SP CI L TT NTION s drecte 110 th cautonary notce on ths page that pub-

shed rungs of the ureau do not have the force and effect
of Treasury Decsons and that they are appcabe ony to facts presented n the pubshed case
Treasury Department : : : : : ureau of Interna Revenue
Interna Revenue uetn
Cumuatve uetn III 1
NU RY- UN 1934
IN T IS ISSU
f
Introductory Notes
Contents _ I1
Rungs No, 582- 871- INDI N UNI RSITY ,,2
e fTL- ppeaULI R RI S 1_3
PartI(1932 ct) . . . . LOOM IN GTON
Part D (1928 ct) 101- 5
Part III (192 and Pror cts) 17 -357
state and Gft Ta 358-372
Saes Ta 373-418
Capta Stock Ta 419-422
Msceaneous Ta 423-442
Msceaneous 443-554
Inde 555-572
k
Tbe rungs reported n the Interna Revenue uetn are for the nformaton of t h payers and ther counse as
nowng the trend of offca opnon n the admnstraton of the ureau of Interna Revenue the rungs other than
Treasury Decsons have none of the force or effect of Treasury Decsons and do not commt the Department to
any nterpretaton of the aw whch has not been formay approved and promugated by the Secretary of the
Treasury. ach rung embodes the admnstratve appcaton of the aw and Treasury Decsons to the entre
state of facts open whch a partcuar case rests. It s especay to be noted that the same resut w not neces-
sary be reached n another case uness a the matera facts are dentca wth those of the reported case. s t s
not aways feasbe to pubsh a compete statement of the facts underyng each rung, there can be no assurance
hat nay new case s dentca wth the reported case. s bearng out ths dstncton, t may be observed that the
- pubshed from tme to tme may appear to reverse rungs prevousy pubshed.
racers of the ureau of Interna Revenue are especay cautoned aganst reachng a concuson n any case
merey on the basts of smarty to a pubshed rung, and shoud base ther |udgment on the appcaton of a per-
tnent provsons of the Law and Treasury Decsons to a the facts n each case. These rungs shoud be used as
ads n studyng the aw and ts forma constructon as made n the reguatons and Treasury Decsons prevousy
samedL
In addton to pubshng a Interna Revenue Treasury Decsons, t s the pocy of the ureau of Interna Revenue
to pubsh a rungs and decsons, ncudng opnons of the Genera Counse for the ureau of Interna Revenue,
whch, because they announce a rung or decson upon a nove queston or upon a queston n regard to whch
there e sts no prevousy pubshed rung or decson, or for other reasons, arc of such mportance as to be of
genera nterest It s aso the pocy of the ureau to pubsh a rungs or decsons whch revoke, modfy, amend,
or affect In any manner whatever any pubshed rung or decson. In many nstances opnons of the Genera
Counse for the ureau of Interna Revenue are not of genera nterest because they announce no new rung or no
new constructon of the revenue aws but smpy appy rungs aready made pubc to certan stuatons of fact whch
arc wthout speca sgnfcance. It s not the pocy of the ureau to pubsh such opnons. Therefore, the numbers
assgned to the pubshed opnons of the Genera Counse for the ureau of Interna Revenue are not consecutve.
No onpabhabed rung or decson w be cted or reed upon by any offcer or empoyee of the ureau of Interna
Revenue as a precedent n the dsposton of other cases. Uness otherwse specfcay ndcated, a pubshed
rungs and decsons hare receved the consderaton and approva of the Genera Counse for the ureau of
UNIT D ST T S GO RNM NT PRINTING O IC . W S INGTON : 1934
for sae by the Superntendent of Documents, Washngton, D C. .... See back of tte for prces
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The Interna Revenue uetn servce for 1934 w constat of weeky
buetns and semannua cumuatve buetns.
The weeky buetns w contan the rungs and decsons to be
made pubc and a Treasury Department decsons (known as Treas-
ury decsons) .pertanng to Interna Revenue matters. The sem-
annua cumuatve buetns w contan a rungs and decsons (In-
cudng Treasury decsons) pubshed durng the prevous s months.
The compete uetn servce may be obtaned, on a subscrpton
bass, from the Superntendent of Documents, Government Prntng
Offce, Washngton, D. C, for 2 per year. Snge copes of the weeky
uetn, 5 cents each.
New subscrbers and others desrng to obtan the 1919, 1920, and
1921 Income Ta Servce may do so from the Superntendent of Docu-
ments at prces as foows: Dgest of Income Ta Rungs No. 19
(contans dgests of a rungs appearng n Cumuatve uetn 1
to 5, ncusve), 50 cents per copy Cumuatve uetns Nos. 1 to 5,
contanng n fu a rungs pubshed snce pr, 1919, to and n-
cudng December, 1921, as foows: No. 1, 30 cents No. 2, 25 cents
No. 3, 30 cents No. 4, 30 cents No. 5, 25 cents.
Persons desrng to obtan the Saes Ta Cumuatve uetns for
anuary- une and uy-December, 1921, may procure them from the
Superntendent of Documents at 5 cents per copy.
Persons desrng to obtan the Interna Revenue uetn servce for
the years 1922, 1923, 1924, 1925, 1920, 1927, 1928, 1929, 1930, 1931, 1932,
1933, and 1934, may do so at prces as foows:
Cumuatve uetn 1-1 ( anuary- une, 1922) 40 cents
Cumuatve uetn 1-2 ( uy-December, 1922) 30 cents
Cumuatve uetn II- ( anuary- une, 1923) 30 cents
Cumuatve uetn II-2 ( uy-December, 1923) 40 cents
Cumuatve uetn III- ( anuary- une, 1924) 50cents
Cumuatve uetn III-2 ( uy-December, 1924) 50 cents
Dgest NT . 13 ( anuary, 1922-December, 1924) 0cents
Cumuatve uetn I -1 ( anuary- uno, 1925) 40cents
Cumuatve uetn I -2 ( uy-December, 1925) 35 cents
Dgest No. 17 ( anuary-December, 1925) 25cents
Cumuatve uetn - ( anuary- une, 192 ) 40cents
Cumuatve uetn -2 ( uy-December, 192 ) 30cents
Dgest No. 21 ( anuary-December, 1920) 15 cents
Cumuatve uetn I-1 ( anuary uno, 1927) 40 cents
Cumuatve uetn I-2 ( uy-December, 1927) 40 cents
Dgest No. 22 ( anuary, 1925-December, 1927) 35 cents
Cumuatve uetn II-1 ( anuary- une, 1928) 35cents
Cumuatve uetn II-2 ( uy-December, 1928) 50cents
Cumuatve uetn III-1 ( anuary- une, 1929) 50 cents
Cumuatve uetn III-2 ( uy-December, 1929) 55 cents
Cumuatve uetn I -1 ( anuary- une, 1930) 50 cents
Cumuatve uetn I -2 ( uy-December, 1930) 50 cents
Cumuatve uetn - ( anuary- une. 1931) 5 cents
Cumuatve uetn -2 ( uy-December, 1931) 30 cents
Cumuatve uetn I-1 ( anuary- une, 1932) 30cents
Cumuatve uetn I-2 ( uy-December, 1932) 30 cents
Cumuatve uetn II-1 ( anuary- une, 1933) SO cents
Cumuatve uetn II-2 ( uy-December, 1933) 50 cents
Cumuatve uetn III-1 ( anuary- uue, 1934 50 cents
Dgest (Income ta rungs ony, pr, 1919, to December,
1930, Incusve) 1.50
nqures In regard to these pubcatons and subscrptons shoud
be sent to the Superntendent of Documents, Government Prntng
Offce, Washngton, D. C.

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INTRODUCTORY NOT S.
The Interna Revenue Cumuatve uetn III-1, n addton to
a decsons of the Treasury Department (caed Treasury decsons)
pertanng to Interna Revenue matters, contans Genera Counse s
opnons, and rungs and decsons pertanng to ncome, estate, gft,
saes, capta stock, and msceaneous ta es, as ndcated on the tte
page of ths uetn, pubshed n the weeky uetns ( oume
IIT-1, Nos. 1 to 2 , ncusve) for the perod anuary 1 to une 30,
1934. It aso contans a cumuatve st of announcements reatng
to decsons of the Unted States oard of Ta ppeas pubshed
n the Interna Revenue uetn Servce from anuary 1, 1932, to
une 30, 1934.
Income Ta rungs are prnted n three parts. Rungs under the
Revenue ct of 1932 are pubshed as Part I, the secton headngs
correspondng wth the sectons of that aw and the artce headngs
correspondng wth the artce headngs of Reguatons 77. Rungs
under the Revenue ct of 1928 are pubshed as Part II, the secton
and artce headngs correspondng wth the secton and artce head-
ngs of the Revenue ct or 1928 and Reguatons 74. Rungs under
the Revenue ct of 192 and pror cts are prnted as Part III, the
secton and artce headngs correspondng wth the secton and
artce headngs of the Revenue ct of 192 and Reguatons G9.
R I TIONS.
The foowng abbrevatons are used throughout the uetn:
, , C, etc. The names of ndvduas.
. . M. Commttee on ppeas and Revew memorandum.
. R. R. Commttee on ppeas and Revew recommendaton.
. T. . oard of Ta ppeas.
C. . Cumuatve uetn.
Ct. D. Court decson.
C. S. T. Capta Stock Ta Dvson.
D. C. Treasury Department crcuar.
. T. state Ta Dvson.
G. C. M. Genera Counse s memorandum.
L T. Income Ta Unt.
M, N, , Y, Z, etc. The names of corporatons, paces, or busnesses, accord-
ng to content.
Mm. Mmeographed etter.
MS. Msceaneous Dvson.
O. or L. O. Soctor s aw opnon.
0. D. Offce decson.
Op. . G. Opnon of the ttorney Genera.
P. T. Processng ta decson.
S. T Saes Ta Dvson.
S. M. Soctor s memorandum.
So. Op. Soctor s opnon.
S. It. Soctor s recommendaton.
T. Tobacco Dvson.
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rv
T. . M. dvsory Ta oard memorandum.
T. . . dvsory Ta oard recommendaton.
T. D. Treasury decson.
and y are used to represent certan numbers, and when used wth the word
doars represent sums of money.
The practce of promugatng Treasury Decsons that embody
court decsons reatng to the nterna revenue has been dscontnued.
ereafter opnons of the courts, wth approprate headnotes for the
nformaton and gudance of ta payers and offcers and empoyees of
the ureau of Interna Revenue, w be pubshed n the Interna
Revenue uetn wthout forma approva and promugaton by the
Secretary of the Treasury.
NNOUNC M NT R L TING TO O D O T PP LS D CISIONS.
Under the provsons of the recent Revenue cts, reatng to ap-
peas to the oard of Ta ppeas, the Commssoner may acquesce
n the decson of the oard or he may, f the appea was heard by
the oard pror to the passage of the 192 ct, cause to be nsttuted
a proceedng n court for the coecton of any part of a ta deter-
mned by the Commssoner to be due but dsaowed by the oard,
provded that such proceedng s commenced wthn one year after
fna decson of the oard. s to appeas heard by the oard after
the passage of the 192 ct, the Commssoner may, wthn s
months after the oard s decson s rendered, fe a petton for a
revew of the decson by a Crcut Court of ppeas or by the Court
of ppeas of the Dstrct of Coumba however, as to decsons
rendered on and after une 7, 1932, pettons for revew must be
fed wthn three months after the decson s rendered. In order
that ta payers and the genera pubc may be nformed as to whether
or not the Commssoner has acquesced n a decson of the oard
of Ta ppeas dsaowng a ta determned by the Commssoner
to be due, announcement w be made n the weeky uetn at the
earest practcabe date. notce that the Commssoner has ac-
quesced or has nonacquesced n a oard decson reates, however,
ony to the ssue or ssues decded n favor of the ta payer. Dec-
sons so acquesced n shoud be reed upon by offcers and empoyees
of the ureau of Interna Revenue as precedents n the dsposton
of other cases before the ureau.
or addtona nformaton whch w be of assstance n the use
of the Interna Revenue uetn servce read the Introductory
Notes to the atest Dgest.
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CONT NTS.
4417.
4418.
4418.
4421...
4425..
4427..
4428..
4434..
443 ._
4437
4438
4440
4441
Coon decsons:
787
7 8
770..
771..
772..
773..
774..
774..
77 __
777..
778..
789.
7 0.
m.
782.
793.
794.
785.
790.
787.
788.
799.
801-.
804..
Rung No.
III-3- 08
IIM- S22
II1-4- 23
III-0- 48
III-7- 57
III-8- 5
III-9- S3
III-10- 92
III-12- 715
I1I-13- 72S
III-13- 729
III-15- 752
III-18-f781
III-1 - 7 2
III-18- 779
III-20- 792
III-20- S01
III-20- 803
III-21- S11
II1-22- 822
III-23- S29
I-23- 840
III-23-CS41
III-23- 842
III-25- S 2
I11-2 871
III-2 - 8 9
III-1- 5S0
1II-1- 587
III-1- 585
III-2- 591
III-2- 592
III-2- 593
III-3- 01
III-3- 102
II1-3- 03
III-4- 17
III-4- 18
II1-5- 28
III-5- 27
I11-5- 31
I1I- - 41
I - - 42
III-7-0 50
III-7- 052
I11-7- 53
1II-7- 51
III-8- 2
III-S- 3
III-8- 4
III-8- 8
IU-8- 81
III-9- 870
III-9- 78
III-9- 77
I1I-10- 87
III-10- SS
III-10- S9
III-11- 9
III- -8G97
1-11- 98
I1I-12- 70S
III-12- 709
11I-12- 710
III-13- 724
II1-13- 719
III-13-8723
Page.
515
8
450
522
453
2
70
58
530
529
459
388
389
527
527
3
39
534
474
540
37
304
538
22
385
305
U1
183
348
151
118
144
257
155
235
270
2 8
272
159
402
321
213
212
178
247
250
223
171
181
307
412
101
S75
313
285
179
31(1
3 5
232
299
353
197
2 3
383
318
187
Rung.
Court decsons Condt.
809
810
811
812
813
814
815
81
817
818
819
820
821
824
825..
82
827
828
829
830_
831
832..
833
834
835
83 .
837
838
839
840
841
842..
843
Genera Counse s memo-
randa:
12420
12570
12 81
1259
12 05...
12 32
12 42
12 57
12737
12742
12771
12880
12832
12905._.
12942...
12955...
12987...
13035
13073
13114
13147
13148
131 2...
13174.
13193..
oard o Ta ppeas:
8573
14370
19830-
19932
22 8
Rung No.
III-
III-
III
III-
I11
III-
III-
III-
III-
III-
III-
III-
III
III
III
III-
III-
III-
III-
III-
III-
III-
. III
III-
III-
III-
III
III
III-
III-
III
III
III
III
III
14- 734
14- 735
15- 742
15- 743
15- 744
1 - 75
1 - 757
1 - 759
17- 7 7
17- 7 9
18- 774
18- 775
18- 77
19- 785
19- 784
19- 0783
20- 797
20- 79
20- 795
21- 0
21- 0S
31- 807
2- - 18
22- 819
22- 821
23- 831
23- 832
23- S3
24- 848
24- 849
24- 850
25- 859
25- 8 0
2 - 8 8
2 - 8 7
III-2- 590
III-5-0 25
III-1- 584
III-14- 732
1II-10- C80
I1I-11- 094
III-3- 005
II1-4- 12
II1- - 75
III--095
I1I-21- S12
11I-13- 718
II1-12- 70
III-13-0720
II1-1 - 755
III-20- 800
1II-17- 7 5
III-18- 777
III-24- 84
I11-22 .-17
1II-22- 820
I11-25- 855
III-23- 830
III-22- 824
1II-20- S
III-13- 71
III-13- 71
III-4- 09
III-4-W0
1II-21- 804
III-5- 24
1II-25- 855
( )
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I
Rung.
oard of Ta ppeas Con
292
3049
30889
80990
31329 -
31330 -
33585
34332
34437
35170
35337
35527
35528
35529.
3553 -
355311
39721
40039
40544
40751
40890
41482 1
42452
42494
42587
42588
427 4
43044
43123
43 f4
43478
45O08
45219
4589
45928
4 322
48015
48833...
48837
48838
488 7
49071.
008
0248
0320 .-
0 53
09 5
1197
51305
51528
81527
1 70
51 3
1 70
52220
2221
2 2
52 93
27 1
2770
52931
3440
53702.
3795
5379
53797 -----
3990.
54334
54444
4701
54708
54784
54C17
54959
549 0
55935
5593
55 37
5938
5 320
321
SOS -
7058
Rung No.
III-25-8855
III-21- S04
III-10- 84
IIMO-8 84
III-7- 49
III-7- 49
III-18- 753
III-7- 49
n-4- 09
III-21-9S04
n-5- 24
III-21- 804
III-21- 804
III-21- 804
III-21- 804
III-21- 804
III-8- 50
III-9- 972
III-15- 740
III-15- 740
III-1 -8753
III-3- 599
III-21- 804
III-13- 71
III-14- 730
II1-14- 730
III-5-8 24
III-12- 703
III-7- 49
III-24-C843
III- -R 35
III-24- 143
III-7- 49
III-10- 084
III-23- 82
III-12- 703
III-7- M )
III-4- r.09
III-11- 93
III-11- 93
III-1- 582
n-9- 72
III-4- 09
III-19-8780
III-10- 34
III-11- 93
III-20- 791
III-1 - 753
III-11-0 93
III-17- 7 3
III-17- 783
III-17-87 3
III-I9- 780
III-1S- 771
III-22- S14
III-22- 814
III-20- 791
III-23- S2
III- - 35
III-19- 780
III-2-( W)
III-9-C 72
III-5-0024
III-25- 855
III-25- 8.55
III-2.5- 855
III-13- 71
III-3- 599
III-19- 780
III-11-0 93
III-11- 93
III-21- 804
III-11- 93
III-11-C 93
III-11- 93
I11-4-0 09
III-4 ( 09
III-4-8 09
n-4- 08
III-3- 599
III-3- 599
I-S- 59
III-13- 71
Y Lne.
.14,
21,29

12,27
2
7
11
4,20
13
12,27

10
5. 24
9.24
9. 24
9.24
9,24
1
1
18
18
4,20
3
8
28
3
3
28

28
17
10
17
28
13,28
2
I
28
20,28
8
8
11
10
29
5
11,2
1
.20
4,20
10
28
24
I-
s

18
IS
21
27
8
22
25, 32
25
a
3
15
s
20
12
5
10
Id
15
2
3
13
30
23
20
23
1
15
15
17
Rung.
oard of Ta ppeas Con
57059.
57117
57203
5722
57374
57483
5S241
58 32
587(1
59270.
594 8
S9511
59523
59 38
9722
59788
9797
9957
0 08-
00 07..
80 08
0 09
0 90-
0738
0739
0740
0899
1009
10 8
1334
8149
1497
1498
1552
1553 ._
1554
1 9
018 1
01870.
1901
2029.
2040
2075
212
2388
e2 44-02 49.
2 04
2 84
02948
0337 ..
3789
3790
84013
4272
4975 _
5158
5577
5 75
S55
915
7199
0738
7729
8197
8324
8335
081,7 .
58.
70OO4.
70005.
7O0O .
70007.
70008.
70009.
70010.
70278.
70410.
70795.
70 57.
71084.
71532.
71593.
Rung No.
I
1-13- 718
14

II-3- 599
II

II-9- 072
25

II-2- 5S8
25,32

11-8- 35
18

II-9- 72
7

rT- - 24
11,28
I
1-10- 84
I

II-5-8 24
15
I
1-2 - 8 4
32
I
I-10- S 4
13,28

II-4- 009
29
I
1-10- 84
M
I
1-22- 814
1
I
1-11- 93
7

II-1- 5S2
10
I
1-10-8 84
3.4
I
1-17- 7 3
27,28

II-2- 5S9
23

II-2- 589
23

I1-2- 589
23

I1-2-8589
23
I
1-17-87 3
7,8
30
I
I-22- SI4
I
1-22- 814
30
I
1-22- 814
30
I
1-1 - 753
19
I
1-12- 703
3,1

II-8- 59
28

II-5- 24
8
I
1-1 - 753
14
I
1-1 - 753
14
I
1-1 - 753
18
I
1-15- 740
17
I
1-15- 740
3

1I-7- S49
28

II-2- 589
29
I
1-13- 71
28
I
1-10- 884
21
I
1-14- 730
10
I
1-14- 730
22

11-4- 09
12,27
I
I-1S- 771
22
I
I-2 - S04
17

I1-5- 824
11,28
I
1-25- 855
31
I
1-14-8730
, 12

II-S- 24
22

I1-3- 599
32
I
1-17-07 3
28
I
I-10- S4
7.11
I
1-10- 84
7
I
1-21- 804
U
I
1-18- 771
12
I
1-25- 855
a
I
1-23- 828
14
I
II-I4-0730
22
I
I-25-SS55
2,14
I
1-10- 84
21
I
1-12- 703
17
I
1-15- 740
18
I
I-24- S43
13,28
I
1-22- 814
4
I
1-18- 771
31
I
1-14- 730
22

II-2- 589
29
I
1-17- 7 3
27
I
1-1 - 753
25
I
1-15-8740
8
I
U-21- 804
23
I
1-21- 804
20
I
-21-8804
30
I
1-21- 804
28
I
1-21-8804
28
I
1-21-0304
30
I
1-21-8804
31
I
I-25- SS5
8
I
1-20- 791
28
I
1-24- 843
13,28
I
1-22- 814
4
I
1-24- 843
.22
I
1-21- 804
20
I
1-21- 804
SO
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II
No.
Page.
Rung.
Rung No.
oard of Ta ppeas Con.
71594
715)5-
7159
71597
71588.
71718.
71858.
7203.
73828.
Offce decsons (I. T.):
2749
2750
2751
2752
2753
2754
2755
275
2757
2758
2750
27 0
27 1
27 2
27 3
27 4
27 5
27
27 7
27 8
27 9
2770
2771
772
2773.
2774
2775
2779.
2780.
2781.
2782.
2790
2791
2792
2793
27W
decsons (S. T.):
715
71
717
718
III-21- 804
30
III-21- 804
25
III-21- 804
28
III-21- 804
31
III-21- 804
23
III-20- 791
20
III-2 - SS4
5
III-2 -CS 4
5,21
III-21- 804
18
III--f.5S.-
99
III-3- 0O0
48
IIT.-4-S 10
43
III-t- 11
71
II -4- 13
90
III-4- 14
97
III-4-S 15
97
III-4- 1
183
III-5- 29
443
III-5- 34

III-f- 38
33
III-e-8f37
3
I1I- -0 38
50
III- - 39
4
III-7- 58
44
III-8- 0
45
III-S-C 73
2
III-11- 99
443
III 12- 704
35
I11-12- 705
4
I11-12- 707
133
III-13- 7I7
111
III-13- 721
200
III-13- 722
212
I -14- 731
78
III-15- 741
2
I-17- 7 4
4
III-17- 78
207
III-18- 772
57
III-18- 773
79
III-19- 781
37
III-19- 782
41
III-20- 793

II1-20- 794
83
III-21- 805
54
III-22- 815
89
III-22- 81
98
I11-22- 825
44
I11-23- 827
5
III-23- 828
5
I11-24- 844
5
III-24- 815
5
III-24- 847
77
III-25- S57
85
III-25-8858
89
III-2 - 8 5
72
III-2- 594
424
III-2- 595
427
III-3- C04
387
III-3- C08
44
III-4- 19
378
III-5-0 28
437
Offce decson (S. T.) Con.
721
722
723
724
725
728
727.
728
729
730
731
732
733
734
735
73
737-
738
739
740.
741
742
743
744
Offce decsons (MS.):
140..
147
148
149
1 0
151
Ofuce decsons (P. T.):
2
3
4

7
8
9
10
11...
Mme
41
4134
4139
414
4148
4149
4150
4151
4153
415
4170
4182
4183
Department crcuar:
230 (rev.)_
Msceaneous.
III- - 43
III- - 44
III- - 45
III-7- 54
III-9- S80
III-9- 81
III-12- 711
III-12- 712
III-I3- 728
III-14- 73
III-14- 737
III-I4- 73S
111-15- 745
III-15- 74
III-15-0747
III-1 - 758
III-17- 7 S
III-19- 78
III-2I-08O8
III-21- 810
III-23- 833
II1-23- 834
III-23- S35
III-25- 881
III-2- M7
III- - 47
I -11- 701
II I-15- 750
III-19- 789
III-23- S38
III-4- 20
III-7- 55
III-S- 7
III-10- 90
III-11- 700
III-19- 787
III-20- 798
III-20- 799
III-23- 837
1II-24- 851
III-2- 59
III- - 40
IU-5- 32
III-8- 70
III-8- 871
III-9- 79
III-8-3 9
III-10- 85
III-9-45074
III-12- 713
III-1 - 754
III-24- S53
III-24- S54
III-5- 30
III-15- 748
III-15- 749
III-19- 788
III-2 -C870
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CONT NTS O CUMUL TI ULL TINS ( . T.) 1 TO 5 S. T. OR 1320 ND 1921 INT RN L
R NU 1-1,1-2, II-, D-2, m-1, I-2, I -1, I -2, -, -2. T-1. I-2, II-1, II-2, vm , UI-2,
L -1, I -2, -, -2, I-1, I-2, n-1, II-2, ND m-1.
Cumuatve uetn.
Income Ta :
December, 1919 (No. 1)
anuary- une, 1920 (No. 2)
uy-December, 1920 (No. 3)
anuary- une, 1921 (No. 4)
uy-December, 1921 (No. 5)
Saes Ta :
1920 (S. T. 1-20)
anuary- une, 1921
uy-December, 1921
Interna Revenue uetn:
anuary- une, 1922 (No. 1-1)
uy-December, 1922 (No. I-2)_...
anuary- une, 1923 (No. II-)
uy-December, 1923 (No. II-2)...
anuary- une, 1924 (No. III-)
uy-December, 1924 (No. III-2)..
anuary- une, 1925 (No. I -1)...
uy-December, 1925 (No. I -2)..
anuary- une, 192 (No. -)
uv-December, 192 (No. -2)...
anuary- une, 1927 (No. I-1)...
uy-December, 1927 (No. I-2)..
anuary- une, 1928 (No. II-1). .
uy-December, 1928 (No. II-2).
anuary- une, 1929 (No. III-1)..
uv-December, 1929 (No. III-2)
anuary- une, 1930 (No. I -1)...
uy-December, 1930 (No. I -2)..
anuary- une, 1931 (No. -)
uy-December, 1931 (No. -2)_._
anuary- une, 1932 (No. I-1)...
uy-December, 1932 (No. I-2)..
anuary- une, 1933 (No. II-1)..
uy-December, 1933 (No. II-2).
anuary- une, 1934 (No. III-1).
( III)
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O RD O T PP LS.
CUMUL TI LIST O NNOUNC M NTS R L TING TO
D CISIONS O T UNIT D ST T S O RD O T
PP LS PU LIS D IN T INT RN L R NU
ULL TIN S R IC ROM NU RY 1, 1932, TO UN 30,
1934, INCLUSI .
nnouncements reatng to the acquescence or nonacquescence of the
Commssoner In decsons of the Unted States oard of Ta ppeas, as
pubshed n the weeky Interna Revenue uetn, from December 22, 1924,
to December 31. 1931, ncusve, are prnted n Cumuatve uetn -2,
paees 1-100. The st beow, therefore, contans ony such announcements
pubshed n the weeky uetns from anuary 1, 1932, to une 30, 1934,
ncusve.
III-2 - 8 4
The Commssoner acquesces n the foowng decsons of the
Unted States oard of Ta ppeas:
Ta payer.
oard of Ta ppeas.
No.
oume.
Page.
4054
24
435
37 95
24
435
37 93
24
435
37 94
24
435
37 9
24
435
41034
24
435
25194
38 87

429
39980
25
211
39593
25
124
39593
25
124
5 9 0
9007
28
58
207 5
24
37
41295
27
1091
0700
28
1291
39019
27
1210
25414
25
834
31704
25
1270
40039
28
8 3
1 229
21
4 4
27 23
24
18
39721
27
1270
391 7
24
334
33242
27
1305
bees, Chares T ---
bees, Cfford
bees, rancs, estate of
bees, ohn T
bees, atherne
bees, Wemene
cme Manfodng Co., Inc
deade Park Land et a., trustees
fremow, Davd, estate of
fremow, Sarah, e ecutr -
abama Mnera Land Co
bert Lea Packng Co., Inc
brecht et a., atherne ., e ecutrces
coma Corporaton
e ander, . ., estate of -
en, Irene C
ed mercan Corporaton
mbassador Petroeum Co
mercan Cgar Co
mercan eature m Co
mercan Prntng Co
mercan Securty Trust Co. et a., e ecutors 3_
nderson, C.
state ta decson acquescence reates to deducton ot 133,000.
state ta decson.
Rung No. G8C4 Incudes a acquescence md nonacquescence notces pubshed a
th Interna Revenue uetn servce from anuary 1, 1932, to une 30, 1934.
(1)
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cqttescences Contnued.
Ta payer.
nderson, Gustave
nn rbor R. R. Co
rnod Wnsor Co
shforth, bert ., estate of1
shforth et a., Mabe ., e ecutors .
tkns, . ., estate of.
tkns, Mrs. .
.
adwn, orence G_
afour, Sr Robert
a, Php D. C
atmore Oho R. R. Co
ankers Dary Credt Corporaton
arber, rthur
arber, Php C
arber, St. George Tt
arber Trusts, Sarah P...
arcay, W. L
arker, red
asch, N.
Ice Coa Co.
eaumont, Lous D._
ebb, Rchard ., estate ofs.
eggs, ohn I. (Trusts)
e, Ivor .
eows as Power Co
enedum, M. L.4
ent Co., R. G
ernsten, Isaac M
est, rank --
ups, George W
ngham, Robert W
rdneck Reaty Corporaton.
scayne ay Isands Co
oodgood, dth ._
um, uus, trustee.
3 224
258 9
1553
47190
48009
49354
47190
48009
49354
38520
38519
32387
40230
3 737
53702
48329
2 747
2 755
2 757
2 747-
2 757
8743
51102
45928
7 37
f 31931
4 5 9
L 49422
41295
5 75
22335
f 18592
29104
30990
/ 57312
5979
3 729
3 74
54917
51051
4 079
27 1
35098
40147
2 750
39242
40939
45741
51507
4975
49891
oard of Ta ppeas.
oume. Pmge.
2
29
29
2
2
28
28
23
25
27
29
25
25
25
2
28
30
27
25
27
30
27
25
28
2
28
2
29
27
25
23
25
25
30
29
umentha, Lucy
oehrnger, Rudoph 4
Nonacquescence pubshed n uetn II-1, page 1, wthdrawn.
1 state ta decson acquescence reates to deducton of 133,000.
1 cquescence reates to that part of decson hodng that Water . ettman s not abe as a trans-
feree and to mtaton ssue.
cquescence reates to rght of overrdng royaty owners to beneft of secton 211(b), Revenue ct of
1 cquescence reates to ssue nvovng secton 115(g) of the Revenue ot of 1928.
IS 18.
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3
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
oos ros. Cafetera Co.
org eck Co
owden, Pau kers.
rnton, Lan McDonad.
rown, erence
ryan ct u ., C.
ryan et u ., L.
uck, ohn ., estate of
uck et a., Mary M., e ecvtors 1
uena sta Land Deveopment Co.
uffao Unon Iron urnace Co.2
uock, George 3
urdck, a P., trustee
urdck, oe W., estate of
umham, Sas
urroughs, mbrose ., estate of
urton, en|amn T
uter, U. .
Caforna Coast O Co...
Camp Manufacturng Co.
Canaday, Inc., Ward M__
Cannng, ohn
Carman, . .
Carne, Goude Manufacturng Co.
Carter Pubcatons, Inc
Cathey, George
Cathey, Luke
Catn, Dane
Catn, Theron
Centra Market Street Co.
Centra Natona ank
Centra Natona ank, trustee
Centra Renderng Corporaton
Centra Trust Savngs ank
Champon, Davd .5
Champon, T. Perre 5
39200
24223
349 4
54923
53715
24 7
3 37
2403
24037
32584
44153
44 84
32584
44153
44 84
2025
1 075
1 07
31209
4 322
4 322
1009
53795
59797
1055
4 055
25018
35955
58 32
41482
44321
44939
50178
20074
27095
44838
891
4 05
4 057
25421
25413
24837
42587
28701
2077
42588
555 9
3818
555 8
25
24
2
28
25
19
19
2
2
18
23
23
29
29
29
29
28
24
25
25
20
29
25
2-1
28
24
24
25
25
25
29
25
24
29
27
27
1 state ta decson acquescence reates to vaue of certan rea estate n San rancsco and vauo of
stock of Langendorf akng Co. for estate ta purposes and reasonabeness of Commssoner s aowance
or support of the wdow.
1 cquescence reates to Issue regardng deductons for obsoescence of bast furnaces.
cquescence reates to ssue 2 of decson.
cquescence reates to ssue regardng apportonment of ta es among affated corporatons.
1 cquescence reates to bass upon whch gan or oss upon redempton of stock shoud be computed.
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2

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4
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Chapman Dewey Land Co.
Chapman Dewey Lumber Co.
Chcago Northwestern Ry. Co.1
Chrstopher, Rache S.2
Cty ank armers Trust Co., e ecutor
Cty ank armers Trust Co. et a., e ecutors 2
Cark et a., ames, e ecutors
Ceand state Co., Inc., enry .3
Cements, W. L
Ceveand Trndad Pavng Co.4
Cnchfed Securtes Co
Cnton Cotton Ms, Inc
Coats, Inc. (R. I.), . P.
Cochrane, Davd
Cogate, Marv
Coorado L tah Coa Co
Coumban Carbon Co.
Coumbus rck Te Co.
Commerca Investment Trust Corporaton 8.
Connectcut Rver Power Co
Contractors Constructon Suppy Co.4
Cook, zabeth .
Cook, M. M., estate of
Cooke, eatrce
Coombs, zabeth M
Coombs, . oward
Cooper, ohn I
Corbctt, ott R
Cornng Trust Co., trustee.
Cornwe, . L
Costeo, oseph 10
Cotton, G.

37403
51059
334
37402
47130
5019
51058
3 343
47704
59797
318 9
34499
33585
40890
51197
4 058
419 2
4 297
40554
54880
38904
0428
1882
53799
42743
42707
43495
50051
18591
2910
419 3
38579
53044
2 751
447 8
447 9
32 10
40115
4092
29252
30303
22 40
59 55
7729
70957
25
25
22
2
29
23
2 4
29
24
20
25
28
28
2
27
2
25
2
28
25
20
25
27
25
25
25
24
27
2
24
27
25
30
Couchman, Wam ennng
1 cquescence reates to foowng ssues: Matera and suppes ad|ustment amortzaton of bond
premum assessment of assocaton of raway e ecutves raroad Y. M. C. .
1 state ta decson.
cquescence does not reate to bass of property devsed sub|ect to a fe estate.
Nonacquescence notce pubshed n Cumuatve uetn -2, pages S3 and 84, revoked
cquescence reates to contrbutons ssue and ssue respectng deducton of amount pad to treasurer
of Rhode Isand on account of Increasng capta stock.
Nonacquescence pubshed n uetn I-14, page 1, revoked.
cquescence reates to ncuson n consodated nvested capta of capta stock ssued for a te and
brck manufacturng pant, etc.
1 cquescence reates to the foowng Issues: Deducton of e penses n connecton wth Issuance of
preferred stock deducton for dvdends credted to accounts of empoyees for purchase of stock.
1 cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
cquescence reates to that part of decson hodng that Water . ettman s not abe as a transferee
and to mtaton ssue.
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5
cquesce: ces Contnued.
Ta aycr.
Croker, ua
Cromwe ct a., Wam Neson, e ecutors
Crouse, George N
Crowey, oseph ., estate of a..
Crownnshed Shpbudng Co.
Cuver, Wmer T
Cunard Coa Co. .
Curts, Laura M_.
Dah, ndrew ., estate of_.
Dah et a., ua, e ecutors.
Daey, ugene S., e ecutor..
Dana, Myer
Davs, ohn
De orest, ate R.4
Deaware udson Co.5
Dennett, Car P.
Dennett, Mare G.
Denns, rank ., estate of3
Denns, Merry M., e ecutr
Detrot Trust Co. et a., e ecutcr | _
Dcknson, bert G
Drksen, nna L., e ecutr
Drksen, Theodore estate of
Dome Co
Domnon Natona ank
Dougas Co., ohn
Dre e Packng Co..
Duff, Robert C.7
Dunham, Water
Dunne, ney Peter
.
age Pass Pedras Negras rdge Co.
asterwood, r., W.
asterwood, r., Mrs. W. __
sendrath, dwn W.
sendrath et a., dwn W., e ecutors.
sendrath, Manon.du ,
sendrath et a., Rose L., trustees
sendrath, Wam
sendrath, Wam N., estate of
Dnckt
No.
41121
42019
43440
51419
3.r 472
18987
37574
20874
2 875
287P2
5 314
44845
44845
2G045
50248
20703
37284
50553
50 29
71858
72023
502 3
50203
35472
35015
43170
17717
17717
41887
521 Go
38720
20775
37552
0 308
54444
424 0
40181
341
40182
3417
3 72
3 724
3 727
3 728
3 725
3 724
Uoard of Tu ppeas.
oume.
27
24
2
25
24
24
2
28
24
24
25
O
24
27
2
30
30
20
20
23
24
24
20
20
23
21
23
27
29
23
28
28
28
28
28
28
28
28
state ta decson nonacquescence pubshed n Cumuatve uetn -2, page 84, revoked.
state ta decson
cquescence reates to deductons for addtona royates and offcers saares and drectors fees
Gft ta decson.
Nonacquescence pubshed n Cumuatve uetn I-2. page 12, wthdrawn.
cquescence reates to deductbty of osses sustaned by pettoners upon aeged saes of stock to
ach other durng the ta year.
cquescence reates to ssue 1 of decson.
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cquescences Contnued.
Ta payer.
Docket.
No.
oard of- Ta ppeas.
oume.
kns, ae D.
ott-Grante Lnen Corporaton
more Mng Co
mery, Mary M., estate of
nameed Metas Co
39255
48212
4 7 8
52972
nns Ice Co.
et a., Rav L., e ecutors
vans et a., nson, trustees
vans Products Co
vergreen Cemetery ssocaton
.
ack, e ander D
as Cty Ice everage Co
ame Cannng Co
armers Lfe Insurance Co.
armers Loan Trust Co., trustee
edera Street Peasant aey Passenger Ry. Co.
19011
22021
22022
2 259
42184
292 0
2 4
43044
3072
dety Savngs Loan ssocaton.
rst Natona ank of oston, admnstrator.
rst Natona ank of ey West
tch, orence
20452
7 3
20774
43317
294 5
29758
148 2
31801
3940
45215
3 438
4 583
4518
51 70
15383
2 079
2839
31018
4 21
40229
43973
4308
32984
32984
71084
50224
3049
35170
42452
47902
42707
38575
47705
Nonacquescence pubshed In Cumuatve uetn I-1, page 9, revoked.
1 cquescence reates to market vaue of o and gu eases on March 1, 1913.
1 cquescence reates to ssue In connecton wth opton payment receved for purchase of and.
cquescence reates to ssue regardng fng of separate return for 1925.
1 state ta decson.
cquescence reates to deducton for depre aton on premses and ncuson In year 1930 n pettoner
o s ncome, 7,400 representng renta vaue of premses occuped by hm.
7 cquescence reates to ncuson n consodated nvested capta of capta stock ssued for a te and
brck manufacturng pant, etc
cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
orence Manufacturng Co..
ok, .
orest Products Chemca Co.
orres, Lord
oster, L. .4.
oster, N. C, estate of
oster et a., Ward, e ecutor 5.
o , ontane
rank, m
rschkorn Deveopment Co.
G.
Gamb, .
Gambe Stockton Co.7
Gardner, Chares .1
Garron et a., Isabe . ., e ecutors 5.
24
72
2
93
27
84
25
585
25
18
24
40
29
1350
29
710
29
992
25
544
2
1359
27
134
24
37
27
423
2
1359
24
2 2
23
1059
25
252
2
370
29
1299
25
7
25
599
27
38
25
154
2
1328
25
414
25
414
30
451
27
1158
30
8
2
995
2
794
25
1351
2
292
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8
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7
cquesce ces Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
George, erome R
George Machnery Co., R. .
Gbbs, G. Wdy
Gnsberg, bert
Gnsberg, Nathan
Gobe Constructon Co.
Goden, dward
Godman, Ma we
Godsmth, Ma
Gordon, fred W
Gordon, zze 1
Gordon, Ma L.1
Gotteb Reaty Co
Graeper, W.
Grand Rver Grave Co.
Green, Robert D.2
Green, W. S.
Grey u Corporaton
Grffs, Stanton
Grffths, George W
Grffths, ohn
Guaranty udng Loan Co.
Guf Coast Irrgaton Co.4
Gurnee, ugustus Coe, estate of s.
aberand, Pau
acy-Oa Coa Co
aaday, Sarah P
amburg, r., Sam
anscom, dward ., estate of
anscom ct a., Meve, e ecutors
arbcson Lumber Co., W.
arbson, Raph W -
arbson, Wam bert
arrah, Mare
arrah, Wam
artford- mpre Co_
astngs, Cvc, estate of. .
astngs, .
astngs, rederck
avard, Chares
awk, enry C, estate of.
45240
1218
31329
27 28
27 29
43438
51 94
53310
27 25
30302
59722
57483
22332
22333
42528
4 19
23085
53 47
4378
4 373
3487
4737
38577
42498
43074
55352
33 94
40081
41343
42 19
29289
309 2
2 754
30304
44992
44992
3307
51012
5434
54347
252 9
21 43
29958
4173
53 00
3789
3790
388 4
32841
0 90
27
2
28
24
24
2 5
24
24
29
29
27
27
28
27
22
24
2
27
25
25
25
27
24
24
25
24
25
24
24
24
24
2
20
27
27
2
29
29
27
2 :
29
1 cquescence reates to that part o( decson hodng that Water . ettman Is not abe as a transferee,
and to mtaton ssue.
1 cquescence reates to transactons 1, 2, 3, and 4.
cquescence reates to ssues regardng aocaton of tota cost between commo n and preferred stocks
s to a ssues e cept affaton ssue.
nonacquescence pubshed n Cumuatve uetn -2, page 88, revoked.
G
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2
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1
3
-
0
1
-
2
2

0
4
:
1
9

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8
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#
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c trt sc NC S Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
awk, Ida W., e ecutr .
ay, W.
ayman Co.,
azewood, N.
emph, Cfford 1
ervey, W. R
ess, Nathane
ettman, Water .
ckman, anne Snyder.
mehoch ros. Co
res Co., Chares
obbs, enry
obbs, Teck
offer, nta Owens
offer, T.
ongsworth, .
oster, George ue
omes, George W
oughton, anson
oughton, r., mory, estate of.
oughton, rthur
oughton, Chares ., estate of_
ouston ros.
ouston, George T.s
ouston, orace .
ouston, Php D.
unter, C. W., e ecutor
unter, George ., estate of
untngton, enry ., estate of.
uyer s, Inc
Independent Ice Coa Co
Indana Lamp Corporaton
Ingas, Chares C, estate of 5_
Interstate Reaty Co
Iten scut Co
Iverson, I. C
Iverson, Ruphane
ames, Wam L.
ones, R. D
0G90
37499
1 552
1334
38573
4 80
33279
22341
1 253
f41728
427 9
(45 3
47781
27352
27351
33374
33375
54282
294 1
53797
29445
29444
2944
294 5
12052
/13104
22008
22009
22007
45417
45417
45429
f283 9
29154
L39841
7 39
527 1
57835
/4 272
50981
/1 429
20S99
48838
48837
70278
)
29
25
25
29
25
25
24
27
24
2
2
2
2
24
24
27
2
29
2
2
2
2
22
22
22
22
2
2
28
24
27
28
25
25
25
29
29
30
29
1 cquescence reates to Issues regardng aocaton of tota cost between common and preferred stocks
purchased.
cquescence reates to that part of decson hodng that Water . ettman s not abe as a transferee
to mtaton I
and to 1
cquescence reates ony to deducton for busness e penses n 1020 and to number of feet of tmber
cut durng 1019.
cquescence reates to ssue regardng oss from operaton of a farm n 1025 and 102 and ssue regardng
Increasng defcency for 1925 by amount of nterest accrued on bonds e changed for art ob|ects.
state ta decson.
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cqus sc NC S- Contnued.
Ta payer.
ammerdner,
ansas Cty Leasehod Improvement Co.L
ansas Cty Memphs arms Co
ansas Cty Southern Raway Co. and affated
companes3
asch, d
asch, Theodora.
eey, ohn P...
ent, verett
bee, O. .
nney Co., Inc., G.
rchner. uus C__
nght, . D
raemer, Samue
R_
uhn, Ida L
unau et a., Oscar . C, trustees.
L.
Lake Chares Nava Stores
Landers, Dougas ., estate of
Lawson, ohn
Leamngton ote Co
Ledesdorf, Samue D
Leonard odng Corporaton, George ., estate of.
Lev, George W.
Ley, Mary C.
Lberty arms Co
Lncon, Robert Todd, estate of
Lppncott et a., . ertram, e ecutors 4_
Lppncott, Water, estate of4
Lttauer, ugene, estate of
Lttauer et a., Lucus N., e ecutors
Ltte, C. .__U_Uw-v---
Lvngood, Chares ., e ecutor a
Loeb. r., et a., Wam, trustees
Docket
No.
oard of Ta ppeas.
oume
41 43
4 555
35718
510 0
22 8
35527
35528
35529
35530
35531
48293
48293
38233
3957
42589
4 0 4
24882
31397
32980
25428
5 8 5
37822
32 09
402 7
4815
34 30
3 940
35443
40232
48413
48305
48871
2233
22337
2 717
29899
391 7
49233
49233
51858
1858
1821
40899
341 1
2
17
25
22
25
25
2
2
27
2
27
28
2
24
27
25
21
25
2
2
20
27
27
22
24
27
27
2
25
27
2
21)
1 cquescence reates to March 1, 1913, vaue for purposes of cacuatng gan or oss upon sae of and
at ersaes, Mo. whether the nvested capta of the Sncoe Reaty Co. shoud be ncreased for 1918
and the March 1, 1913, vaue for amortzaton purposes of a easehod beongng to ansas Cty Leasehod
Improvement Co.
1 cquescence reates to the foowng ssues: Deducton of contrbutons to Y. M. C. ., Prests of
Paace, and ssocaton of Raway ecutves and amortzaton of commssons and e penses ncurred
In sae of bonds.
cquescence reates to that part of decson hodng that Water . ettman s not abe as a transferee
and to mtaton ssue.
state ta decson.
state ta decson acquescence reates to ssues 4, 5, and 7 of decson.
pubshed n Cumuatve uetn I-, page 10, revoked.
G
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a
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1
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-
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10
cqt|escences Contnued.
Ta payer.
Logc, oseph
Longyear, r., ohn M.
Longycar, Mary ., estate of
Loughborough Deveopment Corporaton .
Loure, Davd
Luhrg Coeres Co
M.
Manstque Lake Superor It. It. Co
Markham Irrgaton Co.1
Marston, dgar L
Martn ote Co. and affated corporatons.
Martn et a., . arc, trustees
Martn, T. S., estate of ---
Martns, ndy
Marvn, Water S.
Matagarda Cana Co.1
Matthews, . P
Maudn, I. M
Mc ufe, gnes
McCa, orence4-
McConnc, Stea II
McCoo, ess
McDonad, L. G
Mc wan, nna
Mc wan ct a., nna ., e ecutors
Mc wan,
Mc wan, Lan G
Mc wan, W. II., estate of
McGrew, zabeth W
McLaughn, Thomas .-
McLennan, . R
McMan, Wam Northrup, estate of -
Mcad Coa Co., C. II
Memphs Memora Park
Mente Co., Inc
Mente, ugene W
Mente, . G
Mercante-Commerce Natona ank n St
et a., e ecutors and trustees4
Messcr, Rchard ., estate of4
Metropotan Propertes Corporaton
Lous
Docket
No.
37702
40071
47117
5 027
2410
30438
40583
51004
27030
40048
35337
41344
01901
10275
44583
44583
22334
38578
40082
41345
20250
20239
49071
47702
43478
40059
25427
25990
25997
25995
25994
25997
20753
597S8
20730
4590
42718
42719
54 0
49259
53458
51305
54701
54708
35443
42513
45032
oard of Ta ppeas.
o ume.
24
28
25
29
24
2
29
24
29
24
24
24
27
25
24
22
22
29
2
29
24
27
2
2
2
2
2
25
29
25
27
28
28
29
29
29
21
27
24
I cquescence reates to a ssues e cept affaton ssue.
1 cquescence reates to that part of decson hodng that Water . ettman s not abe as a trans-
feree and to mtaton ssue.
1 cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
state ta docson.
state ta decson acquescence, e cept n so far as concerns the queston of stus.
G
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1
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1
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11
cquescences Contnued.
Ta payer.
Mchgan Centra R. R. Co.1.
Mchgan Trust Co. et a., e ecutors .
Mby Dow Coa Mnng Co
MRrm ros., Inc., .
Mken, Sae Gbbs
Msssspp Packng Co., Inc
Mssour State Lfe Insurance Co.4.
Mtche, L. C
Mtche, Oscar .
Mobe Lght Raroad Co.
Morehead, Wam
Moorahead, O
Muchnc, . ., admnstrator
Murchson, Mrs. .
Murphy, Mae . eey
Murray, dward
Murray, Rebecca
Murtha Schmoh Co
Musgrove, oyd L ------
1 ssurance Socety of rgna.
N.
Na et a., R. ., e ecutors
Natona Capta Insurance Co. of the Dstrct of
Coumba
Natona Casket Co., Inc.7
Natona Contractng Co.9
Natona M Suppy Co
Natona Packng Corporaton.
Natona Te Co
Netcher, Chares, estate of
Docket,
No.
19930
42513
22021
22022
2 259
42184
33177
31330
20772
58241
238
41 10
41 80
41874
54 73
4102
420 2
25853
57045
3789
2838
38222
4017
58858
40174
58857
17911
42591
43911
53044
5 748
50320
24520
37001
31 8
33971
4013
38053
oard of Ta ppeas.
ourhe.
28
27
24
24
28
24
29
28
27
23
22
28
29
28
2
28
28
17
27
24
27
28
29
25
23
24
30
20
cquescence reates to the foowng ssues: Whether amount pad by New York Centra R. R. Co. to
State of Inos n connecton wth Issuance of bonds was a ta or fee savage recovered from ore docks
credt representng deprecaton on property retred n 1918.
1 state ta decson.
cquescence reates to ssue 1 of decson.
cquescence does not reate to foowng ssues: Deducton for reserve set up to meet abty upon
matured coupons ad|ustment of Income for renta of space occuped n home offce budng and depreca-
ton upon such budng.
1 cquescence reates to ssues regardng assgnment of earnngs of ron mnes n payment of ega serv-
ces, and deducton of amount pad to son for aeged servces rendered.
1 cquescence reates to foowng ssues: I. W nether payments receved by s trustee on behaf of pet-
toner n the ta abe years n accordance wth a wrtten agreement entered nto by and between pettoner
and another In 190 consttute ta abe payments of rent or nonta abe payments on the seng prce of
assets. 2. Whether pettoner sustaned statutory net osses for 1924 and 192 whch can be deducted from
Its ncome for 1925 and 192 , respectvey.
1 cquescence reates to deducton of corporaton e cse ta es.
1 cquescence n oard s decson that pettoner had the rght to aocate overhead e penses to each
contract on competed bass and that formua used by pettoner was permssbe and ssue reatve to
G
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1
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2
2

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8
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12
cqtr SC NC S Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Netcher, Gadys Over, e ecutr
Netcher, Irvng
Netcher, Townsend
Newaygo Portand Cement Co
Newbock O Co. of Te as 1
Newburv, Moe Netcher
Newbury, Moe Netcher, trustee
Newe et a., Sterng, e ecutors 2
New ngand Power Co
New Market Investment Co.
Newton, zabeth .
Newton, oseph R., estate of
New York Centra R. R. Co.
New York, Chcago St. Lous R. R. Co
Noonan state Trust, . R
North Sde Lumber Tmber Co
Northern Coa Co.
Noyes, ansen 8
O.
Oakey, Rchard
Oympa arbor Lumber Co
Ontaro Reatv Co.5
O Rcar, . C. 7
P.
Package Machnery Co
Pane et a., rancs Ward, e ecutors
Pane, Wam ., estate of
Pam each Mather Co
Parkand Ice Coa Storage Co
Parrott, . .
Peavy- yrnes Lumber Co
Peavy-Moore Lumber Co
Peavy-Wson Lumber Co
38053
38052
38050
3 319
28045
38049
38052
57835
18593
29105
35719
47703
47705
19932
34437
2040
21047
2 4
34924
34945
38574
45778
4272
35721
32335
54334
34113
34113
43850
7 40
30989
15824
1 354
25984
15823
1 355
2598
15822
1 35
25985
2
2
2
27
20
2
2
25
25
17
2
20
28
23
29
27
24
25
24
30
17
28
28
25
25
24
27
28
25
25
25
1 Nonacquescence pubshed In Cumuatve uetn I-2, page 15, revoked.
state ta decson.
cquescence reates to March 1, 1913, vaue for purposes of cacuatng gan or oss upon sae of and
t ersaes, Mo. whether the nvested capta of the Smcoe Reaty Co. shoud bo ncreased for 1918 and
the March 1, 1813, vaue for amortzaton purposes of a easehod beongng to ansas Cty Leasehod
Improvement Co.
cquescence reates to the foowng Issues: Whether amount pad by New York Centra R. R. Co. to
State of Inos n connecton wth Issuance of bonds was a ta or fee savage recovered from ore docks
credt representng deprecaton on property retred n 1918.
cquescence reates to nventory ssue.
cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
r cquescence reates to ssue as to aowabe deducton of cost of operatng automobe party used n
ta payer s busness n 1924.
cquescence reates to Ught of overrdng royaty owners to beneft of secton 211(b), Revenue ct o
1918.
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1
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2

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13
cquescencbs Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Pegg, bert O.1
Pennsyvana Investors Co.
Perkns et a., acob
Pershouse, ce
Pershouse, Mabe
Phps, C.
Phoen Insurance Co
Pctora Revew Co
Pggy Wggy Corporaton..
Pztz Dry Goods Co., Lous.
P-M- Petroeum Co.1
Poar Ice Coa Co
Pope, Ove R
Powe, en|amn I --
Prare O Gas Co
Prce, Laura M
Prce, W.
Prophyactc rush Co.
Prosperty Co., Inc.
Prosser, Constance
Putnam Trust Co
unn, van
unn, Martn M_
unn, Pau
-
R.
p, ohn W., estate of
Reaty Co
O Co.
on Sons Co., ohn
Corporaton 1
Rhea, Isaac T
Rhea, Mrs. Isaac T -
Rato Mnng Corporaton
Rchards rscfed, Inc
Rggs Natona ank 4
Robson, Cara P., estate of...
Rodeo- ae|o erry Co.7
Rosenberg, Lo
22338
207
28701
2 749
2 748
47901
488 7
43995
2512
438 0
4 5S5
5057
54779
7 38
29274
50380
57117
40 59
41072
f 3299
47845
I 4784
4589
59408
2 752
34743
8544
8598
8574
28 18
32822
31332
20773
738
70795
549 0
54959
4S 92
5 877
21715
30903
2 45
3 411
48528
27 20
27
24
25
25
25
2
29
2
28
22
24
27
25
2
29
24
24
25
27
25
2
2
2
2
24
2
28
24
30
29
29
25
24
17
25
24
24
cquescence reates to that part of decson hodng that Water . ettman s not abe as a transferee
and to mtaton ssue.
cquescence reates to thrd ssue of decson.
cquescence reates to deducton of oss resutng from qudaton of one of ts subsdares.
1 cquescence reates to ssue whether pettoner was ta abe n 1923 as a trust or as an assocaton.
1 cquescence reates to deducton for deprecaton on premses and ncuson n year 1930 n pettoner
o s ncome, 7,400 representng renta vaue of premses occuped by hm.
onacquescence pubshed In Cumuatve uetn - 2, page 99. wthdrawn.
cquescence reates to deducton of contrbuton to ctory ghway ssocaton.
G
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2
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1
3
-
0
1
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2
2

0
4
:
1
9

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14
cqt|escences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
o ume.
Page.
Rosenboom nance Corporaton
Roth, Gorton ..
Roy Ttcomb, Inc
Russe, C. C
Russe, Mrs. C. C
St. Lous Unon Trust Co.
St. Lous Unon Trust Co.
Sanders, W. C
San Martnez O Co
et a., cotrustees.
e ecutor s
Sappngton, G. Rdgey
Schepp Co., L
Schermerhorn, arret Puman.
ScqvUI Manufacturng Co
Scruggs, Gross R.
Scruggs Investment Co
Scruggs, Maran P
Seaconnet Coa Co.
Seares Rea state Trust
Securtes Co - - -
Securty rst Natona ank of Los ngees et a.,
e ecutors 4
Sebert, Ltd
Ses Sportng Goods Co
Shaffer, C. .5
Shand, Gadsden
Shapro, Samue
Shaw, Davd, estate of
Shea, R. P - --
Smcoe Reaty Co.
Smms O Co.7
Smms Petroeum Co.7
Sncare et a., een ., e ecutors -- --
Sncare, enry P., estate of
Sncare, r., enry P., estate of..
Sncare et a., Murray, e ecutors..
Sncare, Regnad
Sncare, Wam, estate of
Sou as Meta Cuvert Co
Smathers, . ., estate of 5
Smathers Power Typewrter Co
35778
40903
225 8
29138
4 0 0
4 0 1
5 75
459
2 51
37447
43121
51944
42908
43145
29854
30238
33 10
4 270
38711
18089
24489
40553
45429
57059
20771
29259
2 238
5158
34499
37835
40034
35720
1497
149
37703
29252
37520
37520
378 4
37703
41070
292 0
439 8
24
2
24
24
24
30
27
25
25
25
25
2
25
24
24
24
24
25
25
28
29
24
29
2 2
29
24
24
17
28
28
2
2
2
2
2
2
2
29
28
7 3
31
9 9
50
50
370
318
949
218
1385
419
1031
2 5
1174
1174
1174
307
1115
44
289
319
37
1350
858
1012
1235
798
213
110
110
1359
1359
1359
1359
1359
1359
1324
1350
327
1 cquescence reates to hodng of oard that dstrbutons receved from oseph . nch Co. were
not parta qudatng dvdends.
state ta decson acquescence, e cept In so far as concerns the queston of stus.
cquescence reates to nventory ssue.
cquescence reates to ssue regardng oss from operaton of a farm n 1925 and 1920 and ssue regardng
ncreasng defcency for 1925 by amount of nterest accrued on bonds e changed for art ob|ects.
cquescence reates to market vaue of o and gas eases on March 1, 1913.
cquescence reates to March 1,1913, vaue, for purposes of cacuatng gan or oss upon sae of and at
ersaes, Mo. whether the nvested capta of the Smcoe Reaty Co. shoud be ncreased for 1918 and the
March 1, 1913, vaue for amortzaton purposes of a easehod beongng to ansas Cty Leasehod Im-
provement Co.
cquescence reates to bnss for computng deprecaton on assets acqured by Smms O Co. n 1921
from Cayton O Refnng Co.
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15
cquesce nces Contnued.
Ta payer.
Smth et a., zabeth D., e ecutors.
Smth, L N., estate of -
Smth, esse, e ecutr .
Smth, Mrs. esg|e
Smth, Lous, estate of
Smoot, Lews
South Memphs Land Co
Southard, enne
Southern Raway Co. et a.1
Spanger, Georga M
Spangcr, . W
Sprague Son Co., C. II.2
Sprunt Son, Inc., e ander.
Standard eef Co
Stegeman,
Standard Conveyor Co
Standfer Constructon Corporaton, G. M.
Stauffen, Theodora
Stearns, Robert L
Stegeman, .
Stegeman, r.. bert
anne L
. M.
. R
Mabe .-
Wam L.
Stevens, ohn
Stevenson Consodated O Co.
Stock Yards ank of Cncnnat
Stockham, |ah
Stone et a., Irvng ., e ecutors and trustees .
Stone, Irvng Lee, estate of
Stoneman, Davd
Straube, . L. G
Stromeyer, Irene
Stromever, Wam
Strong, arod C.
Stuart, Chares
Suvan, ugene C
fed Co
___ Refnng Co.
rt, ames.
oard of Ta ppeas.
No.
oume
Page.
39291
49 8
25
291
39291
49 8
25
291
1887
24
807
22313
24
807
1887
24
807
32578
25
1038
44500
27
897
42592
27
554
21481

29951
37887-
27
73
37898
1
5 320
29
2 3
5 321
29
2 3
34940
24
307
38408
24
599
20770
24
37
.33159
3 393
25
281
40873

51 3
30
184
2 75
25
513
37573
24
1013
2 43
25
949
2 50
25
949
2 14
25
949
2 47
25
949
2 4
25
949
2 49
25
949
2 48
25
949
29 S5
24
52
4341
23
10
410 5
25
9 4
225 9
2
31
43830
2
1
43830
2
1
27 27
24
18
5 8 7
29
1
55341
28
472
55342
28
472
3857
25
1351
5379
29
05
293S9
2
1359
58711
29
77
45979
23
829
54784
29
1179
cquescence reates to foowng ssues: 1. Dd pettoner reaze ta abe ncome from unrefundod pop
ons of amounts deposted by shppers for constructon of factes for use of such shppers 2. Where
bonds were sod at a premum pror to March 1, 1913, s the amortzed porton of such premum ta abe
ncome 3. Dd Commssoner erroneousy e cude from ad|ustment for matera and suppes an amount
equvaent to nfaton contaned n book vaue of such materas and suppes as were not used durng 1920
1 cquescence reates to nventory ssue.
1 cquescence reates to ssues regardng reducton of ncome for fsca year endng November 30,1924, by
oos sustaned for 11 months endng November 30, 1922, and ncuson n ncome for a years of 1 par vaue
of capta stock of Sunburst O as Co. receved by pettoner as a premum.
4 state ta decson acquescence reates to ssue nvovng deductons from gross estate.
cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
pur chased.
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1
cquescbnces Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume. Page.
Tabot, . . .
Te as Irrgaton Co. ._
Thompson, dward W.
Thompson, W. L
Thrft Reaty Co
Tfft, Chares.
Tfft, Lews .
Tmes-Pcayune Pubshng Co.
Tobev, Maurce
Toer ton Warfed Co.s
Tracy, Wam R
Trcou, Sae S
Trnty Drng Co.
Trout, . W
Turner, atheen M.5
Turrsh, enry
Twn e O Syndcate..
U.
Uster Deaware R. R. Co...
Unon Lard Corporaton
Unon Pacfc R. R. Co. et a. .
Unon Trust Co. of Pttsburgh, trustee
Unted utographc Regster Co
Unted States Trust Co. of New York, trustee.
.
aant. the Netehcr
ermont ydro- ectrc Corporaton
rgna Iron, Coa Coke Co
W.
estate of 7
Waker, George .
Ward ros. Co
3 191
/ 40083
4134
51103
51104
50 53
31029
334 4
42340
45957
31030
334 5
42341
45958
48892
49539
27 24
45320
45513
/ 28093
40258
1498
39020
22340
44742
29518
28927
207 9
35 39-
35 49
35 84
35 85
400 0
400 1
400 2
1009
30384
2 747-
2 757
3S051
59 38
5157
318 9
30992
23
24
28
28
29
25
25
27
24
23
25
25
28
27
27
24
2
25
24
2
29
27
25
2
29
29
23
24
cquescence reates to oss Incurred n sae of a boat.
cquescence reates to a ssues e cept affaton ssue.
cquescence reates to ssue regardng deducton of oss sustaned by pettoner durng nonaffated
perod.
. n 1925
trans-
cquescence reates to bass for computng deprecaton on assets acqured by Smms O Co.
from Cayton O t Refnng Co.
cquescence reates to that part of decson hodng that Water . ettman s not abe as a
feree and to mtaton ssue.
cquescence reates to donatons ssue amortzaton of dscount on bonds ssuod pror to 1013 computa-
ton of ta for 1020.
state ta decson.
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17
cqttescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Warner Co. 1
Washngton Market Co
Watson, r., ohn
Wayne County ome Savngs ank
Wes, Samue W
Wheeock, R. L
Wheeock, Mrs. R. L ---
Whte Oak Transportaton Co.
Whtman, Ward Lee Co.
Whtney, Ward M -
Whtson, Thomas
Wco , C.
Wams, r., ford
Wams, a
Wams, W. W
Wamson, e ander
Wamson, rchbad (Lord orres)
Wson Co., Inc., of Caforna
Wson Commsson Co
Wson urs, Inc.-
Wson Co., Lee
Wson Shpbudng Co. 4
Wnne, Water G
Wood, red T.
Wood Lumber Co., .
Wray, za
Wrght, George M
Wrght, Leonard Marsha
Y.
Young, the P - ---
Yukon aska Trust
Z.
Co. -
53039
53040
59190
43912
53414
49144
212
3780
37805
18088
1552
37927
40233
4 371
915
29273
4 0 2
40231
43972
40229
43973
207 8
207 7
57058
3382
34337
0900
38808
23 05
2415
25881
25854
45508
388 8
341 1
5242
2
25
27
2
30
28
28
24
29
2
25
27
29
25
24
25
25
24
24
29
25
25
27
27
25
24
22
2
24
2
21
1 Nonacqucscence pubshed In Cumuatve uetn II-, page 24, wthdrawn.
Nonaequescence pubshed n Cumuatve uetn I-2, page 18, revoked.
1 cquescence reates to nventory ssue.
does not reate to ssue 5 of decson.
The Commssoner has wthdrawn hs acquescence n the foowng
decsons of the Unted States oard of Ta ppeas:
Ta payer.
Pocket
No.
oard of T
oume.
a ppeas.
Page.
Mchenny et ., rances Pumer, e ecutors 1
45008
45008
431 4
431 4
22
22
21
21
1093
1093
339
339
Mchenny, ohn D., estate of 1
Wade, r., et a., eptha ., e ecutors
acquescence pubshed n Cumuatve uetn -2, pages 4 and 73.
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18
The Commssoner does NOT acquesce n the foowng decsons
of the Unted States oard of Ta ppeas:
Ta payer.
Docket
No.
oard of Ta ppeas.
oume
beson Reaty Co., Inc.
beson s, Inc
ckcrman, Irvng C.
ameda Park Co
brecht ct a., atherne ., e ecutrces .
ker, era M. oher
ed urrers Corporaton
mercan rck Te Corporaton
mercan Seatng Co.1
mes, r., Ward
partment Corporaton
rabo Manufacturng Co
rchbad, dward
rchbad, oseph
rchbad, r., oseph .
rmstrong, Wam M..
shton, Ward .
tas Lfe Insurance Co
uto Strop Safety Razor Co., Inc.
.
abson, red
abson, Gustavus
abson, enry
anger, esse M., e ecutr
anger, Water ., estate ofs
ankers Trust Co., trustee
artett, . emp
ass, rancs M
ay, Robert P
ebb, Rchard ., estate of 1
eebe, unus, trustee
eebe, Marcus, estate of
efast Investment Co.
e Sons, Samue.
ndey, Mary M., estate of.
ss, Sydney R
ss, aentne
um, esse
um, Davd
53792
53793
30311
31 34
40948
40949
8355
41295
3 11
50059
29994
14 7
49817
42024
50489
1 0
50 4
1 1
. 50 2
/ 1 73
50 3
40419
39148
40544
40751
7199
57374
52224
52223
52222
32177
32177
32459
3 32
73 2
014
41295
52707
52707
19128
3805
41 47
45 1
58871
55902
53422
52221
52220
24
24
L 4
25
27
25
24
22
14
27
2
2
27
27
27
25
28
29
28
27
27
27
23
23
24
28
30
28
27
2
2
17
22
28
2
2
29
1 state ta decson nonacquescence reates to State nhertance ta ssue.
1 cquescence pubshed In Cumuatve uetn III-2, page 2, wthdrawn.
1 state ta decson.
Nonacquescenco n ssue as to whether pettoner Is entted to deducton (or amortzaton of the Lee
tract warehouse for 1818.
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19
Nonacqttescencbs Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Page.
oard of re Underwrters of the Cty of Duuth..
oca Cega Deveopment Co
oehrnger, Rudoph 1
owrnan- tnore otes Corporaton
owman ote Corporaton.
rack man, . W
radbury, I- C
rskey Co
rtsh- mercan Tobacco Co., Ltd
rookyn Ctv R. R. Co _
rookyn ueens Transt Corporaton.
rown rank ., estate of
rown, . C
rown, arry
rown, Pear ., e ecutr
uck, ohn ., estate of
uck et a., Mary M., e ecutors _
uffao Unon Iron urnace Co.3..
uock, George 4
unge North mercan Gran Corporaton.
e, Cara
|r, anche ., e ecutr
, dward L..
. C. -
usness Rea state Trust of oston.
uter- etch Co
Cadwaader, Mary een
Carey bre Products Co., merson.
Care Sat Co
Carro, .
Carro, Lena Carter.
Carson, ohn
Carsou, Rose L
Carter, . L... -
Carter, . L., admnstrator
43150
4044
49891
41472
43 29
10 51
24912
28971
3800
45714
45780
0899
41224
20353
20353
47 77
33343
4813
47 77
32584
44153
44 84
32584
44153
44 84
1 075
1 07
31209
47800
37321
44909
58795
9447
10202
10755
334 9
42 84
50305
451 9
45170
4 327
3 381
3 382
51880
51881
45393
45392
51882
47 9
2
25
29
24
24
24
23
29
27
27
27
2
25
3
2
25
25
23
23
27
25
2
2
10
25
23
27
2
2
27
27
28
28
27
27
8 0
941
8
1193
1193
259
1351
987
22
77
77
901
31
901
901
780
780
439
710
150
92
15
1401
1345
191
953
1078
75
78
5
5
23
23
5
5
1 Nonacquescensa reates to ssue nvovng reorganzaton.
state ta decson nonacquescenco reates to deducton of amount o( a cam fed aganst the estate
and aowed by probate court.
Nonacquescence reates to ssue regardng deducton from gross ncome of fsca year ended pr 30,
, of reserve for renng bast furnaces.
1 of decson.
tve uetn -, page 10, wthdrawn.
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20
Nonacquescences Contnued.
Ta payer.
oard of Ta ppeas.
No.
oume.
Page.
51883
27
8
51884
27
5
51885
27
5
47 9
27
05
5188
27
5
58793
2
1401
24837
25
4C9
3173
25
757
555 9
3818
27
1312
555 8
27
1312
5249
28
53
70005
71592
29
1255
38349
2
301
3 343
22
1407
38903
47974
28
1127
33585
1
40890
29
43
51197

3991
28
725
407 5
24
17
509 8
29
9 4
42707
2
794
41 4
22
793
43495
50051
28
143
43784
27
480
58777
2
1401
38579
25
1351
35014
25
92
3144
7
798
71718
30
29
71718
30
29
4313
2
1020
452 7
28
23
51317
27
1234
32735
24
1079
2 874
1
2 875
2
234
28792

58545
2
1401
48833
28
773
Carter, Mrs. . L
Carter, .
Carter, Le N
Carter, Maude, ., estate of
Carter, r., W. T
Casses, Robert. _.
Centra Market Street Co.1
Centra Unon Trust Co. of New York, e ecutor. ..
Champon, Davd .3
Champon, T. Perre
Chapman, C.
Charavay, Marus
Chenowth, . C
Chcago Northwestern Ry. Co. _
Cark Thread Co.
Ceand state Co., Inc., enry . .
Coastwse Transportaton Corporaton
Cobegh, Margaret dwards, estate of
Coumba Pacfc Shppng Co..
Coumbus rck Te Co.7
Commerca Garage Co
Commerca Investment Trust Corporaton _
Communty ond Mortgage Corporaton..
Cone, dward
Cook, zabeth . ...
Cook, Sam
Cooper, . T.10
Crane, e ander ., estate of
Crane ct a., e ander M., e ecutors
Cre, Grace Mc rdc
Crspn, Mrs. gerton .
Crosby, Oscar T
Cross, Maurce
Cunard Coa Co. .
Cuppa, erome C
Curee, Sheby ., trustee
Nonacquescence reates to Issue regardng oard s ursdcton o subsdares.
Nonacquescence reates to ssue whether redempton of stock was equvaent to ta abe dvdend.
Nonacquescence reates to foowng ssues: Undermantenance proft and oss on bonds retred
amortzaton of bond dscount.
1 Nonacquescence reates to ssue respectng deprecaton.
Nonacquescence reates to bass for determnaton of gan or oss on the sae of property devsed sub|ect
to a fe estate.
state ta decson.
Nonacquescence reates to Incuson n consodated nvested capta of capta stock ssued for prom-
ssory notes.
1 Nonacquescence reates to deducton In 192 of e cess of market vaue over sae prce of stock sod to
empoyees.
1 Nonacquescence reates to vaue of common stock of mercan Chan Co., Inc., and the bass of aoca-
ton of cost between sad common stock and preferred stock of sad company acqured at the same tme
and under the same agreement.
cquescence pubshed n Cumuatve uetn II-1, page 1, wthdrawn,
u Nonacquescence reates to e pendtures for mne equpment.
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21
Nonacqcescences Contnued.
Ta payer.
Davdson, Watson P.
Davs, C. R.1..-
Davs, rederck .__
D.
Davs, Thomas L_
Degener, ohn ., estate of
Degener, r., et a., ohn ., e ecutors 2.
De Lsser, orace, estate of
Dennett, Mare G.4
Depew, Ganson
Des Mones Improvement Co.5
Dohrmann, ndrew . C
Doomte, Inc
Dort, . Daas, estate of
Drawoh, Inc
Drumheer, George
Duff, Robert C.
Dunham et a., Lucy ee, e ecutors
Dunham, Mary rgna, estate of
.
dson Securtes Corporaton.
fert, ar C
kns, Wam L., estate of...
rb et a., Ray L., e ecutors 7.
the D. Co
venng Star Newspaper Co.
verhart, ames Wam
armount Cemetery ssocaton-
armers Cotton O Co
armers Lfe Insurance Co.
edman, enry 0
ed, Marsha
fth Street udng-
Docket
No.
4 48
10299
32950
37324
37395
38500
38500
2459
72023
508 0
8573
20 58
239 9
0 1
44735
45014
41515
45752
37552
4 03
4 03
52 2
45781
5 449
292 0
32032
1870
855
2 75
30925
42811
42 79
43317
45359
3 908
1 27
292 4
45537
44278
48078
4474
oard of Ta ppeas.
oume.
27
10
20
24
24
2
2
2
30
27
7
19
19
28
2
28
27
23
2
2C
29
23
28
29
27
28
25
27
27
28
2
24
Page.
158
1233
931
405
405
185
185
102
49
515
279
507
4
1270
1321

209
1342
28
28
483
1351
3 7
1315
25
7 2
318
1272
105
423
23
11
87
rst Natona ank n St. Lous 9 I g g | 23 1124
rst Natona ank of oston, admnstrator 4474 25 12
1 cquescence pubshed n Cumuatve uetn -I, page 17, wthdrawn.
state ta decson
state ta decson: acquescence pubshed n Cumuatve uetn -2, page 18, recaed.
1 Nonacquesceoce reates to deductbty of S10.000 because of the fact that a bond In whch pettoner
had nvested became worthess In 1930. athough that fact was not ascertaned unt 1931.
1 cquescence pubshed n Cumuatve uetn II-1, page 9, wthdrawn.
1 Nonacquefoence reates to ssue 2 of decson.
Nonacquescence reates to the foowng ssues: Reducton of cost bass (March 1,1913, vaue) of assets
sod by a partnershp n 1919 by deprecaton aowed n computng Income for perod March 1, 1913, to
December 1, 1915: computaton of 1919 partnershp proft on sae of assets by consderng as part of the
sate prce ta es of the partners pad n 1920 by the vendee.
1 Nonacquesceoce does not reate to ssue n connecton wth opton payment receved for purchase
of and.
s notce pubshed In Cumuatve uetn -2, pages 23 and 24, recaed.
G
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1
3
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1
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2

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22 .
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
rst Peopes Trust
tzgerad, Thomas
etmann, Wam M., estate of 1
etmann, r., et a., Wam M., e ecutors 1
etcher, Saathe R
oger Co., .
oger state Co
oster, Carone ., estate of1
oster et. a., Chares . W., e ecutors 1
oster, L. .
ounders ssocates
o , ontane 4
o Rver Paper Co
G.
Gae, my
Gambe Stockton Co.5
Garcn, dward
Gardner, Chares .
Garre, Dane T., estate of
Garvan, ohn oseph, estate of
Gassner, Lous 7
Genera Uttes Operatng Co
Gerard, re
Gerach, Theodore R
Gaddng, Mary D., estate of
G. M. S. Co
Goet|en Mctson Co
Godberg, arry S.
Godschmdt et a., Georgette, e ecutors
Godschmdt, enry P., estate of 8
Graham, M.
Grant, een
Green, Robert D.
Greeneaf Te te Corporaton
Gregory, veyn
Grffs, Stanton
Gutar Trust state
Guf Coast Irrgaton Co.10
45403
2075
28449
28449
33041
22212
30721
31200
35147
4 72
4 72
4308
2 84
71084
20878
1 72
42707
21 57
38575
3173
4474
4017
52770
45221
38042
41 41
31435
1 383
17875
5389
1 138
1 138
38335
2029
5577
G8324
53 47
4 74
55299
38577
35102
33 94
40081
41343
2
29
22
22
24
27
27
2
2
2
29
30
28
27
2
22
25
25
25
4
29
28
27
27
2
2
4
14
14
2
29
24
2
27
25
25
24
cquescence notce pubshed n Cumuatve uetn -2, pnges 23 and 21, recaed.
1 state ta decson.
Nonacquoscenee reates to deductons n 1924 and 1925 on account of osses resutng from aeged saes
of securtes.
Nonacquesecnce reates to ncuson n ncome of corporaton for years ended March 31,1930, and March
31, 1931, amounts representng renta of premses occuped by ts presdent.
Nonacquesecnce reates to ncuson n consodated nvested capta of capta stock ssued for proms-
sory notes.
Nonacquesecnce reates to vaue of common stock of mercan Chan Co., Inc., and the bass of aoca-
ton of cost between sad common stock and preferred stock of sad company acqured at the same me and
under the same agreement.
cquescence pubshed In Cumuatve uetn -, pages 21, 27. wthdrawn.
state ta decson acquescence pubshed n Cumuatve uetn -2, page 27, recaed.
Nonacquesceuce reates to transacton 5.
Nonacquesecnce reates to affaton
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23
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume. Page.
Guf, Mobe Northern R. R. Co.1 .
Gunmey, rank
.
a, arry . R., estate of.
ancock, G. an
anson, Chares C
arrs, en
arrs, Smon
arrson, .
art, ohn
artey, Cavour, e ecutor.
artey, G. G., estate of-.
auser, W.
awey Investment Co.
edrck, . T
eer, . G
emph, Cfford ...
enn, . W
enrtze, .
enrtze, Ne
enrtze, T. R
enrtze, T. W -
ermann, ohn C
ertenstcn, reda M
ertensten, rederck
ckman, oward C
eronymus, Car Rchard, estate of.
ghway Traer Co..
gey Co., .
, D. ., estate of s
et a., Pau ., e ecutors 5
odges, gnes Wey, e ecutr
odges, W. L., estate of..
odges, W. L., trustee
omes akery Confectonery.
omes, Car .
omes, . ., trustee
24887
42150
105
70004
71598
3 8 7
15398
10980
31 32
453 1
52795
0115
42343
42343
43301
43302
451 9
45170
33533
40 34
38573
37102
0 09
0 07
0 08
0 0
51959
55938
5593
373 9
48930
445 8
51003
29399
29399
3833
3833
38337
44943
528 1
/ 51473
I 53395
44943
528 1
48 31
51570
53394

22
2
29
25
23
10
24
28
27
27
27
2
23
24
25
25
20
28
28
28
28
27
29
29
27
24
28
25
24
24
2
2
2
27
27
27
27
omes, Margaret
Nonacquesce ce reates to Issues n vo vne award of Interstate Commerce Commsson In 1920 for
transportaton of Unted States mas n 191 and 1917 and deducton n 192 for deprecaton on ways
and structures.
1 Nonacquescence appes to the entre decson of the oard n so far as t s adverse to the Commssoner.
Parta acquescence pubshed In uetn I-28, page 1, revoked.
1 cquescence pubshed n Cumuatve uetn -, pages 24, 27, wthdrawn.
Nonacquescence reates to vaue of common stock of mercan Chan Co., Inc., and the bass of aoca-
ton of cost between sad common stock and preferred stock of sad company acqured at the same tme and
under the same agreement.
state ta c
G
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1
3
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2
2

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24
NoN C TN sc NC S Contnued.
Ta payer.
Docket.
No.
oard of Ta ppeas.
oume.
ousehod Products, Inc
ousrnan, Carence
ousman, rederck
ouston aseba ssocaton
ouston ros.1
ouston, George T.1
ouston, orace .1
ouston, Php D.1
uburd, Chares ., estate of
uburd, De orest, ndvduay and as e ecutor
and trustee
unter, G. W., estate of2
untngton, enry ., estate of3
utchson Coa Co
I.
Impera evator Co
Impera Investment Co
Indanapos, Crawfordsve Danve ectrc
Ry. Co
Indanapos Northwestern Tracton Co_ -.
Iten scut Co
Ives, Chares
Ives Dary, Inc
.
ackson astern Ry. Co -.
ackson, Wermch Trust
amson Coa Coke Co
anotta, Stea S.
efferson Standard Lfe Insurance Co
ohnston, ugh Mc rney, ndvduay and as
e ecutor and trustee
ones, esse R
.
ansas Cty Southern Ry. Co. and affated com-
panes -
44809
58798
58774
43985
45430
12052
13104
22008
22009
22007
22028
22028
335 4
45429
34939
35088
29291
33859
338 1
43 7
451 4
51527
39873
/ 38295
42149
32307
/ 31 90
34088
51172
43149
22028
58285
22 8
35527
35528
35529
35530
35531
453 0
24
2G
2
24
22
22
22
22
27
27
2. )
28
24
25
23
24
24
29
23
22
24
24
28
25
27
27
22
ecys, dward L 453 0 I 28
1 Nonacquesccnce reates to March 1,1913, vaue, and to the bass for the deducton or depeton and for
the computaton of san or oss upon subsequent sae of the tmber.
1 state t decson.
Nonacquescence reates to ssue whether ta payer sustaned a net oss n any busness reguary carred
on n 1924 whch coud be carred forward and deducted from ta abe ncome n 1925.
Nonacquesccnce reates to ssue nvovng deducton for deprecaton on ways and structures.
Gft ta decson.
Nonacquesccnce reates to the foowng ssues: Deducton of amounts e pended to restore pettoner s
property notwthstandng the fact that the Drector Genera of Raroads made payment to pettoner for
hs faure to mantan the property e cuson from gross ncome of ntercompany freght charges on matera
and suppes used n makng addtons and betterments to pettoner s property.
G
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2

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25
Nonacquescences Contnued.
Ta payer.
oard of Ta ppeas.
No.
oume.
Page.
897
29
1014
58794
20
1401
41549
2
1158
2775
7
790
55318
2
1025
37323
24
405
37535
24
405
37535
24
405
1 985
10
109
41721
42 3
2
94
57203
28
222
57203
28
222
70007
71595
29
1255
45347
2
7 4
45348
2
7 4
452
28
23
452 5
28
23
32272
23
979
53440
29
251
7435
8
298
28544
35038
23
787
58871
28
113
51858
25
21
51858
25
21
33231
27
750
33392
24
577
0827
28
129
44891
2
199
41344
24
958
38578
25
1351
40082
41345

958
44139
2
1172
32444
25
994
52931
5722
29
304
485 2
27
155
459
27
318
erbaugh, enry S
errgan, rthur L
ng, ohn M
napp, tte .1
och, arry
ountze, Chares T
ountze et a., Chares T., e ecutors.
ountze, Luther L., estate of
ru, rancs 1
L.
Lafayette Lfe Insurance Co
Langford Investment Co., trustee.
Langford, r., et a., Perce P
Laube, ustus
Laun, fred
Laun, .
Leeper, rank ., estate of
Lee per. Pear .
Lee ton a urnace Co
Leon Son, Inc., bert
Levne, yman 1
Lebes Co.,
Lnderman, Wam S., e ecutor
Lttauer, ugene, estate of
Lttauer et a., Lucus N.,e ecutors3.
M.
Maory, L. W., estate of
Manchester Coa Co
Manhattan Lfe Insurance Co
Margay O Corporaton
Markham Irrgaton Co.4
Marvn, Water S.5
Matagarda Cana Co.
McCormck et a., Cyrus ., trustees.
McCrory, Luke W, trustee
Mcvane et a., Wam ., trustoes.
McLster, rank
McMan, Wam Northrup, estate of
cquescence pubshed Id Cumuatve uetn II-1, page 17, wthdrawn.
cquescence pubshed n Cumuatve uetn -, pucos 3 , 33, wthdrawn.
state ta decson nonacqucscence n respect to that part of decson whch hods that accrued nterest
pad on edera ncome ta es for 1927 and 1928 from date of decedent s death to November 5,1930, s a proper
aowabe admnstratve e pense.
onacquescence reates to affaton ssue.
onacquescence reates to vaue of common stock of mercan Chan Co., Inc., and the bass of aoca-
ton of cost between sad common stock and preferred stock of sad company acqured at the same tme
and under the same agreement.
state ta decson nonacquescence as to queston of stus.
77GG2 34-
-2
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2
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume. Page.
Meyer, Robert R
Mchgan Centra R. R. Co.1.
Mgetta, Oga
Mer, bert
Ms, . . Goadby
Mssour State Lfe Insurance Co. .
Mtche, Oscar
Mtche, Wam
Mtten Management, Inc
Mod|esk, Raph
Moore read Co
Moore, G.
Morgante rush Co., Inc.
Moro Reaty odng Corporaton.
Morrss et a., ua L.
Morrss Reaty Co. Trust No. 1
Morrss Reaty Co. Tr t No. 2
Morse, mma R., estate of
Moser, Caroyn L
Mosser, Chares
Mueer, ar W
Murphy et a., red T., trustees
Murphy Persona Property Trust
Mutua Lfe Insurance Co. of New York.
Myrck, uan S
N.
Nashve, Chattanooga St. Lous Ry_
Natona Casket Co., Inc.
Natona Contractng Co.
Natona Land Constructon Co
Natona Ppe oundry Co.7
Nea et a., . enry, trustees
44032
19930
3 379
453 8
58797
58241
238
41 80
41874
54 73
58799
42494
53990
18 1
49517
41 45
38351
2 3 9
3740
44759
50490
41023
41024
458 3
458 4
41023
458 3
41024
458 4
44 52
55937
55399
453 2
43795
43795
97 4
5152
337
33799
50320
24520
4012
32997
45403
27
28
25
28
2
29
27
2
29
28
22
2
24
25
23
23
23
27
29
27
28
25
25
23
29
24
29
25
25
19
2
44
437
243
23
1401
401
101
1401
57
1051
793
301
77
1135
107
107
107
1070
21
513
23
724
724
749
822
85
139
407
5 2
242
551
1 Nonacquescence reates to foowng ssues: Whether ma pay receved In 1921 consttuted Income In
1920 renta Interest receved on competed addton and betterments In fna settement wth the Drector
Genera.
Nonacquescence reates to deducton for reserve set up to meet abty upon matured coupons ad|ust-
ment of ncome for renta of space occuped n home offce budng and deprecaton upon such budng.
1 Nonacquescence reates to ssue regardng deducton from ncome of sprnkng ta .
state ta decson.
Nonacquescence reates to the appcaton of a net amount of operatng osses after appyng the profts
of a subsdary durng the perod of affaton to reduce the oss sustaned by a parent company on the
qudaton of a subsdary company.
Nonacquescence reates to Issue 1 of decson and ssue regardng deductbty of overhead costs In
1925.
cquescence pubshed In Cumuatve uetn I -2, page 43, revoked. Revocaton of pror acqu-
escence and present nonacquescence are due to the faure of the oard s decson to nn , the word 11 ds-
trbuted to the cash dstrbutons made to the stockhoders.
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27
No.vacqdescences Contnued.
Ta payer.
Docket.
No.
oard of Ta ppeas.
oume.
Tcge.
Ne, ames 1
Nems, rank aywood
Nems, Mrs. rank aywood..
Newport Co
New York Centra R. R. Co. .
New York Lfe Insurance Co
New York, Ontaro Western Ry. Co.
Nbey-Mmnaugh Lumber Co
Nchos Co Lumber Co
Ncodemus, r., . C
Nesen Co., .
North mercan Investment Co.
Northern Coa Co.1... _.
Noyes, ansen
O kman et a., Mame R
Ogden, ugh W
Od Msson Portand Cement Co.
Onger Mortuary ssocaton
Omaha Coca-Coa ottng Co
O Rear, . C.s
Oregon Termnas Co
Osborne, Owen, estate of
Oswego as Corporaton,
Owens, . T
Owens, Mrs. . T.
Owens, 0. O
9290
51887
51888
35431
19932
34437
2040
38880
52 93
17527
23 01
5232
25 9
8899
30183
34945
38574
42917
23943
38853
3 502
52 41
32335
8893
59957
28301
32 73
34352
3149
3150
3198
f 451 9
45170
2877
30989
39 47
39 47
13830
54050
5033
8
27
27
24
28
24
30
2
24
2
2
24
24
25
24
24
25
23
2
28
29
29
2
27
27
2
23
2
28
24
24
11
28
27
299
5
5
124
437
1217
408
978
54
125
223
419
307
1351
84
1239
305
1281
1123
98
1332
374
0
409
4 9
1147
953
29
917
787
787
541
97
1224
Pacfc Nash Motor Co
Pacfc Rock Grave Co
Parrott, . .
Peabody, Cornea aven, estate of 7
Peabody et a., Stephen, e ecutors 7
Petauma Santa Rosa R. R. Co.8.
Peters, ndrew
Pheps et a., Lus ames, e ecutors
1 cquescence pubshed n Cumuatve uetn -, page 4 , wthdrawn.
Nonacquescence reates to foowng Issues: Whether ma pay receved n 1921 consttuted ncome n
1W0 renta nterest receved on competed addton and betterments n fna settement wth the Drector
Genera.
1 Nonacquescence reates to statute of mtatons ssue.
Nonacquescence reates to vaue of common stock of mercan Chan Co., Inc., and the bass of aoca-
ton of cost between sad common stock and preferred stock of sad company acqured at the same tme
tod under the same agreement.
1 Nonacquescence reates to ssue regardng amount of oss sustaned by pettoner by reason of destruc-
ton by fre of hs resdence and furnture.
Nonacquescence reates to nterpretaton of artce 15 7, Reguatons 45, as apped to e change of stock
of Pttsburgh Te as O Oas Co.
: state ta decson.
Nonacquescence reates to that part of decson concernng purchase of ta payer s own bonds at ess
(bn par whch were hed as an nvestment. cquescence notce as to ths ssue pubshed n Cumuatve
uetn -2, page 31, revoked.
state ta decson nonacquescence wth respect to the trusts for the son and daughter.
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28
No.va cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Phps, Wam S.
Perce, dward ..
Pttsburgh thetc Co.
Pttsburgh Lake re R. R. Co. .
Pettner, Maude rown
P-M- Petroeum Co.2
Post Shedon Corporaton.
Powe, T. I. are
Prce, arry
Prosperty Co., Inc.
Provdence Trust Co. of Phadepha, e ecutor..
Pry or Lockhart Deveopment Co
Purse, ames N
R.
Randoph, ranke Carter..
Randoph, R. D
Randoph, rg P., trust..
Ray O Co.4.
Raymond, oward W
Reaty ssocates, as syndcate manager 5.
Reed, Latham R
Reese, ugusta ss
Rehtam, Inc
Reynard Corporaton 1
Rchardson et a., orrest, e ecutors 7.
Rchfed O Co
Rffe, enry 8
Rey, nna
Rey Stoker Corporaton
Roberts, Water
Robertson, . G
Rodeo- ae|o erry Co.2.
Rormer, Lous
2444
317 9
5879
05 9
9 4
7422
427 4
33345
5057
54779
5 95
44 4
70008
7159
4589
594 8
59957
38872
45 8
5132
54124
51890
51889
48833
43123
45219
48015
1554
58544
27921
58800
70410
4501
738
70795
44 52
42921
357
10
3 584
37534
49552
52370
3 411
48528
5S850

24
2
27
28
25
24
28
27
29
27
20
2
27
27
27
28
28
20
17
2
30
28
30
27
25
3
29
2
24
28
24
27
Nonacquescence reates to renta nterest queston and oard s decson wth respect to porton of ma
pay receved In 1921.
Nonacquescence reates to frst ssue of decson.
Nonacquescence reates to overstatement of oss sustaned as a resut of qudaton of subsdary.
Nonacquescence reates to ssue whether pettoner was ta abe for years 192 to 1929, ncusve, as a
trust or as an assocaton.
cquescence pubshed n Cumuatve uetn -2, page 59, wthdrawn.
Nonacquescence reates to ncuson n ncome of corporaton for years ended March 31,1930, and March
31, 1931, amounts representng renta of premses occuped by ts presdent.
state ta decson.
state ta decson acquescence pubshed n Cumuatve uetn -2, page CO, recaed.
G
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1
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29
Nonacquescences Contnued.
Ta payer.
Rosenboom nance Corporaton
Ross, anche S.1
Rosser, . M., e ecutor
Roth, W. .
.
St. Lous Southwestern Ry. Co
St. Lous Unon Trust Co., e ecutor5
Saomon, Leon
San Caros Mng Co., Ltd.
Sand Sprngs Ry. Co
Sather Lease Thomas Sather Co
Schwartz- asser Improvement Co
Scott, Thomas ., estate of
Seaconnet Coa Co.8
Seatree, Wam rnest
Securty rst Natona ank of Los ngees ct a.,
e ecutors
Securty Savngs Commerca ank
Sewvn ddy Co
Shaffer, C.
Shaffer, ohn C
Shcaffer Pen Co., W.
Shepherd Syndcate
Shenker, Smon
Sberbatt, Soomon
Skewes-Co , dth Page
Skff, rank .
Sma s, Inc
Smathers, . ., estate of
Smth, Mrs. Grant
Smth, Mton, estate of
Smth, r., Mton, e ecutor
Snyder, Inc., . S. M. W
Southern Caforna Rock Grave Co.
Docket
No.
35778
40903
51171
407 5
450 5
13319
277 8
33938
459
3725
12231
39525
32438
32439
31979
3 87
5033
18089
22094
33 40
45429
59523
21 12
29259
5008
59511
3 04
48332
51327
58801
4 335
1 9
8335
51173
53791
292 0
43300
43305
4330
52132
52132
3 8
oard of Ta ppeas.
oume.
24
28
24
22
24
27
4
8
24
21
2
2(5
27
24
25
28
29
25
29
28
27
2
20
28
29
28
24
29
2
28
28
2
2
1 onacquescence does not reate to the oard s hodng that dstrbutons receved from oseph .
nch Co. were not parta qudatng dvdends.
1 Gft ta decson.
1 state ta decson.
cquescence pubshed n Cumuatve uetn -, pages 5 , 57, wthdrawn.
1 state ta decson nonacquescence as to queston of stus.
cquescence as to ssue 2 pubshed n Cumuatve uetn I-1, page , and nonacquescence as
to ssue 1 pubshed n Cumuatve uetn I-1, page 11, wthdrawn.
state ta decson: nonacquescence wth respect to the trusts for the son and daughter.
Nonacquescenoe reates to statute of mtatons ssue.
N onacqnsecence reates to ssue whether ta payer sustaned a net oss n any busness reguary car-
red on n 1924 whch coud be carred forward and deducted from ta abe ncome In 1025.
- onacquescence reates to the foowng ssues: Reducton of cost bass (March 1, 1913, vaue) of assets
sod by a partnershp n 1919 by deprecaton aowed n computng ncome for perod March 1, 1913, to
December 1, 1915 computaton of 1919 partnershp proft on sae of assets by consderng as part of the sae
prce ta es of the partners pad n 1920 by the vendee.
G
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1
3
-
0
1
-
2
2

0
4
:
1
9

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7
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0
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0
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8
9
0
5
4
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0
2
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30
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume. Page.
Southern Raway Co. et a.1
Sprague Son Co., C. .2..
Sprng Cty oundry Co
Sredes, Inc
Staney Co. of merca.
Stearns, Marsha, admnstrator
Stern et a., Samue . ., e ecutors8.
Stetson, Toa Wse
Stevens, yam
Stevens, Wam D
Stevenson Consodated O Co.
Stfe, rthur C
Stfe, dward W
Stfe, enry G
Stockhoms nskda ank
Stone, . C, estate of
Stone, Mrs. . C, e ecutr
Stone et a., Irvng ., e ecutors and trustees5.
Stone, Irvng Lee, estate of -
Straub, Teca M
Straus, aron
Stravcr, Water .
Streefkcrk, Mrs. S...
Strong, arod C.
Sturgeon- ubbard Trust
Sturgeon et a., Ron S., trustees
Suncrcst Lumber Co
Swartz, Inc., dward G
Swft, Mary Dodson, estate of
Swsky, Toby W
Tabot, rederck C, estate of
Tabot, . .
Tabot et a., Susan D., e ecutors
Tabot, Wam ., estate of
Tayor, . Sedon, estate of8
Tayor, r., et a., . Sedon, e ecutors8.
Tayor, esse Carter
Tayor, udson L
f 21481
I 29951
137887-
37898
3494
211 9
45015
3151
33142
40023
48930
2459
41743
7000
71593
70009
71594
4341
0738
0739
0740
55755
3833
3833
43830
43830
55935
5091
48504
453 3
3857
37095
37095
33244
3 50
44909
42032
20411
3 191
20409
20409
4444
4444
51891
51892
27
24
25
28
2
24
2
2
27
29
29
23
29
29
29
25
2
2
2
2
29
27
27
28
25
25
25
25
25
2
25
27
23
27
27
27
27
27
27
Nonacquescence reates to Issues Invovng addtona compensaton, renta nterest on addtons and
betterments, and back ma pay for use of propertes durng edera contro.
1 Nonacquescence reates to statute of mtatons Issue.
state ta decson acquescence pubshed n Cumuatve uetn -2, page 7, recaed.
Nonacquescence reates to Issue regardng ncuson n ncome for 192 of 180,823.35 receved upon,
e change by pettoner of 250,000 shares of Sunburst O Oas Co. stock wth that corporaton.
state ta decson nonacquescence reates to ssue nvovng property transferred by trust agreement.
0 Nonacquescenoe reates to vaue of common stock of mercan Chan Co., Inc., and the bass of ao-
caton of cost between sad common stock and preferred stock of sad company acqured at the same tme
and under the same agreement.
Nonacquescence reates to deprecaton aowance In computng oss n sae of a boat.
state ta decson.
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31
Nonacqt|escences Contnued.
Ta payer.
Ten yck, Peter G
Tennessee Consodated Coa Co ---
Terre aute, Indanapos astern Tracton Co-
Terre aute Tracton Lght Co
Terry, nna Davs
Te as Irrgaton Co.1
The ub, Inc
353 Le ngton venue 1
Totson Manufacturng 1
Ttus, C. Dckson
Todd, Ws
Toerton Warfed Co.
Towers 4 Suvan Manufacturng Co_
Tro|an O Co
Twn e O Syndcate
Tver et a., Sdney ., trustees
U.
Unon Guardan Trust Co., e ecutor 3_
Unon Pacfc R. R. Co. et a. -
Unon Trust Co., trustec.
Unted O Co
an Camp Packng Co., Inc
oebe, acob, estate of 5
oebe, Water W., e ecutor 5 ...
ounteer State Lfe Insurance Co.
on Guntcn, Chrstan W
onnegut ardware Co
W.
Waggoner, a
Waggoner, W. T
Waker, Tabot C
Wa. rank .
Waters, ohn W
Ward et a., Dasy M.
Docket.
No.
8197
33383
33858
338 0
45440
40083
4134
4 298
5089
441 7
20705
3753
45320
40508
33757
45052
5 449
44735
35 39-
35 49
35 84
35 85
400 0
400 1
400 2
42917
3S082
42922
51 22
40
C009
009
5417
1278
44940
33517
3351
20407
7359
70010
71597
2 44-
2 49
oard of Ta p||eas.
oume.
29
24
24
24
2
24
2
27
27
24
24
23
25
2
2
28
2
2
24
2:,
2
7
7
27
28
24
24
27
4
29
29
1 Nonacqaescence reates to affaton ssue.
1 N onacquescence reates to ssue regardng deducton of oss sustaned by two affated companes
darng fsca year ended anuary 31, 1924, and the ta abe perod ebruary 1 to pr 25, 1924, n computng
the consodated net ncome for ta abe perod pr 2 to December 31, 1924, and the year 1925.
1 state ta decson.
N on acquescence reates to ssue regardng renta nterest and ssue concernng net oss of Los ngees
Sat Lake . R. Co. for perod anuary 1 to pr 30, 1921.
1 state ta decson acquescence pubshed n Cumuatve uetn -2, page 73, recaed.
1 cquescence pubshed n Cumuatve uetn -, page 3, wthdrawn.
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32
Nonacquescen ces Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume. Page.
Wardman, arry
Warner Coeres Co. of Deaware.
Watab Paper Co.
Wes argo ank Unon Trust Co., admnstrator.
Wes, ames
West rgna-Pttsburgh Coa Co
Wheeng Mod oundry Co. (De.).
Whte, uet C -I
Whte Oak Transportaton Co.1
Whte, Rta M. oher ---
Whte, Sdney
Wco Sons, .
Wams et a., rank G., e ecutors
Wson, ohn P
Wson, Luke ., estate of
Wson Shpbudng Co.
Wnston ros. Co
Wobber ros
Wobbers, Inc
Wopert, Urban
Wood urnture Co., .
Woodward, George 3
22348
34 79
24773
28082
38085
41733
4 07
51387
20411
2948
20337
25030
23410
58775
18088
3 112
5877
40 19
335 4
52931
5722
32444
34337
59270
3 875
3 874
485 3
405 5
42279
Youngstown Sheet Tube Co.
Zeger, bert W
Zeger, Cfford
Zobeen, George
Zobeen, Mrs. dward.
24
2
27
27
29
24
27
2
24
25
2
28
25
29
25
25
29
2
2
27
21
23
28149
35511
-
4 291
23
45353
28
28
1 Nonacquescence reates to statute of mtatons ssue.
Nonacquescence reates to ssue 5 of decson.
cquoscenco pubshed n Cumuatve uetn -2, page 78, wthdrawn.
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INCOM T RULINGS. P RT I.
R NU CT O 1932.
SU TITL . G N R L PRO ISIONS.
P RT II. COMPUT TION O N T INCOM .
S CTION 22(a). GROSS INCOM : G N R L
D INITION.
rtce 51: What ncuded n gross ncome. III- - 3
( so Secton 42, rtce 331.) I. T. 2759
R NU CT O 1032.
Recapture amounts and nterest receved by the M aroad
Co. pursuant to secton 20C of the mergency Raroad Transporta-
ton ct, 1933 ( 48 Stat., 211, 220), shoud be ncuded as ncome n
the company s return for the ta abe year embracng uno 1 , 1933,
the date of the enactment of the ct.
n opnon s requested as to the treatment for ncome ta purposes
of a dstrbuton to the M Raroad Co. under secton 20t5 of the
mergency Raroad Transportaton ct, 1933, representng t re-
capture amounts pad by the company to the Interstate Commerce
Commsson.
It appears that durng the years 1922 to 1932, ncusve, the M
Raroad Co. pad to the Interstate Commerce Commsson 338a
doars under the provsons of secton 15(a) of the Transportaton
ct, whch amount represented one-haf of ts e cess earnngs. Due
to the repea of secton 15(a) of the Transportaton ct the amount
prevousy pad, together wth 98a doars nterest, has been returned
to the company. If the dstrbuton consttutes ncome, advce s
requested as to how and n what year t shoud be reported.
Under secton 15(a) of the Interstate Commerce ct, as amended
by the Transportaton ct of ebruary 28, 1920 (41 Stat., 45 , 459),
a carrer whch receved for any year a net raway operatng ncome
n e cess of per cent of the vaue of ts raway property was
requred to pay to the Interstate Commerce Commsson one-haf of
such e cess, generay referred to as recapture amounts, for the
purpose of estabshng and mantanng a genera raroad con-
tngent fund. The other one-haf of such e cess was requred to be
paced n a reserve fund estabshed and mantaned by the carrer.
(33)
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22r(a), rt. 51.
34
In Genera Counse s Memorandum 4 0 (C. . II-2, 25 ), t was
hed that the proper treatment of the recapture amounts n the
audt of ncome ta returns of carrers was to e cude from gross
ncome the amounts pad to the Interstate Commerce Commsson.
Consequenty, the carrer pad no ncome, war-profts, or e cess-
profts ta on such amounts.
Secton 20 of the mergency Raroad Transportaton ct, 1933,
approved une 1 , 1933, provdes for the cessaton of payments to
the Interstate Commerce Commsson under the recapture cause,
and for the qudaton and dstrbuton to carrers of the genera
raroad contngent fund estabshed thereunder. The statute reads
n part as foows:
Set. 20 . (a) moneys whch were recoverabe by and payabe to the
Interstate Commerce Commsson, under paragraph ( ) of secton 15a of the
Interstate Commerce ct, as In force pror to the enactment of ths tte, sha
cease to be so recoverabe and payabe and a proceedngs pendng for the
recovery of any such moneys sha be termnated. The genera raroad con-
tngent fund estabshed under such secton sha be qudated and the Secre-
tary of the Treasury sha dstrbute the moneys In such fund among the
carrers whch have made payments under such secton, so that each such car-
rer sha receve an amount bearng the same rato to the tota amount n
such fund that the tota of amounts pad under such secton by such carrer
bears to the tota of amounts pad under such secton by a carrers e cept
that f the tota amount n such fund e ceeds the tota of amounts pad under
such secton by a carrers such e cess sha be dstrbuted among such car-
rers upon the bass of the average rate of earnngs (as determned by the
Secretary of the Treasury) on the nvestment of the moneys n such fund and
dfferences In dates of payments by such carrers.
(b) The ncome, war-profts, and e cess-profts ta abtes for any ta abe
perod endng after ebruary 28, 1920, of the carrers and corporatons whose
ncome, war-profts, or e cess-profts ta abtes were affected by secton 15a
of the Interstate Commerce ct, as In force pror to the enactment of ths ct,
sha be computed as f such secton bad never been enacted, e cept that, n
the case of carrers or corporatons whch have made payments under para-
graph (G) of such secton, an amount equa to such payments sha be e cuded
from gross ncome for the ta abe perods wth respect to whch they were
made. dstrbutons made to carrers n accordance wth subdvson (a)
of ths secton sha be ncuded n the oross ncome of the carrers for the
ta abe perod n whch ths ct s enacted. The provsons of ths subdvson
sha not be hed to affect (1) the statutes of mtatons wth respect to the
assessment, coecton, refund, or credt of ncome, war-profts, or e cess-profta
ta es or (2) the abtes for such ta es of any carrers or corporatons f
such abtes were determned pror to the enactment of ths ct n accord-
ance wth secton 110 (b) of the Revenue ct of 1SI2 or secton 00 of the
Revenue ct of 1928, or n accordance wth a fna |udgment of a court, an
order of the oard of Ta ppeas whch had become fna, or an offer n
compromse duy accepted n accordance wth aw. Itacs supped.
Inasmuch as the M Raroad Co. pad to the Interstate Commerce
Commsson under the recapture cause 338# doars whch has been
returned to t n dstrbuton, the amount shoud be ncuded as
ncome n the company s return for the ta abe year embracng une
1 , 1933, the date of enactment of the mergency Raroad Trans-
portaton ct, 1933, n accordance wth the e press provsons of
that ct. The nterest of 98a doars shoud be treated n the same
manner as that part of the dstrbuton whch represents the return
of the amount pad under the recapture cause.
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35
22(a), rt, 57.
rtce 53: Compensaton pad other than n III- - 37
cash. I. T. 27 0
R NU CT O 1932.
The pay and aowances n eu of quarters receved by a chapan
n the Unted States rmy or Navy s not sub|ect to edera n-
come ta . I. T. 1307 (C. . 1-1, 110) s revoked n so far as t
s n confct herewth.
Inqury s made reatve to the ta abty of the renta aowance
receved by n the year 1932.
The ta payer, , s a reguary ordaned mnster of the gospe and,
as rmy chapan, hods the rank of ma|or n the Unted States
rmy. s rmy chapan he s entted to quarters on the post
but as quarters are not avaabe he receves an aowance for renta
nstead. e ncuded the amount of such aowance as ta abe
ncome n hs return for 1932, but now contends that t s not sub|ect
to ta , reyng upon the decson of the Court of Cams n the case of
Cfford L. ones v. Unted States ( 0 Ct. CL, 552 T. D. 3724, C.
. I -2, 13 ).
In that case the court hed that the renta vaue of quarters occu-
ped by an rmy offcer and the cash receved by hm as commutaton
of quarters were not ta abe ncome. Lkewse, artce 53 of Regu-
atons 77, reatng to the Revenue ct of 1932, hods that the vaue
of quarters furnshed rmy and Navy offcers, or amounts receved
as commutaton of quarters by such offcers, do not consttute ta -
abe ncome. In I. T. 1307 (C. . 1-1, 110), t was hed wth
respect to rmy and Navy chapans that the aowance n eu
of quarters s not e empt, and shoud be ncuded n gross ncome.
That rung was based on the theory that a chapan n the rmy
or Navy s prmary a mnster of the gospe, snce the Government
requres that he be a reguary ordaned mnster, and that hs
status as mnster takes precedence over hs status as an rmy or
Navy offcer. In vew of the prncpe ad down by the Court of
Cams n Cfford L. ones v. Unted States, supra, whch s recog-
nzed n Reguatons 77, t s evdent that I. T. 1307 s n confct
therewth n so far as t hods that a chapan s ta abe wth respect
to an aowance n eu of quarters.
chapan n the rmy or Navy s a commssoned offcer, and the
ta payer s mtary rank, rather than hs cang as a mnster, de-
termnes hs remuneraton and emouments. In other words, the pay
and aowances are receved by reason of hs status as a commssoned
offcer n the Unted States rmy or Navy and not by reason of hs
cang or vocaton.
In the nstant case, therefore, the renta aowance receved n
1932 by , the ta payer, who s an rmy chapan, s not sub|ect
to edera ncome ta . I. T. 1307 s revoked n so far as t s n
confct herewth
rtce 57: Gross ncome of farmers. III-12-G704
I. T. 27 7
N U CT O 1032.
The renta or beneft payments made to producers by the Secretary
of grcuture under the provsons of the grcutura d|ustment
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22(a), rt. .
3
ct for the reducton n acreage, or the reducton n producton for
market of any basc agrcutura commodty specfed n secton 11
of the ct, as amended, consttute ta abe ncome to the recpents
for edera ncome ta purposes.
rtce C : Sae by corporaton of ts capta III-20- 792
stock. T.D.4430
( so Secton 23(), rtce 17 .)
INCOM T .
cquston or dsposton by a corporaton of ts own capta
stock.
rtces 543 and 5 3, Reguatons 5 and 9, and artces and
17 , Reguatons 74 and 77, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtces 543 of Reguatons 5, approved October , 1924, and
Reguatons 9, approved ugust 28, 192 , and artces of Regu-
atons 74, approved ebruary 15, 1929, and Reguatons 77, ap-
proved ebruary 10, 1933, are hereby amended to read as foows:
cquston or dsposton by a corporaton of ts own capta stock. Whether
the acquston or dsposton by a corporaton of shares of ts own capta
stock gves rse to ta abe gan or deductbe oss depends upon the rea nature
of the transacton, whch s to be ascertaned from a ts facts and crcum-
stances. The recept by a corporaton of the subscrpton prce of shares of ts
capta stock upon ther orgna ssuance gves rse to nether ta abe gan nor
deductbe oss, whether the subscrpton or Issue prce be n e cess of, or ess
than, the par or stated vaue of such stock.
ut where a corporaton deas n ts own shares as t mght n the shares
of another corporaton, the resutng gan or oss s to be computed n the
same manner as though the corporaton were deang n the shares of another.
So aso f the corporaton receves ts own stock as consderaton upon the
sae of property by t, or n satsfacton of ndebtedness to t, the gan or oss
resutng s to be computed n the same manner as though the payment had
been made n any other property. ny gan derved from such transactons
s sub|ect to ta , and any oss sustaned s aowabe as a deducton where
permtted by the provsons of appcabe statutes.
rtces 5 3 of Reguatons 5, approved October , 1924, and
Reguatons 9, approved ugust 28, 192 , are hereby amended by
strkng out the frst and second sentences thereof, by substtutng
the words a corporaton n pace of the second word n the thrd
sentences of those artces, and by addng the foowng sentence
to those artces:
s to the acquston or dsposton by a corporaton of ts own capta stock,
see artce 543.
rtce 17 of Reguatons 74, approved ebruary 15, 1929, s
hereby amended by omttng the frst and second sentences thereof,
by substtutng the words a corporaton n pace of the second
word n the thrd sentence of ths artce, and by addng the foow-
ng sentence to ths artce:
s to the acquston or dsposton by a corporaton of ts own capta stock,
see artce .
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37 22CM, rt. 81.
rtce 17 of eguatons 77, approved ebruary 10, 1933, s
hereby amended by omttng the frst and second sentences thereof,
and by addng the foowng sentence to ths artce:
s to the acquston or dsposton by a corporaton of ts own capta stock,
see artce 8.
Gut T. everng,
Commssoner of Interna Revenue.
pproved May 2, 1934.
. MoRG NT T , r.,
Secretary of the Treasury.
S CTION 22(b). GROSS INCOM : CLUSIONS
ROM GROSS INCOM .
rtce 81: cusons from gross ncome. III-19- 781
I. T. 2779
R NU CT O 1932.
Pensons and compensaton receved by veterans are sub|ect to
edera ncome ta , uness such amounts are pad under the Word
War eterans ct or the Word War d|usted Compensaton ct.
dvce s requested whether, n ve of secton 17 of Pubc, No. 2
(48 Stat., 8), and secton 20 of Pubc, No. 78 (48 Stat., 283, 309),
enacted by the Seventy-thrd Congress, pensons, compensaton, n-
surance, and ad|usted compensaton are e empt from edera ncome
ta under the provsons of secton 22 of the Word War eterans
ct, secton 308(a) of the Word War d|usted Compensaton ct,
and secton 4747 of the Revsed Statutes of the Unted States.
Secton 17 of Pubc, No. 2, repeas a aws grantng compensaton,
pensons, dsabty aowance, or retrement pay to veterans and the
dependents of veterans of the Spansh- mercan War, and the Word
War, or to former members of the mtary or nava servce for n-
|ury or dsease ncurred or aggravated n the ne of duty n the
mtary or nava servce, e cept so far as they reate to persons
who served pror to the Spansh- mercan War and to ther depend-
ents, or to the retrement of offcers or ensted men of the Reguar
rmy, Navy, Marne Corps, or Coast Guard. Secton 17 aso re-
peas a aws grantng or pertanng to yeary renewabe term n-
surance, e cept as to contracts whch matured pror to the enactment
of the ct and on whch payments have been commenced, or any
|udgment rendered on contracts of yeary renewabe term nsurance.
The provsons of secton 17 do not appy to compensaton or pensons
beng pad to veterans dsabed, or dependents of veterans who ded,
as a resut of dsease or n|ury drecty connected wth actve mtary
or nava servce, e cept as to rates, tme of entry nto actve servce,
and speca statutory aowances.
Secton 22 of the Word War eterans ct, secton 308(a) of the
Word War d|usted Compensaton ct, and secton 4747 of the
Revsed Statutes, not beng aws grantng compensaton, pensons,
dsabty aowance, etc., were not, t s consdered, repeaed by sec-
ton 17 of Pubc, No. 2.
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22(b), rt. SI.
38
Secton 22 of the Word War eterans ct, as amended, reads as
foows:
Sec. 22. That the compensaton, nsurance, and mantenance and support
akncanoe payabe under Ttes II, III, and I , respectvey, sha not be assgn-
abe sha not be sub|ect to the cams of credtors of any person to whom an
award s made under Ttes II, III, or I and sha be e empt from a ta a-
ton: Provded, That such compensaton, nsurance, and mantenance and sup-
port aowance sha be sub|ect to any cams whch the Unted States may have,
under Ttes II, III, I , and , aganst the person on whose account the com-
pensaton, nsurance, or mantenance and support aowance Is payabe.
That the provsons of ths secton sha not be construed to prohbt the
assgnment by any person to whom converted nsurance sha be payabe under
Tte III of such ct of hs nterest n such Insurance to any other member of
the permtted cass of benefcares. (43 Stat., 13.) Itacs supped.
Secton 308(a) of the Word War d|usted Compensaton ct, as
amended, reads as foows:
Sec. 308. (a) No sum payabe under ths ct to a veteran or hs dependents,
or to hs estate, or to any benefcary named under Tte , no ad|usted servce
certfcate, and no proceeds of any oan made on such certfcate sha be sub-
|ect to attachment, evy, or sezure under any ega or equtabe process, or to
Natona or State ta aton, and no deductons on account of any ndebtedness
of the veteran to the Unted States sha be made from the ad|usted servce
credt or from any amounts due under ths ct. (44 Stat., 827.) Itacs
supped.
Secton 4747, Revsed Statutes, provdes for certan e emptons to
a pensoners from ega process but does not provde for any e -
empton from ncome ta . That secton, therefore, has no bearng on
the queston here under consderaton.
Secton 20 of Pubc, No. 78, provdes n part that any cam for
penson or compensaton aowance fed pror to March 20,1933, may
be ad|udcated and pad by the eterans dmnstraton on proof
and evdence receved by the eterans dmnstraton pror to March
20, 1933, and any person found entted to the benefts camed sha
be pad such benefts n accordance wth and n the amounts provded
by such pror aws, provded that the payments sha contnue ony
to une 30, 1933. Secton 22 of the Word War eterans ct, there-
fore, appes to pensons or compensaton aowances receved by
Word War veterans up to and ncudng une 30, 1933.
though the Revenue ct of 1928 contaned certan provsons
whch e empted from edera ncome ta pensons and Word War
compensaton payments, those provsons were omtted from the
Revenue ct of 1932. (See secton 22(b) of the Revenue ct of
1928 and page 14 of Senate Conference Report No. 5, reatng to
the Revenue ct of 1932.) urthermore, nether Pubc, No. 2, nor
Pubc, No. 78, contans any provsons whch e empt from edera
ncome ta pensons, compensaton, and other aowances pad to
Word War veterans. It foows that pensons and compensaton
receved by veterans are sub|ect to edera ncome ta , uness such
amounts are pad under the Word War eterans ct or the Word
War d|usted Compensaton Set. (See artce 52 of Reguatons
77.) Pensons or compensaton aowances receved up to and n-
cudng une 30, 1933, by veterans of the Word War who, n accord-
ance wth secton 20 of Pubc, No. 78, fed cams therefor pror to
March 20, 1933, are consdered as beng pad under the provsons of
the Word War eterans ct and are e empt from edera ncome
ta . amounts receved by veterans or ther benefcares from
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39
22(b), rt. 81.
yeary renewabe term or converted poces of Government nsurance
ssued under the provsons of the Word War eterans ct are
e empt from edera ncome ta under the provsons of secton 22 of
that ct.
Pensons receved from the Unted States by the famy of a vet-
eran for servces rendered by the veteran to the Unted States n tme
of war are e empt from edera ncome ta . (See I. T. 2 5, C. .
I-2, 19.) mounts receved as emergency offcers retrement pay
under the Tyson- tzgerad ct of May 24, 1928 (45 Stat., 735). are
sub|ect to edera ncome ta . (See I. T. 2 0, C. . I-2, 21.)
rtce 81: cusons from gross ncome. III-20- 801
T. D.4431
INCOM T .
empton of Treasury bs.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
ttenton s nvted to the ct entted n ct provdng certan
e emptons from ta aton for Treasury bs, approved une 17,
1930 (4 Statutes at Large, 775), whch amends secton 5 of the
Second Lberty ond ct, as amended (4 Statutes at Large, 19), by
addng at the end thereof a new subdvson known as subdvson
(d). Ths new subdvson provdes that any gan from the sae
or other dsposton of Treasury bs ssued after the enactment of
the ct approved une 17, 1930, sha be e empt from a edera,
State, and oca ta aton (e cept estate or nhertance ta es), and
that no oss from the sae or other dsposton of such Treasury bs
sha be aowed as a deducton, or otherwse recognzed, for the pur-
poses of any ta mposed by the Unted States or any of ts posses-
sons. Secton 5 of the Second Lberty ond ct, as so amended,
reads as foows, the ta -e empton provsons beng contaned n sub-
dvsons (b) and (d) thereof:
Sec. 5. (a) That n addton to the bonds and notes authorzed by sectons
1 and 18 of ths ct, as amended, the Secretary of the Treasury s authorzed
to borrow from tme to tme, on the credt of the Unted States, for the purposes
of ths ct, to provde for the purchase or redempton before maturty of any
certfcates of ndebtedness or Treasury bs ssued hereunder, and to meet
pubc e pendtures authorzed by aw, such sum or sums as n hs |udgment
may be necessary, and to ssue therefor (1) certfcates of ndebtedness of the
Unted States at not ess than par and at such rate or rates of nterest, payabe
at such tme or tmes as he may prescrbe or (2) Treasury bs on a dsccunt
bass and payabe at maturty wthout nterest. Treasury bs to be ssued
hereunder sha be offered for sae on a compettve bass, under such reguatons
and upon such terms and condtons as the Secretary of the Treasury may
prescrbe, and the decsons of the Secretary n respect of any ssue sha be
fna. Certfcates of ndebtedness and Treasury bs ssued hereunder sha be
n such form or forms and sub|ect to such terms and condtons, sha be payabe
at such tme not e ceedng one year from the date of ssue, and may bo redeem-
abe before maturty upon such terms and condtons as the Secretary of the
Treasury may prescrbe. Treasury bs ssued hereunder sha not be acceptabe
before maturty n payment of nterest or of prncpa on account of obgatons
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522(b), rt. 81.
40
of foregn governments hod by the Unted States of merca. The sum of the
par vaue of such certfcates and Treasury bs outstandng hereunder and
under secton of the rst Lberty ond ct sha not at any one tme e ceed
n the aggregate 10,000,000,000.
(b) certfcates of ndebtedness and Treasury bs ssued hereunder
(after the date upon whch ths subdvson becomes aw) sha be e empt,
both as to prncpa and Interest, from a ta aton (e cept estate and n-
hertance ta es) now or hereafter mposed by the Unted States, any State,
or any of the possessons of the Unted States, or by any oca ta ng author-
ty and the amount of dscount at whch Treasury bs are orgnay sod
by the Unted States sha be consdered to be nterest wthn the meanng of
ths subdvson.
(c) Wherever the words bonds and notes of the Unted States, or bonds
and notes of the Government of the Unted States, or bonds or notes of
the Unted States are used n the edera Reserve ct, as amended, they
sha be hed to ncude certfcates of ndebtedness and Treasury bs ssued
hereunder.
(d) ny gan from the sae or other dsposton of Treasury bs Issued
hereunder (after the date upon whch ths subdvson becomes aw) sha be
e empt from a ta aton (e cept estate or nhertance ta es) now or here-
after mposed by the Unted States, any State, or any of the possessons of
the Unted States, or by any oca ta ng authorty and no oss from the
sae or other dsposton of such Treasury bs sha be aowed as a deducton,
or otherwse recognzed, for the purposes of any ta now or hereafter mposed
by the Unted States or any of ts possessons.
The report of the Commttee on Ways and Means ( . Rept. No.
1759, accompanyng . R. 12440, Seventy-frst Congress) shows that
t s the purpose or the ct approved une 17, 1930, to obvate the
necessty, whch e sted under the aw pror to ts amendment by
such ct, of keepng a compcated system of bookkeepng records
n order to ascertan gan or oss from the sae or other dsposton
of Treasury bs as dfferentated from the dscount receved on
such bs.
ttenton s aso nvted to secton 22(b)4 of the Revenue ct of
1932, whch provdes n part:
Sec. 22. (b) cusons from gross ncome. The foowng tems
sha not be ncuded n gross Income and sha be e empt from ta aton under
ths tte: (4) Interest upon ( ) the obgatons of a
State, Terrtory, or any potca subdvson thereof, or the Dstrct of
Coumba or ( ) securtes ssued under the provsons of the edera arm
Loan ct, or under the provsons of such ct as amended or (C) the obga-
tons of the Unted States or ts possessons. very person ownng any of
the obgatons or securtes enumerated n cause ( ), ( ), or (C) sha,
n the return requred by ths tte, submt a statement showng the number
and amount of such obgatons and securtes owned by hm and the ncome
receved therefrom n such form and wth such nformaton as the Comms-
soner may requre. In the case of obgatons of the Unted States ssued
after September 1, 1017 (other than posta savngs certfcates of depost),
the nterest sha be e empt ony f and to the e tent provded n the respectve
cts authorzng the ssue thereof as amended and suppemented, and sha
be e cuded from gross ncome ony f and to the e tent t s whoy e empt
to the ta payer from the ta es mposed by ths tte .
rtce 81 of Reguatons 77, promugated under the Revenue ct
of 1932, provdes that very person ownng obgatons of a State,
Terrtory, any potca subdvson thereof, or the Dstrct of Coum-
ba securtes ssued under the provsons of the edera arm Loan
ct or of such ct as amended or obgatons of the Unted States
or ts possessons, must, however, submt n hs ncome ta return a
statement showng the number and amount of such obgatons and
securtes owned and the ncome receved therefrom.
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41
22(b), rt. 85.
Under the above-quoted provsons of the Revenue ct of 1932 and
Reguatons 77. n the case of Treasury bs ssued after une 17,
1930, (1) the amount of such obgatons and securtes s ther
par (maturty) vaue and (2) the ncome receved therefrom s
the net e cess of the amount reazed durng the ta abe year from
the sae or other dsposton of the bs over the cost or other bass
thereof, no separate computaton of dscount beng necessary.
Gtrr T. evertng,
Commssoner of Interna Revenue.
pproved May 3, 1934.
. MORG NT U, r.,
Secretary of the Treasury.
rtce 85: Dvdends and nterest from ed- III-19- 782
era and banks, edera ntermedate credt I. T. 2780
banks, and natona farm-oan assocatons.
( so Secton 2 , rtce 291.)
NU CT O 1032.
Dvdends on the stock of the Centra ank for Cooperatves, the
Producton Credt Corporatons, Producton Credt ssocatons,
and anks for Cooperatves, organzed under the provsons of
the arm Credt ct of 1933, consttute ta abe ncome to the
recpents for edera ncome ta purposes. So ong as those
organzatons are e empt from edera ncome ta for the reason
that some of ther stock s owned by the Unted States, or n the
case of Producton Credt ssocatons by the Producton Credt
Corporaton, the dvdends may not be credted aganst net ncome
for norma ta purposes under the provsons of secton 25(a) 1 of
the Revenue ct of 1932. It foows that for such perod the
dvdends receved are sub|ect to both norma ta and surta .
dvce s requested reatve to the ta abty under the Revenue
ct of 1932 of dvdends on stock of the Centra ank for Coopera-
tves, Producton Credt Corporatons, Producton Credt ssoca-
tons, and anks for Cooperatves, organzed under the provsons
of the arm Credt ct of 1933. (48 Stat, 257.)
It has been suggested that, n vew of secton 3 of the arm
Credt ct of 1933 , the ncome derved by sharehoders from dv-
dends on stock of the organzatons referred to n that secton s
e empt from edera ncome ta so ong as stock n the Centra
ank for Cooperatves, Producton Credt Corporatons, and the
anks for Cooperatves s hed by the Unted States Government,
and stock n the Producton Credt ssocatons s hed by Produc-
ton Credt Corporatons and that artce 85 of Reguatons 77,
promugated under the Revenue ct of 1932, supports that poston.
rtce 85 provdes that pursuant to the provsons of secton 2
of the edera arm Loan ct of uy 17, 191 (39 Stat.. 3 0), as
amended, the ncome derved from dvdends on stock of edera
and banks, edera ntermedate credt banks, and natona farm-
oan assocatons s e empt from edera ncome ta . The sugges-
ton that the dvdends receved from the corporatons organzed
under the arm Credt ct of 1933 are aso e empt from ta aton
s based on the assumpton that the anguage of secton 2 of the
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22(b), rt. 85.
42
edera arm Loan ct of uy 17, 191 , as amended, s smar to
that contaned n secton 3 of the arm Credt ct of 1933.
Secton 2 of the edera arm Loan ct of uy 17, 191 , as
amended, provdes:
That every edera and bank and every natona farm oan assocaton,
ncudng the capta and reserve or surpus theren and the ncome derved
therefrom, sha be e empt from edera, State, muncpa, and oca ta aton,
e cept ta es upon rea estate hed, purchased, or taken by sad bank or asso-
caton under the provsons of secton 11 and secton 13 of ths ct. rst
mortgages e ecuted to edera and banks, or to |ont stock and banks, and
farm oan bonds ssued under the provsons of ths ct, sha be deemed and
hed to be nstrumentates of the Government of the Unted States, and as
such they and the ncome derved therefrom sha be e empt from edera,
State, muncpa, and oca ta aton.
Nothng heren sha prevent the shares n any ont stock and bank from
beng ncuded n the vauaton of the persona property of the owner or
hoder of such shares, n assessng ta es mposed by authorty of the State
wthn whch the bank s ocated but such assessment and ta aton sha be
n manner and sub|ect to the condtons and mtatons contaned n secton
0219 of the Revsed Statutes wth reference to the shares of natona bankng
assocatons.
Nothng heren sha be construed to e empt the rea property of edera and
|ont stock and banks and natona farm oan assocatons from ether State,
county, or muncpa ta es, to the same e tent, accordng to ts vaue, as other
rea property s ta ed. (39 Stat., 380.)
Secton 3 of the arm Credt ct of 1933 provdes:
The Centra ank for Cooperatves, and the Producton Credt Corporatons,
Producton Credt ssocatons, and anks for Cooperatves, organzed under
ths ct, and ther obgatons, sha be deemed to be nstrumentates of the
Unted States, and as such, any and a notes, debentures, bonds, and other
suc obgatons ssued by such banks, assocatons, or corporatons sha be
e empt both as to prncpa and nterest from a ta aton (e cept surta es,
estate, nhertance, and gft ta es) now or hereafter mposed by the Unted
States or by any State, Terrtora, or oca ta ng authorty. Such banks, as-
socatons, and corporatons, ther property, ther franchses, capta, reserves,
surpus, and other funds, and ther ncome, sha be e empt from a ta aton
now or hereafter mposed by the Unted States or by any State, Terrtora, or
oca ta ng authorty e cept that any rea property and any tangbe persona
property of such banks, assocatons, and corporatons sha be sub|ect to ed-
era, State, Terrtora, and oca ta aton to the same e tent as other smar
property s ta ed. The e empton provded heren sha not appy wth respect
to any Producton Credt ssocaton or ts property or ncome after the stock
hed n t by the Producton Credt Corporaton has been retred, or wth re-
spect to the Centra ank for Cooperatves, or any Producton Credt Corpora-
ton or ank for Cooperatves, or ts property or ncome after the stock hed
n t by the Unted States has been retred. (48 Stat, 2 7.)
It s apparent from the quoted sectons of the cts that the pro-
vsons of secton 3 of the arm Credt ct of 1933 are not smar
to secton 2 of the edera arm Loan ct, n that secton 2 of
the edera arm Loan ct specfcay provdes for the e empton
of the capta, reserves, and surpus of the organzatons desgnated
theren and the ncome derved therefrom, whereas secton 3 of the
arm Credt ct of 1933 provdes that the organzatons formed
under that ct, ther property, ther franchses, capta, reserves,
surpus, and other funds, and ther ncome sha be e empt from a
ta aton. There s no provson n secton 3, or any other secton of
the arm Credt ct of 1933, specfcay e emptng from ncome
ta the amount receved by sharehoders as dvdends on stock
ssued by the organzatons referred to n that secton.
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43
23(a), rt. 121.
It s therefore hed that dvdends on the stock of the organza-
tons desgnated n secton 3 of the arm Credt ct of 1933 con-
sttute ta abe ncome to the recpents for edera ncome ta pur-
poses. It s aso hed that so ong as those organzatons are e empt
from edera ncome ta for the reason that some of ther stock s
owned by the Unted States, or n the case of Producton Credt s-
socatons by the Producton Credt Corporaton, the dvdends may
not be credted aganst net ncome for norma ta purposes under the
provsons of secton 25(a) 1 of the Revenue ct of 1932, whch sec-
ton provdes for a credt aganst net ncome for the purpose of the
norma ta of the amount receved as dvdends from a domestc
corporaton whch s sub|ect to ta aton under Tte I, reatng to
ncome ta . It foows that for such perod of e empton the dv-
dends receved are sub|ect to both norma ta and surta .
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S.
rtce 121: usness e penses. III-4- 10
I. T. 2751
R NU CTS O 1018, 1921, 1924, 192 , 1928, ND 1932.
The ordnary and necessary e penses pad or ncurred durng
the ta abe year wth respect to the management, protecton, and
conservaton of propertes producng ta abe ncome are deductbe
from gross ncome.
The queston has been presented as to the deductbty of fees and
e penses pad n connecton wth the management, protecton, and
conservaton of varous ncome-producng propertes.
The Revenue cts have consstenty provded for the deducton of
a the ordnary and necessary e penses pad or ncurred durng
the ta abe year n carryng on any trade or busness. (Secton
23(a), Revenue cts of 1932 and 1928, and secton 214(a) 1, Revenue
cts of 192 , 1924,1921, and 1918.) Ths provson of aw has been
beray construed as dscosed by the foowng decsons:
In Offce Decson 877 (C. . 4, 123) t was hed that a ta payer
whose ncome s derved prncpay from nvestments n stocks and
bonds may deduct as busness e penses the rent of an offce and the
cost of cerca hep f he can show that such e penses are ordnary
and necessary.
ees, commssons, and other compensaton of commttees for
ncompetent persons, as we as e penses propery ncurred by such
commttees, have been hed to be aowabe deductons for ncome ta
purposes f pad or ncurred wth respect to the management or con-
servaton of ncome-producng property or funds beongng to the
ncompetent or wth respect to the coecton or securng of any
ncome nurng to such ncompetent. (I. T. 2238, C. . I -2, 49.)
It has aso been hed that f a safety depost bo s used prmary
n connecton wth the safeguardng of ncome-producng securtes,
the rent pad therefor consttutes a deductbe busness e pense.
(I. T. 2579, C. . -2, 129.)
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23(a), rt. 121.
44
The oard of Ta ppeas has consstenty hed that e penses
pad or ncurred n preservng an estate, makng saes and coec-
tons, and dong other thngs necessary for the mantenance of the
estate and the producton of ncome, are ordnary and necessary
e penses, and therefore proper deductons n computng net ncome.
( ppea of Grace M. no et a., 3 . T. .. 143, C. . -2, 39
ppea of Wam W. Mead et a, s., . T. ., 752, C. . -2,
47 ppea of . fred, ansen, ., . T. ., 8 0, C. . -2, 29
enretta endhem v. Commssoner, 8 . T. ., 158, C. . -2,
George W. Segman, ., v. Commssoner, 10 . T. ., 840, C. .
-2, 04.)
In the case of enan et a. v. owers (48 ed. (2d), 2 3), the court
hed that compensaton for cerk hre and rent of a safe n connecton
wth the ta payer s ncome-producng property were deductbe.
The foregong decsons ndcate an obvous ntent to aow as
deductons a the ordnary and necessary e penses pad or ncurred
n the producton of ta abe ncome. Ths prncpe rests upon the
sound bass that busness e penses represent the cost of producng
ncome.
In vew of the foregong, t s hed that a the ordnary and
necessary e penses pad or ncurred durng the ta abe year wth
respect to the management, protecton, and conservaton of propertes
producng ta abe ncome shoud be aowed as deductons n com-
putng net ncome. In ths connecton care shoud be taken to ds-
tngush e pendtures of a capta or persona nature. Ths con-
cuson shoud not be e tended to net oss cases, whch are governed
by dfferent sectons of the cts and appy ony to osses ncurred n
a trade or busness reguary carred on by the ta payer.
rtce 121: usness e penses. III-7-0 58
I. T. 27 3
R NU CT O 1932.
The e penses ncurred by a ta payer In connecton wth nt-
atng and approvng the code, under the Natona Industra
Recovery ct, appcabe to ts busness are ordnary and necessary
e penses ncurred n carryng on a trade or busness, and are
an aowabe deducton under secton 23(a) of the Revenue ct
of 1032.
dvce s requested whether e penses ncurred by a ta payer n
connecton wth ntatng and approvng the code, under the
Natona Industra Recovery ct, appcabe to ts busness are an
aowabe deducton for edera ncome ta purposes.
Secton 23(a) of the Revenue ct of 1932 provdes that n com-
putng net ncome there sha be aowed as a deducton a the ord-
nary and necessary e penses pad or ncurred durng the ta abe
year n carryng on any trade or busness. It s hed that the
e penses ncurred by the ta payer n connecton wth ntatng and
approvng the code referred to are ordnary and necessary e penses
ncurred n carryng on ts trade or busness. ccordngy, such
e penses are an aowabe deducton under secton 23(a) of the
Revenue ct of 1932.
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45
23(a), rt. 121.
rtce 121: usness e penses. III-8- 0
L T.27 4
R NU CT OP 1932.
The amount actuay pad by the M ank Into the temporary
edera depost nsurance fund upon admsson to the fund, as
dstngushed from the amount sub|ect to ca, may be deducted
as a busness e pense n the bank s edera ncome ta return
for the ta abe year n whch the payment s made.
rung s requested whether the amount pad by the M ank
nto the temporary edera depost nsurance fund, created under
the ankng ct of 1933, s deductbe for edera ncome ta
purposes.
Secton 8 of the ankng ct of 1933, approved une 1 , 1933
(48 Stat., 1 2), amends the edera eserve ct, as amended, by
addng secton 12 and secton 12 . Under secton 12 there s
created a edera Depost Insurance Corporaton, herenafter re-
ferred to as the Corporaton, whose duty t s to purchase, hod,
and qudate the assets of Natona and State member banks whch
have been cosed and to nsure the deposts of banks entted to the
benefts of the nsurance provded. Subsecton (y) reads as foows:
The Corporaton sha open on ts books a temporary edera depost nsur-
ance fund (herenafter referred to as the fund ), whch sha become
operatve on anuary 1, 1934, uness the Presdent sha by procamaton f
an earer date, and t sha be the duty of the Corporaton to nsure deposts
as herenafter provded unt uy 1, 1934.
uch member bank censed beore anuary 1, 1934, by the Secretary of the
Treasury pursuant to the authorty vested n hm by the ecutve order of
the Presdent ssued March 10, 1933, sha, on or before anuary 1, 1934, become
a member of the fund each member bank so censed after such date, and each
State bank trust company or mutua savngs bank (referred to n ths subsec-
ton as State bank, whch term sha aso ncude a bankng nsttutons
ocated n the Dstrct of Coumba) whch becomes a member of the edera
eserve System on or after such date, sha, upon beng so censed or so
admtted to membershp, become a member of the fund and any State bank
whch s not a member of the edera Reserve System, wth the approva of the
authorty havng supervson of such State bank and certfcaton to the Cor-
poraton by such authorty that such State bank s n sovent condton, sha,
after e amnaton by, and wth the approva of, the Corporaton, be entted to
become a member of the fund and to the prveges of ths subsecton upon
agreeng to compy wth the requrements thereof and upon payng to the
Corporaton an amount equa to the amount that woud be requred of t
under ths subsecton f t were a member bank. The Corporaton s author-
zed to prescrbe rues and reguatons for the further e amnaton of such
State bank, and to f the compensaton of e amners empoyed to make
e amnatons of State bnks.
ach member of the fund sha fe wth the Corporaton on or before the date
of ts admsson a certfed statement under oath showng, as of the 15th day
of the month precedng the month n whch t was so admtted, the number of
Its depostors and the tota amount of ts deposts whch are egbe for
nsurance under ths subsecton, and sha pay to the Corporaton an amount
equa to one-haf of 1 per centum of the tota amount of the deposts so cert-
fed. One-haf of such payment sha be pad n fu at the tme of the adms-
son of such member to the fund, and the remander of such payment sha be
sub|ect to ca from tme to tme by the board of drectors of the Corporaton.
Wthn a reasonabe tme f ed by the Corporaton each such member sha fe
a smar statement showng, as of une 15, 1934, the Dumber of ts depostors
and the tota amount of ts deposts whch are egbe for such nsurance and
sha pay to the Corporaton n the same manner an amount equa to one-haf
of 1 per centum of thf ncrease, f any, n the tota amount of such deposts
snce the date covered by the statement fed upon ts admsson to membershp
n the fund.
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23(a), rt. 121.
4G
If at any tme pror to uy 1, 1934, the Corporaton requres addtona
funds wth whch to meet ts obgatons under ths subsecton, each member
of the fund sha be sub|ect to one addtona assessment ony n an amount
not e ceedng the tota amount theretofore pad to the Corporaton by such
member.
If any member of the fund sha be cosed on or before une 30. 1934, on
account of nabty to meet ts depost abtes, the Corporaton sha
proceed to pay the nsured depost abtes of such member
e cept that the Corporaton sha pay not more than 2,500 on account of the
net approved cam of the owner of any depost.
Defore uy 1, 1934, the Corporaton sha make an estmate of the baance,
f any, whch w reman n the fund after provdng for a abtes of the
fund, ncudng e penses of operaton thereof under ths subsecton and
aowng for antcpated recoveres. The Corporaton sha refund such
estmated baance, on such bass as the Corporaton sha fnd to be equtabe,
to the members of the fund other than those whch have been cosed pror
to uy 1, 1934.
ach State bank whch s a member of the fund, n order to obtan the
benefts of ths secton after uy 1, 1934, sha, on or before such date,
subscrbe and pay for the same amount of cass stock of the Corpora-
ton .
Under the provsons of the ankng ct, upon admsson to
membershp n the fund the bank s requred to pay to the corpora-
ton one-fourth of 1 per centum of the amount of ts certfed
deposts, and an equa amount s sub|ect to ca. If necessary an
addtona assessment of a ke amount may be made. Provson
s aso made for the return to member banks of an equtabe share
of the baance of the fund n the event that, pror to uy 1, 1934.
the entre fund s not requred by the corporaton. The queston of
the deductbty of the amount pad nto the fund arses prmary
because of the contngency whereby a part of the amount pad may
be returned to the member bank.
In the opnon of ths offce the amount actuay pad nto the
fund, as dstngushed from the amount sub|ect to ca, consttutes
an ordnary and necessary busness e pense under secton 23(a)
of the evenue ct of 1932 and s deductbe by the bank n ts
return for the ta abe year n whch payment s made rrespectve
of the contngency whereby a part of the amount pad may ater be
returned to the member bank. (G. C. M. 8474, C. . I -2, 281.)
If a part of the amount pad nto the fund and deducted as a bus-
ness e pense s returned to the ta payer, the amount so returned
consttutes ncome for the year n whch receved. (G. C. M. 10798,
C. . I-2, 58.)
ktce 121: usness e penses. III-17-G7 4
I. T. 2775
R NU CT O 1932.
The amount pad by a reta estabshment as ts assessment for
the necessary e penses of the Natona Reta Code uthorty
s deductbe as a busness e pense n ts edera ncome ta
return.
rung s requested as to the deductbty for edera ncome
ta purposes of payments made by reta estabshments to the
Natona Reta Code uthorty for the purpose of meetng the e -
penses of admnsterng the code of far competton for the reta
trade under the Natona Industra Recovery ct.
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47
23(a). rt. 12 .
Under secton 3 of Tte I of the Natona Industra Recovery
ct (Pubc, No. 7, Seventy-thrd Congress) provson s made for
the creaton of codes of far competton. The code of far compet-
ton for the reta trade was approved by the Presdent on October
21,1933. Secton 2(f) of rtce of the code provdes that The
e penses of the Natona Reta Trade Counc sha be equtaby
assessed and coected by the Counc, sub|ect to the approva of the
dmnstrator. In accordance therewth, the Natona Reta Code
uthorty (formery the Natona Reta Trade Counc) ssued regu-
atons, whch were approved by the dmnstrator, under whch
each reta estabshment sub|ect to the provsons of the code s
requred to make payment accordng to the number of workers n
each estabshment on the bass of an annua assessment of twenty-
fve cents (250) per worker for the necessary e penses of the Natona
Reta Code uthorty, and such other amount per worker as may
be specfed by the Loca Reta Code uthorty for ts necessary
e penses provded, however, that n no case sha the tota assess-
ment be at a greater rate than one doar ( 1) for each worker.
The assessment s eved as of October 30, 1933, the effectve date
of the code, for the year endng October 29, 1934. Insgna appar-
enty can be obtaned ony after payment of the assessment.
It s hed that the amount pad by a reta estabshment as ts
assessment for the necessary e penses of the Natona Reta Code
uthorty s deductbe as a busness e pense n ts edera ncome
ta return. (Cf. L T. 27 3, page 44, ths uetn.)
rtce 121: usness e penses.
R NU CT O 1032.
Insurance premums pad n advance for perod of more than one
year. (See G. C. M. 13148, page 7.)
btce 12 : Compensaton for persona servces. III-10- 85
Mm. 4151
ffect of decson of Supreme Court on treatment for edera
ncome ta purposes of deductons camed for compensaton pad
to others where such deductons are not substantated by appro-
prate evdence.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, ebruary 12, 1934.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
Reference s made to the decson of the Supreme Court of the
Unted States n the case of The Unted States of merca, pet-
toner, v. arry Murdoch Ct. D. 771, page 144, ths uetn , dated
December 11, 1933, whch nvoved the ssue of what consttutes a
voaton of the provsons of secton 1114(a) of the Revenue ct
of 192 and secton 14 (a) of the Revenue ct of 1928.
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23(c), rt. 151.
48
The respondent was ndcted for refusa to gve testmony and
suppy nformaton as to deductons camed n hs 1927 and 1928
edera ncome ta returns for moneys pad as compensaton to
others. The Government proved that the respondent had been duy
summoned to appear before a revenue agent for e amnaton that
questons had been put to hm and that he refused to answer, stat-
ng he feared ncrmnaton and upon further nqury dscosed that
hs fear was based upon possbe prosecuton under State statutes.
The court hed that the Government n the tra beow correcty
assumed that t carred the burden of showng more than a mere
vountary faure to suppy nformaton, wth ntent, n good fath
to e ercse a prvege granted the wtness by the Consttuton that
athough the respondent s refusa to answer was ntentona and
wthout ega |ustfcaton the |ury mght fnd that t was not
prompted by bad fath or ev ntent, whch the statute makes an
eement of offense and that under the crcumstances the tra |udge
erred n statng that the respondent was guty beyond a reasonabe
doubt.
There s, however, nothng n the decson of the court whch pre-
vents the ureau from dsaowng deductons camed for compensa-
ton pad or deductons camed of any other nature whch are not
propery substantated by competent evdence or approprate nfor-
maton. Therefore, n cases n whch deductons are camed for
compensaton pad to others, the ureau w contnue to dsaow
the deductons so camed uness the ta payer furnshes the ureau
wth the names and addresses of the persons to whom the compensa-
ton s pad.
Correspondence and nqures regardng ths mmeograph shoud
refer to the number and the symbos IT: : CTR.
Gut T. ever g,
Commssoner.
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM : T S G N R LLY.
rtce 151: Ta es. III-3- 00
I. T. 2750
R NU CT O 1932.
The ta mposed by the emergency revenue act of 1933 of the
State of North Carona upon the reta sae of merchandse Is
deductbe by the vendor for edera Income ta purposes. Where
the vendor coects the ta from the vendee he must ncude the
amount so coected n hs gross ncome for edera ncome ta
purposes. The vendee may not deduct ths amount as a ta not-
wthstandng t s passed on to hm by the vendor. owever,
where an amount equa to the ta s pad by the vendee wth
respect to goods purchased for consumpton or use n hs trade or
busness, such amount may be deducted as a busness e pense, or t
may be treated as a capta tem where such costs are propery
captazed rather than deducted as e penses.
rung s requested whether the ta mposed by the State of
North Carona upon the reta sae of merchandse s deductbe
by the vendor or the vendee for edera ncome ta purposes.
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49
23(c), rt. 151.
The act under whch the ta s mposed s cted as the emergency
revenue act of 1933 and the ta s eved for the perod begnnng
uy 1,1933, and endng une 30, 1935. Secton 401 of the act reads
n part as foows:
S c. 401. Purpose.

The ta upon the reta sae of merchandse to persons n ths State s
eved as a cense or prvege ta for engagng or contnung n the busness
of merchandsng as defned n ths act, but merchants may add to the prce
of merchandse the amount of the ta on the sae thereof, and when so added
sha consttn e a part of such prce, sha be a debt from purchaser to mer-
chant unt pad, and sha be recoverabe at aw n the same manner as other
debts. It s the purpose and ntent of ths act that the ta eved hereunder
sha be added to the saes prce of merchandse and thereby be passed on to
the consumer nstead of beng absorbed by the merchant.
ny reta merchant who sha by any character of pubc advertsement
offer to absorb the ta eved n ts artce upon the reta sae of merchandse,
or n any manner, drecty or ndrecty, advertse that the ta heren mposed
s not consdered as an eement n the prce to the consumer, sha be guty
of a msdemeanor.
Other pertnent provsons of the act are as foows:
Sue. 404. Defntons.
or the purposes of ths artce

3. The word merchant sha Incude any ndvdua, frm, or corporaton,
domestc or foregn, sub|ect to the ta mposed by ths artce.
4. The words whoesae merchant sha mean every merchant who engages
n the busness of buyng any artces of commerce and seng same to mer-
chants for resae. The sae of any artce of merchandse by any whoesae
merchant to anyone other than a merchant for resae sha be ta abe at the
rate of ta provded n ths artce upon the reta sae of merchandse. In the
nterprtta.on of ths act the sae of any artces of commerce by any whoesae
merchant to anyone not ta abe under ths act as a reta merchant, e cept
as otherwse provded n ths act, sha be ta abe by the whoesae merchant
at the rate of ta provded n ths artce upon the reta saes of merchandse.

. The words reta merchants sha mean every merchant who engages
n the busness of buyng any artces of commerce and seng same at reta.
7. The word reta sha mean the sae of any artces of commerce n
any quantty or quanttes for any use or purpose on the part of the purchaser
other than for resae.
8. The word sae sha mean any transfer of the ownershp or tte of
tangbe persona property to the consumer for use and not for purposes of
resae, for a monetary consderaton.

Sec. 40 . Must obtan cense.
If any person after the 30th day of une, 1933, sha engage or contnue n
any busness for whch a prvege ta s mposed by ths artce, such person
tha appy for and obtan from the commssoner, upon the payment of the sum
of one doar ( 1), a cense to engage n and to conduct such busness for the
current ta year, upon the condton that such person sha pay the ta accru-
ng to the State of North Carona under the provsons of ths artce and
be sha thereby be duy censed to engage n and conduct such busness. Sad
cense sha be renewed annuay and sha e pre on the 30th day of une
ne t succeedng the date of ts ssue. ddtona ta sha be eved as foows:
Whoesae merchants. Upon every whoesae merchant as defned n ths
artce a ta of one twenty-ffth of 1 per cent (1/25 ) of gross saes of every
such person, and the mnmum ta for each -months perod sha be tweve
doars and ffty cents ( 12.50).
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23(c), rt. 151.
50
Reta merchants. Upon every reta merchant as defned n ths artce a
ta of three per cent (3 ) of tota gross saes by every such person.
In the preambe to the suppement to the emergency revenue act,
whch was enacted to provde for reguatons under the ta ng act,
reference s made to the evyng of a genera reta saes ta n
North Carona, mposed as a cense ta on reta merchants for
the prvege of dong busness n the State and, n secton 1 of
the suppement reference s made to reguatons under whch reta
merchants sha coect from the consumers the saes ta
eved upon ther busness by the reta saes ta artce .
Inasmuch as under the above-quoted provsons of aw the North
Carona saes ta s mposed upon the vendor, he may deduct the
amount pad or accrued as a ta under secton 23(c) of the Revenue
ct of 1932 n determnng hs net ncome for edera ncome ta
purposes. Where the vendor coects the ta from the vendee, he
must ncude the amount so coected n hs gross ncome for edera
ncome ta purposes. The vendee may not deduct ths amount as a
ta notwthstandng t s passed on to hm by the vendor. ow-
ever, where an amount equa to the ta s pad by the vendee wth
respect to goods purchased for consumpton or use n hs trade or
busness, such amount may be deducted as a busness e pense, or t
may be treated as a capta tem where such costs are propery cap-
tazed rather than deducted as e penses.
In the case of a vendor whose books are kept on an accrua bass,
the amount of the ta actuay accrued durng the perod covered by
hs edera ncome ta return may be deducted n determnng hs
net ncome. Where the vendor s books are kept on the cash recepts
and dsbursements bass, ony the amount of the ta actuay pad
durng the perod covered by hs edera ncome ta return may be
deduc ted n determnng hs net ncome.
rtce 151: Ta es. III- - G38
I. T. 27 1
R NU CT O 19r.2.
The ta on reta saes of tangbe persona property mposed by
the State of New York s an e cse ta eved by the Stae for the
prvege of engagng n the busness of makng saes at reta and s
deductbe as a ta by the vendor for edera ncome ta purposes.
dvce s requested whether the 1 per cent ta on reta saes of
tangbe persona property mposed by the-State of New York s
deductbe by the vendor or the vendee for edera ncome ta pur-
poses.
The act under whch the ta s mposed became effectve pr
19, 1933, and s entted n act to amend the ta aw, by mposng
a cense ta upon recepts from the sae of tangbe persona prop-
erty at reta durng the perod commencng May 1, 1933, and end-
ng une 30, 1934, for the prvege of seng such property at reta
n ths State, and makng an appropraton for the department of
ta aton and fnance. The ta s mposed under the provsons of
artce 17 of chapter 281, Laws of New York, 1933, and the aw s
cted as Ta on reta saes of tangbe persona property. Prov-
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51
23(c), rt. 151.
sons of the aw, pertnent to the dscusson of the queston presented,
read as foows:
Sec. 390. Defntons. When used n ths artce: (a) The word parson
ncudes an ndvdua, copartnershp, socety, assocaton, ont stock company,
corporaton and any combnaton of ndvduas
(b) The term recepts means the tota amount of the sae prce of tangbe
persona property sod at reta n ths State, vaued n money, whether receved
n money or otherwse, ncudng a recepts, cash, credts and property of any
knd or nature, and aso any amount for whch credt s aowed by the seer to
the purchaser, wthout any deducton therefrom on account of the cost of the
property sod, the cost of materas used, abor or servce cost, nterest or ds-
eonnt pad, or any other e pense whatsoever, from the sae of tangbe persona
property at reta n ths State, e cept recepts from the sae for human con-
sumpton of the food products herenafter n Schedue specfed, recepts from
the sae of motor fues upon whch a ta s mposed pursuant to artce 12-a of
ths chapter, recepts from the sae of gas, steam and water when devered to
consumers through mans and ppes, recepts from the sae of eectrcty, re-
cepts from saes by or to the State, muncpates and any other potca sub-
dvsons thereof and recepts upon whch ths State Is, by vrtue of the prov-
sons of the Consttuton of the Unted States or otherwse, wthout power to
Impose a ta .

(e) The word sae means any transfer, e change or barter, condtona
or otherwse, n any manner or by any means whatsoever for a consderaton
(d) The term tangbe persona property means corporea persona prop-
erty
(e) reta sae or sae at reta means a sae to a consumer or to any person
for any purpose other than for resae n the form of tangbe persona property.
Sec. 391. Imposton of ta . or the prvege of seng tangbe persona
property at reta n ths State durng the perod commencng May 1, 1933, and
endng une 30, 1934, every person sha pay a ta of 1 per centum upon the
recepts therefrom. The burden of provng that a sae of tangbe persona
property was not a sae at reta sha be upon the person who made It, uness
snch person sha have taken from the purchaser a certfcate sgned by and
bearng the name and address of the purchaser to the effect that the property-
was purchased for resae. or the purpose of the proper admnstraton of ths
artce and to prevent evason of the ta hereby mposed t sha be presumed
that a recepts are sub|ect to the ta unt the contrary s estabshed. The
Us sha be pad at the tme and n the manner herenafter provded and
sha be n addton to any and a other ta es. In any case where tangbe
persona property s sod at reta under a contract made pror to May 1, 1933,
whch specfes and f es the sae prce and such sae s ta abe under ths
artce, the seer may add the ta mposed by ths artce to the sae prce
and coect t from the vendee. No person engaged n the busness of seng
tangbe persona property at reta sha advertse or hod out to the pubc,
n any manner drecty or ndrecty, that the ta mposed by ths artce s not
consdered as an eement In the prce to the consumer.

Sec. 39 . Lcenses suspenson and restoraton thereof. very person who
makes a sae of tangbe persona property at reta n ths State sha be deemed
to have procured from the ta commsson a cense so to do. The cense to
se tangbe persona property at reta provded for n ths artce sha be
Id addton to any and a other censes whch may be requred by aw.
The ta commsson sha have power to suspend the cense of any person
who sha voate or fa to compy wth any provson of ths artce or any
roe or reguaton adopted by t pursuant to ths artce and sha aso have
power to restore censes after such suspenson.
The ta on reta saes of tangbe persona property mposed
by the State of New York s an e cse ta eved by the State on the
vendor for the prvege of engagng n the busness of makng saes
t reta. s the ta s mposed upon the vendor, he may deduct
the amount pad or accrued as a ta under secton 23(c) of the
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23(c). rt. 151.
52
Revenue ct of 1932 n determnng hs net ncome for edera
ncome ta purposes. Where the vendor coects the ta from the
vendee, the vendor must ncude the amount so coected n hs gross
ncome for edera ncome ta purposes. The vendee may not deduct
ths amount as a ta , notwthstandng t s passed on to hm by the
vendor. owever, where an amount equa to the ta s pad by the
vendee wth respect to goods purchased for consumpton or use n
hs trade or busness, such amount may be deducted as a busness
e pense, or t may be treated as a capta tem where such costs are
propery captazed rather than deducted as e penses.
In the case of a vendor whose books are kept on an accrua bass,
the amount of the ta actuay accrued durng the perod covered
by hs edera ncome ta return may be deducted n determnng
hs net ncome. Where the vendor s books are kept on the cash
recepts and dsbursements bass, ony the amount of the ta actuay
pad durng the perod covered by hs edera ncome ta return
may be deducted n determnng hs net ncome.
rtce 151: Ta es. III-9- 73
I. T.27 5
R NU CT O 1932.
The prvege ta mposed by the State of rzona under the pro-
vsons of the emergency revenue act of 1933 s an e cse ta eved
by the State on the vendor for the prvege of engagng n the
busness of makng saes at reta and s deductbe as a ta by
such vendor for edera ncome ta purposes.
rung s requested whether the ta eved under the provsons
of the emergency revenue act of 1933, enacted by the State of rzona
on une 28, 1933, s an aowabe deducton n the edera ncome
ta return of the M Company, whch s engaged n the busness of
seng goods at reta and at whoesae.
Secton 2 of the act, whch s cted as The emergency revenue act
of 1933, provdes for the mposton of the ta n the foowng
terms:
Sec. 2. Imposton of the ta . rom and after the 30th day of une, 1933,
there s hereby eved and sha be coected annua prvege ta es
measured by the amount or voume of busness done aganst the persons on
account of ther busness actvtes and n the amounts to be determned by the
appcaton of rates aganst vaues, gross proceeds of saes, or gross ncome, as
the case may be, n accordance wth the foowng schedue.
The schedue referred to provdes for a ta at rates rangng from
one-eghth of 1 per cent of the gross proceeds of saes or gross ncome
on the manufacturng or processng of agrcutura products and the
sae of ve stock, to y2 per cent on saes of tangbe persona prop-
erty at reta, not ncudng stocks and bonds.
Certan pertnent e cerpts from the aw read as foows:
Sec. 11. Lcenses. ny person after the 20th day of uy, 1933, who sha
have a gross ncome or gross proceeds of saes upon whch a prvege ta s
mposed by ths artce, as a condton precedent to engagng or contnung n
such busness, sha appy for and obtan from the ta commsson upon pay-
ment of the sum of 50 cents, a cense to engage n nnd to conduct such busness
for the current ta year, upon condton that he sha pay the ta accrung to
the State of rzona under the provsons of ths artce, and he sha thereby
be duy censed to engage In and conduct such busness. Ony one such cense
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23(c), rt. 151.
ha be requred of any one person. Sad cense sha be renewed annuay
and sha e pre on the 30th day of une ne t succeedng the date of ts ssuance.

Sk|. 20. Is addtona ta . The ta mposed by ths artce sha be n add-
ton to a other censes and ta es eved by aw, whether as a condton preced-
ent to engagng n any busness ta abe hereunder or for any other purpose.

Sec. 28. Unfar competton. No person engaged n any of the busnesses
cassfed n secton 2 of ths artce, sha advertse or hod out to the pubc
In any manner, drecty or ndrecty, that the ta heren mposed s not con-
sdered as an eement n the prce to the consumer.
Under secton 1, defntons of certan terms used n the aw are
as foows:
(e) The word ta payer means any person abe for any ta hereunder.
(f) The term gross ncome means the gross recepts of a ta payer de-
rved from trades, busness, commerce or saes and the vaue proceedng or
accrung from the sae of tangbe persona property, or servce, or both, and
wthout any deducton on account of osses.

(h) The term gross proceeds of saes means the vaue proceedng or
accrung from the sae of tangbe persona property wthout any deducton on
account of the cost of property sod, e penses of any knd, or osses
Other sectons of the aw provde that sutabe records sha be
kept by the person engagng or contnung n the busness for whch
a prvege ta s mposed that returns sha be made monthy
showng the amount of ta , whch s payabe monthy and that the
ta sha be a en upon the property of the ta payer who ses out
or quts busness. arous penates are provded for faure to
observe the aw and provsons are made for the refund of any
e cess ta pad over that propery due.
It s hed that the prvege ta mposed by the State of rzona
under the provsons of the emergency revenue act of 1933 s an e cse
ta eved by the State on the vendor for the prvege of engagng
n the busness of makng saes at reta. s the ta s mposed upon
the vendor, he may deduct the amount pad or accrued as a ta under
secton 23(c) of the Revenue ct of 1932, n determnng hs net
ncome for edera ncome ta purposes. owever, f the amount of
the ta s added to or made a part of the busness e pense of the
vendor, or s otherwse used to reduce hs net ncome, the ta s not
deductbe by hm separatey as a ta .
Where the vendor coects the ta from the vendee he must ncude
the amount so coected n hs gross ncome for edera ncome ta
purposes. The vendee may not deduct ths amount as a ta notwth-
standng t s passed on to hm by the vendor. owever, where an
amount equa to the ta s pad by the vendee wth respect to goods
purchased for consumpton or use n hs trade or busness, such
amount may be deducted as a busness e pense, or t may be treated
as a capta tem where such costs are propery captazed rather
than deducted as e penses.
In the case of a vendor whose books are kept on an accrua bass,
the amount of the ta actuay accrued durng the perod covered
by hs edera ncome ta return may bs deducted n determnng
hs net ncome. Where the vendor s books are kept on the cash
recepts and dsbursements bass, ony the amount of the ta actuay
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23(c), rt. 151.
54
pad durng the perod covered by hs edera ncome ta return
may be deducted n determnng hs net ncome.
rtce 151: Ta es.
III-12- 705
I. T. 27 8
R NU CT O 1932.
The ta mposed upon the dster or mporter by secton 00 of
the Revenue ct of 1918, as amended by secton 2 of the Lquor
Ta ng ct of 1934 (Pubc, No. 83, Seventy-thrd Congress), s
not deductbe for edera ncome ta purposes by the stock-
hoders of the M Company, athough pad by them when whsky
was wthdrawn from bonded warehouses.
State and oca ta es pad on dsted sprts are not deduct-
be for edera ncome ta purposes by persons wthdrawng
whsky from bonded warehouses uness the aw mposes the ta es
upon such persons.
In October, 1933, the M Company, a dster, pad a dvdend to
ts stockhoders n whsky warehouse recepts. The stockhoders n
order to wthdraw from bonded warehouses the whsky repre-
sented by such recepts were requred to pay a edera ta of 1.10
per gaon and certan State, county, cty, and cense ta es. Inqury
s made whether such ta es are deductbe n returns of the stock-
hoders for edera ncome ta purposes.
The ta mposed by secton 00 of the Revenue ct of 1918, as
amended by secton 2 of the quor ta ng ct approved anuary 11,
1934, s mposed upon the dster or mporter. It s not deductbe
for edera ncome ta purposes by the stockhoders of the M Com-
pany, athough pad by them when whsky was wthdrawn from
bonded warehouses.
In regard to the deductbty for edera ncome ta purposes
of State and oca ta es pad on dsted sprts by persons wth-
drawng whsky from bonded warehouses, such ta es are not deduct-
be by them uness the aw mposes the ta es upon such persons.
The ta mposed by the State of Inos under the retaers
occupaton ta act, effectve uy 1, 1933, s deductbe for edera
ncome ta purposes by the vendor who ses tangbe persona
property at reta n that State. If, however, the ta s added to
or made a part of the busness e pense of the vendor, or s other-
wse used to reduce hs net ncome, t s not deductbe separatey
as a ta .
rung s requested reatve to the deductbty for edera n-
come ta purposes of the ta mposed by the Inos retaers occu-
paton ta act, approved une 28, 1933, effectve uy 1, 1933 (Laws
of Inos, fty-eghth Genera ssemby, 1933, page 924).
The provsons of the retaers occupaton ta act, n so far as
pertnent to the dscusson of the queston presented, read as foows:
Sec. 2. ta s mposed upon persons engaged n the busness of seng
tangbe persona property at reta n ths State at the rate of 2 per cent (2 )
of the gross recepts from such saes n ths State of tangbe persona property
made n the course of such busness upon and after the takng effect of ths
rtce 151: Ta es.
III-21- 805
I. T. 2783
R NU CT O 1932.
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523(c), rt. 151.
act and pror to uy 1, 19 5. owever, such ta s not Imposed upon the prv-
ege of engagng n any busness n nterstate commerce or otherwse, whch
busness may not, under the Consttuton and statutes of the Unted States, be
made the sub|ect of ta aton by ths State.
So. 3. On or before the 15th day of ugust, 1983, and on or before the 15th
day of each caendar month thereafter, unt, but not ncudng ugust, 1935,
every person engaged In the busness of seng tangbe persona property at
reta n ths State durng the precedng caendar month sha make a return
to the department, statng:

Returns sha be made under oath or affrmaton on forms prescrbed and
furnshed by the department.
The person makng the return heren provded for sha, at the tme of
makng such return, pay to the department the amount of ta heren
mposed .

Seo. . If t sha appear that an amount of ta , penaty or nterest has been
pad whch was not due under the provsons of ths act, whether as the resut
of a mstake of fact or an error of aw, then such amount sha be credted
aganst any ta due, or to become due, under ths act from the person who
made the erroneous payment, or such amount sha be refunded to such person
by the department.
rtce 1 of the genera rues and reguatons reatng to the re-
taers occupaton ta act ssued by the Department of nance of
the State of Inos reads n part as foows:
The act mposes a ta upon persons engaged n the busness of seng tangbe
persona property at reta n ths State measured by gross recepts from such
saes .
The foowng statement appears at the bottom of page 4 of the
genera rues and reguatons:
The ta Imposed by ths act s an occupaton ta upon retaers and s not a
ta upon consumers. In f ng the prce of hs products the retaer may con-
sder the ta to be pad by hm under ths act as one of the eements of cost
n the conduct of hs busness and may ncude the amount of such ta n f ng
such prce In the same manner as rent, genera ta es and other genera over-
head e penses are taken nto consderaton. ut he s nether requred nor
authorzed to coect the ta as a ta from hs customers .
It s evdent from the provsons of the Inos aw and the regu-
atons quoted above that the ta s mposed upon the vendor engaged
n the sae of tangbe persona property at reta. The vendor may,
therefore, deduct the amount of such ta under secton 23(c) of the
Revenue ct of 1932 n determnng hs net ncome sub|ect to edera
ncome ta . The amount of the ta may not be deducted separatey
as a ta f t s added to or made a part of the busness e pense of the
vendor, or s otherwse used to reduce hs net ncome. The vendee
may not deduct ths amount as a ta notwthstandng t s passed on
to hm by the vendor.
In the case of a vendor whose books are kept on the accrua bass,
the amount of the ta accrued durng the perod covered by hs
edera ncome ta return may be deducted n determnng hs net
ncome. When the vendor s books are kept on the cash recepts and
dsbursements bass, ony the amount of the ta actuay pad durng
the perod covered by hs edera ncome ta return may be deducted
n determnng hs net ncome. (Cf. I. T. 2708, C. . II-2, 40,
reatng to the reta saes act enacted by the State of Inos, effec-
tve pr 1, 1933. That act was hed unconsttutona n Wnter v.
arrett, 352 111., 441,18 N. ., 113.)
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23(c), rt. 151.
5
rtce 151: Ta es. III-23- 827
I. T. 2787
R NU CTS O 1028 ND 1032.
or edera ncome ta purposes the cost of stamps aff ed to
cgarette packages n compance wth the aw of Oho, effectve uy
9, 1931, s an aowabe deducton as a ta ony n the return of the
whoesae deaer or reta deaer upon whom the requrement to
purchase the stamps s paced. The cost of the stamps, however,
may not be deducted separatey as a ta f t s ncuded as a part
of the busness e pense of the purchaser of the stamps, or s other-
wse used to reduce hs net ncome. The purchaser or consumer of
the cgarettes may not deduct the cost of the stamps as a ta ,
notwthstandng t s passed on to hm by the vendor.
rtce 1,51: Ta es. III-23- 828
I. T. 2788
R NU CT O 1032.
or edera ncome ta purposes, the cost of stamps requred,
under the aw of Oho, to be aff ed to cosmetcs and other toet
preparatons sod on and after ugust 1, 1933, and ncudng une
30, 193G, s an aowabe deducton as a ta ony n the return of the
whoesae deaer or reta deaer upon whom the requrement to
purchase the stamps s paced. The cost of the stamps, however, may
not be deducted separatey as a ta f t s ncuded as a part of the
busness e pense of the purchaser of the stamps, or s otherwse used
to reduce hs net ncome. The purchaser or consumer of the cos-
metcs or other toet preparatons may not deduct the cost of the
stamps as a ta , notwthstandng t s passed on to hm by the vendor.
rtce 151: Ta es. III-24- 844
I. T. 2789
R NU CT O 1032.
The cense ta mposed by the State of Oregon on the sae or
dstrbuton of motor vehce fue (Oregon Code, 1930, as amended
by chapters 391 and 428, Oregon Laws, 1933) s deductbe as a ta
n the edera ncome ta return of the consumer who pavs t and
to whom t s not refunded. If, however, the amount o the ta
s added to or made a part of the busness e pense of such consumer,
or otherwse used to reduce net ncome, t may not be deducted by
hm separatey as a ta .
rtce 151: Ta es. III-24-G845
I. T. 2790
R NU CT O 1032.
or edera ncome ta purposes, the e cse ta mposed by the
State of Oho on beverages s deductbe as a ta ony n the return
of the manufacturer, whoesae deaer, or reta deaer who s re-
qured to pay the ta by the purchase of stamps or crowns. The
amount may not, however, be deducted separatey as a ta f t
s ncuded as a part of the busness e pense of the ta payer or
otherwse used to reduce net ncome. The consumer may not deduct
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57
1523(e), rt. 171.
the cost of the stamps or crowns as a ta , notwthstandng t s
passed on to hm by the vendor.
S CTION 23(e). D DUCTIONS ROM GROSS INCOM :
LOSS S Y INDI IDU LS.
rtce 171: Losses. III-18-G772
I. T. 2777
R U CT OP 19. 2.
conservator took charge of the M ank n the year 1933. n
assessment of 100 per cent was then eved on the stockhoders.
the outstandng capta stock of the bank was canceed but new
stock, nonassessabe, was mmedatey devered to the stock-
hoders who pad the assessment. Those who dd not pay the as-
sessment ost ther entre nterest n the bank.
ed, no deductbe oss was sustaned n 1933 by the stock-
hoders who pad the assessment and receved new stock. The
stockhoders who faed to pay the assessment, wth the resut that
when ther stock was canceed they ost a nterest n the bank,
sustaned a oss whch s deductbe for 1933.
conservator took charge of the M ank n the year 1933. The
bankng commssoner eved an assessment of 100 per cent on the
stockhoders. the outstandng capta stock of the bank was
canceed but new capta stock, nonassessabe, was devered to the
stockhoders who pad the assessment. The stockhoders who dd
not pay the assessment ost ther entre nterest n the bank. The
od bankng corporaton contnued n e stence and s conductng
ts reguar bankng busness. Under these crcumstances nqury s
made whether the stockhoders may deduct as a oss for the year
1933 the cost or other bass of ther stock.
Secton 23 of the Revenue ct of 1932 provdes as foows:
In computng net ncome there sha be aowed as deductons:

(e) Losses by Indvduas. Sub|ect to the mtatons provded n sub-
secton (r) of ths secton, n the case of an ndvdua, osses sustaned durng
the ta abe year and not compensated for by nsurance or otherwse
(1) f ncurred n trade or busness or
(2) f ncurred n any transacton entered nto for proft, though not
connected wth the trade or busness

In the nstant case the stockhoders who pad the assessment re-
ceved new shares of stock, whch took the pace of the od shares,
and thereby retaned ther nterest n the bank. The assessment
whch was pad represents addtona cost of the nvestment n the
stock of the M ank. ( rtce 282, Reguatons 77.) Snce the
bank has contnued n busness the amount whch may be reazed
by the stockhoders who pad the assessment and retaned ther n-
terest n the bank has not been determned. In the case of such
stockhoders no deductbe oss was sustaned durng the year 1933.
The stockhoders who faed to pay the 100 per cent assessment,
wth the resut that when ther stock was canceed they ost ther
entre nterest n the bank, may deduct as a oss for the year 1933
the cost or other bass of ther stock.
77 2 34 8
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23(k), rt. 205.
58
S CTION 23(). D DUCTIONS ROM GROSS
INCOM : N T LOSS S.
rtce 17 : Sae of capta stock and capta assets.
R NU CT O 1932.
mendment of artce 17 , Reguatons 77. (See T. D. 4430,
page 3 .)
S CTION 23(k). D DUCTIONS ROM GROSS
INCOM : D PR CI TION.
rtce 205 of Reguatons 77 and 74 and artce 1 5 of Regua-
tons 9, 5, and 2, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtces 205 of Reguatons 77 and 74 are hereby amended to read
as foows:
rt. 205. Method of computng deprecaton, aowance. The capta sum to be
recovered sha be charged off over the usefu fe of the property, ether n
equa annua nstaments or n accordance wth any other recognzed trade
practce, such as an apportonment of the capta sum over unts of producton.
Whatever pan or method of apportonment s adopted must be reasonabe and
must have due regard to operatng condtons durng the ta abe perod. The
reasonabeness of any cam for deprecaton sha be determned upon the con-
dtons known to e st at the end of the perod for whch the return Is made.
Where the cost or other bass of the property has been recovered through
deprecaton or other aowances no further deducton for deprecaton sha be
aowed. The deducton for deprecaton n respect of any deprecabe property
for any ta abe year shn be mted to such ratabe amount as may reasonaby
be consdered necessary to recover durng the remanng usefu fe of the prop-
erty the unrecovered cost or other bass. The burden of proof w rest upon
the ta payer to sustan the deducton camed. Therefore, ta payers must fur-
nsh fu and compete nformaton wth respect to the cost or other bass of
the assets n respect of whch deprecaton s camed, ther age, condton and
remanng usefu fe, the porton of ther cost or other bass whch has been
recovered through deprecaton aowances for pror ta abe years, and such
other nformaton as (he Commssoner may requre n substantaton of the
deducton camed.
rtces 1 5 of Reguatons 9, 5, and 2 are hereby amended to
read as foows:
rt. 1 5. Metho of computng deprecaton aowance. The capta sum to
be recovered sha be charged off over the usefu fe of the property, ether n
equa nnnua nstaments or n accordance wth any other recognzed trade
practce, such as an apportonment of the capta sum over unts of producton.
Whatever pan or method of apportonment s adopted must be reasonabe and
must have due regard to operatng condtons durng the ta abe perod. The
reasonabeness of any cam for deprecaton sha be determned upon the cond-
tons known to e st at the end of the perod for whch the return Is made.
Where the cost or other bass of the property has been recovered through
deprecaton or other aowances no further deducton for deprecaton sha be
aowed. The deducton for deprecaton n respect of any deprecabe property
for any ta abe year sha be mted to such ratabe amount as may reasonaby
rtce 205: Method of computng deprecaton
aowance.
III-10- 92
T. D. 442:2
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59
23(k), rt. 205.
be consdered necessary to recover darng the remanng usefu fe of the prop-
erty the unrecovered cost or other bass. The burden of proof w rest upon
the ta payer to sustan the deducton camed. Therefore, ta payers must fur-
h fa and compete nformaton wth respect to the cost or other bass of the
assets n respect of whch deprecaton s camed, ther age, condton and
remanng usefu fe, the porton of ther cost or other bass whch has been
recovered through deprecaton aowances for pror ta abe years, and such
other nformaton as the Commssoner may requre n substantaton of the
dedacton camed.
Guy T. everng,
Commssoner of Interna Revenue.
pproved ebruary 28,1934.
. Mo G NT U, r.,
Secretary of the Treasury.
htce 205: Method of computng deprecaton III-1 - 754
aowance. Mm. 4170
Informaton necessary n support of deprecaton deductons.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, pr 4, 1931 .
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
Treasury Decson 4422 page 58, ths uetn , approved eb-
ruary 28, 1924, provdes that ta payers camng deductons from
(.toss ncome for deprecaton must furnsh fu and compete nfor-
maton regardng (1) the cost or other bass of assets for whch
deprecaton s camed, (2) the age, condton, and remanng usefu
fe of the assets, (3) the porton of the cost or other bass whch
has been recovered through deprecaton aowances for pror ta a-
be years, and (4) such other nformaton as may be requred to
estabsh the correctness of the deducton camed, or to determne
the amount of the deducton propery aowabe.
The deducton for deprecaton n respect of any deprecabe prop-
erty for any ta abe year s mted by Treasury Decson 4422 to
such ratabe amount as may reasonaby be consdered necessary to
recover durng the remanng usefu fe of the property the unrecov-
ered cost or other bass, under the appcabe aw and reguatons.
ta payer s not permtted under the aw to take advantage n ater
Tears of hs pror faure to take any deprecaton aowance or of
hs acton n takng an aowance pany nadequate under the
known facts n pror years.
The nformaton above referred to has been requred under pre-
vous reguatons but n many nstances t has ether not been fur-
nshed or has been prepared for the ta payer by the e amnng offcer.
One of the prncpa purposes of Treasury Decson 4422 s to pace
the burden of proof of the correctness of deductons camed for
deprecaton squarey upon the ta payer, and to requre that a
schedues and other data deemed necessary sha be prepared by
the ta payer and not by the e amnng offcer.
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823 (k). rt. 205.
0
In cases where the requred nformaton has not been furnshed
the revenue agent or other e amnng offcer shoud advse the ta -
payer wth respect to the schedue and supportng nformaton
whch must be prepared. If upon the revew of the return of any
ta payer t s apparent that the deducton camed for deprecaton
s a very mnor factor n determnng net ncome, or the facts nd-
cate concusvey that the deducton camed n the return s not n
e cess of the correct amount, or where t s ceary evdent that no
ta abe ncome w be deveoped, the schedues need not be fur-
nshed for such year. In a other cases the nformaton requred
by Treasury Decson 4422 and by ths mmeograph must be fur-
nshed and after verfcaton by the e amnng offcer shoud be made
a part of hs report.
Where t s camed by a ta payer that the nformaton necessary
for the proper determnaton of the aowabe deprecaton has been
prevousy prepared and fed n connecton wth pror ncome ta
returns, the e amnng offcer must satsfy hmsef that the nforma-
ton on fe s n accordance wth the requrements of ths mmeo-
fraph, and an affrmatve statement to that effect must be made n
s report.
D PR CI TION SC DUL .
The accompanyng form of schedue has been prepared for use
n compng the nformaton requred, and whe t s beeved
appcabe to most cases, any form that w ceary set forth the
nformaton requred may be used n order to substantate the cost
or other bass of the property and the deprecaton camed. Wth
respect to property acqured pror to March 1, 1913, property ac-
qured by gft or transfer n trust, property transmtted at death,
property acqured upon an e change, property acqured n a reor-
ganzaton after December 31, 1917, property acqured after Decem-
ber 31, 1920, by a corporaton n e change for ts stock where mme-
datey after the transfer the transferor of the property s n contro
of the corporaton, property acqured by an nvountary converson,
and property acqured durng affaton, and certan other speca
cases, the statutes prescrbe certan mtatons wth whch com-
pance must be made. If n any case, therefore, deprecabe assets
have been ncuded n the property account on any bass other than
the actua cost of property acqured for cash, the ta payer must
furnsh the nformaton and evdence necessary to estabsh defntey
the correctness of the bass camed.
In preparng the schedues the orgna cost or other bass of the
property and gross addtons by years must be set forth separatey.
The schedue for each cass or assets must kewse ceary refect
a ad|ustments to the property accounts whch have been or shoud
have been made n pror years as a resut of the emnaton of assets
fuy deprecated, the sae, abandonment or retrement of assets, or
for any other reason. The ad|usted property account as shown n
the schedue shoud be reconced wth the property account as
refected on the books of the ta payer.
If the segregaton of property accounts n the past has not been
suffcenty detaed to afford a reasonabe bass for the determna-
ton of the deprecaton deducton, the cost or other bass shoud be
segregated nto groups of accounts contanng smar assets havng
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23(k), rt. 205.
appro matey the same average ves, to serve as a bass for depre-
caton deductons for current and future years. If, however, a
ta payer for ts own purpose keeps a record of each ndvdua tem,
or cassfes ts accounts nto a arge number of dfferent groups, the
data requred by ths mmeograph shoud be summarzed n such
form as w present an accurate statement of each dstncty dffer-
ent cass of deprecabe assets and of the reserve that has been
accrued aganst each cass to date for ncome ta purposes. The
e amnng offcer shoud verfy the correctness of these summarzed
schedues from the ta payer s records, but the ncuson n the
schedue of a voumnous mass of deta s not ordnary necessary.
In computng the reserve for deprecaton, credts to the reserve on
account of deprecaton sha be n the amount aowabe for each
year e cept for such cosed years for whch a greater amount has
been aowed, n whch case the tota amount aowed sha be credted
to the reserve. If for ncome ta accountng other credts such as
savage vaue have been added to the reserve, these shoud be set
forth separatey wth an e panaton of such credts. Charges to
the reserve that have not been recovered as e pense or otherwse n
cosng pror ncome ta returns shoud be set up separatey n the
schedue. These charges, n addton to the cost of property retred,
may be such tems as repars, renewas, fuy deprecated assets, etc.,
a of whch shoud be dentfed wth an e panaton respectng any
unusua charges.
D PR CI TION D T RMIN TION OR Y R UND R CONSID R TION.
If, upon e amnaton and verfcaton of the schedue, t s found
that the cost or other bass of any deprecabe property has been
fuy recovered though the property s st n use or where the
reserve as provded s hgher than s |ustfed by the actua physca
condton of the property, t w be presumed that the deprecaton
rates aowed n the past have been e cessve. fter carefu consder-
aton of the nformaton fed n accordance wth the requrements
of ths mmeograph the e amnng offcer shoud foow the prov-
sons of ths mmeograph and of Treasury Decson 4422 n determn-
ng rates of deprecaton for the years under consderaton.
R TIR M NT O SS TS.
Where an account contans more than one tem t w be presumed
that the rate of deprecaton s based upon the average ves of such
assets. Losses camed on the norma retrement of assets n such
an account are not aowabe, nasmuch as the use of an average rate
contempates the norma retrement of assets both before and after
the average fe has been reached and there s, therefore, no poss-
bty of ascertanng any actua oss under such crcumstances unt
a assets contaned n the account have been retred. In order to
account propery for such retrements the entre cost of assets re-
tred, ad|usted for savage, w be charged to the deprecaton re-
serve account, whch w enabe the fu cost or other bass of the
property to be recovered. Where the ta payer by cear and convnc-
ng evdence shows that assets are dsposed of before the e praton
of the norma e pected fe thereof, as, for e ampe, because of
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23(r), rt, 272.
2
casuaty, obsoescence other than norma, or sae, osses on the retre-
ment of such assets mav be aowed, but ony where t s ceary ev-
dent that such dsposton was not contempated n the rate of
deprecaton. In snge tem accounts or n cassfed accounts where
t s the consstent practce of the ta payer to base the rate of depre-
caton on the e pected fe of the ongest-ved asset contaned n
the account, the oss upon the retrement of an asset s aowabe.
R TRO CTI PRO ISION.
The procedure outned n ths mmeograph sha be foowed n a
cases and pror nstructons to the contrary are hereby revoked.
Guy T. evernu,
Commssoner.
Incosure.
Incosure to Mn. 4170.
ccount
stmated usefu fe yrs. Itate_.
1
t
t
4

Orgna cost
or other bass
and subse-
quent add-
tons by years.
Deductons
for saes and
retrements.
Cost reman-
ng at the
end of year.
nnua
deprecaton
accrua.
Charges to
accrued de-
precaton
for saes and
retrements.
Net depre-
caton
reserve at
end of year.
Date acqured.
Do a costs reported In coumn 2 represent actua cash e pendtures by the
ta payer nswer .
(Yes or No.)
If any of the amounts do not represent cash e pendtures by the ta payer a
suppementa statement shoud be prepared ndcatng the amount thereof, how
t was determned wth a descrpton of the character and condton of the
assets, and the bass used n aocatng the amounts to deprecaton accounts.
Charges to reserve for other than saes and retrements shoud be stated
separatey and be e paned.
Credts to reserve for other than accrued deprecaton shoud be stated sepa-
ratey and be e paned.
S CTION 23(r). D DUCTIONS ROM GROSS INCOM :
LIMIT TION ON STOC LOSS S.
rtct.e 272: Lmtatons on deductons for III-15- 741
osses from saes and e changes of stocks I. T. 2774
and bonds.
R NU CT O 1032.
Contracts for the future devery of gran or other commodtes
do not come wthn the meanng of stocks and bonds as used n
secton -3(r) of the Revenue ct of 1932. The deducton for a oss
sustaned on the purchase and sae of such contracts s not sub|ect
to the mtaton provded by that secton.
The queston s presented whether (he deducton for osses arsng
from the purchase and sae of gran futures s sub|ect to the mta-
ton provded by secton 23 (r) of the Revenue ct of 1932. That
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G3
23(r), rt. 272.
secton, as amended by secton 218 (b) and (c) of the Natona
Industra Recovery ct (effectve anuary 1,1933), reads as foows:
(r) Lmtaton on stock osses.
(1) Losses from saes or e changes of stocks and bonds (as defned n sub-
secton (t) of ths secton) whch are not capta assets (as defned n secton
101) sha be aowed ony to the e tent of the gans from such saes or e -
changes (ncudng gans whch may be derved by a ta payer from the
retrement of hs own obgatons).
(2) Repeaed.
(3) Ths subsecton sha not appy to a deaer n securtes (as to stocks and
bonds acqured for resae to customers) n respect of transactons n the ordnary
course of hs busness, nor to a bank or trust company ncorporated under the
aws of the Unted States or of any State or Terrtory, .
In the sae for future devery of gran or other commodtes sm-
ary deat n the purchaser acqures a wrtten contract whereby the
seer obgates hmsef to make devery at some future tme of the
gran or other commodty covered by the contract. The orgna
purchaser does not necessary hod the contract unt the date spec-
fed for the devery of the commodty. There may be successve pur-
chases and saes of the contract wth the resut that the utmate de-
very of the commodty s made to a person other than the orgna
purchaser. In the case of a oss sustaned on the sae of such a con-
tract, not hed for a perod of more than two years, the queston s
presented whether the deducton for such a oss s sub|ect to the m-
taton provded by secton 23(r) of the Revenue ct of 1932. The
answer to the nqury depends upon whether the contracts come
wthn the meanng of the term stocks and bonds as used n that
secton. The defnton of the term s contaned n secton 23 (t),
readng as foows:
Defnton of stocks and bonds. s used n subsectons (r) and (s), the term
stocks and bonds means (1) shares of stock n any corporaton, or (2) rghts
to subscrbe for or to receve such shares, or (3) bonds, debentures, notes, or
certfcates or other evdences of ndebtedness, ssued by any corporaton (other
than a government or potca subdvson thereof), wth Interest coupons or
n regstered form, or (4) certfcates of proft, or of nterest n property or
accumuatons, n any nvestment trust or smar organzaton hodng or
deang n any of the nstruments mentoned or descrbed n ths subsecton,
regardess of whether or not such nvestment trust or smar organzaton con-
sttutes a corporaton wthn the meanng of ths ct.
It s obvous that the contracts n queston do not come wthn any
one of the frst three casses referred to n the defnton of stocks
and bonds. The fourth cass ncuded wthn the defnton s cer-
tfcates of proft, or of nterest n property or accumuatons, n any
nvestment trust or smar organzaton hodng or deang n any
of the nstruments mentoned n secton 23 (t). though
the wrtten contracts cang for the future devery of gran or other
commodtes may be referred to n genera as certfcates, they do
not consttute certfcates of proft or of nterest n an nvestment
trust or smar organzaton.
It s accordngy hed that such contracts for the future devery
of gran or other commodtes do not come wth the meanng of
stocks and bonds as used n secton 23(r) of the Revenue ct of
1932. The deducton for a oss sustaned on the purchase and sae of
such contracts s not, therefore, sub|ect to the mtaton provded by
that secton. Such a oss s deductbe n fu as havng resuted from
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131.
4
a transacton entered nto for proft under secton 23(e)2 of the Rev-
enue ct of 1932. It aso foows that gans reazed from the pur-
chase and sae of such contracts may not, for ncome ta purposes,
be reduced by osses sustaned from the sae of stocks and bonds whch
are not capta assets.
S CTION 25. CR DITS O INDI IDU L
G INST N T INCOM .
rtce 291: Credts of ndvdua aganst net ncome.
R NU CT OP 1932.
Dvdends on the stock of the Centra ank for Cooperatves, the
Producton Credt Corporatons, Producton Credt ssocatons,
and anks for Cooperatves, organzed under the provsons of the
arm Credt ct of 1933 (48 Stat., 257). (See I. T. 2780, page 41.)
P RT III. CR DITS G INST T .
S CTION 31. T S O OR IGN COUNTRI S
ND POSS SSIONS O UNIT D ST T S.
( so Secton 131, rtce 91.) III- - 39
I. T. 27 2
R NU CT O 1032.
Unted States sharehoders of the M Company, an rgentne
mted company, shoud report as gross ncome the amount of
dvdends receved by them from that organzaton pus the amount
of ncome ta the corporaton, as coecton agent, has pad or a
abe to pay wth respect to such dvdends. Credt may then
be camed by uch sharehoders for the foregn ncome ta pad on
the dvdends to the e tent provded n secton 131 of the Revenue
ct of 1932.
rung s requested reatve to the rgentne ncome ta aw
(No. 11 S2, of December 27, 1932), whch became effectve anuary
1, 1933, under the provsons of whch the M Company, an rgentne
mted company, s requred to wthhod a ta at the rate of 5 per
cent wth respect to dvdends pad on ts stock.
It s stated that a dvdend of doars per share, whch was
pad ebruary , 1935, was decared December , 1932, wthout
specfcay mentonng ncome ta . Ths dvdend was pad n fu
to the sharehoders, and the company has pad or s about to pay
from ts own funds the ta requred to be wthhed. It s aso
stated that a dvdend of doars per share pad ugust , 1933,
was specfcay decared free of ncome ta . The ta payer re-
quests to be advsed as to the status of the rgentne ta under
sectons 31 and 131 of the Revenue ct of 1932.
rtce 14 of aw No. 11 82 (an ngsh transaton of whch
accompaned the ta payer s etter of October , 1933), provdes
n part:
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G5
31.
The ncomes accrung from movabe capta, such as nterests, f ed or
varabe, on oans of money or vauabes, dvdends from securtes or smes
or other dstrbutons of |ont capta n mted abty or commandte com-
panes, and the ncomes from other smar ta abe sources, such as the ease
of movabe thngs or of rghts, royates, annutes and perodc ncomes or
subsdes, e cudng those havng the nature of aments, aways provded that
the capta, thngs or rghts concerned are ocated or utzed n the Repubc
n charge of natura or |urdca persons, domced or resdng n ths country,
and wthout takng nto account the source from whch the ncomes
of such persons accrue or the pace n whch the contract out of whch the
obgaton arses was made, sha be sub|ect to the ta , the foowng provsons
beng apped:
(a) Ta payers sha pay the ta when recevng such ncomes aways pro-
vded that t has not aready been retaned, n so far as provson may have
been made for the nterventon of coecton agents
( ) s regards those debtors who may be traders, banks or other commerca
or cv pubc or prvate enttes, they sha be obged as coecton agents,
to retan and pay to the treasury the amount of ths ta , for account of the
ta payer at the tme when payment s made of the nterests whch have
become due on capta receved as oan or on depost or of the other ncomes
of ths category, e cept n the case of nterests and dvdends on shares,
securtes, debentures or bonds n whch case the ssung enttes sha make
the retenton and payment at the tme when they become due.
The same obgaton appes aso to prvate ndvduas, n those cases n
whch are concerned nterests or other ncomes accrung n favor of natura
or |urdca persons domced or resdent outsde the Repubc who have no
agent n the country empowered to receve money.
In the opnon of ths offce the ta requred to be wthhed at the
source from the dvdends on the stock of the M Company s an n-
come ta wthn the meanng of sectons 31 and 131 of the Revenue
ct of 1932.
Secton 31 reads as foows:
The amount of ncome, war-profts, and e cess-profts ta es mposed by
foregn countres or possessons of the Unted States sha be aowed as a credt
aganst the ta , to the e tent provded n secton 131.
Secton 131 provdes n part as foows:
(a) owance of credt. If the ta payer sgnfes n hs return hs desre
to have the benefts of ths secton, the ta mposed by ths tte sha be
credted wth :
(1) Ctzen and domestc corporaton. In the case of a ctzen of the Unted
States and of a domestc corporaton, the amount of any ncome, war-profts,
and e cess-profts ta es pad or accrued durng the ta abe year to any foregn
country or to any possesson of the Unted States .
It has been hed that the payment of a ta by a person other than
a ta payer consttutes ncome to the ta payer n whose behaf the
ta s pad. ccordngy, n the nstant case the stockhoders are
requred to ncude n gross ncome the amount of the dvdend pus
the ta . In ths connecton attenton s drected to Genera Counse s
Memorandum 1220 (C. . II-2, 395), and the decsons cted
theren.
The Unted States sharehoders shoud report as gross ncome the
dvdends receved by them from the M Company pus the amount
of ncome ta the corporaton, as coecton agent, has pad or a
abe to pay wth respect to such dvdends. The Unted States
sharehoders of the company may then cam credt for t e foregn
ncome ta pad on the dvdends to the e tent provded n secton
131 of the Revenue ct of 1932.
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41, rt. 321.

