, or, in the case of a tax imposed by this title, within three years after the tax was Daid. Se». 810. Revenue Act of 1932. (a) Section 319(b) of the Revenue Act of 1926 is amended to read as follows : "(b) All claims for the refunding of the tax imposed by this title alleged to have been erroneously or illegally assessed or collected must be presented to the Commissioner within three years next after the payment of such tax. The amount of the refund shall not exceed the portion of the tax paid during the three years immediately preceding the filing of the claim, or if no claim was filed, then during the three years immediately preceding the allowance of the refund." (b) The last sentence of section 319(c) of the Revenue Act of 1926 is amended to read as follows : "No such refund shall be made of any portion of the tax paid more than four years (or, in the case of a tax imposed by this title, more than three years) before the filing of the claim or the filing of the petition, whichever is earlier." (c) Title III of the Revenue Act of 1924 is amended by inserting after section 318 a new section to read as follows : " Sec. 318%. The amount of any refund of the tax imposed by Part I of this title shall not exceed the portion of the tax paid during the four years immediately preceding the filing of the claim, or if no claim was filed, then during the four years iutmediately preceding the allowance of the refund." (d) Section 319(b) of the Revenue Act of 1926, as amended by this Act, and section 318% of the Revenue Act of 1924, as added by this Act, shall not bar from allowance a claim for refund filed prior to the enactment of this Act which but for such enactment would have been allowable. Sec. 1103. Revenue Act of 1932. (a) Section 3226 of the Revised Statutes, as amended, is amended to read as follows : " Sbo. 3226. No suit or proceeding shall be maintained in any court for the recovery of any internal-revenue tax alleged to have been 147 erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or o£ any sum alleged to have been excessive or in any manner wrongfully collected until a claim for refund or credit has been duly filed with the Commissioner of Internal Revenue, according to the provisions of law in that regard, and the regulations of the Secretary of the Treasury established in pursuance thereof; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. No such suit or proceeding shall be begun before 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 two years from the date of mailing by registered mail by the Commissioner to the taxpayer of a notice of the disallow- ance of the part of the claim to which such suit or proceeding relates." (b) Suits or proceedings instituted before the date of the enactment of this Act shall not be affected by the amendment made by subsection (a) of this section to section 3226 of the Revised Statutes. In the case of suits or proceedings instituted on or after the date of the enact- ment of this Act where the part of the claim to which such suit or proceeding relates was disallowed before the date of the enactment of this Act, the statute of limitations shall be the same as provided by such section 3226 before its amendment by subsection (a) of this section. Sho. 504. Revenue Act of 1934. » * * (d) The last sentence of section 319(c) of the Revenue Act of 1926, as amended, is amended to read as follows : "No such refund shall be made of any portion of the tax unless the Board determines as part of its decision that it was paid within four years (or in the case of a tax imposed by this title, within three years) before the filing of the claim or the filing of the petition, whichever is earlier." (e) The amendments made by subsections (a), (b), (c), and (d) of this section shall have no effect in the case of any proceeding before the Board on a petition if any hearing by the Board thereon has been held prior to 30 days after the date of the enactment of this Act. Seo. 807. Revenue Act of 1936. (a) Section 3226 of the Revised Statutes, as amended, is amended by adding at the end thereof the following new sentence : "Any considera- tion, reconsideration, or action by the Commissioner with respect to such claim following the mailing of a notice by registered mail of dis- allowance shall not operate to extend the period within which suit may be begun." (b) The amendment made by subsection (a) shall not operate (1) to bar a suit or proceeding in respect of a claim reopened prior to the date of the enactment of this Act, if such suit or proceeding was not barred under the law in effect prior to the date of the enactment of this Act, or (2) to prevent the suspension of the statute of limitations for filing suit under section 608(b)(2), as amended, of the Revenue Act of 1928. Art. 99. Claim for refund. — A claim for refund of estate tax, or for refund of interest or penalties, erroneously or illegally collected, should be made on the form prescribed by the Treasury Department (Form 843), and should be filed with the collector of internal revenue. 148 although a claim will not be considered defective solely by reason of the fact that it is not made on the form or that it is filed with the Commissioner of Internal Eevenue. The claim must set forth in detail and under oath each ground upon which a refund is claimed, and facts sufficient to apprise the Commissioner of the exact basis thereof. Any claim which does not comply with the requirements of the preceding sentence will not be considered for any purpose as a claim for refund. Claims for the refund of estate tax imposed by the Eevenue Act of 1926 and the additional estate tax imposed by the Eevenue Act of 1932, or the Eevenue Act of 1932 as amended by the Eevenue Act of 1934, or 1935, must be filed within three years next after the pay- ment of the amount sought to be refunded. If, ho"vmmissioner, for the purpose of determining the liability at law or in equity of a transferee of the property of any person with respect to any Federal taxes imposed upon such person, is hereby authorized, by any oflBcer or employee of the Bureau of Internal Reve- nue, including the field service, designated by him for that purpose, to examine any books, papers, records, or memoranda bearing upon such liability, and may require the attendance of the transferor or transferee, or of any oflScer or employee of such person, or the at- tendance of any other person having knowledge in the premises, and may take his testimony with reference to the matter, with power to administer oaths to such person or persons. Akt. 103. Securing evidence — Taking testimony. — ^In order to ascer- tain the correctness of a return, or to make a return if none has been made, the Commissioner has power to require the attendance, and to take the testimony, of the person rendering the return, or any officer or employee of such person, or any other person having knowledge in the premises. Such persons may be required to pro- duce any relevant book, paper, or other record. The Commissioner also is authorized, for the purpose of determining the liability at law or in equity of a transferee of the property of any person with respect to any Federal taxes imposed upon such person, to exam- ine any books, papers, records, or memoranda bearing upon such liability and may require the attendance of the transferor or trans- feree, or any officer or employee of such person and take his testi- mony with reference to the matter. The Commissioner has the authority to administer oaths to the persons required to testify. The power and authority herein described may be exercised by any officer or employee of the Bureau of Internal Revenue, including the field force designated by the Commissioner for that purpose. (For penalties, see article 93.) Art. 104. Power to compel compliance. — ^If any person is summoned to appear and testify, or to produce books, papers, or other data, the District Court of the United States for the district in which such person resides has power to compel the giving of the testimony, the production of the books, papers, or data, and to issue any appro- priate process, writ, or order. 155 REMEDIES FOR COLLECTION AND PROCEEDINGS FOR ENFORCING LIABILITY OF A TRANSFEREE OR FIDUCIARY Seo. 305. (b) (as amended by section 808(a) of the Revenue Act of 19S2) Where the Commissioner finds that the payment on the due date of any part of the amount determined by the executor as the tax would impose undue hardship upon the estate, the Commissioner may extend the time for payment of any such part * * *. In such case the amount in respect of which the extension is granted shall be paid on or before the date of the expiration of the period of extension, and the running of the statute of limitations for assessment and collection, as provided in sections 310(a) and 311(b), shall be suspended for the period of any such extension. * * * Seo. 308. (i) (as amended by section 808(b) of the Revenue Act of 1932) Where it is shown to the satisfaction of the Commissioner that the payment of a deficiency upon the date prescribed for the payment thereof will result in undue hardship to the estate, the Com- missioner, with the approval of the Secretary (except where the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax), may grant an extension for the payment of such deficiency * * *. In such case the running of the statute of limitations for asstessment and collection as provided in sections 310(a) and 311(b), shall be suspended for the period of any such extension * * *. Seo. 311. * * * (b) Where the assessment of any tax. imposed by this title or of any estate or gift tax imposed by prior Act of Con- gresis has been made (whether before or after the enactment of this Act) within the statutory period of limitation properly applicable thereto, such tax may be collected by distraint or by a proceeding in court (begun before or after the enactment of this Act), but only if begun (1) within six years after the assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the Commissioner and the executor. * * * Seo. 316. (a) The amounts of the following liabilities shall, except as hereinafter in this section provided, be assessed, collected, and paid in the same manner and subject to the same provisions and limitations as in the case of a deficiency in a tax imposed by this title (including the provisions in case of delinquency in payment after notice and demand, the provisions authorizing distraint and pro- ceedings in court for collection, and the provisions prohibiting claims and suits for refunds) : (1) The liability, at law or in equity, of a transferee of property of a decedent or donor, in respect of the tax (including interest, additional amounts, and additions to the tax provided by law) im- posed by this title or by any prior estate tax Act or by any gift tax Act. (2) The liability of a fiduciary under section 3467 of the Revised Statutes in respect of the payment of any such tax from the estate of the decedent or donor. Any such liability may be either as to the amount of tax shown on the return or as to any deficiency in tax. (b) The period of limitation for assessment of any such liability of a transferee or fiduciary shall be as follows : 156 (1) Within one year after the expiration of the period of limita- tion for assessment against the executor or donor ; or (2) If the period of limitation for assessment against the executor expired before the enactment of this Act but assessment against the executor was made within such period, — then, within six years after the making of such assessment against the executor, but in no case later than one year after the enactment of this Act. (3) If a court proceeding against the executor or donor for the collection of the tax has been begun within either of the above periods, — then within one year after return of execution in such proceeding. (c) (as amended by section 403(a) of the Revenue Act of 1928) The running of the statute of limitations upon the assessment of the liabil- ity of a transferee or fiduciary shall, after the mailing of the notice under subdivision (a) of section 308 to the transferee or fiduciary, be suspended for the period during which the Commissioner is prohibited from making the assessment in resi)ect of the liability of the trans- feree or fiduciary (and in any event, if a proceeding in respect of the liability is placed on docket of the Board, until the decision of the Board becomes final), and for 60 days thereafter. (d) This section shall not apply to any suit or other proceeding for the enforcement of the liability of a transferee or fiduciary pending at the time of the enactment of this Act. (e) As used in this section the term "transferee" includes heir, legatee, devisee, and distributee. Seo. 604. Revenue Act of 1928. No suit shall be maintained in any court for the purpose of restrain- ing the assessment or collection of (1) the amount of the liability, at law or in equity, of a transferee of property of a taxpayer in respect of any income, war-profits, excess-profits, or estate-tax, or (2) the amount of the liability of a fiduciary under section 3467 of the Revised Statutes in respect of any such tax. Sec. 403. Revenue Act of 1932. Except as provided in section 402, the tax imposed by section 401 of this Act shall be assessed, collected, and paid, in the same manner, and shall be subject to the same provisions of law (including penalties), as the tax imposed by section 301(a) of the Revenue Act of 1928, * * *. Sec. 316. (c) (as originally enacted) The running of the period of limitation upon the assessment of the liability of a transferee or fidu- ciary shall, after the mailing of the notice under subdivision (a) of section 3081 to the transferee or fiduciary, be suspended for the period during which the Commissioner is prohibited from making the assess- ment in respect of the liability of the transferee or fiduciary, and for 60 days thereafter. Note. — The above subdivision was amended by section 403(a) of the Revenue Act of 1928. Section 403(b) of the Revenue Act of 1928 reads as follows : "Subsection (a) of this section shall apply in all cases where the period of limitation has not expired prior to the enactment of this Act." 157 Art. 105. Remedies for collection and administrative proceedings for enforcing liability of a transferee or fiduciary. — Remedies for collec- tion. — Three remedies are provided for the collection of the tax : (1) The collector may issue warrant of distraint authorizing the seizure and sale of any or all of the assets of the estate. (See section 3187 of the Kevised Statutes, as amended by section 1016 of the Eevenue Act of 1924; U. S. C, 1934 edition, Title 26, section 1580.) (2) The collector may commence in any court of the United States appro- priate proceedings, in the name of the United States, to subject the property of the decedent to sale under the judgment or decree of the court. (3) The personal liability of the executor and of certain transferees, trustees, and beneficiaries, set forth in article 102, may be enforced by any appropriate action. The period of limitation, except in case of fraud or in case no return was filed, for collection of the tax by distraint or suit is six years after assessment if assessment of the tax was made within the statutory period of limitation or prior to the expiration of any period for collection agreed upon in writing by the Commissioner and the executor. If an extension of time for payment of the tax is granted under the provisions of section 305(b) or section 308 (i), as amended, the period within which collection by distraint or suit may be made is extended by the period of the extension granted for payment of the tax. Administrative froceedings for enforcing liability of a transferee or fiduciary. — The amount for which a transferee of the property of a decedent is liable, at law or in equity, and the amount of the per- sonal liability of a fiduciary under section 3467 of the Revised Stat- utes, as amended, in respect of any estate tax, whether shown on the return of the executor or determined as a deficiency in the tax, shall be assessed against such transferee or such fiduciary, as the case may be, and collected and paid, in the saine manner and subject to the same provisions and limitations as in the case of a deficiency, except as hereinafter provided. The term "transferee" as used in section 316 includes an heir, leg- atee, devisee, and distributee of an estate of a deceased person. The period of limitation for assessment of the liability of a trans- feree or of a fiduciary is as follows : {a) Within one year after the expiration of the period of limita- tion for assessment against the executor. (See sections 308, 310, 311, 312, 318, and 1109, and article 77.) (&) If the period of limitation for assessment against the executor expired before the enactment of the Eevenue Act of 1926 but assess- ment against the executor was made within such period, then within six years after the making of such assessment against the executor, 158 but in no case later than one year after the enactment of the Revenue Act of 1926. (c) If a court proceeding against the executor for the collection of the tax has been begun within the period of limitation for the bringing of such proceeding, then within one year after the return of execution in such proceeding. If a notice of the liability of a transferee, or the liability of a fidu- ciary, has been mailed to such transferee or to such fiduciary under the provisions of section 308(a) (see article 76), then the running of the statute of limitations shall be suspended for the period in which the Commissioner is prohibited from making the assessment (and in any event, if a proceeding in respect of the liability is placed on the docket of the Board, until the decision of the Board becomes final) , and for 60 days thereafter. The provisions of section 316 do not apply in any suit or proceed- ing for the enforcement of the liability of a transferee, or a fiduciary, which was pending at the time of the enactment of the Revenue Act of 1926. If assessments have been made against several persons covering the same tax liability, and payment of such liability by one or more such persons has been duly certified to the Commissioner, the Commis- sioner, for the purpose of temporarily relieving the collector from liability under section 3218 of the Revised Statutes (U. S. C, 1934 edition. Title 26, section 1740) , may authorize him to take credit tem- porarily with respect to the assessments not specifically paid. Such action, however, shall not constitute an abatement and shall not dis- charge the liability of the persons concerned. RECORDS, STATEMENTS, AND SPECIAL RETURNS Sec. 1102. (a) Every person liable to any tax imposed by this Act, or for the collection thereof, shall keep such records, render under oath such statements, make such returns, and comply with such rules and regulations, as the Commissioner, with the approval of the Secre- tary, may from time to time prescribe. (b) Whenever in the judgment of the Commissioner necessary he may require any person, by notice served upon him, to make a return, render under oath such statements, or keep such records as the Com- missioner deems suflBcient to show whether or not such person is liable to tax. ******* (d) Any oath or affirmation required by the provisions of this Act or regulations made under authority thereof may be administered by any officer authorized to administer oaths for general purposes by the law of the United States or of any State, Territory, or possession of the United States, wherein such oath or affirmation is administered, or by any consular officer of the United States. 159 Aet. 106. Executor's duty to keep records. — It is the duty of the executor to keep such records as the Commissioner may require. Executors are required to keep such complete and detailed records of the affairs of the estate as will enable the Commissioner to deter- mine accurately the amount of the tax liability. AuT. 107. Executor's duty to render statements. — It is the duty of the executor not only to make the formal return, but also to render any other sworn statement which the Commissioner may require for the purpose of determining whether a tax liability exists and, if so, the extent thereof. ESTATES ADMINISTERED IN THE UNITED STATES COURT FOR CHINA Seo. 321. (a) The term "resident" as used in this title includes a citizen of the United States with respect to whose property any probate or administration proceedings are had in the United States Court for China. Where no part of the gross estate of such decedent is situated in the United States at the time of his death, the total amount of tax due under this title shall be paid to or collected by the clerk of such court, but where any part of the gross estate of such decedent is situated in the United States at the time of his death, the tax due under this title shall be paid to or collected by the collector of the district in which is situated the part of the gross estate in the United States, or, if such part is situated in more than one district, then the collector of such district as may be designated by the Commissioner. (b) For the purpose of this section the clerk of the United States Court for China shall be a collector for the territorial jurisdiction of such court, and taxes shall be collected by and paid to him in the same maimer and subject to the same provisions of law, including penalties, as the taxes collected by and paid to a collector in the United States. NOTICE OF PERSONS ACTING AS FIDUCIARY Sbo. 317. (a) Upon notice to the Commissioner that any person is acting as executor, such person shall assume the powers, rights, duties, and privileges of an executor in respect of a tax imposed by this title or by any prior estate tax Act, until notice is given that such person is no longer acting as executor. (b) Upon notice to the Commissioner that any person is acting in a fiduciary capacity for a person subject to the liability specified in sec- tion 316, the fiduciary shall assume on behalf of such person the powers, rights, duties, and privileges of such person under such section (except that the liability shall be collected from the estate of such person), until notice is given that the fiduciary capacity has terminated. (c) Notice under subdivision (a) or (b) shall be given in accord- ance with regulations prescribed by the Commissioner with the approval of the Secretary. (d) In the absence of any notice to the Commissioner under sub- division (a) or (b), notice under this title of a deficiency or other 160 liability, if addressed in the name of the decedent or other person sub- ject to liability and mailed to his last known address, shall be suf- ficient for the purposes of this title. Ajet. 108. Notice of persons acting as fiduciary. — The "notice to the Commissioner " provided for in section 317 shall be in writing signed by the fiduciary and filed with the Commissioner, setting forth the name and address of the person for whom he is acting in a fiduciary capacity and also the nature of the liability of such person, accom- panied by satisfactory evidence of his authority to act for such person in the fiduciary capacity. If the fiduciary capacity exists by order of court, a certified copy of the order of the court may be regarded as such satisfactory evidence. The written notice to the commisisoner need not be accompanied by evidence of the authority of the fiduciary to act if there is already on file with the Commis- sioner satisfactory evidence of the authority to act. Any such writ- ten notice which has been filed with the Commissioner since the enactment of the Revenue Act of 1926 shall be considered as suffi- cient notice to the Commissioner within the meaning of section 317 if and when there is or has been filed with the Commissioner the satisfactory evidence herein provided for. When the fiduciary capacity has terminated, the fiduciary, in order to be relieved of any further duty or liability as such, must file with the Commissioner written notice that the fiduciary capacity has terminated as to him, accompanied by satisfactory evidence of the termination of the fidu- ciary capacity. Such written notice should state the name and ad- dress of the person, if any, who has been substituted as fiduciary. This article, made under the provisions of section 317, shall not be taken to abridge in any way the powers and duties of fiduciaries provided for in other sections of Title III of the Act or in any prior estate tax Act. SCOPE OF REPEAL Sec. 1200. (a) The following parts of the Bevenue Act of 1924 are repealed, to take effect (except as otherwise provided in this Act) upon the enactment of this Act, subject to the limitations provided in subdi- visions (b) : ******* Part I of Title III (called " Estate Tax ") ; ******* Sections 1004, 1005, 1006, and ;1007, subdivision (a) of section 1008, sections 1009, 1010, 1011, 1012, 1014, JOIS, 1019, and 1020, subdivisions (a) and (b) of section 1021, subdivision (c) of section 1025, and sec- tions 1026, 1027, 1028, 1029, J030, and 1031 (being certain administra- tive provisions). 161 (b) The parts of the Kevenue Act of 1924 which are repealed by this Act shall (except as provided in sections 283 and 318 and except as otherwise specifically provided in this Act) , remain in force for the assessment and collection of all taxes imposed by such Act, and for the assessment, imposition, and collection of all interest, penalties, or forfeitures which have accrued or may accrue in relation to any such taxes * * *. In the case of any tax imposed by any part of the Revenue Act of 1924 repealed by this Act, if there is a tax imposed by this Act in lieu thereof, the provisions imposing such tax shall re- main in force until the corresponding tax under this Act takes effect under the provisions of this Act. Sec. 714. Revenue Act of 1928. The parts of 'the Revenue Act of 1926 which are repealed by this Act shall remain in force for the assessment and collection of all taxes imposed thereby and for the assessment, imposition, and collection of all interest, penalties, or forfeitures which have accrued or may accrue in relation to any such taxes. Akt. 109. Scope of repeal. — The Eevenue Act of 1926 retains in force (except as provided in section 318) the provisions of Part I, Title III, of the Eevenue Act of 1924, and the provisions of estate tax titles of all prior Acts, for the assessment and collection of all taxes accruing thereunder and for the imposition and collection of all pen- alties which have accrued or may accrue in relation to any such taxes. The Eevenue Act of 1928 to the same extent, and for the same purpose, retains in force the parts of the Eevenue Act of 1926 repealed by the Eevenue Act of 1928. RULES AND REGULATIONS Seo. 1101. The Commissioner, with the approval of the Secretary, shall prescribe and publish all needful rules and regulations for the enforcement of this Act. Sec. 1108. (a) (as amended by section 506 of the Revenue Act of 1934) The Secretary, or the Commissioner vsdth the approval of the Secre- tary, may prescribe the extent, if any, to which any ruling, regula- tion, or Treasury Decision, relating to the internal revenue laws, shall be applied without retroactive effect. Seo. 403. Revenue Act of 1932. (Pertaining to additional estate tax.) * * * the tax imposed by section 401 of this Act shall be assessed, collected, and paid, in the same manner, and shall be sub- ject to the same provisions of law (including penalties), as the tax imposed by section 301(a) of the Revenue Act of 1926, * * *. Art. 110. Promulgation of regulations. — These regulations are pre- scribed pursuant to the authority contained in the foregoing statu- tory provisions, and apply to all pending estate tax cases unless a particular question is governed by a specific provision of the earlier statutes differing from the Eevenue Act of 1926, as amended and 162 supplemented to date, in which case the provisions of the applicable statute control, and Regulations 37 (revised January, 1921), Regu- lations 63, Regulations 68, and Regulations 70 (1929 Edition), as amended by Treasury Decisions relating thereto, to that extent remain in full force and effect. Chas. T. RtrssEiiL, Acting Commissioner of Internal Revenue. Approved October 26, 1937. RoSWEIili MagiUj, Acting Secretary of the Treasury. (Filed with the Division of the Federal Register October 28, 1937, 9 : 35 a. m.) APPENDIX TITLE III, EEVENUE ACT OF 1926, AS AMENDED ESTATE TAX (With references to pages showing provisions as originally enacted and describing the amendments) Sec. 300. When used in this title — (a) The term "executor" means the executor or administrator of the decedent, or, if there is no executor or administrator appointed, qualified, and acting within the United States, then any person in actual or constructive possession of any property of the decedent: (b) The term "net estate" means the net estate as determined under the provisions of section 303 ; (c) The term "month" means calendar month ; and (d) The term "collector" means the collector of internal revenue of the district in vfhich was the domicile of the decedent at the time of his death, or, if there was no such domicile in the United States, then the collector of the district in which is situated the part of the gross estate of the decedent in the United States, or, if such part of the gross estate is situated in more than one district, then the collector of internal revenue of such district as may be designated by the Commissioner. Sec. 301. (a) In lieu of the tax imposed by Title III of the Revenue Act of 1924, a tax equal to the sum of the following percentages of the value of the net estate (determined as provided in section 303) is hereby imposed upon the transfer of the net estate of every decedent dying after the enactment of this act, whether a resident or nonresident of the United States ; 1 per centum of the amount of the net estate not in excess of $50,000 ; 2 per centum of the amount by which the net estate exceeds $50,000 and does not exceed $100,000; 3 per centum of the amount by which the net estate exceeds $100,000 and does not exceed $200,000 ; 4 per centum of the amount by which the net estate exceeds $200,000 and does not exceed $400,000 ; 5 per centum of the amount by which the net estate exceeds $400,000 and does not exceed $600,000 ; 6 per centum of the amount by which the net estate exceeds $600,000 and does not exceed $800,000; 7 per centum of the amount by which the net estate exceeds $800,000, and does not exceed $1,000,000 ; 8 per centum of the amount by which the net estate exceeds $1,000,000 and does not exceed $1,500,000; 9 per centum of the amount by which the net estate exceeds $1,500,000 and does not exceed $2,000,000 ; (163) 164 10 per centum of the amount by which the net estate exceeds $2,000,000 and does not exceed $2,500,000 ; 11 per centum of the amount by which the net estate exceeds $2,500,000 and does not exceed $3,000,000; 12 per centum of the amount by which the net estate exceeds $3,000,000 and does not exceed $3,500,000; 13 yer centum of the amount by which the net estate exceeds $3,500,000 and does not exceed $4,000,000 ; 14 per centum of the amount by which the net estate exceeds $4,000,000 and does not exceed $5,000,000 ; 15 per centum of the amount by which the net estate exceeds $5,000,000 and does not exceed $6,000,000; 16 per centum of the amount by which the net estate exceeds $6,000,000 and does not exceed $7,000,000; 17 per centum of the amount by which the net estate exceeds $7,000,000 and does not exceed $8,000,000 ; 18 per centum of the amount by which the net estate exceeds $8,000,000 and does not exceed $9,000,000 ; 19 per centum of the amount by which the net estate exceeds $9,000,000 and does not exceed $10,000,000 ; 20 per centum of the amount by which the net estate exceeds $10,000,000. (b)' (1) If a tax has been paid under Title III of the Revenue Act of 1932 on a gift, and thereafter upon the death of the donor any amount In respect of such gift is required to be included in the value of the gross estate of the decedent for the purposes of this title, then there shall be credited against the tax imposed by subdivision (a) of this section the amount of the tax paid under such Title III with respect to so much of the property which con- stituted the gift as is included in the gross estate, except that the amount of such credit shall not exceed an amount which bears the same ratio to the tax imposed by subdivision (a) of this section as the value (at the time of the gift or at the time of the death, whichever is lower) of so much of the property which constituted the gift as is included in the gross estate, bears to the value of the entire gross estate. (2) For the purposes of paragraph (1), the amount of tax paid for any year under Title III of the Bevenue Act of 1932 with respect to any property shall be an amount which bears the same ratio to the total tax paid for such year as the value of such property bears to the total amount of net gifts (computed without deduction of the specific exemption) for such year. (c)^ The tax imposed by subdivision (a) of this section shall be credited with the amount of any estate, inheritance, legacy, or succession taxes actually paid to any State or Territory or the District of Columbia, in respect of any property included in the gross estate (not including any such taxes paid with respect to the estate of a person other than the decedent). The credit allowed by this subdivision shall not exceed 80 per centum of the tax imposed by sub- division (a) (after deducting from such tax the credits provided by subdivi- sion (b)), and shall include only such taxes as were actually paid and credit therefor claimed vnthin four years after the filing of the return required by section 304, except that — (1) If a petition for redetermination of a deficiency has been filed with the Board of Tax Appeals within the time prescribed in section 308, then within such four-year period or before the expiration of 60 days after the decision of the Board becomes final. 1 See page 20. " See page 21. 165 (2) If, under subdivision (b) of section 305 or subdivision (i) of section 308, an extension of time lias been granted for payment of the tax shown on the return, or of a deficiency, then within such four-year period or before the date of the expiration of the period of the extension. Refund based on the credit may (despite the provisions of section 319) be made if claim therefor is filed within the period above provided. Any such refund shall be made without interest, except that where the overpayment was made prior to the enactment of the Revenue Act of 1982, then interest shall be allowed and paid on the amount refunded at the rate of 6 per centum per annum from the date of the overpayment to the date of such enactment. Sec. 302. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated, except real property situated outside the United States — " (a) To the extent of the interest therein of the decedent at the time of his death ; (b) To the extent of any interest therein of the surviving spouse, existing at the time of the decedent's death as dower, curtesy, or by virtue of a statute creating an estate in lieu of dower or curtesy ; (c)^ To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death, or of which he has at any time made a transfer, by trust or otherwise, under which he has re- tained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death (1) the possession or enjoyment of, or the right to the income from, the property, or (2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom; except in case of a bona fide sale for an adequate and full consideration in money or money's worth. Any transfer of a material part of his property in the nature of a final disposition or distribution thereof, made by the decedent within two years prior to his death without such consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of this title ; (d) (1)^ To the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona-flde sale for an adequate and full consideration in money or money's worth), by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power (in whatever capacity exercisable) by the decedent alone or by the decedent in conjunction with any other person (with- out regard to when or from what source the decedent acquired such power), to alter, amend, revoke, or terminate, or where any such power is relinquished in contemplation of decedent's death. (2)" For the purposes of this subdivision the power to alter, amend, or revoke shall be considered to exist on the date of the decedent's death even though the exercise of the power is subject to a precedent giving of notice or even though the alteration, amendment, or revocation takes effect only on the expira- tion of a stated period after the exercise of the power, whether or not on or before the date of the decedent's death notice has been given or the power has been exercised. In such cases proper adjustment shall be made representing « See page 27. * See pages 46 and 48. ^ See pages 47-49. 166 the interests which would have been excluded from the power if the decedent had lived, and for such purpose if the notice has not been given or the power has not been exercised on or before the date of his death, such notice shall be considered to have been given, or the power exercised, on the date of his death. (3)' The relinquishment of any such power, not admitted or shown to have been in contemplation of the decedent's death, made within two years prior to his death without such a consideration and affecting the interest or interests (whether arising from one or more transfers or the creation of one or more trusts) of any one beneficiary of a value or aggregate value, at the time of such death, in excess of $5,000, then, to the extent of such excess, such relinquish- ment or reUnquishments shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of this title ; (e) To the extent of the Interest therein held as joint tenants by the decedent and any other person, or as tenants by the entirety by the decedent and spouse, or deposited, with any person carrying on the banking business, in their joint names and payable to either or the survivor, except such part thereof as may be shown to have originally belonged to such other person and never to have been received or acquired by the latter from the decedent for less than an adequate and full consideration in money or money's worth: Provided, That where such property or any part thereof, or part of the consideration with which such property was acquired, is shovni to have been at any time acquired by such other person from the decedent for less than an adequate and full consideration in money or money's worth, there shall be excepted only such part of the value of such property as is proportionate to the consideration furnished by such other person: Provided further, That where any property has been acquired by gift, bequest, devise, or inheritance, as a tenancy by the entirety by the decedent and spouse, then to the extent of one-half of the value thereof, or, where so acquired by the decedent and any other person as joint tenants and their interests are not otherwise specified or fixed by law, then to the extent of the value of a fractional part to be determined by dividing the value of the property by the number of joint tenants ; (f )° To the extent of any property passing under a general power of appoint- ment exercised by the decedent (1) by will, or (2) by deed executed in con- templation of or intended to take effect in possession or enjoyment at or after his death, or (3) by deed under which he has retained for his life or any period not ascertainable without reference to his death or for any period which does not in fact end before his death (A) the possession or enjoyment of, or the right to the income from, the property, or (B) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom; except in case of a bona fide sale for an adequate and full consideration in money or money's worth ; and (g) To the extent of the amount receivable by the executor as insurance under policies taken out by the decedent upon his own life; and to the extent of the excess over $40,000 of the amount receivable by all other beneficiaries as insurance under policies taken out by the decedent upon his own life. (h) Except as otherwise specifically provided therein subdivisions (b), (c), (d), (e), (f), and (g) of this section shall apply to the transfers, trusts, estates, interests, rights, powers, and relinquishment of powers, as severally enumerated and described therein, whether made, created, arising, existing, exercised, or relinquished before or after the enactment of this Act. ' See pages 47-49. ^ See page 61. 167 (i) If any one of the transfers, trusts, interests, rights, or powers, enumer- ated and described in subdivisions (c), (d), and (f) of this section is made, created, exercised, or relinquished for a consideration in money or money's worth, but is not a bona flde sale for an adequate and full consideration in money or money's worth, there shall be included in the gross estate only the excess of the fair market value at the time of death of the property otherwise to be included on account of such transaction, over the value of the considera- tion received therefor by the decedent. (j)° If the executor so elects upon his return (if filed within the time pre- scribed by law or prescribed by the Commissioner in pursuance of law), the value of the gross estate shall be determined by valuing all the property in- cluded therein on the date of the decedent's death as of the date one year after the decedent's death, except that (1) property included in the gross estate on the date of death and, within one year after the decedent's death, distributed by the executor (or, in the case of property included in the gross estate under subdivision (c), (d), or (f) of this section, distributed by the trustee under the instrument of transfer), or sold, exchanged, or otherwise disposed of, shall be included at its value as of the time of such distribution, sale, exchange, or other disposition, whichever first occurs, instead of its value as of the date one year after the decedent's death, and (2) any interest or estate which is affected by mere lapse of time shall be included at its value as of the time of death (instead of the later date) with adjustment for any difference in its value as of the later date not due to mere lapse of time. No deduction under this title of any item shall be allowed if allowance for such item is in effect given by the valuation under this subdivision. Wherever in any other sub- division or section of this title or in Title II of the Revenue Act of 1932, refer- ence is made to the value of property at the time of the decedent's death, such reference shaU be deemed to refer to the value of such property used in deter- mining the value of the gross estate. In case of an election made by the executor under this subdivision, then for the purposes of the deduction under section 303(a) (3) or section 303(b) (3), any bequest, legacy, devise, or transfer enumerated therein shall be valued as of the date of decedent's death with adjustment for any difference in value (not due to mere lapse of time or the occurrence or nonoccurrence of a contingency) of the property as of the date one year after the decedent's death (substituting the date of sale or exchange in the case of property sold or exchanged during such one-year period). Sbo. 303. For the purpose of the tax the value of the net estate shall be determined — (a) In the case of a citizen or resident of the United States, by deducting from the value of the gross estate — " (1)" such amounts — (A) for funeral expenses, (B) for administration expenses, (C) for claims against the estate, (D) for unpaid mortgages upon, or any indebtedness in respect to, prop- erty where the value of decedent's interest therein, undiminished by such mortgage or indebtedness, is included in the value of the gross estate, and (B) reasonably required and actually expended for the support during the settlement of the estate of those dependent upon the decedent, » See page 27. " See pages 64 and 65. 9172°— 37 12 168 as are allowed by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered, but not Including any income taxes upon income received after the death of the decedent, or property taxes not accrued before his death, or any estate, succession, legacy, or inheritance taxes. The deduction herein allowed in the case of claims against the estate, unpaid mortgages, or any indebtedness shall, when founded upon a promise or agreement, be limited to the extent that they were contracted bona fide and for an adequate and full consideration in money or money's worth. There shall also be deducted losses incurred during the settlement of estates arising from fires, storms, shipwrecks, or other casualties, or from theft, when such losses are not compensated for by insurance or otherwise, and if at the time of the filing of the return such losses have not been claimed as a deduction for income tax purposes in an income tax return. (2)"^ An amount equal to the value of any property (A) forming a part of the gross estate situated in the United States of any person who died within five years prior to the death of the decedent, or (B) transferred to the decedent by gift within five years prior to his death, where such property can be identified as having been received by the decedent from the donor by gift, or from such prior decedent by gift, bequest, devise, or inheritance, or which can be identified as having been acquired in exchange for property so received. This deduction shall be allowed only where a gift tax imposed under the Revenue Act of 1932, or an estate tax imposed under this or any prior Act of Congress, was finally determined and paid by or on behalf of such donor, or the estate of such prior decedent, as the case may be, and only in the amount finally determined as the value of such property in determining the value of the gift, or the gross estate of such prior decedent, and only to the extent that the value of such property is included in the decedent's gross estate, and only if in determining the value of the net estate of the prior decedent no deduction was allowable under this paragraph in respect of the property or property given in exchange therefor. Where a deduction was allowed of any mortgage or other lien in determining the gift tax, or the estate tax of the prior decedent, which was paid in whole or in part prior to the decedent's death, then the deduction allowable under this paragraph shall be reduced by the amount so paid. The deduction allowable under this paragraph shall be reduced by an amount which bears the same ratio to the amounts allowed as deductions under paragraphs (1), (3), and (4) of this subdivision as the amount otherwise deductible under this paragraph bears to the value of the decedent's gross estate. Where the property referred to in this paragraph consists of two or more items the aggregate value of such items shall be used for the purpose of computing the deduction. (3)" The amount of all bequests, legacies, devises, or transfers, to or for the use of the United States, any State, Territory, any political subdivision thereof, or the District of Columbia, for exclusively pubUc purposes, or to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, including the en- courgement of art and the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stock- holder or individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation, or to a trustee or trustees, or a fraternal society, order, or association operating under the lodge system, but only if such contributions or gifts are to be used by such trustee or trustees, or by such fraternal society, order, or association. "See pages 71 and 72. " See page 78. 169 exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. If the tax imposed by section 301, or any estate, succession, legacy, or inheritance taxes, are, either by the terms of the will, by the law of the jurisdiction under which the estate is administered, or by the law of the jurisdiction imposing the particular tax, payable in whole or in part out of the bequests, legacies, or devises otherwise deductible under this paragraph, then the amount deductible under this para- graph shall be the amount of such bequests, legacies, or devises reduced by the amount of such taxes. The amount of the deduction under this paragraph for any transfer shall not exceed the value of tibe transferred property required to be included in the gross estate ; and (4) An exemption of $100,000. (b) In the case of a nonresident not a citizen of the United States, by deducting from the value of that part of his gross estate which at the time of hisi death is situated in the United States — " (1)" That proportion of the deductions specified in paragraph (1) of sub- division (a) of this section which the value of such part bears to the value of his entire gross estate, wherever situated ; (2)" An amount equal to the value of any property (A) forming a part of the gross estate situated in the United States of any person who died within five years prior to the death of the decedent, or (B) transferred to the decedent by gift within five years prior to his death, where such property can be identified as having been received by the decedent from the donor by gift, or from such prior decedent by gift, bequest, devise, or inheritance, or which can be identified as having been acquired in exchange for property so received. This deduction shall be allowed only where a gift tax imposed under the Revenue Act of 1932, or an estate tax imposed under this or any prior Act of Congress, was finally determined and paid by or on behalf of such donor, or the estate of such prior decedent, as the case may be, and only in the amount finally determined as the value of such property in determining the value of the gift, or the grossi estate of such prior decedent, and only to the extent that the value of such property is included in that part of the decedent's gross estate which at the time of his death is situated in the United States, and only if in determining the value of the net estate of the prior decedent no deduction was allowable under this paragraph in respect of the property or property given in exchange therefor. Where a deduction was allowed of any mortgage or other lien in determining the gift tax, or the estate tax of the prior decedent, which was paid in whole or in part prior to the decedent'si death, then the deduction allowable under this paragraph shall be reduced by the amount so paid. The deduction allowable under this paragraph shall be reduced by an amount which bears the same ratio to the amounts allowed as deductions under paragraphs (1) and (3) of this subdivision as the amount otherwise deductible under this paragraph bearsl to the value of that part of the decedent's gross estate which at the time of his death is situated in the United States. Where the property referred to in this paragraph consists of two or more items the aggregate value of such items shall be used for the purpose of computing the deduction. (3)" The amount of all bequests, legacies, devises, or transfers, to or for the use of the United States, any State, Territory, any political subdivision thereof, or the District of Columbia, for exclusively public purposes, or to or for the use of any domestic corporation organized and operated exclusively " See pages 84 and 86. ^ See pages 84, 86, and 87. 170 for religions, charitable, seientiflc, literary, or educational purposes, including the encouragement of art and the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stock- holder or individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation, or to a trustee or trustees, or a fraternal society, order, or association operating under the lodge system, but only if such contributions or gifts are to be used within the United States by such trustee or trustees, or by such fraternal society, order, or association, exclusively for religious, charitable, scientific, lit- erary, or educational purposes, or for the prevention of cruelty to children or animals. If the tax imposed by section 301, or any estate, succession, legacy, or Inheritance taxes, are, either by the terms of the will, by the law of the juris- diction under which the estate is administered or by the law of the jurisdiction imposing the particular tax, payable in whole or in part out of the bequests, legacies, or devises otherwise deductible under this paragraph, then the amount deductible under this paragraph shall be the amount of such bequests, legacies, or devises reduced by the amount of such taxes. The amount of the deduction under this paragraph for any transfer shall not exceed the value of the trans- ferred property required to be included in the gross estate. (c)" No deduction shall be allowed in the case of a nonresident not a citizen of the United States unless the executor includes in the return required to be filed under section 304 the value at the time of his death of that part of the gross estate of the nonresident not situated in the United States. (d)" For the purpose of this title, stock in a domestic corporation owned and held by a nonresident not a citizen of the United States shall be deemed prop- erty within the United States, and any property of which the decedent has made a transfer, by trust or otherwise, within the meaning of subdivision (c) or (d) of section 302, shall be deemed to be situated in the United States, if so situated either at the time of the transfer, or at the time of the decedent's death. For the purposes of this title, a relinquishment or promised relinquish- ment of dower, courtesy, or of a statutory estate created in lieu of dower or courtesy, or of other marital rights in the decedent's property or estate, shall not be considered to any extent a consideration "in money or money's worth." (e)"" The amount receivable as insurance upon the life of a nonresident not a citizen of the United States, and any moneys deposited with any person carry- ing on the banking business, by or for a nonresident not a citizen of the United States who was not engaged in business in the United States at the time of his death, shall not, for the purpose of this title, be deemed property within the United States. (f ) Missionaries duly commissioned and serving under boards of foreign mis- sions of the various religious denominations in the United States, dying while in the foreign missionary service of such boards, shall not, by reason merely of their intention to permanently remain in such foreign service, be deemed nonresidents of the United States, but shall be presumed to be residents of the State, the District of Columbia, or the Territories of Alaska or Hawaii wherein they respectively resided at the time of their commission and their departure for such foreign service. Sec. 804. (a)" The executor, within two months after the decedent's death, or within a like period after qualifying as such, shall give written notice thereof to the collector. The executor shall also, at such times and in such manner as i« See pages 86 and 87. " See pages 47 and 83. 2" See page 83. ^ See pages 94, 95, and 96. 171 may be required by regulations made pursuant to law, file with the collector a return under oath in duplicate, setting forth (1) the value of the gross estate of the decedent at the time of his death, or, in case of a nonresident not a citizen of the United States, of that part of his gross estate situated in the United States; (2) the deductions allowed under section 303; (3) the value of the net estate of the decedent as defined in section 303; and (4) the tax paid or payable thereon ; or such part of such information as may at the time be ascertainable and such supplemental data as may be necessary to establish the correct tax. (b)"^ Return shall be made in all cases where the gross estate at the death of the decedent exceeds $100,000, and in the case of the estate of every non- resident not a citizen of the United States any part of whose gross estate is situated in the United States. If the executor is unable to make a complete return as to any part of the gross estate of the decedent, he shall include in his return a description of such part and the name of every person holding a legal or beneficial interest therein, and upon notice from the collector such person shall in like manner make a return as to such part of the gross estate. Sbo. 305. (a)^ The tax imposed by this title shall be due and payable fifteen months after the decedent's death, and shall be paid by the executor to the collector. (b)^ Where the Commissioner finds that the payment on the due date of any part of the amount determined by the executor as the tax would imiwse undue hardship upon the estate, the Commissioner may extend the time for pay- ment of any such part not to exceed eight years from the due date. In such case the amount in respect of which the extension is granted shall be paid on or before the date of the expiration of the period of the extension, and the running of the statute of limitations for assessment and collection, as pro- vided in sections 310(a) and 311(b), shall be suspended for the period of any such extension. If an extension is granted, the Commissioner may require the executor to furnish a bond iu such amount, not exceeding double the amount in respect of which the extension is granted, and with such sureties as the Commissioner deems necessary, conditioned upon the payment of the amount in respect of which the extension is granted in accordance with the terms of the extension. (c)'"' If the time for the payment is thus extended there shall be collected, as a part of such amount, interest thereon at the rate of 6 per centum per an- num from the expiration of three months after the due date of the tax to the expiration of the period of the extension. (d) The time for which the Commissioner may extend the time for pay- ment of the estate tax imposed by Title IV of the Revenue Act of 1921 shall be five years. (e)"" Where there is included in the value of the gross estate the value of a reversionary or remainder interest in property, the payment of the part of the tax imposed by this title attributable to such interest may, at the elec- tion of the executor, be postponed until six months after the termination of the precedent interest or interests in the property, and the amount the pay- ment of which is so postponed shall then be payable, together with interest thereon at the rate of 4 per centum per annum from eighteen months after the date of the decedent's death until such amount is paid. The postponement !» See pages 95 and 96. =« See page 116. s^See page 119. «See page 126. 172 of payment of such amount shall be under such regulations as the Commissioner with the approval of the Secretary may prescribe, and shall be upon condition that the executor, or any other person liable for the tax, shall furnish a bond in such an amount, and with such sureties, as the Oommissioner deems neces- sary, conditioned upon the payment within six months after the termina- tion of such precedent interest or interests of the amount the payment of which is so postponed, together with interest thereon, as above provided. Such part of any estate, inheritance, legacy, or succession taxes allowable as a credit against the tax imiK)sed by this title as is attributable to such reversionary or remainder interest may be allowed as a credit against the tax attributable to such interest, subject to the percentage limitation contained in section 301(c), if such part is paid, and credit therefor claimed, at any time prior to the expiration of 60 days after the termination of the precedent interest or interests in the property. Seo. 306. As soon as practicable after the return is filed the Commissioner shall examine it and shall determine the correct amount of the tax. Sbw. 307. As used in this title in respect of a tax imposed by this title the term "deficiency" means — (1) The amount by which the tax imposed by this title exceeds the amount shown as the tax by the executor upon his return ; but the amount so shown on the return shall first be increased by the amounts previously assessed (or collected without assessment) as a deficiency, and decreased by the amounts previously abated, refunded, or otherwise repaid in respect of such tax ; or (2) If no amount is shown as the tax by the executor upon his return, or if no return is made by the executor, then the amount by which the tax ex- ceeds the amounts previously assessed (or collected without assessment) as a deficiency ; but such amounts previously assessed, or collected without assess- ment, shall first be decreased by the amounts previously abated, refunded, or otherwise repaid in respect of such tax. Sec. 308. (a)"° If the Commissioner determines that there is a deficiency in respect of the tax imposed by this title, the Commissioner is authorized to send notice of such deficiency to the executor by registered mail. Within 90 days after such notice is mailed (not counting Sunday or a legal holiday in the District of Columbia as the ninetieth day), the executor may file a peti- tion with the Board of Tax Appeals for a redetermination of the deficiency. Except as otherwise provided in subdivision (d) or (f) of this section or in section 312 or 1001, no assessment of a deficiency in respect of the tax imposed by this title and no distraint or proceeding in court for its collection shall be made, begun, or prosecuted until such notice has been mailed to the executor, nor imtil the expiration of such 90-day period, nor, if a petition has been filed with the Board, until the decision of the Board has become final. Not- withstanding the provisions of section 3224 of the Revised Statutes the making of such assessment or the beginning of such proceeding or distraint during the time such prohibition is in force may be enjoined by a proceeding in the proper court. (b) If the executor files a petition with the Board, the entire amount redetermined as the deficiency by the decision of the Board which has become final shall be assessed and shall be paid upon notice and demand from the collector. No part of the amount determined as a deficiency by the Oommis- sioner but disallowed as such by the decision of the Board which has become final shall be assessed or be collected by distraint or by proceeding in court with or without assessment. 2» See pages 104 and 108. 173 (c) If the executor does not file a petition with the Board within the time prescribed in subdivision (a) of this section, the deficiency, notice of which has been mailed to the executor, shall be assessed, and shall be paid upon notice and demand from the collector. (d) The executor shall at any time have the right, by a signed notice in writing filed with the Commissioner, to waive the restrictions provided in sub- division (a) of this section on the assessment and collection of the whole or any part of the deficiency. (e) The Board shall have jurisdiction to redetermine the correct amount of the deficiency even if the amount so redetermined is greater than the amount of the deficiency, notice of which has been mailed to the executor, and to determine whether any additional amount or addition to the tax should be assessed, if claim therefor is asserted by the Commissioner at or before the hearing or a rehearing. (f ) If after the enactment of this Act the Commissioner has mailed to the executor notice of a deficiency as provided in subdivision (a), and the executor files a petition with the Board within the time prescribed in such subdivision, the Commissioner shall have no right to determine any additional deficiency, except in the case of fraud, and except as provided in subdivision (e) of this section or in subdivision (c) of section S12. If the executor is notified that, on account of a mathematical error appearing upon the face of the return, an amount of tax in excess of that shown upon the return is due, and that an assessment of the tax has been or will be made on the basis of what would have been the correct amount of tax but for the mathematical error, such notice shall not be considered, for the purposes of this subdivision or of subdivision (a) of this section, or of section 319, as a notice of a deficiency, and the executor shall have no right to file a petition with the Board of Tax Appeals based on such notice, nor shall such assessment or collection be prohibited by the provisions of subdivision (a) of this section. (g) For the purposes of this title the date on which a decision of the Board becomes final shall be determined according to the provisions of section 1005. (h) Interest upon the amount determined as a deficiency shall be assessed at the same time as the deficiency, shall be paid upon notice and demand from the collector, and shall be collected as a part of the tax, at the rate of 6 per centum per annum from the due date of the tax to the date the deficiency is assessed, or, in the case of a waiver under subdivision (d) of this section, to the thirtieth day after the filing of such waiver or to the date the deficiency is assessed whichever is the earlier. (i)" Where it is shown to the satisfaction of the Commissioner that the payment of a deficiency upon the date prescribed for the payment thereof will result in undue hardship to the estate, the Commissioner, with the approval of the Secretary (except where the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax), may grant an extension for the payment of such deficiency or any part thereof for a period not in excess of four years. If an extension is granted, the Com- missioner may require the executor to furnish a bond in such amount, not exceeding double the amount of the deficiency, and with such sureties as the Commissioner deems necessary, conditioned upon the payment of the deficiency in accordance with the terms of the extension. In such case the running of the statute of limitations for assessment and collection, as provided in sections 310(a) and 311(b), shall be suspended for the period of any such extension, and there shall be collected, as a part of the tax, interest on the part of the " See page 120. 174 deficiency the time for payment of which is so extended, at the rate of 6 per centum per annum for the period of the extension, and no other interest shall be collected on such part of the deficiency for such period. If the part of the deficiency the time for payment of which is so extended is not paid in accord- ance with the terms of the extension, there shall be collected, as a part of the tax, interest on such unpaid amount at the rate of 1 per centum a month for the period from the time fixed by the terms of the extension for its payment until it is paid, and no other interest shall be collected on such unpaid amount for such period. (j) The 50 per centum addition to the tax provided by section 3176 of the Kevised Statutes, as amended, shall, when assessed after the enactment of this Act in connection with an estate tax, be assessed, collected, and paid in the same manner as if it were a deficiency, except that the provisions of subdivision (h) of this section shall not be applicable. Seo. 309. (a) (1) Where the amount determined by the executor as the tax imposed by this title, or any part of such amount, is not paid on the due date of the tax, there shall be collected as a part of the tax, interest upon such unpaid amount at the rate of 1 per centum a month from the due date until it is paid. (2) Where an extension of time for payment of the amount so determined as the tax by the executor has been granted, and the amount the time for payment of which has been extended, and the interest thereon determined under subdivision (c) of section 305, is not paid in full prior to the expira- tion of the period of the extension, then, in lieu of the interest provided for in paragraph (1) of this subdivision, interest at the rate of 1 per centum a month shall be collected on such unpaid amount from the date of the expiration of the period of the extension until it is paid. (b) Where a deficiency, or any interest assessed in connection therewith under subdivision (h) of section 808, or any addition to the tax provided for in section 3176 of the Revised Statutes, as amended, is not paid in full within 30 days from the date of notice and demand from the collector, there shall be collected as part of the tax, interest upon the unpaid amount at the rate of 1 per centum a month from the date of such notice and demand until it is paid. (c) If a bond is filed, as provided in section 312, the provisions of subdivi- sion (b) of this section shall not apply to the amount covered by the bond. Sec. 310. (a) Except as provided in section 311, the amount of the estate taxes imposed by this title shall be assessed within three years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of three years after the return was filed. (b)"* The running of the statute of limitations provided in this section or in section 311 on the making of assessments and the beginning of distraint or a proceeding in court for collection, in respect of any deficiency, shall (after the mailing of a notice under subdivision (a) of section 308) be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or a proceeding in court (and in any event, if a proceeding in respect of the deficiency is placed on the docket of the Board, until the decision of the Board becomes final), and for 60 days there- after. Sec. 311. (a) In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return the tax may be assessed, or a proceed- ' See pages 111 and 114. 175 iiig in court for the collection of such tax may be begun without assessment, at any time. (b) Where the assessment of any tax imposed by this title or of any estate or gift tax imposed by prior Act of Congress has been made (whether before or after the enactment of this Act) within the statutory period of limitation properly applicable thereto, such tax may be collected by distraint or by a proceeding in court (begun before or after the enactment of this Act), but only if begun (1) within six years after the assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the Commissioner and the executor. (c) This section shall not bar a distraint or proceeding in court begun before the enactment of the Revenue Act of 1924; nor shall it authorize the assessment of a tax or the collection thereof by distraint or by proceeding in court (1) if at the time of the enactment of this Act such assessment, distraint, or proceeding was barred by the statutory period of limitation properly applica- ble thereto, unless prior to the enactment of this Act the Commissioner and the executor agreed in writing thereto, or (2) contrary to the provisions of sub- division (a) of section 308 of this Act. Sbc. 312. (a) If the Commissioner believes that the assessment or collection of a deficiency will be jeopardized by delay, he shall immediately assess such deficiency (together with all interest, additional amounts, or additions to the tax provided for by law) and notice and demand shall be made by the collector for the payment thereof. (b) If the jeopardy assessment is made before any notice in respect of the tax to which the jeopardy assessment relates has been mailed under sub-, division (a) of section 308, then the Commissioner shall mail a notice under such subdivision within 60 days after the making of the assessment. (c) The jeopardy assessment may be made in respect of a deficiency greater or less than that notice of which has been mailed to the executor, despite the provisions of subdivision (f) of section 808 and whether or not the executor has theretofore filed a petition with the Board of Tax Appeals. The Commis- sioner shall notify the Board of the amount of such assessment, if the petition is filed with the Board before the making of the assessment or is subsequently filed, and the Board shall have jurisdiction to redetermine the entire amount of the deficiency and of all amounts assessed at the same time in connection therewith. (d) If the jeopardy assessment is made after the decision of the Board is rendered such assessment may be made only in respect of the deficiency deter- mined by the Board in its decision. » (e) A jeopardy assessment may not be made after the decision of the Board has become final or after the executor has filed a petition for review of the decision of the Board. (f ) When a jeopardy assessment has been made the executor, within 30 days after notice and demand from the collector for the payment of the amount of the assessment, may obtain a stay of coUection of the whole or any part of the amount of the assessment by filing with the collector a bond in such amount, not exceeding double the amount as to which the stay is desired, and with such sureties, as the collector deems necessary, conditioned upon the payment of so much of the amount, the collection of which is stayed by the bond, as is not abated by a decision of the Board which has become final, together with interest thereon as provided in subdivision (j) of this section, (g) If the bond is given before the executor has filed his petition with the Board under subdivision (a) of section 308, the bond shall contain a further 176 condition that if a petition is not filed within the period provided in such subdivision, then the amount the collection of which is stayed by the bond will be paid on notice and demahd at any time after the expiration of such period, together with interest thereon at the rate of 6 per centum per annum from the date of the jeopardy notice and demand to the date of notice and demand under this subdivision. (h) Upon the filing of the bond the collection of so much of the amount assessed as is covered by the bond shall be stayed. The executor shall have the right to waive such stay at any time in respect of the whole or any part of the amount covered by the bond, and if as a result of such waiver any part of the amount covered by the bond is paid, then the bond shall, at the request of the executor, be proportionately reduced. If the Board determines that the amount assessed is greater than the amount which should have been assessed, then when the decision of the Board is rendered the bond shall, at the request of the executor, be proportionately reduced. (i) When the petition has been filed with the Board and when the amount which should have been assessed has been determined by a decision of the Board which has become final, then any unpaid portion, the collection of which has been stayed by the bond, shall be collected as part of the tax upon notice and demand from the collector, and any remaining portion of the assessment shall be abated. If the amount already collected exceeds the amount deter- mined as the amount which should have been assessed, such excess shall be refunded. If the amount determined as the amount which should have been assessed is greater than the amount actually assessed, then the difference shall be assessed and shall be collected as part of the tax upon notice and demand from the collector. (j) In the case of the amount collected under subdivision (i) there shall be collected at the same time as such amount, and as a part of the tax, interest at the rate of 6 per centum per annum upon such amount from the date of the jeopardy notice and demand to the date of notice and demand under sub- division (i) of this section, or, in the case of the amount collected in excess of the amount of the jeopardy assessment, interest as provided in subdivision (h) of section 308. If the amount included in the notice and demand from the collector under subdivision (i) of this section is not paid in full within 30 days after such notice and demand, then there shall be collected, as part of the tax, interest upon the unpaid amount at the rate of 1 per centum a month from the date of such notice and demand until it is paid. (k) No claim in abatement shall be filed in respect of any assessment made after the enactment of this Act in respect of any estate or gift tax. Sec. 313. (a) The collector shall grant to the person paying the tax duplicate receipts, either of which shall be sufiicient evidence of such payment, and shall entitle the executor to be credited and allowed the amount thereof by any court having jurisdiction to audit or settle his accounts. (b) If the executor makes written application to the Commissioner for de- termination of the amount of the tax and discharge from personal liability therefor, the Commissioner (as soon as possible, and in any event within one year after the making of such application, or, if the application is made before the return is filed, then within one year after the return is filed, but not after the expiration of the period prescribed for the assessment of the tax in sec- tion 310) shall notify the executor of the amount of the tax. The executor, upon payment of the amount of which he is notified, shall be discharged from personal liability for any deficiency in tax thereafter found to be due and shall be entitled to a receipt or writing showing such discharga 177 (e) The provisions of subdivision (b) shall not operate as a release of any part of the gross estate from the lien for any deficiency that may thereafter be determined to be due, unless the title to such part of the gross estate has passed to a bona fide purchaser for value, in which case such part shall not be subject to a lien or to any claim or demand for any such deficiency, but the lien shall attach to the consideration received from such purchaser by the heirs, legatees, devisees, or distributees. Sue. 314. (a) If the tax herein imposed is not paid on or before the due date thereof the collector shall, upon instruction from the Commissioner, pro- ceed to collect the tax under the provisions of general law, or commence ap- propriate proceedings in any court of the United States having jurisdiction, in the name of the United States, to subject the property of the decedent to be sold under the judgment or decree of the court. From the proceeds of such sale the amount of the tax, together with the costs and expenses of every descrip- tion to be allowed by the court, shall be first paid, and the balance shall be deposited according to the order of the court, to be paid under its direction to the person entitled thereto. This subdivision in so far as it applies to the collection of a deficiency shall be subject to the provisions of section 308. (b) If the tax or any part thereof is paid by, or collected out of that part of the estate passing to or in the possession of, any person other than the executor in his capacity as such, such person shall be entitled to reimburse- ment out of any part of the estate still undistributed or by a just and equi- table contribution by the persons whose interest in the estate of the decedent would have been reduced if the tax had been paid before the distribution of the estate or whose interest is subject to equal or prior liability for the payment of taxes, debts, or other charges against the estate, it being the purpose and intent of this title that so far as is practicable and unless other- wise directed by the will of the decedent the tax shall be paid out of the estate before its distribution. If any part of the gross estate consists of proceeds of jwlicies of insurance upon the life of the decedent receivable by a beneficiary other than the executor, the executor shall be entitled to recover from such beneficiary such portion of the total tax paid as the proceeds, in excess of $40,000, of such policies bear to the net estate. If there is more than one such beneficiary the executor shall be entitled to recover from such beneficiaries in the same ratio. SEa 315. (a)™ Unless the tax is sooner paid in full, it shall be a lien for ten years upon the gross estate of the decedent, except that such part of the gross estate as is used for the payment of charges against the estate and expenses of its administration, allowed by any court having jurisdiction thereof, shall be divested of such lien. If the Commissioner is satisfied that the tax liability of an estate has been fully discharged or provided for, he may, under regu- lations prescribed by him with the approval of the Secretary, issue his cer- tificate, releasing any or all property of such estate from the lien herein imposed. (b)™ If (1) except in the case of a bona fide sale for an adequate and full consideration in money or money's worth, the decedent makes a transfer, by trust or otherwise, of any property in contemplation of or intended to take effect in possession or enjoyment at or after his death, or makes a transfer, by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death (A) the possession or enjoyment '"See page 133. 178 of, or the right to the income from, the property, or (B), the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom, or (2) if insurance passes under a contract executed by the decedent in favor of a specific bene- ficiary, and if in either case the tax in respect thereto is not paid when due, then the transferee, trustee, or beneficiary shall be personally liable for such tax, and such property, to the extent of the decedent's interest therein at the time of such transfer, or to the extent of such beneficiary's interest under such contract of insurance, shall be subject to a like lien equal to the amount of such tax. Any part of such property sold by such transferee or trustee to a bona fide -purchaser for an adequate and full consideration in money or money's worth shall be divested of the lien and a like lien shall then attach to all the property of such transferee or trustee, except any part sold to a bona fide purchaser for an adequate and full consideration in money or money's worth. Seo. 316. (a) The amounts of the following liabilities shall, except as here- inafter in this section provided, be assessed, collected, and paid in the same manner and subject to the same provisions and limitations as in the case of a deficiency in a tax imposed by this title (including the provisions in case of delinquency in payment after notice and demand, the provisions authorizing distraint and proceedings in court for collection, and the provisions prohibiting claims and suits for refunds) : (1) The liability, at law or in equity, of a transferee of property of a dece- dent or donor, in respect of the tax (including interest, additional amounts, and additions to the tax provided by law) imposed by this title or by any prior estate tax Act or by any gift tax Act. (2) The liability of a fiduciary under section 3467 of the Revised Statutes in respect of the payment of any such tax from the estate of the decedent or donor. Any such liability may be either as to the amount of tax shown on the return or as to any deficiency in tax. (b) The period of limitation for assessment of any such liability of a trans- feree or fiduciary shall be as follows: (1) Within one year after the expiration of the period of limitation for assessment against the executor or donor ; or (2) If the period of limitation for assessment against the executor expired before the enactment of this Act but assessment against the executor was made within such period, — then within six years after the making of such assessment against the executor, but in no case later than one year after the enactment of this Act. (3) If a court proceeding against the executor or donor for the collection of the tax has been begun within either of the above periods, — then within one year after return of execution in such proceeding. (c)" The running of the statute of limitations upon the assessment of the liability of a transferee or fiduciary shall, after the mailing of the notice under subdivision (a) of section 308 to the transferee or fiduciary, be sus- pended for the period during which the Commissioner is prohibited from mak- ing the assessment in respect of the liability of the transferee or fiduciary (and in any event, if a proceeding in respect of the liability is placed on the docket of the Board, until the decision of the Board becomes final), and for 60 days thereafter. »> See page 156. 179 (d) This section shall not apply to any suit or other proceeding for the enforcement of the liability of a transferee or fiduciary pending at the time of the enactment of this Act. (e) As used in this section, the term "transferee" includes heir, legatee, devisee, and distributee. Sec. 317. (a) Upon notice to the Commissioner that any person is acting as executor, such person shall assume the powers, rights, duties, and privileges of an executor in respect of a tax imposed by this title or by any prior estate tax Act, until notice is given that such person is no longer acting as executor. (b) Upon notice to the Commissioner that any person is acting in a fiduciary capacity for a person subject to the liability specified in section 316, the fidu- ciary shall assume on behalf of such person the powers, rights, duties, and privileges of such person under such section (except that the liability shall be collected from the estate of such person), untU notice is given that the fiduciary capacity has terminated. (c) Notice under subdivision (a) or (b) shall be given in accordance with regulations prescribed by the Commissioner with the approval of the Secretary. (d) In the absence of any notice to the Commissioner under subdivision (a) or (b), notice under this title of a deficiency or other liability, if addressed in the name of the decedent or other person subject to liability and mailed to his last known address, shall be sufficient for the purposes of this title. Sec. 318. (a) If after the enactment of this Act the Commissioner determines that any assessment should be made in respect of any estate or gift tax imposed by the Kevenue Act of 1917, the Revenue Act of 1918, the Revenue Act of 1921, or the Revenue Act of 1924, or by any such Act as amended, the Commissioner is authorized to send by registered mail to the person liable for such tax notice of the amount proposed to be assessed, which notice shall, for the purposes of this Act, be considered a notice under subdivision (a) of section 308 of this Act. In the case of any such determination the amount which should be assessed (whether as deficiency or additional tax or as interest, penalty, or other addition to the tax) shall be computed as if this Act had not been enacted, but the amount so computed shall be assessed, collected, and paid in the same manner and subject to the same provisions and limitations (including the provisions in case of delinquency in payment after notice and demand and the provisions prohibiting claims and suits for refund) as in the case of a deficiency in the tax Imposed by this title, except that in the case of an estate tax imposed by the Revenue Act of 1917, the Revenue Act of 1918, or the Revenue Act of 1921, or by any such Act as amended, the period of limitation prescribed In section 1109 of this Act shall be applied in lieu of the period prescribed in subdivision (a) of section 310. (b) If before the enactment of this Act any person has appealed to the Board of Tax Appeals under subdivision (a) of section 308 of the Revenue Act of 1924 (if such appeal relates to a tax imposed by Title III of such Act or to so much of an estate tax imposed by any of the prior Acts enumerated in subdivision (a) of this section as was not assessed before Joine 3, 1924), and the appeal is pending before the Board at the time of the enactment of this Act, the Board shall have Jurisdiction of the appeal. In all such cases the powers, duties, rights, and privileges of the Commissioner and of the person who has brought the appeal, and the jurisdiction of the Board and of the courts, shall be determined, and the computation of the tax shall be made, in the same manner as provided in subdivision (a) of this section, except as provided in subdivision (h) of this section and except that the person liable for the tax shaU not be subject to the provisions of subdivision (a) of section 319. 180 (c) If before the enactment of this Act the Commissioner has mailed to any person a notice under subdivision (a) of section 308 of the Revenue Act of 1924 (whether in respect of a tax Imposed by Title III of such Act or in respect of so much of an estate tax imposed by any of the prior Acts enumerated in subdivision (a) of this section as was not assessed before June 3, 1924), and if the BO-day period referred to in such subdivision has not expired before the enactment of this Act and no appeal has been filed before the enactment of this Act, such person may file a petition with the Board in the same manner as If a notice of deficiency had been mailed after the enactment of this Act in respect of a deficiency in a tax imposed by this title. In such cases the 60-day period referred to in subdivision (a) of section 308 of this Act shall begin on the date of the enactment of this Act, and the powers, duties, rights, and privileges of the Commissioner and of the person entitled to file the petition, and the jurisdiction of the Board and of the courts, shall, whether or not the petition is filed, be determined, and the computation of the tax shall be made, in the same manner as provided in subdivision 1, Aug. 1, and Nov. 1. Bond distributed to legatee on Mar. 1, 1940 Interest coupon of $10 attached to bond and not cashed at date of death although due and payable Nov. 1, 1939. Cashed by executor on Feb. 1, 1940 Interest accrued from Nov. 1, 1939, to Jan. 1, 1940, collected on Feb. 1, 1940 Eeal estate. Not disposed of within year foUowing death. Bent of $300 due at the end of each quarter, Feb. 1, Ma^l, Aug. 1, and Nov. l._ Rent due for quarter ending Nov. 1, 1939, but not collected until Feb. 1, 1940 Rent accrued for November and December, 1939, collected on Feb. 1, 1940 Common stock, X Corporation, 500 shares, not disposed of within year following decedent's death.-. Dividend of $2 per share declared Dec. 10, 1939, and paid on Jan. 10, 1940, to holders of record on Dec. 30, 1939 Mar. 1,1940 Feb. 1, 1940 Feb. 1, 1940 Jan. 1, 1941 Feb. 1, 1940 Feb. 1, 1940 Jan. 1, 1941 Jan. 10,1940 $1,000.00 10.00 6.67 11, 000. 00 300.00 200.00 47, 500. 00 1, 000. 00 $1, 000. 00 10.00 6.67 12, 000, 00 300.00 200.00 60,000.00 1,000.00 Properties, interests, or estates which are affected by mere lapse of time include patents, estates for the life of a person other than 35 the decedent, remainders, reversions, and other' like properties, in- terests, or estates. The phrase "affected by mere lapse of time" has no reference to obligations for the payment of money, whether or not interest-bearing, the value of which changes with the passing of time. However, such an obligation, like any other property, may become affected by lapse of time when made the subject of a bequest or transfer' which itself is creative of an interest or estate so affected. The date of valuation of any property, interest, or estate so affected is, as prescribed in subsection (j), the date of decedent's death, but with an adjustment to be made of the va,lue then obtaining, which adjustment, while disregarding any later increase or decrease in value due solely to lapse of time, adds to or subtracts from the value at death any difference between that value and the value as of the date one year after decedent's death, or the applicable intettnediate date, if, and to the extent that, such difference was due to a cause or causes other than lapse of time. Accordingly, in the valuation of any prop- erty, interest, or estate affected by lapse of time, the difference be- tween its value at decedent's death and its value as of the later date must be analyzed to determine the portion of such difference at- tributable to other cause or causes, and that portion only is to be applied in adjusting the value as of the date of the decedent's death. If, for example, the decedent owned a patent which on the date of his death had an unexpired term of 10 years and a value of $100,000, and if the patent was sold 6 months after the decedent's death, at which time, because of the lapse of time and other causes, only $65,000 was realized therefor, the value would be determined as follows : Value of patent on date of decedent's death $100, 000 Difference between value on date of death and date of sale ($100,000 minus $65,000) $35, 000 Portion of such difference due to the 6 months elapsing between date of death and date of sale (one-half of 10 per cent of $100,000) 5- 0 is excluded from the gross estate. The amount of $40,000, the extent to which the insurance was not taken out by the decedent ( I I ! ), is also excluded V 100,000 / from the gross estate. The amount of the insurance taken out by the decedent after the date of the Treasury decision, $60,000, is reduced 61 by $40,000, the special insurance exemption, and the amount of the insurance included in the gross estate is $20,000.* Seo. 81.28 Valuation of insurance. — The amount to be returned if the policy is payable to or for the benefit of the estate is the amount receivable. If the proceeds of a policy are payable to a beneficiary other than the estate, and not to or for the benefit of the estate, the amount to be listed in the appropriate schedule of the return is the full amount receivable. (For taxable portion see section 81.27.) In case the proceeds of a policy are made payable to the beneficiary in the form of an annuity for life, or for a term of years, there should be listed in the appropriate schedule of the return the one sum payable at death under an option which could have been exercised either by the insured or by the beneficiary, or if no option was granted, the sum used by the insurance company in determining the amount of the annuity. With respect to each policy there should be filed a certificate, Form 712, from the insurance company showing the following : (a) The face amount of the policy. (J) The amount of any indebtedness to the company which re- duced the amount otherwise payable. ((?) The amount of accumulated dividends. (d) The amount of postmortem dividends. (e) Any other facts affecting the value. (See next paragraph.) (/) The value as of the date of death of the insured of the benefits payable under the policy. In the case of any policy providing for deferred payments (other than payments measured by the facts disclosed under (a), (&), (c), and (d) above), the certificate should include the following informa- tion: (g) The provisions with respect to the deferred payments or to the installments. (h) The amounts of the deferred payments or installments. (*) If the number of installments to be paid may be measured by the life of any individual, the date of birth of such individual. (j) The amount applied by the insurance company as a single premium representing the purchase of the installment benefits. (k) The basis (Mortality Table and rate of interest) employed by the insurance company in valuing the installment benefits.* GROSS ESTATE— RETROACTIVE PROVISIONS Sec. 811. [Part II, Subchapter A.] Gross Estate. * * * . * ;): « * (h) Priob Interests. — ^Except as otherwise specifically provided therein, subsections (b), (c), (d), (e), (f), and (g) shall apply to the transfers, trusts, estates, interests, rights, powers, and relinquish- 62 ment of powers, as severally enumerated and described therein, whether made, created, arising, existing, exercised, or relinquished before or after February 26, 1926. ******* Sec. 802. [Part I, Subchapter A.] Application of Pasts. Part II shall apply to the estates of citizens or residents of the United States and, except as otherwise provided, to the estates of nonresidents not citizens of the United States, subject to the exceptions and addi- tional provisions contained in Part III. * * * DEDUCTIONS— ESTATES OF CITIZENS OR RESIDENTS ADMINISTRATION EXPENSES, CLAIMS, ETC. Seo. 812. [Part II, Subchapter A.] Net- Estate. For the purpose of the tax the value of the net estate shall be deter- mined, in the case of a citizen or resident of the United States by deducting from the value of the gross estate — ******* (b) Expenses, Losses, Indebtedness, and Taxes. — Such amounts — (1) for funeral expenses, (2) for administration expenses, (3) for claims against the estate, (4) for unpaid mortgages upon, or any indebtedness in respect to, property where the value of decedent's interest therein, undimin- ished by such mortgage or indebtedness, is included in the value of the gross estate, and (5) reasonably required and actually expended for the support during the settlement of the estate of those dependent upon the decedent, as are allowed by the laws of the jurisdiction, whether within or with out the United States, under which the estate is being administered, but not including any income taxes upon income received after the death of the decedent, or property taxes not accrued before his death, or any estate, succession, legacy, or inheritance taxes. The deduction herein allowed in the case of claims against the estate, unpaid mort- gages, or any indebtedness shall, when founded upon a promise or agreement, be limited to the extent that they were contracted bona fide and for an adequate and full consideration in money or money's worth. There shall also be deducted losses incurred during the settlement of estates arising from fires, storms, shipwrecks, or other casualties, or from theft, when such losses are not compensated for by insurance or otherwise, and if at the time of the filing of the return such losses have not been claimed as a deduction for income tax purposes in an income tax return. For the purposes of this subchapter, a relinquishment or promised relinquishment of dower, curtesy, or of a statutory estate created in lieu of dower or curtesy, or of other marital rights in the decedent's property or estate, shall not be considered to any extent a considera- tion "in money or money's worth." ******* Sec. 935. [Subchapter B.] Rate of Tax. *****•• 63 (c) For the purposes of this section the value of the net estate shall be determined as provided in subchapter A, except that in lieu of the exemption of $100,000 provided in section 812(a), the exemption shall be $40,000. Seo. 81.29 Deduction of administration expenses, claims, etc. — ^In order to be deductible under the foregoing provisions of the Internal Revenue Code, the item must fall within one of the several classes of deductions specifically enumerated therein, and must also, except in the case of deductible losses during the administration of the estate, be one the payment of which out of the estate is authorized by the laws of the jurisdiction undef which the estate is being admin- istered. Unless both of these conditions exist the item is not de- ductible. If the item is not one of those described it is not deductible merely because payment is allowed by the local law. If the amount which may be expended for the particular purpose is limited by the local law no deduction in excess of such limitation is permissible. If a claim against the estate, an unpaid mortgage, or an indebted- ness is founded upon a promise or agreement, the deduction there- for is limited to the extent that the liability was contracted bona fide and for an adequate and full consideration in money of money's worth. A relinquishment or promised relinquishment of dower, curtesy, or of a statutory estate created in lieu of dower or curtesy, or of other marital rights in the decedent's property ot estate, is not to any extent a consideration in money or money's worth. An item may be entered on the return for deduction though the exact amount thereof is not then known, provided it is ascertain- able with reasonable certainty, and will be paid. No deduction may be taken upon the basis of a vague or uncertain estimate. In the event the amount of the liability was unascertainable at the time of final audit of the return by the Commissioner, and, as a consequence, deduction was not allowed therefor in such audit, and subsequently the amount of the liability is ascertained, relief may be sought as pro- vided by sections 81.73 and 81.96.* Seo. 81.30 Effect of court decree. — The decision of a local court as to the amount of a claim or administration expense will ordinarily be accepted if the court passes upon the facts upon which deducti- bility depends. If the court does not pass upon such facts, its decree will, of course, not be followed. For example, if the question before the court is whether a claim should be allowed, the decree allow- ing it will ordinarily be accepted as establishing the validity and amount of the claim. The decree will not necessarily be accepted even though it purports to decide the facts upon which deductibility depends. It must appear that the court actually passed upon the merits of the case. This will be presumed in all cases of an active and genuine contest. If the result reached appears to be unrea- 64 sonable, this is some evidence that there was not such a contest, but it may be rebutted by proof to the contrary. If the decree was ren- dered by consent, it will be accepted, provided the consent was a bona fide recognition of the validity of the claim — ^not a mere cloak for a gift — and was accepted by the court as satisfactory evidence upon the merits. It will be presumed that the consent was of this character, and was so accepted, if given by all parties having an interest adverse to the claimant. The decree will not be accepted if it is at variance with the law of the State; as, for example, an allowance made to an executor in excess of that prescribed by statute.* Sec. 81.31 Funeral expenses. — An executor may deduct such amounts for funeral expenses as are actually expended by him and, under the laws of the local jurisdiction, are payable out of the dece- dent's estate. A reasonable expenditure by the executor for a tomb- stone, monument, or mausoleum, or for a burial lot, either for the dece- dent or his family, may be deducted under this heading, provided such an expenditure is allowable by the local law. Included in funeral expenses is the cost of transportation of the person bringing the body to the place of burial.* Seo. 81.32 Administration expenses. — The amounts deductible from the gross estate as "administration expenses" are such expenses as are actually and necessarily incurred in the administration of the estate; that is, in the collection of assets, payment of debts, and dis- tribution among the persons entitled. The expenses contemplated in the law are such only as attend the settlement of an estate by the legal representative preliminary to the transfer of the property to individual beneficiaries or to a trustee, whether such trustee is the executor or some other person. Expenditures not essential to the proper settlement of the estate, but incurred for the individual benefit of the heirs, legatees, or devisees, may not be taken as deductions. Administration expenses include (1) executor's commissions; (2) attorney's fees; and (3) miscellaneous expenses. Each of these classes is considered separately in sections 81.33 to 81.35, inclusive.* Sec. 81.33 Executor's commissions. — The executor or administrator, in filing the return, may deduct his commissions in such an amount as has actually been paid, or in an amoimt which at the time of such filing it is reasonably expected will be paid, but no deduction may be taken if no commissions are to be collected. In case the amount of the commissions has not been fixed by decree of the proper court, the deduction will be allowed on the final audit of the return, provided : (1) That the Commissioner is reasonably satisfied that the commis- sions claimed will be paid; (2) that the amount entered as a deduction is within the amoimt allowable by the laws of the jurisdiction wherein • 65 the estate is being administered; and (3) that it is in accordance with the usually accepted practice in said jurisdictidn to allow such an . amount in estates of similar size and character. If the deduction is disallowed in whole or in part on final audit, the disallowance will be subject to modification as the facts may later require. If the deduction is allowed in advance of payment and payment is there- after waived, it shall be the duty of the executor to notify the Com- missioner and to pay the resulting tax, together with interest. Executors should note that the commissions received as compensation for their services constitute taxable income and that the amounts received or receivable by them as such compensation are cross- referenced for income-tax purposes. A bequest or devise to the executor in lieu of commissions is not deductible. If, however, the decedent fixed by his will the com- pensation payable to the executor for services to be rendered in the administration of the estate, deduction may be taken to the extent that the amount so fixed does not exceed the compensation allowable by the local law or practice. Amounts paid as trustees' commissions do not constitute expenses of administration and are not deductible, whether received by the executor acting in the capacity of a trustee or by a separate trustee as such.* Seo. 81.34 Attorney's fees. — The executor or administrator, in filing the return, may deduct such an amount of attorney's fees as has actually been paid, or in an amount which at the time of such filing it is reasonably expected will be paid. If on the final audit of a return the fees claimed have not been awarded by the proper court and paid, the deduction will, nevertheless, be allowed, provided the Commis- sioner is reasonably satisfied that the amount claimed will be paid and that it does not exceed a reasonable remuneration for the services rendered, taking into account the size and character of the estate and the local law and practice. If the deduction is disallowed in whole or in part on final audit, the disallowance will be subject to modifi- cation as the facts may later require. Attorney's fees incurred by beneficiaries incident to litigation as to their respective interests do not constitute a proper deduction, inasmuch as expenses of this character are properly charged against the beneficiaries personally and are not administration expenses.* Sec. 81.35 Miscellaneous administration expenses. — ^This includes such expenses as court costs, surrogates' fees, accountants' fees, ap- praisers' fees, clerk hire, etc. Expenses necessarily incurred in pre- serving and distributing the estate are deductible, including the cost of storing or maintaining property of the estate, if it is impossible to effect immediate distribution to the beneficiaries. Expenses for 66 preserving and caring for the property may not include outlays for additions or impro"v«ments ; nor will such expenses be allowed for a longer period than the executor is required to retain the property. A brokerage fee for selling property of the estate is deductible if the sale is necessary in order to pay the decedent's debts, the expenses of administration, or to effect distribution. Other expenses attend- ing the sale are deductible, such as the fees of an auctioneer, if it is reasonably necessary to employ one.* Sec. 81.36 Claims against the estate. — The amounts that may be deducted under this heading are such only as represent personal obligations of the decedent existing at the time of his death, whether or not then matured, and interest thereon which had accrued at the time of death. Only interest accrued at the date of the decedent's death is allowable even though the executor, in accordance with the provisions of section 811 (j) of the Internal Revenue Code, elects to have the gross estate valued as of a date or dates subsequent to the decedent's death. Only claims enforceable against the decedent's estate may be deducted. If the claim is founded upon a promise or agreement, the deduction therefor is limited to the extent that the liability was contracted bona jfide and for an adequate and full consideration in money or money's worth. Thus, a pledge or a subscription, evidenced by a promissory note or otherwise, even though enforceable against the estate, is deductible only to the ex- tent that liability therefor was contracted bona fide and for an adequate and full consideration in cash or its equivalent. Liabilities imposed by law or arising out of torts are deductible. See section 81.29 as to the relinquishment or promised relinquishment of dower and other marital interests.* Sec. 81.37 Taxes. — ^The deduction for property taxes is limited to such taxes as accrued prior to the decedent's death. Property taxes must, in order to be deductible, constitute enforceable obligations of the decedent existing at the time of death. Unpaid taxes upon income received during the decedent's lifetime are deductible but taxes upon income received after death are not deductible. No estate, succession, legacy, or inheritance tax is de- ductible.* Sec. 81.38 Unpaid mortgages. — Deduction is allowed of the full unpaid amount of a mortgage upon, or of an indebtedness in respect of, any property of the gross estate, including interest which had accrued thereon at the time of death, provided the value of the prop- erty, undiminished by the amount of the mortgage or indebtedness, is returned as part of the value of the gross estate. If decedent's estate is liable for the amount of the mortgage or indebtedness, the 67 full value of the property subject to the mortgage or indebtedness must be included as part of the value of the gross estate ; the amount of the mortgage or indebtedness being in such case allowed as a de- duction. But if decedent's estate is not so liable, only the value of the equity of redemption (or value of the property, less the indebted- ness) need be returned as part of the value of the gross estate. In no case may the deduction on account of the mortgage or indebted- ness exceed the liability therefor contracted bona fide and for an adequate and full consideration in money or money's worth. Only interest accrued at the date of the decedent's death is allo^^able even though the executor, in accordance with the provisions of section 811(j) of the Internal Revenue Code, elects to have the gross estate valued as of a date or dates subsequent to the decedent's death. Inasmuch as real property situated outside of the United States does not form a part of the gross estate, no deduction may be taken of any mortgage thereon or any indebtedness in respect thereof.* Sec. 81.39 Losses from casualties or theft. — There may be deducted under this heading losses incurred during the settlement of the estate arising from fires, storms, shipwrecks, or other casualties, or from theft, if such losses are not compensated for by insurance or other- wise. Such losses are not deductible if, at the time of the filing of the estate tax return, they have been claimed as a deduction for income tax purposes in an income tax return. If the loss is partly compen- sated for, the excess of the loss over such compensation may be deducted. Losses not of the nature described are not deductible. In order to be deductible a loss must occur during the settlement of the estate. If a loss with respect to an asset occurs after distribution thereof to the distributee it may not be deducted.* Seo. 81.40 Support of dependents. — The support of dependents of the decedent during the settlement of the estate is deductible pursuant to the following rules : («) In order to be deductible, the allowance must be authorized by the laws of the jurisdiction in which the estate is being adminis- tered, and not in excess of what is reasonably required. (i) The allowance for which deduction may be made is limited to support during the settlement of the estate. Any allowance for a more extended period is not deductible. (c) There must be an actual disbursement from the estate to the dependents, but after payment has been made the right of deduction is not affected by the fact that the dependents do not expend the entire amount for their support during the settlement of the estate.* 244534°— 42- 68 DEDUCTIONS— PROPERTY PREVIOUSLY TAXED Sec. 812. [Part II, Subchapter A.] Net Estate. For the purpose of the tax the value of the net estate shall be de- termined, in the case of a citizen or resident of the United States by deducting from the value of the gross estate — ******* (c) (as amended by Joint Resolution, approved March 17, 1941, Public Lave 18, Seventy-seventh Congress, effective as of February 11, 1939) Peopehtt PBEviotrsLT Taxed. — An amount equal to the value of any property (A) forming a part of the gross estate situated in the United States, of any person who died within five years prior to the death of the decedent, or (B) transferred to the decedent by gift within five years prior to his death, where such property can be identified as having been received by the decedent from the donor by gift, or from such prior decedent by gift, bequest, devise, or inheritance, or which can be identified as having been acquired in exchange for property so received. This deduction shall he allowed only where a gift tax imposed under chapter 4, or under Title III of the Revenue Act of 1932, 47 Stat. 245, or an estate tax Imposed under this subchapter, the Revenue Act of 1926, 44 Stat. 69, or any prior Act of Congress, was finally determined and paid by or on behalf of such donor, or the estate of such prior decedent, as the case may be, and only In the amount finally determined as the value of such property In determining the value of the gift, or the gross estate of such prior decedent, and only to the extent that the value of such property is included in the decedent's gross estate, and only if in determining the value of the net estate of the prior decedent no deduction was allowable under this paragraph In respect of the property or property given in exchange therefor. Where a deduction was allowed of any mortgage or other Uen in determining the gift tax, or the estate tax of the prior decedent, which was paid in whole or In part prior to the decedent's death, then the deduction allowable under this paragraph shall be reduced by the amount so paid. The deduction allowable under this subsection shall be reduced by an amount which bears the same ratio to the amounts allowed as deductions under subsections (a), (b) and (d) as the amount otherwise deductible under this subsection bears to the value of the decedent's gross estate. Where the property referred to In this sub- section consists of two or moi-e items the aggregate value of such items shall be used for the purpose of computing the deduction. ******* Sec. 935. [Subchapter B.] Rate of Tax. ******* (c) For the purposes of this section the value of the net estate shall be determined as provided in subchapter A, except that in lieu of the exemption of $100,000 provided in section 812(a), the exemption shall be $40,000. Seo. 81.41 Deduction of the value of transfers previously taxed. — If there is included in the decedent's gross estate property received by him by gift from any person within five years prior to his death, or received by gift, bequest, devise, or inheritance from any person 69 who died within five years prior to his^ death, or property acquired in exchange for property so received, the Internal Kevenue Code authorizes a deduction in respect thereof, subject to the following conditions and limitations, namely: (a) Conditions. — (1) The property respecting which the deduction is sought must have been received by the decedent as a gift within five years prior to his death, or received by him by gift, bequest, devise, or inheritance from a prior decedent who died within five years of the decedent's death. (2) The property must be identified either as the same property which the decedent so received or as property acquired in exchange therefor. (3) The property must have formed a part of the gross estate, situated in the United States, of such prior decedent, or have been included in the total amount of the donor's gifts made within five years prior to the decedent's death. (4) An estate tax by or on behalf of the estate of such prior decedent, or a gift tax by or on behalf of the donor, must have actually been paid (the mere filing of a return for such estate or donor not being sufiicient). (5) No such deduction, in respect of the property or property given in exchange therefor, must have been allowable in de- termining the value of the net estate of the prior decedent. (6) Limitations. — (1) The deduction is limited to the value of the property, or the aggregate value of such property if more than one item, as finally determined for the purpose of the gift tax or for the purpose of the prior estate tax, or to the value of such property or aggregate items thereof (or property acquired in exchange therefor) included in the decedent's gross estate, whichever is the lower. (2) The deduction, as limited in (1), is reduced by the total amount paid prior to the decedent's death on any mortgage or other lien on the property previously taxed, provided such mortgage or other lien was deducted in determining the estate tax of the prior decedent or the gift tax of the donor. (3) The deduction is further reduced on account of the de- ductions allowed under subsegtions (a), (b), and (d) of section 812. The amount of this further reduction is that proportion of such deductions which the amount otherwise deductible for property previously taxed bears to the value of the decedent's gross estate. Property included rn the total amount of gifts of a donor for the purpose of the gift tax and also included in the donee's gross estate 70 does not embrace any portion of the gifts excluded under the pro- visions of section 1003(b) of the Internal Revenue Code or correspond- ing provisions of prior gift tax statutes, and due allowance must be made for any such exclusions when computing the deduction for property previously taxed. For example : A donor gave his daughter a house and lot valued at $24,000, of which only $20,000 was included in the total amount of his gifts for the purpose of the gift tax. This property is included in the daughter's gross estate at a value of $18,000. As only 20,000/24,000 of the property was included for the purpose of the gift tax, in accordance with the third condition previously set forth in this section, the amount of the property previously taxed which is also included in the daughter's gross estate is 20,000/24,000 X $18,000 or $15,000. The application of this section may be illustrated by the following example : Example. The decedent died June 15, 1940. The value of his gross estate for the purpose of the estate tax is $1,000,000, of which $200,000 is the value of insurance in excess of $40,000 payable to beneficiaries other than the estate, $600,000 is the value of property previously taxed, and $200,000 is the value of stocks and bonds not so taxed. The property previously taxed was inherited from the decedent's father, who died on June 1, 1939. The tax on the father's estate was paid. The property previously taxed may be set forth as follows: Decedent's estate Prior estate Item 1 - — - $160,000 40,000 110,000 130,000 90,000 80,000 $100,000 Item 2 _ — __ - - 85,000 Items - ---_,_._ 126,000 Item4 120,000 Items 115,000 Items . _. .. - 60,000 Totals - 600,000 696, 000 Item 1, $150,000, is specifically bequeathed to a charitable organiza- tion free of estate, inheritance, legacy, or succession taxes. Admin- istration expenses and debts of the decedent amount to $150,000. At the time of the father's death there was an unpaid mortgage of $60,000 on item 5 which was deducted in determining the estate tax liability of the father's estate. This mortgage was entirely paid before the son's death. The deduction for property previously taxed is limited to the aggregate value of the items constituting such property as finally determined in the case of the prior decedent or donor, or to the ag- gregate value of such property included in the decedent's gross estate, whichever is the lower. Accordingly, the amount of the deduction 71 for property previously taxed thus ascertained is $595,000. In ac- cordance with (b)(2) of this section this deduction is reduced by $60,000, the amount paid in the discharge of the mortgage on item 6. The deduction thus reduced is $535,000. The deduction is further reduced by a proportionate amount com- puted under the provisions of (b) (3) of this section. As the amount of the specific exemption authorized by subchapter A is greater than the amount of the specific exemption authorized by subchapter B, the amount so computed in determining the deduction for the purpose of the basic tax imposed by subchapter A differs from the amount so computed in determining the deduction for the purpose of the addi- tional tax imposed by subchapter B. In this example the deductions, except for property previously taxed, amount to $400,000, as follows: $150,000 for the charitable bequest, $150,000 for administration expenses and debts, and $100,000 for the specific exemption authorized by subchapter A. The propor- tionate amount by which the deduction for property previously taxed is further reduced for the purpose of the basic tax imposed by subchapter A is ascertained by multiplying the above mentioned $400,000 by 0.535, the ratio which the said $535,000 bears to the value of the gross estate, $1,000,000, and amounts to $214,000. The differ- ence between $535,000 and $214,000 is $321,000, the amount in which the deduction for property previously taxed is allowable in deter- mining the tax imposed by subchapter A. The total amount of the deductions, $721,000, subtracted from the value of the gross estate, $1,000,000, leaves a net estate of $2Y9,000, the transfer of which is subject to the tax imposed by subchapter A. Subchapter B provides for a specific exemption of $40,000. Ac- cordingly, the deductions, other than the deduction for property previously taxed, allowable under that subchapter, amount to $340,- 000, and 0.535 of that amount is $181,900, the proportionate amount by which the deduction for property previously taxed is further re- duced for the purpose of the additional tax. The difference between $535,000 and $181,900 is $353,100, the amount in which the deduction for property previously taxed is allowable in determining the addi- tional tax. The total amount of the deductions, $693,100, subtracted from the value of the gross estate, $1,000,000, leaves a net estate of $306,900, the transfer of which is subject to the additional tax imposed by subchapter B.* Seo. 81.42 Property originally received. — If the property originally received from a donor or prior decedent is included in the decedent's gross estate, the executor must describe it fully and prove its iden- tity.* Seo. 81.43 Property acquired in exchange. — The deduction for sub- stituted property is not limited to property acquired by a single ex- 72 change of property received from the donor or the prior decedent, but extends to substituted property acquired by the process of exchange, whether through the medium of money or otherwise, irre- spective of the number of conversions involved, including the pro- ceeds of the sale or other disposition of property so received or acquired, as well as property acquired by purchase with the proceeds of the sale or other disposition of such property so long as such proceeds can be conclusively identified as such and clearly traced to the property originally so received. The executor must describe and fully identify both the property originally received from the donor or the prior decedent and the substituted property for which deduction is claimed, giving the date and stating the nature of the transaction by which the sub- stituted property was acquired, together with the name and address of the transferee. If the transaction was evidenced by written instrument of public record, precise reference to such record must be made, and if by instrument not of record, a verified copy thereof must be supplied. If there was no written instrument, there must be furnished the affidavit of one or more persons having personq^l knowledge of the matter, setting forth the facts in connection there- with. The burden of identifying property as acquired in exchange for property included in the gross estate of the prior decedent for Fed- eral estate tax purposes rests upon the executor.* DEDUCTIONS— TRANSFERS FOR PUBLIC, CHARITABLE, RELIGIOUS, ETC., USES Shxj. 812. [Part II, Subchapter A.] Net Estate. For the purpose of the tax the value of the net estate shall be de- termined, in the ease of a citizen or resident of the United States by deducting from the value of the gross estate — ******* (d) Transfees fob PuBiJtc, Chabitable, and Reuoiotts Uses. — The amount of all bequests, legacies, devises, or transfers, to or for the use of the United States, any State, Territory, any political subdivi- sion thereof, or the District of Columbia, for exclusively public pur- poses, or to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art and 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 individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation, or to a trustee or trustees, or a fraternal society, order, or association operating under the lodge system, but only if such contributions or gifts are to be used by such trustee or trustees, or by such fraternal society, order, or association, exclusively for religious, charitable, scientific, literary, or educational purposes, or for the pretention of cruelty to children 73 or animals. If the tax imposed by section 810, or any estate, suc- cession, legacy, or inheritance taxes, are, either by the terms of the will, by the law of the jurisdiction under which the estate is adminis- tered, or by the law of the jurisdiction imposing the particular tax, payable in whole or in part out of the bequests, legacies, or devises otherwise deductible under this paragraph, then the amount deductible under this paragraph shall be the amount of such bequests, legacies, or devises reduced by the amount of such taxes. The amount of the deduction under this subsection for any transfer shall not exceed the value of the transferred property required to be included in the gross estate. * * ^ * ^ * * SiW. &35. [Subchapter B.] Rate of Tax. * * * * * ili * (c) For the purposes of this section the value of the net estate shall be determined as provided in subchapter A, except that in lieu of the exemption of $100,000 provided in section 812(a), the exemp- tion shall be $40,000. Sec. 81.44 Transfers for public, charitable, religious, etc., uses. — ^De- duction may be taken of the value of all property transferred by will or by the decedent in his lifetime not to exceed the value of the transferred property required to be included in the gross estate if in either case the property was transferred (1) to or for the use of the United States, any State, Territory, any political subdivision thereof, or the District of Columbia, for exclusively public purposes; or (2) to or for the use of any corporation or association organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes (including the encouragement of art and the prevention of cruelty to children or animals) , if no part of the net earnings of the corporation or association inures to or is payable to or for the benefit of any private stockholder or individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation; or (3) to a trustee or trustees, or a fraternal society, order, or association operating under the lodge system, if such transfers, legacies, bequests, or de- vises are to be used by such trustee, trustees, fraternal society, order, or association exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. If a trust is created for both a charitable and a private purpose, deduction may be taken of the value of the beneficial interest in favor of the former only insofar as such interest is presently ascertainable, and hence severable from the interest in favor of the private use. Section 81.10 indicates the principles to be applied in the computa- tion of the present worth of deferred uses, but such computation will not be made by the Commissioner on behalf of the executor. Thus if money or property is placed in trust to pay the income to 74 an individual during Ms life, or for a term of years, and then to pay or deliver the principal to the charitable corporation, or to apply it to a charitable purpose, the present value of the remainder is deductible. To determine the present value of such remainder, use the appropriate factor in column 3 of Table A or B of section 81.10. If the present worth of a remainder bequeathed for a charitable use is dependent upon the termination of more than one life, or in any other manner rendering inapplicable Table A or B of section 81.10, the claim for the deduction must be supported by a full state- ment, in duplicate, of the computation of the present worth made, in accordance with the principle set forth in section 81.10, by one skilled in actuarial computations. The deduction is not limited, in the estates of citizens or residents, to transfers to domestic corporations or associations, or to trustees for use within the United States. If under the terms of the will, or the law of the jurisdiction wherein the estate is administered, or the law of the jurisdiction imposing the particular tax, the Federal estate tax, or any estate, succession, legacy, or inheritance tax is payable in whole or in part out of any bequest, legacy, or devise deductible under section 812(d), the sum deductible is the amount of such bequest, legacy, or devise so reduced. Thus, if $50,000 is bequeathed for a charitable purpose and is sub- jected to a State inheritance tax of $5,000, the amount deductible is $45,000; or if a life estate is bequeathed to an individual with re- mainder over to a charitable corporation, and by the local law the legacy tax upon the life estate is taken out of the corpus with the result that the charitable corporation will be entitled to receive only the amount of the fund less the tax, the deduction is limited to the present worth, as of the date of the testator's death, of the re- mainder of the fund so reduced; or if the testator bequeaths his residuary estate, or a portion thereof, to charity, and his will con- tains a direction that certain inheritance taxes, otherwise payable from legacies in respect of which they were laid, shall be payable out of such residuary estate, the deduction may not exceed the bequest to charity thus reduced pursuant to the direction of the will ; or if a residuary estate, or a portion thereof, be bequeathed to charity, and by the local law the Federal estate tax is payable out of the residuary estate, the deduction may not exceed that portion of the residuary estate bequeathed to charity as reduced by the Federal estate tax. The statute in effect provides that the deduction shall be based on the amount actually available for charitable uses, that is, the amount of the fund remaining after the payment of all death taxes. The return should fully disclose the computation of the amount to be de- ducted. If such amount is dependent upon the amoimt of any death 75 tax which has not been paid before the filing of the return, Form 706, there should be submitted with the return a computation of such tax. If as the result of a controversy involving a charitable bequest or devise, the charitable organization assigns or surrenders a part thereof pursuant to a compromise agreement in settlement of such controversy, the amount so assigned or surrendered is not deductible as a bequest or devise to such charitable organization.* Seo. 81.45 Religious, charitable, scientific, and educational corpora- tions. — ^A corporation or association to which a transfer for a religious, charitable, scientific, or educational purpose was made must meet four tests: (1) It must be organized and operated for one or more of the specified purposes; (2) it must be organized and operated exclusively for such- purposes ; (3) no part of its net earnings shall inure to or be paid to or for the benefit of private stockholders or individuals ; and (4) no substantial part of its activities shall be carrying on propa- ganda, or otherwise attempting, to influence legislation. The estate is not deprived of the right to deduct the value of prop- erty so transferred by reason of the fact that private individuals are the recipients of the benefits which the corporation or association dispenses. Such right is, however, lost if any part of the net earnings of the corporation or association inures to or is payable to or for the benefit of a private stockholder or individual.* Seo. 81.46 Conditional bequests. — If as of the date of decedent's death the transfer to charity is dependent upon the performance of some act or the happening of a precedent event in order that it might become effective, no deduction is allowable unless the possibility that charity will not take is so remote as to be negligible. If an estate or interest has passed to or is vested in charity at the time of deced- ent's death and such right or interest would be defeated by the per- formance of some act or the happening of some event which appeared to have been highly improbable at the time of decedent's death, the deduction is allowable. If the legatee, devisee, donee, or trustee is empowered to divert the property or fund, in whole or in part, to a use or purpose which would have rendered it, to the extent that it is subject to such power, not de- ductible had it been directly so bequeathed, devised, or given by the decedent, deduction will be limited to that portion, if any, of the property or fund which is exempt from an exercise' of such power.* Seo. 81.47 Proof required. — In establishing the right of the estate to this deduction, the executor must submit: (a) Duplicate copies of the will of the decedent, and of the order admitting the will to probate, one copy of each of which should be certified, if the deduction is claimed of property transferred by such will. Duplicate copies of any instrument in writing by which the 76 decedent made a transfer of property in his lifetime the value of which is required by the statute to be included in his gross estate, if the deduction is claimed of property so transferred. If the in- strument is of record one copy thereof should be certified, and if not of record, one copy should be verified. The certified or verified copy should be forwarded by the collector to the Commissioner. (&) An affidavit by the executor stating whether any action has been instituted to have interpreted or to contest the will or any provision thereof affecting the charitable deduction claimed and whether, according to his information and belief, any such action is designed or contemplated. (c) Such other documents or evidence as may be requested by the Bureau.* SPECIFIC EXEMPTION Sbo. 812. [Part II, Subchapter A.] Net Estats For the purpose of the tax the value of the net estate shall he de- termined, in the case of a citizen or resident of the United States by deducting from the value of the gross estate — (a) Exemption. — ^An exemption of $100,000; ******* Sec. 935. [Subchapter B.] Rate of Tax. ******* (c) For the purposes of this section the value of the net estate shall be determined as provided in subchapter A, except that in lieu of the exemption of $100,000 provided in section 812(a), the exemption shall be $40,000. Seo. 81.48 Specific exemption. — ^A specific exemption should be de- ducted in determining the net estate of a citizen or resident of the United States. The specific exemption deductible in. determining the net estate upon which the basic tax is imposed by section 810 of the Internal Ee venue Code (subchapter A) is $100,000. The specific exemption deductible in determining the net estate of a citizen or resident upon which the additional tax is imposed by section 935 of the Internal Revenue Code (subchapter B) is $40,000. No specific exemp- tion is authorized in the case of the estate of a nonresident not a citizen.* ESTATES OF NONRESIDENTS NOT CITIZENS Sec. 862. [Part III, Subchapter A.] Peopeety Within the United States. For the purpose of this subchapter — (a) Stock in Domestic CoBPOBATioN.^Stock In a domestic corpora- tion owned and held by a nonresident not a citizen of the United States shall be deemed property within the United States; and (b) Revocable Tbansifees and TsANSFBats in Contemplation op Death. — ^Any property of which the decedent has made a transfer, 77 by trust or otherwise, within the meaning of section 811 (c) or (d), shall be deemed to be situated in the United States, If so situated either at the time of the transfer, or at the time of the decedent's death. Sec. 863. [Part III, Subchapter A.] Property Without the tlNiTBa) States. The following items shall not, for the purpose of this subchapter, be deemed property within the United States : (a) Proceeds of Life Insurance. — The amount receivable as in- svirance upon the life of a nonresident not a citizen of the United States; and (b) Bank Deposits. — ^Any moneys deposited with any person carry- ing on the banking business, by or for a nonresident not a citizen of the United States who was not engaged in business In the United States at the time of his death. Sec. 850. [Part II, Subchapter A.] Mission akibs in FoKmoN Sebvicb. Missionaries duly commissioned and serving under boards of foreign missions of the various religious denominations in the United, States, dying while in the foreign missionary service of such boards, shall not, by reason merely of their Intention to permanently remain in such foreign service, be deemed nonresidents of the United States, but shall be presumed to be residents of the State, the District of Columbia, or the Territories of Alaska or Hawaii wherein they respectively resided at the time of their commission and their departure for such foreign service. Sec. 851. [Part II, Subchapter A.] Citizens With Estates in China. The term "resident" as used in this subchapter includes a citizen of the United States with respect to whose property any probate or ad- ministration proceedings are had In the United States Court for China. Sec. 81.49 Gross estate. — The gross estate of a nonresident not a cit- izen is made up in the same way as that of a citizen or resident of the United States. For computation of the net estate of a nonresident not a citizen, see section 81.51. For meaning of the terms "residents" and "nonresidents," and of the presumption applying as to the resi- dence of missionaries, see section 81.5.* Sec. 81.50 Situs of property. — Eeal estate, tangible personal prop- erty, and the written evidence of intangible personal property which is treated as being the property itself are within the United States if physically situated therein. For example, a bond for the payment of money is not within the United States unless physically situated therein. Stock of a domestic corporation, however, constitutes prop- erty within the United States, irrespective of where the certificates thereof are physically located. Intangible personal property the written evidence of which is not treated as being the property itself constitutes property within the United States if consisting of a property right issuing from or en- forceable against a resident of the United States or a domestic cor- poration (public or private), if not subject to the exceptions pre- 78 scribed in section 863 (a) and (b). Under the provisions of that section the amount receivable as insurance upon the life of a decedent who was a nonresident not a citizen, and moneys deposited by or for such a decedent, who was not engaged in business in the United States at the time of his death, with any person carrying on the banking business, shall not be deemed property within the United States. Property of which the decedent has made a transfer taxable under the provisions of section 81.15 is deemed to be situated in the United States if so situated either at the time of the transfer or at the time of the decedent's death. (See sections 81.15 to 81.21, inclusive.)* DEDUCTIONS— ESTATES OF NONRESIDENTS NOT CITIZENS Sec. 861. [Part III, Subchapter A.] Net Estate. (a) Dedtjctions Axlowed. — For the purpose of the tax the value of the net estate shall be determined, in the case of a nonresident not a citizen of the United States, by deducting from the value of that part of his gross estate (determined as provided in section 811), which at the time of his death is situated in the United States. — (1) Expenses, losses, indejbtkdnbss, and taxes. — That propor- tion of the deductions specified in subsection (b) of section 812 which the value of such part bears to the value of his entire gross estate, wherever situated. (2) (as amended by Joint Resolution, approved March 17, 1941, Public Law 18, Seventy-seventh Congress, effective as of February 11, 1939) Property peeviodslt taxed. — An amount equal to the value of any property (A) forming a part of the gross estate situated in the United States of any person who died within five years prior to the death of the decedent, or (B) transferred to the decedent by gift within five years prior to his death, where such property can be identified as having been received by the decedent from the donor by gift, or from such prior decedent by gift, bequest, devise, or inherit- ance, or which can be identified as having been acquired in exchange for property so received. This deduction shall be allowed only where a gift tax imposed under chapter 4, or under Title III of the Revenue Act of 1932, 47 Stat. 245, or an estate tax imposed under this subchapter, the Revenue Act of 1926, 44 Stat. 69, or any prior Act of Congress, was finally determined and paid by or on behalf of such donor, or the estate of such prior decedent, as the case may be, and only in the amount finally determined as the value of such prop- erty in determining the value of the gift, or the gross estate of such prior decedent, and only to the extent that the value of such prop- erty is included in that part of the decedent's gross estate which at the time of his death is situated in the United States, and only if in determining the value of the net estate of the prior decedent no deduction was allowable under this paragraph in respect of the prop- erty or property given in exchange therefor. Where a deduction was allowed of any mortgage or other lien in determining the gift tax, or the estate tax of the prior decedent, which was paid in whole or in part prior to the decedent's death, then the deduction allowable 79 under this paragraph shall be reduced by the amount so paid. The deduction allowable under this paragraph shall be reduced by an amount which bears the same ratio to the amounts allowed as deductions under paragraphs (1) and (3) of this subsection as the amount otherwise deductible under this paragraph bears to the value of that part of the decedent's gross estate which at the time of his death is situated in the United States. Where the property referred to in this paragraph consists of two or mo*te items the aggregate value of such items shall be used for the purpose of com- puting the deduction. (3) Tbansfees for ptjbuo, ohabitabie, and religious uses. — The amount of all bequests, legacies, devises, or transfers, to or for the use of the United States, any State, Territory, any political subdivision thereof, or the District of Columbia, for exclusively public purposes, or to or for the use of any domestic corporation organized and operated exclusively for religious, charitable, scien- tific, literary, or educational purposes, including the encouragement of art and 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 individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise at- tempting, to influence legislation, or to a trustee or trustees, or a fraternal society, order, or association operating under the lodge system, but only if such contributions or gifts are to be used within the United States by such trustee or trustees, or by such fraternal society, order, or association, exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. If the tax imposed by section 860, or any estate, succession, legacy, or inheritance taxes, are, either by the terms of the will, by the law of the jurisdiction under which the estate is administered, or by the law of the jurisdiction imposing the particular tax, payable in whole or in part out of the bequests, legacies, or devises otherwise deductible under this para- graph, then the amount deductible under this paragraph shall be the amount of such bequests, legacies, or devises reduced by the amount of such taxes. The amount of the deduction under this paragraph for any transfer shall not exceed the value of the trans- ferred property required to be included in the gross estate. (b) Condition of Aixowance or Dbduotions. — ^No deduction shall be allowed in the case of a nonresident not a citizen of the United States unless the executor includes in the return required to be filed under section 864 the value at the time of his death of that part of the gross estate of such nonresident not situated in the United States. Sec. 935. [Subchapter B.] Rate of Tax. St 4: * * * * * (c) For the purposes erf this section the value of the net estate shall be determined as provided in subchapter A, * * *. Sec. 81.51 Net estate. — The Internal Revenue Code imposes the tax upon the transfer of only the portion of -the estate of a non- resident not a citizen that was situated in the United States. In de- termining the net estate, the deductions specifically authorized for this 80 class of cases may be taken from the portion of the gross estate situated in the United States.* Sec. 81.52 Deductions of administration expenses, claims, etc. — ^In estates of nonresidents not citizens, deductions from the gross estate may be taken, subject to the limitations set forth in sections 81.29 to 81.40, inclusive, and to the limitations hereinafter stated, for the following : Funeral expenses ; administration expenses ; claims against the estate; unpaid mortgages; losses incurred during the settlement of the estate arising from fires, storms, shipwrecks, or other casual- ties, or from theft, if such losses are not compensated for by insurance or otherwise; and amounts reasonably required and actually expended for the support during the settlement of the estate of those dependent upon the decedent. It is immaterial whether the amounts to be deducted were incurred or expended within or without the United States, but certain limitations are imposed which do not apply to estates of residents or citizens, namely : (a) Only that proportion of the aggregate thereof is deductible which the value of that part of the gross estate situated (within the meaning of the statute) in the United States, bears to the value of the entire gross estate, wherever situated. (See section 81.55.) (p) No deduction whatever may be taken unless the executor includes in the return the value of that part of the gross estate not situated in the United States. Such part of the gross estate must be valued as of the date of the decedent's death; or, if the option authorized by section 811 (j) is exercised, such part must be valued in accordance with the provisions of section 81.11. In order that the Bureau may properly pass upon the items claimed as deductions, the executor should submit a certified copy of the schedule of liabilities, claims against the estate, and expenses of administration filed under the foreign death-duty act ; or, if no such schedule was filed, a certified copy of the schedule of such liabilities, claims, and expenses filed with the foreign court in which administra- tion was had; or, if items of deduction allowable imder section 861(a)(1) were not included in either such schedule, or if no such schedules were filed, then the affidavit of the foreign executor setting forth the facts relied upon as entitling the estate to the benefit of the particular deduction or deductions.* Seo. 81.53 Deduction of the value of property previously taxed. — ^The right to deduct the value of property received by a decedent who was a nonresident not a citizen by gift from any person within five years prior to his death, or by gift, bequest, devise, or inheritance from any person who died within five years prior to his death, or the value of property acquired in exchange for property so received, is governed by the same rules as those applying to estates of citizens or residents 81 (sections 81.41 to 81.43, inclusive), subject to the three following exceptions : (1) The deduction is not available to any extent unless the executor includes in the return the value of that part of the gross estate not situated in the United States. Such part of the gross estate must be valued as of the date of the decedent's death; or, if the option authorized by section 811 (j) is exercised, such part must be valued in accordance with the provisions of section 81.11. (2) The property for which the deduction is claimed must be included in that part of the gross estate situated in the United States at the time of the decedent's death. (3) Instead of the amount of the deduction being reduced in ac- cordance with the third limitation set forth under section 81.41(6), the amount of the deduction is reduced by the proportion of the total other deductions, allowed under paragraphs (1) and (3) of subsection (a) of section 861, which the amount otherwise deductible for property previously taxed bears to the value of the part of the gross estate situated in the United States at the time of the decedent's death.* Seo. 81.54 Deduction of value of transfers for public, charitable, re- ligious, etc., uses. — The right to deduct the value of property trans- ferred by nonresidents not citizens for public, religious, charitable, scientific, literary, or educational purposes is governed by the same rules as those applying to estates of citizens or residents (sections 81.44 to 81.47, inclusive) , subject, however, to the two following exceptions : (a) The right is limited to transfers to corporations and associa- tions created or organized in the United States, or to trustees for use within the United States. (b) The right is available only if the executor includes in the return the value of that part of the gross estate not situated in the United States. Such part of the gross estate must be valued as of the date of the decedent's death ; or, if the option authorized by sec- tion 811 (j) is exercised, such part must be valued in accordance with the provisions of section 81.11. Instead of duplicate copies of the documents specified in section 81.47, only one copy is required to be filed.* Seo. 81.65 Determination of net estate. — The following example will show the manner of determining the net estate of a nonresident not a citizen. The gross estate, wherever situated, amounts to $1,000,000, of which $200,000 represents the value of the property having its situs within the United States (the term "United States" including not only the several States, but also the Territories of Alaska and Hawaii, and the District of Columbia). The funeral expenses, administration expenses, and claims against the estate aggregate $150,000, and there 82 / are charitable bequests, for use within the United States, amounting to $25,000. Hence the property situated within the United States constitutes 20 per cent of the entire gross estate wherever situated, and a like percentage of the $150,000 is $30,000. The following re- sult is accordingly obtained: Gross estate within the United States $200, 000 20 per cent of $150,000 _- $30, 000 Charitable bequests for use within the United States- 25, 000 55,000 Net estate 145, 000 For the manner of computing the tax on the net estate, see sec- tion 81.7.* Sec. 81.56 Payment of tax. — The provisions relating to credits (see sections 81.8 and 81.9) and to rates and payment of the tax are the same in estates of nonresidents not citizens and of residents or citizens. The Internal Revenue Code provides that the executor shall pay the tax. If there is no executor or administrator appointed, qualified, and acting within the United States, every person in either the actual or constructive possession of any property of the decedent is consti- tuted by the Internal Revenue Code as executor for the purpose of tax payment, and is liable for the tax to the extent of the property so in his possession. (See sections 81.75 to 81.82, inclusive.) All checks, drafts, or money orders should be made payable to the order of the collector of internal revenue.* PRELIMINARY NOTICE— ESTATES OF CITIZENS OR RESIDENTS Sec. 820. [Part II, Subchapter A.] Executob's Notice. The executor, within two months after the decedent's death, or within a like period after qualifying as such, shall give written notice thereof to the collector. Sec. 937. [Subchapter B.] Assessment, Coixeotion, and Payment or Tax. Except as provided in section 936, the tax imposed by section 985 shall be assessed, collected, and paid, in the same manner, and shall be subject to the same provisions of law (including penalties), as the tax imposed by subchapter A, except that in the case of a citizen or resident of the United States a return shall be required if the value of the gross estate at the time of decedent's death exceeds the amount of the specific exemp- tion provided in section 935(c). Sec. 985. [Subchapter B.] Rate of Tax. ******* (c) For the purposes of this section the value of the net estate shall be determined as provided in subchapter A, except that in lieu of the exemption of $100,000 provided in section 812(a), the exemption shall be $40,000. 83 Seo. 81.57 When notice required. — ^A preliminary notice is required to be filed in the case of every citizen or resident whose gross estate exceeded $40,000 in value at the date of death. The value of the gross estate at the date of death governs with respect to the filing of the notice regardless of whether the value of the gross estate is, at the executor's election, finally determined as of a date subsequent to the date of death pursuant to the provisions of section 811 (j). The notice must be filed in duplicate within two months after the decedent's death or within two months after the executor has qualified. In the case of a resident, it must be filed with the collector in whose district the decedent had his domicile at the time of death. In the case of a nonresident citizen, it must be filed with the collector in whose district the gross estate in the United States was situated; or, if the gross estate in the United States was situated in more than one district, or, if no part of the gross estate was situated in the United States, it must be filed with the collector for the second district of New Yofk, or with such collector as the Commissioner may designate. If there is doubt as to whether the gross estate exceeded $40,000, the notice should be filed as a matter of precaution in order to avoid the possibility of penalties attaching.* Sec. 81.58 Notice by executor or administrator. — The duly qualified executor or administrator is required to file such preliminary notice on Form 704, copies of which may be obtained from the collector, within two months after qualifying as such, if notice has not already been filed. The primary purpose of the notice is to advise the Gov- ernment of the existence of taxable estates, and filing should not be delayed beyond the two months' period because of uncertainty as to the exact value of the assets. The filing of the notice within the prescribed period is mandatory, and the estimate of the gross estate called for by the notice should be the best' approximation of value which can be made within the time allowed. The instructions upon the back of the form should be read carefully before executing the notice. The signature of one executor or administrator upon Form 704 is sufficient. For penalties for delinquency in filing notice, or for filing a false or fraudulent notice, see sections 81.88, 81.89, and 81.91.* Seo. 81.59 Notice by others than duly qualified executor or adminis- trator. — The term "executor" embraces any person in actual or constructive possession of any property of the decedent at or after the time of the latter's death, if within two months after the decedent's death no executor or administrator qualifies. The notice on Form 704 must be fiiled by such persons in every case in which an executor or administrator has not duly qualified within such period. If, 244534° — 42 7 84 within the period mentioned, an executor' or administrator qualifies, the duty of filing the notice devolves upon him, and all other persons are relieved therefrom.* PRELIMINARY NOTICE— ESTATES OF NONRESIDENTS NOT CITIZENS Sek. 820. [Part II, Subchapter A.] Exbotitob's NancB. The executor, within two months after the decedent's death, or within a like period after qualifying as such, shall give written notice thereof to the collector. Sec. 802. [Part I, Subchapter A.] Appucation of Pabts. Part II shall apply to the estates of citizens or residents of the United States and, except as otherwise provided, to the estates of nonresidents not citizens of the United States, subject to the exceptions and addi- tional provisions contained in Part III. * * * Sec. 81.60 Estates of nonresidents not citizens; preliminary notice. — In estates of nonresidents not citizens, notice on Form 705, copies of which may be obtained from the Commissioner of Internal Revenue, Wash- ington, D. C, or from any collector of internal revenue, is required if any part of the gross estate was situated (see section 81.50) in the United States. The notice must be filed, in duplicate, by every ap- pointed, qualified, and acting executor or administrator within the United States with the collector of internal revenue of the district in which such part of the gross estate was situated, or, if such part of the gross estate was situated in more than one district, it must be filed with the collector for the second district of New York or with such collector as the Commissioner may designate. The notice is necessary if any part of the decedent's gross estate was situated, within the meaning of the statute, in the United States, regardless of the value of that part of the entire gross estate. If no executor or administrator has qualified, notice must be filed within two months after the date of death by every person in either the actual or constructive possession of any property of the decedent so within the United States at or after the time of his death. If such person has no knowledge of the decedent's death within two months following its occurrence, he should file the notice immedi- ately upon obtaining such knowledge. The term "person in actual or constructive possession of any property of the decedent" (section 930) includes, among others, the decedent's agents and representatives; safe-deposit companies, warehouse companies, and other custodians of property in this country; brokers holding, as collateral, securities belonging to the decedent or investment funds owned by the decedent, and debtors of the decedent in this country. As to any moneys de- posited by or for a decedent of this class with any person, corpora- tion, or association carrying on the banking business, no notice is 85 required, unless, however, the decedent was engaged in business in the United States at the time of his death.* Seo. 81.61 Information return by corporation or transfer agent.— Upon notification from the Bureau of Internal Eevenue a corporation (organized or created in the United States), or its transfer agent will be required to file a return disclosing the following information pertaining to stocks or bonds registered in the name of a nonresident decedent (regardless of citizenship) : (1) Name of decedent as regis- tered; (2) date of death, residence, place of death, and names and addresses of executors, attorneys, or other representatives, within and without the United States, if known; and (3) a description of the securities and the number of shares or bonds and the par values. Treasury Department Form 714, which will be supplied by the Bureau upon request, may be used for the return.* Sec. 81.62 Transfer certificates. — Certificates permitting the trans- fer of property of nonresident decedents (regardless of citizenship) without liability will be issued by the Commissioner when he is satis- fied that the tax imposed upon the estate, if any, has been fully dis- charged or provided for. The tax will be considered fully discharged for the purpose of the issuance of a transfer certificate only when investigation has been completed and payment of the tax, including any deficiency finally determined, has been made. If the tax liability has not been fully discharged transfer certificates may, be issued per- mitting the transfer of particular items of property without liability upon the filing with the Commissioner of such security as he may require. No domestic corporation or its transfer agent should trans- fer stock registered in the name of a nonresident decedent without first requiring a transfer certificate covering all of the decedent's stock of the corporation and showing that such transfer may be made without liability. Banks, trust companies, and others in actual or constructive possession of property of nonresident decedents should require transfer certificates before transferring such property. How- ever, a transfer certificate need not be required for bonds owned by a decedent who was a nonresident not a citizen if it is known that such bonds were not physically situated in the United States at the time of death. Corporations, transfer agents, banks, trust companies, or other custodians can insure avoidance of liability for tax and penalties only by demanding and receiving transfer certificates, as herein provided, prior to transfer of property of nonresident decedents. The requirements of this and the preceding section do not apply if there is an executor or administrator appointed, qualified, and acting within the United States.* 86 THE RETURN— ESTATES OF CITIZENS OR RESIDENTS Sec. 821. [Part II, Subchapter A.] Rbtuens. (a) Requieement. — (1) Retukns bt executor. — In all cases where the gross estate at the death of a citizen or resident exceeds the amount of the specific exemption provided in section 812(a), the executor shall make a return under oath in duplicate, setting forth (1) the value of the gross estate of the decedent at the time of his death ; (2) the deductions allowed under section 812; (3) the value of the net estate of the decedent as defined in section 812; and (4) the tax paid or payable thereon ; or such part of such infor- mation as may at the time be ascertainable and such supplemental data as may be necessary to establish the correct tax. (2) Returns bt beneficiaries. — If the executor is unable to make a complete return as to any part of the gross estate of the decedent, he shall include in his return a description of such part and the name of every person holding a legal or beneficial interest therein, and upon notice from the collector such person shall in like manner make a return as to such part of the gross estate. (3) Cross befeeence. — For provision requiring a return where the gross estate exceeds $40,000, see section 987. (b) Time fob Filing. — The return required of the executor under subsection (a) shall be filed at such times and in such manner as may be required by regulations made pursuant to law. (c) Place for Filing. — The return required of the executor under subsection (a) shall be filed with the collector of the district in which was the domicile of the decedent at the time of his death, or, if there was no such domicile in the United States, then the collector of the district in which is situated the part of the gross estate of the decedent in the United States, or, if such part of the gross estate is situated in more than one district, then the collector of internal revenue of such district as may be designated by the Commissioner. Sec. 937. [Subchapter B.] Assessment, Collection, and Payment of Tax. Except as provided in section 986, the tax imposed by section 985 shall be assessed, collected, and paid, in the same manner, and shall be subject to the same provisions of law (including penalties), as the tax imposed by subchapter A, except that in the case of a citizen or resi- dent of the United States a return shall be required if the value of the gross estate at the time of decedent's death exceeds the amount of the specific exemption provided in section 985(c). Sec. 935. [Subchapter B.] Rate of Tax. * * * * * * * (c) For the purposes of this section the value of the net estate shall be determined as provided in subchapter A, except that in lieu of the exemption of $100,000 provided in section 812(a), the exemption shall be $40,000. Seg. 81.63 When return required; date of filing. — A return on Form 706 is required in the case of every citizen or resident, whose gross estate, as defined in the statute, exceeded $40,000 in value at 87 the date of death. The duty to file a return depends upon the value of the gross estate on the date of the decedent's death, regardless of any valuation as of a subsequent time that the executor may use by virtue of his election under subsection (j) of section 811, since such election may be made only upon the return. In the case of a resident, the return must be filed with the collector in whose district the decedent had his domicile at the time of death.' In the case of a nonresident citizen, it must be filed with the collector in whose dis- trict the gross estate in the United States was situated; or, if the gross estate in the United States was situated in more than one district, or, if no part of the gross estate was situated in the United States, it must be filed with the collector for the second district of New York, or with such collector as the Commissioner may designate. The return on Form 706 must be filed in duplicate within 15 months after the date of death. The due date is the day of the fifteenth calendar month after the decedent's death numerically corresponding to the day of the calendar month in which death occurred, except that, if there is no numerically corresponding day in such fifteenth month, the last day of such fifteenth month is the due date. For example, if the decedent died on August 31, 1939, the due date is November 30, 1940. If the due date for filing the return falls on a Sunday or on a legal holiday, the due date for filing will be the day following such Sunday or legal holiday. If placed in the mails the return should be posted in ample time to reach the collector's oiEce, under ordinary handling of the mails, on or before the date on which the return is required to be filed. If a return is made and placed in the mails in due course, properly addressed, and postage paid, in ample time to reach the office of the collector on or before the due date, the filing will not be regarded as delinquent should the return not be actually received by such officer until subsequent to that date. As to penalty for failure to file the return within the time prescribed, see section 81.89. As to loss of the option to have the property valued as of a date or dates subsequent to the decedent's death by failing to file the return within the time prescribed, see section 81.11.* Seo. 81.64 Persons liable for return. — The Internal Revenue Code provides that the duly qualified executor or administrator shall file the return. If there is more than one executor or administrator, the return must be made jointly by all. If no executor or administrator has been appointed, every person in actual or constructive possession of any property of the decedent is constituted by the Internal Reve- nue Code an executor for the purposes of the tax (section 930), and is required to make and file a return as provided by section 821. If, in any case, the executor is unable to make a complete return as to any part of the gross estate, he is required to give all the inf orma- 88 tion he has as to such property, including a full description, and the name of every person holding a legal or beneficial interest in the property. If the executor is unable to make a return as to any prop- erty, the Internal Revenue Code requires that every person holding a legal or beneficial interest therein shall, upon notice froin the col- lector, make return as to such part of the gross estate. For penalties for delinquency in filing return, or for filing a false or fraudulent return, see sections 81.88, 81.89, and 81.91.* Sec. 81.65 Preparation of return. — The return must be made on Form 706, copies of which will be supplied by the collector upon application. It must be filed in duplicate under oath and contain an itemized inventory by schedule of the property constituting the gross estate and lists of the deductions under the appropriate sched- ules. The return must set forth (1) the value of the gross estate (see sections 81.10-81.28), (2) the deductions allowed (see sections 81.29-81.48), (3) the value of the net estate, and (4) the tax paid or payable thereon. The return must set forth (1) both the net estate determined in accordance with the provisions of subchapter A imposing the basic tax and the net estate for the purposes of the additional estate tax imposed by subchapter B and (2) the basic tax, the additional tax, and, when applicable, the defense tax. The amount payable upon the return is the total of the net basic and net additional taxes, unless the decedent died after June 25, 1940, and before September 21, 1941. If the decedent died within such period, the total tax payable is the total of such net taxes plus the defense tax. The instructions printed on the form should be carefully followed. All documents and vouchers used in preparing the return should be retained by the executor so as to be available for inspection whenever required. Duplicate copies of the will, if the decedent died testate, one of which should be certified, must be submitted with the return, together with copies of such other documents as are required in Form 706 and in the applicable sections of these regulations. There may also be filed in duplicate copies of any documents which the executor may desire to submit with the return in explanation thereof. In every case of an estate of a nonresident citizen, the executor should file the following documents with the return: (1) A copy of the inventory of property and the schedule of liabilities, claims against the estate and expenses of administration filed with the foreign court of probate jurisdiction, certified by a proper official of such court; and (2) a copy of the return filed under the foreign inheritance, estate, legacy, or succession tax act, certified by a proper official of the foreign tax department, if the estate is subject to such a foreign tax.* Sec. 81.66 Supplemental data. — The Internal Revenue Code pro- vides that the executor, in addition to filing notice and return, shall furnish such supplemental data as may be necessary to establish the correct tax (section 821). It is therefore the duty of the executor to furnish upon request copies of any documents in his possession relating to the estate, or on file in any court having jurisdiction over the estate, appraisal lists of any items included in the gross estate, copies of balance sheets or other financial statements relating to the value of stock, and any other information obtainable by him that may be found necessary in the determination of the tax. Fail- ure to comply with such a request will render the executor liable to penalties (section 81.90), and proceedings may be instituted in the proper court of the United" States to secure compliance therewith (section 3633(a)). Persons having possession or control of any records or documents containing or supposed to contain any information concerning the estate, or having knowledge or information of any fact or facts of a material bearing upon the liability, or the extent of liability, of the estate to the tax, shall, upon request of the Commissioner or any revenue agent or inspector designated by him for that purpose, make disclosure thereof. Failure on the part of any person to comply with such request will render him liable to penalties (section 81.90), and compliance with the request may be' enforced in the proper court of the United States (section 3633(a)).* THE RETURN— ESTATES OF NONRESIDENTS NOT CITIZENS Sec. 864. [Part III, Subchapter A.] Returns. (a) Reqiheement. — (1) Ketdbns by Executob.- — In the case of the estate of every nonresident not a citizen of the United States any part of whose gross estate is situated in the United States, the executor shall make a return under oath in duplicate, setting forth (1) the value of that part of the gross estate of the decedent situated in the United States at the time of his death; (2) the deductions al- lowed under section 861; (3) the value of the net estate of the decedent as defined in section 861; (4) the tax paid or payable thereon ; or such part of such information as may at the time be ascertainable and such supplemental data as may be necessary to establish the correct tax. (2) Returns by benefictaries. — If the executor is unable to make a complete return as to any part of the gross estate of the decedent, he shall include in his return a description of such part and the name of every person holding a legal or beneficial interest therein, and upon notice from the collector such person shall in like manner make a return as to such part of the gross estate. (b) Time for Filing. — The return required of the executor under subsection (a) shall be filed at such times and in such manner as may be required by regulations made pursuant to law. (c) Place foe Filing. — The return required of the executor under subsection (a) shall be filed with the collector of the district in which 90 is situated the part of the gross estate of the decedent in the United States, or, If such part of the gross estate is situated in more than one district, then the collector of such district as may be designated by the Commissioner. Sec. 865. Ceoss Keferencb. For missionaries in foreign service, see section 850. Sec. 937. [Subchapter B.] Assessment, CJoixection, and Payment op Tax. Except as provided in section 936, the tax imposed by section 935 shall be assessed, collected, and paid, in the same manner, and shall be subject to the same provisions of law (including penalties), as the tax imposed by subchapter A, * * *. Sec. 81.67 Return of estates of nonresidents not citizens. — A return on Form 706, copies of which may be obtained from the Commissioner of Internal Revenue, Washington, D. C, or from any collector of internal revenue, is required in the case of every nonresident not a citizen any part of whose gross estate was situated (see section 81.50) in the United States. The return must set forth an itemized list of that part of the gross estate situated in the United States and the total value thereof (see section 81.51), the deductions claimed, if any (see sections 81.52-81.54), the value of the net estate (see section 81.55), and the tax paid or payable thereon. The return must set forth the basic tax imposed by subchapter A (section 860), the additional tax imposed by subchapter B (section 935), and, -if the decedent died after June 25, 1940, and before September 21, 1941, the defense tax imposed by subchapter C, as added by the Revenue Act of 1940. The return must be filed with the collector of internal revenue of the dis- trict in which such part of the gross estate was situated, or, if such part of the gross estate was situated in more than one district, it must be filed with the collector for the second district of New York, or with such collector as the Commissioner may designate. The re- turn must be filed in duplicate and under oath within 15 months from the date of death, unless an extension is obtained pursuant to section 81.69 or 81.70. If the due date for filing the return falls on a Sunday or on a legal holiday, the due date for filing will be the day following such Sunday or legal holiday. If placed in the mails the return should be posted in ample time to reach the collector's office, under ordinary handling of the mails, on or before the date on which the return is required to be filed. If a return is made and placed in the mails in due course, properly addressed, and postage paid, in ample time to reach the office of the collector on or before the due date, the filing will not be regarded as delinquent should the return not be actually received by such officer until subsequent to that date. As to penalty for failure to file the return within the time prescribed, see section 81.89. As to loss of the option to have the 91 property valued as of a date or dates subsequent to the decedent's death by failing to file the return within the time prescribed, see section 81.11. The return should be made and filed by the executor or administrator appointed, qualified, and acting within the United States, or, if none, then by any person in actual or constructive possession of any property of the decedent situated in the United States, whatever its value. If the qualified executor or adminis- trator is unable to make a complete return as to any part of the gross estate, he is required to give all the information available to him as to such part, including a description thereof and the name of every person holding a legal or beneficial interest therein. As to the meaning of the term "person in actual or constructive possession of any property of the decedent," see section 81.60.* Sec. 81.68 Supplemental data. — Pursuant to the provisions of sec- tion 864(a) (1), with respect to furnishing supplemental data, if the decedent is a nonresident not a citizen, the executor is required to file with the return : (a) A certified copy of the will, if decedent died testate, or, if the decedent left several wills to govern in different jurisdictions, a certi- fied copy of each will. (b) If any deductions are claimed, a copy of the inventory of property filed under the foreign death-duty act ; or, if no such inven- tory was filed, a certified copy of the inventory filed with the foreign court of probate jurisdiction. The Commissioner may require the documents specified in para- graph (b) regardless of whether deductions are claimed. For re- quirements dealing with the duty to furnish other documents or in- formation relating to the tax liability of the estate, and penalties in connection therewith, see section 81.66.* EXTENSION OF TIME FOR FILING RETURN Sec. 3634. [Chapter 34.] Extension op Time for Filing Retdens. If the failure to file a return (other than a return of income tax) or list at the time prescribed by law or by regulation made under authority of law is due to sickness or absence, the collector may allow such further time, not exceeding thirty days, for making and filing the return or list as he deems proper. Sec. 81.69 Extension of time by collector. — In case of sickness or absence, collectors are authorized to grant an extension of time for filing the return for a period not in excess of 30 days from the due date. No such extension of time may be granted unless the applica- tion therefor is received by the collector prior to the expiration of the period for which the extension is requested and authorized. An extension of time for filing the return does not in itself operate to extend the time for the payment of the tax, which is due and payable 92 15 months after the date of death. For extension of time of payment, see section 81.79.* Sec. 81.70 Extension of time by Commissioner. — ^In case it is impos- sible for the executor to file a reasonably complete return within 15 months from the date of death, the Commissioner may, upon written application submitted on or prior to the due date showing good and sufficient cause, grant an extension of time not to exceed 3 months from the due date. Before the expiration of the extension period granted a return as complete as possible must be filed. The return thus filed will be the return required by section 821(a)(1) or 864(a)(1) and any tax shown thereon will be the "amount determined by the execu- tor as the tax" referred to in section 822(a)(2), or the "amount shown as the tax by the executor upon his return" referred to in section 870(1). Such return cannot thereafter be amended, although supplemental information may subsequently be filed that may result in a finally determined tax different from the amount shown as the tax by the executor upon his return. An extension of tinie for filing the return does not operate to extend the time for payment of the tax, which is due 15 months after the date of death. An extension of time in which to make payment of the tax may be secured as provided in section 81.79.* DETERMINATION OF TAX BY COMMISSIONER Sbc. 824. [Part II, Subchapter A.] Examination of Rettien and Dbtbb- MINATION OF TAX. As soon as practicable after the return is filed the Commissioner shall examine it and shall determine the correct amount of the tax. Sec. 825. [Part II, Subchapter A.] Discharge of Executor from Peb- SONAL LlABILITT. (a) Appucauon fob Dischabgb.- — If the executor makes written ap- plication to the Commissioner for determination of the amount of the tax and discharge from personal liability therefor, the Commissioner (as soon as possible, and in any event within one year after the making of such application, or, if the application is made before the return is filed, then within one year after the return is filed, but not after the expiration of the period prescribed for the assessment of the tax in sections 874 and 875) shall notify the executor of the amount of the tax. The executor, upon payment of the amount of which he is notified, shall be discharged from personal liability for any deficiency in tax thereafter found to be due and shall be entitled to a receipt or writing showing such discharge. (b) Cboss Reference. — For continuance of lien upon the gross estate after discharge of executor, see section 827(c). Sec. 802. [Part I, Subchapter A.] Application of Parts. Part II shall apply to the estates of citizens or residents of the United States and, except as otherwise provided, to the estates of nonresidents 93 not citizens of the United States, subject to the exceptions and addi- tional provisions contained in Part III. * * * Sec. 81.71 Examination of return and determination of tax by the Commissioner. — ^As soon as practicable after returns are filed, they will be examined and the amount of the tax determined by the Conimis- sioner under such procedure as he may from time to time prescribe. If the executor makes written application to the Commissioner for a determination of the tax and discharge from- personal liability therefor, the Commissioner will, within one year after receipt of such application, or if the application is made before the return is filed then within one year after the return is filed, notify the execu- tor of the amount of the tax, and upon payment thereof, the executor will be discharged from personal liability for any deficiency in the tax thereafter found to be due.* Sec. 81.72 Authorization of attorneys and others required. — If an attorney or other person asks a ruling on a question of law arising in a specific case, the Commissioner will require satisfactory evidence of the right to obtain such ruling. Hypothetical questions cannot be answered. In all cases in which information is sought regarding an estate, or an interview is asked, by an attorney or by an agent of the executor or administrator, the information or interview will be denied unless the attorney or agent presents a duly executed power of attorney from the executor or administrator authorizing the attorney or agent to act in his behalf. Powers of attorney should be filed in the office of the internal revenue agent in charge in which the case is under consideration. No attorney or agent will be recognized as representing an estate or executor unless such attorney or agent is enrolled to represent claim- ants or others before the Treasury Department. For regulations governing enrollment, reference should be made to Treasury Depart- ment Circular No. 230, as revised, copies of which may be obtained upon application to the Secretary of the Committee on Practice, Treas- ury Department, Washington, D. C* DEFICIENCY TAX Seo. 870. [Part IV, Subchapter A.] Definiiton of Debtcienct. As used in this subchapter in respect of the tax imposed by this sub- chapter the term "deficiency" means — (1) The amount by which the tax imposed by this subchapter ex- ceeds the amount shown as the tax by the executor upon his return ; but the amount so shown on the return shall first be increased by the amounts previously assessed (or collected without assessment) as a deficiency, and decreased by the amounts previously abated, refunded, or otherwise repaid in respect ol such tax ; or 94 (2) If no amount is shown as the tax by the executor upon his re- turn, or if no return is made by the executor, then the amount by which the tax exceeds the amounts previously assessed (or collected without assessment) as a deficiency; but such amounts previously assessed, or collected without assessment, shall first be decreased by the amounts previously abated, refunded, or otherwise repaid in respect of such tax. Sec. 871. [Part IV, Subchapter A.] Peookdube in GENBaux. (a) (1) Petition to Board of Tax Appeals. — If the Commissioner de- termines that there is a deficiency in respect of the tax imposed by this subchapter, the Commissioner is authorized to send notice of such de- ficiency to the executor by registered mail. Within 90 days after ^such notice is mailed (not counting Sunday or a legal holiday in the District of Columbia as the ninetieth day), the executor may file a petition with the Board of Tax Appeals for a redetermination of the deficiency. No assessment of a deficiency in respect of the tax imposed by this subchapter and no distraint or proceeding In court for its collection shall be made, begun, or prosecuted until such notice has been mailed to the executor, nor until the expiration of such 90-day period, nor, if a petition has been filed with the Board, until the decision of the Board has become final. Notwithstanding the provisions of section 3653(a) the making of such assessment or the beginning of such pro- ceeding or distraint during the time such prohibition is in force may be enjoined by a proceeding in the proper court. ******* (e) Increase of Deficiency After Notice Mahjed. — ^The Board shall have jurisdiction to redetermine the correct amount of the deficiency even if the amount so redetermined is greater than the amount of the deficiency, notice of which has been mailed to the executor, and to de- termine whether any additional amount or addition to the tax should be assessed, if claim therefor is asserted by the Commissioner at or before the hearing or a rehearing. (f) Further Deficiency Letters Restricted. — If the Commissioner has mailed to the executor notice of a deficiency as provided in subsec- tion (a), and the executor files a petition with the Board within the time prescribed in such subsection, the Commissioner shall have no right to determine any additional deficiency, except in the case of fraud, and except as provided in subsection (e) or section 872(c). If the executor is notified that, on account of a mathematical error ap- pearing upon the face of the return, an amount of tax in excess of that shown upon the return is due, and that an assessment of the tax has been or will be made on the basis of what would have been the correct amount of tax but for the mathematical error, such notice shall not be considered, for the purposes of this subsection or of subsection (a), or of section 911, as a notice of a deficiency, and the executor shall have no right to file a petition with the Board of Tax Appeals based on such notice, nor shall such assessment or collection be pro- hibited by the provisions of subsection (a). ******* Sec. 937. [Subchapter B.] Assessment, Collection, and Payment of Tax. Except as provided in section 936, the tax imposed by section 935 shaU be assessed, collected, and paid, in the same manner, and shall be 95 subject to the same provisions of law (including penalties), as the tax imposed by subchapter A, except that in the case of a citizen or resi- dent of the United States a return shall be required if the value of the gross estate at the time of decedent's death exceeds the amount of the specific exemption provided in section 935(c). Sec. 3760. [Chapter 36.] Closing Agreements. (a) AuTHOEizATioN. — The Commissioner (or any ofScer or em- ployee of the Bureau of Internal Revenue, including the field service, authorized in writing by the Commissioner) is authorized to enter into an agreement in writing with any person relating to the liability of such person (or of the person or estate for whom he acts) in respect of any internal revenue tax for any taxable period. (b) Finality. — If such agreement is approved by the Secretary, the Under Secretary, or an Assistant Secretary, within such time as may be stated in such agreement, or later agreed to, such agreement shall be final and conclusive, and, except upon a showing of fraud or malfeasance, or misrepresentation of a material fact — (1) The case shall not be reopened as to the matters agreed upon or the agreement modified, by any ofl3cer, employee, or agent of the United States, and (2) In any suit, action, or proceeding, such agreement, or any determination, assessment, collection, payment, abatement, refund, or credit made in accordance therewith, shall not be annulled, modified, set aside, or disregarded. Sec. 81.73 Deficiency, petitions, and closing agreements. — Section 870 by its definition of the word "deficiency" provides a term which will apply to any amount of tax determined to be due in excess of the amount of tax reported by the executor, or in excess of the amount reported by the executor as adjusted by way of prior assessments, abatements, refunds, or collections without assessment'. In defining the term "deficiency" section 870 recognizes two classes of cases — one, in which the executor makes a return showing some tax liability ; the other, in which the executor makes a return showing no tax liability, or in which the executor fails to make a return. Additional tax, resulting from supplemental information filed after the return has been filed, is a deficiency within the meaning of the Internal Revenue Code. When a case is considered for the first time, the deficiency is the excess of the amount determined to be the correct amount of the tax over the amount shown as the tax by the executor on his return, or, if it is a case in which no tax was reported by the executor, the de- ficiency is the amount determined to be the correct amount of the tax. Subsequent information sometimes discloses that the amount previously determined to be the correct amount of the tax is less than the correct amount, and that a redetermination of the tax is necessary. In such a case the deficiency on redetermination is the excess of the amount determined to be the correct amount of the 96 tax over the sum of the amount of tax reported by the executor and the deficiency assessed in connection with the previous determination. If it is a case in which no tax was reported by the executor, the deficiency is the excess of the amount determined to be the correct amount of the tax over the amount of the deficiency disclosed by the previous determination. If the previous determination resulted in a refund to the executor, the deficiency upon the second determina- tion is the excess of the amount determined to be the correct amount of the tax over the amount of tax reported by the executor decreased by the amount of the tax refunded. In all cases in which a deficiency in respect of a tax (including penalties or other additions to the tax provided by law) is determined by the Commissioner, a notice thereof will be sent to the executor by registered mail in accordance with the provisions of section 871(a) of the Internal Revenue Code even though a jeopardy assessment (see section 81.74) is made. If, subsequent to the mailing of such notice, a jeopardy assessment is made in respect of the deficiency to which such notice relates no subsequent notice will be sent to the executor by the Commissioner, but if such jeopardy assessment is made, and the amount thereof is in excess of the deficiency to which the notice relates, the Commissioner will mail a notice to the executor as required by section 871(a) of the determination of such additional deficiency provided no petition has theretofore been filed with the Board of Tax Appeals. If a deficiency is determined in respect of the basic tax imposed by subchapter A, the additional tax imposed by subchapter B, and the defense' tax imposed by subchapter C (effective between June 25, 1940, and September 21, 1941), notice of all such deficiencies may be incorporated in the same communication. Within 90 days (not counting Sunday or a legal holiday in the District of Columbia as the ninetieth day) after the mailing of the registered letter notifying him of the final determination of a deficiency by the Commissioner, the executor may file a petition with the Board of Tax Appeals for a redetermination of the deficiency, other than a deficiency resulting from the correction of a mathe- matical error appearing upon the return. The executor and the Commissioner (or any officer or employee authorized by the Commissioner), subject to approval by the Secre- tary, the Under Secretary, or an Assistant Secretary of the Treas- ury, may, under the provisions of section 3760, enter into a closing agreement in writing relating to the tax liability of the estate which will be final and conclusive except upon a showing of fraud or mal- feasance, or misrepresentation of a material fact.* 97 ASSESSMENT OF TAX Sbjc. 3640. [Chapter 35.] Assessment A-cthokitt. The Commissioner is 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 law, where such taxes have not been duly paid by stamp at the time and in the manner provided by law. Sec. 822. [Part 11, Subchapter A.] Payment of Tax. (a) Time or Payment. — ■ (2) Extension of Time. — ^Where the Commissioner finds that the payment on the due date of any part of the amount determined by the executor as the tax would impose undue hardship upon the estate, the Commissioner may extend the time for payment of any such part not to exceed ten years from the due date. In such case the amount in respect of which the extension is granted shall be paid on or before the date of the expiration of the period of the extension, and the running of the statute of limitations for assess- ment and collection, as provided in section 874, shall be suspended for the period of any such extension. If an extension is granted, the Commissioner may, if he deems it necessary, require the executor to furnish security for the payment of the amount in respect of which the extension is granted in accordance with the terms of the extension. • **.**** Sec. 871. [Part IV, Subchapter A.] Pkooedube in General. ****** (b) Collection op Deficienoy Found by Boakd. — If the executor files a petition with the Board, the entire amount redetermined as the deficiency by the decision of the Board which has become final shall be assessed and shall be paid upon notice and demand from the eoUector. No part of the amount determined as a deficiency by the Commissioner but disallowed as such by the decision of the Board which has become final shall be assessed or be collected by distraint or by proceeding in court with or without assessment. (c) Failttbe to FiIiB Petition. — If the executor does not file a petition with the Board within the time prescribed in subsection (a) the deficiency, notice of which has been mailed to the executor, shall be assessed, and shall be paid upon notice and demand from the collector. (d) Waiver of Restrictions. — The executor shall at any time have the right, by a signed notice in writing filed with the Commissioner, to waive the restrictions provided in subsection (a) on the assessment and collection of the whole or any part of the deficiency. (e) Incke;a8e op Deficiency After NoncE Mailed. — The Board shall have jurisdiction to redetermine the correct amount of the deficiency even if the amount so redetermined is greater than the amount of the deficiency, notice of which has been mailed to the executor, and to determine whether any additional amount or addition to the tax should be assessed, if claim therefor is asserted by the Commissioner at or before the hearing or a rehearing. 98 (f) FuBTHER Deftcienct Lbitjebs RESTRICTED. — If the Commissioner has mailed to the executor notice of a deficiency as provided in sub- section (a), and the executor files a petition with the Board within the time prescribed in such subsection, the Commissioner shall have no right to determine any additional deficiency, except in the case of fraud, and except as provided in subsection (e) or section 872(c). If the executor is notified that, on account of a mathematical error appearing upon the face of the return, an amount of tax in excess of that shown upon the return is due, and that an assessment of the tax has been or will be made on the basis of what would have been the correct amount- of tax but for the mathematical error, such notice shall, not be considered, for the purposes of this subsection or of sub- section (a), or of section 911, as a notice of a deficiency, and the executor shall have no right to file a petition with the Board of Tax Appeals based on such notice, nor shall such assessment or collection be prohibited by the provisions of subsection (a). (g) Final Dexdisions op Board. — For the purposes of this subchapter the date on which a decision of the Board becomes final shall be determined according to the provisions of section 1140. (h) Extension of Time for Payment of Deficbenct. — ^Where it is shown to the satisfaction of the Commissioner that the payment of a deficiency upon the date prescribed for the payment thereof will result in undue hardship to the estate, the Commissioner, under regu- lations prescribed by the Commissioner, with the approval of the Secretary (except where the deficiency is due to negligence, to inten- tional disregard of rules and regulations, or to fraud with intent to evade tax), may grant an extension for the payment of such deficiency or any part thereof for a period not in excess of four years. If an extension is granted, the Commissioner may require the executor to furnish a bond in such amount, not exceeding double the amount of the deficiency, and with such sureties as the Commissioner deems necessary, conditioned upon the payment of the deficiency in accord- ance with the terms of the extension. In such case the running of the statute of limitations for assessment and collection, as provided in section 874, shall be suspended for the period of any such extension. ******* Seo. 872. [Part IV, Subchapter A.] Jeopardy Assessments. (a) Authority for Making. — If the Commissioner believes that the assessment or collection of a deficiency vrill be jeopardized by delay, he shall immediately assess such deficiency (together with all interest, additional amounts, or additions to the tax provided for by law) and notice and demand shall be made by the collector for the payment thereof. (b) Deficiency Letters. — If the jeopardy assessment is made be- fore any notice in respect of the tax to which the jeopardy assess- ment relates has been mailed under section 871(a), then the Commis- sioner shall mail a notice under such subsection within 60 days after the making of the assessment. (c) Amount Assbssakle Before Decision of Board. — ^The jeopardy assessment may be made in respect of a deficiency greater or less than that notice of which has been mailed to the executor, despite the provisions of section 871(f) and whether or not the executor has theretofore filed a petition with the Board of Tax Appeals. The Com- 99 mlssioner may, at any time before the decision of the Board is ren- dered, abate such assessment, or any unpaid portion thereof, to the extent that he believes the assessment to be excessive in amount. The Commissioner shall notify the Board of the amount of such assess- ment, or abatement, if the petition is filed with the Board before the making of the assessment or is subsequently filed, and the Board shall have jurisdiction to redetermine the entire amount of the deficiency and of all amounts assessed at the same time in connection therewith. (d) Amount Assessable After Decision or Board. — If the jeopardy assessment is made after the decision of the Board is rendered such assessment may be made only in respect of the deficiency determined by the Board in its decision. (e) Expiration of Right to Assess. — A jeopardy assessment may not be made after the decision of the Board has become final or after the executor has filed a petition for review of the decision of the Board. (f) Bond to Stat Collection. — ^When a jeopardy assessment has been made the executor, within 30 days after notice and demand from the collector for the payment of the amount of the assessment, may obtain a stay of collection of the whole or any part of the amount of the assessment by filing with the collector a bond in such amount, not exceeding double the amount as to which the stay is desired, and with such sureties, as the collector deems necessary, conditioned upon the payment of so much of the amount, the collection of which is stayed by the bond, as is not abated by a decision of the Board which has become final, together with interest thereon as provided in section 892 or 893(b) (4). If any portion of the jeopardy assessment is abated by the Commissioner before the decision of the Board is rendered, the bond shall, at the request of the taxpayer, be proportionately reduced. (g) Same — Fuether Conditions. — If the bond is given before the executor has filed his petition with the Board under subsection (a) of section 871, the bond shall contain a further condition that if a petition is not filed within the period provided in such subsection, then the amount the collection of which is stayed by the bond will be paid on notice and demand at any time after the expiration of such period, together with interest thereon at the rate of 6 per centum per annum from the date of the jeopardy notice and demand to the date of notice and demand under this subsection. ******* (i) COLLEonoN or Unpaid Amounts. — ^When the petition has been filed with the Board and when the amount which should have been assessed has been determined by a decision of the Board which has become final, then any unpaid portion, the collection of which has been stayed by the bond, shall be collected as part of the tax upon notice and demand from the collector, and any remaining portion of the assessment shall be abated. If the amount already collected exceeds the amount determined as the amount which should have been assessed, such excess shall be refunded. If the amount deter- mined as the amount which should have been assessed is greater than the amount actually assessed, then the difference shall be assessed and shall be collected as part of the tax upon notice and demand from the collector. 244534°— 42 8 100 Sec. 874. [Part IV, Subchapter A.] Pebiod of Limitation Upon Assessment and Cotxection. (a) General Rttle. — ^Except as provided in subsection (b) the amount of estate taxes imposed by this subchapter shall be assessed within three years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of three years after the return was filed. (b) EiXCEJPTIONS.— (1) False kbtubn oe no keturn. — In the case of a false or fraud- ulent return with intent to evade tax or of a failure to file a return the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time. (2) CoLLEcnoN AFTEit ASSESSMENT. — ^Where the assessment of any tax imposed by this subchapter has been made within the statutory period of limitation properly applicable thereto, such tax may be collected by distraint or by a proceeding in court, but only if begun (1) within six years after the assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the Commissioner and the executor. Sec. 875. [Part IV, Subchapter A.] Suspension or Running of Statute. The running of the statute of limitations provided In section 874 on the making of assessments and the beginning of distraint or a proceeding in court for collection, in respect of any deficiency, shall (after the mailing of a notice under section 871(a) ) be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or a proceeding in court (and in any event, if a proceeding in respect of the deficiency is placed on the docket of the Board, untU the decision of the Board becomes final), and for 60 days thereafter. Seo. 937. [Subchapter B.] Assessment, Collexjtion, and Payment of Tax. Except as provided in section 936, the tax imposed by section 935 shall be assessed, collected, and paid, in the same manner, and shall be subject to the same provisions of law (including penalties), as the tax imposed by subchapter A, except that in the case of a citizen or resident of the United States a return shall be required if the value of the gross estate at the time of decedent's death exceeds the amount of the specific exemption provided in section 935(c). Sec. 81.74 Assessments. — In any case in which the Commissioner believes that the assessment or collection of a deficiency tax will be jeopardized by delay, he will make an immediate assessment thereof. In such case the assessment may be made before the mailing of the notice provided by section 871(a), or at any time thereafter prior to the filing of a petition for a review by the court of a decision ren- dered by the Board. If the jeopardy assessment is made subsequent to a decision of the Board, then the assessment is limited to the amount of the deficiency determined by the Board. If the jeopardy assessment is made before any notice in respect of the deficiency to 101 which the jeopardy assessment relates has been mailed under sub- section (a) of section 871, the Commissioner will mail a notice as provided by such subsection within 60 days after the making of such jeopardy assessment. The Commissioner may, at any time before the decision of the Board is rendered, abate such an assessment or any portion thereof, to the extent that he believes it to be excessive in amount. If an amount of tax in excess of that shown upon the return is de- termined to be due as a result of the correction of a mathematical error appearing upon the face of the return, the executor will be duly notified and an assessment made of the tax which would have been the correct tax but for the mathematical error. The notice that the correct amount of the tax has been assessed will not be a notice within the meaning of subsection (a) of section 871 or section 911 and the executor has no right to file a petition with the Board of Tax Appeals based upon such notice. If a petition is filed with the Board, the entire amount redeter- mined as the deficiency by the decision of the Board which has be- come finalwill be assessed, except such portion as may have been assessed as a jeopardy assessment and not abated. If no petition is filed with the Board within the time prescribed in section 871(a), the deficiency, notice of which has been mailed to the executor, will be assessed. If the executor by a signed notice in writing filed with the Commissioner waives the restrictions on the assessment and col- lection of the whole or any part of the deficiency, assessment of such whole or part will be made immediately. (As to payment, see sec- tions 81.75 to 81.82, inclusive.) All assessments against executors (as to assessments against trans- ferees and fiduciaries, see section 81.102), except in the case of a false or fraudulent return, or of a failure to file a return within the time required by law, must be made within three years after the return was filed. If notice of a deficiency is mailed in accordance with the provisions of subsection (a) of section 871, then the running of the statute of limitations on assessment of any deficiency shall be suspended for the period during which the Commissioner is prohibited from making the assessment (and in any event, if a proceeding in respect of the deficiency is placed on the docket of the Board, until the decision of the Board becomes final), and for 60 days thereafter. If an extension of time for payment of tax is granted in accordance with section 822(a)(2) or section 871(h), then the running of the statute of limitations on assessment shall be suspended for the time covered by such extension. In case of a false or fraudulent return with intent to evade the tax, or of a failure to file a required return, the tax may be assessed. 102 or proceedings in court for collection may be begun without assess- ment, at any time.* PAYMENT OF AND RECEIPTS FOR TAXES Sec. 822. [Part II, Subchapter A.] Payment of Tax. (a) Time of Payment. — (1) Gbneeai, btjie. — The tax imposed by this subchapter shall be due and payable fifteen months after the decedent's death. * « * * 3): * * (b) LiABurrr fob PAYMENT.-^The tax imposed by this subchapter shall be paid by the executor to the collector. Sec. 871. [Part IV, Subchapter A.] Pkoceduke in Genebal. ******* (b) CoiiECTioN OF Deficiency Found by Boabd. — If the executor files a petition with the Board, the entire amount redetermined as the deficiency by the decision of the Board which has become final shall be assessed and shall be paid upon notice and demand from the collector. * * * (c) FAiLtiBE TO File Petition. — If the executor does not file a peti- tion with the Board within the time prescribed in subsection (a) the deficiency, notice of which has been mailed to the executor, shall be assessed, and shall be paid upon notice and demand from the collector. ******* Sec. 823. [Part II, Subchapter A.] Duplicate Receipts. The collector shall grant to the person paying the tax duplicate receipts, either of which shall be suflScient evidence of such payment, and shall entitle the executor to be credited and allowed the amount thereof by any court having jurisdiction to audit or settle his accounts. Sec. 3656. [Chapter 36.] Payment by Check. (a) Cebtitied Checks. — (1) Authority to ebcbsve. — It shall be lawful for collectors to receive for internal revenue taxes certified checks drawn on na- tional and state banks and trust companies during such time and under such regulations as the Secretary may prescribe. (2) DiSCHABGE OF UABILITY. (A) Check duly paid. — No person who may be indebted to the United States on account of internal revenue taxes who shall have tendered a certified check or checks as provisional payment for such taxes, in accordance with the terms of this subsection, shall be released from the obligation to make ultimate payment thereof until such certified check so received has been duly paid. (B) Check unpaid. — If any such check so received is not duly paid by the bank on which it is drawn, and so certify- ing, the United States shall, in addition to its right to exact payment from the party originally indebted therefor, have a lien for the amount of such check upon all the assets of such bank ; and such amount shall be paid out of its assets in preference to any or all other claims whatsoever against 103 said bank, except the necessary costs and expenses of ad- ministration and tile reimbursement of the United States for the amount expended in the redemption of the circulating notes of such bank, (b) TJNOERTiFiEa) Checks. — (1) Authority to eeceive.- — Collectors may receive 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 rules and regulations as the Commissioner, with the approval of the Secretary, shall prescribe. (2) Ultimate liability. — 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 to the same extent as if such check had hot been tendered. Sec. 937. [Subchapter B.] Assessment, Collection, and Payment OP Tax. Except as provided in section 936, the tax imposed by section 985 shall be assessed, collected, and paid, in the same manner, and shall be subject to the same provisions of law (including penalties), as the tax imposed by subchapter A, except that in the case of a citizen or resident of the United States a return shall be required if the value of the gross estate at the time of decedent's death exceeds the amount of the specific exemption provided in section 935(c). Seo. 81.75 Payment of tax; general. — The tax is due and must be paid within 15 months from the date of death unless an extension of time for payment thereof has been granted by the Commissioner. (See also section 81.79.) If the tax is due 15 months after the decedent's death, the due date is the day of the fifteenth calendar month after his death numerically corresponding to the day of the calendar month on which death occurred, except that, if there is no numerically corresponding day in such fifteenth month, the last day of such fifteenth month is the due date. For example, if the decedent died on August 31, 1939, the due date is November 30, 1940. No discount will be allowed for payment in advance of the due date. The collector will grant to the person paying the tax duplicate receipts, either of which will be suflScient evidence of such payment and entitle the executor to be credited with the amount by any court having jurisdiction to audit or settle his accounts. Following an investigation of the return, the tax liability will be determined by the Commissioner. If the amount of tax shown on the return has been paid and exceeds the amount of tax as deter- mined, a certificate of overassessment will be prepared and issued, regardless of whether or not a claim for refund of such excess pay- ment is filed unless refundment of such excess is barred by the statute of limitations, or such excess is otherwise not refundable, as in the case of a compromise (see section 81.98), a closing agreement- 104 (see section 81.73) conclusively fixing the amount of tax liability, or an estoppel. If the amount of tax as determined exceeds the amount of tax already paid but is less than the amount shown on the return, the executor will be notified of the amount of the unpaid tax and payment thereof should be made to the collector. If the audit of the return does not disclose a deficiency tax or overpayment the executor will be notified to that effect. If, as a result of the audit of the return, a deficiency in respect of the tax is finally deter- mined and such deficiency is in whole or in part assessed (see section 81.74) , the executor should pay the amount of the deficiency assessed upon notice and demand from the collector, except in the case a stay of the collection of a jeopardy assessment is obtained by the filing of a bond (see section 81.93), or an extension of time for payment is granted (see section 81.80). Until the tax, including any deficiency, is finally determined, the executor should reserve a sufficient portion of the estate to satisfy the liability.* Sec. 81.76 The executor shall pay the tax. — The Internal Eevenue Code provides that the executor shall pay the tax. This duty applies to the entire tax, regardless of the fact that the gross estate consists in part of property which will not come into his possession. If there is no duly qualified executor or administrator, all persons in actual or constructive possession of any property of the decedent are liable for and required to pay the tax to the extent of the value of such property. (See section 930 ( a X-) As to the personal liability of the executor, see section 81.99.* Seo. 81.77 Payment by check. — Collectors may accept uncertified checks in payment of the tax, provided such checks are collectible at par, that is, for the full amountj without any deduction for ex- change or other charges. The collector will stamp upon the face of each check before deposit thereof the words "This check is in pay- ment of an obligation to the United States and must be paid at par. No protest." This should be followed by his name and title. The day on which the check is received will be considered the date of payment so far as the taxpayer is concerned, unless the check is returned dishonored. If the bank on which a check is drawn should refuse to pay it at par, the check should be returned through the depositary bank. All expenses incident to the attempt to collect such a check and the return of it through the depositary bank must be paid by the drawer of the check to the bank on which it is drawn. (See section 3971 of the Internal Revenue Code.) In case a check has been returned uncollected by the depositary bank, the collector should proceed to collect the tax as though no check had been given, and the taxpayer will remain liable for payment of the tax and for all in- terest, legal penalties, and additions, if any attach, to the same ex- 105 tent as though such check had not been tendered. A taxpayer who tenders a certified check in payment of the tax is not released from his obligation until the check has been paid. Treasury Department Circular No. 176, as amended, prescribes de- tailed regulations governing the deposit and collection of checks. Collectors are referred to paragraphs 13-16 and paragraph 26 thereof as to the deposit of taxpayers' checks and the handling of uncollected or lost items.* Sec. 81.78 Payment with bonds or notes of the United States. — ^Pay- ment of the tax may be made with certain bonds of the United States in accordance with section 14 of the Second Liberty Bond Act, as amended (U. S. C, 1940 edition, Title 31, section 765), and Department Circular 225, as amended and supplemented, issued pursuant thereto. Such bonds must bear interest at a higher rate than 4 per cent per annum, and are receivable at par value, together with interest accrued at the time of payment, provided they were owned by the decedent continuously for at least six months prior to the date of his death, and upon such date constituted a part of his gross estate. With respect to payment of tax with United States Treasury notes, the latest Treasury decision pertaining thereto should be consulted. (See Appendix.)