P RT I . CCOUNTING P RIODS ND M T ODS O
CCOUNTING.
S CTION 41. G N R L RUL .
rtce 321: Computaton of net ncome.
R NU CT O 1932.
III-5-G 34
I. T. 2758
The foowng rates of e change are accepted by the ureau of
Interna Revenue as the current or market rates of e change preva-
ng as of December 31, 1933:
Country or cty.
ustra
egum
ugara
Czechosovaka..
Denmark
ngand
nand-
rance
Germany
Greece
ungary
Itay-
Netherands
Norway..-
Poand.
Portuga
Rumana
8pan
weden
Swtzerand
Monetary unt.
Schng
13ega._
Lev
oruna
rone
Pound (sterng)
Markka
ranc
Rechstnark
Drachma
Pengo
Lra
orn
rone
Zoty
scudo
Leu.
Peseta
rona
ranc
aue n
terms of
Unted
States
money.
0. 178250
. 2197 9
.01378(1
.047050
.230183
.151750
.022920
.0 1991
.37 923
.008900
.278000
.08301
. 35057
. 258950
.178500
.047031
.009590
. Iffff
.2 5791
.30 058
Country or cty.
Yugosava
ong ong
Chna (Shangha)
Inda
apan
Sngapore
Canada
Cuba.
Me co
rgentna
rgentna
Rraz
Che
Coomba
Uruguay
Phppne Isand:
ustraa
New Zeaand
South trca
Monetary unt.
Dnar
Doar
Yuan doar.
Rupee
Yen
Doar
Doar
Peso
Sver peso..
Peso (god)..
Peso (paper)
Mres
Peso.
Peso..
Peso (god)..
Peso
Pound (sterng
Pound (ster :
Pound
aue In
terms of
Unted
money.
0.0217 0
. 3740 2
.34015
.38 300
.597500
1.000781
.999550
.277500
.7 211
.337133
.08 0 2
.093750
. 40 00
.752250
.5000
4.115000
4. man
5.091S75
rtce 321: Computaton of net ncome.
R NU CT O 1932.
III-20- 793
I. T. 2781
The foowng rates of e change are accepted by the ureau of
Interna Revenue as the current or market rates of e change preva-
ng as of December 31, 1933:
aue In
terms of
Unted
States
money.
aue n
terms of
Unted
States
money.
Country.
Monetary unt.
Country.
Monetary unt.
Costa Rca
Coon
0.2325
.1
Panama
aboa
1.0000
enezuea -
ovar
1.0000
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7
41, rt. 321.
rtce 321: Computaton of net ncome.
( so Secton 23(a), rtce 121.)
III-25- 85
G.C.M. 13148
R NU CTS O 1918, 1921, 1924, 192 , 1928, ND 1932.
Where nsurance premums are deductbe as busness e penses
and are pad n advance for a perod of more than one year, ony
the pro rata part of such payment Is aowabe as a deducton
each year, regardess of whether the ncome s reported on the
cash recepts and dsbursements bass or on the accrua bass.
dvce s requested reatve to the proper treatment, for edera
ncome ta purposes, of nsurance premums pad n advance by a
ta payer who renders returns on the bass of cash recepts and ds-
bursements, where such premums are deductbe as busness e penses.
Secton 41 of the Revenue ct of 1932 provdes n part as foows:
The net ncome sha be computed upon the bass of the ta payer s annua
accountng perod (fsca year or caendar year, as the case may be) n accord-
ance wth the method of accountng reguary empoyed n keepng the books of
such ta payer but f no such method of accountng has been so empoyed, or
f the method empoyed does not ceary refect the ncome, the computaton
sha be made n accordance wth such method as n the opnon of the Com-
mssoner does ceary refect the ncome.
Smar provsons are contaned n the Revenue cts of 1918 to
1928, ncusve.
In ppea of . and ro., Inc. (1 . T. ., G31), the oard
of Ta ppeas hed that a ta payer keepng ts books of account
upon the cash recepts and dsbursements bass for 1921 s not
entted, under the provsons of secton 234(a) 1 of the Revenue
ct of 1921, to deduct n ts ncome ta return for 1921 any part of
a bonus or advance renta pad by t under an agreement of ease
upon premses whch t was to occupy on and after anuary 1, 1922.
In the course of ts opnon, the oard commented as foows:
The ta s an annua ta . The theory of the aw s that the true
gans of each year sha be sub|ected to the ta . Where, therefore, a ta -
payer cams that t s entted to deduct from gross ncome an amount whch
s not ceary an e pense tem propery chargeabe aganst the gross ncome
of the partcuar year, t s ncumbent upon (he ta payer to show thnt t s
at east wthn the etter of the provson of the aw permttng the deducton.
(See aso /. and ro., Inc., v. Unted States, 28 ed. (2d),
792.)
Commssons pad for the purpose of securng ong-term eases
have been consstenty hed to consttute capta e pendtures deduct-
be rataby over the term of the ease even though the ta payer s
accounts are kept on the cash bass. ( . N. Webb v. Commssoner,
20 . T. ., 274 Mary C. Young v. Commssoner, 20 . T. .,
92 vacna M. oward v. Commssoner, 19 . T. ., 8 5 S. M.
Oawson v. Commssoner, 19 . T. ., 1253.)
In ua Stow Love|oy v. Commssoner (18 . T. ., 1179), the
ta payer, whose returns were rendered on the cash bass, pad fees,
commssons, and prntng costs n securng a oan over a perod
of years. In dsaowng the amounts so pad as a deducton n tho
year of payment, the oard sad:
In ts essence such a dsbursement s not unke bond dscount, prepad
ront, cost of acqurng or dsposng of a easehod or term contract and many
other transactons. They shoud be spread over the defnte perod of the oan,
ease, or contract. (Chcago, Rock Isand Pacfc Raway Co., 13 . T. .,
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81, rt. 881.
8
888 . and ro., Inc., 1 . T. ., 31 and v. Unted Statet, 28 ed. (2d),
792 Unted States Payng Card Co., 15 . T. ., 975 onwt Teer Co.,
17 . T. ., 1019.) Ths s on the theory that they resut n property of a sort
and ts cost s beng e hausted proportonatey over a perod of years and
shoud be provded for on the bass of tme, producton, or otherwse. (Secton
214(a)8.)
In ggnbotham- aey-Loffan Co. v. Commssoner (8 . T. .,
5 ), where the pettoner s accounts were kept on the accrua bass,
the oard approved the Commssoner s ad|ustment of nterest and
nsurance payments on the bass of proratng such payments over
the perod for whch made. The oard stated n part that
The payment n advance of premums for nsurance resuts n the
creaton of an asset, snce the pocy has a surrender vaue. The asset vaue
s e hausted rataby over the term for whch the premum s pad. In the
baance sheet such tems are often carred as assets under sue terms as pre-
pad nsurance, or prepad e pense.
The payment n advance of nsurance premums by a ta payer
renderng returns on the cash recepts and dsbursements bass ke-
wse resuts n the creaton of an asset. In order to refect ceary
the ncome of such ta payer, ony the amount appcabe to carryng
such nsurance for the ta abe year consttutes an ordnary and
necessary e pense n the earnng of the ncome for that year.
It s, therefore, the opnon of ths offce that where nsurance
premums are deductbe as busness e penses and are pad n advance
for a perod of more than one year, ony the pro rata part of such
payment shoud be aowed as a deducton each year, regardess of
whether the ncome s reported on the cash recepts and dsburse-
ments bass or on the acrua bass.
Robert II. ackson,
Genera Counse, ureau of Interna Revenue.
S CTION 42. P RIOD IN W IC IT MS O
GROSS INCOM INCLUD D.
rtce 331: When ncuded n gross ncome.
ND CT O 1932.
Dstrbuton to a raroad company of recapture amounts, wth
nterest, under the mergency Raroad Transportaton ct, 1933.
(See I: T. 2759, page 33.)
P RT . R TURNS ND P YM NT O T .
S CTION 51. INDI IDU L R TURNS.
rtce 381: Indvdua returns. III-4 22
( so Secton 52, rtce 391 Secton 142, T. D. 441
rtce 741 Secton 189, rtce 941.)
INCOM returns.
Requrements appcabe to returns under Tte I, Revenue ct
of 1932, as amended, for the caendar year 1933 and succeedng
ta abe perods.
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9
51, rt. 381.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, t . C.
To Coectors of Interna Revenue and Others Concerned:
very ncome return for the caendar year 1933 and succeedng
ta abe perods sha contan a statement by the ta payer showng
(1) Whether or not any person or persons were empoyed cther
to prepare or to advse n the preparaton of the return
(2) The name and address of the person or persons so empoyed
(f any) and the e tent to whch assstance or advce was receved.
If the ta payer merey receved advce from some other person or
persons n the preparaton of the return a statement showng the
name and address of the advsor and the tems wth respect to whch
advce was receved by the ta payer w be suffcent.
If the return was actuay prepared by any person or persons
other than the ta payer, there sha be attached to and made a
part of such return a statement, sworn to by such person or persons,
affrmng that such person or persons prepared the return, that the
nformaton set out n the return and accompanyng schedues, f
any, correcty and truy represents the nformaton furnshed or
dscovered by such person or persons durng the course of prepara-
ton of the return, and that such nformaton s true to the best of
hs or ther nformaton and beef.
Prnted forms n accordance wth the foregong are beng for-
warded to coectors of nterna revenue for dstrbuton and use
n connecton wth return forms for the caendar year 1933. type-
wrtten form, f otherwse meetng the requrements heren pre-
scrbed, w be acceptabe. The competed form, whether prnted
or typewrtten, must be frmy attached to the return as a part
thereof.
Guy T. everno,
Commssoner of Interna Revenue.
pproved anuary 15,1934.
. MORG NT U, r.,
Secretary of the Treasury.
NOTIC TO CORPOR TIONS.
Ths form shoud be e ecuted and fed as a part of Corporaton Income Ta
orm 1120 for the caendar year 1933. If the corporaton merey receved ad-
vce from some person or persons empoyed to assst In the preparaton of the
return, the name and address of the advsor, together wth a statement showng
the e tent to whch such advce was receved, s suffcent. If the return was
actuay prepared by any such person or persons, ths form must be sgned and
sworn to by such person or persons.
Dd the corporaton empoy anyone especay to prepare or advse n the
preparaton of Its Income ta return for the caendar year 1033 ( nswer
Yes or No ) If so, gve name and address and state to what
e tent such assstance or advce was receved
I/We, actng as for the hereto subscrbed ta payer,
( ttorney or advsor.)
tffrm that I/we prepared the return, that the nformaton set out n the return
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51, rt. 381.
70
and accompanyng schedues, f any, correcty and truy represents the nforma-
ton furnshed or dscovered by me/us durng the course of preparaton of the
return, and that such nformaton s true to the best of my/our nformaton and
beef.
( ttorney or dvsor.)
Sworn to and subscrbed before me ths day of , 19
notara sea
(Sgnature of offcer admnsterng oath.)
(Tte.)
NOTIC TO INDI IDU L T P Y RS.
Ths form shoud be e ecuted and fed as a part of Indvdua Income Ta
orm 1040 for the caendar year 1933. If you merey receved advce from
some person or persons empoyed to assst n the preparaton of the return, the
name and address of your advsor, together wth a statement showng the
e tent to whch such assstance or advce was receved, s suffcent. If your
return was actuay prepared by any such person or persons, ths form must be
gned and sworn to by such person or persons.
Dd you empoy anyone especay to prepare or advse n the preparaton of
your ncome return for the caendar year 1933 ( nswer Yes or No. )
If so, gve name and address of such person or persons and state to
what e tent such assstance or advce was receved
I/We, actng as for the hereto subscrbed ta payer, af-
( ttorney or advsor.)
frm that I/we prepared the return, that the nformaton set out n the return
and accompanyng schedues, f any, correcty and truy represents the nforma-
ton furnshed or dscovered by me/us durng the course of preparaton of the
return, and that such nformaton s true to the best of my/our nformaton and
beef.
( ttorney or dvsor.)
Sworn to and subscrbed before me ths day of , 19__.
notara sea ,
(Sgnature of offcer admnsterng oath.)
(Tte.)
rtce 381: Indvdua returns. III-9- 83
T. D. 4421
INCOM R TURNS.
mendng Treasury Decson 441 , approved anuary 15, 1934
page 8, ths uetn . Requrements appcabe to returns under
Tte I, Revenue ct of 1932, as amended, for the caendar year
1933 and succeedng ta abe perods.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Treasury Decson 441 , approved anuary 15, 1934, settng forth
certan requrements appcabe to ncome returns made under Tte I
of the Revenue ct of 1932, as amended, for the caendar year 1933
and succeedng ta abe perods, s amended by addng the foowng
paragraph:
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71
53, rt. 402.
These requrements sha not be appcabe to ndvdua ncome ta returns
of net ncomes of not more than 5,000 derved chefy from saares and wages
and reported on ncome ta orm 1040 for the caendar year 1933.
Gut T. everng,
Commssoner of Interna Revenue.
pproved ebruary 21, 1934.
. MoRG NT U, r.,
Secretary of the Treasury.
S CTION 52. CORPOR TION R TURNS.
rtce 391: Corporaton returns.
R NU CT O 1832.
Requrements appcabe to returns under Tte I, Revenue ct of
1932, as amended, for the caendar year 1933 and succeedng ta abe
perods. (See T. D. 441 , page 8.)
S CTION 53. TIM ND PL C OR
ILING R TURNS.
rtce 401: Tme for fng returns. III-4- 11
I. T. 2752
R NU CT O 1082.
In those cases where an ndvdua, estate or trust, or a corporaton,
pror to the ssuance of the revsed forms prescrbed for use of such
ta payers n makng amended returns under the provsons of Treas-
ury Decson 4408 (C. . II-2, 42 ) for a fsca year ended n
1933, has made a return on the od form for such fsca year, whch
contans a the nformaton necessary to determne the net ncome
and the ta thereon under the provsons of the Revenue ct of 1932,
as amended by secton 218 of the Natona Industra Recovery ct,
and the ta abty whch woud be shown on the amended return
woud not b dfferent from that shown on the orgna return, an
amended return on a revsed form for such fsca year need not be
made under Treasury Decson 4408, supra.
rtce 402: tensons of tme for fng III-8- G9
returns. Mm. 4150
Instructons to coectors reatve to e tensons of tme for
makng ncome ta returns.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton D. C, ebruary 9, 193 .
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
Reference s made to Mmeograph 33 1, dated November 20, 1925
(C. . r -2, 9), Mmeograph 3759, dated October 9, 1929 (C. .
III-2, 123), and Mmeograph 3789, dated anuary 10, 1930 (C. .
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55, rt. 421.
72
I -1, 12 ), contanng nstructons to coectors reatve to e ten-
sons of tme for makng ncome ta returns. The nstructons ssued
n the above-mentoned mmeographs were ntended prmary for
the gudance of coectors n the consderaton of appcatons for
e tensons of tme where the ta payers nterested had faed to make
every reasonabe effort to fe returns on tme and to prevent the
grantng of e tensons of tme where t was reasonaby possbe
for the ta payers to avod the need thereof.
It has come to the attenton of ths offce that n some nstances
representatves of ta payers have fed banket requests for e ten-
sons of tme nstead of ndvdua requests sgned by the ta payers.
Coectors shoud requre that appcatons for e tensons of tme
wthn whch to make ncome ta returns be sgned by the ta pa3rer
e cept n cases where the ta payer s unabe to do so because of -
ness or e tended absence for other reasons. In the cases comng
wthn ths e cepton an appcaton sgned by the ta payer s duy
authorzed representatve shoud be accepted f a showng s made
by the representatve that the ta payer s unabe to sgn the appca-
ton for the reasons stated.
ueres regardng ths mmeograph w refer to the number of the
mmeograph and the symbos IT: : CTR.
Guy T. everng,
C ommssoner.
rtce 402: tensons of tme for fng III-2 - 8 5
returns. I. T. 2794
R NU CT OP 1032.
Mmeograph 4150 page 71, ths uetn contempates that a ta -
payer s ega representatve makng request for an e tenson of tme
n whch to fe an ncome ta return be requred to furnsh power of
attorney, uness he s known to be an offcer or an authorzed
representatve of the corporate or ndvdua ta payer.
S CTION 55. PU LICITY O R TURNS.
rtce 421: Inspecton of returns.
R NU CT O 1932.
Commttee on the udcary of the ouse of Representatves
authorzed to nvestgate the conduct of equty and bankruptcy
recevershps n edera courts. (See T. D. 443 , page 304.)
rtce 421: Inspecton of returns.
R NU CT OP 1932.
Speca Commttee Investgatng the Muntons Industry, Unted
States Senate. (See T. D. 4440, page 305.)
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73 101, rt. 01.
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . T S O T .
S CTION 101. C PIT L N T G INS
ND LOSS S.
rtce 501: Defnton and ustraton III-1 - 755
of capta net gan. G. C. M. 12942
R NU CTS O 1921, 1924, 192 , 1928, ND 1932.
The perod (more than two years) for whch stock acqured
through the e ercse of stock rghts must be hed n order to
consttute a capta asset begns to run from the date of
acquston of the stock so acqured, and not from the date of
acquston of the stock n respect of whch the rghts were
ssued.
Genera Counse s Memorandum 11 45 (C. . II-1, 117) s
revoked n so far as nconsstent herewth, and Genera Counse s
Memorandum 100 3 (C. . -2, 159) s renstated.
The request has been made that Genera Counse s Memorandum
11 45, supra, be reconsdered.
The queston nvoved s whether the gan derved or oss sustaned
upon the sae of stock acqured through the e ercse of stock rghts
may be treated n whoe or n part as a capta gan or capta
oss where the stock sod was hed for two years or ess, but the
orgna stock n respect of whch the rghts were ssued was hed
for more than two years. The answer to the queston depends on
whether stock acqured through the e ercse of rghts, where the tme
eement s as ndcated above, may be treated n whoe or n part
s cfpto f.t scfc.
In I. T. 178 (C. . II-2, 45) t was hed that stock acqured
upon the e ercse of rghts, where the stock n respect of whch the
rghts were ssued was hed for more than two years, consttuted a
capta asset. In Genera Counse s Memorandum 10003 (C. . -2,
159) revocaton of I. T. 178 , supra, was recommended because of
the decson of the oard of Ta ppeas n Rodman . Gvscom v.
Commssoner (22 . T. ., 979) to the effect that stock acqured
through the e ercse of rghts must tsef be hed for more than two
ears n order to consttute a capta asset. I. T. 178 was revoked
y I. T. 2 09 (C. . -2, 339). Genera Counse s Memorandum
11 45, supra, modfed Genera Counse s Memorandum 100 3, supra,
to the e tent of hodng that stock acqured through the e ercse
of rghts, where the stock n respect of whch the rghts were ssued
had been hed for more than two years, conssted n part of a capta
eement (the rght eement) and n part of a noncapta eement
(the subscrpton prce). In Genera Counse s Memorandum 11 45,
supra, t was hed that the two eements shoud be determned by
comparng the far market vaue of the rght at the tme t was
e ercsed wth the subscrpton prce.
The Revenue ct s e pct as to what consttutes a capta asset.
Secton 101(c)8 defnes the term capta assets and provdes for
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101, rt. 501.
74
certan cases n whch tackng of hodng perods s permtted.
That secton reads as foows:
Capta assets means property hed by the ta payer for more than two
years (whether or not connected wth hs trade or busness), but does not
Incude stock n trade of the ta payer or other property of a knd whch woud
propery be ncuded n the nventory of the ta payer f on hand at the cose
of the ta abe year, or property hed by the ta payer prmary for sae n the
course of hs trade or busness. or the purposes of ths defnton
( ) In determnng the perod for whch the ta payer has hed property
receved on an e change there sha be ncuded the perod for whch he hed
the property e changed, f under the provsons of secton 113, the property
receved has, for the purpose of determnng gan or oss from a sae or
e change, the same bass n whoe or n part n hs hands ns the property
e changed.
( ) In determnng the perod for whch the ta payer has hed property
however acqured there sha be ncuded the perod for whch such property
was hed by any other person, f under the provsons of secton 113. such
property has, for the purpose of determnng gan or oss from a sae or
e change, the same bass n whoe or n part n hs hands as t woud have
n the hands of such other person.
(C) In determnng the perod for whch the ta payer has hed stcck or
securtes receved upon a dstrbuton where no gan s recognzed to the
dstrbutee under the provsons of secton 112(g) of ths ct or the Revenue
ct of 1928, there sha be ncuded the perod for whch he hed the stock or
securtes n the dstrbutng corporaton pror to the recept of the stock or
securtes upon such dstrbuton.
(D) In determnng the perod for whch the ta payer has hed stock or
securtes the acquston of whch (or the contract or opton to acqure whch)
resuted n the nondcductbty (under secton 118 of ths ct or the Revenue
ct of 1928. reatng to wash saes) of the oss from the sae or other dspos-
ton of substantay dentca stock or securtes, there sha be ncuded (he
perod for whch he hed the stock or securtes the oss from the sae or
other dsposton of whch was not deductbe.
rtce 501 of Reguatons 77 nterprets the foregong secton as
foows:
The specfc property sod or e changed must n genera have been
hed for more than two years. owever, n determnng the perod for whch
the ta payer has hed stock or securtes receved upon a dstrbuton n con-
necton wth a reorganzaton where no gan s recognzed to the dstrbutee
under the provsons of secton 112(g) of the Revcnuo ct of 1928 and sec-
ton 112(g) of the Revenue ct of 1932 (soe artce 57 ), there sha be n-
cuded the perod for whch the ta payer hed the stock or securtes n the
dstrbutng corporaton pror to the recept of the stock or securtes upon
such dstrbuton. If the ta payer has hed for more than two years stock
upon whch a stock dvdend has been decared, both the orgna and dvdend
shares are consdered to bo capta assets. If under the provsons of secton
113 property receved n an e change has for the purpose of determnng gan
or oss the same bass n whoe or n part n the ta payer s hands as the prop-
erty e changed therefor, the property receved n e change s consdered to be
capta assets f the tota perod durng whch such property and the orgna
property have bpen hed s more than two years. If property s acqured from
any person, and under the provsons of secton 113 has the same bass n
whoe or n part for the purpose of determnng gan or oss as t woud have
n the hands of the person from whom acqured, there sha be ncuded n de-
termnng the perod for whch the ta payer has hed such property the perod
for whch t was hed by such person. or nstance, n the case of property
acqured after December 31, 1920, ether by gft or by transfer n trust, the
perod for whch the property was hed by the donor sha be added to the
perod for whch the property was hed by the donee n determnng whether
the property was hed for more than two years. (See artces 593 and 594.)
In determnng the perod for whch a ta payer has hed stock or securtes
the acquston of whch (or the contract or opton to acqure whch) resuted
n the nondcductbty (under secton 118 of the Revenue ct of 1932 or the
Revenue ct of 1928, reatng to wash saes) of the oss from the sae or other
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75
101, rt. 501.
dsposton of substantay Identca stock or securtes, there sha be Incuded
the perod for whch he hed the stock or securtes the oss from the sae or
other dsposton of whch was not deductbe.
The theory underyng the statute and the reguatons s that tack-
ng of hodng perods s |ustfed n cases where new property s re-
garded as takng the pace of property prevousy hed n connecton
wth transactons n whch gan or oss s not recognzed under cer-
tan sectons of the evenue ct. In a other cases, as the regua-
tons state, the specfc property sod must have been hed for more
than two years. Secton 101(c) 8, supra, does not provde for tackng
to the perod for whch stock acqured through the e ercse of rghts
was hed the perod for whch the stock n respect of whch the
rghts were ssued was owned or hed, and the reguatons do not so
provde. There s, therefore, no specfc authorty n the statute or
n the reguatons for addng to the perod for whch stock acqured
through the e ercse of rghts was hed any porton of the perod for
whch the orgna stock (n respect of whch the rghts were ssued)
was hed. In ths connecton t s pertnent to state that snce the
statute above quoted sets out specfcay the severa cases n whch
tackng of hodng perods s permtted, and the stuaton here ds-
cussed s not mentoned, t s a far nference that Congress dd not
ntend to tack the hodng perods n such cases. (See Lews Suther-
and on Statutory Constructon, second edton, oume II, secton
493, and cases cted.)
It s true that under Mes v. Safe Depost d Trust Co. of atmore
(259 U. S., 247, 42 S. Ct., 483, Ct. D. 29, C. . 1-1, 72) a stock rght
s propery regarded as representatve of a porton of the stock-
hoder s orgna nvestment n the corporate enterprse. Ths was
recognzed n that part of Genera Counse s Memorandum 11 45,
supra, whch provded that, where stock rghts are sod, n deter-
mnng the perod for whch the ta payer hed the property there
sha be ncuded the perod for whch he hed the stock n respect of
whch the rghts were ssued. That poston not ony fnds support
n the theory underyng Mes v. Safe Depost Trust Co. of at-
more, supra, but aso n secton 101(c) 8(C), supra, as the ssuance
of stock rghts may be sad to effect (certany n some, f not n a,
cases) a recaptazaton of a corporaton, and thus the rghts may
be regarded as securtes n the reorganzed dstrbutng corporaton
receved wthout the surrender of the stock n respect of whch ds-
trbuted. In that event tackng s, of course, specfcay authorzed.
owever, whe these consderatons support the treatment of rghts
as capta assets, they do not |ustfy such treatment of stock acqured
through the e ercse of rghts, uness t s hed for the perod pre-
scrbed by statute. Stock so acqured s new stock obtaned by
vrtue of an addtona contrbuton of capta to the corporate
enterprse. The rght to subscrbe for addtona stock accrues to
each od stockhoder by vrtue of, and n proporton to, hs stock
hodngs, regardess of whether the fnanca condton of the corpora-
ton s such as to gve the rghts a market vaue. In many cases
stock rghts have no such vaue, and ther e ercse does not consttute
an appcaton or use of property of vaue to acqure new stock.
Consderatons other than a possbe market vaue n the rghts fre-
quenty ead stockhoders to nsst upon fu recognton of ther
rght to partcpate, n preference to strangers and on
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101, rt. 501.
7
equa terms wth other e stng stockhoders, n the prvege of
contrbutng new capta caed for by the corporaton .
(Mes v. Safe Depost Trust Co. of atmore, supra.)
ence, the actua capta nvestment made by the subscrbng
stockhoder may, and frequenty does, consst entrey of new funds.
In the great ma|orty of cases the new nvestment consttutes the
substanta porton of the cost of the new stock. rom a practca
aspect, therefore, the new stock represents a new or addtona nvest-
ment rather than a contnuaton of a porton of the orgna nvest-
ment n another form. Moreover, there actuay occurs a subscrp-
ton (a purchase) of new stock n the course of whch the rght and
cash or other property are converted nto the new property (new
stock). s the probem s whether the 11 specfc property sod has
been hed for more than two years, t s the opnon of ths offce n
vew of the foregong that the new stock may not propery be treated
as a capta asset, ether whoy or n part.
The foregong concuson s n accord wth the decson of the
oard of Ta ppeas n the case of Rodman . Grscom v. Com-
mssoncr, supra, and wth the more recent decson of the oard n
en yer Wood v. Commssoner (29 . T. ., No. 187, promu-
gated ebruary 9, 1934). In the Wood case the oard, after ds-
cussng Mes v. Safe Depost Trust Co., supra, stated that:
urthermore, whe the stockhoder recevng an ordnary proportonate
stock dvdend retans the same nterest n the corporaton that he had before
the ssuance of the stock dvdend (the corporaton merey transferrng surpus
to capta ( sner v. Macomber, 225 U. S., 189)), whether or not the stockhod-
er s nterest w be the same after ssuance of rghts to subscrbe depends upon
whether or not such rghts are e ercsed by the stockhoder recevng the rghts.
When rghts to subscrbe to new stock are gven, the stockhoder retans hs
former nterest n the corporaton ony upon condton that he e ercse the
rght accordng to ts terms and pay the prce f ed n such rght for such new
stock. It s, therefore, anaogous to, f not strcty n fact, a purchase of
stock, not at the market prce, f any, but at a prce f ed by the corporaton,
the rght to purchase beng frst e tended to stockhoders rather than to
strangers.
In vew of the foregong and after due consderaton of a of the other au-
thortes cted In pettoner s bref and of the argument of her counse, we are
of the opnon that the Grscom case shoud not be overrued and that snce
the 82 shares of stock n queston, havng been purchased on December 30, 1927,
and sod on pr 1 , 1929, were not hed by the pettoner for more than
two years, the same were not capta assets wthn the meanng of secton
101 (c)8 of the Revenue ct of 1928.
The foregong concuson s kewse n harmony wth I. T. 2447
(C. . III-1, 70), wheren t was concuded that the perod durng
whch a ta payer hed an opton coud not be added to hs perod of
ownershp of the stock acqured under the opton, n determnng
whether the stock was hed for more than two years for capta gan
or oss purposes. Snce a stock rght s smar n many respects to
an opton, that rung ends support to the concuson heren reached.
To the same effect are cases of D. C. othwc et. a. v. Comms-
soner (27 . T. ., 1351) and M. m-est Greencbaum, r., v. Com-
mssoner (27 . T. ., 889), wheren the oard hed that ownershp
dates from a purchase under an opton and not from the date of the
opton, n determnng the requred perod for whch property must
bo hed n order to consttute a capta asset under the capta
gan sectons of the Revenue ct.
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77
103, rt. 532.
or the foregong reasons Genera Counse s Memorandum 11 45,
supra, s revoked n so far as t hods that the gan derved or oss
sustaned upon the sae of stock acqured through the e ercse of
stock rghts may be treated n part as a capta gan or capta oss
where the stock sod was hed for two years or ess, but the orgna
stock n respect of whch the rghts were ssued was hed for more
than two years. Genera Counse s Memorandum 100G3, supra,
whch hods that stock acqured through the e ercse of stock rghts
must tsef be hed for a perod of more than two years n order to
consttute a capta asset, s renstated.
Robert . ackson,
Genera Counse, ureau of Interna Revenue.
S CTION 103. MPTIONS ROM T
ON CORPOR TIONS.
rtce 532: armers cooperatve marketng III-24- 847
and purchasng assocatons, and corpora- I. T. 2791
tons organzed to fnance crop operatons.
R NU CT O 1932.
empton of farmers cooperatve marketng organzatons.
Secton 103(12) of the Revenue ct of 1932 e empts from ncome
ta aton farmers assocatons whch are organzed or operated on
a cooperatve bass for the purpose of marketng the products of
members and other producers and turnng back to such members and
other producers the proceeds of saes, ess the necessary marketng
e penses, on the bass of the products furnshed by them. The foun-
daton of the e empton granted s the cooperatve nature of the
assocaton, the fact that the assocaton makes no proft on ts own
behaf but turns back to the producers a that t receves from the
sae of farm products, ess ony the amounts necessary to cover the
e penses of operaton. In order to show ts cooperatve nature and
to estabsh compance wth the requrement of the statute that the
proceeds of saes, ess necessary e penses, are turned back to a pro-
ducers on the bass of the products furnshed by them, t s, of
course, necessary for such an assocaton to keep records of the bus-
ness done both wth members and nonmembers. The statute does not
requre, however, that the assocaton keep edger accounts wth each
producer seng through the assocaton. ny records whch show
that the assocaton was operatng durng the ta abe year on a co-
operatve bass n the dstrbuton of patronage dvdends to a
producers w suffce.
Whe the statute requres that patronage dvdends be pad to a
producers on the same bass ths requrement s comped wth f an
assocaton, nstead of payng patronage dvdends to nonmember
producers n cash, keeps records from whch the proportonate shares
of the patronage dvdends due to nonmember producers can be de-
termned, and such shares are appcabe toward the purchase prce
of a share of stock or of a membershp n the assocaton.
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112. rt. 571. 78
SUPPL M NT . COMPUT TION OP N T INCOM .
S CTION 112. R COGNITION O G IN OR LOSS.
rtce 571: Recognton of gan or oss. III-14- 731
I. T. 2773
R NU CT OP 1932.
In 1933 the ta payer e changed a rea estate mortgage for
bonds of the ome Owners Loan Corporaton. ed, gan or oss
arsng from the e change must be recognzed.
rung s requested reatve to the ta abty of an e change by
the ta payer durng the year 1933 of a frst mortgage on rea prop-
erty for bonds of the ome Owners Loan Corporaton, ssued under
the ome Owners Loan ct of 1933, approved une 13, 1933. (48
Stat, 128.)
Provson s made n the above-named statute for the formaton of
the ome Owners Loan Corporaton, heren referred to as the
corporaton, whch was authorzed to ssue bonds n an aggregate
amount not to e ceed 2,000,000,000. or a perod of three years
from the date of enactment of the statute such bonds may be e -
changed for home mortgages and other obgatons or ens secured
by rea estate. In connecton wth any such e change a cash pay-
ment, not to e ceed 50, may be made n the ad|ustment of the
dfference between the face vaue of the bonds pus accrued nterest
and the purchase prce of the mortgage, obgaton, or en.
The ta payer was the owner of a frst mortgage on rea estate
n the prncpa amount of, and whch cost, 1,500 doars, on whch
there had accrued nterest n the amount of 250 doars. The mort-
gage, ncudng accrued nterest, was e changed by the ta payer for
bonds of the corporaton n the prncpa amount of 1,750a doars,
n connecton wth whch he receved a cash payment of .33a doars
by way of ad|ustment. The market quotaton of the bonds on the
date of the e change was 8 14. ased on that quotaton the far
market vaue of the bonds as of the date of the e change was
1,509.375 doars. ddng thereto, the amount of the cash payment
the tota consderaton receved by the ta payer for the mortgage, n-
cudng accrued nterest, was 1,509.705 doars. The ta payer keeps
hs books and renders hs returns on the cash recepts and dsburse-
ment bass. The queston presented s whether ths transacton re-
suted n ta abe gan or deductbe oss.
Secton 112(a) of the Revenue ct of 1932 provdes that upon the
sae or e change of property the entre amount of the gan or oss
sha be recognzed, e cept as therenafter provded. One of the
e ceptons s contaned n secton 112(b), and reads as foows:
No gan or oss sha be recognzed f property hed for productve use n
trade or busness or for nvestment (not ncudng stock n trade or other
propery hed prmary for sae, nor stocks, bonds, notes, chosea n acton, cer-
tfcates of trust or benefca nterest, or other securtes or evdences of n-
debtedness or nterest) s e changed soey for property of a I ke knd to be
hed ether for productve use n trade or busness or for nvestment.
The mortgage nvoved n the nstant case comes wthn the paren-
thetca porton of the quoted anguage, and the gan or oss arsng
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112, rt. 5711
from the e change must therefore be recognzed. The tota amount
of the consderaton receved was 1,509.705 doars. Snce the mort-
gage was acqured at a cost of 1,500 doars, the amount of proft
or ncome was 9.705 doars.
The bass on whch to compute gan or oss from the subsequent
sae or other dsposton of the bonds receved n the e change s the
far market vaue thereof as of the date of the e change, namey,
1,509.375a doars.
rtce 571: Recognton of gan or oss. III-18- 773
( so Secton 118, rtce 1. I. T. 2778
R NU CT O 1932.
The Seres debentures of the M Corporaton were Issued n
the amount of S doars under an ndenture dated n 1929. In
1930 an addtona ssue of a doars, desgnated as Seres ,
was made under a suppementa ndenture. The ony dfferences
between the two ssues are the dates of ssue and the amounts to
be redeemed annuay.
ed, any gan from an e change of Seres debentures for
Seres debentures must be recognzed under secton 112 of the
Revenue ct of 1932, but aowance of a oss s precuded by secton
118 of that ct.
The queston s presented reatve to the resut for ncome ta pur-
poses or an e change of Seres debentures of the M Corporaton
for Seres debentures of that corporaton.
The Seres debentures were ssued n the amount of 8 doars
under an ndenture dated n 1929. In 1930 addtona debentures n
the amount of doars were ssued n connecton wth a suppe-
menta ndenture, the atter ssue beng desgnated as Seres .
the debentures mature on the same date and the nterest rate and
dates for the payment of nterest are the same for both seres. Of
the debentures the amount of .5a doars was to be redeemed
annuay, and of the debentures the amount of .38a doars was
to be redeemed annuay. The queston presented arses n connec-
ton wth the e change of debentures of one seres for debentures of
the other seres.
Secton 112 of the Revenue ct of 1932 provdes n part as foows:
(a) Genera Rue. Upon the sae or e change of property the entre
amount of the gan or oss, determned under secton 111, sha be recognzed,
e cept as herenafter provded n ths secton.
(b) changes Soey n nd.
1) Property hed fob productve use or nvestment. No gan or oss sha
be recognzed f property hed for productve use n trade or busness or for
Investment (not ncudng stock n trade or other property hed prmary for
sae, nor stocks, bonds, notes, choses n acton, certfcates of trust or benefca
Interest, or other securtes or evdences of Indebtedness or nterest) s e -
changed soey for property of a ke knd to be hed ether for productve use n
trade or busness or for nvestment.
Secton 112(a) provdes n effect that every e change of property
resuts n a gan or oss for ncome ta purposes uness the transacton
comes wthn one of the e ceptons stated under the other subdv-
sons of secton 112. The ony e cepton under secton 112 whch
coud appy n the nstant case s subdvson (b) (1) quoted above,
but an e change of securtes s specfcay e cuded from that e cep-
ton. It foows, therefore, under the provsons of the statute
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112, rt. 579.
SO
quoted, that any san derved from the e change must be recognzed.
or the purpose of determnng the gan the amount of the consdera-
ton receved for the debentures dsposed of s the far market vaue
of the new debentures at the tme or the e change.
Wth reference to the deductbty of any oss resutng from such
an e change, secton 118 of the Revenue ct of 1932 provdes that a
oss sustaned from the dsposton of stock or securtes sha not bo
aowed as a deducton where the ta payer, wthn a perod of 30
days before or after the date of dsposton, acqures substantay
dentca stock or securtes. In the nstant case t shoud be noted
that the securtes e changed had the same maturty date, the same
nterest dates, and the same rate of nterest. y reason of the sm-
arty of the two ssues of debentures they are hed to consttute sub-
stantay dentca securtes wthn the meanng of secton 118. It
foows that snce ths e change resuted n a oss the aowance of
the oss as a deducton s precuded by secton 118 of the Revenue
ct of 1932.
Where such an e change resuts n a gan the far market vaue
at the tme of the e change of the debentures so acqured becomes the
bass on whch to compute the gan or oss from the subsequent sae
or other dsposton of the debentures acqured n the e change.
Where the e change resuts n a oss the cost or other bass of the
debentures e changed consttutes the bass on whch to compute the
gan or oss from the subsequent sae or other dsposton of the
debentures acqured n the e change.
rtce 579: Invountary converson of III-4-G 12
property. G. C. M. 12 57
R NU CT O 1932 ND TRIOR R NU CTS.
The entre amount of an award receved n connecton wth the
condemnaton of a porton of a ta payer s and must be consdered
as compensaton pad for the and condemned and gan or oss
recognzed upon that bass, uness the ta payer can show that
a porton of the award represents compensaton as severance
damages to hs remanng and.
Recommended that I. T. 17S7 (C. . II-2, 78) be revoked.
The Income Ta Unt has requested advce reatve to the proper
method of determnng gan or oss where a porton of the ta payer s
and s sod under threat or mmnence of condemnaton proceedngs,
but a separate aowance s not specfed for severance damages to
the remanng porton of the and.
In 1931 the M Company, under threat or mmnence of condemna-
ton proceedngs, sod to the State of R certan parces of and whch
were requred for use n connecton wth hghway mprovements.
The amount receved was doars, but no aocaton was made be-
tween the amount pad as compensaton for the and taken over and
the amount, f any, pad as severance damages to the remanng and.
The Unt asks to be nformed n partcuar whether the ureau
shoud contnue to appy the prncpes of I. T. 1787 to such cases.
In I. T. 1787 t was hed that where property was condemned for
street-wdenng purposes, and the compensaton pad ncuded a sum
whch represented the far market vaue of the porton condemned
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81
112, rt. 579.
and an amount equa to the dfference n vaue of the remanng por-
ton before and after the competon of the mprovements, the
amount receved by the ta payer shoud be deducted from the bass
of the entre property, and the remander, f any, shoud be used as
the bass n determnng the gan or oss upon the dsposton of the
remanng porton of the property. In that case there was no
aocaton made between the amount pad as compensaton for the
and condemned and the amount pad as severance damages. The
theory of I. T. 1787 s that where a ump sum s receved coverng
both compensaton for and condemned and compensaton for sev-
erance damages to the remanng and, any estmate of the amount
aowed as severance damages must be, to a great e tent, con|ectura
and specuatve, and that t s mpractcabe to determne the amount
pad as compensaton for the and condemned. Such a rue, of
course, prevents an mmedate determnaton of the gan or oss re-
sutng from dsposton of the and taken under such procedure.
On the other hand t was hed n I. T. 2599 (C. . -2, 170) that
where a stated amount s awarded as compensaton for and con-
demned, and a separate amount as severance damages to the reman-
ng and, gan or oss w resut from the porton of the award
whch represents the amount pad for the and condemned, but the
amount receved as severance damages shoud be apped aganst the
bass to be used n determnng gan or oss rasutng from the dspo-
ston of the remanng porton of the property.
The appcaton of the rue ad down n I. T. 1787 postpones
the determnaton of gan or oss n condemnaton cases of the charac-
ter to whch t appes unt the remanng and s sod. urther-
more, t often reduces to a sma amount the bass to be used n deter-
mnng gan or oss upon the dsposton of the remanng property,
and thus dstorts ncome for the year n whch such property s sod.
Secton 112 of the Revenue ct of 1928, under whch the nstant
case arose, provdes that upon the sae or e change of property the
entre amount of the gan or oss, determned under secton 111,
sha )e recognzed e cept as otherwse provded n secton 112. Sec-
ton 112(f) provdes that If property (as a resut of an
e ercse of the power of requston or condemnaton, or the threat
or mmnence thereof) s compusory or nvountary converted nto
property smar or reated n servce or use to the property so con-
verted, or nto money whch s forthwth n good fath, under regu-
atons prescrbed by the Commssoner wth the approva of the
Secretary, e pended n the acquston of other property smar
or reated n servce or use to the property so converted, or n the
acquston or contro of a corporaton ownng such other property,
or n the estabshment of a repacement fund, no gan or oss sha
be recognzed, but that // any part of the money s not so e
1 ended, the gan, f any, sha be recognzed, but n an amount not
tn e cess of the money whch s not so e pended. Itacs supped.
It s cear, therefore, that n condemnaton cases of the character
here under consderaton, uness the proceeds receved from the
award are converted nto smar property, the gan or oss resutng
from the transacton must be recognzed.
, It s the opnon of ths offce that the dffcuty whch may be
e perenced n estabshng what porton of the award receved rep-
resents compensaton for the and condemned does not |ustfy post-
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5112, rt. 579.
82
ponng the recognton of gan or oss unt the dsposton of the
remanng porton of the property. Ths concuson s supported
by the case of urnet v. ouston (283 U. S., 223, Ct. D. 328, C. .
-, 343). In that case the ta payer camed a deducton for a oss
n connecton wth the dsposton of certan property. Under sec-
ton 202 of the Revenue ct of 1918 t was necessary, n order to
estabsh the amount of the deductbe oss, to show both the cost
and the March 1,1913, vaue of the property. The ta pa3 er peaded
nabty to prove the March 1, 1913, vaue of the property. The
oard of Ta ppeas hed that the oss coud not be aowed. (See
. I. R. enry, ., v. Commssons, 13 . T. ., 279, consodated
wth the case of Samue . ouston v. Commssoner and two
others.) The Supreme Court, n affrmng the decson of the oard
and reversng the decson of the Crcut Court of ppeas (39 ed.
(2d), 351), stated as foows:
The burden of proof to estabsh a deductbe oss and the amount of t,
ceary, was upon the respondent (Reneckc v. Spadng, 280 U. S., 227, 233
Ct. . 154, C. . I -1, 305 Unted States v. nderson, 209 U. S., 442, 443
T. D. 3839, C. . -, 170 .) It was |ust as necessary under the statute for
the respondent to prove vaue as of March 1, 1913, as t was to prove cost n
190 and the amount fnay receved by hm n 1920. The court beow, after a
revew of the facts, dsposed of the matter by sayng:
To determne, n vew of these varabe factors, or ack of factors, ts true
or appro mate vaue on a gven date, as that of March 1, 1913, seected by the
Commssoner as the bass of the ta cacuaton, was a sheer mpossbty.
The ony f ed factors n the stuaton were those of cost n 190 and return n
1920. It foows that the proper bass for measurng the pettoner s admtted
oss because the ony possbe bass was that of cost and return.
We can not af| ee that the mpossbty of estabshng a specfc fact, made
essenta by the statute as a prerequste to the aowance of a oss, |ustfes a
decson for the ta payer based upon a consderaton ony of the remanng
factors whch the statute contempates. The defnte requrement of secton
202(a) 1 of the ct s not thus easy to be put asde. The mpossbty of
provng a matera fact upon whch the rght to reef depends, smpy eaves
I he camant upon whom the burden rests wth an unenforcbe cam, a ms-
fortune to be borne by hm, as t must be borne n other cases, as the resut
of a faure of proof. (Compare ndencood v. Wng, 4 De Ge ., M. G., C32,
G( 0 Newe v. Nchos, 75 N. Y., 78, 90 state of e, 73 Ws., 4-15, 459-100,
41 NT. W., G27 2 Chamberayne, Modern Law of vdence, secton 970.)
It s the opnon of ths offce that the concuson reached by the
Supreme Court n that case s appcabe to the facts nvoved n
the nstant case. ccordngy, f a ta payer contends that the award
receved by hm n connecton wth a condemnaton of a porton
of hs and ncudes an amount pad as severance damages to hs
remanng and, whch shoud be deducted from the amount of the
award n determnng the compensaton pad for the and con-
demned, the burden s upon the ta payer to show the amount of such
severance damages otherwse the entre amount receved must be
consdered as compensaton pad for the and condemned and gan
or oss recognzed upon that bass. The ta payer s nabty to
show the porton of the award whch represents compensaton pad
for damages to hs remanng and does not |ustfy treatng a trans-
acton whch, under the statute, gves rse to recognzabe gan or
oss as one n whch no gan or oss s recognzed. It s not beeved
that the amount of damages, f any, to the remanng and n a case
of ths character ordnary s mpossbe of proof. If the eements
of damage to the remanng and can be shown, t shoud be
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11 , rt. 43.
possbe to e press such damage n doars and cents or the amount
of such severance damages, f any, may be ascertaned by a com-
parson of the vaue of the remanng and mmedatey before and
mmedatey after the condemnaton proceedngs, or from a com-
parson of the tota amount receved to the vaue of the and
actuay condemned. (If the condemnaton nvoves the destructon
of budngs, the vaue of such budngs shoud, of course, be taken
nto consderaton.) If the ta payer can show the porton of the
award whch represents compensaton for the and condemned and
the amount representng compensaton for severance damages, the
ureau, foowng the rue ad down n L T. 2599, w determne
the gan or oss resutng from the and condemned from the amount
receved as compensaton for that and, and w appy the amount
awarded as severance damages aganst the bass of the remanng
and.
though the concuson reached n ths memorandum s based on
a consderaton of the provsons of the Revenue ct of 1928, the
same concuson s appcabe under the subsequent and pror Reve-
nue cts.
In vew of the foregong, ths offce s of the opnon that the
ureau, n the treatment of cases of ths character, shoud adopt
the poston ndcated n ths memorandum and that I. T. 1787
shoud be revoked.
. arrett Phettyman,
Genera Counse, ureau of Interna Revenue.
S CTION 11 . CLUSIONS ROM GROSS
INCOM .
rtce 43: Compensaton of State offcers III-20- 794
and empoyees. I. T. 2782
R NU CT O 1932.
The actvtes of the oard of Transportaton of the Cty of New
York are propretary and not governmenta n character. ccord-
ngy, the compensaton of ts offcers and empoyees Is sub|ect to
edera ncome ta .
dvce s requested whether the compensaton of the offcers and
empoyees of the oard of Transportaton of the Cty of New York
s sub|ect to edera ncome ta .
In 1891 the Legsature of the State of New York passed an act
under whch a rapd transt board was created for the cty of New
York to nvestgate the necessty for any new rapd transt con-
structon, and to adopt the routes and genera pan of constructon
to obtan consent of the board of estmate for such constructon to
adopt detaed pans for constructon and operaton and to se
the rght of constructon and operaton to a prvate corporaton
provded for under the terms of the act.
In 1894 the voters approved muncpa constructon and ownershp
of subways to be eased to, and operated by, prvate companes. The
eases were to run for perods of from 35 to 50 years, but the cty had
the rght to termnate them 10 years after the begnnng of operaton,
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UG, rt. 43.
84
and to take over the pant and property at a prce not e ceedng cost,
pus 15 per cent. The prce was to decrease each year, so that at
the end of the fu term of the ease no amount was to be pad e cept
for equpment.
In 1924 the egsature passed an act whch gave the cty of New
York the rght not ony to construct subways but to operate them.
In accordance wth the provsons of that act the board of transpor-
taton was created on uy 1, 1924. In addton to the dutes of the
rapd transt board stated above, the board of transportaton was
gven the foowng dutes:
(1) Upon the adopton of any route and genera pan of construc-
ton, t sha prepare and fe n the offce of the board of estmate
a statement showng n deta the estmated cost of constructon and
equpment and the tme requred for competon, together wth an
estmate of the prospectve resuts of the operaton over a perod of
10 years.
(2) The board of transportaton may act as agent for the cty
to prepare and submt pans for the constructon of tunnes under
any waterway wthn or ad|onng the cty mts.
(3) s agent for the cty t may proceed wth the constructon
and equpment of a or part of such tunnes.
(4) It may rent such offces and empoy such engneers, attorneys,
and other persons as may be necessary.
(5) Sub|ect to the approva of the board of estmate, t sha have
fu power to provde for mantenance, supervson, and operaton
of gaeres, subways, and tunnes constructed at the e pense of the
cty.
( ) It may sue or brng ega acton n the name of and n behaf
of the cty n any case arsng out of the constructon or operaton of
any raroad under the 1924 act.
In order for (he compensaton receved by an ndvdua from a
State or potca subdvson thereof to be e empt from edera
ncome ta such compensaton must be receved by hm as an offcer
or empoyee of the State or potca subdvson for servces rendered
n the e ercse of an essenta governmenta functon. ( rtce 43
of Reguatons 77.)
In the case of In re oard of Rapd Transt R. Corners of the Cty
of New York (90 N. ., 45 ), decded by the Court of ppeas of
New York, the court had under consderaton the queston whether
the cty of New York n budng a subway coud avod abty for
resutng n|ury to abuttng property. In decdng that queston the
court M as caed upon to determne whether the budng of a subway
n connecton wth the constructon, operaton, or easng of a ra-
road theren, under the rapd transt act (Laws of New York, 1891,
page 3, ch. 4, as amended), was propretary or governmenta n char-
acter. In the course of ts opnon the court sad:
1. Was I he acton of tho cty n budng the subway governmenta or pro-
pretary n character The cty owns the subway, and t s a raroad cor-
poraton so far as the constructon, operaton, an easng thereof s concerned.
It was not requred but smpy permtted, to bud and operate the road. It s
authorzed to ease ts raroad, ether for a specfed sum of money or a
specfed proporton of ncome, earnngs or profts, or It may operate the road
tsef, and charge such rates of fare for the transportaton of persons and
property as may be f ed by ts own boards and offcers. In other
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119, rt. 72
words, the subway s a busness enterprse of the cty, through whch money
may be made or ost, the same as f t were owned by an ordnary raroad
corporaton. It was but by and beongs to the cty as a propretor, not as a
soveregn. (Ma man v. Mayor, etc., of New York, 02 N. Y., 1 0, 20 m.
Rep.. 4 8 Mtsano v. Mayor, etc.. of New York, 1 0 N. Y., 123, 54 N. .. 744
South Carona v. Unted States, 199 U. S., 437, 20 Sup. Ct., 110, 50 L. d., 201.)
In the case of nt v. Stone Tracy Co. (220 U. S.. 107). the
Unted States Supreme Court stated n part as foows:
It s no part of the essenta governmenta functons of a State to provde
means of transportaton, suppy artfca ght, water and the ke. These ob-
|ects are often accompshed through the medum of prvate corporatons. .
The true dstncton s between the attempted ta aton of those operatons of
the States essenta to the e ecuton of ts governmenta functons, and whch
the State can ony do tsef, and those actvtes whch are of a prvate char-
acter. The former, the Unted States may not nterfere wth by ta ng the
asencos of the State n carryng out ts purposes the atter, are
not removed from the fed of egtmate edera ta aton. Itacs supped.
See aso Metcaf ddy v. Mtche (2 9 U. S., 514).
In vew of the foregong, t s hed that the actvtes of the oard
of Transportaton of the Cty of New York are propretary and not
governmenta n character. ccordngy, the compensaton of ts
offcers and empoyees s sub|ect to edera ncome ta .
S CTION 118. LOSS ROM W S S L S O
STOC OR S CURITI S.
rtce 1: Losses from wash saes of stock or securtes.
R NU CT O 1032.
change of two debentures dentca e cept n dates of ssue and
amounts to be redeemed annuay. (See I. T. 2778, page 79.)
S CTION 119. INCOM ROM SOURC S
WIT IN UNIT D ST T S.
rtce 72: Interest. III-25- 857
( so Secton 232, rtce 1111.) I. T. 2792
R NU CT O 1932.
Ta abty of nterest receved by a foregn corporaton on ts
bank deposts and foregn bonds, and the deductbty of operatng
e penses from the nterest ncome.
dvce s requested wth respect to the ta abe status of nterest
ncome receved by the M Socety, a foregn corporaton, and the
deductbty of e penses ncdent to ts operaton.
The M Socety mantans a buyng depot n the Unted States and
acts as agent for the N Socety. oth organzatons are federatons
of reta cooperatve socetes n a foregn country, and the Unted
States depot buys for both organzatons. The Unted States buyng
depot functons soey as a purchasng organzaton for foregn
cooperatves whch have branches n many dfferent countres. ach
of the two socetes mentoned hods a membershp n the O Socety,
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119, rt. 72.
8
and ts membershp s made up of smar socetes n varous coun-
tres n urope and other parts of the word. The commodtes pur-
chased, as we as the e penses and mantenance of the buyng depot,
are pad for out of remttances from the centra offce n a foregn
country, e cept to the e tent that there may be avaabe nterest
receved by the M Socety on bank deposts n the Unted States and
nterest on foregn bonds purchased by the M Socety abroad and
hed n ths country. The actvtes of the organzaton are such as
to consttute a trade or busness carred on wthn the Unted States.
(I. T. 140 , C. . 1-2, 151.) urthermore, the socety has an offce
or pace of busness n ths country. It s, therefore, cassfed as a
rasdent foregn corporaton and s ta abe ony upon ncome from
sources wthn the Unted States. (See secton 231 of the Revenue
ct of 1932.)
Secton 119(a) 1 of the Revenue ct of 1932 provdes that there
sha be treated as ncome from sources wthn the Unted States
nterest on bonds, notes, or other nterest-bearng obgatons of
resdents, corporate or otherwse, not ncudng
( ) Interest on deposts wth persons carryng on the bankng busness pad
to persons not engaged n busness wthn the Unted States and not havng
an offce or pace of busness theren, or
( ) nterest receved from a resdent foregn corporaton,
when t s shown to the satsfacton of the Commssoner that ess than 20
per centum of the gross ncome of such resdent payor has been
derved from sources wthn the Unted States, as determned under the
provsons of ths secton, for the 3-year perod endng wth the cose of the
ta abe year of such payor precedng the payment of such nterest, or for
such part of such perod as may be appcabe, .
s the M Socety s engaged n busness wthn the Unted States
and has an offce or pace of busness theren, nterest receved by t
on bank deposts n the Unted States consttutes ncome from
sources wthn the Unted States wth respect to whch the foregn
corporaton s sub|ect to edera ncome ta .
s to the ta abty of the nterest on foregn bonds, t s hed, n
accordance wth secton 119(a) 1( ) of the Revenue ct of 1932,
quoted above, that n the event the ssung corporaton s a resdent
foregn corporaton dervng 20 per cent or more of ts gross ncome
from sources wthn the Unted States wthn the meanng of that
secton, the nterest consttutes ncome sub|ect to ta .
Wth regard to .the deductbty of the e penses of the operaton
of the buyng depot from nterest on the ta payer s bank deposts
or from nterest on foregn bonds owned by t, secton 232 of the
Revenue ct of 1932 provdes that n the case of a foregn corpora-
ton the deductons sha be aowed ony f and to the e tent that
they are connected wt ncome from sources wthn the Unted
States. To be aowabe, therefore, the deducton must be con-
nected wth ncome from sources wthn the Unted States. The
word connected means |oned or nked together by some te, as
of causaty, reatonshp, or ntmacy. The meanng at once sug-
gested s that the requste te between the deducton and the n-
come s that of causaty, that s, that the e pendture for whch
the deducton s camed must enter nto, and be drecty reated to,
the producton of the ncome.
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87 131, rt. 99.
Generay speakng, the actvtes of the buyng depot n ths case
are not so connected wth the earnng of the nterest on bank de-
posts that a operatng e penses of the depot are aowabe as
deductons aganst that nterest. It may be, however, that certan
tems of the e penses are connected wth the producton of the n-
terest on the bank deposts and, f so, to the e tent that they are
so connected, they are aowabe as deductons aganst the nterest
ncome.
In regard to the deductbty of the operatng e penses of the
buyng depot from the nterest on the foregn bonds purchased abroad
and hed n ths country, there appears to be no connecton between
the nterest from that source and the operatng e penses whch
woud warrant the deducton of the e penses from such ncome.
SUPPL M NT C CR DITS G INST T .
S CTION 131. T S O OR IGN COUNTRI S
ND POSS SSIONS O UNIT D ST T S.
rtce 91: nayss of credt for ta es.
R NU CT O 1032.
Dvdends pad by an rgentne mted company wth respect to
whch ta was wthhed under the rgentne ncome ta aw. (See
L T. 27 2, page 4.)
rtce 95: Countres whch do or do not satsfy III-8- 71
the smar credt requrement. Mm. 4148
( so Secton 212, rtce 1042.)
Smar credts requrement of secton 131(a)3 of the Revenue
ct of 1932.
quvaent e empton requrement of sectons 212(b) and
231(b) of the Revenue ct of 1932.
Treasuhy Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, ebruary 7, 1934.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
Offcers and mpoyees of the Income Ta Unt, and Others
Concerned:
Secton 131(a) of the Revenue ct of 1932 provdes n part:
mcunce of credt. If the ta payer sgnfes n hs return hs desre to
have the benefts of ts secton, the ta mposed by ths tte sha be credted
wth:
(1) Ctzen and domestc corporaton. In the ca.se of a ctzen of the Unted
States and of a domestc corporaton, the amount of any ncome, war-profts,
and e cess-profts ta es pad or accrued durng the ta abe year to a|y foregn
eonntry or to any possesson of the Unted States and

(3) en resdent of Unted States. In the case of an aen resdent of
the Unted States, the amount of any such tu es pad or accrued durng the
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131, rt, 95.1
88
ta abe year to any foregn country, f the foregn country of whch such aen
resdent s a ctzen or sub|ect, n Imposng such ta es, aows a smar credt
to ctzens of the Unted States resdng n such country .
Secton 212(b) of the ct provdes:
Shps under foregn fag. The ncome of a nonresdent aen ndvdua whch
conssts e cusvey of earnngs derved from the operaton of a shp or shps
documented under the aws of a foregn country whch grants an equvaent
e empton to ctzens of the Unted States and to corporatons organzed n
the Unted States, sha not be ncuded n gross ncome and sha be e empt
from ta aton under ths tte.
Secton 231(b) of the ct provdes:
Shps under foregn fug. The ncome of a foregn corporaton, whch con-
ssts e cusvey of earnngs derved from the operaton of a shp or shps
documented under the aws of a foregn country whch grants an equvaent
e empton to ctzens of the Unted States and to corporatons organzed In
the Unted States, .sha not be ncuded n gross ncome and sha be e empt
from ta aton under ths tte.
rtce 95 of Reguatons 77 provdes n part:
country does not satsfy the smar credt requrement of sec-
ton 131(a)3 of the Revenue ct of 1932, f It does not aow any credt to
ctzens of the Unted States resdng n such country for the amount of ncome
ta es pad to the Unted States, or f such country does not mpose any ncome
ta es.
rtce 1042 of Reguatons 77 provdes:
cuson of earnngs of foregn shps from gross ncome. So much of the
ncome from sources wthn the Unted States of a nonresdent aen ndvdua
as conssts of earnngs derved from the operaton of a shp or shps docu-
mented under the aws of a foregn country whch grants an equvaent e emp-
ton to ctzens of the Unted States nonresdent n such foregn country and
to corporatons organzed n the Unted States, sha not be ncuded n gross
ncome. oregn countres whch ether mpose no ncome ta , or n mposng
such ta , e empt from ta aton so much of the ncome of a ctzen of the Unted
States nonresdent n such foregn country and of a corporaton organzed n
the Unted States as conssts of earnngs derved from the operaton of a shp
or shps documented under the aws of the Unted States are consdered as
grantng an equvaent e empton wthn the meanng of ths artce.
The foowng countres do not mpose any ncome ta :
ndorra, Domncan Repubc, gypt, Guatemaa, onduras,
Monaco, Morocco, Ncaragua, Swtzerand, Uruguay, enezuea.
These countres therefore do not satsfy the smar credts requre-
ment of secton 131 (a)3 of the Revenue ct of 1932. Consequenty
ctzens or sub|ects of these countres who are resdents of the Unted
States, n computng ther edera ncome ta abtes under the
Revenue ct of 1932 are not entted to a credt on account of the
payment of any ncome, war-profts or e cess-profts ta made to
any foregn country.
Such countres do, however, satsfy the equvaent e empton re-
qurement of sectons 212(b) and 231(b) of the Revenue ct of 1932.
Consequenty so much of the ncome from sources wthn the Unted
States of a nonresdent aen ndvdua or a foregn corporaton as
conssts of earnngs derved from the operaton of a shp or shps
documented under the aws of any of these countres sha not be
ncuded n gross ncome under the provsons of the Revenue ct
of 1932.
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89 131, rt. 98,
Correspondence and nqures regardng ths mmeograph shoud
refer to the number and the symbos IT: : CTR.
Guy T. everng,
Commsso ner.
rtce 95: Countres whch do or do not III-22- 815
satsfy the smar credt requrement. I. T. 2784
R NU CT O 1932.
Great rtan does not satsfy the smar credt requrement of
secton 131 (a)3 of the Revenue ct of 1932.
ktce 95: Countres whch do or do not sat- III-25- 858
sfy the smar credt requrement. I. T. 2793
R NU CT O 1032.
Sam does not satsfy the smar credt requrement of secton
131 (a) 3 of the Revenue ct of 1932.
rtce 98: Lmtatons on credt for III-12- 70
foregn ta es. G. C- M. 12882
R NU CTS O 1921, 1924, 192 , 1928, ND 1932.
The formua set forth In that part of e ampe (3) at the top of
page 234, artce 98, Reguatons 77 (Revenue ct of 1932), for
determnng the ta pad by a foregn corporaton upon or wth
respect to the accumuated profts, n connecton wth the com-
putaton of the foregn ta credt, s to be apped under the earer
Revenue cts.
dvce s requested whether the formua set forth n that part of
e ampe (3) appearng at the top of page 234, artce 98, Regua-
tons 77, for determnng the ta pad by a foregn corporaton
u upon or wth respect to the accumuated profts, n connecton wth
the computaton of the foregn ta credt under the provsons of
secton 131(f) of the Revenue ct of 1932, s equay appcabe
under the provsons of the Revenue cts of 1921, 1924, 192 ,
and 1928.
The formua stated n words s ths: The ta pad upon or wth
respect to the accumuated profts s not the whoe ta , but that
proporton ony of the whoe ta whch the accumuated profts s
of the tota ncome.
In so far as the nqury s concerned the provsons of secton
131 (f of the Revenue ct of 1932 are substantay smar to those
contaned n secton 238(e) of the Revenue cts of 1921, 1924, and
192 and secton 131 (f) of the Revenue ct of 1928.
ccordngy, t s hed that the formua n queston s to be apped
under the Revenue cts of 1921, 1924, 192 , and 1928.
T7 2 34 4
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141, rt. 11 (Regs. 78). 90
SUPPL M NT D. R TURNS ND P YM NT O T .
S CTION 141. CONSOLID T D R TURNS
O CORPOR TIONS.
rtce 11, Reguatons 78: Consodated re- III - 13
turns for subsequent years. I. T. 2753
R NU CT O 1932.
In the case of an affated group of corporatons whch made a
consodated ncome ta return for the ta abe year 1932 after the
promugaton of Reguatons 78, and no corporaton (other than a
corporaton created or organzed, drecty or ndrecty, by a mem-
ber of the affated group) has become a member of the affated
group (urng the ta abe year 1033, such affated group does not
have an eecton to make a consodated return or separate returns
for the ta abe year 1933, but s requred to make a consodated
return for that year uness permsson s obtaned to make separate
returns as provded n artce 11(a) of Reguatons 78.
dvce s requested whether an affated group of corporatons
whch has e ercsed the prvege of makng a consodated ncome
ta return for the ta abe year 1932 s gven a new eecton for the
ta abe year 1933, under the Revenue ct of 1932, because of the
amendments made to that ct by secton 218 of the Natona Indus-
tra Recovery ct.
Secton 141(a) of the Revenue ct of 1932 provdes that the mak-
ng of a consodated return by an affated group of corporatons
sha be upon the condton that a the corporatons whch have been
members of the affated group at any tme durng the ta abe year
for whch the return s made consent to a the reguatons prescrbed
under secton 141(b) of that ct, or n case such reguatons were
not promugated pror to the makng of the return, then the regua-
tons promugated under secton 141(b) of the Revenue ct of 1928.
rtce 11(a) of Reguatons 78 promugated under secton 141(b)
of the Revenue ct of 1932 provdes as foows:
If a consodated return s made under these reguatons for the ta abe year
1932 or any ta abe year thereafter, a consodated return must be made for
each subsequent ta abe year durng whch the affated group remans n
e stence uness (1) a corporaton (other than a corporaton created or organ-
zed, drecty or ndrecty, by a member of the affated group) has become a
member of the group durng such subsequent ta abe year, or (2) one or more
provsons of these reguatons, whch have prevousy been consented to, have
been amended, or (3) the Commssoner, pror to the tme of makng the return,
upon appcaton made by the common parent corporaton and for good cause
shown, grants permsson to change.
In the opnon of ths offce, the amendments made to the Revenue
ct of 1932 by secton 218 of the Natona Industra Recovery ct do
not requre the amendment of Reguatons 78 n so far as the prov-
sons of those reguatons appy to the ta abe year 1933. Therefore,
n the case of an affated group of corporatons as defned by secton
141(d) of the Revenue ct of 1932. whch made a consodated ncome
ta return for the ta abe year 1932 after the promugaton of Regu-
atons 78, and no corporaton (other than a corporaton created or
organzed, drecty or ndrecty, by a member of the affated group)
has become a member of the affated group durng the ta abe year
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91
149, rt. 841.
1933, such affated group does not have an eecton to make a con-
sodated return or separate returns for the ta abe year 1933, but s
requred to make a consodated return for that year uness perms-
son s obtaned to make separate returns as provded n artce 11(a)
of Reguatons 78.
S CTION 142. IDUCI RY R TURNS.
rtce 741: ducary returns.
R NU CT O 1932.
Requrements appcabe to returns under Tte I, Revenue ct of
1932, as amended, for the caendar year 1933 and succeedng ta abe
perods. (See T. D. 441 , page 8.)
S CTION 149. R TURNS O RO RS.
rtce 841: Return of nformaton by brokers. III-5- 32
Mn. 4139
Returns of nformaton requred to be fed by brokers and other
agents.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, anuary 19, 1934-
Coectors of Interna Revenue, Interna Revenue gents n Charge
and Others Concerned:
Secton 149 of the Revenue ct of 1932 provdes that every person
dong busness as a broker sha, when requred by the Commssoner,
render a correct return duy verfed under oath, under such rues
and reguatons as the Commssoner, wth the approva of the Secre-
tary, may prescrbe, showng the names of customers for whom such
person has transacted any busness, wth such detas as to the profts,
osses, or other nformaton whch the Commssoner may requre,
as to each of such customers, as w enabe the Commssoner to
determne whether a ncome ta due on profts or gans of such
customers has been pad.
rtce 841 of Reguatons 77 provdes that when drected by the
Commssoner, ether specay qr by genera reguaton, every per-
son dong busness as a broker sha render a return on orm 1100,
showng the names and addresses of customers to whom payments
were made or for whom busness was transacted durng the caendar
year or other specfed perod ne t precedng, and gvng the other
nformaton caed for by the form.
In accordance wth the foregong every person or organzaton
actng as broker or other agent n stock, bond, or commodty trans-
actons (ncudng banks whch hande orders for depostors or cus-
todan accounts) s hereby drected to make an annua return of
nformaton on orm 1100 for each customer, depostor or account
for whom or whch the aggregate of ether purchases or saes
amounted to 25,000 or more durng the caendar year 1933 and each
subsequent caendar year, uness otherwse specfcay drected, show-
ng the name and address of the customer and the tte of the account
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149, rt. 841.
92
the tota of the purchases and the tota of the saes made for such
customer name and address of the broker or agent and the names
and addresses of the guarantor of the account and others wth power
to make wthdrawas of cash, securtes or commodtes from the ac-
count. orm 1100 s prnted on whte paper and a dupcate thereof
s prnted on pnk paper. In each case where the account s guaran-
teed or others have power to make wthdrawas of cash, securtes,
or commodtes from the account, a dupcate of the form as pre-
pared on whte paper w be made on the pnk form for each name
and address, other than the customer, requred to be shown on
orm 1100.
orm 1100 s provded for use as a etter of transmtta and
affdavt to accompany orms 1100. The orms 1100 for each year
accompaned by orm 1100 , propery fed out and e ecuted, shoud
be forwarded to the Commssoner of Interna evenue, Sortng
Secton, Washngton, D. C, not ater than the 15th day of ebruary
foowng the cose of the caendar year.
The forms (1100 and 1100 ) for the caendar year 1933 and sub-
sequent caendar years w be dstrbuted through the coectors of
nterna revenue for the varous coecton dstrcts.
Returns made by ndvduas must be sworn to by the ndvdua
or hs duy authorzed agent. Returns made by corporatons, part-
nershps and other organzatons must be sgned and sworn to by an
offcer or member of the organzaton.
e stng reguatons and nstructons whch are nconsstent
wth the foregong are hereby revoked.
Inqures and correspondence regardng ths mmeograph shoud
refer to the number and the symbos IT: : CTR.
Gut T. everng,
Co mmssonc r.
rtce 841: Return of nformaton by brokers. III-9- G74
Mm.4153
Returns of nformaton requred to be fed by brokers and
other agents.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, ebruary 1 , 1934.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Other Offcers and mpoyees Concerned:
The provsons of Mmeograph 4139 page 91, ths uetn , nso-
far as they reate to banks, trust companes, and ther securty
affates and to transactons n commodtes, are hereby amended
as foows:
(1) The makng of orms 1100 for the caendar year 1933 by
banks, trust companes and ther securty affates may be confned
to cases nvovng saes for customers aggregatng 25,000 or more
durng that year, and the doar totas may be omtted from the
orms 1100. It s to be understood, however, that such a form sha
be made for each case nvovng saes aggregatng 25,000 or more
durng that year.
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93
I 1 2, rt. 8 2.
(2) orm 1100 w not be requred to cover purchases or saes
made by banks, trust companes or ther securty affates when (a)
actng for themseves or any affated corporaton, or as e ecutor,
admnstrator, trustee, or n any other fducary capacty (not ncud-
ng custodan or safe-keepng accounts as fducary) (b) actng for
other banks, trust companes, brokers, or other fnanca nsttutons
dong busness n the Unted States and (c) when the bank, trust
company, or ts affate does not actuay gve orders to buy or se
securtes.
(3) rokers and other agents handng purchases and saes of
commodtes for customers may report on orm 1100 for the caen-
dar year 1933 ether the tota proft or oss, f 500 or more, on com-
modty transactons of each customer durng that year, or the tota
purchases or saes of 25,000 or more as requred by the above
mmeograph. orm 1100 shoud be prepared for each such cus-
tomer whenever the amount of the tota proft or oss of the customer
from such transactons s 500 or more for the caendar year, and f
the proft or oss s reported nstead of the tota purchases and saes
orm 1100 shoud be noted accordngy. Persons or organzatons
havng domestc correspondents w not report on orm 1100 for
such domestc correspondents, nasmuch as each correspondent w
report for hs or ts ndvdua customers.
ny orms 1100 whch have aready been prepared n accordance
wth the provsons of the above mmeograpn may be fed, and t
w not be necessary to make new forms or emnate any of those
aready prepared n order to conform to the above amendments.
Inqures and correspondence regardng ths mmeograph shoud
refer to the number and the symbos IT: : CTR.
Gut T. everng,
Commssoner.
SUPPL M NT . ST T S ND TRUSTS.
S CTION 1 2. N T INCOM .
rtce 8 2: Method of computaton of net III-8-0 70
ncome and ta . Mm. 414
ffect of decson of Supreme Court on treatment for edera
ncome ta purposes of amounts dstrbuted by fducary to a
wdow from the ncome of an estate or trust In cases where the
wdow eects to take under the w of her deceased husband n
eu of her statutory rghts.
Treast|rt Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, ebruary 5, 193 .
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
In ts decson rendered December 11, 1933, n the cases entted
everng, Commssoner of Interna Revenue, v. ua uMerworth
et a., Trustees under the W of Wam . utterworth, Deceased,
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1 2, rt. 8 3.
04
No. 75 everng, Commssoner of Interna Revenue, v. dety -
Phadepha Trust Co., Trustee under the. W of Wam L.
Du os, Deceased, No. 7 everng, Commssoner of Interna
Revenue, v. rank Pardee et a., Trustees under the WU of Cavn
Pardee, No. 77 and everng, Commssoner of Interna Revenue,
v. Tte Guarantee Loan Trust Co., as Trustee of the state of
. . Wodward, No. 78 Ct. D. 7 9, page 151, ths uetn, the Su-
preme Court sad:
These causes demand constructon and appcaton of the provsons of sec-
ton 21 , Revenue ct of 1024 (ch. 234, 43 Stat., 253, 275 (U. S. C, Tte 2 ,
secton 9 0)) whch ay a ta upon the Income of estates or of
any knd of property hed n trust, and drect that (b) (2) There sha be
aowed as an addtona deducton n computng the net ncome of the estate
or trust the amount of the ncome of the estate or trust for Its ta abe year
whch s to be dstrbuted currenty by the fducary to the benefcares,
but the amount so aowed as a deducton sha be ncuded In computng the
net ncome of the benefcares whether dstrbuted to them or not .
so, the Identca provsons of the Revenue ct of 192 (ch. 27, 44 Stat, 9,
32, 33) and the substantay smar ones of the Revenue ct of 1928 (ch. 852,
45 Stat.. 791, a3S. sectons 1 1 and 1 2).

Causes Nos. 75, 7 and 78 nvove the same pont of aw. The undsputed
facts are smar and t w suffce to state those of No. 75. The record n No.
77 presents another queston and the facts there w be set out.
The facts n the utterworth case, No. 75, as set forth n the dec-
son, are substantay as foows: Wam . utterworth, a resdent
of Pennsyvana, ded October 5, 1921. fter certan bequests, hs
w gave the resdue of the estate to named ndvduas, as trustees,
wth drectons to pay the net ncome to the wdow. She accepted
under the w and surrendered the rghts granted her by the State
aws. Durng 1921 and 1925 the trustees pad her the ncome from
the trust. The aggregate of these and antecedent payments was
ess than the estmated vaue of her statutory rghts n the estate.
In order to ascertan the ta abe ncome of the trust, the trustees
camed the rght to deduct from gross ncome the amount of the
payments made to the wdow. In No. 75 the court hed, n effect,
that when a wdow eects to take under her husband s w and
receves part or a of the ncome from an estabshed trust n eu
of her statutory rghts, she s a benefcary wthn the ambt of sec-
ton 219 (a) (2) and (b) (2) of the Revenue cts of 1924 and 192
and sectons 1 1 and 1 2 of the Revenue ct of 1928, and that n no
proper sense does she purchase an annuty. The court aso hed that
the trustees n Nos. 75, 7 , and 78 were entted to the deductons
camed.
In the Pardee case, No. 77, supra, the facts as set forth n the
decson are substantay as foows: Cavn Pardee, a resdent of
Pennsyvana, ded March 18, 1923. s w provded:
I aso gve unto my sad wfe an annuty of ffty thousand doars ( 50,000),
to be computed from the date of my decease and to be pad n advance In
quartery payments.
The tota amount pad by the trustees to the wdow under the w
durng the ta abe Tears 1924 and 1925 and pror thereto dd not ag-
gregate the vaue of the nterest to whch she woud have been
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95
1 2, rt. 8 2.
entted had she decned to take under the w. In computng the
ta abe ncome of the estate the trustees camed the amounts pad
to the wdow, as deductons under secton 219 of the Revenue cts
of 1924 and 192 . In No. 77 the court hed, n effect, that the annuty
provded by the w for the wdow was payabe at a events and dd
accept the annuty n eu of her statutory rghts, she chose to assume
the poston of an ordnary egatee that secton 213(b)3, Revenue
ct of 1924, e empts bequests from the ncome ta there ad that
payments to Mrs. Pardee by the fducary were not necessary made
from ncome that the charge was upon the estate as a whoe that
her cam was payabe wthout regard to ncome receved by the
fducary: that the payments made to her were not dstrbuton of
ncome, but were n dscharge of a gft or egacv and that the
prncpe apped n urnet v. Whtehome (283 U. S , 148, C. . -,
0 ) s appcabe. The court hed, among other thngs, n the Whte-
house case that where a testator bequeaths an annuty whch s not
dependent upon ncome of the estate but s a charge upon the whoe
estate durng the fe of the egatee, the amounts receved by the
egatee durng the ta abe year, though n fact pad from ncome of
the estate, are e empt from ta under secton 213(b)3 of the Revenue
ct of 1921 whch e empts the vaue of property acqured by gft,
bequest, devse or descent, from the ta . The court aso hed n No.
77 that n makng the returns for the trust, the trustees were not
entted to deduct from gross ncome the amounts pad to the wdow.
The prncpes apped by the court n Nos. 75, 7 , 77, and 78 are
aso appcabe to smar cases arsng under the Revenue ct of
The audt of a returns nvovng the queston of the proper
treatment for edera ncome ta purposes of amounts dstrbuted
by a fducary to a wdow from the ncome of the estate or trust n
cases where the wdow eects to take under the w of her husband
n eu of her statutory rghts n hs estate, w be competed as e -
pedtousy as possbe, effect beng gven to the decson rendered by
the Supreme Court n Nos. 75, 7 , 77, and 78. ccordngy n cases
comng wthn the purvew of Nos. 75, 7 , and 78 the amount of the
ncome of the estate or trust whch s to be dstrbuted currenty
or whch s propery pad or credted (wthn the meanng of sec-
ton 1 2 (b) and (c), Revenue ct of 1932, and correspondng sec-
tons of the earer cts) to the wdow, w be aowed as a deduc-
ton from gross ncome of the estate or trust and the amount of such
ncome w be ncuded n gross ncome of the wdow. In cases
comng wthn the purvew of No. 77, the amounts pad to the wdow
w not be aowed as a deducton from gross ncome of the estate
or trust and such amounts w not be ncuded n gross ncome of
the wdow.
Inqures n regard to ths mmeograph shoud refer to the number
thereof and the symbos IT: : CTR.
trust that when she eected to
1932.
Gut T. everno,
Commssoner.
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189, rt. 941
9
SUPPL M NT . P RTN RS IPS.
S CTION 189. P RTN RS IP R TURNS.
rtce 941: Partnershp returns.
R NU CT O 1932.
Coowners of o and gas eases. (See I. T. 2749, page 99.)
rtce 941: Partnershp returns.
R NU CT O 1932.
Requrements appcabe to returns under Tte I, Revenue ct of
1932, as amended, for the caendar year 1933 and succeedng ta abe
perods. (See T. D. 441 , page 8.)
rtce 941: Partnershp returns. III-22- 81
I. T. 2785
R NU CT O 1932.
In the case of eoownershp of o and gas auds and eases t
w be consdered suffcent compance wth I. T. 2749 page 99,
ths uetn f, n the cass of cases governed by that rung, a
return on orm 10 5, contanng nformaton n accordance wth
the form descrbed heren, s fed by the operatng coowner under
the operatng coovvner s name mmedatey foowng the nta
producton, and for each ta abe year thereafter.
Reference s made to the rung n I. T. 2749, supra, hodng that
the eoownershp of o and gas ands and eases and the deveopment
of the property ether by ndvduas or corporatons, or both, con-
sttute partnershps wthn the meanng of secton 1111 (a)3 of the
Revenue ct of 1932 and that such coownershps must fe partner-
shp returns.
It w be consdered suffcent compance wth I. T. 2749, supra,
f, n the cass of cases governed by that rung, a return on orm
1005 s hed by the operatng coowner under the operatng coowner s
name for the fsca or caendar year, as the case may be, mmedatey
foowng the nta producton, and for each ta abe year there-
after, showng the foowng nformaton:
In eu of fng n the severa tems and schedues on the partner-
shp return ( orm 10 5) there shoud be attached to the return a
schedue showng the tota workng nterest, names and addresses of
the coowners, the percentage of each coowner s nterest n the eoown-
ershp, tota costs and e penses bed each coowner wth respect to
drng for and producng the o and gas, and the tota revenue
credted n those cases where the operatng coowner dstrbuted reve-
nue to the other coowners (by way of credt or cash) from the sae
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97 212, rt. 1042.
or other dsposton of the coowncrs o and gas. Ths schedue
shoud be substantay n the foowng form:
OP R TORS R PORT OR COOW D OrL ND O S PROP RTI S.
or caendar or fsca year endng .
Name of property
Locaton-descrpton
County
State
Workng nterest.
Coowners.
Per cent of
nterest.
Tota
costs
bed.
Tota
revenue
credted.
(Operatng coowner.)
arres.
M cubc
feet.
If the nformaton contaned n the schedue s nsuffcent n the
case of any partcuar coowner, the ureau w request such add-
tona data as s deemed necessary.
SUPPL M NT . NONR SID NT LI N INDI IDU LS.
S CTION 212. GROSS INCOM .
rtce 1042: cuson of earnngs of foregn III-4- 14
shps from gross ncome. I. T. 2754
R NU CT O 1932.
Canada meets the equvaent e empton provsons of secton
212(b) and 231(b) of the Revenue ct of 1932.
btce 1042: cuson of earnngs of foregn II -G 15
shps from gross ncome. I. T. 2755
NU CT O 1032.
The Irsh ree State meets the recproca e empton provsons of
sectons 212(b) and 231(b) of the Revenue ct of 1932. The e emp-
ton accorded became effectve pr , 1932, the begnnng of the
frst ncome ta ta abe year to whch secton 10 of the fnance act of
1932 of the Irsh ree State s appcabe.
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527 , rt. 1201.
98
rtce 1042: cuson of earnngs of foregn shps
from gross ncome.
R NU CT O 1932.
empton from ta aton of earnngs derved from the operaton
of shps documented under the aws of certan countres that do not
mpose an ncome ta . (See Mn. 4148, page 87.)
SUPPL M NT I. OR IGN CORPOR TIONS.
S CTION 232. D DUCTIONS.
rtce 1111: Deductons aowed foregn corporatons.
R NU CT O 1932.
penses n connecton wth nterest on bank deposts and foregn
bonds. (See I. T. 2792, page 85.)
SUPPL M NT L. SS SSM NT ND COLL CTION O D ICI NCI S.
S CTION 27 . P IOD O LIMIT TION UPON SS SS-
M NT ND COLL CTION C PTIONS.
rtce 1201: Perod of mtaton upon assess- III- - 40
ment of ta . Mm. 4134
Instructons governng the e ecuton of consent agreements.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, anuary 1 ,1934-
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Other Offcers and mpoyees Concerned:
ffectve December 31,1933, Mmeograph 3857 (C. . -, 179) s
hereby revoked.
egnnng December 31, 1933, consents or wavers under secton
278(c), Revenue ct of 192 , secton 27 (b), Revenue ct of 1928,
and/or secton 27 (b), Revenue ct of 1932, e tendng or further
e tendng the statute of mtatons on assessment of defcences n
ncome or profts ta , w be e ecuted under the foowng
condtons:
(1) t the wrtten request of the ta payer where t appears that,
athough the ta payer has used ordnary dgence, the case can
not be adequatey presented and consdered wthn the statutory
perod of mtaton propery appcabe thereto.
(2) In any case where n the |udgment of the responsbe offcer
concerned the status of the case s such that the mmedate ssuance
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99
1111, rt. 1313.
of a 0-day etter w undoubtedy resut n tgaton whch may
be avoded f ampe tme s afforded the ta payer and the Govern-
ment to gve thorough consderaton to the questons nvoved.
ueres regardng ths mmeograph shoud refer to the number
thereof and to the symbos IT: : CTR.
Guy T. everng,
Commssoner.
TITL I . DMINISTR TI ND G N R L
PRO ISIONS.
S CTION 1111. D INITIONS.
rtce 1313: ssocaton dstngushed from III-1- 583
partnershp. I. T. 2749
( so Secton 189, rtce 941.)
R NU CT O 1032.
Coownersps of certan o and gas eases and deveopment of
the property by the coowners consttute partnershps wthn the
meanng of secton 1111 (a)3 of the Revenue ct of 1932.
dvce s requested whether the coownershps of certan o and
gas eases and the deveopment of the property covered by the eases
resut n partnershps wthn the meanng of secton 1111 (a)3 of
the Revenue ct of 1932.
The nqury arses by reason of the fact that the foowng artce
appearng n Reguatons 74 was omtted from Reguatons 77:
bt. 1317. ont ownershp. ont nvestment n and ownershp of rea and
persona property not used n the operaton of any trade or busness and not
covered by any partnershp agreement does not consttute n partnershp.
Coowners of o ands engaged n deveopng the property through a common
agent are not necessary partners.
The subsdares of the ta payer corporaton are coowners of a
arge number of o and gas eases. In some cases the tte was
acqured by drect cash purchase of a part nterest n a ease, and n
other cases a part nterest was acqured n consderaton of drng
a we on an undeveoped easehod. In ether case the purchaser
was entted to a share of the proceeds from the property.
The gross revenue from such propertes s pad to and accounted
for by the coowners monthy. pendtures n the deveopment and
operaton of the propertes are pad by the coowners monthy n
proporton to ther nterests. The pan of operaton provdes for
monthy settements wth respect to both gross and net ncome. The
accountng method adopted resuts n a compete perodca account-
ng for revenue and e pense n the same manner as n the case of a
separate pece of property.
Secton (a)3 of the Revenue ct of 1932 reads as foows:
(3) The term partnershp ncudes a syndcate, group, poo, |ont venture,
or other unncorporated organzaton, through or by means of whch any bus-
ness, fnanca operaton, or venture Is carred on, and whch s not, wthn the
meanng of ths ct, a trust or estate or a corporaton and the term partner
ncudes a member n such a syndcate, group, poo, |ont venture, or organzaton.
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11111, rt. 1313.
100
In the nstant case the coownershps of the o and gas eases and
the operatons thereunder may be fary consdered as fang wthn
the broad scope of the term |ont venture. Whe the term |ont
venture s usuay, but not necessary, mted to a snge trans-
acton, t has been hed that the busness of conductng such a venture
to a successfu termnaton may contnue for a number of years
( obart-Lee Tre Co. v. Goodsky, 4 S. W. (2d), 859). It s true
that ordnary |ont or coownershp of property does not of tsef
consttute a partnershp but t s aso true that when the coowners or
|ont owners agree to empoy such property n the carryng on of a
trade or busness they become partners (47 C. ., 702).
It s hed n the nstant case that the coownershps of the eases
and the deveopment of the property consttute partnershps wthn
the meanng of secton 1111(a)3 of the Revenue ct of 1932.
The omsson of the provsons of artce 1317 of Reguatons 74
from Reguatons 77, especay the sentence, Coowners of o ands
engaged n deveopng the property through a common agent are
not necessary partners, was occasoned by the defnton of a part-
nershp contaned n secton (a)3 of the Revenue ct of 1932,
upra, whch defnton dd not appear n the Revenue ct of 1928.
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W - 522(a), rt. 1.
INCOM T RULINGS P RT II.
R NU CT OP 1928.
SU TITL . G N R L PRO ISIONS.
P RT II. COMPUT TION O N T INCOM .
S CTION 22(a). GROSS INCOM : G N R L
D INITION.
rtce 51: What ncuded n gross ncome. 1II-8- 1
Ct. D. 791
INCOM T R NU CT O 1928 D CISION OP COT ItT.
1. Testmony dmssbty.
Where a defendant s on tra for voaton of the Income ta
aws and t Is necessary and matera for the Government, n seek-
ng to estabsh the voaton charged, to ntroduce testmony
tendng to show the commsson of other and separate crmes, such
evdence s admssbe, wth e pct nstructons to the |ury that
the defendant s on tra ony for the crme charged n the ndct-
ment and not for the other ncdenta voatons of aw whch may
be comprehended by the testmony.
2. Income Money Iegay Obtaned.
Money obtaned by defendant, an attorney, from hs cent for
settement of certan damage cams and msapped by hm, Is
ncome for the year n whch t was receved, md he may not set
up hs own wrongfu professona conduct n obtanng ncome as
a awfu reason for escapng ta thereon.
Dstrct Court of the Unted States fob the Dstrct of Maryand
Unted States of merca v. T. Morrs Wamper.
December 14, 1933.
OPINION.
Chestnut, Dstrct udge: I have carefuy consdered the motons offered on
behaf of the defendant to strke out certan testmony n ths case. s to most
of the testmony referred to, the motons are based on two contentons: (1)
That the testmony tends to show the commsson of crmes separate and nde-
pendent from that charged n the ndctment and (2) that the testmony does
not tend to show the recept of moneys by the defendant whch may propery
be regarded as ncome.
The frst contenton s, I thnk, untenabe because It has been ceary decded
by the Supreme Court of the Unted States that ncome derved from the pro-
ceeds of crmna transactons must nevertheess be reported by the ta payer and
s sub|ect to ta aton. It was so hed n Unted States v. Suvan (274 U. S.,
239 T. D. 4028, C. . I-2, 177 ), affrmng on ths pont the decson of the
I mred States Crcut Court of ppeas for the ourth Crcut where the opnon
was by udge Soper, reported n 15 ed. (2d), 809. It s cear that the defend-
ant s not beng tred n ths case for any crmna transacton other than the
aeged voaton of the ncome ta aws but when t becomes necessary and
matera for the Government, by testmony to estabsh the voaton charged.
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(22(a), rt. 51
102
to show the sources from whch the Income was derved and ths necessary
Invoves evdence tendng to show the commsson of other and separate crmes.
It can not be sad that the evdence s nadmssbe athough of course the
ury shoud be Instructed very e pcty that the defendant s on tra for the
crme charged n the ndctment and not for the other ncdenta voatous of
aw whch may be comprehended by the testmony. n e amnaton of a
number of reported ncome ta cases where the source of ncome resuted from
crmna actvtes w show that the testmony s not nadmssbe for the
reason suggested n the moton. See for ustraton Over v. Unted States
(C. C. . 7) (54 ed. (2d), 48) Unted States v. Commerford (O. C. . 2)
( 4 ed. (2d), 28) O ren v. Unted States (C. O. . 7) (51 ed. (2d), 193).
nd I do not thnk the cases support the dstncton, contended for by defend-
ant s counse, that ncome obtaned by maum In se, as contrasted wth conduct
maum prohbtum. Is to be e cuded from ta abe ncome.
possby cose queston of aw s rased by the defendant s second conten-
ton, that s that the moneys receved and aeged to have been retaned by the
defendant dd not consttute reportabe or ta abe ncome. It Is sad by de-
fendant s counse that the ncome referred to, If the Government s aegatons
are to be sustaned, resut from a conspracy to defraud the wtness Dean,
partcpated n by the defendant and, therefore, the money was obtaned by
fraud and may of course be recovered from the defendant and therefore can
not consttute ncome. s an orgna proposton for |udca consderaton the
pont undoubtedy has some substance athough there are mportant consd-
eratons adverse to t. It may be thought beneath the dgnty of the Govern-
ment to assess and coect ta es on such egay gotten gans, but the other
pont of vew s certany equay Important for consderaton n that there
Is no |ust reason why a ta payer shoud escape hs far proporton of the
burden of ta aton because hs gans are egay gotten and thus ncrease the
burden of ta aton upon other ctzens. It s not sound to consder the Gov-
ernment tsef as a parta benefcary of the defendant s aeged fraud because
ta aton s a power e ercsed for the beneft of the Naton ns a whoe. ut
whatever mght have been consdered the wser pubc pocy In deang wth
ths queston as an ordnary one, I reach the concuson, after study of the m-
portant and controng authortes, that t has been decded adversey to the
defendant s contenton. In the Suvan case the court was deang wth the
ta abty of a bootegger s profts from the e tensve voaton of the Natona
Prohbton ct. The consderatons pro and con and the authortes decded
up to that tme are very fuy revewed n the opnon of udge Soper for the
Crcut Court of ppeas n 15 ed. (2d), 809, and, as I have sad, the opnon
on ths pont was affrmed by the Supreme Court In an opnon wrtten by Mr.
ustce omes. smar concuson was reached by the udca Commttee
of the Prvy Counc n ngand on appea from the Supreme Court of the
Domnon of Canada n a case deang wth the same sub|ect matter under the
Canadan ncome ta aw. The opnon of the Supreme Court of Canada s to
be found n Domnon Law Reports (1925), voume 2, page 1137, the tte of the
case beng Smth v. Mnster of nance and on appea to the Prvy Counc
the opnon of the court was devered by scount adane reported n Law
Reports ppea Cases (1927), page 193. Cases decded by other courts of
appea show that moneys receved as brbes have been hed sub|ect to ncome
ta and varous cases dsposed of n ths court heretofore have hed that money
obtaned by propretors of gambng houses are ta abe. In ths very case the
ta payer hmsef has reported for ta aton moneys obtaned n games of chance.
It may be suggested that there s a technca dstncton as to the nature
of the tte of the ta payer to retan and hod as aganst adverse cams
moneys secured from ega transactons n quor and gambng and from
brbes on the one hand and money obtaned by a conspracy to defraud on the
other hand, t beng contended that the present case fas In the atter category.
The dstncton s, however, I thnk, too narrow and technca to accompsh a
dfference n resut In vew of the very comprehensve defnton of ncome
contaned n the s teenth amendment and n the aw tsef whch ncudes
gans or profts from any source whatever, and as I read the cases the prncpe
announced s broad enough to cover the partcuar case. The consderaton
that the money nvoved n ths case may be recoverabe at sut of the wtness
Dean s not concusve. Under the operaton of the ncome ta aw the
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103
( 22(a). rt. 51.
money, f recovered, woud presumaby be a ta abe oss n the year when
recovered but ths does not destroy the ta abty to the ta payer of the gan
or proft for the year n whch t was receved and hed by hm, ncome ta a-
ton beng on an annua bass. nd as a matter of |udca authorty t s
noteworthy that the Canadan quor aw under consderaton n the case above
mentoned provded n secton 57 as foows:
ny payment or compensaton for quor furnshed n contraventon of ths
act or otherwse, n voaton of aw, whether made n money or securtes
for money or n abor or property of any knd, sha be hed to have been
receved wthout any consderaton and aganst |ustce and good conscence,
and the amount or vaue thereof may be recovered from the recever by the
party who made the same. (D. L. R. (1925), voume 2, page 1139.)
nd n dscussng the sub|ect matter ustce Mgnaut sad:
It s argued that the anguage of ths defnton s broad enough to ncude
ncome derved from a busness the carryng on of whch Is e pressy prohbted
by aw. So woud t be wde enough to comprse gans resutng from the
commsson of crmes, such as burgary or hghway robbery, f such crmes, as
often happens, be resorted to habtuay as a means of makng a gan or
proft.
Despte these consderatons the bootegger s ncome n that case -was hed
ta abe by the udca Commttee of the Prvy Counc and the atter s dec-
son was cted wth approva by ustce omes n hs opnon n the Suvan
ease.
The e act technca nature of the defendant s acquston and retenton of
the moneys nvoved n the moton to strke out testmony s not certany
and defntey cear. Defendant s counse argued that the money must bo
consdered to have been embezzed or stoen. s a matter of technca aw
as the money was devered by Dean to the defendant to be apped to a
partcuar purpose, It coud not be embezzement, as a matter of common
or statutory aw In Maryand, and presumaby the same s true as to the
Dstrct of Coumba. The tendency of the testmony Is to show that when
the money was actuay devered by Dean to the defendant the amount
requred to be pad for the settement of the damage cams nvoved In the
respectve cases was st uncertan and therefore uness the defendant was a
party to the orgna conspracy to defraud t coud not be sad that the money
was obtaned by means of ether embezzement, arceny or fase pretenses.
The defendant denes any frauduent or crmna partcpaton n the trans-
acton. It seems to me that the most that can be sad n support of the defend-
ant s contenton on ths moton s that the money receved by the defendant
as attorney for Dean to be devered to a partcuar person was msapped and
thus hs offense was that of a breach of trust between attorney and cent.
or the purpose of rung on the moton, therefore, I do not thnk t can be
sad that the defendant s |ustfed n assumng that the testmony shows
that the money was ether embezzed or stoen or even obtaned by fase
pretenses n the technca sense. The defendant s a awyer. eged ncome
came through the genera practce of hs professon. It does not become hm
and I thnk Is not admssbe for hm to set up hs own wrongfu professona
conduct In obtanng ncome as a awfu reason for escapng the ta thereon.
I have noted that Crcut udge Manton n Rowe v. Unted States (200 ed.,
13 ), decded n 1913, n passng on an ncdenta and not the man pont n
a case, sad that money obtaned by embezzement or throug the commsson
of a arceny woud not be sub|ect to ta aton under the ncome ta aw and
n Stenberg v. Unted States (14 ed. (2d), 5 4), there was a smar stuaton.
ndge Manton n hs concurrng opnon, at page 5 9, sad:
In mmch v. Unted States (C. C. .) (298 ., 5), nn embezzer was
convcted, and n Levn v. Unted States (C. C. .) (5 . (2d), 5D8 T. D. 3720,
C. . I -2, 224 ), a bootegger was convcted, of makng fase returns by
evadng the proper ncome ta upon ther ncomes. In nether case does t
appear that the queston presented here was consdered.
These two e pressons, so far as I have beeu abe to fnd, are the ony
|udca support hat can be cted for the proposton that the ncome nvoved
n ths case s not ta abe.
or these reasons I concude that the testmony shoud not be strcken out
and the defendant s moton to strke out s overrued and e cepton noted.
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122(a), rt. 81.
104
Defendant has aso moved to strke out a testmony reatng to the check
for 4,550 sad by the Government to have been receved by the defendant as
part of hs ncome for 1930, and not returned as ta abe. The check f receved
by the defendant was n payment to hm of a b for msceaneous fees
Incudng some part of professona compensaton for servces n reaton
to the four speca damage cams embraced n the testmony. Defendant s
contenton s that the whoe of the amount of the check must be re|ected as
Income because t ncudes n part a b for servces n connecton wth the
damage cams and s therefore tanted wth the same mperfecton as ncome
whch reates to any and a moneys receved by the defendant from that source.
I am unabe to adopt ths vew of the matter not ony for the genera reasons
heretofore announced but because t seems to me that on other and obvous
grounds the tem was ta abe ncome f n fact receved by the defendant.
rtce 51: What ncuded n gross ncome. III-11- 94
( so Secton 112, rtce 579.) G. C. M. 12 32
R NU CT O 1928.
Treatment for ncome ta purposes of a transacton n whch
rea property was condemned n part by a cty, a prce awarded
for the porton taken, severance damages awarded for the re-
mander on whch a speca assessment was eved, and a part
of the proceeds used n the purchase of property smar or reated
n servce or use to the property condemned.
n opnon s requested reatve to the proper treatment, for
ncome ta purposes, of the transacton descrbed heren.
The M Company was the owner of unmproved rea property
n the cty of R whch was acqured n 1921 at a cost of 12 a doars.
Subsequenty mprovement assessments were pad n the amount of
8.7a doars, makng the tota cost of the property 129.7 a doars.
The cty of R condemned 54 per cent of ths property for the pur-
pose or openng and e tendng a street, and n October, 1930,
awarded the ta payer the amount of 707a: doars, whch ncuded
523a doars for the and condemned and 184a doars severance
damages to the remanng and. t the same tme a speca assess-
ment amountng to 88. a doars was eved by the cty of R aganst
the remanng property, whch amount was onset aganst the award
to the ta payer. In December, 1930, the ta payer purchased for a
consderaton of 205a doars certan unmproved property whch
was ocated n the same neghborhood as the property condemned
and was smar or reated n servce or use to that property.
The ta payer contends that the speca assessment eved aganst
ts remanng property shoud be consdered n the determnaton
of the proft reazed from the award of severance damages. It
further contends that the purchase of the unmproved and wth a
porton of the money receved under the condemnaton award cones
wthn the purvew of secton 112(f) of the Revenue ct of 1928,
whch paces a mtaton on the amount of gan to be recognzed
when money reazed from a condemnaton of property s forthwth
e pended, n whoe or n part, n the acquston of other property
smar or reated n servce or use to the property condemned.
In I. T. 2599 (C. . -2, 170) t was hed that where, n connec-
ton wth condemnaton proceedngs, the sum awarded conssts of
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522(a), rt. 51.
t sum pad for the acquston of the and actuay condemned and
a separate sum as severance damages to the remanng and, gan
or oss resuts from the porton of the award pad for the acquston
of the and. It was aso hed that no ta abe gan s recognzed wth
respect to that porton of the award whch represents the severance
damages, but the amount thereof reduces the bass to be used n
determnng gan or oss upon the subsequent dsposton of the
remanng porton of the property, uness the amount of the sever-
ance damages e ceeds the bass of the remanng porton of the
property, n whch case such e cess s ta abe gan. (See aso G. C.
M. 12 57 page 80, ths uetn .)
The nstant case fas wthn the purvew of I. T. 2599, supra.
ccordngy, gan was reazed from the condemnaton of 54 per
cent of the ta payer s and, the gan beng computed as foows:
Doars.
ward made for the and condemned 52 .
ass of the and condemned (54 per cent of 129.7a doars) 70a
Proft reazed 453
The bass of the remanng 4 per cent of the and was 59.7a:
doars. The queston arses whether n determnng the proft
reazed from the award of severance damages n the amount of 184
doars the assessment of 88. a doars whch was eved aganst the
remanng property shoud be added to the bass of 59.7a) doars
appcabe to such property.
It s apparent, n the opnon of ths offce, that when the cty
of R offset aganst the award of damages made to the ta payer
the amount of the speca assessment (88. a doars), t n effect pad
to the ta payer the fu amount of the damages awarded and
receved from the ta payer payment of the speca assessment. Snce
the fu amount of the damages was constructvey receved by the
ta payer, t s hed that n determnng the ta abe ncome derved
from the award of severance damages the ta payer must be charged
wth the gross amount awarded. s the bass of the remanng and
was 59.7a: doars and the award for severance damages was 184a
doars, the proft reazed n 1930 from the award of severance
damages was 124.3a: doars. (I. T. 2599, supra.)
The provsons of secton 112(f) of the Revenue ct of 1928,
whch mt the amount of proft recognzed upon the con-
demnaton of property when the amount receved from the con-
demnaton s forthwth e pended n whoe or n part n the acqus-
ton of other property smar or reated n servce or use to the
property condemned, appy to the award for the property condemned
but do not appy to the award for severance damages. s the sum
of 205a doars of the award of 523a: doars receved from the con-
demnaton of 54 per cent of the ta payer s property was mmedatey
renvested by the ta payer n property smar or reated n servce
or use, t s hed, under secton 112(f), supra, that the gan of 453a:
doars reazed from the condemnaton of ths porton of the ta -
payer s property shoud be recognzed n 1930 ony to the e tent
of 318a doars, that s, the dfference between 523a doars and 205a
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22(a), rt. 58.
10
doars. s ndcated above, gan was aso reazed n 1930 from
the award q severance damages n the amount of 124.3a doars.
The tota gan ta abe n 1930 s, therefore, 442.3a doars.
The bass for determnng gan or oss from a subsequent sae or
other dsposton of the remanng property s 88. a doars.
. arrett Pretttman,
Genera Counse, ureau of Interna Revenue.
rtce 58: Sae of stock and rghts. III-15- 742
Ct. D. 811
ncome ta revenue act of 1028 decson of court.
1. Gan or Loss Sae of Stock ghts by dmnstrator
Pendente Lte.
Where an admnstrator pendente te acqures the rght to sub-
scrbe to new stock, and, due to ack of avaabe funds, obtans
eave of the court to se some of the stock rghts n order to pro-
cure suffcent funds to e ercse the remanng rghts, the proft on
the sae of the rghts s ta abe to the estate.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (2 . T. ., 132) affrmed.
Unted States Crcut Court of ppeas for the Thrd Crcut.
Le-ghton M. or, dmnstrator of the state of bert . ord, Deceased,
pettoner, v. Commssoner of Interna Revenue, respondent.
Upon petton for revew from the Unted States oard of Ta ppeas.
efore uffnqton, Davs, and Thompson, Crcut udges.
September 15, 1933.
opnon.
TnoMPSoN, Crcut udge: Ths s a petton for revew of a decson of the
oard of Ta ppeas. The estate of bert . ord, deceased, hed 2,128
shares of common stock of the rankn Trust Co. That company authorzed
an ssue of addtona shares of common stock, and gave ts stockhoders the
rght to subscrbe to such new shares at 400 each at the rate of one-haf a
share of new stock for each 1 share of stock hed. The admnstrators, pendente
te, therefore had the rght to subscrbe to 1,0 4 new shares but were unabe
to e ercse these rghts because of ack of avaabe funds wth whch to pur-
chase the new shares. They pettoned and obtaned eave of the Orphans
Court of Phadepha County to subscrbe to as many new shares of common
stock of the rankn Trust Co. as coud be taken up wth funds reazed from
the sae of the baance of the ghts to whch the estate was entted. The
admnstrators thereupon sod 1.54S haf rghts for 11 ,04 . Wth the pro-
ceeds of ths sae, they purchased 290 new shares at 400 each, usng the unsod
580 haf rghts.
The Commssoner of Interna Revenue asserted that the sae of the rghts
to subscrbe resuted n ta abe gan and assessed a defcency. The oard of
Ta ppeas found that a proft was reazed on the sae of the rghts and
affrmed the rung of the Commssoner. We fnd no error n the reasons and
concuson of the oard of Ta ppeas.
The decson s sustaned, and the petton for revew s dsmssed.
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107
22(a), rt. .
rtce : Sae by corporaton of ts capta stock.
R NU CT O 1028.
mendment of artce , Reguatons 74. (See T. D. 4430, page
3 .)
The gan derved by the M Corporaton from deang In ts own
stock for the purpose of proft n the ordnary course of busness
Is sub|ect to edera ncome ta .
The opnon of ths offce s requested whether the M Corporaton
reazed a ta abe gan from the sae of ts own capta stock n the
year 1929.
The baance sheets of the M Corporaton show that a substanta
part of ts surpus was, durng the year nvoved, empoyed n traffck-
ng n ts own stock. or severa years the ta payer has been en-
gaged n such transactons. Its ncome ta return for the year 1929
refects a proft from deang n ts own stock of 50a doars. On t he
books and records of the corporaton the purchases and saes of ts
own stock were treated n the same manner as other securty nvest-
ments. the purchases and saes n queston were made on the
open market and were recorded n the nvestment account of the
corporaton. Gans and osses on such transactons were duy re-
fected n ts proft and oss account and n ts surpus account. The
stock thus purchased was not retred, nor was there any ntenton to
retre t. Lkewse, upon the saes of the stock there was no new
ssuance of stock and no ntenton to ssue new stock. Preemptve
rghts were obvousy none stent ( org v. Internatona Sver Co.,
11 ed. (2d), 147), and there s no suggeston n the accountng
books and records of the ta payer of any attempt to gve them effect.
None of these transactons was refected n the capta stock account
of the ta payer, and the concuson s nevtabe that the capta
stock of the ta payer was bought and sod n the open market for
the e press purpose of dervng a proft. Throughout both years
the M Corporaton was ndsputaby-sovent.
Wth reference to the queston whether a corporaton reazes a
gan or suffers a oss from deang n ts own stock the Crcut Court
of ppeas for the rst Crcut n the case of S. . Woods Machne
Co. v. Commssoner (57 ed. (2d), 35, certorar dened 53 S. Ct.,
15, Ct. D. . C. . II-1, 275), n reversng the oard of Ta
ppeas, used the foowng anguage:
Whether the acquston or sae by a corporaton of shares of ts own capta
stock |rves rse to ta abe gan or deductbe oss depends upon the rea nature
of the transacton nvoved. (Warte Lumber Co. v. Com. of Interna Revenue,
35 vd. (2d), 445 Spear d Co. v. eteer, 54 ed. (2d), 134.) If t was n fact
a capta transacton, . e., f the shares were acqured or parted wth n con-
necton wth a read|ustment of the capta structure of the corporaton, the
oard rue appes. (Doye v. Mtche ros. Co.. 247 U. S., 179, 184 sner v.
Macomber, 252 U. S., 1S9 T. D. 3010, C. . 3, 25 .) ut where the transacton
s not of that character, and a corporaton has egay deat n ts own stock as
It mght n the shares of another corporaton, and n so dong has made a gan
rtce : Sae by corporaton of ts capta
stock.
III-20- 800
G. C. M. 12955
R NU CT O 1928.
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522(a), rt. .
108
or suffered a oss, we perceve no suffcent reason why the gan or oss shoud
not be taken nto account n computng the ta abe Income. The vew taken,
by the oard of Ta ppeas (see ouston ros. Co., 21 . T. ., 804) presses
accountng theory too far n dsregard of pan facts. It s not supported by
any decson whch has come to our attenton e cept those of the oard. In
nckerbocker Imp. Co. v. oard of ssessors (74 N. . L., 583, 585), the pan-
tff corporaton was hed abe for the franchse ta on ts own stock whch t
had bought and hed n ts treasury. The court sad: Stock once ssued s
and remans outstandng unt retred and cnnceed by the method provded by
statute for the retrement and canceaton of capta stock. (D, .) In
Unted Sates v. rby Lumber Co. (284 U. S., 1 Ct. D. 420, C. . -2, 35 ),
deang wth a queston somewhat smar to the present one, the court sad:
We see nothng to be ganed by the dscusson of |udca defntons. The
defendant n error has reazed wthn the year an accesson to ncome, f we
take words n ther pan, popuar meanng, as they shoud be taken here.
( omes, .( (See, too, Maryand Casuaty Co. v. Unted States, 251 U. S.,
342.) s has often been sad, ta es are practca thngs and shoud be deat
wth on a practca bass.
In Commssoner v. oca Cega Deveop. Co. ( G ed. (2d), 1004
Ct. D. 802, page 2G3, ths uetn , the Crcut Court of ppeas
for the Thrd Crcut stated as foows:
The oard s decson that a corporaton reazes nether a gan nor oss from
the purchase of ts stock was n keepng wth ts poston at the tme when t
determned ths case. ( ouston ros. Co., 21 . T. ., 804 S. . Woods
Machne Co., 21 . T. ., 818 Scher Pano Co., 23 . T. ., 37 ), athough ts
earer decsons were to the contrary. ( ehow state Co., 12 . T. ., 13C5
Neo ersey Porcean Co., 15 . T. ., 1059.) Meanwhe, the courts have hed
that a corporaton acqurng ts own stock may recognze a gan or oss pro-
vded the purpose of the transacton was not merey a capta read|ustment
( ohnson v. Commssoner, 5 ed. (2d), 58, certorar dened 28 U. S., 551),
but a sae of property. (Wave Lumber Co. v. Commssoner, 35 ed. (2d),
445 (C. C. . 1) Spear t Co. v. ener, 54 ed. (2d), 134 (W. D. Pa.) Com-
mssoner v. S. . Woods Machne Co. (57 ed. (2d), 35 (C. O. . 1) Ct. D.
COO. C. . II-1, 275 .) Snce these decsons, the oard has adopted the rue
ad down by the courts. ( oughton utton Co., 2 . T. ., 52.)
There has been much dscusson as to the correct generc name to
appy to a corporatons own stock durng the perod t s hed as
an nvestment, but as the Crcut Court of ppeas for the Second
Crcut has demonstrated n org v. Internatona Sver Co., supra,
names can make tte dfference, snce the essenta fact s that the
corporaton n ts ownershp of the stock owns and possesses a group
of ega rghts and powers whch s but another name for ega
property, and from the traffckng n ths ega property there can
resut the gans, profts, and ncome derved from trades,
busnesses, commerce, or saes or deangs n property, whether rea
or persona, growng out of the ownershp or use of or nterest n
such property or the transacton of any busness carred
on for gan or proft, or gans or profts and ncome derved from any
source whatever (secton 22, Revenue ct of 1928), whch are
sub|ected to edera ncome ta .
In Montgomery s udtng, Theory and Practce, voume 1, page
292, t s stated:
When stock s purchased n the open market and resod, the proft
or oss, f any, shoud appear n the ncome account. There s. n such a case,
vrtuay no dfference between deang n ts own stock and n the stocks
or securtes of other corporatons. It has been urged that when a corporaton
purchases part of ts stock, t s a capta transacton because ts outstandng
stock s reduced and ts surpus ncreased or decreased f stock s purchased
beow par surpus s ncreased f stock s purchased above par surpus s
reduced. When stock s purchased or acqured for permanent hodng or for
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109
22(b), rt. 84.
forma reducton of outstandng ssues, t s proper to treat t as a capta
transacton but when, a corporaton buys 100 shares of ts own stock at 80
a share and mmedatey ses t for 90 a share, the gan of 1,000 s no more
a capta gan than f the purchase and resae oere of any other securty or
commodty. Itacs supped.
In Montgomery s Income Ta Procedure, 1924, page 511, the
author says:
If a corporaton were to rese treasury stock at a proft, as s frequenty
done, there woud be no rea dfference between ths transacton and one
nvovng the purchase and sae of the shares of another corporaton. When
stock s donated or sod to a corporaton at a nomna prce to enabe the
corporaton to secure workng capta the resae of the treasury stock may n
fact represent capta and f so the proceeds of the sae are not propery
ta abe. ut f the stock s purchased as an nvestment any resae at a proft
shoud be hed to be a ta abe transacton. Itacs supped.
The dvergng accountng methods n ths fed appear to be fuy
e paned and harmonzed wth the aw n org v. Internatona
Sver Co., supra.
In vew of the foregong, t s hed that the gan derved by the
M Corporaton from deang n ts own stock for the purpose of
makng a gan n the ordnary course of busness s sub|ect to
edera ncome ta . (See T. D. 4430, page 3 , ths uetn.)
Robert . ackson,
Genera Counse, ureau of Interna Revenue.
S CTION 22(b). GROSS INCOM : CLUSIONS
ROM GROSS INCOM .
rtce 84: Interest upon State obgatons. III-2- 590
G. C. M. 12420
R NU CT O 1928.
Where a muncpaty purchases property sub|ect to a mortgage
e ecuted to secure an ssue of bonds, there beng no provson n
the bonds whch reeases the orgna debtor corporaton from
abty, the nterest on such bonds s not e empt from edera
ncome ta .
n opnon s requested whether the nterest on ta -free covenant
bonds ssued by the M Company s e empt from edera ncome ta .
The cty of R entered nto a contract wth the M Company for
the purchase of a raway system wthn the cty of R. t the
tme of the contract the raway system owned by the M Company
was sub|ect to varous mortgages and -provson was made n the
contract whereby the M Company woud reduce the mortgages.
Ths was accompshed and the cty of R raway system was re-
eved of the en of certan bond ssues and the nterurban system
was reeved of the en of the bond ssue of the cty system, resut-
ng n the formaton of two separate raway unts secured by two
separate bond ssues. The M Company went nto a edera recever-
shp and n 1928 the assets of the M Company were offered for sae,
ncudng the equty n the aforementoned contract. The cty of
R purchased the equty and receved a deed to a the cty property
sub|ect to the provsons of the bonds, the cty of R assumng the
payment of the prncpa and nterest on the bonds ssued by the
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23(b), rt. 141.
110
M Company. There was no e change of the bonds of the M Com-
pany for bonds of the cty of R.
Secton 22(b)4 of the Revenue ct of 1928 e empts from edera
ncome ta the Interest upon ( ) the obgatons of a State, Terr-
tory, or any potca subdvson thereof .
In the nstant case there s no provson n the bonds whch reeases
the orgna debtor corporaton from abty so as to change the
character of the bonds from obgatons of a prvate corporaton to
those of a muncpa corporaton. The stuaton n the nstant case s
that of a muncpaty purchasng property sub|ect to a mortgage
e ecuted to secure an ssue of bonds whch remaned the obgatons
of a prvate corporaton. s the bonds are not obgatons of a char-
acter desgnated n secton 22(b)4 of the Revenue ct of 1928, the
nterest s not e empt from edera ncome ta . (Cf. S. M. 2 70,
C. . III-2, 80, and T. D. 2090.)
. areett Prettyman,
Genera Counse, ureau of Interna Revenue.
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S.
rtce 121: usness e penses.
R NU CT O 1928.
penses pad or ncurred wth respect to the management, pro-
tecton, and conservaton of propertes producng ta abe ncome.
(See I. T. 2751, page 43.)
rtce 121: usness e penses.
R NU CT O 1028.
Insurance premums pad n advance for perod of more than one
year. (See G. C. M. 13148, page 7.)
S CTION 23(b). D DUCTIONS ROM GROSS
INCOM : INT R ST.
rtce 141: Interest. . III-23- 830
G. C. M. 131 2
R NU CT O 1928.
ta payer engaged In busness n Massachusetts s entted to
deduct from gross ncome the nterest pad to hs wfe on money
borrowed from her and represented by hs Interest-bearng note.
Genera Counse s Memorandum 90fM (C. . -, 107) s revoked.
Ths offce has agan consdered the queston passed upon n
Genera Counse s Memorandum 9094.
The queston nvoved s whether a ta payer, engaged n busness
n Massachusetts, s entted to deduct from gross ncome the amount
of nterest pad to hs wfe on money borrowed from her n good
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23(c), rt. 151.
fath for use n carryng on hs busness, and represented by an
nterest-bearng note.
In vew of the acquescence of the Commssoner n the decson
of the oard of Ta ppeas n the case of Samue Shapro v. Com-
mssoner (29 . T. ., 1012, page 14, ths uetn), hodng that the
pettoner n that case was entted to such a deducton, Genera
Counse s Memorandum 9094, supra, s revoked.
Robert . ackson,
Genera Counse, ureau of Interna Revenue.
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM : T S G N R LLY.
rtce 151: Ta es. III-13- 717
I. T. 2770
R NU CT O 1928.
corporaton fng ts return on the accrua bass for the ca-
endar year 1931 s entted to deduct for that year the amount of
the Caforna franchse ta mposed by the act of March 1, 1929
(as amended by chapters 4 and 5, Caforna Statutes, 1931),
whch ta accrued on anuary 1, 1931, and was measured by the
net ncome for the caendar year 1930.
Chapter 13, Caforna Statutes, 1929, approved March 1, 1929,
mposes on every busness corporaton a franchse ta accordng to
or measured by ts net ncome. Secton 4 of that act provdes that
every busness corporaton sha annuay pay to the State, for the
prvege of e ercsng ts corporate franchse, a ta measured by ts
net ncome, to be computed, n the manner provded, at
the rate of 4 per centum upon the bass of ts net ncome for the ne t
precedng fsca or caendar year. Ta es under that secton accrue,
for State ta aton purposes, on the frst day after the cose of the
ta abe year as defned n secton 11 of the act. That secton pro-
vdes:
The term ta abe year, as heren used, means the caendar year, or the
fsca year endng durng such caendar year, upon the bass of whch the net
ncome s computed heren.
corporaton s abty for the Caforna franchse ta mposed
by the act of March 1, 1929 (as amended by chapters 4 and 5,
Caforna Statutes, 1931), accrues concurrenty wth the year for
whch t s pad. The ta whch s assessed n the year 1931 s for
that year. ccordngy, a ta payer fng ts return on the accrua
bass for the caendar year 1931 s entted to deduct for that year the
amount of the franchse ta whch accrued on anuary 1, 1931, the
ta beng measured by the net ncome for the caendar year 1930.
(Cf. Petauma Santa Rosa Raroad Co. v. Comvssoner, 11
. T. ., 541.)
rtce 151: Ta es.
R NU CT O 1928.
Oho cgarette ta . (See I. T. 2787, page 5 .)
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23(c), rt. 151.
112
rtce 151: Ta es. III-14- 732
G. C. M. 1259
R NU CTS O 192 ND 1928.
The ta payer, a natona bank n Massachusetts, shoud accrue
as of December 31, 1927, the amount of Massachusetts e cse ta
payabe n October, 1928, and shoud accrue as of December 31,
1928, the amount of such ta payabe In October, 1929. The ta -
payer may not be aowed as deductons for the caendar year 1928
accrued ta es for two years, as was permtted n the case of
domestc busness corporatons. (G. C. M. 8553, C. . I -2, 109,
dstngushed.)
The case of the M Natona ank nvoves the queston of the de-
ductbty of the corporaton e cse ta mposed by Massachusetts
for the years 1927 and 1928.
The ta payer fes ts returns on the caendar year bass and uses
the accrua method of accountng. The Income Ta Unt has pro-
posed to aow as a deducton for 1928 the corporaton e cse ta n
the amount of 15.93a doars whch was eved under secton 2, chap-
ter 3, of the Genera Laws of Massachusetts, and measured by 1928
ncome. It has aso proposed to aow as a deducton for 1927 8.27a
doars, representng such ta pad durng 1928, measured by 1927 n-
come, whch the Unt has hed accruabe as of December 31, 1927.
The corporaton e cse ta for 1928 was dsaowed by the revenue
agent upon the theory that Genera Counse s Memorandum 8553
(C. . I -2, 109) was not appcabe n the case of the ta payer, a
natona bank, because the rate of corporaton e cse ta for 1928
wth respect to banks was not determned by the Massachusetts Com-
mssoner of Corporatons and Ta aton unt after December 31.
1928, t beng the practce to notfy the varous natona banks or
the State as to the rate of ta n the month of une foowng each
ta abe year.
The ta payer contends that under the prncpe set forth n Gen-
era Counse s Memorandum 8553 t shoud be aowed as deductons
for 1928 accrued ta es for two years.
Genera Counse s Memorandum 8553, supra, reates to the accrua
date of the corporaton e cse ta mposed upon domestc busness
corporatons. The ureau had prevousy hed n Genera Coun-
se s Memorandum 1 (C. . I -2, 335) that such ta accrued
on pr 1 of the succeedng ta abe year. (To the same effect was
. n. rown Co. v. Commssoner, 8 . T. ., 112, C. . -2, 10.)
The specfc queston consdered n the ater opnon was the effect
for ncome ta purposes of a change n the State aw by the ct
of pr 15, 1927. (See secton 32, chapter 3, Genera Laws of
Massachusetts, as amended by secton 3 of an act approved pr 15,
1927, effectve anuary 1, 1928, contaned n chapter 258, Laws
of Massachusetts, 1927.) It was hed that the change n the State
aw had the effect of f ng the accrua date of the corporaton
e cse ta at December 31, 1928, n the case of a corporaton whch
fed ts return on the caendar year bass. That concuson was
based on the theory that nasmuch as the date for ascertanng the
corporate e cess (the event whch determned the e cse ta
abty under the rue ad down n Unted States v. nderson,
2 9 U. S., 422) was by the act of pr 15 1927, moved back from
pr 1 to the end of the precedng ta abe year, the accrua date
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113 23(c), rt. 151.
of the e cse ta was correspondngy shfted. In ths connecton
t was stated:
Its ta abe year havng cosed, the corporaton coud compute
ts net ncome as requred by the statute, as we as ascertan ts corporate
e cess. Thus, on December 31, 1928, t coud determne to a reasonabe degree
of certanty the amount of e cse ta whch woud be payabe to the State
of Massachusetts n October, 1929, for the date for determnng the corporate
e cess and the mtaton of the ta was moved back from pr 1, 1029,
to the end of ts ta abe year.
It was aso hed that nasmuch as the act of pr 15, 1927, was
not effectve unt anuary 1, 1928, a corporaton whch fed ts
return on the caendar year bass coud accrue as of anuary 1,
1928, the e cse ta payabe n October, 1928, and accrue as of
December 31, 1928, the e cse ta payabe n October, 1929. (See
Natona Casket Co., Inc., v. Commssoner, 29 . T. ., 139 pages
11 and 2 , ths uetn .)
s ndcated above, Genera Counse s Memorandum 8553 reates
to a domestc busness corporaton. The nstant case nvoves the
ta aton of a natona bank. Domestc busness corporatons are
ta ed under secton 32 of chapter 3 of the Genera Laws of Massa-
chusetts, whereas banks are ta ed under other sectons of that
chapter. oth casses of ta payers pay a ta measured by net
ncome, and Genera Counse s Memorandum 8553 s appcabe to
both casses of ta payers n so far as t hods that the e cse ta
for edera ncome ta purposes accrues at the end of the ta abe
year. domestc busness corporaton s ta s mted by ts cor-
porate e cess. bank s ta s not so mted. Thus, athough the
change n the State aw by the act of pr 15, 1927, resuted n
e cse ta es for two years beng aowed as deductons for the
caendar year 1928 n the case of a domestc busness corporaton,
the same resut does not foow n the case of a bank, whose ta es
are not mted by ts corporate e cess. The defnton of a bank
s contaned n sectons 1 and 2, chapter 3, of the Laws of Massa-
chusetts. (See Massachusetts Genera Laws Reatng to Ta aton
and Speca ssessments, n effect anuary 1, 1921, and revsed to
ncude 1931 egsaton, pages 180 and 181.) The matera pro-
vsons of the State aw reatng to banks are as foows:
T TION O N S ND TRUST COMP NI S.
Sac o 1. When used n ts secton, and n sectons 2 to 7, ncusve, the
foowng terms sha have the foowng meanngs:
ank. ny bank, bankng assocaton or trust company dong busness
wthn the Commonweath, whether of ssue or not, e stng by authorty of
the Unted States or of a foregn country, or of any aw of the Commonweath
not contaned n chapters 1 8 to 171, ncusve, and chapters 173 and 174.
Net ncome. The net Income for the ta abe year as requred to be returned
by the bank to the edera Government under the edera Revenue ct
appcabe for the perod, .
Ta abe year. The fsca or caendar year for whch the bank was re-
qured to make ts ast return to the edera Government due pror to pr 1
of the year In whch the ta s to be assessed or, f such return was for a frac-
tona perod, a fu year, ncudng and endng wth such fractona perod.
Sec. 2. very bank sha pay annuay a ta measured by ts net ncome,
as defned n secton 1, at the rate assessed upon other fnanca corporatons
provded, that such rate sha not be hgher than the hghest of the rates
assessed under ths chapter upon mercante and busness corporatons dong
busness n the Commonweath. The commssoner sha determne the rate
on or before uy 1 of each year, .
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23(e), rt. 171.
114
rom a readng of the foregong provsons of aw, t s obvous
that the reason for permttng the accrua n one year of deductons
of Massachusetts ta es for two years does not e st n the case of
banks whch are ta ed under secton 2, chapter 3, of the Laws of
Massachusetts. That secton was not drecty affected by the amend-
ment of pr 15, 1927, referred to n Genera Counse s Memo-
randum 8553, but that memorandum governs n so far as t hods
that the Massachusetts ta accrued at the end of the ta abe year.
In the nstant case the bank knew on December 31, 1928, that t
woud have to pay a ta measured by ts net ncome, athough
the e act rate of ta coud not be ascertaned. ut for the purpose
of accrua the rate of ta s not a prerequste. (See I. T. 2 75,
C. . II-1, 105, reatng to ncome ta mposed by Canada where
the rate was changed after the cose of the ta abe year, and amous
Machne Co. v. Unted States, 282 U. S., 375, Ct. D. 278, C. . -,
424.)
That t s not necessary for the e act amount of ta es to be com-
puted or ascertaned pror to the accrua thereof for ncome ta
purposes s sustaned by other precedents. In The Pctora Revew
Co. v. Commssoner (2 . T. ., 472, C. . I-2, 8) t was spe-
cfcay stated that the fact that the e act amount of the abty
was not determned unt after the cose of the ta abe perod s not
controng. To the same effect s the case of . . rown Co. v.
Commssoner, supra, wheren the oard hed that t was not neces-
sary that the amount of an ncurred abty be accuratey ascer-
taned n order to accrue t. (Cf. rnest M. v, e c, v. Comms-
soner, 7 . T. ., 993, C. . -2, 10.) urthermore, ths offce has
consstenty hed wth respect to the accrua of property ta es under
the varous State aws that t s not necessary that the e act amount
of such ta es be ascertaned at the tme of accrua. (See G. C. M.
273, C. . III-1, 1 8, reatng to the accrua of property ta es
n Inos and other pubshed decsons reatng to the accrua of
property ta es.)
In vew of the foregong, the ta payer shoud accrue as of De-
cember 31, 1927, the amount of Massachusetts e cse ta payabe n
October, 1928, and shoud accrue as of December 31,1928, the amount
of such ta payabe n October, 1929. It foows that the ta payer
may not be aowed as deductons for the caendar year 1928 accrued
ta es for two years as was permtted n the case of domestc busness
corporatons under Genera Counse s Memorandum 8553, supra.
S CTION 23(e). D DUCTIONS ROM GROSS INCOM :
LOSS S Y INDI IDU LS.
rtce 171: Losses. III-5- 25
G. C. M. 12570
R NU CT O 1928.
Where a contract to so stock on a stock e change was entered
nto on December 31, 1930, and devery of the stock was made
In the reguar way on anuary 2, 1931, the oss, If any, was
ncurred n the year 1931 and consttutes a proper deducton for
that year.
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115
23(e), rt. 171.
n opnon s requested whether a oss on the sae of stock under
the foowng crcumstances s deductbe for the caendar year 1930
or 1931.
On December 31, 1930, the ta payer drected hs broker to se for
hm y shares of stock. The stock at the tme was pedged as co-
atera securty wth the M ank. On the above-mentoned date the
ta payer ordered the bank to dever the stock certfcate to hs
broker, and substtuted other coatera n ts stead. etter from
the ta payer contans, among other thngs, the foowng statement:
My brokerage frm handed the transacton of sae. In the ord-
nary course of busness they were notfed by me by teephone on December
81, 1930, to se. They advsed me over the phone that they had sod and
stated to me the prce they had sod for, and the transacton, so far as I was
concerned, was cosed. owever, they dd not confrm the sae to me n wrt-
ng unt anuary 2, 1931. Presumaby they had not been caed upon for the
actua devery of the securtes unt anuary 2, 1931.
The revenue agent reports that the ta payer made hs return of
ncome on the cash recepts and dsbursement bass, and that the rec-
ords of the broker show that the ta payer s account was credted, the
stock devered to the purchaser, and the transacton ceared through
the broker s records, on anuary 2, 1931. Ths s n accordance wth
the then unform custom of the New York Stock change, and the
ank Stock Deaers ssocaton, that n cash saes the securtes
were devered the same day, whe n reguar saes devery was
made on the ne t fu busness day before 2.15 p. m.
Losses must usuay be evdenced by cosed and competed transac-
tons. ( rtce 171, Reguatons 74.) sae of shares of stock s a
competed and cosed transacton when tte to the shares passes to
the vendee. (Compare Wston on Saes, voume 1, secton 2.) The
persona property aw of the State of New York, beng part of the
unform stock transfer aw, n so far as appcabe, reads as foows:
Sec. 1 2. rno tte to certfcates and shares may he transferred. Tte to a
certfcate and to the shares represented thereby can be transferred ony,
(a) y devery of the certfcate ndorsed ether n bank or to a specfed
person by the person appearng by the certfcate to be the owner of the shares
represented thereby, or
( ) y devery of the certfcate and a separate document contanng a wrt-
ten assgnment of the certfcate or a power of attorney to se, assgn or transfer
the same or the shares represented thereby, sgned by the person appearng by
the certfcate to be the owner of the shares represented thereby. Such assgn-
ment or power of attorney may be ether n bank or to a specfed person.
The provsons of ths secton sha be appcabe athough the charter or
artces of ncorporaton or code of reguatons or by-aws of the corporaton
Issung the certfcate and the certfcate Itsef provde that the shares repre-
sented thereby sha be transferabe ony on the books of the corporaton or
sha be regstered by a regstrar or transferred by a transfer agent.
It foows from the above-quoted provsons of the New York per-
sona property aw that tte to the shares passed when the stock
certfcate was devered to the vendee, or to the broker for the vendee.
The ta payer s statement as set forth above corroborates the revenue
agent s report that the certfcate was not devered unt anuary 2,
1931.
In Chares W. Da nger v. Commssoner (20 . T. ., 17 ), the
oard of Ta ppeas commented as foows:
though a contract to se s consummated when the partes e e-
cute It, a sae, even where the sub|ect of a contract, s ncompete and Imperfect
unt tte passes. ut a sae s compete when tte passes.
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23(|), rt. 191.
11
The opnon of the oard n that case was affrmed by the Crcut
Court of ppeas, Thrd Crcut. Dahnger v. Commssoner, 51
ed. (2d), 2, Ct. D. 414, C. . -2, 337, certorar dened, 284
t . S., 73.) The court quoted wth approva the foowng from
Wston on Saes (voume 1, secton 2):
Whether a bargan between partes s a contract to se or an actua sae
depends upon whether the property n the goods s transferred. If t s trans-
ferred, there s a sae, .
In the nstant case t s apparent that the transacton on December
31, 1930, was n effect an agreement to se y shares of stock. De-
very of the shares was not made, tte dd notpass, and the con-
sderaton was not pad unt anuary 2, 1931. The sae was, there-
fore, consummated and became a cosed and competed transacton on
that date.
The ta payer contends that f the sae was cosed and competed
on anuary 2, 1931, he woud have profted by the hgher quotaton
for the stock on that date. e overooks the fact that the compe-
ton of the sae was the consummaton of a contract to se at a gven
prce whch he entered nto on December 31, 1930. e woud re-
man unaffected by any change n the quotaton for the stock after
hs contract to se at that prce had been made.
or the foregong reasons ths offce s of the opnon that the oss,
f any, on the sae of the stock n queston was ncurred n the year
1931, and consttutes a proper deducton for that year.
. arrett Prettyman,
Genera Counse, ureau of Interna Revenue.
S CTION 23 (). D DUCTIONS ROM GROSS
INCOM : N T LOSS S.
rtce 17 : Sae of capta stock, bonds, and capta assets.
R NU CT O 1028.
mendment of artce 17 , Reguatons 74. (See T. D. 4430,
page 3 .)
S CTION 23 (|). D DUCTIONS ROM GROSS
INCOM : D D TS.
rtce 191: ad debts. III-22- 817
G. C. M. 13114
R NU CTS O 1921, 1024, 192 . ND 1028.
In order for a ta payer to have the beneft of a deducton for
debts ascertaned to be partay worthess there must have been
an ascertanment by the ta payer of parta worthessness wthn
the ta abe year. The charge-off n such a case beng a technca
requrement may be made after the ta abe year. The aowab-
ty of the deducton s, of course, sub|ect to the dscreton of the
Commssoner.
dvce s requested whether the decson of the Crcut Court of
ppeas (S th Crcut) n Lberty ank Trust Co. v. Comms-
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117
23(k), rt. 20 .
doner (59 ed. (2d), 320) shoud be foowed generay n deter-
mnng the deductbty of partay worthess debts under the
Revenue cts of 1921, 1924, 192 , and 1928.
Secton 234(a)5 of the Revenue ct of 1921 provdes for the
aowance as a deducton of
Debts ascertaned to be worthess and charged off wthn the ta abe year
(or n the dscreton of the Commssoner, a reasonabe addton to a reserve
for bad debts) and when satsfed that a debt s recoverabe ony n part, the
Commssoner may aow such debt to be charged off n part.
The Revenue cts of 1924, 192 , and 1928 contan dentca an-
guage.
In the Lberty ank Trust Co. case the court hed that under
the Revenue ct of 1921 a ta payer was under no duty to charge
off debts whch were partay worthess n order to have the bene-
ft of the deducton from gross ncome, unt the Commssoner was
satsfed of the worthessness of that part of the debts for whch
the ta payer sought the deducton.
It s the opnon of ths offce that n order to have the beneft of
such a deducton there must have been an ascertanment by the
ta payer of parta worthessness wthn the ta abe year. The
charge-off n such a case, beng a technca requrement, may be
made after the ta abe year. The aowabty of the deducton s,
of course, sub|ect to the dscreton of the Commssoner. Ths con-
cuson s appcabe to a cases nvovng the deductbty of par-
tay worthess debts under the Revenue cts of 1921, 1924, 192 ,
and 1928. ( s to such cases arsng under the Revenue ct of 1918
see /Sprng Cty oundry Go. v. Commssoner, decded by the
Unted States Supreme Court pr 30, 1934 Ct. D. 829, page 281,
ths uetn .)
In vew of the change n anguage of the correspondng prov-
sons of the Revenue ct of 1932, the decson s not appcabe to
cases arsng under that ct.
Robert . ackson,
Genera Counse, ureau of Interna Revenue.
S CTION 23(k). D DUCTIONS ROM GROSS
INCOM : D PR CI TION.
rtce 205: Method of computng deprecaton aowance.
R NU CT OP 102S.
mendment of artce 205, Reguatons 74. (See T. D. 4422,
page 58.)
rtce 205: Method of computng deprecaton aowance.
R NU CT O 1928.
Informaton necessary n support of deprecaton deductons.
(See Mn. 4170, page 59.)
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42, rt. 333. 118
P RT I . CCOUNTING P RIODS ND M T ODS O CCOUNTING.
S CTION 41. G N R L RUL .
rtce 321: Computaton of net ncome.
R NU CT O 1928.
Treatment of nsurance premums pad n advance for perod of
more than one year. (See G. C. M. 13148, page 7.)
S CTION 42. P RIOD IN W IC IT MS O
GROSS INCOM INCLUD D.
rtce 333: ampes of constructve recept. III-2- 591
Ct. D. 770
INCOM T R NU CT O 1928 D CISION O COURT.
1. Income Dvdend Constructve Recept.
Dvdends decared n 1928 and payabe on December 31 of that
year to stockhoders of record at the cose of busness on that day,
checks n payment of whch are maed on that date and receved
n due course on anuary 2, 1929, by a stockhoder, whose books
are kept on the bass of cash recepts and dsbursements, are re-
qured to be ncuded n gross ncome n 1928, when they were
unquafedy sub|ect to the demand of the stockhoder.
2. Decson ffrmed.
The decson of the oard of Ta ppeas (2 . T. ., 71 )
affrmed.
Unted States Crcut Court of ppeas for the Second Crcut.
ffe . Shearman, pettoner, v. Commssoner of Interna Revenue, respondent.
Petton to revew a decson of the oard of Ta ppeas. ffrmed.
efore L. and, Swan, and Chase, Crcut udges.
uy 5, 1933.
OPINION.
Income ta es assessed on stock dvdends under the Revenue ct of 1928 are
Invoved.
The pettoner, a resdent of Manhasset, N. T., owned both common and pre-
ferred stock n a corporaton caed W. R. Grace Co. y resoutons of the
board of drectors of that corporaton dvdends on boh casses of stock be-
came payabe on December 31, 1928, to stockhoders of record nt the cose of
busness on that day. Dvdend checks were maed to the pettoner on Decem-
ber 31, 1928, but not actuay receved by her unt anuary 2, 1929. On the
Inst mentoned day, the checks were credted to her account n her bank and
were pad n due course. The pettoner reported her ncome on the bass of
cash recepts and dsbursements. She dd not ncude these dvdends n her
return for 1928. The Commssoner ncuded tem n redetermnng her n-
come ta es for 1928 and the oard of Ta ppeas sustaned hs acton.
The ct of 1928, secton 42 (45 Stat., 791), provded that ncome sha bo
reported by the ta payer n the ta abe year n whch t was receved uness
under permtted methods of accountng t was accounted for as of another
ta abe perod. No such methods of accountng were empoyed and the soe s-
sue s whether the dvdends were n aw, though not n fact, receved n 1928.
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119
42, rt. 333.
Secton 2 of the 1928 ct authorzed the Commssoner to prescrbe and pub-
sh a needfu rues and reguatons, sub|ect to the approva of the Secretary
of the Treasury. Reguatons so prescrbed and pubshed provded that dv-
dends on corporate stock were constructvey receved by a ta payer when
unquafedy made sub|ect to the demand of the sharehoder (artce 333
of Treasury Reguatons 74) and shoud be ncuded n the gross ncome of
the dstrbutees when the cash or other property s unquafedy made sub-
|ect to ther demands (artce 21, bd.). The resut n ths case depends
upon the vadty of these reguatons.
Chase, Crcut udge: Of course, when a statute speaks n anguage whch
eaves no doubt of the ntent of Congress contemporaneous admnstratve con-
structon, f contrary to the terms of the statute, s merey erroneous and has
no effect e cept to ca for correcton. It can not be reed upon as an accepted
nterpretaton of the aw. (The Soft and Courtney and eecher Company v.
Unted Stoen, 105 U. S., 91 Isen v. Unted States, 270 T . S., 245 T. D. 384 ,
C. . -, 3 5 .) The pettoner argues wth force that s recognzed that when
Congress used the words for the ta abe year n whch receved by the ta -
payer actua and not constructve recept was meant. The Revenue ct of
1921, under whch the ngham case hereafter referred to was decded, provded
m secton 201(e) that such dvdends as these shoud be ncuded n gross
ncome by the dstrbutees as of the date when the cash or other property
s unquafedy made sub|ect to ther demands. Under that statute such regu-
atons as are reed upon now woud ceary have refected the ntent of the
awmakers. In the 1924 ct, the anguage became, and t remaned n the 192
ct, substantay the same as that used n the 1928 ct. The reguatons
requrng the ncuson of such dvdends as these n the ta abe perod n whch
they were unquafedy made sub|ect to the demands of the person entted to
receve them were ncuded n every seres of reguatons promugated from
1918 to the passage of the 1928 ct. Indeed, they have been so ncuded ever
snce though the perod subsequent to the 1928 ct s now of no moment.
(T. R. 45, artce 54 T. R. 2, artce 53 T. R. 5 and 9, artce 52 T. R. 77,
artce 333.) In decdng whether Congress meant after the 1924 ct that ony
dvdends actuay receved were to be ncuded n any ta abe perod or whether
It was ntended that the theory of constructve recept was thereafter to preva,
the retenton n subsequent cts wthout matera change of the provson con-
strued by the admnstratve department to mean constructve recept persua-
svey ndcates that Congress approved the nterpretaton. rewster v. Oage,
280 T . S., 327, 337 Ct. D. 148, C. . I -1, 274 urnet v. Thompson O d Gas
Co., 283 U. S., 301, 307-308 Ct. D. 331, C. . -, 390 Murphy O Co. v.
urnet, 287 U. S., 299, 307 Ct. D. 19, C. . II-1, 231 urnet v. rooks, 288
T . S., 378, 392-393 Ct. D. 48, C. . II-1, 3 2 Unted States v. Dakota
Montana O Co., 288 U. S., 459, 4 Ct. D. 55, C. . II-1, 243 .) dded
assurance that Congress dd not ntend to change the requrement that dv-
dends unquafedy made sub|ect to the ta payer s demands were to be ncuded
n the return for the perod wthn whch they were made so s found n the
reports of the commttees when secton 201(e) of the ct of 1921 was omtted
from the ct of 1924. ( . Rept. 179, S ty-eghth Congress, frst sesson, pages
12, 20-21 S. Rept. 398, S ty-eghth Congress, frst sesson, page 23 ouse
Conference Report 844, S ty-eghth Congress, frst sesson, pages 1 -17.) These
reports ceary show that the admnstratve practce was consdered to be
we setted and to be n accord wth the statute as reenacted. Wth such
persuasve evdence of the ntent of Congress, we hod that Treasury Reguatons
74, artces 333 and 21, are vad.
These dvdends shoud, therefore, have been ncuded n the pettoner s 1928
return f they were unquafedy made sub|ect to her demands durng that
year. They were not payabe by checks to be maed as were the dvdends
consdered n Commssoner v. dams (54 ed. (2d), 288) and perhaps that
case dffers from ths n that the ta payer was there entted to receve the
dvdends ony at such tme as checks maed were devered. ere the tme
when the ta payer was entted to receve the dvdends was defntey f ed by
the resouton to be at the cose of busness on a day wthn the 1928 ta abe
perod. The moment when the ta payer was entted to the use and beneft of
them wthout quafcaton was not, as n the dams case, ony after the tme
necessary for transmsson of checks by ma had e pred. Ths beng so, the
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543, rt. 342.
120
ta payer was bound to return them as ncome n her return for 1928. (Com-
mssoner v. ngham, 35 ed. (2d), 503 Ct. D. 207, 0. . I -2, 289 .)
ffrmed.
rtce 333: ampes of constructve recept.
R NU CT OP 1928.
Custom that no stockhoder shoud receve dvdend check before
the frst busness day of month foowng month n whch dvdend
was payabe. (See Ct. D. 828, page 131.)
S CTION 43. P RIOD OR W IC D DUCTIONS
ND CR DITS T N.
rtce 342: When charges deductbe. III-9- 75
( so Secton 117, rtce 51.) G. C. M. 12737
R NU CTS OP 192 ND 1928.
The osses of a ta payer, a resdent of Caforna, through fore-
cosure saes n 1927 and 1928 of rea property hed for more than
two years, were sustaned at the tme of the sherff s saes n the
forecosure proceedngs. The osses consttuted capta osses
whch may be recognzed n computng a statutory net oss ony
to the e tent of the capta gans n each ta abe year.
n opnon s requested reatve to the osses ncurred by the
ta payer through forecosure of mortgages on certan rea property,
that s, n what year the osses were ncurred and whether they were
capta osses.
The ta payer was the owner of a ranch property purchased n
March, 1920. Thereafter she borrowed money and mortgaged ths
property as securty for the oan. The mortgage was forecosed n
1927. The property was sod at a sherff s sae n 1927, and the
certfcate or sae was recorded n December, 1927. The purchaser
at the sae was not the mortgagee. The ta payer remaned n
possesson durng the statutory perod of 12 months aowed for
redempton, and for severa months thereafter, durng whch she was
actvey seekng to arrange for the redempton of the property.
The purchaser dd not secure the sherff s deed to the property unt
March, 1929, when possesson was surrendered. The ta payer was
aso the owner of another ranch property, sub|ect to two mortgages
on separate parces thereof. The property was sod n two parces
at a sherff s sae n anuary, 1928, to satsfy the two mortgages.
The ta payer made no effort to redeem ths property and t appears
that the sherff s deeds were e ecuted n anuary, 1929, whereupon
the two mortgages were canceed.
Under secton 700 of the Caforna Code of Cv Procedure
Upon a sae of rea property, f the |udgment s a en
upon the rea property the purchaser s substtuted to and acqures
a the rght, tte, nterest, and cam of the |udgment debtor on
or at any tme after the day such |udgment became a en on such
property . Secton 700a provdes that Saes of persona
property, and of rea property, when the estate theren s ess than
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43, rt, 342.
a easehod of two years une pred term, are absoute. In a other
cases the property s sub|ect to redempton as provded n ths chap-
ter. The offcer must gve to the purchaser a certfcate of sae, and
fe a dupcate thereof for record n the offce of the county recorder
of the county, .
Under secton 702, The |udgment debtor, or redemptoner. may
redeem the property from the purchaser any tme wthn 12 months
after the sae on payng the purchaser the amount of hs purchase,
wth 1 per cent per month thereon n addton, up to the tme of
redempton, together wth the amount of any assessment or ta es
whch the purchaser may have pad thereon after purchase, and
nterest on such amount. If no redempton be made
wthn 12 months after the sae, under secton 703, the purchaser,
or hs assgnee, s entted to a conveyance, but It
the debtor redeem, the effect of the sae s termnated, and he a
restored to hs estate, and the person to whom payment s made
must e ecute and dever to hm a certfcate of redempton, acknow-
edged or proved before an offcer authorzed to take acknowedg-
ments of conveyances of rea property. Such certfcate must be
fed and recorded n the offce of the recorder of the county n
whch the property s stuated, and the recorder must note the record
thereof n the margn of the record of the certfcate of sae.
Under secton 70 of the code, the mortgagor may reman n pos-
sesson of the property durng the perod aowed for redempton.
owever, under secton 707, The purchaser from the tme of the
sae unt a redempton, s entted to receve, from the
tenant n possesson, the rents of the property sod, or the vaue of
the use and occupaton thereof, but f any rents or profts have
been receved by the |udgment credtor or purchaser from the prop-
erty thus sod precedng such redempton, the amounts of such
rents and profts sha be a credt upon the redempton-money to be
pad .
The Caforna courts have hed that under the foregong pro-
vsons of aw there s a compete transfer of a of the mortgagor s
rght, tte, nterest, and cam upon the property at the tme of the
sherff s sae n forecosure proceedngs, and that the e ecuton of
the sherff s deed on e praton of the redempton perod of 12
months gves to the purchaser at the sae no new tte to the prop-
erty purchased by hm, notwthstandng the fact that there remans
n the debtor the statutory rght to redeem wthn the perod nd-
cated and the rght to reman n possesson unt the e ecuton of
the sherff s deed. Robnson v. Thornton et a. (1893), 102 Ca.,
75, 34 Pac, 120 Duff et a. v. Randa et a. (1897), 11 Ca., 22 ,
48 Pac, and reedove v. Norwch Unon re Ins. Soc. (1899),
124 Ca., 1 4, 5 Pac, 770.) In Poard v. arow, Commssoner
(1903) (138 Ca., 390, 71 Pac, 454), the Supreme Court of Ca-
forna referred to the fact that n the earer cases the tte durng
the perod of redempton of the purchaser at the sherff s sae s
sometmes referred to as equtabe and sad:
The anguage of secton 700, Code Cv Procedure, s that upon the
sae of the property the purchaser s substtuted to and acqures a the rght,
tte, nterest, and cam of the udgment debtor thereto, whch s to say
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43, rt. 842.
122
unequvocay that he acqures the ega as we as the equtabe tte. The
ony quafcatons are that (when not a easehod of ess than two years une -
pred term) the property sha be sub|ect to redempton, that a deed sha be
subsequenty gven (Code Cv. Proc., secton 703), and that pendng the tme
for redempton the possesson sha- reman wth the defendant (Code Cv.
Proc, secton 70 ). ut no one of these quafcatons Is Inconsstent wth
the vestng of the ega tte n the purchaser. Wth regard to the frst, the
case s smpy the famar one of a ega tte defeasbe upon the happen-
ng of a condton subsequent and, as to the second, the deed gves to the
purchaser no new tte to the and purchased by hm but, s merey evdence
that the tte has become absoute. Robnson v. Thornton, supra.) Nor Is
the contnued possesson of the and by the |udgment debtor any more ncom-
patbe wth the e stence of the ega tte n another than n the ordnary case
of a tenant and hs andord.
Wth respect to the tme of the e tngushment of the mortgage
debt, the court n Reynods v. London Lancashre re Ins. Co. et
a. (1900) (128 Ca., 1 , 0 Pac, 4 7), hed that by the forecosure
proceedngs, and the purchase of the mortgaged premses by the
pantff mortgagee for the fu amount of the debt and |udgment,
the debt was fuy e tngushed, and pantff was no onger a cred-
tor or mortgagee and that the mortgagor had the
mere statutory rght of redempton, whch coud be e ercsed wthn
the statutory perod, not by payng the former and e tnct debt, but
by pa| ng the purchase prce bd for the property, together wth
certan statutory percentages and costs. The court stated that:
Res mdcnt ctes Natona ank of D. O. Ms t Co. v. Onon Ins. Co. (88
Ca., 497, 2 Pac, 509). t s founded upon notons of the effect of a
|udca sae whch are nconsstent wth those decared n the ater cases of
Robnson v. Thornton, Duff v. Randa, and reedove v. Socety, above cted.
Of course, a forecosure n the sense of a perfect e tngushment of the mort-
gagor s equty of redempton, may be sad not to be compete unt after the
e praton of the statutory perod for redempton, but that consderaton has
no bearng upon the proposton that the sae e tngushes the debt. s before
stated, redempton s effected, not by the payment of the former debt, whch
no onger e sts, but by payment of the purchase prce at the |udca sae,
whch may be much ess or much more than the former debt.
(See aso Leet v. nbruster, 77 Pac, 53 McNutt et a. v. Neuvo
Land Co., 140 Pac, Wagenhem v. Garner et a., 183 Pac, 70
Leave.) v. Smth et a., 190 Pac, 1050 atcmun v. eogg et a., 211
Pac, 4 and untngton et a. v. Pcrrn et a., 223 Pac, 94.)
ccordngy, rrespectve of the rght of redempton and the rght
to reman n possesson of the property durng the perod for re-
dempton, a forecosure sae n Caforna has the effect of trans-
ferrng mmedatey the ega and equtabe ownershp of the prop-
erty from the mortgagor to the purchaser at such sae. It foows
that the mortgagor s nvestment n the property s thereupon cosed
out.
Ths offce s, therefore, of the opnon that the mortgagor s osses
from the forecosure of the mortgages were, under the crcumstances
heren set out, sustaned at the tme of the sherff s saes n the fore-
cosure proceedngs. (Compare I. T. 1780, C. . II-2, 121.)
ach of the propertes nvoved n ths case was hed by the ta -
payer for more than two years pror to the sherff s saes on fore-
cosure. It does not appear that the propertes were hed by the
ta payer prmary for sae n the course of her trade or busness.
ccordngy, the propertes were capta assets wthn the mean-
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123
843, rt. 312.
ng of secton 208(a) 8 of the Revenue ct of 192 and secton 101 (c)8
of the Revenue ct of 1928. It foows that the ta payer s osses
from the dsposton of her propertes through the forecosure saes
represented capta osses wthn the meanng of the Revenue cts
of 192 and 1928. In the computaton of the statutory net oss
camed by the ta payer recognton of such capta osses s mted
to the amount of capta gans n each ta abe year nvoved. (Sec-
ton 117(a)2, Revenue ct of 1928, and secton 20 (a)2, Revenue
ct of 192 .)
. arrett Pretttman,
Genera Counse, ureau of Interna Revenue.
rtce 342: When charges deductbe. III-13- 718
G. C. M. 128 0
R NU CT O 1928.
In the State of Inos, the date of the forecosure of a mortguge
on rea property s the dentfabe event whch f es the ta payer s
deductbe oss for ncome ta purposes, regardess of the tme of
passage of the technca ega tte.
n opnon s requested whether the ta payer sustaned a deduct-
be oss n 1929 or 1930 due to forecosure proceedngs and sae of
certan rea property n the earer year.
In 192 the ta payer purchased z acres of and ocated n the State
of Inos. Upon the ta payer s faure to make the requste pay-
ments on the frst and second mortgages, e ecuted at the tme of pur-
chase, forecosure proceedngs were nsttuted n 1929. The master
found that the amount of 3.02a doars was then due on the frst mort-
gage, 4.85a doars on the second mortgage, and .03a doars as mas-
ters fees, a tota of 7.9a doars. On ugust , 1929, the and wag
sod at a master s sae for 7.7a doars and the master s certfcate ssued
to . No redempton was effected pror to the statutory 12-month
perod and the ta payer s rght of redempton was ost on ugust ,
1930. master s deed was ssued to on November , 1930.
The ta payer contends that under the aw of Inos ony when
hs rght of redempton was ost n 1930 dd he sustan a oss of hs
nvestment, and that he s entted to a deducton for that year n
the amount of doars.
Chapter 77, secton 1 , of the Inos Revsed Statutes (1925) pro-
vdes that upon a sae foowng forecosure, the offcer, nstead of
e ecutng a deed for the premses sod, sha gve to the purchaser
a certfcate descrbng the property purchased, showng the amount
pad therefor, and the tme when the purchaser w be entted to a
deed uness the premses sha be redeemed. Secton 18 gves to the
defendant a 12-month perod wthn whch to redeem from the pur-
chaser. Secton 20 grants to other credtors a 3-month perod foow-
ngthe defendant s 12-month perod n whch to redeem.
The courts of Inos have hed that the master s certfcate of sae
does not convey tte to the purchaser, but that tte remans n the
mortgagor unt a deed s ssued. (Wams v. Wston ct of., 315
111., 178, 14 N. ., 143 Sutherand v. Long et a., 273 111., 309, 112
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843, rt. 842.
124
N. ., 0 ack v. Snow et a., 338 111., 28,1 9 N. ., 819 Twyman v.
adwn et a., 2 1 111., 7, 103 N. ., 05.) Despte the fact that
the Inos courts have hed that after the forecosure sae and unt
a deed s ssued the ega tte s vested n the mortgagor, hs
rght of redempton s not such an nterest as s consdered reaty
nor s t a ega or equtabe nterest upon whch a |udgment can
become a en. Peope for the Use of ortune ros. rewng Co. v.
arrett, 1 5 111. pp., 94 v. ackwder, 113 111., 283 2 Reeves,
Inos Law of Mortgages and orecosures, page 823.) urther-
more, after the forecosure sae the mortgagor s ownershp s not
such as w support even a mechanc s en. Stone v. Tyer, 173 111.,
147, 50 N. ., 88.) On the other hand, the certfcate hoder s nter-
est n the premses s such that he may recover for damages to the
property nfcted pror to the recept of the master s deed. N on v.
Chcago, 212 111. pp., 3 5.) It s apparent that, athough the mort-
fagor may be nvested wth the technca ega tte unt the master s
eed s ssued, hs nterest acks many, f not a, of the ega rea-
tons ncdent to what s generay consdered ega tte. Never-
theess, the ta payer contends that the oss was sustaned ony when
tte to the property passed upon ssuance of the master s deed,
whch event, n Inos, may occur at any tme wthn s years of
the forecosure sae.
The Unted States Supreme Court has hed that the genera re-
qurement that osses be deducted n the year n whch they are sus-
taned cas for a practca, not a ega test Lucas v. mercan
Code Co., 280 U. S.| 445), and such osses may usuay be f ed by
dentfabe events. Unted States v. S. S. Whte Denta Manu-
facturng Co., 274 U. S., 398, T. D. 4059, C. . I-2, 198.)
It has been hed that where stock became worthess n a certan
year t was a deductbe oss ony for that year even though the ta -
aver retaned the tte to the stock and the company dd not qu-
atc unt t had competed an outstandng contract C. . Convver
v. Commssoner, 7 . T. ., 1234, acq. C. . II-1, 7), or a reorgan-
zaton was effected whch postponed the eventua qudaton by a
recevershp oyd . Poston.et a. v. Commssoner, 17 . T. .,
921, acq. C. . I -1, 44), or, n that year, the possbty of reor-
ganzng and refnancng the corporaton had not been entrey ds-
spated ohn Crosby rovm v. Commssoner, 27 . T. ., 17 ).
Lkewse, t has been hed that a ta payer sustaned a deductbe
oss n the year n whch hs property n Germany was sezed by the
en Property Custodan durng the Word War, even though there
was a possbty of compensaton ether by the German Government
or the Unted States Government accordng to the terms of the treaty
eventuay reached between them. ( ppeas of m Stern et a.,
. T. ., 89, C. . -, 2.) urthermore, artce 194 of Regu-
atons 74 provdes that, where nothng s reazed for the bond-
hoders upon forecosure of the mortgage, the bonds are regarded
as worthess and are deductbe not ater than the year of the fore-
cosure sae. The ureau hed n I. T. 1 97 (C. . II-, 95) that,
where a corporaton became bankrupt and ts property was sod
under forecosure n 1918, the stockhoders oss occurred n that year
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125
101, rt. 501.
rather than n 1919 when the corporaton s rght of redempton e -
pred. (See aso I. T. 1780, C. . II-2, 121, permttng a oss to
be deducted n the year of forecosure.)
It s hardy concevabe n the nstant case that the ta payer, who
was unabe to meet payments accrung over a perod of years, woud
be abe to redeem from the purchaser wthn the statutory perod.
rom a practca pont of vew t has been stated by one Inos
master n chancery ( s) that n hs 20 years as a master, t
has been hs observaton that n not more than one n severa thou-
sand cases was there a redempton. (Cary, rabner-Smth and
Suvan, Studes n orecosures n Cook County II orecosure
Methods and Redempton, 27 111. L. Rev., 595, 599.)
In vew of the foregong, t s the opnon of ths offce that, re-
gardess of the tme of passage of the technca ega tte, the fore-
cosure sae was the dentfabe event f ng the ta payer s oss whch
was deductbe ony from hs 1929 ncome.
P RT . R TURNS ND P YM NT O T .
S CTION 55. PU LICITY O R TURNS.
rtce 421: Inspecton of returns.
R NU CT O 1028.
Commttee on the udcary of the ouse of Representatves
authorzed to nvestgate the conduct of equty and bankruptcy
recevershps n edera courts. (See T. D. 443 , page 304.)
rtce 421: Inspecton of returns.
R NU CT OP 1928.
Speca Commttee Investgatng the Muntons Industry, Unted
States Senate. (See T. D. 4440, page 305.)
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S O T .
S CTION 101. C PIT L N T G INS
ND LOSS S.
rtce 501: Defnton and ustraton of capta net gan.
R NU CT O 1928.
Stock acqured through e ercse of stock rghts. (See G. C. M.
12942, page 73.)
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5103, rt. 528.
12
S CTION 103. MPTIONS ROM T
ON CORPOR TIONS.
rtce 528: usness eagues, chambers of com- I11-22 818
merce, rea estate boards, and boards of trade. Ct. D. 831
ncome ta revenue acts of 1920 and 1928 decson op court.
Corporaton empton usness League.
credt men s ad|ustment bureau whose artces of ncorporaton
are those of an ordnary busness corporaton wth capta stock,
whch under ts charter s entted to dvdends, whch does not
charge dues, and whose actvtes, engaged n at a proft, ncude
coectng denquent accounts, admnsterng nsovent estates,
fng and attendng to bankruptcy cams and such other busness
as s generay conducted by ts ndvdua and corporate compet-
tors, and whch by trust agreement reserves to any stockhoder
the rght to se hs stock wth the opton to hs assocates to buy
t at book vaue, and provdes that at the termnaton of the agree-
ment a the assets of the bureau sha be turned over to a credt
men s assocaton, s not entted to e empton from ncome ta
under secton 231(7) of the Revenue ct of 1928 and secton 103(7)
of the Revenue ct of 1928, even though by amendment ts by-aws
provde that t sha not operate for the proft of stockhoders
and that no dvdends sha be pad to them. Such by-aws make
no change In the ega character of the corporaton nor n ts
authorty to conduct ts busness for proft. The term prvate
Indvdua as used n the above sectons ncudes prvate corpora-
tons as we as natura persons.
Dstrct Court or the Unted States for the Western Dstrct of entucky.
Lousve Credt Men s d|ustment ureau, pantff, v. Unted States of
merca, defendant.
ebruary 13, 1934.
OPINION.
Dawson, .: Ths s a sut for the refund of edera Income ta es e acted
of the pantff for each of the ta payer s fsca years ended pr 30, 192 , to
pr 30, 1929, both ncusve. somewhat detaed statement of the per-
tnent facts s deemed essenta to a proper understandng and correct decson
of the case.
The pantff, whch w be caed the bureau, was ncorporated n 1907 wth
an authorzed capta stock of 400 shares of the par vaue of 10 per share.
Pror to 1922 ony ISO shares had been ssued, and In that year and pror to
pr 30, 20 addtona shares were ssued. Snce that date no addtona shares
have been ssued.
The artces of ncorporaton provde that no stockhoder may own more
than 30 shares, and that a stockhoders must be members of or persons
connected wth the Lousve Credt Men s ssocaton, whch s a nonproft
entucky corporaton wthout capta stock, organzed n 1902, and whose
membershp s composed of whoesaers, |obbers, manufacturers and factores
ocated n Lousve, y., and n Its vcnty. The artces of ncorporaton
of ths assocaton decare:
The corporaton w not carry on any busness, but the ob|ects or purposes
to be transacted sha be a awfu and honorabe measures for protectng
manufacturers and whoesae deaers who se on -credt aganst needess osses,
ether by the dshonesty of ther debtors or by un|ust aws or practces.
Snce ts organzaton, n strct compance wth ts artces of ncorporaton,
t has not conducted any busness, but has operated as a cearng house for
credt nformaton for ts members and for the members of the Natona sso-
caton of Credt Men, wth whch t s affated, and for the members of other
oca credt men s assocatons affated wth the natona assocaton, and for
the purpose of mprovng credt condtons generay. The ony revenues the
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127
15103, rt. 528.
assocaton receves, other than contrbutons from the bureau, are from the
annua dues of members, and no dvdends or other payments have ever been
pad by the assocaton to ts members, and by the terms of ts artces of
ncorporaton no such dvdends can be pad. On the other hand, the artces
of ncorporaton of the bureau are franky those of an ordnary busness cor-
poraton. The artces, n part, decare:
The nature and ob|ects of the busness w be the nvestgatng or caus-
ng to be nvestgated, the fnanca condton of mercante or other estabsh-
ments, whether conducted by ndvduas, copartnershps or corporatons to
prevent oss on accounts aganst fang, nsovent or frauduent debtors, as
far as may be possbe to arrange for takng over stocks of merchandse and
other property of debtors, whether rea, persona or m ed by b of sae,
deed or otherwse, or acqurng a en thereon, and the hodng and dsposng of
the same for the beneft of credtors when the same may be deemed advsabe
to secure concerted acton In the nomnaton and eecton of effcent and trust-
worthy assgnees, recevers, trustees n bankruptcy and other fducares to
effect coectons and transact such other busness as may be germane to ts
ob|ects and purposes and to e ercse such corporate powers as are usua and
ncdent to busness corporatons.
rom the date of ts organzaton the bureau has engaged n a of the
actvtes authorzed by ts charter, Incudng the coecton of denquent
accounts, admnsterng nsovent estates, fng and attendng to bankruptcy
cams, and such other busness as s generay conducted by ts ndvdua and
corporate compettors. These servces are rendered to ts stockhoders, to
members of the Lousve Credt Men s ssocaton, to members of the Natona
ssocaton of Credt Men, and of ts affates, and to nonmembers of these
organzatons. Wth some e ceptons, not necessary here to menton, the bureau
makes such charges for these servces as to yed a proft, and t as aways
operated at a proft, and pror to 1925 contrbuted part of ths proft to the
support of the Lousve Credt Men s ssocaton, whch, pror to that date,
was not sef-sustanng.
The gross ncome of the bureau for the fsca year ended pr 30, 1918, was
11,172, and ts net ncome 2,092, and at the end of that fsca year t had a
surpus of 3,244. or ts fsca year ended pr 30, 192 , ts gross ncome
was 28351, ts net ncome 7,383, and ts surpus 12,529. or the fsca year
ended pr 30, 1927, ts gross ncome was 40,7 7, ts net ncome 1 ,373, and
ts surpus 25,951. or Its fsca year ended pr 30, 1928, ts gross ncome
was 43,202, ts net Income 12,25 , and ts surpus 38,207. or ts fsca
year ended pr 30, 1929, ts gross ncome was 02,872, ts net ncome 15,071,
and ts accumuated surpus 48,104 whe for ts fsca year ended pr 30,
1930, ts gross ncome was 59,91 , ts net ncome 18,502, and ts accumuated
surpus ,79 . The accumuated surpus represented, n arge part, the net
earnngs of the bureau from ts busness actvtes authorzed by ts charter,
after deductng a 10 per cent dvdend for each of the fsca years ended pr
30,1918, to pr 30, 1922, both ncusve, 175 per cent dvdend on ebruary 1,
1923, donatons to the Lousve Credt Men s ssocaton of over 17,000
between 1918 and 1925, and ta es, Incudng those sought to be recovered n ths
acton.
The reatons between the bureau and the Lousve Credt Men s ssocaton
from the begnnng have been very ntmate. They operate n the same sute of
offces, many of the empoyees of the two companes beng the same, each con-
trbutng on an agreed bass to the payment of ther saares. They have the
same genera manager, and the presdent of the assocaton s aways a member
of the board of drectors of the bureau. The busness transacted by the pan-
tff has, n arge part, come to t from ts stockhoders, from the members of
the Lousve Credt Men s ssocaton, from members of the Natona
ssocaton of Credt Men and of ts affated credt assocatons, and argey,
f not soey, by reason of ts connecton wth these credt assocatons.
Shorty pror to anuary 10, 1923, the offcas of the Natona ssocaton
of Credt Men notfed the bureau that f t wshed to contnue ts cose aff-
aton wth the natona assocaton and ts affates t must dscontnue ts
pocy of payng dvdends to ts stockhoders. To meet ths demand of the
assocaton, the board of drectors of the bureau on anuary 10, 1923, amended
the by-aws of the corporaton. One of these amendments provded:
The corporaton sha not operate for the proft of stockhoders and no
dvdends sha be pad to stockhoders under any crcumstances and any
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103, rt. 528.
128
profts or earnngs of the bureau, not necessary for ts successfu operaton,
sha go to the Lousve Credt Men s ssocaton.
Other amendments to the by-aws vest n the board of drectors of the bureau
power to determne the amount of surpus to be retaned by the corporaton for
the operaton of ts busness, and make provson fer an annua audt and for
furnshng a copy of such audt to the Natona ssocaton of Credt Men. The
board went on record at ths meetng as desrng to meet a the requrements of
the natona assocaton, and approved the form of an agreement to be e ecuted
by the stockhoders of the bureau, by whch such stockhoders agreed to pace
ther stock n the hands of three trustees
for the soe beneft of the Lousve Credt Men s ssocaton, to
be voted and possessed by sad trustees for and durng the perod of 10 years
from and after anuary 1, 1923, and at the e praton of sad votng trust a
assets of the bureau to be turned over to the Lousve Credt Men s ssocaton.
The proposed trust agreement rected that t was e ecuted to meet the pocy
of the Natona ssocaton of Credt Men and of the Lousve Credt Men s
ssocaton not to cooperate wth any ad|ustment bureau whch pad dvdends.
Provson s made n the agreement for the presdent of the Lousve Credt
Men s ssocaton to f any vacances occurrng n the trustee membershp, and
that the agreement may be termnated at any tme by the unanmous consent of
the sgners. Two other very pertnent provsons of the trust agreement are as
foows:
(3) ach of the partes hereby agree that f durng sad perod of 10 years
ether desres to se or dspose of hs shares of stock he w gve notce n wrt-
ng of such desre to each of the trustees, whereupon sad trustees sha |onty
have the opton and rght to purchase the same wthn 10 days after recept of
such notce for a prce equa to the book vaue thereof at the tme sad notce s
gven, to wt that the proportonate vaue of the net assets of sad corporaton
whch the number of shares proposed to be sod bears to the entre ssue of
capta stock of sad corporaton but n determnng the vaue nothng sha be
Incuded for good w and the property of the corporaton sha be vaued at
ts true vaue n money.
(4) ny and a stock purchased under the provson of ths agreement by
the trustees sha be offered by them to the subscrbers hereto at the purchase
prce thereof, t beng the ntent of ths agreement to permt the sgners hereto
to acqure and hod by the trustees aforesad the stock of any certfcate hoder
who mght nsst on seng hs stock.
Ths agreement was duy sgned by the owners of a outstandng stock of the
bureau, e cept by the hoder of 1 share, and snce ts e ecuton no dvdends
have been pad to the stockhoders.
Under these facts the pantff contends that t was and s a busness eague
wthn the meanng of the appcabe provsons of the Revenue cts of 192 and
1028, and e empt from Income ta aton under these statutes. The pertnent
provsons of the two cts foow:
R NU CT O 192 .
Sec. .31. The foowng organzatons sha be e empt from ta aton under
ths tte (Tte II, Income Ta )

(7) usness eagues, chambers of commerce, or boards of trade, not or-
ganzed for proft and no part of the net earnngs of whch Inures to the beneft
of any prvate sharehoder or ndvdua.
R NU CT O 1028.
Sec. 103. The foowng organzatons sha be e empt from ta aton under
ths tte (Tte I, Income Ta )

(7) usness eagues, chambers of commerce, rea estate boards, or boards
of trade, not organzed for proft and no part of the net earnngs of whch
nures to the beneft of any prvate sharehoder or ndvdua.
dmttedy, pantff s nether a chamber of commerce, a rea estate board
nor a board of trade, as these organzatons are commony understood and as
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129
103, rt. 528.
these terms are used n the cts but It Is earnesty Inssted that It s a
busness eague not organzed or proft, and no part of the net earnngs of
whch nures to the beneft of any prvate stockhoder or ndvdua, wthn
the meanng of the two cts.
I can not agree wth ths contenton. It s qute cear that Congress, n
addton to e emptng from ta aton the famar chambers of commerce,
boards of trade and rea estate boards, fet that there were other sempubc
trade organzatons performng a smar servce whch shoud be e empted,
and, n searchng for an a-embracng term by whch such organzatons mght
be desgnated, seected the words busness eagues as a descrpton of ths
cass of organzaton, and n order to determne f a partcuar organzaton
or corporaton Is embraced wthn ths descrpton It woud seem to be a safe
gude to see f such concern performs substantay the same functons as are
customary performed by boards of trade, chambers of commerce or rea estate
boards. Chambers of commerce, boards of trade and rea estate boards n
ther respectve feds a perform a functon we known to the modern bus-
ness word. They are not busness concerns, n the sense that they operate
tor proft or render that ndvdua pad servce to the pubc, or even to ther
own members, that s customary performed by ndvduas or organzatons
for the purpose of makng money. Ther functon s a semcvc one, havng
to do n arge part wth the genera wefare of the busness or busnesses
represented by ther membershp. In no sense are they ndvdua busness
organzatons operatng for proft. ny surpus revenue reazed over and
above the actua cost of operaton s the Incdenta, not the ntended and
panned, resut of ther operatons. The revenues of such organzatons are
ordnary obtaned from membershp dues not from f ed charges for servces
rendered.
The pantff n ths case meets none of these tests. Its charter Is that of
the ordnary prvate commerca corporaton. It has capta stock. Ths stock
has a par vaue. Under ts charter the stock s entted to dvdends, If earned,
and pror to 1923 dvdends were earned and pad, and have been reguary
earned snce that date, but not dstrbuted. It does not depend upon ts dues
for ts revenue. No dues are charged. The busness n whch t s engaged s
that qute e tensvey engaged n by others for proft, and ts earnngs are
acqured In e acty the same way as are the earnngs of ts compettors. To
hod that Congress ntended to e empt such an organzaton from ta aton
whe ta ng ts ndvdua and corporate compettors woud convct the egsa-
tve department of deberate and un|ust dscrmnaton.
If we dsregard the test of anaogous actvtes, and measure the rghts of
the pantff by the pan anguage of the cts, t seems to me we must re|ect
pantffs cam. To entte a busness eague to e empton two con|unctve
requrements must be met frst, t must not be organzed for proft and,
second, no part of ts net earnngs must nure to the beneft of any prvate
sharehoder or ndvdua. If t fas to meet both of these tests, t s not
e empt. It was undoubtedy organzed for proft, and It has contnuousy
operated for proft, and has actuay reazed a proft every year of ts opera-
ton. Its charges for servces have aways been f ed wth the dea of reazng
a proft. Ths aone woud seem, under the anguage of the two statutes, to
requre the re|ecton of pantff s cam. dmttedy, pror to 1 23 the net
profts Inured to the beneft of ts stockhoders, both n the form of dvdends
dstrbuted and n the ncrease of ther equty n the mountng surpus. Indeed,
the corporate charter puts ths fact beyond queston.
It may we be doubted If, under the two Revenue cts n queston, a cor-
poraton possessng the corporate powers of the pantff, and conductng ts
busness as has pantff, may, by a mere by-aw eschewng profts and a contract
of Its stockhoders among themseves, desgned to carry such a by-aw Into effect,
wthout a correspondng change n the corporate charter, transform a ta abe
corporaton nto an e empt one but n any event t seems cear to me that no
such resut was attaned by the pantff through the amended by-aws of anu-
ary 10, 1923, and the trust agreement of the stockhoders heretofore referred to.
s heretofore noted, one of the necessary requrements for e empton s that
the corporaton or busness eague be one not organzed for proft. The statutes
do not e empt a corporaton merey because It s not organzed or operated for
the proft of Its stockhoders. If It s organzed for proft, t Is not e empt
even though the profts are not for the stockhoders, but soey for the corpora-
ton as such, or for some other person or organzaton. The by-aws of 1923
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112, rt. 70.
130
merey decare that the corporaton sha not be operated for the proft of t
stockhoders, and that no dvdends sha be pad to the stockhoders. There Is
no change In the ega character of the corporaton, nor In ts authorty to con-
duct Its busness for proft. s a matter of fact, t contnued to operate for
proft and contnued to make even greater profts than formery and to pe up a
fast growng surpus. urthermore, the trust agreement s carefu not to wave
the rghts of the stockhoders to ther equty n the surpus and other assets of
the bureau, durng the fe of the agreement. On the eve of the e ecuton of the
trust agreement they dstrbuted to themseves, through a dvdend of 175 per
cent, practcay a the corporate assets then on hand, and by the terms of the
agreement any stockhoder was gven the rght to se hs stock, wth the opton
to hs assocates to buy t for ts book vaue, and the trust agreement at any
tme coud be annued by the unanmous consent of ts sgners. Wth these
rghts reserved to the stockhoders, there can be no doubt that the net earnngs
of the bureau whch found ther way nto surpus nured to the beneft of the
stockhoders, durng the fe of the trust agreement, whch, so far as the record
dscoses, was n fu force durng each of the years here nvoved. Ths fact,
t seems to me, prevents the pantff from meetng the second requrement of
the statute that no part of the net earnngs sha nure to the beneft of prvate
stockhoders.
The trust agreement provdes that at ts termnaton a assets of the bureau
sha be turned over to the Lousve Credt Men s ssocaton, but ths was
certany not bndng on the nonsgnng member. If bndng on the others, t
dd not prevent them from seng ther stock before the e praton of the trust
agreement and thus gettng the beneft of the net earnngs whch had at that
tme been carred to surpus. urthermore, assumng that any of the net
earnngs not necessary for the busness of the bureau were, as the amended
by-aws of 1923 authorzed, turned over to the Lousve Credt Men s sso-
caton (and between 1923 and 1925 some of the net earnngs were so turned
over), to ths e tent the net earnngs of the bureau woud seem to nure to
the beneft of a prvate ndvdua. I thnk t far and reasonabe to construe
the words prvate ndvdua, as used n the two statutes, as broad enough
to embrace prvate corporatons, as we as natura persons. y the same
token, to the e tent that any net earnngs were on hand as surpus at the e -
praton of the trust agreement and turned over to the assocaton, as the agree-
ment undertakes to provde, such net earnngs woud nure to the beneft of a
prvate Indvdua.
In vew of a these consderatons, I fee constraned to hod that pantff
was not e empt under the statutes reed upon. I am fortfed n the concu-
son here readed by the unform defnton gven by the Commssoner to the
words busness eague and by the cases of Unform Prntng Suppy Co. v.
Commssoner (33 ed. (2d), 445 (8th Cr.) Ct D. 70, C. . III-1, 2 4 ,
affrmng the oard of Ta ppeas) : Northwestern obbers Credt ureau v.
Commssoner (37 ed. (2d), 880 ( 8th Cr.) Ct. D. 20 , C. . I -2, 228 ,
affrmng the oard of Ta ppeas) and by the decson of the oard of Ta
ppeas n the appea of d|ustment ureau of St. Lous ssocaton of Credt
Men v. Commssoner (21 T. ., 232).
fndng of facts and |udgment conformng to the vews heren e pressed
may be prepared by counse for the Unted States, and, after submttng same
to counse for the pantff, tendered for entry.
SUPPL M NT . COMPUT TION O N T INCOM .
S CTION 112. R COGNITION O G IN OR LOSS.
rtce 579: Invountary converson of property.
R NU CT O 1928.
Condemnaton of rea property, award of severance damages, and
use of part of proceeds of condemnaton award n the purchase of
property smar or reated n servce or use to the property con-
demned. (See G. C. M. 12 32, page 104.)
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131
115, rt. 21.
htcb 579: Invountary converson of property.
R NU CT O 1928.
Land sod under condemnaton proceedngs wth no separate
aowance for severance damages to remanng and. (See G. C. M.
12 57, page 80.)
S CTION 114. SIS OR D PR CI TION
ND D PL TION.
rtce 11: ass for aowance of deprecaton and
depeton.
R NU CT O 1928.
ssets receved by parent company upon qudaton of subsdary.
(See G. C. M. 12581, page 142.)
S CTION 115. DISTRI UTIONS Y CORPOR TIONS.
rtcus 21: Dvdends. III-21- 80
( so Secton 42, rtce 333.) Ct. D. 828
INCOM T R NU CTS O 1924 ND 1928 D CISION O SLTR M
COURT.
Income Dvdend In What Year Ta abe.
Dvdends decared by a company In 1924 and In 1929, payabe
on or before Decem ber 31 of those years and receved on anuary
2, 1925 and 1930, by a stockhoder and offcer who kept hs ac-
counts on the cash recepts and dsbursements and caendar year
bass are not ta abe n 1924 and 1929, assumng that the Treas-
ury reguaton that dvdends are ta abe when unquafedy
made sub|ect to the stockhoder s demand was ncorporated nto
the Revenue cts of 1924 and 1928, where the company pad a
dvdends by check and t was the practce wthout e cepton
that no stockhoder, whether empoyee or offcer, shoud receve
hs dvdend check before the frst busness day of the month
foowng the month n whch the dvdend was made payabe.
Under such crcumstances the checks dd not consttute pay-
ments pror to ther actua recept.
Supreme Court of the Unted States.
791. Sece Lee very, pettoner, v. Commssoner of Interna Revenue.
792. Sece L. very, pettoner, v. Commssoner Interna Revaue.
On wrts of certorar to the Unted States Crcut Court of ppeas for the Seventh
Crcut.
pr 30, 1934.
opnon.
Mr. ustce McRetnods devered the opnon of the court.
The pettoner was a arge stockhoder and presdent of the Unted States
Gypsum Co. In November, 1924, the company decared a dvdend payabe on
or before the 31st day of December foowng. Its check, dated December for
the amount attrbutabe to hs stock, payabe to hm, was receved by yet-
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132
toner anuary 2, 1925. In November, 1929, another dvdend was decared,
payabe on or before the foowng December 31 and the company s check for
pettoner s porton was receved by hm anuary 2, 1930.
nnuay dvdend checks, sgned by the proper corporate offcers, and
dated December 31 were on that cay maed out to a stockhoders e cept
those who were offcers and empoyees, ncudng the pettoner. Checks for
the atter were hed n the treasurer s offce unt the frst busness day of the
ne t month and then dstrbuted through the offce ma.
The company decared dvdends quartery and n every nstance they were
made payabe on or before the ast day of some month. The dvdend checks
never eft the treasurer s offce or went to the mang department unt the
afternoon of the ast day of the month. They were maed on the ast day
of the month so as to be n the stockhoders hands on the frst busness day
of the foowng month. The practce was wthout e cepton that no stock-
hoder, whether empoyee or offcer, shoud receve hs check before the frst
busness day of the month foowng the month n whch the dvdend was
made payabe.
Pettoner kept hs accounts on the cash recepts and dsbursements and
caendar year bass.
The Commssoner assessed the dvdends above descrbed as part of the
pettoner s ncome for the years 1924 and 1929. The oard of Ta ppeas
approved and the court beow affrmed ths acton. The facts are not n
dspute. The ony queston for our determnaton s when, wthn Intendment
of the statutes, the dvdends were receved by pettoner.
e mantans that under the pan anguage of the Revenue cts of 1924
and 1928 the dvdends ke other assessabe tems shoud be treated as n-
come for the ta abe years durng whch they were actuay receved 1925
and 1930. The Commssoner cams that under Treasury reguatons promu-
gated n 1921 and n effect ever snce, the dvdends consttuted ncome for
the years n whch they were decared and made payabe.1 The reguaton
specay mportant here (No. 5, artce 1541) foows:
Dvdends. ta abe dstrbuton made by a corporaton to ts
sharehoders sha be ncuded n the gross ncome of the dstrbutees when the
cash or other property s unquafedy made sub|ect to ther demands.
The Revenue ct of 1924 (eh. 234, 43 Stat., 253), provdes
Sbo. 212. (b) The net ncome sha be computed upon the bass of the ta -
payer s annua accountng perod (fsca year or caendar year, as the case may
be) n accordance wth the method of accountng reguary empoyed n keep-
ng the books of such ta payer but f no such method of accountng as been
so empoyed, or f the method empoyed does not ceary refect the ncome, the
computaton sha be made n acco-danee wth such method as n the opnon
of the Commssoner does ceary refect the ncome. If the ta payer s annua
accountng perod s other than a fsca year as defned n secton 200 or f the
ta payer has no annua accountng perod or does not keep books, the net
ncome sha be computed on the bass of the caendar year.
Sec. 213. or the purposes of ths tte,
(a) The term gross ncome Incudes gans, profts, and ncome .
The amount of a such tems sha be ncuded n the gross ncome for the
ta abe year n whch receved by the ta payer, uness, under methods of
accountng permtted under subdvson (b) of secton 212, any such amounts
are to be propery accounted for as of a dfferent perod.
Sec. 1001. The Commssoner, wth the approva of the Secretary, s author-
zed to prescrbe a needfu rues and reguatons for the enforcement of ths
ct.
Sectons 41, 42, and 2. Revenue ct of 1928 (ch. 852, 45 Stat., 791), are sub-
stantay ke correspondng ones quoted from the 1924 ct. Smar provsons
appear In the Revenue ct of 1918 and a subsequent ones.
The Revenue ct of 1921 (ch. 13 , 42 Stat, 227, 229) s pecuar n that t
makes dstncton between dvdends and other ncome tems by the foowng
provson whch does not appear n subsequent cts:
Sec. 201. (e) or the purposes of ths ct, a ta abe dstrbuton made by a
corporaton to ts sharehoders or members sha be ncuded n the gross ncome
1 See Treasury
52 and 1541 Nt
838 and 21.
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133
11 , rt. 43.
of the dstrbutees as of the date when the cash or other property ts unqua-
fedy made sub|ect to ther demands.
If we gve the words of the statutes ther ordnary meanng, ceary the dv-
dends under consderaton were not actuay receved by the ta payer durng
1924 and 1929. Certany, they were not receved when decared. They dd not
come nto the ta payer s hands on December 31 smpy because payabe on that
day. nd uness Congress as defntey ndcated an ntenton that the
words shoud be construed otherwse, we must appy them accordng to ther
usua acceptaton.
The pettoner nssts that the word receve s free from ambguty and
admts of no nterpretaton the statute furnshes the soe measure as to when
dvdends are to be reported.
In behaf of the Commssoner t s sad
The Revenue ct drects that the amount of a such (specfed) tems sha
be ncuded n the gross ncome for the ta abe year n whch receved by the
ta payer. The word receved, as apped to dvdends, s not entrey cear
snce there are dfferent tmes at whch t reasonaby may be camed the ta -
payer receves them. To meet ths stuaton the Commssoner promugated
the reguaton that dvdends are ta abe when unquafedy made sub|ect to
the stockhoder s demand. Ths provson has been ncuded n a Treasury
reguatons snce 1918 and has been approved and accepted by Congress through
subsequent reenactments of the statute. When a dvdend unquafedy becomes
sub|ect to a ta payer s demand s essentay a queston of fact. ere, the
oard of Ta ppeas and the Crcut Court of ppeas agree that the dvdends
were sub|ect to the ta payer s demand on December 31.
It s unnecessary for us to determne how far the quoted Treasury reguaton
was ncorporated nto the cts of 1924 and 1928. If we assume that the regua-
ton, n effect, became part of those enactments, nevertheess we thnk the
Commssoner s acton was erroneous. In the dscosed crcumstances the
dvdends can not propery be consdered as cash or other property unquafedy
sub|ect to the pettoner s demand on December 31. It was the practce of
the company to pay a dvdends by checks not ntended to reach stockhoders
unt the frst busness day of anuary there s nothng to show that pettoner
coud have obtaned payment on December 31, he dd not e pect ths and the
practce shows the company had no ntenton to make actua payment on that
day. Nothng ndcates that t recognzed an unrestrcted rght of stockhoders
to demand payment e cept through checks sent out n the usua way. The
checks dd not consttute payments pror to ther actua recept. The mere
promse or obgaton of the corporaton to pay on a gven date was not enough
to sub|ect to pettoner s unquafed demand cash or other property and
none of the partes understood that t was.
Ths sub|ect has been consdered wth varyng resuts n Commssoner v.
ngham (35 . (2d), 503) (1929) Ct. D. 207, C. . 1 -2, 289 adey v.
Commssoner (3 . (2d), 543) (1929) Ct. D. 153, C. . I -1, 20 Com-
mssoner v. dams (54 . (2d), 228, 230) (1931) Shearman v. Commssoner
( . (2d), 25 ) (1933). The facts here dscose a stuaton substantay
ke that n dams case and we agree wth the concuson of the court theren,
stated as foows: We are aso of the opnon that, on the facts found, the
dvdends were not. unquafedy made sub|ect to the demand of the stock-
hoder, n the year 1924, f artce 52 of the departmenta reguatons can be
sad to be vad and not n confct wth the e press anguage of secton 213(a).
Reversed.
S CTION 11 . CLUSIONS ROM GROSS
INCOM .
btce 43: Compensaton of State offcers III-12- 707
and empoyees. I. T. 27 9
R NU CT O 1028.
The compensaton receved for servces rendered as recever of an
nsurance company, under the authorty contaned n secton 9 of
chapter 177 of the Genera Laws of Massachusetts, 1921, s sub|ect to
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8117, rt. 51.
134
edera ncome ta . ( rtce 43, Reguatons 74 emng v. ow-
era, 11 ed. (2d), 789, T. D. 3833, C. . -, 201 dward . Wrght
y. Commssoner, 29 . T. ., 12 7.)
Losses on saes under forecosure n Caforna. (See G. C. M.
12737, page 120.)
The M Company was organzed as a Deaware corporaton In
1921. t a tmes snce organzaton t as operated In Pennsy-
vana, where ts prncpa offce was ocated and under the aw of
whch t was regstered. In 1930 t was domestcated as a Penn-
syvana corporaton and thereafter acted ony as such. There
was no change In corporate structure, stockhoders, offcers, drec-
tors, assets, or abtes.
The net osses of the Deaware corporaton for 1928 and 1929
may not be carred forward by the Pennsyvana corporaton as a
deducton In Its returns for 1930 and 1931.
n opnon s requested whether the net osses for the years 1928
and 1929 of the M Company, a Deaware corporaton, may be a-
owed as deductons n computng the net ncome of the M Company
of Pennsyvana for the years 1930 and 1931.
The M Company (herenafter referred to as the Deaware com-
pany) was organzed as a Deaware corporaton n 1921. It was at
a tmes snce ts organzaton engaged n busness n Pennsyvana,
where ts prncpa offce was mantaned. It was regstered under
Pennsyvana aw act of une 8, 1911 (P. L. 710). Subsequenty,
t was determned to domestcate the company as a Pennsyvana
corporaton under the name of the M Company of Pennsyvana, Inc.
(herenafter referred to as the Pennsyvana company). ccord-
ngy, t foowed the provsons of the act of une 9, 1881 (P. L. 89),
provdng for domestcaton of foregn corporatons. It receved the
necessary approva for domestcaton n 1930. Thereafter, the corpo-
raton dd not functon as a Deaware corporaton, nor were any ta es
pad or reports fed n that State. There was no change n corporate
structure, stockhoders, offcers, drectors, assets, or abtes.
or the years 1928 and 1929 the Deaware company had net osses.
The Pennsyvana company contends that such osses are aowabe
as deductons n computng ts net ncome for the years 1930 and
1931. refy, ts poston s based on the ground that the corpora-
ton merey moved ts resdence from Deaware to Pennsyvana and
that t s n substance the same entty.
Secton 117(b) of the Revenue ct of 1928 provdes n part as
foows:
S CTION 117. N T LOSS S.
btce 51: Net osses, defnton and computaton.
R NU CT O 1928.
III-24- 84
G. C. M. 13073
(b) Net oss as a deducton. If, for any ta abe year, t appears upon the
producton of evdence satsfactory to the Commssoner that any ta payer
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135
117, rt. 51.
has sustaned a net oss, the amount thereof sha be aowed as a deducton
n computng the net ncome of the ta payer for the succeedng ta abe year
and for the ne t succeedng ta abe year .
The queston to be decded s whether the Pennsyvana company
s the ta payer wthn the meanng of the aforesad provson of aw
so as to be entted to deduct from ts ncome for 1930 and 1931 the
net osses sustaned n 1928 and 1929 by the Deaware company.
In the appea of The Maytag Co. v. Commssoner (17 . T. .,
182), t appears that on December 31, 1921, an Iowa corporaton
by the same name conveyed a of ts assets, sub|ect to ts abtes,
to the pettoner, a Mane corporaton, for a of the atter s pre-
ferred stock, 13,400 shares of ts cass stock, and 40,000 shares
of ts cass common stock. The stock thus acqured by the Iowa
corporaton was thereupon dstrbuted among ts stockhoders by an
e change of the od for the new stock. Thereafter, the Iowa cor-
poraton dssoved. There remaned n the treasury of the pet-
toner after the e change had been competed 2 , 00 shares of ts
cass common stock, a of whch was sod to the pubc n the
year 1922. The oard hed that the net oss of the Iowa corporaton
for 1921 was not deductbe from the net ncome of the Mane cor-
poraton for 1922. The oard took the poston that the facts were
concusve aganst the cam that the new corporaton s the same
ta abe entty as the od. In the course of ts decson the oard
sad:
There are cases n whch a proper regard for matters of substance and not
mere form n construng ta ng statutes, has mpeed courts to dsregard
a change of ega enttes. (See Wess v. Stearn, 2 5 U. S., 242 Western
Maryand Raway Co. v. Commssoner, 33 ed. (2d), 95.) On the other hand,
t has been found necessary n many cases n order to gve effect to ta aws,
to regard a change n corporate Identty as somethng more than a matter of
form, as n Marr v. Unted States (2 8 U. S., 53 ), where a new corporaton,
organzed to contnue the busness of the od, was created under the aws of
another State and wth a dfferent capta structure. Wess v. Stearn and
Marr v. Unted States are dstngushed n the atter case n these words:
In Wess v. Stearn a new corporaton had, n fact, been organzed to take
over the assets and busness of the od. Techncay there was a new entty
but the corporate entty was deemed to have been substantay mantaned be-
cause the new corporaton was organzed under the aws of the same State,
wth presumaby the same powers as the od. There was aso no change n
the character of securtes ssued.