* EXTENSION OF TIME FOR PAYMENT OF TAX Seo. 822. [Part II, Subchapter A.] Payment of Tax. (a) Time of Payment. — * * * * * * * (2) Extension of time. — ^Where the Commissioner finds that the payment on the due date of any part of the amount determined by the executor as the tax would impose undue hardship upon the estate, the Commissioner may extend the time for payment of any such part not to exceed ten years from the due date. In such case the amount in respect of which the extension is granted shall be paid on or before the date of the expiration, of the period of the extension, and the running of the statute of limitations for assess- ment and collection, as provided in section 874, shall be suspended for the period of any such extension. If an extension is granted, the Commissioner may, if he deems it necessary, require the execu- tor to furnish security for the payment of the amount in respect of which the extension is granted in accordance with the terms of the extension. ******* Sec. 92,5. [Part IV, Subchapter A.] Peeiod of Extension. Where there is included in the value of the gross estate the value of a reversionary or remainder interest In property, the payment of the part of the tax imposed by this subchapter attributable to such interest may, at the election of the executor, be postponed until six months after the termination of the precedent interest or interests in the property, and the amount the payment of which is so postponed 106 shall then be payable, together with interest thereon at the rate of 4 per centum per annum from eighteen months after the date of the decedent's death until such amount is paid. Sec. 926. [Part IV, Subchapter A.] Requibements roR Extension. The postponement of payment of such amount shall be under such regulations as the Commissioner with the approval of the Secretary may prescribe, and shall be upon condition that the executor, or any other person liable for the tax, shall furnish a bond in such an amount, and with such sureties, as the Commissioner deems necessary, condi- tioned upon the payment within six months after the termination of such precedent interest or interests of the amount the payment of which is so postponed, together with interest thereon, as provided In section 925. Sec. 927. [Part IV, Subchapter A.] Cbemt fob State Death Taxes. Such part of any estate, inheritance, legacy, or succession taxes allowable as a credit against the tax imposed by this subchapter as is attributable to such reversionary or remainder interest may be allowed as a credit against the tax attributable to such interest, sub- ject to the percentage limitation contained in section 813(b), if such part is paid, and credit therefor claimed, at any time prior to the expiration of 60 days after the termination of the precedent interest or interests in the property. Sec. 871. [Part IV, Subchapter A.] Peocbduee in Genbeai. (h) Extension op Time foe Payment of Dhjficibncy. — Where it is shown to the satisfaction of the Commissioner that the payment of a deficiency upon the date prescribed for the payment thereof will result in undue hardship to the estate, the Commissioner, under regulations prescribed by the Commissioner, with the approval of the Secretary (except where the deficiency is due to negligence, to intentional dis- regard of rules and regulations, or to fraud with intent to evade tax), may grant an extension for the payment of such deficiency or any part thereof for a period not in excess of four years. If an extension is granted, the Commissioner may require the executor to furnish a bond in such amount, not exceeding double the amount of the deficiency, and with such sureties as the Commissioner deems necessary, condi- tioned upon the payment of the deficiency in accordance with the terms of the extension. In such case the running of the statute of limitations for assessment and collection, as provided in section 874, shall be sus- pended for the period of any such extension. Sec. 937. [Subchapter B.] Assessment, Coixex^tion, and Payment op Tax. Except as provided in section 936, the tax imposed by section 935 shall be assessed, collected, and paid, in the same manner, and shall be subject to the same provisions of law (including penalties), as the tax imposed by subchapter A, except that in the case of a citizen or resident of the United States a return shall be required if the value of the gross estate at the time of decedent's death exceeds the amount of the specific exemption provided in section 935(c). 107 Sec. 81.79 (a) Extension of time for payment of tax shown on re- turn. — In any case in which the Commissioner finds that payment, on the due date, of any part of the tax shown on the return would impose undue hardship upon the estate, he may extend the time for payment thereof for a period or periods not to exceed in all 10 years from the due date. The extension will not be granted upon a general statement of hardship. The term "undue hardship" means more than an incon- venience to the estate. It must appear that substantial financial loss, for example, due to the sale of property at a sacrifice price, will result to the estate from making payment of the tax at the due date. If a market exists, a sale of property at the current market price is not ordinarily considered as resulting in an undue hardship. An application for such an extension must be in writing and must contain, or be supported by, information under oath showing the undue hardship that would result to the estate if the requested ex- tension were refused. The application, with the supporting informa- tion, must be filed with the collector, who will transmit it to the Commissioner with his recommendations as to the extension. When it is received by the Commissioner, it will be examined, and, if possible? within 30 days will be denied, granted, or tentatively granted sub- ject to certain conditions of which the executor will be notified. The Commissioner will not consider an application for such an extension unless request therefor is made to the collector on or before the due date. If the executor desires to obtain an additional extension, the request therefor must be made to the collector on or before the date of the expiration of the pr'evious extension. No single extension for more than one year will be granted. The granting of an extension of time for paying the tax is discretionary with the Commissioner, and such authority will be exercised under such conditions as he may deem advisable. If an extension is granted, the Commissioner may, if he deems it necessary, require the executor to furnish security for the payment of the amount in I'espect of which the extension is granted in accord- ance with the terms of the extension. The amount of the tax for which an extension is granted, with the additions thereto, shall be paid on or before the expiration of the period of the extension without the necessity of notice and demand from the collector. Payment of the amount for which the extension was granted and the additions thereto before the expiration of the extension will not relieve the executor from paying the entire amount of interest provided for in the extension. The granting of such an extension will not relieve the executor from the duty of filing the return on or before the date fixed by the regulations, nor will it operate to prevent the running of interest. 108 (See section 81.81.) An extension of time to pay the tax may extend the period within which taxes allowed as a credit by section 813(b) are required to be paid and the credit therefor claimed. (See section 81.9.) The running of the statute of limitations for assessment and collection, as provided in section 874, is suspended for. the period of the extension. (See sections 81.74 and 81.102.) (b) Extension of time for payment of tax attributable to a rever- sionary or remainder interest. — In case there is included in the gross estate a reversionary or remainder interest in property, the payment of the part of the tax attributable to such interest may, at the election of the executor, be postponed until six months after the termination of the precedent interest or interests in the property. This provision is limited to cases in which the reversionary or re- mainder interest is included in the decedent's gross estate as such and does not extend to cases in which the decedent creates future estates by his own testamentary act. Notice of the exercise of the election to postpone the payment of the tax attributable to a reversionary or remainder interest should be filed with the Commissioner before the date prescribed for payment of the tax. There should be filed with the notice of election a certi- fied copy of the will or other instrument under which the reversionary or remainder interest was created. The Commissioner may require the submission of such additional proof as is deemed necessary to disclose the complete facts. If the duration of the precedent interest is dependent upon the life of any person, the application must show the date of birth of such person. As a prerequisite to the postponement of the payment of the tax attributable to a reversionary or remainder interest, a bond must be furnished in such an amount (at least double the amount of the tax and interest for the estimated duration of the precedent interest), and with such sureties as the Commissioner deems necessary, con- ditioned upon the payment of the tax and interest accrued thereon within six months after the termination of the precedent interest. In case the duration of the precedent interest is dependent upon the life or lives of any person or persons, or is otherwise indefinite, the bond must be further conditioned upon the principal or surety promptly notifying the Commissioner when such precedent interest terminates and upon the principal or surety notifying the Commis- sioner during the month of September of each year as to the con- tinuance of the precedent interest. If after the acceptance of a bond it is determined that the amount of the tax attributable to the rever- sionary or remainder interest was understated in the bond, a new bond or a supplemental bond may be required, or such tax to the extent of the understatement may be collected. 109 If the decedent's gross estate consists of both a reversionary or remainder interest in property and other property, the tax attribut- able to the reversionary or remainder interest, within the meaning of section 925 and this section, is an amount which bears the same ratio to the total tax which the value of the reversionary or remainder interests bears to the entire gross estate, subject to the following qualification : In determining the ratio, the value of the reversionary or remainder interest should be reduced by (1) the amount of claims, mortgages, and indebtedness which is a lien upon such interest; (2) losses in respect of such interest during the settlement of the estate which are deductible Under the provisions of sections 812(b) (5) and 861(a)(1); (3) any amount in respect of such interest identified as previously taxed property under the provisions of sections 812(c) and 861(a) (2) ; (4) any amount deductible on account of devises or bequests of such interests to charitable, etc., uses as described in sec- tions 812(d) and 861(a)(3). In determining the ratio, the gross estate should likewise be reduced by such deductions having similar relationship to items in the gross estate other than the remainder or reversionary interest. If the time for payment of the Federal estate tax attributable to a reversionary or remainder interest in property is postponed, all estate, inheritance, legacy, or succession taxes allowable as a credit under the provisions of section 813(b), as amended, which are paid and for which credit is claimed within the period provided in such section, will be allowed not to exceed 80 per cent, respectively, of that portion of the Federal basic tax attributable to such interest and to that portion attributable to the other property, and will be applied first to the respective portion of the Federal basic tax which is attribut- able to the same interests in property to which the estate, inheritance, legacy, or succession taxes are attributable. Estate, inheritance, legacy, or succession taxes, as described in section 813(b), as amended, which are attributable to the reversionary or remainder interest and which are paid and for which credit is claimed after the expiration of the period provided in that section will also be allowed as a credit against the Federal basic tax attributable to such interest (limited by the requirement that the total credit may not exceed 80 per cent of the total Federal basic tax) if such taxes are paid and credit therefor is claimed prior to the expiration of 60 days after the termination of the preceding interest or interests in the property. Exannple. The Federal basic tax attributable to the reversionary or remainder interest is $5,000, and that attributable j;o all other property is $10,000. The estate, inheritance, legacy, or succes- sion taxes paid to the State within the 4-year period are $9,000, all attributable to property other than the reversionary or remainder in- terest. Of this $9,000, the maximum of $8,000 is credited against the 110 Federal basic tax of $10,000 attributable to property other than the reversionary or remainder interest, and the balance of $1,000 is cred- ited to the Federal basic tax attributable to the reversionary interest. Accordingly, the estate will be required to pay $2,000 (Federal basic tax of $10,000 attributable to property other than the reversionary or remainder interest, minus the credit of $8,000) at once, and an exten- sion will be allowed for payment of $4,000 ( Federal basic tax of $5,000 attributable to the reversionary interest, minus credit of $1,000). After expiration of the 4-year period, but before expiration of 60 days after termination of the life estate or precedent interest, the estate pays additional State estate, inheritance, legacy, or succession taxes of $5,000 attributable to the reversionary or remainder interest. As the max- imum credit is $12,000 (80 per cent of $15,000, the total Federal basic tax) and $9,000 has already been allowed, there will be an additional allowance of $3,000, and the estate will be required to pay $1,000 at the end of the extension period. If any estate, inheritance, legacy, or succession taxes are imposed by any of the several States, Territories, or possessions of the United States, or the District of Columbia upon a reversionary or a re- mainder interest in property and other property, without definitely apportioning the tax between such classes of property, for the pur- poses of this section the amount of such estate, inheritance, legacy, or succession taxes which will be deemed to be attributable to the reversionary or remainder interest will be an amount which bears the same ratio to the total of such taxes as the value of such prop- erty bears to the value of the decedent's entire estate upon which the estate, inheritance, legacy, or succession tax was imposed. In determining the ratio, reduction will be made in the value of the re- versionary or remainder interest and the value of the gross estate as previously provided in this section for determining the Federal estate tax attributable to the reversionary or remainder interest. The amount of tax the payment of which is postponed under the provisions of section 925 bears interest at the rate of 4 per cent per annum from the expiration of 18 months after the date of the decedent's death until such amount is paid. (See section 81.81(b).)* Sec. 81.80 Extension of time for payment of deficiency tax. — ^If it is shown to the satisfaction of the Commissioner that the payment of the deficiency upon the date prescribed for the payment thereof will result in undue hardship to the estate, the Commissioner may grant an extension of time for the payment of the deficiency or any part thereof for a period not to exceed in all four years from the date prescribed for the payment of the deficiency. The extension will not be granted upon a general statement of hardship. The term "undue hardship" means more than an incon- venience to the estate. It must appear that substantial financial loss. Ill for example, due to the sale of property at a sacrifice price, will result to the estate from making payment of the deficiency at the due date. If a market exists, the sale ef property at the current market price is not ordinarily considered as resulting in an undue hardship. No extension will be granted where the deficiency is due to negligence or intentional disregard of the rules and regulations, or to fraud with intent to evade the tax. An application for such an extension must be in writing and must contain, or be supported by, information under oath showing the undue hardship that would result to the estate were the requested extension refused. The application, with the supporting information, must be filed with the collector, who will transmit it to the Commis- sioner with his recommendations as to the extension. When it is re- ceived by the Commissioner, it will be examined, and, if possible, within 30 days will be denied, granted, or tentatively granted subject to certain conditions of which the executor will be notified. The Commissioner will not consider an application for an extension of time for the payment of a deficiency unless request therefor is made to the collector on or before the date prescribed for payment thereof, as shown by the notice and demand from the collector. If the execu- tor desires to obtain an additional extension, the request therefor must be made to the collector on or before the date of the expiration of the previous extension. No single extension for more than one year will be granted. The granting of an extension of time for paying the deficiency is discretionary, and such authority will be exercised under such conditions as may be deemed advisable. As a condition to the granting of such an extension, the Commis- sioner will usually require the executor to furnish a bond in an amount not exceeding double the amount of the deficiency, or to furnish other security satisfactory to the Commissioner for the payment of the liability on or before the date prescribed for payment in the exten- sion, so that the risk of loss to the Government will not be more at ■ the end of the extension period than it was at the beginning of the period. If a bond is required it shall be conditioned upon the pay- ment of the deficiency, interest, and any additional amounts assessed in connection therewith in accordance with the terms of the extension granted, and shall be executed by a surety company holding a cer- tificate of authority from the Secretary of the Treasury as an accept- able surety on Federal bonds, and shall be subject to the approval of the Conunissioner. In lieu of such a bond, the executor may file a bond secured by the deposit of bonds or notes of the United States, any public debt obligations of the United States, or any bonds, notes, or other obligations which are unconditionally guaranteed as to both interest and principal by the United States, equal in their total par value to the amount of such bond. (See section 1126 of the Revenue 112 Act of 1926, as amended by section 7 of the Act of February 4, 1935, 49 Stat. 22, U. S. C, 1940 edition, Title 6, section 15.) The amount of the deficiency for which an extension is granted, with any additions thereto, shall be paid on or before the expiration of the period of the extension without the necessity of notice and demand from the collector. Payment of the amount for which the extension was granted and any additions thereto before the expiration of the extension will not relieve the executor from paying the entire amount of interest provided for in the extension. The granting of such an extension will not operate to prevent the running of interest. (See section 81.82.) An extension of time to pay the deficiency may extend the period within which taxes allowed as a credit by section 813(b) are required to be paid and the credit therefor claimed. (See section 81.9.) The running of the statute of limitations for assessment and collection, as provided in section 874, is suspended for the period of the extension. (See sections 81.74 and 81.102.)* INTEREST ON TAX Sec. 890. [Part IV, Subchapter A.] Intebest on Extended Payments. (a) Tax Shown on Eetubn. — If the time for the payment is ex- tended as provided in section 822(a) (2) there shall be collected, as a part of such amount, interest thereon from the expiration of three months after the due date of the tax to the expiration of the period of the extension. In the case of any such extension, the rate of interest shall be 4 per centum per annum. (b) Deficienct. — In case an extension for the payment of a defi- ciency is granted, as provided in section 871(h), there shall be col- lected, as a part of the tax, interest on the part of the deficiency the time for payment of which is so extended, at the rate of 6 per centum per annum for the period of the extension, and no other interest shall be collected on such part of the deficiency for such period. Sec. 925. [Part IV, Subchapter A.] Pbbiod op Extension. Where there is included in the value of the gross estate the value of a reversionary or remainder interest in property, the payment of the part of the tax imposed by this subchapter attributable to such interest may, at the election of the executor, be postponed until six months after the termination of the precedent interest or interests In the prop- erty, and the amount the payment of which is so postponed shall then be payable, together with interest thereon at the rate of 4 per centum per annum from eighteen months after the date of the de- cedent's death until such amount is paid. Sec. 891. [Part IV, Subchapter A.] Intebest on Deficiencies. Interest upon the amount determined as a deficiency shall be as- sessed at the same time as the deficiency, shall be paid upon notice and demand from the collector, and shall be collected as a part of the tax, at the rate of 6 per centum per annum from the due date of the tax to the date the deficiency is assessed, or, in the case of a waiver 113 under section 871(d), to the thirtieth day after the filing of such waiver or to the date the deficiency is assessed whichever is the earlier. Sbo. 871. [Part IV, Subchapter A.] Pbooeduke in Genbeal. ******* (i) 50 Pee Cent Addition Teeated as Deficibnct. — The 50 per centum addition to the tax provided by section 3612(d) (2) shall, when assessed in connection with an estate tax, be assessed, collected, and paid in the same manner as if it were a deficiency, except that the provisions of section 891 shall not be applicable. Sec. 892. [Part IV, Subchapter A.] iNTBaiBST on jEOPAnnY Assessments. In the case of the amount collected under section 872 (i) there shall be collected at the same time as such amount, and as a part of the tax, interest at the rate of 6 per centum per annum upon such amount from the date of the jeopardy notice and demand to the date of notice and demand under section 872 (i), or, in the case of the amount collected in excess of the amount of the jeopardy assessment, interest as provided in section 891. Sec. 893. [Part IV, Subchapter A.] Additions to the Tax in Case op Nonpayment. (a) Tax Shown on Retden. — (1) Payment not extended. — Where the amount determined by the executor as the tax imposed by this subchapter, or any part of such amount, is not paid on the due date of the tax, there shall be collected as a part of the tax, interest upon such unpaid amount at the rate of 6 per centum per annum from the due date until it is paid. (2) Payment extended. — ^Where an extension of time for pay- ment of the amount so determined as the tax by the executor has been granted, and the amount the time for payment of which has been extended, and the interest thereon determined under section 890(a), is not paid in full prior to the expiration of the period of the extension, then, in lieu of the interest provided for in para- graph (1) of this subsection, interest at the rate of 6 i)er centum per annum shall be collected on such unpaid amount from the date of the expiration of the period of the extension until it is paid. (b) Deficiency. — (1) Payment not extended. — -Where a deficiency, or any inter- est assessed in connection therewith under section 891, t)r any addi- tion to the tax provided for in section 3612(d), is not paid in full within 30 days from the date of notice and demand from the col- lector, there shall be collected as part of the tax, interest upon the unpaid amount at the rate of 6 per centum per annum from the date of such notice and demand until it is paid. (2) Filing oe jeopardy bond. — If a bond is filed, as provided in section 872, the provisions of paragraph (1) of this subsection shall not apply to 'the amount covered by the bond. (3) Payment extended. — If the part of the deficiency the time for payment of which is extended as provided in section 871(h) is not paid in accordance with the terms of the extension, there shall be collected, as a part of the tax, interest on such unpaid amount at the rate of 6 per centum per annum for the period from 114 the time fixed by the terms of the extension for its payment until it is paid, and no other interest shall be collected on such unpaid amoimt for such period. (4) Jeopardy assessment — Payment stayed by bond. — If the amount included in the notice and demand from the collector under section 872 (i) is not paid in full within 30 days after such notice and demand, then there shall be collected, as part of the tax, inter- est upon the unpaid amount at the rate of 6 per centum per annum from the date of such notice and demand until it is paid. Sec. 872. [Part IV, Subchapter A.] Jeopardy Assessments. ***** * * (f) Bond to Stay Collection. — When a jeopardy assessment has been made the executor, within 30 days after notice and demand from the collector for the payment of the amount of the assessment, may obtain a stay of collection of the whole or any part of the amount of the assessment by filing with the collector a bond in such amount, not exceeding douBle the amount as to which the stay is desired, and with such sureties as the collector deems necessary, conditioned upon the payment of so much of the amount, the collection of which is stayed by the bond, as is not abated by a decision of the Board which has become final, together with Interest thereon as provided in section 892 or 893(b)(4). If any portion of the jeopardy assessment is abated by the Commissioner before the decision of the Board is ren- dered, the bond shall at the request of the taxpayer, be proportionately reduced. (g) Same — Further Conditions. — If the bond is given before the executor has filed his petition with the Board under subsection (a) of section 871, the bond shall contain a further condition that if a petition is not filed within the period provided in such subsection, then the amount the collection of which is stayed by the bond will be paid on notice and demand at any time after the expiration of such period, together with interest thereon at the rate of 6 per centum per annum from the date of the jeopardy notice and demand to the date of notice and demand under this subsection. ***** * * (i) Collection op Unpaid Amounts. — When the petition has been filed with the Board and when the amount which should have been assessed has been determined by a decision of the Board which has become final, then any unpaid portion, the collection of which has been stayed by the bond, shall be collected as part of the tax upon notice and demand from the collector, and any remaining portion of the assessment shall be abated. If the amount already collected exceeds the amount determined as the amount which should have been assessed, such excess shall be refunded. If the amount determined as the amount which should have been assessed is greater than the amount actually assessed, then the difference shall be assessed and shall be collected as part of the tax upon notice and demand from the collector. Sec. 937. [Subchapter B.] Assessment, Collection, and Payment op Tax. Except as provided in section 936, the tax imposed by section 935 shall be assessed, collected, and paid, in the same manner, and shall be subject to the same provisions of law (including penalties), as the 115 tax. imposed by subchapter A, except that in the case of a citizen or resident of the United States a return shall be required if the value of the gross estate at the time of decedent's death exceeds the amount of the specific exemption provided in section 935(c). Seo. 81.81 (a) Interest on tax shown on return. — If any portion of the tax shown on the executor's return is not paid on or before the due date, and no extension of time for payment thereof has been granted, such unpaid portion bears interest from the due date until payment is received by the collector at the rate of 6 per cent per annum. If an extension of time has been granted for paying any portion of the tax shown on the executor's return, in accordance with section 81.79(a), interest accrues thereon at the rate of 4 per cent per annum from the expiration of 18 months after the decedent's death to the expiration of the period of the extension. If the amount of the tax, the time for payment of which has been extended, together with any interest accrued thereon, is not paid in full on or before the date of the expiration of the extension, the total unpaid amount (tax and any accrued interest) bears interest from the expiration of the extension until payment is received by the collector at the rate of 6 per cent per annum. Interest at 4 or 6 per cent per annum is computed oh the basis of 365 days to the year, or 366 days in a leap year. (b) Interest on tax attributable to a reversionary or remainder in- terest. — If the time for the payment of the tax attributable to a rever- sionary or remainder interest is postponed in accordance with the provisions of section 925, the amount the payment of which is so postponed will bear interest at the rate of 4 per cent per annum from the expiration of 18 months after the date of the decedent's death until such amount is paid. However, if the amount of the tax, the time for payment of which is so postponed, together with interest accrued thereon, is not paid in full on or before the date of the expira- tion of the period of the postponement (six months after the termi- nation of the precedent interest or interests in the property), the unpaid amount bears interest at the rate of 6 per cent per annum from the date of the expiration of the period of the postponement until payment is received by the collector.* Seo. 81.82 Interest on deficiency tax. — The Internal Revenue Code provides that any deficiency shall bear interest at the rate of 6 per cent per annum from the due date for payment of the tax (15 months after the date of death) to the date the deficiency is assessed, except in the case of a waiver of the restrictions against the assessment and collection of the deficiency, and that such interest shall be assessed at the same time as the deficiency of which it becomes an integral 244534°— 42 O 116 part. The deficiency in respect of which the restrictions against the assessment and collection are waived under section 871(d) bears in- terest at the rate of 6 per cent per annum from the due date of the tax to the thirtieth day after the filing of such waiver or to the date the deficiency is assessed, whichever is the earlier. The term "defici- ency" includes any tax resulting from the correction of a mathe- matical error appearing upon the face of a return. (See second paragraph of section 81.74.) If any portion of the deficiency assessed is not paid within 30 days from the date of the notice and demand issued by the collector (except a deficiency or any part thereof with respect to which a jeopardy assessment is made and collection is stayed by the filing of a bond), and no extension of time for payment thereof has been granted, such unpaid portion bears interest from the date of the notice and demand until payment is received by the collector at the rate of 6 per cent per annum. If an extension of time is granted for pa3dng any portion of the deficiency assessed, in accordance with section 81.80, interest accrues thereon at the rate of 6 per cent per annum for the period of the extension, i. e., from the date prescribed for the payment (30 days after the date of the notice and demand) to the expiration of the period of the extension. If the amount of the deficiency, the time for payment of which has been extended, together with interest accrued thereon, is not paid in full on or before the date of the ex- piration of the extension, the total unpaid amount (tax, interest and any addition thereto) bears interest from the expiration of the ex- tension until payment is received by the collector at the rate of 6 per cent per annum. Any addition to the tax resulting from the imposition of an ad valorem penalty under the provisions of section 3612(d) is not subject to any interest between the due date for payment of the tax (15 months after the date of death) and the date of the assessment of the penalty. If a stay of the collection of a jeopardy assessment of a deficiency tax, or any addition to the tax resulting from the imposition of an ad valorem penalty, is obtained and a petition for a redetermination of the deficiency is filed with the Board of Tax Appeals, interest accrues on such unpaid portion of the deficiency or penalty, if any, determined by a decision of the Board which is made final, at the rate of 6 per cent per annum from the date of the notice and demand from the collector following the jeopardy assessment to the date of the notice and demand by the collector subsequent to the final action taken on the petition filed with the Board. If the amount which the Board determines should have been assessed is not paid in full within 30 days from the date of such notice and demand 117 issued subsequent to the decision of the Board which has become final, interest accrues upon the unpaid amount from the date of such notice and demand until it is paid at the rate of 6 per cent per annum. If the amount (exclusive of any ad valorem penalty) de- termined by the Board as the amount which should be assessed is greater than the amount actually assessed the difference bears interest at the rate of 6 per cent per annum from the due date of the tax until assessment of such difference. If the collection of the jeopardy assessment is stayed, and no petition is filed with the Board for a redetermination of the deficiency, interest accrues upon the deficiency so assessed at the rate of 6 per cent per annum from the date of the jeopardy notice and demand to the date of the notice and demand made by the collector after the expiration of the 90 days from the mailing by the Commissioner of the notice of the deficiency. If such amount is not paid within 30 days from the date of such further notice and demand, interest accrues upon the unpaid amount from the date of such further notice and demand until it is paid at the rate of 6 per cent per annum. Interest at 6 per cent per annum is computed on the basis of 365 days to the year, or 366 days in a leap year.* COLLECTION OF TAX Seo. 826. [Part II, Subchapter A.] Coixection of Unpaid Tax. (a) Sale or Peopertt. — If the tax herein imposed is not paid on or before the due date thereof the collector shall, upon instruction from the Commissioner, proceed to collect the tax under the provisions of general law ; or appropriate proceedings may be commenced in any court of the United States having jurisdiction, in the name of the United States, to subject the property of the decedent to be sold under the judgment or decree of the court. From the proceeds of such sale the amount of the tax, together with the costs and expenses of every de- scription to be allowed by the court, shall be first paid, and the balance shall be deposited according to the order of the court, to be paid under its direction to the person entitled thereto. This subsection in so far as it applies to the collection of a deficiency shall be subject to Che provisions of sections 871 and 891. (b) KEiMBtTRSEMENT OuT OF ESTATE. — If the tax Or any part thereof Is paid by, or collected out of that part of the estate passing to or in the possession of, any person other than the executor in his capacity as such, such person shall be entitled to reimbursement out of any part of the estate still undistributed or by a just and equitable contri- bution by the persons whose interest in the estate of the decedent would have been reduced if the tax had been paid before the distribu- tion of the estate or whose interest is subject to equal or prior liability for the payment of taxes, debts, or other charges against the estate, it being the purpose and intent of this subchapter that so far as is practicable and unless otherwise directed by the will of the decedent the tax shall be paid out of the estate before its distribution. (c) LiABUJTT OF Life Insubance Bkneficiaeies. — If any part of the gross estate consists of proceeds of policies of insurance upon the life 118 of the decedent receivable by a beneficiary other than the executor, the executor shall be entitled to recover from such beneficiary such portion of the total tax paid as the proceeds, in excess of $40,000, of such policies bear to the net estate. If there Is more than one such bene- ficiary the executor shall be entitled to recover from such beneficiaries in the same ratio. Sec. 81.83 Sale of property. — The remedy by action provided in section 826(a) is not exclusive. For other available remedies for the collection of the tax, see section 81.102.* Sec. 81.84 Rig^ht to reimbursement. — If any portion of the tax is paid "by or collected out of that part of the estate passing to, or in the possession of, any person other than the duly qualified executor or administrator, such person may be entitled to reimbursement, either out of the imdistributed estate or by contribution from other bene- ficiaries whose shares or interests in the estate would have been reduced had the tax been paid before distribution of the estate, or whose shares or interests are subject either to an equal or prior liability for the payment of taxes, debts, or other charges against the estate. The executor is entitled to require beneficiaries under insurance policies to bear their proportion of the tax. These pro- visions, however, are not designed to curtail tbe right of the Com- missioner to collect the tax from any person, or out of any property, liable therefor. The Commissioner cannot be required to apportion the tax among the persons liable, nor to enforce any right to reimbursement or contribution.* LIEN FOR TAX Sec. 827. [Part II, Subchapter A.] Lien fob Tax. ■ (a) Upon Gboss Estate. — Unless the tax is sooner paid in full, it shall be a lien for ten years upon the gross estate of the decedent, except that such part of the gross estate as is used for the payment of charges against the estate and expenses of its administration, allowed by any court having jurisdiction thereof, shall be divested of such lien. If the Commissioner is satisfied that the tax liability of an estate has been fully discharged or provided for, he may, under regulations prescribed by him with the approval of the Secretary, issue his certificate, releasing any or all property of such estate from, the lien herein imposed. (b) Upon Peopebtt or Tbanseereb. — If (1) except in the case of a bona fide sale for an adequate and full consideration in money or money's worth, the decedent ^ makes a transfer, by trust or other- wise,- of any property in contemplation of or intended to take effect In possession or enjoyment at or after his death, or makes a transfer, by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death (A) the pos- session or enjoyment of, or the right to the income from, the prop- erty, or (B) the right, either alone or In conjunction with any 119 person, to designate the persons who shall possess or enjoy the property or the income therefrom, or (2) If insurance passes under a contract executed by the decedent in favor of a specific beneficiary, and if in either case the tax in respect thereto is not paid when due, then the transferee, trustee, or beneficiary shall be personally liable for such tax, and such property, to the extent of the decedent's inter- est therein at the time of such transfer, or to the extent of such bene- ficiary's Interest under such contract of insurance, shall be subject to | a like lien equal to the amount of such tax. Any part of such prop- erty sold by such transferee or trustee to a bona fide purchaser for an adequate and full consideration in money or money's worth shall be divested of the lien and a like lien shall then attach to all the property of such transferee or trustee, except any part sold to a bona fide purchaser for an adequate and full consideration in money or money's worth. (c) CoKfUNTJANCE Aftee Dischaege or ExECUTOE. — ^The provisions of section 825 shall not operate as a release of any part of the gross estate from the lien for any deficiency that may thereafter be deter- mined to be due, unless the title to such part of the gross estate has passed to a bona fide purchaser for value, in which case such part shall not be subject to a lien or to any claim or demand for any such deficiency, but the lien shall attach to the consideration received from such purchaser by the heirs, legatees, devisees, or distributees. 4: ***** « Sec. 825. [Part II, Subchapter A.] Dischabge op Exeoutob Fbom Pbjb- soNAL Liability. (a) Appucation toe Dischabge. — If the executor makes written application to the Commissioner for determination of the amount of the tax and discharge from personal liability therefor, the Commis- sioner (as soon as possible, and in any event within one year after the making of such application, or, if the application is made before the return is filed, then within one year after the return is filed, but not after the expiration of the period prescribed for the assessment of the tax In sections 874 and 875) shall notify the executor of the amount of the tax. The executor, upon payment of the amount of which he is notified, shall be discharged from personal liability for any deficiency in tax thereafter found to be due and shall be entitled to a receipt or writing showing such discharge. Seo. 81.85 Property subject to lien. — ^The lien imposed by section 827 attaches at the date of the decedent's death to every part of the gross estate, whether or not the property comes into the possession of the duly qualified executor or administrator. It attaches to the extent of the tax shown to be due by the return and of any deficiency tax found to be due upon review and audit. The lien upon the entire property constituting the gross estate con- tinues for a period of 10 years after the decedent's death, except — (a) If the tax is paid in full before the expiration of such period. (&) Such portion of the gross estate as is used for the payment of charges against the estate and expenses of its administration allowed by any court having jurisdiction thereof. 120 {c) Such portion of the gross estate as has passed to a bona fide purchaser for value if payment is made of the full amount of tax deter- mined by the Commissioner pursuant to a request of the executor for discharge from personal liability, as authorized by sections 825(a) and 827(c) (see section 81.71), but there is substituted a like lien upon the consideration received from such purchaser by the heirs, legatees, devisees, or distributees. (d) Such property as was received from the decedent as a transfer by trust or otherwise in contemplation of or intended to take effect in possession or enjoyment at or after his death, or under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death (1) the possession or enjoyment of, or the right to the income from, the property, or (2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom (except in case the transfer was a bona fide sale for an adequate and full considera- tion in money or money's worth), and was sold by the transferee or trustee to a bona fide purchaser for such a consideration. In such case the lien attaches to all the property of the transferee or trustee except such thereof as may be sold to a bona fide purchaser for such a consideration. (e) If a certificate releasing such lien is issued. (See section 81.86.)* Sec. 81.86 Release of lien. — The statute provides that if the Com- missioner is satisfied that the tax liability of an estate has been fully discharged or provided for, he may issue his certificate releasing any or all property of the estate from the lien. The issuance of certifi- cates releasing such lien is a matter resting within the discretion of the Commissioner, and certificates will be issued only in case there is actual need therefor. The primary purpose of such release is not to evidence payment or satisfaction of the tax, but to permit the transfer of property free from the lien in case it is necessary to clear title. Receipts for payment of the tax are issued by the collector. If the tax liability has been fully discharged a certificate may be issued releasing the lien as to any or all property of the estate. If the tax liability has not been fully discharged, no general re- lease of all property of the estate will be granted but certificates releasing the lien upon particular items of property may be issued by the Commissioner, who may require as a prerequisite, in such an amount as he may designate, a partial payment of tax or the furnish- ing of an indemnity bond with such surety or sureties as he deems necessary. In lieu of such surety or sureties, the bond may be secured by the deposit of bonds or notes of the United States, any 121 public debt obligations of the United States, or any bonds, notes, or other obligations which are unconditionally guaranteed as to both interest and principal by the United States, equal in their total par value to the amount of such bond. (See section 1126 of the Revenue Act of 1926, as amended by section 7 of the Act of February 4, 1935, 49 Stat. 22, U. S. C, 1940 edition, Title 6, section 15.) The tax will be considered fully discharged only when investigation has been completed and payment of the tax, including any deficiency finally determined, has been made. The application for a release should be filed with the Commis- sioner and should explain the circumstances that require the release, fully describe the particular items for which the release is desired, and show the applicant's relationship to the estate, such as executor, heir, devisee, legatee, beneficiary, transferee, or purchaser. If the return, Form 706, has not been filed, an affidavit may be required showing the value of the property to be released, the basis for such valuation, the approximate value of the gross estate, the approximate value of the total real property included in the gross estate, and in case the property is to be sold or transferred, the name and address of the purchaser or transferee and the consideration to be received.* PENALTIES Sec. 894. [Part IV, Subchapter A.] Penalties. * * * * * ^ ^ (b) Specific. — (1) Civil. — ^Whoever fails to comply with any duty imposed upon him by section 820, 821, or 864, or, having in his possession or control any record, file, or paper, containing or supposed to contain any information concerning the estate of the decedent, or, having in his possession or control any property comprised in the gross estate of the decedent, fails to exhibit the same upon request to the Commissioner or any collector or law officer of the United States or his duly authorized deputy or agent, who desires to examine the same in the performance of his duties under this subchapter, shall be liable to a penalty of not exceeding $500, to be recovered, with costs of suit, in a civil action in the name of the United States. (2) Ckiminal. — (A) Whoever knowingly makes any false statement in any notice or return required to be filed under this subchapter shall be liable to a penalty of not exceeding $5,000, or imprisonment not exceeding one year, or both. (B) Any person required under this subchapter to pay any tax, or required by law or regulations made under authority thereof to make a return, keep any records, or supply any in- formation, for the purposes of the computation, assessment, or collection of any tax imposed by this subchapter, who willfully fails to pay such tax, make such return, keep such records, or supply such information, at the time or times required by law 122 or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, be fined not more than $10,000, or Imprisoned for not more than one year, or both, together with the costs of prosecution. (C) Any person required under this subchapter to collect, account for and pay over any tax imposed by this subchapter, who willfully fails to collect or truthfully account for and pay over such tax, and any person who wUlfully attempts in any manner to evade or defeat any tax imposed by this subchapter or the payment thereof, shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of pros- ecution. (D) The term "person" as used in paragraphs (B) and (C) Includes an officer or employee of a corporation or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs. ***** 4t 4 Sec. 3793. [Chapter 38.] Penalties and Fobfeituees. ******* (b) Fkaudtjlent Retubns, Aefidavits, and Claims. — (1) Assistance in preparation oe peesentation. — Any person who willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a false or fraudulent return, affidavit, claim, or document, shall (whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document) be guilty of a felony, and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution. (2) Person defined. — The term "person" as used in this sub- section includes an officer or employee of a corporation or a mem- ber or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs. Sec. 3710. [Chapter 36.] Sttrbendek of PEOPEatrr Subject to Distraint. (a) RBQimuBMENT. — ^Any person in possession of property, or rights to property, subject to distraint, upon which a levy has been made, shall, upon demand by the collector or deputy collector making such levy, surrender such property or rights to such collector or deputy, unless such property or right is, at the time of such demand, subject to an attachment or execution under any judicial process. (b) Penalty fob Violation. — ^Any person who fails or refuses to so surrender any of such property or rights shall be liable in his own person and estate to the United States in a sum equal to the value of the property or rights not so surrendered, but not exceeding the amount of the taxes (including penalties and interest) for the collection of which such levy has been made, together with costs and interest from the date of such levy. 123 (c) PEatsoN Dbfinbd. — ^The term "person'' as used in this section includes an oflScer or employee of a corporation or a member or em- ployee of a partnership, who as such oflScer, employee, or member is under a duty to perform the act in respect of which the violation occurs. Sec. 3612. [Chapter 34.] RErtmNs Executed bt Commissioneb oe Coi/- LECTOE. ******* (d) Additions to Tax. — (1) Failtjbe to file eeturN. — In case of any failure to make and file a return or list within the time prescribed by law, or prescribed by ihe Commissioner or the collector in pursuance of law, the Commissioner 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 : ProvidP.A, That in the case of a failure to make and file a return required by law, within the time prescribed by law or prescribed by the Commissioner in pursuance of law, if the last date so prescribed for filing the return is after August 30, 1935, then there shall be added to the tax, in lieu of such 25 per centum: 5 per centum if the failure is for not more than 30 days, with an additional 31 per centum for each additional 30 days or fraction thereof during which failure continues, not to exceed 25 per centum in the aggregate. (2) Fraud.- — In case a false or fraudulent return or list is willfully made, the Commissioner shall add to the tax 50 per centum of its amount. * ****** (e) CoixBCTEON OP Addittons to Tax. — The amount added to any tax under paragraphs (1) and (2) of subsection (d) shall be collected at the same time and in the same manner and as a 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. (f) Determination and Assessment. — ^The Commissioner Shall deter- mine and assess all taxes, other than stamp taxes, as to which returns or lists are so made under the provisions of this section. Sdc. 3762. [Chapter 36.] Penalties. Any person who, in connection with any compromise under section 3761, or offer of such compromise, or in connection with any closing agreement under secticm 3760, or offer to enter into any such agree- ment, willfully — (a) Concealment of Peophett. — Conceals from any oflScer or em- ployee of the United States any property belonging to the estate of a taxpayer or other person liable in respect of the tax, or (b) Withholding, Falsifying, and Destboting Recobds. — Receives, destroys, mutilates, or falsifies any book, document, or record, or makes under oath any false statement, relating to the estate or finan- cial condition of the taxpayer or other person liable in respect of the tax — Shall, upon conviction thereof, be fined not more than $10,000 or imprisoned for not more than one year, or both. 124 Sbo. 937. [Subchapter. B.] Assessment, Coixection, and Payment of TAX. Except as provided in section 936, the tax imposed by section 935 shall be assessed, collected, and paid, in the same manner, and shall be subject to the same provisions of law (including penalties), as the tax imposed by subchapter A, except that in the case of a citizen or resident of the United States a return shall be required if the value of the gross estate at the time of decedent's death exceeds the amount of the specific exemption provided in section 935(c). Seo. 81.87 Nature of penalties. — Two kinds of penalties are pro- vided for delinquency with respect to the duties imposed by the statute : (1) A specific penalty, to be recovered by suit, unless previously paid or adjusted by the acceptance of an offer in compromise; and (2) A penalty of a certain percentage of the tax, to be added to and collected in the same manner as the tax. In any case in which more than one penalty is provided the Gov- ernment may assert any one or more thereof.* Sec. 81.88 Penalties for false or fraudulent notice or return. — In case any statement in the notice or return is knowingly false, the person making it is subject to a penalty not exceeding $5,000, or imprisonment for a period not exceeding one year, or both, and for a false or fraudulent return, 50 per cent will be added to the amount of the tax. Any person required to file any notice or make a return who willfully fails to do so at the time required shall be guilty of a misdemeanor and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than one year, or both, together with the costs of prosecution. Any person who willfully aids or assists in the preparation or presentation of a false or fraudulent notice or return, or procures, counsels, or advises the preparation or presentation of such a notice or return, whether such falsity or fraud is with or without the knowledge or consent of the person required to make the notice or return, will be guilty of a felony and, upon conviction thereof, fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution.* Sec. 81.89 Penalty for failure to give notice or make and file return. — For failure to give the notice required by section 820 or make and file the return required by section 821, 864, or 937 within the time prescribed in section 81.63 or 81.67, the person in default is subject to a penalty not exceeding $5(X). For failure to make and file such return within the time pre- scribed, or within an extension of time granted by the Commissioner or the collector, 5 per cent will be added to the tax if the failure is for not more than 30 days, with an additional 5 per cent for each 30 125 days or fraction thereof during which failure continues, not to ex- ceed 25 per cent in the aggregate, except that if the return is filed after the time allowed and it is shown that the failure to file within the time so allowed was due to a reasonable cause and not to willful neglect, no such addition will be made to the tax.* Sec. 81.90 Penalty for failure to pay tax, exhibit property, keep or exhibit records, etc., and for concealment of assets. — ^Any person in pos- session or control of any record, file, or paper, containing or sup- posed to contain information relating to the estate, or having in his possession or control property comprised in the gross estate of the decedent, who fails to exhibit the same upon the request of the Com- missioner or any collector or law officer of the United States, or his duly authorized deputy or agent, in the performance of his duties, or having knowledge or information of any fact or facts of a ma- terial bearing upon the liability, or the extent of liability, of the estate to the tax, who fails to make disclosure thereof upon request of the Commissioner or any revenue agent or inspector designated by him for that purpose, is liable to a penalty not to exceed $500, to be recovered by civil action. Such a request must be granted whether or not he believes that a compliance therewith is material. Any person required to pay the tax, keep any records, or supply any information, for the purpose of the computation, assessment, or collection of the tax, who willfully fails to pay such tax, keep such records, or supply such information, as required by the law or regulations, shall, in addition to other penalties, be guilty of a mis- demeanor and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than one year, or both, together with the costs of prosecution. Any person who willfully attempts in any manner to evade or defeat the tax or the payment thereof, shall, in addition to other penalties, be guilty of a felony and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution. Any person who in connection with any compromise entered into or offer made under the provisions of section 3761, or, who in con- nection with any closing agreement under section 3760, or the offer to enter into any such agreement, willfully conceals from any officer or employee of the United States any property belonging to the estate or any person liable in respect of the tax, or receives, destroys, mutilates, or falsifies any book, document, or record, or makes under oath any false statement, relating to the estate or its value or the financial condition of any person liable in respect of the tax, shall, upon conviction thereof, be fined not more than $10,000, or impris- oned for not more than one year, or both.* 126 Sec. 81.91 Penalty for assisting, procuring, or advising the prepara- tion or presentation of false or fraudulent documents. — Any person who willfully aids or assists in, or procures, counsels, or advises, the prep- aration or .presentation under, or in connection with any matter arising under, the internal revenue laws, of a false or fraudulent affidavit, claim, or document, shall, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such affidavit, claim, or document, be guilty of a felony, and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution.* ABATEMENT AND STAY OF COLLECTION OF JEOPARDY ASSESSMENT Sec. 872. [Part IV, Subchapter A.] Jeopardy Assessments. • * * » * * » (f) Bond to Stat Coixection. — When a jeopardy assessment has been made the executor, within 30 days after notice and demand from the col- lector for the payment of the amount of the assessment, may obtain a stay of collection of the whole or any part of the amount of the assessment by filing with the collector a bond in such amount, not exceeding double the amount as to which the stay is desired, and with such sureties, as the collector deems necessary, conditioned upon the payment of so much of the amount, the collection of which is stayed by the bond, as is not abated by a decision of the Board which has become final, together with interest thereon as provided in section 892 or 893(b)(4). If any portion of the jeopardy assessment is abated by the Commissioner before the decision of the Board is rendered, the bond shall, at the request of the taxpayer, be proportionately reduced. (g) Same — Ftjetheb Conditions. — If the bond is given before the execu- tor has filed his petition with the Board under subsection (a) of section 871, the bond shall contain a further condition that if a petition is not filed within the period provided in such subsection, then the amount the collection of which is stayed by the bond will be paid on notice and demand at any time after the expiration of such period, together with interest thereon at the rate of 6 per centum per annum from the date of the jeopardy notice and demand to the date of notice and demand under this subsection. (h) Waivee ot Stat. — Upon the filing of the bond the collection of so much of the amount assessed as is covered by the bond shall be stayed. The executor shall have the right to waive such stay at any time in respect of the whole or any part of the amount covered by the bond, and if as a result of such waiver any part of the amount covered by the bond is paid, then the bond shall, at the request of the executor, be proportionately re- duced. If the Board determines that the amount assessed is greater than the amount which should have been assessed, then when the decision of the Board is rendered the bond shall, at the request of the executor, be propor- tionately reduced. (1) CoixECTioN OF Unpaid Amounts. — When the petition has been filed with the Board and when the amount which should have been assessed has been determined by a decision of the Board which has become final, then 127 any unpaid portion, the collection of which has been stayed by the bond, shall be collected as part of the tax upon notice and demand from the collector, and any remaining portion of the assessment shall be abated. If the amount already collected exceeds the amount determined as the amount which should have been assessed, such excesi shall be refunded. If the amount determined as the amount which should have been assessed is greater than the amount actually assessed, then the difference shall be assessed and shall be collected as part of the tax upon notice and demand from the collector. Sec. 873. [Part IV, Subchapter A.] Claims in Abatement. No claim in abatement shall be filed in respect of the assessment of any estate tax imposed by this subchapter. Seo. 937. [Subchapter B.] Assessment, Coixeotion, and Payment of Tax. Except as provided in section 936, the tax imposed by section 935 shall be assessed, collected, and paid, in the same manner, and shall be subject to the same provisions of law (including penalties), as the tax imposed by subchapter A, except that in the case of a citizen or resident of the United States a return shall be required If the value of the gross estate at the time of decedent's death exceeds the amount of the specific exemption provided in section 935(c). Sec. 81.92 Claim for abatement. — No claim for abatement may be filed in respect of any assessment of estate tax imposed by the In- ternal Revenue Code. The amount of any assessment directed to be abated by the statute as the result of a decision of the Board of Tax Appeals which has become final and all overassessments determined as a result of audit or examination of returns will be abated by the Commissioner without action on the part of the executor.* Seo. 81.93 Collection of jeopardy assessment stayed by filing bond. — If a jeopardy assessment has been made, the executor, within 30 days after notice and demand from the collector for payment of the amount of the jeopardy assessment may obtain a stay of collection of the whole, or any part, of the amount of such assessment by filing with the collector a bond in such amount not exceeding double the amount as to which the stay is desired, and with such sureties as the collector deems necessary, conditioned upon the payment of so much of the amount, the collection of which is stayed by the bond, as is not abated as a result of a decision of the Board which has become final, together with the interest thereon, as provided in the statute. (See section 81.82.) In lieu of such sureties, the bond may be secured by the deposit of bonds or notes of the United States, any public debt obligations of the United States, or any bonds, notes, or other obli- gations which are unconditionally guaranteed as to both interest and principal by the United States, equal in their total par value to the amount of such bond. (See section 1126 of the Revenue Act of 1926, as amended by section 7 of the Act of February 4, 1935, 49 Stat. 22, U. S. C, 1940 edition. Title 6, section 15.) The petition with the 128 Board of Tax Appeals for redetermination of the deficiency in re- spect of which the jeopardy assessment was made must be filed within 90 days (not counting Sunday or a legal holiday in the Dis- trict of Columbia as th* ninetieth day) after the mailing by the Commissioner of the notice of deficiency. (See section 81.73.) If any portion of the jeopardy assessment is abated by the Commissioner before the decision of the Board is rendered, the bond will, upon request of the executor, be proportionately reduced. If the bond is given be- fore the petition is filed with the Board, the bond shall contain a further condition that if a petition is not filed within the 90 days, then the amount, the collection of which is stayed by the bond, shall be paid on notice and demand at any time after the expiration of such 90-day period, together with interest thereon at the rate of 6 per cent per annum from the date of the jeopardy notice and demand made by the collector to the date of notice and demand made after the expiration of the 90-day period.* Sec. 81.94 Accrual of interest as affected by the stay of the collection of a jeopardy assessment. — For rules relating to the accrual of interest where the collection of a jeopardy assessment is stayed by the filing of a bond, see section 81.82.* Sec. 81.95 Limitation of time to file bond to stay collection of jeopardy assessment. — If it is desired to stay the collection of the whole, or any part, of the amount in respect of which a jeopardy assessment has been made, the bond referred to in section 81.93 must be filed with the collector within 30 days after notice and demand by the collector for the payment of the amount of the jeopardy assessment.* REFUNDS Sec. 910. [Part IV, Subchapter A.] Period of Limitation foe Filing Claims. All claims for the refunding of the tax imposed by this subchapter alleged to have been erroneously or illegally assessed or collected must be presented to the Commissioner within three years next after the payment of such tax. The amount of the refund shall not exceed the portion of the tax paid during the three years immediately preceding the filing of the claim, or if no claim was filed, then during the three years immediately preceding the allowance of the refund. Sb!c. 911. [Part IV, Subchapter A.] Effect of Petition to Boabd. If the Commissioner has mailed to the executor a notice of defi- ciency under section 871(a) and if the executor files a petition with the Board of Tax Appeals within the time prescribed in such subsec- tion, no refund in respect of the tax shall be allowed or made and no suit for the recovery of any part of such tax shall be instituted in any court, except — (a) As to overpayments determined by a decision of the Board which has become final; and 129 (b) As to any amount collected in excess of an amount computed In accordance with the decision of the Board which has become final ; and (c) As to any amount collected after the statutory period of limi- tations upon the beginning of distraint or a proceeding in court for collection has expired ; but in any such claim for refund or in any such suit for refund the decision of the Board which has become final, as to whether such period had expired before the notice of deficiency was mailed, shall be conclusive. Sbx3. 912. [Part IV, Subchapter A.] Overpayment Found by Board. If the Board finds that there is no deficiency and further finds that the executor has made an overpayment of tax, the Board shall have jurisdiction to determine the amount of such overpayment, and such amount shall, when the decision of the Board has become final, be credited or refunded to the executor as provided in section 3770(a). No such refund shall be made of any portion of the tax unless the Board determines as part of its decision that such portion was paid within three years before the filing of the claim or the filing of the petition, whichever is earlier, or that such portion was paid after the mailing of the notice of deficiency. Sec. 937. [Subchapter B.] Assessment, CoiiEcnoN, and Payment or Tax. Except as provided in section 936, the tax imposed by section 935 shall be assessed, collected, and paid, in the same manner, and shall be sub- ject to the same provisions of law (including penalties), as the tax imposed by subchapter A, * * ♦. Seo. 3746. [Chapter 36.] Suits for Recovery or Erroneous Refunds. (a) Refunds Afteb Limitation Period. — ^Any portion of an internal revenue tax (or any interest, penalty, additional amount, or addition to such tax) refund of which is erroneously made, within the meaning of section 8774, may be recovered bj suit brought in the name of the United States, but only if such suit is begun within two years after the making of such refund. (b) Reetinds Otherwise Erroneous. — Any portion of an internal revenue tax (or any interest, penalty, additional amount, or addition to such tax) which has been erroneously refunded (if such refund would not be considered as erroneous under section 3774) may be re- covered by suit brought in the name of the United States, but only if such suit is begun before the expiration of two years after the making of such refund. (c) Refunds Based on Fraud ob Misrepresentation. — Despite the provisions of subsections (a) and (b) such suit may be brought at any time within five years from the making of the refund if it appears that any part of the refund was induced by fraud or the misrepresenta- tion of a material fact. (d) Interest. — ^Erroneous refunds recoverable by suit under this sec- tion shall bear interest at the rate of 6 per centum per annum from the date of the payment of the refund. Sec. 3760. [Chapter 36.] Closing Agreements. (a) Authorization. — The Commissioner (or any officer or employee of the Bureau of Internal Revenue, including the field service, author- 130 ized in writing by the Commissioner) is authorized to enter into an agreement in writing with any person relating to the liability of such person (or of the person or estate for whom he acts) in respect of any internal revenue tax for any taxable period. (b) Finality. — If such agreement is approved by the Secretary, the Under Secretary, or an Assistant Secretary, within such time as may be stated in such agreement, or later agreed to, such agreement shall be final and conclusive, and, except Upon a showing of fraud or malfeas- ance, or misrepresentation of a material fact — (1) The case shall not be reopened as to the matters agreed upon or the agreement modified, by any officer, employee, or agent of the United States, and (2) In any suit, action, or proceeding, such agreement, or any determination, assessment, collection, payment, abatement, refund, or credit made in accordance therewith, shall not be annulled, modified, set aside, or disregarded. Sec. 3770. [Chapter 37.] At3thobitt to Make Abatements, Cebdits, AND Refunds. (a) To Taxfatees. — (1) Assessments and collections gbnerallt (as amended by sec- tion 508(b) of the Second Revenue Act of 1940). — ^Except as other- wise provided by law in the case of income, war-profits, excess-profits, estate, and gift taxes, the Commissioner, subject to regulations pre- scribed by the Secretary, 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. (2) Assessments and ooLLBcmoNs after limitation period. — Any tax (or any interest, penalty, additional amount, or addition to such tax) assessed or paid after the expiration of the period of limitation properly applicable thereto shall be considered an over- payment and shall be credited or refunded to the taxpayer if claim therefor is filed within the iwriod of limitation for filing such claim. (3) Date of allowance. — ^Where the Commissioner has signed a schedule of overassessments in respect of any internal revenue tax imposed by this title, the Revenue Act of 1932, or any prior revenue Act, the date on which he first signed such schedule (if after May 28, 1928) shall be considered as the date of allowance of refund or credit in respect of such tax. ****** if (b) To Collectors and Officers. — The Commissioner, subject to regulations prescribed by the Secretary, is authorized to repay — (1) Collections recovered. — To any collector or deputy collector the full amount of such sums of money as may be recovered against htm in any court, for any' internal revenue taxes collected by him, with the cost and expense of suit ; also (2) Damages and costs. — All damages and costs recovered against any 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. 131 Sec. 3772. [Chapter 37.] Suits tor Rebtjnd. (a) Limitations. — (1) Claim. — No suit or proceeding shall be maintained in any court for the recovery of any Internal revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected until a claim for refund or credit has been duly filed with the Commissioner, according to the provisions of law in that regard, and the regulations of the Secretary established in pursuance thereof. (2) Time. — No such suit or proceeding shall be begun before 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 two years from the date of mail- ing by registered mail by the Commissioner to the taxpayer of a notice of the disallowance of the part of the claim to which such suit or proceeding relates. (3) Reconsidbration after mailing op NomoB. — Any considera- tion, reconsideration, or action by the Commissioner with respect to such claim following the mailing of a notice by registered mall of disallowance shall not operate to extend the period within which suit may be begun. This paragraph shall not operate (A) to bar a suit or proceeding in respect of a claim reopened prior to June 22, 1966, if such suit or proceeding was not barred under the law in effect prior to that date, or (B) to prevent the suspen- sion of the statute of limitations for filing suit under section 37r4(b)(2). (b) Protest or Duress. — Such suit or proceeding may be main- tained, whether or not such tax, penalty, or sum has been paid under protest or duress. ******* Sec. 177. Judicial Code (as amended by section 808 of the Revenue Act of 1936, 49 Stat. 1746 [U. S. C, 1940 edition. Title 28, section 284(b)]). ******* (b) In any judgment of any court rendered (whether against the United States, a collector or deputy collector of internal revenue, a former collector or deputy collector, or the personal representative in case of death) for any overpayment in respect of any internal-revenue tax, interest shall be allowed at the rate of 6 per centum per annum upon the amount of the overpayment, from the date of the payment or collec- tion thereof to a date preceding the date of the refund check by not more than thirty days, such date to be determined by the Commis- sioner of Internal Revenue. The Commissioner is hereby authorized to tender by check payment of any such judgment, with interest as herein provided, at any time after such judgment becomes final, whether or not a claim for such payment has been duly filed, and such tender shall stop the running of interest, whether or not such refund check is accepted by the judgment creditor. Sec. 3774. [Chapter 37.] Refunds After Periods of Limitation. A refund of any portion of an internal revenue tax (or any inter- est, penalty, additional amount, or addition to such tax) shall be considered erroneous — 244534°— 42 10 132 (a) ExpiBATioN or Peeiod fob Ftung CI-aim. — If made after the expiration of the period of limitation for filing claim therefor, unless within such period claim was filed ; or (b) DiSAIIOWANCE or ClAIM AND EXPIRATION OF PbBIOD FOB FlLINQ Stjit.- — In the case of a claim filed within the proper time and dis- allowed by the Commissioner if the refund was made after the expira- tion of the period of limitation for filing suit, unless — (1) within such period suit was begun by the taxpayer, or (2) within such period, the taxpayer and the Commissioner agreed in writing to suspend the running of the statute of limita- tions for filing suit from the date of the agreement to the date of final decision in one or more named cases then pending before the Board of Tax Appeals or the courts. If such agreement has been entered into, the running of such statute of limitations shall be suspended in accordance with the terms of the agreement. ******* Seo. 81.96 Claim for refund. — ^A claim for refund of estate tax, or for refund of interest or penalties, erroneously or illegally collected, should be made on the form prescribed by the Treasury Depart- ment (Form 843), and should be filed with the collector of internal revenue, although a claim will not be considered defective solely by reason of the fact that it is not made on the form or that it is filed with the Commissioner of Internal Eevenue. The claim must set forth in detail and under oath each ground upon which a refund is claimed, and facts sufficient to apprise the Commissioner of the exact basis thereof. Any claim which does not comply with the requirements of the preceding sentence will not be considered for any purpose as a claim for refund. Claims for the refund of estate tax imposed by the Internal Revenue Code must be filed within three years next after the pay- ment of the amount sought to be refunded. The amount of the refund shall not exceed the portion of the tax paid during the three year period immediately preceding the filing of the claim, or the filing of the petition with the Board of Tax Appeals. Upon receipt of any claim for refund, other than a claim for refund of an overpayment determined in accordance with a decision of the Board of Tax Appeals which has become final, the return of the estate will be reaudited and only the excess payment determined by the Commissioner as a result of considera- tion of the claim and reaudit will be refunded. If the reaudit reveals that the tax has been underpaid, the amount of such under- payment will be collected unless the collection thereof is barred. If a petition was filed with the Board of Tax Appeals for the redetermination of a deficiency, as provided by section 871(a), and the Board finds that the executor has made an overpayment of the tax, and further determines as part of its decision that any portion 133 of the overpayment was made within three years before the filing of the claim or the filing of the petition, whichever is earlier, or that such portion was paid after the mailing of the notice of deficiency, the amount of such portion of the overpayment will be refunded. Save in the case of a claim for refund of an overpayment computed in accordance with a decision of the Board of Tax Appeals which has become final, the burden of proof rests upon the claimant and all facts relied upon in support of the claim must be clearly set forth under oath. Every aflBidavit, argument, brief, or statement of facts, prepared or filed by an attorney or agent as argument or evidence in the matter of a protest, must have therein a statement signed by such attorney or agent showing whether or not he prepared such document and whether or not the attorney or agent knows of his own knowledge that the facts contained therein are true. In case there is a hearing, should the executor not appear in person, his rep- resentative who appears must present a properly executed power of attorney and be enrolled to practice before the Treasury Department. (See section 81.72.) (a) If the claim is made by an executor or administrator, a cer- tificate of the court must be furnished showing that the appointment remains in full force and effect. (6) If the executor or administrator has been discharged and no administrator de bonis non has been appointed and qualified, there should be submitted, in lieu of the certificate above mentioned, (1) a certified copy of the court order granting the discharge, and (2) a certified copy of the order of distribution, or, if such order does not fully disclose the identity of the person or persons entitled to receive any amount that may be refunded and the percentage oir proportion thereof to which each, if more than one, ia entitled, there should be submitted a certified copy of the decedent's will, if any, and such further proof as may be requisite to establish both the identity of such person or persons and the percentage or proportion of the amount sought to be refunded to which each, in case there are more than one, is entitled. If upon audit of the return filed by the executor the Commissioner determines that an overassessment has been made on account of the tax, a certificate of overassessment will be prepared and issued, even though claim for refund of such excess payment has not been filed. However, in such case the documentary evidence, as set out above, identifying the person or persons entitled to receive the refund will be required. A refund is erroneous if made after the expiration of the period of limitation for filing claim therefor, unless within such period claim was filed. In case a claim was filed for the refund of the 134 tax within the proper time and was disallowed by the Commissioner, and the period of limitation for filing suit by the executor had ex- pired prior to the making of the refund, a refund based upon such claim is erroneous unless suit was begun by the executor within the period of limitation for filing suit, or unless within such period the executor and the Commissioner agreed in writing to suspend the running of the statute of limitations for filing suit from the date of the agreement to the date of final decision of one or more named cases then pending before the Board of Tax Appeals or the courts. Erroneous refunds, as above described, may be recovered by suit brought in the name of the United States within two years after the making of such refunds. An erroneous refund, though not con- sidered as erroneous under section 3774, may be recovered in the same manner if the suit is begun within two years after the making of such refund. Erroneous refunds, whether erroneous under the provisions of section 3774 or otherwise, may be recovered by suit brought within five years of the making of the refund if it appears that any part of the refund was induced by fraud or misrepresenta- tion of a material fact. A claim for the payment of a judgment rendered against a col- lector of internal revenue representing Federal estate tax, penalties, or other sums collected in connection therewith should be made on Form 843 and filed with the Commissioner of Internal Revenue, "Washington, D. C. The claimant should state the names of all par- ties to the action, the date of its commencement, the date of the judg- ment, the court in which it was recovered, its amount, and the fact that the action related to Federal estate tax or interest or penalties in connection therewith. To the claim there should be annexed two certified copies of the final judgment, a certificate of probable cause (see section 989 of the Revised Statutes [U. S. C, 1940 edition. Title 28, section 842]) and, if refund is claimed, an itemized bill of the costs paid, receipted by the clerk or other proper officer of the court. A claim for the payment of a judgment rendered against the United States representing Federal estate tax, penalties, or other sums collected in connection therewith should be made on Form 848 in the manner prescribed in the preceding paragraph, except that — (a) a certificate of probable cause is not required, (i) the claims shall be executed in duplicate, and (c) in the case of a judgment rendered by the Court of Claims there may be submitted, in place of a certified copy of the final judgment, a certificate of the judgment issued by the clerk of the court and two copies of the court's opinion, if any was rendered.* 135 INTEREST ON REFUNDS Sec. 813. [Part II, Subchapter A.] Ckedits Against Tax. ******* (b) Estate, Succession, Legacy, and Inheritance Taxes. — * * * Refund based on the credit may (despite the provisions of sections 910 to 912, inclusive), be made if claim therefor is filed within the period above provided. Any such refund shall be made without interest. Sec. 3771. [Chapter 37.] Interest on Oveepayments. (a) Rate. — Interest shall be allowed and paid upon any overpayment in respect of any internal revenue tax at the rate of 6 per centum per annum. (b) Peeiod. — Such interest shall be allowed and paid as follows: (2) Refunds. — In the case of a refund, from the date of the overpayment to a date preceding the date of the refund check by not more than thirty days, such date to be determined by the Com- missioner, whether or not such refund check is accepted by the taxpayer after tender of such check to the taxpayer. The accept- ance of such check shall be without prejudice to any right of the taxpayer to claim any additional overpayment and Interest thereon. * T i(: * * * « Seo. 81.97 Payment of claims and interest. — Under the law, warrants in payment of claims allowed can only be drawn payable to the per- son or persons entitled to the proceeds, and consequently cannot be drawn payable to attorneys or agents. If the claimants are indebted to the United States for taxes, such taxes must be paid before the warrants are delivered. (U. S. C, 1940 edition, Title 31, section 227.) Upon the allowance of the claim for refund of any tax or penalty paid, unless the refund results from the allowance of a credit for payment of estate, inheritance, legacy, or succession taxes, the statute provides for the payment of interest upon the total amount of such refund at the rate of 6 per cent per annum from the date such tax or penalty was paid to a date preceding the date of the refund check by not more than 30 days, such date to be determined by the Com- missioner, whether or not such check is accepted by the taxpayer. Acceptance of a refund warrant or check will not prejudice the right of the claimant to have refunded to him any additional overpayment and interest thereon. If a refund is based upon the credit for pay- ment of estate, inheritance, legacy, or succession taxes allowed by subsection (b) of section 813 (see section 81.9), the refund will be made without interest.* POWER TO COMPROMISE OR REMIT PENALTIES Seo. 3761. [Chapter 36.] Compeomises. (a) Authorization. — The Commissioner, with the approval of the Secretary, or of the Under Secretary of the Treasury, or of an Assist- ant Secretary of the Treasury, may compromise any civil or criminal 136 case arising under the internal revenue laws prior to reference to the Department of Justice for prosecution or defense ; and the Attorney General may compromise any such case after reference to the Depart- ment of Justice for prosecution or defense. (b) Record. — Whenever a compromise is made by the Commissioner in any case there shall be placed on file in the office of the Commissioner the opinon of the General Counsel for the Department of the Treasury, or of the officer acting as such, with his reasons therefor, with a state- ment of — (1) The amount of tax assessed, (2) The amount of additional tax or penalty imposed by law in consequence of the neglect or delinquency of the person against whom the tax is assessed, and (3) The amount actually paid in accordance with the terms of the compromise. ******* Sec. 81.98 Compromise of taxes and penalties. — Offers in compro- mise should be filed with the appropriate collector of internal revenue. No offer in compromise of tax, interest, and ad valorem penalty col- lectible as part of the tax will be accepted unless there is a substan- tial doubt as to either liability or collectibility.* PERSONAL LIABILITY OF EXECUTOR, TRANSFEREE, TRUSTEE, AND BENEFICIARY Sec. 3467. Revised Statutes (as amended by section 518(a) of the Revenue Act of 1934 [U. S. C, 1940 edition. Title 31, section 192]). Every executor, administrator, or assignee, or other person, who pays, in whole or in part, any debt due by the person or estate' for whom or for which he acts before he satisfies and pays the debts due to the tJnited States from such person or estate, shall become answerable in his own person and estate to the extent of such payments for the debts so due to the United States, or for so much thereof as may remain due and unpaid. Sec. 827. [Part II, Subchapter A.] Lien fob Tax. ******* (b) Upon Pbopebtt of Teansfeeebx — If (1) except in the case of a bona fide sale for an adequate and full consideration in money or money's worth, the decedent makes a transfer, by trust or otherwise, of any property in contemplation of or intended to take effect in pos- session or enjoyment at or after his death, or makes a transfer, by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death (A) the possession or enjoyment of, or the right to the income from, the property, or (B) the right, either alone or in conjunction with any person, to des- ignate the persons who shall possess or enjoy the property or the income therefrom, or (2) if insurance passes under a contract executed by the decedent in favor of a specific beneficiary, and if in either case the tax in respect thereto is not paid when due, then the transferee, trustee, or beneficiary shall be personally liable for such tax, and such property, to the extent of the decedent's interest therein at the time 137 of such transfer, or to the extent of such beneficiary's interest under such contract of insurance, shall he subject to a like lien equal to the amount of such tax. Any part of such property sold by such trans- feree or trustee to a bona fide purchaser for an adequate and full consideration in money or money's worth shall be divested of the lien and a like lien shall then attach to all the property of such transferee or trustee, except any part sold to a bona fide purchaser for an ade- quate and full consideration in money or money's worth. * * Ik He * 9): 4 Sec. 81.99 Personal liability. — If the executor, before paying all the estate tax, pays, in whole or in part, any debt due by the decedent or the decedent's estate, or distributes any portion of the estate, he is personally liable, to the extent of such payment or distribution, for so much of the estate tax as remains due and unpaid. The term "executor" includes every person in actual or construc- tive possession of any property of the decedent if there is no ap- pointed, qualified, and acting personal representative within the United States. For provisions of the statute and regulations pre- scribing conditions authorizing release of the executor from his per- sonal liability for payment of the tax, see section 825 and section 81.71. If the tax in respect of a transfer of property includible in the gross estate under the provisions of section 811(c), or in respect of insurance receivable by a beneficiary other than the estate and in- cludible in the gross estate under the provisions of section 811(g), is not paid wh'en due, then the transferee, trustee, or beneficiary shall be personally liable for such tax.* EXAMINATION OF RECORDS AND TAKING OF TESTIMONY Seo. 3614. [Chapter 34.] Examination or Books and Witnesses. (a) To Deteemine Liability of the Taxpayer. — The Commissioner, for the purpose of ascertaining the correctness of any return or for the purpose of making a return where none has been made, is author- ized, by any officer or employee of the Bureau of Internal Revenue, including the field service, designated 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 em- ployee of such person, or the attendance of any other person having knowledge in the premises, and may take his testimony with refer- ence to the matter required by law to be included in such return, with power to administer oaths to such person or, persons. (b) To Determine Liability of a Transferee. — The Commissioner, for the purpose of determining the liability at law or in equity of a transferee of the property of any person with respect to any Federal taxes imposed upon such person, is hereby authorized, by any officer or employee of the Bureau of Internal Revenue, including the field service, designated by him for that purpose, to examine any books, papers, records, or memoranda bearing upon such liability, and may 138 require the attendance of the transferor or transferee, 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 reference to the matter, with power to administer oaths to such person or persons. Sec. 3633. [Chapter 34.] jTrEisDicnoif of Disbrict Cottrts. (a) To Enfobce Summons. — If any person Is summoned under the internal revenue laws to appear, to testify, or to produce books, papers, or other data, the district court of the United States for the district in which such person resides shall have jurisdiction by ap- propriate process to compel such attendance, testimony, or produc- tion of books, papers, or other data. ******* Sec. 3800. [Chapter 38.] Jurisdiction of District Courts to Issue Orders, Processes, and Judgments. The district courts of the United States at the instance of the United States shall have such jurisdiction to make and issue, both in actions at law and suits in equity, writs and orders of injunction, and of ne exeat republlca, orders appointing receivers, and such other orders and process, and to render such judgments and decrees, grant- ing in proper cases both legal and equitable relief together, as may be necessary or appropriate for the enforcement of the internal revenue laws. 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 such laws. Sec. 81.100 Securing evidence; taking testimony. — ^In order to as- certain the correctness of a return, or to make a return if none has been made, the Commissioner has power to require the attendance, and to take the testimony, of the person rendering the return, or any officer or employee of such person, or any other person having knowledge in the premises. Such persons may be required to pro- duce any relevant book, paper, or other record. The Commissioner also is authorized, for the purpose of determining the liability at law or in equity of a transferee of the property of any person with respect to any Federal taxes imposed upon such person, to examine any books, papers, records, or memoranda bearing upon such liability and may require the attendance of the transferor or transferee, or any officer or employee of such person and take his testimony with reference to the matter. The Commissioner has the authority to administer oaths to the persons required to testify. The power and authority herein described may be exercised by any officer or em- ployee of the Bureau of Internal Kevenue, including the field force, designated by the Commissioner for that purpose. (For penalties, see section 81.90.)* Sec. 81.101 Power to compel compliance. — ^If any person is sum- moned to appear and testify, or to produce books, papers, or other data, the District Court of the United States for the district in 139 which such person resides has power to compel the giving of the testimony, the production of the books, papers, or data, and to issue any appropriate process, writ, or order.* REMEDIES FOR COLLECTION AND PROCEEDINGS FOR ENFORC- ING LIABILITY OF A TRANSFEREE OR FIDUCIARY Sec. 822. [Part II, Subchapter A.] Payment of Tax. (a) Time of Payment. — ******* (2) Extension or time. — Where the Commissioner finds that the payment on the due date of any part of the amount determined by the executor as the tax would impose undue hardship upon the estate, the Commissioner may extend the time for payment of any such part * * *. In such case the amount in respect of which the extension is granted shall be paid on or before the date of the expiration of the period of extension, and the running of the statute of limitations for assessment and collection, as provided in section 874, shall be suspended for the period of any such extension. ******* Sec. 871. [Part IV, Subchapter A.] Procedubb in Geneeal. ******* (h) Extension op Time foe Payment of Dbificienoy. — Where it is shown to the satisfaction of the Commissioner that the payment of a deficiency upon the date prescribed for the payment thereof will result in undue hardship to the estate, the Commissioner, under regula- tions prescribed by the Commissioner, with the approval of the Secretary (except where the deficiency is due to negligence, to intentional disre- gard of rules and regulations, or to fraud with intent to evade tax), may grant an extension for the payment of such deficiency * * *. In such case the» running of the statute of limitations for assessment and collection, as provided In section 874, shall be suspended for the period of any such extension. Sec. 874. [Part IV, Subchapter A.] Pekiod or Limitation Upon Assess- ment AND COIiECTION. (a) Geneeal Rule. — ^Except as provided in subsection (b) the amount of estate taxes imposed by this subchapter shall be assessed within three years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of three years after the return was filed. (b) Exceptions. — (1) False eeh'tjen ob no eetubn. — In the case of a false or fraud- ulent return with intent to evade tax or of a failure to file a return the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time. (2) CoixBcTiON AFTEB ASSESSMENT. — Where the assessment of any tax imposed by this subchapter has been made within the statutory period of limitation properly applicable thereto, such tax may be -collected by distraint or by a proceeding in court, but only if begun (1) within six years after the assessment of the tax, or 140 (2) prior to the expiration of any period for collection agreed upon in writing by the Commissioner and the executor. Sec. 900. [Part IV, Subchapter A.] TBANSFsatEED Assets. (a) Method of Coixection. — The amounts of the following liabilities shall, except as hereinafter in this section provided, be assessed, col- lected, and paid in the same manner and subject to the same provisions and limitations as in the case of a deficiency in a tax imposed by this subchapter (including the provisions in case of delinquency In payment after notice and demand, the provisions authorizing distraint and pro- ceedings in court for collection, and the provisions prohibiting claims and suits for refunds) : (1) TBANSFEBE2:e. — The liability, at law or In equity, of a trans- feree of property of a decedent. In respect of the tax (Including interest, additional amounts, and additions to the tax provided by law) imposed by this subchapter. (2) Fiduciaries. — The liability of a fiduciary under section 3467 of the Revised Statutes (U. S. C, Title 31, § 192) in respect of the payment of any such tax from the estate of the decedent. Any such liability may be either as to the amount of tax shown on the return or as to any deficiency In tax. (b) Pehod or Limitation. — The period of limitation for assessment of any such liability of a transferee or fiduciary shall be as follows : (1) Within one year after the expiration of the period of limi- tation for assessment against the executor. (2) If a court proceeding against the executor for the collection of the tax has been begun within the period provided in para- graph (1) — then within one year after return of execution in such proceeding. (c) Suspension of Running of Statute op Limitations. — The run- ning of the statute of limitations, upon the assessment of the liability of a transferee or fiduciary shall, after the mailing of the notice under section 871(a) to the transferee or fiduciary, be suspended for the period during which the Commissioner is prohibited from making the assess- ment in respect of the liability of the transferee or fiduciary (and In any event, if a proceeding in respect of the liability is placed on the docket of the Board, until the decision of the Board becomes final), and for 60 days thereafter. (d) Prohibition op Suits to Restbain Bnpobcbment op Liabiutt OP Transferee or Fiduciaey. — No suit shall be maintained in any court for the purpose of restraining the assessment or collection of (1) the amount of the liability, at law or In equity, of a transferee of property of a taxpayer In respect of any estate tax, or (2) the amount of the liability of a fiduciary under section 3467 of the Revised Statutes (U. S. C, Title 3i, § 192) in respect of any such tax. (e) Definition op "Transferee". — ^As used in this section, the term "transferee" Includes heir, legatee, devisee, and distributee. Sec. 3653. [Chapter 36.] Prohibition op Suits to Restrain Assessment OB Coij:.ection. (a) Tax. — Except as provided in sections 272(a), 871(a) and 1012(a), no suit for the purpose of restraining the assessment or collection of any tax shall be maintained In any court. 141 (b) LiABrLTTT OF Transfekek oe Fiduciaet. — No suit shall be main- tained in any court for the purpose of restraining the assessment or collection of (1) the amount of the liability, at law or in equity, of a transferee of property of a taxpayer in respect of any income, war- proflts, excess-profits, or estate tax, (2) the amount of the liability, at law or in equity, of a transferee of property of a donor In respect of any gift tax, or (3) the amount of the liability of a fiduciary under section 3467 of the Revised Statutes (U. S. O., Title 31, § 192) in respect of any such tax. Sec. 937. [Subchapter B.] Assessment, Coliixttion, and Payment of Tax. Except as provided in section 936, the tax imposed by section 935 shall be assessed, collected, and paid, in the same manner, and shall be subject to the same provisions of law (including penalties), as the tax imposed by subchapter A, * * *. Seo. 81.102 Remedies for collection and administrative proceedings for enforcing liability of a transferee or fiduciary. — (a) Remedies for collecy tion. — Three remedies are provided for the collection of the estate tax imposed by the Internal Revenue Code: (1) The collector may issue warrant of distraint authorizing the seizure and sale of any or all of the assets of the estate. (See section 3690 of the Internal Revenue Code.) (2) The collector may commence in any court of the United States appropriate proceedings, in the name of the United States, to subject the property of the decedent to sale under the judgment or decree of the court. (3) The personal liability of the executor and of certain transferees, trustees, and beneficiaries, set forth in section 81.99, may be enforced by any appropriate action. The period of limitation, except in case of fraud or in case no re- turn was filed, for collection of the tax by distraint or suit is six years after assessment if assessment of the tax was made within the statutory period of limitation or prior to the expiration of any period for collection agreed upon in writing by the Commissioner and the executor. If an extension of time for payment of tax is granted under the provisions of section 822(a)(2) or section 871(h), the running of the statute of limitations on collection by distraint or suit is suspended for the period of such extension. (&) Adndrdstrative proceedings for enforcing liability of a troms- feree or fidkudary. — The amount for which a transferee of the property of a decedent is liable, at law or in equity, and the amount of the personal liability of a fiduciary under section 3467 of the Revised Statutes, as amended, in respect of any estate tax imposed by the Internal Revenue Code, whether shown on the return of the executor or determined as a deficiency in the tax, shall be assessed against such transferee or such fiduciary, as the case may be, and collected and paid, in the same manner and subject to the same provisions and limita- tions as in the casfr of a deficiency, except as hereinafter provided. 142 The term "transferee" as used in section 900 includes an heir, legatee, devisee, and distributee of an estate of a deceased person. The period of limitation for assessment of the liability of a trans- feree or of a fiduciary is as follows: (1) Within one year after the expiration of the period of limita- tion for assessment against the executor. (See sections 871, 872, 874, and 876, and section 81.74.) (2) If a court proceeding against the executor for the collection of the tax has been begun within the period of limitation for the bringing of such proceeding, then within one year after the return oi execution in such proceeding. If a notice of the liability of a transferee, or the liability of a fiduciary, has been mailed to such transferee or to such fiduciary under the provisions of section 871(a) (see section 81.73), then the running of the statute of limitations shall be suspended for the period in which the Commissioner is prohibited from making the assessment (and in any event, if a proceeding in respect of the liability is placed on the docket of the Board, until the decision of the Board becomes final), and for 60 days thereafter. If assessments have been made against several persons covering the same tax liability, and payment of such liability by one or more such persons has been duly certified to the Commissioner, the Commis- sioner, for the purpose of temporarily relieving the collector from liability under section 3950 of the Internal Eevenue Code, may authorize him to take credit temporarily with respect to the assess- ments not specifically paid. Such action, however, shall not consti- tute an abatement and shall not discharge the liability of the persons concerned.* RECORDS, STATEMENTS, AND SPECIAL RETURNS Sec. 821. [Part II, Subchapter A.] Retubns. * * It * Ht * * (d) Records, Statements, and Retuens. — ^Every person liable to any tax imposed by this subchapter, or for the collection thereof, shall keep such records, render under oath such statements, make such returns, and comply with such rules and regulations, as the Commis- sioner, with the approval of the Secretary, may from time to time prescribe. ******* Sec. 3603. [Chapter 34.] Notice Reqxjieing Recoeds, Statements, and Special Retubns. Whenever in the judgment of the Commissioner necessary he may require any person, by notice served upon him, to make a return, render under oath such statements, or keep such records as the Com- missioner deems sufficient to show whether or not such person is liable to tax. 143 Sec. 3632. [Chapter 34.] Authority to Administer Oaths, Take Testi- mony, AND Oektify. (a) iNTiaiNAi. Eevenxie Peesonnkl. — (1) Peesons in charge op administration of internal revenue LAWS generally. — Every collector, deputy collector, internal reve- nue agent, and internal revenue officer assigned to duty under an internal revenue agent, is authorized 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, * * ^t » Hi * * (b) Others. — ^Any oath or affirmation required or authorized by any internal revenue law or by any regulations made under authority thereof may be administered by any person authorized to administer oaths for general purposes by the law of the United States, or of any State, Territory, or possession of the United States, or of the District of Columbia, wherein such oath or affirmation is administered, or by any consular officer of the United States. This subsection shall not be construed as an exclusive enumeration of the persons who may administer such oaths or affirmations. Sec. 81.103 Executor's duty to keep records. — It is the duty of the executor to keep such records as the Commissioner may require. Executors are required to keep such complete and detailed records of the affairs of the estate as will enable the Commissioner to deter- mine accurately the amount of the tax liability.* Sec. 81.104 Executor's duty to render statements. — It is the duty of the executor not only to make the formal return, but also to render any other sworn statement which the Commissioner may require for the purpose of determining whether a tax liability exists and, if so, the extent thereof.* ESTATES ADMINISTERED IN THE UNITED STATES COURT FOR CHINA Seo. 851. [Part II, Subchapter A.] Citizens with Estates in China. The term "resident" as used in this subchapter includes a citizen of the United States with respect to whose property any probate or ad- ministration proceedings are had in the United States Court for China. Sec. 920. [Part IV, Subchapter A.] Payment op Tax. In the case of a resident within the meaning of section 851 — (a) To Clerk of United States Court por China. — Where no part of the gross estate of the decedent is situated in the United States at the time of his death, the total amount of tax due under this subchapter shall be paid to or collected by the clerk of the United States Court for China ; (b) To Collector. — ^Where any part of the gross estate of the de- cedent is situated in the United States at the time of his death, the tax due under this subchapter shall be paid to or collected by the collector 144 of the district in which is situated the part of the gross estate in the United States, or, if such part is situated in more than one district, then the collector of such district as may be designated by the Com- missiotner. Sec. 921. [Part IV, Subchapter A.] Authoeitt of Ci-ebk: or United States Cottbt foe China To Act as Coixectob. For the purpose of section 920 the clerk of the United States Court for China shall be a collector for the territorial jurisdiction of such court, and taxes shall be collected by and paid to him in the same manner and subject to the same provisions of law, including penalties, as the taxes collected by and paid to a collector in the United States. NOTICE OF PERSONS ACTING AS FIDUCIARY Seo. 901. [Part IV, Subchapter A.] Notice of Fiduciabt Relationship. (a) Fiduciary of Decedent. — ^Upon notice to the Commissioner that any person is acting as executor, such person shall assume the powers, rights, duties, and privileges of an executor in i-espect of the tax im- posed by this subchapter until notice is given that such person is no longer acting as executor. (b) FiDucaAET OF Transferee. — Upon notice to the Commissioner that any person is acting in a fiduciary capacity for a person subject to the liability specified in section 900, the fiduciary shall assume on behalf of such person the powers, rights, duties, and privileges of such person under such section (except that the liability shall be collected from the estate of such person), until notice is given that the fiduciary capacity has terminated. (c) Manner of Notice. — ^Notice under subsection (a) or (b) shall be given in accordance with regulations prescribed by the Commis- sioner with the approval of the Secretary. (d) Address foe Notice of Ijiabiijty. — In the absence of any notice to the Commissioner under subsection (a) or (b), notice under this subchapter of a deficiency or other liability, if addressed in the name of the decedent or other person subject to liability and mailed to his last known address, shall be sufficient for the purposes of this sub- chapter. Sec. 81.105. Notice of persons acting as fiduciary. — The "notice to the Commissioner" provided for in section 901 shall be in writing signed by the fiduciary and filed with the Commissioner, setting forth the name and address of the person for whom he is acting in a fiduciary capacity and also the nature of the liability of such person, accom- panied by satisfactory evidence of his authority to act for such person in the fiduciary capacity. If the fiduciary capacity exists by order of court, a certified copy of the order of the court may be regarded as such satisfactory evidence. The written notice to the Commissioner need not be accompanied by evidence of the authority of the fiduciary to act if there is already on file with the Commissioner satisfactory evidence of the authority to act. Any such written notice which has 145 been filed with the Commissioner since the enactment of the Inteitial Revenue Code shall be considered as sufficient notice to the Com- missioner within the meaning of section 901 if and when there is or has been filed with the Commissioner the satisfactory evidence herein provided for. When the fiduciary capacity has terminated, the fiduciary, in order to be relieved of any further duty of liability as such, must file with the Commissioner written notice that the fiduciary capacity has terminated as to him, accompanied by satisfactory evi- dence of the termination of the fiduciary capacity. Such written notice should state the name and address of the person, if any, who has been substituted as fiduciary. This section, made under the provisions of section 901, shall not be taken to abridge in any way the powers and duties of fiduciaries provided for in other sections of the Internal Revenue Code.* MISCELLANEOUS PROVISIONS Sec. 840. [Part II, Subchapter A.] Other Laws Applioabij:. All administrative, special, or stamp provisions of law, including the law relating to the assessment of taxes, so far as applicable, shall be extended to and made a part of this subchapter. Sec. 3791. [Chapter 38.] Rules and Regulations. (a) AUTHOaiZATION. — (1) In general. — * * * the Commissioner, with the approval Of the Secretary, shall prescribe and publish all needful rules and regulations for the enforcement of this title. (2) In case op change in law. — The Commissioner may make all such regulations, not otherwise provided for, as may have be- come necessary by reason of any alteration of law in relation to internal revenue. (b) Retboactivity of Regulations or Rulings. — The Secretary, or the Commissioner with the approval of the Secretary, may prescribe the extent, if any, to which any ruling, regulation, or Treasury Decision, relating to the internal revenue laws, shall be applied without retroactive effect. Sec. 3802. [Chapter 38.] Sep arabilitt Clause. If any provision of this title, or the application thereof to any person or circumstances, is held invalid, the remainder of the title, and the application of such provisions to other persons or circumstances, shall not be afEected thereby. In pursuance of the Internal Revenue Code, approved February 10, 1939, and applicable only to estate taxes on estates of decedents dying after that date, the foregoing regulations are hereby pre- 146 scribed and Regulations 80 (193Y Edition), as amended by Treasury decisions relating thereto, insofar as they relate or have been made applicable to the estate taxes imposed by the Internal Revenue Code, are hereby superseded. NoEMAN D. Cann, Acting Commissioner of Internal Revenue. Approved : February 18, 1942. John L. Suluvan, Acting Secretary of the Treasury. (Filed with the Division of the Federal Register February 23, 1942, 11 : 54 a. m.) APPENDIX INSPECTION OF RETURNS Sec. 55. [Chapter I.] Pubuccitt of Retukns. (a) PuBuc Record ano Inspection. — ******* (2) (as amended by section 507 of the Second Revenue Act of 1940) And all returns made under this chapter, subchapters A, B, I>, and E of chapter 2, subchapter B of chapter 3, chapters 4, 7, 12, and 21, sub- chapter A of chapter 29, and subchapters A and B of chapter 30, shall constitute public records and shall be open to public examination and inspection to such extent as shall be authorized in rules and regulations promulgated by the President. (3) Whenever a return is open to the inspection of any person a certified copy thereof shall, upon request, be furnished to such person under rules and regulations prescribed by the Commissioner with the approval of the Secretary. The Commissioner may prescribe a reasonable fee for furnish- ing such copy. ******* (d) Inspection bt Committees op Congress — (1) Committees on ways and means and finance. — (A) The Secretary and any officer or employee of the Treasury Department, upon request from the Committee on Ways and Means of the House of Representatives, the Committee on Finance of the Sen- ate, or a select committee of the Senate or House specially authorized to investigate returns by a resolution of the Senate or House, or a joint committee so authorized by concurrent resolution, shall furnish such committee sitting in executive session with any data of any character contained in or shown by any return. (B) Any such committee shall have the right, acting directly as a committee, or by or through such examiners or agents as it may desig- nate or appoint, to inspect any or all of the returns at such times and in such manner as it may" determine. (C) Any relevant or useful information thus obtained may be sub- mitted by the committee obtaining it to the Senate or the House, or to both the Senate and the House, as the case may be. (2) Joint committis; on intbknal revenue taxation. — The Joint Com- mittee on Internal Revenue Taxation shall have the same right to obtain data and to inspect returns as the Committee on Ways and Means or the Committee on Mnance, and to submit any relevant or useful information thus obtained to the Senate, the House of Representatives, the Committee on Ways and Means, or the Committee on Finance. The Committee on Ways and Means or the Committee on Finance may submit such informa- tion to the House or to the Senate, or to both the House and the Senate, as the case may be. ******* 244534° — 42 11 (147) 148 TREASURY DECISION 4929, AS AMENDED [Title 26 — Internal Revenue — Code of Federal Regulations (1939 Sup.). — Chapter I, Subchapter E, Part 458, Subpart F] Regulations governing the inspection of certain returns under the Internal Revenue Code.^ Teeasxibt Depabtment, Washington, D. C. To Collectors of Internal Revenue and Others Concerned: * « * ' * * * * Subpart C. — Estate and Gut Tax Rbtitbns Under the Internai Rbventoe Code Sec. 4630.20. Generai. — Estate tax returns and notices and gift tax returns, filed under the Internal Revenue Code, shall be treated as privileged com- munications and shall not be Inspected nor their contents disclosed except as hereinafter provided. Sec 463C.21. Application for inspection. — Upon application to the collector, internal revenue agent in charge, or Commissioner, an estate tax return or notice may be inspected by the executor, or his successor in office, or by his duly authorized attorney in fact. Upon like application a gift tax return may be Inspected by the donor or his duly authorized attorney in fact. Sac. 463C.22. Disclosures for investigation purposes. — ^An internal revenue officer engaged in an official investigation of an estate tax or gift tax liability may disclose the returned value of any item or the amount of any specific deduction, or other limited information, if such disclosure is necessary in order to verify the same or to arrive at a correct determination of the tax. This right of disclosure, however, is limited to the purposes of the investigation, and in no case extends to such information as the amount of the estate, the amount of tax, or other general data. Sec. 463C.23. Inspection 'by State officials. — A return or notice may be ex- hibited, or information contained therein may be disclosed, to an officer of any State, for official use in connection with an estate, inheritance, legacy, succes- sion, gift, or other tax of the State, provided a like cooperation is given by the State to the Commissioner or his representatives for use in the administration of the Federal tax laws. Such officer may also be permitted to inspect schedules, lists, and other statements designed to be supplemental to or to become a part of, the original return, and other records and reports which contain information included or required by statute to be included in the return. Sec 463C.24. Inspection discretionary with Commissioner in certain oases. — If any other person has a material Interest in ascertaining any fact disclosed by the return, or in obtaining information as to the payment of the tax, he may make a written application to the Commissioner for such information, setting forth the nature of his interest and the purpose of the application. Thereupon, the Commissioner may permit an inspection of, or furnish a copy of the return, or may furnish such information as he deems advisable. Subpart D. — General Provisions Sec. 463C.30. Scope. — The following provisions, unless otherwise stated,- are applicable to all returns referred to in Subparts B and O of these regulations. 'Sections 463C.0 to 463C.38 are issued under authority contained In sees. 55(a), 508, 603, 702(a), 1204, and 1604(e) of the Internal Revenue Code (53 Stat. 29, 111, 116, 171, 186). 149 Sec. 463C.31. Permission, to inspect.— The Commissioner, upon written appli- cation setting forth fully the reason for the request, may grant permission for the inspection of returns in accordance with these regulations. Sec. 463C.32. Treasury Department offloials and employees. — The officers and employees of the Treasury Department whose official duties require inspection of returns may inspect any such returns without making such written applica- tion. If the head of a bureau or office in the Treasury Department, not a part of the Internal Revenue Bureau, desires to inspect, or to have an employee in his bureau or office inspect a return, in connection with some matter officially before him, for reasons other than tax administration purposes, the inspection may, in the discretion of the Secretary, be permitted upon written application to him by the head of such bureau or office, showing in detail why the inspec- tion is desired. Sec. 4630.33. (a) Inspection ty Vranch of Government other than Treasury Department. — Except as provided in section 4630.34, if the head of an executive department (other than the Treasury Department), or of any other establish- ment of the United States Government, desires to inspect or to have some other officer or employee of his branch of the service inspect a return in connection with some matter officially before him, the inspection may, in the discretion of the Secretary of the Treasury, be permitted upon written application to him by the head of such executive department or other Government establishment. The application shall be signed by such head and shall show in detail why the inspection is desired, the name and address of the taxpayer who made the return, and the name and official designation of the person it is desired shall inspect the return. The information obtained under this section and section 4630.32 may be used as evidence in any proceeding, conducted by or before any department or establishment of the United States, or to which the United States is a party. « )i( * * * * * Sec. 4630.34. Inspection iy Government attorneys. — Any return shall be open to inspection by a United States attorney or by an attorney of the Department of Justice where necessary in the performance of his official duties. The re- quest for inspection shall be in writing and, except as provided In section 4630.37, shall be addressed to the Commissioner, and shall state the purpose for which inspection is desired. It may be signed by the Attorney General, the Assistant to the Attorney General, an Assistant Attorney General, or a United States attorney. Sec. 4630.35. Information returns. — Information returns, schedules, lists, and other statements designed to be supplemental to, or to become a part of, the returns shall be subject to the same rules and regulations as to inspection as are the returns themselves. In any case where inspection of the return is authorized by these regulations, the Commissioner may, in his discretion, permit inspection of other records and reports Which contain information included or required by statute to be included in the return. Sec. 4630.36. Place of inspection. — Generally, returns may be inspected only in the Bureau of Internal Revenue, Washington, D. 0., unless such returns are in the custody of a collector of internal revenue or internal revenue agent in charge or the head of a field division of the Technical Staff, in which event the returns may be Inspected in the office of such collector or agent in charge or head of division, but only in the presence of an Internal revenue officer, designated by the collector or agent or head of division for that purpose. 150 Sec. 4630.37. Applicatians for inspection. — ^Except as provided in section 4630.33, and as hereinafter provided, all applications for ijermission to inspect returns must be made in writing to the Commissioner of Internal Revenue. When a return is in the custody of a collector of internal revenue or internal revenue agent in charge or the head of a field division of the Technical Staff, such collector or revenue agent in charge or head of division, upon written application to him, is authorized to permit the inspection of such return by a United States attorney, or an attorney in the Department of Justice, or by the taxpayer or his duly authorized attorney in fact, in accordance with these regulations. * ili :ri if * * * Hekbebt B. Gaston, Acting Secretary of the Treasury. Approved : August 28, 1939. Franklin D. Roosevelt, The White Bouse. (Filed with the Division of the Federal Register August 29, 1939, 3:23 p. m.) BXBCUTIVH OBUEB NO. 8230 — ^AtTTHORlZING THE INSPECTION OF CERTAIN EBTUBNS MADE UNDER THE INTERNAL REVENUE CODE By virtue of the authority vested in me by section 55 (a) of the Internal Revenue Code (53 Stat. 29), it is hereby ordered that the following-designated returns made under the said Code shall be open to inspection in accordance and upon compliance with the rules and regulations prescribed by the Secretary of the Treasury in the Treasury Decision relating to the inspection of such returns, approved by me this date : Income (including income of personal holding companies and unjust enrich- ment income), excess-profits, capital stock, estate, and gift tax returns, and returns of employment tax on employers under Subchapter C of Chapter 9 of the Internal Revenue Code. Franklin D. Roosevelt. The White House, August 28, 1939. (Filed with the Division of the Federal Register August 29, 1939, 3:23 p. m.) TREASURY DECISION 4945 [Title 26 — Internal Rerenue — Code of Federal Regulations (1939 Sup.). — Chapter I, Subchapter B, Part 458, Subpart H] Use of original returns open to inspection in accordance with Treasury Decision 4929 ; furnishing of copies of returns ; and in- spection of returns of corporations by State oflScers and share- holders.' 1 Sections 463D.0 to 463D.9 are issued under authority contained in sections 55, 62, 508, 603, 702 (a), 1204, 1207, 1604 (c), and 3791 of the Internal Revenue Code (53 Stat. 29, 32, 111, 116, 171, 186, 467). 161 Tbeastjby Dbpaetment, Ofitcb of Commissioner of Intbenal Revenxte, Washington, D. G. Collectors of Internal Revenue and Others Concerned: ******* Sec. 463D.0. Introductory.— * * * Pursuant to sections 55 * * * and 3791 of the Internal Revenue Code, the following rules and regulations are hereby prescribed with respect to * * * the furnishing of copies of, returns open to inspection in accordance with Treasury Decision 4929, * * *. *'****•• Genekax Provisions ******* Sec. 463D.5. Furnishing of copies of returns. — ^A copy of a return may be furnished to any person who is entitled to inspect such return upon written application therefor and the submission of evidence satisfactory to the Com- missioner of his right to receive the same, except that if a return is in the custody of a collector or an internal revenue agent in charge or the head of a field division of the Technical Staff, such collector or agent in charge or head of division may furnish a copy of such return to a United States attorney or an attorney of the Department of Justice, or to the taxpayer or his duly authorized attorney in fact, in accordance with these regulations. Certified copies will be furnished only upon specific request therefor sent to the Commis- sioner at Washington. The Commissioner may prescribe a reasonable fee for furnishing copies of returns. ******* Sec. 463D.8. Terms used. — ^Any word or term used in these regulations which is defined in any chapter of the Internal Revenue Code shall be given the defini- tion contained in the chapter which is applicable with respect to the particular return made. Sec. 463D.9. Prior regulations under Code superseded. — This Treasury de- cision supersedes Treasury Decision 4878, approved January 4, 1939, only in so far as such Treasury decision was made applicable by Treasury Decision 4885, approved February 11, 1939, to returns made under the Internal Revenue Code. GCT T. Hblverinq, Commissioner of Internal Revenue. Approved : September 20, 1939. John W. Hanes, Acting Secretary of the Treasury. (Filed with the Division of the Federal Register September 22, 1939, 12 : 53 p. m.) 152 PAYMENT OF TAX WITH UNITED STATES TREASURY NOTES TREASURY DECISION 5109 [Title 26 — Interntd Rerenue — Code of Federal Regulations (1942 Sup.). — Chapter I, Subchapter E, Part 471] Regulations governing the acceptance of Treasury notes of Tax Series A-1943, B-1943, A-1944, and B-1944 In payment of income, estate, and gift taxes. TBEAStlBY DbTARTMENT, Oi^ioB OP Commissioner or iNTBstNAi, REVE^sruB, Washington, D. C. '^0 Collectors of Internal Revenue and Others Concerned: Sec. 471.1. Acceptance of Treasury notes of Tax Series A-1943, B-194S, A-1944, amd B-1944 in payment of income, estate, and gift taxes. — Notes of the United States designated as Treasury notes of Tax Series A-1943, Treasury notes of Tax Series B-1943, Treasury notes of Tax Series A-1944, and Treasury notes of Tax Series B-1944 may be accepted in payment of income taxes (current and back personal and corporation taxes, and excess-profits taxes) and estate and gift taxes (current and back), at par and interest accrued to the month. Inclusive, in which presented (but no accrual beyond the maturity date). Collectors of Internal revenue are authorized and directed to accept the notes if at least one full calendar month intervenes betvceen the month of acceptance and the month of purchase (as shown by the issuing agent's dating stamp on each note). For example, a note of Tax Series A-1944 purchased in January, 1942, may be accepted in March, 1942, but such a note purchased in February, 1942, may not be accepted until April, 1942. The notes may be accepted only in payment of income, estate, and gift taxes (current and back) due from the original purchaser thereof or his estate. The notes shall be in the name of the taxpayer (individual, corpora- tion, or other entity) and may be presented for tax payment by the taxpayer, his agent, or his estate. Not more than $1,200 in principal amount of notes of Tax Series A-1943, or of Tax Series A-1944, or of the two in combination, plus the amount of the accrued Interest thereon, may be accepted on account of any one taxpayer's liability for income taxes (Including excess-profits taxes), or gift taxes, for any taxable year or on account of any one taxpayer's liability for estate tax ; but in the case of the income tax this limitation shall apply sepa- rately to husband and wife on a joint return and also to an owner before death and to his estate for the balance of the same year. Collectors of Internal revenue shall not in any case allow credit to a taxpayer on account of notes, or accept notes, for an amount greater than their principal amount plus accrued Interest, nor shall notes be accepted in an amount (includ- ing accrued interest) greater than the unpaid liability of the taxpayer. The notes shall be forwarded to the collector of internal revenue with whom the tax return is filed, at the risk and expense of the taxpayer, and, for the taxpayer's protection, should be forwarded by registered mail, if not presented in person. (Sees. 3657 and 3791 of the Internal Revenue Code (53 Stat, 447, 467, 26 U. S. C, 1940 ed., 3657, 3791) and sec. 18 of the Second Liberty Bond Act of 1917, as amended (40 Stat., 1309, 31 U. S. C, 1940 ed., 753).) 153 Sec. 471.2. Proeedtire ivith respect to Treasury notes of Tom Series A-194S, B-1943, A-19U, and B-iS^^.— Deposits of Treasury notes of Tax Series A-1943, B-1943, A-1944, and B-1944 received in payment of income, estate, and gift taxes shall be made by the collector of internal revenue in a Federal reserve bank or a branch Federal reserve bank. Prior to deposit the collector of internal revenue will certify on the reverse side of the notes that they were received in payment of income, estate, or gift tax, as the case may be, and will show in the indorsement stamp the date of deposit. (Sees. 3657 and 3791 of the Internal Revenue Code (53 Stat. 447, 467, 26 U. S. C, 1940 ed., 3657, 3791) and sec. 18 of the Second Liberty Bond Act of 1917, as amended (40 Stat., 1309, 31 V. S. C, 1940 ed., 753).) Sbx3. 471.3. Prior Treasury decision superseded. — Treasury Decision 5064 [I. R. B. 1941-32, 4] is hereby superseded. (Sees. 3657 and 3791 of the Internal Revenue Code (53 Stat., 447, 467, 26 U. S. C, 1940 ed., 3657, 3791) and sec. 18 of the Second Liberty Bond Act of 1917, as amended (40 Stat. 1309, 31 U. S. C, 1940 ed., 753).) Gut T. Helveeing, Commissioner of Internal Revenue. Approved January 16, 1942. D. W. Beix, Acting Secretary of the Treasury. (Filed with the Division of the Federal Register January 17, 1942, 12: 48 p. m.) STATUTES OF LIMITATIONS AS AFFECTED BY PERIOD OF MILITARY SERVICE Skc. 205. (Soldiers' and Sailors' Civil Relief Act of 1940.) The period of military service shall not be included in computing any period now or hereafter to be limited by any law for the bringing of any action by or against any person in military service or by or against his heirs, executors, admin- istrators, or assigns, whether such cause of action shall have accrued prior to or during the period of such service. (Oct. 17, 1940, c. 888, sec. 205, 54 Stat. 1181.) LIST OF THE DIVISIONS AND LOCATIONS OF OFFICES OF INTERNAL REVENUE AGENTS IN CHARGE (Communications should be addressed: United States Internal Kevenue Agent in Charge, City State Territory embraced Name of division Location of office Alabama Alaska Arizona Arkansas California: Counties of Alameda, Alpine, Amador, Butte, Calaveras, Colusa, Contra Costa, Del Norte, Eldorado, Fresno, Glenn, Humboldt, Inyo, Kings, Lake, Lassen, Ma- dera, Marin, Mariposa, Mendocino, Merced, Modoc, Mono, Monterey, Napa, Nevada, Placer, Plumas, Sacramento, San Benito, San Francisco, San Joaquin, San Mateo, Santa Clara, Santa Cruz, Shasta, Sierra, Siskiyou, Solano, Sonoma, Stanislaus, Sutter, Tulare, Tehama, Trinity, Tuolumme, Yolo, and Yuba. Counties of Imperial, Kern, Los Angeles, Orange, River- side, San Bernardino, San Diego, San Luis Obispo, Santa Barbara, and Ventura. Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois : Counties of Boone, Bureau, Carroll, Cook, De Kalb, Du Page, Grundy, Henry, Jo Daviess, Kane, Kankakee, Kendall, Lake, La Salle, Lee, McHenry, Marshall, Mercer, Ogle, Putnam, Rock Island, Stark, Stephenson, White- side, Will, and Winnebago. Nashville Seattle Los Angeles- Oklahoma,- San Francisco- Los Angeles. Denver New Haven. Baltimore do. Jacksonville. Atlanta Honolulu Salt Lake Chicago. Nashville, Tenn. Seattle, Wash. Los Angeles, Calif. Oklahoma City, Okla. San Francisco, Calif. Los Angeles, Calif. Denver, Colo. New Haven, Conn. Baltimore, Md. Do. Jacksonville, Fla. Atlanta, Ga. Honolulu, Hawaii. Salt Lake City, Utah. Chicago, 111. (154) 155 Territory embraced Name of division Location of office Illinois — Continued. Counties of Adams, Alexander, Bond, Brown, Calhoun, Cass, Champaign, Christian, Clark, Clay, Clinton, Coles, Crawford, Cumberland, De Witt, Douglas, Edgar, Ed- wards, EflSngham, Fayette, Ford, Franklin, Fulton, Gal- latin, Greene, Hamilton, Hancock, Hardin, Hender- son, Iroquois, Jackson, Jas- per, Jefferson, Jersey, John- son, Knox, Lawrence, Liv- ingston, Logan, McDonough, McLean, Macon, Macoupin, Madison, Marion, ' Mason, Massac, Menard, Monroe, Montgomery, Morgan, Moultrie, Peoria, Perry, Piatt, Pike, Pope, Pulaski, Randolph, Richland, St. Clair, Saline, Sangamon, Schuyler, Scott, Shelby, Tazewell, Union, Vermilion, Wabash, Warren, Washing- ton, Wayne, White, William- son, and Woodford. Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri .- Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York: -Counties of Kings, Nassau, Queens, Richmond and Suf- folk. Manhattan Island south of Twenty-third Street. Manhattan Island north of Twenty-third Street (includ- ing both sides of Twenty- third Street and BlackweUs Island, Randalls Island, and Wards Island), and counties of Albany, Bronx (formerly the twenty-third and twenty- fourth wards of New York City), Clinton, Columbia, Springfield- Springfield, 111. Indianapolis.. Omaha Wichita Louisville New Orleans.. Boston Baltimore Boston Detroit St. Paul New Orleans.. St. Louis Salt Lake Omaha San Francisco. Boston Newark Denver Brooklyn Second New York. Upper New York. Indianapolis, Ind. Omaha, Nebr. Wichita, Kans. Louisville, Ky. New Orleans, La. Boston, Mass. Baltimore, Md. Boston, Mass. Detroit, Mich. St. Paul, Minn. New Orleans, La. St. Louis, Mo. Salt Lake City, Utah. Omaha, Nebraska. San Francisco, Calif. Boston, Mass. Newark, N. J. Denver, Colo. Brooklyn, N. Y. New York, N. Y. New York, N. Y. 156 Territory embraced Name of division Location of office New York — Continued. Dutchess, Essex, Fulton, Greene, Hamilton, Mont- gomery, Orange, Putnam, Rensselaer, Rockland, Sara- toga, Schenectady, Schoharie, Sulhvan, Ulster, Warren, Washington, and West- chester. Counties of Allegany, Broome, Cattaraugus, Cayuga, Chau- tauqua.'Chemung, Chenango, Cortland, Delaware, Erie, Franklin, Genesee, Herkimer, Jefferson, Lewis, Livingston, Madison, Monroe, Niagara, Oneida, Onondaga, Ontario, Orleans, Oswego, Otsego, St. Lawrence, Schuyler, Seneca, Steuben, Tioga, Tompkins, Wayne, Wyoming, and Yates. North Carolina North Dakota Ohio: Counties of Adams, Athens, Brown, Butler, Clark, Cler- mont, Clinton, Coshocton, Delaware, Fairfield, Fayette, Franklin, Gallia, Greene, Guernsey, Hamilton, High- land, Hocking, Jackson, Knox, Lawrence, Licking, Madison, Marion, Meigs, Miami, Montgomery, Mor- gan, Morrow, Muskingum, Noble, Perry, Pickaway, Pike, Preble, Ross, Scioto, XTnion, Vinton, Warren, and Washington. Counties of Allen, Ashland, Ashtabula, Auglaize, Bel- mont, Carroll, Champaign, Columbiana, Crawford, Cuy- ahoga, Darke, Defiance, Erie, Fulton, Geauga, Hancock, Hardin, Harrison, Henry, Holmes, Huron, Jefferson, Lake, Logan, Lorain, Lucas, Mahoning, Medina, Mercer, Monroe, Ottawa, Paulding, Portage, Putnam, Richland, Sandusky, Seneca, Shelby, Stark, Summit, Trumbull, Tuscarawas, Van Wert, Wayne, Williams, Wood, and Wyandot. Oklahoma Oregon Upper New York- Continued. Buffalo. Buffalo, N. Y. Greensboro St. Paul... Cincinnati. Greensboro, N. C. St. Paul, Minn. Cincinnati, Ohio. Cleveland. Cleveland, Ohio. Oklahoma. Seattle Oklahoma City, Okla. Seattle, Wash. 157 Territory embraced Name of division Location o( office Pennsylvania: Counties of Adams, Bedford, Berks, Blair, Bradford, Bucks, Carbon, Centre, Chester, Clinton, Cohimbia, Cumber- la,nd, Dauphin, Delaware, Franklin, Fulton, Hunting- don, Juniata, Lackawanna, Lancaster, Lebanon, Lehigh, Luzerne, Lycoming, Mifflin, Monroe, Montgomery, Mon- tour, Northampton, North- umberland, Perry, Philadel- phia, Pike, Potter, Schuyl- kill, Snyder, Sullivan, Sus- quehanna, Tioga, Union, Wayne, Wyoming, and York. Counties of Allegheny, Arm- strong, Beaver, Butler, Cam- bria, Cameron, Clarion, Clear- field, Crawford, Elk, Erie. Fayette, Forest, Greene, Indiana, Jefferson, Lawrence McKean, Mercer, Somerset, Venango, Warren, Washingr ton, and Westmoreland. Rhode Island __ Philadelphia Pittsburgh New Haven Columbia Philadelphia, Pa. Pittsburgh, Pa. New Haven, Conn South Carolina . . Columbia, S. C. South Dakota Tennessee St. Paul Nashville Dallas St. Paul, Minn. Nashville, Tenn Texas. Dallas. Texas Utah Salt Lake Salt Lake City, Utah. Boston, Mass. Vermont _ _. _ __ Boston. - Virginia __ Richmond Seattle Huntington Milwaukee Denver . Richmond, Va. Washington West Virginia. -._ Seattle, Wash. Huntington, W. Va. Wisconsin . Milwaukee, Wis. Wyoming . . .. LIST OF THE FIELD DIVISIONS AND LOCATION OF OFFICES OF THE TECHNICAL STAFF Name of division Territorial jurisdiction SLocation of office New England _ New York Eastern. Atlantic - Southern. Central. Chicago. Western. Southwestern. Pacific - Maine, Massachusetts, New|Hamp- shire, and Vermont. Connecticut and Rhode Island New York State: Territory under Brooklyn, Second New York, and Upper New York (Revenue Agents') Divisions.* Territory under Buffalo (Rev- enue Agents') Division.* New Jersey Pennsylvania: Territory under Philadelphia (Revenue Agents') Divi- sion.* Territory under Pittsburgh (Revenue Agents') Divi- sion.* Maryland and Delaware District of Columbia Virginia West Virginia North Carolina South Carolina and Greorgia Florida Alabama Tennessee Michigan ^ Ohio: Territory under Cleveland (Revenue Agents') Divi- sion.* Territory under Cincinnati (Revenue Agents') Divi- sion. * Kentucky Illinois Wisconsin Indiana Minnesota, North Dakota, and South Dakota. Missouri Kansas Nebraska and Iowa Colorado, New Mexico, and Wy- oming. Mississippi and Louisiana Oklahoma and Arkansas Texas Counties of California under San Francisco (Revenue Agents') Division,* and Idaho, Montana, Nevada, Utah, and Hawaii. Counties of California under Los Angeles. (Revenue Agents') Divi- sion,* and Arizona. Washington and Alaska Oregon Boston, Mass. New Haven, Conn. New York, N. Y. BufiFalo, N. Y. Newark, N. J. Philadelphia, Pa. Pittsburgh, Pa. Baltimore, Md. Washington, D. C. Richmond, Va. Huntington, W. Va. Greensboro, N. C. Atlanta, Ga. Jacksonville, Fla. Birmingham, Ala. NashviUe, Tenn. Detroit, Mich. Cleveland, Ohio. Cincinnati, Ohio. Louisville, Ky. Chicago, 111. Milwaukee, Wis. Indianapolis, Ind. St. Paul, Minn. St. Louis, Mo., and Kansas City, Mo. Wichita, Kans. Omaha, Nebr. Denver, Colo. New Orleans, La. Oklahoma City, Okla. Dallas, Tex., and Houston, Tex. San Francisco, Calif. Los Angeles, Calif. Seattle, Wash. Portland, Oreg. *For territory included in revenue agents' divisions, see separate list appearing in this Appendix. (158) INDEX Regulations section Pase A Abatement, claim for Accountants, fees of, deductibility Acts, prior to Internal Revenue Code, regulations pertaining thereto Additional amounts. (See Ad valorem penalties and interest on deficiency tax.) Additional estate tax: General description Manner of determining liability Rates and computation Additional tax. (See Deficiency tax.) Administration expenses: Description Effect of court decree Nonresidents not citizens, estates of Administrator. (See Executor.) Ad valorem penalty Advance payment of tax, no discount for Advancements Agent in possession of property of decedent, duties of- Agent of corporation, nonresident estates Agents, internal revenue, list of Agents, preparation of aflSdavits, briefs, and state- ments filed by Agents, recognition and authorization of Agreement as to tax liability Alaska, included in the term "United States" Alien, nonresident, estate of: Definition of "nonresident" Gross estate Net estate Payment of tax Preliminary notice and information returns Return required Supplemental data required Transfer certificates Alter, transfer subject to power to: General ' Power relinquished in contemplation of death. . Power to change the enjoyment Amend, transfer subject to power to: General Power relinquished in contemplation of death.. Power to change enjoyment Animals, prevention of cruelty to — deduction of amounts for: Citizens or residents, estates of Nonresidents not citizens, estates of 81.92 81.35 81.1, 81.2 81.2 81.6 81.7 81.32-81.35 81.30 81.52 81.87-81.89 81.75 81.16 81.60, 81.62 81.61, 81.62 81.96 81.72, 81.96 81.73, 81.90 81.5 81.5 81.13, 81.49 81.61-81.55 81.56 81.60, 81.61 81.67 81.68 81.62 81.15 81.21 81.20 81.15 81.21 81.20 81.44-81.47 81.54 127 65 1,6 64,65 63 80 124 103 46 84,85 85 155 132 93, 132 95, 125 8 8 38,77 79-81 82 84,85 90 91 85 44 52 50 44 52 50 73-75 81 (159) 160 Regulations section Page Annuity: Description on return of Included in gross estate Insurance payable as Valuation of Appeals to Board of Tax Appeals Appointment, property passing under power of Apportionment of tax, not made by Commissioner. _ Appraisal lists Appraisers Appraiser's fees, deductibility of Appreciation in value after valuation date Art, encouragement of — deduction of amounts for: Citizens or residents, estates of Nonresidents not citizens, estates of Assessment against persons other than executor Assessment, jeopardy Collection of, stayed by filing of bond Limitation of time to file bond to stay Assessment of ad valorem penalty and interest Assessments Asests, concealment of — penalty Attorney, power of Attorney's fees, deduction of: Citizens or residents, estates of Nonresidents not citizens, estates of Attorneys, preparation of affidavits, briefs, and state- ments filed by -. Attorneys, recognition and authorization of Auctioneers, fees of j deductibility Audit of return : Determination of, taxby Commissioner Deficiency, petitions, and closing agreements Payment of tax B Bank deposits: Checks outstanding at date of death Description of, on return Joint deposit Nonresident decedent, not a citizen Valuation of Bank in possession of property of decedent, duties of. Basic estate tax_ Beneficial interest, person holding: Assessment against Returns required from Beneficial societies, fraternal death benefits paid by. Beneficiary: Assessment against Insurance, life Liability of Lien for tax on property of Return by Bequests: Charitable, public, religious, etc., deductibility of— Citizens or residents, estates of Nonresidents not ciitzens, estates of Estate tax is not on any particular In lieu of executors' commissions Betterments to property Bills — situs 81.12 81.13 81.28 81.10(j), 81.11 81.73 81.3, 81.24 81.84 81.10(ff), 81.66 81.10(9) 81.35 81.10(a) 81.44-81.47 81.54 81.102 81.74 81.93 81.95 81.82 81.74 81.90 81.72, 81.96 81.29, 81.34 81.52 81.96 81.72, 81.96 81.35 81.71 81.73 81.75 81.10(/) 81.12 81.22, 81.23 81.50 81.10(/) 81.60, 81.62 81.2, 81.7 81.102 81.64, 81.67 81.25 81.102 81.25-81.27 81.99, 81.102 81.85 81.64, 81.67 81.44-81.47 81.54 81.2 81.33 81.15, 81.35 81.50 37 38 61 26,31 95 7,57 118 25,88 25 65 22 73-75 81 141 100 127 128 115 100 125 93, 132 63,65 80 132 93, 132 65 93 95 103 25 37 54 77 25 84,85 6,9 141 87,90 58 141 58,59 137, 141 119 87,90 73-75 81 6 64 44,65 77 161 HegulatioDs section Page Board of Tax Appeals^ Bond of taxpayer required in connection with^ — Extension of time for payment of tax ,. Release of lien Stay of collection of jeopardy assessment Bonds: Description of, on return Pledged to secure a loan Situs of, nonresident not a citizen Taxability of Federal Transfer certificate required in case of non- resident decedent Valuation of ^ Books: Falsification, destruction, mutUation, etc., of — penalty Production of Broker in possession of property of decedent, duties of Broker's fee, deductibility of Burden of proof. {See Presumption and burden of proof.) Burial lot Business, interest in C Caring for property of the estate, expense of Gash on hand or on deposit Casualty, losses from Cemetery lot Certificate of indebtedness of the United States owned by nonresident not a citizen Certificate of overassessment Certificate of release of lien Certificate permitting transfer of property of non- resident decedent Certificates of stock — situs Charges against the estate, life insurance to provide for payment of Charitable uses, deduction of amounts for: Citizens or residents, estates of Nonresidents not citizens, estates of Check, payment of tax by Checks of decedent, outstanding at death Children, prevention of cruelty to — deduction of amounts for: Citizens or residents, estates of Nonresidents not citizens, estates of China — estate of United States citizen probated in United States Court for China Citizens, estates of Citizenship not test of residence Claim for abatement Claim for refund Claims against estate, deduction of: Citizens or residents, estates of Nonresidents not citizens, estates of Claims held by decedent canceled by will Clerk hire, deductibility Closing agreement as to tax liability Code. Internal Revenue, eflfeotive date (See also Table of contents.) 81.73, 81.74 81.79, 81.80 81.86 81.93, 81.95 81.12 81.10(c) 81.50 81.13 81.62 81.10(c) 81.fl0 81.100, 81.101 81.60, 81.62 81.35 81.13, 81.31 81.10(d) 81.35 81.10(/) 81.39, 81.52 81.13, 81.31 81.13 81.75, 81.96 81.86 81.62 81.50 81.26 81.44r-81.47 81.54 81.56, 81.77 81.10(/) 81.44-81.47 81.54 81.5 81.13 81.5 81.92 81.96 81.29, 81.36 81.52 81.13 81.35 81.73, 81.90 81.1, 81.2 95, 100 107, 110 120 127, 128 37 22 77 38 85 22 125 138 84,85 65 38,64 24 65 26 67,80 38,64 38 103, 132 120 86 77 59 73-76 81 82, 104 25 73-75 81 8 38 8 127 132 63,66 80 38 66 96, 125 1,6 162 Regulations section Page Collection of tax, remedies for Collection of tax, stay of, after jeopardy assessment. Collector, extension of time by, for filing return Commissioner: Agreements with respect to the tax Certificate permitting transfer of property of nonresident Determination of tax by Extension of time by, for filing return Extension of time by, for payment of tax Commissions, administrator's, executor's, trustee's: Deductions Nonresidents not citizens, estates of Committee on Practice Compromise of liability Computation of tax Concealment of assets — penalty Consent to assessment of deficiency tax. (See waiver of restrictions upon assessment and col- lection.) Consideration in money or money's worth as affect- ing- Deduction of claims and mortgages Deductions in general Lien of tax Property in gross estate, general Transfers in gross estate Constructive possession, person in: Payment of tax — when liable for Preliminary notice — when liable for filing Return- — when Uable for filing Contemplation of death: Description and inclusion of transfer in Exercise of power of appointment in In general Presumption of Relinquishment of power in Contents, table of . Contingent remainder 1 Contribution, by persons liable for the tax, to the person paying Contribution of decedent to fund, or to purchase price of property held jointly or by the entirety Control of enjoyment of property transferred Corporation, when to file information return for non- resident estate Court costs, deduction of Court decree, effect of, as fixing amounts deductible. . Credits against estate tax Curtesy : Of surviving spouse included in gross estate Relinquishment of, not a consideration in money or money's worth — Transfers during life Property held jointly Claims against the estate Custodian of property, duties of 81.83, 81.102 81.93 81.69 81.73, 81.98 81.62 81.71, 81.73 81.70 81.79, 81.80 81.29, 81.33 81.52 81.72 81.90, 81.98 81.7 81.90 81.36, 81.38 81.29 81.85 81.3 81.15-81.24 81.56, 81.79 81.59, 81.60 81.64, 81.70 81.16, 81.21 81.24 81.3, 81.15 81.16, 81.21 81.21 81.17 81.84 81.23 81.19, 81.20 81.61 81.35 81.30 81.8, 81.9 81.3, 81.14 81.15 81.23 81.29 81.60, 81.62 118, 141 127 91 95, 136 85 93,95 92 107, 110 63,64 80 93 125, 136 9 125 66 63 119 7 44-57 82, 106 83,84 87,92 46,52 57 7,44 46,52 52 v-xii 46 118 54 48,50 85 65 63 17,19 7,40 44 54 63 84,85 163 Regulations section D Data, supplemental, may be required: For allowance of charitable, etc., deductions To establish the correct tax When deductions claimed, estates of nonresi- dents not citizens Date from which Internal Revenue Code is effective- Date for: Filing preliminary notice Filing return Payment of tax Death: Contemplation of, in general Power of appointment, exercise of, in contempla- tion of death or to take effect at or after death. Relinquishment of power in contemplation of.- Transfer intended to take effect in possession or enjoyment at or after death — Inclusion of, in general Conditioned upon survivorship With possession or enjoyment retained With right retained to designate who shall possess or enjoy . Transfer made or power relinquished within two years of, presumption Transfer resulting from Debtor of decedent, duties of Debts of decedent, deductibility: Citizens or residents, estates of- Nonresidents not citizens, estates of Debts of decedent, payment before payment of estate tax Debts owed to the decedent Decree of court, effect of, as fixing amount of deduc- tions Deductions: Citizens or residents, estates of Nonresidents not citizens, estates of Supplemental data, estates of nonresidents not citizens Deed, exercise of power of appointment by Defeat tax, penalty for attempt to Defense tax: Application and description of Computation of Deficiency tax: Acquiescence in determination Agreement, closing Agreement, waiver of restrictions on assessment- Assessment of • Collection of Determination of Extension of time for payment of Fiduciary Interest on Lien of Mathematical error Notification of Payment of Payment of interest thereon Personal liability for Waiver of restrictions on assessment 244534°— 42' 12 81.47 81.65, 81.66 81.68 81.1, 81.2 81.57-81.60 81.63, 81.67 81.75 81.15, 81.16 81.24 81.21 81.3, 81.15 81.17 81.18 81.19 81.16, 81.21 81.3, 81.13 81.60, 81.62 81.29, 81.36 81.62 81:99 81.13, 81.50 81)30 81.29-81.48 81.51-81.54 81.68 81.24 81.90 81.2 81.7 81.74 81.73 81.74 81.74, 81.102 81.83, 81.102 81.73 81.80 81.102 81.82 81.85 81.74, 81.82 81.73, 81.75 81.75-81.78 81.80, 81.82 81.62, 81.99 81.74 164 Regulations section Page Dependents, support of — deductions for Deposit in bank: Inclusion of — in general Jointly held Situs — estates of nonresidents not citizens Transfer certificates — estates of nonresident decedents Depreciation after valuation date Description of property listed on return Determination of gross and net estate: In general Nonresidents not citizens, estates of Determination of tax by Commissioner (See Computation of tax.) Devise: Charitable, public, religious, etc. — deductibility: Citizens or residents, estates of Nonresidents not citizens, estates of Estate tax is not upon any particular In lieu of executor's commissions Devisee, liability of Discharge or release of: Lien for tax Personal liability Disclosure : Duty of persons having information concerning the estate Failure to make, of certain information^ — pen- alty Of certain information prohibited Discount, none allowed on tax Distraint, collection of tax by Distributee, liability of Distribution of estate: Expenses incident to Losses after, not deductible Personal liability in connection with Distributive share, estate tax is not on any particu- lar 81.40, 81.52 81.10(/) 81.22, 81.23 81.50 81.62 81.10(a) 81.12 81.4, 81.6 81.51, 81.55 81.71 81.44^81.47 81.54 81.2 81.33 81.102 81.85, 81.86 81.62, 81.71 81.66 81.90 Dividends Divisions, internal revenue agents in charge Divisions, Technical Staff field Documents : Duty of person having possession or control of _ . False or fraudulent — penalties Penalty for failure to exhibit Supplemental data, nonresidents not citizens.-. Domestic corporations, stock in — situs Domicile Dower: Of surviving spouse included in gross estate Relinquishment of, not a consideration in money or money's worth — Transfers during life Property held jointly Claims against the estate Due date for: Filing preliminary notice — FiUng return Paying tax Duties of executor. (See Executor: Duties of.) 81.75 81.102 81.102 81.32, 81.35 81.39 81.99 81 2 81.11, 81.13 81.66 81.90, 81.91 81.90 81.68 81.50 81.5 81.3, 81.14 81.15 81.23 81.29 81.57, 81.60 81.63, 81.67 81.75 67,80 25 54 77 85 22 37 8,9 79,81 93 73-75 81 6 64 141 119, 120 85,93 88 125 147-151 103 141 141 64,65 67 137 6 31,38 155 159 88 125, 126 125 91 77 8 7,40 44 54 63 83,84 86,90 103 165 Regulations section Page E Educational uses, deduction of amounts for: Citizens or residents, estates of Nonresidents not citizens, estates of Election of valuation date Election to postpone payment of tax attributable to a future interest Enjoyment or possession retained, transfers with Enacting provisions of Code Entirety, property held by the: Gross estate Taxable portion Error, deficiency resulting from mathematical: Assessment without petition to Board Assessment of interest Escheated property, transfer taxable Estate of decedent, what constitutes Estate, statutory in lieu of dower or curtesy Relinquishment of, not consideration in money or money's worth — Deductions Jointly owned property Transfers Estate tax: Basic Additional Defense Prior Acts Estate taxes: Credit for, if imposed by State, Territory, pos- session' of the United States, or District of Columbia Not deductible Reduction of amount of charitable bequests, etc., by Evasion of payment of tax, penalty Evidence, securing of Examination of return by Commissioner Exchange, property acquired by — of property pre- viously taxed: Deductions, estates of citizens or residents Deductions, estates of nonresidents not citizens-. Executor: Commission of ^ Definition of term for purposes of the statute. -. Discharge from personal liability Duties of — Appraisals FUe return Furnish supplemental data Give preliminary notice Keep records May be required to testify and produce documents, etc Pay the tax Render statements Reserve sufficient assets to satisfy total tax. Retain all documents and vouchers Insurance receivable by 81.44-81.47 81.54 81.11 81.79(b) 81.15, 81.18 81.3, 81.22 81.23 81.73, 81.74 81.82 81.2 81.13 81.14 81.29 81.23 81.15 81.2, 81.7 81.2, 81.7 81.2, 81.7 81.1, 81.2 81.9 81.37 81.44 81.90 81.100, 81.101 81.71 81.41, 81.43 81.53 81.29, 81.32, 81.33, 81.52 81.56, 81.59, 81.60, 81.61 81.71 81.10(ff) 81.64, 81.67 81.66, 81.68 81.58-81.60 81.103 81.100, 81.101 81.56, 81.79 81.104 81.75 81.65 81.25, 81.26 73-75 81 31 108 44,48 XIII 7,54 54 95, 100 115 6 38 40 63 54 44 6,9 6,9 6,9 1,6 19 66 73 125 138 93 68,71 80 63,64 64,80 82,83 84,85 93 25 87,90 88,91 83,84 143 138 82, 107 143 103 88 58,59 166 Regulations section Page Executor — Continued. Legacy to, in lieu of commissions Personal liability of — Fiduciary Transfer certificates Exemption, $40,000 of life insurance Exemption, homestead or other Exemption of United States bonds, etc., nonresident not a citizen Exemption, specific None in estates of nonresidents not citizens Expenses deductible: Citizens or residents, estates of Nonresidents not citizens, estates of Explanation of regulations Extension of time for: Assessment of tax Filing return Payment of deficiency tax Payment of tax attributable to a remainder or reversionary interest Payment of tax shown on return 81.33 81.99, 81.102 81.62 81.25, 81.27 81.13 81.13 81.2, 81.48 81.2, 81.48 81.29-81.35 81.52 Fair market value, definition of False or fraudulent documents — penalty: Preliminary notice or return Records and documents False or fraudulent return: Assessment of tax Penalties Federal bonds, etc., taxability Fees, deductible: Citizehs or residents, estates of Nonresidents not citizens, estates of Fiduciaries Field divisions, internal revenue agents in charge - Field divisions. Technical Staff Final determination of tax by Commissioner Fire, losses from Foreign country: Citizen of, may be a resident Decedent a resident of Inventory filed in connection with proceedings in Fraudulent documents — penalty Fraudulent return: Assessment of tax Penalties Funeral expenses: Citizens or residents, estates of Nonresidents not citizens, estates of Future interest, valuation of 81.74 81.69, 81.70 81.80 81.79(b) 81.79(a) 81.10(a) 81.88 81.90, 81.91 81.74 81.88, 81.91 81.13 81.32-81.35 81.52 81.102, 81.105 G General power of appointment Gift tax: Credit for Deduction of value of property subject to_ Good will 81.73 81.39, 81.52 81.5 81.5 81.68 81.88, 81.91 81.74 81.88, 81.91 81.29, 81.31 81.52 81.10(i) 81.3, 81.24 81 8 81.41, 81.53 81.10(d) 64 137, 141 85 58,59 38 38 6,76 6,76 63-66 80 m 100 91,92 110 108 107 22 124 125, 126 100 124, 126 38 64,65 80 141, 144 155 159 95 67,80 8 8 91 124, 126 100 124, 126 63,64 80 26 7,57 17 68,80 24 167 Regulations section Page Gross estate: Composition of Itemized on return- Lien upon, for tax_ Gross tax H Hawaii included in term "United States" Heir, liability of Heirs, real property passing directly to Homestead and other exemptions Household effects, valuation and distribution of Husband and wife. (See Dower; Curtesy; Ten- ancy by the entirety.) Hypothecated securities Hypothetical questions not answered Improvements to property of gross estate Income of property transferred, reservation of, in favor of decedent _. Income tax, deduction for "In contemplation of death," definition of Indebtedness on property in gross estate {See also Debts.) Information return by corporation or transfer agent Inheritance tax: Credit for Estate tax is not an Not deductible Reduction of amount of charitable bequest, etc., by Inspection of return . Insurance: Legal incidents of ownership in Life- Citizens or residents, estates of Nonresidents not citizens, estates of Losses not compensated by Valuation Intangible personal property — situs in case of non- resident not a citizen Interest: Accrued Ad valorem penalty Bank deposits Bonds Claims against estate Peflciency tax Extension of time for paying tax Jeopardy assessments Mortgages against estate Mortgages owned by decedent Notes owned by decedent Penalty Rate of, as affecting value of obligation Refunds Tax attributable to reversion or remainder Tax shown on return Interest in business, valuation of 81.13-81.28 81.12, 81.65 81.85 81.7 81.5 81.102 81.13 81.13 81.10(ff) 81.10(c) 81.72 81.16, 81.35 81.15, 81.18 81.37 81.16 81.29, 81.38 81.61 81.9 81.2 81.37 81,44 81.27 81.25-81.28 81.50 81.39, 81.52 81.28 81.50 81.11, 81.13 81.82 81.12 81.11, 81.12 81.36 81.82 81.81, 81.82 81.82 81.38, 81.52 81.10(e), 81.12 81.10(e), 81.12 81.82 81.10(e) 81.9, 81.97 81.81(b) 81.81(a) 81.10(d) 38-61 37,88 119 9 8 141 38 38 25 22 93 44,65 44,48 66 46 63,66 85 19 6 66 73 147-151 59 58-61 77 67,80 61 77 31,38 115 37 31,37 66 115 115 115 66,80 25,37 25,37 115 25 19, 135 115 115 24 168 Regulations section Page Interest in property ceasing at decedent's death: General Transfers Interests reached Internal revenue agents in charge, list of Internal Revenue Code. (See table of contents.) Intestate laws, transfers under, taxable Inventory filed in connection with proceedings in foreign country Inventory itemized Investigation of household and personal effects Investigation of return Jeopardy assessment Stay of collection Joint deposit Jointly owned property --. Judgment, effect of, as fixing amounts deductible.. Judgment in suit for recovery of tax Judgment owned by decedent, description of, on return Land contract, description of, on return Legacy : Charitable, public, religious, etc., deductibility of— Citizens or residents, estates of Nonresidents not citizens, estates of Estate tax is not upon any particular In lieu of executor's commissions Legacy tax: Credit for Estate tax is not a Not deductible Reduction of amount of charitable bequests, etc., by Legal interest — when person holding required to make return Liabilities imposed by law or arising out of torts Lien for the tax, and release of Life estates or interests: Created or reserved in connection with a transfer Includible Valuation of Life insurance Description on return of policy of Nonresident not a citizen Limitation of deductions in estates of nonresidents not citizens Limitation of time, claim for credit Limitation of time, claim for refund Limitations, statute of: Assessment of tax Extensions of time for payment Fiduciaries and transferees Military service affecting Refunds of tax 81.13 81.17, 81.18 81.3 81.3 81.68 81.12, 81.65 81.10(3) 81.71 81.74 81.93, 81.95 81.22, 81.23 81.22, 81.23 81.30 81.96 81.12 81.12 81.44r-81.47 81.54 81.2 81.33 81.9 81.2 81.37 81.44 81.64, 81.67 81.36 81.85, 81.86 81.18, 81.44 81.12, 81.13 81.10(i), 81.11 81.25-81.28 81.12 81.50 81.52-81.55 81.9 81.96 81.74 81.79, 81.80 81.102 81.96 38 46,48 7 154 91 37,88 25 93 100 127, 128 54 54 63 132 37 37 73-75 81 6 64 19 6 66 73 87,90 66 119, 120 48,73 37,38 26,31 58-61 37 77 80,81 19 132 100 107, 110 141 153 132 169 Kegulations section Page Literary uses, deduction of amounts for: Citizens or residents, estates of Nonresidents not citizens, estates of. Loan secured by pledge Lodge, death benefits paid by Losses during administration M Margin, securities purchased on Market value Mathematical error, deficiency resulting from: Assessment without petition to Board Assessment of interest Mausoleum, deduction for Military service affecting statutes of limitations- - Miscellaneous administration expenses: Deductions, in general Description Nonresidents not citizens, estates of Missionary, residence of Money on hand or on deposit: In joint account Nonresidents not citizens, estates of Owned by the decedent Transfer certificates Monument, deduction as item of funeral expenses- Mortgage, deduction of 81.44-81.47 81.54 81.10(c) 81.25 81.39, 81.52 81.10(c) 81.10(a) 81.73, 81.74 81.82 81.31 N Nationals. (See Nonresidents not citizens.) Net estate: Citizens or residents, estates of Nonresidents not citizens, estates of Net tax Nonresident, definition of Nonresidents not citizens, estates of: Administration expenses Agent, transfer Agents or others in possession of property of — duties of Beneficial interest, person holding Bonds Certificates permitting transfer of stocks, bonds, or other property Claims against- - Deductions Funeral expenses Gross estate — In general Situs of property Information return by corporation or transfer agent Insurance in domestic company — not part of gross estate Intangibles, situs of Losses during administration Moneys due from domestic debtors Moneys on deposit Mortgages, deduction of Net estate how determined 81.29, 81.32 81.35 81.52 81.5 81.22, 81.23 81.50 81.10(/) 81.62 81.31 81.38, 81.52 81.2, 81.4 81.51, 81.55 81.7 81.5 81.52 81.61, 81.62 81.60, 81.62 81.67, 81.102 81.50 81.62 81.52 81.51-81.54 81.52 81.13-81.28 81.50 81.61 81.50 81.50 81.52 81.50 81.50 81.52 81.61-81.55 73-75 81 22 58 67,80 22 22 95, 100 115 64 153 63,64 65 80 8 54 77 25 85 64 66,80 6,8 79,81 9 8 80 85 84,85 90, 141 77 85 80 79,80 80 38-61 77 85 77 77 80 77 77 80 79-81 170 Regulations section Page Nonresidents not citizens, estates of — Continued. Notes, situs Notice, preliminary Payment of tax Personal property — when included in, for tax... Property in the United States Property previously taxed, deduction for Public, charitable, etc., uses, deduction of amounts for Real property in the United States Real property outside the United States Return Situs of property Specific exemption, none Stock, situs Supplemental data Support of dependents, deduction of Transfer certificates United States bonds, notes, and certificates of indebtedness, when excluded Notes: Canceled by will Description of, on return Nonresident estates — situs Payment of tax with United States Treasury.. Taxability of Federal Valuation of Notice: Deficiency tax Failure to file preliminary False or fraudulent Fiduciary — to, of tax liability of Fiduciary to give Final determination of tax — Deficiency, petitions and closing agree- ments Examination of return Payment of tax Jeopardy assessment Preliminary 81.50 81.60 81.75-81.80 81.13, 81.50 81.13, 81.50 81.53 81.54 81.13, 81.50 81.13 81.67 81.50 81.48 81.50 81.68 81.52 81.62 81.13 81.13 81.12 81.50 81.78 81.13 81.10(e) 81.73, 81.75 81.89 81.88 81.102 81.105 81.73 81.71 81.75 81.73, 81.74 81.57, 81.60 O OflSces, Technical Staff field, list of Officers, list of internal revenue in charge. Optional valuation date Overassessment, certificate of Partner, decedent's interest as Payment of debts, expenses incident to Payment of refund claims and interest Payment of tax: Bonds of the United States, with. Check, by Credits against tax Discount — none for advance payment Due date for Executor shall make Extension of time — Attributable to remainder or reversionary interest . Deficiency tax 81.11 81.75, 81.96 81.10(d) 81.32 81.97 81.78 81.56, 81.77 81.8, 81.9 81.75 81.75 81.76 81.79(b) 81.80 77 84 103-110 38,77 38,77 80 81 38, 77 38 90 77 76 77 91 80 85 38 38 37 77 105, 152 38 25 95, 103 124 124 141 144 95 93 103 95, 100 83,84 159 155 31 103, 132 24 64 135 105 82, 104 17,19 103 103 104 108 110 171 Payment of tax — Continued. Extension of time — Continued. Tax shown on return Nonresidents not citizens — estates of Notes of United States; with Persons other than diily quahfied executor, when to make Proceedings to enforce. Receipt for Penalties: Ad valorem Compromise of Concealment of assets Disclosure, failure to make Evasion of payment of tax Failure to file notice or return Failure to furnish information upon request. __ Failure to keep or exhibit records or property. False or fraudulent documents, aiding in prepa- ration or presentation of False or fraudulent notice or return Interest on ad valorem penalty Nature of Notice, delinquency in filing Pay tax, willful failure to Refund of Return, delinquency in filing Specific Person in actual or constructive possession of de- cedent's property, when to file: Information return Preliminary notice Return Personal and household effects, valuation and dis- tribution of Personal liability: Discharge from Enforcement of Payment of tax, for Personal property: Description of, on return Nonresidents not citizens, estates of Citizens or residents, estates of Situs Valuation of Persons required to give notice or make return : Preliminary notices Returns Petition to Board of Tax Appeals Philippine Islands, not included in term "United States" Pledge, deductibility of Pledged securities Policy of life insurance: Description on return Taxable amount _- Possession or enjoyment retained, transfers with: Description Power of appointment Postponement of payment of tax attributable to future interest ■ Power of appointment, property passing under Power of attorney Power to change enjoyment of transfer Power to designate enjoyment of transfer Regulations section Page 81.79(a) 107 81,56 82 81.78 105,152 81.76, 81.102 104, 141 81.83, 81.102 118, 141 81.75 103 81.87-81.89 124 81.98 136 81.90 125 81.90 125 81.90 125 81.89 124 81.90 125 81.90 125 81.91 126 81.88 124 81.82 115 81.87 124 81.89 124 81.90 125 81.96, 81.97 132, 135 81.89 124 81.87-81.91 124-126 81.61 85 81.59, 81.60 83,84 81.64, 81.67 87,90 81.10(ff) 26 81.71 93 81.102 141 81.62, 81.99 85, 137 81.12 37 81.13, 81.50 38,77 81.13 38 81.50 77 81.10 22 81.58-81.60 83,84 81.64, 81.67 87,90 81.73 95 81.5 8 81.36 66 81.10(c) 22 81.12 37 81.25-81.28 58-61 81.15, 81.18 44,48 81.24 57 81.79(b) 108 81.3, 81.24 7,57 81.72, 81.96 93, 132 81.20 50 81.19 48 172 Begulations section Page Power to secure evidence Power to use fund for noncharitable purpose Practice, Committee on Preliminary notice: Failure to file — penalty False or fraudulent — penalty Nonresidents not citizens, estates of When required Who must file Preparation of refund claim by attorney or agent. _. Preparation of return Description of property listed on return Optional valuation Preparation or presentation of false or fraudulent documents, penalties Present worth of annuities and future interests Presumption and burden of proof: Citizenship Consent decree, deductions Property held jointly or by the entirety Property previously taxed Refund claim Residence Presumption of contemplation of death Previously taxed property, deduction for: Citizens or residents, estates of Nonresidents not citizens, estates of Privileged character of return and other records Procuring preparation or presentation of false or fraudulent documents, penalties Production of evidence Promulgation of regulations Property, description of, on return Property of decedent at time of death Property of gross estate subject to lien of tax Property previously taxed — deduction for: Citizens or residents, estates of Nonresidents not citizens, estates of Property, situs of Property tax, estate tax is not a Property, taxes on, deductibility Property transferred during decdent's life — inclu- sion in gross estate Property, valuation of Puerto Rico, not included in term "United States"-. Question of law, ruling on, by Commissioner. R Rate tables Rates of tax, variations in Real estate: Description of, on return Entirety, estate by Heirs or devisees taking directly Inclusion of Life estate in Mortgage on Mortgaged, when full value to be returned. Outside the United States — Citizens or residents, estates of Nonresidents not citizens, estates of 81.100, 81.101 81.46 81.72 81.88, 81.89 81.88, 81.91 81.60 81.57 81.58, 81.59 81.96 81.65, 81.67 81.12, 81.28 81.11 81.88, 81.91 81.10(i) 81.5 81.30 81.23 81.41-81.43 81.96 81.5 81.16, 81.21 81.41-81.43 81.63 81.88, 81.91 81.100, 81.101 81.12 81.13 81.85 81.41-81.43 81.53 81.13, 81.50 81. -2 81.37 81.15-81.21 81.10 81.5 81.72 81.7 81.7 81.12 81.22, 81.23 81.13 81.13 81.10(t), 81.11 81.38, 81.52 81.38 81.13, 81.38 81.52-81.54 138 75 93 124 124, 126 84 83 83 132 88,90 37,61 31 124,126 26 8 63 54 68-71 132 8 46,52 68-71 80 147 124,126 138 145 37 38 119 68-71 80 38,77 6 66 44-52 22 93 9 9 37 54 38 38 26,31 66,80 66 38,66 80,81 173 Begulations section Page Real estate — Continued. Remainder interest in Situs Valuation of Receipts granted upon payment of tax Recognition of attorneys, agents, and other repre- sentatives Records: Duty of person having possession or control of . Executor, duty to keep Falisification of Production of Redetermination of deficiency by Board of Tax Ap- peals Refund: Claim for ; Credit for State inheritance and similar taxes allowed Determined tax less than amount paid Erroneous Inheritance, etc., taxes refunded after credit therefor allowed should be reported Payment of claims and interest Regulations : Authority for Explanation of Reimbursement or contribution for payment of estate tax Relationship of beneficiary does not affect taxability. Release of hen Religious uses, deduction of amounts for: Citizens or residents, estates of Nonresidents not citizens, estates of _. Relinquishment of dower, curtesy, etc., not a con- sideration in money or money's worth: Deductions Jointly owned property - Transfers - Relinquishment of power to alter, amend, revolve, or terminate a transfer Remainder interest: Credit for estate, inheritance, legacy, or suc- cession taxes applicable thereto Inclusion of Postponement of payment of tax attributable to. Valuation of Remedies for collection of tax Reservation of income in favor of decedent made in connection with a transfer Reservation of power to alter, amend, revoke, or terminate a transfer: General- Power to change enjoyment Power relinquished in contemplation of death __ Reservation of power to designate who shall possess or enjoy Residence, presumption of Resident, definition of Residents, estates of 81.10(i), 81.11 81.60 81.10(6) 81.75 81.72 81.66, 81.90 81.103 81.90, 81.91 81.100, 81.101 81.73 81.96 81.9 81.75 81.96 81.9 81.97 81.84 81.2 81.86 81.44-81.47 81.54 81.29 81.23 81.15 81.15, 81.21 81.9, 81.79(b) 81.13 81.79(b) 81.10(i), 81.11 81.83, 81.102 81.15, 81.18 81.15 81.20 81.21 81.15, 81.19 81.5 81.5 81.13 26,31 77 22 103 93 88, 125 143 125, 126 138 95 132 19 103 132 19 135 145 III 118 6 120 73-75 81 63 54 44 44,52 19, 108 38 108 26,31 118, 141 44,48 44 50 52 44,48 8 8 38 174 Regulations section Page Retention of power to alter, amend, revoke, or ter- minate a transfer: General Power to change enjoyment Power relinquished in contemplation of death Retention of power to desimiate who shall possess or enjoy transferred property Retention or reservation of possession or income of transferred property Return : Audit of Confidential Copy of — when furnished by Commissioner Delay in filing, penalties Description of property on Disclosure in regard to Due date Evidence, procuring in ascertaining correctness of_- Examination of, by Commissioner :. Executor to file Extension of time for filing False or fraudulent or failure to file, penalties Information return Inspection of Interest on tax shown Mathematical error in Nonresidents not citizens, estates of Nontaxable estates Persons required to file Preparation of return Privileged character of return When required ' Reversionary interest: Credit ifor estate, inheritance, legacy, or succes- sion taxes applicable thereto Inclusion of Postponement of payment of tax with respect to_ Valuation of Revenue Acts, prior Revenue agents in charge, list of Revoke, transfer subject to power to: General Power to change enjoyment Power relinquished in contemplation of death.. Safe deposit company in possession of property of decedent, duties of Scientific uses, deductions of amounts for: Citizens or residents, estates of Nonresidents not citizens, estates of Securities of nonresident decedent: Information return by corporation or transfer agent Situs — estates of nonresidents not citizens Transfer certificates Securities, valuation of 81.15 81.20 81.21 81.15, 81.19 81.15, 81.18 81.71, 81.73 81.89 81.12 81.63, 81.67 81.100, 81.101 81.71 81.64, 81.67 81.69, 81.70 81.88, 81.89 81.61 81.81 81.73, 81.74 81.67 81.4 81.64, 81.67 81.65, 81.67 81-63, 81.67 81.9, 81.79(b) 81.13 81.79(b) 81.10(i), 81.11 81.1, 81.2 81.15 81.20 81.21 81.60, 81.62 81.44-81.47 81.54 81.61 81.50 81.62 81.10(c) 44 50 52 44,48 44,48 93,95 147 160 124 37 147-151 86,90 138 93 87,90 91,92 124 85 147 115 95, 100 90 8 87,90 88,90 147 86,90 19, 108 38 108 26,31 1,6 154 44 50 52 84,85 73-75 81 85 77 85 22 175 Begalations section Page Settlement of estate: Administration expenses, estates of citizens or residents Administration expenses, estates of nonresidents not citiz ens Losses during Support of dependents during Shares of stock, valuation of Shipwreck, losses from Situs of property Specific exemption None in estates of nonresidents not citizens State taxes: Credit for estate, inheritance, legacy, or suc- cession Deduction of Statements, executor's duty to render Statute of limitations: Assessment of tax Extensions of time for payment Fiduciaries and transferees Military service affecting Refund of tax Statute, Internal Revenue Code (See also Table of contents.) Statutes, prior estate tax Stay bond Stocks: Description on return of Nonresident estates Situs — estates of nonresidents not citizens Valuation of Storage charges, deductibility of Storms, losses from Subpoenas Subscription, deductibility of Succession tax: Credit for Estate tax is not a - Not deductible Reduction of amount of charitable bequest, etc., by Suit, collection of tax by Supplemental data may be required: Deductions for charitable bequests, etc Returns — estates of citizens or residents Returns — estates of nonresidents not citizens.. Support of dependents, deduction of Surrogates' fees Surviving spouse. {See Dower; Curtesy; Home- stead and other exemptions; Previously taxed property; Support of dependents, Jointly owned property; Tenants by the entirety.) Survivorship, property passing by right of Survivorship, transfers conditioned upon 81.29-81.35 81.52 81.39, 81.52 81.40, 81.52 81.10(c) 81.39, 81.52 81.13, 81.50 81.2, 81.48 81.2, 81.48 81.9 81.37 81.104 81.74 81.79, 81.80 81.102 81.96 81.1, 81.2 81.1, 81.2 81.93, 81.95 81.12 81.61, 81.62 81.50 81.10(c) 81.36 81.39, 81.52 81.100, 81.101 81.36 81.9 81.2 81.37 81.44 81.83, 81.102 81.47, 81.54 81.65, 81.66 81.68 81.40, 81.52 81.35, 81.52 81.22, 81.23 81.15, 81.17 Table of contents Tables for computation of tax Tables for valuing annuities, remainders, etc Tangible personal property — situs in case of non- residents not citizens Tax Appeals, Board of 81.7 81.10 81.50 81.73, 81.74 62-65 80 67,80 67,80 22 67,80 38,77 6,76 6,76 19 66 143 100 107, 110 141 153 132 1,6 1,6 127, 128 37 85 77 22 65 67,80 138 66 19 6 66 73 118, 141 75-81 88 91 67,80 65,80 54 44,46 V 10 30,31 77 95, 100 176 Regulations section Tax, Federal estate: Abatement Acts, regulations respecting prior Additions to. {See Interest on deficiency, and ad valorem penalty.) Agreement as to Assessment of Character of Collection of Computation of Credits against Deficiency. (See Deficiency tax.) Determination of Due date of Executor shall pay Gross Interest on. (See Interest.) Liability, manner of determining Lien for Nature of Net Payment of (For analysis, see Payment of tax.) Penalty for failure to pay Persons other than duly qualified executor, when to pay Rates of, variations in Receipts for Refund of Remedies for collection of Tables of rates Waiver of restrictions on assessment and col- lection Tax, Federal gift: Credit for Deduction of value of property subject to Tax, Federal income, deduction for Taxable estates Taxes, credit for estate, legacy, inheritance, or suc- cession — levied by States, etc Taxes, deduction of Taxes due the United States, payment of, before refund of estate tax Technical Staff field divisions, list of Tenancy in common, joint, or by the entirety Tenants, life. ( STATES INTERNAL REVENUE REGULATIONS 67 (1924 EDITION) RELATING TO GIFT TAX UNDER THE -_,;■ 8!jaa)'*»S^ V* ■ General , . 5 (2) Real estate 5 (3) Stocks and bonds ,^ 5 (4) Interest in business , , , ! 6 (5) Notes, secured and unsecured ._., ^ ^ 7 (6) Intangibles . . • 7 (7) Annuities, life remainder and reversionary interests 7 Section 321 (a). Deductions — Gifts by residents 10,13 Section 321 (a). (1) Deductions — Specific exemption 10 Article 8. Specific exemption , 10 Section 321 (a). (2) Deductions — Transfers for public, charitable, etc., uses 10 Article 9. Transfers for public, charitable, regligious, etc., usjes 11 Article 10. Religious, charitable, scientific, and edncational corpo- rations _^ ! ^ ^_ 12 Article 11. Proof required - 13 Article 12. Where there is a power to divert to other purposes 13 Section 321(a). (3) Deductions — Gifts not exceeding $500 13 Article 13. Gifts to individuals, when deductible 13 Section 321(a). (4) Deductions — Property previously taxed ,13 Article 14. Deduction of the value of , transfers taxed within five years 13 Article 15. Property originally received 15 Article 16. Property acquired In exchange 13 Section 319. Gifts made by nonresidents 15 Article 17. Nonresident donors , . 15 Article 18. Situs of property 16 Section 321(b). Deductions — Gifts by nonresidents 16,17 Section 321(b). (1) Deductions— Transfers for public, charitable, etc., uses ., 16 Article 19. Deductions — Transfers, for public, charitable, religipus, etc., uses ; 16 (m) ■ IV Page. Section 321(b). (2) Deductions— Gifts not exceeding $500 „ 16 Article 20. Gifts to individuals,, w;hen deductible-- ,—-^ 17 Section 321(h). (3) Deductions — Transfers taxed within five years 17 Article 21. Deduction of value of transfers taxed vyithin five years— 17 Article 22. Payment of tax ^ , ^ [ , 17 Section 323. The return .— . 18 Article 23. When return required — date of filing-' 18 Section 1003. Extension for filing [ ' ig Article 24. Extension of time by collectorl-- 18 Article 25. Persons required to mal^e return 19 Article 26. Preparation of return__— , ,19 Article 27. Supplemental data ,19 Section 1003. Return by collector or commissioner . , . ,_ 20 Article 28. Where no return filed, or a false or fraudulent return filed ._ ; __^_— I.-—— 20 Article 29. Investigation of returns _- ; — _' 20 Article 30. Return of gifts made by nonresidents-— ^^_______- 21 Article 31. Supplemental data 1 _l-J__-__ 21 Article 32. Returns confidential . I ,i 21 Article 33. Disclosure to persons having material interest— 21 Section 324. Estate tax provisions apply 22,35,37,40 Ajticle 34. Certain provisions of the estate tax have application-..- 22 .Section 307 Deficiency tax . 22 Section 305 (b). Payment may be extended- - 23 Section 305 (c). Interest where payment extended - - — ,23 Section 308 (a). Notice and appeal -! — ' 23 Section 308 (b). Decision of Board — Assessment— Suit by Government- 23 Section 308 (c). Where no appeal filed — „ 23 Section 308 (d). Jeopardy assessment ' , 23 Section 308 (e). Interest upon deficiency ', — , 24 Section 308 (f). Payment of dfeficiency may be extended— Bond— In- terest 24 Section 308 (g). Ad valorem penalty : J 24 Section 309 (a). (1) Interest upon tax disclosed on return , 24 Section 309 (a). (2) Interest on tax not paid before expiration of ex- tension granted 24 Section 309 (b). Interest where deficiency not paid within 30 days after notice and demand 25 Section 309 (c). Interest affected by claim for abatement 25 Seetion 310 (a). Limitations for assessment and suit 25 Section 310 (b). Period of assessment extended in certain cases . 25 Section 311 (a). No limitation where return is fraudulent, or none filed — 1 - 1- 25 Section 312 (a). Claim for abatement — Bond 25 Section 312 (b). Disposition of claim in abatement 25 Section 312 (c). Interest on tax involved in abatement claim :. 26 Section 313 (a). Receipts for payment , '. — 26 Article 35. Appeals and hearings . - . 26 Article 36. Jeopardy and other assessments : 28 Article 37. Payment of tax ; general- . , - 29 Section 1021 (a). Receipt of checks in payment of tax 29 Article 38. Payment by check .^— ^— 29 Article 39. Donor liable for tax— ^ ^^— — 30 Article 40. Extension of time for payment Of tax shown on return 30 ' ' Page. Article 41. Interest on tax dieclosed on 'return 31 Article 42. Extension of time for payment of deficiency tax 32 Article 43. Interest on deficiency tax 33 Section 324. Estate tax provisions apply 35 Section 314 (a). Remedies for collection 35 Article 44. Remedy not exclusive 35 Section 324. Estate tax provisions apply . 35 Section 315 (a) (b). Lien 35 Article 45. Property subject to lien 36 Article 46. Release of lien 36 Section 324. Estate tax provisions apply 1 37 Section 1017 (a) (b) (c). Penalties 37 Section 1017 (e). Definition of term "person" as used in section 1017__ 38 Section 317 (a) (b). Penalties 38 Section 1003. Ad valorem penalty ! 38 Article 47. Nature of penalties 38 Article 48. Penalties for false or fraudulent return 38 Article 49. Penalty for failure to file return 39 Article 50. Penalty for failure to pay tax, exhibit property, keep or exhibit records, etc , 39 Article 51. Penalty for assisting, procuring or advising the prepara- tion or presentation of false or fraudulent documents, 40 Section 324. Estate tax provisions apply 40 Section 1011. Refunds 40 Section 1012. Limitations for refunds 40 Article 52. Kinds of relief after assessment or payment 40 Article 53. Claim for abatement 41 Article 54. Accrual of interest as affected by abatement claim 41 Article 55. Limitation of time to file claim for abatement 41 Article 56. Claim for refund 42 Article 57. Payment of claims and interest 42 Revised Statutes, section 3229. Power to compromise or remit penalties- 43 Article, 58. Power to compromise or remit 43 Revised Statutes, section 3467. Personal liability of executor of donor's estate 43 Article 59. Extent of liability , 44 Sections 1004, 1025. Examination of records and taking of testimony 44 Article 60. Securing evidence — Taking testimony 44 Article 61. Power to compel compliance 45 -Section 1000. Remedies for collection L 45 Section 311 (b). Collection of tax by distraint or suit 45 Article 62. Remedies for collection of tax 45 (1) Collection by distraint 45 (2) Collection by suit to subject the property to sale 45 (3) Collection by suit for personal liability 45 Section 1002 (a) (b) (d). Records, statements, and special returns 45,46 Article 63. Donor's duty to keep records 46 Article 64. Donor's duty to render statements 46 Section 1001. Power to prescribe reguliations 46 Article 65. Promulgations of regulations 46 Appendix , 47 Part II, Title III, revenue act of 1924 47 Index 50 REGULATIONS RELATING TO THE GIFT TAX UNDER PART II, TITLE III, OF THE REVENUE ACT OF 1924 GIFT TAX I'Bxcept as otherwise specified, all section refetences are to the reVenue act of 1924] I'AET II, Title III. — Gift Tax Sec. 319. For the calendar year 1&24 and each calendar year there- after, a tax equal ti> the sum of the following is hereby imposed upon the tratisfer by a lesident by gift during such calendar year of any property wherever ^atuated, whether made directly or indirectly, and upon the transfer by a nonresident by gift during such calendar year of any property situated witliih the United States, whether made directly or indirecfly: 1 per centum of the amount of the taxable gifts not in excess of $50,000; 2 per centum of the amount by which the taxable gifts exceed $50,000 and do not exceed $100,000; 3 per centum of the amount by which the taxable gifts exceed $100,000 and do not exceed $150,000 ; 4 per centum of the amount by wliich the taxable gifts exceed $150,000 and do not exceed $250,000; 6 per centum of the amount by which the taxable gifts exceed $250,000 and do not exceed $450,000 ; i , , 9 per centum of the amount by which the taxable gifts exceed $450,000 and do not exceed $750,000; 12 per centum of the amount by which the taxable gifts exceed $750,000 and do not exceed $1,000,000; 15 per centum of the amount by which the taxable gifts exceed $1,000,000 and do not exceed $1,500,000; 18 per centum of the amount by which the taxable gifts exceed $1,500,000 and do not exceed $3,000,000 ; 21 per centum of the amount by which the taxable gifts exceed , $2,000,000 and do not, «xceed $3,000.000 ; i 24 per centum of the amount by which the taxable gifts exceed $3,000,000 and do not exceed $4,000,000; 27 per centum of the amount by which the taxable gifts exceed $4,000,000 and do not exceed $5,000,000; 30 per cemtum of the amount by which the taxable gifts exceed , $5,000,000 and do not exceed $8,000,000; 1 35 per centum of thg amount by which the taxable gifts exceed $8,000,000 and do not exceed $10,000,000; (1) 40 per centum of the amount by which the taxable gifts exceed $10,000,000. Sec. 320. If the gift is made in property, the fair market value thereof at the date of the gift shall be considered the amount of the gift. Where property is sold or exchanged for less than a fair con- sideration in money or money's worth, then the amount by which the fair market value of the property exceeded the consideration received shall, for the purpose of' the tax imposed by section 319, be deemed a gift, and shall be included isi computing the amount of gifts made during the calendar year. Article 1. Transfers reached. — At common law the term " gift " is applied only to voluntary transfers of property made, without jonsideration or compensation therefor. But the taxing act with which these regulations deal employs the term "gift" in £^ wider and more comprehensive sense, for, while it embraces transactions which at common law amount to gifts, it goes ftu-ther by ipcluding sales and exchanges for less than a fair consideration in money or money's worth. (See sec. 320,) Hence, the statute reaches and taxes all transfers of property made during the calendar- year (other than the gifts spiecified in par. (3) of subdivision (a) arid in par, (2) of subdivision (b) of sec. 321), to the extent that they are donative in character and exceed the authorized deductions^ , The subject of the gift may consist of any species of property or interest therein, whether legal or equitable. Thus, for example, a taxable transfer may be effected by a transfer of real estate, "by the declaration of a trust, by the forgiveness of an indebtedpess, the payment of another's debt, the assignment of a judgment, or the transfer of cash, certificates of deposit, or of Federal, State, or municipal bonds. A sale or exchange for a consideration reducible to a money value which is less than a fair consideration amounts to a gift, within the meaning of the statute, to the extent that the fair market value of the property, at the time of the transfer, exceeds the consideration received. If the consideration is not reducible to a money value it is to be wholly disregarded. A transfer which is neither a sale nor an exchange does not involve a gift if there, is a valid, even if not an adequate, consideration for the transfer. The creation of a trust, where the grantor retains the power to revest in himself title to the corpus of the trust, does not constitute a gift subject to tax, but the annual income of the trust which is paid over to the beneficiaries shall be treated as a taxable gift for the .year in which so paid. Where the power retained by the grantor, to, rfe vest in himself title to the corpus is not exercised a taxable transfer will be treated as taking place in the year in which such power is terminated. The statute embraces donative transfers made by corpoi-ations, associations, partnerships, trusts, and estates, as well as those made by individuals. (See art. 25.) _ Art. 2. Is not a property tax. — The tax is not laid upon the prop- eity, but upon the gift thereof. Art. 3. Definition of "resident" and " nonresident."— The statute provides '(par. (5) of sec. 2 (a)) that the term "United States" when used in a geographical sense, includes only the States, the Territories of Alaska and Hawaii, and the District of Columbia. A resident is one who had his domicile in the United States at the date of the gift. A missionary serving as such under a foreign missionary board of any religious denomination in the United States at the time of mak- ing a gift will be presumed to be a resident of the United States, if domiciled therein at the time of his or her commission and departure for such service, and not a nonresident merely by reason of his or her intention to permanently remain in such service. (See sec. 303 (f).) All persons not residents of the United States as above defined, or to whom the presuJnption just stated does not apply, are nonresidents. The statute takes no account of the citizenship of the donor, but prescribes different rules governing the determination of the tax liability for the gifts made by residents and nonresidents. A citizen of the United States is a nonresident if his domicile is in Porto Eico, the Philippine Islands, or other foreign country, whereas a subject or citizen of a foreign country is a resident if his domicile is in the United States. A person acquires a domicile in a place by living there, for even a brief period of time, with no definite present intention of later removing therefrom. Eesidence without the requi- site intention to remain indefinitely will not suffice to constitute domicile, nor will intention to change domicile effect such a change unless accompanied by actual removal. DETERMINATION OF TAX LIABILITY Art. 4. Manner of determining liability. — The first step in the de- termination of tax liability is to ascertain the total amount of the gifts made during the calendar year. (See art. 1.) The second step is to subtract from this amount the total deductions authorized in order to arrive at the excess amoimt of the gifts over the deductions. (See arts. 8 to 16, inclusive, as to residents, and arts. 19 to 21, in- clusive, as to nonresidents.) One of the deductions authorized with respect to gifts made by a resident donor is the specific sum of $50,000. No such deduction is authorized with respect to gifts made by a nonresident donor. There is no basis for the tax where the total amount of gifts does not exceed the deductions. The third step is to obtain the sum of certain percentages of successive portions of the excess, as provided by the act. (See art. 6.) 14581°— 24 2 AfiT. 5. Rat«£ of tax. — A table &t tfa.« rates is given bekrw; Rates of gift tax Btecks of taxable gifts Per cent KiceedJDg— Jjot exoeed- AxDxnmt of $50,000 $30,000 1 Sffl.OOO 100,000 50,000 2 100, «M isaooo 50,090 3 16a 889 «9,fl90 100,069 4 ^aoos «o,flao TSB,eTO 290.000 6 460.899 800, «» « ■ 76a, 000 1,000.000 250,*100 12 1,600,000 l.?»0,<)00 I)00.<»0 U 1,600,000 2,000.000 500,000 18 2,-e88.e8o 3,008,000 l.OOO.flOO 21 . a, 000, 000 4,000,000 1,000,0)0. 21 6,086,000 i,ooo,eo9 I t! 5,ooaoofl 8,K)0,Q00 3,000.000 30 8,<8M,0DB 1«,«)0,«» ! 2,008,«M 35. ia00Q,60» 40 Art. 6. Computation of tax. — For the purpose of computing the tax, the net amount of gifts is divisible into blocks, each block being taxed at a different and inciBasing rate. The preceding table gives the amount of the various blocks and the applicable rate of tax under the acL For example, the tax upon the net amount of gifte of $1^50/)00 is computed as follows: Amount of First block $50. 000 at 1 per cent $500 " Seeoad block 50,000 at 2 " " 1,000 . " Third block 50^ 000 at 3 " "1, 500 " " Fourth bIock__. 100, 000 at 4 " " 4,000 " Fifth l}lo«*__. 260, 000 af 6 " " 12,000 " " Sixth block ^ 30a «W et 9 " " 23, 000 " Seventh block 250, 000 at 12 " " 30, 000 Remainder 250, 000 at 15 " " 37, 500 Total amoitnt of taxable gifts— 1,250, 000 TotalHax. 113, !500 Tlieie is swfejoined a taJble for ascertaJaing the tax without thp de- tailed oomputatioa jgi'ran a^ve. , An illa^ration of its use is as fel- lows ; The aioieiunt of taxable gifts in the calendar year is $1^0^900. By refeenoe to tiie table it will be seen that the last coaipjete feloek preening this amount ends: with $l,OOOjOOG and tijat the . total tax computed on a million dolJacs under the rates amounts, to $76.0le for eomismlMg gift tax Amount of taxable gilts Rat* (peromt) T«I Total Exceeding— Not ex- ceeidliis~ Amount ot block in ; ■ ■'■ $50, 000 '.. 108,000 160,000 1 35O;00O 450,000 ■76O,,000i 1,000,000 l(600klOOO 2,000,000 3,080,00& 4,000,000 6)1000,000/ 8,000,000' 10,000,000 $50,o6S~ 60,000 60, 000 \ m,fm 200,000 800,000 260,000 600,000 600, 000 1,000,000 1,000,000 1,000,000 3,000,000 2,000,000 12 16 18 21 24 27 30 36 40 $500 1,000 1,600 4»00fl 80,000 ■,76i000 90,000 210,000 240,000 :»0,OOO< 900,000 700,000 $6*00 .. 1,608- 3,000 :7,O0O 19,000 4eiOoo 76,000 161,000 241,000 461,000 691,000 oaiyooo 1,861,000 2,561,000 ■ .$80)000. 100,000 i > - 150,0001 25.0, 000 t . ■ 450,000 750, 000, 1,000k OOO 1, 600, 000 1 < 2, 000, 000 3,000,000 '.. 4iB0P,Q0ft 6, 000, 000 8,000,000 10,000,000 • ! ( ; .1'; VAl-UATION OF PROPERTY Art. 7. (1) General. — The law provides that if the gift is made in property, the fair market value thereof at the dute of the gift shall be considered the amount of the gift. The fair market value is the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell. Where the property is sold within a reasonable period after the gift, and it is shown that the selling pticfe reflects the fair market value thereof as of the date of the gift, the selling price will be accepted. Neither depreciation nor appreciation in valu6 sub- sequent to the date of the gift will be considered. All relevant facts and elements of value should be considered in every case. (2) Real estate. — The property should not be returned at the local assessed value' thereof unless such value represents the fair market value as of the date of the gift. ' ' ! ■ (3) Stocks and bonds. — The value of stocks and bonds listed u^on a stock exchange should be determined by taking the mean be- tween the highest and lowest quoted selling^ prices upon the date of the gift. If the gift was on a Sunday, or holiday, ihe triansactton of the next pi-evious business day- will govern. If ttiere Were no sales on the date of thie gift, the value should be determined 'by taking the mean between the highest and lowest sales upon the nearest d&td either before or after the date of the gift, if within a reasonable pei-iod. ' If the security is listed upon more than one exchange, the redords of the principal exchange should be employed. In valuing listed stocks and b'pnds' the donor should observe care to consult accurate records to' 'obtain values as of the date of the gift. If th6 sefcurities are not listed upon an exchange, but are dealt ^ in actively tlirough brokers, ot have an active market, the v&lue should be determined by taking the sale price as of the date of the gift, or, Avhere there was no sale on that date, of the nearest date thereto upon which a sale was made, if within a reasonable period. Securities in which there are occasional transactions, bvit which are not dealt in actively enough to clearly establish a fair market value, should be valued upon the basis of the nearest sale to the date of the gift, pro- vided such sale was made in the normal course of business between a willing buyer and a willing seller. Where" quotations are obtained from brokers, or evidence as to the sale of securities is obtained from the officers of the issuing companies, the donor is requested to pre- serve in his files the letters furnishing such quotations, or evidence of sale, for inspection when the return is verified by an investigating officer. , Where securities are regularly quoted on a bid and asked basis, and actual sales are not available, the bid price as'of the date of the gift, or the nearest date thereto where not quoted as of the date of the gift, will be accepted as the value. In the case of corporate or other bonds for which there is no active market, the value is to be determined by giving consideration to the soundness of the security, the interest yield, the date of matux'ity, and other relevant factors. Where, as to any particular security, conditions of sale or owner- ship are such that the fair market value, determined as indicated above, would not afford a proper basis for valuation, the commis- sioner, on final audit, will establish the value by considering all rele- vant factors. In any case where the donor contends that the value as established by the general rules stated above is not the fair market value on the date of the gift, the evidence upon which he bases his contention should be filed with the return. (4) Interest in business. — Care should be taken to arrive at an accurate valuation of any business, or interest therein, which is made the subject of a gift. A fair appraisal as of the date of the gift should be made of all the assets of the business, tangible and intan- gible, including good will, and the business should be given a net A'alue equal to the amount which a willing purchaser, whether an individual or corporation, would pay therefor to a willing seller in view of the net value of the assets and the demonstrated earning capacity. Special attention should be given to fixing an adequate figure for the value of the good will of the business. The factors hereinbefore stated relative to the valuation of other property, where applicable, will be considered in determining the valuation of a business or an interest therein. All evidence bearing upon such valuation should be submitted with the return, including copies of reports -in any case where examinations of the business have been made by accountants, engineers, or any technical experts as of or near the date of the gift. (5) NoteSj secured and unsecured. — The value of notes, whether secured or unsecured, will be presumed to be the amount of unpaid principal, plus accrued interest to the date of the gift, unless the donor establishes a lower value. Where returned at less than face value, plus accrued interest, it must be shown by satisfactory evi- dence that the note is worth less than the unpaid amount, because of the interest rate, or date of maturity, or other cause, or that it is uncollectible, either in whole or in part, by reason of the insolvency of the party or parties liable, or for other cause, and that the prop- erty, if any, pledged or mortgaged as security is insufficient to satisfy it. (6) Intangibles. — Intangibles should be valued in accordance with the rule laid down under (1) above. (7) Annuities, life, remainder, and reversionary interests. — Where the donor purchases an annuity for the donee payable at the end of annual periods throughout the life of the latter the value thereof, as of the date of the gift, should be determined by Table A, a part of this article. The amount payable annually should be multiplied by the figure in column 2 of the table opposite the number- of years in column 1 nearest the actual age of the donee at the date of the gift. Where the gift consists of an annuity payable to the donor at the end of annual periods dmung his life the figure in column 2 of the table opposite the number of years in column 1 nearest the actual age of the donor at the date of the gift should be used. If the annuity is payable semiannually, quarterly^, or at the beginning of the year, or for more than one life, or in any other, manner render- ing inapplicable Table A or Table B (also a part of this article) the case may be stated to the commissioner, who will thereupon make the computation and advise the donor thereof. Example: The donor purchases for his daughter an annuity of $10,000, the payments whereof to be made at the end of annual periods during her life. The age of the daughter at the date of the gift is 40 years and 8 months. By reference to the table the figure in column 2 opposite 41 years, the number nearest to the daughter's age, is 14.86102. The present worth of the annuity is therefore $148,610.20. Where the gift consisted of an annuity payable at the end of annual periods during a specified number of years, the table marked " B " should be used. Example: Having purchased an annuity of $10,000 payable to -himself at the end oi annual periods, throughout a term of 20 years, the donor, when 15 years has elapsed, makes a gift thereof to his son. By reference to the table it is found that the figure in column 2 opposite 5 years, the unexpired portion of the 20-year period, is 8 4.45182. The present worth of the annuity is, therefore, $44,518.20 (4.45182 multiplied by 10,000) . Where the donor was entitled to receive the entire income of cer- tain property during the life of Z, or for a term of years, and the annual rate of income for a period equal to or exceeding the life expectancy of Z, or for such term of years, is fixed or definitely determinable at the time of the gift, then the present worth of the donor's right to such income should be computed as explained above in the case of an annuity- Where the rate of annual income is not determinable, or where the donor was entitled merely to the use of nonincome-producing property, a hypothetical annuity at the rate of 4 per cent of the value of the property should be made the basis of the calculation. Where the gift is of a remainder or reversionary interest subject to an outstanding life estate, the present worth thereof will be ob- tained by multiplying the value of the property at the date of the gift by the figure in column 3 of Table A opposite the number of years nearest to the age of the life tenant. Where the remainder or reversion is subiect to an estate for a term of years, Table B should be used. Example: The donor transferred by gift property worth $50,000 which he was entitled to receive upon the death of his elder brother, to whom the income for life had been bequeathed. The brptheri at JJie date of the gift was 31 years of age. By reference to Table A it is found that the figure in column 3 opposite 31 years is 0.31262, The present worth of the remainder interest is, therefore, $15,631.;: 9 Tablr a Taple, single life, 4 per. c^t, showing the present worth of an annuity, or life interest, and of a reversionary interest I 3 8 I 2, t AjuHiity, ot Eeversion, or Annuity, or Reversion, or presMit value present value present'value present value or SI dae at of $1 due at of$l due at ot $1 due at , Age the end ol each the eiid of'the Aga the end of each the end of the year during the year of death of year during the year of death of life of a person a person of spec- life of a pisrsop a person of spec- of specified age ified age of specified age ified age Annuity Eeveraion Ammlts Seversion $14,72829 $0. S9607 n $12.17919 $0. 49311 1 17.3U'«1 . 29586 .62 11.88108 ,50446 3 IS. 69578 .24247 63 11 68531 . 51695 3 19.15901 .22465 Si 11. 28326 , 62767 t 19.4122S .21491 55 10.97789 , 53931 5 19.55301 .20950 56 10. 66982 .56116 6 19. 61731 .20703 6T 10.35931 .56310 7 19. C2502 .20073 58 10. 04630 . 57514 8 19. 61097 .20727 89 9. 73131 .68726 , 9 19.53413 . 21022 60 9. 41474 . 59943 10 19.46359 .21332 61 9. 09765 .61163 11 19-36943 .21665 62 8.78062 .62383 12 19.28184 .21993 63 846412 .63600 : 13 . 19, 19068 19.09590 .22344 64 8 14888 .64812 14 .22708 85 T^.ssssa .66017 15 18.99764 ,23086 66 . 7. 52476 ..67212 ' 16 18. 89669 .23478 67 7. 21699 .68397 17 18,79010 .23884 68 S. 91298 . 69565 18 18.68070 34365 e» 6.61301 .70719 19 18. 56761 .24740 70 6. 31716 . 71857 20 18 46038 .25191 71 , 6.02612 . 72976 21 18.329,32 . 2SeS6 n S. 74003 . 74077 22 18. 20416 -.26138 73 5.45923 .75167 23 18. 07471 .36936 74 - ' 8.18402 .76215 24 17. 94097 . 27160 75 , . , 491463 ' . ,..77251 25 17. 80274 . 27682 76 4. 66125 .78264 26 17. 66984 . 28231 77 4.39383- i .79254 27 17. 51224 . 2S799 78 4. 14288 . 80220 28 17. 35968 .29386 79 3^89858 -. .8U59 29 17.20225 .29991 80 3.66071 .82074 i? 17.03961 .30617 81 , 3.42900 ,82965. ^ , Ifi. 87176 .31262 82 8. 202B8 ' . 838315 ' 32 16. 09846 . 31929 83 2. 98024 . 84891 33 16. 51964 .32017 84 2. 76106 .85534 34 16. 33603 .33327 86 2 64306 .86371 3S 16. 14437 ■ .340W 86 2. 32795 .87200 38 15. 94755 .84817 87 2; 11384 .88024 37 15. 74427 ,.3559» 88 . 1.90115 . 88842 38 16. 53421 ■ . 36407 ' 89' 1.69107 . 89660 39 15. 31722 .37241 90 1. 48540 . 90441 40 15:08296 .3S!104 •91 , 1.28432 - . 91214 41 14.86102 . 38996 92 1. 09024 . 91961 42 14: 62122 . 3SM8 93 ' . 90R47 .«2()67 43 14. 37366 .40871 94 .73687 . 93320 44 14. 11860 . 41S52 95 . 58435 . 93906 45- 18. 85718 .42851 96 .46182 •. 94378 46 13. 68953 .43386 97 . 36698 . 94742 ^ 13. 31698 .44935 08 • 1. 24038^ ,95229 48. 13.03942 .46002 99 .ooqoo ,96154 "'49 12. 75716 . 47088 50 12.47032 .48191 ._ no Table B Tahle, single life, ^ per cent, shomn-g the present wortli of an annuity, or life interest, and of a reversionary interest — Continued 1 2 Present werth of 3 1 2 Present worth of 3 an annuity of $1,, Present wortJi of an annuity of $1, Present worth of Number of payable at the $1, payable at the Number of payable at the $1, payable at the years end of each year, end of a certain years end of each year, end of a certain for a certain number of years for a certain number of years number of years number of yeai-s Annuity Seversion Annuity Reuersion 1 $0. 96164 $0 961538 16 $11. 66229 $0 633908 2 1. 88609 .924666 17 12. 10567 . 613373 3 2. 77609 .888996 18 ■ 12. 66929 . 493628 4 3. 62989 .854804 19 13. 13394 . 474042 , 6 4.46182 . 821927 20 13.69032 . 456387 6 6. 24214 .790314 21 14. 02916 . 438834 7 6.00205 . 759918 -22 14. 45111 . 421955 8 6.73274 . 730690 23 14. 86084 . 405726 9 7. 43633 .702587 24 15.24696. . 390121 10 a 11089 . 675564 25 16.62208 .376117 11 8. 76047 . 649581 26 16.98277 . 360689 12 9.38507 . 624597 27 16. 32968 . 346816 13 9. 98666 . 600674 28 16.66306 . 333477 14 10. 66312 . 577475 29 16.98371 .320651 15 11. 11839 . 555266 30 17. 29203 . 308319 ■ DEDUCTIONS— GIFTS BY RESIDENTS (Sec. 321. In computing tlie amount of tlie gifts subject to the tax imposed by section 319, there shall be allowed as deductions : (a) In the case of a resident — ) (1) An exemption of $50,000; Art. 8. Specific exemption.— 1 here may be deducted from the total amount of gifts made by aiiy resident donor during the calendar year a specific exemiDtion of $50,000. i DEDUCTIONS— TRANSFERS FOR PUBLIC, CHARITABLE, RELIGIOUS, ETC., USES (Sec. 321. In computing the amount of the gifts subject to the tax imposed by section 319, there shall be allowed as deductions : (a) In the case of a resident — ) (2) The amount of all gifts or contributions made within the cal- endar year to or for the use of the United States, any State, Territory, any political subdivision thereof, or the District of Columbia, for exclu- sively public purposes, or to or for the use of any corporation organ- ized and operated exclusively for religious, charitable, scientific, liter- ary, or educational purposes, including the encouragement of art and 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 individual, or to a trustee or trustees, or fraternal society, order, or association, operating under the lodge system, but only if such gifts or contributions are to be used by such trustee or trustees or by such fraternal society, order, or association, exclusively for religious, char- itable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, and the amount of all gifts or contri- butions made within the calendar year by such corporation, trustee, 11 or fraternal society, order, or association for a religious, charitable, scientlflc, literary, or educational purpose, or for the prevention of cruelty to children or animals, and the amount of all gifts or contri- butions made within the calendar year to the special fund for voca- tional rehabilitation authorized by section 7 of the vocational reha- bilitation act; Section 7 of the vocational rehabilitation act is as follows : Sec. 7. That the board is hereby authorized and empovirered to receive such gifts and donations from either public or private sources as may be offered unconditionally. All moneys received as gifts or donations shall be paid into the Treasury of the United States, and shall constitute a permanent fund, to be called the " Special fund for vocational rehabilitation," to be used under the direction of the said board, in connection with the appropriations hereby made or hereafter to be made, to defray the expenses of providing and maintaining courses of vocational rehabilitation ; and a full report of all gifts and donations offered and accepted, and all disbursements therefrom, shall be submitted annually to Congress by said board. Section 7 of the vocational rehabilitation act was repealed and section 12 of the World War veterans' act of 1924 was enacted in lieu thereof June 7, 1924. Section 12 of the World War veterans' act of 1924 is as follows: Sec. 12. That the bureau is hereby authorized and empowered to receive, for purposes of benefits provided by Title IV hereof, such gifts and donations from either public or private sources as may be offered unconditionally. All moneys so received as gifts or donations shall be paid into the Treasury of the United States, and shall con- stitute a permanent fund, to be called the " Special fund for voca- tional rehabilitation," to be used under the direction of the said bureau in connection with the appropriations hereby made or here- after to be made, to defray the expenses of providing and maintaining , courses of vocational rehabilitation.; and a full report of all gifts, and donations offered and accepted and aU disbursements therefrom shall be submitted annually to Congress by the director. Art. 9. Transfers for public, charitable, religious, etc., uses. — There may be deducted from the total amount of gifts made by any resi- dent donor during the calendar year the amount of all gifts made (1) to or for the use of the United States, any State, Territory, any political subdivision thereof, or the District of Columbia, for ex- clusively public purposes; or (2) to or for the use of any corporation or association organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art and the prevention of cruelty to children or animals, where no part of the net earnings of the corporation or association inures to the benefit of, any private stockholder or indi- vidual; or (3) to a trustee or trustees, or to a fraternal society, 14581°— 24 3 12 ordM", or associatioa operating under the lodge system, provided such gifts are to be used by such trustee or trustees, fraternal society, order, or association excJusively for one or more of the purposes enumerated in (2) ; and (4) the amount of all gifts made within the calendar year to the special fund for vocational rehabilitation authorized by section 7 of the vocational rehabilitation act, if made prior to June 8, 1924, and by section 12 of the World War veterans' ' act of 1924, if made on or after June 8, 1924. Where a trust is created for both a charitable and a private pur- pose, deduction may be taken of the amount of the beneficial interest in favor of the former only in so far as such interest is presently ascertainable, and hence severable from the interest in favor of the private use. Thus when money or property is placed in trust to' pay the income to an indiTidnal during his life and then to pay or deliver the principal to a charitable corporation or to apply it to a charitable purpose the present worth of the remainder interest is deductible. For the manner of determining the value see subdi- vision 7 of article 7. The deduction is not limited in the case of resident donors to gifts to domestic corporations or for use within the United States when made to a trustee or trustees, a fraternal society, order, or asso- ciation operating raider the lodge system. The term "domestic" when appKed to a corporation or partner- ship means created or organized in the United States or under the law of the United States or of any State or Territory. Abt. 10. Heligioos, charitable, scientific, and educational corpora- tions. — A corpoi'atinid. Sec. 313. (a) The collector shall grant to the person paying the tax duplicate receipts, either of wliich shall be sufficient evidence of such payment, '' * * Aht. 35. Appeals and hearings. — An appeal may be taken by any donor, liis executor, or the administrator of his estate, to the Board of Tax Appeals from any final determination by the commissioner that there is a deficiency in respect of the gift tax, provided the time within which an assessment may be made has not expired. Where, however, a jeopardy assessment is made, no appeal can be taken to the board until after a claim for abatement has been filed and acted upon by the commissioner. (See art. 53.) In every case where a deficiency appears to exist, unless the right to make assessment thereof has expired, the donor will be advised by letter of the bureau's tentative findings. In the event the donor objects to the tentative findings, in whole or in part, he may file (by letter or other informal writing) a protest with the commissioner within 30 days from the mailing (not the receipt) of the letter advising him of such tentative findings, except that where the donor is a nonresident or a resident of Alaska or Hawaii, the period within \^hich such protest may be presented shall be 60 days from the mail- ing of such letter. However, if the protest is mailed in time to be received by the commissioner within such period in the ordinary course of the mails it will be accepted. The supporting evidence may be in the form of affidavits, or may consist of original 4ocu- ments, certified or verified copies thereof, or other competent evidence, and if no oral hearing is requested, must be filed prior to the expiration of 25 days after the time for the filing of the protest. Upon presentation of a protest, careful consideration will be given thereto before the tax liability is finally determined. An oral hearing is not a prerequisite to the consideration of a protest. If, however, a hearing in the bureau is desired, it must be requested 27 ■within the time allowed for the filing of a protest. If it is desired to have the hearing set for any particular date, the request should so state, and the date suggested will be confirmed by the bureau, if possible. If a hearing is requested, all data relied upon must be filed 5 days prior to the date to be fixed therefor. Should the donor not appear in person at the hearing his representative must present a properly executed power of attorney. All hearings relative to tentative findings will be held only in Washington, D. C. Upon cause shown the donor maj^ obtain a reasonable extension of time for holding such conference or filing such data. Any re- quest for such additional time shall state specifically the reasons therefor. If, pursuant to the conference, the Miscellaneous Tax Unit and the donor reach an agreement respecting the amount of the de- ficiency, such amount Avill thereupon be assessed, and Avhere, upon examination of the data submitted by the donor without conference, the Miscellaneous Tax Unit concedes that there is no deficiency, the donor will be so notified. Where a protest is filed, it should contain (a) the name of the donor; (b) a reference to the date and symbols appearing on the, letter containing the tentative findings; (c) an itemized schedule of the findings of the unit to which the donor takes exception; (d) a summary statement of the grounds upon which the donor relies in connection with each exception; and (e) in case the donor desires a hearing, a statement to that effect. Any questions in respect to which the Miscellaneous Tax Unit and the donor are unable to agree, other than questions of valuation of property or questions of fact arising in connection with any deduc- tion claimed by the donor, will be submitted to the Solicitor of Internal Kevenue for consideration, and the donor will be notified by the Miscellaneous Tax Unit of tliB submission and of the questions submitted. Opportunity for a hearing before the Solicitor of Inter- nal Eevenne, or before such representative of his office as he may jesio'nate, will be granted if request therefor is made to the solicitor within 20 days after the mailing of the. letter to the donor advising of the submission of the questions to the solicitor. Where, however, the donor is a nonresident or a resident of Alaska or Hawaii, the solicitor will grant a hearing if request therefor is made to him within' 60 days from the mailing of such letter. The solicitor, after consideration of the case, will submit his recommendations to the commissioner. The donor will in all cases be notified by registered mail of the commissioner's final determination. If the donoi' pre- sents no protest within 30 days or 60 days, as the case may be, from tlie date of the letter advising of the tentative findings, final determi- nation will be made and the donor notified thereof by registered mail. 28 Within 60 days after the mailing of the registered letter advising of the .final determination by the commissioner, thp donor may file an appeal with the Board of Tax Appeals. Where in any case the donor acquiesces in the tentative or final determination of the deficiency, or any part thereof, the form of agreement consenting to assessment, which will be forwarded with the letter of notification, should be executed by the donor and re- turned to the commissioner in order to expedite assessment which stops the accrual of interest until after notice and demand by the collector. If the commissioner believes that the assessment or collection of a deficiency will be jeopardized by delay, such deficiency will be assessed and notice and demand made by the collector for the pay- ment thereof. In such case the assessment may be made (1) with- out giving the notice provided in subdivision (a) of section 308, or (2) before the expiration of the 60-day period provided in sub- division (a) of section 308, even though such notice has been given, or (3) at any time prior to the final decision by the Board of Tax Appeals, even though the donor has filed an appeal. If a deficiency is assessed under subdivision (d) of section 308, the donor, within 30 days after, notice and demand from the collector for the pay- ment thereof, may file a claim for the abatement of such deficiency or any part thereof. (See arts. 53 to 55.) Where an abatement claim is filed it will be considered in ac- cordance with the procedure hereinbefore specified in connection with protests filed in respect of tentative findings of which the donor is advised prior to assessment. Where the time within which an assessment may be made has ex- pired, no tentative findings will be sent to the donor, though he will be duly advised of the tax liability as determined by the com- missioner, and suit for the collection thereof will be instituted un- less it is paid promptly. Where a deficiency is determined after the time within which an assessment may be made, no appeal may be taken to the Board of Tax Appeals. ASSESSMENT OP TAX Akt. 36. Jeopardy and other assessments. — In any case where the commissioner believes that the assessment or collection of a defi- ciency tax would be jeopardized by delay, he will make an immediate assessment thereof. In such case the assessment may be made (1) without giving any notice thereof, or (2) before the expiration of the 60-day period provided by subdivision (a) of section 308, even though such 60-day notice has been given, or (3) at any time prior to the final decision by the Board of Tax Appeals, if an appeal has been filed. (See art. 35.) 29 : , All jasgessments, except in the case of a false or fraudulent return, Oir of a failure to file a return, must be madB within four years after the return wa^ filed, unless, however, (1) an appeal is filed with the Board of Tax Appeals from the determination by the commissioner of a deficiency, in which case the period of four years within which assessment thereof is required to be made shall be extended by the number of days between the date of the mailing of the 60-day notice and the final decision by the Board of. Tax Appeals; or (2) no appeal is filed, in which case the period of four years within which assessment thereof is required to, be made shall be extended 60 days. In case of a false or fraudulent return with intent to evade the tax, or of a failure to file a return, the tax may be~ assessed, or pror ceedings in court for collection may be begmi without assessment, at any time. Art. 37. Payment of tax; general. — The tax must be paid on or before the 15th day of March of the year succeeding the calendar year in which the gifts were made,.miless an extension of time for payment thereof has been granted by the commissioner. No dis- count will be allowed for payment in advance of the due date. The collector will grant to the person paying the tax duplicate receipts, either of which will be sufficieait evidence of such payment. Following an investigation of the return, the tax liability will be finally determined by the commissioner upon the basis of such inves- tigation. If the amount of tax shown on the return has been paid and exceeds the amount of tax as finally determined, the commis- sioner will refund such excess. If the amount of tax as finally determined exceeds the amount of tax already paid, the commis- sioner will notify the donor of the amount of the deficiency tax, and payment thereof, in whole or in part, may then be made to the collector. Where the audit of the return does not disclose a de- ficiency tax, the donor will be notified to that effect. PAYMENT OF AND RECEIPTS FOR TAXES Sec. 1021. (a) Collectors may receive, * * * 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 rules and regulations as the commissioner, with the approval of the Secretary, 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 to the same extent as if such check had not been tendered. Art. 38. Payment by check. — Collectors may accept uncertified checks in payment of gift taxes, provided such chiecks are collectible at par, that is, for the full amount, without any deduction for ex- 30 change or other charges. The collector will stamp upon the face of each check before deposit thereof the words " This check is in pay- ment of an obligation to the United States and must be paid at par. No protest." This should be followed by his name and title. The day on which the check is received will be considered the date of pay- ment so far as the taxpayer is concerned, unless the check is re- turned dishonored. If the bank on which a check is drawn should refuse to pay it at par, the check should be returned through the depositary bank. All expenses incident to the attempt to collect such a check and the return of it through the depositary bank must be paid by the drawer of the check to the bank on which it is drawn. (See sec. 3210 of the Revised Statutes, as amended by sec. 1031 (b) of the revenue act of 1924.) Wliere a check has been returned imcollected by the de- positary bank, the collector should proceed to collect the tax as though no check had been given, and the taxpayer will remain liable for payment of the tax and for all legal penalties and additions to the same extent as though such check had not been tendered. A taxpayer who tenders a certified check in payment of taxes is not released . from his obligation until the check has been paid. (See ch. 191 of the act of March 2, 1911.) Treasury Department Circular No. 176, as amended, prescribes detailed regulations governing the deposit and collection of checks. Collectors are referred to paragraphs 13-16 and paragraph 26 thereof as to the deposit of taxpayers' checks and the handling of uncollected or lost items. Art. 39. Donor liable for tax. — The statute provides that the donor sliall pay the tax. Where the donor dies before the tax is paid, his executor or administrator shall make payment thereof to the col- lector. Where there is no duly qualified executor or administrator, all persons in actual or constructive possession of any property of the donor are liable for and required to pay the tax to the extent of the value of such property. As to the liability of the donee, see article 45, and as to that of the executor, see article 59. Art. 40. Extension of time for payment of tax shown on return. — In any case where the commissioner finds that payment of the tax on the due date would impose undue hardship upon the donor, or upon his estate if he be dead, an extension or extensions of time will be granted for the payment of the tax for a period not to exceed in all five years from the due date. Extensions of time for tax payment will be granted only in exceptional cases, and where it is evident that the payment of the tax on or before the due date would impose upon the donor, or his estate, undue hardship. The term " undue hardsliip " means more than an inconvenience. It must appear that 31 substantiaL financial loss or sacrifice would result from making payment of the tax at the due date. An application for an extension of time for the payment of the tax must be made under oath, and must contain sufl&cient infor- mation from which the commissioner may determine whether undue hardship would result if the requested extension were refused. The extension will not be granted on a general statement of hardship, but in each case there must be furnished a statement of the specific facts showing what, if any, financial loss or sacrifice would result if no extension wei*6 granted. As a condition to the granting of such extension, the cDmmissioner may require that a penal bond be furnished in an amount not ex- ceeding double the amount of the tax. If a bond is required it must be filed with the collector within ten days after notification by the commissioner that such bond is required, and shall be conditioned upon the payment of the tax in accordance with the terms of the extension granted, including interest and any additional amount that may be assessed, and shall be executed by a surety or sureties and subject to the approval of the commissioner. In lieu of such surety or sureties, the bond may be secured by deposit of Liberty bonds or other bonds or notes of the United States in a sum equal at their par value to the amount of such bond. The first extension granted will be for a period of not less than six months from the due date of the tax, and no single extension for more than one year will be granted. Application for extension of time for payment should be filed with the collector, who will refer it to the commissioner with suitable recommendations. An extension of time to pay the tax does not relieve from the duty of filing the return on or before the date fixed by the statute, nor Avill it operate to prevent the running of interest. (See arts. 34, 41 and 43.) Where the donor, his executor, or the administrator of his estate, desires to obtain an additional extension, the application therefor must be filed with the collector on or before the date of the expira- tion of the previous extension ; otherwise the application must be de- nied. The granting of an extension of time for paying the tax is discre- tionary with the commissioner and such authority will be exercised under such conditions as he may deem advisable. (See arts. 34 and 42.) Art. 41. Interest on tax disclosed on return. — Where any portion of the tax indicated by the return is not paid on or before the due date, and no extension of time for payment thereof has been granted, such 32 unpaid portion bears interest at the rate of 1 per centum a month from the due date until payment is received "by the Goilector. Where, however, an eistension of time has been granted for pajing any portion of the tax sliown upon the return, the statute requires tlie imposition of interest upon the cmaotmt, the time for payment of whicli has been extended, at the rate of 6 per centum per annum from the expiration of six months after the due date of the tax (the 15th day of March) to the expiration of the period of the extension. If the amount of tax, the time for payment of which lias been ex- tended, and the interest thereon from six months after the due date of the tax, are not paid in full prior to the expiration of the exten- sion, or extensions, granted by the commissioner, interest accrues upon the total amoimt (tax and interest), at the rate of 1 per centum a month from the date of the expiration of the extension, or exten- sions, until payment is received by the collector. In any case where an extension of time is granted for paying the tax, interest will be added to the amount, the time for payment of which has been extended, from six months after the due date until the expiration of the period of extension, or extensions, even though payment may be made before the expiration thereof. (See arts. 34 and 40.) Art. 42. Extension of time far payment of deficiency tax, — In any case where the commissioner finds that payment of the deficiencj' tax upon the date prescribed for the payment thereof would impose un- due hardship upon the donor or his estate, if he be dead, an exten- sion or extensions of time ^^^ll be granted, with the approval of the Secretary, for payment for a period not to exceed in all two years from the date prescribed for the payment thereof. The term "undue hardship" means more than an inconvenience. It must appear that substantial financial loss or sacrifice would result from making payment of the deficiency at the time pre- scribed for the payment thereof. No extension will be granted where the deficiency is due to negligence or intentional disregard of the rules and regulations or to fraud with intent to evade the tax. Any application for an extension of time for the payment of a deficiency must be made under oath, and must be accompanied by evidence showing that undue hardship would result if the extension were refused. The extension will not be granted on a general statement of hardship, but in each case there must be furnished a statement of the specific facts showing what, if any, financial loss or sacrifice would result if no extension were granted. As a condition to the granting of such an extension, the commis- sioner may require that a penal bond be furnished in an amount 33 not exceeding double the amount of tlie deficiency. If the bond is required, it must be filed with the collector within 10 days after notification by the commissioner that such bond is requiredv and shall be conditioned upon the payment of the deficiency in accord- ance with the terms of the extension granted, including interest and any additional amounts that may be assessed, and shall be executed by a surety or sureties and shall '.a subject to the approval of the commissioner, In lieu of such surety or sureties, the bond may be secured by deposit of Liberty bonds or other bonds or Jiotes of the United States in a sum equal at their par value to the amount of such bond. No single extension for more than one year will be gi*anted. Application for extension of time for payment should be filed with the collector. The collector will refer the application to the commissioner, with suitable recommendations. An extension of time to pay the deficiency will not operate to pre- vent the running of interest. No extension of time for paying a deficiency will be granted until after the assessment thereof and notice and demand for payment has been made by the collector. Consequently no application for extension of time for payment of a deficiency, or any part thereof, should be made prior to the receipt of such notice and demand. (See arts. 34 and 43.) Art. 43. Interest on deficiency tax. — The statute provides that the deficiency, except where a claim for abatement of any portion thereof is filed, shall bear interest at the rate of 6 per centum per annum from the due date for payment of the tax (the 15th day of March succeed- ing the calendar year in which the gifts were made) to the date the deficiency is assessed, and that such interest shall be assessed at the same time as the deficiency, of which it becomes an integral part. "Such portion of the deficiency, assessed as provided in the first paragraph of this article, not paid in full within 30 days from the date of notice and demand by the collector, bears interest at the rate of 1 per centum a month from the date of such notice and demand until payment is received by the collector, unless, however, an extension for the payment thereof has been granted. Where an extension of time for paying the deficiency, or any portion thereof, has been granted, the statute requires the imposition of interest upon the amount, the time for payment of which has been extended, at the rate of 6 per centum per annum for the period of the extension, and if not paid before the expiration of the extension, or extensions, interest accrues upon the total amount (tax, interest, or additions thereto) at the rate of 1 per centum a month from the date of the expiration of the exten- sion until payment is received by the collector, In any case where an extension of time is granted for paying the deficiency, interest will be added to the amount, the time for pay- ment of which has been extended, for the period of the extension, or 34 extensions, even though payment may be made before the expiration thereof. Example : A deficiency in the tax amounting to $600 was deter- mined and assessment thereof made on the 15th day of July of the year following the calendar year in which the gifts were made. The amount of the assessment in this instance is $500. plus interest thereon at 6 per centum per annum from and including March 16 (the due date being March 15) to and including July 15, amounting to $10.03, or a total assessment of $510.03, which thereupon becomes the amount of the deficiency. Tlie date of the notice and demand by the collector for payment was August 1 following the assessment. "Within 30 days thereafter, $255.02 was paid and request made for an extension of time for paying the balance of the deficiency ($255.01), and an extension of six months from August 1 to Feb- ruary 1 was granted for the paj'ment thereof. This amount bears interest at 6 j)er centum per annum for the period of the extension, amounting to $7.71. The remaining liability is, therefore, $262.72 (though paid in full jjrior to the expiration of the extension). The amount of liability in this instance was not paid until August 2 following the expiration of the extension. _ Inasmuch as tlie S255.()l, the time for payment of wliich was extended, was not paid until after the expiration of the extension, interest accrued thereon at tlie rate of 1 per centum a month for six months, amounting to $15.30. The amount due on Augiist 2 was, therefore, $278.02 ($255.01+7.71+15.30). Any addition to the tax resulting from the imposition of an ad valorem penalty under the provisions of section . 3176, Eevised Statutes, for delinquency in filing the return, is subject to the same provisions of law relating to the assessment, collection, and the accrual of interest, as the deficiency tax, except that such addition to the tax is not subject to any interest between the due date for payment of the tax (the 15th of March) and the date of the assess- ment thereof. Where a claim is filed for the abatement of any deficiency tax, or any addition to tlie tax resulting from the imposition of an ad va- lorem penalty, interest accrues on such portion of the deficiency, or penalty, if any, as is not abated, at the rate of G per centum per annum from the date of the notice and demand by the collector following the jeopardy assessment to the date of the notice and demand by the collector subsequent to the action taken on the claim by the. com- missioner or bj' the Board of Tax Appeals, if an appeal is filed. If the amount, the claim for abatement of which is denied, is not paid in full within 30 days after such notice and demand subsequent to the action on the claim for abatement, interest accrues upon the un- 35 paid amount at the rate of 1 per centum a month from the date of such notice and demand until it is paid. COLLECTION OF TAX Sec. 324. The tax imposed by section 319 shall be paid by the donor on or before the 15th day of March, and shall be assessed, collected, and paid in the same manner and subject, iu so far as applicable, to the same provisions of law as the tax imposed by section 301. Sec. 314. (a) If the tax herein imijosed is not paid on or before the due date thereof the collector shall, upon instruction from the commissioner, proceed to collect the tax under the provisions of gen- eral law, or commence appropriate proceedings in any court of the United States having jurisdiction, in the name of the United States, to subject the property of the decedent to be sold under the. judgment or decree of the court: From the proceeds of such sale the amount of the tax, together with the costs and expenses of every descriiDtion to be allowed by the court, shall be first paid, and the balance shall be deposited according to the order of the court, to be paid under its direction to the person entitled thereto. Art. 44. Remedy not exclusive.— ^The remedy by action, here pro- vided, is not exclusive. For other available remedies for the col- lection of the tax, see article 62. LIEN Sec. 324. The tax imposed by section 319 shall be paid by the donor on or before the 15th day of March, and shall be assessed, collected, and paid in the same manner and subject, in so far as applicable, to the same provisions of law as the tax imposed by section 301. Sec. 315. (a) Unless the tax is sooner paid in full, it shall be a lien for ten years upon the gross estate of the decedent, except that such part of the gross estate as is used for the payment of charges against the estate and expenses of its administration, allowed by any court having jurisdiction thereof, shall be divested of such lien. If the commissioner is satisfied that the tax liability of an estate has been fully discharged or provided for, he may, under regulations prescribed by him with the approval of the Secretary, issue his certificate, releas- ing auy or all property of such estate from the lien herein imposed. (b) If (1) the decedent makes a transfer of, or creates a trust with respect to, any property in contemplation of or intended to take effect in possession or enjoyment at or after his death (except in the case of a bona fide sale for a fair consideration in money or money's worth) or (2) if insurance passes under a contract executed by the decedent in favor of a specific beneficiary, and if in either ease the tax in respect thereto is not paid when due, then the transferee, trustee, or beneficiary shall be personally liable for such tax, and such property, to the extent of the decedent's interest therein at the time of such transfer, or to the extent of such beneficiary's interest under such contract of insurance, shall be subject to a like lien equal to the amount of such tax. Auy part of such property sold by such trans- feree or trustee to a bona fide purchaser for a fair consideration in 36 money or money's worth shall be divested of the lien and a like lien shall then attach to all the property of such transferee or trustee, except any part sold to a bona fide purchaser for a fair consideration in money or money's worth. Art. 45. Property subject to lien. — This lien attaches to all the property of the donor, to the extent of the tax shown to be due by the return and of any deficiency tax, interest, and ad valorem pen- alty found to be due upon audit and review of the return. The lien also attaches to any property constituting the gift. ^"^Tiere the donor transferred or placed in trust any property by gift, a lien attaches thereto as stated in the preceding paragraph, and the donee or trustee is personally liable for the tax. Where the donee or trustee sells the property to a bona fide pur- chaser for a fair consideration in money or money's worth, the lien upon the property is divested, but there is substituted a like lien upon all the property of the donee or trustee, except such thereof as may be sold to a bona fide purchaser for a fair consideration in money or money's worth. The lien upon the entire property constituting gifts or upon the proiaerty of the donor continues for a period of 10 years after the gift, or gifts, except — (1) Where the tax is paid in full before the expiration of such period ; (2) In case of the donor's death, such portion of his estate as is used for the payment of charges against the estate and expenses of its administration, allowed by any court having jurisdiction thereof; (3) Such of the property constituting the gift as has been sold by the donee or trustee to a bona fide purchaser for a fair consideration in money or money's worth ; or (4) Where the commissioner issues his certificate releasing such lien. (See art. 46.) Aet. 46. Release of lien. — The statute provides that, if the com- missioner is satisfied that the tax liability has been fully discharged or provided for, he may issue his certificate releasing from the lien any or all property impressed therewith. The issuance of certifi- cates is a matter resting within the discretion of the commissioner, and certificates will be issued only in case there is actual need therefor. The tax will be considered fuUj' discharged for the purpose of the issuance of a certificate only when investigation has been completed, and payment of the tax, as determined by the commissioner, has been made. In such case a certificate of release of lien may be issued bj' the commissioner as to any or all property constituting the gifts or property of the donor upon the filing of an application 37 in duplicate on F&rm T&IA.. The form must contain all -tke infor- mation called for. Where the tax liability has not been fully discharged, no general certificate of release will be granted, but releases of lien upon par- ticular items of property will be issued upon the filing with the commissioner of such security, if any,^ as he may require. Where security is required, a penal bond must be furnished, in such amount as the commissioner may designate and secured as provided in the third paragraph of article 40. In lieu of such security, the commis- sioner may in any case issue a release upon payment of the estimated maximum amount of tax. If, upon consideration of the applica- tion, the commissioner finds the issuance of the certificate warranted, it will be issued and forwarded to the collector who will make delivery thereof to the applicant when the conditions upon which delivery is to be made are met. (See art. 45.) PENALTIES Sec. 324. The tax imposed by section 319 shall be paid by the donor on or before the 15th day of March, and shall be assessed, collected, and paid in the same manner and subject, in so far as applicable, to the same provisions of law as the tax imposed by section 301. Sec. 1017. (a) Any person required under this act to pay any tax, or required by law or regulations made under authority thereof to make a return, keep any records, or supply any information, for the purposes of the computation, assessment, or collection of any tax im- posed by this act, who willfully fails to pay such tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penal- ties provided by law, be guilty of a misdemeanor and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than one year, or both, together yith the costs of prosecution. (b) Any person required under this act to collect, account for and pay over any tax imposed by this act, who wilLfuUy fails to collect or truthfully account for and pay over such tax, and any person who willfully attempts in any manner to evade or defeat any tax imposed by this act or the payment thereof, shall, in addition to other penal- ties provided by law, be guilty of a felony and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution. (c) Any person who willfully (1) aids or assists in the preparation or presentation of a false or fraudulent return, affidavit, claim, or document, authorized or required 'by the internal revenue laws, or (2) procures, counsels, or advises the preparation or presentation of such return, aflidavlt, claim, or document, shall ( whether or not such falsity or fraud is with the luiowledge or consent of the person authorized or recpiired to present such return, aflSdavit, claim, or document) be guilty of a felony and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecHtiott. 38 (e) The term "person" as used in this section includes an officer or employee of a eoi'poration or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act iu respect of which the violation occurs. Sec. 317. (a) Whoever knowingly makes any false statement in any notice or return required to be filed under Part I of this title shall be liable to a penalty of not exceeding $5,000, or imprisonment not exceeding one year, or both. (b) Whoever fails to comply with any duty imposed upon him by section 304, or, having in his possession or control any record, file, or paper, containing or supposed to contain any information concern- ing the estate of the decedent, or, having in his possession or control any property comprised in the gross estate of the decedent, fails to e-xhil)lt tiw same upon request to the commissioner or any collector or law officer of the United States or his duly authorized deputy or agent, who desires to examine the same in the performance of his duties under Part I of this title, shall be liable to a penalty of not exceeding ,$500, to be recovered, with costs of suit, in a civil action in the name of the United States:. Sec. 1003. Section 3176 of the Revised Statutes, as amended, is amended to read as follows : " Sec. 3176. * * ■? in case of any failure to make and file a return or list witliiu the time prescribed by law, or prescribed by tlie ConiDiissioiier of Internal Revenue or the collector in pursuance of law , tlie commissioner shall add to the tax 2.j 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 fi'audulent return or list is willfully made, the commissioner shall add to the tax 50 per centum of its amount. " The amount so added to any tax shall be collected at the same time and in the same manner and as a part of the tax miless 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." Art. 47. Nature of penalties. — Two kinds of penalties are pro- vided for delinquency with respect to the duties imposed by the statute : (1) A specific penalty, to be recovered by suit, unless previously paid or adjusted by an acceptance of an offer in compromise; and (2) A iDenalty of a certain percentage of the tax, to be added to and collected in the same manner as the tax. In any case where more than one penalty is provided, the Govern- ment may assert any one or more thereof. Akt. 48. Penalties for false or fraudulent return. — Where any state- ment in the return is knowingly false, the person making it is subject to a penalty not exceeding $5,000, or imprisonment for not exceeding one year, or both, and 50 per centum will be added to the amount of the tax. Any person required to make a i-eturn who willfully fails to do so at the time required shall be guilty of a 39 misdemeanor and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than one year, or both, together with the costs of prosecution. Any person who AvillfuUy aids or assists in the preparation or presentation of a false or fraudulent return, or procures, counsels, or advises the preparation or presentation of such a return, whether such falsity or fraud is with or without the knowledge or consent of the person required to make the return, will be guilty of a felony and, upon conviction thereof, fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution. (See art. 34.) Art. 49. Penalty for failure to file return. — For failure to file the return within the time prescribed, 25 per centum will be added to the amount of the tax, except that when a return is filed after such time and it is shown that the failure so to file was due to a reasonable cause and not to willful neglect no such addition will be made to the tax. The ad valorem penalty of 25 per centum of the tax will not be im- posed where an extension of time for filing the return was granted by the collector pursuant to the provisions of article 24, and the re- turn is actually filed within the period of extension granted. Art. 50. Penalty for failure to pay tax, exhibit property, keep or exhibit records, etc. — Any person in possession or control of any rec- ord, file, or paper, containing or supposed to contain information relating to any gift made by the donor, or having in his possession or control property which was the subject of the giftj who fails to exhibit the same upon the request of the commissioner or any col- lector or law officer of the United States, or his duly authorized deputy or agent, in the performance of his duties, is liable to a penalty not to exceed $500, to be recovered by civil action. Such a request must be granted whether or not he believes that a compliance therewith is material. Any person required to pay the tax, keep any records, or supply any , information, for the purpose of the computation, assessment, or collection of the tax, who willfully fails to pay such tax, keep such records, or supi^ly such information, as required by the law or regu- lations, shall, in addition to other penalties, be guilty of a misde- meanor and, upon conviction thereof, be fined not more than $10,000, or imprisoned not more than one year, or both, together with the costs of prosecution. Any person who willfully attempts in any manner to evade or defeat the tax or the payment thereof, shall, in addition to other penalties, be guilty of a felony and, upon conviction thereof, be fined not more than $10/)Q0, or imprisoned for not more than five years, or both, together with the costs of prosecution. Abt. 51, Penalty for assistiiig', procuring, or advising^ tte preparation or pr^entation of false or fratidalent documents. — Anj person who willfully (1) aids or assists in the preparation or presentation of a false or fraudulent affidavit, claim, or document, or (2) procures, counsels, or advises .the preparation or presentation of sut^i affi- davit, claim, or document, shall, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or re- quired to present such affidavit, elaim, or document, be guilty of a felony and, upon conviction thex'eof , be fined not. more than $10,000, or imprisoned for not more than five years, or both, togeth^ with the costs of prosecution. CLAIMS FOR ABATEMENT AND REFUND Sec. 324. The tax imposed b,v section 319 shall be paid by the donor on or before the 15tli da.v of March, and shall be assessed, collected, and paid in the same manner and subject, In so far as applicable, to the same provisions of law as the tax imposed by section 301. Sec. 1011. Section 3220 of the Revised Statutes, as amended, is reeoacted without change, as follows : " Sec. 3220. Tlie Commissioner of Internal Hevenue, 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 pen- alties collected without authority, and all taxes tliat appear to be unjustly assessed or excessive In amount, or in any manner wrongfully collected ^ also to repay to any collector or deputy collector the full amount of such sums of money as may be recovered against' him in any court, tor any internal revenue taxes collected by him, with the cost and expenses of suit; also all damages and costs recovered against any a.ssessor, assistant assessor, eollectoi', deputy collector, agent, or inspectoi', 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 Congress of all transactions under this section." Sec. 1012. Section 3228 of the Revised Statutes, as amended, is amended to read as follows : " Sec. 3228. (a) All claims for the refunding or crediting of any internal- revenue tax alleged to have been erroneously or illegally assessed or col- lected, 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 must, except as provided in section 281 of the revenue act of 1924, be presented to the Commissioner of Internal Rev«nue within four years next after the payment of such tax, penajty, or sum. "(b) Except as provided in section 281 of the revenue act of 1924, claims for ci-edit or refund (other than claims in respect of taxes imposed by the revenue act of 1916, the revenue act of 1917, or the revenue act of 1918) which at the time of the enactment of the revenue act of 1921 were barred from allowance by the period of limitation then in existence, shall not be allowed." Akt. 52. Kinds of relief after assessment or paymemtj — J'wo forms orf relief are afforded the donor, or his personal representative, in case 41 h© believes that an excessive amount of tax, interest or additional amounts, or an itlBgal penalty, has been assessed as a deficiency, or paid either upon the basis of the return or as a result of the audit of the return by the bureau. The two forms of relief are (1) claim for abatement, and (2) claim for refund. {See arts. 53 to 56.) Aet. 53. Claim for abatement. — A claim may be filed for the abate- menit of aaiy part, or ail, of a jeopardy assessment of a deficiency {including any interest, additional amounts, or ad valorem penalty, assessed in connection therewith), where the alleged excessive de- ficiency lias been assessed but not paid. No claim may be filed by a taxpayer for the abatement of any part of the tax shown upon thi' return, or 'for the abatement of any deficiency tax, interest, additional amounts, or alleged ad valorem penalty, unless a jeopardy asnens ment thereof has been made. Claims for abatement must be mad« under oath upon form 843. In addition to the claim, there should be submitted supporting evidence. Such evidence may be in the form of affidavits, or consist of attested records, or other authentic data. There may also be submitted writ- ten argument upon the evidence presented and the exceptions tal^en. When a tax or penalty ha/S been assessed, the presumption is that the assessment is' -correct ; and the burden of showing that it was im- properly or illegally assessed rests upon the applicant for abatement. A full and explicit statement of all the material facts relating to the claim, in support of which it is offered, should be presented in order that it may receive proper consideration. Nothing should be left to inference, but all the facts relied upon should appear in the papers themselves. Where a claim is filed for the abatement of any part, or all, of a jeopardy assessment, it shall be accompanied by a bond in such amount, not exceeding double the amount of the claim, and with such sureties, as the collector deems necessary, conditioned upon the payment of so much of the amount of the claim as is not abated, together with interest thereon as provided in the statute. (See art. 43.) In lieu of such sureties, there may be deposited TLiiberty bonds or other bonds or notes of the United States in a sum equal at their par value to the amount of such bond. Upon filing of such claim and bond, the collection of so much of the amount assessed, as is covered by such claim and bond, shall be stayed pending the final disposition of the claim. Aet. 54. Accrual of interest as affected by abatement claim. — For rules relating to the application of interest where claims for abate- ment are filed, see article 43. Aet. 55. Limitation of time to file claim for abatement. — If it is de- sired to file a claim for abatement, such claim must he filed with the collector within 30 days after notice and demand by the collector 42 for payment of the tax. After that period the claim will not be considered, but the tax must be paid, and adjustment sought by claim for refund. Art. 56. Claim for refund. — A claim may be filed for refund of any tax, interest, or penalty, alleged to be excessive or illegal, where the payment thereof has been made either upon the basis of the return or as a result of the audit and review thereof. Claims for refund must be presented to the commissioner within four years next after payment of the amount sought to be refunded. Such claim must be made on Form 843. As in the case of a claim for abatement, the burden of proof rests upon the claimant. All the facts relied upon in support of the claim should be clearly set forth under oath. The requirements of the remainder of this article should be com- plied with wherever applicable. (1) Where a claim is filed after the death of the donor, and the administration of his estate has been closed, and the claim is signed by one only, or by less than all, of a number of beneficiaries entitled to share in the refund, or is signed by a person acting as attorney or agent for the interested parties, there must accompany the claim, in addition to the proof required in paragraph (3), infra, a power of attorney duly executed by all beneficiaries entitled to any portion of the repayment, authorizing the claimant or claimaiats to present the matter before the bureau. Under the law warrants in payment of claims can only be drawn payable to the party, or parties, entitled to the pi'oceeds, and consequently can not be drawn payable to attor- neys in fact or agents. (2) Where the claim is made by an executor or administrator, a certificate of the court must be furnished showing that the appoint- ment remains in full force and effect. (3) W^here the executor or administrator has been discharged and no administrator de bonis non has been appointed and qualified, there should be submitted, in lieu of the certificate above mentioned, {a) a certified copy of the court order granting the discharge, and (6) a certified copy of the order of distribution, or, if such order does not fully disclose the identity of the person or persons entitled to receive any amount that may be refunded and the percentage or proportion thereof to which each, if more than one, is entitled, there should be submitted a certified copy of the decedent's will, if any, and such further proof as may be requisite to establish both the identity of such person or persons and the percentage or proportion of the amount sought to be refunded to which each, where there are more than one, is entitled. Art. 57. Payment of claims and interest. — Warrants in payment of claims allowed will be drawn to the order of the person or persons entitled to the proceeds, and will be forwarded directly to such per- 43' son or persons, except where delivery to an attorney or agent has been authorized in accordance with the regulations contained in Treasury Department Circular No. 230, dated August 15, 1923, as heretofore or hereafter amended or supplemented. If the claimants are in- debted to the United States for taxes, such taxes must be paid before the warrants are delivered. (Act of March 3, 1875 (18 Stats. 481).) Upon the allowance of a claim for refund of any tax or penalty paid, the statute provides for the payment of interest upon the total amount of such refund at the rate of 6 per centum per annum from the date such tax or penalty was paid to the date of the allowance of the refund. POWER TO COMPROMISE OR REMIT PENALTIES Revised Statutes, Sec. 3229 (Oomp. Sts., 1916, Sec. 5952). The Com- missjoner 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 laistead of commencing suit thereon ; and, with the advice and consent of the said Secretary and the recommendation of the Attorney-General, he may compromise nny such case after a suit thereon has been commenced.' Whenever a com- promise is made in any case there shall be placed on file in the office of the commissioner the opinion of the Solicitor of Internal Revenue, or of the officer acting as such, with his reasons therefor, with a state- ment of the amount of tax assessed, the amount of additional tax or penalty imposed by law in consequence of the neglect or delinquency of the person against whom the tax is assessed, and the amount actu- ally paid in accordance with the terms of the compromise: Art. 68. Power to compromise or remit.-;— The commissioner, with the advice and consent of the Secretary of the Treasury, may com- promise any civil or criminal case arising under the internal revenue laws instead of commencing suit thereon, and with the advice and consent of the Secretary, and upon the recommendation of the At- torney-General, may compromise any such case after suit thereon has been commenced by the United States. Accordingly, the power to com,promise extends to (a) both civil and criminal cases; (b) cases whether before or after suit; and (c) both taxes and penalties, except that taxes legally due from a solvent taxpayer may not be com- promised. iRefunds ca:n not be made of accepted offers in compi-o- mise in cases where it is subsequently ascertained that no violation of law was involved. PERSONAL LIABILITY OF EXECUTOR OF DONOR'S ESTATE • Revised Statutes, Sec. 3467 (Comp. Sts., 1916, Sec. 6373). Every executor, administrator, or. assignee, or other person, who pays any. debts due by the person or estate from [for] whom or for which he acts, before he satisfies and pays the debts due to the United States 4^ from such person or estate, sball become answerable in his own persoa , and estate for the debts so due to the tTnited States, or for so much thereof as may remain due and unpaid. Art. 59. Extent of liability. — Where the donor dies before the tax is paid his executor or the' administrator of his estate is personally liaBle for the payment of the tax if he pays any debts of the donor before he pays the tax. EXAMINATION OF RECORDS AND TAKING OF TESTIMONY Sec. 1004. Tlie commissiouer, for the purpose of ascertaining the correctness of any return or for the purpose of making a return wliere none has been made, is hereby authorized, by any revenue agent or Inspector designated 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 tlie attendance of any other person having knowledge in the premises, and may take his testimony with reference to the matter required by law to be included in such return, with power to ad- minister oaths to such person or persons. Sec. 1025. (a) 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 such person resides shall have jurisdiction by appropriate process to compel such attendance, testimony, or production of books, papers, or other data, (b) The district courts of the United States at the Instance of the United States are hereby invested 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 appointing reeeivgrs, and such other orders and process, and to render such judgments and decrees, granting in proper cases both legal and e4uitable relief to- getlier, as may be necessary or appropriate for the enforcement of the provisions of this act. The remedies hereby provi'ded are in addition to and not exclusive of any and ay, other remedies of the United States in such courts or otherwise to enforce such provisions. ^ , (c) The paragraph added by section 1310 of the revenue act of 1921 at the end of paragraph Twentieth of section 24 of the' Jildiclal Code, relating to the jurisdiction of district courts, Is r^enacted with- out change, as follows: "Concurrent witli tlie Court pf Claims, of any suit or proceedingi,, ■ commenced afte? tlie passage of the revenue p.ct of 1921, for the re- covery of any internal-revenue tax alleged to have been, erroneou.sly or illegally assessed or collected, or of any penalty claimed to have been collected without authority or any sum alleged to have been excessive or in any manner wrongfuly collected, under the internal-revenue laws, even if the claim exceeds $10,000, If the collector of interaal- • revenue by whom such tax, penalty, or sum was collected is dead at the time such suit or proceeding is commenced." ■ '■ Abt. 60. Securing evidence — Ta,king testimony. — In order to ascer- tain the correctness of a return, or to make a return where: none has 45 been made, the commissioner has powfet to require the attendance, and to take the testimony, of the person rendering the return, or any officer or employee of such person, or any other person hs>.ving Ivnowledgft in the premises. Such persons may be required to pro- duce any relevant book, paper, or other record. This power may be exercised by any revenue agent or inspector designated for the pui^ose. Art. 61. Power to compel compliance. — Where any person is, sum- moned to appear and testify^ or to produce books, papers, or other data, the District Court of the United States for the district in -s^hich such person resides has power to compel the giving of the testimony, or. the production of the books, papers, or data, and to issue any appropriate process, writ, or order. REMEDIES FOR COLLECTION Sec. lOPO. AU administrative, special, or stamp provisions of law, lucluaing the law relating to the assessment o£ taxes, so far as appli- cable, are hereby extended to and made a part of this act. Sec. 311. •• * (b) Where the assessment of the tax is made within the period prescribed in section 310 or in this section, such tax may be collected by distraint or by a proceeding in court, begun within six years after the assessment of the tax. Nothin|; in this act shall be construed as pre- vehting the beginning, without assessment, of a proceeding in court for the collection of the tax at any time before the expiration of the period within which an assessment may be made. Art. 62. Remedies for collection of tax. — The provisions of the statute quoted above apply to the gift tax, and three rem©dies are thus provided for the collection thereof: ■ '■ (1) CoUectian by distraint. — The collector may issue warrant of distraint authorizing the seizure and sale of any or all of the assets of the donor or his estate. (See E. S., sees. 3187 et seq., as amended by sec. 1016 of the revenue act of 1924.) ., t ,, (2) Collection Tjy suit to suhject the profe^ty to sale. — The col- lector may commence in any court of the United States appropriate proceedings, in the name of the United States, to subject the prop- erty of the donor or his estate to sale under the judgment or decree of the court. , (3) Collection hy suit for personal liability. — Wliere the donor dies before the tax is paid, the personal liability of his executor or the administrator of his estate, or of the donee or trustee of the transferred property may be enforced by any appropriate action. RECORDS, STATEMENTS, AND SPECIAL RETURNS Sec. 1002. (a) Every person liable to any tax Imposed by this act, or for the collection thereof, shall keep such records, render under oath such statements, make such returns, and comply with such 46 rules ancl regulations, aS the commissioner, with the approval of the Secretary, may from time to time prescribe. (b) Whenever In the judgment of the commissioner necessary he may require any person, by notice served upon him, to make a re- turn, render under oath such statements, or keep such records as the commissioner deems sufficient to show whether or not such person is liable to tax. • * « c * * * (d) Any oath or affirmation required by the provisions of this act or regulations made under authority thereof, may be administered by any officer authorized to administer oaths for general purposes by the law of the United States or of any State, Territory, or posses- sion of the United States, wherein such oatli or affirmation is ad- ministered, or by any consular officer of the United States. Art. 63. Donor's duty to keep records. — It is the duty of the donor to keep such records as the commissioner may require. The donor is required to keep such complete and detailed records relating to any gifts made by him as will enable the commissioner to determine ac- curately the amount of the tax liability. Art. 64. Donor's duty to render statements. — It is the duty of the donor, or his executor, or the administrator of his estate, not only to make the formal return, but also to render any other sworn state- ment which the commissioner may require for the purpose of de- termining whether a tax liability exists and, if so, the extent thereof. Sec. 1001. Tlie commissioner, with the approval of the Secretary, is authorized to prescribe all needful rules and regulations for the enforcement of this act. Art. 65. Promulgation of regulations. — In pursuance of the statute, the foregoing regulations are hereby made and i^romulgated. D. H. Blair, Commissioner of Internal Revenue. Approved November 8, 1924. A. W. Mellon, Secretary of the Treasury. APPENDIX REVENUE ACT OF 1924 Paht II, Title III.— Gift Tax Sec. 319. For the calendar year 1924 and each' calendar year thereafter, a tax equal to the sum of the following is hereby imposed upon the transfer by a resident by gift during such calendar year of any property wherever situated, wliether made directly or indirectly, and upon the transfer by a nonresident by gift during such calendar year of any property situated within the United States, whether made directly or indirectly : 1 per centum of the amount of the taxable gifts not in excess of $50,000 ; 2 per centum of the amount by which the taxable gifts exceed $50,000 and do not exceed $100,000 ; 3 per centum of the amount by which the taxable gifts exceed $100,000 and do not exceed $150,000 ; 4 per centum of the amount by which the taxable gifts exceed $150,000 and do not exiceed $250,000 ; ■ - 6 per centum of the amount by which the taxable gifts exceed $250,000 and do not exceed $450,000 ; 9 per centum of the amount by which the taxable gifts exceed $450,000 and no not exceed $750,000 ; 12 per centum of the amount by which the taxable gifts exceed $750,000 and do not exceed $1,000,000 ; 15 per centum of the amount by which the taxable gifts exceed $1,000,000 and do not exceed $1,500,000 ; 18 per centum of the amount by which the taxable gifts exceed $1,500,000 and do not exceed $2,000,000 ; 21 per centum of the amount by which the taxable gifts exceed $2,000,000 and do not exceed $3,000,000 ; 24 per centum of the amount by which the taxable gifts exceed $3,000,000 and do not exceed $4,000,000 ; 27 per centum of the amount by which the taxable gifts exceed $4,000,000 and do not exceed $5,000,000; 30 per centum of the amount by which the taxable gifts exceed $5,000,000 and do not exceed $8,000,000 ; - 35 per centum of the amount by which the taxable gifts exceed $8,000,000 and do not exceed $10,000,000 ; • 40 per centum of the amount by which the taxable gifts exceed $10,000,000. Sec. 320. If the gift is made in property, the fair market value thereof at the date of the gift shall be considered the amount of the gift. Where prop- erty is sold or exchanged for less than a fair consideration in money or money's woi-th, then the amount by which the fair market value of the prop- erty exceeded the' consideration received shall, for the purpose of the tax imposed by section 319,- be deemed. a gift, and shall be included in computing the amount of gifts made during the calendar year. (47) 48 Sec. 321. In computing the amount of the gifts subject to tha tax Imposed by section 319, there shaU be allowed as deductions: (a) In the case of a resident — (1) An exemption of $50,000; (2) The amount of all gifts or contributions made within the calendar year to or for the use of the United States,, any State, Territory, any political sub- division thereof, or the District of Columbia, for exclusively public purposes, or to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, Including the encouragement of art and the prevention of cruelty to children or animals, no part of the net earnings of which Inures to the benefit' of any private stock- holder or individual, or to a trustee or trustees, or fraternjai society,, order, or association operating under the lodge system, but only if such gifts or con- tributions are to be used by such trustee or trustees or by such fraternal society, order, or association, exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or auimals, and the amount of all gifts or contributions made within the cal- endar year by such corporation, trustee, or fraternal society, order, pr associa- tion for a religious, charitable, scientific, literary, or educational purpose, or for the prevention of cruelty to children or animals, and, the amount Qf a^l gifts or contributions made within the calendar year to the special fund, for vocational rehabilitation authorized by section 7 of the vocational rehabilita- tion act; (3) Gifts the aggregate amount of,which to any one person does, not exceed $500 ; (4) An amount equal to the value of any property transferred by gift within the calendar year, which cmu be identifled (A) as having been received by the donor within five years prior to the time of his making such gift, either from another person by gift or from a decedent by gift, bequest, devise, or inhereitance, or (B) as having been acquired in exchange for property so received. This deduction shall be allowed only where a gift t^x or an estate tax under this or any prior act of Congress was paid by or on behalf of the donor or the estate of such decedent, as th,e case may be, an^ only in the amount of the value placed by the commissioner on sucb. property in determin- ing the value of the gift or the gross estate of siich decedent, ^and only jto the extent that the value of such property Is included in the total amount of gifts made within the calendar year and not deducted u»d^r paragr;gLp|i, (2) or (3) of this subdivision. (b) In the case of a nonresident — (1) The amount of all gifts or contributions made wlthia the calemjar year to or, for the use of the United States,. any Sf^te, Territory, an,y politicfil sub- division thereof, or the District of Columbia, for excjusiv;ely public purposes, or to or for the use of any domestic corporation orgaaiz^^, and operated, .exclu- sively for religious, charitable, scientific, literary, or educational purposes, in- cluding the encouragement of art and the prevention of, cruelty to children or animals, up part of the net earnings of which inures to the benefit of any pri- vate stockholder or individual, or to, a tru.stee or trustees, or fraterijal socletij, order, or association, operating under the lodge system, but only if such gifts or contributions are to he used within the United. States by such trustee or trustees or by suqh fraternal, society, order, or associatioii, exclusively for religious, charitable, SQientifie, literary, or educatlopal purpose, or for, the prevention of cruelty to chUdreu or animals, and the amount of all gifts or contributions made within the calendar year by such corporation, trustee, or 49 fraternal society, order, or association for a religious, charitable, scientific, literary, or educational purpose, or for the prevention of cruelty to children or animals, and the amount of all gifts or contributions made within the calendar year to the special fund for ^rocational rehabilitation authorized by section 7 of the vocational rehabilitation act ; (2) Gifts the aggregate amount of which to any one person does not exceed $500; (3) An amount equal to the value of any property situated in the United States transferred by gift within the calendar year, which can be identified (A) as having been received by the donor within five years prior to the time of his making such gift, either from another person by gift or from a decedent by gift, bequest, devise, or inheritance, or (B) as having been acquired in exchange for property so received. TJiis deduction shall be allowed only where a gift tax or an estate tax under this or any prior act of Congress was paid by or on behalf of the donor or the estate of such decedent, as the case may be, and only in the amount of the value placed by the Commissioner on such property in determining the value of the gift or the gross estate of such decedent, and only to the extent that the value of such property is included within the total amount of gifts made within the calendar year of property situated in the United States and not deducted under paragraph (1) or (2) of this subdivision. Sec. 322. In case a tax has been imposed under section 319 -upon any gift, and thereafter upon the death of the donor the amount thereof is required by any provision of Part I of this title to be included in the gross estate of the decedent then there shall be credited against and applied in reduction of the estate tax, which would otherwise be chargeable against the estate of the decedent under the provisions of section 301, an amount equal to the tax paid with respect to such gift; and in the event the donor has in any year paid the tax imposed by section 319 with respect to a gift or gifts which upon the death of the donor must be included in his gross estate and a gift or gifts not required to be so included, then the amount of the tax which shall be deemed to have been paid with respect to the gift or gifts required to be so included shall be that proportion of the entire tax paid on account of all sucli gifts which the amount of the gift or gifts required to be so included bears to the total amount of gifts in that year. Sec. 323. Any person who within the year 1924 or any calendar year there- after makes any gift or gifts in excess of the deductions allowed by section 321 shall, on or before the 15th day of March, file with the collector a return under oath in duplicate, listing and setting forth therein all gifts and contribu- tions made by him during such calendar year (other than the gifts specified in paragraph (3) of subdivision (a) and in paragraph (2) of subdivision (b) of section 321), and the fair market value thereof when made, and also all sales and exchanges of property owned by him made within such year for less than a fair consideration in money or money's worth, stating therein the fair market value of the property so sold or exchanged and that of the consideration re- ceived by him, both as of the date of such sale or exchange. Sec. 324. The tax imposed by section 319 shall be paid by the donor on ov before the 15th day of March, and shall be assessed, collected, and paid in the same manner and subject, -in so far as applicable, to the same provisions of la w as the tax imposed by section 301. INDEX (An analytical Table of .Contents. precedes. the Begulations) Article Abatement, claim for Act, Part II, Title III, Revenue Act of 1924 Addition to the tax Adjustment of tax ___- Administrator.' (See Executor.) Ad valoreasa. penalty ^ -.^.lz.-. Agent: '-' Delivery of a refund check to --;-_.--- Recognition of-- --.;;---. Signing claim for refund ^-1-. Alaska, 'included in thfe-term "United States-'.. Amendment of return by commissioner..., 'Appeals to Board of Tax Appeals ' Annuities, valuation of.. -.;.-. ^r^^j^::. Appendix -'ii-'i -^:z = ^r-^^.:. • Appraisal of property ..;.--_^.;_--.-. Apjjraisal liste_ .- ' — --- Approval of regulatioBS .- Assessment of deficiency ta.\: ":' ' Abatement of . I ---. • ' Appeal after jeopardy assessment.. — __.l •' Appeal extteiids time for . ^^. * Consent ^toli. . .-.-- ... :- . Interest,, accrual of — , effect of, on Presumption that it is correct. .. Suit without - --- - Waiver of appeal, etc., against Assessment of tax shown on return: Not subject to abatement _ Return made by commissioner, collector, or deputy collector Attendance, power- to require....-..- Attorney in fact: Delivery of a refund check to Recognition of Signing claim for refund Audit by commissioner ^^- — ^^- Authority for regulations (see Sec. 1001) 35, 52-55 43, 52, 53 29, 35, 52 43, 47-49. 7 . -57- 33 56(1) 3 28 35,36 7(7) B Balance sheets.. , — tBeneficiary: Estate previously taxed, donor a, of See also Nonresident donor Lien for tax on property of ■ — Of estate of deceased donor claim for re- fund by ^ .. ----L----.-..-i---- Bond of taxpayer required in connection with: Abatement claim Exlensioh for time of payment Release of lien ,-..-- -.-. — .-.--. (51) 7 27 65 62, 53, 55 35 35 35 43 53 35,36 35 53 "28 60, 61 ' 57 33 . 56 (1) 29,35,37 - 27 14-16 21 46 66 (1) (3) 53 40^42 46 26, 40-41 47 33, 40, 41 20, 26, 40 33, 38-39 42 3 20 26,28 7 47 ' -£ 4G ' 40,41 20 26 2'6 33 41 26,28 26 41 2d 44, 45 42 21 42 20, 26, 29 46 19 13-15 17 36 42 41 30, 32 . 36 52 Bonds: Gift of, taxable, whether FederiU,! State, or municipal Nonresident donor Of United States, depoaii of ib connection with extension Valuation of Board of Tax Appeals,.: Boaks, and reeerds, production of Burden of proof Business, valuation of interest in Cash, gift of , , Certificate of release of lien Charitable gifts--- See also Nonresident do.nor Checks, payment of tax with Citizenship, not test of residence Claims for abatement or refund Collection of tax Collector: , Checks, deposit and collection of TDisclosure by, re return Payment of tax to Return prepared by Commissioner : Determination of tax by Hearings before Return prepared or amended by Conapromise of penalties or disputed tax ,.,.,. Computation of tax .. Conference Consent to assessment of deficiency tax Consideration for transfer, when not sufficient to take out of purview of act Constructive possession, person in Control of carpus or income of property trans- ferred for charitable, etc., uses, efifect of reservation of .: Corporation: . Charitablei, gift to Gifts by Return by required Transfers by Credits against estate tax See also Section 322 D Data supplemental may be required Date for filing return Date for payment of tax Date, gifts made after December 31, taxable i^ Debt: Cancellation, forgiveness or release owed donor-i:_' Payment for another person ■Deceased donor see : Payment of tax ' Refund_l_ Return . 1923, of, Article 12 9,10 1 25 1 22 27 23 22 1 1 39,40,45,59,62 56 (1) (2) (3) 25 Page 1 2 18 16 40,42 30, 32 7(3) 5 35,36 26,28 60,61 44, 45 53,56 41, 42 7(4) 6 i 2 46 36 9,12 H, 13 19 16 38 29 3 3 35,62-57 26, 40-42 36,44,62 28,35,45 38 29 .33 21 22, 37, 38 17,29 , 28 ,,20 29,35,37 20,26,29 35 26 28 20 58 43 4r-6 3-4 35 26 35 26 1 2 39 30 13 11,12 2 19 2 17 49 19 18 17 2 2 30, 36, 44, 45 42 19 as ; Declaration of trust ('Deductions: ,. ' - 1 (, s. Nonresident donors. Resident donors. ;-.Defpat tax, penalty for attempt to ^Deficiency tax: :_• Abatemenjt of jeopardy assessment ■ Agreement, assessment made upon ,-, u : -Appeals and heariogs Assessment, claim for abatement of ; Assessment of Collection pf_.; i^ i,_.„ li Consent to assessment Determination of ,',, , ;Extensionof tinie for payment of i;, Hearings and appeals : , j^;^J[nterest on ; Lien of. ^ Notification of Payment of Personal liability for. . "Waiver of , right to hearing or to appeal fjpefinitions i;i- Delinquency, penalties ^.Deposit certificate of, gift of j'DeiMiljyi coUecl^r, return by. ... fDfepreciation^ter' date of gift ... i)etermination . Resident denor U (Tax shown by,payment of Ti Verification of Value shown on, basis of should be shown. When requtredl— • '; Nonresident donor : Resident donor Jteversionarj' interests, valuation of Bevocation, reservation, in connection with transfer of power of iiuj*- S^les for less than a fair consideration Seciirities, valuation of Situs of property- Solicitor of Internal Revenue, submission of questions ta Specific exemption State bonds, g|ift of taxable -aa Statements, donor's duty to render Statute text of j- =. (See Table of Contents, in front beretrf, : for analysis.) Stocks and bonds: Situs - Valuation Suit, collection of tax by Supplemental data may be required Table of Contents Tables: Annuities and remainders, life.-- Annuities and remaind«rsy term Gertajn_ Computation of tax _: — Tax rates '■ Tax Appeals, Board of - --^ Article 1,12 1 (3) 18 35 8 ' 1 64 18 7 (3) 35, 36, 62 27, 31, 63, 64 35 Page 8-16i 10-15 3 3 3 3 23-29 18-20 17, 3a, 31 15,21 32 21 28 20 8-16, 1&-21 10-16, 16, 17 33 21 23. ■> > 18 .as'-" ',:.: I.! 19 24, 49^: • .18,39 28^48 20,38 . ^ '4» 39 23-28, 30 18^20, 21 29 ■ .20 17, 30, 31 15, 21 28,47,49 20,. 38, 39 28, 47, 48, 51 20, 38, 40 ■' .'25! 19 26: ; 19 32 21 23-2a 1 18-20 37 29 29,37 20,29 7(3) 5 17, 30 15,21 23 18 7(7> 7 2,13 2 5 16 26 10 2 46 47 16 5 26, 28, 45 19,21,46 9 10 5 4 26 58 Tax, gift (for analysis see p. Ill ta V) : Abatement of - Additions to ; Character of Collection of Computation See also Nonresident donor Deductions See also Nonresident donors Deficiency tax i ' . Determination of Due date of Due date for filing, return Interest on Liability, manner of determining " Liability of certain persons Lien for Nature of Payments of.i. ', Penalty for failure to pay.. J Rates of_.J I ' Returns, filing of Taxes due the United States, payment of — , be- fore refund of gift tax Tenant for life, gift of his interest-- Tentative findings Testimony, taking Text of act Transfers reached Transfers taxed within five years See also Nonresident donor Trust, gift effected through Trust required to make return Trusts, gifts and transfers by Trustee of the transferred property, personal liability of U United States Use of property, valuation of- Valuation, rules for --_ — . — _--. Veterans of the World War, gifts -to special fund for vocational rehabiUtatibn :. Verification of return ,• Vocational rehabilitation, gifts to special fund for W Waiver or consent to assessment of deficiency tax - World War veterans, gifts to special fund for vocational rehabilitation of Article 35, 52-55 43, 52, 53 2 44,62 4-6 22 8-16 19-21 35 4 43 ' 23 36, 40-43 4-6 59, 62 45,46 2 22,37,43 50 5,6 23, 28, 30 57 7(7) 35 60,61 Page 26, 40-41 33, 40, 41 3 35.45 3,4 17 10-15 16-17 26 3 33 18 26, 30-33 . 3,4 44,45 36 3 17, 29-36 39 4 18, 20, 21 42 7 26 44,45 47 2 13-15 17 2 19 2 36,45 3,11 7 11 20 11 26 11 ADDITIONAL COPIES OF THIS FUBLICATION MAT BE PROCURED FROM THE SUPERINTENDENT OF DOCUMENTS GOVERNMENT PRINTING OFFICE WASHINGTON, D. C. AT 6 CENTS PER COPY V U. S. TREASURY DEPARTMENT BUREAU OF INTERNAL REVENUE REGULATIONS 79 (1936 EDITION) RELATING TO GIFT TAX UNDER THE REVENUE ACT OF 1932 AS AMENDED AND SUPPLEMENTED BY THE REVENUE ACTS OF 1934 AND 1935 UNITED STATES GOVERNMENT PRINTING OFFICE WASHINGTON : 1936 For sale by the Superintendent of Documents, Washington, D. C. ---•--«- ••-.« Price 10 cents These regulations apply to gifts made by residents and nonresidents after June 6, 1932. (n) TABLE OF CONTENTS [The section numbers refer to the Eevenue Act of 1932, except as otherwise Indicated, and the article num- bers to the regulations.] Page Section 501. Imposition of tax 1 Section 611, Revenue Act of 1934. Gifts of property subject to power 1 Article 1. Imposition of tax 1 Article 2. Transfers reached 2 Article 3. Cessation of donor's dominion and control 3 Article 4. Citizenship and residence 4 Section 502. Computation of tax 5 Section 520, Revenue Act of 1934. Gift tax rates 6 Section 301, Revenue Actof 1935. Gift tax rates 8 Article 5. Computation of tax 10 Article 6. Tax rate schedules 10 Article 7. Application of rate schedules 13 Section 503. Transfers for less than adequate and full con- sideration 14 Article 8. Transfers for a consideration in money or money's worth 14 Section 504. Net gifts 15 (o) General definition 15 (b) Gifts less than $5,000. 15 Article 9. Net gifts 1 15 Article 10. Total amount of gifts 15 Article 11. Future interests in property 15 Section 505 (as amended by section 517 of the Revenue Act of 1934). Deductions 16 (a) Residents 16 (1) Specific exemption 16 (2) Charitable, etc., gifts 16 (b) Nonresidents 16 Section 301, Revenue Act of 1935 17 Article 12. Specific exemption 17 Article 13. Charitable, etc., gifts 18 Article 14. Religious, charitable, scientific, literary, and educational organizations 19 Article 15. Proof required 19 Article 16. Charitable, etc., gifts with power to divert 19 Section 506. Gifts made in property 19 Article 17. Gifts made in property 20 Article 18. Situs of property 20 (III) IV Page Article 19. Valuation of property 20 (1) General 20 (2) Real estate 21 (3) Stocks and bonds 21 (4) Interest in business 22 (5) Notes, secured and unsecured 22 (6) Other property 22 (7) Annuities, life, remainder and reversionary interests 23 (8) Tenancies by the entirety 25 (9) Life insurance and annuity contracts 25 Section 507. Returns 28 (a) Requirement 28 (b) Time and place for filing 28 Article 20. Persons required to file return 28 Article 21. Donees and trustees required to file notice of gifts 29 Article 22. Time and place of filing return 30 Article 23. Form of return 30 Article 24. Description of property listed on return 31 Section 508. Records and special returns 32 (a) By donor 32 (b) To determine liability to tax 32 Article 25. Aids to determination and collection of tax 32 Article 26. Supplemental data 32 Article 27. Returns confidential 33 Article 28. Recognition of attorneys and other persons representing tax- payers , 33 Article 29. No return filed, or a false or fraudulent return filed 33 Section 509. Payment of tax 34 (a) Time of payment 34 (b) Extension of time for payment 34 (c) Voluntary advance payment 34 (d) Fractional parts of cent 34 (e) Receipts 34 Article 30. Date of payment 34 Article 31. Extension of time for payment of tax shown on return 34 Article 32. Voluntary advance payment 35 Article 33. When fractional part of cent may be disregarded 35 Article 34. Receipts for taxes 35 Article 35. Payment by check 35 Article 36. Donor liable for tax 36 Section 510. Lien for tax 36 Article 37. Lien for tax 36 Article 38. Release of lien 37 Section 511. Kxamination of return and determination of tax, 38 Article 39. Examination of return and determination of tax by the Com- missioner 38 Section 513. Definition of deficiency 38 Vi Poge Article 40. Deficiency defined 3S Section 513. Assessment and collection of deficiencies 39 (a) Petition to Board of Tax Appeals 39 (b) Collection of deficiency found by Board 39 (c) Failure to file petition 39 (d) Waiver of restrictions 40 (e) Increase of deficiency after notice mailed 40 (f ) Furtl'.er deficiency letters restricted 40 (g) Jurisdiction over other calendar years 40 (h) Final decisions of Board 40 (i) Extension of time for payment of deficiencies 40 (j) Address for notice of deficiency 41 Section 501, Revenue Act of 1934. Period for petition to Board under prior Acts 41 Article 41. Assessment of deficiency 41 Article 42. Waiver by donor of restrictions on assessment 43 Article 43. Collection of deficiencj' 43 Article 44. Extension of time for payment of deficiencies 44 Section 514. Jeopardy assessments 45 (a) Authority for making 45 (b) Deficiency letters 45 (c) Amount assessable before decision of Board 4fl (d) Amount assessable after decision of Board 45 (e) Expiration of right to assess 45. (f) Bond to stay collection 4{| (g) Same — Further conditions 4(5', (h) Waiver of stay 40 (i) Collection of unpaid amounts 4fl Article 45. Jeopardy assessments 40 Section 515. Claims in abatement 49 Article 46. Claims in abatement 49 Section 516. Bankruptcy and receiverships 49 (a) Immediate assessment 49 (b) Unpaid claims 49 Article 47. Bankruptcy, proceedings for relief of debtors, and reoeivei ships. 4? Article 48. Immediate assessments in bankruptcy, proceedings for the relief of debtors, and receivership cases 50 Section 517. Period of limitation upon assessment and collec- tion 52 (a) General rule 52 (b) Exceptions — • (1) False return or no return 52 (2) Collection after assessment 52 Article 49. Period of limitation upon assessment of tax 62 Article 50. Period of limitation upon collection of tax 52 Section 518. Suspension of running of statute 53 Article 51. Suspension of running of statute of limitations 53' Section 519. Additions to the tax in case of failure to file return. 53 Section 406, Revenue Act of 1935. Failure to file returns 54 Article 52. Addition to the tax for failure to file return 54 Section 520. Additions to the tax in case of deficiency 55 (a) Negligence 55 (b) Fraud 65 VI Page Article 53. Additions to the tax in case of deficiency 65 Section 621. Interest on extended payments 55 (a) Tax shown on return 55 (b) Deficiency , 55 Article 54. Interest on extended payments 55 Section 522. Interest on deficiencies 56 Article 55. Interest on deficiencies 56 Section 523. Interest on jeopardy assessments 57 Article 56. Interest on jeopardy assessments 57 Section 524. Additions to the tax in case of nonpayment 57 (a) Tax shown on return — (1) Payment not extended 57 (2) Payment extended 57 (b) Deficiency — (1) Payment not extended 58 (2) Filing of jeopardy bond 58 (3) Payment extended 58 (4) Jeopardy assessment — Payment stayed by bond. 58 (5) Interest in case of bankruptcy and receiverships. 58 Section 404, Revenue Act of 1935. Interest on delinquent taxes 58 Article 67. Interest on delinquent taxes 58 Section 525. Penalties 59 Article 58. Penalties 60 Section 3229, Revised Statutes. Compromises 61 Article 59. Compromises 61 Section 526. Transferred assets 61 (a) Method of collection 61 (1) Transferees 61 (2) Fiduciaries 62 (b) Period of limitation 62 (o) Period for assessment against donor 62 (d) Suspension of running of statute of limitations 62 (e) Prohibition of suits to restrain enforcement of liability of transferee or fiduciary 62 (f) Definition of "transferee" 62 (g) Address for notice of liability 62 Article 60. Claims in cases of transferred assets 62 Section 527. Notice of fiduciary relationship 63 (a) Fiduciary of donor 63 (b) Fiduciary of transferee 63 (c) Manner of notice 63 Article 61. Notice of fiduciary relationship 63 Section 528. Refunds and credits 65 (a) Authorization 65 (b) Limitation on allowance — (1) Period of limitation 65 (2) Limit on amount of credit or refund 65 (c) Efi'eot of petition to Board 65 (d) Overpayment found by Board 65 Section 504, Revenue Act of 1934. Overpajrments found by the Board of Tax Appeals 65 Article 62. Authority for abatement, credit, and refund of tax 66 Article 63. Abatement, credit, and refund adjustments 66 VII Page Article 64. Claims by collectors 67 Article 65. Claims for credit or refund by donors 67 Article 66. Claims for refund in case of judgment obtained against col- lector 69 Article 67. Claims for refund in case of judgment obtained against the United States 70 Article 68. Limitations upon the crediting and refunding of taxes paid 70 Article 69. Crediting of accounts of collectors in cases of assessments against several persons covering same liability 71 Section 607, Revenue Act of 1928. Effect of expiration of period of limitation against United States 71 Section 608, Revenue Act of 1928. Effect of expiration of period of limitation against taxpayer 72 Section 609, Revenue Act of 1928. Erroneous credits 72 (a) Credit against barred deficiency 72 (b) Credit of barred overpayment 72 (c) Apphcation of section 72 Section 610, Revenue Act of 1928. Recovery of amounts erro- neously refunded 72 Section 502, Revenue Act of 1934. Recovery of amounts erro- neously refunded 72 Article 70. Erroneous refunds and credits 72 Section 606, Revenue Act of 1928. Closing agreements 73 (a) Authorization 73 (b) Finality of agreements 73 Article 71. Closing agreements relating to tax liability in respect of inter- nal-revenue taxes 73 Section 3467, Revised Statutes (as amended by section 518 of the Revenue Act of 1934). Liability of fiduciaries 74 Article 72. Personal liability of fiduciaries 74 Section 1104, Revenue Act of 1926 (as amended by section 618, Revenue Act of 1928). Examination of records and taking of testimony 74 Section 617, Revenue Act of 1928. Jurisdiction of courts 74 Section 507, Revenue Act of 1934. Examination of books and witnesses , 75 Article 73. Securing evidence — Taking testimony 75 Article 74. Power to compel compliance 75 Section 529. Laws made applicable 75 Article 75. Laws made applicable 75 Section 531. Definitions 76 (a) Calendar year 76 (b) Property within United States 76 Article 76. Definitions — (o) Calendar year 76 (6) Property within the United States 76 Section 533. Short title 76 Article 77. Short title 76 Section 530. Bules and regulations 76 Article 78. Promulgation of regulations 76 vni TABLE OF STATUTES [Gift tax sections of the Revenue Act of 1932 appear in consecutive order in the Table of Contents.] Revenue Act of 1926: Page Section 1104, as amended by section 618, Revenue Act of 1928. Examination of records and taking of testimony 74 Revenue Act of 1928: Section 606. Closing agreements 73 Section 607. Effect of expiration of period of limitation against United States 71 Section 608. Effect of expiration of period of limitation against taxpayer 72 Section 609. Erroneous credits 72 Section 610. Recovery of amounts erroneously refunded 72 Section 617. Jurisdiction of courts 74 Revenue Act of 1934: Section 501. Period for petition to Board under prior Acts 41 Section 502. Recovery of amounts erroneously refunded 72 Section 504. (b) (e) Overpayments found by the Board of Tax Appeals • 65 Section 507. Examination of books and witnesses 75 Section 511. Gifts of property subject to power 1 Section 520. Gift tax rates 6 Revenue Act of 1935: Section 301. Gift tax rates 8 Section 404. Interest on delinquent taxes 68 Section 406. FaUure to file returns 54 Revised Statutes: Section 989 69 Section 3176, as amended by section 619 (d), Revenue Act of 1928-. 33 Section 3218 66 Section 3229 61 Section 3467, as amended by section 518, Revenue Act of 1934 74 Section 3477 68 REGUUTIONS RELATING TO THE GIFT TAX UNDER TITLE III OF THE REVENUE ACT OF 1932, AS AMENDED AND SUPPLEMENTED BY THE REVENUE ACTS OF 1934 AND 1935 TITLE III— GIFT TAX (Except as otherwise specified, all section references are to the Revenue Act of 1932) SECTION 501. IMPOSITION OF TAX. (a) For the calendar year 1932 and each calendar year thereafter a tax, computed as provided in section 502, shall be imposed upon the transfer during such calendar year by any individual, resident or non- resident, of property by gift. (b) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible; but, in the case of a nonresident not a citizen of the United States, shall apply to a transfer only if the property is situated within the United States. The tax shall not apply to a transfer made on or before the date of the enactment of this Act. (o) The tax shall not apply to a transfer of property in trust where the power to revest in the donor title to such property is vested in the donor, either alone or in conjunction with any person not having a sub- stantial adverse interest in the disposition of such property or the income therefrom, but the relinquishment or termination of such power (other than by the donor's death) shall be considered to be a transfer by the donor by gift of the property subject to such power, and any payment of the income therefrom to a beneficiary other than the donor shall be con- sidered to be a transfer by the donor of such income by gift. SEC. 511, REVENUE ACT OF 1934. GIFTS OF PROPERTY SUBJECT TO POWER. Subsection (c) of section 501 of the Revenue Act of 1932 (relating to the inapplicability of gift tax in the case of the transfer of property in trust subject to the power of the donor to revest title in himself) is repealed. Article 1. Imposition of tax. — The statute imposes no tax upon property, but subjects to tax transfers of property by gift. The tax is not limited in its imposition to transfers of property without a valuable consideration, which at common law are treated as gifts, but extends to sales and exchanges for less than an adequate and full consideration in money or money's worth. (See article 8.) The statute taxes all such transfers of property made during the calendar year 1932 (after June 6, 1932, the date of the enactment of the Reve- nue Act of 1932) and each calendar year thereafter (other than gifts specified in subsection (b) of section 504) to the extent that they (1) are donative in character and exceed the deductions authorized by section 505, as amended. The tax apphes to all individuals, whether resident or nonresident of the United States, but, in the case of a nonresident alien, the tax applies only to transfers of property situated within the United States. For the definition of "resident" and "citizen," see article 4. With reference to the situs of property, see article 18. Art. 2. Transfers reached. — The statute imposes a tax whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible. Thus, for example, a taxable transfer may be effected by the declaration of a trust, the forgiving of a debt, the assignment of a judgment, the assignment of the benefits of a contract of insurance, or the transfer of cash, certificates of deposit, or Federal, State, or municipal bonds. Various statutory provisions, which exempt bonds, notes, bills and certificates of indebtedness of the Federal Government or its agencies and the interest thereon from taxation, are not apph- cable to the gift tax since this tax is an excise tax on the transfer, and is not a tax on the subject of the gift. A gift of a bond, note, or certifi- cate of indebtedness issued by the Federal Government, if made by a nonresident alien, not engaged in business in the United States, is not subject to the tax. Inasmuch as the tax also applies to gifts indirectly made, aU transactions whereby property or property rights or inter- ests are donatively passed or conferred upon another, regardless of the means or device employed, constitute gifts subject to tax. In the following examples of transactions resulting in taxable gifts, it will be understood that the transactions occurred after the date of the enact- ment of the statute (June 6, 1932), and were not for an adequate and full consideration in money or money's worth: (1) Transfer of property by a corporation to B is a gift to the latter from the stockholders of the corporation. If B himself is a stock- holder, the transfer, not being a distribution from earnings or in liquidation to which B is entitled as a stockholder, is a gift to him from the other stockholders. (2) The transfer of property to B where there is imposed upon B the obligation of paying a commensurate annuity to C is a gift to C. (3) The payment of money or the transfer of property to B in consideration whereof B is to render a service to C, is a gift to C, or both to B and C, depending on whether the service to be rendered by B to C is or is not an adequate and fuU consideration in money or money's worth for that which is received by B. (4) If A creates a joint bank account for himself and B, there is a gift to B when B draws upon the account for his own benefit, to the extent of the amount drawn. (5) If the insured assigns a life insurance policy, or designates a beneficiary in such a policy, but does not retain what amounts to a power of revocation (as, for example, the right to surrender or cancel the policy, the right to obtain a loan against the policy or its surrender value, or a right to change the beneficiary or assignee, if by the exercise of such latter right the proceeds of the poHcy might be made payable to the insured, his estate, or otherwise for his benefit), such assignment or designation constitutes a gift, even though the right of the assignee or beneficiary to receive the proceeds is conditioned upon his surviv- ing the insured. For the valuation of policies of Hfe insurance, see subdivision (9) of article 19. (6) If there is an irrevocable gift of a pohcy of life insurance and the insured thereafter pays premiums thereon, each premium payment is a gift in the amount thereof. (7) If a husband with his own funds purchases property and has the title thereto conveyed to himself and wife as tenants by the entire- ty, and under the law of the jurisdiction governing the rights of the tenants there is no right of severance by which either of the tenants, acting alone, can defeat the right of the survivor to the whole of the property, there is a gift to the wife in an amount to be determined by adding to the value of her right, if any, xmder the law of such jurisdiction to a share of the income or other enjoyment of the property during the joint lives of herself and husband, the value of her right to the whole of the property should she survive him, the value of each of such rights to be determined in accordance with the Actuaries' or Combined Experience Table of Mortality, as extended. (See article 19, subdivision (8).) (8) If A with his own funds purchases property and has the title thereto conveyed to himself and B as joint tenants, with rights of survivorship, but which rights may be defeated by either party severing his interest, there is a gift to B in the amount of one-half the value of such property. Art. 3. Cessation of donor's dominion and control. — The tax is not imposed upon the receipt of the property by the donee, nor is it necessarily determined by the measure of enrichment resulting to the donee from the transfer, nor is it conditioned upon ability to identify the donee at the time of the transfer. On the contrary, the tax is a primary and personal liability of the donor, is an excise upon hia act of making the transfer, is measured by the value of the property passing from the donor, and attaches regardless of the fact that the identity of the donee may not then be known or ascertainable. As to any property, or part thereof or interest therein, of which the donor has so parted with dominion and control as to leave in him no power to cause the 'beneficial title to be revested in himself, the gift is complete. But a transfer (in trust or otherwise), though passing both legal and beneficial title, is still in essence merely formal EG long as there remains in the donor a power to cause the revesting of the beneficial title in himself, and the gift, from the standpoint of substance, remains incomplete during the existence of the power. A donor shall be considered as having the power to revest in himself the beneficial title to the property transferred if he has such power in conjunction with any person not having a substantial adverse interest in the disposition of the property or the income therefrom. A trustee, as such, is not a person having a substantial adverse interest in the disposition of the trust property or the income therefrom. The relinquishment or termination of the power, occurring otherwise than by the death of the donor (the statute being confined to transfers by living donors), is regarded as the event which completes the gift and causes the tax to apply.' The receipt of income or of other enjoyment of the transferred property by the transferee or by the beneficiary (other than by the donor himself) during the interim between the making of the formal transfer and the relinquishment or termination of the power operates to free such income or other enjoyment from the donor's power to receive it himself, and constitutes a gift of such income or of such other enjoyment taxable in the calendar year of its receipt. If the donor contends that a power retained by him constitutes beneficial dominion and control, and that by reason thereof the transfer is not in substance a gift, the transaction shall be disclosed in the return and evidence showing all relevant facts, including a copy of the instrument by which the transfer was made, should be submitted. Art. 4. Citizenship and residence. — The statute imposes the tax upon the transfer of property by gift made by any individual, resident or nonresident, but provides that in the case of a nonresident not a citizen of the United States the tax shall apply to a transfer only if the property is situated within the United States. (See article 18.) If the donor is a citizen of the United States, whether a resident or a nonresident thereof, or is a resident of the United States, whether a citizen thereof or an alien, the tax applies, regardless of where the property, whether real or personal, is situated. A person born or naturalized in the United States (including citizens and residents of possessions of the United States who have been made citizens of the United States by treaty or Act of Congress) who owes his allegiance to and is entitled to the protection of the United States is a citizen thereof. When any naturalized citizen has left the United States and resided for two years in the foreign country from which he 1 So held in Burnet v. Guggenheim (288 U. S., 280, 53 S. Ct., 369) of a transfer in trust, made in 1917, witli power in the donor to revoke, which power he relinquished in 1925, the relinCLuislunent being treated a gift subject to the tax imposed by the gift tax title of the Revenue Act of 1924. came or five years in any other foreign county, it is presumed that he has ceased to be a citizen of the United States. A person born in the United States of either citizen or ahen parents and who resided in a foreign country for a number of years would still be a citizen of the United States unless he had become naturalized in or taken an oath of allegiance to the foreign country of residence or some other foreign state. A person who has filed his declaration of intention of becom- ing a citizen of the United States but who has not yet received his final citizenship papers is an alien. A resident is one who has his domicile in the United States (includ- ing only the States, the Territories of Alaska and Hawaii, and the District of Columbia) at the time of the gift. (See section 1111 (a) (10).) All others are nonresidents. A person acquires a domicile in a place by living there for even a brief period of time with no definite present intention of moving therefrom. Residence without the requisite intention to remain indefinitely will not suffice to con- stitute domicile, nor wiU intention to change domicile effect such change unless accompanied by an actual removal. SEC. 502. COMPUTATION OF TAX. The tax for each calendar year shall be < per centum in addi- tion of such excess. "$357,450 upon net gifts of $2,000,000; and upon net gifts in excess of $2,000,000 and not in excess of $2,500,000, 25^ per centum in addi- tion of such excess. "$484,950 upon net gifts of $2,500,000; and upon net gifts in excess of $2,500,000 and not in excess of $3,000,000, 27% per centum in addi- tion of such excess. "$623,700 upon net gifts of $3,000,000; and upon net gifts in excess of $3,000,000 and not in excess of $3,500,000, 30 per centum in addition of such excess. "$773,700 upon net gifts of $3,500,000; and upon net gifts in excess of $3,500,000 and not in excess of $4,000,000, 52% per centum in addi- tion of such excess. "$934,950 upon net gifts of $4,000,000; and upon net gifts in excess of $4,000,000 and not in excess of $4,500,000, 34H per centum in addi- tion of such excess. "$1,107,450 upon net gifts of $4,500,000; and upon net gifts in excess of $4,500,000 and not in excess of $5,000,000, 36 per centum in addition of such excess. 8 "$1,287,450 upon net gifts of $5,000,000; and upon net gifts in excess of $5,000,000 and not in excess of $6,000,000, 37H per centum in addi- tion of such excess. "$1,662,450 upon net gifts of $6,000,000; and upon net gifts in excess of $6,000,000 and not in excess of $7,000,000, 39 per centum in addition of such excess. "$2,052,450 upon net gifts of $7,000,000; and upon net gifts in excess of $7,000,000 and not in excess of $8,000,000, 40^ per centum in addi- tion of such excess. "$2,457,450 upon net gifts of $8,000,000; and upon net gifts in excess of $8,000,000 and not in excess of $9,000,000, 42 per centum in addition of such excess. "$2,877,450 upon net gifts of $9,000,000; and upon net gifts in excess of $9,000,000 and not in excess of $10,000,000, 43^ per centum in addi- tion of such excess. "$3,312,450 upon net gifts of $10,000,000; and upon net gifts in ex- cess of $10,000,000, 45 per centum in addition of such excess. " (b) The amendment made by subsection (a) of this section shall be applied in computing the tax for the calendar year 1935 and each calen- dar year thereafter (but not the tax for the calendar year 1934 or a previous calendar year), and such amendment shall be applied in all computations in respect of the calendar year 1934 and previous calendar years for the purpose of computing the tax for the calendar year 1935 or any calendar year thereafter. SEC. 301. REVENUE ACT OF 1935. GIFT TAX RATES. (a) The gift-tax schedule set forth in section 502 of the Revenue Act of 1932, as amended, is amended to read as follows: "Upon net gifts not in excess of $10,000, 1% per centum. " $150 upon net gifts of $10,000; and upon net gifts in excess of $10,000 and not in excess of $20,000, 3 per centum in addition of such excess. " $450 upon net gifts of $20,000; and upon net gifts in excess of $20,000 and not in excess of $30,000, 4% per centum in addition of such excess. "$900 upon net gifts of $30,000; and upon net gifts in excess of $30,000 and not in excess of $40,000, 6 per centum in addition of such excess. "$1,500 upon net gifts of $40,000; and upon net gifts in excess of $40,000 and not in excess of $50,000, 7}i per centum in addition of such excess. "$2,250 upon net gifts of $50,000; and upon net gifts in excess of $50,000 and not in excess of $70,000, 9 per centum in addition of such excess. "$4,050 upon net gifts of $70,000; and upon net gifts in excess of $70,000 and not in excess of $100,000, lOH per centum in addition of such excess. "$7,200 upon net gifts of $100,000; and upon net gifts in excess of $100,000 and not in excess of $200,000, 12% per centum in addition of such excess. "$19,950 upon net gifts of $200,000; and upon net gifts in excess of $200,000 and not in excess of $400,000, 15 per centum in addition of such excess. "$49,950 upon net gifts of $400,000; and upon net gifts in excess of $400,000 and not in excess of $600,000, 17M per centum in addition of Buch excess. 9 "$84,450 upon net gifts of $600,000; and upon net gifts in excess of $600,000 and not in excess of $800,000, 19]4 per centum in addition of such excess. "$123,450 upon net gifts of $800,000; and upon net gifts in excess of $800,000 and not in excess of $1,000,000, 21% per centum in addition of such excess. "$166,950 upon net gifts of $1,000,000; and upon net gifts in excess of $1,000,000 and not in excess of $1,500,000, 24 per centum in addition of such excess. "$286,950 upon net gifts of $1,500,000; and upon net gifts in excess of $1,500,000 and not in excess of $2,000,000, 26% per centum in addition of such excess. "$418,200 upon net gifts of $2,000,000; and upon net gifts in excess of $2,000,000 and not in excess of $2,500,000, 28K per centum in addition of such excess. "$560,700 upon net gifts of $2,500,000; and upon net gifts in excess of $2,500,000 and not in excess of $3,000,000, 30% per centum in addition of such excess. "$714,450 upon net gifts of $3,000,000; and upon net gifts in excess of $3,000,000 and not in excess of $3,500,000, 33 per centum in addition of such excess. "$879,450 upon net gifts of $3,500,000; and upon net gifts in excess of $3,500,000 and not in excess of $4,000,000, 35^ per centum in addition of such excess. "$1,055,700 upon net gifts of $4,000,000; and upon net gifts in excess of $4,000,000 and not in excess of $4,500,000, 37}^ per centum in addition of such excess. "$1,243,200 upon net gifts of $4,500,000; and upon net gifts in excess of $4,500,000 and not in excess.of $5,000,000, 39% per centum in addition of such excess. "$1,441,950 upon net gifts of $5,000,000; and upon net gifts in excess of $5,000,000 and not in excess of $6,000,000, 42 per centum in addition of such excess. "$1,861,950 upon net gifts of $6,000,000; and upon net gifts in excess of $6,000,000 and not in excess of $7,000,000, 44^ per centum in addition of such excess. "$2,304,450 upon net gifts of $7,000,000; and upon net gifts in excess of $7,000,000 and not in excess of $8,000,000, 45% per centum in addition of such excess. "$2,761,950 upon net gifts of $8,000,000; and upon net gifts in excess of $8,000,000 and not in excess of $9,000,000, 47% per centum in addition of such excess. "$3,234,450 upon net gifts of $9,000,000; and upon net gifts in excess of $9,000,000 and not in excess of $10,000,000, 48% per centum in addi- tion of such excess. "$3,721,950 upon net gifts of $10,000,000; and upon net gifts in excess of $10,000,000 and not in excess of $20,000,000, 50% per centum in addition of such excess. "$8,746,950 upon net gifts of $20,000,000; and upon net gifts in excess of $20,000,000 and not in excess of $50,000,000, 51% per centum in addition of such excess. " $24,271,950 upon net gifts of $50,000,000; and upon net gifts in excess of $50,000,000, 52}i per centum in addition of such excess." 33785°— 36 2 10 (b) Section 505 (a) (1) of the Revenue Act of 1932 (relating to the specific exemption for gift-tax purposes) is amended by strilclng out "$50,000" and inserting in lieu thereof "$40,000" (c) The amendments made by subsections (a) and (b) of this section shall be applied in computing the tax for the calendar year 1936 and each calendar year thereafter (but not the tax for the calendar year 1935 or a previous calendar year), and such amendments shall be applied in all computations in respect of the calendar year 1935 and previous calendar years for the purpose of computing the tax for the calendar year 1936 or any calendar year thereafter. Art. 5. Computation of tax. — The first step in the determination of the tax is to ascertain the amount of the net gifts for the calendar year for which the return is being prepared. (For meaning of "net gifts," see article 9.) The second step is to ascertain the aggregate sum of the net gifts for each of the preceding calendar years, consider- ing only gifts made after June 6, 1932. By the words "aggregate sum of the net gifts for each of the preceding calendar years " (aside from the amount of the specific exemption deductible) is meant the true and correct aggregate of such net gifts, not necessarily that returned for such years and in respect to which tax was paid. In determining the aggregate sum of the net gifts for each of the preceding calendar years, the total amoimt of the specific exemption claimed and allowed for such preceding years should be deducted, except that if tax is being computed for the calendar year 1936, or for any calendar year thereafter, such deduction can not exceed $40,000. (See article 12.) The third step is to add to the amount of net gifts for the calendar year for which the return is being prepared the aggregate sum of the net gifts for each of the preceding calendar years. The fourth step is to compute the tax upon the total amount of net gifts (as ascer- tained by the third step) by use of the rate schedule in force for the calendar year for which the return is being prepared. (See articles 6 and 7.) The fifth step is to compute a tax in accordance with the same rate schedule upon the aggregate sum of net gifts for each of the preceding calendar years only. The sixth step is to subtract from the amount of tax as computed in the fourth step the amount of tax as computed in the fifth step. The amount remaining after such sub- traction is the tax for the calendar year for which the return is being prepared. If no reportable gifts were made during the preceding calendar years, considering only gifts made after June 6, 1932, the tax for the calendar year for which the return is being prepared is the tax com- puted in accordance with the rate schedule in force for such year upon the amount of the net gifts for such calendar year. Art. 6. Tax rate schedules. — The rate schedule in the Revenue Act of 1932 (section 502) is applicable in the computation of tax for the calendar years 1932, 1933, and 1934, the tax year 1932 being 11 limited to the portion of the year 1932 subsequent to June 6, 1932. The rates were increased by the Revenue Act of 1934, and the rate schedule in that Act (section 520) is applicable in the computation of tax for the calendar year 1935. The rates were further increased by the Revenue Act of 1935, and the rate schedule in such Act (section 301) is applicable in the computation of tax for the calendar year 1936 and for each calendar year thereafter. On the following page is set out a tabulation of the several rate schedules covering each of the three named periods: 12 0*0 03 ° 1- s CO n IBS" O »-< et J « 5 an ■ts M « S 1^ 11 I u .-1 (N CO CO "0 10 .-l,-! ,-l,-lr-i(NINIM(N(NC0>01NCq €^T-T-Hi-l?OCO*-ll-tlHi-HT-H.-tT-lr-( .-l«C0O«3i0lr~IM(M01-*l>l>T)<01(N(Nt^t~(N(NCqC-i(art T-l«CO'*lOtOt-00>-ICO!OO5C0tOt~ t-H ^ T-H iH W U3 "O H ■< H El O a B H P P< a o u M o m ?x»:rs; s«n;n» ii5;iK5sSl :3!:^5iS; ^iR ^ :R ^ os^rfj-j^ gv,jv,rtvg5 INrt(tDOO'-(CO"3t^O(N-*!Ot~050C0>OlO u W(MC0C0"5tO ,-1 rt w r-l(N (N IN IM CO CO CO CO CO CO ■* ■* ■* Tj( ■* Tin >o>ooo>oinooooooooooooooooooooo t~MlO>CllNI>OOOOOOOlO>OOOlOir3>OW>0>0>OlO>OlO .-lN-iOOOCO.-ll>.-*COCO-*I>l>(N(Nl>t~CCOTlHiOOOCqt^COOOOCDW3U3t*»-Hi-HrH ■-iTj<05-*OiO>ai 1-^c^^^^o^o^■i^co'cc^cd'ooo"TJ^o^^^'co'H"1-^■^"r-^TJ^T-^col-^' iH'*00(NtOCiOt-l5Di-lt~>0-*'*tOOtOCOea'!l(t~ iHrH(MTH>Ot»000000000000000000000000 ea '-KNThtOOOOlOO'OO'OO'OOOOOOOOO 13 Art. 7. Application of rate schedules. — In computing tax, select the amount set out in column A which is equal to, or which is the largest amount shown therein that is less than, the amount of the net gifts. The tax upon the amount so selected is indicated on the same hne in the first subcolumn of column 1, 2, or 3. The tax upon any part of the amount of the net gifts in excess of the amount so selected is computed by multiplying the amount of such excess by the percentage indicated on the same line in the second subcolumn of column 1, 2, or 3. If the amount of the net gifts is less than $10,000, the tax is computed at the rate indicated on the first line in the second subcolumn of the appropriate column. An illustration of the use of the table follows. The tax according to the rate schedule in column 1 upon net gifts of $52,500 is computed as follows: Tax on $50,000 (from first subcolumn of column 1) $2, 250 Tax on $2,500 at 9 per cent (from second subcolumn of column 1) 225 Tax on net gifts of $52,500 2, 475 Care should be exercised in selecting the appropriate rate schedule (column 1, 2, or 3). Only column 1 should be used in the computa- tion of the tax for the year 1936 or any year thereafter. Only column 2 should be used in the computation of the tax for the year 1935. Only column 3 should be used in the computation of the tax for the years 1932, 1933, or 1934. Example: The donor's first reportable gifts after the enactment of the Revenue Act of 1932 were in the calendar year 1934, when he made a gift of $75,000 to A and a gift of $55,000 to B. The total amount of gifts during 1934, for the purposes of the tax, was $120,000, after excluding $10,000 for the two donees in accordance with the provisions of article 10. The amount of the net gifts for that year was $70,000, after deducting the $50,000 specific exemption in ac- cordance with the provisions of article 12. The tax on the net gifts of $70,000, as shown in the first subcolumn of column 3 of the table, amounts to $2,125. During the calendar year 1935, the donor made a gift of $20,000 to A and a gift of $25,000 to B. After excluding $10,000 for the two donees, the total amount of gifts during that year was $35,000. Since the amount of the specific exemption authorized was exhausted, the amount of the net gifts for 1935 was $35,000. The tax for the calendar year 1935 is computed as follows: 1. Amount of net gifts for 1935 - $35, 000 2. Net gifts for preceding calendar year (1934) 70, 000 3. Total amount of net gifts - 105, 000 4. Tax computed on item 3 4, 650 6. Tax computed on item 2 2, 175 6. Tax for year 1935 (item 4 minus item 5) 2, 475 14 It will be noted that column 2 is used for both item 4 and item 5, although the rate schedule shown in column 3 was previously used in the computation of the tax for the calendar year 1934. During the calendar year 1936, the donor made a gift of $30,000 to A and a gift of $35,000 to B. After excluding $10,000 for the two donees, the total amount of gifts made during that year was $55,000. Since the specific exemption was previously exhausted, the amount of the net gifts for 1936 was $55,000. The total amount of gifts made by the donor during the preceding calendar years, after excluding $5,000 for each donee for each calendar year, was as follows: Calendar year 1934 _- $120, 000 Calendar year 1935 35, 000 Total amount of gifts for preceding calendar years 155, 000 The aggregate sum of the net gifts for the preceding calendar years, $115,000, is determined by deducting a specific exemption of $40,000 from $155,000. As stated in article 5 (pursuant to subsection (c) of section 301 of the Revenue Act of 1935), if tax is being computed for the calendar year 1936, or for any calendar year thereafter, the amount of the specific exemption deductible in determining the "aggregate sum of the net gifts for the preceding calendar years" can not exceed $40,000. The computation of the tax for the calendar year 1936 is shown below: 1. Amount of net gifts for 1936 $55,000.00 2. Aggregate sum of net gifts for preceding calendar years (1934 and 1935) 115, 000. 00 3. Total amount of net gifts 170,000.00 4. Tax computed on item 3 16, 125. 00 5. Tax computed on item 2 9, 112. 50 6. Tax for year 1936 (item 4 minus item 5) 7, 012. 50 It will be noted that column 1 is used for both item 4 and item 5, although the rate schedules shown in columns 3 and 2 were pre- viously used in the computation of the tax for the calendar years 1934 and 1935, respectively. SEC. 503. TRANSFER FOR LESS THAN ADEQUATE AND FULL CONSIDERATION. Where property is transferred for less than an adequate and full consideration in money or money's worth, then the amount by which the value of the property exceeded the value of the consideration shall, for the purpose of the tax imposed by this title, be deemed a gift, and shaU be included in computing the amount of gifts made during the calendar year. Art. 8. Transfers for a consideration in money or money's worth. — Transfers reached by the statute are not confined to those only which, 15 being without a valuable consideration, accord with the common law concept of gifts, but embrace as well sales, exchanges, and other dis- positions of property for a consideration in money or money's worth to the extent that the value of the property transferred by the donor exceeds the value of the consideration given therefor. However, a sale, exchange, or other transfer of property made in the ordinary course of business (a transaction which is bona fide, at arm's length, and free from any donative intent), will be considered as made for an adequate and full consideration in money or money's worth. A con- sideration not reducible to a money value, as love and affection, prom- ise of marriage, etc., is to be wholly disregarded, and the entire value of the property transferred constitutes the amount of the gift. SEC. 504. NET GIFTS. (a) General definition. — The term "net gifts" means the total amount of gifts made during the calendar year, less the deductions provided in section 505. (b) Gifts less than $5,000. — In the case of gifts (other than of future interests in property) made to any person by the donor during the calendar year, the first $5,000 of such gifts to such person shall not, for the purposes of subsection (a), be included in the total amount of gifts made during such year. Aet. 9. Net gifts. — The tax is computed upon the amount of the donor's net gifts (see articles 5, 6, and 7). The term "net gifts" means the "total amount of gifts" computed as provided ia section 504 (see article 10), less the deductions provided in section 505. (See articles 12 and 13.) Aet. 10. Total amount of gifts. — In determining the amount of gifts during any calendar year, there is excluded (save in the case of a gift or gifts of a future interest or interests) the first $5,000 of any single gift or aggregate of gifts made during such year to any one donee. A gift or gifts made during a given calendar year to any one donee of $5,000, or less, should not be listed on the return, unless consisting of a future interest or interests, or unless consisting of a present interest or interests created out of the same property in which a future interest or interests has been given. Gifts of future interests in property are required to be included in the total amount of gifts for the year even though the value of such gifts is $5,000, or less, and if such interest exceeds $5,000 in value, no part of the value is excluded from the total amount of gifts for the year whether the gift or gifts be to a single donee or to a number of donees. For example, if the donor during the calendar year made a gift to A of $5,000 in money, a gift to B of $6,000 in money, and a gift to C of a future interest in property, such future interest being valued at $3,000, the total amount of gifts during such year, for the purposes of the tax, is $4,000. Aet. 11. Future interests in property. — No part of the value of a gift of a future interest may be excluded in determining the total 16 amount of gifts made during the calendar year. "Future interests" is a legal term, and includes reversions, remainders, and other interests or estates, whether vested or contingent, and whether or not supported by a particular interest or estate, which are limited to commence in use, possession, or enjoyment at some future date or time. The term has no reference to such contractual rights as exist in a bond, note (though bearing no interest until maturity), or in a policy of Ufa insiirance, the obhgations of which are to be discharged by payment in the future. But a future interest or interests in such contractual obhgations may be created by the limitations contained in a trust or other instrument of transfer employed in effecting a gift. For the valuation of future interests, see subdivision (7) of article 19. SEC. 505 (AS AMENDED BY SECTION 517 OF THE REVENUE ACT OF 1934). DEDUCTIONS. In computing net gifts for any calendar year there shall be allowed as deductions: (a) Besidents. — In the case of a citizen or resident — (1) Specific exemption. — An exemption of $50,000, less the aggregate of the amounts claimed and allowed as specific exemp- tion for preceding calendar years. (2) Charitable, etc., gifts. — The amount of aU gifts made during such year to or for the use of — (A) the United States, any State, Territory, or any politi- cal subdivision thereof, or the District of Columbia, for exclu- sively public purposes; (B) a corporation, or trust, or community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, includ- ing the encouragement of art and the prevention of cruelty to children or animals; no part of the net earnings of which inures to the benefit of any private shareholder or individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation; (C) a fraternal society, order, or association, operating under the lodge system, but only if such gifts are to be used exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art and the prevention of cruelty to children or animals; (D) posts or organizations of war veterans, or auxiliary units or societies of any such posts or organizations, if such posts, organizations, units, or societies are organized in the United States or any of its possessions, and if no part of their net earnings inures to the benefit of any private share- holder or individual; (E) the special fund for vocational rehabilitation authorized by section 12 of the World War Veterans' Act, 1924. (b) Nonresidents. — In the case of a nonresident not a citizen of the United States, the amount of all gifts made during such year to or for the use of — 17 (1) the United States, any State, Territory, or any political subdivision thereof, or the District of Columbia, for exclusively public purposes; (2) a domestic corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational pur- poses, including the encouragement of art and the prevention of cruelty to children or animals; no part of the net earnings of which inures to the benefit of any private shareholder or individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation; (3) a trust, or community chest, fund, or foundation, organ- ized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art and the prevention of cruelty to children or animals, no substantial part of the activities of which is carrying on propa- ganda, or otherwise attempting, to influence legislation; but only if such gifts are to be used within the United States exclusively for such purposes; (4) a fraternal society, order, or association, operating under the lodge system, but only if such gifts are to be used within the United States exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art and the prevention of cruelty to children or animals; (5) posts or organizations of war veterans, or auxiliary units or societies of any such posts or organizations, if such posts, organizations, units or societies are organized in the United States or any of its possessions, and if no part of their net earnings inures to the benefit of any private shareholder or individual; (6) the special fund for vocational rehabilitation authorized by section 12 of the World War Veterans' Act, 1924. (o) The deductions provided in subsection (a) (2) or (b) shall be allowed only to the extent that the gifts therein specified are included in the amount of gifts against which such deductions are applied. SEC. 301, REVENUE ACT OF 1935. • • » (b) Section 605 (a) (1) of the Revenue Act of 1932 (relating to the specific exemption for gift-tax purposes) is amended by striking out "$50,000" and inserting in lieu thereof "$40,000". (c) The amendments made by subsections (a) and (b) of this section shaU be applied in computing the tax for the calendar year 1936 and each calendar year thereafter (but not the tax for the calendar year 1935 or a previous calendar year), and such amendments shall be applied in all computations in respect of the calendar year 1935 and previous calendar years for the purpose of computing the tax for the calendar year 1936 or any calendar year thereafter. Art. 12. Specific exemption. — In determining the amount of net gifts of a given calendar year there may be deducted, if the donor was a resident or citizen of the United States at the time the gifts were made, a specific exemption of $40,000 ($50,000 if the calendar year is before 1936), less the sum of the amounts claimed and allowed as an exemption in prior calendar years. The exemption, at the option of the donor, may be taken in its entirety in a single year, or be spread over a period of years in such amounts as he sees fit, but after the 18 limit has been reached no further exemption is allowable. In deter- mining the aggregate sum of the net gifts for the preceding calendar years (see article 5), the total amount of the specific exemption claimed and allowed for such preceding years should be deducted, except that if tax is being computed for the calendar year 1936 or for any calendar year thereafter such deduction can not exceed $40,000. The specific exemption is authorized only in the case of a citizen or resident of the United States. A donor, who was a nonresident alien at the time of the gift or gifts, is not entitled to this exemption. Art. 13. Charitable, etc., gifts. — In determining the amount of net gifts of a given calendar year, in the case of a donor who was a citizen or resident of the United States at the time when the gifts were made, there may be deducted the amount of such gifts as were to or for the use of (A) the United States, any State, Territory, or any political STibdivision thereof, or the District of Columbia, for exclusively public purposes; or (B) any corporation, trust, community chest, fund, or foundation, organized and operated exclusively for religious, chari- table, scientific, hterary, or educational piirposes, including the encouragement of art and the prevention of cruelty to children or animals, provided no part of the net earnings of such organization inures to the benefit of any private shareholder or individual, and no substantial part of its activities is carrying on propaganda, or other- wise attempting, to influence legislation; or (C) a fraternal society, order, or association, operating under the lodge system, provided such gifts are to be used by such fraternal society, order, or associa- tion exclusively for one or more of the purposes enumerated in (B); or (D) any organization of war veterans or auxiliary unit or society thereof if such organization, auxiliary unit, or society thereof is organized in the United States or any of its possessions, and if no part of its net earnings inures to the benefit of any private shareholder or individual ; or (E) the special fund for vocational rehabilitation author- ized by section 12 of the World War Veterans' Act, 1924. In case the donor was a nonresident alien of the United States at the time the gifts were made, the deduction of the amount of chari- table, etc., gifts is governed by the same rules as those applying to similar gifts made by citizens or residents, subject, however, to the two following exceptions: (1) If the gift be made to or for the use of a corporation, such corporation must be one created or organized under I the laws of the United States or of any State or Territory thereof; and (2) if made to or for the use of a trust, or community chest, fund, or foundation, or a fraternal society, order, or association, operating under the lodge system, the gift must be for use within the United States exclusively for religious, charitable, scientific, literary, or educa- tional purposes, including the encouragement of art and the prevention of cruelty to children or animals. 19 The deduction is not limited in the case of donors who were citizens or resident aliens to gifts to or for the use of domestic corporations, or for use within the United States when made to a trust, or community chest, fund, or foundation, or a fraternal society, order, or association, operating under the lodge system. If money or other property is so given that the income is, for the duration of a life or a term of years, to be paid to the donor or other individual, or is to be used for a purpose not described in section 505 (a) (2) or (b), and the property is then to be devoted exclusively to some one or more of the uses described in section 505 (a)(2) or (b), only the present worth of the remainder is deductible. To determine the present worth or value of such remainder (that is, its value as of the date of the gift), the amount of the money or the value of the property transferred should be multiplied by the appropriate factor in column 3 of Table A or B, a part of article 19. Art. 14. Religious, charitable, scientific, literary, and educational organizations. — The corporation, or trust, or community chest, fund, or foundation to which a gift is made must meet three tests to entitle the donor to deduct the amount of the gift: (1) It must be organized and operated exclusively for one or more of the purposes specified in the statute; (2) it must not by a substantial part of its activities carry on propaganda, or otherwise attempt, to influence legislation; and (3) no part of its net earnings shall inure to the benefit of private shareholders or individuals. The donor is not deprived of the right to deduct an amount equal to the value of property so transferred by reason of the fact that private individuals are the recipients of the benefits which the organ- ization dispenses. Such right is lost, however, where any part of the net earnings of the organization inures to the benefit of a private shareholder or individual. Art. 15. Proof required. — In order to prove the right to this deduction, the donor must submit such documents or evidence as may be requested by the Commissioner. Art. 16. Charitable, etc., gifts with power to divert. — If a fraternal society, order, or association, operating under the lodge system, is empowered to divert a part of the property or fund transferred by gift to a use or purpose which would have rendered it, to the extent that it is subject to such power, not deductible had it been directly transferred by the donor for such use or purpose, deduction will be limited to that part of the property or fund which is not subject to the exercise of the power. SEC. 506. GIFTS MADE IN PROPERTY. If the gift is made in property, the value thereof at the date of the gift shall be considered the amount of the gift. 20 Art. 17. Gifts made in property. — A gift made in property is sub jcet to the tax in the same manner as a gift of cash, and the amoxmt of the gift is the value of the property at the date of the gift. Art. 18. Situs of property. — The statute imposes a tax upon gifts made by citizens of the United States, residents or nonresidents thereof, and upon those made by residents of the United States, citizens or ahens, irrespective of whether the property transferred (real or personal, tangible or intangible) be situated within or without the United States. But gifts by nonresidents of the United States who are not citizens thereof (see article 4) are subject to tax only if the property transferred is, at the time of the transfer, situated within the United States. Real estate and tangible personal property physically located in the United States constitute property having a situs in the United States. Intangible personal property, such as a bond, share of stock, note, insurance contract, simple debt, or other chose in action, has a situs in the United States if consisting of a property right issuing from or enforceable against a corporation (public or private) organized in the United States or a person who is a resident of the United States. Intangible personal property also has a situs in the United States if the certificate of stock, bond, bUl, note, or other written evidence of such property, which is customarily treated as being the property itself, is physically located in the United States, whether such cer- tificate of stock, bond, etc., was issued by a resident or nonresident of the United States. For example, a share of stock of a corporation organized ia the United States constitutes property situated in the United States even though the stock certificate is in England; and a share of stock of a corporation organized in England constitutes property situated in the United States if the stock certificate is in the United States. Paragraph (10) of section 1111 (a) of the Revenue Act of 1932 defines the term "United States," when used in a geographical sense, as including only the States, the Territories of Alaska and Hawaii, and the District of Columbia. Art. 19. Valuation of property. — (1) General. — The statute provides that if the gift is made in property, the value thereof at the date of the gift shall be considered the amoimt of the gift. The value of the property is the price at which such property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell. The value of a particular land of prop- erty is not to be determined by a forced sale price or by an estimate of what a whole block or aggregate would fetch if placed upon the market at one and the same time. Such value is to be determined by ascertaining as a basis the fair market value at the time of the gift of each unit of the property. For example, in the case of shares of 21 stock or bonds, such unit of property is a share or a bond. All relevant facts and elements of value as of the time of the gift should be con- sidered. Depreciation or appreciation in value subsequent to the time of the gift are not relevant factors and will not be considered. (2) Real estate. — In returning a gift of real estate, the local assessed value thereof should not be returned as the value of the gift imless such value represents the fair market value of the property as of the date of the gift. (See article 24 for manner of listing and describing real estate in returns.) (3) Stocks and bonds. — The value at the date of the gift in the case of stocks and bonds, within the meaning of the statute, is the fair market value per share or bond on such date. The value of stocks and bonds listed upon a stock exchange shall be obtained by taking the mean between the highest and lowest quoted selling prices upon the date of the gift. If the gift was made on Simday or on a legal hoUday, the transactions of the next previous business day will govern. If there were no sales on the date of the gift, the value shall be determined by taking the mean between the highest and lowest sales upon the nearest date either before or after the date of the gift, if within a reasonable period thereof. If the security was Usted upon more than one exchange, the records of the exchange where the security was principally dealt in should be em- ployed. In valuing Usted stocks and bonds the donor should observe care to consult accurate records to obtain values as of the date of the gift. If the securities are not listed upon an exchange, but are dealt in through brokers, or have a market, the value should be determined by taking the mean between the highest and lowest selling prices as of the date of the gift, or, if there were no sale on that date, of the nearest date either before or after the date of the gift upon which sales were made, if within a reasonable period. If quotations are obtained from brokers, or evidence as to the sale of securities is ob- tained from the officers of the issuing companies, the donor should preserve in his files the letters furnishing such quotations, or evidence of sale, for inspection when the return is verified by an investigating officer. If securities are quoted on a bona fide bid and asked basis, and actual sales are not available, the mean between the bid and asked prices on the date of the gift, or if not quoted as of the date of the gift, the mean between such prices on the nearest date thereto within a reasonable time, will be accepted as the value. If the value of a security cannot be determined by sales, or from bid and asked prices, as prescribed in the precedkig provisions of this subdivision, then, in the case of corporate or other bonds, the value is to be arrived at by giving consideration to the soundness of 22 the security, the interest yield, the date of maturity, and other relevant factors, and, in the case of shares of stock, upon the basis of the company's net worth, earning power, dividend-paying capacity, and all other relevant factors having a bearing upon the value of the stock. Complete financial and other data upon which the donor bases his valuation should be submitted with the return. In exceptional cases in which it is established by clear and convinc- ing evidence that the value per bond or share of any security deter- mined upon the basis of selling or bid and asked prices as herein provided does not reflect the fair market value thereof, other relevant facts and elements of value will be considered in determining the fair market value. The size of the gift of any security is not a relevant factor and will not be considered in such determination. (4) Interest in business. — Care should be taken to arrive at an accurate valuation of any business which the donor transfers without an adequate and fuU consideration in money or money's worth, whether the interest transferred is that of a partner or of a proprietor. A fair appraisal as of the date of the gift should be made of all the assets of the business, tangible and intangible, including good will, and the business should be given a net value equal to the amount which a willing purchaser, whether an individual or a corporation, would pay therefor to a willing seller in view of the net value of the assets of the business and its demonstrated earning capacity. Special attention should be given to fixing an adequate figure for the value of the good will of the business. The factors hereuibefore stated relative to the valuation of other property, if applicable, will be considered in determining the valuation of a proprietary or partnership interest in the business. All evidence bearing upon such valuation should be submitted with the return, including copies of reports in any case in which examinations of the business have been made by accountants, engineers, or any technical experts as of or near the date of the gift. (5) Notes, secured and unsecured. — The value of notes, whether secured or unsecured, will be presumed to be the amount of unpaid principal, plus accrued interest to the date of the gift, unless the donor establishes a lower value. Unless returned at face value, plus accrued interest, it must be shown by satisfactory evidence that the note is worth less than the unpaid amount because of the iaterest rate, or date of maturity, or other cause, or that the note is uncollect- ible in part by reason of the insolvency of the party or parties liable, or for other cause, and that the property, if any, pledged or mort- gaged as security is insufficient to satisfy it. (6) Other property. — Any property not specifically treated in this article should be valued in accordance with the rule laid down in subdivision (1) hereof. 23 (7) Annuities, lije, remainder and reversionury interests. — ^For valua- tion of annuities purchased from life insurance companies or other com- panies issuing annuity contracts, see subdivision (9) of this article. In case the donor creates a trust under which a specified annuity is pay- able to the donee, the value of such gift should be determined by using Table A or Table B, whichever is applicable, shown at the end of this article. If the annuity is payable at the end of each annual period, the factor is obtained directly from the table. If the annuity is payable for the life of an individual, the amoimt payable annually should be multiplied by the figure in column 2 of Table A opposite the number of years in column 1 of such table nearest the age of the individual (as of the date of the gift) whose life measures the duration of the annuity, or if payable for a definite nimaber of years the amount payable annually should be multipHed by the figure in column 2 of Table B opposite the niimber of years in column 1 of such table. Example: The donee is made the beneficiary of an annuity of $10,000 payable at the end of aimual periods during his life. The age of the donee at the date of the gift is 40 years and 8 months. By reference to Table A, the figure in column 2 opposite 41 years, the number nearest to the donee's age, is 14.86102. The value of the gift is, therefore, $148,610.20 ($10,000 multiplied by 14.86102). Example: The donor was entitled to receive an annuity of $10,000 a year payable at the end of annual periods throughout a term of 20 years; the donor, when 15 years have elapsed, makes a gift thereof to his son. By reference to Table B, it is found that the figure in colunan 2 opposite 5 years, the unexpired portion of the 20-year period, is 4.45182. The present worth of the annuity is, therefore, $44,518.20 ($10,000 multipUed by 4.45182). If the annuity is payable semiannually, quarterly, or monthly, the value should be determined by multiplying the aggregate amount to be paid within a year by the figure in column 2 of Table A oppo- site the number of years in column 1 nearest the actual age of the person whose life measures the annuity, or the figure in column 2 of Table B opposite the number of years the annuity is payable, as the case may be, and then multiplying the product by 1.01820 for monthly payments, by 1.01488 for quarterly payments, or by 1.00990 for semiannual payments. Example: If, in the first example above given, the annuity is payable semiaimuaUy, the factor, 14.86102, should be multiplied by 1.00990 and the product multiplied by 10,000. The value of the gift is, therefore, $150,081.44 ($10,000X14.86102X1.00990). If the first payment of an annuity for the life of an individual is to be paid at once, the value of the annuity is the sum of the first 24 payment plus the present worth of a similar annuity the first pay- ment of which is not to be made until the end of the first period. Example: The donee is made the beneficiary for life of an annuity of $50 a month payable from the income of a trust, subject to the right reserved by the donor to cause the annuity to be payable to himself or for the benefit of his creditors or estate. On the day a payment is due, the donor relinquishes his reserved power. The donee is then 50 years of age. The value of the gift is $50 plus the product of $50 times 12 times 12.47032 (see Table A) times 1.01820 (see preceding paragraph), or $7,668.37 [$50 plus ($50X12X 12.47032X1.01820)]. If the first payment of an annuity for a definite number of years is to be paid at once, the applicable factor is the product of the factor shown in Table B multiplied by 1.02154 for monthly payments, by 1.02488 for quarterly payments, by 1.02990 for semiannual pay- ments, or by 1.04 for annual payments. Example: The donee is the beneficiary of an annuity of $50 a month subject to a reserved right in the donor to cause the annuity or the cash value thereof to be paid to himself or his creditors. On the day a payment is due, the donor relinquishes his power. There are 300 payments to be made, including the payment due. The value of the gift is the product of $50 times 12 times 15.62208 (see Table B) times 1.02154 (see preceding paragraph), or $9,575.15 ($50X12X15.62208X1.02154). If an annuity is to be paid during the hfe of an individual and in any event for a definite number of years, or for more than one life, or in any other manner rendering inapplicable both Table A and Table B, the case may be stated to the Commissioner, who will thereupon make the computation and advise the donor thereof. In making such calculations when life interests or remainders upon life interests are involved, use will be made of the Actuaries' or Com- bined Experience Table of Mortality, as extended (that being the basis of Table A), with interest at 4 per cent per annum compounded annually. If a gift consists of the donor's right to receive the entire income of certain property during the life of Z, or for a term of years, and the annual rate of income for a period equal to or exceeding the life expectancy of Z, or for such term of years, is fixed or definitely determinable at the time of the gift, then the value of the gift should be computed as explained above in the case of an annuity. If the rate of annual income is not determinable, or if the donor is entitled merely to the use of nonincome-producing property, a hypothetical annuity at the rate of 4 per cent of the value of the property should be made the basis of the calculation. 25 If the gift is of a remainder or reversionary interest subject to an outstanding life estate, the value of the gift wiU be obtained by multi- plying the value of the property at the date of the gift by the figure in column 3 of Table A opposite the number of years nearest to the age of the life tenant. In case the remainder or reversion is subject to an estate for a term of years, Table B should be used. Example: The donor transferred by gift property worth $50,000 which he was entitled to receive upon the death of his brother, to whom the income for life had been bequeathed. The brother at the date of the gift was 31 years of age. By reference to Table A, it is found that the figure in column 3 opposite 31 years is 0.31262. The value of the gift is, therefore, $15,631 ($50,000X0.31262). (8) Tenancies by the entirety. — Should either a husband or his wife purchase property and cause the title thereto to be conveyed to them- selves as tenants by the entirety, or should either cause to be created such a tenancy in property already owned by him or her, and under the law of the jurisdiction governing the rights of the spouses with respect to the property neither of them may, acting alone, defeat the right of the survivor of them to the whole of the property, the transfer effects a gift from the spouse owning the property at the time of the creation of the tenancy or who furnished the consideration in the purchase of the property. The value of the gift is the sum of (1) the value of the right, if any, of the donee spouse to a share of the income or other enjoyment of the property during the joint lives of the spouses, and, (2) the value of the right of the donee spouse to the whole of the property should he or she be the survivor of them. The value of each of such rights is to be determined in accordance with the Actuaries' or Combined Experience Table of Mortality, as extended. A case involving the value of the right of survivorship (provided the gift is completed and not merely proposed or hypothetical) may be submitted to the Commissioner, who will, in accordance with recognized actuarial principles, compute the applicable factor to be used in determining such value, and will advise the donor of the factor. (9) Life insurance and annuity contracts. — The value of a life insurance contract or of a contract for the payment of an annuity issued by a company regularly engaged in the selling of contracts of that character is established through the sale of the particular contract by the company, or through the sale by the company of comparable contracts. As valuation through sale of comparable contracts is not readily ascertainable when the gift is of a contract which has been in force for some time and on which further premium payments are to be made, the value may be approximated, unless because of the unusual nature of the contract such approximation 33785° — 36 3 26 is not reasonably close to the full value, by adding to the interpolated terminal reserve at the date of the gift the proportionate part of the gross premium last paid before the date of the gift which covers the period extending beyond that date. The examples given below, so far as relating to life insurance contracts, are of gifts of such contracts on which there are no accrued dividends or outstanding indebtedness. Example: A donor purchases from a life insurance company for the benefit of another a life insurance contract or a contract for the payment of an annuity; the value of the gift is the cost of the contract. Example:' An. annuitant, having purchased from a life insurance company a single payment annuity contract by the terms of which he was entitled to receive payments of $1,200 annually for the dura- tion of his life, five years subsequent to such purchase, and when of the age of 50 years, gratuitously assigns the contract. The value of the gift is the amoimt which the company would charge for an annuity contract providing for the payment of $1,200 annually for the life of a person 50 years of age. Example: A donor owning a Hfe insurance policy on which no further payments are to be made to the company (e. g., a single premium poUcy or paid-up pohcy) makes a gift of the contract. The value of the gift is the amoimt which the company would charge for a single premium contract of the same specified amount on the life of a person of the age of the insured. Example: A gift is made four months after the last premium due date of an ordinary Hfe insurance policy issued nine years and four months prior to the gift thereof by the insured, who was 35 years of age at date of issue. The gross annual premium is $2,811. The computation foUows: Terminal reserve at end of tenth year $14, 601. 00 Terminal reserve at end of ninth year 12, 965. 00 Increase 1, 636. 00 One-third of such increase (the gift having been made four months following the last preceding premium due date), is $545. 33 Terminal reserve at end of ninth year 12, 965. 00 Interpolated terminal reserve at date of gift 13, 510. 33 Two-thirds of gross premium ($2,811) 1, 874 00 Value of the gift... 15, 384. 33 27 Tablh a Table, single life, 4 per cent, showing the present worth of an annuity, or a life interest, and of a reversionary interest 1 2 3 1 3 3 Annuity, or Reversion, or Annuity, or Reversion, or present value present value present value present value of $1 due at of $1 due at of $1 due at of $1 due at Age the end of each the end of the Age the end of each the end of the year during the year of death of year during the year of death of life of a person a person of speci- life of a person of specified age a person of speci- of specified age fied age fied age Annuity Reversion Annuity Reversion $14. 72829 $0. 39507 51 $12. 17919 $0. 49311 1 17. 30771 . 29686 52 11. 88408 . 50446 2 18. 69578 . 24247 53 11. 58531 . 61595 3 19. 15901 . 22466 54 11. 28325 . 62757 4 19. 41226 . 21491 66 10. 97789 . 53931 5 19. 56301 . 20960 56 10. 66982 .55116 6 19. 61731 . 20703 67 10. 35931 . 56310 7 19. 62502 . 20673 58 10. 04630 . 67614 8 19. 61097 . 20727 69 9. 73131 . 68726 9 19. 53413 . 21022 60 9. 41474 . 59943 10 19. 45359 . 21332 61 9. 09765 . 61163 11 19. 36943 . 21666 62 8. 78052 . 62383 12 19. 28184 . 21993 63 8. 46412 . 63600 13 19. 19065 . 22344 64 8. 14888 . 64812 14 19. 09590 . 22708 65 7. 83652 . 66017 15 18. 99764 . 23086 66 7. 52476 . 67212 16 18. 89669 . 23478 67 7. 21699 . 68397 17 18. 79010 . 23884 68 6. 91298 . 69566 18 18. 68070 . 24306 69 6. 61301 . 70719 19 18. 56751 . 24740 70 6. 31716 . 71867 20 18. 46038 . 25191 71 6. 02612 . 72976 21 18. 32932 . 26656 72 5. 74003 . 74077 22 18. 20416 . 26138 73 5. 45928 . 76167 23 18. 07471 . 26636 74 5. 18402 . 76215 24 17. 94097 . 27150 75 4. 91463 . 77251 25 17. 80274 . 27682 76 4. 66125 . 78264 26 17. 66984 . 28231 77 4. 39383 . 79254 27 17. 51224 . 28799 78 4. 14286 . 80220 28 17. 36968 . 29386 79 3. 89868 . 81159 29 17. 20225 . 29991 80 3. 66071 . 82074 30 17. 03961 . 30617 81 3. 42900 . 82966 31 16. 87176 . 31262 82 3. 20268 . 83836 32 16. 69846 . 31929 83 2. 98024 . 84691 33 16. 51964 . 32617 84 2. 76106 . 85534 34 16. 33503 . 33327 86 2. 54366 . 86371 35 16. 14437 . 34060 86 2. 32795 . 87200 36 16. 94765 . 34817 87 2. 11384 . 88024 37 16. 74427 . 35599 88 1. 90115 . 88842 38 15. 63421 . 36407 89 1. 69107 . 89650 39 15. 31722 . 37241 90 1. 48640 . 90441 40 15. 09295 . 38104 91 1. 28432 . 91214 41 14. 86102 . 38996 92 1. 09024 . 91961 42 14. 62122 . 39918 93 . 90647 . 92667 43 14. 37366 . 40871 94 . 73687 . 93320 44 14. 11860 . 41852 96 . 58435 . 93906 45 13. 85713 . 42867 96 . 46182 . 94378 46 13. 58958 . 43886 97 . 36698 . 94742 47 13. 31698 . 44936 98 . 24038 . 95229 48 13. 03942 . 46002 99 . 00000 . 96154 49 12. 75716 . 47088 50 12. 47032 . 48191 28 Table B Table shounng the present worth at 4 per cent of an annuity for a term certain, and of a reversionary interest postponed for a term certain 1 Present worth of 3 1 3 Present worth of 3 Nnm- berof an annuity of $1, Present worth of Num- ber of an annuity of $1, Present worth of payable at the $1, payable at the ena of a certain payable at the $1, payable at the end of each year, end of each year, end of a certain ye&rs for a certain number of years number of years ysars for a certain number of years number of years Annuity Revmion Annuity Reversion 1 $0. 96154 $0. 961538 16 $11. 66229 $0. 533908 2 1. 88609 . 924556 17 12. 16567 . 513373 8 2. 77509 . 888996 18 12. 66929 . 493628 4 3. 62989 . 854804 19 13. 13394 . 474642 6 4. 45182 . 821927 20 13. 69032 . 456387 6 5. 24214 . 790314 21 14. 02916 . 438834 7 6. 00205 . 759918 22 14. 46111 . 421955 8 6. 73274 . 730690 23 14. 86684 . 406726 9 7. 43533 . 702587 24 15. 24696 . 390121 10 8. 11089 . 675564 26 15. 62208 .376117 11 8. 76047 . 649581 26 15. 98277 . 360689 12 9. 38507 . 624597 27 16. 32958 . 346816 13 9. 98565 . 600574 28 16. 66306 . 333477 14 10. 66312 . 577475 29 16. 98371 . 320651 15 11. 11839 . 555265 30 17. 29203 . 308319 SEC. 507. RETURNS. (a) Eequirement. — Any individual who within the calendar year 1932 or any calendar year thereafter makes any transfers by gift (except those which under section 604 aie not to be included in the total amount of gifts for such year) shall make a return under oath in duplicate. The return shall set forth (1) each gift made during the calendar year which under section 504 is to be included in computing net gifts; (2) the deduc- tions claimed and allowable under section 505; (3) the net gifts for each of the preceding calendar years; and (4) such further information as may be required by regulations made pursuant to law. (b) Time and place for filing. — The return shall be filed on or before the 15th day of March following the close of the calendar year with the collector for the district in which is located the legal residence of the donor, or if he has no legal residence in the United States, then (unless the Commissioner designates another district) with the collector at Baltimore, Maryland. Aht. 20. Persons required to file return. — Any individual resident or citizen of the United States who within that portion of the calen- dar year 1932 subsequent to June 6, 1932, or within any calendar year thereafter, made a transfer by gift to any one donee which ex- ceeded $5,000 in value (or regardless of value if the gift was of a future interest) must file a gift tax return on Form 709. A nonresi- dent alien who made such a gift must also file a return on Form 709 if the subject of the gift consisted of property situated in the United States. The return is required even though because of authorized deductions (the specific exemption, in the case of a resident or citizen, 29 and charitable, public, and similar gifts) no tax may be payable. Individuals only are required to file returns as donors, and not trusts, estates, partnerships, or corporations. If the donor dies before filing his return, the executor of his will or the administrator of his estate shall file the return. If the donor becomes legally incompetent before filing his return, his guardian or committee shall file the return. The return shall not be made by an agent unless by reason of illness, absence, or nonresidence, the person liable for the return is unable to make it within the time prescribed. Mere convenience is not sufficient reason for authorizing an agent to make the return. If by reason of illness, absence, or nonresidence, a return is made by an agent, such return must be ratified within a reasonable time by the donor or other person liable for its filing; otherwise the return filed by the agent wUl not be considered the return required by the statute. Supplemental data may be submitted at the time of rati- fication. The ratification must be in the form of an affidavit, filed with the Commissioner, and must specifically state that the return made by the agent has been carefully examined and that the affiant ratifies such return as his own. Art. 21. Donees and trustees required to file notice of gifts. — All donees and trustees (except such organizations, etc., referred to in section 505 and article 13) receiving property transferred by gift in any one calendar year, shall file a notice on Form 710, unless the value of the gift, or the aggregate value of aU the gifts, to the donee or to any one of the beneficiaries of the trust is $5,000, or less, and the subject of the gift is not a future interest in property. Copies of this form may be obtained from any United States collector of internal revenue upon application. When a gift is made in trust notice thereof should be filed by either the beneficiary of the trust or the trustee, but in such case one notice only is required. If property is trans- ferred in trust and the donor retains a power over the property, the notice (which is for information purposes only) should be filed even though it is considered that such power constitutes a retention of beneficial dominion and control and that by reason thereof the transfer is not a gift within the meaning of the statute. The notice shall bo filed in duplicate with the collector for the district in which the donor resides, or with the Commissioner of Internal Revenue at Washing- ton, D. C, on or before the 15th day of March following the close of the calendar year in which the transfer was made. The notice shall disclose the following information: (1) Name and address of donor, (2) date of transfer, (3) a general description of the property transferred, and (4) the approximate value thereof at the date of the transfer. 30 Abt. 22. Time and place of filing return. — Gift tax returns must be filed in duplicate on or before the 15th day of March following the close of the calendar year in which gifts were made. The return shall be filed with the collector of internal revenue for the district in which is located the legal residence of the donor, or, if he has no legal resi- dence in the United States, then, unless the Commissioner otherwise designates, with the collector of internal revenue at Baltimore, Md. When the due date for the filing of the return falls on a Simday or a legal hohday, the due date will be the day next following which is not a Sunday or a legal hoHday. If placed in the maUs, the return should be posted in ample time to reach the collector's office, under ordinary handling of the mails, on or before the date on which the return is required to be filed. If a return is made and so placed in the maUs, properly addressed, and postage paid, in ample time to reach the office of the collector on or before the due date, no penalty will attach should the return not be actually received by such officer until sub- sequent to that date. As to additions to the tax in the case of failure to file a retiu'n within the period prescribed, see section 619 and article 52. Section 3176, Revised Statutes, as amended by section 619(d), Revenue Act of 1928, provides: * * * If the failure to file a return (other than a return of income tax) or a list is due to sickness or absence, the coDector may allow such time, not exceeding 30 days, for making or filing the return or list as he deems proper. * * * Such extension may be granted either before or after the due date. An extension of time for filing the return does not in itself operate to extend the time for the payment of the tax. Art. 23. Form of return. — The return must be made on Form 709, copies of which will be supplied by the collector upon application. The return must be filed in duphcate and under oath, and therein must be hsted and set forth all gifts (other than future interests in property) made by the donor during the calendar year to any one person to the extent that the aggregate value thereof exceeds $5,000 and aU gifts of future interests in property without regard to the value thereof. The return shall also set forth the fair market value oi aU gifts not made in money, including gifts resulting from sales and exchanges of property made for less than an adequate and full consideration in money or money's worth {see article 8), giving the fair market value of the property sold or exchanged and that of the consideration received by the donor, both as of the date of sale or exchange. The deductions claimed must also be fuUy set forth. The instructions printed on the form of return should be carefully followed. All documents and vouchers used in preparing the retturn should be retained by the donor so as to be available for inspection 31 by representatives of the Bureau whenever required. Duplicate certified or verified copies of all documents required by the instruc- tions printed on the form, or any documents which the donor may desire to submit, should be filed with the return. In addition to the list of gifts made during the calendar year for which the return is filed, the return shall set forth both the amount of gifts (other than charitable, public, and simUar gifts) and the amount of specific exemption (see articles 5 and 12) claimed and allowed for each of the preceding calendar years. The tax, if any, for the calendar year for which the return is filed shall be computed and entered on the return, as provided by the form. (See article 5.) Art. 24. Description of property listed on return. — In listing upon the return the property comprising the gifts made during the calen- dar year, the description thereof should be such that the property may be readily identified. Thus, a legal description should be given of each parcel of real estate, and if located in a city the name of street and number, its area, and, if improved, a short statement of the char- acter of the improvements. Description of bonds should include the number transferred, principal amount, name of obhgor, date of ma- turity, rate of interest, date or dates on which interest is payable, series number where there is more than one issue, the exchange upon which hsted, or the principal business office of the corporation, if unlisted. Description of stocks should include number of shares, whether common or preferred, and, if preferred, what issue thereof, par value, quotation at which returned, exact name of corporation, and, if the stock is unlisted, the location of the principal business office and State in which incorporated and the date of incorporation. If a Hsted security, state principal exchange upon which sold. De- scription of notes should include name of maker, date on which given, date of maturity, amount of principal, amount of principal unpaid, rate of interest and whether simple or compound, and date to which interest has been paid. Description of land contracts transferred should include name of vendee, date of contract, description of property, sale price, initial payment, amounts of installment pay- ments, unpaid balance of principal, Luterest rate and date prior to gift to which interest has been paid. Description of hfe insurance policies should show the name of the insurer and the number of the policy. A supplemental statement. Form 938, must be filed for every Ufe insurance poUcy. (See article 26.) In describing an annuity, the name and address of the issuing company should be given, or if payable out of a trust or other fund such a description as wUl fully identify such trust or fund. If the annuity is payable for a term of years, the duration of the term and the date on which it began should be given, and if payable for the life of any person, the 32 date of birth of such person should be stated. Judgments should be described by giving the title of the cause and the name of the court in which rendered, date of judgment, name and address of judgment debtor, amount of judgment, rate of interest to which subject, whether any payments have been made thereon, and, if so, when and in what amounts. SEC. 508. RECORDS AND SPECIAL RETURNS. (a) By donor. — Every person liable to any tax imposed by this title or for the collection thereof, shall keep such records, render under oath such statements, make such returns, and comply with such rules and regulations, as the Commissioner, with the approval of the Secretary, may from time to time prescribe. (b) To determine liability to tax. — Whenever in the judgment of the Commissioner necessary he may require any person, by notice served upon him, to make a return, render under oath such statements, or keep such records, as the Commissioner deems sufficient to show whether or not such person is liable to tax under this title. Aht. 25. Aids to determination and collection of tax. — In assessing and collecting gift taxes, the Commissioner has the benefit of all exist- ing internal revenue laws in so far as such laws are applicable. (See section 529.) The Commissioner may require any person to keep specific records, render under oath such statements, make such re- turns, and comply with such rules and regulations, as the Commis- sioner, with the approval of the Secretary, may prescribe in order that he may determine whether such person is liable for the tax. In accordance with this provision, every individual shall, for the pur- pose of determining the total amount of his gifts, keep such perma- nent books of account or records as are necessary to establish the amount of his total gifts (limited as provided in section 504 (b)), together with the deductions allowable in determining the amount of his net gifts, and the other information required to be shown in a gift tax retm-n. Art. 26. Supplemental data. — In order that the Commissioner may determine the correct tax the donor shall furnish such supplemental data as may be deemed necessary by the Commissioner. It is, there- fore, the duty of the donor to furnish upon request copies of all docu- ments relating to his gift or gifts, appraisal hsts of any items included in the total amount of gifts, copies of balance sheets, or other finan- cial statements relating to the value of stock constituting the gift, and any other information obtainable by him that may be found necessary in the determination of the tax. (See article 19.) For every poUcy of life insurance listed on the retiim, the donor must procure a statement from the insurance company on Form 938, in accordance with instructions printed thereon, and file it with the col- lector who receives the return. If specifically requested by the Com- 33 missioner, the insurance company shall file this statement direct with the Bureau. Art. 27. Returns confidential. — All gift tax returns are treated as confidential and may not be divulged to any person other than the donor or his duly authorized agent, except as provided in rules and regulations separately promulgated. This confidential treatment ex- tends to records in possession of the Bureau, whether on file with the Commissioner, collector, or revenue agent, including information of a private nature submitted or obtained in connection with a return. Internal revenue officers are not prohibited from disclosing the re- turned amount of any gift or the amount of any specific deduction, if such disclosure is necessary ia order to arrive at a correct determi- nation of the tax. This right of disclosure, however, does not extend to such iuformation as the total amount of the gifts, the amount of the tax, or other general data. Art. 28. Recognition of attorneys and other persons representing taxpayers. — For regulations governing the recognition of attorneys, agents, and other persons representing claimants before the Treasury Department, reference should be made to Treasury Department Cir- cular No. 230, as revised, copies of which may be obtained upon appli- cation to the secretary of the Committee on Enrollment and Disbar- ment, Treasury Department, Washington, D. C. If an attorney or other person asks a ruling on a question of law arising in a specific case, the Commissioner will require satisfactory evidence of the right to obtain such ruling. Hypothetical questions, however, can not be answered. Art. 29. No return filed, or a false or fraudulent return filed. — Section 3176, Revised Statutes, as amended by section 619 (d). Reve- nue Act of 1928, provides: If any person, corporation, company, or association 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, wUlfully 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 Infor- mation as he can obtain through testimony or otherwise. In any such case the Commissioner of Internal Revenue may, from his own knowl- edge 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 collector. Any return or list so made and subscribed by the Commissioner, or by a collector or deputy collector and approved by the Commissioner, shall be prima facie good and suflScient for aU legal purposes. * * * If a tax is found to be due upon such a return, the donor shall be Uable for penalties as well as for the tax. For penalties, see sections 519, 520, and 525 and articles 52, 53, and 58. 34 SEC. 509. PAYMENT OF TAX. (a) Time of payment. — The tax imposed by this title shall be paid by the donor on or before the 15th day of March following the close of the calendar year. (b) Extension of time for payment. — At the request of the donor, the Commissioner may extend the time for payment of the amount determined as the tax by the donor, for a period not to exceed six months from the date prescribed for the payment of the tax. In such case the amount in respect of which the extension is granted shall be paid on or before the date of the expiration of the period of the extension. (c) Voluntary advance payment. — A tax imposed by this title, may be paid, at the election of the donor, prior to the date prescribed for its payment. (d) Fractional parts of cent. — In the payment of any tax under this title a fractional 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. (e) Receipts. — The collector to whom any payment of any gift tax is made shall, upon request, grant to the person making such payment a receipt therefor. Art. 30. Date of payment. — The tax is required to be paid by the donor on or before the 15th day of March following the close of the calendar year in which the gifts were made, unless an extension of time for payment thereof has been granted by the Commissioner. (See article 31.) Art. 31. Extension of time for payment of tax shown on return. — If it is shown to the satisfaction of the Commissioner that the pay- ment of the amount determined as the tax by the donor, or any part thereof, upon the due date will result in undue hardship to the donor, the Commissioner, at the request of the donor, may grant an extension of time for the payment for a period not to exceed six months. The extension will not be granted upon a general statement of hardship. The term "undue hardship" means more than an inconvenience to the donor. It must appear that substantial financial loss, for example, due to the sale of property at a sacrifice price, will result to the donor from making payment of the amount at the due date. If a market exists, the sale of property at the current market price is not ordinarily considered as resulting in undue hardship. An application for an extension of time for the payment of such tax should be made under oath and must be accompanied or supported by evidence showing the undue hardship that would result to the donor if the extension were refused. A sworn statement of assets and liabilities of the donor is required and should accompany the application. An itemized state- ment showing all receipts and disbursements for each of the three months preceding the due date of the tax shall also be submitted. The application with the evidence must be filed with the collector, who will at once transmit it to the Commissioner with his recommenda- tions as to the extension. The Commissioner will not consider an 35 application for an extension of time unless such application is made on or before the due date of the tax for which the extension is desired. As a condition to the granting of such an extension, the Commis- sioner may require the donor to furnish a bond in an amount not ex- ceeding double the amount of the tax. If a bond is required, it must be filed with the collector within 10 days after notification by the Commissioner that such bond is required. The bond, if required, shall be conditioned upon the payment of the tax and interest assessed in connection therewith in accordance with the terms of the extension granted, and shall be executed by a surety company holding a cer- tificate of authority from the Secretary of the Treasury as an accept- able surety upon Federal bonds and shall be subject to the approval of the Commissioner. In lieu of such surety, the bond may be secured by the deposit of Liberty bonds, other bonds or notes of the United States, any pubUc debt obhgations of the United States, or any bonds, notes, or other obligations which are unconditionally guaranteed as to both interest and principal by the United States, equal in their total par value to the amount of such bond. (See section 1126 of the Revenue Act of 1926, as amended by section 7 of H. R. 4304, Public, No. 3, Seventy-fourth Congress.) If an extension of time for payment of the tax is granted, the amount, time for payment of which is so extended, shall be paid on or before the expiration of the period of extension, together with inter- est at the rate of 6 per cent per annum on such amount from the date when the payment should have been made if no extension had been granted until the expiration of the period of the extension. (See section 521 and article 54.) Art. 32. Voluntary advance payment. — The gift tax may be paid at the election of the donor prior to the date prescribed for its pay- ment, that is, prior to the 15th day of March following the close of the calendar year in which the gift or gifts were made. No discount will be allowed for payment in advance of the due date. Art. 33. When fractional part of cent may be disregarded. — In the payment of tax a fractional 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. A fractional part of a cent should not be disregarded in the computation of the tax. Art. 34. Receipts for taxes. — Upon request the collector will give a receipt for tax payments. In the case of payments made by check or money order, the canceled check or the money order receipt is usually a sufficient receipt. In case of paymtcnts in cash, however, it might be to the donor's interest to require the collector to furnish a receipt. Art. 35. Payment by check. — Collectors may accept uncertified checks in the payment of the tax, provided such checks are collect- 36 ible at par — that is, for the full amount without any deduction for exchange or other charges. The day on which the check is received will be considered the date of pajonent so far as the taxpayer is con- cerned, unless the check is uncollectible. All expenses incident to the attempt to collect unhonored checks and their return through the depositary bank must be paid by the drawer of the check to the bank on which it is drawn. (See section 3210 of the Revised Statutes, as amended, reenacted by section 1128 (b) of the Revenue Act of 1926.) If a check has been returned uncol- lected by the depositary bank, the collector should proceed to collect -the tax as though no check had been given, and the taxpayer will remain liable for payment of the tax and for all interest, legal pen- alties, and additions, if any attach, to the same extent as though such check had not been tendered. A taxpayer who tenders a certi- fied check in payment of taxes is not released from his obligation untU the check has been paid. (See Act of March 2, 1911 (36 Stat., 965).) Aet. 36. Donor liable for tax, — The statute provides that the donor shall pay the tax. If the donor dies before the tax is paid, his execu- tor or administrator shall make payment thereof to the collector. If there is no duly qualified executor or administrator, the heirs, lega- tees, devisees, and distributees are liable for and required to pay the tax to the extent of the value of their inheritance, bequest, devise, or distributive share of the donor's estate. As to the personal liability of the donee, see article 37, and as to that of the executor or adminis- trator, see article 72. SEC. 510. LIEN FOR TAX. The tax imposed by this title shall be a lien upon all gifts made dur- ing the calendar year, for ten years from the time the gifts are made. If the tax is not paid when due, the donee of any gift shall be personally liable for such tax to the extent of the value of such gift. Any part of the property comprised in the gift sold by the donee to a bona fide pur- chaser for an adequate and full consideration in money or money's worth shall be divested of the lien herein imposed and the lien, to the extent of the value of such gift, shall attach to all the property of the donee (including after-acquired property) except any part sold to a bona fide purchaser for an adequate and fuU consideration in money or money's worth. If the Commissioner Is satisfied that the tax liability has been fully discharged or provided for, he may, under regulations prescribed by him with the approval of the Secretary, issue his certificate, releasing any or aU of the property from the lien herein Imposed. Art. 37. lien for tax. — A lien attaches upon all gifts made during the calendar year for the amount of the tax imposed upon the gifts made during such year. The lien extends for a period of 10 years from the time the gifts were made, unless the tax is sooner paid. If the tax is not paid when due, the donee of any gift becomes personally hable for the tax to the extent of the value of his gift. Any part 37 of property which was the subject of a gift, sold by the donee to a bona fide purchaser for an adequate and full consideration in money or money's worth, is divested of the lien, but a like lien to the extent of the value of such gift attaches to all the property of the donee, including after-acquired property, except any part sold to a bona fide purchaser for an adequate and full consideration in money or money's worth. Art. 38. Release of lien. — The statute provides that, if the Com- missioner is satisfied that the tax liability has been fully discharged or provided for, he may issue his certificate releasing any or all prop- erty from the lien imposed thereon. The issuance of certificates releasing such lien is a matter resting within the discretion of the Commissioner, and certificates will be issued only ia case there is actual need therefor. The primary purpose of such release is not to evidence payment or satisfaction of the tax but to permit transfer of property free from the lien in case it is necessary to clear title. Re- ceipts for payment of tax are issued by the collector. (See article 34.) If the tax UabUity has been fully discharged, or its discharge pro- vided for to the satisfaction of the Commissioner by the applicant for the release of lien filing with the collector a surety bond, a cer- tificate may then be issued releasing any or all property from the lien imposed thereon. The tax will be considered fully discharged only when the return has been examined and payment of the tax, including any deficiency determined to be due, has been made. If the tax liability has not been fully discharged, or provided for as above stated, no general release wiU be granted, but certificates re- leasing the Ken on particular items of property may be issued by the Conunissioner, who may require as a prerequisite, in such amount as he may designate, a partial payment of the tax, or a surety bond. As to the character of surety bonds required, see article 31. In Ueu of a surety bond, the taxpayer may file a bond secured by the deposit of Liberty bonds, other bonds or notes of the United States, any public-debt obligations of the United States, or any bonds, notes, or other obhgations which are unconditionally guaranteed as to both interest and principal by the United States, equal in their total par value to the amount of such bond. (See section 1126 of the Revenue Act of 1926, as amended by section 7 of H. R. 4304, Public, No. 3, Seventy-fourth Congress.) The application for a release should be filed with the Commissioner, should explain the circumstances that require the release, and should fully describe the particular items for which the release is desired. If the application is made prior to the filing of the return for gift tax, an affidavit may be required showing the value of the property to be released from the lien, the basis for such valuation, the total amount of gifts made during the calendar year and the prior cal- 38 endar years subsequent to the enactment of the Revenue Act of 1932, the approximate value of all real estate upon which the lien has attached, and, in case the property is to be sold or otherwise trans- ferred, the name and address of the purchaser or transferee and the consideration, if any, paid or to be paid by him. SEC. 511. EXAMINATION OF RETURN AND DETERMINATION OF TAX. As soon as practicable after the return is filed the Commissioner shall examine it and shaU determine the correct amount of the tax. Art. 39. Examination of return and determination of tax by the Commissioner. — As soon as practicable after returns are filed, they will be examined and the amoimt of tax determined imder such pro- cediKe as may be prescribed from time to time by the Commissioner. (See section 513 and article 41.) SEC. 512. DEFINITION OF DEFICIENCY. As used in this title in respect of the tax imposed by this title the term "deficiency" means — (1) The amount by which the tax imposed by this title exceeds the amount shown as the tax by the donor upon his return; but the amount so shown on the return shaU first be increased by the amounts previously assessed (or collected without assessment) as a deficiency, and decreased by the amounts previously abated, refunded, or other- wise repaid in respect of such tax; or (2) If no amount is shown as the tax by the donor upon his return, or if no return is made by the donor, then the amount by which the tax exceeds the amounts previously assessed (or collected without assess- ment) as a deficiency; but such amounts previously assessed, or collected without assessment, shall first be decreased by the amounts previously abated, refunded, or otherwise repaid in respect of such tax. Art. 40. Deficiency defined. — Section 512, by its definition of the word "deficiency," provides a term which will apply to any amount of tax determined to be due in excess of the amoimt of tax reported by the donor upon his return; or in excess of the amount reported by the donor after adjustment made for prior assessments, abatements, credits, refunds, or collections without assessment. In defining the term "deficiency" section 512 recognizes two classes of cases — one, where the taxpayer makes a return showing some tax Uability; the other, where the taxpayer makes a return showing no tax liabiUty, or where the taxpayer fails to make a return. Additional tax shown on any so-called "amended return" is a deficiency within the meaning of the Act. When a donor's tax liability is considered for the first time, the deficiency is the excess of the amount determined to be the correct amount of tax over the amoimt shown as the tax by the donor on his return, or, if no tax was reported by the donor, the deficiency is the amoimt determined to be the correct amount of tax. Subsequent information sometimes discloses that the amount previously deter- 39 mined to be the correct amount of tax is less than the correct amount, and that a redetermination of the tax is necessary. In such a case, the deficiency on redetermination is the excess of the amotmt deter- mined to be the correct amoimt of tax over the sum of the amount of tax reported by the donor and the deficiency assessed ia connection with the previous determination. If it is a case where no tax was reported by the donor, the deficiency is the excess of the amount determined to be the correct amount of tax over the amount of defi- ciency assessed in connection with the previous determination. If the previous determination resulted in a credit or refund to the tax- payer, the deficiency upon the second determination is the excess of the amount determined to be the correct amount of tax over the amount of tax reported by the donor decreased by the amoimt of the credit or refimd. SEC. 513. ASSESSMENT AND COLLECTION OF DEFICIENCIES. (a) Petition to Board of Tax Appeals. — If the Commissioner deter- mines that there is a deficiency in respect to the tax imposed by this title, the Commissioner is authorized to send notice of such deficiency to the donor by registered mail. Within 60 days after such notice is mailed (not counting Sunday as the sixtieth day), the donor may file a petition with the Board of Tax Appeals for a redetermination of the deficiency. No assessment of a deficiency in respect of the tax imposed by this title and no distraint or proceeding in court for its collection shall be made, begun, or prosecuted until such notice has been mailed to the donor, nor until the expiration of such 60-day period, nor, if a petition has been filed with the Board, until the decision of the Board has become final. Notwithstanding the provisions of section 3224 of the Revised Statutes the making of such assessment or the beginning of such proceeding or distraint during the time such prohi- bition is in force may be enjoined by a proceeding in the proper court. For exceptions to the restrictions imposed by this subsection see — (1) Subsection (d) of this section, relating to waivers by the donor; (2) Subsection (f) of this section, relating to notifications of mathematical errors appearing upon the face of the return; (3) Section 514, relating to jeopardy assessments; (4) Section 516, relating to bankruptcy and receiverships; and (5) Section 1001 of the Revenue Act of 1926, as amended, relat- ing to assessment or collection of the amount of the deficiency determined by the Board pending court review. (b) Collection of deficiency found by Board. — If the donor files a petition with the Board, the entire amount redetermined as the defi- ciency by the decision of the Board which has become final shall be assessed and shall be paid upon notice and demand from the collector. No part of the amount determined as a deficiency by the Commissioner but disallowed as such by the decision of the Board which has become final shall be assessed or be collected by distraint or by proceeding in court with or without assessment. (c) Failure to file petition. — If the donor does not file a petition with the Board within the time prescribed in subsection (a) the 40 deficiency, notice of which has been mailed to the donor, shall be assessed, and shall be paid upon notice and demand from the collector. (d) Waiver of restrictions. — The donor shall at any time have the right, by a signed notice in writing filed with the Commissioner, to waive the restrictions provided in subsection (a) on the assessment and collection of the whole or any part of the deficiency. (e) Increase of deficiency after notice mailed. — The Board shall have jurisdiction to redetermine the correct amount of the deficiency even if the amount so redetermined is greater than the amount of the defi- ciency, notice of which has been mailed to the donor, and to determine whether any additional amount or addition to the tax should be assessed, if claim therefor is asserted by the Commissioner at or before the hearing or a rehearing. (f) Further deficiency letters restricted. — If the Commissioner has mailed to the donor notice of a deficiency as provided in subsection (a) of this section, and the donor files a petition with the Board within the time prescribed in such subsection, the Commissioner shall have no right to determine any additional deficiency in respect of the same calendar year, except in the case of fraud, and except as provided in subsection (e) of this section, relating to assertion of greater deficiency before the Board, or in section 514 (c), relating to the making of jeopardy assess- ments. If the donor is notified that, on account of a mathematical error appearing upon the face of the return, an amount of tax in excess of that shown upon the return is due, and that an assessment of the tax has been or will be made on the basis of what would have been the correct amount of tax but for the mathematical error, such notice shall not be considered (for the purposes of this subsection, or of subsection (a) of this section, prohibiting assessment and collection untU notice of deficiency has been mailed, or of section 528 (c), prohibiting credits or refunds after petition to the Board of Tax Appeals) as a notice of a deficiency, and the donor shall have no right to file a petition with the Board based on such notice, nor shall such assessment or collection be prohibited by the provisions of subsection (a) of this section. (g) Jurisdiction over other calendar years. — The Board in redeter- mining a deficiency in respect of any calendar year shall consider such facts with relation to the taxes for other calendar years as may be neces- sary correctly to redetermine the amount of such deficiency, but in so doing shall have no jurisdiction to determine whether or not the tax for any other calendar year has been overpaid or underpaid. (h) Final decisions of Board. — For the purposes of this title the date on which a decision of the Board becomes final shall be determined according to the provisions of section 1005 of the Revenue Act of 1926. (i) Extension of time for payment of deficiencies. — Where it is shown to the satisfaction of the Commissioner that the payment of a deficiency upon the date prescribed for the payment thereof will result in undue hardship to the donor the Commissioner, with the approval of the Secretary (except where the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax), may grant an extension for the payment of such deficiency or any part thereof for a period not in excess of eighteen months, and, in exceptional cases, for a further period not in excess of twelve months. If an exten- sion is granted, the Commissioner may require the donor to furnish a bond in such amount, not exceeding double the amount of the deficiency, and with such sureties, as the Commissioner deems necessary, condi- 41 tioned upon the payment of the deficiency in accordance with the terms of the extension. (j) Address for notice of deficiency. — In the absence of notice to the Commissioner under section 527 (a) of the existence of a fiduciary rela- tionship, notice of a deficiency in respect of a tax imposed by this title, if mailed to the donor at his last known address, shall be sufficient for the purposes of this title even if such donor is deceased, or is under a legal disability. SEC. 501, REVENUE ACT OF 1934. PERIOD FOR PETITION TO BOARD UNDER PRIOR ACTS. Section 274(a) of the Revenue Act of 1926, section 308(a) of the Revenue Act of 1926, section 513 (a) of the Revenue Act of 1932, and section 272(a) of the Revenue Act of 1928 and the Revenue Act of 1932 (relating to the period during which a taxpayer may petition the Board of Tax Appeals for redetermination of a deficiency), are amended by striking out "60 days" and inserting in lieu thereof 90 days"; by striking out "not counting Sunday as the sixtieth day" and inserting in lieu thereof "not counting Sunday or a legal holiday in the District of Columbia as the ninetieth day"; and by striking out "60-day" and inserting in heu thereof "90-day" The amendments made by this section shall apply only in respect of notices mailed after 30 days after the date of the enactment of this Act. Art. 41. Assessment of deficiency. — If the Commissioner deter- mines that there is a deficiency in respect of the tax he is authorized to notify the donor of the deficiency by registered mail. In the ab- sence of notice to the Commissioner under section 527 (a) of the exist- ence of a fiduciary relationship the Commissioner is authorized to mail the notice of a deficiency to the donor at his last known address, and such notice is sufficient even if the donor is deceased or is imder legal disability. Within 90 days after the notice of deficiency is mailed, a petition may be filed with the Board of Tax Appeals for a redetermination of the deficiency. In determining such 90-day period, Sunday or a legal hohday in the District of Columbia is not to be counted as the ninetieth day. Except as stated in paragraphs numbered (1), (2), (3), (4), and (5) of this article, no assessment of deficiency in respect of the tax shall be made until such notice has been mailed to the donor, nor until the expiration of such 90-day period, nor, if a petition has been filed with the Board, until the deci- sion of the Board has become final. As to the date on which a deci- sion of the Board of Tax Appeals becomes final, see section 1005 of the Eevenue Act of 1926 and section 1101 of the Revenue Act of 1932. If notice of the deficiency was mailed prior to 30 days after the date of the enactment of the Eevenue Act of 1934, the period for the fihng of a petition with the Board was 60 days (not counting Sunday as the sixtieth day) after the mailing of the notice. (1) The donor may, at any time, by a signed notice in writing filed with the Commissioner, waive the restrictions on the assessment 33785°— 36 i 42 of the whole or any part of the deficiency. The notice must in all cases be filed with the Coomiissioner. The filing of such notice with the Board does not constitute filing with the Commissioner within the meaning of the Act. After such waiver has been acted upon by the Commissioner and the assessment has been made in accordance with its terms, the waiver can not be withdrawn. After a waiver of the restrictions on the assessment of the deficiency has been filed, there wUl be assessed at the same time as the assessment made in accordance with the terms of the waiver interest upon the tax so assessed at the rate of 6 per cent per annum from the due date of the tax to the thirtieth day after the filing of such waiver or to the date the deficiency is assessed, whichever is the earUer. (See section 622 and article 55.) (2) If a donor is notified of an additional amount of tax due on account of a mathematical error appearing upon the face of his return, such notice is not to be considered as a notice of deficiency and the donor has no right to file a petition with the Board upon the basis of such notice, nor is the assessment of such additional tax prohibited by the provisions of section 513 (a). (3) If the Commissioner beUeves that the assessment or collection of a deficiency will be jeopardized by delay, such deficiency shall be assessed immediately as provided in section 614. (See article 45.) (4) Upon the adjudication of bankruptcy of a donor in any bankruptcy proceeding or the appointment of a receiver for a donor in any receivership proceedings before any court of the United States or of any State or Territory or of the District of Columbia, any deficiency determined by the Commissioner in respect of the tax shall be assessed immediately irrespective of the provisions of section 513 (a) if such deficiency has not been assessed in accordance with the law prior to the adjudication of bankruptcy or the appointment of the receiver. (See sections 616 and 524 (b) (5) and articles 47 and 57.) (5) If the Board renders a decision and determines that there is a deficiency, and, if the donor duly files a petition for review of the decision by a circuit court of appeals (or the Court of Appeals of the District of Colmnbia), the filing of the petition will not operate as a stay of the assessment of any portion of the defi- ciency determined by the Board, unless he has filed a bond with the Board as provided in section 1001 (c) of the Revenue Act of 1926, as amended by section 603 of the Revenue Act of 1928. If, in such a case, the necessary bond has not been filed by the donor, the amount determined by the Board as a deficiency will be assessed immediately after the filing of such petition. If the Commissioner files a petition for review and the donor has not filed a petition for review within three months after the decision of the Board is 43 rendered, the amount determined by the Board as a deficiency will be assessed immediately after the expiration of the 3-month period. If the Commissioner files a petition for review, and a similar peti- tion is filed by the donor, but the bond required by section 1001 (c) of the Revenue Act, amended as above referred to, has not been filed with the Board, the deficiency will be assessed immediately after the filing of the petition for review by the donor. If no petition is filed with the Board within the period prescribed, the Commissioner shall assess the amoimt determined by liim as the deficiency and of which he has notified the donor by registered mail. In such case, the Commissioner will not be precluded from determin- ing a further deficiency and notifying the donor thereof by registered mail. In case a petition is filed with the Board, the entire amoimt redetermined as the deficiency by the decision of the Board which has become final shall be assessed by the Commissioner. If the Commissioner mails to the donor notice of a deficiency and the donor files a petition with the Board within the period prescribed, the Commissioner is barred from determining any additional defi- ciency for the same taxable year except in the case of fraud and except as provided in section 513 (e), relating to the assertion of greater deficiencies before the Board, or in section 514, relating to jeopardy assessments. (See article 45.) Abt. 42. Waiver by donor of restrictions on assessment. — If the donor acquiesces in any proposed, tentative, or final determination of the whole or any part of the deficiency, the donor has the right by a signed notice in writing filed with the Commissioner to waive the restrictions on the assessment and collection of such whole or part of the deficiency under the provisions of section 513 (d) above quoted. A form of notice of such waiver for filing with the Commissioner will be supplied the donor upon notice of any proposed, tentative, or final determination of a deficiency. Filing of the notice of waiver wiU expedite assessment and stop the accrual of interest on the amount assessed until after notice and demand by the collector. As to interest on deficiencies, see section 522 and article 55. Art. 43. Collection of deficiency. — If a deficiency as redetermined by a decision of the Board which has become final is assessed, or the donor has not filed a petition with the Board and the deficiency as determined by the Commissioner has been assessed, or the restric- tions upon the assessment and collection of the whole or any part of the deficiency provided in subsection (a) of section 513 have been waived and an assessment made in accordance with such waiver, the amount so assessed shall be paid upon notice and demand from the collector. As to deficiencies coming within the provisions of sections 514 and 516, and section 1001 (c) of the Eevenue Act of 1926, as amended by section 603 of the Eevenue Act of 1928, relating 44 to jeopardy assessments, bankruptcies and receiverships, and defi^ ciencies determined by the Board pending court review, see articles 45, 47, and subparagraph (5) of article 41. As to interest on defi- ciencies, see section 522 and article 55. Akt. 44. Extension of time for payment of deflciencies. — If it ia shown to the satisfaction of the Commissioner that the payment of a deficiency upon the date prescribed for payment thereof woiild result in undue harship to the donor, the Commissioner, with the approval of the Secretary, may grant an extension of time for the payment of the deficiency or any part thereof for a period of time not in excess of 18 months and in exceptional cases for a further period not in excess of 12 months. The extension will not be panted upon a general statement of hardship. The term "undue hardship" means more than an inconvenience to the donor. It must appear that substantial financial loss, for example, due to the sale of property at a sacrifice price, will result to the donor from making payment of the deficiency at the date prescribed for payment. If a market exists, the sale of property at the current market price is not ordi- narily considered as resulting in imdue hardship. The Act provides that no extension will be granted where the deficiency is due to negligence or intentional disregard of rules and regulations or to fraud with intent to evade tax. An apphcation for an extension of time for the payment of the deficiency should be made under oath on Form 718 and must be accompanied or supported by evidence showing the undue hardship that would result to the donor if the extension were refused. A sworn statement of assets and habilities of the donor is required and should accompany the application. An itemized statement showing all receipts and disbursements for each of the three months preceding the date prescribed for payment of the deficiency shall also be sub- mitted. The application with the evidence must be filed with the collector, who will at once transmit it to the Commissioner with his recommendation as to the extension. When it is received by the Commissioner, it will be examined immediately and, if possible, within 30 days wiU be rejected, approved, or tentatively approved subject to conditions of which the donor will be immediately notified. The Commissioner wiU not consider an application for an extension of time for the payment of the deficiency unless such application is made on or before the date prescribed for payment thereof as shown by the notice and demand from the collector, or on or before the date prescribed for pajrment in any prior extension granted. As a condition to the granting of such an extension the Commis- sioner may require the donor to furnish a bond on Form 718A in an amount not exceeding double the amount of the deficiency. If a bond is required, it must be filed with the collector within 10 days after 45 notification by the Commissioner that such bond is required. It shall be conditioned upon the payment of the deficiency, interest, and additional amounts assessed in connection therewith in accordance with the terms of the extension granted and shall be executed by a surety company holding a certificate of authority from the Secretary of the Treasury as an acceptable surety on Federal bonds and shall be subject to the approval of the Commissioner. In lieu of such a bond, the donor may file a bond secured by a deposit of Liberty bonds, other bonds or notes of the United States, any public-debt obligations of the United States, or any bonds, notes, or other obligations which are unconditionally guaranteed as to both interest and principal by the United States, equal in their total par value to the amount of the bond required to be furnished. (See section 1126 of the Revenue Act of 1926 as amended by section 7 of H. R. 4304, Public, No. 3, Seventy- fourth Congress.) The amount of the deficiency and additions thereto shall be paid on or before the expiration of the period of the extension without the necessity of a notice and demand from the collector. (See section 521 (b) and article 57.) SEC. 514. JEOPARDY ASSESSMENTS. (a) Authority for making. — If the Commissioner believes that the assessment or collection of a deficiency will be jeopardized by delay, he shall immediately assess such deficiency (together with all interest, additional amounts, or additions to the tax provided for by law) and notice and demand shall be made by the collector for the payment thereof. (b) Deficiency letters. — If the jeopardy assessment is made before any notice in respect of the tax to which the jeopardy assessment relates has been mailed under section 513 (a), then the Commissioner shall mail a notice under such subsection within 60 days after the making of the assessment. (c) Amount assessable before decision of Board. — The jeopardy assessment may be made in respect of a deficiency greater or less than that notice of which has been mailed to the donor, despite the provisions of section 513 (f) prohibiting the determination of additional deficien- cies, and whether or not the donor has theretofore filed a petition with the Board of Tax Appeals. The Commissioner shall notify the Board of the amount of such assessment, if the petition is filed with the Board before the making of the assessment or is subsequently filed, and the Board shall have jurisdiction to redetermine the entire amount of the deficiency and of all amounts assessed at the same time in connection therewith. (d) Amount assessable after decision of Board. — If the jeopardy assessment is made after the decision of the Board is rendered such assessment may be made only in respect of the deficiency determined by the Board in its decision. (e) Expiration of right to assess. — A jeopardy assessment may not be made after the decision of the Board has become final or after the donor has filed a petition for review of the decision of the Board. 46 (f) Bond to stay collection. — When a jeopardy assessment has been made the donor, within 10 days after notice and demand from the col- lector for the payment of the amount of the assessment, may obtain a stay of collection of the whole or any part of the amount of the assess- ment by filing with the collector a bond in such amount, not exceeding double the amount as to which the stay is desired, and with such sure- ties, as the collector deems necessary, conditioned upon the payment of so much of the amount, the collection of which is stayed by the bond, as is not abated by the decision of the Board which has become final, together with interest thereon as provided in section 523 or 524 (b) (4). (g) Same — Further conditions. — If the bond is given before the donor has filed his petition with the Board under section 513 (a), the bond shall contain a further condition that if a petition is not filed within the period provided in such subsection, then the amount the collection of which is stayed by the bond will be paid on notice and demand at any time after the expiration of such period, together with interest thereon at the rate of 6 per centum per annum from the date of the jeopardy notice and demand to the date of notice and demand under this subsection. (h) Waiver of stay. — Upon the filing of the bond the collection of so much of the amount assessed as is covered by the bond shall be stayed. The donor shall have the right to waive such stay at any time in respect of the whole or any part of the amount covered by the bond, and if as a result of such waiver any part of the amount covered by the bond is paid, then the bond shall, at the request of the donor, be pro- portionately reduced. If the Board determines that the amount assessed is greater than the amount which should have been assessed, then when the decision of the Board is rendered the bond shall, at the request of the donor, be proportionately reduced. (i) Collection of unpaid amounts. — When the petition has been filed with the Board and when the amount which should have been assessed has been determined by a decision of the Board which has become final, then any unpaid portion, the collection of which has been stayed by the bond, shall be collected as part of the tax upon notice and demand from the collector, and any remaining portion of the assess- ment shall be abated. If the amount already collected exceeds the amount determined as the amount which should have been assessed, such excess shall be credited or refunded as provided in section 528, without the filing of claim therefor. If the amount determined as the amount which should have been assessed is greater than the amount actually assessed, then the difference shall be assessed and shall be collected as part of the tax upon notice and demand from the collector. Art. 45. Jeopardy assessments. — If the Commissioner believes that the assessment or collection of a deficiency will be jeopardized by delay, he is required to assess such deficiency immediately, together with the interest and other additional amounts provided by law. If a deficiency is assessed on accoimt of jeopardy after the decision of the Board of Tax Appeals is rendered, the jeopardy assessment may be made only with respect to the deficiency determined by the Board. The Commissioner is prohibited from making a jeopardy assessment after a decision of the Board has become final (see section 1005 of 47 the Kevenue Act of 1926) or after the donor has filed a petition for review of the decision of the Board. If notice of a deficiency was mailed to the donor (see section 513 (a) and article 41) before it was discovered that delay would jeop- ardize the assessment or collection of the tax, a jeopardy assessment may be made in an amount greater or less than that included in the deficiency notice. On the other hand if the assessment on account of jeopardy was made without mailing the notice required by section 513 (a), as amended by section 501 of the Revenue Act of 1934, the Commissioner must within 60 days after the making of the assessment send the donor notice of the deficiency by registered mail. The donor may file a petition with the Board for a redetermination of the amount of the deficiency within 90 days (not counting Sunday or a legal holiday in the District of Columbia as the ninetieth day) after such notice is mailed. If the petition of the donor is filed with the Board, either before or after the making of the jeopardy assessment, the Commissioner is required to notify the Board of such assessment, and the Board has jurisdiction to redetermine the amount of the deficiency together with all other amounts assessed at the same time in connection therewith. (See section 514 (c).) After a jeopardy assessment has been made, the list showing such assessment will be immediately transmitted to the collector. Upon receipt of the Ust containing the assessment, the collector is required to send notice and demand to the donor for the amount of the jeopardy assessment. Regardless of whether the donor has filed a petition with the Board, he is required to make payment of the amount of such assessment within 10 days after the sending of notice and demand by the collector, unless before the expiration of such 10-day period he files with the collector a bond on Form 718B of the character hereinafter prescribed. The bond must be in such amount, not exceeding double the amount for which the stay is desired, as the collector deems necessary and must be executed by sureties satisfac- tory to the collector. In lieu of a surety bond, the taxpayer may file a bond secured by the deposit of Liberty bonds, other bonds or notes of the United States, any public-debt obligations of the United States, or any bonds, notes, or other obligations which are uncondi- tionally guaranteed as to both interest and principal by the United States, equal in their total par value to the amount of such bond. (See section 1126 of the Revenue Act of 1926, as amended by section 7 of H. R. 4304, Public, No. 3, Seventy-fourth Congress.) The bond must be conditioned upon the payment of so much of the amount, the collection of which is to be stayed by the bond, as is not abated by a decision of the Board which has become final, together with the interest on such amount as may accrue under section 523 and section 524 (b) (4). If the bond is given before the donor has filed his peti- 48 tion with the Board, it must contain a further condition that if a petition is not filed before the expiration of the 90-day period provided for the filing of such petition, the amount stayed by the bond will be paid upon notice and demand at any time after the expiration of Buch period, together with interest thereon at the rate of 6 per cent per annum from the date of the jeopardy notice and demand to the date of the notice and demand made after the expiration of the 90- day period. If a petition is not filed with the Board within the 90- day period, the collector will be so advised, and, if collection of the deficiency has been stayed by the filing of a bond within 10 days after the date of jeopardy notice and demand, he should then give notice and make demand for payment of the amount assessed plus interest. Any bond filed after the expiration of 10 days from the date of the jeopardy notice and demand is not such a bond as is contemplated by section 514 (f), although the collector may in his discretion accept the bond and stay collection of the deficiency. Upon the filing of a bond of the character described within 10 days after the date of notice and demand for payment of the amount assessed, the collection of so much thereof as is covered by the bond will be stayed. The donor may at any time waive the stay of col- lection of the whole or any part of the amount covered by the bond. If as a result of such waiver any part of the amount covered by the bond is paid, then the bond will at the request of the donor be pro- portionately reduced. After the Board has rendered its decision and such decision has become final, the collector will be notified of the action taken. The collector will then send notice and demand for the unpaid portion of the amount determined by the Board, the collection of which has been stayed by the bond. The collector is required to include in the notice and demand for the impaid portion, interest at the rate of 6 per cent per annum from the date of the jeopardy notice and demand to the date of the notice and demand referred to in this paragraph. If the amount of the jeopardy assessment is less than the amount determined by the Board, the difference, together with interest as provided in section 522, will be assessed, and collected as part of the tax upon notice and demand from the collector. If the amount included in the notice and demand made after the decision of the Board is not paid within 10 days after such notice and demand, there shall be collected as part of the tax, interest as provided in article 57. If the amoxmt of the jeopardy assessment is in excess of the amount determined by the Board, the unpaid portion of such excess will be abated. If any part of the excess amount has been paid, it will be credited or refunded to the donor as provided in section 528. (See articles 62-65.) 