In the case at bar, the new corporaton s essentay dfferent from the od.
corporaton organzed under the aws of Deaware does not have the same
rghts and powers as one organzed under the aws of New ersey. ecause of
these nherent dfferences n rghts and powers, both the preferred and common
stock of the od corporaton s an essentay dfferent thng from stock of the
same genera knd n the new. ut there are aso adventtous dfferences, sub-
stanta In character. per cent, nonvotng preferred stock s an essentay
dfferent thng from a 7 per cent, votng preferred stock. common stock
sub|ect to the prorty of 20,000,000 preferred and a 1,200,000 annua dvdend
charge s an essentay dfferent thng from a common stock sub|ect to 15,000,-
000 preferred and a 1,050,000 annua dvdend charge.
or other cases to the same effect see ppea of Whte ouse Mk
Co. (2 . T. ., 8 0) West Pont Maron Coa Co. v. Commssoner
(19 . T. ., 945) Standard Sca Co. v. Commssoner (22 . T. .,
97) Cark Dredgng Co. v. Commssoner (23 . T. ., 503, C. .
-2,14) Overbrook Natona ank of Phadepha v. Commssoner
(23 . T. ., 1390) New Coona Ice Co., Inc., v. Commssoner (
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5117, rt. 51.
13
ed. (2d), 480, affrmed by Unted States Supreme Court on May 28,
1934) artford- mpre Co. v. Commssoner (2 . T. ., 134) |
ott-Grante Lnen Corporaton v. Commssoner (2 . T. .,
93 ) tho Manufacturng Co. v. Commssoner (54 ed. (2d), 230,
Ct. D. 513, C. . I-2, 252).
The facts n Pumber s Suppy Co. v. Commssoner (20 . T. .,
459) are smar to those n the present case. In that case t was ar-
gued that there was no change n stockhoders, reatve stock hodngs,
nature of the busness, or accountng system. The oard sad:
ven f a these thngs are true, It does not foow that the two
corporatons can be regarded as dentca. The pettoner s chartered under
the aws of Okahoma ts predecessor was a Mssour corporaton. The rea
queston here s whether the Mssour corporaton, whch s certany a df-
ferent ega entty, may be regarded as dentca wth the pettoner for ta
purposes.
In that case the oard hed that the net osses of the Mssour
corporaton sustaned n 1921 and 1922 coud not be apped to reduce
the ta abe ncome of the Okahoma corporaton for the years 1923
and 1924.
In connecton wth a contnung busness n an affated group, the
Unted States Supreme Court has approved the genera rue that the
deducton for a pror net oss s mted to the partcuar corporate
ta payer sustanng t (Wooford Reaty Co., Inc., v. Rose, 28 U. S.,
319, Ct. D. 493. C. . I-1,154), even when the same person owns the
shares of the affated corporatons. Panters Cotton O Co., Inc.,
et a., v. nopkns, 28 U. S., 332, Ct. D. 492, C. . I-1, 153.)
The pettoner rees strongy upon the cases of Western Maryand
Raway Co. v. Commssoner of Interna Revenue (33 ed. (2d),
95) and Wess v. Steam (2 5 U. S., 242, T. D. 3 09, C. . III-2, 51).
Reance was aso paced upon those cases n tho Manufacturng
Co. v. Commssoner (22 . T. ., 105), nvovng a queston anao-
gous to the one here n ssue. The oard sad:
These are both cases n whch the courts found t necessary to
dsregard a change of ega enttes. Nether of the cases, however, nvoved
the secton of the statute here under consderaton. In Western Maryand
Raway Co. v. Commssoner of Interna Revenue, supra, the queston was
whether the new company was entted to deduct an amortzed porton of the
dscount on bonds ssued by the od company. The new company was a con-
sodated company whch bad taken over by agreement a the assets and
abtes of the od company. The court hed, reversng the decson of the
oard, that the new company stood n the pace of the od wth respect to the
bonds and was entted to the deducton.
In Wess v. Stem, supra, the queston was whether upon a rencorporaton
n the same State the stockhoders receved a gan upon the e change of
shares of the od company for shares of the new. The court hed that there
was no gan meetng the defnton of ncome as gven n sner v. Macotnber
(252 U. S., 189 T. D. 3010, C. . 3, 23 ), Towne v. sner (245 U. S., 418),
and others.
In the nstant case, the queston s more mted. The quoted secton of
the statute ceary restrcts those entted to the beneft of the net oss prov-
sons to any ta payer who sustaned a net oss. It s undenabe that the
pettoner here s a separate ega entty and s a dfferent ta payer from ts
predecessor company. (Cf. Standard Sca Co.. 22 . T. ., 97.) There s no
queston here of the rghts of other partes and we see no requrement under
the crcumstances of ths case for nvocaton of the rue pronounced n
Chcao. Mwaukee St. Pau Raway Co. v. Mnneapos Cvc and Commerce
ssocaton (247 U. 8., 490), that courts w not permt themseves to be
bnded or deceved by mere forms or aw but, regardess of fctons, w dea
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137 117, rt. 51.
wth the substance of the transacton nvoved as f the corporate agency dd
not e st and as the ustce of the case may requre.
The Crcut Court of ppeas for the rst Crcut affrmed the
decson of the oard, statng that We fa to see how we can add
anythng to what was stated by the oard of Ta ppeas n ts
opnon (54 ed. (2d), 230.)
It may be admtted that the facts n the above-cted cases are not
on a fours wth those n the present one. The cases cted warrant
the concuson, however, that the net oss of one ta payer may not be
carred forward as a deducton aganst the net ncome of another
ta payer. The net oss deducton does not foow the busness but
s mted to the ta payer. Is the Pennsyvana company n the
nstant case the same ta abe entty (ta payer) as the Deaware
company
In Pennsyvana a foregn corporaton ordnary sgnfes a
corporate body created by a governmenta power other than the sad
Commonweath, wthout regard to the resdence of the ncorporators
or the ocaton of the corporate busness. ( arey v. Chareston
Steam-Packet Co. (1838), 2 Mes, 249 Pembna Mnng Co. v.
Comm. (1883), 13 W. N. Cas., 521.)
corporaton, as t has been e pressed, can not mgrate, but may
e ercse ts authorty n a foregn terrtory upon such condtons as
may be prescrbed by the aw of the pace. (Raroad Co. v. an-s,
12 Wa., 5.) corporaton s a person wthn the consttutona
provson that no State sha deny to any person wthn ts |urs-
dcton the equa protecton of ts aws. (Pembna Consodated
Sver Mnng Mng Co. v. Pennsyvana, 125 U. S., 181 Norfok
Western Raroad Co. v. Pennsyvana, 13 U. S., 114.) ut a
corporaton s not wthn the |ursdcton of a State unt t had been
granted permsson to do busness wthn ts mts consequenty,
the prohbton does not prevent a State from mposng condtons
upon aowng a foregn corporaton to do busness Pembna, etc.,
Mnng Mung Co., supra). though permtted to come nto
the oca |ursdcton, and there e ercse ts powers, for the accom-
pshment of the purposes of ts creaton, t remans essentay a
foregn corporaton. It derves ts vtaty, ts corporaton capacty,
ts very fe, from the aw of ts orgn. (See Repubcan Mountan
Sver Mnes, Ltd., et a., v. rown, 58 ed.| 44.) It does not fo-
ow, even when a corporaton s recognzed m another State, that t
may e ercse a the powers that are conferred upon t by ts charter.
Its powers aso depend upon the aw of the State n whch they are
e ercsed. ower v. e et a., 90 Te ., 150, 37 S. W., 1058 State
v. Cook, 111 Mo., 348, 71 S. W., 829.)
Whe the Deaware company n the present case transacted a
of ts busness n Pennsyvana snce the tme of ts organzaton,
t was, nevertheess, not a Pennsyvana corporaton, but a Deaware
corporaton pror to ts domestcaton n 1930.
Wth respect to the domestcaton of foregn corporatons n Penn-
syvana, secton 1 of the act of une 9, 1881 (P. L. 89), provdes
what foregn corporatons may become domestc, and prescrbes the
knd of appcaton to be fed by a foregn corporaton appyng for
a domestc charter. That secton provdes further:
Sad certfcate sha be accompaned by a certfcate, under the sea of the
corporaton, showng the consent of a ma|orty n nterest of such corpora-
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181, rt. 9 .
138
on to such appcaton for a charter, and to a renuncaton of ts orgna
charter, and of a prveges not en|oyed by corporatons of ts cass under
the aws of ths Commonweath. (Secton 11077, Pennsyvana Statutes, 1920.)
The appcaton must be fed wth the secretary of the State of
Pennsyvana and advertsed the same as an appcaton for a charter
by a domestc corporaton. t the termnaton of the advertsement
t s presented to the governor. If he fnds that a requrements
have been comped wth, he drects etters patent to ssue.
Secton 3 of the act of une 9, 1881, provdes n part as foows:
rom the date of sad etters patent sad corporaton sha be and e st as a
corporaton of ths Commonweath, under the provsons of aw reguatng
corporatons of ts cass and of ts charter . (Secton 11079, Penn-
syvana Statutes, 1920.)
The Pennsyvana courts have hed that when a foregn corpora-
ton appes, under the act of une 9 1881, for a Pennsyvana
charter and e pressy renounces ts orgna charter, the appca-
ton must be advertsed and a bonus pad to the Commonweath
before etters patent can be ssued, the same as s requred for the
ncorporaton of a domestc corporaton.
Letters patent were ssued to the Pennsyvana company n 1930,
readng n part as foows:
Therefore, know ye, That under authorty of the consttuton and aws of
sad Commonweath In such case made and provded I do by these presents,
whch I have caused to be made patent and seaed wth the great sea of the
State, create, erect and ncorporate the stockhoders of sad corporaton, ther
assocates and successors, and aso those who may thereafter become sub-
scrbers or hoders of the stock of the sad corporaton, nto a body potc
and corporate n deed and n aw by the name chosen and herenbefore spec-
fed, who sha have successon perpetuay and sha be Invested wth and
have and en|oy a the powers, prveges and franchses ncdent to a corpora-
ton and be sub|ect to a the dutes, requrements and restrctons specfed
and en|oned n and by the sad acts of the Genera ssemby and a other
aws of ths Commonweath.
In vew of the foregong, ths offce s of the opnon that the
Pennsyvana company s not the same entty (ta payer) as the
Deaware company and that the net osses of the Deaware company
for 1928 and 1929 may not be carred forward by the Pennsyvana
corporaton as a deducton n ts returns for 1930 and 1931.
Robert . ackson,
Genera Ccnmse, ureau of Interna Revenue.
SUPPL M NT C CR DITS G INST T .
S CTION 131. T S O OR IGN COUNTRI S
ND POSS SSIONS O UNIT D ST T S.
rtce G9 : Lmtaton of credt for ta es.
R NU CT OP 1928.
ormua for determnng ta pad by foregn corporaton upon
or wth respect to the accumuated profts. (See G. C. M. 12882,
page 89.)
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139
141, rt. 37(a). (Regs. 75)
SUPPL M NT D. R TURNS ND P YM NT O T .
S CTION 141. CONSOLID T D R TURNS O CORPOR -
TIONS 1929 ND SU S U NT T L Y RS.
rtce 37(a), Reguatons 75: Dssoutons III-18- 774
Recognton of gan or oss. Ct. D. 819
ncome ta revenue act op 1928 decson of supreme court.
1. Consodated Returns Lqudaton of Subsdares Losses
Doube Deducton.
Where a parent corporaton purchased a the capta stock of
one corporaton n 1917 and another n 1920, made advances to
them, fed consodated returns whch took nto account the gans
and osses of the subsdares whose net operatng osses e ceeded
the amount nvested n them (stock pus advances), and n 1929
qudated the subsdares after seng a ther property to out-
sde nterests and recevng the baance remanng after ther debts
had been satsfed, the parent corporaton may not deduct from ts
ncome for 1929 any part of the osses resutng from ts nvest-
ments n the subsdares, snce these were ntercompany trans-
actons and the makng of a consodated return for 1929
consttuted acceptance by the ta payer and ts subsdares of the
provsons of artces 37(a) and 40(a) of Reguatons 75, promu-
gated under the Revenue ct of 1928, prohbtng deducton of
osses or bad debts resutng from ntercompany transactons.
The aowance camed, whch woud permt the parent corporaton
twce to use the subsdares osses for the reducton of ts ta abe
ncome, s the practca equvaent of a doube deducton not
authorzed by aw or reguaton.
2. Decson Dstngushed.
Remngton Rand, Inc., v. Commssoner (33 ed. (2d), 77 Ct. D.
149, O. . I -1, 2 8 ) dstngushed.
Supreme Court of the Unted States.
Chares Ifed Co., pettoner, v. . C. ernandez, Coector of Interna Revenue
for the Dstrct of New Me co.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Tenth Crcut
pr 2, 1934.
OPINION.
Mr. ustce uter devered the opnon of the court-
In 1917 pettoner purchased a the capta stock of the Sprnger Tradng
Co. for 40,000 and n 1920 a that of the Roy Tradng Co. for 50,000. It
hed these shares unt ate In 1929 when both companes were dssoved. In
that perod t advanced the Sprnger company sums amountng to 9,030.27,
and the Roy company 9,782.22. Nothng havng been pad t on account of
these advances, pettoner had an nvestment n the former of 109,030.27 and
n the atter of 59,782.22. It made consodated returns whch took nto
account the gans and osses of each subsdary. Operatons of the Sprnger
company resuted n osses n a but two of the years and those of the Roy
company n a but four. The osses of the former e ceeded ts gans by
U8.510.53, and those of the atter by 57,127.85. In 1929, before the end of
November, the subsdares sod a ther property to outsde nterests. fter
Payng debts to others, each had a baance the Sprnger company, 22,914.22,
and the Roy company, 15.10 .1 whch t pad pettoner on December 23.
oth subsdares were dssoved December 30 n that year.
Pettoner made a consodated return for 1929 based on the resuts of
operaton and the qudaton of each subsdary but made no deducton of
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141, rt. 37(a) (Regs. 75). 140
osses resutng to Itsef from the qudatons. The return showed a ta of
20,S3 .20 whch was duy pad. In May, 1931, pettoner fed an amended
return and camed a refund of 14,40 .43. Ths return does not take Into
account profts or osses of subsdares n that year but deducts the osses
above shown to have resuted to pettoner from ts nvestments n them.1 The
Commssoner re|ected the cam. Pettoner brought ths acton n the edera
Dstrct Court for New Me co aganst the coector to recover the amount
of ts cam. |ury was waved, the court made speca fndngs of fact,
stted ts concusons of aw and gave pettoner |udgment as prayed. The
Crcut Court of ppeas reversed. ( P. (2d), 23 7 . (2d), 23 .)
The queston s whether pettoner s entted to deduct from ts 1929 ncome
any part of the osses resutng from ts nvestments n the subsdares.
The Revenue ct of 1928 and Reguatons 75 made under secton 141(b)
govern. Secton 141(a) gves to groups of affated corporatons the prvege
of makng consodated returns, n eu of separate ones, for 1929 or n sub-
sequent years upon condton that a members consent to the reguatons fre-
scrbed pror to the return. nd, n vew of the many dffcut probems arsng
n the admnstraton of earer provsons authorzng consodated returns,
the Congress deemed t desrabe to deegate by secton 141(b) the power to
prescrbe reguatons egsatve n character. (Senate Report No. 9 0, Seven-
teth Congress, frst sesson, page 15.) That subsecton authorzes the Comms-
soner, wth the approva of the Secretary, to make such reguatons as he may
deem necessary n order that the ta abty of an affated group and of each
member may be determned, computed, assessed, coected, and ad|usted n
such manner as ceary to refect the Income and to prevent avodance of ta
abty.
The makng of the consodated return consttuted acceptance by pettoner
and ts subsdares of the reguatons that had been prescrbed. No queston
as to vadty s rased. The bref substance of the reguatons here nvoved
foows:
rtce 37(a) provdes: Gans or osses sha not be recognzed upon a ds-
trbuton durng a consodated return perod by one member to another n
canceaton or redempton of ts stock and any such dstrbuton sha be
consdered an ntercompany transacton. nd subdvson (b) requres that
any such dstrbuton after a consodated return perod sha be treated as a
sae, and drects ad|ustments to be made n accordance wth artces 34, 35
and 3 .
rtce 34(a) prescrbes the bass for determnaton of gan or oss upon a
sae by a member of stock ssued by another member and durng any part of
the consodated return perod hed by the seer. Subdvson (c) appes to
saes whch break affaton and whch are made durng the perod that the
seng corporaton s a member of the affated group.
rtce 40(a) drects that ntercompany accounts recevabe or other obga-
tons whch are the resut of ntercompany transactons durng a consodated
return perod sha not durng a consodated return perod be deducted as
bad debts. Subdvson (c) governs deductons after the consodated return
perod on account of such transactons durng the perod.
1. In the absence of a provson n the ct or reguatons that fary may be
read to authorze It, the deducton camed s not aowabe, (ttrocn v. e-
verng, 291 U. S., 193 urnet v. ouston, 283 U. S., 223, 227 Ct. D. 328, C. .
-, 343 . Cf. Wooford Reaty Co. v. Rose, 28 U. S., 319, 32 Ct. D. 493,
C. . I-1, 154 .) Pettoner contends that artces 37(b) and 34(c) cover the
case. We are unabe so to construe thom. rtce 37 reates to dssoutons.
Subdvson (b) deas wth dstrbutons made after a consodated return
perod. The record concusvey shows that each subsdary handed over the
baance before the dssouton was consummated and durng the consodated
See the foowng tabe:
Sprnger Co.
Roy Co.
Combned.
1.11,424.41
8 ,11 .05
59,007. 25
44, 7 . 0
190,431. 8
130,792.11
Investment oss camod tor 1929
217,540.4
109,030.27
103, 83. 31
9.782.22
321, 223. 77
1 8,812.49
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141 5141, rt. 37(a) (Reg. 75).
return perod. rtce 84 reates e cusvey to the sae of stock. No sae of
toek was nvoved. The parent and subsdary corporatons were the ony
partes. Nether subsdary acqured stock of the other or that ssued by tsef.
The pettoner retaned a the shares of each and at the end voted dssoutons
that operated to cance them.
2. Respondent, reyng on artces 37(a) and 40(a), mantans that the osses
pettoner seeks to deduct arose from ntercompany transactons durng the
consodated return perod and therefore may not be aowed.
rtce 37(a) forbds the recognton of osses upon dstrbuton durng the
consodated return perod and decares that such dstrbutons sha be consd-
ered ntercompany transactons. rtce 40(a) forbds durng that perod the
deducton as bad debts of obgatons whch are the resut of ntercompany
transactons. The payment of the qudatng dvdends was made durng the
return perod and was the ast step eadng up to the acton of drectors and
stockhoders for the dssouton of the subsdares. The amount handed over
by the Sprnger company was ess than pettoner s advances to t, but the
amount pad by the Roy company was greater than the advances to t. Un-
doubtedy the obgaton of the subsdares n respect to the advances woud
be tk d to be ntercompany accounts recevabe qute ndependenty of the
reguatons.
ut a word s necessary as to the subsdares obgatons to the pettoner
as stockhoder. The record does not dscose whether the atter obtaned the
stock drecty from the ssung corporatons or purchased from others. Wth-
out regard to the manner of acquston, the amount pad consttuted Invest-
ment u the subsdares. nd, as t was the owner of a the shares of the
subsdares, pettoner w be deemed to have drected a ther actvtes
n the untary busness and as we the steps taken for ther qudaton and
dssouton. They were abe to t aone for the baances remanng after
payment of the amounts owed others, and t was equay entted whether
camng as ender or sharehoder. Under the crcumstances, t reasonaby
may be hed that ther obgaton n respect to pettoner s stock ownershp
resuted from ntercompany transactons wthn the meanng of artce 40(a).
Pettoner rghty says, as does respondent, that the amounts pad for the
stock and the advances ater made to the subsdares stand on the same
footng. ut ts contenton that the transactons out of whch the camed
osses arose dd not occur durng the consodated return perod can not be
sustaned. Pettoner s therefore not entted to deduct them from ts 1029
ncome.
3. The aowance camed woud permt pettoner twce to use the sub-
sdares osses for the reducton of ts ta abe ncome. y means of the con-
sodated returns n earer years t was enabed to deduct them. nd now
t cams for 1929 deductons for dmnuton of assets resutng from the same
osses. If aowed, ths woud be the practca equvaent of doube deducton.
In the absence of a provson of the ct defntey requrng t, a purpose so
opposed to precedent and equaty of treatment of ta payers w not be
attrbuted to awmakers. (Cf. urnet v. umnum Goods Co., 237 U. S., 544,
551 Ct. D. 31, C. . II-1, 283 Unted States v. Ludcy, 274 U. S., 29(5, 301
T. D. 404 , C. . I-2, 157 .) There s nothng n the ct that purports
to authorze doube deducton of osses or n the reguatons to suggest that
the Commssoner construed any of ts provsons to empower hm to prescrbe
a reguaton that woud permt consodated returns to be mude on the bass
now camed by pettoner.
In Remngton Rand, Inc., y. Commssoner (33 . (2d), 77 Ct. D. 149, C. .
I -1, 2 8 ) the Crcut Court of ppeas for the Second Crcut hed a sub-
sdary company s accumuated earnngs on stock sod to a parent company
coud not be added to the cost of the stock n determnng ta abe gan arsng
on the atter s sae to outsders. In Unted Pubshers Corporaton v. nder-
son (42 . (2d), 781), a dstrct court n the same crcut, deemng the
Remngton Rand case appcabe, hed that a parent corporaton fng con-
sodated returns showng osses of a subsdary durng earer years coud
nevertheess deduct oss on the sae of the subsdary s stock. Pettoner n-
ssts that same prncpe governs both decsons and that therefore the deduc-
ton shoud be aowed. ut the anaogy s not good. Where a the members
gan, tota ta abe ncome s the same on a consodated return as upon sep-
arate ones. ut where as n the case before us the subsdares ose and the
parent gans, the osses of the former go n reducton of the ta abe ncome
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142, rt. 734.
142
of the atter. Consderatons nt |ustfy Incuson of the profts made by a
the members do not support the doube deducton camed.
The weght of authorty s aganst pettoner s contenton. ( urnet v. Rgga
Natona ank, 57 . (2d), 980 Commssoner v. partment Corporaton, 7 .
(2d). 8 Summerfcd Co. v. Commssoner, 29 . T. ., 77 Natona Casket
Co. v. Commssoner, 29 . T. ., 139.) No decson other than that of the
dstrct court n Unted Pubshers Corporaton v. nderson, supra, gves any
support to ts cam. (Cf. urnet v. Impera evator Co., . (2d), 43
McLaughn v. Pacfc Lumber Co., . (2d), 895.)
ffrmed.
S CTION 142. CONSOLID T D R TURNS O
CORPOR TIONS T L Y R 1928.
rtce 734: Consodated net ncome of aff- III-1- 584
ated corporatons for 1928. G. C. M. 12581
( so Secton 114, rtce 11.)
R NU CT O 1928 ND PRIOR R NU CTS.
Where the stock of a subsdary corporaton was acqured for
cash, the mere qudaton of the subsdary and the takng
over of ts propertes by the parent company does not consttute
a reorganzaton. ccordngy, In a such cases, e cept the case
of the qudaton of a subsdary durng a consodated return
perod whch comes wthn the purvew of Reguatons 75 and 78
(artce 37(a)), gans resutng from the transacton shoud be
ta ed and osses sustaned shoud be aowed as deductons from
gross Income, sub|ect to ad|ustment on account of the subsdary s
osses used n consodated returns to offset the parent company s
Income as Indcated In Genera Counse s Memorandum 11 7
(C. . II-1, 75). The bass of the assets receved by the parent
company, for purposes of depeton and deprecaton, Is the far
market vaue of such assets on the date receved by the parent
company.
Reference s made to Genera Counse s Memorandum 11 7 (C. .
II-1, 75), whch was ssued after the decson of the Supreme
Court of the Unted States n urnet v. umnum Goods Manufac-
turng Co. (287 U. S., 544, Ct. D. 31, C. . II-1, 283). Theren
the Income Ta Unt was advsed that for ta abe years pror to
1929 the qudaton of a subsdary s not to be treated as an nter-
company transacton for consodated returns purposes. It was aso
ponted out that under Reguatons 75 and 78, whch govern the
rng of consodated returns for 1929 and subsequent years, t s
e pressy provded by artce 37(a) that any such qudaton whch
occurs durng a consodated return perod s to be consdered as an
ntercompany transacton on whch nether gan nor oss s to be
recognzed.
In Prare O Gas Co. v. Motter (D. C. ans.) (1 ed. Supp.,
4 4), t was hed that under secton 203(h) 1( ) of the Revenue
ct of 192 , whch provdes n part that the term reorganzaton
means a merger or consodaton (ncudng the acquston by
one corporaton of substantay a the propertes of an-
other corporaton), the acquston by a parent company of a
the propertes of a subsdary company, n compete qudaton of
the subsdary, consttutes a reorganzaton, and under secton
204 (a) 7 of the Revenue ct of 192 the bass to the parent company
of tre assets so receved, for depeton and deprecaton purposes,
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143
11142, rt. 734.
thereafter s the same as t woud have been n the hands of the
subsdary company. Language dentca wth that quoted above
appears n the defnton of the term reorganzaton n secton
203(h)( ) of the Revenue ct of 1924 and n sectons 112()( )
of the Revenue cts of 1928 and 1932. The oard of Ta ppeas
n a case very smar to Prare O Gas Co., supra, hed that the
qudaton of a subsdary s not a reorganzaton wthn the mean-
ng of the Revenue ct of 192 . (See Warner Co. v. Commssoner,
2 . T. ., 1225, nonacquescence C. . II-1, 24 acquescence
C. . II-2,14.)
On uy 13, 1933, the Crcut Court of ppeas for the Tenth
Crcut rendered ts decson n Prare O Gas Co. v. Motter
( ed. (2d). 309 Ct. D. 7 7, page 183, ths uetn), n whch
the acton of the dstrct court was reversed. Petton for wrt of
certorar w not be fed.
The prncpa facts n the case of Prare O Gas Co. v. Motter,
supra, were that a contract was entered nto on March 8, 192 , be-
tween the Prare company as buyer and the Oean Petroeum Co.
and ts stockhoders as seers, by whch the seers proposed to
transfer to the Prare company a of the o and gas eases owned
by the Oean company for 3,350,000 n cash. The devery of the
easehod propertes was to be consdered effectve as of March 3,
192 . The Prare company pad the consderaton mentoned to
the authorzed agents of the Oean company and ts stockhoders
and mmedatey went nto possesson. ternatve methods were
provded for effectng the transfer of tte of such propertes, . e.,
ether by drect transfer of tte to the propertes, or by a trans-
fer wthn 25 days of the stock of the Oean company (the current
assets of the atter company to be wthdrawn by the od stockhoders
n the meantme). The purpose of the contract of sae was ac-
compshed by the transfer to the Prare company of the stock of
the Oean company on pr 1, 192 . On the ne t day, pr 2,
the Prare company qudated the Oean company, causng the
easehod propertes to be conveyed to tsef, and on the same day
the atter company was dssoved. Snce the acquston of the
stock was foowed by an mmedate takng over of the tte to the
propertes, and nasmuch as the Prare company had taken actua
possesson of the propertes on March 8, 192 , the case presented,
m the opnon of the Crcut Court of ppeas, a cear nstance of
the purchase of propertes for cash. fter quotng from Pneas
Ice Cod Storage Co. v. Commssoner (287 IT. S., 4 2) and
Cortand Specaty Co. et at. v. Commssoner ( 0 ed. (2d), 937),
certorar dened (288 U. S., 599), the court sad:
These authortes eave no doubt that a purchase for cash of a the propertes
of one corporaton by another can not be consdered as a reorganzaton, merger
or consodaton of the two companes.
Consderng the case as presentng a snge transacton, the court
refused to permt ts separaton nto ts component parts for the
purpose of segregatng the qudaton of the Oean company, and
sad that even f that were done the Government woud st be forced
to a straned constructon of the statute to arrve at the concuson
that the qudaton of the Oean company consttuted a reorgan-
zaton. The court cted wth approva the decson of the oard of
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140, rt, 791.
144
Ta ppeas n Warner Co. v. Commssoner, supra, In whch the
oard stated:
The Cortand Specaty Co. case, supra, hods that, In order for a
transacton to come wthn the ntended meanng of reorganzaton, there
must be some contnuty of nterest on the part of the transferor corporaton or
Its stockhoders. Whe t may be argued that there was a contnuty of nter-
est, nasmuch as the ta payer owned a the stock of the two companes and
after qudaton t owned a the assets, we thnk that the statute, as construed
In the cted cases, was not ntended to appy to cases of mere qudaton, but
was meant rather to comprehend those stuatons where there s a merger or
consodaton and the stockhoders of the od corporaton receve for ther hod-
ngs a substantay smar Interest n the new or merged corporaton.
Itacs supped.
(See aso Smms Petroeum Co. v. Commssoner, 28 . T. ., OG.)
fter carefu consderaton ths offce s of the opnon that the u-
reau shoud proceed upon the ground that where the stock of a sub-
sdary corporaton was acqured for cash, the mere qudaton of the
subsdary and the takng over of ts propertes by the parent company
does not consttute a reorganzaton. ccordngy, n a such cases,
e cept the case of the qudaton of a subsdary durng a conso-
dated return perod whch comes wthn the purvew of Regua-
tons 75 and 78 (artce 37(a)), gans resutng from the transacton
shoud be ta ed and osses sustaned shoud be aowed as deductons
from gross ncome, sub|ect to ad|ustment on account of the sub-
sdary s osses used n consodated returns to offset the parent com-
pany s ncome as ndcated n Genera Counse s Memorandum 11 7 ,
supra. The bass of the assets receved by the parent company, for
purposes of depeton and deprecaton, s the far market vaue of
such assets on the date receved by the parent company.
. arrett Prettyman,
Genera- Counse, ureau of Interna Revenue.
S CTION 14 . P N LTI S.
rtce 791: Penates. III-2- 592
Ct. D. 771
D R L T S R NU CTS O 192 ND 1928 D CISION O SUPR M
COURT.
Wtness Refusa to Testfy Sef-ncrmnaton Prosecuton
for Wfu aure to Suppy Informaton.
Where a ta payer was prosecuted under the provsons of secton
1114(a) of the Revenue ct of 192 and secton 14 (a) of the
evenue ct of 1928 for wfu faure to suppy nformaton as to
certan payments made by hm and the name of the payee of the
sums camed by hm as deductons for 1927 and 1928, and hs
refusa to testfy was based upon fear of sef-ncrmnaton and
possbe prosecuton for voaton of a State statute, the tra court
erred n refusng to gve the |ury the nstructon requested by the
ta payer, that f they beeved that the reasons gven n hs refusa
to answer were gven n good fath and based upon hs actua
beef, they shoud consder that n determnng whether or not hs
refusa to answer was wfu. Whe the refusa to testfy was
ntentona and wthout ega |ustfcaton, the ury mght never-
theess nd that t was not wfu n the sense that t was not
prompted by bad fath e r ev ntent.
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145
, rt. 781.
Supreme Court of the Unted States.
The Unted Sates of merca, pettoner, v. arry Murdoch.
On wrt of certorar to toe Unted States Crcut Court of ppeas for the Seventh
Crcut.
December 11, 1933.
OPINION.
Mr. ustce Roberts devered the opnon of the court.
Ths case s here for the second tme.
The respondent was ndcted for refusa to gve testmony and suppy nfor-
maton as to deductons camed n hs 1927 and 1928 ncome ta returns for
moneys pad to others. y a speca pea he averred that he ought not to be
prosecuted under the ndctment because f he had answered the questons put
to hm he woud have gven Informaton tendng to ncrmnate hm, In contra-
venton of the ffth amendment. The Unted States demurred on the grounds
that the pea faed to show that the nformaton demanded woud have ncrm-
nated or sub|ected the defendant to prosecuton under edera aw and that the
defendant waved hs prvege under the ffth amendment. The demurrer was
overrued. Upon appea ths court reversed the |udgment for the reason that
at the hearng before the edera revenue agent the defendant had not nvoked
the protecton of the ffth amendment aganst possbe prosecuton under ed-
era egsaton but soey under State aws. The cause was remanded to the
dstrct court for further proceedngs. (Unted States v. urduek, 284 U. S.,
141 Ct. D. 424, C. . -2, 192 .)
The pettoner peaded not guty, was put upon tra and convcted. e
apreacd to the crcut court of appeas, whch reversed the |udgment,1 and the
case was brought here by wrt of certorar.1 The queston presented s
whether the tra court correcty nstructed the |ury as to what consttutes a
Yoatm of the sectons of the Revenue cts of 1920 and 1928 upon whch the
Indctment was based.
Secton 25G of the Revenue ct of 192 . and secton 148 of the Revenue ct
of 1928, n dentca words, requre a persons makng payment to another
to make a true and accurate return to the Commssoner of Interna Revenue,
under such reguatons as he sha prescrbe, settng forth the amount pad
and the name and address of the recpent.1 Secton 1104 of the ct of 192
and secton 18 of the ct of 1928 authorze the Commssoner, for the purpose
of ascertanng the correctness of any return, or of makng a return where none
has been made, through offcers or empoyees of the ureau of Interna Revenue,
to e amne books, papers, records and memoranda bearng upon the matters
requred to be ncuded n the return, and to compe the attendance of the
ta payer or anyone havng knowedge of the premses, and to take testmony
wth reference to the matter drected by aw to be ncuded n the return, wth
power to admnster oaths to the persons to be nterrogated.4
Secton 1114(a) of the Revenue ct of 192 decares:
ny person requred under ths ct to pay any ta , or requred by aw or
reguatons made under authorty thereof to make a return, keep any records,
or suppy any nformaton, for the purposes of the computaton, assessment,
or coecton of any ta mposed by ths ct, who wfuy fas to pay such
ta , make such return, keep such records, or suppy such nformaton, at the
tme or tmes requred by aw or reguatons, sha, n addton to other pen-
ates provded by aw, be guty of a msdemeanor and, upon convcton thereof,
be fned not more than 10,000, or mprsoned for not more than one year, or
both, together wth the costs of prosecuton. Itacs supped.
Secton 14 (a) of the Revenue ct of 1928 s dentca wth the quoted secton
of the 192 ct. The ndctment n two counts charged voaton of the
provsons of the two sectons ast mentoned.
290 U. S.. 89.
D. S. C. Tte 2 . sectons 1023. 2148.
D. S. C, Tte 2 . secton 1247: U. S. C. .. Tte 2 . secton 1247, note.
44 Stat., 118: U. 8. C. Tte 2 , secton 12 5.
cept that It mbsttut -s the word tte for the word ct (4.1 Stat., 83
t . 8. C, Tte 2 . secton 12 8).
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14 , rt. 791.
14
Upon tbe tra the Government proved the respondent had been duy sum-
moned to appear before a revenue agent for e amnaton questons had been
put to hm he refused to answer, statng he feared sef-ncrmnaton and
upon further nqury dscosed that hs fear was based upon possbe prosecu-
tons under State statutes. The Government aso offered evdence that on a
pror occason at a meetng wth certan revenue agents the respondent had
refused to dscose the name of the payee of the sums deducted by hm n hs
returns for 1927 and 1928. To ths counse for the respondent ob|ected, on the
ground that t was rreevant to the ssue, whch was the respondent s refusa
to answer when summoned, sworn and nterrogated. The prosecutng attorney
reped that the wfuness of the respondent s refusa to answer was In ssue,
and that the proposed evdence bore upon that matter. The court overrued the
ob|ecton and admtted the testmony. The respondent offered no evdence. In
the course of hs charge the tra udge sad:
So far as the facts are concerned In ths case, gentemen of the |ury, I
want to nstruct you that whatever the court may say as to the facts, s
ony the court s vew. You are at berty to entrey dsregard t. The court
fees from the evdence n ths case, that the Government has sustaned the
burden cast upon t by the aw and has proved that ths defendant s guty
n manner and form as charged beyond a reasonabe doubt.
The respondent s request for an nstructon n the foowng words was
refused:
If you beeve that the reasons stated by the defendant n hs refusa
to answer questons were gven n good fath and based upon hs actua beef,
you shoud consder that n determnng whether or not hs refusa to answer
the questons was wfu.
In the crcumstances we thnk the tra |udge erred n statng the opnon
that the respondent was guty beyond a reasonabe doubt. edera |udge
may anayze the evdence, comment upon t, and e press hs vews wth regard
to the testmony of wtnesses. e may advse the |ury n respect of the
facts, but the decson of ssues of fact must be fary eft to the ury.
(Patton v. Unted States, 281 U. S., 27 , 288 uerca v. Unted States, 289
U. S., 4 .) though the power of the |udge to e press an opnon as to
the gut of the defendant e sts, t shoud be e ercsed cautousy and ony
n e ceptona cases. Such an e presson of opnon was hed not to warrant
a reversa where upon the undsputed and admtted facts the defendant s
vountary conduct amounted to the commsson of the crme defned by the
statute. ( ornng v. Dstrct of Coumba, 254 U. S., 135.) The present, how-
ever, s not such a case, uness the word wfuy, used n the sectons upon
whch the ndctment was founded, means no more than vountary.
The word often denotes an act whch s ntentona, or knowng, or vountary,
as dstngushed from accdenta. ut when used n a crmna statute t
generay means an act done wth a bad purpose ( eton v. Unted States,
9 U. S., 99 Potter v. Unted States, 155 . S., 438 Spurr v. Unted States,
174 . S., 72S) wthout |ustfabe e cuse ( eton v. Unted States, supra
Wams v. Peope, 2 Coo., 272 Peope v. ewe, 138 Mch., 20 5ft. Lous,
Iron Mountan S. Ry. Co. v. atesve W. Te. Co., 80 rk., 499 Cay v.
State, 52 Te . Cr. R., 555) stubborny, obstnatey, perversey (Waes v.
ner, 89 Ind., 118, 127 Lynch v. Commomceath, 131 a., 7 2 Caus v. Ch-
cago Ot. W. Ry. Co., 13 Iowa, 7 State v. arwe, 129 N. C, 550). The
word Is aso empoyed to characterze a thng done wthout ground for beevng
t s awfu (Roby v. Neeton, 121 Ga., 79), or conduct marked by careess ds-
regard whether or not one has the rght so to act (Unted States v. Phade-
pMa d R. Ry. Co., 223 ed., 207, 210 State v. Savre, 129 Iowa, 122 State v.
Morgan, 13 N. O., 2S).
Ths court has hed that where drectons as to the method of conductng a
busness arc emboded n a Revenue ct to prevent oss of ta es, and the ct
decares a wfu faure to observe the drectons a pena offense, an ev
motve s a consttuent eement of the crme. In eton v. Unted States, supra,
the court consdered a statute whch requred dsters to mantan certan
apparatus to prevent the abstracton of sprts durng the process of dsta-
ton, and decared that f any dster shoud knowngy and wfuy omt,
negect, or refuse to do anythng requred by aw n conductng hs busness
he shoud be abe to a penaty. It appeared that n defendant s pant defec-
tve appances caused an overfow and wastage of ow wnes, and to save
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( 14 , rt. 791.
these It became necessary, In dsregard of the method prescrbed by the ct, to
catch the sprts and pour them nto vats. Ths was done despte nstructons
to the contrary by the Government offcers who were consuted as to what pro-
cedure shoud be foowed. It was admtted that the acton was nnocent n
purpose, saved oss of the product to the owner and ta es to the Unted States.
In an acton for the statutory penaty the conduct of the dster was hed not
to be wfu wthn the meanng of the aw.
d n arrvng at the meanng of the word wfuy may be afforded by
the conte t n whch t Is used (Unted States v. Sou Cty Stock Yards Co.,
1 2 ed., 55 , 5 2), and, we thnk n the present Instance the other omssons
whch the statute denounces In the same sentence ony f wfu, ad n ascer-
tanng the meanng as respects the offense here charged. The Revenue cts
command the ctzen, where requred by aw or reguatons, to pay the ta ,
to make a return, to keep records, and to suppy nformaton for computaton,
assessment or coecton of the ta . e whose conduct s defned as crmna
s one who wfuy fas to pay the ta , to make a return, to keep the
requred records, or to suppy the needed nformaton. Congress dd not ntend
that a person who by reason of a bona fde msunderstandng as to hs
abty for the ta , as to hs duty to make a return, or as to the adequacy
of the records he mantaned, shoud become a crmna by hs mere faure to
measure up to the prescrbed standard of conduct. nd the requrement that
the omsson n these nstances, must be wfu, to be crmna, s persuasve
that the same eement s essenca to the offense of fang to suppy nformaton.
It foows that the respondent was entted to the charge he requested wth
respect to hs good fath and actua beef. Not unt ths court pronounced
udgment n Unted States v. Murdoch (284 U. S., 141) had t been defntey
setted that one under e amnaton n a edera trbuna coud not refuse to
answer on account of probabe ncrmnaton under State aw. The queston
was Invoved but not decded n uauman v. agn (200 U. S., 18 , 195) and
specfcay reserved n a|tauer v. Commssoner of Immgraton (273 U. S.,
103, 113). The tra court coud not, therefore, propery te the |ury the
defendant s asserton of the prvege was so unreasonabe and founded as
to e hbt bad fath and estabsh wfu wrongdong. Ths was the effect
of the nstructons gven. We thnk the crcut court of appeas correcty
uphed the respondent s rght to have the queston of absence of ev motve
submtted to the |ury, and we are of opnon that the requested Instructon
was apt for the purpose.
The Government rees on Sncar v. Unted States (279 U. S., 2 3). That
case, however, construed an atogether dfferent statutory provson. Sncar
was ndcted for refusa to answer a queston pertnent to a matter under
nvestgaton by a commttee of the Senate. The ct upon whch the ndct-
ment was based decared very person who havng been summoned as a
wtness by the authorty of ether ouse of Congress to gve testmony or to
produce papers upon any matter under nqury before ether ouse, or any
commttee of ether ouse of Congress, wfuy makes defaut, or who, havng
appeared, refuses to answer any queston pertnent to the queston under
nqury, sha be deemed guty of a msdemeanor . Two dstnct
offenses are descrbed In the ds|unctve, and n ony one of them s wfuness
an eement. Sncar havng been summoned attended the hearng. e was
therefore guty of no wfu defaut n obeyng a summons. e refused to
answer certan questons not because hs answ-ers mght ncrmnate hm, for
he asserted they woud not, but on the ground the questons were not per-
tnent or reevant to the matters then under nqury. The appcabe statute
dd not make a bad purpose or ev Intent an eement of the msdemeanor of
refusng to answer, but condtoned gut or nnocence soey upon the ree-
vancy of the queston propounded. Sncar was ether rght or wrong n hs
refusa to answer, and f wrong he took the rsk of becomng abe to the
prescrbed penaty. ere we are concerned wth a statute whch denounces
a wfu faure to do varous thngs thought to be requste to a proper ad-
mnstraton of the Income ta aw, and the Government In the tra beow,
we thnk correcty, assumed that It carred the burden of showng more than
a mere vountary faure to suppy nformaton, wth ntent, n good fath to
e ercse a prvege granted the wtness by the Consttuton. The respondent s
refusa to answer was ntentona and wthout ega |ustfcaton, but the |ury
0. . C, Tte 2. secton 1S2.
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148
mght nevertheess fnd that It was not prompted by bad fath or ev ntent,
whch the statute makes an eement of the offense.
The |udgment s affrmed.
SUPPL M NT . ST T S ND TRUSTS.
S CTION 1 2. N T INCOM .
rtce 8G1: states and trusts. III-21-G812
G. C. M. 12771
R NU CT O 1928.
, who was a ega resdent of the State of Pennsyvana, ded
n the year 1912, eavng a w whch contaned an uncondtona
drecton or order that after the death of hs wfe and son hs rea
estate shoud be sod and the proceeds dstrbuted to hs brothers
and ssters or ther ega representatves. The gan reazed
from the sae of the reaty was ncome ta abe to the testator s
estate.
The queston s presented whether gan reazed from the sae of
Pennsyvana rea estate by the admnstrator of s estate s ta abe
to the estate or to the benefcares.
The testator ded n the year 1912, survved by hs wfe and son.
Concernng the reaty the w contaned the foowng drectons:
my rea estnte s not to be sod but to reman ntact dur-
ng the fetme of my wfe and my son , and my e ecutors
to pay a ta es and nsurance and keep sad rea estate n good condton and
repar.
I gve and bequeath unto my wfe doars per month
out of the ncome, for and durng the term of her natura fe and
f she desres she may occupy the house we are now vng n so ong as she
may ve, free of any rent. In the event she does not desre to occupy our
home (hen my e ecutors are to rent the same.
The baance of the ncome was gven to the son durng hs fe,
and on hs death, eavng no ssue, the testator s wfe was to have
the entre ncome for the duraton of her fe, after payment of e -
penses, ta es, nsurance, and repars. Shoud the wfe predecease
the son, the entre ncome, ess ke deductons therefrom, was gven
to te son for hs fetme. The w aso provded as foows:
fter the death of both my wfe and my sad son then
I drect a my rea estnte to be sod at prvate or pubc sae and a
good and suffcent deed or deeds to be e ecuted and devered to the purchaser
or purchasers thereof and out of the proceeds I drect a monument costng not
ess than doars to be erected on my bura ot
and the baance I gve and bequeath unto my brothers and ssters or ther ega
representatves share and share ake, deductng however from the baance
before dstrbuton s made, 40z doars the nterest of
whch s to be used n keepng my bura ot In good condton and
repar.
The e ecutors were gven authorty to do any and a thngs neces-
sary to be done that the testator mght or coud have done f vng.
The son ded n 1925 and the wfe ded n 1927. In the atter year
the orphans court granted etters of admnstraton to as admns-
trator d. b. n., c. t. a., who, by the aw of Pennsyvana, was vested
wth the rght and duty of makng the sae or saes of the reaty as
drected n the testator s w (secton 853 , Pennsyvana Statutes,
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1 2, rt. 8 1.
1920). One parce of the rea estate was sod by the admnstrator
n 1928 and the entre sae prce was receved by hm n that year.
The sae resuted n a ta abe proft of 19.02a doars.
On une , 1928, the admnstrator fed hs frst and parta ac-
count n the orphans court showng 23. 7a doars avaabe for ds-
trbuton. The audtor apponted by the court found the account
correct and so reported. s report was fed n the orphans court
n 1929, and dstrbuton of the proceeds from the sae of the rea
estate was made n that year.
The proft derved from the sae has been hed by the Income Ta
Unt to be ta abe ncome to the testator s estate. The queston has
now arsen whether the proft shoud be ta ed to the estate or to the
benefcares. In ths connecton t becomes mportant to determne
whether, under the terms of the w, the and or the money proceeds
were gven to the testator s brothers and ssters or ther ega
representatves.
In Dundd s ppea ( 4 Pa. St., 325), the court, n referrng to the
mandatory drecton to se contaned n the w there under consd-
eraton, stated that It broke the descent and vested the
estate n the e ecutors, eavng to the egatees but an nterest n the
proceeds. In ahnestock v. ahnestock et a. (152 Pa. St., 5G, 25
t., 313), t was stated that mere naked power to se rea estate
does not operate as a converson of t nto personaty, but such power,
couped wth a drecton or command to se, w have that effect.
In McCwre s ppea (72 Pa. St., 414), the testator gave hs rea
estate to hs wfe for te, or durng her wdowhood, and drected ts
sae on her death and dstrbuton of the proceeds to hs nephews
and neces. There t was hed that t s no e cepton to the rue
that and drected to be sod and turned nto money s to be consd-
ered as money, from the death of the testator, for a the purposes of
hs w, because the perod of sae s remote, and the converson can
not be made unt the tme arrves. To ke effect s In re Thom-
mars state (1 1 Pa. St., 444, 29 t., 84). In each of the ast two
cted cases t was hed that the egaces payabe out of the proceeds
of the sae vested n hs nephews and neces mmedatey on the
death of the testator.
s ndcatve of the absouteness of the change from and nto
money, whch resuts from a postve drecton to se, t has been
hed, where a credtor obtaned a |udgment aganst one to whom was
bequeathed the proceeds of such a sae, the |udgment havng been
obtaned between the death of the testator and the sae, no |udgment
en attached to the and snce the egatee took no nterest theren.
( anes v. Cadwe, 97 Pa. St., 42.) It has aso been hed, where a
testator ded ownng reaty n another State, that the drecton to se
worked, n contempaton of the aw, a converson nto money whch
was sub|ect to Pennsyvana nhertance ta . (In re Rambo s state,
2 Pa., 520, 109 t., 71.)
The terms of the w n the case of In re Du s state (222 Pa.,
208, 71 t., 9) were much the same as those n the w now under
consderaton. In that case the court stated n part as foows:
The rght of a testator to make and money, to effect hs own pur-
pose, s unquestonabe and t foows from ths rght that persons camng
property under a w drectng ts sae must take t n the character whch the
w mposes on t. Ths resuts not from the appcaton of any artfca rue.
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150
or any equtabe doctrne, but soey because It Is the testator s e pressed desre.
ow coud a testator make t more certan and concusve that he dd not
ntend hs benefcary to take hs rea estate, than by drectng ts sae In
such case t s not the aw that works the converson, but the w that drects
t,
The Unted States Supreme Court has decded a ta case nvovng
a converson of reaty nto personaty under the aws of the State of
New York. The case ( nderson, Coector, v. Wson et a., 289
U. S., 20, Ct. D. 50, C. . II-1, 253) presented the queston
whether the dfference between the vaue or rea estate at the date of
death of the testator and the proceeds reazed upon a sae by the
testamentary trustees was deductbe as a oss by the trust benef-
cares. The w contaned a drecton to se the rea estate and
dstrbute the proceeds. The ta payer contended that the fducares
had no tte, but ony a power n trust, and that sub|ect to the e ecu-
ton of that power, the trust benefcares were the owners. The
court stated n part as foows:
Under reterated |udgments of the hghest court of New York they
the fducares are more than the donees of a power. They are the repos-
tores of tte.
Under the aw of New York what passed to these e ecutors hed to be trus-
tees was the tte to the fee. y the w of ths testator a hs property
rea and persona was to be converted nto money. The fve sons
and daughters among whom the money was to be dvded had no Interest
n the and, asde from a rght In equty to compe the performance of the
trust. what was gven to them was the money forthcomng from
a sae. Ther nterest n the corpus was that and nothng more.
Our answer to the nqury as to the meanng of the w comes cose to beng
an answer to the nqury as to the ncdence of the oss. The ta payer has
receved the ony egacy bequeathed to hm, and receved t as t was gven
wthout the abatement of a doar. What was bequeathed was an nterest n
a fund . Ths aone was gven, and that has been receved. There
as been no oss by the ta payer of anythng that beonged to hm before the
hour of the sae, for nothng was ever hs unt the sae had been made and
the fund thereby created. shrnkage of vaues between the creaton of the
power of sae and ts dscretonary e ercse meanng dscretonary as to tme
of e ercse s a oss to the trust, whch may be aowabe as a deducton upon
a return by the trustees. It s not a oss to a egatee who has receved hs
egacy n fu.
We hod that the trust, and not the ta payer, has suffered the oss resutng
from the sae of the Commerca udng, and t foows that where oss has
not been suffered, there s none to be aowed. s the ta payer s
capta was n the proceeds and never n the and.
That case deat wth a oss, whereas here there was a gan. The
governng prncpe, however, s the same.
In Icverng, Commssoner, v. Pardee et a., Trustees (290 U. S.,
3C5 Ct. D. 7 9, page 151, ths uetn ), the testator gave to hs
wfe an annuty, payabe at a events, and so not dependent upon
ncome of the trust estate. The acton of the Commssoner n re-
fusng to aow as a deducton for edera ncome ta purposes the
annuty payments made to the wfe was sustaned. The court hed
that she was an ordnary egatee and stated that Payments to her
were not dstrbuton of ncome but n dscharge of a gft or
egacy.
In the present case the w of the testator contaned an uncond-
tona drecton or order that the rea estate be sod and the proceeds
dstrbuted to hs brothers and ssters or ther ega representatves.
What he gave them was the money proceeds derved from the sae
of the and. The reaty was converted nto personaty at the tme
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t 1 2, rt. 8 2.
of the testator s death and the money proceeds receved by the
benefcares were pad to them as money bequests, whch are not
sub|ect to edera ncome ta . ccordngy, no ta abe gan was
reazed by the benefcares.
In vew of the foregong, t s hed that the gan reazed from the
sae of the reaty was propery ta ed to the testator s estate.
rtce 8 2: Method of computaton of net III-1- 585
ncome and ta . Ct. D. 7 9
INCOM T R NU CTS O 1924, 192 , ND 1 I28 D CISION O SUPR M
COURT.
1. Net Income Trust ob state Deducton mount Dstrb-
uted to Wdow enefcary Dstngushed rom Purchaser
of nnuty.
Where a wdow accepts the provsons of her husband s w and
receves part or a of the ncome from an estabshed trust n eu
of her statutory rghts, she does not become the purchaser of an
annuty, but s a benefcary of the trust wthn the meanng of
secton 219 (a)(2) and (b)(2) of the Revenue cts of 1924 and
192 and sectons 1 1 and 1 2 of the Revenue ct of 1928, and the
trustees are entted to deduct the ncome dstrbuted.
2. Same Legatee Dstngushed bom enefcaby ob Purchases
of nnuty.
Where a wdow eects to accept, n eu of her statutory rghts,
an annuty provded by her husband s w, whch s payabe at a
events and does not depend upon Income from the trust estate, she
becomes an ordnary egatee, and the trustees are not entted to
deduct the amounts so pad.
3. Cases Reversed n Prncpe.
Warner v. Wash (15 ed. (2d), 3 7 T. D. 4257, 0. . III-1,
245 ), Unted States v. oster (2 ed. (2d), 7 0 T. D. 4258.
C. . III-1, 247 ), and en v. randes (29 ed. (2d), 3 3
T. D. 425 , O. . III-1, 243 ) reversed n prncpe.
Supreme Court of the Unted States. Nos. 75, 7 , 77, and 78. October
Term, 1933.
T . Guy T. everng, Commssoner of Interna Revenue, pettoner, v. ua
uttencorth et a., Trustees Under the W of Wam . utterworth, De-
ceased.
7 . Guy T. everng, Commssoner of Interna Revenue, pettoner, v. dety-
Phadepha Trust Co., Trustee Under the W of Wam L. Du os, De-
ceased.
T7. Ouy T. everng, Commssoner of Interna Revenue, pettoner, v. rank
Pardee et a.. Trustees Under e WU of Cavn Pardee.
On wrts of certorar to the Unted States Crcut Court of ppeas for the Thrd Crcut.
78. Guy T. everng, Commssoner of Interna Revenue, pettoner, v. Tte
Guarantee Loan d Trust Co., as Trustee of the state of . . Woodward.
On wrt of certorar to the Unted States Crcut Court of ppeas for the fth Crcut.
December 11, 1933.
OPINION.
Mr. ustce McReynods devered the opnon of the court.
These causes demand constructon and appcaton of the provsons of sec-
ton 219, Revenue ct of 1924 (ch. 234, 43 Stat., 253, 275 (U. S. C, Tte 2 ,
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1 2, rt. 8 2.
152
secton 0 0) (coped n the margn1), whch ay a ta upon the ncome of
estates or of any knd of property hed n trust, and drect that (b) (2) There
sha be aowed as an addtona deducton n computng the net ncome of the
estate or trust the amount of the ncome of the estate or trust for ts ta abe
year whch s to be dstrbuted currenty by the fducary to the benefcares,
but the amount so aowed as a deducton sha be ncuded n com-
putng the net ncome of the benefcares whether dstrbuted to them or not
so, the dentca provsons of the Revenue ct of 192 (ch. 27,
44 Stat., 9, 32, 33) and the substantay smar ones of the Revenue ct of
1028 (ch. 852, 45 Stat., 791, 838, sectons 1 1 and 1 2).
In each cause the Commssoner of Interna Revenue assessed the porton
of the ncome from the trust created by the husband s w whch had been
pad to the wdow. The trustees camed credt therefor. The oard of Ta
ppeas approved the assessments. The Crcut Courts of ppeas hed
otherwse.
Causes Nos. 75, 7 , and 78 nvove the same pont of aw. The undsputed
facts are smar and t w suffce to state those of No. 75. The record In
No. 77 presents another queston and the facts there w be set out.
No. 75.
Wam . utterwort, resdent of Pennsyvana, ded October 5, 1921.
fter certan bequests, hs w gave the resdue of the estate to respondents
as trustees, wth drectons to pay the net ncome to the wdow. She accepted
under the w and surrendered the rghts granted her by the State aws.
Durng 1924 and 1925 the trustees pad her the ncome from the trust The
aggregate of these and antecedent payments was ess than the estmated vaue
of her statutory rghts n the estate. In order to ascertan the ta abe ncome
of the trust, the respondents camed the rght to deduct from the gross amount
payments made to the wdow. The Commssoner dened ths and the oard
of Ta ppeas approved hs acton. The court beow reversed the |udgment.
Pror to Warner v. Wash (15 . (2d), 3 7), Unted States v. oster (28
. (2d), 7 0), and en v. randes (29 . (2d), 3 3), the Commssoner rued
that dstrbutons from the ncome of a trust estate to the wdow who eected
to take under her husband s w n eu of her statutory nterest were ta abe
to her. These cases hed that by renqushment of her rghts, she came to
occupy the poston of the purchaser of an annuty. They decded that pay-
ments to her were not sub|ect to ta aton unt her tota recepts from the trust
estate amounted to the vaue of what she renqushed her aeged capta.
Thereafter, n smar cases, the Commssoner refused to gve credt to the
trustee for such payments and thus the present causes arose.
We can not accept the reasonng advanced to support the three cases |ust
cted. The evdent genera purpose of the statute was to ta n some way
the whoe ncome of a trust estates. If nothng was payabe to benefcares,
the ncome wthout deducton was assessabe to the fducary. ut he was
entted to credt for any sum pad to a benefcary wthn the ntendment
of that word, nnd ths amount then became ta abe to the benefcary. Cer-
tany, Congress dd not ntend any ncome from a trust shoud escape ta aton
uness defntey e empted.
1 Revenue ct of 1924 (ch. 234, 43 Stat., 253, 275) :
Sec. 219. (a) The ta Imposed by Parts I and II of ths tte sha appy to the Income
of estates or of any knd of property hed In trust. Incudng

(2) Income whch Is to be dstrbuted currenty by the fducary to the benefcares,
and Income coected by a guardan of an Infant whch s to be hed or dstrbuted as
the court may drect
(b) cept as otherwse provded n subdvsons (g) and (h), the ta sha be com-
puted upon the net ncome of the estate or trust, and sha be pad by the fducary.
The net ncome of the estate or trust sha be computed n the same manner and on the
same bass as provded In secton 212, e cept that