49 As to bankruptcy and receivership cases, see sections 516 and 624 (b) (5) and articles 47 and 57. SEC. 515. CLAIMS IN ABATEMENT. No claim in abatement shall be filed In respect of any assessment in respect of any tax imposed by this title. Art. 46. Claims in abatement. — Section 515 prohibits the filing of claims for abatement by donors in respect of any assessment of gift tax imposed by Title III of the Revenue Act of 1932. This provision does not prohibit the filing of claims in abatement by collectors. (See also articles 62-64.) SEC. 516. BANKRUPTCY AND RECEIVERSHIPS. (a) Immediate assessment. — Upon the adjudication of bankruptcy of any donor in any bankruptcy proceeding or the appointment of a receiver for any donor in any receivership proceeding before any court of the United States or of any State or Territory or of the District of Columbia, any deficiency (together with aU interest, additional amounts, or additions to the tax provided for by law) determined by the Commis- sioner in respect of a tax imposed by this title upon such donor shall, despite the restrictions imposed by section 513 (a) upon assessments be immediately assessed if such deficiency has not theretofore been as- sessed in accordance with law. Claims for the deficiency and such interest, additional amounts and additions to the tax may be presented, for adjudication in accordance with law, to the court before which the bankruptcy or receivership proceeding is pending, despite the pendency of proceedings for the redetermination of the deficiency in pursuance of a petition to the Board; but no petition for any such redetermination shall be filed with the Board after the adjudication of bankruptcy or the appointment of the receiver. (b) Unpaid claims. — Any portion of the claim allowed in such bank- ruptcy or receivership proceeding which is unpaid shall be paid by the donor upon notice and demand from the collector after the termination of such proceeding, and may be collected by distraint or proceeding in court within six years after termination of such proceeding. Exten- sions of time for such payment may be had in the same manner and subject to the same provisions and limitations as are provided in sec- tions 513 (i), 521 (b), and 524 (b) (3) In the case of a deficiency in a tax imposed by this title. Art. 47. Bankruptcy, proceedings for relief of debtors, and receiverships. — During bankruptcy proceedings, or proceedings for the relief of debtors in Federal courts under sections 74, 77, and 77B of the National Bankruptcy Act of 1898, as amended, or during equity receivership proceedings in either Federal or State courts, the court which makes the adjudication of bankruptcy, or which approves a debtor's petition or answer in a proceeding for rehef of debtors, or which appoints a receiver for any donor, has control over the assets of such donor, and the collection of taxes due can not be made by distraining upon such assets while the bankruptcy, debtor, or receiver- ship proceeding is pending. However, assets of a farmer who has filed a petition in a proceeding for relief of debtors under section 75 60 of the National BanlCTuptcy Act, as amended, and assets acquired by a bankrupt or debtor in a proceeding for the relief of debtors, sub- sequent to the adjudication or the approval of the debtor's petition or answer in a proceeding for the relief of debtors, which are not in control of the bankruptcy court may be subject to distraint. Collectors should, promptly after notice of outstanding liabilities against the donor in bankruptcy, or in proceedings for the relief of debtors, or in receivership, file claim in the appropriate court whether unpaid taxes involved have been assessed or not, except in cases where departmental instructions direct other'ftdse; for example, where taxes of the bankrupt, debtor, or insolvent donor are secured by sufficient bond. Under section 3466 and section 3467, as amended, of the Revised Statutes and section 64 (a) of the National Banl^ruptcy Act, as amended, taxes take priority over claims of general creditors in cases of bankruptcy, receivership, proceedings for the rehef of debtors, and insolvency, and the trustee, receiver, person in control of the assets of the debtor, or assignee may be held personally liable for failure on his part to protect the priority of the government respecting taxes of which he has notice. Banlcruptcy com-ts have jurisdiction ixnder the National Banlcruptcy Act, as amended, to determine all disputes regarding the amount and validity of taxes of a bankrupt or of a debtor in proceedings for the relief of debtors. Bankruptcy pro- ceedings, proceedings for the relief of debtors, and receivership pro- ceedings do not foreclose or discharge any portion of the claim of the United States for taxes which have been allowed by the court having jurisdiction over the same and which remain unsatisfied after ter- mination of the banltruptcy, debtor, or receivership proceeding. Art. 48. Immediate assessments in bankruptcy, proceedings for the relief of debtors, and receivership cases. — If the Commissioner has determined that a deficiency is due in respect of gift tax and the donor has filed a petition with the Board of Tax Appeals prior to the adjudication of bankruptcy, or the filing of a debtor's petition or answer for relief in a debtor proceeding in a Federal court under sec- tions 74, 75, and 77 of the National Bankruptcy Act, as amended, or the approval of the debtor's petition or answer in a debtor's proceed- ing under section 77B of the National Bankruptcy Act, as amended, or the appointment of a receiver, the trustee or receiver appointed by the court or the person designated by order of the court as in control of the assets of the debtor, may prosecute the donor's appeal before the Board as to that particular deternaination. In no case shah the petition be filed with the Board for a redetermination of the deficiency after the adjudication of bankruptcy, the fifing of a debtor's petition or answer in a Federal court in proceedings for the rehef of debtors under sections 74, 75, and 77 of the National Bankruptcy 51 Act, as amended, the approval of the debtor's petition or answer in a debtor proceeding under section 77B of the National Bankruptcy ..Act, as amended, or the appointment of a receiver. Claim for the amount of a deficiency, even though pending before the Board for consideration, may be filed with a bankruptcy or equity court without awaiting final decision of the Board. In case of final decision of the Board before determination of the bankruptcy, debtor, or receivership proceeding, a copy of the Board's decision may be filed by the Commissioner with the bankruptcy or equity court. While the Commissioner is required by section 516 to make imme- diate assessment of any deficiency, such assessment is not a jeopardy assessment within the meaning of section 514, and consequently the provisions of that section do not apply to any assessment made under section 516. Therefore, the notice of the deficiency provided for in section 514 (b) will not be mailed. Although such notice will not be issued, nevertheless a letter will be sent to the donor, or to the trustee or receiver in the bankruptcy proceeding, the person designated by order of the court as in control of the assets of the debtor in the proceeding for the relief of debtors, or receiver in the receivership proceedings, notifying him in detail how the deficiency was computed, that the deficiency was assessed under the provisions of section 516, that he may furnish evidence showing wherein the assessment is in- correct, and that upon request he will be granted a hearing with respect to such assessment. If after such evidence is submitted and hearing held any adjustment appears necessary in the assessment, appropriate action wiU be taken looking to the submission of an amended claim in bankruptcy or receivership or in proceedings for the rehef of debtors. A copy of the notification letter will be attached to the assessment fist as the collector's authority for filing claim in a bankruptcy, debtor, or receivership proceeding for the amount repre- sented by the assessment, plus interest at the rate of 6 per cent per annum for the period from the date of filing claim by the collector to the date of termination of the bankruptcy, debtor, or receivership proceeding, or to the date of payment if payment is made in full prior to such termination. At the same time the claim is filed with a bankruptcy or receivership court, the collector will send notice and demand for payment to the donor, together with a copy of such claim. If any portion of the claim allowed by the court in a bankruptcy or a receivership proceeding or proceeding for the rehef of debtors remains unpaid after the termination of such proceeding, the collector will send notice and demand for payment thereof to the donor. Such unpaid portion Avith interest as provided in article 57 may be col- lected from the donor by distraint or proceeding in court within six years after the termination of a bankruptcy, debtor, or receivership 52 proceeding. Extensions of time for the payment of such unpaid amount may be granted in the same manner and subject to the same provisions and limitations as provided in the case of a deficiency.. (See article 44.) This article deals only with immediate assessments provided for in Bection 516 and the procedure in connection with such assessments. SEC. 517. PERIOD OF LIMITATION UPON ASSESSMENT AND COLLECTION. (a) General rule. — Except as provided in subsection (b), the amount of taxes imposed by this title shall be assessed within three years after the return was filed, and no proceeding in court without assessment for the coUeotion of such taxes shall be begun after the expiration of three years after the return was filed. Cb) Exceptions — n) False return or no return. — In the case of a false or fraudulent return with intent to evade tax or of a failure to file » return the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time. (2) Collection after assessment. — Where the assessment of any tax imposed by this title has been made within the statutory period of limitation properly applicable thereto, such tax may be collected by distraint or by a proceeding in court, but only if begun (1) within six years after the assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the Commissioner and the donor. Abt. 49. Period of limitation upon assessment of tax. — The amount of the tax must be assessed within three years after the return was filed. Exceptions to this period of limitation are as follows: (1) In case of a false or fraudulent return with intent to evade tax, the tax may be assessed at any time after such false or fraudulent return is filed. (2) In the event the donor fails to file a return, the amount of tax due may be assessed at any time after the date prescribed for filing the return. See section 518 and article 51 for provisions relating to the suspension of the running of the statute of Hmitations on the making of assessments. With respect to the period of limitation for assessing the amount of the hability of a transferee of property of a donor, or for assessing the amount of the habihty of a fiduciary under section 3467 of the Revised Statutes, see section 526 and article 60. Art. 50. Period of limitation upon collection of tax. — A proceeding in court without assessment for the collection of the tax must be begun within three years after the return was filed, except that if the donor files a false or fraudulent return with intent to evade tax or fails to file a return, a proceeding in court for the collection of the tax may be begun at any time. 53 In any case in -wiiich the tax has been assessed within the statutory period of limitation properiy applicable thereto, a proceeding in court or distraint for the collection of such tax may be begun within six years after the assessment thereof, or prior to the expiration of any period for collection agreed upon in writing by the Commis- sioner and the donor. In determining the running of the statute of lim- itations in respect of distraint, the distraint shaU be considered to have been begun, in the case of personal property, on the date on which the levy upon such property is made, or, in the case of real property, on the date on which notice of the time and place of sale is given to the per- son whose property it is proposed to sell. See section 518 and article 51 for provisions relating to the suspen- sion of the nmning of the statute of limitations on the be^ning of distraint or a proceeding in court for collection of the tax. SEC. 518. SUSPENSION OF RUNNING OF STATUTE. The running of the statute of limitations provided in section 517 on the making of assessments and the beginning of distraint or a proceed- ing in court for collection, in respect of any deficiency, shall ((after the mailing of a notice under section 513 (a)) be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or a proceeding in court (and in any event, if a pro- ceeding in respect of the deficiency is placed on the docket of the Board, untU the decision of the Board becomes final), and for 60 days thereafter. Aht. 51. Suspensionof running of statute of limitations. — If a notice of a deficiency has been mailed to the donor imder the provisions of section 513 (a), as amended by section 501 of the Revenue Act of 1934 (see article 41), then the running of the statute of limitations on assess- ment, the beginning of distraint after assessment, or on the beginning of a proceeding in court after assessment or without assessment, in respect of any deficiency, shaUbe suspended for the period during which the Commissioner is prohibited from making the assessment or begin- ning distraint or a proceeding in court (and in any event, if a proceed- ing in respect of the deficiency is placed on the docket of the Board, until the decision of the Board becomes final), and for 60 days there- after. SEC. 519. ADDITIONS TO THE TAX IN CASE OF FAILURE TO FILE RETURN. In case of any failure to make and file a return required by this title, within the time prescribed by law or prescribed by the Com- missioner In pursuance of law, 25 per centum of the tax shall be added to the tax, except that when a return is filed after such time and it la shown that the failure to &ie it was due to reasonable cause and not due to wiUf ul neglect no such addition shall be made to the tax. The amount so added to any tax shall be collected at the same time and iu the same manner and as a part of the tax unless the tax has been paid before the discovery of the neglect, in which case tlie amount so added shall be collected in the same manner as the tax. The amount added to the tax 54 under this section shall be in lieu of the 25 per centum addition to the tax provided ia section 3176 of the Revised Statutes, as amended. SEC. 406, REVENUE ACT OF 1935. FAILURE TO FILE RE- TURNS. In the case of a failure to make and file an internal-revenue tax return required by law, within the time prescribed by law or prescribed by the Commissioner in pursuance of law, if the last date so prescribed for filing the return is after the date of the enactment of this Act, if a 25 per centum addition to the tax is prescribed by existing law, then there shall be added to the tax, in lieu of such 25 per centum: 5 per centum if the failure is for not more than 30 days, with an additional 5 per centum for each additional 30 days or fraction thereof during which failure continues, not to exceed 25 per centum in the aggregate. Art. 52. Addition to the tax for failure to file return. — For failure to file the return within the time prescribed, unless it is filed after such time and the failure is shown to have been due to a reasonable cause and not to wiUful neglect, a percentage of the amount of the tax will be added thereto as follows: (1) In case the last date pre- scribed for filing the return is after August 30, 1935, 5 per cent will be added if the failure is for 30 days or less, with an additional 5 per cent for each additional 30 days or fraction thereof dvu-ing which failure continues, not to exceed 25 per cent in the aggregate. (2) In case the last date prescribed for filing the return is on or before August 30, 1935, 25 per cent will be added. Two classes of delinquents are subject to this addition to the tax: (a) Those who do not file returns and for whom returns are made by a collector or the Commissioner, and (b) Those who file tardy returns and are unable to show reasonable cause for the delay. A donor who files a tardy return and wishes to avoid the addition to the tax must make an aflBrmative showing of all facts alleged as a reasonable cause for failure to file the return on time in the form of an afiidavit or affidavits which should be attached to the return. If affidavits are furnished with the return or upon the collector's de- mand, the collector, unless otherwise directed by the Commissioner, wiJl forward the afiidavits with the return, and, if the Commissioner determines that the delinquency was due to a reasonable cause and not to willful neglect, the addition to the tax will not be assessed. If the donor exercised ordinary business care and prudence and was nevertheless imable to file the return in the prescribed time, then the delay is due to reasonable cause. If the addition to the tax for delinquency in filing the return has been added, the amount so added shall be collected in the same manner as the tax. For addition to the tax in case of a deficiency due to fraud with intent to evade tax, see section 520 and article 53. As to the making 55 of returns for donors by collectors or the Commissioner in the case of delinquency in filing a return, or in the case of a false or fraudulent return, see section 3176 of the Revised Statutes, as amended by section 1103 of the Revenue Act of 1926, and by section 619 (d) of the Revenue Act of 1928. SEC. 520. ADDITIONS TO THE TAX IN CASE OF DEFICIENCY. (a) Negligence. — If any part of any deficiency is due to negligence, or intentional disregard of rules and regulations but without intent to defraud, 5 per centum of the total amount of the deficiency (in addition to such deficiency) shall be assessed, collected, and paid in the same manner as if it were a deficiency, except that the provisions of section 522, relating to interest on deficiencies, shall not be applicable. (b) Fraud. — If any part of any deficiency is due to fraud with intent to evade tax, then 50 per centum of the total amount of the deficiency (in addition to such deficiency) shall be so assessed, collected, and paid, in lieu of the 50 per centum addition to the tax provided in section 3176 of the Revised Statutes, as amended. Aet. 53. Additions to the tax in case of deficiency. — If any part of any deficiency is due to negligence, or intentional disregard of rules and regulations, 5 per cent of the total amount of the deficiency shall be added to the deficiency. If the neghgence, or intentional dis- regard of rules and regulations, was without intent to defraud, the added amount will be assessed, collected, and paid in the same manner as the deficiency, except that such added amount will not be subject to the interest provisions of section 522. (See article 55.) If any part of the deficiency is due to fraud with intent to evade tax, 50 per cent of the total amount of the deficiency, in addition to the deficiency, will be assessed and collected and should be paid in the same manner as the deficiency. The 50 per cent addition to the tax provided by section 520 (b) is in Ueu of the penalty imposed by section 3176 of the Revised Statutes, as amended. For penalties other than additions to the tax for willful attempts to evade or defeat the tax, see section 525 and article 58. SEC. 521. INTEREST ON EXTENDED PAYMENTS. (a) Tax shown on return. — If the time for payment of the amount determined as the tax by the donor is extended under the authority of section 609 (b), there shall be collected as a part of such amount, interest thereon at the rate of 6 per centum per annum from the date when such payment should have been made if no extension had been granted, until the expiration of the period of the extension. (b) Deficiency. — In case an extension for the payment of a deficiency is granted, as provided in section 613 (i), there shaU be collected, as a part of the tax, interest on the part of the deficiency the time for payment of which is so extended, at the rate of 6 per centum per annum for the period of the extension, and no other interest shall be collected on such part of the deficiency for such period. Art. 54; Interest on extended payments. — In case an extension of time has been granted for paying any portion of the tax shown by 56 the donor upon his return, the statute requires the imposition of interest upon the amount, the time for payment of which has been extended, at the rate of 6 per cent per annum from the date upon which such payment should have been made (the 15th day of March following the close of the calendar year) to the expiration of the period of the extension. If an extension of time for paying the deficiency, or any portion thereof, has been granted, section 521 (b) requires the imposition of interest upon the amount, the time for payment of which has been extended, at the rate of 6 per cent per annum for the period of the extension, i. e., from the date prescribed for the payment (10 days after the date of the notice and demand) to the expiration of the period of the extension. For provisions relating to interest in case the amount, the time for payment of which has been extended, is not paid on or before the ex- piration of the period of the extension granted, see article 57. Example: A deficiency in tax amounting to $500 was determined and assessment thereof made on the 15th day of July, the due date of the tax being March 15 preceding. The amount of the assessment in this instance is $500, plus interest thereon at 6 per cent per annum from and including March 16 to and including July 15, amounting to $10.03, computed upon the basis of 365 days to the year (or 366 days in a leap year), or a total assessment of $510.03, which thereupon becomes the amount of the deficiency. The date of the notice and demand by the collector for payment was August 1 following the assessment. Within 10 days thereafter $255.02 was paid and request was made for an extension of time for paying the balance of the deficiency ($255.01), and an extension from August 11 to and includ- ing February 11 was granted for the payment thereof. This amount bears interest at 6 per cent per annum for the period of the extension, amounting to $7.71. The remaining liability is, therefore, $262.72. SEC. 522. INTEREST ON DEFICIENCIES. Interest upon the amount determined as a deficiency shall be assessed at the same time as the deficiency, shall be paid upon notice and demand from the collector, and shall be collected as a part of the tax, at the rate of 6 per centum per annum from the due date of the tax to the date the deficiency Is assessed, or, in the case of a waiver under sec- tion 513 (d), to the thirtieth day after the filing of such waiver or to the date the deficiency is assessed whichever is the earlier. Art. 55. Interest on deficiencies. — The statute provides that the deficiency shall bear interest at the rate of 6 per cent per annum from the due date of the tax (the 15th day of March following the close of the calendar year) to the date the deficiency is assessed, except in the case of a waiver of the restrictions against the assessment and collection of the deficiency, and that such interest shall be assessed at the same time as the deficiency and shall be collected as part of the 57 tax. The deficiency in respect to which the restrictions against the assessment and collection are waived under the provisions of sec- tion 513 (d) bears interest at the rate of 6 per cent per annum from the due date of the tax to the thirtieth day after the filing of such waiver or to the date the deficiency is assessed, whichever is the earher. The term "deficiency" as used in this article includes any tax resulting from the correction of a mathematical error appearing upon the face of a return. (See paragraph numbered (2) of article 41.) For provisions relating to interest upon the deficiency in case an extension of time for payment is granted, see articles 54 and 57. For provisions relating to interest in case of a jeopardy assessment, see article 56. SEC. 523. INTEREST ON JEOPARDY ASSESSMENTS. In the case of the amount collected under section 514 (f) there shall be collected at the same time as such amount, and as a part of the tax, interest at the rate of 6 per centum per annum upon such amount from the date of the jeopardy notice and demand to the date of notice and demand under section 514 (i), or, in the case of the amount col- lected in excess of the amount of the jeopardy assessment, interest as provided in section 522. Art. 56. Interest on jeopardy assessments. — In case a stay of the collection of a jeopardy assessment of a deficiency tax is obtained in accordance with the provisions of section 514 (f) (see article 45), and a petition for a redetermination of the deficiency is filed with the Board of Tax Appeals, interest accrues on such unpaid portion of the deficiency, if any, determined by a decision of the Board which becomes final, at the rate of 6 per cent per annum from the date of the notice and demand from the collector following the jeopardy assessment to the date of the notice and demand by the collector subsequent to the final action taken on the petition filed with the Board. If the amount determined by the Board as the amount which should have been assessed is greater than the amount actually assessed, the difference bears interest at the rate of 6 per cent per annum from the due date of the tax untU the assessment of such difference. SEC. 524. ADDITIONS TO THE TAX IN CASE OF NONPAY- MENT. (a) Tax shown on return — (1) Patment not extended. — Where the amount determined by the donor as the tax imposed by this title, or any part of such amount, is not paid on the due date of the tax, there shall be col- lected as a part of the tax. Interest upon such unpaid amount at the rate of 1 per centum a month from the due date until it is paid. (2) Payment extended. — Where an extension of time for pay- ment of the amount so determined as the tax by the donor has been granted, and the amount the time for payment of which has 33785°— 36 5 58 been extended, and the interest thereon determined under section 521 (a), is not paid in full prior to the expiration of the period of the extension, then, in lieu of the interest provided for in paragraph (1) of this subsection, interest at the rate of 1 per centum a month shall be collected on such unpaid amount fromi the date of the ex- piration of the period of the extension until it is paid, (b) Deficiency — (1) Payment not extended. — Where a deficiency, or any inter- est assessed in connection therewith under section 622, or any addition to the tax provided for in section 3176 of the Revised Statutes, is not paid in full within 10 days from the date of notice and demand from the collector, there shall be collected as part of the tax, interest upon the unpaid amount at the rate of 1 per centum a month from the date of such notice and demand until it is paid. (2) Filing of jeopardy bond. — If a bond is filed, as provided in section 514, the provisions of paragraph (1) of this subsection shall not apply to the amount covered by the bond. (3) Payment extended. — If the part of the deficiency the time for payment of which is extended as provided in section 513 (i) is not paid in accordance with the terms of the extension, there shall be collected, as a part of the tax, interest on such unpaid amount at the rate of 1 per centum a month for the period from the time fixed by the terms of the extension for its payment until it is paid, and no other interest shall be collected on such unpaid amount for such period. (4) Jeopardy assessment — Payment stayed by bond. — If the amount included in the notice and demand from the collector under section 514 (i) is not paid in full within 10 days after such notice and demand, then there shall be collected, as part of the tax, interest upon the unpaid amount at the rate of 1 per centum a mouth from the date of such notice and demand untU it is paid. (5) Interest in case of bankruptcy and receiverships. — If the unpaid portion of the claim allowed in a bankruptcy or receiver- ship proceeding, as provided in section 516, is not paid in full within 10 days from the date of notice and demand from the collector, then there shall be collected as a part of such amount interest upon the unpaid portion thereof at the rate of 1 per centum a month from the date of such notice and demand until payment. SEC. 404, REVENUE ACT OF 1935. INTEREST ON DELINQUENT TAXES. Notwithstanding any provision of law to the contrary, interest accru- ing during any period of time after the date of the enactment of this Act upon any internal-revenue tax (including amounts assessed or collected as a part thereof) or customs duty, not paid when due, shall be at the rate of 6 per centum per annum. Akt. 57. Interest on delinquent taxes. — If any portion of the tax shown on the donor's return is not paid on or before the due date (the 15th day of March following the close of the calendar year) and no extension of time for payment thereof has been granted, such unpaid portion bears interest from the due date until payment is received by the collector at the rate of 6 per cent per annum (except that during 59 any part of such period of time prior to August 31, 1935, interest accrues at the rate of 1 per cent a month). If any portion of a deficiency assessed, together with interest and any other amount assessed and collectible as a part thereof, is not paid within 10 days from the date of the notice and demand issued by the collector (except a deficiency with respect to which a jeopardy assessment is made and collection is stayed by the filing of bond), and no extension of time for payment thereof has been granted, such unpaid amount bears interest from the date of the notice and demand until payment is received by the collector at the rate of 6 per cent per annum (except that during any part of such period of time prior to August 31, 1935, interest accrues at the rate of 1 per cent a month). If an extension of time has been granted for paying any portion of the tax shown on the donor's return (see article 31), or for any portion of a deficiency (see article 44) and the amount due is not paid in full prior to the expiration of the extension, the total unpaid amount (tax and interest for the period of the extension) bears interest from the expiration of the extension until payment is received by the collector at the rate of 6 per cent per annum (except that during any part of such period of time prior to August 31, 1935, interest accrues at the rate of 1 per cent a month). If a deficiency as determined by a decision of the Board of Tax Appeals which has become final is in the amount of a jeopardy assess- ment, collection of which was stayed by the filing of a bond and such amount is not paid in full within 10 days after the notice and demand issued subsequent to such final decision, interest accrues on the un- paid amount from the date of such notice and demand until it is paid at the rate of 6 per cent per annum (except that during any part of such period of time prior to August 31, 1935, interest accrues at the rate of 1 per cent a month). If, in the case of bankruptcy, debtor's relief proceeding, or a receivership for any donor, any portion of the claim for a deficiency (including interest and any other amount assessed and collectible as a part thereof) presented for adjudication in accordance with law is unpaid, the unpaid portion of the claim, if not paid in full within 10 days from notice and demand from the collector, bears interest from the date of such notice and demand until paid at the rate of 6 per cent per annum (except that during any part of such period of time prior to August 31, 1935, interest accrues at the rate of 1 per cent a month). SEC. 525. PENALTIES. (a) Any person required under this title to pay any tax, or required by law or regulations made under authority thereof to make a return, keep any records, or supply any information, for the purposes of the computation, assessment, or collection of any tax imposed by this 60 title, who willfully fails to pay such tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than one year, or both, together with the costs of prosecution. (b) Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof, shall, in addition to other penalties provided by law, be guilty of a felony and, on conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution. Art. 58. Penalties. — Two lands of penalties are provided for de- linquency with respect to duties imposed by the statute: (1) A specific penalty to be recovered by suit unless previously paid or adjusted by the acceptance of an offer in compromise; and (2) A penalty of a certain percentage of the tax, to be added to and collected in the same manner as the tax. In any case where more than one penalty is provided, the Gov- ernment may assert any one or more thereof. Any person required by the Gift Tax title to pay any tax, or required by law or regulations made under authority thereof to file any notice or make a return, keep any records, or supply any information, for the purposes of the computation, assessment, or collection of the tax, who willfully faUs to pay such tax, file such notice or make such return, keep such records, or supply such infor- mation as required by the law and the regulations, shall, in addition to the other penalties, be guilty of a misdemeanor and, upon convic- tion thereof, be fined not more than $10,000, or imprisoned for not more than one year, or both, together with the costs of prosecution. Any person who willfully attempts in any manner to evade or defeat any gift tax shall, in addition to other penalties provided by law, be guilty of a felony and, on conviction thereof, shall be fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution. Any person who willfully aids or assists in the preparation or presentation of a false or fraudulent notice or return, or procmres, coimsels, or advises the preparation or presentation of such notice or return, whether such falsity or fraud is with or without the knowledge or consent of the person required to make the notice or return, will be guilty of a felony and, upon conviction thereof, fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution. (See section 1114 (c) of the Revenue Act of 1926.) Any person who, in connection with any compromise entered into or offer made imder the provisions of section 3229 of the Revised Statutes, as amended, or who, in connection with any closiag agree- ment imder section 606 of the Revenue Act of 1928 (see article 70) 61 or the offer to enter into any such agreement, willfully conceals from any officer or employee of the United States any property belonging to the estate of the donor or any person liable in respect of the tax, or receives, destroys, mutilates, or falsifies any book, document, or record, or makes under oath any false statement relating to the estate or financial condition of the donor or other person liable in respect of the tax, shall, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than one ye&r, or both. (See section 616 of the Revenue Act of 1928.) For penalties imposed for failure to make and file a return, or for fraud with intent to evade tax, which consist of a percentage of the tax to be added thereto and collected in the same manner as the tax, see sections 519 and 520 and articles 52 and 53. SEC. 3229, REVISED STATUTES. COMPROMISES. 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 ofiice of the Commissioner the opinion of the Solicitor of Internal Revenue, or of the oiBcer acting as such, with his reasons therefor, with a statement of the amount of tax assessed, the amount of addi- tional tax or penalty imposed by law in consequence 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. Art. 59. Compromises. — Offers ia compromise should be filed with the appropriate collector of internal revenue. No offer in compromise of tax, interest, and ad valorem penalty collectible as part of the tax will be accepted unless there is a substantial doubt as to either lia- bility or collectibility. (The functions prescribed for the "Solicitor of Internal Revenue" by section 3229 of the Revised Statutes are now exercised by the "Assistant General Counsel for the Bureau of In- ternal Revenue." See section 1201 (a) of the Revenue Act of 1926 and section 512 of the Revenue Act of 1934.) SEC. 526. TRANSFERRED ASSETS. (a) Method of collection. — The amounts of the following liabilities shall, except as hereinafter in this section provided, be assessed, col- lected, and paid in the same manner and subject to the same provi- sions and limitations as in the case of a deficiency in the tax imposed by this title (including the provisions in case of delinquency in pay- "ment after notice and demand, the provisions authorizing distraint and proceedings in court for collection, and the provisions prohibiting claims and suits for refunds) : (1) Tkansferees. — The liability, at law or in equity, of a trans- feree of property of a donor, in respect of the tax (including in- terest, additionl amounts, and additions to the tax provided by law) imposed by this title. 62 (2) Fiduciaries. — The liability of a fiduciary under section 3467 of the Revised Statutes [U. S. C, title 31, sec. 192] in respect of the payment of any such tax from the estate of the donor. Any such liability may be either as to the amount of tax shown on the return or as to any deficiency in tax. (b) Period of limitation. — The period of limitation for assessment of any such liability of a transferee or fiduciary shall be as follows: (1) Within one year after the expiration of the period of limita- tion for assessment against the donor. (2) If a court proceeding against the donor for the collection of the tax has been begun within the period provided in paragraph (1), — then within one year after return of execution in such pro- ceeding. (o) Period for assessment against donor. — For the purposes of this section, if the donor is deceased, the period of limitation for assessment against the donor shall be the period that would be in effect had the death not occurred. (d) Suspension of running of statute of limitations. — The running of the statute of limitations upon the assessment of the liability of a transferee or fiduciary shall, after the mailing of the notice under section 513 (a) to the transferee or fiduciary, be suspended for the period during which the Commissioner is prohibited from making the assessment in respect of the liability of the transferee or fiduciary (and in any event, if a proceeding in respect of the liability is placed on the docket of the Board, until the decision of the Board becomes final) , and for 60 days thereafter. (e) Prohibition of suits to restrain enforcement of liability of trans- feree or flduciaiy. — No suit shall be maintained in any court for the purpose of restraining the assessment or collection of (1) the amount of the liability, at law or in equity, of a transferee of property of a donor in respect of any gift tax, or (2) the amount of the liability of a fiduciary under section 3467 of the Revised Statutes [U. S. C, title 31, sec. 192] in respect of any such tax. (f) Definition of "transferee". — As used in this section, the term "transferee" includes donee, heir, legatee, devisee, and distributee. (g) Address for notice of liability. — In the absence of notice to the Commissioner under section 527 (b) of the existence of a fiduciary relationship, notice of liability enforceable under this section in respect of a tax imposed by this title, if mailed to the person subject to the lia- bility at his last known address, shall be sufiicient for the purposes of this title even if such person is deceased, or is under a legal disability, or in the case of a corporation, has terminated its existence. Art. 60. Claims in cases of transferred assets.^ — The amount for which a transferee of the property of a donor is liable, at law or in equity, and the amount of the personal liability of a fiduciary under section 3467 of the Revised Statutes, as amended by section 518 of the Revenue Act of 1934, in respect of the tax, whether such tax is shown on the return of the donor or determined as a deficiency, shall be assessed against such transferee or such fiduciary, as the case may be, and collected and paid in the same manner and subject to the same provisions and limitations as in the case of a deficiency in the tax, except as hereinafter provided. 63 The term "transferee" as used in this article includes among others a donee, heir, legatee, devisee, and distributee. The period of limitation for assessment of the liability of a trans- feree or of a fiduciarj', is as follows: (1) Within one year after the expiration of the period of limita- tion for assessment against the donor. (2) If a court proceeding against the donor for the collection of the tax has been begun within the period of limitation for the bring- ing of such proceeding, then within one year after the return of the execution in such proceeding. For the purpose of determining the period of limitation for assess- ment against a transferee or a fiduciary, if the donor is deceased, the period of limitation for assessment against the donor shall be the period that would be in effect had the death not occurred. If a notice of the liability of a transferee or the liability of a fidu- ciary has been mailed to such transferee or to such fiduciary under the provisions of section 513 (a), as amended by section 501 of the Revenue Act of 1934 (see article 41), then the running of the statute of limitations shall be suspended for the period during which the Commissioner is prohibited from making the assessment in respect of the liability of the transferee or fiduciary (and in any event, if a proceeding in respect of the Uability is placed on the docket of the Board, until the decision of the Board becomes final), and for 60 days thereafter. SEC. 527. NOTICE OF FIDUCIARY RELATIONSHIP. (a) Fiduciary of donor. — Upon notice to the Commissioner that any person is acting in a fiduciary capacity such fiduciary shall assume the powers, rights, duties, and privileges of the donor in respect of a tax imposed by this title (except as otherwise specifically provided and ex- cept that the tax shall be collected from the estate of the donor), until notice is given that the fiduciary capacity has terminated. (b) Fiduciary of transferee. — Upon notice to the Commissioner that any person is acting in a fiduciary capacity for a person subject to the liability specified in section 526, the fiduciary shall assume, on behalf of such person, the powers, rights, duties, and privileges of such person under such section (except that the liability shall be collected from the estate of such person), until notice is given that the fiduciary capacity has terminated. (o) Manner of notice. — Notice under subsection (a) or (b) shall be given in accordance with regulations prescribed by the Commissioner with the approval of the Secretary. Art. 61. Notice of fiduciary relationship. — As soon as the Com- missioner receives notice that any person is acting in a fiduciary capacity, such fiduciary must, except as otherwise specifically pro- vided, assume the powers, rights, duties, and privileges of the donor in respect of the tax. If the person is acting as a fiduciary for a transferee or other person subject to the liability specified in section 64 526 (see article 60), such fiduciary is required to assume the powers, rights, duties, and privileges of the transferee or other person under that section. The amount of the tax or habUity is, however, not collectible from the estate of the fiduciary but is collectible from the estate of the donor or from the estate of the transferee or other person subject to the hability specified in section 526. The "notice to the Commissioner" provided for in section 527 shall be a written notice signed by the fiduciary and filed with the Commissioner. The notice must state the name and addi-ess of the person for whom the fiduciary is acting and the nature of the liability of such person ; that is, whether it is a habihty for the tax, and, if so, the year or years involved, or a hability at law or in equity of a transferee of property of the donor, or a liabihty of a fiduciary under section 3467 of the Revised Statutes, as amended by section 518 of the Revenue Act of 1934, in respect of the payment of any tax from the estate of the donor. Satisfactory evidence of the authority of the fiduciary to act for such person in the fiduciary capacity must be filed with and made a part of the notice. If the fiduciary capacity exists by order of court, a certified copy of the order may be regarded as such satisfactory evidence. When the fiduciary capacity has terminated, the fiduciary, ia order to be reheved of any further duty or liabihty as such, must file with the Commissioner written notice that the fiduciary capacity has ter- minated as to him, accompanied by satisfactory evidence of the termination of the fiduciary capacity. The notice of termination should state the name and address of the person, if any, who has been substituted as fiduciary. If the notice of the fiduciary capacity described in the preceding paragraph is not filed with the Commissioner prior to the sending of notice of a deficiency by registered mail to the last known ad- dress of the donor (see section 513 (a), as amended by section 501 of the Revenue Act of 1934), or the last known address of the trans- feree or other person subject to habUity (see section 526), no notice of the deficiency will be sent to the fiduciary. In such a case the sending of the notice to the last knoi\Ti address of the donor, trans- feree, or other person, as the case may be, will be a sufficient com- pliance with the requirements of the Act, even though such donor, transferee, or other person is deceased, or is under a legal disability, or, in the case of a corporation, has terminated its existence. Under such circiunstances if no petition is filed with the Board of Tax Appeals before the expiration of 90 days from the sending of the notice to the donor, transferee, or other person, the tax, or habihty \mder section 526, will be assessed immediately upon the expiration of such 90-day period, and demand for payment will be made by the collector. The term "fiduciary" is defined by section 1111 (a) (6) to mean guardian, trustee, executor, administrator, receiver, con- 65 servator, or any person acting in any fiduciary capacity for any person. SEC. 528. REFUNDS AND CREDITS. (a) Authorization. — Where there has been an overpayment of any tax imposed by this title, the amount of such overpayment shall be credited against any gift tax then due from the taxpayer, and any balance shall be refunded immediately to the taxpayer. (b) limitation on allowance — (1) Period of limitation. — No such credit or refund shall be allowed or made after three years from the time the tax was paid, unless before the expiration of such period a claim therefor is filed by the taxpayer. (2) Limit on amount of credit or refund. — The amount of the credit or refund shall not exceed the portion of the tax paid during the three years immediately preceding the filing of the claim, or if no claim was filed, then during the three years immediately preceding the allowance of the credit or refund. (c) Effect of petition to Board. — If the Commissioner has mailed to the taxpayer a notice of deficiency under section 513(a) and if the tax- payer files a petition with the Board of Tax Appeals within the time pre- scribed in such subsection, no credit or refund in respect of the tax for the calendar year in respect of which the Commissioner has determined the deficiency shall be allowed or made and no suit by the taxpayer for the recovery of any part of such tax shall be instituted in any court except — (1) As to overpayments determined by a decision of the Board which has become final; and (2) As to any amount collected in excess of an amount com- puted in accordance with the decision of the Board which has become final; and (3) As to any amount collected after the period of limitation upon the beginning of distraint or a proceeding in court for collection has expired; but in any such claim for credit or refund or in any such suit for refund the decision of the Board which has become final, as to whether such period has expired before the notice of deficiency was mailed, shall be conclusive. (d) Overpayment found by Board. — If the Board finds that there is no deficiency and further finds that the taxpayer has made an overpay- ment of tax in respect of the taxable year in respect of which the Com- missioner determined the deficiency, the Board shall have jurisdiction to determine the amount of such overpayment, and such amount shall, when the decision of the Board has become final, be credited or refunded to the taxpayer. No such credit or refund shall be made of any portion of the tax paid more than three years before the filing of the claim or the filing of the petition, whichever is earlier. SEC. 504, REVENUE ACT OF 1934. OVERPAYMENTS FOUND BY THE BOARD OF TAX APPEALS. 4: 4c * 4: H( 1e 9(c (b) The last sentence of section 528(d) of the Revenue Act of 1932 is amended to read as follows: " No such credit or refund shall be made of any portion of the tax unless the Board determines as part of its decision 66 that it was paid within three years before the filing of the claim or the filing of the petition, whichever is earlier." (e) The amendments made by subsections (a), (b), (c), and (d) of this section shall have no effect in the case of any proceeding before the Board on a petition if any hearing by the Board thereon has been held prior to 30 days after the date of the enactment of this Act. Art. 62. Authority for abatement, credit, and refund of tax. — Authority for the credit and refund of any overpayment of the tax is contained in section 528. Section 515 prohibits the filing of claims for abatement by donors with respect to assessments of the tax. The provisions of section 515 do not impair the authority of the collectors to file claims with the Commissioner for rehef from charges against them for uncollectible items, in accordance with section 3218 of the Revised Statutes, as amended, which provides: Sec. 3218. Every collector shall be charged with the whole amount of taxes, whether contained in lists transmitted to him by the Commis- sioner of Internal Revenue, or by other collectors, or delivered to him by his predecessor in office, and with the additions thereto, with the par value of all stamps deposited with him, and with all moneys col- lected for penalties, forfeitures, fees, or costs; and he shall be credited with all payments into the Treasury made as provided by law, with all stamps returned by him uncanceled to the Treasury, and with the amount of taxes contained in the lists transmitted in the manner here- tofore provided to other collectors, and by them receipted as aforesaid; also with the amount of the taxes of such persons as may have absconded, or become insolvent, prior to the day when the tax ought, according to the provisions of law, to have been collected, and with all uncollected taxes transferred by him or by his deputy acting as collector to his successor in office: Provided, That it shall be proved to the satisfaction of the Commissioner of Internal Revenue, who shall certify the facts to the (First) Comptroller of the Treasury, that due diligence was used by the collector. And each collector shall also be credited with the amount of all property purchased by him for the use of the United States, provided he faithfully account for and pay over the proceeds thereof upon a resale of the same as required by law. Art. 63. Abatement, credit, and refund adjustments. — Overassess- ments and overpayments of gift taxes will be adjusted by means of certificates of overassessment. Credits or refunds of overpayments on the basis of such certificates of overassessment will be allowed or made even though claim for credit or refund has not been filed. However, credits or refunds may not be allowed or made after the expiration of the statutory period of limitation properly applicable imless prior to the expiration of such period a proper claim therefor has been filed by the donor. The claim, together with appropriate supporting evidence, must be filed in the office of the collector for the district in which the tax was paid. (See article 65.) As to interest 67 in case of credits or refunds, see sections 614 and 615 of the Revenue Act of 1928. Art. 64. Claims by collectors. — A collector may present blanket claims on Form 843 for the abatement of certain items which were erroneously assessed. Many of these items fall in a class where the error in assessment is apparent, and the abatement of such assess- ment by the use of blanket claims serves to relieve the collector of the charge against him for such amounts and to reUeve him in an expeditious manner of the duty of collecting from the donor certain amounts which a summary examination clearly shows are not due from the donor. Some of the items included in this class of cases are duphcate assessments, amounts assessed as unidentified collections and later identified, assessments resulting from errors in computa- tion, and amounts assessed as excess collections which are subse- quently credited against taxes later found to be due. In the event an erroneous assessment has been paid, the collector may file a blanket claim on Form 843 for credit of such amounts against any unpaid assessments standing against the donor upon the assessment Usts held by the collector. If there are no such unpaid assessments against which credit may be taken, the collector shall submit refund schedules to cover such amounts in accordance with instructions issued by the Commissioner. But no such credit or refund shall be allowed or made unless allowed or made withiu the statutory period of limitation properly applicable thereto. The collector may also present claims for credit of taxes not erroneously assessed but found to be uncollectible. (See section 3218 of the Revised Statutes, as amended.) In such cases the col- lector or deputy collector who made the demand for the payment and is conversant with the facts may prepare the claim for credit on Form 53. Even though the collector is so credited with the amount allowed as uncollectible, nevertheless the obhgation to pay still remains upon the person assessed. It is the duty of the collector to use the same diUgence to collect the tax after he has received credit for an amount as uncollectible as before the allowance of such credit. Collectors should, therefore, keep a record of all taxes thus credited and of the persons from whom they are due and should enforce pay- ment whenever it is in their power to do so. Art. 65. Claims for credit or refund by donors. — Claims for the crediting or refunding of taxes, interest, penalties, and additions to tax erroneously or illegally collected shall be made on Form 843 and should be filed with the collector of internal revenue. A separate claim on such form shall be made for each taxable year. Claims must set forth in detail and under oath each ground upon which a refxmd or credit is claimed and facts sufficient to apprise the Commissioner of the exact basis thereof. No refund or credit wiU be 68 allowed or made after three years from the date of the payment of the tax sought to be refunded or credited, except upon one or more of the groimds set forth in a claim or an amendment thereof filed prior to the expiration of such period. A claim which does not com- ply with this paragraph will not be considered for any purpose as a claim for refund or credit. The burden of proof to sustain a claim for refund or credit rests upon the claimant and all facts relied upon in support of the claim must be clearly set forth under oath. Every affidavit, argument, brief, or statement of facts, prepared or filed by an attorney or agent as argument or evidence in the matter of a claim, must have therein a statement signed by such attorney or agent showing whether or not he prepared such document and whether or not the attorney or agent knows of his own knowledge that the facts contained therein are true. When there is a hearing, should the donor not appear in person, his representative who appears must present a properly executed power of attorney and be enrolled to practice before the Treasury Department. (See article 28.) . If a return is filed by a donor who subsequently dies and a refund claim is thereafter filed by a legal representative of the deceased, certified copies of the letters testamentary or letters of administration, or other similar evidence must be annexed to the claim to show the authority of the executor, administrator, or other fiduciary by whom the claim is filed. If an executor, administrator, guardian, trustee, receiver, or other fiduciary files a return and thereafter a refund claim is filed by the same fiduciary, documentary evidence to estab- hsh the legal authority of the fiduciary need not accompany the claim, provided a statement is made in the claim showing that the return was filed by the fiduciary and that the latter is stUl acting. In such cases, if a refund or interest is to be paid, letters testamen- tary, letters of administration, or other evidence may be required, but should be submitted only upon the receipt of a specific request therefor. If a claim is filed by a fiduciary other than the one by whom the return was filed, the necessary documentary evidence should accompany the claim. Checks in payment of claims allowed will be drawn in the names of the persons entitled to the money and may be sent to such persons in care of an attorney or agent who has filed a power of attorney specifically authorizing him to receive such checks. The Commis- sioner may, however, send any such check direct to the claimant. In this connection, see section 3477 of the Kevised Statutes, which provides: Sec. 3477. All transfers and assignments made of any claim upon the United States, or of any part or share thereof, or Interest therein, whether absolute or conditional, and whatever may be the consideration 69 therefor, and all powers of attorney, orders, or other authorities for receiving payment of any such claim, or of any part or share thereof, shall be absolutely null and void, unless they are freely made and executed in the presence of at least two attesting witnesses, after the allowance of such a claim, the ascertainment of the amount due, and the issuing of a warrant for the payment thereof. Such transfers, assignments, and powers of attorney, must recite the warrant for payment, and must be acknowledged by the person making them, be- fore an officer having authority to take acknowledgments of deeds, and shall be certified by the officer; and it must appear by the certifi- cate that the officer, at the time of the acknowledgment, read and fully explained the transfer, assignment, or warrant of attorney to the person acknowledging the same. The Commissioner has no authority to refund on equitable grounds penalties or other amounts legally collected. As to claims for refund of sums recovered by suit, see articles 66 and 67. Art. 66. Claims for refund in case of judgment obtained against collector. — (a) Claims for the amount of a judgment against a col- lector of internal revenue for the recovery of taxes, penalties, or other sums should be made on Form 843 and filed with the Commissioner of Internal Eevenue, Washington, D. C. The claimant should state the grounds of his claim under oath, giving the names of all the parties to the suit, the cause of action, the date of its commencement, the date of the judgment, the court in which it was recovered, and its amount. To this affidavit there should be annexed a certified copy of the final judgment in duplicate, a certificate of probable cause, and an itemized bill of the costs paid, receipted by the clerk or other proper officer of the court. In this connection section 989 of the Revised Statutes provides: Sec. 989. When a recovery is had in any suit or proceeding against a collector or other officer of the revenue for any act done by him, or for the recovery of any money exacted by or paid to him and by him paid into the Treasury in the performance of his official duty, and the court certifies that there was probable cause for the act done by the collector or other officer, or that he acted under the directions of the Secretary of the Treasury, or other proper officer of the Government, no execution shall issue against such collector or other officer, but the amount so recovered shall, upon final judgment, be provided for and paid out of the proper appropriation from the Treasury. (6) If the judgment debtor shall have already paid the amount recovered against him, the claim should be made in his name. A certificate of the clerk of the court in which the judgment was recov- ered (or other satisfactory evidence), showing that the judgment has been satisfied and specifying the exact sum paid in its satisfaction, with a detail of all items of costs which were paid by the judgment debtor or for which he is liable, should accompany the claim. (See further article 65.) 70 Art. 67. Claims for refund in case of judgment obtained against the United States. — Claims for the payment of judgments rendered by United States district courts and the United States Court of Claims against the United States representing taxes, penalties, or other sums, should be executed on Form 843 in duphcate and filed directly with the Commissioner of Internal Revenue, Washington, D. C. The claimant should state the grounds of his claim under oath, giving the names of all parties to the suit, the cause of action, the date of its commencement, the date of the judgment, the court in which it was recovered, and its amount. To this affidavit there should be annexed two certified copies of the final judgment, and an itemized bill of the costs paid, receipted by the clerk or other proper officer of the court. In the case of a judgment rendered by the Court of Claims, there may be submitted in Ueu of a certified copy of the final judgment, a certificate of judgment issued by the clerk of the court and two copies of the court's opinion, if any was rendered. Aet. 68. limitations upon the crediting and refunding of taxes paid. — (a) Except as provided in (b) of this article, (1) the Commis- sioner is prohibited from making credits or refunds of the tax after three years from the time the tax was paid unless before the expiration of such 3-year period a claim therefor is filed, and (2) the amount of such credit or refund shall not exceed the portion of the tax paid during the 3-year period immediately preceding the date of the allowance of the credit or refund, or, if the credit or refund is based upon a claim, the amount of the credit or refund shall not exceed the portion of the tax paid during the 3-year period immediately preceding the date of filing such claim. (6) In any case where a person having a right to file a petition with the Board of Tax Appeals with respect to a deficiency in the tax files such petition within the prescribed time, no credit or refund of the tax for the year to which the deficiency relates shall be allowed or made, and no suit for the recovery of any part of such tax shall be instituted by the donor, except that — (1) If the Board finds that the donor has overpaid his tax for the year to which the notice of deficiency relates, and the decision of the Board as to the amount overpaid has become final (see section 1005 of the Revenue Act of 1926), and further determines as part of its decision that any portion of the overpayment was made within three years before the filing of the refund claim or the filing of the petition, whichever is earher, the amount of such portion of the overpayment shall be credited or refunded. The portion of the overpayment made within such period will be credited or refunded, even though the Board has not determined as part of its decision that the overpayment was so made, where a hearing upon the petition was held by the Board 71 prior to the expiration of 30 days after the date of the enactment of the Revenue Act of 1934. (2) In the case of a jeopardy assessment made under section 514, if the amount which should have been assessed as determined by a decision of the Board which has become final is less than the amount already collected, the excess payment shall be credited or refunded subject to the limitations provided in (6) (1) of this article. (3) If the amount of the deficiency determined by the Board (in a case where collection has not been stayed by the filing of a bond) is disallowed in whole or in part by the reviewing court, then the overpayment resulting from such disallowance shall be credited or refunded without the making of claim therefor. (See section 1001 (d) of the Revenue Act of 1926, as amended by section 603 of the Revenue Act of 1928.) (4) Where the amoimt collected is in excess of the amount com- puted ia accordance with the decision of the Board which has become final, the excess payment shall be credited or refunded within the period of limitation provided iu section 528 (b). (5) Where an amount is collected after the statutory period of Hmitation upon the beginning of distraint or a proceeding in court for collection has expired (see article 69), the donor may file a claim for refund of the amount so collected within the period of limitation provided in section 528 (b). In any such case, the decision of the Board as to whether the statutory period upon collection of the tax expired before notice of the deficiency was mailed shall, when the decision becomes fuial, be conclusive. Aet. 69. Crediting of accounts of collectors in cases of assessments against several persons covering same liability. — If assessments have been made against several persons covering the same tax Hability, and payment of such liability by one or more of such persons has been duly certified to the Commissioner, the Commissioner, for the purpose of temporarily relieving the collector from hability under section 3218 of the Revised Statutes, may authorize him to take credit temporarily with respect to the assessments not specifically paid. Such action, however, shall not constitute an abatement and shall not discharge the liability of the persons concerned. SEC. 607, REVENUE ACT OF 1928. EFFECT OF EXPIRATION OF PERIOD OF LIMITATION AGAINST UNITED STATES. Any tax (or any interest, penalty, additional amount, or addition to such tax) assessed or paid (whether before or after the enactment of this Act) after the expiration of the period of limitation properly applicable thereto shall be considered an overpayment and shall be credited or refunded to the taxpayer if claim therefor is filed within the period of limitation for filing such claim. 72 SEC. 608, REVENUE ACT OF 1928. EFFECT OF EXPIRATION OF PERIOD OF LIMITATION AGAINST TAXPAYER. A refund of any portion of an internal-revenue tax (or any interest, penalty, additional amount, or addition to such tax) made after the enactment of this Act, shall be considered erroneous — (a) if made after the expiration of the period of limitation for filing claim therefor, unless within such period claim was filed; or (b) in the case of a claim filed within the proper time and dis- allowed by the Commissioner after the enactment of this Act, if the refund was made after the expiration of the period of limitation for filing suit, unless — (1) within such period suit was begun by the taxpayer, or (2) within such period, the taxpayer and the Commissioner agreed in writing to suspend the running of the statute of limita- tions for filing suit from the date of the agreement to the date of final decision in one or more named cases then pending before the United States Board of Tax Appeals or the courts. SEC. 609, REVENUE ACT OF 1928. ERRONEOUS CREDITS. (a) Credit against barred deficiency. — Any credit against a liability in respect of any taxable year shall be void it any payment in respect of Buch liability would be considered an overpayment under section 607. (b) Credit of barred overpayment.- — A credit of an overpayment in respect of any tax shall be void if a refund of such overpayment would be considered erroneous under section 608. (c) Application of section. — The provisions of this section shall apply to any credit made before or after the enactment of this Act. SEC. 610, REVENUE ACT OF 1928. RECOVERY OF AMOUNTS ERRONEOUSLY REFUNDED. (a) Any portion of an internal-revenue tax (or any interest, penalty, additional amount, or addition to such tax) refund of which is errone- ously made, within the meaning of section 608, after the enactment of this Act, may be recovered by suit brought in the name of the United States, but only if such suit is begun within two years after the making of such refund. ******* SEC. 502, REVENUE ACT OF 1934. RECOVERY OF AMOUNTS ERRONEOUSLY REFUNDED. (a) Section 610 of the Revenue Act of 1928 is amended by adding at the end thereof a new subsection to read as follows: " (c) Despite the provisions of subsections (a) and (b) such suit may be brought at any time within five years from the making of the refund if it appears that any part of the refund was induced by fraud or the misrepresentation of a material fact." (b) The amendment made by subsection (a) of this section shall not apply to any suit which was barred on the date of the enactment of this Act. Art. 70. Erroneous refunds and credits. — A refund is erroneous when made after the expiration of the period of limitation for filing a claim therefor, imless within such period a claim was filed. In the case where a claim was filed within the proper time and such claim was disallowed by the Commissioner and the period of limitation for filing 73 Buit by the donor had expired prior to the makiag of the refund, a refund is erroneous unless suit was begun by the donor within the period of limitation for filing suit, or unless within such period the donor and the Commissioner agreed in writing to suspend the run- ning of the statute of limitations for filing suit from the date of the agreement to the date of the final decision of one or more named cases then pending before the Board of Tax Appeals or the courts. Any erroneous refund may be recovered by suit brought in the name of the United States within two years after the refimd was made. If it appears that any part of an erroneous refund was induced by fraud or the misrepresentation of a material fact, the entire amount of such refund may be recovered by suit brought in the name of the United States within five years after the refund was made, except where the amount was refunded more than two years prior to the date of the enactment of the Revenue Act of 1934. Where a refund of an overpayment would be an erroneous refund under the preceding paragraph of this article, a credit of such over- payment allowed against any tax is void. A credit is also void if allowed against a liability the assessment and collection of which was barred by the expiration of the period of limitation properly appli- cable thereto. SEC. 606, REVENUE ACT OF 1928. CLOSING AGREEMENTS. (a) Authorization. — The Commissioner (or any officer or employee of the Bureau of Internal Revenue, including the field service, authorized in writing by the Commissioner) is authorized to enter into an agreement in writing with any person relating to the liability of such person (or of the person or estate for whom he acts) in respect of any internal-revenue tax for any taxable period ending prior to the date of the agreement. (b) Finality of agreements. — If such agreement is approved by the Sec- retary, or the Undersecretary, within such time as may be stated in such agreement, or later agreed to, such agreement shall be final and conclu- sive, and, except upon a showing of fraud or malfeasance, or misrepre- sentation of a material fact — - (1) the case shall not be reopened as to the matters agreed upon or the agreement modified, by any officer, employee, or agent of the United States, and (2) in any suit, action, or proceeding, such agreement, or any determination, assessment, collection, payment, abatement, refund, or credit made in accordance therewith, shall not be annulled, modified, set aside, or disregarded. ifc * :«: 1: « :|c « Art. 71. Closing agreements relating to tax liability in respect of internal-revenue taxes. — Closing agreements provided for in section 606 of the Revenue Act of 1928 may relate to any taxable period ending prior to the date of the agreement. Such an agreement may be executed even though under such agreement the donor is not liable for any tax for the period. The matter agreed upon may 33785° — 36 6 74 relate to the total tax liability of the donor or it may relate to one or more separate items affecting the tax liability of the donor. For example, an agreement may be entered into with respect to the total amount of gifts, to deductions, or to the value of property on the date of gift. Accordingly, there may be a series of agreements relat- ing to the tax liability for a single taxable period. Any tax or defi- ciency in tax determined pursuant to such an agreement shall be assessed and collected, and any overpayment determined pursuant thereto shall be credited or refunded, in accordance with the appli- cable provisions of the Act. (See also section 616 of the Revenue Act of 1928.) SEC. 3467, REVISED STATUTES (AS AMENDED BY SECTION 518 OF THE REVENUE ACT OF 1934). LIABILITY OF FIDUCIARIES. Every executor, administrator, or assignee, or other person, who pays, In whole or in part, any debt due by the person or estate for whom or for which he acts before he satisfies and pays the debts due to the United States from such person or estate, shall become answerable in his own person and estate to the extent of such payments for the debts so due to the United States, or for so much thereof as may remain due and unpaid. Art. 72. Personal liability of fiduciaries. — Every executor, adminis- trator, or assignee, or other person, who pays, in whole or in part, any debts due by a donor or a donor's estate for whom or for which he acts before he satisfies and pays the gift ta,x due to the United States from such donor, is, to the extent of such payments, personally liable for the payment of such tax. SEC. 1104, REVENUE ACT OF 1926 (AS AMENDED BY SECTION 618, REVENUE ACT OF 1928). EXAMINATION OF RECORDS AND TAKING OF TESTIMONY. The Conmaissioner, for the purpose of ascertaining the correctness of any return or for the purpose of making a return where none has been made, is hereby authorized, by any officer or employee of the Bureau of Internal Revenue, Including the field service, designated 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 re- quire 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 reference to the matter required by law to be included in such return, with power to administer oaths to such person or persons. SEC. 617, REVENUE ACT OF 1928. JURISDICTION OF COURTS. (a) 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 such person resides shall have jurisdiction by appropriate process to compel such attendance, testi- mony, or production of books, papers, or other data. (b) The district courts of the United States at the Instance of the United States are hereby Invested with such iurisdiotion to make and 75 issue, both in actions at law and suits in equity, writs and orders of injunction, and of ne exeat republica, orders appointing receivers, and such other orders and process, and to render such judgments and de- crees, granting in proper cases both legal and equitable rehef together, as may be necessary or appropriate for the enforcement of the pro- visions 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 such provisions. SEC. 507, REVENUE ACT OF 1934. EXAMINATION OF BOOKS AND WITNESSES. The Commissioner, for the purpose of determining the liability at law or in equity of a transferee of the property of any person with respect to any Federal taxes imposed upon such person, is hereby authorized, by any officer or employee of the Bureau of Internal Rev- enue, including the field service, designated by him for that purpose, to examine any books, papers, records, or memoranda bearing upon such liability, and may require the attendance of the transferor or transferee, 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 testi- mony with reference to the matter, with power to administer oaths to such person or persons. Art. 73. Securing evidence — Taking testimony. — In order to as- certain the correctness of a return, to make a return where none has been made, or to determine the HabUity of a transferee of the prop- erty, the Commissioner has power to require the attendance and to take the testimony of the person rendering the return, any employee of such person, a transferee of the property, or any other person having knowledge in the premises. Such persons may be required to produce any relevant book, paper, or other record. This power may be exercised by any revenue agent or inspector designated for the purpose. For penalties, see article 58. Art. 74. Power to compel compliance. — Where any person is sum- moned to appear and testify, or to produce books, papers, or other data, the district court of the United States for the district in which such person resides has power to compel the giving of testimony, the production of books, papers, or data, and to issue any appropriate process, writ, or order. SEC. 529. LAWS MADE APPLICABLE. All administrative, special, or stamp provisions 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 title. Art. 75. laws made applicable. — All administrative, special, or stamp provisions of law, including the law relating to the assessment of taxes, so far as applicable, are made a part of the Gift Tax title of the Eevenue Act of 1932. 76 SEC. 531. DEFINITIONS. For the purposes of this title — (a) Calendar year. — The term "calendar year" includes only the calendar year 1932 and succeeding calendar years, and, in the case of the calendar year 1932, includes only the portion of such year after the date of the enactment of this Act. (b) Property within United States. — Stock in a domestic corpora- tion owned and held by a nonresident shall be deemed property situated within the United States. Art. 76. Definitions. — (a) Calendar year.- — The term "calendar year" as used in the Gift Tax Act of 1932 includes the portion of the calendar year 1932 after the date of the enactment of such Act, i. e., June 6, 1932, and succeeding calendar years. (See article 5.) (6) Property within the United States. — Section 531 provides that stock in a domestic corporation owned and held by a nonresident shah be deemed property situated in the United States for the pur- poses of the Gift Tax Act. For regulations relating to situs of property generally, see article 18. SEC. 532. SHORT TITLE. This title may be cited as the "Gift Tax Act of 1932"- Akt. 77. Short title. — Section 532 provides that Title III of the Revenue Act of 1932, which imposes a tax upon gifts made after the date of the enactment of such Act, may be cited as the "Gift Tax Act of 1932." SEC. 530. RULES AND REGULATIONS. The Commissioner, with the approval of the Secretary, shall pre- scribe and publish all needful rules and regulations for the enforce- ment of this title. Art. 78. Promulgation of regulations. — In pursuance of the statute, the foregoing regulations are hereby made and promulgated. Gut T. Helvering Commissioner of Internal Revenue. Approved February 26, 1936. Wayne C. Taylor, Acting Secretary of the Treasury. INDEX (An analytical Table of Contents precedes the Regulations) Article A Abatement claim: By donor By collector Additions to the tax: Deficiency Extended payments Failure to file return Jeopardy assessments Nonpayment of tax Adjustment of tax Administrator. See Executor. Ad valorem penalty Agent: Delivery of a refund check to Recognition of Agreement, closing Alaska, included in the term " United States " Amendment of return by Commissioner Annuities, valuation of Appraisal of property Appraisal lists Approval of regulations Assessment of deficiency tax: Abatement of Appeal after jeopardy assessment Appeal extends time for Consent to Interest after Suit without Waiver of restrictions on Assessment of tax shown on return: Not subject to claim for abatement by donor Return made by Commissioner, collector, or deputy collector Assessments against several persons covering same lia- bility Attendance, power to require Attorney in fact: Delivery of a refund check to Recognition of Audit by Commissioner Authority for regulations B Balance sheets Bankruptcy Beneficiary: Lien for tax on property of Of estate of deceased donor, claim for refund by Board of Tax Appeals (77) 46 49 62,64 66,67 63,57 66,58 67 68 62 64 57 68 67 68 r39, 41, 63, I 65-67 38, 41, 66, 67-70 52,63 54,53 66 67 28 33 71 73 4,18 4,20 29 33 19(7), 19(9) 23,25 19 20 26 32 78 76 46,64 49,67 45 46 41 41 42 43 67 68 50,74 52, 75 42 43 46 49 40,41 38,41 69 71 73,74 75 66 67 28 33 39 38 78 76 26 32 47,48 49,60 37 38 65 67 / 41, 45, 48, 41, 46, 50, \ 68 70 78 Bond of donor required in connection with: Bankruptcy and receiverships Extension for time of payment Jeopardy assessments, stay of collection of Release of lien Bonds: Gift of Federal, State, or municipaL__'. Nonresident alien donor Of United States, deposit of in connection with ex tension and release of lien Valuation of Books and records, production of Burden of proof Business, valuation of interest in C Calendar year defined Cash, gift of Certificate of deposit Certificate of release of lien Charitable gifts Checks, payment of tax with Citizenship Claims for abatement Claims for refund or credit Closing agreement Collection of tax Collector: Checks, deposit and collection of Disclosure of information on return by Extension of time by, for fihng return Payment of tax to Return prepared by Commissioner: Determination of tax by Return prepared or amended by Compromises Computation of tax Conditional, charitable, etc., gifts Consent to assessment of deficiency tax Consideration for transfer: For less than an adequate and fuU In money or money's worth Love and affection as Corporation: Charitable, gift to Gifts by Liability for tax as fiduciary Notice of fiduciary capacity Notice of gift required when acting as trustee Crediting of accounts of collectors D Data supplemental may be required Date for filing return Date for payment of tax _. Debt: Cancellation, forgiveness or release of, owed donor_. Payment of for another person Debtors relief proceedings Article 47,48 31,44 45 38 2 2, 18 31, 38, 44 19(3) 73,74 66 19(4) 76 2 2 38 13-16 35 4 46, 62, 64 65-67 71 ; 30, 42, 43, 1 75 35 27 - 22 34,36 29 39 29 59 5-7 16 42 8 8 13, 14 2 72 61 21 69 26 22 30 2 2 47,48 Page 49,50 34,44 46 37 2 2,20 34, 37, 44 21 75 67 22 76 2 2 37 18-19 35 4 49, 66, 67 67-70 73 34, 43, 43, 75 35 33 30 35,36 33 38 33 61 10-13 19 43 14 14 14 18,19 2 74 63 29 71 32 30 34 2 2 49,50 79 Deceased donor (see): Payment of tax Refund or credit Return Declaration of trust Deductions: Citizens or residents Nonresidents not citizens of the United States.. Defeat tax, penalty for attempt to Deficiency tax: Abatement of jeopardy assessment Agreement, assessment made upon Assessment, claim for abatement of ,™- Assessment of Collection of Consent to assessment Determination of Extension of time for payment of Interest on Lien of Notification of Payment of Personal liability for Petition for redetermination of Waiver of restrictions on assessment Definitions Delinquency, penalties Deposit, certificate of, gift of Deposit in joint bank account Deputy collector, return by Determination of amount of tax, method of Determination of net gifts Determination, final, of tax liability Disbarment, committee on enrollment and Discharge: Prom debt, when it is a gift Of lien for tax Disclosure in regard to return Distraint, collection of tax by District of Columbia Domicile Dominion and control Donative character of transaction determines taxability Donee, personal liability of Donee s or trustee's notice Donor: Duty to keep records and render statements Liable for the tax Return by Since deceased Due date for filing return Due date for payment of the tax E Eflfective date of Gift Tax Act of 1932 Enrollment and disbarment, committee on Entirety, estate by Equitable rights or interests Estate by entirety Estate, joint Estate limited to commence in future Article Page 36, 60, 61 36 62,63 61,65 63,67 20 28 2 2 12,13 17, 18 12,13 17, 18 58 60 45 46 71 73 46,64 49,67 41, 42, 41,43, 45,48 46,50 43, 45, 47 43 46,49 42 43 39,41 38,41 44,45 44,46 55, 56, 57 56 57,58 37,38 36,37 39, 41, 45 38 41,46 43-45 43-46 30, 37, 72 34, 36, 74 39,41 38,41 42 43 4,76 4,76 52, 53, 57 64 55,58 2 2 2 2 29 33 5-7, 39 10-13. 38 5, 9, 39 10 15,38 39, 41, 71 38 41,73 28 33 2 2 37,38 36,37 27,28 33 50,51 62,53 4, 13, 18 4 3 4 18,20 4 3 1,2,8 L, 2, 14 37 86 21 29 25,26 32 36 36 20, 22-26 28 30-32 20 28 22 30 30-32 34-35 1 1 28 33 2, 19(8) 2,25 2 2 2, 19(8) 2,25 2 2 11 l.'j 80 Estate of donor required to make return Evidence, securing Excess of tax paid over tax determined Exchanges, when taxable Excluded gifts Executor of estate of deceased donor: Payment of tax by .. Personal liability of Refund, application for, made by Return by Exempt gifts Exemption, specific Extension of time for: Filing return Payment of deficiency tax Payment of tax shown on return F Fair market value False or fraudulent return Federal bonds, gift of First $5,000 of gifts $5,000 gifts or less Foreign country, citizen of Fraternal society, gifts to Fraudulent return Future interest in property G Gift of future interest Gift tax, character of See also Tax, gift. Gift within the meaning of the Act H Hawaii, included in the term " United States " Hypothetical questions not answered I Indebtedness, release, cancellation, or forgiveness of Indirect gifts Individuals, gifts not in excess of $5,000 to Individuals required to make return Inspection of return Insurance, assignment of or naming beneficiary of _ _ Insurance contract, valuation of Insurance statement Interest in business, valuation of Interest in property, future Interest on penalty added to tax Interest on tax J Jeopardy assessment Joint bank account, creation or deposit in Joint tenancy, creation of Judgment, assignment of Article 1,2,3 Page 20 28 73,74 75 63 66 1,8 1,14 10 15 36 86 36,72 36,74 65 67 20 28 10,13 15,18 12 17 22 80 44 44 31 34 19 20 29, 49, 50, 33, 52, 52, 53 65 2 2 10 15 10 15 4 4 13 18 29, 49, 50, 33, 52, 52, 53 65 11 15 11 15 1 1 1,2,3 4, 18 4,20 28 33 2 2 2 2 10 15 20,21 28,29 27 33 2 2 19(9) 25 26 32 19(4) 22 11 15 53 55 54-57 55-58 45,56 46,57 2 2 2 2 2 2 81 L Liability for tax, who subject to personal Liberty bonds, gift of Lien for the tax: Property subject to Release of lien Life interests, valuation of Limitation on time for filing claim for credit or refund M Market value Money or money's worth, consideration In Municipal bonds, gifts of, taxable N Net gifts Nonresident aliens subject to tax Nonresident citizens subject to tax Nonresident, defined Nonresident donor: Deductions Return by Situs of property Notes, valuation of Notice, donee's or trustee's O Oral hearing P Payment of claims and interest if refund allowed Payment of tax Due date for Effect of extension of time for filing return Extension of time for payment of deficiency tax Penalty for failure to make Penalties: Ad valorem Advising or assisting the preparation or presenta- tion of false or fraudulent documents Compromise Delinquency : Failure to file return Failure to pay tax, exhibit property, keep or exhibit records, etc False or fraudulent document False or fraudulent return Interest on ad valorem Pay tax, failure to Remit, power to Return, failure to file Return made by Commissioner, collector, or deputy collector Specific Personal liability, persons subject to, donor, adminis- trator, executor, trustee, donee Persons required to make return Petitions to Board of Tax Appeals Article '36,37,60, 72 2 37 38 19(7) 65 19 1,8 2 9 1, 4, 18 1,4 4 12,13 20 18 19(5) 21 39,65 63,65 66.67 30-36, 43- 34^36, 43- 45 46 30 34 22 30 44 44 57,58 68,60 58 60 58 60 59 61 62, 53, 57 64 55,58 52 54 68 60 58 60 53,58 56,60 52,53 54,55 57,58 68,60 59 61 52 54 29 33 58 60 36, 37, 36, 36, 60,72 62,74 20 28 41, 45, 48 41 , 46, 50 Page 36, 36, 62, 74 2 36 37 23 67 20 1,14 2 15 1, 4, 20 1,4 4 17,18 28 20 22 29 38,67 82 Power to alter, amend, modify, or revoke a trust Power to apply property or fund to uses other than charitable Power to secure evidence Preparation of false or fraudulent documents, penalty for assisting or procuring the preparation or presentation of Preparation of return Presentation of false or fraudulent documents, penalty for assisting, procuring, or advising Presumption as to citizenship Procuring, preparation or presentation of false or fraudu- lent documents, penalty Production of evidence Promulgation of regulations Property: Future interest in Given, subject to lien for the tax Personal Subject to lien for the tax Tax is on transfer Transferred, character of Public purpose, gift for Q Questions, hypothetical R Rates of tax Real estate, valuation of Receiverships Recognition of attorneys, agents, and other representa- tives Records: Donor's duty to keep Examination Power to compel production of Refunds Regulations, authority for and promulgation of Release of lien Religious use Remainder interests, valuation of Representatives of claimants, recognition of Reservation of powers with respect to trusts Resident donor: Definition Presumption Return: Commissioner or collector Confidential Deductions Disclosure in regard to Due date for filing Examination of Executor of deceased donor Extension of time for filing Failure to file False or fraudulent Filing of Nonresident alien donor Penalties for — Delinquency in filing Filing false or fraudulent Article 3,16 23,; 16 19 73,74 75 58 60 24,26 30, 31, 32 68 60 4 4 58 60 73,74 75 78 76 11 15 37 36 2 2 37 36 1 1 2 2 13-16 18-19 28 Page 3,19 33 3,7 10 13 19(2) 21 47 48 49 50 28 33 25 26 32 39 38 73 74 75 62, 63, 66, 66, 65- -70 67- -72 78 76 38 37 13-16 18-19 PI 9 (7) 23 28 65 33 67 3 3 4 4 4 4 29 33 27 33 12 13 17 18 27 33 22 30 39 38 20 28 22 30 29 52 33 54 49,53 58 52,55 60 20 28 4,18 20 4,20 28 29 52 33 54 53 58 55 60 83 Return — Continued. Persons required to file Preparation of Privileged character of Resident donor Tax shown by, payment of Value shown on, basis of should be shown When required — Nonresident alien donor Resident or nonresident citizen donor Reversionary interests, valuation of Revocation, reservation, in connection with transfer of power of Ruling, request for Sales for less than a fair consideration Securities, valuation of Services, gift of Situs of property Specific exemption State bonds, gift of taxable Statements, donor's duty to render Statute, text of. See Table of Contents, in front hereof, for analysis. Stocks and bonds: Situs Valuation Suit, collection of tax by Supplemental data may be required Table of Contents Tables: Annuities and remainders, life Annuities and remainders, term certain Gift tax rate schedules Tax Appeals, Board of Tax, gift (for statute and analysis, see Table of Con- tents) : Abatement of Additions to Character of Collection of Computation Deductions Deficiency tax Determination of Due date for filing return. Due date of Imposition of Interest on Liability of certain persons. Lien for Nature of Payment of Penalty for failure to pay.. Rates of Returns, filing of Article 20 23, 24, 26 27 20 30-36 19 20 20 19(7) 3 28 1,8 19(3) 2 18 12 2 25,26 18 19(3) 50,51 26 41, 45, 48 46, 62-64 52, 53, 57 1 30, 41, 75 5-7 12,13 40-45, 53-57 5-7 22 30 1 54-57 36, 37, 60,72 37 1 30-36, 43-45 57,58 6,7 20,22 Page 28 30, 31, 32 33 28 34-36 20 28 28 23 3 33 1,14 21 2 20 17 2 32 20 21 52,53 32 III 27 28 12 41, 46, 50 49, 66-67 54, 55, 58 1 34, 41, 75 10-13 17,18 38-46, 55-58 10-13 30 34 1 55-58 36, 36, 62,74 36 1 34-36, 43-46 58,60 10, 13 28,30 84 Tenancy by entirety, creation of Tenancy by entirety, valuation of Tenancy, life, value of Testimony, taking Text of Act. ! (c) Voluntary advance payment * 43 (d) Fractional parts of cent 43 (e) Receipts 43 Section 86.28. Date of payment 43 86.29. Extension of time for payment of tax shown on return 43 86.30. Voluntary advance payment : 44 86.31. When fractional part of cent may be disregarded. 44 86.32. Receipts for taxes 45 86.33. Payment by check 45 86.34. Donor liable for tax 45 Section 1000. Lien for tax - 45 Section 86.35. Lien for tax 46 86.36. Release of lien 46 Section 1010. Examination of return and determination of tax 47 Section 86.37. Examination of return and determination of tax by the Commissioner. ' 47 Section 1011. Definition of deficiency 47 Section 86.38. Deficiency defined 47 Section 1012. Assessment and collection of deficiencies 48 (a) Petition to Board of Tax Appeals 48 (b) Collection of deficiency found by Board 49 (c) Failure to file petition 49 (d) Waiver of restrictions ;. 49 (e) Increase of deficiency after notice mailed 49 (f) Further deficiency letters restricted 49 (g) Jurisdiction over other calendar years 49 (h) Final decisions of Board 50 (i) Extension of time for payment of deficiencies 50 (j) Address for notice of deficiency 50 Section 466. Period for filing petition extended in certain cases (Revenue Act of 1942).. , 50 Section 504. Change of name of Board of Tax Appeals (Revenue Act of 1942) 50 Section 86.39. Assessment of deficiency 51 86.40. Waiver by donor of restrictions on assessment 53 86.41. Collection of deficiency 53 86.42. Extension of time for payment of deficiencies 53 Section 1013. Jeopardy assessments 55 (a) Authority for making 55 (b) Deficiency letters 55 (c) Amount assessable before decision of Board 55 (d) Amotint assessable after decision of Boa,rd 55 (e) Expiration of right to assess ! 55 (f) Bond to stay collection 55 (g) Same — ^Further conditions 66 (h) Waiver of stay . 56 (i) Collection of unpaid amounts 56 Section 86.43. Jeopardy assessments 56 Section 1014. Claims in. abatement 69 Section 86.44. Claims in abatement 69 VI Page Section 1015. Bankiruptcy and receiverships 69 (a) Immediate assessment 69 (b) Unpaid claims 69 Section 86.45. Bankruptcy and receivership proceedings 60 86.46. Immediate assessments in bankruptcy and re- ceivership cases 61 Section 1016. Period of limitation upon assessment and collection. 62 (a) General rule 62 (b) Exceptions — ' (1) False return or no return 62 (2) Collection after assessment 62 Section 86.47. Period of limitation upon assessment of tax. 62 86.48. Period of limitation upon collection of tax 63 Section 1017. Suspension of running of statute 63 Section 86.49. Suspension of running of statute of limitations 64 Section 1018. Addition to the tax in case of delinquent return 64 Section 3612— (d) Additions to tax — (1) Failure to file return 64 (2) Fraud 64 (3) Cross-reference 64 (e) Collection of additions to tax , 64 Section 86.50. Addition to the tax for failure to file return 65 Section 1019. Additions to the tax in case of deficiency 65 (a) Negligence 65 (b) Fraud .. .. 65 Section 86.51. Additions to the tax in case of deficiency 66 Section 1020. Interest on extended payments 66 (a) Tax shown on return . 66 (b) Deficiency - 66 Section 86.52. Interest on extended payments , 66 Section 1021. Interest on deficiencies 67 Section 86.53. Interest on deficiencies 67 Section 1022. Interest on jeopardy assessments 68 Section 86.54. Interest on jeopardy assessments 68 Section 1023. Additions to the tax in case of nonpayment 68 (a) Tax shown on return — (1) Payment not extended 68 (2) Payment extended 68 (b) Deficiency — (1) Payment not extended 69 (2) Filing of jeopardy bond 69 (3) Payment extended ' 69 (4) Jeopardy assessment — Payment stayed by bond 69 (5) Interest in case of bankruptcy and receiverships 69 Section 86.55. Interest on delinquent taxes 69 Section 1034. Penalties 70 Section 86.56. Penalties 71 Section 3761. Compromises 72 Section 86.57. Compromises 72 VII Page Section 1025. Transferred assets 72 (a) Method of collection — (1) Transferees- _ 72 (2) Fiduciaries --_ --- 72 (b) Period of limitation -.. 73 (c) Period for assessment against donor 73 (d) Suspension of running of statute of limitations '. 73 (e) Prohibition of suits to restrain enforcement of liability of , transferee or fiduciary 73 (f) Definition of "transferee" 73 (g) Address for notice of liability 73 Section 86.58. Claims in cases of transferred assets 73 Section 1026. Notice of fiduciary relationship 74 (a) Fiduciary of donor 74 (b) Fiduciary of transferee 74 (c) Manner of notice 74 Section 86.59. Notice of fiduciary relationship 74 Section 1027. Refunds and credits 76 (a) Authorization... i_.. 76 (b) Limitation on allowance — I (1) Period of limitation 76 (2) Limit on amount of credit or refund 76 (c) Effect of petition to Board 76 (d) Overpayment found by Board 76 Section 457. Overpayment found by Board (Bevenue Act of 1©42)_ 77 Section 451. Gifts to which amendments applicable (Revenue Act of 1942) - 77 Section 503. Suit against collector bar in other suits . (Revenue Act of 1942) 77 Section 3770. (a) (2) Credit or refund of assessments and collec- tions after limUjation period 77 Section 3775. (a) Credit after period of limitation against United States ■- 77 Section 3771. Interest on overpayments 77 Section 86.60. Authority for abatement, credit, or refund 78 86.61. Credit and refund adjustments 79 86.62. Claims by collectors . 79 86.63. Claims for credit or refund by donors ^ 80 86.64. Claims for refund in case of judgment obtained against collector 81 86.65. Claims for refund in case of judgment obtained against the United States 82 86.66. Limitations upon the crediting and refunding of taxes paid 83 86.67. Crediting of accounts of collectors in cases of assess- ments against several persons covering same liability 84 Section 3774. Refunds after periods of limitation 84 (a) Expiration of period for filing claim..: 84 (b) Disallowance of claim and expiration of period for filing suit 84 vin Page Section 3775. (b) Credit after period of limitation against tax- payer : 84 Section 3746. Suits for recovery of erroneous refunds 85 (a) Refunds after limitation period 85 (c) Refunds based on fraud or misrepresentation 85 Section 86.68. Erroneous xefunds and credits 85 Section 3760. Closing agreements : 85 ^a.) Authorization 85 (b) Finality ' 86 Section 86.69. Closing agreements relating to tax liability in respect of internal revenue taxes 86 Section 3467. Revised Statutes, as amended by section 618 of the Revenue Act of 1934 (31 XJ. S. C. 193). Liability of fiduciaries 86 Section 86.70. Personal liability of fiduciaries 86 Section 3614. Examination of books and witnesses 86 (a) To determine liability of the taxpayer 86 (b) To determine liability of a transferee 87 Section 3633. Jurisdiction of District Courts . 87 (a) To enforce summons 87 Section 3800. Jurisdiction of District Courts to issue orders, proc- esses, and judgments 87 Section 3632. Authority to administer oaths, take testimony, and certify 87 Section 86.71. Securing evidence; taking testimony 88 86.72. Power to compel compliance 88 Section 1028. Laws made applicable 88 Section 86.73. Laws made applicable 88 Section 1030. Definitions 88 (a) Calendar year 88 (b) Property within the United States 88 Section 468. Definition of property in TTnited States (Revenue Act of 1942) 89 Section 86.74. Definitions 89 Section 1031. Publicity of returns 89 Section 1029. Rules and regulations 89 Section 3791. Rules and regulations 89 Section 3802. Separability clause ^ 89 Section 86.75. Promulgation of -regulations 90 Appendix 91 Inspection of returns 91 Payment of tax with United States Treasury notes 96 Statutes of limitations as affected by period of military service 97 List of the divisions and location of offices of internal revenue agents in charge 98 List of the field divisions and location of offices of the Technical Staff 103 Index 105 ATTOStOEiTT: Sections 86.0 to 86.75, inclusive, are issued under the authority con- tained in sections 1029 and 3791 of the Internal Revenue Code (53 Stat. 157, 467; 26 U. S. C, 1029, 3791). REGULATIONS 10§ Section 86.0 Scope or Regulations. — These regulations deal witii the gift tax imposed by chapter 4 of the Internal Revenue Code and apply to transfers of property by gift during the calendar year 1940 and thereafter. They do not affect gift tax regulations (including Treasury decisions) heretofore issued in so far as they relate to taxes imposed on gifts made prior to January 1, 1940. Each section, subsection, or paragraph of the Internal Revenue Code appearing in the regulations is followed by the section or sec- tions of the prescribed regulations relating thereto and shall be con- sidered as a part thereof. Sections of the Code set forth are readily distinguishable from the prescribed regulations sections since the latter appear in larger type and bear a number commencing with 86 and a decimal point. The number "&'6" is used in numbering the sections of the regulations for the reason that the regulations con- stitute Part 86 of Title 26 of the Code of Federal Regulations. Identifying portions of the section numbers (following 86.) begin with "0" and follow in sequence. Except as otherwise indicated, the statutory references are to the Internal Revenue Code. To the extent that Regulations 79 (1936 Edition), as amended by Treasury decisions, have been made applicable to gift taxes imposed by the Internal Revenue Code, they are hereby superseded. SEC. 1000. IMPOSITION OF TAX. [As Oeiginaixt Enacted.] (a) For the calendar year 1940 and each calendar year thereafter a tax, computed as provided In section 1001, shall be imposed upon the transfer during such calendar year by any individual, resident or non- resident, of property by gift. Gift taxes for the calendar years 1932- 1939, inclusive, shall not be afEected by the provisions of this chapter, but . shall remain subject to the applicable provisions of the Revenue Act of ' 1932, except as such provisions are modified by legislation enacted sub- sequent to the Revenue. Act of 1932. (b) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible ; but, in the case of a nonresident not a citizen of the United States, shall apply to a transfer only if the property Is situated within the United States. SEC. 452. POWERS OP APPOINTMENT. [Revenue Act of 1942, Title IV; PabT II, ENACTED OCTOBEE 21, 1942.] (a) General Rdi.e. — Section 1000 (relating to Imposition of gift tax) Is amended by inserting at the end thereof the following new subsection : (1) "(c) Powers of Appointment. — ^An exercise or release of a power of appointment shall be deemed a transfer of property by the individual possessing such power. For the purposes of this subsection the term 'power of appointment' means any power to appoint exerciss^)le by an Individual either alone or in conjunction with any person, except — "(1) a power to appoint within a class which does not include any others than the spouse of such individual, spouse of the creator of the power, descendants of such individual or his spouse, descendants (other than such individual) of the creator of the power or his spouse, spouses of such descendants, donees described in section 1004(a)(2), and donees described in section 1004(b). As used in this paragraph, the term 'descendant' includes adopted and illegiti- mate descendants, and the term 'spouse' includes formerspouse ; and " (2) a power to appoint within a restricted class if such individual did not receive any beneficial interest, vested or contingent. In the property from the creator of the power or thereafter acquire any such interest, and if the power is not exercisable to any extent for the benefit of such Individual, his estate, his creditors, or the cred- itors of his estate. .If a power to appoint is exercised by creating another power to appoint, such first power shall not be considered excepted under paragraph (1) or (2) from the definition of power of appointment to the extent of the value of the property subject to such second power to appoint. For the purposes of the preceding sentence the value of the property subject to such second power to appoint shall be its value unreduced by any prece- dent or subsequent interest not subject to such power to appoint." (b) PowEKS With Respect to Which Amendments Not Apelioable. — (1) The amendments made by this section shall not apply with respect to a power to appoint, created on or before the date of enact- ment of this Act, which is other than a power exercisable in favor of the donee of the power, his estate, his creditors, or the creditors of his estate, unless such power is exercised after the date of enact- ment of this Act. (2) The amendments made by this section shall not become ap- plicable with respect to a power to appoint created on or before the date of enactment of this Act, which is exercisable in favor of the donee of the power, his estate, his creditors, or the creditors of his estate, if at such date the donee of such power is under a legal disability to release such power, until six months after the termina- tion of such legal disability. For the purposes of the preceding sen- tence, an individual in the military or naval forces of the United States shall, until the termination of the present war, be considered under a legal disability to release a power to appoint. (c) Release On ob Before Januaet 1, 1943. — (1) A release of a power to appoint before January 1, 1943, shall not be deemed a transfer of property by the individual possessing such power. (2) This subsection shall apply to all calendar years prior to 1943. SBC. 10. EXTENSION OF TIME IN CONNECTION WITH RELEASE OF POWERS OF APPOINTMENT. [CnffiENT Tax Payment Aot of 1943.] * * * section 452(c) of the Revenue Act of 1942 is amended to read as follows : " (1) A release of a power to appoint befote March 1, 1944, shall not be deemed a transfer of property by the Individual possessing such power. "(2) This subsection shall apply to all calendar years prior to 1944 and to that part of the calendar year 1944 prior tb March 1, 1944." SEC. 453. GIFTS OF COMMUNITY PROPERTY. [Revenue Act of 1942, "TiTiLE IV, Part II. Effective fob Calendak Yeak 1943 and Each Calendab Ye^vb Thebeaftee.] Section 1000 (relating to tax on gifts) is amended by inserting at the end thereof the following new subsection : "(d) Community Pbopebty.^ — ^All gifts of property held as community property under the law of any ' State, Territory, or possession of the United States, or any foreign country shall be considered to be the gifts of the husband except that gifts of such property as may be shown to have been received as compensation for personal services actually ren- dered by the wife or derived originally from such compensation or from separate property of the wife shall be considered to be gifts of the wife." SEC. 451. GIFTS TO WHICH AMENDMENTS APPLICABLE. [Reiv- ENUE Act of 1942, Titi-e IV, Part II.] Except as otherwise expressly provided, the amendments made by this Part shall be applicable only with respect to gifts made in the calendar year 1943, and succeeding calendar years. Seo. 86.1 Imposition of Tax. — ^The statute imposes no tax upon property, but subjects to tax transfers of property by gift. Tbe statute taxes all such transfers of property (other than gifts specified in sec- tion 1003(b) (2) and (3) and other than releases before March 1, 1944, of powers to appoint created on or before October 21, 1942, the date of enactment of the Revenue Act of 1942) to the extent that they exceed the deductions authorized by section 1004. The tax is not limited in its imposition to transfers of property without a valuable consideration, which at common law are treated as gifts, but extends to sales and exchanges for less than an adequate and full consideration in money or money's worth. (See section 86.8.) The tax applies to all individuals, whether resident or nonresident of the United States, but, in the case of a nonresident not a citizen, the tax applies only to trans- fers of property situated within the United States. For the definition of "resident," see section 86.4. With reference to the situs of property, see section 86.18., Sec. 86.2 Tbansfees Reached. — (a) In general. — The statute imposes a tax whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible. Thus, for example, a taxable transfer may be effected by the declaration of a trust, the forgiving of a debt, the assignment of a judgment, the assignment of the benefits of a contract of insurance, or the transfer of cash, certificates of deposit, or Federal, State, or municipal bonds. Various statutory provisions, which exempt bonds, notes, bills and certificates of indebtedness of the Federal Government or its agencies and the interest thereon from taxation, are not appli- cable to the gift tax since this tax is an excise tax on the transfer, and is not a tax on the subject of the gift. However, a gift of a bond, note, or certificate of indebtedness issued by the Federal Government prior to March 1, 1941, if made by a nonresident alien not engaged in business in the United States, is not subject to the tax; but a gift by any such nonresident alien of an obligation of the Federal Government issued on or after March 1, 1941, is subject to the tax. Inasmuch as the tax also applies to gifts indirectly made, all transactions whereby property or property rights or interests are gratuitously passed or conferred upon another, regardless of the means or device employed, constitute gifts subject to tax. See, further, section 86.8. (However, for special provisions with respect to the exercise or release of powers of appoint- ment, see subsection (&) of this section.) In the following examples of transactions resulting in taxable gifts, it will be understood that the transfers were not made for an adequate and full consideration in money or money's worth : (1) Transfer of property by a corporation to B is a gift to the latter from the stockholders of the corporation. If B himself is a stockholder, the transfer, not being a distribution from earnings or in liquidation to which B is entitled as a stockholder, is a gift to him from the other stockholders. (2) The transfer of property to B where there is imposed upon B the obligation of paying a commensurate annuity to C is a gift to C. (3) The payment of money or the transfer of property to B in con- sideration whereof B is to render a service to C, is a gift to C, or both to B and C, depending on whether the service to be rendered by B to C is or is not an adequate and full consideration in money or money's worth for that which is received by B. (4) If A creates a joint bank account for himself and B (or similar type of ownership where A can regain the entire fund without B's consent) , there is a gift to B when B draws upon the account for his own benefit, to the extent of the amount drawn. (5) If A with his own funds purchases property and has the title thereto conveyed to himself and B as joint owners, with rights of survivorship (other than a joint ownership described in example (4) of this section), but which rights may be defeated ,by either party severing his interest, there is a gift to B in the amount of one-half the value of such property. (6) If a husband with his own funds purchases property and has ths title thereto conveyed to himself and wife as tenants by the en- tirety, and under the law of the jurisdiction governing the rights of the tenants there is no right of severance by which either of the tenants, acting alone, can defeat the right of the survivor to the whole of the property, he consummates a gift of such property valued as provided in section 86.19(A). (7) If A, without retaining a power to revoke the trust or to change the beneficial interests, ^transfers property in trust whereby B is to receive the income therefrom for life and at his death the trust is to terminate and the corpus is to be returned to A provided A survives but if A predeceases B the corpus is to pass to C, A consummates a gift of such property valued as provided in section 86.19 (p-). (8) If the insured purchases a life insurance policy, or pays a premium on a previously issued policy, th& proceeds of which are , payable to a beneficiary or beneficiaries other than his estate, and with respect to which the insured retains no power to revest the economic benefits in himself or his estate or to change the beneficiaries or their proportionate benefits (or if the insured relinquishes by assignment, by designation of a new beneficiary or otherwise, every such power that was retained in a previously issued policy), the insured consummates a gift of the value of such policy, or to the extent of such premium, even though the right of the assignee or beneficiary to receive the benefits is conditioned upon his surviving the insured. For the valuation of life insurance policies;/see section 86.19 (i) . (i) Transfers imder power of appointment. — ^The exercise of a power of appointment after June 6, l£i32, and before January 1, 1943, constitutes a gift by the individual possessing the power if the power is exercisable in favor of any person or persons in the discretion of such individual, or, however limited as to the persons or objects in whose favor the appointment may be made, if it is exercisable in favor of the individual possessing the power, his estate, his creditors, or the creditors of his estate. The release before March 1, 1944, of a power to appoint created on or before October 21, 1942, the date of enact- ment of the Eevenue Act of 1942, is excepted from the application of the tax by reason of the express provisions of section 452(c) of the Eevenue Act of 1942, as amended by section 10 of the Current Tax Payment Act of 1943. It is presumed that all general powers of appointment are releasable, unless the local law on the subject is to the contrary; and it is presumed that the method employed to release the power is effective, unless it is not in accordance with the local law on the subject (or, in the absence of such local law, is not in accordance with the local law relating to similar transactions). Sec- tion 452(c) of the Revenue Act of 1942, however, does not apply to any release of a powpr i-eserved, directly or indirectly, by a donor upon a transfer, as distinguished from a donee of a power of appointment who releases the power which he had received from another person. 6 See -section. 86.3 with respect to the taxability of the relinquishment of reserved powers. During the calendar year 1943 and any calendar year thereafter, section 1000(c), as added by the Eevenue Act of 1942, applies, subject, however, to section 452(c) of such Act, as amended by section 10 oi. the Current Tax Payment Act of 1943. That is, during such years an exercise or release (other than a release prior to March 1, 1944), without an adequate and full consideration in money or money's worth, of a power of appointment created on or before October 21, 1942, the date of enactment of the Eevenue Act of 1942 (including a power to appoint exercisable in conjunction with another person) consti- tutes a gift by the individual possessing such power, except in the case of the following : (1) The exercise or release of a power to appoint which is not exer- cisable to any extent for the benefit of such individual, his creditors, his estate, or the creditors of his estate, and which is exercisable in favor of only one or more other persons or objects — (i) within a class which does not include any others than the spouse of such individual, spouse of the creator of the power, descendants of such individual or his spouse, descendants of the creator of the power or his spouse, spouses of such descendants, charitable, etc., organizations described in section 1004(a) (2) and charitable, etc., organizations described in section 1004 (b) ; or (ii) within a restricted class if such individual did not receive any beneficial interest, vested or contingent, in the property from the creator of the power or thereafter acquire any such interest. For the purposes of this paragraph, the term "descendant" includes adopted and illegitimate descendants, and the term "spouse" includes former spouse. The treatment of adopted and illegitimate descend- ants as descendants is intended to include adopted and illegitimate children (and their descendants and their adopted and illegitimate childrpn) as descendants, if such children would be descendants had they been bom as legitimate children in the station to which they are adopted or born. The provisions of (ii) apply to a power possessed by a disinterested trustee or one occupying a similar status to appoint within a relatively small class. For example, a power to appoint within a class composed of A's children would be a power to appoint within a restricted class. On the other hand, a power to appoint to anyone except A and his family would not be a power confined to a restricted class. The restricted character of a class is not affected by the fact that the decedent has power to appoint to any number of charitable, etc., organizations described in section 1004 (a) (2) or (b). A power to appoint is not confined to a restricted class merely because the power is not exercisable in favor of such individual, his creditors, his estate, or the creditors of his estate, or all of them. (2) The release of a power to appoint created on or bef or© October 21, 1942, the date o| the enactment of the Eevenue Act of 1942, which is not a power exercisable in favor of the donee of the power (who is the appointor), his estate, his creditors, or the creditors of his estate. (3) The release of a power to appoint created on or before October 21, 1942, the date of the enactment of the Revenue Act of 1942, which power is exercisable in favor of the donee of the power (who is the appointor) , his creditors, his estate, or the creditors of his estate, if on such date such appointor was under a legal disability to release such power and ,if the release thereof is effected prior to March 1, 1944, or the day after six months immediately following the termination of the legal disability, whichever is later. The legal disability referred to is determined under local law and may include the disability of an insane person, a minor, or an unborn child. The fact that a power of appointment of the type possessed by the individual was not generally releasable under the local law does not place the individual under a legal disability within the meaning of section 452(b) (2) of the Rev- enue Act of 1942. Until the termination of the present war, an in- dividual in active service in the military or naval forces of the United States on October 21, 1942, shall be considered under a legal disability to release a power to appoint while such individual is in such service. ' If a power to appoint is exercised by creating another power to appoint, to the extent of the property subject to such second power to appoint, such first power shall not be considered excepted in (1) above of this subsection. For this purpose the statute prescribes that the value of the property subject to such second power to appoint shall be its value unreduced by any precedent or subsequent interest not subject to such power to appoint. Thus if the donor has a power to appoint a fund of $100,000 within a class consisting only of his children (which is one of the excepted powers) and during his lifetime exercises such power by giving one child a power to appoint $25,000 of such fund and by niaking an outright appointment of $75,000, only $25,000 is con- sidered a gift. If, however, the -individual had appointed the income from the entire fund to such child for life with power in such child to appoint the remainder in his will, the whole $100,000 would be con- sidered a gift. This provision applies whether or not the newly cre- ated power to appoint is of a kind described in (1) above of this subsection. The term "power of appointment" includes any power received by the appointor from another person which is in' substance and effect a power to appoint regardless of the nomenclature used in creating the power and local property law connotations. For example, if a settlor transfers property in trust for the life of his wife with a power in the wife to appropriate or consume the principal of the trust, the wife has a power of appointment and the release of such a power constitutes 8 a taxable transfer. On the other hand, if, for example, a power of appointment with respect to the remainder, exercisable by the life tenant, is subject to the consent of the trustee who is a disinterested third party not receiving any beneficial interest upon such transfer, upon the exercise or release of the power by the life tenant no part of the gift of such remainder is attributable to the trustee personally. Similarly, if property is transferred in trust by a grantor reserving the power to alter, amend, revoke, or terminate the trust with the consent of the trustee who is a disinterested party not receiving any beneficial interest upon the transfer, the exercise or relinquishment of such power by the grantor with the consent of such trustee is not a taxable transfer by the latter. Ordinarily, powers of management with re- spect to property in trust, such as the determination of whether distri- butions shall be made annually or quarterly, the making of invest- ments and reinvestments, or the determination of items of income or principal -under recognized rules of accounting, are not powers of appointment over property under section 1000 (c) . A power to appoint is exercised where the property subject thereto is appointed to the taker in default of appointment, regardless of whether or not the appointed interest and the interest in default of appointment are identical, and regardless of whether or not the ap- pointee renounces any right to take under the appointment. For the purposes of section 1000(c), a release of a power of appointment need not be express or formal in character. For example, the failure to exercise a power of appointment within a specified time, resulting in the termination of the power of appointment, is taxable if the other conditions imposed by section 1000(c) are present. The reduction in scope of a power of appointment, as defined in section 1000(c) , to an excepted power under section 1000(c) (1) or (2) , which is not a power of appointment as thus defined, constitutes the release of the power of appointment. In such case, the release is effected at such time as under the applicable law the power cannot be exercised in favor of persons or objects other than those described in section 1000(c) (1) or (2). If such release of a power created on or before October 21, 1942, the date of enactment of the Revenue Act of 1942, is effected prior to March 1, 1944 (or, in a case described in (3) above of this subsection, relating to persons under a legal dis- ability, prior to the date specified therein), a taxable transfer does not result. For the purpose of determining whether a power created on or before October 21, 1942, satisfied the requirements of section 1000(c) (2) on March 1, 1944 (or other applicable date in a case de- scribed in (3) above of this subsection), the fact as to whether the individual received any beneficial interest in the property is to be ascertained without regard to the power to appoint which he received. If such release is effected on or after March 1, 1944 (or, in a case de- 9 scribed in (3) above of this subsection, relating to persons under a legal disability, on or after the date specified therein), a taxable transfer results. Section 1000(c) does not apply to a power reserved, directly or indi- rectly, by a donor upon a transfer, as distinguished from the possessor of a power of appoiiitment received from another person.: See section 86.3 with respect to the taxability of reserved powers. (c) Transfers of corrwnunity property after 19Ji£. — During the cal- endar year 1943 and any calendar year thereafter any gift of property held as community property under the law of any State, Territory, or possession of the United States, or any foreign country constitutes a gift of the husband for the purpose of the gift tax statute (regardless of whether under the terms of the transfer the husband alone or the wife alone is designated as the donor or whether both are so designated as donors), except to the extent that such property is shown (1) to have been received as compensation for personal services actually rendered by the wife or derived originally from such compensation, or (2) to have been derived originally from separate property of the wife. The entire property comprising the gift is prima facie a gift of the husband, but any portion thereof which is shown to be economi- cally attributable to the wife as prescribed in the preceding sentence constitutes a gift of the wife. The rule stated in the preceding paragraph applies alike to a trans- fer by way of gift of community property to a third party or third parties, to a division of such community property between husband and wife into the separate property of each, and to a transfer by the husband and wife of any part of such community property into the separate property either of the husband or of the wife, or into a joint estate or tenancy by the entirety of both spouses. In all of such cases the value of the property so transferred or so divided, as the case may be, is a gift by the husband to the extent that it exceeds the aggregate amount of the value of that portion which is shown to be economically attributable to the wife, as prescribed in the preceding paragraph, and of the value of the husband's interest in such property after such trans- fer or division. The value of the property so transferred or so divided, as the case may be, is a gift by the wife to the extent that the portion of such value which is shown to be economically attributable to her, as prescribed in the preceding paragraph, exceeds the value of her. inter- est in such property after such transfer or division. See examples (5) and (6) of subsection {a) .of this section. No gift tax resi^lts from a transfer on or after January 1, 1943, of separate property of either spouse into community property. Property derived originally from compensation for personal services actually rendered by the wife or from separate property of the wife includes property that may be identified as (1) income yielded by 480028°— 43 2 10 property received as such compensation or by such separate property, and (2) property clearly traceable (by reason of acquisition in ex- change, or other derivation) to property received as such compensa- tion, to such separate property, or to such income. The rule established by this statute for apportioning the respective contributions of the spouses is applicable regardless of varying local rules of apportion- ment, and State presumptions are not operative against the Com- missioner. Sec. 86:3 Cessation or Donor's Dominion and Control.— The tax is not imposed upon the receipt of the property by the donee, nor is it necessarily determined by the measure of enrichment resulting to the donee from the transfer, nor is it conditioned upon ability to identify the donee at the time of the transfer. On the contrary, the tax is a primary and personal liability of the donor, is an excise upon his act of making the transfer, is measured by the value of the property passing from the donor, and attaches regardless of the fact that the identity of the donee may not then be known or ascertainable. As to any property, or part thereof or interest therein, of which the donor has so parted with dominion and control as to leave in him no power to change the disposition thereof, whether for his own benefit or for the benefit of another, the gift is complete. But if upon a transfer of property (whether in trust or otherwise) the donor reserves any power over the disposition thereof, the gift may be wholly incomplete, or may be partially complete and partially incomplete, depending upon all the facts in the particular case. Accordingly, in every case of a transfer of property subject to a reserved power, the terms of the power must be examined and its scope determined. A gift is incomplete in every instance where a donor reserves the power to revest the beneficial title to the property in himself. A gift is also incomplete where and to the extent that a reserved power gives the donor the right to name new beneficiaries or to change the interests of the beneficiaries as between themselves. Thus, the transfer of an estate for life where, by an exercise of the power, the estate may be terminated or cut down to one of less value, and with- out restriction upon the extent to which the estate may be so cut down, constitutes an incomplete gift. If in this example the power was confined to the right to cut down the estate for life to one for a term of five years, the certainty of an estate for not less than that term results in a gift to that extent complete. A gift shall not be considered incomplete, however, merely because the donor reserves the power to change the manner or time of en- joyment thereof. Thus, the creation of a trust the income of which is to be paid annually to the donee for a period of years, the corpus 11 being distributable to him at the end of the period, and the power reserved by the donor being limited to a right to require that, instead of the income being so payable, it should be accumulated and dis- tributed^ with the corpus to such donee at the termination of the period, constitutes a completed gift. A donor shall be considered as himself having the power where it is exercisable by him in conjunction with any person not having a substantial adverse interest in the disposition of the transferred property or the income therefrom. A trustee, as such, is not a per- son having an adverse interest in the disposition of the trust prop- erty or its income. The relinquishment or termination of a power to change the dis- position of the transferred property, occurring otherwise than by the death of the donor (the statute being confined to transfers by living donors), is regarded as the event which completes the gift and causes the tax to apply. For example, if A transfers property in trust for the benefit of B and C but reserves the power as trustee to change the proportionate interests of B and C, and if A thereafter has an- other person appointed trustee in place of, himself, such later re- linquishment of the power by A to the new trustee completes the gift of the transferred property, whether or hot the new trustee has a substantial adverse interest. The receipt of income or of other en- joyment of the transferred property by the transferee or by the beneficiary (other than by the donor himself) during the interim between the making of the initial transfer and the relinquishment or termination of the power operates to free such income or other enjoy- ment from the power, and constitutes a gift of such income or of such other enjojTnent taxable as of the calendar year of its receipt. If the donor contends that the power is of such nature as to render the gift incomplete, and hence not subject to the tarx as of the cal- endar year of the initial transfer, the transaction shall be disclosed in the return and evidence showing all relevant facts, including a copy of the instrument of transfer, should be submitted. If for any calendar year prior to the calendar year 1939 a transfer has been subjected to payment of the tax despite the fact that the donor retained a power to name new beneficiaries or to change the interests of the beneficiaries as between themselves, and if the tax for such calendar year has been finally determined on such basis, £^nd for all, gift tax purposes such transfer has been treated, for such calendar year and each subsequent calendar year, as subject to the tax, and the donor agrees, in a closing agreement executed under the provisions of section 3760, that he will continue so to treat such transfer, then the relin- quishment or termination of the power so retained by the donor shall not be treated as a gift Subject to the tax. 12 Sec. 86.4 Residence. — The statute imposes the tax upon the transfer of property by gift made by any individual, resident or nonresident, but provides that in the case of a nonresident not a citizen of the United States the tax shall apply to a transfer only if the property is situated within the United States. ( See section 86.18. ) If the donor is a citizen of the United States, whether a resident or a nonresident thereof,, or is a resident of the United States, whether or not a citizen thereof, the tax applies, regardless of where the property, whether real or personal, is situated. A resident is one who has his domicile in the United States (including only the States, the Territories of Alaska and Hawaii, and the District of Columbia) at the time of the gift. (See section 3797(a) (9) .) All others are nonresidents. A person acquires a domicile in a place by living there for even a brief period of time with no definite present intention of moving therefrom. Residence without the requisite inten- tion to remain indefinitely will not suffice to constitute domicile, nor will intention to change domicile effect such change unless accom- panied by an actual removal. SEC. lOOl. COMPUTATION OF TAX. (a) The tax for each calendar year shall be an amount equal to the excess of — (1) a tax, computed in accordance with the Kate Schedule here- inafter set forth, on the aggregate sum of the net gifts for such calen- dar year and for each of the preceding calendar years, over (2) a tax, computed in accordance with the said Rate Schedule, on the aggregate sum of the net gifts for each of the preceding calen- dar years. RATE SCHEDULE (as amended by section 402(a) of the Revenue Act of 1941; effective for the calendar year 1942 and each calendar year thereafter). the net gifts arc !: The tax shall be: Not over $5,000 2%% of the net gifts. Over $5,000 but not over $10,000_ $112.50, plus 5%% of excess over $5,000. Over $10,000 but not over $375, plus 8%% of excess over $20,000. $10,000. Over $20,000 but not over $1,200, plus 101/2% of excess $30,000. over $20,000. Over $30,000 but not over $2,250, plus 13%% of excess $40,000. over $30,000. Over $40,000 but not over $3,600, plus 16%% of excess $50,000. over $40,000. Over $50,000 but not over $5,250, plus 18%% of excess $60,000. over $50,000. Over $60,000 but not over $7,125, plus 21% of excess over $100,000. $60,000. Over $100,000 but not over $15,525, plus 22%% of excess $250,000. over $100,000. 13 If the net gifts are — Continued. The tax shall be^Continued. Over $250,000 but not over $49,275, plua 24% of excess $500,000. over $250,000. Over $500,000 but not over $109,275, plus 26%% of excess $750,000. over $500,000. Over $750,000 but not over $174,900, plus 27%% of excess $1,000,000. over $750,000. Over $1,000,000 but . not over $244,275, plus 29%% of excess $1,250,000. over $1,000,000. Over $1,250,000 but not over $317,400, plus 3iy2% of excess $1,500,000. over $1,250,000. Over $1,500,000 but not over $396,150, plus 33%% of excess $2,000,000. over $1,500,000. Over $2,000,000 but not over $564,900, _plus 36%% of excess $2,500,000. over $2,000,000. Over $2,500,000 but not over $748,650, plus 89%% of excess $8,000,000. _ over $2,500,000. . Over $3,000,000 but not over $947,400, plus 42% of excess $3,500,000. over $3,000,000. Over $3,500,000 but not , over $1,157,400, plus 44%% of ex- $4,000,000. cess over $3,500,000. Over $4,000,000 but not over $1,378,650, plus 47%% of ex- $5,000,000. cess over $4,000,000. Over $5,000,000 but not over $1,851,150, plus 50%% of ex- $6,000,000. cess over $5,000,000. Over $6,000,000 but not over $2,358,650, plus 52%% of ex- $7,000,000. cess ov.er $6,000,000. Over $7,000,000 but not over $2,878,650, plus 54%% of ei- $8,000,000. ■ cess over $7,000,000. Over $8,000,000 but not over $3,426,150, plus 57% of excess $10,000,000. over $8,000,000. Over $10,000,000 $4,566,150, plus 57%% of ex- cess over $10,000,000. (b) For the purpose of this section the term "preceding calendar years" means the calendar year 1932 and all calendar years intervening between the calendar year 1932 and the calendar year for vyhich the tax is being computed. (c) Oeoss Reference. — i For definition of "calendar" year", see section 1030(a). RATE SCHEDULE (under section 1001 as enacted on February 10, 1939; effective for calendat years 1940 and 1941). Upon net gifts not In excess of $10,000, 1% per centum. $150 upon net gifts of $10,000 ; and wpon net gifts in excess of $10,000 and npt in excess of $20,000, 3 per centum in addition of such excess. $450 upon net gifts of $20,000; and upon net gifts in excess of $20,000 and not in excess of $30,000, 4% per centum in addition of such excess. $900 upon net gifts of $30,000 ; and upon net gifts in excess of $30,000 and not in excess of $40,000, 6 per centum in addition of such excess. $1,500 upon net gilts of $40,000 ; and upon net gifts in excess of $40,000 and not in excess of $50,000, 7% per eentum in addition of such excess. 14 $2,250 upon net gifts of $50,000 ; and upon net gifts In excess of $50,000 and not in excess of $70,000, 9 per centum in addition of such excess. $4,050 upon net gifts of $70,000; and upon net gifts in excess of $70,000 and not in excess of $100,000, 10% per centum in addition of such excess. $7,200 upon net gifts of $100,000; and upon net gifts In excess of $100,000 and not in excess of $200,000, 12% per centum In addition of such excess. $19,950 upon net gifts of $200,000; and upon net gifts in excess of $200,000 and not in excess of $400,000, 15 per centum ih addition of such excess. $49,950 upon net gifts of $400,000; and upon net gifts in excess of $400,000 and not in excess of $600,000, 17% per centum in addition of such excess. $84,450 upon net gifts of $600,000; and upon net gifts iij excess of $600,000 and not in excess of $800,000, 19% per centum in addition of such excess. $123,450 upon net gifts oi $800,000; and upon net, gifts In excess of $800,000 and not in excess of $1,000,000, 21% per centum in addition of such excess. $166,950 upon net gifts of $1,000,000; and upon net gifts in excess of $1,000,000 and not in excess of $1,500,000, 24 per centum in addition of such excess. $286,950 upon net gifts of $1,500,000 ; and upon net gifts in excess of $1,500,000 and not In excess of $2,000,000, 26% per centum in addition of such excess. $418,200 upon net gifts of $2,000,000; and upon net gifts In excess of $2,000,000 and not in excess of $2,500,000, 28% per centum in addition of such excess. $560,700 upon net gifts of $2,500.000 ; and upon net gifts in excess of $2,500,000 and not in excess of $a,0OO,00O, 34% per centum In addition of such excess. $714,450 upon net gifts of $3,000,000 ; and upon net gifts in excess of $3,000,000 and not in excess of $3,500,000, 33 per centum In addition of such excess. $879,450 upon net gifts of $3,500,000; and upon net gifts in excess of $3,500,000 and not in excess of $4,000,000, 35% per centum In addition of such Excess. • $1,055,700 upon net gifts of $4,000,000 ; and upon net gifts in excess of $4,000,000 and not in excess of $4,500,000, 37% per centum in addition of such excess. $1,243,200 upon net gifts of $4,500,000; and upon net gifts In excess of $4,500,000 and not In excess of $5,000,000, 39% per centum in addi- tion of such excess. $1,441,950 -upon net gifts of $5,000,000; and upon net gifts in excess of $5,000,000 and not in excess of $6,000,000, 42 per centum In addition of such excess. $1,861,960 upon net gifts of $0,'000,000 ; and upon net gifts in excess of $6,000,000 and not in excess of $7,000,000, 44% per centum in addition of such excess. $2,304,450 upon net gifts of $7,000,000; and upon net gifts in excess of $7,000,000 and not in excess of $8,000,000, 45% per centum in addition of such excess. 15 $2,761,950 upon net gifts of $8,000,000; and upon net gifts In excess of $8,000,000 and not In excess of $9,000,000, 47% per centum In addition of such excess. $3,234,450 upon net gifts of $9,000,000; and upon net gifts- in excess of $9,000,000 and not in excess of $10,000,000, 48% per centum in addition of such excess. $3,721,950 upon net gifts of $10,000,000; and upon net gifts in ex- cess of $10,000,000 and not in excess of $20,000,000, 501^. per centum in addition of such excess. $8,746,950 upon net gifts of $20,000,000; and upon net gifts in ex- cess of $20,000,000 and not in excess of $50,000,000, 51% per centum in addition of such excess. $24,271,950 upon net gifts of $50,000,000; and upon net gifts in ex- cess of $50,000,000, 52% per centum in addition of such excess. SEC. 207. GIFT TAX. [Revenue Act or 1940. ENACTsa) on June 25, 1940 ; Efb^cttive foe Cai-endab, Yeaes 1940 and 1941.] Section 1001 of the Internal Revenue Code is amended by adding at the end thereof the following new subsection : "(d) Defense Tax foe 1940-1945. — Despite the provisions of subsec- tion (a) — "(1) The tax for each of the calendar years 1941 to 1945, both inclusive, shall be an amount equal to the excess of — "(A) 110 per centum of a tax, computed in accordance with the Rate Schedule hereinbefore set forth, on the aggregate sum of the net gifts tor such calendar year and for each of the preced- ing calendar years, over "(B) 110 per centum of a tax, computed in accordance with the said Rate Schedule, on the aggregate sum of the net gifts for each of the preceding calendar years. "(2) The tax for the calendar year 1940 shall be the sum of (A) the tax computed under subsection (a), plus (B) an amount which bears the same ratio to 10 per centum of the tax so computed as the amount of gifts made after the date of the enactment of the Revenue Act of 1940 bears to the total amount of gifts made during the year. For the purposes of this paragraph, the term 'gifts' does not include 'gifts which, under section 1003(b)(2), are not to ,be included in computing the total amount of gifts made during the calendar year 1940, or gifts which, in the case of a citizen or resi- dent, are allowed as a deduction by section 1004(a)(2), or gifts which, in the case of a nonresident not a citizen of the United States, are allowed as a deduction by section 1004(b)." SEC. 402. GIFT TAX RATES. [Revenue Act of 1941.] (a) Rates. — The Rate Schedule of section 1001 of the Internal Revenue Code is amended to read as, follows : * ****** (b) Years to Which Amendments Appiicable. — ^The amendments made by this section shall be applied in computing the tax for the calendar year 1942 and each calendar year thereafter (but not the tax for the calendar year 1941 or a previous calendar year), and such amendments shall be applied in all computations in respect of the calendar year 1941 and previous calendar years for the purpose of 16 computing the tax for the calendar year 1942 and any calendar year thereafter. (c) Defense Tax Repealed. — Section 1001(d) of the Internal Revenue Code (relating to defense tax for five years on gifts) is repealed. Sec. 86.5 Tax Eate Schedumis. — The rate schedule of section 1001 of the Internal Revenue Code as enacted on February 10, 1939, is applicable in computing the tax under the provisions of subsection (a) of that section for the calendar years 1940 and 1941. The de- fense tax imposed by subsection (d) of section 1001 (as added by section 207 of the Revenue Act of 1940) is applicable to the calendar years 1940 and 1941. For such years the tax is the sum of the amount computed in accordance with the rate schedule plus 10 percent thereof (or plus a proportion of such 10 percent for the calendar year 1940 as explained in section 86.7), and only such 10 percent or proportion thereof is referred to as the defense tax. The Revenue Act of 1941 (section 402) increased the rates and repealed the defense tax, effec- tive for the calendar year 1942 and each calendar year thereafter, and the rate schedule of section 1001 as amended by such Act is applicable in computing the tax for the calendar year 1942 and each calendar year thereafter. Sec. 86.6 Use of Table for Computing Gift Tax. — On the fol- lowing page is a tabulation 'of the rate schedules (1) applicable to the calendar year 1942 and each calendar year thereafter and (2) applicable to the calendar years 1940 and 1941. Care should be exer- cised ill selecting the appropriate rate schedule (column 1 or 2). Only column 1 should be used in the computation of the tax for the year 1942 or any year thereafter. Only column 2 should be used in the computation of the tax for the years 1940 and 1941. In using the table, select the amount set out in column A which is equal to, or which is the largest amount shown therein that is less than, the amount of the net gifts upon which tax is to be computed as provided in section 86.7. The tax upon the amount so selected is indicated on the same line in the first subcolumn of column 1 or 2. The tax upon any part of the amount of the net gifts in excess of the amount so selected is computed by multiplying the amount of such excess by the percentage indicated on the game line in the second sub- column of column 1 or 2. If the amount of the net gifts is less than $5,000, the tax is computed at the. rate indicated on the first line in the second subcolumn of the appropriate column. An illustration of the use of the table follows. The tax according to the rate schedule in column ,1 upon net gifts of $62,500 is computed as follows : Tax on $60,000 (from first subcolumn of column 1) $7,125 Tax on $2,500 at 21 percent (from second subcolumn of column 1) 525 Tax on net gifts of $62,500 7, 650 17 For examples showing computation of tax for the calendar years 1940, 1941, and 1943, including the defense tax for the years 1940 and 1941, see section 86.7. Table fok Comptjtinq Gift Tax ■ (A) (B) (1) (2) In eflfect for calendar rear 1942 and In effect for calendar years Amount of net gifts not exceed- for each calendar year thereafter 1940 and 1941 Amount of net gifts equaling— ~ Bate of tax ing-^ Eateoftax on excess Tax on amount In on excess Tax on amount over L f column (A) over amount in column (A) in column (A) amount in column (A) Percent - Percejd $5, 000 2/4 1% 85,'oo6" 10, 000 iili'lo' $75" 10, 000 20, 000 375. 00 8p4 150 3 20, 000 30, 000 1, 200. 00 101^ 450 4% 30, 000 40, 000 50,^000 2i 250. 00 13%. 900 6 40, 000 3, 600. 00 16>^ 1, 500- 7% 50, 000 60, 000 5, 250. 00 18% 2,250 9 60, 000 70, 000 7, 125. 00 21 ^ 3,150 9 70, 000 100, 000 9, 225. 00 21 4,050 10% 100, 000 200, 000 15, 525. 00 22% 7,200 12% 200, 000 250, 000 38, 025. 00 22^ 19, 950 15 250, 000 400, 000 49, 275. 00 24 27, 450 15 400, 000 500, 000 85, 275. 00 24 49, 950 17% 500, 000 600, 000 109, 275. 00 26K 67, 200 17% 600, 000 750, 000 135, 525. 00 26K 84, 450 19% 750, 000 800, 000 174, 900. 00 27% 113,700 19% 800, 000 1, 000, 000 188, 775. 00 21% 123, 450 21% 1, 000, 000 1, 250, 000 244, 275. 00 29K ■ 166, 950 24 1, 250, 000 1, 500, 000 317, 400. 00 Z\% 226, 950 24 1, 500, 000 2, 000, 000 396, 150. 00 Z3% 286, 950 26% 2, 000, 000 2, 500, 000 564, 900. 00 36% 418, 200 28% 2, 500, 000 3, 000, 000 748, 650. 00 39% 560, 700 30% 3, 000, 000 3, 500, 000 947, 400. 00 42 714, 450 33 3, 500, 000 4, 000, 000 1, 157, 400. 00 44% 879, 450 35% 4, 000, 000 4, 500, 000 1, 378, 650. 00 47% 1, 055, 700 37% 4, 500, 000 5, 000, 000 1, 614, 900. 00 47% 1, 243, 200 39% 5, 000, 000 6, 000, 000 1, 851, 150. 00 50% 1, 441, 950 42 6, 000, 000 7, 000, 000 2, 353, 650. 00 52% 1, 861, 950 44% 7, 000, 000 8, 000, 000 2, 878, 650. 00 54% 2, 304, 450 45% 8, 000, 000 9, 000, 000 3, 426, 150. 00 57 2, 761, 950 47% 9, 000, 000 10, 000, 000 3, 996, 150. 00 57 3, 234, 450 48% 10, 000, 000 20, 000, 000 4, 566, 150. 00 57% 3, 721, 950 50% 20, 000, 000 50, 000, 000 10, 341, 150. 00 57% 8, 746, 950 51% 50; 000, 000 27, 666, 150. 00 57% 24, 271, 950 52% Sec. 86.7 Computation of Tax. — The first step in the determination of the tax is to ascertain the amount of the net gifts for the calendar year for which the return is being prepared. (For meaning of "net gifts," see section 86.9.) The second step is to ascertain the aggregate sum of -the net gifts for each of the preceding calendar years, consider- ing only gifts made after June 6, 1932. By the words "aggregate sum t)f the net gifts for each of the preceding calendar years" (aside from the amount of the specific exemption deductible) is meant the true and correct aggregate of such net gifts, not necessarily that returned • 18 for such years and in respect to which tax was paid. In determining the aggregate sum of the net gifts for each of the preceding calendar years, the total amount of the specific exemption claimed and allowed for such preceding years should be deducted, except that if tax is being computed for the calendar year 1943 or for any calendar year there- after such deduction cannot exceed $30,000, or if the tax is being computed for the calendar year 1940, 1941, or 1942 such deduction cannot exceed $40,000. (See section 86.12.) The third step is to add to the amount of net gifts for the calendar year for which the return is being prepared the aggregate sum of the net gifts for each of the preceding calendar years. The fourth step is to compute the tax upon the total amount of net gifts (as ascertained by the third step) by use of the rate schedule in force for the cailendar year for which the return is being prepared. (See sections 86.5 and 86.6.) The fifth step is to compute a tax in accordance with the same rate schedule upon the aggregate sum of net gifts for each of the preceding calendar years only. The sixth step is to subtract from the amount of tax as computed in the fourth step the amount of tax as computed in the fifth step. The amount remaining after such subtraction is the tax for the calendar year for which the return is being prepared, except in the case of a return for the calendar year 1940 or 1941. If the return is being prepared for the calendar year 1940 or 1941, the defense tax, imposed by subsection (d) of section 1001 of the inter- nal Revenue Code, as added by section 207 of the Eevenue Act of 1940, must be computed. The defense tax was repealed by section 402 of the Revenue Act of 1941 and is not applicable to gifts made during the calendar year 1942 or any calendar year thereafter but remains in effect for the calendar years 1940 and 1941. If the return is being prepared for the calendar year 1941, the defense tax is ascertained by computing 10 percent of the tax deterniined in the manner set forth in the first paragraph of this section. For such calendar year the total amount of tax payable is the amount determined in the manner explained in that paragraph plus the defense tax of 10 percent thereof. In. case of a return for the calendar year 1940, the amount of the defense tax to be added is that proportion of 10 percent of the tax computed in the manner indicated in the first paragraph of this section which the total amount of the gifts made after June 25, 1940 (deter- mined after the allowance of any applicable exclusions authorized by section 1003(b) (2) of the Internal Revenue Code, or deductions for charitable, etc., gifts authorized by sections 1004(a)(2) and 1004(b) of the Internal Revenue Code, but without the allowance of the spe- cific exemption or any portion thereof) bears to the total amount of gifts made during the calendar year determined in the same manner. In computing this ratio, the exclusion authorized by section 1003 (b) (2) 19 with respect to gifts made to the same person both on or before and after June 25, 1940, is applied against the first such gifts made during the calendar year. • In case no reportable gifts were made during the preceding calendar years, considering only gifts made after June 6, 1932, the tax for' the calendar year for which the return is being prepared is the tax com- puted in accordance with the rate schedule in force for such year upon the amount of the net gifts for such calendar year, pluS the amount of the defense tax,, if applicable. Example {!) (shoy?ihg computation of tax for calendar year 1943). A donor makes gifts (other than gifts of future interests in property) .during the calendar year 1943 of $30,000 to, A and $33,000 to B. After excluding $6,000 for the twoj donees in accord- ance with section 1003(b) (3), the total amount of gifts made during that year is $57,000. The specific exemption was preyiously exhausted and the amount of the net gifts for 1943 is $57,000. The total amount of gifts made by the donor during the preceding years, after excluding $5,000 for each donee for each calendar year in accordance with section 1003(b) (1), is computed as follows: Calendar year 1934 $120, 000 Calendar year 1935 25, 000 Total amount of gifts for preceding calendar years_:;_ : 145, OOO The aggregate sum of the net gifts for the preceding calendar years, $115,000, is determined by deducting a specific exemption of $30,000 from $145,000. The deduction for such specific exemption cannot ex- ceed $30,000, even though $5'0,000 was allowed as the' specific exemp- tion in the computation of the tax applicable to the preceding years 1934 and 1935. See section 86.12. The computation of the tax for the calendar year 1943 is shown below : 1. Amount of net gifts for year , $57, 000 2. Total amount of net gifts for preceding years 115,000 8. Total net gifts 172,000 4. Tax computed on Item 3 (in accordance with rate schedule) i 81, 725 5. Tax computed on item 2 (in accordance with rate schedule) 18,900 6. Tax for year 1943 (item 4 minus item 5) : 12,825 Example (2). (showing computation of defense tax for calendar year 1941). During the calendar year 1941 a resident donor makes the following gifts : To daughter —^ . $44, 000 To son ; 14, 000 To a charitable organization : : 10, 000 20 The amount of his net gifts for preceding calendar years, subsequent to June 6, 1932, is $50,000. Only $25,000 of his specific exemption was claimed for such preceding years. Th'e remaining $15,000 of his specific exemption is claimed for the calendar year 1941. The amount of the net gifts for the calendar year 1941 is determined as follows : Total gifts ^ $68, 000. 00 Less exclusions under section 1003(b)(2) of the Internal Revenue Code _" 12, 000. 00 Total included amount of gifts for year 56, 000. 00 Total deductions for charitable gifts ($10,000 less exclusion of $4,000) ^ $6, 000 Specific exemption claimed 15, 000 Total deductions 21, 000. 00 Amount of net gifts for year 35, 000. 00 The total amount of the tax payable for the calendar year 1941 is computed as follows: 1. Amount of net gifts for year $35, 000. 00 2. Total amount of net gifts for preceding years 50, 000. 00 3. Total net gifts 85, 000. 00 4. Tax computed on item 3 (in accordance with rate schedule) 5, 625. 00 5. Tax computed on item 2 (in accordance with rate schedule) 2,250.00 6. Tax on net gifts for year without addition of defense tax (item 4 minus item 5) 3,375.00 7. Defense tax (10 percent of item 6) 337.50 8. Total tax payable for year (item 6 plus item 7) 3, 712. 50 Example (3) (showing computation of defense tax for calendar year 1940) . The facts are the same as in the preceding example ex- cept that the remaining $15,000 of the donor's specific exemption is claimed for the calendar year 1940 and the gifts to the daughter, son, and charitable organization were made during the calendar year 1940, as follows : To daughter before June 26, 1940 $44, 000 To son after June 25, 1940 14, 000 To charitable organization after June 25, 1940 10, 000 The determination of the amount of the net gifts and the computation of the tax, without the addition of the defense tax, is the same as in the preceding example. 21 The computation of the defense tax and the total amount of the tax payable for the calendar year 1940 is shown as follows : Total included amount of gifts for year, less amount deducted for charitable gift ($56,000 minus $6,000) __. $50,000.00 Total included amount of gifts made after June 25, 1940, less amount deducted for charitable gift made after June 25, 1940 ($16,000 minus $6,000) 10, 000. 00 10 percent of $3,375, the amount of the tax without the addition of the defense tax 337. 50 / 10,000 . Defense tax for 1940 (, goOOO^^^^''^'^*^' " ^'^- ^ Total amount of tax payable for calendar year 1940 ($3,375 plus $67.50) 3, 442. 50 SEC. 1002. TRANSFER FOR LESS THAN ADEQUATE AND FULL CONSIDERATION. Where property is transferred for less than an adequate and full con- sideration in money or money's worth, then the amount by which i the value of the property Exceeded the value of the consideration shall, for the purpose of the tax imposed by this chapter, be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year. Sec. 86.8 Traktskers for a Considebation' in Monet or Monet's Worth. — Transfers reached by the statute are not confined to those only which, being without a valuable consideration, accord with the common law concept of gifts, but embrace as well sales, exchanges, and other dispositions of property for a consideration in money or money's worth to the extent that the value of the property transferred by the donor exceeds the value of the consideration given therefor. However, a sale, exchange, or other transfer of property made in the ordinary course of business (a transaction which is bona fide, at arm's length, and free from any donative intent) , will be considered as made for an adequate and full consideration in money or money's worth. A con-, sideration not reducible to a money value, as love and affection, promise of marriage, etc., is to be wholly disregarded, and the entire value of the property transferred constitutes the amount of the gift. SEC. 1003. NET GIFTS. [As Oeiginaixt Enacted.] (a) General Definition. — ^The term "net gifts" means the total amount of gifts made during the calendar year, less the deductions provided in section 1004. (b) Exclusions fbom gifts. (1) Gifts pbior to 1939. — In the case of gifts (other than of future interests in property) made to any person by the donor during the calendar year 1938 and previous calendar years, the first $5,000 of such gifts to such person shall not, for the purposes of subsection (a) , be included In the total amount of gifts made during such year. 22 (2) Gifts aiteb 1938. — In the case of gifts (other than gifts in trust or of future interests in property) made to any person hy the donor during the calendar year 1939 and subsequent calendar years, the first $4,000 of such gifts to such persons shall not, for the purposes of subsection (a), be included in the total amount of gifts made during such year. SBC. 454. EXCLUSION FROM NET GIFTS REDUCED. [Reventjh Act of 1942, Title IV, Pakt II. Epb^ctive fob Caiendae Yeab 1943 AND Each Calendab Yeab Thebbafthr,] Section 1003(b) (2) (relating to exclusion of gifts) is amended to read as follows : "(2) Gifts aptee io38 and pkiok to 1943. — In the case of gifts (other than gifts in trust or of future interests in property) made to any person by the donor during the calendar year 1939 and subse- quent calendar years prior to 1943, the first $4,000 of such gifts to such person shall not, for the purposes of subsection (a), be included in the total amount of gifts made during such year. "(3) Gifts after ib42. — In the case of gifts (other than gifts of future interests in property) made to any person by the donor during the calendar year 1943 and subsequent calendar years, the first $3,000 of such gifts to such person shall not, for the purposes of subsection (a), be included in the total amount of gifts made during such year." SEC. 451. GIFTS TO WHICH AMENDMENTS APPLICABLE. [Rev- enue Act or 1942, Title IV, Part II. T Except as otherwise expressly provided, the amendments made by this Part shall be applicable only with respect to gifts made in the calendar year 1943, and succeeding calendar years. Sec. 86.9 Net Gifts. — ^The tax is computed upon the amount of the donor's net gifts (see sections 86.5, 86.6, and 86.7). The term "net gifts" mep,ns the "total amount of gifts" computed as provided in section 1003 (see section 86.10), less the deductions provided in section 1004. (See sections 86.12 and 86.13.) Sec. 86.10 Total Amount of Gifts. — Except with respect to any gift of a future interest in property, the first $3,000 of gifts made to any one donee during the calendar year 1943 or during any calendar year thereafter shall be excluded in determining the total amount of gifts for such calendar year. In the case of a gift in trust, the bene- ficiary of the trust is the donee of the gift. Except with respect to any gift in trust or of a future interest in property, the first $4,000 of gifts made to any one donee during any one of the calendar years 1939 to 1942, inclusive, shall be excluded in deterniining the total amount of gifts for any such calendar year. Except with respect to any gift of a future interest in property, the first $5,000 of gifts made to any one donee during the calendar year 1938 or during any calendar year prior thereto shall be excluded in determining the total amount of 23, gifts for such calendar year. The entire value of any gift of a future interest in property; and the entire value of any gift made by a transfer in trust during the calendar years 1939 to 1942, inclusive, must be included in the total amount of gifts for the calendar year in which such a gift is made,, Seo. 86.11 Future Interests in Peopertt. — No part of the value of a gift of a future interest may be excluded in determining the total amount of gifts made during the calendar year. "Future interests" is a legal term, and includes reversions, remainders, and other interests or estates, whether vested or contingent, and whether or not supported by a particular interest or estate, which are limited to commence in use, possession, or enjoyment at some future date or time. The term has no reference to such contractual rights as exist in a bond, note (though bearing no interest until maturity), or in a policy of life insurance, the obligations of which are to be discharged by payment in the future. But a future interest or interests in such contractual obligations may be created by the limitations contained in a trust or other instrument of transfer employed in effecting a gift. For the valuation of future interests, see section 86.19 (p'). SEC; 1004. DEDUCTIONS. In computing net gifts for the calendar year 1939 and preceding cal- endar years, there shall be allowed (except as otherwise provided in paragraph (1) of subsection (a) ) such deductions as are provided for under the gift tax laws applicable to the years in which the gifts were made. In computing net gifts for the calendar year 1940 and subsequent calendar years, there shall be allowed as deductions: (a) EEsroENTS.— In the case of a citizen or resident — (1) Specific exemption. — ^An exemption of $40,000,, less the aggregate of the amounts claimed and allowed as specific exemp- tion in the computation of gift taxes for the calendar year 1932 and all calendar years intervening between that calendar year and- the calendar year for which the tax is being computed under the laws applicable to such years. This exemption shall be applied In all computations In respect of the calendar year 1939 and previous calendar years. for the purpose of computing the tax for the calendar year 1940 or any calendar year thereafter. (2) Chakitable, etc., gifts. — ^The amount of all gifts made during such year to or for the use of — (A) the United States, any State, Territory, or any politi- cal subdivision thereof, or the District of Columbia, for exclu- , siyely public purposes ; (B)' a corporation, or trust, or community chest, fund, or foundation, organized and operated exclusively for religious, chdritable, scientific, literary, or educational purposes, includ- ing the encouragement of art and the prevention of cruelty to children or animals; no part of the net earnings of which iaures to the benefit of any private shareholder or individual, 24 and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation ; (C) a fraternal society, order, or association, operating imder the lodge system, but only if such gifts are to be used exclusively for religious, charitable, scientific, literary, or edu- cational purposes, including the encouragement of art and the prevention of cruelty to children or animals ; (D) posts or organizations of war veterans, or auxiliary units or societies of any such posts or organizations, if such posts, organizations, units, or societies are organized in the TJnited States or any of its possessions, and if no part of their net earnings inures to the benefit of any private shareholder or individual ; (E) the special fund for vocational rehabilitation author- ized by section 12 of the World War Veterans' Act, 1924, 43 Stat. 611 (TT. S. C, title 38 § 440). (b) Nonresidents. — In the case of a nonresident not a citizen of the United States, the amount of all gifts made during such year to or for the use of — (1) the United States, any State, Territory, or any political sub- division thereof, or the District of Columbia, for exclusively public purposes ; (2) a domestic corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art and the prevention of cruelty to children or animals ; no part of the net earnings of which inures to the benefit of any private shareholder or individual, and no sub- stantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation ; (3) a trust, or community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art and the prevention of cruelty to children or animals, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to Influence legislation ; but only if such gifts are to be used within the United States exclusively for such purposes ; (4) a fraternal society, order, or association, operating under the lodge system, but only if such gifts are to be used within the United States exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art and the prevention of cruelty to children or animals ; (5) posts or organizations of war veterans, or auxiliary units or societies of any such posts or organizations, if such posts, organiza- tions, units, or societies are organized in the United States or any of its possessions, and If no part of their net earnings inures to the benefit of any private shareholder or individual ; (6) the special fund for vocational rehabilitation authorized by section 12 of the World War Veterans' Act, 1924, 43 Stat. 611 • (U. S.C., Title 38, §440). '(c) Extent op Deduotions. — ^The deductions provided in subsection, ■(a) (2) or (b) shall be allowed only to the extent that the gifts therein Specified are included in the amount of gifts against which such deduc- .tions are applied. 25 SEC. 455. SPECIFIC EXEMPTION OF GIFTS REDUCED. [Revenue Act of 1942, Title IV, Part II. Effective fob Camndab Year 1943 AND Each Calendab Yeab Thebeaftee.] ' That part of section 1004 which precedes paragraph (2) of subsection (a) is amended to read as follows: "SEC. 1004. DEDUCTIONS. "In computing net gifts for the calendar year 1942 and preceding calendar years, there shall be allowed (except as otherwise provided in paragraph (1) of subsection (a) ) such deductions as are provided for under the gift tax laws applicable to the years in which the gifts were made. "In computing net gifts for the calendar year 1943 and subsequent calendar years, there shall be allowed as deductions: "(a) Residents. — In the case of a citizen or resident — "(I)^Speciiio exemption. — ^An exemption of $30,000, less the aggre- gate of the amounts claimed and allowed as specific exemption in the computation of gift taxes for the calendar year 1932 and all calendar years intervening between that calendar year and the calendar year for which the tax is being computed under the laws applicable to such years. This exemption shall be applied in all computations in respect of the calendar year 1942 and previous calendar years for the purpose of computing the tax for the calendar year 1943 or any calendar year, thereafter." SEC. 451. GIFTS TO WHICH AMENDMENTS APPLICABLE. [Rev- enue Act of 1942, Title IV, Pab-t II.] Except as otherwise expressly provided, the amendments made by this Part shall be applicable only with respect to gifts made in the calendar year 1943, and succeeding calendar years. Seo. 86.12 SPEcrFic ExEMmoN. — In determining the amount of net gifts for the calendar year there may be deducted, if the donor was a citizen or resident of the United States at the time the gifts were made, a specific exemption of $30,000 ($40,000 if the calendar year is 1940, ,1941, or 1942) , less the sum of the amounts claimed and allowed as an exemption in prior calendar years. The exemption, at the option of the donor, may be taken in its entirety in a single year, or be spread over a period of years in such amounts as he sees fit, but after the limit has been reached no further exemption is allowable. In deter- mining the aggregate sum of the net gifts for the preceding calendar years (see section 86.7), the total amount of the specific exemption claimed and allowed for such preceding years should be deducted, except that if tax is being computed for the calendar year 1943 or for any calendar year thereafter such deduction cannot exceed $30,000, or if the tax is being computed for the calendar year 1940, 1941, or 1942, such deduction cannot exceed $40,000. The specific exemption is authorized only in the case of a citizen or resident of the United 480928° — 43 3 26 States. A donor who was a nonresident not a citizen of the United States at the time of the gift or gifts is not entitled to this exemption. Sec. 86.13 Chaeitabm:, Etc., Gitts.^ — In determining the amount of net gifts of a given calendar year, in the case of a donor who was a citizen or resident of the United States at the time when the gifts were mad[e, there may be deducted the amount of such gifts as were to or for the use of (A) the United States, any State, Territory, or any polit- ical subdivision thereof, or the District of Columbia, for exclusively public purposes ; or (B) any corporation, trust, community chest, fund, or foundation, organized and operated exclusively for religious, chari- table, scientific, literary, or educational purposes, including the en- couragement of art and the prevention of cruelty to children or animals, provided no part of the net earnings of such organization inures to the benefit of any private shareholder or individual, and no substan- tial part of its activities is carrying on propaganda, or otherwise at- tempting, to influence legislation; or (C) a fraternal society, order, or association, operating under the lodge system, provided such gifts are to be used by such fraternal society, order, or association exclusively for one or more of the purposes enumerated in (B) ; or (D) any organization of war veterans or auxiliary unit or society thereof if such organization, auxiliary unit, or society thereof is organized in the United States or any of its possessions, and if no part of its net earnings inures to the benefit of any private shareholder or individual. The special fund for vocational rehabilitation authorized by section 12 of the World War Veterans' Act, 1924, referred to in section 1004, has been discontinued. See notes, 38 U. S. C. 440, 531-539. In case the donor was a nonresident not a citizen of the United States at the time the gifts were niade, the deduction of the amount of chari- table, etc., gifts is governed by the same rules as those applying to similar gifts made by citizens or residents, subject, however, to the two following exceptions : (1) If the gift be made to or for the use of a corporation, such corporation must be one created or organized under the laws of the United States or of any State or Territory thereof ; and (2) if made to or for the use of a trust, 'or community chest, fund, or foundation, or a fraternal society, order, or association, operating under the lodge system, the gift must be for use within the United States exclusively for religious, charitable, scientific, literary, or edu- cational purposes, including the encouragenient of art and the preven- tion of cruelty to children or animals. The deduction is not limited in the case of donors who were citizens or residents to gifts to or for the use of domestic corporations, or for use within the United States when made to a trust, or community chest, fund, or foimdation, or a fraternal society, order, or association, operating under the lodge system. 27 If money or other property is so given that the income is, for the duration of a life or a term of years, to be paid to the donor or other individual, or is to be used for a purpose not described in section 1004 (a) (2) or (b), and the property is then to be devoted exclusively to some one or more of the uses described in section 1004 (a) (2) or (b) , only the present worth of the remainder is deductible. To determine the present worth or value of such remainder (that is, its value as of the date of the gift), the amount of the money or the value of the property transferred should be multiplied by the appropriate factor in column 3 of Table A or B, a part of section 86.19. Sec. 86.14 Eemgiotjs, Charitable, Scientific, Liteeaet, and Entr- CATioNAii Organizations. — The corporation, or trust, or community chest, fund, or foundation to which a gift' is made must meet three tests to entitle the donor to deduct the amount of the gift : (1) It must be organized and operated exclusively for one or more of the purposes specified in the statute; (2) it must not by a substantial part of its activities Carry on propaganda, or otherwise attempt, to influence legis- lation; and (3) no part of its net earnings shall inure to the benefit of private shareholders or individuals. The donor is not deprived of the right to deduct an amount equal to the value of property so transferred by reason of the fact that private individuals are the recipients of the benefits which the organ- ization dispenses. Such right is lost, however, where any part of the net earnings of the organization inures to the benefit of a private shareholder or individual. Sec. 86.15 Proof Required.— In order to prove the right to this deduction, the donor must submit such documents or evidence as may be requested by the Commissioner. Sec. 86.16 Charitable, Etc., Gifts With 'Power To Divert. — ^If a fraternal society, order, or association, operating under the lodge system, is empowered to divert a part of the property or fund trans- ferred by gift to a use or purpose which would have rendered it, to the extent that it is subject to such power, not deductible had it been directly transferred by the donor for such use or purpose, deduction will be limited to that part of the property or fund which is not subject to the exercise of the power. SEC. 1005. -GIFTS MADE IN PROPERTY. If the gift is made in property, the value thereof at the date of the gift shall be considered the amount of the gift. Sec. 86.17 Gifts Made in Propertt. — ^A gift made in property is subject to the tax in the same manner as a gift of cash, and the amount of the gift is the value of the property at the date of the gift. Sec. 86.18 Situs of Property. — The statute imposes a tax upon gifts made by citizens of the United States, residents or nonresidents ' 28 thereof, and upon those made by residents of the United States, whether or not citizens, irrespective of whether the property transferred (real or personal, tangible or intangible) be situated within or without the United States. But gifts by nonresidents of the United States who are not citizens thereof (see section 86.4) are subject to tax only if the property transferred is, at the time of the transfer, situated within the United States. Real estate, tangible personal property, and the written evidence of intangible personal property which is treated as being the property itself are within the United States if physically situated therein. For example, a bond for the payment of money is not within the United States unless physically situated therein. Stock of a domestic cor- poration, however, constitutes property within the United States, irrespective of where the certificates thereof are physically located. (See section 1030(b) and section 86.74.) Intangible personal property the written evidence of which is not treated as being the property itself constitutes property within the United States if consisting "of a prop- erty right issuing from or enforceable against a resident of the United States or a domestic corporation (public or private), irrespective of where such written evidence is physically located. Paragraph (9) of section 3797(a) of the Internal Revenue Code defines the term "United States," when used in a geographical sense, as including only the States, the Territories of Alaska and Hawaii, and the District of Columbia. Sec. 86.19 Valuation or Pkopeett. — (a) General. — The statute provides that if the gift is made in property, the value thereof at the date of the gift shall be considered the amount of the gift. The value of the property is the price at which such property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell. The value of a par- ticular kind of property is not to be determined by a forced sale price. Such value is to be determined by ascertaining as a basis the fair market value at the time of the gift of each unit of the property. For example, in the case of shares of stock or bonds, such unit of property is a share or a bond. All relevant facts and elements of value as of the time of the gift should be considered. (i) Real estate. — ^In returning a gift of real estate, the local assessed value thereof should not be returned as the value of the gift unless such value represents the fair market value of the property as of the date of the gift. (See section 86.24 for manner of listing and describing real estate in returns.) , 2,9 (c) Stocks and hands. — The value at the date of the gift in the case of stocks and bonds, within the meaning of the statute, is the fair market value per share or bond on such date. In the case of stocks' and bonds listed on a stock exchange, the mean between the highest and lowest quoted selling prices on the date of the gift shall be considered as the fair market value per share or bond. If there were no sales on the date of the gift, such value shall be determined by taking the mean between the highest and lowest sales on the nearest date before and the nearest ,date after the date of the gift (both such nearest dates being within a reasonable period), and by prorating the difference between such mean prices to the date of the gift, and by adding or subtracting, as the case may be, such prorated portion of the difference to or from the mean price obtaining on such nearest date before the date of the gift. For example, assume that sales of stock nearest the date of the gift (June 15) occurred two days before (June 13) and three days after (June IS) and that on such days th6 mean sale prices per share were $10 and $15, respectively. The price of $12 shall be taken as repre- senting the fair market value of a share of such stock as of the date of the gift. If, however, on June 13 and June 18 the mean sale prices per share were $15 and $10, respectively, the price of $13 shall be taken as representing the fair market value of a share of such stock as of the date of the gift. If the security was listed on more than one exchange, the records of the exchange where the security is principally dealt in should be employed. In valuing listed stocks and bonds the donor should observe care to consult accurate records to obtain values as of the date of the gift. In the case of stocks and bonds which are not listed upon an ex- change, but are dealt in through brokers, or have a market, the fair market value shall be determined by taking the mean between flie high- est and lowest selling prices as of the date of the gift ; or, if there were no sales on that date, such value shall be determined by taking the mean between the highest and lowest sales on the nearest date before and the nearest date after the date of the gift (both such nearest dates being within a reasonable period), and by prorating the difference between such mean prices to the date of the gift, and by adding or subtracting, as the case may be, such prorated portion of the difference to or from the mean price obtaining on such nearest date before the date of the gift. If quotations are obtained from brokers, or evidence as to the sale\)f securities is obtained from the officers of the issuing companies, the donor should preserve in his files the letters furnishing such quotations or Evidence of sale for inspection when the return is verified by an investigating officer. 30 If actual sales are not available during a reasonable period begin- ning before and ending after the date of the gift, the fair market value may be determined by taking the^mean between the bona fide bid and asked prices on the nearest date before and the nearest date after the date of the gift (both such nearest dates being within a reasonable period) , and by prorating the difference between such mean prices to the date of the gift, and by adding or subtracting, as the case may be, such prorated portion of the difference to or from the mean price obtaining on such nearest date before the date of the gift. If actual sale prices or quoted bona fide bid and asked prices are available on a date within a reasonable period prior to the date of the gift, and if no actual sale prices or bona fide bid and asked prices are available on a date within a reasonable period after the date of the gift, or vice versa, then the mean between such highest and lowest available sale prices or bid and asked prices may be taken as the value. If actual sales or bona fide bid and asked prices are not available, then, in the case of corporate or other bonds, the value is to be arrived at by giving consideration to the soundness of the security, the interest yield, the date of maturity, and other relevant factors, and, in the case of shares of stock, upon the basis of the company's net worth, earning power, dividend-paying capacity, and all other relevant factors having a bearing upon the value of the stock. Complete financial and other data upon which the donor bases his valuation should be submitted with the return. In cases in which it is established that the value per bond or share of any security determined on the basis of selling or bid and asked prices as herein provided does not reflect the fair market value thereof, then some reasonable modification of such basis or other relevant facts and elements of value shall be considered in determining fair market value. (d) Interest in iusiness. — Care should be taken to arrive at an accurate valuation of any business which the donor transfers without an adequate and iull consideration in money or money's worth, whether the interest transferred is that of a partner or of a proprietor. A fair appraisal as of the date of the gift should be made of all the assets of the business, tangible and intangible, including good will, and the business should be given a net value equal to the amount which a willing purchaser, whether an individual or a corporation, would pay therefor to a willing seller in view of the net value of the assets of the business and its demonstrated earning capacity. Special attention should be given to fixing an adequate figure for the value of the good will of the business. 31 The factors hereinbefore stated relative to the valuation of other property, if applica;ble, will be considered in determining the valuation of a proprietary or partnership interest in the business. AH evidence bearing upon such valuation should be submitted with the return, including copies of reports in any case in which examinations of the business have been made by accountants, engineers, or any technical experts as of or near the date of the gift. (e) Notes, secured and unsecmired. — The value of notes, whether secured or unsecured, will be presulned to be the amount of unpaid principal, plus accrued interest to the date of the gift, unless the donor establishes a lower value. Unless returned at face value, plus accrued, interest, it must be shown by satisfactory evidence that the note is worth less than the unpaid amount because of the interest rate, or date of maturity, or other cause, or that the note is uncollectible in part by reason of the insolvency of the party or parties liable, or for other cause, and that the property, if any, pledged or mortgaged as security is insufficient to satisfy it.' (/) Annuities, life estates, remamders and reversions.-^ — (1) An- nuities — General. — For valuation of annuities purchased from life insurance companies or other companies regularly engaged in issuing annuity contracts, see {i) under this section. In case the donor creates a trust under which a specified annuity is payable to the donee, the value of such gift should be determined by using Table A or Table B, whichever is applicable, shown at the end of this section. If the annuity is payable at the end of each annual period, the factor is obtained directly from the table. If the annuity is payable for the life of an individual, the amount payable annually should be multiplied by the figure in column 2 of Table A opposite the number of years ,in Column 1 of such table nearest the age of the individual (as of the date of the gift) whose life measures the duration of the annuity, or if payable for a definite number of years the amount payable annually should be multiplied by the figure in column 2 of Table B opposite the number of years in column 1 of such table. Example {!). The donee is made the beneficiary of an annuity of $10,000 payable at the end of annual periods during his life. The age of the donee at the date of the gift is 40 years and 8 months. By reference to Table A, it is found that the figure in column 2 opposite 41 years, the number nearest to the donee's age, is 14.86102. The value of the gift is, therefore, $148,610.20 ($10,000 multiplied by 14.86102). Ewample {2). The donor was entitled to receive an annuity of $10,000 a year payable at the end of annual periods throughout a term 32 of 20 years; the donor, when 16 years have elapsed, makes a gift thereof to his son. By reference to Table B, it is found that the figure in column 2 opposite 5 years, the unexpired portion of the 20-year period, is 4.45182. The present worth of the annuity is, therefore, $44,518.20 ($10,000 multiplied by 4.45182) . (2) Annuities payable at end of semiannual, quarterly, or monthly periods. — ^If ,the annuity is payable semiannually, quarterly, or monthly, the value should be determined by multiplying the aggre- gate amount to be paid within a year by the figure in column 2 of Table A opposite the number of years in column 1 nearest the actual age of the person whose life measures the annuity, or the figure in column 2 of Table B opposite the number of years the annuity is payable, as the case may be, and then multiplying the product by 1.01820 for monthly payments, by 1.01488 for quarterly payments, or by 1.00990 for semiannual payments. Eooample. If, in example (1) given above under (1) Annuities — . General, the annuity is payable semiannually, the factor, 14.86102, should be multiplied by 1.00990 and the product multiplied by $10,000. The value of the gift is, therefore, $150,081.44 ($10,000 X 14.86102 X 1.00990). (3) Annuities payable at beginning of annual, senuannual, quar- terly, or monthly periods. — (A) Annuity for life. — ^If the first pay- ment of an annuity for the life of an individual is to be paid at once, the value of the annuity is the sum of the first payment plus the present worth of a similar annuity the first payment of which is not to be made until the end of the first period. Example. The donee is made the beneficiary for life of an annuity of $50 a month payable from the income of a trust, subject to the right reserved by the donor to cause the annuity to be paid for his own benefit or for the benefit of another. On the day a payment is due, the donor relinquishes his reserved power. The donee is then 50 years of age. The value of the gift is $50 plus the product of $50X12X12.47032 (see Table A) X 1.01820, or $7,668.37 [$50 plus ($50X12X12.47032X1.01820)]. (B) Arwmdty for term, of years. — ^If the first payment of an annuity for a definite nmnber of years is to be paid at once, the applicable factor is the product of the factor shown in Table B multiplied by 1.02154 for monthly payments, by 1.02488 for quarterly payments, by 1.02990 for semiannual payments, or by 1.04 for annual payments. Exampte. The donee is the beneficiary of an annuity of $50 a month subject to a reserved right in the donor to cause the annuity or the cash value thereof to be paid for his own benefit or for the benefit of another. 33 On the day a payment is due, the donor relinquishes his power. There are 300 payments to be made covering a period of 25 years, including the payment due. The value of the gift is the product of $50 X 12 X 15.62208 (factor for 25 years, Table B) X 1.02154, or $9,575.15 ($50X12X15.62208X1.02154). (4) Actuarial calcidations by Bureau. — If in the case of a completed gift an annuity is to be paid during the life of an individual and in any event for a definite number of years, or for more than one life, or in any other manner rendering inapplicable both Table A and Table B, the case may be stated to 'the Commissioner, who will thereupon furnish the applicable factor. In making such calculations when life interests or remainders upon life interests are involved, use will be made of the Actuaries' or Combined Experience Table of Mortality, as extended (that being the basis of Table A), with interest at 4 percent per annum compounded annually. (5) Life estates, terms for years— Hypothetical annuity. — ^If the gift consists of the donor's right for life or for the life of another person, or for a term of years, either to receive the income of certain property or to use nonincome-producing property, a hypothetical annu- ity at the rate of 4 percent of the value of the property should be made the basis of the calculation. A provision for the payment of income in semiannual, quarterly, or monthly installrhents does not affect the value to be assigned to the life interest. (6) Remainders or reversionary interests. — If the gift is of a remain- der or, reversionary interest subject to an outstanding life estate, the value of the gift will be obtained by multiplying the value of the prop- erty at the date of the gift by the figure in column 3 of Table A opposite the number of years nearest to the age of the life tenant. In case the remainder or reversion is to take effect at the end of a term of years. Table B should be used. Example. The donor transferred by gift property worth $50,000 which he was entitled to receive upon the death of his brother, to whom the income for life had been bequeathed. The brother at the date of the gift was 31 yeats of age. By reference to Table A, it is found that the figure in column 3 opposite 31 years is 0.31262. The value of the gift is, therefore, $15,631 ($50,000X0.31262). {g) Transfers conditioned upon swrvivorship. — If A, without retain- ing a power to revoke the trust or to change the beneficial interests, transfers property in trust whereby B is to receive the income therefrom for life and at his death the trust is to terminate and the corpus is to be returned to A provided A survives but if A predeceases B the corpus is to pass to C, A consummates a gift of such property less the present value of his right to the corpus should he survive the life tenant. The ' 34 value of such gift is to be determined in accordance with the Actuaries' or Combined Experience Table of Mortality, as extended. A case involving the value of the right of survivorship (provided the gift is completed and not merely proposed or hypothetical) may be submitted to the Commissioner, who will furnish the applicable factor, computed in accordance with recognized actuarial principles. (A) Tenancies ty the entirety. — ^If either a husband or his wife purchases property and causes the title thereto to be conveyed to themselves as tenants by the entirety, or if either causes to be created such a tenancy in property already owned by him or her, and under the law of the jurisdiction governing the rights of the spouses with respect to the property neither of them may, acting alone, defeat the right of the survivor of them to the whole of the proJ)erty, the transfer eflFects a gift from the spouse owning the property at the time of the creation of the tenancy or who furnished the consideration in the purchase of the property. The value of the gift is the value (?f such property less the value of the right, if any, of the donor spouse to the income or other enjoyment of the property, or share thereof, during the joint lives of the spouses, and the value of the right of the donor spouse to the whole of the property should he or she be the survivor of them. The value of each of such rights is to be determined in accordance with the Actuaries' or Combined Experience Table of Mortality, as extended. A case of this character (provided the gift is completed and not merely proposed or hypothetical) may be submitted to the Commis- sioner, who will, in accordance with recognized actuarial principles, compute the applicable factor to be used in determining such value, and will advise the donor of the factor. (i) Life insurance amd a/nnuity contracts. — The value of a life in- sura,nce contract or of a contract for the payment of an annuity issued by a company regularly engaged in the selling of contracts of that character is established through the sale of the particular contract by the company, or through the sale by the company of comparable con- tracts. As valuation through sale of comparable contracts is not readily ascertainable when the gift is of a contract which has been in force for some time and on which further premium payments are to be made, the value may be approximated, unless because of the un- usual nature of the contract such approximation is not reasonably close to the full value, by adding to the interpolated terminal reserve at the date of the gift the proportionate part of the gross premium last paid before the date of the gift which covers the period extending beyond that date. 35 The examples given below, so far aS relating to life insurance con- tracts, are of gifts of such contracts on which there are no accrued dividends or outstanding indebtedness. Ewample (1). A donor purchases from a life insurance company for the benefit of another a life insurance contract or a contract for the payment of an annuity ; the value of the gift is the cost of the contract. Exaanple {2) . An annuitant, having purchased from a life insur- ance company a single payment annuity contract by the terms of which he was entitled to receive payments of $1,200 annually for the dura- tion of his life, five years subsequent to such purchase, and when of the age of 60 years, gratuitously assigns the contract. The value of the gift is the amount which the company would charge for an annuity contract providing for the payment of $1,200 annually for the life of a person 50 years of age. Exmmfle (3) . A donor owning a life insurance policy on which no further payments are to be made to the company (e. g., a single premium policy or paid-up policy) makes a gift of the contract. The value of the gift is the amount which the company would charge for a single premium contract of the same specified amount on the life of a person of the age of the insured. Example {Ji) . A gift is made four months after the last premium due date of an ordinary life insurance policy issued nine years and four months prior to the gift thereof by the insured, who was 35 years of age at date of issue. The gross annual premium is $2,811. The computation follows : Terminal reserve at end of tenth year $14, 601. 00 Terminal reserve at end of ninth year 12, 965. 00 Increase : 1, 636. 00 One-third of such increase (the gift having been made four months following the last preceding premium due date), is 545. 33 Terminal reserve at end of ninth year 12, 965. 00 Interpolated terminal reserve at date of gift 13, 510. 33 Two-thirds of gross premium ($2,811) 1,874.00 Value of the gift 15, 384. 33 {]) Other property. — ^Any property not specifically treated in this section should be valued in accordance with the rule laid down under (a) hereof. 36 Table A Table, single life, 4 percent, showing the present worth of an annuity, or a life interest, and of a reversionary interest 1 2 3 1 2 3 Annuity, or Reversion, or Annuity, or Reversion, or present value . present value present value present value of $1 due at of$ldiieat of $1 due at of $1 due at Age the end of each the end of the Age the end of each the end of the year during the year of death of year during the year of death of life of a person a person of speci- life of a person a person of speci- of specified age fied age of specified age fied age Annuity Reversimi Annuity Reversion $14. 72829 $0. 39507 51 $12 17919 $0. 49311 1 17. 30771 . 29586 52 11. 88408 . 50446 2 18. 69578 . 24247 53 11. 58531 . 51595 3 19. 15901 . 22465 54 11. 28325 . 52757 4 19. 41226 . 21491 55 10. 97789 . 53931 5 19. 55301 . 20950 56 10. .66982 .55116 6 19. 61731 . 20703 57 10. 35931 . 56310 7 19. 62502 . 20673 58 10. 04630 . 57514 8 19. 61097 . 20727 59 9. 73131 . 68726 9 19. 53413 . 21022 60 9. 41474 . 59943 10 19. 45359 . 21332 61 9. 09765 . 61163 n 19. 36943 . 21656 62 8. 78052 . 62383 12 19. 28184 . 21993 63 8. 46412 . 63600 13 19. 19065 . 22344 64 8. 14888 . 64812 14 19. 09590 . 22708 65 7. 83552 . 66017 15 18. 99764 . 23086 66 7. 52476 . 67212 16 18. 89569 . 23478 67 7. 21699 . 68397 17 18. 79010 . 23884 68 6. 91298 . 69665 18 18. 68070 . 24305 69 6. 61301 . 70719 19 18. 56751 . 24740 70 6. 31716 . 71857 20 18. 45038 . 25191 71 6. 02612 . 72976 21 18. 32932 . 25656 72 5. 74003 . 74077 22 18. 20416 . 26138 73 5. 45928 . 76167 23 18. 07471 . 26636 74 5. 18402 . 76216 24 17. 94097 . 27150 75 4. 91463 . 77251 25 17. 80274 . 27682 76 4. 65125 . 78264 26 17. 65984 . 28231 77 4. 39383 . 79254 27 17. 51224 . 28799 78 4. 14286 . 80220 28 17. 35968 . 29386 79 3. 89858 .81169 29 17. 20225 . 29991 80 3. 66071 . 82074 30 17. 03961 . 30617 81 ^. 42900 . 82965 31 16. 87176 . 31262 82 3. 20258 . 83836 32 16. 69846 . 31929 83 2. 98024 . 84691 33 16. 51964 . 32617 84 2. 76106 . 85534 34 16. 33503 . 33327 85 2. 54366 . 86371 35 16. 14437 . 34060 86 2. 32795 . 87200 36 15. 94755 . 34817 87 2. 11384 . 88024 37 15. 74427 . 35599 88 1. 90115 . 88842 38 15. 53421 ■ .36407 89 1. 69107 . 89650 39 15. 31722 . 37241 90 1. 48540 . 90441 40 15. 09295 .38104 91 1. 28432 . 91214 41 14. 86102 . 38996 92 1. 09024 . 91961 42 14. 62122 . 39918 93 . 90647 . 92667 43 14. 37356 . 40871 94 . 73687 . 93320 44 14. 11860 . 41852 95 . 68435 . 93906 45 13. 85713 .^42857 96 . 46182 . 94378 46 13. 58958 . 43886 97 . 36698 . 94742 47 13. 31698 . 44935 98 . 24038 . 95229 48 13. 03942 . 46002 99 . 00000 . 96154 49 12 7i716 12. 47032 . 47088 50 . 48191 37 Table B Table showi'ng the present worth at 4 percent of an annuity for a term certain, and ■:,/ of a reversionary interest postponed for a term certain 1 2 Present worth of 3 1 2 Present worth of 3 Num- ber of an annuity of $1, Present worth of Num- ber of an annuity of $1, Present worth of payable at the $1, payable at the payable at the $1, payable at the end of each year, end of a certain end of each year, end of a certain years for a certain number of years years for a certain number of years number of years , number of years Annuity ReveTBion Annuitv Reversion 1 $0. 96154 $0. 961538 16 $11. 65229 $0. 533908 2 1. 88609 . 924556 17 12. 16567 . 513373 3 2. 77509 . 888996 18 12. 65929 . 493628 4 3. 62989 . 854804 19 - 13. 13394 474642 ■ 5 4. 45182 . 821927 20 13. 59032 . 456387 6 5. 24214 . 790314 21 14. 02916 . 438834 7 6. 00205 . 759918 22 14. 45111 . 421955 8 6. 73274 . 730690 23 .14. 85684 . 405726 9 7. 43533 , 702587 24 15. 24696 . 390121 10 8. 11089 . 675564 25 15. 62208 .375117 11 8. 76047 . 649581 26 15. 98277 . 360689 12 9. 38507 . 624597 27 16. 32958 . 346816 13 9. 98565 . 600574 28 16. 66306- . 333477 14 10. 56312 . 577475 29 16. 98371 . 320651 15 11. 11839 . 555265 30 17. 29203 . 308319 , SBC. 1006. KETUENS. (a) Requieement. — ^Any individual who within the calendar year 1940 or any calendar year thereafter makes any transfers by gift (except those which under section 1003 are not to be included in the total amount of gifts for such year) shall make a return under oath in duplicate. The return shall set forth (1) each gift made during the calendar year which under section 1003 is to be included in computing net gifts ; (2) the de- ductions claimed and allowable under section 1004 ; (3) the net gifts for each of the preceding calendar years; and (4) such further Information as may be required by regulations made pursuant to law. (b) Time and Place for Piling. — The return shall be filed on or before the 15th day of March following the close of the calendar year with the collector for the district in which is located the legal residence of the donor, or if he has no legal residence in the United States, then (unless the Commissioner designates another district) with the collector at Balti- more, Maryland. Sec. 86.20 Persons Eequieed to File Eettirn. — ^Any individual citizen or resident of the United States who within the calendar year 1943, or within any calendar year thereafter, makes a transfer or trans- fers by gift to any one donee of a value or total value in excess of $3,000 (or regardless of value in the case of a gift of a future interest in property) must file a gift tax return for such year on Form 709. Any individual citizen or resident of the United States who within the calendar year 1940, 1941, or 1942 makes a transfer or transfers by gift to any one donee of a value or total value in excess of $4,000 (or regardless of value in the case of a gift in trust or of a future interest 38 in property) must file a gift tax return for such year on Form 709. A nonresident not a citizen of the United States who made such a gift must also file a return on Form 709 if the subject of the gift consisted of property situated in the United States. The return is required even though because of authorized deductions (the specific exemption, in the case of a citizen or resident, and charitable, public, and similar gifts) no tax may be payable. Individuals only are required to file returns as donors, and not trusts, estates, partnerships, or corporations. If the donor dies before filing his return, the executor of his will or the administrator of his estate shall file the return. If the donor becomes legally incompetent before filing his return, his guardian or committee shall file the return. The return shall not be made by an agent unless by reason of illness, absence, or nonresidence, the person liable for the return is unable to make it within the time prescribed. Mere convenience is not suffi- cient reason for. authorizing an agent to make the return. If by reason of illness, absence, or nonresidence, a return is made by an agent, such return must be ratified by the donor or other person liable for its filing within a reasonable time after such person becomes able to do so; otherwise the return filed by the agent will not be considered the return required by the statute. Supplemental data may be submitted at the time of ratification. The ratification must be in the form of an affidavit, filed with the Commissioner, and must specifically state that the return made by the agent has been carefully examined and that the affiant ratifies such return as his own. If a return is signed by an agent, a statement fully explaining the inability of the donor must accompany the return. Sec. 86.21 Donees and Tkustees Requieed to FiixE Notice op Gifts. — ^An information return or notice on Form 710 must be filed by every donee or trustee (except in the case of an organization receiv- ing a gift for a public, charitable, etc., purpose as hereinafter ex- plained) to whom is transferred in any one calendar year property by gift for which, as set forth in section 86.20, the donor is required to file a gift tax return. An organization which has been held by the Commissioner to come within the purview of section 1004(a) (2) of the Internal Revenue Code or the corresponding' provision of the Reve- nue Act of 1932 need not file such information return if the gift was made by a citizen or resident of the United States. An organization which has been held by the Commissioner to come within the purview of section 1004(b) of the Internal Revenue Code or the corresponding provision of the Revenue Act of 1932 need not file such information return if the gift was made by a nonresident not a citizen pf the United States. Copies of this form may be obtained from any United States collector of internal revenue upon application. When a gift is made in trust notice thereof should be filed by either the beneficiary of the trust 39 or the trustee, but in such case one notice only is required. If the donor retains a power over transferred property, the notice (which is for information purposes only) should be filed even though it is considered that the retention of the power renders the transfer' wholly incomplete as a gift within the meaning of the statute. The notice shall be filed in duplicate with the collector for the district in which the donor resides, or with the Commissioner of Internal Revenue at Washington, D. C, on or before the 15th day of March following the close of the calendar year, in which the transfer was made. The notice shall dis- close the following information: (1) Name and address of donor, (2) date of transfer, (3) a general description of the property trans- ferred, and (4) the approximate value thereof at the date pf the transfer. If the donee dies or becomes legally incompetent, his execu- tor, administrator, guardian, or committee, as the case may be, shall file such notice as would be required of the donee. Sec. 86.22 Time and Place or Filing Return. — Gift tax returns must be filed in duplicate on or before the 15th day of March following the close of the calendar year in which gifts were made. The return shall be filed with the collector of internal revenue for the, district in which is located the legal residence of the donor, or, if he has no legal residence in the United States, then, unless the Commissioner other- wise designates, with the collector of internal revenue at Baltimore, Md. When the due date for the filing of the return falls on a Sunday or a legal holiday, the due date will be the day next following which is not a Sunday or a legal holiday. If placed in the mails, the return should be posted in ample time to reach the collector's office, under ordinary handling of the mails, on or before the date- on which the return is required to be filed. If a return is made and so placed in the mails, properly addressed, and postage paid, in ample time to reach the office of the collector on or before the due date, no penalty will attach should the return not be actually received by such officer until sub- sequent to that date. As to additions to the tax in the case of failure to~file a return within the period prescribed, see section 3612 (d) ( 1) and section 86.50. Sectioni 3634 provides : If the failure to file a return (other than a return of incoine tax) or list at the time prescribed by law or by regulation made under authority of law is due to sickness or absence, the collector may allow such further time, not exceeding thirty days, for making or filing the return or list as he deems proper. No such extension of time may be granted unless the application therefor is received by the collector prior to the expiration of the period for which the extension is requested and authorized. An exten- sion of time for filing the return does not in itself operate to extend the time for the payment of the tax. 40 Seo. 86.23 Form of Retden.— The return must be made on Form 709, copies of which -will be supplied by the collector upon application. The return must be filed in duplicate and under oath. If the return is filed for the calendar year 1943, or for any calendar year thereafter, it must set forth every transfer by gift to any one donee during such calendar year, as to which the donor is required to make a return under section 86.20, which singly or in the aggregate exceeds $3,000 in value (or regardless of value in the case of a gift of a future interest in property) . A return filed for the calendar year 1940, 1941, or 1942 must set forth every transfer by gift to any one donee during such calendar year, as to which a return is required under section 86.20, which singly or in the aggregate exceeds $4,000 in value (or regardless of value in the case of a gift in trust or of a future interest in property). The return shall also set forth the fair market value of all such gifts not made in money, including gifts resulting from sales and exchanges of property made for less than an adequate and full consideration in money or money's worth (see section 86.8), giving the fair market value of the property sold or exchanged and that of the consideration received by the donor, both as of the date of sale or exchange. The return shall also contain information with respect to transfers which the donor considers incomplete gifts because of his retained power over such transferred property (see section 86.3). The deductions claimed must also be fully set forth. The instructions printed on the " form of return should be carefully followed. All documents arid vouchers used in preparing the return should be retained by the donor so as to be available for inspection by representatives of the Bureau whenever required. Certified or verified copies of all documents required by the instructions printed on the form, or any documents which the donor may desire to submit, should be filed with the return. In addition to the list of gifts made during the calendar year for which the return is filed, the return shall set forth for each of the pre- ceding calendar years both the amount of gifts (other than charitable, public, and similar gifts) and the amount of specific exemption claimed and allowed. The tax, if any,, for the calendar year for which the return is filed shall be computed and entered on the return, as provided by the form. (See section 86.7.) Seo. 86.24 Descecption- of Pbofertt Listed our Eetuen. — ^In list- ing upon the return the property comprising the gifts made during the calendar year, the description thereof should be such that the property may be readily identified. Thus, there should be given for each parcel of real. estate a legal description, its area, a short state- ment of the character of any improvements, and if located in a city the name of street and number. Description of bonds should in- clude the number transferred, principal amount, name of obligor, 41 date of maturity, rate of interest, date or dates on which interest is payable, series number where there is more than one issue, the ex- change upon which listed, or the" principal business office of the cor- poration, if unlisted. Description of stocks should include number of shares, whether common or preferried, and, if preferred, what issue thereof, par value, quotation at which returned, exact name of cor- poration, and, if the stock is unlisted, the location of the principal business office and State in which incorporated and the date of in- corporation. If a listed security, state principal exchange uppn which sold. Description of notes should include name of maker, date on which given, date of maturity, amount of principal, amount of principal unpaid, rate of interest and whether simple or compound, and date to which interest has been paid. If the gift of property includes accrued income thereon to the date of the gift, the amount of such accrued income should be separately set forth. Description of land contracts transferred should include name of vendee, date of contract, description of property, sale price, initial payment, amounts of installment payments, unpaid balance of principal, interest rate, and date prior to gift to which interest has been paid. Description of life insurance policies should show the name of the* insurer and the number of the policy. A supplemental statement. Form 938, must be filed for every life insurance policy. (See section 86.26.) In describing an annuity, the name and address of the issuing com- pany should be given, or if payable out of a trust or other fund such a description as will fully identify such trust or fund. If the annuity is payable for a term of years, the duration of the term and the date on which it began should be given, and if payable for the life of any person, the date of birth of such person should be stated. Judg- ments should be described by giving the title of the cause and the name of the court in which rendered, date of judgment, name and address of judgment debtor, amount of judgment, rate of interest to which subject, whether any payments have been made thereon, and, if so, when and in what amounts. SEC. lOOr. EECORDS AND SPECIAL RETURNS. (a) By Donor. — ^Every person liable to any tax imposefl by this chapter or for the collection thereof, shall keep such records, render under oath such statements, make such returns, and comply with such rules and regulations, as the Commissioner, with the approval of the Secretary, may from time to time prescribe. (b) To Determine Liability to Tax. — Whenever in the judgment of the Commissioner necessary he may require any person, by notice served upon him, to make a return, render under oath such statements, or keep such records, as the Commissioner deems sufficient to show whether or not such person is liable to tax under this chapter. Sec. 86.25 Ams to Determination and Collection of Tax. — ^In assessing and collecting gift taxes, the Commissioner has the benefit of 480928 "-743: 4 42 all existing internal revenue laws in so far as such laws are applicable. (See section 1028.) The Commissioner may require any person to keep specific records, render under oath such statements, make such re- turns, and comply with such rules and regulations, as the Commis- sioner, with the approval of the Secretary, may prescribe in order that he may determine whether such person is liable for the tax. In accordance with this provision, every individual shall, for the pur- pose of determining the total amount of his gifts, keep such perma- nent books of account or records as are necessary to establish the amount of his total gifts (limited as provided in section 1003(b)), together with the deductions allowable in determining the amount of his net gifts, and the other information required to be shown in a gift tax return. Sec. 86.26 Supplemental Data. — ^In order that the Cotamissioner may determine the correct tax the donor shall furnish such supple- mental data as may be deemed necessary by the Commissioner. It is, therefore, the duty of the donor to furnish upon request copies of all documents relating to his gift or gifts, appraisal lists of any items in- cluded in the total amount of gifts, copies of balance sheets, or other financial statements relating to the value of stock constituting the gift, and any other information obtainable by him that may be found necessary in the determination of the tax. (See section 86.19.) For every policy of life insurance listed on the return, the donor must procure a statement from the insurance company on Form 938, in accordance with instructions printed thereon, and file it with the col- lector who receives the return. If specifically requested by the Com- missioner, the insurance company shall file this statement direct with the Bureau. Sec. 86.27 Kecognition of Attobnets and Other Persons Eepre- SENTTNG Taxpayers. — For regulations governing the recognition of attorneys, agents, and other persons representing claimants before the Treasury Department, reference should be made to Treasury Depart- ment Circular No. 230, as revised, copies of which may be obtained upoii application to the secretary of the Committee on Practice, Treasury Department, Washington, D. C. If an attorney or other person asks a ruling on a question of law arising in a specific case, the Commissioner will require satisfactory evidence of the right to obtain such ruling. The transaction on which the ruling is sought must be completed and not merely proposed or planned. Hypothetical questions cannot be answered. SEC. 1008. PAYMENT OF TAX. (a) Time of Patmewt. — The tax imposed by this chapter shall be paid by the donor on or before the 15th day of March following the close of the calendar year. 43 (b) Extension op Time for Payment. — At the request of the donor, the Commissioner may extend the time for payment of the amount determined as the tax by the donor, for a period not to exceed six months from the date prescribed for the payment of the tax. Iii such case the amount in respect of which the extension is granted shall be paid on or before the date of the expiration of the period of the extension. (c) VaLUNTABY ADVANCE PAYMENT. — ^A tax imposed by this chapter, may b? paid, at the election of the donor, prior to the date prescribed for ijs payment. (d) Fraction AL Paets oi" Cent. — In the payment of any tax under this chapter a fractional 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. ' (e) Receipts. — ^The collector to whom any payment of any gift tax is made shall, upon request, grant to the person making such payment a receipt therefor. Seo. 86.28 Date of Payment. — The tax is required to be paid by the donor on or before the 15th day of March following the close of the calendar year in which the gifts were made, unless an extension of time for payment thereof has been granted by the Commissioner. (See section 86.29.) Sec. 86.29 Extension of Time foe Payment of Tax Shown on Retden. — ^If it is shown to the satisfaction of the Commissioner that the payment of the amount determined as the tax by the donor, or any part thereof, upon the due date will result in undue hardship to the donor, the Commissioner, at the request of the donor, may grant an extension of time for the payment for a period i\pt to exceed six months. The extension will not be granted upon a general statement of hardship. The term "undue hardship" means more than an in- convenience to the donor. It must appear that substantial financial loss, for example, due to the sale of property at a sacrifice price, will result to the donor from making payment of the amount at the due date. If a market exists, the sale of property at the current market price is not ordinarily considered as resulting in undue hardship. An application for an extension of time for the payment of such tax should be made under oath and must be accompanied or supported by evidence showing the undue hardship that would result to the donor if the extension were refused. A sworn statement of assets and liabilities of the donor and an itemized statement under oath showing all receipts and disbursements for each of the three months immediately preceding the month in which falls the date prescribed for the payment of the tax are required and should accompany the application. The appli- cation, with the evidence, must be filed with the collector, who will transmit it to the Commissioner with his reconmiendations as to the extension. When it is received by the Commissioner, it will be exam- ined and, if possible, within 30 days will be denied, granted, or tenta- 44 lively granted subject to certain conditions of which the donor will be notified. The Commissioner will not consider an application for such an extension unless request therefor is made to the collector on or before the due date. If the donor desires to obtain an additional extension, the request therefor must be made to the collector on or before the date of the expiration of the previous extension. As a condition to the granting of such an extension, the. Commis- sioner will usually require the donor to furnish a bond in an amount not exceeding double the amount for which the extension is desired, or to furnish other security satisfactory to the Commissioner for the payment of the liability on or before the date prescribed for the pay- ment in the extension, so that the risk of loss to the Government will not be more at the end of the extension period than it was at the begin- ning of the period. If a bond is required it shall be conditioned upon the payment of the amount for which the extension is granted, together with interest and additional amounts assessed in connection therewith, in accordance with the terms of the extension granted, and shall be executed by a surety company holding a certificate of authority from the Secretary of the Treasury as an acceptable surety on Federal bonds, and shall be subject to the approval of the Commissioner. In lieu of such a bond, the donor may file a bond secured by the deposit ef bonds or notes of the United States, any public debt obligations of the United States, or any bonds, notes, or other obligations which are uncondi- tionally guaranteed as to both interest and principal by the United States, equal in tjieir total par value to the amount of such bond. (See section 1126 cf the Revenue Act of 1926, as amended by section 7 of the Act of February 4, 1935, 49 Stat. 22, 6 U. S. C. 15.) The amount for which an extension is granted, with the additions thereto, shall be paid on or before the expiration of the period of the extension without the necessity of notice and demand from the col- lector. Payment of the amount for which the extension was granted and the additions thereto before the expiration of the extension' will not relieve the donor from paying the entire amount of interest provided for in the extension. Sec. 86.30 Voltjntart Advance Payment. — The gift tax may be paid at the election of the donor prior to the date prescribed for its payment, that is, prior to the 15th day of March following the close of the calendar year in which the gift or gifts were made. No dis- count will be allowed for payment in advance of the due date. Sec. 86.31 When FEACTiONAii Part of Cent Mat be Disre- garded. — ^In the payment of tax a fractional 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. A fractional part of a cent should not be disregarded in the computation of the tax. 45 Sec. 86.32 Receipts foe Taxes. — Upon request the collector will give a receipt for tax payments. In the case of payments made by check or money .order, the canceled check or the money order receipt is usually a sufficient receipt. In case of payments in cash, however, it might be to the donor's interest to reqiiire the collector to furnish a receipt. Sec. 86.33 Payment by Check.— Collectors may accept uncerti- fied checks in the payment of the tax, provided such checks are col- lectible at par — ^that is, for the full amount without any deduction for exchange or other charges. The day on which the check is received will be considered the date of payment so far as the taxpayer is con- cerned unless the check is uncollectible. All expenses incident to the attempt to collect unhonored checks and their return through the depositary bank must be paid by the drawer of the check to the bank on which it is drawn. (See section 3971.) If a, cheqk has been returned uncollected by the depositary bank, the collector should proceed to collect the tax as though no check had been given, and the taxpayer will remain liable for payment of the tax and for all interest, legal penalties, and addi- tions, if any attach? to the same extent as though such check had not been tendered. A taxpayer who tenders a certified check in payment of taxes is not released from his obligation until the check has been paid. (See section 3656.) Sec. 86.34 Donor Liable foe Tax. — The statute provides that the donor shall pay the tax. If the donor dies before the tax is paid, his executor or administrator shall make payment thereof to the collector. If there is no duly qualified executor or administrator, the heirs, legatees, devisees, and distributees are liable for and re- quired to pay the tax to the extent of the value of their inheritance, bequest, devise, or distributive share of the donor's estate. As to the personal liability of the donee, see section ^6.35, and as to that of the executor or administrator, see section 86.70. SEC. 1009. LIEN FOB TAX. The tax imposed by this chapter shall be a lien upon all gifts made during the calendar year, for ten years from the time the gifts are made. If the tax is not paid when due, the donee of any gift shall be personally liable for such tax to the extent of the value of such gift. Any part of the property comprised in the gift sold by the donee to a bona fide purchaser for an adequate and full consideration in money or money's worth shall be divested of the lien herein imposed and the lien, to the extent of the value of such gift, shall attach to all the property of the donee (including after-acquired property) except any part sold to a bona fide purchaser for an adequate and full considera- tion in money or money's worth. If the Commissioner is satisfied that the tax liability has been fully discharged or provided for, he may, under regulations prescribed by him with the approval of the Secretary, 46 issue his certificate, releasing any or all of the property from the lien herein imposed. Sec. 86.35 Lien for Tax. — ^A. lien attaches upoa all gifts made during the calendar year for the amount of the tax imposed upon the gifts made during such year. The lien extends for a period of 10 years from the time the gifts were made, unless the tax is sooner paid. If the tax is not paid when due, the donee of any gift becomes personally liable for the tax to the extent of the value of his gift. Any part of property which was the subject of a gift, sold by the donee to a bona fide purchaser for an adequate a,nd full consideration in money or money's worth, is divested of the lien, but a like lien to the extent of the value of such gift attaches to all the property of the donee, including after-acquired property, except any part sold to a bona fide purchaser for an adequate and full consideration in money or money's worth. Sec. 86.36 Keuease of Lien. — The statute provides that, if the Commissioner is satisfied that the tax liability has been fully dis- charged or provided for, he may issue his certificate releasing any or all property from the lien imposed thereon. The issuance of cer- 'tificates releasing such lien is a matter resting within the discretion of the Commissioner, and certificates will be issued only in case there is actual need therefor. The primary purpose of such release is not to evidence payment or satisfaction of the tax but to permit transfer of property free from the lien in case it is necessary to clear title. Receipts for payment of tax are issued by the collector. (See section 86.32.) If the tax liability has been fully discharged, or its discharge pro- vided for to the satisfaction of the Commissioner by the applicant for the release of lien filing with the collector a surety bond, a cer- tificate may then be issued releasing any or all property from the lien imposed thereon. The tax will be considered fully discharged only when the return has been examined and payment of the tax, including any deficiency determined to be due, has been made. If the tax liability has not been fully discharged, or provided for as above stated, no general release will be granted, but certificates re- leasing the lien on particular items of property may be issued by the Commissioner, who may require as a prerequisite, in such amount as he may designate, a partial payment of the tax, or a surety bond. As to the character of surety bonds required, see section 86.29. In lieu of a surety bond, the taxpayer may file a bond secured by the deposit of bonds or notes of the United States, any public debt obliga- tions of the United States, or any bonds, notes, or other obligations which are unconditionally guaranteed as to both interest and prin- cipal by the United States, equal in their total par value to the 47 amount of such bond. (See section 1126 of the Revenue Act of 10S6, as amended by section 7 of the Act of February 4, 1935, 49 Stat. 22, 6U.S.C.15.) The application for a celease should be filed with the Commissioner, should explain the circumstances that require the release, and should fully describe the particular items for which the release is desired. If the application is made prior to the filing of the return for gift tax, an affidavit may be required showing the value of the property to be released from the lien, the basis for such valuation, the total amount of gifts made during the calendar year and the prior cal- endar years subsequent to the enactment of the Revenue Act of 1932, the approximate value of all real estate upon which the lien has attached, and, in case the property is to be sold or otherwise trans- ferred, the name and address of the purchaser or transferee and the consideration, if any, paid or to be paid by him. SBC. 1010. EXAMINATION OF RETURN AND DETERMINATION OF TAX. As soon as 'practicable after the return is filed the Commissioner shall examine it and shall determine the correct amount of the tax. Sec. 86.37 Examination of Retden and Deteeminatton of Tax BY THE Commissioner. — ^As soon as practicable after returns are filed, they will be examined and the amount of tax determined under such procedure as may be prescribed from time to time by the Com- missioner. (See section 1012 and saction 86.39.) SEC. 1011. DEFINITION OF DEFICIENCY. As used in this chapter in resi)ect of the tax imposed by this chapter the term "deficiency" means — (1) The amount by which the tax imposed by this chapter ex- ceeds the amount shown as the tax by the donor upon his return ; but the amount so shown on the return shall first be increased by .1 the amounts previously assessed (or collected without assessment) as a deficiency, and decreased by the amounts previously abated, refunded, or otherwise repaid in respect of such tax; or (2) If no amount is shown as the tax by the donor upon his return, or if no return is made by the donor, then' the amount by which the tax exceeds the amounts previously assessed (or col- lected without assessment) as a deficiency ; but such amounts pre- viously assessed, or collected without assessment, shall first be decreased by the amounts previously abated, refunded,, or other- wise repaid in respect of such tax. Seo. 86.38 Deficienct Defined. — Section 1011, by its definition of the word "deficiency," provides a term which will apply to any amount of tax determined to be due in excess of the amount of tax reported by the donor upon his return; or in excess of the amount reported by the donor after adjustment made for prior assessments, abatements, credits, refunds, or collections without assessment. In 48 defining the term "deficiency" section 1011 recognizes two classes of cases — one, where the taxpayer naakes a return showing some tax liability; the other, where the taxpayer inakes a return showing no tax liability, or where the taxpayer fails to make a return. Addi- tional tax shown on any so-called "amended return" is a deficiency within the meaning of the statute. When a donor's taxability is considered for the first time, the deficiency is the excess of the amount determined to be the correct amount of 'tax over the amount shown as the tax by the donor on his return, or, if no tax was reported by the donor, the deficiency is the amount determined to be the correct amount of tax. Subsequent information sometimes discloses that the amount previously deter- mined to be the correct amount of tax is less than the correct amount, and that a redetermination of the tax is necessary. In such a case, the deficiency on redetermination is the excess of the amount deter- mined to be the correct amount of tax over the sum of the amount of tax reported by the donor and the deficiency assessed in connection with the previous determination. If it is a case where no tax was reported by the donor, the deficiency is the excess of the amount determined to be the correct amount of tax over the amount of defi- ciency assessed in connection with the previous determination. If the previous determination resulted in a credit or refund to the tax- payer, the deficiency upon the second determination is the excess of the amount determined to be the correct amount 'of tax over the amount of tax reported by the donor decreased by the amount of the credit or refund. SEC. 1012. ASSESSMENT AND COLLECTION OF DEFICIENCIES. [As Origin AiXT enacted.] (a) (1) Petition to Boaed of Tax Appeaxs. — If the Commissioner determines that there is a deficiency in respect of the tax imposed by this chapter, the Commissioner is authorized to send notice of such deficiency to the donor by registered mail. Within 90 days after such notice Is mailed (not counting Sunday or a legal holiday In the District of Columbia as the ninetieth day), the donor may file' a petition with the Board of Tax Appeals for a redetermination of the deficiency. No assessment -of a deficiency in respect of the tax Imposed by this chapter and no distraint or proceeding in court for its collection shall be made, begun, or prosecuted until such notice has been mailed to the donor, nor until the expiration of such 90-day period, nor, if a petition has been filed with the Board, until the decision of the Board has become final. Notwithstanding the provi- sions of section 3653(a) the making of such assessment or the begin- ning of such proceeding or distraint during the time such problhitioh ' Is in force may be enjoined by a proceeding in the proper court. (2) Ckoss Refeeences. — For exceptions to the restrictions imposed by this subsection see — Subsection (d) of this section, relating to waivers by the donor; 49 Subsection (f ) of this section, relating to notifications of mathe- matical errors appearing "upon the face of the return ; Section 1013, relating to jeopardy assessments ; Section 1015, relating to bankruptcy and receiverships; and Section 1145, relating to assessment or collection of the amount of the deficiency determined by the Board pending court review. (b) CoiXBCTiON OP Depicienct Found by Boaed. — If the donor files a petition with the Board, the entire amount redetermined as the deficiency by the decision of the Board which has become final shall be- assessed and shall be paid upon notice and demand from the col- lector. No part of the amount determined as a deficiency by the Commissioner but disallowed as such by the decision of the Board which has become final shall be assessed or be collected by distraint or by proceeding in court with or without assessment. (c) FAiLttBB TO File Petition. — If the donor does not file a peti- tion with the Board within the time prescribed in subsection (a) the deficiency, notice of which has been mailed to the donor, shall be assessed, and shall be paid upon notice and demand from the collector. (d) Waiveb op RBSTRionoNS. — The donor shall at any time have the right, by a signed notice in writing filed with the Commissioner, to waive the restrictions provided in subsection (a) on the assess- ment and collection of the whole or any part of the deficiency. (e) Incebase op Depicienct Apteb Nooicib Mailed. — The Board shall have jurisdiction to redetermine the correct amount of the de- ficiency even If the amount so redetermined is greater than the amount of the deficiency, notice of which has been mailed to the donor, and to determine whether any additional amount or addition to the tax should be assessed, If claim therefor is asserted by the Commissioner at or before the hearing or a rehearing. (f) FtTETHEB Depicienct Lbttees Restricted. — If the Commissioner has mailed to the donor notice of a deficiency as provided in subsection (a) of this section, and the donor files a petition with the Board within the time prescribed in such subsection, the Commis- sioner shaU have no right to determine any additional deficiency in respect of the same calendar year, except in the case of fraud, and except as provided in subsection (e) of this section, relating to asser- tion of greater deficiencies before the Board, or In section 1013(c), relating to the making of jeopardy assessments. If the donor is notified that, on account of a mathematical error appearing upon the face of the return, an amount of tax In excess of that shown upon the return is due, and that an assessment of the tax has been or will be made on the basis of what would have been the correct amount of tax but for the mathematical error, such notice shall not be considered (for the purposes of this subsection, or of subsection (a) of this sec- tion, prohibiting assessment and collection until notice of deficiency has been mailed, or of section 1027(c), prohibiting credits or refunds after petition to the Board of Tax Appeals) as a notice of a deficiency, and the donor shall have no right to file a petition with the Board based on such notice, nor shall such assessment or collection be pro- hibited by the provisions of subsection (a) of this section. (g) JuBiSDicTioN OvEB Otheb Cauindak Tbabs. — The Board in . redetermining a deficiency in respect of any calendar year shall con- sider such facts with relation to the taxes for other calendar years 50 as may be necessary correctly to redetermine the amount of such deficiency, but in so doing shall have no jurisdiction to determine whether or not the tax for any other calendar year has been overpaid or underpaid. (h) Knal DsxasiONS or Boabd. — ^For the purposes of this chapter the date on vsrhich a decision of the Board becomes final shall be determined according to the provisions of section 1140. (i) Extension op Time fob Patment of Deticibncibs. — Where it is shown to the satisfaction of the Commissioner that the payment of a deficiency upon the date prescribed for the payment thereof will result in undue hardship to the donor the Commissioner, under regulations pre- scribed by the Commissioner, with the approval of the Secretary (except where the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax), may grant an extension for the payment of such deficiency or any part thereof for a period not in excess of eighteen months, and, in exceptional cases, for a further period not in excess of twelve months. If an extension is granted, the Commissioner may require the donor to furnish a bond in sucli amount, not exceeding double the amount of the deficiency, and with such sureties, as the Commissioner deems necessary, conditioned upon the payment of the deficiency In accordance with the terms of the extension. ( j) Address fob Notich of Defxcienoy. — In the absence of notice to the Commissioner under section 1026(a) of the existence of a fiduciary rela- tionship, notice of a deficiency in respect of a tax imposed by this chapter, if mailed to the donor at his last known address, shall be sufficient for the purposes of this chapter even if such donor is deceased, or is under a legal disability. SBC. 456. PERIOD FOR FILING PETITION EXTENDED IN CERr TAIN CASES. [Revenuk Aot of 1942, enacted Octobeb 21, 1942.] (a) Period Extended. — Section 1012(a)(1) (relating to period for filing i)etition with Board of Tax Apiieals) is amended by inserting at the end thereof the following new sentence : "If the notice is addressed to a donor outside the States of the Union and the District of Columbia, the period specified in this paragraph sliall be one hundred and fifty days in lieu of ninety days." (b) EFFECfnvE Date. — ^The amendment made by this section shall be applicable with respect to notices of deficiency mailed 'after the date of the enactment of this Act. SEC. 504. CHANGE OF NAME OF BOARD OF TAX APPEALS. [Rev- , BNUE Aar of 1942, enacted October 21, 1942.] (a) The Tax Court of the United States. — Effective on the day after the date of enactment of this Act, section 1100 (relating to status of Board of Tax Appeals) is amended by inserting at the end thereof the following new sentence: "The Board shall be known as The Tax Court of the United States and the members thereof shall be known as the presiding judge and ttie judges of The Tax Court of the United States." (b) PovmBBS, Tenttrb, Etc., Unchanged. — The jurisdiction, powers, and duties of The Tax Court of the United States, its divisions and its officers and employees, and their appointment, Including the designation of its officers, and the immunities, tenure of office, powers, duties, rights, and privileges of the presiding judge and judges of The Tax Court of the 51 United States shall be the same as by existing law proyided in the case of the Board, of Tax Appeals. The Commissioner shall continue to be represented by the same counsel in the same manner before the Court as he has heretofore been represented in proceedings before the Board of Tax Appeals and the taxpayer shall continue to be represented in accord- ance with rules of practice prescribed by the Court. No qualified person shall be denied admission to practice before such Court because of his failure to be a member of any profession or calling. (c) Repbeenoes. — All references in any statute (except this section), or in any rule, regulation, or order, to the "Board of Tax Appeals" or to the "Board" when used in the sense of "Board of Tax Appeals", or to the "member", "members", or "chairman" thereof shall be considered to be made to The Tax Court of the United States, the judge, judges, and pre- siding judge thereof, respectively. Sec. 86.39 . Assessment of Deficienot. — ^If the Commissioner deter- mines that there is a deficiency in respect of the tax he is authorized to notify the donor of the deficiency by registered mail. In the absence of notice to the Commissioner under section 1026(a) of the existence of a fiduciary relationship, the Commissioner is authorized to mail the notice of a deficiency to the donor at his last known address, and such notice is sufficient even if the donor is deceased or is under a legal disability. Within 90 days after the notice of deficiency is mailed (or within 150 days after the notice of deficiency is mailed in case such notice is mailed after October 21, 1942, addressed to a donor outside , the States of the Union and the District of Columbia) , a petition may be filed with The Tax Court of the United States (formerly known as the Board of Tax Appeals) for a redetermination of the deficiency. In determining such prescribed period, Sunday or a legal holiday in the District of Columbia is not to be counted as the last day thereof. Except as stated in (a), (5), (o), (d), and (e) of this section, no assessment of deficiency in respect of the tax shall be made until such notice has been mailed to the donor, nor until the expiration of the' period prescribed for the filing of a petition with The Tax Court, nor, if a petition has been filed, until the decision of The Tax Court has become final. As to the date on which a decision of The Tax Court becomes final, see sections 1140 and 1142. (a) The donor may, at any time, by a signed notice in writing filed with the Commissioner, waive the restrictions on the assessment of the whole or any part of the deficiency. The notice must in all cases be filed with the Commissioner. The filing of such notice with The Tax Court does not constitute filing with the Commissioner within the meaning of the statute. After such waiver has been acted upon by the Commissioner and the assessment has been made in accordance with its terms, the waiver cannot be withdrawn. After a waiver of the restrictions on the assessment of the deficiency has been filed, there will be assessed at the same time as the assessment made in 52 accordance with the terms of the waiver interest upon the tax so assessed at the rate of 6 percent per annum from the due date of the tax to the thirtieth day after the filing of such waiver or to the date the deficiency is assessed, whichever is the earlier. (See section 1021 and section 86.53.) (&) If a donor is notified of an additional amount of tax due on account of a mathematical error appearing upon the face of his return, such notice is not a notice of deficiency prescribed by section 1012(a) and the donor has no right to file a petition with The Tax Court upon the basis of such notice, nor is the assessment of such additional tax prohibited by the provisions of section 1012(a). (c) If the Commissioner believes that the assessment or collection of a deficiency will be jeopardized by delay, such deficiency shall be assessed immediately as provided in section 1013. (See section 86.43.) (d) Upon the adjudication of bankruptcy of a donor in any bankruptcy proceeding or the appointment of a receiver for a donor in any receivership proceedings before any court of the United States or of any State or Territory or of the District of Columbia, any deficiency determined by the Commissioner in respect of the tax shall be assessed immediately irrespective of the provisions of section 1012(a) if such deficiency has not been assessed in accordance with the law prior to the adjudication of bankruptcy or the alppointment of the receiver. (See section 1015 and section 86.45.) (e) If The Tax Court renders a decision and determines that there is a deficiency, and, if the donor duly files a petition for review of the decision by a Circuit Court of Appeals (or the United States Court of Appeals for the District of Columbia), the filing of the peti- tion will not operate as a stay of the assessment of any portion of the deficiency determined by The Tax. Court, unless the donor has filed a bond with The Tax Court as provided in section 1145. If, in such a case, the necessary bond has not been filed by the donor, the amount determined by The Tax Court as a deficiency will be assessed imme- diately after the filing of such petition. If the Commissioner files a petition for review and the donor has not filed a petition for review within three months after the decision of The Tax Court is rendered, the amount determined by The Tax Court as a deficiency will be assessed immediately after the expiration of the 3-month period. If the Commissioner files a petition for review, and a similar peti- tion is filed by the donor, but the bond required by section 1145 has not been filed with The Tax Court, the deficiency will be assessed imme- diately after the filing of the petition -for review by the donor. If no petition is filed with The Tax Court within the period pre- scribed, the Commissioner shall assess the amount determined by him as the deficiency and of which he has notified the donor by registered mail. In such case, the Commissioner will not be precluded from determin- 53 ing a further deficiency and notifying the donor thereof by registered mail. In case a petition is filed with The Tax Court, the entire amount . redetermined as the deficiency by the decision of The Tax Court which has become final shall be assessed by the Commissioner. If the Com- missioner mails to the donor notice of a deficiency and the donor files a petition with The Tax Court within the period prescribed, the Commissioner is barred from determining any additional deficiency for the same taxable year except in the case of fraud and except as pro- vided in section 1012 (e) , relating to the assertion of greater deficiencies before The Tax Court, or in section 1013, relating to jeopardy assess- ments. (See section 86.43.) Sec. 86.40 Waiver by Donor of Restrictions on Assessment.—- If the donor acquiesces in any proposed, tentative, or final determination of the whole or any part of the deficiency, the donor has the right by a signed notice in writing filed with the Commissioner to waive the restrictions on the assessment and collection of such whole or part of the deficiency under the provisions of section 1012(d). A form of notice of such waiver for filing with the Commissioner will be sup- plied the donor upon notice of any proposed, tentative, or final deter- mination of a deficiency. Filing of the notice of waiver will expedite assessment and stop the accrual of interest on the amount assessed until after notice and demand by the collector. As to interest on deficiencies, see section 1021 and section 86.53. Sec. 86.41 Collection or Deficienct. — If a deficiency as redeter- mined by a decision of The Tax Court which has become final is as- sessed, or the donor has not filed a petition with The Tax Court and the deficiency as determined by the Commissioner has been assessed, or the restrictions upon the assessment and collection of the whole or any part of the deficiency provided in subsection (a) of section 1012 have been waived and an assessment made in accordance with such waiver, the amount so assessed shall be paid upon notice and demand from the collector. As to deficiencies coming within the provisions of sections 1013, 1015, and 1145, relating to jeopardy assessments, bankruptcies and receiverships, and deficiencies determined by The Tax Court pending court review, see sections 86.43, 86.45, and 86.39(0) . As to interest on deficiencies, see section 1021 and section 86.53. Sec. 86.42 Extension or Time for Payment of Deficiencies. — ^If it is shown to the satisfaction of the Commissioner that the payment of a deficiency upon the date prescribed for payment thereof would result in undue hardship to the donor, the Commissioner may grant an extension of time for the payment of the deficiency or any part thereof for a period of time not in excess of 18 months and in excep- tional cases for a further period not in excess of 12 months. The extension will not be granted upon a general statement of hardship. 54 The term "undue hardship" means more than an inconvenience to the donor. It must appear that substantial financial loss, for example, due to the sale of property at a sacrifice price, will result to the donor from making payment of the deficiency at the date prescribed for payment. If a market exists, the sale of property at the current market price is not ordinarily considered as resulting in undue hard- ship. The statute provides that no extension wiU be granted where the deficiency is due to negligence or intentional disregard of rules and regulations or to fraud with intent to evade tax. An application for an extension of time for the payment of the deficiency should be made under oath and must be accompanied or supported by evidence showing the undue hardship that would result to the donor if the extension were refused. A sworn statement of assets and liabilities of the donor and an itemized statement under oath showing all receipts and disbursements for each of the three months immediately preceding the month in which falls the date pre- scribed for the payment of the deficiency are required and should accompany the .application. The application, with the evidence, must be filed with the collector, who will transmit it to the Commis- sioner with his recommendation as to the extension. When it is re- ceived by the Commissioner, it will be examined and, if possible, within 30 days will be denied, granted, or tentatively granted subject to certain conditions of which the donor will be notified. The Com- missioner will not consider an application for an extension of time for the payment of a deficiency unless request therefor is made to the collector on or before the date prescribed for payment thereof, as shown by the notice and demand from the collector. If the donor desires to obtain an additional extension, the request therefor must bg made to the collector on or before the date of the expiration of the previous extension. As a condition to the granting of such an extension, the Commis- sioner will usually require the donor to furnish a bond in an amount not exceeding double the amount of the deficiency, or to furnish other security satisfactory to the Commissioner for the payment of the liability on or before the date prescribed for the payment in the extension, so that the risk of loss to the Government will not be more at the end of the extension period than it was at the beginning of the period. If a bond is required it shall be conditioned upon the pay^ ment of the deficiency, interest, and additional amounts assessed in connection therewith in accordance with the terms of the extension granted, and shall be executed by a surety company holding a certifi- , cate of authority from the Secretary of the Treasury as an acceptable surety on" Federal bonds, and shall be subject to the approval of the Commissioner. In lieu of such a bond, th^e donor may file a bond 55 secured by the deposit of bonds or notes of the United States, any public debt obligations of the United States, or any bonds, notes, or other obligations which are unconditionally guaranteed as: to both interest and principal by the United States, equal in their total par value to the amount of such bond. (See section 1126 of the Revenue Act of 1926, as amended by section 7 of the Act of February 4, 19&5, 49 Stat. 22, 6 U. S. C. 15.) The amount for which an extension is granted, with the additions thereto, shall be paid on or before the expiration of the period of the extension without the necessity of notice and demand from the col- lector. Payment of the amount for which the extension was granted and the additions thereto before the expiration of the extension will not relieve the donor from paying the entire amount of interest provided for in the extension. SBC. lois. JEOPARDY ASSESSMENTS. (a) Atjthoeitt fob Making.- — If the Commissioner believes that the assessment or collection of a deficiency will be jeopardized by delay, he shall immediately assess such deficiency (together with all interest, additional amounts, or additions to the tax provided for by law) and notice and demand shall be made by the collector for the payment thereof. (b) DEFicrENOT LErrEKS. — If the jeopardy assessment is made be- fore any notice in respect of the tax to which the jeopardy assessment relates has been mailed under section 1012(a), then the Commissioner shall mail a notice under such subsection within 60 days after the making of the assessment. (c) Amount Assessahle Befoke Decision of Boabd. — ^The jeopalrdy assessment may be made In respect of a deficiency greater or less than that notice of which has been mailed to the donor, despite the provisions of section 1012(f) prohibiting the determination of addi- tional deficiencies, and whether or not the donor has theretofore filed , a petition with the Board of Tax Appeals. The Commissioner may, at any time before the decision of the Board is rendered, abate such assessment, or any unpaid portion thereof, to the extent that he believes the assessment to be excessive in amount. The Commissioner shall notify the Board of the amount of such assessment, or abate- ment, if the petition is filed with the Board before the malting of the assessment or is subsequently filed, and the Board shall have jurisdic- tion to redetermine the entire amount of the deficiency and of all amounts assessed at the same time in connection therewith. (d) Amount Assessaem Afteb Decision of Boabd. — If the jeopardy assessment is made after the decision of the Board Is rendered such assessment may be made only in respect of the deficiency determined by the Board in its decision. (e) Expiration of Right to Assess. — ^A jeopardy assessment may not be made after the decision of the Board has become final or after the donor has filed a petition for review of the decision of the Board. (f) Bond to Stat Coiiection. — When a jeopardy assessment has been made the donor, within 10 days after notice and demand from the collector for the payment of the amount of the assessment, may 56 obtain a stay of collection of the whole or any part of the amount of the assessment by filing with the collector a bond in such amount, not exceeding double the amount as to which the stay is desired, and with such sureties, as the collector deems necessary, conditioned upon the payment of so much of the amount, the collection of which is stayed by the bond, as is not abated by a decision of the Board which has become final, together with Interest thereon as provided in section 1022 or 1023(b)(4). If any portion of the jeopardy assessment is abated by the Commissioner before the decision of the Board is rendered, the bond shall, at the request of the taxpayer, be proportionately reduced. (g) Same — ^Pukthee Conditions.^ — If the bond is given before the donor has filed his petition with the Board under section 1012(a), the bond shall contain a further condition that if a petition is not filed within the period provided in such subsection, then the amount the collection of which is stayed by the bond will be paid on notice and demand at any time after the expiration of such period, together with interest thereon at the rate of 6 per centum per annum from the date of the jeopardy notice and demand to the date of notice and demand under this subsection. (h) Waiver of Stay. — ^Upon the filing of the bond the collection of so much of the amount assessed as is covered by the bond shall be stayed. The donor shall have the right to waive such stay at any time in re- spect of the whole or any part of the amount covered by the bond, and if as a result of such waiver any part of the amount covered by the bond is paid, then the bond shall, at the request of the donor, be pro- portionately reduced. If the Board determines that the amount as- sessed is greater than the amount which should have been assessed, then when the decision of the Board is rendered the bond shall, at the re- quest of the donor, be proportionately reduced. (i) CoiiBCTnoN OF Unpaid Amounts. — ^When the petition has been filed with the Board and when the amount which should have been assessed has been determined by a decision of the Board which has become final, then any unpaid portion, the collection of which has been stayed by the bond, shall be collected as part of the tax upon notice and demand from the collector, and any remaining portion of the assessment shall be abated. If the amount already collected exceeds the amount determined as the amount which should have been assessed, such excess shall be credited or refunded as provided in section 1027, without the filing of claim therefor. If the amount determined as the amount which should have been assessed is greater than the amount actually assessed, then the difference shall be assessed and shall be collected as part of the tax upon notice and demand from the collector. Seo. 86.43 Jeopaedt Assessments. — If the Commissioner believes that the assessment or collection of a deficiency will be jeopardized by delay, he is required to assess such deficiency immediately, together with the interest and other additional amounts provided by law. If a deficiency is assessed on account of jeopardy after the decision of The Tax Court of the United States (formerly known as the Board of Tax Appeals) is rendered, the jeopardy assessment may be made only with respect to the deficiency determined by The Tax Court. The Com- 57 missioner is prohibited from, making a jeopardy assessment after a decision of The Tax Court has become final (see section 1140) or after the donor has filed a petition for review of the decision of The Tax Court. If notice of a deficiency was mailed to the donor (see section 1012(a) and section 86.39) before it was discovered that delay would jeop- ardize the assessment or collection of the tax, a jeopardy assessment may be made in an amount greater or less than that included in the deficiency notice. On the other hand if the assessment on account of -jeopardy was made without mailing the notice required by section 1012(a), the Commissioner must within 60 days after the making of the assessment send the donor notice of the deficiency by registered mail. The donor may file a petition with The Tax Court for a rede- termination of the amount of the deficiency veithin 90 days after such notice is mailed (or within 150 days after mailing in case such notice is mailed after October 21, 1942, addressed to a donor outside the States of the Union and the District of Columbia), and in determining such prescribed period Sunday or a legal holiday in the District of Colum- bia is not to be counted as the last day thereof. If the petition of the donor is filed with The Tax Court, either before or after the making of the jeopardy assessmeijt, the Commissioner is required to notify The Tax Court of such assessment, and The Tax Court has jurisdiction to redetermine the amount of the deficiency together with all other amounts assessed at the same time in connection therewith. If the jeopardy assessment is. made, the Commissioner may, at any time before the decision of The Tax Court is rendered, abate the assessment or any unpaid portion thereof, to the extent that he believes it to be excessive in amount. (See section 1013(c).) After a jeopardy assessment has been made, the list showing such assessment will be immediately transmitted to the collector. Upon receipt of the list containing the assessment, the collector is required to send notice and demand to the donor for the amount of the jeopardy assessment. Regardless of whether the donor has filed a petition with The Tax Court, he is required to make payment of the amoupt of such assessment within .10 days after the sending of notice and demand by the collector, unless before the expiration of such 10-day period he files with the collector a bond of the character hereinafter pre- scribed. The bond must be in such amount, not exceeding double the amount for which the stay is desired, as the coUectdr deems necessary and must be executed by sureties satisfactory to the collector. In lieu of a surety bond, the taxpayer may file a bond secured by the deposit of bonds or notes of the United States, any public debt obli- gations of the liiited States, or any bonds, notes, or other obligations which are unconditionally guaranteed as to both interest and principal 480928°— 43 5 58 by the United States, equal in their total par value to the amount of such bond. (See section 1126 of the Eevenue Act of 1926, as amended by section 7 of the Act of February 4, 1935, 49 Stat. 22, 6 V. S. C. 15.) The bond must be conditioned upon the payment of so much of the amount, the collection of which is to be stayed by the bond, as is not abated by a decision of The Tax Court which has become final, together with the interest on such amount as may accrue under section 1022 and section 1023(b) (4). If the bond is given before the donor has filed his petition with The Tax Court, it must contain a further condi- tion that if a petition is not filed before the expiration of' the period provided for the filing of such petition, the amount stayed by the bond will be paid upon notice and demand at any time after the expi- ration of such period, together with interest thereon at the rate of 6 percent per annum from the date of the jeopardy notice and demand to the date of the notice and demand made after the expiration of such period. If a petition is not filed with The Tax Court within the period prescribed for the filing of such petition, the col- lector will be so advised, and, if collection of the deficiency has been stayed by the filing of a bond within 10 days after the date of jeopardy notice and demand, he should then give notice and make demand for payment of the amount assessed plus interest. Any bond filed after the expiration of 10 days from the date of the jeopardy notice and demand is not such a bond as is contemplated by section 1013(f), although the collector may in his discretion accept the bond and stay collection of the deficiency. If the Commissioner believes that the amount of the jeopardy assessment is excessive and abates a portion thereof before the decision of The Tax Court is rendered, the amount of the bond will be proportionately reduced at the request of the donor. Upon the filing of a bpnd of the character described within 10 days after the date of notice and demand for payment of the amount assessed, the collection of so much thereof as is covered by the bond will be stayed". The donor may at any time waive the stay of col- lection of the whole or any part of the amount covered by the bond. If as a result of such waiver any part of the amount covered by the bond is paid, then the bond will at the request of the donor be pro- portionately reduced. After The Tax Court has rendered its decision and such decision has become final, the collector will be notified of the action taken. The collector will then send notice and demand for the unpaid portion of the amount determined by The Tax Court, the collection of which has been stayed by the bond. The collector is required to include in the notice and demand for the unpaid portion, interest at the rate of 6 percent per annum from the date of the jeopardy notice and demand to the date of the notice and demand referred to in this paragraph. 59 If the amount of the jeopardy assessment is less than the amount de- termined by The Tax Court, the difference, together with interest as provided in section 1021, will be assessed, and collected as part of the tax upon notice and demand from the collector. If the amount in- cluded in the notice and demand made after the decision of The Tax Court is not paid within 10 days after such notice and demand, there shall be collected, as part of the tax, interest as provided in section 1023. (See section 86.55.) If the amount of the jeopardy assessment is in excess of the amount determined by The Tax Court, the unpaid portion of such excess will be abated. If any part oi the excess amount has been paid, it will be credited or refunded to the donor as provided in section 1027. (See sections 86.60-86.63.) As to bankruptcy and redeivership cases, see sections 1015 and 1023(b) (B) and sections 86.45 and 86.55. SEC. 1014. CLAIMS IN ABATEMENT. ' No claim in abatement shall be filed iu respect of any assessment in respect of any tax imposed by this chapter. Sec. 86.44 Claims in Abatement. — Section 1014 prohibits the filing of claims for abatement by donors in respect of any assessment of gift tax imposed by the Internal Kevenue Code. This provision, does not prohibit the filing of claims in abatement by collectors. (See also section 86.62.) ^ SEC. 1015. BANKRUPTCY AND RECEIVERSHIPS. (a) Immediate Assessment. — Up6n the adjudication of bankruptcy of any donor in any bankruptcy proceeding or the appointment of a re- ceiver for any donor in any receivership proceeding before any court of the United States or of any State or Territory or of the District of Columbia, any deficiency (together v?ith all interest, additional amounts, or additions to the tax provided for by law) determined by the Commis- sioner in respect of a tax imposed by this chapter upon such donor shall, despite the restrictions imposed by section 1012(a) upon assessments be immediately assessed if such deficiency has not theretofore been assessed in accordance with law. Claims for the deficiency and such interest, additional amounts and additions to the tax may be presented, for adjudi- cation in accordance with law, to the court before which the bankruptcy or receivership proceeding is pending, despite the pendency of proceed- ings for the redetermination of the deficiency in pursuance of a i)etition to the Board ; but no petition for any such redetermination shall be filed with the Board after the adjudication of bankruptcy or the appointment of the receiver. (b) Unpaid Ciaims. — ^Any portion of the claim allowed in such bank- ruptcy or receivership proceeding which is unpaid shall be paid by the donor upon notice' and demand from the collector after the termination of such proceeding, and may be collected by distraint or proceeding in court within six years after termination of such proceeding. Extensions of time for such payment may be had in the same manner and subject to the same provisions and limitations as are provided in sections 1012 (i), 1020(b), and 1023(b) (3) in the case of a deficiency in a tax imposed by this chapter. Sec. 86.45 Banketjptct and Recefveeship Pkoceedings. — ^During a bankruptcy proceeding, or an equity receivership proceeding in either a Federal or a State court, the assets of the donor are in general under the control of the court in which such proceeding is pending, and the collection of taxes cannot be made by distraining upon such assets. However, any assets which under applicable provisions of law are not under the control of the court may be subject to distraint. As used in these regulations the term "bankruptcy proceeding" in- cludes proceedings^ under Chapters I to VII of the Bankruptcy Act, as amended, or under section 75 (11 U. S. C. 203), or Chapters XI to XIII, of such Act, as amended; and the term "adjudication of bank- ruptcy" includes an adjudication in a proceeding under Chapters I to VII, as amended, and the filing of a petition under section 75 or ■ Chapters XI to XIII with a court of competent jurisdiction. The clerk of a court of bankruptcy is required to mail to the Com- missioner of Internal Revenue a certified copy of every order of adjudi- cation forthwith upon the entry thereof. In every such case, the court of bankruptcy is required to mail or cause to be mailed a copy of the notice o'f the first meeting of creditors to the Commissioner of In- ternal Revenue and to the collector of internal revenue for the district in which the court is located. (See section 68(e) of the Bankruptcy Act, 11 U.S. C. 94(e).) Collectors should, promptly after notice of outstanding liability against a donor in any bankruptcy or receivership proceeding, and in any event within the time limited by the appropriate provisions of the Bankruptcy Act, as amended, and the orders of the court in which such proceeding is pending, file claim covering such liability in the court in which such proceeding is pending. Such claim should be filed TVhether the unpaid taxes involved have been assessed or not, except in cases where the departmental instructions direct otherwise ; for example, where the payment of the taxes is secured by a sufficient bond. Such claim should cover the amount represented by the a,ssess- ment, plus interest at the rate of 6 percent per annum for the period from the date of filing claim by the collector to the date of termination of the bankruptcy or receivership proceeding or to the date of pay- ment if payment is made in full prior to such termination. At the same time claim is filed with the bankruptcy or receivership court, the collector will send notice and demand for payment to the donor together with a copy of such claim. Under section 3466 of the Revised Statutes (31 U. S. C. 191) and section 3467 of the Revised Statutes, as amended by section 518 of the Revenue Act of 1934 (31 U. S. C. 192) , and section 64 of the Bank- ruptcy Act, as amended (11 U. S. C. 104), taxes are entitled to the 61 priority over other claims therein stated and the trustee, receiver, debtor in possession, or other person designated as in control of the assets of the debtor by the court in which bankruptcy or receivership proceeding is pending, may be held personally liable for failure on his part to protect the priority of the Government respecting taxes of which he has notice. Bankruptcy courts have jurisdiction under the Bankruptcy Act, as amended, to determine all disputes regarding the amount and validity of taxes of a bankrupt or of a debtor in a proceeding under the Bankruptcy Act, as amended. A bankruptcy or receivership proceeding for the donor does not discharge any portion of a claim of the United States for taxes except to the extent which may be provided in a plan or arrangement duly effectuated in a bank- ruptcy proceeding; and any portion of a claim of the United States for taxes which has been allowed by the court in which the bankruptcy or receivership proceeding is pending and which remains unsatisfied after the termination of the tankruptcy or receivership proceeding shall be collected, with interest as provided in section 1023(b) (5). Sec. 86.46 Immediate Assessments in Bankkdptct and Receiver- ship Cases.; — If the Commissioner has determined that a deficiency is due in respect of gift tax and the donor has filed a petition with The Tax Court of the United States ( formerly known as the Board of Tax Appeals) prior to the adjudication of bankruptcy or the appoint- ment of a receiver, the trustee, receiver, debtor in possession, or other person designated as in control of the assets of the debtor by the court in which the bankruptcy or receivership proceeding is pending, may prosecute the donor's appeal before The Tax Court as to that particular determination. No petition shall be filed with The Tax Court for a redetermination of the deficiency after the adjudication of bankruptcy or the appointment of a receiver. Claim for the amount of a deficiency, even though pending before The Tax Court for consideration, may be filed with the court in which the bankruptcy or receivership proceeding is pending without awaiting final decision of The Tax Court. In case of final decision of The Tax Court before the termination of the bankruptcy, debtor, or receiver- ship proceeding, a copy of The Tax Court decision may be filed by the Commissioner with the court in which such proceeding is pending. While the Commissioner is required by section 1015 to make im- mediate assessment of any deficiency, such assessment is not made as a jeopardy assessment within the meaning of section 1013 and conse- quently the provisions of that section do not apply to any assessment made under section 1015. Therefore, the notice of the deficiency provided for in section 1013(b) will not be mailed. Although such notice will not be issued, nevertheless a letter will be sent to the donor, 62 or to the trustee, receiver, debtor in possession, or other person desig- nated by the court in which the bankruptcy or receivership proceeding is pending as in control of the assets of the debtor, notifying him in detail how the deficiency was computed, that he may furnish evidence showing wherein the deficiency is incorrect, and that upon request he will be granted a hearing with respect to such deficiency. If after such evidence is submitted and hearing held any adjustment appears necessary in the deficiency, appropriate action will be taken. A copy of the notification letter will be attached to the assessment list as the collector's authority for filing claim in any bankruptcy or receiver- ship proceeding. If any portion of the claim allowed by the court in a bankruptcy or receivership proceeding remains unpaid after the termination of such proceeding, the collector will send notice and demand for payment thereof to the donor. Such unpaid portion with interest as provided in section 1023(b)(5) may be collected from the donor by distraint or proceeding in court within six years after the termination of the bankruptcy, debtor, or receivership proceeding. Extensions of time for the payment of such unpaid amount may be granted in the same manner and subject to the same provisions and limitations as provided in sections 1012(i), 1020(b), and 1023(b)(3). (See section 86.42.) This section deals only with immediate assessments provided for in section 1015 and the procedure in connection with such assess- ments. SEC. 1016. PERIOD OF LIMITATION UPON ASSESSMENT AND COLLECTION. (a) General Rttle. — Except as provided In subsection (b) , the amount of taxes imposed by this chapter shall be assessed within three years after the return was filed, and no proceeding in court without assess- ment for the collection of such taxes shall be begun after the expiration of three years after the return was filed. (b) Exceptions. — (1) Fai^h rbtuen or no EETnjKw. — In the case of a false or fraudu- lent return with Intent to evade tax or of a failure to file a return the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time. > (2) CoixECTioN APTEK ASSESSMENT. — ^Where the assessment of any tax imposed by this chapter has been made within the statutory period of limitation properly applicable thereto, such tax may be collected by distraint or by a proceeding in court, but only if begun (1) within six years after the assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the Commissioner and the donor. Sec. 86.47 Period or Limitation Upon Assessment of Tax. — The amount of the tax must be assessed within three years after the 63 return was filed. Exceptions to this period , of limitation are as follows : (1) In case of a false or fraudulent return with intent to evade tax, the tax may be assessed at any time after such false or fraudulent return is filed. (2) In the event the donor fails to file a return, the amount of tax due may be assessed at any time after the date prescribed for filing the return. See section lOlY and section 86.49 for provisions relating to the suspension of the running of the statute of limitations on the making of assessments. With respect to the period of limitation for assessing the amount of the liability of a transferee of property of a donor, or for assessing the amount of the liability of a fiduciary under section 3467 of the Kevised Statutes, as amended by section 518 of the Revenue Act of 1934 (31 U. S. C. 192), see section 1025 and section 86.58. Sec. 86.48 Period of Limitation Upox Collection or Tax. — A proceeding in court without assessment for the collection of the tax must be begun within three years after the return was filed, except .that if the donor files a false or fraudulent return with intent to evade tax or fails to file a return, a proceeding in court for the collection of the tax may be begun at any time. In any case in which the tax has been assessed within the statutory period of limitation properly applicable thereto, a proceeding in court or distraint for the collection of such tax may be begun within six years after the assessment thereof, or prior to the expiration of any period for collection agreed upon in writing by the Commis- sioner and the donor. In determining the running of the statute of limitations in respect of distraint, the distraint shall be considered to have been begun, in the case of personal property, on th^ date on which the levy upon such property is made, or, in the case of real property, on the date on which notice of the time and place of sale is given to the person whose property it is proposed to sell. See section 1017 and section 86.49 for provisions relating to the sus- pension of the running of the statute of limitations 9n the beginning of distraint or a procfeeding in court for collection of the tax. SEC. 1017. SUSPENSION OF RUNNING OF STATUTE. The running of the statute of limitations provided in section 1016 on the making of assessments and the beginning of distraint or a proceeding in court for collection, in respect of any deficiency, shall (after the mailing of a notice under section 1012(a)) be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or a proceeding in court (and in any event, if a proceeding in respect of the deficiency is placed on the docket of the Board, until the decisiofa of the Board becomes final), and for ^0 days thereafter. 64 Sec. 86.49 Suspension of Running of Statute of Limitations. — If a notice of a deficiency has been mailed to the donor under the provisions of section 1012(a) (see section 86.39), then thfe running of the statute of limitations on assessment, on the beginning of distraint after assessment, or on the beginning of a proceeding in court after assessment or without assessment, in respect of any deficiency, shall be suspended for the period during which the Commissioner is pro- hibited from making the assessment or from beginning distraint or a proceeding in court (and in any event, if a proceeding in respect of the deficiency is placed on the docket of The Tax Court of the United States (formerly known as the Board of Tax Appeals) , until the deci- sion of The Tax Court becomes final), and for 60 days thereafter; SEC. 1018. ADDITION TO THE TAX IN CASE OF DELINQUENT RETURN. EV)r addition to the tax in case of failure to make and file a return required by this chapter within the time prescribed by law or prescribed by the Commissioner in pursuance of the law, see section 3612(d)(1). SEC. 3612. RETURNS EXECUTED BY COMMISSIONER OR COL- LECTOR. (d) Additions to Tax — (1) PAiLtrEE TO FitE RETURN. — In case of any failure to mate and file a return or list within the time prescribed by law, or prescribed by the Commissioner or the collector In pursuance of law, the Commissioner 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 : Provided, That in the case of a failure to make and file a return required by law, within the time prescribed by law or prescribed by the Com- missioner in pursuance of law, if the last date so prescribed for filing the return is after August 30, 1933, then there shall be added to the tax, in lieu of such 25 per centum : 5 per centum if the failure is for not more than 30 days, with an additional 5 per centum for each additional 30 days or fraction thereof during which failure continues, not to exceed 25 per centum in the aggregate. (2) Fraud. — In case a false or fraudulent return or list is will- fully made, the Commissioner shall add to the tax 50 per centum of its amount. (3) Ckoss befekence. — • For additions to tax in the case of income tax, see sections 291 and 293, and in the case of a deficiency in gift tax, see section 1019. (e) Cou-EOTiON OF Additions to Tax. — The amount added to any tax under paragraphs (1) and (2) of subsection (d) shall be col- lected at the same time and in the same manner and as a 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. 65 Sec. 86.50 Addition to the tax for Faxltjre to File Eetuen. — For failure to file the return required by the Internal Revenue Code within the time prescribed or within an extension of time granted by the collector, unless it is filed after such time and the failure is shown to have bpen due to a reasonable cause and not to willful neglect, 5 percent of the amount of the tax will be added thereto if the failure is for 30 days or less, with an additional 5 percent for each additional 30 days or fraction thereof during which failure continues, not to exceed 25 percent in the aggregate. Two classes of ' delinquents are subject to this addition to the tax: (a) Those who do not file returns, and (&) Those who file tardy returns and are unable to show reason- able cause for the delay. A donor who files a tardy return and wishes to avoid the addition to the tax must make an affirmative showing of all facts alleged as a reasonable cause for failure to file the return on time in the form of an affidavit or affidavits which should be attached to the return. If affidavits are furnished with the return or upon the collector's de- mand, the collector, unless otherwise directed by the Commissioner, will forward the affidavits with the return, and, if the Commissioner determines that the delinquency was due to a reasonable cause and not to willful neglect, the addition to the tax will not be assessed. If the donor exercised ordinary business care and prudence and was nevertheless unable to file the return in the prescribed time, then the delay is due to reasonable cause. If the addition to the tax for delinquency in filing the return has been added, the amount so added shall be collected in the ,same manner as the tax, except that the interest provisions of section 1021 , (see section 86.53) shall not apply to such additional amount. (But see section 86.55 as to interest accruing after issuance of notice and demand.) > For addition to the tax in case of fraud, see sections lOlO(b) and 3612(d) and section 86.51. SBC. lOm ADDITIONS TO THE TAX IN CASE OF DEFICIENCY. (a) Nkougencsb. — If any part of any deficiency is due to negligence, or intentional disregard of rules and regulations but without intent to defraud, 5 per centum of the total amount of the deficiency (in addi- tion to such deficiency) shall be- assessed, colledted, and paid in the same manner as if it were a deficiency, except that the provisions of sec- tion 1021, relating to interest on deficiencies, shall not be applicable. (b) Pbatid. — If any part of any deficiency is due to fraud with in- tent to evade tax, then 50 per centum Gunts or Collectors in Cases of Assessments Against Several Persons Covering Same Liability. — If assessments have been made against several persons covering the same tax liability, and payment of such liability by one or more of such persons has been duly certified to the Commissioner, the Com-, missioner, for the purpose of temporarily relieving the collector from liability under section 3950, may authorize him to take credit tem- porarily with respect to the assessments not specifically paid. Such action, however, shall not constitute an abatement and shall not dis- charge the liability of the persons concerned. SEC. 3774. REFUNDS AFTER PERIODS OF LIMITATION. A refund of any portion of an internal revenue tax (or any interest, penalty, additional amount, 'or addition to such tax) shall be considered erroneous — (a) Expiration or Period foe Filing Claim. — If made after the expiration of the period of limitation" for filing claim therefor, unless within such period claim was filed ; or (b) DiSAIXOWANCE OF CLAIM AND EXPIRATION OF PERIOD FOB FILING SmT. — In the case of a claim filed within the proper time and dis- allowed by the Commissioner if the refund was made after the expira- tion of the period of limitation for filing suit, unless — (1) within such period suit was begun by the taxpayer, or (2) within such period, the taxpayer and the Commissioner agreed in writing to suspend the running of the statute of limitations for filing suit from the date of the agreement to the date of final decision in one or more named cases then pending before the Board of Tax Appeals or the courts. If such agreement has been entered into, the running of such statute of limitations shall be suspended in accordance with the terms of the agreement. (c) Cboss Refekence.^ — For procedure by the United States to recover erroneous refunds, see section 3746. SEC. 3775. CREDITS AFTER PERIODS OF LIMITATION. ******* (b) Period Against Taxpayer. — ^A credit of an overpayment in respect of any tax shall be void if a refund of such overpayment would be considered erroneous under section 3774. 85 SEC. 3746. SUITS FOR RECOVERY OF ERRONEOUS REFUNDS. (a) Refunds Attee Limitation Period. — ^Any portion of an internal revenue tax (or any interest, penalty, additional amount, or addition to such tax) , refund of which is erroneously made, within the meaning of section 3774, may be recovered by suit brought in the name of the United States, but only if such suit is begun within two years after the making of such refund. ******* (c) Refunds Based on Fraud oe Misrepresentation. — Despite the provisions of subsections (a) and (b) such sulj may be brought at any time within five years from the making of the refund if it appears that any part of the refund was induced by fraud or the misrepresentation of a material fact. ******* Sec. 86.68 Eeeoneotts Refunds and Credits. — ^A refund is errone- ous when made after the expiration of the petiod of limitation for filing a claim therefor, unless within such period a claim was filed. In the case where a claim was filed within the proper time and such claim was disallowed by the Commissioner and the period of limitation for filing suit by the donor had expired prior to the making of the re- fund, a refund is erroneous unless suit was begun by the donor within the period of limitation for filing suit, or unless within such period the donor and the Commissioner agreed in writing to suspend the run- ning of the statute of limitations for filing suit from the date of the agreement to the date of the final decision of one or more named cases then pending befoi'e The Tax Court of the United States (for- merly known as the Board of Tax Appeals) or the courts. Any errone- ous refund may be recovered by suit brought in the name of the United States within two years after the refund was made. If it appears that any part of an erroneous refund was induced by fraud or the misrepre- sentation of a material fact, the entire amount of such refund may be recovered by suit brought in the name of the United States within five years after the refund was made. Where a refund of an overpayment would be an erroneous refund under the preceding paragraph of this section, a credit of such over- payment allowed against any tax is void. A credit is also void if allowed against a liability the assessment and collection of which was barred by the expiration of the period of limitation properly appli- cable thereto. SEC. 3760. CLOSING AGREEMENTS. (a) Authorization. — The Commissioner (or any ofBcer or employee of the Bureau of Internal Revenue, including the field service, authorized in writing by the Commissioner) is authorized to enter into an agreement in writing with any person relating to the liability of such person (or of the person or estate for whom he acts) in respect of any internal revenue tax for any taxable period. 86 (b) FiNAXiTT. — If such agreement is approved by the Secretary, the Under Secretary, or an Assistant Secretary, within such time as may be stated in such agreement, or later agreed to, such agreement shall be final and conclusive, and, except upon a showing of fraud or malfeasance, or misrepresentation of a material fact — (1) The case shall not be reopened as to the matters agreed upon or the agreement modified, by any oflacer, employee, or agent of the United States, and (2) In any suit, action, or proceeding, such agreement, or any determination, assessment, collection, payment, abatement, refund, or credit made in accordance therewith, shall not be annulled, modi- fled, set aside, or disregarded. Seo. 86.69 Cix)siNG Agreements Relating to Tax LiABiuTr in Respect of Internal Revenue Taxes. — Closing agreements provided for in section 3760 may relate to the total tax liability of the donor, or to one or more separate items affecting such liability. For example, an agreement may be entered into with respect to the total amount of gifts, to deductions, or to the value of property on the date of gift. Accordingly, there may be a series of agree- ments relating to the tax liability for a single taxable period. Any tax or deficiency in tax determined pursuant to such an agreement shall be assessed and collected, and any overpayment determined pursuant thereto shall be credited or refunded, in accordance with the applicable provisions of the statute. Such agreements are final and conclusive, except upon a showing of fraud or malfeasance, or misrepresentation of a material fact. (See also section 3762.) SBC. 3467, REVISED STATUTES, AS AMENDED BY SECTION 518 OF THE REVENUE ACT OP 1934 (31 U. S. C. 192). LIA- BILITY OP FIDUCIARIES. Every executor, administrator, or assignee, or other person, who pays, in whole or in part, any debt due by the person or estate for whom or for which he acts before he satisfies and pays the debts due to the United States from such person or estate, shall become answer- able in his own person and estate to the extent of such payments for the debts so due to the United States, or for so much thereof as may remain due and unpaid. Sec. 86.70 Personal Liabilitt of FroxjcacARiES. — ^Every executor, administrator, or assignee, or other person, who pays, in whole or in part, any debts due by a donor or a donor's estate for whom or for which he acts before he satisfies and pays the gift tax due to the United States from such donor, is, to the extent of such payments, personally liable for the payment of such tax. SEC. 3614. EXAMINATION OF BOOKS AND WITNESSES. (a) To Defermine Ltabtt.tty or the Taxpateb. — ^The Commissioner, for the purpose of ascertaining the correctness of any return or for the purpose of making a return where none has been made, is authorized, by any officer or employee of the Bureau of Internal Revenue, including 87 the field service, 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 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 reference to the matter required by law to be included in such return, with power to administer oaths to such person or persons. (b) To Deteemine Liabiiitt op a Tbansfeeee. — The Commissioner, for the purpose of determining the liability at law or in equity of a transferee of the property of any person with respect to any Federal taxes imposed upon such person, is hereby authorized, by any ofiicer or employee of the Bureau of Intefnar Kevenue, including the field service, designated by him for that purpose, to examine any books, papers, records, or memoranda bearing upon such liability, and may require the attendance of the transferor or transferee, or of any ofBcer or employee of such person, or the attendance of any other person having knowledge in the premises, and may take his testimony with reference to the matter, with power to administer oaths to such person or persons. SEC. 3633. JUKISDICTION OF DISTRICT COURTS. (a) To Enforce Summons. — If any person is summoned under the internal revenue laws to appear, to testify, or to produce books, papers, or other data, the district court of the United States for the district in which sudh person resides shall have jurisdiction by appropriate process to compel such attendance, testimony, or production of books, papers, or other data. ******* SEC. 3800. JURISDICTION OF DISTRICT COURTS TO ISSUE ORDERS, PROCESSES, AND JUDGMENTS. The district courts of the United States at the Instance of the United States shall have such jurisdiction to make and issue, both in actions at law and suits in equity, writs and orders of injunction, and of ne exeat republlca, orders appointing receivers, and such other orders and process, and to render such judgments and decrees, granting in proper cases both legal and equitable relief together, as may be necessary or appropriate for the enforcement of the internal revenue laws. The remedies hereby provided are in addition to and not ex- clusive of any and all other remedies of the United States in such courts or otherwise to enforce such laws. SEC. 3632. AUTHORITY TO ADMINISTER OATHS, TAKE TES- TIMONY, AND CERTIFY. (a) Inteenal Revenue Personnel. — (1) Persons xn chakgb of administration op internal kevenue LAWS GENiaiAixT. — ^Evory collector, deputy collector, internal revenue agent, and internal revenue oflBcer assigned to duty under an internal revenue agent, is authorized to administer oaths and take evidence touching any part of the administration of the Internal revenue laws with which l;e is charged, or where such oaths and evidence ar6 au- thorized by law or regulation authorized by law to be taken. » * * iK * * * 88 (b) Others. — Any oath or affirmation required or authorized by any internal revenue law or by any regulations made under authority thereof may be administered by any person authorized to administer oaths for general purposes by the law of the United States, or of any State, Territory, or possession of the United States, or of the District of Columbia, wherein such oath or affirmation is administered, or by any consular officer of the United States. This subsection shall not be construed as an exclusive enumeration of the persons who may admin- ister such oaths or affirmations. Sec. 86.71 Secueing EvroiiiircE; Taking Testimony. — In order to ascertain the correctness of a return or to determine the liability of a transferee of the property, the Commissioner has power to require the attendance and to take the testimony of the person rendering the re- turn, any employee of such person, a transferee of the property, or any other person having knowledge in the premises. Such persons may be required to produce any relevant book, paper, or other record. This power may be exercised by any revenue agent or inspector desig- nated for the purpose. For penalties, see section 86.56. Sec. 86.72 Power to CoMPEii Comti.iance. — ^Where any person is summoned to appear and testify, or to produce books, papers, or other data, the district court of the United States for the district in which such person resides has power to compel the giving of testimony, the production of books, papers, or data, and to issue any appropriate process, writ, or order. SEC. 1028. LAWS MADE APPLICABLE. All administrative, special, or stamp provisions 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 chapter. Sec. 86.73 Laws Made Applicable. — AJl administrative, special, or stamp provisions of law, including the law relating to the assess- ment of taxes, so far as applicable, are made a part of chapter 4 of the Internal Kevenue.Code imposing the gift tax for the calendar year 1940 and each calendar year thereafter. For provisions of law and regulations authorizing the postponement by reason of war of the performance of certain acts required or permitted under the gift tax law, see section 507 of the Revenue Act of 1942 and regulations pertain- ing thereto separately promulgated. SEC. 1030. DEFINITIONS. [As Okioinaixt Enacted.] For the purposes of this chapter — (a) Calendar Year. — The term "calendar year" includes only the calendar year 1932 and succeeding calendar years, and, in the case of the calendar year 1932, includes only the portion of such year after June 6, 1932. (b) Peopektt Within the United States. — Stock in a domestic cor- poration owned and held by a nonresident shall be deemed property situated within the United States. 89 SEC. 458. DEFINITION OF PROPERTY IN UNITED STATES [Rhvenue Act of 1942.] (a) Technical Amendmbjnt to Definition. — Section lOSO(b) is amended to read as follows : "(b) Peopebty Within the United States. — Stock in a domestic cor- poration owned and held by a nonresident not a citizen of the United States shall be deemed property situated within the United States." (b) Effexjtive Date of Amendment. — ^The amendment made by this section shall be effective as of February 10, 19S9. Sec. 86.74 Definitions. — (a) Calendar year. — ^The term "calendar year" as used in the gift tax provisions of the Internal Revenue Code includes the portion of the calendar year 1932 after the date of the enactment of the Revenue Act of 1932, i. e., June 6, 1932, and succeeding calendar years. (6) Property wit km the United States. — Section 1030 provides that stock in a domestic corporation owned and held by a nonresident not a citizen of the United States shall be deemed property situated in the United States for the purposes of the gift tax provisions of the Internal Revenue Code. For regulations relating to situs of property generally, see section 86.18. (c) Other definitions. — ^For other definitions, see section 3797. SEC. 1031. PUBLICITY OF RETURNS. For provisions with respect to publicity of returns under this chapter, see subsection (a) (2) of section 55. SEC. 1029. RULES AND REGULATIONS. The Commissioner, with the approval of the Secretary, shall prescribe and publish all needful rules and regulations for the enforcement of this chapter. SEC. 3791. RULES AND REGULATIONS. (a) Authorization. — (1) In genbbai. — ^The Commissioner, with the approval of the Secretary, shall prescribe and publish all needful rules and regula- tions for the enforcement of this title. (2) In case of change in lAw.^The Commissioner may make all such regulations, not otherwise provided for, as may have be- come necessary by reason of any alteration of la'w in relation to internal revenue. (b) Retkoactivitt of Regulations oe Rulings. — ^The Secretary, or the Commissioner with the approval of the Secretary, may prescribe the extent, if any, to which any ruling, regulation, or Treasury Decision, relating to thei internal revenue laws, shall be applied without retroactive effect. SEC. 3802. SEPARABILITY CLAUSE. If any provision of this title, or the application thereof to any person or circumstances, is held invalid, the remainder of the title, and the application of such provisions to other persons or circumstances, shall not be affected thereby. 480928° — 43 7 90 Sec. 86.75 PROMUiiOATiow or Eegtilations. — ^In pursuance of the Internal Revenue Code, the foregoing regulations are hereby made and promulgated. NoBMAN D. Cann, Aotmg Com/missioner of Internal, Sevenue. Approved: July 30, 1943. D. W. Bem,, Acting Secretcmj of the Treaswry. (Filed with the Division of the Federal Register August 2, 1943, 11 : 58 a. m.) APPENDIX INSPECTTION OF RETURNS Sec. 55. [Chapter I.] PnBiJcanr of Retubns. (a) Public Recobd and Inspection. — * * * iii * * * (2) (as amended by section 507 of the Second Revenue Act of 1940 and by section 554(d) (1) of the Revenue Act of 1&41) And all returns made under this chapter, subchapters A, B, D, and E of chapter 2, subchapter B of chapter 3, chapters 4, 7, 12, and 21, subchapter A of chapter 20, and chapter 30, shall constitute public records and shall be open to public examination and inspec- tion to such extent as shall be authorized in rules and regulations promulgated by the President. (3) Whenever a return is open to the Inspection of any person a certified copy thereof shall, upon request, be furnished to such person under rules and regulations prescribed by the Commissioner with the approval of the Sec- retary. The Commissioner may prescribe a reasonable fee for furnishing such copy. ***** Hi * (d) Inspection by Committees of Congbessi. — (1) Committees on ways and means and finance. — (A) The Secretary and any officer or employee of the Treasury Department, upon request from the Committee on Ways and Means of the House of Representatives, the Committee on Finance of the Sen- ate, or a select committee of the Senate or House specially authorized to investigate returns by a resolution of the Senate or House, or a joint committee so authorized by concurrent resolution, shall furnish such committee sitting in executive session with any data of any character contained in or shown by any return. (B) Any such committee shall have the right, acting directly as a committee, or by or through such examiners or agents as it may desig- nate or appoint, to inspect any or all of the returns at such times and in such manner as it may determine. (0) Any relevant or useful information thus obtained may be sub- mitted by the committee obtaining it to ■ the Senate or the House, or to both the Senate and the House, as the case may be. (2) Joint committee on iNTKBNAii revenuh taxation. — Tile Joint Com- mittee on Internal Revenue Taxation shall have the same right to obtain data and to inspect returns as the Committee on Ways and Means or the Committee on Finance, and to submit any relevant or useful information thus obtained to the Senate, the House of Representatives, the Committee on Ways and Means, or the Committee on Finance. The Committee on Ways and Means or the Committee on Finance may submit such informa- (91) 92 tion to the House or to the Senate, or to both the House and the Senate, as the case may be. ******* TREASURY DECISION 4929, AS AMENDED [Title 26 — Internal Revenue — Code' of Federal Regulations (1939 Sup.). — Chapter I, Subchapter E, Part 458, Subpart F] Regulations governing the inspection of certain returns under the Internal Revenue Code.'^ Tbeasttet Depabtment, Washington, D. C. To Collectors of Internal Revenue and Others Concerned: ******* SuBPAET C. — Estate and Gift Tax Ketttkns Undebi the Internai, Revenue. Code Seo. 4630.20. General. — ^Estate tax returns and notices and gift tax returns, filed under the Internal Revenue Code, shall be treated as privileged com- munications and shall not be inspected nor their contents disclosed except as hereinafter provided. Sec. 463C.21. Application for inspection. — ^Upon application to the collector, Internal revenue agent in charge, or Commissioner, an estate tax return or notice m&y be inspected by the executor, or his successor in office, or by his duly authorized attorney in fact. Upon like application a gift tax return may be inspected by the donor or his duly authorized attorney in fact. SEa 463C.22. Disclosures for investigation purposes. — ^An internal revenue officer engaged in an official investigation of an estate tax or gift tax liability may disclose the returned value of any item or the amount of any specific deduction, or other limited information, if such disclosure is necessary in order to verify the same or to arrive at a correct determination of the tax. This right of disclosure, however, is limited to the purposes of the investigation, and in no case extends to such information as the amount of the estate, the amount of tax, or other general data. Sec. 4630.23. Inspection hy State afflcials. — A return or notice may be ex- hibited, or information contained therein may be disclosed, to an officer of any State, for official use in connection with an estate, inheritance, legacy, succes- sion, gift, or other tax of the State, provided a like cooperation is given by the State to the Commissioner or his representatives for use in the administration of the Federal tax laws. Such officer may also be perniitted to inspect schedules, lists, and other statements designed to be supplemental to or to become a part of, the original return, and other records and reports which contain information Included or required by statute to be included in the return. Sec. 4630.24. Inspection discretionary with Commissioner in certain cases. — If any other person has a material interest in ascertaining any fact disclosed by the return, or in obtaining information as to the payment of the tax, he may make a written application to the Commissioner for such information, setting forth the nature of his interest and the purpose of the application. Thereupon, the Commissioner may permit an inspection of, or furnish a copy of the return, or may furnish such information as he deems advisable. 'Sections 463C.0 to 463C.38 are issued under authority contained in sees. 55(a), 508, 603, 702(a), 1204, and 1604(c) of the Internal Revenue Code (53 Stat. 29, 111, 116, 171, 186). 93 StTBPABT D. — GENEajAL PkOVISIONS Seo. 4630.30. Scope. — ^The following provisions, unless otherwise stated, are applicable to all returns referred to In Subparts B and C of these regulations. Sec. 4630.31.' Permission to inspect. — The Oommissioner, upon written appli- cation setting forth fully the reason for the request, may grant permission for the inspection of returns in accordance with these regulations. Sec. 4630.32. Treasury Department offioials and employees. — The officers and employees of the Treasury Department whose official duties require inspection of returns may inspect any suc}i returns without making such written applica- tion. If the head of a bureau or office in the Treasury Department, not a part of the Internal Revenue Bureau, desires to inspect, or to have an employee in his bureau or office inspect a return, in connection with some matter officially before him, for reasons other than tax administration purposes, the inspection may, in the discretion of the Secretary, be permitted uiwn written application to him by the head of such bureau or office, showing in detail why the inspec- tion is desired. Sec. 4630.33. (a) Inspection hy branch of Government other than Treasury Department.— 'Except as provided in section 4630.34, if the head of an executive department (other than the Treasury Department), or of any other establish- ment of the United States Government, desires to inspect or to have some other officer or employee of his branch of the service inspect a return in connection with some matter officially before him, the inspection may, in the discretion of the Secretary of the Treasury, bfe permitted upon written application to him by the head of such executive department or other Government establishment. The application shall be signed by such head and shall show in detail why the inspection is desired, the name and address of the taxpayer who made the return, and the name and official designation of the person it is desired shall inspect the. return. The information obtained under this section and section 4630.32 may be used as evidence in any proceeding, conducted by or before any department or establishment of the United States, or to which the United States is a party. * * * 4: « * « Sec. 4630.34. Inspection 'by Government attorneys. — ^Any return shall be open to inspection by a United States attorney or by an attorney of the Department of Justice where necessary in' the performance of his official duties. The re- quest for inspection shall be in writing and, except as provided in section 4630.37, shall be addressed to the Commissioner, and shall state the purpose for which inspection is desired. It may be signed by the Attorney General, the Assistant to the Attorney General, an Assistant Attorney General, or a United States attorney. SEa 4630.35. Information returns. — Information returns, schedules, lists, and other statements designed to be supplemental to, or to become a part of, the returns shall be subject to the same rules and, regulations as to Inspection as are the returns themselves. In any case where inspection of the return is authorized by these regulations, the Oommissioner may, in his discretion, permit inspection of other records and reports, which contain information included or required by statute to be included in the return. Sec. 4630.36. Place of inspection.— GenevaWy, returns may be inspected only in the Bureau of Internal Revenue, Washington, D. O., unless such returns are in the custody of a collector of internal revenue or internal revenue agent in charge or the head of a field division of the Technical Staff, in which event 94 the returns may be inspected In the office of such collector or agent in charge or head of division, but only in the presence of an internal revenue officer, designated by the collector or agent or head of division for that purpose. Sec. 463C.37. Applications for inspection. — Except as provided in section 4630.33, and as hereinafter provided, all applications for permission to Inspect returns must be made in writing to the Commissioner of Internal Revenue. When a return is in the custody of a collector of internal revenue or internal revenue agent In charge or the head of a field division of the Technical Staff, such collector or revenue agent in charge or head of division, upon written application to him, is authorized to permit the .inspection of such return by a United States attorney, or an attorney in the Department of Justice, or by the taxpayer or his duly authorized attorney in fact, in accordance with these regulations. ******* Hekbekt E. Gaston, Acting Secretary of the Treasury. Approved : August 28, 1939. Fbankun D. Roosevelt, The White Bouse. (Filed with the Division of the Federal Register August 29, 1939, 3:23 p. m.) BJXECUTIVE OKDEB NO. 8280 — ATTTHOKIZING THE INSPECTION OV CEBBA-IN EETUBNS MADE UNDER THE INTEBNAL EEVENUH CODE By virtue of the authority vested in me by section 55(a) of the Internal Revenue Code (53 Stat. 29), it is hereby ordered that the following-designated returns made under the said Code shall be open to inspection in accordance and upon compliance with the rules and regulations prescribed by the Secretary of the Treasury in the Treasury Decision relating to the inspection of such returns, approved by me this date: Income (including income of personal holding companies and unjust enrich- ment ^income), excess-profits, capital stock, estate, and gift tax returns, and returns of employment tax on employers under ^Subchapter C of Chapter 9 of the Internal Revenue Code. Franklin D. Roosevelt. The White House, August 28, 19S9. (Filed with the Division of the Federal Register August 29, 1939, 3: 23 p. m.) TREASURY DKCISION 4945 [Title 26 — Internal Revenue — Code of Federal Eegulations (1939 Sup.). — Chapter I, Subchapter E, Part 458, Subpart H] Use of original returns open to inspection in accordance with Treasury Decision 4929; furnishing of copies of returns; and in- 95 spection of returns of corporations by State officers and share- holders.^ Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C. Collectors of Internal Revenue and Others Concerned: Sec. 463D.0. Introductory. — * * * Pursuant to sections 55 * * * and 3791 of the Internal evenue Code, the following rules and regulations are hereby prescribed with respect to * * * the furnishing of copies of, returns open to inspection in accordance with Treasury Decision 4929, * * *. ****** p General Provisions ****** ^i Sec. 463D.5. Furnishing of copies of returns. — ^A copy of a return may be furnished to any person who is entitled to inspect such return upon written application therefor and the submission of evidence satisfactory to the Com- missioner of his right to receive the same, except that if a return is In the custody of a collector or an internal revenue agent in charge or the head of a field division of the Technical Staff, such collector or agent in charge or head of division may furnish a copy of such return to a United States attorney or an attorney of the Department of Justice, or to the taxpayer or his duly authorized attorney in fact, in accordance with these regulations. Certified copies will be furnished only upon specific request therefor sent to the Commissioner at Washington. The Commissioner may prescribe a reasonable fee for furnishing copies of returns. Sec. 463D.8. Term's used. — Any word or term used in these regulations which is defined in any chapter of the Internal Revenue Code shall be given the defini- tion contained in the chapter which is applicable with respect to the particular return made. Sec. 463D.9. Prior regulations under Code superseded. — ^This Treasury de- cision supersedes Treasury Decision 4878, approved January 4, 1989, only in so far as such Treasury decision was made applicable by Treasury Decision 4885, approved February 11, 1939, to returns made under the Internal Revenue Code. Gut T. Helvering, Commissioner of Internal Revenue. Approved: September 20, 1939. John W. Hanes, Acting Secretary of the Treasury. (Filed with the Division of the Federal Register September 22, 1939, 12: 53 p. m.) 1 Sections 46.^D.0 to 463D.9 are issued under authority contained in sections 55, 62, 508, 603, 702(a), 1204, 1207, 1604(c), and 3791 of the Internal Revenue Code (53 Stat. 29, 33, 111, 116, 171, 186,467). 96 PAYMENT OF TAX WITH UNITED STATES TREASURY NOTES TREASURY DECISION 5181 [Title 26 — Internal Eevenue — Code of Federal Regulations (1942 Sup.). — Chapter 1, Subchapter E, Part 471] Regulations governing the acceptance of Treasury notes of Tax Series A-1943, B-1943, A-1944, B-1944, A-1945, and Tax Series C in payment of income (including excess-profits), estate, and gift taxes. Thbastjey Depaetment, Office of Commissioner of Internal Reventjb, WasMngton, D. O. To Collectors of Internal Revenue and Others Concerned: Seo. 471.1. Acceptance of Tkeasuet Notes op Tax Series A-1943, B-1943, A- 1944, B-1944, A-1945 and Tax Series C, in Payment of Income ( Includino Ex- cess-Profits), Estate, and Gift Taxes. — Notes of the United States designated as Treasury Notes of Tax Series A-1943, B-1943, A-1944, B-1944, A-1945, and Treasury notes of Tax Series C may be accepted in payment of income taxes (current and back personal and corporation taxes, and excess-profits taxes) and estate and gift taxes (current and back), at par and interest accrued to the month, inclusive, in which presented (but no accrual beyond the maturity date). Collectors of internal revenue are authorized and directed to accept the notes dur- ing and after the second calendar month after the month of purchase (as shovni by the issuing agent's dating stamp on each note). For example, A. note of Tax Series A-1945 purchased in September 1942 may be accepted in November 1942 but such a note purchased in October 1942 may not be accepted until December 1942. The notes may be accepted only in payment of income (including excess- profits), estate, and gift taxes (current and back) due from the original pur- chaser thereof or his estate. The notes shall be in the name of the taxpayer (individual, corporation, or other entity) and may. be presented for tax payment b.v only the taxpayer, his agent, or his estate. There is no limit upon the amount of notes of Tax Series B-1943, Tax Series B-1944, or Tax Series C, vchich may be accepted in payment of income (including excess-profits), estate, or gift taxes. However, not more than $5,000 in principal amount of notes of Tax Series A- 1943, or of Tax Series A-1944, or of Tax Series A-1945, or of any of them In combination, plus the amount of the accrued Interest thereon, may be accepted on account of any one taxpayer's liability for income taxes (Including excess- profits taxes), or gift taxes, for any taxable year or on account of any one tax- payer's liability for estate tax; but in the' case of the income tax this limitation shall apply separately to husband and wife on a joint return and also to an owner before death and to his estate for the balance of the same year. For example, A is liable for income taxes for the calendar year 1942 in the amount of $24,000 and for gift taxes for the calendar year 1942 in the amount of $7,000. In March 1943, A presents two notes of Tax Series A-1945 purchased in October 1942 in principal amount of $5,000 each in payment of 1942 Income and gift taxes. The notes may be accepted on account of A's liability for both the income and gift taxes, provided one note be applied to the income tax and the other to the gift tax. Notes of Tax Series B-1943, Tax Series B-1944, or Tax Series C, inscribed in the name of a taxpayer, may be accepted in payment of income tax withheld at the source by such taxpayer, and such notes inscribed in the name of a taxpayer may be accepted in payment of transferee liability assessed against such tax- 97 payer for Income (including excess-profits) , estate or gift taxes ; but notes of Tax Series A-194a, Tax Series A-1944, or Tax Series A-1945 shall not be accepted in payment of income tax withheld at the source or of transferee liability. Collectors of internal revenue shall not in any case allow credit to a taxpayer on account of notes, or accept notes, for an amount greater than their principal amount plus accrued interest, nor shall notes be accepted in an amount (includ- ing accrued interest) greater than the unpaid liability of the taxpayer. The notes shall be forwarded to the collector of internal revenue with whom the tax return is filed, at the risk and expense of the taxpayer, and, for the taxpayer's protection, should be forwarded by registered mail, if not presented in person. (Sees. 3657 and 3791 of the Internal Revenue Code (53 Stat. 447, 467, 26 U. S. C, 1940 ed., 3657, 3791) and sec. 18 of the Second Liberty Bond Act of 1917, as amended (40 Stat. 1309,- 31 U. S. C, 1940 ed., 753).) Sec. 471.2. Peocedtjrb With Respect to TsBiAsimT Notes of Tax SfeKiES A- 1943, B-1943, A-1944, B-1944, A-1945 and Tax Series O.— Deposits of Treasury notes of Tax Series A-1943, B-1943, A-1944, B-1944, A-1945, and Treasury notes of Tax Series C, received in payment of taxes shall be made by the collector of internal revenue in a Federal reserve bank ,or a branch Federal reserve bank. Prior to deposit the collector of internal revenue will certify on the reverse side cf the notes that they were received in payment of income (including excess- profits ) , estate, or gift tax, as the case may be, and will show in the endorsement stamp the date of deposit. (Sees. 3657 and 3791 of the Internal Revenue Code (53 Stat. 447, 467, 26 U. S. C, 1940 ed., 3657, 3791) and sec. 18 of the Second Liberty Bond Act of 1917, as amended (40 Stat. 1309, 31 U. S. C, 1940 ed., 753).) Sec. 471.3. Peioe Treasury Decision StrPERSEDBD. — Treasury Decision 5109 is hereby superseded. (Sees. 3657 and 3791 of the Internal Revenue Code (53 Stat. 447, 467, 26 U. S. C, 1940 ed., 3657, 3791) and sec. 18 of the Second Liberty Bond Act of 1917, as amended (40 Stat. 130!), 31 U. S. C, 1940 ed., 753).) Norman D. Cann, Acting Commissioner of Internal Revenue. Approved : November 17, 1942 D. W. Bell, Acting Secretary of the Treasury. (Filed with the Division of the Federal Register November 18, 1942, 10 : 55 a. m.) STATUTES OF LIMITATIONS AS AFFECTED BY PERIOD OF MILITARY SERVICE Sea 205. (Soldiers' and Sailors' Civil Relief Act of 1940.) The period of military service shall not be included in computing any period now or hereafter to be limited by any law for the bringing of any action by or against any person in military service or by or against his heirs, executors, administrators, or assigns, whether such cause of action shall have accrued prior to or during the period of such service. (Oct. 17, 1940, c. 888, sec. 205, 54 Stat. 1181.) • LIST OF THE DIVISIONS AND LOCATIONS OF OFFICES OF INTERNAL REVENUE AGENTS IN CHARGE (Coininuiiicatioiis should be addressed: United States Internal Kevenue Agent in Charge, City State \ Territory embraced Name of division Location of office Alabama Nashville Nashville, Tenn. Alaska Seattle Seattle, Wash. Arizona Los Angeles Los Angeles, Calif. Arkansas j. Oklahoma Oklahoma City, Okla. California: Counties of Alameda, San Francisco San Francisco, Calif. Alpine, Amador, Butte, Calaveras, Colusa, Con- tra Costa, Del Norte, El- dorado, Fresno, Glenn, Humboldt, Inyo, Kings, Lake, Lassen, Madera, Marin, Maripo_sa, Men- docino, Merced, Modoc, Mono, Monterey, Napa, Nevada, Placer, Plumas, Sacramento, San Benito, San Francisco, San Joa- quin, San Mateo, Santa Shasta, Sierra, Siskiyou, Solano, Sonoma, Stanis- laus, Sutter, Tulare, Tehama, Trinity, Tuo- lumne, Yolo, and Yuba. Counties of Imperial, Los Angeles Los Angeles, Calif. Kern, Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Liiis Obispo, Santa •Barbara, and Ventura. Colorado Denver Denver, Colo. Connecticut New Haven New Haven, Conn. , Delaware Baltimore Baltimore, Md. District of Columbia do Do. Florida Jacksonville Jacksonville, Fla. Georgia Atlanta Atlanta, Ga. Hawaii Honolulu Honolulu, Hawaii. Idaho Salt Lake Salt Lake City, Utah. lUinois : Counties of Boone, Chicago Chicago, 111. Bureau, CarroU, Cook, De Kalb, Du Page, Grundy, Henry, Jo Daviess, Kane, Kanka- kee, Kendall, Lake, La SaUe, Lee, McHenry, Marshall, Mercer, Ogle, Putnam, Rock Island, Stark, Stephenson, Whiteside, Will, and Winnebago. (98) 99 LIST OF THE DIVISIONS AND LOCATIONS OF OFFICES OF INTERNAL REVENUE AGENTS IN CHARGE— Continued ^ Territory embraced Name of division Location of oflioe Illinois — Continued- Counties of Adams, Alex- Springfield i Springfield, lU. ander, Bond, Brown, Calhoun, Cass, Cham- paign, Christian, Clark, Clay, Chnton, Coles, ; Crawford, Cumberland, De Witt, Douglas, Ed- gar, Edwards, Effing- ham, Fayette, Ford, Franklin, Fulton, Gal- latin, Greene, Hamil- ton, Hancock, Hardin, Henderson, Iroquois, Jackson, Jasper, Jeffer- son, Jersey, Johnson, Knox, Lawrence, Liv- ingston, Logan, Mo- Donough, McLean, Macon, Macoupin, Mad- ison, Marion, Mason, Massac, Menard, Mon- roe, Montgomery, Mor- gan, Moultrie, Peoria, Perry, Piatt, Pike, Pope, Pulaski, Randolph, Richland, St. Clair, Sa- line, Sangamon, Schuy- ler, Scott, Shelby, Taze- well, Union, Vermilion, Wabash, Warren, Washington Wayne, White, Williamson, and Woodford. Indiana , Indianapolis Indianapolis, Ind. Iowa Omaha Omaha, Nebr. Kansas Wichita Wichita, Kans. Kentucky Louisville Louisville, Ky. Louisiana New Orleans Boston New Orleans, La. Maine Boston, Mass. Maryland t Baltimore Baltirnore, Md. Massachusetts Boston Boston, Mass. Michigan^ Detroit Detroit, Mich. Minnesota St. Paul St. Paul, Minn. Mississippi New Orleans St. Louis New Orleans, La. Missouri St. Louis, Mo. Montana Salt Lake Salt Lake City, Utah. Nebraska ' Omaha Omaha, Nebr. Nevada San Francisco Boston San Francisco, Calif. Npw HamDsliire Boston, Mass. New Jersey Newark Newark, N. J. Jl,l\_fTT Kf '^■M. tj\mf J — ^ — .— — — — — — — ^^— rf Npw Mexico Denver Denver, Colo. ^1 V> VT J.r.L\^J^A.\J\J ^^ mm ^ ^ — — — .— — — — ^ New York: Counties of Kings, Nassau, Queens, Richmond, and Brooklyn. ^ Brooklyn, N. Y. Suffolk. Manhattaln Island south 6i Second New York New York, N. Y. Twenty-third Street. 100 LIST OF THE DIVISIONS AND LOCATIONS OF OFFICES OF INTERNAL [REVENUE AGENTS IN CHARGE— Continued. Territory embraced Name of division Location of of&ce New York — Continued. Manhattan Island north of Twenty-third Street (in- cluding both sides of Twenty-third Street and Blackwells Island, Ran- dalls Island, and Wards Island), and counties of Albany, Bronx (formerly the twenty-third and twenty-fourth wards of New York City), Chn- ton, Columbia, Dutch- ess, Essex, Fulton, Greene, Hamilton, Montgomery, Orange, Putnam, Rensselaer, Rockland, Saratoga, Schenectady, Schoharie, Sullivan, Ulster, War- ren, Washington, and Westchester.- Counties of Allegany, Broome, Cattaraugus, Cayuga, Chautauqua, Chemung, Chenango, Cortland, Delaware, Erie, Franklin, Genesee, Herkimer, Jefferson, Lewis, Livingston, Madison, Monroe, Ni- agara, Oneida, Onon- daga, Ontario, Orleans, Oswego, Otsego, St. Lawrence, Schuyler,' Seneca, Steuben, Tioga, Tompkins, Wayne, Wy- oming, and Yates. North Carolina North Dakota Ohio: Counties of Adams, Athens, Brown, Butler, Clark, Clermont, Clinton, Coshocton, Delaware, Fairfield, Fayette, Franklin, Gallia, Greene, Guernsey, Hamilton, Highland, Hocking, Jackson, Knox, Law- rence, Licking, Madison, Marion, Meigs, Miami, Montgomery, Morgan, Morrow, Muskingum, Noble, Perry, Pickaway, Pike, Preble, Ross, Scioto, Union, Vinton, Warren, and Washing- ton. Upper New York New York, N. Y. Buffalo- Buffalo, N. Y. Greensboro St. Paul_._ Cincinnati. Greensboro, N. C. St. Paul, Minn. Cincinnati, Ohio. 101 LIST OF THE DIVISIONS AND LOCATIONS OF OFFICES OF INTERNAL REVENUE AGENTS IN CHARGE— Continued. Territory embraced Name of division Location of office Ohio-=— Continued. Counties of Allen, Ashland, Cleveland Cleveland, Ohio. Ashtabula, Auglaize, Belmont, Carroll, Champaign, Columbi- ana, Crawford, Cuy- ahoga, Darke, Defiance, Erie, Fulton, Geauga, Hancock, Hardin, Harri- son, Henry, Holmes, Huron, Jefferson, Lake, Logan, Lorain, Lucas, Mahoning, Medina, Mercer, Monroe, Ot- tawa, Paulding, Portage, Putnam, Eichland, San- dusky, Seneca, Shelby, Stark, Summit, Trum- bull, Tuscarawas, Van Wert, Wayiie, WUliams, • Wood, and Wyandot. Oklahoma Oklahoma Oklahoma City, Okla. Oregon Seattle Seattle, Wash. Pennsylvania: Counties of Adams, Bed- Philadelphia ^.__ Philadelphia, Pa. ford, Berks, Blair, Brad- ford, Bucks, Carbon, Centre, Chester, Clinton, Columbia, Cumberland, Dauphin, Delaware, Franklin, Fulton, Hunt- ingdon, Juniata, Lacka- wanna, Lancaster, Leba- non, Lehigh, Luzerne, Lycoming, Mifflin, Mon- roe, Montgomery, Mon- tour, Northampton, Northumberland, Perry, Philadelphia, Pike, Pot- ter, Schuylkill, Snyder, Sullivan, Susquehanna, Tioga, Union, Wayne, Wyoming, and York. Counties of Allegheny, Armstrong, Beaver, Pittsburgh Pittsburgh, Pa. Butler, Cambria, Cam- eron, Clarion, Clearfield, Crawford, Elk, Erie, Fayette, Forest, Greene, Indiana, Jefferson, Law- rence, McKean, Mercer, Somerset, Venango, Warren, Washington, and Westmoreland. Rhode Island New Haven New Haven, Conn. Columbia Columbia, S. C. South Dakota St. Paul St. Paul, Minn. Tennessee Nashville Nashville, Tenn. Texas DaUas Dallas, Tex. 102 LIST OF THE DIVISIONS AND LOCATIONS OF REVENUE AGENTS IN CHARGE- OFFICES OF INTERNAL -Continued. Territory embraced Name of division Iiocation of office Utah . Salt Lake -. . Salt Lake City, Utah. Vermont _ _ _ Boston _ Boston, Mass. Virginia _. __ _ _ Richmond Seattle Huntington _ ._ Richmond, Va. Washington West Virginia __ _ Seattle, Wash. Huntington, W. Va. Wisconsin _ _ Milwaukee Denver- Milwaukee, Wis. WyOTTiing Denver, Colo. LIST OF THE FIELD DIVISIONS AND LOCATION OF OFFICES OF THE TECHNICAL STAFF Name of division Territorial jurisdiction Location of office New England- New York Eastern . Atlantic - Southem_ Central. Chicago - Western. Southwestern. Maine, Massachusetts, New Hampshire, and Vermont. Connecticut and Rhode Island. New York State: Territory under Brook- lyn, Second New York, and Upper New York (Revenue Agents') Di- visions. * Territory under Buffalo (Revenue Agents') Di- vision.* New Jersey Pennsylvania: Territory under Phila- delphia (Revenue Agents') Division."' Territory under Pitts- burgh (Revenue Agents') Division.* Maryland, Delaware, and District of Columbia. Virginia West Virginia North Carolina South Carolina and Georgia... Florida Alabama Tennessee Michigan Ohio: Territory under Cleve- land (Revenue Agents') Division.* Territory under Cincin- nati (Revenue Agents') Division.* Kentucky .. Illinois Wisconsin Indiana Minnesota, North Dakota, and South Dakota. Missouri Kansas Nebraska and Iowa . Colorado, New Mexico, and Wyoming. Mississippi and Louisiana Oklahoma and Arkansas Texas (103) Boston, Mass. New Haven, Conn. New York, N. Y. Buffalo, N. Y. Newark, N. J. Philadelphia, Pa. Pittsburgh, Pa. Baltimore, Md. Richmond, Va. Huntington, W. Va. Greensboro, N. C. Atlanta, Ga. Jacksonville, Fla. Birmingham, Ala. Nashville, Tenn. Detroit, Mich. Cleveland, Ohio. Cincinnati, Ohio. Louisville, Ky. Chicago, 111. Milwaukee, Wis. Indianapolis, Ind. St.. Paul, Minn. St. Louis, Mo., and Kansas City, Mo. Wichita, Kans. Omaha, Nebr. Denver, Colo. New Orleans, La. Oklahoma City, Okla. Dallas, Tex., and Hous- ton, Tex. 104 LIST OF THE FIELD DIVISIONS AND LOCATION OF OFFICES OF THE TECHNICAL STAFF— Continued. Name of division Territorial jurisdiction Location of office Pacific Counties of California under San Francisco (Revenue Agents') Division,* and Idaho, Montana, Nevada, Utah, and Hawaii. Counties of California under Los Angeles, Calif. Los Angeles (Revenue Agents') Division,* and Arizona. Washington and Alaska Seattle, Wash. Oregon _ _ _ Portland, Oreg. •For territory included in revenue agents' divisions ^ee separate list appearing in this Appendix. INDEX (An analytical Table of Contents precedes the Regulations) Section Page A Abatement claim: By donor By collector Accrued income Accrued interest Actuarial calculations by Bureau Additions to the tax: Deficiency Extended payments Failure to file return Jeopardy assessments Nonpayment of tax Adjustment of tax Administrator. See Executor. Ad valorem penalty Agent : Delivery of a refund check to Recognition of Agreement, closing Aids to determination and collection of tax Alaska, included in the term "United States" Annuities, valuation of Appointment, power of Appraisal lists Appraisal of property Approval of regulations Assessment of deficiency tax: Abatement of Appeal after jeopardy assessment Appeal extends time for Consent to Interest after Suit without Waiver of restrictions on , Assessment of tax shown on return, not subject to claim for abatement by donor Assessments against several persons covering same liability Attendance, power to require Attorney in fact: Delivery of a refund check to . Recognition of , Audit by Commissioner Authority for regulations (105) 480928° — 43 8 86.44 59 86.60, 86.62 78,79 86.24 40 86.24 40 86.19(/) 31 86.51, 86.55 66,69 86.55 69 86.50 65 86.55 69 86.55 69 !6.37, 86.39, !6.61, 86.63- 86.65 1 47, 51, 1 79-82 86.50, 86.51 65,66 86.63 80 86.27 42 86.69 86 86.25 41 86.4, 86.18 12,27 86.19(/) 86.19(i) } 31, 34 86. 2r6j 5 86.26 42 86.19 28 86.75 90 86.44, 86.62 59,79 86.43 56 86.39 51 86.40 53 86.55 69 86.48, 86.72 63,88 86.40 53 86.44 59 . 86.67 84 86.71, 86.72 88 86.63 80 86.27 42 86.37 47 86.75 90 106 B Balance sheets Bankruptcy cases Beneficiary: Lien for tax on property of Of estate of deceased donor, claim for refund by. Board of Tax Appeals (Tax Court of United States). Bond of donor required in connection with — Bankruptcy and receiverships Extension for time of payment Jeopardy assessments, stay of collection of Release of lien Bonds : Gift of Federal, State, or municipal Nonresident alien donor Of United States, deposit of in connection with extension and release of lien Valuation of Books and records, production of Burden of proof Business, valuation of interest in Calendar year defined Cash, gift of Certificate of deposit Certificate of release of lien Cessation of donor's dominion and control . Charitable gifts Checks, payment of tax with Claims in abatement Claims in cases of transferred assets. Claims for credit or refund Closing agreements Collection of deficiency Collection of tax Collector: Checks, deposit and collection of Disclosure of information on return by Extension of time by, for filing return Payment of tax to Commissioner, determination of tax by Committee on Practice Community property, gifts of Compromises Computation of tax Conditional, charitable, etc., gifts Conditioned on survivorship, transfers Consent to assessment of deficiency tax Consideration for transfer: For less than an adequate and fuU In money or money's worth Love and affection as Contents, table of Copies of returns, furnishing of Corporation : Charitable, gift to Gifts by Liability for tax as fiduciary Notice of fiduciary capacity Notice of gift required when acting as trustee.. Section 86.26 86.45, 86.46 86.35 86.63 86.39, 86.43, 86.46, 86.66 86.45, 86.46 86.29, 86.42 86.43 86.36 86.2 86.2, 86.18 86.29, 86.36, 86.42 86.19(c) 86.71, 86.72 86.63 86.19(d) 86.74 86.2 86.2 86.36 86.3 86.13-86.16 86.33 86.44, 86.60, 86.62 86.58 86.63-86.65 86.69 86.41 86.28, 86.40, 86.41, 86.73 86.33 86.22 86.32, 86.34 86.37 86.27 86. 2(c) 86.57 86.5-86.7 86.16 86.19(ff) 86.40 86.8 86.8 86.8 86.13, 86.14 86.2 86.70 86.59 86.21 Page 42 60,61 46 80 51, 56, 61,83 60,61 43,53 56 46 3 3,27 43,46 53 29 88 80 30 89 3 3 46 10 26,27 45 59, 78, 79 73 80-82 86 53 43, 53, 88 45 91 39 45 47 42 9 72 16-21 *27 33 63 21 21 21 III-VIII 94 26,27 3 86 74 38 107 Section Page Crediting of accounts of collectors _ Credits, claims for Criminal penalties D Data, supplemental, may be required Date for filing return Date for payment of tax Debt: Cancellation, forgiveness or release of, owed donor Payment of for another person Debtor's relief proceedings Deceased donor (see) : Payment of tax Refund or credit Return Declaration of trust Deductions: Citizens or residents Nonresidents not citizens of the United States _ Defeat tax, penalty for attempt to Deficiency tax: Abatement of jeopardy assessment Agreement, assessment made upon Assessment, claim for abatement of Assessment of Collection of Consent to assessment Defined Determination of Extension of time for payment of _ Interest on Lien of Notification of Payment of Personal liability for Petition for redetermination of Waiver of restrictions on assessment Definitions Delinquency, penalties Deposit, certificate of, gift of Deposit in joint bank account Description of property listed on return Determination of amount of tax, method of _ Determination of net gifts Determination, final, of tax liability Discharge: From debt, when it is a gift Of lien for tax Disclosure, in regard to return Distraint, collection of tax by 86.67 86.60-86.63, 86.66-86.68 86.56 86.26 86.22 86.28 86.2 86.2 86.45, 86.46 86.34, 86.58, 86.59 86.59, 86.63 86.20 86.2 86.12, 86.13 86.12, 86.13 86.56 86.43 86.69 86.44, 86.62 86.39, 86.40, 86.43, 86.46 86.41, 86.43, 86.45 86.40 86.38 86.37, 86.39 86.42, 86.43 86.63, 86.54, 86.55 86.35, 86.36 86.37, 86.39, 86.43 86.41-86.43 86.28, 86.35, 86.70 86.37, 86.39 86.40 86.4, 86.74 86.50, 86.51, 86.55 86.2 86.2 86.24 86.5-86.7, 86.37 86.7, 86.9, 86.37 86.37, 86.39, 86.69 86.35, 86.36 ''8'6".48' 86.49" 84 78-80, 83-85 71 42 39 43 3 3 60,61 45, 73, 74 74,80 37 3 25,26 25,26 71 56 86 59,79 51, 53, 56,61 53, 56, 60 53 47 47,51 53,56 67, 68, 69 46 47, 51, 56 53-56 43, 46, 86 47,51 53 11,89 65, 66, 69 3 3 40 16-21, 47 17, 22, 47 47, 51, 3 46 91 63,64 108 District of Columbia Domicile ." Dominion and control Donative cliaracter of transaction as determining taxability Donee, personal liability of Donee's or trustee's notice Donor: Duty to keep records and render statements Liable for tlie tax Return by Since deceased Due date for filing return Due date for payment of the tax E Effective date of gift tax under Internal Revenue Code Entirety, estate by Equitable rights or interests Estate by entirety Estate, joint Estate limited to commence in future Estate of donor required to make return Evidence, securing Examination of return by Commissioner Excess of tax paid over tax determined Exchanges, when taxable Excluded gifts Exclusion of gifts Executor of estate of deceased donor: Payment of tax by Personal liability of Refund, application for, made by Return by Exempt gifts Exemption, specific Exercise of power of appointment Extension of time for: Filing return Payment of deficiency tax Payment of tax shown on return Fair market value False or fraudulent return Federal bonds, gift of Fiduciaries, personal liability of _ _ Field divisions of Technical Staff. First $3,000 of gifts Fraternal society, gifts to Fraudulent return Future interest in property G Gift of accrued income. Gift of future interest. . Section 86.4, 86.13, 86.18 86.4 86.3 86.2, 86.1, 86.8 86.35 86.21 86.25, 86.26 86.34 86.20, 86.22- 86.26 86.20 86.22 86.28-86.30 86.0 86.2, 86.19(ft) 86.2 86.2, 86.19W 86.2 86.11 86.20 86.71, 86.72 86.37 86.61 86.1, 86.8 86.10 86.10 86.34 86.34, 86.70 86.63 86.20 86.10, 86.13 86.12 86.2(6) 86.22 86.42 86.29 f 86. 47, 86.19 86.48, 86.51 86.2 86.70 I 86. 47, 86.10 86.13 86.48, 86.51 86.11 86.24 86.11 12, 26, 27 12 10 3 21 46 38 41,42 45 37, 39-42 37 39 43,44 1 3,34 3 3,34 3 23 37 88 47 79 3,21 22 22 45 45,86 80 37 22,26 25 6 39 53 43 28 62, 63, 66 3 86 103 22 26 62, 63, 66 23 40 23 109 Section Gift tax, character of See also Tax, gift. Gift within the meaning of the Code_ Gifts of community property Gifts made in property Gifts under power of appointment H Hawaii, included in the term "United States". Hypothetical annuity, basis of calculation Hypothetical questions not answered 86.1 86.1, 86.2, 86.3 86.2(c) 86.17 86.2(6) 86.4, 86.18 86.19(/) 86.27 Imposition of tax Income, accrued Indebtedness, release, cancellation, or forgiveness of. Indirect gifts Individuals, gifts not in. excess of $3,000 to Individuals required to make return Inspection of returns Insurance, assignment of or naming beneficiary of Insurance contract, valuation of Insurance statement Interest, accrued Interest in business, valuation of Interest in property, future Interest on deficiencies Interest on delinquent taxes Interest on extended payments of tax Interest on jeopardy assessments Interest on penalty added to tax Interest on tax .'__ Internal revenue agents in charge, divisions 86.1 86.24 86.2 86.2 86.10 86.20, 86.21 86.2 86.19(i) 86.26 86.24 86.19(d) 86.11 86.53 86.55 86.52 86.54 86.51 86.52-86.55 Jeopardy assessment Joint bank account, creation or deposit in- Joint tenancy, creation of Judgment, assignment of 86.43, 86.54 86.2 86.2 86.2 Laws made applicable Liability for tax, who subject to personal. Lien for the tax: Property subject to Release of lien_ Life insurance . Life interests, valuation of . Limitation on time for filing claim for credit or refund 86.73 86.34, 86.35, 86.58, 86.70 86.35 86.36 86.19(i) 86.19(/) 86.63 M Market value Money or money's worth, consideration in- Municipal bonds, gifts of, taxable N Net gifts Nonresidents not citizens of the United States, subject to tax Nonresident citizens subject to tax 86.19 86.1, 86.8 86.2 86.9 86.1, 86.4, 86.18 86.1, 86.4 110 Nonresident, defined Nonresident donor: Deductions Return by Situs of property Notes, valuation of Notice, donee's or trustee's Notice of fiduciary relationsliip- O Offices of internal revenue agents in charge. Offices of Tectinical Staff field divisions Oral hearing Overpayment found by The Tax Court Payment of claims and interest if refund allowed Payment of tax By check Due date for Effect of extension of time for filing return Extension of time for payment of deficiency tax. Penalty for failure to make Voluntary advance payment When fractional part of cent may be disregarded. With United States Treasury notes Penalties: Ad valorem Advising or assisting the preparation or pres- entation of false or fraudulent documents Criminal Compromises Delinquency. Failure to file return Failure to pay tax, exhibit property, keep or exhibit records, etc False or fraudulent document False or fraudulent return Interest on ad valorem Pay tax, failure to Remit, power to Return, failure to file Period of limitation: Upon assessment of tax Upon collection of tax Personal liability, persons subject to, donor, admin- istrator, executor, trustee, donee Persons required to make return Petitions to The Tax Court (Board of Tax Appeals) . . Postponement by reason of war of time for perform- ing certain acts Power of appointment: Definition of Exercise or release of Transfers under Power to alter, amend, modify, or revoke a trust Power to apply property or fund to uses other than charitable Power to secure evidence Section 86.12, 86.13 86.20 86.18 86.19(e) 86.21 86.59 86.27, 86.63 86.66 86.61, 86.63 86.28-86.34, 86.41-86.43 86.33 86.28 86.22 86.42 86.55, 86.56 86.30 86.31 86.56 86.56 71 86.56 71 86.57 72 86.50, 86.51, 65, 66, 86.55 69 86.50 65 86.56 71 86.56 71 86.51, 86.56 66,71 86.50, 86.51 65,66 86.55, 86.56 69,71 86.57 72 86.50 65 86.47 62 86.48 63 86.34, 86.35, 45, 46, 86.58, 86.70 73,86 86.20 37 86.39, 86.43, 51, 56, 86.45 60 86.73 88 86.2(6) 5 86.2(b) 6 86.2(b) 5 86.3, 86.16 10,27 86.16 27 86.71, 86.72 88 Page 12 25,26 37 27 31 38 74 98 103 42,80 83 79,80 43-45, 53-56 45 43 39 53 69,71 44 44 71 Ill Section Page Preparation of false or fraudulent documents, pen- alty for assisting or procuring the preparation or presentation of Preparation of return Presentation of false or fraudulent documents, pen- alty for assisting, procuring, or advising Procuring, preparation, or presentation of false or fraudulent documents, penalty Production of evidence Promulgation of regulations Property: Community Future interest in Given, subject to lien for the tax Personal Subject to lien for the tax Subject to power of appointment Tax is on transfer Transferred, character of Public purpose, gift for Publicity of returns 86.56 71 86.23, 86.24, 40, 86.26 41 86.66 71 86.56 71 86.71, 86.72 88 86.75 90 86.2(c) 9 86.11 23 86.35 46 86.2 3 86.35 46 86.2 (&) 5 86.1 3 86.2 3 86.13-86.16 26, 27 91 Questions, hypothetical- Q R Rates of tax Real estate, valuation of Receipts for taxes Receivership cases Recognition of attorneys, agents, and other repre- sentatives Records: Donor's duty to keep Examination Power to compel production of Refunds Regulations, promulgation of Regulations, scope of Release of lien Release of power of appointment Religious use Remainder interests, valuation of .__ Representatives of claimants, recognition of _ Reservation of powers with respect to trusts. Residence Resident donor, definition of Return: Confidential Deductions Disclosure in regard to Due date for filing Examination of Executor of deceased donor Extension of time for filing • Failure to file 86.27 86.5, 86.6 86.19(6) 86.32 86.45, 86.46 86.27 86.25, 86.26 86;37 86.71, 86.72 86.60, 86.61, 86.63-86.68 86.75 86.0 86.36 86.2(6) 86.13-86.16 86.19(/) 86.27, 86.63 86.3 86.4 86.4 86.12, 86.13 False or fraudulent. Filing of :. Form of 86.22 86.37 86.20 86.22 86.60 86.47, 86.51, 86.66 86.20 86.23 42 16 28 45 60,61 42 41,42 47 88 78, 79, 80-85 90 1 46 5 26, 27 31 42,80 10 11 11 91 25,26 91 39 47 37 39 65 62, 66, 71 37 40 112 Return — Continued. Furnishing of copy Nonresidents not citizens Penalties for — Delinquency in filing Filing false or fraudulent Persons required to iile Preparation of Privileged character of Resident donor Tax shown by, payment of Value shown on, basis of should be shown When required — Nonresident not a citizen Resident or nonresident citizen donor Revenue agents in charge, divisions of Reversionary interests, valuation of Revocation, reservation, in connection with trans- fer of power of Rules and regulations, promulgation of Ruling, request for S Sales for less than a fair consideration Scope of regulations Securities, valuation of Services, gift of Situs of property Specific exemption State bonds, gift of taxable Statements, donor's duty to render Statute, text of. See Table of Contents, in front hereof, for analysis. Statutes of limitation: As affected by military service Suspension of running of Stocks and bonds: Situs Valuation Suit, collection of tax by Supplemental data may be required....... Suspension of running of statute of limitations Table of Contents Tables: Annuities and remainders, life Annuities and remainders, term certain Gift tax rate schedules Tax Court of the United States, The (Board of Tax Appeals) Tax, gift (for statute and analysis, see Table of Con- tents) : Abatement of Section 86.4,86.18, • 86.20 86.50 86.51, 86.56 86.20 86.23, 86.24, 86.26 86.20 86.28-86.34 86.19 86.20 86.20 86.19(/) 86.3 86.75 86.27 86.1, 86.8 86.0 86.19(c) 86.2 86.18 86.12 86.2 86.25, 86.26 86.49 86.18 86.19(c) 86.48, 86.49 86.26 86.49 Additions to. . Character of. Collection of. Computation. 86.19 86.19 86.6 86.39, 86.43, 86.46 86.44, 86.60- 86.62 86.50, 86.51, 86.55 86.1 86.28, 86.39, 86.73 86.5-86.7 Page 94 12, 27, 37 65 66,71 37 40, •42 91 37 43-45 28 37 37 98 31 10 90 42 3,21 29 3 27 25 3 41,42 97 64 27 29 63,64 42 64 in-viii 28 28 16 61, 56, 61 59, 78, 79 65, 66, 69 3 43, 51, 88 16,17 113 Tax, gift — Continued. Deductions Deficiency tax Determination of Due date for filing return. Due date of Imposition of Interest on Liability of certain persons- Lien for Nature of Payment of Penalty for failure to pay Rates of Returns, filing of Technical Staff field divisions Tenancy by entirety, creation of Tenancy by entirety, valuation of Tenancy, life, value of Testimony, taking Text of Code. See Table of Contents. Total gifts Transfers conditioned upon survivorship Transfers for a consideration in money or money's worth 1 Transfers of community property Transfers reached Transfers under power of appointment Trustee of estate of donor or donee Trustee of the transferred property, liability of.._. Trustee required to file notice Trusts: Exercise of power of appointment Gifts and transfers by Gifts effected through Income of Irrevocable Release of power of appointment Relinquishment of power of disposition Relinquishment of power of revocation Revocable „ U United States United States Treasury notes, payment of tax with. Use of property, valuation of Valuation, rules for. W Waiver or consent to assessment of deficiency tax__. Section 86.12, 86.13 86.38-86.43, 86.51-86.65 86.5-86.7 86.22 86.28 86.1 86.52-86.55 86.34, 86.35, 86.58, 86.70 86.35 86.1 86.28-86.34, 86.41-86.43 86.55, 86.56 86.6, 86.7 86.20, 86.22 86.2 86.19(;i) 86.19(/) 86.71, 86.72 86.10 86.19(6r) 86.8 86.2(c) 86.1, 86.2 86.2(b) 86.21, 86.70 86.58, 86.59 86.21 86.2(6) 86.2 86.2 86.3 86.3 86.2(6) 86.3 86.3 86.3 86.12, 86.18 86.19(/) 86.19 86.40 Page 25,26 47-56, 66-69 16,17 39 43 3 66-69 45, 46, 73,86 46 3 43-45, 53-56 69,71 16,17 37,39 103 3 34 31 88 22 33 21 9 3 5 38, 86 73,74 38 5 3 3 10 10 6 10 10 10 25,27 96 31 28 63 o U. S. TREASURY DEPARTMENT BUREAU OF INTERNAL REVENUE REGULATIONS 90 RELATING TO THE EXCISE TAX ON EMPLOYERS UNDER TITLE IX OF THE SOCIAL SECURITY ACT UNITED STATES GOVERNMENT PRINTING OFFICE WASHINGTON 1936 For sale by the Superintendent of Documents. WashinEton.D.C. Price 10 cents AMOWCEMEOT OF 1936 BTJILETIN SERVICE The Internal Bevenue Bulletin service for 1986 will consist of weekly bulletins and semiannual cumulative bulletins. The vceekly bulletins will contain the rulings and decisions to be made public and all Treasury Department decisions (known aa Treasury decisions) pertaining to Internal Revenue matters. The semiannual cumulative bulletins will contain all rulings and decisions (including Treasury decisions) published during the previous six months. The complete Bulletin service may be obtained on a subscrip- tion basis, from the Superintendent of Documents, Government Printing OfSce, Washington, D. C, for $2 per year. Single copies of the weekly Bulletin, 5 cents each. New subscribers and others desiring to obtain the lOia, 1920, and 1921 Income Tax Service may do so from the Superintendent of Documents at prices as follows : Digest of Income Tax Bulings No. 19 (containing digests of all rulings aM)earing in Cumulative Bulletins 1 to 5, inclusive) , 50 cents per copy ; Cumulative Bulle- tins Nos. 1 to 5, containing in fuU all rulings published since April, 1919, to and including December, 1921, as follows: No. 1, 30 cents ; No. 2, 25 cents ; No. 3, 30 cents ; No. 4, 30 cents ; No. 5, 25 cents. Persons desiring to obtain the Sales Tax Cumulative Bulletins for January-June and July-December, 1921, may procure them from the Superintendent of Documents at 5 cents per copy. Persons desiring to obtain the Internal Eevenue Bulletin serv- ice for the years 1922 to 1935, inclusive, may do so at the fol- lowing prices: Cumulative Bulletin I-l (January- June, 1922) 40 cents Cumulative Bulletin 1-2 (July-December, 1922) 30 cents Cumulative Bulletin II-l (January-June, 1923) 30 cents Cumulative Bulletin II-2 (July-December, 1923) 40 cents Cumulative Bulletin III-l (January- June, 1924) 50 cents Cumulative Bulletin III-2 (July-December, 1924) 50 cents Digest No. 13 (January, 1922-December, 1924) 60 cents Cumulative Bulletin IV-1 (January-June, 1925) 40cents Cumulative Bulletin IV-2 (July-December, 1925) 35 cents Digest No. IT (January-December, 1925) 25 cents Cumulative Bulletin. V-1 (January-June, 1926) 40 cents Cumulative Bulletin V-2 (July-December, 1926) 30 cents Digest No. 21 (January-December, 1926) 15 cents Cumulative Bulletin VI-1 (January-June, 1927) 40 cents Cumulative Bulletin VI-2 (July-December, 1927) 40 cents Digest No. 22 (January, 1925-December, 1927) 35 cents Cumulative Bulletin VII-1 (January-June, 1928) 35 cents Cumulative Bulletin VII-2 (July-December, 1928) 50 cents Cumulative Bulletin VIII-1 (January-June, 1929) 50 cents Ciunulative Bulletin VIII-2 (July-December, 1929) 55 cents Cumulative Bulletin IX-l (January-June, 1930) 50 cents Cumulative Bulletin rx:-2 (July-December, 1930) 50 cents Cumulative Bulletin X-1 (January-June, 1931) 65 cents Cumulative Bulletin X-2 (July-December, 1931) 30 cents Cumulative Bulletin XI-1 (January- June, 1932) 30 cents Cumulative Bulletin XI-2 (July-December, 1982) 30 cents Cumulative Bulletin XII-1 (January-^June, 1933) 30 cents Cumulative Bulletin XII-2 (July-December, 1933) 50 cents Cumulative Bulletin XIII-1 (January-June, 1934) 50 cents Cumulative BuUetin XIII-2 (July-December, 1984) 50 cents Cumulative Bulletin XI V-1 (January-June, 1935) 50 cents Digest A (income tax rulings only, AprU, 1919, to De- cember, 1930, inclusive) $1.50 AH inquiries in regard to these publications and subscriptions should be sent to the Superintendent of Documents, Government Printing Office, Washington, D. C. (n) INTRODUCTORY These regulations deal with the excise tax imposed on employers by Title IX of the Social Security Act approved August 14, 1935 (Public, No. 271, Seventy-fourth Congress). The regulations have been divided into chapters. The material to be found in each chap- ter is shown in the Table of Contents. Chapter I defines terms that are used in the Act and in these regu- lations. Chapter II deals with the nature, scope, and imposition of the tax. Chapter III deals with returns and records. Chapter IV deals with payment of the tax. Chapter V deals with miscellaneous administrative provisions incident to the assessment, collection, refund and credit of the tax, and to penalties. For convenient reference, Titles VII, IX, and XI of the Act and certain applicable provisions of internal revenue laws of particular importance are printed in Appendix A and Appendix B, respec- tively. (ni) REGULATIONS 90 RELATING TO THE EXCISE TAX ON EMPLOYERS UNDER TITLE IX OF THE SOCIAL SECURITY ACT Page Table of contents vii-x Chapter I. Definitions 1 Chapter II. Nature, scope, and imposition of the tax 3 Chapter III. Returns and records 17 Chapter IV. Payment of the tax 23 Chapter V. Miscellaneous provisions 28 Appendix A 37 Appendix B 45 Index 59 (V) TABLE OF CONTENTS Chapter I DEFINITIONS Article Pagei 1. Definitions 2 ' Chapteb II NATURE, SCOPE, AND IMPOSITION OF THE TAX 200. Nature of tax 3 201 . Measure of tax 3 202. Rate and computation of tax 3 203. Persons liable for the tax 4 204. Who are employers 4 205. Employed individuals 4 206. Excepted services generally 6 206 (1) . Agricultural labor 7 206(2). Domestic service 8 206(3). Officers and members of crews , 8 206(4). Family employment 9 206 (5)-(6) . Government employees -. 9 206(7). Religious, charitable, scientific, literary, and educational organiza- tions and community chests 10 207. Wages 11 208. Exclusion from wages 12 209. Items included as wages 12 210. Adjustments of tax 13 211. Credit of contributions against tax 14 212. Proof of credit 16 Chapter III RETURNS AND RECORDS Article 300. Returns 18 301. Verification of returns 18 302. Use of prescribed forms 19 303. Time and place for filing returns 19 304. Extensions of time for filing returns 19 305. Due date of return 20 306. Inspection of returns 20 307. Records 21 308. Termination of business 22 Chapter IV PAYMENT OF THE TAX Article 400. Payment of tax 24 401. Extension of time for payment of the tax or installment thereof 24 402. Fractional part of a cent 25 403. Method of payment 26 (VII) vin Chapter V miscellaneous provisions Article Page 500. Jeopardy assessment- — Immediate collection of the tax 28 501. Closing agreements 29 502. Interest and penalties 30 503 . Refund and credit of taxes erroneously collected 32 504. Claim for payment of judgment obtained against collector 34 505. Claim for payment of judgment obtained in United States district court against the United States 34 506. Claim for payment of judgment obtained in the Court of Claims against the United States 35 507. Examination of returns and determination of tax by the Com- missioner . 35 CONTENTS OF APPENDIX A TITLE Vn OF THE SOCIAL SECUMTY ACT— SOCIAL SECURITY BOARD Section 701. Establishment 37 702. Duties of Social Security Board 37 703. Expenses of the Board 37 704. Reports 37 TITLE IX OF THE SOCIAL SECURITY ACT— TAX ON EMPLOYERS OP EIGHT OH MORE 901. Imposition of tax 37 902. Credit against tax 38 903. Certification of State laws 38 904. Unemployment Trust Fund 39 905 . Administration, refunds, and penalties 40 906. Interstate commerce 40 907. Definitions 41 908. Rules and regulations 41 909. Allowance of additional credit 41 910. Conditions of additional credit allowance 42 TITLE XI OF THE SOCIAL SECURITY ACT— GENERAL PROVISIONS 1101. Definitions 43 1102. Rules and regulations 43 1103. Separability 44 1 104. Reservation of power 44 1105. Short title 44 CONTENTS OF APPENDIX B Paragraph number Administrative review 30 Section 1107, Revenue Act of 1926. Compromises: Concealment of assets . 2 Section 616, Revenue Act of 1928. Civil and criminal cases 1 Section 3229, Revised Statutes. IX Paragraph number Deposit of United States bonds or notes in lieu of surety 3 Section 1126, Revenue Act of 1926, as amended. Enforcement of tax liens 8 Section 1127, Revenue Act of 1926; Examination of books and witnesses 4 Section 1104, Revenue Act of 1926, as amended. Transferees 6 Section 607, Revenue Act of 1934. Unnecessary examinations 5 Section 1105, Revenue Act of 1926. Liens for taxes 7 Section 3186, Revised Statutes, as amended. Priority of debts due United Staljps — Section 3466, Revised Statutes 9 Section 3467, Revised Statutes, as amended 10 Limitation: Assessments and suits by the United States 11 Section 1109(a), Revenue Act of 1926, as amended. Prosecutions for internal revenue offenses 12 Section 1108, Revenue Act of 1932. Suits by taxpayers 13 Section 1103, Revenue Act of 1932. Listing of taxpayers . 14 Section 3172, Revised Statutes, as reenacted. Penalties: Generally 17 Section 1114, Revenue Act of 1926. For false claim 18 Section 35, Criminal Code of the United States, as amended. Receipts for payment 15 Section 3183, Revised Statutes, as amended. Refund or credit: Effect of expiration of period of limitations against United States 22 Section 607, Revenue Act of 1928. Effect of expiration of period of limitations against taxpayer 23 Section 608, Revenue Act of 1928, as amended. Erroneous credits 24 Section 609, Revenue Act of 1928. Interest — Section 614, Revenue Act of 1928 26 Section 177, Judicial Code, as amended 27 Recovery of amounts erroneously refunded 25 Section 610, Revenue Act of 1928, as amended. Regulations: Retroactive regulations 28 Section 1108(a), Revenue Act of 1926, as amended. When law is changed 29 Section 3447, Revised Statutes. Returns: Public records 20 Section 257, Revenue Act of 1926. 76707°— 3 C 2 Paragraph Returns — Continued. number Inspection by Joint Committee 21 Section 1203(d), Revenue Act of 1926. Notice and summons 19 Section 3173, Revised Statutes, as amended. Suits to restrain, barred 16 Section 3224, Revised Statutes. Chapter I DEFINITIONS SECTION 1101 (a) AND (b) OF THE ACT (a) When used in this Act — (1) The term "State" (except when used in section 531) includes Alaska, Hawaii, and the District of Columbia. (2) The term " United States " when used in a geographical sense means the States, Alaska, Hawaii, and the District of Columbia. (3) The term " person " means an individual, a trust or estate, a partnership, or a corporation. (4) The term " corporation " includes associations, joint-stock com- panies, and insurance companies. (5) The term " shareholder " includes a member in an association, joint-stock company, or insurance company. (6) The term " employee " includes an officer of a corporation. (b) The terms " includes " and " including " when used in a defini- tion contained in this Act shall not be deemed to exclude other things otherwise within tlie meaning of the term defined. SECTION 907 OF THE ACT When used in this title — (a) The term "employer" does not include any person unless on each of some twenty days during the taxable year, each day being in a different calendar week, the total number of individuals who were in his employ for some portion of the day (whether or not at the same moment of time) was eight or more. (b) The term "wages" means all remuneration for employment, including the cash value of all remuneration paid in any medium other than cash. (c) The term " employment " means any service, of whatever nature, performed within the United States by an employee for his employer, except — ■ (1) Agricultural labor; (2) Domestic service in a private home; (3) Service performed as an oflScer or member of the crew of a vessel on the navigable waters of the United States ; (4) Service performed by an individual in the employ of his son, daughter, or spouse, and service performed by a child under the age of twenty-one in the employ of his father or mother ; (5) Service performed in the employ of the United States Government or of an instrumentality of the United States ; (6) Service performed in the employ of a State, a political sub- division thereof, or an instrumentality of one or more States or political subdivisions ; (7) Service performed in the employ of a corporation, commu- nity chest, fund, or foundation, organized and operated exclusively (1) for religious, charitable, scientific, literary, or educational pur- poses, or for the prevention of cruelty to diildren or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individuaL (d) The term "State agency" means any State officer, board, or other authority, designated under a State law to administer the unemployment fund in such State. (e) The term " unemployment fund " means a special fund, estab- lished under a State law and administered by a State agency, for the payment of compensation. (f) The term "contributions" means payments required by a State law to be made by an employer into an unemployment fund, to the extent that such payments are made by him without any part thereof being deducted or deductible from the wages of individuals in his employ. Articib 1. General definitions. — As used iii these regulations — (a) The terms defined in the above provisions of law shall have the meanings so assigned to them. (5) The term "Act" means the Social Security Act (Public, No. 271, Seventy-fourth Congress). (e) The term " tax " means the excise tax imposed by Title IX of the Act. (d) The term " taxable year " means any calendar year after the calendar year 1935. (f) The term "Secretary" means the Secretary of the Treasury. (/) The term " Commissioner " means the Commissioner of Inter- nal Revenue. (g) The term " collector " means collector of internal revenue. (h) The term " taxpayer " means any person subject to the tax. (i) The term " Social Security Board " means the board estab- lished pursuant to Title VII of the Act. Chapter II NATURE, SCOPE, AND IMPOSITION OF THE TAX SECTION 901 OF THE ACT On and after January 1, 1936, every employer (as defined, in section 907) shall pay for each calendar year an excise tax, with respect to having individuals in his employ, equal to the following percentages of the total wages (as defined in section 907) payable by him (regard- less of the time of payment) with respect to employment (as defined in section 907) during such calendar year: (1) With respect to employment during the calendar year 1936 the rate shall be 1 per centum ; (2) With respect to employment during the calendar year 1937 the rate shall be 2 per centum ; (3) With respect to employment after December 31, 1937, the rate shall be 3 per centum. Art. 200. Nature of tax. — The tax is an excise tax imposed on em- ployers with respect to having individuals in their employ. Art. 201. Measure of tax. — (a) The measure of the tax is the total amount of wages payable by an employer with respect to employ- ment "during the calendar year, regardless of the time of actual payment. (b) Wages are payable within the meaning of the Act and these regulations (1) if there is an obligation at any time to pay wages with respect to employment during the calendar year, or (2) if, at any time, wages are actually paid with respect to employment during the calendar year. It is immaterial whether such wages are certain in amount at any time within the calendar year, and whether the right exists to enforce the payment of such wages at any time within the calendar year. (See article 207 relating to wages, article 209 (a) relating to estimates of wages, and article 210 relating to adjustments of tax.) Art. 202. Eate and computation of tax. — The rates of tax applicable for the respective calendar years are as follows : Per cent For the calendar year 1936 1 For the calendar year 1937 2 For the calendar year 1938 and any subsequent calendar year 3 The tax for any calendar year is computed by appljdng the rate for that year to the total wages payable by the employer with respect to employment during such year. (See article 201.) (3) SECTION 907 OF THE ACT (a) The term "employer" does not include any person unless on eacli of some twenty days during the taxable year, each day being in a different calendar week, the total number of individuals who were in his employ for some portion of the day (whether or not at the same moment of time) was eight or more. (c) The term "employment" means any service, of whatever nature, performed within the United Staites by an employee for his employer, except * * * Aet. 203. Persons liable for the tax. — Every person who is an " em- ployer, " as defined by the Act, is liable for the tax. Generally, a person is an " employer " if he employs 8 or more individuals on each of some 20 days during a calendar year, each such day being in a different calendar week. (See article 204.) Certain services, however, are specifically excepted by the Act and to the extent that a person employs individuals who render such services, he is not an "employer." (See articles 206 to 206(7), inclusive.) Even if an " employer " is not subject to any State unemployment insurance law, he is nevertheless subject to the tax. However, if he is subject to such a State law, he is entitled to credit against the tax any contributions with respect to employment paid by him there- under to the extent permitted by section 902. (See article 211.) Akt. 204. Who are employers. — Commencing with the calendar year 1936, any person who employs 8 or more individuals (in an em- ployment as defined in section 907(c) of the Act) on a total of 20 or more calendar days during a calendar year, each such day being in a different calendar week, is an employer subject to the tax imposed with respect to such year. The several weeks in each of which occurs a day on which eight or more individuals are employed need not be consecutive weeks. It is not necessary that the individuals so employed be the same in- dividuals; they may be different individuals on each such calendar day. Neither is it necessary that the eight or more individuals be employed at the same moment of time or for any particular length of time or on any particular basis of compensation. It is sufficient if the total number of individuals employed during the 24 hours of a calendar day is eight or more, regardless of the period of service during that day or the basis of compensation. In determining whether a person employs a sufficient number of individuals to be an employer subject to the tax, no individual is counted unless he is engaged in the performance within the United States of services not excepted by section 907(c). (See articles 206 to 206(7), inclusive.) Art. 205. Employed individuals. — ^An individual is in the employ of another within the meaning of the Act if he performs services in an employment as defined in section 907(c). However, the relation- ship between the individual who performs such services and the person for whom such services are rendered must, as to those services, be the legal relationship of employer and employee. The Act makes no distinction between classes or grades of employees. Thus, super- intendents, managers, and other superior employees are employees within the meaning of the Act. The words " employ," " employer," and " employee," as used in this article, are to be taken in their ordinary meaning. An employer, however, may be an individual, a corporation, a partnership, a trust or estate, a joint-stock company, an association, or a syndicate, group, pool, joint venture, or other unincorporated organization, group, or entity. An employer may be a person acting in a fiduciary capacity or on behalf of another, such as a guardian, committee, trustee, execu- tor or administrator, trustee in bankruptcy, receiver, assignee for the benefit of creditors, or conservator. Whether the relationship of employer and employee exists, will in doubtful cases be determined upon an examination of the par- ticular facts of each ^case. Generally the relationship exists when the person for whom serv- ices are performed has the right to control and direct the individual who performs the services, not only as to the result to be accom- plished by the work but also as to the details and means by which that result is accomplished. That is, an employee is subject to the will and control of the employer not only as to whoct shall be done but how it shall be done. In this connection, it is not necessary that the employer actually direct or control the manner in which the services are performed ; it is sufficient if he has the right to do so. The right to discharge is also an important factor indicating that the person possessing that right is an employer. Other factors charac- teristic of an employer are the furnishing of tools and the furnishing of a place to work, to the individual who performs the services. In general, if an individual is subject to the control or direction of an- other merely as to the result to be accomplished by the work and not as to the means and methods for accomplishing the result, he is an independent contractor, not an employee. If the relationship of employer and employee exists, the desig- nation or description of the relationship by the parties as anything other than that of employer and employee is immaterial. Thus, if two individuals in fact stand in the relation of employer and employee to each other, it is of no consequence that the employee is designated as a partner, coadventurer, agent, or independent con- tractor. The measurement, method, or designation of compensation is also immaterial, if the relationship of employer and employee in fact exists. Individuals performing services as independent contractors are not employees. Generally, physicians, lawyers, dentists, veterina- rians, contractors, subcontractors, public stenographers, auctioneers, and others who follow an independent trade, business, or profession, in which they offer their services to the public, are independent contractors and not employees. An officer of a corporation is an employee of the corporation, but a director, as such, is not. A director may be an employee of the cor- poration, however, if he performs services for the corporation other than those required by attendance at and participation in meetings of the board of directors. SECTION 907(c) OF THE ACT The term " employment " means any service, of whatever nature, per- formed within the United States by an employee for his employer, except * * *. Art. 206. Excepted services generally. — (a) To constitute an " em- ployment " within the meaning of the Act the services performed by the employee must be performed within the United States, that is, within any of the several States, the District of Columbia, or the Territories of Alaska and Hawaii. To the extent that an employee performs services outside of the United States for the person who employs him, he is not in an " em- ployment " within the meaning of the Act, and to that extent he will not be counted for the purpose of determining whether the person who employs him is an "employer," within the meaning of the Act. Furthermore, remuneration payable to the employee for services which he performs outside of the United States is ex- cluded from the computation of wages upon which his employer's tax is based. However, if any services are performed by the employee within the United States, such services, unless specifically excepted by the Act (see articles 206(1) to 206(7), inclusive), constitute "em- ployment." In such case the employee is counted for the purpose of determining whether the person who employs him is an " employer," within the meaning of the Act, and the wages payable to the em- ployee on account of such services are included in the computation of wages for the purpose of determining the amount of the employer's tax. The place where the contract for services is entered into and the citizenship or residence of the employee or of the person who em- ploys him are immaterial. Thus, the employee and the person who employs him may be citizens and residents of a foreign country and the contract for the services may be entered into in a foreign country, and yet, if the employee under such contract actually performs serv- ices within the United States, there is to that extent an " employ- ment " within the meaning of the Act, and the person who has em- ployed such individual may be an " employer " within the meaning of the Act. (b) Even though the services of the employee are performed with- in the United States, if they are in a class which is excepted by the Act they are excluded for the purpose (1) of determining whether a person employs a sufficient number of individuals to be an em- ployer subject to the tax, and (2) of computing the total wages pay- able with respect to employment during the calendar year. The exception attaches to the services performed by the employee and not to the employee as an individual ; and the exception applies only for the period during which the individual is rendering services in an excepted class. Example: A, who operates a farm and also a grocery store, em- ploys B for $10 a week. B works on the farm five days of the week and works for one day of the week as a clerk in the grocery store. If the services which B performs on the farm constitute " agricul- tural labor" (see article 206(1)), such services are excepted by the Act ; the services performed as a clerk in the grocery store, however, are not excepted. Therefore, the time during which B works on the farm is not considered in determining whether A is an " employer," but the time during which B is working in the grocery store is so considered. Also, if A is an " employer," in computing the amount of wages payable, the part of the weekly salary of $10 which is attributable to the work on the farm is disregarded, while the amount which is attributable to the work performed in the grocery store is included. SECTION 907(c) OF THE ACT The term " employment " means any service * * * except — (1) Agricultural labor; * * * Art. 206(1). Agricultural labor. — The term "agricultural labor" includes all services performed — (a) By an employee, on a farm, in connection with the cultivation of the soil, the harvesting of crops, or the raising, feeding, or management of live stock, bees, and poultry ; or (5) By an employee in connection with the processing of articles from materials which were produced on a farm; also the packing, packaging, transportation, or marketing of those materials or articles. Such services do not constitute " agricultural labor," however, unless they are performed by an employee of the owner or tenant of the 76797°— 36 3 farm on which the materials in their raw or natural state were produced, and unless such processing, packing, packaging, transpor- tation, or marketing is carried on as an incident to ordinary farming operations as distinguished from manufacturing or commercial operations. As used herein the term " farm " embraces the farm in the ordi- narily accepted sense, and includes stock, dairy, poultry, fruit, and truck farms, plantations, ranches, ranges, and orchards. Forestry and lumbering are not included within the exception. SECTION 907(c) OF THE ACT The term " employineiit " means any service * * * except — (2) Domestic service in a private home; Akt. 206(2). Domestic service. — Services of a household nature per- formed by an employee in or about the private home of the person by whom he is employed are within the above exception. A private home is the fixed place of abode of an individual or • family. If the home is utilized primarily for the purpose of supplying board or lodging to the public as a business enterprise, it ceases to be a private home. In general, services of a household nature in or about a private home include services rendered by cooks, maids, butlers, valets, laun- dresses, furnacemen, gardeners, footmen, grooms, and chauffeurs of automobiles for family use. The services above enumerated are not within the exception if performed in or about rooming or lodging houses, boarding houses, fraternity houses, clubs, hotels, or commercial offices or establish- ments. SECTION 907(c) OF THE ACT The term " employment " means any service * * * except — (3) Service performed as an oflScer or member of the crew of a vessel on the navigable waters of the United States ; Art. 206(3). Officers and members of crews. — The expression "navi- gable waters of the United States " means such waters as are navi- gable in fact and which by themselves or their connection with other waters form a continuous channel for commerce with foreign countries or among the States. The word " vessel " includes every description of watercraf t or other contrivance, used as a means of transportation on water. It does not include any type of aircraft. The expression " officers and members of the crew " includes the master or officer in charge of the vessel, however designated, and every individual, subject to his authority, serving on board and contributing in any way to the operation and welfare of the vessel. The exception extends, for example, to services rendered by the master, mates, pilots, pursers, surgeons, stewards, engineers, firemen, cooks, clerks, carpenters, deck hands, porters, and chambermaids, and by seal hunters and fishermen on sealing and fishing vessels. SECTION 907 (c) OF THE ACT The term " employment " means any service * * * except — (4) Service performed by an individual in the employ of his son, daughter, or spouse, and service performed by a child under the age of twenty-one in the employ of his father or mother; Art. 206(4). Family employment. — ^Under section 907 (c) (4) cer- tain services are excepted because of the existence of a family rela- tionship between the employee and the person for whom he performs the services. The exceptions are as follows : (a) Services performed by a husband for his wife, or by a wife for her husband; (&) Services performed by a father or mother for a son or daughter; (c) Services performed by a son or daughter under 21 years of age for the father or mother. Under (a) and (5) the exception is conditioned solely upon the relationship of the employer to the employee. Under (c), in addi- tion to the relationship of parent and child, there is a further re- quirement that the child shall be under the age of 21, and the excep- tion continues only during the time that such child is under the age of 21. Services performed by an employee of a corporation, partnership, or other entity, are not within the exception. SECTION 907 (c) or THE ACT The term " employment " means any service * * « except — (5) Service performed in the employ of the United States Government or of an instrumentality of the United States ; (6) Service performed in the employ of a State, a political subdivision thereof, or an instrumentality of one or more States or political subdivisions; * Art. 206(5)-(6). Government employees. — Services performed by Federal and State employees are excepted. The exception extends to every service performed by an individual in the employ of the United States, the several States, the District of Columbia, or the Territory of Alaska or Hawaii, or any political subdivision or instru- mentality thereof, including every unit or agency of government, without distinction between those exercising functions of a govern- mental nature and those exercising functions of a proprietary nature. 10 SECTION 907 (c) OF THE ACT The term " employment " means any service * * * except — (7) Service performed in the employ of a corporation, com- munity chest, fund, or foundation, organized and operated ex- clusively for religious, charitable, scientific, literary, or educational purposes, 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 shareholder or individual. Aet. 206(7). Religious, charitable, scientific, literary, and edacational organizations and community chests. — Services performed by any em- ployee of an organization of the class specified in section 907(c) (7) are excepted. For the purpose of the exception the nature of the service is imma- terial; the statutory test is the character of the organization for which the service is performed. In all cases, in order to establish its status under the statutory classification, the organization must meet two tests : (1) It must be organized and operated exclusively for one or more of the specified purposes ; and (2) Its net income must not inure in whole or in part to the benefit of private shareholders or individuals. Corporations or other institutions organized and operated exclu- sively for charitable purposes comprise, in general, organizations for the relief of the poor. The fact that an organization established for the relief of indigent persons may receive voluntary contribu- tions from the persons intended to be relieved will not necessarily affect its status under the law. An educational organization within the meaning of the Aet is one designed primarily for the improvement or development of the capabilities of the individual, but, under exceptional circumstances, may include an association whose sole purpose is the instruction of the public, or an association whose primary purpose is to give lec- tures on subjects useful to the individual and beneficial to the com- munity, even though an association of .either class has incidental amusement features. An organization formed, or availed of, to disseminate controversial or partisan propaganda or which by any. substantial part of its activities attempts to influence legislation is not an educational organization within the meaning of section 907 (c) (7) of the Act. Since a corporation or other institution to be within the prescribed class must be organized and operated exclusively for one or more of the specified purposes, an organization which has certain religious purposes and also manufactures and sells articles to the public for u profit is not within the statutory class even though its property is held, in conmion and its profits do not inure to the benefit of indi- vidual members of the organization. An organization otherwise within the statutory class does not lose its status as such by receiving income such as rent, dividends and interest from investments, provided such income is devoted exclu- sively to one or more of the purposes specified in section 907(c) (7) of the Act. Money contributed by members of an organization to a common fund to be applied to the relief of the particular members of the organization or their families when in sickness, unemployed, in want, or under other disability, is not a charitable fund. If an organization has established its status under the law, it need not thereafter make a return or any further showing with respect to its status unless it changes the character of its organization or operations or the purpose for which it was originally created. Col- lectors will keep a list of all such organizations, to the end that they may occasionally inquire into their status and ascertain whether they are observing the conditions upon which their classification is predicated. SECTION 901 OF THE ACT On and after January 1, 1936, every employer (as defined in section 907) shall pay for each calendar year an excise tax, with respect to having individuals in his employ, equal to the following percentages of the total wages (as defined in section 907) payable by him (regardless of the time of payment) with respect to employment (asi defined in section 907) during such calendar year; * * * SECTION 907(b) OF THE ACT The term " wages " means all remuneration for employment, includ- ing the cash value of all remimeration paid in any medium other than cash. Art. 207. Wages. — The term " wages " means all remuneration for employment, whether payable in money or something other than money. The name by which such remuneration is designated is immaterial. Thus, salaries, commissions on sales or on insurance premiums, fees, and bonuses are wages within the meaning of the Act if payable by an employer to his employee as compensation for services not excepted by the Act. The basis upon which the remuner- ation is payable, the amount of remuneration, and the time of pay- ment, are immaterial in determining whether the remuneration con- stitutes " wages." Thus, it may be payable on the basis of piecework, or a percentage of profits; and it may be payable hourly, daily, weekly, monthly, or annually. 12 The medium, in which the remuneration is payable is also imma- terial. It may be payable in cash or in something other than casli, such as goods, lodging, food, and clothing. Ordinarily, facilities or privileges (such as entertainment, cafe- terias, restaurants, medical services, or so-called " courtesy " dis- coimts on purchases), furnished or offered by an employer to his employees generally, are not considered as remuneration for services if such facilities or privileges are offered or furnished by the em- ployer merely as a convenience to the employer or as a means of promoting the health, good vsdll, contentment, or efficiency of his employees. Ain. 208. Exclusion from wages. — Excluded from the computation of wages is aU rem.uneration payable by an employer to an employee for services which are excepted by section 907(c), or which are performed outside of the United States. (See articles 206 to 206(7), inclusive.) Art. 209. Items included as wages. — (a) General. — The total wages payable by an employer to his employees with respect to employ- ment during any calendar yeai- shall include (A) items payable and actually paid during that calendar year and (B) items payable but not actually paid during that calendar yeax. (A) Items actually paid shall include: (1) Oash; and (2) The fair value, at the time of payment, of all items other than money. (B) Items payable but not actually paid shall include: (1) The amount of all remuneration agreed by the employer to be paid to the employee ; ajid (2) The fair and reasonable value of all services performed with respect to employment during the calendar year, if there is no agree- ment between the employer and the employee as to the amount of remuneration for such services ; and (3) The fair estimated amount of all remuneration, if the basis of such remuneration has been agreed upon between the employer and the employee but the exact amount ultimately to be paid can not be determined until a subsequent year; and (4) The pro rata or other amount, fairly estimated or allocated, of the total remuneration agreed to be paid by the employer to the employee, if such total remuneration is for services rendered in part in the calendar year and in part in a different year or years. (5) When remuneration for services performed in a calendar year is paid, or when an obligation to pay such remuneration arises, in a subsequent calendar year, the employer is required to advise the col- lector under oath of the amount thereof (if not reported in the re- turn for the calendar year during which the services were performed) 13 and to pay any tax with respect thereto at the rate in effect for the calendar year during which the services were performed. (See article 210 (&).) (&) Dismissal wages. — Payment to an employee of so-called dis- missal wages, vacation allowances, or sick pay, constitutes wages. (c) Traveling and other expenses. — Amounts paid to traveling salesmen or other employees as allowance or reimbursement for traveling or other expenses incurred in the business of the employer constitute wages only to the extent of the excess of such amounts over such expenses actually incurred and accounted for by the employee. (d) Premiums on life iiisurance. — Generally, premiums paid by an employer on a policy of life insurance covering the life of an employee constitute -wages if the employer is not a beneficiary under the policy. However, premiums paid by an' employer on policies of group life insurance covering the lives of his employees are not wages, if the employee has no option to take the amount of the premiums instead of accepting the insurance and has no equity in the policy (such as the right of assignment or the right to the surrender value on termi- nation of his employment). (e) Deductions hy an employer from remjuneration of an em,- ployee. — ^Amounts deducted from the remuneration of an employee by an employer constitute wages paid to the employee at the time of such deduction. It is iromaterial that the Act, or any Act of Congress or the law of any State, requires or permits such deduction and the payment of the amount thereof to the United States, a State, or any political subdivision thereof (see section 1101(c)). (/) Payments hy em/ployers into employees' fimds. — ^Payments made by an employer into a stock bonus, pension, or profit-sharing fund constitute wages if such payments inure to the exclusive benefit of the employee and may be withdrawn by the employee at any time, or upon resignation or dismissal, or if the contract of employment regmres such payment as part of the compensation. Whether or not under other circumstances such payments constitute wages depends upon the particular facts of each case. Art. 210. Adjustments of tax. — {a) If the amount of wages payable with respect to employment during the calendar year is computed and reported by the taxpayer in his return for such year, at an amount greater than the amount which is subsequently determined to have been payable, the overpayment of tax shall be refunded or credited. (See article 503 for general provisions applicable with respect to claims for refund or credit.) 14 (6) If the amount of wages payable vdth respect to employment during the calendar year is computed and reported by the taxpayer in his return for such year, at an amount less than the amount which is subsequently determined to have been actually payable, the tax- payer shall file with the collector a statement under oath of the amount of the difference, and the tax shall be paid with respect to such difference. SECTION 902 OF THE ACT The taxpayer may credit against the tax Imposed by section 901 the amount of contributions, with respect to employment during the tax- able year, paid by him (before the date of filing his return for the tax- able year) into an unemployment fund under a State law. The total credit allowed to a taxpayer under this section for all contributions paid into unemployment funds with respect to employment during such taxable year shall not exceed 90 per centum of the tax against which it is credited, and credit shall be allowed only for contributions made under the laws of States certified for the taxable year as provided in section 903. SECTION 907(e) OF THE ACT The term " unemployment fund " means a special fund, established under a State law and administered by a State agency, for the pay- ment of compensation. SECTION 907(f) or THE ACT The term " contributions " means payments required by a State law to be made by an employer into an unemployment fund, to the ex- tent that such payments are made by him without any part thereof being deducted or deductible from the wages of individuals in his employ. Art. 211. Credit of contributions against tax. — (a) Subject to the limitations hereinafter prescribed in paragraph (&), the taxpayer may credit against the tax the total amount of bis contributions under all State laws which have been found by the Social Security Board to contain the provisions .specified in section 903(a) of the Act ; provided that no credit may be taken for a contribution under a State law if such State has not been duly certified for the calendar year to the Secretary by the Social Security Board. (6) The allowance of contributions as credit a,gainst the tax is subject to the following limitations : (1) The total credit allowed to any taxpayer for such contribu- tions shall not in any case exceed 90 per cent of the tax against which such credit is applied. ExcMnple (a) : On January 15, 1937, M Company, engaged in the manufacture of typewriters, actually pays contributions, with respect to employment in 1936, totaling $6,200 into the unemployment com- pensation fund of State A, and contributions totaling $3,000 into the 15 unemployment compensation fund of State B. The M Company files its return on January 31, 1937, which, discloses a total tax of $10,000. Of the total contributions of $9,200, the M Company may credit only the amount of $9,000 against the tax of $10,000 disclosed by the return. The result is that a tax of $1,000 is due and payable by M Company. Exam/pie (&).• If in example (a), above, M Company pays total contributions of only $7,500 into the unemployment compensation funds of State A and State B, the total tax due and payable for the year 1936 is $2,500 ($10,000 minus $7,500). (2) The contributions must have been actually paid into the State unemployment fund before the date on which the return for the calendar year is required to be filed. (This date is January 31 next following the close of the calendar year unless the time for filing the return is extended. See articles 303 to 305.) Examiple: The return of employer A for the calendar year 1936 is filed on January 31, 1937, and proper credit taken therein for contributions actually paid into a State unemployment fund prior to that date. Thereafter, in June, 1937, additional contributions are paid by A to a State fund with respect to employment during the calendar year 1936. No part of such additional contributions is allowable as credit against the tax for the calendar year 1936, or for any other calendar year. (3) The contributions must have been paid with respect to em- ployment as defined in section 907(c) , that is, with respect to services performed by an employee within the United States and not ex- cepted by the Act. (See articles 206 to 206 (7) , inclusive.) Example: Contributions are paid by employer A into a State unemployment fund with respect to domestic services in a private home and also with respect to other services not excepted by section 907(c). Such part of the contributions as was paid with respect to the domestic services in a private home (a class of service excepted by section 907(c) of the Act) is not an allowable credit against the tax. (4) The contributions must have been paid with respect to services performed during the calendar year covered by the return. Exwmple: During 1936, contributions are paid by employer A into a State unemployment fund with respect to services performed dur- ing the calendar year 1936, and also with respect to services per- formed during 1935. Only contributions paid with respect to serv- ices performed in 1936 are allowable as credit against the tax for the calendar year 1936. ((?) If, subsequent to the filing of the return, a refund is made by a State to the taxpayer of any part of his contributions credited 76797°— 36 4 16 against the tax, the taxpayer is required to advise the Commissioner under oath of the date and amount of such refund and the reason therefor, and to pay the tax, if any, due as a result of such refund, together with interest from the date when the tax was due. Aet. 212. Proof of credit. — Credit against the tax for contributions paid into State unemployment funds shall not be allowed unless the taxpayer claiming such credit shall have submitted to the Commis- sioner : (1) A certificate of the proper officer of each State (the laws of which required the contributions to be paid) showing (a) the total amount of required contributions (exclusive of penalties and in- terest) actually paid under each law of the State which has been found by the Social Security Board to contain the provisions speci- fied in section 903(a) of the Act; (5) the am^ount of penalties and interest, if any; (c) the amount of contributions paid with respect to each class of services excepted by section 907(c) ; (d) the calendar year of the employment with respect to which contributions were paid; (e) the date upon which each such contribution was paid; (/) whether a claim for refund of such contributions or any part thereof is pending; and (^) whether a refund of such contributions or any part thereof has been authorized or paid. If any refund has been authorized or paid, such certificate must show the date, the amount thereof, and the grounds therefor. (2) An affidavit by the taxpayer that no part of any payment made by him into a State unemployment fund, which is claimed as a credit against the tax, was deducted or is to be deducted from the wages of individuals in his employ. The Commissioner may require the submission of such additional proof as he may deem necessary to establish the right to the credit provided for under section 902. (See article 211.) Chapter III RETURNS AND RECORDS SECTION 905(b) OP THE ACT Not later than January 31, next following the close of the taxable year, each employer shall make a return of the tax under this title for such taxable year. Each such return shall be made under oath, shall be filed with the collector of internal revenue for the district in which is located the principal place of business of the employer, or, if he has no principal place of business in the United States, then with the collector at Baltimore, Maryland, and shall contain such information and be made in such manner as the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, may by regulations prescribe. * * * The Commissioner may extend the time for filing the return of the tax imposed by this title, under such rules and regulations as he may prescribe with the approval of the Secretary of the Treasury, but no such extension shall be for more than sixty days. * * * All provisions of law (including penalties) applicable in respect of the taxes imposed by section 600 of the Revenue Act of 1926, shall, insofar as not inconsistent with this title, be applicable in respect of the tax imposed by this title. * * * [The applicable provisions of law will be considered hereinafter under appropriate subjects.] SECTION 1102 OF THE REVENUE ACT OF 1926, MADE APPLICABLE BY SECTION 905(b) OF THE ACT (a) Every person liable to any tax imposed by this Act, or for the collection thereof, shall keep such records, render under oath such statements, make such returns, and comply with such rules and regu- lations, as the Commissioner, with the approval of the Secretary, may from time to time prescribe. (b) Whenever in the judgment of the Commissioner necessary he may require any ijerson, by notice served upon him, to make a return, render under oath such statements, or keep such records as the Commissioner deems sufficient to show whether or not such person is liable to tax. (c) The Commissioner, with the approval of the Secretary, may by regulation prescribe that any return required by any internal revenue law (except returns required under income or estate tax laws) to be under oath may, If the amount of the tax covered thereby is not in excess of $10, be signed or acknowledged before two witnesses instead of under oath. (d) Any oath or affirmation required by the provisions of this Act or regulations made under authority thereof may be administered by any officer authorized to administer oaths for general purposes by the law of the United States or of any State, Territory, or possession of the United States, wherein such oath or affirmation is administered, or by any consular officer of the United States. (17). 18 SECTION 3165 OF THE UNITED STATES REVISED STATUTES, REENACTED BY SECTION 1115 OF THE REVENUE ACT OF 1926 Every collector, deputy collector, internal-revenue agent, and Internal- revenue officer assigned to duty under an internal-revenue agent, is authorized 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. SECTION 1104 OF THE REVENUE ACT OF 1926, AS AMENDED BY SECTION 618 OF THE REVENUE ACT OF 1928 The Commissioner, for the purpose of ascertaining the correctness of any return or for the purpose of making a return where none has been made, is hereby authorized, by any officer or employee of the Bu- reau of Internal Revenue, including the field service, designated by biin for that purpose, to examine any books, papers, records, or mem- oranda 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 testi- mony with reference to the matter required by law to be included in such return, with power to administer oaths to such person or persons. SECTION 3176 OF THE UNITED STATES REVISED STATUTES, AS AMENDED BY SECTION 1103 OF THE REVENUE ACT OF 1926 If any person, corporation, company, or association 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 testimony or otherwise. In any such case the Commissioner of Internal Revenue 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 collector. Any return or list so made and subscribed by the Commissioner, or by a collector or deputy collector and approved by the Commissioner, shall be prima facie good and sufficient for all legal purposes. * * * Art. 300. Returns. — Every employer (see article 204) shall make a return under oath on Form 940 for each calendar year according to the instructions thereon and the regulations applicable thereto. The first year for which returns are required is the calendar year 1936. Copies of these prescribed forms may be obtained from collectors of internal revenue. Each, corporation subject to the tax shall render a separate return. Art. 301. Verification of returns. — ^Except as provided below, returns must be verified under oath or affirmation, which may be administered by any officer duly authorized to administer oaths for general pur- poses by the law of the United States or of any State or Territory, wherein such oath is administered, or by a consular officer of the United States. Returns executed abroad may be attested free of 19 charge before United States consular officers. If a foreign notary or other official having no seal shall act as attesting officer, the authority of such attesting officer should be certified to by some judicial official or other proper officer having knowledge of the appointment and official character of the attesting officer. If the amount of the tax is $10 or less, the return may be signed or acknowledged before two witnesses instead of under oath. Eeturns of corporate employers shall be sworn to by the president, vice president, or other principal officer, and by the treasurer, assistant treasurer, or chief accounting officer of the corporation. The return of a partnership or other unincorporated organization shall be sworn to by a responsible and duly authorized member having knowledge of its affairs and, if the partnership or other unincorporated organization has a manager or chief executive officer, by such manager or chief executive officer. Aet . 302. Use of prescribed forms. — Copies of the prescribed return form may be obtained by taxpayers from collectors. A taxpayer will not be excused from making a return because of the fact that no return form has been furnished to him. Taxpayers should make application for the form to the collector in ample time to have their returns prepared, verified, and filed with the collector on or before the due date. Each taxpayer should carefully prepare his return so as fully and clearly to set forth the data therein called for. Imper- fect or incorrect returns will not be accepted as meeting the require- ments of the Act. In lack of a prescribed form, a statement made by a taxpayer disclosing the amount of wages payable by him with respect to employment during the calendar year may be accepted as a tentative return, and if filed within the prescribed time the state- ment so made will relieve the taxpayer from liability to penalties, provided that without unnecessary delay such tentative return is supplemented by a return made on the proper form. (See article 304, relating to due date of return.) Art. 303. Time and place for filing returns. — Returns are required to be made on the calendar year basis on or before January 31 next following the close of the calendar year, and must be filed with the collector of internal revenue for the district in which is located the principal place of business of the employer, or if the employer has no principal place of business in the United States, the return must be filed with the collector of internal revenue at Baltimore, Md. Art. 304. Extensions of time for filing returns. — It is important that the taxpayer render on or before January 31, next following the close of the taxable year, a return as nearly complete as it is possible for him to prepare. However, the Commissioner is authorized to grant an extension of time for not more than 60 days for filing returns, under such rules and regulations as he may prescribe with the ap- 20 proval of the Secretary. Accordingly, authority for granting exten- sions of time for filing returns is hereby delegated to th« several collectors of internal revenue. Application for extensions of time for filing returns should be addressed to the collector of internal revenue for the district in which the taxpayer files his returns and must contain a full recital of the causes for the delay. For exten- sions of time for payment of tax, see article 401. Art. 305. Due date of return. — The due date is the latest date on which a return is required to be filed in accordance with the provi- sions of the Act or the last day of the period covered by an exten- sion of time granted by the Commissioner or a collector. When the due date falls on a Sunday or a legal holiday, the due date for fil- ing returns will be the day following such Sunday or legal holiday. If placed in the mails, the return should be' posted in ample time to reach the collector's office, under ordinary handling of the mails, on or before the date on which the return is required to be filed. If a return is made and placed in the mails in due course, properly ad- dressed and postage paid, in ample time to reach the office of the collector on or before the due date, no penalty will attach should the return not actually be received by such officer until subsequent to that date. As to additions to the tax in the case of failure to file a return within the prescribed time, see article 502. If an employer ceases business, his last return shall be marked " Final return." SECTION 905(c) OF THE ACT Returns filed under this title sliaU be open to insi)ection in the same manner, to the same extent, and subject to the same provisions of law, including penalties, as returns made under Title II of the Revenue Act of 1926. Art. 306. Inspection of returns. — Pursuant to the above provision, the inspection of returns made under Title IX of the Act is governed by the provisions of sections 257 and 1203(d) of the Revenue Act of 1926. (See Appendix B, paragraphs 20 and 21.) The returns upon which the tax has been determined by the Com- missioner, although public records, are open to inspection only to the extent authorized by the President (except as otherwise expressly provided) under rules and regulations promulgated by the Secretary of the Treasury and approved by the President. SECTION 1102 OF THE REVENUE ACT OF 1926, MADE APPLICABLE BY SECTION 905(b) OF THE ACT (a) Every person liable to any tax imposed by this Act, or for the collection thereof, shall keep such records, render under oath such statements, make such returns, and comply with such rules and regu- lations, as the Commissioner, with the approval of the Secretary, may from time to time prescribe. 21 (b) Whenever in the judgment of the. Commissioner necessary he may require any person, by notice served upon him, to make a return, render under oath such statements, or keep such records as the Com- missioner deems sufficient to show whether or not such person is liable to tax. SECTION 1114(a) OP THE REVENUE ACT OP 1926, MADE APPLICABLE BY SECTION 905(b) OP THE ACT (a) Any i)erson required under this Act to pay any tax, or required by law or regulations made under authority thereof to make a return, keep any records, or supply any information, for the purposes of the computation, assessment, or collection of any tax imposed by this Act, who willfully fails to pay such tax, make such return, keep such rec- ords, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than one year, or both, together with the costs of prosecution. Art. 307. Records. — (a) Every person subject to tax under the Act shall, during the calendar year 1936 or any calendar year thereafter, for each such calendar year, keep such permanent records as are necessary to establish : (1) The total amount of remuneration payable to his employees in cash or in a medium other than cash, showing separately, (a) total remuneration payable with respect to services excepted by section 907(0), (5) total remuneration payable with respect to services per- formed outside of the United States, (c) total remuneration payable with respect to all other services. (2) The amount of contributions paid by him into any State un- employment fund, with respect to services during the calendar year not excepted by section 907(c), showing separately (a) payments made and not deducted (or to be deducted) from the remuneration of employees, (h) payments made and deducted (or to be deducted) from the remuneration of employees; and also the amount of con- tributions paid by him into any State unemployment fund with respect to services excepted by section 907(c). (3) The information required to be shown on the prescribed return and the extent to which such person is liable for the tax. (5) No particular method of accounting or form of record is pre- scribed. Each person may adopt such records and such method of accounting as may best meet the requirements of his own business, provided that they clearly and accurately show the information re- quired above, and enable him to make a proper return on the pre- scribed form. (0) Records are not required to show the number of individuals employed on any day, but must show the total amount of remunera- 22 tion actually paid during each calendar month and the number of individuals employed during each calendar month or during each such lesser period as the employer may elect. {d) Any person who employs individuals during any calendar year but who considers that he is not an employer subject to the tax (see articles 203 and 204), should be prepared to establish by proper records (including, where necessary, records of the number of persons employed each day) that he is not an employer subject to the tax. {e) All records required by these regulations shall be kept safe and readily accessible at the place of business of the person required to keep such records. Such records shall at aU times be open for in- spection by internal revenue officers, and shall be preserved for a period of at least four years from the due date of the tax for the calendar year to which they relate. Art. 308. Termination of business. — ^Any employer who contem- plates either discontinuing business by retirement therefrom or a merger, consolidation, or reorganization involving the transfer of assets, shall immediately give notice in writing of that fact. If an indi\'idual subject to the tax dies, notice of his death shall be given in writing by the executor or administrator of his estate as soon as practicable thereafter. In the case of bankruptcy or receivership proceedings, or a proceeding for the relief of a dehtor who is an em- ployer, the trustee in bankruptcy, receiver, or person designated by order of the court as in control of the assets of the debtor, shall give notice in writing of the adjudication of bankruptcy, the appointment of the receiver, or the filing of the debtor's petition or answer in a proceeding for the relief of debtors under sections Y4, 75, 77, and 77B of the National Bankruptcy Act, as amended, and of the approval of the debtor's petition or answer under section 77B of that Act. The notice required under this article shall be addressed to the Secretary of the Treasury, Attention of Commissioner of Internal Revenue, Washington, D. C. Chapter IV PAYMENT OF THE TAX SECTION 905(a) OF THE ACT The tax imposed by this title shall be collected by the Bureau of Inter- nal Revenue under the direction of the Secretary of the Treasury and shall be paid into the Treasury of the United States as internal-revenue collections. ♦ ♦ * SECTION 600 OF THE REVENUE ACT OF 1926, MADE APPLICABLE BY SECTION 905(b) OF THE ACT (b) The tax shall, without assessment by the Commissioner or notice from the collector, be due and payable to the collector at the time so fixed for filing the return. » * * SECTION 905(b) OF THE ACT (b) Not later than January 31, next following the close of the tax- able year, each employer shall make a return of the tax under this title for such taxable year. * * * SECTION 905(d) OP THE ACT The taxpayer may elect to pay the tax in four equal installments instead of in a single payment, in which case the first installment shall be paid not later than the last day prescribed for the filing of returns, the second installment shall be paid on or before the last day of the third month, the third installment on or before the last day of the sixth month, and the fourth installment on or before the last day of the ninth month, after such last day. If the tax or any installment thereof is not paid on or before the last day of the period fixed for its payment, the whole amount of the tax unpaid shall be paid upon notice and demand from the collector. SECTION 905(e) OF THE ACT At the request of the taxpayer the time for payment of the tax or any installment thereof may be extended under regulations prescribed by the Commissioner with the approval of the Secretary of the Treasury, for a period not to exceed six months from the last day of the period prescribed for the payment of the tax or any installment thereof. The amount of the tax In respect of which any extension is gi-anted shall be paid (with interest at the rate of one-half of 1 per centum per month) on or before the date of the expiration of the period of the extension. SECTION 905(f) OF THE ACT In the payment of any tax under this title a fractional 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. 76797°— 36— —5 (23) 24 Aet. 400. Payment of tax. — The tax is due and payable to the collec- tor of internal revenue referred to in article 303 without assessment by the Commissioner or notice or demand from the said collector on the date fixed by law for filing the return (the 31st day of Janu- ary following the close of each calendar year beginning after Decem- ber 31, 1935) for which the tax is due. The tax may, at the option of the taxpayer, be paid in four equal installments instead of in a single payment, in which case the first installment is to be paid on or before January 31, the second installment on or before April 30, the third installment on or before July 31, and the fourth installment on or before October 31. If the taxpayer elects to pay the tax in four installments, each installment must be equal in amount; but any in- stallment may be paid, at the election of the taxpayer, prior to the date prescribed for its payment. If the tax or any installment thereof is not paid in full on or before the date fixed for its payment either by the Act or by the Commissioner in accordance with the terms of an extension of time granted for the payment of the tax or installment, the whole amount of the tax unpaid shall be paid upon notice and demand from the collector. (See article 502, relating to interest and penalties.) Akt. 401. Extension of time for payment of the tax or installment thereof. — If it is shown to the satisfaction of the Conmiissioner that the payment of the tax or any part or installment thereof upon the date or dates prescribed for the payment thereof will result in undue hardship to the taxpayer, the Commissioner, at the request of the taxpayer, may grant an extension of time for the payment for a period not to exceed six months from the date prescribed for the pay- ment of such amount or installment. The extension will not be granted upon a general statement of hardship. The term "undue hardship " means more than an inconvenience to the taxpayer. It must appear that substantial financial loss, for example, due to the sale of property at a sacrifice price, will result to the taxpayer from making payment of the amount at the due date. If a market exists, the sale of property at the current market price is not ordinarily considered as resulting in an undue hardship. An application for an extension of time for the payment of such tax, part or installment, should be made under oath on the prescribed form, and must be accompanied or supported by evidence showing the undue hardship that would result to the taxpayer if the extension were refused. A sworn statement of assets and liabilities of the taxpayer is required and should accompany the application. An itemized statement showing all receipts and disbursements for each of the three months preceding the due date of the tax or installment shall also be submitted. The application with the evidence must be filed with the collector, who will at once transmit it to the Coihmis- 25 sioner, with his recommendati&ns as to the extension. When it is received by the Conamissioner it will be examined inunediately and, if possible, within 30 days will be rejected, approved, or tentatively approved, subject to certain conditions of which the taxpayer will be immediately notified. The Commissioner will not consider an appli- cation for an extension of time for the payment of a tax or installment unless such application is mad© in writing, and is made to the collec- tor on or before the due date of the tax or installment thereof for which the extension is desired, or on or before the date or dates prescribed for payment in any prior extension granted. As a condition to the granting of such an extension, the Commis- sioner wiU usually require the taxpayer to furnish a bond on the pre- scribed form in an amount not exceeding double the amount of the tax or installment or to furnish other security satisfactory to the Com- missioner for the payment of the tax, or installment thereof, on the date prescribed for payment in the extension, so that the risk of loss to the Government will not be greater at the end of the extension period than it was at the beginning of the period. If a bond is re- quired it must be filed with the collector within 10 days after notifi- cation by the Commissioner that such bond is required. It shall be conditioned upon the payment of the tax, or installment, the interest, and additional amounts assessed in connection therewith in accord- ance with the terms of the extension granted, and shall be executed by a surety company holding a certificate of authority from the Sec- retary of the Treasury as an acceptable surety on Federal bonds, and shall be subject to the approval of the Commissioner. In lieu of such a bond, the taxpayer may file a bond secured by deposit of bonds or notes of the United States equal in their total par value to an amount not exceeding double the amount of the tax, or installment thereof. (See section 1126 of the Eevenue Act of 1926, as amended, Appendix B, paragraph 3.) A request by the taxpayer for an extension of time for the payment of one installment does not operate to procure an extension of time for payment of subsequent installments. Nor does an extension of time for filing a return operate to extend the time for the payment of the tax or any part thereof, unless so speci- fied in the extension. If an extension of time for payment of the tax or any installment is granted, the amount, time for payment of which is so extended, shall be paid on or before the expiration of the period of the extension, together with interest at the rate of one- half of 1 per cent per month on such amount from the date when the payment should have been made if no extension had been granted until the expiration of the period of the extension. (See section 905(e).) Art. 402. fractional part of a cent. — In the payment of the tax or any installment thereof a fractional part of a cent shall be disregarded 26 unless it amounts to one-half cent or more, in which case it shall be increased to 1 cent. Fractional parts of a cent should not be disre- garded in the computation of the tax or any installment thereof. SECTION 1118(a) OF THE REVENUE ACT OF 1926 Collectors may receive, at par with an adjustment 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 rules and regulations as the Com- missioner, with the approval of the Secretary, 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 l^al penalties and additions to the same extent as if such check had not been tendered. SECTION 1 OF THE ACT OF MARCH 2, 1911 (36 STAT., 965), AS AMENDED BY THE ACT OF MARCH 3, 1913 (37 STAT.. 733) It shall be lawful for collectors of internal revenue to receive for Internal taxes and all public dues certified checks drawn on National and State banks, and trust companies during such time and under such regulations as the Secretary of the Treasury may prescribe. No person, however, who may be indebted to the United States on account of internal taxes who shall have tendered a certified check or checks as provisional payment for such duties or taxes, in accordance with the terms of this section, shall be released from the obligation to make ultimate payment thereof until such certified check so received has been duly paid ; and if any such check so received is not duly paid by the bank on which it is drawn and so certifying, the United States shall, in addition to its right to exact payment from the party origi- nally indebted therefor, have a lien for the amount of such check upon aU the assets of such bank; and such amount shall be paid out of its assets in preference to any or all other claims whatsoever against said bank, except the necessary costs and expenses of adminis- tration and the reimbursement of the United States for the amount expended in the redemption of the circulating notes of such bank. Apt. 403. Method of payment. — {a) Payment of taas hy uncertifisd checks. — Collectors may receive uncertified checks in payment of the tax if such checks are collectible at par — that is, for their full amount, without deduction for exchange or other charges. The collector will stamp on the face of each check before deposit the words " This check is in payment of an obligation to the United States and must be paid at par. No protest," with his name and title. (&) Procedure with, respect to dishonored checks. — If the bank upon which any such check is drawn should, for any reason, refuse to pay it at par, the check should be returned through the depositary bank and treated as a dishonored check. All expenses incident to the attempt to collect such check and the return of it through the depositary bank must be paid by the drawer of the check, since no 27 deduction, can be made from amounts received in payment of taxes. If any taxpayer whose check has been returned uncollected by the depositary bank should fail at once to make the check good, or to pay the ajnount thereof, the collector should proceed to collect the tax as though no check had been given. A taxpayer who tenders a check, whether certified or not, in payment of taxes is not released from his obligation until the check has been paid. Chapter V MISCELLANEOUS PROVISIONS JEOPARDY ASSESSMENTS SECTION 1105 OF THE REVENUE ACT OF 1932, AS AMENDED BY SECTION 510 OF THE REVENUE ACT OF 1934 (a) If the Commissioner believes that the collection of any tax (other than income tax, estate tax, and gift tax) under any provision of the internal-revenue laws will be jeopardized by delay, he shall, whether or not the time otherwise prescribed by law for making return and paying such tax has expired, immediately assess such tax (together with all interest and penalties the assessment of which is provided for by law). Such tax, penalties, and interest shall thereupon become immediately due and payable, and immediate notice and demand shall be made by the collector for the payment thereof. Upon failure or refusal to pay such tax, penalty, and interest, collection thereof by dis- traint shall be lawful without regard to the period prescribed in section 3187 of the Eevised Statutes, as amended. (b) The collection of the whole or any part of the amount of such assessment may be stayed by filing with the collector a bond in such amount, not exceeding double the amount as to which the stay is de- sired, and with such sureties, as the collector deems necessary, condi- tioned upon the payment of the amount collection of which is stayed, at the time at which, but for this section, such amount would be due. Art. 500. Jeopardy assessment — Immediate collection of the tax. — (a) Whenever, in the opinion of the collector, the collection of the tax will be jeopardized by delay, he should report the case promptly to the Commissioner by telegram or letter. The communication should recite the full name and address of the person involved, the amount of taxes due, the period involved, and any other pertinent facts. (i) If a jeopardy assessment is made, the taxpayer may stay the collection of the tax by filing with the collector a bond in such amount, not exceeding double the amount of the tax, and with such sureties, as the collector deems necessary, conditioned upon the pay- ment of the tax at the usual time. In lieu of surety or sureties the taxpayer may deposit with the collector bonds or notes of the United States having a par value not less than the amount of the bond re- quired to be furnished, together with an agreement authorizing the collector to collect and sell such bonds or notes so deposited in case of default. (See paragraph 3, Appendix B.'> (28^ 29 CLOSING AGREEMENTS SECTION C06 (a) AND (b) OF THE REVENUE ACT OF 1928 (a) Awthorwation. — The Commissioner (or any officer or employee of the Bureau of Internal Revenue, including the field service, au- thorized in writing by the Commissioner) is authorized to enter into an agreement in writing with any person relating to the liability of such person (or of the person or estate for whom he acts) In respect of any internal-revenue tax for any taxable period ending prior to the date of the agreement. (b) Finality of agreements. — If such agreement is approved by the Secretary, or the Undersecretary, within such time as may be stated in such agreement, or later agreed to, such agreement shall be final and conclusive, and, except upon a showing of fraud or malfeasance, or misrepresentation of a material fact — (1) the case shall not be reopened as to the matters agreed upon or the agreement modified, by any officer, employee, or agent of the United States, and (2) In any suit, action, or proceeding, such agreement, or any determination, assessment, collection, payment, abatement, refund, or credit made in accordance therewith, shall not be annulled, modi- fied, set aside, or disregarded. Akt. 501. Closing agreements. — Agreements for the final determina- tion of taxes may be entered into under the provisions of section 606 (a) and (b) of the Kevenue Act of 1928. Such closing or final agreements may relate to any taxable period ending prior to the date of the agreement. Such an agreement may be executed even though under such agreement the taxpayer is not liable for any tax for the period covered by the agreement. The matter agreed upon may relate to the total tax liability of the taxpayer or it may relate to one or more separate items affecting the tax liability of the taxpayer. Accord- ingly, there may be a series of agreements relating to the tax liability for a single taxable period. INTEREST AND PENALTIES SECTION 905(a) OF THE ACT * * * If the tax is not paid when due, there shall be added as part of the tax interest at the rate of one-half of 1 per centum per month from the date the tax became due until paid. * * * SECTION 404 OF THE REVENUE ACT OF 1935 Notwithstanding any provision of law to the contrary, interest accru- ing during any period of time after the date of the enactment of this Act upon any internal-revenue tax (including amounts assessed or collected as a part thereof) or customs duty, not paid when due, shall be at the rate of 6 per centum per annum. 30 SECTION 406 OF THE REVENUE ACT OF 1935 In the case of a failure to make and file an internal-revenue tax return required by law, within the time prescribed by law or prescribed by the CJommissioner in pursuance of law, if the last date so prescribed for filing the return is after the date of the enactment of this Act, if a 25 per centum addition to thei tax is prescribed by existing law, then there shall be added to the tax, in Ueu of such 25 per centum : 5 per centum if the failure is for not more than 30 days, with an additional 5 per centum for each additional 30 days or fraction thereof during which failure continues, not to exceed 25 per centum in the aggregate. SECTION 3176, AS AMENDED, UNITED STATES REVISED STATUTES AS AMENDED BY SECTION 1103 OF THE REVENUE ACT OF 1926 * * * In case of any failure to make and file a return or list within the time prescribed by law, or prescribed by the Commissioner of Internal Revenue or the collector in pursuance of law, the Commis- sioner 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 fraudulent return or list is willfully made, the Commissioner shall add to the tax 50 per centum of its amount. The amount so added to any tax shall be collected at the same time and in tlie same manner and as a 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. SECTION 3184 OF THE UNITED STATES REVISED STATUTES SHX3. 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 Revenue, give notice to each person liable to pay any taxes stated therein, to be left at his dwelling or usual place of business, or to be aent 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 additional upon the amount of taxes, and interest at the rate of one per centum a month. Aet. 502. Interest and penalties. — ^A failure to file a return when due causes to accrue, under the provisions of section 406 of the Revenue Act of 1935, a penalty of from 5 per cent to 25 per cent of the amount of the tax, depending upon the period of delinquency. Failure to pay the tax when due and payable causes to accrue, under the provisions of section 404 of the Revenue Act of 1935, interest at the rate of one-half of 1 per cent a month from the time when the tax became due until assessed, or until paid prior to assess- ment. 31 If assessment is made of the tax, penalty, or interest, and pay- ment is not made within 10 days after the issuance of the form for first notice and demand, based on assessment approved by the Commis- sioner, there will accrue under section 3184, Eevised Statutes, a 5 per cent penalty and interest at the rate of one-half of 1 per cent per month (see section 404 of the Kevenue Act of 1935) computed on the entire assessment (including penalty and interest, if any) from 10 days after issuance of said form until date of payment. In cases where assessment is settled by partial payments, interest should be computed from the expiration of the first 10-day notice through the date of the first payment and from the next succeeding day to the date of the next payment, until the assessment is paid in full. If a claim for abatement is filed with the collector within 10 days after the date of the issuance of the first notice and demand, the 5 per cent penalty does not attach. If the assessment is not paid within 10 days after receipt of notice of rejection of the claim, the 5 per cent penalty applies. The filing of the claim does not stay the running of interest, which continues to run for the full period that intervenes between the date of expiration of the first notice and demand and the date of payment. If a false or fraudulent return be willfully made, the penalty under section 3176 of the Revised Statutes is 50 per cent of the total tax. Under section 1114 of the Revenue Act of 1926 (see paragraph 17, Appendix B) any person who willfully fails to pay or collect any tax due, file return, or keep records, or who attempts in any manner to evadis or defeat the tax, is subject to a fine of $10,000 or imprison- ment, or both, with costs of prosecution, and is also liable to a penalty equal to the amount of the tax not collected or paid. These penalties apply to an officer or employee who, as such officer or em- ployee, is under a duty to perform the act in respect of which the violation occurs, as well as to a person who fails or refuses to per- form any of the duties imposed by the Act, i. e., pay the tax, make return, keep records, supply information, etc. CREDITS AND REFUNDS SECTION 3220 OF UNITED STATES REVISED STATUTES, AS AMENDED BY SECTION 1111 OF THE KEVENUE ACT OP 1926, AND SECTION 619(b) OF THE EEVENUE ACT OF 1928 Except as otherwise provided * * * the Commissioner of In- ternal Revenue, 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 ; * * *, 32 SECTION 3228 from 1946 (the excess profits net income of $55,000 for 1944 less the $100,000 excess profits credit and the $10,000, carry-back from 1945) to offset any of such unused excess profits credit for 1946. (iii) For 1947, the carry-over is also $70,000, since there was no adjusted excess profits net income in 1944 or 1945 to offset any of 11 the unused excess profits credit for 1946. The carry-over to 1947 is computed by reducing the $70,000 unused excess profits credit by the sum of the adjusted excess profits net incomes for 1944 and 1945, computed for each such year without the deduction of any $5,000 specific exemption or of any carry-bacli from 1946 or from any year subsequent to 1946. (For 1944, the adjusted excess profits net income so computed is $0, that is, the $55,000 excess profits net income for such year less the $100,000 excess profits credit and the $10,000 carry-back from 1945. For 1945, the ad- justed excess profits net income so computed is $0, that is, the $25,000 excess profits net income for 1945 less the $100,000 excess profits credit.) (iv) For 1948, the carry-over is $20,000, computed by reducing the $70,000 carry-over to 1947 by the adjusted excess profits net income for 1947 computed without the deduction of the $5,000 specific exemption or of the carry-over from ,1946 or of any carry- back from a year subsequent to 1946 (that is, the $160,000 excess profits net income for 1947 less the $100,000 excess profits credit and the $10,000 carry-over from 1945, or $50,000) . The aggregate of the carry-backs and carry-overs to each taxable year is the unused excess profits credit adjustment for such taxable year which may be credited against excess profits net income to determine adjusted excess profits net income. Therefore, the unused excess profits credit adjustment for 1942 is $45,000, the carry-back to that year from 1944. The unused excess profits credit adjustment for 1943 is $95,000, the aggregate of the $20,000 carry-back from 1944 and the $75,000 carry-back from 1945. The unused excess profits credit adjust- ment for 1947 is $80,000, the aggregate of the $10,000 carry-over from 1945 and the $70,000 carry-over from 1946. The unused excess profits credit adjustment for 1948 is $20,000, the carry-over from 1946. In the case of a mutual insurance company (other than life or marine) which is an interinsurer or reciprocal underwriter, the $50,000 exemption allowed in such cases under section 710(b) (1) is to be sub- stituted wherever reference is made in this section to the $5,000 specific exemption. (c) Ascertainment of imused excess profits credit adjustment depend- ent upon unused excess profits credit carry-hack. — If the taxpayer is entitled in computing its unused excess profits credit adjustment to an unused excess profits credit carry -back which it is not able to ascertain at the time its return is due, it shall compute the unused excess profits credit adjustment on its return without regard to such unused excess profits credit carry-back. When the taxpayer ascertains the unused excess profits credit carry-back, it may file a claim for credit or refund of the overpayment, if any, resulting from the failure to compute the 12 unused excess profits credit adjustment for the taxable year with the inclusion of such carry -back. Under the provisions of section 3771 (e) , as added by section 153(d) of the Revenue Act of 1942, no interest is allowed with respect to any such overpayment for the period prior to the filing of the claim for credit or refund of such overpayment or prior to the filing of a petition to The Tax Court of the United States asserting such overpayment, whichever is earlier. If the tax- payer files a claim based upon the overpayment caused by a carry-back from the first succeeding taxable year, and later ascertains that it Js entitled to a carry-back from the second succeeding taxable year, it shall file a second claim for credit or refund based on the overpayment, if any, caused by the failure to take into account the carry-back from such second succeeding taxable year. Sec. 35.710-4 Eate of Tax. — The excess profits tax shall be which- ever of the following is the lesser : (a) an amount equal to 90 per cent of the adjusted excess profits net income, or (6) an amount which when added to the tax imposed for the tax- able year under Chapter 1 (not including the tax under section 102 on account of the improper accilmulation of surplus) equals 80 per cent of the corporation surtax net income, computed under section 15 or Supplement G (relating to insurance companies) , as the case may be, but without regard to the credit provided in section 26(e) relating to income subject to excess profits tax. For the purposes of section 710(a) (1) (B) and of clause (J) of the preceding sentence, the tax imposed for the taxable year under Chap- ter 1 is the sum of the normal tax and surtax for such year prior to the credit under section 131 for taxes paid to a foreign country or pos- session of the United States. The corporation surtax net income for such purposes shall be computed by disregarding the credit under sec- tion 26(e) (relating to income subject to excess profits tax), other- wise provided in section 15 (a) or Supplement G as a reduction against net income, both in determining corporation surtax net income and in determining the amount of net income upon which is computed the 85 per cent limitation upon the credit for dividends received. In all . other respects, corporation surtax net income shall be computed as provided in section 15(a) or Supplement G as the case may be. The application of section 710(a)(1) and of this section may be shown by the following example : Assume that Corporation A, which makes its return on the calendar yea:|" basis, is a public utility corporation within the definition in sec- tion 26(h) (2) (A). Its net income for 1942 is $411,000 and includes $100,000 of dividends upon the common stock of a domestic manufac- turing company, $10,000 of dividends upon the preferred stock (as 13 defined in section 26(h) (2) (B).) of a public utility, corporation -wliich it owns, and $1,000 of interest on certain United States Government obligations ■which is exempt from the normal tax. It has paid a dividend of $5,000 on its preferred stock (as defined in section 26(h) (2)(B)). Its excess profits net income is $500,000, its excess profits credit is $145,000, and it has no unused excess profits credit adjustment. Its excess profits tax is $254,995, computed as follows : Excess profits tax 1. Excess profits net income^ $500, OOO 2. Specific exemption $5,000 3. Excess profits credit : 145,000 4., Total of item 2 and item 3 150, 000 5. Adjusted excess profits net income -^ 350, 000 6. Excess profits tax (90 percent of item 5) 315, 000 7. Net income (computed without regard to credit provided in section 26(e) relating to income subject to excess profits tax) 411,000 8. (a) Total dividends received—l $110, 000 (6) Less dividends received on preferred stock of a public utility corporation 10, 000 (c) Difference 100,000 0. Less: (a) Dividends received credit (85 percent of item 8 (c) but not in excess of 85 percent of item 7) 85, 000 ' (6) Dividends paid on certain preferred stock 5,000 90, 000 10. Corporation surtax net income (computed without regard to the credit provided In section 26(e)) (item 7 minus item 9) 321,000 11. 80 percent of item 10 , 256, 800 12. Income tax under Chapter 1 (other than section 102) for the tax- able year (item 31) 1,845 13. Excess of item 11 over item 12 254, 955 14. Excess profits tax (item 6 or item 13, whichever is lesser) 254, 955 Normal taw 15. Net income $411, 000 16. Less: Credit under section 26(a) for interest on certain United States obligations 1,000 -17. Adjusted net income ^ 410, 000 18. Less income subject to excess profits tax (credit under section 26(e)) (item 5) 350,000 14 'Normal tax — Continued 19. Item 17 minus item 18 $60,000 20. Totr.l dividends received - ^ $110,000 21. Dividends received credit (85 percent of item 20 but not In excess of 85 percent of item 19) 51,000 22. Normal tax net income 9, 000 -23. Normal tax ($750 plus 17 percent of $4,000) 1, 430 SurtasB 24. Net income $411,000 25 Less income subject to excess profits tax (credit under section 26(e)) (item 5) 350,000 26. Item 24 minus item 25 ^ 61, 000 27. (o) Total dividends received $110, 000 (6) Less dividends received on preferred stock of pub- lic utility corporation 10, 000 (c) Difference 100, 000 28. Less: (a) Dividends received credit (85 percent of item 27(c) but not in eicess of 85 percent of item 26)- 51, 850 (6) Dividends paid on certain preferred stock 5,000 56, 850 29. Corporation surtax net income 4, 150 30. Surtax (10 percent of item 29) 415 31. Total normal tax and surtax (item 23 plus item 30) ' 1,845 If a mutual insurance company, other than life or marine, receives a gross amount from interest, dividends, rents, and premiums (in- cluding deposits and assessments) in excess of $75,000 but less than $125,000, the tax imposed under section YlO is an amount which bears the same proportion to the amount of tax otherwise determined under such section, computed without regard to section 710(a) (4) and the provisions of this sentence, as the excess over $75,000 of such gross amount received bears to $50,000. For example, assume that a mutual insurance company (other than a life or marine insurance company) receives a gross amount from interest, dividends, rents, and pre- miums of $115,000, and that its excess profits tax computed under section 710 (a)(1) is $18,000. Under section 710(a)(4), the excess profits tax imposed under section 710 is $14,400, that is, — ^~^K(\'nr\rC^ — ^■ Sec. 35.710-5 Deferment of Payment of Tax iiir Case of Base Period or Invested Capital Abnormality. — ^If a taxpayer claims the benefits of section 722 (relating to general excess profits tax relief through a constructive average base period net income), it must make its return and compute and pay its tax without the benefits of such, section, and not later than six months after the date prescribed by 15 law for the filing of its return make application for relief under such section. (See section 722(d).) However, if the adjusted excess profits net income so computed on its return (without the benefits of section 722) for such year exceeds 50 percent of the taxpayer's nor- mal tax net income for such year, computed without the credit pro- vided in section 26(e) for income subject to excess profits tax, and if the taxpayer on its return claims to be entitled to the benefits of sec- tion 722, the amount of tax payable at the time prescribed for pay- ment may be reduced by an amount equal to 33 percent of the reduction in tax so claimed. (See section 710(a) (5).) In computing the normal tax net income for purposes of the 50 percent determina- tion, the credit for dividends received under section 26(b) shall be limited to 85 percent of adjusted net income unreduced by the credit under section 26(e) for income subject to excess profits tax. The amount of reduction in tax claimed under section 722 shall be the difference between the amount of tax computed under section 710(a) (1) without the benefit of section 722 (prior to the credit under section 729 for taxes paid to a foreign country or to a possession of the United States, to the credit under section 783 for debt retirement, and to the adjustment under section 734 on account of an inconsistent position) and the amount of tax so computed by using instead of the actual excess profits credit the excess profits credit based upon the constructive average base period net income claimed by the taxpayer. In "any case in which the excess profits tax computed with the use of the constructive average base period net income is determined under section 710(a) (1) (B) as an amount which when added to the normal tax and surtax imposed under Chapter 1 equals 80 percent of the cor- poration surtax net income (computed without regard to the credit under section 26(e) for income subject to excess profits tax), the credit for income subject to excess profits tax provided in section 26(e), and used in determining normal tax net income and corpora- tion surtax net income shall be computed for the purposes of deter- mining such normal tax and surtax by using the excess profits credit based upon the constructive average base period net income in lieu of the actual excess profits credit. A taxpayer which claims to be entitled to a tax deferment under the provisions of section 710(a) (5) and of this section must, at the time of filing its excess profits tax return on Form 1121, attach thereto an application for relief under section 722 on Form 991 (re- vised January, 1943). The application must set forth under oath each ground under section 722 upon which the application for relief is based and facts suflScient to apprise the Commissioner of the exact basis thereof and to establish eligibility for relief , as well as data and information in sufficient detail to establish the amount of construe- IG tive average base period net income claijned, the amount of tax reduc- tion claimed -by the use of section 722, and the amount of tax deferment claimed on the return. In any case in which an applica- tion for relief on Form 991 (revised January, 1943) is not so attached to the excess profits tax return, the taxpayer shall not be deemed to have claimed on its return the benefits of section 722. In such case the amount of tax deferment claimed under section 710(a) (5) and this section shall be added to the amount of tax otherwise shown by the taxpayer to be payable. For the purposes of section 271 (made applicable to Subchapter E of Chapter 2 by section 729) relating to the definition of deficiency, the amount of tax shown by the taxpayer to be payable so increased shall be considered the amount of tax shown on the return. For the purposes of section 271, in case a taxpayer has claimed a tax reduction under section 710(a)(5) and has "attached Form 991 (re- vised January, 1943) to its excess profits tax return as provided in this section, the tax so reduced shall be the tax sho^n on the return. If a constructive average base period net income has been finally determined and has been used in computation of the excess profits tax for a prior excess profits tax taxable year under section 722 and under regulations prescribed under such section, such constructive average base period net income may be applicable in the computation of the excess profits tax for the current excess profits tax taxable year. In such case, the excess profits tax for such current year shall be computed with the use of such constructive average base period net income, and the provisions of sectipn 710(a) (5) shall be inap- plicable with respect to such year. The application of section 710(a) (5) may be illustrated by the fol- lowing example: Assume that Corporation B, which makes its return on the calendar year basis, has for 1942 a net income of $1,010,000, which includes $300,000 of dividends on the common stock of domestic manufacturing corporations, $10,000 of interest on certain United States Govern- ment obligations which is exempt from the normal tax, and $200,000 of long-term capital losses which are offset against an equal amount of short-term capital gains. Its adjusted net income is $1,000,000, and it has an excess profits credit of $95,000, and no unused excess profits credit adjustment. It has filed, with its excess profits tax re- ' turn for 1942, an application for relief under section 722 in which it claiins a constructive average base period net income of $600,000. Its excess profits tax return for 1942, computed without regard to section 722, shows an amount of tax deferred under section 710(a)(5) of $99,58^.10, and an excess^profits tax due of $494,685.90, computed as follows : 17 Excess profits tax 1. Normal tax net income (computed without allowance of credit tinder section 26(e) for income subject to excess profits tax and without allowance of dividends received credit) (item 22) $1, 000, 000. 00 2. Plus long-term capital loss adjustment 200, 000. 00 3. Item 1 plus item 2 1, 200, COO. 00 4. Less dividend received credit adjustment (100 percent of item 25) l 300, 000. 00 5. Excess profits net Income 900, 000. 00 6. Less specific exemption $5, 000. 00 7. Excess profits credit 95,000.00 8^ Total of item 6 and Item 7 100, 000. 00 9. Adjusted excess profits net Income (item 5 minus item 8) 800, 000. OO 10. Excess profits tax (90 percentof item 9) 720, 000. 00 11. Net Income (computed without regard to credit provided in sec- tion 26(e) relating to income subject to excess profits tax) (item 21) — 1, 010, 000. 00 12. Dividends received $300,000.00 13. Less dividends received credit (85 percent of item 12, but not in excess of 85 percent of item 11) 255, 000. 00 14. Corporation surtax net income (computed without regard to the credit provided in section 26(e)) (Item 11 minus Item 13) 755, 000. 00 15. 80 percent of item 14 ^ . 604, 000. 00 16. Income tax under Chapter 1 (other than section 102) for the taxable year (Item 36) 9,730.00 17. Excess of item 15 over item 16 594, 270. 00 18. Excess profits tax (item 10 or item 17, whichever is lesser) — 594, 270. 00 19. Less tax deferred under section 710(a) (5) (item 56) 99, 584. 10 20. Excess profits tax payable (item 18 minus item 19) 494, 685. 90 Normal taw 21. Net income $1, 010, 000. 00 22. Adjusted net Income (item 21 minus $10,000 interest on certain United States obligations) 1, 000, 000. 00 23. Less income subject to excess profits tax (credit under section 26(e)) (item 9) 800, OOa 00 24. Item 22 minus item 23 ^ 200, 000. 00 25. Dividends received 1 $300, 000. 00 26. Less dividends received credit (85 percent of item 25 but not In excess of 85 percent ot item 24) 170, 000. 00 27. Normal tax net Income 30, 000. 00 18 Normal t(M> — Continued 28. Normal tax ($4,250 plus 31 percent of $5,0C0) $5, 800. 00 Surtax 29. Net income (item 21) $1,010,000.00 30. Less income subject to excess profits tax (credit under section 26(e)) (item 9) 800,000.00 31. Item 29 minus item 80 210, 000. 00 32. Dividends received $800,000.00 33. Less dividends received credit (85 percent of item 32 but not in excess of 85 percent of item 31) 178, 500. 00 S4. Corporation surtax net Income ., ..._ 81, 500. 00 35. Surtax ($2,500 plus 22 percent of $6,500) 3, 930. 00 36. Total normal tax and surtax (item 28 plus item 35) 9, 730 00 Percentage which adjusted excess profits net income hears to normal tax net income computed without credit under section 26 (e) for income subject to excess profits tax 3T. Adjusted excess profits net Income computed without regard to section 722 (item 9) $800, 000. 00 38. Adjusted net income (item 22) .1,000,000 00 39. Dividends received $300, 000 40. Dividends received credit (85 percent of item 39 but not in excess of 85 percent of item 38) i 255, 000. 00 41. Normal tax net income (computed without regard to the credit for income subject to excess profits tax under section 26(e) ) 745, 000. 00 42. Percentage which item 37 bearg to item 41 percent 107 Tax deferred under section 110{a)(5) EXCESS PROFITS TAX UNDEE SECTION 722 43. Excess profits net income (item 5) $900,000 00 4^ Le'ss specific exemption $5, 000. 00 '^^ Excess profits credit based on constructive excess profits net income under section 722 (95. per- cent of $600,000) 570,000.00 46. Item 44 plus item 45 575, OOO 00 47. Adjusted excess profits net income computed under section 722 (Item 48 minus item 46).^ 325,000.00 48. Excess profits tax under section 722 (90 percent of item 47)__ 292, 500. 00 49. Corporation surtax net Income (computed without regard to the credit provided in section 26(e) ) (item 14) 755,000.00 19 Tax deferred under section 710(a) (5) — Con. EXCESS PE0FIT8 TAX tTNDEE SECTION 722 — COn. 50. 80 percent of Item 49 $604, 000. 00 61. Income tax under Chapter 1 (other than section 102) for the taxable year, computed with the excess profits tax deter- mined under section 722 (item' 72) J 169, 600. 00 52. Excess of item 50 over Item 51 4,34, 400. 00 53. Excess 'profits tax computed without the benefit of section 722 (item 17) ^ 594, 270. 00 54. Excess profits tax computed under section 722 (item 48 or item 52, whichever is lesser) -- 292, 500. 00 55. Amount of tax reduction claimed under section 722 (item 53 minus item 54) 301,770.00 56. Amount of tax deferred under section 710(a) (5) (33 percent of item 55) 99, 584. 10 Normal tax 57. Net income (item 21) ■_' $1,010,000.00 58. Adjusted net income (item 22) 1, 000, 000. 00 59. Less income subject under section 722. to excess profits tax (credit under section 26(e)) (item 47) 325,000.00 60. Item 58 minus item 59 675, 000. 