(2) There hn be aowed as an addtona deducton In computng the net Income
of the estate or trust the amount of the Income of the estate or trust for ts ta abe
year whch s to be dstrbuted currenty by the fducary to the benefcares, and th
amount of the Income coected by a guardan of an nfant whch Is to be hed or ds-
trbuted as the court may drect, but the amount so aowed as a deducton sha be In-
cuded n computng the net ncome of the benefcares whether dstrbuted to them or
not. ny amount aowed as a deducton under ths paragraph sha not be aowed as
a deducton under paragraph (3) In the same or any succeedng ta abe year.
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153 203, rt. 975.
Is a wdow who accepts the provsons of her husband s w and receves part
or a of the ncome from an estabshed trust n eu of her statutory rghts
a benefcary wthn the ambt of the statute We thnk she Is. It s un-
necessary to dscuss her rghts or poston under other crcumstances. e are
deang wth a ta statute and seekng to determne the w of Congress.
When she makes her eecton the wdow decdes to accept the benefts of the
w wth the accompanyng rghts and abtes. In no proper sense does she
purchase an annuty. or reasons satsfactory to hersef, she e presses a
desre to occupy the poston of a benefcary and we thnk she shoud be so
treated.
The trustees n Nos. 75, 7 , and 78 were entted to the credts camed and
the |udgments of the courts beow theren must be affrmed.
No, 77.
Cavn Pardee, a resdent of Pennsyvana, ded March 18, 1023. s w
provded I aso gve unto my sad wfe an annuty of ffty thousand
doars ( 50,000), to be computed from the date of my decease and to be pad In
advance n quartery payments. The tota amount pad by the trustees to the
wdow under the w durng the ta years 1924 and 1925 and pror thereto
dd not aggregate the vaue of the nterest to whch she woud have been
entted had she decned to take under the w. When computng the ta abe
ncome of the estate the trustees deducted the amounts pad to the wdow,
camng credt therefor under secton 219. The Commssoner s refusa to
aow ths was sustaned by the oard of Ta ppeas. The court beow rued
otherwse.
The annuty provded by the w for Mrs. Pardee was payabe at a events.
It dd not depend upon ncome from the trust estate. She eected to accept
ths n eu of her statutory rghts. She chose to assume the poston of an
ordnary egatee. Secton 213(b)3, evenue ct of 1924 (ch. 234, 43 Stat., 253,
287, 2 8), e empts bequests from the ncome ta there ad. Payments to Mrs.
Pardee by the fducary were not necessary made from ncome. The charge
was upon the estate as a whoe her cam was payabe wthout regard to
Income receved by the fducary. Payments to her were not dstrbuton of
Income but In dscharge of a gft or egacy. The prncpe apped n urnet
y. Whtehouse (283 U. S., 148 Ct. D. 327, C. . -, 3 ) s appcabe.
The Commssoner rghty refused to aow the credts camed by the trustee
and the |udgment of the court beow must be reversed.
rtce 8 2: Method of computaton of net ncome and ta .
R NU CT OP 1928.
Wdow eectng to take under husband s w. (See Mm. 414 ,
Page 93.)
SUPPL M NT G. INSUR NC COMP NI S.
S CTION 203. N T INCOM O LI
INSUR NC COMP NI S.
rtce 975: Other deductons. III-24- 848
Ct. D. 837
ncome ta revenue act of 1928 decson of supreme court.
1. Gross Income Deductons Lfe Insubanoe Company Con-
sttuton aty.
Secton 203(b) of the Revenue ct of 1928 s consttutona and
does not ay a drect ta upon property nor upon ts renta vaue.
77 2 34
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5203, rt. 975.
154
2. Deducton Deprecaton Lra Insurance Compant.
fe nsurance company, under secton 203(a)7 of the Revenue
ct of 1928, s not entted to deduct deprecaton on a furnture
and f tures, but ony on such as are used n connecton wth Its
Investment busness.
Supreme Court of the Unted States.
Rockford Lfe Insurance Co., pettoner, v. Commssoner of Interna Revenue.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Seventh
Crcut.
May 21, 1934.
OPINION.
Mr. ustce uter devered the opnon of the court.
Ths case nvoves the vadty of a defcency assessment of 1929 ncome
ta es made under the Revenue ct of 1928. Secton 202 defnes gross ncome
to he that receved from nterest, dvdends and rents. Secton 203(a) defnes
net ncome to be the gross ess specfed deductons ncudng (5) Investment
e penses, ( ) Ta es and other e penses pad durng the ta abe year e cu-
svey upon or wth respect to the rea estate owned by the company ,
and (7) reasonabe aowance for the e hauston, wear and tear of property,
ncudng a reasonabe aowance for obsoescence. Subsecton (b) provdes
no deducton sha be made under (a) ( ) and (7) on account of any rea
estate owned and occuped n whoe or n part by a fe nsurance company
uness there s ncuded n the return of gross Income the renta vaue of the
space so occuped. Such renta vaue sha be not ess than a sum whch In
addton to any rents receved from other tenants sha provde n net ncome
(after deductng ta es, deprecaton, and a other e penses) at the rate of 4
per centum per annum of the book vaue at the end of the ta abe year of the
rea estate so owned or occuped. (45 Stat, 842-844.)
Durng 1929 pettoner owned a budng a of whch t used. It receved
15 rent for use of the premses and n ts return ncuded that amount as a
part of gross ncome. It dd not add any sum on account of renta vaue of
the budng. Nevertheess, t deducted e penses chargeabe to the budng,
amountng to 4,033.05. The Commssoner dsaowed the deducton. Pet-
toner aso deducted from gross . 1,783.02 to cover deprecaton on a furnture
and f tures. The Commssoner hed the deducton aowabe ony In respect
of such as were used n connecton wth the company s nvestment busness.
That phrase may be taken to ncude actvtes reatng to nterest, dvdends
and rents consttutng the ncome ta ed as dstngushed from ts under-
wrtng busness whch embraces ts other actvtes. There beng no aoca-
ton, the Commssoner apportoned deprecaton on the rato of nvestment
ncome. 123,248.44, to tota ncome. 751,147.77. Ths redueed the deducton
to 292.5 . These ad|ustments resuted n a fndng of defcency of 007.53.
oowng ts earer decsons, the oard of Ta ppeas hed pettoner en-
tted to deduct e penses chargeabe to the budng and deprecaton of a ts
furnture and f tures. On that bass t found an overpayment of 750.05. The
Crcut Court of ppeas reversed. ( 7 . (2d), 213.)
The rung of the ower court dsaowng deducton of e penses chargeabe
to the budng s sustaned on the authorty of cvernf v. Independent Lfe
Insurance Co., decded ths day Ct. D. 839, page 302, ths uetn .
The other queston presented for decson s whether pettoner Is entted
to deduct depreenton on a furnture and f tures or ony such part as fary
may be attrbuted to the Income ta ed. Pettoner rases no queston as to the
method empoyed for makng the apportonment, but nssts that the reason-
abe aowance granted by secton 203(a)7 e tends to a property and In-
cudes deprecaton of a furnture and f tures. It refers to the ancnge
of the correspondng provson n the Revenue ct of 191 whch permts dednc-
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155
5272, rt. 1171
ton of a reasonabe aowance for the e hauston, wear and tear of property
antng out of Us use or empoyment n the busness or trade and to smar
anguage n the Revenue ct of 1918. It emphaszes absence from the ct
of 1921 and ater ones of the words above taczed. It argues that the
change of anguage, made appcabe to fe nsurance companes, shows that
Congress ntended to permt them to deduct deprecaton of a property wthout
regard to ts use. The constructons put upon provsons n measures that dd
not mt ncome to be ta ed, as dd ater cts, are of no vaue as gudes to the
meanng of the cause under consderaton. In reason the cost of deprecaton,
ke other tems of e pense to be deducted, ought to be mted to that reated
to the ncome ta ed. owance of deducton of e penses ncurred for the co-
ecton of premums or n respect of other ncome not ta ed woud be hard
to |ustfy. In absence of specfc decaraton of that purpose, Congress may
not reasonaby be hed to have ntended by that means further to reduce ta a-
be ncome of fe nsurance companes.
There Is adequate evdence that Congress ntended to mt deductons of
e penses to those reated to the ta ed ncome. ( everng v. Independent Lfe
Insurance Co., supra.) In the reports of commttees havng n charge the ct
of 1921 n whch frst appeared the anguage under consderaton, secton
203(a)7, t s sad: The proposed pan woud ta fe nsurance companes
on the bass of ther nvestment ncome from Interest, dvdends, and rents,
wth sutabe deductons for e penses fary chargeabe aganst such nvest-
ment ncome. Secton 203(a)5, by restrctng deductons to nvestment e -
penses. Indcates purpose to e cude those not reated to nvestment ncome.
Secton 203(b), by condton mposed, smary restrcts deductons of rea
estate e penses. The anguage under consderaton opposes deducton of un-
reated e penses and s n harmony wth the constructon for whch the Com-
mssoner contends. The sgnfcance of the word reasonabe quafyng aow-
ance need not be mted to the amount to be ascertaned. ut havng regard
to the conte t and probabe purpose of the provson t rghty may be con-
strued to mt the ascertanment of deprecaton to the property that s used n
connecton wth the company s nvestment busness. The constructon put upon
the statute by the Commssoner and Crcut Court of ppeas Is sustaned.
frned.
SUPPL M NT L. SS SSM NT ND COLL CTION O D ICI NCI S.
S CTION 272. PROC DUR IN G N R L.
rtce 1171: ssessment of a defcency. III-3- 01
Ct. D. 773
INCOM T R NU CT O 1828 D CISION O COURT.
oaeo of Ta ppeas ursdcton.
etter statng that a defcency n ta for 1928 s due but that
assessment thereof s barred by the statute of mtatons and re-
questng payment of an amount whch had been erroneousy re-
funded, does not consttute the determnaton of a defcency from
whch the ta payer may appea to the oard of Ta ppeas.
In dsmssng the appea t was not necessary for the oard to
hear evdence on respondent s moton to dsmss, to make fndngs
of fact, or to hand down an opnon.
The Revenue ct of 191 , secton 12(a) (39 Stat., 7 8) 1917, secton 4 (40 Stat.,
302) Revenue ct of 1918, secton 234(a)7 (40 Stat., 1078).
S ty-seventh Congress, frst sesson. Senate Report No. 275, page 20. See aso ouse
cport No. 350, page 14.
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272, rt. 1171.
15
Unted States Crcut Court of ppeas fob the Seventh Cbcutt.
Russe Tyson, pettoner, v. Commssoner of Interna Revenue, respondent.
Petton for revew of order of te Unted States oard of Ta ppeas.
efore schueb, vans, and Spabks, Crcut udges.
une 29, 1933.
OPINION.
vans, Crcut udge: Ths appea s from an order of the Unted States
oard of Ta ppeas dsmssng, for want of ursdcton, pettoner s pet-
ton for revew of the Commssoner s (so-caed) assessment of hs 1928
Income ta .
The facts: Pettoner s ncome ta for the caendar year 1928 was f ed
by the Commssoner at 22,933.32. Ths amount pettoner prompty pad.
Subsequenty, a cam for a refund was ted and aowed. The amount thereof,
to wt, 2,( 3.29 and nterest thereon, was pad to pettoner by respondent.
Thereafter, Commssoner became convnced that pettoner s ta was greater
than the amount assessed aganst hm. s the tme f ed by statute n whch
a defcency ta mght be assessed aganst the pettoner had e pred, the
Commssoner wrote hm a etter demandng the payment of the amount of the
refund above mentoned. The ta payer made repy thereto whch brought
forth a etter from the deputy commssoner, dated une 11, 1931, whch s set
forth n fu n the margn.
1 Tbeasdby Department,
Washngton, une 11, 1931.
Mr. Rcss t Tyson,
S3 West ackson ouevard,
Chcago, TT.
Sn : Reference Is made to your etter dated May 23, 1931, addressed to the coector
of nterna revenue, Chcago. III., In repy to a etter from that ot ee dated May 19, 1931,
In whch you were requested to forward your certfed check for 2,210.4: to cover an
erroneous refund of ncome ta es aowed you for the year 1028, n the amount of
2,003.20. pus accrued Interest thereon of 147.14.
In repy to your statement that you can not compy wth the coector s request.
Inasmuch as no reason or fgures were furnshed reatve to the erroneous refund, you are
advsed as foows:
Your return for the year 1928 was audted by ths offce on the bass of a report of the
Interna revenue agent n charge, Chcago, 111., and the overassessmcnt of 2,003.29 was
aowed, reuntng prncpay from the emnaton of ncome receved from the estate of
Sarah . Tyson, n accordance wth Treasury Decson 4258 (C. . II1-1. page 247).
Subsequent nformaton ndcates that you receved dvdends of 35,000 from the Mn-
neapos Leasehod Trust, of whch amount 80.15 per cent, or 28,052.50, consttuted
ta abe ncome. The ad|ustment of ths Income dscoses a defcency n ta of 5,301.50,
computed as foows:
Ordnary net ncome as ad|usted by revenue agent 113,058.92
dd : Income receved from Mnneapos Leasehod Trust 28. 052. 50
Ordnary net ncome revsed by th offce 141, 111. 42
rought forward 141, 111. 42
Les :
Dvdends 70.204.45
Persona e empton 1, 500. 00
71,704.45
Net ncome sub|ect to norma ta 9, 40 . 97
Norma ta at 1 per cent on 4.000 0. 00
Norma ta at 3 per cent on 4.000 120 00
Norma ta at 5 per cent on 1,40 .97 3. 070. 35
Surta on 141.111.42 19.882.28
Ta at 12/| per cent on 28,800.74 3, 07. 0
Tota 2 . 740. 23
Less:
arned ncome credt 521. 25
Ta pad at source 47. 45
5 8. 70
Ta abty 2 , 171. 53
Ta assessed 22. 933. 32
owed schedue No. 41155 2.003.29
20. 870. 03
Defcency In ta 5, 301. 0
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157
272, rt. 1171.
Ta payer then pettoned the oard of Ta ppeas to revew the acton of
the Commssoner evdenced by such etter (whch acton ta payer descrbed
as the assessment of a defcency ta ). Respondent moved to dsmss the
petton on the ground that the oard was wthout |ursdcton for the reason
that no revewabe order had been entered by the Commssoner. The moton
to dsmss was granted by a dvded vote.
Pettoner rases two questons:
(1) Dd the deputy commssoner s etter of une 11, 1931, consttute a deter-
mnaton of a defcency ta from whch the aggreved ta payer was prveged
to appea to the oard of Ta ppeas
(2) Was the order of dsmssa propery entered wthout any evdence to
support respondent s moton to dsmss and wthout fndngs of fact or an
opnon
We are fuy n accord wth pettoner s counse and the dssentng opnon
when they assert that the form of the etter or the anguage of the Comms-
soner used theren shoud not contro over the substance or the pan effect
of ts anguage. In other words, a form may be prescrbed by the Commssoner
to be used upon the assessment of a defcency ta nevertheess, an assessment
may be made even though the prescrbed form be not used. We kewse agree
wth pettoner s counse that the sendng of the notce of assessment n a
etter, whch was not regstered, s of no sgnfcance In determnng the effect
of the contents of the ncosed etter. The use of regstered ma merey starts
the runnng of the 0-day statute of mtatons, wthn whch the aggreved
ta payer may seek revew of hs grevance before the oard of Ta ppeas.
ut regstraton or faure to regster n no way affects the character of the
act of the Commssoner.
owever, we can not agree wth pettoner In hs contenton that the etter
consttuted an assessment of a defcency ta . The ast two paragraphs eave
do egtmate room for argument. Instead of assessng a defcency ta , the
deputy commssoner sad:
The assessment of a defcency ta s barred by the statute of mta-
tons .
Then the reason for the prevous etter, whch had produced the nqury from
the ta payer, s gven:
but nasmuch as the overassessment of 2,0 3.29 represents an
erroneous refund, you are requested to forward to the coector your certfed
check, .
That the Commssoner was not assessng a defcency ta but was makng
a cam of an amount erroneousy refunded s made certan by the succeedng
paragraph:
If check s not receved n a reasonabe ength of tme, the case w be
referred to the Genera Counse for the nsttuton of sut for recov-
ery of the amount nvoved, as provded by secton 10 of the Revenue ct
of 19tS.
Secton 10 s entted Recovery of amounts erroneousy refunded. It deas
wth the recovery of nterna revenue ta es whch have been erroneousy
refunded.
There s no mert to pettoner s contenton that the oard of Ta ppeas
shoud have heard evdence on respondent s moton to dsmss the ta payer s
petton for want of |ursdcton or have made fndngs of fact. The ta payer s
petton set forth the etter whch he camed was the assessment of a defcency
ta . That etter spoke for tsef. ther t was an assessment of a defcency
ta or t was a statement of the Government s poston respectng a cam t
asserted under secton 10. determnaton of ths the ony queston pre-
sented requred no fndng of fact.
The assessment of the defcency In ta s barred by the statute of mtatons but
Icasmnch as the overassessment of 2,0 3.29 represents an erroneous refund, you are re-
Mated to forward to the coector your certfed check, drawn to the order of the
reasurer of the Unted States, In the amount of 2,210.43 whch Incudes the erroneous
Interest of 147.14.
If check Is not receved In a reasonabe ength of tme the case w be referred to
tbe Genera Counse, ureau of Interna Revenue, for the Insttuton of sut for recovery
of the amount Invoved, as provded by secton 10 of the Revenue ct of 1928.
Respectfuy,
Sgned . C. Wmsb.
Deputy CommUtorur.
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275, rt. 1201.
158
Lkewse, we thnk pettoner s contenton that the acton of the oard shoud
be reversed because no opnon was fed by the oard s rather hypercrtca.
The Issue was a narrow one. One member, Goodrch, fed a dssentng opnon
and fuy stated hs poston. In hs frst sentence he sad:
It s my opnon that respondent s moton to dsmss shoud not be granted
and therefore I dssent from the opnon of the ma|orty of the oard whch
permts ths order of dsmssa to be entered.
vdenty he consdered the order of dsmssa to be an opnon n and of
Itsef.
In approvng the acton of the oard n dsmssng the petton t s hardy
necessary to observe that we are not approvng of the merts of the Govern-
ment s cam under secton 10. The merts of that controversy w be deter-
mned when and f the respondent makes good ts threat to sue. We are
merey hodng that the oard of Ta ppeas s an admnstratve body
wth mted |ursdcton that ts powers are prescrbed by congressona
enactment that before ts ursdcton may be nvoked, the Commssoner must
have made an assessment of a defcency ta . In other words, uness the
Commssoner makes a revewabe order (n ths case an assessment), no revew
from the order of the oard of Tn ppeas es.
The order of dsmssa s affrmed.
S CTION 275. P RIOD O LIMIT TION UPON SS SS-
M NT ND COLL CTION.
rtce 1201: Perod of mtaton upon assess- III-11- 95
ment of ta . G. C. M. 12742
R NU CT O 1928.
request for prompt assessment under the provsons of secton
275(b) of the Revenue ct of 1928, fed before the ncome ta
return of the decedent was made by the admnstrator, does not
shorten the statutory perod of mtaton upon assessment and
coecton of the ta .
Inqury s made whether a request for prompt assessment of ncome
ta under the provsons of secton 275(b) of the Revenue ct of
1928, fed before the return for a deceased ta payer was made,
shortens the perod of mtaton upon assessment and coecton or
the ta .
Under date of September 4, 1931, the admnstrator of the de-
cedent s estate made a wrtten request to the Commssoner for a
determnaton and prompt assessment, under secton 275(b) of the
Revenue ct of 1928, of the ta abty of the deceased ta payer
for the year 1931. The request was receved n the ureau on Sep-
tember 8, 1931. The return of the decedent reportng ncome for
the perod anuary 1 to anuary 1 , 1931, the date of death, was
sworn to by the admnstrator of the estate on September 18, 1931,
and was receved n the coector s offce on October 15, 1931. It w
be noted that the admnstrator s request for determnaton and
prompt assessment of the ta abty under the provsons of secton
275(b) of the Revenue ct of 1928 was fed wth the ureau before
the ta return for the perod anuary 1 to anuary 1 , 1931, was
made by the admnstrator.
Secton 275(b) provdes that In the case of ncome receved
durng the fetme of a decedent, the ta sha be assessed,
and any proceedng n court wthout assessment for the coecton o
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159
5507.
such ta sha be begun, wthn one year after wrtten request there-
for (fed after the return s made) by the e ecutor, admnstrator,
or other fducary representng the estate of such decedent,
but not after the e praton of two years after the return was fed.
Itacs supped.
The postve requrement that the request be fed after the
return ts made s specfcay mposed by aw, not by a reguaton,
or by mpcaton from the statute. Such a requrement must be
gven fu force and effect and can not be waved by the Commssoner
or any other offcer. (See Lucas v. The Pod Lumber Co., 281
U. S., 245, Ct. D. 2 , C. . I -2, 39 , and orshem ros. Dry
Goods Co., Ltd., v. Unted States, 280 U. S., 453, Ct. D. 1 7, C. .
I -1, 2 0.)
It s therefore hed that the request for determnaton and prompt
assessment of the decedent s ta abty for the perod anuary 1
to anuary 1 , 1931, fed before the return was made by the admns-
trator, does not shorten the statutory perod of mtaton upon
assessment and coecton of the ta .
. arrett Pretttman,
Genera Counse, ureau of Interna Revenue.
S CTION 27 . P RIOD O LIMIT TION UPON SS SS-
M NT ND COLL CTION C PTIONS.
ktce 1201: Perod of mtaton upon assessment of ta .
R NU CT O 1028.
Instructons governng the e ecuton of consent agreements. (See
Mm. 4134, page 98.)
TITL III. M NDM NTS TO 192 INCOM T .
S CTION 507. O RP YM NTS OUND Y
O RD O T PP LS.
Secton 507. III-5- 2
Ct. D. 778
INCOM ND I O ITS T S R NU CTS O 1928 ND 1928 D CISION
O COURT.
Statute of Lmtatons Waves Overpayment found by oakd
or Ta ppeas.
The refundng of an overpayment of 1020 Income and profts
ta es determned by the oard of Ta ppeas s barred under the
mtaton provsons of secton 284(e) of the Revenue ct of 192
as amended by secton 507 of the Revenue ct of 1928, where
nether the appea to the oard nor cams for refund were fed
by the ta payer wthn four years from the date of the ast nsta-
ment payment of the ta . petton fed wth the oard s not
snch a waver of the mtaton perod as to entte the ta payer
to the benefts of secton 284(g) of the Revenue ct of 1920.
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507.
1 0
Dstrct Cot|kt op the Unted States, Northern Dstrct of Inos, astern
Dvson.
Western Wheeed Scraper Co., a Corporaton, pantff, v. The Unted States of
merca.
September 9, 1933.
OPINION.
arnes, .: Ths s an acton by Western Wheeed Scraper Co. to recover
57,894.07, determned by the oard of Ta ppeas, by a order of redeter-
mnaton promugated November 28, 1928, to be an overpayment of ta by the
pantff for the year 1920, whch amount the Commssoner of Interna Reve-
nue has refused to refund to pantff on the ground that no tmey cam for
refund was fed.
Pantff s decaraton aeges that on March 15, 1921, t fed ts ncome and
profts ta return for the caendar year 1920, thereby dscosng an ncome and
profts ta due from t n the sum of 1 0,970.73 for the caendar year 1920,
whch sum t pad to the Unted States coector of nterna revenue at Chcago
durng the year 1921 that subsequent to the fng of ts ncome and profts
ta return, the Commssoner of Interna Revenue caused an e amnaton of
sad return and an audt of pantff s books to be made, and as a resut thereof
sad Commssoner determned and decded that pantff had underpad ts
ncome and profts ta for the year 1920 n the sum of 5,437. 1, and ssued
to the pantff on December 23, 1925, by regstered ma, a notce of hs fna
determnaton, whch sad notce stated that pantff was aowed 0 days from
sad date to appea to the Unted States oard of Ta ppeas that on ebru-
ary 13, 192 , pantff fed ts petton wth the Unted States oard of Ta
ppeas that a hearng was had on sad petton by the Unted States oard
of Ta ppeas, and as a resut of sad bearng the sad Unted States oard of
Ta ppeas, on anuary 29, 1929, determned and decded that pantff had
overpad ts ncome and profts ta for the year 1920 n the sum of 57,894.03
that the Unted States of merca, through ts Commssoner of Interna Reve-
nue, took no appea to the Unted States Crcut Court of ppeas, as provded
by aw, from the sad decson of the Unted States oard of Ta ppeas, and
the sad decson thereby became and was fna that by the fng of ts sad
petton wth the Unted States oard of Ta ppeas on ebruary 13, 192 ,
t thereby, under the provsons of secton 277(b) of the Revenue t of 1924,
waved the rght to have the ncome and profts ta es due from It for ts caen-
dar year 1920 determned and assessed wthn fve years from the date ts
ncome and profts ta return for sad caendar year 1920 was due and was
made, and that, under the provsons of secton 507 of the Revenue ct of 1928,
t became entted to the refund of the sad overpayment of 57.894.07 that on
September 10, 1931, t fed wth the Commssoner of Interna Revenue a cam
for the refund of sad overpayment of 57,894.07, and that on October 23, 1931,
the Commssoner of Interna Revenue re|ected sad cam. copy of the
re|ecton of sad cam s anne ed to the decaraton. The body of the etter
of re|ecton s as foows:
Your cam for refund of 57,894.07, ncome and e cess profts ta es for
the ta abe year 1920, has been e amned and w be re|ected for the foowng
reason:
The cam s based upon the statements that The Unted States oard of
Ta ppeas n ts decson n ths case, reported n 14 . T. ., 49 , hed that
ta payer had made an overpayment of ta for the year 1920 of 57,894.07.
Ths decson has now become fna and ta payer demands the refund under
the provsons of secton 507 of the Revenue ct of 1928. Ta payer s petton
was fed wth the oard of Ta ppeas on ebruary 13, 192 , wthn fve
years of the fng of the pettoner s 1920 ncome ta return.
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507.
You are advsed that secton 284(e) of the Revenue ct of 192 amended
by secton 507 of the Revenue ct of 192S reads as foows:
Uness cam for credt or refund, or the petton, was fed
wthn the tme prescrbed n subdvson (g) for fng cams, no such credt
or refund sha be made of any porton of the ta pud more than four years
(or, n the case of a ta mposed by ths tte, more than three years) before
the fng of the cam, or the fng of the petton, whchever s earer.
n e amnaton dscoses that your ta es for the year 1920 were pad n
four Instaments, namey, on March 14, une 15, September 15, and December
15, 1921. No waver for 1920 was fed pror to une 1 , 192 , thereby e cud-
ng you from the benefts of the provsons of secton 284(g) of the Revenue
ct of 192 . Cams for refund were fed March 2 , 1927, and May 1 , 1928.
Nether of these cams was fed wthn the appcabe per-od of mtaton.
The petton n connecton wth your appea to the Unted States oard of Ta
ppeas was fed ebruary 13, 192 , whch was not wthn four years from the
payment of the ast nstament of ta for the year 1920 as requred by the
provsons of secton 284(e) of the Revenue ct of 192 as amended by secton
507 of the Revenue ct of 1928.
ccordngy, your cam for refund w be re|ected n fu.
The re|ecton of the cam w offcay appear on a schedue to be
approved by the Commssoner.
The defendant fed the genera ssue and the statute of mtatons. The
statute of mtatons s peaded n the foowng anguage:
The defendant says that the pantff ought not to have ts
aforesad acton aganst t, the defendant, because the defendant says the
supposed cause of acton mentoned n the decaraton s barred under the
mtaton provsons of secton 284(e) of the Revenue ct of 192 , as amended
by secton 507 of the Revenue ct of 1928 the supposed cause of acton s
for the recovery of an overpayment of ncome and profts ta es for the year
1920, found or determned by the oard of Ta ppeas that the ta es of
the pantff for the year 1920 were pad n nstaments, the ast nstament
havng been pad on December 15, 1921 that the petton of the pantff n
the proceedng before the oard of Ta ppeas, n regard to ts 1920 ta es,
was fed on, to wt, ebruary 13, 192 that under secton 284(e) of the
Revenue ct of 192 , as amended by secton 507 of the Revenue ct of 1928,
p.n overpayment of ta determned by the oard of Ta ppeas s refundabe
f cam for refund, or f the petton to the oard, was fed wthn four
years after the payment of the ta , or wthn the tme aowed by subdvson
(g) of secton 284 of the Revenue ct of 192 that under subdvson (g) of
the Revenue ct of 192 , a ta payer was aowed unt pr 1, 1927, or unt
four years from the tme the ta was pad, to fe a cam for refund of ta es
for the year 1920, f the ta payer on or before une 15, 192 , fed a waver
of the statutory mtaton perod upon the determnaton and assessment of
the 1920 ta es that no such waver was fed by the pantff n ths cause,
and, accordngy, the appcabe mtaton perod upon the fng of hs cam
for refund, or hs petton wth the oard of Ta ppeas, was four years
from the date of the payment of the ta es that the petton wth the oard
was fed on ebruary 13, 192 , and the ony cams for refund were fed after
four years from the tme the ta es were pad and that, accordngy, ths
acton s barred.
The court has e amned and consdered the brefs of counse, and s of
the opnon that the foregong speca pea of the statute of mtatons s
we founded n aw and that t s supported by the evdence n the record.
ccordngy, there shoud and w be a fndng and |udgment for the
defendant.
Counse may present drafts of fndngs of fact and concusons of aw and
|udgment order, upon notce.
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S 0 , rt. 1301. 1 2
TITL I . DMINISTR TI PRO ISIONS.
S CTION 0 . CLOSING GR M NTS.
rtce 1301: Cosng agreements reatng to ta III-9- 79
abty n respect of nterna-revenue ta es. Mn. 4149
Cosng agreements reatng to ta abty under secton 00
of the Revenue ct of 1928.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, ebruary 9, 1934..
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Other Offcers and mpoyees Concerned:
Reference s made to secton 0 (a) and (b) of the Revenue ct
of 1928 whch provdes:
(a) uthorzaton. The Commssoner (or any offcer or empoyee of the
ureau of Interna Revenue, ncudng the fed servce, authorzed n wrtng
by the Commssoner) s authorzed to enter nto an agreement n wrtng
wth any person reatng to the abty of such person (or of the person or
estate for whom he acts) n respect of any nterna-revenue ta for any ta abe
perod endng pror to the date of the agreement.
(b) naty of agreements. If such agreement s approved by the Secre-
tary, or the Undersecretary, wthn such tme as may be stated In such agree-
ment, or ater agreed to, such agreement sha be fna and concusve, and,
e cept upon a showng of fraud or mafeasance, or msrepresentaton of a
matera fact
(1) the case sha not be reopened as to the matters agreed upon or the
agreement modfed, by any offcer, empoyee, or agent of the Unted States, and
(2) n any sut, acton, or proceedng, such agreement, or any determnaton,
assessment, coecton, payment, abatement, refund, or credt made n accord-
ance therewth, sha not be annued, modfed, set asde, or dsregarded.
ffectve mmedatey, no fna cosng agreement ( orm 8 ) or
fna cosng agreement as to specfc matters ( orm 90 ) n respect
of any nterna-revenue ta w be e ecuted and submtted for the
approva of the Secretary or the Under Secretary under the prov-
sons of secton 0 , e cept where there appears to be advantage n
havng the case permanenty and concusvey cosed. Ths w
usuay occur n cases where n the settement of dsputed ssues the
ta payer has made certan concessons because of others made by the
Government, thereby makng a fna cosng agreement necessary n
order to bar further acton by ether party wth respect to the con-
cessons made. Where, however, the ta payer s abe to show sound
busness or pocy reasons for desrng a cosng agreement and t
s shown that the Government w sustan no dsadvantage through
the acceptance of the agreement, an appcaton for a cosng agree-
ment w not be re|ected soey because no advantage to the Govern-
ment s apparent. ampes of cases of ths cass are: states,
where the fducary desres a fna cosng agreement n order that he
may be dscharged by the court corporatons whch are n dssou-
ton and desre a fna cosng agreement n order to wnd up ther
affars cases where n connecton wth the ta payer s fnanca affars
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0 , rt. 1301.
credtors demand evdence of the fna cosng of the ta payer s ta
abty and cases where ta payers desre to foow the consstent
practce of cosng ther returns from year to year.
In each case where a cosng agreement s recommended for
approva, a memorandum w be prepared settng forth a the ssues
nvoved, the ad|ustments made through agreement wth the ta payer
or otherwse n respect of each of such ssues, and ctng or statng
the authorty (aw, reguaton, decsons, etc.), or other reasons for
the ad|ustments, and the reason or reasons why the agreement shoud
be e ecuted under the pocy stated n the precedng paragraph of
ths mmeograph. ny other reevant facts or crcumstances, or
genera nformaton whch may ad the Secretary n hs e ercse of
ndependent |udgment n the matter, shoud be stated.
In each case where a ta payer requests a fna cosng agreement
n connecton wth negotatons for the ad|ustment and settement
of hs ta abty, t shoud be made cear to hm that such an
agreement s sub|ect to the approva of the Secretary or the Under
Secretary.
Where a fna cosng agreement s recommended for approva,
the admnstratve fe, the agreement, and the memorandum reatng
to t w be routed to the approprate persons for revew. fter
the agreement and the memorandum are approved wthn the Unt or
offce n whch they are prepared and such approva has been nd-
cated by the head of the Unt or offce, the entre fe w be for-
warded to the provng secton of the Income Ta Unt for recordng
and other necessary acton. The agreement and the orgna and one
copy of the memorandum w then be forwarded to the offce of the
speca deputy commssoner. fter sgnature of the agreement
t w be transmtted to the Secretary of the Treasury for approva.
Gut T. everno,
Commssoner.
rtce 1301: Cosng agreements reatng to ta III-15- 743
abty n respect of nterna-revenue ta es. Ct. D. 812
ncome ta revenue act of 1028 decson of court.
1. Sut Cosng greement adty bsence of Consdera-
ton.
cosng agreement under secton 0 of the Revenue ct of
1928 consttutes a statutory bar to an acton at aw to recover any
part of the ta es covered by the agreement (where there s no
showng of fraud or mafeasance or msrepresentaton of fact mate-
ray affectng the determnaton or assessment made), even though
there was no consderaton for the agreement.
2. Cosng greement adty pprova by ctng Secretary.
pprova of a cosng agreement by the ctng Secretary of
the Treasury consttutes an approva by the Secretary of the Treas-
ury wthn the meanng of secton 0 of the Revenue ct of 1928.
3. Decson ffrmed.
Decson of the Dstrct Court, Dstrct of Rhode Isand (3 ed.
Supp., 1 1, Ct D. 705, C. . II-2, 143) affrmed.
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1 4
Unted States Crcut Court of ppeas for the rst Ctbcdtp.
Wam . Perry et a., Trustees, pantffs, appeants, v. rank . Page,
Coector, defendant, appeee.
ppea from the Dstrct Court of the Unted States for the Dstrct of Rhode Isand.
efore Wson, Morton, and nderson, udges.
November 10, 1933.
opnon.
Wson, .: Tbs Is an appea from udgment of the Dstrct Court of Rhode
Isand n a sut by the pantffs as trustees of the estate of the ate rank .
azard to recover a sum aeged to have been erroneousy assessed and co-
ected of the pantffs as Income ta es for the year 1927. ury tra was
waved.
The dstrct court found that the ta was erroneousy assessed and coected
as the ncome of the estate was, by the w of the deceased, to be used e -
cusvey for chartabe purposes. The defense was that a cosng agreement,
so caed, under secton 0 of the Revenue ct of 1928, whch t sets forth In
Its pea, was duy approved by the Secretary of the Treasury.
The pantffs n repy set up n avodance of the effect of the agreement
that (1) snce the Government was wthout rght to assess and coect the ta ,
there was no consderaton on ts part for the agreement of the ta payers that
they woud not cam any refund and (2) the agreement was never approved
by the Secretary of the Treasury or the Undersecretary, as requred by secton
0 and (3) that t was entered nto through mafeasance and msrepresenta-
ton of the Commssoner of Interna Revenue.
The dstrct court made a speca fndng that there was no mafeasance or
msrepresentaton on the part of the Commssoner. The ony ssues eft were
whether there was consderaton for the agreement, and, f so, or none was
requred, whether the agreement was approved by the Secretary of the Treasury
or some one duy authorzed to act for hm. It appears that t was approved
by enry errck ond, ctng Secretary.
We thnk the dstrct court correcty found that snce the Government had
no rght to coect the ta , t gave up nothng by enterng the agreement and
there was no consderaton on ts part, f the agreement s to be treated as a
contract.
The Government can not be sued wthout ts consent. It may e tend or
shorten the perod wthn whch a sut may be brought. The former may be
done by agreement. The rght of a ta payer to sue to recover nn aeged over-
payment, under secton 0 of the Revenue ct of 1928, may be ended by a
cosng agreement. s to the fnaty of such agreements, secton 0 provdes:
(1) the case sha not be reopened as to the matters agreed upon or the
agreement modfed, by any offcer, empoyee, or agent of the Unted States,
and
(2) n any sut, acton, or proceedng, such agreement, or any determnaton,
assessment, coecton, payment, abatement, refund, or credt made n accord-
ance therewth, sha not be annued, modfed, set asde, or dsregarded.
If entered nto between the ta payer and the Commssoner vountary, and
approved by the Secretary of the Treasury or Undersecretary, ts effect s
reguated by statute and takes on ega consequences by vrtue of the statute,
and not under the aw of contracts, but under we-setted prncpes of aw
whch permt a soveregn State to contro and desgnate when and under what
condtons It may be sued. The egsatve determnaton of these condtons
s fna, and s not dependent upon a consderaton as n case of a reease
of cams under the aw of contracts. ( etna Lfe Insurance Co. v. aton,
43 ed. (2d), 711 Ct. D. 225, C. . I -2. 2 3 ankers Reserve Lfe Co. v.
Unted Sates, 42 ed. (2d), 313, 31 Ct. D. 209, C. . I -2, 257 .) In the
former case the court sad:
We are cear that by the cosng agreement the partes In fact ntended
to sette a questons reatng to the vadty of the assessments for 1923
and 1924, and that, Irrespectve of ths, the Revenue ct made the agreement
a statutory bar.
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1 5
00 . rt. 1301.
nd In the atter:
Congress thus e pressy authorzed the partes by agreement to shorten
the perod of mtaton for the determnaton, assessment and coecton of a
ta and for the fng of cams for refund, abatement, credt, and the nst-
tuton of sut for the recovery of the amount pad.
The statute, secton 0 , s, we thnk, concusve as to the effect of such
agreements.
The ony queston eft for consderaton s whether such an agreement
approved by an ctng Secretary s vad when the statute requres such agree-
ment to be approved by the Secretary or Undersecretary.
The ta payers contend that snce the statute e pressy provdes that ony
the Secretary and Undersecretary may sgn, t was the ntent of Congress
that no other onMa coud sgn or act for te offcas named. It s argued
that because the ct when orgnay proposed n the ouse of Representatves
contaned ony the name of the Secretary as an offca who coud approve
such agreements, and the Senate amended by nsertng the name of the Under-
secretary, or an ssstant Secretary, but before the fna passage the provson
for the approva of an ssstant Secretary was strcken out, therefore ony
the offcas eft n, namey, the Secretary or Undersecretary, coud approve such
agreements.
The agreement was not approved by an ssstant Secretary actng as such
but by enry errck ond, ctng Secretary of the Treasury. The casa
s setted by determnng whether an ssstant Secretary may act as Secretary.
Secton 4 of Tte 5, U. S. O. ., provdes:
In case of the death, resgnaton, absence, or sckness of the head of any
department, the frst or soe assstant thereof sha, uness otherwse drected
by the Presdent, as provded by secton of ths tte, perform the dutes of
such head unt a successor s apponted, or such absence or sckness sha
cease.
In ohn Shto Co. v. McCung (51 ed., 8C8, 871) the court sad:
It havng been found mpossbe for the heads of departments to perform,
n person, a the dutes mposed on them by aw, the offce of assstant secre-
tary was created for a the departments. In the Treasury Department, two of
such assstant secretares are requred to be apponted by the Presdent, by and
wth the advce and consent of the Senate. The ssstant Secretares of the
Treasury sha e amne etters, contracts, and warrants prepared for the sgna-
ture of the Secretary of the Treasury, and perform such other dutes n the
offce of the Secretary of the Treasury as may be prescrbed by the Secretary
or by aw. (Secton 245, Rev. St) y secton 1 1, Id., the head of each
department s authorzed to prescrbe reguatons, not nconsstent wth the aw,
for the dstrbuton and performance of ts busness and n case of the death,
resgnaton, absence, or sckness of the head of any department, the frst or soe
assstant thereof sha, uness otherwse drected by the Presdent, as provded
by secton 179, perform the dutes of such head unt a successor Is apponted or
such absence or sckness sha cease. (Secton 177, Id. .) It admts
of no queston that under the foregong provsons the Secretary of the Treasury
coud have assgned to the ssstant Secretary or Secretares of the Treasury
Department the duty of decdng appeas from assessments made by coectors
of customs dutes nor can t be doubted that, n the absence or sckness of the
head of that Department, such assstant secretares coud have awfuy per-
formed hs dutes In respect to such matters whch have to be determned,
setted, and ad|usted n that Department. The repy does not negatve the fact
that the ssstant Secretary was not assgned by the Secretary of the Treasury
to the performance of the duty of decdng the appea, nor that there was no
absence or sckness of the head of the Department whch devoved the duty upon
the ssstant Secretary. Under such crcumstances, s the want of authorty
to be assumed, or w the aw rase a presumpton to the contrary n support
of the offca act We are ceary of the opnon that the atter s the rue to
be apped. (Unted States v. Perata, 19 ow., 347 Parsh v. Unted States,
100 U. S., 500 Chadwck v. Unted States, 3 ed. Rep., 75 Unted States v.
dams, 24 ed. Rep., 348.)
( so see: cyser v. tz, 133 U. S., 138 owng v. Unted States, 299 ed.,
438 Parte Tsue Shee et a., 218 ed., 25 In re em Yuen, 188 ed., 350
Marsh v. Nchos et a., 128 U. S., 05 Norrs v. Unted States, 257 U. S., 77.)
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8701, rt. 1312.
1
In Unted States v. dams (24 ed., 348), It was hed that where authorty
s gven for the head of a department to prescrbe the dutes to be performed
by an assstant, or where the aw provdes that n case of certan condtons
arsng, such as death, resgnaton, absence, or sckness, an assstant sha,
uness otherwse drected by the Presdent, perform the dutes of the head of the
department unt the dsabty of the head ceases, and t appears that f an
assstant has to perform such dutes as ctng Secretary, the presumpton s,
uness the contrary s made to appear, that the condtons named n the statute
had arsen, or that the head of the department had prescrbed the dutes to be
performed by the assstant, who was actng accordng to the drectons and
wth the authorty of the head of hs department. (R. S., sectons 245, 1 1,
and 177.)
In Chad cck v. Unted Sates (3 ed., 750, 750) the court sad:
ssstant Secretares n the Treasury Department are apponted under the
authorty of an ct of Congress, wth power to perform such dutes In the
offce of the head of the Department as he may prescrbe, or as the aw drects,
(Rev. St., secton 245.) tensve dutes are assgned to such, and n case of
the death, resgnaton, absence, or sckness of the Secretary, the proper assstant
Is requred by aw, uness otherwse drected by the Presdent, to perform a
the dutes of the Department unt a successor s apponted, or such absence
or sckness sha cease. (Rev. St., secton 177.) Nothng appearng to the con-
trary, the ega presumpton s that the certfcate was made n pursuance of a
awfu authorty, and, beng under the sea of the Department, t s suffcent to
show that the rung of the court s correct
We thnk the rue must be apped here and the presumpton s that when
enry Derrck ond approved the settement agreement n ths case as ctng
Secretary, the Secretary of the Treasury was ether absent from Washngton or
was , or had specfcay assgned ths duty to hm, n whch case the frst
ssstant Secretary was authorzed to act for hm, and coud approve the
agreement as ctng Secretary.
The agreement, therefore, must be hed to be bndng on both partes and by
force of secton 0 prevents the pantffs from recoverng aganst the coector
In ths case.
The |udgment of dstrct court s affrmed.
S CTION 12. R P L O S CTION 110 (a)
O 192 CT.
Secton 12.
revenue act op 1928.
ffect of repea of secton 110 (a) of the Revenue ct of 192 .
(See Ct. D. 804, page 318.)
TITL . G N R L PRO ISIONS.
S CTION 701. D INITIONS.
rtc b 1312: ssocaton. III-10- 8
G. C. M. 12 03
R NU CT O 1928.
Where a syndcate does busness n an organzed capacty, the
net ncome s dstrbutabe among the members on the bass of the
proportonate share whch each has nvested n the busness, the
manager has smar or greater powers than the drectors n a
corporaton, and the actvtes are carred on as a busness
enterprse, the syndcate s an assocaton for ncome ta purwses.
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1 7
701, rt. 1312.
n opnon s requested reatve to the ta abe status for edera
ncome ta purposes, under the evenue ct of 1928, of a syndcate
operatng under a wrtten agreement, the essenta provsons of
whch are n substance as foows:
The M Company was named as the manager of the syndcate,
the purpose of whch was the buyng and seng of securtes. The
nterest of each member of the syndcate was represented by the
amount n doars subscrbed by hm. The manager was authorzed
to buy and se securtes from tme to tme and to open up a synd-
cate account on ts books. The members were to partcpate n the
purchases and saes n proporton to ther nterest n the syndcate.
The manager had the soe dscreton, management, and entre con-
tro of the busness and transactons of the syndcate and had fu
authorty to buy and se securtes n ts uncontroed dscreton.
The manager coud become a member of the syndcate and dea and
contract wth tsef for the syndcate account. It had e cusve
custody of the funds of the syndcate and coud use them as t saw
ft n the operaton thereof. The fe of the syndcate was for a
perod of one year, but the manager coud dscontnue the operatons
at any tme. t the e praton of the syndcate the manager was to
be pad an amount of per cent of the net profts and the baance
was to be dstrbuted pro rata among the members. The manager
was not abe for any error n |udgment or for any mstake of aw
or fact but ony for gross neggence or wfu defaut. The agree-
ment specfcay states that nothng n t sha consttute the mem-
bers attorneys wth, or agents for, one another or for the manager,
and n no event were the members to contrbute more than the
nterest subscrbed for by them. The agreement was made bndng
upon the hers, e ecutors, admnstrators, successors, and assgns of
the partes sgnng t.
The syndcate agreement contans the foowng provson:
Nothng heren contaned or otherwse arsng sha consttute the subscrbers
partners wth or agents for one another or for the managers, or render them,
or any of them, abe to contrbute n any event more than the nterest n the
syndcate subscrbed for by hm.
The syndcate dd not have a name, offce, or etterhead, and was
not sted n the teephone or cty drectores. Organzaton meet-
ngs were not hed, shares of stock or certfcates of nterest were
not ssued, and the agreement dd not contan any provson for the
transfer of the benefca nterests, athough the agreement dd not
prohbt such transfer. The stock purchased by the manager was
not hed n the syndcate name but was eft n a street name.
The queston presented s the proper cassfcaton of the synd-
cate for ncome ta purposes. There are four possbe cassfcatons,
namey, an assocaton, a trust, a partnershp, or a |ont venture.
In Wd v. Commssoner ( 2 ed. (2d), 777 (C. C. . 2)), the
court had under consderaton an organzaton very smar to the
nstant syndcate. The court hed that t was nether a partnershp
nor a |ont venture. mong other thngs the court sad:
n arrangement by whch a number of persons put ther property
Into the hands of one for Its entre management, s certany nearer to an
assocaton, or an assocate trust. The ne may be hard to draw, but the
e tremes are patenty dfferent. Itacs supped.
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8701. rt. 1312.
1 8
In Oenmore Securtes Corporaton v. Commssoner ( 2 ed.
(2d), 780), whch was a companon case to Wd v. Commssoner
supra, the same court hed that the syndcate was ether an assoca-
ton or a trust. These decsons emnate two of the possbe cass-
fcatons, namey, partnershps and |ont ventures. ccordngy, the
rea ssue s whether the syndcate s a trust or an assocaton.
It s contended by the syndcate that t s nether a trust nor an
assocaton and n substantaton of ths contenton the foowng
e cerpt s quoted from echt et a., Trustees, v. Maey (2 5 U. S.,
144, T. D. 3595, C. . III-, 489):
The word assocaton appears to be used In the ct n ts ordnary meanng.
It has been defned as a term used throughout the Unted States to sgnfy a
body of persons unted wthout a charter, but upon the methods and forms
used by ncorporated bodes for the prosecuton of some common enter-
prse. Oher defntons are: In the Unted States, as dstngushed
from a corporaton, a body of persons organzed, for the prosecuton of some
purpose, wthout a charter, but havng the genera form and mode of procedure
of a corporaton.
The court, n quotng these defntons of an assocaton, ceary
dd not mean to ay down the rue that n order for an organza-
ton to be cassfed as an assocaton t must be an e act repca of
a corporaton wth the snge e cepton of not havng a charter.
The court makes ths cear n the frst sentence of the e cerpt quoted
above: The word assocaton appears to be used n the ct n
ts ordnary meanng. One of the ordnary meanngs of the
term assocaton s as foows: a body of persons nvested wth
some, yet not fu, corporate rghts and powers. ( nderson, L. D.,
quotng State v. Tayor, 7 S. D., 533, 4 N. W., 548.) nother
defnton s: a word of vague meanng, used to ndcate a coec-
ton of persons who have |oned together for a certan ob|ect.
(Peope v. rander, 244 111., 2 , 91 N. ., 59.) urthermore, n
echt v. Maey, supra, the court quotes the foowng defnton:
n organzed but unchartered body anaogous to but dstngushed
from a corporaton Itacs supped.
ccordng to the ast defnton approved by the court there must
be dstngushng characterstcs as we as those whch make t
anaogous to a corporaton. t any rate, the pan nference to be
drawn from the decson, taken as a whoe, s that an organza-
ton shoud be cassfed as an assocaton when t possesses the
essenta characterstcs of a corporaton.
In urkc-Waggoner O ss n v. opkns (29 ed., 492, T. D.
3582, G. . III-, 1) the court stated:
It s df cut to bud an entty, so far as organzatons for carry-
ng on the busness of the word s concerned, wthout there beng some sm-
arty between such organzatons, but genera smartes do not determne,
ether the character or the name thereof, both beng dependent upon the dstn-
gushng characterstcs for defnton and cassfcaton. Itacs supped.
In Sears, Roebuck Co. mpoyees Savngs and Proft-Sharng
Penson und v. Commssoner (C. C. . 7) (45 ed. (2d), 50 ) the
court stated the dstngushng characterstcs of a corporaton as
foows:
There are certan basc thngs that enter nto the formaton of a corpo-
ratons: (1) charter (2) by-aws or rues (3) members, who assocate them-
seves together (4) a governng board.
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701, rt. 1312.
The court stated n smpe anguage the essenta and basc char-
acterstcs of a corporaton. Dd the syndcate here under con-
sderaton have these characterstcs charter n an assocaton s,
of course, not requred the syndcate agreement consttuted the
by-aws and rues the syndcate subscrbers were ts members and
they were assocated together and the syndcate manager was ts
governng board. Thus the essenta characterstcs of a corporaton
were possessed by ths syndcate wth the snge e cepton of a
charter. Not ony dd t possess the essenta characterstcs men-
toned n the above decson (e cept the charter), but n addton
thereto t was an entty separate and dstnct from the members
composng t, and had a fund smar to the capta stock of a
corporaton. The manager s abty for ts torts was smar to
that of an offcer of a corporaton. The abty of the members
was mted to the number of shares subscrbed for by them, corre-
spondng to the abty of stockhoders n a corporaton. In
case of death, resgnaton, or ncapacty of the manager, hs suc-
cessor was named by the subscrbers of a ma|orty n amount of
outstandng shares, and the members were banded together n a
busness enterprse for the purpose of fnanca gan.
When the decson n echt v. Maey. supra, s read as a whoe t
w be found that another test was ad down by the court for de-
termnng the status of a trust for edera ncome ta purposes,
namey, whether t was engaged n the carryng on of a busness en-
terprse. The court sad:
We concude, therefore, that when the nature of the three trusts here n-
voved Is consdered, as the pettoners are not merey trustees for coectng
funds and payng them over, but are assocated together n much the same
manner as the drectors n a corporaton for the purpose of carryng on bus-
ness enterprses, the trusts are to be deemed assocatons wthn the meanng
of the ct of 1918 Itacs supped.
It s apparent from the decsons referred to above that |udca
emphass has been paced upon ths test n fact, t may be sad that
the queston of whether the trust had a quas corporate form, or
whether the drectors were assocated together ke the drectors n a
corporaton, has been subordnated by the courts to the consdera-
ton of whether the trustees were engaged n a busness enterprse.
In Ws et a. v. Commssoner (58 ed. (2d), 121 (C. C. . 9),
Ct. D. 575, C. . I-2, 1 3) the court sad:
Smpy stated, the queston s, dd the trustees manage and operate
the property n ther charge as a busness. th the purpose to accumuate a
proft by the use of t, or was ther soe purpose, ntended and pursued, to ds-
pose of t as rapdy as possbe, market condtons consdered, and dvde the
proceeds among the benefcares Itacs supp ed.
In Whte v. ornbower et a. (27 ed. (2d), 777 (C. C. . 1)),
the court used the foowng anguage:
The measure of contro over the trust vested n the benefcares
foes not seem to be the determnng factor, but rather whether the trustees are
conductng a busness for proft or gan. Itacs supped.
In ths case the court hed that the trust was not an assocaton
because ts functon was not to carry on a busness enterprse but
merey to brng about ts qudaton.
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701, rt. 1312.
170
The case of Unted States v. NeaZ (28 ed. (2d), 1022, certorar
dened, 278 U. S., 59), decded by the Crcut Court of ppeas
for the rst Crcut, can be e paned ony on the busness enter-
prse theory. In that case the dstrct court hed that the trust
there nvoved was not an assocaton because t was an e press trust
and not an assocaton under the Massachusetts aw, the benef-
cares of the trust havng no contro over the actvtes of the-
trustees. The court of appeas reversed the decson of the ower
court on the authorty of Whte v. ornbower, supra. The opnon
of the court n that case defntey stated that the measure of con-
tro vested n the benefcares was not the determnng factor, but
whether the trustees were conductng a busness for proft or gan.
(See aso Ltte our O tfe Gas Go. v. Leweyn, 35 ed. (2d), 149,
Ct. D. 118, C. . III-2, 2 4 Trust No. 5833, Securty- rst
Natona ank of Los ngees, v. Wech, 54 ed. (2d), 323, Ct
D. 490, C. . I-1, 138 tusa Mortgage Investment Co. et a. v.
Commssoner, 21 . T. ., 735 Mary L. Dutton et a. v. Comms-
soner, 18 . T. ., 1151 Rochester Theatre Trust state v. Com-
mssoner, 1 . T. ., 1275 . . Landreth Co. v. Commssoner,
11 . T. ., 1, C. . I -1, 31 nderson Steam ucanzer Co. v.
Commssoner, . T. ., 737.)
In the nstant case t s not dsputed that the syndcate was en-
gaged n the carryng on of a busness enterprse. Therefore, under
the busness enterprse test t was ceary an assocaton.
In the appea of Investment Trust of Mutua Investment Co. et a.
(27 . T. ., 1322), the oard of Ta ppeas hed that where a
trust hods ega tte to securtes beongng to many benefcares,
makes purchases and saes upon the order of a managng com-
pany, and dstrbutes ncome and profts to the benefcares upon
the order of the managng company, the trust s an assocaton
wthn the contempaton of the Revenue ct of 1928.
Under the reguatons of the ureau the syndcate must aso be
cassfed as an assocaton. The decson n accht v. Maey, supra,
was rendered n May, 1924. In October, 1924, Reguatons 5, under
the Revenue ct of 1924, were promugated. rtce 1504 of Regu-
atons 5, whch dstngushes between trusts and assocatons, pro-
vdes n part as foows:
Operatng trusts, whether or not of the Massachusetts type, In
whch the trustees are not restrcted to the mere coecton of funds and ther
payments to the benefcares, but are assocated together n much the same
manner as drectors n a corporaton for the purpose of carryng on some
busness enterprse, are to be deemed assocatons wthn the meanng of the
ct, regardess of the contro e ercsed by the benefcares. Itacs supped.
On ugust 31, 1925, the artce above quoted was amended and
ampfed by Treasury Decson 3748 (C. . I -2, 7), provdng
ven n the absence of any contro by the benefcares, where the
trustees are not restrcted to the mere coecton of funds and ther payment to
the benefcares, but are assocated together wth smar or greater powers
than the drectors n a corporaton for the purpose of carryng on some bus-
ness enterprse, the trust s an assocaton wthn the meanng of the statute.
Itacs supped.
The above matter was ncorporated as a part of artce 1504, Reg-
uatons 9, under the Revenue ct of 192 , artce 1314, Reguatons
74, under the Revenue ct of 1928, and n substantay the same
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171
5704.
anguage n artce 1314, Reguatons 77, under the Revenue ct
of 1932.
rtce 1312, Reguatons 74, under the Revenue ct of 1928, whch
defnes assocatons, provdes:
ssocatons and |ont-stock companes Incude assocatons, common aw
trusts, and organzatons by whatever name known, tchch act or do busness
n an organzed capacty, whether created under and pursuant to State aws,
agreements, decaratons of trust, or otherwse, the net ncome of whch, If
any, s dstrbuted or dstrbutabe among the sharehoders on the bass of the
capta stock whch each hods, or, where there s no capta stock, on the oass
of the proportonate share or capta whch each has or has nvested n the
busness or property of the organzaton. tacs supped.
These reguatons, whch were specfcay approved n Trust No.
S33, Securty- rst Natona ank of Los ngees, v. Wech, supra
and Soan et a. v. Commssoner ( 3 ed. (2d), (Nnth Cr-
cut) ), prescrbe three tests for assocatons, as foows:
(1) They must act or do busness n an organzed capacty
(2) The net ncome must be dstrbuted or dstrbutabe among
the members on the bass of the proportonate share whch each
has nvested n the busness and
(3) The trustee or trustees must have smar or greater powers
than the drectors n a corporaton for the purpose of carryng on
some busness enterprse.
ppyng these tests to the facts n the nstant case, ths offce s
of the opnon that the syndcate s an assocaton for ncome ta
purposes.
. arrett Pretttman,
Genera Counse, ureau of Interna Revenue.
S CTION 704. T ILITY O TRUSTS S
CORPOR TIONS R TRO CTI .
Secton 704. III-8- 2
Ct. D. 787
INCOM T R NU CT O 1928 D CISION O COURT.
1. Trust ssocaton Revocaton of Specfc Rung by Tbeas-
ubt Decson and Reguatons.
Where the Commssoner made a specfc rung n 1920 that
the ta payer was a trust rather than an assocaton, and n 1024
pubshed ureau rungs and promugated a Treasury decson
and reguatons whch were nconsstent therewth, the atter
amount to a revocaton of the specfc rung wthn the meanng
of secton 704(a) of the Revenue ct of 1928, where the ta payer
had notce of the nconsstent provsons of the decson and regu-
atons. Under the facts In the case, the ta payer must be deemed
to have had such knowedge pror to the fng of ts return for
1924, and t s therefore sub|ect to ta as an assocaton for that
year, even though the rung of 1920 was not specfcay revoked
unt 1927.
2. Decson Reversed.
Decson of the oard of Ta ppeas (2 . T. ., 551) reversed.
S. Certorar Dened.
Petton for certorar dened October 1 , 1933.
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704.
172
Unted States Crcut Court or ppeas for the rst Crcut.
Commssoner of Interna Revenue, pettoner for revew, v. . enry Nea et
a., Trustees of the rst Peopes Trust.
ppea from oard of Ta ppeas.
efore ngham, Wson, and Morton, .
une 5, 1933.
opnon.
ngham, .: Ths Is a petton by the Commssoner of Interna Revenue to
revew a decson of the oard of Ta ppeas hodng that there was no
defcency n the ncome ta of the respondents, trustees of the rst Peopes
Trust, for the year 1924.
The rst Peopes Trust was formed October 28, 1919, by a decaraton
of trust. It began busness on anuary 1, 1920, and, before the tme came for It
to fe an ncome ta return, submtted to the Commssoner of Interna Rev-
enue the queston of ts ta abe status. December 2, 1920, the Commssoner
wrote a etter to Wam arod tchcock, secretary of the Peopes Trust,
n whch the foowng appears:
In dstngushng a trust from an assocaton for the purpose of ta aton,
ths offce has hed that the fact of actua contro by the benefcares must n
each case govern. It appears from the affdavt of Wam arod tchcock,
secretary, that of a tota ssue of 19,411 frst preferred, 19,411 second preferred,
and 29,411 common shares that the trustees as ndvduas owned on Septem-
ber 8, 1920, an aggregate tota of 9 frst preferred, 9 second preferred, and
10,05 common shares. It s the opnon of ths offce that the ownershp of
such an amount of shares by the trustees s not suffcent to vest n them
the actua contro as benefcares. It s accordngy hed that the rst
Peopes Trust s to be consdered a trust for the purpose of edera ta aton.
ach year thereafter, ncudng 1924, the respondents made out and fed an
ncome ta return as a trust and t was not unt 1924 that they were notfed
that ther organzaton was an assocaton and sub|ect to a capta stock ta ,
both the Commssoner and the respondents havng unt then consdered the
organzaton to be a trust and not an assocaton.
On une 7, 1924, foowng the decson of the Supreme Court n ccht v.
Maey (2 5 U. S., 144 T. D. 3595, C. . III-, 489 ), of May 12, 1924, the
Secretary of the Treasury approved and promugated the foowng Treasury
decson (3598), whch was frst pubshed une 1 , 1924:
To Coectors of Interna Revenue and Others Concerned:
In order to gve effect to the decson of May 12, 1924, by the Unted States
Supreme Court n the case of eeht v. Maey and n the other cases named
theren (Nos. 99, 100, 101, and 119 October term, 1923), artce 7 of Regu-
atons 50 (revsed edton, approved une 21, 1920) and artce 8 of Reguatons
4 are amended so as to read ns foows:
Trusts. Two dstnct casses of trusts are recognzed by the Department,
namey, hodng trusts and operatng trusts.
odng trusts are those n whch the trustees are merey hodng property
for the coecton of the ncome and dstrbutng t among the benefcares and
are not engaged, ether by themseves or n connecton wth the benefcares,
n the carryng on of any busness. Such trusts are not assocatons wthn
the meanng of the aw and are not sub|ect to the ta .
Operatng trusts are those n whch the trustees are not restrcted to the
mere coecton of funds and payng them over to the benefcares but are
assocated together n much the same manner as drectors n a corporaton for
the purpose of, and are actuay engaged In, carryng on some busness enter-
prse. These trusts, whether of the Massachusetts type or otherwse, are to
be deemed assocatons wthn the meanng of the ct, ndependenty of any
contro e ercsed by the benefcares, and sub|ect to the ta .
D. . ar,
Commssoner of Interna Revenue.
pproved une 7, 1924.
. W. Meon,
Secretary of the Treasury.
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173
704.
On ugust 11, 1924, the Commssoner of Interna Revenue promugated
Income Ta Rung No. 20 1 C. . III-2, , whch reads as foows:
The genera rue n regard to hodng trusts and operatng trusts whch
Is announced n the decson of the Supreme Court of the Unted States n the
case of echt v. Maey and n Treasury Decson 3098 (C. . III-, 489) s
appcabe under a ttes of the Revenue cts of 1918 and 1920.
On uy 9, 1924, the Soctor of Interna Revenue by Soctor s Memorandum
2291 C. . III-2, rued that the decson n e -ht v. Maey, supra, was
appcabe to the ncome ta provsons of the Revenue cts of 1921 and 1924.
Ths rung was frst pubshed ugust 18, 1924.
Reguatons 5 reatng to ncome ta under the ct of 1924 was sgned by
D. . ar, Commssoner of Interna Revenue, and approved and promugated
by . W. Meon, Secretary of the Treasury, on October , 1924. rtce 1504
of sad reguatons reads as foows:
bt. 1504. ssocaton dstngushed from trust. odng trusts, n whch
the trustees are merey hodng property for the coecton of the ncome and
ts dstrbuton among the benefcares, and are not engaged, ether by them-
seves or n connecton wth the benefcares, n the carryng on of any busness,
are not assocatons wthn the meanng of the aw. The trust and the bene-
fcares thereof w be sub|ect to ta as provded n artces 341-347. Oper-
atng trusts, whether or not of the Massachusetts type, n whch the trustees
are not restrcted to the mere coecton of funds and ther payments to the
benefcares, but are assocated together In much the same manner as drectors
n a corporaton for the purpose of carryng on some busness enterprse, are
to be deemed assocatons wthn the meanng of the ct, regardess of the
contro e ercsed by the benefcares.
nd artce 1700 of the same reguatons and promugated at the same tme
reads as foows:
bt. 1700. Promugaton of reguatons. In pursuance of the statute the
foregong reguatons are hereby made and promugated. rungs ncon-
sstent herewth are hereby revoked.
Under date of December 5, 1924, R. M. stes, Deputy Commssoner of
Interna Revenue, sent to the respondents a etter whch reads n part as
foows:
The report of a fed nvestgaton made of your assocaton by Interna
Revenue gent G. . enson, n connecton wth capta stock ta , has been
receved n ths offce. It s noted therefrom that your assocaton does not
agree that t s an assocaton abe for capta stock ta .
The word assocaton s used n the Revenue ct of 1918 n ts ordnary
meanng, and ncudes Massachusetts trusts havng quas corporate organza-
tons under whch they are engaged n carryng on busness enterprses, rre-
spectve of the measure of contro vested and e ercsed by the benefcares, as
benefca certfcate hoders.
In a comparatvey recent decson on ths queston n the case of echt
et Trustees, v. Maey, the Supreme Court of the Unted States stated that
the Rpvenue ct of 1918, evyng a capta stock ta upon corporatons, asso-
catons, |ont stock companes and nsurance companes, e tends to organza-
tons e ercsng the prvege of dong busness as assocatons at the common
aw.
n e amnaton of the decaraton of trust of your assocaton dscoses that
It s strcty a busness enterprse and, as such, t s an assocaton wthn the
meanng of the Revenue ct of 1918, and abe for capta stock ta .
In a etter dated November 5 from Mr. Wam . tchcock, addressed to
oseph . Tmty, Supervsor of ccounts and Coectons, oston, Mass.,
whch has been forwarded to ths offce, t Is contended that your organzaton
s not an assocaton wthn the meanng of any statute n force snce anuary
1, 1920, and that, therefore, t s not requred to make capta stock ta returns
or to pay capta stock ta . ccordngy, request s made for a hearng before
fna acton s taken by ths offce.
In vew of the decson referred to above, there appears to be no queston
reatve to the abty of your organzaton or reason why t shoud not fe
capta stock ta returns. conference under the crcumstances In so far as
the abty of yonr organzaton to the ta s concerned, s not beeved neces-
sary. owever, t s not the desre of ths offce to be arbtrary n the matter.
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704.
174
and f a hearng Is st desred, It w be granted f you w advse the appro -
mate date whch w be agreeabe.
The respondents at once ob|ected to the assessment of capta stock ta es as
proposed n the etter mentoned, and requested a conference. Such a con-
ference was hed wth the representatves of the Capta Stock Ta Dvson
n Washngton on December 17, 1924. t ths conference, the respondents
furnshed certan nformaton requested, but contended that they were not
sub|ect to a capta stock ta .
Under date of anuary 15, 1925, a tabuaton of the computaton of capta
stock abty was sent to the respondents. March 25, 1925, notces were
receved by respondents from the coector of nterna revenue n oston of the
assessment of the ta es sted n the above tabuaton, wth a demand for pay-
ment. These ta es were pad by the respondents on pr 4, 1924, under protest
on the ground that the Peopes Trust was a trust and not an assocaton. On
September 29, 1927, the respondents fed a cam for refund of such ta es.
Ther cam for refund beng re|ected, they brought sut to recover these pay-
ments n the Dstrct Court for Massachusetts. It was there hed that the
rst Peopes Trust was a trust, not an assocaton, and |udgment was entered
for the pantffs (respondents here). On appea to ths court the |udgment
beow was reversed. We hed that the rst Peopes Trust was an assocaton
wthn the meanng of the revenue aws. (Unted States v. ea, 28 ed. (2d),
1022.) Petton for certorar was dened by the Supreme Court. (278 U. S.,
59.)
On ugust 23, 1927, the Commssoner wrote to the Massachusetts coector a
etter, a copy of whch was forwarded to these respondents. It revewed the
status of the Peopes Trust stated that t was an assocaton, not a trust, as
such was ta abe on ts ncome as a corporaton and e pressy revoked the
rung of December 2, 1920. uy 9, 1929, the respondents were notfed of the
determnaton of a defcency n ther ta abty for 1924 of 24,593.19. rom
ths determnaton an appea was taken to the oard of Ta ppeas, whch
hed that there was no defcency on the ground that the rung of the Com-
mssoner n 1920 that the organzaton was a trust was not revoked unt
ugust 23, 1927. Ths s the decson here under revew.
The respondents admt that f they are ta abe as an assocaton or corpora-
ton on ther 1924 ncome, the determnaton of the defcency was correct, but
assert that the rung of the Commssoner of December 2, 1920 that they were
a trust and not an assocaton was not revoked unt ugust 23, 1927, ong
after the tme ther return for 1924 was made. They seek reef from ths
determnaton of a defcency by reason of the provsons of secton 704(a) of
the Revenue ct of 192S (45 Stat., 880), whch reads as foows:
Sec. 704. Ta abty of trusts as corporatons Retroactve.
(a) If a ta payer fed a return as a trust for any ta abe year pror to the
ta abe year 1925 such ta payer sha be ta abe as a trust for such year and
not as a corporaton, f such ta payer was .consdered to be ta abe as a trust
and not as a corporaton ether (1) under the reguatons n force at the tme
the return was made or at the tme of the termnaton of ts e stence, or
(2) under any rung of the Commssoner or any duy authorzed offcer of tho
ureau of Interna Revenue appcabe to any of such years, and nterpretatve
of any provson of the Revenue ct of 1918, 1921, or 1924, whch had not
been reversed or revoked pror to the tme the return was made, .
That there was no etter or notce n terms revokng the rung of December
2, 1920, unt ugust 23, 1927, s admtted. ut ths s not controng. The
Commssoner may revoke a rung affectng a ta payer as to a specfc matter
f he makes a ater rung whch paces the ta payer n a dfferent poston n
reaton to that matter.
Under secton 704(a) as apped to ths case two questons arse: (1) Dd the
rungs or reguatons of the ureau of Interna Revenue promugated n 1924
appy to these respondents and affect the status of ther organzaton n a
dfferent way than the rung of December 2, 1920 and (2) were they so pro-
mugated that the respondents knew or shoud have known of them pror to
March 7, 1925, the tme ther ta return was fed
In the etter of December 2, 1920, the Commssoner rued that n ds-
tngushng a trust from an assocaton for the purpose of ta aton,
the fact of actua contro by the benefcares must n each case govern,
and, fndng that the rst Peopes Trust was not n actua contro of the
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175
704.
benefcares, he consdered t a trust for te purpose of edera ta aton.
In the decson promugated une 7, 1924, pubshed une 1 , 1924, reatng
to ta es on capta stock, and n Reguatons 5, artce 1504, promugated
October , 1924, reatng to ta es on ncome and presumaby based upon
the decson, the dstncton drawn between a trust and an assocaton for the
purposes of ta aton was that an organzaton s a trust f the trustees
are merey hodng property for the coecton of ncome and ts dstrbuton
among the benefcares and are not engaged n the carryng on of
any busness, whe an assocaton s where the trustees are not so restrcted
but are assocated together n much the same manner as drectors n a
corporaton for the purpose of, and are actuay engaged n, carryng on some
busness enterprse, ndependenty of any contro e ercsed by the
benefcares. nd artce 1700 of Treasury Reguatons CO e pcty gave
notce that a rungs nconsstent herewth are hereby revoked. The above
decson and the reguatons are pany nconsstent wth the rung of De-
cember 2, 1920 that the fact of actua contro by the benefcares must n
each case govern and amount to a revocaton of t f the ta payer had notce
of the nconsstent provsons of the decson and reguatons.
These were reguatons of a department of government and, n so far as
they were not n confct wth statutory provsons or the meanng of them as
construed by the courts, had the force and effect of aw. (Maryand Casuaty
Co. v. Unted States, 251 U. S., 342, 349.) The substance of the decson and reg-
uatons was undoubtedy known to the respondents before March 7, 1925.
s stated above, the deputy commssoner, n hs etter of December 5, 1924,
to these respondents, sad that, The word assocaton s used n the Revenue
ct of 1918 n ts ordnary meanng, and ncudes Massachusetts trusts
havng quas corporate organzatons under whch they are engaged n carryng
on busness enterprses, rrespectve of the measure of contro vested and
e ercsed by the benefcares, as benefca certfcate hoders. e then caed
ther attenton to the recent decson of echt v. Maey and further stated:
n e amnaton of the decaraton of trust of your assocaton dscoses that
t s strcty a busness enterprse and, as such, t s an assocaton wthn the
meanng of the Revenue ct of 1918, and abe for capta stock ta . Ths was
foowed on December 17, 1924, by a conference at whch the matter was ds-
cussed. It s unbeevabe that durng ths conference and the ater negota-
tons up to March 7, 1925, ths decson and the new reguatons were not
specfcay brought to ther attenton. It s cear that ther substance was.
They, therefore, must be deemed to have known pror to March 7, 1925, that
the test or rung under whch they had been hed to be a trust had been
revoked that a new test had been estabshed whch, as apped to them, put
them In the category of an assocaton nstead of a trust.
The decson of the oard of Ta ppeas s reversed and the case s
remanded to that oard wth drectons to affrm the determnaton of the
Commssoner n fndng a defcency ta .
Morton, . (concurrng) : I concur n the resut, for the reason that the
deputy commssoner s etter of 5 December, 1924, consttuted n my opnon
an e press revocaton of the rung (n the Commssoner s etter of 2 De-
cember, 1920) reed on by the appeees, respondents on revew. I doubt
whether a specfc rung can be sad to be reversed or revoked under
secton 704(a) (whch Is quoted n the ma|orty opnon) by a change n the
genera practce or vews of the Department, even though such change be known
to the person n whose favor the rung was made.
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201, rt. 1543. 17
INCOM T RULINGS. P RT IIL
R NU CT O 192 ND PRIOR CTS.
TITL II. INCOM T .
P RT I. G N R L PRO ISIONS.
S CTION 201. DISTRI UTIONS Y CORPOR TIONS.
rtce 1541: Dvdends.
R NU CT O 1924.
Custom that no stockhoder shoud receve dvdend check before
the frst busness day of month foowng month n whch dvdend
was payabe. (See Ct. D. 828, page 131.)
rtce 1542: Source of dstrbuton.
R NU CTS O 1018 ND 1021.
Dvdends receved by trustee n 1919, pursuant to court order
termnatng sut brought n 191 to compe dstrbuton. (See Ct.
D. 800, page 353.)
rtce 1543: Dstrbutons out of earnngs or III-7- 50
profts accumuated pror to March 1, 1913. Ct. D. 783
ncome ta revenue act of 1021 decson of supreme court.
Dvdend Profts ccumuated Pror to March 1, 1913 ffect
of Subsequent Losses.
Where a corporaton havng a surpus on March 1, 1913, suffered
osses n 1915 and 191 , and n 1914 and ater years earned profts,
the amount of profts dstrbutabe e empt from ta n 1923, when
a dvdend was pad, s the surpus of March 1, 1913, reduced by
the e cess of the osses ncurred n 1915 and 1910 over the proft
n 1914 wthn the meanng of paragraphs (a) and (b) of secton
201 of the Revenue ct of 1921.
Supreme Court of the Unted States.
No. 158. Guy T. everng, Commssoner of Interna Revenue, pettoner, v.
Chares . Can-fed.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Seventh
Crcut.
No. 212. Wam R. Thorsen, pettoner, v. Guy T. everng, Commssoner
of Interna Revenue.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Nnth Crcut.
anuary 15, 1934.
OPINION.
Mr. Chef ustce uoues devered the opnon of the court.
These cases present the queston of the constructon of the foowng prov-
sons of secton U01 of the Revenue ct of 1921 (42 Stat., 228) :
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5201, rt. 1543.
Sbc. 201. (a) That the term dvdend when used n ths tte
means any dstrbuton made by a corporaton to ts sharehoders or members,
whether In cash or n other property, out of ts earnngs or profts accumuated
snce ebruary 28, 1913, .
(b) or the purposes of ths ct every dstrbuton s made out of earnngs
or profts, and from the most recenty accumuated earnngs or profts, to
the e tent of such earnngs or profts accumuated snce ebruary 28, 1913
but any earnngs or profts accumuated or ncrease n vaue of property accrued
pror to March 1, 1913, may be dstrbuted e empt from the ta , after the
earnngs and profts accumuated snce ebruary 28, 1913, have been ds-
trbuted.
The respondent n No. 158 and the pettoner n No. 212 are stockhoders of
the West Sde Lumber Co., a Caforna corporaton. The queston Is as to
the amount propery ta abe aganst them as ther respectve shares of a
dvdend of 5,100,000 pad by that company on pr 14, 1923.
The fndngs of fact state that n addton to ts orgna capta of
1,500,000, the company had a surpus on March 1, 1913, of 4,332, 84.78. Its
profts and osses n the foowng years endng on ebruary 23 n each year
were as foows: 1914, a proft of 4,594. 2 1915, a oss of 193,139. 7 191 ,
a oss of 211,707.32 1917 to 1923, ncusve, and from ebruary 28, 1923, to
pr 14, 1923, profts aggregatng 2,450, 88.30. Pror to the dvdend here
Invoved, and for the years 1918 to 1923, the company had pad dvdends
amountng to 1,290,000.
The queston s as to the proper treatment of the osses of 1915 and 191 .
If these osses, over the profts of 1914, are not treated as reducng the surpus
of March 1, 1913, but are charged aganst the subsequent profts, the entre
amount of that surpus, or 4,332, 84.78 was dstrbutabe e empt from the tu
after the profts subsequent to ebruary 28, 1913. had been dstrbuted. On ths
bass, for whch the ta payers contend, the profts accumuated after ebruary
28, 1913, woud be deemed to amount to 2,050,435.93, eavng sub|ect to the
ta , after deductng pror dvdends, the sum of 7 0,435.93.
If the osses of 1915 and 191 , over the profts of 1914, are treated as reduc-
ng the surpus of March 1, 1913, there remaned of that surpus, on ebruary
28, 191 , the sum of 3,932 432.41, whch was dstrbutabe e empt from the
ta after the subsequent profts had been dstrbuted. Wth ths appcaton
of the osses of 1915 and 191 , the subsequent profts sub|ect to ta , after
deductng pror dvdends, amounted to 1,1 0, 88.30.
The oard of Ta ppeas adopted the atter vew and drected the determ-
naton of defcences accordngy. (24 . T. ., 480.) That decson was
overrued by the Crcut Court of ppeas for the Seventh Crcut as to the
res ondent Canfed n No. 158 ( 2 . (2d), 751), and was sustaned by the
Crcut Court of ppeas for the Nnth Crcut as to the pettoner Thorsen
In No. 212 ( 5 . (2d). 234). The cases come here on certorar.
In decdng between these confctng vews, the outstandng, and we thnk
the controng, fact s that on ebruary 28, 191 , the surpus of March 1, 1913,
had actuay been dmnshed by osses. The company contnued n busness
after March 1, 1913, and e posed ts accumuated profts to the hazard of that
busness. On ebruary 28, 1914, the company st had those profts and an
addtona proft of 4,594. 2. ut n the ne t two years the company ost
404,84 .99, so that the surpus of March 1, 1913, was nvaded. It s n-
accurate to say that ths was merey a matter of bookkeepng. Under the
fndngs of fact the osses must be deemed to have been actua osses, not mere
bookkeepng entres. ence, the decrease of the pree stng surpus was ac-
tua as rea as the pree stng surpus tsef, as rea as the subsequent profts.
The surpus of March 1, 1913, was the amount of net assets over abtes
Incudng capta stock.1 When the osses of 1915 and 191 were suffered,
the net assets of March 1, 1913. shrunk accordngy.
In the presence of that nescapabe fact, the queston s not whether the
company coud dstrbute, as beng surpus of March 1, 1913, what no onger
remaned of that surpus a manfest mpossbty but whether the stn
entted the company to treat subsequent profts as restorng what had been
ost of the surpus of March 1, 1913, so that, to the e tent of that repacement,
the subsequent profts coud be dstrbuted to stockhoders free of ta . That
the queston s one of such a repacement woud be strkngy evdent f the
dwards v. Dougas (2 9 U. S., 204. 214 T. D. 8797, C. . -, 1581) Wcuts v.
Mton Dary Co. (275 D. S., 215, 218 T. D. 4148 C. . II-1, 283 ).
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5201, rt. 1543.
178
whoe of the surpus of March 1, 1913, had been ost and an attempt had been
made to treat ater profts as restorng t The fact that ony a part of the
surpus was ost does not ater the queston as reated to that part.
The argument that the surpus of March 1, 1913, consttuted capta a
unavang. We are not here concerned wth capta n the sense of f ed or
pad-n capta, whch s not to be mpared, or wth the restoraton of such
capta where there has been mparment. No case of mparment of capta
s presented. We are deang wth a dstrbuton of accumuated profts. Nor
s t mportant that the accumuated profts as they stood on March 1, 1913,
consttuted capta of the company as dstngushed from the gans or ncome
whch the company subsequenty reazed. When a corporaton contnued
n busness after March 1, 1913, the dvdends t ater decared and pad to ts
stockhoders, whether out of current earnngs or from profts accumuated
pror to that date, consttuted ncome to the stockhoders, and not capta, and
were ta abe as ncome f the Congress saw ft to mpose the ta . (Lynch v.
ornby, 247 U. S., 339 T. D. 2731 .) The provson of the ct of Congress
under consderaton was a concesson to the equty of stockhoders wth
respect to recepts as to whch they had no consttutona mmunty. There
s no queston here of the recept of capta.
The fundamenta contenton of the ta payers s that the statute created
two dstnct perods for ta purposes that the accumuatons for each perod
consttuted a f ed and statc amount, not to be changed by happenngs after
the end of the perod. That the statute does reate to two perods, the dvd-
ng ne beng March 1, 1913, and that the perods are dstnct, s obvous. ut
t does not foow because there are two dstnct perods that the accumua-
tons for each perod consttute a f ed and statc amount and are to reman
unaffected despte the vcsstudes of busness. To attrbute to the accumu-
ated profts or surpus of March 1, 1913, embarked n a contnued busness,
such a statc condton s to gnore the course of busness and to mpute to the
Congress an ntenton to consder, for ta purposes, the e stence of that sur-
pus as st contnued notwthstandng ts actua dmnuton or e hauston.
Such an ntenton to dsregard reates so as to afford mmunty from a ta
s not ghty to be ascrbed to the ta ng authorty. The equty of stock-
hoders, whch we sad n Lynch v. ornby, supra, the Congress probaby had
n vew, mght reasonaby requre freedom from ta aton on recevng a ds-
trbuton of the accumuated profts of March 1, 1913, where those profts
remaned ntact, but that equty s not apparent when those profts had been
ost n whoe or n part and mmunty s sought from the ta aton of an
equvaent amount of profts subsequenty earned.
Paragraphs (a) and (b) of secton 201 dscose a snge purpose and are to
be construed n harmony wth each other. They show that the Congress was
carefu to arrange ts pan so that the rght to receve, free of ta , a dstrbu-
ton of surpus accumuated pror to March 1, 1913, shoud not be e ercsed
n such a fashon as to permt profts accumuated after that date to escape
ta aton. To that end the Congress provded that every dstrbuton s made
out of earnngs or profts, and from the most recenty accumuated earnngs
or profts, to the e tent of such earnngs or profts accumuated snce ebruary
28, 1913. Then foows the e empton whch s strcty mted to a dstrbu-
ton of profts accumuated pror to March 1, 1913. Nothng Is sad as to a
restoraton of those profts out of subsequent earnngs f the former have been
ost
The argument for the stockhoders stresses the word accumuated. We
thnk that the e presson s made to carry too heavy a burden. The argument
s substantay the same as that whch s based on what seems to us to be an
artfca concepton of the two perods. What had been accumuated pror
to March 1, 1913, was obvousy not mmune from the rsk of oss. It s urged
that the same rue shoud be apped whether the osses n the subsequent years
preceded or succeeded the makng of profts. ut the actua course of events s
not to be gnored. If there had been profts Immedatey after March 1, 1913,
suffcent n amount to absorb ater osses ncurred before the tme of dstrbu-
ton, t s manfest that the profts accumuated pror to March 1, 1913, woud
have remaned ntact. The case Is dfferent where, n the absence of such
Compare addcn v. Commssoner (49 . (2d), 709).
Southern Pacfc Co. v. Lowe (247 U. 8., 330) Guf O Corporaton v. Le ceUyn
(248 D. 8., 71) Lucat v. e ander (279 U. S., 573 Ct. D. 7 . C. . III-2. 2731) Od
Coony Raroad Co. v. Commssoner (284 U. S., 552 Ct. D. 450, C. . I-1, 274 ).
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179
5201, rt. 1544.
profts, osses necessary dmnsh the pror accumuatons. Thus, n the
Instant case there were no profts accumuated after March 1, 1913, and pror to
ebruary 28, 191 , e cept the sma amount n 1914 whch was wped out by
the osses of the two succeedng years. The profts from ebruary 28, 191 , to
ebruary 28, 1919, amounted to 327,134.45. If there had been a dstrbuton of
these profts on ebruary 28, 1919, t coud not have been mantaned that they
consttuted part of the surpus e stng on March 1, 1913, or that they shoud
escape ta aton on the theory that they made good pror osses whch had
actuay reduced that surpus. nd the same s true of the profts subsequenty
made. dmnstratve practce appears to have been n accord wth ths vew.
(See . R. M. 82, C. . 3, 3 (1920).)
Our concuson s that the |udgment of the Crcut Court of ppeas for the
Seventh Crcut In No. 158 shoud be reversed and that of the Crcut Court of
ppeas for the Nnth Crcut In No. 212 shoud be affrmed.
It s so ordered.
ktce 1544: Dstrbutons other than those III-10- 87
out of earnngs or profts. Ct. D. 795
INCOM T R NU CT O 192 D CISION OP CODRT.
1. Gan ob Loss ass Sae or Preferred Stock Dstrbuton
or Dvdends out or Capta.
Where the owner of common and preferred stock of a corpora-
ton In 192 bought addtona preferred shares, from whch he reg-
uary receved dvdends pad out of capta, the gan derved upon
sae of the addtona preferred shares to the corporaton n 1927 s
propery determned by reducng the bass of the cost of the pre-
ferred stock by the amount of dvdends receved, n accordance
wth secton 201(d) of the Revenue ct of 192 and artce 1544 of
Reguatons 9.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (27 . T. ., 39) affrmed.
Unted States Crcut Court of ppeas fob the Second Crcut.
De er C. Warner, pettoner, v. Commssoner of Interna Revenue, respondent.
efore L. and, . N. and, and Chase, Crcut udges.
Petton to revew a decson of the oard of Ta ppeas. ffrmed.
uy 25, 1933.
OPINION.
Chase, Crcut udge: The pettoner, a resdent of rdgeport, Conn., s
the owner of both preferred and common stock n the Warner ros. Co., a
corporaton havng ts prncpa pace of busness at rdgeport. It s a cor-
poraton whose common stock s cosey hed wthn the Warner famy. Its
preferred stockhoders ncude empoyees of the corporaton and others not
members of the Warner famy. In 192 , t was decded to change ts capta
Structure. The detas of ths change are unmportant. Part of the resut was
a so-caed surpus set up on the books by repacng the od common stock,
whch was of the par vaue of 100 a share, wth twce the number of shares
of common stock havng no par vaue and carryng the new stock n the
capta account at 35 per share. The pettoner and others, on March 31,
192 , subscrbed for addtona preferred shares at 100 par. The pettoner
took and pad for 500 such shares. The corporaton had no net earnngs and
pad no dvdends on ts common stock after ebruary 8, 19 - 3, but dd pay
reguary out of capta the dvdends on ts preferred stock. Ths was done
wth the consent and approva of a the common stockhoders for persona
and busness reasons whch are not of moment now. It s cear that the com-
mon stockhoders ntended to depete ony the assets avaabe, upon qudaton.
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8201, rt. 1544.
180
to common stockhoders and that at a tmes the corporaton had assets more
than suffcent to qudate a ts preferred stock at par after a debts were pad.
On October 1, 1927, after he had receved a the dvdends reguary decared
and pad on the shares snce he subscrbed for them n 192 , the pettoner sod
and devered the 500 preferred shares to the corporaton and receved from It
n payment the fu par vaue. In determnng whether the pettoner derved
a proft n 1927 n the sae of the stock to the corporaton, the respondent
reduced the bass of the cost of the stock by the amount of the dvdends the
pettoner had receved. The soe queston here presented s whether ths was
awf u.
The appcabe statute s secton 201(d) of the Revenue ct of 192 . It
provdes that:
If any dstrbuton (not n parta or compete qudaton) made by a cor-
poraton to ts sharehoders s not out of ncrease n vaue of property accrued
before March 1, 1913, and Is not out of earnngs or profts, then the amount of
dstrbuton sha be apped aganst and reduce the bass of the stock provded
n secton 204, and f n e cess of such bass, such e cess sha be ta abe n
the same manner as a gan from the sae or e change of property .
Treasury Reguatons 9, artce 1544, construed ths statute to mean that
any such dstrbuton shoud be apped aganst and reduce the cost or other
bass of the stock upon whch the dstrbuton was made n determnng
gnn or oss on a subsequent sae of the stock.
The pettoner argues that ths reguaton n attemptng to appy the ad|ust-
ment to the partcuar stock on whch dvdends were decared and pad goes
beyond the statute and Is vod that the statute tsef does not specfcay
cover the stuaton of a corporaton whch has more than one cass of stock
and whch makes such a dstrbuton as ths corporaton made and that, as
specfc warrant can not be found n the aw for the acton of the Commssoner,
there shoud be a reversa.
We accept the facts, of course, as they appear. That means that none of the
dvdends n queston when pad affected ether the abty or the abty of
the corporaton to pay to the preferred stockhoders, upon qudaton, the par
vaue of ther stock. It s equay true that the dvdends were pad nether
out of ncrease n vaue of property accrued before March 1, 1913, nor out of
earnngs or profts. t east there s no such proof and the pettoner does not
cam that they were. In tryng to make the test of the correctness of the Com-
mssoner s acton whether or not the payment of the dvdends decreased the
assets of the corporaton, carred on ts books prmary for the beneft of
preferred stockhoders, to the e tent that a qudatng dvdend woud not
have pad preferred stockhoders the fu par vaue of ther shares, and reach-
ng the concuson that because the assets were not so mpared the statute s
nappcabe, the pettoner s confronted wth the fact that such a test nether
fas wthn the anguage of the aw nor wthn any permtted constructon
of t. It s certany not to be presumed that Congress meant to egsate ony
n respect to corporatons havng but one cass of stock and dscrmnate
between such corporatons and the arge number whch, to common knowedge,
have more than one cass. When the statute ceary states that the dstrbuton
sha be apped aganst and reduce the bass of the stock can there be any
serous queston but that the stock meant s the stock on whch the dstrbuton
s made It seems to us that there s no other reasonabe meanng. The
reguaton contaned the words upon whch decared but recognzed the
pan mport of the statute and s accordngy vad. If more were needed to
estabsh ts vadty, reference mght be had to the fact that Congress reenacted
the statute whe the reguatons n ths respect were substantay the same.
(See Reguatons 05, artce 1544, under the Revenue ct of 1924. so Regua-
tons 74, artce G24, under the ct of 1928, and Reguatons 77, artce 24, under
the ct of 1932. Compare Shearman v. Commssoner, ed (2d), 25 (decded
uy 5) McCaughn v. crsey Chocoate Co., 283 U. S., 488, 492-493 Ct. D.
345, C. . -, 444 Unted States v. rby Lumber Co., 284 U. S., 1 Ct. D.
420, C. . -2, 35 .)
The vadty of the statute s unquestoned and, as the acton of the Com-
mssoner was n accordance wth a vad reguaton, the decson of the oard
of Ta ppeas was rght.
ffrmed.
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181
15201, rt. 1545.
rtce 1545: Dstrbutons n qudaton. III-8- 3
Ct. D. 788
INCOM T R NU CT O 1M8 D CISION O COURT.
1. Gan or Loss Lqudatng Dvdend Pakbnt and Subsdary.
Where a subsdary bankng corporaton on une 24 and Decem-
ber 23, 1920, decared semannua dvdends payabe uy 1 and
December 31, respectvey, on December 30 decared an addtona
dvdend equa to ts entre surpus, and on the ne t day voted
that t be paced n vountary qudaton, the parent corporaton
at the same tme authorzng the purchase of the assets and
assumpton of the abtes of ts subsdary, the addtona dv-
dend s propery consdered an amount dstrbuted n qudaton
wthn the meanng of secton 201(c) of the Revenue ct of 1918,
and s requred thereby to be treated as pad In e change for the
shares of stock.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (22 . T. ., 541) affrmed.
3. Certorar Dened.
Petton for certorar dened October 9, 1933.
Unted States Crcut Court of ppeas fob the fth Crcut.
Cana-Commerca Trust f Savngs ank, pettoner, v. Commssoner of Interna
Revenue, respondent.
Petton for revew of decson of the Unted States oard of Ta ppeas (Dstrct of
Lousana).
efore ryan, oster, and Sbey, Crcut udges.
ebruary 21, 1933.
opnon.
Sbey, Crcut udge: In ths revew of a redetermnaton by the oard of
Ta ppeas of a defcency for the year 1920 n ncome ta es, the controng
queston s whether 1,000,000 pad by Cana-Commerca Natona ank to
Cana-Commerca Trust Savngs ank ostensby as a dvdend was an ord-
nary dvdend or an amount pad n qudaton under Revenue ct of 1918,
secton 201.
The facts are that the atter company, to be caed the Trust ank, hed from
1914 unt December 31, 1920, 95 per cent or more of the stock of the former, to be
caed the Natona ank, and on December 31, 1920, bought the remanng stock
from ts drectors and stockhoders who had owned t. The whoe nvestment
In the stock was 1,293,900. There were nterockng drectorates. Consodated
ta returns were made for a years through 1920. On une 24, 1920, the drec-
tors of the Natona ank decared a dvdend of 5 per cent payabe uy 1, and
pad out of undvded profts. On September 9 they passed 250,000 from un-
dvded profts to surpus, makng the surpus 1,000,000. On December 23 they
decared a dvdend of 10 per cent payabe December 31, and pad out of un-
dvded profts. On December 21 the drectors of the Trust ank had approved
a proposton to qudate the Natona ank and take over ts assets and
assume ts abtes, and authorzed ts trustee hodng ts stock n the Natona
ank to wave ega deays and vote n a sharehoders meetng for the quda-
ton on such terms as he thought proper. On December 30 the drectors of the
Trust ank authorzed a purchase from the Natona ank of a the atter s
assets for 18,4 1.09, and an assumpton of ts abtes. t the same pace
and hour, wth the same secretary and beng argey the same persons, the
drectors of the Natona ank met and decared a dvdend of 200 per share,
. e., 1,000,000, payabe that day. Checks therefor were drawn at once n favor
of the Trust ank, and the ne t day were pad through the cearng house and
charged 900,000 to surpus and 100,000 to undvded profts, eavng surpus
100,000 and undvded profts 18,4 1. 9. On the mornng of December 31 the
drectors of the Natona ank voted that t was ther sense that the bank be
paced n vountary qudaton under sectons 5220 and 5221 of Unted States
Revsed Statutes, and authorzed the qudatng agent named by them to trans-
fer, set over and dever to the Trust ank a the Natona ank s assets for
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201, rt. 1545.
182
18,4 1. 9 and the assumpton of ts abtes. arous other detas of the
qudaton were voted and the board ad|ourned sne de. The stockhoders
met that afternoon, unanmousy wavng notce, and through a snge pro y
unanmousy voted qudaton and authorzed the transfer of assets to tho
Trust ank. The qudatng agent e ecuted a transfer, and was gven a check
for 18,4 1. 9, and approprate book entres were made. On the same day,
December 31, the qudatng agent gave hs check for 18,4 1. 9 to the Trust
ank, whch surrendered to hm the certfcates for a the capta stock of the
Natona ank.
The transacton on ts face was a sae of the stock whch had cost the Tru3t
ank 1,293,000 for 18,4 1. 9. If the swapped checks be dsregarded, the
stock was e changed for the assets remanng after the payment of the 1,000,000
cash dvdend decared the day before, but snce there s no proof to the con-
trary these assets must be assumed worth the vaue at whch they were taken.
The apparent dfference between cost and sae prce of the stock s camed as
a deductbe oss. ut f the 1,000,000 coected n cash the same day s to be
consdered the oss s converted nto a arge gan. That sum, though decared
as a dvdend from surpus and profts, we thnk was rghty hed by the ourd
to be an amount dstrbuted n the qudaton of the corporaton wthn the
meanng of evenue ct of 1918, secton 201(c), and Is requred thereby to be
treated as pad n e change for the shares of stock. Treasury Reguatons 45,
artces 1541 and 1548, n force n 1920 defne the dvdends whch are not sub-
|ect to norma ta as those pad n the ordnary course of busness though,
e traordnary In amount, and defne a dstrbuton n qudaton as a return
to the stockhoder for a surrender of hs stock as dstngushed from a dv-
dend pad by a gong corporaton out of current earnngs or accumuated surpus
when decared by drectors n ther dscreton, whch s In the nature of a re-
current return upon the stock. These reguatons were sustaned In emch
v. eman (27 U. S., 233 T. D. 4217, C. . II-2, 238 ), and ther meanng
thus summarzed: The Treasury reguatons correcty Interpreted the ct
as makng secton 201(a) appcabe to a dstrbuton made by a gong corpora-
ton to ts stockhoders n the ordnary course of busness, and secton 201(c)
appcabe to a dstrbuton made to stockhoders n qudaton of the corpora-
ton. The determnng eement therefore s whether the dstrbuton was n
the ordnary course of busness and wth ntent to mantan the corporaton
as a gong concern, or after decdng to qut wth ntent to qudate the bus-
ness. Proceedngs actuay begun to dssove the corporaton or forma acton
taken to qudate t are but evdentary and not ndspensabe. (Toote v. Com-
mssoner, 58 ed. (2d), 57 Ct. D. 574, C. . I-2, 170 .) The fact that the
dstrbuton s whoy from surpus and not from capta, and therefore awfu
as a dvdend s ony evdence. In emch v. eUman and Toote v. Comms-
soner, supra, the dstrbuton was whoy from profts yet hed to be one In
qudaton. In the present case a reguar semannua dvdend of 5 per cent
was decared n une, and one of 10 per cent n December, both from undvded
profts. The surpus had been rased to 1,000,000 on September 9. It s not
key that the drectors of a bank woud pay out an addtona dvdend of:
200 per cent and equa to ts entre surpus f It was Intended to contnue
busness. In fact at the very hour and pace the dvdend was decared the
owner of 95 per cent of the stock, havng prevousy nstructed Its stock to be
voted for a qudaton and waved ega deay n cang tho stockhoders meet-
ng, was authorzng the purchase of the entre assets and the assumpton of
the debts of the Natona ank, whch woud not ony put t out of busness but
woud automatcay qudate t. That the entre program was punctuay and
unanmousy carred out the foowng day eaves no doubt that t had been
determned fuy n advance, and that the 1,000,000 authorzed to be turned
over on December 30 was but a step n the fna qudaton accompshed on
December 31. The 250 shares of stock not owned by the Trust ank coud not
be an obstace, because t was but 5 per cent of the stock whe per cent
coud vote the qudaton and that checks for the entre 1,000,000 were on
December 30 gven to the Trust ank wth nothng to ths outstandng stock
proves that ts purchase had aready been arranged for. There s no escape
from the concuson that the amount was pad In qudaton. The possbe
hardshp of a doube norma ta on such part of the surpus as was earned by
the Natona ank snce the Trust ank bought ts stock was consdered un-
avodabe In Iemch v. eman. We concude that a proft and not a oss was
reazed on the dsposton of ths stock n 1920. The petton for revew s
dened, and the decson of the oard of Ta ppeas s affrmed.
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183 204, rt. 1591
S CTION 202. D T RMIN TION O MOUNT O
G IN OR LOSS.
rtce 15 1: Determnaton of the amount of gan or oss.
R NU CT OP 1920.
ar market vaue of purchase money mortgage. (See Ct. D. 817,
page 210.)
S CTION 203. R COGNITION O G IN OR LOSS
ROM S L S ND C NG S.
rtce 1577: Defntons.
R NU CT O 102 .
Contract of sae of ts physca propertes for cash consummated
by devery of a outstandng stock of corporaton whch then makes
conveyance and s dssoved. (See Ct. D. 7 7, beow.)
rtce 1579: Invountary converson of III-4- 1
property. I. T. 275
( so Secton 204, rtce 1591.)
R NU CT O 1921.
I. T. 1787 (C. . II-2, 78), reatve to the determnaton of gan
or oss resutng from the condemnaton of a porton of a ta payer s
property for street-wdenng purposes, s revoked, n vew of Genera
Counse s Memorandum 12 57 (see on page 80).
rtce 1579: Invountary converson of property.
R NU CT O 192 ND PRIOR R NU CTS.
Land sod under condemnaton proceedngs wth no separate aow-
ance for severance damages to remanng and. (See G. C. M. 12 57,
page 80.)
S CTION 204. SIS OR D T RMINING G IN OR
LOSS, D PL TION, ND D PR CI TION.
rtce 1591: ass for determnng gan or III-1- 58
oss from sae. Ct. D. 7 7
( so Secton 203, rtce 1577.)
ncome ta revenue act of 192 decson of court.
Deducton Depeton ass Sae ob Reorganzaton.
Where the ta payer on March 8, 192 , contracted wth another
company and Its stockhoders to buy the company s o-producng
propertes for cash, the contract provdng that the devery
of sad physca propertes shoud be made as of March 3, and
where the outstandng stock of the company was devered to the
ta payer, and, subsequent thereto, the sad propertes of the com-
pany were conveyed to the ta payer and the company dssoved,
the transacton consttuted a sae rather than a reorganzaton
and the ta payer s entted to compute depeton upon the bass
of the cost to t of acqurng the propertes as provded n secton
204 (a) and (c) of the Revenue ct of 192 rather than upon the
bass of the orgna cost to the transferor.
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204, rt. 1591.
184
Unted States Crcut Court of ppeas, Tenth Crcut.
The Prare O d Gas Co. (name changed to The Commonweath O Oas Co.),
appeant, v. Motter, Coector of Interna Revenue, appeee.
ppea from the Dstrct Court of the Unted States for the Dstrct of ansas.
uy 13, 1933.
OPINION.
McDekmott, Crcut udge, devered the opnon of the court
Some tme pror to 192 the Oean Petroeum Co. acqured producng o
propertes at a cost of about 300,000. In 192 the Prare O Gas Co.
acqured these propertes for a cash outay of 3,350,000. The queston n ths
case s whether depeton of such propertes shoud be cacuated on ther cost to
the Prare of 3,350,000, or ther orgna cost to the Oean of 300,000. The
facts are not n dspute.
On March 8, 192 , a contract was entered nto between the Prare as buyer
and the Oean and ts stockhoders as seers whch rectes that ts purpose a
to transfer the eases owned by the Oean whch were producng or n the
process of deveopment, together wth appurtenant equpment, for the sum of
3,350,000 cash. The contract provded that the devery of sad physca
propertes shoud be made as of March 3, fve days before the contract was
sgned. ternatve methods of effectng the transfer of such physca proper-
tes were provded for one by the transfer of the propertes themseves, the
other by a transfer of the corporate stock wthn 25 days. In ether event, the
Oean, or ts stockhoders, retaned the ntangbe assets of the Oean, amountng
to over 700,000 n cash and accounts the Prare acqured ony the descrbed
physca property for the prce agreed upon.
The Prare went nto possesson and pad the 3,350,000 to Larkn nn
ugey, the authorzed agents of the Oean and Its stockhoders. or reasons
not dscosed by the record, the seers avaed themseves of the rght t
accompsh the purpose of the contract the sae of the eases by strppng the
corporaton of a Its assets e cept the eases and transferrng ts outstandng
shares to the Prare on pr 1 on pr 2 the Oean company conveyed suc
eases and equpment to the Prare and was on that day dssoved.
The rght to an aowance for depeton s a matter of grace on the part of
the ta ng power, and one camng t must estabsh Its rght thereto. (Darby-
Lyndc v. e ander (C. C. . 10), 51 . (2d), 32 Ct. D. 395, C. . -2, 224 .)
Secton 204(c), Revenue ct of 192 , provdes that the bass for the depeton
aowance sha be the same as s provded n subdvson (a) for the purpose
of determnng gan or oss upon the sae of property. Turnng to subdvson
204(a) we fnd that bass to be the cost of such property, whch n the case
at bar s concededy 3,350,000. Uness the case s brought wthn one of the
e ceptons noted n 204(a), then, the Prare s ceary entted to compute
ts depeton on the amount actuay e pended by t n acqurng the propertes.
The coector mantans that the case fas wthn 204(a)7, whch e cepts
from the cost bass propertes acqured by a corporaton n connecton wth
a reorganzaton. Counse for the coector contends that Congress can ascrbe
any defnton to any word, and that such defnton becomes the meanng of
that word for the purposes of that ct and that, however ncongruous t may
appear on ts face, Congress has so defned reorganzaton as to ncude ths
transacton. e refers to secton 203(h) 1 whch defnes reorganzaton as
foows:
The term reorganzaton means ( ) a merger or consodaton (ncudng
the acquston by one corporaton of at east a ma|orty of the votng stock
nnd at east a ma|orty of the tota number of shares of a other casses of
stock of another corporaton, or substantay a the propertes of another
corporaton), or ( ) a transfer by a corporaton of a or a part of ts assets
to another corporaton f mmedatey after the transfer the transferor or Its
stockhoders or both are n contro of the corporaton to whch the assets are
transferred.
The argument s that a reorganzaton resuts from any transacton by
whch one corporaton acqures substantay a the stock or propertes of
another, even for cash. If the words n parentheses may be separated from
the prncpa words merger or consodaton whch precede them, the con-
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185
204, rt. 1591.
euson foows, for the Prare dd acqure substantay a of the propertes
of the Oean as we as ts stock. The cost to the Government of such a
tera nterpretaton woud be staggerng, for the statute contempates that
nether gan nor oss sha be recognzed n a transfer of propertes to effect a
reorganzaton and If reorganzaton ncudes saes for cash, the ta on corpo-
rate capta gans woud be easy avoded.
Whe the words n parentheses must be consdered, the words outsde may
not be dsregarded. Whe the parenthetca words must be construed as spec-
fyng certan transactons whch shoud be hed to be wthn the genera mean-
ng of merger or consodaton, they can not be construed to so e tend the
ordnary meanng of merger and consodaton ns to ncude outrght purchases
of property for cash. Readng a the sectons e emptng from ta transfers
made to accompsh reorganzatons, the congressona ntent Is pan. Where
a merger or consodaton takes pace, and the stockhoders retan ther nter-
est n the corporate propertes, there s no reazed gan there s but a subst-
tuton of ther certfcates of partcpaton. Such transfers were e empted
from ta so that such reorganzatons shoud not needessy be mpeded. The
congressona ntent appears from the report of the nance Commttee to the
Senate, whch reads n part:
Congress has heretofore adopted a pocy of e emptng from ta the gan
from e changes made n connecton wth a reorganzaton, n order that ord-
nary busness transactons w not be prevented on account of the provsons
of the ta aw. If t s necessary for ths reason to e empt from ta the gan
reazed by the stockhoders, t s even more necessary to e empt from ta the
gan reazed by the corporaton.
That the stntutory defnton of reorganzaton can not be stretched to
e empt from ta aton gans resutng from a sae of propertes for cash. Is
setted by the decson of the Supreme Court of the Unted States n Pneas
Ice Co. v. Commssoner (287 U. S., 4G2 Ct. D. 30, C. . II-1, 1 1 ), wheren
the court sad:
ut the mere purchase for money of the assets of one company by another,
Is beyond the evdent purpose of the provson, and has no rea sembance to a
merger or consodaton. Certany, we thnk that to be wthn the e empton
the seer must acqure an Interest n the affars of the purchasng company
more defnte than that ncdent to ownershp of ts short term purchase money
notes. Ths genera vew s adopted and we sustaned In Cortand Specaty
Co. y. Commssoner of Interna Revenue ( 0 . (2d), 937, 939, 940). It har-
monzes wth the underyng purpose of the provsons n respect of e emptons
and gves some effect to a the words empoyed.
In Cortand Specaty Co. v. Commssoner (C. C. . 2) ( 0 . (2d), 937),
cted wth approva n the above quotaton, the ta payer made the same con-
tenton as s made here by the coector the Commssoner there took the pos-
ton here taken by the ta payer. The Second Crcut Court of ppeas hed
that the term reorganzaton coud not have ncuded mere purchases by
one company of the assets of another. It hed that mergers and consodatons
contempate that the nterests of the stockhoders are retaned n the survvng
or newy created company, and sad that a sae of the assets of one corpora-
ton to another for cash wthout the retenton of any nterest by the seer n the
purchaser s qute outsde the ob|ects of merger and consodaton statutes.
Certorar was dened (288 U. S., 599). See Defnton of Reorganzaton,
omer endrcks (45 arv. Law Rev., 48).
These authortes eave no doubt that a purchase for cash of a the propertes
of one corporaton by another can not be consdered as a reorganzaton, merger
or consodaton of the two companes.
To avod ths concuson the coector then undertakes to separate the com-
ponent parts of ths snge transacton. e gnores the fact that the contract
decares the purpose of the transacton to be the acquston of the eases that
possesson of the eases was devered as of a date pror to the contract that
the Oean had 700,000 of other assets not barganed for or acqured that the
stock was devered under an optona arrangement to accompsh the transfer
of the eases and that the charter was surrendered the day after the stock
was devered. s poston s that the court shoud cose Its eyes to the events
pror to pr 1, and consder ony the fact that the Prare owned a the Oean
stock on that day that t then transferred to the Prare a ts propertes n
77GG2 34 7
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204, rt. 1591.
18
consderaton of a canceaton of ts stock. If a ta payer sought to avod a
ta on the profts of such a sae as ths by askng the Commssoner to Ignore
the actuates, he woud shorty and propery be remnded that ta aton Is an
Intensey practca matter and that the substance of the thng done, and not
the form t took, must govern. smar effort to treat two steps n a snge
transacton as two separate transactons was re|ected by ths court n Tusa
Trbune Co. v. Commssoner (58 . (2d), 937, 940), wheren we sad:
s t seems to us, the attempt to break ths transacton up nto two eements
by sayng that ones bought the property and then transferred t to the corpora-
ton n e change for ts capta stock s not ony unfar, but untrue.
In Carter Pubcatons v. Commssoner (28 . T. ., 100) (decded May 23,
1933), the sae of propertes was accompshed by the two steps of a transfer
of stock foowed by a dssouton. The oard of Ta ppeas hed:
In the crcumstances heren some of pettoner s stockhoders took ega
tte to the stock of the ort Worth Record Co., but ony for the purposes of
carryng out the agreement wth earst. The whoe seres of acts,
corporate and otherwse, consttuted ony a snge transacton In whch the
pettoner purchased certan tangbe assets for cash.
ut even f the transacton of pr 1 be separated from ts orgn, and
the case turn on the events of that day, the coector s st forced to a
straned constructon of the statutes to arrve at the concuson that the
qudaton of the Oean company s a reorganzaton of that company
wthn the meanng of the e empton. That pont need not be pursued n vew
of our dsposton to treat the transacton as an entre one.
Snce the decson n the court beow the oard of Ta ppeas has been
presented wth the precse queston here nvoved. In Warner Co. v. Com-
mssoner (20 . T. ., 1225), the buyer, n uy, acqured a of the stock
of a corporaton for cash and preferred stock of the buyer. In the fa of
that year the preferred stock was repurchased, and n December the buyer
dssoved the subsdary and took tte to the propertes. It was hed that
the bass for depeton was the prce pad for the stock. The oard sad:
It appears from the contract under whch the ta payer acqured the stock
that the prmary purpose of the transacton was to nsure to the ta payer
an adequate suppy of sand and grave. Obvousy, the most drect method of
accompshng ths end woud be to purchase sand and grave deposts. Pre-
sumaby ths drect method was not feasbe and so t adopted the pan set
forth at the outset of ths opnon. That pan, as carred out, was n substance
and effect a purchase of stock for cash, foowed by a canceaton of the stock
and qudaton and dssouton of the companes ownng the propertes that
the ta payer wanted. Ths, n our opnon, was not a reorganzaton
wthn the purvew of the statute, but rather s anaogous to the stuatons
present n the Pneas Ice and Cortand Specaty Co. cases, supra, whch were
hed to be saes rather than nonta abe reorganzatons. We concude
that the transactons n 1924 whereby the ta payer acqured the assets of the
Penn and Manor companes dd not consttute a reorganzaton, but that the
qudaton of the companes foowng the acquston of ther stock was a
transacton on whch gan or oss s recognzed by the statute, and the ta payer
s entted to use cost of the assets to t as a bass for deprecaton and
depeton.
We arrve at the same resut f we take a ong vew of the case. The cear
ntent of the statute s to aow depeton based on actua cost to the ta payer.
The purpose of the reorganzaton e cepton s to prevent that base from
beng ncreased by transactons whch are not actua purchases but merey
transfers to effect a rearrangement of ownershp. ere the actua cost of
these eases was 3,350,000 pad n cash. Congress ntended that such cost
shoud he the depeton base. The contenton of the coector that the cost
to the Oe. n shoud be the depeton base can ony he sustaned f t be true
that the Oean merged or consodated wth the Prare. It dd not t sod
out to the Prare. It s suggested that by tskng two steps, the Oean com-
pany avoded the payment of n ta on the profts of the sae. ut Its stock-
hoders were ta abe on the proft reazed from the sae of ther stock so
the Government has had ts ta on the profts on the sae. It may be t
coud have coected two ta es f the Oean company had sod the propertes
and then qudated or the doube ta may have been avoded by conveyng
ts propertes to ts stockhoders and they n turn conveyng to the Prare.
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187
204, rt. 1593.
nt these consderatons are not suffcent to ustfy a court In cang an out-
rght sae a reorganzaton.
The pantff, on the admtted facts, s entted to |udgment The cause a
reversed for further proceedngs n accordance wth ths opnon.
Reversed.
rtce 1591: ass for determnng gan or oss from sae.
R NU CT OP 1921.
Revocaton of I. T. 1787 (C. . II-2,78), reatve to determnaton
of gan or oss upon the sae or other dsposton of property, a por-
ton of whch has been condemned for street-wdenng purposes.
(See L T. 275 , page 183.)
rtce 1591: ass for determnng gan or oss from sae.
R NU CT O 192 .
Purchase money mortgage satsfed for ess than face amount
thereof. I. T. 240 (C. . II-1, 8) revoked. (See I. T. 2772,
page 212.)
rtce 1593: Property acqured by gft after III-13- 719
December 31, 1920. Ct. D. 805
INCOM T R NU CTS OP 1924 ND 192 D CISION O COURT.
1. Gan ob Loss ass Property cqured by Gft fter
December 31, 1920.
Where the ma|orty stockhoder of a corporaton transfers to t
vauabe property after December 31, 1920, and receves no money,
stock, or other consderaton therefor, but the corporaton agrees,
as a part of the consderaton for such transfer, to set up the vaue
of such property on ts books as pad-n surpus, such transfer
consttutes a gft wthn the meanng of secton 204(a)2 of the
evenue cts of 1924 and 192 , and the bass for computng gan
upon the subsequent sae of the property by the corporaton s the
cost to the donor.
2. Decson Reversed.
Decson of the oard of Ta ppeas (24 . T. ., 7 3) reversed.
3. Certorar Dened.
Petton for certorar dened November 13, 1933.
Unted States Crcut Court op ppeas fob tub Thrd Crcut.
Commssoner of Interna Revenue, pettoner, v. Rosenboom nance
Corporaton, respondent.
Petton for revew from the Unted States oard of Ta ppeas.
efore uffngton, Davs, and Thompson, Crcut udges.
ugust 17, 1933.
OPINION.
uffnoton, .: The underyng queston n ths ta case s whether whsky
warehouse certfcates owned by the Rosenboom nance Corporaton, the ta -
payer, were acqured by gft from ts ma|orty sharehoder, So Rosenboom.
If acqured by gft, ther vaue for ascertanng proft was ther cost to the
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204, rt. 1595.
188
donor, 51,538.2 . If Dot so acqured, ther cost to the ta payer was 2 9,494.97.
The oard of Ta ppeas hed the transacton was not a gft and the Com-
mssoner took ths appea. There s no dspute as to facts and the queston a
whoy one of aw. The facts, a fu dscusson thereof, and ctatons of author-
tes bearng on the case are set forth at fu ength n the fndngs and opnon
of the Ta oard and by reference thereto we avod useess restatement.
The ta payer pad Rosenboom no money, stock, or other consderaton there-
for. It was a vountary transfer of property wthout consderaton or com-
pensaton therefor and the form It took nvoved no ownershp by any thrd
party, and whatever form or sembance t took, n substance and reaty t was
a transfer wth the am of avodng ta . In our |udgment t was a gft. The
decree of the Ta oard w therefore be set asde and the record remanded
for due procedure n accord herewth.
rtce 1595: Property acqured bv transfer 1II-25- 859
n trust after December 31, 1920. Ct. D. 840
( so Secton 208, rtce 1 51.)
ncome ta revenue act ok 1921 decson of supreme court.
1. Gan or Loss ass Gft n Trust Sae by Trustee.
Where shares of stock acqured n 190 were transferred by a
gft rrevocaby n trust n 1921, the ncome to be accumuated for
future dstrbuton to the son of the trustor, and were sod by the
trustee n 1922, the trustee may be regarded as the ta payer and,
for the purpose of cacuatng the gan, as havng assumed the
pace of the trustor, and the ta abe gan resutng from the sae
s the dfference between the cost of the stock to the trustor n
190 , the March 1, 1913, vaue beng ess than cost, and the amount
for whch the trustee sod n 1922, n accordance wth the pro-
vsons of sectons 2(9), 202(a)2, and 219 (a)3, (b), and (c) of
the Revenue ct of 1921.
2. Capta. Gan Capta ssets Computaton of Ta Rate.
Where the sae of shares of stock by a trustee occurred more
than two years after ther acquston by the trustor, but ess than
two years after ther acquston by the trustee, the shares are
propery regarded as capta assets wthn the meanng of sec-
ton 2C (a) of the Revenue ct of 1921, and the gan on the sae
s capta gan, ascertaned by puttng together the perods In
whch the shares were hed by the trustor and trustee, respectvey,
and computed at the 12 /2 per cent rate appcabe to capta assets.
Supreme Court of the Unted States.
873. Guy T. everng, Commssoner of Interna Revenue, pettoner, v. New
York Trust Co., as Trustee under Trust Indenture, dated December 24, 1921,
by and between Conrad enry Matthessen and sad The ew York Trust Co.
899. New York Trust Co., as Trustee under Trust Indenture, dated December
2k, 1921, by and between Conrad enry Matthessen and sad The New York
Trust Co., pettoner, v. Guy T. everng, Commssoner of Interna Revenue.
On wrts of certorar to the Unted States Crcut Court of ppeas for the Second Crcut.
May 28, 1934.
OPINION.
Mr. ustce ut.ee devered the opnon of the court.
Ths controversy arses out of the cacuaton of an ncome ta on the gan
reazed on the sae of property by a trustee n 1922. pr 27, 190 , one
Matthessen acqured ,000 shares of stock at a cost of 141,375. Its vaue
on March 1, 1013, was ess than cost. December 4, 1921, desrng to make
provson for hs son, rard, he transferred (he stock to the New York Trust
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189
204, rt. 1595
Co. In trust for hm wth remander over n ease of hs death. When the
trust was created the market vaue of the stock was 577,500. The trustee
od t n 1922 for 03,385. In the ta return for that year the trustee
ncuded 87,385 as the gan resutng from the sae. That fgure was reached
by subtractng the cost of the shares to the trustor, then camed to be
51 ,000, from the amount the trustee receved for them. ut the trustee
then, as t aways has, nssted that the gan shoud be cacuated on the bass
of the vaue at the tme of the creaton of the trust. nd t apped the
rate of 12 per cent, appcabe to capta gans. The Commssoner ascer-
taned gan on the prncpe adopted n the return but found the cost to
trustor to be 141,375. e apped the norma and sur ta rates that ordnary
are ad upon the ncomes of ndvduas and by the use of these factors
arrved at an addtona assessment of 238,275.95. The oard of Ta ppeas
sustaned the determnaton. (27 . T. ., 1127.) The ower court hed that
the gan had been correcty ascertaned but that t was ta abe at 12 per
cent. ( 8 . (2d), 19.) These wrts were granted ou petton of the Com-
mssoner and cross-petton of the trustee. (292 U. S., 455.)
The questons are: (1) Whether the gan resutng from the trustee s sae
Is the dfference between prce pad by trustor and that receved by trustee, and
(2) f so, whether the 12 per cent rate s appcabe.
The Revenue ct of 1921 (42 Stat., 227) governs. Secton 2(9) defnes
ta payer to ncude any person, trust or estate sub|ect to a ta mposed by the
ct. Secton 202(a) provdes: That the bass for ascertanng the gan
derved from a sae of property sha he the
cost of such property e cept that . (2) In the case of such property,
acqured by gft after December 31, 1920, the bass sha be the same as that
whch t woud have n the hands of the donor. Secton 20 (a) defnes
capta assets to be property acqured and hed by the ta payer for proft or
nvestment for more than two years and (b) provdes that the net gan from
the sae of capta assets may be ta ed at the rate of 12 4 per cent nstead of
at the ordnary rates. Secton 219(a) decares that the norma and sur ta on
net ncomes of ndvduas sha appy to the ncome of property hed n trust,
ncudng (3) ncome hed for future dstrbuton (b) the fducary s requred
to make the return of ncome for the trust. nd subsecton (c) provdes that
n cases under (a)(3) the ta sha be mposed upon the net ncome of the
trust and sha be pad by the fducary.
y the trust ndenture, whch rectes mutua covenants and agreements and
the payment of 10 by each to the other as the consderaton, the trustor dd
se, assgn, transfer, and convey the ,000 shares n trust, nevertheess,
for the beneft of hs son. rard, to be admnstered by the trustee under
specfed terms and condtons among whch are these: The trustee was
requred to hod the shares and any property purchased out of the avas, to
coect and retan ncome unt the 21st brthday of rard, then to pay hm the
accnmuated ncome, thereafter to pay hm current ncome unt he attaned the
age of 25 years, and at that tme to dever to hm the prncpa and unds-
trbuted ncome. Durng the fe of the trustor, the trustee was not to se or
renvest wthout the wrtten consent and approva of the trustor. In case of
rard s death before the age of 25, the entre estate was to go to other sons of
the trustor.
The trustor rrevocaby dsposed of the shares. e dd not se hut made a
gft. ( urnet v. Guggenhem, 288 U. S., 280 Ct. D. 3 , O. . II-1, 374 .)
e gave the trustee ega tte temporary to be hed to enabe t to conserve,
admnster and transfer the property for the use and beneft of hs son to whom
he gave the benefca nterest. It may rghty be sad that the trustee and
benefcary acqured by gft as meant by secton 202(a). If the broad
defnton n secton 2(9) stood aone, ether mght be regarded ns the ta payer
but t s quafed by the rue that the trustee must pay the ta . It foows
that the trustee propery may be regarded as the ta payer and, for the purpose
of cacuatng the gan, as havng assumed the pace of the trustor. Secton
202(a)2 was enacted to prevent evason of ta es on capta gans. Taft v.
owers. 278 U. S., 470, 479, 482 Ct. D. 49, C. . III-1, 220 .) nd see
1On the bass of the return made the ta was 14,301.71. Ou the constructon of
secton 202(a)2 for whch trustee contends the ta woud be 7,714.
ecutors of McDonogh v. Murdoch (15 ow., 3 7, 400. 404) Itaqurc v. Trefry
(253 . 8., 12, 1 ) Neson v. Lagow (12 ow., 98, 10 -107, 110) Cro a v. Shererd
8 Wa., 2 8. 281) Doe, Leasee of Poor, v. Consdne ( wa.. 458. 471) owen v.
Chase (94 U. S., 812, 817, 818-819) : Young v. radey (101 0. 8., 782, 787) nderson
t. Wson (289 T . S., 20, 24-25 Ct. D. 50, C. . II-1, 253 ).
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5204, rt. 1595.1
190
Cooper v. Unted States (280 U. S., 409 Ct. D. 1 3, O. . I -1, 272 ).
Transfers to trustees for the beneft of others are ceary wthn the reason for
the enactment. They may be used to avod burdens ntended to be mposed,
qute as effectvey as may gfts that are drecty made. The dfference between
the cost to the trustor n 190 and the amount for whch the trustee sod In
1922 was rghty taken as ta abe ncome of the trust.
We come to the queston whether the gan derved from the trustee s sae Is
ta abe at 12 per cent. That rate s not appcabe uness the shares were
capta assets defned by secton 20 (a) to be property acqured and hed
by the ta payer for proft or nvestment for more than two years. The tme
between the creaton of the trust and the sae was ess than the specfed perod
and, f the words aone are to be ooked to, the shares were not by the ta payer
hed for mure than two years. Soon after the passage of the ct
the Income Ta Unt of the ureau of Interna Revenue rued that property
transferred to a trustee, for purposes and upon terms and condtons anaogous
to those e pressed n the ndenture before us, whch remaned n hs hands ess
than two years was not capta assets and that the resutng gan was not
ta abe at the 12 per cent rate. That constructon was foowed by the oard
of Ta ppeas, the Crcut Court of ppeas for the Thrd Crcut and the
Court of ppeas of the Dstrct of Coumba.8 The Commssoner says that
the words of the defnton are free from ambguty and that the statute con-
tans no e cepton. Prom an opnon of ths court he nvokes these state-
ments : If the anguage be cear t s concusve. There can be no construc-
ton where there s nothng to construe. Unted States v. artw, Wa.,
385, 39 .) e suggests that hs constructon was approved by the Revenue ct
of 1924, secton 208(a)8 (43 Stat, 203). whch retaned the defnton, and that
the provson n the Revenue ct of 192 , secton 208(a)8 (44 Stat., 19), whch
conforms to the constructon for whch the trustee here contends, operated to
make a change n the aw.
The rue that where the statute contans no ambguty, t must be taken ter-
ay and gven effect accordng to ts anguage s a sound one not to be put
asde to avod hardshps that may sometmes resut from gvng effect to the
egsatve purpose. (Commr. of Immgraton v. otteb, 2 5 U. S.. 310, 313
ate Refrgeratng Co. v. Suzberger, 157 U. S., 1, 37.) ut the e poundng of a
statutory provson strcty accordng to the etter wthout regard to other parts
of the ct and egsatve hstory woud often defeat the ob|ect ntended to be
accompshed. Speakng through Chef ustce Taney In rown v. Duchesne
(19 ow., 183), ths court sad (page 194) : It s we setted that, n nter-
pretng a statute, the court w not ook merey to a partcuar cause n whch
genera words may be used, but w take n connecton wth t the whoe statute
(or statutes on the same sub|ect) and the ob|ects and pocy of the aw, as
ndcated by ts varous provsons, and gve to t such a constructon as w
carry nto e ecuton the w of the Legsature, as thus ascertaned, accordng
to ts true ntent and meanng. ute recenty n Oeawa v. Unted States
(2 0 U. S., 178) we sad (page 194) : It s the duty of ths court to gve effect
to the ntent of Congress. Prmary ths ntent s ascertaned by gvng the
words ther natura sgnfcance but f ths eads to an unreasonabe resut,
pany at varance wth the pocy of the egsaton as a whoe, we must e am-
ne the matter further. We may then ook to the reason of the enactment, and
nqure nto ts antecedent hstory, and gve t effect In accordance wth ts
desgn and purpose, sacrfcng, f necessary, the tera meanng n order that
the purpose may not fa. nd n arrett v. an Pet (2 8 U. S., 85, 90), we
apped the rue ad down n The Peope v. Utca Ins. Co. (15 ohns., 358, 381),
that a thng whch s wthn the ntenton of the makers of a statute s as
much wthn the statute as f t were wthn the etter and a thng whch s
wthn the etter of the statute, s not wthn the statute, uness t be wthn
the ntenton of the makers.
The part of the defnton under consderaton s ths: hed for
more than two years. though on superfca nspecton the words appear to
be entrey cear, the Treasury Department deemed constructon necessary to
dscose the meanng that, upon consderaton of the actua transactons of the
I. T. 1379. C. . 1-2 ( uy-December, 1922), 41 I. T. 1 0, C. . II- ( anuary-
une, 102 ). 3 : I. T. 1S89. C. . III- ( anuary- une. 1924). 70 Mc nna v. Comms-
soner (1829) (18 . T. ., 804, 808) ohnson v. Commssoner (1929) (17 . T. .. 11,
14, affrmed (C. C. . ) (1931). 52 . (2d), 727) thonberg v. Commssoner (1930)
(19 . T. ., 309, 400. affrmed (Ct. pp. D. C. (1931), 55 . (2d), 543) Stcgat .
Commssoner (1931) (24 . T. ., 1231, 1235) cCrory, Trustee, Commssoner
(1932) (25 . T. ., 994. 1011).
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191
204, rt. 1595
ta payers, t found Congress to have Intended. Reguatons 2, artce 1 51,
decares: The specfc property sod or e changed must have been hed for more
than two years, but n the case of a stock dvdend the prescrbed perod
appes to the orgna stock and the stock receved as a dvdend consdered
as a unt and where property s e changed for other property the
prescrbed perod appes to the property e changed and the property re-
ceved n e change consdered as a unt. Construed strcty accordng to
the etter, the provson woud not ncude shares receved as a dvdend ess
than two years before the sae of property taken n e change wthn that
perod. The need of ths reguaton ustrates how ambgutes requrng con-
structon often e st where upon frst readng the words seem cear. Generay,
questons as to the meanng ntended do not arse unt the anguage used s
compared wth the facts or transactons n respect of whch the ntent and
purpose are to be ascertaned. ( radey v. The Washngton, e andra f
Georgetown Steam Packet Co., 13 Pet., 89, 07 Decry v. Cray, 10 Wa., 203, 270
Patch v. Whte, 117 U. S., 210, 217 Gmer v. Stone, 120 U. S., 580, 590 mer-
can Net d Tcne Co. v. Worthngton, 141 U. S., 4 8, 474.)
Legsatve reasons for appyng the ower rate to capta gans gve support
to the constructon for whch the trustee contends. The report of the Com-
mttee on Ways and Means states: The sae of capta assets s now
serousy retarded by the fact that gans and profts earned over a seres of
years are under the present aw ta ed as a ump sum (and the amount of surta
greaty enhanced thereby) n the year n whch the proft s reazed. Many
such saes, wth ther possbe proft takng and consequent ncrease of the ta
revenue, have been bocked by ths feature of the present aw. In order to
permt such transactons to go forward wthout fear of a prohbtve ta , the
proposed b, n secton 20 , adds a new secton to the ncome ta ,
provdng that where the net gan derved from the sae or other dsposton of
capta assets woud, under the ordnary procedure, be sub|ected to an ncome
ta n e cess of 15 per cent (afterwards changed to 12 per cent) the ta
upon capta net gan sha be mted to that rate. It s beeved that the
passage of ths provson woud materay ncrease the revenue, not ony because
t woud stmuate proft-takng transactons but because the mtaton of 15
per cent s aso apped to capta osses. Under present condtons there are
key to be more osses than gans. (S ty-seventh Congress, frst sesson,
ouse Report No. 350, page 10.) See aso Senate Report No. 275, page 12. In
respect of the egsatve purpose to essen hndrance caused by hgh norma and
sur ta es, there s no dstncton between gans derved from a sae made by an
owner who has hed the property for more than two years and those resutng
from one by a donee whose tenure pus that of the donor e ceeds that perod.
ere the ta abe gan was ascertaned by puttng together the perods n
whch the shares were hed by trustor and trustee respectvey. The ta abe
gan was the same as f the former hed contnuousy from the tme of purchase
n 190 unt the sae n 1922. ut to ascertan the appcabe rate the Com-
mssoner broke the contnuty. If the trustor had hed unt the sae, the
12 per cent rate woud have been appcabe and the ta woud have been
substantay ess than one-fourth of te amount assessed aganst the trustee
who, for the purpose of cacuatng the gan, was substtuted for the trustor.
Sectons 202(a)2 and 200(a) are ncuded n the same ct and are app-
cabe respectvey to dfferent eements of the same or ke transactons and
are not to be regarded as whoy unreated. Whe undoubtedy egay pos-
sbe and wthn the power of Congress, the methods adopted and resuts
attaned by the Commssoner are so ackng n harmony as to suggest that
the contnuty requred to be used to get the base was aso ntended for use
n fndng the rate. No vad ground has been suggested for requrng tenures
to be added for the one purpose and forbddng combnaton for the other.
The egsatve purpose to be served by the appcaton of the ower rate upon
capta gans Is drecty opposed to the Commssoner s constructon. There
s no ground for dscrmnaton such as that to whch the trustee was sub|ected.
It s to be nferred that Congress dd not ntend penazaton of that sort.
The Commssoner s suggeston that, by retanng the same defnton n
the 1924 ct, Congress approved the constructon for whch he contends s
wthout mert. The defnton had not been construed In any Treasury dec-
son, by the oard of Ta ppeas or by any court pror to that enactment.
. .238,275.91, pus orcnn assessment, 14,301.71, makes th
. 07. 5 . The ta payer s cacuaton ndcates that It the 12 4 per cent rat
were apped the tota ta woud he 58,921. 1.
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204, rt. 1G03.
192
The dates of a constructons of the defnton to whch our attenton has
been caed are shown n the margn/ The reguaton above referred to was
approved ebruary 15, 1022. In respect of the queston here nvoved, t puts
no constructon upon the defnton. The rungs, I. T. 1379, 10 0, and 1889,
cted by the Commssoner were made before the passage of the 1924 ct but
they have none of the force or effect of Treasury decsons and do not com-
mt the Department to any nterpretaton of the aw. (See cautonary
notce pubshed n the uetns contanng these rungs.) It does not
nppenr th.t the attenton of Congress had been caed to any such construc-
ton. There s no ground on whch to nfer that by the 1924 ct Congress
ntended to approve t.
The Revenue ct of 192 , secton 208(a)8 contans substantay the same
anguage as that used In the 1021 ct to defne capta assets. That part
of the subdvson s foowed by rues for determnng the perod for whch
the ta payer has hed the property. mong them s one appcabe to facts
such as those presented n the case before us. It s substantay the same as
the constructon for whch the trustee contends. Mere change of anguage
does not necessary ndcate ntenton to change the aw. The purpose of
the varaton may be to cary what was doubtfu and so to safeguard aganst
msapprehenson as to e stng aw. In vew of the ncuson of the same
defnton n the cts of 1921, 1924, and 192 and the egsatve purpose under-
yng t, the contenton that the new words were added to change the mean-
ng of capta assets as defned n the earer cts s wthout force. The
defnton so carfed was not new aw but a more e pct e presson of the
purpose of the pror aw. ( ordan v. Roche, 228 U. S., 43 , 445 Mcrc-Smth
v. Commssoner, 42 . (2d), 837, 842 cCuucy v. Commssoner, 44 . (2d),
919, 920.)
ffrmed.
rtce 1 02: ass for aowance of depeton and
deprecaton.
ssets receved by parent company upon qudaton of subsdary.
INCOM T R NU CT O 1921 D CISION O COURT.
1. Income Partnershp mount Ta ab e to So vvNa Member.
Where upon the de :th of one member of a partnershp the sur-
vvng member carres on the busness for severa months unt the
qudaton of the partnershp, and the hers of the deceased part- .
ner eect, as aowed by State statute and pursuant to an agree-
ment between them and the survvng partner, to take a desgnated
sum n eu of the profts attrbutabe to the use of one-haf of the
property of the partnershp from the date of death to the date
of settement, the survvng partner s abe for ncome ta upon
the entre profts of the busness accrung durng the perod of
settement, ess the agreed amount pad to the hers of the
deceased partner.
2. Decson fermed.
Decson of the oard of Ta ppeas (24 . T. ., 488) affrmed.
5 Sec note 3.
The term raptn assets means property hed by the ta payer for more than tro
years. In determnng the perod for wheh the ta payer has hed property
however acqured there ha bo ncuded the perod for whch such property was hed by
any other person, f under the provsons of secton 204 (correspondng to secton 202(a)2
of the 1921 ct) such property has, for the purpose of deemnng gan or oss from
a sae or e change the same bass n whoe or n part n hs hands as It woud have In
the hands of such other person. (44 Stat., 19.)
R NU CT O 192 ND PRIOR R NU CTS.
(See G. C. M. 12581, page 142.)
rtce 1 03: Read|ustment of partnershp
nterests.
III-22- 819
Ct. D. 832
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193
204, rt. 1 03
3. Ct To M Dened.
Petton for certorar dened pr 30, 1934.
Court of ppeas op the Dstrct of Coumba.
Lc C. Pomeroy, George 8. Pomeroy, r., Robert G. ushong, ecutors of the
state of George 8. Pomeroy, pettoners, v. Guy T. cvervng, Commssoner
of Interna Revenue, respondent.
Petton for revew of decson of the Unted States oard of Tar ppeas.
efore Martn, Chef ustce, and Robb, tz, and Groner, ssocate ustces.
December 4, 1933.
OPINION.
obb, ssocate ustce: Petton for revew of a decson of the oard of
Ta ppeas (24 . T. ., 488).
or many years osah Dves and George S. Pomeroy, as partners, under
the name of Dves, Pomeroy Stewart, owned and operated department stores
n the ctes of Readng, arrsburg, Pottsve, and the borough of Pottstown,
Pa. Profts were dvded equay one-haf to each, athough Dves nterest
( 522,04 .94) was n e cess of that of Pomeroy ( 444,552.99). On March 30,
1903, the partners e ecuted an agreement under sea, the prmary ob|ect of
whch was to gve to the survvor a controng nterest n the busness
n the event ether shoud de or become ncapactated durng the contnuance
of the partnershp then e stng.
osah Dves ded September 21, 1922, eavng a w by whch, after varous
specfc bequests, he eft one-thrd of hs estate to hs wfe for fe and two-
thrds n equa shares to hs sons, dward . and rthur M. Dves, together
wth a reversonary nterest n the one-thrd bequeathed to ther mother for fe.
Cause 8 of the w recognzed that the partnershp busness woud be
sub|ect to settement and ad|ustment under the terms of the partnershp agree-
ment e stng between my partner and mysef, yet, to enabe the e cutors to
take a necessary acton, they were empowered to se, transfer, and cunvey
a hs property.
rom the day of Dves death unt une 30, 1923, Pomeroy carred on the
partnershp busness, the net ncome of whch was as foows :
September 20 to December 31, 1922 301,447.54
anuary 1 to une 30, 1923 191,223.93
Tota 552, 71.47
On pr 23, 1923, the two sons of Dves, as e ecutors of hs w, entered
nto a contract wth Pomeroy provdng for a compete dvson of the partner-
shp property, the date of settement beng une 30, 1923. (On that date a
of the assets of the partnershp, wth certan e ceptons mmatera here,
were taken over by a corporaton.) Wth respect to the profts derved from
the operaton of the busness subsequent to the death of Dves, paragraph 8
of the contract provded for the payment to the e ecutors of an amount of
money to be ascertaned by takng per cent of 3,750,000 from the date
of the death of osah Dves on September 21, 1922, to the date of settement
( une 30, 1923), ess the sum of 40,000 whch the e ecutors agree to pay the
survvor (Pomeroy) as compensaton as qudatng trustee and as saary
for conductng the partnershp busness from September 21, 1922, to the date
of settement, whch sad amount sha be pad to the e ecutors n fu sette-
ment of any cam they may have for profts accrued on the partnershp
busness from the date of the death of the sad osah Dves.
On March 15, 1923, Pomeroy fed a partnershp return coverng the perod
September 20, 1922, to December 31, 1922, and on September 15, 1923, fed
a return coverng the perod anuary 1, 1923, to une 30, 1923. In these returns
he dvded the ncome of the busness equay between the Dves estate and
hmsef.
The Commssoner n hs determnaton charged Pomeroy wth the entre net
proft of the busness, addng thereto 40,000 stpuated for hs servces, and
1 pparenty 3,750,000 had been agreed upon as the vaue of the Interest of Dves n
the partnershp property and busness at the date of bs death.
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20 , rt. 1 21.
194
aowed hm a deducton of 17 ,250, the amount of the Interest of the deceased
partner s share whch actuay was pad to the hers. It thus appears that whe
Pomeroy In fact receved the dfference between the net profts accrung durng
the perod n queston and 17 ,250 pad the Dves e ecutors, he cams that
he shoud have been assessed on ony one-haf of such net profts.
It s argued that on the death of Dves there was a contnuance of the
orgna partnershp on the same terms, or at east that after the death of
Dves the busness was conducted as a |ont venture. On the other hand,
the Government contends that upon the death of Dves, Pomeroy became a
qudatng trustee, accountabe to the hers of Dves for the corpus of the
property, pus ether the profts attrbutabe to the use of the deceased partner s
share of the partnershp property or nterest upon the vaue thereof, whchever
the hers shoud eect to take that when eecton was made and Pomeroy
became accountabe ony to the e tent of the nterest, the dfference between
the amount of such nterest and the profts attrbutabe to the use of the prop-
erty consttuted ncome to Pomeroy.
The agreement of 1C03 made no provson for the contnuaton of the partner-
shp n the event of the death or the ncapacty of one of the partners. There-
fore, upon the death of Dves, t became the duty of Pomeroy as .survvng
partner to take possesson of the partnershp estate pendng fna settement.
( rocss, hn ., v. rocss, 2S4 Pa., 3 0.) e thereby assumed the poston
of trustee of the frm s assets, accountabe to the hers of Dves. (Lcary v.
eey, 277 Pa., 217, 219.) There s no doubt that Pomeroy, as trustee, was
accountabe to the Dves hers for the use of Dves porton of the partnershp
property and busness. Under the statutes of Pennsyvana the hers were
entted, n addton to Dves nterest n the partnershp property, to take
ether nterest on the vaue of the deceased partner s share n the partnershp
on the (ate of hs death, or, at ther opton, n eu of such nterest, the profts
attrbutabe to the use of one-haf of the property of the dssoved partnershp.
( nderdown, rs., v. Underdocn, 279 Pa., 4S2, 48C roess, dm ., v. roess,
284 Pa., 3 9, 374.) The hers eected, as was ther rght, to take per cent
of the vaue of the share of Dves n the partnershp property.
Whe the agreement (of pr, 1923) was made ater than at the cose of
the frst accountng perod, t was made before the cose of the second perod,
when, as stated n pettoners repy bref, t coud not be known whether
there woud be profts or not. Ths may have been the reason why the hers
were wng to accept per cent nterest nstead of sharng prospectve profts.
t a events, the good fath of the partes n enterng nto the contract s
not mpugned n any way. s t turned out, Pomeroy (who ded September
13, 1925) made a good bargan. s estate shoud pay ta es on what he
actuay receved.
The decson s affrmed.
S CTION 20 . N T LOSS S.
rtce 1 21: Net osses, defnton and com- III-25- 8 0
putaton. Ct. D. 841
( so Secton 208, rtce 1 51.)
ncome ta revenue act of 1921 decson of supreme court.
Deducton Net Loss Successor Corporaton Separate ntty.
corporaton organzed n pr, 1922, for the purpose of takng
over the busness, assets, and abtes of another corporaton
after retrement of the stock of the od corporaton and ssuance
to ts stockhoders of stock n the new corporaton equa to the
od n cass, par vaue, and number of shares, s not entted, under
secton 204(b) of the Revenue ct of 1921, to deduct from ts net
ncome for the porton of the year 1922 succeedng the transfer and
for 1923, the net osses sustaned by the predecessor corporaton
n 1921 and the porton of 1922 precedng the transfer. In aw
and n fact (e two corporatons were not dentca but dstnct,
even thoug ther stockhoders were substantay the same, and
the case does not present any e ceptona stuaton requrng that
separate enttes be dsregarded.
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20 , rt. 1 21
Supreme Coukt of the Unted States.
Netc Coona Ice Co., n , pettoner, v. Guy T. everng, Commssoner of
Interna Revenue.
Certorar to the Crcut Court of ppeas for the Second Crcut.
May 28, 1934.
OPINION.
Mr. ustce an Devanteb devered the opnon of the court.
Ths s a controversy respectng defcences n the pettoner s Income ta es
for 1922 and 1923.
The queston presented s where a the assets and busness of an oder
corporaton are taken over by a new corporaton, specay organzed for the
purpose and havng substantay the same capta structure, n e change for
a porton of ts stock, whch s dstrbuted by the oder corporaton among the
atter s stockhoders share for share, thereby retrng the od shares, s the new
corporaton entted, notwthstandng the change n corporate Identty and
ownershp, to have ts ta abe ncome for the succeedng perod computed and
determned by deductng from ts net ncome for that perod the net osses sus-
taned by the oder corporaton n the precedng perod The answer nvoves
a constructon of secton 204(b) of the Revenue ct of 1921 (ch. 130, 42 Stat,
227, 231), whch decares:
If for any ta abe year begnnng after December 31, 1920, t appears upon
the producton of evdence satsfactory to the Commssoner that any ta payer
has sustaned a net oss, the amount thereof sha be deducted from the net
ncome of the ta payer for the succeedng ta abe year and f such net oss
s n e cess of the net ncome for such succeedng ta abe year, the amount of
such e cess sha be aowed us a deducton n computng the net ncome for the
ne t succeedng ta abe year the deducton In a cases to be made under
reguatons prescrbed by the Commssoner wth the approva of the Secretary.
The matera facts out of whch the controversy arses are as foows:
oth corporatons were organzed under the aws of New York for the
purpose of producng and seng ce the oder n 1920, wth an authorzed
capta of 750,000, and the new on pr 13, 1922, wth an authorzed capta
of 700,000. The oder one had proceeded to ssue and se stock, acqure
a ste for ts pant and suppy necessary equpment. When the equpment
was ony party nstaed, and the pant was beng operated at 40 per cent of
ts ntended capacty, the company became fnancay embarrassed and unabe
to meet ts ndebtedness or suppy addtona equpment needed to render the
busness proftabe.
credtors commttee was organzed, and kewse a stockhoders com-
mttee. Investgaton dscosed that much stock had been ssued of whch
there was no record and for whch no consderaton was receved. Negota-
tons resuted In the restoraton and canceaton of the spurous stock and
In an agreement to organze a new company to take over the assets and
abtes, proceed wth the competon of the equpment and contnue the
operaton of the busness. The agreement Incuded provsons for the ssue
of stock by the new company to the od equa n cass, par vaue and number
of shares, to the outstandng stock so that the od company coud make an
e change share for share wth ts stockhoders and thereby retre ts outstand-
ng stock for obtanng new funds wth whch to compete the equpment
for an e tenson of tme by e stng credtors and for nvestng credtors
wth a supervsng management throush a stock-votng trust unt ther cams
were pad.
ccordngy the new corporaton pettoner here was organzed and took
over the assets, abtes and busness of the od corporaton on pr 13,
1922. Other provsons of the agreement were carred out n the manner
contempated, save n mnor partcuars not matera here. The corporate
e stence of the od corporaton contnued (so t s stpuated) durng the
remander of 1922 and a of 1923, but after the transfer t transacted no
busness and had no assets or ncome.
The od corporaton sustaned statutory net osses n the sum of 3 ,093.19
durng 1921 and In the further sum of 10,333.90 durng the part of 1922
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19G
precedng the transfer. The new corporaton reazed a net Income of 48,-
7 3.43 durng the part of 1922 succeedng the transfer and of 5 ,242.35 durng
the year 1923. In ths proceedng the new corporaton asserts a rght under
secton 204(b) to a deducton from ts Income so reazed of the osses so
sustaned by the od corporaton.
The pettoner nssts that the contnuty of the busness was not broken
by the transfer from the od company to the new and ths may be conceded.
ut t shoud he observed that ths contnuty was accompshed by deberate
emnaton of the od company and substtuton of the new one. esdes,
the matter of mportance here, as w bs shown presenty, s not contnuty
of busness aone but of ownershp and ta abty as we. ad the transfer
from one company to the other been effected by an uncondtona sae fo
cash there woud have been contnuty of busness, but not of ownershp or
ta abty.
Pettoner aso nssts that the utmate partes n nterest stockhoders and
credtors were substantay the same after the transfer as before and ths
may be conceded. ut there s here no effort to ta ether credtors or
stockhoders. Other statutes, as aso consttutona provsons, have an m-
portant bearng on the ta aton of gans by stockhoders through corporate
reorganzatons, and the cted decsons reatng to that sub|ect1 are not
presenty apposte. What s beng ta ed n ths nstance Is the ncome reazed
by the new company n conductng the busness after the transfer and the
soe matter for decson s whether, under secton 204(b), there sha be
deducted from that ncome the osses suffered by the od company n Its conduct
of the same busness before the transfer.
The oard of Ta ppeas (24 . T. ., 880), and the Crcut Court of
ppeas ( 0 ed. (2d), 480) both rued that the deducton Is not admssbe
under the statute.
The power to ta ncome ke that of the new corporaton s pan and
e tends to the gross ncome. Whether and to what e tent deductons sha be
aowed depends upon egsatve grace and ony as there Is cear provson
therefor can any partcuar deducton be aowed.
The statutes pertanng to the determnaton of ta abe Income have pro-
ceeded generay on the prncpe that there sha be a computaton of gans
and osses on the bass of a dstnct accountng for each ta abe year and
ony n e ceptona stuatons, ceary defned, has there been provson for
an aowance for osses suffered n an earer year. Not ony so, but the
statutes have dscosed a genera purpose to confne aowabe osses to the
ta payer sustanng them, . e., to treat them as persona to hm and not
transferabe to or usabe by another.
Obvousy, therefore, a ta payer seekng a deducton must be abe to pont
to an appcabe statute and show that he comes wthn Its terms.
These vews, often refected n decsons of ths court, have been recenty re-
affrmed and apped n Wooford Reaty Co. v. Rose (28 U. S., 319, 32 et
seq. Ct. D. 493. C. . I-1, 154 ) Panters O Co. v. opkns (28 U. S.,
332 Ct. D. 492, C. . I-1, 153 ) and everng v. Independent Lfe Insur-
ance Co. (decded May 21, 1934 Ct. D. 839, page 302, ths uetn ).
When secton 204(b) s read wth the genera pocy of the statutes n mnd,
as t shoud be, we thnk t can not be regarded as gvng any support to the
deducton here camed. It brngs nto the statutes an e ceptona provson
decarng that where for one year any ta payer has sustaned a net oss the
same sha be deducted from the net ncome of the ta payer for the suc-
ceedng ta abe year and, f such oss be n e cess of the ncome for that
year, the e cess sha be d ducted from the net ncome for the ne t succeedng
ta abe year. Its words are pan and free from ambguty. Taken accordng
to ther natura mport they mean that the ta payer who sustaned the oss s
the one to whom the deducton sha be aowed. ad there been a purpose to
depart from the genera pocy n that regard, and to make the rght to the
deducton transferabe or avaabe to others than the ta payer who sustaned
the oss, t s but reasonabe to beeve that purpose woud have been ceary
e pressed. nd, as the secton contans nothng whch even approaches such
an e presson, t must be taken as not ntended to make such a departure.
1 Unted States v. Phes (2.17 T . S., 15 T. D. 3270, C. . 5. 37 ) : Rockefeer v.
Unted Mates (257 U. S.. 170 T. D. 3271, C. It. 5, 341) Cuman . Waker (2 2 D. 8.,
134 (T D. 3508, C. . 11-2 55 ) Wrts v. trarn (2 5 U. S.. 242 fT. D 009, C. .
III-2, 01 ) ar v. Unted States (2G8 U. S., 53 IT. D. 3755, C. . I -2, 11 ).
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197
20 , rt. 1 22.
We come then to nn aternatve contenton that, even though the secton be
not as broad as camed, the deducton shoud be aowed, because for a
practca purposes the new corporaton was the same entty an the od one and
therefore the same ta payer. Ths s not n accord wth the vew on whch
the stockhoders and credtors proceeded when the new company was brought
nto beng. They deserted the od company and turned to the new one
because they regarded It as a dstnct corporate entty and therefore free from
dffcutes attendng the od one. avng sought and reaped the advantages
ncdent to the change, t we may be that they woud encounter some em-
barrassment n now ob|ectng to an ncdenta and remote dsadvantage such
as s here In queston. ut, be ths as t may, we are of opnon that n
aw and n fact the two corporatons were not dentca but dstnct. Ts
was pany mped In the transfer of the assets and busness from one to
the other. That transacton was vountary and contractua, not by operaton
of aw. Thereafter nether corporaton had any contro over the oer 1 the
od corporaton had no nterest n the assets or busness, and the chance of
gan and the rsk of oss were whoy wth the new one. Thus the contenton
that the two corporatons were practcay the same entty and therefore the
same ta payer has no bass, uness, as the pettoner nssts, the fact that
the stockhoders of the two corporatons were substantay the same consttutes
such a bass.
s a genera rue a corporaton and ts stockhoders are deemed separato
enttes and ths Is true n respect of ta probems. Of course, the rue s
sub|ect to the quafcaton that the separate dentty may be dsregarded n
e ceptona stuatons where t otherwse woud present an obstace to the due
protecton or enforcement of pubc or prvate rghts.5 ut n ths case wo
fnd no such e ceptona stuaton nothng takng t out of the genera rue.
On the contrary, we thnk t a typca case for the appcaton of that rue.
The pettoner rees on Poneer Poe Shaft Co. v. Commssoner (55 ed.
(2d), 8 1) Industra Cotton Ms v. Commssoner ( 1 ed. (2d), 201) and
. . Mer Industres Co. v. Commssoner ( 1 ed. (2d), 412). The decsons
n these cases are not whoy In pont but contan anguage gvng coor to tho
pettoner s cam, and are to that e tent n confct wth other edera decsons,
notaby tho Manufacturng Co. v. Commssoner (54 ed. (2d), 230 Ct. D,
513, C. . I-2, 252 ) Turner- arber-Love Co. v. cverng ( 8 ed. (2d), 41
Ct. D. 827, page 279 ths uetn ) and the decson now under revew. In
so far as they are not n harmony wth the vews e pressed n ths opnon
they are dsapproved.
udgment affrmed.
httce 1C22: Cam for aowance of net oss. III-12- 708
Ct. D. 801
INCOM T R NU CT OP 1921 D CISION O COU T.
1. Deducton Net Loss ffated Corporatons.
Where one of a group of affated corporatons fng consodated
returns for the years 1922 and 1923 sustaned a net oss In 1922
whch e ceeded ts ncome for 1923, and others of the group suf-
fered osses n both 1922 and 1923, the 1922 osses of the nfates
may not be brought nto hotchpot wth the current osses n ascer-
tanng the net ncome of the group for the year 1923. Secton
204(b) of the Revenue ct of 1921 forbds the assmaton by the
group of the carred-over oss wth the current oss.
See Southern Pacfc Co. v. Lowe (247 U. S.. 330, 337) : Pcabody v. sner (247 U. 8.,
347, 349) : af O Corporaton v. Leweyn (248 U. S.. 71).
Puman Car Co., v. Mssour Pacfc Co., (115 U. S., 587, 598-597) Donnc v. crrno-
a-Marvn Sa|e Co. (208 U. S., 2 7, 273) Unted States v. Deaware, etc., Co. (238
U. 8., 51 . 527-529) Cannon Manufacturng Co. v. Cudahy Co. (2 7 U. S 333) en
T. oard of Supervsors (282 U. S., 19, 24).
en v. oard of Supervsors (282 U. 8., 19, 24) Da ton v. owers (287 U. S.. 404,
410) urnet v. Cark (287 U. S.. 410. 415 Ct. D. 20, C. . II-1, 175 ) urnet v.
Commonweath Improvement Co. (287 U. S., 415, 418-420 Ct. D. 022, C. . II-1. 277 ).
Unted States v. Lehgh aey R. R. Co. (220 U. S., 257, 272-274) Ccayo, M-
waukee d St. Pau Ry. Co. v. Mnneapos Cvc ssn. (247 U. S., 490, 5UO-501) Southern
Pacfe Co. r. Lowe (247 U. S 330, 337-338) ut O Corporaton v. Lewcyn (248
. 8., 71).
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198
2. Decson ffbmed.
Decson of the oard of Ta ppeas (2 . T. ., 520) affrmed.
8. Certorar Dened.
Petton for certorar dened October 10, 1933.
Unted States Cbcut Coubt of ppeas for the Second Crcut.
The Deaware udson Co. v. The Commssoner of Interna Revenue.
The Deaware f udson Co. et a., pettoners, v. Commssoner of Interna
Revenue, respondent.
ppea from an order of the oard of Ta ppeas f ng a defcency of the ta payer for
Income ta es for the year 1923.
efore L. a.nd, ugustus N. and, and Chase, Crcut udges.
une 5, 1033.
OPINION.
L. and, Crcut udge: The queston presented by ths appea, strpped of
confusng detas, s as foows: Durng the years 1922 and 1923, a number
of companes were affated under secton 240(b) of the ct of 1921. Must of
the affates had net osses n ther ncomes for 1922, whch they were entted
to carry over to the year 1923 under secton 204(b). The carred-over oss n
one nstance was more than enough to cance the ncome of that affate for
the year 1923, thus eavng a mnus quantty whch under secton 204(b) the
affate, had t stood aone, woud have been obged to carry over to the
year 1924. Others suffered osses n both years. The affated group sought
to use as a deducton n the group return for 1923, the combned osses of
those who had ost n both years, and the e cess of the oss n 1922 over the
ncome for 1923 of that aff.ate whch had had an ncome for 1923. The Com-
mssoner found the ncome of the group by aowng ony the osses suffered
In 1923, refusng to aow any of the carred-over osses, though he aowed that
affate whch had had a oss n 1922 to deduct t from ts ncome n 1923 so
far as t coud be so absorbed. The group, whch for the purposes of ths case
s to be treated as the ta payer, nssts that the osses for 1922 sha be brought
Into hotchpot, aong wth the osses for 1923. The oard affrmed the Com-
mssoner ths appea foowed.
The case s rued by Wooford Reaty Co. v. Rose (28 U. S., 319 Ct D.
493, C. . I-1, 154 ), uness It be a crtca dfference that the oss there
sought to be carred over happened n a year precedng affaton. The rato
decdend of that decson forbds such a dstncton. It was that secton
20 (b), 192 (the dentca successor of secton 204(b) of 1921), dd no
aow the summaton of a carred-over oss wth a oss n the succeedng year.
There s no such thng as a mnus ncome, and the carred-over oss must
be deducted from ncome. Ths woud cover such of the affates at bar as
had suffered osses n both years. pparenty t woud not cover that whch
had an ncome n 1923. Yet t Is hard to suppose that there s a dfference
dependng upon the e stence of any ncome, however sma, n the Inter
year. owever that may be, the rest of the reasonng appes to the affate
whch had an ncome n 1023. Secton 20 (b) decared that any e cess
of the carred-over oss whch was not absorbed by the ncome for the sec-
ond year shoud be apped to the thrd year and, snce there was no sug-
geston that t coud be used otherwse, t must be so used or not at a.
Ths prohbted ts use as an tem n the consodated return of the group.
gan the secton aowed the deducton ony to a ta payer, and the group
s not a ta payer the f ed pocy of Congress beng to assess separatey the
ncome of each year, anyone who seeks to mnge the ncome of two years
must show e press warrant nay, though the affate s aowed to deduct
a oss for a past year, as an tem n computng ts ncome for the current
year, and under secton 234 ths tem mght be regarded ke any other oss,
nevertheess secton 20 (b) forbade the assmaton of the carred over oss
wth the current oss by prescrbng how the carred-over oss shoud be used.
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199
20 , rt. 1 22|
So fur It s apparent that the reasonng appes par passu to a cnse where
the earred-over oss s from a year when the companes were affated. In
ether case secton 20 (b) drects the use to be made of any e cess, and the
carred-over oss s as much and as tte an tem n the ta abe ncome of the
affate as a oss suffered n the second year. There seems therefore to
be no ground for dstngushng between the two stuatons, and f the reason-
ng s to be taken as genera at a, the case at bar fas wthn t. There s
added reason for ths concuson In the approva of Scft v. Unted States
(38 ed. (2d), 3 5) (Ct. CI.), whch concerned the carryng back of a os9
from one affated year to an earer.
owever, the ast ground of the opnon was the practca one that an
opposte constructon woud permt of easy abuse, an abuse prevented by the
reguatons under the ct of 1928 (Reguatons 75, artce 41). company
mght buy up a derect company merey to use ts osses. No doubt courts w
often construe anguage wth an eye to the resut we do not wsh to mnmze
the mportance of that canon of nterpretaton. Moreover, the ev here n
queston coud not arse n the case of osses carred over from an affated
year. ut ths ground of the decson was rather a makeweght than ts
foundaton. The earer reasonng we must assume to have been serousy
ntended n ts genera terms, a deducton from the e pressed ntent of the
statute we do not fee free to dscard t and make the decson depend ony
upon the possbty of abuse. The deberate constructon put upon the an-
guage we must take as t reads, unt we are advsed that t was not broady
ntended. It s ndeed possbe to ook at the stuaton dfferenty to say that
Congress meant the group to be taken as an entty for a purposes, ncudng
the prvege of poong ts osses for three years. In that vew, secton 204(b)
of 1921 woud be read as no more than a provson for computng ncome
when the ta pas er for computng purposes s the group, as under secton
210(b) t s, the secton woud not be understood verbay, but through ts
purpose. Te provson that the e cess s to be carred over to the thrd year
wou d aso be understood n the same sense. Whe, therefore, t s possbe so
to construe the anguage, t has not been so construed. If, as we are admon-
shed, there must be mperatve anguage to avod the underyng pocy that
each year s ncome sha be assessed separatey, such anguage s absent.
ta ng system so detaed and partcuar as ours does not admt of the same
fe bty of nterpretaton as one n more genera terms. Perhaps ts very
refnement may defeat ts purposes eaboraton often does. ut the more
artcuate the e presson, the ess room remans for ntendment beyond the
words used. Ths s the penaty nherent n a progressve specfcaton of any
genera meanng what s eft out s not to be supped. We recognze the
force of the departmenta constructon whch prevaed before Scft v. Unted
States, supra (38 ed. (2d), 3 5), but agan that s not fna. It seems to us
that wthout dsregardng the necessary mpcatons, ndeed the e press deca-
ratons, of the Supreme Court, we can not hod that such osses may be brought
nto hotchpot.
Genera Counse s Memorandum 8132 (C. . I -1, 287), whch
hods n part that the porton of the consodated net oss for the
year propery attrbutabe to each affated corporaton may be ap-
ped aganst the consodated net ncome aocabe to such corpo-
raton for the frst succeedng ta abe year, s revoked n so far as
nconsstent wth the decson of the oard of Ta ppeas n
Deaware udson Co. v. Commssoner (2 . T. ., 520, C. .
II-1, 4, affrmed 5 ed. (2d), 292) and the decson of the oard
of Ta ppeas n Wson urs, Inc., v. Commssoner, and Sebert,
Ltd., v. Co-rwmssumer (29 . T. ., 319 page 14, ths uetn ).
ktc e 1 22: Cam for aowance of net oss.
III-13- 720
G. C. M. 12905
R NU CT O 1921.
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213(a), rt. 31. 200
S CTION 208. C PIT L G INS ND LOSS S.
rtce 1 51: Defnton and ustraton of capta net gan.
R NU CTS O 192), 1824, ND 192 .
Stock acqured through e ercse of stock rghts. (See G. C. M.
12942, page 73.)
rtce 1 51: Defnton and ustraton of capta net gan.
R NU CT O 1921.
Two-year perod from date of acquston by trustor to date of
dsposton by trustee. (See Ct. D. 840, page 188.)
P RT II. INDI IDU LS.
S CTION 212. N T INCOM O INDI IDU LS
D IN D.
rtce 22: Computaton of net ncome.
R NU CTS O 1918, 1921, 1924, ND 1920.
Treatment of nsurance premums pad n advance for perod of
more than one year. (See G. C. M. 13148, page 7.)
S CTION 213(a). GROSS INCOM D IN D:
INCLUSIONS.
rtce 31: What ncuded n gross ncome. III-13- 721
I. T. 2771
R NU CTS O 1917, 1918, 1921, ND 1924.
In vew of the Commssoner s nonacquescence n the decsons
of the oard of Ta ppeas n Des Mones Improvement Co. v.
Commssoner (7. . T. ., 279 page 21, ths uetn ) and mer-
can Seatng Co. v. Commssoner (14 . T. ., 328 page 18, ths
uetn ) and the decson of the oard of Ta ppeas n . .
very Sons, Inc., v. Commssoner (2 . T. ., 1393), I. T.
2195 (C. . I -2, 3 ) s revoked.
rtce 31: What ncuded n gross ncome.
R NU CT O 1920.
ccrued nterest as part of bd prce of property bought on fore-
cosure by mortgage. (See Ct. D. 810, page 290.)
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201
213(a), rt. 31.
rtce 31: What ncuded n gross ncome.
( so Secton 213(b), rtce 87.)
III-15- 744
Ct. D. 813
INCOM T R NU CTS O 101 , 1917, 1918, 1921, 1924, ND 192
D CISION O COURT.
1. Income arnncs of Condemnaton ward hd n Trust.
Where the fe tenant of property condemned by the cty of New
York eected to take hts porton of the condemnaton award n
a ump sum n eu of ncome for fe, and the court ordered that
the remander of the award be paced n the custody of the cham-
beran of the cty to be nvested and hed n trust for the
remanderman (then nether ascertaned nor ascertanabe), the
accumuatons earned by the trust fund each year fa wthn the
defnton of ncome contaned n the appcabe Revenue cts.
2. Same Consttutonaty.
ta upon the earnngs of a condemnaton award hed by the
chamberan of the cty of New York as trustee s not unconsttu-
tona as a ta on the e ercse of the cty s rght to condemn
and.
3. Same Cty Offca as Ta abe Person.
The chamberan of the cty of Now York, seected by the court
to act as the custodan of a fund representng ony a prvate nter-
est, s a ta abe person, and the earnngs of the fund n hs custody
are returnabe by hm for edera ta aton.
4. Decson ffrmed.
Decson of the oard of Ta ppeas (21 . T. ., 1329) affrmed.
5. Certorar Dened.
Petton for certorar dened December 4, 1033.
Unted States Crcut Court of ppea.b for the Second Crcut.
Chares . uckey, as Chamberan of the Cty of New York, Proposed to be
ssessed by the edera Income Ta ureau under the cttous name of
Cty Chamberan ctng n Capacty of Trustee for the Remanderman
u/uy Robert Swft Lvngston, Room U 0, Muncpa udng, New York,
N. Y. pettoner, v. Commssoner of Intcrm Revenue, respondent.
Petton to revew a decson of the oard ot Ta ppeas. ffrmed.
Income ta es for the years 1917 to 1925, ncusve, are nvoved. or the
opnon of the oard of Ta ppeas see 21 . T. ., 1. 529.
In 187 , the cty of New York condemned for a park certan and whch
had prevousy been devsed by Robert Swft Lvngston to hs son for fe
wth remander n fee to hs ssue vng at the tme of hs son s death. In
accordance wth the New York aw, the fe tenant of the property eected
to take a porton of the award n eu of the ncome for hs fe, and that was
pad to hm n 1877, ess a porton whch he assgned to hs sster. The
remander of the award, 51,002.17, was paced n the custody of the ehnmber-
an of the cty of New York, pursuant to an order of the New York Supreme
Court, to be Invested by hm and hed wth accumuatons for the beneft
of whomsoever shoud be entted to receve t on the death of the fe tenant.
Ths fund wth the accumuatons was hed by the pettoner when the fe
tenant ded n 1928 and when the oard of Ta ppeas rendered ts decson.
Pettoner never reported for ta aton as ncome any recepts on account of
efore Manton, Swan, and Chase, Crcut udges.
uy 17, 1933.
OPINION.
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213(a), rt. 31.
202
the fund. Its e stence was dscovered by an Interna revenue fed agent
who caed the attenton of the pettoner to hs faure to make any ncome
ta returns. Upon the pettoner s refusa to return us ncome what he
receved after 1913, the Commssoner of Interna Revenue made returns for
the years subsequent and assessed the ta es here n controversy. The oard
dsmssed an appea for want of |ursdcton as to the years 1913 and 1914 and
the pettoner acquesced. It sustaned the Commssoner as to the remanng
assessments.
Chase), Crcut udge: The pettoner cams that what has been caed
Income and ta ed s ony a restoraton of the prncpa of the award whch
woud have been receved by the remanderman had there been no eecton by
the fe tenant to take a ump sum n eu of ncome. No doubt ths s the
theory desgned to be worked out by the operaton of the aw under whch
the payment was made to the fe tenant and the remander nvested and hed.
It was so recognzed n respect to ths very fund n Matter of Tucker (187
. D. (N. Y.), 502 affrmed 228 N. Y., 505). ut whether the accumuatons
were ncome ta abe by the edera Government after ts ncome ta became
effectve presents a broader queston. Ths fund, whatever the purpose to be
acheved by hodng It and addng the accumuatons to t, was hed n trust
by the pettoner durng the years n queston. e dd receve what t earned
each year. These recepts fa wthn the defnton of ncome contaned In
every appcabe Revenue ct. (Secton 2(a) of the ct of 191 secton 1200
of the 1917 ct secton 213(a) of the cts of 1918, 1921, 1924, and 1928.)
So, too, are they covered by the genera and accepted defnton of Income for
ta aton purposes whch the Supreme Court has hed to be the gan derved
from capta, from abor, or from both combned. ( sner v. Macombcr, 252
U. S., 189 T. D. 3010, C. . 3, 25 Merchants Loan Trust Co. Tr. v.
Smetanka. 255 U. S., 509, 517 Ct. D. , C. . 4, 34 .) Do they then have a
dfferent character because of the theory that they were receved to rebud
a capta fund depeted In 1877 Such a contenton, frst, presupposes that
the remanderman had an absoute rght after the acton of the New York
court when t dvded the award to receve the same amount In money whch
woud have been hed for hm had the New York aw permtted no such
dvson and, second, that Congress has seen ft to make a dstncton between
such a trust fund as ths and trust funds whose ncome generay s ta abe.
(Secton 2(b) of the Revenue ct of 191 secton 219(a) of the Revenue cts
of 1918, 1921, 1924, and 192 .)
fter the court order of 1877, the utmate taker, who w for convenence
be referred to as though he were one person at a tmes known, athough he
was then nether ascertaned nor ascertanabe, was ceary entted ony to
the part set asde for hm as the then present worth of hs nterest n the
award. That and not the orgna award became the prncpa sum of the
trust created for hs beneft. Instead of havng a prncpa sum hed n trust
wthout accumuatons e was gven ts then computed equvaent, vz, a
prncpa sum pus accumuatons. Instead of beng entted to a sum certan
at the death of the fe tenant, the remanderman became entted to hs
then present nterest n the award pus whatever ths nterest woud earn
durng the duraton of the trust. s the trust was to termnate at the
death of the fe tenant, f the present worth n 1877 of the remanderman s
nterest happened to be computed n e act accordance wth every contngency
whch arose, he woud receve the amount of the orgna award. ut obvousy
no one dd or coud know n 1S77 how ong the fe tenant woud ve nor how
much the fund woud cam nor what the e penses of ts admnstraton woud
be nor what osses mght he sustaned nor what ta es mght be mposed
ether upon t, or upon the ncome derved from t. The remanderman was
not entted, perforce, to more than hs nterest as the benefcary of the
trust actuay created. s the uncertantes nherent n computng the prn-
cpa of ths fund were made certan by subsequent events he mght gan or
ose. So far as we are nformed the prncpa of that trust has never been
depeted. Indeed, t has been ncreased by the accumuatons, and a the tme
the trust was n e stence the remanderman was entted to receve upon
ts termnaton not the amount of the orgna award for the and, but the
amount of the trust, whether t were more or ess than the orgna award.
Matter of Tnker, supra, and Lvngston v. Tucker (107 N. Y., 549) bear no
further on the present ssue than that. The vaue n terms of the orgna
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203
8213(a), rt. 81.
award whch the trust fund set up In 1877 was thought to represent s now
Immatera. Of course, t s true that had there been no dvson of the
award and that sum been made the prncpa, the remanderman woud have
receved t free of ncome ta , but that s ony Indcatng what mght have
been and osng sght of reates. In the one nstance there woud have been
no producton of ncome whch created a ta abe shftng of economc nterests
that brought about any change n the prncpa whe what actuay happened
brought about such changes n every ta abe perod here nvoved. s these
changes were due to the addton of what s defned by te aw to be ncome,
ths ncome s prma face ta abe. To be otherwse, t must be shown that
Congress has paced such ncome on a nonta abe bass by dfferentatng t
from the ncome of trust funds generay. Ths has not been done.
It s argued that ths s a ta upon the e ercse of the rght of the cty
of New York to condemn and and so unconsttutona but such a contenton,
f sound, means that whatever s earned by whatever s pad as an award
n condemnaton proceedngs by a State or ts potca subdvson woud be
edera ta -e empt to the recpent of such ncome. The mere statng of the
effect refutes the argument. Ceary no ta assessed here has the sghtest
effect to curta the power of the cty of New York to condemn and or to
decrease the amount of any award made n such a proceedng. fter a
government s property becomes that of a prvate ndvdua, the fact of former
governmenta ownershp does not mpart e empton from ta aton to t or
to what s earned by t. (Compare Group No. 1 O Corporaton v. uss,
283 U. S., 270 Ct. D. 330, C. . -, 153 o m Corporaton v. Doya
et a., 28 U. S., 123.)
nay, t s argued that the cty chamberan s not a ta abe person and
that ths fund n hs custody by order of the State court can not earn ncome
returnabe by hm for edera ta aton. It shoud be observed that there
has been no attempt to nterfere wth the fund tsef or wth the contro
of t by the cty chamberan nor s t a fund hed by hm for pubc use.
e s an offcer of the State court, so far as we are now concerned, hodng
a fund for nvestment, accumuaton, and dstrbuton sub|ect to the orders
of the court and entrey for the beneft of the remanderman. e hods
t n no other capacty. What other dutes the custodan may perform by
vrtue of other powers and what he may or may not do as chamberan of the
cty of New York seem to be besde the pont. It can hardy be thought that,
because the court seected the chamberan of the cty of New York to act
as the custodan of a fund representng ony a prvate nterest, the ta abty
of the ncome earned by that fund can stand any dfferenty than t woud f a
prvate ndvdua had been empowered to admnster the fund. In the atter
event t woud have had no mmunty from ta aton. (Centra Trust Co. v.
. r York Cty and N. R. R. Co., 110 N. Y.. 250 Stephens v. N. Y. O. M. R.
Co., 13 atchf., 104, 23 ed. Cas. No. 13405.) Moreover, nether property hed
by a trustee n bankruptcy s e empt from ta aton Starts v. ammer, 194
C S., 441), uor s that n the hands of a recever apponted by the court.
Un re Tyer, 149 U. S., 1 4.) The mposton of these ta es cut down no reve-
nue of the cty of New York, nterfered n no way wth the offca dutes of the
cty chamberan as such, and mpared no State functon. There has been no
drect burden ad upon any nstrumentaty of government. (Compare WUcutt
v. unn, 282 U. S., 21 .) Ony the ncome of a fund hed for the beneft of a
prvate person has been ta ed n accordance wth the aw reatng to the
ta aton of ncome from funds hed by fducares under orders of court. The
suggeston that the cty chamberan can not pay the ta es mposed wthout
eave from the State court need not now be dscussed. We are unwng to
beeve that when the vadty of the ta es has been estabshed, any dff-
cuty w be encountered n ther coecton ether through acton or nacton
on the part of the State court. Nor does the contenton that because secton
143(a) of the Revenue ct of 1928 provded that a recever apponted by au-
thorty of aw and n possesson of ony a part of the property of an ndvdua
need not make a return of ncome requre a dfferent resut. That provson
reates to recevers as there defned and was to do away wth parta returns,
not to e empt ncome from ta aton. (Compare North mercan O Con-
cated v. urnet, 28 U. 8., 417 Ct. D. 490, C. . I-1, 293 .) Ths pet-
toner has not been shown to be such a recever.
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204
rtce 32: Compensaton for persona
servces.
III-18- 775
Ct. D. 820
ncome ta revenue acts of 1021 and 1924 -decson of codrt.
1. Income Compensaton foe Persona Servces.
Where the ta payer and hs brother, as partners, In the years
190 to 1010 organzed syndcates composed of other persons for the
purpose of acqurng and seng certan tmberands, and entered
nto empoyment contracts wth the syndcates whereby It was
agreed that they shoud receve as compensaton for ther servces
one-fourth of the net profts from saes whenever the varous tracts
were sod, the amount receved as compensaton n 1922, 1923, and
1924, when the frst saes of ands purchased pror to March 1, 1913,
were made, consttute ta abe ncome for those years, wthout de-
ducton of any amount representng the estmated March 1, 1913,
vaue of the partners rghts under the contracts.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (22 . T. ., 19 ) affrmed.
Oeorgc L. McPherson, appeant, v. Guy T. Tcverng, Commssoner of Interna
Revenue.
efore Martn, Chef ustce, and Itoun, an Orsdf , tz, and Gboneb,
ssocate ustces.
Martn, Chef ustce: Ths appea nvoves Income ta es for the caendar
years 1922, 1923, and 1924, whch were assessed aganst appeant under the
Revenue ct of 1921 (ch. 13 , 42 Stat., 227, secton 213(a)) and the Revenue
ct of 1924 (eh. 234, 43 Stat., 253, secton 213(a)).
Secton 213(a) of each ct reads as foows:
Sec 213. or the purposes of ths tte, e cept as otherwse provded In
secton 233
(a) The term gross ncome ncudes gans, profts, and ncome derved
from saares, wages, or compensaton for persona servces of what-
ever knd and In whatever form pad, or from professons, vocatons, trades,
busnesses, commerce, or saes, or deangs n property, whether rea or persona,
growng out of the ownershp or use of or Interest n such property aso from
nterest, rent, dvdends, securtes, or the transacton of any busness carred
on for gan or proft, or gans or profts and ncome derved from any source
whatever. The amount of a such tems sha be ncuded In the gross ncome
for the ta abe year n whch receved by the ta payer .
The matera facts as found by the oard of Ta ppeas are substantay
as foows:
ppcbmt and hs brother, ohn . McPherson, were the soe members of the
partnershp of George L. ohn . McPherson, herenafter caed the partners,
organzed n 1C0G. In the years 1900 to 1910 the partners, beng e perenced
tmber operators, organzed certan syndcates, composed of other persons, for
the purpose of acqurng tmberands n the State of Oregon, wth the e pecta-
ton of seng them at a proft. When such a syndcate was organzed a contract
was e ecuted between the syndcate members as partes of the frst part and the
partners as partes of the second part, whereby the syndcate agreed to furnsh
sums of money to the partners to be nvested n such ands the partners were
to purchase the ands wth the money provded by the syndcate members, and
to use ther best |udgment n makng the purchases the tte to the ands when
purchased was to be taken n the name of the Detrot Trust Co., as trustee, to
be hed n trust for the syndcate members n proporton to the respectve
Court of ppeas of the Dstrct of Coumba.
ppea from tbe oard of Ta ppeas.
November 13, 1933.
orNON.
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205
5213(a), rt. 32.
an tnts contrbuted by them to the purchase prce the partners were to receve
for t:er e penses 50 cents per acre for certan parte of the and purchased and
1 per acre for other parts the partners were to do a the work reasonaby
necessary for the care and protecton of the ands and for the preventon of
trespass, and were to advse the syndcate when to se partcuar tracts of and,
and were to attend to the seng of the same when the ands or parts thereof
were sod the tota amounts nvested n the purchase thereof, and a sums pad
for ta es and ether necessary e penses, were to he deducted from the seng
prces, and the dfference was to be consdered as net proft the partners were
to receve one-four h of such not proft f, when, and as fast as the varous
tracts were sod and the resdue was to be dstrbuted by the trustee to the
syndcate members n proporton to ther respectve contrbutons.
arous tracts of and wore purchased under these contracts pror to March 1,
1913, but no part was sod pror to that date. owever, the ands had appre-
cated n vaue pror thereto, to an e tent whch woud have produced for the
partners an estmated sum of 300,000 f the and then had been put to sae.
fterwards, certan tracts were sod n the years 1922, 1923, and 1924, for
sums whch entted the partners to partcpate n the profts. In determnng
ther ncome for he saes for ncome-ta purposes, the partners deducted from
the gross amounts actuay receved by them a proportonate amount of the
March 1, 1913, vaue of ther rghts as estmated under the agreement. The
Commssoner of Interna Revenue dsaowed such deductons, ncreased the
ta abe ncome of each partner for the years n quest Ion, from whch acton
the present appea was taken.
The partners kept ther books and fed ther ta returns on the cash recepts
and dsbursements bass.
On the bass of these fndngs the oard of Ta ppeas sustaned the deter-
mnaton of the Commssoner and hed that the amounts receved durng the
ta abe years under the empoyment contracts were ta abe n ther entrety,
when receved, wthout any aowance for a proportonate part of the estmated
vaue of March 1, 1913, of the rghts of the partners under the contracts. The
oard accordngy entered an order redetermnng the defcences for the years
n queston, and from the order so entered appeant took ths appea.
The contenton of the appeant Is to the effect that on March 1, 1913, he
owned capta assets under the contract equa to the sum whch he woud have
receved had the ands then been sod at ther estmated vaue of that date
that when hs ncome ta es for the years 1922, 1923, and 1924, came to be
assessed they shoud have been assessed ony upon so much of the Income then
receved by hm as was In e cess of the vaue of such capta assets on March 1,
1913.
We can not sustan ths contenton. There s no term n the contract whch
f ed March 1, 1913, as a pont of settement between the partes regardess of
whether the ands had been sod by that tme or not On the contrary, no profts
had accrued to appeant under the contracts n any present or stecfc sum on
that date. Payment of profts to the appeant was to be made ony when and
as fast as the ands were sod. On March 1, 1913, no part of the ands had been
sod and consequenty no rght to any proft from the transacton had accrued to
appeant. Nor was t then certan that any ncome woud accrue to hm, for the
seng prce of the ands mght decne to such an e tent as to permt of no
proft upon the transacton taken as an entrety. The payments to be made to
the appeant were for servces and were to be made when the servces were com-
petey performed, and were to be determned by and pad from the proceeds
actuay receved by the trustee for the syndcate members.
Ths vew s consstent wth estabshed authortes. In dwards v. eth
(231 ed., 110), the pantff, an nsurance agent, pror to March 1, 1913, wrote
poces of nsurance under agreements wth the nsurance company enttng hm
as compensaton for hs servces to a certan commsson on the f-st premum
pad by the assured and a percentage on any future premums. The contracts
contaned a provson that commssons sha accrue ony as the premums are
pad n cash. The court hed that under the Income Ta ct of 1913 the com-
mssons pafd to the pantff after March 1, 1913, on busness socted pror
thereto were ta abe ncome n the years when receved, statng further
The statute does not provde that the persona servces, compensaton
for whch s to be consdered ncome, must be rendered n the same year n whch
the compensaton s receved. (See aso mkson v. Smeanka, 2T2 ed., 970
Ct. D. 5, C. . 4, 9 .)
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213(a), rt. 44.
20
In Lynch v. ornby (247 . S., 330 T. D. 2731 ), the court hod that, under
the Income Ta ct of 1913, dvdends decared and pad n t e ordnary course
by a corporaton to ts sharehoders after March 1, 1913, whether from current
earnngs or from a surpus accumuated before March 1, 1913, were ta abe to
the ndvdua sharehoders as ncome, under the surta provson. Ths case
reversed the decson n Lynch, Coector, v. ornby (23 ed., G 1), wheren t
was hed that dvdends receved by a stockhoder from the converson nto
money and the dstrbuton n a subsequent year of property owned by the
corporaton on March 1, 1913, and whch was on that date worth the amount
subsequenty receved therefor, was not ncome accrung durng the year of
dstrbuton and was not ta abe under the ct (Cf. Woods v. Leweyn, 252
ed., 10 Workman v. Commssoner, 41 . (2d), 139 . 8. ones case,
. T. ., 1048 . Nobe ayes case, 7 . T. ., 93 .) The fact that the contract
rghts n the present case had a determnabe vaue on March 1, 1913, does not
ater the rue, as may be seen from a readng of the cted cases.
The decson n the case of dredge v. Unted States (31 . (2d). 924) upon
whch the appeant rees Is not appcabe to the present case. It reates
rather to deductons for deprecaton of an ore property from the annua
royates receved by the essees thereof.
The decson of the oard of Ta ppeas s affrmed.
rtce 35: Gross ncome from busness.
Saes on open account to buyer bankrupt wthn year. (See Ct. D.
829, page 281.)
The nta payments from the sae of rea estate, under sec-
ton 212(d) of the Revenue ct of 192 , do not ncude amounts re-
ceved by the vendor n the year of sae from the dsposton to a
thrd person of notes gven by the vendee as part of the pur-
chase prce whch are due and payabe In subsequent years.
Recommended that I. T. 2339 (C. . I-1, 42) be revoked.
dvce s requested whether the nta payments from the sae
of rea estate, under secton 212(d) of the Revenue ct of 192 ,
ncude amounts receved by the vendor n the year of sae from the
dsposton to a thrd person of notes gven by the vendee as part of
the purchase prce whch are due and payabe n subsequent years.
Under date of May , 192 , the M Company sod certan rea es-
tate for a consderaton of 12a doars, recevng doars n cash
and the baance n 11 nterest-bearng notes of doars each matur-
ng at 1-year ntervas over a perod of 11 consecutve years. In the
year 192 the M Company sod four of the note at ther aggregate
face vaue of doars. ueston has arsen whether the amount
of 4 doars must be ncuded as a part of the nta pa3Tments.
Secton 212(d) of the Revenue ct of 192 gves ta payers the
prvege of reportng ncome reazed upon the sae or other dspo-
ston of rea estate on the nstament pan f the nta payments
do not e ceed one-fourth of the purchase prce. Inta payments
are defned by secton 212(d) as the payments receved n cash
or property other than evdences of ndebtedness of the purchaser
R NU CT O 1918.
rtce 44: Sae of rea property nvovng
deferred payments.
III-17- 7G5
G. C. M. 12987
R NU CT OP 1920.
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207
213(a), rt. 44.
durng the ta abe perod n whch the sae or other dsposton s
made.
In the case of Duram udng Corporaton v. Commssoner (
ed. (2d), 253, Ct. D. 758, C, . II-2, 174), the corporaton
sod certan rea estate n ebruary, 192 . It receved ess than 25
per cent of the purchase prce n cash, and the baance n the pur-
chaser s notes secured by mortgages. In ugust, 192 , the Duram
udng Corporaton qudated and the notes and mortgages were
dstrbuted to ts soe stockhoder. The soe stockhoder was ndebted
to the corporaton at the date of dssouton n the amount of
41,758.71, and a porton of the dstrbuted notes was credted n
192 aganst ths ndebtedness. The Commssoner contended that
n determnng the nta payments the amount of the debt so
pad must be added to the cash payments made by the purchaser,
wth the resut that the nta payments e ceeded 25 per cent of
the purchase prce, and precuded the use of the nstament bass
n reportng the proft derved from the saes. The court hed that
the nta payments referred to n secton 212(d) of the Revenue
ct of 192 were payments receved n the year of sae by the vendor
from the vendee, and dd not ncude amounts receved n the year
of sae by the vendor from the dscount or sne of the vendee s
evdences of ndebtedness to thrd partes. The court stated n
part that:
When the purchaser s notes are sod or otherwse dsposed to a
thrd party, they are not pad, nor does the vendor then receve payment
for the and n the ordnary sense of the word. In speakng of payments
receved, we thnk-the statute refers to payments receved from the purchaser
of the and .
It s the opnon of ths offce that the decson of the court n the
Duram udng Corporaton case correcty nterprets the provsons
of secton 212(d) of the Revenue ct of 192 as to the meanng of
the term nta payments. ccordngy, n the case of the
M Company, the nta payments do not ncude the amount
reazed upon dsposton of notes of the purchaser to a thrd party.
In vew of the foregong, t s recommended that I. T. 2339 (C. .
T-1, 42) be revoked.
Robert . ackson,
Genera Counse, ureau of Interna Revenue.
rtce 44: Sae of rea property nvovng III-17- 7
deferred payments. I. T. 277
R NU CT OP 102 .
In vew of Genera Counse s Memorandum 12987 (page 200, ths
uetn), I. T. 2339 (C. . I-1, 42), whch hods that or the
purpose of determnng the cassfcaton under whch a sae of
rea property nvovng deferred payments fas, amounts receved
by the vendor durng the ta abe year n whch the sae s made
through dsposton of the purchaser s obgatons are consdered a
part of the nta payments, s revoked.
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213(a), rt. 45.
208
rtce 45: Sae of rea property on nstament pan.
R NU CTS O 1921 ND 1924.
stoppe, ta payer reportng on nstament bass camng ncome
shoud have been reported on bass of competed sae. (See Ct. D.
781, page 213.
rtce 45: Sae of rea property on nsta- I -14- 733
ment pan. Ct. D. 808
ncome ta revenue act of 192 decson of court.
1. Net Income Instament Sae Notes Dscounted ob Sod
n Subsequent Years.
Where a corporaton sod ts assets n 192 , recevng ess tan
one-fourth of the tota purchase prce n cash and the baance n
notes, and n the foowng year dscounted or sod the notes to a
bank, beng contngenty abe as ndorser, the transacton was
cosed n 1927 and the proft refected n the notes dscounted or
sod consttutes ncome n that year, and the corporaton s not
entted to report the ncome n the subsequent years n whch the
notes were actuay pad to the bank.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (25 . T. ., 140) affrmed.
Court of teas of the Dstrct of Coumba.
tcorth-M ashburn Co., pettoner, v. Guy T. everng, Commssoner of
Interna Revenue, respondent.
Petton for revew of decson of Unted States oard of Ta ppeas.
efore Martn, Chef ustce, and Robe, an Orsde, tz, and Grone ,
ssocate ustces.
November G, 1933.
OPINION.
Groner, .: Pettoner s a Mnnesota corporaton. It was n process of
qudaton and n 1920 sod a of ts remanng assets for a tte ess than
00,000. The cash receved dd not e ceed one-fourth of the tota purchase
prce. It therefore eected to report the ncome from the transacton on the
nstament bass, and ths was accepted by the Commssoner.
The appcabe statute s secton 212(d) of the Revenue ct of 192 ( 44 Stat.,
23 T. 2 , U. S. C. ., secton 953). Under the provsons of ths secton a
ta payer who ses rea property, where the nta payment does not e ceed
one-fourth of the purchase prce, may return proportonatey the ta abe proft
n the succeedng years n whch the nstament payments are actuay receved.
In ths case there s no dspute as to the tota amount of proft derved from
the sae, nor dd the Commssoner queston pettoner s rght to spread ths
proft over the years of actua payment, but n the year foowng the sae pet-
toner ndorsed n bank the notes for the remander of the sae prce and
dscounted or sod the same to a bank for cash, recevng the face amount
thereof wth nterest.
The queston whch we have to decde s whether the proft refected n the
notes dscounted or sod was ncome to pettoner n 1927 (the year n whch
the transacton wth the bank was had) or n the subsequent years n whch
the notes were actuay pad to the bank.
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209
213(a), rt. 45.
The Commssoner nssts that when pettoner dscounted the notes and
receved fu payment therefor, the transacton was cosed and the entre gan
was then reazed and was therefore ta abe. Pettoner, on the other hand,
nssts that, because of ts Indorsement of the notes, t ncurred a contnung
abty to the bank whch deferred ts reazaton of gan unt the abty
was e tngushed by the payment of the notes. It says that Its reaton to the
bank was that of borrower, that the cash receved was a oan, and that t dd
not and coud not know the amount of proft t woud reaze on the notes unt
thty were fnay pad.
The man queston, n crcumstances neary dentca wth those we have here,
was |assed on by the Court of ppeas of the Second Crcut ( mer v. Com-
uuoner, Go P. (2d), 5 S). In that case the ta payer was the seng agent
for ord cars. The terras of sae contempated a parta payment n cash and
a seres of we ky or monthy notes, whch were n turn secured by a contract
of condtona sae reservng tte. The ta payer sod and assgned the con-
tracts to a fnance corporaton and ndorsed the customer s notes and n that
way receved n cash the tota purchase prce of the car. The agreement between
the fnance company and hmsef contempated that f there shoud be a defaut
u any of the notes he woud stand between the fnance company and oss. In
these crcumstances, udge Learned and, speakng for the court, hed that
the entre proft accrued In the year n whch the sae and assgnment of the
contracts occurred, and to the proposton whether the transfer of the notes was
a oan or a sae, sad: If a merchant dscounts hs customer s note at a bank,
ndorsng t, but gettng mmedate credt for ts dscount vaue, t woud be a
most unnatura thng to consder t a oan from the bank. e remans abe
f the customer defauts, but the coecton s n the bank s hands, and the
transacton s cosed In the absence of a defaut.
It s undoubtedy a fact that the terms oan, dscount, and sae, as
apped to a transacton such as s nvoved n ths case, are frequenty so
used by courts as to resut n a rather vague and ne act dstncton between
them. The queston arses mosty n cases nvovng usury statutes, and t Is
often sad that t Is the one or the other accordng to the nature of the
transacton and the facts attendng t. In some cases t s hed that a dscount
of an e stng chose n acton, when not used as a cover for usury, even though
the rate of dscount agreed upon s more than s permssbe under the usury
statutes, s not a oan wthn the meanng of those statutes but a sae, and
ths though the seer ndorses and guarantees the paper upon the transfer to
the purchaser. (See Nagara County ank v. aker, 15 Oho St., 8, at page 85.
See aso Cram v. endrcks, 7 Wend. (N. Y.), 5G9 Cobb v. Ttus, 10 N. Y., 198
Rapeye v. nderson, 4 (N. Y.), 472.)
On the other hand, there s a strong ntmaton to the contrary n Natona
ank v. ohnson (104 U. S., 271, 278). In that case a natona bank In New
York dscounted promssory notes of the hoder, who was not the maker, at
the rate of 12 per cent, whch was In e cess of the ega rate. The payee
ndorsed the notes, and, after ther payment by the maker, he sued the bank
and recovered doube the e cess nterest charges. The Supreme Court, speakng
of the nature of the transacton, sad: Unquestonaby, the transfer of the
notes, whch forms the bass of ths controversy, f not a oan, was a dscount.
ut n the vew we take of ths case, t s not necessary we shoud be at
pans to rnd a subte dstncton between the words we have dscussed. It s
enough to say that n ts ordnary sgnfcaton and n the anguage of the
bankng word, the word oan mpes an advance of money upon an absoute
promse to repay the word dscount, a deducton or drawback upon an
advance of money upon an evdence of debt payabe at a future date and a
sae, an absoute transfer of property or somethng of vaue from one person
to another for a vauabe consderaton. Whether the transfer of the notes
receved by pettoner as part of the purchase prce for ts property he denom-
nated a oan, a sae, a dscount, or a sae by way of dscount, s not determna-
tve of the rghts of ths case. The queston rather s whether the ta statutes,
fary construed, make the money receved by pettoner n the year 1927 gan
ur profts wthn the purvew of secton 213 of the Revenue ct of 192G (44 Stat,
23, T. 2 , U. S. C. ., secton 954).
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5213(a), rt. 45.
210
It s conceded by pettoner that n 1927 by the transfer n queston t re-
ceved from the bank n cash the tota face vaue of the notes whch t had
receved the prevous year n the sae of ts property. It s kewse conceded
that the transfer effected a compete change n tte to the notes. Thereafter
the bank hed them as ts own property, though t aso hed pettoner as n-
dorser. Pettoner, on the other hand, receved the money and thereupon
dstrbuted a but an nsgnfcant part of t to ts stockhoders, though the
dstrbuton was caed an advance, presumaby n order that t mght be re-
caed f ts abty as ndorser was thereafter enforced. It s therefore ap-
parent that pettoner had receved n cash the whoe baance of the purchase
prce of the property. The transacton n ts orgna form was thereby changed.
Pettoner no onger had any tte or rght to the annua nstaments of
the purchase prce. It had got a ts money and, e cept for ts contngent
abty as ndorser, the transacton was cosed and the nstament feature
abandoned.
To say that under these crcumstances pettoner s entted to the benefts of
the nstament provson woud be to e tend that provson beyond ts pan
ntendment. s the Supreme Court sad n Wess v. Steam (2 5 U. S., 242, 254
T. D. 3 09, C. . III-2, 51 ), uestons of ta aton must be determned by
vewng what was actuay done. s we have seen, what was done here was
the recept and dstrbuton by pettoner n 1927 of ts remanng profts from
the transacton n queston. The ct specfcay makes such profts ta abe
n the year n whch receved and the contngent abty whch pettoner
assumed as ndorser does not e tend the tme or make the provson referred
to ess effectve. Ths n prncpe, was decded by the Supreme Court n
urnet v. Sanford d rooks Co. (282 U. S., 359 Ct. D. 277, C. . -, 3 3 )
urnet . Thompson Gas O Co. (283 U. S., 301 Ct. D. 331, C. . -, 390 )
and North mercan O Co. v. urnet (28 U. S., 417 Ct. D. 499, C. . I-1,
293 ). In those cases t was hed that a ta payer shoud return ncome n the
year n whch t s receved wthout regard to the fact that there may be
cams aganst t not determnabe unt a subsequent year.
ffrmed.
rtce 45: Sae of rea property on nsta- III-17- 7 7
ment pan. Ct. D. 817
( so Secton 202, rtce 15 1.)
ncome ta revenue act of 1028 decson of codrt.
1. Instament Sae Inta Payment Proceeds of Second
mortgage.
Where a corporaton sod ts busness n 1927 for 95,000, the
consderaton beng composed of a 50,000 frst mortgage secured
by the property and 45,000 n cash receved at the tme of the
sae, 30,000 of whch represented the proceeds of a oan secured
by a second mortgage to a thrd party upon whch the corporaton
assumed a secondary abty, the proceeds of the oan are a part
of the nta payment, and as that e ceeds 25 per cent of the
purchase prce the transacton s not an nstament sae wthn
the meanng of secton 212(d) of the Revenue ct of 192 .
2. Gan or Loss ar Market aue Purchase Money Mort-
gage.
In determnng the gan derved by a corporaton from the sae
of ts busness, under the provsons of secton 202(c) of the Reve-
nue ct of 192 , the far market vaue of a purchase money
mortgage on the property s equa to ts face vaue, n the absence
of reabe evdence to the contrary.
3. Decson ffrmed.
Decson of the oard of Ta ppeas (25 . T. ., 792) affrmed.
4. Certorar Dened.
Petton for certorar dened ebruary 5, 1934.
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211
213(a), rt. 45.
Unted States Crcut Court of ppeas fob the Thrd Crcut.
Ma . Shubn and ora C. Shubn, on ehaf of Reabe Coa Co. (a Ds
soved Corporaton), pettoners, v. Commssoner of Interna Revenue,
respondent.
Petton for revew from tbe Unted States oard of Ta ppeas.
efore uffngton, Davs, aud Thompson, Crcut udges.
September 19, 1933.
opno .
Davs, Crcut udge: Ths Is a petton to revew an order of redetermna-
ton of the oard of Ta ppeas, sustanng the determnaton of the Com-
mssoner of Interna Revenue that there s a defcency n the ncome ta for
1927 of the Reabe Coa Co., a dssoved corporaton, for whose obgatons
the pettoners, Ma Shubn and hs wfe, Sara, are responsbe.
Id 1921, Ma Shubn purchased appro matey 2 acres of and for 21,000.
e formed a corporaton caed the Reabe Coa Co., for the purpose of engag-
ng n the busness of seng coa. e transferred the and to the company
In consderaton of 1 and the assumpton of a 20,000 mortgage then e stng
on the property. The coa company sod about 80 per cent of the and for
19,000, and retaned the rest upon whch t constructed an offce budng and
garage, and made other mprovements, at the cost of 23,834.72.
The coa company dd an actve busness wth annua profts of from 10,000
to 12,000. In 1927, t had appro matey 5,000 customers.
In pr, 1927, the corporaton sod ts busness to one Sverman for 90,000,
payabe as foows: 5,000 n cash upon sgnng the agreement 10,000 at ts
settement a frst mortgage for 50,000 on the busness and property for fve
years a second mortgage for 30,000 to a thrd party to be secured by the
seer.
The cash payments of 5,000 and 10,000 were made, and the frst mortgage
was e ecuted by Sverman. Shubn arranged wth a budng and oan assoc-
aton for the second mortgage, whch Sverman gave to the assocaton. t the
tme the cash payments were made, the coa company receved 30,000 repre-
sentng the proceeds of the oan secured by the second mortgage.
pparenty, the budng and oan assocaton woud not oan 30,000 to
Sverman on a second mortgage wthout substanta coatera. It requred
both the coa company and Shubn to gve bonds n the sum of 30,000 as
coatera for the mortgage. It aso obtaned securtes from Shubn of a
vaue of 12,000 and a etter of guarantee for 10,000 from Sverman s father.
fter the sae to Sverman, the coa company was dssoved and Shubn
assumed a of ts abtes. The budng and oan assocaton reeased tte
coa company s bond retanng Shubn s bond for 30,000.
Sverman proved unabe to conduct the coa busness successfuy and on
anuary 1, 1929, he turned t over to hs father, who subsequenty became a
bankrupt.
In computng the ta abty of the coa company for the year 1027, the
Commssoner of Interna Revenue determned that t reazed a proft of
3,875.55 from the sae of the busness to Sverman. Ths was arrved at by
deductng from the seng prce of 95,000 the cost of the assets an the e -
penses of the sae, the sums of 24,870.45 and ,254, respectvey. The Com-
mssoner aso determned that the transacton was not an nstament sae
wthn the meanng of secton 212(d) of the Revenue ct of 192 , snce the
amount of cash receved as nta payments upon the sae of the property was
n e cess of 25 per cent of the seng prce. The oard of Ta ppeas agreed
wth the Commssoner.
The pettoners contend that the proceeds of the second .mortgage obtaned
from the budng and oan assocaton were not a payment n cash of part of
the purchase prce of the property but a oan made on the bass of the securty
furnshed by the coa company. They say that the ony nta payments were
the two payments of 15,000 n cash that Sverman pad to the coa company.
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213(a), rt. 49.1
212
Secton 212(d) of tc Revenue ct of 1928 provdes that, n the case of a
casua sae of persona property for more than 1,000 or of a sae of rea prop-
erty, f In cther case the Inta payments do not e ceed one-fourth of the
purchase prce, the ncome may, under reguatons be returned on
the bass and n the manner above prescrbed (that s, the nstament pan)
. s used n ths subdvson the term nta payment means the pay-
ments receved n cash or property other than evdences of ndebtedness of
the purchaser durng the ta abe perod u whch the sae or other dsposton
s made.
The record docs not contan a copy of the bond but the facts show that the
abty of the coa company was secondary and subordnate to that of Sver-
man, the mortgagor. The oard consdered the transacton to be smar to one
n whch a seer receves promssory notes from the buyer n payment for
property and thereafter the seer ndorses and ses them. (Grace T. Mytngcr,
4 . T. ., 80 Packard Ceveand Motor Co., 14 . T. ., 118.) owever true
that may be, the resut that the oard reached s correct. The coa company
receved cash, to be used as t saw ft, n e change for ts property. It was
obgated to repay the money ony f Sverman faed prmary. The budng
and oan assocaton took the mortgage from Sverman and the coa company
the money for whch the mortgage was gven.
The pettoners aso contend that the oard erred n determnng that the
far market vaue of the frst mortgage on the property was 50,000 or ts
face vaue.
Secton 202 of the 1020 ct provdes that, n the case of an ordnary sae,
the sum reazed therefrom sha be the sum n cash pus the far market vaue
of any property receved. The Commssoner decded that the far market
vaue of the mortgage was equa to ts face vaue. s decson was approved
by the oard on the ground that the pettoners evdence was not suffcent to
overcome the prma face correctness of the Commssoner s fndng.
The record does not show any substanta evdence that the vaue was
arbtrary. The mortgage was part of the purchase prce for a proftabe and
growng busness. ut Shubtn was of the opnon that the property was
worth ony 30,000, athough he had refused offers of that amount and stated
that t was worth 00,000 and that was the fgure he wanted for t. rea
estate agent gave an opnon based on the offers that he obtaned, takng t for
granted that the prospectve purchasers had ooked nto the vaue themseves.
nay, Shubn testfed that some tme, whether n 1927 or not he coud not
say, he unsuccessfuy tred to dspose of the mortgage at a dscount and
attempted to use t as coatera for a oan. e was unabe to dspose of t
or obtan a oan for more than 20,000.
The oard of Ta ppeas s not bound by such unreabe evdence. The
burden s on the pettoners to show the ncorrectness of the determnaton.
The vauaton paced on the mortgage by the Commssoner was that assgned
to t by the partes n an apparenty bona fde sae of a vauabe busness.
The petton s dened, and the order of redetermnaton of the oard s
affrmed.
rtce 49: orgveness of ndebtedness. III-13- 722
( so Secton 204, rtce 1591.) I. T. 2772
R NU CT O 192 .
In vew of the Commssoner s nonacquescence n the decsons
of the oard of Ta ppeas n Des Mones Improvement Co. v.
Commssoner (7 . T. ., 279 page 21, ths uetn ) and mer-
can Seatng Co. v. Commssoner (14 . T. ., 328 page 18, ths
uetn ) and the decson of the oard of Ta ppeas n . .
very Sons, Inc.. v. Commssoner (2 . T. . 1393), I. T
240 (C. . TI-1, 8) s revoked.
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213
213(a), rt. 50.
rtce 50: When ncuded n gross ncome. III- - 41
( so Secton 213(a), rtce 45 Secton Ct. D. 781
214(a)9. rtce 201.)
INCOM T R NU CTS O 10.21 ND 1024 -D CISION O COURT.
1. G CS8 INCOM - C S R C IPTS ND DIS URS M NTS SIS.
Whore the ta payer and others by agreement wth opposng
camants of tte to certan gas and o ands se ther royaty
Interest for a consderaton of 200,000 to be pad to them from an
escrow account n an amount not to e ceed 25 per cent thereof In
each of the years 1921, 1922, 1923, and 1924, and where the entre
amount was actuay deposted n escrow durng the years 1921
and 1922 and dsbursed n accordance wth the terms of the con-
tract, the ta payer who reports ncome on the cash recepts and
dsbursements bass Is requred to ncude n gross ncome for
each year the amount he receves annnay, n accordance wth sec-
tons 212(b) and 213(a) of the Revenue cts of 1921 and 1924.
2. stoppe Statute of Lmtatons.
Where the ta payer eects to report ncome on the nstament
bass, he s estopped to cam for the frst tme n 1930 that the
ncome shoud have been reported on the bass of a competed sae
ether n 1921 or 1922, as the coecton of a defcency for ether
of those years was then barred by the statute of mtaton.
3. Deducton Depeton.
Where the tota amount of the sae prce under the contract
had been deposted n escrow by the end of the year 1922, the ta -
payer thereafter had no nterest n the o n pace n the eased
and and s not entted to deducton for depeton for the years
1923 and 1924.
4. Decson ffrmkd.
Decson of the oard of Ta ppeas (23 . T. ., 1) affrmed.
. Certorar Dened.
Petton for certorar dened October 9, 1933.
Unted States Crcut Court of ppeas for the fth Crcut.
. C. Waker, r., pettoner, v. Commssoner of Interna Revenue, respondent.
Petton for revew of decson of the Unted States oard of Ta ppeas (Dstrct of
Lousana).
efore ryan, utcheson, and Waker, Crcut udges.
ebruary 15, 1933.
OPINION.
Waker. Crcut udge: The pettoner, . C. Waker, r., appeaed to the
oard of Ta ppeas from a determnaton, made n November, 1927, of the
Commssoner of Interna Revenue assessng addtona ta es aganst hm for
the years 1923 and 1924. In hs orgna petton pettoner companed of
the acton of the Commssoner prncpay on the ground that that offca
dsaowed a cam of the pettoner that he was entted to a depeton aowance
aganst the sum receved by pettoner from royaty under an o and gas
ease pursuant to an agreement herenafter mentoned. y an amended pet-
ton fed n pr, 1930, pettoner chaenged that determnaton on the add-
tona ground that the moneys receved by hm under the above-mentoned
agreement durng the years 1923 and 1924 dd not consttute ta abe ncome
of ettoner for those years, and that pettoner owed no ncome ta whatever
thereon. Pettoner s above-mentoned contentons were re|ected by the oard of
Ta ppeas.
Pror to une 23, 1920, . C. Waker, r., the pettoner, as Godsten aud
George West camed certan royaty nterests n Lousana o ands under
one tte, and the frm of oster, Looney Wknson camed royay nterests
n the some ands arsng under an adverse tte the opposng camants of
tte then beng engaged n tgaton. The above-named camants of ncon-
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213(a), rt. 50.
214
sstent royaty rghts compromsed ter dspute by an agreement evdenced by
a wrtten nstrument dated une 23, 1020, n whch Waker, Godsten and
West were caed vendors, and oster, Loouey and Wknson were caed ven-
dees, that nstrument beng n form a sae wthout warranty by Waker,
Godsten and West to oster, Looney and Wknson of a one-s teentb
(1/1 ) royaty nterest n sad and for a consderaton of 200,000, f produced
from that royaty nterest, and to be pad as stated beow. Under that agree-
ment the vendees were entted to receve and retan a sums accrung to the
credt of sad royaty nterest up to une 1, 1020 a sums thereafter accrung
to the credt of that nterest to be pad to the Cty Savngs ank Trust Co. of
Shreveport, La., desgnated gent of a partes hereto for the purpose of re-
cevng such royaty, acknowedgng recept thereof, and hodng and dstrbutng
the sums n accordance wth the provsons of the contract those sums to be
by that bank deposted to the credt of an account entted scrow account,
George West, . C. Waker, r., and as Godsten and that bank, on the
2d day of anuary n each of the years 1921, 1922, 1923, and 1924, there beng
suffcent funds to the credt of sad account to transfer 50,000 from that
account to the credt of the vendors n the proporton of one-thrd each. In any
event the vendors were to receve n the way stated the sum of 200,000 and no
more f the amount to the credt of the descrbed account shoud reach that
sum. That nstrument contaned the foowng provsons: Durng the term
of ths contract, and as ong as money sha be deposted wth t hereunder, the
sad Cty Savngs ank Trust Co. sha pay nterest on the day baances to
the credt of the aforesad escrow account at the rate of 4 per cent (4 ) per
annum, such nterest payments to be added to and to form a porton of the funds
to the credt of the aforesad account, and to be credted by the sad bank quar-
tery unt the sad sum of two hundred thousand ( 200,000) doars sha have
been credted to sad account, when and thereafter such nterest payments on
the sums remanng on depost n sad bank under the terms hereof sha be pad
to the vendees. When the sad vendors sha have receved the fu sum
of two hundred thousand ( 200,000) doars, as heren provded, the sad bank
sha pay over to the sad vendees any and a sums yet remanng to the credt
of the aforesad escrow account and from and after such date a moneys ac-
crung to the credt of the aforesad one-s teenth (1/10) nterest sha be pad
drect to these vendees and these vendors sha have no nterest whatsoever
theren. Sums accrung to the credt of that royaty nterest after une 1,
1920, amountng n the aggregate to 200,000.01, were pad n to the bank for
sad account durng the years 1921 and 1922. Out of that account the bank
pad to Waker and Godsten 50,000 n each of the years 1921, 1922, 1923, and
1924, after Waker and Godsten had purchased from West hs nterest under
the agreement. In hs ncome ta returns for the ta abe years 1921 to 1924. n-
cusve, the pettoner, who used a cash bass of accountng, ncuded n hs
gross ncome sums ya d to hm under the above-mentoned agreement n each
of those years reportng the sum of 12,500 receved from the fund mentoned.
s wfe fed separate returns under the communty property aws of Lousana,
reportng the same amounts of ncome from the same source. Godsten and
hs wfe made ke returns n the four years mentoned. The Commssoner
accepted each of those returns as a bass for computng the ta payer s ta
abty.
The above-mentoned contract has been before ths court In the cases of
Unted States v. Looney (29 ed. (2d), 884) and arnette v. Commssoner of
Interna Revenue (49 ed. (2d), 2 5), whch concerned ncome ta es for 1921
of members of the frm of oster, Looney Wknson. Nether of those cases
nvoved a queston as to the ta abty of other partes to that contract re-
sutng from compance wth ts provsons wth reference to payments to be
made to them. n effect of that contract was that Waker, Godsten and West
parted wth whatever rght they had or camed n or to the one-s teenth (1/1 )
royaty nterest, e cept the rghts to have a sums, up to a tota of 200,000,
accrung to the credt of that royaty nterest after une 1, 1020, pad to a
desgnated bank, to be deposted to the credt of a descrbed account, and to
have that bank, on a stated date In each of four succeedng years, or as soon
thereafter as the amount to the credt of the account shoud be suffcent for
that purpose, wthdraw from that account the sum of ffty thousand ( 50,000)
doars and credt thut sum to Waker, Godsten and West n stated propor-
tons. owever soon after une 1, 1920, sums accrung to the credt of the
royaty nterest mght reach a tota of two hundred thousand ( 200,000)
doars, under the contract Waker, Godsten and West were not entted to
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215
213(a), rt. 50.
receve the whoe or a part of the consderaton recevabe by them e cept In
accordance wth the provson for nstament payments by the bank out of the
fond deposted wth It. The other partes to the contract, oster, Looney
Wknson, had a substanta nterest n the provson as to nstament pay-
ments beng comped wth, resutng from the provsons wth reference to
nterest, under whch requred payments of nterest were to be added to and
form a part of the fund out of whch the stpuated nstaments were to be
pad to Waker, Godsten and West, and any baance remanng n that fund
after the payment of the ast of the stpuated nstaments was to be pad to
oster, Looney Wknson. The pettoner s rght to share n the fund de-
posted n bank was f ed by the contract. Durng the years 1921 and 19 22 he
dd not receve, and under the contract was not entted to receve, from that
fund more than he reported n hs ncome ta returns for those years. What
was returnabe by hm for each of those years as an Item of gross ncome from
that source was the sum he receved durng that year, that sum beng the
ncome from that source whch was requred to be ncuded n gross ncome by
the provson to the effect that the amount of tems of gross ncome (wth an
e cepton not here matera) sha be ncuded n the gross ncome for the ta -
abe year n whch receved by the ta payer, uness, under permtted methods of
accountng, any such amounts are to be propery accounted for as of a dfferent
perod. (Revenue ct of 1921, sectons 212(b), 213(a), 42 Stat., 227 2
D. S. C. ., sectons 953, 954 Maryand Casuaty Co. v. Unted States, 251
U. S., 342.) If the above-mentoned wrtten nstrument propery may be re-
garded as evdencng a sae or other dsposton by pettoner of property on
the Instament pan, In whch the nta payment dd not e ceed one-fourth
of the purchase prce, under appcabe statutes and reguatons It was per-
mssbe for pettoner and hs wfe together to return for each of the years
1921 and 1922 one-fourth, and no more, of hs share of the amount of that prce.
(Revenue ct of 1921, secton 212(b), 42 Stat., 227 Revenue ct of 1920, sec-
tons 212(d), 1208 Treasury Reguatons 02, artce 42 Treasury Reguatons
5, artce 42 Commssoner of Interna Revenue v. Moore, 48 ed. (2d), 52
Ct D. 407, C. . -2, 233 .) Whether the transacton n queston was or was
not a sae or other dsposton of property by the pettoner, under the contract
he was wthout rght to receve n any year from the fund provded for more
than hs share of 50,000. It not appearng that pettoner at any tme used the
accrua bass of accountng, t was permssbe for hm n hs return for each
of the years n whch he receved payments from the fund mentoned to ncude
n hs gross ncome the amount, and no more than the amount, of hs share of
the 50,000 actuay receved durng that year. ven f he had the eecton to
ntude n hs gross ncome for the years 1921 and 1922 both the amounts
actuay receved by hm from the fund mentoned durng those years and
amounts thereafter payabe from that fund, hs rght to whch accrued In those
years as a resut of the fund then reachng the tota of 200,000, when by hs
amended petton ted n pr, 1930, he frst camed the rght to e cude from
hs gross ncome as reported for the years 1923 and 1924 the amounts receved
by hn from the fund durng those years, t no onger was open to hm to do
so, partcuary as a resut of such e cuson woud be that coecton of ta es
based on pettoner s recept of, or the accrua of hs rght to receve, the
e cuded sums woud be barred by mtaton. (Commssoner of Interna
/: n MM v. Moore, supra.)
Pettoner s cam that he was entted to deductons for depeton aowances
for the years 1923 and 1924 had not been urged n argument n hs behaf.
The tota of the 200,000 fund from whch pettoner was to be pad hs part
of the consderaton recevabe by hm under the contract havng been deposted
n the bank before the end of the year 1922, n the years 1923 and 1924 pet-
toner had no nterest n the o n pace In the eased and. Ths beng so,
he was not entted to the depeton aowances camed.
No error appearng n the record, the petton s dened.
rtce 50: When ncuded n gross ncome.
R NU CT O 1918.
Coecton of debts aeged to be worthess, mpropery deducted
n pror years. (See Ct. D. 80 , page 229.)
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213(a), rt. 52.
21
rtce 50: When ncuded n gross ncome.
R NU CT O 1921.
Stock receved pursuant to agreement whereby stock was ssued
to trustee perodcay, ta payer havng agreed to reman n corpora-
ton s empoy for certan perod. (Sec Ct. D. 825, page 350.)
rtce 50: When ncuded n gross ncome.
R NU CT O 1021.
greement by essee to pay ta es. (See Ct. D. 838, page 295.)
rtce 52: ampes of constructve recept. III-23- 831
( so Sectons 1003 and 1004.) Ct. D. 834
INCOM ) T R NU CT O 1921 D CISION O COURT.
1. Income Insurance Commssons ssgnment Payment op
ssqnob s Debts.
Where a ta payer assgrs to hs wfe a parta nterest for a m-
ted perod n a contract for fe nsurance commssons, n consd-
eraton of her renuncaton of certan nterests n hs property and
her agreement to pay certan of hs debts, the amounts pad by the
wfe to the husband s credtors, beng the money consderaton for
the assgnment, consttute ta abe ncome to the husband, even
though the assgnment by hm was of property, not ncome.
2. oard of Ta ppeas Case Remanded uthorty to Con-
sder ueston Prevousy Rased but not Decded.
Where the court reverses a decson of the oard of Ta ppeas
and the case s remanded for further proceedngs for the purpose of
determnng the ta payer s abty upon the bass of the court s
hodng, the oard n such further proceedngs may consder and
decde an aternatve cam made by the Commssoner at the org-
na hearng but not then consdered or decded by the oard or the
court.
Court of ppeas of the Dstrct of Coumba.
rthur . a, appeant, v. Guy T. cvcrng, Commssoner of Interna
Revenue.
ppea from the oard of Ta ppeas.
efore Martn, Chef ustce, and Robb, an Orsde, tz, and Groneb,
ssocate ustces.
December 4, 19.13.
opnon.
tz, ssocate ustce: These cases nvove Income ta es for the years 1921
and 1923, amountng to 12,253. 3 and 8, 22.09, decded by the oard of Ta
ppeas to be due by orders of redetermnaton of uy 12, 1932.
They are here for revew under stpuaton as provded by the Revenue ct
of 192 . They were here before, when an earer decson of the oard was
reversed and the cases remanded for further proceedngs. urther proceedngs
were had, and ths appea s from the decson of the oard rendered theren.
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217
213(a), rt. 52.
The e act queston now presented was not decded on the former appea, nor
was t then suggested by ether sde, though t seems from the present record
that t had been dscussed beow. y contract e ecuted September 23, 1905, the
appeant entered the empoy of the Lncon Natona Lfe Insurance Co., wth a
yeary saary and commssons on a renewa premums pad the company from
year to year on fe nsurance wrtten and ssued by the company durng the
contnuance of hs contract. Such annua commssons grew to consderabe
amounts, and n tme were assgned by the ta payer n part to hs second wfe,
under a contract whereby she renounced certan nterest n hs property n favor
of hs chdren by a frst marrage, and agreed to pay off certan debts of the
ta payer. Under ths contract, and another suppementary thereto, the nsur-
ance company pad to Mrs. a the commssons as provded, whch she ncued
n her ncome-ta return.
The queston then arose between the appeant and the Commssoner as to
whether the assgnment to Mrs. a consttuted a transfer of future ncome
on whch her husband shoud be ta ed, or whether t was an assgnment of
property.
The oard of Ta ppeas decded t was the former ths court decded t
was the atter, reversed the rung, and sent the case back for further proceed-
ngs. (54 ed. (2d), 443, 0 pp. D. C, 332.)
In the further proceedngs before the oard, the Commssoner contended
that, f the sums receved by the wfe were not ncome ta abe to the husband,
nevertheess the amount she pad out of these sums to dscharge the dcbr.s of
the husband was ta abe to the husband.
Whereupon the oard decded that the sums pad by the wfe to the credtors
of the husband consttuted ta abe ncome of the husband, and the fact that
t reached hs credtors by the hand of hs wfe actng under a contract wth
hm dd not change ts character for purposes of ta aton.
rom that decson ths appea was taken.
When the queston arose as to whether there was a defcency n pettoner s
ta es, he appeaed to the oard, and thereby stopped the runnng of the statute
of mtatons unt fna determnaton of that queston, but when the ease
was here before ths court dd not decde, nor was t asked to decde whether
there was a defcency n pettoner s ncome ta .
We decded ony that what passed from the husband to the wfe under ther
contract was property, not ncome and remanded the case for the further
proceedngs.
Such further proceedngs coud ony mean to f the ta payer s abty, f
any, on that bass whch n turn coud ony mean that the consderaton for the
assgnment shoud be taken nto account and the aws determnng what s
gan or oss from the sae of property shoud be apped to arrve at the ta
( ue.
Uness some mstake appears n the appcaton of those statutes, we are not
concerned wth the queston of fact as to how much of the agreed consderaton
was actuay pad.
That s a queston for the oard but whether the amount so found by the
oard to have been pad was gan for purposes of ta aton s a queston of
aw. as to whch we arrve at the same concuson as the oard, though by a
somewhat dfferent road.
The oard hods that, snce the contract between the nsurance company was
acqured pror to March 1, 1913, wth no defnte prce pad and no market
prce avaabe, when the husband assgned a porton thereof to hs wfe n
1920 the amount receved from her was a gan, and consequenty was a
ta abe.
We need not dscuss whether that woud be true had the entre contract been
assgned, because that was not done.
ut the property that was assgned was a parta nterest n the contract
for a defnte and mted perod fve years n a.
In ths respect the assgnment much resembes a ease for years on a vauabe
consderaton, and, ke a ease, the market vaue of the property of whch t
transferred a part was mmatera.
nd as the usua deductons for ta es and other necessary e pendtures
avaabe to a essor dd not occur n ths case, the pettoner was ta abe on
the entre money consderaton for hs assgnment, as hed by the oard, that
s to say, on 5 ,025 for 1921, and on 34,978.27 for 1923.
77CC2 34 8
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213(a), rt. 52.
218
Consequenty the orders appeaed from w be affrmed. (Mutua fe Co. v.
, 193 U. S., 553 Southern Ra-way Co. v. entucky, 284 U. S., 341 Woff
Packng Co. v. Industra Court, 2 7 U. S., 502 Od Coony Trust Co. v. Com-
mssoner, 279 U. S., 729 Ct. D. 80, C. . I1I-2, 222 Taenzer t Co. v. Chcago,
R. I. P. R. R. Co., 191 ed., 547 Pato v. en cst Commsson Co., 108
ed., 728 awkns v. Ceveand, C. C. 8t. L. Ry. Co., 99 ed., 322 ar v.
Cumn, 24 ed. (2d), 390 Chrstopher v. urnet, 55 ed. (2d), 529 Ct. D. 530.
C. . I-2, 1 7 Cement Gun Co. v. CommUsoner, 3 ed. (2d), 107 U. S. C.
Supp. , tte 2 , secton 1057 U. S. C. pp., tte 2 , sectons 1048, 1049(a),
1051, 1057, 1224, 1225, 122 , 1248.)
ffmed.
rtce 52: ampes of constructve recept. III-20- 8
G. C. M. 13193
R NU CTS O 102- ND 102 .
Dvdends decared by the M Company n the years 1924 and
1925 on Its preferred sock were credted to the account of the
ta payer, who was presdent, drector, and domnant stockhoder,
but were not wthdrawn by hm. The mnorty stockhoders of
the corporaton wthdrew ther dvdends mmedatey upon dec-
araton, and the ta payer coud kewse have made such
wthdrawas. t the cose of the year 1925 the ta payer s account
contaned a arge credt baance. The board of drectors of
the corporaton ater agreed that the dvdends credted to the
drectors accounts shoud be canceed and transferred to the
surpus account of the corporaton.
Ied, the dvdends decared and credted to the ta payer s
account n the years 1924 and 1925 were constructvey receved
by hm n those years, and were propery Incuded n hs ncome
ta returns.
n opnon s requested whether dvdends decared by the M
Company n 1924 and 1925 consttuted ncome to the ta payer n
those years. The dvdends n queston, whch were credted to
the ta payer s account on the corporaton s books, were not wth-
drawn by hm and were, ater canceed and credted to the surpus
account of the corporaton.
The ta payer was presdent of the M Company and owned a of
the outstandng common stock. Of the 5.3a shares of preferred stock
he owned 3.2.# shares, two sons of the ta payer owned .5, shares
each, two granddaughters (for whom the ta payer was trustee)
owned .25| shares each, and the remanng . .t shares were owned by
empoyees and customers of the frm. Durng the years 1924 and
1925. athough the dvdends decared on the preferred stock were
wthdrawn mmedatey by the mnorty stockhoders, the. ta payer s
share of the dvdends was merey credted to hs account on the
company s books, so that at the cose of the year 1925 the ta payer s
account showed a arge credt baance. The board of drectors of
the corporaton ater agreed that the unpad dvdends standng to
the drectors accounts shoud be canceed and the tota amount
thereof transferred to the surpus account of the corporaton. The
dvdends credted to the ta payer were reported n hs ncome ta
returns for the years 1924 and 1925. e has now fed a cam for
refund based on the ground that snce the corporaton never had
suffcent cash on hand at any tme durng the years n queston to
pay the dvdends credted to hs account, he dd not receve ncome
n that amount ether actuay or constructvey. The Income Ta
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219
213(a), rt. 52,
Unt has taken the poston that there was constructve recept of
the dvdends wthn the meanng of artce 51, Reguatons 5 and
9, whch provdes n part as foows:
bt. 51. Income not reduced to possesson. Income whch Is credted to the
account of or set apart for a ta payer and whch may be drawn upon by hm
at any tme s sub|ect to ta for the year durng whch so credted or set apart,
athough not then actuay reduced to possesson. To consttute recept n such
a case the ncome must be credted to the ta payer wthout any substanta
mtaton or restrcton as to the tme or manner of payment or condton upon
whch payment s to be made. book entry, f made, shoud ndcate an abso-
ute transfer from one account to another. If the ncome Is not credted, but
s set apart, such Income must be unquafedy sub|ect to the demand of tha
ta payer.
rtce 52 of Reguatons 5 states that Dvdends on corporate
stock are sub|ect to ta when unquafedy made sub|ect to the de-
mand of the stockhoder. To the same effect s artce 52 of Regu-
atons 9. The utmate requrement for determnng the construc-
tve recept of ncome s the avaabty of such ncome, . e., whether
a ta payer, though not n possesson of the ncome, may demand
and be entted to receve the tems aeged to be ncome to hm.
Where compensaton s credted to a ta payer wthout substanta
mtaton or restrcton as to tme, manner, or condton upon whch
payment s t be made, and mght have been wthdrawn by hm
at any tme durng the year n whch t was credted, the fact that
t was not wthdrawn n whoe or n part s of no mportance n con-
sderng the ncdence of the ta . (See urns et a. v. Commssoner,
31 ed. (2d), 399, cert, dened, 280 U. S., 5 4 cf. ppea of Rosheh
ros. Co., etc., 2 . T. ., 2 0, acquescence C. . I -2, 4 and
Weed ro. v. Unted States, 38 ed. (2d), 935, cert, dened, 282
U. S., 84 , where the converse stuaton arose n that funds credted
to stockhoders wthout any mtaton as to the manner or tme of
payment were regarded as borrowed rather than nvested capta
of the corporaton.) Smary, where a ta payer was credted wth,
but dd not wthdraw, an authorzed saary of 1,000 per month,
and upon the formaton of a new corporaton to take over the oa
the ta payer nstructed the bookkeeper to consder the accumuated
saary as property of the new corporaton, t was hed that snce the
corporaton was competey under the contro of the ta payer the
avaabe credts on the corporate books consttuted payment wthn
the meanng of the statute. Schoenhet et a. v. Lucas, 44 ed.
(2d), 47 .) Therefore, the fact that n the nstant case the ta payer
was n compete contro of the corporaton, that the dvdends were
decared and credted to hs persona account on the corporaton s
books wthout any quafcaton as to the tme or mode of payment,
nd that the mnorty stockhoders reguary wthdrew ther share
of the decared dvdends tend to estabsh a constructve recept
of ncome n the amount credted.
The ta payer contends, however, that the crteron of ava-
abty s the further requrement that there must be suffcent
cash on hand wth whch to pay the ncome whch s credted and
that n the ght of the suppementa fnanca statements submtted
by the ta payer the corporaton s fsca condton warranted nether
the decaraton nor the payment of the dvdends. In the opnon
of ths offce, the ta payer s suppementa statements, rather than
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213(a), rt. 52.
220
estabshng an unfavorabe baance on the corporate accounts,
merey show that the corporaton acked ready cash wth whch to
pay the tota dvdends credted to the ta payer. It was a matter
of nterna corporate management whether a dvdend shoud or
shoud not be decared. The ta payer, who was n compete contro
of the corporaton, authorzed the decaraton of the dvdends n
queston and the mnorty stockhoders thereupon wthdrew ther
dvdends. though the ta payer eected to et hs dvdends reman
wth the corporaton, the Government shoud not be asked to specu-
ate wth the ta payer on a possbe oss due to ether fuctuatons
of the market or msmanagement. ( acsett v. Commssoner, 3
ed. (2d), 445.)
In the corporate return for 1924, whch was sworn to by the
ta payer as presdent, t was stated that the surpus and undvded
profts as shown by the baance sheet at the cose of the precedng
ta abe year (1923) were 200a doars and the surpus and un-
dvded profts as shown by the baance sheet at the cose of the
ta abe year (1924) were 100a doars. That same return aso
ndcated that there were dvdends pad durng the ta abe year
on March 31 n the sum of 20a doars and on September 30 n the
sum of 20a doars. In the corporate return for 1925, aso sworn to
by the ta payer as presdent, the surpus and undvded profts as
shown by the baance sheet at the cose of the ta abe year were
100a doars and the dvdends pad durng the ta abe year on
March 1 were 15a doars, and on September 1, 15a doars.
In ohn I. Chpey v. Commssoner (25 . T. ., 1103), the pet-
toner owned a the stock of a corporaton and was credted wth a
monthy saary at 1,000, a part of whch he dd not wthdraw,
athough the corporaton was sovent at a tmes, had a surpus, and
pad other saares n fu. In the corporaton s ncome ta returns,
whch were sworn to by the ta payer as presdent, there was deducted
from ncome the saary credted to the ta pa37er. Wth respect to
the ta payer s faure to ncude that saary n hs own return, the
oard commented as foows:
Ths pettoner owned a of the stock of Chpey s Unversa Motor Co., Inc.,
durng a of the year 1923. s contro of the actons of that corporaton
durng the year coud not have been chaenged. The corporaton each month
accrued on ts books a abty of 1,000 representng one-twefth of the yeary
saary due ts presdent, the pettoner. The atter knew and must have ap-
proved of ths. On the ncome-ta returns of the corporaton deductons were
camed for the fu amount of ths saary. The pettoner sgned and swore
to these returns. The corporaton was aowed the beneft of these deductons
by the Commssoner. The corporaton credted the saary to the account of
the pettoner on ts books. Durng the year the pettoner wthdrew a sma
part of hs saary. e coud have wthdrawn t a f he had so desred. or
hs own purposes he chose not to wthdraw a of t. Under such crcumstances
t s obvous that he had receved the saary of 12,000, constructvey or
otherwse, for ncome ta purposes.
It s true n the nstant case that the dvdends were not deductbe
from the corporaton s gross ncome. ut the aowance of the sa-
ary as a corporate deducton s ony one bass for the oard s decson
n the Chpey case. The ta payer s contro of the corporaton n
that case, the credtng of the saary on the corporate books wth the
knowedge of the ta payer, the ncuson of the tem on the corpo-
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221
5213(a), rt. 52.
rate returns whch were sgned and sworn to by the ta payer were
aso compeng reasons for the oard s concuson.
case anaogous n many respects s the ppea of ohn .
rander (3 . T. ., 231), where the pettoner was entted to a
certan saary from the corporaton of whch he and another were the
soe owners. In that case the pettoner dd not wthdraw the entre
saary whch was credted to hm, athough there were adequate
corporate earnngs for the year n queston. The corporaton pad
for ts purchases wthn 10 to 30 days, whe t e tended credt to ts
customers of from GO to 90 days. of ts assets were pedged wth
banks for oans. The pettoner contended that he was not ta abe
on the amounts credted to hm, but not wthdrawn, because of the
ack of fnanca qudty on the part of the corporaton. The
oard, wth respect to that contenton, commented as foows:
there are cear cases of constructve recept, such, for e ampe, as
that of the bond owner who chooses not to cash hs coupon but to permt t
to reman uncut n the possesson of another. e w not be heard to say that
the amount of the coupon s not hs ncome because he dd not n fact cceve
t The recept s entrey wthn hs own contro and dsposton. So, from
the evdence, t seems to be n the present appea. rander and Curry were
the soe owners of the busness and a ts assets. rander, as presdent, coud
at any moment have eected to take the 2,904.49 as he dd the 112, 1.51, and
no one ese coud have prevented hm. The corporaton herd suffcent assets
to pay hm and there was no one to dspute hs rght to t. e contends that,
as a practca matter, the assets were pedged, and hence beyond hs dsposton.
ut the pedge tsef teas hs vountary act. Durng the year he permtted tho
corporaton to change ts nvestments, and e coud |ust as freey have permtted
It to pay ts saary debt to hm. It was not that the corporaton woud not
pay, but rather that he woud not receve. Ths eecton to gve the corporaton
the temporary use of the amount s an e ercse by hm of ts en|oyment, and
ths s one of the prmary attrbutes of ncome. The Commssoner therefore
correcty determned that the ta payer s ncome from saary and commsson
was 115,1 0. Itacs supped.
Smary, n the nstant case the earnngs of the corporaton were
suffcent to pay the corporate dvdends as decared, but the e tenson
of credt by the corporaton to ts customers and the necessty for
obtanng oans to carry on the norma cash requrements of the
busness nduced the ta payer (who was practcay the owner of
the busness) to decde aganst the wthdrawa of hs own dvdends.
In rooks v. Commssoner (35 ed. (2d), 178), the ta payer
owned 75 per cent of the stock n the corporaton and the ta payer s
daughter and certan empoyees of the company owned the reman-
ng 25 per cent. In that case a dvdend was decared but t was
agreed among the stockhoders that the dvdend shoud not be pad
unt the corporaton had funds whch t coud spare for that pur-
pose. of the stockhoders n that case e cept the ta payer were
pad the dvdend n 1919. ke agreement was entered nto n
1920 and 1921, and n those years the mnorty stockhoders were
pad ther dvdends n fu whe the ta payer s dvdends were
merey credted to hm on the corporate books. The Commssoner
n hodng that these dvdends were ncome to the ta payer showed
that the corporaton s surpus for 1918, 1919, 1920, and 1921 was
suffcent to have pad the ta payer s dvdends n fu. The Crcut
Court of ppeas for the ourth Crcut n affrmng the decson of
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213(a), rt. 2.
222
the oard of Ta ppeas, whch uphed the Commssoner s pos-
ton, stated n part as foows:
The Sanford rooks Corporaton s what may be caed a 1-man corpora-
ton. The pettoner owned the ma|orty of the stock. The mnorty stock-
hoders were empoyees of the company and the pettoner s daughter. In hs
evdence before the oard, the pettoner testfed that drectors of the corpora-
ton were empoyees of the company, and ncuded hs two sons, and that thera
was aways a quorum of drectors n the offce. The nference s cear that,
wth respect to acton as to the dvdends decared, the pettoner was the con
trong nfuence. The respondent In ts answer aeged that (he surpus of
the corporaton had ncreased from 7,000 n 1918 to 252,000 n 1921.
the dvdends were pad to a the other stockhoders n each of the years In
queston, whe the dvdends of the pettoner remaned unpad that s to
say, though pettoner s 1919 dvdends remaned unpad, the other stockhoders
receved ther dvdends, wthout abatement or deay, for that year and aso
for the subsequent years.
The entry on the bocks of the company gvng pettoner credt for the dv-
dends for each succeedng year, thereby makng hm, nstead of a stockhoder
wth a dvdend due hm condtonay, a credtor of the corporaton, whe not
concusve as to the character of the transacton, s certany strong evdence
supportng the concuson that pettoner eft the dvdends wth the company
more n the character of oans than that of contngent dvdends. Itacs
supped.
It may be ponted out n the nstant ea.se, wth respect to acton
as to the dvdends decared, that the ta payer was the controng
nfuence, that the surpus for those years was suffcent to cover the
dvdends, that current dvdends were pad to the mnorty stock-
hoders whe the controng stockhoder aowed hs dvdends to
reman unpad, and that the entry on the company s books credtng
the ta payer wth dvdends for each year made hm a credtor of
the corporaton.
In cases where corporatons are cosey controed, as n the nstant
case, t has even been hed that a forma or e press decaraton of
dvdends by the corporaton s not necessary for the amounts cred-
ted to an ndvdua stockhoder to be consdered ncome to hm,
where t appears that the stockhoder had the authorty to draw
ndscrmnatey aganst the sum to hs credt, and the whoe sum
was unquafedy sub|ect to hs demand. (Iadeu v. Commssoner,
30 ed. (2d), 543, Ct. D. 153, C. . I -1, 200 George . Towe v.
Commssoner, 19 . T. ., 208, acquescence C. . I -2, 00.)
In vew of the foregong, t s the opnon of ths offce that the
dvdends decared by the M Company n the years 1924 and 1925,
whch were credted to the ta payer s account on the corporaton s
books, were constructvey receved by hm n those years, and were
propery ncuded n hs ncome ta returns.
Robrt . ackson,
Genera Counse, ureau of Interna Revenue.
btc.e 52: ampes of constructve recept.
MND CT O 1924.
Dvdends decared and not wthdrawn. (See G. C. M. 13193,
page 218.)
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223 214(a), rt. 112.
S CTION 213(b). GROSS INCOM D IN D:
CLUSIONS.
rtce 87: Income of States.
R NU CTS O 191 , 1917, 1918, 1921, 1924, ND 192 .
arnngs of fund representng ony a prvate nterest n custody
of cty offca. (See Ct. D. 813, page 201.)
rtce 89: ddtona e cusons from gross ncome.
R NU CT O 1921.
Revocaton of I. T. 1307 (C. . 1-1,110) n so far as t s n confct
wth I. T. 27 0 (page 35.)
S CTION 214(a) 1. D DUCTIONS LLOW D INDI-
IDU LS: USIN SS P NS S.
rtce 101: usness e penses.
R NU CTS O 1918, 1921, 1924, ND 1928.
penses pad or ncurred wth respect to the management, pro-
tecton, and conservaton of propertes producng ta abe ncome.
(See. T. 2751, page 43.)
rtce 101: usness e penses.
R NU CTS O 1918, 1921, 1924, ND 102 .
Insurance premums pad n advance for perod of more than one
year. (See G. C. M. 13148, page 7.)
rtce 112: When charges deductbe. III-7- 51
Ct. D. 78
INCOM T R NU CTS O 1921 ND 1020 D CISION O SUPR M
COURT.
1. Income Overrdng Commssons Deducton Return
Commsson ccount.
genera Insurance agent, accountng on the accrua bass, who
receves overrdng commssons on net premums (urng the
year n whch the busness s wrtten, s requred to report as
ncome the gross amount of such commssons wthout deductng
therefrom the amount of a return commsson account voun-
tary set up to cover return of commssons n future years due
to rensurance or canceatons. Such a reserve does not come
wthn the aowabe deductons specfed n secton 214 of the
Revenue cts of 1921 and 192 .
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214(a), rt. 112.
224
2. Income Overrdng Commssons ocaton to uture
Tears.
Where the Commssoner beeves that the ta payer s ncome
has, n pror years, been accuratey refected by treatng over-
rdng commssons as ncome of the year n whch the busness
Is wrtten, the method may not be changed by aocatng the
commssons over the ves of the poces, n the absence of proof
that such commssons contan any eement of compensaton for
servces to be rendered n future years.
Supreme Court of the Unted States.
rthur f. Urmcn, pettoner, v. Guy T. cverng, Commssoner of Interna
evenuc.
On certorar to the Unted States Crcut Court of ppeas for the Nnth Crcut.
auuary 15, 1934.
OPINION.
Mr. ustce randes devered the opnon of the court.
n unncorporated concern known as dward rown Sons, of San ran-
csco, has snce 189 aced as Pacfc coast genera agent for fre nsurance
companes.1 In 1023, rthur M. rown conducted the concern aone. In 1925
and 1020, he and hs son rthur M. rown, r., conducted t as partners. The
genera agent receves as compensaton from ts prncpas, among other thngs,
a so-caed overrdng commsson on the net premums derved from bus-
ness wrtten through the oca agents. The queston for decson s, how the
ncome of the pettoner, rthur M. rown, derved from overrdng comms-
sons durng the years 1923, 1925 and 192C shoud be cacuated for purposes
of the edera ncome ta . The Commssoner of Interna Revenue hed that
n determnng ncome, the gross overrdng commssons on busness wrtten
durng the year shoud not be sub|ected to any deducton on account of cancea-
tons e pected to occur n ater years. The ta payer contends that ether the
gross overrdng commssons shoud be sub|ected to such a deducton or that
parts of the gross overrdng commssons shoud be aocated as earnngs of
future years.
The term net premum as used n provdng for overrdng commssons,
means the gross premum on the busness wrtten ess the return premum
and (he net cost of any rensurance. re nsurance poces are wrtten for
perods of one, throe o fve years, wth the rght of canceaton by ether
pary at stpuated rates of premum return. Premums beng payabe n ad-
vance (sub|ect to the 00-day grace perod), a return premum s pad to the
pocyhoder n case of canceaton and the genera agent, who receves the
premum rays the return premum. The company wrtng a pocy frequenty
rensures n another company a part of ts contngent abty and the genera
agent, who makes the payments for rensurance receves, n case of cancea-
ton, a return of a proportonate part of the cost of the canceed ensnrance.
The genera agent makes to each prncpa remttances on mon v baances,
credtng tsef among other tngs, wth the overrdng commssons on pre-
mums recevabe, wth the return premums pad and wth the net amount
pad for rensurance and chargng tsef, among other thngs, wth a pro-
portonate part of any overrdng commssons prevousy credted n respect of
1 The dutes requred of nnd performed by the genera agent nre descrbed by the oard
of Ta ppeas as foows: The frm apponted and removed oca agents accepted
servce of pr ocess ad|usted osses under poces receved and acknowedged servce of
proof of oss ssued, countersgned and canceed poces receved nnd recepted for
premums, surveyed a rsks oftered and accepted or re|ected the same represented Its
prncpas on the racfc oard of Underwrters computed and pad commssons due oca
agents ceded or rensured certan nes of busness wth treaty or other companes com-
puted and pad return premums on canceed poces secured return of premum on
canceed rensurance rendered n reports requred of ts prncpas by the authortes of
potca subdvsons n the terrtory n whch t operated attended to the payment of
a cense fees and ta es furnshed a necessary prnted matter, e cept pocy bnn s, to
oca agents transferred nsurance by Indorsement, determned whether Its prncpas
shoud partcpate n speca poos and generay attended to a the affars of Its prn-
cpas n the terrtory n whch t operated.
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225
214(a) 1, rt. 112.
any busness whch has been canceed durng the month. Thus, whenever
there s a canceaton and a return or credt of a porton of the premum and
of the cost of any rensurance, the genera agent returns to the company or
charges tsef wth a correspondng porton of the overrdng commsson.
Pror to 1023, overrdng commssons on new busness were accounted
ncome of the year n whch the busness was wrtten and refunds of over-
rdng commssons on account of canceatons were accounted e penses of the
year of canceaton. The books of the genera agent have at a tmes been
kept on the accrua bass. though no change was made n the method of
accountng between the genera agent and ts prncpas, there was set up on
the books of the concern at the cose of 1923, for the frst tme, a abty
account entted Return commsson. In t was recorded an estmate of the
abty e pected to arse out of the genera agent s obgatons to refund to
the companes a proportonate part of the overrdng commsson receved
because of canceatons whch t was e pected woud occur n future years.
The estmate was based on the e perence of the precedng fve years. Thus,
on the books, the year s ncome from overrdng commssons was reduced by
the amount of refunds whch, t was estmated, woud have to be made n
future years. Ths changed method of accountng has been foowed over
snce and the dfference n the method of cacuatng the genera agent s
ncome has been refected n the returns made by rown of Ins ta abe ncome.
The rato of canceatons to premums recevabe havng been 22.38 per cent
for the fve years endng n 1923, the gross ncome from overrdng commssons
on busness wrtten n 1923, amountng to 23 , 93.31, was sub|ected on the
books to a deducton of 52,971.9 and ths amount was credted to the return
commsson account. Smary, at the cose of each of the years 1921, 1925
and 192 the credt baance n the return commsson account was ad|usted
so that t bore the same reaton to the overrdng commssons on busness
wrtten durng the year as the tota re nsurance premums canceed n the
precedng 5-year perod bore to the gross premums on busness wrtten durng
those years. The rato of canceatons for the fve years endng n 1925 havng
been 21.55 per cent, and the tota overrdng commssons 244,597.SS, a
deducton of 3,292.98 was made, representng the net addton to the return
commsson account n 1925. The rato of canceatons to premums for
the 5-year perod endng In 192 havng been 21.13 per cent, and the tota over-
rdng commssons 258, 77.57, a deducton was made of 1,047.77 representng
the net addton to the return commsson account n 192 .
In makng hs edera ncome ta return for the years 1923, 1925 and 192 ,
rown camed as deductons the beneft of the credts so made to the return
commsson account. The Commssoner of Interna Revenue dsaowed these
deductons and accordngy assessed to rown for 192 a defcency of
17,923.03 for 1925 a defcency of 1,520.19 and for 192 a defcency of 944.30.
The Commssoner s determnatons were sustaned by the oard of Ta ppeas
(22 . T. ., 078) and ts order was affrmed by the Crcut Court of ppeas.
(G3 . (2d), 0.) Certorar was granted by ths court (291 U. S., 193) because
of aeged confct wth the decson of Crcut Court of ppeas for the ourth
Crcut n rgna-Lncon urnture Corporaton v. Commssoner of Interna
Revenue (5 . (2d), 1028) and other cases.
rst. The Commssoner propery dsaowed the deductons on account of
the credts to the return commsson account. Under the Revenue cts
ta abe ncome s computed for annua perods. If the accounts are kept on the
accrua bass the ncome s to be accounted for n the year n whch t s reazed
even f not then actuay receved and the deductons are to be taken n the
year n whch the deductbe tems are ncurred. What s ta abe as ncome s
or the year 1023, the deducton of (52,071.9 , the entre amount sot up as a reserve,
U In dspute. Smar fgures were set up for the years 19 - 4, 25. and 1020 but actua
canceatons for each of these ater years were charged not aganst overrdng comms-
sons, but aganst the return commsson account as set up and carred over from the
precedng year. Thus the amount n dspute for each of the years 1925 and O O s not
tbe entre deducton from overrdng commssons as made by the genera agent, but the
dfference between that fgure and the amounts charged to the return commsson
account or, n other words, the net ad|ustment or addton to the account. (There
was no addton for 1024.)
udge Wbur concurred specay beow takng the ground, among others, that the
resut of ths method was a cam In 1928 for deductons both of the entre reserve and
of actua canceatons durng the year.
The amount of the defcency for each year was affected by an addtona cam as a
deducton of 3,000 whch was dsaowed. It s not here In queston.
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214(a), rt. 112.
22
provded by the Revenue ct of 1921 (eh. 13 , 42 Stat., 227, 237, 239).4 Secton
212(a) decares That n the case of an ndvdua the term net Income
means the gross ncome as defned n secton 213, ess the deductons aowed
by secton 214. Secton 214(a) decares That n computng net Income there
sha be aowed as-deductons: (1) the ordnary and necessary e penses
pad or ncurred durng the ta abe year n carryng on any trade or busness.
The ony reevant deductons aowabe by aw are those provded for In secton
214 and the burden rests upon the ta payer to show that he was entted to
the deducton camed. ( cnece v. Spadng, 2S0 U. S., 227, 232 Ct. D. 154,
C. . I -1, 305 .)
The overrdng commssons were gross ncome of the year n whch they were
recevabe. s to each such commsson there arose the obgaton a contngent
abty to return a proportonate part n case of canceaton. ut the mere
fact that some porton of t mght have to be refunded n some future year n
the event of canceaton or rensurance dd not affect ts quaty as ncome.
(Compare mercan Natona Co. v. Unted States, 274 U. S., 99.) When
receved, the genera agent s rght to t was absoute. It was under no restrc-
ton, contractua or otherwse, as to ts dsposton, use or en|oyment. (Compare
orfft mercan O Consodated v. urnet, 28 U. S., 417, 424 Ct. D. 499, C. .
I-1, 293 .)5 The refunds durng the ta year of those portons of the over-
rdng commssons whch represented canceatons durng the ta year had,
pror to the ta return for 1923, aways been camed as deductons and they
were apparenty aowed as necessary e penses pad or ncurred durng the
ta abe year. The rght to such deductons s not now questoned. Those
whch the ta payer cams now are of a very dfferent character. They are
obvousy not e penses pad durng the ta abe year. They are bookkeepng
charges representng credts to a reserve account.
These charges on account of credts to the return commsson reserve
account are camed as deductons on the ground that they are e penses
ncurred, durng the ta abe year. It s true that where a abty has
accrued durng the ta abe year t may be treated as an e pense ncurred
and hence as the bass for a deducton, athough payment s not presenty due
(Unted States v. nderson, 2C9 U. S., 422, 440, 441 T. D. 3839. C. . -. 179
mercan Natona Co. v. Unted States, 274 U. S.. 99 T. D. 4099, C. . -2,
193 umnum Castngs Co. v. Routzahn, 282 U. S., 92 Ct. D. 270, C. . -,
352 ) and athough the amount of the abty has not been defntey ascer-
taned. (Unted States v. nderson, supra. Compare Contnenta Te d
Lumcr Co. v. Unted States, 28 U. S., 290. 29 Ct. D. 494, C. . -, 2 0 .)
ut no abty accrues durng the ta abe year on account of canceatons
whch t s e pected may occur n future years, snce the events necessary to
create the abty do not occur durng the ta abe year. cept as otherwse
specfcay provded by statute, a abty docs not accrue as ong as t remans
contngent. (Wess v. Wener, 279 U. S 333, 3315 Ct. D. 0, C. . III-1, 2371
I.uras v. mercan Code Co., 2-0 U. S., 445, 450. 4. 2 Ct D. 1C8, C. . I -1.
314 compare Nec York Lfe Insurance Co. v. dwards, 271 U. S.. 1(19, 11
T. D. 3S72, C. . -, 305 tng Thomas Co. v. McCaughn, 43 P. (2d),
503: n:ghand Mk Condensng Co. v. Phps, 34 . (2d), 777 Ct. D. 117,
( . . 1II-2, 301 .)
The abty of dward rown 4 Sons arsng from e pected future cance-
atons was not deductbe from gross ncome because t was not f ed and
absoute. In respect to no partcuar pocy wrtten wthn the year coud t
be known that t woud be canceed n a future year. Nor coud t be known
that a defnte percentage of a the poces w be canceed n the future
years. perence taught that there Is a strong probabty that many of the
poces wrtten durng the ta abe year w be so canceed. ut e perence
taught aso that we are not deang here wth certantes. Ths s shown by
Sectons 212, 213, and 211 of the Revenue ct of 1 124 ( ta. 234, 43 Stat.. 203, 207-
270) nnd te correspondng sectons of the Revenue ct of 102 (ch. 27, 44 Stat.. 9
2 . 27) eontn provsons dentca wth those quoted nbove, e cept that secton 20 of
those cts Is aso referred to as defnng deductons.
See n so mp v. Lcwchtn (, . (2d), 283 Ct. D. 134, C. . 1II-2. 283 ).
8 See nso rcosve Manufaeturtg Co. v. Commssoner of Interna Rev enue (55
P. (2d), SM, 8 . ), Ocean ccdent ( Guarantee Corporaton v. Commssoner of Interna
Revenue (47 . (2r). 5SLM Compare Commssoner of Interna Revenue v. Od Domnon
8. 8. Co. (47 . (2d)., 118).
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227
214(a), rt. 112.
the varatons n the percentages n the severa 5-year perods of the aggregate
of refunds to the aggregate of overrdng commssons.
rown argues that snce nsurance companes are aowed to deduct reserves
for unearned premums whch may have to be refunded, he shoud be aowed
to make the deductons camed as beng smar n character. The smpe
answer s that the genera agent s not an nsurance company and that the
deductons aowed for addtons to the reserves of nsurance companes are
technca n character and are specfcay provded for n the Revenue cts.
These technca reserves are requred to be made by the nsurance aws of the
severa States. (See Maryand Casuaty Co. v. Unted States, 251 U. S., 342,
350 Unted States v. oston Insurance Co., 2G9 U. S., 197 T. D. 3792, C. .
-, 300 New York Lfe Insurance Co. v. dwards, 271 U. S., 109.) The
return commsson reserve here n queston was vountary estabshed.
Ony a few reserves vountary estabshed as a matter of conservatve account-
ng are authorzed by the Revenue cts. Secton 214 mentons ony the reserve
for bad debts (n the dscreton of the Commssoner), provded for In para-
graph 7 those for deprecaton and depeton, provded for n para-
graphs 8 and 10 and the speca provson concernng future e penses n
connecton wth casua saes of rea property, provded for n paragraph 11 ot
secton 214 as amended by the Revenue ct of 1920. (2 U. S. C, secton 955.)
Many reserves set up by prudent busness men are not aowabe as deductons.
(See Lucas v. mercan Code Co., 280 U. S., 445, 452. )
rown argues aso that the Revenue cts requred hm to make hs return
n accordance wth the method of accountng reguary empoyed n keepng
the books and that n makng the deductons based on the credts to
return commsson account, he comped wth ths requrement. The Com-
mssoner s oft-quoted10 nstructon of anuary 8, 1917 (No. 2433, 19 Treasury
Decsons, 5) s reed upon:
In cases wheren, pursuant to the consstent practce of accountng of the
corporaton corporatons set up and mantan reserves to meet
abtes, the amount of whch and the date of payment or maturty of whch
s not defntey determned or determnabe at the tme the abty s ncurred,
t w be permssbe for the corporatons to deduct from ther gross ncome
the amounts credted to such reserves each year, provded that the amounts
deductbe on account of the reserve sha appro mate as neary as can be
determned the actua amounts whch e perence has demonstrated woud bo
necessary to dscharge the abtes ncurred durng the year and for the
payment of whch addtons to the reserves were made.
The accrua method of accountng had been reguary empoyed by d v rd
rown Sons before 1923, but no return commsson account had been set
up. Moreover, the method empoyed by the ta payer s never concusve. If
n the opnon of the Commssoner t does not ceary refect the ncoms, the
computaton sha be made upon such bass and n such manner. as w, n
hs opnon, do so. Unted States v. nderson, 2G9 I . S., 422, 439 Lucas v.
mercan Code Co., 280 U. S., 445, 449 Lucas v. O bre rush Co.. 2S1 U. S.,
115, 120 Ct. D. 2 5, C. . I -2, 384 compare Wamsport Wre Rove Co. v.
Unted States, 277 U. S., 551 T. D. 4172, C. . II-2, 323 Lncas v. Structura
Stee Co., 281 U. S., 2G4.11) In assessng the defcences, the Commssoner
requred n effect that the ta payer contnue to foow the method of accountng
whch had been n use pror to the change made n 1923. To so requre was
wthn hs admnstratve dscreton (compare ent v. Commssoner of Interna
Revenue, 5 . (2d), 99).
7 The ta payer testfed : rom my e perence n the Insurance busness, I woud say
that appro matey the genera rato of canceatons to busness wrtten, dependng on the
year, runs between 20 per cent and 25 per cent.
Compare arde Stee Products Corporaton v. Commssoner of Intrrna Revenue (40
. (2d), 412, 41 ) Sprng Canyon Coa Co. v. Commssoner of Interna Ucvcnue (43
. (2d), 78).
S C. 212. (b) The net ncome sha be computed In accordance wth the
method of accountng reguary empoyed n keepng te hooks of such ta payer but
f the method empo. ed does not ceary refect the ncome, the computaton
sha be made upon such bass an.t n such manner as n the opnon of the Commssoner
does ceary refect the Income.
Unted States v. nderson (2 9 T . S., 422) mercan Natona Co. v. Unted States
(274 U. S., 09. 1011 Nes Dement Pond Co. v. Unted States (281 T . S., 357, 359):
umnum Castngs Co. v. Routzahn (282 D. S., 92, 98).
u See aso Industra Lumber Co. . Commssoner of Interna Revenue (58 . (2d),
123) ennngs v. Commssoner of Interna Revenue (59 . (2d), 32).
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214(a)3, rt. 131.
228
Second. The oard of Ta ppeas dd not err n refusng to aocate to
future years part of the overrdng commssons on busness wrtten durng the
ta abe year. rown urges that the overrdng commsson Is compensaton for
servces rendered throughout the fe of the pocy that the compensaton to
be rendered n ater ye rs can not be consdered as earned unt the requred
servces have been performed and that the Revenue cts contempate that
where books are kept on the accrua bass, the ncome sha be accounted for
as t s earned. e suggests, therefore, as an aternatve method of ascer-
tanng the ncome, that the commssons on each year s wrtng be prorated
over the fe of the poces.
Under ths aternatve proposa, the practce of makng deductons prevang
pror to 1923 woud reman unchanged but the method of ascertanng the gross
Income of the ta abe year woud be sub|ected to a far-reachng change. The
proposa s that n poces be deemed to have been wrtten on uy 1 that of
the overrdng commsson on 1-year poces, one haf shoud be returned as
ncome of the year n whch the pocy was wrtten, the other haf as Income of
the ne t year that of the commssons on 3-year poces, one-s th shoud be
returned as ncome of the year n whch the pocy was wrtten, one-thrd as
the ncome of each of the ne t two years and one-s th as Income of the fourth
year and that the commsson on 5-year poces, one-tenth shoud be returned
as ncome of the frst year, one-ffth as ncome of each of the ne t four years,
and one-tenth as ncome of the s th year.
Ths proposed aternatve method of computng the ncome from overrdng
commssons was not empoyed by dward rown Sons ether before or after
1023. Moreover, the oard concuded that there s no proof that the over-
rdng commssons contan any eement of compensaton for servces to be
rendered n future years. The whoe of the overrdng commssons has at
a tmes been treated as ncome of the year n whch the pocy was wrtten.
The Commssoner was of opnon that the method of accountng consstenty
apped pror to 1923 accuratey refected the ncome. e w as vested wth a
wde dscreton n decdng whether to permt or to forbd a change. (Compare
ent v. Commssoner of Interna Revenue, 5 P. (2d), 99.) It s not the
provnce of the court to wegrh and determne the reatve merts of systems of
accountng. (Lucas v. mercan Code Co., 280 U. S., 445, 449.)
The deductons here camed, not beng authorzed specfcay ether by the
Revenue cts, or by any reguatons appyng them, were propery dsaowed.
So far as the decson n rgna-Lncon urnture Cor oraten v. Comms-
soner of Interna Revenue, (5 . (2d), 1028) may be nconsstent wth ths
opnon, t s dsapproved.
ffrmed.
rtce 112: When charges deductbe.
R NU CT OP 1020.
Losses on saes under forecosure n Caforna. (See G. C. M.
12737, page 120.)
S CTION 214 (a) 3. D DUCTIONS LLOW D
INDI IDU LS: T S.
rtce 131: Ta es.
R NU CT O 1028.
ccrua of Massachusetts e cse ta by a natona bank. (See
G. C. M. 1259 , page 112.)
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229 214(a)7, rt. 151.
S CTION 214(a)7. D DUCTIONS LLOW D
INDI IDU LS: D D TS.
rtce 151: ad debts. III-13- 723
( so Secton 213(a), rtce 50.) Ct. D. 80
INCOM T R NU CT O 1018 D CISION O COD T.
1. Deducton ad Debts ffect of owng Deductons fob
Pbob Years.
corporaton seng goods on credt Is not entted to deduct as
bad debts for the year 1920, n addton to accounts from ts den-
quent fe, accounts from ts actve fe n the amount of the dffer-
ence between ts saes for the year and the amounts actuay co-
ected. The fact that t took such deductons n pror years
wthout ob|ecton by the Commssoner gves the corporaton no
rght to have ts ta es for 1920 assessed on any dfferent bass
than requred by statute.
2. Gross Income Coecton of Debts eged to bb Worth-
ess Invested Capta stoppe.
corporaton whch has receved the beneft of deductons m-
propery camed and aowed durng years pror to 1920 for debts
represented to be worthess and charged off s estopped to assert
that amounts coected n 1920 on such debts shoud not be ncuded
In gross ncome for that year. It s aso estopped to cam that
accounts recevabe erroneousy charged off n 1919 shoud be
added to nvested capta for 1920.
8. Decson ffrmed.
Decson of the oard of Ta ppeas (2 . T. ., 409) af rmed.
Unted States Crcut Court of ppeas for the Second Crcut.
skn Marne Co., pettoner, v. Commssoner of Interna Revenue,
respondent.
Petton to revew a decson of the oard of Ta ppeas Invovng ncome and profts
ta es (or 1020. ffrmed.
efore Manton, Swan, and Chase, Crcut udges.
ugust 29,1933.
OPINION.
Chasb, Crcut udge: The pettoner, a New York corporaton, havng Its
prncpa offce n New York Cty, operated a chan of reta cothng stores.
Its merchandse was sod on credt. The purchaser was requred to make a
payment at the tme of sae and to agree to pay the remander of the purchase
prce In weeky nstaments. card was kept at the prncpa offce for
each customer on whch a record of saes and payments were made from
day reports from the varous stores. These cards from 70,000 to 75,000 n
number, were kept n fes desgnated respectvey as actve and denquent
The denquent fe contaned the cards of customers who had made no pny-
ment for 0 days and had for that reason been transferred from the actve
fe. It was the reguar practce of the pettoner from 1917 through 1920 to
charge off as bad debts and deduct from ts gross ncome a accounts n the
denquent fe at the end of each year. In addton to ths, t charged off of
the tota of the accounts n the actve fe a sum appro matng the dfference
between ts saes for the year and the amounts actuay coected. It s now
admtted that there was no ascertanment of the worthessness of accounts
charged off the actve fe and no attempt made to do that. The effect of ths
method was to permt the pettoner to keep ts books on the accrua bass and
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214(a)7, rt. 151.
230
account for purposes of ta aton on an arbtrary ad|ustment whch put It as
cose to a cash recept and dsbursement bass aa It desred.
On December 27, 1919, the pettoner charged off as bad debts and deducted
from Its gross ncome for 11)19 n a 021,17 .47. Of ths 310,083.02 was
charged off the actve fe. t the end of 1920, the pettoner charged off as
bad debts and deducted from ts gross ncome for that year 55,800.32. Of
ths 2S0,S70.4S was from the actve f e. Durng 1020 the pettoner coected
5,459.24 from accounts t had charged off n 1917 13,354.89 from those It had
charged off In 191S and 280, 90.22 from accounts charged off In 1919. Of
the tota of 30S,504.35 so coected 270,728.40 was from accounts charged off
the actve fe. Unt the 1920 return the pettoner s practce n ths regard
was not questoned. n nvestgaton ed to a refusa by the Commssoner to
aow as a deducton for that year (other years are not n ssue on ths
appea) the amounts charged off the actve fe n 1920 to e cude from gross
Income coectons n 1020 on accounts prevousy charged off and to ad|ust
nvested capta accordngy.
The pettoner had ncuded n gross ncome n prevous years the coec-
tons t made on accounts charged off, but upon ts acquescence In the
poston that the chargng off of accounts before t ascertaned them to be
worthess had been erroneous t camed that coectons from such accounts
coud not be ncome n the year coected and further that accounts recevabe
erroneousy charged off at the end of 1919 shoud be added to nvested
capta for 1920.
The pettoner bears heavy upon the fact that ts practce n chargng
off these accounts was unform n the years up to and ncudng 1920 and
that t rased no queston here and desred ony to contnue. It appears to
beeve that such a practce so contnued created a rght to be ta ed ony on
the same bass n 1920 because the Commssoner had made no ob|ecton
before. Once et t appear that the return for 1920 was not n accordance
wth the aw, and the pettoner admts ths when t agrees that t had no
rght to take the deductons based on charge-offs from the actve fes, and t
seems qute nadequate, n attemptng to show that ths decson of the
oard of Ta ppeas was wrong to pont to smar errors n former years.
Grant that t may have consdered tsef entted to the deductons t took In
prevous years and was confrmed n that beef as to 1920 by the fact that t
had been aowed such deductons before and there s st no bass for the
cam that repeated error n takng deductons for debts charged off as worth-
ess before they were ascertaned to he worthess gave the pettoner any
rght to have ts ta es assessed n 1920 on any dfferent bass than the
appcabe statute requred. The 1020 charge-off from the actve fe was on
account of debts not ascertaned to be worthess and was propery dsaowed
and we do not understand that the pettoner now cams the contrary.
Instead, t does cam that, as ths deducton was mpropery taken and ke
deductons In prevous years aso mpropery taken, the amounts coected n
1920 on accounts prevousy charged off shoud not be ncuded n ts gross
ncome for that year.
Secton 213(a) of the Revenue ct of 1018 appes. It provded that gross
ncome ncudes gans, profts, and Income derved from u10 trans-
acton of any busness carred on for gan or proft, or gans or profts and
ncome derved from any source whatever. Treasury Reguatons
42, artce 52, promugated under the 1918 ct, provded, as prevous regu-
atons on the same sub|ect had provded, that bad debts ascertaned to be
worthess and charged oT whch were subsequenty recovered were Income for
the year |u whch recovered regardess of the date when charged off. The
rceuactment of the statute n substantay (he same form whe reguatons
ke these were n effect s a persuasve ndcaton that Congress approved
them. ( rewster v. Gage, 281) U. S., 327, 337 LCt. D. 148, C. I. I -1, 274
Shearman v. Commssoner, . (2d), 25 , and cases there cted.) Where
a charge-off s proper and the deducton accordngy aowed, t Is we setted
that any ater coecton on the debt s to be returned as ncome n the year
of ts recept. (Putnam Natona ank v. Commssoner, 50 ed. (2d), 158 Ct.
D. 415, C. . -2, 249 and cases there cted.)
We need n ths case to concern ourseves wth the theory advanced that
when debts not ascertaned to be worthess have been charged off and a
deducton has mpropery been camed and aowed no part of such deducton
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231
214(a)8, rt. 1 5.
when coected can be ncuded n ncome. It s obvous that f ths s so
a ta payer who gets an unawfu deducton n ths way not ony cuts down
hs ta abe ncome n the year the deducton s taken but gets mmunty from
ncome ta aton on the account recevabe whch was deducted whenever
t, or any part of t, s receved. resut so un|ust s not to be reached
uness pany requred by aw. avng represented that It had ascertaned
these accounts charged off ts actve fe to be worthess and havng receved
the beneft of the deducton t camed when the Commssoner took ts repre-
sentaton of the ascertanment of worthessness at ts ace vaue, we tnc
the pettoner s now ceary estopped from denyng, to the pre|udce o the
Government, the truth of the representatons upon whch t has succeeded n
former years n obtanng deductons from ts gross ncome. Whe the
Commssoner must nvestgate returns to satsfy hmsef of ther correctness
n fact and aw, a ta payer may not beneft at the e pense of the Government
by msrepresentng facts under oath by succeedng n havng the Commssoner
accept ts representatons as the truth and by camng ater that what t
represented to be true mght have been found fase had the Commssoner
refused to have fath n the sworn return. (Commssoner v. Lberty ank
Trust Co., 59 ed. (2d), 320.)
or the same reason, the ta payer s contenton that accounts erroneousy
charged off prevous to 1920 shoud be added to nvested capta for that
Sear was propery dened. It was kewse estopped on that score. Isbch
Porter Co. v. Commssoner (40 ed. (2d), 432), upon whch the pettoner
rees, nvoved merey the correcton of an error where no queston of estoppe
was rased.
rtce 151: ad debts.
R NU CT O 1921.
urden of proof. (See Ct. D. 822, page 33 .)
rtce 151: ad debts.
R NU CTS O 1021, 1924, ND 192 .
Debts ascertaned to be partay worthess but not charged off
durng ta abe year. (See G. C. M. 13114, page 11 .)
S CTION 214(a) 8. D DUCTIONS LLOW D INDI-
IDU LS: D PR CI TION.
rtce 1 1: Deprecaton.
R NU CT O 1921.
Deducton by essor where essee under contract to repace at end of
999-year ease. (See Ct. D. 838, page 295.)
rtce 1 5: Method of computng deprecaton aowance.
R NU CTS O 1921, 1924, ND 102 .
mendment of artce 1 5, Reguatons 9, 5, and 2. (See
T. D. 4422, page 58.)
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214(a)9, rt. 223. 232
rtce 1 5: Method of computng deprecaton aowance.
R NU CTS O 1921, 1924, ND 192 .
Informaton necessary n support of deprecaton deductons.
(See Mn. 4170, page 59.)
S CTION 214(a)9. D DUCTIONS LLOW D
INDI IDU LS: D PL TION.
rtce 201: Depeton of mnes, o and gas wes
deprecaton of mprovements.
R NU CTS O 1921 ND 1924.
Perod after sae prce deposted n escrow. (See Ct. D. 781,
page 213.)
rtce 204: mount returnabe through depeton and
deprecaton deductons n the case of essor.
R NU CTS O 1921, 1924, ND 192 .
Depeton of ron mne where royates therefrom consttutng
ncome of trust, ess e penses, arc dstrbutabe to the benefcares.
(See Ct. D. 784, page 247.)
rtce 204: mount returnabe through depeton and
deprecaton deductons n the case of essor.
R NU CTS O 1921, 1924, ND 192 .
Depeton of o and gas ands where the entre proceeds of roya-
tes therefrom, consttutng n part the ncome of a trust, are ds-
trbutabe to the benefcares. (See Ct D. 785, page 250.)
rtce 223: Charges to capta and to e pense III-11- G9
n the case of o and gas wes. Ct. D. 798
INCOM T R NU CTS O 1921, 192t, ND 1920 D CISION O COURT.
1. Deducton Deveopment penses Capta pendture
ecton.
The owner of o eases, who e ercsed the opton aowed by
artce 223 of Reguatons 02 and ) and artce 225 of Reguatons
5 and deducted as deveopment e penses rrecoverabe costs of
drng wes, may not ater retroactvey eect to treat them as
capta e pendtures n determnng the g-nn reazed upon the sae
of the property.
2. Reguatons adty.
rtce 223 of Reguatons 2 and smar artces of subsequent
reguatons arc vad.
3. Decson ffrmed.
Decson of te oard of Ta ppeas (2 . T. ., 277) affrmed.
4. Certorar Dened.
Petton for certorar dened October 1G, 1933.
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233
214(a)9, rt. 223.
Unted States Crcut Court of ppeas, Tenth Ceect|t.
W. R. Ramsey, pettoner, v. Commssoner of Interna Revenue, respondent.
On petton to revew the decson of the Unted States oard of Ta ppeas.
efore Ph|ps and McDermott, Crcut udges, and ennedy, Dstrct udge.
uy 2 , 1933.1
OPINION.
McDermott, Crcut udge, devered the opnon of the court.
rom 1922 unt 192 the pettoner was engaged n deveopng o eases.
Wes were dred by a contractor upon a footage bass, the pettoner furnsh-
ng the equpment and supervson. The amounts pad the contractor for
drng, pus certan tems for abor, truckng, cementng, fue, repars, manage-
ment, deprecaton, and ta es (e cusve of derrcks, boers, casng and
equpment) were deducted each year from hs ncome, as deveopment e pense,
tn accordance wth the opton gven hm by Reguatons 09, artce 223, set out
n the margn.1 Recoverabe tems of deveopment costs, such as the derrck,
casng and boers, are not heren nvoved. In 192 he sod the propertes and
tn returnng the proft from that sae, he added the e pendtures theretofore
deducted as e penses of operaton, to the cost of the eases sod. The Comms-
soner decned to permt ths doube deducton for the same costs, hodng that
snce the pettoner had e ercsed hs opton to treat these tems as e penses
and taken credt therefor, he coud not ater retroactvey eect to treat them
as capta1 e pendtures. The oard of Ta ppeas affrmed and we are asked
to revew that determnaton.
Counse for pettoner very fary says In hs bref that f the reguaton s
construed as coverng these e pendtures and s vad as so construed, the dec-
son sh ud be affrmed. There beng no queston of the consttutona power of
Congress to permt of a deducton of such drng costs from current ncome, we
bave ony a queston of statutory constructon. The underyng provson for
deducton from ncome s secton 215 of the Revenue cts of 1921, 1924, and
192 , whch runs n part:
That n computng net ncome no deducton sha n any case be aowed n
respect of
(b) ny amount pad out for new budngs or for permanent mprovements
or betterments made to ncease the vaue of any property or estate.
Reguatons 2, artce 293, s the companon of ths statute, and the frst
sentence s
mounts pad for ncreasng the capta vaue or for restorng the depre-
cated vaue of property are not deductbe from gross ncome.
The poston of pettoner s that The reguaton quoted In the margn, f con-
strued to cover these e penses, fes drecty n the face of ths statutory
prohbton and s therefore nvad that there was therefore no ega authorty
for the pettoner deductng these sums as deveopment e penses durng the
years, and no ega mpedment to hs now chargng them to capta account.
The of -e of an admnstratve reguaton has been mnny tmes defned.
revenue aw may not be atered or amended by reguaton (Morr v. ones,
10 U. S., 4G ), nor go beyond what Congress has authorzed (Utah Poocr
Lgnt Co. v. Unted Stars, 243 U. S., 389). reguaton may make e pct
what s genera and cear up uncertanty. (Unted States v. Dakota-Montana
O Co., 288 U. S., 459 Ct. D. 55, C. . II-1, 243 .)
1 Such Incdenta e penses as are pad for wages, fue, repars, haung, etc.. In con-
necton wth the e poraton of the property, drng of wes, budng of ppe nes, and
deveopment of the property may at the opton of the ta payer bo deducted as a deveop-
ment e pense or charged to capta account returnabe through depeton. If n e ercsng
ths opton the ta payer charges those Incdenta e penses to capta account, n so far
as such e pense s represented by physca property It may be taken nto account In
determnng a reasonabe aowance for deprecaton. The cost of drng nonproductve
wes may at the opton of the operator be deducted from gross Income as a deveopment
e pense or charged to capta account returnabe through depeton and deprecaton as n
the case of productve wes. n eecton once made under the provsons of ths artce
w contro the ta payer s returns for a subsequent years
smar reguaton was promugated under statutes of other years. (See artce 223,
Retuatona 45 (1918), artce 223. Reguatons 02 (1921), artce 225. Reguatons 5
(1021). artce 243. Resnntons 74 (1028).) These were restated and ampfed n
Trea rv Decson 4333, n nno, 1932 C. . I-1, 31 .
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214(a)9, rt. 223.
234
The frst queston for determnaton s, Does the quoted reguaton purport to
cover those e penses, whch t has been noted, do not ncude the cost of the
derrck, casng, boers, or other recoverabe equpment Of ths we have no
doubt. Whe the reguaton uses the word ncdenta t s foowed by the
e panatory words wages, fue, repars, haung, etc., n connecton wth the
e poraton of the property, drng of wes, budng of ppe nes, and deveop-
ment of the property ths anguage ncudes the very tems here sought to be
captazed, and doubtess are ntended to cover a drng costs e cept der-
rcks, casng, boers and other equpment wth savage vaue. Treasury Dec-
son 4333, promugated to restate the admnstratve practce of ong standng
wthout changng admnstratve pocy, specfcay provdes that costs ncurred
by contracts for drng on a footage bass are wthn the reguaton. The sen-
tence n eecton once made under the provsons of ths artce w contro
the ta payer s returns for a subsequent years, s unambguous t s conceded
that pettoner once eected to treat these costs as operatng e penses. It
woud requre a dstorton of unequvoca anguage to hod that the reguaton
does not cover ths case. The queston Is quarey presented therefore of
whether the reguaton may permt the rrecoverabe costs of drng o wes
to be cassed as an e pense of operaton rather than as a permanent mprove-
ment or betterment.
Whether an o we s a permanent mprovement s at east a debatabe
queston. The ncdenta costs here nvoved are rretrevaby gone when the
we s fnshed, whether t be a dry hoe or a producer. dry hoe s nether
an mprovement nor a betterment nether s a producer after the o s e -
hausted. The truth s that the hoe upon whch the money s e pended s
smpy a means of reachng the o sands, and t s the o whch ncreases
the vaue of the property the hoe s of vaue ony f o s found, and then
ony as ong as the sands w produce. producng fed s of more vaue
than a nonproducng one, party because the e penses of reachng the sands
have been ncurred, but argey because the presence of o has been proven.
Whe dctonary defntons are hepfu, they do not e cude an e amnaton
of the conte t to ascertan the purpose of the statute, nor forbd an nqury nto
admnstratve nterpretaton as an ad n constructon of doubtfu words or
passages. pror, therefore, we are of the opnon that the hoes through
whch the o s recovered are not so concusvey permanent mprovements or
betterments as to precude a reguaton permttng the deducton of rrecov-
erabe e penses of drng them as ordnary e penses ncurred n carryng
on a trade or busness, aowed by secton 214(a) of the cts n queston.
Ths concuson s strongy fortfed by the fact that ths reguaton has
been n e stence for many years Congress has repeatedy amended the
revenue aws whe ths reguaton was n fu force and effect, and no effort has
been made to do away wth t. Ths s amost concusve proof that Congress
was satsfed wth the constructon put upon ts anguage n the earer cts
by repeated recnactments, Congress has ratfed and approved ths nterpreta-
ton. or many years the o ndustry has avaed tsef of ths reguaton
the Commssoner has acted under t the oard of Ta ppeas and the courts
have recognzed ts e stence and vadty. Under such crcumstances, ts
nvadty must be cear before courts woud be |ustfed n hodng that ta es
have been egay assessed and coected throughout the years, partcuary
when the reguaton accompshes a resut that s essentay far to both the
ta payer and the Government.
That a reguaton may resove a doubt as to the proper cassfcaton of dr-
ng costs, and that the admnstratve constructon emboded n the reguaton
must be deemed to have receved egsatve approva by reenactment of the
statute, see Unted Sates v. Dakota-Montana O Co. (2S8 U. S., 459) : Murphy
O Co. v. urnet (287 U. S., 299 Ct. D. C19, C. . II-1, 231 ). nd cf.
Sassaehusctts Sut. Lfe Ins. Co. v. Unted States (2S8 U. S., 2 9 fCt. D. 38,
C. . II-1, 2S ). In rewster v. Gage (2S0 U. S., 327, 33 Ct. D. 148, C. .
I -1, 274 ), the court sad :
These reguatons were prepared by the Department charged wth the
duty of enforcng the cts. The rue so estabshed s reasonabe and does
no voence to the etter or sprt of the provsons construed. reversa of
that constructon woud be key to produce nconvenence and resut n n-
equaty. It s the setted rue that the practca nterpretaton of an um-
beuous or doubtfu statute that has been acted upon by offcas charged wth
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235
218, rt. 335.
Its admnstraton w not be dsturbed e cept for weghty reasons. (Logan
t. Davs, 233 U. S., 13, 27 Maryand Casuaty Co. v. Unted States, 251 U. S.,
842, 349 Snendg v. Washngton Water Power Co., 2 5 U. S., 322. 331.)
Many eases are cted by counse n whch ths partcuar reguaton was n-
voved. Ony one deas wth the vadty of the reguaton. Sterng O C Oas
Co. v. Lucas (D. C. y.) (51 . (2d), 413), n whch udge Dawson hed t to
be vad, and the Crcut Court of ppeas affrmed (Id., 2 P. (2d), 951), assum-
ng, wthout decdng, ts vadty. In ss v. Commssoner (C. C. . 5) (57 P.
(2d), 984), the cost of drng dry hoes was hed deductbe as a busness e -
pense, the court hodng that dry hoes dd not enrch anybody. In Isand Pe-
troeum Co. v. Commssoner (C. C. . 4) (57 . (2d), 992), the court hed the
reguaton not appcabe, but ts vadty was recognzed. Other cases nvove
turnkey contracts, that s, where a contractor erects the derrck, drs and
cases the we, and turns t over fuy equpped. ughes O Co. v. ass (C. C.
5), 2 . (2d), 17 Ct. D. 90, C. . II-1, 247 Od anners O Co. v. Com-
mssoner, 12 . T. ., 203.) The contract prce of such a |ob, ncudng
recoverabe equpment, was hed not to be wthn the ncdenta costs covered by
the reguaton. These cases do not hod the reguaton nvad they hod
the ta payer s proof dd not ca for ts appcaton. It Is not a queston of
whether the we s dred under contract t Is a queston of whether the
abor costs have been segregated from the equpment e pense. Other cases
present the queston, not present here, of whether f such costs are captazed,
return thereof shoud be had through deprecaton or depeton. ( . T. ergns
Trust, 22 . T. ., 551 Id., 288 U. S.. 5CS Ct. I . 53. C. . II-1, 214
Zeger v. Commssoner, 23 . T. ., 1091 P M- Petroeum Co. v. Comms-
soner, 24 . T. ., 3 0 Unted States v. Dakota-Montana O Co.. supra
Petroeum poraton v. Commssoner, 288 U. 8., 4 7 Ct. D. 12. C. . I-2,
202 .) In Robertson v. Commssoner (2S . T. ., 35) (decded uy 11, 1933)
the oard of Ta ppeas enforced ths reguaton at the nstance of a ta -
payer. Whe none of these cases bears drecty upon the pont, they have
ths sgnfcance: Ths reguaton has been before the courts repeatedy and
has unformy been treated as an ntegra part of our ta ng aws.
The ndustry, the Commssoner, the oard of Ta ppeas, and the courts
for years have acted upon the assumpton that tbs reguaton s vad. It s a
far souton of a debatabe queston. If t s to be changed at ths ate day,
t shoud be done by Congress and not the courts.
The decson of the oard of Ta ppeas s affrmed.
INCOM T R NU CT O 192 CISION O COURT.
1. Income Partnershp.
Where an ora agreement was made between the pettoners and
ther son to form a partnershp on the bass of ther sharng
equay the profts and osses of the busness, but the wfe never
made appcaton necessary under Te as aw to be decared a
femme soe for tradng purposes, and the son had no rght to
wthdraw the profts whch nomnay were to be hs and re-
ceved no share of the profts when the busness was ater taken
over by a corporaton, the aeged partnershp dd not e st, and
the profts from the busness are ta abe to pettoners as com-
munty ncome.
2. Decson ffrmed.
The decson of the oard of Ta ppeas (25 . T. ., 284)
affrmed.
3. Certorar Dened.
Petton for certorar dened on October 9, 1933.
S CTION 218. P RTN RS IPS.
rtce 335: Partnershps.
III-3- 002
Ct, D. 774
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218, rt. 335.
23
Unted States Crcut Cottrt or ppeas fob the fth Crcut.
d asch and Theodora asch, pettoners, v. Commssoner of Interna
Revenue, respondent.
Petton for revew of decson of the Unted States oard of Ta ppeas (Dstrct of
Te as).
efore ryan, utoeson, and Waker, Crcut udges.
ebruary 18, 1933.
OPINION.
Waker, Crcut udge: The oard of Ta ppeas approved defcences In
Income ta for the fsca year ended May 31, 1925, assessed aganst the pet-
toners, d asch and hs wfe, Theodora asch. The assessment of the de-
fcences resuted from the concuson that the gross ncome of each of the
pettoners as reported shoud be ncreased by an amount whch the pettoners
camed was ncome of Mton asch as a member of a partnershp composed of
the pettoners and sad Mton asch. The cam that such partnershp e sted
was re|ected by the oard of Ta ppeas, whch determned that the amount
whch pettoners contended was ncome of Mton asch beonged to the
pettoners as communty ncome.
Pror to the tme of d asch, hs wfe, Theodora asch, and Mton asch,
the son of d asch by a former wfe, enterng nto an agreement herenafter
mentoned, d asch, who ved at San Marcos, Te ., was the soe owner of
a cottonseed seng busness whch was conducted under hs name. t varous
tmes durng the perod of about s months endng May 31, 1924, d asch and
hs wfe had ora conversatons wth Mton asch n regard to the atter
beng taken nto the busness as a partner, and durng that tme the three
oray agreed to form a partnershp on the bass of ther sharng equay the
profts and osses of the busness, that nothng be wthdrawn from the bus-
ness, and that Mton asch devote hs tme and attenton to the busness
e cept when he was attendng schoo. t that tme Mton was 10 years
od. rom the tme that agreement was entered nto Mton devoted a hs
tme and attenton to the seed busness e cept when he was attendng schoo.
or the perod of the schoo vacaton n 1924 he was pad a saary of 75
per month, and was gven a sma aowance whe attendng schoo. The
books kept for the seed busness durng the fsca year ended May 31, 1925,
showed a proft from the busness of 124,808.94. y an entry n the |ourna
that entre proft was credted to d asch, the entry beng accompaned by
the statement: To cose net profts for year nto propretorshp account.
y ater entres d asch propretorshp account was charged wth two-thrds
of the 124.S08.94, or 83,205.90, and credts were entered n favor of Theodora
asch and Mton asch, each n the sum of 41,002.98, accompaned by the
statement: To set up partnershp accounts for Mrs. Theodora asch and
Mton asch, as they were taken n as partners May 31, 1924, to share n
profts of busness. Ths entry to dstrbute profts equay among them, as
per proft and oss statement, and ncome ta return May 31, 1925. In May,
1930, a corporaton was organzed under the name d asch, Inc., and took
over the busness. S teen thousand s hundred doars of the 50,000 capta
stock of that corporaton was subscrbed for and ssued n the name of Mton
asch, the certfcate for whch remaned n the possesson of d asch.
wrtten nstrument, dated September 27, 1930, and acknowedged before a
notary pubc on November 15, 1930, was e ecuted by d asch and Mton
asch, the atter then beng 23 years od and marred. That nstrument, after
rectng that durng the fe of the partnershp from une 1.. s)24, to une 1,
1930, the net earnngs to whch Mton asch became entted under the
agreement between hm and hs father amounted to 83,378.40 and that of
that amount Mton asch had wthdrawn and e pended 3,400, provded that
the baance, 79,918.40. shoud consttute a trust fund, to reman n the pos-
sesson and contro of d asch as trustee, wth power to hande, contro and
Invest the sum, ncudng prncpa and ncome. In such manner as he may
deem best, unt Mton asch shoud reach the age of 40 years that f
Mton shoud de pror to the termnaton of the trust eavng a chd or
chdren survvng, the trust shoud enure to the beneft of the survvng
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237
218, rt. 335.
chd or chdren, and shoud contnue for them unt Mton woud have
reached the age of 40 years had he ved, and that f Mton shoud de wthout
ssue durng the fe of the trust, then the father was to pay the survvng
wfe the sum of 1,000 a year for 10 years, and the remander shoud revert
to the father. It appeared from rectas contaned n that nstrument that
part of the fund covered by the agreement prevousy had been nvested by
d asch n and, the tte to wh.ch was taken n hs own name. So far
as appeared, Theodora asch never made the appcaton provded for by
tatute (Revsed Cv Statutes of Te as, 192. , artce 4 2 ) for the remova
of her dsabtes of coverture, and that she be decared a fcmmc soe for
mercante and tradng purposes.
or two or more persons to be partners they must e pressy or Impedy
agree to be assocated n a reatonshp whch as the ega effect of makng
them partners. (Whte v. McNe, 204 S. W., 928 20 R. C. L., 802.) Under the
Te as aw a marred woman can not be a partner n a mercante busness,
uness her dsabtes o coverture are removed by compance wth a statu-
tory requrement. (Purdom v. ond, 82 Te as, 130 Mer v. Mar t empner,
( 5 Te as, 131 Revsed Cv Statutes of Te as. 1025, artce 4 2 .) The ony ev-
tfeoce as to an agreement on the sub|ect of a partnershp was as to an ora
agreement between d asch, hs wfe, and Mton asch wth reference to a
partnershp of whch each of the three was to be a member. It seems that
such a partnershp dd not come nto e stence because of the ncapacty of
the wfe to become a partner. No evdence ndcated that pror to or durng
the year begnnng une 1, 1024, ether d asch or Mton asch consented
to a partnershp o whch no one but themseves was a member. ut. wthout
determnng whether the |nst-nen oned crcumstance dd or dd not keep the
ora agreement from havng the effect of creatng a partnershp of whch Mton
was a member, we are of opnon that the evdence adduced dscosed another
ground supportng the concuson that durng the ta abe year n queston
Mton s reaton to the seed busness was not such as to make hm a partner,
havng a rght to a share of the profts. One Is not a member of a busness
partnershp uness he has a propretary nterest n the profts as prof.s. Sung
v. opkns, 11 ed. (2d), f7.) In determnng whether the partes to the
ora agreement dd or dd not ntend Mton asch to be the rea owner durng
the ta abe year n queston of a thrd or other fractona share of the profts
of the busness, the terms of the agreement, and aso attendng crcumstances,
and what partes to the agreement dd wth reference to the profts are to be
consdered. Southern Surety Co. v. Te an mpoyers Ins. ss n, 2 S. W.
(2d), 310 rown v. f o)t, 72 Te as. 21 , 221.) y the terms of the agree-
ment Mton was to have no rght to wthdraw the whoe or any part of the
share of the pn fts whch nomnay was to be hs. No provson was made for
hs ever bnv:g the rrht to wthdraw any of the profts. When the ora agree-
ment was made d asch was the soe owner of the busness and had contro of
:ts r. t-. What was done after the agreement was entered nto ndcated that
a renqushment of hs contro of any part of the profts was not ntended
by the famy arrangement In the conduct of the busness as dscosed by ts
books of aconnt, the profts contnued to be treated as bs, the entre profts
for the year n queston beng credted to hm. the share credted to Mton
- shown to come, not drecty from the busness, but from hs father.
Whe Mton dd not have or e ercse any rght to wthdraw profts credted
to am, hs ather wthdrew profts credted to Mton and nvested them n
and, the tte to whch was taken In hs own name. Nothng ndcated that
hs dong so was not n accordance wth what a partes to the ora agreement
ntended from the begnnng. When the seed busness was taken over by a
corporaton n 1030, Mton then beng of fu age and marred, there was no
dstrbuton of profts n whch he shared, and, so far as appears, hs rght
to treat as hs own any part of the profts was not asserted or recognzed. The
father s contro and domnaton of the profts nomnay credted to the son
were contnued by an arrangement whch coud not be changed wthout the
father s consent. It appeared that from the tme the orn agreement was made,
and wth the consent or acquescence of Mton after he became of fu age,
M asch contnued to have such contro of the profts nomnay credted to
Uton as was nconsstent wth the atter beng the rea owner or propretor
of them. vdence adduced fary tended to prove that the ora agreement
reed on dd not have, and was not ntended to have, the effect of makng
Mton asch the rea owner or propretor of a share of the profts of the seed
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238
busness carred on n hs father s name. The concuson that the aeged
partnershp dd not e st, beng supported by evdence, s not sub|ect to be
sec asde. It foows that the above mentoned rung was not erroneous.
The petton s dened.
rtce 33G: Dstrbutve shares of partners. III-1 - 75
Ct. D. 814
INCOM T R NU CT O 1924 D CISION OP COURT.
1. Income Partnershp Caendar and sca Year ass
Proraton of Income of Deceased Partner.
Where decedent, a member of a partnershp, reported ncome
for the caendar year on the cash recepts and dsbursements bass
and the partnershp reported on the bass of a fsca year endng
ugust 31, the partnershp agreement provdng that n case of the
death of any partner hs nterest shoud be contnued unt the
e praton of the current fsca year, the decedent s undstrbuted
share of partnershp ncome for the perod from anuary 1, 1924,
to une 11, 1924, the date of hs death, computed by proratng
over that perod the nmount of the partnershp net ncome for ts
entre fsca year, n the absence of proof to the contrary s ta abe
under secton 218(a) of the Revenue ct of 1924 as ncome for
that porton of the caendar year athough not pad unt March,
1925, and even though ncuded as a part of the corpus of the
decedent s estate n computng the edera estate ta .
2. Decson ffrmed.
Decson of the oard of Ta ppeas (2 . T. ., 841) affrmed.
3. Certorar Dened.
Petton for certorar dened anuary 8. 1934.
Unted States Crcut Court of ppeas for the Second Crcut.
ames S. Darcy et a.. ecutors of the state of ames Tempe Gwathmey,
Deceased, appeants, v. Commssoner of Interna Revenue, appeee.
Petton to revew a decson of the oard of Ta ppeas nvovng ncome ta es of a
decedent from anuary 1, 1024, to une 11 In the same year. ffrmed.
efore L. and, ucustus N. and, and Chase, Crcut udges.
ugust 24, 1933.
opnon.
Chase, Crcut udge: The facts are not n dspute and were found by the
oard of Ta ppeas as foows:
INDINGS O CT.
The pettoners, resdents of New York State, are the e ecutors of the
estate of ames Tempe Gwathmey who ded une 11, 1924. The decedent,
pror to hs death, was a member of the partnershp of George . Mc adden
ro., commsson cotton factors, havng ts prncpa offce n Phadepha, Pa.,
and an offce n Now York Cty. Pe was the resdent partner n charge of the
New York Cty offce. The partnershp agreement, n effect at the tme of the
decedent s death, contaned the foowng matera provsons:
rtce III.

The nterest of . Tempe Gwathmey sha he mted soey to partcpaton
n the profts of the New York offce of George . Mc adden ro., to the
e tent of ffty per cent (50 ) thereof. Sad Gwathmey, as between the part-
ners of George . Mc adden ro., sha be abe ony for the osses of the
New York offce of George . Mc adden ro., n the same proporton as he s
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239
218, rt. 33 .
entted to share n sad profts. Sad Gwathmey sha have no Interest or
partcpaton n the profts other than the above rected share of profts of the
New York offce, nor In the assets, frm name or good w of the frm of George
. Mc adden ro. The amount of profts and osses and the amount of
busness of the New York offce of George . Mc adden ro. sha be deter-
mned from tme to tme by the partners of George II. Mc adden ro., other
than sad Gwathmey, and such determnaton sh: be fna and concusve on
the sad Gwathmey.
rtce III.
In case of the death of one of the partners durng the currency of any
busness year, hs nterest sha be contnued unt the e praton of sad year,
beng credted wth profts ess wthdrawas, or charged wth osses pus wth-
drawas. t the e praton of sad year the estate of sad partner sha be
credted wth the amount whch was to hs credt at the ast perodca
ascertanment of vaues pus sad profts ess wthdrawas, or mnus sad osses
pus wthdrawas.
If the busness of the partnershp be contnued by some or a of the re-
manng partners by a frm composed of some or a of the remanng partners,
ether aone or n connecton wth others, the new nn sha pat to the credt
of the estate of the dead partner the amount thus ascertaned, together wth
any nterest upon hs capta accrung snce the ast ascertanment of hs
contrbuton. The estate sha be a credtor of the new partnershp and sha
be entted to be pad one-ffth n cash at the end of the busness year and the
resdue n four equa annua nstaments, wth nterest at the rate of eght
per centum (8 ) per annum, payabe quartery.

It sha be optona wth the new frm to antcpate the payment of the
whoe or any part of the prncpa due to the deceased partners upon the
e praton of thrty (30) days notce to the persona representatve of such
deceased partners.
The books of account of the New York offce, pror to the year 1024 had
been cosed as of uy 31, but n 1924 ths branch changed ts practce to conform
to that of the Phadepha offce and, for the year 1024, sad books were cosed
as of ugust 31. The edera ncome ta returns of the partnershp whch n-
cuded the operatons of the New York offce for the year 1924 and the pror
year, were fed on the bass of a fsca year ended ugust 31. The decedent
used the caendar year n reportng hs ncome on the bass of cash recepts
and dsbursements. The e ecutors contnued the same manner and method
used by the decedent.
The survvng partners contnued the busness unt the end of the partner-
shp s fsca year, ugust 31, 1024, and determned the decedent s share of the
partnershp s profts n accordance wth the partnershp agreement to be
157, 04.90 as of the cosng date. The decedent had wthdrawn 1,322.81
durng the perod anuary 1, 1024, to une 11. 1024, eavng a baance of
15 ,372.09. Ths atter amount was ncuded n the tota amount to whch the
estate became entted under the partnershp agreement as the resut of an
accountng and a dstrbuton In qudaton of the partnershp nterests of the
deceased. Sad tota amount was credted to the estate on the partnershp
books on March 9, 1925, and pad on the same date. n agreement was aso
entered nto on the same date between the e ecutors and the survvng partners
whereby the former reeased the atter from further abty beyond (he tota
amount to whch the estate was entted. The partnershp books were not
cosed as of the date of the decedent s death nor at any tme other than
at the end of ts fsca year ugust 31, 1924.
The decedent reported Ins share of the partnershp profts of the New York
offce for ts fsca year ended uy 31, 1923, n hs return for the caendar
year 1923.
The e ecutors fed a return for the decedent coverng the perod anuary 1,
1924, to une 11, 1924, showng hs wthdrawas of 1,322.81 as ncome from
the partnershp. The respondent, upon an audt of ths return, determned
that the amount of 157, 94.00 representng the decedent s dstrbutve share
of the partnershp ncome ns of ugust 31, 1924, covered the 13 months perod
from ugust 1, 1923, to ugust 31, 1924. e computed the 13 months perod
as 407 days and the perod from ugust 1, 1923, to une 11, 1924, as 328 days
and determned 328/407 of 157,094.90 or 125,520.27 as the amount ta abe
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218, rt. 330.
240
on the return for the perod anuary 1, 1924, to une 11, 1924. Inasmuch as
1,322.81 a been returned as ncome, he ncreased sad amount by addng
124,197.5 and computed the ta party at 1923 and party at 1924 rates.
Thereupon by a notce dated and maed December 27, 1929, the respondent
notfed the pettoners of a defcency n the decedent s ncome ta for the
perod anuary 1, 1924, to une 11, 1924, amountng to 39,587.43.
The return coverng the perod anuary 1, 1924, to une 11, 1924, was fed
n the coector s offce n New York Cty on March 1 , 1925. Ths return was
sgned ames S. Darcy, ecutor. On anuary 2 , 1929, a waver coverng
ths same perod was fed n the offce of the revenue agent n charge n New
York Cty. Ths waver reads as foows:
anuary 25, 1929.
In pursuance of the provsons of e stng nterna revenue aws ames
Tempe Gwathmey, deceased, a ta payer of New York, N. Y., and the
Commssoner of Interna Revenue hereby consent and agree as foows:
That the amount of any ncome, e cess-profts, or war-profts, ta es due
under any return made by or on behaf of the above named ta payer for the
year anuary 1, 1924, to une 11, 1924, under e stng cts, or under pror
Revenue cts, may be assessed at any tme on or before December 31, 1929,
e cept that, f a notce of a defcency n ta s sent to sad ta payer by
regstered ma on or before sad date then the tme for makng assessment
as aforesad sha be e tended beyond the sad date by the number of days
durng whch the Commssoner s prohbted from makng an assessment and
for 0 days thereafter.
ames Tempe Gwathmey,
Deceased Ta payer.
(Sgned) y ames S. Darcy,
ecutor of state of . T. Gtcathmcy.
D. . ar,
Commssoner.
(Sgned) y R. Mes,
Revenue gent n Charge.
The three other e ecutors had knowedge of Darcy s e ecuton of the waver.
ames S. Darcy s an attorney who supervsed the affars of the estate reatng
to ta es.
None of the e ecutors have at any tme snce actng n that capacty, gven
forma notce to the respondent that they were actng n a fducary capacty for
the decedent or hs estate under secton 2S1, Revenue ct of 192 , or secton
312, Revenue ct of 1928. certfcate of the cerk of the surrogate court
dated uy , 1927, was fed wth the ureau of Interna Revenue on anuary
28, 1929, certfyng that etters testamentary had been ssued to the e ecutors
who are the pettoners heren. Ths certfcate was fed accompanyng a power
of attorney gven by the e ecutors to ther accountant authorzng hm to
represent them when appearng before offcas of the ureau and was requred
to be fed under the ureau s reguatons. nother smar certfcate was
fed n March, 1929, accompanyng a power of attorney n connecton wth
another edera ta case nvovng a defcency separate and dstnct from the
defcency nvoved heren.
In a sworn protest dated anuary 23, 1929, fed n the ureau of Interna
Revenue, the pettoners heren stated that they were the e ecutors of the
estate here nvoved.
The decedent s share of the partnershp s profts for ts fsca year ended
ugust 31, 1924, stated herenbefore, 150,732.09, was ncuded n the edera
estate ta return ted by the estate as a part of the decedent s gross estate
and the proper amount of estate ta was pad thereon.
When Mr. Gwathmey ded, the partnershp of whch e was a member ceased
to e st. (Penn. Unform Partnershp ct, P. L. 18, Part I, secton 31(4)
New York Partnershp Law, sectons 0, G2.) s share n the partnershp
ncome up to the date of hs death was by agreement to be computed by gvng
effect to events subsequent to hs decease. That agreement, however, dd not
and coud not keep the partnershp n e stence wth a dead man as a partner.
The effect of ths agreement was but to provde a method for determnng what
porton of the net ncome of the partnershp was the share of the deceased at
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241
218, rt. 33 .
the tme he ded. It s true that because the fsca year of the partnershp
whch e sted on une 11, 1924, ended on ugust 31 n that year and that
perod was, under the partnershp agreement, to be taken as the accountng
perod for the determnaton of the deceased partner s nterest hs share may
have been more or ess than t woud have been f computed as of the tme
he ded wthout gvng effect to busness transactons thereafter but ths need
touch no more than the dvson of partnershp net ncome as of the tme of
hs death and t has not been shown that t does. Whether the resut of the
agreed method gave as the share of deceased more or ess depends upon whether
the subsequent busness by tsef showed a proft or a oss. No one eau te
from the record before us. The decedent coud hmsef have no Income after
he ded and kewse coud sustan no oss but hs dstrbutve share of partner-
shp net ncome as of the tme he ded coud be determned n whatever way
the partnershp agreement provded, and. In the absence of proof to that
effect, we can not say that the od partnershp dd not have net ncome as of
the date of the decedent s death at east equr to what the Commssoner has
foand on computaton to have been hs dstrbutve share. The partnershp
books were not cosed as of that date though the partnershp then ceased to
e st. The Commssoner cou.d but take the net ncome for the accountng
perod refected by the books and prorate t. (Commssoner v. anet, 49 ed.
(2d), 707. 708.) The burden s upon the pettoners to show the correct amount
of the ta In order to show that the Commssoner s determnaton was wrong.
(Compare urnet v. ouston, 283 U. S., 223, 228 Ct. D. 328, C. . -, 343
Rcnccke v. Spau dnff, 280 U. S., 227, 232-2. ,: Ct. D. 154, C. 15. I -1, 305 .)
In a stuaton ke ths, that requres proof that the amount of the defcency
s erroneous, for t s that fact, and not the method of computaton, whch con-
tros. ( ughes v. Commssoner, 38 ed. (2d), 7 5, 757.) Obvousy, the pet-
toners coud not show that the amount of the defcency was ncorrect, pro-
vdng there was no error n arthmetc, wthout provng ether that the
partnershp had no net ncome out of whch the deceased was entted to hs
dstr.butve share when he ded or that ts net Income then was ess than the
defcency found. It has shown neher.
In Davdson v. Commssoner (54 ed. (2d). 1077) we affrmed a decson of
the oard of Ta ppeas n a case whch dffered from ths one ony n that
the partnershp and the deceased partner boh kept ther books and fed re-
turns on the caendar year bass. The death of a partner occurred wthn
the accountng perod of the partnershp and hs dstrbutve nterest at the
tme e ded was computed by takng nto consderaton the resuts of busness
transactons after he ded. It can not be perceved that the dfference n the
manner of accountng mentoned shows a dfference n prncpe between ths
case and the Davdson case. (See aso rst Trust Co. of Omaha v. Unted
States, 1 ed. Supp., 900.)
Secton 218(a) of the Revenue ct of 1924 s the appcabe statute. If pro-
vdes so far ns matera that, There sha be ncuded n computng
the net ncome of each partner hs dstrbutve share, whether dstr.baed or
not, of the net ncome of the partnershp for the ta abe year, or. f bs net
ncome for such ta abe year s computed upon the bass of a perod dfferent
from that upon the bass of whch the net ncome of the partners ) p s com-
puted, then hs dstrbutve share of the net ncome of the partnershp for
any accountng perod of the partnershp endng wthn the ta abe year upon
the bass of whch the partner s net ncome s computed.
It s suggested that, as the deceased partner dd not receve the partnershp
ncome made the sub|ect of the defcency assessment t was not ncome to hm
and so a statute whch tn es t as ts ncome s unconsttut ona. We agree
that what s not ncome n fact can not be made ncome by egsatve fat and
so brought wthn the ncome ta aws. ( oepcr v. Ta Commsson, 284 U. S.,
200, 215.) ut ths actuay was the decedent s ncome. or a we know he
coud have had t as such before he ded. e dd draw a comparatvey sma
amount between anuary 1, 1924, and the date of hs death. No one can say
from ths record that he drew a he coud. Nor s there any substance to I e
cam that because ths ncome became a part of the decedent s estate and was
ta ed under the estate ta t coud not aso be ta ed as ncome to the decedent
It was hs ncome before t became a part of bs estate and the Consttuton
docs not prohbt evyng a ta , at east one that does not confscate, both on
the ncome of a person and upon the same property as a part or the whoe of
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219, rt. 342.
242
the corpus of hs estate If the turn of events makes t such. (See Perthur
odng Corporaton v. Commssoner, 1 ed. (2d), 785 Ct. D. 80, C. .
II-1, 173 .)
s the pettoners no onger cam that the waver was Invad we have not
consdered that.
ffrmed.
S CTION 219. ST T S ND TRUSTS.
rtce 342: Method of computaton of net ncome and ta .
R NU CTS O 1924 ND 1928.
Wdow eectng to take under husband s w. (See Ct. D. 7 9,
page 151.)
rtce 342: Method of computaton of net III- - 42
ncome and ta . Ct. D. 782
ncome ta revenue act of 1921 decson of supreme court.
1. Deducton Deprecaton Trust Incomes Income Dstrbut-
abe to enefcares.
Where decedent s w contaned no drecton for the computaton
of trust ncome, for the keepng of the trustee s accounts, nor for
any aowance representng deprecaton, and where the trustee n
fng a fducary return for 1921 deducted from gross ncome an
amount representng deprecaton upon trust assets, but faed to
wthhod from fe benefcares the amounts deducted, the entre
Income receved by the fe benefcares was not ta abe to them
under the provsons of secton 219 of the Revenue ct of 1921 as
dstrbutabe Income, but ony that part of the ncome ascertaned
by aowng an approprate deducton tor deprecaton. The test
of ta abty to the benefcary under that secton Is not recept of
ncome but the present rght to receve t.
2. Same ffect of Ruwnq of Probate Court.
Where on appcaton by the trustee for approva of hs account
the State court, n the absence of drecton n the w and of any
provson n the State statutes as to deprecaton of trust assets,
rues that the trustee shoud have mantaned a reserve for depre-
caton, refuses to surcharge the trustee, and orders the fe bene-
fcares to repay to the trustee ther proportonate shares of the
deprecaton whch shoud have been wthhed, the court s decree
s the order governng the dstrbuton of ncome wthn the
meanng of secton 219(d) of the Revenue ct of 1921, and s con-
cusve as to what was ncome dstrbutabe to the benefcares
under the tmst, regardess of the fact that the order s made sub-
sequent to the actua dstrbuton, or that the repayment to the
trustee took the form of notes wthout nterest, some of whch were
|onty e ecuted by those who woud take n remander.
Supreme Court of the Unted States.
No. 129. ohn rcuer, dmnstrator of the state of Louse P. . W htcomb,
Deceased, pettoner, v. Gun T. cvcrng, Commssoner of Interna Revenue.
On wrt of certorar to the Unted States Court of ppeas for the Nnth Crcut.
anuary 8, 1934.
OPINION.
Mr. ustce Roberts devered the opnon of the court.
. C. Whtcomb, a resdent of Caforna, ded n 1889, and by hs w,
probated In that State, gave the resdue of hs estate n trust, one-thrd of the
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219, rt, 342
Income to be pad to hs wdow for fe, wth mtatons n remander. The
pettoner s the admnstrator of the estate of Mrs. Whtcomh, who ded n
1921. The w of . C. Whtcomb contaned no drecton for the computaton
of trust ncome, none for the keepng of the trustee s accounts and none for any
aowance or deducton representng deprecaton. egnnng about 190 the
trustee converted trust assets Into rea estate and other forms of Investment
sub|ect to deprecaton. In fducary ncome ta returns for 1921 and subse-
quent years, the trustee deducted from gross ncome an amount representng
deprecaton, but faed to wthhod from the benefcares, to whom he pad
ncome, the amount of the deprecaton deducton. o that each benefcary was
pad hs or her fu ratabe share of ncome for the ta abe year. s Mrs.
Whtcomb ded n 1921 a porton of the year s Income was pad to her and a
porton to the pettoner as her admnstrator. Nether the pettoner, as ad-
mnstrator of Mrs. Whtcomb, nor any of the other benefcares, ncuded n
ther returns, as Income receved, that proporton of the ncome represented by
the deprecaton deducton shown on the trustee s fducary return.
The appcabe sectons of the Revenue ct of 19211 are:
219. (a) That the ta mposed by sectons 210 and 211 sha appy to the
Income of estates or any knd of property hed n trust, ncudng (4)
Income whch s to be dstrbuted to the benefcares perodcay, whether or
not at reguar ntervas, and the ncome coected by a guardan of an nfant to
behed or dstrbuted as the court may drect.
(d) In cases under paragraph (4) of subdvson (a) the ta
sha not be pad by the fducary, but there sha be ncuded n computng the
net ncome of each benefcary that part of the ncome of the estate or trust
for ts ta abe year whch, pursuant to the nstrument or order governng the
dstrbuton, s dstrbutabe to such benefcary, whether dstrbuted or
not, .
In the beef that these provsons warranted bs acton, the Commssoner
of Interna Revenue ncreased the ncome shown on the pettoner s return by
so much of the amount receved as refected the proportonate share of the
deprecaton deducted by the trustee n hs fducary return, and determned
a defcency accordngy. The pett oner appeaed to the oard of Ta ppeas.
In 192S, whe the case was pendng before the oard, the trustee, who had
annuay rendered ucome statements to the benefcares, but bad fed no
accounts as trustee, odged n a Caforna court havng |ursdcton of the
trust, an account for the perod 1903-1928 and prayed ts approva. Due notce
of the proceedng was gven the partes n nterest. Certan remandermen
ob|ected to the account, on the ground that the trustee had pad the entre
ncome to benefcares wthout deductng and reservng proper amounts for
deprecaton and for capta osses sustaned. The matter comng on for hear-
ng the court sustaned the ob|ecton concernng deprecaton and overrued
that as to capta osses found the amounts whch shoud have besn reserved
for deprecaton refused to surcharge the trustee, but decreed that the fe
benefcares (ncudng the estate of Louse P. . Whtcomb) repay to the
trustee the amounts whch he shoud have wthhed annuay for deprecaton.
The sum f ed for the year 1921 was 43,003.10, whch the oard of Ta p-
peas has found was the correct amount, a pro rata share of whch the pet-
toner had deducted from the reported ncome of Louse P. . Whtcomb. Pur-
suant to ths decree the pettoner repad 10,700 to the trustee, whch was
more than pettoner s share of the requred repayment for the year 1921.
Snce, however, Mrs. Whtcomb s estate owed addtona amounts for each of
the years 1913-1928 the baance was ad|usted by a promssory note of her ne t
of kn. Other benefcares aso gave notes n settement of amounts due the
trustee.
The oard of Tu ppeas reversed the Commssoner.3 The State court s
|udgment was hed concusve of the fact that no part of the sums pad to the
benefcares out of the amount requred to be deducted by the trustee for
deprecaton beonged to them and the concuson was, therefore, that the
amount dstrbutabe to the pettoner s decedent for 1921 was the ncome of the
Revenue ct of 1921 (ch. 13 . secton 219 42 Stat, 240).
The proprety of ta ng the fu amount of the annun dstrbutons of Income In ths
estate In the years 1018-f O wns tested by certan of the benefcares. (W tcomt v.
ar, 25 . (2d), 528 ppea of Lnune P. . Whtcomb, 1 . T. .. 80.) It was hed
In those cases that the benefcares must return what they n fact receved and (hat de-
precaton, ns t affected ony capta assets, and not Income, coud not be deducted by
the fe benefcares.
22 . T. ., 118.
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219, rt. 342.
244
trust due her, ess her proportonate share of the sum representng deprecaton
of the trust property.
The Commssoner pettoned the Crcut Court of ppeas to revew the
decson, and, after hearng, the court reversed the oard and sustaned the
Commssoner s rung. The case s here on wrt of certorar.
The pettoner nssts the pan meanng of secton 219 s that an ncome
benefcary of a trust sha pay ta , not on so much of the ncome as he actuay
receves, but on the amount he shoud propery have receved n any ta year.
s poston s that f the amount of ncome propery dstrbutabe to hm
s n e cess of the amount pad, he must return and pay ta on the arger
amount, Irrespectve of when n the future he may actuay receve the baance
due hm for the year n queston. In ths vew the respondent concurs. ut
conversey, says the pettoner, f n any year the benefcary s actuay pad
more than s propery dstrbutabe to hm, he shoud not return and pay ta
on the e cess to whch he was not entted. The respondent dsagrees wth ths
proposton. If the queston be decded n favor of the respondent we need go
no further but f n favor of the pettoner, we must nqure what are the
crtera for determnng whether the sum actuay pad was n fact dstrbutabe.
On ths matter aso the partes are n dsagreement.
1. Secton 219(a) decares that the ncome of estates and property hed n
trust s to bear the same ta as the ncome of ndvduas. The ta s measured
by the gross ncome receved by the fducary, ess certan aowabe deductons,
as n the case of an ndvdua. To carfy and emphasze ths purpose t s
stated that ncome receved by a decedent s estate n course of admnstraton,
ncome to be accumuated for unborn or unascertaned persons, ncome to be
hed for future dstrbuton, ncome to be dstrbuted perodcay to benefca-
res, and ncome receved by a guardan, to be hed or dstrbuted as the court
may d.rect, s ncuded n the ta abe ncome of the estate or trust. (Para-
graphs (1) to (4).)
Subsecton (b) puts upon the fducary the duty of makng a return and
drects what t sha contan. s respects ncome whch s to be dstrbuted
perodcay to benefcares the return s to ncude a statement of the ncome
of the estate or trust whch, pursuant to the nstrument or order governng
the dstrbuton, s dstrbutabe to each benefcary, whether or not dstrbuted
before the cose of the ta abe year for whch the return s made.
Subsecton (c) requres the fducary to pay the ta on a net ncome of the
estate or trust, save that whch s dstrbutabe perodcay, but subsecton (d)
drects, as respects the sort of ncome ast mentoned, the ta sha not be
pad by the fducary, but n computng the ncome of each benefcary there
sha be ncuded that part of the ncome of the estate or trust for ts ta abe
year whch, pursuant to the nstrument or order governng the dstrbuton, s
dstrbutabe to such benefcary, whether dstrbuted or not, .
Subsecton (e) covers a case where the tota ncome to be returned by a
fducary Is made up of two casses, as e. g. a porton to be hed and accumuated
and a porton to be dstrbuted perodcay to benefcares. The fducary must
then prepare hs return as f he were requred to pay the ta on the whoe and
enter as an addtona deducton (n addton, that s, to the usua deduc-
tons aowed a ta payers by the other sectons of the ct) that part of the
estate or trust ncome whch, pursuant to the nstrument or order governng
the dstrbuton, s dstrbutabe durng ts (the fducary s) ta abe year to
the benefcares. To remove a doubt of the ntent of the ct a sentence s
added to the effect that n such case each benefcary s persona Income sha
ncude the porton of the trust s ncome whch pursuant to the nstrument
or order governng the dstrbuton, s dstrbutabe to hm.
Pany the secton contempates the ta aton of the entre net ncome of the
trust. Pany, aso, the fducary, n computng net Income, Is authorzed to
make whatever approprate deductons other ta payers are aowed by aw.
The net ncome ascertaned by ths operaton, and that ony, Is the ta abe
ncome. Ths the fducary may he requred to accumuate, or, on the other
02 . (2d). 733.
Other bem fcnres prosecuted ke appeas to the oard wth ke resut. The Cr-
cut Court of ppeas for the Nnth Crcut reversed the oard and the ta payers were
granted certorar In Nos. 130 and 131. The Court of ppeas of the Dstrct of Coumba
reversed the oard n the cases of s benefcares. ( 5 , (2d), 803, 809.) These cases
arc aso here on certorar as Nos. 13f -144, Incusve. y a stpuaton fed n ths
court November 15, 1833, If the udgment of the Crcut Court of ppeas be affrmed n
ths case, the ke udgment sha be entered In the other cases enumerated, and f the
udgment In ths case be reversed, the ke |udgment sha be entered In the others.
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219, rt. 342.
hand, he may be under a duty currenty to dstrbute t. If the atter, then the
scheme of the ct Is to treat the amount so dstrbutabe, not as the trust s
ncome, but as the benefcary s. ut as the tu on the entre net ncome of
the trust s to be pad by the fducary or the benefcares or party by each,
the benefcary s share of the ncome s consdered hs property from the moment
of ts recept by the estate. Ths treatment of the benefcary s ncome Is nec-
essary to prevent the possbty of postponement of the ta to a year subsequent
to that In whch the ncome was receved by the trustee. If t were not for ths
provson the trustee mght pay on part of the ncome In one year and the
benefcary on the remander n a nter year. or the purpose of mposng
the ta the ct regards ownershp, the rght of property n the benefcary,
as equvaent to physca possesson. The test of ta abty to the benefcary
s not recept of ncome, but the present rght to receve t. Ceary an over-
payment to a benefcary by mstake of aw or fact, woud render hm abe
for the ta ab e year under consderaton, not on the amount pad, but on that
payabe. If the trustee shoud have deducted a sum for deprecaton from the
year s gross ncome before ascertanng the amount dstrbutabe to Mrs.
Whteomb and the other benefcares, but faed to do so, he pad her more
than was propery dstrbutabe for the ta abe year. oth the anguage used
and ts aptness to effect the obvous scheme for the dvson of ta between the
estate and the benefcary seem so pan as not to requre constructon. The
admnstratve Interpretaton has been n accord wth the meanng we ascrbe
to the secton and no decson to the contrary has been brought to our
attenton.
The respondent suggests that ncome dstrbutabe wthn the meanng
of the secton Is ncome whch was reasonaby regarded by the partes as
dstrbutabe at the tme t was dstrbuted. We thnk such a constructon
woud do voence to the pan mport of the words used.
The respondent recs on North mercan O Consodated v. urnet (28
T . S., 417 Ct. D. 409, C. . I-1, 293 ). That case, however, nvoved the
recept of ncome n 1917 through a money award of a court. n appea was
taken nnd the award was not confrmed by the appeate court unt 1922.
Tho ta payer s cam that the possbty of reversa shfted the recept of the
ncome to the ater year was overrued. Secton 219 had no bearng upon the
queston presented.
2. The w of . C. Whteomb contans no drecton and the statutes of Ca-
forna make no provson as to deprecaton of trust assets. In the absence
of ether, the Crcut Court of ppeas thought the decson of th State court
nconcusve n the admnstraton of the edera Revenue ct, and nterpreted
the w accordng to the genera aw of trusts, whch was hed to forbd deduc-
tons from dstrbutabe ncome on account of deprecaton and to pace upon
the remandermen the burden of any shrnkage of capta vaue of that nature.
The pettoner chaenges the rung, nsstng upon the bndng force of the
State court s decree. Obvousy that decree had not th effect of res |udcata,
and coud not furnsh the bass for nvocaton of the fu fath and credt cause
of the edera Consttuton n the present case. The pettoner, however,
says that t furnshes the standard for the appcaton of sreton 219, snce
the secton pany so decares but even f ths be not true, the decson settes
the property rghts of the benefcares whch secton 219 ntended shoud be
observed n dstrbutng the burden of the ta .
The frst poston s supported by ctaton of the anguage of subsecton
(d) that there sha be ncuded n computng the net ncome of each bene-
fcary that part of the ncome of the estate or trust for ts ta abe year
whch, pursuant to the nstrument or order governng the dstrbuton, s
dstrbutabe to such benefcary, whether dstrbuted or not . The
decree of the State court s sad to be the order governng dstrbuton of
ths estate. The respondent reads the anguage as makng the terms of the
trust nstrument controng where there Is one, and resortng to an order
ony where there s no nstrument governng payments of ncome and he
adverts to the anguage of subsecton (a)(4) e emptng the fducary from
returnng ncome coected by a guardan of an nfant to be hed or ds-
trbuted as the court may drect, as e panng the use of the word order
n subsecton (d) and renderng t appcabe ony to ncome coected by
a guardan. ut a moment s refecton w show ths s an error. The whoe
of a mnor s ncome receved by hs guardan s ta abe to the mnor rrespec-
Treasury Reguatons 2 (1022 edton), artces 34 and 347.
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219, rt. 342.
24
tve of ts accumuaton In the guardan s hands, dstrbuton to the mnor or
payment for hs support or educaton. Ths s the reason that a fducary n
recept of such ncome Is not bound to return t as trust ncome. ther the
mnor or hs guardan must make the return, but n ether case t embraces
a the ncome and s the mnor s ndvdua return, not that of the guardan
or the trust.
The word order must be gven some meanng as apped to trust ncome
whch s to be dstrbuted perodcay and we thnk t cear that the secton
ntended that the order of the court havng |ursdcton of the trust shoud
be determnatve as to what s dstrbutabe ncome for the purpose of dvson
of the ta between the trust and the benefcary. We understand the respondent
to concede the bndng force of a State statute, or a setted rue of property,
foowed by State courts, and, as we, an antecedent order of the court havng
|ursdcton of the trust, pursuant to whch payments were made. ut, f the
order of the State court does n fact govern the dstrbuton, t s dffcut
to see why, whether t antedated actua payment or was subsequent to that
event, t shoud not be effectve to f the amount of the ta abe ncome of
the benefcares. We thnk the order of the State court was the order govern-
ng the dstrbuton wthn the meanng of the ct.
Moreover, the decson of that court, unt reversed or overrued, estabshes
the aw of Caforna respectng dstrbuton of the trust estate. It s none the
ess a decaraton of the aw of the State because not based on a statute, or
earer decsons. The rghts of the benefcares are property rghts and the
court has ad|udcated them. What the aw as announced by that court
ad|udges dstrbutabe s, we thnk, to be so consdered n appyng secton 219
of the ct of 1921.
The respondent suggests that the proceedng n the State court was a co-
usve one cousve n the sense that a the partes |oned n a submsson
of the ssues and sought a decson whch woud adversey affect the Govern-
ment s rght to addtona ncome ta . We can not so hod, n vew of the
record n the State court whch s made a part of the record here. The case
appears to have been ntated by the fng of a trustee s account, n the
usua way. Notce was gven to the nterested partes. Ob|ectons to the
account were presented, and the matter came on for hearng n due course, a
partes beng represented by counse. The decree purports to decde ssues
reguary submtted and not to be n any sense a consent decree. The court
rued aganst the remandermen on one pont, and n ther favor on another
that here nvoved but refused to surcharge the trustee, for reasons stated,
and ordered repayment by the fe tenants of overpayments of ncome conse-
quent on the trustee s faure to wthhod sums for a deprecaton reserve.
ut, t s sad, the fe benefcares gave ther notes for (he ndebtedness
due by them to the trust, as determned by the State court, some of whch
were |onty e ecuted by those who woud take n remander, and therefore
these benefcares are permtted to retun and en|oy the fu amounts dstrb-
uted to them wthout reference to proper deductons for deprecaton, and are
therefore ta abe thereon as ncome dstrbuted.
fter the decree had been entered two of the fe benefcares devered ther
own notes to the trustee. One fe benefcary, who may become possessed of
nn nterest n remander, gave her note. Louse P. . Whtcoub s daughter, a
fe benefcary, e ecuted her note, n whch her two chdren, who are possbe
takers n remander, |oned. The notes were wthout nterest, and were pay-
abe to the order of those who shoud be entted n remander at the termna-
ton of the trust. The persons so entted are the descendants of the two
chdren of the testator, per strpes. What persons f any may f ths descrp-
ton s of course unknown. In the event of the faure of ssue the utmate
remander s to arvard Coege.
The partes evdenty proceeded upon the theory that f the fund were
restored to the trust t woud be nvested and the fe benefcares woud
receve the ncome from It, and that a satsfactory settement of the matter
woud be to have the fe benefcares gve ther notes payabe at the term-
naton of the trust. t most ths form of settement amounted to a concesson
or gft on the part of the remandermen to the fe benefcares. ny advan-
tage obtaned by the atter through the ad|ustment was obvousy not effected
by the State court s decree, but by the vountary acton of the remandermen.
The decree was a |udgment whch f ed the rghts of the remandermen and
See Reguatons C2 (1022 edton), artces 347, 403, 422.
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219, rt. 342.
the obgatons of the fe tenants. If the partes n nterest chose to ad|ust
these obgatons n some manner other than by present payment of cash, ther
acton n no wse atered the quaty of the trustee s overpayments of ncome.
We can not seze on the form of the settement mude between the partes
ether to mpugn the good fath and |udca character of the State court s
decree, or to gnore the decree and ts concusveness as to what was n fact
and n aw ncome dstrbutabe to the benefcares under the trust.
The |udgment of the Court of ppeas s reversed.
Supreme Court of the Unted States.
No. 145. Louse . W tcomb, pettoner, v. Guy T. evertng, Commssone- of
Interna Revenue.
On wrt of certorar to the Court of ppeas of the Dstrct of Coumba.
anuary 8, 1934.
OPINION.
Mr. ustce Roberts devered the opnon of the court.
Ths case was brought here by wrt of certorar.1 The pettoner s a bene-
fcary of the trust created by the w of . C. Whteomb, and her status dffers
from that of the pettoner n No. 129 (ante, page 13) ony n the respect that
she has a vested remander, sub|ect, n certan events, to be dvested n favor
of arvard Coege. The Court of ppeas dd not make that crcumstance
the bass of any dstncton between her ense and that of reuer (No. 129).
The pettoner therefore makes the same contentons whch are there con.
sdered but cams aso f her nterest n the trust corpus by way of remander
s gven effect, t does not foow that an affrmance n No. 129 requres the ke
resut n her case. s we reverse the |udgment n No. 129 and the reasons
gven n our opnon appy n ths case, we have no occason to pass upon the
added feature presented by the remander nterest of the pettoner.
or the reasons set forth n the opnon n No. 129 the |udgment must be
reversed.
So ordered.
Mr. ustce randen, Mr. ustce Stone, an Mr. ustce Cabdozo dssent.
rtce 342: Method of computaton of net III-7- 52
ncome and ta . Ct. D. 784
( so Secton 214(a)9, rtce 204.)
INCOM T R NU CTS O 1921, 1924, ND 192 D CISION O SU It M
COURT.
Deducton Dkpeton Trust Property owance to ene-
fcares.
Where a trust created by the essor of an ron mne provdes
that after deductng ta es, e penses, etc., the proceeds from the
mne, conveyed to trustees sub|ect to the ease, sha be dstrb-
uted to benefcares, and where the trustees after deductng e -
penses dstrbute the proceeds consstng of royates coected
from the essee, the benefcares. beng the benefca owners of
the economc nterest n the mne, are not ta abe under secton
219 of the Revenue cts of 1921, 1924, and 1020 on the entre pro-
ceeds dstrbuted to them, but are entted to deduct ther pro-
portonate share of depeton, under 1 e provsons of secton 214
of those cts.
See 22 . T. .. 11S : 5 . (2(1), 803, 809.
Companon casts In the oard of Ta ppeas and the Court of ppeas of the Pa-
trct of Coumba, whch nvoves the ta abty of other benpfc aros of the same trust,
under ke crcumstances, were brought up by certorar. They are Nos. 14 to 150, n-
cusve. y stpuaton fed In ths court, the partes agree that f the |udgment n
No. 145 Is reversed a ke udgment sha be entered n the other cases and f that |udg-
ment s affrmed a ke |udgment sha be entered n the others.
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248
Supreme Cotbt of the Unted States.
uy T. everng, Commssoner of Interna Revenue, pettoner, v. Otto .
ak ct a., ecutors of the state of Chares . Pfster, Deceased.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Seventh
Crcut.
anuary 15, 1034.
OPINION.
Mr. ustce McReynods devered the opnon of the court.
The rsto ron ore mne n Mchgan, whe sub|ect to a 14-year ease pro-
vdng for royates of 1 ) cents per ton, was conveyed to three trustees to hod
durng two ves and 21 years wth power to manage, se, ease, mortgage
or otherwse dspose thereof. fter provdng for payment of ta es, e penses,
etc., the deed drected :
cept as above authorzed to be e pended, pad out or retaned, a pro-
ceeds whch sha come to the hands of the trustees from sad property or
from any use whch may be made thereof, or from any source whatsoever
hereunder as receved by the trustees sha beong to and be the property
of (he benefcares hereunder to be dstrbuted and pad over to them n
proporton to and n accordance wth ther respectve nterests as shown heren,
or as the same sha from tme to tme appear as herenafter provded.
Respondents are the benefcares under the deed and owners of the entre
economc nterest n the mne. Its fe was estmated as nne years. Proper
depeton aowance woud be 13.255 cents per ton of ore e tracted.
Durng the years 1022 to 192 the trustees coected arge sums as royates.
fter deductng e penses they dstrbuted what remaned among the benef-
cares. Cams for depeton made by the trustees In ther ta returns were
dsaowed.
ach benefcary camed the rght to deduct from the tota receved hs
proportonate share of the depeton. Ths, he mantaned, was not sub|ect
to ta aton under the statute. The Commssoner demanded payment reckoned
upon the whoe amount and the oard of Ta ppeas accepted hs vew.
The court beow thought otherwse and sustaned the ta payers.
There s no substanta dspute concernng the facts. Our decson must
turn upon constructon of the statute.
The Revenue ct of 1021 (ch. 13 . 42 Stat., 227, 239, 242, 24 , 247) mposes
a ta upon the net ncome of property hed n trust (sectons 210, 211, 219), and
drects that n order to determne ths there sha be deducted from gross
n the case of mnes, o and gas wes, other natura deposts, and tmber,
a reasonabe aowance for depeton and for deprecaton of mprovements, ac-
cordng to the pecuar condtons n each case. (Secton 214(a)10.)
so t requres the fducary to make return of the ncome of the trust (sec-
ton 210(b)), and provdes that whenever ncome must be dstrbuted to benef-
cares perodcay the amounts pad out sha be aowed as an addtona
deducton n computng he net ncome of the trusts. In the atter event there
sha be ncuded n computng the net ncome of each benefcary so much of
the ncome of the trust as he has receved. (Secton 219(e).)1
The reevant provsons of the Revenue cts of 1924 (ch. 234, 43 Stat.. 253,
2 9, 272, 275) and 192 (ch. 27, 44 Stat., 9, 2 , 28, 32) are substantay the
same as (hose n the ct of 1921.
The argument for the Commssoner s (hs The entre proceeds from the
workng of a mne consttute ncome wthn the consttutona provson and
Revenue ct of 1921 (ch. 130. 42 Stat., 227, 247).
Sec 219. (c) In the case of on estate or trust the ncome of whch conssts both of
Income of the cass descrbed n paragraph (4) of subdvson (a) of ths secton and other
ncome, the net Income of the estate or trust sha be computed and a return thereof made
by the fducary In accordance wth subdvson (b) and the ta sha be mposed,
and sha be pad by the fducary In accordance wth subdvson (c), e cept that
there sha be aowed as an addtona deducton n computng the net ncome of
the estate or trust that part of ts ncome of the cass descrbed n paragraph (4) of
subdvson (a) whch, pursuant to the nstrument or order governng the dstrbuton. U
dstrbutabe durng ts ta abe year to the benefcares. In cases under ths subdvson
there sha be ncuded, as provded In subdvson (d) of ths secton, n computng the
net ncome of each benefcary, that part of the ncome of the estate or trust whch, pur-
suant to the nstrument or order governng the dstrbuton, Is dstrbutabe durng the
ta abe year to such benefcary.
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249
219, rt. 342.
may be sub|ected to ta aton wthout regard to depeton. ere the benefcary
cams deducton for an tem sub|ect to ta aton as gross ncome but no pro-
vson In the statute aows hm to subtract anythng because of depeton.
Moreover, secton 219 e pressy requres every benefcary to ncude n ha
return the porton of the ncome of a trust dstrbuted to hm. Thus n terms
he s sub|ected to ta aton upon the whoe of ths.
Whatever may be sad concernng the power of Congress to treat the entre
proceeds of a mne as ncome, obvousy ths statute has not undertaken so to
do. The pan purpose, we thnk, was to ta ony that porton of the proceeds
remanng after proper aowance for depeton. Ths aowance represents
property consumed, s treated as f capta assets, and no ta s ad upon t.
The statute must be so apped n practce as to carry out ths purpose. The
ntenton was that owners of benefca nterests shoud not be unduy burdened.
Snce 1913 a Revenue cts have eft unta ed the proceeds of a mne so far
as these represent actua depeton. nd ths court has often recognzed that
ths mmunty nures to the benefca owners of the economc nterest.
Lynch v. hcorth-Stcphcns Co. (2 7 U. S., 3 4, 370 T. D. 3 90, C. . 1 -1,
1 2 ): The pan, cear and reasonabe meanng of the statute seems to be
that the reasonabe aowance for depeton n case of a mne s to be made
to everyone whose property rght and nterest theren has been depeted by the
e tracton and dsposton of the product thereof whch has been mned and
sod darng the year for whch the return and computaton are made.
Unted States v. Ludcy (274 U. S., 295, 302 T. D. 404 , C. . YI-2, 157 ) :
The depeton charge permtted as a deducton from the gross ncome n
determnng the ta abe ncome of mnes for any year represents the reducton
a the mnera contents of the reserves from whch the product s taken.
The reserves are recognzed as wastng assets. The depeton effected by
operaton s kened to the usng up of raw matera In makng the product
of a manufacturng estabshment. s the cost of the raw matera must
be deducted from the gross ncome before the net ncome can be determned,
so the estmated cost of the part of the reserve used up s aowed.
Murphy O Co. v. urnet (287 U. S., 299, 302 Ct. D. 19, C. . II-1, 231 ) :
We thnk t no onger open to doubt that when the e ecuton of an o and
gas ease s foowed by producton of o, the bonus and royates pad to
the essor both nvove at east some return of hs capta nvestment n o
In the ground, for whch a depeton aowance must be made.
Pamer v. ender, dmnstratr (287 U. S., 551, 557 Ct. D. 41, C. .
II-1, 235 ) : That the aowance for depeton s not made dependent upon
the partcuar ega form of the ta payer s nterest n the property to
be depeted was recognzed by ths court n Lynch v. corth-Stephcns Co.
(2 7 D. S., 3 4). ut ths court hed that regardess of the technca
ownershp of the ore before severance, the ta payer, by hs ease, had acqured
ega contro of a vauabe economc nterest n the ore capabe of reazaton as
gross ncome by the e ercse of hs mnng rghts under the ease. Depeton
was, therefore, aowed. Smary, the essor s rght to a depeton aowance
does not depend upon hs retenton of ownershp or any other partcuar form
of ega Interest n the mnera content of the and. It s enough f, by vrtue
of the easng transacton, he has retaned a rght to share n the o produced.
If so he has an economc nterest n the o, n pace, whch s depeted by
producton.
reuer, dm., v. everng, Commssoner ( anuary 8, 1934) Ct. D. 782,
page 242, ths uetn , construed secton 219. We there sad Pany the
secton contempates the ta aton of the entre net ncome of the trust. Pany,
aso, the fducary, n computng net ncome, s authorzed to make whatever
approprate deductons other ta payers are aowed by aw. The net ncome
ascertaned by ths operaton, and that ony, s the ta abe ncome.
ut as the ta on the entre net Income of the trust s to be pad by the
fducary or the benefcares or party by each, the benefcary s share of the
ncome s consdered hs property from the moment of ts recept by the
estate. or the purpose of mposng the ta the ct regards owner,
shp, the rght of property In the benefcary, as equvaent to physca
possesson.
True t Is that secton 219(b) drects that n cases of ncome whch s to
be dstrbuted to the benefcares perodcay, the ta sha not
be pad by the fducary, but there sha be ncuded n computng the net In-
come of each benefcary that part of the ncume of the estate or trust for Its
77 2 34 0
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219, rt. 342.
250
ta abe year whch, pursuant to the nstrument r order governng the da-
trbuton, Is dstrbutabe to such benefcary. ut we can not accept the Yew
that ths was ntended to mpose a ta upon that part of the proceeds whch
represents the return of capta assets, whenever ths has been pad over to
the benefcary. In cases ke the one before us so to hod woud n practce
resut n ta ng aowances for depeton, contrary to what we regard as the
pan ntent of the statute.
The pettoner rees upon nderson, Coector, v. Wson (289 U. S., 20, 2
Ct. D. 50, C. . II-1, 253 ). The concuson there rests upon the con-
structon of the w. Under t the benefcares became entted to no ncome
unt the e ecutors n ther dscreton shoud se the corpus. What was
gven to them was the money forthcomng from a sae. Ther n-
terest In the corpus was that and nothng more. shrnkage of
vaues between the e ecuton of the power of saes and ts dscretonary e er-
cse Is a oss to the trust, whch may be aowabe as a deducton upon a return
by the trustees. It Is not a oss to a egatee who has receved hs egacy In
fu.
ere the governng Instrument drected payment to the benefcares of the
entre proceeds, ess e pendtures, etc., and the trustees must be regarded as a
mere condut for passng them to the benefca owners. Part ony of the
proceeds was sub|ected to ta aton. The other part was eft unta ed and
remaned so n the hands of the benefcares.
ffrmed.
rtce 342: Method of computaton of net III-7- 53
ncome and ta . Ct. D. 785
( so Secton 214(a)9, rtce 204.)
INCOM T R NU CTS O 1921. 1924, ND 1020 D CISION O SUPR M
COURT.
1. Deducton Depeton Trust Property owance to ene-
fcares.
Where the essor of o and gas ands by hs w created a trust
the corpus of whch conssted n part of royaty Interests under
the ease and drected the trustees to convert the royaty Interests
nto cash at ther dscreton and dstrbute the proceeds to the
benefcares, the atter, beng the ony persons havng a benefca
nterest n the royates, are not ta abe under secton 219 of the
Revenue cts of 1921, 1924, and 192 on the entre proceeds ds-
trbuted to them, but are entted to deduct ther proportonate
share of depeton, under the provsons of secton 214 of those
cts.
2. Decson oowed.
everna v. ak (291 II. S., 183), decded anuary 15, 1934.
Ct. D. 784, page 247, ths uetn , foowed.
Supreme Court of the Unted States.
Marsha S. Reynods, Indvduay and as Coector of Interna Revenue,
pettoner, v. Rchard . Cooper.
Marsha 8. Reynod , ndvduay and as Coector of Interna Revenue,
pettoner, v. arbara . Cooper.
Marsha S. Reynods, Indvduay and as Coector of Interna Revenue,
pettoner, v. Rchard . Cooper and arbara . Cooper.
On wts of certorar to the Unted States Crcut Court of ppeas for the Tenth Crcut.
anuary 15, 1934.
OPINION.
Mr. ustce McUeynods devered the opnon of the court.
In each of these causes a benefcary receved from trustees royates arsng
from a ease of o and gs ands n Wyomng. Ta es were e acted upon the
fu amounts so receved. Separate suts were brought to recover proper aow-
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219, rt. 342.
ances for depeton. The respondents prevaed In both of the courts beow.
ere the causes were heard together.
The Soctor Genera says: The queston s dentca wth that rased n
everng v. ak, No. 225, October Term, 1933 Ct. D. 784, 247, ths uetn
and the argument made n the Government s bref n that case s kewse
appcabe here. There Is therefore substantay no dfference be-
tween the poston of the benefcares n ths case and the ak case.
The udgments beow are affrmed upon authorty of everng v. ak,
decded ths day.
Mr. ustce randes, Mr. ustce Stone, and Mr. ustce Cabdozo thnk tha
these cases are to be dstngushed from No. 225, everng v. ak, |ust decded,
because of the nature of the dutes mposed upon the trustees, and of the
remander Interest granted to the benefcares by the trust nstrument pres-
enty nvoved, and accordngy concur n the resut.
rtce 342: Method of computaton of net ncome and ta .
R NU CTS O 1024 ND 192 .
Wdow eectng to take under husband s w. (See Mm. 414 ,
page 93.)
rtce 342: Method of computaton of net III-18- 77
ncome and ta . Ct. D. 821
ncome ta revende act of 192 decson of court.
1. Deductons nnutes Payabe from Income or Corpus.
Where a resduary estate was bequeathed n trust for the pay-
ment of specfc annutes and e penses connected wth the trust
and the remander to chartabe and educatona organzatons, the
annutes and e penses to be a charge upon the entre corpus f the
ncome shoud be nsuffcent, the amounts dstrbuted to the an-
nutants durng the years 192C and 1927, beng n the nature of
bequests and payabe In any event, are not deductbe from gross
Income of the trust under the provsons of secton 219(b)2 of the
Revenue ct of 192 .
2. Deductons Income Permanenty Set sde or to be Used
cusvey fob Chartabe or ducatona Purposes.
Where a trust nstrument drects that, f there be suffcent
funds remanng after the death of certan annutants, a porton of
the trust fund be pad to chartabe and educatona organza-
tons, remandermen under the w, no part of the trust fund or
any surpus ncome for any year remanng after such payments
s deductbe from gross ncome as beng permanenty set asde
wthout mtaton or to be used e cusvey for chartabe or edu-
catona purposes wthn the meanng of secton 219(b) 1 of the
Revenue ct of 192 .
3. Res d|udcata.
determnaton by the oard of Ta ppeas, n an estate ta
case, of the present worth of bequests to chartabe organzatons,
remandermen under the w, Is not res ad|udcata. In an ncome
ta case nvovng the same estate, of the queston whether that
sum had been permanenty set asde for chartabe purposes wthn
the meanng of secton 219(b) of the Revenue ct of 192 .
4. Decson ffrmed.
Decson of the oard of Ta ppeas (2 . T. ., 48 ) affrmed.
5. Certorar Dened.
Petton for certorar dened December 11, 1933.
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5219, rt. 342.
252
Unth States Crcut Coubt of ppeas for the rst Crcut.
oston Safe Depont d Trust Co. et a., pettoners for revew, v. Commssoner
of Interna Revenue.
ppea from oard of Ta ppeas.
efore ngham, Wson, and Morton, .
une 15, 1933.
OPINION.
Wson, . Ths Is a petton for revew of a decson of the oard of Ta
ppeas reported In 2 . T. ., 48 . It Invoves defcences In ncome tares
for the years 192 and 1927 In the respectve amounts of 3,578.15 and
3,792.53. The appeas from the decson of the Commssoner for each year
were consodated by order of the oard of Ta ppeas as the same questons
are nvoved In each defcency assessment.
erbert . Wder of Newton, Mass., ded October 12, 1923, eavng a w
whch was duy probated. The pettoners, the oston Safe Depost Trust
Co., a Massachusetts corporaton, and verett . ent, are the survvng
e ecutors of the w and trustees named thereunder, and durng the years
In queston were admnsterng the trust created by the w.
The parts of the w matera to the determnaton of the case are as
foows:
fth tem. I drect that a the bequests and devses In ths my w be
made free from a egacy and nhertance ta es and Government dues of
every knd, and that my e ecutors pay a such ta es and dues attachng at
the tme of the probate of my w to the varous egaces and provsons, from
the remanng porton of my estate, so that a the egaces and provsons n
the foregong and the ne t foowng tems may be undmnshed save as the
utmate resdue may be affected by havng to bear such payments.
S th Item. 1 gve, bequeath and devse to my trustees herenafter named,
ther survvors, survvor, successors or successor, but n trust nevertheess,
a the rest, resdue and remander of my property and estate, persona or
rea, wherever found or stuated, Incudng the reversons or remanders estab-
shed or contempated n the foregong Items of ths my w, and any ncome
or benefts whch may resut to my estate from any transactons I may effect
In my fetme, the same to be Invested and hed by sad trustees n safe and
sutabe securtes and propertes, save as herenafter provded, and from the
ncotnc and so much of the prncpa of the trust fund as may he. needed or
requred from tme to tme. Itacs supped.
(a) To pay and keep down a ta es, assessments. Insurance, repars and
Improvement charges or e penses of any knd,
(b) To pay a charges, ta es and e penses upon or connected wth the trust
or trust property, so ong as the trust contnues,
(c) To pay annutes, or tota net sums n every year, to the persons and n
the nstaments ne t beow named, or stated, gvng to each person named so
ong as he or she may ve, same as herenafter quafed, respectvey, a tota
annua amount us foows, to wt:
To my daughter Constance Perey Wder 5,000 payabe n monthy
nstaments.
To my daughter Margaret Gud Wder 5,000 payabe n monthy nsta-
ments.
To my (aughter Mary Cement ent ,000 payabe n monthy nsta-
ments.
(Then foow 12 or more other annutes.)
(d) To each of my grandchdren, whether born before or after my death,
I gve an annuty or tota net sum of 300 annuay, unt each such grandchd
sha attan the age of 21 years, the same to be deposted In savngs banks, n
the successve years, and each grandchd to be aowed to wthdraw the ncome
upon such deposts for hs or her beneft respectvey, n each year after the
sad age of 21 years s attaned, but the prncpa not to be wthdrawn by the
respectve grandchd unt the age of 28 years be reached.