00 61. Dividends received $300, 000. 00 62. Less dividends received credit (85 percent of item 61 but not in excess of 85 percent of item 60) 255, 000. 00 63. Normal-tax net income 420,000^00 64. Normal tax (24 percent of item 63) ' 100, 800. 00 Surtax r^. Net income (item 21) $1,010,000.00 66. Less income subject under section 722 to excess profits tax (credit under section 26(e) ) (item 47) 325, 000. 00 67. Item 65 minus item 66 685, 000. 00 68. Dividends received $300, 000. 00 69. Less dividends received credit (85 percent of item 68 but not In excess of 85 percent of item 67) 255, 000. 00 70. Corporation surtax net income (item 67 minus item 69) 430, 000. 00 71. Surtax (16 percent of item 70) 68, 800. 00 72. Total normal tax and surtax (item 64 plus item 71) 169, 600. 00 SEC, 711. EXCESS PROFITS NET INCOME. [Added by Sec 201, Second Kbv. Act 1940; Amended by Secs. 3 and 12(b), Excess PBorrrs Tax Amendments 1941, by Sec. 202 (c) and (d), Eev. Act 1941, AND BY Secs. 205 (b) and (c), 206, 207, 208, 209 (a) and (b), 210, 211, AND 213, Rev. Act 1942.] (a) Taxaele Years Beginning Aeteb Decembek 31, 1939. — The ex- cess profits net income for any taxable year beginning after December 20 31, 1939, shall be the normal-tax income, as defined in section 13(a>(2), for Such year except that the following' adjustments shaU be made : (1) Excess pbofits credit computed tiNDEK income ckedit. — If the excess profits credit is computed under section 713, the .adjust- ments shall be as follows : (A) Income Subject to Excess Profits Tax. — In computing such normal-tax net income the credit provided in section 26(e) (relating to income subject to the tax imposed by this sub- chapter) shall not be allowed ; (B) Gains and Losses From Sales or Exchanges of Capital Assets. — There shall be excluded gains and losses from sales or exchanges of capital assets held for more than 6 months. (C) Income From Retirement or Discharge of Bonds, and So Forth. — There shall be excluded. In the case of any tax- payer, income derived from the retirement or discharge by the taxpayer of any bond, debenture, note, or certificate or other evidence of indebtedness, if the obligation of the taxpayer has been outstanding for more than 6 months, Including, in case the issuance was at a premium, the .amount includible In Income for such year solely because of such retirement or discharge ; (D) Refunds and Interest on Agricultural Adjustment Act Taxes. — There shall be excluded income attributable to refund of tax paid under the .Agricultural Adjustment Act of 1933, as amended, and interest upon any such refund ; (E) Recoveries of Bad Debts. — There shall be excluded in- come attributable to the - recovery of a bad debt If a deduc- .tion with reference to such debt was allowable from gross In- come for any taxable year beginning prior to January 1, 1940 ; (F) Dividends Received. — The credit for dividends received shall apply, without limitation, to dividends on stock of do- mestic corporations. ■(G) [Not applicable to taxable years under these regulations (section 206(b) (1), Rev. Act 1942).] (H) Life Insurance Companies. — In the case of a life Insur- ance company, there shall be deducted from the normal tax net Income, the excess of (1) the product of (i) the figure de- termined and proclaimed under section 202(b) and (11) the excess profits net Income computed without regard to this sub- paragraph, over (2) the adjustment for certain reserves pro- vided In section 202(c). (I) Nontaxable Income of 'Certain Industries With Deplet- able Resources. — In the case of a producer of minerals, or a producer of logs or lumber from a timber block, as defined in section 735, there shall be excluded nontaxable Income from exempt excess output of mines and timber blocks and nontax- able bonus Income provided in section 735. (J) Net operating loss deduction adjustment. — The net operating loss deduction shall be adjusted as follows: (1) In computing the net operating loss for any taxable year under section 122(a), and the net income for any tax- able year under section 122(b), no deduction shall be 21 allowed for any excess profits tax imposed by thifi sub- chapter, and, if the excess profits credit for such taxable year was computed under section 714, the deduction for interest shall be reduced by the amount of any reduction under paragraph (2) (B) for such taxable year; and (ii) In lieu of the reduction provided in section 122(c), such reduction shall be in the amount by which the excess profits net income computed with the exceptions and limi- tations specified in section 122(d) (1), (2), (3), and (4) and computed without regard to subparagraph (B), with- out regardJo any credit for dividends I'eceived, and without regard to any credit for interest received provided in sec- tion 26(a) exceeds the excess profits net income (computed without the net operating loss deduction). (2) .Excess pkofits ceedit computed undee invested capitax CBEDiT.— If the excess profits credit is computed under section 714, the adjustments shall be as follows : (A) Dividends Received. — The credit for dividends received shall apply, without limitation, to aU dividends on stock of all corporations, except that no credit for dividends received shall be allowed with respect to dividends (actual or construc- tive) on stock of foreign personal holding companies or dividends on stock which is not a capital asset. (B) Interest. — The deduction for interest shall be reduced ' by an amount'equal to 50 per centum of so much of such interest as represents interest on the indebtedness included in the daily amounts of borrowed capital (determined under section 719(a)); (C) Income Subject to Excess-Profits Tax. — In computing such normal-tax net income the credit provided in section 26(e) (relating to income subject to the tax imposed by this sub- chapter) shall not be allowed; (D) Gains and Losses From Sales or Exchanges of Capital Assets. — There shall be excluded gains and losses from sales or exchanges of capital assets held for more than 6 months. (B) Income From Retirement or Discharge of Bonds, and So Forth. — There shall be excluded, in the case of any taxpayer, Income derived from the retirement or discharge by the tax- payer of any bond, debenture, note, or certificate or other evi- dence of indebtedness, if the obligation of the taxpayer has been outstanding for more than 6 months, including, in case the issuance was at a premium, the amount includible in Income for such^year solely because of such retirement or discharge; (F) Refunds and Interest on Agricultural Adjustment Act Taxes. — There shall be excluded income attributable to refund of tax paid under the Agricultural Adjustment Act of 1933, as amended, and interest upon any such refund; (G) Interest on Certain Government Obligations. — The normal-tax net income shall be increased by an amount equal to tJie amount of the interest on obligations held during the taxable year which are described in section 22(b) (4) any part of the Interest from which is excludible from gross income or allowable as a credit against net income, if the taxpayer has so elected under section 720(d) ; and 22 (H) Recoveries of" Bad Debts. — There shall be excluded Income attributable to" the recovery of a bad debt If a deduction ■with reference to such debt was allowable from gross Income for any taxable year beginning prior to January 1, 1940. (I) [Not applicable to taxable years under these regulations (section 206(b) (2), Rev. Act 1942).] (J) In the case of a life insurance company, there shall be deducted from the normal tax net income, 50 per centum of the excess of (1) the product of (i) the figure determined and proclaimed under section 202(b) and (ii) the excess profits net income computed without regard to this subpara- graph, over (2) the adjustment for certain reserves provided In section 202(c). (K) Nontaxable Income of Certain Industries With De- pletable Resources.— In the case of a producer of minerals, or a producer of logs or lumber from a timber bloct, as defined in section 735, there shall be excluded nontaxable income from exempt excess output of mines and timber blocks and nontaxable bonus income provided in section 735. (L) Net opebating loss deduction adjustment^ — ^The net operating loss deduction shall be adjusted as follows : (i) In computing the net operating loss for any taxable year under section 122(a), and the net income for any taxable year under section 122(b), no deduction shall be allowed for any excess profits tax imposed by this sub- chapter, and, if the excess profits credit for such taxable year was computed under section 714, the deduction for in- terest shall be reduced by the amount of any reduction under subparagraph (B) of this paragraph for such taxable year ; and (u) In lieu of the reduction provided in section 122(c), such reduction shall be in the amount by which the excess profits net income computed with the exceptions and limi- tations, provided in section 122(d) (1), (2), (3), and (4) and computed without regard to subparagraph (D), without regard to any credit for dividends received, and without regard to any credit for interest received provided in sec- tion 26(a) exceeds the excess profits net income (computed without the net operating loss deduction). (3) Taxable tbab less than twhi-ve months. — (A) General Rule. — If the taxable year is a period of less than twelve months the excess profits net income for such taxable year (referred to in this paragraph as the "short taxable year") shall be placed On an annual basis by multiplying the amount thereof by the number of days in the twelve months ending with the close of the short taxable year and dividing by the number of days in the short taxable year. The tax shall be such part of the tax computed on such annual basis as the number of days in the short taxable year is of the number of days in the twelve months ending with the close of the short taxable year. (B) Exception. — If the taxpayer establishes its adjusted excess profits net income for the period of twelve months begin- ning with the first day of Ihe short taxable year, computed as" If such twelve-month period were a taxable year, under the law 23 applicable to the short taxable year, and using the credits appli- cable in determining the adjusted excess profits net income for - such short taxable year, then the tax for the short taxable year shall be reduced to an amount which is such part of the tax com- puted on such adjusted excess profits net income so established as the excess profits net income for the short taxable year is of the excess profits net income for such twelve-month period. The taxpayer (other than a taxpayer to which the next sentence applies) shall compute the tax and file its return without the application of this subparagraph. If, prior to one year from the date of the beginning of the short taxable year, the taxpayer has disposed of substantially all its assets, in lieu of the twelve- month period provided in the preceding provisions of this sub- paragraph, the twelve-month period ending with the close of the short taxable year shall be used. For the purposes of this sub- paragraph, the excess profits net income for the short taxable year shall not be place* on an annual basis as provided in sub- paragraph (A), and the excess profits net income for the twelve- month period used shall in no case be considered less than the excess profits net income for the short taxable year. The benefits of this subparagraph shall not be allowed unless the taxpayer, at such time as regulations prescribed hereunder require, makes application therefor in accordance with such regulations, and such application, in case the return was filed without regard to this subparagraph, shall be considered a claim for credit or . refund. The Commissioner, with the approval of the Secretary, shall prescribe such regulations as he may deem necessary for the application of this subparagraph. Sec. 35.711 (a )-1 Excess Profits Net Income for the Taxable Yeae.^ — Two "methods are provided for determining the excess profits net income for the taxable year. One method, that provided by sec- tion 711(a) (1), is to be used if the excess profits credit is computed under section 713, which credit is referred to in these regulations as the income credit. The other method, that provided by section 711(a) (2), is to be used if the excess profits credit is computed under section 714, which credit is referred to in these regulations as the invested capital credit. As to corporations entitled to use the excess profits credit based on income or the excess profits credit based on invested capital, whichever credit results in the lesser excess profits • tax, and corporations required to use the excess profits credit based on invested capital, see section 712. Under either method, the excess profits net income is computed in the same manner as the normal- taz net income but with adjustments in certain items of income, de- ductions, and credits which otherwise would be used in computing normal -tax net income as defined in section 13(a) (2). Adjustments in items of income, deductions, and credits are to be made as pro- vided in section 711(a)(1) or section 711(a)(2), whichever is ap- plicable. Adjustments are also to be made in deductions which, in computing normal-tax net income, are limited by other items of 24 deductions, or by items of income (for example, the deduction jfor capital losses under section 117(d)(1)), or by net income (for ex- ample, the deduction for corporate charitable contributions under section 23 (q)), or by the net income from property (for example, the deduction for discovery or percentage depletion under section 114(b) (2), (3),^and (4)), the limitation upon such deductions be- ing determined for purposes of computing excess profits net income with reference to such items of income, or deductions, or net income, or the net income from property as adjusted under section 711(a) (1) or section 711(a)(2), whichever is applicable. If normal-tax net income is first determined (except for the credit for adjusted excess profits net incom^ provided in section 26(e)), for convenience in computing excess profits net income, where the limitations described in this paragraph are not involved, the adjustments may be made by additions and subtractions from the amount of such normal-tax net income, instead of by completely recomputing normal-tax net income. Seo. 35.711 (a) -2 Excess Peofits Net Income. if Income Credit Is Used. — ^If the excess profits credit for the taxable year is com- puted under section 713, the excess profits net income for such year is the normal-tax net income as recomputed after making the adjust- ments provided in section 711(a) (1). For the purpose of making the adjustment under section 711(a) (1) (B) for certain capital gains and losses, gains and losses from sales or exchanges of capital assets are determined under the defini- tions and in the manner provided under chapter 1. In recomputing normal-tax net income for the purpose of determining excess profits net income for the taxable year, capital gains and losses from the sale or exchange of capital assets held for more than six months are to be excluded and the excess of losses from sales br excTianges of capital assets held for not more than six months over gains from the sale or exchange of capital assets held for not more than six months is also to be excluded. For example, a corporation has $4,000 in gains from sales of capital assets held for more than six months, $3,000 in gains fi'om sales of capital assets held not more than six months, and $6,000 in losses from sales of capital assets held not more than six months. The $4,000 long-term capital gains are to be excluded for excess profits tax purposes. Accordingly, the de- duction for short-term capital losses for excess profits tax purposes is limited to $3,000, the amount of the short-term capital gains. Since capital losses are allowed as a deduction only to the extent of capital gains (section 117(d)(1)), and since both Long-term gains and losses are excluded for excess profits tax purposes, short-term losses are allowed only to the extent of the remaining short-term gains. 25 In making the adjustment provided in section 711(a) (1) (C), the term "indebtedness" as used therein includes indebtedness assumed by the taxpayer even though such indebtedness is evidenced, so far as the taxpayer is concerned, only by a contract (which has, been out- standing for more than six months) with the person whose liabilities have been assumed. Also, a renewal obligation is to be considered to be outstanding for more than six months if the original obligations and the renewal obligations taken together have been outstanding for a total of more than six months. The term "other evidence of; indebtedness" does not include open account book entries. The refunds of Agricultural Adjustment Act taxes referred to in section 711 (a) (1) (D) include only those made under Title VII of the Revenue Act of 1936 and refunds made to processors under section 15(a) of the Agricultural Adjustment Act as reenacted by section -, 601 of the Revenue Act of 1936. The provisions of section 711(a)(1) (E), relating to recoveries of bad debts, are not applicable in the case of a taxpayer using the reserve method of treating bad debts as provided in sections 29.23 (k)-l and 29.23 (k)-5 of Regulations 111. Deductions which are limited by items of income or deductions, or by the net income or the net income from property are to be com- puted upon the basis of such items or such net income or net income from property as adjusted under section 711(a)(1) in recomputing normal-tax net income for the purpose of determining the amount of excess profits net income. ^ Section 711(a) (1) (J) provides for recomputation of the' net oper- ating loss deduction in computing excess profits net income under the -income credit. The various steps in computing the deduction are to 'be taken in the same manner and 'for the same years as are provided- in section 122 and in the regulations thereunder, except as prescribed in the rules set forth in section 711(a) (1) (J). The exceptions prescribed by section 711(a)(1) (J) require that in the computation of the net operating loss for any taxable year under section 122(a) and in the computation of the net income for any taxable year under section 122(b) no deduction shall be allowed for any excess profits tax and, if the excess profits credit was computed under the invested capital method for the taxable year in which the loss was sustained or the net income arose, the deduction for interest for. such taxable year shall be reduced by the amount of any reduc- tion for such taxable year prescribed under section 711(a)(2)(B). Furthermore, in lieu of the reduction prescribed in section 122(c) for converting the aggregate of the net operating loss carry-overs and carry-backs to the taxable year into the net operating loss de- duction, iiie reduction for such purpose shall be the amount by which 488818° — 43 8 26 the excess profits net income for the taxable year in which the de- duction is allowable, computed with the exceptions and limitations specified in section 122(d) (1), (2), (3), and (4) and computed without regard to section 711(a) (1) (B) (excluding long-term capi- tal gains and losses), without regard to any credit for dividends received, and without regard to any credit for interest received pro- vided in section 26(a) exceeds the excess profits net income for such taxable year (computed without any net operating loss deduction). The net operating loss deduction so computed with the adjustments prescribed by section 711(a) (1) (J) is deducted in computing normal- tax net income to determine excess profits net income, in lieu of the net operating loss deduction otherwise prescribed in sections 23 (s) and 122. The computation of net operating loss, net operating loss carry-back and carry-over, and the net operating loss deduction for purposes of excess profits net income is illustrated by the following example : Example. The X Corporation makes its income tax returns on a calendar year basis and under the accrual method of accounting. Its only net operating loss for the years 1939-1946, inclusive, occurs in 1944. Under section 122 (b) , the net operating loss for 1944' first is to be carried back to 1942 and the -balance of such carry-back, if any, com- puted as provided in sections 122(b) and 711(a) (1) ( J) (i) is to be carried back to 1943. For 1942, 1943, and 1944, the facts with respect to the X Corporation are as follows : 1942 1944 (o) Tax exempt interest from State bonds _ , (6) Dividends received (c) Long-term capital gain. _ (,i) Interest from United States obligatioqs (e) Other items of gross income (f) Total taxable gross Income (sum of items (6), (c), (d), and («)) . (g) Deductions (other than net operating loss deduction; no caiiital losses) (A) Net income or (loss) (0 Credit for Interest from United States obligations (;) Adjusted ntt Income (.k) Credit for dividends received (86 percent of amount in item (6) but not more than 85 percent of adjusted net income). _ (0 Normal-tax net Income (computed without net operating loss deduction and without credit for income subject to excess profits tax). $1,000 10, 000 2,600 2,000 200, 000 214, 600 164, 600 60, 000 2,000 58,000 8,500 49, 500 $1,000 10, 000 3,000 2,000 300, 000 315, 000 177, 000 138, 000 2,000 136,000 8,600 127, 500 $1, 000 10,000 2,000 20,000 32, OOO 116, 000 (83,000) 2,000 (85,000) (86,000) In order to determine the net operating loss for 1944 there must be added to the total gross taxable income of $32,000, the $1,000 of tax exempt interest, as provided in section 122(d) (2). Accordingly, the net operating loss for 1944 is $82,000, the excess of $115,000 (item {g) ) over $33,000 (the sum of item (/), $32,000, and item (a), $1,000). The net operating loss deduction for 1942 is the amount of this carry- back, reduced as provided in section 711(a) (1) (J) (ii). This reduc- tion is the excess of the amount of excess profits net income for 1942 27 with certain adjustments proraded in section 711(a) (1) (J) (ii) over the amotint of excess profits net income for 1942 (computed without the net operating loss deduction). The amount of excess profits net income for 1942 computed without the net operating loss deduction is $45,500, competed as follows : Normal-tax net income for 1942, as previously determined $49,' 500 Less: Long-term capital gain $2,500 Credit for balance of dividends received . 1, 500 4,000 Excess profits net income (computed without net operating. loss deduc- tion) 45, 500 The amount of excess profits net income computed with the adjustment provided in section 'ril(a) (1) (J) (ii) from which the $45,500 is to, be deducted is $61,000, computed as follows : Excess profits net income (computed without net operating loss deduction in accordance with section 122(d)(3)) '_ $45,500 Plus : Tax exempt interest ; __- 1, 000 Long-term capital gain 2,500 Amount of credit for dividends received 10, OOQ Amount of credit for interest received 2, 000 Total 61,000 Since $61,000 exceeds $45,500 by $15,500, the net operating loss carry- back of $82,000 to 1942 is to be reduced by $15,500, leaving a net operating loss deduction of $66,600 for the purpose of determining excess profits net income for 1942. In this example, the net operating loss carry-back from 1944 to 1943 is the excess of the carry-back, $82^000, over the net income for 1942 computed under sections 122(b)(1) and Yll(a) (1) (J) (i) as follows : Net income for 1942, as previously determined $60, (X)0 Plus! Tax exempt interest 1, 000 Total 61, 000 It wiU be noted that the excess profits tax for 1942 is not allowed under section 711(a) (1) (J) (i) as a deduction in computing the above amount ($61,000) although it is allowed for income tax pur- poses as a deduction in computing net operating loss, as provided in section 122(d)(6). The net operating loss carry-back to 1943 for purposes of excess profits tax therefore is $21,000 (the excess of $82,000 over $61,000) . The net operating loss deduction for 1943 for purposes of excess profits net income for 1943 is the amount of $21,000 reduced 28 as provided in section 711(a) (1) (J) (ii). The amount of this re- duction is computed in the same manner as the corresponding re- duction was previously computed for 1942. That is, the excess profits net income for 1943, computed without net operating loss "deduction, is $123,000, computed as follows : Normal-tax net income, as previously determined $127, 500 Less: Long-term capital gain $3,000 Credit for balance of dividends received 1, BOO 4,500 Excess profits net Income (computed without net operating loss de- duction) . , 123, 000 The amount which is in excess of this amount of $123,000 is $139,000, computed with the adjustments provided in section 711(a) (1) (J) (ii) as follows : Excess profits net Income (computed without net operating loss de- duction In accordance with section 122(d) (3) ) $123, 000 Plus : Tax exempt Interest 1, 000- Long-term capital gain 3, 000 Amount of credit for dividends received 10, 000 Amount of credit for Interest received 2, 000 Total 139,000 The excess of $139,000 over $123,000 is $16,000. Since the net operat- ing loss carry-back to 1943 ($21,000) must be reduced by this amount ($16,000) in determining the deduction for 1943, the net operating loss deduction allowable for the purpose of determining excess profits net income for 1943 is $5,000. In this example, no net operating loss carry-over from 1944 is allow- able to 1945 or 1946. The net operating loss for 1944, $82,000, does not exceed the sum of the net income for 1942 and 1943 when the net income for 1942 and 1943 is computed imder section 122(b)(2) and section 711(a) (1) (J) (ii). The net income for 1942 as previously determined under such sections is $61,000. The net income for 1943 computed under such sections is $139,000 computed as follows : Net income for 1943 as previously determined $138, 000 Plus : Tax exempt Interest 1, 000 Total , 139,000 For a deduction from normal-tax net income in the case of life insur- ance companies for the purpose of determining excess profits net in- come, see section 711 (a) (1) (H) . For exclusion of nontaxable income 29 from exempt excess output of mines and timber blocks and nontaxable bonus income provided in section 735 in the case of a producer of minerals, or a producer of logs or lumber from a timber block, as defined in section Y35, see section 711 (a), (1) (I). The computation of the excess profits net income in cases where the income credit is used may be illustrated by the following example : Examfle. The facts with respect to the X Corporation for the" calendar year 1942 are as follows : ( 1 ) The normal-tax net income of the corporation, computed without regard to the credit provided in section 26(e) for income subject to the excess profits tax, is $400,000. (2) The corporation has gains of $100,000 and losses of $75,000 from sales and exchanges of capital assets held for more than six months. It has no gains or losses from sales or exchanges of capital assets held for not more than six months. (3) On January 1, 1932, the corporation issued at a premium of $40,000 bonds with a total face value of $800,000, maturing December 31, 1951. On January 1, 1942, the corporation purchases one-half of the amount of the bonds for $390,000. For the years 1932 to 1941, inclusive, it had returned $10,000 as income with respect to the premium on the bonds it so purchased. The corporation did not comply with the provisions of section 22(b) (9) for excluding from gross income the income from the retirement of its bonds. (4) The corporation derives income in the amount of $400 attribut- able to refund of tax paid under the Agricultural Adjustment Act of 1933, as amended, and interest upon such refund. (5) For the calendar year 1935, the corporation deducted $10,000 as a bad debt. The .deduction of all bad debts for the calendar year 1935 resulted in a reduction of its tax for that year. During the calendar year 1942, it recovers $5,000 with respect to such debt. (6) The corporation receives as dividends: $100,000 of the class with respect to which a credit is allowed by section 26(b), $20,000 from a China Trade Act corporation, and $20,000 from a foreign cor- poration which is not a foreign personal holding company. If the income credit is used, the excess profits net income of the corporation for the calendar year 1942 is $314,600, computed as fol- lows: Normal-tax net income (computed without regard to the credit provided by section 26(e) for income subject to the excess profits tax) $400, 000 Plus : Losses from the sale or exchange of capital assets held for more than six months -—- 75,000 475, 000 30 Lesa: Gains from the sale or exchange of capital assets held for more than six months $100,000' Income from retirement of bonds 20, 000 Income from rpfunds of Agricultural Adjustment Act taxes and interest thereon 400 Income from recovery of bad debts 5, 000 Additional dividends received credit (100 per cent of total dividends of $120,000 received from domestic corpora- tions including the China Trade Act Corporations, less credit of $85,000 already allowed by section 26(b) for dividends received, or $120,000 minus $85,000 35, 000 $160, 400 Excess profits net income 314, 600 . It is to be observed that no adjustment under section 711(a) (1) (F) is required to be made for the $20,000 dividends received from the foreign corporation. Sec. 35.711 (a) -3 Excess Profits Net Income if Invested Capital Credit Is Used. — If the excess profits credit for the taxable year is computed under section 714, then the excess profits net income for such year is the normal-tax net income recomputed with the adjustments provided in section 711(a) (2). "Under section 711(a) (2) (A), there must be eliminated in computing normal-tax net income the credit allowed under Chapter 1 for dividends received on stock which is not a capital asset as defined in section 117, such as stock held primarily for sale to customers by a dealer in securities. Otherwise the adjustments are the same as the adjustments provided in section 711(a) (1) except that the following additional adjustments are required to be made: (a) There shall be added to the normal-tax net income : (1) An amount equal to 50 per cent of the deduction for in- terest on the indebtedness included in the daily amounts of borrowed capital (determined under section 719(a)) ; and (2) An amount equal to the amount of interest on obligations held during the taxable year which are described in section 22(b) (4), any part of the interest from which is excludible from gross income or allowable as a credit against net income, if the corporation has elected under section 720(d) to treat such inter- est as taxable for excess profits tax purposes. As used in para- graph (2), the term "interest" includes, in the case of obligations issued at a discount, so much of such discount as (for purposes of determining gain or loss upon sale or other disposition) is treated as interest in the hands of the taxpayer for the taxable year. If a taxpayer in i^s return has made the election under sec- tion 720 (d) , the amount of interest on obligations held during the taxable year which are described in section 22(b)(4) shall be reduced by the amount, if any, of the amortizable bond premium 31 under section 125 attributable to such obligations, and' only the amount of interest so reduced shall be added to normal-tax net income. (h) There shall be subtracted from the normal- tax net income, the amount of dividends received from foreign corporations on stock which is a capital asset, except dividends (actual or constructive) on stock of foreign personal-holding companies. The computation of the excess profits net income in cases where the invested capital credit is used may be illustrated by the following example : Example. The facts present in the example in section 35.711 (a)-2 with respect to the X Corporation are also present with respect to the Y Corporation, and in addition the following facts are present with respect to the latter corporation : (a) During the calendar year 1942 the corporation pays interest amounting to $48,000 on the bpnds referred to in (3) of that example. (i) Throughout the entire calendar year 1942 the corporation owns $100,000 of Treasury bonds 1944-54 and $100,000 of bonds issued by a State. Neither the Treasury bonds nor the State bonds were purchased at a premium. It derives income for the year 1942 from interest on such bonds amounting to $6,000. The corporation elects under section 720(d) to increase its normal-tax net income for excess profits tax pur- poses for the year 1942 by an amount equal to the amount of interest on all obligations held during that year which are described in section 22(b)(4). (c) The corporation held as a capital asset the stock on which the dividends were received. If the invested capital credit, is used, the excess profits net income of the corporation for the calendar year 1942 is $324,600, computed as follows : Normal-tax net income (computed without regard to the credit provided by section 26(e) for income subject to the excess profits tax) $400, 000 Plus: Losses from the sale or exchange of capital assets held for more than six months , $75. 000 50 per cent of Interest on indebtedness Included in bor- rowed capital 24, 000 Interest on Government and State obligations 6, 000 105,000 505, 000 Less: Gains from the sale or exchange of capital assets held for more than six months $100, 000 Income from retirement of bonds 20,000 Income from refunds of Agricultural Adjustment Act taxes and interest thereon 400 32 Less — Continued. Income from recovery of bad debts $5, 000 Additional dividends received credit ($140,000 dividends received from both domestic and foreign corporations less credit of $85,000 already allowed by section 26(b) for dividends received) 55,000 $180,400 Excess profits net income under section 711(a)(2) 324,600 Sec. 35.711 (a)-4 Tax foe Pebiod op Less Than 12 Months. — {a) Methods of computing tax for short taxable year; allowance. — Section 711(a) (3) provides rules, under a general rule and under an exception to such rule, which are applicable to short excess profits tax taxable years for the purpose of determining 12 months' experience and com- puting the tax for such years. A short taxable year is any taxable period of less than 12 months. If the period from the date of incorpo- ration of a corporation to the end of its first accounting period, or the period from the beginning of its last accounting period to the date it ceases operations and is dissolved, retaining no assets, is a period of less than 12 months, such period is a short taxable year. In every case of a short taxable year, whether of a type resulting from a change of accounting period or of a type described in the preceding sentence, the excess profits net income for a period of 12 months used for the purpose of computing the tax under this section shall be used for all other purposes under this subchapter (except as otherwise expressly provided) as the excess profits net income of the taxpayer for the short taxable year. The tax imposed by section 710(a) (1) (A) for the short taxable year shall be computed under subsection (6) of this sec- tion, except as otherwise provided in subsection (c) of this section. The tax under section 710(a) (1) (B) for a taxable year of less than 12 months is determined on the basis of the actual normal tax and sur- tax for the taxable year and on the basis of the corporation surtax net income computed for the period for which return was made without placing the net income on an annual basis and computed without re- gard to the credit provided in section 26(e) for income subject to ex- cess profits tax. (5) General rule. — Section 711(a) (3) (A) provides that the excess profits net income for a short taxable year shall be placed on an annual basis by multiplying the amount thereof by the number of days in the 12 months ending with the close of the short taxable year and dividing by the number of days in the short taxable year. A tentative tax shall then be computed as though the excess profits net income were the amount so ascertained under the. preceding sentence. The actual tax for the short taxable year shall be an amount which bears the same ratio to such tentative tax as the number of days in the short 33 taxable year bears to the total number of days in the 12 months end- ing with the close of the taxable year. (o) Exception f tax for short period determined by actual 12-month adjusted excess profits net income. — If the taxpayer applies to the Commissioner in the manner provided in subsection (d) of this sec- tion to have its tax computed under the provisions of section 'ril(a) (8) (B), and if the taxpayer establishes the amount of its ad- justed excess profits net income, computed for the l2-month period hereinafter described and under the rules hereinafter prescribed, then section 711(a) (3) (B) provides that the tax for the short taxable year shall be reduced to an amount which is such part of the tax com-, puted on the basis of the adjusted excess profits net income which the taxpayer has established for such 12-month period as the excess profits net income for the short taxable year is of the excess profits net in- come for such 12-month period. If such amount, however, is greater than the tax computed under subsection (J) of this section, the tax for the short taxable year is the tax computed under subsection (&). The 12-month period referred to above is the 12-month period beginning- with the first day of the short taxable year, except that if the taxpayer has disposed of substantially all its assets prior to the end of such 12-month period, then it is the 12-month period ending with the last day of the short taxable year. If a corporation ceases business and distributes so much of the assets used in its business that it cannot resume its customary operations with the remaining assets, it has disposed of substantially all of its assets. \ In computing the tax under section 711(a) (3) (B), the excess prof- its net income for the short taxable year is not placed" on an annual basis as provided in section 711(a) (3) (A). The adjusted excess^ prof- its net income for the 12-month period is computed under the same provisions of law as are applicable to the short taxable year, with the use of the credits applicable in determining the adjusted excess profits net income for such short taxable year (as if this section were not ap- plicable), and is computed as if the 12-month period were an actual accounting period of the taxpayer. All items which fall in such 12- month period must be included even if they are extraordinary in amount or of an unusual nature. The adjustments provided in sec- tion 711(a) (1) and (2) under the law applicable to such short tax- able year shall be made upon the basis of the normal-tax net income for such 12-month period. The apportionment of items to such 12- month period shall be made in accordance with the method and prin- ciples applicable under section 29.47-2(6) of Eegulations 111. The excess profits net income for the 12-month period used shall in no case be considered less than the actual excess profits net income for the short, taxable year. 34 (d) Application to compute tax under section 711 (a) {3) (B) . — A taxpayer desiring the benefit of section 711(a)(3)(B) must file an application therefor. If at the time the return for the short taxable year is filed the taxpayer is able to determine that the 12-month period ending with the close of the short taxable year will be used in the computations under section 711(a)(3)(B), then the tax on the re- turn for the short taxable year may be determined under the provi- sions of section 711(a)(3)(B). In such a case, an excess profits tax return form covering the 12-month period shall be attached to the return as a part thereof, and the return will then be considered the application for the benefits of section 711(a)(3)(B) required by that section. In all other c'ases, the taxpayer shall file its return and compute its tax as provided in subsection (&) of this section, and the application for the benefit of sectiori 711(a)(3)(B) shall be made in the form of a claim for credit or refund if the tax com- puted under section 711(a) (3) (A) has been paid, or, if the tax com- puted under section 711(a)(3)(A) has not been paid, the applica- tion shall consist of a notice to the Commissioner setting forth the facts involved together with an excess profits tax return form cov- ering the 12-month period used. The claim or other application for the benefit of section 711(a) (3) (B) shall set forth the computation of the adjusted excess profits net income and the tax thereon for the 12-month period and, if credit or refund is sought for taxes .paid before the application for the benefit of section 711(a) (3) (B) is filed, the claim must be filed not later than June 15, 1943, or the time pre- scribed for filing the return for the first taxable year (or for the period which would be its taxable year if it continued in existence) ending with or after the twelfth month after the beginning of the short taxable year, whichever date is later. For example, the tax- payer changes its accounting period from the calenda* year basis to the fiscal year basis ending September 30, and files a return for the period from January 1, 1942, ^;o September 30, 1942. At the time it files its return, it pays the tax computed thereon under the provi- sions of section 711(a) (3) (A). Its claim for credit or refund of the overpayment which would result from the application of section 711(a)(3)(B) must be filed not later than the time prescribed for filing its return for the first taxable year which ends on or after the last day of December, 1942, the twelfth month after the begin- ning of the short taxable year. In this case, the taxpayer must file its claim for credit or refund not later than December 15, 1943, the time prescribed for filing the return for its fiscal year ending September 30, 1943. However, if it obtains an extension of time for filing the return for such fiscal year, it may file its claim during the period of such extension. If the Commissioner determines that the taxpayer has established the amount of the adjusted excess profits 35 net income for the 12-inonth period', any excess of the tax paid for the short taxable year over the tax computed under section 711(a)(3)(B) will be credited or refunded to the taxpayer in the same manner as in the case of any other overpayment. An appli- cation for the benefit of section 711(a)(3)(B), other than a claim for credit or refund, made in any case in which the tax liability com- puted under section 711(a)(3)(A) has not been paid, may be. filed at any time before the tax liability for the taxable year is finally determined. Such application does not constitute a claim for credit, refund, or abatement. If credit or refund is sought for taxes paid after such application is filed, a claim therefor on Form 843 should be filed after such payment and within the period prescribed in section 322. [SEC; 711. EXCESS PKOFITS NET INCOME (Added by Sec. 201, Second Eev. Act 1940; Amended by Secs. 3 and 12(b), Excess Pbofits Tax Amendments 1941, by Sec. 202 (c) and (d), Rev. Act 1941, AND BY Secs 205 (b) and (c) , 206, 207, 208, 209 (a) and (b), 210, 211, and 213, Eev. Act 1942).] (b) Taxable Teaks in Base Period. — (1) Geneeal bum; and adjustments.. — ^The excess profits net income for any taxable year subject to the Revenue Act of 1936 shall be the normal-tax net income, as defined In section 13(a) of such Act; and for any other taxable year beginning after De- cember 31, 1937, and before January 1, 1940, shall be the special- class net income, as defined in section 14(a) of the applicable revenue law. In either case the following adjustments shall, be made (for additional adjustments in case of certain reorganiza- tions, see section 742(e)) : (A) [Not applicable to taxable years under these regulations (section 202(c) (2) , Rev. Act 1941).] (B) Gains and Losses from Sales or Exchanges of Capital Assets. — There shall be excluded gains and losses from sales or exchanges of capital assets held for more than 6 months. (0) Income From Retirement or Discharge of Bonds, and So Forth. — There shall be excluded in the case of any tax- payer, income derived from the retirement or discharge by the taxpayer of any bond, debenture, note, or certificate or other evidence of indebtedness, if the obligation of the taxpayer has been outstanding for more than 6 months, including, in case the issuance was at a premium, the amount Includible in income for such year solely because of such retirement or dicharge ; (D) Deductions on 'Account of Retirement or Discharge of Bonds, and So Forth. — If during the taxable year the taxpayer retires or discharges any bond, debenture, note, or certificate or other evidence of indebtedness, if the obligation of the tax- payer has been outstanding for more than eighteen months, the following deductions for such taxable year shall not be allowed : 36 (I) The deduction allowable under section 23(a) for expenses paid or incurred in connection with such retire- ment or discharge ; (ii) The deduction for losses allowable by reason of such retirement or discharge; and (iii) In case the issuance was at a discount, the amount deductible for such year solely because of such retirement or discharge; (E) Casualty, Demolition, and Similar Losses. — Deductions under section 23(f) for losses arising from fires, storms, ship- wreck, or other casualty, or from theft, or arising from the demolition, abandonment, or loss of useful value of property, not compensated for by Insurance ' or otherwise, shall not be allowed ; (F) Repayment of Processing Tax to Vendees. — The de- duction under section 23(a), for any taxable year, for expenses shall be decreased by an amount which bears the same ratio to the amount deductible on account of any repayment or credit by the corporation to its vendee of any amount attributable to any fax under the Agricultural Adjustment Act of 1933, as amended, as the excess of the aggregate of the amounts so deductible in the base period over the aggregate of the amounts attributable to taxes under such Act collected from its vendees which were includible in the corporation's gross income in the base period and which were not paid, bears to the aggregate of the amounts so deductible In the base period ; (G) Dividends Received.— The credit for dividends received shall apply, without limitation, to dividends on stock of domestic corporations ; (H) Payment of Judgments, and So Forth. — Deductions at- tributable to any claim, award, judgment, or decree against the taxpayer, or interest on any of the foregoing, if abnormal for the taxpayer, shall not be allowed, and if normal for the tax- payer, but in excess of 125 per centum of the average amount of such deductions in the four previous taxable years, shall be dis- allowed in an amount equal to such excess ; (I) Intangible Drilling and Development Costs. — Deductions attributable to intangible drilling and development costs paid or incurred in or for the drilling of wells or the preparation of wells for the production of oil or gas, and for development costs in the case of mines, if abnormal for the taxpayer, shall not be allowed, and if normalfor the taxpayer, but in excess of 125 per centum of the average amount of such deductions in the four previous taxable years, shall be disallowed in an amount equal to such excess ; and (J) Abnormal Deductions. — Under regulations prescribed by the Commissioner, with the approval of the Secretary, for the detei'mlnation, for the purposes of this subparagraph, of the classification of deductions — (i) Deductions of any class shall not be allowed if deduc- tions of such class were abnormal for the taxpayer, and (ii) If the class of deductions was normal for the tax- payer, but the deductions of such class were In excess o£ 125 per centum of the average amount of deductions of such 37 ' class for the four previous taxable years, they shall be disallowed in an amount equal to such excess. (K) Rules for Application of Subparagraphs (H), (I), and (J). — For the purposes of subparagraphs (H), (I), and (J) — ' (i) If the taxpayer was not in existence for four previous taxable years, then such average anlount specified in such subparagraphs shall be determined for the previous taxable years it was in existence and the succeeding ^axable years which begin before the beginning of the taxpayer's second taxable year under this subchapter. If the number of such succeeding years is greater than the number necessary to obtain an aggregate of four taxable years there shall be omitted so many of such succeeding years, beginning with the last, as are necessary to reduce the aggregate to four. (ii) Deductions shall not be disallowed under such sub- paragraphs unless the taxpayer establishes that the abnor- mality or excess is not a consequence of an increase in the gross income of the taxpayer in its base period or a decrease in the amount of some other deduction in its base period, and is not a consequence of a change at any time in the type, manner of operation, size, or condition of the business engaged in by the taxpayer. (iii) The amount of deductions of any class to be dis- allowed under such subparagraphs with respect to any tax- able year shall not exceed the amount by which the deduc- tions of such class for such taxable year exceed the deduc- tions of such class for the taxable year for which the tax under this subchapter is being computed. (2) Capitai. gains and losses. — For the purposes of this subsec- tion the normal-tax net income and the special-class net income referred to In paragraph (1) shall be computed as if sectiou 23(g) (2), section 23(k) (2), and section 117 wer^part of the revenue law applicable to the taxable year the excess profits net income of which is being computed, with the.exception that the capital loss carry-over provided in subsection (e) (1) of section 117 shall be ap- plicable to net capital losses for taxable years beginning after De- cember 31, 1934. Such exception shall not apply for the purposes of computing the tax under this subchapter for any taxable year beginning before January 1, 1943. Sec. 35.711 (b)-l Computation of Excess Peofits Net Income foe Taxable Years in Base Peeiod. — If the excess profits credit for the taxable year is computed under section 713, it is necessary to compute the excess profits net income for each taxable year of the base period. The taxable years in the base period are those beginning after Decem- ber 31, 1935, and before January 1, 1940. For a taxable year beginning after December .31, 1935, and before January 1, 1938, the starting point in the determination of the excess profits net income is the normal-tax net income, as defined in section 13(a) of the Eevenuo Act of. 1936. For a taxable year beginning after December 31, 1937, the starting point is the special-class net income, as defined in section 14(a) of the Eevenuft Act of 1938 and the Internal Revenue Code. 38 The normal-tax net income or the special-class net income, as the case may be, is to be adjusted first as required by section 711(b) (2) and then as required by section 711(b)(1). The adjustments required by sections 711 (bj (2) and 711(b) (1) (B) may be illustrated by the following example : Example. The normal tax net income of the X Corporation for the calendar year 1936 is $50,000 and its special class net income for the calendar year 1939 is $200,000. In December, 1935, the corpora- tion purchased shares of the stock and bonds of other corporations for a total purchase price of $25,000. The corporations were never included in a consolidated return. Such shares of stock and bonds were capital assets. They became worthless in 1936 and the bonds were charged off during that year. For 1936, the corporation had losses described in section ll7(j) (relating to gains and losses from the sale, exchange, or involuntary conversion of certain property de- scribed in that section) which exceeded its gains described in that section by $5,000. All of such gains and losses was derived from the sale of property of a character subject to the allowance for de- preciation provided in section 23(1). For 1939, all gains and losses described in section ll7(j) were again derived from the sale of prop- erty of a character subject to the allowance for depreciation pro- vided in section 23(1), and such gains exceeded such losses by $3,000. In addition to the foregoing gains and losses, the corporation had gains and losses as follows: Qalns from the sale or exchange of capital assets held for not more than 6 months. . Losses from the sale or exchange of capital assets held for not more than 6 months (disregarding any carry-over) _.. ___ Gains from the sale or exchange of capital assets held for more than 6 months Losses from the sale or exchange of capital assets held for more than 6 months , None None $25,000 1,000 For the purpose of computing the income credit applicable to. the excess profits tax taxable year of the corporation beginning January 1, 1942, the adjustments required in computing the excess profits net income of the corporation for 1936 and 1939 are as follows : 19S6 Normal-tax net incom^ 1 $50, 000 Adjustment under section 711(b)(2) : Add : Deductions for loss on worthless stock and bonds ($25,000) and for capital net loss ($2,000) ($25,000 plus $2,000 or $27,000) _ 27, 000 Subtract: Excess of losses described In section 117(3) over gains described in that section 77,000 5,000 39 NormaWax net Income adjusted as required by section' 711 (b) ■ (2) $72,000 (No adjustment Is required under section 711(b) (1) (B) since losses from the sale or exchange of capital assets held for more than six months exceed gains from the sale or ex- change of such assets, determined as follows : Losses from the sale or exchange of capital assets held for more than 6 months ($25,000 with respect to the worth- less stock and bonds and $30,000 with respect to other long-term capital losses) $55,000 Gains from the sale or exchange of capital assets held for more than 6 months ; 10, 000 Net long-term capital losses 45,000 The adjustments under section 711(b) (2) in efCect excluded such gains and losses from gross income by allowing the deduction of the losses only to the extent of the gains included in gross income. ) Normal-tax net income adjusted as required by section 711(b)(2) and section 711(b)(1)(B)' 72,000 19S9 Special class net Income $2(X), 000 (No adjustment required under section 711(b) (2).) Adjustments under section 711(b) (1) (B) : Gains from the sale or exchange of capital assets held for more than 6 months ($3,000 with respect to the excess of gains from the sale of depreciable property over the losses therefrom and $25,000 with respect to other long-term capital gains) $28,000 Losses from the sale or exchange of capital assets held for more than 6 months 1, 000 Deduct net long-term capital gain , 27, 000 Special class net income adjusted as required by sections 711(b)(2) and 711(b)(1)(B) 173,000 The following rules apply to tlie use o'f capital loss carry-overs to base period years when computing the income credit applicable to the excess profits tax taxable years indicated below : (1) If the excess profits tax taxable year begins in 1942, the net short-term capital loss carry-over provided in section 117(e), prior to its amendment by the Eevenue Act of 1942, shall be applicable to net short-term capital losses for taxable years beginning after December 31, 1934, and for the purpose of determining such carry-over capital 1 Since losses from the sale or exchange of capital assets held for not more than six months exceed the gains from such sales or exchanges, such gains and losses do not enter into the adjustment except insofar as' they are reflected in the $2,000 deduction for net capital losses, allowed In com^puting normal tax net income^ which is disallowed under section 711(b)(2). 40 gains and losses shall be determined as if the provisions of section 23 (g) (2) and (k) (2) and section 117 of the Code (other than section 117(e)), as amended by the Revenue Act of 1942 were applicable to all of such years. (See Regulations 103 and 111.) (2) If the excess profits tax taxable year begins on or after January 1, 1943, the capital loss carry-over provided in section 117(e)(1), as amended by the Revenue Act of 1942, shall be applicable to net capital losses for taxable years beginning after December 31, 1934, and for the purpose of determining such carry-over capital gains and losses shaU be determined as if the provisions of section 23 (g) (2) and (k) (2) and section 117 of the Code, as amended by the Revenue Act of 1942, were applicable to all of such years. (See Regulations 111.) Section 117(e)(2), as added by the Revenue Act of 1942, has no application for the purposes of computing capital loss carry-overs to base period years. No adjustment on account of income tax for any base period year shall he made in computing the excess profits tax for the taxablei year. For the purpose of the adjustment under section 711(b) (1) (C), the applicable number of months beyond which the obligation of the tax- payer must have been outstanding is six months. The applicable number of months beyond which the obligation of the taxpayer must have been outstanding for the purpose of the adjustment under section 711(b)(1)(D) is 18 months. In making the adjustments provided in section 711(b) (1) (D), the deduction allowable for any premium pa,id on bonds when called for redemption shall be disallowed, but the deduction allowable for any discount amortized up to the date of retirement or discharge shall not be disallowed. Expenses incurred in issuing bonds which are amortized shall be treated in the same manner as discounts. The ad- justments required by section 711(b)(1)(D) may be illustrated by the following example : Example. The normal-tax net income of the M Corporation for the calendar year 1936 is $75,000. On January 1, 1935, the corpora- tion issued 1,200 non-serial bonds with a total face value of $120,000 at a discount of $14,400, maturing on December 31, 1954. On August 1, 1936, the corporation purchased one-sixth of the amount of the bonds for $19,000. The deduction allowable under section 23(a) of the Revenue Act of 1936 for expenses paid in connection with such purchase amounted to $1,200. The adjustments required by section 711(b) (1) (D) in computing the excess profits net income of the cor- poration for 1936 are as follows : 41 Normal-tax net Income $75, 000 Adjustment under section 711(b) (1) (D) : Add: (I) Deduction allowable for expenses in connection with retirement '. $1, 200 (II) Deduction for losses allowable by reason of re- tirement Noiif (Hi) Amount deductible because of retirement or dis- charge of bonds ($1,210 computed as In Schedule . below) 1, 210 2, 410 Kormal-tax -net income adjusted as required by section 711(b) (1) (D) 77, -110 Schedule — (o) Animal amortization on $14,400 discount ($14,400-^20) 720 (6) Annual amortization of discount on block of bonds retired ($720-H6) 120 (c) Monthly amortization of discount on block of bonds retired (120-H12) 10 (d) Amortized discount deductible on block of bonds retired on August 1, 1936 ($10X19) 190 (e) Purchase price of bonds retired on August 1, 1936 19, 000 (f) Issuing price of bonds retired on August 1, 1936 1, 200X$88 ^^^^ qqq 6 (g) Total amount of discount deductible on account of retirement of bonds on August 1, 1936 ($19,000— $17,600) 1, 400 (ft) Amount deductible because of retirement or discharge of bonds (item (g) less item (d), or $1,400— $190) : 1,210 The adjustments required by section 711(b)(1)(F) may be illus- trated by the following example : Example. The normal-tax net income of the O Corporation f or4he calendar year 1936 is $75,000. During that year the corporation col- lected from its vendees $2,000 attributable to taxes under the Agricul- tural Adjustment Act of 1933, as amended. The $2,000 was included in the gross income of the corporation for 1936 and the taxes to which such amount was attributable were not paid. During the years 1936 and 1937 the corporation repaid to its vendees $6,000 and $2,000, respec- tively, of amounts it had collected from them for 1936 and prior years attributable to such taxes. It made no such repayments during the years 1938 and 1939. The amount repaid to the vendees in 1936 is deductible from the corporation's gross income for that year. The adjustments required by section 711(b) (1) (F) in computing the excess profits net income of the corporation for 1936 are as follows : Normal-tax net income $75, 000 Adjustment under section 711(b) (1) (F) : Add: The amount of $4,500, computed as shown in the schedule below •i, 500 488313°— 43- 42 Normal-tax net income adjusted as required by section 711(b) (1) (F)— $79,600 Schedule— (1) Amount deductible under section 23(a) for 1936 on account of repayment to vendees of amounts collected from vendees at- tributable to taxes under Agricultural Adjustment Act of 1933, as amended, which were not paid__ $8, 000 (2) Aggregate amounts described In (1) deductible in the base period ($6,000 plus $2,000) $8,000 (3) Aggregate of amounts described in (1) collected from vendees and includible in gross income of corporation In base period $2, OOO (4) Excess of (2) over (3) ($8,000 minus $2,000) $6,000 (5) Katio of (4) to (2) 6/8 (6) Amount of adjustment C-^^l^^iili. ^j. 1 of $6,000) $4,500 ^ \ (2) 8 In connection with the adjustments required to be made by section 711(b) (1) (H), (I), and (J), see section 35.711(b) -2. Sec. 35.711 (b)-2 Abnormal Deductions in Base Period.. — ^Adjust- ments in the excess profits net income for a taxable year in the base period are required in order to disallow deductions of a class which is abnormal for the taxpayer, and to disallow the amount by which deductions of a class normal for the taxpayer exceed 125 percent of the average amount of deductions of such class for the four previous taxable years. If the taxpayer was not in existence for four previous taxable years, then the average amount of deductions of any class shall be determined for the previous taxable years during which it was in existence and the succeeding taxable - years which begin before the beginning of the taxpayer's second excess profits tax taxable year. If the number of such succeeding years is greater than the number necessary to obtain an aggregate of four taxable years there shall be omitted so many of such succeeding years, be- ginning with the last, as are necessary to reduce the aggregate to four. For example, in the case of a corporation coming into exist- ence on January 1, 1938, and making its income tax returns on the calendar year basis, the amount of deductions of any class which may be disallowed for the taxable year 1939 may be determined from the average of the deductions for the taxable years 1938 and 1940. The taxable year 1941 is the taxpayer's second excess profits tax taxable year and therefore may not be used. A class of deductions is abnormal only if the taxpayer had no deductions of that class in the taxable years prescribed for determin- ing average deductions. The taxpayer must establish that the abnormality or excessiveness of the deduction is not a consequence of an increase in the gross income of the taxpayer in its base period or a decrease in the amount of some other deduction in its base period, and is not a consequence of a change at any time in the type, manner of operation, size, or condition 43 of the business engaged in by the taxpayer. For example, if in 1939 the deductions of an airplane manufacturer for wages were in excess of 125 percent of the average of such deductions for the four previous taxable years because of a training program for mechanics instituted by the corporation in 1939 to provide for an expansion in operations, no part of the deductions will be disallowed. If a corporation dis- tributes its product through agents paid commissions on gross sales, and due to a rise in the price of the product, both the amount of gross income and the amount of deductions for commissions increased, any resulting abnormal amount of deductions for commissions will not be disallowed. If the X Gasoline Corporation in 1938 and all prior years deducted gasoline taxes paid by it as a business expense under section 23(a), but in 1939 included such taxes for that year in its deductions for taxes paid under section 23(c) so as. to increase its deductions for taxes paid for 1939 to an amount in excess of 125 per- cent of its average deductions of the same class for the four previous taxable years, the abnormal amount of such deduction for 1939 will not be disallowed. As to advertising expenditures, the provisions of section 733 apply before any determinations are made under this section. See section 35.733-3. In order for the dedixction of any class to be disallowed, the de- ductions of such class for the taxable year in the base period must exceed the deductions of the same class for the taxable year for which the excess profits tax is being computed, and any amount which may be disallowed shall be no greater than the amount by which the deductions of such class for the base period taxable year exceed the deductions of the same class for the taxable year for wljiich the excess profits tax is being computed. For example, if a corporation in the base period taxable year 1938 had a deduction of $200,000 and its average of deductions of the same class for the four previous taxable years was $100,000, the amount of $75,000 ($200,000 minus- 125 per- cent of $100,000) may be disallowed, but only if the deductions of this class in 1938 exceed by this or a greater amount the deductions of the same class in the taxable year for which the excess profits tax is being computed. If the tax is computed for 1942 and the deduc- tions of this class for 1942 are $100,000, the full $75,000 is disallowed for the taxable year 1938. If for 1943 the deductions of this class are $125,000, the full $75,000 may again be disallowed for the taxable year 1938 in computing the excess profits tax' for 1943. However, if for 1944 the deductions of this class are $150,000, only $50,000 will be disallowed for the taxable year 1938 in determining the excess profits credit based on income for use against the excess profits net income for 1944. If the excess profits tax taxable year is a taxable year of less than 12 months and the taxpayer places its excess profits 44 net income on an annual basis as provided in section Yll(a) (3) (A) or establishes an adjusted excess profits net income for a 12-month period, which is used to compute the tax under section 711(a)(3)(B), the deductions of the class as determined upon such annual basis or under such adjusted excess profits net income for such 12-month period used shall be considered as deductions of the class for the excess profits tax taxable year. Thus, the corporation in the example just given maj have changed its accounting period in 1943 from a calendar year to a fiscal year ending September 30. If, in such case, the corporation had $125,000 of deductions of the class for the short taxable year January 1, 1943, through September 30, 1943, but computed its tax under section 711(a) (3) (B) and established an adjusted excess profits net income for the 12-month period January 1, 1943, through December 31, 1943, with $175,000 of deductions of -the class, only $25,000 will be disallowed for the taxable year 1938 in determining the excess profits credit based on income for use against the excess profits net income for 1943. (a) Classification of dedttctions. — Section 711(b) (1) (H) and (I,) sets forth specific classes of deductions, the^ amount of which in any base period taxable year may be totally disallowed if abnormal for the taxpayer or disallowed to the extent of the excessover 125 percent of the average of such class if normal for the taxpayer. Section 711(b)(1) (J) permits the classification of other deductions in ac- cordance with these regulations. In any case, the amount ef deduc- tions of any class -which may be disallowed shall be determined in the manner previously set forth in this section. Deductions attributable to any claim, award, judgment, or decree against the taxpayer, or interest on any of the foregoing are all of the same class. Therefore, in determining in the case of a deduction for a judgment, for example, whether the class of deductions is abnormal or whether the amount thereof for any taxable year is in excess of 125 percent of average deductions of the same class, account must be taken not only of the amount of deductions for judgments, if any, allowed in preceding taxable years, biit also of any deductions arising out of claims, awards, and decrees, and interest thereon. Deductions for intangible drilling and development costs paid or incurred in or for the drilling of wells or the preparation of wells for the production of oil or gas, and for development costs in the csise of mines are all of the same class. Therefore, for the purpose of determining whether the deductions for one taxable year are ab- normal or in excess of 125 percent of average deductions of this class, and for the purpose of determining the- amount to be disallowed in such event, reference must be made to the deductions of the entire class, rather than to any particular deductible items included therein. Deductions attributable to the operation of wells or mines are not included in this class. 45 Deductions which do not fall within either of the classes specified in section 711(b)(1) (H) and (I) may be grouped by the taxpayer, subject to approval by the Commissioner on the examination of the taxpayer's return, in such other classes as are reasonable in a busi- ness of the type which the taxpayer conducts, and are appropriate in the light of the taxpayer's business experience and accounting practice. Such a classification will be applicable to all other taxable years considered at any time in adjusting deductions under this section, and must be consistent with any. classification made by the taxpayer under the provisions of section 721 and section 722. (&) Statement required. — If in computing its excess profits net in- come for a taxable year in the base period, the taxpayer claims the disallowance under section 711(b)(1) (H), (I), or (J) of any amount previously allowed as a deduction, there shall be submitted a full statement showing the computation of the amount to be dis- allowed, the prices and gross sales of the taxpayer's product, and the. condition of the taxpayer's business which demonstrate that the dis- allowed amount is not a consequence of an increase in the gross in- come of the taxpayer in its base period or a decrease in the amount of some other deduction in its base period, and is not a consequence of a change at any time in the type, manner of operation, size, or condition of the business engaged in by the taxpayer. This state- ment shall be in duplicate and shall include the following: (1) the computation of the amount disallowed, showing the amount of the class of deductions in the base period taxable year for which any part of such amount is disallowed, the average amount of such class for the four preceding taxable years or for such taxable years as the taxpayer is required to use in determining this average amount, and the excess amount of deductions disallowed; (2) a description and the amount of each item included in such class of deductions for the taxable year for which such deductions are disallowed and for the taxable years in the test period, with the amount of each and a description thereof; (3) the amount of such class and the amount and, description of each item in that class for the taxable year for which the excess profits tax is being computed; and (4) all other facts upon which tha taxpayer relies. SEC. 712. EXCESS PROFITS CREDIT— ALLOWAJSTCE. [Added by Sec. 201, Second Rev. Act 1940 ; Amended by Sho. 18, Excess PROFrrs Tax Amendments 1941, and by Seos. 212(a), 224(b), and 228(e), Rev. Act 1942.] (a) Domestic Coepoeations. — In the case of a domestic corporation which- was in existence before January 1, 1940, the excess profits credit for any taxable year shall be an amount computed under section 713 or section 714,. whichever amount results in the lesser tax under this Subchapter for the taxable year for which the tax under this sub- 46 chapter is being eompnted. In the case of all other domestic corpora- tions the excess profits credit for any taxable year shall be an amount computed under section 714. (For allowance of excess profits credit in case of certain reorganizations of corporations, see section 741.) (b) Foreign Cobpoeations. — In the case of a foreign corporation engaged in trade or business within the United States, the first taxable year of which under this subchapter begins on any date in 1940, which was in existence on the day forty-eight months prior to such date and which at any time during each of the taxable years in such forty-eight months was engaged in trade or business within the United States, the excess profits credit for any taxable year shall be an amount computed under section 713 or section 714, whichever amount results In the lesser tax under this subchapter for the taxable year for which the tax under this subchapter is being computed. In the case of all other foreign cor- porations the excess profits credit for any taxable year shall be an amount computed under section 714. (c) [Not applicable to taxable years under these regulations (section 224(b), Rev. Act 1942).] (d) Special Riii.e in Connection With Cektain Reorganizations. — For the existence of taxpayer through component corporations, see section 740(f). Sec. 35.712-1 Excess PBonrs Credit — ^Allowance. — {a) Two meth- ods are provided for computing the excess profits credit: (1) The income method under which the credit is computed as provided in section 713, and (2) the invested capital method under which the credit is computed as provided in section 714. (i) In the case of the following corporations, the excess profits credit shall be the credit based upon income, computed as provided in section 713, or the credit based on invested capital, computed as provided in section 714, whichever credit results in the lesser tax for the taxable year for which the tax is being computed : (1) A domestic corporation which was actually in existence before January 1, 1940. (2) A domestic corporation which was not actually in existence before January 1, 1940, but which, as an acquiring corporation within the meaning of section 740 of Supplement A, was con- structively in existence before January 1, 1940. (For computation of excess profits credit based on income in the case of an acquiring corporation, see sections 740 to 744.) (3) A foreign corporation (i) which is engaged in trade or business within the United States at any time during the taxable year; (ii) the first taxablp year of which for the purposes of the excess profits tax begins on any day in 1940; (iii) which was in existence oi^ the date 48 months prior to such date ; and (iv) which, at any time during each of the taxable years in such 48 months, was engaged in trade or business within the United States. As to what constitutes being engaged in trade or business within the United States, see section 29.231-1 of Kegulations 111. 47 (o) The following corporations are required to compute their credit under the invested' capital method provided in section 714: (1) A domestic corporation which is not an acquiring corpora- tion within the meaning of section 740 of Supplement A and which was not actually in existence before January 1, 1940. (2) A domestic corporation which is an acquiring corporation within* the meaning of section 740 of Supplement A and which was not actually or constructively in existence before January 1, 1940. ' . ^ (3) A foreign corporation which does not meet the requirements of subsection (6) (3) above. However, in certain cases where the excess profits credit based on in- vested capital is an inadequate standard for determining excess profits, for allowance of an excess profits, credit based on income, using a constructive average base period net income, see section 722(c) and section 35.722-4. SEC. 713. EXCESS PROFITS CREDIT— BASED ON INCOME. [Added BY Seo. 201, _ Second Rev. Act 1940; Amhndeo bt Sec. 4, Excess Profits Tax Amendments 1941, and by Seos. 214(a), 215, 216, AND 228 (e) , Rey. Act 1942.] (a) Amount of Excess Profits Credit. — The excess profts credit for any taxable year, computed under this section, shall be — (1) Domestic corporations. — In the case of a domestic corpora- tion — (A) 95 per centum of the average base period net income, (B) Plus 8 per centum of the net capital addition as defined in subsection (g), or (C) Minus 6 per centum of the net capital reduction as defined in subsection (g). (2) Foreign corporations. — In the case of a foreign corporation, 95 per centum of the average base period net income. (b) Base Period. — (1) Definition. — ^As used In this section the term "base period" — (A) If the corporation was in existence during the whole of the forty-eight months preceding the beginning of its first tax- able year under this subchapter, means the period commencing with the beginning of its first taxable year beginning after December 31, 1935, and ending with the close of its last taxable year beginning before January 1, 1940 ; and (B) In the case of a corporation which was in existence during only part of the forty-eight months preceding the begin- ning of its first taxable year under this subchapter, means the forty-eight months preceding the beginning of its first taxable year under this subchapter. (2) Division into halves. — For the purposes of subsections (d) and (f ) the base period of the taxpayer shall be divided into halves, the first half to be composed of one-half the entire number of months in the base period and to begin with the beginning of the base period. 48 ' (c) Deficit in Excess Profits Net Income. — For the purposes of this section the term "deficit in excess profits net Income" with respect to any taxable year means the amount by which the deductions plus the credit for dividends received and the credit provided in section 26(a) (relating to interest on certain obligations of the United States and its instrumentalities) exceeded the gross Income. For the purposes of this subsection in determining whether there was such an excess and in determining the amount thereof, the adjustments provided In section 711(b)(1) shall be made. (d) Average Base Period Net Income — Determination. — (1) Definitton. — ^For the purposes of this section the average base period net income of the taxpayer shall be the amount de- termined under subsection (e), subject to the exception that if the aggregate excess profits net income for the last half of its base period, reduced by the aggregate of the deficits in excess profits net income for such half, is greater than such aggregate so reduced for the first half, then the average base period net income shall be the amount determined under subsection (f), if greater than the amount determined under subsection (e). (2) For the purposes of subsections (e) and (f). If the tax- payer was in existence during only part of the 48 months preceding the beginning of Its first taxable year under this subchapter, its excess profits net income — . (A) for each taxable year of twelve months (beginning with the beginning of its base period) during which it was not in existence, shall be an amount equal to 8 per centum of the excess of — (i) the daily invested capital for the first day of the taxpayer's first taxable year beginning after December 31, 1939, over (ii) an amount equal to the same percentage of such dally Invested capital as is applicable under section 720 In reduction of the average invested capital of the preceding taxable year ; (B) for the taxable year of less than twelve months consisting of that part of the remainder of its' base period during which it was not in existence, shall be the amount ascertained for a fuU year under subparagraph (A), multiplied by the number of days in such taxable year of less than twelve months and divided by the number of days in the twelve months ending with the close of such taxable year. (3) In no case shall the average base period net income be less than zero. (4) For the computation of average base period net income in the case of certain reorganizations, see section 742. (e) Average Base Period Net Income — General Average. — The average base period net income determined under this subsection shall be determined as follows : (1) By computing the aggregate of the excess profits net income for each of the taxable years of the taxpayer In the base period, reduced by the sum of the deficits in excess profits net income for each of such years. If the excess profits net income (or deficit In excess profits net income) for one taxable year In the base period 49 divided by the number of months In such taxable year Is less than 75 per centum of the aggregate of the excess profits net Income (reduced by deficits in excess profits net income) for the other taxable years in the taxpayer's base period divided by the number of months In such other taxable years (herein called "average monthly amount") the amount used for such one year under this paragraph shall be 75 per centum of the average monthly amount multiplied by the number of months in such one year, and the year Increased under this sentence shall be the year the increase In which will produce the highest average base period net income ; (2) By dividing the amount ascertained under paragraph (1) by the total number of months in all such taxable years ; and (3) By multiplying the amount ascertained under paragraph (.2) by twelve. (f ) Average Babe Pebiod Net Income — Increased Eabnings in Last Hau" or Base Period. — The average base period net Income determined under this subsection shall be determined as follows : (1) By computing, for each of the taxable years of the taxpayer in Its base period, the excess profits net income for such year, or the deficit in excess profits net income for such year ; (2) By computing for each half of the base period the aggregate of the excess profits net income for each of the taxable years in such half, reduced, if for one or more of such years there was a deficit In excess profits net income, by the sum of such deficits. For the purposes of such computation, if any taxable year is partly within each half of the base period there shall be allocated to the first half an amount of the excess profits net income or deficit In excess profits net income, as the case may be, for such taxable year, which bears the same ratio thereto as the number of months falling within such half bears to the entire number of months in such taxable year ; and the remainder shall be allocated to the second half ; (3) If the amount ascertained under paragraph (2) for the second half is greater than the amount ascertained for the first half, by dividing the difference by two ; (4) By adding the amount ascertained under paragraph (3) to the amount ascertained under paragraph (2) for the second half of the base period ; (5) By dividing the amount found under paragraph (4) by the number of months in the second half of the base period and by multiplying the result by twelve ; (6) The amount ascertained under paragraph (5) shall be the average base period net Income determined under this subsection, except that the average base period npt income determined under this subsection shall In no case be greater than the highest excess profits net income for any taxable year in the base period. For the purpose of such limitation if any taxable year Is of less than twelve months, the excess profits net Income for such taxable year shall be placed on an annual basis by multiplying by twelve and dividing by the number of months included in such taxable year. (7) For the purposes of this subsection, the excess profits net Income for any taxable year ending after May 31, 1940, shall not be greater than an amount computed as follows : 50 (A) By reducing the excess profits net income by. an amount which bears the same ratio thereto as the number of months • after May 31, 1940, bears to the total number of months in such taxable year; and (B) By adding to the amount ascertained under subpara- graph (A) an amount which bears the same ratio to the excess profits net Income for the last preceding taxable year as such number of months after May SI, 1940, bears to the number of months in such preceding year. The amount added under this subparagraph shall not exceed the amount of the excess profits net income for such last preceding taxable year. (C) If the number of months in such preceding taxable year is less than such number of months after May 31, 1940, by adding to the amount ascertained under subparagraph (B) an amount which bears the same ratio to the excess profits net income for the second preceding taxable year as the excess of such number of months after May 31, 1940, over the number of months In such preceding taxable year bears to the number of months in such second preceding taxable year. (g) Adjustments in Excess Profits Chedit on Account of Capitai, Changes. — For the purposes of this section-^' (1) The net capital addition for the taxable year shall be the excess, divided by the number of days in the taxable year, of the aggregate of the daily capital addition for each day of the taxable year over the aggregate of the daily capital reduction for each day of the taxable year. (2) The net capital reduction for the taxable year shall be the excess, divided by the number of days In the taxable year, of the aggregate of the daily capital reduction for each day of the taxable year over the aggregate of the daily capital addition for each day of the taxable year. (3) The daily capital addition for any day of the taxable year shall be the aggregate of the amounts of money and property paid In for stock, or as paid-in surplus, or as a contribution to capital, after the beginning of the taxpayer's first taxable year under this subchapter and prior to such day. In determining the amount of any property paid in, such property shall be included In an amount determined in the manner provided In section 718(a)(2). A dis- tribution by the taxpayer to its shareholders in its stock or rights to acquire its stock shall not be regarded as money or property paid In for stock, or as paid-in surplus, or as a contribution to capital. The amount ascertained under this paragraph shall be reduced by the excess, if any, of the excluded capital for such day over the excluded capital for the first day of the taxpayer's first taxable year under this subchapter. For the purposes of this paragraph the excluded capital for any day shall be an amount equal to the sum of the following : (A) The aggregate of the adjusted basis (for determining loss upon sale or exchange) as of the beginning of such day, of obligations held by the taxpayer at the beginning of such day, which are described in section 22(b)(4) (A), (B), or 51 (O) any part of the interest from which is excludible from gross income or allowable as a credit against net income ; and (B) The aggregate of the adjusted basis (for determining , loss upon sale or exchange) as of the beginning of such day, of stock of domestic corporations held by the taxpayer at the beginning of such day. The daily capital addition shall In no case be less than zero. (For daily capital additions and reductions in case of certain reorgani- zations, see section 743.) (4) The daily capital reduction for any day of the taxable year shall be the aggregate of the amounts of distributions to share- holders, not out of earnings and profits, after the beginning of the taxpayer's first taxable year under this subchapter and prior to such day. (5) If, on any day of the taxable year, the taxpayer and any one or more other corporations are members of the same controlled group, then the daily capital reduction of the taxpayer for such day shall be increased by whichever of the following amounts is the lesser : (A) The aggregate of the adjusted basis (for determining loss upon sale or exchange) of stock in such other corporation (or if more than one, in such other corporations) acquired by the taxpayer after the beginning of the taxpayer's first taxable year under this subchapter, minus the aggregate of the adjusted basis (for determining loss upon sale or ex- change) of stock in such other corporation (or if more than one, in such other corporations) disposed of by the taxpayer prior to such day and after the beginning of the taxpayer's first taxable year under this subchapter ; or (B) The excess of the aggregate of the adjusted basis (for determining loss upon sale or exchange) of stock in all domestic corporations and of obligations described in section 22(b)(4), held by the taxpayer at the beginning of such day over the aggregate of the adjusted basis (for determining loss upon sale or exchange) of stock In all domestic corporations and of obligations described in section 22(b)(4), held by the tax- payer at tjtie beginning of its first taxable year under this subchapter. If any stock or obligations described In subparagraph (A) or (B) was disposed of prior to such day, its basis shall be determined under the law applicable to the year In "which so disposed of. The excluded capital of the taxpayer for such day shall be reduced by the amount by which the taxpayer's daily capital reduction for such day is increased under this paragraph. As used in this para- graph, a controlled group means one or more chains of corporations connected through stock ownership with a common parent corpora- tion if (1) more than 50 per centum of the total combined voting power of all classes of stock entitled to vote, or more than 50 per centum of the total value of shares of all classes of stock, of each of the corporations (except the common parent corporation) is owned directly by one or more of the other corporations and (il) the common parent corporation owns directly more than 50 per centum of the total combined voting power of all classes of 52 stock entitled to vote, or more than 50 per centum of the total value of shares of all classes of stock,- of at least one of the other \ corporations. Sec. 35.713-1 Excess Profits Credit Based on Income — ^Deter- mination OF Average Base Period Net Income. — (a) Introduc- tory. — ^In order for a corporation to determine for any particular taxable year tlie amount of its excess profits credit based on income, it is necessary first to compute the amount of the average base period net income, 95 per cent of which is the starting point for computing the excess profits credit based on income. Two methods are pro- vided for determining the average base period net income: (1) The general average method, set forth in section 713 (e) and -in subsection (b) of this section, and (2) the method set forth in section 713(f) and in subsection (o) of this section, applicable to cases in which the earnings for the last half of the base period are greater than those for the first half, if such method results in a greater average base period net income than that resulting from the use of the general average method. (i) Computation under the general average method. — The follow- ing steps are required for the computation of the 'average base period net income under the general average method (for computation of excess profits net income for portions of its base period during which the corporation was not in existence, see subsection {d) of this sec- tion, and for certain limitations upon the average base period net income of a component corporation (as defined in section 740(b)), sete section 35.740-2 (c)): (1) The excess profits net income, or deficit in excess profits net income, for each of the taxable years in the base period (years beginning after December 31, 1935, and before January 1, 1940) is to be determined as provided in section 711(b). The "deficit in excess profits net income" for any taxable year is the excess of deductions plus the credit for dividends received plus the credit for interest received allowed by section 26(a) over gross income. If the amount of the excess profits net income or the deficit in excess profits net income, as the case may be, for one taxable year in the base period, when divided by the number of months in such year, is less than 75 percent of the average monthly amount (for the other taxable years in the base period) , there shall be substi- tuted for the amount for such one year an amount of excess profits net income equal to 75 percent of such average monthly amount multiplied by the number of months in such year. The year to be increased under this provision is the year the increase in which will produce the highest average base period net income. The 53 "average monthly amount" referred to is the aggregate of the excess profits net income (reduced by deficits in excess profits net income) for the other taxable years in the taxpayer's base period divided by the number of months in such other taxable years. (2) The aggregate of the excess profits net income for the tax- able year-s in the base period, determined with respect to each year as provided in (1) above, disregarding any taxable year for which (after the application of (1) above) the excess profits net income is less than zero, is to be computed. (3) From such aggregate amount there is to be deducted, the sum of the deficits in excess profits net income, excluding a deficit for which an amount of income has been substituted as provided in (1) above. (4) Such aggregate amount as so reduced is to be divided by the number of months in the taxable years in the base period and the quotient so obtained is to be multiplied by 12. In no case shall the average base period net income be less than zero. If the base period is composed solely of 4 taxable years of 12 months each, the base period year which may be adjusted under section Y13 (e)(1) is the year of the lowest amount, i. e., the lowest excess profits net income or the greatest deficit. If the base period is more or less than 48 months, or is composed of- more than 4 taxable years, the base period year the increase in the amount of which will produce the highest average base period net income and which may be adjusted accordingly under section Y13 (e)(1) must be determined by a test upon the facts of the case. The computation of the average base period net income may be illustrated by the following examples : Example {1). The excess profits net income, credit for interest re- ceived, credit for dividends received, deductions, and ^ross income (all computed by making the adjustments provided in section 711(b)) of the X Corporation (a domestic corporation), for the years 1936 to 1939, are as follows : 1936 1937 1938 1939 Excess profits net income - . --- - $100,000 10,000 20,000 60,000 190,000 —$100,000 10,000 40,000 160,000 100,000 — $60,000 10,000 25,000 160, 000- 126,000 $30, 000 Credit for interest received 10,000 Credit for dividends received .. 30,000 Deductions _ ._..„»._ . 90,000 160,000 The average base period net income of the corporation is $21,875, computed as follows : 54 (i) Amount (excess profits net income or deficit) for taxable year In which increase under section 713(e) (1) will produce highest average base period net income (calendar year 1937) — $1()0, 000 (ii) Average monthly deficit for 1937 (—$100,000^12) —8, 333 (ill) Aggregate for other taxable years in base period of excess profits net income reduced by deficits in excess profits net income ($100,- 000+$30,OOG— $60,000) 70, 000 (iv) 75 percent of average monthly amount ($70,00(H-36, the number of months in the taxable years in the base period other than 1937) multiplied by the number of months in 1937. This amount is the sub- $70,000 stitute amount for 1937 (75 ^jercent of — gg — X 12) ^ 17, 500 (v) Aggregate of excess profits net income for taxable years In base period (other than those years for which there is a deficit in such in- come) before reduction required by section 713(e)(1) ($100,000-1- $17,50O-f $30,000) 147, 500 (vi) Amount item (v) above is to be reduced as required by section 713 (c) and (e) (1), 1. e., deficit in excess profits net income for 1938 60, 000 (vfi) Aggregate of excess profits net income for taxable years in base period as reduced (item (v) minus item (vi) ) 87,500 (viii) Average base period net income, $87,500 (Item (vii) ) divided by 48 (total number of months in taxable years in base period), multi- $87,500 plied by 12, or-^*^-^^ — X 12 21, 875 Example {£). The excess profits net income (or deficit in excess profits net income) credit for interest received, credit for dividends received, deductions, and gross income (all computed by making the adjustments provided in section 711(b)) of the Y Corporation (a domestic corporation), for its taxable years beginning in the base period (the calendar years 1936 and 1937, the short-period year Jan^ uary 1, 1938, through June 30, 1938, resulting from a change from the calendar year to a fiscal year, and the fiscal years ending June 30, 1939, and June 30, 1940) are as follows : Calendar year 1936 Calendar year 1937 Short period year 1938 Fiscal year 1939 Fiscal year 1940 Excess profits net income $100,000 10,000 20,000 60,000 190,000 -$60, 000 10,000 25,000 150,000 125,000 -$60,000 6,000 15,000 100,000 60,000 -$40,000 10,000 20,000 130,000 120,000 $25,200 10,000 20,000 144,800 200,000 Deductions - The average base period net income of the corporation is $6,800, computed as follows : (i) Amount (excess profits net income or deficit) for taxable year in which increase under section 713 (e) (1) will produce highest average base period net Income (calendar year 1937) — ^$60,000 (il) Average monthly deficit for 1937 (—$60,000^-12) : —5,000 55 (ill) Aggregate for other taxable years in base period of excess profits net Income reduced by deficits in excess profits net Income ($100,- 000+$25,200— $60,000— $40,000) $25, 200 (iv) Average monthly amount ($25,2C0-^42 (total number of months In taxable years in base period other than 1937) ) — 600 (v) 75 percent of amount in (Iv) 450 (Vl) Amount of excess profits net income to be used for 1937 ( 12 X $450) 5, 400 (vii) Aggregate of excess profits net income for taxable years in base period (other than those years for which there is a deficit in such Income), before reduction required by section 713(e) (1) ($100,000+ . $5,40O+$25,2OO) 130, 600 (vlii) Amount item (vii) above is to be reduced as required by section 713 (c) and (e) (1), i. e., sum of deficits in excess profits net income $60,00O+$4O,00O) - 100, 000 (ix) Aggregate of excess profits net income for taxable years in base period as reduced (item (vii) minus item (viii) ) 30,600 (x) Average base period net income, $80,600 (item (ix) ) , divided by 54 (total number of months in taxable years in base period), multiplied by 12. or»0^^2-._.-_ 6, 800 B4 . (c) Oomputation under section 713{f); increased earnings in last half of hose period. — The determination of the base period net income under the method set forth in section 713(f) is operative only if the aggregate excess profits net income for the last half of the base period of the taxpayer, reduced by ,the aggregate of the deficits in excess profits net income for such half, is greater than such aggregate so reduced for the first half and the average base period net income de- termined under section 713(f) is greater than the amount determined under section 713 (e) . The following steps are required for the com- putation of the average base period net income under the method set forth in section 713(f) : (1) The excess profits net income or th^ deficit in excess profits net income for each of the taxable years in the base period (years begin- ning after December 31, 1935, and before January 1, 1940) is to be de- termined as provided in section 711(b). (2) The base period is to be divided into halves, each of an equal number of months. There is to be computed for each half of the base period the aggregate of the excess profits net income for each of the taxable years in such half, reduced, if for one or more of such years there was a deficit in excess profits net income, by the sum of such deficits. In making this computation, no substitute amount of excess profits net income is to be used for any taxable year as in the case of the general average method under section 713(e) (1). (3) The excess of the amount ascertained for the second half over the amount ascertained for the first half is to be divided by 2. 58 (4) The amount ascertained under paragraph (3) is to be added to the amount ascertained under paragraph (2) for the second half of the base period. (5) The amount found under paragraph (4) is to be divided by the number of months in the second half of the base period and the result multiplied by 12. (6) The amount ascertained under paragraph (5) shall be the aver- age base period net income determined under the method set forth in section 713(f), except that the average base period net income so de- terrnined shall in no case be greater than the highest excess profits net income for any taxable year in the base period. For the purpose of this limitation if any taxable- year is less than 12 months, the excess profits net income for. such taxable year shall be placed on an annual basis by multiplying by 12 and dividing by the number of months included in such taxable year. For a restriction upon this limitation in the case of a component corporation, see section 35.740-2 (o). The computation of the average base period net income under the method set forth in section 713(f) may be illustrated by the following example : Example. The X Corporation, which makes its income tax returns on the calendar year basis, has the following amounts of excess profits net income for the taxable years in its base period: 1936, $100,000; 1937, $200,000 ; 1938, $300,000 ; and 193,9, $400,000. Its average base period net income under the method set forth in section 713(f) is $400,000, computed as follows : (1) Aggregate of excess profits net income for taxable years In sec- ond half of base period ($300,000 plus $400,000) $700, 000 (2) Aggregate of excess profits net income for taxable years in first half of base period ($100,000 plus $2CO,000) 300, 000 (3) Item (1) less item (2) ($700,000 minus $300,000) 400,000 (4) Item (3) divided by 2 ($400,000 divided by 2) 200, 000 (5) Sum of item (1) plus item (4) ($700,000 plus $200,000) 900, OOO (6) Item (5) placed on annual basis by dividing It by number of months in second half of base period and multiplying by 12 ( ($900,000 divided by 24) multiplied by 12) 450, 000 (7) Highest excess profits net income for any taxable year in base period (1939) 400,000 (8) Average base period net Income (item (7) since such Item is less than item (6)) 400,000 The provision of section 713(f) (2) relative to the manner of compu- tation of the aggregate excess profits net income for each half of the base period where the taxpayer, because of changes in its accoimting period or for other reasons, has more or less than four taxable years in such period, and where part of one taxable year is, in the first half 57 and the other part is in the second half of such period, may be illus- trated by the following example : "Example., A. corporation has taxable years in its base period and excess profits net incomes for such years as follows : Years in base period Beginning- Ending— Number of months Excess I)rof- its net in- come Sept. 1, 1936. Sept. 1, 1937 . Jan. 1, 1938_. Jan. 1, 1939.. Aug. 31, 1937., Dec. 31, 1937.. Dec. 31, 1938.. Dec. 31, 1939.. $30, 000 20,000 60, 000 100,000 Total. 210, 000 The aggregate excess profits net income for the first half of.the^base period is $70,000, and for the second half it is $140,000, computed as follows : Number of months Excess profits net income rraST HALF 12 4 4 -430,000 The taxable year beginning Sept. 1, 1937, and ending Dec. 31, 1937 20,000 One-third of the taxable year beginnmg Jan. 1, 1938, and ending Dec. 31, 1938.... 20,000 Total . . 8 12 70, 000 SECOND HALF Two-thirds of the taxable year beginning Jan. 1, 1938, and ending Dec. 31, 1938.... The taxable year beginning Jan. 1, 1939, and ending Dec. 31, 1939 40,000 100,000 Total - 20 140,000 For the purpose of computing the average base period net income thereunder, section 713(f)(7) provides certain limitations on the amount of the excess profits net income for any taxable year in the ;base period ending after May 31, 1940. Section 713(f) (7) (A) and (B) may be illustrated by the following example: " Example. The Y Corporation makes its income tax returns on the basis of the fiscal year ending September 30. It had an excess profits net income of $400,000 for the fiscal year ended September 30, 1939. It had an excess profits net income of $600,000 for the fiscal year ended September 30, 1940, before the application of section 713(f) (7) (A) land (B). Both of these taxable years are in its base period but four months of the fiscal year ended September 30, 1940, are after May 31, 488313?— 43 5 58 1940. Under section 713(f)(7) (A) and (B) the excess profits net income of the corporation for the fiscal year beginning October 1, 1939, and ended September 30, 1940, is $533,333.33, computed as follows: (1) Excess profits net income before application of section 713(f)(7) (A) and (B) $600,000.00 (2) Amount by which .item (1) is to be reduced under section 713(f)(7) (A) (four-twelfths of $600,000) 200,000.00 (3) Item (1) less item (2) ($600,000 minus $200,000) 400,000.00 (4) Amount to be added to. item (3). under section 713(f)(7)(B) (four-twelfths of $400,000) 133, 333. 33 (5) Excess profits net income for fiscal year ended September 30, 1940, after application of section 713(f)(7) (item (3) plus item (4), $400,000 plus $133,333.33) 533,333.33 Section 713 (f ) (7) (G) may be illustrated by the following example : Example. The last three taxable years in the base period of the Z . Corporation and the number of months in, and the excess profits net income for, such taxable years are as follows: Taxable years Number of months Excess profits nee income Beginning — Ending — July 1, 1938 JaneSO, 1939 12 3 12 $400,000 76,000 600,000 July 1, 1939.. Sept. 30, 19S9 Oct. 1, 1939 Sept. 30, 1940 Under section 713(f) (7) the excess profits net income of the cor- poration for the fiscal year ended September 30, 1940, is $508,333.33, computed as follows : (1) Excess profits net income before application of section 713(f) (7) (A) and (B) $600,-000.00 (2) Amount by which item (1) is to be reduced under section 713(f)(7)(A) (four-twelfths of $600,000) 200,000.00 (3) Item (1) less item (2) ($600,000 minus $200,000) 400,000.00 (4) Amount to be added to item (3) under section 713(f)(7) (B) (four-thirds of $75,000 but not in excess of $75,000) 75, 000. 00 (5) Amount to be added to item (3) under section 713(f)(7)(C) (one-twelfth of $400,000) 33,333.33 (6) Excess profits net income for fiscal year ended September 30, 1940, after application of section 713(f)(7) (sum of items (3), (4), and (5), or $400,000 plus $75,000 plus $33,333.33)— 608,833.83 {d) Computation of excess profits net income for portions of hose period during which corporation was not in existence; applicdble both under sections 713(e) and 713{f). — The base period of a corporation which was in existence during only part of the 48-month period pre- 59 ceding the beginning of its first excess profits tax taxable year is such period of 48 months. Section 713(d) (2) provides a method for de- termining the excess profits net income for such a corporation for that portion of such base period during which it was not in existence. For each taxable year of 12 months (begiiming with the beginning of the base period) during which it was not in existence the excess profits net income is 8 per cent of the corporation's daily invested capital (see section 717) for the first day of its first excess profits tax taxable year reduced on account of inadmissible assets by the same ratio as would be applicable under section 720 in reduction of its average invested capital for the preceding taxable year. The excess profits net income for a taxable year of less than 12 months consisting of that part of the remainder of the base period during which it was not in existence is a proportionate part of such amount. The provisions of this para- graph may be illustrated by the following example : Example. The Z Corporation, a domestic corporation which makes its income tax returns on the calendar year basis, was organized on July 1, 1937. The daily invested capital of the corporation for January 1, 1940, is $200,000. The percentage of such invested capital which would be applicable under section 720 in reduction of the average in- vested capital of the corporation on account of inadmissible assets for the calendar year 1939 is 5. The excess profits net income of the Z Corporation for 1936 is $15,- 200, and -for the period January 1, 1937, to June 30, 1937, $7,537.53, computed as follows : (1) Daily invested capital for January 1, 1940 $200, 000. 00 (2) Aioount equal to the same percentage (5 per cent) of item (1) as is applicable under section 720 in reduction of tlie average Invested capital -for preceding taxable year, 1939 ($200,000 multiplied by 0.05 ) - — 10, 000. 00 (3) Excess of item (1) over item (2) 190,000.00 (4) Excess profits net income for 1936 ($190,000 multiplied by 0.08) _ 15, 200. 00 (5) Excess profits net income for period from January 1, 1937, to June 30, 1937 (^^^^^^^^ 7, 537. 53 Sec. 35.713-2 Excess Profits Credit Based on Income — Adjust- ments IN Excess Profits Credit on Account of Capital Changes. — (a) GeTieral.— Under the income method of determining the excess profits credit it is necessary to make adjustments for capital changes since the beginning of the first excess profits tax taxable year. The amount representing 95 percent of the average base period net income which is the starting point in the computation of the excess profits credit shall be increased by 8 per cent of the. net capital addition or reduced by 6 percent of the net capital reduction. No capital adjustments are permitted or required in the case of a 60 foreign corporation. Capital additions are money and property paid in for stock, or as paid-in surplus, or as a contribution to capital after the beginning of the first excess profits tax taxable year, adjusted for increases in excluded capital over the same period. Capital reduc- tions are (1) distributions since the beginning of the first excess profits tax taxable year which are not out of earnings and profits; and (2) increased holdings since the beginning of the first excess profits tax taxable year of stock in another corporation which is a member of a controlled group of corporations of which the taxpayer is also a mem- ber, limited as provided in section 713 (g) (6)-(B) . The term "earnings and profits" includes earnings and profits of the taxable year and the accumulated earnings and profits of the corporation, whether accumu- lated before, on, or after March 1, 1913. For capital additions and reductions in case of certain reorganizations, see section 743. (i) Computation of net capital addition. — Computation of net capital addition is illustrated by the following example : Example. On January 1, 1940, the X Corporation, which makes its income tax returns on the calendar year basis, owns stock (but not more than 50 percent) in -another domestic corporation, acquired in 1938, the adjusted basis of which is $10,000 and $30,000 of State bonds which it had purchased in 1938 for $32,000. The following were the only changes which occurred during the period 1940-1944, inclusive, that would affect the determination of the net capital addition or the net capital reduction of the corporation : (1) On April 1, 1944, there was paid into the corporation for shares of its stock real estate having a basis to the corporation of $30,000. (2) On July 1, 1944, there was paid into the corporation for shares of its stock Treasury bonds having a basis to the corporation of $22,400 and cash in .the amount of $36,600. The net capital addition of the corporation for 1944 is $40,759.02, computed as follows : Period April 2, 19i4, to July 1, 19U, inclusive (1) Real estate paid in for stock April 1, 1944 $30, 000 .00 (2) Less : Excess of excluded capital for each day of period over excluded capital on January 1, 1940' None '(i) ExeluiJed capital for each day of period : (A) Stock of domestic corporations „ $10, 000 (B) state bonds 32, 000 Total 42,-000 (il) Excluded capital for January 1, 1940 : (-■i) Stocli of domestic corporations 10,000 (B) State bonds 82,000 Total 42,000 (iil) Excess o£ excluded capital for each day of period oyer excluded capital on .January 1, 1940 None 61 (3) Dally capital addition for each day of period (Item (1) minus item (2) ) ^ i $30, 000. 00 (4) Aggregate of daily capital additions for period ($30,000 multiplied by 91, number of days in period) 2,730,000.00 Period July 2, IBU, to Decemler SI, 19.lfi, inclusive (5) Real estate, as above ^ $30, 000. 00 (6) Treasury bonds paid in for stock July 1, 1944 22, 400. 00 (7) Cash paid in for stock July 1, 1944 36,600.00 (8) Total ^ 89, 000. 00 (9) Less: Excess of excluded capital for each day of period over excluded capital on January 1, 1940 ' 22, 400 .00 (10) Dally capital addition for each day of period (item (8) minus item' (9)) Q6, 600. 00 (11) Aggregate of daily /apital additions for period ($66,600 multiplied by 183, number of days in period) 12,187,800.00 (12) Aggregate of dally capital additions for 1944 (item (4) plus item (11)) 14,917,800.00 (13) Net capital addition ($14,917,800 divided by 366, number of days in taxable year) 40,759.02 "(1) Excluded capital for each day of period : (A) Stock of domestic corporations $10, 000 (B) State bonds ^ _— _ 32,000 (C) Treasury bonds 22, 400 Total 64, 400 (II) Excluded capital for January 1, 1940 42, 000 (III) Excess of excluded capital for each day of period over excluded capital on January 1, 1940 ($64,400 minus $42,O0O) 22,400 (c) Computation of net capital reduction on account of distribu- tions under section 713{g) (4). — Computation of net capital reduction in a case to which only section 713(g) (4) applies is illustrated by the foilowing example: Example. The Y Corporation, a domestic corporation which makes its income tax returns on the calendar year basis, was organized on January 1, 1910, with an authorized and outstanding capital stock of 2,000 shares of common stock of a par_value of $100 each and 1,000 shares of participating preferred stock of a par value of $100 each. Each share of preferred stock is entitled to receive annual dividends of $7, and $100 on complete liquidation, in priority to any payments on common stock, and is entitled to participate equally with each share of the common stock in either instance after the common stock has received a similar amount. The preferred stock is redeem- able in whole or in part at the option of the board of directors at any time at $106 per share plus its proportion of the earnings of the 62 company at the time of such redemption. The preferred stock was issued at $106 per share for a total of $106,000, and the common stock was issued at $100 per share for a total of $200,000. On July 1, 1944, the company had a paid-in surplus of $6,000, consisting of the premium receipted on the preferred stock, earnings and profits of $30,000 accumulated prior to March 1, 1913, and earnings and profits accumulated since February 28, 1913, of $75,000. On July 1, 1944, the option with respect to the preferred stock is exercised and the entire amount of such stock is redeemed at $141 per share for a total of $141,000, such transaction being a partial liquidation under section 115(c). The corporation has no other transactions during the year 1944 which affect the capitalof the corporation. The net capital reduction of the corporation for 1944 is $53,000, computed as follows: (1) Total amount distributed to preferred shareholders $141, 000 (2) Allocation of the amount distributed: (i) Attributable to par value $100,000 (ii) Attributable to paid-in surplus 6, 000 . (iii) Attributable to earnings and profits accumulated as of July 1, 1944 (one-third of ($30,000 plus $75,000) ) 35, 000 Total 141, OOO (3) Amount of distribution not out of earnings and profits ($100,000 plus $6,000) 106,000 (4) Aggregate of the daily capital reduction from July 2, 1944, to December 31, 1944, both dates inclusive ($106,000 multiplied by 183, number of days in taxable year after distribution) 19,398,000 (5) Net capital reduction ($19,398,000 divided by 366, number of days in taxable year) 1 53, 000 (d) Computation of capital reduction and excluded capital in caseMf increased holding of stock of controlled corporation. — Section 713(g) (5) provides that if on any day of the taxable year a taxpayer and one or more other corporations are members of the same controlled group, the increase in the taxpayer's holdings in the stock of such other corporation or corporations since the beginning of the taxpayer's first excess profits tax taxable year and before the beginning of such day shall be a daily capital reduction of the taxpayer for such day, except as limited by (2) below. The amount of such daily capital reduction (or the amount by which the taxpayer's daily capital reduc- tion for such day is to be increased) on accoimt of such stock is the lesser of the amounts determined by two rules : (1) The first rule provides that the amount of such increase shall equal the aggregate of the adjusted basis (for determining loss upon sale or exchange) of the stock in such other corporation or corpora- 63 tions acquired by the taxp?iyer after the beginning of the taxpayer's first excess profits tax taxable year, minus the aggregate of the adjusted basis (for determining loss upon sale or exchange) of the stock in such other corporation or corporations disposed of by the taxpayer prior to such day and after the beginning of the taxpayer's first excess profits tax taxable year. (2) The second rule provides that the amount of such increase shall equal the excess of the aggregate of the adjusted basis (for determin- ing loss upon sale or exchange) of stock in all domestic corporations and of obligations described in section 22(b)(4), held by the tax- payer at the beginning of such day, over the aggregate of the adjusted basis (for determining loss upon sale or exchange) of stock in all domestic corporations and of obligations described in section 22 (b) (4) , held hj the taxpayer at the beginning of its first excess profits tax taxable year. In applying these rules,if any stock or obligations referred to therein were disposed of prior to the day for which the computation is being made, the basis shall be determined under the law applicable to the year in which disposed of. The excluded capital of the taxpayer for the day for which the com- putation is being made shall be reduced by the amomit by which the taxpayer's daily capital reduction for such day is increased by the application of such rules. For definition of the term "controlled group," as here used, see section 713(g) (5). The effect of section 713(g) (5) is illustrated by the following example : Example. Corporation A and Corporation B compute their income taxes on the calendar year basis. Corporation B has 10,000 shares of capital stock outstanding. Corporation A engages in the following transactions with respect to the following items : With respect to stpck of B Corporation: January 1, 1932, acquired 1,000 shares (10 percent) with a basis of $10,000. September 30, 1941, acquired 4,500 shares (45 percent) with a basis of $45,000. August 31, 1942, sold 1,000 shares (10 percent) with a basis of $10,000. With respect to ionds of State of X: January 1, 1939, acquired bonds with a basis of $40,000. March 31, 1941, acquired bonds with a basis of $50,000. April 30, 1942, sold bonds with a basis of $75,000. With respect to capital additions : June 30, 1941, capital stock issued (to others than B) for $75,000 cash. 64 The daily capital additions and reductions of A for 1942 are as follows : Capital additions for 194^ (1) (2) (3) W For eaeli day In period- Cumula- tive addi- tion to capital Increase in ex- cluded capital since Dec. 31, 1930 Capital ad- dition (col. (2) minus col. (3), but not less than zero) (1) Jan. 1-Apr. 30.... (ii) ' May 1-Aug. 31. (iii) > Sept. 1-Dec. 31 • $75, 000 •75,000 « 76, 000 '$50,000 = 10,000 $26,000 75,000 65,000 > Excluded capital May 1, 1942 ($15,000 bonds of X plus $55,000 stock of B) $70, 000 Excluded capital Jan. 1, 1940 ($40,000 bonds of X plus $10,000 stocli of B). _ 50, 000 Increase in excluded capital as of May 1, 1942 _ 20,000 > Excluded capital Sept. 1, 1942 ($16,000 bonds of X plus $45,000 stock of B)..._ $60,000 Excluded capital Jan. 1, 1940 ($40,000 bonds of X plus $10,000 stock of B) _ 50,000 Increase in excluded capital as of Sept. 1, 1942 10,000 ° Stock Issued. > $96,000 minus $45,000 capital reduction In (iv). ' $20,000 minus $20,000 capital reduction in (v). Capital reductions for 19 42 (1) (2) (3) (4) For each day In period- Basis of stock In Bheld Lesser of basis of stock in B acquired since Dec. 31, 1939, or of increase in excluded capital since Deo. 31, 1030 Capital re- duction (amount in col. (8) If col. (2). Is more than 60 percent) (iv) Jan. l-Apr. 30... (v) ' May 1-Aug. 31. (vi) Sept. 1-Dec. 31.. • $66, COO ■■ 56, 000 ''46,000 '$46,000 ' 20, 000 $45,000 20,000 • Excluded capital May 1, 1942 ($16,000 bonds of X plus $66,000 stock of B) $70, 000 Excluded capital Jan. 1, 1940 ($40,000 bonds of X plus $10,000 stock of B) 60, 000 Increase in excluded capital as of May 1, 1942.. ' 65 percent. ' Stock in B. ' Excluded capital. 20,000 * 46 percent. 65 SEC. 714. EXCESS PROFITS CREDIT— BASED ON INVESTED CAPITAL. [Added by Seo. 201, Second' Rev. Act 1940; Amended BY Sec. 201(b), Ri2V. Act 1941, and by Sec. 217, Rev. Act 1942.] The excess profits credit, for any taxable year, computed under this section, shall be the amount shown in the following table : If the invested capital for the taxable year, determined under section 715, is: The credit shall be: Not over $5,000,000 8% of the invested capital. Over $5,000,000, but not $400,000, plus 7% of the excess over $10,000,000. . over $5,000,000. Over $10,000,000, but not $750,000, plus 6% of the excess over $200,000,000. over $10,000,000. Over $200,000,000 $12,150,000, plus 5% of the ex- cess over $200,000,000. Sec. 35.714^1 Excess Peofits Credit Based on Invested Capital. — Section 714 applies only to a corporation which under section 712 is entitled or is required to compute its excess profits credit under the invested capital method. Regardless of the ratio of earnings to invested capital for previous taxable years, such credit is an amount equal tQ 8 per cent of the corporation's invested capital for the taxable year, except that if such invested capital for any taxable year exceeds $5,000,000, the credit for such taxable year is an amount determined in accordance with the table set forth in section 714; For computation of excess profits net income if excess profits credit based on invested capital is used", see section 711(a) (2). SEC. 715. DEFINITION OF INVESTED CAPITAL. [Addbd by Seo. 201, Second Rev. Act 1940.] For the purposes of this subchapter the invested capital for any taxa- ble year shall be the average invested capital for such year, deter- mined under section 716, reduced by an amount computed under section 720 (relating to inadmissible assets). If the Commissioner finds that in any case the determination of invested capital, on a basis other than a daily basis, will produce an invested capital differing by not more than $1,000 from an invested capital determined on a daily basis, he may, under regulations prescribed by him with the approval of the ^ Secretary, provide for such determination on such other basis. (For computation of invested capital in case of foreign corporations and cor- porations entitled to the benefits of section 251, see section 724.) Sec. 35.715-1 Deteemination of Invested Capital. — It is neces- sary for a taxpayer using the invested capital method in computing the excess profits credit to determine the invested capital for the taxable year. This is not the invested capital at the beginning of the taxable year but the average invested capital for the taxable year, reduced by an amount computed under section 720 if the taxpayer owned any inadmissible assets during the taxable year. The average invested capital for the taxable year is the aggregate of the daily in- vested capital for each day of the taxable year, whether such daily 68 invested capital be a positive amount or a negative amount, divided by the number of days in such taxable year. In no event shall the average invested capital, or the invested capital, be an amount which is less than zero. The invested capital shall be computed in all cases on a daily basis. The daily invested capital is the sum of the equity invested capital, as determined under section 718 (whether such equity invested capital be a positive amount or a negative amount) , and the borrowed invested capital, as determined under section 719. The daily invested capital of a transferee upon an exchange, as defined in section 760(a) , for any day after such exchange shall be reduced by the amount" of any excess computed under tjhe provisions of section 760(c). If the amount of the equity invested capital determined under section 718 is a negative amount and is not offset by borrowed invested capital, or if the amount of the reduction under section 760(c) in daily invested capital is larger than the amount of such daily invested capital computed without regard to such reduction, the daily invested capital will be a negative amount. If, during the taxable year, a corporation is not involved in a tax- free liquidation and neither receives new capital, whether paid in or borrowed, nor makes any distribution other than out of earnings and profits of the taxable year, nor retires indebtedness of the character includible in borrowed capital, its average invested capital for the taxable year is an amount equal to its daily invested capital for the first day of the taxable year. In cases where the changes in invested capital are not numerous during the taxable year, the. determination of the average invested capital may generally be simplified by taking the invested capital as of the first day of the taxable year and adding thereto such portion of each addition made during the year as the number of days remain- ing in the taxable year after such addition bears to the total number of days in the taxable year, and subtracting §jich portion of each reduction of capital as the number of days after such reduction bears to the total number of days in the taxable year. A simple method for determining average invested capital is illustrated by the following example : Example. The invested capital of the X Corporation, which files its income tax returns on the calendar year basis, is $500,000 on January 1, 1944. The onfy changes in invested capital during the taxable year 1944 are as follows : (a) On April 1, 1944, money amounting to $100,000 is paid in for stock. (&) On October 1, 1944, a capital distribution is made amounting to ^200,000. 67 Aggregate invested capital from January 1 to April 1, Inclusive (92 days), $500,000X92 ^ $46,.000, OQO. 00 Aggregate Invested capital from April 2 to October 1, inclusive (183 days) ($500,000 plus $100,000) XipS 109, 800, 000. 00 Aggregate invested capital from October 2 to December 31, inclu- sive (91 days) ($600,000 minus $200,000) X91 36,400,000.00 Aggregate invested capital for 1944 192, 200, 000. 00 Average invested capital for 1944 ($192,200,000 divided by 366, number of days in taxable year) 525,136.61 SEC. 716. AVERAGE INVESTED CAPITAL. [Added by Seo. 201, Second Rev. Act 1940.] The average invested capital 'for any taxable year shall be the. aggre- gate of the daily invested capital for each day of such taxable year, divided by the number of days in such taxable year. SEC. 717. DAILY INVESTED CAPITAL. [Added by Seo. 201, Sec- ond Rev. Aor 1940.] The daily invested capital for any day of the taxable year shall be the sum of the equity invested capital for such day plus the borrovfed invested capital for such day determined under section 719. SEC. 718. EQUITY INVESTED CAPITAL. [Added by Sec. 201, Second Rev. Act 1940; Amended by Secs. 202(f) and 203, Rev. Act 1941, and by Secs. 205(d), 218, 219, and 230 (b) and (c). Rev. Act 1942.] ,(a) Definition. — The equity invested capital for any day of any taxable year shall be determined as of the beginning of such day and shall be the sum of the following amounts, reduced as provided in subsection (b) — (1) Money paid in. — Money previously paid in for stock, or as paid-in surplus, or as a contribution to capital ; (2) Property paid in. — ^Property (other than money) previously paid in (regardless of the time paid in) for stock, or as paid-in surplus, or as a contribution to capital. Such property shall be Included in an amount equal to its basis (unadjusted) for deter- mining loss upon sale or exchange. If the property was disposed of before such taxable year, such basis shall be determined under the law applicable to the year of disposition, but without regard to the value of the property as of March 1, 1913. If the property was dis- posed of before March 1, 1913, its basis shall be considered to be its fair-market value at the time paid in. If the unadjusted basis of the property is a substituted basis, such basis shall be adjusted, with respect to the period before the property was paid in, by an amount equal to the adjustments proper under section 115(1) for determining earnings and profits ; (3) DisTEiBtrnoNS in stock. — Distributions in stock — (A) Made prior to such taxable year to the extent to which they are considered distributions of earnings and profits; and ' (B) Previously made during such taxable year to the extent to which they are considered distributions of earnings and profits other than earnings and profits of such taxable year ; (4) Earnings and profits at beginning of yeab. — The accumu- lated earnings and profits as of the beginning of such taxable year ; (5) [Not applicable to taxable years under these regulations (sec- tion 230 (c) and (d), Rev. Act 1942).] (6) New capitai,. — ^An amount equal to 25 per centum of the new capital for such day. The term "new capital" for any day means so much of the amounts of money or property includible for such day under paragraphs (1) and (2) as was previously paid In during a taxable year beginning after December 31, 1940, and so much of the distributions in stock includible for such day under paragraph (3) as was previously made during a taxable year beginning after December 31, 1940, subject to the following limitations : (A) There shall not be included money or property paid in by a corporation in an exchange to which section 112(b) (3), (4), or (5), or so much of section 112(c), (d), or (e) as refers to section 112par(igraph {E) of section 718(a) (6) . — The limitations provided in subparagraph (E) of section 718(a)(6) prevent new capital as of any day from exceeding the amount by which the total equity invested capital and borrowed capital as of such day (computed without including the 25 per cent increase and reduced as provided in such subparagraph on account of amounts excluded under subparagraph (A) or (B)) exceeds the sum of the equity invested capital and borrowed capital as of the first day of the taxpayer's first taxable year beginning after December 31, 1940 (reduced as provided in such subparagraph on account of reduction in accumulated earn- ings and profits other than as the result of distributions). The appli- cation of these limitations may be illustrated by the following example : Example. The Y Corporation makes its return on the calendar year basis. Its equity invested capital as of January 1, 1941, amounts to $30,000, consisting of money paid in for stock, $20,000, and accumu- lated earnings and profits, $10,000. Its borrowed capital as of Janu- ary 1, 1941, cojisists of bonds outstanding in the amount of $15,000.. Accordingly, the total of its equity invested capital and borrowed capital as of January 1, 1941, is $45,000. The corporation has no inadmissible assets at any time during the year 1941 or 1942. No changes in its equity invested capital or borrowed capital occur ii^ 1941. On July 1, 1942, the following events occur : (1) The corporation distributes taxable stock dividends amounting to $5,000 out of earnings and profits accumulated prior to January 1, 1941 ; (2) Money amounting to $15,000 is paid in as a contribution to capital ;^ (3) Property with an unadjusted basis of $20,000 for deter- mining loss is acquired for stock in an exchange to which section 112 (b) (4) is applicable ; and (4) Bonds in the amount of $10,000 are retired. 78 Only $5,000 of tlie $40,000 of new capital (tentative) arising out of the transactions which took place on July 1, 1942, constitutes new capital as of July 2, 1942, computed as follows : (1) Sum of equity invested capital and borrowed capital as of July 2, 1942 (computed without regard to 25 percent Incr^se in new capital) ^ $70, 000 (2) Property paid in for stock excluded under subparagraph (A) 20,000 (3) Item (1) minus item (2) 50,000 (4) Sum of equity invested capital and borrowed capital as of January 1, 1941 45, 000 (5) New capital as of July 2, 1942 (item (3) minus item (4) ) 5, 000 If the accumulated earnings and profits of the Y Corporation are reduced to zero as of January 1, 1943, because of the stock dividend distribution of $5,000 made on July 1, 1942, and because of an operating loss of $5,000 during the taxable year 1942, the new capital includible in equity invested capital as of January 1, 1943, would remain at $§,000 under the application of subparagraph (E), as shown by the following computation : (1) Sum of equity invested capital and borrowed capital as of January 1, 1943 (computed without regard to 25 percent increase in new capital ) $05, 000 (2) Property paid in for stock excluded under subparagraph (A) 20,000 (3) Item (1) minus item (2) , 45,000 (4) Sum of equity invested capital and borrowed capital as of January 1, 1941 45,000 (5) Excess of accumulated earnings and profits as of January 1, 1941, over earnings -and profits, computed without regard to distribu- tions, as of January 1, 1943 ($10,000 minus $5,000) 5, 000 (6) Item (4) reduced by Item (5) 40,000 (7), New capital as of January 1, 1912 (item (3) minus item (6) ) '5, 000 ' The application of subparagraph (F) is not shown in the above computation since it does not change the result. (g) Limitations wnder subparagraph (F) of section 718(a)(6). — The limitations provided in subparagraph (F) of section 718(a)(6) require that new capital for any day of the taxable year (computed without the application of subparagraph (E) ) , shall be reduced by dis- tributions made after the beginning of the first taxable year which begins after December 31, 1940, out of earnings and profits accumu- lated prior to the beginning of such first taxable year. The applica- tion of these limitations may be illustrated by the following examples : Example (1). The Z Corporation makes its return on the calendar year basis. Its total equity invested capital and borrowed capital as 79 of January 1, 1941, is $100,000, including $10,000 of accumulated earn- ings and profits. No changes occur in its equity invested capital or borrowed capital during 1941. The only capital acquired during 1942 amounts to $10,000, resulting from the distribution of a taxable stock dividend on July 1, 1942. The corporation has no earnings and profits for 1942. The capital resulting from the stock dividend is excluded from new capital by subparagraph (F) (as well as by subparagraph (E) ), for it is reduced by the amount distributed out of earnings and profits accumulated prior to January 1, 1941. Example {2) . Assume that the facts with respect to the Z Corpora- tion are the same as in example (1), except that the Z Corporation has an operating loss of $10,000 for the year 1942. Although under sub- paragraph (E), because of the adjustment relative to a reduction in accumulated earnings and profits not resulting from distributions, there would be new capital as of January 1, 1942, in the amount of $10,000, the application of subparagraph (F) prevents the stock dividend dis- tributed on July 1, 1942, from being new capital, inasmuch as the capital from the stock dividend ($10,000) must be reduced by the amount of the distribution out of earnings and profits accumulated prior to January 1, 1941 ($10,000). - Example (-5). Assume that the facts with respect to the Z Cor- poration are the same as in example (1), except that there are no earnings and profits in 1942 and no operating loss for such year and that its earnings and profits for 1943 are $10,000. Although, because of the 1943 earnings and profits, there would be new capital under subparagraph (E) in the amount of $10,000 as of January 1, 1944, subparagraph (F) prevents the stock dividend distributed on July 1, 1942, from being new capital, inasmuch as the capital resulting from such stock dividend ($10,000) is reduced by the amount of the distribution ($10,000) made out of earnings and profits accumulated prior to January 1, 1941. Sec. 35.718-5 Determination of Daily Equity Invested Capi- tal — ^Reductions by DisTEiEunoNs.—The amount of the daily equity invested capital as partially determined by taking the aggregate of the sums described in section 718 (a) shall be reduced by the amount of the distributions made in prior taxable years which were not out of accumulated earnings and profits plus the amount of the distribu- tions previously made during the taxable year which were not out of the earnings or profits of such year. In determining whether a distribution is out of the earnings and profits of any taxable year, such earnings and profits shall be computed as of the close of such taxable year without diminution by reason of any distribution made during such taxable year or by reason of the excess profits tax imposed by the Excess Profits Tax Act of 1940, or by reason of the tax im- 80 posed by Chapter 1, and without regard to the amount of earnings and profits at the time the distribution was made. For example, if a corporation making a return on the calendar ypar basis had accumulated earnings and profits as of the beginning of the taxable year of $50,000, and earnings and profits during the taxable year (without diminution by any distributions, the excess profits tax for the taxable year, or the income tax for the taxable year) of $150,000, all earned during the last six months of the taxable year, and dis- tributed $175,000 as dividends during the taxable year, $56,000 on April 1, $70,000 on July 1, and $49,000 on October 1,, six-sevenths of each distribution will be deemed to have been paid out of earnings of the taxable year and one-seventh from accumulated earnings and profits, so that accumulated earnings and profits will be reduced by $8,000 beginning April 2, by an additional $10,000 beginning July 2, and by an additional $7,000 beginning October 2. In computing accumulated earpings and profits as of the begin- ning of the taxable year and in determining what distributions dur- ing the taxable year are made out of the earnings and profits of such year, for the purposes of section 718 (a) and (b) distributions made during the first 60 days of any taxable year are deemed, to the extent they do not exceed the accumulated earnings and profits as of the beginning of the taxable year, to have been made on the last day of the preceding taxable year. In applying such rule, such distributions shall be considered in the order of time. For example, if a corporation on the calendar year basis has accumulated earnings or profits of $100,- 000 on January 1, 1942, and makes distributions of $75,000 on January 15, 1942, and $50,000 on February 15, 1942, the distribution of January 15, 1942, and $25,006 of the distribution of February 15, 1942, are considered as having been made on December 31, 1941. A distribution is considered to be made on the date it is payable, except that where no date is set for its payment, the distribution is considered to be made on the date when it is declared, and except that distributions payable during the first 60 days of a taxable year are considered to be distributions made on the last day of the preceding taxable year to the extent such distributions do not exceed the accu- mulated earnings and profits as of the beginning of the taxable year. The purchase by a corporation of its own stock for investment does not of itself result in a reduction of invested capital. But see section 35.720-1 relative to inadmissible assets. If, however, the corporation subsequently cancels such stock, invested capital is reduced, beginning with the day following such cancellation, by so much of the adjusted basis of such stock in the hands of the corporation as is not properly chargeable to earnings and profits of the taxable year. If stock is purchased for retirement, there is a distribution on the date of pur- 81 chase of the amount paid therefor and the invested capital is reduced by the amount thereof not properly chargeable to earnings and profits of the taxable year. The amount of distributions by a corporation whether in bonds of such corporation, or in money or other property may exceed the amount of the equity invested capital computed without regard to such distributions. In such event, the equity invested capital of such corporation shall be reduced by virtue of such distributions to a nega- tive amount. Sec. 35.718-6 Determination of Daily Equity Invested Capital — Redtjgtion by Earnings and Profits or Another Corporation. — Section 718(b)(3) provides for the elimination of the duplication which occurs in the computation of the equity invested capital of the taxpayer following a transaction of the character referred to therein, as a result of which the earnings and profits of another corporation became the earnings and profits of the taxpayer.^ The earnings and profits of such other corporation having been included at the time of the transaction in the earnings and profits of the taxpayer, they remain continuously thereafter a part of such earnings and profits account for the purpose of computing for any day after such transaction the earnings and profits, the accumulated earnings and profits at the beginning of the taxable year, and the earnings and profits of the taxable year. In addition, however, the amount of s,uch included earnings and profits is also brought into computation of equity in- vested capital of the taxpayer under provisions of section 718 other than section 718(a)(4) relating to accumulated earnings and profits as of the beginning of the taxable year. Thus, if the transaction is a reorganization to which section 113(a)(7) is applicable, and in which the taxpayer receives all the assets of another corporation in exchange solely for its own stock, such amount has already been taken into account in property paid in for stock under section T18(a) (2) ; or if the transaction is an intercorporate liquidation of another cor- poration involving a distribution with respect to stock of such other corporation held by the taxpayer with a -basis determined under sec- tion 761 to be a basis other than cost, such ampunt has already been taken into account in the computation of equity invested capital of the taxpayer, as adjusted under section 761(d) (2). To preclude this duplicate inclusion of the earnings and profits of another corporation in the invested capital of the taxpayer, section 718(b) (3) provides, as a step in the computation of equity invested capital, for the reduction of equity invested capital otherwise com- puted by the amount of earnings and profits of another corporation previously at any time included in* the earnings and profits of the 1 Commisstoner v. Saneiome, 60 Fed. (2^ (3) Except as otherwise provided, the constructive average base period net income shall be computed with regard to the principles in section 711(b) (relating to excess profits net income for taxable years in the base period) applicable to the taxable year for which the constructive average base period net income is used. The rules pro- vided by section 711(b)(1) (H), (I), (J), and (K), relating to ab- normal deductions and costs, may not be used as a matter of right in computing the constructive average base period net income. In a proper case, however, the principles underlying section 711(b)(1) (H), (I), (J), and (K) may be taken. into account if and to the extent that the application of such principles is reasonable and consistent with the conditions and limitations of section 722 and of such section. (4) If the taxpayer has acquired the business of any other person (corporation, partnership, or individual) hereafter called "a com- ponent corporation" in a transaction which enables the taxpayer to compute its average base period net income under the provisions of Supplement A, the business of such component corporation shall be considered to be a part of the business of the taxpayer for the period for which the income of suci component corporation's in- cluded in the computation of the average base period net income of the taxpayer under Supplement A. A taxpayer which has ac- quired, in a transaction which constitutes it an acquiring corpo- ration under Supplement A, a component corporation for which a constructive average base period net income has been finally de- termined and has been used by such component in a taxable year 123 prior to its acquisitien, cannot as a matter of right use such con- structive average base period net income in the determination of its average base period net income under Supplement A, The tax- payer as an acquiring corporation must establish, in accordance with the provisions of section 722(e) (2), the amount which, in the light of such provisions, would constitute a fair and just amount repre- senting normal earnings to be used as its constructive average base period net income. If the taxpayer has during the base period acquired substantially all the assets of another corporation in a trans- action which does not constitute the taxpayer an acquiring corpo- ration within the provisions of Supplement A, and after such trans- action such other corporation ceases business, the business of such other corporation attributable to the assets acquired may be con- sidered to be a part of the business of the taxpayer, during the base period, to the extent to which it does not duplicate the business of the taxpayer otherwise carried on. (5) If a taxpayer which, for the purposes of the income tax im- posed by Chapter 1, computes its income from installment sales under the method provided by section 44(a) elects to compute such income for excess profits tax purposes under Subchapter E of Chapter 2 upon the accrual basis pursuant to section 736(a), any constructive average base period net income established with respect to such taxpayer shall be determined under the accounting methods underlying the computation of income from installment sales followed by the tax- payer in computing its income tax for the base period. (6) If a taxpayer elects under the provisions of section 736(b) to compute income from contracts the performance of which requires more than 12 months upon the percentage of completion method of accounting, any constructive average base period net income estab- lished with respect to such taxpayer shall be determined in accordance with the principles" underlying the percentage of completion method of accounting. See section 29.42-4 (a) of Kegulations 111. (7) If an affiliated group of corporations makes a consolidated ex- cess profits tax return under section 141 for a taxable year beginning after December 31, 1941, any constructive average base period net income must be established with respect to the group as a unit and no constructive average base period net income shall be established separately for any member of the group. If the members of an affili- ated group for which a constructive average base period net income has beenjestablished are different during the taxable year from the members at the time- such constructive average base period net income was established (because new members have been acquired by the group or because old members have ceased to remain members) or if one or more members of the group have become acquiring corporations of 124 component corporations pursuant to Supplement A, the group may not as of right continue to use the constructive average base period net income previously established but must establish a new construc- tive average base period net income predicated upon the membership of the group for the taxable year for which relief is claimed. No con- structive average base period net income determined with respect to any member of the group prior to the year for which the group makes a consolidated excess profits tax return shall be used by the group as a matter of right in computing its actual average base period net in- come. If a taxpayer ceases to be a member of an aflUiated group which, during the time that such taxpayer was a member, made a consolidated excess profits tax return and used a constructive average base period net income in the computation of its excess profits tax, such taxpayer shall not use any portion of such constructive average base period net income in the computation of its separate excess profits tax or the excess profits tax of another afiiliated group of which it becomes a member. Any constructive average base period net income to be used by such taxpayer or by such other group must be established solely with respect to such taxpayer or such group. (8) For the purposes of section 722 and of section 35.722-3(6) and (g), no exclusive definition of the concept "industry" can be con- structed. In general an industry may be said to include a group of enterprises engaged in producing or marketing the same or similar products or services under analogous conditions which are essentially different from those encountered by other enterprises. The mere simi- larity of product and marketing methods, however, is not enough of" itself to comprehend taxpayers satisfying such conditions within the same industry. Factors such as geographical location, character and location of markets, availability and character of raw material sup- ply, and other conditions under which operations are carried on must be considered. Eegard may be had to trade custom and practice in determining whether a group of enterprises constitutes an industry. (9) The fact that the excess profits tax liability of a taxpayer, estab- lishing eligibility for relief and a constructive average base period net income under section 722, is zero or is very small prior to the appli- cation of such section does not prevent the actual average base period net income from being an inadequate standard of normal ^rnings. Such a taxpayer is entitled to use the constructive average base period net income established under section 722 in the computation of its excess profits tax for all excess profits tax taxable years, and to com- pute its unused excess profits credit for any excess profits tax taxable year with respect to the excess profits credit based upon such construc- tive average base period net income. However, in the case of a tax- payer which is deemed to have commenced business or to have changed ' 125 the character of its business two years prior to the actual event, in the case of a taxpayer consummating a change in the capacity for produc- tion or operation in a taxable year beginning after December 31, 1939, as a result of a course of action to which it was committed prior to January Ij 1940, in the case of a taxpayer which prior to May 31, 1941, acquired from a competitor engaged in the dissemination of informa- tion through the public press substantially all the assets of such com- petitor employed in such business with the result -that competition be- tween the taxpayer and the competitor existing before January 1, 1940, was eliminated, or in the case of a taxpayer which commenced business after December 31, 1939, the constructive average base period net income might vary from one excess profits tax taxable year to another. As to the determination of the constructive average base period net income in such cases, see section S5.l22-^{d) and section 35.722-4. (c) Excess profits credit based on constructive average base period net. income. — For any excess profits tax taxable year for which a con- structive average base period net income has been determined under the provisions of section 722 and of this section, the excess profits credit based on income shall be an amount equal to — (1) 95 percent of the constructive average base period net in- come determined under section 722; (2) plus 8 percent of the net capital addition defined in section 713(g) computed with regard to the provisions of section 722(c) ; or (3) minus 6 percent of the net capital reduction defined in sec- tion 713(g) computed with, regard to the provisions of section 722(c). (d) Normal output and normal v/nit profit in case of producers of mmeroHs or tirriber. — Nontaxable income from exempt excess output of mines or timber blocks determined under section 735 (relating to nontaxable income from certain mining and timber operations) may be excluded under section 711(a)(1) (I) or section 711(a) (2) (K) from the excess profits net income of a taxpayer for which there is established under section 722 a constructive average base period net income. For the purposes of computing nontaxable income from ex- empt excess output under section 735 in such a case, there shall be de- termined with respect to each mineral property as defined in section 735(a) (6), or timber block as defined in section 735(a) (8), in which an economic interest is owned by the taxpayer, a fair and just amount to be used as the normal output as defined in section 735(a) (5), and with respect to such mineral property, a fair and just amount to be used as the normal unit profit as defined in section 735(a) (9). How- ever, no amounts representing fair and ^'ust normal output or normal 126 unit profit for such base period shall be established for any mineral property or timber block unless the constructive average base period net income is predicated in whole or in part upon normal earnings attributable directly to such mineral property or timber block, unless sucli mineral property or timber block was- in operation for at least six months during the taxable years beginning after December 31, 1935, and not beginning after December 31, 1939, of the person owning the mineral property or timber block (whether or not the taxpayer) , and in the case of a timber block, unless such timber block was in existence and was acquired by the taxpayer prior to January 1, 1942. A normal output and a normal unit profit may be established for a mineral property or a timber block in which an economic interest is owned by the taxpayer despite the fact that such taxpayer came into existence after December 31, 1939, if such mineral property or timber block meets the requirements provided in the preceding sentence. Sec. 35.722-3 DETEKinNATioN of ExcEssrvE and DiscEnvnNATOET Tax; Taxpayer Entitled to Excess Psoitts Ceedit Based on In- coinE. — ^The excess profits tax, computed without regard to the pro- visions of section 722, for any taxable year shall be considered to be excessive and discriminatory in the case of a taxpayer entitled to use the excess profits credit based on income pursuant to section 713 (or pursuant to Supplement A if the taxpayer is an acquiring corporation under Supplement A) if its actual average base period net income is an inadequate standard of normal earnings for one or more of the following reasons — (a) Interruption or diminution of normal production, output, or operation in the iase period. — ^If the taxpayer establishes that in one or more taxable years in its base period normal production, output, or operation was interrupted or diminished because of the occurrence either immediately prior to, or during the base period, of events un- usual and peculiar in the experience of the taxpayer, the average base period net income shall be considered to be an inadequate standard of normal earnings. Activities comprised within the meaning of pro- duction, output, or operation include the rendering of services in those cases in which corporations render services rather than manufacture or market tangible products, as for example advertising agencies, brokerage concerns, purchasing agents, etc. Normal production, out- put, or operation means the level of production, output, or operation which would have been reached by the business of the taxpayer had the unusual and peculiar events not occurred. Not every interruption or diminution of normal production, out- put, or operation in the base period may furnish the basis of a claim for relief under section 722. The interruption or diminution must be- 127 a direct result of events unusual and peculiar i^ the experience of the taxpayer, and must occur in or immediately prior to the base period. A direct result of an unusual or peculiar event is a result which would occur as a normal consequence or effect of the event and one to which the event bears a casual relationship. The diminution or interruption of normal production, output, or operation may occur not only in the year in which such event occurs but may result in a later year directly affected by such event. An event is deemed to occur immediately prior to the base period if under normal circumstances the effect of such event would not be fully manifested until a year in the base period and such effect is directly related to such occurrence. An event is unusual and peculiar in the experience of the taxpayer if its occurrence is not ordinarily encountered in such experience. The fact that such event unusual in the case of the taxpayer is also unusual in the case of other taxpayers, as in the case of a flood in a particular locality, is no bar to a claim for relief under section 722(b) (1). If an event is unusual in the course of normal business experience in general but regular in the case of the taxpayer, such event is not unusual and peculiar in the experience of the taxpayer. Thus, if a corporation is engaged in felling and transporting logs and timber, and if its annual operations are inter- rupted by spring floods occasioned by thaws and rains, such events are not unusual and peculiar in the experience of the taxpayer. Un- usual and peculiar events contemplated in section 722(b) (1) consist primarily of physical rather than economic events or circumstances* Except as otherwise described in this paragraph, such events would include floods, fires, explosions, strikes, and other such exceptional and uncommon circumstances hindering production, output, or opera- tion; such events would not include economic maladjustments such as higher prices of materials, labor, capital, or any other agent of pro- duction, unusually low selling price of the product of the taxpayer, or unusually low physical volume of sales owing to low demand for such product or for the output of the taxpayer. However, a diminution in the taxpayer's production caused by a low demand for the product of the taxpayer resulting from the effects of war conditions in the country in which the taxpayer sold a substantial portion of its prod- ucts may be an event which might form the basis of a claim for relief under section 722 (b)(1). The taxpayer's normal production, output, or operation for those years in which interruption or diminution has been established may be determined by reference to its average production, output, or oper- ation with respect to products or services of the same class. This determination may be made in the light of the experience of the tax- 128 payer prior to its first excess profits tax taxable year (but not after May 31, 1940) or in the light of the experience of a comparable com- petitor or of an industry of which the taxpayer is a member, engaged in manufacturing or selling the same products^ or rendering the same services. No particular years or specific number of years in such experience need be selected in establishing normal production, output, or operation. However, normal earnings reconstructed for one or more taxable years in the base period or for the base period as a whole on account of an interruption or diminution in production, output, or operation, must be determined in the light of business conditions pre- vailing during such period. Among the material factors to be consid- ered are general business conditions, business conditions together with the taxpayer's competitive position in an industry of which the tax- payer is a member, and demand for the products or services of a class produced or rendered by the taxpayer. The cost of materials, labor, capital, or any other agent of production, the selling price of the product or the service, the physical volume of sales resulting from the demand for such products or services during the base period are also factors to be taken into account. Thus, assume that, except for the year 1938 in which the taxpayer experienced an explosion in its plant which interrupted production and caused an operating loss for the year, the base period represented a period of normal earnings for the taxpayer. Such period also repre- sented a period of normal earnings for the industry of which the taxpayer is a member. In the year 1938 the demand for the product manufactured by the industry of which the taxpayer is a member was 20 percent below the demand for such product for the average of the other yeai-s in the base period. The taxpayer's normal production and normal earnings for 1938 should be reconstructed upon the basis of the actual demand in that year, rather tlian upon the basis of the demand for the remaining years in the base period. (S) Business depression in base period on account of teinporary economic circumstances. — If the taxpayer establishes that its business was depressed in the base period because of temporary economic cir- cumstances unusual in the case of such taxpayer or because of the fact that an industry of which the taxpayer was a member was de- pressed by reason of temporary economic circumstances unusual in the case of such industry, the average base period net income of the taxpayer shall be considered to be an inadequate standard of normal earnings. For the purposes of this subsection a business shall be considered to be depressed if it realized low earnings or operating losses which resulted from such factors as a low volume of output of products or services, from a low volume of sales, from high manuf ac- . turing costs, from low sales price, or from a combination of such factors. 129 Only those economic circumstances which were temporary in the sense that they had little perceptible effect upon the long run prospects of a business, and which affected the taxpayer alone pv an industry of which it was a member as distinguished from those economic events which were of a chronic or continuing character or which affected business in general, may furnish a basis for a claim for relief under section 722(b) (2) . An economic circumstance is temporary depending upon the character and nature of such circumstances rather than upon the mere length of time of its existence. Thus, the income of a declin- ing business or industry which was depress'ed throughout the base period because of economic conditions of a chronic and continuing character which may be expected to depress the earnings of such busi- ness for an indefinite period is not an inadequate standard of normal earnings under section 722(b)(2). For example, a traction company the earnings of which had been steadily reduced over a decade by increasing competition with motor trucks and by the use of private passenger vehicles might not be considered to suffer business depres- sion by reason of temporary and unusual economic circumstances. Higher income resulting from increased patronage due to wartime restrictions upon the use of alternative methods of transportation should reasonably be regarded as excess profits. Low earnings are entirely normal in the case of such a chronically depres'sed taxpayer and. are not rendered subnormal merely because an increased level of profits resulting from the effect of war conditions opcurs during excess profits tax taxable years. High. costs of production because of high costs of material, labor, capital, or other elements of production, low selling price of the fin- ished product, low volume of sales due to a low demand for such product or the taxpayer's output, or other ordinary economic hazards to which business in general is subject and which have the effect tem- porarily of depressing income are ordinarily not sufficiently unusual economic circumstances to constitute income an inadequate standard of normal earnings under section 722(b) (2). Such circumstances are to be expected during any period of normal earnings and are presumed to have been offset by counterbalancing economic circumstances caus^ ing higher than average profits in other years in the base period. Consequently, the presence of unfavorable economic factors during the base period years of a taxpayer is not unusual when the presence of such factors is usual in the case of an industry of which the ta'xpayer is a member, or if such industry is depressed, in the case of business in general for such years. Nevertheless' unusual and temporary eco- nomic circumstances reflected in one or more of such factors may de- press the business of the taxpayer substantially beyond the extent to which other members of an industry of which the taxpayer is a member 130, are affected, or may depress' the industry (including the taxpayer) substantially beyond the extent to which other industries are affected. In such case the presence of such circumstances is an adequate reason for establishing that actual average base period net income is an inade- quate standard of normal earnings'. However, the mere fact that the business of the taxpayer or of an industry of which it is a member, as the case may be, fluctuates widely under the impact of economic events or is operated at a lower level of earnings than other members of such industry or other industries, as the ca&ie may be, and thus is depressed to a greater degree by unfavorable economic conditions than such other members or industries does not of itself indicate that average base period net income is an inadequate standard of normal earnings. As in the case of unusual and peculiar physical events interrupting or diminishing production, output, or operation (see section 35.722- 3 (a) ) , a temporary economic circumstance is unusual in the case of a taxpayer or of an industry if its occurrence is not ordinarily en- countered in the experience of such taxpayer or industry. However, a temporary economic circumstance which is usual in the case of the taxpayer is not rendered unusual because such circumstance is unusual in the case of an industry of which the taxpayer is a member or in the course of normal business experience in general. As to the definition of an "industry", see section 35.722-2 (&) (8). An example illustrating section 35.722-3 (&) might be a taxpayer which for a long period of years conducted business with one cus- tomer which it lost during the base period because such customer de- cided to manufacture for itself the product it had formerly bought from the taxpayer. The taxpayer would be compelled to develop a new market. The average earnings of the taxpayer for the period of time during which the taxpayer was engaged in obtaining new cus- tomers would not represent an adequate standard of its normal earn- ings and would be suflScient cause for the establishment of a construc- tive average base period net income under section 722. An example in which temporary economic events caused business depression during the base period of an industry of which the tax- payer was a member would be an industry the members of which (in- cluding the taxpayer) were engaged in a ruinous price war during several of the base period years. As a result of sales below cost in such years, the members of the industry sustained severe losses ; when the price war was ended, the members again realized normal average earnings. The business of the taxpayer in such case would be de- pressed during the base period because of the fact that an industry of which the taxpayer was a member was depressed by reason of tem- porary economic events unusual in tlie case of such industry and the ^ 131- •average base period net income of such taxpayer would fee an inade- quate standard of normal earnings. . If the temporary economic circumstances causing the taxpayer to be depressed in the base period did not affect an industry of which the taxpayer was a member, the constructive average base period net in- come of the taxpayer may be established in the same manner as is pre- scribed in the case of a taxpayer the base period production, output^ or operation of which was interrupted or diminished by events unusual and peculiar in its experience. See section 35.722-3(0)). However, since the actual economic conditions existing in the years for which- depression is claimed are those which caused such depression, normal earnings should be reconstructed. not upon the basis of the actual economic factors, affecting the taxpayer's production, costs, sales, and profits in such years but upon the basis of such factors as existed in such years in the case of the industry of which the taxpayer was a mem- ber. Relationships existing between the taxpayer's production, costs, sales, and profits and the average production, costs,i sales, and 'profits of the industry or other members of the industry, in other periods determined to represent periods of normal earnings for the taxpayer and the industry,, or other members, of the industry, may be utilized in determining the taxpayer's production, costs, sales, and profits for the base period. Depending upon th6 particular circumstances in the taxpayer's case normal earnings might be reconstructed for each base period year in which the taxpayer was depressed, or a constructive average base period net income might be determined for the base period as a whole without a reconstruction for separate years. If the taxpayer was depressed in the base period because an in- dustry of which it was a member was depressed by reason of tem- porary economic circumstances unusual in the case of such industry, the constructive average base period net income of the taxpayer might be determined by reference to a prior period in the experience of the taxpayer, or of an industry in which it is a member, which is estab- lished to be a period of normal earnings, or possibly by reference to the base period experience of comparable taxpayers or industries. Since actual economic conditions prevailing in the base period of the taxpayer were those which had the effect of causing depression in the industry of which the taxpayer was a member, such conditions should not form the basis upon which normal earnings of the taxpayer are reconstructed if such reconstruction is made for any of the years in the base period of the taxpayer or for such period in its entirety. In such case, relationships established between the economic conjii- tions present in. the case of the taxpayer during other periods and such conditions in the case of comparable taxpayers or industries may be used in determining the taxpayer's production, costs, sales, and 132 profits -which would have been realized had the temporary and unusual economic circumstances not affected the industry of which it was a member. (c) Business depression in hose period because of variant profits cycle or sporadic and inadequately represented profits periods.-^Ji the taxpayer establishes that its business was depressed in the base period by reason of conditions generally prevailing in an industry of which the taxpayer was a member subjecting such taxpayer either to a profits cycle which differs materially in length and amplitude from the general business cycle or to sporadic and intermittent periods of high production and profits, and such periods are inadequately repre- sented in the base period, the average base period net income of the taxpayer shall be considered to be an inadequate standard of normal earnings. To come within the provisions of section 722(b)(3) and this subsection, it must be shown that the business of the taxpayer was depressed in the base period as a consequence of circumstances which are ordinary and usual in the case of an industry of which the taxpayer is a member ; such business depression may not result from extraordinary and unusual events such as are necessary to invoke the provisions of section 722(b)(2) and section 35.722-3(6). Further- more, the conditions producing the unusual profits cycle or the spor- adic profits of the taxpayer must be shown to have prevailed generally throughout the past history of the industry and not to be peculiar to the base period alone. The ordinary circumstances existing in the case of the industry of which the taxpayer is a member and which produce business depression in the case of the taxpayer must also be established by the taxpayer to have produced business depression with respect to the industry generally during the base period. As to the definition of "industry" see section 35.722-2(&) (8). (1) Unusual profits cycle. — No categorical definition or description can be given to the concept of the general business cycle. The term does not refer to any particular business index prepared by any pub- lic or private financial, economic, or statistical organization, or com- bination of such indices. A, taxpayer does not establish a claim for relief under section 722(b)(3)(A) merely by comparing its own profits cycle, or the profits cycle of an industry of which it is a mem- ber, with one or more general business indices prepared by any public or private financial, economic, or statistical organization, and by show- ing a variance between its own profits cycle and such other general business indices. • On a national industry-wide basis, the four years beginning January 1, 1936, and ending December 31, 1939, represent a period of normal average earnings in the experience of business in general. If, due to conditions entirely normal in the experience of an industry of which 133 the taxpayer was a member, such period was not correspondingly a time of normal average earnings in the case of the industry and of the taxpayer in the light of the prior experience of such industry and taxpayer, the profits cycle of the taxpayer may be considered to be different from the general -profits cycle. The profits cycle of a taxpayer will be deemed to differ in length and amplitude from the general business cycle if its period of normal profits has not occurred during the base period but at some prior time entirely without the base period, or partly without and partly within such period. It is not necessary that the length of the taxpayer's profits cycle be longer or shorter than four years nor is it necessary that the crests and troughs of such profits cycle vary from the level of high, and low profits of the general business cycle. Only in case the normal average earnings of the taxpayer and an industry of which it is a member are substantially greater than the average profits earned during the excess profits tax base period will the profits cycle of a taxpayer be considered to differ materially from the general business cycle. ^he mere fact that the earnings of the taxpayer and an industry of which it was a member are not as high during the base period as they were during some prior period in the experience of such taxpayer or such industry does not necessarily mean that normal average earnings are greater than earnings during' the base period. Normal average earnings are average earnings for all periods of normal earnings in the experience of Such taxpayer or such industry. It is inevitable that some periqds of normal earnings should be higher or lower than other such periods. Consequently the fact that the earnings of the taxpayer and of an industry of which it is a member are slightly lower than the level of normal average earnings is not of itself an indication that -the profits cycle of the taxpayer or the industry varies materially from the general business cycle. A taxpayer which claims to be a member of an industry in which conditions prevail which subject the taxpayer to a profits cycle differ- ing materially from the general business cycle must establish that the business experience both of itself and of such industry is susceptible of segregation into a cyclical pattern. Types of industries, the busi- ness cycles of which may not. necessarily coincide with the general business cycle, are industries connected with the construction industry. It is well established that over the past three decades there has been a bujlding cycle which generally has embraced two or more of the gen- eral cycles of business profits. If the base period embraced only the subnormal years of the profits cycle of a branch of the building in- dustry, the members thereof may be able to establish that their average base period net income does not represent an adequate standard of 134 normal profits. If, however, tlie profits cycle of such branch of the building industry and of the taxpayer in a particular locality in which the operations of such branch and of the taxpayer were encompassed followed the pattern of the general business cycle in the base period so that such period represented a period of average normalprofits for the taxpayer, no basis would exist for a claim for relief under section 722(b)(3)(A). The constructive average base period net income of a taxpayer which was depressed in the base period on account of a variant profits cycle might be determined by reference to one or more prior periods in the experience of the taxpayer or of the industry of which it was a member which represents a period of normal earnings properly attributable to such taxpayer. These periods need be of no specified duration except that they should not be less than three years. If any one such period is used it should be established that with respect to the taxpayer and the industry of which it was a member, such period bears the same relationship to the profits cycle of the taxpayer and the industry which the base period (representing a period of normal earnings of business in general) bears to the general business cycle. In case no such prior periods are available, if proper relationships based upon comparative profit and loss statements and balance sheets can be established, the constructive average base period net income might be determined by reference to the average base period net income of comparable tax- payers or industries for which the base period represents a period of normal earnings. In such case, actual economic factors of production, costs, demand, sales, and profits experienced by the taxpayer during the base period should not generally serve as a limitation upon any normal earnings reconstructed for the taxpayer for the base period. (2) Sporadic profits inadequately represented in the hase period. — The characteristic distinguishing the type of case described in section 722(b) (3) (B) from that in section 722(b) (3) (A) is that in the latter case the taxpayer has an earnings experience which can be segre- gated into definite cycles, whereas in the former case (the type of case described in this paragraph) no such cyclical segregation can be made. In case the taxpayer is subjected to intermittent periods of high pro- duction and profits, tlie prosperous years of the taxpayer will occur at irregular and unpredictable intervals, and may depend upon fortui- tous combinations of advantageous circumstances, as for example the juxtaposition of a good crop and a good market. If the base period of the taxpayer does not include these prosperous years, its earnings during such period will not be an adequate measurement of average normal earnings. Proof that a year of high production and profits did not occur dur- ing tlie base period is not of itself sufficient to establish that the base 135 I period did not represent a period of normal earnings. The actual average base period net income computed under section 713(d) may approximate either the average earnings of periods of normal earn- ings, which include years of very high profits as well as years of low profits, or the average earnings for the entire experience of the tax- payer. Consequently it must be established not only that the base period did not include one or more years of high profits irregularly experienced by the taxpayer but also that the level of earnings for periods of average normal earnings which include such years, or the level of earnings for the entire period in which the taxpayer was in existence is substantially higher than the level of earnings during the base period. Since the concept of normal earnings does not con- template a fixed and inflexible amount but envisions a level of earn- ings which represents normal earning capacity of a business, the mere fact that actual average base period net income is less than an amount which might be 4etermined by reference to some period claimed to represent normal earnings or by reference to an average of earnings over the entire economic life of a business 'does not establish that such average base period net income is an inadequate standard of normal earnings. A taxpayer which claims to be a member of an industry in which, conditions prevail which subject the taxpayer to sporadic and inter- mittent periods of high production and profits must establish that business depression was encountered\during the base period because of such conditions. It must also establish that such conditions were not peculiar to it alone in the base period but were also present in the case of such industry. A taxpayer does not establish eligibility for relief under section 722(b) (3) (B) merely by showing that annua;l periods of high profits have occurred irregularly in the past experience of the taxpayer. Such periods of high earnings may have resulted from windfall profits or from unusual circumstances befalling the taxpayer, or an industry of which it is a member, and not as the result of normal conditions under which the taxpayer's usual operations are carried on. Only in case high earnings which have occurred in prior years are directly attributable to factors normal in the case of the taxpayer and of an • industry of which it is a member, may such high periods of produc- tion and pTofits be considered grounds for relief under section 722(b)(3)(B). Depending upon actual proof, a possible example of an industry operating under conditions vfhich subject its members to sporadic and intermittent periods of high production and profits might be an indus- try engaged in the preparation and canning of fruit. Profits would be dependent upon' the size' of the pack and the market obtainable. 136 Suppose that the records of a taxpayer in such industry indicate that ordinarily in one out of every three years the earnings were substan- tially in excess of the average of the other three years, and that no prosperous years occurred in the base period, as follows : Net income (in thousands of dollars) 1926_ 1927_ 1928- 1929- 1930- 1931- 1932- 50 10 1933- 1934 15 1985 55 1' 1936. 1937. 43 IS 1938. 1939 . 25 . 20 - 48 - 15 -■ 28 . 18 - 10 If the records of the industry of which the taxpayer is a member show a similar pattern, the average base period net income of such concern would not be deemed to be an adequate standard of normal earnings and such taxpayer would be entitled to relief under section 722(b) (3)(B). The constructive average base period net income of a taxpayer depressed during the base period on account of the failure of such period to reflect one or more years of high profits sporadically enjoyed • by the taxpayer might be determined in the same manner as in the case of a taxpayer with a variant profits cycle. See section 35.722-3 (c) (1). In a proper case a standard of normal earnings might fairly be determined as an average of earnings of the business in its ex- perience prior to the beginning of its first excess profits tax taxable year (but not after May 31, 1940), and a reasonable determination of excess profits could be made as the excess of the profits during a cur- rent excess profits tax taxable year over such standard. (d) Commencement or change in character of business. — If the tax- payer has commenced business or has changed the character of its business either during or immediately prior to the base period, and if the taxpayer establishes that its average base period net income does not reflect the normal operation for the entire base period of a busi- ness so commenced or. changed in character, the average base period net income shall be considered to be an inadequate stand_ard of normal earnings. No arbitrary temporal limitations can be provided to circumscribe ■ the concept of "immediately prior to the base period" for the purposes of section 722(b) (4) in the case of a business commenced or changed in character at such time. Nor does the fact that a taxpayer has com- menced business or changed the character of its business within one or two years prior to the base period necessarily establish eligibility for relief under section 722(b) (4). Generally, business experiences a time lag between the time that new operations are commenced, re- 137 fleeting either the starting of a new business or of a business essentially different in character from an old business, and the attainment of a normal earning level. If all or a portion of this time lag occurs dur- ing the base period, the earnings during such period cannot be said to represent normal average earnings. Generally, the commencement of business or the change in character of a business will be deemed to have occurred immediately prior to the base period if under normal conditions the normal earning level of a business so commenced or changed would not be realized until some time during the base period and would be principally and directly related to such commencement or change. However, if a taxpayer, which has commenced business immediately prior to the base period, has reached its level of normal operations prior to such period, but has sustained a loss in its first base period year because of the occur- rence of an unusual event or circumstance, such as a flood interrupting production, the average base period net income will not be considered to be an inadequate standard of normal earnings because the taxpayer has commenced business immediately prior to the base period. Any relief sought by such a taxpayer should be based upon interruption of production under. section T22 (b)(1) and section 35.722-3 (a). The following- examples are illustrations of the provisions of this subsection: Corporation A, which makes its returns on a calendar year basis, and which until 1934 manufactured snuff at a loss, in that year changed to the manufacture of cigars. Due to normal difficulties in establishing trade connections and in establishing its product, it did not realize normal profits until 1938. Such corporation is deemed to have changed the character of its business immediately prior to the base period. Corporation B, which makes its returns on the calendar year basis,' converted its business in 1934 from the manufacture of general textiles to the manufacture of automobile upholstery. It im- mediately realized a level of earnings which were deemed to be reason- able for such business and enjoyed such earnings until 1938. In that year it made a profitable connection with a large automobile manufac- turer, and as a result realized larger profits. The fact of such large profits due to this connection is not principally and directly attributa- ble to the change in the character of the business in 1934, and such fact is not a normal and inevitable result of such change. Conse- quehtly the change in the character of the business in 1934 is not con- sidered to have occurred immediately prior to the base period for the purposes of section Y22(b) (4). If the business of a taxpayer which was commenced or changed in character either immediately prior to or during the base period was growing and expanding so that by the end of the base period it did not reach tne earning level which it would have attained had the business 488318* — 43 10 138 been commenced or changed in character two years prior to the time of the actual event, the taxpayer shall be deemed to have commenced business or changed the character of- its business at such earlier time. In order to establish that its actual average base period net income is an inadequate standard of normal earnings, the taxpayer shall estab- lish that the actual average base period net income does not reflect the normal operation for the entire base period of a business commenced or changed in character at such earlier date. In determining whether the business of the taxpayer was growing or expanding by the end of the base period, consideration may be given to the taxpayer's actual business experience during and immediately prior to the base j^eriod, including its rate of growth, to a comparison of the taxpayer's experi- ence and the experience for a comparable period of other members of an industry of which the taxpayer is a member, to the experience and rate of growth of such members after the commencement or change in character of their business, and to the future prospects of the business of the taxpayer under normal conditions reasonably ascertainable at the end of the base period. Events occurring or existing after Decem- ber 31, 1939, may not be considered in determining whether the tax- payer was growing by the end of the base period, or if so, to the extent thereof. An example illustrating the preceding paragraph would be a corpo- ration which was organized in 1938 and started the development of a delivery route to sell food products. In 1938, it had a net loss; in 1939, a moderate profit. Its record of earnings is as follows : Net income (in thousands of dollars) 1939 (third quarter) 4 1939 (fourth quarter) .