I drect that out of the trust fund created by ths tem of my w, any
porton of a tota of 25,000 may be used n the successve years, from tme
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219, rt. 342.
to tme, by my trustees, to ampfy any of the benefts provded for my daughters
or ther fames, under ths tem of my w, n cases of sckness or physca
dstresses of any of them such awards from such 25,000 fund, however, to be
ony n cases of such sckness or necesstous crcumstance as n the dscreton
and |udgment of my trustees woud consttute speca occason for the enhanced
assstance ths sckness beneft fund to be appcabe to my chdren and grand-
chdren as we as to the other famy annutants mentoned n ths connecton.
If there be any nsuffcency or shortage of funds wherewth to meet a the
provsons of my w, I drect that the egaces, annutes, and other benefts n
favor of my daughters sha be met and pad n fu, wthout any deductons,
n any event, the same to have prorty over any other benefts n the event of
any such defcency. Itacs supped.
(e) If at the death of my frst daughter who sha.decease, t sha appear to
my then survvng trustees or trustee, or to the trustees at such tmes actng
under ths my w, that there s a suffcent trust fund or estate abundanty to
pay and suppy a the annucs provded for n ths tem of my w, then sad
trustees or trustee, at the death of such frst daughter to decease, may pay over
to the fna or utmate resduary benefcares of my estate, ater mentoned n
ths tem of my w, one-thrd of the then e stng trust fund and upon the
death of my daughter who sha be the second to decease, sad trustees or
trustee, f assured of the suffcency of my estate, may pay over to sad utmate
benefcares, another equa porton of the then remanng trust fund, that s to
say, substantay one-haf of such trust estate as may be n the hands of the
trustees or trustee at the death of such second decedent. Itacs supped.
(f) t the death of my ast survvng daughter a the annutes gven or
estabshed by ths my w, sha termnate and cease, notwthstandng any
anguage, terms or provsons herenabove connected wth any partcuar an-
nuty a and every annuty provson herenbefore made or stated beng sub|ect
and subordnated to ths mtaton, so that after the death of my ast survvng
daughter the dstrbuton and settement of the entre trust may be n a short
tme accompshed.
(g) fter the death of my ast survvng daughter I gve, bequeath and de-
vse a the trust funds and estate then remanng or e stng to the fna
benefcares herenbeow named, n the shares or proportons beow stated, to be
thers absoutey and n fee. I authorze my then survvng or actng trustees
or trustee to convert nto money such porton of the then e stng trust estate
as they or he may deem e pedent, or to pay over and dstrbute ether n
money or securtes to the sad fna benefcares as at the tme may be found
e pedent and |udcous. Such fna benefcares beng the foowng, to wt:
( ere foow the names of 14 chartabe or educatona benefcares and ther
respectve proportonate shares of the resdua estate.)
The decedent, erbert . Wder, was survved by hs three daughters, a of
whom were vng n 192 and 1927, and by three grandchdren, a chdren of
verett . and Mary Cement ent. No chdren have been born to any of s
daughters snce hs death.
The vaue of the estate of the decedent, erbert . Wder, on anuary 1,
192 , and on anuary 1, 1927, was not ess than 1,000,000. The e ecutors have
pad a bepuests and annutes and have pad a e penses of the admnstra-
ton and operaton of the estate up to and ncudng the years under consdera-
ton.
The 14 Insttutons named n tem s th (g) of the w are corporatons
organzed and operated e cusvey for regous, chartabe, terary or educa-
tona purposes, as contempated by secton 403(a)3 of the Revenue ct of 1921,
and secton 219(b) 1 of the Revenue ct of 1924 and 1920.
In determnng the estate ta and for the purpose of cosng the estate, the
oard of Ta ppeas n 20 . T. ., 1159, found the present worth of the
remander to the chartabe and educatona nsttutons was at east 345,000,
and aowed that as a deducton from the gross estate n order to arrve at the
estate ta , and the facts found by the oard of Ta ppeas n that case t
agreed by stpuaton, sha be ncorporated as a part of the facts n these pro-
ceedngs by reference.
On behaf of the Wder estate, the pettoners fed ncome ta returns for
the years 192 and 1927, showng no ta abe ncome for such years. The
respondent computed net ncomes of 53,40 .82 and 55,030.88 for 192 and 1927,
respectvey. e dened deductons of 35,082.82 (e cusve of ncome from non-
ta abes) for the year 192 , and 33,8 2.88 for the year 1927, as ncome receved
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219, rt. 342.
234
by the trustees under the w of the sad Wder, and by them pad to the
annutants. e aso dened deductons of 18,324 for 192 , and of 12,992.8
for 1927 (e cusve of ncome from nonta abe securtes) camed by the pet-
toners to have been receved by the trustees and by them accumuated for te
beneft of the chartabe and educatona nsttutons named n the w. The
respondent further ncreased the pettoners ncome for the year 1927 by the
sum of 8,175. 4, representng proft from the sae of securtes. Ths sum ke-
wse was omtted from the pettoners return, because t was treated as capta
gan accumuated for the beneft of chartes.
The questons presented for decson are:
(1) Were the pettoners, n computng ther ta abty for the years 192
and 1927, entted to deduct, from the gross ncome receved the year 192 1. the
sum of 35,082.82 (e cusve of ncome from nonta abes) and 33,802.88 for
the year 1027, as dstrbutons of ncome by the fducares under the w of
sad Wder to the annutants theren named (2) whether the pettoners were
entted to deduct n addton the surpus Income of 18,324 and 12,992.3 for
the years 192 and 1927, respectvey (e cusve of ncome from nonta abe
securtes accumuated) (3) whether n the year 1927 the pettoners were
entted to deduct the sum of 8,175. 4 as representng proft or capta gan
on the sae of securtes aeged to have been permanenty set asde or to be
used pursuant to the terms of the w e cusvey for the beneft of the
chartabe and educatona Insttutons named (4) Was the fndng by the
oard of Ta ppeas n the case reported In 20 . T. ., 1159, that 345,000
was the estmated mnnum vaue n 1923 of te sum that woud eventuay go
to the chartabe and educatona nsttutons named, and was thereby, n
effect, permanenty set asde for chartabe and educatona nsttutons wthn
the meanng of secton 219(b), and s the fndng res ad|udcatat
The statutes nvoved are sectons 219(b) (1), (2) and (3), 214(a)10 of
the Revenue ct of 192 (ch. 27, 44 Stat., 9). The ncome ta es of the
estate and trust were computed under secton 212 of the 192 ct but under
secton 219(b) there sha be aowed as a deducton from the gross ncome
(In eu of the deducton authorzed by paragraph (10) of subdvson (a)
of secton 214), any part of the gross ncome, wthout mtaton, whch,
pursuant to the terms of the w or deed creatng the trust, s, durng the
ta abe year, pad or permanenty set asde for the purposes and n the man-
ner specfed n paragraph (10) of subdvson (a) of secton 214, or s to be
used e cusvey for regous, chartabe, scentfc, terary or educatona
purposes.
The answers to the questons nvoved depend on whether the testator n-
tended by the terms of hs w that the corpus of the trust funds shoud be
hed ntact n order to nsure the payment of the annutes whether any
part of the ncome thereof can be consdered as set asde permanenty, for the
purposes and n the manner specfed n secton 214(a) 10, or s to be used
e cusvey for regous, chartabe, scentfc, terary or educatona pur-
poses whether the payment of the annutes s condtoned upon there beng
suffcent ncome to pay them, or whether they consttuted a defnte f ed
sum to be pad n any event so ong as there was any of the corpus of the
trust fund eft, as was hed n Commssoner v. Whtehovse (38 ed. (2d),
1 2) urnet, Commssoner, v. Whtehousc (283 U. S., 148 Ct. D. 327, C. . -.
3 ) Chares P. Moorman ome for Women et a. v. Unted Statc (42 ed.
(2d), 257 ICt. D. 214, C. . I -2, 275 ) and whether the securtes sod n
1927, or the gan therefrom, had been permanenty set asde for the uses
descrbed n secton 219(b) 1 or were by the terms of the w to be Used
e cusvey for chartabe or educatona purposes.
Whe at the tme of the testator s death there was suffcent ncome from
the trust fund to pay a the annutes, and durng the years here nvoved the
annutes were n fact pad out of the ncome, the ncome fe off apprecaby,
even n 1927. It s cear, however, from the provsons of the w that the
testator antcpated that n a perod of defaton, such as occurred n 1929-19 3,
or occurrng at any tme before the termnaton of the trust, the trust fund
mght fa to produce the necessary ncome out of whch the severa annutes
coud be pad, together wth ohor e penses whch he aso made a charge
upon the trust fund and drected that the trustees, from the ncome and
so much of the prncpa of the trust fund as may he needed or requred from
tme to tme, to pay the annutes, or tota net sums n every year, to the persons
and n the nstaments ne t beow named, or stated, gvng to each person
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255
219, rt. 342.
named so ong as he or she may ve, save as herenafter quafed, respectvey,
a tota annua amount as foows: oowng the name of each annutant a
the specfc amount each s to receve.
In subdvson (d) of tem s th he made the further specfc provson:
If t ere be any nsuffcency or shortage of funds, wherewth to meet a
the provsons of my w, I dreot that the egaces, annutes, and other
benefts n favor of my daughters, sha be met and pad n fu, wthout any
deductons, n any event, the same to have prorty over any other benefts n
the event of any such defcency.
In subdvson (e) of tem s th he further provded that If there shoud be
a suffcent trust fund or estate he does not mt t to ncome to pay and
suppy a the annutes, on the death of one of hs daughters, the trustees
may then dstrbute one-thrd of the corpus to chartabe nsttutons named
and upon the death of my daughter who sha be the second to decease, the
trustees or trustee, f assured of the suffcency of my estate, may pay over to
sad utmate benefcares, another equa porton of the then remanng trust
fund, that s to say, substantay one-haf of such trust estate as may be In
the hands of the trustees.
Under such provsons we thnk that no part of the trust fund or any surpus
Income for any year, after the payment of the annutes, can be hed to be
permanenty set asde wthout mtaton for any chartabe, regous, or
educatona Insttutons wthn the meanng of paragraph (1) of subdvson
(b) of secton 219 of the 192 ct, or can be sad to be certan to be used
e cusvey for regous, chartabe or educatona purposes.
It s perfecty cear from the provsons of the w that the testator made
the specfc annutes and e penses a charge upon the entre trust fund, and
not aone on the ncome thereof. e made the payment of the annutes
certan, especay to hs daughters, as ong as there was anythng eft of the
corpus of the trust No dstrbuton to the chartabe or educatona nsttu-
tons named, notwthstandng the oard s decson In 20 . T. ., 1159, coud
be made uness there was a suffcent amount eft to provde for a the
annutes, and especay those to hs daughters.
The case dffers from Irwn v. davt (2 8 U. S., 1 1 T. D. 3710, C. .
r -1, 123 ), n whch the annutes or bequests were payabe out of ncome,
and f no ncome, there coud be no payment to the benefcary named.
The pettoners, therefore, were not entted to the deductons camed, vz,
te sum of 35,082.82 n 1920, and 33,8 2.88 n 1927, as dstrbutons to the
annutants n those years, snce such f ed annutes are In the nature of
bequests and not ta abe ncome urnet, Commssoner, v. Whtehouse, supra)
nor were they entted to deductons of 18,324 and 12,992.3 , beng surpus
ncome for the years 192 and 1927. respectvey, and camed by the pettonera
to be accumuated by the trustees for the chartabe and educatona Insttutons
named, as such accumuatons have become a part of the corpus of the trust,
charged frst wth the payment of the annutes and e penses.
The case of artford-Connectcut Trust Co. v. aton (29 ed. (2d), 840
T. D. 4237. C. . II-2, 300 , affrmed n 3 ed. (2d), 710) s cted by the
pettoners as supportng ther contenton but n that case there was but one
benefcary, a wdow, who was entted durng her fe to the net ncome on an
estate vaued at 1,000,000, the resdue at her death to be dstrbuted among
certan chartabe and educatona nsttutons. The trustee was gven power
to pay over to her any part of the prncpa t mght deem necessary for her
comfortabe mantenance and support. The dstrct court, however, found as
a fact that there was no reasonabe possbty, consderng the ncome of the
trust fund, her mode of vng, and her own persona estate, that she woud
ever requre, or the trustee be warranted n payng over to her, any part of the
prncpa for her comfortabe mantenance and support, and that a of the
prncpa of the trust found was certan to be used for chartabe and educa-
tona purposes, and therefore any ncome whch became a part of the corpus of
the trust was e empt under secton 219(b) 1. The petton contaned an aega-
ton that the ncome whch was derved from the sae of certan securtes
formed a part of the prncpa of the trust fund, and the sae was a mere
transformaton of a part of the corpus of the trust fund. The ssue arose
on a demurrer, whch admtted the aegatons of the petton and the dstrct
court hed that nasmuch as there was no possbty that any part of
the prncpa woud ever be necessary to nsure her comfortabe mantenance
and support, It was to be used for e empt purposes, and the gan from
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219, rt. 342.
25
the sae of securtes was not ta abe. It was affrmed substantay on ts
ground n 3 ed. (2d), 710.
In the ease at bar there s not 1 annutant, but may be at east 25, and
the sums to be pad were defnte and f ed, and n each of the years T92S
and 1927 totaed appro matey 35,000. The ncome over and above ths sum
n 192 was 18,3124, whe n 1927 t was ony 12,992.3 . It can not be sad,
we thnk and the testator was evdenty of the same opnon that there
was no possbty that n perods of depresson, such as occurred n 1929-1933,
t mght not be necessary to use a part of the prncpa, together wth any
accumuated ncome, to meet a the f ed amounts to be pad pursuant
to the terms of the w.
It s not qute cear what Congress meant by the words, wthout mta-
ton, used n secton 219(b). We thnk the prase must be hed to mean
that any sum permanenty set asde must be wthout mtaton, that s,
absoutey. sum whch may be used to pay the annutes can not be deemed
set asde permanenty wthout mtaton for the beneft of the e empt
nsttutons and there s no evdence that the trustees have taken any acton
to set asde, wthout mtaton, any sums for the remanderman, ether per-
manenty or otherwse, and under secton 219(b) t must be pursuant to the
terms of the w.
We thnk the words or to be used have no such sgnfcance as was
gven them n artford-Connectuut Trust Co. v. aton, supra, but shoud be
construed wth what precedes them, and n ths partcuar paragraph (1) of
subdvson (b) shoud be construed as f readng as foows: There sha
be aowed as a deducton any part of the gross ncome, wthout
mtaton, whch, pursuant to the terms of the w creatng the
trust, s to be used e cusvey for regous, etc.
Under a w whch mts the use of a trust fund to the payment of f ed
annutes provded for the testator s daughters, and whch may be pad from
the corpus of the trust fund before t can be apped to any other use. t can not
be sad that pursuant to the terms of the w any part of the gross ncome
s to be used e cusvey for chartabe and educatona uses.
It s urged that snce the oard of Ta ppeas n 20 . T. ., 1159, deter-
mned that 315,000 of the trust fund was the mnmum amount under the w
that woud go to the chartabe and educatona nsttutons named as re-
mandermen, therefore the sum had been permanenty set asde for chartabe
or educatona purposes, and the fndng of the oard on ths pont was res
ad|udcata. ut the constructon of secton 219 of the ct of 1928 was not
the ssue n that case. Some sum had to be determned as the vaue of the
present worth of the remander to the nsttutons named, n order that the
estate ta mght be assessed and the estate cosed so far as the e ecutors were
concerned but the oard dd not decde that ths sum mght not he used, f
the tams of the w and condtons requred t, to pay the annutes and f ed
charges.
The oard n that case based ts fndng on the Theory that the prncpa
woud not be used to pay the annutes, and found the present worth of the
resduary bequests for the purpose of f ng the estate ta es. In vew of the
testator s cear ntent that the annutes were a charge upon the entre corpus
of the trust, t can not be sad that the fndng of the present worth of the
resduum by the oard, In order to determne the estate ta , s a pemnnent
settng asde of the amount for chartabe and educatona uses, or a fndng
on the facts before the oard n those proceedngs, that the sum named s
to be used e cusvey for such purposes. It may be probabe, dependng on
the securty market, that some part or a of the prncpa sum w go to the
remandermen, but t can not be sad to be so, pursuant to the terms of the
w.
The oard found as facts: That the testator antcpated that the ncome
mght be nsuffcent to pay a the charges and that the possbty that a part
of the prncpa mght be so used was not too remote that no specfc fund of
345,000 had been desgnated or segregated or set asde by the trustees as an
amount certan to go to chartes and that no ncome or gan from the sae
of securtes was or coud be dentfed as resutng from securtes set asde
for the remandermen. n appea from the oard of Ta ppeas rases ony
questons of aw. ndngs of fact by the oard are concusve, uness shown
to be wthout any evdence to support them. (Phps ft a. v. Commssoner,
283 U. 8., 589, 00 Ct. D. 350, C. . -, 2 41.)
The decson of the oard of Ta ppeas s affrmed.
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257
220, rt. 352.
S CTION 220. SION O SURT S Y
INCORPOR TION.
ktcb 352: Purpose to escape surta . III-2 593
Ct. D. 772
INCOM T R NU CT O 1921 D CISION O COURT.
1. vason of Surta es by Incobpobaton Consttutonaty.
Secton 220 of the Revenue ct of 1921, whch provdes an add-
tona ta If any corporaton s formed or avaed of for the
purpose of preventng the Imposton of the surta upon ts stock-
hoders or members through the medum of permttng ts gans
and profts to accumuate nstead of beng dvded or dstrbuted,
s consttutona. It appes even though the accumuaton of
profts s reasonabe.
2. Decson ffrmed.
The decson of the onrd of Ta ppeas (19 . T. ., 809)
affrmed.
3. Cebtobab Dened.
Petton for certorar dened October 9, 1933.
Unted States Crcut Court of ppeas fob thh Second Crcut.
Unted usness Corporaton of merca, pettoner, v. Commssoner of Interna
Revenue, respondent.
On petton to revew an order of the oard of Ta ppea f ng a defcency upon the
pettoner s Income ta for 1921.
efore L. and, Swan, and ugustus N. and, Crcut udges.
anuary 1 , 1933.
opnon.
L. and, Crcut udge: The pettoner s a corporaton organzed on pr
1, 1920, to take over rea property n Seatte, conveyed to t by one Smth,
ts soe sharehoder, e cept for a few shares to quafy drectors. Durng the
rear Smth aso transferred to t a arge number of shares of stock, whch
he had hed for some tme before and st more n 1921. The oard found
n vew of the busness of the company and of the manner of acquston of
the shares, that durng the second year the ncome from them was aowed
to accumuate n order to avod payment by Smth of surta es upon the dv-
dends whch he woud otherwse have receved upon them. It was not sure that
ths had aso been hs purpose n the frst year, and therefore decned to make
a ke fndng for that perod. It hed that the case fe wthn secton 220 of
the Revenue ct of 1921 and assessed the ta payer a defcency of 25 per cent
of ts ncome ta as computed for that year. We have not the evdence before
us, but the fndngs dscose a stuaton whch |ustfes the concuson, for
Smth pad ta es upon a substanta ncome n 1918 and 1920, and borrowed
argey from the pettoner n 1920 and 1921. These oans are ncompatbe
wth a purpose to strengthen the fnanca poston of the pettoner, but
entrey accord wth a desre to get the equvaent of hs dvdends under
another guse. Whe the oard has not so found, t may be assumed that
the company s Income, ncudng that derved from the shares, was no more
than reasonabe for ts busness needs. The ob|ectons to the order In ths
court are substantay as foows: That secton 220 appes ony when the
accumuaton s unreasonabe for the corporate purposes that t was apped
retroactvey, and, snce t mposed a penaty, coud not be consttutonay
enforced before t was passed that t s too uncertan In ts terms to be vad
that It offends the tenth amendment and that the nterpretaton adopted by the
oard voated setted admnstratve constructon.
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220, rt. 352.
258
The secton decares that when a company s formed or used for the
purpose of preventng the mposton of the surta upon ts stockhoders by
aowng ts gans and profts to accumuate nstead of beng dvded or ds-
trbuted, t sha pay 25 per cent more than ts proper ta . It Is presumptve
evdence of such a purpose that t s a mere hodng company, or that Its
gans and profts are ermtted to accumuate beyond the reasonabe needs of
the busness, provded that the Commssoner sha so certfy. Ordnary t
w ndeed be dffcut to prove the forbdden purpose, uness the accumuatons
are too arge for the far needs of the busness. ut It may not be mpossbe
to do so, even though the profts arse out of norma busness, as they dd not
here. The management may for e ampe be shown to have aways been
sangune, and to have wthhed ony sma reserves, though prudence ustfed
more. sudden change of pocy, concdent wth arge ncreases n the sur-
ta rates, mght n that stuaton betray a purpose to accumuate aganst a
season more proptous for dstrbuton. Or the offcers mght unguardedy
dscose a scheme to avod surta es, though the other evdence was not enough.
statute whch stands on the footng of the partcpants state of mnd may
need the support of presumpton, ndeed be practcay unenforceabe wthout
t, but the test remans the state of mnd tsef, and the presumpton does no
more than make the ta payer show hs hand. (I arso v. Towse, 45 ed. (2d),
002 (C. C. . 2) pne orwardng Co. v. Pennsyvana R. R. Co., 0 ed.
(2d), 7:U (C. C. . 2).)
ere the purpose appears to us, f not transparent, at east pan enough
to eave no doubt. The company was n ts orgn no more than a convenence
for Smth s rea property hodngs. Whe ts charter aowed other actvty,
uness t were to buttress ts fnanca poston, t was dscordant wth the
man desgn to r t wth neary nne hundred thousand doars of shares of
stock. Smth was patenty n contro when he turned over hs persona hod-
ngs to e empt hmsef from ta aton, he was usng the company for that
, purpose, and the company, hs creature, by ts compasance ncurred the added
ta . It answers that the Treasury has tsef rued that the unnecessary accumu-
aton of ncome s a condton upon the ta , and that we shoud defer to ths
nterpretaton. It s true that the reguatons construng the same secton of
the ct of 3918, couped the presumpton wth the test tsef, as though both
were necessary (artce 352, Reguatons 45), and the same noton appeared
n an advsory ta memorandum (C. . No. 1, page 181) but n 1921 (artce
52, Reguatons 02), ths was changed, and the correct nterpretaton adopted.
We shoud not, we thnk, have yeded even to an unbroken nterpretaton n
so pan a case, but the change n the reguatons avods our decarng ourseves
postvey.
The ntent beng pan, the ony queston Is whether Congress e pressed ts
w certany enough to be enforced, and whether any other consttutona
obstace s n the way. The argument s that the standard set s too vague
for e ecuton that t Is Impossbe defntey to say when the pupose of those
who use the corporaton to accumuate ts profts s to e onerate ts share-
hoders. Purpose s ndeed not often a factor n ega transactons, though
at tmes t s but ntent s often matera, and whatever the dffcutes of
proof, the ssue s concrete enough. Nothng s more frequent n human rea-
tons than the effort to earn what goes on n others mnds. The presumpton
s ndeed ess defnte, and t s ths especay that the pettoner attacks,
reyng upon the decsons whch upset the efforts of Congress to contro prces
durng the Great War. (Unted States v. Cohen Grocery Co., 255 U. S., 81.)
The argument msconceves the scope of those decsons. Standards of conduct,
f ed no more defntey, are common n the aw the whoe of torts s pervaded
by them: much of ts commands are that a mnn must act as the occason
demands, the standard beng avaabe to a. The vew of f ng mn mun
prces s that t requres recourse to standards beyond ascertanment by seers,
by whch therefore they can not n practce reguate ther deangs. That s
not true of the reasonabe needs of a busness, whch Is mmedatey wthn
the ken of the managers, the supposttous standard, though ndeed ob|ectve,
beng as accessbe as those for e ampe of the prudent drvng of a motor car,
or of the dgence requred n makng a shp seaworthy, or of the e tent of
proper nqury nto the sovency of a debtor. Moreover, snce the resut of the
presumpton s at most no more than to compe the ta payer to dscose the
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259
5231, rt. 518.
facts, and snce the ta Itsef s defntey enough determned, the whoe ssue
s rreevant.
more pausbe ob|ecton s that the ta Imposed on the company bears no
reaton to the surta es on the sharehoders. Ths was not true before 1921,
unt when the sharehoders were themseves ta ed as though members of a
persona servce company. Doubts apparenty arose as to the vadty of ta ng
ncome whch the ta payers had never receved, and n 1921 t was thousfht
safer to ta the company tsef In an amount not based upon that ost. We
can see no ob|ecton. Whe the forbdden purpose s of those who use the
company, that purpose may be mputed to the company tsef, snce they can not
use t uness they are n contro, and t can have no other than an mputed
purpose anyway. Nor does ths trench upon the reserved powers of the States
companes may accumuate what profts they pease so ong as they do not do so
to defeat the fsca poces of the Unted States. Ther busness, whose regu-
aton s whoy for the States, does not ncude the manpuaton of dvdends
to avod ta es by defnton that has nothng to do wth the norma manage-
ment of ther affars. Congress In rasng revenue has ncdenta power to
defeat obstructons to that ncdence of ta es whch t chooses to mpose.
nay as to the retroactve feature of the aw. The secton went nto effect
as of anuary 1, 1921, though not passed unt November 21 of that year.
cept for the fact that the added ta may be thought to be a penaty, the
power s undoubted to make ordnary ta es retroactve so far. Cooper v.
Unted States, 280 . S., 409 Ct. D. 103, C. . I -1, 272 rushaber v. Unon
Pac. R. R. Co., 240 U. S., L) Perhaps the doctrne ought not to appy to such
a ta as ths, f the ta payer had no ocus penetentae. It had. When the
ct of 1921 was passed, a companes st had s weeks n whch to ds-
trbute ther profts. If they dd so they woud compy wth the statute and
avod the penaty, f t be a penaty. Whatever the orgna purpose, tho
accumuatons had to ast through the year, or the sharehoders woud pay the
surta es. The perod was ong enough for dstrbuton, and ndeed companes
had been advsed snce 1918 that the practce was regarded as an evason. The
ony change was n the consequences. Thus, even though we take the added
ta as a penaty, strct |urs, whch we need not, the statute was not
retroactve.
Order affrmed.
S CTION 222. CR DIT OR T S IN C S
O INDI IDU LS.
rtce 38 : Lmtaton of credt for ta es.
R NU CTS O 1921, 1024, ND 1928.
ormua for determnng ta pad by foregn corporaton upon
or wth respect to the accumuated profts. (See G. C. M. 12882,
page 89.)
P RT III. CORPOR TIONS.
S CTION 231. CONDITION L ND OT R
MPTIONS O CORPOR TIONS.
rtce 518: usness eagues, chambers of commerce, and boards
of trade.
R NU CT O 192 .
Credt men s ad|ustment bureau. (See Ct. D. 831, page 12 .)
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2 0
S CTION 233. GROSS INCOM O
CORPOR TIONS D IN D.
rtce 541: Gross ncome. III-19- 783
( so Secton 234, rtce 5 1.) Ct. D. 824
INCOM T R N0 CTS O 1918 ND 1 21 D CISION O CO T.
1. Gross Income Interest on onds from unds dvanced by
Credtor.
Where the ta payer, a corporaton on the accrua bass, advances
money to a corporaton whch t had formed and whose busness
was decnng, and the debtor corporaton uses such advances to
pay operatng e penses and nterest on ts bonds hed by the
credtor corporaton and others, the nterest accrung on the bonds
and receved from the debtor durng the years 1918 to 1921 con-
sttutes ncome to the credtor, notwthstandng the fact that such
nterest was pad from funds t had advanced.
2. Deductons ad Debts.
Where the ta payer makes advances to a debtor corporaton n
whch t s a arge stockhoder and takes nterest-bearng notes n
return, beevng that the oans w never be repad and that the
notes taken are uncoectbe, such advances are contrbutons to
capta and are not deductbe as bad debts. urther, the ta -
payer, not havng ascertaned the debt to be worthess, charged
t off the books and camed deducton therefor a wthn the same
ta abe year, has not met the requrements of secton 234(a)5
of the Revenue cts of 1918 and 1921, and on that ground s not
entted to the deducton.
3. Decson ffrmed.
Decson of the oard of Ta ppeas (21 . T. ., 404) affrmed.
4. Certorar Dened.
Petton for certorar dened December 4, 1933.
Unted States Crcut Court of ppeas for tue Second Crcut.
mercan Cgar Co., pettoner, v. Commssoner of Interna Revenue,
respondent.
ppea from the Unted States oard of Ta ppeas.
efore L. and, ugustus N. and, and Chase, Crcut udges.
uy 25, 1933.
OPINION.
Petton by the mercan Cgar Co. to revew an order of the oard of Ta
ppeas affrmng the Commssoner s Incuson of certan tems n, and refusng
the deducton of other tems from, the pettoner s gross ncome for the years
1918 to 1921, ncusve. ffrmed.
ugustus N. and, Crcut udge: The pettoner was ncorporated under the
aws of New ersey n 1901. Soon after ts Incorporaton, t acqured the stock
of severa Cuban tobacco companes, ncudng a the stock of a corporaton
known as . do Cabanas y Carba|a. In 1902 the pettoner and others formed
a new corporaton n New ersey caed the avana Tobacco Co. The pet-
toner then transferred to the avana company a ts stock n . de Cabanas y
Carba|a, and receved n return 3,500,000 n bonds of the avana company,
as we as a arge fracton of ts common stock and a sma amount of cash.
The tota outstandng bond ssue of the avana company amounted to
7,500,000.
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233, rt. 541
The avana company mmedatey started to manufacture and se Cuban
cgars, and for a tme ts operatons were successfu. Subsequenty, however,
ts busness decned severey, and by 1909 t was n very poor fnanca cond-
ton. Its ony ncome conssted of dvdends on the stock of ts subsdary com-
panes, and these dvdends were not suffcent to pay the nterest on ts bonds.
The pettoner and other companes aed In nterest apparenty were very
reuctant to aow the avana company to go nto recevershp, and accordngy
the pettoner from tme to tme advanced money to the avana company to en-
abe the atter to meet ts operatng e penses and pay the nterest on ts bonds.
The pettoner accepted nterest-bearng notes of the avnna company coverng
these oans. y anuary 1, 1918, the net advances totaed 11, 40,123.20. rom
ths date, through 1921, the foowng addtona sums were advanced:
1918 2,048,000.00
1919 787,000. 00
1920 2, 723, 500. 00
1921 3,129,000. 00
Tota 8, 87,500. 00
Durng the same years repayments were made n the foowng amounts:
1918 1,1 9,500.00
1919 1,135, 000.00
1920 2, 05 , 000. 00
1921 2,495, 500. 00
Tota , 85 , 000. 00
Thus, durng the ta abe years n queston, the net advances made by the
pettoner to the avana company totaed 1,831,500, and on December 31,
1921, the tota baance due wus 13,471, 23.20. Out of these advances, from
1908 to uy, 1921, the avana company pad the nterest on the 3,500,000 of
bonds hed by the pettoner. Durng the years 1918 to 1921 Interest accrued on
these bonds as foows:
1918 222, 45.83
1919 222,250. 00
1920 227, 0 . 7
1921 214,387. 50
of the nterest accrung n 1918, 1919, and 1920 was pad out of the
funds advanced by the pettoner, and nstaments comng due durng the
frst part of 1921 amountng to 95,937.50 were smary pad. In December,
1921, the pettoner refused to make further advances to the avana company,
and nterest on the bonds n the amount of 118,450 fang due n that month
was not pad.
The pettoner never returned as part of ts gross Income the nterest receved
on these bonds. In audtng the returns for the years 1918, through 1921, the
Commssoner determned tmt a nterest accrung on the bonds durng these
|ears, ncudng the nstament accrung n December, 19 1, whch was not
Pad, shoud be Incuded n the gross ncome. The Commssoner aowed
the unpad nstament for 1921 to be deducted from the gross ncome as a
bad debt. The oard of Ta ppeas sustaned the acton of the Commssoner,
e cept that they hed that the unpad nstament for December, 1921, shoud
not have been ncuded n the gross ncome. Ths change n the theory of
computaton dd not affect the net resut.
The contenton of the pettoner on ths appea s that none of the nterest
receved from the avana company durng the years n queston shoud be
Incuded n the gross ncome, because a of ths nterest was pad out of
funds advanced by the pettoner tsef. In the aternatve, the pettoner
seeks permsson to deduct, as debts ascertaned to be worthess and chavged
off wthn the ta abe year (Revenue cts of 1918 and 1921, secton 234(a)5,
2 . S. C secton 98 (a)5) the advances made to the avana company, to
the e tent to whch these advances were used to pay nterest on the bonda
hed by the pettoner.
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233, rt. M.
2 2
We thnk thnt the pettoner s frst contenton s ceary wthout mert.
The pettoner kept ts books on the accrua bass. The coupons representng
Interest payabe on the bonds matured durug the ta abe years n queston.
If the coupons had not been pad, that fact aone woud not |ustfy a faure
to return ther face amount n the gross ncome, as ong as the accrua bass
was used. It may be that an obgaton whch s worthess and uncoectbe
vhen t matures need not be returned as ncome, even where the obgee s
books are kept on the accrua bass. (Corn change ank v. Unted States,
87 ed. (2d), 34 Turners as Povcr d ectrc Co. v. Commssoner of
Interna Revenue, 15 . T. ., 983 Northwestern Improvement Co. v. Com-
mssoner of Interna Revenue, 14 . T. ., 79 Great Northern Raway Co.
v. Commssoner of Interna Revenue, 8 . T. ., 225.) ut these decsons
are of no hep to the pettoner, for the coupons, far from beng uncoectbe,
were pad n fu. The fact that the coupons were pad out of advances made
by the pettoner can not ater the resut. (Duke Power Co. v. Commssoner
Of Interna Revenue, 44 ed. (2d), 543, affrmng Southern Power Co. v.
Commssoner of Interna Revenue, 17 . T. ., 9 2.) crhaps the pettoner
mght have escaped ta aton had t oaned the avana company ony enough
money to meet ts operatng e penses and pay nterest on the bonds hed by
others than the pettoner. ad ths been the rase, the coupons hed by the
pettoner woud not have been pad, and f, as the oard found, the obgaton
they represented was worthess and uncoectbe, the face of the coupons
mght not have been returnabe In the gross ncome. ut, for ts own reasons,
the pettoner deberatey put It wthn the power of the avana company to
pay the coupons. What t mght have done can not ater the ega effect of
what t dd do. (Cf. N on v. Lucas, 42 ed. (2d), 834.) Thus there were
two dstnct obgatons: One arose when the pettoner acqured the bonds of
the avana company, the other when t made the advances out of whch
nterest on (he bonds was pad. The nterest payments were part of a oan
transacton arsng out of the purchase of bonds whch preceded and was
entrey dstnct from the subsequent oans for whch notes wore taken. The
source from whch the avana company obtaned funds wth whch to pay
the coupons can not ater the character of the nterest payments as ncome
to the pettoner. To hod that the nterest payments were deductbe merey
because made out of oans from the pettoner woud be n effect to hod the
oans pro tanto deductbe. Whether the oans were propery deductbe s a
dstnct queston whch we sha now consder.
The Commssoner contests the deductbty of the advances made by the
pettoner to the avana company durng the ta abe years n queston on
severa grounds. It w not be necessary to dscuss a of these contentons,
for we are satsfed that, for the foowng reasons at east, the oard propery
refused to aow the deductons.
The ta payer takes the poston that the notes taken on account of the
advances were ascertaned to be worthess at the very tme the advances were
made. The oard has found as a fact that the pettoner made the advances
fuy beevng that the obgatons they created were worthess and unco-
ectbe, and there s evdence to support such a fndng. Therefore, accordng
to the pettoner s own contenton and the fndng of the oard, these sums
were advanced n the beef that they woud never be repad, and rhe notes
whch the pettoner took were beeved to be uncoectbe. Such advances,
made wth the beef they woud not be repad, are n the nature of gfts, and
are not deductbe as bad debts. ( ayes v. Commssoner of Interna Revenue,.
17 . T. ., 8 see Shman v. Commssoner of Interna Revenue, 0 ed. (2d),
5, at .) The advances were n reaty contrbutons to the capta of the
avana company, n whch the pettoner was a stockhoder. Contrbutons to
capta can not be deducted as debts ascertaned to be worthess. (Ods v.
Commssoner of Interna Revenue, 18 . T. ., 1215 oyd v. Commsstone-
of Interna Revenue, 11 . T. ., 903 cf. urns v. Commssoner of Interna
Revenue, 31 ed. (2d), 399 Unted States v. Oregon-Washngton R. rf Nav. Co.,
251 ed., 211.)
ut there Is a further reason for not aowng the deducton. In order to
secure a deducton of a debt as worthess, a ta payer must ascertan ts
worthessness, charge t off on hs books, and take hs deducton a durng the
same ta abe year. (Ludow ave Mfg. Co. v. Durey, 2 ed. (2d), 508
Contnenta Ppe Mfg. Co. v. Poc, 59 ed. (2d), 94 Cross v. Commssoner of
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233, rt. 543.
Interna Revenue, 54 ed. (2d), 781 mercan Sav. ank Trust Co. v.
urnet, 45 ed. (2d), 548.) There s no satsfactory proof that the ta payer
dd ths. The credts on the books of the tems of nterest receved to the
account Interest n suspense were entres of uncertan meanng, ndcatng
rather doubtfu tems than debts charged off after havng been ascertaned to
be worthess, and accordngy dd not satsfy the requrement of secton 234(a)0
of the Revenue ct of 1918. (Shman v. Commssoner, 0 ed. (2d), 5.)
The entres showed no ntent to treat the tems as worthess debts.
Therefore, whether the oard s fndng that the advances were made n the
beef that they gave rse to no vauabe or coectbe obgaton s sustaned
by the evdence or not, the pettoner s n the same poston. The pettoner
cams these debts were known to be worthess when they arose. If so, as we
have hed, they were nondeductbe. If not, there s no evdence when they
were ascertaned to be worthess, and there woud be no way to determne the
years n whch the deductons mght be aowabe, nor s there satsfactory
proof that they were ever charged off.
Order affrmed.
L. and, ., concurs n a separate opnon.
L. and, Crcut udge (concurrng) : I fnd t mpossbe to say that money
gven by a credtor to hs debtor for the purpose of payng the debt to hm, s
ncome of the credtor. Ths must certany be true when the credtor s books
are on a cash bass. When they are on an accrua bass, I shoud be prepared
to say that the debtor s recognzed necessty of gettng a gft, not a oan, to
dscharge hs debt was evdence of ts worthessness and charge off. In
substance the transacton s a canceaton of the debt. ut I do not thnk
that the pettoner s oan to the avana Cgar Co. was a gft. To be sure t
dd not e pect to be pad, but t dd e pect to have a correspondng ega cam
aganst the borrower, whch apparenty t used n a ater reorganzaton. Ths
precudes the noton of a gft and t s rreevant I thnk that as thngs stood
the ender knew that the oan coud never be repad n fu. I agree that n
these crcumstances the coupons fang due were ncome, the pettoner s books
beng on an accrua bass. They had not been charged off durng the year I
aso agree that to put tems n a suspense account s not to charge them
off as worthess. The purpose Is to eave them ambguous for a season when
ther dsposton s eventuay decded, they w appear n ther proper pace,
probaby as worthess but the present meanng s to deay that determnaton
for the tme beng.
I fnd t rather hard to reconce Corn change ank v. Unted States
(37 ed. (2d), 34) (O. C. . 2) wth ths concuson. owever, the ma|orty
of the court appears to have there regarded the coupons as worthess. ere
they were not nether were the notes whch rased the money to pay them.
Indeed, n form, anyway, the coupons were pad. In substance, the transacton
may be regarded as ths the pettoner dd not thnk the coupons whoy
worthess and reserved the queston of ther vaue for the future. It coud
secure the counter charge ony when t defntey vaued them as partay, or
whoy, worthess. T then ts power was suspended.
rtce 543: Sae of capta stock. III-12- 709
Ct. D. 802
ncome ta revenue act op 192 decson op court.
1. Instament Sae Inta Payment Recept by Corpora-
ton of Its Own Capta Stock.
Where a rea estate corporaton makes an nstament sae of
reaty to one of ts stockhoders, that proporton of the nta
payment receved representng proft s ta abe even though t
conssts of ts own capta stock.
2. Decson Reversed.
Decson of the oard of Ta ppeas (25 . T. ., 941) reversed.
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5233, rt. 543.
2 4
Unted States Cbct|t Cot|bt of ppeas foe the Thbd Cbcut.
Commssoner of Interna Revenue, pettoner, v. om Cega Deveopment Co.,
respondent.
Petton for revew from the Unted States oard of Ta ppeas.
efore ukfngton, Davs, and Thompson, Crcut udfres.
ugust 28, 1933.
OPINION.
Davs, Crcut udge: Ths petton nvoves ncome ta es for the fsca year
endng ebruary 28, 192a
On October 30, 1925, the respondent, the oca Cega Deveopment Co., a
orda rea estate corporaton, sod a tract of and to one of ts stockhoders
for a gross consderaton of 504,000, and receved from the purchaser 480
shares of ts capta stock, vaued 48,000, as the nta payment. or ncome
ta purposes, the Commssoner of Interna Revenue computed the reazed
proft upon the nstament sae bass as foows:
Sae prce:
Mortgage ftS4, 000. 00
Mortgage assumed by vendee 42, 000.00
Stock of ta payer corporaton at par vaue aso far market
vaue 48,000.00
Notes recevabe ( 30,000, no market vaue)
Tota saes prce e cusve of notes 474.000. 00
Cost 99,44a 29
Proft 274,551. 71
Saes prce 474, ( )0. 00
Less mortgage assumed by vendee 42, 000. 00
mount to be pad by vendee 432,000.00
Percentage of proft, 274,551.71- 5432,000 0. 3553
Inta payment 48,000.00
Proft reazed 30,505.44
The queston nvoved In ths case s whether or not the respondent reazed
any ta abe gan on the nta payment made to t wth ts own stock.
The Commssoner determned that the proporton of the nta payment,
whch represented proft, was ta abe regardess of the fact that the respond-
ent s stock was the medum by whch the payment was made. The oard of
Ta ppeas was of the opnon that the respondent reazed no gan from the
transacton durng the ta abe year snce t had receved theren shares of ts
sock ony. The Commssoner brought ths petton to revew the oard s
order of redetermnaton.
The oard s decson that a corporaton reazes nether a gan nor oss from
tc purchase of ts stock was n keepng wth ts poston at the me when t
determned ths ease ( ouston ros. Co., 21 . T. ., 804 8. . Woos
Uaehne Co., 21 . T. ., 81S Scher Pano Co., 23 . T. ., 370), athough
ts earer decsons were to the contrary ( choc state Co., 12 . T. .,
1305 etc ersey Porcean Co., 15 . T. ., 10.-0). Meanwhe, the courts
have hed that a corporaton acqurng ts own stock may recognze a gan
or oss provded the purpose of the transacton was not merey a capta
read|ustment ( ohnson v. Commssoner, 50 ed. (2d), 58, certorar dened
28 t. S., 551), hut a sne of propertv (Ware Lumber Co. v. Commssoner,
85 ed. (2d), 445 (C. C. . 1) Spear Co. v. ener, 54 ed. (2d), 134
(W. D. Pa.) Commssoner v. 8. . Woods Machne Co. (57 ed. (2d), 35
(C. C. . 1) Ct. D. 00, C. . II-1, 275 ). Snce these decsons, the oard
has adopted the rue ad down by the courts. ( otqhton Dutton Co., 2
. T. ., 52.)
The queston here s dsposed of by the foowng quotaton from the Woods
case, supra.
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233. rt. 548.
The transacton Invoved n ths case was equvaent to the payment of the
debt n cash and the Investment of the proceeds by the corporaton n ts own
stock. If that bad been done ceary the cash receved woud have been ta -
abe ncome. The transacton was not changed n ts essenta character by
the fact that, as the debtor happened aso to own the stock, the money payment
and the purchase of the stock were by-passed, and the stock was drecty
transferred n payment of the debt. The stock was the medum n whch the
debt was pad. The wde door to evason of ta es opened by the decson of
the oard s an addtona reason, and n weghty one, aganst t.
The determnaton of the Commssoner s approved and the order of the
oard of Ta ppeas reversed.
rtce 543: Sae of capta stock.
R NU CTS O 1924 ND 102 .
mendment of artce 543, Reguatons 5 and 9. (See T. D.
4430, page 3 .)
rtce 545: Sae and retrement of corporate III-14- 734
bonds. Ct. D. 809
ncome ta revenue acts of 1921, 1924, and 192 decson of
supreme court.
1. Inoomb Sae and Retrement of Corporate onds.
Where the ta payer, whch kept ts books on the accrua bass,
n 1914 bought a the assets of another company and assumed a
ts outstandng abtes, ncudng an ssue of bonds, and n
1922, 1924, and 1925 purchased n the market at ess than ther
face vaue certan of these bonds for retrement, the dfference
between the face vaue and the purchase prce consttutes ncome
to the ta payer.
2. Decson Reversed.
Decson of the oard of Ta ppeas (23 . T. ., 221) reversed.
Supreme Court of the Unted States.
Guy T. everng, Commssoner of Interna Revenue, pettoner, v. mercan
Chce Co.
On wrt of certorar to the Unted States Crcut Court of pp as for tuc Second Crcut.
March 5, 1934.
OPINION.
Mr. ustce McReynods devered the opnon of the court.
ssessments by pettoner whch treated as reazed ncome the dfference
between the face vaue of certan bonds assumed by respondent n 1914 and
the amount at whch t purchased them n 1922, 1924, and 1925, were ds-
approved by the oard of Ta ppeas. The court beow affrmed ths acton,
and the matter s here by certorar. The meager stpuated facts present
ony a narrow pont and to that our decson must be mted.
Respondent s a New ersey corporaton the nature of whose busness s
undscosed. Its books are kept on the accrua bass.
The Sen Sen Chcet Co., ncorporated under the aws of Mane, aso carred
on an undscosed busness. In 1909 t ssued a seres of 20-year bonds
whether secured by a en, or otherwse, does not appear. The ndenture
under whch they Issued requred that 50,000 be supped each year whch
the trustee shoud use for purchasng outstandng bonds.
In 1914 respondent bought a assets of the Sen Sen company. In part pny-
ment t assumed a outstandng abtes of the seer among them 2,425,000
of the 1909 bonds. There s nothng n the record to show the nature of these
assets, or what became of them, or the outcome of the transacton.
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233, rt. 540.
2
Respondent purchased n 1922 82,000 of the Sen Sen bonds for 55. 50.94
2 ,349.0 ess than ther face. Durng 1924 t and the trustee under the
ndenture purchased 59,000 of the same bonds for 47, 02.10 11,397.90
beow ther par vaue. Lkewse, durng 1925 they purchased 201,500 for
18 ,14 .31 15,353. 9 ess than ther face.
The Commssoner treated these dfferences 2 ,349.0 , 11,397.90 and
15,353. 9 as ncome reazed by respondent. The oard of Ta ppeas
rued otherwse and sad
The payments nvoved n the transactons under consderaton were pay-
ments on the purchase prce of the Sen Sen Chcet Co. s assets, pad, under
the condtons of the agreement, to the hoders of that company s bonds.
When a of the bonds have been retred by the pettoner ts obgatons to
the Sen Sen Chcet Co. w have been satsfed n fu, and whatever the
tota amount pad to retre the bonds, t w consttute a part of the cost to
pettoner of the Sen Sen Chcet Co. assets.
In support of the same vew, the crcut court of appeas sad
When a ta payer gets money by ssung an obgaton whch he ater
dscharges for ess than ts face, the transacton s competed, because money
need not be sod or e changed to be reazed. So we read Unted States v.
rby Lumber Co., supra (284 U. S., 1, 52 S. Ct., 4, 7 L. d., 131). ut f he
buys property by an obgaton n the form of a bond, note, or the ke, and f
t remans n knd after the debt s pad, there can be no gan. The cost has
ndeed been defntey setted, but that s ony one term of the equaton as
ong as the other remans at arge, there s no reazed gan.
We know nothng concernng the nature of the assets acqured from the
Sen Sen company, have no means of ascertanng what has become of them,
or whether any of them st e st. Nothng ndcates whether respondent ost
or ganed by the transacton.
The case before us s ths:
In connecton wth the purchase of the assets of another company, n 1914,
respondent assumed promsed to pay more than 2,000,000 of the seer s
outstandng bonds. Durng 1922, 1924, and 1925 t purchased a consderabe
number of these bonds n the market at ess than ther face. The Commssoner
assessed the dfference between these two amounts as ncome.
We fnd nothng to dstngush ths cause n prncpe from Unted States v.
rby Lumber Co. (284 U. S., 1 Ct. D. 420, C. . -2, 35 ). The doctrne
there announced s controng here. owers v. erbaugh- mpre Co. (271
D. S., 170 T. D. 3881, C. . -, 199 ) s not appcabe. The fna outcome
of the deangs was reveaed the ta payer suffered a oss. ere, for aught
we know, there was substanta proft certany, the record does not show the
contrary. Doubtess, respondent s books ndcated a decrease of abtes wth
correspondng ncrease of net assets.
Reversed.
rtce 54 : Sae of capta assets. III-21- 807
Ct. D. 830
ncome ta revenue act op 1020 decson of court.
1. Income Sae of Corporate Rea state Whether Ta abe
to Corporaton or Stockhoders.
Where the three stockhoders and drectors of a corporaton, who
owned ts entre outstandng stock, authorzed the sae of corporate
rea estate to ts presdent, a drector and ma|orty stockhoder,
who n turn sod to a thrd party and, pursuant to a pror under-
standng among the stockhoders and a decaraton of trust e e-
cuted by hm, dstrbuted to hmsef and the other two stockhoders
n proporton to ther hodngs the proft reazed upon the sae,
the transacton was n substance a sae by the corporaton through
the agency of ts presdent, and the proft s propery ta ed to the
corporaton at corporate rates.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (2 . T. ., 1337) affrmed.
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233, rt. 54 .
Unted States Crcut Court of ppeas for -he Thrd Crcut.
. . Mae teen Co., pettoner, v. Commssoner of Interna Revenue, respondent.
Upon petton (or revew from tbe Unted States oard of Ta ppcnU.
efore Wooey, Davs, and Thompson, Crcut udges.
December 12, 1933.
OPINION.
Thompson , Crcut udge: Ths s a petton for revew of a decson of the
oard of Ta ppeas pursuant to the Revenue ct of 192 (ch. 27, sectons
1001-1003 2 U. S. C, 1221-122 ). The pettoner was a Pennsyvana cor-
poraton. On ebruary 1, 1927, at a meetng of the three stockhoders who
owned the entre outstandng stock of the pettoner and who were aso ts
drectors, a resouton was passed authorzng the board of drectors to se rea
estate owned by the pettoner to S. . Mac ueen, ts presdent, drector, and
ma|orty stockhoder, for the sum of 85,000. oowng ths meetng and on the
same day, a resouton was adopted by the board of drectors acceptng an offer
by Mac ueen of S5,000 for the rea estate. The foowng day Mac ueen en-
tered nto an agreement wth enry Reed atfed to convey the rea estate to
the atter for a consderaton of 150,000. On ebruary 11, 1927, n conformty
wth a pror understandng among the three stockhoders, Mac ueen e ecuted
a decaraton of trust n whch he rected the agreement of the pettoner to
convey the rea estate to hm for 85,000, hs agreement to convey the same to
atfed for 150,000, and hs ntenton to dstrbute the profts to the stock-
hoders n proporton to ther hodngs. On March 1, 1927, the pettoner con-
veyed tte to Mac ueen and on the same day Mac ueen conveyed tte to
atfed. Subsequenty Mac ueen, n accordance wth hs decaraton of trust,
dstrbuted 5,324.30, representng the profts of the sae and nterest thereon,
to hmsef and the other two stockhoders. ach of the stockhoders ncuded
the amount so receved by hm n hs Income ta return. The pettoner, n ts
ncome ta return, reported as Income a sum representng the dfference between
the purchase prce of the rea estate and the 85,000 whch It receved from Mac-
ueen. The pettoner was at a tmes sovent and a credtors were pad n
fu. On ugust 3, 1927, the pettoner was dssoved.
The Commssoner hed that the sae to Mac ueen was not bona fde and added
5,000 to the pettoner s ncome as unreported proft. The oard of Ta
ppeas hed that the sae was not an arm s ength transacton and that, ookng
through form to substance, the sae to atfed was actuay made by the
pettoner, and the profts from the sae were therefore ta abe to the pettoner.
It sustaned the acton of the Commssoner.
The prncpe that substance and not form shoud contro n the appcaton
of ncome ta aws (Unted States v. Phes, 257 U. S., 15 Ct. D. 19, C. . 5,
37 Labrot v. urnet, 57 . (2d), 413 Ct. D. 543, C. . -2, 182 Reed
v. Unted States, 51 . (2d), 941) may be nvoked n the nstant case. though
n form there were two saes of the corporate rea estate, frst the purported sae
by the etoner to Mac ueen, and, second, the sae by Mac ueen to atfed,
n substance the transacton was a sae by the pettoner to atfed through
the agency of Mac ueen. So aso, athough n form Mac ueen was a trustee
for the dstrbuton of the profts earned by the sae of hs own rea estate to
atfed, n substance he was the agent of the pettoner for the dstrbuton
of the profts from the sae of the corporaton s rea estate among ts stock-
hoders.
The corporate ta rate mposed by the appcabe ta ng statutes s hgher
than the ndvdua rate. The obvous purpose of the procedure foowed by the
pettoner, ts drectors, and stockhoders, was to take advantage of the ower
ta rate permtted ndvduas and thereby avod the corporate ta rate on
the profts of the utmate sae of the rea estate. Such antcpatory arrange-
ments and contracts, ntended to crcumvent the ta ng statutes, are not ooked
upon wth favor. (Lueas v. ar, 281 U. S., I Pheps v. Commssoner,
54 . (2d), 2S9, certorar dened. 285 U. S., 558 Ct. D. 478, C. . I-1, 242 .)
We concude that the proft, representng the dfference between the prce
of the rea estate upon ts purchase by the corporaton and the prce pad by
atfed, shoud be ta ed to the pettoner at corporate rates. The decson ot
the oard of Ta ppeas s affrmed.
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5233, rt. 548.
2 8
rtce 548: Gross ncome of corporaton n
qudaton.
III-- 17
Ct. D. 77
ncome ta revenue act op 102 decson of coukt.
1. Gross Income Capta Gan- Sae op ssets by Corporaton
n Lqudaton.
Where the stockhoders of a corporaton adopt a resouton au-
thorzng the dssouton and qudaton of the corporaton and
the conveyance of a of ts assets to trustees, wth fu power n
the trustees to dspose of the property and after fna qudaton to
dstrbute the proceeds pro rata to the stockhoders, and where
on the same day an agreement Is e ecuted for the sae by the
trustees to another corporaton of a the assets to whch they had
receved tte from the qudatng corporaton, such resouton,
carryng out negotatons prevousy conducted by offcers of the
corporaton, ony consttutes an agreement between the stockhod-
ers upon the procedure by whch the corporaton mght se ts
property. The transactons n substance consttute a sae by the
corporaton, resutng n gan wthn the meanng of sectons 213
and 233 of the Revenue ct of 192 and artce 548 of Reguatons
9, and not a dstrbuton of the assets n knd to the stockhoders
and a sae thereof by them.
2. Decson ffrmed.
The decson of the oard of Ta ppeas (24 . T. ., C 0)
affrmed.
Unted States Crcut Court of ppeas, S th Crcut.
f. . ettebus , pettoner, v. Commssoner of Interna Rc nue, respondent.
Petton to revew an order of the Unted States oard of Ta ppeas.
cks, Crcut udge: Petton by . . eebush to revew the decson of
the oard of Ta ppeas (24 . T. ., 0) affrmng the acton of the Com-
mssoner of Interna Revenue n assessng on redetermnaton aganst hm as
the transferee of the ackburn arnsh Co. defcences n ncome and profts
ta es n the sum of 12,303.42 for the perod from anuary 1, 1927, to pr
19, 1927.
The case s before us upon the fndngs of fact by the oard. The ackburn
arnsh Co., an Oho corporaton, had for many years pror to the ta abe
year 1927 conducted a successfu busness. In the sprng of that year ts
stockhoders decded that they woud qut busness and qudate the corpora-
ton. The nephew of one of ts stockhoders was an offca of the Cook Pant
arnsh Co., a Mssour corporaton. Through ths nephew negotatons were
opened for ts sae to the Cook company, whch negotatons were thereafter
carred on on behaf of the ackburn company by ts presdent, eebush,
and ts secretary-treasurer, Lppeman. The negotatons fnay resuted n
Cook, presdent of the Cook company, comng to Cncnnat, the home offce of
the ackburn company, where the dea was cosed on pr 20, 1927, and on
that date the foowng steps were taken to consummate t:
rst, there was a speca meetng of a the stockhoders of the ackburn
company n person or by pro y at whch a resouton was unanmousy adopted
authorzng the dssouton and qudaton of the company and the conveyance
of ts assets to eebush and Lppeman as trustees for the stockhoders wth
fu powers to dspose of the company s property. The resouton further d-
rected these trustees after fna qudaton and deducton of e penses to ds-
trbute a remanng property or proceeds n knd pro rata to the stockhoders
and contaned an nstructon to the offcers of the company to take the necessary
steps to procure ts dssouton and the conveyance of ts property to the
trustees.
efore Moorman, cks, and Smons, Crcut udges.
une 29, 1933.
OPINION.
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2 9
233, rt. 548.
Second, foowng the stockhoders meetng on the same day, the offcers
of the ackburn company n consderaton of the sum of one doar ( 1)
and other good and vauabe consderatons e ecuted a b of sae of a the
persona property of the ackburn company to the- above-named trustees for
the stockhoders, and the corporaton by ts proper offcers kewse on the
same day e ecuted and devered to these trustees, desgnatng them as trustees
for the stockhoders, ts deed conveyng to them Its rea estate n fee smpe.
Thrd, on the same day an agreement was e ecuted for the sae to the Cook
company of a the assets to whch eebush and Lppeman, as trustees for
the stockhoders, had receved tte from the ackburn arnsh Co. It was
sgned by the trustees and by Cook, presdent of the Cook company, and by the
Southern Oho Savngs ank Trust Co., escrow agent. The Instrument rected
that the trustees agreed to convey a property of whatever knd or nature whch
they had receved from the ackburn company e cept cash and accounts and
s recevabe and further rected the concurrent devery of a deed to the rea
estate and of an nstrument of conveyance of a other property to the escrow
agent for whch a depost of the sum of 100,000 on the purchase prce was
made. The Cook company agreed to use reasonabe dgence to coect the out-
standng accounts and bs recevabe and to account weeky therefor to (he
trustees.
The entre consderaton pad by the Cook company was 2 9,175.82. stng
abtes aganst the ackburn company, amountng to 9,000, were pad by
the trustees pror to the dssouton of the ackburn company whch took pace
on une 2, 1927.
Respondent f ed the capta gan accrung to the seer on these transactons
at 85,530.8 , beng the dfference between the seng prce of 2 9,175.82 and
the book vaue of the assets sod, 183, 44.9 . The ta on the capta gan was
ascertaned to be 12,303.42 and s the amount n dspute. Pettoner concedes
that f the ackburn company Is abe for the ta he s abe as a transferee.
Sectons 213 and 233 of the Revenue ct of 192 (44 Stat., 9, ch. 27) provde
that the gross ncome of corporatons sha ncude gans derved from saes of,
or deangs n, property. The appcabe Treasury rung s artce 548 of Regu-
atons 9, prnted n the margn The provsons of ths reguaton have been
ncorporated n the reguatons for a of the Revenue cts snce the ct of
1918. Congress has not seen ft to change t and we thnk It shoud now ba
gven effect. ( ener v. Coona Trust Co., 275 U. S., 232 T. D. 4112, C. .
YII-1, 207 .) Unversa attery Co. v. Unted States, 281 U. S., 580 Ct. D. 220,
C. . I -2, 422 .) It has been specfcay uphed n Tayor O Gas Co. v.
Commssoner (47 ed. (2d), 108 (C. C. . 5)).
So the queston here s, whether under ths reguaton when apped to the
facts above set forth, there was a dstrbuton of the assets of the ackburn
eonpcny n knd to ts stockhoders upon dssouton and a sae of the assets by
the stockhoders through the trustees to the Cook company, or whether the sae
shoud be treated as a sae by the corporaton.
We thnk t s cear that there was no dstrbuton In knd, In the sense
of a dvson, of the assets of the ackburn company to Its stockhoders on
pr 20, 1927, the date of the resouton appontng the trustees for the
stockhoders. Nether was there any dstrbuton n knd to the stockhoders
upon dssouton whch took pace on une 2, 1927, by the fng of a certf-
cate of abandonment or dssouton wth the secretary of state of Oho as pro-
vded by secton 8741 of the Oho Genera Code. Moreover the stockhoders dd
not have power to appont trustees to sette the affars of the ackburn
company and dvde ts property among the stockhoders unt after the forma
dssouton on une 2, 1927. See secton 8742, Oho Genera Code, supra.
Unt that date the ackburn company ke corporatons generay, had e cu-
sve power to act for tsef. The stockhoders resouton of pr 20, 1927,
seemed to recognze ths for It undertook to authorze and drect the offcers
of the ackburn company to take such ega steps as were necessary and
proper to procure ts dssouton. The utmost that can be sad for ths rosou-
rr. 548. Gross Income of corporaton n qudaton. When a corporaton s ds-
soved, Ita affars arc usuay wound up by a recever or trustees In dssouton. The
corporate e stence s contnued for the purpose of qudatng the assets and payng the
uebts, and such recever or trustees stand In the stead of the corporaton for such pur-
Poses. (See secton 282 and artces 1293 and 12114.) ny saes of property by them
are to be treated as If made by the corporaton for the purpose of ascertanng the gan
or oss. No gan or oss s reazed by a corporaton from the mere dstrbuton of ts
assets n knd upon dssouton, however they may have apprecated or deprecated In
vaue snce ther acquston.
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234, rt. 5 1.
270
ton s that t consttuted an agreement between the stockhoders upon a
procedure wth whch they were themseves contented and through whch the
ackburn company coud se ts property. owever satsfactory and un-
ob|ectonabe ths arrangement may have been as between themseves (Chatta.
Savngs ank v. rec-er, 9 ed. (2d), 982, 989 (D. C.) T. D. 379 , C. .
-, 153 ), t coud not mpar the rght of the Commssoner to chaenge
ts vadty for purposes of ta aton. The aw w ook through forms to
substance (Unted States v. Phe s, 257 U. S., 15 T. D. 3270, C. . 5, 37
oard v. Commssoner, 51 ed. (2d), 73, 75 (C. C. . )) and w recognze
the outstandng fact, that the Cook company had thereby acqured the property
and assets of the ackburn company |ust as was contempated before the
stockhoders meetng on pr 20. We thnk that ths was a sae by one
company to the other upon the profts of whch the Government was entted
to ts ta es.
The order of the oard of Ta ppeas s therefore affrmed.
S CTION 234. D DUCTIONS LLOW D
CORPOR TIONS.
rtce 5 1: owabe deductons. III-3- 03
Ct. D. 775
INCOM T R NU CT O 1921 D CISION O COURT.
L Deductons Losses.
Where ta payer purchased and n 1918 soey as an o prospect
or because of ts supposed o content and n 1921 determned that
the and was nono bearng and offered t for sae as grazng
and, but no sae was made unt 1923, no deductbe oss was sus-
taned n 1921 wthn the meanng of secton 234(a)4 of the eve-
nue ct of 1921, that secton appyng ony when the transacton
n respect of whch the oss s camed s cosed and competed by
some dentfabe event, whch event occurs generay ony when
the property Is sod or otherwse dsposed of.
2. Decson ffrmed.
The decson of the oard of Ta ppeas (25 . T. ., 201)
affrmed.
3. Certorar Dened.
Petton for certorar dened October 9, 1933.
Unted States Crcut Court of ppeas for the Nnth Crcut.
Coanga- fohawk O Co., a Corporaton, pettoner, v. Commssoner of
Interna Revenue, respondent.
Upon petton to revew a decson of the Unted States oard of Ta ppea .
efore Wbur, Sawteb, and Mack, Crcut udges.
pr 3, 1933.
OPINION.
Sawtee, Crcut udge: Ths petton nvoves an asserted defcency of
10, 73 n pettoner s ncome ta return for the year 1921. The defcency
arose by reason of a deducton of 78,000 from pettoner s Income, whch
amount was camed to be deductbe as a oss sustaned n that year, under
the provsons of secton 234(a)4 of the evenue ct of 1921 (42 Stat, 227).
The facts are not n dspute and are substantay as foows: The pet-
toner s a Caforna corporaton, wth Its prncpa offce n San rancsco.
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271
I 234, 5 rt. L
Durng the years from 1018 to 1922, ncusve, ana pror thereto, pettoner was
engaged n the busness of producng and seng o. In 1918 t purchased
a tract of and contanng 200 acres, stuated n the Lost s dstrct of
Caforna, and pad therefor the sum of 80,000 n cash. The and was pur-
chased by pettoner soey as an o prospect or because of ts supposed o
content. ecause of ts pro mty to a proven o fed, t was regarded by
pettoner as semproven at the tme of purchase. Pettoner dd not con-
tempate mmedate drng when the and was purchased but contempated
drng when the proven area approached ts and.
There was no drng on the and n queston pror to 1922 and pror to
that year no test we was dred coser than 1 mes to sad and. The
nearest o producton pror to 1922 was n the e treme south end of the Lost
s fed, 2 mes west of the southwest corner of sad and.
t the tme of purchase n 1918 the vaue of pettoner s and as an o
prospect depended upon two possbtes: (1) that the geoogca structure
of the Lost s fed mght e tend to Its tract, and (2) that a parae struc-
ture to the Lost s fed woud be dscovered and that Its tract woud be
found to be embraced n such parae structure.
The Lost s fed was an od o fed, n whch the southery und enstery
mts, whch were nearest to pettoner s 200-acre tract, had been determned n
1914, 1915 or 191 wthn the drng depths to whch t was practcabe to
dr at that tme. There was no drng on the southeastery border of the
Lost s fed known to pettoner between 1918 and 1921.
Durng the perod from 1918 to 1921, nformaton graduay obtaned by t-
toner s offcers ndcated that ts tract of and was off structure and that
the prospect of dscoverng o on t was remote. In 1921 the pettoner
fnay determned that ts and was nono bearng and offered t for sae at
10 per acre or 2,000 for the entre tract, whch was ts vaue as grazng and,
e cusve of any vaue as an o prospect. Pettoner was unabe to se ts
tract of and at sad prce In 1921. t the begnnng of 1922 pettoner eased
ts and for 15 cents per acre, or 30 for the tract, per annum.
In 1923 pettoner dsposed of the sad and, aong wth ts other propertes,
to the Mohawk O Co. at ts book vaue of 2,000. In 192 the Mohawk O
Co. transferred ts propertes, ncudng sad 200 acres of and, at a prce of
2,000, to the Caforna Petroeum Co., and n 1028 the atter company sod
the and to the Te as Corporaton at the same prce.
In ts ta return for the year 1921, pettoner deducted from Income the
amount of 78,000 camed as a oss n the vaue of ts and n sad year. The
Commssoner refused to aow the deducton, and restored sad amount of
78,000 to pettoner s ncome n computng the defcency. The oard of
Ta ppeas sustaned the Commssoner s rung (25 . T. .. 2G1) : foowed
by ths petton to revew.
Secton 234(a)4 of the Revenue ct of 1921 provdes that n computng net
ncome there sha be aowed as deductons osses sustaned durng the ta abe
year and not compensated for by nsurance or otherwse. Pettoner contends
that ths case s brought wthn the ambt of secton 234 by vrtue of artce
143 of Reguatons 2, whch provdes, n part, as foows:
When, through some change n busness condtons, the usefuness In the
busness of some or a of the capta assets Is suddeny termnated, so that
the ta payer dscontnues the busness or dscards such assets permanenty
from use n such busness, he may cam as a oss for the year n whch he
takes such acton the dfference between the cost and ts savage
vaue remanng. Ths e cepton to the rue requrng a sae or other dspo-
ston of property In order to estabsh a oss requres proof of some unforeseen
cause by reason of whch the property has been prematurey dscarded .
We do not beeve that the benefts or deductons aowed by ths artce are
appcabe to the case at bar. The reazaton that the and dd not contan o
was not. for nstance, an unforeseen cause by reason of whch the property has
been prematurey dscarded. because pettoner bought the property as po-
tenta o aud wt knowedge, of course, thnt t mght prove nonproductve.
Ths case s dstngushabe from one n whch the ta payer owned merey a
rght to e pore for o: pettoner owned the and tsef.
In any event, t s we setted that a oss s sus.aned wthn the meanng of
the statute In queston ony when the transacton n respect of whch the oss
s camed s cosed and competed by some dentfabe event whch makes the
oss deductbe, whch event occurs generay ony when the property n queston
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S234. rt. 5 1.
272
Is sod or otherwse dsposed of. (New York Ins. Co. v. dwards, 271 U. S-
109, 11 T. D. 3872, C. . -, 305 Unted States v. Whte Denta Co., 274
U. S., 398, 401 T. D. 4059, C. . I-2, 198 Iavand v. dtcards (C. C. . 2),
20 . (2d), 905 T. D. 4094, C. . I-2, 204 Mastn v. Commssoner (C. O.
. 8), 28 . (2d), 748, 752 Deeds v. Commssoner (C. C. . ). 47 . (2d),
95 sperson v. Commssoner (C. C. . 5), 49 . (2d), 259.) The property
here In queston was sod, not durng the ta abe year but In 1923. The de-
ducton camed was therefore propery dsaowed for the year 1921.
Decson affrmed.
rtce 5G1: owabe deductons. III-4- 18
Ct. D. 777
ncome ta rea enue act of 1021 decson of court.
1. Deducton Capta pendture Cost of Increasng Cumu-
aton of a Magazne.
Money e pended by a pubshng company n ncreasng the cr-
cuaton of a magazne s a capta e pendture and not deductbe
from gross ncome as an ordnary and necessary busness e pense
wthn the meanng of secton 234(a)1 of the Revenue ct of 1921.
2. Same mortzaton Cost of Obtanng New Subscrptons
to a Magazne.
The cost of obtanng new subscrptons to a magazne may not
be amortzed over the ves of the subscrpton contracts under
secton 234(a)7 of the Revenue ct of 1921, especay where de-
ducton s aowed for the cost of repacement subscrptons, such
deducton beng n the nature of aowances for deprecaton or
amortzaton.
3. Decson ffrmed.
Decson of the oard of Ta ppeas (23 . T. ., 150) affrmed.
4. Certorar Dened.
Petton for certorar dened October 9, 1933.
Unted States Crcut Court of ppeas, ghth Crcut.
Meredth Pubshng Co., Successor to Successfu armng Pubshng Co., pet-
toner, v. Commssoner of Interna Revenue, respondent.
On petton to revew decson of Unted States oard of Ta ppeas.
efore Stone, an akenburgh, and ooth, Crcut udges.
pr 17, 1033.
opnon.
an akenburgh, Crcut udge, devered the opnon of the court.
Ths s an appea from an order of redetermnaton of the oard of Ta
ppeas affrmng a determnaton of the Commssoner of Interna Revenue and
ad|udgng aganst pettoner defcences n ncome ta es for 1922 and 1923 n
the respectve amounts of 12, 94.43 and 9,213.31.
The pettoner s a corporaton engaged n the pubcaton of magaznes,
to wt, Successfu armng, rut, Garden and ome ater named et-
ter omes and Gardens, and The Dary armer. In 1922 t purchased the)
perodca caed The Dary armer, and estabshed another then known as
rut, Garden and ome. The Dary armer had at that tme a subscrp-
ton st or crcuaton structure, of appro matey 58,000. s stated by the
oard of Ta ppeas, and n ths both partes agree, a campagn was forth-
wth started to bud up crcuaton for The Dary armer and to estabsh
a crcuaton for rut, Garden and ome. In 1922 pettoner e pended
15,0 0.10 and n 1923, 49,729.13, n securng subscrptons for The Dary
armer. Of the atter amount 5,338.77 represented e penses ncurred n
securng renewa subscrptons. In 1922 It e pended 92,828.74 n budng up
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273
15234, rt. 5 1.
the crcuaton of rut, Garden and ome, of whch amount 72.75 was
for renewas. In 1923, for the atter magazne, t spent 104,454.28 n securng
new subscrptons, and 13,899.91 for renewa subscrptons. In genera the
Commssoner aowed deductons for a e pendtures ncurred n securng
renewa subscrptons, and dsaowed those In acqurng new subscrptons.
e aowed the amount of 15,080.10 e pended n 1922 upon the crcuaton of
The Dary armer, because the crcuaton structure of that magazne was
not ncreased durng that year. or 1923 he aowed 47,339.19 of the amount
e pended n securng new subscrptons to rut, Garden and ome, as the
proper porton appcabe to mantenance of the estabshed crcuaton struc-
ture. e dsaowed 92,755.99 e pended n budng up the crcuaton of
rut, G :rden and ome In 1922, snce t represents an e pendture to
acqure new subscrptons, that magazne havng no crcuaton at te begn-
nng of the perod.
s has been sad, these rungs of the Commssoner were sustaned by the
oard of Ta ppeas. The questons presented are thus succncty stated by
counse for the Government:
L Whether the cost of ncreasng crcuaton of a magazne Is a capta
e pendture or merey an e pense In the nature of upkeep and therefore
deductbe from gross Income under secton 234(a) 1 of the Revenue ct
of 1921.
2. If crcuaton s a capta asset, whether t s sub|ect to perodc e -
hauston wth the e praton of subscrptons so as to entte the owner to a
deducton therefor from gross ncome under secton 234(a)7 of the Revenue
ct of 1921.
The contenton of the pettoner s thus stated n argument and bref:
The e penses of a pubsher In budng up a centee for a magazne are
n the same category essentay as e penses of a mercante or other enterprse
to attract new customers. The good w so acqured s n nether case a
capta asset.
That the crcuaton of a magazne or newspaper s an ntangbe capta
asset does not admt of doubt. The Commssoner of Interna Revenue has
consstenty so hed from hs frst consderaton of the queston, and hs
hodng as been uphed and approved by the courts. (Danve Press, Inc.,
1 . T. ., 1171 Gardner Prntng Co., 4 . T. ., 37 erad-Despatch Co.,
4 . T. ., 109 Water 8. Dckey, 14 . T. ., 1295 Tusa Trbune Co., 21
. T. ., 1405 Pubc Opnon Pubshng Co., 0 . T. ., 1255 Commerca at
Ins. Co., 12 . T. ., 55, 57 News Pubshng Co. v. ar (C. . D. C), 29 .
(2d), 955 Strong Pubshng Co. v. Commssoner (C. C. . 7), 5 . (2d),
50 Ct. D. 514, C. . I-2, 389 .)
nd t must foow that money e pended n budng up ths crcuaton
structure s a capta e pendture, and not the ordnary and necessary e pense
ncurred n carryng on a trade or busness, under the provsons of secton
234(a) 1 of the Revenue ct of 1921. Such e pendture under sad secton
234, to be deductbe must be n the nature of upkeep not of nvestment
Dufft v. Centra R. R. Co. of New ersey. 2 8 U. S., 55, 3 T. D. 3704, C. .
I -1, 143 ) and must be both ordnary and necessary n the conduct of a
busness or trade. (Robnson v. Commssoner (C. C. . 8), 53 . (2d),
810 Loyd v. Commssoner (C. C. . 7), 55 . (2d), 843 Ct. D. 542. C. .
I-2, 20S .)
In IIcrad-Despateh Co. (4 . T. .. 109 ) the oard of Ta ppeas we
sad:
Crcuaton, n reaty, s the very foundaton upon whch a newspaper
pubshng busness s but. It s aways a matter of frst mportance n
the purchase and sae of a newspaper pubcaton.
nd, agan, n Gardner Prntng Co. (4 . T. .. 37. 39, 40)
Perhaps the most mportant asset of a news pubshng busness Is Its
readng and advertsng centee. The advertsng centee s but up on
the bass of an approved subscrpton st, and, therefore, n the parance of
the pubsher s busness, ths asset s known as the crcuaton structure.
When a pubshng busness Is started a consderabe porton of ts capta goes
Into the deveopment and upbudng of ths crcuaton structure, n much
te same manner that a manufacturng busness puts ts capta nto factory
budngs and machnery whch consttute ts pant. So the crcuaton struc-
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234 rt. 5 1.
274
ture of a news pubshng pant represents a consderabe porton of the
capta nvestment. Ths crcuaton structure s evdenced by subscrpton
sts and book accounts whch, n a we-reguated pubshng busness, are
perodcay verfed and audted n a manner not unke the perodca nven-
toryng of pant and equpment of other busness. nd to the same e tent
that an nventory of budngs and machnery represents capta for a manu-
facturng busness, so a verfed and audted crcuaton structure must repre-
sent capta of a pubshng busness.
It was stated In argument before us that a magazne, havng a subscrpton
st, or crcuaton, of from 100.000 to 200,000 subscrbers, has a sae vaue of at
east 1,000,000, whe Its tangbe assets n the way of budng, prntng
presses, etc., may be worth ess than 50,000 or 100,000. Its sae vaue Is
governed argey by the amount t can earn through ts advertsng, the rates
for whch are based upon crcuaton. amnaton of the crcuaton and ad-
vertsng data dscosed by the e hbts contaned n the record confrms ths
statement. In 1922. Successfu armng, an estabshed pubcaton, had
an ncome from advertsng of 1,225,40 .50. Wth The Dary armer, and
etter omes and Gardens, the ncreased revenue from advertsng for years
kept pace wth the ncreases n crcuaton. In these, as n pubcatons gen-
eray, the crcuaton structure, once substantay estabshed, becomes com-
paratvey stabe, and does not fuctuate n strct rato to the number of sub-
scrptons. Ths, however, s convncng proof that such a structure s a pos-
tve capta asset, rrespectve of ncdenta fuctuatons n crcuaton, due to
temporary nfuences, such as economc depresson, causng wthdrawas, and
faure of renewas. In genera, t may be sad that the crcuaton of a maga-
zne whch carres advertsements Is the man bass of ts commerca vaue.
Ths Is practcay conceded by representatves of pettoner. The wtness
Corbn, drector of saes and promoton for the Meredth Pubshng Co., sad:
Obvousy for advertsng purposes the crcuaton structure has vaue.
Peope are gong to pay more for advertsng n a magazne havng a arge
crcuaton than a sma crcuaton our rate Is n proporton to the vaue of
our crcuaton and the quaty of t.
onncutt, crcuaton drector of pettoner, testfed thus:
There s an ncrease n advertsng rate. Tou get more advertsng when
you get more crcuaton. That s the measure by whch t s gauged, an
Intangbe measure.
It s urged by pettoner that the system of ncome ta aws does not con-
tempate captazaton of ntangbes, such as good w that a magazne cr-
cuaton partakes of the nature of good w, and that the e penses of a pub-
sher n budng up the crcuaton of a magazne are n the same category
essentay as e penses of a mercante or other enterprse to attract new
customers that the good w so acqured s In nether case a capta asset
None of these postons are so far tenabe n aw as to condton the dspos-
ton of ths case. s has been ponted out, the crcuaton of a newspaper or
magazne Is an ntangbe capta asset. The crcuaton structure Is the most
Important capta asset of a news-pubshng or magazne busness. ( ppea of
Gardner Prntng Co., 4 . T. ., 37: News Pubshng Co. v. ar (C. . D. C),
29 . (2d), 955, 058.) It s true that crcuaton has some of the quates of
good w. It Is rather a manfestaton of the e stence of good w, but Is an
tem dstnct from t. (Strong Pubshng Co. v. Commssoner, supra, 1. c.,
551.) owever, t s we setted that payments made for the purchase of good
w, as an ncdent to the passng of property, may consttute part of nvested
capta. (Thrce-In-One O Co. v. Unted States (Ct. CIs.), 35 . (2d), 987.)
There s nothng n Red Wng Matng Co. v. Wouts (C. C. . 8) (15 . (2d),
02 T. D. 3980. C. . I-1, 225 ) n confct wth ths vew. ut n the case
before us the subscrptons were procured as a part of the crcuaton structure,
the man tem of nvested capta, wth ts ncdent, merey, as a manfestaton
of good w.
There Is an essenta dfference between the e penses of a pubsher n bud-
ng up a crcuaton and the advertsements of a mercante or busness enter-
prse, desgned to attract new customers. dvertsng, n ordnary busness,
does not generay, f at a. Increase the prce of the commodty advertsed and
sod, whe, n the case of a magazne, the ncreased crcuaton does drecty
affect the rate charged for advertsng n the perodca the man commodty
whch the magazne has for sae. In ths way the money e pended to ncrease
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275
234, rt. 501.
crcuaton augments the capta structure of the pubcaton, an becomes a
capta e pendture.
It s aso suggested that ths crcuaton structure, beng somewhat of the
nature of good w, and an ntangbe, s not sub|ect to the wear and tear of
tangbe property whch forms the bass of deprecaton, and s, therefore,
mpropery cassed as a capta asset. suffcent answer to ths suggeston s
that crcuaton s an tem dstnct from good w, and that susceptbty to
deprecaton s not an essenta eement of a capta asset.
Pettoner s fna and aternatve contenton s that the cost of new sub-
scrptons shoud be amortzed over the ves of the subscrpton contracts,
some of whch are for onger perods than one year. In our |udgment ths
contenton s based upon a msconcepton of the Inherent nature of the crcu-
aton structure. That structure, once estabshed, s not a mere aggregaton
of dsconnected ndvdua subscrptons, but rather a combnaton of such unts
wth a measurabe degree of permanency. In the erad-Despatch case (4
. T. . (1. c, 1105, 110 )) the oard of Ta ppeas sad:
The term crcuaton, as used n newspaper pubshng busnesses, com-
prehends somethng much broader than what may be characterzed as mere
subscrpton sts. It comprehends, on the ene hand, a body of sub-
scrbers whom e perence has demonstrated may be reed upon wth some
degree of certanty to contnue to take and renew ther subscrptons to the
paper In the future. On the other hand, t ncudes wthn ts scope an estab-
shed advertsng centee who use the paper as a medum by whch to reach
the purchasng pubc.
Wth ths statement we agree. owever, we fee that ths contenton of
pettoner, f n any degree mertorous, s substantay satsfed by the prac-
tce of aowng deductons for the e pense of securng the number of sub-
scrptons requred to repace e pratons and canceatons durng the year.
In the case at bar the oard stated the practce thus:
Crcuaton structure Is an asset whch must be contnuay supported by
brngng n new subscrptons to repace those whch are contnuay e prng.
Gardner Prntng Co., supra.) The cost of so supportng the crcuaton struc-
ture s an ordnary and necessary busness e pense but the cost of budng
up or estabshng a crcuaton structure must be charged to capta.
In ths manner the ntegrty of the crcuaton structure n each year s
mantaned. The deductons permtted partake of the nature of aowances for
deprecaton or amortzaton, for whch pettoner contends, and take care of
the matter n a practca way and wth east compe ty and confuson. The
decson of the oard of Ta ppeas s affrmed, and the petton for revew
Is dsmssed.
nnc 5 1: owabe deductons. III-9- 7
Ct. D. 792
INCOM T R NU CT O 102 D CISION O COT T.
1. Deducton Loss ona de Sae crdkn of Proof.
Where by unanmous resouton of the drectors of a famy
corporaton organ zed under the aws of Caforna certan assets
were transferred to ndvduas who at that tme were a ma|orty
of ts drectors, an ora agreement then beng made that, n case
of a subsequent assessment aganst certan stock ncuded n the
transfer, payment of the promssory notes gven as consderaton
therefor woud not be requred, and where such assessments were
ater made and the notes canceed, the burden s upon the corpo-
raton to estabsh the good fath of the transacton. In the
absence of such proof and of suffcent evdence as to the vaue
of the assets transferred, and n vew of secton 2235 of the
Cv Code of Caforna, the transacton can not be regarded as
an actua bona fde sae gvng rse to a deductbe oss.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (25 . T. ., 321) affrmed.
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23 4, n . 5 1.
27
Unted States Crcut Court op ppeas for the Nnth Crcut.
Wshon-Watson Co., a Corporaton, pettoner, v. Commssoner of Interna
Revenue, respondent.
Upon petton to revew an order of the Unted States oard of Ta ppeas.
efore Wbur, Mack, and Gabrecht, Crcut udges.
une 14, 1933.
opnon.
Garrecht, Crcut udge: Ths s an appea from a decson of the Unted
States oard of Ta ppeas hodng that pettoner s not entted to deduc-
tons for osses camed as a resut of an aeged sae of certan of ts assets
to two members (a ma|orty) of ts board of drectors, for the reason that
pettoner has faed to show that the transfer was an actua bona fde sae.
The matera facts found by the oard of Ta ppeas are as foows:
Pettoner, a Caforna corporaton wth ts prncpa pace of busness at
resno, for a number of years pror to December 28, 1925, was the owner of
the foowng property: 1,000 shares Swan O Co. stock, par vaue 1 per share
1,000 shares ndy tz Mnng Mng Co. stock, par vaue 1 per share
439.30 shares La acenda Co. stock, par vaue 100 per share three-fourths
nterest n the San oaqun Marbe uarry pacer mnng cam one-haf
nterest n and known as ack Mountan o and.
On December 2 , 1925, by unanmous consent a speca meetng of the board
of drectors of the Wshon-Watson Co. was hed. t sad meetng the foow-
ng persons were present: Drector . mory Wshon. Drector R. W. Watson,
Drector G. Wshon, who were a the members of sad board of drectors.
Presdent . mory Wshon presded as the charman of the meetng.
Mr. . G. Wshon presented to the board an offer made to the corporaton by
. . Wshon and P.. W. Watson, who at the tme were a ma|orty of the board
of drectors, to buy for the prce of 0,000 the above descrbed assets of the
corporaton.
Upon moton duy made and seconded, t was unanmousy resoved that t
appeared to be to the best nterest of the corporaton that It accept the offer
made by . . Wshon and R. W. Watson and se to them sad assets for the
prce of s thousand doars ( ,000).
The resouton further drected the offcers of the corporaton to prepare
and e ecute proper assgnments and conveyances of the above assets to . .
Wshon and R. W. Watson upon recevng payment of the amount named above.
Thereafter n 1925, pursuant to the resouton above noted, the pettoner
transferred the assets n queston to the sad . mory Wshon and R. W.
Watson, recevng therefor n that year the promssory note of each of the
partes for 3,000.
t the tme of the adopton of the resouton referred to, authorzng the
transfer of the assets, t was oray agreed that n the event an assessment
shoud be made on the stock of La acenda Co., the pettoner woud
cance the notes and not requre the payment thereof. Subsequenty an assess-
ment of 10 per share was made on the stock of La acenda Co. Pursuant
to the ora agreement, pettoner waved payment of the notes, canceed them,
and returned them to the makers, who destroyed them. The tota of the two
notes, or 0,000, was deducted as a bad debt by the pettoner n ts ncome
ta return for 192 .
Upon the transfer of the above descrbed assets, . mory Wshon and
R. W. Watson each receved one-haf thereof. When R. W. Watson receved
notce of the assessment on the stock of the La acenda Co., he nformed
. mory Wshon that he dd not ntend to pay t and that f he, Wshon,
cared to pay t, he coud have hs, Watson s, stock. Wshon pad the assess-
ment and Watson gave hs La acenda stock to hm. Watson retaned, how-
ever, the other stocks and nterests theretofore transferred to hm by
pettoner.
Pror to the transfer by the pettoner n 1925 of the stock of La acenda
Co., s assessments had been made on t fve of them were assessments of 10
per cent, or 4,393 each, and one was an assessment of 5 per cent, or 2,19 .50.
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277
(234, rt. 5 1.
Snce 1925 three further assessments have been made on ths stock and these
have been pad by . mory Wshon.
The stockhoders of the pettoner and the hodngs of each at the tme of
the transfer of the assets to . mory Wshon and , W. Watson were as
foows: . G. Wshon, 250 shares enrette . Wshon, 250 shares . mory
Wshon, 2 0 shares enne Wshon Watson, 240 shares R. W. Watson, 10
shares. . G. Wshon and enrette . Wshon were husband and wfe. .
mory Wshon was ther son. enne Wshon WTatson was ther daughter and
the wfe of R. W. Watson. t the tme of the transfer, the board of drectors
conssted of . G. Wshon, . mory Wshon and R. W. Watson.
In Its Income ta return for 1025, pettoner took a deducton as a oss
sustaned on the transfer of the assets n the amount of 53,950.28, repre-
sentng the dfference between the cost of such assets, 59,059.28, and the
amount of the two notes of ,000. In determnng the defcency here n-
voved the respondent dsaowed the deducton taken by the pettoner.
ppea from ths acton was taken to the Unted States oard of Ta
ppeas, whch oard decded adversey to pettoner, whch decson pet-
toner now asks ths court to revew.
Snce the evdence has not been certfed wth the record, the fndngs of fact
of the oard of Ta ppeas are bndng on ths court. ( endrck Coa
Dock Co. v. Commssoner (C. C. . 8), 29 . (2d), 559 Conrad d Co. v.
Commssoner (C. C. . 1), 50 . (2d), 57 .)
The hodng of the oard that the transfer of tte by the pettoner to
certan of Its drectors was nsuffcent to avod the ta must stand uness as a
matter of aw that decson was ceary erroneous.
Pettoner argues that the admsson of the oard that tte to the assets
were actuay transferred by the corporaton precudes a fndng that the trans-
acton was not bona fde. Ths statement s not correct. Ths famy cor-
poraton coud pass the tte to a of ts assets to ts consttuent sharehoders
wthout consderaton or even n bad fath and the transfer of tte be vad,
at east unt caed In queston, but the matter havng been rased n ths
case It Is our opnon that the record n ths regard sustans a fndng of want
of good fath.
It Is admtted by pettoner that the prncpe of corporate entty can not be
used to coak a transacton whch s essentay a fraud upon the pubc
revenue but pettoner contends that the opnon of the board of drectors
of a corporaton has aways been consdered determnatve of the corporate acts
uness evdence has been produced to show the contrary, and t s nssted that
the burden of estabshng maa fdes s upon the Commssoner n ths case. In
support of ths contenton pettoner ctes the case of udd v. Commssoner
(C. C. . 3) (43 . (2d), 509). Ths case turned upon the appcaton and
constructon of the Revenue ct of 1928 (secton 01, 45 Stat., 872) (2
U. S. C. ., secton 1219), as foows:
In any proceedng nvovng the ssue whether the pettoner has been guty
of fraud wth ntent to evade ta , where no hearng has been hed before the
enactment of the Revenue ct of 1928, the burden of proof n respect to such
ssue sha be upon the Commssoner.
We do not consder ths case as sustanng the poston of the pettoner here.
s ponted out by the court n that case the statute was smpy decaratory
of what the aw was and has been and the purpose of the enactment was to
correct certan rues of practce or procedure theretofore prevang n tras
before the oard of Ta ppeas. It was not ntended to be authorty for
obvatng the we estabshed prncpe of aw that where a transacton s
shown to have been consummated by those n a fducary reatonshp wth
themseves as ndvduas, affrmatve proof of good fath s requred.
The transacton at best was a mere transfer of assets by the pettoner to
certan of ts sharehoders wthout any rea consderaton. The facts dscosed
by the record warranted the oard of Ta ppeas In fndng that the transfer
n queston was not an actua I na fde sae gvng rse to a deductbe oss. In
the case of Rasmusson v. ddy s Steam akery (C. C. . 9) (57 . (2d), 27),
where the facts were somewhat smar to those here presented, ths court hed
that there was no actua bona fde sae by the corporaton of ts assets.
The facts and the record show that a ma|orty of the board of drectors as
representng the pettoner deat wth themseves as ndvduas.
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5234, rt. 1.
278
drector who Is dsquafed by reason of persona nterest In the matter
before a drector s meetng oses pro hac vce hs character as a drector and
he can not be counted for the purpose of makng out a quorum.
Nor can the vote of a drector who s so dsquafed be counted for the
purpose of determnng whether a resouton has been passed by a ma|orty
vote. ( etcher Cyc. Corporatons, vonme 3, secton 1889, pages 3075, 307 .)
urthermore the pettoner Is a Caforna corporaton and under the aw of
Caforna n a transacton of ths knd, nsuffcent consderaton and undue
nfuence are presumed. Cv Code of Caforna, secton 2235, reads as
foows:
Presumpton aganst trustees. transactons between a trustee and hs
benefcary durng the e stence of a trust, or whe the nfuence acqured
by the trustee remans, by whch he obtans any advantage from hs benefcary,
are presumed to be entered nto by the atter wthout suffcent consderaton,
and under undue nfuence.
It s undoubtedy the rue n Caforna that under certan facts and crcum-
stances, where an offcer of a corporaton attempts to dea wth the corporaton
the courts w not permt any nvestgaton nto the farness or unfarness of
the transacton, nor aow the offcer to show that the deang was for the best
nterest of the corporaton. The facts estabshed by the oard of Ta
ppeas brng ths case wthn the rue reatng to the conduct of corporate
offcers, as ad down n Western States Lfe Insurance Co. v. Lockcood (1 8
Ca., 185, 135 Pat, 49 , 500) :
It matters not that the offcer s entrey free from any ntent to In|ure the
corporaton In the sghtest degree, actng n fact n the hghest good fath
throughout, or that hs actons reay advantaged the corporaton. No Inqury
may be made nto such matter. The nqury n ths regard Is stopped when
the reaton s dscosed.
When the transfer of the assets of the pettoner to the drectors was caed
n queston and the facts dscosed, as found by the oard, that a fducary
reatonshp e sted between the pettoner and a ma|orty of the oard deang
wth themseves as ndvduas, the presumpton of bad fath and undue n-
fuence attached to the transacton and t then became ncumbent upon the
pettoner to estabsh not ony an actua sae, but ts good fath as we. Ths
t faed to do.
Whe the oard dd not queston the transfer of tte of the assets, t hed
that the facts and crcumstances surroundng the transacton were such as dd
not consttute a bona fde sae gvng rse to the deductbe oss camed. The
fndngs of fact we sustan the concusons e pressed by the oard n ts
opnon as foows:
When we consder the reatonshp of the partes, the fact that they were
a members of the Wshon famy, e cept Watson who was a son-n-aw, and
that a of them together owned a the stock of the pettoner, It may we be,
so far as the record dscoses, that the corporaton ntended to transfer the
assets wthout any e pectaton of any consderaton n money or money s worth
beng pad. Consderng that The two notes for 3,000 were surrounded
wth the condtons of canceaton, and the past record of the La acenda
Co. and the reasonabe probabty that an assessment woud be made aganst
that stock n some amount, t mght fary be gathered from a the crcum-
stances that the partes dd not Intend to pay any money whatever for the
assets receved from the pettoner and that the pettoner dd not ntend or
e pect to receve any. The notes were not negotabe wth these uncertantes
and condtons attached to them. They smpy amounted to a promse to pay
f and n the event that certan crcumstances woud not occur when t mght
reasonaby have been antcpated at the tme that they woud occur.
Under the crcumstances of ths case we do not thnk that the pettoner
has shown that an actua bona fde sae of ts assets was made. The eement
of vauabe consderaton, whch dstngushes a sae from a gft or other
transfer wthout consderaton Is not suffcenty shown.
It foows therefore, that uness the evdence shows that the assets n ques-
ton n 1925 dd not e ceed n vaue ,000 pettoner was not entted to the
deducton camed. In ths connecton we concur n the concusons of the
oard that the evdence of vaue Introduced by pettoner was not suffcent
The oard n ts opnon sad:
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279
234, t. 1:
The ony evdence as to the actua vaue of the assets transferred s the
testmony of one of the Indvduas who receved the assets to the effect that
the drectors dd not consder them to be worth more than ,000.
There s nothng to ndcate that a of the assets woud have been worthess,
If some assessment, however sma, was made aganst that partcuar stock.
(Cf. rst Sav. ank nf Ogden v. urnet (C. pp. D. C), 53 P. (2d), 919
Ct. D. 451, C. . I-1, 280 .)
Pettoner havng faed to estabsh a bona fde sae, or that the assets In
queston were worth but 0,000 n 1925, the decson of the oard of Ta
ppeas must be affrmed.
btce 5 1: owabe deductons.
R NU CTS O 1918 ND 1921.
dvances to subsdary on notes beeved to be uncoectbe. (See
Ct. D. 824, page 2 0.)
rtce 5 1: owabe deductons. III-20- 795
Ct. D. 827
ncome ta revenue act op 192 decson of court.
1. Deducton mortzaton of ond Dscount1 Separate ntty
of endor and endee Corporatons.
Where pettoner corporaton, whch was organzed n 1922 for
the purpose of consodatng nto a snge enterprse busnesses
theretofore carred on by three separate corporatons, acqured
the assets and assumed the abtes of such corporatons n
e change for agreed proportons of ts own capta stock, t may
not cam, n ts ncome ta return- for 1928, deducton of an
amount representng amortzaton for that year of the dscount
upon certan 10-year bonds whch had been sod n 1919 by one
of the vendor corporatons, snce the statute confnes the use of a
oss to the ta payer who sustans t, and, there beng an outrght
sae of the assets of one corporaton to another, pettoner s an
entty dstnct and separate from the vendor and does not succeed
to ts rght to amortze the bond dscount.
2. Case Dstngushed.
Western Maryand Ry. Co. v. Commssoner (33 ed. (2d), 95)
dstngushed.
Co rt of ppeas of t|e Dstrct of Coumba.
Turner- arber-Love Co., pettoner, v. O-uy T. everng, Comm oner of
Interna Revenue, respondent.
Petton for revew of decson of the Unted States oard of Ta ppeas.
efore Martn, Chef ustce, and Robb, IItz, and Groner, ssocate ustces.
December 11, 1033.
opnon.
Groneb, ssocate ustce: Ths s a ta case n whch the stpuated facts
foow:
The pettoner s a domestc corporaton organzed under the aws of the
State of Deaware, wth ts prncpa offce at Memphs, Tenn., ts charter beng
Issued on anuary 10, 1922. It s engaged n hc busness of the manufacture
and sae of umber.
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234, rt. 5 1.
280
On or about anuary 10, 1922, pursuant to resoutons adopted by the
stockhoders of the pettoner and to resoutons adopted by the stockhoders of
Darne-Love Lumber Co., Leand Stave Lumb r Co., and Russe urgess,
Inc., the pettoner, n e change for ts own stock, acqured a the assets and
assumed a the abtes of Darne-Love Lumber Co., Leand Stave Lumber
Co., and Russe urgess, Inc., the stockhoders of the three ast-named
corporatons recevng a of the stock n the pettoner corporaton n propor-
ton to the vaue of ther respectve stock hodngs n sad ast three named
corporatons.
The organzaton of the pettoner was for the purpose of consodatng Into
a snge enterprse of the three busnesses theretofore separatey carred on by
Darne-Love Lumber Co., Leand Stave Lumber Co., and Russe urgess,
Inc. The stockhoders of Darne-Love Lumber Co. receved drecty from the
pettoner an agreed proporton of the pettoner s capta stock n e change for
the transfer to the pettoner of a the assets and abtes of sad Darne-
Love Lumber Co.
Under date of December 1, 1919, Darne-Love Lumber Co. sod ts bonds
maturng December 1, 1929, and havng an aggregate par vaue of 300,000,
at a dscount of 30,000. In ts ncome-ta return for 192 the pettoner
camed as a deducton from gross ncome the sum of 3,000 as amortzaton for
that year of sad dscount of 30,000.
The Commssoner dsaowed the deducton, and the oard sustaned hs
acton.
Pettoner s contenton Is that by acqurng the assets and assumng the
abtes ncudng the abty on the outstandng bonds of the Darne-Love
Co., t s entted to the camed deducton. It rests ts case on Western Mary-
and Ry. Co. v. Commssoner (33 . (2d), 95). That was a ta case, and,
ke ths, nvoved the queston whether, where bonds are sod at a dscount,
such dscount may be amortzed for ncome-ta purposes over the fe of the
bonds by deductng the annua proporton thereof from gross ncome for each,
year (33 . (2d), 9 ). The case was one n whch the rght to make the
deducton was sustaned on behaf of a reorganzed corporaton whch had
tnkeu over the assets and assumed the abtes of another. ut we thnk
there are dfferences between the controng facts there and here. In the
Western Maryand case the practca resut of the thngs done was no more
than the reorganzaton of a gong concern. s the Court of ppeas there
sad, the facts wth regard to the reorganzaton are that the corporaton
whch hed the raroad property at that tme. The Western Maryand Raway
Co., owned a of the stock n seven subsdary corporatons whose property t
operated n a respects as ts own, keepng but one set of books and makng
reports to the Interstate Commerce Commsson |ust as though a of the
propertes of a of the corporatons were owned and operated by t as a snge
system. In the nstant case there was not, as n the Western Maryand case,
a mere absorpton under a snge corporate form of the assets of corporatons
subsdary to the corporaton absorbed. ere, on the contrary, the stock-
hoders of Darne-Love Lumber Co. receved drecty from the pettoner an
agreed proporton of the pettoner s capta stock n e change for the transfer
to the pettoner of a the assets and abtes of sad Darne-Love Lumber
Co. There was obvousy no merger or consodaton of the two companes
but an outrght sae of the assets of the one to the other. The vendor unt
dssoved contnued to be a corporaton. The sae of ts assets dd not destroy
ts dentty, and t mght have contnued egay thereafter to do any busness
ts corporate charter authorzed. It mght have fed a ta return and camed
a oss on the sae of ts bonds or on the sae of ts other assets. Granted t had
the rght to amortze ts bond dscount, pettoner, n purchasng ts assets, dd
not succeed to ths rght any more than t woud have succeeded to the rght
to set Up ts osses occurrng pror to the purchase. ( tho Mfg. Co. v. Comms-
soner, 54 . (2d), 230 Ct. D. 513, C. . I-2, 252 .)
What we have |ust sad s true because the ta aws treat separate corpora-
tons as separate ta payers. ere pettoner Is a dstnct and separate corpo-
raton from the Darne company. In that aspect t s not contested that ts
deductons are mted to ts own e penses and osses, but pettoner s poston
s that though a separate ega entty, substance rather than form shoud
contro and that, snce t was organzed for the e press purpose of takng over
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281
234, rt. 5 1.
the assets of the od companes, when ths was done, t stepped Into the pace
of those companes and succeeded to a of ther rghts. That was the theory
on whch the Western Maryand case turned, but we are unabe to fnd a
|ustfcaton n the statutes for appyng t here, and ths because, to repeat, wa
are faced wth the fact of two dstnct corporatons, each wth dstnct rghts
and abtes. (The new company took over the assets of three companes
but ony one of the od companes s nvoved here.) The statute confnes the
use of a oss to the ta payer who sustans t. (New Coona Ice Co. v.
Commssoner, . (2d), 480.) Nor s the stuaton n ths respect changed
because n the transfer of assets from the one company to the other a contn-
ung busness s nvoved. The fact of separate dentty st remans, and
the rue that courts w ook beyond the shadow to the substance, whch pet-
toner nvokes, s here no more appcabe than t was n New York R. Co. v.
urnet ( 4 . (2d), 152, 154), where we sad t s apped ony n cases n
whch to refuse to appy t woud be to countenance fraud.
ffrmed.
mcL 5 1: owabe deductons. III-21- 808
( so Secton 213(a), rtce 35.) Ct. D. 829
INCOM T R NU CT O 1018 D CISION O SUrR M COURT.
1. Gross Income ccrua ass ad Debt Incurred n Ta abe
Year.
Where a ta payer on the accrua bass sod goods on open ac-
count In 1920 to a company whch ater went Into bankruptcy, the
debt to the e tent that t was ascertaned to be worthess wthn
the ta abe year s nevertheess, apart from any queston of deduc-
ton, returnabe as 1920 ncome. When accounts are kept and re-
turns made on the accrua bass, the rght to receve rather than
the actua recept determnes the ncuson of an amount n gross
Income.
2. Deducton ad Debt I/oss.
Where a debt s ascertaned to be partay but not entrey
worthess durng the year 1920, no deducton s aowed therefor
under secton 234(a)5 of the Revenue ct of 1918 as a debt as-
certaned to be worthess and charged off wthn the ta abe year,
or under secton 234(a)4 as a oss sustaned durng the ta abe
year. Subdvsons (4) and (5) are mutuay e cusve, and what
Is e cuded from deducton under subdvson (5) can not be
regarded as aowed under subdvson (4).
Supreme Court of the Unted States.
727. Sprng Cty oundry Co., pettoner, v. Commssoner of Interna Revenue,
728. Sprng Cty oundry Co., pettoner, v. Commssoner of Interna Revenue.
On wrts of certorar to the Unted States Crcut Court of ppeas for the Seventh
Crcut.
pr 30,1934.
OPINION.
Mr. Chef ustce IIuques devered the opnon of the court.
Pettons for wrts of certorar were granted, mted to the queston
whether a debt ascertaned to be partay worthess n 1920 was deductbe
n that year under ether secton 234(a)4 or secton 234(a)5 of the Revenue
ct of 1918 and to the queston whether the debt was returnabe as ta abe
ncome n that year to the e tent that t was then ascertaned to be worthess.
77 02 34 10
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234, rt. 1.
282
Pettoner kept ts books durng the year 1920 am ted Its Income ta return
for that year on the accrua bass. rom March, 1920, to September, 1020,
pettoner sod goods to the Cotta Transmsson Co. for whch the atter became
ndebted n the amount of 39,983.27, represented by open account and unsecured
notes. In tn atter part of 19-0 the Cotta company found tsef n fnanca
strats. fforts at settement havng faed, a petton n bankruptcy was
fed aganst the company on December 23, 1920, and a recever was apponted.
In the sprng of 1922 the recever pad to credtors, ncudng pettoner, a dv-
dend of 10 per cent, and, n 1923, a second and fna dvdend of 12 per cent.
Pettoner charged off on ts books the entre debt on December 28, 1920, and
camed ths amount as a deducton n ts ncome ta return for that year. It
ncuded as ncome n ts returns for 1922 and 1923 the dvdends receved n
those years. The Commssoner dsaowed the amount camed as a deducton
n 1920 but aowed a deducton n 1923 of 28,71 .70, the dfference between
the fu amount of the debt and the two dvdends.
On revew of the defcency assessed by the Commssoner for 1920, the oard
of Ta ppeas found fnt the debt was not entrey worthess at the tme t
was charged off. n offer had been made n November, 1920, to purchase the
assets of the debtor at 33 per cent of the credtors cams and the offer had
been decned. The oard concuded that n vew of a the crcumstances,
ncudng the probabe e pense of the recevershp, the debt coud e regarded
as uncoectbe, at the tme of the charge-off, to the e tent of 28,71. .7 , and
aowed a deducton for 1920 of that amount. (25 . T. ., 822.) Ths rung,
contested by bot the Commssoner and the ta payer, was reversed by the
Crcut Court of ppeas upon the ground that there was n 1920 no authorty
for a debt deducton uness the debt were worthess. ( 7 . (2d), 385, 387.)
In vew of the confct of decsons upon ths pont,1 ths court granted wrts of
certorar mted as above stated.
1. Pettoner frst contends that the debt, to the e tent that t was ascertaned
n 1920 to be worthess was not returnabe as gross ncome n that year, that s,
apart from any queston of deductons, t was not to be regarded as ta abe
ncome at a. We see no mert In ths contenton. eepng accounts and
makng returns on the accrua bass, as dstngushed from the cash basfe,
mport that t s the rght to receve and not the actua recept that determnes
the Incuson of the amount n gross ncome. When the rght to receve an
amount becomes f ed, the rght accrues. When a merchandsng concern makes
saes, ts nventory s reduced and a cam for the purchase prce arses. rtce
35 of Reguatons 45 under the Revenue ct of 1918 provded: In the case of
a manufacturng, merchandsng, or mnng busness gross ncome means the
tota saes, ess the cost of goods sod, pus any ncome from nvestments and
from ncdenta or outsde operatons or sources.
On an accrua bass, the tota saes, to whch the reguaton refers, are
manfesty the accounts recevabe arsng from the saes, and these accounts
recevabe, ess the cost of goods sod, fgure n the statement of gross n-
come. If such accounts recevabe become uncoectbe, n whoe or part, the
queston s one of the deducton whch may be taken accordng to the appcabe
statute. (Sec Unted States v. nderson, 2 9 U. S., 422, 440, 441 T. D. 3839,
C. . -, 1791 mercan Natona Co. v. Unted States, 274 . S., 99, 102, 103
T. D. 4099, ( . . I-2, 193 rmrn v. everng, 291 U. S., 193,199 Ct D. 78 ,
page 223, ths uetn , Rows v. ocers, 30 . (2d), 28, 20.) That s the
queston here. It s not atered by the fact that the cam of oss reates to
an tem of gross ncome whch had accrued n the same year.
2. Secton 234(a)5 of the Revenue ct of 1918 provded for the deducton of
worthess debts, n computng net Income, as foows: Debts ascertaned to
e worthess and charged off wthn the ta abe year. Under ths provson,
the ta payer coud not estabsh a rght to the deducton smpy by chargng off
the debt. It must be ascertaned to be worthess wthn the ta abe year. In
ths nstance, n 1920, the debt was n suspense by reason of the bankruptcy of
the debtor but t was not a tota oss. What eventuay mght be recovered
upon t was uncertan, but recovery to some e tent was reasonaby to be e -
1 Sep Sherman f ryan, Inc. v. Commtsoner (C. C. . 2) (3 . (2d). 713, 71 1:
Davdson Grocery Co. v. Lucas (Ct. pp. D. C.) (37 . (2d), 80 ) urchson Satona
ank v. Grtsom (C. C. . 4) (50 . (2d). 103 ). Compare nnehahn atnna ank .
Commssoner (C. C. . 8) (28 . (2d), 7 3) Cons County atona ank v. f omnfo-
s.ncr (C. C. . 5) (48 . (2d), 207. 208) Ct. D. 0. C. . -2. 3 2).
Ths uruT on ban been carred forward n the reguatons under tbe ater Revenue
cta. (See Reguatons 77, artce 55.)
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283
234, rt. 5 1.
pected. The recever contnued the busness and substanta amounts were sub-
sequenty reazed for the credtors. In ths vew, the oard of Ta ppeas
decded that the pettoner dd not sustan a oss n 1920 equa to the tota
amount of the debt and hence that the entre debt was not deductbe n that
year.
The queston, then, s whether pettoner was entted to a deducton n 1920
for the porton of the debt whch utmatey on the wndng up n bankruptcy-
proved to be uncoectbe. Such a deducton of a part of the debt, the Govern-
ment contends and the Crcut Court of ppeas hed, the ct of 1918 dd not
authorze. The Government ponts to the tera meanng of the words of the
statute, to the estabshed admnstratve constructon, nnd to the acton of the
Congress n recognton of that constructon. Worthess, says the Govern-
ment, means desttute of worth, of no vaue or use. Ths was the nterpretaton
of the statute by the Treasury Department. rtce 151 of Reguatons 45
(made appcabe to corporatons by artce 5 1) provded that n account
merey wrtten down s not deductbe. To the same effect was the corre-
spondng provson of the reguatons under the Revenue ct of 191 .
The rght to charge off and deduct a porton of a debt where durng the
ta abe year the debt was found to be recoverabe ony n part, was granted by
the ct of 1921. y that ct, secton 234(a)5 was changed so as to readt
Debts ascertaned to be worthess and charged off wthn the ta abe year
(or In the dscreton of the Commssoner, a reasonabe addton to a reserve
for bad debts) and when satsfed that a debt s recoverabe ony n part, the
Commssoner may aow such debt to be charged off n part. We thnk that
the far mport of ths provson, as contrasted wth the earer one, s that the
Congress, recognzng the sgnfcance of the e stng provson and ts appropr-
ate constructon by the Treasury Department, deberatey ntended a change
In the aw. (Shoab v. Doye, 258 U. S., 529, 53 T. D. 3339, C. . 1-2, 312
Russe v. Unted States, 278 U. S., 181, 188 T. D. 42 0, C. . III-1, 20 .)
Ths ntent s shown ceary by the statement n the report of the Commttee
on Ways and Means of the ouse of Representatves In reaton to the new pro-
vson. The commttee sad e pcty Under the present aw worthess debts
are deductbe n fu or not at a. Whe the change was struck out by the
nance Commttee of the Senate, the provson was restored on the foor of the
Senate and became a aw as proposed by the ouse. Reguatons 2 ssued by
the Treasury Department under the ct of 1921 made a correspondng change
In artce 151. The Treasury Department consstenty adhered to the former
rue In deang wth deductons sought under the ct of 1918.
In numerous decsons the oard of Ta ppeas has taken the same vew of
the provson of the ct of 1918. (See e. g., ppea of Stee Cotton M Co.,
rtce 151 of Reguatons 45 provded : ad detts. n account merey wrtten down
or a debt recognzed as worthess pror to the begnnng of the ta abe year Is not de-
ductbe. Where a the surroundng nnd attendant crcumstances ndcate that a debt a
worthess and uncoectbe and that ega acton to enforce payment woud n a prob-
abty not resut n the satsfacton of e ecuton on a udgment, a showng of these facts
w be suffcent evdence of the worthessness of the debt for the purpose of deducton,
ankruptcy may or may not be an ndcaton of the worthessness of a debt, and actua
determnaton of worthessness In such a case s sometmes possbe before and at other
tmes ony when a settement n bankruptcy ha have been had.
See, aso, artce 151 of Reguatons 45 (revsed) promugated anuary 28, 1921.
4 Reguatons 33 (revsed), artce 151.
ouse Report No. 350, S ty-seventh Congress, frst sesson, page 11. The statement
of the commttee s: Under the present aw worthess debts are deductbe n fu or not
at a. but secton 214 woud authorze the Commssoner to permt a deducton for debts
and contaned the same new provson as that Inserted n secton 2.14(a)5, quoted
, wth respect to deductons by corporatons.
Report No. 275, S ty-seventh Congress, frst sesson, page 14 Congressona
tme 1, part , pages 5814, 5939-5941, 109, 110 part 7, page 727.
In Treasury Decson 32 2 (C. . 1-1, anuary- une, 1922, pages 152, 153). It was
sad: No deducton sha be aowed for the part of a debt ascertaned to be worthess
and charged off pror to anuary 1, 1921, uness and unt the debt s ascertaned to be
totay worthess nnd s fnay charged off or charged down to a nomna amount, or tha
oss Is determned In some other manner by a cosed and competed transacton. (See,
aso. . R. R. 7895. C. . III-2, uy-December, 1924, pages 114, 115 . R. R. 822 ,
C. . III-2, pages 118, 119-121.)
The members of the oard of Ta ppeas who dssented In the Instant case ponted
out that the oard had consstenty hed In at east 23 cases thnt under the Revenue
ct of 1918 no deducton may be taken where a ta payer ascertans that a debt s re-
coverabe ony In part. (25 . T. ., 834.)
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234, rt. 5 3.
284
1 . T. ., 209, 302 Western Casket Co. v. Commssoner, 12 . T. ., 702, 787
Toccoa urnture Co. v. Commssoner, 12 . T. .. 804, 80 .) The contrary
resut In the nstant case was reached n deference to the opnons e pressed
by tbe Crcut Court of ppeas of the Second Crcut n herman t ryan, Inc.,
v. Commssoner (35 . (2d), 713, 710) and by the Court of ppeas of the
Dstrct of Coumba n Davdson Grocery Co. v. Lucas (37 P. (2d), 800, 808)
vews whch are opposed to those of tbe Crcut Courts of ppeas of the ghth
Crcut n Mnnehaha Natona ankv. Commssoner (28 . (2d), 7 3. 7 4) and
of the fth Crcut n Con County Natona ank v. Commssoner (48 .
(2d), 207, 208).
We are of opnon that secton 234(a)5 of the ct of 1018 authorzed ony
the deducton of a debt ascertaned to be worthess and charged off wthn the
ta abe year that t dd not authorze the deducton of a debt whch was not
then ascertaned to be worthess but was recoverabe n part, the amount that
was not recoverabe beng st uncertan. ere, n 1923, on the wndng up, the
debt that then remaned unpad, after deductng the dvdends receved, was
ascertaned to be worthess and the Commssoner aowed deducton accordngy
n that year.
3. Pettoner aso cams the rght of deducton under sectou 234(a)4 of the
ct of 1918 provdng for the deducton of Losses sustaned durng the ta abe
year and not compensated for by nsurance or otherwse. We agree wth the
decson beow that ths subdvson and the foowng subdvson (5) reatng
to debts are mutuay e cusve. We so assumed, wthout decdng the pont,
n Lewcyn v. ectrc Reducton Co. (275 U. S., 243, 24 ). The nakn
of the specfc provson as to debts ndcates that these were to be con-
sdered as a speca cass and that osses on debts were not to be regarded as
fang under the precedng genera provson. What was e cuded from deduc-
ton under subdvson (5) can not be regarded as aowed under subdvson
(4). If subdvson (4) coud be consdered as ambguous n ths respect, the
admnstratve constructon whch has been foowed from the enactment of the
statute that subdvson (4) dd not refer to debts woud be entted to great
weght. We see no reason for dsturbng that constructon.
Pettoner nssts that good busness practce forbade the ncuson n the
ta payer s assets of the account recevabe n queston or at east the part of It
whch was subsequenty found to be uncoectbe. ut that s not the queston
here. uestons reatng to aowabe deductons under the ncome ta ct are
qute dstnct from matters whch pertan to an approprate showng upon whch
credt s sought. It woud have been proper for the ta payer to carry the
debt n queston n a suspense account awatng the utmate determnaton of
the amount that coud be reazed upon t, and thus to ndcate the status of the
debt n fnanca statements of the ta payer s condton. ut that proper prac-
tce, n order to advse those from whom credt mght be sought of uncertantes
n the reazaton of assets, does not affect the constructon of the statute, or
make the debt deductbe n 1020, when the entre debt was not worthess, when
the amount whch woud prove uncoectbe was not yet ascertaned, rather
than n 1923 when that amount was ascertaned and ts deducton aowed.
We concude that the rung of the Crcut Court of ppeas was correct.
udgment affrmed.
htck f G3: Sae of capta stock, bonds, and capta assets.
R NU CTS OP 1924 ND 2(.
mendment of artce 5 3. Reguatons 5 and 9. (See T. D.
4430, page 3 .)
Sec Reguatons 4G, artces 141 to 143 compare artces 151 to 1 4.
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234, rt. 504.
rtce 5 4: Interest. III-9- 77
Ct. D. 794
INCOM T NU CTS O 1921, 1924, ND 192 D CISION O COURT.
1. Deducton Interest Passbook and u-Pad Stock.
Payments made by a budng and oan assocaton organzed
under the aws of Caforna to hoders of ts passbook and
fu-pad stock are dvdends rather than nterest, nnd are not
deductbe under the provsons of secton 234(a) of the Revenue
cts of 1921, 1924, and 192 .
2. Decson ffrmed.
Decson of the oard of Ta ppeas (23 . T. ., 1059) affrmed.
3. Certorar Dened.
Petton for certorar dened October 9, 1933.
Court op ppeas of the Dstrct op Coumba.
dety Savngs t Loan ssocaton, appeant, v. Davd urnet, Commssoner
of Interna Revenue, appeee.
ppea from the oard of Ta ppeas.
efore Martn, Chef ustce, and Robb, an Orsde, tz, and Groneb,
ssocate ustces.
pr 24, 1933.
OPINION.
Gro er, ssocate ustce: ppeant s a budng and oan assocaton
organzed under the aws of Caforna. In ts Income-ta returns t deducted
as a part of ts e penses sums pad to ts stockhoders semannuay for the
years 1921 to 192 , ncusve. The oard decded aganst the cam, and the
queston we have to decde s whether amounts pad by appeant to the hoders
of ts passbook stock and/or ts fu-pad capta stock were nonde-
ductbe dvdend dstrbutons or were nterest payments.
The appcabe statute s secton 234(a) of the Revenue ct of 1921 (42
Stat., 227). (The provsons of the ct n the subsequent years are dentca.)
The secton provdes:
That n computng the net ncome of a corporaton sub|ect to the ta
mposed by secton 230 there sha be aowed as deductons (2)
nterest pad or accrued wthn the ta abe year on ts ndebtedness, .
ppeant was authorzed to ssue 250,000 shares of capta stock wth a par
vaue of 100 each, or a tota authorzed capta of 25,000,000. Its capta
stock structure was dvded nto casses, ncudng nstament stock, of whch
there were three casses. , , and C fu-pad stock, known as cass D per-
manent stock, known as cass passbook stock, known as cass and per-
manent reserve stock, known as cass G. The two casses of stock nvoved
here are fu-pad stock and passbook stock. The fu-pad stock was ssued at
100 on fu payment In advance. The passbook stock was payabe both n tme
and amount of nstament at the opton of the subscrber. t the e pense of
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234, rt. 5 4.
28
space, but n the nterest of carty, t s thought desrabe to Insert as a foot-
note a sampe form of each of these two casses of stock.1 The by-aws of the
corporaton provde as to the fu-pad stock that the corporaton woud pay
cash dvdends at a rate not e ceedng 7 per cent per annum. s a matter of
fact the stock was ssued on a per cent bass, wthout further partcpaton
In earnngs or profts. It was redeemabe by the assocaton at the e praton
of fve years on s months advance notce, and t mght be surrendered by the
hoder at face and nterest at any tme upon three months notce. The by-awrs
of the assocaton provde as to the passbook stock that dvdends w be
decared out of the earnngs semannuay at a rate f ed by the board of
drectors not to e ceed 5 per cent. The stock was retrabe by the board of
drectors at any tme on 30 days notce and the hoder was gven the rght to
wthdraw the amount pad n by hm at any tme on reasonabe notce.
ppeant s poston s that the payments made semannuay from me to
tme by the assocaton to the hoders of these two ssues of stock consttuted
nterest whch under secton 234 s deductbe. The Commssoner nssts that
the payments were dvdends and kens the hoders to preferred stockhoders
n an ordnary corporaton. The dfference n poston between appeant and
the Commssoner nvoves the determnaton whether the subscrbers of
appeant s shares of the casses named were stockhoders or were credtors.
The answer s not as smpe as the statement of facts |ust made woud
ndcate. The dffcuty grows out of the fundamenta dfferences between an
ordnary corporaton and a budng and oan assocaton. oth, of course,
are controed by charter, by-aw provsons, and by statutes of the State of
ncorporaton, but n the case of an ordnary corporaton there are certan
basc rues of constructon whch are of unversa or neary unversa appca-
ton, so that we-understood defntons of stockhoder and credtor and of
nterest and dvdends appy, but the structure of a budng assocaton s n
many mportant respects dfferent from commerca corporatons, and equay
as dfferent n dfferent States. It s, therefore, n a marked degree essenta
1 ( u-pad stock.)
Ths certfes that s the owner of one sharp of the capta stock
of the dety Savngs and Loan ssocaton amountng to one hundred doars, whch
has heen fuy pad.
Ths certfcate s Issued to and accepted by the owner hereof upon the foowng terms
and condtons :
r t: That the amount for whch ths certfcate s ssued sha bear nterest at the
rtte of s per cent ( ) per annum, payabe semannuay at the offce of the assocaton
n the cty of Los ngees, on presentaton and surrender of the anne ed coupons as they
severay become due.
tecond: The dety Savngs and Loan ssocaton reserves the rght, on or after the
e praton of fve years from the date hereof, to pay ths certfcate on any Interest pay-
ment date, upon mang, to Its recorded owner, wrtten notce, s months pror thereto,
and thereupon sad prncpa sum sha become due and sha be pad upon the presenta-
ton and surrender of ths certfcate and a unpad coupons to the assocaton at ts offce
n the cty of Los ngees, and t may be surrendered, after one year, upon three months
notce, for a sum whch wth nterest prevousy pad sha equa Its face vaue wth
Interest from the date hereof, to date of wthdrawa.
Thrd: In consderaton of the rate of dvdend pad hereon, t s agreed that ths cer-
tfcate sha not further partcpate n any surpus or earnngs or profts.
Ths certfcate may be transferred by Indorsement and record thereof on the assoca-
ton s books acknowedged hereon.
(Coupon attached to fu-pad certfcate.)
3.00.
The dety Savngs and Lonn ssocaton w pay the bearer three doars at ts offce
n the cty of Los ngees, Caf., nterest on certfcate.
(Pass-book shares.)
Ths certfes that , a member of the dety Savngs and Loan
ssocaton, has subscrbed for and Is the owner of certfcate for one hundred savngs
pass-hook sares of the par vaue of one hundred doars each, on whch dues payments
may be made at any tme and In any amount not ess than one doar, at hs opton, ont
the fu par vaue of the shares has been pad, uness sooner wthdrawn. Dvdends from
the earnngs of the assocaton w be credted semannuay, computed on the mnmum
monthy baance, at the rate of 0 per cent per annum, on the second Monday of uy and
anuary of each year.
payments, together wth the dvdends credted and accrued, may be wthdrawn on
demand, e ceptng that the assocaton reserves the rght to requre reasonabe notce of
ntenton to wthdraw not n confct wth Its by-aws.
Ths certfcate s ssued sub|ect to the artces, by-aws and rues of the dety Sav-
ngs and Loan ssocaton and s nonnegotabe and s transferabe ony on the books of
the assocaton, and no payment w be receved and no wthdrawa pad wthout the
presentaton of ths certfcate.
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287 234, rt. 5 4.
In answerng the queston to ook to the anguage of the stock certfcate, the
by-aws of the corporaton, and the aws of the State under whch the charter
was granted. Speakng generay, budng assocatons are ether the mutua
or the guaranty-stock type. In case of the former, the basc characterstc
s that the assocaton Is conducted on the cooperatve pan wth mutua
advantages and benefts to ts members who share ake n the profts and osses.
In the case of the atter, the stock s permanent, n the sense that t remans
as a part of the capta n a respects ke the stock of busness corporatons,
and the theory of mutua beneft, namey, the endng of money e cusvey to
ts members to enabe them through cooperaton to buy or bud homes of ther
own, s not the capstone, but money makng, as In the case of an ordnary
corporaton, s the rea ob|ectve. ppeant Is nether the one nor the other.
It s not a purey mutua company because It ends money to whoever Is abe
to borrow wthout regard to membershp n the assocaton. It s not a purey
gnaranty-stock corporaton because n addton to guaranty stock t ssues a
haf dozen other casses as we. In the case of a mutua assocaton there s
no donbt, we thnk, that the money, whether t be caed dvdends or nterest,
whch s pad by the assocaton to the hoders of shares of stock annuay or
semannuay on account of ther stock hodngs s a dvdend, and ths s true
because n such assocatons a casses of stockhoders vote at stockhoders
meetngs, share n the earnngs, are egbe to offce In the corporaton, and, n
the event of the nsovency of the corporaton and the wndng up of ts affars,
are entted ony to share n the resdue of the assets after the payment of
debts. So aso n the case of guaranty-stock corporatons ssung ony that cass
of stock, whch, as we have seen, s permanent and nonwthdrawabe and
therefore, a part of the capta of the busness, the payments by the assocaton,
whether caed nterest or dvdends, are obvousy the atter.
ut t s contended on behaf of appeant that the rue appcabe to mutua
and guaranty companes does not appy to t, but that, n vew of the dfferent
casses of stock ssued by It, each cass shoud stand on ts own bottom and
be |udged by the terms and condtons of ts Issue that as to ts permanent
stock whch shares ast n the profts, money pad by the assocaton on ts
account s a dvdend, but that as to the two casses here nvoved, the agree-
ment of the assocaton to pay a f ed sum annuay couped wth the rght of
the hoder to wthdraw and obtan a return of hs nvestment puts these
ssues n a dfferent cass, and that the hoders are credtors and the semannua
return s nterest.
ppeant rees n arge measure on a decson of the Dstrct Court of
Southern Caforna In In re Western States udng-Loan ssocaton (50
. (2d), 32). The queston Invoved there was the rght of sharehoders
of a budng assocaton to fe cams as credtors n a bankruptcy proceed-
ng. The stock hodngs of the pettonng credtors were ke that nvoved
here and the nsovent n that case was an assocaton ssung both redeemabe
and nonredeenabe shares. Referrng to the Caforna aw, udge ames
says that It s there provded that the guaranty stock sha protect not ony
credtors but other nonpermanent stock as we. e, therefore, concudes from
ths that as to passbook and fu-pad stock the Caforna aw, n the event
of nsovency, makes the corporaton a debtor. ut t shoud be borne In
mnd that the queston decded n that case reated to the status of a non-
permanent sharehoder of the corporaton as of the tme of nsovency. There
the assocaton was admttedy bankrupt and unabe to functon and had
been paced n the hands of an equty recever, and the queston was whether
the hoder of wthdrawabe stock was a credtor who coud fe a petton n
bankruptcy. That the reatonshp of debtor and credtor n such a case e sts
s not decsve of the queston here. Undoubtedy under the provsons of the
Caforna aw the wthdrawabe stockhoder of a guaranty company, when
the assocaton becomes nsovent, s entted to share n the assets of the
corporaton ahead of the hoder of guaranty stock n other words, as between
these two casses, the guaranty stock, by reason of the statute, protects the
other cass of stockhoders, and the remanng assets, after the payment of
debts at the tme of the Insovency, become mpressed wth a trust for the
beneft of ths cass.
ut that case s easy dstngushabe from ths, for here we have a gong
company whch by the aws of Caforna Is permtted to ssue shares of stock
the hoders of whch may, If the company shoud so decare n Its by-aws, wth-
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234, rt. 4.
288
draw part or a of ther nvestment upon terms there prescrbed. ut the
Caforna aw aso decares that the amount contrbuted by the stockhoders
ether n the purchase of pad-up shares or nstament shares sha be capta
n the hands of the corporaton (sectons 33 and 34, Cv Code of 1923).
ppeant s theory on the contrary s that ony the amounts of money pad for
permanent or guaranty stock becomes capta of the corporaton, and ths, as
we have seen, s drecty contrary to the statute.
Nor do we thnk there Is any vadty to appeant s contenton that because
the fu-pad and passbook stock dvdends were agreed to be pad at a defnte
rate, a dfferent resut obtans. The by-aws and the Caforna aw both provde
for the payment of the same out of earnngs, and admttedy n ths case they
were pad out of earnngs, because n a the years n queston the guaranty
stock receved much arger dvdends than the casses bearng a f ed and def-
nte return, and from ths we may safey assume that the assocaton s earn-
ngs were ampy suffcent to meet and were In fact used for the agreed
payments to fu-pad and passbook stockhoders. The mere fact that a cor-
poraton agrees to pay a defnte, f ed sum to a certan cass of stockhoders
does not change the status -of such stockhoders to that of credtors.
In the case at bar the stock certfcate ssued n the case of passbook stock
provdes that dvdends are payabe out of earnngs, and In the case of fu-pad
stock the anguage of the certfcate Is: In consderaton of the rate of dv-
dend pad hereon, t s ugreed that ths certfcate sha not further partcpate
n any surpus or earnngs or profts.
Nether of these provsons s Inconsstent wth the we-known custom uf pre-
ferred stock ssues n commerca corporatons, but appeant says that not-
wthstandng these provsons, the company n fact regarded ts obgaton as a
guaranty and actuay pad dvdends to these two casses of stock wthout
regard to ts earnngs, and from ths t s argued that the ntent of the partes
may e ascertaned and that ths Intent s controng. We thuk not. Wthout
dscussng ths sub|ect further, we thnk t enough to say, as we have aready
sad, that n a the years n queston the earnngs were used to pay the dv-
dends, and any other course than ths woud have been voatve of the assoca-
ton s by-aws as we as voatve of the Caforna aw.
We arc kewse of opnon that the dfference n the rghts and prveges of
the dfferent casses of stock s not matera. Ths s true aso of most com-
merca corporatons where more than one cass of stock s Issued. Iere the
fu-pad shares, n consderaton of an agreed rate of dvdend and In consd-
eraton of a defnte contract of redempton at a defnte tme, receved In
prosperous tmes ess of the earnngs of the corporaton tan the guaranty
stock. So aso n the event of dssouton or nsovency the hoders are entted
to .share n the assets after the payment of the debts of the corporaton ahead of
the hoders of the permanent stock. s aganst these advantages the perma-
nent stock has the chance of arger returns f the profts |ustfy, but the owner
of both types contnues to occupy the status of sharehoder, at east unt
msfortune overtakes the assocaton.
Sec .1S. Pnren of hn nn and oan a nrUtn . dny and onn assocatons
ns herenafter D ths tte defned, sha have power to receve money and accumuate
fums to be oaned. to permt sharehoders and Investors to wthdraw part or
a of ther payments. Investments, or stork deposts, and to prescrbe the terms and
condtons of sneh wthdrawa to cance shares of stoek. the payments on whch have
been wthdrawn to receve money and to e ecute certfcates therefor, whch must specfv
the date, amount, rate of nterest, and wheu the prncpa and Interest are payabe, ana
aso the wthdrawa vate thereof at the end of each year: and sha have
Such further powers as may be specfcay set forth under ths tte .
Sec. ( :I4. Capto. The capta of every such corporaton sha be dvded nto share
of the matured or par vaue of one hundred or two hundred doars each, as provded by
the artces of ncorporaton, and sha be pad n by the subscrbers n the manner pro-
vded by the by-aws. such payments sha be caed dues. Certfcates sha be ssued
to each sharehoder on the frst payment of dues by hm. Shares pedged as securty for
the payment of a oan sha be caed pedged shares, and a others free shares.
shares matured and surrendered or canceed sha become the property of the corporaton
and may be ressued. The capta sha consst of the accumuated dues, together wth
the apportoned profts of the corporaton, and sha be accumuated by the ssuance of
shares n any one or more of the foowng forms, vz: Instament shares, fu-pad
shares, passbook shares, and guarantee stock.
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289
234, rt. 504.
In Pacfc Coast Co. v. Sturdevant (1 5 Ga., 87), a budng asocaton had
become nsovent. Certan of ts stockhoders who had the rght of wthdrawa
had gven notce of ther ntenton to wthdraw. The queston was, dd they,
by vrtue of ths notce, change ther poston from stockhoders to credtors, or,
as stated by the Supreme Court of Caforna, dd they by ths fact cease to be
stockhoders and become credtors. The court answered ths queston n the
negatve. It s qute true n that case no guaranty stock had been sod and
ssued, and therefore the provsons of the aw subordnatng that stock to the
other stock dd not appy, but the prncpe decded was concusve of the ega
reaton of uch sharehoders to the assocaton, that s to say, that they dd
not occupy to the assocaton the same aspect as a depostor to a savngs bank.
nd ths, t seems to us, s necessary correct, for f t were hed that the fact
of the ssue by the assocaton of permanent stock tsef made a other casses
of stock debts, and a other stockhoders credtors, t mght, by the ssuance of
a neggbe amount of guaranty stock reeve practcay a of ts assets from
abty to genera credtors e cept upon an equaty wth sharehoders par-
tcpatng n the conduct of the assocaton s affars. ence t woud seem to us
that the fact of the ssue by the company of guaranty stock has no such
sgnfcance as s camed.
Nor do we thnk, as has been aready ntmated, that the rght of wth-
drawa affects the queston. The passbook and fu-pad stock was ssued as
stock and was ssued pursuant to by-aws and State aws permttng t to par-
tcpate In the earnngs of the corporaton. Its hoders, as ong as ther
nvestment remans, have a of the characterstcs of stockhoders of an ord-
nary corporaton, though by vrtue of the pecuar constructon of budng
assocatons under the aw, they may have prveges and rghts whch do not
generay appy.
In many cases t has been decded that a sharehoder of a budng asso-
caton who has the rght of wthdrawa and who has aso become a borrower
of the company s a debtor as to the oan made and a stockhoder as to tha
stock subscrbed, so that n the event of the assocaton s nsovency the pay-
ments made on the atter account may not be set off aganst the debt.
Cotrane v. ake, 113 ed., 785, and cases cted enry v. Contnenta ff.
ttn., 150 Cat, 07 Groover v. Pacfo Coast Socety, 1 4 Ca., 7.)
In the vew we take of ths case there Is, we thnk, nether n the certfcates
of stock, nor n the by-aws, nor n the oca aw, anythng whch woud |ustfy
us n sayng that a member of the assocaton hodng these shares was, durng
any of the tme nvoved n ths dspute, n the poston of credtor of the
assocaton. e receved hs agreed share of the earnngs, and f msfortune
overtook the assocaton hs nvestment was sub|ect to the payment of ts
debts. e coud partcpate n the management of the corporate affars. e
had, t s true, the advantages of wthdrawa whch the hoder of permanent
stock dd not have, but ths advantage accrued ony durng the sovency of the
corporaton. e dd not wthdraw, and had the company become nsovent, he
coud nether have set off the amount of hs subscrptons aganst hs ndebt-
edness to the company nor coud he have shared n the assets on an equaty
wth credtors. s poston, though st superor to that of the permanent
stockhoder, was subordnate to that of the credtor, and therefore unt nso-
vency the character of stockhoder contnued to e st and the rghts of credtor,
whch n a case of nsovency may be sad to arse, apped ony to the assets
remanng after the payment of the cams of the credtors generay.
rom ths It foows that the money whch was receved from the assoca-
ton from tme to tme was not nterest as that terra s used n the edera
ta ng statutes, and appeant was, therefore, not entted to deduct t as an
e pense of the busness.
. It foows, therefore, that the decson of the oard of Ta ppeas s rght
and shoud be affrmed.
ffrmed.
The chef |ustce took no part n the consderaton and decson of ths case.
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240, rt. 32.
290
S CTION 240. CONSOLID T D R TURNS O
CORPOR TIONS.
rtce 32: Consodated returns. III-14- 735
( so Secton 213(a), rtce 31.) Ct. D. 810
INCOM T R NU - CTS O 1921, 1024, ND 192 D CISION O COURT.
1. Consodated Returns Lfe Insurance Company and Ordnary
usness Corporaton.
fe nsurance company, whose ta abe ncome s determned In
accordance wth speca provsons enacted n the Revenue ct
of 1921 and subsequent cts, may not fe a consodated return
wth an ordnary busness corporaton ta abe under the prov-
sons ot the cts appcabe to corporatons generay.
2. Gross Income ccrued Interest Purchase by Mortgage : at
orecosure Sae.
Where a mortgagee bds n mortgaged property at forecosure
sae for the amount of the unpad prncpa pus accrued nterest
to the date of sae, transfers the amount of ts mortgage oan
account to rea estate owned account, credts the mortgagor
wth payment n fu of the mortgage debt ncudng nterest, n-
cudes the amount of the accrued nterest In ts ncome account
as nterest receved durng the year and reports t as ncome n
ts annua statements to the nsurance departments of the varous
States, such accrued nterest consttutes ta abe ncome to the
mortgagee.
8. Certorar Dened.
Petton for certorar dened March 19, 1934.
Court of Cams of the Unted States.
Natona Lfe Insurance Co. v. The Unted S.ates.
November , 1933.
OPINION.
Ltteton. udge, devered the opnon of the court.
TTc frst queston reates to the rght of pantff, an nsurance company,
and the Natona Lfe udng Co., an ordnary corporaton, to fe consodated
returns for each of the years 1923 to 192 , ncusve, and have the tu for such
years computed upon such consodated net ncome. We thnk the Comms-
soner correcty hed that a fe nsurance company, ether fe or other thaa
fe or mutua, was not entted under the Revenue ct of 1921 and subsequent
cts to fe consodated returns wth an ordnary corporaton ta abe under
the provsons of the cts appcabe to corporatons generay, or to have ts
ta determned on the bass of such consodaton. Ths acton of the Com-
mssoner has t eon approved In re Companes udng Corporaton (23
. T. .. 550, 553, af rmod 54 ed. (2d), 448 Ct. D. 458, C. . I-1, 1771). and
Cncnnat Underwrters gency Co. v. Commssoner ( 3 ed. (2d), 309 Ct. D.
722, C. . II-2, 217 ). Wth these decsons we entrey agree. They both
deat wth the year 192(5. n whch the ta rate of the two corporatons was
dfferent but we thuk the fundamenta and underyng reason for denyng
affaton between an nsurance company and an ordnary corporaton e sted
for 1921 and subsequent years because of speca treatment and cassfcaton
by Congress of nsurance corporatons.
In the re Companes udng Corporaton case, supra, the court sad :
Obvousy ogc must not stfe understandng, and some modus vvend
must be found. In such cases courts choose that aternatve whch most
neary conforms to the genera purpose, so far as they can gean t. ( Unted
States v. az, 271 T . S., 354, emuh v. eman, 27 U. S., 233
T. D. 4217, C. . II-2, 238 , .) It appears to us rather that the
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291
240, rt. 32.
genera anguage of the secton 240(a) was sub|ect to an e cepton n tha
ease, than that the amorphous consodated ncome shoud be ta ed at ether
rate. It s de to protest aganst such bertes courts have taken them from
tme mmemora, and must do so f the busness at hand s to go on.
In the Cncnnat Underwrters gency Co. case, supra, the court ponted
out that There woud be much force n the pettoner s contenton were t
possbe to gve t effect wthout defeatng the egsatve ntent of other pro-
vsons of the ct. One of such purposes, as appears from provsons made
e cusvey appcabe to Insurance companes, was to segregate such companes
from other corporatons for ta purposes. The court further hed, n con-
necton wth the company s contenton that the Revenue Department had
permtted affaton between nsurance corporatons and other corporatons
under the cts pror to 192 , that (here were provsons even n the earer cta
whch made t mpractcabe to permt affaton and that there was no |ustf-
caton for the Department s practce under those cts.
short statement wth reference to the consodated returns provson
and the treatment of nsurance corporatons under the 1921 and subsequent
cts w, we thnk, serve further to support the above-mentoned concusons
of tha court that the earer cts, as we as the 192 ct, dd not permt
the consodaton of nsurance corporatons wth ordnary corporatons. In
retcer s Lessee v. oughcr (14 Pet, 178, at page 198), t was ponted out
by the court that It s undoubtedy the duty of the court to ascertan
the meanng of the egsature, from the words used n the statute, and tho
sub|ect-matter to whch t reates and to restran ts operaton wthn nar-
rower mts than ts words mport, f the court are satsfed that the tera
meanng of ts anguage woud e tend to cases whch the egsature never
desgned to embrace t. The consodated returns secton, 240 of the Reve-
nue ct of 1918, was enacted at a tme when nsurance corporatons were
treated for ta purposes under the revenue statutes the same as ordnary
domestc corporatons however, n the Revenue ct of 1921, approved
November 23, 1921, a matera change was made by Congress n the bass
of computng the net ncome of fe nsurance corporatons. t the urgent
request of such corporatons speca provsons were enacted for the deter-
mnaton of ta abe ncome of such corporatons consstng soey of n-
vestment ncome, that s, ncome from nterest, dvdends, and rents. Under-
wrtng ncome, that s, premum recepts, was no onger ncuded n gross
ncome under the Revenue ct of 1921 and subsequent cts, and the deduc-
tons aowed fe nsurance companes, as we as those aowed nsuranco
companes, other than fe or mutua, dffered materay from those aowed
ordnary corporatons. Thus, under the Revenue ct of 1921 and subsequent
cts, deductons for osses on sae of capta assets were not aowed to
fe nsurance companes and companes other than fe or mutua. Ths
matera change n the bass of computng the net ncome of fe nsurance
companes was consdered by ths court at ength n Massachusetts Mutua
Lfe Insurance Co. v. Unted States (5 ed. (2d), 897, 900-901 Ct, D. 502,
0. . I-1, 29 ), wheren wa recognzed the pecuar pan or system, com-
pete n tsef and dfferng n many matera respects from that reatng
to the ta aton of ordnary domestc corporatons, for the ta aton of n-
surance companes. Ths speca treatment of nsurance companes so effec-
tvey paced them outsde the cass of ordnary domestc corporatons
entted to fe consodated returns under the statute that t was no onger
practcabe to compute the ta payabe by an nsurance corporaton on the
bass of consodaton thereof wth that of an ordnary corporaton, other
than an nsurance company, and we thnk ths speca treatment manfests
a purpose on the part of Congress to e cude nsurance companes from the
cass of ordnary busness corporatons entted to fe consodated returns
as effectvey as f a statement to that effect had been nserted n the ct.
though the anguage of secton 240 was not changed so as specfcay to
e cude nsurance companes, nether was the anguage of other sectons,
equay broad, changed. In many sectons of the 1921 and subsequent cts
can be found anguage whch, under the genera defntons, s broad enough
to Incude nsurance companes, but, nasmuch as nsurance companes were
gven speca treatment as to ncome and deductons, no one woud cam
that they were ncuded n these sectons reatng to corporatons generay.
When nsurance companes were gven speca treatment n the Revenue
ct of 1921 and subsequent cts, and ther ncome and deductons specf-
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240, rt. 032.
292
cay defned n a manner materay dfferent from the ncome and deduc-
tons of ordnary domestc corporatons, the defntons of the term
corporaton and the term domestc and the anguage of secton 240,
that for the purpose of ths secton two or more domestc corporatons
sha be deemed to be affated (1) f one corporaton owns drecty or
contros through cosey affated nterests or by a nomnee or nomnees
substantay a the stock of the other or others, contaned n
the Revenue ct of 1018, were not changed but were carred forward nto the
ct of 1921 and subsequent cts. ut because of a dfferent system for the
ta aton of nsurance companes provded n the ct of 1921 and subsequent
cts, these defntons and the quoted provson of the consodated returns
secton no onger had the same appcaton to nsurance companes they pre-
vousy had and do not requre the bera appcaton contended for by
pantff. (Massachusetts Mutua Lfe Insurance Co., supra.)
The foregong concuson on the queston of consodaton dsposes of the
pantff s cam for a reducton from gross ncome of amounts pad by t to
the Natona Lfe udng Co. as rentas for space occuped by pantff n a
budug owned by the udng company. Pantff dd not own the budng.
It was owned by the udng company, u separate and dstnct corporaton to
whch pantff pad rent and no amount was ncuded n the Income of pantff
under the provsons of secton 245(b) of the Revenue ct of 192 as renta
vaue of space occuped. The queston nvoved n Independent Lfe Insurance
Co. of merca (17 . T. ., 757) s therefore not present n ths case. The
renta pad by pantff to the udng company was not deductbe from pan-
tff s gross ncome under the statute and the Commssoner correcty dened
such deducton.
Pantff s net ncome as determned wthout consodaton wth the udng
company was ta ed by the Commssoner at the rates mposed upon nsurance
companes and, n vew of our concuson that the Commssoner correcty
dened affaton, the queston of the rate of ta s no onger n the case.
The ne t queston s whether pantff and the Commssoner correcty n-
cuded n gross ncome for 1923 to 1920, ncusve, accrued nterest on mortgage
oans, whch mortgages were forecosed and the propertes purchased by pan-
tff at forecosure saes durng the respectve years for the amount of the
mortgage ndebtedness pus the accrued nterest.
Pantff had outstandng a arge number of mortgage oans on whch there
had been defaut n (he payment of ether prncpa or nterest, or both. In
those casts where the mortgagor dd not vountary surrender the mortgaged
premses pantff brought forecosure proceedngs n the courts, obtaned decrees
of forecosure and |udgments for the prncpa of ts oans and accrued nterest,
and caused the mortgaged premses to be sod at pubc sae. t these saes
pantff was the ony bdder and bd for the mortgaged premses merey a
nomna bd, e cept n those States where, under the State aw, the mortgaged
property mght be redeemed by the mortgagor or |unor en hoders. In such
cases pantff, at such pubc saes, bd for the mortgaged premses the fu
amount of the unpad prncpa and accrued nterest due to the date of sae,
toge her wth court costs and other charges.
On each and every sae, under the decree of forecosure, the sherff n makng
hs return to the court showed the sae by hm of the mortgaged property n
an amount equa to the fu amount of the |udgment entered by the court In
the respectve mortgage forecosure suts. efore acqurng tte by deed of
the property purchased at the forecosure sae, each of sad mortgages was
carred by pantff on ts books of account, styed mortgage oan account
showng the e act amount of ndebtedness of each mortgagor, ncudng the
unpad prncpa and accrued nterest to date of sae of the mortgaged prop-
erty. Upon the sae under the decree of the court and upon recept of a deed
from the sherff the pantff stamped the mortgage oan account pad.
Natona Lfe Insurance Company of the Unted States of merca, and there-
upon transferred the mortgage oan account to an account styed rea
estate owned account, theren chargng tsef wth rea estate purchased n
an equa amount. It aso n an ncome account set up on ts books, ncuded
as nterest receved durng the year the accrued nterest to date of recept by
t of the deed from the sherff for the respectve propertes purchased, and
aso ncuded ths accrued nterest as ncome n ts annua statements, Con-
venton dton, to the nsurance departments of the varous States for 1923
to 1920, ncusve, and aso ncuded n gross ncome n ts ncome-ta returns
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293
240, rt. 32.
for 1923 to 1928, ncusve, as nterest receved, accrued nterest whch It had
Incuded n ts bds for the propertes to date of recept by t of the sherffs
deed for the respectve mortgaged propertes, together wth accrued nterest to
date of deed on property vountary surrendered, the amount of accrued nterest
so ncuded beng 94,7 1. 4 for 1923, 2 ,3 0.1 for 1924, 5 ,135.34 for 1925,
and 48,010.78 for 192 .
s a resut of hs fna audt for 1925, the Commssoner found addtona
accrued mortgage nterest of 15,7 0.07, not ncuded by pantff n ts return
for that year, makng the tota amount of accrued nterest 71,895.41 for 1925.
Thereafter pantff fed cams for refund for the years 1923 to 192 , ncusve,
on the ground that ths accrued nterest had never been actuay receved by t
and that t dd not consttute ta abe ncome under the provsons of the Rev-
enue ct of 1921 and subsequent cts. The Commssoner, after consderaton
of these cams for refund, hed that n those cases where forecosure proceed-
ngs had not been nsttuted no |udgment obtaned and the mortgaged property
was not bought n by pantff at forecosure sae, but where the property had
been vountary deeded to pantff by mortgagors, accrued nterest on the mort-
gages had not been actuay receved wthn the meanng of the ta ng cts and
was not therefore ta abe ncome to pantff. Ths nterest was, therefore,
e cuded from Income and s not n queston here. ut the Commssoner fur-
ther hed that where the mortgaged property was purchased by pantff at
pubc sae under |udgment of forecosure and bd n by pantff for the amount
of the unpad prncpa pus accrued nterest to the date of sae, such nterest
consttuted ta abe net ncome receved by pantff durng the respectve
ta abe years.
The amounts of nterest due under the mortgages and unpad to the date of
sae of the propertes and the purchase thereof by pantff n controversy are
70,545.58 for 1923, 20,703. 9 for 1924, 70,533. 1 for 1925, and 21,547.71 for
192 .
The ncome of a fe nsurance company s computed on the bass of actua
recepts and dsbursements and the queston here nvoved s whether pantff
receved the nterest n the amounts ast above mentoned wthn the meanng
of the statutes defnng ncome of the nsurance companes to be nterest,
dvdends, and rents receved durng the year.
Pantff contends that under the pan anguage of the statute and the regu-
atons the nterest n controversy dd not consttute gross ncome because none
of t was receved durng the years nvoved or has ever been receved that
nstead of havng receved t, whch mpes a proft on money oaned, the pan-
tff was facng a condton of ts busness whch ndcated arge osses on
account of these very oans. Ths contenton s based upon the fact that the
propertes coud have been acqured by pantff at the forecosure saes for
amounts ess than ts bd prces at whch such propertes were sod to t. ut
t does not appear that f pantff had bd In the propertes for 70,545.58,
20,703. 9, 70,533. 1 and 21,547.71, respectvey, ess than t bd and pad there-
for, such propertes, or some of them, woud not have been redeemed for the prce
pad or further annoyance caused to pantff on account thereof.
Throughout consderaton of ths queston t shoud be kept n mnd that we
are here deang wth a purchase and sae transacton and not wth an e change
of property, and, athough nsurance companes are specay ta ed under the
statute and are not aowed deductons for osses sustaned, f any shoud be
sustaned, upon a subsequent sae of property purchased at the forecosure
saes, ths fact does not requre that the rea nature of the transacton be
Ignored or necesstate that t be vewed dfferenty from that whch ts rea
nature requres. In ts essence the transacton conssted of a |udgment n favor
of pantff and aganst the mortgagor for the prncpa ndebtedness pus the
accrued nterest and a decree of forecosure and sae of the propertes gven as
securty for such ndebtedness and nterest. The propertes were duy adver-
tsed and sod at pubc sae to satsfy the |udgment or so much of t as mght
be derved from such saes. t these pubc saes pantff offered for the prop-
ertes the fu amount of the unpad prncpa and accrued nterest due t to the
date of the sae, and the propertes were duy sod to pantff by the offcer des-
gnated by the court to make the sae. Ths, n our opnon, estabshed the
market for these partcuar propertes for the purposes of ths case and s
determnatve of whether pantff receved the nterest n queston.
Pantff had a |udgment of the court aganst the debtor for the amount of
the prncpa and nterest and, nstead of bddng a esser amount than ts
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8240, rt. 32.
294
cam for -the propertes and coectng the baance by other means, It pad the
fu amount of the unpad prncpa and accrued Interest, thereby competey
satsfyng the |udgment and eavng no cam for any porton of the prncpa
or accrued nterest outstandng aganst the debtor. In effect there was a
payment In the court by pantff of the amounts whch t bd for the propertes
and the payment by the court to pantff of a ke amount. ewed n ths
ght pantff actuay receved the nterest due t. Inasmuch, however, as
pantff was the purchaser of the propertes under the saes there was no
payment of money but the propertes were deeded to pantff. There must
have been, and doubtess were, crcumstances whch ed pantff to beeve that
the acquston of a compete and cear tte to the propertes was worth the
amount of the unpad prncpa and accrued nterest to t. There was a consd-
eraton movng to pantff for ts bd for the amount of the unpad prncpa
and accrued nterest such bd forecosed the equty of redempton of the mort-
gagor or |unor en hoder and precuded a further controverses that mght
have arsen had the property been bd In for a esser sum and |udgment taken
aganst the mortgagor for the baance.
It s not open to queston that when mortgaged property s sod to the suc-
cessfu bdder at a sae under a mortgage forecosure a vad, bndng, and
enfcrcbe abty for the bd prce s created. nd, n ths case, pantff
by ts bd ncurred an enforcbe abty equa to the prce whch t bd when
theve respectve mortgaged propertes were struck off to t by the sherff at the
respectve forecosure saes. s a genera rue an offcer seng property under
a decree of forecosure has no authorty to se on credt, or to accept as pay-
ment of the bd prce anythng other than awfu money, uness otherwse
e pressy authorzed by the terms of the decree or the aw governng the sae.
nd whore the return of the offcer makng the sae, as n ths case, shows the
sae of the property n an amount equa to the fu amount of the |udgment
entered by the court, It must be presumed that the money was pad In cash or
Its equvaent. Where the credtor becomes the purchaser of the mortgaged
property t s usuay consdered a suffcent compance wth the requrements
of a sae for cash that the amount of the bd be credted on the mortgaged
debt, but the udgment for the ndebtedness s fuy satsfed to the e tent of
the amount bd by the credtor, ether whoy or pro tan to.
When pantff bd n these mortgaged propertes t became a purchaser and
ts tte to and rghts n the propertes were the same as f t had been a
stranger to the mortgagee. The fact that t was not ony the purchaser but
aso the mortgagee s wthout ega sgnfcance. The mortgagee acqured the
same rght and Interest In the sae as a thrd person woud, no more, no ess.
The ony advantage he has Is that to the amount of the |udgment n hs favor
he Is not obgated to pay over the purchase prce, to that e tent, hs bd beng
a payment of hs debt. (Lcdyard v. Phps, 47 Mch., 305, 11 N. W., 170.)
Upon the acquston of these propertes pantff entered nto possesson
thereof not as a mortgagee but as a purchaser. When a mortgagee bds
n property at a forecosure sae he pays therefor ether cash or the equvaent
of cash by credtng the amount of hs bd, whch s the purchase prce, aganst
the mortgagor s ndebtedness to hm, thereby reeasng and e tngushng the
mortgagor s abty to the e tent of the proceeds of the forecosure sae
appcabe to the mortgaged debt. The transacton s no dfferent than f
the bdder pad to the offcer makng the sae the fu amount of hs bd
and such offcer thereafter pad to the mortgagee the unpad prncpa and
accrued nterest to the date of sae. In ega effect, ths s the resut of the
transacton by whch pantff acqured tte to the mortgaged propertes and
to the e tent of accrued nterest to the date of the saes, and pantff, by ts
bd. estabshed the market, whch we must recognze, for these partcuar
propertes and by such bd reazed cash, or ts equvaent To that e tent
t reazed ta abe ncome wth respect to the nterest due t and ncuded n
the prce pad for the property.
Whether a mortgagee, who becomes the purchaser of the mortgaged property,
through bddng t n for the amount of the prncpa of the ndebtedness pus
accrued nterest, may sustan a oss on a future dsposton of the property
Is of no controng mportance n determnng whether he receved the nterest
due by Incudng the same In the prce at whch the property was purchased.
That woud be another and an entrey dfferent transacton. If the property
after beng purchased by the mortgagee shoud be sod for more than cost,
the e cess s a proft on the sae of property and can n no sense be treated
as the recept of nterest on a oan. nd the same s true whatever bass s used.
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295
240, rt. 33.
whether cost or market vaue. Pantff seems to rey to some e tent upon
artce .153 of Reguatons 9, but ths reguaton reates entrey to the gan
and oss secton of the statute whch s not appcabe to nsurance companes
and has for ts purpose the determnaton under such secton of the statute
of oss or gan on the acquston and sae of property. The oard of Ta
ppeas has unformy hed that a mortgagee who bds n mortgaged property
for the amount of the unpad prncpa and accrued nterest due to date of
sae reazes ta abe gan to the e tent of the amount of accrued nterest
ncuded n the bd. (Manomet Cranberry Co., 1 . T. ., 70 , 709 Reserve
Loan Lfe Insurance Co., 18 . T. ., 359, 3 9 con MacLennan, 20
. T. ., 900.)
The case of ohn ancock Mutua Lfe Insurance Co. (10 . T. ., 73 ),.
upon whch pantff rees, s dstngushabe n that the tota proceeds of the
sae n that case were found by the oard to be no more than suffcent to
pay the prncpa of the debt. In Reserve Loan Lfe Insurance Co., supra, the
oard sad wth reference to the case of the ohn ancock Mutua Lfe
Insurance Co., supra, that We there hed that, snce the net proceeds of the
forecosure were ess than the prncpa, the ta payer had suffered a oss
of part of ts prncpa and that no part of the accrued and unpad nterest
consttuted ncome to the ta payer.
In the present case pantff not ony credted the respectve mortgagors
wth payments n fu of ther mortgage debt, ncudng nterest, but aso
charged the amounts thus pad to rea estate purchased and ncuded the
accrued nterest n ts reports to the nsurance departments of the varous
States and aso ncuded t n gross Income n ts ta returns fed for the
years 1923 to 192 . ncusve.
Pantff contends, however, that t has estabshed that the market vaue
of these propertes at the tme they were bd n by t was ess than the amounts
for whch they were purchased that pantff coud have acqured such prop-
ertes at the forecosure saes for much ess than t bd therefor and that ths
defntey estabshed that t receved nothng on account of the nterest n
queston. It s our opnon, however, that such camed genera market vaue
or prce at whch pantff mght have bd the propertes n, sub|ect to redemp-
ton, must gve way to the cash or actua market vaue of the propertes to t
whch pantff paced thereon when t bd them n at the forecosure saes.
It s, therefore, mmatera what the propertes mght have brought on the
genera market. ( enry edt, 1 . T. ., 1035, 1037.) In these crcum-
stances pantff s not entted to recover. Ths concuson makes t unnec-
essary to dscuss the other pont made by the defendant, that pantff has
receved a refund of a the ta es pad by t on account of ts ncome for the
years 1924 and 192 . and that n none of the years from 1923 to 192 , ncusve,
s pantff entted to recover any of the ta es of the Natona Lfe udng
Co. pad by the udng company or by pantff on ts behaf.
The petton s dsmssed. It s so ordered.
rtce 33: When corporatons arc affated. III-24- 849
( so Secton 213(a), rtce 50 Secton Ct.D. 838
214(a)8, rtce 1 1.)
ncome ta revenue act of 1921 decson op court.
1. ffaton.
Where the entre common stock of the ta payer corporaton was
owned by the parent corporaton, but ony 18.1 per cent of ts
preferred stock was owned by stockhoders of the parent, and pre-
ferred stockhoders of the ta payer, representng 24.5 per cent
of such stock, owned no stock of the parent but owned 49.8 per
cent of the preferred stock of a cosubsdary whose common stock
was competey owned by the parent, but nether subsdary owned
any stock of the parent, a stock of fe subsdares hodng equa
votng prveges, the ta payer and the parent wove not affated
wthn the meanng of secton 240 of the Revenue ct of 1921, even
though the property of the ta payer was eased to the parent for
999 years and they were operated as an economc unt.
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8240, rt. 33.
29
2. Deducton Deprecaton.
Where a corporaton eased a of ts property for a perod of
099 years, the terms of the ease provdng for au apprasa of
the property at the begnnng and the termnaton of the ease
and that the essee shoud renew, repar, and repace the property
In as good condton as when the ease was e ecuted, the essor
s not entted to a deducton for deprecaton of the property.
3. Incomb When Reazed greement by Lessee to Pay Ta es.
Where a essee agreed to pay a ta es upon eased property,
wth tht understandng that f t shoud desre to resst by ega
proceedngs the payment of any ta and shoud so notfy the
essor t shoud not be obged to pay such ta unt 30 days after
fna ad|udcaton thereupon, addtona ta es due for the years
1922 and 1923. occasoned by re|ecton of an asserted deducton
for deprecaton, consttute ta abe ncome to the essor In those
years even though the essee be permtted to postpone payment
unt concuson of the tgaton. The obgaton of the essee to
pay consttuted ncome to the essor n the year the ta obgaton
arose.
4. Decson ffrmed n Part and Reversed n Part.
Decson of the oard of Ta ppeas (24 . T. ., 197) affrmed
as to above tems 1 and 2, and reversed as to tem 3.
5. Certorar Dened.
Petton for certorar dened pr 2, 1931.
Unted States Crcut Court of ppeas for the Sbventu Crcut.
No. 4973. Commssoner of Interna Reccnue, pettoner, v. Terre aute b ectro
Co., Inc. (prevousy Terre aute Tracton tt Lght Co.), respondent.
No. 4975. Terre aute ectrc Co., Inc. (prevousy Terre aute Tracton t
Lght Co.), pettoner, v. Commssoner of Interna Revenue, respondent.
Pettons for revew of decson of the Unted States oard of Ta ppeas.
efore vans, Sparks, and tzhenry, Crcut udges.
November 10, 1933.
OPINION.
oth sdes appea from an order of the oard of Ta ppeas whch deter-
mned the ta payer s ncome ta es for the years 1922 and 1923.
Three questons arc presented. The Commssoner, through hs appea, asks
us to determne In whch of two years certan Income was reazed. The ta -
payer, on ts appen, rases two questons: ( ) Were the ta payer and ts
parent company affated ( ) Was the ta payer entted to a deducton for
deprecaton where a 999-year ease of a ts assets provded for essee s repar
of a property and the return to essor of property of equa vaue
vans, Crcut udge: Were the ta payer, the Terre aute ectrc Co.,
and ts parent company, the Terre aute, Indanapos astern Tracton
Co., affated wthn the meanng of that word as used n the Revenue ct
The ta payer s an Indana corporaton havng 20,000 shares of common and
10,000 shares of preferred stock. Durng the years 1922 and 1923, a of ts
common stock was owned by the parent company. In 1922, 18.1 per cent of
ta payer s preferred stock was hed by stockhoders of the parent company.
Durng 1022, Go preferred stockhoders of ta payer (representng 24.00 pe cent
of the preferred stock) owned no stock In the parent company, but owned
49.90 per cent of the stock of a cosubsdary, whose common stock was aso
competey owned by the parent company. The subsdary owned no stock of
the parent company. stock of the subsdares hed equa votng prveges.
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297
240, rt. 33.
Secton 240 of the evenue ct of 1921, permttng the fng of consodated
returns by affated companes, reads as foows:
(c) or the purpose of ths secton two or more domestc corporatons sha
be deemed to be affated (1) If one corporaton owns drecty or contros
through cosey affated nterests or by a nomnee or nomnees substantay
a the stock of the other or others, .
In addton to showng stock ownershp, t appears that the ta payer eased
ts property to the parent company for 909 years. The offcers of the two com-
panes were the same, and the parent company seected the offcers of the sub-
sdary company. oth companes were operated as an economc unt. The
terms of the ong ease gave contro of the essor s property to the essee and
reduced the former s functon to nomna actvty.
In andy rf arman v. urnet (284 U. S., 130 Ct. D. 4-5, C. . -2, 370 ),
the court sad:
T||g sw.tou requres contro of substantay a of the stock
contro of the corporatons s not enough. The carryng on of a busness unt
by two or more corporatons does not n tsef consttute affaton.
We assume n favor of pettoner that they, through ther power over am-
ton s offca poston and saary, ther abty to domnate both corporatons
or by other means, were n poston effectuay to nfuence hm n respect of
the votng, use or dsposton of the stock ssued to hm, and thus as a prac-
tca matter to e ert a knd of contro caed by counse actua to dstngush
It from a egay enforceabe contro.
It woud requre very pan anguage to show that Congress n-
tended to permt consodated returns to depend on a bass so ndefnte and
uncertan as contro of stock wthout tte, benefca ownershp or ega means
to enforce t. Contro restng soey on acquescence, the e gences of busness
or other consderatons havng no bndng force s not suffcent to satsfy
the statute.
In tantc Cty ectrc Co. v. Commssoner (288 U. S., 152 Ct. D. 37,
C . II-1, 281 ), the court sad:
Wth respect to contro of stock, as creatng the affaton whch affords
a bass for a consodated return . The requrement of contro, n
the absence of ega tte or benefca ownershp, s not satsfed by acquescence
or by busness consderatons wthout bndng force. There must be a contro
that s egay enforceabe. nd t mnst be contro of substantay
a the stock. .
In estabshng ownershp or contro of substantay a the stock
as the crteron of a busness unt, the statute made no dstncton between
preferred and common stock. It referred smpy to stock and we perceve no
ground upon whch stock wth votng rght can be treated as e cepted.
The statute s not concerned wth a faure to e ercse e stng
rghts, .
In the ght of these decsons, we concude that the Commssoner and the
oard correcty found that the ta payer and the parent company were
not affated wthn the meanng of secton 240 of the Revenue ct of 1921.
Deducton for deprecaton. The queston may be stated thus: May a
essor who has eased a ts property for a perod of 009 years under a ease,
the terms of whch provded that the essee, w durng sad term renew,
repar and repace the same, so as to mantan and keep the demsed premses
n as good order, repar and condton as the same are now and n ther
present state of effcency, make deductons for deprecaton of ts property
The ease aso provded that there shoud be an apprasa at the begnnng,
as we as at the termnaton of the ease, and the vaue of the essor s property
at the tme the ease was e ecuted shoud be restored to t at the tme the
ease e pred. Sums n e cess thereof went to the essee.
Upon the authorty of Wess v. Wener (279 I . S.. 333 Ct. D. 0, C. .
1II-1, 257 ), we hod that there can be no deducton for deprecaton n ths
case for the reason that, because of the ease, the ta payer has faed to show
a present oss to t.
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240, rt. 35.1
298
When was the dsputed tem of ncome receved rtce 10 of the ease
provded:
The essee covenants that t w durng the contnuance of ths ease pay,
satsfy and dscharge as the same sha accrue a ta es genera and
speca, ordnary and e traordnary, of every nature and descrpton whch
have been or may be awfuy mposed or assessed durng the contnuance of ths
ease sad payments to be made as the same become due to the
offcer entted by aw to receve the same t beng under-
stood nnd agreed, however, that f the essee sha desre to resst by ega
proceedngs the payment of any ta or assessment, and sha so notfy the
essor the essor sha not pay nor sha the essee be obged to pay any such
ta or assessment unt 30 days after fna ad|udcaton thereupon by the
court havng |ursdcton n such cases .
The court n Od Coony Trust Co. v. Commssoner (279 U. S., 71 Ct. D.
80, C. . III-2, 2221) and Unted States v. oston M. R. Co. (279 U. S.,
732 Ct. D. 73, O. . III-2, 315 ), hed that the essor reazes ncome n the
nature of rent through the payment by the essee of the essor s Income ta es
pursuant to the terms of a ease.
The ta payer admts that the amount of addtona ta es for the years 1922
and 1923, occasoned by the re|ecton of ts asserted deducton for deprecaton,
s ta abe ncome upon whch t must pay a ta . It denes, however, that such
sums were rghty ncuded n ts 1922 and 1923 ncome. Its reance Is upon
that part of the ease whch gves to the essee the rght to postpone payment
n case t desres to resst by ega proceedngs the payment of any ta unt
30 days after fna ad|udcaton thereupon by the court havng |ursdcton n
such cases. In other words, the ta payer contends that the addtona ta es
dd not consttute ncome for ether 1922 or 1923 and, n fact, w not become
ncome unt fna ad|udcaton of the queston by ths court or by the Supreme
Court.
Under the rung of te court n Unted States v. nderson (2 9 U. S.. 422
T. D. 3839, C. . -, 1791 nnd Uncasve Mfg. Co. v. Commssoner (55 .
(2d), 893), we are constraned to hod otherwse. The amount of the ta es
may be couded n doubt. Some tme may be requred to determne ther correct
amount. The essee was permtted to postpone the date of payment unt any
ta tgaton over the amount was concuded. The obgaton, however, became
f ed by the terms of the ease.
The essee s obgaton was twofod. It was to pay a certan sum n cash
nnd to pay a ta es whch mght be assessed or mposed upon the essor.
Ths obgnton represented ncome to the essor. Payment by essee need not
be a on one date. The amount may not be defntey known In advance of
the Government s tn evy. Nevertheess, the obgaton of essee to pay con-
sttuted ncome of essor n the year the ta obgaton arose. Ths s the
theory of the above-cted decsons.
There s stronger reason, t seems to us, for hodng that the ncome ta
on ta payer s ncome, whch the essee was requred to pay. became part of
the ta payer s ncome the year after the ncome accrued that s, when the
ta thereon became payabe, rather than 30 d:ys after the court has decded
the dsputed queston of amount. The above-cted cases, however, seem to sette
the queston adversey to the ta payer.
The order of the oard of Ta ppeas s reversed wth drectons to enter
an order n accordance wth the vews here e pressed.
rtce 35: Consodated net ncome of affated
corporatons.
R NU CT O 192 ND PRIOR R NU CTS.
Ta abty of pans and aowance of osses upon qudaton of
subsdary by parent company. (See G. C. M. 12581, page 142.)
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299
240, rt. C35.
rtce 35: Consodated net ncome of aff- III-11- 97
ated corporatons. Ct. D. 799
INCOM T R NU CT O 1918 D CISION O COURT.
1. Net Income Consodates) Returns ffated Corpora-
tons Intercompany Transactons.
Where, under a cbange In the aw, affated corporatons were
requred to fe consodated ncome ta returns for the year 1918
and to determne net Income on the bass of orgna cost or nven-
tory vaue, and where durng 1917 there had been ntercompany
transactons resutng n proft to certan of the seng affatons
upon whch Income ta had been pad under separate returns
requred for that year, the proft ta abe to the group upon the
sae to the pubc n 1918 of the same merchandse, whch re-
maned n the nventores of the purchasng unts at the begnnng
of 1918, s propery computed upon the bass of orgna cost
to the frst seng unt of the group, emnatng the profts re-
sutng from the ntercompany transactons, even though such
method resuts In doube ta aton upon the ntercompany profts
made n 1917.
2. Certobar Dened.
Petton for certorar dened ebruary , 1934.
U ted States Crcut Court of ppeas fob the Thrd Crcut.
umnum Company of merca, a Corporaton, appeant, v. Unted States of
merca, appeee.
ppra from tbe Dstrct Court of the Unted Stntee for the Western Dstrct of
Pennsyvana.
September 29, 1933.
OPINION.
Wooey, Crcut udge: Under the aw as t stood n 1917, affated cor-
poratons were requred to fe consodated returns for e cess-profts ta es
and separate returns for ncome ta es. In consonance wth the aw. umnum
Company of merca and ts 27 affated corporatons made returns of both
knds for that year. Durng the year varous unts of ths group of corpora-
tons had ntercompany transactons of sae and purchase of commodtes n
whch, pursuant to a recognzed busness pocy of the group, profts were
aowed and made. They were e cuded from the consodated return for
e cess-profts ta purposes and ncuded n the separate returns of the tradng
companes for Income ta purposes. These profts, though actua between the
tradng companes, were merey book profts wth respect to the entre |rroup
for, obvousy, nothng comng n and nothng gong out, they Invoved no
gans to the enterprse as a whoe. The pantff pad the e cess-profts tu es
and the severa affated corporatons pad the ncome ta es (ncudng ta es
on these profts) for 1917 as they were requred to do. ut when they came
to prepare ther returns for the ta year 1918, there havng been a change
n the ta ng cts, they were confronted by a statute whch compeed affated
corporatons to fe consodated returns for ooth e cess-profts ta es and
Income ta es and what s here crtcay mportant requred that the net
ncome for ta es of both knds shoud be determned upon the same bass,
whch for the purposes of ths case was cost or nventory vaue. (Sectons
230, 240, 320, 40 Stat., 1075, 1081, 1091.) The pantff and ts affated cor-
poratons n preparng a consodated return for ncome ta es for 1918 found
certan merchandse sod n 1917 by some of the corporatons and purchased
by others st n the nventores of the atter as of the 1st day of 1918. ccord-
ngy, n makng ther consodated or group ncome ta return for 1918, they
emnated the ntercompany profts thereon and cacuated cost to the group
upon the fgures at whch the ntercompany purchases had been made n 1917
(whch ncuded profts), not upon orgna cost to the ntercompany seers.
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240, rt. 35.
300
s these ntercompany profts had not been Incuded n the 1917 consodated
return for e cess-profts ta es, the group of course dd not ncude them n
ts 1918 consodated return for such tu es but, qute propery, took orgna
cost as a bass. Thus t appears that the group returns for e cess-profts
ta es and ncome ta es for 1918 were not computed upon the same bass but
upon markedy dfferent bases one orgna cost and the other cost stepped
up by book profts.
Wth sectons 210 and 320 of the Revenue ct of 1918 before hm, the Com-
mssoner of Interna Revenue, n assessng the pantffs ncome ta es for
1918 on ts consodated return, dsregarded entrey the ntercompany saes
n 1917 on whch an aggregate proft of 1, 94,355.17 had been computed for the
determnaton of the ncome ta abty of the severa tradng companes and
took the orgna cost prce of such merchandse before any ntercompany saes
for the bass. s w ready be seen, the practca resut of that offca
acton was to mpose a ta not ony on the profts the ta payer had earned as a
group n 1918 but aso on some of the book profts earned by the affated cor-
poratons n ther ntercompany busness n 1917 upon whch they had aready
pad ncome ta es. Of ths the pantff, havng pad the consodated ncome
ta es for 1918, compans bttery. The grounds of ts compant n ts sut n
the dstrct court to recover these ta es, and on ths appea from a |udgment
dsmssng ts petton, are severa the frst beng that profts of the seng
corporatons on ntercompany saes n 1917 of merchandse remanng n the
nventores of the purchasng corporatons at the begnnng of 1918 shoud, for
ncome ta purposes, be ncuded as costs n computng profts made by the
group on the saes of the same merchandse to the pubc n that year. In
other words, t says profts earned by the underyng seng corporatons
became a part of the cost to the underyng purchasng corporatons and that
cost to the purchasng corporatons was, n consequence, cost to the affated
group of whch they were members.
The troube wth ths proposton s twofod frst, that the ncome ta
returns for 1917 were made by separate corporatons havng to do e cusvey
wth (her separate profts on whch they separatey pad ncome ta es second,
that the ncome ta return for 1918 was a consodated or group return. It
had to do wth the entre enterprse. In t, oss of one corporaton coud be
set off aganst profts of another. On t, group ta es were assessed and pad,
whch, n case of oss by one corporaton or another, mght concevaby be
ess than the aggregate of the ta es of the members of the group. Such a
stuaton was ceary recognzed when the egsaton provdng consodated
ncome ta returns by affated corporatons was enacted. owever, and wth-
out regard to the practca effect, sometmes advantageous and sometmes ds-
advantageous to a group, the Congress by the ta aw n force n 1918 pre-
scrbed the bass of determnng the ta abe net ncome of corporatons cost
or nventores and very defntey provded that the bass of determnng
ncome ta es and e cess-profts ta es due upon consodated returns of affated
corporatons shoud be the same. It s cear that by ths egsaton the Con-
gress was tryng to gve unformty to ta aton of corporatons and partcu-
ary to dea wth cosey affated or group corporatons, as t had to do, n
vew of ther number, the compe ty of ther organzaton and ther Im-
portance as sources of revenue, ntendng, doubtess, to afford a means correcty
to ascertan the ta |usty due and effectvey to precude redstrbuton of
capta and foresta manpuaton of profts among the component corpora-
tons by means of ntercompany transactons. The purpose of the Congress n
requrng consodated returns by affated corporatons has been repeatedy
stated by the Supreme Court and ower courts to the effect that:
The purpose of secton 240 (a secton here n queston) was by means of
consodated returns to requre ta es to be eved accordng to the true net
ncome and nvested capta resutng from and empoyed n a snge busness
enterprse even though t was conducted by means of more than one corporaton.
andy rf arman v. urnet, 284 U. S., 13G, 140 Ct. D. 425, C. . -2, 370
urnet v. umnum Goods Manufacturng Co., 53 Sup. Ct., 227 (19S3) Ct. D.
31, C. . IT-1, 283 tantc Cty ectrc Co. v. Commssoner, 288 T . S..
152, 53 Sup. Ct., 383 Ct. D. 37, C. . II-1, 281 Goden Cyce Corporaton
v. Commssoner, 51 ed. (2d), 927.)
In other words, the egsaton was based upon the concepton of a group
of corporatons dstngushed from separate and ndvdua corporatons, both
sub|ect to e cess-profts and ncome ta es and uness the Congress was wth-
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301
240, rt. 35.
out power, for reasons presenty to be dscussed, to prescrbe how ta abe net
Income of corporatons of both casses shoud, wth respect to ta es of both
knds, bo determned, and was wthout power defntey to prescrbe that the
bass shoud n each nstance be the same, the pantff and ts affates have
by ther consodated ncome ta return for 1918 stepped outsde the aw.
The queston here presented woud scarcey be a probem were t not com-
pcated by ts admnstratve hstory. Ths, though dsturbng, s not ds-
postve of the matter. The queston was made the sub|ect n 1924 of Soctor s
Memorandum 1530 (C. . III-, 307), n whch t was rued that snce con-
sodated returns were not permtted n 1917 for ncome ta purposes and snce
ntercompany profts were ta ed to the separate corporatons, such profts
shoud not be emnated n the computaton of consodated net ncome for
ncome ta es n 1918. Ths was a rung aganst the orgna co t bass. It
was aso hed that snce consodated returns were requred n 1917 for e cess-
profts ta purposes, n whch ntercompany profts were dsregarded n
computng consodated net ncome, such profts shoud be emnated n com-
putng the consodated net ncome for e cess-profts ta es n 1918. The
former rung contnued n effect unt the decson of the Court of Cams n
Packard Motor Car Co. v. Unted States (39 ed. (2d), 991, 282 C. S.. 818),
where t was hed that profts resutng from ntercompany transactons
occurrng between members of an affated group n 1917 shoud be emnated
n the computaton of consodated net ncome for 1918 for both ncome and
e cess-profts ta purposes. Ths was an orgna cost rung. s ths dec-
son was drecty contrary to Soctor s Memorandum 1530, that rung was
revoked by Genera Counse s Memorandum 9584 (C. . -2, 372). The
decson n the Packard Motor Co. case was n accord wth the evdent trend of
decsons to dsregard transactons between members of an affated group
when computng ther consodated net ncome. ( urnet v. umnum Goods
Manufacturng Co., 53 Sup. Ct, 227 (1933) tantc Cty ectrc Co. v. Com-
mssoner, 288 U. S., 152, 53 Sup. Ct., 383 dety Natona ank d Trust Co.
v. Commssoner, 39 ed. (2d), 58, 2 Commssfmcr v. Lberty Natona Co.,
58 ed. (2d), 57 Ct. D. 59, C. . II-1, 1 8 rownsve Coa d Coke Co.
v. ener, 38 ed. (2d), 248, 251.) On that decson the earned tra court
based ts |udgment In the nstant case, whch we sha sustan uness we
shoud be nfuenced by the pantffs contenton that the rung of the court
n that case, and consequenty In ths one, was wrong because t effected a
doube ncome ta as to those tems of ntercompany profts whch were
nvoved n the 1917 computaton and that doube ta aton can not be sustaned
e cept by e press egsatve authorty.
The troube wth ths poston the pantff s second n assang the ta as
unawfuy assessed and coected s, as the earned tra |udge found, and we
observe, that e press authorty does e st n sectons 240 and 320 of the Reve-
nue ct of 1918.
Deang wth group ta aton and decarng a bass upon whch t shoud be
computed n consodated returns, the statute means cost to the group ns a ta -
abe entty, not cost to a purchasng subsdary In whch there s ncuded a
proft to the seng subsdary. owever often such transactons nvovng
profts may occur between affated corporatons, cost to the group s st the
cost to the frst seng unt the orgna cost and t s pan that the Congress
n provdng the bass of ta aton was fuy aware that a stuaton of doube
tt aton mght arse and that, when t dd, ts mandate of a snge bass woud
appy and shoud be obeyed.
Ceary there was n ths case, doube ta aton on certan Intercompany
profts made n 1917, yet doube ta aton s not per se unawfu. though
seemngy unfar, when the purpose of a ta ng ct s pan courts w not n-
terfere. (T. W. Phps, r.. Inc., v. Commssoner, 3 ed. (2d), 101.) On ths
pont the statute (sectons 240 and 320 of the Re-venue ct of 1918 (40 Stat.,
1081, 1091) and secton 1331 of the Revenue ct of 1921 (42 Stat., 819)), not
beng ambguous, eaves nothng to be construed. It s ony possbe to gve
effect to the statute by foowng ts pan words, even though t may resut n
doube ta aton. It s not permssbe to gnore ts words n order to avod
doube ta aton.
In requrng consodated ncome ta returns by affated corporatons and
provdng a bass whch, as n ths case, nvoves computaton (us to costs) n
te precedng ta year, the appeant compans that the statute, on an errone-
ns nterpretaton by the tra court, was made retroactve when by no e press
anguage or necessary mpcaton was t so. (Unted Sates v. eth, 3 Craneh,
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245, rt. 84.
302
398, 413 hwah v. Doye, 258 U. S., 529 534, 535, 537.) The ta ng ct deat
ony wth ta es n ta years and In that sense the ta mposed was not retro-
actve. In determnng gan from transactons n the current year n ths case
saes to the pubc of merchandse Invoved n Intercompany deangs and carred
over by the group from the prevous year the statute was not retroactve In Its
ta ng operaton Lberty Natona Co. v. Commssoner, 58 ed. (2d), 57, 0)
t ony provded that the ta payer or the Commssoner mght go nto the past
year for data upon whch correcty to determne profts made n the ta year,
a practce not ony necessary but generay and vady foowed n other stua-
tons.
Regardng the remanng questons nsubstanta, the |udgment of the dstrct
court s affrmed.
S CTION 245. T S ON INSUR NC
COMP NI S.
rtce 84: Ta es and e penses wth respect III-24- 850
to rea estate. Ct. D. 839
INCOM T R NU CTS OP 1921 ND 1924 D CISION O SUPR M
COURT.
Gboss Income Deductons Lfe Insurance Company Const-
tuton LrrY.
Sectons 245(b) of the Revenue cts of 1921 and 1924 are con-
sttutona and do not ay a drect ta upon property nor upon ts
renta vaue.
Supreme Court of the Unted States.
Ouy T. everng, Commssoner of Interna Revenue, pettoner, v. The
Independent Lfe Insurance Co.
On wrt of certorar to the Unted States Crcut Court of ppeas for the S th Crcut.
May 21, 1934.
OPINION.
Mr. ustce uter devered the opnon of the court.
Ths case Invoves the vadty of defcency assessments of Income ta es made
by the Commssoner aganst the fe nsurance company for 1923 and 1924.
The 1921 Revenue ct (42 Stat., 2 1), secton 244(a) defnes gross ncome of
such companes as that receved from nterest, dvdends and rents. Premums
and capta gans are e cuded. Secton 245(a) drects that net ncome be
ascertaned by makng specfed deductons from gross ncome. These n-
cude 4 per cent of the company s reserve, ( ) Ta es and other e penses pad
durng the ta abe year e cusvey upon or wth respect to the rea estate
owned by the company , and (7) reasonabe aowance for the
e hauston, wear and tear of property, ncudng a reasonabe aowance for
obsoescence. ut t s provded, secton 245(b) that no deducton sha be
made under paragraphs ( ) and (7) on account of any rea estate owned
and occuped n whoe or n part by a fe nsurance company uness there s
ncuded n the return of gross ncome the renta vaue of the space so occuped.
Such renta vaue sha be not ess than a sum whch n addton to any rents
receved from other tenants sha provde a net ncome (after deductng ta es,
deprecaton, and a other e penses) at the rate of 4 per centum per annum
of the book vaue at the end of the ta abe year of the rea estate so owned
or occuped. Provsons smary worded and havng the same meanng are
contaned n the Revenue ct of 1924, sectons 244. 245. (43 Stat., 289.)
Durng 1923 and 1924 respondent owned a budng of whch t occuped part
and rented part. Its ta return for each year ncuded n gross ncome the
rents receved for the space et and deducted the ta es, e penses and depre-
caton chargeabe to the whoe budng. The resut for 1923 was a net of
3, 15.30 whereas 4 per cent of book vaue amounted to 18,400. The resut
for 1924 was mnus 14, 29.7 , 4 per cent of the then book vaue beng
19,770.32. The Commssoner, foowng secton 245,(b) added to the rents
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303
245, rt. 84.
receved from essees In each year n sum suffcent to mnke the net equa to
the requred 4 per cent. On that bass the amount of the defcency for 1923
was 298.07 and for 1924 1,115, 57 The oard of Ta ppeas hed them
drect ta es and therefore nvad. (17 . T. ., 7.T7.) The Crcut Court of
ppeas affrmed, one of the |udges dssentng. ( 7 . (2d), 470.) Its de-
cson confcts wth Commssoner v. Lafayette Lfe Insurance Co. (C. C. . 7)
( 7 . (2d), 209) and Commssoner v. Rockford Lfe Insurance Co. ( . C. .
7) ( 7 . (2d), 213).
The queston for decson Is whether the statutory provsons reed on voate
the rue that no drect ta sha be ad uness n proporton to the census.
(Consttuton, rtce I, secton 9, cause 4.) In support of the decson beow,
respondent mantans that the renta vaue of the space occuped by t was
ncuded n net ncome and ta ed and that the e acton s a drect ta on the
and tsef and vod for ack of apportonment.
If the statute ays ta es on the part of the budng occuped by the owner
or upon the renta vaue of that space, t can not be sustaned for that woud
be to ay a drect ta requrng apportonment. (Poock v. armers Loan
Trust Co., 157 U. S., 429, 580, 581 158 U. S., 01, C35, 37, 59 rushaber v.
Unon Pac. R. R., 240 U. S., 1, 1 , 17 sner v. Macomber, 252 U. S., 189. 205
T. D. 3010, C. . 3, 25 Dawson v. entucky Dsteres Co., 255 U. 8.. 288,
294 romey v. MvCaughn, 280 U. S., 124, 13 Wcuts v. unn, 282 U. S., 21 ,
227 Ct. D. 280, C. . -, 209 .) The renta vaue of the budng used by
the owner does not consttute ncome wthn the meanng of the s teenth
amendment. ( sner v. Macomber, supra, 207 Stratton s Independence v.
owbert. 231 U. S., 399, 415, 417 Doye v. Mtche ros. Co., 247 T . S.. 179,
185 occrs v. erbaugh- mpre Co., 271 U. S., 170, 174 T. D. 3881, C. . -,
199 Taft v. owers, 278 U. S., 470, 481, 482 Ct. D. 49, C. . III-1, 22
MacLauahn v. ance Ins. Co., 28 U. S., 244, 249, 250. Cf. urk-Warrgoner
ssn. v. opkns, 2 9 U. S., 110, 114 T. D. 3790, C. . -. 147 .)
arer cts ta ed fe nsurance companes ncomes substantay the same
as those of other corporatons. ecause of the character of the busness, that
method proved unsatsfactory to the Government and to the companes. The
provsons under consderaton were enacted upon the recommendaton of repre-
sentatves of the atter. s rents receved for budngs were requred to be
Incuded n gross and e penses chargeabe to them were aowed to be deducted,
It s to be nferred that Congress found as concededy the fact was that the
anma net yeds from nvestments n such budngs ordnary amounted to at
east 4 per cent of book vaue. Where an nsurance company owns and occu-
pes the whoe of a budng, t receves no rents therefor and s not aowed
to deduct the e penses chargeabe to the budng. Where part s used by the
compr.ny and part et, the rents are requred to be ncuded n the gross, but
e penses may not be deducted uness, f t be necessary, there s added to the
rents receved an amount to make the tota suffcent, after deducton of
e penses, to eave 4 per cent of book vaue. cacuatons contempated by
secton 245(b) are made sub|ect to that mtaton. Congress ntended that
the rue shoud appy ony where rents e ceed such 4 per cent. Where they are
ess than that, addton of the prescrbed renta vaue and deducton of e penses
operate to ncrease ta abe ncome. The cassfcaton Is not wthout
foundaton.
The company Is not requred to ncude n gross any amount to cover renta
vaue of pace used by t. but n order that, sub|ect to the specfed mta-
ton, t may have the advantage of deductng a part of the e penses chargeabe
In 1923, rents were 73,020.48. Taes, e penses, and deprecaton were TO.005.18.
ook rnne was stpuated to be 4 0,000. The Commssoner raed the dfference be-
tween 18,400 (4 per cent of 400,000) and :,015.. 0 ( 7 .020.48 - 70.nn.-,.IS) or
14,784.70 the vaue of space owned and occuped by company. That, added tn rents
rewved, amounted to 88,405.18. e then subtracted from gross Income so Increased
tt e :.uu of permssbe deductons, Incudng the 70,003.18.
In 1924, rents were 71,289.21. Ta es, e penses, and deprecaton were 85,918.97.
ook vaue was 41)4.257.117. The Commssoner added 19,770.32 (4 per cent of 494.-
237.97) and 14,029.70 ( 8 .918.07- 71,289.21) and caed the sum, 34,400.08. the
vaue of space owned and occuped by company. That, added to rents receved,
amounted to 105, 89.21): and from ross ncome so Increased were subtracted the de-
ductons, ncudng the 85,918.97.
Take for e ampe: ook vaue of budng. 1,000,000 4 per cent of book vaue,
40.000 rents recev-d, 30,000 e penses, 00,000. If the cacuaton prescrbed by sec-
ton 245(b) s not made, ta abe ncome Is : 0,000.
The cacuaton prescrbed by secton 243(b) foows: Rents, 30,000, pus renta
vaue, 70,000 (e penses, 00,000, mnus rents, 30,000. pus the 4 per cent 40,000)
amounts to 100,000, ess e penses, 0,000, eaves ta abe ncome, 40,000. (Cf. artce
8 , Treasury Reguatons 2 and 5.)
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5257, rt. 1090.
304
to the budng, t s permtted to make cacuatons by means of such an
addton. The statute does not prescrbe any bass for the apportonment of
e penses between space used by the company and that for whch t receves
rents. The cacuaton ndcated operates as such an apportonment where
the rents receved are more than 4 per cent of book vaue, but ess than that
amount pus e penses. In suc cases the addton, caed renta vaue of
space occuped by the company, s empoyed to permt a deducton on account of
e penses. That, as s ceary shown n the dssentng opnon, supra, page 473/
s the arthmetca equvaent of essenng the deducton by the amount of the
so-caed renta vaue.
Respondent ctes Natona Lfe Insurance Co. v. Unted States (277 U. S., 508
T. D. 420 , C. . II-2, 29 ), but the dstncton between that case and ths
one s fundamenta and obvous. There the effect of the statutory deducton
was to mpose a drect ta on the ncome of e empt securtes, amountng to
ta aton of the securtes themseves. We hed that the ta mposed, so far as
t affected State and muncpa bonds, was unconsttutona and that, n so
far as t affected Unted States bonds, t was contrary to the statute. In
Denman v. Sayton (282 U. S., 514 Ct. D. 218, C. . -, 280 ), we hed the
ta payer not entted to deduct the nterest on debts ncurred to purchase
securtes the nterest on whch was e empt. The opnon ponts out the ds-
tncton between that e cuson from deductons and the ta aton of e empt
securtes condemned n Natona Lfe Insurance Co. v. Unted States. s
shown above, the prescrbed cacuaton, secton 245(b), s In substance a
dmnuton or apportonment of e penses to be deducted from gross Income
under the crcumstances specfed. (See nderson v. orty-two roadway Co.,
239 U. S., 9.)
Unquestonaby Congress has power to condton, mt or deny deductons
from gross ncome In order to arrve at the net that t chooses to ta . ( urnet
v. Thompson O Gas Co., 283 U. S., 301, 304 Ct. D. 331, C. . -, 390
Stanton v. atc Mnng Co., 240 U. S., 103 rushaber v Unon Pac. R. R.
supra, 23-24.) It s cear that the provsons under consderaton do not ay
a ta upon respondent s budng or the renta vaue of the space occuped by
t or upon any part of ether.
Reversed.
P RT I . DMINISTR TI PRO ISIONS.
S CTION 257. R TURNS TO PU LIC R CORDS.
rtce 1090: Inspecton of returns. III-23- 840
T. D. 443
mendment to Treasury Decson 4309, as amended by Treasury
Decsons 4378 and 4397, to permt nspecton of returns by the
Commttee on the udcary of the ouse of Representatves.
Treasury Department,
Washngton, D. G.
To Coectors of Interna Revenue and Others Concerned:
Treasury Decson 4359 C. . I-2, 305 (beng reguatons pre-
scrbed by the Secretary and approved by the Presdent, appcabe
to the nspecton of returns under the Revenue ct of 1932 and
pror Revenue cts, and ncorporated as part of artce 421 of In-
come Ta Reguatons 77), as amended by Treasury Decsons 4378
Tnke for e ampe: ook vaue of budng. 1,000,000 4 per cent of book vaue,
40,000 rents receved, 50,000 e penses, 0,000.
On that bass the cacuaton Is: Rents, 50,000 pus renta vaue. 50,000 (e penses
0,000 mnus rents 50,000 pus 4 per cent, 40,000) amounts to 100,000 ess e penses
0,000 eaves ta abe Income 40,000. Deducton of e penses operates to reduce ta abe
ncome by 10,000.
ssume rents receved were 100,000. No renta vaue need be added. Deductng
e penses, 0,000, eaves ta abe ncome 40,000.
Not prnted n uetn servce.
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305
257, rt. 1090.
(C. . II-2, 219) and 4397 (C. . II-2, 220), s further amended
by changng paragraph numbered 13(a) thereof to read as foows:
13. (a) Notwthstandng any other provsons of these reguatons, returns
may be Inspected by the Speca Commttee to Investgate oregn am Do-
mestc, Ocean and r Md Contracts, apponted under Senate Resouton 349,
Seventy-second Congress the Speca Commttee to Investgate Recevershp
and ankruptcy Proceedngs and ppontment of Recevers and Trustees,
apponted under Senate Resouton 78, Seventy-thrd Congress or by the Com-
mttee on the udcary of the ouse of Representatves authorsed by ouse
Resouton 145, Seventy-thrd Congress, to nvestgate the conduct of equty
and bankruptcy recevershps n edera courts, to the same e tent and n the
same manner as by a seect commttee of the Senate or ouse of Representa-
tves specay authored to nvestgate returns by a resouton of the Senate
or ouse of Representatves.
. Morgenthau, r..
Secretory of the Treasury.
pproved May 21, 1934.
kankk D. Roosevet,
The Whte ouse.
CUTI ORD R UT ORIZ TION O COMMITT ON T UDICI RY OP
T OUS O R PR S NT TI S TO INSP CT T R TU NS
y vrtue of the authorty vested n me bv secton 257(a) of the
Revenue ct of 192 (ch. 27, 44 Stat,, 9, 51) , secton 55 of the Rev-
enue ct of 1928 (ch. 852, 45 Stat., 791, 809), and secton 55 of the
Revenue ct of 1932 (ch. 209, 47 Stat., 1 9, 189), t s hereby ordered
that ta returns sha be open to nspecton by the Commttee on the
udcary of the ouse of Representatves authorzed by ouse
Resouton 145, Seventy-thrd Congress, to nvestgate the conduct of
equty and bankruptcy recevershps n edera courts, such nspec-
ton to be n accordance and upon compance wth the rues and
reguatons prescrbed by the Secretary of the Treasury and ap-
proved by the Presdent under date of December 13,1932, as amended
under date of ugust 3, 1933, as further amended under date at
October 18, 1933, and as further amended ths date.
rankn D. Roosevet.
The Whte ouse,
May M, 1934.
rtce 1090: Inspecton of returns. ITI-2 - 871
T. D.4440
mendment to Treasury Decson 4359. as amended by Treasury
Decsons 4378. 4397, and 443 , to permt nspecton of returns
by the Speca Commttee Investgatng the Muntons Industry,
Unted States Senate.
Treasury Department,
Washngton, I). O.
To Coectors of Interna Revenue and Others Concerned:
Treasury Decson 4359 C. . I-2, 305 (beng reguatons
prescrbed by the Secretary and approved by the Presdent, ap-
pcabe to the nspecton of returns under the Revenue ct of 1932
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257, rt. 1090.
30
and pror evenue cts, and ncorporated as part of artce 421
of Income Ta Reguatons 77), as amended by Treasury Decsons
4378 (C. . II-2, 219), 4397 (C. . II-2, 220), and 443 (May
21, 1934 page 304, ths uetn ), s further amended by changng
paragraph numbered 13(a) thereof to read as foows:
13. (a) Notwthstandng any other provsons of these reguatons, returns
may be nspected by the Speca Commttee to Investgate oregn and
Domestc, Ocean and r Ma Contracts, apponted under Senate Resouton
349, Seventy-second Congress the Speca Commttee to Investgate Recever-
shp and ankruptcy Proceedngs and ppontment of Recevers and Trustees,
apponted under Senate Resouton 78, Seventy-thrd Congress the Commttee
on the udcary of the ouse of Representatves authorzed by ouse Resou-
ton 145, Seventy-thrd Congress, to nvestgate the conduct of equty and
bankruptcy recevershps n edera courts or by the Speca Commttee
Investgatng the Muntons Industry, apponted under Senate Resouton
20 , Seventy-thrd Congress, to the same e tent and n the same manner
as by a seect commttee of the Senate or ouse of Representatves specay
authorzed to nvestgate returns by a resouton of the Senate or ouse of
Representatves.
. MORG NT U, r.,
Secretary of the Treasury
pproved une 15, 1934.
rankn D. Roosevet,
The Whte ome.
CUTI ORD R UT ORIZ TION O SP CI L COMMITT IN STIG T-
ING T MUNITIONS INDUSTRY, UNIT D ST T S S N T , TO INSP CT
INCOM R TURNS.
y vrtue of the authorty vested n me by secton 257 (a) of the
Revenue ct of 192 (ch. 27, 44 Stat., 9, 51 ) secton 55 of the Reve-
nue ct of 1928 (ch. 852, 45 Stat., 791, 809), and secton 55 of the
Revenue ct of 1932 (ch. 209, 47 Stat., 1 9,189), t s hereby ordered
that ncome returns sha be open to nspecton by the Speca Com-
mttee Investgatng the Muntons Industry, Unted States Senate,
authorzed by Senate Resouton 20 , Seventy-thrd Congress, to n-
vestgate the manufacture of and traffc n arms, muntons, and other
mpements of war, such nspecton to be n accordance and upon
compance wth the rues and reguatons prescrbed by the Secre-
tary of the Treasury and approved by the Presdent under date of
December 13, 1932, as amended under date of ugust 3, 1933, as
further amended under dates of October 18,1933, and May 21, 1934,
and as further amended ths date.
rankn D. Roosevet.
The Whte ouse,
une 15, 1934.
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307 270, rt. 1203.
P RT P YM NT, COLL CTION, ND R UND O T ND
P N LTI S.
S CTION 270. D T ON W IC T
S LL P ID.
rtce 1203: Coecton of ta bv sut. III-8- 4
Ct, D. 789
D R L T S OND D CISION O SIPR M COURT.
Sut batement.
cause of acton upon a bond gven to secure the payment of
ta es and runnng to the obgee or hs successors does not
abate upon the death or separaton from offce of the severa
successors n whose names the sut Is revved beeause of the
faure of the Government to make substtuton wthn the tme
prescrbed by secton 11 of the ct of ebruary 18, 1925. aure
to compy wth the statute forecoses the partcuar remedy theren
provded but does not destroy the rght. The cause of acton
whch arose n favor of the orgna obgee survves for appro-
prate enforcement by hs severa successors.
Stbeme Court of the Unted States.
vn . r, Coector of Interna Revenue for the rst Coecton Dstrot
of Pcnn /1vana, pettoner, v. Phadepha arge Co. and at1ono
Surety Co.
On wrt of certorar to tbe nt d States Crcut Court of ppeas for the Thrd Crcut.
anuary 8, 1934.1
opnon.
Mr. ustce Sutherand devered the opnon of the court.
Ths Is an acton orgnay brought by MacLaughn, a coector of nterna
revenue, n a edera dstrct court, aganst respondents, to recover on a bond
condtoned for the payment of such ncome ta es assessed aganst the arge
company as shoud reman unabated after consderaton of a cam for abate-
ment by the Commssoner of Interna Revenue. The obgee named n the
bond s phram Lederer, coector of nterna revenue when the bond was
e ecuted, or hs successors. MacLaughn havng ded, the case was frst
revved n the name of Ladncr, and upon hs resgnaton, n the name of
pettoner. three, n turn, succeeded to the offce hed by Lederer.
In the dstrct court the surety company fed an affdavt of defense,
ncorporatng a pea that the cause of acton upon the bond had abated, and
had been ost, by faure to compy wth secton 11 of the ct of ebruary 18,
1923 (ch. 229, 48 Stat., 93 , 941 U. S. O., Tte 28, secton 780). In support of
that contenton, the pea aeges that sut n assumpst on the same bond had
been brought by one McCaughn, the frst successor of Lederer that, pendDg
the sut, McCaughn resgned as coector that |udgment nevertheess was
thereafter entered In hs favor and that subsequenty, upon a suggeston of
abatement of the cause of acton, an order was entered strkng the udgment
from the record by reason of the fact that the acton anon whch the |udgment
was rendered had abated pror to the entry thereof.
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270, rt. 1203.
308
The dstrct court hed that snce one sut, brought by a successor of the
orgna obgee, had abated by reason of the faure of the Government to
make substtuton under the ct of 1925, there resuted an abatement of the
cause of acton as we as of the wrt. ( 0 . (2d), 333.) Upon the bass of
ths rung and upon a praecpe fed by the Unted States attorney, fna
|udgment was entered aganst the coector, whch |udgment was affrmed by
the Crcut Court of ppeas. ( 3 . (2d), 258.)
Respondents rase some queston as to the rght of the Government to appea
to the court beow, but the pont s so obvousy wthout mert that we do not
stop to state or dscuss t.
Secton 11 of the ct of 1925, so far as pertnent, provdes that where,
durng the pendency of an acton brought by or aganst an offcer of the
Unted States, reatng to the present or future dscharge of hs offca
dutes, such offcer des, resgns, or otherwse ceas s to hod offce, t sha
be competent for the court where the acton s pendng, to permt the
cause to be contnued nnd mantaned by or aganst the successor n offce of
such offcer, f wthn s months after hs death or separaton from the offce
t be satsfactory shown to the court that there s a substanta need for so
contnung and mantanng the cause and obtanng an ad|udcaton of the
questons nvoved. The orgna ct on the sub|ect, of whch the ct of
1925 s an ampfcaton, was passed ebruary 8, 1899 (ch. 121, 30 Stat., 822),
evdenty n response to a suggeston of ths court n Unted States e re.
ernardn v. utterworth (1 9 U. S., 00), decded n 1898. (See Murphy v.
Utter, 18 U. S., 95, 101 Caedonan Coa Co. v. aker, 19 U. S., 432, 440-
442 Irwn v. Wrght, 258 U. S., 219, 222.) In the utterworth case t was
hed that a sut to compe the Commssoner of Patents to ssue a patent was
abated by the death of the commssoner and that t coud not be revved n
the name of hs successor, even wth the atter s consent. The court suggested
that n vew of the nconvenence occasoned by ths state of the aw, t woud
seem desrabe that Congress shoud provde for the dffcuty by enactng
that n such cases t shoud be awfu for the successor n offce to be brought
nto the case. The purpose of the ct, as e paned n the ouse commttee
report ( . Rept. No. 9 0, fty-ffth Congress, second sesson), and by the
Member of the ouse who reported the b from the commttee (Congressona
Record, voume 31, part 4, pages 38 5-3S ), was to permt the sut to survve
and avod the necessty of compeng a party to commence a new acton aganst
the successor n offce.
The ct s purey remeda, desgned to remove what tds court n the
utterworth case caed an nconvenence. aure to compy wth the
statute forcoses the partcuar remedy theren provded t does not destroy
the rght. There s a cear dfference between the acton and the cause of
acton. Revva of the acton s necessary because that does not survve the
death or resgnaton of the offcer by or aganst whom t has been brought
but the cause of acton may survve, dependng upon ts nature and the
appcabe rue. (See Sanders dtn v. Lousve N. R. Co., I ed.,
708, 710 Martn v. Wabash R. Co., 142 ed., 50, 51. Compare Green v.
Watkn , C Wheat., 2 0 Ucnshaw v. Mer, 17 ow., 212, 219 Warren v.
urstenhem, 35 ed., 091, 95.) The vce of the rung beow, and of the
argument here n support of t, s the faure to gve effect to ths dstncton.
The present bond runs to each successor, as t ran to the orgna obgee and
wth ke effect and, notwthstandng the termnaton of the atter s posses-
son of the offce, the cause of acton whch arose n hs favor survves for
approprate enforcement by hs severa successors. (Tyer v. and et a., 7
ow., 573 ocers v. mercan Surety Co., 30 . (2d)., 244 Ct. D. 51, C. .
I-1, 271 .) Ths accords wth the pocy of the revva statute, as ob-
served by udge L. and n the case ast cted. concuson to the contrary
woud subvert the purpose of the bond, whch s to create an obgaton In
favor of the ncumbents, as they succeed each other.
udgment reversed.
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309
270, rt. 1203.
rtce 1203: Coecton of ta bv sut. 1II-2G- 8 7
Ct. D. 843
INCOM T R IS D ST TUT S- D CISION O COUIT.
Sut u Tam cton ase Returns Consent of Gomuk-
8I0N .
Secton 3214, Revsed Statutes, requres the consent of the Com-
mssoner to the commencement of a sut for the recovery of
Interna revenue ta es, fnes, penates, and forfetures. The ct
of March 2, 18 3, as suppemented and amended. Tte 31, sectons
231-235, and Tte 18, secton 80, U. S. C. ., do not authorze the
nsttuton of qu tam actons aegng fraud aganst the Unted
States by the fng of fase md frauduent ncome ta returns.
Dstbct Court of the Unted States for the Wkktern Dstrct of
Pennsyvana.
Davd . Oson, n hs own behaf and n behaf of the Unted Mates of merca,
pantff, v. W. L. Meon, defendant.
Unted States of merca, on te reaton of bert R. nght and bert R.
nght n hs own behaf, pantffs, v. Wam L. Ueon, . L. Stone, ( a R.
tuttg, . . Levoy, W. . uthre, and George S. Datnsvn, defendant .
October 18, 1933.
opnon.
Gbson, Dstrct udge: In each of the above entted cases a statutory de-
murrer has been fed by the defendant. The cases are qu tam actons wheren
the pantff aeges n each that the defendant has defrauded the Unted States
of ncome ta due by means of a fase and frauduent return, and seeks a
verdct of the Unted States and hmsef for twce the amount of the aeged
unpad ta and the statutory penaty of 2,000 mposed upon one who has
presented a fase cam aganst the Unted States. The demurrer asserts that
no aw of the Unted States e sts whch authorzes the pantff to brng the
sut, and that the averments of the pantffs statements do not consttute a
cause of acton under the aws of the Unted States.
s statutory authorty for hs acton the pantff, Oson, has ponted to
the ct of March 2, 18 3, as suppemented and amended, and the pantff,
nght, to . S. C. ., Tte 31, sectons 231-2:5. ., and Tte 18, . S. C. .,
secton 80.
Secton 80 of Tte 18 s as foows:
Whoever sha make or cause to be made or present or cause to be presented,
for payment or approva, to or by any person or offcer n the cv, mtary,
or nava servce of the Unted States, or any department thereof, or .any cor-
poraton n whch the Unted States of merca s a stockhoder, any cam
upon or aganst the Government of the Unted States, or any department or
offcer thereof, or any corporaton n whch the Unted States of merca Is
a stockhoder, knowng such cam to be fase, fcttous, or frauduent or
whoever, for the purpose of obtanng or adng to obtan the payment or
approva of such cam, or for the purpose and wth the ntent of cheatng
and swndng or defraudng the Government of the Unted States, or any
department thereof, or any corporaton n whch the Unted States of merca
Is a stockhoder, sha knowngy and wfuy fasfy or concea or cover up
by any trck, scheme, or devce a matera fact, or make or cause to be made
any fase or frauduent statements or representatons, or make or use or cause
to be made or used any fase b, recept, voucher, ro, account, cam, certf-
cate, affdavt, or deposton, knowng the same to contan any frauduent or
fcttous statement or entry, sha be fned not more than 10,000, or Imprsoned
not more than 10 years, or both. (It. S., secton 5438 May 30, 1908. eh. 235,
35 Stat., 555 March 4, 1909, ch. 321, secton 35, 35 Stat., 1095 October 23, 1918,
ch. 194, 40 Stat., 1015.)
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5270, rt. 1203.
310
Sectons 231 and 232 foow:
Sec. 231. Labty of persons makng fase cams. ny person not In the
mtary or nava forces of the Unted States, or n the mta caed Into or
actuay empoyed n the servce of the Unted States, who sha do or commt
any of the acts prohbted by any of the provsons of secton 80 of Tte 18, sha
forfet and pay to the Unted States the sum of 2,000, and, n addton, doube
the amount of damages whch the Unted States may have sustaned by reason
of the dong or commttng such act, together wth the costs of sut and such
forfeture and damages sha be sued for n the same sut. (R. S., secton 3490.)
Sec. 232. Same suts. The severa dstrct courts of the Unted States, the
Supreme Court of the Dstrct of Coumba, the severa dstrct courts of
the Terrtores of the Unted States, wthn whose |ursdctona mts the
person dong or commttng such act sha be found, sha, wheresoever such
act may have been done or commtted, have fu power and |ursdcton to
hear, try, and determne such sut. Such sut may be brought and carred
on by any person, as we for hmsef as for the Unted States the same
sha be at the soe cost and charge of such person, and sha be n the name
of the Unted States, but sha not be wthdrawn or dscontnued wthout
the consent, n wrtng, of the |udge of the court and the dstrct attorney, frst
fed n the case, settng forth ther reasons for such consent. (R. S., secton
3491.)
The statutes, as quoted supra, on ther faces at east, furnsh strong support
of the rght of the pantffs to nsttute the present actons. In the Oson
case, however, the defendant asserts that the ct of March 2, 18 3 (12 Stat.,
9 ), s now obsoete and n the other cases the defendants contend that the
quotaton of sectons 231-235, Tte 31, U. S. C. ., was n fact an unoffca
and mstaken substtuton of the te t for secton 3490, R S., whch was
narrower n scope and dd not authorze qu tarn actons to coect ncome ta
unawfuy wthhed.
The ct estabshng the Revsed Statutes of the Unted States was ap-
proved uno 22, 1874. y t a cts of Congress passed pror to December
1, 1873, any secton of whch was embraced n the revson, were repeaed,
and the secton appcabe thereto was estabshed n eu thereof. Sectons
5438 and 3490 of the Revsed Statutes had each been a part of the ct of
March 2, 18 3. Secton 5438 mposed a penaty upon those presentng, or ob-
tanng the proceeds of, fase cams aganst the Unted States. Secton
3490 Is as foows:
ny person not n the mtary or nava forces of the Unted States, or
In the mta caed nto or actuay empoyed n the servce of the Unted
States, who sha do or commt any of the acts prohbted by any of the
provsons of secton 5438, Tte Crmes, sha forfet and pay to the Unted
States the sum of 2,000, and, n addton, doube the amount of damages whch
the Unted States may have sustaned by reason of the dong or commttng
such act, together wth the costs of sut and such forfeture and damages
sha be sued for n the same sut.
Secton 3491, R. S., aso part of the ct of 18G3, authorzed qu tarn actons
to recover the penates f ed by secton 3490.
It w be noted that secton 5438, R. S., reated ony to fase cams aganst
the Unted States, and was not wde enough, n ts orgna form, to ncude
the suppresson of matera matters n an ncome ta return. (See Unted
States v. Cohn, 270 U. S., 339 Capone v. Unted States. 51 ed. (2d), 09, 14.)
Secton 5438, R S., became secton 35 of the Crmna Code (March 4, 1909),
but secton 3490 was not repeaed when the Crmna Code was adopted, and
has not snce been reenacted.
y ct of October 23, 1918, secton 35, Crmna Code, was amended by the
Inserton of the foowng:
or whoever, for the purpose of obtanng or adng to obtan the
payment or approva of such cam, or for the purpose and wth the ntent
of cheatng and swndng or defraudng the Government of the Unted States,
or any department thereof, or any corporaton n whch the Unted States
of merca s a stockhoder, sha knowngy and wfuy fasfy or concea
or cover up by any trck, scheme, or devce a matera fact, or make or cause
to be made any fase or frauduent statements or representatons, or make or
use or cause to be made or used any fase b, recept, voucher, ro, account,
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311
270, rt. 1203.
cam, certfcate, affdavt or deposton, knowng the name to contan any
frauduent or fcttous statement or entry.
Counse for the pantff Oson has contended tat secton 5438, R. S., pror
to the amendment of 1918, was wde enough to cover a fase return of ncome.
In ths contenton, as stated supra, we can not agree wth hm. Counse for
the other pantffs, as we understand hs poston, admts that the orgna
secton 5438, It. S., s nsuffcent to cover a fase ta return, but asserts that
the amendment of 1918 s suffcent and further asserts that secton 3490,
R. S., now ncudes not ony the sub|ect matter of the orgna secton 5438,
It. S.. but aso the amendment of 1918. Counse concede, where a statute
has bern ncorporated ns a whoe by another statute, that any amendment or
repea of the ncorporated statute w not, as a genera rue, ether add to
or take away ts orgna effect from the ncorporatng ct, but w eave that
statnte wth |ust the same scope It had at the tme of ts enactment. They
contend, however, that an e cepton to the genera rue e sts when the two
cts were orgnay dfferent sectons of an orgna statute. Sectons 3490 and
5438, R. 8., were substanta reenactments of dfferent sectons of the ct of
March 2, 18 3.
dmttng the e cepton to the genera rue under certan crcumstances,
we are of opnon that such crcumstances do not e st n the present cases.
When the Revsed Statutes were adopted a pror aws coverng the sub|ect
matter of any of ther sectons were repeaed. The sectons n queston were
wdey separated, secton 5438 beng paced under Tte L , Crmes, and
secton 3490 under Tte I, Debts due the Unted States. In 1909,
secton 5438 was repeaed, beng substantay reenacted n the repeang
statute as secton 35 of the Crmna Code, as before stated. Secton 3490
was not repeaed by the Crmna Code statute. It w thus be seen that the
two sectons, athough havng ther orgn n the same ct of Congress, had
been separated and had become parts of dfferent statutes n ther present
e stence.
I nted States Code, secton 80, ncudes the amendment of secton 35 of the
Crmna Code, as quoted supra, and secton 231 of the Unted States Code,
desgned as an ncuson of secton 3490, R. S., appears to Incorporate that
amendment. It can not be camed (and we beeve s not camed by counse
for the pantffs) that the Unted States Code, n tsef, authorzes the pan-
tffs actons. The Code ct of 1920 repeaed or amended no e stng aw, but
was desgned ony to set forth the Unted States1 statutes as they e sted on
December 7, 1925. The reference n secton 231 of the Unted States Code to
secton 80 of Tte 18 was one of the sght apses key to occur n a codf-
caton of numerous aws, and has, n tsef, no force. In the Unted States
Code annotated, prepared by the edtora staffs of West Pubshng Co. and
dward Thompson Co., who aso doubtess prepared the code statute, the
foowng comment s made:
dtora comment. Secton SO of Tte 18, Crmna Code and Crmna
Procedure, does not cover -a of the acts formery prohbted by R. S. secton
5438, to whch the orgna te t of ths secton referred. Crmna
Code secton 35 (sectons SO and 82 to 8 of Tte 18), as amended, covers
some cts not covered by R. S. secton 5438. Perhaps ths secton shoud
be made to foow substantay the anguage of R. S. secton 5438, as
foows:
Counse for the pantffs have coutended that sectons 3490-3491. R. S., are
remeda statutes, and, as such, are entted to a qute bera constructon, as
opposed to the strct constructon to be gven a pena statute. Wth ths con-
tenton we are unabe to agree. The statute s pany pena n ts nature and
s not to be enarged by mpcaton and uness t be so enarged, no statutory
authorty e sts for pantffs suts.
Defendants have urged that the demurrers shoud be sustaned for the further
reason that n none of the statements of cam s t set forth that the pantff
had the permsson of the Commssoner of Interna Revenue to brng ths
acton. Such permsson s made necessary under certan crcumstances by
secton 3214, R. S., whch Is as foows:
No sut for the recovery of ta es, or of any fne, penaty, or forfeture,
sha be commenced uness the Commssoner of Interna Revenue authorzes
or sanctons the proceedngs: Provded, That In case of any sut for penates
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270, rt. 120 .
312
or forfetures brought upon nformaton receved from any person, other than
a coector or deputy coector, the Unted States sha not be sub|ect to any
costs of sut.
Ths secton was a part of secton 9 of the ct of uy 13, 18 (14 Stat., 08),
amendng secton 41 of the ct of une 30, 18 4, as amended by the ct of
March 3, 1S 5. In a precedng part of the secton t was decared to be the
duty of coectors of nterna revenue to prosecute for the recovery of any
sums whch may be forfeted by aw. It then provded that a suts for fnes,
penates and forfetures shoud be brought n the name of the Unted States,
n any proper form of acton, or by any approprate form of proceedng, qu
tam or otherwse. The secton dd not specfcay menton the ct
of March 2, 18 3, certan of the provsons of whch were Incorporated n sec-
tons 3400-3494 of the Revsed Statutes. Were the reference to qu tam actons
not present, the secton thus far mght be taken as controng coectors but
foowng the provson ncorporated n secton 3214, R. S., s the foowng:
Provded, That n case of any sut for penates or forfetures brought upon
nformaton receved from any person, other than a coector, deputy coector,
assessor, assstant assessor, revenue agent, or nspector of nterna revenue, the
Unted States sha not be sub|ect to any costs of sut, nor sha the fees of any
attorney or counse empoyed by any such offcer be aowed n the settement
of hs account, uness the empoyment of such attorney or counse sha be
authorzed by the Commssoner of Interna Revenue ether e pressy or by
genera reguatons.
Many of the practces n e stence at the tme of the passage of the Revenue
cts of 18 3 to 1870 have been changed by statute or have become obsoete n
use. t the tme the ct of 18 was passed an nformer was entted to
receve a moety of the amount of a penaty or forfeture recovered pursuant
to hs nformaton In fact, the ct tsef makes such provson. nd a co-
ector, deputy coector or revenue agent, f the knowedge came to hm other
than n the reguar performance of hs duty, coud at that tme be such nformer.
We know of no rue n reaton to the constructon of statutes whch takes
the nstant cases out of the purvew of secton 3214, R. S. s we nterpret t,
t dscoses a pan ntent on the part of Congress to keep a cases for the
coecton of nterna revenue ta es, fnes, penates and forfetures under the
supervson of the Commssoner of Interna Revenue. It was e stng aw
when t and sectons 3400-3494 became parts of the Revsed Statutes, and can
not he hed to be repeaed by the amendment of secton 35, Crmna Code
(5438 R. S.), by the ct of 1918, even f It be hed and It s st a mooted
queston that the amendment Is broad enough to Incude fase ncome ta
returns. The sectons may we e st together.
15ong of opnon that the amendment of secton 35, Crmna Code, by the
ct of 1918, s not to be read nto the provsons of sectons 3490-3494, R. S.,
and that consent of the Commssoner of Interna Revenue a necessary to the
awfu nsttuton of a sut for the recovery of nterna revenue fnes and pen-
ates, and, therefore, that each of the pantffs n the present actons s
wthout statutory authorty necessary as a bass for hs acton, the statutory
demurrers fed n each case must be sustaned.
rtce 120 : Compromse of ta cases.
R NU CTS O 191 ND 1018.
ffect of oard s fndng wth respect to suffcency of evdence as
to compromse. (See Ct D. 823, page 329.)
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313
277 and 278, rt. 1271.
S CTION 275. DDITIONS TO T T
IN C S O D ICI NCY.
rtce 1251: ddtons to ta n case of a defcency.
R NU CTS O 1010, 1918, ND 1021.
Imposton of fraud penaty (1) wth respect to orgna returns
for 1917, 1918, and 1919 where ta payer acqutted of evason under
amended returns for same years (2) where ta payer convcted of
evason by fng frauduent return for 1921. (See Ct. D. 823,
page 329.)
S CTIONS 277 ND 278. P RIOD O LIMIT TION UPON
SS SSM NT ND COLL CTION O T .
rtce 1271: Perod of mtaton upon assessment of ta .
R NU CT O 192 .
Instructons governng the e ecuton of consent agreements. (See
Mm. 4134, page 98.)
rtce 1271: Perod of mtaton upon assess- III-9- 78
ment of ta . Ct. D. 793
( so Secton 325 (Revenue ct of 1918) rtce
811 (Reguatons 45) Secton 284, rtce 1302.)
ncome ta revenue act of 1018 decson of court.
1. Statute of Lmtatons Tme and Pace op ng Return.
The devery of a ta return to an nterna revenue agent for
forwardng to the Commssoner s not a compance wth the
statute requrng that returns be fed wth the coector so as to
start the runnng of the statute of mtatons from the tme of
such devery.
2. Payments ocaton Returns Requred fob sca Years
ed on Caendar Year ass.
Where the ta payer fes ts returns on a caendar year bass for
the years 1917, 1918, and 1019, but s requred to fe returns on a
fsca year bass for those years, the ta es pad n 1920 for the
caendar year 1919 need not be apped ony to the defcency found
due for the fsca year endng March 31, 1920, where credt has
been aowed upon the ta assessed for the fsca year endng
March 31, 1919, for a payments made durng the caendar years
1919 and 1920.
3. Invested Capta Good W urden of Proof.
n offer receved by the ta payer for ts trade name and good
w estabshed by house-to-house advertsng does not defntey
estabsh the vaue of the good w so as to |ustfy an ncrease n
nvested capta n the amount of the offer. Good w or other n-
tangbes can be regarded as capta assets for ta purposes ony
where there has been In effect a purchase thereof or a defnte
appropraton therefor from earnngs aready accumuated for
that purpose, and the burden s upon the ta payer to estabsh
the dstncton between e pense of conductng the busness, ncud-
ng nonnu saes promoton, and the purchase prce of an estab-
shed asset.
77 2 34 11
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277 and 27ft, rt. 1271.
314
4. Decson ffrmed.
Decson of the oard of Ta ppeas (22 . T. ., 1351) affrmed.
5. Cebtorar Dened.
Petton for certorar dened November 13, 1933.
Unted States CracuT Cotrt of ppeas, S th Crcut.
W. . Co., by Unon Guardan Trust Co., Recever, pettoner, v. Comtns-
toner of Interna Revenue, respondent.
Petton to revew decson of Unted States oard of Ta ppeaa.
efore Moorman, cks, and ckenooper, Crcut udges.
pr 10, 1933.
OPINION.
ckenooper, Crcut udge: Durng the years 1917, 1918, and 1919, the
W. . Co. kept ts books upon a fsca year bass, but for each of these
years t ted ts returns for ncome and e cess profts ta es upon a caendar
year bass. or the year 1920, the return was fed for the fsca year begnnng
pr 1, 1920, and endng March 31, 1921, so that there was a perod of three
months ( anuary 1, 1920, to March 31, 1920) for whch no return was fed.
Whe the return for 1920 was beng prepared an audt was made on behaf
of the Commssoner of Interna Revenue, and the attenton of the company
was caed both to the fact that no return covered the nterm perod above men-
toned and to the fact that the pror returns shoud have been made on the
fsca year bass. Returns were accordngy prepared, nter aa, for the fsca
years endng March 31, 1919, and March 31, 1920, whch returns were devered
to the nterna revenue agent makng the audt, and by hm were devered to
the nterna revenue agent n charge, at Detrot, under date of uy 10, 1921.
Ths procedure was adopted at the suggeston of the e amnng agent who sad
he woud attend to the fng.
No offca acton seems to have been token upon these new returns unt
anuary 25, 1924, when a |eopardy assessment was made for the fsca year
endng March 31, 1919. In hs notce of ths assessment the Commssoner sad
that n vew of the fact that a request for reef under the provsons of secton
210, Revenue ct of 1917. or sectons 327-328. Revenue ct of 1918, had been
made, and the further fact that any overassessmcnts found due by reason
of the appcaton of the above provsons may be |eopardzed by the tong
(runnng) of the statute of mtatons uness a forma cam s fed, t s
deemed e pedent by ths offce that the above ta be assessed mmed-
atey and that a cam be fed by you to protect your nterests n the
matter. Thereupon a cam for abatement was fed for the net amount of the
defcency assessment, the amounts theretofore pad on the caendar year bass
havng been deducted, but no acton was taken upon the return for the year
endng March 31, 1920, e cept that, seemngy, an appcaton for speca assess-
ment under sectons 327-328 of the Revenue ct of 1918 was aso fed for the
atter year.
On anuary 11, 1920, ths request for speca assessment was dened and the
pettoner protested aganst such dena under date of ebruary 0, 1920. gan
deay ensued, no acton beng taken unt ugust 25, 1920, when the Comms-
soner reversed hs former rung, aowed the request, and, upon the data
contaned n the severa returns and the report of the audt, found an over-
assessment of 27,807.00 for the year endng March 31, 1919, and a defcency
of 03,079.57 for the year endng March 31, 1920. The cam for abatement
aready pendng was therefore aowed for the amount of the overassessment,
and dened as to the baance, eavng 3,392.87 st due under the assessment
of anuary 25, 1924, whch amount s not here nvoved.
Pettoner appeaed to the oard of Ta ppeas as to the assessment for the
year endng March 31, 1920, camng that the return for that year was fed,
wthn the ntent of the ct, on uy 10, 1921. when t was devered to the rep-
resentatve of the Commssoner conductng the audt, and by hm devered to
the nterna revenue agent In charge, and that the statute of mtatons had
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315 277 and 278, rt. 1271.
thus run aganst any defcency assessment or the coecton of any further ta .
It s conceded by the Government that the statute had run If the returns are to
be regarded as fed on the date above mentoned and t Is conceded by the
pettoner that Its contenton Is wthout mert uness the devery of the returns
to the revenue agents was sufcent compance wth the ct to start the run-
nng of the statute. Ths Is the prncpa queston nvoved. The oard of Ta
ppeas hed aganst pettoner and the present petton to revew foowed.
It may be conceded for the purposes of ths case that the returns of uy,
1921, were prompty forwarded to the Commssoner, and even that the Com-
mssoner had the power to assess the ta where the ta payer had fed no
return. (Revsed Statutes, secton 317 2 U. S. C. ., secton 97 Revenue
ct 1918, secton 250(c).) ut there seems to us to be a radca dfference
between odgng a paper, desgnated a return, wth the Commssoner, and fng
the same paper wth the coector. In the frst case no ta s assessed and no
payment s requred unt the Commssoner sha have acted on the record
before hm. In the other, the amount of the ta s mmedatey entered upon
the approprate st and coecton s made n due course uness a cam for
abatement s fed whch w suspend the runnng of the statute. ere the aw
requred that returns be fed wth the coector. Ths was obvousy for the
purpose of factatng the prompt and ordery assessment and coecton of
ta es. t best the Interna revenue agent was but the agent of the ta payer for
the purpose of fng the returns, and the stuaton s no dfferent than t woud
have been had the ta payer tsef devered the returns to the Commssoner.
In Lucas v. PUod Lumber Co. (281 U. S., 245 Ct. D. 2 , C. . I -2, 39 )
t was hed that the devery of an unverfed return to the coector dd not
start the runnng of the statute of mtatons, that no offcer had power to
substtute somethng ese for the thng specfed, and that metcuous com-
pance by the ta payer wth a named condtons was necessary to secure
the beneft of the mtaton. Compare, aso, orshem ros. Co. v. Unted
States (280 U. S.. 453 TCt. D. 1 7. C. . I -1, 2 0 ). If the fng of a return
to whch the verfcaton was nadvertenty omtted, but upon whch the ta was
In fact assessed, s nsuffcent to start the runnng of the statute, we can not
concude that odgng a return wth the Commssoner, upon whch return no
ta was then assessed, was that metcuous compance wth the ct whch was
necessary to start the runnng of such statute.
The present case s not one merey of an naccurate or erroneous return.
(Cf. Unted States v. Mabe evator Co., 17 . (2d), 109 (D. C. Mnn.).) Nor
s t a case, strcty speakng, of a defcency assessment upon audt of returns
propery fed. Unt the return for the fsca year endng March 31, 1920, was
duy fed there was not ony no return coverng that fsca year, but no return
whatever for the three months nterm between anuary 1 and March 31, 1920.
In Paso Robes Mercante Co. v. Commssoner (33 . (2d), 53 (C. C. . 9))
there may be an ntmaton that where the ta payer s books are kept on a fsca
year bass, but returns are made upon the caendar year bass, the statute w
begn to run whenever returns have been fed whch actuay cover tne entre
fsca perod, for t then becomes the duty of the Comnvssoner to make the
read|ustments but even ths prncpe, If It be sound, does not hep the pet-
toner n the present case. s we have sad, t Is conceded by the pettoner
that the statute has not run uness the returns whch were devered to the
nterna revenue agent are to be regarded as fed and we can not so regard
them.
It s aso contended by the pettoner that n vew of the fact that nne months
of the caendar year of 1919 are Incuded In the fsca year endng March 31,
1920. the ta es pad n 1920 for the caendar year 1919 shoud be apped, and,
as we understand the contenton, coud be apped, ony to the payment of
ta es found due for the fsca year endng March 31, 1920. The contenton s
wthout mert. The pettoner has receved credt upon the ta assessed for
the fsca year endng March 31, 1919, for a payments made durng the
caendar years 1919 and 1920. and can not compan. Ths s consstent wth
the procedure recognzed In mercan de d Leather Co. v. Unted States
(284 U. S., 343 Ct. D. 444. C. . I-1, 201 ).
Lasty, t s urged that the oard of Ta ppeas erred In refusng to aow
to pettoner an ncrease of at east 500,000 n nvested capta for the year
endng March 31, 1920. Durng the eary years of ts corporate fe (1895 to
1913) the pettoner had spent appro matey 750,000 n house-to-house sampe
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5277 and 278, rt. 1271.
31
advertsng, these e pendtures beng charged to e pense. In 1914 ths method
of advertsng was dscontnued and pubcty was secured through newspaper
and magazne advertsng. In 1913 the company receved an offer from
responsbe purchasers of 500,000 for the trade name s Gascara romde
unne and the good w estabshed by the sampe advertsng. It s
therefore contended that ths offer defntey estabshes the vaue of such
good w and that pettoner shoud be permtted to set up an earned surpus
of at east that amount.
It s apparent that the ony theory upon whch ths tem mght e ncuded
In Invested capta s that t was defntey pad for out of earnngs, that s,
that t forms a part of the earned surpus whch, after beng earned, was
Invested from tme to tme n the purchase of good w and the estabshment
of a vauabe trade name. Where there has been an actua purchase from
another of patents, trade names, good w, or other ntangbes, pad for
from surpus, of course no queston can arse as to the fact of nvestment or
the amount to be ncuded n the nvested capta but where such an asset
s but np wth the busness tsef t s amost aways mpossbe to aocate
any tem of the e pense of promoton and of carryng on the busness to the
purchase of the good w whch has been thus graduay estabshed. In
order to ncude such vaue there must have been, n effect, a purchase (cf. La
ee Iron Works v. Unted States, 25 U. S., 377, 388 Ct. D. 12, O. . 4, 3731
Landesman- rschhemer Co. v. Commssoner, 44 . (2d), 521, 523 (C. C. .
)), or a defnte appropraton from earnngs aready accumuated for the
specfc purpose for t s the cost to the corporaton whch s controng, and
uness the ne of demarcaton .can be drawn between e pense of conductng
the busness, ncudng norma saes promoton, and the purchase prce of an
estabshed asset, the vaue of the Intangbe property may not be ncuded.
The burden was upon the pettoner to ceary estabsh ths (Morrs Coa Co.
v. Commssoner, 48 . (2d), 810 (C. C. . )), and a faure to do so s fata.
(Rchmond osery Ms v. Commssoner, 29 . (2d), 2G2 (C. C. . 5) Three-
n-One O Co. v. Unted States, 35 . (2d), 987 (Ct. Cs.). Compare Concrete
ngneerng Co. v. Commssoner, 58 . (2d), 5 (C. C. . 8).)
In Ihe present case wo are of the opnon that no dstncton can be drawn
between house-to-house sampe advertsng and any other type of advertsng.
It s not shown that the vaue of the good w arose from the advertsng
aone, or that such advertsng was more ntensve or more costy than waa
norma and necessary for the contnuance of the busness. The vaue of the
good w may have been n substanta part due to the nherent mert of the
product, and the advertsng but a norma e pense of pacng t before the
pubc.
Upon the authortes cted and for the reasons above stated the decson of
the oard of Tu ppeas must be affrmed.
ncome ta revenue act oe 1921 decson of court.
1. Waver adty.
waver sgned by the ta payer and the Commssoner |ust be-
fore the e praton of the perod of mtaton upon assessment
of ta for the year 1917, athough the year to whch t shoud
appy was not specfed, s vad as a waver for the year 1917
where the statute had run on a pror years and the ony matter
In controversy was the ta for that year.
2. Water stoppe.
Where the ta payer and the Commssoner consent to a waver,
rey upon t as vad and act accordngy, the ta payer may not
thereafter repudate the waver.
8. Decson ffrmed.
Decson of the oard of Ta ppeas (25 . T. ., 238) affrmed.
rtce 1271: Perod of mtaton upon assess-
ment of ta .
III-10- 88
Ct. D. 79
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317
277 and 278, rt. 1271.
Unted States Crcut Court op ppeas fob the Thrd Crcut.
Spencer . Muford, pettoner, v. Commssoner of Interna Revenue,
respondent.
Petton for revew from the Unted States oard of Ta ppeas.
efore uffngton, Davs, and Thompson, Crcut udges.
uy 25, 1933.
OPINION.
Davs, Crcut udge: Ths case Is here on petton to revew the order of
redetermnaton of the Unted States oard of Ta ppeas. The queston at
Issue s whether or not the waver fed by the ta payer for the year 1917 s
vad.
The pettoner fed hs ncome ta return n March, 1918, for the caendar
year of 1917, but the return was not then audted and before hs actua abty
was determned, the statute of mtatons for assessment for that year was
about to e pre and he was requested to e ecute a waver. Ths he dd on
ebruary 5, 1923, as foows:
ebruary 5, 1923.
(Date.)
INCOM ND PRO ITS T W I R,
In pursuance of the provsons of subdvson (d) of secton 250 of the
Revenue ct of 1921 Spencer . Muford of Wyncote, Penna., and the Comms-
soner of Interna Revenue, hereby consent to a determnaton, assessment, and
coecton of the amount of ncome, e cess-profts or war-profts ta es due under
any return made by or on behaf of the sad for the years
or under pror ncome, e cess-profts, or war-profts ta cts, or
under secton 38 of the ct entted n ct to provde revenue, equaze dutes,
and encourage the ndustres of the Unted States, and for other purposes,
approved ugust 5, 1900, rrespectve of any perod of mtatons.
Ths waver e pres one year from date.
Sgned. Spencer . Muford,
Ta payer.
y
Sgned. D. . ar,
Commssoner.
On December 10, 1923, the ta payer e ecuted another waver e pressy cover-
ng the year 1917. Ths waver by ts terms e pred December 31, 1924. On
December 8, 1924, a thrd waver, coverng the year 1917, was e ecuted and fed,
e tendng the mtaton to December 31, 1925.
The defcency of 3 ,354.47 here nvoved was assessed December 23, 1925,
eght days before the e praton of the ast waver. cam n abatement was
fed, but ths was re|ected on November 4, 1927, and the petton n ths case
was fed by the ta payer the same day. The oard determned that the
wavers were vad and the pettoner owed the defcency of 3 ,354.47.
The pettoner says that the defcency for the caendar year of 1917 s barred
from assessment and coecton by the e praton of the statute of mtatons
and that t was not e tended by the frst waver of ebruary 5, 1923.
Ths contenton s based upon the assumpton that ths waver s not app-
cabe to the year 1917 or to any partcuar year because no year s mentoned
n the waver that t was vod for uncertanty and the omsson of the year
can not be supped by paro evdence or nference and that the waver, therefore,
dd not prevent the statute from runnng.
There seems to be no queston as to the correctness of the amount of the ta
If the waver e tended the mtaton of the statute. The entre queston rests
upon the vadty of ths frst waver as to the year 1917.
Ths waver was dated ebruary 5, 1923, a tte ess than two months before
the 5-year perod of mtatons to make the assessment for that year, e pred
on March 30, 1923. The ta payer and the Commssoner both, doubtess had
some year n mnd when ths waver was e ecuted. The ob|ect n raer mnds
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277 and 278, rt. 1271.
318
was to wave the statute of mtatons for that year. n effectve and not a
fute act was ntended. Stanffe v. Unted States, 282 U. S., 270, 277 Ct. D,
274, O. . -, 414 .) The effectve act was the consent of the ta payer and
Commssoner to a determnaton, assessment and coecton of the correct amount
of ta es due under the return made by the pettoner for the year whch they
both had n mnd. The ony contested ta matter between the ta payer and
the Commssoner was the ta Invoved n the return for the year 1917. The
waver was ntended to appy to that year, otherwse t woud not have been
e ecuted for there was no other ta or year n queston that caed for a
waver. The statute had aready run as to the ta es for a the years pror
to 1917. There was, therefore, no other year or ta to whch t woud or coud
appy than the year 1917. s there was no other year to whch the waver
coud appy, there seems to be no bass for denyng ts obvous purpose.
( urnet v. Chcago qupment Co., 282 U. S., 295 Ct. D. 27 , C. . -, 323 .)
Consequenty the crcumstances force us to the concuson that the partes
ntended ths waver to appy to the year 1917 and f they dd, as the oard
found, we thnk that It dd not err n so fndng.
In any event t appears that both the pettoner and the Commssoner con-
sented to ths waver, reed upon t as vad and acted accordngy. The
pettoner may not now repudate t. (Lberty akng Co. v. ener, 37 ed.
(2d), 703 Ct. D. 194, C. . I -1, 231 Magce v. Unted States, 2S2 U. S., 432,
434 Ct. D. 285, C. . -, 189 .)
If ths waver was vad for the year 1917, t Is decsve of the ssue before
us, for the pettoner s entre argument s based upon the vadty of ths
waver. e says that:
The document of December 10, 1923, reed upon by the Commssoner as
a nk n the chan of wavers e tendng the statutory perod for coecton
of the |eopardy assessment of December 23, 1925, for the year 1917, s vod for
three reasons: (1) It s the renewa of a pror vod waver, (2) was nduced
by the msrepresentaton of a fact, and (3) obtaned under duress.
s ma|or premse s that the waver of ebruary 5, 1923, s nvad. Ths
s untenabe, as we have nbove hed, and fas, and so the mnor premses, based
thereon, must fa wth t. Ths beng a vad waver, under the crcumstances
of ths case, the renewa wavers of December 10, 1923, and December 9, 1924,
were vad. They were, therefore, not nduced by the msrepresentaton of a
fact nor obtaned under duress.
It foows that the order of redetermnaton of the oard must be affrmed
and the determnaton of the Commssoner approved.
rtce 1271: Perod of mtaton upon assess- I11-13- 724
ment of ta . Ct. D. 804
INCOM T R NU CTS O 192 ND 1028 D CISION OP SUPR M
COURT.
1. Waves adty ecuted fter praton of Statutory
Perod ffect of Repea of Secton 110 (a) of the Reve-
nue ct of 102 .
waver e ecuted and fed by a transferee on November ,
192 , e tendng the perod for assessment of 1 17 ncome and
profts ta es, s vad even though e ecuted and fed after the
statutory perod for assessment had e pred, snce secton 110 (a)
of the Revenue ct of 1020 was repeaed as of ts effectve date by
secton 012 of the Revenue ct of 1028. Secton 1100(a) s to
be treated as though t had never been a part of the Revenue ct
of 192 .
2. Decsons Rkvehsed.
The decsons of the Crcut Court of ppeas, Seventh Crcut
(05 ed. (2d), 9L 5), and of the oard of Ta ppeas (22 . T. .,
833) reversed.
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319 277 and 278, rt. 1271|
Supreme Coubt op the Unted States.
Guy T. everng, Commssoner of Interna Revenue, pettoner, v. The New-
port Co.
On wrt of certorar to the Unted States Crcut Court of ppeas for tbe Seventh
Crcut.
March 5, 1934.
OPINION.
Mr. ustce Stone devered the opnon of the court.
Ths case comes here on certorar to revew a |udgment of the Court of
ppeas for the Seventh Crcut ( 5 . (2d), 925), affrmng a decson of the
oard of Ta ppeas, that a defcency assessment aganst respondent as
transferee of the assets of the Newport Chemca Works, Inc., for 1917 ncome
and profts ta es of the transferor was barred by the statute of mtatons.
In 1919 the Chemca Works, a Mane corporaton, after t had ted ts ta
return for 1917, transferred a ts assets to the respondent, a Deaware cor-
poraton, whch, as consderaton for the transfer, ssued ts stock to the stock-
hoders of the transferor and assumed a abtes of the transferor. On
March 1, 1920, the Supreme Court of Mane entered a decree whch purported
to dssove the Chemca Works. The statutory perod of mtaton for the
assessment and coecton of the 1917 ta es, as the Government concedes, e -
pred on pr 1, 1923, fve years after the return for that year had been fed.
Whether ts perod was e tended by waver so as to ncude the date of the
defcency assessment f ed by the Commssoner s 0-day etter of March 14,
1927, depends on the vadty and effect of severa documents fed wth the
Commssoner by the Chemca Works or by respondent.
Durng the perod from December 15, 1920, to November, 192 , s documents,
asserted by the Government to be wavers e tendng the tme for assessment,
were e ecuted by the Chemca Works by an offcer or Its genera counse, and
odged wth the Commssoner. On or about November , 192 , a further
waver e tendng the perod for assessment to December 31, 1927, e ecuted by
respondent by ts presdent, was fed wth the Commssoner.
The court beow and the oard of Ta ppeas both hed, as respondent
argues here, that the perod for assessment and coecton of the ta , whch
had been ndefntey e tended by the terms of the frst waver, was term-
nated and the assessment barred on pr 1, 1924, by a departmenta rung
(Mm. 3085, C. . II-, 174, pr 11, 1923) that a the subsequent wavers,
before that of November , 192 , were vod because they were gven by the
Chemca Works, whch had been prevousy dssoved and that, as the
assessment aganst the Chemca Works had thus been barred pror to the
Revenue ct of 192 , the rght to assess the respondent as transferee coud
not, under the provsons of that ct, be revved by respondent s waver of
November , 192 .
Severa ndependent grounds are urged by the Government to support the
chaenged defcency assessment. The ony one whch we need now consder
s that the waver of November . 192 , unaded by the earer ones, e tended
the tme for the assessment aganst the respondent, as transferee of the Chemca
Works, unt ts e pry date, December 31,1927. efore that date the assessment
had been made.
Respondent, as such transferee, became abe for any ta whch mght
have been awfuy assessed aganst ts transferor before the transfer, and sec-
ton 280(a) of the ct of 192G drects that such abty sha be
assessed, coected and pad n the same manner and sub|ect to the same pro-
vsons and mtatons as n the case of a defcency n a ta mposed by
that ct. Phps v. Commssoner, 283 U. S., 589 Ct. D. 350, C. . -,
2 1 .) If, as respondent mantans and as the court beow hed, any assess-
ment was barred before respondent s waver of November , 1920, the effect of
that waver upon the rght to assess respondent pursuant to secton 280 must
be determned by the Revenue ct of 1928.
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S 277 and 278, rt. 1271.
320
The provsons of the ct appcabe to mtatons and wavers are found
n sectons 277 and 278. Secton 277 f es the perod of mtaton, but secton
278(c) provdes:
Where both the Commssoner and the ta payer have consented n wrtng
to the assessment of the ta after the tme prescrbed n secton 277 for ts
assessment the ta may be assessed at any tme pror to the e praton of
the perod agreed upon.
ad these provsons stood aone the waver of November , 192 , f other-
wse vad, woud have e tended the tme for assessment to the specfed date,
December 31, 1927, even though t was made after the perod for assessment
had e pred. There s nothng n secton 278(c) or reated sectons whch
requres that a waver be gven pror to the e praton of the statutory perod,
and ths court has unformy hed that, under the dentca secton 278(c) of
the 1924 ct, the defense of the statute of mtatons may be waved by the
ta payer after, as we as before, the e praton of the statutory perod.
(McDonne v. Unted States, 288 U. S., 420 Ct. D. 570, C. . I-2, 328 Stange
v. Unted States, 282 U. S., 270 Ct. D. 274, C. . -, 414 rown Sons
Lumber Co. v. urnet, 282 U. S., 283, 287 Ct. D. 279, C. . -, 274 urnet
v. Raway qupment Co., 282 U. S., 295, 298 Ct. D. 27 , C. . -, 323 .)
To avod ths concuson here, respondent rees on secton 110 (a) of the
ct of 192 , whch provdes that The bar of the statute of mtatons aganst
the Unted States n respect of any nterna-revenue ta sha not ony operate
to bar the remedy but sha e tngush the abty . Ths secton,
t s sad, ndcates a congressona ntent that, once the abty of the ta payer
Is e tngushed, t shoud not be revved by waver. The Government argues
that ths attempted dstncton between the defense of the bar of the statute
of mtatons and the defense that the abty has been e tngushed s, at most,
ony forma and does not affect the appcaton of secton 278(c) that a
defense founded on a rght whch may be waved by faure to pead t may
kewse be waved by forma document authorzed by statute. ( urnet v.
Desmorncs, 22 U. S., 145 see tantc Coast Lne v. urnet, 239 U. S.. 199,
20O nn v. Unted States, 123 U. S., 227, 233 compare Stange v. Unted
States, supra.) ut doubts as to the effect whch Congress ntended, f any,
to be gven to the quoted provson of secton 110 (a) n construng secton
278(e) wore removed by secton 12 of the Revenue ct of 1928, whch decared
that secton 110 (a) was repeaed as of ebruary 28, 192 , ts effectve date.
Congress thus ndcated ts ntenton that the secton shoud be erased from the
books as though t had never been enacted, so that secton 278, ke other sur-
vvng sectons of the 1928 ct, must be construed free of such restrctve
nfuence, f any, as secton 110 (a) woud otherwse mpose. Thus t must
be deat wth as was the dentca secton n the ct of 1924 whch was before
the court In Stange v. Unted States, supra
The egsatve hstory of secton OC (a) shows that ts purpose was not to prevent
a ta payer from vountary agreeng to pay a ta after the perod of mtaton had
e pred. It was proposed n order to avod the effect of a decson of the Court of Cams
n To atouy Ms v. Unted States (81 Ct. Cs., 3 3, 372 T. D. 3805, C. . -, 322 ),
hodng that f a ta had been coected after the runnng of the statute of mtatons
the ta payer coud not set up that fact as enttng hm to recover, but coud estabsh
a rght to a refund ony by provng that there had been an overpayment of the ta . on
the theory that the statute of mtatons dd not e tngush the abty but merey barred
the remedy. s stated In the conference report on ths secton of the b (II. Rept. 35 ,
S ty-nnth Congress, frst sesson, page 55) :
Ths amendment s deemed advsabe becnuse of an opnon n a recent decson of
the Court of Cams, Toa-away Ms v. Unted States . Obvousy ths secton
does not appy In the case of fraud or In the case of n waver.
nd see 7 Congressona Record. Part I , page 3531. ut In conference secton
1100(a) was quafed by the addton of a cause denyng a rght to a refund uness ta -
payers had n fact overpad the ta . See conference report, II. Rept. 35 , S ty-nnth
Congress, frst sesson, pages 2 . 55. Congress, In enactng these provsons, was thus
concerned wth refunds rather than assessments and obvousy dd not enact the provson
for the purpose of renderng nvad wavers e ecuted after the runnng of the statute.
See aso Senate Report DUO. Sevontoth Congress, frst sesson, page 41 report of ont
Commttee on Interna Revenue Ta aton, Seventeth Congress, frst sesson, Rouse Doc-
ument No. 139. page 1 .
It s true that secton 50 (a) of the ct of 1028 amended secton 278(c) of the
ct of 10- (S by provdng for e tenson, by consent, of the tme wthn whch an assess-
ment mght be made ony If the consent were gven before the e praton of the perod
of mtaton. ut secton 50 (h) further provded that nuy such consent, gven after
the e praton of the perod of mtaton, shoud be vad an effectve accordng to ts
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321
277 and 278, rt. 1272.
That Congress, wth consent of the ta payer, has power to renstate hs
ta abty and to authorze assessment of the ta can not be doubted.
(Graham and oster v. Good ce, 2S2 U. S., 4C9, 420 ICt. D. 287, C. . -, 191
Mascot O Co. v. Unted States, 282 U. S., 43 Ct. D. 280, C. . -, 190 .)
The ta payer can not compan that Congress has avaed tsef of the consent
whch he has gven, and can not ob|ect that t dd so by revva of the ta
abty, rather than by removng the bar of the statute as n McDonne v.
Unted States, supra, and Stange v. Unted States, supra (see Wm. Danscr
Co. v. Guf R. R., 2 8 U. S., 033, 30 ome Insurance Co. v. Dck, 281 U. S.,
397. 409).
We have consdered, but do not dscuss respondent s arguments based on the
constructon of the waver of November , 192 , whch are wthout mert We
do not doubt that rghty construed the waver conformed to the requrements:
of sectons 278 and 280 of the ct of 192 , and that by t respondent consented
to the defcency assessment.
Reversed.
rtce 1271: Perod of mtaton upon assessment of ta .
R NU CT O 192G.
Suspenson of statute n case of dsmssa of petton. (See Ct. D.
822, page 33 .)
rtce 1272: Perod of mtaton upon co- III-5- 31
ecton of ta . Ct. D. 780
( so Secton 1113, rtce 1351.)
ncome ta revenue act of 1921 decson of supreme court.
1. Waver adty Sgnatube of Commssoner Coecton
by Credt stoppe.
Where the ta payer e ecuted wavers coverng the coecton of
ncome ta es for 1917 and 1918, and the Commssoner n audtng
the returns for the years 1917 to 1921 credted an overussessment
for 1918 at the ta payer s request aganst a defcency for the year
1917, the ta payer s estopped to cam that coecton by credt was
barred on the grounds that the frst waver had e pred at the
tme the credt was made and thnt the second waver was neffectve
because not sgned by the Commssoner unt after ts e praton.
terms f entered nto after the enactment of the ct of 1028 and before anuary 1, 1929.
It was aso provded, n secton 50 (c), that The amendments made by ths secton to
the Revenue ct of 192 sha not be construed as n any manner affectng the vadty
of wavers made pror to the enactment of ths ct. whch sha be determned n accord-
ance wth the aw n e stence at the tme such waver Tns fed. The appcaton of
subdvson (c) of secton 50 Is by ts terms mted to amendments made by the secton
and t seems pan that It was Intended to be a quafcaton of subdvson (a) and not a
mtaton upon secton 012. (Compare Unted States v. Morrow, 2 U. S., 531.) Thus
construed t prevents any retroactve operaton of subdvson (a) by savng the effect
of wavers aready gven athough after the e praton of the perod of mtaton. That
effect s to be determned by the appcaton of the provsons of the ct of 192 , wth
secton 110 (a) emnated as provded by secton 12 of the ct of 1928. The decnred
purpose of secton 50 was to preserve the Commssoner s rghts to wavers fed under
pror cts and to f anuary 1. 1929, as the date of change from the od practce to
the new. (See . Rept. 2, Seventeth Congress, frst sesson, page 29 S. ept. 9 0,
Seventeth Congress, frst sesson, page 30 conference report, II. ept. 1882. Seventeth
Congress, frst sesson, page 21.) If subdvson (c) were construed as a mtaton upon
secton 12 It woud nufy tbo operaton of secton 12, and woud produce a whmsca
resut. (See Commssoner of Interna Revenue v. Oswego rf Syracuse R. R. Co.. 2 .
(2d), 518, 520.) or wavers e ecuted after the perod of mtaton had run woud be
vad f fed pror to ebruary 2 , 192 , the effectve date of the 192 ct. Lke wavers
woud be Invad If e ecuted between ebrunry 20. 192 . and May 29, 1928. the effectve
date of the 1928 ct. ut by secton 50 (b). supra, they woud be vad If e ecuted
between May 29, 1928, and anuary 1, 1929. Scope a gven for the operaton of secton
12 (see erner . Rerner, 147 U. S., 242, 240), and Incongruous resuts are avoded by
treatng secton 1100(a) as though t had never been a part of the 192 ct, as secton
12 drects. (See Unted States v. at, 271 U. S., 354.)
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S 277 and 278, rt. 1272. 322
2. Waves Consent n Wrtng.
The wrtten consent of the Commssoner, requred by the statute,
to an e tenson of tme for assessment and coecton, s suffcenty
evdenced by the Indorsement of the word waver upon the
assessment st attached to a certfcate of addtona assessment
sgned by the Commssoner.
8. ccount Stated.
Sut for recovery of aeged overpayment of ta s barred where
brought more than fve years after the date of payment, n the ab-
sence of an account stated gvng rse to a new cause of acton and
a new perod of mtaton. certfcate of overassessment does not
consttute an account stated where there remans for the Comms-
soner s approva a schedue of refunds and credts by whch the
baance due s for the frst tme defntvey announced.
4. Decson ffrmed.
Decson of (he Court of Cams (2 ed. Supp., 773, Ct D. 08,
C. . II-2, 230) affrmed.
Supreme Court of the Unted States.
R. . Stcurts Co., oston, Mass., pettoner, v. The Unted States, respondent.
On wrt of certorar to the Court of Cams.
anuary 8, 1934.
opnon.
Mr. ustce Cardozo devered the opnon of the court.
Upon the footng of an account stated the pettoner sues the Government
for ta es overpad.
Income and profts ta returns for the fsca year endng uy 31, 1917, were
fed by the ta payer n September, 1917. The ta shown by these returns as
we as by amended returns for the same year was pad n fu.
Income and profts ta returns for the fsca year endng uy 31, 1918, were
fed n October, 1918, and agan the ta was prompty pad.
oowng the practce of the ureau, the Commssoner proceeded to audt
the returns to te end that the assessments mght be Increased or reduced
accordng to the facts.
In ebruary, 1921, the ta payer sgned and fed a waver of any statutory
perod of mtaton as to the assessment and coecton of the ta for the
caendar year 1917. It dd ths n order to be assured that the audt by the
Commssoner woud be deberate and thorough. In the absence of such
a consent the perod of mtaton woud have e pred n pr, 1923. The
e tenson was approved n wrtng by the Commssoner n ebruary. 1923.
The waver on ts face bad no mt n respect of tme, but under a reguaton
adopted n pr, 1923, t spent ts force on pr 1, 1924, uness contnued or
renewed.
In ebruary, 1923, the ta payer sgned a second waver appcabe to the
fsca years 1917 and 1918, and e tendng the perod for coecton unt March 1,
1925. Ths waver was not sgned by the Commssoner wthn the term of
ts duraton, though t was sgned, years afterwards, on pr 7, 1930. ow-
ever, n une, 1923, whe boh wavers were on fe, the Commssoner made
an addtona assessment for the fsca year endng uy 31, 1917, and on
the attached assessment st wrote the word waver opposte the tem
affectng the pettoner. The addtona asses roent for 1917 was reduced by
a credt of an overassessment for 1910, and when so reduced amounted to
20,757.14. Payment of ths amount was demanded by the coector on ugust 3,
192 .
On ugust 9, 1923, the pettoner fed a cam for refund and credt of
Income ta es aeged to have been overpad for the fsca years 1918, 1919. 1920,
and 1921, amountng n the aggregate to 35,727.10. and asked that the unpad
baance for 1917 be set off aganst the cam for overpayment and that the
remander be refunded. t (hat tme t was the practce of the coector s offce
to treat such a cam as a stay of coecton of unpad ta es aganst whch the
credt was asked, unt the Commssaner had consdered and ad|usted the
cam.
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323 277 and 278, t. 1272.
On March 1, 1924, the Commssoner approved a schedue of overassessments
whch ncuded an overassessment n favor of the pettoner for the fsca year
endng uy 31, 1918, n the sum of 14,923.07, and sent ths schedue to the
coector for acton n accordance wth the drectons appearng thereon. On
une 12, 1924, the coector, foowng these nstructons, sgned and returned
the schedue to the Commssoner, together wth a schedue of refunds nnd
credts, certfyng the appcaton of 14,928.07 as a credt. On une 28, 1924,
the Commssoner sgned the schedue of refunds and credts, by whch act for
the frst tme he defntvey announced hs aowance of the cam. (Orard
Trust Co. v. Unted States, 270 U. S., 1 3, 170 T. D. 3919, C. . -2, 209
Unted States v. Swft d Co., 282 U. S., 4 8, 475 Ct D. 290, C. . -, 283 .)
efore dong ths, and on or about March 1, 1924, he had transmtted to the
pettoner a certfcate of overassessment for the fsca year endng uy 31,
1918, In the sum of 14,928.07, whch sum was credted n une upon the ta es
overdue. Ths overassessment for 1918, apped as a credt upon the unpad
ta for 1917 ( 20,757.14), reduced the abty of the ta payer to 5,829.07.
Demand for the payment of ths baance wth accrued nterest was made by
the coector on September 1, 1924. Two weeks ater, the pettoner comped
wth the demand, acceptng wthout protest the appcaton of the credt, and
payng the resutng baance.
or neary s years the transacton was aowed to stand unopened and
unchaenged. In pr, 1930, the pettoner earned through an attorney that
the second waver had not been sgned by the Commssoner unt after t had
e pred. Wth ths knowedge t fed wth the Commssoner a cam for
refund of the overpad ta for 1918 ( 14,928.07) whch had been coected
through appcaton as a credt upon the ta for the year before. The bass
for the cam was ths, that at the tme of the credt the frst waver had
e pred, that the second waver was neffectve because not sgned by the Com-
mssoner, that coecton by credt after the term of mtaton was as much
prohbted as coecton at such a tme by sut or by dstrant, and hence that
the overpad ta certfed by the Commssoner n the schedue of overassess-
ment was an undscharged ndebtedness, st owng from the Government
our days ater ths acton was begun. The Court of Cams gave |udgment n
favor of the Government (2 . Supp., 773), and a wrt of certorar brngs the
case here.
1. In audtng the ta for 1918 and credtng the overassessment for that
year upon the ta for the year before, the Commssoner acted at the request
of the pettoner, whch was vad t revoked.
or the decson of ths case we do not need to rue whether a waver by
a ta payer consentng to the enargement of the tme for assessment or coec-
ton s neffectve uness approved by the Commssoner n wrtng.1 There was
here more than a waver, an abandonment of a prvege to nsst upon the
fufment of a condton (Stange v. Unted States, 282 U. S., 270, 275, 27
Ct D. 274, C. . -, 414 orshetm ros. Co. v. Unted States, 280 U. S.,
453. 440 Ct. D. 1 7, C. . I -1, 2 0 ) there was a postve request, whch t
revoked upon reasonabe notce had the effect of an estoppe.
On ugust 3, 1923, the coector made demand upon the pettoner for the
payment of 20,757.14. the ta baance then due for the year 1917. There Is
no dspute that the demand was tmey, and that coecton woud have been
enforced uness the ta payer had done somethng to postpone the hour of
payment. Wavers were then on fe, one of them sgned by the Commssoner,
the other unsgned, but the pettoner dd not rest upon these, nor woud these
wthout more have avaed to avert the threatened evy. On ugust 9, 1923,
the pettoner fed wth the Commssoner a request to wthhod the process of
coecton unt credts were ad|usted. In substance the request was ths:
Pease do not coect the ta for 1917, unt you have competed the audt for
the years 1918 to 1921, ncusve, and f there has been overassessment for those
years, set t off as a credt
Now, the tme for assessment and coecton of the 1921 ta dd not e pre
t 1925, and ths wthout the ad of any waver or e tenson. In such crcum-
stances, request by the ta payer that the Commssoner wthhod coecton for
1917 unt there had been an audt of the ta for 1921 was at east equvaent
to a request that he deay unt the assessment for 1921 was due under the
1 See: Commssoner v. Unted States Refractores Corporaton (04 . (2d), 9: affrmed
by an eqnav .vd.-rt rmrt 2P0 U. S , 5 1. October S3. OS. t) tantc s v. Unted
States (3 . Supp., 09) contra: Commssoner v. nd (52 . (2d), 1075) ohn 11.
Parker Co. v. Commssoner (49 . (2d), 254).
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277 and 278, rt. 1272.
324
tatute. ut before that tme arrved, 1. e., before 1925, the Commssoner hud
acted. On March 1, 1924, he had competed the reuudt, and had dscovered
an overassessment for one of the years covered by the pettoner s request
Wthn a reasonabe tme thereafter ( une 12, 1924) he had receved from the
coector a report that 20,757.14 was st unpad upon the ta for 1917.
Prompty thereafter ( une 28, 1924), he had comped wth the pettoner s
Instructons by offsettng the overpayment for the one year u reducton of
the baance owng for the other. The whoe process had been competed wthn
the tme f ed by mpcaton n the pettoner s request, wthn the tme when
assessment was due for the ast of the group of years (1918 to 1921) to be
covered by the audt.
The pettoner makes the pont that by the Revenue ct of 1928 (eh. 802, 45
Stat., 791, 875, secton 009), a credt aganst a abty n respect of any ta -
abe year sha be vod If t has been made aganst a abty burred by
mtaton. The am of that provson, as we vew It, was to nvadate such
a credt f made by the Commssoner of hs own moton wthout the ta payer
approva or wth approva fang short of nducement or request. (Cf.
Mange v. Unted States, supra Revenue ct of 1928, secton 50 (b) (c), ch.
852, 45 Stat., 791, S70, 871.) If nothng more than ths appeared, there was to
be no e ercse n nvtum of governmenta power. ut the am of the statute
suggests a restrant upon ts meanng. To know whether abty as been
barred by mtaton t w not do to refer to the fght of tme aone. The
mtaton may have been postponed by force of a smpe waver, whch must
then be made n adherence to the statutory forms, or so we now assume. It
may have been postponed by deberate persuason to wthhod offca acton.
We thnk t an unreasonabe constructon that woud vew the prohbton of
the statute as overrdng the doctrne of estoppe (Rundon v. Tobey, 11 ow.,
493, 519) and nvadatng a credt made at the ta payer s request. ere at
the tme of the request, the abty was st ave, unaffected as yet by any
statutory bar. The request n ts far meanng reached forward nto the future
and prayed for the postponement of coecton t the audts for ater years
had been competed n the usua course. Ths havng been done, the suspended
coecton mght be effected by credt or by dstrant or by other methods pre-
scrbed by aw. Congress surey dd not mean that a credt was to be vod f
made by the Government n response to such a prayer.
The appcabe prncpe s fundamenta and unquestoned. e who pre-
vents a thng from beng done may not ava hmsef of the nonperformance
whch he has hmsef occasoned, for the aw says to hm n effect ths s your
own act, and therefore you are not damnfed. (Doan v. Rodgers, 149 N. Y.,
489, 491 and Imperator Reaty Co. v. Tu, 228 N. Y., 447, 457 quotng West v.
ah-way, 12 Man. G., 729, 751.) Sometmes the resutng dsabty has been
characterzed as an estoppe, sometmes as a waver. The abe counts for
tte. nough for present purposes that the dsabty has ts roots n the prn-
cpe more neary utmate than ether waver or estoppe, the prncpe that no
one sha be permtted to found any cam upon hs own Inequty or. take advan-
tage of hs own wrong. (Imperator Reaty Co. v. Tu, supra.) sut may
not be but on an omsson nduced by hm who sues. (Stean v. Seumens, 9
Wa., 254, 274 Unted States v. Peck, 102 U. S., 4 Thomson v. Poor, 147 N. Y.,
402 New Zeaand Shppng Co. v. Socete des teers 1919 , . C, 1, W-
ston, Contracts, voume 2, sectons 89, 92.)
2. If we assume n favor of the pettoner that the credt s a nuty In the
absence of a wrtten waver, approved by the Commssoner, the record sup-
ports the Inference that at the tme of the set-off such approva had been gven.
The statute provdes that no sut or proceedng sha be begun for the coec-
ton of the ta after the e praton of fve years succeedng the rng of the
return uness both the Commssoner and the ta payer consent n wrtng to a
ater determnaton, assessment, and coecton. (Revenue ct of 1921 ch.
13 , 42 Stat., 227, 2 5 , secton 250(d).) In ths case, consent by the ta payer
n due form s found and ndeed conceded. The ony queston s whether there
was consent by the Commssoner. ut the statute does not say that the ev-
dence of consent sha be emboded n a snse paper. (Cf. cpse Lawn Mocer
Co. v. Unted States, 1 . Supp., 7 8 Ct. 1). 29, C. . II-1. 2921.) Its one
requrement n respect of form s that the consent sha be n wrtng. (Rabn
v. Unted States, 70 Ct. Cs., 574.) There Is eft a wde range of admnstratve
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325
277 and 278, rt. 1272
dscreton. ny wrtng, forma or nforma, s suffcent f made for the pur-
pose of recordng the Commssoner s approva, and f approva may be gath-
ered therefrom as a reasonabe Inference.
The burden was on the pettoner, seekng a refund of ts ta , to prove ts
aegaton that the overassessment for 1918 had been egay credted upon the
ta for 1917. t the outset t mght have stood upon the fact that the credt
had been made after the norma term of mtaton, castng the burden on the
Government of gong forward wth evdence n proof of an e tenson. When ts
own waver had been proved, however, the case took on another aspect. t
that stage the presumpton of offca reguarty was suffcent to sustan the
nference that the Commssoner on hs sde had done whatever was approprate
to gve support to hs own act and thus vadate the credt. cts done by a
pubc offcer whch presuppose the e stence of other acts to make them
egay operatve, are presumptve proofs of the atter. ( ank of tc Unted
States v. Dandrdge, 12 Wheat., 4, 70 nted States v. Roycr, 2 8 U. S., 394,
39S no County v. Nnth Natona ank, 147 U. S., 91, 97 Mandeve v.
Reynods, 8 N. Y., 528, 534 Dcmngs v. Supreme Lodge nghts of Pythas,
131 N. Y., 522, 527 Wgmore, vdence, voume 5, secton 2524.) No doubt the
presumpton of reguarty s sub|ect to be rebutted. It stands unt dsodged.
Now, the pettoner has faed to show that the Commssoner dd not approve
n wrtng. On the contrary the evdence s persuasve that he dd. cer-
tfcate of an addtona assessment for the fsca year endng uy 31, 1917,
was sgned, as we have seen, on une 2 , 1923 and on the assessment st
attached thereto, opposte the entry of the assessment aganst the ettoner,
the foowng appears: 7/31/17 sc. 17533 1. O. L. 4/17/23 waver. The
Commssoner dd not sgn Ids name beow the memorandum, but the memo-
randum was attached to a certfcate whch the Commssoner dd sgn, and hs
name subscrbed to the certfcate authentcates aso the documents attached
to t, f we assume n favor of the pettoner that sgnng s essenta. The
Court of Cams was of the opnon that the word waver on ths st had
reaton to the second of the two consents on fe wth the Commssoner. The
conte t and the crcumstances end support to that concuson. The fsca
year for the pettoner ended uy 31. Probaby through nadvertence, the frst
waver refers to a ta for the caendar year endng December 31. Ths mght
have seemed to e cude the frst s months of the year endng uy 31, 1917,
. a, the perod from uy 31, 191 , to anuary 1 foowng. We do not say
that the courts woud uphod so tera a constructon. most certany the
ob|ecton, f made, woud be put asde as hypercrtca. (See 39 Stat., ch.
4 3, page 770, secton 13.) ven so, the memorandum may we be aocated
to the waver that fts t precsey n preference to the one that fts t mper-
fecty. We turn, then, to the documents n order to reate them to one another.
If we ook ony to ts etter, the memorandum does not refer to a waver for
the caendar year endng December 31, 1917. It refers, on the contrary, to a
waver for the fsca year endng uy 31, 1917 (7/31/17). The ony waver
correspondng to ths descrpton n form as we as n substance s the one
fed wth the Commssoner ebruary 19, 1923, whch covers the year endng
uy 31, 1917, as we as the year after.
The nference, therefore, s egtmate that the second of the two wavers
s the one that the Commssoner had n vew when he wrote ths memorandum
ndcatve of assent. t the very east the effect of the entry s to eave the
purpose of the wrter doubtfu. Choce between two doubts shoud be made
n such a way as to favor the presumpton of offca reguarty.
3. The pettoner has faed to make out the e stence of an account stated
for ts beneft, and ts cam, even f otherwse vad, s barred by mtaton.
Payment of the ta for the fsca year endng uy 31, 1918, was made by
the pettoner, party In 1918, and party n 1919. ve years from the date of
payment, a statute of mtatons set up a bar to a sut for the recovery of
the ta on the ground of ega assessment or coecton. (R. S. secton 322
2 U. S. C secton 15 Uonwt Teer d Co. v. Unted States, 283 U. S., 258, 2 5
Ct. D. 334, C. . -, 328 .) The pettoner, concedng ths, mantans that
n March, 1924, there was a statement of an account, gvng rse to a new cause
of acton wth a new term of mtaton. (Daube v. Unted States, 289 U. S.,
3 7, 370 Ct. D. 23, C. . II-1, 323 onwt Teer d Co. v. Unted States,
supra.) Ths sut was not brought t May, 1930. In the absence of an account
stated n ts favor the pettoner must fa.
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15277 and 278, rt. 1272.
32
recent |udgment of ths court recas the essentas of an account stated as
they were ong ago defned. (Daube v. Unted States, supra.) baance
must have been struck n such crcumstances as to Import a promse of payment
on the one sde and acceptance on the other. ut pany no such promse Is
a |ust or reasonabe nference from the certfcate of overassessment devered
to ths ta payer, f the certfcate s nterpreted n the settng of the occason.
The ta payer knew that the Commssoner had been requested, after determn-
ng the overassessment, to set t off aganst the ta for an earer year. The
ta payer knew aso that the set-off or credt woud not appear on the face of
the certfcate of overassessment, but woud requre reference to another and
ater document, the schedue of refunds and credts. The dverse functons of
these documents were ponted out by ths court n Unted States v. Swft Co.
(282 U. S., 4 8, 475) and Grard Trust Co. v. Unted States (270 U. S., 1 3, 170).
The ta payer knew aso that t had sgned a forma waver e tendng the term
of coecton unt March, 1925, and It had no reason to beeve that ths waver
had not been sgned by the Commssoner, If It be assumed for present purposes
that such a sgnature was necessary. Pany, n such crcumstances the certf-
cate of overassessment wthout more does not mport a promse by the Comms-
soner to refund the amount there certfed nstead of appyng t as a credt
upon the ta of an earer year. t most the promse to be Imped s one to
refund the e cess after there has been a computaton of the ta es unpad for
other years and an ascertanment of the baance. The statement of the account
s not uncondtona and defntve. It s provsona and tentatve. naty
was ackng unt there was an agreement as to credts. ( te cburgcr-Morrs Co.
v. Tacott, 219 N. Y., 505, 512.)
The events that foowed confrm ths Interpretaton of the effect of the
transacton. Upon a computaton of the credts the fna baance was ascer-
taned to be n favor of the Government. The baance thereby f ed was
reported to the ta payer. fter the schedue of refunds and credts had been
sgned by the Commssoner, the coector transmtted to the ta payer a new
statement of account by whch t was ceary made to appear that the over-
assessment had been credted upon the ta for 1917, and that after such
credt there was st owng from the ta payer a baance of 5,829.07, whch,
together wth the accrued nterest, was thereupon coected. Then for the frst
tme was there a fna ascertanment of the baance upon consderaton of
both sdes of the account, the debts and the credts. The ta payer dd not
ob|ect to the account as submtted n ts fna form. ar from ob|ectng, t
pad the resutng baance, and by ths act as we as by sence conceded
the ndebtedness. Indeed there was more than an account stated by force
of vountary payment there was aso an account setted. (Lockwood v. Thorne,
18 N. Y., 285. 292.) The statute of mtatons s a bar to the recovery by the
pettoner of the baance pad to the Government upon the demand of the
coector. Ths s not dsputed. It s equay a bar to the recovery of any
tem that entered nto the account and determned the baance as thus defntey
ad|usted.
The |udgment s affrmed.
Mr. ustce Stone took no part n the consderaton or decson of ths case.
rtce 1272: Perod of mtaton upon co- III-13- 725
ecton of ta . Ct. D. 807
INCOM - T R NU CT OP 1918 D CISION OP COURT.
1. Waver adty ecutkd fter ar of Statute.
waver made and accepted after the e praton of the perod
of mtaton, or after the e praton of any waver perod, s effec-
tve to restore the rght of the Government to proceed wth the
assessment for coecton of the defcency.
2. Waver ss cs sment Coecton .
waver whch e tends the tme for assessment contempates
aso the coecton of the ta after assessment.
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327 277 and 278, rt. 1272.
8. Decson ffbmed.
Decson of the oard of Ta ppeas (23 . T. ., 1331)
affrmed.
4. Certorar Dened.
Petton for certorar dened November 20, 1033.
Unted States Crcut Court of ppeas for the Seventh Crcut.
Crucbe Stee Castng Co., pettoner, v. Commssoner of Interna Revenue,
responden t.
Petton for revew of decson of the Unted States oard of Ta ppeas.
efore .schuer and Sparks, Crcut udges, and Wkebson, Dstrct udge.
uy 11, 1933.
opnon.
sohuer, Crcut udge: There s nvoved n ths appea the queston
whether the coecton of the ncome ta for the caendar year 1918 s barred
by mtaton.
Pettoner s ta return was fed une 13, 1919. On ebruary 28, 1924,
pettoner e ecuted, and the Commssoner accepted, an ncome and profts ta
waver wheren pettoner consented to a determnaton, assessment, and
coecton of any such ta es for the year 1918, such waver to contnue n
effect for one year after the perod of mtaton woud e pre.
On November 19. 1925, after the term of the former waver had e pred,
pettoner e ecuted, and the Commssoner accepted, a further waver, effec-
tve unt December 31, 192 , whereby the tme for assessment of the ta was
waved for the specfed perod. Under date of November 22, 102 , pettoner
e ecuted a further waver, n same form as the one ast above, to be effectve
unt December 31, 1927. The notce of defcency nvoved n tds appea
was sent to pettoner anuary 21, 1927.
The frst contenton made s that the second waver was not made unt after
the perod of the frst waver had e pred, and that a waver made and
accepted after the e praton of the perod of mtaton, or after e praton
of any waver perod, s neffectve to restore the rght of the Government to
proceed wth the assessment for coecton of the defcency. In Stangc v.
Unted States (282 U. S., 270 Ct. D. 274, C. . -, 414 ) t was dstncty
hed otherwse. The rght to proceed wthn the perod of the waver was
there uphed, notwthstandng that at the tme the waver was made the
bar of the statute was aready compete.
It s camed that the ast two wavers dd not e tend the tme for coect-
ng the ta , and that the bar on coecton was compete. The frst waver
waved the mtaton for the determnaton, assessment, and coecton of
the ta es, whe the second and thrd purported to e tend the tme ony as
to assessment of ta es, wthout mentonng coecton. The precse conten-
ton s that the rght to coect s barred notwthstandng the waver was effec-
tve as to the assessment of the ta . The Stauge case denes aso ths con-
tenton. There the waver made no reference to coecton, but the court hed
ths was not essenta n order to make effectve the ta payer s e pressed
consent to the e tenson of the perod for assessment. Sad the court: The
partes can not have ntended to have the amount of the ta ascertaned and
to eave the ta payer free to pay It or not. They ceary contempated the
entre procedure necessary to determnaton and coecton of the ta . These
words from the Stange case are here appcabe and decsve. To ke effect s
ken v. urnet (282 U. S., 277 Ct. D. 275, C. . -, 417 ). (See aso,
W. P. rown Sons Lumber Co. v. umrt. 2S2 U. S., 2S3 Ct. D. 270, C. .
-, 274 , and urnet v. Chcago Rahcay qupment Co., 282 U. S., 205 Ct. D.
27 , C. . -, 323 .)
The order appeaed from s affrmed.
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277 and 278, rt. 1272.
328
rtce 1272: Perod of mtaton upon coec-
ton of ta .
III-20- 79
Ct. D. 82
INCOM ND PRO ITS T R NU CTS O 191 , 1017, ND 1918 D CISION
O COURT.
Sut1 Coecton by Credt Statute of Lmtatons stoppe.
Where, for ts own convenence, the ta payer requested that
appcaton of an overassessment for the year 1918 as a credt upon
a defcency assessment, tmey made, for the year 1917 be hed n
abeyance unt the whoe matter of ta es for the years 191 to
1920 coud be determned, t s estopped to assert, as a bass for
recovery, that coecton of the addtona assessment for 1917 was
barred at the tme when the credts were made.
Green, udge, devered the opnon of the court.
The pantff brngs ths sut to recover 43,927. 5, beng a porton of the
overassessment of ts ncome and profts ta for the year 1918 whch was
apped aganst an addtona assessment tmey made of ta for the year 1917,
wth nterest.
The case before the court s one In whch the ureau of Interna Revenue
havng had under consderaton the amount of pantff s ta es for the years
1910 to 1920, ncusve, the Commssoner notfed pantff by etter that he
had determned that 53,973.35 addtona ta es were due for 1917 and that
there was an overassessment for 1918 of 73,925.53. In the same etter pan-
tff was advsed of other ad|ustments on ts ta es whch are not necessary
to be consdered here. The pantff then referred the matter to ts duy
authorzed attorney, Chares . Crawford. Crawford had a conference wth
the coector n charge of the coecton of these ta es and certan communca-
tons passed between them. In ths conference and by etters to the coector
the attorney for pantff requested the coector to hod up acton upon the
above tems (meanng pantff s ta es under consderaton), unt the cer-
tfcates are receved from Washngton aud the whoe matter cosed. Ths
same request was repeated n dfferent communcatons and dfferent forms
and the coector answered that the coecton ot these amounts woud be hed
n abeyance n accordance wth the request. Later, and on ebruary 19, 1924,
the Commssoner made an addtona assessment for 1917 n the amount of
whch the pantff had been before notfed ( 53,973.35), and aso a sma
addtona assessment for the year 1920, and drected the coector to wthhod
demand pendng comparson wth the schedue of overassessments. Ths
assessment was n tme and there was nothng to prevent ts coecton e cept
the agreement above shown. On ebruary 25, 1924, the Commssoner approved
the schedue of overassessments showng an overassessment of pantff s ta es
for the year 1918 n the amount of 73,925.53, and sent the same to the coector
wth nstructons to appy the overpayment as a credt aganst ta es due, If
any, whch was accordngy returned to the Commssoner by the coector
showng that of the sad overassessment In the amount of 73,925.53, 29,997.88
had been apped as a credt aganst the unpad orgna ta for 1920 and the
baance of 43,927. 5 aganst addtona assessment for the year 1917 n the
amount of 53,973.35, eavng 10,045.70 st due thereon. efore the schedue
was sgned the coector had sent to pantff a notce and demand for the
baance of the 1917 ta es as above stated whch the pantff shorty after pad,
and thereafter and on une 4, 1924, the Commssoner sgned the schedue of
refunds and credts transmtted to hm by the coector.
The record as a whoe shows that the pantff for ts own convenence a
through these transactons was requestng that the coecton of ts ta es be
hed up and that a of them be ad|usted n one fna transacton, and that
the matter was carred to a concuson n accordance wth ts request. t
Court of Cams of the Unted States.
Cnton Coa Co. v. The Unted States.
ebruary 5, 1934.
opnon.
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329
279, rt. 1281.
the tme, the pantff e pressed ts apprecaton and pad the amount st
remanng on ts 1917 ta es. fter havng thus confrmed the transacton no
further ob|ectons were made unt more than fve years afterwards when t
fed the cam for refund of 43,927.05 for the year 1918 upon whch the sut
s now brought.
It s urged on behaf of pantff that these communcatons and agreements
were had and nmde wth the coector and not wth the Commssoner. It s
not necessary to here ay down any genera rue wth reference to the effect of
communcatons made to a Unted States coector of ta es or agreements made
wth hm. It s suffcent to say that n ths partcuar case we fnd that the
coector had fu charge of the matter of coectng these ta es sub|ect to speca
drectons from the Commssoner of Interna evenue. y the negotatons
and agreement entered nto wth the coector made at a tme when the ta
coud be coected, the pantff succeeded n havng the coecton postponed,
and the arrangement whch t had requested havng been carred, out by the
defendant t can not now be heard to compan thereof.
In vew of the recent decsons of ths court, t w not be necessary to state
heren further reasons why the pantff can not mantan ts acton. If any be
sought, reference s made to the cases of Saumkea-g Steam Cotton Co. v. Unted
States (7 C. Cs., 87, certorar dened) . . Stearns Co. v. Unted States,
decded anuary 8, 1934 (291 U. 8., 54 Ct. D. 780, page 321, ths uetn ),
affrmng the decson of ths court and the opnon n the case of Samue
Daube v. Unted States, ths day rendered, a of whch show that the pantff
s estopped under the crcumstances from mantanng ts acton. We mght
aso add that under the rue ad down n the ast-named decson the pan-
tff s acton s barred, no cam for refund havng been fed In tme n vew of
the fact that the evdence shows there was no account stated.
Defendant aso bases a defense on the fact that what s caed orm 3 8-M
was attached to the schedue of overassessments, but we do not fnd t necessary
to consder ths matter.
Pantff s petton must be dsmssed. It s so ordered.
S CTION 279. OP RDY SS SSM NTS.
btce 1281: eopardy assessments. III-19- 784
( so Secton 270, rtce 120G Secton 275, Ct. D. 823
rtce 1251.)
kcome and e cess profts ta revenue acts of 1918, 1918, 1921, 1924,
and 192 decson of court.
1. ase and rauduent Returns- Penates Peadngs.
Where ta payer s petton to the oard of Ta ppeas aeges
that amounts assessed aganst hm as penates were assessed upon
the ground that he had unawfuy and wfuy attempted to evade
payment of ta es mposed for the years 1917, 1918, 1919, and 1921,
and the Commssoner n hs answer denes error n makng the
assessment and denes generay the matera aegatons of fact
contaned n the petton, the ssue of fraud, beng nherent n the
Commssoner s determnaton, s suffcenty peaded, snce secton
01 of the Revenue ct of 1928, whch amended secton 907(a) of
the Revenue ct of 1924 and provded for the frst tme that the
burden of provng fraud shoud be upon the Commssoner, had not
been enacted at the tme the answer was fed.
2. ase and rauduent Returns Lmtaton eopardy
ssessment. .
|eopardy assessment made n November, 1924, for ncome and
e cess profts ta es for 1917, 1918, and 1919, and fraud penates,
Is not barred by the statute of mtatons where the oard fnds,
on proper and suffcent evdence, that returns for those years were
fase and frauduent wth ntent to evade ta es, snce secton
278(a) of the Revenue ct of 1920 provdes that, where fraud Is
found, the ta may be assessed at any tme.
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279, rt. 1281.
330
3. Compromse and Settement vdence Suffcency ffect
of oard s ndng.
Where evdence offered by pettoner to show that certan pay-
ments were made n compromse and settement of a ta es and
penates for the |-ears n queston s met by evdence offered by the
Commssoner tendng to show that the requrements of secton
3229 of the Revsed Statutes wth respect to the consent of the
Secretary of the Treasury and the fng of an opnon by the Soc-
tor of Interna Revenue had not been comped wth, the fndng of
the oard of Ta ppeas that the evdence faed to estabsh that
a compromse had been reached s suffcenty supported, and s
bndng upon the court.
4. Res udcata.
cqutta u|wn an ndctment chargng wfu attempt to defeat
and evade ta es under amended returns for 1917, 1918, and 1919
does not operate, under the doctrne of res |udcata, as a bar to the
mposton of penates mposed because of fraud n the orgna
returns for those years.
. Consttutonaty.
convcton for wfu attempt to defeat or evade ta by fng
a fase and frauduent return for the year 1921 does not, under the
ffth amendment to the Consttuton of the Unted States, operate
as a bar to the mposton of an added penaty for fng the same
frauduent return t beng wthn the power of Congress to pre-
scrbe fne and mprsonment through crmna prosecuton under
secton 253 of the Revenue ct of 1921 and aso the added penaty
under secton 250(d) of that ct, as parts of one punshment
. Decson ffrmed.
Decson of the oard of Ta ppeas (2 . T. ., 70) affrmed.
Unted States Crcut Court of ppeas, ourth Crcut.
ohn R. anby, pettoner, v. Commssoner of Interna Revenue, respondent.
On petton to revew te decson of the Unted States oard of Ta ppeas.
efore Parker, Northoott, and Soper, Crcut udges.
October 3, 1933.
OPINION.
Soper, Crcut udge: petton was fed by the ta payer to revew a de-
cson of the oard of Ta ppeas affrmng the Commssoner s determna-
ton of addtona ncome and e cess profts ta es for the years 1917, 1918,
1919, 1920, and 1921. The sum of the defcences of the ta es In these years, as
so approved, s 22,829. 4, to whch penates n the amount of 20,55 .35 have
been added. or the year 1917 there was mposed under R. S. secton 317 ,
as amended by secton 1 of the Revenue ct of 191 (39 Stat, 75 , 775), a
penaty of 50 per cent of the e cess profts ta , for faure to make and fe the
e cess profts return, and aso a penaty of 100 per cent of the ncome ta , for
wfuy makng a fase and frauduent ncome ta return whe for each of the
other years there was mposed under secton 250(b) of the Revenue cts of 1918
and 1921 440 Stat., 1057, 42 Stat., 227), a penaty of 50 per cent of the amount
of the defcency, for fase and frauduent understatement, wth ntent to evade
the ta or the amount whch shoud have been pad. Pettoner does not ques-
ton the amount of the defcences assessed, but advances dvers reasons why
the assessment may not now bo mposed upon the foowng facts as found by
the oard.
Pettoner was engaged durng the years n queston at Wmngton, N. C,
n the manufacture and whoesae dstrbuton of candes and soft drnks, under
the trade name of Crescent Candy Co. fase record book was kept, under
pettoner s drecton, the accounts of the busness were deberatey manpuated
n order that hs ta abe gan mght be understated and fase returns, based
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331
279, rt. 1281.
upon these accounts, were fed In due tme for each of the years 1917 to 1921.
On une 9, 1923, after an e amnaton of pettoner s books, a defcency etter,
wth attached statement showng an addtona ta and penaty of 3,892.37
for the years 1917, 1918, and 1919 was maed to pettoner, and as a resut
pettoner fed amended returns for those years, admttng part of the abty
asserted. Conferences were then had n Washngton between a representatve of
the pettoner and representatves of the ureau of Interna Revenue, and as
a consequence of these dscussons, an addtona assessment of ta es and pen-
ates was made by the Commssoner, and addtona payments were made by
the ta payer under crcumstances to be ater more fuy descrbed. In the year
1924 a further e amnaton of pettoner s books was had, and a second def-
cency etter, showng addtona ta es and penates n the sum of 43,385.99,
was maed to pettoner on October 11, 1924. |eopardy assessment for ths
sum foowed n November, 1924 and the present proceedng grows out of the
respondent s re|ecton on une 3, 1927, of pettoner s cam for abatement of the
fu amount of the addtona assessment. In the meantme pettoner was
ndcted n the Unted States Dstrct Court for the astern Dstrct of North
Carona for wfu attempt to defeat and evade the ta es mposed by aw,
by fng fase and frauduent amended returns for the years 1917, 1918, and
1919, and aso for fng a fase and frauduent orgna return for 1921. e was
tred under ths ndctment and acqutted of the charges wth reference to the
amended returns for 1917, 1918, and 1919, but convcted of the charge n reaton
to hs orgna return for 1921.
Upon these facts, pettoner contends (1) that the assessment n November,
1924, of ta es and penates for 1917, 1918, and 1919 was barred by the statute
of mtatons (2) that there was a bndng settement and compromse of ta
abty for the years 1917, 1918, and 1919 (3) that the acqutta of pettoner
on crmna charges n connecton wth the amended returns for 1917, 1918, and
1919 s res |udcata, as to hs abty for fraud penates for those years
and (4) that the ndctment and convcton of pettoner on the charge of fng
a fase and frauduent orgna return for 1921 operates as a bar under the
doctrne of doube |eopardy, to the further mposton of the fraud penaty for
that year.
There s aso a premnary procedura queston. Pettoner earnesty con-
tends, as to the penates mposed, that the queston of fraud was not propery
rased by the peadngs before the oard, and hence that certan ob|ectons
made by hm at the hearng to evdence of fraud offered by the respondent
shoud have been sustaned, eavng no evdence n the record to support the
Imposton of the penates. It s true that respondent dd not affrmatvey
aege fraud In hs answer but smpy dened that he had erred n makng the
assessment and dened generay the matera aegatons of fact n the petton.
Nor dd the pettoner e pressy aege the absence of fraud. In hs specfca-
tons he referred to certan of the defenses above mentoned, and decared that
the computaton of ta and penates was erroneous beng based upon mproper
data and records, and not In accord wth the facts. ut t does not foow that
the queston of fraud was not In ssue. It s obvous that the pettoner was
we aware that frauduent conduct on hs part formed the bass of the Com-
mssoner s determnaton, for the petton tsef contaned the aegaton on hs
part that the amounts assessed aganst hm as penates were assessed upon
the ground that he had unawfuy and wfuy attempted to evade payment
of the ta es mposed upon hm for the respectve years. Moreover, as the
oard ponted out n ts opnon, the queston of fraud was nherent n the
Commssoner s determnaton. The |eopardy assessment of November 29, 1924,
of S43.385.99, conssted of addtona ta es and of penates ncurred from hs
wfu attempt to evade the payment of ta es. e fed a cam n abatement
of ths assessment, whch was re|ected on une 3, 1927, and the pendng petton
was fed by hm to secure a revew of ths re|ecton by the oard.
Snce the Commssoner s determnaton and assessment of penates was
based on a fndng of fraud, the ony way n whch the ta payer coud get
reef was to put the queston of fraud n ssue for the oard has merey a
revsory capacty and ts |ursdcton s mted to the ssues rased by the
peadngs before t. (.Popuar Pror Taorng Co. v. Commssoner, 33 . (2d),
4 4 ar v. Matthews, 29 . (2d), 892 nggs vh, Inc., v. Commssoner, 34
. (2d), 859, 8 1.) Therefore uness t appears from the petton of the ta -
payer that he contested the vadty of the Commssoner s fndng on the ground
that fraud waa not proved, the Commssoner s determnaton of fraud must
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279, rt. 1281.
332
necessary stand. (Compare oard of Tan ppeas v. Unted States, 37 .
(2d), 442.) It woud ava the ta payer nothng n ths case to nterpret te
genera assgnment of error above referred to n the manner whch he now sug-
gests as questonng ony the correctness of the mathematca cacuaton n-
voved n the assessment, for no error has been shown n ths respect, and ths
nterpretaton woud eave the fndng of fraud by the Commssoner
undsturbed. It may be added In passng that the pont under ds-
cusson s purey forma nnd technca, because the Commssoner offered
evdence whch fuy estabshed frauduent conduct on the part of the
pettoner n connecton wth hs ta return, and the pettoner
offered no evdence on hs behaf to the contrary. Under these cr-
cumstances, we thnk that the oard was correct n hodng that the Com-
mssoner s answer, fed on ugust 22, 1927, was n accord wth rue 14 of
the oard whch then provded n substance that the answer shoud fuy
advse the pettoner and the oard of the nature of the defense and shoud
contan a specfc admsson or dena of each matera aegaton of fact con-
taned n the petton, and shoud set forth any new matters upon whch the
pettoner rees for defense or for affrmatve reef. The ssue or fraud was
not new matter wthn the meanng of ths rue because t was nherent n the
Commssoner s pror determnaton and t can not be sad that the pet-
toner was n need of advce that fraud was nvoved snce hs petton dscosed
that he was n possesson of ths nformaton. Subsequent to the fng of the
answer, secton C01 of the Revenue ct of 1928 (45 Stat., 791), amendng
secton 007(a) of the Revenue ct of 1924 (43 Stat., 253), was passed pro-
vdng for the frst tme that the burden of provng fraud shoud be upon
the Commssoner and pursuant to ths statute, the oard amended rue 14
to provde that the answer sha contan amongst other thngs a statement
of any facts upon whch the pettoner rees to sustan any ssue rased n
the petton n respect to whch the burden of proof s paced upon the Com-
mssoner but ths rue was not n effect n 1927 when the answer was fed
and such a statement was not then necessary.
Ths resut dsposes aso of the frst contenton made by pettoner upon
the facts as found by the oard, that the assessment of ta es and pena-
tes for the years 1917,1918, nnd 1919 was barred by the statute of mtatons.
Secton 277(a)3 of the Revenue ct of 192 (44 Stat., 9), provdes: The
amount of ncome, e cess profts and war profts ta es Imposed by
the Revenue ct of 1917, the Revenue ct of 1918, and by any such ct as
amended, sha be assessed wthn fve years after the return was fed .
Secton 27S(a) provdes: In the case of a fase and frauduent return wth,
ntent to evade ta or of a faure to fe a return, the ta may be as-
sessed at any tme. Snce the oard has found, on proper and
suffcent evdence, that pettoner s returns for 1917, 1918, and 1919 were
fase fnd frauduent wth ntent to evade ta , and that no e cess-profts re-
turn was fed for 1917, the |eopardy assessment of November, 1924, was tmey.
Pettoner s ne t contenton s that there has been a vad compromse and
settement of hs abty for ta es and penates for the years 1917, 1918, and
1919, whch prevents further recovery for those years. e rees upon the
authorty gven tre Commssoner by R S. secton 3229 (2 U. S. C. ., 158)
to compromse certan cams, the anguage of the provson beng:
The Commssoner of Interna Revenue, wth the advce and consent of the
Secretary of the Treasury, may compromse any cv or crmna case arsng
under the nterna revenue aws nstead of commencng sut thereon .
Whenever a compromse s made n any case, there sha be paced on fe
n the offce of the Commssoner the opnon of the Soctor of Interna
Revenue, or of the offcer actng as such, wth hs reasons therefor, wth a
statement of the amount of the ta assessed, the amount of addtona ta
or penaty mposed by aw n consequence of the negect or denquency of the
person aganst whom the ta s assessed, and the amount actuay pad n
accordance wth the terms of the compromse.
The evdence offered by pettoner to show that a compromse was effected
n accordance wth ths secton, tended to show that after an e amnaton of
pettoner s books by an nterna revenue agent n 1923, and after recept of
the frst defcency etter, pettoner fed amended returns for the years 1917,
1918, and 1919, and aso a protest to the defcency etter n whch he stated
he was makng an offer of compromse n the amount of 12,880.55 that
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333
279, rt. 1281.
at a conference between a representatve of pettoner and certan subordnate
offcas In the ureau, the facts sworn to by pettoner n the protest and n
the amended returns were dscussed, and pettoner s contenton that there had
been no fraud n the orgna returns was apparenty accepted that at ths
conference a check for . 12,880.55, payabe to the Commssoner, whch was
tendered wth the protest, was tentatvey accepted that t was agreed at a
ater conference that ths check shoud be accepted as part payment of the
tota ta whch the ureau s audt of the amended returns showed to be due,
and that the baance of 7,203.22 shoud be met by a check payabe to the
coector of nterna revenue for the dstrct of North Carona, where the
ta payer resded, and that ths was done that the check for 12,880.55 was
Indorsed by the Commssoner to the coector, and that both checks were
Indorsed by the atter offca and deposted n bank, and that each check
stated on ts face that t was n fu and fna payment of a edera ta es
and penates for the years n queston. Pettoner offered no evdence that
the consent of the Secretary of the Treasury to the offor of compromse
had been gven, or that an opnon of the Soctor of Interna Revenue had
been paced on fe, as requred by the provsons of R. S. secton 3229 above
set out.
On the other hand, the respondent offered evdence tendng to show that
there was no record n the offce of the coector, or n the offce of the Genera
Counse of the ureau of Interna Revenue, or n the offce of the Soctor of
Interna Revenue, that an offer of compromse had been tendered. Ths
evdence was ob|ected to by the pettoner, but the ob|ecton was propery
overrued by the oard, snce the evdence obvousy tended to show that the
requrements of the statute wth respect to the consent of the Secretary of
. the Treasury, and of the fng of an opnon by the Soctor of Interna
Revenue had not been met. It was aso shown that a carbon copy of an
offer of compromse, dated une 14, 1923, whch the pettoner camed
that he had fed wth the coector on or about that date, was wrtten on an
offca form that was not prnted unt ugust, 1924, and the pettoner made
no effort to e pan the dscrepancy n dates. The oard of Ta ppeas
hed that the evdence faed to estabsh that a compromse had been reached
In compance wth the provsons of R. S. secton 3229, and snce there was
substanta evdence to support the fndng, t s bndng on ths court. (0
bre rush Co. v. ar, 32 . (2d), 42.)
Pettoner nevertheess contends that the evdence outned brngs the case
wthn the rue ad down by ths court In Over v. Unted States (2 7 ., 544),
where t was hed by a dvded court that upon the tra of the defendant for
voatng the arrson Narcotc ct, It was error to re|ect evdence tendng to
show that the defendant had made an offer of compromse to the Comms-
soner of Interna Revenue, accompaned by a check n payment of the amount
offered, whch was ndorsed by the Commssoner to the proper coector of
Interna revenue and deposted by the atter n bank. It was hed that ths
evdence, n the absence of any evdence to the contrary, at east tended to
show that the compromse had been approved and duy accepted by the proper
offcas of the Government, n accordance wth the statute. That case, however,
s not controng here for the evdence of the pettoner has been met by ev-
dence on the part of the respondent creatng an ssue of fact upon whch the
oard has made a bndng decson. Moreover, the more recent decson of the
Supreme Court n otany Ms v. Unted States (278 U. S., 282 Ct. D. 39, C. .
III-1, 279 ), s concusve of the matter. There the ta payer s books showed
the necessty of an addtona assessment, and after much correspondence and
numerous conferences wth subordnate offcas of the ureau of Interna Reve-
nue, t fed an amended return and pad an addtona ta based upon fgures
agreed upon n the conferences. ut the Secretary of the Treasury dd not
consent to the settement, and no opnon was fed by the Soctor of Interna
Revenue. The ta payer sued to recover a p:rt of the addtona ta on the
ground that t had been egay coected, and was mot wth the defense that
a bndng agreement of compromse had been made. The Supreme Court sad
page 28) :
ere the attempted settement was made by subordnate offcas n the
ureau of Interna Revenue. nd athough t may have been ratfed by the
Commssoner n makng the addtona assessment based thereon, t does not
appear that t was assented to by the Secretary, or that the opnon of the
Soctor was fed n the Commssoner s offce.
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279, rt. 1281.
334
We thnk that Congress Intended by the statute to prescrbe the e cusve
method by whch ta cases coud be compromsed, requrng therefor the con-
currence of the Commssoner and the Secretary, and prescrbng the formaty
wth whch, as a matter of pubc concern, t shoud be attested n the fes of
the Commssoner s offce and dd not Intend to ntrust the fna settement of
such matters to the nforma acton of subordnate offcas n the ureau.
When a statute mts a thng to be done n a partcuar mode, t ncudes the
negatve of any other mode.
Ths resut renders t unnecessary to consder severa assgnments of error
reatve to the admsson of evdence as to what transpred at the conferences
n the ureau, and as to the nterpretaton paced upon the resut of those
conferences by certan offcas.
There s no mert n pettoner s contenton that hs acqutta as to the years
1D17, 1918, and 1919 upon an ndctment chargng wfu attempts to defeat
and evade ta In those years, operates, under the doctrne of res |udcata, aa
a bar to the mposton of fraud penates for those years. The crmna charges
as to 1917, 1918, and 1919 reated ony to the amended returns whch pettoner
fed after the e amnaton of hs books n 1923, and the ssue here nvoved, of
fraud n the orgna returns, s whoy dstnct. There can be no estoppe
by |udgment, where the former and subsequent case do not Invove the same
cam or demand, uness the pont or queston to be determned n the ater
case s the same as that tgated and determned n the former. (Tat v.
Western Maryand Ry. Co., 53 S. C. R., 70 Ct. D. 83, C. . II-1, 351
Cromwe v. County of Sac, 94 U. S., 351.)
nay pettoner contends that the fraud penaty of 357.41, assessed for
the year 1921 under secton 250(b) of the Revenue ct of 1921 (42 Stat., 227,
205), set forth In the note,1 may not propery be mposed upon pettoner be-
cause of hs pror ndctment and convcton n 1924 for havng fed the same
fase and frauduent return for 1921. The contenton Is, that the fraud penaty
s a punshment for crme, and that, havng once been punshed n a crmna
proceedng for the same offense, pettoner s protected from a second punsh-
ment by the ffth amendment to the Consttuton, provdng that no person
sha be sub|ect for the same offense to be twce put In |eopardy of fe or
mb.
The oard found as a fact that the pettoner had been ndcted and con-
vcted of fng a fase and frauduent return for 1921, the return beng hs
orgna return for that year and the same for whch the penaty now under
dscusson was assessed and foowng the anguage of secton 250(b), whch
specfcay mposes the fraud penaty In addton to other penates provded
by aw for fase or frauduent returns, the oard approved the respondent s
determnaton. It appears that the pettoner was found guty of a voaton of
secton 253 of the Revenue ct of 1921 (42 Stat, 2 8), whch provdes that
any ndvdua who wfuy attempts n any manner to defeat or
evade the ta mposed by ths tte, sha be guty of a msdemeanor, and
punshed by fne and mprsonment.
Thus the queston s presented whether a convcton under secton 253 of the
Revenue ct of 1921 for wfuy attemptng to defeat or evade a ta by the
fng of a fase or frauduent return operates as a bar to the subsequent
assessment and coecton under secton 250(b) of that ct of the added penaty
of 50 per centum of the defcency found to e st In the same frauduent return.
Pettoner rees entrey upon Unted States v. Lafranca (282 U. S., 508) and
Unted States v. Chouteau (102 U. S., 03). It was hed n the former case
that a cv sut for the recovery of ta es and penates, mposed by the earer
statutes upon the ega manufacture and traffc n nto catng quors, and
kept ave and ncreased by secton 35 of the Natona Prohbton ct, was
barred by a pror convcton nvovng the same unawfu conduct under the
Natona Prohbton ct. The decson was based upon an nterpretaton of
secton 5 of the Ws-Campbe ct whch provded that If any act shoud be
both a voaton of the earer aws and aso of the Natona Prohbton ct,
a convcton under one statute shoud be a bar to a subsequent prosecuton under
1 Sec. 250. (b) If any part of the defcency a due to fraud wth Intent to
evade a . ten. In eu of the penaty provded by secton 3170 of the Revsed Statutes,
as amended, for fase or frauduent return wfuy made, but n addton to other
penates provded by aw for fase or frauduent returns, there sha be added as part
of the ta 50 per centum of the tota amount of the defcency n the ta . In such case
the whoe amount of the ta unpad. Incudng the penaty ao added, sha become due and
payabe upon notce and demand by the coector.
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335
I 279, rt. 12S1.
the other. It was sad that a contrary nterpretaton woud gve rse to a
grave consttutona queston and t was ponted out that the so-caed a had
no reaton to the ordnary support of the Government, but was an e acton
mposed by statute as a punshment for an unawfu art, and that the fact
(hat the second case was a cv acton dd not ater the rue that a person may
not be twce punshed for the same offense. In Unted States v. Chouteau
(102 U. S., 03) t was hed that where the Government had accepted a sum
of money In compromse of the charges n an ndctment for the remova of
dsted sprts from a dstery, wthout payng the revenue ta thereon,
t coud nut succeed n a cv sut for the recovery of a penaty for the same
unawfu act, athough R. S. secton 329 mposed not ony a fne and mprson-
ment for unawfu remova, but aso a penaty. Speakng of the defendant,
the court sad (page 11):
e has been punshed In the amount pad upon the settement for the
offense wth whch he was charged, and that shoud end the present acton,
accordng to the prncpe on whch a former acqutta or convcton may
be nvoked to protect aganst a second punshment for the same offense. To
hod otherwse woud be to sacrfce a great prncpe to the mere form of
procedure, and to render settements wth the Government deusve and useess.
Respondent contends that the ffth amendment Is nappcabe because (1) the
Identty of offenses necessary to gve rse to the bar of doube |eopardy has not
been estabshed, and (2) the fraud penaty mposed by secton 250(b) s not a
punshment for crme. Respondent s frst contenton s based upon the doubtfu
ground that the offenses must be regarded as dstnct because fraud whe
e pressy made essenta to abty for the penaty provded by secton 250(b)
s not a necessary Ingredent of the crmna offense descrbed n secton 253.
or the purposes of ths case, however, we sha assume the dentty of the
offenses. Smary, we sha assume, contrary to the contenton of the re-
spondent, that a second punshment, even though mposed as an admnstratve
penaty, voates the prohbton of the ffth amendment that no person sha
be twce n |eopardy for the same offense. ut t does not foow that recovery
of the penaty n ths case s barred by the ffth amendment.
It s manfest that Congress ntended to mpose upon such unawfu and
frauduent conduct as that of the ta payer n ths case not ony a punshment
by fne and mprsonment through crmna prosecuton under secton 253 of the
Revenue ct of 1921, but aso the added penaty under secton 250(b) to become
due and payabe upon notce and demand by the coector. Under such crcum-
stances t as been hed that the statute does not mpose a second punshment
for the same offense, but that the severa penates are parts of a whoe whch
s not satsfed by the mposton of a part. Thus the case of In re Le zyn ky
(15 ed. Cases No. 8279) nvoved a cv sut n whch the Unted States
had recovered a money penaty mposed by R. S. 3318, and t was hed that ths
udgment was not a bar to a subsequent crmna prosecuton based on the same
offense. atchford, crcut |udge, quotng from Peope v. Stevens (13 Wend.
(N. Y.), 341, 342), sad:
It s undoubtedy competent for the egsature to sub|ect any partcuar
offense both to a penaty and a crmna prosecuton. It s not punshng the
same offense twce. They are but parts of one punshment. They both const-
tute the punshment whch the aw nfcts upon the offense. That they are
enforced n dfferent modes of proceedng, and at dfferent tmes does not
affect the prncpe. It mght as we be contended that a man was punshed
twce when he was both fned and mprsoned, whch he may be n most
msdemeanors.
e aso sad:
The ffth amendment to the Consttuton of the Unted Staes provdes
that no person sha be sub|ect for the same offense to be twce put n eop-
ardy of fe or mb. It s contended, for the Unted States, that the |udg-
ment n the cv sut, and the payment of t, dd not sub|ect the reator
to be put n |eopardy of hs fe or mb. ut, even though the sprt of ths
amendment be to prevent a second punshment, under |udca proceedngs,
for the same crme, so far as the common aw gave that protecton ( parte
Lange, 18 Wa. (85 U. S.), 1 3, 170), yet the crmna proceedng now nst-
tuted aganst the reator w not produce a second punshment for the same
offense, but w ony compete, on convcton, the punshment ntended by
Congress. The ffth amendment was proposed by Congress on the 25th of
September, 1789, and was ratfed by 11 States n that year and the foowng
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280, rt. 1291.
33
two years. ut, that amendment has not been regarded by Congress as pre-
ventng egsaton such as that found n the statute now n queston.
The decson of the oard of Ta ppeas s affrmed.
rtce 1281: eopardy assessments.
R NU CT O 192 .
ssessment aganst transferor pendng appea by transferee. (See
Ct. D. 822, beow.)
S CTION 280. CL IMS G INST TR NS-
RR D SS TS.
rtce 1291: Cams n cases of transferred III-19-G785
assets. Ct. D. 822
( so Secton 214(a)7, rtce 151 Sectons
277 and 278, rtce 1271 Secton 279,
rtce 1281.)
INCOM T R NU CTS O 1921 ND 192 D CISION O COURT.
1. Cams ganst Transferred ssets Labty of Trans-
feree.
company to whch a foregn Insurance company In 192 sod
a Its mercan assets, wth certan e ceptons, part of the con-
sderaton beng the assumpton of the debts of the foregn company
ncudng ta es for a years pror to 192 , s abe as a trans-
feree, under secton 2S0 of the Revenue ct of 192 , for ncome
ta es of the foregn company for the year 1922, and the Govern-
ment may enforce ts rghts, as a credtor of the foregn company,
aganst the transferee wthout frst attemptng to coect the ta
from the transferor.
2. Statute of Lmtatons.
The runnng of the statute of mtatons upon assessment and
coecton of a defcency n ta s suspended, under the provsons
of secton 277(b) of the Revenue ct of 192 and secton 504 (a)
(b) of the Revenue ct of 1928, durng the pendency of an appea
to the oard of Ta ppeas, regardess of whether the oard
dsmsses the petton for ack of |ursdcton or renders a decson
on the merts.
3. eopardy ssessment.
Where notce of defcency s maed to the ta payer, the trans-
feror company, ony one day before the e praton of the statute
of mtatons, and petton for redetermnaton s thereafter fed
wth the oard of Ta ppeas, even though fed by the transferee
the assessment of the defcency aganst the transferor durng the
pendency of the appea s good as a |eopardy assessment, under
secton 279(a) of the Revenue ct of 192 , where the perod wthn
whch assessment mght be made after the e praton of the tme
for fng petton for revew of the oard s decson s known to be
short.
4. Deducton Unpad Cams urden of Proof.
The ta payer has the burden of provng that cams aganst
certan companes on rensurance contracts can not be coected,
and n the absence of such showng the amount of such cams Is
not deductbe.
5. Decson ffrmed.
Decson of the oard of Ta ppeas (27 . T. ., 247) affrmed.
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337
280, rt. 1291.
Unted States Crcut Covet op ppeas foe thk Se -ond Cuout.
mercan qutabe ssurance Co. of New York, pettoner on revew, v. uy
T. everng, Commssoner of Interna Revenue, respondent on revew.
Tetton to revew a decson of the oard of Ta ppeas hodng the pettoner abe
for unpad ncome ta es, as transferee, under secton 2S0 of the Revenue et of 10 .
efore L. and, Swan, and ( hash, Crcut udges.
December 11, 1933.
OPINION.
Chase. Crcut udge: On May 25, 192 , the pettoner purchased n the
assets n ths country of the Norwegan tas Insurance Co. e cept ts rghts
to dvdends or otherwse on ts aowed cams aganst the efferson Insurance
Co., the Lberty Marne Insurance Co. and the North tantc Co.. t n q-
udaton, . It pad for them n part n cash and n part by assum-
ng certan debts of the Norwegan company. The contract bound the pet-
toner to pay as part of the debts assumed a ta es of the Norwegan company
edera, State or otherwse, f and when determned, for a years pror to 192 .
The above-mentoned cams are the bass of the defcency n ncome for
1922 on whch the ta es nvoved were assessed. The Norwegan company
had rensured certan rsks n the three nsovent nsurance companes named
and as a resut hed provabe cams aganst them for 1922 n the amount of
74,115.41. It kept ts books on the accrua bass and ths amount appeared
thereon as rensurance recoverabe at the end of 1922. It reported ths as
ncome n ts return for that year and deducted an equa amount wth the
e panaton: arous amounts credted n 1922 as recovered, whch were at
the same tme charged three companes n qudaton. These amounts beng
as yet uncoected, ncome s accordngy reduced 74,115.41. The
Commssoner dsaowed the deducton and made other ad|ustments, not here
nvoved, n determnng a defcency.
The return of the Norwegan company was fed uy 8, 1923. The notce
of defcency, maed uy 2, 1927, was gven one day before the statutory
4-year perod for such notce woud have e pred. Wthn 0 days thereafter
ths pettoner fed a petton for redetermnaton wth the oard of Ta
ppeas and t was paced upon the docket On une 11, 1929, ths petton
was dsmssed on moton of the Government, for ack of |ursdcton because,
though fed n the name of the Norwegan company, t was sgned by ths
pettoner as the successor to the branch of that company n the Unted States
and not by the ta payer. On March 11, 1928, the Commssoner assessed the
defcency aganst the Norwegan company and on March 15, 1929, maed ths
pettoner a notce of the assessment of the defcency aganst t as transferee.
On May 10, 1929, ths pettoner fed wth the oard of Tu ppeas ts pet-
ton for a redetermnaton of the defcency and te present petton s to
revew the decson thereon.
The pettoner argues that sectons 277(a)2 and 280(b) of the Revenue
ct of 192 bar the coecton of these ta es. Under the frst named secton
the coecton of the ta es was barred uness assessed aganst the Norwegan
tas wthn four years after ts return was fed and under the second secton
mentoned the perod for assessment aganst a transferee was mted to one
year from the e praton of the perod of mtaton of assessment aganst the
ta payer. owever, under secton 277(b) of the 19 ct the statute of mta-
tons was toed durng the tme the Commssoner was prohbted from makng
an assessment and for 0 days thereafter. Secton 274(a) of that ct pro-
hbted hm from makng an assessment unt 0 days after the mang of a
defcency etter to the ta payer and f a petton was fed wth the oard of
Ta ppeas the prohbton aganst assessment was e tended unt the de-
cson of the oard has become fna. Its decson dd not become fna unt
the petton was dsmssed on une 11. 1929, and the tme for fng a petton
for revew had e pred. (Secton 1005(a) of the 192 ct.) In the meantme
the Revenue ct of 1928 took effect. y secton 504(a) of that ct, secton
277(b) of the 192 ct was amended to suspend the runnng of the mtaton
on assessment unt the decson of the oard became fna and unt CO days
thereafter f a proceedng n respect of t ne defcency s paced on the docket
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280, rt. 1291.
338
of the oard, . Ths amendment apped to a cases where the
perod of mtatons had not e pred hefore t took effect. (Secton 504(b).)
oth secton 277(b) of the 192 ct and secton 504 (a) (b) of the ct of
1928 suspended the runnng of the statute when a proceedng n respect to the
defcency was paced on the docket of the oard. ut the pettoner woud
have us hod that ths s not so uness the oard has |ursdcton of the pet-
ton fed to ntate the proceedng paced on the docket. Its poston s that,
as the oard has hed that t had no |ursdcton because the petton was not
fed by the Norwegan company, the ta payer, there was no proceedng paced
on the docket n the sense that e presson must be construed to have been
used n the two ast above mentoned sectons. If ths be so the Government
must treat as a nuty, n advance of a decson by the oard of Ta ppeas,
every proceedng wden s paced on the docket of the oard whch has such
Infrmtes that the oard fnay dsmsses t for ack of |ursdcton uness t
must accept the rsk of the bar of the statute arsng before t can know what
the decson w be and so s protected ony by the chance that a decson w
be rendered before the unsuspended perod of mtaton upon assessment has
run. Ths seems to be the poston taken n Oott v. Lve Poutry Transt Co.
(17 De. Ch., 289, 153 t., 801). The anguage used n both the causes pro-
vdng for the tong of the statute seems to us to negatve such a vew. Con-
gress mght make the perod of mtaton whatever t saw ft and of course, It
mght make no such provson at a. avng estabshed one, t was free to
suspend ts runnng upon the occurrence of such condtons as t thought best.
It dd, verbay at east, make one such condton the mere pacng on the
docket of the oard of a proceedng n respect to the defcency. ven though
the oard dsmssed ths proceedng, as t dd In ths case, for want of |urs-
dcton (and we now have nothng to say about the correctness of that decson)
the pacng of the proceedng upon ts docket gave t whatever rght to act Is
nvoved n determnng whether or not the petton was suffcent to gve It
|ursdcton to decde the matter on the merts. t any rate, a proceedng
had been commenced whch requred the oard of Ta ppeas to make a
decson though not necessary on the merts. ecause the effect of the passage
of tme woud be the same whether the oard made ts decson on the merts
or on some other ground, If the perod stated n the statute of mtatons mean-
tme e pred, t s reasonabe to beeve that Congress dd not ntend to have
the tme a proceedng was pendng before the oard counted any more when
(he decson was a dsmssa for want of |ursdcton than when t was not.
In other words, the tme after such a proceedng was paced on the docket
was not to be added to what had gone by snce the return had been fed unt
the oard dsposed of the matter n some way and 0 days had passed there-
after n whch further acton coud be taken. Certany, the words Congress
used have ths meanng teray and we are dsposed to beeve that such s
ther ntended effect.
s we hUd that the statute of mtatons was suspended by the proceedng
paced on the docket of the oard t becomes necessary to determne whether
the ta es were awfuy assessed aganst the Norwegan company. They were
assessed on March 11, 1928, and, as the oard dd not dsmss the petton
unt une 11, 1929, they were assessed whe the proceedng was pendng
before the oard and durng the tme the Commssoner was prohbted from
makng the assessment by secton 274(a) of the 192 ct. owever, t shoud
be noted that the defcency notce had been sent the ta payer on uy 2, 1927,
and |ust one day before the statute of mtatons otherwse woud have run.
The tme wthn whch the Commssoner coud assess after the tme for fng a
petton to revew the decson of the oard had e pred was known to be short.
Secton 279(a) of the 192 ct (2 U. S. C. ., 1051) authorzed the Comms-
soner, whenever he beeved the assessment or coecton of a defcency woud
be |eopardzed by deay, to assess such defcency mmedatey. The assess-
ment aganst the ta payer was, therefore, good as a eopardy assessment and
the assessment aganst the transferee was wthn the aowed perod thereafter.
These ta es were, by the terms of the contract made by the pettoner wth
the Norwegan company, to be pad by the pettoner. The Government, as the
party to whom the Norwegan company owed the ta es and the rea party
they ntended to be benefted by ths agreement, may enforce the provson.
( endrck v. Lndsay, 93 U. S., 143 23 L. d., 855 Seaver v. Ransom, 224
N. Y., 233 120 N. ., 39 Penn Stee Co. v. New York Cty Ry. Co., 198 ed.,
721.)
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339
284, t. 1301
The pettoner was a transferee wthn the meanng of the statute (secton
280 of the 192 ct) and the Unted States may proceed under It to enforce
Its rghts, as a credtor of the ta payer, aganst ths pettoner. atch Morosco
odng Co. (50 ed. (2d), 138), wthout frst makng any attempt to coect
the ta es of the Norwegan company whose property In ths country has been
acqured by the pettoner.
The pettoner has not shown that the deducton camed shoud have been
aowed. Merey showng that the sums due for rensurance n 1922 were not
pad n that year dd not prove that they coud not he coected and the fndng
of the oard as to that must be uphed. (.Phps v. Commssoner, 283 U. S.,
89 Ct. D. 350, C. . -, 2 4 .)
e burden to estabsh ts rght to the deducton camed s on the ta payer
when he seeks a revew. ( urnet v. ouston, 283 U. S., 223 Ct. D. 328, C. .
-, 343 .)
ffrmed.
S CTION 284. CR DITS ND R UNDS.
rtce 1301: uthorty for abatement, credt, III-2 - 8 5
and refund of ta . Ct. D. 842
( so Secton 111 , rtce 1371.)
INCOM T R NU CTS O 1918 D 102 -D CISION O COURT.
1. Credts Overassessments Ta Then Due uthorty of
Commssoner.
Where the 0-day etter and notce maed to the ta payer for
the years 1918 to 1020, ncusve, dscosed overassessments for
1918, 1919, and 1922, and defcences for the other years e ceedng
the amount of the overassessments, and where, after recept of the
etter but before the overassessments were fnay aowed or the
defcences assessed, the ta payer pad the amount of the 1920
defcency, the Commssoner had the rght to credt the 1918 and
1919 overassessments upon the 1920 defcency and to appy the
payment made by the ta payer upon the defcences then due for
the ater years, In accordance wth the provsons of sectons
284(a) and 111 (a) of the Revenue ct of 19-0, notwthstandng
the ta payer attempt to drect the appcaton of ts payment.
The words then due as used n secton 284(a) of the Revenue
ct of 192 refer to the tme when the defcency s frst determned
and not to the tme when the credt s made. The genera purpose
of the above provsons s to requre a mutua set-off of overpay-
ments and defcences and to prevent the aowance of nterest
for a perod durng whch the ta payer Is Indebted to the
Government.
2. ssessment Waver.
Where after payng the amount of the 1920 defcency the ta -
payer waved the rght to appea to the oard of Ta ppeas and
consented to the overassessments and defcences as stated n the
0-day etter coverng the years 1918 to 1320, on condton that the
overassessments and defcences be schedued smutaneousy,
such waver and consent consttute a revocaton, wthdrawa, or
modfcaton of the ta payer s drecton that the payment made be
apped to the 1920 defcency, even f the ta payer had a rght to
make such drecton.
8. Interest.
Where the ta for the year 1920 s payabe In Instaments,
the ta payer s entted to nterest, under secton 111 (a) of the
Revenue ct of 192 , on the overassessment for 1918 from the date
when pad to the nstament dates for the 1920 ta aganst whch
the credt was apped.
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284, rt. 1301.
340
Coubt op Cams of the Unted States.
Standard O Co. (Indana), a Corporaton, v. The tted States.
ebruary 5, 19 4.
OPINION.
Geeen, udge, devered the opnon of the court.
Ths acton s begun to recover 1,045,420.2 as addtona nterest due
on overpayments made by pantff on ts ta es for the years 1918 and 1919.
The facts connected wth the case may at frst seem to be very compcated,
but the ssue nvoved and te manner In whch t arose can be stated qute
smpy. On March 21, 1928, the Commssoner of Interna Revenue, havng had
under consderaton the ta es of pantff for the years 1918 to 1920, ncusve,
sent out a so-caed 0-day etter and notce that he had determned the
correct abty of pantff to be as shown n the tabe, whch set out the
amount of overassessments and defcences for each year n parae coumns,
showed the tota thereof, and the net defcency. The tabe sted overassess-
ments of neary 5,000,000, of whch 2,705,795.39 was for the year 1918, and
tota defcences of 7,330,920.23, of whch 4,375,023.00 was for 1920.
baance was struck whch showed that the net defcency or abty of the
pantff at that tme was 2,429,297.5 . (See fndng 0.) Ths notce further
stated that
Payment of the amount of addtona ta shoud not be made unt a b Is
receved from the coector of Interna revenue for your dstrct and remttance
shoud then be made to hm n accordance wth the terms of the notce.
fter the recept of ths etter and on March 24, 1928, the pantff pad
by check to the proper coector of nterna revenue the amount of the defcency
for 1920 together wth Interest thereon, makng a tota of 4,919,444.41, and at
the same tme n varous ways the pantff s attorney stated that the check was
n payment of ta es and nterest for the year 1920. The coector accepted the
check and acknowedged the payment, but, foowng nstructons prevousy
gven by the Commssoner, dd not appy the payment to the 1920 defcency and
kept t n a suspense account. Subsequenty, as w be shown further on, the
amount so pad was apped on other ta es then due, and the overassessments
for 1918 and 1919 were apped on the defcency for 1920, wth the resut that
pantff was aowed 1, 45,420.20 n nterest ess than t woud have )een
had the payment been apped as drected by ts attorney. ow ths dfference n
the cacuaton of nterest arose w appear when the statutory provsons
appcabe thereto are consdered.
It w be observed that at the tme the payment was made overassessments
for the years 1918, 1919, and 1922, and defcences for 1920, 1921, 1923. 1924,
1925, and 192 had been determned. The overassessments had not been fnay
aowed nor the defcences fnay assessed. The amount of nterest to be
aowed pantff on the fna ad|ustment of ts ta account was controed by
tho provsons of the Revenue ct of 192 , as herenafter stated. Secton 283(d)
thereof provded that n case of assessments made after the enactment of
the ct, under cts pror to November 23, 1921 (whch was the date of the
enactment of the 1921 ct), nterest shoud be coected as part of such ta
from the date of the enactment of ths ct ( ebruary 2 , 192 ) to the date
such ta s assessed. Secton 284(a) of the Revenue ct of 192 further
provded:
(a) Where there has been an overpayment of any Income, war-profts, or
e cess-profts ta mposed by pror cts the amount of such overpayment
sha be credted aganst any ncome, war-profts, or e cess-profts
ta or nstament thereof then due from the ta payer.
Secton 111 of the same ct, as apped to ths case, provdes that upon
the aowance of a credt upon an addtona assessment nterest sha be
aowed to the due date of the amount aganst whch the credt s taken, and
f that s an addtona assessment then to the due date of the assessment of
that amount.
It w be seen that under these provsons overassessments drew Interest
from the tme of ther payment, whe under secton 283(d) defcences m-
posed by cts pror to November 23, 1921, drew nterest ony from ebruary
2 , 1920. The evdent purpose of the payment was to prevent any of the
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341
284, rt. 1301.
overassessment for 1918 or 1919 beng apped on the defcency for 1920, as
such appcaton woud prevent the amount so apped from drawng nterest
beyond the tme of ts appcaton, otherwse nterest woud contnue to run
thereon unt ths amount had been satsfed h the manner requred by aw.
To state t brefy, f the orerassessment had been so apped, the nterest pay-
ments woud have been equazed between pantff and defendant on the
other hand, f pantff coud have ts payment apped upon the 1920 defcency,
t woud, as before stated, get nterest on the overpayments from the tme they
were made, notwthstandng t was ndebted to the Government at that tme,
and pay nterest on the defcency ony from ebruary 20, 192 . Pantff s con-
tenton s that t had the rght to drect the appcaton of the payment whch
t made to the coector, and when t was made t absoutey e tngushed the
Indebtedness on the 1920 defcency that the overpayments coud not afterwards
be apped on a defcency for 1920 because there was nothng then due as
specfed n secton 284(a) of the 192 ct quoted above and for the same rea-
son, after the payment was made there remaned no ta es for 1920 aganst
whch a credt coud be taken under the provsons of secton 111 of the
same ct.
It w be seen as the dscusson proceeds that f pantff s theory s sus-
taned there w not ony be cases where the ta payer w be entted to
Interest for a perod durng whch he s ndebted to the Government as n the
Instant case, but n some nstances the ta payer w be abe to sue the Govern-
ment for a refund and obtan a |udgment, athough he s actuay owng a ba-
ance to the defendant at the tme when sut s begun and when |udgment s
rendered. Certany Congress never ntended such a resut, and we do not
thnk a court shoud end ts support to a doctrne whch woud brng t about
uness requred so to do by cear and unambguous provsons n the statutes
appcabe thereto.
The defendant, on the other hand, nssts that pantff had no rght to drect
the appcaton of the payment upon the 1920 ta es, and as t was not so ap-
ped ths tem of ndebtedness to the Government was not e tngushed but
contnued n fu force and effect unt the overpayments were aowed and
apped upon t.
These contentons of the severa partes consttute the ssue n the case.
Ordnary when a debtor makes a payment to a credtor he can drect how
the payment sha be apped f there s more than one debt, and ths rue has
been apped to payments on ta es. In the absence of some provson n the
statute or of crcumstances that modfy the orgna drectons, we thnk t may
be conceded that the pantff was entted to have the payment apped on the
1920 defcency as drected by ts attorney. The argument of defendant s, n
effect, that the statutes wth reference to refunds of overpayments and nterest
thereon were not Intended by Congress to be so construed or apped as to per-
mt a refund of overpayment to ta payers uness there was a net baance n
favor of the ta payer, or to requre the payment of nterest by the Government
when the net baance was aganst hm, and f a payment s made upon a
defcency under such crcumstances as to show that t was made to defeat
the Government s rght to set off overpayments aganst defcences and thus
requre the payment of nterest upon overpayments athough the baance of
the ta account was n favor of the Government, the ta payer shoud not be
permtted to so drect the appcaton of the payment as to accompsh ths
resut- There have been no ess than fve decsons by edera courts an-
nouncng ths rue and none to the contrary. s t s nssted on behaf of
pantff that four of these decsons are not n pont because the fa ts are not
smar to those In the case at bar and that the remanng one s erroneous, t
w be necessary to revew these decsons and consder ther appcaton.
In McCar v. Leand (C. . D. C.) (42 ed. (2d), 34 ), the ta payer sought
by mandamus to compe a refund for one year whe a defcency assorted by
the Commssoner for another year was pendng before the oard of Ta p-
peas. The utmate queston was whether the ta payer was entted to a
mandamus, and the court hed that he was not but In construng secton 284
of the 192 ct and hodng that t dd not sustan the ta payer s contenton,
the court sad that any other nterpretaton woud permt the ta payer to
e act from the Government nterest when the net baance was aganst hm,
and further that
Such a resut woud be nequtabe and nconsstent wth the obvous pur-
pose of the statute.
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284, rt. 1301.
342
In Tu Gbbs v. Unted States (C. 0. . 9th C.) (48 ed. (2d), 148) the
pantff brought a sut to recover overpayments of ncome and e cess-profts
ta es for the year 1910, but there were defcences camed by the Comms-
soner and the |udgment argey depended on whether the Commssoner had
the rght to appy the refund on defcences not fnay determned. The court
hed that the Commssoner had the authorty to determne that the amount
of the refund shoud or woud be apped or credted on camed defcences for
other years even though the amount of the defcences had not yet been
ascertaned. Itacs ours. The court gave as a reason for ths rung that
To hod otherwse woud entte the appeant to nterest on the amount of
the refund whe the Government woud receve no nterest on the defcences,
whch mght equa or e ceed the refund.
In ths case, had the ta payer s contentons been sustaned, t woud have
recovered |udgment, athough when the defcences were fnay determned t
appeared that t was ndebted to the Government at the tme the udgment was
rendered.
In Lucas v. ackstone (C. . D. C.) (45 ed. (2d), 291 TCt. D. 35 . O. .
-2, 27C ), the ta payer contested the rght of the Commssoner to refuse to
receve payment of the defcency of the year 1918 and nstead of so dong to
appy certan overpayments for the years 1917 and 1919 aganst such defe eney,
and agan the court was requred to construe secton 284(a) of the Revenue
ct of 192 . The case cosey paraes the one at bar, as the ta payer camed
that when the overpayments for the years 1917 and 1919 were schedued by
the Commssoner there was no ta defcency due for 1918 for the reason that
the defcency had been fuy setted by a payment made by the ta payer on
October 8, 1927. but the court sad:
The Commssoner was rght n refusng to accept that payment aa a
settement of the defcency nasmuch as otherwse the Government
woud have been payng nterest to the ta payer upon the overpayments from
the date of payment, whereas t woud have coected nterest upon the def-
cency ony from ebruary 2 . 192 . We have aready hed that such a resut
woud contravene the pan ntent of Congress.
It s true that n ths case the defcency had been fnay determned but
the overpayments had not been fnay aowed that s, the payment was made
before the overpayments were fnay schedued. The utmate queston, there-
fore, was whether the defcency had been e tngushed by payment at the
tme th3 overpayment was defntey aowed, whch s the same queston as
arses n the case at bar. The hodng was n effect that f an overpayment
had been dscosed by the returns and e sted at the tme when the payment
was made the ta payer had no rght to drect the appcaton of the payment
to a defcency that the Commssoner was rght n refusng to so accept t,
and that he correcty returned It to the ta payer nstead of appyng It on the
defcency.
In Noye v. Unted States (C. C. . 9th C.) (55 ed. (2d), 870 Ct. D.
505. C. . I-1, 1791), the Commssoner apped an overpayment for 1918 to
a defcency for 1917, of whch the ta payer had been notfed by a 0-day
etter, but whch had not been fnay determned and assessed. In ths case
the controversy reated to a defcency whch had not been defntey deter-
mned, whe n the former t was as to an overpayment not fnay aowed.
Whether the overpayment had been aowed at the tme the appcaton had
been made does not appear from the opnon of the court, hut the court hed
n effect that the Commssoner had the rght to so appy overpayments as to
prevent a recovery on the part of the ta payer when the ta payer owes the
Government a ke amount. Whe ths case appes ony to one phase of
the case at bar, the court agan had occason to pass on the constructon of
secton 2S4(a) of the ct of 192 and the meanng of the words then due
used theren.
It w thus he seen that n a of these cases the varous courts n order to
sustan ther decsons have ad down prncpes whch are qute nconsstent
wth those upon whch the pantff bases ts case, and f these prncpes are
foowed must defeat It.
The case of Unted States v. Pacfc Md cay O Co. (D. C. N. D. Ca.)
(C. C. . 32, par. 9072 Ct D. 472, C. . I-1, 1951) s one n whch the facts
were parae wth the case at bar. but addtona crcumstances made t
stronger n favor of the ta payer than the one we now have under consdera-
ton. In that case, as In the case at bar, the ta payer was notfed that It
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343
284, rt. 1301.
had made overpayments for the years 1917, 1 18, and 1919, and that there was
a defcency for the year 1920. The ta payer mmedatey made payment
of the defcency and nterest thereon, gvng drectons that t shoud be ap-
ped on the 1920 defcency, whch was accordngy done. Subsequenty, the
Government began a sut to recover back what was camed to be an overpay-
ment of Interest on the overpayments resutng from ths acton and aegng
that the coector had no rght or authorty under the crcumstances to appy
the payment on the 1920 defcency, but on the contrary the defcency shoud
have been satsfed by appyng the overpayments thereto. The court took under
consderaton the cases above cted and n accordance therewth hed n
substance that when a payment was made n such a manner as to defeat
the Government s rght to set-off overpayments aganst defcences and thus
requre the payment of nterest upon overpayments, such payment shoud be
apped ony to the net baance of the defcency. The Government was
therefore awarded |udgment for the nterest mpropery pad.
It s not contended on behaf of pantff that the case ast cted s not
drecty n pont, but It s sad that the decson s erroneous. The other cases
cted above are sad not to be n pont because based on dfferent facts, but a
carefu readng of these cases w show that they announced prncpes as the
bass of each decson whch were n ne wth the decson n the case of the
Pacfc Mdway O Co., supra, and whoy nconsstent wth the argument made
on behaf of pantff. In a of them the same statute was beng construed,
and the bass of the decson n each of these cases was the ntent of Congress
as manfested by the statutes to whch reference has been made.
It Is Inssted on behaf of pantff that there s nothng n the anguage used
from whch an nference of such ntent can be drawn. Wth ths we do not
agree, but, on the contrary, thnk t s manfest from the severa sectons of
the statute whch drect the appcaton of refunds and determne the manner
n whch nterest can be computed that the genera purpose of these provsons
and the ob|ect whch was sought to be attaned by Congress was to requre a
mutua set-off of overpayments and defcences and to prevent the aowance
of nterest to the ta payer for a perod durng whch he was ndebted to the
Government. Whether the statutes accompsh such a purpose depends upon
ther wordng. They are not entrey cear, especay secton 284(a) of the
1928 ct. If Congress had Intended the constructon whch pantff gves to
ths secton, t woud have been much easer, shorter, and paner to have sad:
When an overpayment has been aowed , the amount of
such overpayment sha be credted aganst any defcency
due at the tme of such aowance. It dd not use the word when t
sad, where there has been an overpayment, and made no reference to ts
aowance, or requrement that t shoud be aowed, but provded ony that It
shoud be credted aganst a ta then due.
The words where there has been an overpayment evdenty refer to a
case where the Commssoner has determned that the returns dscose an
overpayment n manner and amount as announced by hm, and the court
must hod that such a condton e sted at the tme when he made a statement
to that effect and so notfed the ta payer. In ths partcuar case t was at
the same tme when he announced the fndng of a defcency for 1920. Counse
for pantff contend and we thnk rghty that the appcaton of the over-
payment can not be made unt t Is fnay aowed. They aso assert that a
credt can not be apped upon an ndebtedness that does not e st. We thnk
ths s sef-evdent, but t does not tend to support pantff s constructon of
the secton under consderaton. The argument of pantff s, n effect, that
the words then due refer soey to the tme when the credt s made, athough
the statute does not so state and Congress must have we understood that
t was unnecessary to provde that the credt coud ony be made upon an
ndebtedness whch was then due. Such a mtaton on the appcaton of
the credt woud be entrey unnecessary, as the secton woud be so understood
wthout any speca provson to that effect. We thnk the words then due
refer to the tme when the defcency was frst determned and found to e st.
It w be notced that pantff tsef cams n argument that the defcency
was due on that date (March 21, 1928, when the 0-day etter and notce were
sent out), and It w aso be observed that by the same notce and at the same
tme the overpayments were determned. The case was therefore one where
there has been an overpayment of any ncome, war-profts, or e cess-profts
ta , and by the other provsons of secton 284(a), the Commssoner was
requred to credt the overpayments upon a defcency. Where there was more
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284, rt. 1301.
344
than one, he woud have the rght to seect the defcency or defcences upon
whch the overpayments shoud be apped. If, as we thnk, the statute drected
the appcaton of the credt nt the tme when t was frst determned the
ta payer had no rght to so drect the appcaton of the payment as to prevent
the aw from beng obeyed. In other words, ts attempted drecton was whoy
Inconsstent wth the provsons of the statute and woud have no force and
effect. If we are correct n the concusons stated above, t foows that the
attempt of pantff to drect the appcaton of Its payment had no effect
The coector and Commssoner were rght n refusng to so appy t, and the
1920 defcency was st due when the Commssoner fnay aowed the
overpayments and credted them thereon.
Counse for pantff cte a arge number of decsons to show that there coud
be no credt of 1918 and 1919 overpayments unt they were determned and
aowed, and t s argued because the fna aowance dd not occur unt pr
24, 1928, that these overpayments coud not be apped on the defcency for
1920, but we thnk these decsons have no appcaton to the case now before
us. The argument for pantff assumes that the rue contended for by
defendant requred the credt of the overpayment to be made upon the de-
fcency pror to the aowance thereof. No such cam s made on behaf of
defendant, but the defendant does argue that under the aw as apped to the
facts n te case the pantff coud not drect the appcaton of the payment
whch t undertook to make on the 1920 ta and we thnk an e amnaton of
the aw w show suffcent bass for ths contenton. The statute that drected
where the overpayment shoud be apped went nto force as soon as the Com-
mssoner determned that an overpayment had been made and that a defcency
e sted, for an overpayment woud e st when the Commssoner made hs
determnaton thereof athough t had not been fnay aowed, |ust as a
defcency woud e st when the Commssoner so determned athough the
assessment had not been fnay made. It s true that the Commssoner cond
not make an appcaton of the overpayment unt t was fnay aowed, but
the queston n ths case s not chen the overpayment was aowed but where
t was to be apped under the statute. It shoud be kept n mnd that the
Commssoner dd not make the credt unt after the overpayment had been
nowed pursuant to the agreement contaned n the waver, and then computed
the nterest accordng to the provsons of the statute. There s nothng n
the cases cted on ths pont that appears to us to support pantffs cam that
t had the absoute rght to drect the payment nvoved. There were cases
n whch overpayments and addtona assessments had been determned and
certfed, but n none dd t appear that the ta payer made any payment after
notce that an overpayment for one year and a defcency for another had
been dscosed by the returns, nor dd any ssue arse as to the appcaton of
any payment or credt. In a of them the manner n whch the appcaton was
made was conceded to be proper, and the queston to be determned was merey
as to the tme when the credt was fnay aowed or as to the tme t was
taken as formng a bass for the computaton of nterest.
It s urged on behaf of pantff that the doctrne Invoked by the defendant
woud have resuted n a dfferent nterest cacuaton f apped to the cases
of oston uck Go. (2S2 U. S., 470 Ct, D. 293, C. . -, 335 ) and Pottstown
Iron, Co. (2S2 U. S., 479 Ct. D. 291, C. . -, 301 ). No e panaton s gven
for ths, and here agan we thnk there s a confuson on the two questons of
where the overpayment shoud be apped and how the nterest shoud be com-
puted. It w he observed that the appcaton of the overpayment s controed
by secton 284(a), whch ponts out where the appcaton shoud be made, and
ths s a t does. It makes no reference to the matter of nterest. Secton
111 of the 192 ct drects and contros the manner n whch nterest shoud
be computed upon the aowance of a refund or credt after the determnaton
of the pace where the credt sha be apped under secton 284(a). Under
ts terms the nterest coud not be cacuated unt after the credt hnd been
actuay aowed for many reasons, and especay for the reason that unt the
amount of the credt was defntey f ed by the aowance thereof there woud
be no way of knowng how much shoud be credted. So aso when a refund
s to he made the nterest s aowed up to the date of the refund. In the case
before us, as a credt was to be made, nterest s aowed ony up to the date
when the ta es upon whch the credt was to be apped became due. Ths
woud have to be done n a cases, and Instead of beng nconsstent wth the
rue apped n the cases cted on behaf of pantff s drecty In accordance
therewth.
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345
284, rt. 1301.
The rue stated above woud not deay the settement of ta accounts appre-
caby, as t appes ony to cases where both defcences and overpayments
have been found by the Commssoner, and the fna determnaton of the over-
payment or defcency as the case mght be was ony a matter of a few weeks
at most. It woud not nterfere wth the practce of the Department, whch so
far as we are aware has been entrey consstent therewth. Ths s shown by
the cases that we have aready cted. Tu Gbbs v. Unted States, supra, was
a case n whch the defcency had not been fnay determned but the prncpe
apped s the same. Lucas v. ackstonc, supra, was a case n whch the def-
cency had been fnay determned and t was hed that the Commssoner mght
refuse to appy a payment on a defcency pendng the fna determnaton of an
overassessment. In Unted States v. Pacfc Mdway O Co., supra, the facts
were precsey smar to those n the case at bar. So far as ths matter has
reached the courts, the practce of the Department has been that whch was
foowed n the case at bar.
Where a statute s ambguons, the courts are permtted to consder the report
of the congressona commttee whch reported the b carryng the provsons
n controversy. In the report of the Senate nance Commttee upon the Rev-
enue ct of 1920, reference was made to the fact that the prevous aw made
an unfar dscrmnaton n favor of the ta payer n the matter of nterest and
t was sad that t dd not seem far at ths ate date to equaze the stuaton
entrey, but what foowed showed that ths statement referred to a provson,
not n controversy heren. urther on the report stated that under the ct of
1921 t frequenty happens that a ta payer who owes the Government money
upon whch he s payng no nterest s coectng nterest upon money whch the
Government owes hm. It then showed how ths stuaton had been remeded
by one of the provsons under consderaton n the case at bar. We thnk ths
ceary shows an ntent not to permt a ta payer to coect nterest from the
Government for a perod durng whch he s shown to be ndebted to t.
If, however, the constructon whch we have paced upon the statute foowng
the decsons of the severa courts whch have so far passed upon the queston
be ncorrect, t by no means foows that pantff s case s sustaned. Con-
cedng for the purposes of the argument that pantff had the rght to drect
the appcaton of the payment n the frst nstance, any such drecton coud
be revoked or modfed before the appcaton of the payment was made, and we
thnk that the evdence shows such a revocaton.
fter the payment had been made, pantff s attorneys came to Washngton
and there was a ong conference wth the offcas n the Commssoner s offce.
s a resut of ths conference a waver of the rght to appea to the oard of
Ta ppeas from the decson of the Commssoner as to defcences as stated
n the so-caed 0-day etter and a consent thereto, together wth the over-
assessments set forth n the same etter, was sgned by the pantff on pr 2,
1928, and fed wth the Commssoner of Interna Revenue on pr 4, 1928.
Ths waver contaned a st of the overassessments and defcences agreed to
n parae coumns, specfyng the year. It was the same as was contaned n
the 0-day etter, e cept that t dd not set out the baance or net defcency,
whch was merey a matter of addton and subtracton. To ths statement of
the ta account of pantff was appended the foowng:
Ths waver of appea and consent to assessment s gven on the e press
condton that the overassessments shown above w be schedued smutane-
ousy wth the assessment of the defcences shown above.
t the tme of the e ecuton of ths waver the pantff was n a somewhat
pecuar poston. Its attorney knew that the payment made had not been
apped on the 1920 defcency and that the Commssoner ntended to appy the
ocerpayments thereon. Ths s shown by the transactons between the partes
and n partcuar by the fact that shorty after the fng of the waver and
wthout any further notce beng receved pantff s attorneys wrote the Com-
mssoner a etter to whch reference w herenafter be made, n whch t was
contended that the overassessments coud not bo apped to the ta es of 1020.
It coud not we go on wth ts appea to the oard of Ta ppeas on the
1920 assessment and at the same tme cam that ths assessment had been fuy
pad and the debt e tngushed. It woud practcay gve up nothng by e e-
cutng the waver on ths matter, but t was mportant to fnay and defntey
secure the overassessments whch had been sted n the premnary schedue
sent pantff by the Commssoner and whch aggregated neary 5,000,000, and
77 02 34 12
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284, rt. 1301.
34
the waver was probaby e ecuted by pantff s attorney wth ths In vew.
The Government, on the other hand, had nothng to gan by the e ecuton of a
mere waver, as the pantff had aready practcay admtted the correctness
of the assessment by attemptng to pay t, and naturay the Commssoner dd
not want to bnd hmsef absoutey to the aowance of these huge refunds
uness be got somethng n return for such an agreement. We thnk bot
partes were successfu.
y the Instrument whch was sgned contanng the waver the pantff got
the overassessnents defntey aowed and the Commssoner got the statement
appended to the waver, and aso an agreement that the pantff
consents to the assessment of the defcences upon the bases as
to ncome, overassessnents, and other ad|ustments set forth n sad etter dated
March 21, 1928 the years, amounts of defcency, or overassessment as set forth
n sad etter beng as foows: ( ere foowed a smar statement of pan-
tff s account for ta es as was contaned n the Commssoner s etter of March
21, 1928, e cept that no baance was computed and sted as n that etter.)
y reference to fndng 8 t w be seen that the amounts of overassessment
for each year were sted In one coumn and the amounts of defcences for
each year n another parae coumn. In other words, t was a compete state-
ment of the debt and credt tems of pantff s ta account a agreed upon by
both partes. It w be observed that not ony were the defcences sted
theren, ncudng the defcency for 1920, agreed to, but t was aso agreed that
they shoud be assessed, and when they were so assessed the overassessnents
wore to be schedued smutaneousy wth the assessment of the defcences.
We thnk ths agreement ceary consttuted a revocaton or at east a wth-
drawa or modfcaton of whatever drectons or understandng accompaned
the 1920 payment. ut t s mmatera what t s caed. The covenants of
the agreement can not be reconced wth pantff s cam that the 1920 defcency
was pad and that no ndebtedness e sted thereon. One of the bases of the
former statement was that the defcency for 1920 was due. It was specay
agreed that the same bass shoud be used and that ths partcuar defcency
for 1920 shoud be assessed, whch coud mean nothng but that It stood as a
abty on the part of pantff. Moreover, the pantff agreed that ths
defcency shoud be Incuded In a schedue of overassessnents and defcences
whch the statute made fna.
On pr 24, 1928, the attorney for the pantff, apparenty fearng that
the resut of the agreement woud not be what hs cent desred, devered to
the Commssoner of Interna Revenue a etter at consderabe ength, the
substance of whch was that the pantff renewed ts demand that the pay-
ment whch had been made shoud be apped on the 1920 defcency, and con-
tended that ths defcency had been e tngushed by such payment, by reason
of whch fact (as pantff camed) there coud be no credt of an overassess-
ment on ths defcency. On the same day ths etter was devered the Com-
mssoner schedued the overpayments upon, and defcences n, pantff s
ta es e acty n the manner agreed upon. The defcences, however, were
paced In one st, whch aso showed the amount of nterest charged aganst
the pantff on the defcency for each year. Ths was foowed by a certfcate
that the defcences were due, and the whoe sgned by the Commssoner. The
schedue of overassessments was n another st, separatey made, and ncuded
the overassessment as stated n the waver, and aso made an nterest
ad|ustment on the addtona ta for the year 1920 of 507,734.22.
We thnk It w be seen that I he waver agreement provded for the recogn-
ton of the e stence of the defcency for the year 1920 and ts assessment and
f determnaton, together wth a smutaneous aowance of the overpay-
ments. The whoe proceedng as prescrbed by the agreement was uttery ncon-
sstent, wth pantffs cam that the 1920 defcency had been e tngushed,
for If the ta for that year had been wped out by the payment t coud not
be assessed, determned to be a defcency, and made a debt tem aganst
pantff. No further dscusson seems to be needed when attenton s caed
to the fact that the agreement of the partes dd not merey provde for the
assessment of the ta for 1920, whch woud have been done as a matter of
course, but aso provded that t shoud be tnted us u defcency n the Com-
mssoner s schedue of defcences and overassessnents whch defntey deter-
mned both. The Commssoner carred out the agreement to the etter,
determned the defcency for 1920, and made the fna aowance of the over-
assessment smutaneousy as stpuated. Ths havng been done, t was en-
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347
284, rt. 1302.
trey mmatera that the pantff had made no e press agreement that the
overpayment shoud be credted on the 19 0 ta . The aw determned ths and
the statute mperatvey requred that such a credt shoud be made.
Our concuson, therefore, s that when the schedue was made n accordance
wth the agreement the defcency was due and the overpayments aowed.
Such beng the case, the statute, even under the constructon contended for by
pantff, eft the Commssoner no dscreton n the matter. It requred hm to
credt the overpayment upon a defcency, and he accordngy apportoned them
among the severa defcences aganst pantff sted n the schedue, ncudng
the defcency of 1920. We thnk t cear that even f pantff orgnay had
the rght to drect the appcaton of the payment such rght was ost under
the provsons of the so-caed waver. It foows that the appcaton of
the overpayments for 1918 and 1919 to the defcency of 1920 must be approved
and the nterest cacuated accordngy.
It s urged on behaf of pantff that even under defendant s theory of the
case there s addtona nterest due the pantff n e cess of the amount
aowed t, and ths cam s not dsputed. ach of the partes submts cacu-
atons of what t cams shoud be the proper amount of addtona nterest.
Nether of these cacuatons s correct, athough the error n the defendant s
cacuaton s caused ony by usng the 4 per cent rate (whch s not now n
force) nstead of 0 per cent, the correct rate. The method of cacuatng the
nterest s practcay setted by the case of the Irvng Trust Co. v. Unted
States (72 C. Cs., 578). In accordance wth the rue ad down theren we hod
that the due dates of the 1920 ta es under secton 250 of the 1918 ct by reason
of the fact that the pantff had not eected to pay n one sum were March 15,
une 15, September 15, and December 15, 1921, and one-fourth of the defcency
was due at each of sad dates. The case ast above cted does not decde the
precse queston nvoved n the case at bar, but when the due date of tho
1920 ta s f ed we thnk the remander of the computaton foows as a matter
of course.
Under secton 111 (a) the whoe of the overassessment for 191S woud draw
nterest from the date when pad. It was apped to the defcency for 1920
whch, as has aready been stated, came due n nstaments 1,093,755.91 was
credted upon each of the frst and second defcency nstaments n satsfacton
thereof, and the baance of 518,283.57 n parta satsfacton of the thrd
defcency nstament. Under the statute n each ease nterest woud run from
the tme the overpayment was made to the tme when the defcency nsta-
ment became due. The remander of the thrd defcency nstament as we
as the fourth nstament was satsfed from the 1919 overpayment as to whch
there s no controversy n regard to the matter of nterest. We append a note
showng the computaton of nterest accordngy.1 The error on the part of
the pantff s n aocatng one-fourth of the 1918 overpayment of 2,705,705.39
to each of the 1920 defcency nstaments and then computng nterest n
accordance wth such appcaton. We thnk there s nether reason nor au-
thorty for ths proceedng, and that correcty computed the pantff s entted
to 31,954.75 n addton to the amount aowed by the Commssoner for whch
udgment w be rendered accordngy.
rtce 1302: batement, credt, and refund ad|ustments.
R NU CT O 1918.
Caendar vear returns and payments ad|usted to fsca years. (See
Ct. D. 793, page 313.)
1 Interest computaton :
Interest on
1,093,755.91 from December 15, 1019, to March 15, 1 )21 (1 year and
3 months at ( per cent) 82, O. . 09
1,003,755.91 from December 15, 1919, to une 15, 1(121 (1 year and
months at ( per cent) - 98, 4:8. 03
518,283.57 from December 15, 1919, to September 15, 1 21 (1 year and
months at t per cent) 54,419.78
Tota 234. 889. 50
Less : mount aowed by the Commssoner 202, 934. 75
Defcency n nterest whch pantff s entted to recover 31, 954. 75
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1003 and 1004. 348
rtce 1305: Lmtatons upon the credtng and refundng
of ta es pad.
R NU CT O 192 .
Petton fed wth the oard of Ta ppeas asserted to be waver
of mtaton perod. (See Ct. D. 778, page 159.)
P RT . IN ST D C PIT L.
S CTION 325 (R NU CT O 1918). T RMS
R L TING TO IN ST D C PIT L.
rtce 811 (Reguatons 45): Intangbe and tangbe
property.
nNT CT O 1918.
Offer receved for trade name and good w estabshed by house-
to-house advertsng. (See Ct. D. 793, page 313.)
TITL . O RD O T PP LS.
S CTIONS 1003 ND 1004. . URISDICTION.
Sectons 1003 and 1004. III-1-C587
Ct. D. 7 8
INCOM T R NU CT O W2 D CISION O court.
1. oakd of Ta ppeas Moton for Rehearng Dscreton of
oard.
Where a moton for rehearng before the oard of Ta ppeas
sets forth no specfc facts to be consdered nor any other sub-
stanta reasons for grantng a rehearng, but contans argument
ony, such moton s propery dened. The grantng or refusng of
a rehearng s wthn the sound dscreton of the oard.
2. Decson affrmed.
The decson of the oard of Ta ppeas (24 . T. ., 310)
affrmed.
Unted States CmerT Covrt of ppeas for the fth Crctt.
reeman- ampton O Corporaton, pettoner, v. Commssoner of Interna
Revenue, respondent.
Petton for revew of decson of the Unted States oard of Ta ppeas (Dstrct of
Te as).
efore ryan, oster, and Sbey, Crcut udges.
une 1, 1033.
OPINION.
oster, Crcut udge: In ths case pettoner s the owner of gas and
o eases and the queston presented s whether certan e penses ncurred
n connecton therewth are to be returned to t through deductons for depe-
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349
1003 and 1004.
ton or deprecaton under the provsons of secton 234 of the Revenue ct
of 1921 and smar provsons of ater statutes. The case was submtted to
the oard on stpuaton, no other evdence beng offered. We refer to the
fndngs and opnon of the oard for the facts n deta. (24 . T. ., 319.)
Touchng the queston presented the matera part of the stpuaton s as
foows:
Pettoner s a Te as corporaton engaged n the producton of o and
gas. Durng the respectve ta abe perods heren nvoved, pettoner was
the owner of certan o and gas eases and, durng sad perods, e pended
certan sums of money n connecton wth dscovery, e poraton, drng and
deveopment of sad eases. of sad sums of money were captazed on
pettoner s books. Certan proportons thereof represented e pendtures for
physca propertes and the remander represented ncdenta e pendtures
made for wages, fue, haung, etc.. In connecton wth the e poraton, dr-
ng and deveopment of sad eases. Sad ast-mentoned e pendtures were
not represented by physca propertes.
The stpuaton provded for the amount of defcency to be assessed n
ether event over the ta abe perod from une 30, 1924, to December 31, 1927,
but showed no other fgures upon whch |udgment coud be predcated.
The oard found the stpuaton nadequate n that t furnshed no prmary
facts. rror s assgned to ths rung.
Pettoner rees on the case of . T. crgna Trust v. Commssoner (22 .
T. , 551). There the oard had a smar queston to consder and hed that
amounts e pended for wages, fue, repars, and haung, etc., n connecton wth
deveopment and drng of the wes were e pendtures for the mprovement of
the property, for whch the statute permts the ta payer to deduct deprecaton.
In that case the oard was abe to determne what specfc amounts had entered
nto the physca property. The dffcuty n appyng that decson, and smar
decsons of the oard, aso reed upon by pettoner, to ths case s at once
apparent ere the stpuaton s that e pendtures were made for wages, fue,
haung, etc., not ony n connecton wth drng and deveopment of the ease,
but aso for e poraton, and t s e pressy stpuated that these e pendtures
were not represented by physca property. Concedng that certan of the
e pendtures made have actuay entered nto the physca property of pet-
toner, there are no fgures gven, no attempt was made to show what the
e pendtures reay were, and the oard coud not guess at them. We e per-
ence the same dffcuty as dd the oard and must hod that pettoner has
faed to sustan the burden of showng that the addtona ta es were mpropery
determned.
rror s aso assgned to the refusa of the oard to grant a rehearng. The
rehearng was sought for reasons set forth n a memorandum anne ed to the
moton. The memorandum s engthy but amounts to no more than a dscusson
of the . T. ergns Trust case wth the attempt to brng the case at bar wthn
that rung. Nether the moton nor the memorandum sets up any specfc facts
to be ater consdered by the oard or attempts to gve any other substanta
reasons. We may assume that t was mpractcabe for pettoner to aege and
prove the concrete facts necessary to sustan ts contentons and that t has not
merey nadvertenty stpuated tsef out of court. The grantng or refusng
of a rehearng was wthn the sound dscreton of the oard. We fnd no abuse
of dscreton n ths case. The petton s dened and the |udgment of the oard
s affrmed.
Sectons 1003 and 1004.
revenue act ov 1920.
oard of Ta ppeas authorty to consder queston prevousy
rased but not decded where case remanded by court. (See Ct. D.
834, page 21 .)
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1003 aud 1004.
350
Sectons 1003 and 1004
( so Secton 213(a), rtce 50.)
III-20- 797
Ct, D. 825
INCOM T NC CTS O 1021, 1920, ND 1028 D CISION O COURT.
1. oard of Ta ppeas ndng of act Correcton of
uro : Incorporaton n Record.
The oard of Ta ppeas has the rght to Issue an order cor-
rectng an error In ts fndng as to the vaue of certan corporate
stock even after 30 days from the date of the report of a dv-
son of the oard, where the evdence fas to support such fndng
and the facts stand undsputed that there was a mstake n wrtng
the fgures, and such an order may be ncorporated n the record
before the Crcut Court of ppeas.
2. oard ok Ta ppeas vdence Corporate Stock ar
Market aue.
vdence submtted as to saes of stock, earnngs of the com-
pany, dvdends pad, and profts earned n e cess of dvdends,
substantay supports a fndng as to the far market vaue of
corporate stock.
3. Income When Ta abe Stock ed n Trust.
Where, n accordance wth a resouton adopted by the board
of drectors of a corporaton, a certfcate for 40 shares of ts
capta stock was perodcay ssued to a trustee, to be hed for
the ta payer n consderaton of hs agreement to reman In the
empoy of the corporaton contnuousy for fve years from March
1, 1017, at the end of whch perod the shares were to be assgned
to hm, the far market vaue of the 200 shares n 1922, when a
new certfcate therefor was ssued and devered to the ta payer,
consttutes ta abe ncome to hm n that year.
4. Decson ffrmed.
Decson of the oard of Ta ppeas (24 . T. ., 702) affrmed.
5. Certorar Dened.
Petton for certorar dened pr 30, 1934.
Unted States Crcut Court of ppeas for the Seventh Crcut.
red S. Oson, appeant, v. Cmnm soner of Interna Revenue, appeee.
Petton for revew of decson of the Unted States oard of Ta ppea .
Sparks, Crcut udge: Ths s a petton for revew of a decson of the oard
of Ta ppeas pursuant to sectons 1001 and 1002 of the Revenue ct of 192
(eh. 27, 44 Stat., 9. 109, 110 U. S. O. Supp. I, Tte 2 , secton 41, 42). That
decson affrmed a determnaton of the Commssoner that there was a def-
cency n ncome ta due from pettoner for the year 1922 n the sum of
20,557.9 .
There s no controversy as to the prmary facts nvoved as they appear In
the fndngs of fact of the oard of Ta ppeas. Pettoner s the presdent
of the mercan pprasa Co., a ersoua servce corporaton of a cose charac-
ter wth ts prncpa offce n Mwaukee, Ws. Its ony busness s that of
makng apprasas and vauatons of property, and t owns no rea estate. On
December 31, 1922, t had a capta stock of 300,000, dvded Into 3,000 shares
of the par vaue of 100 each. On March 13, 1917, Its board of drectors passed
the foowng resouton:
Resoved, that n consderaton of Messrs. L. II. Oson, . S. Oson and .
. aey agreeng to reman contnuousy n the empoy of the company, for
a perod of fve years from March 1, 1917, ther respectve edger accounts be
each credted monthy wth 333.33 commencng wth the present month.
efore vans. Sparks, and tzhenry, Crcut udges.
November 3, 1933.
OPINION.
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351
1003 and 1004.
That, on March 1 of each year, In consderaton of the tota credt baance
thus credted, there be ssued 3 certfcates for 40 shares each, par vaue 100
per share of the capta stock of the company, o a trustee to be desgnated by
Messrs. L. . Oson, . S. Oson and . . aey sad certfcate to be hed
for and on behaf of these three gentemen.
That a dvdends whch may be pad on shares as ssued to the trustee
sha, mmedatey as such dvdends are receved, be assgned to Messrs. L. .
Oson, . S. Oson and . . aey respectvey, and when they respectvey
sha have been contnuousy n the empoy of the company for a perod of fve
years, namey on March 1, 1922, sad trustee sha Immedatey assgn a of the
COO shares then ssued, to Messrs. L. . Oson, . S. Oson and . . aey,
respectvey, n equa amounts of 200 shares each.
In the event of the death whe n the empoy of the company, of Mr.
L. . Oson, Mr. . S. Oson, or Mr. . . aey or ether of them pror to
March 1, 1922, sad trustee sha assgn and dever to the ega representatve
of the decedent, a of the shares ssued n hs behaf at the tme of hs death,
sub|ect ony to provson that the shares so ssued sha frst be offered to the
company by the her or hers of the decedent before they may be sod n the
open market.
In accordance wth that resouton pettoner s account on the company s
books was credted wth 333.33 each month for two years endng pr 1,
1919. In that month an account desgnated as O. . emke, trustee for . S.
Oson, L. . Oson, and . . aey, was opened on the books of the company,
and thereafter 1,000, the sum of the three credts theretofore entered on the
respectve accounts, was credted to the trustee account each month. Ths
method was contnued unt the severa transactons were competed on ebru-
ary 28, 1922. In order to care for the abty created by the resouton,
the company charged the 1,000 to operatng e penses each month durng the
fve years. Those accounts were taken and aowed as deductons n the
company s ncome ta returns.
On ebruary 28, 1918, |ourna entres were made on the books of the com-
pany, credtng treasury stock wth 12,000 and chargng the account of
pettoner wth 4,000. On pr 30, 1919, pettoner s account was charged
wth 4,000, and the account of the trustee credted wth t. t the same
tme, the trustee s account was charged wth that amount, and the capta
stock credted wth t. On ebruary 28 of each of the years 1920, 1921, and
1922, the account of the trustee was charged wth 12,000, the sum of the
accounts for the three empoyees, and the capta stock account was credted
wth 12,000. On each of the years 1918 to 1922, ncusve, 3 certfcates for
40 shares each were ssued and devered by the company to the trustee for
the three respectve accounts. Dvdends on the stock hed by the trustee
were ether pad to the two Osons and aey or were credted to ther ac-
counts and drawn by them at ther peasure.
On or about March 1, 1922, the orgna stock certfcates whch had been
ssued to the trustee were surrendered and a new stock certfcate for 200
shares was ssued to pettoner. Ths stock he ncuded n hs ncome ta
return for that year at ts par vaue. The respondent ncreased that amount
to SO,000 and asserted the defcency n controversy.
On pettoner s appea to the oard, the acton of respondent was sustaned.
The oard n ts fndngs whch were promugated on November 10, 1931, stated
that the far market vaue of the stock was 250 a share at the tme of the
transfer to pettoner on March 1, 1922. In the wrtten opnon of the oard
whch accompaned those fndngs, however, the market vaue was stated to
be 400, and that vaue was used n the oard s computaton of the defcency
on December 2S, 1931. On December 22, 1932, respondent fed n ths court
a certfed copy of an order of the oard, as of December 12, 1932, correctng
an error n the fndngs by orderng the fgures and words 250 per share
deeted and substtutng therefor the fgures and words 400 per share. On
anuary 23, 1933, respondent fed a wrtten moton n ths court to the effect
that the oard s order of December 12, 1932, be ncorporated n ths record,
and that t shoud be heard at the tme the cause was argued on the merts.
The moton was presented to ths court by the partes at that tme.
It s frst contended by pettoner that snce the oard had defntey found
that the stock at the tme of the transfer had a far market vaue of 250 per
share, t was error for t to undertake, n ts opnon, to deduce from the ev-
dence that t had a far market vaue of 400 per share at that tme, and ke-
wse error for t to change ts orgna fndngs by the order of December 12,
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1503 and 1004.
352
1932. Pettoner therefore argues that the order shoud not he ncorporated In
ths record, and respondent s moton shoud he dened.
In Lncon Natona ank v. Perry ( C ed., 887), the Crcut Court of ppeas
n dscussng the |ursdcton of the tra court to correct the record on appea,
sad, nt page 888:
We are not pre ared to admt that the crcut court e ceeded ts power,
n undertakng to amend ts record n the manner aforesad, f t was satsfed
that through accdent or nadvertence, or a msprson of the cerk, the record
dd not n fact speak the truth. The power to correct mstakes In ts record,
occasoned by oversght, whch are of such nature that the record does not show
what was n fact done or decded, s a power that s nherent In a courts of
superor |ursdcton, and s frequenty e ercsed n furtherance of |ustce. The
power n queston doer not e tend, of course, to the correcton of errors of aw
commtted by the court, whch, n a cases, must be remeded by appea or wrt
of error, but s strcty mted to the correcton of mstakes or msprsons of
the cerk or other offcers, by reason of whch the record does not speak the
truth, or fas to speak the whoe truth.
In Wght v. Nchoson (134 U. S., 13 ), the court quoted wth approva from,
the case of Uanskg v. Mnnesota (3 Mnn., 427), as foows:
nd whe we admt the power to amend a record after the term has passed
n whch the record was made up, we deprecate the e ercse of the power n
any case where there was the east room for doubt about the facts upon whch
the amendment was sought to be made. ut when the facts stand
undsputed, and the ob|ecton s based upon the technca pont aone that the
term s passed at whch the record was made up, t woud he dong voence
to the sprt whch pervades the admnstraton of |ustce n the present age to
sustan t. It s our opnon that ths power, of necessty, e sts n the dstrct
court, and that ts e ercse must n a great measure be governed by the facts
of each case.
Whe the statute does not specfcay f the terms for the oard of Ta
ppeas, yet the appcabe statutes provde that the report of the dvson sha
become the report of the oard wthn 30 days after such report by the dvson,
uness a revew s drected by the charman. It Is therefore contended by pet-
toner that any modfcaton of the report shoud be made wthn 30 days and
whe the report of the dvson s under consderaton by the oard. That
contenton s too broad n ts terms and shoud be quafed by the prncpe ad
down n Wght v. Nchoson, supra. If the facts stand undsputed to the effect
that there was a mstake n wrtng the fgures, 250 as the far market vaue
of each share of stock, nstead of 400, then the oard had a rght to correct
that error even after the 30 days had e pred, and we thnk t can make no
dfference who made the mstake.
It was the duty of the oard to ncude n ts report ts fndngs of fact, or
opnon or memorandum opnon. (Secton 007(b) of the Revenue ct of 1924,
as amended by the Revenue ct of 1928, eh. S52, 45 Stat., 791 T . S. C, Supp.
I, Tte 28. secton 017(b).) Under ths secton we thnk that a wrtten
opnon may perform the offce of a fndng of facts, and when both are used as
was done n ths case, they are to be consdered together as the decson of
the oard, and both may be ooked to n determnng what that decson s
and the facts upon whch t s based. (See Commssoner v. Crescent Leather
Co., 40 . (2d), 833.) It s mmatera whether the term fndng of facts
or opnon s used, or whether both are used, and f both fnd facts suffcent
to support the decson, the decson must stand.
It s true that n what was termed the fndngs of fact, the oard found
that the far market vaue of the stock on March 1, 1922, was 250 per share.
owever, there was no evdence whatever to support that vauaton. The
respondent had found that t was worth 400 per share, and computed the
defcency on that fndng. That fndng was revewed by the oard and sus-
taned. The opnon whch was fed as a part of the oard s fndng and
decson stated that the evdence supported the contenton of respondent that
the market vaue of the stock at the tme receved by the pettoner n 1922
was at east 400 per share and hed that pettoner was abe for ncome ta
n 1922 upon the 200 shares receved n that year at the rate of 400 per share.
It s qute cear that the oard, contrary to Its ntenton, erroneousy nserted
the fgure 2 0 nstead of ||00 as the vaue of the stock, and we thnk t was
such an error as the oard mght rectfy even after te. decson was fed.
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353
1113, rt. 1351.
If the oard s order of December 12, 1932, be not Incorporated n ths record,
the rung of the oard woud at east have to be reversed and remanded for
a rehearng on the vaue of the stock on March 1, 1922 (secton 1003(b), ct of
ebruary 20, 192 , ch. 27, 44 Stat., 110 20 U. S. C. ., secton 1220(b)), because
of the nconsstency of the decson as to sad vaue, whch we are convnced was
occasoned merey through oversght. Remandng the cause for such purpose
woud no doubt accompsh the same resut as permttng the certfed copy of the
order of the oard to be ncorporated n ths record now, but we can see no good
reason why that shoud be necessary. Respondent s moton to ncorporate the
oard s order of December 12, 1932, nto ths record s sustaned.
The ne t queston presented s whether there s substanta evdence n the
record to support the vauaton of 400 per share. The record dscoses that
there was a sae of some of the same stock of ths company n 1921 at a prce
of 400 per share, and the earnngs of the company In 1920 were n e cess of
20O per share. The company aso pad cash dvdends of at east 500 per cent
over the perod from 1918 to 1921, ncusve, and had profts n e cess of the
dvdends pad. It aso pad a cash dvdend of 100 per cent n 1921. Ths
was suffcent to support the oard s fndng, and pettoner s contenton n ths
respect can not be sustaned. It s true that there was evdence ntroduced to
the effect that the stock had no market vaue, but we are not permtted to wegh
the evdence.
The further contenton was made by pettoner that even though he receved
a stock certfcate for 200 shares n 1922, n fact he had owned a but 40 of those
shares pror to 1922 n that they had been ssued to the trustee to hod for hm,
and the benefca nterest had been n hm as soon as they were ssued.
owever, the terms of the resouton pany refute such contenton. Moreover,
pettoner s hardy n a poston to urge ths pont n vew of the fact that he
hmsef ncuded the entre 200 shares of stock n hs ncome ta return for
the year 1922 nstead of makng a return for the 40 shares ssued each year
from 1918 to 1922, ncusve.
The decson of the oard s affrmed.
TITL L G N R L DMINISTR TI PRO ISIONS.
S CTION 1113. LIMIT TIONS UPON SUITS ND
PROC DINGS Y T T P Y R.
rtce 1351: Suts for recovery of ta es erroneousy
coected.
R NU CT O 1921.
Certfcate of overassessment asserted to consttute account stated.
(See Ct. D. 780, page 321.)
rtce 1351: Suts for recovery of ta es erro- III-11-C 98
neousy coected. Ct. D. 800
( so Secton 201, rtce 1542.)
ncome ta revenue acts of 1918 and 1921 decson of court.
1. Sut Cams for Rotund Suffcency.
Where a trustee under trust deeds e ecuted n 1919, by whch cer-
tan stock was transferred to t for the use of benefcares, fed
cams for refund assertng ony that the ta upon dvdends md
nterest shoud be computed at surta rates for 1910, the year when
sut to compe dstrbuton of dvdends was commenced, rather than
at 1919 rates, the year when the sut was termnated and dstrbu-
ton made, such cams are not a suffcent bass for suts brought
to recover the ta es pad on the grounds that the dvdends dstrb-
uted were not ncome to the trustee and that deducton shoud be
aowed for trustee s commssons.
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1113, rt. 1351.
354
2. Income Dvdends When Ta ah.e.
Where dvdends were receved by the trustee In 1019, pursuant to
a court order termnatng n sut brought n 191 to compe dstrbu-
ton, the ta was propery computed at 1919 rates.
3. Certorar Dened.
Petton for certorar dened anuary 22, 1934.
Unted States Crcut Court op ppeas for the Seventh Crcut.
Contnenta-Inos Natona ank t Trust Co. of Chcago (formery Inos
ank d Trust Co., formery Inos Merchants Trust Co.), as Trustee of
ccumuatons for the state of Suzanne M. nderson and as Trustee of
ccumuatons for the state of Wende W. nderson, appeant, v. The
Unted States of merca, appeee.
ppea from the Dstrct Court of the Unted States for the Northern Dstrct of Inos,
astern Dvson.
October 1 , 1933.
opnon.
Wkeeson, Dstrct udge: Ths appea nvoves Income ta es on two trust
estates created under trust deeds whch are the same n a essenta respects.
The deeds were e ecuted on une 28, 1919, and each of them transferred to
the appeant bank as trustee 175 shares of the stock of the ord Motor Co.
The deeds were n the usua form and amounted In effect to a gft of the stock
for the use of the named benefcares.
On une 10,1919, there had been termnated by the Supreme Court of Mch-
gan a sut to compe a dstrbuton of the accumuated cash surpus of the ord
company. That sut was brought n the Crcut Court of Wayne County, Mch.,
n 191 , and n December, 1917, a decree was entered orderng a dstrbuton
to the e tent of one-haf of the cash surpus then on hand. n appea was
taken by the ord company to the Supreme Court of Mchgan, and on ebruary
7, 1919, the order of dstrbuton was affrmed. On une 10, 1919, a petton for
rehearng was dened and the mandate of the Mchgan Supreme Court ssued.
On uy 10, 1919, the drectors of the ord company authorzed a dstrbuton
of dvdends In compance wth the decree of the Crcut Court of Wayne
County and appeant bank receved In each of the trust estates 182,108.18
as such dvdends and nterest thereon from the ord company. The facts
wth reference to the tgaton n the Mchgan court are more fuy stated,
n Dodyc v. Unted States ( 4 Ct. Cs., 178 T. D. 4077, C. . I-2, 14 1 and
aes v. Wooduorth (32 ed. (2d), 37 T. D. 4080, C. . I-2, 149 ).
On March 15, 1920, appeant bank as trustee fed ts fducary and nd-
vdua returns of ncome for 1919 n respect of such trusts, and pad ,589.93
ncome ta for each of the benefcares. On September 23, 1922, after an audt
by the Commssoner, an addtona ta of ,519.43 was assessed aganst
each of the benefcares. The ta es so assessed were pad on November 10,
1922, under protest. On October 8, 1923, cams for refund, together wth
amended fducary and ndvdua returns for 1919, were fed wt the co-
ector, and after the re|ecton of such cams ou ugust 2, 1924, these suts
were brought.
ppeant In ts returns had computed the ta es on the bass of the rates
appcabe for 191 . the year n whch (he sut to compe the dstrbuton was
brought. The addtona assessment was made on the bass of rates for 1919,
the year n whch the dvdends were pad.
ppeant cams that n vew of sectons 213(b) and 202 of the Revenue ct
of 1918 (40 Stat.. 100 . 10 0) and the reguatons promugated under the Reve-
nue ct of 1918 (artce 15 2. Reguatons 45 (1920 d.), as amended by T. D.
3200, C. . uy-December, 1921. 55) the ord dstrbuton was not Income to
the trustee. It s aso camed that n computng the net ncome n each case
the trustee s fees and commssons, whch amounted to 3,529.98, shoud have
been deducted (secton 214(a) 1, Revenue ct of 1918 (40 Stat., 10 )).
The T nted States urges that regardess of the soundness of the propostons
now put forward by appeant as grounds of recovery, but not presented to the
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355
( 1113, . 1351.
Commssoner, the suts can not be mantaned because the cams for refund
do not compy wth the requrements of the Revenue ct and reguatons.
In the orgna returns made by the trustee the ord dstrbutons were
sted as dvdends receved drecty from ord Motor Co. and pad under
order of court out of surpus n the hands of corporaton, uy 31, 1910.
In amended returns the ncome was descrbed as dvdends and nterest pad
under order of court dated 7-31-10, ta abe at 1910 rates as set forth n the
statement of facts attached hereto.
In the statement accompanyng the amended returns the facts reatve to
the tgaton are set forth wth the concuson that as a resut of sad dstr-
buton there was receved by Inos Trust Savngs ank, trustee of the
trust estate , the sum of 181,142.33, upon whch sum sad trustee
pad an ncome tu computed on the bass of the surta prescrbed n the
Revenue ct of 1910, as ncome derved durng 1910.
In the e ceptons fed to the proposed addtona assessment, there s no
menton made of the date of the trust agreements, nor s there any statement
concernng the terms of those agreements. There are no averments to the
effect that there are no other documents reatng to the abty for ta es
on the dstrbuton. In short, the facts stated are those reatng to the tga-
ton n the Mchgan courts, whch were reed upon to support the cam that
the ta shoud be estmated on the bass of 1910 surta rates.
In the e ceptons s the foowng:
owever, f for any reason the amount receved by ths trustee upon whch
addtona assessment s proposed to be eved, s not 1910 ncome, then t
shoud be hed 1917 ncome, cacuabe on 1910 surta rates .
In the etter of protest accompanyng the remttances for the addtona
ta t s stated:
The amount of sad ta s a ta on ncome aeged to be derved by us as
trustee n the year 1919 by reason of a certan dvdend pad by ord Motor
Co., then a Mchgan corporaton, as a resut of a sut n whch ohn . Dodge
et a. were pantffs and the ord Motor Co. et a. were defendants. The
amount of sad ta beng arrved at by cacuatng the ta on sad dvdend
and nterest receved thereon on the bass of surta rates n force and effect
for the year 1919, whereas, we are (ns) trustee, aege that the ncome derved
by us from sad dvdends, was ncome derved ether durng the year 1910 or
durng the year 1917.
avng aready pad the ncome ta on the ncome so derved, cacuated
on surta rates, n force and effect for the year 1917 on the bass of 1910 ac-
crua, n fu t s our contenton that no further ta s due from us as trustee
at 1919 rates on sad dvdend to the Government, by reason of sad dvdend
havng been pad to us.
In the cams for refund, the grounds reed upon are stated as foows:
The ta , for the refund of whch ths cam s fed, was erroneousy and
egay assessed and coected, athough duy protested, n respect of a dstr-
buton of . 108,059.03 made by the ord Motor Co. to Inos Trust Savngs
ank, trustee of Wende W. nderson, one of ts stockhoders. Such dstrbu-
ton was ncome to the sad trustee for 1910, or 1917, and was not ncome to
sad trustee for 1919. or further reasons why ths appcaton shodd be
aowed, reference s hereby made to bref attached hereto, dated ebruary 17,
1922, fed wth the Commttee on ppeas and Revew of the ureau of Interna
Revenue.
The bref whch s referred to n the cams conssts of the statement of
facts and e ceptons fed wth the Commssoner before the addtona assess-
ment was made, and the etter of protest to the coector, a porton of whch s
quoted above.
ppeant urges that certan anguage n the e ceptons fed wth the Comms-
soner s broad enough to ncude the grounds upon whch t now recs. To be
sure, n some of the e ceptons there s the statement that the dvdend was
not ta abe at 1919 rates, but when those statements are read as a part of the
entre document, t s cear that the trustee ntended to admt- that t was
abe for a ta upon the dvdends, and that the ony controversy reated to
the year the surta rates of whch shoud be apped n computng the ta .
Nether n the cams for refund, nor n the papers theren referred to, or con-
nected therewth, s there a statement of fact tendng to show that the trustee
was not abe for any ta on the dvdends.
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1113, rt. 1351.
35
ppeant aso urges that the returns of the trustee showed that no returns
were made for the year 1918, an that the Government agents who made the
audt upon whch the addtona assessment was based, must have ascertaned
the date and terms of the trust agreements. In our opnon, the possbty or
probabty that the Government agents mght have ascertaned the facts now
reed on for recovery can not take the pace of compance wth the requre-
ments of the statutes and the departmenta reguatons made pursuant thereto.
Secton 1318 of the Revenue ct of 1921 (42 Stat., 315) provdes:
No sut or proceedng sha be mantaned In any court for the recovery of
any nterna revenue ta aeged to have been erroneousy or egay assessed
or coected, unt a cam for refund or credt has been duy fed
wth the Commssoner of Interna Revenue accordng to the provsons of aw
n that regard, and the reguatons of the Secretary of the Treasury estabshed
n pursuance thereof.
rtce 1013 of Reguatons 2 provdes:
Cams by the ta payer for the refundng of ta es and penates erroneousy
or egay coected sha be made on orm 843. In ths case the burden of
proof rests upon the pantff. facts reet upon n support of the cam
shoud be ceary set forth under oath.
The tng of a cam or demand as a prerequste to a sut to recover ta es
pad s a famar provson of the revenue aws, compance wth whch may
be nssted upon by the defendant, whether the coector or the Unted States.
(Unted States v. et Tarrant Mfg. Co., 2S3 U. S., 2 9 Ct. D. 33 , C. . -,
431 Tucker v. e ander, 2T5 U. S., 228 T. D. 3973, C. . I-1, 287 rzona.
Commerca Mnng Co. v. Casey, 32 ed. (2d), 2S8 Menrath rokerage Co. v.
Crooks, 28 ed. (2d), 991 Ct. D. 42, C. . III-1, 287 Red Wng Matng Co.
v. WUcuts, 15 ed. (2d), 2 T. D. 3980, C. . I-1, 2251.) One of the ob|ects
of such requrements s to advse the approprate offcas of the demands or
cams ntended to be asserted so as to nsure an ordery admnstraton of the
revenue. (Unted States v. et Tarrant Mfg. Co., supra.)
If we were to gve to a of the papers an documents before the Comms-
soner the same effect as f they were set out n the cams for refund, there
woud be absent from the cams the statement of any fact reatng to the date
of the trust and ts terms. Nor may the court be asked to specuate as to what
the Commssoner mght have dscovered n connecton wth the audt. The
trustee acted precsey as f there was a defnte agreement between the settors
of the trusts and the trustee that the trustee shoud pay the ta on the dv-
dend when t was decared. verythng done by the trustee up to the tme of
the tra tended to show such an understandng. If the trust agreement tsef
had been fed wth the Commssoner he woud have been warranted n beev-
ng, n the absence of an e press statement to the contrary, that there was a
separate agreement whch reeved the settors from payng the ta and obgated
(he trustee to do so.
The case here s not one of beraty n aowng amendments of cams ether
before or after they have been barred by the statute of mtatons. (Unted
States v. actors d nance Co., 288 U. S., 89 Ct. D. 2S, C. . II-1, 315
Unted States v. enry Prentss cf Co.. 288 U. S., 73 Ct. D. 27, C. . II-1,
311 Unted State v. Memphs Cotton O Co., 2S8 U. S., 2 TCt. D. 02 , C. .
II-1, 307 .) No attempt was made by appeant to amend ts cam. If we
assume, for the purpose of the argument, that an amendment woud have been
permtted f tmey appcaton had been made, that fact does not reeve ap-
peant from compance wth the pan requrement of the statute and regu-
aton.
ppeant n the cams for refund stated fscts whch t sad entted t to
the beneft of the 191 ta rates. The pan anguage of the returns and cams
s that some ta s due from the trustee. The ony queston rased was as to
the rate whch shoud be apped n computng the ta . ppeant now seeks
recovery on grounds not stated n the cams whch, f we taken, woud have
reeved the trustee from the payment of the ta even on 191 rates. The act of
the trustee n payng the orgna ta s uttery nconsstent wth the cam now
put forward by t. The poston of the appeant, n our opnon, stretches the
rue of beraty beyond reasonabe mts, and carred to ts concuson woud
nufy the requrement of the statute and reguaton.
ppeant was not entted to any refund upon the grounds stated and argued
before the Commssoner. The ta was propery computed by the Commssoner
on the bass of 1919 rates. (Dodge et a., ecutors, etc., v. Unted States, 4
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357
111 , rt. 1371.
Ct. Cs., 178 aes v. Woodcorth, supra.) The faure to state the facts n the
cams for refund aso precudes appeant from camng a deducton for
trustee s fees or commssons n computng the net ncome.
We do not pass upon the other questons rased by appeant. We are not to
be understood, however, as agreeng wth the constructon of the statute under
whch the effect of the creaton of the trust was to reeve both the settors
and the trustee from the payment of any ta on ths dvdend. It s not neces-
sary to determne what the Government mght have done wth respect to ta ng
the settors, f the trustee had not represented that t was abe for the ta on
the dvdend.
The |udgments of the dstrct court shoud be and they are affrmed.
S CTION 1114. P N LTI S.
rtce 13 1: Penates.
R NU CT O 192 .
Wfu faure to suppy nformaton. (See Ct. D. 771, page 144.)
S CTION 111 . INT R ST ON R UNDS
ND CR DITS.
rtce 1371: Interest on refunds and credts.
R NU CTS OP 1918 ND 192 .
Overassessments of ta for 1918 apped aganst ta for 1920
payabe n nstaments. (See Ct. D. 842, page 339.)
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ST T ND GI T T RULINGS.
TITL III. GI T T . (1932)
S CTION 501. IMPOSITION O T .
Reguatons 79. rtce 2: Transfers reached.
( so Secton 50 and rtce 17.)
III-22- 820
G. C. M. 13147
Computaton of the vaue of an rrevocaby assgned fe n-
surance pocy for gft ta purposes.
rung s requested as to the proper method of computng the
vaue of a fe nsurance pocy, for gft ta purposes, whch was
rrevocaby assgned on pr 1, 1933, wthout consderaton.
Secton 501 of the Revenue ct of 1932 mposes a ta upon a
transfers of property by any ndvdua after une , 1932, to the
e tent that they are donatve n character and e ceed the author-
zed deductons.
Secton 50 of that ct provdes that
f the gft s made n property, the vaue thereof at the date of the gft
Sha be consdered the amount of the gft.
rtce 2 of Reguatons 79 reads n part as foows:
The statute mposes a ta whether the transfer s n trust or otherwse,
Whether the gft s drect or ndrect, and whether the property s rea or
persona, tangbe or ntangbe.
(5) The rrevocabe assgnment of a fe nsurance pocy, or the namng
of the benefcary of a pocy wthout retanng any of the ega Incdents of
ownershp theren, consttutes a gft n the amount of the net cash surrender
vaue, f any, pus the prepad nsurance ad|usted to the date of the gft.
fe nsurance poty n the amount of 100,000 taken out on
anuary 1, 1928, was rrevocaby assgned by the nsured on pr
1, 1933, wthout consderaton. The annua premum of 2,849 was
payabe n advance on anuary 1. The pocy provdes n part as
foows:
The cash surrender vaue sha be the reserve on the face of the pocy at
the end of the nsurance year or, event of defaut, at the date of defaut
(omttng fractons of a doar per thousand of Insurance) and the reserve
on any outstandng pad-up addtons, under secton 2, opton (c), pus any
dvdends standng to the credt of the pocy, under secton 2, opton (d),
and ess a surrender charge for the thrd to the nnth years, ncusve, of not
more than 1 per cent of the face of the pocy. Such reserve w be com-
puted on the bass of the mercan Tabe of Mortaty and nterest at 3 per
cent, and the amount of pad-up nsurance under (2) and the term of the
contnued nsurance and amount of pure endowment under (3) w be com-
puted on the same bass at the attaned age of the nsured on the date of
defaut.
(358)
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359
501, Regs. 79, rt. 2.
The vaues n the tabe opposte are computed n acoordnnce wth the above
provsons, assumng that premums have been rad In fu when due for the
number of years stated, that there s no ndebtedness to the company, no out-
standng pad-up addtons, no dvdends standng to the credt of the pocy
and that no dvdends have been apped on the acceeratve endowment pan
the surrender charge, f any, has been deducted.
fter the pocy has been n force for a perod of four years the
cash surrender vaue for each 1,000 of the face amount s 4 , and
after the pocy has been n force for a perod of fve years the cash
surrender vaue for each 1,000 of the face amount s 3.
premums were pad when due, no ndebtedness was due the company
by the hoder pror to assgnment, and there were no pad-up add-
tons and no dvdends standng to the credt of the pocy.
It s to the net cash surrender vaue, f any, that the addton of
u the prepad nsurance ad|usted to the date of the gft (artce 2,
eguatons 79) s to be made. The word prepad, meanng n
advance or beforehand, obvousy refers to a payment antedatng the
makng of the gft. undamentay, fe nsurance, ke other nsur-
ance, s smpy a contract. y payng premums the nsured obtans
the promse of the nsurer to pay money on the former s death, or
before that event. s such promse by the nsurer s nsurance,
and s bought by the premum payments, the two words, prepad
nsurance, manfesty mean a premum payment made before the
gft to obtan the promse of the nsurer, that promse may be to
pay a sum n cash on surrender of the pocy contract, or, f not sur-
rendered, to pay the face of the pocy on the nsured s death. What-
ever the terms of the promse, the obtanng or purchasng thereof s
through premum payments.
The foowng e ampes ustrate the ureau s nterpretaton of
the meanng of the concudng cause of subdvson (5) of artce 2,
Reguatons 79, readng pus the prepad nsurance ad|usted to the
date of the gft :
1. In a case where the cash surrender vaue of the pocy at the end
of the nsurance year 1932 was 4, 00, and where such vaue was
ncreased to ,300 mmedatey upon the payment on anuary 1,
1933, of the 2,849. premum due for the nsurance year 1933, the
amount of the gft on pr 1, 1933, the date on whch the pocy was
rrevocaby assgned, was ,300, representng the cash surrender
vaue of the pocy, pus 8 1.75, representng the prepad nsurance
ad|usted to the date of the gft. (Premum pad anuary 1, 1933,
2,849 ess 1,700, the addtona cash surrender vaue created by the
pavment of such premum, and ess 287.25, representng the earned
premum from anuary 1 to pr 1, 1933 2,849- 1,700 1,149-1
287.25 8 1.75.)
2. In a case where the premum was duy pad for the nsurance
year 1933, where the cash surrender vaue of the pocy at the end of
the nsurance year 1932 was 4, 00, where the cash surrender vaue
was ncreased to ,300 at the end of the nsurance year 1933, and
where the cash surrender vaue of ,300 was ad|ustabe to the date
of surrender of the pocy, the amount of the gft on pr 1, 1933,
the date on whch the pocy was rrevocaby assgned, was 5,025
(representng the cash surrender vaue ad|usted to pr 1, 1933),
pus the present worth of 1,275 (the baance added to the cash
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Regs. 70, rt. 77.
3 0
surrender vaue at the end of the nsurance year 1933), pus 8 1.75,
representng the unearned premum ad|usted to the date of the gft
and computed n the manner set forth n e ampe 1.
3. In a case where the 2,849 premum was duy pad for the nsur-
ance year 1933, where the cash surrender vaue of the pocy at the
end of the nsurance year 1932 was 4, 00, where that vaue was
ncreased to ,300 at the end of the nsurance year 1933, and where
the cash surrender vaue of ,300 was not ad|ustabe to the date of
surrender of the pocy, the vaue of the gft on pr 1, 1933, the
date on whch the pocy was rrevocaby assgned, was 4, 00 (repre-
sentng the cash surrender vaue of the pocy), pus the present
worth of ,700| the amount added to the cash surrender vaue at
the end of the nsurance year 1933, pus 8 1.75, representng the
unearned premum ad|usted to the date of the gft and computed n
the manner set forth n e ampe 1.
In vew of the foregong, t s hed that, where the nsured makes
a gft of the nsurance to another, the nsured havng theretofore
pad a premum n purchase of the nsurer s promse, whch promse
covers a perod not yet eapsed when the gft s made, the vaue of
the gft ncudes (as ustrated n the foregong e ampes) the net
cash surrender vaue of the pocy at the date of the gft and that
proportonate part of the premum pad before the gft, whch covers
a perod e tendng beyond the gft. When the premum payment
purchases the rght to an ncreased cash surrender vaue, whch s
not avaabe unt the end of the pocy year, a dscount s requred
n arrvng at ts present worth as of the date of the gft.
Robert . ackson,
Genera Counse, ureau of Interna Revenue.
TITL III. ST T T . (192 )
Reguatons 70, rtce 77: ssessments. III-1 - 757
Ct. D. 815

estate ta revenue acts of 1021, 1924, and 1920 decson ok covtt.
1. Coecton Lmtaton Constructon.
statute of mtaton nvoked to bar the rght f the Unted
States to coect ta es must he strcty construed n favor of the
Government.
2. ssessment Coecton Lmtaton ppea to o a h n
Suspenson op Runnno of Statute op Lmtaton.
Where an appea s fed wth the oard of Ta ppeas from
the determnaton of a defcency n estate ta due under the
Revenue ct of 1921, the perod of mtaton upon assessment
and coecton provded by secton 1000(a) of the Revenue ct
of 1924 and secton 1109(a) of the Revenue ct of 192 Is e -
tended, snce secton 310(b) of those cts, when consdered n con-
necton wth secton 308(a) and secton 818 (b) and (|) of the
Revenue ct of 192 , provde for a suspenson of the runnng of
the statute of mtaton durng the pendency of an appea, and
are appcabe to estate ta es not ony n cases arsng under the
Revenue ct of 1920 but aso under pror cts. Secton 1009(a)
e pressy e cepts secton 310(a) from ts operaton.
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3 1
Regs. 70, rt. 77.
Unted States Crcut Court op ppeas for the Nnth Crcut.
ohn Parrott, r., and Mary me Parrott Wams, as ecutor and ecu-
tr , respectvey, of the state of Mary me Parrott, Deceased, appeants,
v. ohn P. McLaughn, Coector of Interna Revenue, appeee.
ppea from the Dstrct Court of the Unted States for the Northern Dstrct of
Caforna, Southern Dvson.
October 23, 1933.
opnon.
Sawte e, Crcut udge: ppeants fed sut to recover from appeee the
gum of 47, 00.49, wth nterest, beng the amount of estate ta es aeged to
have been egay coected by appeee from appeants, on the ground that
both the assessment and the coecton thereof were barred by the statute of
mtatons.
genera demurrer to the compant was sustaned, appeants faed to
pead further, and udgment of dsmssa was entered foowed by ths appea.
The facts are not n dspute. The pertnent events, n order of tme, are
as foows:
March 1, 1922, Mary me Parrott. a resdent of the county of San Mateo,
State of Caforna, ded testate, eavng theren rea and persona property.
ugust 31, 1923, her e ecutors fed edera estate ta return and pad the
ta thereon.
ugust 12, 1925, the Commssoner of Interna Revenue gave notce of a
defcency In the payment of the ta due under the Revenue ct of 1921.
October 9, 1925, the e ecutors appeaed to the oard of Ta ppeas from
the determnaton of the Commssoner.
November 18, 192 , the cause was heard before the oard of Ta ppeas.
une , 1927, the oard of Ta ppeas sustaned the Commssoner s deter-
mnaton that there was a defcency n sad estate ta n the sum of 4 , 43.41.
November 10, 1928, the e ecutors appeaed to ths court to revew the decson
of the oard of Ta ppeas.
anuary 28, 1928, no bond havng been fed to stay assessment, the Comms-
soner made assessment of 4 , 43.41.
pr 14, 1928, the e ecutors pad the addtona ta under protest.
ebruary 4,1929, ths court affrmed the decson of the oard of Tu ppeas.
ebruary 3, 1931, the Commssoner re|ected the cam for refund of the
addtona ta .
s stated by appeants, There s, of course, ony one error companed of
and that s the error n sustanng the demurrer to the compant, wth the
consequent dsmssa of the case upon faure of the pantffs to amend.
Ths specfcaton n turn nvoves the queston of the runnng of the statute
of mtatons upon the assessment and coecton of the estate ta durng the
pendency of the appea to the oard of Ta ppeas. Ths queston was not
rased before the oard, nor before ths court on the pror appea, athough,
accordng to appeants contenton here, the statute of mtatons had run
aganst the ta before the oard entered |udgment n favor of the Comms-
soner on une , 1927.
ppeants havng faed to fe the bond on appea to ths court, as requred
by secton 1001 of the ct of 192 (2 U. S. C. ., secton 1224), the Comms-
soner made the assessment on anuary 28, 1928.
ppeants nvoke the prncpe announced by the Supreme Court n oud v.
Goud (245 U. S., 151), regardng the constructon of the Income ta ct of
1913. In that case the court sad:
In the nterpretaton of statutes evyng ta es t s the estabshed rue not
to e tend ther provsons, by mpcaton, beyond the cear mport of the an-
guage used, or to enarge ther operatons so as to embrace matters not spe-
cfcay ponted out. In case of doubt they are construed most strongy aganst
the Government, and n favor of the ctzen.
Other cases cted n support of ths prncpe are: Unted States v. ed
(255 U. S., 257) Unted States v. Merram (2 3 U. S., 179 T. . 3535, C. .
11-2, 87 ) Crooks v. arreson (282 U. S., 55 Ct. D. 271, C. . -, 409 ).
In the nstant case, however, we must not overook another prncpe, equay
we estabshed by the same court, namey:
Statutes of mtaton sought to be apped to bar rghts of the Government
(unke statutes evyng ta es), must receve a strct constructon n favor of
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Regs. 70, rt. 77.
3 2
the Government. (Unted States v. Whted f Whccss, Ltd., supra Dupont
de Nemours d Co. v. Davs, 204 U. S., 45 , 402.)
In the case of Unted States v. Whted Whecss (24 U. S., 552, 501), the
court, nterpretng a mtaton statute, sad:
undamenta to the nterpretaton of the statute whch the answerng of
ths queston renders necessary, es the rue of aw setted as a great prncpe
of pubc pocy that the Unted States, assertng rghts vested n them as a
soveregn Government, are nor bound by any statute of mtatons, uness
Congress as ceary manfested ts ntenton that they shoud be so
bound.
oth of these cases were foowed and cted by udge Mack, speakng for
the Crcut Court of ppeas for the S th Crcut, n W. P. rown Sons
Lumber Co. v. Commssoner (.38 . (2d), 425, 428), n whch udge Mack sad:
Statutes mposng mtatons upon actons by the Unted States are to
be strcty construed n favor of the Government.
The case of Unted States v. Whted Whcess, supra, w s cted by the
Supreme Court n Independent Coa Co. v. Unted States (274 U. S., 040, 050),
and the case of Dupont de Nemours Co. v. Davs, supra, was cted by the
same court n Phps v. Commssoner (283 U. S., 590, 003).
In the case of Loetcer Reaty Co. v. nderson (C. C. . 2) (31 . (2d), 208,
209 Ct. D. 125, C. . III-2, 218 ), the court sad:
Statutes of mtaton barrng the coecton of ta es must receve a strct
constructon n favor of the Government.
(See aso Imhoff- crg Sk Dyeng Co. v. Unted States, 43 . (2d), 83 , 840.)
The pertnent sectons of the cts of 1924 and 1920 are set forth n the
footnote.1
Revenue ct of 1024:
Sec. 308. (a) If the Commssoner determnes that there s a defcency n respect of
the ta mposed hy Part 1 of ths tte, the e ecutor, e cept as provded n subdvson
(d), sha be notfed of such defcency hy regstered ma, but such defcency sha be
assessed ony as herenafter provded. Wthn 00 days after such notce s maed the
e ecutor nnv fe an appea wth the oard of Ta ppeas estabshed by secton 900.
(4. Sat.. 308.)
Sec. . 10. (a) cept as provded n secton 311 and n subdvson (b) of secton 308
and n subdvson (b) of secton 312, the amount of the estate ta es mposed by Part I
of ths tte sha be assessed wthn four years after the return was fed, and no pro-
ceedng n court for the coecton of such ta es sha be begun after the e praton of
fve years after the return was fed. (43 Stat., 310.)
Sec. 310. (b) The perod wthn whch nn assessment s requred to he made by sub-
dvson (a) of ths secton n respect of any defcency sna be e tended t) by GO days
f a notce of such defcency has been maed to the e ecutor under subdvson (a) of
secton 308 and no appea has been fed wth the oard of Ta ppeas, or (2) f an
appea has been fed, then by the number of days between the date or the mang of such
notce and the date of the fna decson by the oard. (43 Stat., 310.)
Sec. 31I . If after the enactment of ths ct the Commssoner determnes that any
assessment shoud be made n respect of any estate ta mposed by the Revenue ct of
11)17, the Revenue ct of 1918, or the Revenue ct of 1921, or by any such ct as
amended, the amount whch shoud he assessed (whether as defcency or addtona ta
or as nterest, penaty, or other addton to the ta ) sha be computed as f ths ct had
not been enacted, but the amount so computed sha be assessed, coected, and pad n the
same manner and sub|ect to the same provsons and mtatons (ncudng the prov-
sons n case of denquency n payment after notce and demand) as n the ease of the
ta es mposed by Part I of ths tte, e cept that the perod of mtaton prescrbed
n secton 1009 sha be apped n eu of the perod prescrbed n subdvson (a) of sec-
ton 310. (43 Stat., 312.)
Sec. 1009. (a) cept as provded n sectons 277, 278. 310, and 311. and sub-
dvsons (b) and (c) of ths secton, n nterna-revenue ta es sha, notwthstandng
the provsons of secton 3182 of the Revsed Statutes or any other provson of aw, be
assessed wthn four years after such ta es became due, and no proceedng n court for
the coecton of such ta es sha he begun after the e praton of fve years after such
ta es became due. (43 Stat.. 341.)
Sec. 1100. (a) The foowng parts of the Revenue ct of 1921 are repeaed, to take
effect (e cept as otherwse provded n ths ct) upon the enactment of ths ct, sub|ect
to the mtatons provded n subdvsons (b) and (c) :
Tte II (caed Income Ta ) as of anuary 1, 1924
Tte I (caed state Ta )

Sectons 1322 (beng certan admnstratve provsons).
(b) The parts of the Revenue ct of 1921 whch are repeaed by ths ct sha
(e cept as provded n sectons 280 and 310 and e cept as otherwse specfcay provded
n ths ct) reman n force for the assessment and coecton of a ta es mposed by
such ct, and for the assessment, mposton, and coecton of a nterest, penates, or
forfetures whch have accrued or may accrue n reaton to any such ta es, .
(43 Stat., 302.)
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3 3
Regs. 70, rt. 77.
It s not dsputed that the ta n queston was mposed upon the estate by
the Revenue ct of 1921 (42 Stat., 227, eh. 13 ), and became due on March
1, 1928.
ppeants contend, however, that the perod of mtaton prescrbed for
the assessment of the ta was four years, and that that perod e pred March
1, 1927. (Revenue ct of 1921, secton 1322 42 Stat., 315.)
The oard of Ta ppeas was created by the Revenue ct of une 2, 1924
(43 Stat., 33 , secton 900 (2 U. S. C. ., secton 1211)), and appeants
appeaed to sad oard under the provsons of sad ct.
Secton 1100(a) of the Revenue ct of 1924 repeaed the ct of 1921, sub|ect
to the mtatons provded n subdvsons (b) and (c). (43 Stat., 352.)
Subdvson (b) provdes that the parts of the ct of 1921 so repeaed sha
(e cept as provded n sectons 280 and SIS and e cept as otherwse provded
n the ct of 1924) reman n force for the assessment and coecton of a
Revenue ct of 192 :
Sec. 810. (a) cept a provded n secton 811, the amount of the estate ta es
mposed by ths tte sha be assessed wthn three years after the return was fed, and
no proceedng n court wthout assessment for the coecton of such tu es sha be begun
after the e praton of three years after the return was fed. (44 Stat, 77 20
D. 8. C. ., secton 1110.)
Sec. 310. (b) The runnng of the statute of mtatons provded n ths secton or
In secton 311 on the makng of assessments and the begnnng of dstrant or a pro-
ceedng n court for coecton, n respect of any defcency sha (after the mang of a
notce under subdvson (a) of secton 308) be suspended for the perod durng whch
the Commssoner s prohbted from makng the assessment or begnnng dstrant or a
proceedng n court, and for 0 days thereafter. (44 Stat., 77 2 D. S. C. ., secton
1110.)
Sec. 318. (a) If after the enactment of ths ct the Commssoner determnes that
any assessment shoud be made n respect of any estate or gft ta mposed by the
Revenue ct of 1917, the Revenue ct of 1918, the Revenue ct of 1921, or the Revenue
ct of 1924, or by any such ct as amended, the Commssoner s authorzed to send by
regstered ma to the person abe for such ta notce of the amount proposed to be
assessed, whch notce sha, for the purposes of ths ct, be consdered a notce under
subdvson (a) of secton 308 If ths ct. In the case of any such determnaton the
amount whch shoud be assessed (whether as defcency or addtona ta or as nterest,
penaty, or other addton to the ta ) sha be computed as f ths ct had not been
enacted, but the amount so computed sha be assessed, coected, and pad n the same
manner and sub|ect to the same provsons and mtatons (ncudng the provsons n
case of denquency n payment after notce and demand and the provsons prohbtng
cams and suts for refund) as n the case of a defcency In the ta mposed by ths
tte, e cept that In the case of an estate ta mposed by the Revenue ct of 1917, the
Revenue ct of 1918, or the Revenue ct of 1921, or by any such ct as amended, the
perod of mtaton prescrbed n secton 1109 of ths ct sha be apped n eu of the
perod prescrbed n subdvson (a) of secton 310. (44 Stat., 81 2 U. S. C. .,
secton 1118.)
Sc. 318. (b) If before the enactment of ths ct any person has appeaed to the
oard of Ta ppeas under subdvson (a) of secton 308 of the Revenue ct of 1024
(f such appea reates to a ta Imposed by Tte III of such ct or to so much of an
estate ta mposed by any of the pror cts enumerated n subdvson (a) of ths sec-
ton as was not assessed before une 3, 1924), and the appea s pendng before the
oard at the tme of the enactment of ths ct, the oard sha have ursdcton of the
appea. In a such cases the powers, dutes, rghts, and prveges of the Commssoner
and of the person who has brought the appea, and the ursdcton of the oard and
of the courts, sha be determned, and the computaton of the ta sha be made, n the
same manner as provded n subdvson (a) of ths secton, e cept as provded In subd-
vson (h) of ths secton and e cept that the person abe for the tu sha not be
sub|ect to the provsons of subdvson (a) of secton 319. (44 Stat., 82 2 U. S. C. .,
secton 1118.)
Sec 1109. (a) cept as provded n sectons 277. 278, 810, and 311
(1) NotnIthstandng the provsons of secton 3182 of the Revsed Statutes or any
other provson of aw, a Interna-revenue ta es sha (e cept as provded n paragraph
(2) or (3) of ths subdvson) be assessed wthn four years after such ta es became
due, and no proceedng n court wthout assessment for the coecton of such tu es sha
be begun after the e praton of fve years after such ta es became due. (44 Stat., 114
2 U. S. C. ., secton 10S.)
Sec. 1200. (a) The foowng parts of the Revenue ct of 1924 are repeaed, to
take efTect (e cept as otherwse provded In ths ct) upon the enactment of ths
ct, sub|ect to the mtatons provded In subdvson (b) :
Part I of Tte III (caed state Ta )

Seetons 1009 (beng certan admnstratve provsons).
(b) The parts of the Revenue ct of 1024 whch are repeaed by ths ct sha
(e cept as provded n sectons 283 and 318 and e cept as otherwse specfcay provded
n ths ct) reman n force for the assessment and coecton of a ta es mposed by
such rt, and for the assessment, mposton, and coecton of a Interest, penates,
or forfetures whch have accrued or may accrue n reaton to any such ta es, and for
the assessment and coecton, to the e tent provded In the Revenue ct of 1924, of a
ta es Imposed by pror Income, war-profts, or e cess-profts ta cts, and for the assess-
ment. Imposton, and coecton of a nterest, penates, or forfetures whch have
accrued or may accrue n reuton to any such ta es. . (44 Stat., 125.)
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Regs. 70, rt. 77.
3 4
ta es mposed by the ct of 1921. Sad secton 31 of the ct of 1924 provdes
that:
If after the enactment of ths ct the Commssoner determnes that any
assessment shoud be made n respect of any estate ta mposed by the Revenue
t et of 1921 , the amount whch shoud be assessed
sha be computed as f ths ct had not been enacted, but the amount so com-
puted sha be assessed, coected, and pad n the same manner and sub|ect
to the same provsons and mtatons as n the case of the ta es
mposed by Part I of ths tte, e cept that the perod of mtaton prescrbed
n secton 1009 sha be apped n eu of the perod prescrbed n subdvson
(a) of secton 310.
Secton 1009(a) of the ct of 1924 provdes that e cept as provded n sectons
277, 27S, 310 and 311, a ta es sha be assessed wthn four years after such
ta es became due whereas secton 310(a) provdes that a ta es sha be
assessed wthn four years after the return was fed.
s we nterpret sectons 310 and 1009(a) whe changng the perod wthn
whch an assessment of the ta s requred to be made, they do not pretend to
strke down or destroy subdvson (b) of secton 310, whch e tends the tme
wthn whch the assessment s to be made f an appea be ted by the ta payer
wth the oard of Ta ppeas. On the contrary, secton 1009(a) e pressy e -
cepts secton 310(a) from ts operaton, thus tong the statute of mtatons.
The ct of 192 (secton 1200(a)) repeaed certan parts of the ct of 1924,
ncudng the estate ta , sub|ect, however, to the mtatons set forth n sub-
dvson (b). (44 Stat., 125.) Ths subdvson provdes that the parts whch
are repeaed sha, e cept as provded n sectons 283 and 318, reman n force
for the assessment and coecton of a ta es mposed by the ct of 1924.
Secton 1518(a) s smar to secton 31 of the ct of 1924, e cept that t
ncudes a gft ta as we as an estate ta , provdes for a ta notce of the
amount proposed to be assessed under secton 308.(a) of the ct, and provdes
that, e cept that n the case of an estte ta mposed by the Reve-
nue ct of 1917, the Revenue ct of 1918, or the Revenue ct of 1921, or by any
such ct as amended, the perod of mtaton prescrbed n secton 1109 of ths
ct sha be apped n eu of the perod prescrbed n subdvson (a) of secton
310.
Secton 318(b) provdes:
If before the enactment of ths ct any person has appeaed to the oard
of Ta ppeas under subdvson (a) of secton 308 of the Revenue ct of
1924 (f such appea reates to a ta mposed by Tte III of such ct or to
so much of an estate ta mposed by any of the pror cts enumerated n
subdvson (a) of ths secton as was not assessed before une 3, 1924), and.
the appea s pendng before the oard at the tme of the enactment of ths
ct, te oard sha have |ursdcton of the appea. In a such cases the
powers, dutes, rghts, and prveges of the Commssoner and of the person
who has brought the appea, and the |ursdcton of the oard and of the
courts, sha be determned, and the computaton of the ta sha be made,
n the same manner as provded n subdvson (a) of ths secton e cept as
provded n subdvson (h) of ths secton and e cept that the person abe
for the ta sha not be sub|ect to the provsons of subdvson (a) of
secton 319.
Secton 310(b) of the cts of 1924 and 192 , respectvey, read as foows:
(b) The perod wthn whch an assessment s requred to be made by sub-
dvson (a) of ths secton n respect of any defcency sha be e tended (1)
by 0 days f a notce of such defcency has been maed to the e ecutor
under subdvson (a) of secton 308 and no appea has been fed wth the
oard of Ta ppeas, or (2) f an appea has been fed, then by the number
of days between the date of the mang of such notce and the date of the
fna decson by the oard. (43 Stat, 310.)
(b) The runnng of the statute of mtatons provded n ths secton or n
secton 311 on the makng of assessments and the begnnng of dstrant or a
proceedng n court for coecton, n respect of any defcency, sha (after the
mang of a notce under subdvson (a) of secton 308) be suspended for the
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Regs. 37(1921), rt. 5 .
perod durng whch the Commssoner Is prohbted from makng the assess-
ment or begnnng dstrant or a proceedng n court, and for CO days thereafter.
(44 Stat.. 77.)
ppeants contend that the perods of mtatons set up n secton 1000(a)
of the 1924 ct and n secton 1109(a) of the 192 ct were not e tended by
the provsons of secton 310(b) of ether ct durng the pendency of the
appea.
Wth ths contenton we can not agree. We are of the opnon that a far
nterpretaton of the two cts n queston oad to the opposte concuson.
If t be conceded that sectons 31 and 1009(a) of the ct of 1924 and sectons
318(a) and 1109 of the ct of 192 , changed the perod of mtatons generay
wthn whch the assessment s requred to be pad, t does not foow that the
perod of mtaton s not e tended and the statute s not toed durng the
pendency of an appea to the oard of Ta ppeas. Ceary, we thnk, secton
310(b) of sad cts, when consdered n connecton wth sectons 308(a) and
318(b), provde for a suspenson of the runnng of the statute durng the
pendeney of an appea and are appcabe to estate ta es mposed by the
ct of 1921.
urthermore, secton 318(|) of the ct of 192 seems appcabe here and to
end support to the proposton that the Congress recognzed secton 310(b)
as tong the statute, not ony n cases arsng under the 192 ct, but under
pror cts of Congress as we. That secton reads as foows:
In the case of any estate or gft ta mposed by pror ct of Congress, n
computng the perod of mtatons provded n secton 310 or 311 of ths ct
on the makng of assessments and the begnnng of dstrant or a proceedng In
court, the runnng of the statute of mtatons sha be consdered to have been
suspended (n addton to the perod of suspenson provded for n subdvson
(b) of secton 310) for any perod pror to the enactment of ths ct durng
whch the Commssoner was prohbted from makng the assessment or -begn-
nng dstrant or proceedng n court. (44 Stat., 84.)
There was no error n sustanng the demurrer to appeants compant and
the |udgment of the dstrct court s affrmed.
TITL I . ST T T . (1918)
PU LIC, C RIT L , ND SIMIL R U STS.
Reguatons 37 (1921), rtce 5 : Condtona III-10- 89
bequests. Ct. D. 797
estate ta revenue act of 1918 decson of supreme court.
Deducton Remander to Charty on Death of Lfe Tenant
Wthout Issue Presumpton.
Where decedent s resduary estate was devsed to charty n
the event hs daughter, the fe tenant, ded wthout ssue, and
where before the decedent s death the daughter had undergone a
surgca operaton whch rendered her ncapabe of bearng ch-
dren, the vaue of the bequest to charty was ascertanabe at the
date of the decedent s death and the estate s entted to the
deducton provded by secton 403(a)3 of the Revenue ct of
191S. Under the facts estabshed at the tme of decedent s death,
the presumpton that a woman s capabe of bearng chdren as
ong as she ves, reed upon by the Government as rrebuttabe
and concusve, s not appcabe.
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Regs. 37(1921), rt. 5 .
3
Supreme Court of the Unted States.
The Unted States, pettoner, v. Provdent Trvst Co., as dmnstrator of the
state of George Theodore Roberts, Deceased.
On wrt of certorar to the Court of Cams.
ebruary 5, 1934.
OPINION.
Mr. ustce Sutherand devered the opnon of the court.
The Provdent Trust Co. s the admnstrator, wth w anne ed, of the
estate of the deceased, who ded n 1921, eavng a w thereafter duy
admtted to probate. Subsequent to the fng of the edera estate ta
return, the Commssoner of Interna Revenue mposed an addtona estate
ta , amountng wth nterest to somethng over 21,000. The trust company
pad the amount, and fed a cam for refund of 18,404.05, on the ground
that under the provsons of the w the vaue of the resduary estate, ess
the vaue of the fe estate of the daughter of deceased, shoud have been
but was not aowed as a deducton from the gross estate. The Commssoner
re|ected the cam and ths acton was brought.
The w, after makng certan bequests, devsed the remander of the
estate to the trust company, n trust to pay the ncome thereof to deceased s
daughter durng her natura fe, and upon her death to her awfu ssue
and further provded that upon the death of the daughter wthout ssue, the
testator s resduary estate shoud be dstrbuted among desgnated chartabe
nsttutons and socetes a beongng to that cass of organzatons, bequests
to whch are deductbe from the gross estate under the provsons of secton
403(a.)3 of the Revenue ct of 1918 (ch. 18, 40 Stat., 1057, 1098). t the
tme of deceased s death, the daughter was 50 years of age. She had been n
poor heath and under a physcau s care and on ebruary 9, 1914, upon
medca advce, an operaton was performed removng her uterus, aopan
tubes, and both ovares. The court beow specfcay found The operaton
and remova of the organs were necessary to prevent further mparment of
her heath. fter the operaton she coud not have become pregnant nor
coud she have gven brth to a chd. She ded on March 12, 1927, unmarred,
and wthout ever havng gven brth to a chd. oowng her death, a State
orphans court awarded the resdue of the estate, sub|ect to payment of
transfer or nhertance ta es whch mght be due, to the chartabe organza-
tons named n the w.
Upon the foregong facts, the court beow hed that respondent was entted
to recover, and accordngy awarded |udgment n the sum of 17,204. 0.
( Ct. Cs.. 2 . Supp., 472.)
Secton 403 (a )3, supra, so far as t s pertnent here, provdes that for the
purpose of determnng the vaue of the net estate to be ta ed there sha be
deducted from the vaue of the gross estate (3) The amount of a be-
quests, to or for the use of any corporaton organzed and operated
e cusvey for regous, chartabe, scentfc, terary, or educatona pur-
poses, . rtce 53, Treasury Reguatons 37, decares that the
amount of the deducton n such case s the vaue at the date of decedent s
death of the remander nterest n the money or property whch s devsed
or bequeathed to charty. (Compare Ithaca Trust Co. v. Unted States, 279
U. S., 151 Ct. D. G, C. . III-1, 313 .) It foows that n makng a deduc-
ton for that nterest, the vaue thereof must be determned from data ava-
abe at the tme of the death of decedent. (Compare umes v. Unted States,
27 U. S., 487, 494 T. D. 4185, C. 1 . II-2, 378 .)
The Government contended n the court beow, as t contends here, that, n
vew of the restrcton n respect of ssue contaned n the w, the vaue coud
not be thus determned, snce the aw, wthout regard to the fact, concusvey
presumes that a woman s capabe of tearng chdren as ong as she ves
and that ths presumpton contros where the organs of reproducton have been
competey removed and nabty to bear chdren admts of no vad dspute,
no ess than where the queston turns upon the crcumstance of age aone, or
upon confctng evdence or medca opnons. The ower court hed otherwse
for the reason that the facts estabshed, as of the date of decedent s death,
forbade any other concuson than that the daughter was ncapabe of bearng
chdren, and a presumpton to the contrary coud not be nduged.
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3 7
Regs. 37(1921), rt, 5 .
The rue n respect of rrebuttabe presumptons rests upon grounds of e -
pedency or pocy so compeng n character as to overrde the generay fun-
damenta requrement of our system of aw that questons of fact must be
resoved accordng to the proof. Mr. est, wrtng more than 90 years ago
when the force of the rue was more strcty regarded than t has come to
be snce, sad that modern courts of |ustce (that s to say, the courts of that
day) were sow to recognze presumptons as rrebuttabe, and were dsposed
to restrct rather than e tend the number.
Many presumptons, he says, whch, n earer tmes, were deemed abso-
ute and rrebuttabe, have, by the opnon of ater |udges, actng on more en-
arged e perence, ether been ranged among praesumptemes |urs tantum. or
consdered as presumptons of fact, to be made at the dscreton of a |ury.
y an arbtrary rue, to precude a party from adducng evdence whch, f
receved, woud compe a decson n hs favour, s an act whch can ony be
ustfed by the cearest e pedency and soundest pocy and t must be con-
fessed that there are severa presumptons st retaned n ths cass whch
never ought to have found ther way nto t, and whch, t s to be feared, often
operate serousy to the defeat of |ustce. ( est, Presumptons of Law and
act (London, 1844), secton 18.)
Certany the word has ganed n e perence snce that was wrtten and
the bndng effect, n respect of partcuar stuatons, of the ancent rue pre-
cudng proof of facts to the end of avodng supposed n|urous resuts thought
to be of greater consequence than the predomnance of truth over error, st
remans a proper sub|ect of |udca nqury to be made and resoved n the
ght of such further e perence and knowedge. (Compare unk v. Unted
States, 290 U. S., 371, decded December 11, 1933.)
The foregong observatons are pecuary apposte to the phase of the sub|ect
now under revew for, as suggested by counse for respondent, the presumpton
here nvoved had ts orgn at a tme when medca knowedge was meager,
and many centures before the dscovery of anesthetcs and, consequenty,
before surgca operatons of the knd here nvoved became practcabe. It
was not unt a comparatvey recent perod, therefore, that the effect of such
an operaton was dscosed to observaton, and the ncontrovertbe fact recog-
nzed that a woman sub|ected thereto was permanenty ncapabe of bearng
chdren.
The Government argues that the rue s one of substantve aw and evdence
to overcome t s nadmssbe. Whether n partcuar Instances so-caed rre-
buttabe presumptons are, n a more accurate sense, rues of substantve aw
rather than true presumptons, s a matter n -respect of whch a good dea
has been sad by modern commentators on the aw of evdence. (2 Chamber-
a vne on vdence, sectons 108 , 1087, 1159, et seq. 5 Wgmore on vdence,
2d d., secton 2492. Compare ener v. Donnan, 285 U. S., 312, 328-329 Ct. D.
473, C. . I-1, 3241 2 Thayer, vdence, 351-352, 540-541, 545-54 .) ut t
s unnecessary to consder that nterestng dstncton, snce, as w appear,
the presumpton n queston n ths nstance must be deat wth as open to
rebutta and, therefore, n any aspect of the matter, as a true presumpton.
The presumpton generay has been hed to be concusve when the ee-
ment of age aone s nvoved, abet Lord Coke s vew that the aw seeth no
mpossbty of ssue, even though both husband and wfe be an hundred years
od (Coke on Ltteton, 551 2 ackstone Commentares, 125), f now asserted
for the frst tme, mght we be put asde as a rhetorca e travagance. ut
the presumpton, even where age aone s nvoved, has not been unversay
uphed as concusve or apped under a crcumstances. It has been foowed
to a greater e tent n ths country than n ngand, though even here e cep-
tona cases are to be found 1 and n ngand such cases are very numerous
It does not seem necessary to revew the decsons n ether |ursdcton. It s
enough to say that the ngsh courts have treated the rue as possessng a
consderabe degree of fe bty and have refused to gve t a concusve effect
n a arge number of cases whe the mercan courts, adherng to a more
rgd vew, have apped the rue more generay. See e tended note ( 7 . L. R.,
Mae v. W amt (48 N. . q.. 33, 3 ) -. nsona Natona ank v. unkc (105 Conn.,
744, 75 ) Moore a or v. eauchaup (5 Dana ( y.), 70, 72) : aoot s case MS. (N. .),
O 4f , c T y . nu rr. va., uo, of. nnu ur|vtTT, eu., uwur v. u,,m
(122 U. 8., 507. 08), a persona In|ury ease, ths cotrt sustaned wthout queston the
admsson of evdence that the In|ured person had been rendered mpotent as a resu of
the physca n|ury.
See note to pgar s case, supra, note 1.
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Reg
3G8
s. 37(1921), rt. 1.
38, et seq.), where the decsons are cassfed and dgested. ew cases have
arsen where eements other than, or n addton to, that of age were pres-
ent, and the concusve character of the rue n such cases Is by no means
estabshed. Thus n v. Spencer (19 111., 5, 70), the Supreme Court of
Inos, hed meanngess ::n aegaton that a woman was past the age of chd
bearng, but was carefu to add, uness more than a mere matter of age s
stated n the b. (See Denver, etc., Raway v. arrs, supra, note 1.) nd
spc.kng generay ths court has sad (Lncon v. rench, 105 U. S., 14, 1 -
017) ut a presumptons as to matters of fact, capabe of ocuar or tangbe
proof, such as the e ecuton of a deed, are n ther nature dsputabe. No con-
cusve character atrfches to them. They may aways be rebutted and over-
thrown.
The bass for the nterposton of an rrebuttabe presumpton Is emboded
In the genera statement of Mr. Wgmore, quoted by the court beow, that
evdence of certan knds of facts s e cuded because ts admsson woud
n|ure some other cause more than t woud hep the cause of truth, and
because the avodance of that n|ury s consdered of more consequence than
the possbe harm to the cause of truth. (1 Wgmore on vdence, 2d d.,
secton 11.) Reatng ts obvousy correct vew to the presumpton here
nvoked, not ony do we perceve no grounds of e pedency or pocy that ca
for ts hard and fast appcaton to a partcuar physca condton, when
gnorance as been suppanted by knowedge so as to put beyond the range
of doubt the destructve effect of that condton upon the capacty of chd
bearng, but we concude affrmatvey that the pocy of the statute under
revew as apped to the case n hand s qute to the contrary.
The mportant pont to be emphaszed s that the queston arses wth
respect to a surgca operaton, the nevtaby destructve effect of whch upon
the power of procreaton s estabshed by tangbe and rrefutabe proof.
Moreover, the case does not nvove the rue aganst perpetutes, the devou-
ton of property, the rghts or tte of vng persons n or to property, or any
other stuaton such as consttuted the background of practcay a the
decsons whch have sustaned the concusveness of the presumpton. We
have for consderaton smpy a statutory provson e emptng from a pre-
scrbed ta the vaue of a bequests, etc., made to or for the use of chartabe
organzatons and those whch are akn, pnny evncng a egsatve pocy
to encourage such bequests. ( dwards v. Socum, 204 U. S., 1, 3 T. D.
3584, C. . I-1, 479 .) nd, n that vew, we we may assume that Congress
coud not have meant to eave ts am to be dverted by a purey arbtrary
presumpton, whch, whether appcabe or not to sustan another or dfferent
pocy, woud deny the truth and subvert the pocy of ths partcuar egs-
aton. (Compare umes v. Unted States, supra, at page 494.)
The soe queston to be consdered s What s the vaue of the nterest to
be saved from the ta That s a practca queston, not concuded by the
presumpton nvoked but to be determned by ascertanng In terms of money
what the property consttutng that nterest woud brng n the market, sub|ect
to such uncertanty as ordnary attaches to such an nqury. (See Ithaoa
Trust Co. v. Unted States, supra.) Thus stated, the brth of a chd to the
daughter of the deceased after hs death was so pany mpossbe that, as a
practca matter, the hazard dsappears from the probem. Certany, n
the ght of our present accurate knowedge n respect of the sub|ect, f
the nterest had been offered for sae n the open market durng the daughter s
fetme, a suggeston of the possbty of such an event woud have been
gnored by every ntegent bdder as uttery desttute of reason.
The |udgment of the court beow s affrmed.
ST T T R NU CT O 1018 D CISION O COURT.
1. Deductons state of Nonresdent Consttutonaty.
Secton 403(b) of the Revenue ct of 1918, mtng aowabe
deductons n the case of nonresdents to 10 per cent of the gross
estate stuated n the Unted States, s consttutona
Reguatons 37(1921), rtce 1: Deducton
for cams and e penses.
III-23- 832
# Ct. D. 835
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3 9
Regs. 37(1921), rt. 59.
2. Gbuss state Pedged Securtes.
The tota vaue of pedged securtes s ncudbe n the gross
estate of a decedent as an nterest sub|ect to the payment of
charges aganst the estate, wthn the meanng of secton 402(a)
of the Revenue ct of 1918.
8. Certorar Dened.
Petton for certorar dened May 14, 1934.
Unted States Crcut Court of ppeas for the Second Crcut.
Cty ank armers Trust Co., as ecutor of the Last W and Testament
of veyn ostwck oronoff, Deceased, pantff appeee and appeant, v.
rank Co owers, as ecutor of the Last W and Testament of rank
. owers, Deceased, defendant appeant and appeee.
anuary 8, 1934.
opnon.
ppeas by both partes from a |udgment of the Dstrct Court for the
Southern Dstrct of New York, n an acton to recover for estate ta es
erroneousy coected.
L. and, Crcut udge: Ths s an acton aganst a coector of nterna
revenue to recover estate ta es erroneousy coected, tred upon stpuated
facts before a |udge, who gave |udgment for the pantff for part of the
amount camed. The facts are as foows: The pantff s testatr , oronoff,
was a ctzen and resdent of rance who ded n Pars n March, 1921. She
had property rea and persona both n the Unted States and esewhere, of
about 4,270,000, of whch 435,000 was outsde the Unted States her tota
debts and admnstraton e penses were somewhat over 1,000,000. Securtes
amountng to 1,049,000, pedged wth a bank (the pantff), n the sum of
557,000, were among the mercan assets. In assessng the estate ta the
Commssoner ncuded n the gross estate the tota vaue of the peged se-
curtes, nstead of ony the surpus after deductng the oans: and n aow-
ng deductons, he foowed secton 403(b) of the ct of 1918. whch n the
case of a nonresdent mted aowabe deductons to 10 per cent of the gross
estate. The pantff pad the ta as assessed, and sued to recover the e cess
over a ta computed, frst, by e cudng from the gross estate the amount of
the oans secured by the pedge and second, by aowng as deducton that
share of the debts whch the mercan assets bore to the gross estate both here
and abroad. Its poston Is that the mt f ed by secton 403(b) was un-
consttutona and that secton 402(a) meant to ncude ony the surpus of
the pedge n the gross estate. The |udge rued wth the pantff on te frst
pont, and aganst t on the second and both sdes appeaed.
The more troubesome queston s the frst, for the secton undoubtedy
f ed a standard, atogether unfar and unreasonabe n ts ncdence, as
Congress tsef recognzed n 1928 (secton 401(a) of the ct of 1928). Its
unconsttutonaty does not, however, Inevtaby foow. The argument s n
two parts frst, that to gnore the decedent s debts n computng an estate
ta s to evy a drect ta , not an e cse, and s unconsttutona for that
reason (secton 9, rtce I) second, that even f the ta be an e cse, the
resutng nequaty voates the ffth amendment. s to the frst, the theory
s that credtors do not succeed to the decedent s property by hs death they
coud coect before and they may equay coect thereafter death s not the
generatve source of ther rght. Therefore, a successon ta based upon
the gross estate, or ndeed upon any part of the property whch s requred
to pay credtors, s not a successon ta at a. ven so, It mght be possbe
to defend the greater part of the ta at bar for when a nonresdent owns
property outsde the Unted States, Congress mght perhaps requre the
e ecutor to marsha the ndebtedness frst aganst the foregn assets, treatng
the property wthn the Unted States so reeved as passng by death. ow-
ever, ths woud not here be enough, because the foregn assets woud not pay
the debts and other charges and the arger queston must be answered.
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Regs 37(1921), rt. 1.
370
The argument proceeds that, snce no e cse may be eved upon the property
whch passes to credtors, the cacuaton of the successon ta upon what
passes to egatees must not Incude property aocabe to credtors, ether In
the base or n the determnaton of te rate. rck v. Pcnnsyvana (2G8 U. S.,
473) s sad so to hod. In that case the State tred to defend a successon
ta eved on a the property of a resdent nsde and outsde the State, on
the theory that t mght evy a ta upon the successon to the property wthn
the State, cacuated as though a the property was wthn t. ut the court
sad no, because that woud ndrecty ta the property outsde, though n
Ma we v. ugbee (250 U. S., 525) a State had been aowed to use such prop-
erty to f the rate of ta aton upon the successon to oca property. In both
cases the queston was ony of the fourteenth amendment but rck v. Penn-
syvana, supra (2 8 U. S., 473), certany dd hod that a successon ta upon
property wthn the power of a ta ng State may not be computed by ncudng
wthn the base property beyond ts power and t seems to us to make no
dfference whether n the case of a State the property s beyond ts borders,
or n the case of the Unted States the ta s beyond ts powers as defned
by the Consttuton. Thus the queston can not be avoded whether the suc-
cesson to credtors s a proper sub|ect for an e cse. The defendant nvokes
that part of rck v. Pennsyvana n whch the court aowed the base to
ncude property taken by the Unted States for ts own estate ta es. The
court dd not say, however, that a ta upon the passage of that property was
an e cse that queston coud not arse, and the case s no authorty as to t.
Nor do we see that Pummer v. Cocr (178 U. S., 115) s matera. The pont
appears to be res ntegra.
It s of course true that death does not create the decedent s debts, as t
docs create the cams of egatees and ne t of kn. ut the debts were the
decedent s and he has ded how far they sha consttute cams aganst an-
other person, hs e ecutor or hs egatees, s obvousy another queston the
dead man s promses may bnd them, or they may not that s a queston on
whch the aw must speak, and ts voce has never been unequvoca. Thus
t by no means foows that death may not be an occason on whch to evy
an e cse. It woud be hazardous to attempt a defnton of that term but
we thnk t safe to say that t ncudes an event or transacton whch deter-
mnes ega reatons ( nowUon v. Moore, 178 U. S., 41, 47) or the e ercse
of a snge one of those powers whose aggregate makes up the concept of
property ( romey v. McCauyhn, 280 U. S.. 124). It w be enough, f the
death of the debtor has a substanta ega effect upon the credtor s remedes
or rghts If he can not pursue the same remedes, or any remedes, or get
recognton of hs rght, e cept, through the nterventon of the State.
storcay there can be no doubt that death had mportant resuts. The
noton of a contnuaton of a dead man s personaty came very sowy n the
common aw representaton was not easy evoved. ven to-day t s not
unversa many dutes de wth the obgor. In eary tmes the testator had
even to drect hs e ecutor to pay debts they were ke egaces (II Poock
Matand, 341) and whe by the end of the thrteenth century the acton
of debt ay aganst the e ecutor (II Poock Matand, 345 III odsworth,
578, 579), t was mted to cases where the testator coud not wage hs aw.
ssumpst dd not foow t the s teenth century, and very doubtfuy even
then, unt Sade s case (4 Coke. 92(b)), n 1002 (III odsworth, 451, 452)
account was not possbe unt the eghteenth century (III odsworth, 579)
and though detnue came earer, t was a most nadequate remedy. The
compete remedes of credtors as we now know them, are the resut of a ong
and tentatve seres of steps.
If, dsregardng hstory, we ook at the present poston of credtors, the
same thng s true. dead man can not be sued hs credtors must wat
unt hs representatve s apponted, or must get one pponted on ther own
moton and though he may be sued, coecton must awat the dstrbuton of
the estate. debts must be brought nto hotch-pot and share rataby. ack
of ths too es a ong and confused hstory, resutng In an actve nterventon
of the court. So t seems to us that as matter of consttutona nterpretaton,
t s not true to say that the passage of property to a decedent s representatve
may not e the occason of an e cse even upon so much of the property as
must nevtaby pass to credtors.
That however docs not answer the second argument, drawn from the unfar
dscrmnaton of a ta reckoned on the gross estate t may voate the ffth
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371
Regs. 37(1921), rt. 1.
amendment, though an e cse. We mght fnd too great dffcutes, f t were
apped to resdents certany ts ncdence woud be a matter of pure accdent
the egatees of a testator who eft no debts woud pay no more than those of one,
most of whose assets were necessary to pay hs debts. It s the dstrbutees
who fee the pnch of successon ta es, and t woud be hard to nd any ratona
|ustfcaton for such a dstrbuton of burdens. Moreover, the 10 per cent
aowance does not cure the ev every decedent eaves some debts, and the
mtaton merey creates a favored cass, eavng the rest to pay a ta upon
what by no possbty they can receve. We sha assume arguendo, therefore,
that a ta , computed on the gross estate aone, or wth a deducton for debts
based upon the gross estate, woud be nvad, f apped to resdents. Though
secton 403(b) touches ony nonresdents, the nequaty s the same t s as
arbtrary to determne ther burdens at the mere sport of accdent, as those of
resdents. Moreover, the ffth amendment protects them to some e tent at any
rate, as t does ctzens. (Wong Wng v. Unted States, 1 3 U. S., 228 apawsn
Immgrant case, 189 U. S., 8 Russan ounteer eet v. Unted States, 284
L . S., 481.) ut the sanctons whch enforce the dscrmnaton are very dffer-
ent n the two cases a resdent, by whch we understand one domced n the
Unted States ( owrng v. owers, 24 ed. (2d), 918, 921 (U. C. . 2) IT. D.
41 4, C. . II-1, 98 armers L. d T. Co. v. Unted States, 0 ed. (2d), 18,
19), can not escape. Not so a nonresdent, especay when as here she was an
aen as we. She nvested n the Unted States ony because better fnanca
opportuntes offered she mght take away her funds wthout dsturbance to
any other nterest t was not necessary for her to uproot those tes whch make
up the concept of a home she mght refuse to be un|usty used wth the oss
of ony a hopefu fed for proft. We mght agree that had she ded before she
had a reasonabe chance to wthdraw, her egatees mght compan ths woud
not ava them, for she kept her property n the Unted States more than two
years after the ct of 1918 was passed. er abty thus to avod the conse-
quence may not ndeed ustfy the natona poty of secton 403 (b) but t
removes the grevance. Trua v. Rach (239 U. S., 33) we ustrates the
dstncton between those cases where an aen may nvoke the ffth or four-
teenth amendment and those where he may not. The pantff was an aen,
admtted to the Unted States under ts mmgraton aws as such he had an
Interest, secured by aw paramount to that of rzona. The fourteenth amend-
ment protected that nterest by forbddng the State to entrench upon t nd-
recty. n aen, who nvests funds n the Unted States, has Indeed an nterest
aso, though a essor one but the aws of the Unted States do not vouchsafe
t so far as t s a rght, t must derve from treaty or the ke. The Unted
States, f not otherwse bound, may recognze that nterest so far as seems
wse t may Impose upon t such condtons as t chooses.
rom the earest tmes aens have been under dsabtes at common aw.
Orgnay ndeed they coud not hod and at a (I Poock Matand, 442
I odsworth, 92) and after ths was changed, ther and escheated to the
kng upon ther death t was nether hertabe nor descendbe. (Coke on Lt-
teton, 2 b. n., 3.) The same was generay true n the States unt changed by
statute. ( arfa v. unter, 7 Cranch, 03, 21 McCortnack v. Coddngton, 184
N. Y., 407, 475 Sands v. Lynham, 27 Gratt., 291, 297 II ent s Comm., 54.)
or ths reason the Supreme Court n 1850 uphed a successon ta eved on
and by a State, and mted t to nonresdent aens. (Mager v. Grma, 8 ow.,
490.) It s true that ths was before the fourteenth amendment, but the reason-
ng adopted s equay appcabe now as then t was based upon the absoute
power of a State to forbd aens to hod property wthn ts borders, and as a
coroary to admt them on what terms t peased. urthermore, the queston
seems to us forecosed by urnet v. rooks (288 U. S., 378 Ct. D. 48, O. . II-1,
302 ). The Supreme Court had very recenty decded that no State mght
evy a successon ta upon coses n acton at the domce of the obgor.
armers L. d T. Co. v. Mnnesota, 280 U. S., 204 adwn v. Mssour. 2S1
U. S., 58 cder v. South Carona Ta Commsson, 282 U. S., 1.) In rst
Natona ank v. Mane (284 U. S., 312), ths had been e tended to shares of
stock n a oca corporaton. Ths, as we read the opnons, was because the
stus of such property was the domce of the obgee that put It beyond the
|ursdcton of the State. Obvousy, f ths were a doctrne of unversa app-
caton, t aso apped to the Unted States. ut that the court dened the
fourteenth amendment forbade the doube ta aton of ctzens, but t dd not
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Regs. 37(1921), rt. 1.
372
protect nonresdents, who must rey ony upon nternatona arrangements be-
tween the Unted States am ther soveregns for e ampe, treates, suc as In
ths very case protect renchmen aganst dscrmnaton by the States. ( rtce
II of the rench Treaty of 1858, 10 St. at L., 990.) Thus the Unted States s
not bound n deang wth nonresdents, as are the States, or even the Unted
States, when ctzens are concerned. Ths does not mpy one measure of equty
for ctzens and another for aens t recognzes that the nterests at stake are
dfferent that the ntercourse between natons s matter for nternatona agree-
ment, that, concedng the protecton of the Consttuton to nonresdents so far
us they are admtted, they have ony such rghts of ntercourse as the Naton
chooses to accord. or those reasons we thnk that secton 403(b) does not
voate the ffth nmendment.
The ast queston s whether the pedged securtes shoud be e cuded from
the gross estate up to the amount of the oans. The statute, secton 403(a) 1,
pany meant the opposte among the deductons aowed were unpad mort-
gages, an mpossbe tem uness the whoe vaue of the mortgaged property
s to be ncuded n the gross estate under secton 402(a), as an nterest
sub|ect to the payment of charges aganst hs estate. The regua-
tons under the ct of 1918 (artce 15, Reguatons 37) specfcay so provded
and ther successors as we. Secton 402(a) was reenacted n 1921 and 1924
wthout change, though under a dfferent secton number t s most unkey
that a contrary ntent shoud have escaped e presson for so ong. The nterest
of a pedgee has ndeed somewhat baffed common awyers, but t s usuay sad
that tte remans n the pedgor, and that the pedgee has ony a speca
property n New York as esewhere. (Smth v. Savn, 141 N. Y., 315, 320
(fet v. Dank of merca, 1G0 N. Y., 549, 500.) When the queston here at bar
arose under the New York transfer ta aw, the fu vaue of the pedge was
ncuded n the estate. (In re aenbeck, 231 N. Y., 409. See aso Larson v.
Macer, 5 Utah, 84.) The pedgee n substance has no more than a power
to se the pedge upon defaut and to recoup the rse or fa n vaue of the
pedge s on the pedgor s account he may redeem t by payment of the debt
from any of hs assets, and f the pedgee returns t, he may st coect the
debt. Moreover, at east n the case of a sovent estate ke that at bar, upon
the pedgor s death, the pedgee stands n no dfferent poston from any other
credtor, e cept that ho need not wat for admnstraton to reaze hs cam.
Debts must be pad before dstrbuton, and the credtors are a secured, for
the chances of the decedent s sovency end, uness Indeed the property fas n
vaue, a rsk whch the pedgee aso shares as to the pedge. Whether the
e ecutor chooses to redeem the pedge or et the pedgee se t, rests n hs
choce no one can say whether or not t w n the end be a part of the net
estate. If the e ecutor does redeem t, the payment must be apportoned among
a the assets, foregn and domestc f he does not, the vaue of the gross estate
can not depend upon hs decson. The |udge was rght n hodng that under
see on 402(a) the gross estate ncuded the fu vaue of the securtes.
udgment reversed compant dsmssed.
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S L S T RULINGS.
TITL I . M NU CTUR RS CIS T S (1932), S
M ND D Y R NU CT O 1934.
III-24- 853
Mm.4182
mendments to the Revenue ct of 1932, by the Revenue ct of
1934, wth respect to the ta es Imposed on soft drnks, etc., artces
made of fur, |ewery, matches, and candy.
Treasury Department.
Offce of Commssoner of Interna Revenue,
Washngton, D. C, une 1,193 .
Coectors of Interna Revenue and Others Concerned:
ttenton s caed to the fact that the Revenue ct of 1934 repeas
or amends the foowng sectons n Tte I of the Revenue ct of
1932, reatng to manufacturers e cse ta es:
soft drnks, etc.
Under the provsons of secton 01 of the Revenue ct of 1934,
no ta sha be mposed under secton 15 of the Revenue ct of
1932 on the sae or use of the artces enumerated theren, by the
manufacturer, producer, or mporter, or botter, or deaer, f such
sae or use takes pace after May 10, 1934.
furs.
Under the provsons of secton 08 of the Revenue ct of 1934,
the ta mposed under secton 04 of the Revenue ct of 1932 sha
not appy wth respect to the sae by the manufacturer, producer, or
mporter, after May 10,1934, for ess than 75 of artces made of fur
on the hde or pet, or of whch any such fur s the component mate-
ra of chef vaue. ny sae of such artces by the manufacturer,
producer, or mporter, on or after May 11, 1934, for 75 or more, s
ta abe.
W LRY, TC.
Under the provsons of secton 09 of the Revenue ct of 1934,
the ta mposed under secton 05 of the Revenue ct of 1932 sha
not appy to the sae by the manufacturer, producer, or mporter,
after May 10, 1934, of any artce enumerated theren, ncudng
parts for watches and cocks, for ess than 25. ny sae of such
artces by the manufacturer, producer, or mporter, on or after May
11, 1934, for 25 or more, s ta abe.
(373)
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01, Regs. 44, rt. 14.
374
M TC S.
Secton G12 of the Revenue ct of 1932, as amended by secton
11 of the Revenue ct of 1934, ncreases the ta on fancy wooden
matches and wooden matches havng a staned, dyed, or coored stck
or stem from 2 cents per thousand to 5 cents per thousand. On and
after May 11, 1934, the ta es mposed on the sae of matches by the
manufacturer, producer, or mporter are as foows:
(a) Paper matches In books, one-haf of 1 cent per thousand
(b) ancy wooden matches or wooden matches havng a staned, dyed, or
coored stck or stem, regardess of whether packed n bo es or n buk,
5 cents per thousand
(c) other matches, 2 cents per thousand.
C NDY.
Under the provsons of secton 14 of the Revenue ct of 1934,
the ta mposed under secton 13 of the Revenue ct of 1932 sha
not appy to saes of candy by the manufacturer, producer, or m-
porter after May 10, 1934.
Inqures n regard to ths mmeograph shoud refer to the num-
ber and the symbos MT: ST.
Wrght Matthews,
ctng Commssoner.
TITL I . M NU CTUR RS CIS T S. (1932)
S CTION 01 (c)2. M LT SIRUP.
Reguatons 44, rtce 14: empt saes. III- - 43
S. T. 721
Mat srup may not be sod ta -free for use n the producton
of whsky.
Inqury s made whether mat srup may be sod ta -free for use
n the producton of whsky.
Secton 01(c)2 of the Revenue ct of 1932 mposes a ta upon
the sae by the manufacturer, producer, or mporter of mat srup
and other specfed mat products, uness sod to a baker for use n
bakng or to a manufacturer or producer of mated mk, medcna
products, foods, cerea beverages, or te tes, for use n the manu-
facture or producton of such products.
It s contended that snce whsky s made from cerea grans t
s a cerea beverage wthn the meanng of secton 01 (c)2, and
that mat srup sod for use n ts producton may be sod ta -free,
provded the certfcate requred by artce 14 of Reguatons 44
s furnshed.
The term cerea beverages as used n secton 01(c)2 ncudes
ony those beverages whch are brewed from mated cerea grans,
such as beer, ae, etc. Whsky fas wthn the cass of dsted
sprts, rrespectve of the materas used n ts producton.
It s hed that whsky s not a cerea beverage wthn the mean-
ng of secton 01 (c)2 of the Revenue ct of 1932, and that mat
srup may not be sod ta -free for use n ts manufacture.
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375
02, Regs. 4 , rt. 20.
S CTION 02. TIR S ND INN R TU S.
Reguatons 4 , rtce 20: ass of ta . III-13- 72
S. T. 729-
Computaton of the manufacturers e cse ta on tres con-
tanng cotton on whch the processng ta or foor ta mposed
by the grcutura d|ustment ct has been pad.
rung s requested on the foowng ssues: (1) Whether the
provso n secton 9(a) of the grcutura d|ustment ct s ap-
pcabe to the foor ta mposed by secton 1 (a) of that ct and
(2) whether, where tres on hand on ugust 1, 1933, whch were sod
after that date by the manufacturer or producer, can not be dent-
fed wth respect to ther ta -pad cotton content, the frst n, frst
out method may be used n computng the manufacturers e cse ta .
Secton 02 of the Revenue ct of 1932 mposes a ta on tres and
nner tubes sod by the manufacturer, producer, or mporter based
upon ther weght.
Secton 9(a) of the grcutura d|ustment ct mposes a proc-
essng ta on agrcutura commodtes and contans a provso readng
as foows:
Provded, That upon any artce upon whch a manufacturers saes
ta s eved under the authorty of the Revenue ct of 1032 and whch
manufacturers saes ta s computed on the bass of weght, such manufac-
turers saes ta sha be computed on the bass of the weght of sad fnshed
artce ess the weght of the processed cotton contaned theren on whch
a processng ta has been pad.
Secton 1 (a) of the grcutura d|ustment ct mposes a ta
on foor stocks of any artce processed whoy or n chef vaue from
any commodty wth respect to whch a processng ta s eved, and
s effectve on the date the processng ta on the commodty frst
takes effect. The processng ta on coton became effectve on
ugust 1, 1933.
The ta mposed by secton 02 of the Revenue ct of 1932 on
tres and nner tubes s a manufacturers saes ta wthn the mean-
ng of the foregong provso. Ths provso reates ony to the
processng ta and s not appcabe to the foor ta mposed by sec-
ton 1 (a). ccordngy, n computng the manufacturers e cse ta
on tres on hand on ugust 1, 1933, whch were sod by the manu-
facturer or producer on or after that date, no deducton may be made
for the weght of the cotton content of such tres on whch the
foor ta has been pad. The same rue appes to cotton n process
of fabrcaton, competed cotton fabrc, or cotton fabrc on hand on
ugust 1, 1933 (upon whch the foor ta has been pad), whch s
ater used n the manufacture of tres.
Where the manufacturer of tres had on hand on ugust 1, 1933,
cotton, fabrcated or n course of fabrcaton, on whch the foor
ta was due or pad, the manufacturers e cse ta on tres manu-
factured on or after that date shoud be computed wthout the
weght deducton aowabe under the provso n secton 9(a) of the
grcutura d|ustment ct, unt processed cotton has been con-
sumed n an amount equa to the ugust 1, 1933, nventory of such
matera on whch the foor ta was due or pad.
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000, Regs. 40, rt. 30.
37
Where tres contanng cotton on whch the processng ta has
been pad have been added to the stock of tres on hand on ugust
1, 1933, contanng cotton on whch the foor ta has been pad, and
have been so ntermnged wth such tres that t s not possbe
to dentfy each cass of tres, wth respect to ther ta -pad cotton
content, the frst n, frst out method may be used for the purpose
of computng the manufacturers e cse ta . In other words, to the
e tent of the number of tres of any one sze and type on hand on
ugust 1, 1933, pus the number of tres manufactured on or after
that date from processed cotton on hand on ugust 1, 1933, sub|ect
to foor ta , the manufacturers e cse t-a on the sae of such tres
must be based upon the fu weght of a the tres. In computng the
manufacturers e cse ta on subsequent saes of tres of the same
sze and type, a deducton may be made of the weght of the proc-
essed cotton contaned theren on whch the processng ta has been
pad, as provded n secton 9(a) of the grcutura d|ustment
ct.
S CTION 0 . UTOMO IL S, TC.
eouatons 4 , rtce 3 : Scope of ta . III- - 44
S. T. 722
Dstncton between automobe truck chasss and tractors.
Inqury s made wth respect to the types of automobe chasss
whch come wthn the meanng of the term tractors, as used n
secton 0 (b) of the Revenue ct of 1932 and artce 3 of Regua-
tons 4 , and whch are not sub|ect to ta when sod.
Secton 0 (a) of the Revenue ct of 1932 mposes a ta on saes
by the manufacturer of automobe truck chasss and automobe
truck bodes. Subdvson (b) of that secton mposes a ta on saes
by the manufacturer of other automobe chasss and bodes, e cept
tractors.
The term tractors s generay understood to ncude automotve
vehces desgned for the purpose of pung or drawng vehces,
pows, road-budng machnery, etc. Whe t may be possbe to
desgn a tractor so that t coud carry a oad, ts constructon s usu-
ay for drawng or pung. n automotve truck chasss, however
styed, whch s so desgned that t may be ready equpped wth a
truck body or other type of body, and the specfcatons for w-hch are
ncuded among truck chasss specfcatons, s sub|ect to ta under
secton 0 (a) of the Revenue ct of 1932 as an automobe truck
chasss, regardess of ts whee base, or whether t s equpped wth a
ffth whee and used, ony for a pung or tractve functon for a
foowng traer.
utomotve chasss of the short whee base type specay desgned
for the purpose of drawng or pung traers, whether or not there
s mounted thereon a ower ffth whee, and whch may not be
equpped wth a truck body or other automobe body, are consdered
tractors wthn the meanng of the aw and reguatons and, there-
fore, are not sub|ect to ta when sod.
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377
G00, Regs. 40, rt. 41.
Reguatons 4 , rtce 41: Defnton of parts
or accessores.
III-1 - 758
S. T.73
Certan equpment for an automobe truck chasss, known as
s whee attachment, s sub|ect to the manufacturers e cse
ta as a part or accessory.
The queston presented s whether the s whee attachment n
queston s a traer or a semtraer not sub|ect to ta (Martn
Rockng fth Whee Co. v. Unted States, 0 Ct. CI., 4 , T. D.
371 , C. . I -1, 317), or a part or accessory ta abe under the aw.
Secton 0 (c) of the Revenue ct of 1932 mposes a ta on parts
or accessores for automobe trucks or other automobe chasss and
bodes, or motor cyces.
rtce 41 of Reguatons 4 provdes n part:
The term parts or accessores for an automobe truck or other automo-
be chasss or body, or motor cyce, ncudes (a) any artce the prmary
use of whch s to mprove, repar, repace, or serve as a component part of
snch vehce or artce, ( ) any artce desgned to be attached to or used
n connecton wth such vehce or artce to add to ts utty or ornamen-
taton, or (c) any artce the prmary use of whch s n connecton wth such
vehce or artce whether or not essenta to ts operaton or use.
The term parts and accessores sha be understood to embrace a
such parts and accessores as have reached such a stage of manufacture
that they consttute artces commony or commercay known as parts and
accessores regardess of the fact that fttng operatons may be requred In
connecton wth nstaaton.
The equpment n queston, known as s whee attachment,
conssts of an e tenson for the frame of an automobe truck chasss
wth supportng sprngs, whees, and a e. It s used for the purpose
of ncreasng the capacty and carryng power of the truck to whch
t s attached by engthenng the frame and gvng the rear of the
truck chasss the support of addtona whees and sprngs. It s
not ntended to carry a separate oad, whch s the functon of a
traer or semtraer.
Determnaton of what consttutes automobe accessores depends
upon the partcuar facts of each case. (Cuno ngneerng Corpora-
ton v. Unted States, 43 ed. (2d), 259.) The Unted States
Supreme Court n the case of Unversa attery Co. v. Unted
States (281 U. S., 580), n approvng the admnstratve reguatons
of the ureau, sad:
We thnk the vew taken n the admnstratve reguatons a
reasonabe and shoud be uphed. It s that artces prmary adapted for
use n motor vehces are to be regarded as parts or accessores of such
vehces, even though there has been some other use of the artces for whch
they are not so we adapted.
The equpment under consderaton s not a separate vehce
capabe of carryng a oad by tsef, whch s characterstc of
traers and semtraers, but s so desgned that t must be attached
to and become a part of the truck chasss. It s thus prmary
adapted for use n motor vehces.
In vew of the foregong, t s hed that the equpment n queston
consttutes a part or accessory wthn the meanng of secton
0 (c) of the Revenue ct of 1932, and artce 41 of Reguatons
4 , and as such s sub|ect to the ta mposed by that secton.
77GC2- 34- -13
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0 , Regs. 4 , rt. 42.
378
Reguatons 4 , rtce 41: Defnton of parts III-21- 809
or accessores. S. T. 739
Ta abty of automobe foor mats.
The queston s presented whether automobe foor mats are sub-
ect to ta as parts or accessores under secton 0 (c) of the
tevenue ct of 1932.
The aw mposes a ta equvaent to 2 per cent of the prce for
whch parte or accessores for automobe trucks or other automo-
be chasss and bodes are sod by the manufacturer, producer, or
mporter.
rtce 41 of Reguatons 4 provdes n part as foows:
The term parts or accessores for an automobe truck or other auto-
mobe chasss or body, or motor cyce, ncudes (o) any artce the prmary
use of whch Is to mprove, repar, repace, or serve as a component part of
such vehce or artce, ( ) any artce desgned to be attached to or used n
connecton wth such vehce or artce to add to ts utty or ornamentaton,
or (e) any artce the prmary use of whch s n connecton wth such vehce
or artce whether or not essenta to ts operaton or use.
The term parts and accessores sha be understood to embrace a such
parts and accessores as have reached such a stage of manufacture that they
consttute artces commony or commercay known as parts and accessores
regardess of the fact that fttng operatons may be requred n connecton
wth nstaaton. The term sha not be understood to embrace raw materas
used n the manufacture of such artces.
arous manufacturers make foor coverngs for automobes whch
are generay known as unversa mats. of the mats are de-
sgned for repacement of mats used n automobes.
It s hed that automobe foor mats of every knd and descrp-
ton, regardess of whether mnor cuttng or fttng operatons are
requred before nstaaton, consttute parts or accessores, wthn
the meanng of secton 0 (c) of the Revenue ct of 1932 and artce
41 of Reguatons 4 , and as such are sub|ect to the ta mposed by
that ct.
Reguatons 4 , rtce 42: Parts and acces- III-4- 19
sores sod to manufacturers. S. T. 719
( so Reguatons 4 , rtce 1 .)
n automobe manufacturer s abe for the ta on parts or
accessores purchased ta -free whch he uses n the manufacture
of an artce not sub|ect to ta or sos for repar or repacement
purposes.
Inqury s made whether an automobe manufacturer who pur-
chases parts or accessores free from ta and uses them n the manu-
facture of an artce not sub|ect to ta , or ses them for repar or
repacement purposes, s abe for the ta mposed by secton 0 (c)
of the Revenue ct of 1932.
Secton 0 (c) of the Revenue ct of 1932 mposes a ta on the
sae of automobe parts or accessores other than tres or nner tubes.
Secton 20 provdes for the sae of such parts or accessores ta -
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379 09, Regs. 4 , rt. 55.
free for use as matera n the manufacture or producton of a ta abe
artce. Secton 22 provdes for the ta upon the use of such artces
by the manufacturer.
Where a manufacturer of automobe truck chasss and bodes, or
other automobe chasss and bodes, purchases parts or accessores
ta -free under the provsons of secton 00(c) of the Revenue ct of
1932 and artce 42 of Reguatons 4 , and ater uses such parts or
accessores n the manufacture of an artce whch s not ta abe
under subsecton (a) or (b) of secton 0 , or reses the same for
repar or repacement purposes, the manufacturer s abe for the
ta on the parts or accessores so used or resod by hm.
S CTION 09. SPORTING GOODS.
Reguatons 4 , rtce 55: Games. III-15- 745
S.T.733
Tay cards or smar devces used In baseba and horse
racng poos are ta abe as games or parts of games. S. T. 02
modfed.
Secton 09 of the Revenue ct of 1932 mposes a ta on saes of
games and parts of games by the manufacturer, producer, or
mporter.
It was hed n S. T. 2 (C. . II-1, 403) that baseba poo
tckets and par-mutue tckets are not ta abe as games or parts of
games. The concuson has been reached that ths rung shoud be
restrcted to those tckets or devces wth respect to whch the pur-
chaser has the opportunty to choose the partcuar baseba team or
the partcuar horse upon whch he desres to wager. Such a tcket
or devce s merey the evdence of the hoder s rght to partcpate
n a fund or poo n the event the baseba team or horse desgnated
by the tcket or devce shoud wn. The transacton n such a case
consttutes the purchase of a tcket and nothng more. aseba poo
tckets and par-mutue tckets of ths type are not ta abe as games
or parts of games and to ths e tent the pubshed rung s affrmed.
owever, wth respect to some baseba or horse racng poos cer-
tan so-caed tay cards are provded for use by the partcpants.
These tay cards have foded sps of paper attached thereto whch
contan the names of baseba teams or horses but the names are
conceaed from the purchaser. In such a case the purchaser merey
seects a partcuar sp of paper contanng unknown data reatng
to the poo. Such a devce promotes nterest n the transacton and
ncreases the gamng eement nvoved. Ths addtona eement of
uncertanty s characterstc of a game of chance and s deemed
suffcent to dstngush devces of ths knd from the mere purchase
of a tcket. Tay cards or smar devces of ths type consttute
games or parts or games, wthn the meanng of secton 09 of the
Revenue ct of 1932, and are sub|ect to ta as such.
S. T. 2, supra, s modfed to the e tent heren ndcated.
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1 , Regs. 42, rt. 40.
380
Reguatons 4 , rtce 55: Games.
III-23-G833
S. T. 741
The machne known as the eectrc traveng crane s ta -
abe as a game.
The queston has arsen whether the machne known as the
eectrc traveng crane s ta abe as a game. Ths machne
conssts of a gass ncosed cabnet n whch there s a mnature
crane. Candy and other artces are paced on the foor of the
cabnet. The eectrcay operated mechansm s reeased by nsert-
ng a con n a sot. y turnng a knob the payer endeavors to
manpuate the crane so that t w grasp one of the artces. If
successfu, the crane s brought to an uprght poston and the
artce s reeased and dropped nto a chute from whch t may be
removed by the payer.
Secton 09 of the Revenue ct of 1932 mposes a ta upon the
sae of games and parts of games by the manufacture producer,
or mporter. rtce 53 of Reguatons 4 provdes n part as
foows:
The term game ncudes games of sk or chance and every contrvance,
devce, or combnaton of artces whch s desgned to furnsh sport, recrea-
ton, or amusement.
It s cear that both sk and chance are nvoved n the opera-
ton of the machne n queston, and that t s desgned to fur-
nsh sport, recreaton, or amusement. It s, therefore, hed that
the eectrc traveng crane s a game wthn the meanng of
secton 09 of the Revenue ct of 1932 and artce 53 of Regua-
tons 4 , and s sub|ect to the ta mposed by that secton of the ct.
S CTION 1 O T R NU CT O 1932, S M ND D Y
T CT O UN 1 , 1933 (PU LIC, NO. 73, S NTY-T IRD
CONGR SS). L CTRIC L N RGY.
Ta abty of saes of eectrca energy for Industra consump-
ton where a porton of the energy s dverted for domestc
consumpton.
Inqury s made reatve to the ta abty of saes of eectrca
energy for ndustra consumpton where a porton of the energy
s dverted for domestc consumpton.
Secton 1 of the Revenue ct of 1932, as amended by the ct
of une 1 , 1933 (Pubc, No. 73, Seventy-thrd Congress), mposes
upon the sae of eectrca energy for domestc or commerca con-
sumpton and not for resae a ta of 3 per cent of the prce for whch
the energy s sod, the ta to be pad by the vendor. The statute
provdes that the sae of eectrca energy to an owner or essee of a
budng for resae to the tenants theren sha be consdered as a
sae for consumpton and not for resae, but the resae to the tenant
sha not be consdered a sae for consumpton.
The stuatons presented are as foows:
(1) porton of the energy purchased by the coa mnng company s d-
verted to the homes of company empoyees at no partcuar cost the monthy
Reguatons 42, rtce 40: Scope of ta .
III-9- 80
S. T. 725
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381
17, Regs. 44, rt. 43.
rent pad by the company empoyees to the coa company beng consdered to
cover the amount of the eectrca energy consumed by the empoyees.
Where eectrca energy s sod to an ndustra estabshment
through one meter for ndustra consumpton, and a porton of the
energy s used by empoyees of the ndustra estabshment for do-
mestc consumpton wthout beng remetered or made the sub|ect
of a specfc charge, the ta mposed by secton 1 of the Revenue
ct of 1932, as amended, does not attach.
(2) porton of the energy purchased by the coa mnng company s
dverted to the homes of the company empoyees and s bed the empoyees
by the coa company at a fat charge per mouth regardess of the amount of
energy consumed.
Where a porton of the energy sod through one meter to an n-
dustra estabshment for ndustra consumpton s dverted to ts
empoyees resdng n houses owned by the ndustra estabshment
for domestc consumpton, there beng no measurement made of the
energy so used or determnaton of the prce for whch sod by the
power company but merey a fat charge per month by the ndustra
estabshment for the servce, the ta does not attach.
(3) porton of the energy purchased by the coa mnng company s d-
verted to the hemes of the company empoyees and s pad for by such em-
poyees on a metered bass the payments by the empoyees beng to the coa
company.
If the ndustra estabshment s the owner or essee of the bud-
ngs occuped by the empoyees, the power company s abe for the
ta on energy sod to the ndustra estabshment whch s re-
metered ether by the power company or by the ndustra estabsh-
ment and resod to tenants of such budngs. In cases where the
ndustra estabshment s not the owner or essee of the budngs
n queston, t w be necessary for such company to regster wth
the coector of nterna revenue, as provded n Treasury Decson
4393 (C. . II-2, 322), and to pay ta as a vendor on the energy
t reses to ts empoyees for domestc use.
S CTION 17. G SOLIN .
Reguatons 44, rtce 43: Scope of ta . III-15- 74
S. T.734
The M Corporaton, beng a bender of gasone, s a pro-
ducer wthn the meanng of secton 17 of the Revenue ct of
1932. s a producer of gasone the corporaton must pay ta es
on a gasone sod by t whether produced by t or by others.
On une 20, 1932, the M Corporaton, then a nonproducer of
gasone, acqured gaons of gasone from the N Corporaton.
The gasone conssted of stocks n the ppe nes of the P Corpo-
raton and n refnery storage, warehouses, etc., of the N Corporaton.
The M Corporaton entered nto an agreement wth the N Cor-
poraton for the use of the atter s factes for the dsposton of
the gasone, a porton of whch was ater bended by the P Cor-
poraton, at the drecton of the M Corporaton. The queston
s presented whether the M Corporaton by reason of the bendng
of a porton of the gasone n the manner stated was a producer
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8 17, Regs. 44, rt. 43. 382
of gasone, wthn the meanng of secton 17 of the Revenue ct
of 1932, and, f so, whether t was a producer ony as to the gaso-
ne actuay bended, or as to a the gasone sod by t.
Secton 17(a) of the Revenue ct of 1932 mposes a ta of 1 cent
a gaon on gasone sod bv a producer of gaso-
ne .
Secton 17 (c) provdes that
The term producer ncudes a retuer, compounder, or bender, and a
deaer seng gasone e cusvey to producers of gasone, as we as a
producer.
The bendng of a porton of the gasone by the ppe ne com-
pany, at the drecton of the M Corporaton consttutes the act of
the M Corporaton. Snce the M Corporaton s a bender7 of
gasone t fas wthn the meanng of the term producer used
n secton 17 of the Revenue ct of 1932.
Wth respect to the queston whether the M Corporaton s a
producer ony as to the gasone actuay bended, or as to a
the gasone sod by t, t s hed that snce the corporaton s a pro-
ducer, and the statute mposes a ta on gasone sod by a
producer, the M Corporaton must pay the ta on a gasone sod
by t on or after une 21, 1932, even though t dd not actuay
produce a such gasone.
S CTION 17 O T R NU CT O 1932, S M ND D Y
S CTION 211 O T N TION L INDUSTRI L R CO RY CT.
G SOLIN .
Reguatons 44, rtce 43: Scope of ta . III-23- 834
( so Secton 20, as amended, and rtce 7.) S. T. 742
manufacturer of ta abe brake nng may purchase avaton
gasone ta -free for use as a matera n the manufacture of such
brake nng.
rung s requested whether avaton gasone may be purchased
ta -free from the producers thereof for use n the manufacture of
ta abe brake nng.
The use of avaton gasone n the manufacture of brake nng
nvoves the foowng operatons: Crude rubber s broken down
n a m and s then put nto souton wth avaton gasone to
form a cement, consstng of appro matey 20 per cent rubber and
80 per cent avaton gasone. The cement s then combned wth
varous raw materas such as rubber, asbestos, suphur, o des, and
fers. The m ture s paced n a m er and s mastcated for
three hours. The avaton gasone n the cement causes the rubber
to cng around the asbestos fbres. Ths coud not be accompshed
wthout the use of the gasone, nor coud the necessary pastc con-
dton be obtaned.
Secton 20 of the Revenue ct of 1932, as amended by secton
4(a) of the ct of une 1 , 1933 (Pubc. No. 73, Seventy-thrd
Congress), provdes n part as foows:
Under reguatons prescrbed by the Commssoner wth the approva of the
Secretary, no ta under ths tde sha be mposed wth respect to the sae
of any artce
(1) for use by the vendee as matera n the manufacture or producton of,
or as a component part of, an artce enumerated n ths tte
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383
17
It s hed that avaton gasone purchased for use n the manner
ndcated as a matera n the manufacture of brake nng whch
s ta abe under secton 0 (c) of the Revenue ct of 1932, when,
sod by the manufacturer thereof, may be purchased ta -free under
secton 20, as amended, upon compance wth the requrements of
Treasury Decson 4399 C. . II-2, 330 . The manufacturer of
the brake nng w be abe for ta at the rate of 1 cent per
gaon on a such gasone purchased ta -free whch s used n the
manufacture of artces not ta abe under Tte I , or for any other
purpose.
Reguatons 44, rtce 44: Use of terms. III-19- 78
S. T.738
Ta abty of engne dstate.
The queston s presented whether engne dstate s gasone
wthn the meanng of secton 17(c) 2 of the Revenue ct of 1932,
as amended by secton 211 of the Natona Industra Recovery ct.
The aw mposes a ta on gasone sod by the mporter or producer
thereof and provdes that the term gasone means gasone, ben-
zo, and any other qud the chef use of whch s as a fue for the
propuson of motor vehces, motor boats, or aeropanes.
rtce 44 of Reguatons 44, as amended by Treasury Decson
4400 (C. . II-2, 327), reads n part as foows:
The term gasone ncudes (1) a products commony or commercay
known as gasone regardess of ther cassfcatons or uses, .
The ureau of Mnes of the Department of Commerce has hed
that engne dstate s essentay a ow-grade gasone.
In vew of the foregong, t s hed that engne dstate s gaso-
ne wthn the meanng of secton 17(c)2 of the Revenue ct of
1932, and s sub|ect to the ta mposed by secton 17(a) of that ct,
as amended.
S CTION 17 O T R NU CT O 1932, S M ND D Y
T N TION L INDUSTRI L R CO RY CT ND S CTION
03(d) O T R NU CT O 1934.
III-24- 854
Mm. 4183
Procedure for regsterng and bondng producers or mporters
of gasone and manufacturers or producers of ubrcatng o.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, une 1934..
Coectors of Interna Revenue:
Secton 03(d) of the Revenue ct of 1931 amends secton 17 of
the Revenue ct of 1932, as amended, by addng at the end thereof
the foowng subsecton:
(d) very person sub|ect to ta under ths secton or secton 01(c)(1)
sha, before the thrteth day after the date of the enactment of the Revenue
ct of 1934 (or In the case of a person commencng busness after sucb day
before ncurrng any abty for ta under buct, sectons) regster wth the
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5 17.
384
coector for the dstrct In whch s ocated hs prncpa pace of busness
(or, f ne has no prncpa pace of busness n the Unted States, wth the
coector at atmore, Md.) and sha gve a bond, to be approved by such
coector, condtoned that he sha not engage In any attempt, by hmsef or
by couson wth others, to defraud the Unted States of any ta under such
sectons that he sha render truy and competey a returns, statements,
and nventores requred by aw or reguatons n pursuance thereof and
sha pay a ta es due under such sectons and that he sha compy wth
a requrements of aw and reguatons n pursuance thereof wth respect
to ta under such sectons. Such bond sha be In such sum as the coector
may requre n accordance wth reguatons prescrbed by the Commssoner
wth the approva of the Secretary, but not ess than 2,000. The coector
may from tme to tme requre new or addtona bond n accordance wth
ths subsecton. very person who fas to regster or gve bond as requred
by ths subsecton, or who n connecton wth any purchase of gasone or
ubrcatng o fasey represents hmsef to be regstered and bonded as
provded by ths subsecton, or who wfuy makes any fase statement n an
appcaton for regstraton under ths subsecton, sha upon convcton thereof
be fned not more than 5,000 or mprsoned not more than fve years, or both,
together wth the costs of prosecuton. If the Commssoner fnds that any
manufacturer or producer has at any tme evaded any edera ta on gasone
or ubrcatng o, he may revoke the regstraton of such manufacturer or
producer, and no sae to, or for resae to, such manufacturer or producer
thereafter sha be ta -free under secton 01(c)(1), ths secton, or secton
20, as amended, but such manufacturer or producer sha not be reeved of
the requrement of gvng bond under ths subsecton.
Pursuant to the above provsons, every mporter or producer of
gasone and every manufacturer or producer of ubrcatng o sha
before une 9, 1934 (or n the case of a person commencng busness
after such date, before ncurrng any abty for ta on such prod-
ucts), regster wth the coector of the dstrct n whch s ocated
hs prncpa pace of busness (or f he has no prncpa pace of
busness n the Unted States, wth the coector at atmore, Md.)
and sha gve a bond to be approved by such coector.
Regstraton. orm 37 sha be used n makng appcaton for
regstry. eretofore, these forms have been used ony where the
appcants desred to ava themseves of the provsons of aw per-
tanng to ta -free saes, where regstraton was a condton prec-
edent to the rght to buy or se ta free. The aw now requres,
wthout regard to ta -free saes, that a producers or mporters or
gasone and a manufacturers or producers of ubrcatng o not
ony sha regster but aso sha post a satsfactory bond.
Those persons to whom certfcate of regstry on orm G37 had
been ssued pror to the enactment of the Revenue ct of 1934, as
producers of gasone or as manufacturers or producers of ubrcatng
o, w not be requred to reregster.
ondng. very producer or mporter of gasone, and every man-
ufacturer or producer of ubrcatng o, must gve bond on orm 928
before une 9, 1934, or before commencng busness after such date.
Upon the recept of the bond, the coector w ssue the certfcate of
regstry, f the ta payer has not prevousy been furnshed wth such
certfcate.
Such bond sha be n a sum equvaent to the appro mate amount
of ta whch woud be ncurred durng a 3-month perod at the rates
of ta now n effect, but n no case sha the bond be for ess than
2,000. Where the amount of the bond under such crcumstances w
e ceed 30,000, the coector may accept a bond for not ess than
30,000. In such cases, there shoud be submtted to the coector,
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385
( 017.
for transmtta to the Commssoner, a facts pertanng to the
ownershp and vaue of the property and equpment whch w be
of assstance to the Commssoner n determnng whether a arger
bond shoud be requred from the appcant. In transmttng ths
data, the coector shoud submt hs recommendaton as to the
suffcency of the bond.
onds must be n mutpes of 100. Where the sum equvaent
to the appro mate amount of ta whch woud be ncurred durng a
3-month perod s an odd amount, the amount of the bond sha be
ncreased to the ne t mutpe of 100. or e ampe, f the appro -
mate amount of ta key to be ncurred durng a 3-month perod
amounts to , . , the amount of the bond sha be ,700.
If the suretes on the bond are ndvduas, orm 33, ffdavt of
ndvdua surety on bond, must be e ecuted n conformty wth the
nstructons n paragraph 2 on the bond.
onds shoud be fed n dupcate, the dupcate to be retaned by
the coector and the orgna forwarded to the Commssoner, marked
for the attenton of the Saes Ta Dvson, Msceaneous Ta Unt.
ond forms (Department orm 928) w be furnshed prompty
to coectors for dstrbuton.
Correspondence n regard to the procedure outned heren w
refer to the number of ths mmeograph and the symbos MT-ST.
Weght Matthews,
ctng Commssoner.
pproved une 2, 1934.
T. . Coodge,
ctng Secretary of the Treasury.
III-25- 8 2
T. D.4439
ondng producers or Importers of gasone and manufacturers
or producers of ubrcatng o (secton 03(d) of the Revenue ct
of 1934). Reguatons 44, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Coectors of Interna Revenue and Others Concerned:
Secton 03(d) of the Revenue ct of 1934 amends secton 17 of
the Revenue ct of 1932, as amended, by addng at the end thereof
the foowng subsecton:
(d) very person sub|ect to ta under ths secton or secton 01 (c)
sha, before the thrteth day after the date of the enactment of the Revenue
ct of 1934 (or n the case of a person commencng busness after such day
before ncurrng any abty for ta under such sectons) regster wth the
coector for the dstrct n whch Is ocated hs prncpa pace of busness
(or, f he has no prncpa pace of busness n the Unted States, wth the
coector at atmore, Md.) and sha gve a bond, to be approved by such
coector, condtoned that he sha not engage n any attempt, by hmsef or
by couson wth others, to defraud the Unted States of any ta under such
sectons that he sha render truy and competey a returns, statements,
and nventores requred by aw or reguatons n pursuance thereof and sha
pay a ta es due under such sectons and that he sha compy wth a
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1 17.
38
requrements of aw and reguatons n pursuance thereof wth respect to ta
under such sectons. Such bond sha be n such sum as the coector may
requre n accordance wth reguatons prescrbed by the Commssoner wth
the approva of the Secretary, but not ess than 2,000. The coector may from
tme to tme requre new or addtona bond n accordance wth ths sub-
secton. very person who fas to regster or gve bond as requred by ths
subsecton, or who n connecton wth any purchase of gasone or ubrcatng
o fasey represents hmsef to be regstered and bonded as provded by ths
subsecton, or who wfuy makes any fase statement n an appcaton for
regstraton under ths subsecton, sha upon convcton thereof be fned not
more than 5,000 or mprsoned not more than fve years, or both, together
wth the costs of prosecuton. If the Commssoner fnds that any manufac-
turer or producer has at any tme evaded any edera ta on gasone or
ubrcatng o, he may revoke the regstraton of such manufacturer or pro-
ducer, and no sae to, or for resae to, such manufacturer or producer there-
after sha be ta -free under secton 01(c) , ths secton, or secton 20, as
amended, but such manufacturer or producer sha not be reeved of the
requrement of gvng bond under ths subsecton.
Pursuant to the above provsons, every mporter or producer of
gasone and every manufacturer or producer of ubrcatng o sha
before une 9, 1934 (or n the case of a person commencng busness
after such date, before ncurrng any abty for ta on such
products), fe bond on orm 928 wth the coector of the dstrct
n whch s ocated hs prncpa pace of busness (or f he has no
prncpa pace of busness n the Unted States, wth the coector
at atmore, Md.), such bond to be approved by the coector.
onds fed before uy 1, 1934, w be accepted as tmey fed.
Such bond sha be n a sum equvaent to the appro mate amount
of ta whch woud be ncurred durng a 3-month perod at the rates
of ta now n effect, but n no case sna the bond be for ess than
2,000.
Where the amount of the bond under such crcumstances w e -
ceed 30,000, the coector may accept a bond for not ess than 30,000.
In such cases there shoud be submtted to the coector for transmt-
ta to the Commssoner a facts pertanng to the ownershp and
vaue of the property and equpment whch w be of assstance to
the Commssoner n determnng whether a arger bond shoud be
requred from the appcant. In transmttng ths data the coector
shoud submt hs recommendaton as to the suffcency of the bond.
onds must be n mutpes of 100. Where the sum equvaent
to the appro mate amount of ta whch woud be ncurred durng a
3-month perod s an odd amount, the amount of the bond sha
be ncreased to the ne t mutpe of 100. or e ampe, f the
appro mate amount of ta key to be ncurred durng a 3-month
perod amounts to , . , the amount of the bond sha be ,700.
If the suretes on the bond are ndvduas, orm 33, ffdavt of
ndvdua surety on bond, must be e ecuted n conformty wth the
nstructons n paragraph 1 on the bond.
Wrght Matthews,
ctng Commssoner.
pproved une 8, 1934.
T. . Coodge,
ctng Secretary of the Treasury.
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387
20, Regs. 4 , rt. 17.
S CTION 20 O T R NU CT O 1932, S M ND D Y
T CT O UN 1 , 1933 (PU LIC, NO. 73, S NTY-T IRD
CONGR SS).
Reguatons 4 , ktce 17: Saes to States III-3- 04
or potca subdvsons thereof and to the S. T. 717
Unted States.
Tres and nner tubes may not be sod ta -free to automobe
manufacturers for use as component parts of automobes manu-
factured and sod by them to States or potca subdvsons
thereof.
Inqury s made whether under subdvson (3) of secton 20 of
the Revenue ct of 1932 (added by the ct of une 1 , 1933, Pubc.
No. 73, Seventy-thrd Congress) tres and nner tubes may be sod
ta -free to automobe manufacturers for use as component parts of
automobes manufactured and sod by them to States or potca
subdvsons thereof for use n the e ercse of an essenta govern-
menta functon.
Secton 20, as amended, provdes that:
Under reguatons prescrbed by the Commssoner wth the approva of
the Secretary, no ta under ths tte sha be mposed wth respect to the
sae of any artce

(3) for resae by the vendee to a State or potca subdvson thereof for
use In the e ercse of an essenta governmenta functon. If such artce a
n due course so resod.
rtce 17 of Reguatons 4 , as amended by Treasury Decson
4398 (C. . II-2, 337), provdes that n order to estabsh
e empton from ta n accordance wth secton 20(3), the manu-
facturer must obtan from hs vendee (herenafter referred to as
the deaer ) pror to or at the tme of sae, and retan n hs
possesson, a sworn statement showng that the artce s to be resod
by the deaer drect to a State or potca subdvson thereof for
use n the e ercse of an essenta governmenta functon, and that
the manufacturer must obtan from the deaer proof that the artce
has been so resod by the deaer.
Under the provsons of the aw and reguatons t s cear that
artces may be sod ta -free ony to deaers who rese them n duo
course drect to a State or potca subdvson thereof for use n
the e ercse of an essenta governmenta functon. utomobe
manufacturers are not ordnary deaers n tres and nner tubes n
the sense n whch the word s commony used or wthn the meanng
of the aw and reguatons.
It s accordngy hed that manufacturers of tres and nner tubes
may not se such artces ta -free to automobe manufacturers for
use as component parts of automobes manufactured and sod by
them to States or potca subdvsons thereof even though used n
the e ercse of an essenta governmenta functon.
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21, Regs. 44, rt. 52.
388
S CTION 21. CR DITS ND R UNDS.
Reguatons 44, rtce 52: Credts and
refunds.
III-15- 752
T. D. 442
Credts and refunds. Secton 21(a) of the Revenue ct of
1932, as amended by secton 4(c) of the ct approved une 1 ,
1933 (Pubc, No. 73, Seventy-thrd Congress). rtce 52, Regua-
tons 44, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The ast paragraph of artce 52 of Reguatons 44, approved
une 18, 1932, as added by Treasury Decson 4412, approved
December ,1933 C. . II-2, 340 , s amended to read as foows:
Where artces ta abe under Tte I are sod by a manufacturer ta -pad
to a deaer who reses and devers such artces drect to a State or potca
subdvson thereof after uy 1, 1933, for use n the e ercse of an essenta
governmenta functon, the manufacturer who pad the ta on such artces
may be aowed a refund or may take credt aganst the ta due upon any
subsequent monthy return, n the amount of ta pad by hm under ths tte
wth respect to the sae of any such artce to the deaer, provded the manu-
facturer has n hs possesson evdence showng that ( ) such artce has after
the date secton 21 (a)3 takes effect been devered by the deaer to a State
or potca subdvson thereof for use n the e ercse of an essenta govern-
menta functon and ( ) the manufacturer has repad or agreed to repay the
amount of such ta to the deaer or has obtaned the consent of the deaer
to the aowance of the credt or refund. The cam for refund or credt
must be supported by an affdavt of the manufacturer showng (1) the name
and address of each deaer (2) the amount of ta aowabe to each deaer)
(3) the date the ta was pad to the Unted States In each case and (4)
whether the manufacturer has repad or agreed to repay the amount of such
ta to the deaer. The affdavt of the manufacturer must aso show that he
has n hs possesson, sub|ect to e amnaton by nterna revenue offcers, a
sworn statement from each deaer nvoved (or If the amount of the ta
nvoved n any deaer s credt or refund s 10 or ess, hs statement may be
sgned or acknowedged before two wtnesses nstead of under oath) statng
(a) whether the artces on whch the ta was pad have been resod and
devered after uy 1, 1933, by hm drect to a State or a potca subdvson
thereof for use In the e ercse of an essenta governmenta functon ( )
the State or potca subdvson thereof to whch the saes were made (c)
the nature of the governmenta functon, 1. e., the knd of actvtes for whch
purchased and (d) that the deaer has consented to the aowance of the
credt or refund where the manufacturer has nether repad nor agreed to
repay the amount of such ta to the deaer.
Gut T. everng,
Commssoner of Interna Revenue.
pproved pr 3, 1934.
. Morgenthau, r.,
Secretary of the Treasury.
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389
21, Regs. 4 , rt. 71.
Reguatons 4 , rtce 71: Credts and
refunds.
III-1 - 7 1
T. D.4427
Credts and refunds. Secton 21 of the Revenue ct of 1932,
as amended by secton 4(c) of the ct approved une 1 , 1933
(Pubc, No. 73, Seventy-thrd Congress). rtce 71, Reguatons
4 , amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Coectors of Interna Revenue and Others Concerned:
The ast paragraph of artce 71 of Reguatons 4 , approved une
18, 1932, as added by Treasury Decson 4413, approved December ,
1933 C. . II-2, 341 , s amended to read as foows:
Where artces ta abe under Tte I are sod by a manufacturer ta -pad to
a deaer who reses and devers such artces drect to a State or potca sub-
dvson thereof after uy 1, 1933, for use n the e ercse of an essenta gov-
ernmenta functon, the manufacturer who pad the ta on such artces may
be aowed a refund, or may take credt aganst the ta due upon any subse-
quent monthy return, n the amount of ta pad by hm under ths tte wth
respect to the sae of any such artce to the deaer, provded the manufacturer
has n hs possesson evdence showng that ( ) such artce has after the date
secton 21 (a)3 takes effect been devered by the deaer to a State or potca
subdvson thereof for use n the e ercse of an essenta governmenta func-
ton and ( ) the manufacturer has repad or agreed to repay the amount
of such ta to the deaer or has obtaned the consent of the deaer to the aow-
ance of the credt or refund. The cam for refund or credt must be sup-
ported by an affdavt of the manufacturer showng (1) the name and address
of each deaer (2) the amount of ta aowabe to each deaer (3) the date
the ta was pad to the Unted States n each case and (4) whether the manu-
facturer has repad or agreed to repay the amount of such ta to the deaer.
The affdavt of the manufacturer must aso show that he has n hs possesson,
sub|ect to e amnaton by nterna revenue offcers, a sworn statement from
each deaer nvoved (or f the amount of the ta nvoved n any deaer s
credt or refund s 10 or ess, hs statement may be sgned or acknowedged
before two wtnesses nstead of under oath), statng (a) whether the artces on
whch the ta was pad have been resod and devered after uy 1, 1933, by
hm drect to a State or a potca subdvson thereof for use n the e ercse
of an essenta governmenta functon ( ) the State or potca subdvson
thereof to whch the saes were made (c) the nature of the governmenta
functon, . e., the knd of actvtes for whch purchased and (d) that the
deaer has consented to the aowance of the credt or refund where the manu-
facturer has nether repad nor agreed to repay the amount of such ta to the
deaer.
pproved pr 10, 1934.
. Morgenthau, r.,
Gut T. everng,
Commssoner of Interna Revenue.
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30, Regs. 44, rt. 57 1
390
S CTION 30, S DD D Y S CTION 5 O T CT O UN 1 ,
1933 (PU LIC, NO. 73, S NTY-T IRD CONGR SS). MPTION
ROM T O C RT IN SUPPLI S OR SS LS.
Reguatons 44, rtce 57y2: empton of III-7- 54
certan suppes for vesses. S. T. 724
( so Reguatons 4 , rtce 7 y -)
Ta abty of saes of artces for use on vesses of the Coast.
Guard.
Inqury s made whether saes to vesses of the Coast Guard are
e empt from ta as saes to vesses of war of the Unted States,
under secton 30 of the Revenue ct of 1932, added to Tte I of
that ct by secton 5 of the ct of une 1 , 1933 (Pubc, No. 73,
Seventy-thrd Congress).
Secton 30 provdes, n part, that no ta under Tte I of the
Revenue ct of 1932 sha be mposed upon any artce sod for use
as fue suppes, shps stores, sea stores or egtmate equpment on
vesses of war of the Unted States. Reguatons under these
provsons of aw were prescrbed n Treasury Decson 4387 (C. .
II-2, 347), addng artce 7 y2 to Reguatons 4 , and n Treas-
ury Decson 4388 (C. . II-2, 345), addng artce 57y2 to
Reguatons 44.
Tte 14, secton 1, U. S. C. ., provdes:
The Coast Guard sha consttute a part of the mtary forces of the
Unted States and sha operate under the Treasury Department n tme of peace
and operate as a part of the Navy, sub|ect to the orders of the Secretary of
the Navy, n tme of war or when the Presdent sha so drect.
In vew of these provsons of aw t s hed that saes made to
vesses of the Coast Guard are not e empt from ta as saes made
to vesses of war of the Unted States, wthn the purvew of
secton 30, e cept when such vesses are operatng as a part of the
Navy, sub|ect to orders of the Secretary of the Navy, n tme of war
or by drecton of the Presdent.
Reguatons 44, rtce 57y2: empton of III-14- 73
certan suppes for vesses. S. T. 730
( so Reguatons 4 , rtce 7 y2.)
Nava arcraft are not vesses of war of the Unted States
wthn the meanng of secton 30 of the Revenue ct of 1932.
Secton 30 of the Revenue ct of 1932, as added by secton 5
of the ct of une 1 , 1933, supra, provdes n part:
Under reguatons prescrbed by the Commssoner, wth the approva of
the Secretary, no ta under ths tte sha be mposed upon any artce sod
for use as fue suppes, shps stores, sea stores or egtmate equpment
on vesses of war of the Unted States .
rtce 57y2 of Reguatons 44 (T. D. 4388, C. . II-2, 345)
provdes n part:
The term vesse ncudes every descrpton of water craft or other con-
trvance used, or capabe of beng used, as a means of transportaton on
water but does not ncude arcraft.
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391
Regs. 4 and 42.
The term vesse has been varousy defned. Secton 3 of the
Unted States evsed Statutes (U. S. C. ., Tte 1, secton 3) pro-
vdes that
The word vesse ncudes every descrpton of water craft or
other artfca contrvance used, or capabe of beng used, as a means of
transportaton on water.
rtce 9(b) of Customs Reguatons (1931) provdes that
The word vesse, wthn the meanng of the navgaton aws, ncudes
every descrpton of water craft or other artfca contrvance used or capabe
of beng used as a means of transportaton on water, but does not ncude
sea panes or other arcraft.
In vew of the foregong, even though arcraft pay an mportant
part n the operaton of the Navy and perform mportant functons
n tme of war, they do not fa wthn the term vesses as used
n secton 30 of the Revenue ct of 1932, as added by secton 5 of
the ct of une 1 , 1933, supra.
TITL I . M NU CTUR RS CIS T S. (1932)
TITL . MISC LL N OUS T S. (1932)
Reguatons 4 and 42. III-14- 737
S. T. 731
Labty of edera and banks, edera ntermedate credt
banks, Centra ank for Cooperatves, Producton Credt Corpora-
tons, Producton Credt ssocatons, and anks for Cooperatves
for ta es mposed by Ttes I and of the Revenue ct of 1932.
The edera and banks were estabshed under the ct of uy
17, 191 (39 Stat, 3 0). The edera Government owns the ma|or-
ty of the capta stock of each of such banks. The edera nter-
medate credt banks were estabshed under the ct of March 4,
1923 (42 Stat., 1454), whch provdes that a of the capta stock
of such banks sha be owned by the Unted States. Pursuant to
the provsons of the arm Credt ct of 1933, approved une 1 ,
1933 (Pubc, No. 75, Seventy-thrd Congress), the governor of the
arm Credt dmnstraton has organzed and chartered, n add-
ton to the Centra ank for Cooperatves, a Producton Credt
Corporaton and a ank for Cooperatves n each of the 12 and
bank dstrcts, and aso varous Producton Credt ssocatons.
Secton 931 of Tte 12, U. S. C. ., reads as foows:
edera and banks natona farm assocatons mortgages and bonds at
nstrumentates of Government. very edera and bank and every natona
farm oan assocaton, ncudng the capta and reserve or surpus theren and
the ncome derved-therefrom, sha be e empt from edera, State, muncpa,
and oca ta aton, e cept tu es upon rea estate hed, purchased, or taken by
sad bank or assocaton under the provsons of sectons 7 1 and 781 of ths
chapter. rst mortgages e ecuted to edera and banks, or to |ont stock
and banks, and farm oan bonds ssued under the provsons of ths chapter,
sha be deemed and hed to be nstrumentates of the Government of the
Unted States, nnd as such they and the ncome derved therefrom sha be
e empt from edera, State, muncpa, and oca ta aton.
Secton 1111 of Tte 12, U. S. C. ., reads as foows:
Capta and ncome: debentures nstrumentates of Government. The
prveges of ta e empton accorded under secton 931 of ths chapter sha
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Regs. 4 and 42.
392
appy aso to each edera ntermedate credt bank, ncudng ts capta,
reserve, or surpus, and the ncome derved therefrom, and the debentures
ssued under ths subchapter sha be deemed and hed to be nstrumentates
of the Government and sha en|oy the same ta e emptons as are accorded
farm oan bonds n sad secton.
Secton 3 of the arm Credt ct of 1933, supra, provdes:
The Centra ank for Cooperatves, and the Producton Credt Corporatons,
Producton Credt ssocatons, and anks for Cooperatves, organzed under
ths ct, and ther obgatons, sha be deemed to be nstrumentates of the
Unted States, . Such banks, assocatons, and corporatons, ther
property, ther franchses, capta, reserves, surpus, and other funds, and ther
ncome, sha be e empt from a ta aton now or hereafter mposed by the
Unted States or by any State, Terrtora, or oca ta ng authorty e cept
that any rea property and any tangbe persona property of such banks,
assocatons, and corporatons sha be sub|ect to edera, State, Terrtora,
and oca ta aton to the same e tent as other smar property s ta ed. The
e empton provded heren sha not appy wth respect to any Producton
Credt ssocaton or ts property or ncome after the stock hed n t by the
Producton Credt Corporaton has been retred, or wth respect to the Centra
ank for Cooperatves, or any Producton Credt Corporaton or ank for
Cooperatves, or ts property or ncome after the stock hed n t by the Unted
States has been retred.
It s cear from the provsons of these statutes that the organza-
tons n queston are agences of the edera Government and hat
they are specfcay e empt from edera ta es wth certan e cep-
tons not here matera. The obgatons desgnated n the statutes
as nstrumentates of the Government of the Unted States are aso
specfcay e empted from ta .
The ta es under Tte I of the Revenue ct of 1932 are mposed
upon the saes of certan artces by the manufacturer, producer, or
mporter. The ta es must be pad by them and not by the purchaser.
( rtce 3, Reguatons 4 .) Consequenty, when a edera agency
s the purchaser of such artces the e empton from ta aton granted
by the statutes above quoted does not appy, snce the edera agency
s not the ta payer. The mere fact that the amount of the ta may
be passed on to the agency does not warrant e empton. ccordngy,
saes to such agences of artces specfed n Tte I of the Revenue
ct of 1932 are sub|ect to the ta es mposed by that tte, e cept saes
of frearms, shes, cartrdges, eectrca energy, and certan suppes
for vesses of war of the Unted States whch are specfcay
e empted by the ct mposng these ta es.
Where payments for the use of a safe depost bo are made from
the pubc funds of any of the foregong agences, or a check, draft,
or order for the payment of money s drawn aganst such funds,
the ta es mposed by sectons 741 and 751 of Tte of the Revenue
ct of 1932, respectvey, do not attach.
mounts pad by such agences for teegraph, .teephone, rado,
or cabe servces or factes furnshed to them are e pressy
e empted by secton 701(b) of the Revenue ct of 1932.
The foregong e emptons from edera ta es sha not appy wth
respect to any Producton Credt ssocaton after the stock hed n
t by the Producton Credt Corporaton has been retred, or wth
respect to the Centra ank for Cooperatves, or any Producton
Credt Corporaton or ank for Cooperatves, after the stock hed
n t by the Unted States has been retred.
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393
00, Regs. 47(1924), rt. 1
TITL I. CIS T S. (1924)
S CTION 00(3). UTOMO IL P RTS OR
CC SSORI S.
Reguatons 47 (1924), rtce 1 : Parts or 1II-12- 710
accessores. Ct. D. 803
CIS T NU CTS OP 1918, 1921, 1924. ND 1928 D CISION O
SUPR M COURT.
1. Sut Refund of utomobe ccessores Ta urden of
Ta Proof.
Where a manufacturer of automobe accessores Insttutes any
proceedng, whether before the Commssoner or before the courts
In suts aganst ether the Unted States or a coector, for the
recovery of e cse ta es aeged to have been erroneousy and
Iegay coected under the provsons of subdvson (3) of sec-
ton 00 of the Revenue ct of 1924, or subdvson (3) of secton
900 of the Revenue ct of 1921 or of the Revenue ct of 1918, t s
requred by secton 424(a)2 of the Revenue ct of 1928 to sats-
factory estabsh, by approprate proof, that the burden of the
ta has been borne by t and not by the purchaser.
2. Sut Cams for Refund ursdcton of Court naty .
of udgment.
Secton 424 of the Revenue ct of 1928 does not mt the con-
sderaton of refund cams of the desgnated cass e cusvey to
the Commssoner, does not abrogate the authorty of the courts to
entertan a sut and render fna |udgment after dena of a cam
by the Commssoner, nor does t restrct the |udgment of a court
to the condton that t sha be fna and bndng ony f and when
the camant submts the requred proof to the Commssoner.
3. Consttutonaty.
The restrctons mposed by secton 424 of the Revenue ct of
1928 upon the recovery of e cse ta es are not n voaton of the
due process cause of the ffth amendment to the Consttuton.
4. Decsons Reversed.
Decsons of the Crcut Courts of ppeas n aton v. mercan
Chan Co., Inc. (2d Cr.) ( 3 ed. (2d), 783, Ct. D. 9 , C. . II-2,
8 9) and n Routzahn, Coector, v. Ward Storage attery Co.
( th Cr.) ( 5 ed. (2d), 89), and of the Court of Cams effer-
son ectrc Mfg. Co. v. Unted States (38 ed. (2d), 139),
reversed.
Supreme Court of the Unted States.
171. The Unted States, pettoner, v. efferson ectrc Manufacturng Co.
On certorar to the Court of Cams.
19 . mercan Chan Co., Inc., pettoner, v. Robert O. aton, Coector, etc
On certorar to the Unted States Crcut Court of ppeas for the Second Crcut.
329. C. . Routzahn, Coector, etc., pettoner, v. Ward Storage attery Co.
On certorar to the Unted States Crcut Court of ppeas for the S th Crcut.
ebruary 12, 1934.
opnon.
Mr. ustce an Devanter devered the opnon of the court.
These are actons at aw brought n one nstance aganst the Unted States
and n two aganst n revenue coector. to recover n each Instance money
aeged to have been erroneousy and egay e acted as an e cse ta under
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00, Regs. 47(1924), rt. 1 . 394
subdvson 3 of secton 900 of the Revenue cts of 1918 1 and 1921 and subdv-
son 3 of secton 00 of the Revenue ct of 1924 from the pantff, a corpo-
rate manufacturer, on saes by t of artces whch the revenue offcers regarded
as automobe parts or accessores.
In No. 1714 the Court of Cams awarded the pantff 20,017.58 wth nterest
and dened a countercam nterposed by the Unted States. In No. 19 the
Dstrct Court for the Dstrct of Connectcut gave the pantff |udgments on
three cams for 329,250, 170,470.3 , and 98,41 .41 wth Interest on each
sum and the |udgments were reversed by the Crcut Court of ppeas. In No.
329 the Dstrct Court for the Northern Dstrct of Oho rendered |udgments
for the pantff on fve cams for 89,195.3 , 249,275.32, 189,853.88,
173,934.45, and 41,7 4.57 wth nterest on each sum and the |udgments were
affrmed by the Crcut Court of ppeas.10 The cases are here on certorar.
fter the ta es were coected, tmey appcatons for refund were duy
made by the pantffs, and the appcatons were dened. The actons were
brought wthn the tme generay mted therefor, but not pror to pr
30, 1928.
The appcatons for refund and the actons proceeded on the theory that
the saes were not ta abe under the Revenue cts because the artces sod
were not automobe parts or accessores wthn the meanng of those cts,
and not on the theory that the amount coected was n e cess of what was
propery coectbe on ta abe saes.
In each case the court s authorty to entertan the acton and the pantffs
rght to recover were chaenged n varous ways as precuded by secton 424
of the Revenue ct of 1928, whch provdes:
Seo. 424. Refund of automobe aooessore ta .
(a) No refund sha be made of any amount pad by or coected from
any manufacturer, producer, or mporter n respect of to ta mposed by
subdvson (3) of secton 00 of the Revenue ct of 1924, or subdvson (3)
of secton 900 of the Revenue ct of 1921 or of the Revenue ct of 1918,
uness ether
(1) Pursuant to a udgment of a court n an acton duy begun pror to
pr 30, 1928 or
(2) It s estabshed to the satsfacton of the Commssoner that such
amount was n e cess of the amount propery payabe upon the sae or ease
of an artce sub|ect to ta , or that such amount was not coected, drecty
or ndrecty, from the purchaser or essee, or that such amount, athough
coected from the purchaser or essee, was returned to hm or
(3) The Commssoner certfes to the proper dsbursng offcer that such
manufacturer, producer, or Importer has fed wth the Commssoner, under
reguatons prescrbed by the Commssoner wth the approva of the Secretary,
a bond n such sum and wth such suretes as the Commssoner deems neces-
sary, condtoned upon the mmedate repayment to the Unted States of such
porton of the amount refunded as s not dstrbuted by such manufacturer,
producer, or mporter, wthn s months after the date of the payment of
the refund, to the persons who purchased for purposes of consumpton
(whether from such manufacturer, producer, mporter, or from any other
person) the artces n respect of whch the refund s made, as evdenced by
the affdavts (n such form and contanng such statements as the Comms-
soner may prescrbe) of such purchasers, and that such bond, n the case of
a cam aowed nfter ebruary 28, 1927, was fed before the aowance of
the cam by the Commssoner.
s respects actons brought on or after pr 30, 1928, to recover ta es
charged to have been whoy nvad and not merey n e cess of what was
awfu, whch s the stuaton here, the constructon and appcaton of secton
1 Ch. 18, 40 Stat., 1057, 1122.
Ch. 130. 42 Sat., 227, 291.
Ch. 234. 43 Stat., 253. 322.
00 ( t. CR, 150 38 . (2d), 139 2 . Spp., 778.
. 58 P. (2d). 240, 248.
ach cam was asserted In a separate sut, but the suts were tred together and
after udgment w re consodated for purposes of appea.
3 . (2d), 783.
or opnon overrung moton to dsmss acton see 8 m. ed. Ta Reports, 11274.
ere n an the severa cams were asserted n separate suts, but the suts were
tred together and after udgment were consodated for purposes of appea.
5 . (2d), 89.
20 U. S. C., secton 150.
Ch. 852, 45 SLat., 791, SCO 20 U. S. C, secton 2124.
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395 00, Regs. 47(1924), rt. 1 .
424, partcuary subdvson (a)(2), are matters about whch there has been
much contrarety of opnon, as s shown n three nes of decson.
The decsons n the frst ne regard subdvson (a)(2) as commttng a
cams for the refundng of ta es of the cass n queston here to the Comms-
oner of Interna Revenue for fna determnaton and precudng any e am-
naton of such cams n the courts. Ths vew has been taken by dstrct |udges
In two cases and by a crcut |udge n a dssentng opnon n another case.
The decsons In the second ne are to the effect that the subdvson reates
to admnstratve acton by the Commssoner, but not to proceedngs n the
courts, and eaves a ta payer who has apped to the Commssoner unsuccess-
fuy free to sue on hs cam and the courts free to entertan the sut and
ad|udcate the cam as coud be and commony was done before secton 424
was enacted save that under that secton a |udgment for the ta payer In a
sut brought on or after pr 30, 1928, does not become obgatory or entte
hm to the refund awarded by the |udgment, uness and unt (y) he satsfes
the Commssoner that the ta was not coected drecty or ndrecty from
the purchasers of the artces sod, or f so coected has been returned to the
purchasers, or (z) gves the bond descrbed n subdvson (a)(3). Such
has been the rung n two cases. In one the rung was by the Dstrct Court
for the astern Dstrct of Pennsyvana, and the Crcut Court of ppeas
for that crcut substantay sustaned t, and n that connecton sad, Ths
secton ceary refers to a refund of ta es by the Commssoner, and nowhere
refers to the pantffs rght of acton to recover ta es by tgaton nor to
the |ursdcton of the court. In other words, ths secton s an admnstra-
tve measure for the gudance of the Commssoner n the refund of ta es,
and does not purport to contan any provson prescrbng condtons under
whch ta es may be coected by means of a sut. The other case s No. 329
now under revew, where the rung was by the Dstrct Court for the North-
ern Dstrct of Oho and was fuy sustaned by the Crcut Court of ppeas
for that crcut, as s shown by the foowng e cerpts from ts opnon:a
Secton 424(a) deas not wth rghts of acton, but wth mtatons upon
the power of the Commssoner to make refunds. Its provsons are not n con-
fct wth the genera provsons of aw authorzng suts for refund of ta es.
Ctng cases.
We agree wth the authortes above cted, not ony n reance upon famar
prncpes governng repea by mpcaton, but aso because the secton appears
to us to have an obvous tera meanng perfecty appcabe to refunds by the
Commssoner after |udca determnaton of the egaty of the ta .

If the cam for refund s made pursuant to a |udgment of the court In an
acton begun pror to pr 30,1928, the Commssoner s not forbdden to refund
under the appcabe statute, and ths may we be wthout quafcaton, athough
ths we are not requred to decde. ang to brng hmsef wthn the condton
of paragraph 1, because of not havng pursued hs cam to |udgment n an
acton begun pror to the crtca date, the ta payer must estabsh to the sats-
facton of the Commssoner (b) that such amount was not coected
Sterng Sprng Co. v. Routzahn, Coector Ct. D. 113, C. . III-2, 3581
Twenteth Century Manufacturng Co. v. opkn , Coector Ct. D. 370, C. . -2, 4081.
McCaughn, Coector, v. ectrc Storage attery Co. ( 3 . (2d). 715, 718-71 )).
ectrc Storage attery Co. v. McCaughn. Coector (52 . (2d), 205).
McCaughn, Coector, v. ectrc Storage attery Co. ( 3 . (2d), 715, 718).
or opnon overrung premnary moton to dsmss see Ward Storage attery Co.
. Routzahn, Coector (8 m. ed. Ta Rep., 11274). fter the hearng on the merts
the court, In renderng |udgment for the pantff, sad:
The ob|ecton to the court s |ursdcton founded on secton 424 has here-
tofore been rued on. There Is an error n that opnon where t s ad that any refund
after |udgment woud be pursuant to sub (3) of secton 424 and woud be condtona
and for the beneft of consumers. If refunds are made, they may be under ether sub
(2) or (3), dependng upon whether the pantff bore the ta or passed t on, etc.
Those are matters for the Commssoner to decde the court has nothng to do wth
them, and no evdence respectng them was offered.
ccordng to two recent decsons of the Court of Cams the absence
of such evdence shoud prevent recovery. ut wth preat respect, I am unabe to agree
wth the hodngs on that pont. I st thnk t s for the Commssoner aone to de-
termne the facts necessary to be estabshed as the bass of refunds under ether sub
(2) or (3). Where as here, ta es on saes not ta abe have been coected, then on
proof to the satsfacton of the Commssoner that such amount was not coected,
drecty, or Indrecty, from the purchaser or essee, or f coected has been returned,
they may be refunded.
Routzahn, Coector, v. Ward Storage attery Co. ( 5 . (2d), 89).
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00, Regs. 47(1924), rt. 1 . 39
drecty or ndrecty from the purchasers, or (c) that such amount, athough
coected from the purchasers, was returned to them.
The decsons n the thrd ne, ke those n the second, regard the subdv-
son as nether cuttng off the rght of a ta payer to sue for a refund after
appyng unsuccessfuy to the Commssoner nor abrogatng the authorty of
the courts to entertan the sut. ut, unke those n the second, they regard the
subdvson as substantvey mtng the rght to a refund of ta es of the desg-
nated cass to nstances where the ta payer ether has not drecty or ndrecty
coected the ta from the purchaser or after so coectng t has returned t to
hm. In other words, they regard the subdvson as makng ths substantve
mtaton an eement of the rght to a refund of such ta es, and therefore as
requrng that ths eement, ke others, be satsfactory estabshed n any pro-
ceedngs where an asserted rght to a refund s presented for e amnaton and
determnaton, whether the proceedng be before the Commssoner or be a sut
brought after an appcaton to hm has been unavang. The Court of Cams
has so rued n two cases, one beng No. 171 now under revew and the Dstrct
Court for the Dstrct of Connectcut came to a ke concuson n No. 19
aso now under revew.
We are of opnon that the vew taken n the thrd ne of decsons s rght.
When secton 424 was enacted the nterna revenue aws contaned many
reated provsons consttutng what ths court has termed a comprehensve
system of correctve |ustce n respect of the assessment and coecton of
erroneous or ega ta es. summary of ths system t st s part of the
nterna revenue aws w portray t suffcenty for present purposes. nte-
ror to coecton the Commssoner possesses e cusve authorty to revse, cor-
rect or re|ect assessments and the courts are forbdden to entertan suts to
restran the assessment or coecton. fter coecton aggreved ta payers are
accorded a mted tme wthn whch to appy for refunds, and the Comms-
soner s authorzed to grant the appcatons where the ta es are shown to
have been erroneous or ega but a dena by hm s not fna. If the appca-
ton s ether dened or not acted on by the Commssoner the ta payer s
accorded a f ed perod wthn whch to brng sut for a refund aganst the
Unted States or the coector who receved the ta , and f n the sut he estab-
shes that the ta was erroneous or nvad, that t was pad by hm, and that
hs cam has been duy and seasonaby presented and prosecuted, he s entted
to |udgment for a refund of the amount pad wth nterest.
s a genera rue where the egsaton deang wth a partcuar sub|ect
conssts of a system of reated genera provsons ndcatve of a setted pocy,
new enactments of a fragmentary nature on that sub|ect are to be taken as
ntended to ft nto the e stng system and to be carred nto effect conforma-
by to t, e ceptng as a dfferent purpose s pany shown.
That rue s appcabe here. The e stng system deveoped through
ong years of e perence comprehends the entre sub|ect, ncudng a cams
for refund. Secton 424 s a new enactment and reates to a desgnated cass
of such cams, concededy wthn the scope of the e stng system. Obvousy
the secton s ntended to make some change as respects the partcuar cass
and must be gven effect accordngy but to determne what change s ntended
t must be e amned n the ght of the e stng system.
s respects cams of the desgnated cass secton 424 pany prescrbes, n
subdvson (a)(2), an addtona substantve eement of the rght to refund
the addtona eement beng that the ta payer has not drecty or ndrecty
coected the ta from the purchaser, or, after so coectng t, has returned
t to hm, so that the burden of the ta has been borne by the ta payer and
not the purchaser. Of subdvson (a) (3) t suffces to observe that t enabes
a ta payer who has not borne the burden of the ta but has coected t from
purchasers, and so s not entted to a refund under subdvson (a)(2), to
Uoyc ave Co. v. Unted Sates (GO Ct. Cs.. 38 P. (2d), 135) efferson cctro
Manufacturng Co. v. Unted States ( 9 Ct. TIs., 150, 38 . (2d), 130).
mercan Chan Co. v. aton, Coector (58 P. (2d), 240) Id., 248.
udge v. Osbom (240 U. 8., 118. 120-121).
2 U. S. C, sectons 140. 154. 150, 157 28 U. S. C, sectons 41(5) (20). 250(1). 284.
285 280. 842 31 . S. C, secton 225 Phadepha v. Coector (5 Wa., 720. 731-733)
Mchos v. Unted States (7 Wa., 122, 130-131) Cheatham v. Norvek, Coector (02
0. S., 85. 88-00) : Unted States v. eosef (237 U. S., 1, 10) Unted States v. mery,
Urd, Thayer Reaty Co. (237 U. S., 28, 31-32) Sage . Unted States (250 U. S., 33,
3S-39) Moore ee Cream Co. v. Rose (289 U. S.. 373).
Unted States v. arnes (222 U. S.. 513. 520), nnd cases cted Unted States .
Sceet (245 U. S., 503, 572) ranama It. It. Co. . ohnson. (2 4 U. S., 375, 384).
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397
00, Regs. 47(1924), rt. 1 .
obtan from the Commssoner a quafed refund by gvng a bond prompty to
use tbe amount refunded n rembursng the purchasers. No such bond has
been gven n the eases now before us and n a the rght to |udgment for a
refund s rested on other facts ndependenty of that.
part from the change aready descrbed we thnk subdvson (a)(2)
dscoses no purpose to depart from the e stng system. It does not purport
to commt the decson of cams for refund e cusvey to the Commssoner,
or to gve fnaty to hs denas, or to take from aggreved camants the rght
to sue on ther cams after dena or Inacton by hm, or to wthdraw from
the courts the power to entertan such suts. s to these matters, therefore,
the rues prescrbed n the e stng system reman, as before, both appcabe
and controng.
The cause n that subdvson sayng the addtona eement to whch t
reates Is to be estabshed to the satsfacton of the Commssoner s much
reed on but we thnk t does not requre a dfferent concuson. Ony by
Inadmssbe stranng coud t be hed to nvest the Commssoner wth abso-
ute authorty or dscreton n respect of such refunds. more ratona vew
s that t s argey admontve and means that the addtona eement s not
ghty to be nferred but to be estabshed by proof whch convnces n the
sense of nducng beef. Such words often are so construed where apped to
one who, ke the Commssoner, Is charged wth the duty of ascertanng a
matter of fact as a bass for further acton.24
Whe the cause speaks ony of the Commssoner, ths becomes of mnor
sgdfcance when It s refected that under the e stng system he s the one
to whom a cams for refund must be presented and on whom the duty of
makng an e amnaton and decson s prmary paced, and that t doubtess
was assumed rghty we thnk that under that system a ta payer coud by
sut secure a |udca ree amnaton of hs cam, and, f he dd, the cam
necessary woud be |udged by the same substantve standards as f t were
before the Commssoner. We say necessary, because subdvson (a)(2)
says at the outset No refund sha be made of any amount pad
uness, etc., and thus shows that It s to be apped by a who e amne and
determne cams for refunds the courts as we as the Commssoner.
Ths vew of the words estabshed to the satsfacton of the Comms-
soner has support n a ong-contnued practce under a smar provson n
a customs aw of 18 4 under whch certan customs dutes, If pad under
protest, were to bo refunded to the mporter when shown to the satsfacton
of the Secretary of the Treasury to have been e cessve. That provson
remaned n force many years and durng that perod was unformy treated
as nether nvestng the Secretary wth fna authorty nor puttng asde gen-
era provsons permttng suts for refunds, but as eavng the mporter free,
after an unavang appea to the Secretary, to sue under the genera pro-
vsons and obtan a udca ree amnaton of hs cam.
Some reance s paced on Wamsport Wre Rope Co. v. Unted States
(277 U. S., 551 T. D. 4172, C. . II-2, 323 ) but that case s not n pont.
It was a sut for the refundng of e cess-profts and war-profts ta es assessed
under secton 301 of the Revenue ct of 1918, and the queston presented was
whether n such a sut a refusa by the Commssoner to make a speca as-
sessment under sectons 327 (a) and (d) and 328 was open to ree amnaton.
In answerng the queston n the negatve, ths court referred to the purpose
wth whch those sectons provde for a speca assessment, the anguage em-
poyed In e pressng the condtons under whch t s to be made, and the
prescrbed procedure ponted out that the task nvoved s one requrng
technca or speca knowedge and e perence n respect of such ta probems
and ready access to data n the ureau of Interna Revenue reatng to a
arge group of ta payers and hed that these e ceptona condtons enforce
the concuson that Congress ntended to confde the task to the Commssoner,
sub|ect ony to a revew by the oard of Ta ppeas where a drect appea
to that body s permtted, and thereby to e cude a ree amnaton n the courts
ryan v. Moore (81 Ind., 9. 11-1.1) enyan v. Cty of Mondav (98 Wse, 50, 54)
Caan v. anson (8 Iowa, 420, 423) Cams utomatc Car Couper Co, v. League
(25 Coo., 129. 135) Waker v. Cons (59 ed.. 70, 74).
21 Ch. 171, secton 1 , 13 Stat.. 215 secton 3012 2, Rev. Stat.
See eh. 407, secton 29, 20 Stat.. 142 eh. . secton 28, 3 Stat.. 104.
See rn.on v. Murphy (109 . 8.. 238) anar v. waync (149 U. S., 242) Schoen-
ted v. endrcks (152 U. 8., 91, 93) Whte v. rthur (10 ed., 80, 88).
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00, Regs. 47(1924), rt. 1 .
398
such as n other stuatons s had n suts for refunds. It s very pan that no
such e ceptona condtons are nvoved n gvng effect to subdvson (a) (2)
of secton 424.
s to the effect to be gven to that subdvson n suts for refunds, we are of
opnon that, as t makes the rght to a refund to depend on an addtona ee-
ment that the ta payer has not coected the ta , drecty or Indrecty, from
the purchaser, or, f t was so coected, has returned t to hm the courts n
ad|udcatng cams of the desgnated cass are under a duty to gve effect to
the subdvson by regardng the addtona eement as a matter to be shown by
sutabe aegaton and estabshed by approprate proof, ke other eements of
such a rght or cause of acton, and by determnng the suffcency of peadngs
and evdence accordngy.
We can not assent to the vew that a court may gve a |udgment awardng
the ta payer a refund wthout nqurng whether he has borne the burden of
the ta or has rembursed hmsef by coectng t from the purchaser. That
vew rests on two untenabe premses one that the queston whether the burden
of the ta has thus been borne by the ta payer Is soey for admnstratve
souton, and the other that a |udgment for a refund may be gven sub|ect to
the condton that t s to become obgatory and be gven effect ony f and when
the camant proves to the Commssoner that he aone has borne the burden of
the ta . Our reasons for re|ectng the frst premse aready have been shown.
Those for re|ectng the other w be shorty stated. |udgment so condtoned
s merey a fndng that the ta pad by the camant was nvad, couped wth
a decaraton that t shoud be refunded to hm f he proves to the Commssoner
that n other respects he s entted to t. Decsons of ths court have ong
snce estabshed that t s not wthn the provnce of courts created by or under
the |udcary artce of the Consttuton to gve or revew |udgments of that
character, for they are not fna or bndng ad|udcatons. The dstrct courts
are created and e st under that artce. Whe the Court of Cams s created
under a dfferent artce, the statute defnng ts |ursdcton of suts for refunds
and those defnng the |ursdcton of the dstrct courts are ake, n that both
contempate that the |udgments n such suts sha fuy and fnay determne
whether the camants are entted to the refunds for whch they sue.
The contenton s made that subdvson (a) (2). when construed and apped
as we hod t shoud be, nfrnges the due process cause of he ffth amendment
to the Consttuton n that t strkes down rghts accrued theretofore and st
subsstng, but not sued on pror to pr 30, 1928. Ths contenton s pertnent
because the cases now beng consdered were begun after pr 30, 1928, and n
each the ta n queston was pad before secton 424 was enacted, whch was
May 29. 1928.
If the ta was erroneous and ega, as s aeged, t must be conceded that,
under the system then n force, there accrued to the ta payer when he pad the
ta a rght to have t refunded wthout any showng as to whether he bore
the burden of the ta or shfted t to the purchasers. nd t must be con-
ceded aso that secton 424 appes to rghts accrued theretofore and st
subsstng, but not sued on pror to pr 30, 1928, and sub|ects them to the
restrcton that the ta payer (a) must show that he aone has borne the
burden of the ta , or (b), f he has shfted the burden to the purchasers,
must gve a bond prompty to use the refunded sum n rembursng them.
ut t can not be conceded that n mposng ths restrcton the secton
strkes down pror rghts, or does more than to requre that t be shown or
made certan that the money when refunded w go to the one who has
borne the burden of the ega ta , and therefore s entted n |ustce and
good conscence to such reef. Ths pany s but another way of provdng
that the money sha go to the one who has been the actua sufferer and
therefore s the rea party n nterest
We do not perceve n the restrcton any nfrngement of due process of
aw. If the ta payer has borne the burden of the ta , he ready can show
t and certany there s nothng arbtrary n requrng that he make such
a showng. If he has shfted the burden to the purchasers, they and not he
have been the actua sufferers and are the rea partes n nterest and n
ngs County Savngs Insttuton v. ar (11 U. S.. 200, 205 20 ).
10 auburn s case (2 Du., 40 )) and note Unted States v. rrrera (13 ow.. 40)
nnr note Gordon v. Unted States (2 Wa., 5 1) same case (117 U. S., GOT) Unted
States v. ones (110 U. S . 477) In re Sanborn (14 U. S.. 222) La bra Sver Mnng
Co. v. Unted States (170 U. S 423, 450-457) Muskrat v. Unted States (219 U. S., 340).
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399
00, Regs. 47(1924), rt. 1 .
uch a stuaton there Is notng arbtrary In requrng, as a condton to
refundng the ta to hm, that he gve a bond to use the refunded money n
rembursng them. Statutes made appcabe to e stng cams or causes
of acton and requrng that suts be brought by the rea rather than the
nomna party In nterest have been unformy sustaned when chaenged
as nfrngng the contract and due process causes of the Consttuton.
The present contenton s partcuary fauty n that t overooks the fact
that the statutes provdng for refunds and for suts on cams therefor
proceed on the same equtabe prncpes that undere an acton In assumpst
for money had and receved. Of such an acton t rghty has been sad:80
Ths s often caed an equtabe acton and s ess restrcted and fettered
by technca rues and formates than any other form of acton. It ams at
the abstract |ustce of the case, and ooks soey to the nqury, whether the
defendant hods money, whch e aequo et bono beongs to the pantff. It was
encouraged and, to a great e tent, brought nto use by that great and |ust |udge,
Lord Mansfed, and from hs day to the present, has been constanty resorted
to n a cases comng wthn ts broad prncpes. It approaches nearer to a
b n equty than any other common aw acton.
s our concuson respectng the operaton of subdvson (a) (2) s app-
cabe both where the sut for a refund Is aganst the Unted States and where
t Is aganst the coector, there s no need for consderng the arguments
advanced concernng the power of Congress to condton or wthdraw the
consent of the Unted States to be sued.
We come now to consder and dspose of the three cases and to appy to tcm
oar concusons respectng the constructon and operaton of subdvson (a) (2)
of secton 424.
No. 171.
In the petton the pantff aeged that t absorbed the ta es n queston
and pad the same from ts own funds that no other person or persons pad
the same ether drecty or ndrecty and that no other person or persons has
any rght ether at aw or In equty to the refund sought or any part of t. The
defendant s answer was a genera traverse accompaned by a countercam
based on an aeged aowance and payment to the pantff, through error and
mstake, of certan cams for the refundng of ke ta es aggregatng
9,2 4. 0. The Court of Cams made speca fndngs of fact whereon t gave
|udgment for the pantff. The fndngs show that the ta es n queston were
assessed on saes by the pantff of gnton cos whch the revenue offcers
regarded as parts or accessores for automobes, but whch the court regarded
as equay adapted to other uses not comprehended n the ta ng cts and
that the ta ng perod n queston began wth May, 1919, and contnued to the
end of ebruary, 1920. Pertnent portons of the fndngs are as foows:
7. or the ta abe perod n queston pantff, n the sae of
gnton cos, Invoced ts cataogue prces to a customers, and dd not add
thereto any amounts representng e cse ta es, or coect from ts customers
amounts addtona to the cataogue prces. The cataogue prces so nvoced
and coected were transferred by pantff to ts genera edger account n
totas wthout separaton nto any eements, such as ta , charges for parce
post, nsurance. The e cse ta whch It consdered payabe was set up n an
addtona account styed cse ta e pense.
8. or a part of the ta abe perod n queston pantff made on ts n-
voces to customers certan notatons wth respect to the e cse ta whch
t consdered appcabe.
Up to May 19, 1923, pantff made no such notatons on ts Invoces to cus-
tomers.
egnnng May 19, 1923, up to December 29, 1925, t was pantff s prac-
tce to note on ts nvoces to customers the foowng: On automotve acces-
sores 1/21 of amount ndcated heren equas 5 /0 e cse ta . 20/21 of amount
Indcated equa prce, durng the perod when the u ta rate was In effect,
Cafn v. Godfrey (38 Mass., 1, ). To the same effrct are Steuerwdd v. Rchter
(158 Wse, 597, 04) San|ord v. rst Natona ank (2:S8 ed.. 298, 301) Portsmouth
Cotton O Corporaton v. ourth Natona ank (280 ed., 879, 882).
n See Darrngton v. ank of abama (13 ow., 12, 17) eers v. rkansas (20 ow..
27, 529) In re yers (123 U. S., 443, 505) ans v. Lousana (134 U. 8., 1, 17-18)
Unted States v. enszcn Co. (20 0. S., 370. 391 ( aran, .)) Graham and oster
. oodce (282 . ., 409, 430-431 Ct. D. 287, C. . -, 191 ).
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00, Reg . 47(1924), rt. 10. 400
and substantay the same notaton durng the perod when the 2 rate was
n effect, 1/21 beng changed to 1/41 and 20/21 to 40/41. It does
not defntey appear what the practce was thereafter as to notatons on
nvoces.
9. Pantff s cataogue prces were not ncreased or decreased by reason of
the mposton of the e cse ta on automobe parts or accessores.
10. It Is not possbe from the state of the record to determne the amount
of e cse ta pad for the perod when pantff made the aforesad ta nota-
tons on nvoces sent to ts customers.
These fndngs, whch are a that bear on the queston of who pad the
ta es and bore the burden thereof, are wantng n precson and apparenty
confctng. If fndngs 7 and 9 were not otherwse quafed they mght be re-
garded as meanng that the saes were at cataogue prces and that these prces
dd not ncude, and the purchasers dd not pay, the ta or any part of t.
ut fndng 8 makes t at east doubtfu that fndngs 7 and 9 have that mean-
ng, for t s pany nferabe from fndng 8 that durng much of the ta ng
perod the pantff sod on nvoces bearng notatons ndcatng that when the
ta was 5 per cent of the seng prce 1/21 of the amount shown on the nvoce
represented the ta and 20/21 represented the seng prce and that when
the ta was 2 per cent of the seng prce the fractons were changed to 1/41
and 40/41. The fndngs eave t uncertan whether pantff n makng ts re-
turns to the revenue offcers gave the amount shown on the nvoces or 20/21
(ater 40/41) of that amount ns the seng prce and they aso eave t un-
certan on whch bass the ta was computed. If by ts nvoces the pantff
represented to ts purchasers that the amount shown thereon ncuded the ta
as we as the seng prce, and f t returned that amount ess the ta as the
seng prce, aud caused the ta to be computed on that bass, t can not be
heard to say, n the absence of other controng crcumstances of whch there
s no fndng, that t dd not coect the ta from the purchasers but tsef bore
the burden thereof.
ecause of the uncertanty and apparent confct n the fndngs the |udg-
ment must be reversed and the cause remanded to the Court of Cams for
a new tra and fu and specfc fndngs.
No. 19 .
Ths case comprses three separate suts, desgnated n the dstrct court as
Nos. 33 0, 3371, and 3421, whch were tred together and, after |udgments
for the pantff, were consodated for purposes of appea. They were tred
to the court under stpuaton n wrtng wavng a |ury. The court made spe-
ca fndngs of fact on whch t based ts |udgments. In the compants the
pantff aeged that the ta was not pad drecty or ndrecty by the pur-
chasers, but entrey by the pantff that the saes were at a fat prce and
no amount for the ta was ncuded theren and that the pantff absorbed
the ta . These aegatons and some others were dened by the defendant n hs
answer. In varous ways the defendant chaenged the pantff s rght to s e
for a refund and the court s power to entertan such a sut, the chaenge beng
grounded on subdvson (a) (2) of secton 424 and the court hed the cha-
enge was not enabe. t the concuson of the evdence the defendant moved
for |udgments thereon n hs favor, and the moton was dened.
The crcut court of appeas ree amned the evdence, concuded therefrom,
contrary to the fndngs of the dstrct court, that the artces on saes of whch
the ta was assessed were accessores for the ta abe vehces enumerated n
the ta ng cts, and on that ground sustaned the ta and reversed the |udg-
ments, wthout consderng the rungs reatng to subdvson (a)(2) of
secton 424.
The questons presented for consderaton here are those Invoved In the
rungs of the dstrct court and that nvoved In the reversa by the crcut
court of appeas on a ree amnaton of the evdence. The chaenge of the
pantff s rght to sue for a refund and of the court s power to entertan such a
sut was rghty overrued. Ths Is suffcenty shown In the earer part of
ths opnon. Whether the dstrct court erred n denyng the defendant s
moton at the concuson of the evdence for |udgments thereon In hs favor
must be determned by ascertanng whether there was substanta evdence
fary tendng to estabsh every eement of the p antff s causes of acton. We
thnk there was such evdence. There was confct In t parts of It admtted
of dvergng nferences and as to some matters the prepouderng weght was
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401 00, Regs. 47(1924), rt. 1 .
dffcut of ascertanment. ut these were a matters for the tra court to
determne. It was e ercsng the functons of a ury and ts fndngs are on
the same pane as f emboded n a |ury s speca verdct. We are accordngy
of opnon that the moton was rghty overrued, and that the crcut court of
appeas erred n not so hodng. ven f there was some bass for thnkng
the weght of the evdence was wth the defendant, as was strongy urged at
our bar, t was not wthn the provnce of that court to ree amne the evdence
and reverse the |udgments because of what t regarded as error of fact.
Whether the speca fndngs gve the requste support to the |udgments
rendered thereon s a dfferent queston and s one whch s open to consdera-
ton here. The fndngs are ong and the vew whch we take of one of them
makes t unnecessary to state the others. The one reates to the matter made
essenta by subdvson (a)(2) of secton 424, and s the ony fndng on the
sub|ect. It reads as foows:
Paragraph 5 of the compant aeged that the ta es n queston were pad
entrey by the pantff, and nether drecty nor ndrecty by the pantff s
purchasers. These aegatons aso were dened.
s to ths ssue, I fnd that for the ta abe perod nvoved n case No. 3371,
the pantff has sustaned the burden of proof. The evdence on ths Issue
reatng to the- perods nvoved n cases Nos. 33 0 and 3421, dscosed that the
pantff at some tme durng the perod between anuary 1 and December 31,
1923, reduced ts sae prces by the amount of the ta and so stamped ts
nvoces and bs as to ndcate that the amount charged to the customer
1/21 part was requred by the saes ta In queston. Thereafter the pantff
computed and pad the e cse ta upon the bass of the prce thus reduced,
thereby savng to tsef the payment of a ta upon a ta , 5 per cent on 5 per
cent. The arrangement cost the customer nothng, as he pad In the aggregate
ust what he had pad before. Consequenty the pantff dd not thereby pass
the economc burden of the ta to Its purchasers. owever, snce under ths
arrangement the nvoces Indcated the 1/21 of the amount bed was for the
ta , I am constraned to concude that the baance, 20/21, was the rea sae
prce, especay snce the ta was thereafter pad on that bass. Ths requres
the concuson of fact that n ega effect the ta was coected from the pur-
chaser. ut n vew of the fact that the saes prces n vogue pror to the
Inauguraton of ths arrangement were thereafter reduced by the amount of the
ta , I fnd further that n so far as the ta was coected from purchasers,
t was whoy returned to them.
Sayng that the pantff has sustaned the burden of proof as to the desg-
nated ssue n sut No. 3371 s not an adequate fndng of the matters of fact
Invoved n that ssue, partcuary where, as here, the sub|ect s new and may
admt of dfferng opnons. It s n the nature of a ega concuson rather
than a fndng of the underyng facts, and we thnk t does not adequatey
respond to the ssue and s not suffcent to support the |udgment whch rests
on t.
That whch foows reates to suts Nos. 33 0 and 3421 and evdenty means
that the pantff by ts nvoces was Indcatng to the purchasers that 1/21 of
the amount t was coectng from them represented the ta on the saes and
20/21 represented ts rea saes prce and that the pantff Itsef computed
the ta on the bass of ths rea saes prce and thereafter pad the ta
as so computed, thereby savng to Itsef the dfference between the ta resutng
from that computaton and the ta whch woud have resuted had the fu
amount coected from the purchasers been used as the bass for the com-
putaton. If that be what s meant, the court rghty concuded that the ta
was coected from the purchasers. It s of no mportance that the pror saes
prce had been reduced by the amount of the ta , for under the ta ng
ct the ta was to be computed on the prce for whch the artces actuay
were sod and not on some pror and dscarded prce. ut the court s further
concuson that, as the prce theretofore n vogue was reduced by the amount
of the ta , the pantff n effect returned to the purchasers the ta It coected
from them because they got the artces for a prce whch was that much
ess than t woud have been had the pror saes prce been st n vogue -s
. 8. C, secton 773 Oopen v. Insurance Co. (9 Wa., 4 1) Dooey v. Pease (180
. 8., 12 . 131).
28 . 8. C secton S7n : Martntnn v. nrhnnt (112 . a., 70 f72) Davs v.
tc/cartz (155 U. 8.. 31. 3 ) Law v. Unted States (20 U. 8., 494, 49 ).
-28 U. S. C, secton 875.
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Regs. 49, rt. 92.
402
shown by ts mere statement to be not a fndng of fact but unsatsfactory
reasonng havng tte tendency to estabsh ts ob|ectve. That concuson
must therefore be dsregarded. It resuts that the fndng, whe showng that
the pantff coected the ta from the purchasers, does not show whether t
returned the ta to them. Thus the fndng does not adequatey respond to
the ssue arsng on the pantff s aegaton that t absorbed the ta for,
havng coected t from tem, the pantff coud absorb t ony by returnng
t to them. Wth that matter eft n ths stuaton the fndng pany does
not support the |udgments whch rest on t.
s the |udgments of the dstrct court n the three suts must be reversed
because of nsuffcences In the speca fndngs, and as the reversa by the
crcut court of appeas was put on an untenabe ground, we deem t the
better course to enter here a |udgment reversng the |udgments of both courts
and remandng the suts to the dstrct court wth a drecton to vacate ts
fndngs and grant a new tra n each sut.
Ths case comprses fve separate suts whch were tred together and, after
|udgments for the pantff, were consodated for purposes of appea. The
tra was to the court under a wrtten stpuaton wavng a |ury. The court
made speca fndngs and based ts |udgments on them. t the outset the
pantff s rght to recover on the facts stated n the pettons was chaenged
by the defendant by motons to dsmss and the motons were overrued. There
were aso motons at the cose of the evdence for |udgments thereon n favor of
the defendant whch aso were overrued. These rungs and the suffcency of
the facts found to support the |udgments are the matters presented for con-
sderaton here. There was nether aegaton nor proof that the pantff had
not coected the ta from the purchasers, or after so coectng t had returned t
to them and of course there was no fndng on the sub|ect. The suts proceeded
throughout as f that queston was one for admnstratve souton after |udg-
ment, f the pantff prevaed. What we have sad n the earer part of ths
opnon shows that ths was a mstaken theory. The |udgments n both courts
beow must be reversed accordngy and the causes remanded to the dstrct
court wth drectons to set asde the fndngs, and to sustan the motons to
dsmss but wthout pre|udce to the e ercse by that court of ts dscreton
n permttng amendments of the pettons.
Our concusons n Nos. 171, 190 and 329 when summarzed requre that the
|udgments n a be reversed and the causes remanded wth drectons as before
ndcated.
udgments reversed.
TITL . T ON TR NSPORT TION ND OT R
CILITI S, ND ON INSUR NC . (1918)
TR NSPORT TION O OIL Y PIP LIN .
TR NSPORT TION T R NU CT O 1918 D CISION O COURT.
1. Ta on Transportaton of O Consttutonaty.
The ta mposed by sectons 500(e) and 501 (d)2 of the Revenue
ct of 1918 upon the transportaton of o by prvate ppe ne s
consttutona.
2. Same Repeat. Savng Cause.
The ta upon the transportaton of o by prvate ppe ne, eved
under the provsons of secton 500(e) and 501(d)2 of the Revenue
ct of 1918, accrued under the Revenue ct of 1918 wthn the
meanng of the savng cause contaned n secton 1400(b) of
the Revenue ct of 1921, athough pror to the repea of the Reve-
nue ct of 1918 no correct determnaton of a reasonabe charge
for such transportaton was made by the Commssoner n accord-
ance wth secton 501(d)2 of that ft.
No. 329.
Reguatons 49, rtce 92: Msceaneous
provsons.
III-5- 27
Ct. D. 779
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403
( egs. 49, rt. 92.
8. Coecton adty batement ocaton to One of
Thbee ssessments.
Where for the perod from pr 1, 1919, to December 31, 1921,
there have been three assessments of ta for the transportaton of
o by ppe ne eved under sectons 500(e) and 501 (d)2 of the
Revenue ct of 1918, each assessment coverng a part of the perod
and from each of whch cams n abatement were fed, and whe
the cams were pendng the ta payer and the Commssoner
agreed upon the amount of o transported and the reasonabe
charge therefor, and after computaton of the ta upon the agreed
bass demand for payment was made, t was mmatera to whch
assessment such payment was apped f the tota amount de-
manded and pad was equa to that whch had been agreed upon.
4. Interest.
Secton 250 (e) and (h) of the Revenue ct of 1921 e pressy re-
qures the mposton of penaty and nterest upon overdue ta es
accrung under the Revenue ct of 1918, and nterest upon the ta
for the transportaton of o by ppe ne was propery chargeabe
from the date of demand unt the ta was pad.
. Decson ffrmed.
The decson of the Dstrct Court, Northern Dstrct of Ca-
forna, Southern Dvson (Ct D. 4 , C. . I-1, 353, 55 ed.
(2d), 274), affrmed.
Unted States Cbcut Court of ppeas for the Nnth Crcut.
Standard O Co., a Corporaton, appeant, v. ohn P. McLaughn, Unted
States Coector of Interna Revenue for the rst Dstrct of Caforna,
appeee.
ppea from the Dstrct Court ot the Unted States for the Northern Dstrct of
Caforna, Southern Dvson.
September 1 , 1933.
opnon.
Wbur, Crcut udge: The Standard O Co. brought sut In the Dstrct
Court of the Unted States for the Northern Dstrct of Caforna aganst the
defendant as coector of nterna revenue, to recover ta es pad under protest
to the coector for the years 1919, 1920, and 1921. rom a |udgment n favor
of the defendant the Standard O Co. has brought ths appea.
The appeant s a Caforna corporaton ownng and operatng ts own ppe
nes for the transportaton of Its own o. It s not a common carrer of o
and transports no o not owned by t. The Revenue ct of 1918, under whch
the ta was coected, provdes as foows:
Sec. 500. That from and after pr 1, 1919, there sha be eved, assessed,
coected, and pad, n eu of the ta es mposed by secton 500 of the Revenue
ct of 1917

(e) ta equvaent to 8 per centum of the amount pad or the transporta-
ton on or after such date of o by ppe ne

Sec. 501. (a) That the ta es mposed by secton 500 sha be pad by the
person payng for the servces or factes rendered.