-_ 7 1938 —5 1939 (first quarter). ^1 1939 (second quarter) 2 Its steady growth together with other .factors indicates that if it had started business two years earlier its earning level at the end of the base period would have been considerably higher. Such taxpayer shall be deemed to have started business in 1936, and its average base period net income would not be considered an adequate reflection of normal operations for the entire base period of the type of business which would have resulted at the end of the base period if the taxpayer had started business in 1936. Another example would be a taxpayer which immediately prior to and during the base period was engaged in research and development of an American raw material for the manufacture of a product not theretofore practicable of manufacture in the United States. In early 1938 a process was perfected for such manufacture. In that year, the taxpayer entered into sales contracts, commenced a program of building plant and equipment (ultimately completed in 1941), and 139 _ . began to supply its customers in September, 1939. It operated with low invested capital and its earnings did not reach by the end of the base period the level which would have been reached if the taxpayer had commenced business two years earlier. In such case the average base period net income will be considered to be an inadequate standard of normal earnings, and the taxpayer will be deemed to have com- menced business two years prior to the actual commencement. For the purposes of section 722(b)(4), normal operations refers to normal operations throughout the entire base period of the busi- ness commenced or to which such business was changed immediately prior to or during the base period, and to the normal earnings recon- structed on the basisof such normal operations for such entire period. The taxpayer may have commenced business or changed the character of its business after the beginning of the base period ; such commence- ment or change although considered to have been effected two years prior to the actual event might still occur after the beginning of the base period. Neither fact shall prevent the reconstruction, of normal earnings for the entire base period, including the time prior to the date of the actual commencement or change or to the date upon which the commencement or change is considered to have occurred. If the business of the taxpayer has reached by the end of the base period the earning level it would have" reached had it been commenced or changed in character two years prior to such event, normal earnings for the entire base period shall be reconstructed upon the basis of the level of normal operations actually attained during the base period and upon the basis of the character, nature, and size of the business actually developed during the base period. If the business of the tax- payer is considered to have been commenced or changed in character two years prior to such event, normal earnings for the entire base period shall be based upon the level of normal operations, and upon the character, nature, and size of the business which would have been developed by the end of the base period if the business had been com- menced or changed at such earlier date. If a business which was commenced or changed in character either during or immediately prior to the base period did not reach, by the end of the base period, the earning level it would have reached had it .been commenced or changed in character two years earlier, the earning level which it would have reached had such events occurred at such an earlier date will be dependent upon reconstructed, as opposed to actual production, costs, demand, sales, and selling prices. It may not be possible to reconstruct demand, sales, and selling prices based upon actual economic conditions existing within the framework of the base period. In certain cases actual demand, sales, and selling prices might not represent reasonable limitations upon the earning level 140 which the taxpayer would have reached had its business been com- menced or changed in character two years prior to the actual occur- rence. Moreover the fact that a business is deemed to have been commenced or changed two years earlier implies the existence of con- ditions not necessarily present in the period for which reconstruction is being made. Consequently, in proper cases, demand, sales, and selling prices may be established upon the basis of certain assumptions not inconsistent with the fact that the taxpayer is considered to have commenced business or changed the character of its business two years prior to the actual commencement or change and not inconsistent with the experience of similar taxpayers which have reached a level of normal earnings, or of an industry of which the taxpayer is a member, which might furnish an indication of economic factors to be encoun- tered by an expanding business. Although actual economic factors influencing the taxpayer's earn- ings for the period prior to its attainment of normal operations may not reflect the results of such operations and consequently might not furnish adequate criteria for determining the normal earnings for such period, regard might be had to such factors to the extent that they might be determinants in establishing' the taxpayer's earning capacity. Thus, if the taxpayer's business is a continuation of a preexisting busi- ness enterprise, regard might be had to the experience and earning capacity of such enterprise in order to ascertain normal earnings to be attributed to the taxpayer. Likewise, if a corporation is reorgan- ized in the base period into two new corporations, the excess profits net income of each of the new corporations for the taxable years in the base period in which each was not in existence may be determined from thaf part of the business of the original corporation operated by each of the new corporations and that part of the excess profits net income of the original corporation attributable tp such part of the business. If the business of the taxpayer, deemed to have been commenced or changed in character two years prior to such event, has not reached by the end of the base period its level of normal operations and of normal earnings because of the interruption or diminution of pro- duction, output, or operation on account of events unusual and pecu- liar in the experience of the taxpayer (section 722(b) (1)), or because of adverse temporary economic circumstances unusual in the case of the taxpayer or an industry of which it was a member (section 722 (b) (2)), or because the taxpayer was a member of an industry in which conditions prevailed which would subject the taxpayer to a variant profits cycle or to sporadic and intermittent periods of high production and profits which are not represented in the base period (section 722(b)(3)), or because of other factors adversely affecting 141 the business af the taxpayer in the base period (section 722(b) (5)), the principles pursuant to which relief is determined in such cases shall be taken into account in determining the normal operations and normal earnings of the taxpayer. Thus, a taxpayer which was or- ganized and commenced business during the base period might be a member of an industry in which conditions prevailing in such indus- try subjected its members to a profits cycle materially different from the general business cycle. If the base period represented the trough in such cycle and the average base period net income of the members of the industry represented an inadequate standard of normal earn- ings, the normal operations .and normal earnings of the taxpayer might be determined by reference to one or more other periods in the experience of the industry. Relationships existing between the taxpayer's operations in the base period and the operations of other members of the industry, or of the industry as a whole, might be taken into account. See section 35.722-3 (a). The fact that income for the -entire basie period is to be recon- structed upon the basis of the level of normal operations actually attained during the base period or upon the basis of the level of nor- mal operations which would have been reached had the business been commenced or changed two years earlier, does not necessarily mean that the highest level of earnings actually or constructively reached during the base period is to be ascribed to the entire base period. The earning level of business usually is fluctuating rather than constant. Normal earnings to be attributed to the taxpayer for the base period must follow such pattern. In , determining such normal earnings regard may be had to the earnings cycle during the base period of other taxpayers engaged in similar businesses, of other members of an industry of which the taxpayer was a member, of such industry as a whole, and to relationships existing between the taxpayer's pro- duction, costs, sales, and profits during its years of normal operations and similar factors in the case of such other taxpayers or industry. Jilvents or conditions occurring after December 31, 1939, may not be taken into account in determining the constructive average base period net income of a taxpayer whidi during the base period has commenced business or changed the character of its business. Conse- quently, the level of normal operations which would have been reached by a taxpayer which is considered to have commenced busi- ness or to have changed the character of its business two years prior to the actual event shall not be determined by attributing to the base period the results of the taxpayer's operations for its first two excess profits tax taxable years beginning after December 31, 1939, or for any period of time after such date. 142 Since the amount of normal earnings in tlie case of a taxpayer which is considered to have commenced business or changed the character of its business two years prior to the actual event is based upon a reconstructed business experience which has been lengthened two years, such amount may exceed the actual earnings realized by the taxpayer during its first or second excess profits tax taxable year. Consequently, the reconstructed normal earnings which would be used as the constructive average base period net income after the second excess profits tax, taxable year may not constitute a fair and just amount to be used for the purposes of the excess profits tax for the first or second excess profits tax taxable year. Therefore, in deter- mining the constructive average base period net income to be used in computing the excess profits tax or the unused excess profits credit for the first or second- excess profits tax taxable year, the fair and just amount representing normal earnings should be based upon the actual earning capacity which, as of the end of its base period, the taxpayer could reasonably have expected to reach under normal conditions dur- ing such first or second excess profits tax taxable year. If the excess profits net income for the taxpayer's first or second excess profits tax taxable year reflects an earning capacity greater than that reasonably established for such year, the amount by which such excess profits net income exceeds the excess profits credit based upon constructive aver- age base period net income represents adjusted excess profits net income subject to excess profits tax. If the excess profits net income for such first or second taxable year is less than the excess profits credit based upon the constructive average base period net income, the difference is the unused excess profits credit for such year under sec- tion 710(c). See section 35.710-3. A change in the character of the business for the purposes of sec- lion 722(b) (4) must be substantial in that the nature of the opera- tions of the business affected by the change is regarded as being essentially different after the change from the nature of such opera- tions prior to the change. No change which businesses in general- are accustomed to make in the course of usual or routine operations shall be considered a change in the character of the business for the pur- poses of section 722(b) (4). Trade custom and practice may be taken into account in determining whether an essential difference in the character of the business has occurred. A change in the cljaracter of the business, to be considered substantial, must be reflected in an increased level of earnings which is difectly attributable to such change. If such increased level of earnings is not actually realized in the base period, the taxpayer is not precluded from establishing a change in the character of the business provided it can establish that such increased level would have been attained- in the base period 143 but was hindered or delayed by unusual and peculiar events or eco- nomic circumstances. Such proof may not take into account any increase in earnings after December 31, 1939, as indicative of the fact that a change in the character of the business was productive of increased earnings. A change in the character of the business includes changes resulting from the following activities ; (1) A change in the operation or management of the business. The introduction of new or substantially different processes of manufac- turing or of new or substantially different methods of distribution would constitute a change in the operation of a business; the hiring of new key managing personnel or the adoption of materially new basic management policies by the old management resulting in drastic changes from old policies would constitute a change in the operation or management of the business. However, ordinary technological im- provements developed in the course of routine business operations or changes in operating or supervisory personnel normally experienced by business in general and having no effect upon basic business policies would not beconsidered a change in the operation or management of the business. Examples of a change in operation or management might be the following : Corporation A was reorganized in 1936, and the new directors and officers initiated drastic changes in management, sales, and production policies which were not reflected in the corporation's earnings until 1939 ; a change in management would be. deemed to have occurred. In 1937, Corporation B engaged in coal mining converted from a system of hand loading, under which it had lost money, to mechanized loading which reduced operating costs and resulted in profits; a change in operations has occurred. Likewise, Corporation C, which prior to 1938 marketed its product from door to door, in such year changed such sales methods to direct sales to retailers and thereafter realized profits ; it would be deemed to have effectuated a change in operations. Corpo- ration D experienced a severe reduction in the volume of its business due in part to economic conditions but principally to financial mis- management. Early in 1939 new management was provided, new financial policies were adopted, and the volume of business and of earnings was greatly increased as a result thereof; Corporation D is deemed to have made a change in the management of its business-. (2) A difference in the products or services furnished. A product or service is different from another product or service if the trade custom or practice treats it as a product or service of a different class. A mere improvement in the product or service does not constitute a difference in the product or service. For example, a corporation in 144 one year of its base period was engaged in both the radio broadcasting business and the department store business, and on January 1, 1940, was engaged only in the radio broadcasting business, the department store business having been discontinued. The corporation is deemed to have changed the character of its business. The same is true of a radio station which for three years in its base period was operated by a seed and nursery company. Beginning in 1939, tlie radio station was operated strictly as a commercial venture, the seed and nursery business having been discontinued. Another taxpayer manufactured and sold a variety of products, some under patents it had developed, During the base period it engaged in extensive research, developed new products, perfected and obtained a patent, and employed new market- ing methods, enabling it to sell a leading product never before sold in the new markets. A difference in the products furnished is deemed to have resulted. • (3) A difference in the capacity for production or operation. A difference in the capacity for production or operation exists not only where new facilities have been acquired or .old facilities enlarged, but also where latent productive or operative equipment is utilized and where newly -developed techniques adopted with respect to existing facilities expand the productive or operating capacity of such facilities. Also included are cases where liquid working capital has been in- creased admitting of an enlarged scope of operations. A radio broad- casting station increased its power during the base period, necessitat- ing changes and expansion of the physical property of the station, and thus enlarged the area it served. The station was thereby enabled to increase its volume of advertising and advertising rates. Such radio station is deemed to have effected a change in its capacity for pro- duction or operation. A taxpayer, in addition to its regular business of manufacturing dental equipment, in 1937 entered the field of manu- facture of custom-built precision parts and instruments for the aviation industry, using surplus capacity for the purpose. Such activities would be cqnsidered to result in a change in the capacity for produc- tion and operation and the normal expansion, including expansion of the line of products which it would have experienced in this new field had it entered such field two years earlier, would be considered. (4) A difference in the ratio of nonborrowed capital to total capital. As used in this paragraph, total capital is the sum of the average equity invested capital and the average borrowed capital for the tax- able year. If a taxpayer operated during the base period in whole or in part on borrowed capital, the interest paid or accrued on such capital would be a deduction in computing average base period net income. If during the base period borrowed capital was reduced so that at the end of its base period the interest deduction was reduced, deductions 145 for interest during the base period would be greater than such deduc- tions during the excess profits tax taxable years. If the total capital at the end of the base period was as large as or larger than the total cap- ital prior to the reduction of the borrowed capital, the average base period net income, to the extent that it was reduced by the interest de- duction, would, furnish an inadequate standard for determining excess profi!ts. If, howeTcr, the total capital at the end of the base period was reduced by the amount by which the borrowed capital was reduced, the average base period net income would not necessarily furnish an in- adequate standard for determining excess profits since the total amount of capital producing excess profits net income would also be reduced. For the purposes of section '722 (b) (4) a difference in the ratio of non- borrowed capital to total capital does not obtain merely because bor- rowed capital has been reduced or because equity invested capital has - been increased. Such difference arises only when there is a decrease in borrowed capital offset by a corresponding increase in equity capitaL In such event the amount of interest, on borrowed capital so retired during the base period, which has been deducted in computing average base period net income shall be disallowed as a deduction in comput- ing constructive average base period net income. For the purposes of the preceding sentence, the amount of borrowed capital retired during the base period shall be limited to the increase in equity invested capital (whether, by amounts paid in for stock, as paid-in surplus, or as contributions to capital, or by the amount of aeeumulated earnings and profits) for such period. (6) The acquisition before January 1, 1940, of all or part of the assets of a competitor, with the result that the competition of such competitor was eliminated or diminished. The form in which such acquisition was accomplished and whether or not in a transaction in which taxable gain or loss was recognized is immaterial. For ex- ample, two competing newspapers were operating at a loss during all or part of the base period. Prior to January 1, 1940, the first news- paper purchased the franchises and other assets of the second news- paper and as a result of this transaction the condition of the surviving paper was much more promising. A difference in the character of the business of the taxpayer Tias occurred. ■ Any diange in the capacity for production or operation of the busi- ness consummated 'during an excess profits tax taxable year ending after December 31, 1939, as a result of a course of action to which the taxpayer was committed prior to January 1, 1940, or any acquisition before May 31, 1941, from a competitor engaged in the dissemination of iuformation through the public press, of substantially all the assets of such competitor employed in such business with the result that com- petition between the taxpayer and the competitor existing before Janu- 146 ary 1, 1940, was eliminated, shall be deemed to be a change on December 31, 1939, in the character of the business. If the taxpayer establishes thut a change in the character of the busi- ness deemed to exist on December 31, 1939, actually entered into the operations of the business during the taxable year and that increased earnings would have been realized during the base period (or during some other period of normal earnings, if the base period is not a period of normal earnings) if the business so changed was in full operation during such period, the average base period net income shall be deemed to be an inadequate standard of normal earnings. The taxpayer must also establish by competent evidence that it was committed prior to January 1, 1940, to a course of action leading to such change. Such a comanitment may be proved by a contract for the construction, pur- chase, or other acquisition of facilities resulting in such change, by the expenditure of money in the commencement of the desired change, by the institution of legal action looking toward such change, or by any other change in position unequivocally establishing the intent to make the change and commitment to a course of action leading to such change. The change in the capacity for production or operation re- ferred to in the preceding paragraph means a change such as de- scribed in paragraph (d) (3) of this section. A change in the character of the business deemed to be a change on December 31, 1939, pursuant to the last sentence of section 722 (b) (4) , may not be reflected at all in the business of the taxpayer for an excess profits tax taxable year if such change had not yet been consummated by such year, may be partially reflected in such year to the extent that the new productive or operating capacity was utilized, or may be re- flected in full for such year if the full normal capacity for production or operation so changed entered into ^ the business of the taxpayer for such year. Consequently it is possible that the level of normal earii- ings based upon full normal operating capacity during the base period might exceed the level of earnings reached during an excess ■profits tax taxable year based upon but a portion of full operating capacity. No accurate computation of excess profits or of an unused excess profits credit for an excess profits tax taxable year can reasonably be made with respect to a taxpayer which has not reached full normal operating capacity in such year based upon a comparison of normal earnings representing full operating capacity of such change with excess profits net income from operations for such year based upon but a portion of normal operating capacity of such change. > With respect to such an excess profits tax taxable year, the only fair and just standard of normal earnings to be included in the constructive average base period net income as attributable to such change must be based upon normal earnings attributable to the level of operations of the 147 cliariged capacity for production or operation- which normally would have been reached by the taxpayer during such year. The extent to which the change in the capacity for production or operation entered into the business of the taxpayer for an excess profits tax taxable year shall be deemed to be the extent to which a change in capacity for production or operation existed on December 31, 1939. Therefore the fair and just amount to be included in the constructive average base period net income, as attributable to such change, in com- puting excess profits for any taxable year of a taxpayer which has consummated a change in capacity for production or operation after December 31, 1939, under section 722(b) (4), and prior to the time that the full normal earning capacity of such change has been reached, shall be determined upon the basis of the extent to which the changed pro- ductive or operating capacity is reflected in the taxpayer's business for such year. The extent to which such changed capacity is reflected in the business for a taxable year shall be based upon the length of time during the taxable year in which the changed capacity for produc- tion or operation was utilized and the level of normal production or operation which was reached as the result of such changed capacity. For an excess profits tax taxable year, prior to the attainment of full normal operating capacity, the fair and just amount of normal earnings attributable to a change in capacity for production or oper- ation consummated after December 31, 1939, may be determined either by multiplying the full normal earnings attributable to normal operating capacity for the base period (or a comparable period) by a percentage representing the extent to^which such change is re- flected in the taxpayer's business for such year, or by determining normal earnings npon the basis of the operating level which normally would have been reached by such change during such year. To the extent necessary to determine the nature of the change in the capacity for production or operation, and the extent to which such change has been reflected in the taxpayer's business, regard may be had to facts ~ existing after December 31, 1939. Although no regard should be -had to actual fearnings after December 31, 1939, as indicative of the amount of normal earnings attributable to the change, ratios existing between such earnings and earnings from other operations of the taxpayer or of similar taxpayers or an industry of which the taxpayer is a member may be taken into account. The principles applicable to the determination of the fair and just amount representing normal earnings to be included in constructive average base period net income as attributable to a changed capacity for production or operation shall also be applicable to the determination of such amount- in the case of a taxpayer which has before May 31, 1941, acquired sub- stantially all the assets of a competitor engaged in, the dissemination 148 of information through the public press, pursuant to the last sentence of section 722(b) (4). The determination of normal earnings both, in the case of a tax- payer consummating a change in capacity for production or operation after December 31, 1939, and in the case of a taxpayer acquiring before May 31, 1941, assets of a competitor engaged in the dissemina- tion of information through the public press, may be made in the same manner as the determination of normal earnings of a taxpayer which is deemed to have commenced business or to have changed the character of its business two years prior to the actual event. In no event may any portion of a constructive average base period net income which is attributable to a change in the capacity for production or operation, or to the acquisition of assets of a competitor engaged in disseminating information through the public press with a concomitant elimination of competition be allowed in the computa- tion of the excess profits tax for any taxable year in which such increased capacity or acquisition of assets and the effect of the elimi- nation of competition do not enter into the business of the taxpayer, regardless of the fact that facilities giving rise to such increased capacity or representing assets acquired have been completely con- structed or have been actually acquired in such year. For any excess profits tax taxable year subsequent to the year in which the changed capacity or the assets of the competitor and the elimination of competition have been reflected in the business of the taxpayer to the extent of full normal earning capacity, the constructive average base period net income shall include the entire amount of normal earnings attrilputable to such increased capacity or acquired assets and elimina- tion of competition, regardless of the fact that in such later year the changed capacity or the acquisition of assets and the effect of the elimination of competition are not reflected to the extent of full normal earning capacity. If a change in the capacity for production or operation, or the acquisition of assets of a competitor, occurs after December 31, 1939, amounts of money or property paid in to the taxpayer after the be- ginning of its first excess profits tax taxable year might be used in effectuating such change or acquisition. The amounts of money or property so paid in would constitute capital additions to be used in the determination of the net capital addition for an excess profits tax taxable year under section 713(g) and section 743, and the excess profits credit based on income is increased by 8 percent of the net capital addition under section 713(a)(1)(B). In such case, the amount otherwise determined as the fair and just amount representing normal earnings attributable to a changed capacity or an acquisition of assets and elimination of competition would duplicate that portion 149 of the excess profits credit based on the net capital addition. Conse- quently, in computing the constructive average base period net income attributable to the change in the character of the business described in the last sentence of section 722(b)(4), the fair and just amount representing normal earnings determined without regard to the pro- visions of this paragraph to be used in the computation of the excess profits tax for a taxable year shall be reduced by an amount equal to 8 percent of that portion of net capital addition for such year which has been utilized in constructing or acquiring the facilities giving rise to such change. Such portion of the net capital addition so utilized shall be deemed to be equal to that percentage of the net capital addition for such year as that portion of the aggregate of the daily capital additions considered to have been expended in the con- struction or acquisition of such facilities is of the aggregate of the daily capital additions. In no event, however, shall the amount of the constructive average base period net income attributable to the change be reduced to less than zero. The effect of the last sentence of section Y22(b) (4) may be illustrated by the following examples : In 1939, Corporation M, a mining company, began the development of a new mine and the construction of a new plant to be used in con- nection with such mine. The sum of $3,000,000 was expended upon this project in 1939 and 1940. Of this amount, $1,000,000 was paid in for stock of the corporation in 1939 and $2,000,000 was paid in for stock in 1940. Five hundred thousand dollars additional was paid in for stock in 1940 and used as working capital. Assume that for 1941 and 1942, the net capital addition is $2,250,000. The mine and plant were com- pleted and entered production on October 1, 1941, thus being in opera- tion for three-twelfths of the year 1941. During 1941, the level of pro- duction reached by the new facilities was 25 percent of normal oper- ating capacity. The facilities were in operation during the entire year 1942 and reached a level of production of 75 percent of normal operat- ing capacity. There will be considered to be a change in the character of the business on December 31, 1939, for purposes of the application of section 722 to the year 1941 and to subsequent years. No claim for relief based upon such facts may be made for the year 1940, since the new facilities were not a part of the taxpayer's business operations for such year. If it is assumed that full normal earnings attributable to full normal operating capacity is $400,000, the fair and just amount to be included in constructive -average base period net income for 1941 attributable to the new facilities is $25,000 (three-twelfths multiplied by 26 percent of $400,000, i. e., three-twelftlis multiplied by $100,000). This amount should be reduced by $144,000 representing an amount equal to 8 percent of that portion of the net capital addition which has 150 been utilized in the construction of the new facilities (8 percent of 2%5 of $2,250,000) . Since the reduction of $144,000 exceeds the amount of $25,000, there is no constructive average base period net income attrib- utable to the new facilities to be used in computing the excess profits tax for 1941. The fair and just amount to be included in constructive average base period net income for 1942 attributable to the new facili- ties is $300,000 ($400,000 multiplied by 75 percent). This amount should be reduced by $144,000 computed as provided above. The excess of $300,000 over $144,000, i. e., $156,000, is the amount of constructive average base period net income attributable to the new facilities to be used in computing the excess profits tax for 1942. Eadio broadcasting station E entered into a contract in July 1939, to change its basic network affiliation from a network with a low volume of business and local programs to one of the larger networks with a very large volume of business and Nation-wide programs. This change in the operation of the business enabled the station greatly to increase its revenue, and to serve a larger audience. Although the contract with the new network was signed in July 1939, actual broad- casting of the new network's programs did not start until March 1940. Corporation R, however, is considered to have been committed to a course of action prior to January 1, 1940, which led to a change in capacity for production and operation consummated after December 31, 1939, and thus to have established a change in the character of its business on December 31, 1939. In April 1941, an evening newspaper acquired substantially all of the assets employed in publishing a competitive morning newspaper, with the result that competition between the taxpayer and th^ com- petitor existing prior to January 1, 1940, was eliminated. A change in the character of the business is deemed to have occurred on December 31, 1939, and the taxpayer is eligible for relief under section 722 for the year 1941 and subsequent years. , (e) Other factors affecting business and resulting in inadequate standard of normal earnings. — ^If the taxpayer establishes the presence during or immediately prior to the base period of one or more factors which may reasonably be considered to have influenced adversely oper- tions during the base period and to have resulted in unusually low earnings during the base period, and the application of section 722 to the taxpayer would not be inconsistent with the principles underlying the provisions of section 722(b) and with the conditions and limitations enumerated in such section, the average base period net income shall be deemed to be an inadequate standard of normal earnings. The purpose of section 722(b) is to make eligible for relief under section 722 a corporation which would normally use the excess profits credit based on income in ascertaining income subject to excess profits tax but which has experienced conditions affecting it or an industry of 151 which it was a member resulting in an average base period net income which is not an adequate reflection of average normal earnings and which consequently is not an adequate measurement for the determina- tion of excess profits. The excess profits tax is specifically designed to recapture a portion of profits due to the expansion and creation of activities by the war effort. Profits earned during the current excess profits tax return period can therefore furnish no competent guide to what constitutes normal average earnings. The mere fact that the average base period net income of a taxpayer is somewhat, or even considerably, smaller than its anticipated or actual excess profits net income does not necessarily mean that the average base period net income is an inadequate standard of normal earnings. Such average base period net income may reflect the result of normal operations ; a larger current income may reflect the effects of the war economy and truly constitute excess profits to be taxed. Since current excess profits net income cannot be taken into account in determining constructive average base period net income, the mere disparity between average base period net income and current income is no basis for a claim for relief under section 722(b) (5). Eligibility for relief under section 722(b) (5) and the determination of a constructive average base period net income must not be incon- sistent with the principles, conditions, and limitations contained in section 722(b) (1), (2), (3), and (4) and section 35.722-3 {a), (6), (o), and (d). Seo. 35.722-4 Determination or Excessive and Disceiminatoet Tax ; Taxpater Not Entitled to Excess PEorrrs Ceedit Based on Income. — Section 722(c) defines an excessive and discriminatory ex- cess profits tax, computed without regard to the provisions of sec- tion 722, for an excess profits tax taxable year, in the case of a tax- payer which is not entitled to use the excess profits credit based on income pursuant to section 713 (or pursuant to section 742, if the taxpayer has acquired the assets of another corporation) . This sec- tion applies to taxpayers coming into existence after December 31, 1939, which are not entitled to use the excess profits credit based on average base period net income, and to foreign corporations com- pelled to use the excess profits credit based on invested capital (see section 712(b)). The excess profits tax of such corporations, com- puted without regard to section 722, shall be considered to be exces- sive and discriminatory if the excess profits credit based on invested capital is an inadequate standard for determining excess profits be- cause of one or more of the following reasons : (a) The business of the taxpayer is of a class in which intangible assets not includible in invested capital under section 718 make im- portant contributions to income. Corporation M commenced busi- 152 ness in 1940. Its business was of a class which required little in- vested capital but necessitated the establishment of contacts with the trade in which it would obtain its customers. It lost money during its first two years of operation, but by 1942 had built up patronage and showed a considerable profit. If its invested capital was very small, its excess profits credit based on invested capital would be an inadequate standard for determining excess profits, and the corporation would be entitled to file a claim for relief under section 722 for the year ^1942 and subsequent years. (&) The business of the taxpayer is of a class in which capital is not an important income-producing factor. An illustration might be a corporation commencing business in June, 1940, doing business as fashion consultants. Although the corporation operates with very little invested capital, it cannot qualify as a personal service cor- ration under section 725 because it employs a large technical and professional staff. The excess profits credit based upon low in- vested capital would be an inadequate standard for determining excess profits. (c) The invested capital of the' taxpayer is abnormally low. II the type of business done by the taxpayer is not one in which invested capital is small but the invested capital of the taxpayer is unusually low because of peculiar conditions existing in its case, the excess profits credit based on invested capital will be considered an inade- quate standard for determining excess profits. Thus, suppose that a corporation commenced business in 1941 with a leased plant valued at $1,000,000, but with equity invested capital and borrowed capital of only $40,000. If the invested capital of such company is unusually low relative to the size of its operations, its excess profits credit based on invested capital might be an inadequate standard for determin- ing excess profits, and the taxpayer would be subject to an unreason- able tax burden if required to compute its excess profits tax und^r the invested capital method. The last sentence of section 722(a) permits consideration to be given to the nature of the taxpayer and the character of its business under section 722(c) existing after December 31, 1939, to the extent necessary to establish the normal earnings to be used as construc- tive average base period net income. In the case of a taxpayer com- mencing business after December 31, 1939, it is necessary to examine the type of business engaged in, the relationship between its profits and invested capital, its profits and sales, and the profits and in- vested capital and profits and sales of comparable concerns, the earning capacity of the taxpayer, the character and experience of the management, the nature of the competition encountered, and all other factors pertinent in constructing normal earnings. The mere 153 fact that earnings after December 31, 1939, exceed the amount of the excess profits credit based on invested capital is not of itself an indication that the taxpayer is of a ckgs which shows a higher than average return upon capital or that its invested capital is abnormally > low. Therefore any facts or conclusions derived with respect to the period after December 31, 1939, shall be related to the base period ; or, if the base period does not represent a period of normal earnings for the type of business exemplified by the taxpayer, to another period of average normal earnings; and in either case the taxpayer must establish that it would satisfy the provisions and conditions of section 722 (c) and of this section for such period. No exact criteria can be prescribed for the computation of the constructive average base period net income of a taxpayer described in this section. In some cases it may be the average of normal earnings reconstructed for the 48 months: preceding the beginning of its first excess profits tax taxable year which would have begun in 1940 (but not after May 31, 1940) ; in others it might be deter- mined without reconstructing the income for each year in a fictitious base period. In still other cases, if the taxpayer is a member of an industry which was depressed during the base period or which has a variant business cycle or sporadic and intermittent periods of prosperity, the constructive average base period net income might be determined by reference to the average earnings of comparable businesses in the same industry computed for a period of normal average earnings or computed as the average earnings over the period of existence of the industry. If the taxpayer's business is a continua- tion of a preexisting business enterprise, regard might be had to the experience and earning capacity of such enterprise in order to ascertain normal earnings to be attributed to the taxpayer. As in the case of taxpayers which are deemed to have commenced business or changed the character of the business two years prior to the actualevent, and of taxpayers which after December 31, 1939, have consummated a change in the capacity for production or operation as a result of a course of action to which the taxpayer was committed prior to January 1, 1940, it may not be possible to reconstruct demand, sales, and selling prices based upon such demand and sales upon the basis of actual economic conditions existing within the fraimework of the base period or other period established to be a period of normal earn- ings. In certain cases actual demand, sales,. and selling prices might not represent reasonable limitations upon the earning level which the^ taxpayer would have attained had it been in existence during such period. Moreover, the fact that normal earnings are being recon- structed for si^ch period for a business which was not then in existence irdplies the existence of conditions not necessarily present in the period 488318*^43 ^11 1:54 for wbich reconstruction is being made. Consequently in proper cases, demapdj sales, and selling prices may be established upon the basis of certain assumptions not inconsistent with the hypothesis that the taxpayer was in existence and attained its normal earning level during such period, and not inconsistent with the experience of similar taxpayers which have reached a level of normal earnings, or of an industry of which the taxpayer is a member, which might furnish an indication of economic factors which would have been encountered by the taxpayer in such period. Since business normally requires a period of development after commencement before attaiiiment of normal earning capacity, the full amount of normal earnings upon which would be based the construc- tive average base period net income may exceed the excess profits net income for an excess profits tax taxable year. No accurate computa- tion of excess profits or of an unused excess profits credit for an excess profits tax taxable year can reasonably be made with respect to a taxpayer which has not reached full normal earning capacity in such year based upon comparison of normal earnings representing full operating capacity with excess profits net income from operations for such year based upon but a portion of normal operating capacity. With respect to such an excess profits tax taxable year, prior to the year in which the taxpayer has reached its full earning capacity, the only fair and just standard of normal earnings to be used as the con- structive average base period net income for such year shall be based upon normal earnings attributable to the level of operations which normally would have been reached by the taxpayer during such year. Such normal earnings may be determined in the same manner as in the case of a change in the capacity for production or operation con- summated during a taxable year beginning after December 31, 1939, as a result of a course of action to which the taxpayer was com- mitted prior to January 1, 1940. See section 35.722-3 («?). Amounts paid into a corporation which is organized and commences business after December 31, 1939, after the beginning of its first excess profits tax taxable year constitute capital additions under section 713(g) or section 743. An amount equal to 8 percent of the net cap- ital addition is included in computing the excess profits credit based on income under section 713(a). Since the amount of normal earn- ings to be used as the constructive average base period net income must be based upon the nature and character of a taxpayer as it exists on a certain date, a portion of such normal earnings may duplicate a portion of the excess profits credit based upon the net capital addi- tion. In order to obviate such duplication, no amount shall be in- cluded in the net capital addition which is included in determining the nature of the taxpayer and the character, kind, and size of its 155 business upon the basis of which is determined the constructive aver- age base period net income. Consequently, in any case in which the taxpayer has claimed relief under the provisions of section 722(c), the beginning of the taxpayer's first excess profits tax taxable year for the purposes of computing that portion of the excess profits credit reflecting net capital additions or reductions under sections T13(g) and 743, shall be considered to be that date after which capital addi- tions and capital reductions are not taken into account in computing constructive average base period net income. For example, assume that a corporation reporting income on the basis of a calendar year commenced business on April 1, 1940, with $100,000 of property paid in for stock. By November 1, 1940^ $200,000 additionalhad been paid in, and by the end of its taxable year, December 31, 1940, $10,000 addi- tional had been paid in. It is assumed that the corporation is en- titled to relief under section 722, and it is determined that a construc- tive average base period net income should be established with re- spect to the nature and character of the business of the taxpayer which- existed on November 1, 1940. For the purposes of an adjustment to the excess profits credit on account of net capital additions or reduc- tions based upon section 713 (g) , November 1, 1940, rather than April 1, 1940, will be deemed to be the beginning of the taxpayer's first excess profits tax taxable year. Sec. 35.722-5 Application for. Relief Under Section 722. — {a) Requirements forfiUnff- — Except as provided in section 710(a) (5) and section 35.710-5 (relating to deferment of payment of excess profits tax in certain cases under section 722) and except as provided in (e) of this section, the taxpayer is not permitted to claim the benefits of section 722 in computing its excess profits tax on its return, but must compute its tax, file its return, and pay its excess profits tax without the application of section 722. To obtain the benefits of section 722 for any taxable year beginning after December 31, 1941, a taxpayer not later than six months after the date prescribed by law for the filing of its excess profits tax return for such year must file under oath an application on Form 991 (revised January, 1943) for the benefits of section 722, unless the taxpayer has deferred on its return a portion of its excess profits tax under section 710(a) (5), or unless the provisions of (d) and (e) of this section are applicable to the taxpayer. For the purposes of this section, the time prescribed by law for filing the return included the period of any extension of time granted for such filing. In order to obtain the benefits of an unused excess profits credit computed by using the excess profits credit based on constructive aver- age base period net income for an excess profits tax taxable" year begin- ning after December 31, 1941, as an unused excess profits credit carry- 156 over, the taxpayer must file an application on Form 991 (revised Janu- ary, 1943) not later than six months after the date prescribed by law for the filing of the excess profits tax return for the year to which such unused excess profits credit carry-over is desired to be applied, except as otherwise provided in (e) of this section. In order to obtain the benefits of an unused excess profits credit computed by using the excess profits credits based on constructive average base period net income for any taxable year as an unused excess profits credit carry- back, a timely application for relief must be filed with respect to the taxable year in which such unused excess profits credit arose except as otherwise provided in (e) of this section. In addition a claim for re- fund or credit on Form 843 claiming the benefit of the carry-back shall be filed within the period of limitation provided in section 322 applica- ble to the year to which such carry-back is to be applied. Except as otherwise provided in this section, the application on Form 991 (revised January, 1943) must set forth in detail and under oath each ground under section 722 upon which the claim for relief is based, tod facts sufficient to apprise the Commissioner of the exact basis thereof. The mere statement of the provision or provisions of law imder section 722 upon which the claim for relief is based shall not constitute an application for relief within the meaning of section 722. If a claim for relief is based upon section 722(b)(5) and section 85.722-3 (e) (relating to factors other than those expressly provided by section 722(b) (1), (2), (3), and (4) and section 35.722-3 («), (6), (o), and _(time as the time prescribed in sections 56 180 and 236 and the income tax regulations under such sections for the payment of income tax. Sec. 35.729-3 Foreign Tax Credit. — The provisions of law made applicable to the excess profits tax by section 729(a) include section 131 relating to the credit for income, war-profits and excess-profits taxes paid or accrued during the taxable year to any foreign country or any possession of the United States. The taxpayer is allowed such a credit against the excess profits tax if it claims such credit in its Federal income tax return and likewise claims such credit in its excess profits tax return. The amount of such credit allowable against the excess profits tax is (a) the amount of such income, war-profits and excess-profits taxes reduced by (6) the amount of such taxes al- lowed as a credit under section 131 against the income tax. Thus, for instance, if a taxpayer pays to a foreign country with respect to the calendar year 1942 income tax in the amount of $25,000 upon income - from sources therein and, due to the operation of the limitation pro- visions, contained in section 131(b), only the amount of $20,000 is allowed as a credit against the income tax for that year, the remainder, or $5,000, is available as a credit against the excess profits tax for the year 1942. The amount thus made available as a credit against the excess profits tax is, however, subject to the further limitations provided in section 729(d). For the application of the limitations provided in section 729(d) to the amount of income, war-profits or excess-profits taxes thus made available as a credit against the .excess profits tax, see section 131(b) and the regulations prescribed there- under. SEC. 730. CONSOLIDATED RETURNS. [Added by Sec. 201, Second Rev. Act 1940 ; Amended by Sec. 7, Excess Profits Tax Amendments 1941, AND BY Sec. 225(a) , Rev. Act 1942 ; Not Applicable to Taxable Yeaks Under These Regulations (Sec. 225(a), Rev. Act- 1942).] . SEC. 731. CORPORATIONS ENGAGED IN MINING OP STRATEGIC MINERALS. [Added by Seo. 201, Second Rev. Act 1940 ; Amended by Seo. 204, Rev. Act 1941, and by Seo. 226, Rev. Act 1942.] In the case of any domestic corporation engaged in the mining of^ antimony, chromite, manganese, niclcel, platinum, quicksilver, sheet mica, tantalum, tin, tungsten, or vanadium, the portion of the adjusted excess profits net income attributable' to such mining in the United States shall be exempt from the tax imposed by this subchapter. The tax on the remaining portion of such adjusted excess profits net income shall be an amount which bears tie same ratio to the tax computed with- out regard to this section as such remaining portion bears to the entire adjusted excess profits net income. Sec. 35.731-1 Coepokations Which Mine Strategic Minerals. — (a) In case a domestic corporation is engaged in mining tungsten, quicksilver,- manganese, platinum, antimony, chromite, tin, nickel, 181 sheet mica, tantalum, or vanadium (all of which minerals are herein- after referred to as strategic minerals) , within the United States, the portion of its adjusted excess profits net income attributable to such mining is exempt from excess profits tax. The excess profits tax on the remaining portion of such adjusted excess profits net income is an amount which bears the same ratio to the excess profits tax computed without regard to section 731 as such remaining portion bears to the entire adjusted excess profits net income. The excess profits tax shall be the lesser of (1) an amount equal to 90 percent of the adjusted excess profits net income (section 710(a) (1) (A) ) , or (2) an amount which when added to the sum of the normal tax and surtax for the taxable year equals 80 percent of the corpora- tion surtax net income computed under section 15(a) but without regard to the credit under section 26(e) for income subject to excess profits tax (section 710(a) (1) (B)). If the excess profits tax computed without regard to section 731 is determined under section 710(a) (1) (B) and clause (2) of this paragraph, the nor- maLtax and surtax for such purposes shall be determined by using as the credit under section 26(e) in computing normal tax net income and corporation surtax net income the amount of which the tax computed pursuant to s'ection 710(a) (1) (A) and under section 731 upon the adjusted excess profits net income other than from mining strategic minerals is 90 percent. (&) The portion of the ad justed, excess profits net income attribut- able to mining of strategic minerals is an amount which bears the same ratio to the total adjusted excess profits net income as the portion of the excess profits net income attributable to such mining bears to the total excess profits net income. For any taxable year, the portion of the excess profits net income attributable to such mining is the gross income derived from strategic minerals and arising out of operations which give rise to "gross income from the property," as defined in section 29.23 (m)-l(/) of Eegulations 111, less the sum of (1) allow- able deductions which are directly attributable to such mining for such year, (2) any adjustments made under the provisions of section 711 applicable to such year involving items directly attributable to such mining, and (3) an allocable portion of any deductions partly attributable to such mining and of any adjustments under the pro- visions of section 711 applicable to such year involving items partly attributable to such mining. (o) There shall be attached to and made a part of the return of any taxpayer claiming the Jbenefits under section 731 a schedule con- taining the following information : 182 (1) The amount of gross income from the mining of strategic minerals and from each other activity of the corporation ; (2) The allowable deductions and the adjustments upder section 711 directly attributable to such mining ; and (3) The portion of the allowable deductions and of the adjustments under section 711 allocated to such mining and the basis for such allocation. The following example illustrates the computation of the tax in the case of a corporation entitled to the benefits of section 731: . Example. The M Corporation, a doniestic corporation which makes its return on a calendar year basis, mines both gold and platinum (a by-product of gold) and reduces the ores containing such metals. For 1942, the corporation has an excess profits credit of $40,000. Also for 1942 the excess profits net income of the M Corporation attributable to platinum mining is $40,000; that attributable to other activities is $180,000. The normal tax net income and corporation surtax net in- come computed without regard to the credit under section 26(e) for income subject to excess profits tax is $200,000. The excess profits tax is $112,314.05, computed as follows: 1. Total excess profits net income $220, 000. 00 2. Less specific exemption $5, 000. 00 3. Excess profits credit 40, 000. 00 4. Item 2 plus Item 3 45, 000. 00 5. Adjusted excess profits net Income 175, 000. 00 6. Less portion attributable to platinum mining ( ' of $175,000) 31, 818. 18 7. Eemaining portion of adjusted excess profits net income 143, 181. 82 8. Excess profits tax on adjusted excess profits net Income com- puted without regard to section 731 (90 percent of item 5)__ 157,500:00 9. Excess profits tax pursuant to section 710(a) (1) (A) under section 731 on .item 7, 1. e., portion of item 8 which bears the same ratio to $157,500 (item 8) as portion of adjusted excess profits net Income not attributable to platinum mining (item 7) bears to total adjusted excess profits net income (item 5) ( 175000 °* $157,500) (viz, 90 percent of item 7)— 128, 863. 64 10. Corporation surtax net income computed without credit under section 26(e) for Income subject to excess profits tax 200, 000. 00 11. 80 percent of item 10 160, 000. 00 12. Total normal tax and surtax (item 19) 22,727.27 13. Item 11 minus item 12 137, 272. 73 183 14. Excess profits tax pursuant to section 710(a)(1)(B) under section 731 on item 7, i. e., portion of item 13 which bears the same ratio to $137,272.73 (item 13) as portion of adjusted excess profits net income not attributable to platinum mining (item 7) bears to total adjusted excess profits net income 175 000 "^ $137,272.73) $112,314.05 15. Excess profits tax under section 731 on portion of adjusted excess profits net income not attributable to platinum mining (item 7) (item 9 or item 14, whichever is the lesser) 112, 314. 05 Normal taw and surtax 16. Normal tax net income and corporation surtax income com- puted without regard to credit under section 26(e) for income subject to excess profits tax $200, 000. 00 17. Less credit under section 26(e) for Income subject to excess profits tax (an amount of which the excess profits tax under section. 731 computed without regard to section 710(a) (1) (B) is 90 percent, i. e., an amount of which $128,863.64 (item 9) Is 90 percent (viz, item 7) 143,181.82 18. Normal tax net income and corporation surtax net income 56, 818. 18 19. Total normal tax and surtax (40 percent of item 18) 22, 727.27 SEC. 732. REVIEW OF ABNORMALITIES BY BOARD OP TAX AP- PEALS. [IAdded bt Sec. 9, Excess Pkofits Tax Amendments 1941 ; AMEWDiaj BY Seo. 222(c), Rev. Act 1942.] (a) Petition to the Boabd. — If a claim for refund of tax under this subchapter for any taxable year is disallowed in whole or in part by the Commissioner, and, the disallowance relates to the application of section 711(b)(1) (H), (I), (J), or (K), section 721, or section 722, relating to abnormalities, the Commissioner shall send notice of such disallowance to the taxjmyer by registered mail. Within ninety days after such notice is mailed (not counting Sunday or a legal holiday In the District of Columbia as the ninetieth day) the taxpayer may file a petition with the Board of Tax Appeals, for a redetermination of the tax under this subchapter. If such petition is so filed, such notice of disallowance shall be deemed to be a notice of deficiency for all pur- poses relating to the assessement and collection of taxes or the refund or credit of overpayments. (b) Deficiency Found by Board in Case op Claim. — If the Board finds that there is no overpayment of tax in respect of any taxable year in respect of which the Commissioner has disallowed, in whole or in part, a claim for refund described in subsection (a) and the Board further finds that there is a deficiency for such year, the Board shall have jurisdiction to determine the amount of such deficiency and such amount shall, when the decision of the Board becomes final, be assessed and shall be paid upon notice and demand from the collector. (c) Finality of Deteemination. — If in the determination of the tax liability under this subchapter the determination of any question is necessary solely by reason of section 711(b)(1) (H), (I),_(J), or (K), 184 section 721, or section 722, the determination of sucli question shall not ^ be reviewed or redetermined by any court or agency except the Board, (d) Review by Speciai. Division of Boabd. — The determinations and redeterminations by any division of the Board involving any question arising under section 721(a) (2) (C) or section 722 shall be reviewed by a special division of the Board which shall be constituted by the Chair- man and consist of not less than three members of the Board. The decisions of such special division shall not be reviewable by the Board, and shall be deemed decisions of the Board. SEC. 504. CHANGE OF NAME OF BOARD OF TAX APPEALS. (Revenue Act of 1942, Tttle V.) (c) References. — All references In any statute (except this section), or in any rule, regulation, or order, to the "Board of Tax Appeals" or to the "Board" when used In the sense of "Board of Tax Appeals", or t.0 the "member", "members", or "chairman" thereof shall be considered to be made to The Tax Court of the United States, the judge, judges, and presiding judge thereof, respectively. Sec. 35.732-1 Review of Abnormalities bt The Tax Coitet of THE United States. — Section 732 provides that, in addition to its jurisdiction to redetermine a deficiency, The Tax Court of the United States shall have jurisdiction to review the Commissioner's disallow- ance of a claim for refund of excess profits taxes, if such disallowance involves the determination of any question relating solely to the ap- plication of section 711(b) (1) (H), (I), (J), or (K), relating to ab- normal deductions during the base period, section 721, relating to ab- normalities in income in the taxable period, or section 722, relating to general relief from excessive and discriminatory excess profits taxes. The taxpayer's petition must be filed with The Tax Court within 90 days (not counting Sunday or a legal holiday in the District of Co- lumbia as the ninetieth day) after the sending by registered mail of the notice of disallowance of the claim for refund. , Where the tax,payer has filed such a petition the notice of disal- lowance of its claim for refund is considered to be a notice of de- ficiency for all purposes relating to the assessment and collection of taxes or the refund or credit of overpayments. If The Tax Court finds that there has been no overpayment of tax with respect to the tax- able year involved, and further finds that there is a deficiency for such year. The Tax Court will determine the amount of such deficiency and such amount shall, when the decision of The Tax Court becomes final, be assessed and paid upon notice and demand from the collector. The extent and the finality of The Tax Court's jurisdiction with respect to questions involving the sections dealing with abnormalities and general excess profits tax relief are set forth in section 732 (c) and (d). If the ascertainment of the excess profits tax liability for a taxable year is dependent in whole or in part upon the determination of any question which is necessary solely by reason of section 185 Yll(b) (1) (H), (I)^ (J), or (K), section 721, or section 722, the de- termination of such question shall not be reyiewedi or redetermined by any court or agency except The Tax Court. If the determinations and redeterminations by any division of The Tax .Court involve any question arising under section 721(a) (2) (C) or section 722, such de-- terminations and redeterminations shall be reviewed by a special division of The Tax Court which shall be constituted by the presiding judge and shall consist of not less than three judges of The Tax Court. The decisions of such special division shall not be reviewable by The Tax Court, or by any court or agency, and shall be deemed decisions of The Tax Court. The application of section 732 (c) and (d) may be shown by the following example : , • Example. A taxpayer, which is a domestic manufacturing cor- poration, has filed a claim for refund for a taxable year beginning in 1942, and as a result of the Commissioner's action with respect to such claim, makes the following contentions : first, that it is entitled to a constructive average base period net income of $1,300,000 pursuant to an application filed on Form 991 for relief under section 722 in- stead of a constructive average base period net income of $900,000 de- termined by the Commissioner; second, that $100,000 of income from a judgment based upon a claim for patent infringement is net ab- normal income attributable under section 721 to prior years whereas the Commissioner has attributed only $60,000 to such years ; and third, that the amount, of gross income determined by the Commissioner is too large. Since the taxpayer's first contention is predicated upon an issue arising under section '722, the Comrnissioner's determination is reviewable only by The Tax Court, and any determination or redeter- mination made by any division of The Tax Court must be reviewed by the special division constituted by the presiding judge; the decision of such special division is the decision of The Tax Court and cannot be reviewed by The Tax Cou^t or any court or agency. The taxpay- er's second contention is based upon an issue arising under section 721 ; therefore the Commissioner's determination is reviewable only by The Tax Court. Since the issue arises under section 721 (a) (2) (A) , and not section 721(a) (2) (C), no further review is required by the special division, and the decision of The Tax Court is final and can- not be reviewed by any court or agency. The taxpayer's third con- tention does not arise under either section 711(b) (1) (H), (I), (J), or (K), section 721, or section 722, but independently of such sections. Consequently review of this issue is not confined to The Tax Court. SBC. 733. CAPITALIZATION OF ADVERTISING, ETC., EXPENDI- TURES. [Added eV Sec. 10, Excjess Profits Tax Amendments 1941.] (a) Election to Chaege to Capital Account. — For the purpose of computing the excess profits credit, a taxpayer may elect, within six 488313°— 43 13 188 months after the date prescribed by law for filing Its return for its first taxable year under this subchapter, to charge to capital account so much of the deductions for taxable years in its applicable base period on account of expenditures for advertising or the promotion of good will, as, under rules and regulations prescribed by the Commissioner with the approval of the Secretary, may be regarded as capital investments. Such election must be the same for all such taxable years, and must be for the total amount of such expenditures which may be so regarded as capital in- vestments. In computing the excess profits credit, no amount on account of such expenditures shall be charged to capital account : (1) For taxable years in the base period unless the election author- ized in subsection (a) is exercised, or (2) For any taxable year prior to the beginning of the base period, (b) ErFBCT OF Election. — If the taxpayer exercises the election au- thorized under subsection (a) — (1) The net income for each taxable year in the base period shall be considered to be the net income computed with such deductions disallowed, and such deductions shall not be considered eEs having diminished earnings and profits. This paragraph shall be retro- actively applied as if it were a part of the law applicable to each taxable year in the base period ; and (2) The treatment of such expenditures as deductions for a taxable year in the base period shall, for the purposes of section 734(b) (2), be considered treatment which was not correct under the law appli- cable to such year. Sec. ^5.733-1 Scope of Election to Charge to Capital Account Expenditures foe Advertising or the Promotion of Good Will. — Any taxpayer may, for the purpose of computing its excess profits credit under either the income or the invested capital method, elect to charge to capital account any deductions based upon, expenditures for taxable years in its base period on account of advertising or the promotion of good will, to the extent that such expenditures may be regarded as capital investments under the regulations prescribed under section 733. Section 733 provides for an election with refer- ence only to deductions for such expenditures for taxable years in the base period. In order to secure the benefits of that section an election must be made by the taxpayer within six months after the date prescribed by law for filing its return for its first excess profits tax taxable year under Subchapter E of Chapter 2. The election imder section 733 is an election to capitalize all the expenditures in each taxable year in the taxpayer's base period which were for advertising or the promotion of good will and which may be regarded as capital investments under the regulations pre- scribed under section 733. A taxpayer may not capitalize such expeditures for one base period taxable year and treat as a deduction such expenditures with respect to another base period taxable year. No such expenditures for any taxable year beginning prior to the taxpayer's base period may be charged to capital account. A tax- 187 payer which has failed to make an election under section 733 is not permitted, in computing its excess profits credit, to charge to capital account base period expenditures for advertising or the promotion of • good will which have been deducted for taxable years in such period. Seo. 35.733-2. Expenditures Which Mat be Keg^rded as Capital Investments. — 'An expenditure for advertising or the promotion of good will may be regarded as a capital investment if, upon considera- tion of all the facts and circumstances of the' particular case, it may be regarded as made .for the purpose of increasing the taxpayer's earning capacity over a substantial period subsequent to the taxable year in which such expenditure was made. The fact that a cor- poration failed, because of operating losses, to receive any benefits with respect to its income tax liability from deductions on account of expenditures is not evidence that such expenditures may be regarded as capital investments. ' In addition to those expenditures for capital items including good will which, under the provisions of section 24, may not be allowed as deductions, the following expenditures may in any case be regarded as capital investments within the contemplation of section 733 : « (a) All advertising expenditures to promote a taxpayer's busi- ness in a territory new to such taxpayer, or to promote a new product, department, trade mark, ti-ade brand, or trade name of such taxpayer, for the first 12 months after the taxpayer has begun to develop such new territory, or to promote such new product, department, trade mark, trade brand, or trade name. A new product within the meaning of this section does not in- clude any product which is merely an improvement of an earlier product. (6) All advertising expenditures for the taxable year to the extent that such expenditures exceed the taxpayer's average an- nual expenditures on account of advertising for the 48 months preceding the taxable year, or, if the taxpayer was not in exist- ence during the whole of such 48-month period, then for the period during which the taxpayer was in existence. Every item classifiable under this section as a capital investment constitutes a permanent asset of the taxpayer's business, and no deduction for depreciation will be allowed in respect of such an item. A taxpayer which has made the election under section 733 may not deduct for any excess profits tax taxable year expenditures made in such year similar to expenditures made during its base period for advertising or the promotion of good will which are treated under section 733 for the purposes of its excess profits credit as capital investments. Such a taxpayer has the burden of proving that ex- penditures for advertising or the promotion of good will which it 188 seeks to deduct for such excess profits tax taxable year may not be regarded as capital investments under the provisions of this section. The taxpayer shall submit with its excess profits tax return a state- ment containing complete information with respect to aU expenditures for advertising or the promotion of good will made during its excess profits tax taxable year, classified as to those which are deductible and those which may be regarded as capital investments under section 733. The statement -filed with the return shall also set forth whether such expenditures were extraordinary in nature or amount and the purpose for which they were made. Sec. 35.733-3 Eitect of Election. — Section 733 retroactively a,mends, for the purpose of determining the income tax liability and the excess profits credit of any taxpayer exercising an election under that section, the revenue laws applicable to each of such taxpayer's base period taxable years. Hence, the previous treatment as deduc- tions of expenditures made during the base period for advertising or the promotion of good will which may be regarded as capital invest- ments under the regulations prescribed under section 733 is an erroneous and inconsistent treatment. The normal-tax or special- class net income for each applicable base period taxable year must be recomputed with such expenditures disallowed as deductions, and both the excess profits net income for each such year and the earnings and profits account will be increased in the amount of such disallowed deductions. The disallowance of deductions in the base period made necessary by this section requires a redetermination of the income tax liability for such years and any deficiencies in tax resulting from the dis- allowance of such deductions shall be assessed and collected under the internal revenue laws applicable with respect to the assessment and collection of deficiencies for such years. If, however, correction of the effect of the prior inconsistent treatment of such' items in the base period years is prevented, within the meaning of section 734 (b)(1)(C), correction shall be made by means of an adjustment under section 734. Since the amount of such an adjustment under section 734 is a part of the excess profits tax, which applies only to taxable years beginning after December 31, 1939, it does not decrease earnings and profits or excess profits net income for any period before the begining of the taxpayer's first excess profits tax taxable year. In the case of a taxpayer electing under section 733, the provisions of section 711(b) (1) (J), relating to abnormal deductions in the base period, do not affect deductions for expenditures for advertising or the promotion of good will which may be regarded as capital invest- ments, since, in such a case, section 733 effects a disallowance of such 189 deductions for income tax purposes before any of the adjustments under section 711(b)(1) are operative. SBC. 734. ADJUSTMENT IN CASE OF POSITION INCONSISTENT WITH PRICE INCOME TAX LIABILITY. [Added by Sec. 11, Excess Promts Tax Amendments 1941 ; Amended by Sec. 227, Eev. Act 1942.] (a) Definitions. — For the purposes of this section — (1) Taxpayer.— The term "taxpayer" means any person subject to a tax under the applicable revenue Act. (2) Income tax. — The term "income tax" means an income tax Imposed by Chapter 1 or Chapter 2A of this title ; Title I and Title lA of the Revenue Acts of 1933, 1936, and 1934 ; Title I of the Rev- enue Acts of 1932 and 1928; Title II of the Revenue Acts of 1S26 and 1924;' Title II of the Revenue Acts of 1921 and 1918: Title I of the Revenue Act of 1917; Title I of the Revenue Act of 1916; or section II of the Act of October 3, 1913 ; a vcar profits or excess profits tax imposed by Title III of the Revenue Acts of 1921 and 1918 ; or Title II of the Revenue Act of 1917 ; or an income, war profits, or excess profits tax imposed by any of the foregoing provisions, as amended or supplemented. (3) Prior taxable year. — ^A taxable year begining after Decem- ber 31, 1939, shall not be considered a prior taxable year. (4) The term "predecessor of the taxpayer'' means — (A) A person vrhich is a component corporation of the . taxpayer within the meaning of section 740 ; and i (B) A person which on April 1, 1941, or at any time there- after, controlled the taxpayer. The term "controlled" as herein used shall have the same meaning, as "control" under section 112(h), and (C) Any person in an unbroken series ending with the taxpayer if subparagraph (A) or (B) would apply to the relationship between the parties. (b) Circumstances of Adjustment. — (1)' If— (A) in determining at any time the tax of a taxpayer under this subchapter an item affecting the determination of the ex- cess profits credit is treated in a manner inconsistent with the treatment accorded such item in the determination of the income-tax liability of such taxpayer or a predecessor for a prior taxable year or years, and (B) the treatment of such item in the prior taxable year or .years consistently with the determination under this sub- chapter would effect an increase or decrease in the amount of the income taxes previously determined for such taxable year or years, and (C) on the date of such determination of the tax under this subchapter correction of the effect of the inconsistent treat- ment in any one or more of the prior taxable years is prevented (except for the provisions of section 3801) by the operation of any law or rule of law (other than section 3761, relating to compromises), 100 then the correction ehall be made by an adjustment under this Bectlon. If In a subsequent determination of the tax under thia subchapter for such taxable year such inconsistent treatment la not adopted, then the correction shall not be made in connection with such subsequent determination. (2) Such adjustment shall be made only it there is adopted in the determination a position maintained by the Commissioner (in case the net effect of the adjustment would be a decrease in the income taxes previously determined for such year or years) or by the taxpayer with respect to whom the determination is made (In case the net effect of the adjustment would be an in- crease in the income taxes previously determined for such year or years) which position is Inconsistent with the treatment accorded such item In the prior taxable year or years which was not correct under the law applicable to such year. ^ (3) Bleden or proof. — In any proceeding before the Board or any court the burden of proof in establishing that an inconsistent posi- tion has been taken (A) shall be upon the Commissioner, in case the net effect of the adjustment would be an increase In the Income taxes previously determined for the prior taxable year or years, or~ (B) shall be upon the taxpayer, in case the net effect of the adjust- ment would be a decrease in the income taxes previously deter- mined for the prior taxable year or years. (c) JlETHOD AND Bffbxjt OF ADJUSTMENT. — (1) The adjustment au- thorized by subsection (b), in the amount ascertained as provided in subsection (d), if a net increase shall be added to, and if a net decrease shall be subtracted from, the tax otherwise computed under this subchapter for the taxable year with respect to which such incon- sistent position is adopted. (2) If more than one adjustment under this section is made because more than one inconsistent position is adopted vyith respect to one tax- able year under this subchapter, the separate adjustments, each an amount ascertained as provided in subsection (d), shall be aggregated, and the aggregate net increase or decrease shall be added to or sub- tracted from the tax otherwise computed under this subchapter for the taxable year with respect to which such inconsistent positions are adopted. (3) If all the adjustments under this section, made on account of the adoption of an inconsistent position or positions with respect to one taxable year under this subchapter, result in an aggregate net increase, the tax imposed by this subchapter shall In no case be less than the amount of such aggregate net increase. (4) If all the adjustments under this section, made on account of the adoption of an inconsistent position or positions with respect to a tax- able year under this subchapter (hereinafter in this paragraph called the current taxable year), result In an aggregate net decrease, and the amovint of such decrease exceeds the tax imposed by this subchapter (without regard to the provisions of this section) for the current taxable year, such excess shall be subtracted from the tax Imposed by this sub- chapter for each succeeding taxable year, but the amount of the excess to be so subtracted shall be reduced by the reduction in tax for inter- vening taxable years which has resulted from the subtraction of such excess from the tax Imposed for each such year. 191 (d) ASCEBTAINMEHT OF AMOUNT OF ADJUSTMENT. — In Computing the amount of an adjustment under this section there shall first be ascertained the amount of the Income taxes previously determined for each of the prior taxable years for which correction is prevented. The amount of each such tax previously determined for each such taxable year shall be (1) the tax shown by the taxpayer, or by the predecessor, upon the return for such prior taxable year, increased by the amounts previously assessed (or collected without assessment) as deficiencies, and decreased by the amounts previously abated, credited, refunded, or X otherwise repaid in respect of such tax; or (2) if no amount was shown as the tax by such taxpayer or such predecessor upon the return, or if no return was made by such taxpayer or such predecessor, then the amounts previously assessed (or collected without assessment) as . deficiencies, but such amounts previously assessed, or collected without assessment, shall be decreased by the amounts previously abated, credited, refunded, or Otherwise repaid in respect of such tax. There shall then be ascertained the increase or decrease in each such tax previously determined for each such year which results solely from the treatment of the item consistently with the treatment accorded such Item in the determination of the tax liability under this subchapter. To the increase or decrease so ascertained for each such tax for each such year there shall be added interest thereon computed as if the Increase or decrease constituted a deficiency or an overpayment, as the case may be, for such prior taxable year. Such interest shall be com- puted to the fifteenth day. of the third month following the close of the excess profits tax taxable year with respect to which the determination is made. There shall be ascertained the difference between the aggre- gate of such increases, plus the interest attributable to each, and the aggregate of such decreases, plus the interest attributable to each, and the net increase or decrease so ascertained shall be the amount of the adjust- ment under this section with respect to the inconsistent treatment of such Item. (e) INTEEEST IN CASE OF NET InOEEASE OB DeCEEASB. — (1) If an adjustment under this section results in a net decrease, 'or more than one adjustment results in an aggregate net decrease, the portion of such net decrease or aggregate net decrease, as the case may be, subtracted from the tax which represents interest shall he included in gross income of the taxable year in -which falls the date prescribed for the payment of the tax under this sub- chapter. (2) If an adjustment under this section results in a net increase, or more than one adjustment results In an aggregate net increase, the portion of such net increase or- aggregate net increase, as the case may be,, which represents interest shall be allowed as a de- duction in computing net income for the taxable year in which falls the date prescribed for the payment of the tax under this subchapter. Sec. 35.734^1 Ptjepose and Scope of Section 734. — (a) General. — Section 734 provides for an adjustment if a determination of a tax- payer's excess profits tax liability treats an item or transaction affect- ing the excess profits credit inconsistently with the treatment of such 192 item or transaction in the determination of the income tax liability of the taxpayer, or a predecessor, for a prior taxable year or years. The adjustment is not authorized unless (1) the treatment of the item or transaction for prior taxable years was incorrect under the law ap- plicable to such years, (2) a correction of the effect of such erroneous treatment for one or more of the prior taxable years is prevented by the operation of a provision or rule of law, and (3) the inconsistent position adopted in the determination is asserted and maintained by the party (either the Commissioner or the taxpayer) who would be adversely affected by the adjustment. (6) Defkdtions. — When used in sections 35.734-1 to 35.734-4, inclusive — (1) The terms "taxpayer," "inconie tax," and "prior taxable year " shall have the meaning assigned to such terms by section 734(a). As to what constitutes a taxable year, see section 48(a). (2) The term "predecessor of the taxpayer" shall have the meaning assigned to such term by section 734(a) (4) . It is specif- ically provided that the term "controlled" as used in such definition shall have the same meaning as "control" under the definition contained in section 112(h). Accordingly, a person is a predeces- sor of the taxpayer if, on April 1, 1941, or at any time thereafter, such person owned stock possessing at least 80 percent, of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the taxpayer. For the purpose of section 734 it is immaterial that such control did not exist during the taxable year in respect of which the incorrect treatment of the item or transaction occurred, or during the taxable year in respect of which the inconsistent position is adopted in the determination of the excess profits credit of the taxpayer. Any person which is a component corporation of the taxpayer under the definition contained in section 740 is a predecessor of the taxpayer within the meaning of section 734. Such person may be a corporation, partnership, or a sole proprietor. Any such component corporation is a predecessor of the taxpayer irrespec- tive of the method employed in computing the excess profits credit of the taxpayer. Under the terms of the definition, any person which is a prede- cessor of a predecessor in an unbroken series ending with the tax- payer is a predecessor of the taxpayer within the meaning of section 734. The limitation of the term ^predecessor of the taxpayer" to cer- tain cases, and the resulting exclusion qf other cases, should not be construed to affect the established judicial doctrines commonly 193 known as estoppel, recoupment, set-off, etc., which may be applied ' by the courts in appropriate cases. Sec. 35.734r-2 Circumstances of Adjustment. — (a) Determina- tion. — A final determination of the excess profits tax liability is not a prerequisite to an adjustment under section 734. When- ever there is a determination of the excess profits tax liability and the conditions prescribed in section 734(b) are satisfied, the adjustment is authorized as an essential part of the determination of such tax lia- bility. For example, tlie making of the excess profits tax return re- quired by section 729 or section 141 is a determination by the taxpayer ; the assertion of & deficiency or the allowance or disallowance of a claim for refund is a determination bj the Commissioner; and a decision by The Tax Court of the United States or a court is a deter- mination by such Tax Court or court. If any such determination be- comes final, the adjustment also becomes final. If, following a deter- mination, there are further proceedings in the case and a subsequent determination which does not adopt the inconsistent treatment of the item or transaction, then no adjustment is authorized as a part of such subsequent determination. (6) Correction under ordinary procedure prevented. — Aii adjust- ment is authorized only if, on the date of the determination of the excess profits tax liability, correction of the effect of the inconsistent treatment for one or more of the prior taxable years is prevented (ex- cept for the provisions of section 3801, relating to mitigation of effect of limitations and other provisions in income tax cases) by the opera,- tion, whether before, on, or after the date of enactment qf section 734, of any provision of law (other than section 3761, relating to compro- mises) or rule of law. Such provisions or rules of law include, for example, statutes of limitations and res judicata. The ascertainment of whether correction of the effect of the incon- sistent treatment is prevented within the meaning of section 734(b) (1) (C) and this section must be riiade with respect to each in- come tax for each prior taxable, year affected by the- erroneous treat- ment of the item or transaction. Section 734 is not applicable in re- spect of any income tax for any prior taxable year if, on the date of the determination of the excess profits tax liability, correction of the effect of the erroneous treatment of the item is possible under the ordinary procedure applicable to the assessment and collection of deficiencies or the refund or credit of overpayments, as the case may be, in respect of such tax for such taxable year. See the example under section 35.734-4. If correction of the effect of the erroneous treatment of the item or transaction with respect to an income fax for a prior taxable year is otherwise prevented, the application of section 734 is not precluded by 194 the fact that the tax for such year may, under appropriate circum- stances, be open to an adjustment under section 3801. If any income tax liability for a prior taxable year has been com- promised under section 3761, no adjustment may be made under section 734 with respect to the tax liability compromised. (e) Operation defendent upon maintenance of inconsistent posi- tion. — An adjustment, with respect to an item or transaction, which would result 4n a net increase in the amount of the income taxes pre- viously determined for prior taxable years is authorized only if (1) the taxpayer with respect to which the determination is made has, in connection with an item or transaction affecting the determination of its excess profits credit, maintained a position which is inconsistent with the erroneous treatment of such item or transaction for prior taxable years, and (2) such inconsistent position is adopted in the determination. An adjustment, with respect to an item or transaction, which would result in a net decrease in the amount of the incorne taxes previously determined for prior taxable years is authorized only if (1) the Com- missioner, in connection with an item or transaction affecting the de- termination of the taxpayer's excess profits credit, has maintained a position which is inconsistent with the erroneous treatment of such item or transaction for prior taxable years, and (2) sucli inconsistent position is adopted in the determination. Neither the Commissioner nor the taxpayer is required to adopt an inconsistent position with respect to the treatment of an item or trans- action in the determination of the excess profits credit because of the fact that such item or transaction was incorrectly treated in the de- termination of the income tax liability of the taxpayer, or a prede- cessor, for a prior taxable year or years, under the law applicable to such year or years. Such item or transaction may, in the determination of the excess profits credit, be treated in a manner consistent with the incorrect treatment accorded in the determination of the income tax liability if neither the Commissioner nor the taxpayer objects. Either the Commissioner or the taxpayer, however, may insist upon the cor- rect treatment of such item or transaction in the determination of the excess profits credit under the law applicable to the excess profits tax taxable year, but such action constitutes the maintenance of an in- consistent position and will result in an adjustment under section 734, if the party insisting upon such treatment is the party who would be adversely' affected by such adjustment. A taxpayer which has taken an inconsistent position with respect to an item or transaction affecting the determination of its excess profits credit may, upon notice to the Commissioner in writing, with- draw from such position. 195 Inconsistent treatment within the meaning of section 734 may relate to the principle or rule of law applied in determining the taxable status of an item or transaction, or it may relate only to the amount of the item or transaction which is to be taken into account for tax purposes. The inconsistency is to be ascertained by reference to the actual treat- ment of the item or transaction for prior taxable years rather than to what the taxpayer or the Commissioner may have urged. If a determination of the excess profits tax liability for one taxable year adopts with respect to an item or transaction an inconsistent position which results in an adjustment under section 734j similar treatment of the same item or transaction for subsequent excess profits tax taxable years, does not authorize a further adjustment under such section. (d) Law applicable in determination of error. — ^Whether there was an erroneous treatment of, the item or transaction for prior taxable years is to be determined under the provisions of the internal revenue laws applicable with respect to such years. If the inconsistent treat- ment adopted in the determination of the excess profits tax liability is based upon an authoritative judicial interpretation of the applicable revenue law which differs from the interpretation of such law accepted in the determination of the tax liability for such prior years, then the treatment accorded the item or transaction for such prior years is erroneous within the meaning of section 734. Section 734 does not authorize an adjustment if the difference between the treatment accorded an item or transaction in computing the excess profits credit and the treatment accorded such item or transaction in computing the tax liability for prior taxable years is occasioned solely by reason of an adjustment required by a specific provision of the Act, such as the adjustments required by section 711(b) to normal-tax jiet inconie and special-class net income in computing excess profits net income. Since the disallowances under section 733 of deductions on account of expenditures for advertising or the promotion of good will are not required by the Act but are merely permissive at the election of the taxpayer, and since section 733 specifically provides that, if an election is made, the treatment of such expenditures as deductions for prior taxable years shall be considered incorrect, an adjustment under section 734 may be authorized in the case of such a disallowance. The rule relative to the burden of proof to establish, in any Tax Court or court proceeding, that an inconsistent position has been taken, is prescribed in section '734(b) (3). If the net effect of the adjustment by reason of the alleged inconsistency would be an increase in the income taxes previously determined for the prior taxable year or years, the burden of proof is upon the Commissioner. If the net 196 effect of such adjustment would be a decrease in the income taxes previously determined for the prior taxable year or years, the burden of proof is upon the taxpayer. Inasmuch as the adjustment under section 734 is a factor in the determination of the excess profits tax liability, the provisions relative to the burden of proof in a Tax Court or court proceeding do not relieve the taxpayer from responsibility for a full disclosure of the facts necessary to the correct determination of the tax liability. Sec. 35.734-3 Method and Eitect or Adjustment. — The adjust- ment authorized by section 734, although measured by reference to the income taxes previously determined for prior taxable years, does not operate as an adjustment to the income tax liability for such years, but the amount of such adjustment is added to or subtracted from, as the case may be, the excess profits tax otherwise computed for the taxable year with respect to which the inconsistent position is adopted. No adjustment with respect to an item or transaction is authorized unless the inconsistent position adopted in the determination is main- tained by the party who would be adversely affected by such adjust- ment. See section 35.734-2 (c). Accordingly, if a determination for one taxable year adopts inconsistent positions with respect to several items or transactions, it is necessary to make separate and distinct computations with respect to each such item or transaction in order to ascertain the amount of the potential adjustment with respect to each such item or transaction and whether an adjustment with respect to such item or transaction is authorized. If several adjustments are authorized with respect to one excess profits tax taxable year, the separate adjustments are aggregated and the aggregate net increase or net decrease is added to, or subtracted from, as the case may be, the excess profits tax otherwise computed for such taxable year. In ascertaining the amount of the adjustment with respect to a particular item or transaction, no effect shall be given to the computations made for the purpose of determining the amount of the adjustment with respect to any other item or transaction. If^the several authorized adjustments result in an aggregate net increase, the excess profits tax liability for such taxable year shall not in any case be less than the amount of sucli aggregate net increase. If the authorized adjustments with respect to one excess profits tax taxable year result in an aggregate net decrease and the amount of such decrease exceeds the excess profits tax (computed without regard to the provisions of section 734) for such year, the excess may be carried over and subtracted from the excess profits tax in each succeed- ing taxable year until such excess is exhausted. If excesses result from adjustments with respect to two or more excess profits tax tax- 197 able years, such excesses shall be carried over in the order qf their occurrence. Example. 1942 1943 1944 1946 1946 1047 Tax (computed without regard to provi- sions of section 734) $10,000 (40, 000) $20, 000 $16,000 (20.000) $7,000 $3,000 $8,000 Excess _.__ (30,000) (6,000) {a) The $30,000 excess from 1942 will be subtracted from the tax of $20,000 for 1943 ; the remaining $10,000 will not be subtracted from any 1944 tax since such tax has been absorbed by the $20,000 net decrease for that year ; such remaining $10,000 will, however, be subtracted from the $7,000 tax for 1945, and the $3,000 tax for 1946. (&) The full $5,000 excess from 1944 will be subtracted from the tax of $8,000 for 1947, since the excess from 1942 has been exhausted in 1946 and the tax for 1946 has been reduced to zero. The amount of the credit for foreign taxes allowable under the provisions of section 729 shall be determined before giving effect to any adjustment under this section. Sec. 35.734^ Ascertainment of Amount of Adjustment. — To ascertain the amount of the adjustment, it is necessary to determine the amount of the increase or decrease in each income tax previously de- termined for each of the prior taxable years which would have resulted if the item or transaction erroneously treated had received the correct treatment under the law applicable with respect to such tax for such year. To each such increase or decrease there shall be added interest thereon computed as if the increase or decrease constituted a deficiency or an overpayment, as the case may be, with respect to such tax for such year. In all such cases interest shall be computed to the 15th- day of the third month following the close of the excess profits tax taxable year with respect to which the determination of the excess profits tax liability is made. If only one income tax for one prior taxable year is involved, the increase or decrease in such tax for such year plus the interest thereon is the amount of the adjustment with reSpect to the particular item or transaction. If two or more income taxes for one prior taxable year, or two or more prior taxable years are involved, it is necessary to determine the increase or decrease in each income tax previously determined for each such year, plus the interest on each such increase or decrease. The diflEerence between the sum of the increases, including the interest thereon, and the sum of the decreases, including the interest thereon, 198 shall be ascertained and the net increase or net decrease so determined is the amount of the adjustment with respect to. the particular item or transaction. The computation to determine the increase or decrease in each in- come tax for each year shall be made as follows : (a) The amount of the tax previously determined must first be ascertained. This may be the amount of tax shown on the taxpayer's leturn, but if any changes in that amount have been made they must be taken into account, including any adjustment previously made under the provisions of section 820 of the Eevenue Act of 1938 or section 3801 of the Internal Eevenue Code. In such cases, the tax previously de- termined will be the tax shown on the return, increased by the amounts previously assessed (or collected without assessment) as deficiencies, and decreased by amounts previously abated, credited, refunded, or otherwise repaid in respect of such tax. If no amount was shown as the tax on the return, or if no return was made, the tax previously determined will be the sum of the amounts previously assessed (or col- lected without assessment) as deficiencies, decreased by the amounts previously abated, credited, refunded, or otherwise repaid in respect of such tax. (&) After the tax previously determined has been ascertained, a recomputation must be made to ascertain the increase or decrease in tax represented by the difference, if any, between the tax previously determined and the tax as recomputed upon the basis of the correct treatment of the item or transaction. With the exception of the items upon which the tax previously de- termined was based and the item or transaction with respect to which the erroneous treatment occurred, no item shall be considered in com- puting the amount of the increase or decrease in the tax previously determined. If the treatment of any item upon which the tax previ- ously determined was based, or if the application of any provisions of the internal revenue laws with respect to such tax depends upon the amount of income (e. g., charitable contributions, foreign tax credit, earned income credit) , readjustment of such items in conformity with the change in the amount of the income which results from the correct treatment of the item or transaction in respect of which the inconsistent position was adopted is necessary as part of the recomputation. Example. In December, 1934, the X Corporation in pursuance of a plan of reorganization transferred all of its assets except cash, to the Y Corporation in exchange for all of the stock of the Y Corporation, such stock having a fair market value of $300,000. The assets trans- ferred, consisting of real estate and securities, had an adjusted basis in the hands of the X Corporation of $400,000. Among such assets was a building, which was acquired by theX Corporation in 1924, and . 199 which had an adjusted basis in the hands of the X Corporation of $100,000 and an estimated remaining life of 20 years. The building had a fair market value of $80,000 at the time of the transfer. Both corporations make their returns oh the calendar year basis. The ex- change was treated as taxable and the loss of $100,000 realized by the X Corporation was recognized. For each of the years 1935 to 1941, inclusive, the. Y Corporation was allowed a deduction for depreciation in the amount of $4,000 computed on the cost basis of $80,000. In its excess profits tax return for the calendar year 1942, the Y Corporation claimed that the assets acquired from the X Corporation should have a basis of $400,000 for invested capital purposes, including a basis of $100,000 for the building, and claimed a deduction of $5,000 for de- preciation on the building for such y^ar. This position was based upon the contention that the 1934 exchange was a nontaxable reor- ganization, resulting from the acquisition by Y Corporation in ex- change solely for its voting stock of substantially all of the properties of X Corporation ; and that the basis in the hands of the Y Corporation of the assets acquired upon the exchange was the same as the adjusted basis in the hands of the transferor. Timely claims for refund based upon the allowance of additional deductions for depreciation for the taxable years 1939, 1940, and 1941 were filed. The statute of limita- tions prevents any refund of overpayments or assessm!ent of deficien- cies for the taxable years 1934 to 1938, inclusive. The Commissioner's determination of the excess profits tax liability for the calendar year 1942 adopts the inconsistent position asserted by the Y Corporation and, accordingly, if the computation under section 734(d) discloses a net increase in the taxes previously determined for the taxable years, for which correction is prevented, an adjustment is authorized, under the provisions of section 734. The X Corporation was not subject to the income tax imposed by Title lA of the Eevenue Act of 1934. Its tax previously determined for the taxable year 1934 is $4,125, computed upon an income of $30,- 000. The corporation omitted from its gross income an item of rental income amounting to $3,000 and neglected to take a deduction for interest amounting to $1,500. During the taxable year it realized a gain of $10,000 from the sale of a capital, asset. The increase in the tax of the X Corporation previously determined for 1934, plus the interest tiiereon, is .computed as follows : Tax previously determined for 1934 $4, 125 Net income for 1934 upon which tax previously determined was based 30, 000 Plus.: Capital loss previously allowed (limited to capital gain plus $2,000). 12, 000 Net income 42, 000 200 Tax as recomputed-- $5, 775 Tax previously determined , : 4, 125 Increase in tax previously determined 1, 650 Interest on increase in tax 792 Total increase for 1934 2, 442 In accordance with the provisions of section 734(d), the recomputa- tion does not take into consideration the item of $3,000, representing rental income which was omitted from gross income, or the item of $1,500, representing interest paid, for which no deduction was' allowed. The Y Corporation was not subject to the income tax imposed by Title lA of the Revenue Acts of 1934, 1936, or 1938. The decrease in the tax of the Y Corporation previously determined for each of the taxable years 1935, 1936, 1937, and 1938, which results solely from the allowance of an additional deduction of $1,000 for depreciation in each of such years, plus the interest on each such decrease, is assumed to be as follows: Year Tax Interest Total 1935 $137. £0 220.00 220 00 190.00 $£7.76 79.20 66. OO 45.60 $196. 26 1936 - 299.20 1937 - - 286.00 1938 235.60 The amount of the adjustment to be added to the excess profits tax of the Y Corporation otherwise determined for the taxable year 1942 is as follows : Increase for 1934 Less: Decrease for 1935 $195.25 Decrease for 1986 299. 20 Decrease for 1937 - 286. 00 Decrease for 1938 235. 60 $2. 442. 00 1, 016.05 Net increase (amount of adjustment authorized) 1,425.95 Sec. 35.734^5 Interest. — The portion of an adjustment under sec- tion 734 which represents interest is characterized as interest for certain tax purposes and is includible.in gross income, or allowable as a deduc- tion in computing net income, as the case may be, for the taxable year in which falls the date prescribed for the payment of the excess profits tax for the taxable year to which the adjustment or, in the case of an adjustment involving a carry-over, the portion of such adjustment is applied, regardless of the method of accounting employed by the taxpayer. The date prescribed for payment of the tax is, in the case of a domestic corporation, the 15th day of the third month following the 201 close of the taxable year and, in the case of a foreign corporation not having an office or place of business in the United States, the 15th day of the sixth month following the close of the taxable year. Under the rule prescribed, if the adjustments in respect of an excess profits tax taxable year result in a net increase, or an aggregate net increase, the portion of such increase which represents interest shall be allowed as a deduction in computing net income for the succeeding taxable year. Thus, under the facts set forth in the example contained in section 35.734^-4, the portion of the net increase which represents interest is $543.45 (interest on increases, $792, minus interest on de- creases, $248.55), and such interest is allowable as a deduction in com- puting net income for the calendar year 1943. If the adjustments in respect of an excess profits tax taxable year result in a net decrease,, or an aggregate net decrease, the interest con- tained in that portion of such decrease which is subtracted from the tax for any taxable year shall be included in the gross income for the suc- ceeding taxable year. For such purpose, no portion of the amount subtracted in any taxable year shall be deemed to represent interest until the portion of the net decrease which represents tax has been exhausted. Example. For the calendar year 1942, Corporation X had an excess profits tax liability of $9,000 (computed without regard to section 734) and an authorized adjustment under section 734 resulting in a net decrease of $12,000, of which $8,000 represents tax and $4,000 represents interest, In giving effect to the adjustment, $9,000 will be subtracted from the tax for 1942 and the balance will be carried over to succeeding taxable years. Since $8,000 of the net decrease represents tax, only $1,000 of the amount subtracted in 1942 represents interest and hence $1,000 will be included as interest in the taxpayer's gross income for 1943. The entire amount of the $3,000 to be carried over and sub- tracted from the tax for a succeeding taxable year represents interest, since the portion of the net decrease which represents tax is exhausted in 1942. SBC. 735. NONTAXABLE INCOME FROM CERTAIN MINING AND TIMBER OPERATIONS. [Added by Sec. 200(c) , Rev. Act 1942.] (a) Definitions. — For the purposes of. this section, section 711(a) (1) (I), and section 711(a) (2) (K) — '(1) PEODtTCEB. — The term "producer" means a corporation which extracts minerals from a mineral property, or cuts logs from a timber block, in which an economic interest is owned by such corporation. (2) MiNEKAi UNIT. — The term "mineral unit" means a unit of metal, coal, or nonmetallic substance in the minerals recovered from the operation of a mineral property. (3) Timber UNIT.^-The term "timber unit" means a unit of timber recovered from the operation of a timber block. 488313°— 43 14 202 (4) Excess output.— The term-"excess output" means the excess of the mineral units or the timber units for the taxable j^a.r over the normal output^ (5) NoBMAL OUTPUT. — The term "normal output" means the aver- age annual mineral units, or the average annual timber units, as the case may be, recovered in the taxable years beginning after December 31, 1935, and not beginning after December 31„ 1939 (hereinafter called "base period"), of the person owning the mineral property or the timber block (whether or not the taxpayer) . The average annual mineral units or timber units shall be computed by dividing the aggregate of such mineral units or timber units for the base period by the number of months for which the mineral property or the timber block Vas in operation during the base period and by multiply- ing the amount so ascertained by twelve. In any case in which the taxpayer establishes, under regulations prescribed by the Commis- sioner with the approval of the Secretary, that the operation of any mineral property or any timber block is normally prevented for a specified period each year by physical events outside the control of the taxpayer, the number of months during which such mineral property , or timber block is regularly in operation during a taxable year shall be used in computing the average annual mineral units, or timber units, instead of twelve. Any mineral property, or any timber block, which was in operation for less than six months during the base period shall, for the purposes of this section, be deemed not to have been in operation during the base period. (6) MiNERAi PROPERTY. — The term "mineral property" means a mineral deposit, the development and plant necessary for the ex- traction of the deposit, and so much of the surface of the land as is necessary for purposes of such extraction. t. (7) Minerals. — The term "minerals" means ores of the metals,, cdal, and such nonmetallic substances as abrasives, asbestos, asphaltum, barytes, borax, building stone, cement rock, clay, crushed stone, feldspar, fluorspar, fuller's earth, graphite, gravel, gypsum, limestone, magnesite, marl, mica, mineral pigments, peat, - potash, precious stones, refractories, rock phosphate, salt, sand, silica, slate, soapstone, soda, sulphur, and talc. (8) Timber block. — The term "timber block" means an operation unit existing as of December 31, 1941, which includes all the tax- payer's timber which wotld logically go to a single given point of manufacture, but shall not Include any operation unit acquired after . December 31, 1941. (9) Normal unit profit. — ^The term "normal unit profit" means the average profit for the base period per mineral unit for such period, determined by dividing the net income with respect to minerals recovered from the mineral property (computed with the allowance for depletion computed In accordance with the basis for depletion applicable to the current taxable year) during the base period by the number of mineral units recovered from the mineral property during the base period. (10) Estimated recoverable units. — The term "estimated re- coverable units" means the estimated number of units of metal, coal, or nonmetallic substances in the estimated recoverable minerals from the mineral prop^-ty at the end of the taxable year plus the 203 ' excess output for such year. All estimates shall be subject to the approval of the Commissioner, the determinations of whoiu, for the purposes of this section, shall be final and conclusive. (11) Exempt excess output. — The term "exempt excess output" for any taxable year means a number of units equal to the following percentages of the excess output for such year : 100 per centum if the excess output exceeds 50 per centum of the estimated recoverable units ; 95 per centum if the excess output exceeds 33% but not 50 per centum of the estimated recoverable units ; 90 per centum if the excess, output exceeds 25 but not 331/3 per centum of the estimated recoverable units ; 85 per centum If the excess output exceeds 20 but not 25 per centum of the estimated recoverable units ; 80 per centum if the excess output exceeds 16% hut not 20 per centum of the estimated recoverable units ; 60 per centum if the excess output exceeds 14% but not 16% per centum of the estimated recoverable units ; 40 per centum if the excess output exceeds 12% but not 14% per centum of the estimated recoverable units ; 30 per centum if the excess output exceeds 10 but not 12^4 per centum of the estimated recoverable units ; 20 per centum if the excess output exceeds 5 but not 10 per centum of the estimated recoverable units. (12) Unit net income. — The term "unit net income" means the amount ascertained by dividing the net income (computed with the allowance for depletion) from the coal or iron ore or the timber recovered from the coal mining property, iron mining property, or timber bloct, as the case may be, during the taxable year by the number of units of coal or iron ore, or timber, recovered from such property in such year. (b) Nontaxable Income From Exempt Excess Output.: — (1) General bulb. — For any taxable year for which the excess output of mineral property which was in operation during the base period exceeds 5 per centum of the estimated recoverable units ' from such property, the nontaxable income from exempt excess output for such year shall be an amount equal to the exempt excess output for such year multiplied by the normal unit profit, but such amount shall not exceed the net income (computed with the allow- ance for depletion) attributable to the excess output for such year. (2) Coal and iron mines. — For any taxable year, the nontaxable Income from exempt excess output of a coal mining or iron mining ' property which was In operation during the base period shall be an amount equal to the excess output of such property for such year multiplied by one-half of the unit net income from such prop- erty for such year, or an amount determined under paragraph (1), whichever the taxpayer elects in accordance with regulations pre- scribed by the Commissioner with the approval of the Secretary. (3) Timber peopeeties. — For any taxable year, the nontaxable Income from exempt excess output of a timber block which was In operation during the base period shall be an amount equal to the excess output of such property for such year multiplied by one-half of the unit net Income from such property for such year. 204 (c) Nontaxable Bonits Income. — ^The term "nontaxable bonus In- come" means the amount of the incdme derived from bonus payments made by any agency of the United States Government on account of the production in excess of a specified quota of a mineral producft or of timber the exhaustion of which gives rise to an allowance for depletion under section 23 (m), but such amount shall not exceed the net income (computed with the allowance for depletion) attributable to the outpiit . in excess of such quota. (d) Rtjle in Case Income From Excess Output Includes Bonus Payment. — In any case in which the Income attributable to the excess . output includes bonus payments (as provided in subsection (c)), the taxpayer may elect, under regulations prescribed by the Commissioner with the approval of the Secretary, to receive either the benefits of subsection (b) or subsection (c) with respect to such income as Is attributable to excess output above the specified quota. Sec. 35.735-1 General Exile. — Section 735 provides specific rules for the computation of nontaxable income from exempt excess output and of nontaxable bonus income which are excluded in the computa- tion of excess profits net income of a producer of minerals, or a producer of logs or lumber from a timber block, as defined in such section. Sec. 35.735-2 Definitions. — For the purposes of section 735, sec- tion 711(a) (1) (I), and section 711(a) (2) (K)— (a) Producer. — The term "producer" means a corporation which extracts minerals from a mineral property, or cuts logs from a timber block, in which an economic interest is owned by such corporation. Although section 711(a)(1) (I) and section 711(a) (2) (K) exclude certain nontaxable income in 4;he computation of excess profits net income in the case of a producer of logs or lumber, a producer of lumber is not within the provisions of this subsection unless such corporation is also a producer of the logs from which such lumber is sawed. An economic interest is possessed in every case in which the taxpayer has acquired, by investment, any interest in minerals in place or standing timber and secures, by any form of legal relation- ship, income derived from the severance and sale of the mineral or timber, to which it must look for a return of its capital. A taxpayer which has no capital investment in the mineral deposit or standing timber does not possess an economic interest merely because, through a contractual relation to the owner, it possesses a mere economic ad- vantage derived from production. Thus, an agreement between the owner of an economic inteirest and another entitling the latter to purchase the product upon production or to share in the net income derived from the interest of such owner does not convey an economic interest. The mere ownership of the development and plant neces- sary to the extraction of the minerals in place or the felling and logging of the timber is not an economic interest for the purposes of 205 section 735. Thus, a corporation which owns the equipment necessary to the extraction of minerals or the logging of timber and which acts as an independent contractor or as an agent in extracting minerals or timber, receiving as consideration a portion of the net income from the property, but which does not own an economic interest in the mineral property or timber block, is not a producer within the pro- visions of this subsection. However, the owner of the economic interest in the mineral property or timber block and from which the mineral or timber is being extracted by the independent contractor or the agent is the producer within the. provisions of this subsection. (i) Mineral imit. — The term "mineral unit" means a unit of metal, - coal, or nonmetallic substance in the minerals recovered from the operation of a mineral property. A mineral unit does not mean the number of units of minerals as defined in subsection (g) of this sec- tion but refers to the units of metal, coal, or nonmetallic substances contained in such minerals. If a corporation extracts from the same mineral property two or more minerals containing different metals, coal, or nonmetallic substances, or if two or more metals, coal, or non- metallic substances are contained in the same mineral extracted by a corporation from a mineral property, a determination of mineral units must be made with respect to each type of metal, coal, or nonmetallic substance contained in such minerals. A unit is any designation of quantity, such as ton, pound, quart, ounce, kilogram, gram, etc., cus- tomarily used by the taxpayer as a standard of measurement. . (c) TiTnber unit. — The term "timber unit" means a unit of timber recovered from the operation of a timber block. It does not mean the units of lumber, boards, or other wood products sawed from the timber, but refers to the actual logs felled prior to processing at the sawmill. The fact that more than one species of timber is cut by a taxpayer from a timber block shall not be taken into account and a timber unit shall not be established with respect to each species of timber. A unit is any designation of quantity such as board feet measure, log scale, cords, or other units customarily used by the tax- payer as a standard of measurement. {d) Excess output.-^The term "excess output" means the excess of the mineral units or the timber units for the taxable year over the normal output. If the taxpayer opijrated two or more mineral proper- ties or two or more timber blocks, the excess output shall be determined with respect to each such mineral property and each such timber block and shall not be computed upon the basis of the aggregate of the min- eral properties or timber blocks owned by the taxpayer. If two or more metals, coal, or nonmetallic substances are contained in the min- erals extracted from a mineral property, the determination of the ex- cess output of mineral products extracted from such mineral property 206 for ari excess profits i;ax taxable year shall be made with respect to each separate type of metal, coal, or nonmetallic substance, i. e., the amount by which the mineral units of each type for the taxable year exceeds the normal output of such type. The excess output of a mineral property from which minerals are extracted containing two or more types of metals, coal, or nonmetallic substances shall not be made upon an aggregate basis, i. e., the amount by which the aggregate of all types of mineral units for the taxable year exceeds the aggregate of the nor- mal output of all such types. The mineral units for an excess profits tax taxable year shall be the ■ number of units of metal, coal, or nonmetallic substances in the min- erals recovered from a mineral property during the taxable year, which would be used in computing the allowance for depletion for the pur- poses of Chapter 1 if the depletion of the mineral property were com- puted without regard to discovery value or percentage depletion. See section 29.23(m)-2 of Regulations 111. The timber units for an excess profits tax taxable year shall be the number of units of timber felled during the year, which is used in the computation of the depletion allowance for the purposes of Chapter 1. See section 29.23(m)-21 of Regulations 111. However, no timber felled or logs cut from standing timber acquired after December 31, 1941, shall be considered in determining the number of timber units for the taxable year. (e) Normal output. — ^The term "normal output" means the average annual mineral units, or the average annual timber units, as the case may be, recovered in the taxable years beginning after December 31, 1935, and not beginning after December 31, 1939 (referred to in sections 35.735-1 through 35.735-5 as the base period) of the person owning the mineral property or the timber block, whether or not such person is the taxpayer claiming relief under section 711(a)(1) (I) or section 711(a) (2) (K), and section 735. "A person includes an individual, a trust, estate, partnership, company, or corporation. See section 3797. If the mineral property or timber block was not owned by the tax- payer for the entire base period, the taxpayer must, in its first excess profits tax return in which the benefits of section 711(a) (1) (I) or sec- tion 711(a)(2) (K), and section 735 are claimed, state the name and address of each person owning the mineral property or timber block during the base period and submit evidence establishii^g the mineral units or the timber units recovered from the mineral property or tim- ber block by such other person during the period of its ownership, and the number of months in such period. In any case in which two or more metals, coal, or nonmetallic sub- stances are contained in the minerals recovered from a mineral prop- 207 erty, a normal output shall be computed with respect to each type of metal, coal, or nonmetallic substance in such minerals. The average annual mineral units or timber units shall be computed by dividing the aggregate of the mineral units of each type of metal, coal, or nonmetallic substance or the aggregate of the timber units for the base period by the number of months for which the mineral prop- erty or timber block was in operation during the base period and by multiplying the amount so asce;rtained by twelve. In any case in which the taxpayer establishes that the operation of a mineral prop- erty or a timber block is normally prevented for a specified period each year by physical events outside the control of the taxpayer, the number of months during which such mineral property or timber block is reg- ularly in operation during a taxable. year shall be used in computing the average annual mineral units, or timber units, instead of twelve. If any excess profits tax taxable year for which excess output is com- puted for the purposes of section 735 is a taxable year of less than twelve months, the number of months in such year, in lieu of twelve and in lieu of the number of months specified in the preceding sentence (if less than such number of months), shall be used in computing the average annual mineral units or timber units. The mineral units for a taxable year in the base period shall be the - number of units of each type of metal, coal, or nonmetallic substance in the minerals recovered from a mineral property during the taxable year, which would be used in computing the depletion allowance for the purposes of Chapter 1 if the depletion of the mineral property were computed without regard to discovery value or percentage deple- tion. See section 29.23 (m)-2 of Regulations 111. The timber units for a taxable year shall be the number of units of timber felled during the year used in the computation of the depletion allowance for the purposes of Chapter 1. See section 29.23 (m)-21 of Regulations 111. Any mineral property, or any timber block, which was in operation for less than six months during the base period shall, for the purposes of section 735, be deemed not to have been in operation during the base period. Such months need not be consecutive months. (/) Mineral property. — The term "mineral property" means a min-~ eral deposit, the development and plant necessary for the extraction of the deposit, and so much of the surface of the land as is necessary for the purposes of such extraction. The term "mineral deposit" re- fers to the minerals in place. The taxpayer's interest in each separate mineral property is a separate "property." If the mineral deposit in which a taxpayer owns an economic interest extends beyond the .boundaries of a single tract or parcel of land a separate mineral prop- erty exists with respect to each tract or parcel of land into which tlie mineral deposit extends. Where two or more mineral properties are 208 included in a single tract or parcel of land, the taxpayer's interest in such mineral properties may be considered to be a single "pr'operty," provided such treatment is consistently followed. (g) Minerals. — ^The term "minerals" means ores of the metals, coal, and such nonmetallic substances as abrasives, asbestos, asphaltum, barytes, borax, building stone, cement rock, clay, crushed stone, feld- spar, fluorspar, fuller's earth, graphite, gravel, gypsum, limestone, magnesite, marl, mica, mineral pigments, peat, potash, precious stones, refractories, rock phosphate, salt, sand, silica, slate, soapstone, soda, sulphur, and talc. (A) Timber 'block. — The term "timber block" means an operation unit existing as of December 31, 1941, which includes all the taxpay- er's timber which would logically go to a single given point of manu- facture, but shall not include any operation unit acquired after Decem- ber 31, 1941. In those cases in which the point of manufacture is at a considerable distance, or in which the logs or other products will probably be sold in a log or other market, the block may be a logging unit which includes all of the taxpayer's timber which would logically be removed by a single logging development. (^■) NoTTYwl unit profit. — The term "normal unit profit" means the average profit for the base period per mineral unit for such period^ determined by dividing the net income with respect to minerals recov- ered from the mineral property (computed with the allowance for depletion determined in accordance with the basis for depletion, cost basis depletion, discovery value depletion, or percentage depletion, applicable to the current taxable year) during the base period by the total number of mineral units recovered from the mineral property during the base period. If two or more metals, coal, or nonmetallic substances are contained in the minerals extracted from a mineral property, a normal unit profit shall be established for each class of mineral unit. The normal unit profit for each class of mineral unit shall be determined by divid- ing the net income with respect to such type of metal, coal, or nonme- tallic substance in the minerals recovered from the mineral property during the base period by the total number of mineral units of such class for the base period. (1) Net income. — Net income with respect to. minerals recovered from the mineral property (computed with the allowance for deple- tion) means the "gross income from the property" as defined in para- graph (2) of this subsection less the allowable deductions attributable to the mineral property with respect to which exempt excess output is computed and the allowable deductions a,ttributable to the processes listed in paragraph (2) in so far as they relate to the product of such projDerty, including overhead and operating expenses, development 209 costs properly charged to expense, depreciation, taxes, losses sustained, and including the allowance for depletion. The allowance for deple- tion shall be computed in accordance with the provisions of section 23 (m) and section 114(b) and the regulations thereunder. The al- lowance for depletion for each year during the base period shall, tor the purposes of section 735, be computed upon the same basis used in computing the allowance for depletion during the excess profits tax taxable year beginning after December 31, 1941, for which the benefits of section 735 are claimed. Thus, if during the base period the tax- payer computed the allowance for depletion with respect to a mineral property upon the cost basis, and if during each excess profits tax taxable year, for which the benefits of section 735 are claimed, the tax- payer computes the. allowance for depletion based upon a percentage of income, the allowance for depletion for each year in the base period shall be recomputed as a percentage of income under the law applica- ble to each such year. In cases where the taxpayer engages in activ- ities in addition to mineral extraction and to the processes listed in paragraph (2) , deductions for depreciation, taxes, generul expenses, and overhead, which cannot be directly attributed to any specific activ- ity, shall be fairly apportioned between (A) the mineral extraction and the processes listed in paragraph (2) and (B) the additional activi- ties, taking into account the ratio which the operating expenses di- rectly attributable to the mineral extraction and the processes listed in paragraph (2) bear to the operating expenses directly attributable to the additional activities. If more than one mineral property is in- volved, the deductions apportioned to the mineral extraction and the processes listed in paragraph (2) shall, in turn, be fairly apportioned to the several properties, taking into account their relative production. If two or more metals, coal,, or nonmetallic substances are con- tained in the minerals extracted from a mineral property, a net income with respect to each type of metals, coal, or nonmetallic sub- stance shall be established. Such net income shall be the gross in- come with respect to such type minus the allowable deductions for such year attributable to such type. The allowable deductions for any taxable year attributable' to each type of metal, coal, or non- metallic substance shall be computed as follows: There shall be determined an amount which bears the same ratio to the total allow- able deductions (not including the allowance for depletion) attrib- utable to the mineral property from which the minerals containing such type of metal, coal, or nonmetallic substance has been recovered, as the gross income from such type of metal, coal, or nonmetallic substance bears to the total gross income from such property. To this amount shall be added the allowance for depletion computed with respect to such type of metal, coal, or nonmetallic substance. 210 (2) Gross income from the property.— ^ov the purposes of section 735 the term "gross income from the property" for any year in the ■base period means the amount for which the taxpayer sold the crude mineral product (the product in the form in which it emerges from the mine) of the mineral property in the immediate vicinity of the mine, but, if the product was transported or processed (other than by processes excepted below) before sale, it means the representative market or field price (as of the date of sale) of crude mineral prod- uct of like kind -and grade before such transportation or processing. If there was no such representative market or field price (as of the date of sale) , then there shall be used in lieu thereof the representa- tive market or field price of the first marketable product resulting from any process or processes (or, if the product in its crude state was merely transported, ,the price for which sold) minus the costs and proportionate profits attributable to the transportation and the processes not listed below. The processes excepted are as follows: (A) In the case of coal — cleaning, breaking, sizing, and load- ing at the mine for shipment ; (B) In the case of sulphur^ — pumping to vats, cooling, break- ing, and loading at the mine for shipment; (C) In the case of iron ore, ball and sagger clay or rock as- phalt, and ores which are customarily sold in the form of the. crude mineral product — sorting or concentrating to bring to shipping grade, and loading at the mine for shipment ; and (D) In the case of lead, zinc, copper, gold, silver, or fluorspar ores and ores which are not customarily sold in the form of the crude mineral product — crushing, concentrating (by gravity or flotation), and other processes to the extent to which they do not beneficiate the product in greater degree ( in relation to the crude mineral product on the one hand and the refined product on the other) than crushing and concentrating (by gravity or flotation). In case any of the excepted processes were not applied in the im- mediate vicinity of the mining district in which the mine is located, costs incurred for transportation to the processing location and, if transported by taxpayer, the proportionate profits attributable to transportation should be subtracted from the sale price of the prod- uct to determine "gross income from the property." There shall be excluded in determining the "gross income from the property," for each year in the base period,, an amount equal to any rents or royalties which were paid or incurred by the taxpayer in respect of the property and were not otherwise excluded from the *'gross income from the property." If royalties in the form of bonus payments were paid in respect of the property in a taxable year in the base period or any prior years, or if advanced royalties 211 were paid in respect of the property in any taxable year ending prior to December 31, 1839, the amount excluded from "gross in- come from the property" for a taxable year in the base period on account of such payments" shall be an amount equal to that part of such payments which is allocable to the product sold during the tax- able year. If the taxpayer paid rents, royalties, or bonuses with respect to the mineral property during the base period, and in an excess profits tax taxable year for which the benefits of section 735 are claimed owns an economic interest in such property which does not require the payments of rents, royalties, or bonus payments, the amount of such rents, royalties, and bonuses paid during the base period shall, for the purposes of section 735, not be deducted in the computation of the gross income from the property. If the taxpayer paid rents, royalties, or bonuses with respect to the mineral property during the base period and in an excess profits tax taxable year for which the benefits of section 735 are claimed pays rents, royalties, or bonuses in amounts different from those paid during the base period, because of a change in its economic interest, the gross income from the prop- erty during the base period shall be recomputed as if the new con- tractual terms pursuant to which the new rents, royalties, or bonuses are paid had been in effect during the base period. If the economic interest of the taxpayer during the base period was such that it did not pay rents, royalties, or bonuses, but such interest has changed so that during the excess profits tax taxable year for which the bene- fits of section 735 ate claimed the taxpayer pays rents, royalties, or bonuses, the gross income from the property during the base period shall be recomputed as if the contractual agreement pursuant to which rents, royalties, or bonuses are paid during the excess profits tax taxable year were in full force and effect during the base period. If the economic interest of a person other than the taxpayer in the mineral propetty during any year in the base period was different from the economic interest of the taxpayer in the excess profits tax taxable year for which the benefits of section 735 are claimed, the gross income of such person from the property during such base period year shall be recomputed as if its economic interest in the mineral property were the same as the economic interest of the tax- piayer in the excess profits tax taxable year for which the benefits of section 735 are claimed. If two or more metals, coal, or nonmetallic substances are con- tained in the minerals extracted from a mineral property, the gross income from such property shall be allocated to each type of metal, coal, or nonmetallic substance for which a separate mineral unit is esfaiblished. If the gross income from the property is determined by 212 excluding the costs and proportionate profits attributable to trans- portation and to the processes not listed above, or if such gross income is an amount different from the gross proceeds received from the sale of the minerals, the gross income attributable to each type of metal, coal, or nonmetallic substance shall be an amount which bears the same ratio to the gross income from tlie property which the gross proceeds received from the sale of such type of metal, coal, or non- metallic substance in the minerals bears to the total gross proceeds received from the sales of all such types. {j) Estimated recoverable wnits. — The term "estimated recoverable units" means the estimated number of units of metal, coal, or non- metallic substances in the estimated recoverable minerals from the mineral property at the end of the excess profits tax taxable year for which the benefits of section 735 are claimed plus the excess output for such year. If the number of recoverable units of metal, coal, and nonmetallic substances in the minerals in the property have been previously estimated for the prior year or years, and if there has been no known change in the facts upon which the prior estimate was based, the number of recoverable units of metal, coal, and nonmetallic sub- stances in the minerals in the property as of the taxable year will be the number remaining from the prior estimate. Thus, the- recover- able units estimated to remain at the end of a taxable year shall be computed, generally, as the estimated recoverable units as of the be- ginning of the taxable year minus the output for the year. In any' case in which it is ascertained either by the taxpayer or the Commis- sioner as the result of operations or development worli prior to the close of the taxable year that the remaining recoverable mineral units are materially greater or less than the numbet remaining from the prior estimate, the estimate of the remaining recoverable units shall be revised and the revised estimate will be used for the purposes of computing exempt excess output under the provisions of section 735(a) (11) and section 35.735-2(/c) unless a change in the facts re- quires another revision. Regardless of the method of determining the estimated number of units of metal, coal, or nonmetallic substances in the estimated recoverable minerals from the mineral property at the end of the excess profits tax taxable year, the estimated recoverable units for the purposes of section 735 shall be the number of such units plus the excess output for such year. The estimated number of units of metal, coal, or nonmetallic substances in the e&timated recoverable minerals means the metal, coal, or nonmetallic substance coijtent of the minerals, and not the estimated recoverable units of the minerals which are the ores of the metals, coal, or nonmetallic substances. The estimated recoverable units from any mineral property shall be de- termined with respect to each type of metal, coal, or nonmetallic sub- 213 stance in the estimated recoverable minerals and shall not be deter- mined as the aggregate of all classes of mineral units attributable to all such types of metal, coal, or nonmetallic substances. As to the determination of the estimated recoverable units of mineral products,^ see section 29.23 (m)-9 of Regulations 111. Air estimates of recoverable units of metal, coal, and nonmetallic substances in the estimated recoverable minerals from the mineral property shall be subject to the approval of the Commissioner, and the determination of the Commissioner for the purposes of section 735 shall be final and conclusive. {k) Exempt excess output. — The term "exempt excess output" for any taxable year means a number of units equal to the following per- centages of the excess output for such year : 100 percent if the excess output exceeds 50 percent of the estimated recoverable units ; 95 percent if the excess output exceeds 33^^ but not 50 percent of the estimated recoverable units ; 90 percent if the excess output exceeds 25 but not 33l^ percent of the estimated recoverable units; 85 percent if the excess output exceeds 20 but not 25 percent of the estimated recoverable units; 80 percent if the excess output exceeds 16% but not 20 percent of the estimated recoverable units ; 60 percent if the excess output exceeds 14% but not 16% percent of the estimated recoverable units ; 40 percent if the excess output exceeds 12i^ but not 14% percent of the estimated recoverable units ; 30 percent if the excess output exceeds 10 but not 12i/^ percent of the estimated recoverable units ; 20 percent if the excess output exceeds 5 but not 10 percent of the estimated recoverable units. Since the excess output and the estimated recoverable units, in the case of a mineral property from which are extracted minerals con- taining two or more types of metal, coal, or nonmetallic substances, shall be determined with respect to the mineral units comprising the excess output and the mineral units contained in the estimated re- coverable units for each separate type of metal, coal, or nonmetallic substance, the percentage which the excess output is of the estimated recoverable units shall be based upon the excess output and the esti- mated recoverable units of each separate type and shall not be com- puted with respect to the aggregate of all classes of mineral units.- The percentage so determined with respect to each separate type of metal, coal, or nonmetallic substance shall then be multiplied by the excess output of such type of metal, coal, or nonmetallic substance 214 in ,the minerals recovered from the mineral property, and the product of the two shall be considered the exempt excess output of that type of metal, coal, or nonmetallic substance. (l) Unit Tiet income. — The term "unit net income" means the amount of net income per mineral unit of coal or iron or per timber unit for any excess profits tax taxable year for which the benefits of section 735 are clainaed. It is ascertained by dividing the net income (computed with the allowance for depletion used in computing net income for the purposes of Chapter 1 for such year) from the coal or iron ore, or the timber, recovered during the taxable year from the coal mining property, the iron mining property, or the timber block, as the case may be, by the number of mineral units contained in the coal or iron ore recovered from such coal or iron mining property or by the num- ber of timber units recovered from such timber block, in such year. For the purposes of section 735(a) (12) and section 735(b) (2), the term "coal mining property" means the aggregate of all tracts or parcels of land containing coal deposits in which economic interests were owned, and irom which coal was extracted,. by thfi taxpayer at any time after the beginning of the base period (excluding, however, any tract or parcel of land in 'which an economic interest was ac- quired, and from which coal was extracted, by any other person subsequent to the last date of ownership and operation by the tax- payer) to the extent that the coal extracted therefrom by the taxpayer was processed at a single preparation plant, regardless of whether the economic interest in one such tract or parcel of land differed ^rom that in another. For the purposes of section 735(a) (12) and section 735 (b) (2), the term "iron mining property" means the aggregate of all tracts or parcels of land containing iron ore deposits in which economic in- terests were owned, and from which iron ore was extracted, by the taxpayer at any time after the beginning of the base period (exclud-^ ing, however, any tract or parcel of la,nd in which an economic in- terest was acquired, and from which iron ore was extracted, by any other person subsequent to the last date of ownership and operation by the taxpayer) to the extent that such tracts or parcels of land were operated by the taxpayer as an operation unit, regardless of whether the economic interest in one tract or parcel of land differed from that in another. The net income (computed with the allowance for depletion) from the coal or the iron ore recovered from the coal mining property or ihe iron mining property during an excess profits tax taxable year for which the benefits of section 735(b) (2) are claimed shall be the net income from the coal mining property or iron mining property from which such coal or iron ore is recovered, computed in a manner 215 similar to that described in section 35.735-2 (i) with respect to a mineral property as if such coal mining property or iron mining property were a mineral property, except that the amount of deple- tion allowed in the computation of such net income shall be computed according to sections 23 (m) and 114, and the regulations thereunder. The determination of net income from a timber block for an excess profits tax taxable year must be made with respect to each timber block separately and cannot be made with respect to the aggregate of the timber blocks owned by the taxpayer. Net income from a timber block includes only income which is attributable to that por- tion of the operation unit which was in existence on December 31, 1941 ; net income attributable to any standing timber acquired after December 31, 1941, and which after such datp has become a part of the timber block existing on December 31, 1941, must be excluded. Net income from timber recovered from a timber block (computed with the allowance for depletion) means the net income attributable to timber and logging operations, not including transportation of the logs to the log or other market. That portion of the taxpayer's net income attributable to transportation or to manufacturing or remanu- facturing, if the taxpayer which is a producer of logs from a timber block carries its operations beyond the logging stage, must be elim- inated. If the taxpayer is engaged in activities in addition to tim- ber and logging operations, the net income attributable to timber recovered from a timber block shall be -computed as follows :. (1) Net income. — Net income from timber recovered from a timber block (computed with the allowance . for depletion) means the gross income from the timber block as defined in (2) of this subsection, less the allowable deductions attributable to the timber block with respect to which exempt excess output is computed and the allowable deduc- tions attributable to timbering and logging operations, but not in- cluding transportation of the logs to the log or other market, insofar as they relate to logs cut by the taxpayer -from the timber block, incliiding overhead and operating expenses, development costs prop- erly charged to expense, depreciation, taxes, losses sustained, and including the allowance for depletion. The allowance for depletion shall be that used in -computing net income for the purposes of Chapter 1 for the taxable year. In cases where the taxpayer engages in activities in addition to timbering and logging operations, includ- ing in such additional activities transportation of the logs to the log or other market, deductions for depreciation, taxes, general expenses, and overhead which cannot be directly attributed to any specific activ- ity shall be fairly apportioned between (A) the timber and logging operations, and (B) the additional activities, taking into account the ratio whidi the operating expenses directly attributable to the tim- 216 ber and logging operations bear to the operating expenses directly attributable to the additional activities. If more than one timber block is involved, the deductions apportioned to the timber and log- ging oj)erations shall, in turn, be fairly apportioned to the several timber blocks, taking into account their relative production. (2) Gross income from the timber block. — (jross income from the timber block means the amount for which the taxpayer sold the timber or the logs in the immediate vicinity of the timber block, but if the logs were transported or processed or manufactured or remanufactured before sale, it means the representative market or field price (as of the date of sale) qf logs of like kind and grade before such transportation, processing, manufacture, or remanufac- ture. If there was no such representative market or field price (as of the date of sale), then there shall be used in lieu thereof the representative market or field pri<;e of the first marketable product resulting from any processing, manufacture, or remanufacture (or, if the logs were merely transported, the price for which sold) minus the costs and proportionate profits attributable to the transportation and the processes, manufacture, and remanufacture. In all cases there shall be excluded in determining the gross income from the timber block an amount equal to any rents or royalties which were paid or incurred by the taxpayer in respect of the timber- block and are not otherwise excluded from the gross income from the timber block. If royalties in the form of bonus payments have been paid in respect of the timber block in the taxable year or any prior years or if advanced royalties have been paid in respect of the prop- erty in any taxable year ending prior to December 31, 1939, the amoimt excluded from gross income from the timber block for the cur- rent taxable year on account of such payments shall be an amount equal to that part of such payments which is allocable to the product sold during the taxable year. If advanced royalties have been paid in respect of the timber block in any taxable year ending on or ^.f ter December 31, 1939, the amount excluded from gross income from the timber block for the current taxable year on account of such paynients shall be an amount equal to the deduction for such taxable year taken on account of such payments pursuant to the rules provided in section 29.23 (m) -10(e) of Regulations 111 with respect to advanced royalties paid in the case of mineral properties. Sec. 35.735-3 Nontaxable Income from Exejvipt Excess Out- put. — Nontaxable income from exempt excess output is excluded in the computation of excess profits net income under section 711(a) (1) (I) if the taxpayer uses the excess profits credit based on income or under section 711(a) (2) (K) if the taxpayer uses the excess profits credit based on invested capital, and is determined as follows : 217 (a) General nde. — If the excess output of a mineral property which was in operation during the base period exceeds 5 per- cent of the estimated recoverable units from such mineral property, computed as provided in section 35.735-2 (j) the nontaxable income from exempt excess output shall be an amount equal to the exempt excess output for such year (computed under section 35.735-2 (^)) multiplied by the normal unit profit (computed under section 35.735- 2 (i) ) . In no event shall the amount of nontaxable income from ex- empt excess output exceed the net income (computed with the allow- ance for depletion) attributable to the excess output for such year. The net income attributable to excess output shall be that percentage of the net income from the mineral property which the excess output for the taxable year is of the total output for the taxable year. The net income from the mineral property shall be computed in accord- ance with the rules provided in section 35.735-2 (i) for the computa- tion of net income from the mineral property "for a taxable year in the base period. If mineral units are determined for two or more types of metals, coal, or nonmetallic substances, the nontaxable income shall be de- termined with respect to the exempt excess output of each type of metal, coal, or nonmetallic substance. In no event shall nontaxable income from exempt excess output be determined with respect to any such type unless the mineral property was in operation during the base period and unless the excess output of such type exceeds 5 per- cent of the estimated recoverable units of such type of metal, coal, or nonmetallic substance in the mineral property. If the minerals recovered from a mineral property contain two or more types of metals, coal, or nonmetallic substances, the nontaxable income from exempt excess output of such property for a taxable year shall be the aggregate of the nontaxable incomes from exempt excess output of each type of metal, coal, or nonmetallic substance. The non- taxable income from exempt excess output of each type of metal, coal, or nonmetallic substance shall be an amount equal to the exempt excess output of such type of metal, coal, or nonmetallic substance (see sec- tion 35.735-2 (/c)). multiplied by the normal unit profit for such type (see section 35.735-2 (i) ) . The nontaxable income from exempt ex- cess output attributable to each type of metal, coal, or nonmetallic sub- stance shall not exceed the net income (computed with the allowance for depletion) attributable to the excess output of such type for the taxable year. The net income attributable to the excess output of each type of mineral unit shall be determined as follows : The net income attributable to the mineral property for the taxable year shall be fairly allocated to each type of metal, coal, or nonmetallic sub- stance contained in -the minerals recovered from the mineral property 488313° — 43 15 218 in such year in accordance with the principles set forth in section 35.735-2 (i) . The amount so allocated shall be divided by the total number of mineral units of such type of metal, coal, or nonmetallic substance for the taxable year, and the amount so determined shall be multiplied by the excess output of the mineral units of such type, determined in accordance with section 35.735-2 (<^), for the year. The provisions of this subsection may be illustrated by the following examples : Example (1) . Assume that the taxpayer, which is on the calendar year basis, owns a mineral property from which is extracted a mineral containing one nonmetallic substanqe. The total output of such prop- erty during the four calendar years in the base period, the first of which began in 1936, was 416,000 tons and the aggregate of the net incomes for such years (including the allowance for depletion com- puted upon the same basis as for the- year 1942) was $1,248,000. The normal output is 104,000 tons and the normal unit profit is $3 per ton. During 1942 minerals containing 200,000 tons of the nonmetallic sub- stance were extracted from the property at a unit profit of $3.50 per ton. The net income for such year was $700,000. As of December 31, 1942, it is estimated that 1,000,000 tons of the nonmetallic sub- stance remained in the mineral property. The amount of nontaxable income from exempt excess output to be excluded in the computation of excess profits net income for 1942 is $57,600, computed as follows.: 1. Normal output (tons) 104,000 2. Output for 1942 (tons) 200,000 3. Excess output for 1942 (tons) J 1__ 96,000 4. Estimated recoverable units for 1942 (1,000,000 tons plus Item 3) _ 1, 096, 000 5. Percentage which item 3 is of item 4 (percent) 8.8 6. Percentage of item 3 to be used in computing exempt excess out- put (percent) 20 7. Exempt excess output for 1942 (tons) (item 3 times item 6) 19, 200 8. Ncrmal unit profit (per ton) $3.00 9. Nontaxable income from exempt excess output (item 8 times item 7, but not in excess of item 12) , $57,600.00 10. Net income -for 1942 $700,000.00 11. Unit net income for 1942 (per ton) (item 10 divided by item 2)__ $3. 50 12. Net income attributable to excess output for 1042 (Item 3 times item 11) $336, 000. 00 Example (S). Corporation A, which is on the calendar year basis, owns a mineral property from which it extracts minerals containing gold and silver. For each of the four taxable years in the baseperiod it recovered 250,000 tons of a $7.75 ore, i. e., minerals assaying 10 ounces of silver and 0.05 ounce of gold per ton, the price of silver being $0.60 per ounce and of gold being' $35 per ounce during such 219 period. The output of silver for each base period year was 2 500,000 ounces, and of gold was 12,500 ounces. The gross income for each base period year was $1,937,500, constituting $1,500,000 attributable to silver and $43Y,500 attributable to gold-s Allowable deductions, in- cluding the smelter charges for each year but excluding the allowance for depletion, amounted to $1,000,000. Of the amount of such de-. ductions, $774,193.55 represented the, amount allocable to silver pro- duction ( j^ 93^*50^ times $1,000,000) and $225,806.45 represented' the amount allocable to gold production/ -. qq^ Knn times $1,000,000) . The net income from the mineral property (computed without the allow- ance for depletion) was $725,806.45 attributable to silver and $211,- 693.55 attributable to gold. The allowance for percentage depletion computed with respect to silver mining was $225,000 (15 percent of $1,500,000 but not in excess of 50 percent of $725,806.45) ; the allow- ance for such depletion computed with respect to gold mining was $65,625 (15 percent of $437,500 but not in excess of 50 percent of $211,693.55). In 1942, 320,000 tons of ore were extracted from the mineral property. The character of the ore encountered had changed so that in 1942 it was $11,375 ore, i. e., minerals which assayed 15 ounces of silver and 0.025 ounce of gold to the ton, the price of 'silver being $0.70 per ounfee and the price of gold $35 per ounce. The total output of silver for 1942 was 4,800,000 ounces ; the total output of gold was 8,000 ounces. The gross income for 1942 was $3,640,000, consisting of $3,360,000 attributable to silver and $280,000 attributable to gold. Allowable deductions, including the smelter charges for the year but excluding the allowance for depletion, amounted to $1,280,- 000. Of the amount of such deductions, $1,181,538.46 represented the amount allocable to silver production ( „'.„'„ times $1,280,000) and $98,461.54 represented the amount allocable to gold production, /"^^^^^L-times $1,280,000). The net income from the mineral prop- \3,640,000 erty (computed without the allowance for depletion) was $2,178,461.54 attributable to silver and $181,538.46 attributable to gold. The al- lowance for percentage depletion computed with respect to silver mining was $504,000 (15 percent of $3,360,000 but not in excess of 50 percent of $2,178,461.54) ; the allowance for such depletion computed with respect to gold mining was $42,000 (15 percent of $280,000 but not in excess of 50 percent of $181,538.46). It is estimated that as of December' 31, 1942, there were 19,200,000 units of silver and 32,000 units of gold remaining in the mineral property. There is no non- taxable income from exempt excess output of gold, since the normal 220 output exceeds the 1942 output of that metal. The nontaxable income from exempt excess output of silver is $138,220.80, computed as follows : Silver Gold 1. Normal output (ounces): (I. Silver (lO.OOO.OOO.divided by 4) b. Gold (50,000 divided by 4) 2. Output for 1S42 (ounces) 3. Excess output (item la or 16, minus item 2) 4. Estimated recoverable lujjts as of December 31, 1942 (ounces) : a. Silver (19,200,000 plus 2,300,000)-- - b. Gold (32,000 plus 0) -. 5. Percentage whicb item 3 is of item 4o or 46 (percent) 1 6. Percentage of item 3 to be used in computing exempt excess output (percent). 7. Exempt excess output (ounces) (item 3 times item 6)._ -. 8. Normal unit profit per ounce (item 17)..- 9. Nontaxable income from exempt excess output (item 7 times item 8) but not in excess of item 24 , 2, 500, 000 NORMAL TINrr PROFIT 10. Gross income from the mineral property for each base period year — 11. Allowable deductions (excluding allowance tor depletion) for each base period year _ 12. Net_ income from the mineral property (excluding allowance for de- pletion) for each base period year.. 13. Allowance for percentage depletion. 14. Net income from the mineral property for each base period year.. 16. Aggregate net income from the mineral property for the base period. 16. Aggregate mineral units recovered during base period (ounces) 17. Normal imit profit (item 15 divided by item 16).. NET INCOME ATTRIBUTABLE TO EXCESS OUTPUT 18. Gross income from the mineral property for 1942 10. Allowable deductions (excluding allowance for depletion) for 1942... 20. Net income from the mineral property (excluding allowance for de- pletion) for 1942.... 21. Allowance for percentage depletion 22. Net income from the mineral property for 1942 _. 23. Unit net income for 1942 (item 22 divided by item 2) 24. Net income attributable to excess output (item 3 times item 23). 4, 800, 000 2, 300, 000 21, 500, 000 10.7 690, 000 $0. 20032 $138, 220. SO SI, 600, 000. 00 774, 193. 66 725, 806. 45 226, 000. 00 500, 806. 45 1, 003. 225. 80 10, 000, OOO $0. 20032 $3, 360, 000. 00 1, 181, 538. 46 2,178,461.54 604, 000. 00 1, 674, 461. 64 $0.348846 $802,346.80 12, 600 8,000 32,000 $11. 68648 $137, 600. 00 226,806.45 211,693.66 65,625.00 146, 068. 66 $584, 274. 20 50,000 $11. 68548 $280, 000. 00 98, 461. 64 181,638.46 42,000.00 139, 638. 46 $17. 4423 If income attributable to a strategic mineral as defined in section 731 is exempt from the excess profits tax pursuant to the provisions of such section, nontaxable income from exempt excess output of such strategic mineral shall not be computed for the purposes of section 735(b) (1) or of section 711 (a) (1) (I) or section 711(a) (2) (K). The portion of gross income and allowable deductions attributable to such strategic mineral shall be excluded from the net income from 221 the mineral property in determining the net income attributable to other metals or nonmetallic substances in the minerals recovered from such mineral property for the base period and for the excess profits tax taxable year for Which the benefits of section 735 are claimed. (6) Coal Qfnd iron mines. — With respect to any excess profits tax taxable year beginning after December 31, 1941, the nontaxable in- come from exempt excess output of a coal mining or an iron mining property which was in operation during the base period shall be whichever of the following amounts the taxpayer elects — (1) an' amount equal to the excess output of such coal min- ing or iron mining property, determined' under this subsection, for such year multiplied by one-half of the unit net income de- termined under section 35.735-2 (Z). from such property for such year, Or (2) an amount determined under section 35.735-3 (a). In order to elect the amount provided in (1) of this subsection, the excess output of the coal mining property or iron mining property (as defined in section 35.735-2'(Z)) which was in operation during the base period, need not exceed 5 percent of the estimated recover- able units in such property. As to the election with respect to the amount provided in (2) of this subsection, see section 735(b) (1) and section 35.735-3 (a). For the purposes of the computation of the amount described in (1) of this subsection for an excess profits tax taxable year — A coal mining property or an iron mining property (as de- fined in section 35.735-2 (Z)) shall be considered to have been in operation during the base period if any part of such property was in "operation for six months or more, during the base period. The excess output of a coal mining property or an iron min- ing property which was in operation during the base period shall be computed upon the basis of the coal mining property or the iron mining property and shall be the excess of the ag- gregate of the mineral units extracted from such coal mining or iron' mining property during the taxable year over the nor- mal output of such property. The normal output of a coal mining property or an iron mining property shall be computed with respect to such property in a manner similar to that de- scribed in section 35.735-2 (e) with respect to a mineral prop- erty, as if such coal mining property or iron mining property were a mineral property. The election pursuant to section 735(b) and this subsection shall be made in the excess profits tax return, filed on or before the last day required by law for the filing of such return, for the taxable year for which the benefits of section 735 are claimed. The last day 222 required by law for the filing of such return includes the last. day of the period of any extension of time granted for such filing. Such election must be made for each excess profits tax taxable year for which the benefits of section 735 (b) (2) are claimed. An election made with respect to a taxable year to compute nontaxable income from exempt excess output pursuant to the provisions of section 735(b)(2) and section 36.735-3 (&) (1) or section 30.735-3 (&)(!) of Regulations 109 does not preclude the taxpayer from electing for a subsequent year to compute nontaxable income pursuant to the provisions of section 735(b)(1) and section 35.735-3 (a) provided the taxpayer satisfies the requirements there provided, and vice versa. For any excess profits tax taxable year for which an election is made under section 735(b)(2) and this subsection, such election shall be made by the taxpayer by attaching to its excess profits tax return a statement showing the method of computation and the amount of nontaxable income from exempt excess output elected under the pro- visions of section 735(b) (2) and this subsection. An election made by the taxpayer pursuant to the provisions of section 30.735-3(6) of Regulations 109 shall be deemed to be made pursuant to the pro- visions of this subsection. If the taxpayer has failed so to elect or desires to change its election, such election or change in election 'may, subject to the approval of the Commissioner, be made by the taxpayer filing with the Commissioner of Internal Revenue, Wash- ington, D. C, within the period of limitations for the filing of claims for credit or refund with respect to the year or years involved, a notice of its election or change in election accompanied by a recom- putation of its income and excess profits taxes for such years. If the recomputation results in an overpayment for any of such years, the taxpayer should file a claim for refund on Form 843 in accord- ance with the provisions of section 322. The provisions of this subsection may be illustrated by the fol- lowing example : Example. Assume that during the taxable year- 1942 a corpora- tion owned several tracts of land containing coal deposits which it had operated for more than six months during the base period. During the taxable year 1942, the coal extracted by the taxpayer from such land was processed at a single preparation plant, so that for the purposes of the computation provided by (1) of this sub- section such land constitutes a coal mining property. The normal output of the coal mining property was 350,000 tons. The output for the calendar year 1942 was 450,000 tons. The net income from the coal mining property during 1942 was $103,500. Assume that for the year 1942, the corporation elected to compute an amount of nontaxable income from exempt excess output of the coal mining 223 ^ property under the rule prescribed by (1) of this subsection rather -than under (2) of this subsection. Such amount of nontaxable in- come from exempt excess output would be $11,600, computed as follows : 1. Normal output (tons) : ,__ 350,000 2. Output for 1942 (tons) 450,000 3. Excess output (tons) (Item 2 less Item 1) 100,000 4. Net income from coal extracted from coal mining property In 1942_ $103, 500. 00 5. Unit net income per ton for 1942 (item 4 divided by item 2) $0.23 6. Nontaxable income from exempt excess output computed pursu- ant to section 735(b) (2) and without regard to section 735(b) (1) (item 3 times one-half of item 5) $11, 500. 00 (c) Tirriber properties. — The nontaxable income from exempt excess output of a timber block which was in operation during the base period shall be an amount equal to the excess output of such timber block for such year, determined under, section 35.'r35-2(<^), multiplied by one- half of the unit net income from such timber block for such year, determined under section 35.735-2 (Z). The provisions of this subsection may be illustrated by the following example : Example. Assume that the normal unit output of a timber block operated by Corporation T during the base period was 20,000,000 board feet log scale. The output of timber units for the taxable year 1942 was 32,000,000 board feet log scale and the net income attributable to the timber block, and to timber and logging operations, not includ- ing transportation, was $320,000. The nontaxable income from exempt excess output of the timber block for 1942 is $60,000, computed as fol- lows : 1. Normal output (M board feet log scale) 20,000 2. Timber units for 1942 (M board feet log scale) ^ 32, (KK) 3. Excess output (M board feet log scale) 12,000 4. Net Income from timber block for 1942 $320, 000 5. Unit net income per M board feet log scale for 1942 (item 4 divided by item 2) $10 6. Nontaxable' Income from exempt excess output computed pursuant to section 735(b)(3) (Item 3 multipled by one-half of item 5) $00,000 Sec. 35.735-4 Nontaxable BoNtrs Income. — The term "nontaxable bonus income" means the amount of the income derived from bonus payments made by any agency of the United State Government on ac- count of the production in excess of certain specified quotas of a min- eral product or of timber, if the exhaustion of the mineral property or the timber block from which such product, or timber was recovered gives rise to an allowance for depletion under section 23 (m). Such amount, however, shall not exceed the net income (computed with the allowance for depletion) attributable to the output in excess of the 224 quota. Such net income so attributable shall be an amount which bears the same ratio to the net income from the mineral property, com- puted as provided in section 35.735-2 (i), or the net income from the timber block, computed as provided in section 35.735-2(2), as the out- put in excess of the quota bears to the total number of mineral units or timber units produced for the taxable year. If two or more metals, coal, or nonmetallic substances are contained in the minerals recovered from a mineral property, nontaxable bonus income must be deter- mined with respect to each such metal, coal, or nonmetallic substance, and net income from the property must be allocated fairly between each type of metal, coal, or nonmetallic substance. In the case of any such bonus paid with respect to any such type of metal, coal, or non- metallic substance the nontaxable bonus income shall not exceed the net income attributable to the output in excess of the specified quota of such type. Such net income shall be an amount which bears the same ratio to the net income attributable to such type of metal, coal, or nonmetallic substance as the output in excess of the quota established for such type bears to the number of mineral units of such type pro- duced for the taxable year. The provisions of this section may be illustrated by the following example : Example. Corporation C, which is on the calendar year basis, pwns a mineral property from which is extracted copper ore. For each of the four years in the base period, it extracted 200 tons of ore a day, or 73,000 tons per year ; the ore assayed 60 pounds of copper to the ton. The annual base period output of copper was 4,380,000 pounds, and the price received by Corporation C per ton of ore was $7.20. Gross in- come for each base period year was therefore $526,600. Allowable deductions, including the smelter charges but exclusive of percentage depletion, amounted to $385,000. Net income from the mineral prop- erty, without regard to the allowance for depletion, was $140,600. Percentage depletion for each such year amounted to $70,300 (15 per- cent of $525,600 but not in excess of 50 percent of $140,600) . For 1942, Corporation C recovered 110,000 tons of ore, which assayed 50 pounds of copper to the ton, from the mineral property. The 1942 output of copper was therefore 5,500,000 pounds. The ceiling price established by the War Production Board and the Office of Price Administration for copper was $0.12 per pound. With respect to Corporation C, a 1942 quota of 4,000,000 pounds of copper was established and a bonus of $0.05 per pound was paid for above-quota production. Gross in- come received by Corporation C for 1942 was $735,000 and included a bonus payment of $75,000 (1,500,000 times $0.05). .Allowable deduc- tions, including the smelter charges but exclusive of percentage deple- tion, amounted to $579,700. Net income from the property, without 225 regard to the allowance for depletion, was $155,300. Percentage de- pletion amouiited to $77,650 (15 percent of $735,000 but not in excess of 50 percent of $155,300) . As of December 31, 1942, it was estimated that 35,000,000 pounds of copper remained in the minerals in the mineral property. Since the excess output for 1942 did not exceed 5 percent of the estimated recoverable units for 1942, nontaxable incoiiie from, exempt excess output is not authorized by section 733(b)(1). The amount of nontaxable bonus income for 1942 is $21,177, computed as follows : 1. Normal output (pounds) (17,520,000 divided by 4) 4,380,000 2. Output for 1942 (pounds) 5, 500, ODO 3. Excess output for 1942 (pounds) (item 2 minus item 1) 1,120,000 4. Estimated" recoverable units for 1942 (pounds), (35,000,000 plus item 3) ^ • : 36, 120, 000 5. Percentage which item 3 is of item 4 (percent) 3.1' 6. Gross income for 1942 from the mineral property $735, 000 7. Allowable deductions (excluding depletion) 579,700 8. Net income from the mineral property (excluding depletion) 155,300 -9. Less percentage depletion 77, 650 10. Net income for 1942 from the mineral property 77, 650 11. Unit net income for 1942 (item 10 divided by item 2) $0. 014118 12. Quota for 1942 (pounds) 4,000,000 13. Above-quota production for 1942 (pounds) (item 2 minus item 12) 1, 500, 000 14. Net income attributable to above-quota production (item 13 times item 11 ) $21, 177 15. Bonus payments received $75, 000 16. Nontaxable bonus income (item 14 or item 15, whichever is the lesser) $21, 177 If income attributable to a strategic mineral as defined in section 731 is exempt from excess profits tax pursuant to the provisions of such section, nontaxable bonus income attributable to such strategic min- eral shall not be computed for the purposes of section 735(c) or of section 711 (a) (1) (I) or section 711 (a) (2) (K) . The portion of gross income and allowable deductions attributable to such strategic min- eral shall be excluded from the net income from the mineral properly in determining the net income attributable to other metals or non- metallic substances in the minerals recovered from such mineral prop- erty for the base- period and for the excess profits tax taxable year for which the benefits of section 735 are claimed. Sec. 35.735-5 Rule in Case Income Fkom Excess OutPtrT Includes Bonus Payment. — The_ nontaxable income attributable to exempt excess output pursuant to the provisions of section 735(b) (1), (2), 226 or (3) may include nontaxable bonus payments, as provided in section 735 (c) . In such case, the taxpayer may elect to compute its nontax- able income attributable to the output in excess of the established quota as nontaxable income from exempt excess output pursuant to the appropriate provision of section 735(b) and -section 35.735-3 or as nontaxable bonus income pursuant to section 735(c) and section 35.735-4. Such election shall be made in the excess profits tax return filed prior to the last day prescribed by law for the filing of such return for the taxable year for which the benefits of section 735 are claimed. The last day prescribed by law for the filing of the return includes the last day of the period of any extension granted for such filing. The election provided in sectiofi 735(d) must be made for each excess profits tax taxable year for which income attributable to excess output includes bonus payments. An election made with respect to one excess profits tax taxable year to receive the benefits of nontaxable bonus income under section 735(c) does not preclude the taxpayer from electing for a subsequent year to receive the benefits of nontax- able income from exempt excess output under section 735(b), and vice versa. For any excess profits tax taxable year for which an elec- tion is made under section 735(d) and this section, such election shall be made by the taxpayer by attaching to its excess profits tax return a statement showing the method of computation and the amount of nontaxable income from exempt excess output under section 735 (b) or of nontaxable bonus income under section 735(c), whichever the tax- payer elects to exclude under section 711(a)(1) (I) or section 711 (a) (2) (K) in the computation of excess profits net income. An elec- tion made by the taxpayer pursuant to the provisions of section 80.735-5 of Regulations 109 shall be deemed to be made pursuant to the provisions of this section. If the taxpayer has failed so to elect or desires to change its election, such election or change in election may, subject to the approval of the Commissioner, be made in an amended return filed by the taxpayer within the period of limitations for the filing of claims for credit or refund. The provisions of this section may be illustrated by the following • example : Example. Corporation P, which is on the calendar year basis, owns a mineral property from which is extracted minerals containing lead and silver. For each taxable year in the base period, 10,000 tons of ore, assaying 100 pounds of lead and 10 ounces of silver to the ton, were extracted from the mineral property. The output of lead for each base period year was 1,000,000 pounds; the output of silver was 100,000 ounces. Assume that the market price obtained by such corporation for lead for such period was $0.05 per pound and that the market price obtained for silver was $0.70 per ounce. The gross in- 227 come for each year" in the base period was $120,000, consisting of $50,000 received for lead and $70,000 for silver. Allowable deduc- tions for each year, including the smelter charges but excluding the allowance for depletion, amounted to $40,000. Of the amount of such deductions, $16,666.67 represented the amount allocable to lead pro- duction^ ^oTwwy times $40,000) and $23,333.33 represented the amount allocable to silver production ( loft'ono ^^'"^^ $40,000). The net income from the mineral property (computed without the allowance for de- pletion) was $33,333.33 attributable to lead, and $46,666.67 attributable to silver. The allowance for percentage depletion computed with re- spect to lead mining was $7,500 ( 15 percent of $50,000 but not in excess of 50 percent of $33,333.33) ; the allowance for such depletion com- puted with respect to silver mining was $10,500 (15 percent of $70,000 but not in excess of 50 percent of $46,666.67) . In 1942, 20,000 tons of ore were extracted from the mineral property. The quality of the ore had deteriorated so that it assayed 80 pounds of lead and 8 ounces of silver to the toii. For 1942, therefore, the total output of lead was 1,600,000 pounds, and the total output of silver was 160,000 ounces. The ceiling price of lead was $0,061/2 per pound; a quota of 900,000 pounds of lead was established by the War Production Board and the Office of Price Administration with respect to the taxpayer and a bonus of $0.02% per pound was paid to the taxpayer with respect to production in excess of such quota. The price of silver obtained by taxpayer was $0.70 per ounce.. The gross income for 1942 was $235,250 consisting of $123,250 attributable to lead and $112,000 at- tributable to silver. The bonus payments received by the taxpayer with respect to above-quota production of lead, included in gross in- come attributed to lead, amounted to $19,250 (700,000 pounds of lead times $0.02% per pound). Allowable deductions for the year, includ- ing the smelter charges but excluding the allowance for depletion, amounted to $80,000. Of the amount of such deductions, $41,912.86 (123 250 „„p.' k tt times $80,000) and $38,087.14. represented the amount allocable to silver pro- duction ( ^r^~5^ times $80,000). The net income from the mineral 'property (computed without the allowance for depletion) was $81,- 337.14 attributable to lead and $73,912.86 attributable to silver. The allowance for percentage depletion computed with respect to lead mining was $18,487.50 (15 percent of $123,250 but not in excess of 50 percent of $81,337.14) ; the allowance for such depletion computed with respect to silver mining^was $16,800 (15 percent of $112,000 but 228 not in excess of 50 percent of $73,912.86) . It is estimated that as of December 31, 1942, there were 6,500,000 pounds of lead and 510,000 ounces of silver remaining in the mineral property. For 1942 the amount of nontaxable income from exempt excess output of lead was $3,099.60, the amount of nontaxable bonus income from lead was $19,250, and the amount of nontaxable income from exempt excess output of silver was $6,510.06. Since the amount of nontaxable bonus income with respect to the output of lead which exceeds the established quota and which also constitutes excess output, i. e., 600,000 pounds, was $16,500 (item 33 in the following computation) and exceeded $8,099.60 representing the nontaxable income from exempt excess output of lead. Corporation P elected under section 735(d) to exclude $16,600 with respect to such 600,000 pounds in the computation of excess profits net income. With respect to the remaining portion of its output in excess of the estab- lished quota, i. e., 100,000 pounds, Corporation P excluded nontaxable bonus income of $2,750 (item 84) in the computation of excess profits net income pursuant to section 735(c). Com.'putaiion Lead Silver 1. Normal output: a. Lead (pounds) (4,000,000 divided by 4) b. Silver 'ounces) (400,000 divided by 4) 2. Output for 1942. 3. Excess output (item 2, minus item la or 16) _._ 4. Estimated recoverable units as of December 31, 1942: a. Lead (pounds) (6,600,000 plus 600,000) b. Silver (ounces) (610,000 plus 60,000) 6. Percentage which item 3 is of item 4a or 46 (percent)... «. Percentage of item 3 to be used in computing exempt excess output (percent) 7. Exempt excess output (item 3 times item 6) _ 8. Normal unit profit (item 17) _, 9. Nontaxable income from exempt excess output (item 7 times iteim 8) but not in excess of item 24.. NOSMAL UNIT PEOFIT 10. Gross income from the mineral property for each base period year n. Allowable deductions (excluding allowance for depletion) for each base period year -. 12. Net income from the mineral property (excluding allowance for de- pletion) for each base period year 13. Allowance for percentage depletion . . 14. Net Income from the mineral property for each base period year.. 16. Aggregate net income from the mineral property for the base period. 16. Aggregate mineral units recovered during the base period 17. Normal unit profit (item 15 divided by item 16) 1, 000, 000 1, 600, 000 600,000 7, 100, 000 8.46 20 120,000 $0. 02583 $3, 099. 60 $60, 000. 00 16, 666. 67 7,600.00 26,833.33 103, 333. 32 4,000,000 $0.02683 100,000 160,000 60,000 670,000 10.63 18.000 - $0. 36167 $6, 610. 06 $70, 000. 00 23, 333. 33 46, 666. 6^ 10,500.00 36,166.67 144,666.68 400,000 $0. 36167 229 Computation — Continued Lead Silver NET INCOME ATTRIBUTABLE TO EXCESS OUTPUT 18. Gross income from the mineral for 1942 _ 19. Allowable deductions Cexclnding allowance for depletion) for 1942 20. Net income from the mineral property (excluding allowance for deple- tion) for 1942 _ 21. Allowance for percentage depletion 81,337.14 18, 487. 60 22. Net income from the mineral property for 1942. _ 23. Unit net income .for 1942 (item 22 divided by item 2). 24. Net income attributable to excess output tor 1942 (item 3 times item 23) NONTAXABLE BONUS INCOME 62, 849. 64 23,568.00 25. Quota established for 1942 (pounds) 26. Total output for 1942 (pounds) 27. Above-quota output (pounds) _ 28. Bonus payments received (item 27 times $0,02?i) 29. Net income attributable to above-quota output (item 27 times item 23). 30. Nontaxable bonus income (item 28 or item 29, whichever is the. lesser).. COMPUTATION OF NONTAXABLE INCOME FROM EXEMPT EXCESS OUTPUT AND FROM BONUS PAYMENTS WITH RESPECT TO 1942 EXCESS OUTPUT IN EXCESS OF QUOTA 31. Item 3 or item 27, whichever is the lasser .-. 32. Nontaxable incom.e from exempt excess output computed with respect to item 31 (item 9) — - 33. Nontaxable bonus income computed with respect.to item 31 (item 31 times $0.02?4) 34. Nontaxable bonus Income computed with respect to above-quota output in excess of 600,000 pounds, i. e., 100,000 times $0.02M (item 30 minus item 33) $112,000.00 38,087.14 73,912.86 16,800.00 57, 112. 86 $0. 3.5696 21,417.60 Lead 900,000 , 1,600,000 700, 000 $19, 250 .$27, 496 $19, 2S0 600,000 $3, 099. 60 $16, 500. 00 $2,750.00 SEC. 736. RELIEF FOR INSTALLMENT BASIS TAXPAYERS AND TAXPAYERS WITH INCOME FROM LONG-TERM CONTRACTS. [Added by Sec. 222(d), Rev. Act 19-12.] (a) Election to Accrue Income. — In the case of any taxpayer com- puting income from Installment sales under the method provided by section '44(a), if such taxpayer establishes, in accordance with regula- tions prescribed by the Commissioner with the approval of the Secre- tary, that the average volume of credit extended to purchasers on the installment plan in the four taxable years preceding the first taxable year beginning after December 31, 1941, was more than 125 per centum of the volume of such credit extended to such purchasers in the taxable year, or the average outstanding installment accounts receivable at the end of each of the four taxable years preceding the first taxable year beginning after December 31, 1941, was more than 125 per centum of the arhount of such accounts receivable at the end of the taxable year, or if the taxpayer was not in existence for four previous taxable years, the taxable years during which the taxpayer was in existence, in either case including only such years for which the income was computed' under the method. provided in section 44 — Continued Pursuant to election under section 736(b) 14. Excess profits net Income (percentage of completion method) $139, 000. 00 15. Less: Excess profits credit $113,050 16. Specific exemption 5, 000 118,050.00 17. Adjusted excess profits net Income 20,950.00 18. Excess profits tax (90 percent) 18,855.00 19. Excess profits tax upon which is based credit under section 26(e) for 1942 income tax purposes (item 18 plus $16,759.9~4, portion of increase in 1941 excess profits tax attributable to contract G completed in 1942') 1 35,614.94 20. Credit under section 26(e) for income subject to excess profits tax for 1942 income tax purposes (amount of which $35,- 614.94 (item 19) is 90 percent) 39,572.16 Without regard to section 736(b) (i) Excess profits net income (completed contract basis) $205,000.00 (ii) Less: Excess profits credit $67,212.50 (lli) Specific exemption ; 5,000.00 72, 212. 50 (Iv) Adjusted excess profits net income 132, 787. 50 (v) Excess profits tax ($41,500 plus 50 percent of $32,787.50) 57, 893. 75 Pursuant to election under section 736(b) (vi) Excess profits net income percentage of completion method) : $300, 000. 00 (vii) Less: Excess profits credit $113,050 (viii) Specific exemption 5, 000 118,050.00 (ix) Adjusted excess profits net income 181,950.00 (x). Excess profits tax ($41,500 plus 50 percent' of $81,930) 82,475.00 (xi) Increase in excess profits tax due to election under section 736(b) (item (x) minus item (v) ) ^ 24,581.25 (xii) Portion of increase attributable to contract G completed in 1942 (IIq^^ of $24,581.25) 16,759.94 ' This amount Is derived from the following computations of excess profits tax for 1941 under the law applicable to 19il. For complete computations of the income and excess profits taxes for 1940 and 1941 both without regard to. section 736(b) and pursuant to election under section 736(b), in the case of the above example, see the example in section 30.736(b)-3(e) of Regulations 109. 257 - Excess profits tax — Oontinued Pursuant to election under section 736(b) — Continued Tax computed without regard to section 736(b) : Income tax -_ . $35, 606. 25 Excess profits tax : 134, 935. 93 Total 170, 592. 18 Tax computed pursuant to election under section 736(b) Income tax :. : !__ 79, 771..14 Excess profits tax 1 18, 855. 00 Total ., r.8, 626. 14 Tax saving resulting from election under section 736(b) 71, 966. 04 [SEC. 736. RELIEF FOR INSTALLMENT BASIS TAXPAYERS AND TAXPAYERS WITH INCOME FROM LONG-TERM CONTRACTS. (Addes) by Sec. 222(d), Rev. Act 1942.) ] 4i * « « H< i|( « . (c) Adjustment on Account of Change. — If an adjustment specified in subsection (a) or subsection (b), as the case may' be, is, vi^ith respect to any taxable year, prevented, on the date of the election by the tax- payer under subsection (a) or subsection (b), as the case may be, or_ within two years from such date, by any provision or rule of law (other .than this section and other than section 3761, 'relating to compromises), such adjustment shall nevertheless be made if in respect of the taxable year for which adjustment is sought a notice of deficiency is mailed or a claim for refund is filed, as the case may be, within two years after the date such election is made. If at the time of the mailing of such notice of deficiency or the filing of such claim for refund, the adjustment is so prevented, then the amount of the adjustment authorized by this sub- section shall be limited to the increase or decr^ease in the tax imposed by Chapter 1 and this subchapter previously determined for such taxable year which results solely from" the effect of subsection (a), or subsection (b), as the case may be, and such amount shall be assessed and collected, or credited or refunded, in the same manner as if it were a deficiency or an overpayment, as the case may be, for such taxable year and as if on the date of such election, two years remain before the expiration of the period of limitation upon assessment or the filing of claim for re;- fund for the taxable year. The tax previously determined shall be ascer- tained in accordance with section 734(d). The amount to be assessed and collected under this subsection in the same manner as if it were a deficiency or to be refunded or credited in the same manner as if it were an overpayment, shall not be diminished by any credit or set-off based upon any item, inclusion, deduction, credit, exemption, gain or loss, other than one resulting from the effect of subsection (a) or subsection (b), as the case may be. Such amount, if paid, shall not be recovered by a claim or suit for refund, or suit for erroneous refund based upon any item, inclusion, deduction, credit, exemption, gain or loss, other than one resulting from the effect of subsection (a) or subsection (b), as the case may be. Shc. 35.736(c)-1 Adjustment on AccoTj>fT of Change Arising niOM EuECTiON Under Section 736(a) or St;ction 736(b). — The re- 258 computation of the tax liability authorized by section 736 (c) applies to the income tax and to the surtax on corporations Improperly ac- cumulating surplus, imposed by Chapter 1, and to the excess profits tax impoEed by Subchapter E of Chapter 2. Under section 736(c), if the adjustment of any of such taxes imposed for any taxable year, to give effect to the recomputatioHs provided under section 736(a) (in the case of an installment basis taxpayer) or under section 736(b) (in the case of a taxpayer with long-term contracts) , is prevented on the date of the election hy the taxpayer under section 736(a) or sec- tion 736(b) , as the case may be, or within two years from such date by any provision of law (other than section 736 and other than section 3761, relating to compromises) or by any rule of law, including the doctrine of res adjudicata, an adjustment shall nevertheless be made if with respect to.the taxable year for which such adjustment is sought a notice of deficiency is mailed or a claim for refund is filed, as the case may be, within two years after the date such election was made. Section 736(c) applies only if at the time of filing of a claim for re- fund or the mailing of the notice of the deficiency the adjustment would otherwise be prevented by the running of the statute of limita- tions, by the execution of a closing agreement, by the operation of the rule of res adjudicata, or because of other reasons. For reference to provisions which would prevent adjustment except for the provi- sions of section 736(c), see section 29.3801 (b)-0 of Kegulations 111. Section 736(c) is not applicable if, on the date of the filing of the claim for refund or the mailing of the notice of deficiency, adjustment of the tax liability is permissible without recourse to such section. The amount of the adjustment authorized by section 736 is limited to the increase or decrease in the tax imposed by Chapter 1 or the tax imposed by Subchapter E of Chapter 2 previously determined for the taxable year which results solely from the revision of the excess profits tax liability effectuated by section 736(a) or section 736(b), as the case may be, and the collateral effects of such revision upon items of income, deductions, credits, average base period net incontie, etc., al- ready taken into account in ascertaining the tax previously deter- mined. The tax previously determined shall be ascertained in ac- cordance with section 734 (d) . See section 35.734-4. If the amount of the adjustment determined under section 736(c) represents an increase in tax, it is to be treated in the same mariner, and assessed and col- lected as if it were a deficiency for the taxable year ; if the amount of the adjustment represents a decrease in tax, it is to be treated, cred- ited, or refunded, in the same manner as if it were an overpayment for the taxable year. In either case the increase or decrease shall be treated as if on the date of the election pursuant to section 736(a) or section 736(b), as the case may be, two years remain before the ex- piration of the period of limitation upon assessment or the filing of a 259 claim for refund for the taxable year. The amount of the adjustment' considered as a deficiency or as an, overpaymentj as the case may be,- will bear interest to the extent provided by the internal revenue laws applicable to deficiencies and overpayments for the taxable year for which the adjustment is made. The amount of any adjustment under section 736(c) to be collected in the same manner as if it were a deficiency and the amount of any adjustment to be refunded or credited in the same manner as if it were an overpayment, as the case may be, shall not be diminished by any credit or set-off based upon any item, inclusion, deduction, credit, ex- emption or gain or loss other than one resulting from the effect of section 736 (a) or section 736 (b) , as the case may be. The amount of ■ any adjustment under the provisions of section 736(c) which is refunded may not subsequently be recovered in a suit for erroneous refund based upon any adjustment other than one re- sulting from the revision of excess profits tax liability occasioned by the recomputation of tax pursuant to an election under section 736(a) or section 736 (b) , as the case may be. The amount of any adjustment under section 736(c) which is assessed and collected as a deficiency may not thereafter be recovered by the taxpayer in any suit for refund based upon any adjustment other than one resulting from the revision of excess profits tax liability occasioned by the recomputation of tax pursuant to an election under section 736(a) or section 736(b), as the case may be. SUBPART II— RULES IN CONNECTION WITH CERTAIN EXCHANGES Supplement A — Excess Profits Credit Based on Income SEC. 740. DEFINITIONS. [Added by Sec. 201, Second Rev. Act 1940; Amended by Seo. 8 (a), (b), and (c), Excess Pbopits Tax Amendments l&ll, and by Sec. 228(a), Rev. Act 1942.] For the purposes of this Supplement — (a) Acquiring Corporation. — The term ^'acquiring corporation" means — (1) A corporation which has acquired — (A) substantially all the properties of another corporation and the whole or a part of the consideration for the transfer of such properties is the transfer to such otheir corporation of all the stock of all classes (except qualifying shares) of the corporation which has acquired such properties, or (B) substantially all the properties of another corporation and the sole consideration for the transfer of such properties is the transfer to such other corporation of voting stock of the corporation which has acquired such properties, or (0) before October 1, 1940, properties of another corporation solely as paid-in surplus or a contribution to capital in respect of voting stock owned by such other corporation, or 260 (D) substantially all the properties of a partnership In an exchange to which section 112(b)(5), or so much of sec- tion 112 (c) or (e) as refers to section 112(b) (5), or to which a corresponding provision of a prior revenue law, is or was applicable. For the purposes of subparagraphs (B) and (C) in determining whether such voting stock or such paid-in surplus or contribution to capital is the sole consideration, the assumption by the acquiring corporation of a liability of the other, or the feet that property acquired is subject to a liability, shall bef disregarded. Subpara- graph (B) or (C) shall apply only if the corporation transferring such properties is forthwith completely liquidated in pursuance of the plan under which the acquisition is made, and the transaction of which the acquisition is a part has the effect of a statutory merger or consolidation. (2) A corporation which has acquired property from another corporation in a transaction with respect to which gain or loss was not recognized under section 112(b)(6) of Chapter 1 or a corre- sponding provision of a prior revenue law ; (3) A corporation the result of a statutory merger of two or more corporations; or (4) A corporation the result of a statutory consolidation of two or more corporations. (b) Component Coepoeation. — ^The term "component corporation" means — (1) In the case of a transaction described in subsection (a)(1), the corporation which transferred the assets ; (2) In the case of a transaction described in subsection (a)(2), the corporation the property of which was acquired ; (3) In the case of a statutory merger, all corporations merged, except the corporation resulting from the merger ; or (4) In the case of a statutory consolidation, all corporations consolidated, except the corporation resulting from the consolida- tion ; or (5) In the case of a transaction specified in subsection (a) (1) (D), the partnership whose properties were acquired, (c) Income of Ceetain Component Gobpobations Not Included. — For the purposes of section 712, section 742, and section 748 in the case of a corporatibn which is a component corporation in a transaction described in subsection (a) — (1) Except as provided in paragraph (2), for the purpose of computing, for any taxable year beginning after December 31, 1941, the excess profits credit of such component corporation or of an acquiring corporation of which the acquiring corporation in such transaction is not a component, except in the application of sections 713(f) and 742(h) (other than the limitation on the amount of average base period net income or Supplement A average base period net income, as the case may be, determined thereunder), no account shall be taken of the excess profits net income of such comiwnent corporation for any period before the day after such transaction, or of the excess profits net income for any period before tlio day after such transaction of its component corjwrations in any transaction before such transaction, and no account shall be taken of 261 , , the capital addition or. capital reduction of such .component corpora- tion either immediately before such traijsaction or for any prior period, or of the capital addition or capital reduction either immedi- ately before such transaction or for any prior period of its component corporations in any transaction before such transaction. < (2) In case such transaction occurred in a taxable year of such component corporation beginning after December 31, 1941, for the purpose of computing the excess profits ciedit of such component corporation for such taxable year, the amount of its average base period net income or Supplement A average base period net income, as the case may be, shall be limited to an amount which bears the same ratio to such average base period net income or Supplement A average base period net income, as the case may be (computed with- out regard to this paragraph but with the application of paragraph (1) in case of a prior transaction described in subsection (a) with respect to such component corporation or a component corporation thereof), as the number of days in such taxable year before the day after such transaction bears to the total number of days In such taxable year. For the purposes of section 742, in the case of a corporation which is a component corporation in a transaction described in subsection, (a), in computing for any taxable year the Supplement A average base period net income of the acquiring corporation in such transaction or of a corporation of which such acquiring corporation becomes a com- ponent corporation, no account shall be taken of the excess profits net Income of such component corporation for any period beginning with the day after such transaction. (d) In the case of a taxpayer which is an acquiring corporation the base period shall be the four calendar yearg 1936 to 1939, both Inclusive, except that,. if the taxpayer became an acquiring corporation prior to September 1, 1940, the base period shall be the same as that applicable to its first taxable year ending in 1941. (e) Base Period Yeaes. — In the case of- a taxpayer which is an ac- quiring corporation its base period years shall be the four successive twelve-month periods beginning on the same date as the beginning of its base period. (f ) Existence of Acqthking Coepoeation. — For the purposes of sec- tion 712(a), if any component corporation of the taxpayer was in exist- ence before January 1, 1940, the taxpayer shall- be considered to have been in existence before such date. (g) Component Cobpobations of Component Coeporations. — If a corporation is a component corporation of an acquiring corporation, under subsection (b) or under this subsection, it shall (except for the purposes of section 742(d) (1) and (2) and section 743(a) (1), (2), and (3)) also be a component corporation of the corporation pf which such acquiring corporation is a component corporation. (h) Sole Peopkietokship. — For the purposes of sections 740(a) (1) (D), 740'(b)(5), and 742(g), a business owned by a sole proprietorship shall be considered a partnership. Sec. 35.740-1 Ptjepose and Scope of Supplement A. — (a) The term "Supplement A," when used in these reguhitions, means sections 740 and 742 to 744. Supplement A provides rules governing the right 262 to use the excess profits credit based on income and the method of computing such credit, in the case of certain " acquiring " corpora- tions. An acquiring corporation is a domestic corporation which Las absorbed one or more other domestic corporations, partnerships, or businesses owned by sole proprietorships in a transaction meeting the requirements set forth in section 740(a), which transaction is gen- erally referred to in these regulations as, a "Supplement A transac- tion." Each such absorbed corporation, partnership, or business owned by a sole proprietorship is designated a component corporation of the acquiring corporation. Furthermore, except for the purposes of sec- tion 742(d) (1) and (2) and section 743(a) (1), (2), and (3), if an acquiring corporation is later absorbed by another acquiring corpora- tion, all of the component corporations of the first acquiring cor- poration become component corporations of the second acquiring corporation. A foreign corporation cannot be an acquiring corpora- tion and neither a foreign corporation, a foreign partnership, nor a business owned by a foreign sole proprietorship can be a component corporation (see section 744) . (&) The purpose of Supplement A is in general to attribute to an acquiring corporation the existence of corporations, partnerships, or businesses owned by sole proprietorships absorbed by it, together with the base period excess profits net income or deficit in excess profits net income and the net capital changes of such predecessors, in order (1) that a corporation the corporate life of which in sub- stance, though not in form, includes the base period may use the excess profits credit based on income and (2) that a corporation composed in whole or in part of component corporations may compute its excess profits credit in the light of the base period experience of the entire enterprise. Accordingly, an acquiring corporation which was not actually in existence before the close of its base period, as defined in section 740(d), is given the right to use the excess profits credit based on income, provided that it has a component corporation actually in existence before January 1, 1940. In the case of an acquiring cor- poration which was actually in existence before January 1, 1940, and which uses an excess profits credit based on income, its average base period net income must be computed under section 713 or Supplement A, whichever method results in the greater average base period in- come. If an acquiring corporation computes its average base period net income under Supplement A, it is required to take into account the daily capital addition or reduction of each component corporation in computing its daily capital addition or reduction for each day after the Supplement A transaction, subject to the rules of section 743 and section 35.743-1. 263 S;p:o. 35.74(X-2 Teansactions Wheeebt a Coepokation Becomes an AcQumiNG CoEPOEATiON. — (ffl) The types of transactions whereby a corporation can become an acquiring corporation are specifically described in section 740(a). In addition to statutory mergers and consolidations and the acquisition of property in a complete liquida- tion in which gain or loss is not recognized because of the provisions of section 112(b) (6) or the same section as contained in the Revenue Act of 1936 or 1938, only the following types of transactions are included-: (1) The acquisition by one corporation, in exchange in whole or in part for all of its stock of all classes (except qualifying shares), of substantially all the properties of another corporation. See section 112(g)(1)(D).- ' . , . (2) The acquisition by one corporation, in exchange solely for all or a part of its voting stock, of substantially all the properties of another corporation, but in determining whether the exchange is solely for voting stock the assumption by the acquiring corporation of a liability of the other, or the fact that property acquired is subject to a liability, shall be disregarded. See section 112(g) (1) (C). In this type of transaction it is also required that the trans- feror corporation be forthwith completely liquidated pursuant to the plan under which the transfer of its properties was made and that the transaction of which the transfer is a part have the effect of a statutory merger or consolidation. (3) The acquisition before October 1, 1940, by one corporation of properties of another corporation solely as paid-in surplus or a contribution to" capital in respect of voting, stock of the acquiring corporation owned by the transferor corporation, but in determining whether the acquisition is solely as paid-in surplus or a contribution to capital the assumption by the Efcquiring corporation of a liability of the other, or the fact that property acquired is' subject to a liability, shall be disregarded. As in the case of (2) above, it is also required that the transferor corporation be forthwith completely liquidated pursuant to the plan under which the transfer of prop- erties was 'made and that the transaction of which the transfer is a part have the effect of a statutory merger or consolidation. (4) The acquisition of substantially all the properties of a partner- ship in an exchange to which section 112(b) (5) , or so much of section 112(£) or (e) as refers to section 112 (b) (5) , or to which the correspond- ing provisions of a prior revenue law, is or was applicable. For the purposes of this paragraph a business owned by a sole proprietorship shall be considered a partnership. (-5) The types of transactions set forth in section 740(a), other than those set forth in section 740(a)(1)(C), either are embraced 264 within the definition of a reorganization contained in section 112(g) (1), are transfers to a controlled corporation within the -mean- ing of section 112(b) (5) and related sections, or are complete liqui- dations within the meaning of section 112(b) (6). Since Supplement A applies only to cases where there is a sufficient continuity of in- terest to justify treating a corporation by which the assets of another corporation, a partnership, or a business owned by a sole proprietor- ship have been acquired, as standing in the place of its predecessor, such transactions must satisfy all the requirements of the regulations prescribed under section 112 with respect to such transactions in order that the transferee corporation may be treated as an acquiring sorporation. (c) The purposes of section 740(c) are fourfold : (1) In general, it confines the base period experience of a com- ponent corporation for the period before the day after the Supple- ment A transaction and its capital changes immediately before such transaction and for any prior period to the acquiring corporation in such transaction or to an acquiring corporation of which the first acquiring corporation is a component corporation. (2) It permits a component corporation which does not terminate its existence in connection with the Supplement A transaction to take into account its entire base period experience (including that for the day of and the period before such transaction) for the purposes of sections 713(f) and 742(h), except that its experience for the period before the day after the transaction cannot be taken into account for the purpose of applying the limitation prescribed in such sections as to the maximum amount of average base period net income. (See further section 35.742-1 (e).) (3) It limits a component corporation which does not terminate its existence in connection with the Supplement A transaction, for the purpose of its credit under section 713 or section 742 in computing its excess profits tax for the taxable year in which the transaction occurs, to the proportionate part of its base period experience (after the appli- cation of section 74D(c) (1), as explained in (1) and (2) above in case of a prior transaction) which the number of days in such taxable year before the day after such transaction bears to the total number of days in such taxable year. If the component corporation goes out of existence on the day of the Supplement A transaction in a tax- able year of such component which begins after December 31, 1941, and ends on the day of the Supplement A transaction (by reason of the termination of its existence, or for any other reason), it is entitled, subject to these regulations, to use its entire average base period net income for the purpose of computing its excess profits credit to be applied for such year. (For a eorresponding provision in the case of the acquiring corporation in a Supplement A transaction occurting 265 during its excess profits tax taxable year and an illustration of the application of such correqoonding provision and section 740(c)(2), see section 742(f)(2) and section 35.742-3(o).) (4) It prevents a corporation acquiring a component corporation which does not terminate its existence in connection with the transr action from taking into account the base period experience of the component corporation after such transaction for the purpose of computing its excess profits credit based on income. The operation of section 740(c) , from the standpoint of the purpose described in (1) above, is as follows: If a corporation is a component corporation in, for example, a transaction described in section 740(a) (1) (A), occurring within the base period, and if the existence of such corporation is not terminated in connection with such transac- tion, its base period experience for the period before the day after such transaction is given to the acquiring corporation in such transaction or to an acquiring corporation of which the first acquiring corpora- tion is a component corporation. Consequently, assuming that such component corporation remains _in existence and continues business with properties acquired after such transaction, it will not, except for a limited purpose in computing average base period net income under section 713 ( f ) or section 742 (h) , receive any benefit from its experience on the day of and prior to such transaction, nor can its experience on the day of and prior to such transaction be passed on to another ac- quiring corporation in a subsequent Suppleinent A transaction in which it is the component corporation. The same rule is applicable to each successive Supplement A transaction to which such corporation is a party as a component corporation and in connection with which its existence is not terminated. Section 740(c) applies to all types of Supplement A transactions, whether or not complete liquidation of the component corporation is specifically required in connection therewith. If a Supplement A transaction occurred in a taxable year of the component corporation beginning in the base period, the excess profits net income of such component corporation for the portion of the tax- able year after the transaction and for the prior portion of the tax- able year (which is to be taken into account only by the acquiring cor- poration in such transaction) shall be computed on the basis of its income as ^own by its books if the accounts are so kept that excess profits net income for each of such portions can be clearly and accu- rately determined. If the accounts are not sd kept, the excess profits net income for the portion of the taxable year after the transaction shall be considered to be an amount which bears the same ratio to the excess profits net income for such taxable year as the number of days in such taxable year after such transaction bears to the total number 488313° — 43 18 266 of days in such taxable year, and the excess profits net income for" the prior portion of such taxable year shall be considered to be the bal- ance of the excess profits net income for such taxable year. However, if items of income and deduction are clearly and accurately deter- mined to be attributable to particular portions of the taxable year, such items may be eliminated before the above proration is made, and after the proration is made such items will be added to (if items of income) or deducted from (if deductible items) the excess profits net income determined by the proration for the period to which such items are attributable. The application of the provisions of section 740(c) may be iUus- strated by the following example : Example. A, B, and C, corporations which have .always made their income tax returns on the calendar year basis, were in existence on January 1, 1936, and have continued in existence at all times since that date. On December 31, 1938, B acquired the properties of A in a transaction described in section 740(a)(1)(A). A converted into scash the stock in B which it received in such transaction, and with the proceeds of such conversion acquired new properties. It operates such properties continuously down to the time C acquires such prop- erties from A on October 19, 1943, in a transaction' described in sec- tion 740(a) (1) (A). A continues in business throughout 1943, operat- ing properties which it purchased with the proceeds of the conversion of the stock in C received in the second transaction. The operation of section 740(c) under circumstances outlined in this example is as follows : {a) As to B. In determining its average base period net income under Supplement A for the purposes of the excess profits taxes for 1942 and 1943, B takes into account A's base period experience for 1936, 1937, and 1938. Inasmuch as the transaction involving B occurs within the base period, there "is no capital addition or reduction of A to be transferred to B. See section 743. (&) As to A. In determining its average base period net income under the general average method for the purposes of its excess profits tax for 1942, A takes into account its base period experience for 1939, but is denied the right to use its base period experience for 1936, 1937, and 1938. However, in determining its average base period net in- come under the growth formula, for purposes of its excess profits tax for 1942, A takes into account its base period experience for 1936, 1937, 1938, and 1939, except that such average cannot exceed its ex- cess profits net income for 1939. When A determines its excess profits tax for 1943, it takes into account for the purpose of its average base period net income under the general average method only four-fifths (the ratio of the number of days in January 1, 1943-October 19, 1943, 267 inclusive (292), oyer the number of days in 1M3 (365) ) of its base period experience for 1939 ; for the purpose of the growth formula it takes into account only f our -fifths of its average base period experi- ence determined, under such formula. It, does not take into account for the purpose of its tax for 1943 any of its capital addition or reduction attributable to the time immediatelj'^ before the transac- tion. A will be entitled, however, to use the credit based on invested capital. (c) As to C. Section 740(c) is first applicable to C with respect to 1943. In determining its average base period net income under Supplement A for the purposes of its excess j)rofits tax for that year, under the general average method C takes into account one-fifth of A's base period experience for 1939, and for the purpose of the growth formula (except in computing for such purpose the limitation as to the year of the highest excess profits net income) it takes into account one-fifth of A's average base period net income determined under such formula. See- section 742(f)(2). In determining C's average base period net income under Supplement A for the purposes of its excess profits tax for 1944, C takes into account all of A's base period experience for 1939 if the general average method is used, or all of A's base period experience for the purpose of the growth formula (except the limitation luider such formula with respect to the year of the highest excess profits net income). Moreover, as the transaction in- volving C occurs after the close of the base period, A's daily capital addition and' reduction as of the time immediately before the trans- action are transferred to C. See section 743. Sec. 35.740-3 Base Period and Base Peeiod Yeaes or Acquiring CoKPOEATioN. — The base period of a taxpayer, the average base period net income of which is computed under Supplement A, is (a) the four calendar years 1936, 1937, 1938, and 1939, except in cases to which (5) applfes, or (&) if the taxpayer became an acquiring corporation prior to September 1, 1940, the 48 months preceding the date in 1940 on which its first excess profits tax taxable year ending in 1941 be- gan or the date in 1940 which corresponds to the date in 1941 on which its first excess profits tax taxable year ending in 1941 be- gan, as the case may be. The base period "once determined under this section for purposes of Supplement A is not affected by the fact that the taxpayer subse- quently changes its taxable year. The base period years of an acquiring corporation are four in num- ber, being composed of th6 four successive 12-month periods beginning on the same date as the beginning of its base period. Thus, if the base 268 - . period bogins January 1, 1936, the four base period years are the four calendar years 1936, 1937, 1938, and 1939. Sec. 35.740^ Partnerships and Sole Proprietorships Under SUPPLEMENT A. — A partnership (or a business owned by a sole pro- prietorship) can be a component corporation for the purposes of Sup- plement A, subject to the exceptions in section 740(g). However, a partnership (or a business owned by a sole proprietorship) cannot be an acquiring corporation and, therefore, section 740(g) cannot operate to make any of its predecessors component corporations of its acquir- ing corporation. SEC. 741. ALLOWANCE OP EXCESS PROFITS CREDIT. [Added by Sec. 201, Second Rev. Act 1940 ; Amended by Sec. 14, Excess Pkofits Tax Amendments 1941 ; Not Applicable to Taxable Ye-^ks XlNDiaj These Regulation's (Secs. 224(b) and 228(b), Rev. Act 1942).] SEC. 742. SUPPLEMENT A AVERAGE BASE PERIOD NET IN- COME. [Added by Sec.^ 201, Second Rev. Act 1940; Amended by ^Ecs. 8 AND 15, Excess Pkofits Tax Amendmcents 1941, and by Sec 228(c), Rev. Act 19^2.] In the case of a taxpayer which is an acquiring corporation, its aver- age base period net incojne (for the purpose of the credit computed under section 713) shall be the amount computed under section 713 or the amount of its Supplement A average base period net income, which- ever is the greater. The Supplement A average base period net income shall be the amount computed without regard to subsection (h) of this section or computed under subsection (h) of this section, whichever is the greater. The Supplement A average base period net income shall be computed as follows : (a) By ascertaining with respect to each of its base period years — (1) The amount of its and each of its component corporation's excess profits net income for each of its and such component cor- poration's taxable years beginning with or within such base period year; or, in the case of each such taxable year of the taxpayer' or of such component corporation, as tlie case may be, in which the de- ductions plus the credit for dividends received and the credit pro- vided in section 26(a) (relating to interest on certain obligations of the United States and its instrumentalities) exceeded the gross income, the amount of such excess ; (2) (A) The aggregate of the amounts of excess profits net income ascertained under paragraph ( 1 ) ; ( B ) the aggregate of the excesses ascertained under paragraph (1) ; and (C) the difCerence between the aggregates found under clause (A) and clause (B). If the aggregate ascertained under clause (A) is greater than the aggre- gate ascertained under clause (B), the difference shall for the pur- poses of subsection (b) be designated a "plus amount", and if the aggregate ascertained under clause (B) is greater than the aggro- gate found under clause, (A), the difference shall for the purposes of subsection (b) be designated a "minus amount". If, in the case of the taxpayer or any component corporation of the taxpayer, one and only one taxable year of the taxpayer or such com- ponent corporation, as the case may be, begins with or within such base 269 period year and such taxable year is less than twelve laontlis, tlie amount of tlie excess profits net income, or the amount of snch exccsp of deductions xflns the credit for diTldends received and the credit pro- vided in section 26(a) (relating to interest on certain obligations of the United States and its instrumentalities) over gross income, as the case may be, for such taxable year, shall be placed on an annual basis in the same manner as is provided in section 711(a)(3). If more than one taxable year of the taxpayer or such component corporation, as the case may be, begins with or within snch base period year, the aggregate of the amounts of excess profits net income minus the aggregate of the excesses of deductions plus the credit for dividends received and the credit provided insectlon 26(a) (relating to interest on certain obligations of the United States and its instrumentalities) over gross income, or the aggregate of such excesses minus the aggi'e- gate of the amounts of excess profits net income, as the case may be, for such taxable years shall be adjusted to such extent as the Commissioner, under regulations prescribed by him with the approval of the Seci'e- tary, prescribes as necessary in order that such base period year shall reflect Income for a period of twelve months. For ^he purposes of this section, a taxable year of a component corporation beginning within the base period which also begins with or within the taxable year of the acquiring corporation in which the acquisition occurred, or which also begins with or within the same base period year with which or within which began such taxable year of the acquiring corporation, shall be considered a taxable year of the acquiring corporation, and such tax- able year shall be considered to have begun in the base period year with which or within which such taxable year of the acquiring corporation began. (b) By adding the plus amounts ascertained under- subsection (a) (2) for each year of the base period;- and (1) If the tax under this subchapter is being computed for a tax- able year not beginning after December 31, 1941, by subtracting from such sum, if for two or moTe years of the basis [sic] period there was a minus amount, the sum of the minus amounts, excluding the greatest ; or . (.2) If the tax under this subchapter is being computed for a tax- able year lieginning after December 31, 1941, by subtracting from such sum the sum of the minus amounts. If the amount used under the preceding sentence for the lowest year is less than 76 per centum of the sum of the plus amounts reduced by the sum of the minus amounts for the other years in the base period divided by three, the amionnt which shall be used for such lowest year shall be 75 per centum of the amount last ascertained. (c) By dividing the amount ascertained 'Under, subsection (b) by four. (d) In no ease shall the average base period net income be less than zero. In the case of a taxpayer which becomes an acquiring corpora- tion in • any taxable year beginning after December 31, 1939, if, on September 11, 1940, and at all times until the taxpayer became an acquiring corporation — <1) the taxpayer owned not less than 75 per centum of each class of stock of each of the qualified component corporations in- ~ volved in the transaction in which the taxpayer became an acquir- ing corporation ; or 270 (2) one of the qualified component corporations Involved In the transaction owned not less than. 75 per centum of 6ach class of stock of the taxpayer, and of each of the other qualified component corporations involved in the transaction, the average base period net income of the taxpayer shall not be less than (A) the average base jperiod net Income of that one of Its qualified com- ponent corporations involved in the transaction the average base period net income of which is greatest, or (B) the average base period net income of the taxpayer computed without regard to the base period net income of any of Its qualified component corporations involved in the transaction. As used in this subsection, the term "qualified component corporation" means a component corporation which was In existence on the date of the beginning of the taxpayer's base period, (e) For the purposes of subsection (a) (1) of this section — (1) If neither the taxpayer corporation nor any of its com- ponent corporations was actually in existence on December 31, 1936, the excess profits net income of each such corporation for each base period year at no time during which any of such corporations was actually in existence, shall (except in the case of a corpora- tion which became a component corporation of its acquiring cor- poration before the beginning of the acquiring corporation's first taxable year which began in 1940) be an amount equal to 8 per centum of the excess of — • (A) in the case of any such corporation to which paragraph (2) is not applicable, the daily invested capital of such cor- poration for the first day of its first taxable year under this subchapter beginning in 1940 over (B) an amount equal tO'the same percentage of such daily invested capital as would be applicable under section 720 in reduction of the average invested capital of such corporation for the last taxable year beginning in 1939 if such section had been applicable to such year (computed as if the admissible and inadmissible assets of any other suc)i corporation with respect to which it became, in such taxable year, an acquiring coi.:poration, had been held by it). (2) In case the transaction ^y which a corporation became a component corporation of its acquiring corporation occurred in the last taxable year of such component corporation beginning in 1939 but on a day in a taxable year of such acquiring corporation be- ginning in 1940, the excess profits net income of such component corporation for each base period year described in paragraph (1) shall be an amount equal to 8 per centum of the excess of — (A) the daily invested capital of such component corporation for such day, over (B) an amount equal to the same percentage of such daily Invested capital as would be applicable under section 720 In re- duction of the average invested capital of such component cor- poration for the twelve-month period ending with the preceding day if such twelve-month period constituted a taxable year and such section had been applicable to such taxable year. (3) In case any corporation described In paragraph (1) owned stock in any other such corporation on the first day of such owning corporation's first taxable year under this subchapter beginning in 271 1940, the amounts computed under subparagraphs (A) and (B) of paragraphs (1) and (2) with respect to such corporations shall be adjusted, under regulations prescribed by the Commissioner with the approval of the Secretary, to such extent as may be necessary to prevent the excess profits net income of such corporations for the base period years described In paragraph (1) from reflecting money or property having been paid in by either of such corpora- tions to the other for stock or as paid-in surplus or as a contribution to capital, or from reflecting stock of either having been paid in for stock of the other or as paid-in surplus or as a contribution to capital. For the purposes of this paragraph, stock in either such corporation which has in the hands of the other corporation a basis determined with reference to the basis of stock previously acquired by the Issuance of such other corporation's own stock shall be deemed to have been paid in for the stock of such other cor- poration. (4) In determining whether, for any taxable year, the deductions plus the credit for dividends received and the credit provided in sec- tion 26(a) (relating to interest on certain obligations of the United States and its instrumentalities) exceeded the gross income, and in determining the amount of such excess, the adjustments provided in section 711(b) (1) shall be made, (f) (1) If, after December 31, 1935— (A) the taxpayer acquired stock in another corporation, and thereafter such other corporation became a component corpora- tion of the taxpayer, or (B) a corporation (hereinafter called "first corporation") acquired stock in another corporation (hereinafter called "second corporation"), and thereafter the first and second corporations became component corporations of the taxpayer, then to the extent that the consideration for such acquisition was not the issuance of the taxpayer's or first corporation's, as the case may be, own stock, the Supplement A average base period net income of the tax- payer shall be reduced, and the transferred capital addition and re- duction adjusted, in respect of the income and capital addition and reduction of the corporation whose stock was. so acquired and in respect of the income and capital addition and reduction of any other corporation which at the time of such acquisition was connected divectly or indirectly through stock ownership with the corporation whose stock was so acquired and which thereafter became a component cor- poration. of the taxpayer, in such amounts and in such manner as shall be determined in accordance with regulations prescribed by the Com- - missioner with the approval of the Secretary. For the purposes of this paragraph, stock which has, in the hands of the taxpayer or first cor- poration, as the case may be; a basis determined with reference to the basis of stock previously acquired by the issuance of the taxpayer's or first corporation's, as the case may be, own stock, shall be considered as having been acquired In consideration of the issuance of the tax- payer's or first corporation's, as the case may be, own stock., (2) If during the taxable year for which tax is computed under this subchapter the taxpayer acquires assets in a transaction which consti- tutes it an acquiring corporation, the amount includible under sub- section (a), attributable to such transaction, shall be limited to an amount which bears the same ratio to the amount computed without 272 regard to this subsection as the number of days in the taxable year after such transaction bears to the total number of days in such taxable year. (g) In the case of a partnership which is a coinponent corporation by virtue of section 740(b)(5), the computations required by this Supplement shall be made, under rules and regulations prescribed by the Commissioner with the approval of the Secretary, as if such partner- ship had been a corporation. For the purpose of such computations, in making the adjustment for Income taxes required by section 711(b)(1)(A), the partnership so regarded as a corporation shall be considered as having distributed all its net income as a dividend. (h) INCKEASED EAKKINGS IN LAST HiXF OF BaSE PERIOD. — (1) General etjls. — The Supplement A average base period net v income determined under this subsection shall be computed by ascertaining for each half of the base period the sum of the plus amounts determined under subsection (a) reduced if for any year in such, half a minus amount was determined by the minus amount for such year. If the amount ascertained for the second half exceeds the amount ascertained for the first half, the Supplement A average base period net income shall be the sum, divided by two, of the amount so ascertained for the second half plus one-half of such excess, except that it shall not exceed the largest plus amount determined under subsection (a) with respect to any base period year. (2) Limitation on amount includibi.e for certain taxable years ENDING after MAT 31, 1940. — For the purposes of this subsectioii the excess profits net income of any corporation for any taxable year beginning in 1939 and ending after May 31, 1940, shall in no case exceed an amount computed as follows: (A) By reducing the excess profits net income by an amount which bears the same ratio thereto as the number of months after May 31, 1940, bears to the total number of months in such taxable year; and (B) By adding to the amount ..ascertained under subpara- graph (A) an amount which bears the same ratio to the excess profits ne't income for the last preceding taxable year as such number of months after May 31, 1940, bears to the number of months in such preceding year. The amount added under this subparagraph shall not exceed the amount of the excess profits net income for such last preceding taxable year. (C) If the number of months in such preceding taxable year is less than such number of months after May 31, 1940, by adding to the amount ascertained under subparagraph (B) an amount which bears the same ratio to the excess profits net income for the second preceding taxable year as the excess of • such number of months after May 31, 1940, over the number of months in such preceding taxable year bears to the number of months in such second preceding taxable year. Sec. 35.742-1 Gexeeal Rules for Determining ' Supplement A Average Base Period Net Income.^ — (a) Introductory. — In the case of an acquiring corporation which was actually in existence before January 1, 1940, ifs average base period net income, for the purposes 273 of the excess profits credit based on income, shall "Be (1) the amount computed under section 713 with reference to its base period experi- ence but without reference to the base period experience of its compo- nent corporations; or (2) the amount of its Supplement A average base period net income, computed under section 742 with reference to its base period experience and also with reference to the base period experience of its component corporations, whichever of such amounts is the greater. In the case of an acquiring corporation which was not actually in existence before January 1, 1940, but which was con- structively in existence before such date through a component cor- poration, its average base period net income, for the purposes of such credit, shall be its Supplement A average base period net income, computed under section 742. Iri the case of an acquiring corporation which desires to compute its average base- period net income under Supplement A, section 742 is not intended to require such corporation to include in its return the computations of base period income under section 713 for the purpose of showing that the computations under Supplement A result in the greater average base period, net income. A return setting forth one set of computations of base period income shall be acceptable. A return filed in this manner shall be audited as filed, regardless of whether the omitted computation of average base period net income would result in a lesser tax. If a corporation files a return which contains only one set of computations of base period income, it is not thereby precluded from establishing that the computations used re- sulted in an overpayment of the excess profits tax or from filing a claim for the refund thereof. The Supplement A average base period net income of an acquiring corporation shall be (1) the amount computed under section 742 without regard to subsection, (h) of such section, or (2) the amount computed under such subsection, whichever of such amounts is the, greater. If neither the acquiring corporation nor any of its compo- nent corporations was in existence at any time during a base period year, then, in computing the Supplement A average base period net income of the acquiring corporation, section 742(e) (1), (2), and (3) is applicable regardless of whether the computation is made under section 742(h) or without regard to such section. (b) General, aixeraqe vvethod. — (1) In general. — The following steps are required for the computation of the Supplement A average base period net income under section 742 without regard to subsec- tion (h) of such section (for exceptions and limitations as to amounts of excess profits net income or deficit to be included in average base period, see section 35.742-3, and for computation of excess profits net income for base period years during which neither the taxpayer 274 nor any of its component corporations was in existence at any time, see section 35.742-4) : (i) The excess profits net income or the excess of deductions plus the credit for dividends received and the credit provided in section 26(a) over gross income (hereinafter referred to as "deficit in excess profits net income") of the acquiring corporation and each component corporation for each taxable year beginning with or within a base period year of the acquiring corporation must be determined. (ii) The group excess profits net income or group deficit in excess profits net income for each base period year of the acquiring corpora- tion, i. e., the aggregate of the amounts determined with respect to each corporation separately for taxable years beginning with or within such base period year, must be determined as provided in paragraph (3) of this subsection. (iii) The taxpayer's Supplement A average base period net income is then ascertained by determining the aggregate of the group excess profits net incomes and deficits in excess profits net income (with ad- justment in certain cases of the amount for the lowest year) and dividing by 4, as provided in paragraph (4) of this subsection. (2) Determination of excess profits net income or deficit in excess profits net income of acquiring corporation and each component cor- poration. — The first step in computing the average base period net income of an acquiring corporation is the determination of the excess profits net income or deficit in excess profits net income of the acquir-- ing corporation and each component corporation for each taxable year beginning with or within a base period year of the acquiring corpora- tion. Such excess "profits net income or deficit in excess profits net income shall be computed with the adjustments provided in section 711(b). In the case of a component corporation which is a partnership or a business owned by a sole proprietorship, its excess profits net income or deficit in excess profits net income for each taxable year in the base period shall be determined as though such partnership or business owned by a sole proprietorship had been a corporation for each such year. Among the adjustments which are necessary in computing the excess profits net income or deficit in excess profits net income are the following : (i) A reasonable deduction for salary or compensation to each part- ner or the sole proprietor for personal services actually rendered shall be allowed ; (ii) The credit for dividends received provided by section 26(b) and section 711(b)(1)(G) shall be allowed; (iii) The treatment of capital gains and losses shall be that appli- cable to corporations ; 275 (iv) The deduction for charitable contributions shall be that al- lowed by section 23 (q) ; , (v) The income taxes allowed as a deduction under section 23 (cX shall be computed as though the partnership or business owned by a sole proprietorship were a corporation and in computing such taxes the partnership or business owned by a sole proprietorship shall be deemed to have distributed all its net income as a dividend. (3) Determination of group excess profits net income or defi'dt in excess profits net income. — The group excess profits net income or defi- cit in excess profits net income of an acquiring corporation for each base period year is determined by adding together the excess profits net incomes of the several corporations determined under paragraph (2) of this subsection for each taxable year beginning with or witKin such base period year and subtracting from such sum the sum of the deficits in excess profits net income so determined for each such tax- able year, with the exceptions and limitations set forth in section 35.742-2(«) . If the sum of the excess profits netincomes for such base period year exceeds the sum of the deficits in excess profits net income for such base period year, the difference is the group excess profits net income for such base period year. If the sum of the deficits in excess profits net income exceeds the sum of the excess profits net incomes, the difference is the group deficit in excess profits net income for sucli base period year. This paragraph may be illustrated by the following examples : Example {1). — The X Corporation, which was organized prior to 1936, and which has always made its income tax returns on the calen- dar year basis, is computing its excess profits tax for the calendar year 1942. In 1939 it became an acquiring corporation of the Y Corpora- tion and the Z Corporation, both of which were organized prior to January 1, 1936. The Y Corporation made its income tax returns on the basis of the fiscal year beginning July 1, and the Z Corporation made its income tax returns on the calendar year basis. For the cal- endar year 1936 the X Corporation had an excess profits net income of $50,000, and the Z Corporation had an excess profits net income of $20,000. For the fiscal year beginning July 1, 1936, the Y Corporation had an excess profits net income of $30,000. For its first base period year, i. e., the calendar year 1936, the group excess profits net income of X, the acquiring corporation, is $100,000, computed as follows : Excess^proflts net income of X Coiijoration for 1936 $50, 000 Plus: Excess profits net income of Z Corporation for 1936 20, 000 Excess profits net income of Y Corporation for fiscal year beginning July 1, 1936 SO, 000 Group excess profits net income for 1936 100, 000 276 The Y Corporation's fiscal year ending June 30, 1936, cannot be taken into account since it is a taxable year which did not begin with or within the first base period year. Example {2) . If, in the case of the same corporations as in example (1) , for the calendar year 1937 the X Corporation had an excess profits net income of $75,000 and the Z Corporation had an excess profits net income of $30,000 and if the Y Corporation for the fiscal year begin- ning July 1, 1937, had a deficit in excess profits net income of $5,000, the X Corporation would have a group excess profits net income for its second base period year, i. e., the calendar year 1937, of $100,000, com- puted as follows : Excess profits net Income of X Corporation for 1937 $75, 000 Plus : Excess profits net income of Z Corporation for 1937 30, ,000 Total 105,000 Less : Deficit in excess profits n^ income of Y Corporation for fiscal year beginning July 1, 1987 5,000 Group excess profits net income for 1987 " 100, 000 Example {3) . If for the calendar year 1938 the X Corporation had an excess profits net income of $40,000 and the Z Corporation had a , deficit in excess profits net income of $50,000, and if the Y Corporation had an excess profits net income of $5,000 for the 'fiscal year beginning on July 1, 1938 (which ended before the acquisition in 1939), the X Corporation would have a group deficit in excess profits net income for its third base period year, i. e., the calendar year 1938, of $5,000, computed as follows : Deficit in excess profits net income of Z Corporation for 1988 $50, 000 Less: Excess profits net income of X Corporation for 1938 $40, 000 Excess profits net income of T Corporation for fiscal year beginning July 1, 1938 5, 000 45,000 Group deficit in excess profits net income for 1933 5, 000 (4) Determination of average hose period net income. — The average base period net income of an acquiring corporation, in general, is the sum of the group excess profits net incomes for the base period years for which there were group excess profits net incomes, reduced by the sum of the group deficits in .excess profits net income for the base pe- riod years for which there were group deficits in excess profits nel income, the remainder being divided by four. However, in cases in which the lowest amount for any base period' year is less than 75 per- cent of the average for the other three years, there shall be substituted for such lowest amount an amount of excess profits net income equal to 75 percent of such average, and then the average base period net 277 income shall be computed for the four base period years as under the general rule. In no case shall the average base period net income be less than zero. This paragraph may be illustrated by the following example : Example. The group net income or group deficit in excess profits net income of the P Corporation for each of its base period years is as follows (a group deficit in excess profits net income being preceded by a minus sign) : First base period year $100, 000 Second base period year ^i> , — 5J, 000 Third base period year :, —25,000 Fourth base period year 75, 000 The average base period net income of the P Corporation is $46,875, computed as follows : (1) Group deficit in excess profits net income for lowest year —$50, OCO Average for other 3 years ($100,000— $25,000+$75,000-h3) 50,000 75 percent of average for other 3 years 37, 500 (2) Group excess profits net income for first year 100, 000 Plus: Group excess profits net income for second year (as de- termined above for lowest year) 37,500 Group excess profits net income for fourth year 75, OOO Total 212, 500 Less : Group deficit in excess profits aet income for third year —25, 000 Remainder 187, 500 Average base period net income ($187,500-^4) 46, 875 Section 742(d) provides for a minimum average base period net in- come in the case of a taxpayer which becomes^an acquiring corpora- tion in a transaction taking place in a taxable year beginning after December 31, 1939, if, on September 11, 1940, and at all times there- after until the transaction takes place, either the taxpayer owns at least 75 percent of each class of stock of each qualified component corpora- tion involved in the transaction, or one of such qualified component corporations owns at least 75 percent of each class of stock of the tax- payer and each of the other qualified component corporations. In such case the average base period net income of the taxpayer shall be determined as provided in section 742(d). The term "qualified com- ponent corporation," as used in this paragraph, means a component corporation which was in existence on the date of the beginning of the taxpayer's base period. For the purposes of this paragraph sec- tion 740(g) is not applicable. Sec. 35.742-2 Computation of Average Base Pesiod Net Income Under Sectign 742(h) — ^Increased Earnings in -Last Half of Base Period. — (a) In general. — The determination of the Supplement A average base period net income under the method provided in section 278 742(h) is operative only if the sum of the group excess profits net in- comes of the taxpayer for the second half of its base period, reduced by the sum of its deficits in excess profits net income for such half, is greater than such sum so reduced for the first half and the average base period net income determined under section 742(h) is greater than the amount determined under section 742 without regard to subsection (h) of such section. The following steps are required for the com- putation of the Supplement A average base period net income under the method provided in section 742(h) : (1) The excess profits net income or deficit in excess profits net in- come of the acquiring corporation' and of each component corporation for each taxable year beginning with or within each base period year of the acquiring corporation is determined as provided in section 35.742-1 (&). (2) The group excess profits net income or group deficit in excess profits net income of the acquiring corporation for each of its base period years is determined as provided in section 35.742-1 (&). (3) There is computed for each half of the base period the sum of the group excess profits net incomes for the base period years in such half, reduced, if for one or more of such years there was a group deficit in excess profits net income, by the sum of such group deficits. In making this computation, the lowest amount for any base period year is not adjusted as in the case of "the computation under the general average method described in section 35.742-1(6). (4) The excess of the amount ascertained for the second half over the amount ascertained for the first half is divided by 2. (5) The amount tiscertained under paragraph (4) is added to the amount ascertained under paragraph (3) for the second half of the base period. (6) The amount found under paragraph (5) is divided by 2. " (7) The amount ascertained under paragraph (6) shall be the Supplement A average base period net income determined under the method provided in section 742(h), except' that the Supplement A average base period net income so determined shall in no case be greater than the highest group excess profits net income for any base period year. For the purposes of this limitation, in the case of a corporation which became a component corporation in a Supplement A transaction occurring in a taxable year beginning in the base period, no account shall be taken of its excess profits net income before the day after such transaction or of any of its component corporations acquired before the day after such transaction. (See section 740(c) (1).) The computation of the Supplement A average base period net in- come under the metliod provided in section 742(h) may be illustrated by the following examples : 279 Excmiple (1). The X Corporation, an acquiring corporation, has the following amounts of group excess profits net incomes for the base period years in its base period: 1936, $100,000; 1937, $200,000; 1938, $300,000; and 1939, $400,000. Its' Supplement A average base period net income under the method provided in section 742(h) is $400,000, computed as follows : (I) Sum of group excess profits net Incomes for second half of base period ($300,000 plus $400,000) $700, OOO (II) Sum of group excess profits net Incomes for first half of base period ( $100,000 plus $200,000) 300, 000 (III) Excess of item (i) over item (II) 400,000 (Iv) One-half of Item (Hi) ($400,000 divided by 2) 1 200,000 (v) Surb of Item (I) plus Item (Iv) ($700,000 plus $200,000) 900,000 (vl) Item (v) divided by 2 ($900,000 divided by 2) 450, 000 (vil) Highest group excess profits net Income for any base period year (1939) ^_ _ '_ 400,000 (vlil) Supplement A average base period net Incoine (item (vll) since such item Is less than item (vi) ) 400, 000 Example (2) . The X Corporation was in existence throughout its base period and has always made its income tax returns on the calr endar year basis. On July 1, 1938, it transferred its property to an- other corporation in ^transaction described in section 740(a) (1) (A). It immediately exchanged the stock received in such transaction for other assets and continued in business. On December 31, 1938, it acquired all of the assets of the Y Corporation in a Supplement A transaction. The Y Corporation was in existence on January 1, 1936, and made its income tax returns on the calendar year basis. The ex- cess profits net incomes of the X Corporation for 1936, 1937, and 1938 were, respectively, $75,000, $125,000, and $350',000. With respect to the last amount, $200,000 thereof is attributable to the part of 1938 after the transaction in which the X Corporation was a component corporation and $150,000 is attributable to the prior part of such year. The excess profits net incomes of the Y Corporation for 1936, 1937, and 1938 were, respectively, $25,000, $75,000, and $200,000. The excess profits net income of the X Corporation for 1939 was $300,000. In applying the method provided in section 742(h), the X Corporation is required to take into account its excess profits net incomes for the period before the date of the transaction in which it was a component corporation, but, for the purposes of the limitation as to the maximum amount of Supplement A average base period net income, it is not per- mitted to take into account such income. (See section 740(c)(1).) Accordingly, its group excess profits net incomes for the base period years are, respectively, $100,OCO, $200,000, $550,000, and $300,000, and its Supplement A average base period net income is $400,000, computed as follows t 280 (1) Sum of group excess profits net incomes for second half of base period ($550,000 plus $300,000). ,$850,000 (it) Sum of group excess profits net incomes for, first half of base period ( $100,000 plus $200,000) 300, 000 (iii) Excess of item (i) over item (ii) 550,000 (iv) One-half of item (iii) ($550,000 divided by 2) 275, 000 (V) Sum of item (i) plus Item (iv) ($850,000 plus $275,000) 1,125,000 (vi) Item (v) divided by 2 ($1,125,000 divided by 2) 502,000 (vii) Highest group excess profits net income for any base period year for purposes of limitation as to maximum average income (1938). (Blfective income for 1938 for purposes of limitation Is $400,000 after excluding $150,000 attributable to part of year preceding July 2, 1988) ^ : 40O, 000 (viii) Supplement A average base period net income (item (vii) since . such item is less than item (vi)) . 400,000 The restriction upon the limitation illustrated in the last example applies also in the case of a component corporation computing the average base period net income under section 713(f) and not under section 742(h), for the purpose of it^ credit for a taxable year begii^- ning after December 31, 1941 (see section 740(c)(1)). Thus, if in example (2) above, the X Corporation had continued in existence vs'ithout acquiring the assets of the Y Corporation and, as in the example, its excess profits net income for 1939 -was $300,000, its aver- age base period net income computed under section 713(f) (without the benefit of the experience, of Y Corporation) would be limited to $300,000. The otherwise highest amount of excess profits net income, $350,000 for 1938, would be reduced under the restriction in section 740(c) to $200,000 by the elimination of $150,000 attributable to the part of the taxable year preceding July 2, 1938. (b) Limitation in case of taxable year beginning in 1939 and end- ing after May 31, Wlfi. — For the purpose of computing the Supple- ment A average base period net income under the method provided in section 742(h), section 742(h)(2) provides certain lijnitations on the amount of the excess profits net income for any taxable year of the taxpayer or a component corporation beginning in 1939 and end- ing after May 31, 1940. Section 742(h) (2) (A) and (B) may be illustrated by the following example : Examfle. The X Corporation makes its income tax returns on the basis of a fiscal year ending September 30. It had an excess profits- net income of $400,000 for the fiscal year ended September 30, 1939. Its excess profits net income for the fiscal year ended September 30, 1940, before the application of section 742(h)(2) (A.) and (B), is $690,000. Four months of tlie latter fiscal year are after May 31, 1940. Under section 742(h)(2) (A) and (B) the excess profits neit : 2.81 ' ' income of th'e corporation for the fiscal year ended ~ September 30, 1940, is $533,333.33, computed as follows: (1) Excess profits net Income before application of section 742(h) (2) (A) and (B)_" , $600,000.00 (2) Amount by which item (1) Is to be reduced under section 742(h)(2)(A) (%2 of $600,000) 200,000.00 (3) Item (1) less item (2) ($600,000 minus $200,000) 400,000.00 (4) Amount to be added to item (3) under section 742(h)(2)(B) (%2 of $400,000, the ainount of excess profits net Income for the fiscal year ended September 30, 1939) 133, 333. 33 (5) Excess profits net income for fiscal year ended September 30, 1940, after application of section 742(h) (2) (item (3) plus ~ item (4), or $400,000 plus $133,338.33) 533, 333. 33 If on December 31, 1940, the X Corporation acquired the Y Corpora- tion in a Supplement A transaction, and if the Y Corporation had made its, income tax returns on the calendar year basis and had an excess profits net income for the calendar year 1939 qf $100,000, the X Corporation's group excess profits net income for 1939 would be $633,333.33 ($533,333.33 plus $100,000). Section 742(h) (2) (C) may be illustrated by the following examplp: Example. The last three taxable years in the base period of the Z Corporation and the number of months in, and the excess profits net income for, such taxable years are as follows : Taxable years Number of months Excess profits net income Beginning — Ending— July 1,1938 - .TiiTip. an, iQSfl 12 3 12 $400,000 July 1, 1939 . — September 30, 1939 76,000 October 1, 1939 .- September 30, 1940 600,000 Under section 742(h)(2) the excess profits net income of the cor- poration for the fiscal year ended September 30, 1940, is $508,'333.33, computed as follows : (i) Excess profits net income before application of section 742(h) (2) (A) and (B) $600,000.00 (11) Amount by which item (1) is to be reduced under section 742 (h)(2)(A) (4/12 of $600,000) 200,000.00 (ill) Item (i) less item (ii) ($600,000 minus-$200,000) 400,000.00 (iv) Amount to be added to item (iii) under section 742(h) (2) (B) (4/3 of $75,000 but not in excess of $75,000) . 75,000.00 (v) Amount to be added to item (ill) under section 742(h)(2) (C) (ly^l2 of $400,000) 33, 333. 33 (vi) Excess profits net income for fiscal year ended September 30, 1940, after application of section 742(h) (2) (sum of items , ( ill) , ( Iv ) , and ( V ) , or $400,000 plus $75,000 plus $33,333;33 ) _ 508, 333. 33 ■ 488313°— 43 -19 282 The Z Corporation's excess profits net income for the two tax- able years -beginnirig in 19£9 are required to be placed on an annual basis in order to determine its excess profits net income for the base period year 1939. (See sefction 742(a).) For this purpose, its excess profits net income for the taxable year beginning October 1, 1939, and ending September 30, 1940, is the amount as reduced by the application of section 742(h)(2). If on December 31, 1941, the Z Corporation acquired a component corporation in a Supplement A transaction, and if the component corporation had made its income tax returns on tiie calendar year basis, Z Corporation's group excess profits net income for the base period year 1939 would be the sum of (A) the excess profits net income of the component corporation for the calendar year 1939, plus (B) the amount resulting from placing Z Corporation's actual excess-^profits net income for the short taxable year beginning on July 1, 1939,. and its excess profits net income for the fiscal year ending September 30, 1940 (as reduced under section 742(h) (2) ) on an annual basis. Sec. 35.742-3 Exceptions and- Limitations as to Amounts or Excess PRoriTs Net Income or Deficit to be Incltided in Supplement A Average Base Peeiod Net Income — ^Applicabi-.e Under Both Gen- eral Average Method and Increased Earnings Method. — The amount of excess profits net income or deficit in excess profits net in- come of an acquiring corporation or a component corporation for a tax- able year beginning with or within a base period year which may be included in computing the group excess profits net income or deficit in excess profits net income for such base period year is to be deter- mined subject to the exceptions and limitations feet forth in subsections {a), (b), and (c) of this section. (a) AdfastTnent under section 743(a) for change in taxable year. (1) Introductory. — Section 742(a) requires adjustment where an acquiring corporation or component corporation has one or more tax- able years begimiing with or within a base period year other than one taxable year of 12 months. If the taxpayer or a component corporation has only one taxable year beginning with or within a base period year and such taxable year is less than 12 months, or if the taxpayer or a component corpora- tion has two or more taxable years beginning with or within a base period year, the experience of the taxpayer or of such component for such short taxable year or for such taxable years shall be adjusted to reflect 12 months' experience by either of two methods described in this subdivision. The first method is hereafter referred to as the daily average method and the second method is hereafter referred to as the actual experience method. The second method may be used only if the taxpayer establishes to the satisfaction of the Commissioner that ■■ ' 283 > the actual experience method will more clearly reflect actual group, excess profits net income (or deficit) for the base period year. See (4) of this "subsection. In either case,, the adjustment is to be made only as provided in this subsection under the heading "daily average method" or "actual experience method," whichever method is appli- cable. Only one method may be used for the same base period year. Under either method, any period, the experience of which is not to be included in the average base -period net income -of the taxpayer under the rules provided in, section 740(c), is not to be considered any part of a taxable year of the acquiring corporation or the component. (2) Short taxable year or two tojxOble years other than year of Sup- plement A transaction. — If only one taxable year of the taxpayer or. of a component begins in a base period year and such taxable year is less than 12 months, or if two or more taxable years>of the taxpayer or of a component begin in asbase period year, the following adjust- ^ ment shall be made if the Supplement A transaction did not occur in such base period year or in a taxable year of the acquiring corp6ra- tion beginning in such base period year : Daily average method. — Under this method, the aggregate of the amounts of excess profits net income minus the aggregate of the amounts of deficit in excess profits riet income, or vice versa, as the case may be, for the period to be adjusted (i. e., such short taxable year or such two or more taxable years, as the case may be) shall be placed on an annual basis by dividing by the number of days in such period and by multiplying by the number of days in the base period year. Aofual earperienoe method. — Under this method, the actual excess profits net income (or deficit) for the period of 12 months beginning with the first day of the period to be adjusted (i. e., such short taxable year or such two or more taxable years, as the case may be) shall be considered the total excess profits net income (or deficit) of the acquir- ing corporation or of the component, aslhe case may be, which is to be attributed to the base period year under section 742(a) (1). If such 12-njonth period ends after May 31, 1940, or with or after a month in which a Supplement A transaction occurs, the experience after such date or for and after such month, whichever first occurs, shall not be. used. In such case, there shall be added to the experience used the experience for as many consecutive months immediately preceding the beginning of the period of. months used as will produce an aggre- gate period of 12 months. If 12 months' experience cannot be obtained by either of the above rules, the actual experience method may not be used. (3) Two taxable years including year of Supplement A transac- tion. — (i) General description. — If two or ihore taxable years of a component corporation or if two or more taxable years of the taxpayer 284- " (including as such any year of the component, -as^provided in the fol- lowing sentence) begin in a base period year and if the Supplement A transaction occurs in such base period year or in a taxable year of the acquiring corporation beginning in such base period year, adjust- ment shall be made in the two categories of cases described below and in the manner set forth below. For this purpose, section 742(a) pro- vides that a taxable year of a. component corporation — (A) which begins within the base period and which also begins with or within. the taxable year of the acquiring corporation in which the acquisition occurred, or (.B) which begins with or within the same base period year with which or within which began the taxable year of the acquiring corporation in which the acquisition occurred, shall be treated as a taxable year of the acquiring corporation and as if it began in the base period year with- which or within which such taxable year of the acquiring corporation began. The adjustment to be made is set forth in (ii) and (iii)J)elow. (ii) First category.: — ^In the first category are cases in which, in a base period year, the first taxable year of each corporation, which be- came a component in any taxable year of the acquiring corporation be- ginning in such base period year, began on the same date, if (1) the acquiring corporation's first taxable year in such base period year also began on such date, or (2) the acquiring corporation's first taxable year upon its coming into existence began on the date of a Supplement A transaction in such base period year. Daily a/oerage method. — In such cases, a group excess profits net income or group deficits in excess profits net incomcj as the case may be, for only the acquiring corporation and any such component cor- porations shall be determined for such base period year, in the man- ner provided in section 35.742-1(6) (3). This amount shall be the ex- cess profits net income or deficit in excess profits net income, as the case may be, of such acquiring corporation (including such compo- nent corporations) for such base period year, unless the period from the beginning of the first taxable year of any such component corpo- ration beginning in such base period year to the end of the last tax- able year of such acquiring corporation beginning in such base period year, inclusive, is not a period of 12 months. In such latter case,« the amount thus determined shall be placed on an annual basis by dividing by the total number of days in such period and by multiplying by the number of days in such base period year. The rules applicable in this first category may be illustrated by the following examples : Example {1). The -^ Corporation computes its income tax on the calendar year basis. On July 1, 1936, the A Corporation is reorganized into the B Corporation in a Supplement A transaction. The B Cor- poration computes its income tax on the ba,sis of the fiscal year begin- 285' ning July 1 until it goes on a calendar year basis beginning January 1, 1937. Although A's short period is considered a taxable year of B, since the total period of both taxable years is 12 months, the excess profits net income, or the deficit in excess profits net income, of the B Corporation for 1936 is the sum of thef excess profits net income (or deficit) for each of the two short taxable years (not placed on an annual basis) of A and B f or the calendar year 1936. Exannple {£). The C Corporation aiid the D Corporation compute their income taxes on the calendar year basis. On July 1, 1937, C and D coiisolidated in a Supplement A transaction to form the E Corpp- lation which thereafter computed its income tax on a fiscal year basis beginning July 1 (until 1940 when it went on a calendar year basis). The excess profits net income, or the deficit in excess profits net income, of E for the base period year 1937, is determined by computing the excess of the aggregate of the excess profits net incomes of C and D for the period January 1, 1937-July 1, 1937, inclusive, and of E for the period July 1, 1937-June 30, 1938, over the deficit in excess profits net income of C, D, and E, if any, for each of their respective periods, or the excess of the deficits, as the case may be; by dividing such excess by the number of days in the period January 1, 1937, through June 30, 1938 ; and by multiplying the resulting quotient by 365. Example (S) . The F, G, and H Corporations were in existence prior to 1936 and all computed their income tax on a fiscal year basis be- ginning March 1. On July 1, 1937, the. F Corporation, transfers its assets to the H Corporation in a Supplement A transaction and con- tinues in existence with new assets acquired in exchange for the stock of H. On December 31, 1937, the H Corporation acquires the assets of the G Corporation in a Supplement A transaction and the G Cor- poration goes out of existence. The H Corporation changes to a cal- endar year basis beginning January 1, 1938. Assuming the figures shown below, the excess profits net income of the H Corporation for the base period year 1937 is $365,000, computed as follows : (1) Excess profits net income of — G, for period March 1, 1937-December 31, 1937 $200, COO H, for period March 1, 1937-December 31, 1937 186, 000 (2) Aggregate excess profits net incomes for taxable years beginning in base period-/ $386, 000 (3) Deficit in excess profits net Income of F, for period March 1, 1937- July 1, 1937 . (deficit) _- 80, 000 (4) Exces'sof (2) over (3) ^0^' "00 (5)~ Nuitber of days in period March 1, 1937-December 31, 1937 306 (6) Excess profits net Income placed on an annual basis ($306,000 -H 306X365) -■ $365, 000 286 Actual experience method. — The treatment under this method in cases in the first category applies only if it would be necessary under the daily average method to place the experience for the taxable years on an annual basis, as provided above under such method. Under the actual experience method, the actual excess profits net income (or defi- cit) of the corporations falling within this category for the period of 12 months beginning with the first day of the first taxable year in such base period year of any such component corporation shall be considered the total (or group) excess profits net income (or deficit) of such corporations for all their taxable years beginning in such base period year. If such 12-month period ends after May 31, 1940, or with or after a month in which a Supplement A transaction occurs in a taxable year of the acquiring corporation not beginning in such base period year, the experience after such date or for and after such month, whichever first occurs, shall not be used. In such case, there shall be added to the experience used the experience for as many consecutive months immediately preceding the beginning of the period of months used as will produce an aggregate period of 12 months. The first rule may be illustrated by example (2) above, where, under the actual ex- perience method, the actual experience of the C, D, and E Corpora- tions for the calendar year 1937 would be used. The second rule may be illustrated by example (3) above, if it is assumed that the first rule is not applicable by reason of another Supplement A transaction oc- curring in January 1938. In such case, under the actual experience method, the actual experience of the F, G, and H Corporations for the period of 12 months ending with December 31, 1937, is to be used. (iii) Second category. — In the second category of cases under sec- tion 742(a), previously referred to, are all cases not falling within the first category and in which more than one taxable year of the ac- quiring corporation is, by reason of the last sentence of section 742(a), considered to begin in a base period year. Since such taxable years include taxable years of component corporations, a group excess profits net income or group deficit in excess profits net income, as the case may be, is determined for 12 months, in a manner similar to that in the first category above. However, in this second category not all of such components' first taxable years in the base period year begin on the same day as the acquiring corporation's first taxable year in such base period year, as in cases in the first category, and, therefore, the following adjustments are prescribed: Daily average method. — Before applying the daily average method as in the first category, it is necessary in cases falling within this sec- ond category to develop conditions equivalent to those existing in the first category by adjusting the experience of any such components to 287 a period begiiming on the same day as the begmning of the acquiring corporation's first taxable year in such base period year. This de- velopment and the adjustment to be made in this category under the daily average method are shown in the following examples : Example (1). The A Corporation, which computed its income tax on the calendar year basis, was reorganized on July 1, 1936, in a Sup- plement A transaction into the B Corporation, which thereafter com- puted its income tax on a fiscal year basis beginning July 1 (until 1940, when it changed to a calendar year basis) . The C Corporation which computed its income tax on a fiscal year basis beginning March 1 was in existence prior to 1936. The B Corporation acquired all of the assets of C in a Supplement A transaction on October 31, 1936. The excess profits net incomes (or deficits) of A and C for such of their taxable years in 1936 as begin before July 1, 1936, are to be adjusted to the period beginning July 1, 1936. Thus, the excess profits net in- come (or deficit) of A for the period of January 1, I936-July'l, 1936, is to be divided by 182 (the number of days in the period January 1, 1936-July .1, 1936, inclusive) and the resulting quotient is to be multi- plied by 1 (the number of days in the period beginning July 1 and in such taxable year of A beginning before Julyl). The excess profits net income (or deficit) of C f or the period March 1, 1936-October 31, 1936, is to be placed on the basis of the period July 1, 1936-October 31, 1936. Thus, if the excess profits net income of C for the period March 1, 1936-October 31, 1936, is $49,000, such amount when ad- justed will be $24,600, computed by dividing $49,000 by 249 (the num- ber of days in the period March 1, 1936-October 31, 1936, inclusive) and by multiplying the resulting quotient of $200 by 123 (the number of days in the period July 1, 1936-October 31, 1936, inclusive). The amount of $24,600 is to be added to the amounts of excess profits net incomes (or deficits) of the A Corporation, as previously adjusted to the basis of 1 day, and of the B' Corporation for the period July 1, 1936-June 30, 1937. No further adjustment is necessary in this case because the resulting sum is the excess profits net income of the acquir- ing^ corporation, B (including A and C), for a period of 12 months which is to be attributed to the base period year 1936. Example (^). The D Corporation computes its income tax on a fiscal year basis beginning March 1. In 1937, it changed to a fiscal year beginning July 1 (which it continued to use until 1940 when it changed to a calendar year basis) . D acquired the assets of corpora- tions in Supplement A transactions as follows: the E Corporation, August 1, 1937; the F Corporation, December 31, 1937; and the G Cor- poration, May 31, 1938. Assume that the excess profits net incomes or deficits in excess profits net income for the pertinent periods are as f ol- 288 lows (the first date at the left indicating the beginning of a taxable year) : i): March 1, i937-June 30, 1937 $12,200 D : July 1, 1937-June 30, 1938 - 54, 700 E : February 1, 1937-August 1, 1937 18, 200 F: April 1, 1937-Deceinber 31,1937 (deficit) 27,600 G: May 1, 1937-April 30, 1938 36,500 G: May 1, 1938-May 31, 1938 . 3,100 The first day of the first taxable year of the acquiring corporation, D, beginning in 1937 is March 1, 1937. Therefore, the excess profits net income of the E Corporation for its taxable year beginning prior to ' such date (i. e., beginning on February 1, 1937) must be adjusted to a period beginning on March 1, 1937. The deficit in excess profits net income of the F Corporation for its taxable year beginning after such date (i. e.,"on April 1, 1937) must be adjusted to the period beginning March 1, 1937. Similarly, the first taxable year of the G Corporation to be taken into account begins after March 1, 1937 (i. e., on May 1, 1937) and, therefore, the excess profits net income for such year must be adjusted to the period beginning March 1, 1937. The following computations result : E: Excess profits net Income for taxable period February 1, 1937- August 1, 1937 $18, 200 Divided by number of days In period ($18,200^182) ; 100 Multiplied by number of days In period March 1, 1937-August 1,1937 (154X$100) 15,400 F : Deficit In excess profits net income for taxable period April 1, 1937- December 31, 1937 (deficit) 27,500 Divided by number of days in period ($27,500-5-275) __ (deficit) 100 Multiplied by number of days in period March 1, 1937-December 31, 1937 (306X$100) (deficit) 30,600 G: Excess profits net Income for taxable period May 1, 1937-April 30, 1938 ' 36, 500 Divided by number of days in period ($36,500-^365) 100 Multiplied by number of days in period March 1, 1937-April 30, 1938 (426X$100) 42,600 The excess profits net income of the taxpayer for 1937 therefore will be $73,000, computed in the same manner as in the first category, as follows : (1) Excess profits net incomesfor taxable years beginning; in 1937 (the first taxable year in each case beginning on the same 'day, March 1, 1937) : D Corporation ($12,200+$54,7Q0) $66,900 E Corporation : 15, 400 G Corporation ($42,600+$3,100) 45,700 Total 128, 000 289 (2) Deficit In excess profits uet Income for taxable year beginning In 193T: F Corporation .(March 1, 19S7-December 31, 1937) (deficit) $30,600 (3) Excess of aggregate excess profits net Incomes over deficit In excess profits net Income : '. 97, 400 (4) Amount in (3) divided by number of days In total period (March 1, 1937-June 30, 1938) ($97,400-!-487) - 200 (5) Amount In (4) multiplied by number of days in 1937 ($200X365) ___ 73, 000 Actual experience method. — ^Under this method, the actual excess profits net income (or deficit) of the corporations falling within this category for the period of 12 months beginning with the first day of the first taxable year in such base period year of the acquiring cor- poration shall be considered the total (or group) excess profits net income (or deficit) of such corporations for all their taxable years be- ■g-iiming in such base period year. If such 12-month period ends after May 31, 1940, or with or after a month in which a Supplement A transactibn occurs in a taxable year of the acquiring corporation not beginning in such base period year, the experience after such date or for aild after such month, whichever first occurs, shall not be used. In such case, there shall be added to the experience used the experi- . ence for as many consecutive months immediately preceding the be- ginning of the period, of months used as will produce an aggregate period of 12 months. The first rule in, this category under the actual experience method may be illustrated by example (1) abovein this category, where, under the actual" experience method, the total (or group) excess prof- its net income (or deficit) of the A, B, and C Corporations, for the base period year 1936, would be determined from their actual experi- ence for the 12-month period beginning- with July 1, 1936. It will be noted that under this rule no excess profits net income is included with respect to A for .the period January 1, 19367June 30, 1936, or. with respect to C for the period March 1, 1936-June 30^ 1936. The same rule may be applied similarly to example (2) above in this category. (4) Application for use of actual experience nvethod. — If the tax- payer desires to use the actual experience method for any base period year, as prescribed in this subdivision, it shall file with its return or claim in which it determines its excess profits tax under the provisions of Supplement A a statement showing the computations of its total (or group) excess profits net income (or deficit) for the taxable years in each of such base period years, together with such explanation as it believes necessary to establish that the total (or group) excess profits net income under this metho,d more clearly reflects actual group excess profits net income (or deficit) for such base period years than does the 290 daily average method. If the total (or group) excess profits net in- come for any such base period year is finally determined under the actual experience method, or if permission is granted by the Com- missioner before a final determination by the Commissioner, the tax- payer, in computing its excess profits tax under Supplement A in any return required to be filed thereafter, may, without the filing of such statement but with reference to the statement as to which the final determination had been made or permission given, use such total (or group) excess profits net income, except as further adjustment may be necessary in the case of the taxpayer under the rules of section 711(b) (l)(K)(iii). (b) Limitation under section 74-2{f) (1) in case of stock acquisi- tion. — Section 742(f)(1) is designed to prevent certain duplications in base period income and transferred capital additions and reductions in certain cases where after December 31, 1935, assets of the taxpayer (or of a corporation which later becomes its component) are trans- ferred for stock in another corporation which later becomes a com- ponent of the taxpayer. Section 742(f)(1) contemplates that, after the Supplement A transaction, the part of the component's base period •experience which is attributable to the acquired stock and which oc- curred before the acquisition of its stock shall under regulations pre- scribed herein be excluded in determining the taxpayer's Supplement A average base period net income. The adjustment under section 742(f)(1) shall be made in the cases described in this subdivision, and in all other cases to which section 742(f) (1) may be applicable, in a manner consistent with the principles underlying such described cases. Except to the extent duplication of experience occurs, no ad- justment is necessary under section 742(f)(1) with respect to stock which the acquiring corporation acquired directly from the corpora- tion whose stock was acquired. The rules for the application of section 742(f) (1) for the purpose of computing Supplement A average base period net income under the general average method and under the growth formula (see section 36.742-2) are set forth in this subdivision. As to determination of excess profits net income for such purpose under the limitations of section 742(f)(1) for any "vacant" base period year, see section 35.742-4. As to adjustment of daily capital addition or reduction in case of such stock acquisition prior to the Supplement A transactionj see section 35.743-1(5). The general application at section 742(f) (1) may be illustrated by the following examples: Example (l)-. The A and B Corporations were in existence on January 1, 1936, and have at all times made their income tax returns on the calendar year basis. On January 1, 1937, A purchased for 291 cash all of the stock in B from the stockholders of B. On December 31, 1939, A acquired all of the assets of B in a Supplement A trans- action. In determining A's Supplement A average base period n6t income, the excess profits net income of A for 1936, 1937, 1938, and 1939 and of B for 1937, 1938, and 1939 will be included, and that of B for 1936 will be excluded. ' Eoaample {2). The C and D Corporations were in existence on January 1, 1936, and have at all times made their income tax returns on the calendar year basis. On January 1, 1941, G acquired for cash all of D's stock from D's stockholders. On December 31, 1941, C acquired all of the assets of D in a Supplement A transaction. In such a case, section 742(f)(1) requires the exclusion of D's entire base period experience in computing C's Supplement A average base period net income. (D's capital additions and reductions in 1940 are also required to be excluded. See section 35.743-1(6).) In cases in which the taxpayer does not' at one time or at any time prior to the Supplement A transaction acquire 'all of the other cor- poration's stock, only that part of the component's base period ex- perience before the acquisition which is attributable to the stocks so acquired is to be excluded in computing the taxpayer's Supplement A average base period net income. In cases in which the component had only one class of stock outstanding at the time of the Supplement A transaction, the portion of the component's experience to be ex- cluded under section 742(f) (1) with respect to any part of the base period is an amount which bears the same ratio to the whole of the component's experience for such part as the number of shares of such stock acquired by the taxpayer after such part,^ and not disposed of prior to the Supplement A transaction, bears to the aggregate num- ber of such shares outstanding at the time of the acquisition of such stock. If any of such shares of stock, whether acquired before or after the beginning of the base period, were disposed of prior to the Supplement A transaction, the shares disposed of shall, for the pur- pose of this computation, be deemed to be those most recently ac- quired. The adjustment under section 742(f)(1) in cases described in this paragraph may be illustrated by the following examples : Example (1). The E and F Corporations were in existence on January 1, 1936, and have at all times made their income tax returns on the calendar year basis. The outstanding capital stock of F con- sists of 1,000 shares, all of one. class. Oii January 1, 1937, E pur- chased for cash 510 shares of such stock from the stockholders of F. On December 31, 1941, E issued stock in exchange for the balance of the stock of F and acquired all of the assets of F in a Supplement A transaction. For the purpose of computing E's Supplement A aver- age base period net income for the tax for 1942 and thereafter, 51 292 percent of F's excess profits net income or deficit in excess profits net income for 1936 is to be excluded under section 742(f) (1). Example (2). Assume the same facts as in example (1) just above and the additional fact that on January 1, 1938, E purchased for cash 340 additional shares of F from the stockholders of the latter, making its total stock holdings in F 850, shares prior to the issuance of its (E's) own stock for the balance of the stock of F and prior to the Supplement A transaction. In such case, there shall be ex- cluded under section 742(f) (1) an amount equal to 86 percent (51 percent plus 34 percent) of F's excess profits net income, or deficit, for 1936 and 34 percent of its excess, profits net income, or deficit, for 1937. Example (3). Assume the same facts as in example (2) just above and the additional fact that on January 1, 1939, E sold 350 shares of the F Corporation stock to various individuals. Accordingly, imme- diately prior to the issuance of its (E's) own stock for the balance of the stock of F and prior to the Supplement A transaction, E will own 500 sHares of the stock of F acquired for assets since December 31, 1935. Therefore, 50 percent of F's excess profits net income, or deficit, for 1936 will be excluded under section 742(f) (1). No por- tion of such experience for 1937, 1938, or 1939 will be excluded since the 350 shares sold are presumed to include all of the 340 shares acquired on January 1, 1938 (as in example (2)), and only 10 shares of the 510 shares acquired on January 1, 1937. Example (i). Assume the same facts as in examples (1), (2), and (3), except that the original acquisition of 510 shares of F's stock occurred prior to January 1, 1936. In .such case, no adjustment will be necessary under section 742(f) (1) because the 350 shares disposed of on January 1, 1939, are deemed to be out of the most recently acquired shares, including in this case all of the shares acquired since December 31, 1935, that is, the 340 shares acquired on January 1, 1938. Wliere the. corporation whose stock is acquired has at the time of such acquisition more than one class of stock outstanding and the taxpayer does not, prior to the Supplement A transaction, acquire all of the stock of all classes for assets (other than its own stock), the base period experience of the component which is to be excluded under section 742(f)(1) must be determined upon the basis of the earnings which may be attributed to each class of stock. Where pre- ferred stock is nonvoting and is also limited and preferred as to divi- dends, the base period excess profits net income may be allocated first to the preferred stock on the basis of the prescribed dividend rate per share. If (he only other class is common stock, the balance of such excess profts net income may be allocated to the common 203 stock. The portion of such base period excess profits net income which is attributable to the stock owned by the acquiring corpora- tion is that portion of such base period excess profits net income allocated to the class to which such stock belongs proportionate to the number of shares , of such class acquired by the acquiring corpo- ration after December 31, 1935. This rule may be illustrated by the following example : Example. The G Corporation was in existence on January 1, 1936, and has at all times made its income tax returns on the calendar year basis. It has had outstanding at all times the following shares : 5,000 shares of nonvoting preferred stock of a par value -of $100 per share, limited and preferred as to dividends to the extent of $6 per share annually. 10,000 shares of no-par value common stock possessing sole voting power. On January 1, 1938, the H Corporation acquired for cash 6,000 shares of G's common stock from the stockholders of. G. The excess profits . net income of G for 1936 and 1937 was $100,000 each year. Of this amount, $30,000, representing the prescribed dividend rate of $6 a share on '5,000 shares, is allocable to the preferred stock. Of the bal- ance of $70,000 which is allocable to the common stock, 60 percent (the ratio of the 6,000 shares of common stock acquired by H since December 31, 1935, to the total of 10,000 shares of such stock out- standing), or $42,000, will be considered attributable to the stock so ' acquired by H. Therefore, if H subsequently acquired all of the assets of G in a Supplement A transaction (no stock of G having .been purchased or disposed of in the interval) , $42,000 of G's excess profits net income for 1936 and 1937 is to be excluded under section 742(f) (1) in computing the Supplement A average base period net income of H. , If G had a deficit in excess profits net income for- either 1936 oi* 1937, or for both, such deficit would be considered ^attributable solely to the common 'Stock for purposes of determining the portion to be excluded under section 742(f) (1). The acquisition of stock by the acquiring corporation may occur on a day in a taxable year of the acquiring corporation other than the- first day of such year, as in the cases previously discussed in this subdivision. If such stock acquisition occurred in a taxable year of the acquiring corporation beginning in a base period year, the amount of the component's excess profits net income (or deficit) for its taxable year or years beginning in such base period year to be excluded shall be determined upon the basis of the ratio which the rmmber of days in such acquiring corporation's taxable year or years up to the date of such stock acquisition bears to the total number of days in such acquiring corporation's taxable year or years. If the 294 stock acquisition occurred in an excess profits tax. taxable year for which the tax is being computed and later in such year the Supple- ment A transaction occurred, the amount of the component's base period experience to be excluded under section 742(f)(1) shall be determined upon the basis of the ratio which the number of days in such excess profits tax taxable year of the acquiring corporation up to the date of such stock acquisition bears to the total number of days in such year. This rule may be illustrated by the following examples (in which it is assumed that the base period years are calendar years) : Example (1). The J Corporation purchased for cash all of the stock of the K Corporation from the latter's stockholders on July 2, 1936, and on December 31, 1942, acquired the assets of the K Cor- poration in a Supplement A transaction. The J Corporation made its income tax returns on the calendar year basis. (i) If the K Corporation made its income tax returns on the cal- endar year basis, one-half of K's excess profits net income or deficit in excess profits net income (the ratio which the number of days in the period January 1 through July 1, 1936 (183 days), bears to the total number of days in 1936 (366) ) is to be excluded under section 742(f)(1) in computing J's Supplement A average base period net income. (ii) If the K Corporation made its income tax returns on the basis of a fiscal year ending July 31, the excess profits net income or deficit in excess profits net income of K for the fiscal year ending July 31, 1937, would otherwise be includible in the group excess profits net income (or deficit) for 1936. Although the stock acquisition occurred before the beginning of such taxable year of K (but after Decem- ber 31, 1935), nevertheless one-half of such experience of K for its taxable year ended July 31, 1937, is to be excluded under section 742(f)(1). (iii) If the K Corporation had made its income tax returns on the basis of the fiscal year ending July 31 and then received permis- sion to make its' income tax returns on the calendar year basis after the close of its taxable year ending July 31, 1936, K has a short tax- able year in 1936 for the period August 1 through December 31, 1936. The excess profits net income or deficit in excess profits net in- come for such short taxable year is to be adjusted to represent 12 months' experience, as provided in subsection (a) of this section, and of the amount thus determined, one-half is to be excfuded under section 742(f) (1) in computing the group excess profits net income (or deficit) for 1936. (iv) If the K Corporation had made its income tax returns on a calendar year basis and then received permission to make such re- 295 ' ■turns on the basis. of a fiscal year beginning Ar.giist 1, 1936^ the experience for the two taxable years, January 1, 1936, through July 81, 1936, and August 1, 1936, through July 31, 1937, are to be adjusted to represent 12 months' experience, as provided in subsection {a) of this section. Of the amount thus determined, one-half is to be ex- cluded under section 742(f) (1) in computing the group excess profits net income (or deficit) for 1936. ^ Example (2). Assume the same facts as in example (1) (including -the variations in (i), (ii), (iii), and (iv) thereof) except that J, the acquiring corporation, received permission to make its inconle tax returns on a fiscal year basis beginning May 1, 1936, and filed its returns on such basis until 1940 when it changed back to a calendar year basis, and that J purchased for cash all of- the stock of K from the latter's stockholders on August 31, 1936 (instead of July 2, 1936j . as in example (1) ) . In such case, J has two taxable years beginning ' in 1936, the taxable year January 1, 1936-April 30, 1936, and the tax- able year May 1, 1936-April 30, 1937. The excess profits net income (or deficit) for such two taxable years is to be placed on an annual basis as provided in subsection (a) of this section. Nevertheless, one- half of the experience of the K Corporation is to be eliminated in computing group excess profits net income for 1936, just as in ex- ample (1). This is determined from the ratio of the number of days in such taxable years prior to August 31, 1936 (243, the number of days in the period January 1, 1936-August 30, 1936), to the total number of days in both taxable years (486, thenumber of days in the period January 1, 1936-April 30, 1937). Example (v The amount determined under (4) is the excess profits net income of the acquiring corporation for such base period year. In such case, no excess profits net income is to be built up for the component cor- poration for such base period'year. In the case of an acquiring corporation which acquired a component corporation in the acquiring corporation's last taxable year beginning ■in 1939, the excess profits net income of the acquiring corporation for a base period year during which neither of such corporations was at 301 ■' . any time in existence is determined in.the manner prescribed in the preceding paragraph, except that, in determining the percentage figure under section 742(e) (1) (B), the acquiring cojporation is considered to have held the admissible and inadmissible assets held by the com- ponent corporation (and at the time so held by it) immediately prior to the transaction and during any part of such taxable year of » the acquiring corporation. In such case, no excess profits net income is to be built up for the component corporation for such base period year. ■ In case the Supplement A transaction by which a corporation . became a component corporation of its acquiring corporation occurred in the last taxable year of such component corporation beginning in 1939 but on a day in a taxable year of • such acquiring cor- poration beginning in 1940, the following steps are required for the computation of the excess profits net income with resp6ct to such com- ponent corporation for a base period year during -which neither of such corporations was at any time in. existence : (1) The daily invested capital of the component corporation for the day of the transaction is determined. (2) There is determined the percentage of such daily invested capital which would be applicable under section 720 in reduction of the average invested capital of the component corporation on account of. inadmissible assets for .the 12-month period ending with the day preceding the day of the transaction, in the same manner as if such 12-month period constituted a taxable year and section 720 had been applicable to such taxable year. (3) The amount determined under (1) is reduced by an amount equal to the same percentage of such daily invested capital as tlie percentage determined under (2). (4) 8 percent of the amount found under (3)- is determined. The amount determined under (4) is the excess profits net income of the component corporation for such base period year. In the case of an acquiring corporation which acquired all of the assets of a component corporation after the beginning of both cor- poration's first excess profits tax taxable year, the excess profits net income for each corporation for a base period year during which neither was at any time in existence is determined in the manner pre- scribed in the second paragraph of this subsection, the amomit for the component being determined under such paragraph in the same man- ner as if it were an acquiring corporation. The application of the foregoing rules under section 742(e) (1) and (2) may be illustrated by the following examples (examples (1) and (2) covering subsection (e)(1) in general; example (3) dealing with the application of subsection (e)(1)(B), and example (4) covering subsection (e) (2) ) : 302 Example (-.Z). The E Corporation, on the calendar-year basis, was organized on January 1, 1937. The G Corporation was organized on December 1, 1936. It has at all times used a fiscal year finding No- vember 30. On January 1, 1942, the F Corporation acquired the properties of G Corporation in a Supplement A transaction. Since the/> Corporation was actually in existence in the base period year 1936, section 742(e) (1) is not applicable and therefore the F Corpo-, ration will not be permitted to build up any income for 1936. Example- {2). The H Corporation and the J Corporation came into existence on January 1, 1937, and January i,' 1938, respectively. Both corporations have at all times been on the calendar year basis. On January 1, 1942, the H Corporation acquired all of the assets of the J Corporation in a Supplement- A transaction.. ' Although the' J Corporation wais not actually in existence in 1937,- the H Corporation was actually in existence in such year. Therefore, no excess profits net income may be built up with respect to such year. However, since neither corporation was actually in existence in 1936, income may be built up for such year. Such' income is the excess profits net income built up for each corporation for 1936. In the case of each corporation the built up income is an amount equal to 8 percent of the excess of — (i) the daily in vested, capital of the corporation for January 1, 1940, over (ii) an amount which is the same percentage of such capital as the percentage determined as provided in section 742(e)(1) (B) under the rules of section 720 by reference. to its last taxable year beginning in 1939. Exannple (3) . The M Corporation came into existence on Novem- ber 1, 1937. It has at all times used a fiscal year ending October 31. The N Corporation, on the calendar year basis, came into existence on January 1, 1937. On October 1, 1940, the M Corporation acquired all of the assets of the N Corporation in a Supplement A transaction. Here the date of the transaction fell within the M Corporation's last taxable year beginning within 1939, but within the N Corporation's first excess profits tax taxable year. In building up excess profits net income for 1936 (the year in which neither corporation was in existence), there is taken into account only the M Corporation's daily invested capital — for November 1, 1940. The N Corporation's daily invested capital is reflected in the M Corporation's daily invested capital for such day. In determining the percentage figure as pro- vided in section 742(e)(1)(B) under the rules of section 720- by reference to its taxable year ended October 31, 1942 (to be used in re- ducing the M Corporation's daily invested capital), the M Corpora- tion is treated as if it had held the admissible and inadmissible assets 303 which the N Corporation held during the period November 1, .1939, through September 30, 1940. Example (4) . The K Corpor-ation, on the calendar year basis, came into existence on January 1, 1937. The L Corporation was org9.nized on July 1, 1937. It has at all times used a fiscal year ending June 30. On March 1, 1940, the K Corporation acquired all of the assets of the L Corporation in a Supplement A transaction. The date of the trans- action fell, accordingly, within the K Corporation's first excess profits tax taxable year, but within the L Corporation's last taxable year be- ginning in 1939. In building up excess profits net income for each corporation for 1936 (the year in which neither corporation was in existence), -there is taken into account the K Corporation's daily in- vested capital for January 1, 1940, and the L Corporation's daily in- vested capital for March 1, 1940. (&) Limitations. — The determination of excess profits net income for vacant base period years is subject to each of the following limita- tions : (1) Section 742(e)(3) acts as a limitation on subsections (e) (1) and (2) . The cases generally covered by it are those in which there was cross-ownership of stock between such corporations prior to the Supplement A transaction, but it also covers cases where property or stock of either corporation_^has been transferred to the other as paid-in surplus or as a contribution to capital. As such, the pri- mary purpose of section 742(e) (3) is to prevent doubling up on the factor of the daily invested capital carried into the first excess profits tax taxable year as the factor upon which the constructive income allowed under subsections (e) (1) and (2) is computed. Briefly stated, section 742(e)(3) provides that in case any cor- poration described in section 742(e)(1) owned stock in any other such corporation on the first day of such owning corporation's first excess profits tax taxable year beginning in 1940, then the invested capital factor, upon which the constructive income allowed under section 742(e) (1) and (2) with respect to such corporations is com- puted, shall be adjusted to such extent as may be necessary to prevent such constructive income from reflecting money or property paid in by either of such corporations to the other for stock or as paid-in surplus or as a contribution to capital; or from reflecting stock of either paid in for stock of the other or as paid-in surplus or as a contribution to capital. For this purpose, stock in either such cor- poration which has in the hands of the other corporation a basis determined with reference to the basis of stock previously acquired by the issuance of such other corporation's own stock shall be deemed to have been paid in for the stock of such other corporation. For certain limitations in other cases of cross-ownership of stock not 304 covered by section 742(e)(3), see section 742(f)(1) and section 35.742-3 (&). The following example illustrates the nature of the adjustment to be made in cases to which section 742(e) (3) applies : Example. The O Corporation and the P Corporation are both on the calendar year basis. The O Corporation came into existence on January 1, 1938. The P Corporation was organized on Decem- ber 31, 1938, and on that date it issued all of its capital stock to the O Corporation in exchange fon assets of the latter. The O Cor- poration holds this stock continuously until December 31, 1941, at which time it acquires the P Corporation in a transaction described in section 740(a)(2). Each corporation is entitled under section 742(e)(1) to a constructive income for the years 1936 and 1937. This constructive income is computed at 8 percent of the excess of its daily invested capital for January 1, 1940, over an amount which is the same percentage of such invested capital as the percentjige determined under section 720 — generally known as the inadmissible asset ratio. In. the event that the reduction under section 720 in the O Corporation's daily invested capital for January 1, 1940, attribut- able to the stock in P is an amount which is less than the basis of such stock to the O Corporation,. a further adjustment shall be made in its invested capital in order to eliminate duplication of the same invested capital. Assuming that the basis of the P stock to the O Corporation under section 718(a)(2) is $50,000; that on December 31, 1938, and December 31, 1939, it owned shares in other domestic corporations having a basis of $10,000 ; and that the O Corporation's daily invested capital, for January 1, 1940, is $450,000 (section' 742(e)(1)(A)), the computation of the adjustment required under section 742(e) (3) may be illustrated" as follows: (I) Total inadmissible assets (based upon computation under sec- tion 720) $60, 000 (II) Total admissible and Inadmissible assets computed under section 720 with reference to the aggregate of both classes of assets (section 35.720-1) 600, 000 (III) Percentage which the total inadmissible assets Is of total ad- missible and inadmissible assets percent 10 (Iv) Daily invested capital of the O Corporation for January 1, 1940, as stated above ; i__ 450, 000 (v) Amount of reduction in the O -Corporation's dally Invested capital for January 1, 1940, for inadmissible assets under section 742(e) (1) (B)— 10 percent of item (iv) , ',- 45,000 (vi) Reduction in the daily Invested capital of the O Corporation for January 1, 1940, which Is attributable to the stock in the P Corporation (^||5^xr45,000) -. 37, 500 (vli) Basis of the P Corporation stock to the O Corporation .50,000 305 (vlil) Adjustment to be made in the O Corporation's daily invested capital for "January 1, 1940, in order to arrive at the invested capital factor under section 742(e)(3) upon which constructive income Is computed ■.■ : $12, 500 (ix) Daily invested-capital for January 1, 1940 . 450, 000 Adjustment for inadmissibles under section 720 (item (vi) abovQ) $45,000 Adjustment under section 742(e)(3) 12,500 57,500 (x) Invested capital as adjusted under section 742(e) (3) upon vphich constructive income of the O Corporation is computed 392, 500 (2) Section 742(f) (1.) requires the exclusion from Supplement A average base period net income of all or a part of the base period experience of a component which is determined under section 742(e) for vacant base period years, if the taxpayer (or any corporation which later became a component of the taxpayer) acquired for assets (other than its own stock) the stock of such component after such vacant base period year. See section 35.742-3 (&). The adjustment necessary under section 742(f)(1) where excess profits net income for vacant base period years would otherwise be de- termined under section 742 (e) is illustrated by the following example : Example. The A and B Corporations were both organized on January 1, 1937, and have at all times made their income tax re- turns on the calendar year hasis. On January 1, 1938, A purchased for cash all of the stock of B from the latter's stockholders. On December 31, 1940, A acquired all of the assets of B in a Supplement A transaction. Under section 742(e), the excess profits net incomes of A and B for 1936 are to be determined separately. However, by reason of section 742(f)(1), the experience of B prior to January 1, 1938, is to be excluded, and therefore no excess profits net income need be determined for B for 1936. The application of section 742(f)(1) in other cases described in section 742(e) but not illustrated above is to be determined in ac- cordance with the above principles and those of section 35.742-3 (J). SEC. 743. NET CAPITAL CHANGES. [Added by Sec. 201, Second Rev. Act 1940; Amended. by Sec. 4, Excess Peofits Tax Amend- ments 1941, and by Sec. 228(d), Rev. Act 1942.] (a) Taxpayee Using This Supflement. — For the purposes of section 713 (g) , if the transaction vifhich constitutes the taxpayer an acquiring • corporation occurs in a taxable year of the taxpayer which begins after December 31, 1939, and the taxpayer's average base period net Income Is computed under section 742, the following rules shall apply in computing the daily capital addition and reduction of the taxpayer for each day after such transaction: (1) The transferred capital addition or reduction of the com- ponent corporation shall be treated as if it were a capital addition or reduction, as the case may be. of the taxDayer. 308 (2) The transferred capital addition of the component corpora- tion shall be its daily capital addition as of the time immediatel;^ before the transaction (computed under section 713(g), but without regard to its reduction under the fourth sentence of paragraph (S) on account of excluded capital, but with the application of para- graph (6) of this subsection). (3) The transferred capital reduction of the component corpora- tion shall be its daily capital reduction as of the time Immediately before the transaction (computed under section 713(g) but with the application of paragraph (7) of this subsection). (4) In computing the dally capital addition of the taxpayer, money or property paid in to the taxpayer by any of Its com- ponent corporations^ and property consisting of stock in any such component corporation paid in by shareholders of sucfi component corporation, shall be disregarded. ' ■ ' ' (5) In computing the daily capital reduction of the taxpayer, distributions by the taxpayer to any of its component corpora- tions not out of earnings and profits shall be disregarded. (6) In computing the transferred capital addition of the com- ponent corporation, money or property paid in to such component corporation by the taxpayer or any other component corporation and property consisting of stock in the taxpayer or any other com- ponent-corporation paid in by shareholders of the taxpayer or other component corporation, shall be 'disregarded. (7) In computing the transferred capital reduction of the com- ponent corporation, distributions by such component corporation to the taxpayer or any other component corporation shall be dis- regarded. (8) The daily capital addition of the taxpayer to which any amount is added under paragraph (1) shall be the amount thereof computed before its reduction under the fourth sentence of section 713(g) (3) on account of excluded capital. (b) Rule Where Acquiking Coepobation Is Component of Tax- payer. — In cases where an acquiring corporation is a component of the taxpayer, and the transaction which constitutes such corporation an acquiring corporation occurs in a taxable year of such corporation which begins after December 31, 1939, for the purpose of determining the daily capital addition or reduction of the taxpayer the above rules shall be applied in a similar manner to determine the daily capital addition or reduction of such acquiring corporation for each day after such transaction. Sec. 35.743-1 Net Capital Changes. — {a) General. — If a tax- payer acquires a component corporation in a Supplement A transac- tion occurring 'in. a taxable year of the taxpayer beginning after December 31, 1939, and if for the particular taxable year the tax- payer computes its average base period net income under section 742 for the purposes of its excess profits credit, the transferred capital addition of the component corporation is added to the taxpayer's daily capital addition for each day after such transaction and the trans-- ferred capital reduction of the component corporation is added to the daily capital reduction of the taxpayer for each such day. 307, . Tlie transferred capital addition of such component corporation is the daily capital addition of such component as of the time im- mediately before the transaction. Such daily capital addition is computed in accordance with the provisions of section 713(g) ex- cept that it is not reduced on account of the excluded capital of the component corporation. In determining such daily capital addi- tion of the component corporation, there is disregarded (1) money or property paid in to such component corporation by the taxpayer or any other component corporation of the taxpayer and (2) property consisting of stock in the taxpayer or any other component corpora- tion of the taxpayer paid in by shareholders of the taxpayer or other component corporation. The transferred capital reduction of such component corporation is the daily capital reduction of such component as of the time im- mediately before the transaction. Such daily capital reduction is computed in accordance with the provisions of section 713(g). But in determining such daily capital reduction, there is disregarded dis- tributions by such component corporation to the taxpayer or any other component corporation of the taxpayer. The' daily capital addition of the taxpayer to which the transferred capital addition of such component corporation is to be added is its daily capital addition computed in accordance with the provisions of section 713(g), but before reduction on account of excluded capital. The taxpayer's excluded capital after the transaction, which is taken into account in making the reduction required by section 713(g), will embrace the excluded capital of the component corporation which is carried over to the taxpayer in the transaction. In computing the daily capital addition of the taxpayer, there is disregarded (1) money or property paid in to the taxpayer by any of its component corr porations and (2) property consisting of stock in any such component corporation paid in by the shareholders of that component corporation. In computing the daily capital reduction of the taxpayer, there are disregarded distributions by the taxpayer to any of its component corporations not out of earnings and profits. If an acquiring corporation is a component corporation of a tax- payer and if the transaction constituting such corporation an acquir- ing corporation occurred in a taxable year of such corporation begin- ning after December 31, 1939, then, for the purpose of determining the daily capital addition or reduction of the taxpayer,' the provisions of this section shall be applied in a similar manner in order to determine the daily capital addition or reduction of such acquiring corporation for each day after such transaction. This section may be illustrated by the following example : Example. On March. 1, 1942', the X Corporation, in exchange solely for its voting stock, acquires all the assets of the Y Corporation, hav- 308 ing an adjusted basis for computing loss in the hands of the -YCor- poration of $100,000. Immediately after the exchange, the Y Cor- poration distributes the stock of the X, Corporation in complete liqui- dation. Both corporations make their income tax returns on a cal- endar year basis. Among the assets of the Y Corporation transferred in the Supplement A exchange were $30,000 of State bonds which it had purchased in 1938 for $32,000. The only money or other property paid into and distributions made by the Y Cbrporation from January 1, 1940, to March 1, 1942, were as follows : January 15, 1942, $5,000 was paid into Y Corporation for stock by persons other than the X Corporation or any component thereof. March 1, 1942, the day of the. Supplement A transaction, but at a time prior to the transaction, the Y Corporation distributed $10,000 to shareholders (not including the X Corporation or any 'component thereof), of which only $7,000 was out of earnings, and profits. If, for 1942, the X Corporation computes its average base period net in- come under Supplement A, it will have for March 2, 1942, and for each day thereafter, $5,000 of capital addition computed without regard to excluded capital, $32,000, of excluded capital (assuming the State bonds are retained for the balance of the year), and $3,000 of capital reduction. Such amounts will be added to the X Corporation's own capital additions, excluded capital, and capital reductions for 1942 in computing its capital additions and reductions under section 713(g) for the purpose of its excess profits credit. No portion of the $100,000 paid in for stock on March 1, 1942, may be taken into account. (i) Limitation under section 74^(/)(i). ^Section 742(f)(1) re- quires the exclusion from transferred capital addition or reduction of any capital addition or reduction (determined as provided in sec- tion 743) of a component corporation attributable to stock of such component acquired for assets (other than its own stock) of the ac- quiring corporation before the Supplement A transaction. Neces- sarily this rule applies only in case the acquisition of such stock oc- curred on or after the beginning of the first excess profits tax taxable year of the component corporation, after such capital additions and reductions occurred, and before the Supplement A transaction. Such capital additions and reductions are to be attributed to such stock acquisitions in accordance with the principles of section 35.742-3(5) and the purposes of section 742(f)(1). No adjustment is necessary under section 742(f) (1) with, respect to stock which was acquired by the acquiring corporation directly from the corporation whose stoek was acquired, unless duplication results and such duplication is not corrected under section 743. 309 ., SEC. 744. FOREIGN CORPORATIONS. [Added bt Sec. 201, Second Rev. Act 1940.] The term "corporation" as used in this Supplement does not include a foreign corporation. Supplement B— Highest Bracket Amount and Invested Capital. [Not ap- plicable to taxable years under these regulations (sec. 229, Rev. Act 1942).] Supplement C — Invested Capital in Connection With Certain Exchanges and Liquidations SBC. 760. EXCHANGES. [Added by Sec. 230(a), Rev. Act 1942.] (a) Definitions, Etc. — For the purposes of this se/;tion — (1) "Exchange", "transfeeob", and "TRANsrEKEiB".^The term "exchange" means a transaction by which one corporation (herein- after called "transferee") receives property of another corporation (hereinafter called "transferor") and the basis of the property re- ceived, in the hands of the transferee, for the purposes of section 718(a) is determined by reference to the basis in the hands of the transferor. (2) Determination of basis of pkopeety received.— The basis, in the hands of the transferee, of the property of the transferor re- ceived by the transferee upon the exchange shall be determined in accordance vcith section 718(a). (b) Rule. — In the application of section 718(a) to a transferee upon an exchange in determining the amount paid in for stock of the transferee, or as paid-in surplus or as a contribution to capital of the transferee, in connection with such exchange, only an amount shall be deemed to have been so paid in equal to the excess of the basis in the hands of the trans- feree of the property of the transferor received by the transferee upon the exchange over the sum of — (1) The amount of any liability of the transferor assumed upon the exchange and of any liability subject to which such property was so received, plus (2) The amount of any liability of the transferee (not arising out of any liability described in paragraph (1) ) constituting considera- tion for the property so received, plus (3) The aggregate of. the amount of any money and the fair mar- ket value of any other property (other than such stock and other than property described in paragraphs (1) and (2) ) transferred to the transferor. (c) Reduction in Daily Invested Capitai.. — In the application of sec- tion 717 to a transferee upon an exchange, the daily invested capital for any day after such exchange shall be reduced by an amount equal to the amount by which the sum of the amounts specified in paragraphs (1), (2), and (3) of subsection (b) exceeds the basis in the hands of the trans^ feree of the property of the transferor received upon the exchange. Sec. 35.760^1 Definitions and Determinations. — For the purposes of section 760 and of sections 35.760-1, 35.760-2, and 35.760-3 : (a) Exchange, transferee, transferor. — The term "exchange" means a transaction in which one corporation, called the "transferee," ac- 310 quires property of another corporation, called the "transferor," and the basis -to the transferee of the property acquired, for the purposes of determining the amount of money or piroperty paid in for stock, or as paid-in surplus, or as a contribution to the capital of the trans- feree pursuant to the provisions of section 718(a) as a result of such • exchange, is a substituted basis under section 113(b) (2) (A), i. e., is a basis determined by reference to the basis of such property in the hands of the transferor. (&) Applicability of section 760 to various types of exchM/nges.-^— (!) In general.^^A substituted basis within the provisions of section 113 (b)(2).( A) may result from— (i) the applicaJ;ion of section 113(a) (Y) to proper^ acquired in an exchange in a taxable year beginning after December 31, 1917, pursuant to a plan of reorganization under the provisions of section 112(g) ; ■ ■ (ii) the application of section 113(a)(8) to property acquired in a taxable year beginning after December 31, 1920, by a cor- poration by the issuance of its stock or securities, if immediately after such acquisition the transferor is in<;ontrol of the corpora- tion under the provisions of section 112(b) (5), or by a corpora- tion as paid-in surplus or as a contribution to capital; (iii) the application of section 113(a) (17) and section 372 in certain instances to property acquired in connection with ex- changes and distributions in obedience to certain orders of the Securities and Exchange Commission; (iv) the application of section 113(a) (20) to property ac- quired in certain railroad reorganizations; (v) .the application of section 113(a) (21) to. property ac- quired by certain street, suburban, or interurban electric railway corporations; and (vi) the application of section 23.38(6) of Consolidated Income Tax Keturn Eegulations 104, or section 33.38 (&) of Consolidated Excess Profits Tax Return Regulations 110 to property acquired by a member of an affiliated group of -corporations from another member of such group during a consolidated return period. The rules provided with respect to the provisions of the Code and of the consolidated returns regulations mentioned in this section shall also be applicable with respect to corresponding provisions of prior revenue laws and of prior consolidated returns regulations. Example. In 1939 Corporation X, solely in exchange for 1,000 shares of its common voting stock (representing 5 percent of its total .voting stock), acquired in a statutory reorganization under section 112(g)(1)(C) all the assets of Corporation Y. Under section, 113 (a)(7)(B), the basis of such assets in the hands of Corporation X 311 wbuM be determined by reference to the baisis of such assets in the hands of Corporation Y. The amount to be included in the equity invested capital of Corporation X as the amount paid in for stock of Corporation X as a result of such exchange shall be determined under section 760. The mere fact that property was acquired in an exchange pursuant to a plan of reorganization in which gain or loss was not recognized does not of itself invoke the provisions^of section 760 if the basis of the property is not fixed by reference to the basis in the hands of the transferor. Thus, if the exchange described in the preceding example" occurred in 1935, the basis of the assets to Corporation X would be fair market value at the date of the exchange because of failure of Corporation Y to retain the 50 percent control in such assets pursuant to section 113(a) (7) (A), and the provisions of section 760 would be inapplicable in determining the amount includible in th^ equity in- vested capital of Corporation X as a result of the exchange. (2) Exchanges constituting intercorporate liquidations. — Since sec- tion 760 is applicable only in the determination of the amount paid in for stock, or as paid-in surplus, or as a contribution to capital, of a transferee upOn an exchange, such section shall not be applicable in determining the equity invested capital of such transferee in the case of the receipt of property in any of the exchanges described in this section if the receipt of such property is a distribution in an intercor- porate liquidation, in whole or in part, of the transferor within the provisions of section 761. In such cases, the exchange shall be consid- ered to be an intercorporate liquidation subject to the provisions of section 761. For rules relating to the adjustment of equity invested capital in the case of intercorporate liquidations, see section 761 and section 35.761-7. The provisions of this paragraph may be illustrated by the follow- ing example : Example. Prior to 1940, Corporation A owned the entire outstand- ing capital stock of Corporation B. In 1940, Corporation C acquired all of the assets of Corporation A and Corporation B in a statutory consolidation constituting a reorganization under section 112(g) (1) (A) . Although Corporaticm C might be deemed to have acquired the assets of Corporation B with a basis determined by reference to the basis of such assets in the hands of Corporation B, the provisions of section 760 are not applicable to such exchange since section 761(f) provides that, in such a case, Corporation C shall be considered to have acquired in the statutory consolidation the stock of Corporation B pre- viously owned by Corporation A and to have received the assets of Corporation B in an intercorporate liquidation. 312 (e) Determination of 'basis of property received.-^{l) General rule. — In determining the amount paid in for stock, or as paid-in surplus, or as a contribution to capital of the transferee for the pur- poses of section 718(a) with respect to an exchange, the basis of the property received upon the exchange is to be determined in accord- ance with the rules provided by section 718(a) (2), namely, the baisis, (unadjusted) to the transferee for determining loss; adjusted with respect to the period prior to its receipt by the transferee', by an amount equal to the adjustments proper under section 115(1) for determining earnings and profits. For the purposes of determining such basis (unadjusted) to the transferee, the amount of any gain or loss recognized to the transferor upon the exchange shall be limited to the gain or loss taken into account under section 113(1) in com- puting the earnings and profits of the transferor; If the property' was not disposed df prior tb the taxable year, such unadjusted basis shall be determined under the law applicable to the ~ taxable yeaf. If the property was acquired in a taxable year beginning after Febru- ary 28, 1913, and prior to January 1, 1934, and the basis of such property was prescribed by section 113(a) (6), (7), or (9) of the Revenue Act of 1932, or if the property was acquired in a taxable year beginning after Februiary 28, 1913, and prior to January 1, 1936, and- the basis of such property was prescribed by section llS(a) (6), (7), ' or (8) of the Revenue Act of 1934, for the purposes of section 760 the basis of such property shall be the same as the basis prescribed by the Revenue Act of 1932 or the Revenue Act of 1934, respectively. See section 113(a) (12) and (16). If the property was disposed of prior to the taxable year, such unadjusted basis shall be that pre- scribed by the law applicable to the year of disposition, but without regard to the value of the property as of March 1, 1913; (2) Applicability of sedtion 760 in case of statutory change. — ^If the transferee received property in any taxable year in a trarikaction which, under the revenue law applicable to such year, dTd not consti- tute an exchange within the provisions of section 760(a) , and if — (i) such property is held in the taxable year, and under the revenue law applicable to sach year such transaction qualifies as an exchange under section 760, or (ii) such property was disposed,6f in a taxable year subsequent to the year of acquisition and under the revenue law applicable to such subsequent taxable year, the transaction did qualify as an exchange under section 760, the provisions of section 760 are applicable in determining the amount paid in to the transferee as a result of such transaction. However, if such property was disposed of prior to a year in which the revenue law was changed so as to bring a transaction of such a character within 313 the provisions of section 760,, the provisions of section 760 shall not be applicable in determining the invested capital of the. transferee attributable to the property ac()[uired in such transaction. Thus, if after December 31, 1917, a corporation aeqoiired the entire assets of another corporation in exchange solely for 79 -percent of its voting stock, although such transaction would constitute a reorganiza- tion and a tax-free exchange under the Revenue Acts of 1924, 1926, and 1928, the basis of the assets to the transferee would not be deter- mined by reference to the basis of such assets, in the hands of the • transferor since an interest or control of 80 percent in the assets trans- ferred did not remain in the transferor. See sections 203(b) (3) and (4), 203(h) (1) (A), and 204(a) (7) of the Revenue Acts of 1924 and 1926, and sections 112(b) (3) and (4), 112(i) (1) (A), and'll3(a) (7) of the Revenue Act of 1928. The percentage of control necessary to establish a substituted basis for such property was reduced to 50 per- cent by section 113 (a) (7) of th,e Revenue Acts of 1932 and 1934. The Revenue Act of 1936 removed the necessity for any control under sec- tion 113(a) (7), but preserved the basis established under the Revenue Act of 1932 or 1934. The Revemle Act of 1938 and the Code provide in section 113(a) (7) (A) that with respect to property acquired by a corporation in. connection with a reorganization after December 31, 1917, but in a taxable year beginning prior to January 1, 1936j 50 per- cent control is necessary for the property transferred to have a basis to the transferee fixed by reference to the basis of the property in the hands of the transferor. In the case of property acquired in con- nection with a reorganization after December 31, 1935, no such control is necessary. Example. Assume that in 1926, Corporation C acquired all the property of Corporation D in exchange for 79 percent of its entire capital stock, all of which was voting stock. Although the transaction would have been a reorganization and a tax-free exchange, the basis of the property to Corporation C in any taxable year beginning before January 1, 1932, would not have been fixed by reference to the basis of such property in the hands of Corporation D. Consequently, if Corporation C had disposed of the property prior to January 1, 1932, the amount paid in to Corporation C as a result of the 1926 exchange would not be determined under section 760. If Corporation C had disposed of the property in a taxable year beginning subsequent to December 31, 1931, the basis of such property to Corporation C would be the basis to Corporation D, and the amount paid in to Corporation C as a result of the 1926 exchange would be computed under section 760. . (3) iTWOTishtent position. — As to the effect of an inconsistent posi- tion in the determination of invested capital under section 760, or 488313°— 43 21 314 without regard to its provisions, see section 734 and the regulations thereunder. Sec. 35.760-2 Deteemina'hon of Amount Paid in fob Stock, ob AS Paid-in Subpltjs, or as a Contribution to Capital. — For the pur- poses of section 718(a), the amount of money or property determined to have been paid in for stock of the transferee, or as paid-in surplus or as a contribution to capital of the transferee in connection with an exchange defined in section 35.760-1 (a) shall be the excess of the basis. ( determined under section 35.760-1 (J )) in the hands of the trans- feree of the property of the transferor received by the transferee upon the exchange over the sum of — (a) the amount of any liability of the transferor assumed upon the exchange and of any liability subject to which such property was so received, plus (i) the amount of any liability of the transferee (not arising out of any liability described in (a) of this section) constituting consideration for the property so received, plus (o) the aggregate of the amount of any money and the fair market value of any other property (other than such stock and other than property described in (a) and (&) of this section) transferred to the transferor, whether or not such money or prop- erty was permitted to be received by the transferor without the recognition of gain. If the sum of the amounts specified in (a), (6)', and (c) of this section exceeds the basis in the hands of the transferee of the property received from the transferor, such excess shall not be taken into account in computing the equity invested capital of the transferee but shall be used to reduce the daily invested capital of the transferee for each day after the exchange. As to the computation to be made in case of such excess, see section 35.760-3. The application of the provisions of this section may be illustrated by the following examples : Example (1). In 1942 Corporation X transferred property which had an adjusted basis for determining gain or loss of $600,000 to Corporation Y in consideration (1) of 80 percent of the capital stock of Corporation Y which had a fair market value of $400,000; (2) of the assumption by Corporation Y of open account indebtedness of Corporation X amounting to $20,000; (3) of the payment by Corpora- tion Y of money and other property amounting to $120,000; and (4) of the issuance by Corporation Y to Corporation X of a bond in the amount of $110,000 secured by a lien upon the property acquired. In- cluded in the property acquired by Corporation Y in connection with the foregoing exchange was a building which was subject to a mort- gage liability of $100,000 which was not assumed by Corporation X and Avhich was not assumed by Corporation Y. The money and other 315 property received by Corporation X was not distributed in pursuance of the plan of reorganization and therefore the gain resulting from the exchange was recognized by such corporation in accordance with sec- tion 112(d) (a). 'The amount includible in the equity invested capital of Corporation Y determined under the provisions of section Y60(b) with respect to the exchange is $370,000, computed as follows : Gain to Corporation X reoogrUned upon emchange Fair market value of capital stock of Corporation T $400, 000 Amount of liabilities of Corporation X assumed . 20,000 Bond secured by lien upon property 110,000 Money and other property 120, 000 Mortgage liability subject to which building was transferred 100, 600 Total consideration 750, 000 Less : Adjusted basis of property transferred 600, OOO Gain 150,000 The gain recognized fo Corporation X, however, is limited to $120,000, representing the sum of the money and fair market value of other property received by Corporation X which, pursuant to the plan of reorganization, was not distributed (see sections 112(d)(2) and 112 (k)). Amount deemed to be>paid in for stock of Corporation Y under section flSia) and section 760 Adjusted basis' of property to Corporation X $600, 000 Add : Gain to Corporation X recognized upon exchange 120, 000 Unadjusted basis for determining loss to Corporation T 720, 000 Deduct : Amount of liabilities of Corporation X assumed $20, 000 Bonds issued by Corporation T secured by lien upon property received 110, 000 ' Money and other property paid : 120, 000 Mortgage liability subject to which building was acquired by Corporation Y 100, 000 350,000 Amount deemed to have been paid in for stock of Corporation Y upon the exchange 370, 000 Daily invested capital of Corporation T resulting from the exchange Amount deemed to have been paid in to Corporation Y upon the exchange $370, 000 Borrowed invested capital : Mortgage liability on building not assumed $100, 000 Bond Issued secured by lien upon property 110,000 e, ■ Total borrowed capital 210,000 Borrowed invested capital (50 percent of $210,000) ..__ 105, 000 Dally Invested capital 475,000 316 Assume that in 1943, Corporation Y sold the properties acquired from Corporation X for $750,000, the purchaser paying cash in the amount of $650,000 and taking the building subject to the mortgage liability of $100,000. The gain recognized to Corporatipn Y, and in- cluded in its earnings and profiis, is $30,000 ($750,000 minus $720,000). There were no other accumulated earnings and profits. Immediately thereafter Corporation Y redeemed and canceled the bond and mort- gage it had issued to Corporation X at the time of the exchange. That portion of the daily invested capital of Corporation Y for the excess profits tax taxable year following the year of the sale and attributable to the acquisition and sale of the properties received from Corporation X would be $400,000, computed as follows : Equity invested capital resulting from the exchange $370, 000 Earnings and profits from sale of properties 80,000 Dally invested capital 400, 000 Example {£). Assume that in the preceding example, the money and other property received by Corporation X upon the exchange were distributed pursuant to the plan of reorganization so that no gain was recognized to Corporation X as a result of the exchange (see sections 112(d) (1) and 112(k)). Consequently, the basis of the property re- ceived by Corporation Y would not be increased by any gain recog- nized to Corporation X pursuant to section 113^(a) (7) , and would be $600,000, rather than $720,000. The amount deemed to have been paid in for stock of Corporation Y upon the exchange would be $250,000 instead of $370,000, and the daily invested capital of Corporation Y resulting from the exchange would be $355,000 instead of $475,000. Upon the sale of the property, however, a gain of $150,000, rather than $30,000,. would be realized, and the accumulated earnings and profits of Corporation Y would be increased accordingly by $150,000 instead of $30,000. That portion of the daily invested capital of Corporation Y for the excess profits tax taxable year following the year of the sale and attributable to the acquisition and sale of the properties received from Corporation X would be $400,000 ($250,000 plus $150,000). Sec. 35.760-3 Keduotion in Daily Invested CAPiTAii. — For the purposes of determining the daily invested capital of the transferee upon an exchange pursuant to the provisions of section 717 for any day after such exchange, the daily invested capital for each such day shall be reduced by an amount equal to the excess of the sum of the amounts specified in section 760(b) (1), (2), and (3) over the basis (determined in accordance with section 35.760-1(6) ) to the transferee of the prop- erty of the transferor received upon the exchange. In any case in which the excess of the sum of the amounts specified in section 760(b) (1), (2), and (3) over the basis of the transferee of the property received upon the exchange is greater than the Amount 3lV of the daily invested capital for any day-after such exchange, the daily invested capital for such day shall be a minus quantity. In such case the average invested capital of the taxpayer. computed under section 716 shall be the aggregate of the daily invested capital for each day of the taxable year computed by taking into account aiiy plus amounts in daily invested capital and any negative amoulits in ddily invested capital after the exchange resulting from the application of section 760(c), divided by the number of days in such taxable year. In no case, however, shall such average invested capital be an amount which is less than zero. The provisions of this section may be illustrated by the following examples : Examfle (1). In 1942 Corporation O owned propertywith an adjusted basis for determining gain or loss of $400,000 but with a fair market value of $1,000,000. Corporation O had no accumulated earii- ings and profits or deficit in earnings and profits. On June 30, 1942, pursuant to a plan of reorganization. Corporation P acquired such property from Corporation O in exchange for 80 percent of its out- standing stock which had a fair market value of $400,000, $125,000 in cash, and $475,000 of its short term notes. Immediately prior to the exchange Corporation P had an equity invested capital of $100,000, consisting of money and property paid in and of accumulated earnings and profits. Under section 112(d) (1) no gain was recognized to Cor- poration O upon the exchange since immediately after the exchange and in pursuance of the plan of reorganization it distributed the cash and stock and notes of Corporation P to its shareholders. The daily invested capital of Corporation P for each day after the exchange was $137,500 and the average invested capital for the taxable year 1942 was $118,904.11, computed as follows : Daily invested capitai of Corporation P immediately after exchange Equity invested capital immediately prior to exchange — ^ $100, 000. 00 Amount deemed to have been paid In under sections 718(a) and 760 upon the exchange Borrowed invested capital of Corporation P (50 percent of $475,000) .- 237, f.OO. 00 Total daily invested capital prior to application of section 7e0(c) 337, 503. 00 Less: Amount provided by section J60(c) as reduction in daily Invested capital : * Cash paid upon the exchange $125,000. 00 Nstes issued by Corporation P 475, 000. 00 Total - cop, 000. 00 • Less ! Basis of property received upon exchange — 400, 000. 00 Reduction under section 7G0(c) S— ^ 200,000.09 Daily invested capital for each day after exchange _ 137, 500. 00 318 Average invested capital of Corporation P for 194S Aggregate of daily invested capital for each day prior to and including the days of the exchange ($100,000X181 days) $18,100,000.00 Aggregate of daily invested capital for each day after the ex- change ( $137,500 X 184 days ) 25, 800, 000. 00 Total aggregate daily invested capital for each day of the taxable year ' 43, 400, 000. 00 Average invested capital ($43,400,000 divided by 365 days) 118, 904. 11 Example {£). In 1942 Corporation A owned property with an adjusted basis for determining gain or loss of $1,300,000 but with a fair market value of $4,500,000. Corporation A had no accumulated earnings and profits or deficit in earnings and profits. On June 30, 1942, pursuant to a plan of reorganization Corporation B acquired such property from Corporation A in exchange for 80 percent of its outstanding stock which liad a fair market value of $1,500,000, cash of $500,000, and bonds of $2,500,000. Immediately prior to the exchange Corporation B had an equity invested capital of $375,000 consisting of money paid in and of accumulated earnings and profits. Under section 112(d)(1) no gain was recognized to Corporation A upon the exchange since immediately after the exchange and pursuant to the plan of reorganization it distributed the cash and bonds of Corporation B to its shareholders. The daily invested capital of Corporation B for each day after the exchange is minus $75,000 and . the average invested capital for the taxable year 1942 is $148,150 68, computed as follows : Daily An/vested capital immediately after the exchange Equity invested capital of Corporation B immediately prior to the exchange , $375, 000. 00 Amount deemed to have been paid in upon the exchange Borrowed invested capital (50 percent of $2,500,000) 1,250,000.00 Total daily invested capital prior to application of section 760(c) 1, 625, 000. 00 Less : Amount provided by section 760(c) as reduc- tion in daily invested capital : , Cash paid upon the exchange $.500, 000. 00 Bonds Issued upon the exchange , 2, 500, 000. 00 Total 3, 000, OQO. 00 Less basis of property received upon exchange- 1, 300, 000. 00 Reduction under section 760(c) 1, 700, 000. 00 Daily invested capital for each day immediately after exchange (a minus quantity) (75,000.00) 319 Average invested capital of Corporation B for 1942 Aggregate o( daily invested capital for each day prior to and including the day of the exchange ($375,000X181 days) $67, 875, 000. 00 Aggregate of daily invested capital for each day after the ex- change ( ($75,000) X 184 days) (a minus quantity) (13,800,000.00) Total aggregate daily invested capital for each day of the taxable year ^ 54, »75, 000. 00 Average Invested capital ($54,075, 000 divided by 365 days) 148, 150. 68 SEC. 761. INVESTED CAPITAL ADJUSTMENT AT THE TIME OF TAX-FREE INTERCORPOKATB LIQUIDATIONS. {Added by Sm 230(a), Rev. Act 1942.] (a) Dej.-in[tion of Intericorporate LiQumAiiON. — As used in this sec- tion, the term "intercorporate liquidation" means the receipt (whether or not after December 31, 1941) by a corporation (hereinafter called the "transferee") of property in complete liquidation of another corporation (hereinafter called the "transferor") to which (1) the provisions of section 112(b)(6), or the corresponding provision of a prior revenue law, is applicable or (2) a provision of law is applicable prescribing the nonrecognltion of gain or loss in whole or in part upon such receipt (including a provision of the regulations applicable to a consolidated income or excess profits tax return but not including section 112(b) (7), (9), or (10) or a corresponding provision of a prior revenue law), but only if none of such property so received is a stock or a security in a corporation the stock or securities of which are specified in the law applicable to the receipt of such property as stock or securities permitted to be received (or which would be permitted to be, received if they were the sole consideration ) without the recognition of gain. (b) Definition of Plus Adjustment and Minus Adjustment. — For the purposes of this section— (1) Plus adjustment. — ^The term "plus adjustment" means the amount, with respect to an intercorporate liquidation, determined to be equal to the, amount by which the aggregate of the amount of money received by the transferee in such Intercorporate liquidation, and of the adjusted basis at the time of such receipt of all property (other than money) so received, exceeds the sum of — (A) the aggregate of the adjusted basis of each share of stock with respect to which such property was received; such adjusted basis of each share to be determined immediately prior to the receipt of any property In such liquidation with respect to such share, and (B) the aggregate of the liabilities of the transferor assumed by the transferee in connection with the receipt of such prop- erty, of the liabilities (not assumed by the transferee) to which such property so received was subject, and of any other con- sideration (other than the stock with respect to which such property was received) given by the transferee for such prop- erty so received. 320 (2) Minus adjustment. — The term "minus adjustment" means the amount, with respect to an Intercorporate liquidation, determined to be equal to the amount by which the sum of — (A) the aggregate of the adjusted basis of each share of stock with respect to which such property was received ; such adjusted basis of each share to be determined irnmediately prior to the receipt of any property In such liquidation with respect to such share, and (B) the aggregate' of the liabilities of the transferor assumed by the transferee in connection with the receipt of such prop- erty, of the liabilities (not assumed by the transferee) to which such property so received was subject, and of any other con- sideration (other than the stock with respect to which such property was received) given by the transferee for such prop- erty so received exceeds the aggregate of the amount of the money so received and of the" adjusted basis, at the time of receipt, of all property (other than money) so received. (3) Rules for application of paragraphs (i) and (2). — In deter- mining the plus adjustment or minus adjustment with respect to any share, the computation shall be made in the same manner as is pre- scribed in paragraphs (1) and (2) of this subsection, except that there shall be brought into account only that part of each item which is .determined to be attributable to such share. (c) Rules for the Application of This SBonoN. — (1) Stock having cost basis. — The property received by a trans- feree in an intercorporate liquidation attributable to a share of stock having in the hands of the transferee a basis determined to be a cost basis, shall be considered to have, for the purposes of sub- section (b), an adjusted basis at the time so received determined as follows : (A) The aggregate of the property (other than money) held by the transferor at the time of the acquisition by the transferee of control of the transferor (or, if such share was acquired after the acquisition of such control, at the time of the acquisition of such share, or, if such control was not acquired, at the time Immediately prior to the receipt of any property in the inter- corporate liquidation in respect of such share) shall be deemed to have an aggregate basis equal to the amount obtained by (1) multiplying the amount of the adjusted basis at such time of such share in the hands of the transferee by the aggregate number of share units in the transferor at such time (the Interest represented by such share being taken as the share unit), and (11) adjusting for the amount of money on hand and the liabilities of the transferor at such time. (B) The basis which property of the transferor Is deemed to have under subparagraph (A) at the time therein specified shall be used in determining the basis of property subsequently ac- quired by the transferor the basis of which is determined with reference to the basis of property specified in subparagraph (A). (C) The basis which property of the transferor is deemed to have under subparagraphs (A) and (B) at the time therein sp'-cified shall be used in determining all subsequent adjustments to the basis of such property. 321 (D) The property so received by the transferee Bhajl be deemed to have, at the time of Its receipt, the same basis It Is deemed to have under the foregoing provisions of this paragraph in the hands of the transferor, or In the case of property not specified in subparagraph (A) or (B), the same basis It would have had in the hands of the transferor. (B) Only such part of the aggregate property received by the transferee in the intercorporate liquidation as is attributable to such share shall be considered as having the adjusted basis which property is deemed to have under subparagraphs (A), (B), (C), and (D) of this paragraph. (2) Basis op stock not a cost basis. — ^The property received by a transferee in an intercorporate liquidation attributable to a share of stock having in the hands of the transferee a basis determined to be a basis other than a cost basis shall, for the purposes of sub- section (b), be considered to have, at the time of its receipt,' the basis it would have had had the first sentence of section 113(a) (15) been applicable. (3) Definition of control. — As used in this subsection, the term "control" means the ownership of stock possessing at least 80 per centum of the total combined voting power of all classes of stock entitled to vote and the ownership of at least 80 per centum of the total number of shares of all other classes of stock (except non- voting stock which is limited and preferred as to dividends), but only if in both cases such ownership continues until the completion of the Intercorporate liquidation. (d) Adjustment of Equity Invested Capital. — If property is received .by the transferee in an intercorporate liquidation, in computing the equity invested capital of the transferee for any day following the com- pletion of such Intercorporate liquidation — (1) with respect to any share of stock in the transferor haying In the hands of the transferee, immediately prior to the receipt of any property in such Intercorpdrate liquidation, a basis deter- mined to be a cost basis, the earnings and profits or deficit in earnings and profits of the transferee shall be computed as if on the day following the completion of such intercorporate liquida- tion the transferee had realized a recognized gain equal to the amount of the plus adjustment in respect of such share, or had sustained a recognized loss equal to the amount of the minus adjustment in respect of such share ; (2) with respect to any share of stock in the transferor having in the hands of the transferee, immediately prior to the receipt of any property in such intercorporate liquidation, a basis deter- mined to be a basis other than a cost basis, there shall be treated as an amount includible in the sum specified in section 718 (a) the amount of the plus adjustment with respect to such share, or as an amount includible in the sum specified in section 718(b) the amount of the minus adjustment with respect to such share. (e) Invested Capital Basis. — The adjusted basis which property received by the transferee in an intercorporate liquidation is con- sidered to have under the provisions of subsection (c) at the time of its receipt shall be thereafter treated as the adjusted basis, in lieu of the adjusted basis otherwise prescribed, in computing any amount, determined by reference to the basis of such property in the hands of 322 the transferee, entering Into the computation of the invested capital of the transferee, or of any other corporation the computation of the invested capital of vsrhich is determined by reference to the basis of such property In the hands of the transferee. (f) Stattttokt MiatGEats and Consoi.ii>ations. — If a corporation owns stock in another corporation and such corporations are merged or consolidated in a statutory merger or consolidation, then for the pur- poses of this section and section 718 such stock shall be considered to have been acquired (in such statutory merger or consolidation) by the corporation resulting from the statutory merger or consolidation, and the properties of such other corporation attributable to such stock to have been received by such resulting corporation as a transferee from such other corporation as a transferor in an intercorporate liquidation. (g) Deteeminations. — (II) Rbbttlations.' — ^Any determination vs^hich Is required to be made under this section (including determinations in applying thfs section in cases where there is a series of transferees of the property and cases where the stock of the transferor Is acquired by the transferee from another corporation, and the determinations of the basis and adjusted basis which property or Items thereof have or are considered to have) shall be made in accordance with regulations which shall be prescribed by the Commissioner with the approval of the Secretary. If the trans- feror or the transferee Is a foreign corporation, the provisions of this section shall apply to such extent and under such conditions and limitations as may be provided in such regulations. (2) Applicawon to uqtjidation extending over long period.^ — The Commissioner Is authorized to prescribe rules similar to those • provided In this section with respect to the days within the period beginning with the date on which the first property Is received In the Intercorporate liquidation and ending with the day of its completion ; and the extent to which, and the conditions and limi- tations under which, such rules are to be applicable. Sec. 35.761-1 Inteecoefoeate Liquidation. — (a) General rule. — For the purposes of section 761, the term "intercorporate liquidation" means the receipt (whether or not after December 31, 1941) by a corpo- ration (hereinafter called the "transferee") of property in complete liquidation ©f another corporation (hereinafter called the "trans- feror") to which — (1) the provisions of section 112(b)(6), or the corresponding provisions of a prior revenue law, are applicable, including the case in which an election has been made pursuant to the last sentence of section 113(a) (15) of the Kevenue Act of 1936, as amended by section 808 of the Revenue Act of 1938, or (2) a provision of law is applicable prescribing the nonrecog- nition of gain or loss in whole or in part upon such receipt, includ- ing a provision of the regulations applicable to a consolidated income tax return or a consolidated excess profits tax return, but not including the provisions of section 112 (b) (7) of the Eevenue Act of 1938 relating to certain complete liquidations occurring 323 during December 1938, or the provisions of section 112(b)(9) relating to certain complete liquidations of railroad corporations. The provisions of regulations applicable to consolidated income or excess profits tax returns which provide for the nonrecognition, - in whole or in part, of gain or loss upon a liquidation of a member of an affiliated group during a consolidated return period are article 37 of Regulations 75, 78, 89, 97, 102, section 23.37 of Eegu- lations 104, and section 33.37 of Regulations 110. A liquidation of a member of an affiliated group during a taxable year, which is a consolidated return period, beginning prior to January 1, 1929, is not an intercorporate liquidation for the purposes of section 761, - unless some prQvision of law other than regulations relating to consolidated returns is applicable prescribing the nonrecognition of gain or loss, in whole or in part, upon the liquidation. A liqui- dation of a member of an affiliated group during a taxable year, which is a consolidated return period, beginning after December 31, 1933, is not an intercarporate liquidation if it comes within the exceptions provided in articles 37 (a) and 38(e) (3) of Regulations 89, article 37(a) (1) and (2) of Regulations 97 and 102, section 23.37(a) (1) and (2) of Regulations 104, and section 33.37(ffl) (l).and (2) of Regulations 110. The rules provided with respect to the sections of the Code men- tioned in this section shall also be applicable with respect to corre- sponding sections of prior revenue laws. (6) Exception.- — ^A transaction is an intercorporate liquidation within the meaning of the foregoing provisions only if none of the property received by the transferee is a stock or a security in a corpo- ration, the stock or securities of which are specified in the law appli- cable to the receipt of such property as stock or securities permitted to be received (or which would be permitted to be received if they were the sole consideration) without the recognition of gain. Thus, assume that Corporation P owned all the outstanding stock of Corporation S. Pursuant to a plan of reorganization. Corporation S transferred all its assets to Corporation S(l) in exchange for all the capital stock of Corporation S(l), and distributed such stock to Corporation P in liquidation. The entire property received by Cor- poration P upon the liquidation of Corporation S was stock in a cor- poration which^pursuant to section 112(b) (3) Corporation P was per- mitted to receive without the recognition of gain. Consequently, the transaction in which Corporation P acquired the stock of Corporation S(l) in complete liquidation of Corporation S is not an intercorporate liquidation within the provisions of section 761. If tlie reorganization had occurred in a taxable year beginning prior to January 1, 1934, and the stock of Corporation S(l) had been acquired pursuant to a plan 324- of reorganization by Corporation 'P without the surrender of the stock of Corporation S, such acquisition by Corporation P of all the assets of Corporation S would not constitute an intercorporate liquidation within the meaning of siection 761, since the stock of Corporation S (1) is a stock specified in section 112(g) of the Revenue Act of 1932 and corresponding provisions of prior revenue laws as stock in a corpora- tion permitted tobe received without the recognition of gain. If the stock of Corporation S(l) was acquired by Corporation P in a taxable year beginning subsequent to December 31, 1933, without the surrender or cancellation or retirement of the stock of Corporation S, since the transaction would not be one in which gain or loss is not recognized to Corporation P, the transaction would not be an intercorporate liqui- dation under section 761. (See section 19.112 (g)-5 of Regulations 103 and section 29.112(g) -5 of Regulations 111.) Assume that Corporation P owned the entire outstanding capital stock of Corporation S and that Corporation S owned the entire out- standing capital stock of Corporation S(l). If Corporation P ac- quired the stock of Corporation S (1) in a complete liquidation of Cor- poration S pursuant to the provisions of section 112(b) (6), such liqui- dation would be an intercorporate liquidation within the provisions of section 761 since section 112(b) (6) does not specify stock in any corporation as stock permitted to be received without the recognition of gain. If, in connection with an Jntercorporate liquidation described in this section, there is also involved (1) the transfer by the traiisferor to the transferee of property not attributable to the shares of the trans- feror owned by the transferee in consideration of stock issued by the transferee in an exchange described in section 112(b) (4) or in an exchange not within the provisions of section 112(b) ; or .(2) the trans- fer to the transferee by minority shareholders of the transferor of stock of the transferor in consideration of the issuance by the trans- feree of stock in an exchange described in section 112(b) (3) or in an exchange not within the provisions of section 112(b), the amount includible in the equity invested capital as a result of the receipt of such property or such stock in the exchanges described in (1) or (2) of this sentence shall be determined pursuant to the provisions of section 760 or of section 718(a) (1) or (2), as the case may be. (See section 35.760-2 and section 85.718-1.) (o) Statutory merger or consolidation.— In any case in which one corporation owns stock in another corporation (hereinafter called the "transferring corporation"), whether or not such stock ownership amounts to control, and such corporations are merged or consolidated in a statutory merger or consolidation, for the purposes of section 761 225 aiid of section 718, the corporation resulting from the statutory merger or consolidation (hereinafter called the "resulting corporation") shall be considered first to;have acquired the stock of such transferring cor- poration in the statutory merger or consolidation and then .to have acquired the properties of such transferring corporation which are attributable to the stock considered to have been acquired by the re- sulting corporation in the statutory merger or consolidation as a trans- feree from the transferring corporation as a transferor in an intercor- porate liquidation. The foregoing rule is equally applicable to all cases of statutory merger and consolidation, whether the resulting cor- poration operates under the charter of the parent, the subsidiary, or under a new charter. (d) Intercorporate liquidation involving foreign corporation. — ^An exchange which vould otherwise be an intercorporate liquidation sub- ject to the provisions of section 761, but which involves a foreign cor- poration as the transferor or transferee, shall not constitute an inter- corporate liquidation for the purposes of section 761 if such exchange was consummated after June 6, 1932, and involved gain unless, prior to such exchange, it was established to the satisfaction of the Commis- sioner pursuant to the provisions of section 112 (i) and section 19.112(i)-l of Regulations 103, section 29.112(i)-l of Regulations 111, or the corresponding provisions of prior revenue la,ws and regulations,, that such exchange was not in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes. Sec. 35.761-2 Definition of Pltts Adjustment and Minus Adjust- ment. — For the purposes of determining the adjustment of equity in- vested capital under section 761(d) and section 35.761-7: (a) Plus adjustment. — The term "plus adjustment" means the amount computed with respect to an intercorporate liquidation and determined to be equal to the amount by which the aggregate of the amount o,f money received by the transferee in the intercorporate liqui- dation and of the adjusted basis at the time.of receipt of all property, other than money, so received exceeds the sum of — (1) the aggregate of the adjusted basis of each share of stock with respect to which the property was received in the intercorpo- rate liquidation, and (2) the aggregate of the liabilities of the transferor assumed by the transferee in connection with the receipt of the property in the intercorporate liquidation,^ of the liabilities (not assumed by the transferee) to which the property so received was subject,, and of any other consideration other than the stock with respect to which such property was so received given by the transferee for such property so received. 32,8 (h) Minus adjustment. — The term "minus adjustment" means the amount computed with respect to an intercorporate liquidation and determined to be equal to the amount by which the sum of— (1) the aggregate of the adjusted basis of each share of stock with respect to which the property was received in the intercor- porate liquidation, and -(2) the. aggregate of the liabilities of the transferor assumed by the transferee in connection with the receipt of the property in the intercorporate liquidation, of the liabilities (not assumed by the transferee) to which the propertj so recei-^ed was subject, and of any other consideration other than the stock with respect to which such property was so received given by the transferee for such property so received, exceeds the aggregate of the amount of money received by the trans- feree in the intercorporate liquidation and of the adjusted basis at the time of receipt of all property other than money so received. (o) Rules applicable in determining plus adjustment amd minus adjustment. — For the purpose of determining the plus adjustment and the- minus adjustment provided by section 761(b) : (1) The adjusted basis of each share of stock with respect to which property is received upon the intercorporate liquidation shall be determined immediately prior to the receipt in the inter- corporate liquidation of the property with respect to such share. As to the computation of the adjusted basis of such share, see section 35.761-4. (2) The adjusted basis of property other than money at the time of receipt of such property shall be determined in accordance with the provisions of section 761(c) and section 35.761-6 or 85.761-6. This adjusted basis may be different from the adjusted basis otherwise determined under the provisions of section 113. (3) A share of stock with respect to which property is received upon an intercorporate liquidation means outstanding stock of the transferor owned by the transferee at the time of such liqui- dation. Outstanding stock of the transferor shall not include shares of the transferor held by it in its treasuiy as treasury stock. In the case of a complete liquidation of a transferor under the provisions of section 112(b) (6), such stock refers only to stock of the transferor owned by the transferee at the time of the receipt of the property. (4) The plus adjustment or the minus adjustment with respect to each share of stock shall be computed in the manner prescribed in section 761(b) (1) and (2), except that there shall be brought into account only that part of each item specified in such section 327 which is determined to be attributable to such share. The amount of any consideration (other than the stock of the transferor with respect to which property was reQeived upon the intercorporate liquidation) given by the transferee for the property received upon the intercorporate liquidation shall be prorated with respect to each share of stock (other then stock which is limited and pre- ferred as to assets upon liquidation) upon the basis of the per- centage which one share of stock is of the total shares of stock of the transferor owned by the transferee at the time of liquidation (not including stock which is limited and preferred as to assets upon liquidation) . (5) In no event shall there be taken into account any plus adjustment with respect to a share of stock which is limited and preferred as to assets upon liquidation of the transferor in escess of the sum of — (i) the excess of that portion of the net assets to which such share is entitled upon liquidation of the transferor over Che adjusted basis to the transferee of such share at the time of liquidation, and (ii) the amount of any cumulative dividends in arrears upon such share. (6) Property received by a transferee in an intercorporate liquidation in exchange for stock of the transferee issued by the transferee to the transferor or to minority shareholders of the transferor, whether or not, in an exchange within the provisions of section 112(b) (4) of the applicable revenue law, is not property received upon an intercorporate liquidation, but is property re- ceived upon an exchange under section 760 or property' paid in under section 718(a) (1) or (2). Consequently, other consider a- , tion given by the transferee for property received upon the inter- corporate liquidation within the provisions of section 761(b) (1)(B) or section 761(b)(2)(B) does not include stock of the transferee issued in consideration for property ^which is received at the time of the intercorporate liquidation but which is received in an exchange under section 760 or which is paid in under section 718(a) (1) or (2). (d) "Rules applicable in case intercorporate liquidation extends over period of time. — If any distribution in an intercorporate liquidation occurs in an excess profits tax taxable year beginning after December 31, 1939, to which the provisions of section 761 are applicable, and if the liquidation is consummated by a series of distributions covering a period of more than one taxable year, the application of the princi- ples of section 761 in the computation of the equity invested capital of 328 the taxpayer shall, in addition to the requirements set forth in section T61, be subject to the following requirements: (1) The taxpayer shall file with its excess profits tax return for the first excess profits tax taxable year to which the provisions of section 761 are applicable with respect to the intercorporate liqui- dation a statement describing the plan pursuant to which the dis- tributions in liquidation have been or will be made and setting forth the period within which the transfer of the property of the transferor to the taxpayer has been or is to be completed. (2) If the intercorporate liquidation involves a distribution in liquidation pursuant to the provisions of section 112(b) (6), the taxpayer shall comply with the requirements prescribed by section 19.112(b) (6)-3 of Eegulations 103 or section 29.112(b) (6)-3 of Regulations 111. As used in such section, the term "ptofits taxes" includes the excess profits tax imposed by Subchapter E of Chap- ter 2. The bond required by such section shall also contain pro- visions unequivocally assuring prompt payment of the excess of income and excess profits taxes (plus penalty, if any, and interest) as computed by the Commissioner without regard to the pro- visions of section 761 over such taxes computed with regard to such section, regardless of whether such excess may or may not be made the subject of a notice of deficiency under section 272 and regardless of whether it may or may not be assessed. (3) If the intercorporate liquidation involves a distribution in liquidation other than one pursuant to section 112(b) (6), in addi- tion to the statement required by paragraph (1) for each of the taxable years which falls wholly or partly within the period of liquidation, the taxpayer shall, at the time of filing its excess profits tax return, file with the collector for transmittal to the Commissioner a waiver of the statute of limitations on assessment and collection. The waiver shall be executed on such form as may be prescribed by the Commissioner and shall extend the period for assessment of all income and excess profits taxes for such year to a date not earher than one year after the last date of the period for assessment of such taxes for the last taxable year in which the transfer of the property of the transferor to the transferee may be completed pursuant to the plan filed by the taxpayer. Such waiver shall also contain such other terms with respect to assess- ment as may be considered by the Commissioner to be necessary to insure the assessment and collection of the correct tax liability for each year within the period of liquidation. For each of the tax- able years which falls wholly or partly within the period of liqui- dation, the recipient corporation shall file a bond, the amount of which shall be fixed by the Commissioner. The bond shall con- 329 tain all terms specified by the Commissioner, including provisions unequivocally assuring prompt payment of the excess of the in- come and excess profits taxes (plus penalty, if any, and interest) as computed by the Commissioner without regard to the provisions of section 761 over such taxes computed with regard to such pro- visions, regardless of whether such excess may or may not be made the subject of a notice of deficiency under section 272 and regardless of whether it may or may not be assessed. Any bond required under this paragraph shall have such surety or sureties as the Commissioner may require. However, see section 1126 of . the Eevenue Act of 1926, as amended, providing that where a bond is required by law or regulations, in lieu of surety or sureties there may be deposited bonds or notes of the United States. Only surety companies holding certificates of authority from the Secre- tary as acceptable sureties on Federal bonds will be approved as sureties. The bonds shall be executed in triplicate so that the Commissioner, the taxpayer, and the surety or the depository may each have a copy. (4) Pending the completion of the liquidation, if there is a compliance with this section and section 35.761-1 with respect to intercorporate liquidations, the equity invested capital of the tax- payer for each day following a distribution in liquidation of the transferor shall be determined under section 761, and the plus adjustment or minus adjustment for each -such day shall be com- puted under section 761(b) subject to the following rules: (i) If a distribution in liquidation is in complete cancella- tion and retirement of any specific share or shares of stock '• of the transferor, a plus adjustment or a minus adjustment with respect to such share or shares shall be computed at the time such distribution occurred pursuant to the provisions of section 35.761-2(e), and the money and property received upon the distribution, the liabilities of the transferor assumed at the time of the distribution, the liabilities to which the property received in the distribution was subject, and any other consideration (other than the stock of the transferor with respect to which the distribution was received) shall be taken into account in computing the plus adjustment or minus adjustment with respect to such distribution and shall not be allocated to any prior or subsequent distribution. (ii) If the distribution in liquidation is not in complete cancellation and retirement of any specific share or shares, but extends ratably over all the outstanding shares of the trans- feror or over all the outstanding shares of a particular class of stock of the transferor, a plus adjustment or a minus adjust- 488818"— 43 22 330 ment shall be computed at the time of each distribution in accordance with the provisions of section 35.761-2 (c), and — • (A) The distribution shall be considered a distribu- tion with respect to each share (or each share of a. par- ticular class) held by the transferee ; (B) The adjusted basis of each share for the purposes of computing the plus adjustment or the minus adjust- ment at the time of any distribution shall bear that ratio to the total adjusted basis of such share computed under section 35.761-4 as the excess of the aggregate of the money and adjusted^ basis (computed under- section 35.761-5) of all property other than money received from the transferor as a distribution" over the aggregate of the liabilities of the transferor assumed by the trans- feree or to which property received from the transferor was subject, bears to the excess of the aggregate of the money and adjusted basis of all property other than money (computed under section 35.761-5) held by the transferor at the time of the first distribution in liqui- dation over the aggregate of the liabilities of the trans- feror and liabilities to which the property held by the transferor was subject, at the time of the first distribution in liquidation. In no event, howeverj shall the^ portion of the total adjusted basis of a share of stock used in computing the plus adjustment or the minus adjustment under this paragraph exceed an amount which, when added to portions of such basis previously used in com- puting the plus adjustment or minus adjustment in con- nection with such intercorporate liquidation, equals the total adjusted basis of such share computed under section 35.761^; (C) The amount of any consideration (other than the stock of the transferor with respect to which the distri- bution was received) given by the transferee at the time of the distribution and the amount of any liability of the transferor assumed at the time ol the distribution or any liability to which the property received in the distri- bution was subject shall be taken into account, in com- puting the plus adjustment or the minus adjustment with respect to such distribution, and shall not be allocated to any other prior or subsequent distribution. / (iii) In no event shall the aggregate of the plus adjustments and minus adjustments computed with re.spect to an inter- corporate liquidation extending over a period of time be dif- 331 f erent for each day after the last day of the last distribution in liquidation than the plus adjustment or minus adjustment which would have resulted had the intercorporate liquidation been commenced and completed entirely during such last day. Sec. 85.761-3 Deteemination of Basis of Stock — Cost Basis oh Basis Other Than Cost. — (a) Cost hasis. — In all cases other than those in which the basis of stock is determined to be a basis other than cost under (J) or (o) of this section, the basis of stock shall be deter- mined to be a cost basis. (&) Basis other than cost. — Stock in any corporation shall be deter- mined to have a basis other than cost if, as a result of the transaction in which siich stock was acquired^ — (1) The basis of such stock is fixed by reference to the basis of other property previously held by the acquiring corporation, not including any case in which the basis of such other property to such corporation was a cost basis if, at the time of the acquisition of such stock or im- mediately thereafter, the acquiring corporation or its shareholders were in control of the corporation from which such stock was acquired or the corporation from which such stock was acquired or its share- holders were in control of the acquiring corporation ; or (2) The basis of such stock is fixed by reference to its basis in the hands of a preceding owner not including any case in which (i) such stock was acquired from another member of an. affiliated group of corporations in a taxable year in which the acquiring corporation and the transferring corporation filed a consolidated income or excess profits tax return and (A) the basis of such stock to the transferring corporation was a cost basis, or (B) the basis of the stock of the transferring corporation or of any other member of the affiliated group holding stock of the transferring corporation, directly or indirectly, was a cost basis, whether or not the basis to the transferring cor- poration of the stock transferred was a cost basis (see section 35.761-4(c) relating to amount of basis) except in those cases in which such stock would have a basis other than cost if it had been acquired in an intercorporate liquidation de- scribed in (ii) or in an exchange described in (iii) ; or (ii) such stock was acquired in an intercorporate liquidation if immediately prior to such liquidation the stock of the liquidated corporation was held by the acquiring corporation with a cost basis (see section 761(e) ) , or the stock which was acquired in such liqui- dation Was held by the liquidated corporation with a cost basis; or (iii) such stock was acquired from another member of a con- trolled group of corporations and 332 (A) the basis of such stock to the preceding owner was a , cost basis, or (B) the basis of the stock of the transferring corporation or of any other member of the controlled group holding stock of the transferring corporation, directly or indirectly, was a cost basis, whether or not the basis to the transferring cor- poration of the stock transferred was a cost basis (see section 35.761-4(c) relating to amount of basis) except in those cases in which such stock would have a basis other than cost if it had been acquired in an intercorporate liquidation described in (ii) ; provided that if, in the opinion of the Commissioner, the liquidation of the transferor whose stock was acquired in a transaction subject to the provisions of (6) (2) (i) and (iii) has the effect of a substitution of one member of a controlled group for another member of such group, the provisions of (&) (2) (i) and (iii) shall not be applicable. For the purposes of this section a controlled group includes one or more chains of corporations connected through stock ownership with a common parent corporation if stock possessing at least 80 percent of the voting power of all classes of stock and at least 80 percent of each class of the nonvoting stock of each of the corporations (except the common parent corporation) is owned directly by one or more of the other corporations and the common parent corporation owns directly stock possessing at least 80 .percent of the voting power of all classes of. stock and at least 80 percent of- each class of the nonvoting stock of at least one of the other corporations. As used in the preceding sentence, the term "stock" does not include nonvoting stock which is limited and preferred as to dividends. (o) Statutory merger or consolidation. — ^In any case in which a cor- poration held stock in another corporation and such corporations were merged or consolidated in a statutory merger or consolidation, such stock, for the purposes of section 761(f), shall be determined to have a cost basis in the hands of the corporation resulting from the merger ' or consolidation if such stock was held with a cost basis immediately prior to the statutory merger or consolidation and if, immediately thereafter, the shareholders of the holding corporation were in con- trol of the corporation resulting from the statutory merger or qonsoli- dation. In all other cases, such stock shall be determined to have a basis other than cost in the hands of the corporation resulting from the statutory merger or consolidation. {d) Control. — For the purposes of this , section, in determining whether the basis of stock is a cost basis or a basis other than a cost basis, the term "control" means the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of 333 stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation (except nonvoting stock which is limited and preferred as to dividends). (e) Series of stock transfers. — The rules provided in this section shall be applicable in determining the basis of stock held by a trans- feree where there has been a series of transfers of such stock. Seo. 35.761-4 Computation or Basis of Stock — Amount of "Basis. — The following rules, are applicable in determining the ad- justed basis of the stock with respect to which the property was re- ceived in the intercorporate liquidation, for the purposes of the com- putation of the plus adjustment or the minus adjustment under section 761(b): (a) Time of computation. — The adjusted basis of each share of stock with respect to which property is received in an intercorporate liquidation shall be determined immediately prior to the receipt of any property in such liquidation with respect to such share. In case of the receipt by a corporation in a statutory merger or consolidation of shares of stock of another corporation, the properties of which are deemed to have been transferred to the acquiring corporation with respect to such stock, the adjusted basis of such stock shall be deter- mined immediately prior to the statutory merger or consolidation. (&) Determination of basis. — The adjusted basis of each share of stock shall be the unadjusted basis for determining loss upon a sale or exchange, adjusted by amounts proper under section 115 (1) for de- termining earnings and profits, under the law applicable to the year in which the intercorporate liquidation began. If -such stock has a basis fixed by reference to the basis of such stock in the hands of any preceding owner, the basis of such stock to the transferee upon its receipt shall be the basis to the prior owner determined without regard to its value as of March 1, 1913, and adjusted in the hands of the prior owner (and in the hands of any owners prior to such prior owner if the basis of such stock is determined by reference to the basis in the hands of such other prior owners) by an amount equal to the adjust- ments proper under section 115(1) for determining earnings and profits. In any case in which such stock has a basis to the transferee fixed hj reference to the basis of such stock in the hands of any pre- ceding owner, and the basis of such stock in the hands of such preceding owner is different for invested capital purposes, because of the pro- visions of section 761, than for the purposes of determining gain or loss upon a sale or exchange, the basis of such stock for invested capi- tal purposes, rather than the basis for determining gain or loss upon a sale or exchange, shall be used in determining the unadjusted-basis" of such stock to the transferee. If the basis of such stock to the preced- ing owner was a cost basis which is preserved to the transferee, and 334 if the preceding owner was in control of the transferor as defined in sec- tion 761 (c) (3) , the adjustments prescribed by this section with respect to stdck owned by a transferee shall also be made with respect to the stock owned by the preceding owner for the purposes of determining the unadjusted basis of such stock to the transferee. (c) Acquisition of stock from member of affiliated or controlled group. — If stock of a corporation was acquired by a member of an affiliated group of corporations from another member of such affiliated group in a transaction subject to the provisions of section '35.761-3 (J) (2) (i) (B), or by a member of a controlled group of corporations as defined in section 35.761-3(&) (2) from another mem- ber of such controlled group in a transaction subject to the provisions of section 35.761-3(Z>) (2) (iii) (B), the basis of such stock to the acquiring corporation shall be an amount equal to the basis which such stock would have determined pursuant to the provisions of section 761 (c) (1) and (e) if such stock -were acquired as the result of an intercorporate liquidation of the corporation tra>nsferring such stock and of each member of the group owning stock of the trans- ferring corporation, directly or indirectly, through which such stock would have passed prior to its acquisition by the member of the group. {d) N onap plication of adjustment based on loss during . consoli- dated return period. — If the transferee owns stock of a transferor with which it has made a consqlidated income or excess profits tax return, the basis of such stock shall not be reduced pursuant to the provisions of section 113(a) (11), or section 33.34(c) of Kegulations 110, or section 23.34 (o) of Kegulations 104, or corresponding pro- visions of prior consolidated returns regulations, or similar rules of law applicable to' consolidated returns, relating to decrease in basis of stocli of a corporation on account of losses sustained by such corpora- tion during a consolidated return period. (e) Precontrol distributions in case of cost basis stock. — As of the date of acquisition of control by the transferee (or as of the time of the intercorporate liquidation in case control was not acqijired by the transferee), the basis of the aggregate assets of the transferor attributable to stock owned by the transferee with a cost basis is to be revalued to accord with such cost basis. See section 761(c). Dis- tributions froin earnings and profits of the transferor between the date of acquisition of such stock and the date of acquisition of control (or the time of the intercorporate liquidation in case control was not acquired) 'may have the effect of reducing the assets of the trans- feror properly subject to revaluation. For the purpose of section 761 in the case of such distributions made with respect to stock having a cost basis, the basis of such stock shall be reduced by an amount proper to give effect to any such reduction in assets. 335 (/) Postcontrol distributions in case of cost basis stock. — If the stock of the transferor is deemed to have a cost basis to the transferee, the adjusted basis of the assets of the transferor must be recom- puted pursuant to the provisions of section 761(c)(1) and section 35.761-5 (a). A subsequent sale or other disposition of the assets of the transferor involved in such recomputation, or the use of such assets in the trade or business of the transferor will affect the earnings and profits of the transferor in amounts determined by reference to the recomputed basis. In determining whether a distri- bution made by the transferor to the transferee after the acquisition of control by the transferee of the transferor is a dividend within the meaning of section 115(a) or a distribution in reduction of the basis of the stock of the transferor under section 113 (b) ( 1) (D) for the purposes of the computation of the adjusted basis of such stock to be used in the computation of the plus adjustment or the minus adjust- ment under section 761(b), the earniiigs and profits of the transferor recomputed in accordance with the method prescribed in this subsec- tion shall be used in lieu of the earnings and profits of the transferor otherwise determined. Sec. 85.761-5- Basis or Peopeett Received in an Inteecoepcbate Liquidation With Eespect to Stock Having a Cost Basis. — (a) Determination.-— Yov the purpose of determining the plus adjustment or the minus adjustment to be used in adjusting the equity invested capital of_a transferee in an intercorporate liquidation pursuant to section 761 (b) and (d), the property received by a transferee in an intercorporate liquidation attributable to a share of stock of the transferor having in the hands of the transferee a basis determined .under section 35.761-3 to be a cost basis shall be considered to have at the time so received an adjusted basis determined as follows: (1) BcLsis of property with respect to stock acquired on or before date of acquisition of control of transferor. — With respect to a share of stock of the transferor acquired by the transferee with a cost basis on or before the date of acquisition by the transferee of control of the transferor, the aggregate of the property (other than money) held by the transferor at the time of the acquisition by the transferee of control of the transferor shall be, considered to have an aggregate basis equal to- the amount determined by — (i) multiplying the amount of the adjusted basis of such- share in the hands of the transferee at the time of acquisition of control by the aggregate number of share units in the trans- feror at such time, the interest represented by such share being taken as the share unit, 336 (ii) adding to the amount determined under (i) the amount of the liabilities of the transferor at the time of acquisition of control, and (iii) subtracting from the sum of the amounts determined under (i) and (ii) the amount of money on hand in the trans- feror at the time of acquisition of control. (2) Basis of property with respect to stock acquired after acquisi- tion of control of transferor. — If a share of stock of the transferor was acquired by the transferee with a cost basis after the transferee acquired control of the transferor, the aggregate basis of the property of the transferor (other than money) held by the transferor at the time of the acquisition by the transferee of such share of the transferor shall be determined in the manner prescribed in (1), except that such computation shall be made as of the time of the acquisition of such share. A share of stock shall be considered to have been acquired after the transferee acquired control of the transferor only if, after the acquisition of such share, the transferee did not lose control of the trangferor. A share of stock shall Tje considered to have been acquired on or before the date of acquisition of control if, after the acquisition of such share, the transferee lost control previously held in the transferor and subsequently reacquired and retained control until the time of the intercorporate liquidation. (3) Basis of property with respect to stock in transferor in which control is not acqwired. — If a share of stock is owned in a transferor and if immediately prior to the receipt of any property in the inter- corporate liquidation in respect of such share the transferee does not have control of the transferor, the aggregate basis of the property of the transferor shall be determined in the manner prescribed in (1), except that such computation shall be made as of the time immedi- ately prior to the receipt of the property in the intercorporate liquidation. (4) Redetermination of iasis of property to accord with $asis of stock. — The amount determined under (1), (2), or (3) of this sub- section, representing the aggregate basis of the property of the transferor at the time of acquisition of control of the transferor, at the time of acquisition of stock of the transferor subsequent to the acquisition of control, or at the time of the intercorporate liquida- ion may be greater or less than the amount of the aggregate adjusted basis of the property of the transferor at such time otherwise com- puted. Ordinarily, if — (i) the aggregate basis of the property of the transferor determined under (1), (2), or (3) of this subsection exceeds the aggregate adjusted basis of such property otherwise computed. 337 such excess shall be deemed to be the basis of an asset which, for the purposes of section T61, shall be called "positive good will," or (ii) the aggregate basis of the property of the transferor de- termined under (1), (2), or (3) of this subsection is less than the aggregate adjusted basis of such property otherwise com- puted, such difference shall be deemed to represent a deduction from the aggregate hasis of the property of the transferor otherwise computed; such difference ' shall be represented in a credit account to be called "negative good will." If the fair market value of the property of the transferor at the time as of which the recomputation is made is greater or less than the aggregate adjusted basis of such property determined without regard to (1), (2), or (3) of this subsection, proper adjustment shall be made to the basis of such assets to rpflect such difference. (5) Basis of preperty acquired hy transferor subsequent to deter- mination of hasis under (^).— In any case in which the transferor, subsequent to the date as of which the redetermination of the basis of its property has been made pursuant to (4) of this subsection, acquires additional property, the basis of which is fixed by reference to the basis of the property redetermined under (4) of this subsection, the basis of such additional property shall be determined with respect - to the basis of such property redetermined in accordance with the rules set forth in (4) of this subsection in lieu of the basis otherwise prescribed with respect to such property. (6) Use of basis determined for subsequent adjustments. — The basis of the property determined under (4) or (5) of this subsection shall- be used in determining, for the purposes of section 761, all subsequent adjustments to the basis of such property, as, for example, the adjustment based upon depreciation or depletion. Such basis shall also be used in lieu of the basis otherwise prescribed by section 113 in determining, for the purposes of section 761, the gain or loss resulting from a sale or other disposition of such assets by the trans- feror. The adjustments so obtained and the amount of gain or loss resulting from a sale or other disposition of such assets so determined shall, for the purposes of section 761, be used in computing the earnings and profits or the deficit in earnings and profits of the transferor to ascertain — (i) whether distributions subsequent to the date as of which the aggregate basis of the assets of the transferor is determined with respect to stock having a cost basis are out of earnings and profits of the transferor ; (ii) the amount to be included in the earnings and profits of the transferee as a result of such distributions out of earnings and profits of the transferor : or 338 (iii) the adjustment to be made "to the basis of the stock of the transferor owned by the transferee resulting from any such distributions not out of earnings and profits of the transferor. (7) Property received hy transferee in intercorporate liquidation. — The property received by the transferee in an intercorporate liquida- tion attibutable to a share of stock of the transferor having a cost basis shall be considered to have, at the. time of its receipt by the transferee in the intercorporate liquidation, a basis determined as follows : (i) With respect to property so received which was owned by the transferor with a basis not determined by reference to this subsection, for example, property the basis of which had not been increased or decreased in a revaluation under (4) of this subsection or property acquired subsequent to the date of such revaluation, such property shall have the same basis to the transferee which it had in the hands of the transferor immedi- ately prior to the intercorporate liquidation, adjusted, however, by adjustments proper under section 115(1) for the determina- tion of earnings and profits; (ii) With respect to property so received which was owned by the transferor with a basis increased or decreased as the result of a recomputation provided by (4) of this subsection, and with respect to property so received which had a basis fixed, as provided by (5) of this subsection, by reference to other property the basis of which was recomputed pursuant to the provisions of (4) of this subsection, such prpperty shall have the same basis to the transferee which it had in the hands of the transferor, so increased or decreased, immediately prior to the intercorporate liquidation, adjusted, however, by adjustments proper under section 115(1) for the determination of earnings and profits; only such part .of the aggregate property received by the transferee in the intercorporate liquidation as is attributable to the share of stock with a cost basis shall -be considered as having the recomputed basis which such property is deemed to have under (4) or (5) of this subsection. (&) Control. — For the purposes of this section, "control" means the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and the ownership of at least 80 percent of the total number of shares of all other classes of stock (except nonvoting stock which is limited and preferred as to dividends), and shall be determined under the following rules: (1) Control must be continued until the completion of the inter- corporate liquidation. 339 (2) If control is lost and later reacquired (except as otherwise provided in (3)), the date of the last acquisition of control shall be considered to be the date of acquisition of control. (3) If control, once acquired, was lost because stock of the trans- feror which did not possess voting power at the time such control was acquired became entitled to vote, and if control was reacquired either because the stock which became entitled to vote lost its voting power or through the acquisition of the requisite portion of such stock, and such control continues until the completion of the inter- corporate liquidation, the date of acquisition of control shall be the date upon which control was first acquired. (4) Except as otherwise provided in (6), if stock of a corporation was acquired from another corporation which had held such stock with a cost basis, and if such stock is determined to have a cost basis in the hands of the acquiring corporation fixed by reference to its basis in the hands of such other corporation, the acquiring corpora- tion shall be deemed to have acquired such stock as of the date upon which such stock was acquired by such other corporation. (5) If stock of a corporation was acquired from another corpora- tion in a liquidation subject to the provisions of section 112(b)(6), or the corresponding provisions of a prior revenue law, and if the stock of the liquidated corporation was held by the acquiring corporation with a cost basis but the stock acquired was held by the liquidated corporation with a basis other than cost, the acquiring corporation shall be deemed to have acquired the stock received in the liquidation as of the date upon which it had acquired the stock of the liquidated corporation. (6) If stock of a corporation was acquired from another corpora- tion in a liquidation subject to the provisions of section 112(b) (6), or the corresponding provisions of a prior revenue law, and if the stock so acquired was held by the liquidated corporation and the stock of the liquidated corporation was held by the acquiring corpora- tion, both with a cost basis, the acquiring corporation shall be deemed to have acquired the stock received in the liquidation as of the date upon which such stock was acquired by the liquidated corporation, or as of- the date upon which the acquiring corporation acquired the stock of the liquidated corporation with respect to which the distribu- tion was made, whichever date was the later. (7) If stock of a corporation was acquired with a basis determined to be a cost basis under section 35.761-3 (&) (1) because the basis of such stock was fixed by reference to the cost basis of other stock in the hands of the acquiring cofporation; the acquiring corporation shall be deemed to have acquired such stock as of the date upon which it had acquired such other stock. 340 (8) If, the basis of the stock of a transferor in the hands of the transferee was increased as the r'esult of a statutory merger or consolidation of the transferor and another corporation, or as the result of a transaction having the effect of a statutory merger or consolidation, and if the stock of such other corporation was held by the transferee with a cost basis, that portion of the transferee's stock-holding interest in the transferor represented by the increase shall be deemed to have been acquired as of the date upon which the transferee had acquired the stock of such other corporation; Sec. 35.761-6 Basis of Peopertt Received in an Intercorporate Liquidation Witit Respect to Stock Having a Basis Other Than Cost. — For the purpose of determining the plus adjustment or the minus adjustment to be used in adjusting the equity invested capital of a transferee in an intercorporate liquidation pursuant to section 761 (b) and (d), the property received by a transferee in an inter- corporate liquidation attributable to a share of stock of the trans- feror having in the hands of the transferee a basis determined under section 35.761-3 to be a basis other than cost shall be considered to have at the time so received by the transferee the basis it would have had if the first sentence of section 113(a) (15) had been applicable, i. e., the basis of such property to the transferee shall be the basis which such property had in the hands of the transferoi:, adjusted by adjustments proper under section 115(1) in determining earnings and profits. Such basis shall be used for the purposes of section 761 in lieu of the basis for determining gain or loss upon a sale or other disposition prescribed by any provision or rule of law such as the last sentence of section 113(a) (15), or the corresponding provisions of a prior revenue law, or section 33.38(e) (3) of Regulations 110, or section 23.38(e)(3) of Regulations 104, or corresponding sections of prior consolidated returns regulations. Only such part of the aggre- gate property of the transferor received by the transferee in the intercorporate liquidation as is attributable to a share having a basis determined to bB a basis other than cost shall be considered as having the adjusted basis which property is deemed to have under seb'tion 761(c) (2) and this section. Thus, if the aggregate basis of the assets to the transferor, properly adjusted by the adjustments required by section 115{1) is $400,000, and if the transferee owns 90 percent of the stock of the transferor half of which was held with a basis other than cost, and receives 90 percent of the aggregate property of the transferor upon the intercorporate liquidation, the aggregate basis of the assets received by the transferee with respect to the shares held with a basis other than cost, for the purposes of section 761, is $180,000 (one-half of 90 percent of $400,000). 341 Seo. 85.761-7 Adjustment or Equity Invested Capital. — If property is received by the transferee in an intercorporate liquidation within the meaning of section. 761 (a), the equity invested capital of the transferee for any day following the day in which such inter- corporate liquidation is completed shall be computed with the follow- ing adjustments: (a) Adjustment with respect to stooTe with cost iasis. — ^With re- spect to any share of stock in the transferor having in the hands of the transferee, immediately prior to the receipt of the property in the intercorporate liquidationj a basis determined under the provisions of section 35.761-3 to be a cost basis, the earnings and profits or the deficit in earnings and profits of the transferee shall be computed as if, on the day following the completion of the intercorporate liquida- tion, the transferee had realized a recognized gain equal to the amount of the plus adjustment in respect of such share or had sustained a recognized loss equal to the amount of the minus adjustment in respect of such share, computed under the provisions of sections 761 (b) and 35.761-2i No other amount shall be included pursuant to any provision or rule of law in the earnings and profits of the transferee as a result of the intercorporate liquidation with respect to such share. (6) Adjustment with respect to stock with iasis other than cost. — With respect to any share of stock in the transferor having in the hands of the transferee^ immediately prior to the receipt of the property in the intercorporate liquidation, a basis determined under the provisions of section 35.761-3 to be a basis other than cost, there shall be treated as an amount includible in the sum specified in section 718(a) (relating to equity invested capital) for each day following the intercorporate liquidation the amount of the plus adjustment computed with respect to such share under section 761(b) and section 35.761-2 (a), or as an amount includible in the sum specified in section 718(b) (relating to reduction in equity invested capital) for each day following the, intercorporate liquidation the amount of the minus adjustment computed with respect to such share under section 761(b) and section 35.761-2(&). (o) Illustration.— The provisions of section 761 may be illustrated by.the following example : Assume that Corporation S was organized on December 31, 1928, with an authorized capital stock of $25,000 consisting of 1,000 shares of common stock with a par value of $25 per share. On that date, in a transaction within the provisions of section 112(b)(5) of the Revenue Act of 1928, Corporation S issued to Corporation P 600 shares of its stock in exchange for a patent which had an adjusted basis to P"of $15,000, and 400 shares of its stock to individuals in exchange for property with an adjusted basis to such individuals of 342 $10,000. The basis to P of the 600 shares of stock of S is determined to be a basis other than cost. Section 113(a)(6) and section 35.761-3 (J) (1). On December 31, 1931, P purchased for $80,000 in cash the remaining 400 shares of the stock of S which it retained until the liquidation of S on December 31, 1936, under section 112(b) (6) of the Revenue Act of 1936, an intercorporate liquidation. The date of acquisition of control of S by P was December 31, 1931. Section 35.761-5(6). On December 31, 1928, the patent acquired by S had a remaining life of 15 years; on December 31, 1931, the date of acquisition of control of S by P, the patent had a fair market value of $72,000. As of December 31, 1931, the fair market value of the remaining assets of S was identical with their adjusted basis. - - Comparative balance sheets of S as of December 31, 1931, the date of acquisition of control by P, and as of December 31, 1936, the date of liquidation of S, are as follows: Assets : Deoemter SI, USt December SI, 1936 Cash $5, 000 .$35, 000 Current assets 60,000 120,000 Fixed assets (less depreciation) 30,000 130,000 Patent $15, 000 $15, 000 Less : Reserve for amortization 3, 000 8, 000 12, 000 : 7, 000 Total assets-' 107,000 292,000. Liabilities and capital: ' Current liabilities $12,000 $22,000 Mortgage on fixed assets 15, 000 10, 000 Capital stock , 25, 000 25, 000 Surplus (earnings and profits) 55,000 235,000 107, 000 292, 000 The plus adjustment or the minus adjustment to be made to the invested capital of P resulting from the intercorporate liquidation of S is a direct addition to or subtraction from the equity invested , capital of P with respect to the stock of S held with a basis other than cost (section 761(d) (2)) ; it is deemed to be a recognized gain or loss to P as of the day following the intercorporate liquidation with respect to the stock of S held with a cost basis (section 761(d)(1)). Moreover, the determination of the basis of property received with respect to stock held with a basis other than cost (section 761(c)(2)) differs from the determination of such basis with respect to stock held with a cost basis (section 761(c)(1)). Two separate computations must therefore be made. (1.) Stock with a basis other than cost. — ^With respect to the 600 shares of stock of S held by P with a basis other than -cost, P is de2med to have received 60 percent ( TKnn ) of the assets and to have assumed 60 percent of the liabilities of S, as follows: 343 Total assets Assets received Cash $35, 000 $21, 000 Current assets : 120, 000 72, 000 Fixed assets (less depreciation) 130,000 78,000 Patent . $15, 000 $9, OOO Less : Reserve for amortization 8, 000 4, 800 7,000 4,200 Total 292,000 175,200 Total Liabilities liabilities assumed Current liabilities $22, 000 $13, 200 Mortgage on fixed assets 10,000 6,000 Total 82, 000 19, 200 There is a plus adjustment to the equity invested capital of P in the amount of $141,000, computed as follows : Money received by P $21,000 Adjusted basis of all other property received by P 154, 200 Total assets received $175, 200 Less : Adjusted basis of P to 60O shares of stock of S $15, 000 Aggregate liabilities assumed 19,200 Total 34, 200 Plus adjustment 141, 000 (2) Stock with a cost basis. — With respect to the 400 shares of stock of S held by P with a cost basis, the basis of the aggi-egate property of S is to be recomputed, as of December 31, 1931,' the date of acquisition by P of control of S, to accord with the basis of such stock (section 761(c) (1) (A)), as follows: Cost basis per share of Stock ($80,000 divided by 400) $200 Number of share units 1,000 Product of cost per share and number of share units $200,000 Less : Money — '■ 5, 000 Difference 195,000 Add : Liabilities : Current liabilities $12, 000 Mortgage on fixed assets _ 15,000 -■ 27, TOO Basis of aggregate property other than money 222, OCO The excess of the recomputed basis of the aggregate property of S, other than money, over the adjusted basis of such property prior to the recomputafion is $120,000 ($222,000 minus $102,000). The only asset which had a fair market value in excess of its adjusted basis prior-to the recomputation is the patent. In the recomputation, the 344 basis of the patent is increased by $60,000 under section 761 (c) (1) (A) to its fair market value of $72,000. The remainder of the excess of the recomputed basis of the aggregate property of S other than, money over the adjusted basis of such property prior to the recom- putation ($120,000 minus $60,000) becomes the basis of an account entitled "Positive good will." As of December 31, 1931, the adjusted basis and the recomputed basis of the property of S would appear as follows : ' , Adjusted Recomputed Assets : basis basis Cash $5, 000 $5, 000 Current assets 60,000 60,000 Fixed assets (less depreciation) 30,000 30,000 Patent $15, 000 $75, 000 Less : Reserve for amortization 3, 000 3, 000 12, 000 72, 000 Positive good will 60,000 107, 000 227, 000 Pursuant to section 761(c)(1)(C), the recomputed basis of the patent is to be used in determining all subsequent adjustments to the basis of such asset. Thus, for each of the five years between Decem- ber 31, 1931, and December 31, 1936, the date of the intercorporate liquidation, the patent will be amortized at $6,000 per year ($72,000 divided by 12), instead of $1,000 per year ($15,000. divided by 15). The total amount included in the reserve for amortization will be $33,000 ($3,000 plus $30,000) instead of $8,000 ($3,000 plus $5,000). As of December 31, 1936, P is deemed to have received with respect to the 400 shares of stock of S held with a cost basis 40 percent ( -^rj^ ) of the assets of S, including the positive good will account, revalued according to section 761(c)(1) (A) and (C), and to have assumed^ 40 percent of the liabilities of S. (Section 761(c) (1)(E).) The adjusted basis of the property of S as of December 31, 1936, prior to the recomputation and as recomputed, and the p»rtion of the assets deemed to have been received and the liabilities deemed to have been assumed by P, are as follows: Assets Prior to recomputation Asreopmputed Assets received - Cash _. Current assets Fixed assets (less depreciation) Patent Less: Eeserve for amortization. Positive good will Total $35,000 120,000 130,000 $35,000 120,000 130,000 $14,000 48,000 62,000 $15,000 8,000 $76, 000 33, 000 $30,000 13,200 42,000 60,000 587, 000 ■ 16,800 24,000 164,800 ■8*5 Liabilities t UaUUUea Current liabilities $22, 000 Mortgage on fixed assets 10, 000 lAabiUUea assumed $S, 800 4,000 Total 82, 000 12, 800 There is a plus adjustment deemed to be a recognized gain to P as of January 1, 1937, in the amount of $62,000, computed as follows : Money received by P $14,000 Adjusted basis of all other property received by P 140,800 Total assets received $154, 800 Less : Adjusted basis to P of 400 shares of stoeli of S $80, 000 Aggregate liabilities assumed 12, 800 Total 92,800 Plus adjustment -•_ 62, 000 The unadjusted basis to P of the property received from S in the intercorporate liquidation is compu.ted as follows : Basis with respect to 600 shares Basis with respect to 400 Total Cash Current assets Fixed assets Oess depreciation)..... Patent Less: Eeserve for amortization. Positive good will - Total - $21,000 72,000 78, 000 $14,000 48,000 52,000 $35, 000 120,000 130, 000 .$9,000 4,800 $30,000 13,200 $39,000 18,000 16,800 24,000 164, 800 21,000 24,000 330, 000 For the purpose of computing the earnings and profits and the adjusted basis of the patent received from S in the intercorporate liquidation to be used in the determination of the invested capital of P for each excess profits tax taxable year, the patent would be deemed to have an unadjusted basis to P of $21,000 as of January 1, 1937 and the annual amount of amortization from that date would be $3,000 ($21,000 divided by 7) instead of $1,000, the amount of amorti- zation taken by S. Sec. 35.761-8 Invested Capital Basis. — For the purpose of com- puting any amount entering into the computation of the invested capital of the transferee, or of any other corporation the computation of the invested capital of which is determined by reference to the basis of property in the hands of the transferee, the adjusted basis which property received by the transferee in an intercorporate liquida- tion is deemed to have at the time of its receipt by the transferee, 488313°— 43- -23 346 determined under section 761 (c) and section 35.761-5, shall be there- after treated as the adjusted basis of such property in lieu of any other basis otherwise prescribed. Thus, items of depreciation or depletion -or any other items computed by reference to the basis of property received in an intercorporate liquidation shall, for the purpose of computing the invested capital of the transferee, be determined by reference to the adjusted basis of such property in the hands of the transferee computed under section 761 in lieu of any basis prescribed by section 113 or any other provision or rule of law. Likewise, the adjusted basis of stock or other assets received by the transferee in an intercorporate liquidation shall, for the purpose of determining the ratio of inadmissible assets to total assets under section 720(b), be the adjusted basis as provided in section 761(c) in lieu of the basis determined under section 113. So, also, for the purpose of determining the earnings and profits resulting from a sale or other disposition of an asset received in an inter- corporate liquidation the adjusted basis of such asset shall be the adjusted basis as provided in section 761(c). SUBPART III— POST-WAR REFUND OF EXCESS PROFITS TAX SEC. 780. POST-WAR REFUND OF EXCESS PROFITS TAX. [Added by Sec. 250, Rev. Act 1942; Amended by Sec. 2, Public Law 21 (Seventy-Eighth Congress).] (a) In Gbnebal. — The Secretary of the Treasury Is authorized and directed to establish a credit to the account of each taxpayer subject to the tax imposed under this subchapter, for each taxable year ending after December 31, 1941 (except in the case of a taxable year begin- ning in 1941 and ending before July 1, 1942), and not beginning after the date of cessation of hostilities in the present war, of an amount equal to 10 percentum of the tax imposed under this subchapter for each such taxableyear. For the purposes of ,this part, in the case of a taxpayer whose tax is determined under section 710(a) (3), the term "tax imposed under this subchapter" means the excess of the tax imposed by such section 710(a) (3) over the tax that would be imposed if such section 710(a) (3) were not applicable. (b) Application of Credit to Pukchase of Bonds. — Within three months after the payment of the amount of the excess profits tax shown on the return for a taxable year to which subsection (a) applies (or, if such taxable year begins or ends in 1942, within one year after payment of the excess profits tax shown on the return for such year), if the payment is made before three months before the date of maturity of bonds for such year under subsection (c), there shall be issued to and In the name of the taxpayer bonds of the United States in an aggregate amount equal to 10 per centum of the tax paid in respect of which a credit is provided under subsedtion (a), and the credit established under subsection (a) for such taxable year is hereby made available for the purchase of such bonds. (c) Terms and Maturity of Bonds. — ^The bonds provided for in subsection (a) shall be issued under the authority and subject to the 347 provisions of the Second Liberty Bond Act, as amended, and the pur- poses for which bonds may be issued under such Act are extended to inchide the purposes for which bonds are required to be issued under this section. Such bonds shall bear no interest, shall be nonne- gotiable, and Shall not be transferable by sale, exchange, assignment, pledge, hypothecation, or otherwise, on or before the date of cessation of hostilities in the present war, hut after said date, such bonds shall be negotiable, and may be sold, exchanged, pledged, assigned, hypoth- ecated, or otherwise transferred, without restriction, and shall be redeemable (at the option of the United States) in whole or in part upon three months' notice. Such bonds for any taxable year to which this section applies shall mature on the last day of that calendar, year, beginning after the date of cessation of hostilities in the present war, which is shown in the following table to be applicable to such bonds for such year : Calendar year (beginnine- ajfter cessation of hos- Bonds purchased with the credit ' tilities) on last day of for any taxable year beginningr which bonds mature Within the calendar year 1941 or 1942 2aid Within the calendar year 1943 3rd Within the calendar year 1944 : 4th After December 31, 1944 5th (d) Exemption of Pboceeds Fkom Tax. — The proceeds of any such bond upon redemption shall not be included in gross income. (e) Date of Cessation of Hostilities in the Present War.— As used in this section, the term "date of cessation of hostilities in the present war" means the date on which hostilities in the present war between the United States and the governments of Germany, Japan, and Italy cease, as fixed by proclamation of the President or by con- current resolution of the two Houses of Congress, whichever date Is earlier, or in case the hostilities between the United States and such governments do not cease at the same time, such date as may be so fixed as an appropriate date for the purposes of this section. Sec. 35.780-1 Post-War Eeftjnd of Excess Profits Tax. — (a) In general. — Section 780(a) authorizes and directs the Secretary to estab- lish a post-war credit, for each taxable year specified in such section, to the account of each taxpayer subject to excess profits tax. The tax- able years so specified include all taxable years under these regula- tions which begin on or before the "date of cessation of hostilities in the present war," as defined in section 780(e). The post-war credit accounts of taxpayers subject to excess profits tax shall be maintained by the Commissioner of Internal Revenue. Subject to the limitations prescribed in section 781(d) (see section 35.781-1 (&)), the post-war credit of a taxpayer for a, taxable year is an amount equal to 10 percent of the excess profits tax imposed upon the taxpayer for such year. For such purpose the tax imposed is the amount of tax determined under Subchapter E of Chapter 2 prior to (1) any credit under section 131, as made applicable by section 729 for tax paid or accrued to a foreign country or possession of the United States, (2) any credit for debt retirement under section 783, and (3) any adjustment under section T34 on account of position in- consistent with prior income tax liability. If it is determined, in the case of any taxpayer with respect to any taxable year, that construc- tive average base period net income should be used pursuant to sec- tion 722 in computing its tax, the tax imposed, for the purpose of the post-war credit for such year, is the amount determined pursuant to the preceding sentence after the determination pursuant to such section. But in such case, pending the final determination of the tax pursuant to section 722, the tax imposed shall, for such purpose, be tentatively considered as an amount determined without regard to the determination under section 722, minus the amount, if any, by which the tax payable at the time prescribed for payment is reduced under section 710(a) (5) (relating to deferment of payment of tax in case of claim under section 722) . For the purpose of the postrwar credit, the tax imposed does not include any interest, penalty, addi- tional amount, or addition to the tax. For provisions relating to reduction of the post-war credit on account of the allowance of a credit for debt retirement, see section 783(c) and section 35.783-1 (c). (&) Bonds. — Section 780(b) relates to the application of the post- war credit to the purchase of bonds of the United States. Section 780(c) relates to the terms and maturity of such bonds. The Com- missioner of Internal Revenue shall certify to the Secretary state- ments of the amounts of post-war credit when such amounts are de- termined. The issuance, transfer, and redemption of bonds, and other matters relating to the bonds (as distinguished from the de- termination and adjustment of amounts of post-war credits and the maintenance of post-war credit accounts) , are within the jurisdiction of the Secretary to be handled through the office of the Commissioner of the Public Debt, not the Commissioner of Internal Eevenue. For provisions relating to reduction of the amount of bonds on account of the allowance of a credit for debt retirement, see section 783(c) and section 35.783-1 (c). (c) Exemption of proceeds of hands from tax. — The proceeds of bonds upon redemption which are issued under section 780 shall not be included in gross income. SEO, 781. SPECIAL RULES FOR APPLICATION OF SECTION 780. [Added by Sec. 250, Rev. Act 1942.] (a) ErPBCT OP DEnraEwciES. — If a deficiency in i-espect of the excess profits tax for any taxable year for which a credit is provided in section 780(a) is paid by the taxpayer before three months before the date, of maturity of the bonds for such year, an amount of such credit equal to 10 per centum of the excess of the tax imposed by this subchapter on the basis of which the deficiency was determined, over the tax imposed by this subchapter as previously computed and paid shall be available, as 349 provided in section 780(b), for the purchase of bonds as provided under such section, and there shall be issued to the taxpayer bonds under such section In an amount equal to such excess and with the same maturity as in the case of bonds issued vplth respect to the taxable year vyith respect to vrhich the deficiency is determined. (b) Effect of Eebtjnds. — If an overpayment of the tax imposed by this subchapter for any taxable year for which a credit is provided in sec- tion 780(a) Is refunded or credited to the taxpayer under the internal revenue laws, the credit, if any, provided in such section then existing, in favor of the taxpayer shall be reduced by an amount equal to 10 per centum of the excess of the tax imposed by this subchapter on the basis of which such tax (in respect of which the internal revenue refund or credit was m^de) was previously computed and paid, over the tax im- posed by this subchapter as determined in connection with the determina- tion of the amount of the overpayment. In such a case, if such credit provided in section 780(a) is less than the amount by which it is re- quired to be reduced, or if there is no such credit then existing in favor of the taxpayer, the excess of such amount over the amount of such credit, if any, shall be carried forward as a charge against the taxpayer to be applied in reduction of a subsequent credit under section 780(a) j and if no such subsequent credit is made in favor of the taxpayer, the amount of such charge (without intei'est) shall be paid bv the taxpayer to the United States or the amount of bonds previously issued to the taxpayer under section 780(b) shall be adjusted on account of such charge. (c) Tax PATMEasTTs Afoeb Ctit-om' Date. — In the case of a payment of the tax imposed by this subchapter shown on the return for any taxable year for which a credit is provided in section 780(a), or the payment of a deficiency in respect of such tax for any such taxable year, after the date prescribed in section 780(b) or 781(a) but before the date of maturity of the bonds with respect to such taxable year under section 780(c), the amount of the credit under section 780(a) for such taxable year attributable to such payment shall, so far as practicable, be availa- ble, as provided in section 780(b), for the purchase of bonds as provided under such section, and, so far as practicable, there shall be issued to the taxpayer bonds und«r such section with the same maturity as bonds issued with respect to such taxable year. To the extent that it is not practicable to issiie bonds against such amount of the credit, the taxpayer shall be paid in cash. In case after the date of maturity of the bonds of any taxable year under section 780(c) there is any credit under section 780(a) remaining in favor of the taxpayer, attributable to such year, such remainder shall be paid to the taxpayer in cash. No amount of any pay- ment made under this subsection to a taxpayer shall be included in gross Income. (d) Limitation. — ^The credit under section 780' (a) for any taxable year shall not be greater than the excess of the amount of the tax paid under this subchapter to the United States (and not credited or refunded under the internal revenue laws) in respect of such year over the amount of tax which would be payable to the United States if the excess profits tax rate were 81 per centum, or if the limitation of section 710 is applica- ble if the amount determined under such section were reduced by 10 per centum. 350 Sec. 35.781-1 Special Euliis for Appuoation of Section 780. — ■ (a) Deficiencies; refvmds and credits of overpayments. — In case a deficiency is paid by the taxpayer, or an overpayment is refunded or credited to the taxpayer, for any taxable year to which section 780(a) applies, appropriate adjustments will be made in the post-war credit account of the taxpayer. In such case, whenever the amount of bonds should be increased or reduced, the Commissioner of Internal Kevenue shall certify the status of the account to the Secretary In order that appropriate adjustments may be made in the amount of bonds. Collection from a taxpayer under section 781(b) of the amount by which charges (arising by reason of a refund or credit of an overpayment) exceed the amount of the post-war credit of the taxpayer, and payment to a taxpayer under section 781(c) of amounts of any outstanding post-war credit against which bonds have not been issued, shall be made by the Commissioner of Internal Revenue. Such payments to taxpayers under section 781 (c) shall not be included in gross income. (6) Limitations on amount of post-toar credit. — The post-war credit provided for in section 780(a) (see section 35.780-1 (a)) is subject to the limitations set forth in section 781(d). The limitations operate in certain cases in which the taxpayer takes a credit against excess profits tax, pursuant to section 131, as made applicable by section 729, for tax paid or accrued to a foreign country or United States posses- sion. They operate also to eliminate or reduce the post-war credit in case the excess profits tax is not paid, or is not paid in full, and in certain cases in which the excess profits tax is reduced by an adjust- ment under section 734 on account of position inconsistent with prior income tax liability (as, for example, if the amount of such reduction exceeds the amount of excess profits tax that would be payable if the excess profits tax rate were 81 percent). The limitations are as- f oUows : (1) The post-war credit is provided only with respect to excess profits tax paid (and not credited or refunded under the internal re ve- nue laws). (See example (1), below.) (2) The post-war credit for any taxable year, other than a taxable year to which section 710(a) (1) (B) is applicable, shall not be greater than the excess of the excess profits tax paid over the amount which would be payable if the excess profits tax rate were 81 percent. (See examples (1) and (2), below.) (3) In the case of any taxable year to which section 710(a) (1) (B) is applicable (limiting excess profits tax to an amount which, when added to normal tax and. surtax, equals 80 percent of corporation surtax net income before the credit for income subject to excess profits 351 tax provided in section 26(e) ), the post-war credit for such year shall not be greater than the excess of the excess profits tax paid over the amount which would be payable if the amount determined under sec- tion 710(a) (1)(B) were reduced by 10 percent. (See example (3), below.) For the purpose of the limitations prescribed in section T81(d), the amoimt of credit for debt retirement allowed under section 783, if any, shall be considered as an amount of tax paid ; and for such pur- pose, in determining amounts of tax which would be payable under the conditions prescribed in section 781(d), such amounts, shall be determined without regard to any credit for debt retirement. The application of section 781 (d) may be illustrated by the following examples : Example {1). The X Corporation has for the calendar year 1942 an adjusted excess profits net income of $1,000,000, which is subject to the excess profits tax tate of 90 percent. The excess profits tax imposed is $900,000 (90 percent of $1,000,000) , of which only $850,000 is actually paid. The post-war credit of the corporation under section 780(a) computed without regard to the limitation provided in section 781(d) would be $90,000 (10 percent of $900,000). However, such credit is limited by section 781(d) to $40,000, computed as follows : Excess profits tax paid: 1.. $850,000 Less excess profits tax payable If rate were 81 percent (81 percent of $1,000,000) ' 810, 000 Post-war credit allowable 40, 000 Example {2). The normal-tax net income, surtax net income, and excess profits net income of the X Corporation, a domestic corporation, for the calendar year 1942 is $1,000,000, of which $2OO,OP0 is from sources within a foreign country and $800,000 from sources within the United States. The amount of the normal-tax net income and of tjie surtax net income is stated hereinbefore without regard to the credit for income subject to excess profits tax provided in section 26(e) . The corporation pays to the foreign country with respect to the calendar year 1942 income tax in the amount of $160,000 upon income from sources therein. After allowance of the credit against normal tax and surtax for foreign tax, the amount of $136,000 of the foreign tax is available as a credit against the excess profits tax for 1942. Such credit is limited by section 729 to one-fifth of the corporation's excess profits tax for that year since only one-fifth of its entire excess profits net income is from sources within the foreign country. The excess profits credit of the corporation for 1942 under section 712 is $295,000, and its specific exemption xmAes section 710(b) is $5,000. The cor- 352 poration pays its excess profits tax for 1942 in full. The post-war credit of the corporation for tliat year is $50,400, computed as follows ! Excess profits net income $1, 000, 000 Less: Specific exemption $5, 000 Excess profits credit 295, 000 800, 000 Adjusted excess profits net Income 700,000 Excess profits tax Imposed (90 percent of $700,000) 630,000 Less foreign tax credit (% of $630,000) 126,000 Excess profits"tax determined under section 710 504, 000 Post-war credit under section 780(a) computed without regard to the limitation under section 781(d) (10 percent of $630,000 (tax imposed ) ) 63, 000 Limitation under section 78Hd) Excess profits tax paid $504,000 Less excess profits tax payable if rate were 81 percent : Tax at 81-percent rate (81 percent of $700,000) $567,000 Less foreign tax credit (% of $567,000) 113,400 453, 600 Limitation under section 7Sl(d) 50,400 Post-war credit allowable 50, 400 Since the post-war credit under section 780(a) ($63,000) computed without regard to the limitation under section 781(d) is greater than the amount ($50,400) determined under section 781(d), the amount determined under section 781(d) is the amount of the post-war credit. Example (0,000 (amount by which indebtedness September 1, 1942, $275,000, exceeds Indebtedness at close of taxable year 1942, $215,000)— 24,' 000 Example {2) . The excess profits tax imposed upon the Y Corpora- tion for the calendar year 1942 is $700,000, and for the calendar year 1943 is $800,000. The amounts paid by the corporation in repayment of indebtedness throughout the year 1942 total $150,000, and through- 357 out the year 1943 total $170,000. The outstanding indebtedness of the corporation during the jears 1942 and 1943 is as follows : . Paid Borrowed Total in- debtedness January 1, 1942 . $500,000 July 10... - $100,000 400,000 Beptember 1 , 400, 000 October 22 ' 50,000 360,000 Decembers _. $20,000 370,000 370,000 150,000 January 1, 1943 370, 000 Novembers _ . ., 170,000 200,000 December 31 200,000 170,000 The credit allowable for debt retirement for 1942 is $12,000, com- puted as follows: 40 percent of $150,000, the total repaid In 1942 (see section 783(a) and section 35.783-1 (o) ) ._ $60, 000 But the credit for debt retirement for 1942 may not exceed which- ever of the following amounts is the lesser (see section 783(b) (1) and (3) and section 35.783-1(6) (2) ) : 10 percent of $700,000 (amount of tax imposed) $70, 000 40 i)ercent of $30,000 (amount by which indebtedness September 1, 1942, $400,000, exceeds indebtedness at close of taxable year 1942, $370,000) _ 12, 000 The credit allowable for debt retirement for 1943 is $60,000, com- puted as follows: 40 percent of $170,000, the total repaid in 1943 (see section 783(a) and section 35.783-1 (o) ) ., --— ?68, 000 But the credit for debt retirement for 1943 may not exceed which- ever of the following amounts is the lesser (see section 783(b) (1) and (2) and section 35.783-1 (6) (3) ) : - 10 percent of $800,000 (amount of tax imposed) . — $80, 000 40 percent of $150,000 (amount by which lowest amount of indebtedness during period beginning September 1, 1942, through close of preceding taxable year (December 31, 1942), $350,000, exceeds Indebtedness at close of taxable year (December 31, 1943) , $200,000) — _ 60, OOO Example {3) . The facts are the same as in example (2) , except that, instead of paying $50,000 on October 22, 1942, and borrowing $20,000 on December 3, 1942, the Y Corporation borrows $20,000 on October 22, 1942, and pays $56,000 on December 3, 1942. S58 The credit allowable for debt retirement for 1942 is $12,000, the same amount as arrived at in example (2) and computed in the same man- ner as in such example. The credit allowable for debt retirement for 1943 is $68,000 (as distinguished from $60,000 under example (2)), computed as follows: 40 percent of $170,000, the total repaid in 1943 (see section 783(a) and section 35.733-1 (a) ) $68, 000 Since the lowest amount of indebtedness in the period September 1, 1942, to the close of preceding taxable year is $370,000, as distinguished from $350,000 in example (2) , the amount of the limitation under sec- tion 783(b)(2) is a higher amount than the corresponding amoimt under example (2). The limitations under section 783(b) (1) and (2) (see section 35.783-1(6) (3)), are as follows: 10 percent of $800,000 (amount of tax imposed) $80, 000 40 percent of $170,000 (amount by which lowest amount of indebtedness during period beginning September 1, 1842, through close of preceding taxable year (December 31, 1942), $370,000, exceeds indebtedness at ctose of taxable year (December 31, 1943), $200,000) 68,000 Example (4)- The excess profits tax imposed upon the Z Corpora- tion for the calendar year 1942 is $30,000, and for the calendar year 1943 is $15,000. On January 1, 1942, the Z Corporation was the owner of certain real property subject to a mortgage executed by the corpora- tion. The mortgage secured a promissory note made by the corpora- tion, payable to mortgagee M in the amount of $100,000. On October i, 1942, the Z Corporation conveyed the property, subject to the mort- gage, to the R Corporation, and the latter assumed the indebtedness. The Z Corporation, however, remained liable for the indebtedness. On November 2, 1942, the R Corporation paid $15,000 on the note, the only amount paid by the R Corporation on the indebtedness. M fore- closed the mortgage in 1943, the net proceeds from the foreclosure sale of the property amounting to $80,000, which was paid and credited upon the indebtedness on November 15, 1943, leaving $5,000 still owing upon the original indebtedness. The Z Corporation, on December 15, 1943, paid the $5,000 to M upon the latter's demand therefor. During the years 1942 and 1943 the Z Corporation had no other indebtedness outstanding, nor was any other indebtedness incurred or paid by it. The outstanding indebtedness of the Z Corporation during the years 1942 and 1943 is as follows : 359 1 Paid by Z Corpora- ' tion Paid by E Corpora- - tion or from proceeds of foreclosure sale Total indebted- ness January 1, 1942 . $100,000 September 1 100,000 November 2 $15,000 85,000 December SI 85,000 (•) January 1,1943-. 85,000 November 15 80,000 6,000 December 15 $5,000 December 31 Total paid 6,000 1 Nothing paid. No credit for debt retirement is allowable to the Z Corporation for the year 1942, since it paid no amounts in repayment of indebtedness. The credit allowable for debt retirement for 1943 is $1,500, com- puted as follows : 40 percent o( $5,000, the total repaid by Z Corporation in 1943 (see section 783(a) and section 35.783-1 (a) ) i J $2, OCX) But the credit for debt retirement for 1943 may not exceed whichr ever of the following amounts is the lesser (see section 783(b) (1) and (2) and section 35.783-1 (6) (3) ) : 10 percent of $15,000 (amount of tax imposed) $1, 500 40 percent of $85,000 (amount by wliicli lowest amount of indebtedness dur- ing period beginning September 1, 1942, tlirough close of preceding tax- able year (December 31, 1942), $85,000, exceeds indebtedness at close of taxable year (December 31, 1943), zero) . 34,000 (c) Effect upon post-war credit cmd ionds. — The post-war credit and bonds purchased with such credit are required by section 783(c) to be reduced by the amount allowed as a credit for debt retirement. If in any case the amount of the credit for debt retirement for a taxable year exceeds the post-war credit allowable for such year, the post-war credit or bonds issued to the taxpayer for any other taxable year or years shall be reduced by the amount of such excess. The Commis- sioner of Internal Revenue shall certify to the Secretary a statement of the amount, if any, by which the amount of bonds outstanding should be reduced. (d) Definition of indeMedness. — For the purposes of the credit for debt retirement, the term "indebtedness" means any indebtedness of the taxpayer or for which the taxpayer is liable which is evidenced by 360 a bond, promissory note, debenture, bill of exchange, certificate, or other evidence of indebtedness, mortgage, or deed of trust, executed by either the taxpayer or any other person. Indebtedness as used in the preceding sentence means an unconditional and legally enforce- able obligation for the payment of money. It includes outstanding ob- ligations of the taxpayer held by the taxpayer for investment or resale. It does not include a contingent obligation. However, if and when a contingent obligation for the payment of money becomes abso- lute it is included in indebtedness. The term "indebtedness" includes indebtedness assumed by the taxpayer even though such indebtedness is evidenced, so far as the taxpayer is concerned, only by a contract with the person whose indebtedness has been assumed. An assumption of indebtedness includes, in addition to the customary forms of assump- tion, the acquisition of property subject to indebtedness. If indebted- ness of the taxpayer or for which the taxpayer is liable is assumed by another person (thus becoming indebtedness of such other person), it does not thereby cease to be indebtedness of the taxpayer or for which the taxpayer is liable. (But credit for debt retirement is allow- able to a taxpayer only with respect to amounts paid by the taxpayer. See section 783(a) and section 35.783-1 (a).) An obligation ceases to be indebtedness when it is satisfied (such as by payment, whether by the taxpayer or another person), extinguished, or otherwise ceases to be legally enforceable, though such indebtedness may be replaced by indebtedness to another person or new indebtedness to the same person. The term "indebtedness" does not include indebtedness incurred by a bank arising out of the receipt of a deposit and evidenced, for ex- ample, by a certificate of deposit, a passbook, a cashier's check, or a certified check. In order for any indebtedness to be included within the term it must be bona fide. It must be incurred for business reasons and not merely to increase the excess profits credit or the credit for debt retirement. Whether outstanding certificates designated by such names as "de- benture preferred stock" or "guaranteed preferred stock" constitute indebtedness depends upon whether the holder has a proprietary in- terest in the corporation or has the rights of a creditor, determined in the light of all the facts. The name borne by the certificate is of little importance. More important attributes to be considered are whether or not there is a maturity date, the source of payment of any "interest" or "dividend" specified in the certificate (wliether out of earnings or out of capital and earnings), rights to enforce payment, and other rights as compared with those of general creditors. The term "other evidence of indebtedness" refers to evidence of in- debtedness of the same general character as bonds, notes, debentures, 3-81 bills of exchange, or certificated of indebtedness, Open account book entries, invoices, or statements of account are not evidences of in- debtedness. In pursuance of the Internal Revenue Code the foregoing regula- tions are hereby prescribed, applicable only to taxable years beginning after December 31, 1941, and Eegulations 109 and Treasury decisions in amendment thereof, in so far as Eegulations 109 and such Treasury decisions relate to excess profits taxes for taxable years beginning after December 31, 1941, are hereby superseded, except that where it is ap- propriate under Regulations 109 and such Treasury decisions, to apply with respect to taxable years beginning after December 31, 1939, and before January 1, 1942, the rules applicable to taxable years beginning after Dacember 31, 1941, these regulations sliall be applicable. Approved : January 25, 1944. ROBEKT E. HaNNEGAN, Commissioner of Internal Revenue. John L. Sttllivan, Acting Secretary of the Treasury. (Filed with tlie Division of the Federal Register January 26, 1944, 4:45 p. m.) 488313°— 43 24 INDEX— REGULATIONS 112 [References are to sectioiu o( the Internal Revenue Code and to sections of Regulations 112] Code section Begulations section Abnormal deductions in base period ' Abnormalities in income . Amount attributable to other years Award Cliange in accounting period or method Claim . . Classification of income Computation of tax — Current taxable year Future taxable years Decree Deferment of payment of tax Development Discovery Dividends from foreign corporations . Exploration^ Foreign corporations, dividends from Judgment Lease, income derived from termination of Prospecting , i... Research Review by Tax Court of the United States Taxable year _. Tax Court of the United States, review by Acquiring corporation: Base period '. Base period years - Defined ,_. . Transactions whereby corporatiojn becomes. Adjusted excess profits net income, dpfined Adjustments: Position inconsistent with prior income tax liability. Amount " Circumstances Effect Intercorporate liquidations. C.) Interest . Method Purpose of section 734 Unused excess profits credit 721 732 721 732 740(a) 710(b) 734 (/See Supplement 710(c) 35. 711(b)-2 35. 721-3 35. 721-6 35. 721-8 35. 721-6 35. 721-2 35. 721^ 35. 721-5. 35. 721-6 , 35. 710-5 35. 721-7 35. 721-7 35. 721-10 35. 721-7 35. 721-10 35. 721-6 35. 721-9 35. 721-7 35. 721-7 35. 732-1 35. 721-1 35. 732-1 35. 740-3 35. 740-3 35. 740-2 35. 734^1 to 35. 734-5 35. 734-4 35. 734-2 35. 734-3 35. 734-5 35. 734-3 35.734-1 35. 710-3 (3G3) 364 Code section Begulations section Admissible assets: Defined . . . . 720(a) 720(d) 733 729 Government obligations- . AHvfiTtisingj ptr. ^ expenHitiiTPS, o.apitaMv.ai.inn 85. 733-1 to Applicability of other laws 36. 733-3 Application for relief under section 722 35. 722-5 Assets. (;See Admissible assets and Inadmissible assets.) Average invested capital: 716 720(b) 719 733 710(c) 710(0) 740(b) Reduction for inadmissible assets __ 35. 720-1 Board of Tax Appeals. (See Tax Court of the United States.) Borrowed invested capital 35. 719-1 Capitalization of expenditures for advertising and pro- motion of good will 35. 733-1 to Carry-back, unused excess profits credit 35. 733-3 Carry-over, unused excess profits credit Component corporation: Defined Partnership as qualified component corporation 35. 740-4 Constructive average base period net income __ . 722 726 726 731 724 727 35. 722-2 Contracts under Merchant Marine Act (1936), corpora- tions completing _ _ 35 726-1 Corporations : Completing contracts under Merchant Marine Act (1936) ■ 35. T26-1 Fngfl.gftfl in mining Rf.ra.tegin minftrflls 35 731-1 Entitled to benefits of section 251, invested capitaL Exempt 35. 724-1 35. 727-1 Foreign. (See Foreign corporations.) Personal service. (See Personal service corpora- tions.) Daily equity invested capital: Accumulated earnings and profits _ 35. 718-2 Deficit ip earnings and profits of transferor trans- 35. 718-7 Distributions in stock 35. 718-3 Insurance companies _ 35-718-8 Money and property paid in. . _ " 35. 718-1 New capital— 35 718-4 Reduction in connection with exchanges 35. 760-3 Reductions by distributions 35. 718-5 Reductions by earnings and profits of another corporation .. _ . 35. 718-6 Daily invested capital 717 365 Code section , Eegulations section Equity invested capital (see also Daily equity invested capital) : Adjustment in connection with liquidations Special cases Mutual insurance companie& other than life or marine Rules where not determinable under section 718 Excess profits credit: Allowance Based on income {see also Supplement A) Adjustment for capital changes Average base period net income, determina- tion Based on invested capital -Excess profits net income: Base period years Abnormal deductions Computation . Taxable period less than 12 months Taxable year Income credit used Invested capital credit used Exchanges. {See Supplement C.) Exempt corporations L.i Exempt income. (See Nontaxable income from certain mining and timber operations.) Expenditures for advertising and promotion of good will, capitalization of Foreign corporations: Dividends from as abnormality Invested capital -■ Supplement A Foreign tax credit Good will, capitalization of expenditures for promotion of - - Imposition of tax Inadmissible assets: Defined Ratio to total assets Reduction of average invested capital Income tax; adjustment of position inconsistent with prior income tax liability Inconsistent position with prior income tax Mability, adjustment of 723 712 713 714 ■711(b) 711(a). 711(a) 727 733 724 744 733 710 720(a) 720(b) 720(b) 734 734 85. 761-7 35. 723-2 35. 723-1 35. 712-1 35. 713-2 35. V'13-1 35. 714-1 35. 711(b)-2 35. 711(b)-l 35. 711(a)-4 35. 711(a-)-l 35„711(a)-2 35. 711(a)-3 36. 727-1 35. 733-1 to 35. 733-3 35. 721-10 35. 724-1 36. 729-3 35. 733-1 to 35. 733-3 35. 720-1 35. 734-1 to 35. 734-5 35. 734-1 to 35. 734r-5 366 Code section Regulations section Inforjnation required on returns Installment basis taxpayers, relief provisions. Adjustment on account of change arising, from election under section 736(a) ^^. Computation of income on straight accrual basis .. Eligibility for relief Election to abandon straight accrual basis and return to installment basis Election to compute income on straight accrual basis Insurance companies: Mutual other than life or marine — Equity invested capital Intercorporate liquidations. {See Supplement C.) Interest, adjustment in case of position inconsistent with prior income tax liability Invested capital: Adjustment at time of tax-free intercorporate liq- uidations 736(a), (0 Average Basis in connection with liquidations Borrowed i Corporations entitled to benefits of section 251. Daily 761 -716 Definition Determination , Exchanges. (See Supplement C.) Expenditures for advertising and promotion of good will 719 724 717 715 Excess profits credit based on. Equity Foreign corporations Liquidations. (See Supplement C.) Laws applicable Liquidations. (See Supplement C.) Long-term contract income taxpayers, relief provisions. . Adjustment on account of change arising from election under section 736(b) Computation of income on percentage of comple- tion method of accounting..! Election to report income on percentage of comple- tion basis Ehgibility for relief 733 714 718 724 729 736 (b), (c) 35. 729-1 35. 736(c)-l 35. 736(a)-3 35. 736(a)-l 35. 736(a)-4 35. 736(a)-2 35.723-2 35.734-5 35.761-1 to 35.761-8 35.761-8 35.719-1 35.724r-l 35.715-1 35.733-1 to 35.733-3 35.714-1 35.718-1 to 35.718-8 35.724-1 35.736(c)-l 35.736(b)-3 35.736(b)-2 35. 736(b)-l 367 Coda section Begulatioiis section Meaning of terms used Measure of tax . ^ Merchant Marine Act (1936), corporations completing contracts under ■ Minerals, corporations engaged in mining strategic Mining operations, nontaxable income .. Bonus income Definitions Exempt excess output General rule Rule where income from excess output includes bonus payment Mutual insurance companies other than life or marine, equity invested capital Nontaxable income from certain mining and timber operations Payment of tax: Deferment in case of base period or invested capital abnormality Time for Personal service corporations Defined Election as to taxability Taxation Position inconsistent with prior income tax liability, adjustment of Post-war refund of tax: Credit for debt retirement General rUle Regulations, authority to prescribe Special rules Rate of tax__;. ^ Refund of taxi post-war. (See Post-war refund of tax.) Relief provisions : General relief, constructive average base period net income Installment basis taxpayers Long-term contract income taxpayers. Returns: Information required Place for filing Time for filing Scope of tax Strategic minerals, corporations engaged in mining. 728 726 731 735 735 725 734 783 780 782 -781 710 722 736(a), (c) 736 (b), (c) 731 35. 710-2 35. 726-1 35. 731-1 35. 735-4 35. 735-2 35. 735-3 35. 735-1 35. 735-5 85. 723-2 35. 735-1 to 35. 735-5 36. 710-5 35. 729-2 35. 725-2 35. 725-3 35. 725-1 35.734-1 to 35.734-5 35.783-1 35.780-1 35.781-1 35.710-4 35.722-1 to. 35.722-5 35.736 (a)-l, 35.736 (c)-l 35.736 (b)-l, 35.736 (c)-l 35.729-1 35.729-1 35.729-1 35.710-1 35.731-1 Code section Besulations section Supplement A: Average base period net income- Base period and base period years of acquiring cor- poration Definitions Foreign corporations I Net capital changes Partnership as qualified component corporation.. _ Purpose and scope : Transactions whei*by corporation becomes acquir- ing corporation Supplement C: Exchanges Invested capital adjustment at time of tax-free in- tercorporate liquidations Tax: Imposition Measure . Payment, deferment of - Payment, time for , Post-war refund. (See Post-war refund of tax.) Rate Scope Taxable period less than 12 months Tax Court of the United States, review of abnormalities. Terms used, meaning '..: Timber operations, nontaxable income Bonus income Definitions .. Exempt excess output General rule Rule where income from excess output includes bonus payment Unused excess profits credit: Adjustment Carry-back Carry-over '. Defined 742 740 744' 743 760 761 710 710 711(a) 732 728 735 710(c) 710(c) 710(c) 710(c) 35.742-1 to 35.742-4 35. 740-3 35. 743-1 35. 740-4 35. 740-1 35. 740-2 35. 760-1 35. 761-1 to 35. 761-8 35. 710-2 35. 710-5 35. 729-2 35. 710-4 35. 710-1 35. 711(a)-4 35. 732-1 35. 734-4 35. 734-2 35. 734r-3 35. 734-1 35. 734-5 35. 710-3 35. 710-3 O