(d) The ta mposed by subdvson (e) of secton 500 sha appy to a
transportaton of o by ppe ne. In case no charge for transportaton s
made, by reason of ownershp of the commodty transported, or for any other
reason, the person transportng by ppe ne sha pay a ta equvaent to the
ta whch woud be mposed f such person receved payment for such trans-
portaton, and f the ta can not be computed from actua bona fde rates or
tarffs, t sha be computed (1) on the bass of the rates or tarffs of other
ppe nes for ke servces, as determned by the Commssoner, or (2) f no
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Regs. 49, rt. 92.
404
such rates or tarffs e st, on the bass of a reasonabe charge for such trans-
portaton, as determned by the Commssoner.
It s admtted that there were nether any actua bona fde rates or tarffs
In e stence from whch the ta coud be computed nor any bass of rates
or tarffs of other ppe nes for ke servce or for ppe ne movement ke
the movement of o through the ppe nes of pantff. Under the statute
(secton 501(d)2, supra), therefore, the ta had to be computed on the bass
of a reasonabe charge for such transportaton f ed by the Commssoner.
In accordance wth Treasury Decson No. 2834, Reguatons 49, artce 22,
whch requred the ta payer to notfy the Commssoner of cases comng under
secton 501(d)2, supra, the appeant reported these facts to the Commssoner
of Interna Revenue on May 7, 1919, and requested hm to f the reasonabe
charge for transportaton of o by appeant. Ths determnaton was deayed
and the tme wthn whch appeant shoud fe ts return was e tended from
tme to tme unt September 28, 1920, when the Commssoner certfed an
assessment of ta es n the sum of 4 7,853.74 coverng ta es due from pr
1, 1919, to May 31, 1920. Demand for payment was made by the coector n
pr, 1921, and on pr 14, 1921, a cam for abatement was fed by appeant.
On ebruary 14, 1922, another assessment was certfed coverng ta es due
from pr 1, 1919, to September 30, 1921, n the sum of 2,333,042.17, and
demand for payment thereof was made March 1, 1922, as to whch assessment
a cam for abatement was fed on March 10, 1922. thrd assessment n the
sum of 598,9 7.23, coverng addtona ta due for the perod from pr 1,
1919, to September 30, 1921, and aso ta due from October 1, 1921, to December
31, 1921, was certfed on December 27, 1922, demand for payment made by the
coector on anuary 1 , 1923, and a cam for abatement of the same fed by
appeant on anuary 23, 1923. No determnaton was had as to any of the
cams for abatement unt uy 24, 1924, when the sum of 853,710.22 was
aowed by way of abatement on the second assessment, eavng a baance
of 1,479,331.95, the cams as to the frst and thrd assessments beng aowed
n fu, the notce statng s your entre abty for the perod covered by ths
assessment has been pad and credted aganst another assessment, the cam
s aowed In fu.
t the tme when the forma notce of ad|ustment of the cam for abate-
ment was gven, the ta es abated had n fact been pad on a recomputaton
of whch appeant receved nforma notce ebruary 1 , 1923, and forma
notce une 27, 1923. orma demand for payment of the recomputed ta
was made March 19, 1924 the ta was pad under protest March 29, 1924,
and negotatons for compromse of demands for penaty and nterest at 1
per cent per month were entered nto. The penaty was compromsed but the
nterest was not, and appeant fnay pad under protest the nterest at 1
per cent per month from the tme of forma notce of the recomputaton ( une
27, 1923) to the tme when the ta was pad. cam for refund havng been
duy made and dened ths acton was commenced to recover the ta es
( 1,479,331.95) and nterest pad ( 139,811.1 ).
The appeant contends that the .statute as apped to t s unconsttutona,
(1) because t s a drect ta whch s not apportoned accordng to census,
as requred by rtce I, secton 9, cause 4 of the Consttuton (2) because,
f t shoud be hed to be an e cse ta , t s not unform, as requred by rtce
I, secton 8, cause 1 of the Consttuton (3) because there s a deegaton of
egsatve power to the Commssoner to f the bass upon whch the ta s
computed and (4) because the ct voates the due process cause of the ffth
amendment to the Consttuton n that the ta payer has no opportunty to be
heard as to the reasonabeness of the charges f ed by the Commssoner.
The contenton of appeant that the ta s a drect ta s based upon two
grounds, (1) that t was mpossbe for t to use ts own property wthout
ncurrng the ta and (2) as the aw was admnstered the ta coud not be
passed on to the consumer and hence was a drect and not an ndrect ta .
In otter v. Derby O Co. (1 . (2d), 717 T. D. 39 5, C. . I-1, 294 ), a
case where the ta payer owned and used Its own ppe ne for transportng
o, the dentca statute was attacked as unconsttutona because t was a
drect ta . The Crcut Court of p eas for the ghth Crcut there hed
that the statute dd not mpose a drect ta but that t mposed an e cse ta
on the empoyment of ppe-ne factes for the transportaton of o, whch
the court hed was ceary wthn the power of Congress to Impose. The court
aso hed that the deegaton of power to the Commssoner to f a reasonabe
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405
Regs. 49, rt. 92.
charge was not a deegaton of egsatve power where the rate s f ed wth
reference to the charges of smar transportaton companes. In Mcschkc-
Smth v. Warde (28 ed., 785, 793 (under secton 501 (d), supra) T. D.
8401, C. . n-1, 25 ), ths court, speakng through udge Morrow, hed that
a smar provson of the war Revenue ct of 1917, secton 501, was consttu-
tona as apped to a ppe ne owned and used by an o company for trans-
portng ts own o. It s camed that ths determnaton was not nvoved
In the case, but It was drecty nvoved and decded athough the court mght
have rested wth the hodng that the two companes, the producng and the
transportaton companes, were not Identca. Ths court aso hed In that
case that the ct of 1917, supra, apped to prvate p|te nes used by the
owner and not dedcated to a common use. smar ta was uphed under
the Revenue ct of 1918, now under consderaton, by the Crcut Court of
ppeas of the fth Crcut n D e O Co. v. Unted States (24 . (2d), 804
T. D. 41 , C. . II-1, 295 ), athough t does not appear that the const-
tutonaty of the statute was consdered, athough the court cted Motter v.
Derby O Co. (1 . (2d), 717) wth approva.
In vew of our own decson n Mesekc-Smth v. Warde, supra, and the
more recent decson by the Crcut Court of ppeas of the ghth Crcut
n Motter v. Derby O Co. (1 . (2d), 717), n whch certorar was dened
by the Supreme Court, we fee that t s unnecessary to dscuss the numerous
authortes cted by the appeant on the sub|ect of a drect ta . We agree
wth the tra court that the ta Imposed was an e cse ta and was not
requred by the Consttuton to be apportoned to the States n accordance
wth the census. (See romey v. McCaughn, 280 . S., 124 Ct. D. 140, O. .
III-2, 392 .) It s not a necessary ncdent of an e cse ta that t can be
shfted to the utmate consumer. ( nowton v. Moore, 178 U. S., 41, ctng
co v. mes, 173 U. S., 509.)
If the ta s hed to be an e cse ta , appeant then contends the statute
Is unconsttutona because the ta s not uuorm n that whe the percentage
of 8 per cent named n the aw remaned f ed, the effectve ta was not 8
per cent of any defnte fgure, but smpy a fgure to be named by the Com-
mssoner as the reasonabe charge for the transportaton servce. In ngs
v. Unted States (232 U. S., 2 1) Chef ustce Whte, speakng for the court,
sad:
It has been concusvey determned that the requrement of unformty
whch the Consttuton mposes upon Congress n the evy of e cse ta es s not
an ntrnsc unformty, but merey a geographca one. ( nt v. Stone-Tracy
Co., 220 U. S., 107 MoCray v. Unted States, 195 U. S., 27 nowton v. Moore,
178 U. S., 41.)
There can be no doubt that the statute n queston here meets the requre-
ment of geographca unformty. The mere fact that the base on whch the
8 per cent ta s computed may vary n dfferent crcumstances bearng on
the reasonabeness of the charge for the transportaton of o n ppe nes,
does not consttute a ack of unformty as that term s used n connecton
wth e cse ta es. The amount of the ta n each case w depend upon the
amount of o transported and the reasonabe charge therefor, but a those
under the same crcumstances w pay the same ta .
It s aso appeant s contenton that the provson n the statute gvng the
Commssoner authorty to determne the reasonabe charge for the trans-
portaton of o, n absence of f ed rates or tarffs of the ta payer or of
f ed rates or tarffs of other ppe nes renderng smar servces, s a dee-
gaton of egsatve power makng the statute unconsttutona. The rue n ths
regard s stated n the eary case of ed v. Cark (143 U. S., 49), as foows:
The egsature can not deegate Its power to make a aw, but t can make
a aw to deegate a power to determne some fact or state of thngs upon whch
the aw makes, or ntends to make, ts own acton depend. To deny ths woud
be to stop the whees of government. There are many thngs upon whch wse
and usefu egsaton must depend whch can not be known to the aw-makng
power, and must, therefore, be a sub|ect of nqury and d termnaton outsde
of the has of egsaton.
Cases are numerous n whch statutes have been uphed whch gve to admn-
stratve offcers the power to determne facts on whch the egsaton s based.
(See Unon rdge Co. v. Unted States. 204 U. S., 3 4 ed v. Cark, supra
Mononyahca rdge Co. v. Unted States, 21 T . S., 177 Unted States v.
Grmaud, 220 U. S., 50 : uttfed v. Stranahan, 192 U. S., 470 ampton Co.
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Regs. 49, rt. 92.
40
v. Unted States, 27 U. S., 394.) We are n fu accord wth the opnon of the
tra |udge n ths regard wheren he stated:
The ta ng statute, however, desgnates the thng to be ta ed transporta-
ton of o f es the rate of ta aton S per cent and eves the ta . The ony
thng remanng to be determned s, n case of ta payers stuated as a pantff,
the reasonabe charge for transportaton to be used as a bass for computng
the ta eved. The Commssoner s eft to fnd a fact, whch n the nature or
tngs Congress coud not fnd n advance what he s requred to do s merey
n e ecuton of the ct of Congress n evyng ts transportaton ta . Ths s
not a deegaton of egsatve power contrary to the Consttuton. ( ampton
Co. v. Unted States, 27 U. S., 394.)
It ceary appears from the provsons of secton 501(d) that the reasonabe
charge contempated s a charge smar to that made by the owners of ppe
nes where they have dedcated ther property to a pubc use. The reasonabe
charge for such use has been f ed by numerous decsons of the Supreme Court
to be a far return upon a far vauaton of the property utzed n performng
the pubc servce. In determnng the ta t was evdenty assumed by Con-
gress that the rates actuay charged by such transportaton companes woud
be far and reasonabe rates and that such rates shoud be apped to the
prvate carrer where such rates were avaabe. Sub. (d) (2) furnshes a rue
for the determnaton of the charges, n case there s no other ppe ne carrer
servng the pubc. They must be reasonabe charges and equvaent to those
whch woud be mposed by the ta payer f t receved compensaton for such
transportaton. The use of the word reasonabe n ths connecton, we thnk,
coud have no other sgnfcance than that the charges f ed shoud be such as
to gve a far return upon a far vaue of the property used n the transporta-
ton of the o. In ths connecton t shoud e sad that the ta of 2,333,042.17
f ed by the assessment of ebruary 14, 1922, was based upon the proposed ppe
ne transportaton rates fed by appeant wth the Caforna State Raroad
Commsson when the power of the commsson to requre the appeant to net
as a common carrer of o through ts ppe nes was asserted by the State
raroad commsson. Whe the Commssoner of Interna Revenue may have
been rght n assumng that such charges woud have been Imposed by the
ta payer f t receved compensaton for such transportaton (sub. (d),
supra), nevertheess, n abatng ths ta the Commssoner evdenty concuded
that the charges f ed by hm must be reasonabe and that the schedue of rates
fed by the appeant wth the raroad commsson were unreasonabe and
e cessve. vdenty on that theory the charges were cut amost n haf by the
Commssoner when he acted upon the cams n abatement. It s we estab-
shed that the egsature can deegate the power to f the amount of the
rates and charges. Laws deegatng such power to reguatory bodes such as the
Interstate Commerce Commsson and other smar State commssons have been
unformy uphed, notwthstandng the fact that the Congress s prohbted by
the Consttuton from deegatng ts power, and that State consttutons, ether
e pressy or by necessary mpcaton, contan smar nhbtons. The fact that
In the case at bar the rght to f reasonabe charges for transportaton s
merey ncdenta to the mposton of a ta does not ater the ega stuaton.
We thnk the aw n that regard Is ceary consttutona.
The ne t contenton advanced n the attack on the consttutonaty of the
aw s wth reference to a ong ne of decsons hodng that to consttute due
process of aw requred by the Consttuton a ta payer must be gven an oppor-
tunty to be heard at some stage n the proceedngs f ng the ta . That ths
opportunty was provded and actuay utzed by the appeant In ths case by
the hearng had upon ts cams n abatement wheren the ta orgnay camed
was cut about In haf, Is not serousy dsputed. The method of attackng a tar
by way of a petton for abatement s estabshed by the rues of the Treasury
Department and under the ct of Congress such rues become a part of the aw.
The appeant was entted to a hearng under ths reguaton and had such a
hearng. Ths, we thnk, was suffcent. (See Orent Insurance Co. v. oard of
ssessors, 221 U. S., 358.) The appeant n ths regard contends that the rues
of the Treasury Department dd not specfcay provde for a hearng on the
petton for abatement but we thnk the ta payer as an opportunty through
the petton tsef to assert any fact whch, n hs |udgment, affects the vadty
or amount of the ta and the fact that under the rues of the Treasury Depart-
ment such a petton must be acted upon consttutes a suffcent hearng whether
or not the ta payer adduces evdence before the Commssoner.
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407
Regs. 49, rt. 92.
ppeant cams that as sectons 500-501 of the Revenue ct of 1918 were
e pressy repeaed by the Revenue ct of 1921 the Commssoner had no author-
ty thereafter to f the reasonabe charge for the use of ts ppe ne as a bass
for the mposton of the 8 per cent ta and that therefore the ta can not be
assessed or coected after the repea of the statute evyng the ta . Ths, of
course, woud be true n the absence of a genera or speca savng cause. Such
a genera savng cause s found n secton 13 of Revsed Statutes, as foows:
The repea of any statute sha not have the effect to reease or e tngush
any penaty, forfeture or abty ncurred under such statute uness the
repeang ct sha so e pressy provde .
The Revenue ct of 1921, secton 1400, subsecton (b), aso contans a speca
savng cause, n part, as foows:
The parts whch are repeaed by ths ct sha reman
n force for the assessment and coecton of a ta es whch have accrued
and for the mposton and coecton of a penates or forfetures
whch have accrued or may accrue n reaton to any such ta es.
We sha frst consder the effect of the savng cause contaned n the Reve-
nue ct of 1921. If t sha be found that ths cause was suffcent to |ustfy
the coecton of the ta n the case at bar t w be unnecessary to consder
whether or not the genera savng cause n Revsed Statutes secton 13 s app-
cabe n a case where the repeang statute contans a speca savng cause.
(See Great Northern Raway Co. v. Unted States, 208 U. S., 452, 4 5.)
The savng cause contaned n the Revenue ct of 1921, supra, appes to
a ta es whch have accrued and authorzes the assessment and coec-
ton of such ta es wth the approprate penates and forfetures whch
have accrued or may accrue n reaton to such ta es. It s argued that unt
the ta s due and payabe t has not accrued. ppeant ctes Capp v. Mason
(94 U. S., 589) Mason v. Sargent (104 U. S., 89) Sturges v. Unted States
(117 U. S., 3 3) Meredth v. Unted States (13 Peters, 48 ) Unted Sates v.
Woodward (25 U. S., 32 T. D. 3195, C. . 4, 153 ) Peope v. Carpenter
(274 111., 103) Unted States v. nderson and Unted States v. Yae Tocnc
Mfg. Co. (2 9 U. S., 422 T. D. 3839, C. . -, 179 ) Lucas v. mercan
Code Co. (280 U. S., 445 Ct. D. 1 8, C. . I -1, 314 ) | Lucas v. North Te as
Lumber Co. (281 U. S., 11 Ct. D. 1 9, C. . I -1, 294 ) Luca v. O bre
rush Co. (281 U. S., 115 Ct. D. 2 5, C. . I -2, 384 ), and many other cases
In whch the word accrued has been consdered and defned for the purposes
of the decson. We w not undertake to foow the ramfcatons of the argu-
ment. Suffce t to say that the word accrued has more than one defnton
and n any event when used n egsaton s to be nterpreted n connecton
wth the conte t of the statute so as to effectuate the purpose of the egs-
ature. ppeant s cam s that Congress has reeved t of ta es for the years
1919, 1920, 1921, where other ta payers smary stuated had aready pad
the ta , or t had accrued as to them. Ths reef Is not camed because of
any reason dstngushng the case of the appeant from the case of the others
but soey because of the deay of the ta ng offcers or. of the appeant, or
both, n arrvng at the amount of the ta . The appeant contends that t
had aways been pressng the Commssoner to f a reasonabe charge for
the use of ts ppe ne and that the deay was whoy due to the uncertanty
In the statute and the nabty of the Commssoner to reach a concuson
upon the aw and the facts. Grantng ths for the moment, st no reason s
Shown why Congress n repeang the aw evyng a ta whch had been pad
by others shoud make an e cepton n favor of the appeant and others, If
any, who had not pad the ta . The repeang ct was not a remeda ct and
dd not purport to remedy past wrongs, but ooked soey to the future In ts
repea of the ta . To ascrbe to Congress an ntent to reeve the appeant
from a ta abty for the years 1919, 1920, and 1921 woud be to hod that
Congress ntended to make a gft of pubc property to thorn. ( state of Stan-
ford, 58 Pac, 4 2, 12 Ca., 112.) The savng cause contempates the
accrua of the ta before t s assessed. The appeant admts that when
the ta Is so far f ed that ts amount s defntey ascertanabe t has
accrued, athough It s not yet due or payabe, ctng Unted States v.
nderson and Unted States v. Yae d Townc Mfg. Co. (2G9 U. S., 422), supra,
where the Supreme Court sad:
In a technca ega sense t may be argued that a ta does not accrue unt
t has been assessed and becomes due but t Is aso true that In advance of
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Regs. 49, rt. 92.
408
the assessment of a ta , a the events may occur whch f the amount of the
ta and determne the abty of the ta payer to pay t. In ths respect, for
purposes of accountng and of ascertanng true ncome for a gven accountng
perod, the muntons ta here n queston dd not stand on any dfferent foot-
ng than other accrued e penses appearng on appeee s books. In the economc
and bookkeepng sense wth whch the statute and Treasury decson were
concerned, the ta es had accrued.
In short, the appeant s contenton comes to ths, that the ta had not
accrued because, to quote from ts bref, the Commssoner had not determned
what shoud be consdered a reasonabe charge appcabe to pantffs trans-
portaton of ts own o upon whch (he ta coud be computed. The
ta n ths case depended upon an unknown quantty when the statute was
repeaed, . e., the .Commssoner s determnaton as to a reasonabe charge
aganst whch t coud be assessed.
s a matter of fact, on September 28, 1920, the Commssoner had certfed
an assessment of ta es coverng the ta es due from pr 1, 1919, to May 31,
1920, and payment therefor had been demanded. Ths assessment was based
upon the tost of transportng o as ascertaned from the books of the appeant.
Ths cost vared from month to month and from pace to pace but the Com-
mssoner acted upon t and made an assessment upon the bass of such costs.
Ths determnaton was n effect a decson that the actua cost of transporta-
ton of o was a reasonabe amount to be charged for such transportaton.
The appeant nssts throughout that the act of the Commssoner, n f ng
a reasonabe charge, s a separate and dstnct act from the makng of the
assessment, and. consequenty, gnores ths assessment as a determnaton of
the reasonabe charge for transportaton. The act of the Commssoner n
f ng the charge s an ntegra part of the assessment. It coud be performed
n advance of the forma assessment or at the tme of the assessment. The
act of makng the assessment pso facto determnes the reasonabe charge.
ssumng that the assessment w-hch was based upon the cost of transportaton
of o as shown by the appeant s books was n effect a determnaton by tho
Commssoner that the cost of transportaton was a reasonabe charge for
such transportaton, the appeant had at hand n ts own books a bass for
f ng the amount of the ta for the other months of the perod for whch
the ta was appcabe under the Revenue ct of 1918. If we accept ths
premse the ta had accrued wthn the rue as advocated by the appeant.
though we see no escape from ths proposton we wsh to pace our decson
upon the broader ground that regardess of the acton of the Commssoner
n f ng the amount of the ta , the ta accrued before the repea of the
Revenue ct of 1918. In ths connecton t shoud be noted that ths ta
s payabe monthy at the tme f ed for fng the monthy return wthout
prevous assessment by the Commssoner or notce from the coector, and
n defaut of such payment a penaty of 5 per cent and nterest at 1 per cent
per month s added. (Revenue ct, 1918, secton 502.) Ths secton requrng
monthy returns (secton 502, supra), whch s e pressy made appcabe to
persons recevng any payments referred to n secton 500, supra, we thnk
s appcabe as we to those who transport ther own o n ther own ppe nes,
who arc ta abe under secton 501 (d)2, supra. No doubt appeant woud
concede ths, sub|ect to the quafcaton that the Commssoner shoud frst
determne the reasonabe charge to be apped. In any event we thnk the
obstace to such payment suggested by the appeant s more magnary than
rea. Tho statute whch requres a monthy return and payment of the ta
wthout assessment necessary mpes that the ta payer sha n the frst
nstance estmate the amount of the ta payabe, sub|ect to correcton by the
assessment made ater by tho Commssoner. It s true that n the case of a
pubc utty transportaton company whose charges are based upon rates
f ed for transportaton of o by t, the company s ony requred to add
8 per cent thereto and return the amount so coected from ts customers.
So far as the statute s concerned, we see no reason why the prvate carrer
of o mght not wth equa facty set up a tentatve charge for the trans-
portaton of ts own o and pay a ta thereon monthy wth ts return sub|ect,
of course, to the fna determnaton of 11e reasonabeness of the charge by tho
Commssoner, |ust as tho appeant dd set up ts estmate of ts cost of
transortaton of ts own o n ts own ppe nes. The statute provdes:
In case no charge for transportaton s made, by reason of ownershp of the
commodty transported, or for any other reason, the person transportng
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409
Regs. 49, rt. 92.
by ppe ne sha pay a ta equvaent to the ta whch woud be Imposed If
such person receved payment for such transportaton.
It s true that the statute n such case provdes that f the ta can not bo
computed on actua bona fde rates or tarffs, t shoud be computed upon a
bass determned by the Commssoner as requred by aw. It s aso true that
the Reguatons 49, Treasury Decson 3824, under the Revenue ct of 1918,
secton 500, provdes n accordance wth the terms of the statute for the return
of the ta (artce 7), and provdes further (artce 22) thnt n the cases fa-
ng wthn the above-quoted provson of secton 501, the bass of the computa-
ton of ta sha be upon the ega rates or tarffs of the carrer and, n the
absence thereof, the actua rates or tarffs of other carrers for ke servce. If
the bass of the ta can not be ready determned n the manner stated, the
facts shoud be forthwth reported by the carrer to the Commssoner of
Interna Revenue for determnaton by hm of the bass of computaton.
rtce 91 aso provdes for monthy returns of ta es coected by the carrer
and n cases n whch t s mpossbe to make a proper return wthn the pre-
scrbed tme provdes for the e tenson of tme, not e ceedng 0 days, by the
coector, upon appcaton by the ta payer and a proper showng for such
e tenson, as was done n the case at bar.
Under these reguatons the appeant propery assumed that t was entted
to have the reasonabe charge for transportaton of o f ed by the Comms-
soner before t made ts return and pad the ta . The Commssoner acquesced
n ths vew and e tended the tme for return from tme to tme. The Comms-
soner utmatey made the assessment based upon the nvestgaton and reports
made by subordnates n hs Department, wthout any forma return by the
ta payer.
In vew of ths stuaton the contenton of the appeant comes to ths: That
notwthstandng that the statute f ed the rate of the ta and the base upon
whch t shoud be computed sub|ect to a fndng of the fact by the Comms-
soner, namey, the reasonabe charge for transportaton of o, and provded
that the ta shoud be payabe before assessment and upon monthy returns,
nevertheess the ta dd not accrue before the repea of the Revenue ct of
1918 because the Commssoner deayed n fndng the fact necessary to a f ng
of the amount of the ta . y secton 502 of the Revenue ct of 1918 the Com-
mssoner was authorzed to requre the ta payer to furnsh returns gvng such
nformaton as mght be desred by hm for the purpose of f ng the ta . If the
Commssoner had requred the ta payer to furnsh the necessary nformaton
to f a reasonabe charge such as the reasonabe vaue of the property devoted
to the transportaton servce, the reasonabe charge coud have been f ed and
the ta assessed mmedatey upon the return. Instead, the rues of the Treas-
ury Department evdenty contempated that the necessary nformaton woud
be ether furnshed by the ta payer or acqured by the Commssoner by nvest-
gaton and that amount of the reasonabe charge woud be gven to the ta -
payer as a bass upon whch to make hs return of the ta and payment thereon.
The deay n f ng the amount of the ta was nether requred nor contempated
by the aw of 1918. The obgaton to pay the ta was f ed by the revenue aw
of 191S. y engagng n the busness of transportng o n ts ppe ne the
appeant became obgated to pay that ta to the Unted States. The aw f ed
the amount of the ta , namey, 8 per cent, upon a reasonabe charge for the
transportaton of the o actuay transported. It eft to the Commssoner the
determnaton of the facts and the amount of the ta eved by Congress n
accordance wth the facts as determned by hm. Under these crcumstances
we thnk t cear that wthn the meanng of Congress the ta had accrued
before the Revenue ct of 1918 was repeaed. We thnk ths so ceary foows
from the decson of the Supreme Court n Unted States v. nderson, supra,
that we deem It unnecessary to dscuss the numerous cases cted upon that
sub|ect.
We concude that the savng cause n the Revenue ct of 1921 covered the
ta here nvoved.
The appeant contends that n any event t shoud recover the ta es eved
for the months of October, November, and December, 1921, amountng to
151,993.79. Ths contenton s based upon a somewhat curous stuaton
whch deveoped durng the effort of the Commssoner to arrve at a con-
cuson as to the correct amount of the ta whch shoud be pad by the
appeant upon ts use of the ppe ne for the transportaton of o durng
77002 34 14
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Regs. 49, rt. 02.
410
the perod that the Revenue ct of 1918 was In effect. The three assessments
made by the Commssoner overap. The frst assessment was from pr 1,
1919, to May 31, 1920. The second assessment covered the same perod ana
n addton the months from une 1, 1920, to and Incudng September 30, 1921,
The thrd assessment was for the months of October, November, and December.
1921, and aso ncuded an addtona ta for the perod covered by the second
assessment. Cams n abatement were fed by the appeant from each of
these determnatons. Whe these cams were pendng the Commssoner and
the appeant, after numerous conferences and much correspondence, agreed
upon the amount of the reasonabe charge for the transportaton of o and aso
upon the amount of the o transported. Under ths agreement t ony remaned
to compute the ta at the rate specfed by the statute (8 per cent). The ta
was computed by the Commssoner and demand made for the amount thereof
une 27, 1923. Ths amount, after correcton of a reatvey trfng error
of 151.17, s the amount whch was pad by the ta payer n March, 1924.
In f ng the amount of the ta the Commssoner drected the coector that
the payment shoud be apped to the second assessment, namey, the assessment
coverng the perod from pr 1, 1919, to October 1, 1921. The ta was so
coected and apped.
The appeant contends that nasmuch as the ta t pad was for the perod
e tendng to December 31, 1921, t had overpad the ta for whch t s abe by
the amount whch accrued durng the months of October, November, and
December for the transportaton of the o transported durng those months.
t the tme the ta was demanded ( une 27, 1923) and pad (March 29, 1924),
the Commssoner had not formay acted upon the appeant s cams for abate-
ment, but n uy. 1924, he dd so act. e abated the frst assessment coverng
the perod from pr 1, 1919, to May, 1920, upon the ground that the ta had
been satsfed by the payment of the second assessment whch covered the same
perod. Smary he abated the thrd assessment whch covered the perod
from October 1, 1921, to December 31, 1921, and aso covered a suppementa
assessment for the perod covered by the second assessment ( pr 1, 1919, to
October 1, 1921) upon the ground that by the payment of 1,479,331.95 upon the
second assessment that ta (to December 31, 1921) had been satsfed. The
concuson s nescapabe that the Commssoner f ed the entre ta for the
entre perod from pr 1, 1919, to December 31, 1921, at the sum of
1,479,331.95, and as a matter of convenence apped that ta to the second
assessment. The partes to ths acton agreed upon the tra that the rates
f ed by the Commssoner for the transportaton of o n hs communcaton
to the appeant wore reasonabe, and that the amounts of o transported In
the varous months were the amounts shown by the books of the appeant.
Upon the bass of ths agreement the poston of the appeant s correct that
the ta for the perod endng October 1, 1921, woud be 151,993.79, ess than
the amount t pad. Its contenton that t Is entted to a return of the amounts
whch appeant estmates for the ast three months of 1921 ( 151,993.79) s not
based upon the merts as the tota amount of the ta for whch the appeant was
abe, f any, was agreed upon but upon the method by whch the Comms-
soner undertook to carry out the terms of the agreement he made wth the
appeant n regard to the tota amount of the ta due from t for the entre
perod durng whch the Revenue ct of 1918 was n force. To ths technca
poston of the appeant we thnk there s a technca answer, namey, that hs
determnaton that the ta for the perod endng October 1, 1921, was
1,479,331.95, was n effect a determnaton that the reasonabe rates to be
charged for that perod were suffcent as apped to the o transported to
amount, at the ta rate of 8 per cent, to the ta pad by the ta payer. The
agreement of the Commssoner wth the appeant, before he acted upon the
cams n abatement, as to the reasonabe rates chargeabe and the agreement
of the partes upon the tra of the case that the amount f ed by the agreement
was reasonabe, does not ater the fact that the acton of the Commssoner upon
the cam n abatement n ega effect f ed a arger amount as a reasonabe
charge than the amount agreed upon between the Commssoner and the ap)e-
ant before he acted upon the cam n abatement, an amount arger than agreed
upon at the tra as a reasonabe charge. Nether the pror, nor subsequent,
agreement of the Commssoner as to what consttuted a reasonabe charge can
ater the effect of hs act n determnng the amount of the ta when he passed
upon the appeant s cams n abatement. It was evdenty wth ths n vew
that the Commssoner acted n passng upon the cam In abatement. e ev-
denty concuded that as the amount of the ta had been agreed upon wth the
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411
Regs. 49, rt. 92.
appeant It was Immatera Id e acty what manner he rued upon the cams
n abatement f the tota amount demanded was equa to that wh -h had been
agreed to and pad by the ta payer. In ths vew we thnk the Commssoner
was correct for the reasons stated. The court s bound by the determnaton of
the Commssoner upon the cams n abatement wheren the Commssoner
f ed the ta for the perod up to October 1, 1921, at the amount of 1,479,331.95.
In any event, the agreement that certan rates are reasonabe s not an agree-
ment that rates 10 per cent greater are unreasonabe.
The appeant was requred to pny. and dd pay, Interest amountng to 139,-
811.1 . Ths nterest was computed at the rate of 1 per cent a month from
une 27, 1923, Tvhen the payment of the agreed amount of the ta was demanded
by the Commssoner, to the date of the payment n March, 1924. ppeant
contends that t s not abe for ths nterest. Ths contenton s based n pnrt
upon the proposton that the savng cause n the Revenue ct of 1921, above
quoted, e pressy e cepted the ta and penates thereon, but dd not e pressy
cover nterest upon the ta . In ths regard t may be stated that t s not ato-
gether cear that the nterest Is not a part of the penaty. Secton 502 of the
Revenue ct of 1918, supra, provdes:
If the ta s not pad when due, there sha be added as part of the ta a
penaty of 5 per centum, together wth nterest at the rate of 1 per centum for
each fu month, from the tme when the ta became due.
ssumng, however, that the nterest of 1 per cent n month s not a part of
the penaty referred to n the statute, as mght be Indcated by the comma after
the phrase, a penaty of 5 per centum, the appeee meets the contenton of
the appeant by two cams: rst, that a ta es bear nterest regardess of
whether or not the statute e pressy so provdes, ctng n support of that con-
tenton the case of ngs v. Unted States (232 U. S., 2 1), where t s hed
that f the nterest rate s not f ed by statute the ta es bear nterest at a rate
whch must be reasonabe and n conformty wth the custom of the communty
second, n addton to secton 502 of the Revenue ct of 1918. supra, reatng to
Interest, the appeee ponts out the somewhat dfferent provsons of secton
250(e) of the Revenue ct of 1921, provdng for the coecton of Interest on
overdue ta es, and secton 250(h) of that ct whch makes sub. (e) appcabe
to ta es whch have accrued or may accrue under the Revenue ct of 1918 .
In vew of the compe ty of the stuaton we quote somewhat e tensvey
from the suppementa repy bref of the appeee In whch appeee s poston n
egard to the payment of nterest s stated wth a confesson of doubt as to the
proper method of computng nterest:
- To be qute candd, we thnk the appcaton of secton 250(e) s not entrey
cear. It seems to contempate notce and demand by the coector, and Interest
runnng at 1 per cent thereafter uness a cam n abatement s fed. ppyng
ths retroactvey woud mean makng a per cent nterest rate appy to the
ta es as orgnay demanded by the coector, throughout the whoe perod when
the abatement of these ta es, or any part of them, was pendng.
On the other hand, t seems contrary to reason to say that cams In abate-
ment were reay pendng after une, 1923. It can hardy be dsputed that when
the Commssoner and the appeant agreed upon the rate, the quanttes of o,
the dstances and the amount of ta payabe, there was, n fact, a fu consder-
aton of a the prevous determnatons of the Commssoner and of the ta -
payer s cams n abatement. Now, whatever be the name we gve to the
agreement ncorporated n the record at page 90, and agan at page 232, It s
manfest that by t the Commssoner modfed a prevous rungs, both ns to
rates and the amount of ta payabe, and, n fact, f ed a rate and an amount
of ta under that rate whch was accepted by the ta payer as correct n amount.
The ta payer s contenton that prevous rates were unreasonaby hgh was thus
accepted.
The Commssoner demanded the payment of ths amount on une 27, 1923,
and at that tme notfed the ta payer that a 5 per cent penaty and Interest
1 per cent per month were payabe under Revsed Statutes secton 3184 (2
U. S. C. ., secton 104) (Rec, pages 87-89). t ths tme the ta payer s
cams In abatement were, In a common sense meanng of the term, no onger
pendng. It seems to us that a notce of the amount of ta due was gven ths
ta payer, whch was suffcent to start the rate of nterest runnng at 1 per cent
under secton 3184 of the Revsed Statutes. There was a notce and demand,
whch the pantff receved by ma, statng the amount of ta es and demand-
ng payment, as requred by Revsed Statutes, secton 3184. It s true that
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Rogs. 49. rt. 92.
412
Revsed Statutes, secton 3184, contempates that the coector sha gve ths
notce, ether In person or hy a deputy, but t woud seem that ths anguage
Is broad enough to ncude a notce from the Commssoner hmsef.
Upon the sub|ect of nterest we concude:
rst: That whether or not nterest was e pressy saved by the provsons of
he repeang cause of the aw of 1921, that ct, by secton 250 (e) and (h)
e pressy requred the mposton of the penaty and Interest as theren f ed
upon ta es accrung under the Revenue ct of 1918.
Second: That, nasmuch as the Commssoner had assessed the ta for the
perod endng October 31, 1921, by hs assessment made ebruary 14, 1922, and
the coector had demanded the payment thereof on March 1, 1922, nterest
began to run thereon at the rate of 1 per cent per month upon such demand n
accordance wth the provsons of secton 250(e) of the Revenue ct of 1921,
n the absence of a cam n abatement that by the fng of the cam of abate-
ment wthn 10 days after demand based upon ths ta the nterest rate became
per centum from the date of the demand so ong as that cam In abatement
was pendng and undsposed of, to wt, to and ncudng uy 24, 1924. The
ta was pad on March 29, 1924, and Interest ceased at that tme.
Our concuson, then, s that the amount of nterest propery chargeabe to
the appeant was the sum of 0 per ontum per annum from the date of demand,
March 1, 1922, to the date of payment, March 29, 1924 that s, for a tte over
two years. The nterest actuay coected was ess than ths amount (about 9
per cent). In ths vew the nterest charge was ess than that f ed by statute
and the appeant s not entted to recover any part of the nterest so pad.
The appeant s answer to ths proposton Is that the provsons of the statute
of 1921 f ng nterest charges s appcabe ony to the ncome ta es. We see
no reason why Congress shoud make a dstncton between two types of ta es
n f ng the penaty for faure to pay the ta when t was due. The anguage
of secton 250 (e) (h) s defnte and appes generay to a ta es eved
under the ct of 1918 whch ncudes the transportaton ta In ssue n ths
case. We thnk that the Interest rate upon overdue ta es f ed n the aw of
1921 for ta es under the Revenue ct of 1918 appes to the transportaton ta
where the demand for the ta was made after the enactment of the Revenue
ct of 1921.
udgment affrmed.
Reguatons 49, rtce 92: Msceaneous pro- III-8-
vsons. Ct. D. 790
TR NSPORT TION T R NU CTS O 1917 ND 1918 D CISION O
SUPR M CODRT.
Ta on Transportaton of O ass.
prvate ppe ne company operatng o-gatherng nes n
Okahoma and makng a charge therefor not approprate for the
servce rendered s sub|ect to ta on the transportaton of o
by ppe ne uuder sectons 500, 501, and 503 of the Revenue ct
of 1917 and sectons 500-502 of the Revenue ct of 1918, based
upon the accustomed rates of other carrers n the same fed for
ke servces.
Spt Court or the Untkd States.
cc C. e ander, Coector of Interna Revenue, pettoner, v. Cosdvn Ppe
Lne Co.
Certorar to the Unted States Crcut Court of ppeas for the Tenth Crcut.
anuary 8, 1934.
OPINION.
Mr. ustce an Devanteb devered the opnon of the court.
Ths was an acton at aw brought n the Dstrct Court for the Western
Dstrct of Okahoma to recover from the defendant moneys aeged to have
been wrongfuy e acted by hm, as coector of nterna revenue, from the
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413
Regs. 49, rt. 92.
pantff as e cse ta es on the transportaton of crude o through the htter s
ppe ne.
part from matters emnated durng the pendency of the sut, four dstnct
cams were asserted. The frst reated to the transportaton of 2,022,248.41
barres for Cosden Co. between November 1, 1917, and March 31, 1919,
whereon an addtona assessment of 15,0 .87 was made and coected. The
second reated to the transportaton of 20,G44,020.34 bnrrcs for the same com-
pany between pr 1, 1919, and March 31, 1921, whereon an addtona assess-
ment of 170,94 .04 was made and coected of whch sum a refund of 5,793.7
was made pendng the sut, thereby reducng the cam to 1 5,152.28. The
thrd reated to the transportaton of 3, ,048.39 barres for the same company
between uy 1, 1918, and March 31, 1919, whereon an assessment of 3 , .50
was made and coected. The fourth reated to the transportaton of 99,590.31
barres for the Perce O Corporaton between November 1, 1917, and March
31, 1919, whereon an assessment of 995.90 was made and coected.
The ssues were tred under a wrtten stpuaton wavng a |ury, and the
court made speca fndngs of fact and decaratons of aw whereon t rendered
a udgment awardng the pantff the fu amount of each of the frst two
cams, 18,333.25 on the thrd, and 74 .92 on the fourth wth nterest on
each of these sums.
The defendant appeaed to the Crcut Court of ppeas, whch sustaned the
awards on the frst and second cams, whoy re|ected the thrd, reduced the
award on the fourth 375.71, and accorded the pantff a mted tme wthn
whch to fe a remtttur of the amount awarded on the thrd cam and of
375.71 of that awarded on the fourth. The remtttur was seasonaby fed and
thereupon the court of appeas affrmed the |udgment of the tra court as
modfed and reduced by the remtttur. ( 3 . (2d), 3.)
The case s here on certorar.
The dscusson n the brefs makes t advsabe to pont out at the outset that
we have no occason to ree amne the thrd and fourth cams. In the dstrct
court each of these cams was aowed n part and re|ected n part. The de-
fendant aone appeaed. In the court of appeas the thrd cam was re|ected
and the award on the fourth reduced. The defendant aone pettoned for a
revew here. In ths stuaton the pantff Is not entted to be heard n oppo-
ston to the parts of the decson of the court of appeas whch were adverse to
t as were the re|ecton of the thrd cam and the reducton of the award on
the fourth but ony n support of the parts whch were n ts favor. s to the
former t has acquesced and become concuded by not seasonaby pettonng for
a revew.1 nd the defendant s not entted to compan of the parts of the
decson whch were In hs favor as were the re|ecton of the thrd cam and
the reducton of the award on the fourth but ony of such as were adverse
to hm as was the refusa whoy to dsapprove, or further to reduce, the
award on the fourth cam. It Is doubtfu that the defendant s petton for
certorar contans any rea chaenge of the rung of the court of appeas on
the fourth cam. ut, be ths as It may, the Soctor Genera, speakng for
the defendant, n the argument at the bar dscamed any purpose to ask ths
court to ree amne or dsturb that rung. Ths dscamer, made on behaf of
the ony party who then had any sembance of rght to ask such a ree amnaton,
emnated any need for consderng the fourth cam |ust as a ke dscamer
n the petton for certorar woud have done. or these reasons t shoud be
understood that the merts of the thrd and fourth cams are not here under
consderaton, but are regarded as setted by the decson of the court of appeas.
nother matter bearng on the scope of the present e amnaton needs at-
tenton. The defendant asks that the evdence be e amned n connecton wth
1 Unted States v. ckey (17 Wa.. 0, 13) Unted States v. ackfeahcr (155 T7 S.
ISO, ISO) Chttenden v. rewster (2 Wa.. 101. 100) The Wam a|acy (5 Wa.
37 ) Cana Co. v. Cordon ( Wa., 5 1. 5 8) The Mara Martn (12 Wa.. 31, 40-41)
er Oreans Ma Co. v. anders (12 Wa.. 130, 134-1351 Mount Peasant v eekwth
(100 U. S.. 514, 527) : Cark v. an (103 D. S.. 7 . 700) Loudon v. Tarng Dst et
(104 U. S., 771, 774) | ubbard v. Todd (171 T . S.. 474, 404) : oes v. Outng Co (173
U. 8.. 2 2. 2 8) Landram v. ordan (203 U. S., 5 . 2) : Peora, etc., Ry. Co. v. Unted
States (2 3 U. S.. 528. 530) Unted Sates v. mercan Ry p. Co. (2 5 U. S, 425
435) edera Trade Commsson v. Pacfc States Paper Trade ssocaton (273 U s
52, 0C) Chares Warner Co. v. Independent Per Co. (278 U. S., 85, 01) : Lanoncs .
( reen (282 17. S.. 531. 538).
Marne Insurance Co. v. Woods (0 Cranch, 20, 42) Cornna v. Troy Iron d a ao-
tory (15 ow.. 451. 404-f-. : f tcnden v. rewster (2 Wa., 101. 100) : Loudon .
Ta ng Dst et (104 . S., 771, 774).
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Regs. 49. rt. 92.
414
hs moton for |udgment thereon whch was made and dened n the tra court,
and the pantff answers that ths can not be done because the evdence haa
not been brought nto the record by a proper b of e ceptons. The ob|ectons
whch the pantff makes to the b are that t does not purport to contan a
of the evdence but ony such as s matera to the defendant s assgnment of
errors, and that the evdence, both testmona and documentary, appearng
theren s set out wthout any attempt at condensaton or narraton.
Rue 10 of the court of appeas, ke rue 8 of ths court,4 provdes:
Ony so much of the evdence sha be embraced n a b of e ceptons as
may be necessary to present ceary the questons of aw nvoved n the rung
to whch e ceptons are reserved, and such evdence as s embraced theren
sha be set forth n condensed and narratve form, save as a proper under-
standng of the questons presented may requre that parts of t be set forth
otherwse.
The b, after the usua ntroductory rectas, contans an agreed statement
of partcuar facts, sets out other evdence produced by the pantff and by the
defendant, each n turn, and then says Ths s a the evdence offered and
taken at the tra. Other statements foow to the effect that ater on, but
before the fndng, the court admtted an addtona and specfed tem of ev-
dence to whch the partes agreed that at the cose of the evdence the defend-
ant moved for |udgment n hs favor as to each of the cams because there
was not suffcent evdence to support a fndng or udgment aganst hm and
that the court dened ths moton and the defendant reserved an e cepton. t
the end s a stpuaton wheren the partes, through ther counse, agree that
the b contans a the evdence matera to the defendant s assgnment of
errors and a e ceptons taken n the course of the tra, and consent that
the same be setted and fed as the setted b of e ceptons and then
foows a certfcate by the tra |udge authentcatng and aowng the b n
the same terms that are used n the stpuaton. The reference In the stpua-
ton aud certfcate to the defendant s assgnment of errors s e paned by
the fact that durng the perod gven for the preparaton and presentaton of
the b the defendant had sought and the tra |udge had aowed an appea to
the Crcut Court of ppeas and wth hs appcaton for the appea the
defendant had presented and fed an assgnment of errors showng the rungs
and questons whch e ntended to present on the appea one of the rungs
beng the dena of hs moton at the cose of the evdence for udgment thereon
n hs favor.
survey of the b from Its begnnng to ts end shows, we thnk, that t
contans a of the evdence. The statement to that effect n the body of the
b s not overcome or quafed by the statement In the concudng stpuaton
aud certfcate that t contans a that s matera to the defendant s assgn-
ment of errors. When regard Is had to the crcumstances n whch the ater
statement was made there s no room to doubt that t was ntended to be, and
s, as comprehensve as the frst. s the defendant s assgnment of errors, to
whch the stpuaton and certfcate refer, brought n queston the suffcency of
the evdence to support the |udgment, the concuson s unavodabe that counse
when enterng nto the stpuaton and the tra |udge when gvng the certfcate
understood that a the evdence was matera to the souton of that queston,
and that they used the terms appearng n the stpuaton and certfcate as
comprehendng, not merey a part of the evdence, but a of It.
It s true that the evdence s set out wthout any attempt at condensaton or
narraton but t s aso true that the pantff e pressy consented to the aow-
ance of the b n ths form, aud that the court of appeas not ony made no
crtcsm of the b but e amned the evdence and re|ected the thrd cam as
wthout necessary evdenta support.
The evdence s not of arge voume. esdes 5 pages of stpuated facts, t
ncudes 20 pages of testmony gven by three wtnesses and 30 pages of docu-
ments. Wtot doubt much of t coud have been condensed and narrated
wthout n anywse affectng ts purport or substance, but other parts, partcu-
ary some of the documents, are of such a nature that a tera reproducton
we mght have been regarded as essenta to a proper understandng of them.
Cadwe v. nted Mates (3 . (2d), 738, 739-740).
28 U. S.. 598.
Sco Wadron v. Wadron (15 U. S.. 3 1, 378).
See raut ra: Co. v. Meon (27 U. S., 38 , 390-391).
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415
Regs. 49, rt. 92.
Of course, the rue reatng to condensaton and narraton shoud be respected
by the bar and by tra udges, and shoud be appropratey enforced by appe-
ate courts but we are of opnon that n the crcumstances here shown the
pantff s not n a poston where t wth good grace can compan of the form
n whch the evdence s set out, and that the nfracton of the rue n ths
nstance s not of such e tent or moment as to |ustfy us n now decnng to
regard the evdence as brought nto the record by the b.
We come then to a consderaton of the frst and second cams. The errors
assgned as to them nvove the suffcency of the evdence to support any
|udgment aganst the defendant and the suffcency of the speca fndngs to
support the partcuar |udgment rendered thereon. Most of the pertnent fnd-
ngs have such support n the evdence that they must be accepted here, but
some are wthout such support. We sha summarze the facts found so far as
they are pertnent and sha refer to the evdence where there s need for t.
In ths way the evdence and fndngs w both be refected suffcenty for
present purposes.
The pantff, an Okahoma corporaton, owns ppe nes eadng nto Tusa,
Oka., from o feds n that State and operates ts nes n the transportaton,
Intrastate, of crude o. of ts stock s owned by Cosden Co., another
Okahoma corporaton, whch operates an o refnery at Tusa. Whe not
stated n the fndngs, the evdence shows that the two corporatons are under
substantay the same management, have the same offces, and In part have the
same empoyees.
The pantff s engaged chefy n carryng o for Cosden Co., but t aso
carres arge quanttes for others. It does not bod Itsef out as a common car-
rer, s not requred by the State to fe or pubsh rates or tarffs, and does not
fe or promugate ether. Common carrer ppe nes operatng n the vcnty
of the pantff s nes have both trunk nes and gatherng nes and aso tarff
statons at whch o s receved nto the trunk nes. The pantff has no tarff
statons and receves o at any pace aong ts nes where t can obtan the o.
Its nes are gatherng nes ony and comparabe ony to the gatherng nes of
the common carrers and the servce whch t renders, as compared wth that
rendered by the common carrers. Is a gatherng servce ony. Whe not appear-
ng n the fndngs, the stpuated facts ncuded the foowng:
ny ppe ne reachng from any pont where o s purchased or produced
to the trunk or man ne or to storage tanks at or near the man or trunk ne
or to tank farms s caed a gatherng ne, wthout regard to ts sze, the ds-
tance, or the amount of o carred through such ne to the trunk or man ppe
ne, or to the trunk or man ppe ne storage tanks, or to a tank farm.
The gatherng charge Is a sum pad for the servce rendered n movng o
from the pont where t s tendered to or receved by the carrer, whether t
be the workng tank at the we or the storage tanks n the fed, to the trunk
or man ne tarff statons, or to a tank farm of the carrer or to man ne
storage tanks. nd the rate charged for such gatherng servce Is a fat rate,
beng the same by the same carrer n the same fed, whether the dstance
traversed by the gatherng ne be 25 yards or 25 mes.
of the matters rected thus far were true durng the perod of the trans-
portaton n queston.
The o named n the frst and second cams was owned by Cosden Co., and
was transported for t by the pantff n the atter s ppe ne that n the frst
cam between November 1, 1917. and March 31, 1919, and that n the second
between pr 1, 1919. and March 31, 1921.
The pantff charged and Cosden Co. pad 5 cents per barre for the trans-
portaton n the frst cam and 10 cents per barre for that n the second and
the pantff coected from Cosden Co. and pad over to the revenue coector
an e cse ta on such transportaton computed at the statutory rate on the
amounts so charged and pad.
The Commssoner of Interna Revenue found and rued that 20 cents per
barre was the proper charge on whch to base and compute the e cse ta . and
he accordngy made the addtona assessments nvoved In the two cams.
The pantff pad these assessments to the defendant coector, apped unsuc-
cessfuy for a refund and then brought ths sut.
Lncon v. Cafn (7 Wa., 132, 130-137) rauts ros. Co. v. Meon, supra.
See Necton v. Consodated Oas Co. (258 U. S., 1 5. 173-174) ouston v. South-
western e Te Co. (250 U. S., 318. 325) : arber sphat Co. v. Standard sphat
Co. (275 U. S.. 372, 387) arbanks, Morse t Oo. v. mercan ave d Meter Co. (27
U. 8., 305, 308. et seq.).
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Regs. 49, rt. 92.
41
Whe there s no fndng on the pont, the evdence shows that the Comms-
soner n hodng 20 cents the proper charge on whch to base and compute the
ta proceeded on the theory that the transportaton ncuded both a gatherng
and a trunk ne servce, and determned that 12 cents was the proper charge
for the former and 7 cents for the atter.
The usua and customary charge of common carrer ppe nes n that vcnty
for gatherng servce was from 12 to 12 cents per barre from November 1,
1917, to December 31, 1921.
The pantff s charge to Cosden Co. durng that perod vared. rom a
date severa months earer than November 1, 1917, to uy 1, 1918, the charge
was 5 cents per barre from uy 1, 1918, to March 31, 1919, no charge was
made, athough arge quanttes of o were then beng carred by the pantff
for that company and thereafter the charge was 10 cents. Its charges to
others aso vared. rom November 1, 1917, to December 31, 1921, they ranged
through 7, 10, 12, 15 and 17 cents per barre and ther average was 13 cents
for the frst fve months of that perod and 10.4 cents for the rest of the tme
the average beng arrved at n each nstance by dvdng the tota recepts
from that t ans ortaton by the tota number of barres ncuded theren.
The pantffs actua costs and e penses of carryng o were 7.8 cents per
barre n 1918, 7. cents n 1919, 10.7 cents n 1920, and 8.8 cents In 1921. Ths
fndng s supported by uncontradcted evdence based on a defnte computaton
made after the o was carred and the costs and e penses were ncurred. Two
other fndngs are to the effect that the charges for carryng o for Cosden Co.
were suffcent to take care of the actua costs and e penses of that servce.
ut these fndngs must be put asde. They rest entrey on a statement by one
of the wtnesses that the charges were f ed perodcay by estmatng n
advance what the e penses of operatng the ppe ne woud be and how
much o woud be pumped nto the ppe ne, and are nconsstent wth
uncontradcted evdence showng the amount of o carred and the actua costs
and e penses as defntey computed after the transportaton was competed.
The tra court concuded as matter of aw that where the pantff made and
coected a charge for carryng o that charge became, under the appcabe
statutes, the soe and e cusve bass for the coecton of the transportaton ta .
It therefore hed the addtona assessment n the frst and second cams
whoy nvad and gave the pantff an award for a that had been e acted
from t under those assessments. The court of appeas sustaned that rung.
The appcabe .satutes are sectons 500, 501 and 503, of the Revenue ct
of 1917, whch was controng at the tme of the transudaton In the frst
cam, and sectons 500-502 of the Revenue ct of 191S10 whch was controng
at the tme of the transportaton n the second cam.
The ct of 1917, n secton 500(d) mposed on the transportaton of o by
ppe ne a ta equvaent to 5 per centum of the amount pad therefor
n the frst paragraph of secton 501 decared the ta shoud be pad by the
person payng for the transportaton and n secton C03 ad on the carrer
a duty to coect the a from the person payng for the transportaton, to make
nformatve monthy returns under oath, and to pay to the coector of nterna
revenue a ta es so coected by t and the ta es mposed upon t under
the second paragraph of secton 501, whch decared:
In case such carrer does not, because of ts ownershp of the commodty
transported, or for any other reason, receve the amount whch as a currer t
woud otherwse charge, such carrer sha pay a ta equvaent to the ta
whch woud be Imposed upon the transportaton of such commodty f the
carrer receved payment for such transportaton: Provded, That n case of
a carrer whch on May 1, 1917, had no rates or tarffs on fe wth the proper
edera or State authorty, the ta sha be computed on the bass of the rates
or tarffs of other carrers for ke servces as ascertaned and determned by
the Commssoner of Interna Revenue.
The ct of 1918, n ts sectons 500(e), 501(a) and 502, reenacted these
provsons, save that t ncreased the ta to 8 per centum and substtuted for
the second paragraph of secton 501 the foowng:
Sec. 501. (d) The ta mposed by subdvson (e) of secton 500 sha appy
to a transportaton of o by ppe ne. In case no charge for transportaton s
Ch. 83, 40 Star., 300. 314.
Ch. 18. 40 Stnt.. 3057, 1101.
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417
(Regs. 49, rt. 92.
made, by reason of ownershp of the commodty transported, or for any other
reason, the person transportng by ppe ne sha pay a ta equvaent to the
ta whch woud be mposed f such person receved payment for such trans-
portaton, and f the ta can not be computed from actua bona fde rates or
tarffs, t sha be computed (1) on the bass of the rates or tarffs of other
ppe nes for ke servces, as determned by the Commss ner, or (2) f no
such rates or tarffs e st, on the bass of a reasonabe charge for such trans-
portaton, as determned by the Commssoner.
We can not assent to the constructon whch the courts beow paced on these
statutes. It mus be conceded that the statutes are not happy phrased and
that some of ther provsons separatey consdered gve coor to that con-
structon. ut the statutes are to be consdered, each n ts entrey and not
as f each of ts provsons was ndependent and unaffected by the others.
though mposng a ta , they are to be construed reasonaby and the ntent
and purpose of each s to be ascertaned by e amnng a of ts provsons.
rom such an e amnaton we are of opnon that both statutes dscose
that of 1917 by pan mpcaton and that of 1918 by e press decaraton
an ntent and purpose to mpose the ta on a transportaton of o by ppe
ne whether the ppe ne be a common carrer or a prvate carrer, and
whether t be transportng ts own o or that of others. The Revenue ureau
has so construed them u and that constructon has receved |udca approva.
Pany both statutes dscose an ntent and purpose to ay the ta equay
on a transportaton of o by ppe ne and to prevent e ceptona reatons
or condtons from effectng a departure from that standard. In the man both
proceed on the assumpton that usuay carrers w charge and shppers pay
te customary commerca rate for the transportaton, and therefore that tho
amount charged and pad w be n most nstances a far bass on whch to
compute the ta . ut nether statute stops there. oth recognze that there
may be cases where the carrer, by reason of ownng the o or for other reasons,
does not receve the compensaton whch t otherwse woud receve and both
provde, athough n somewhat dfferent terms, for usng the rntes of other
carrers for ke servces as a bass for computng the ta n such cases. We do
not overook the cause f the carrer receved payment for such transporta-
ton n the provson of the 1917 ct, nor the cause n case no charge for
transportaton s made n the provson of the 1918 ct. ut we thnk t
apparent from each of the cts as a whoe that the words payment and
charge n the quoted causes mean a payment and charge reasonaby appro-
prate for the servce rendered. The provsons n whch those words are
found dstncty refect the sense n whch the words are used, for they make
the rates of other carrers for ke servces n short, the commerca rates n
that vcnty an aternatve or substtute bass for computng the ta . Obv-
ousy the provsons do not mean that a merey nomna payment or charge w
avod the ta , for ths woud render them absurd and f that be not ther
meanng we perceve no meanng other than that before stated whch reasonaby
can be attrbuted to them.
It s sad that the Commssoner of Interna Revenue has construed the pro-
vsons ast consdered as not ncudng nstances where there s an actua pay-
ment, even though t be much beow the customary charge, and we are asked to
gve effect to that constructon. In ths the fact s overooked that t was tho
Commssoner who made the addtona assessments now n queston and
refused the appcaton for a refund. ut t does appear that whe ths sut
has been pendng the Commssoner n severa Ins.ances has aowed appca-
tons for a refund on the bass of the constructon now asserted. Of that
constructon t suffces to say that t has been nether unform nor of ong
standng, and that n these crcumstances we woud not be |ustfed n yedug
to t.
When the statutes as we construe them are apped to the evdence and the
speca fndngs t s pan that the defendant s moton for |udgment In hs
favor on the evdence s not we taken as to the frst and second cams, and
Treasury Reguatons 40, artce 02. as nmpnded bv Treasury Decson 3107, of uy
IS, 101 1 Commssoner s Instructonf. September . 1021.
eschke-Smrth v. Warde ed., 785 T. D. .-S4 1. C. . II 1. 2 G1) otter v
Derby O Co. (1 . (2d). 717 T. I). .1005. C. . -1. 2041) D e O Co. v. nte
mates (24 . (2d), 804 IT. 1). 4100, C. 1 . II-1, 2 5 ) e ander v. Carter O Co
(53 . (2d), 004) Standard O Co. v. McLuuyhn (07 . (2d), 110 ICt. D. 77U, page
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Regs. 49, rt. 92.
418
that hs ob|ecton that the speca fndngs do not as to them support the |udg-
ment rendered aganst hm s we taken. Under the evdence, and aso the
fndngs, the transportaton nvoved n these cams was a gatherng servce
and the proper charge therefor on whch to base the ta was 12 cents per
barre. The charges of 5 and 10 cents per barre actuay coected by the
pantff were not approprate for the servce rendered. The pantff had been
varyng ts charges wthout regard to the cost of the servce or purpose to
make the same charge to one patron as to another, and had no f ed rate that
was approprate. It therefore was necessary to resort to the accustomed rate
of other carrers n the same fed as a bass for the ta . Ther accustomed
rate for gatherng servce was 12 cents per barre. The addtona assess-
ments were made on a bass of 20 cents per barre, and to the e tent that they
rested on the dfference between a rate of 12 cents and a rate of 20 cents
they were e cessve and Invad. s the pantff had pad the e cess t was
entted to recover t, but the recovery shoud not have ncuded what was
attrbutabe to the gatherng charge of 12 cents per barre.
The |udgments of both courts must be reversed as to the frst and second
cams and the cause remanded to the dstrct court wth drectons to render
|udgment on the fndngs as to these cams n conformty wth the vews
e pressed n ths opnon and to respect the decson of the Crcut Court of
ppeas on the thrd and fourth cams and the remtttur gven thereunder.
udgments reversed.
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C PIT L STOC T .
TITL II. SP CI L T S. (1924)
S CTION 700. C PIT L STOC T .
Reguatons 4(1924), rtce 11: ass of the III-1 - 759
ta : Carryng on or dong busness. Ct. D. 81
C PIT L STOC T R NU CTS OP 1018, 1021, ND 1024 D CISION O
COURT.
1. Massachusetts Trust Ta abe as ssocaton Carbtno
on usness.
Massachusetts nvestment trust whch was estabshed n 1919
to contnue for a desgnated perod, ts assets consstng of stock n
certan companes and the trust nstrument grantng to the trus-
tees broad powers of management and mtng the power of the
soe benefcary to the eecton of successor trustees n case of
death or resgnaton of a trustee, and whch durng the years 1920
to 192 sod and e changed certan securtes orgnay n the
corpus of the trust, purchased and sod securtes not connected
wth corporatons represented n the orgna corpus, receved stock
dvdends, oaned and borrowed money, and purchased an Inter-
est n an o syndcate, s sub|ect to capta stock ta as an asso-
caton whch was dong busness n each ta abe year, wthn
the meanng of secton 1000(a) of the Revenue cts of 1918 and
1921 and secton 700(a) of the Revenue ct of 1924.
2. Decson ffrmed.
Decson of the Dstrct Court, Southern Dstrct of New York
(2 ed. Supp., 71 , Ct. D. 92, C. . II-1, 4 8), affrmed.
Unted States Crcut Court of ppeas for the Second Crcut.
enry Itteson, Php TP. aberman, and anche . Itteson, as Trustees of
Itteson Investment Trust, pantffs-appeants, v. Chares W. nderson, Co-
ector of Interna Revenue, defendant-appeee.
November , 1933.
opnon.
ppea from the Dstrct Court for the Southern Dstrct of New York.
cton by pantffs aganst the defendant to recover capta stock ta es pad
under duress. udgment for defendant pantffs appea. ffrmed.
Manton, Crcut udge: ppeants brought ths acton to recover capta
stock ta es pad by a trust, estabshed under the aws of Massachusetts, whch
were eved under the provsons of the Revenue cts of 1918, 1921, and 1924,
for the years 1921, 1922, 1923, 1924, 1925, and 192 . The ta es are based on the
cam that the trust, of whch the appeants are trustees, s a busness assoca-
ton and sub|ect to the capta stock ta on the same bass as corporatons.
The provsons of the three ta ng cts are substantay the same and mpose
annuay a speca e cse ta wth respect to carryng on or dong busness
equvaent to 1 for each 1,000 of so much of the far average vaue of ts
capta stock for the precedng year endng une 30 as s n e cess of 5,000
(419)
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5700, Regs. 4(1924), rt. 11. 420
(Revenue ct of 1918, secton 1000, 40 Stat., 1120). The ta es Imposed by
ths secton do not appy n any year to any corporaton whch was not engaged
In busness durng the precedng year endng une 30. nd secton 1 of the
Revenue ct of 1918 defnes corporatons as ncudng assocatons, |ont-stock
companes and nsurance comp:nes.
The trust, for whch the appeants are trustees, was estabshed n 1919 by
the named benefcary. y rtce I of the decaraton of trust, the duraton
of the trust s mted to the ves of the grantor and the members of hs
mmedate famy and an addtona perod of three years. t the tme of
ts creaton, he conveyed property to hmsef and two cotrustees to be hed n
trust for the beneft of the hoders of certfcates of benefca nterest. Two
certfcates, representng the entre benefca nterest, were ssued to the
grantor as a snge benefcary, and the benefca nterest remaned so through-
out the entre perod n queston. The property conssted of fve bocks of
stock, most of whch remaned unsod from the ncepton of the trust through-
out the ta years n queston. The trustees coected the dvdends and nter-
est from the trust nvestments and pad over part of the Income to the grantor
as the soe benefcary. Most of the remander of the ncome was renvested
by oanng t to the grantor, and, n one or two nstances, wth hs approva, to
companes n whch he was Interested. Provsons were made n the trust
Instrument for the eecton of offcers, appontng e ecutve commttees and
for a common sea, but none of these devces was used. The trustees assumed
and carred on entre contro over the trust. The benefcary was empowered
to eect successor trustees n case of death or resgnaton, but had no power
to remove trustees.
The appeants mantan that the trust was not an assocaton wthn the
Revenue cts n queston because (o) there was but one benefcary of the
trust and therefore there coud not be any assocaton, statutory or otherwse
( ) that the appeants, durng the years n queston, were not engaged as
trustees n carryng on a busness enterprse and (o) that the trust nstru-
ment dd not provde for a quas corporate torn) of organzaton.
s to (a) the argument s advanced that a snge beneuYary can not con-
sttute an assocaton, as that term s used, because an essenta ngredent of
an assocaton s a unon of at east two persons for the prosecuton of some
common enterprse ( echt v. Maey, 2G5 U. s., 144 T. D. 3. t 5, C. . III-,
489 ). It s true that the defnton of an assocaton as a body of persons
unted wthout a charter, but upon the methods and forms used by ncor-
porated bodes for the prosecuton of some common enterprse, stated n
ccht v. Maey, supra, suggests the presence of not ony the methods and
forms of a corporaton but aso a puraty of persons unted n the use of
such forms and methods. Usuay there are a number of trustees and of
benefcares n a busness trust but there s no reason to say that every
busness trust must have more than one trustee and more than one benefcary
at a tmes. Ths ta s a speca e cse on the prvege of dong busness
n a certan form. The test s whether or not busness s beng conducted n
a quas corporate form. (Iecht v. Maey, supra.) The fact that negotabe
shares of benefca nterest, whch may be transferred at any tme, may be
odged n the hands of one benefcary for a tme or even for the duraton
of the assocaton does not change the fact that the busness s beng conducted
by the trustees n quas corporate form.
fter the decson n Iecht v. Maey (203 U. 8., 144), the Treasury Depart-
ment, n conformty wth that opnon, promugated artce 1504, Reguatons
05, provdng:
odng trusts, n whch the trustees are merey hodng property for the
coecton of the ncome and Its dstrbuton among the benefcares, and are
not engaged, ether by themseves or n connecton wth the benefcares, n
the carryng on of any busness, are not assocatons wthn the meanng of
the aw. The trust and benefcares thereof w be sub|ect to ta as pro-
vded n artces 341-347. Operatng trusts, whether or not of the Massa-
chusetts type, n whch the trustees are not restrcted to the mere coecton
of funds and ther payments to the benefcares, but are assocated together
n much the same manner as drectors n a corporaton for the purpose of
carryng on some busness enterprse, are to be deemed assocatons wthn
the meanng of the ct, regardess of the contro e ercsed by the benefcares.
Ths reguaton s not ony In conformty wth the authorty of the statute,
ut has found approva n the decded cases ( ccht v. Maey, 2 5 U. 8., 144,
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421 700, Regs. 4(1924). rt. 11.
1 1 Soan v. Commssoner, 4 ed. (2d), C 0 (C. C. . 9) Whte v. Iornbower,
27 ed. (2d), 777 (C. C. . 1). The rue s that contro by the benefcary
s not the determnatve factor n decdng whether a Massachusetts trust,
engaged n dong busness, s sub|ect to the edera ta as an assocaton.
Ths rue supports the vew here adopted that a trust may be an assocaton
even though the negotabe certfcates of benefca nterest are hed by one
benefcary.
s to ( ), ths trust was created n Massachusetts on December 31, 1919, and
n addton to the terms referred to, the trust nstrument rectes as ts genera
purposes, the nvestment and qudaton of the trust estate and gves the
trustees power to engage n any busness to promote the genera purposes and
provdes for transferabe certfcates of benefca partcpaton. It provded a
the powers of admnstraton usua n the form of busness assocatons known
as a Massachusetts trust. It has been authortatvey setted that such a trust
may be an assocaton wthn the Revenue cts. ( ccht v. Maey, 2 5 U. S.,
144.) Many trusts have been hed ta abe as assocatons. (Soan v. Com-
mssoner, 3 ed. (2d), (C. C. . 9) Merchants Trust Co. v. Wech,
59 ed. (2d), 30 (C. C. . 9) Trust No 5S33 v. Wech, 54 ed. (2d), 323
(C. C. . 9) Ct. D. 490, C. . I-1, 138 Ltte our O Gas Co. v. Lcweyn,
35 ed. (2d), 149 (C. C. . 3) Ct. D. 118, C. . III-2, 2 4 Unted States v.
Nca, 28 ed. (2d), 1022 (C. C. . 1).) Other trusts have been hed not to be
ta abe as an assocaton. (Lansdotcne Reaty Trust v. Commssoner, 50 ed.
(2d), 5 (C. C. . 1) Gardner v. Unted States, 49 ed. (2d), 992 (C. C. . 1)
en v. Commssoner, 49 ed. (2d), 717 Ct. D. 417, C. . -2, 315 .)
n e amnaton of these cases ndcates the rue to be that whether or
not a partcuar trust s ta abe as an assocaton depends not so much upon
the e tent of the powers gven to the trustees n the deed of trust but rather
upon the nature of the actvtes of the trustees and the use they make of the
powers gven to them. (Gardner v. Unted States, supra.) dstncton
s to be drawn between the actvtes of trustees under a strct trust as ds-
tngushed from the actvtes under a busness trust. ven n the strct
trust the actvtes of the trustees, n preservng the trust estate, may partake
of the nature of busness transactons. It s a matter of degree. When, on
the one hand, the trustees promote and conduct a partcuar busness enter-
prse wth the trust estate, t s consdered an assocaton. The usua type s
a trust for the deveopment of rea estate (Trust No. 5833 v. Wech, supra)
or for the actve management of deveoped rea estate (Unted States v. Nea,
supra). When, on the other hand, a trustee s merey engaged n the amount
of busness actvty necessary to preserve the corpus and otherwse dscharge
the functons tradtonay attrbutabe to a strct trust, t s not treated as
an assocaton. (Lansdowne v. Commssoner, supra Gardner v. Commssoner,
supra en v. Commssoner, supra.) etween these e tremes s the fed
where trustees n the manngement of trust property engage n consderabe
busness actvty and the queston then presented s whether they functon as
a busness organzaton or merey as trustees under the modern concepton of
what a strct trustee has a duty and rght to do.
In the present case, the trustees were not engaged In the promoton or
preservaton of a specfc trust res ke rea estate as n the cases cted but
were entrusted wth shares of stock whch we may e pect to he sub|ect to con-
sderabe actvty and e change even n the hands of trustees under a strct
trust. Preservaton of the corpus requres acceptance of stock dvdends,
e ercse of stock rghts, and, n some cases, sae, e change and purchase of
stock. In the modern use of the trust devce a trustee of the strct trust,
tradtonay concerned wth preservaton, may engnge n some actvtes wth
a vew of an accreton to the corpus. dstncton between a strct and busness
trust can not be made soey upon the presence or absence of the proft motve.
When that motve e sts n a strct trust, t s to a restrcted e tent. When
the trustee of an estate conssug of securtes engages n consderabe busness
actvty and s tradng those securtes and oans and nvests the proceeds so
that he s n reaty conductng an nvestment busness for proft, then the estate
s n busness and s ta abe as an assocaton.
amnng the actvtes of the trust n the nstant case, for the years n
queston, t w be notced that some of the securtes orgnay n the corpus
were sod others were e changed for stock of corporatons controed by the
soe benefcary stock dvdends were receved money was borrowed to e er-
cse stock rghts oans were made to the benefcary and to corporatons he
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700, Regs. 4(1924), rt. 11. 422
controed notes of a corporaton, whose stock was n the orgna trust estate
and retaned there, were bought and sod the ne t year stock and bonds of the
corporatons not connected wth the corporatons represented n the orgna
corpus were purchased and sok wthn the year or n the ne t year on two
occasons and an nterest n an o syndcate was purchased. ctvtes such
as the purchase and sae of stock an| bonds of corporatons not connected wth
the corporatons represented n the orgna corpus and the purchase of an
nterest n an o syndcate for proft (May Stores stock. Unted States Pubc
Servce bonds mster Syndcate) were suffcent upon whch to base a fndng
that ths was a busness trust, athough the other actvtes of the trustees con-
sdered aone mght we have been wthn the mts of a strct trust.
The ssues were tred before a ury of one but both sdes moved for the
drecton of a verdct wthout more and a decson was made by the court on
ths ssue of fact. Snce both partes moved for a drecton of a verdct, a
fndng by a court havng substanta evdence to support t s concusve upon
us. (Wams v. reeand, 250 U. S., 295.) On ths fndng, the |udgment
beow must be supported, even though other actvtes of the trust referred to
may we be argued not to come wthn the mts of a busness trust.
The queston remans whether the evdence warrants a fndng that the
trust was engaged n busness n each ta abe year. There s some evdence
supportng the fndng beow that they were engaged n busness durng each
of the years n queston. In these crcumstances, the trust was ta abe as an
assocaton engaged n busness n each ta abe year. ( dwards v. Che
Copper Co., 270 U. S., 452 T. D. 3857, C. . -, 410 rgonaut Consodated
Co. v. nderson, 52 ed. (2d), 55 (C. C. . 2) Ct. D. 404, C. . -2, 441 .)
Snce the actvtes of the trust were found beow, wth evdence to support
that fndng, to be engaged n busness durng each ta abe year, the |udgment
s affrmed.
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MISC LL N OUS T RULINGS.
TITL . MISC LL N OUS T S. (1932)
S CTION 701. T L GR P , T L P ON , R DIO, ND
C L CILITI S.
Ta abty of payments by a rado broadcastng staton for tme
wre servce.
The queston s presented whether payments made to a teegraph
or teephone company by a rado broadcastng staton for tme wra
servce are ta abe under secton 701 of the Revenue ct of 1932.
The roadcastng Staton receves news tems day over the
factes of the Y Teegraph Co. and the Z Teephone Co. The
charges for each type of servce are based upon the actua tme the
servce s n use.
Secton 701 of the Revenue ct of 1932 mposes a ta upon pay-
ments for the transmsson of teegraph, teephone, cabe, or rado
dspatches, messages, and conversatons orgnatng wthn the Unted
States. The ony e empton appcabe to rado broadcastng sta-
tons or networks s that contaned n secton 701 (a)2, whch reates
ony to amounts pad for so much of a eased wre or takng crcut
speca servce furnshed to such statons or networks as s utzed
n the conduct of ther busness as such.
It s cear that nether the servce furnshed by the Y Teegraph
Co. nor the Z Teephone Co. s a- eased wre or takng crcut speca
servce. Consequenty, the e empton provded by secton 701 (a)2
does not appy.
The e empton provded n secton 701(b) wth respect to pay-
ments for servces or factes utzed n the coecton of news for,
or n the dssemnaton of news through, the pubc press s app-
cabe ony to payments made by newspapers or press assocatons for
messages from one newspaper or press assocaton to another news-
paper or press assocaton, or to or from ther bona fde correspond-
ents whch dea e cusvey wth the coecton of news for the pubc
press, or wth the dssemnaton of news through the pubc press.
( rtce 20 of Reguatons 42 S. T. 4 , C. . II-1, 422.) The
payments n queston are not made for servces or factes utzed
for any of the purposes specfed n secton 701 (b). ccordngy, the
e empton theren provded s not appcabe.
In vew of the foregong, t s hed that the payments made by the
roadcastng Staton to the Y Teegraph Co. and the Z Teephone
Co. for the factes referred to are ta abe under secton 701 of the
Revenue ct of 1932.
Reguatons 42, rtce 3: ass and rate
of ta .
III-25- 8 1
S. T. 744
(423)
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Regs. 71, rt. 34.
424
S CTION 500 O T R NU CT O 192 , S M ND D Y
S CTION 711 O T R NU CT O 1932. DMISSIONS.
Reguatons 43, rtce 12: dmssons to III-2- 594
whch e empton appes. S. T. 715
The M enevoent ssocaton, whch pays sck benefts to ts
members n return for dues, s not a chartabe organzaton.
dmssons to entertanments for the beneft of such an organ-
zaton are not e empt, from ta .
rung s requested whether admssons to entertanments, a
the proceeds of whch nure to the beneft of the M enevoent sso-
caton, are e empt from ta on the ground that the assocaton s a
chartabe organzaton.
The assocaton was organzed for mutua assstance and the pro-
moton of frendy nterests and soca en|oyment among ts mem-
bers, consstng of empoyees of the M Company. Membershp con-
tnues durng empoyment and dues and benefts are measured by
the saares receved from the M Company. commttee composed
of members of the assocaton has charge of a entertanments.
Under the provsons of secton 500 of the Revenue ct of 192 ,
as amended by secton 711 of the Revenue ct of 1932, admssons,
wth certan e ceptons not here matera, a the proceeds of whch
nure e cusvey to the beneft of a chartabe nsttuton, socety, or
organzaton are not sub|ect to ta .
The term chartabe contempates some pubc beneft open to an n-
defnte number of persons. Where the purpose of an organzaton s persona
or prvate, t s not, n a ega sense, chartabe. In other words, t s ony
where the purpose to be accompshed s that of pubc usefuness untanted by
persona or prvate consderaton that the organzaton s entted to e empton
on the ground that It Is organzed and operated e cusvey for chartabe
purposes. (I. T. 2201, C. . -, 82.)
Where an organzaton pays benefts to ts members on a con-
tractua bass and they are entted to defnte benefts n return for
dues pad, the organzaton s not a chartabe organzaton, wthn
the meanng of the aw.
It s hed that the M enevoent ssocaton s not a chartabe
organzaton and that proceeds of admssons to entertanments for
ts beneft are not e empt from ta .
SC DUL -3 O TITL III O T R NU CT O 192 , S
M ND D Y S CTION 723 O T R NU CT O 1932.
Reguatons 71. rttck 34: Saes or transfers TTI- - 45
sub|ect to ta . S. T. 723
Transfers of stock from the nomnee of a decedent to the
decedent s e ecutor are ta abe.
The queston s presented whether a transfer of stock from the
name of the decedent s nomnee to the e ecutor of the decedent s
sub|ect to the stamp ta mposed upon the transfer of ega tte to
stock by Schedue -3 of Tte III of the Revenue ct of 192 , aa
amended by secton 723 of the Revenue ct of 1932.
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425
Regs. 71, rt. 13 .
The aw cted mposes a stamp ta upon saes or transfers of
shares and certfcates of corporate stock. The ta so mposed s
eved upon the varous acts specfed n the aw. Goodyear Tre
Rubber Co. v. Unted States, 273 U. S., 100 T. D. 3992, C. . I-1,
332 .)
rtce 35(r) of Reguatons 71 reads as foows:
Transfers of shares or certfcates of stock whch resut whoy by operaton
of aw are not sub|ect to the tn . Transfers of ths character are those whch
the aw tsef w effect wthout any vountary act of the partes, such as
transfer of stock from decedent to e ecutor.
If the decedent were vng a transfer of stock to hm from hs
nomnee woud consttute a ta abe transfer. Inasmuch as the e ecu-
tor of the decedent represents the decedent a transfer of stock from
the decedent s nomnee to the decedent s e ecutor has the same status
as a transfer from the nomnee to the decedent durng hs fetme,,
It s hed that a transfer of stock from the decedent s nomnee to
the e ecutor of the decedent s a transfer resutng from the voun-
tary act of the partes and not whoy by operaton of aw. ccord-
ngy, such a transfer s sub|ect to the stamp ta mposed by
Schedue -3 of Tte III of the Revenue ct of 192 , as amended.
SC DUL -3 O TITL III O T R NU CT O 192 , S
M ND D Y S CTION 723(a) O T R NU CT O 1932,
ND SC DUL -9, S DD D Y S CTION 724(a) O T
R NU CT O 1932.
Reguatons 71, rtce 130: Partes to ta abe III-15- 747
nstrument abe. S. T. 735
Labty for stamp ta on the transfer by or to a edera agency
of bonds or stock of a prvate corporaton.
The stamp ta es n queston are mposed under Tte III of the
Revenue ct of 192 , as amended by the Revenue cts of 1928 and
1932. Secton 800 of that tte provdes that:
On and after the e praton of 30 days after the enactment of ths ct there
sha be eved, coected, and pad, for and n respect of the severa bonds,
debentures, or certfcates of stock and of ndebtedness, and other documents,
nstruments, matters, and thngs mentoned and descrbed n Schedue of
ths tte, or for or n respect of the veum, parchment, or paper upon whch
such nstruments, matters, or thngs, or any of them, are wrtten or prnted, by
any person who makes, sgns, ssues, ses, removes, consgns, or shps the same,
or for whose use or beneft the same are made, sgned, ssued, sod, removed,
consgned, or shpped, the severa ta es speced n such schedue.
The provsons of aw quoted are controng wth respect to a
stamp ta es mposed under that tte. The aw ceary mposes a
dua abty for these stamp ta es, one restng upon the person who
makes, sgns, or ssues the document, the other restng upon the one
for whose beneft the same s made, sgned, or ssued. (Granby
Mercante Co. v. Webster, 98 ed., 04 ome Tte Insurance Go.
of New York v. eth, 230 ed., 905.)
Where a edera agency, e pressy or mpedy e empt from ta
by the edera Government, s the transferor or transferee of bonds
or stock of a prvate corporaton the ta w be payabe by and
coectbe from other partes to the transactons who are not entted
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Regs. 71, rt. 77.
42
to e empton. The crcumstance that the burden of the ta may
sometmes be shfted to the e empt edera agency s nsuffcent to
warrant e empton. Where, however, e empton s granted wth
respect to an nstrument, such as that contaned n secton 801 of the
Revenue ct of 192 reatng to nstruments ssued by the Unted
States, foregn governments, States, potca subdvsons, etc.,
nether party to the transacton s abe.
SC DUL -8 O TITL III O T R NU CT O 192 , S
DD D Y S CTION 725 O T R NU CT O 1932.
CON Y NC S.
Reguatons 71, rtce 77: Ta , how com- III-17- 7 8
puted. S. T. 737
Computaton of stamp ta on conveyances.
Schedue -8 of Tte III of the Revenue ct of 192 , as
added by secton 725 of the Revenue ct of 1932, mposes a stamp
ta on conveyances of reaty sod when the consderaton or vaue
of the nterest or property conveyed, e cusve of the vaue of any
en or encumbrance remanng thereon at the tme of sae, e ceeds
100. Inqury s made as to the amount of stamp ta es due n
the foowng cases:
(1) , the owner of certan rea estate, sod t to for a consd-
eraton of 4,000. pad the amount of 2,500 n cash, eavng a
baance due of 1,500. accepted bonds of the ome Owners
Loan Corporaton for the baance of 1,500, and gave a deed to
the property.
ueston. Shoud the stamp ta be based upon the orgna pur-
chase prce of 4,000, or upon the baance of 1,500
nswer. Inasmuch as the consderaton for the deed conveyng
tte to the property was 4,000, the ta shoud be computed on that
amount.
(2) The hoder of a trust deed n the amount of 2,000 forecosed
upon the property securng the deed. t the forecosure sae, because
of ta es and addtona e penses ncurred, the hoder of the trust
deed bd n the property for 2,500, and a pubc trustee s deed was
ssued to hm. The purchaser then accepted bonds of the ome
Owners Loan Corporaton n the amount of 1,500 as consderaton
for the retransfer of the property to the former owner.
ueston, (a) In what sum shoud revenue stamps be paced
on the pubc trustee s deed (b) W the deed conveyng the-
property to the former owner requre any revenue stamps f so, n
what amount
nswer, (a) The ta shoud be computed on the amount bd for
the property pus any costs pad by the purchaser at the forecosure
sae, (b) The deed from the purchaser to the former owner of the
property s a conveyance of reaty sod and the ta shoud be
computed upon the amount pad, namey, 1,500.
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427
Regs. 71. rt. 84.
muatons 71, rtce 79: Sod defned. III-2- 595
S. T.71
deed reconveyug rea property from mortgagee to mortgagor
for a vauabe consderaton s ta abe.
ueston s presented whether a deed of conveyance e ecuted
under the foowng crcumstances s sub|ect to the stamp ta m-
posed by Schedue -8 of Tte III of the Revenue ct of 192 ,
as added by secton 725 of the Revenue ct of 1932.
To avod forecosure proceedngs, (mortgagor) deeded rea
property covered by a mortgage to (mortgagee) n consderaton
of the canceaton of the mortgage debt. Ths transacton s ceary
ta abe. ( rtce 112, Reguatons 71.) To enabe to secure a oan
from the M Corporaton, deeded the property back to on the
condton that the ndebtedness of to woud be pad out of the
proceeds of the oan. The queston to be decded s whether the deed
from to s sub|ect to ta .
Inasmuch as t appears that s ndebtedness to on reconveyance
of the property s to be pad n fu or to the e tent of the proceeds
of any oan may obtan from the M Corporaton, t s cear that the
deed from to was made for a vauabe consderaton and s
therefore tantamount to a sae. ( rtce 79, Reguatons 71.) It
foows, therefore, that such deed s sub|ect to the ta , computed
upon the tota amount of the ndebtedness reassumed by .
Reguatons 71, rtce 84: What consttutes III-18- 777
rea property determnabe by aw of State G. C. M. 13035
where ocated.
n nstrument grantng a permanent rght of way or easement
wth respect to and n certan .States s to abe as a conveyance
of ands, tenements, or other reaty.
dvce s requested whether an nstrument grantng a permanent
rght of way or easement wth respect to and n Inos, Indana,
Mchgan, New York, Oho, Pennsyvana, and West rgna s sub-
|ect to the stamp ta mposed by Schedue -8 of Tte III of the
Revenue ct of 192 , as added by secton 725 of the Revenue ct of
1932.
Schedue -8 of Tte III of the Revenue ct of 192 mposes
a stamp ta on any Deed, nstrument, or wrtng whereby
any ands, tenements, or other reaty sod sha be granted, assgned,
transferred, or otherwse conveyed to, or vested n, the purchaser or
purchasers, , when the consderaton or vaue of the nter-
est or property conveyed, e cusve of the vaue of any en or
encumbrance remanng thereon at the tme of sae, e ceeds 100.
y the terms of the typca nstrument submtted the grantor
gves and grants to the grantee, ts successors and assgns, the
permanent rght and easement to construct, operate, and mantan
two (2) eectrc transmsson nes, consstng of the necessary towers,
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Regs. 71, rt. 84.
428
wres, f tures and appances over certan descrbed reaty. The
nstrument contans, among other provsons, the foowng:
Together wth the rght to enter upon sad strp of and (but not upon
grantor s ands outsde the boundares thereof) at a tmes for the purpose of
constructng, reconstructng, nspectng, reparng, renewng and mantanng
or removng sad towers, wres and other parts of sad transmsson nes and
the rght to prohbt or prevent at a tmes the constructon or mantenance
of any budngs or permanent structures wthn the mts of sad strp of and
e cept as herenafter provded, and the rght at a tmes to trm and cut down
any trees or remove any other obstructons wthn sad strp of and whch
standard practce for the constructon, operaton and mantenance of such
transmsson nes reasonaby requres.
The grantor heren, for tsef, ts successors and assgns, hereby reserves the
rght to pace fng mutera to rase the ground ne, as herenbefore provded,
In any manner sad grantor, ts successors and assgns, may eect, provded sad
fng matera does not come n contact wth the towers of the grantee heren,
ts successors and assgns, and provded further that f sad fng nterferes
wth the natura dranage from sad towers, sad grantor, ts successors and
assgns, sha provde sutabe dranage for the ste of sad towers.
The grantor heren, for tsef and ts successors and assgns, further agrees
that those parts of any budngs constructed by the grantor heren, ts succes-
sors and assgns, wthn the sad most eastery and most westery twenty-fve
(25) feet of sad strp of and sha not be used for storng e posves, o,
gasone or other hghy nfammabe matera.
To have and to noLD the above granted and barganed rght-of-way and
easement unto sad grantee, ts successors and assgns forever, sub|ect to the
rghts and condtons herenabove set forth.
It s cear that the nstrument n queston s ntended to convey and
actuay does convey n perpetuty a rght n the and of the grantor,
whch rght consttutes a servtude or easement. though t s n
reaty an easement n gross, n that there s apparenty no domnant
tenement to whch the rght n the and of the servent tenement s
attached, nevertheess, t s an easement or rght n the and of an-
other, wthout proft to the grantee. Such a servtude or easement s,
generay, an ncorporea heredtament, and as such consttutes an
nterest n rea property.
or stamp ta purposes, however, the aw of the State n whch the
property s stuated determnes what consttutes ands, tenements,
or other reaty. ( rtce 84 of Reguatons 71.)
ILLINOIS.
Under the aw of Inos the nstrument n queston consttutes a
perpetua easement. The nterest conveyed thereby comes wthn
the term estate n ands, and s an estate n fee under the Inos
aw. (D. M. Goodwe Co. v. Commonweath ectrc Co. et a..
241 111., 42, 89 N. ., 272.)
INDI N .
Secton 900, urn s nnotated Statutes of Indana, 192 , contans
the foowng:
The word and, and the phrases rea estate and rea property
ncude ands, tenements and heredtaments.
In dams et a. v. Merr (45 Ind. pp., 315, 85 N. ., 114), the
ppeate Court of Indana hed that the foregong defnton n-
cuded ncorporea heredtaments. In ranson v. StudcLaker
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429
Regs. 71, rt. M.
(133 Ind., 147, 33 N. ., 98), the Supreme Court of Indana sad:
fee may e st n an ncorporea heredtament, and may, of course,
under ths prncpe, e st n an easement.
MIC IG N.
Secton 7 (9) of the 1929 Comped Laws of Mchgan reads as
foows:
The word and, or ands, and the words rea estate, sha be con-
strued to Incude ands, tenements, and rea estate, and a rghts thereto, and
Interests theren
See aso Mchgan unform partnershp act, secton 2.
In Smth et a. v. ennedy et a. (224 Mch., 378, 194 N. W., 998),
the Supreme Court of Mchgan recognzed an easement n gross as
vad n the State of Mchgan. In Mahar v. Grand Rapds Ter-
mna Ry. Co. (174 Mch., 138, 140 N. W., 535), t was hed that an
easement n gross may be granted n perpetuty and may be created
n fee, so that the fee of the and s n one person and the fee of the
easement upon such and s n another. In pworth ssemby v.
Ludngton N. Ry. (23 Mch., 5G5 211 N. W., 99), the Supreme
Court of Mchgan hed, n consderng the grant of an easement,
that the test of determnaton s the ntenton of the partes. In
the nstant case t s cear that the grantor ntended to grant n per-
etuty a permanent easement, whch was a perpetua restrcton on
s own use of the and and a perpetua rght n another to use the
and for certan purposes.
N W YOR .
Secton 40 of the genera constructon aw of New York (ch. 23,
Cah s Consodated Laws, 1930) provdes that The term rea
property ncudes rea estate, ands, tenements and heredtaments,
corporea and ncorporea. It was hed n the case of In re Nag-
ara as W. R. Co. (85 N. Y. Stat. Rep., 54 ) that an easement,
athough ony an ncorporea rght, and appurtenant to the domnant
tenement, s propery denomnated an nterest n the and whch con-
sttutes the servent tenement, and that the e presson an estate or
nterest n and, when used n a statute, s broad enough to ncude
such rght.
O IO.
Secton 4 77 of the Oho Genera Code provdes that the terms
and and rea estate ncude rghts ana easements of an ncor-
porea nature. In that State a permanent rght of way ceary
consttutes ands, tenements, or other reaty.
P NNSYL NI .
In Tde-Water Ppe Co., Ltd., v. e (280 Pa., 104,124 t., 851),
the Supreme Court of Pennsyvana hed that a rght of way or ease-
ment, or servtude, n perpetuty, s an estate or nterest n ands.
(See aso Nauman v. Treen o Co., 280 Pa.. 97,124 t., 349.)
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5751, Regs. 42, rt. 3 .
430
W ST IRGINI .
Under the aw of West rgna a rght of way secured by grant
s an ncorporea heredtament, and may be the sub|ect of grant,
devse, or nhertance. (McCung v. Scwe aey R. Co., 97 W. a.,
85, 127 S. ., 53.) In that case reference s made, wth approva, to
the decson n Uh v. Oho Rver R. Go. et a. (41 S. ., 340, 343), n
whch the Supreme Court of West rgna hed that a grant of a
perpetua rght of way conve| ed an easement n fee, that s, an ncor-
porea heredtament.
In vew of the foregong, t s hed that the nstrument above re-
ferred tD, when e ecuted and devered wth respect to and n any of
the States mentoned, operates as a conveyance of ands, tenements,
or other reaty, and s sub|ect to the ta mposed by Schedue -8
of Tte III of the Revenue ct of 192 , as added by secton 725 of
the Revenue ct of 1932.
Robert . ackson,
Genera Counse, ureau of Interna Revenue.
S CTION 751. C C S, TC.
Reguatons 42, rtce 3 : Scope of ta . III-21- 810
S. T. 740
Checks drawn by muncpa offcas aganst funds deposted to
the credt of a muncpa quor store are ta abe.
muncpaty operates a quor store. Two separate checkng
accounts are mantaned, one for the muncpaty proper and the
other for the muncpa quor store. Inqury s made whether checks
drawn by the muncpa offcas aganst funds deposted n the
account of the muncpa quor store are sub|ect to ta .
Secton 751(a) of the Revenue ct of 1932 mposes a ta of 2 cents
upon each check, draft, or order for the payment of money, drawn
upon any bank, banker, or trust company. rtce 3 of Reguatons
42, as amended by Treasury Decson 439 (C. . II-2, 355),
provdes that
Checks, drafts, or orders drawn aganst pubc funds by offcers
of a State or potca subdvson hereof are not sub|ect to the ta where
drawn n connecton wth the e ercse of an essenta governmenta functon.
The term pubc funds as here used ncudes funds on depost for the beneft
of the pubc.
States and potca subdvsons thereof have a dua character
and possess two knds of power one that s governmenta and one
that s propretary. The Supreme Court of the Unted States n
South Carona v. Unted States (199 U. S., 437) hed that the opera-
ton by the State of South Carona of dspensares for the whoesae
and reta sae of quor consttuted the e ercse of a propretary
rather than an essenta governmenta functon of the State, and that
the edera Government had the power to evy cense ta es aganst
the State wth respect to such actvty7.
In vew of the foregong, t s hed that a muncpaty n operat-
ng a muncpa quor store s not engaged n the e ercse of an
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431
Regs. 43, rt. 10.
essenta governmenta functon that checks drawn by muncpa
offcers aganst funds on depost to the credt of a muncpa quor
store are not drawn aganst pubc funds n connecton wth the
e ercse of an essenta governmenta functon, wthn the purvew
of the reguatons and that such checks are sub|ect to ta .
TITL . DMISSIONS ND DU S. (192 )
S CTION 500(a) 1 O T R NU CT O 1920, S M ND D Y
S CTION 411(a) O T R NU CT O 1928 ND S CTION
711(a) O T R NU CT O 1932, ND S CTION 500(a)5
O T R NU CT O 192 . DMISSIONS ND DU S.
Reguatons 43, rtce 10: ass, rate, and III-9- 81
computaton of ta . S. T. 72
( so rtce 1.)
Computaton of ta on admssons to dances, cabarets, etc., where
there s a mnmum charge per person.
rung s requested reatve to the proper method of computng
the ta on admssons to dances, cabarets, etc., where there s a mn-
mum charge per person and food and/or beverages may or may not
be ordered by the patrons to the amount of the mnmum charge.
Secton 500(a) 1 of the Revenue ct of 192 , as amended by secton
411(a) of the Revenue ct of 1928 and by secton 711(a) of the
Revenue ct of 1932, mposes a ta of 1 cent for each 10 cents or
fracton thereof of the amount pad for admsson to any pace.
Secton 500(a)5 of the Revenue ct of 192 mposes a ta as foows:
(5) ta of 1 cents for each 10 cents or fracton thereof of the amount
pad for admsson to any pubc performance for proft at any roof garden,
cabaret, or other smar entertanment, to whch the charge for admsson s
whoy or n part ncuded n the prce pad for refreshment, servce, or
merchandse the amount pad for such admsson to be deemed to be 20 per
centum of the amount pad for refreshment, servce, and merchandse such
ta to be pad by the person payng for such refreshment, servce, or mer-
chandse. Where the amount pad for admsson s 50 cents or ess, no ta
shaU be mposed.
Where a mnmum charge s made for each person admtted to a
partcuar pace, the amount of such charge s an admsson charge
wthn the meanng of secton 500(a) 1 of the Revenue ct of 192 .
as amended, and s sub|ect to the ta mposed by that secton. If
the menu prces at ths pace are hgher at the tme when dancng
and entertanment are furnshed, t s hed that the charge for
admsson s ncuded n the charge made for refreshments, servce,
or merchandse. In that event 20 per cent of such charge s ta abe
under secton 500(a) 5 of the Revenue ct of 192 , provded the
entre amount of each b ess the mnmum charge e ceeds 2.50.
Where a f ed and defnte charge s made for admsson, whch
charge ncudes the cost of dnner and dancng, the entre charge s
an admsson charge wthn the meanng of secton 500(a) 1 of the
Revenue ct of 192 , as amended, and s sub|ect to the ta mposed
by that secton.
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Regs. 43-11, rt. 5.
432
T ON DU S.
Reguatons 43-11, rtce 5: Soca cubs. III-22- 821
Ct. D. 833
T ON DU S R NU CTS O 1021, 1024, ND 102 D CISION O COURT.
1. Soca Cub Character of Organzaton.
cub organzed to mantan a center for nvestgaton and
mprovement of the cvc, busness, and soca affars of a communty
and to provde a cub room, brary, and other convenences for the
entertanment and recreaton of ts members and guests, and whose
functons ncude both soca and educatona, cvc, or artstc
actvtes, s a soca cub wthn the meanng of secton 801 of
the Revenue ct of 1921 and secton 501 of the Revenue cts of
1924 and 192 , where the facts dscose thnt ts soca functons
ccnsttute n matera part of the cub s actvtes.
2. Decson ffrmed.
Decson of the dstrct court (Ct D. 5 1, C. . I-2, 552) affrmed.
Unteb States Crcut Court of ppeas, ghth Crcut.
9711. The Tmcn Cub of St. Lous, a Corporaton, appeant, v. Unted States of
merca, appeee.
9712. The Town Cub of St. Lous, a Corporaton, appeant, v. Lous . ecker,
Coector of Interna Revenue for the rst Dstrct of Mssour, appeee.
ppeas from the Dstrct Court of the Unted States for the astern Dstrct of Mssour.
anuary 22, 1934.
OPINION.
an akenburoh, crcut udge, devered the opnon of the court.
ppeant n cause No. 9711 sues the Unted States at aw to recover the sum
of ,281.84 for ta es aeged to have been egay pad durng a perod from
pr 9, 1924, to December 19, 925. In cause No. 9712 the sut s aganst the
coector of nterna revenue to recover the sum of 10,.r 22.14 for ta es aeged
to have been egay pad durng the perod begnnng anuary 1 , 192 , and
endng March 31, 1928. Demand for refund was made and refused. |ury
was waved and the two cases were by consent consodated for tra and sub-
mtted to the court upon peadngs and proofs. The ega effect of the facts n
the two cases s the same.
Te ta es nvoved were assessed and coected under the provsons of secton
801 of the Revenue ct of 1921, whch provdes:
That from and after anuary 1, 1922, there sha be eved, assessed, co-
ected, and pad, n eu of the ta es Imposed by secton 801 of the Revenue
ct of 1918, a ta equvaent to 10 per centum of any amount pad on or after
such date, for any perod after such date, (a) as dues or membershp fees
(where the dues or fees of an actve resdent annua member are n e cess of
10 per year) to any soca, athetc, or sportng cub or organzaton or (b)
as ntaton fees to such a cub or organzaton, f such fees amount to more
than 10, or f the dues or membershp fees (not ncudng ntaton fees)
of an actve resdent annua member are n e cess of 10 per year such ta es
to be pad by the person payng such dues or fees: Provded, That there sha
be e empted from the provsons of tns secton a amounts pad as dues or
fees to a fraterna socety, order, or assocaton, operatng under the odge
system. In the case of fe membershps a fe member sha pay annuay,
at the tme for the payment of dues by actve resdent annua members, a ta
equvaent to the ta upon the amount pad by such a member, but sha pay
no ta upon the amount pad for fe membershp.
Ths secton was carred, wthout matera change, nto the Revenue cts of
1924 and 19:20. and may be referred to as the statutory aw appcabe to the
cases under consderaton. The appeant s an organzaton of St. Lous, Mo.,
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433
Regs. 43-11, rt. 5.
women. It has appro matey 2,000 members perhaps move. s aeged In
ts petton, the cub was organzed under artce 10, of chapter 33, Revsed
Statutes of Mssour, 1909, and amendments thereto, whch provde for the
organzaton of benevoent, regous, scentfc, fraterna-benefca, educatona,
and msceaneous assocatons.
The artces of assocaton, artce 4, state the ob|ect and purpose of the
cub as foows:
rt. 4. The ob|ect and purpose of the assocaton sha be for the dscus-
son of questons of commerca, ndustra, cvc, and soca Interest for the
encouragement of good readng and the cutvaton of art and terature and
ratona soca amusement to ad and assst the ndustra, commerca, cvc
and soca deveopment of the cty of St. Lous, and more especay as they
pertan to women to provde, estabsh, and mantan a cubhouse or cub
rooms wth brary and other factes approprate and convenent for the
entertanment of ts members and ther guests and for the conduct of awfu
and ratona out-of-door pay games and e ercses provded, however, that
the assocaton as such sha have no connecton wth partsan potcs or part-
san organzatons, nor sha t ever be commtted to the Indorsement of any
partcuar measure or measures.
The cub s consttuton, artce 2, provdes:
The ob|ects of ths assocaton sha be to provde and mantan an or-
ganzed center for the Investgaton, dscusson and mprovement of the cvc,
busness and soca affars of the cty of St. Lous, and more especay as they
pertan to women, and to provde cub room, brary and other convenences
for ts members provded that the organzaton as such sha never be com-
mtted to the ndorsement of any partcuar measure.
Reguatons No. 43, part 2, artce 5, of the Treasury Department, whch gves
the departmenta constructon of secton 801 of the Revenue ct of 1921, rends
as foows:
rt. 5. Soca cubs. ny organzaton whch mantans quarters, arranges
perodca dnners or meetngs, for the purpose of affordng ts members an
opportunty of congregatng for soca ntercourse, s a soca c ub
or organzaton wthn the meanng of the ct, uness ts soca features are
not a matera purpose of the organzaton but are subordnate and merey
ncdenta to the actve furtherance of a dfferent and predomnant purpose,
such as, for e ampe, regon, the arts, or busness. The ta does not attach
to dues or fees of a regous organzaton, sngng socety, chamber of com-
merce, commerca cub, trade organzaton, or the ke, merey because t has
ncdenta soca features, but f the soca features are a matera purpose of
the organzaton then t s soca cub or organzaton wthn the
meanng of the ct. n organzaton that hus for ts e cusve or predomnant
purpose regon or phanthropc soca servce (or the advancement of the
busness or commerca nterests of a cty or communty) s so ceary not a
soca cub or organzaton that ts possesson and use of the bud-
ng furnshed wth soca cub factes does not render ta abe dues or fees
pad to t. Most fraterna organzatons are n effect soca cubs, but f they
are operatng under the odge system or are oca fraterna organzatons among
the students of a coege or unversty payments to them are e pressy e empt.
Ths aw was ong admnstered by the Department n accordance wth the
foregong defnton, and the substanta reennctment n ater cts of the
provson theretofore construed by the Department s persuasve evdence of
egsatve approva of the reguaton ( rewster v. Gage, 280 U. S., 327. 337
Ct. D. 148. C. . I -1, 274 ) for Congress s presumed to have egsated
wth knowedge of such an estabshed usage of an e ecutve department of the
Government. (Natona Lead Co. v. Unted States, 252 U. S., 140, 147 Unted-
States v. aey, 9 Pet., 238, 25 .)
The queston presented, then, s whether appeant was, durng the perods
when the ta es sued for were assessed and e acted, a soca, athetc, or sport-
ng cub or organzaton wthn the meanng of sad secton 801 of the ap-
pcabe Revenue ct, and so sub|ect to the ta es eved, or whether ts func-
tons were cvc and/or educatona, and so e empt. The court found the ssues
n favor of the Government. ppeant requested nether fndngs of fact nor
concusons of aw, contentng tsef wth motons to modfy those made by the
court and for a new tra. s a strct matter of procedure the court made no
specfc fndngs. It dscussed n ts opnon certan facts deemed necessary
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Regs. 43-11, rt. 5.
434
to warrant the concuson reached, and sad that such fndngs and concusons
mght be taken In eu of a forma fndng of facts and concusons of aw. In
keepng wth the bera atttude of the tra court we may, perhaps, be |ustfed
In departng from the estabshed procedura rue and nqure whether such,
fndngs support the |udgment entered.
The so-caed fact fndngs contaned n the opnon foow:
The evdence n the case at bar preponderanty dscosed that the actvtes
of pantff were predomnanty cvc and educatona, as contradstngushed
from soca. ut ths evdence came, for the most part, from offcers of pantff
who have had occason to be whoy and cosey famar wth pantffs actv-
tes ony snce 1928, or ater whereas, the perod from pr 9, 1924, and up to
March 3, 1928, Is the perod nvoved In these controverses.
To make out ts contentons respectng the actvtes durng the perod
between pr 9, 1924, and March 3, 1928, the defendant offered many, f not
a, of the ssues of The Informant (pantff s offca pubcaton), as aso
many perhaps a programs embodyng pantff s actvtes between the dates
ast above-mentoned. None of these pubcatons by pantff, subsequent to
March, 1928, was offered, for the very smpe reason that the cub s actvtes
for the atter perod were not n dspute, nor n ssue here. I have, however,
carefuy e amned the programs of the cub as ssued by t between the years
1924 and 1S28. These show that wthn the perod named there were gven or
seemngy fostered by the cub, that s, gven under Its auspces, 10 dances, 5
muscaes, 2 pcncs, 9 swmmng partes, 5 teas, 14 card partes, 2 shows, 5
msceaneous partes, uncheons, etc., and 11 other functons whch may or not
have been ether educatona or soca, or m ed.
Durng the same perod there were a tota of 97 functons whch, n my
opnon, were educatona, artstc or cvc.
So, the totas stand, 52 ceary soca 97 ceary educatona or cvc
or artstc, and 11 doubtfu or m ed.
The cub had a ounge, used aso as a brary a pano perhaps three
a swmmng poo, and mantans, and mantaned, arge and we-furnshed
quarters, ncudng a ktchen and dnng rooms, wheren meas are served
to members and ther guests.
Of course the court, n ts opnon, merey summarzed and dgested the
evdence adduced at the hearng, but t can not be sad that the facts so
found do not substantay support the concuson reached. That concuson
and ts bass s thus stated:
I thnk the rue of the Department ntends, and the proper constructon
of the statute s, that f any matera, that s, mportant, substana, part of
the cub s actvtes (but not necessary as much as a moety thereof) are
soca as contradstngushed from the remanng nonsoca actvtes, t s
ta abe otherwse, of course, t s not ta abe.
s sad aready, thoroughgong reance can not be put on the anguage
of ether the artces of assocaton or the consttuton, or both. ut both of
these nstruments may be consdered n connecton wth the actua func-
tons and actvtes of the pantff. So here, not ony do the artces of asso-
caton and consttuton of the cub prescrbe as among ts ob|ects the pro-
vdng and mantenance of an organzed center for the nvestgaton, ds-
cusson and mprovement of the soca affars of the cty of St
Lous as they pertan to women and to provde cub rooms, brary
and other convenences for ts members, but the programs and pubcatons
promugated by the cub show that durng the perod here n controversy, ether
39 per cent or 58 per cent appro matey (accordng to whether the 11
doubtfu actvtes of the cub are aocated to the one sde or to the other)
consttuted matters whch were soca rather than cvc, artstc or educatona.
I am not abe to say that such a per cent of tota actvtes does not
consttute a matera part of the cub s functons.
The decson turns upon the queston of whether the actua soca actvtes
of a cub of ths nature arc so e tensve as to form a matera purpose of the
assocaton, or are merey subordnate and ncdenta to a predomnate purpose.
That purpose, as stated n the artces of assocaton and consttuton, whe not
concusve, shoud of course be consdered, and, t w be observed, as stated
by the tra court, that both artces and consttuton gve the same promnence
to the soca phase that they gve to the educatona and cvc phases. Neces-
sary each case of ths nature must be controed by ts own pecuar facts.
or ths reason cases w be found whch support e empton from ths
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435
Regs. 71(192 ), rt. 34.
ta . owever, we thnk the facts before us support the concuson reached
by the tra court, and In the foowng cases among others: uadrange Cub v.
Unted States (C. C. . 7) ( 4 . (2d), 80) emng v. Renecke (C. C. . 7)
(52 . (2d), 449, certorar dened, 284 U. S., 89) Women s Unversty Cub v.
Unted States (Ct. Cs.) (50 . (2d), 4 9) Women s Unversty Cub of
Seatte v. Poe, (D. C.) (52 . (2d), 447) rmy and Navy Cub of merca v.
Unted States (Ct. Cs.) (53 . (2d), 277, certorar dened, 285 U. S., 548)
Unon League Cub of Chcago v. Unted States (Ct. Cs.) (decded November ,
1933).
In the case ast cted the summary of the court upon the facts before t
seems pecuary appcabe here:
Upon a of the evdence the court fnds as an utmate fact that tho
predomnant purpose and the actvtes of the pantff are cvc, phanthropc,
or chartabe, and that ts man purposes have been those e pressed n the
ob|ect cause of ts certfcate of ncorporaton, but that the functons of the
cub n admnsterng to the soca en|oyment, physca we beng, and en-
tertanment of ts members were not merey ncdenta to ts man purpose
but consttuted a very mportant and matera part of Its actvtes and were
necessary to ts prosperty.
ppeant fed no moton for |udgment. No acton was taken to procure
a rung upon any contenton that, under the evdence, the |udgment must be
for appeant pantff beow. Therefore, we are not caed upon to revew the
record to ascertan whether the evdence produced supports the quas fndngs
of the tra court. owever, a gance at that evdence, whch s preserved
n the transcrpt, but serves to emphasze the soca character of the cub and
ts matera actvtes. The cub had a seven-story and basement budng.
The frst and second foors were rented by It for use as shops. The cub
quarters embraced a ounge and brary contanng many voumes of readng
matter (together wth current newspapers and perodcas), dnng room,
cafetera, prvate dnng rooms, and swmmng poos. The Informant,
the cub s offca pubcaton, rectes the foowng attractve soca features:
o. spacous ounge, wth open re and bacony, to meet guests and
frends.
. readng nook wth magaznes, papers and wrtng desks.
c. Dnng rooms, cafetera, servce (two foors): Prvate dnng room ,
where uncheons, dnners and teas may be gven.
d. swmmng poo, open the year round modern and we equpped.
e. Rest room wth couches and dressng tabe. The programs are arranged
to appea to a arge varety of tastes. Lectures by natonay known men
and women on the great events and topcs of the day book revews, teas,
muscaes, card partes, dances and dramatc performances.
The reports of the program commttees emphasze these soca features above
a other cub actvtes. further recta of the evdence woud seem
unnecessary. It foows that the |udgments beow shoud be affrmed and t
s so ordered.
TITL III. ST MP T S. (192 )
SC DUL -3. C PIT L STOC , S L S OR TR NS RS.
Reguatons 71 (192 ), rtce 34: Saes or III-3- 05
transfers sub|ect to ta . G. C. M. 12 42
The stamp tu on the transfer of ts stock from the name of a
partnershp to the names of the partners may be assorted aganst
a corporaton.
n opnon s requested wth respect to the abty of a corpora-
ton for stamp ta on the transfer of shares of ts stock from the
name of a partnershp to the names of the partners.
and entered nto a partnershp agreement whereby each was
to have an undvded one-haf nterest n certan o and gas eases.
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Regs. 71(192 ). rt. 34.
43
Later, , , and C organzed the M Corporaton, whch ssued ts
stock to varous persons n e change for o eases. The partnershp
assgned certan o and gas eases to the corporaton n e change
for shares of the corporaton s stock. t about the same tme the
corporaton ssued y shares of ts stock to the partnershp as com-
pensaton for servces rendered by and n the organzaton of the
corporaton. Subsequenty, the partnershp turned nto the corpora-
ton the and y shares of stock wth the request that the corporaton
ssue to and , ndvduay, one-haf of the number of shares
turned n by the partnershp. The corporaton canceed the certf-
cates of stock turned n by the partnershp and ssued new certf-
cates to and , as requested. Stamp ta was pad on the ssue of
the and y shares to the partnershp, but no stamp ta was pad on
the new certfcates ssued upon the transfer of the shares from the
name of the partnershp to the names of the partners. Stamp ta
upon such transfer was ater assessed aganst and was pad by the M
Corporaton.
The corporaton contends that ths ta was erroneousy coected,
snce no transfer of ega tte to the stock occurred when the shares
were transferred from the name of the partnershp to the names of
the partners, and that n any event the corporaton was not abe
for the stamp ta on such transfer.
Schedue -3 of Tte III of the Revenue ct of 192 , whch was
the aw n force at the tme when the transactons n queston oc-
curred, mposed a stamp ta on a saes or transfers of ega tte to
shares or certfcates of stock. y the common aw of Te as a part-
nershp s not an entty. Gasscock v. Prce et a 92 Te .. 271. 47
S. W., 9G5 McManus et a. y. Cash Lucke, 101 Te ., 2 1,108 S. W.,
800.) owever, partnershps may be formed n that State (artce
113, Compete Te as Statutes, 1928) and may do busness as such.
( rtce 122, dem.) In the nstant case a partnershp agreement
was made and the shares were orgnay ssued n the name of the
partnershp. Partners may by agreement make that separate prop-
erty whch before beonged to the frm, and such an agreement may
be mped from an acquescence by the frm n such use of partner-
shp property by one of the members as woud wthdraw hs nterest
n t from the common burden. (Swearngen v. assett, 5 Te .,
2 7.) The ownershp of one partner n the property of the frm s
sub|ect to the ke ownershp of a the partners who hod sub|ect to
each other s ownershp. (Warren v. Was, 38 Te ., 225.) In the
absence of proof to the contrary, partners w be presumed to be
equay nterested n the partnershp funds and property. (See
nought on v. Puryear, 30 S. W., 583 (Te as).)
The nterest of each partner n the shares of stock orgnay ssued
to the partnershp was an undvded nterest. There were neverthe-
ess some dfferences n the rght, tte, and nterest of each. Under
the partnershp there was a communty of nterest n the shares
whch dd not e st after the shares were paced n the names of the
ndvdua partners. It appears that the shares of stock n queston
comprsed a the assets of the partnershp and that the shares were
ssued to the ndvdua partners n connecton wth the dssouton
of the partnershp and n qudaton of ts assets. The transfer
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437
Regs. 71, rt. 53.
of stock from a frm to ndvdua members thereof upon dssouton
of the busness s sub|ect to ta . ( rtce 34(v), Reguatons 71.)
In the nstant case the transfer of ega tte from the partnershp to
the partners was such a transfer as brngs the transacton wthn the
terms of the aw and reguatons.
Labty for payment of the stamp ta es n queston s f ed by
the provsons of secton 800 of the Revenue ct of 192 , whch
provdes that:
there sha be eved, coected, and pad, for and In respect of the
severa bonds, debentures, or certfcates of stock and of ndebtedness, and other
documents, Instruments, mutters, and thngs mentoned and descrbed a
Schedue of ths tte, or for or n respect of the veum, parchment, or
paper upon whch such nstruments, matters, or thngs, or any of them, are
wrtten or prnted, by any person who makes, sgns, ssues, ses, removes,
consgns, or shps the same, or for whose use or beneft the same are made,
sgned, ssued, sod, removed, consgned, or shpped, the severa ta es specfed
h such schedue.
The anguage of ths secton s comprehensve n ts scope. It has
been nterpreted as warrantng the concuson that any party to a
ta abe transacton s responsbe to the Government for aff ng and
canceng stamps n the requred amount. ( rtce 13 , Reguatons
71.) When the M Company canceed the od certfcates then standng
n the name of the partnershp and ssued the new certfcates n
e change therefor t ceary brought tsef wthn the provsons of
the statute sub|ectng such transactons to stamp ta .
further ndcaton of the ntent of Congress to mpose a abty
on the corporaton n connecton wth the ta on transfers of ts
stock may be found n the terms of Schedue -3, provdng: That
n case of sae where the evdence of transfer s shown ony by the
books of the corporaton or other organzaton the stamp sha be
aced upon such books . Snce the stockhoder does not
ave ready access to the books, t woud seem cear that t s the
duty of the corporaton to cause the stamps to be aff ed and that f
the requred stamps are not purchased by others the corporaton tsef
becomes abe for the ta .
ccordngy, t s the opnon of ths offce that the stamp ta n
queston was propery assessed and coected from the M Corporaton.
. arrett Pretttman,
Genera Counse, ureau of Interna Revenue.
SC DUL -5, S M ND D Y S CTION 442 O T R NU
CT O 1928. P SS G TIC TS.
Reguatons 71, rtce 53: Passage tckets III-5- 28
ssued to certan foregn representatves. S. T. 720
Consuar offcers of Germany and omd are e empt from the
ta on passage tckets.
The queston s presented whether consuar offcers of Germany
and Poand are e empt from the ta mposed on passage tckets by
Schedue -5 of Tte III of the Revenue ct of 192 , as amended
by secton 442 of the Revenue ct of 1928.
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Regs. 71, rt. 19.
438
S. T. 81 (C. . II-1, 455) contans a st of consuar offcers who
have been hed to be e empt from the ta on passage tckets.
In vew of the provsons of rtce II of the Treaty of
rendshp, Commerce and Consuar Rghts of December 8, 1923,
between the Unted States and Germany, and the provsons or
rtce of the Treaty of rendshp, Commerce and Consuar
ghts of une 15, 1931, between the Unted States and Poand,
effectve uy 9, 1933, consuar offcers of Germany and Poand, and
the members of ther fames, are entted to e empton from the
ta on passage tckets, sub|ect to the condtons outned n S. T. 81,
supra, e cept that n the case of consuar offcers of Poand the
e empton appes ony to passage tckets purchased on or after
uy 9,1933, the effectve date of the treaty.
ccordngy, the consuar offcers of Germany and Poand are
added to the st pubshed n S. T. 81.
TITL III. ST MP T S. (1924 ND 192 )
SC DUL . ONDS, TC.
Reguatons 71, rtce 19: Certfcates of III-17- 7 9
ndebtedness. Ct. D. 818
stamp ta revenue acts of 1024 and 192 decson op court.
Corporate Securtes Guaranteed rst Mortgage Certfcates.
Guaranteed frst mortgage certfcates, assgnng ether an
Interest In a specfc bond and mortgage or In a group of bonds
and mortgages, guaranteeng to the assgnees the payment of prn-
cpa and nterest, makng the Issuer the Irrevocabe agent to
transact busness necessary In connecton wth the mortgages,
havng such physca form, sze, and appearance as Is used gen-
eray for corporate securtes wth assgnabty by ndorsement
and regstraton on the books of the company, whch are sted on
the New York Rea state change and under State aw are
proper and ega Investments for the funds of trusts and estates,
are Instruments known generay as corporate securtes and are
ta abe under secton 81)0, Tte III, Schedue (), of the
Revenue cts of 1924 and 192 . The repea of Schedue (2),
Tte I of the Revenue ct of 1918, by secton 1400(a) of the
Revenue ct of 1921 does not ndcate that Congress dd not ntend
to ta such nstruments.
Unted States Crcut Court op ppeas for the Second Crcut.
Lawyers Mortgage Co., pant ff-appeee, v. Chares W. nderson, Coector of
Interna Revenue for the Thrd Dstrct of New York, defendant-appeant.
ppea from the Dstrct Court tor the Southern Dstrct of New York. cton to recover
stamp ta es pad under protest. udgment for pantff defendant appeas. Reversed.
December 4,1933.
OPINION.
Manton, Crcut udge: ppeee recovered moneys pad under protest ns
stamp ta es aeged to be due upon the ssuance by t, durng the perod from
ebruary 1 , 1920, to ebruary 1, 1930, of guaranteed frst mortgage certfcates
wthout pacng thereon documentary stamps. ppeant made the assessment
pursuant to secton 800, Schedue , Tte III, of the Revenue cts of 1924
and 1928 (2 U. S. C, secton 901), whch provded for a stamp ta On a
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439
Regs. 71, rt. 19.
bonds, debentures, or certfcates of Indebtedness Issued by any corporaton
( person In the 1924 ct) and a Instruments, however termed, Issued
by any corporaton wth nterest coupons or In regstered form, known generay
as corporate securtes, on each 100 of face vaue or fracton thereof, 5
cents . summary |udgment was granted beow on a moton made
therefor by the appeee.
The appeee, a corporaton, s organzed under the New York nsurance aw.
Durng the perod n queston t owned varous bonds secured by mortgages on
rea estate It ssued, n connecton wth these bonds, two casses of frst
mortgage certfcates.
The frst cass of certfcates assgned and transferred to a desgnated
assgnee, termed by the certfcate the assured, a share or Interest to the
e tent of a certan sum n a specfed bond and mortgage. The appeee cer-
tfed In ths form of certfcate that t hods sad bond and mortgage together
wth any guarantes of payment, nsurance poces and other nstruments and
evdences of tte reatng thereto for the beneft of the assured. On the face
of each certfcate It appeared that t was one of a seres of ke tenor of an
aggregate sum not n e cess of the bond and mortgage, and that the certfcates
were a secured by the bond and mortgage. The certfcate guarantees to the
assured the payment of nterest, at the rate of 5 per cent per annum, wthn
days after the due date of nterest, under the terms of the bond and mortgage
and the payment of the prncpa amount as and when coected, but n any
event, absoutey wthn 18 months after payment sha be due and sha be
demanded by the assured. y ts terms the appeee was apponted Irrevocabe
agent of the assured to coect or sue for nterest and prncpa due under the
bond and mortgage, to satsfy and dscharge the mortgage n ts own name on
recevng fu payment, to coect, sue for, receve or compromse the fre In-
surance on the mortgaged property n case of oss by fre, to e tend under such
terms and condtons as It may see ft, the tme of payment of nstaments of
Interest or prncpa due under the mortgage, to e tend or wave any rght,
provson or opton contaned n the bond and mortgage, and to take any acton
It may deem necessary to enforce any of the provsons of the bond and mort-
gage. y the certfcate the appeee reserved the prvege, at ts opton, to
take up the certfcate at any tme on gvng 30 days notce to the assured
upon payment of the prncpa amount and Interest.
The second cass of certfcates contaned substantay the same provsons.
It was ssued upon a group of bonds and mortgages heM by the appeee and
assgned to the assured an undvded share to the e tent of the sum stated
n the bonds and mortgages specfed. These bonds and mortgages have the
same dates of maturty.
The physca form, sze and appearance of these frst mortgage certfcates
wth stee engraved coored border, prnted n regstered form wth assgnabty
by Indorsement and regstraton on the books of the company, were such as s
used generay for corporate securtes. Ths has been hed a matter of m-
portance n cases of a documentary stamp ta . (Unted States v. Ishnm, 17
Wa., 49 Goodyear Tre rf Rubber Co. v. Unted States, 273 U. S., 100, 103
T. D. 3992, C. . I-1, 332 Unted States v. ausner, 25 ed. (2d), 008
(C. C. . 2).)
In Lawyers Mortgage Co. v. owers (285 U. S., 182), the court deat wth the
queston of abty of ths appeee for the capta stock ta Imposed under
the provsons of the Revenue ct of 1921 (secton 100, 42 Stat., 291), the
Issue there beng whether the appeee was an nsurance company under the
terms of that ct (secton 240, 42 Stat, 2 2). It was sad that the guarantee by
the pantff consttuted an nsurance contract. ut the nsurance part of the
busness of the corporaton was hed to be ncdenta and t was hed not to be
an nsurance company and sub|ect to the capta stock ta . ut whether or
not these certfcates are nstruments known generay as corporate securtes s
an entrey dfferent queston. There s the guarantee of the corporaton ob-
gatng the appeee to pay or see that the hoder s pad n any event whch
makes t a corporate securty (Lederer v. dety Trust Co., 2 7 U. S., 17 T. D.
8 74, C. . I -1, 339 ). These frst mortgage certfcates are sted on the
New York Rea state change where othor rea estate securtes, bonds and
stocks are sted. Under the New York persona property aw, secton 21, and
the decedent estates aw, secton 111, they are proper and ega nvestments
for the funds of trusts and estates.
The Crcut Court of ppeas for the ghth Crcut, n construng ths
statute, sad that t was the Intenton of Congress that t shoud be regarded
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Msc.
504
(c) ny sugar, mported pror to the effectve date of a processng ta on
sugar beets and sugar cane, wth respect to whch It s estabshed (under regu-
atons prescrbed by the Commssoner of Interna Revenue, wth the approva
of the Secretary of the Treasury) that there was pad at the tme of mportaton
a duty at the rate n effect on anuary 1, 1934, and (2) any sugar hed on pr
25, 1934, by, or to be devered under a bona fde contract of sae entered nto
pror to pr 25, 1934, to, any manufacturer or converter, for use n the pro-
ducton of any artce (e cept sugar) and not for utmate consumpton as
sugar, and (3) any artce (e cept sugar) processed whoy or n chef vaue
from sugar beets, sugar cane, or any product thereof, sha be e empt from
ta aton under subsecton (a) of ths secton, but sugar hed n customs
custody or contro on pr 25, 1934, sha not be e empt from ta aton under
subsecton (a) of ths secton, uness the rate of duty pad upon the wthdrawa
thereof was the rate of duty n effect on anuary 1, 1934.
Par. . The procamaton of the Secretary of grcuture, dated
May 9, 1934, provdes:
I, . . Wa ace, Secretary of grcuture of the Unted States of merca,
actng under and pursuant to an ct of Congress known as the grcutura
d|ustment ct, approved May 12, 1933, as amended, have determned and
hereby procam that renta and/or beneft payments are to be made wth
respect to sugar beets and sugar cane, basc agrcutura commodtes.
Par. I. Secton 10(c), grcutura d|ustment ct, provdes:
The Secretary of grcuture s authorzed, wth the approva of the Presdent,
to make such reguatons wth the force and effect of aw as may be necessary
to carry out the powers vested n hm by ths tte, ncudng reguatons
estabshng converson factors for any commodty and artces processed there-
from to determne the amount of ta Imposed or refunds to be made wth
respect thereto.
Par. . The reguatons wth respect to sugar beets and sugar
cane, made by the Secretary of grcuture, and approved by the
Presdent, on une 4, 1934, provde:
I fnd (1) that the dfference between the current average farm prce and the
far e change vaue of a ton of sugar beets dvded by the average e tracton
of sugar therefrom, n terms of pounds of raw vaue, gves a quotent of
0.4077 cent per pound of sugar raw vaue, and (2) that the dfference between
the current average farm prce and the far e change vaue of a ton of sugar
cane dvded by the average e tracton of sugar therefrom, n terms of pounds
of raw vaue, gves a quotent of 0.7939 cent per pound of sugar raw vaue
(whch current average farm prces, far e change vaues, and average e trac-
tons of sugar, for both sugar beets and sugar cane, have been ascertaned
and determned by me from avaabe statstcs of the Department of grcu-
ture). I further fnd that, f the amount of 0.7939 cent (the hgher of
the two quotents resutng as herenabove determned) be apped as the rate
of ta to the drect-consumpton sugar resutng from the frst domestc proc-
essng of sugar beets or sugar cane, transated nto terms of pounds of
raw vaue, such rate w e ceed the amount of 0.5 cent, by whch amount
the Presdent, by procamaton ssued May 9, 1934, reduced the rate of duty
on a pound of sugar raw vaue n effect on anuary 1, 1934, under para-
graph 501 of the Tarff ct of 1930, as ad|usted to the treaty of commerca
recprocty concuded between the Unted States and the Repubc of Cuba on
December 11, 1902, and/or the provsons of the ct of December 17, 1003,
Chapter I. I do accordngy determne as of une 8, 1934, that the processng
ta , upon the drect-consumpton sugar, resutng from the frst domestc proc-
essng of sugar beets and sugar cane, sha be at the rate of 0.5 cent per
pound of sugar raw vaue, whch rate of ta equas, but does not e ceed, the
amount of the reducton by the Presdent on a pound of sugar raw vaue of
the rate of duty n effect on anuary 1, 1934, under paragraph 501 of the
Tarff ct of 1930, as ad|usted to the treaty of commerca recprocty con-
cuded between the Unted States and the Repubc of Cuba on December
11, 1902, and/or the provsons of the ct of December 17, 1903, Chapter I.
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473
Mso.
bt. 5. Compensatng taw on mported artces. On and after November 5,
1933, a compensatng ta s n effect on a artces processed or manufactured
whoy or n chef vaue from hogs, and mported nto the Unted States or any
possesson thereof n whch the ct appes, from any foregn country or from
any possesson of the Unted States to whch the ct docs not appy. The
respectve rates of ta appcabe to such products are gven n artce 3 of
these reguatons. or detaed reguatons as to ths ta , see Reguatons 81.
The form prescrbed for return of the compensatng ta s P. T. orm 14.
See artce 7 for st of prescrbed forms.
bt. . stng contracts. (a) or genera provsons reatng to e stng
contracts, see Reguatons 81, artces 27 and 28, and Reguatons 82, artce 7.
If a processor has such a contract for devery on or after November 5, 1933,
of an artce processed whoy or n chef vaue from hogs, the ta on such
processng (f done on or after November 5, 1933) must be returned on the
current monthy return and then pad. The rate shown n artce 3 of these
reguatons shoud be used n determnng the amount of ta to be coected
from the vendee.
The vendee under such a contract s entted, where optona rates may be
appcabe, to e ercse such opton.
( ) If a processor, |obber, or whoesaer has such a contract, made before
November 5, 1933, cang for devery on or after that date of products processed
whoy or n chef vaue from hogs, whch products are on November 5, 1933, a
a pubc warehouse and a recept therefor has been ssued and the recept for
such products s not presented to the warehouse before December 5, 1933, pay-
ment of the foor ta on such products may be postponed unt such recept s
so presented, but n any event not ater than ebruary 3, 1934. The coector s
recept on orm 1 must be attached to such recept when presented.
bt. 7. orms. To nsure the proper return of the ta es mposed by the
ct, and to factate the coecton and refund of ta es, certan forms have
been prescrbed for use by ta payers. The prescrbed form must be used aa
requred by the appcabe provsons of Reguatons 81, Reguatons 82, or
Reguatons 83, and must be carefuy fed out n e act accordance wth the
appcabe provsons of the proper reguatons and the nstructons contaned
on such form. The foowng forms wth respect to hogs are hereby prescrbed:
orm No.
Desgnston.
Requred by
P. T. orm 4...
P. T. orm 4- .
P. T. orm 14..
P. T. orm 24..
P. T. orm 28..
P. T. orm 34. .
P. T. orm 44...
P. T. orm 51,
revsed.
Processng ta return
Processng ta return of pro-
ducer-processor.
Return of compensatng ta on
mports.
Cam for refund under grcu-
tura d|ustment ct.
Cam for credt on monthy
return.
oor ta nventory and return,
by a person other than one
engaged n reta trade, by a
person engaged n reta trade
f artces are hed by hm
esewhere than n hs reta
stock.
oor ta nventory, record and
return, by a person engaged
In reta trade.
Monthy statement of mporter..
Reguatons 81, artce 11.
Reguatons 81, artce 11.
Reguatons 81, artce 20.
Reguatons 81, artces
30, 31(a), 32.
Reguatons 81, artce 31
(b).
Reguatons 82, artce 11.
Reguatons 82, artce 1 .
Reguatons 81, artce 21.
rt. 8. Treasury Decson 440 C. . II-2, 453 , approved November 11,
1933, s hereby revoked.
Guy T. everng,
Commssoner of Interna Revenue.
pproved March 20, 1934.
. MORG NT U r.,
Secretary of the Treasury.
770 2 34-
-1
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50
Invert sugar, nvert srup, or nvert mush. The terms nvert sugar,
Invert srup, or nvert mush, menn any product resutng from the com-
pete or parta Inverson, whether In one or more stages, of any sucrose
sugar whch has been at any tme whoy or partay crystased.
Tota sugar content. The term tota sugar content (or tota sugars )
means the sum of the sucrose (Ccrget) and the reducng sugars contaned n
any grade or type of sugar as defned n the ct.
Refner srup. The term refners srup means ether the ntermedate
or fna moasses obtaned n the process of refnng raw sugar.
Converter. The term converter means any person who converts nto
any artce, or uses n the manufacture of any artce, any product or by-
product of sugar beets or sugar cane.
ormuae fo: Tuansattnu Suoab nto Teems of Raw aue.
Secton 9(d) (G) of the grcutura d|ustment ct, as amended, provdes
as foows:
The term raw vaue means a standard unt of sugar testng 9C sugar
degrees by the poarscope. ta es sha be mposed and a quotas sha
be estabshed n terms of raw vaue and for purposes of quota and ta
measurements a sugar sha be transated nto terms of raw vaue accord-
ng to reguatons to be ssued by the Secretary, e cept that n the case of
drect-consumpton sugar produced n contnenta Unted States from sugar
beets the raw vaue of such sugar sha be one and seven one-hundredtbs tmes
the weght thereof.
I fnd that, n order to obtan 100 pounds of refned cane sugar, testng
by the poarscope 99.8 sugar degrees and above, t s necessary to use 107
pounds of sugar raw vaue, 1. e., sugar testng by the poarscope 9 sugar de-
grees, and that the raw vaue of 1 pound of refned sugar testng by the
poarscope 99.8 sugar degrees or above, s, therefore, 1.07 pounds. I aso fnd
that the pounds of sugar raw vaue to be added for each degree (and fracton
of a degree n proporton), of poarzaton, from 9 degrees to 100 degrees, s to
1.07 1.00
bo determned by the formua and Is 0.0175 pound.
I fnd that the most accurate method for transatng any quantty of sugar
testng by the poarscope ess than 9 degrees nto terms of raw vaue s to
fnd what weght of sugar raw vaue w have the same weght of tota sugar
content as such quantty of sugar. I further fnd that the tota sugar content
per pound of 9 degree sugar (1. e., raw vaue sugar) s 0.972 pound. I, there-
fore, fnd that the raw vaue of any sugar testng ess than 9 degrees by the
poarscope s to be determned by dvdng the number of pounds of the tota
sugar content thereof by 0.972 pound.
do hereby prescrbe that, In determnng the tota sugar content of any sugar,
the amount of the sucrose (Cerget) and of the reducng or nvert sugars con-
taned theren sha be ascertaned n the manner prescrbed In paragraphs 758.
759, 7 2, and 7 3 of the Unted States Customs Reguatons (1931 edton) or n
the manner prescrbed on pages 3 7 to 383, ncusve, of Offca and Tentatve
Methods of the ssocaton of Offca grcutura Chemsts (1930 edton).
CON SION aCTO S.
The foowng tabe f es the amount of sugar, n terms of pounds of sugar
raw vaue, wt respect to 1 pound, net weght, of the foowng sted artces:
Pounds of sugar raw
vaue per pound of
artce.
eet sugar and other drect-consumpton sugar, ncudng granuated
sugar, ump sugar, cube sugar, powdered sugar, sugar n the form of
bocks, cones, or any other moded shape, and confectoners sugar,
testng by the poarscope 99.8 sugar degrees or above 1. 07
Drect-consumpton sugar, ncudng washed sugar, centrfuga sugar,
carfed sugar, turbnado, pantaton whte sugar, and muscovado
sugar, testng by the poarscope:
Not ess than 99 , but ess than 09.8 1. 0523
Not ess than 9S , but ess than 99 1.0350
Not ess than 97 . but ess than 98 1. 0175
Not ess than 9 , but ess than 97 .OOOO
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Mso.
Drect consumpton sugar, ncudng washed sugar, centrfuga sugar, carfed
sugar, turbnado, pantaton whte sugar, and muscovado sugar, testng by
the poarscope ess than 9 degrees, and refners soft sugar, sugar m tures,
srups, and edbe moasses, havng a tota sugar content as foows:
Pounds of tota
sugar content.
0.97
.9
.95
.94
.93
.92
.91
.90
.89
.88
.87
.8
.85
.84..
.83..
.82
.81
.80
.79
.78-
.77.-
.7
.75
.74
.73
.72
.71
.70
. 9
. 8
. 7
.
. 5
Pounds of
sugar raw
vaue per
pound of
artce.
0.9979
.9877
.9773
.9 70
.95 8
.94 5
.93 2
.9259
.915
.9053
.8950
.8848
.8745
.8 42
.8539
.843
.8333
.8230
.8128
.8025
.7922
.7819
.771
.7 13
.7510
.7407
.7305
.7202
.7099
. 99
. 893
. 790
. 87
Pounds of tota
sugar content.
0. 4
. 3
. 2
. 1
. 0
.59
.58
.57
.5
.55
.54
.53
.52
.51
.50
.49
.48
.47
.4
.45
.44
.43
.42
.41
.40
.39
.38
.37
.3
.35
.34
.33
.32
Pounds of
sugar raw
vaue per
pound of
artce.
0. 584
. 481
. 379
. 27
. 173
. 070
.59 7
.58 4
.57 1
.5 58
.555
.5453
.5350
.5247
.5144
.5041
.4938
.4835
.4733
.4 30
.4527
.4424
.4321
.4218
.4115
.4012
.3909
.3807
.3704
.3 01
.3498
.3395
.3292
Pounds of tota
sugar content.
0.31
.30
.29
.28
.27.
.2
.25-
.24
.23
.22
.21
.20.
.19-
.18
.17-
.1
.15
.14.
.13
.12
.11.
.10
.09
.08
.07
.0
.05
.04
.03
.02
.01
In the event that the Commssoner of Interna Revenue, or any ta payer, or
any person entted to refund sha estabsh (1) that any product, by-
product, or artce, derved whoy or party from the processng of sugar beets,
sugar cane, and/or any product or by-product thereof, does not come wthn
any of the above cassfcatons and as had no converson factor estabshed
for t, or (2) that any product, by-product, or artce, derved whoy or party
from the processng of sugar beets, sugar cane, and/or any product or by-
product thereof, whch comes wthn any of the above cassfcatons contans
more or ess tota sugar e pressed n terms of raw vaue than s represented
by the sted converson factor, then, n ether event, the amount of the ta
or refund wth respect to such product, by-product, or artce sha be computed
at the rate of the processng ta , on the bass of the amount of tota sugar
content e pressed n terms of raw vaue estabshed to be actuay contaned
theren.
emptons.
In my |udgment, the Imposton of the processng ta apped to the srup
of cane |uce (sometmes caed moasses ) resutng from the frst domestc
processng of sugar cane, by or for the producer thereof, who, together wth
s famy, empoyees, or househod, fnay prepares for dstrbuton or use and
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Msc.
508
ses drecty to, or e changes drecty wth, consumers, or who ses to, or
e changes wth, any person for sae to, or e change wth, or who sha se to,
or e change wth, consumers, wthout further mprovng n quaty or further
preparng for dstrbuton or use, not more than two hundred (200) gaons,
n the aggregate, of srup of cane |uce, produced durng any crop year, s
unnecessary to effectuate the decared pocy of the ct. ccordngy, I do
hereby e empt from the processng ta srup of cane |uce, resutng from the
frst domestc processng of sugar cane by or for the producer thereof who,
together wth hs famy, empoyees, or househod, fnay prepares for ds-
trbuton or use and ses drecty to, or e changes drecty wth, consumers,
or ses to, or e changes wth, any person for sae to, or e change wth, or
who sha se to, or e change wth, consumers, wthout further mprovng n
quaty or further preparng for dstrbuton or use, not more than two
hundred (200) gaons, n the aggregate, of srup of cane uce, produced
durng any crop year provded, however, that f the producer processes or has
processed for hm sugar cane produced by hm, and together wth hs famy,
empoyees, or househod, fnay prepares for dstrbuton or use and ses
drecty to, or e changes wth, any person for sae to, or e change wth, or
who sha se to, or e change wth, consumers, wthout further mprovng n
quaty, or further preparng for dstrbuton or use, n e cess of two hundred
(200) gaons, but not n e cess of fve hundred (500) gaons, n the aggregate,
of srup of cane |uce, produced durng any crop year, such processng sha
be e empt to the e tent of two hundred (200) gaons, but sha be sub|ect to
the processng ta on the amount n e cess of two hundred (200) gaons, sod
drecty to, or e changed drecty wth, consumers, or sod to, or e changed
wth, any person for sae to, or e change wth, or sod to, or e changed wth
consumers provded further, that f the producer processes or as processed
for hm sugar cane produced by hm, and together wth hs famy, empoyees,
or househod, fnay prepares for dstrbuton or use and ses drecty to, or
e changes drecty wth, consumers, or ses to, or e changes wth, any person
for sae to, or e change wth, and who sha se to, or e change wth, con-
sumers, wthout further mprovng n quaty or further preparng for ds-
trbuton or use, more than fve hundred (500) gaons, n the aggregate, of
srup of cane uce, produced durng any crop year, suc processng sha not
bo sub|ect to the foregong e empton. or the purposes of ths e empton,
the crop year sha be consdered to commence wth the harvestng of the
sugar cane. or the purpose of determnng any ta due on srup of cane
uce produced by or for a producer and sod by hm, a gaon of srup of cane
|uce sha be deemed to wegh eeven and one-thrd (11 ) pounds and to
contan s ty-fve per cent ( 5 ) of tota sugars, uness the person sub|ect
to tu estabshes to the satsfacton of the Commssoner of Interna Revenue
that the sad srup of cane uce has a dfferent weght and/or contans a
dfferent percentage of tota sugar.
Par. . The reguatons wth respect to the processng ta on
sugar beets and sugar cane, made by the Secretary of grcuture,
and approved by the Presdent, on une 4, 1934, as revsed and, n
part, superseded by reguatons made by the Secretary of grcu-
ture, and approved by the Presdent, on une 7, 1934, provde:
I do hereby fnd as of une 8, 1934, after nvestgaton and due notce and
opportunty for hearng to nterested partes and due consderaton havng
been gven to a of the facts, that the processng ta upon the drect-consump-
ton sugar resutng from the frst domestc processng of sugar beets and
sugar cane, at the rate of 0.5 cent per pound of sugar raw vaue (whch rate,
e cept as mted by the amount of the reducton by the Presdent on a | und
of sugar raw vaue of the rate of duty n effect on anuary 1, 1934, under para-
graph 01 of the Tarff ct of 1930, as ad|usted to the treaty of commerca
recprocty concuded by the Unted States and the Repubc of Cuba on Decem-
ber 11, M2, and/or the provsons of the ct of December 17, 1003, Chapter I,
equas the hgher of the two foowng quotents: The dfference between the
current average farm prce and the far e change vaue (1) of a ton of sugar
beets and (2) of a ton of sugar cane, dvded In the case of each commodty by
the average e tracton therefrom of sugar n terms of pounds of raw vaue).
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509
(Msc.
If apped as the rate of ta upon srup of cane |uce and edbe moasses
resutng from the frst domestc processng of sugar cane w cause such
reducton n the quantty of such srup of cane |uce and edbe moasses
domestcay consumed as to resut n the accumuaton of surpus stocks of
sugar cane, srup of cane |uce, and edbe moasses or n the depresson of the
farm prce of sugar cane. I do accordngy determne as of une 8, 1934,
that the rate of the processng ta upon srup of cane |uce and edbe moasses,
resutng from the frst domestc processng of sugar cane, sha be 0.125 cent
per pound of the tota sugar content thereof transated nto terms of pounds
of raw vaue, whch rate, as of the effectve date thereof, w prevent such
accumuaton of surpus stocks of sugar cane, srup of cane |uce, and edbe
moasses, or n the depresson of the farm prce of sugar cana
Par. L. Secton 19(a), grcutura d|ustment ct, provdes:
The ta es provded n ths tte sha be coected by the ureau of Interna
Revenue under the drecton of the Secretary of the Treasury. Such ta es
sha be pad nto the Treasury of the Unted States.
Par. M. Secton 10(d), grcutura d|ustment ct, provdes:
The Secretary of the Treasury s authorzed to make such reguatons as
may be necessary to carry out the powers vested n hm by ths tte.
Par. N, Secton 1101, evenue ct of 192 , made appcabe by
secton 19(b), grcutura d|ustment ct, provdes:
The Commssoner, wth the approva of the Secretary, sha prescrbe and
pubsh a needfu rues and reguatons for the enforcement of ths ct.
Par. O. Secton 1119, Revenue ct of 192 , made appcabe by
secton 19(b), grcutura d|ustment ct, provdes:
Whether or not the method of coectng any ta mposed by Ttes I ,
I, or II s specfcay provded theren, any such ta may, under regua-
tons prescrbed by the Commssoner wth the approva of the Secretary, be
coected by stamp, coupon, sera-numbered tcket, or such other reasonabe
devce or method as may be necessary or hepfu n securng a compete and
prompt coecton of the ta . admnstratve and penaty provsons of
Tte III, n so far as appcabe, sha appy to the coecton of any ta
whch the Commssoner determnes or preset bes sha be coected n such
manner.
Pursuant to the above-quoted provsons and the provsons of the
varous nterna revenue aws the foowng reguatons are hereby
prescrbed:
rtce 1. Genera. (a) y vrtue of the provsons of the grcutura
d|ustment ct, as amended, and the procamatons and reguatons of the
Secretary of grcuture, a processng ta on the frst domestc processng of
sugar beets or sugar cane becomes effectve at the earest moment of une 8,
1934. t the same moment there becomes effectve a compensatng ta on a
artces processed or manufactured whoy or party from sugar beets or sugar
cane, and mported on or after une 8, 1934. t the same moment there
becomes effectve a ta on foor stocks of certan artces processed from
sugar beets or sugar cane whch, on une 8, 1934, are hed for sae or other
dsposton.
The rates of processng ta are gven n artce 2 of these reguatons. The
rates of compensatng ta and ta on foor stocks are gven n artce 3 of these
reguatons.
( ) y vrtue of the procamaton of the Secretary of grcuture, set forth
n paragraph , above, the provsons of Reguatons 81, reatng to the proc-
essng ta and compensatng ta Reguatons 82, reatng to the ta on foor
stocks and Reguatons 83, reatng to e portaton, whch are genera regu-
atons under the grcutura d|ustment ct, to the e tent that they are not
modfed heren, become appcabe to sugar beets or sugar cane.
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Msc.
510
(0) Wth respect to products processed whoy or party from sugar beets or
sugar cane, the date, une 8, 1934, s the effectve date as defned and used
n Reguatons 81, Reguatons 82, and Reguatons 83, that s, the date when
the processng ta ou sugar beets or sugar cane frst takes effect.
(d) The varous defntons set forth n the reguatons of the Secretary
of grcuture In paragraph , above, are hereby adopted as part of these
reguatons.
bt. 2. Processng ta . (a) The processng ta on the frst domestc proc-
essng of sugar beets or sugar cane becomes effectve at the frst moment of
une 8, 1934. or detaed reguatons as to the ta on processng, see Regu-
atons 81. The form prescrbed for return of processng ta s P. T.
orm 8. The frst return of processng ta sha embrace the perod une 8,
1934, to une 30, 1934, both dates ncusve, and sha be fed on or before
uy 31, 1934. Returns for subsequent months sha be fed on or before the
ast day of the month foowng that for whch the return s made. The ta
shown thereon must be pad at the tme when the return s fed, or, f the
tme for payment be postwned or e tended, then at the tme or tmes desg-
nated for payment In such postponement or e tenson. See artce 7 for st
of prescrbed forms.
( ) In accordance wth the reguatons of the Secretary of grcuture, the
rate of ta appcabe to the drect-consumpton sugar, resutng from the frst
domestc processng (as heren defned) of sugar beets or sugar cane, s 0.5
cent per pound of sugar raw vaue, e cept that the rate of processng ta
upon smp of cane |nce and edbe moasses resutng from the frst domestc
processng of sugar cane Is 0.125 cent per pound of the tota sugar content
thereof transated Into terms of raw vaue.
(r) or the perod from une 8, 1934, to une 30, 1934, both Incusve, and
for each caendar month thereafter, each person engaged n successve domes-
tc processngs of sugar beets or sugar cane or raw sugar, whch drecty
resuts n drect-consumpton sugar, sha keep a record wth respect to sugar
beets or sugar cane or raw sugar of (1) the quantty on hand at the begnnng
of the perod, (2) the quantty receved durng the perod, (3) the quantty
shpped or devered durng the perod, (4) the quantty sod or otherwse ds-
posed of durng the perod, (5) the quantty on hand at the end of the perod,
and ( ) the quantty put n process durng the perod. These quanttes must
be ascertaned by actua weghng on accurate scaes and not by estmaton.
(1) empton.- (1) The term producer as used n these reguatons
means the grower of sugar cane.
(2) or the purposes of e empton from processng ta , the processng of
sugar cane, or I he s:e or e change of srup of cane |uce and/or edbe
moasses derved therefrom, by any member of the famy or househod, or by
an empoyee, of the producer of the sugar cane sha be deemed to have been
done by the producer hmsef.
(3) If the producer processes, or has processed for hm, sugar cane pro-
duced by hm, and fnay prepares for dstrbuton or use, and ses drecty
to, or e changes drecty wth consumers, or ses to, or e changes wth, any
person for sae to, or e change wth, or who sha se to, or e change wth,
consumers, wthout further mprovng n quaty or further preparng for ds-
trbuton or use, not more than 200 gaons In the aggregate, of srup of cane
uce produced durng any crop year, such processng s e empt from proc-
essng ta .
(4) If the producer processes or has processed for hm sugar cane produced
by hm nd fnay prepares for dstrbuton or use and ses drecty to, or
e changes wth, any person for sae to, or e change wth, or who sha se
to, or e change wth, consumers, wthout further mprovng n quaty or
further preparng for dstrbuton or use, n e cess of 200 gaons, but not
n e cess of 500 gaons, In the aggregate, of srup of cane |uce produced
durng any crop year, such processng Is e empt to the e tent of 200 gaons
md Is sub|ect to the processng ta on the amount n e cess of 200 gaons
sod drecty to. or e changed drecty wth, consumers, or sod to, or e -
changed wth, any person for sae o, or e change wth, or sod to, or e changed
wth, consumers.
(5) If the producer processes or has processed for hm sugar cane produced
by hm, and fnay prepares for dstrbuton or use and ses drecty to, or
e changes drecty wth, consumers, or ses to, or e changes wth, any person
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511
Msc.
for sae to, or e change wth, and who sha se to, or e change wth, con-
sumers, wthout further Improvng n quaty or further preparng for dstr-
buton or use more than 500 gaons, n the aggregate, of srup of cane |uce
produced durng any crop year, such processng Is not e empt from the ta .
( ) or the purpose of e empton, the crop year commences wth the
harvestng of the sugar cane.
(7) The ta due on the processng of srup of cane |uce by or for a pro-
ducer and sod by hm sha be computed upon the bass of a gaon of srup of
cane |uce beng deemed to wegh 11 pounds and to contan 5 per cent of
tota sugars, uness the person sub|ect to ta sha estabsh to the satsfacton
of the Commssoner of Interna Revenue that the sad srup of cane |uce has
a dfferent weght and/or contans a dfferent percentage of tota sugar content.
(8) Products of the processng of sugar cane whch are retaned for con-
sumpton by the producer sha be deemed to have been processed for that
purpose and not for sae or e change.
(9) ach such producer-processor sha keep a wrtten record showng: (a)
the date on whch the sugar cane was processed ( ) the quantty n pounds
of sugar cane processed (c) the quantty of srup of cane |uce produced (that
s, fnay prepared for dstrbuton or use) (d) the quantty of srup of cane
|uce sod drecty to, or e changed drecty wth, consumers or sod to, or
e changed wth, any person for sae to, or e change wth, or who sha se to,
or e change wth, consumers (e) the date of the sae or e change (/) the
name and address of each such person to whom sod or e changed (g) the
quantty of srup of cane |uce consumed by hmsef, hs famy, empoyees, or
househod. Such record sha be retaned on the premses of the producer,
and sha be open for nspecton, at any reasonabe tme or tmes, by any
nterna revenue offcer.
(10) P. T. orm 8- Is prescrbed as the form of monthy processng ta
return of a producer-processor of sugar cane. Return on ths form must be
made by each producer-processor for each caendar month durng the crop year
n whch he makes saes or e changes of, or hods for sae, srup of cane
|uce processed by hm.
rt. 3. Rates of ta . (a) The amounts of ta mposed or of refund aow-
abe wth respect to artces processed from sugar beets or sugar cane, as de-
termned on the bass of converson factors prescrbed by the Secretary of
grcuture n hs reguatons, set forth n paragraph , above, are as foows:
Rates of ta on foor stocks of certan artces processed from sugar beets or
sugar cane hed for sae or other dsposton on une 8. 198h, and rates of
compensatng ta on artces processed or manufactured whoy or party
from sugar beets or sugar cane and mported on or after une 8, 1934, and
amounts of refunds aowabe.
. . , Rates of ta
rtces. (cents per pound).
( ) eet sugar and other drect-consumpton sugar (ncudng granu-
ated sugar, ump sugar, cube sugar, powdered sugar, sugar In
the form of bocks, cones or any other moded shape, and confec-
toners sugar), testng by the poarscope 99.8 sugar degrees
or above , 0.535
(C) Drect-consumpton sugar (ncudng washed sugar, centrfuga
sugar, carfed sugar, turbnado, pantaton whte sugar, and mus-
muscovado sugar), testng by the poarscope:
Not ess than 99 , but ess than 99.8 . 52
Not ess than 98 , but ess than 99 . 517
Not ess than 97 , but ess than 98 . 508
Not ess than 9 , but ess th:m 97 . 5
(C) Drect-consumpton sugar (ncudng washed sugar, centrfuga sugar,
carfed sugar, turbnado, pantaton whte sugar, and muscovado sugar),
testng by the poarscope ess than 9 degrees, refners soft sugar,
sugar m tures, and nvert sugar, nvert srup, or nvert mush. (Sub-
|ect to ta accordng to tota sugar content, at rates shown n coumn
of tabe on page 512.)
(D) Srups of cane |uce and edbe moasses. (Sub|ect to ta accordng
to tota sugar content, at rates shown n coumn of tabe on page 512.)
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512
Rates of ta on foor stocks of certan artces processed from sugar beets, etc.
Contnued.
( ) Other artces contanng ta abe srogar (not sub|ect to ta on foor stocks) I
(1) rtces contanng sugar other than srups of cane uce or
edbe moasses. (Sub|ect to ta accordng to tota sugar con-
tent, at rates shown In coumn of tabe beow.)
(2) rtces contanng srups of cane |uce or edbe moasses.
(Sub|ect to ta accordng to tota sugar content, at rates
shown n coumn of tabe beow.)
Tabe of ta rates appcabe to drect-consumpton sugar, testng by the
poarsoope ess than 9 degrees, refners soft sugar, sugar m tures, and
nvert sugar, nvert srup or nvert mush, srups of cane |uce and edbe
moasses, and other artces contanng ta abe sugar, havng a tota sugar
content as footos:
ounds of
feta sugar
content.
ate of ta (cents
per pound).
ounds of
tota sugar
content.
Rate of ta (cents
per pound).
Pounds of
tota sugar
content.
Rate of ta (cents
per pound).

0. 97
0. 498
0. 124
0. 4
0. 329
0. 082
0. 31
0. 159
0. 039
. 9
. 493
. 123
. 3
. 324
. 081
. 30
. 154
. 038
. 95
. 488
. 122
. 2
. 318
. 079
. 29
. 149
. 037
. 94
. 483
. 120
. 1
. 313
. 078
. 28
. 144
. 03
.93
. 478
. 119
. 0
. 308
. 077
. 27
. 138
. 034
. 92
. 473
. 118
. 59
. 303
. 075
. 2
. 133
. 033
.91
. 4 8
. 117
. 58
. 298
. 074
. 25
. 128
. 032
.90
. 4 2
. 115
. 7
. 293
. 073
. 24
. 123
. 030
. 89
. 457
. 114
. 5
. 288
. 072
. 23
. 118
. 029
. 88
. 452
. 113
. 55
. 282
. 070
. 22
. 113
. 028
. 87
. 447
. I
. 4
. 277
. 0 9
. 21
. 018
. 027
. 8
. 442
. 110
. 53
. 272
. 0 8
. 20
. 102
. 025
. 85
. 437
. 109
. 2
. 2 7
. 0
. 19
. 097
. 024
. 84
. 432
. 108
. 51
. 2 2
. 0 5
. 18
. 092
. 023
.83
. 42
. 10
. 50
. 257
. 0 4
. 17
. 087
. 021
. 82
. 421
. 105
. 49
. 252
. 0 3
. 1
. 082
. 020
. 81
. 41
. 104
. 48
. 24
. 0 1
. 1
. 077
. 019
. 80
. 411
. 102
. 47
. 241
. 0 0
. 14
. 072
. 018
.79
. 40
. 101
. 4
. 23
. 059
. 13
. 0
. 01
.78
. 401
. 100
. 45
. 231
. 057
. 12
. 0 1
. 015
.77
. 39
. 099
. 44
. 22
. 05
. 11
. 05
. 014
. 7
. 390
. 097
. 43
. 221
. 055
. 10
. 051
. 012
.75
. 385
. 09
. 42
. 21
. 054
. 09
. 04
. 011
.74
. 380
. 095
. 41
. 210
. 052
. 08
. 041
. 010
. 73
. 375
. 093
. 40
. 205
. 051
. 07
. 03
. 009
. 72
. 370
. 092
. 39
. 200
. 050
. 0
. 030
. 007
.71
. 3 5
. 091
. 38
. 195
. 048
. 05
. 025
. 00
. 70
. 3 0
. 090
. 37
. 190
. 047
. 04
. 020
. 005
. 9
. 354
. 088
. 3
. 185
. 04
. 03
. 015
. 003
. 8
. 349
. 087
. 35
. 180
. 045
. 02
. 010
. 002
. 7
. 344
. 08
. 34
. 174
. 043
.01
. 005
. 001
.
. 339
. 084
. 33
. 1 9
. 042
. 5
. 834
. 083
. 32
. 1 4
. 041
In determnng the tota sugar content of any sugar (as defned), tut
amount of the sucrose (Cerget) and of the reducng or nvert sugars con-
taned theren sha be ascertaned n the manner prescrbed n paragraphs
758, 759, 7 2, and 7 3 of the Unted States Customs Reguatons (1931 edton)
or n the manner prescrbed on pages 307 to 383. ncusve, of Offca and
Tentatve Methods of the ssocaton of Offca grcutura Chemsts (1930
edton).
( ) In the event that the Commssoner of Interna Revenue, or any ta -
payer, or any person entted to refund, sha estabsh (1) that any product,
by-product, or artce, derved whoy or party from the processng of sugar
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513
Msc.
beets, sugar cane, and/or any product or by-product thereof, docs not come
wthn any of the above cassfcatons and wth respect to whch no rate of
ta shown s appcabe, or (2) that any product, by-product, or artce, derved
whoy or party from the processng of sugar beets, sugar cane, and/or any
product or by-product thereof, whch comes wthn any of the above cassfca-
tons contans more or ess tota sugar e pressed n terms of raw vaue than
s represented by the rate sted, then, n ether event, the amount of the ta
wth respect to such product, by-product, or artce sha bo computed at the
rate of the processng ta , on the bass of the amount of tota sugar content
e pressed n terms of raw vaue estabshed to be actuay contaned theren.
(c) ny refund of ta , made pursuant to the provsons of secton 15(c)
or 17(a) of the ct, sha be made ony on the foowng bass:
(1) If the ta pad was a ta on foor stocks or compensatng ta , the
amount of refund sha be the amount of ta actuay due and pad wth
respect to the partcuar product devered or e ported.
(2) If the ta pad was a processng ta , (he amount of the refund sha be
determned n accordance wth the rate of processng ta n effect at the tme
of the frst domestc processng of the commodty from whch the devered
or e ported product was processed and n accordance wth the proper con-
verson factor (prescrbed by the Secretary of grcuture) n effect at the
tme the product was devered or e ported.
rt. 4. oor stocks. (a) On une 8, 1934, the ta on foor stocks becomes
effectve on certan artces processed from sugar beets or sugar cane, whch
on that date are hed for sae or other dsposton. The respectve rates of ta
appcabe to such artces are gven n artce 3 of these reguatons. or
detaed reguatons as to ta on foor stocks, see Reguatons 82.
(b) In the case of foor stocks hed by a person other than one engaged n
reta trade, the provsons of Reguatons 82 reatve to nventory and return
are modfed as foows:
(1) The ta on foor stocks sha be pad for the month n whch the stocks
are sod, or used n the manufacture of other artces. Such ta upon artces
mported pror to, but In customs custody or contro on, une 8, 1934, sha be
pad pror to reease therefrom. The form prescrbed for nventory of foor
stocks other than separate reta stocks s P. T. orm 38, Inventory return of
certan artces processed from sugar beets or sugar cane. rtces mported
pror to but hed n customs custody or contro on une 8, 1934, must be re-
ported on P. T. orm 38 separatey from other stocks. Inventory return on
P. T. orm 38 must be submtted at the tme of fng the frst return on P. T.
orm 38- . The form prescrbed for return of foor ta due on foor stocks,
other than separate reta stocks, s P. T. orm 38- . Such returns must be
fed prompty after the cose of each month rrespectve of whether or not such
foor stocks are sod or used n the manufacture of other artces, but not ater
than the ast day of the month foowng that for whch the return s made,
or wth respect to foor stocks n customs custody on une 8, 1934, pror to
wthdrawa from such custody. The ta shown thereon to be due must be
pad at the tme the return s fed.
(c) empt from the foor stocks ta are:
(1) ny sugar, as defned, mported pror to une 8, 1934, wth respect to
whch t s estabshed that there was pad at the tme of mportaton a duty
at the rate n effect on anuary 1, 1934. Ths e empton appes to stocks hed
on une 8, 1934, whch can be dentfed as havng been mported and the duty
pad thereon at the rate n effect anuary 1, 1934, even though hed n a form
dfferent from that n whch mported. ny such e empton camed must be
supported by proof n the form of a certfed copy of the customs form showng
when, where, and to whom, the duty was pad, and of sworn statements of each
person who owned the artce from the tme of reease from customs custody,
estabshng the dentty of the artce and the content thereof wth respect to
whch duty has been pad at the rate n effect anuary 1, 1934.
(2) ny sugar hed on pr 25, 1934, by, or to be devered under a bona
fde contract of sae entered nto pror to pr 25, 1934, to, any manufacturer
or converter, for use n the producton of any artce (e cept sugar) and not
for utmate consumpton as sugar.
In the case of a vendor under any such contract, t w be assumed, uness
proof be furnshed to the contrary, that a saes or deveres made on or after
pr 25, 1934, were made from sugar hed on pr 25, 1934, unt sugar equa
to the quantty so hed sha have been a sod or devered. The dfference
between the quantty of sugar hed on pr 25, 1934, and the quantty sod,
devered, or otherwse dsposed of durng the perod begnnng pr 25, 1934,
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514
and endng une 7, 1934, s e empt from the ta on foor stocks ony to the
e tent of the quantty remanng on une 8, 1934, to he devered under such
contracts.
In the case of a manufacturer or converter t w be assumed, uness proof
be furnshed to the contrary, that a sugar used durng the perod begnnng
pr 25, 1034, and endng une 7, 1934, n the producton of any artce (e cept
sugar), and not for utmate consumpton as sugar, was used from sugar hed
on pr 25, 1934, unt sugar equa to the quantty so hed sha have been
used, and that sugnr subsequenty receved was used In the order of ts recept.
The quantty of sugar hed by a manufacturer on pr 2 , 1934, and the
uantty receved by hm durng the perod begnnng pr 25, 1934, and end-
ng une 7, 1934, whch was hed on pr 25, 1934, to be devered to hm
under such a contract, s e empt from the ta on foor stocks to the e tent
that such sugar s not used durng the perod.
(3) ny artce (e cept sugar) processed whoy or In chef vaue from
sugar beets, sugar cane, or any product thereof.
(d) The form prescrbed for return of tu on foor stocks (separate reta
stocks) s P. T. orm 48, oor ta nventory, record and return. Ths return
must be fed on or before ugust 7, 1934. The ta shown thereon must be pad
at the tme when the return s fed, or, If the tme for payment be postponed or
e tended, then at the tme or tmes desgnated for payment n such mstpone-
nent or e tenson.
(e) ach person who, on the effectve date, hods for sae or other dspos-
ton sugar as denned, sha make a true and correct nventory thereof, as of
the earest moment of that date, and sha preserve such nventory, together
wth a record of n facts necessary to the determnaton of the correctness of
such nventory. Such record sha be preserved and kept open for nspecton
and sub|ect to a the requrements reatve to records set forth n Reguatons
82, artce 21.
bt. 5. Compensatng taw on mported artces. On and after une 8, 1934,
a compensatng ta s n effect on a artces processed or manufactured
whoy or party from sugar beets or sugar cane, and mported nto the Unted
States or any possesson thereof to whch the ct appes, from any foregn
country or from any possesson of the Unted States to whch the ct does not
appy. The rates of ta appcabe to such artces are gven n artce 3 of
these reguatons. or detaed reguatons as to ths ta , see Reguatons 81.
No artce processed whoy or party from sugar beets or sugar cane may be
reeased from customs custody unt the compensatng ta due thereon has been
pad e cept raw sugar as defned whch s to be further refned (or Improved
n quaty, or further prepared for dstrbuton or use). Such sugar sha be
hed n customs custody unt ts reease s authorzed by the coector of
Interna revenue wth whom return and copes of customs entres for each
wthdrawa sha be ted as provded n artce 20 of Reguatons 81. The
return n such case must show that the artce to be wthdrawn s to be further
refned or mproved n quaty or further prepared for dstrbuton or use, and
the pace to whch such artce s to be transported for that purpose. The
coector of nterna revenue sha certfy on the copes of the customs entry
authorty for the reease of the artce from customs custody for the purpose
stated and wthout the payment of the compensatng ta . Sad forms w be
handed as provded n the artce referred to In Reguatons 81.
The form prescrbed for return of the compensatng ta Is P. T. orm 18.
See artce 7 for st of prescrbed forms.
rt. . stng contracts. or genera provsons reatng to e stng
contracts, see Reguatons 81, artces 27 and 28, and Reguatons 82, artce 7.
If a processor has such a contract for devery on or after une 8, 1034, of
an artce processed whoy or In chef vaue from sugar beets or sngar cane,
the ta on suc processng (If done on or after une 8, 1934) must be returned
on the current monthy return and then pad. The rate shown In artce 3 of
these reguatons shoud be used n determnng the amount of ta to be
coected from the vendee.
rt. 7. orms. To nsure the proper return of the ta es mposed by the
ct, and to factate the coecton and refund of ta es, certan forms have
been prescrbed for use by ta payers. The prescrbed form must be used as
requred by the appcabe provsons of Reguatons 81, Reguatons 82. or
Reguatons 83, and must be carefuy fed out In e act accordance wth the
appcabe provsons of the proper reguatons and the nstructons contaned
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515
MUo.
on such form. The foowng forms wth respect to sugar beets or sugar cane
are hereby prescrbed:
orm No.
Dcse oton.
Requred by-
P. T. orm 8
P. T. orm 8 ...
P. T. orm 18...
P. T. orm 24...
P. T. orm 24C_.
P. T. orm 28....
P. T. orm 38...
P. T. orm 38 .
P. T. orm 48..
P. T. orm 51, re-
vsed.
Processng ta return
Processng ta return of pro-
ducer-processor.
Return of compensatng ta on
mports.
Cam for refund of overpayment
under grcutura d|ust-
ment ct.
Cam for refund rtces dev-
ered for chartabe dstrbu-
ton or use.
Cam for credt on monthy re-
turn.
Inventory return of foor stocks
by a person other than one en-
gaged n reta trade, by a per-
son engaged n reta trade f
artces are hed by hm ese-
where than n hs reta stock.
Return of ta due on foor stocks
by a person other than one
engaged n reta trade.
oor ta nventory, record and
return, by a person engaged n
reta trade.
Monthy statement of mporter..
Reguatons 81, artce 11.
Reguatons 81, artce ,|
artce 2(d) of these
reguatons. I
Reguatons 81, artce 20.
Reguatons 81, artces 30,
31(a).
Reguatons 81, artce 32.
Reguatons 81, artce
31( ).
Reguatons 81, artce 11.
as amended by artce 4
of these reguatons.
Reguatons 82, artce 11.
as amended by artce 4
of these reguatons.
Reguatons 82, artce 1 ,
as amended by artce 4
of these reguatons.
Reguatons 81, artce 21.
Gur T. everng,
Commssoner of Interna Revenue.
pproved une 20, 1934.
. MoRG NT U. r.,
Secretary of the Treasury.
III-3- 03
T. D.4415
Processng and other ta es wth respect to certan paper, and
|ute fabrc and |ute yarn under the grcutura d|ustment ct
Processng ta , effectve December 1, 1933, on the frst domestc
processng of certan paper, |ute fabrc, and |ute yarn ta on
foor stocks of certan products processed whoy or n chef vaue
from such paper, |ute fabrc, or |ute yarn hed on December 1,
1933, for sae or other dsposton compensatng ta on certan
products processed or manufactured whoy or n chef vaue from
such paper, |ute fabrc, or ute yarn and mported on or after
December 1, 1933.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. 0.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 15(d), grcutura d|ustment ct, pro-
vdes, n part:
The Secretary of grcuture sha ascertan from tme to tme whether the
payment of the processng ta upon any basc agrcutura commodty Is causng
or w cause to the processors thereof dsadvantages n competton from com-
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51
petng commodtes by reason of e cessve shfts u consumpton between such
commodtes or products thereof. If the Secretary of grcuture fnds, after
nvestgaton and due notce and opportunty for hearng to nterested partes,
that such dsadvantages n competton e st, or w e st, he sha procam
such fndng. The Secretary sha specfy n ths procamaton the competng
commodty and the compensatng rate of ta on the processng thereof neces-
sary to prevent such dsadvantages n competton. Thereafter there sha be
eved, assessed, and coected upon the frst domestc processng of such com-
petng commodty a ta , to be pad by the processor, at the rate specfed, unt
such rate s atered pursuant to a further fndng under ths secton, or the
ta or rate thereof on the basc agrcutura commodty s atered or term-
nated. In no case sha the ta mposed upon such competng commodty
e ceed that mposed per equvaent unt, as determned by the Secret: ry, upon
the basc agrcutura commodty.
Par. . procamaton of the Secretary of grcuture, made
12.01 a. m., December 1, 1933, provdes:
I, enby . Waace, Secretary of grcuture of the Unted States of
merca, actng under and. pursuant to an ct of Congress, known as the
grcutura d|ustment ct, approved May 12, 1933, as amended, after n-
vestgaton and due notce and opportunty for hearng to nterested partes,
and due consderaton havng been gven to a of the facts, hereby fnd, and
do hereby procam, that the payment of the processng ta upon cotton s
causng, and w cause, to the processors thereof dsadvantages n competton
from paper, by reason of e cessve shfts In consumpton between such commod-
tes or products thereof, I do accordngy hereby specfy that the compen-
satng rate of ta on the processng of paper, necessary to prevent such
dsadvantages n competton, s 2.04 cents per pound weght of paper, on the
frst domestc processng of paper nto mutwa paper bags 3.3 cents per
pound weght of paper, on the frst domestc processng of coated paper nto
coated paper bags 2.14 cents per pound weght of open-mesh paper fabrc,
on the frst domestc processng of open-mesh paper fabrc nto open-mosh
paper bags 0.715 cent per pound weght of paper, on the frst domestc proc-
essng of paper nto paper towes 4.0 cents per pound weght of paper, on
the frst domestc processng of paper nto gummed paper tape. ereafter
there sha be eved, assessed, and coected, upon the frst domestc processng
of paper Into mutwa paper bags, coated paper nto coated paper bags, opon-
mesh paper fabrc nto open-mesh paper bags, paper nto paper towes, or
paper nto gummed paper tape, as aforesad, a ta , to be pad by the processors
thereof, at the rates herenabove specfed, unt such rates are atered pursu-
ant to a further fndng under secton 15(d) of sad ct, or the ta or the
rate thereof on cotton s atered or termnated.
Par. C. procamaton of the Secretary of grcuture, made
12.01 a. m., December 1, 1933, provdes:
I, enry . Waace, Secretary of grcuture of the Unted States of
merca, actng under and pursuant to an ct of Congress, known as the
grcutura d|ustment ct, approved May 12, 1933, as amended, after nvest-
gaton and due notce and opportunty for hearng to nterested partes, and
due consderaton havng been gven to a of the facts, hereby fnd, and do
hereby procam, that the payment of the processng ta upon cotton s causng,
and w cause, to the processors thereof dsadvantages n competton from
ute fabrc and |ute yarn, by reason of e cessve shfts n consumpton between
such commodtes or products thereof. I do accordngy hereby specfy that
the compensatng rate of ta on the processng of |ute fabrc necessary to
prevent such dsadvantages n competton, s 2.9 cents per pound of |ute
fabrc, on the frst domestc processng of ute fabrc nto bags, and that the
compensatng rate of ta on the processng of |ute yarn, necessary to prevent
such dsadvantages n competton, s 2.9 cents per pound of |ute yarn, on the
frst domestc processng of |ute yarn nto twne of a ength 275 feet per pound,
or over, fnshed weght of twne. ereafter, there sha be eved, assessed
and coected upon the frst domestc processng of |uto fabrc nto bags and
ute yarn nto twne, as aforesad, a ta , to be pad by the processor thereof,
at the rates herenabove specfed, unt such rates are atered, pursuant to
a further fndng under secton 15(d) of sad ct, or the ta or rate thereof
on cotton Is atered or termnated.
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Msc.
Pah. D. Secton 10(c), grcutura d|ustment ct, provdes:
The Secretary of grcuture s authorzed, wth the approva of the Pres-
dent, to make such reguatons wth the force and effect of aw as may ba
necessary to carry out the powers vested n hm by ths tte, ncudng regua-
tons estabshng converson factors for any commodty and artce processed
therefrom to determne the amount of ta mposed or refunds to be made wth
respect thereto. ny voaton of any reguaton sha be sub|ect to such
penaty, not n e cess of 100, as may be provded theren.
Pah. . The reguatons, wth respect to paper, and the products
thereof, made by the Secretary of grcuture, wth the approva o
the Presdent, dated December 1, 1933, provde, n part:
I. Defntons.
The foowng terms, as used In these reguatons, sha have the meanngs
hereby assgned to them:
rst domestc processng. The frst domestc processng of paper s
(a) The manufacture or fabrcaton of paper nto mutwa paper bags, or
paper towes, or gummed paper tape or
( ) The manufacture of coated paper nto coated paper bags or
(c) The manufacture of open-mesh paper fabrc nto open-mesh paper bags.
Paper. Paper s a compacted web of ceuose fbers, szed or unszed, fed
or unfed, coated or uncoated, gummed or ungummed, n the form of a sheet
and made from an aqueous suspenson.
Weght of paper. Weght of paper ncudes the fber, and any fer, szng,
coatng, adhesve, gum, or other matera, composng the fnshed sheet or web,
as used n any processng heren defned.
Mutwa paper bags. Mutwa paper bags are bags havng more than one
wa and weghng more tan 200 pounds per thousand bags.
Coated paper bags. Coated paper bags are bags of the type usuay made
from so-caed coated rope paper or coated craft paper, or smar matera.
Open-mesh paper fabrc. Open-mesh paper fabrc s fabrc woven n open-
mesh form from spun paper, or twsted paper, or paper yarn, or paper fament.
Open-mesh pupcr bags. Open-mesh paper bags are bags made from open-
mesh paper fabrc.
Paper towe. Paper towe s any paper toweng, but does not ncude tssues
of the type commony known as ceansng tssues or faca tssues.
Gummed paper tape. Gummed paper tape s paper, one surface of whch
s covered wth gum or other adhesve matera, processed for dstrbuton n
rbbon form, and ess than 2 nches n wdth.
Secondhand artces. Secondhand artces are mutwa paper bags, coated
paper bags or open-mesh paper bags whch have been used one or more tmes
for the purpose for whch processed.
II. Convkbson actors.
I hereby estabsh the foowng converson factors for artces processed
whoy or n chef vaue from paper, coated paper, or open-mesh paper fabrc,
as aforesad, to determne the amount of ta mposed or refunds to be made
wth respect thereto:
The foowng tabe f es the percentage of the per pound processng ta on
paper, coated paper, or open-mesh paper fabrc, determned for the respectve
processngs set forth herenabove, wth respect to each pound of the foowng
artces:
Converson factor for
rtce. fnshed weght of artce.
Mutwa paper bags per cent 102. 0
Coated paper bags do 104. 71
Open-mesh paper bags do 100. 50
Paper towes do 102. 01
Gummed paper tape do 103. 80
Secondhand artces do 0. 00
In the event that any ta payer or person entted to a refund estabshes that
a greater or esser amount of paper, or coated paper, or open-mesh paper fabrc
was used n the producton of mutwa paper bags, coated paper bags, open-
mesh paper bags, paper towes and gummed paper tape, respectvey, ncuded
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518
n the above st, processed whoy or In chef vaue from paper, or coated paper,
pr open-mesh paper fabrc, on whch a ta Is mposed or whch may be the
ab|ect of a cam for refuud, than the amount represented by the sted con-
verson factors, then the amount of the ta , or of the refuud, sha be computed
ft the rate of the processng ta upon the bass of the amount of paper, or
coated paper, or open-mesh paper fabrc estabshed to have been actuay used
In the producton of the partcuar artce.
Par. . The reguatons wth respect to |ute fabrc and |ut yarn,
and the products thereof, made by the Secretary of grcuture, wth
the approva of the Presdent, dated December 1, 1933, provde, u
part:
I. Defntons.
The foowng terms, as used In these reguatons, sha have the meanngs
hereby assgned to them:
rst domestc processng:
(a) The frst domestc processng of |ute fabrc s the manufacture of ute
fabrc nto bags.
( ) The frst domestc processng of |ute yarn Is the manufacture or prepa-
raton n any form of sad yarn Into twne, and ncudes the twstng, or posh-
ng, or szng, or the puttng up of sad yarn nto bas, cones, tu es, rees,
skens or other forms of put-ups of twne, or any other preparaton for market
of sad yarn as twne.
ute fabrc. ute fabrc s fabrc or coth, woven or otherwse manufactured,
whoy or n chef vaue from ute or |ute yarn.
ute yarn. ute yarn s matera, spun or otherwse prepared, whoy or In
Chef vaue from |ute, n form for use n weavng or twstng or other manu-
facturng.
ags. ags are a bags ess than 0 feet n ength and ess than 3 feet In
wdth, made from |ute fabrc.
Twne. Twne s ne, cord, strng or other tyng matera made from |ute
yarn, of a ength not ess than 275 feet per pound, fnshed weght of twne, and
Incudes poshed twne and unposhed twne, and twne made from a snge
py or more than one py of |ute yarn.
Poshed |ute twne. Poshed |ute twne s ute twne that has been specay
treated wth szng or other non|ute matera to mprove ts strength, quaty,
or appearance.
Unposhed |ute twne. Unposhed |ute twne s twne other than poshed
ute twne.
nshed weght of twne. nshed weght of twne means the weght of
the |ute yarn and any fer, or szng, or any other non|ute matera composng
the fnshed twne.
Secondhand artces. Secondhand artces are |ute bags or |ute twne whch
have been used one or more tmes for the purpose for whch processed.
II. Converson actors.
I hereby estabsh the foowng converson factors for artces processed
whoy or In chef vaue from |ute fabrc or |ute yarn, as aforesad, to determne
the amount of ta mposed or refunds to be made wth respect thereto:
The foowng tabe f es the percentage of the per pound processng ta on
|ute fabrc or |ute yarn, determned for the respectve processngs set forth
herenabove, wth reswt to each pound of the foowng artces:
Converson factor for
rtce. fnshed weght of artce.
ags per cent 100.5
Twne:
Unposhed do 100.1
Poshed do 91.0
Secondhand artces do 0.0
Iu the event that any ta payer or person entted to a refund estabshes that
a greater or esser amount of |ute fabrc or |ute yarn was used n the produc-
ton of |ute bags or |ute twne, respectvey, ncuded n the above st, proc-
essed whoy or n chef vaue from |ute fabrc or |ute yarn, on whch a ta
s mposed or whch may be the sub|ect of a cam for refund, than the amount
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519
Msc
represented by the sted converson factors, then the amount of the ta , or
of the refund, sha be computed at the rate of the processng ta upon the bass
of the amount of |ute fabrc or |ute yarn estabshed to have been actuay,
used In the producton of the partcuar artce.
Pak. G. Secton 19(a), grcutura d|ustment ct, provdes:
The ta es provded In ths tte sha be coected by the ureau of Interna
Revenue under the drecton of the Secretary of the Treasury. Such ta es sha
be pad Into the Treasury of the Unted States.
Par. . Secton 10(d), grcutura d|ustment ct, provdes:
The Secretary of the Treasury s authorzed to make such reguatons as may
be necessary to carry out the powers vested n hm by ths tte.
Pak. I. Secton 1101, Revenue ct of 192 , made appcabe by
secton 19(b), grcutura d|ustment ct, provdes:
The Commssoner, wth the approva of the Secretary, sha prescrbe and
pubsh a needfu rues and reguatons for the enforcement of ths ct.
Pursuant to the above-quoted provsons and the provsons of the
varous nterna revenue aws the foowng reguatons effectve as of
December 1, 1933, are hereby prescrbed:
rtce 1. Genera. (a) y vrtue of the provsons of the grcutura
d|ustment ct and the procamatons and reguatons of the Secretary of
grcuture, processng ta es on the frst domestc processng of certan paper,
|ute fabrc, and |ute yarn, become effectve at 12.01 a. m. December 1, 1933.
t the same moment there becomes effectve a compensatng ta on certan
artces processed or manufactured whoy or n chef vaue from paper, |ute
fabrc, or |ute yarn, and mported after 12.01 a. m. December 1, 1933. t the
same moment there becomes effectve a ta on foor stocks of certan artces
processed whoy or n chef vaue from paper, |ute fabrc, or |ute yarn, whch
on December 1, 1933, are hed for sae or other dsposton.
The rates of processng ta are gven n artce 2 of these reguatons. The
rates of compensatng ta and ta on foor stocks are gven In artce 3 of these
reguatons.
( ) y vrtue of the procamatons of the Secretary of grcuture, set forth
n paragraphs and C above, and of hs reguatons set forth n paragraphs
and above. Reguatons 81, reatng to the processng ta and compensatng
ta Reguatons 82, reatng to the ta on foor stocks and Reguatons 83,
reatng to e portaton, whch are genera reguatons under the grcutura
d|ustment ct, become appcabe to certan paper, |ute fabrc, and |ute yarn.
These reguatons suppement, but are not ntended to change or revoke n any
way. Reguatons 81, Reguatons 82, or Reguatons 83.
(c) Wth respect to certan products processed or manufactured whoy or
n chef vaue from parer, |ute fabrc, or |ute yarn, the date, December 1, 1933,
s the effectve date as defned and used n Reguatons 81, Reguatons 82,
and Regutons 83, that s, the date when the processng ta wth respect to
the competng commodtes named frst takes effect.
(d) The varous defntons set forth n the reguatons of the Secretory of
grcuture n paragraphs and above, are hereby adopted as part of these
reguatons.
bt. 2. Processng ta . (o) The processng ta on the frst domestc process-
ng of certan paper, |ute fabrc, and |ute yarn, becomes effectve at 12.01 a. m.,
December 1, 1933. or detaed reguatons as to the ta on processng, see
Reguatons 81. The form prescrbed for return of processng ta s P. T.
orm 2 . The frst return of processng ta sha embrace the perod Decem-
ber 1, 1933, to December 31, 1933. both ncusve, and sha be fed on or before
anuary 31, 1934. The ta shown thereon must be pad at the tme when the
return s fed, or, f the tme for payment be postponed or e tended, then at
the tme or tmes desgnated for payment n such postponement or e tenson.
See artce 7 for st of prescrbed forms.
( ) In accordance wth the reguatons of the Secretary of grcuture, the
rate of ta on the processng of paper s 2.04 cents per pound weght of paper,
on the frst domestc processng of paper nto mutwa paper bags 3.3 cents
per pound weght of paper, on the frst domestc processng of coated paper Into
coated paper bags 2.14 cents per pound weght of open-mesh paper fabrc, on
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520
the frst domestc processng of open-mesh paper fabrc nto open-nesh paper
bags 0.715 cent per pound weght of paper, on the frst domestc processng of
paper nto paper towes 4.00 cents per pound weght of paper, on the frst
domestc processng of paper nto gummed paper tape.
(c) In accordance wth the reguatons of the Secretary of grcuture, the
rate of ta on the processng of |ute fabrc, s 2.9 cents per pound of |ute fabrc,
on the frst domestc processng of |ute fabrc nto bags, and the rate of ta on
the processng of |ute yarn s 2.0 cents per pound of |ute yarn, on the frst
domestc processng of |ute yarn nto twne of a ength 275 feet per pound, or
over, fnshed weght of twne.
bt. 8. Rates of ta . The amounts of ta Imposed wth respect to certan
artces processed whoy or n chef vaue from paper, ute fabrc, or |ute yarn,
as determned upon the bass of the rates of ta on the frst domestc processng
thereof specfed n the procamatons of the Secretary of grcuture, gven n
artce 2, and of hs prescrpton of converson factors n hs reguatons set
forth n paragraphs and above, are as foows:
Rat of ta on foor stocks of artces processed whoy or n chef vaue frwn
paper, |ute fabrc, or |ute yarn, hed for sae or other dsposton on Decem-
ber 1, 193S, and rates of compensatng ta on mports of such artces effectve
on and after Decern bcr 1, 193S.
rtces processed whoy or In chef vaue from
Rates of ta .
Paper:
1. Mutwa paper bags (bags havng more than one wa and
weghng more than 200 pounds per 1,000 bags)
2. Coated paper bags (bags of the type usuay made from so-
caed coated rope paper or coated kraft paper, or smar
matera)
3. Opcn-mesh paper bags (bags made from open-mesh paper
fabrc)
4. Paper towes (any paper toweng, but does not ncude tssues
of the type commony known as ceansng tssues or
faca tssues )
5. Gummed paper tape (paper one surface of whch s covered
wth gum or other adhesve matera, processed for dstrbu-
ton n rbbon form and ess than 2 nches n wdth)
ute fabrc and |ute yarn:
1. ags (a bags ess than feet n ength and ess than 3 feet
n wdth made from |ute fabrc)
2. Twne (ne, cord, strng or other tyng matera made from
ute yarn of a ength not ess than 275 feet per pound fn-
shed weght of twne, and twne made from a snge py or
more than one py of |ute yarn)
(a) Unposhed ...
( ) Poshed..
Cents per
pound.
2. 082
3. 518
2. 150
. 729
4. 214
2. 914
902
30
In the event (hat any ta payer can estabsh that a greater or esser amount
of paper, or coated paper, or open-mesh paper fabrc, or ute fabrc, or |ute yarn
Was used n the producton of any artce processed whoy or n chef vaue from
one of sad commodtes, ncuded n the above st, than the amount represented
by the rate sted, then the amount of ta for such artce sha be computed at
the rate of the processng ta upon the bass of the amount of the commodty
estabshed to have been actuay used n the producton of the partcuar
artce.
m . 4. oor Mocks. (a) On December 1, 1033, the ta on foor stocks be-
comes effectve on certan stocks of artces processed whoy or n chef vaue
from paper, |ute fabrc, or |ute yarn wth respect to whch a processng ta s
n effect, whch on that date are hed for sae or other dsposton. The rate
of ta appcabe s gven n artce 3 of these reguatons. or detaed regu-
atons as to ta on foor stocks, see Reguatons 82.
The form prescrbed for return of the foor ta on a artces other than
separate reta stocks s P. T. orm 32 , oor ta nventory and return
(stocks other than separate reta stocks). Ths return must be fed on or
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521
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before December 31, 1933. The ta shown thereon must be pad at the tme
when the return s fed, or, f the tme for payment be postponed or e tended,
then at the tme or tmes desgnated for payment n such postponement or
e tenson.
The form prescrbed for return of ta on foor stocks (separate reta stocks)
s P. T. orm 42 , oor ta nventory, record and return. Ths return must
be fed on or before nuary 30, 1934. The ta shown thereon must be pad
at the tme when the return s fed, or, f the tme for payment be postponed
or e tended, then at the tme or tmes desgnated for payment n such post-
ponement or e tenson.
See artce 7 for st of prescrbed forms.
bt. 5. Compensatng ta on mported mccs. On and after December 1,
1933, a compensatng ta s n effect on certan artces processed whoy or n
chef vaue from paper, |ute fabrc, or |ute yarn and mported nto the Unted
States or any possesson thereof to whch the ct appes, from any foregn
country or from any possesson of the Unted States to whch the ct does not
appy. The rate of ta appcabe to such artces s gven n artce 3 of those
reguatons. or detaed reguatons as to ths ta , see Reguatons 81. The
form prescrbed for return of the compensatng ta s P. T. orm 12 . See
artce 7 for st of prescrbed forms.
bt. . stng contracts. or genera provsons reatng to e stng con-
tracts, see Reguatons 81, artces 27 and 28. and Reguatons 82, artce 7.
If a processor has such a contract for devery on or after December 1, 1933,
of certan artces processed whoy or n chef vaue from paper, |ute fabrc,
or |ute yarn, the ta on such processng (f done on or after December 1, 1933)
must be returned on the current monthy return and then pad. The rate shown
n artce 8 of these reguatons shoud be used n determnng the amount of
ta to be coected from the vendee.
The vendee under such a contract s entted, where optona rates may be
appcabe, to e ercse such opton.
bt. 7. orms. To nsure the proper return of the ta es mposed by the ct,
and to factate the coecton and refund of ta es, certan forms have been
prescrbed for use by ta payers. The prescrbed form must be used as requred
by the appcabe provsons of Reguatons 81, Reguatons 82, or Reguatons
83, and must be carefuy fed out n e act accordance wth the appcabe
provsons of the proper reguatons and the nstructons contaned on such form.
The foowng forms wth respect to certan paper, |ute fabrc, and |ute yarn
are hereby prescrbed:
orm No.
T. orm 2 __
T. orm 12 .
P.T. orm 24..
P. T. orm 28-.
P. T. orm 32 .
P. T. orm 42 .
P. T. orm 51
Desgnaton.
Processng ta return
Return of compensatng ta on
mports.
Cam for refund under grcu-
tura d|ustment ct.
Cam for credt on monthy re-
turn.
oor ta nventory and return,
by a person other than one en-
gaged n reta trade, by a per-
son engaged n reta trade f
artces are hed by hm ese-
where than n hs reta stock.
oor ta nventory, record, and
return, by a person engaged
n reta trade.
Monthy statement of mporter..
Requred by-
Reguatons 81, artce 11.
Reguatons 81, artce 20.
Reguatons 81, artces 30,
31(a), 32.
Reguatons 81, artce
31( ).
Reguatons 82, artce 11.
Reguatons 82, artce 1 .
Reguatons 81, artce 21.
Gtrr T. everng,
Commssoner of Interna Revenue.
pproved anuary 8, 1934.
. MORG NT U. r.,
Secretary of the Treasury.
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COTTON CONTROL CT. (1934)
Reguatons 84, rtce 1 : Transportaton, III-23- 842
etc., of nt cotton. T. D. 4438
ae tags not requred before uy 1, 1834, wth respect to
cotton harvested and gnned pror to une 1, 1934.
Tbeasuky Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Coectors of Interna Revenue and Others Concerned:
Reference s made to secton 14(b) of the Cotton Contro ct
approved pr 21, 1934 (Pubc, No. 1 9, Seventy-thrd Congress),
whch reads as foows:
cept as may be permtted by reguatons prescrbed by the Commssoner,
wth the approva of the Secretary of the Treasury, wth due regard for the
protecton of the revenue, no person sha: (1) Transport, e cept for storng
or warehousng, under the provsons of secton 4(f) beyond the boundares
of the county where produced any nt cotton to whch a bae tag ssued under
ths ct Is not attached or (2) se, purchase, or open any bae of nt cotton
to whch a bae tag Issued under ths ct s not attached.
aes of nt cotton harvested and gnned pror to une 1, 1934,
may be transported, sod, purchased, or opened at any tme pror
to uy 1, 1934, even though a bae tag s not attached.
Wrght Matthews,
ctng Commssoner of Interna Revenue.
pproved une 1, 1934.
T. . Coodge,
ctng Secretary of the Treasury.
TITL II O T LI UOR T ING CT O 1934.
III- - 48
T. D.4418
Stamps ndcatng ta payment of dsted sprts n bottes.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Coectors of Interna Revenue, Supervsors of Permts, and
Others Concerned:
Tte II of the Lquor Ta ng ct of 1934 reads as foows:
Tte II.
Skc. 201. No person sha (e cept as provded n secton 202) transport, pos-
sess, buy, se, or transfer any dsted sprts uness the mmedate contaner
thereof has aff ed thereto a stamp denotng the quantty of dsted sprts con-
taned theren and evdencng payment of a nterna-revenue ta es mposed on
such sprts. The provsons of ths tte sha not appy to
(a) Dsted sprts paced n a contaner for mmedate consumpton on the
premses or for preparaton for such consumpton
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(b) Dsted sprts n bond or n customs custody
(c) Dsted sprts In mmedate contaners requred to be stamped under
e stng aw
(d) Dsted sprts In actua process of rectfcaton, bendng, or bottng,
or In actua use n processes of manufacture
(e) Dsted sprts on whch no nterna-revenue ta s requred to be pad
(f) Dsted sprts not ntended for sae or for use n the manufacture or
producton of any artce ntended for sae or
(g) ny reguary estabshed common carrer recevng, transportng, de-
verng, or hodng for transportaton or devery dsted sprts n the
ordnary course of Its busness as a common carrer.
Seo. 202. very person who, on the effectve date of ths tte, hods for
sae (or use n the manufacture or producton of an artce ntended for sae)
any dsted sprts In contaners requred to be stamped by secton 201,
on whch a nterna-revenue ta es have been pad, may possess such sprts,
but sha, not ater than the tenth day after such date, appy for, and sha
be sod (n accordance wth secton 203) the requste stamps. Such stamps
sha be prompty aff ed to the mmedate contaners of such sprts, e cept
that when such sprts contaned n bottes n coset cases are hed for sut or
sod otherwse than at reta, such stamps need not be aff ed unt the cases
are opened or sod at reta, when such stamps sha be mmedatey aff ed to
the bottes, but such stamps sha be sod or transferred n connecton wth
any sae or transfer of such sprts and the person n possesson of such sprts
sha be n possesson of such stamps therefor.
Seo. 203. ny person pacng or ntendng to pace any dsted sprts
upon whch a nterna-revenue ta es have been pad nto any contaner upon
whch a stamp s requred by ths tte, or wthdrawng or ntendng to wth-
draw any mported sprts In such contaners from customs custody, sha
be entted to purchase suffcent stamps for stampng such contaners. Such
stamps sha be ssued by the Commssoner of Interna Revenue to each
coector of nterna revenue, upon hs requston, n such numbers as may be
necessary n hs dstrct, and sha be sod by the coectors to persons en-
tted thereto upon appcaton therefor and compance wth reguatons under
ths tte, at a prce of 1 cent for each stamp, e cept that n the case of stamps
for contaners of ess than one-haf pnt the prce sha be one-quarter of 1
cent for each stamp. When n hs |udgment there s no danger to the revenue,
and upon the gvng of such bonds or other securty as he may deem necessary,
the Commssoner may authorze (1) the sae pror to the effectve date of
ths tte of such stamps and (2) the sae of such stamps to mporters for
stampng contaners n the country from whch mported.
Sec. 204. very person emptyng any contaner stamped under the provsons
of ts tte sha at the tme of emptyng such contaner destroy the stamp
thereon.
Sec. 205. The Commssoner, wth the approva of the Secretary of the
Treasury, sha prescrbe (a) reguatons wth respect to the tme and manner
of appyng for, ssung, aff ng, and destroyng stamps requred by ths tte,
the form and denomnatons of such stamps, proof that appcants are en-
tted to such stamps, and the method of accountng for recepts from the sae
of snch stamps, and (b) such other reguatons as he sha deem necessary
for the enforcement of ths tte.
Sec. 20 . dsted sprts found n any contaner requred to bear a
stamp by ths tte, whch contaner s not stamped n compance wth ths
tte and reguatons ssued thereunder, sha be forfeted to the Unted States.
Dsted sprts paced n such contaners pror to the effectve date of ths
tte sha not be sub|ect to ths seeton unt the e praton of 10 days after
the effectve date of ths tte, nor (when It Is estabshed that appcaton
for stamps therefor was made wthn the proper tme) unt such stamps are
receved by the appcant
Seo. 207. ny person who voates any provson of ths tte, or who, wth
ntent to defraud, fasey makes, forges, aters, or counterfets any stamp made
or used under ths tte, or who uses, ses, or has n hs possesson any such
forged, atered, or counterfeted stamp, or any pate or de used or whch may
be used n the manufacture thereof, or any stamp requred to be destroyed by
ths tte, or who makes, uses, ses, or has n hs possesson any paper n mta-
ton of the paper used n the manufacture of any such stamp, or who reuses any
stamp requred to be destroyed by ths tte, or who paces any dsted sprts
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524
n any botte whch has been fed and stamped under ths tte wthout de-
stroyng the stamp prevousy aff ed to such botte, or who aff es any stamp
ssued under ths tte to any contaner of dsted sprts on whch any ta
due s unpad, or who makes any fase statement n any appcaton for stamps
under ths tte, or who has In hs possesson any such stamps obtaned by hm
otherwse than as provded n sectons 202 and 203, or who ses or transfers
any such stamp otherwse than as provded In secton 202, sha on convcton
be punshed by a ne not e ceedng 1,000, or by Imprsonment at hard abor
not e ceedng fve years, or by both. ny offcer authorzed to enforce any pro-
vsons of aw reatng to nterna revenue stamps s authorzed to enforce the
provsons of ths secton and the provsons of secton 7 of the ct of March
3, 1897, reatng to the bottng of dsted sprts n bond.
Sec. 20S. Ths tte sha take effect on the thrteth day foowng the date
of the enactment of ths ct, e cept that f on or before the twenteth day
foowng the date of the enactment of ths ct the Secretary of the Treasury
fnds that t s mpractcabe to put ths tte Into effect on the thrteth day
foowng the date of the enactment of ths ct and so procams, specfyng the
date, not ater than the s teth day foowng the date of the enactment of
ths ct, on whch It w be practcabe to put ths tte nto effect, ths tte
sha take effect on the date specfed n such procamaton. Notwthstandng
the prevous provsons of ths secton, ths secton and sectons 202, 203, and
205 sha take effect on the date of the enactment of ths ct.
Pursuant to the above-quoted tte of the Lquor Ta ng ct of
1934, the foowng reguatons are prescrbed:
Reguatons Reatng to Stamps Indcatng Ta Payment ok Dsted
Sprts n ottes.
Paragraph 1. In accordance wth the provsons of the Lquor Ta ng ct
of 1934, the mmedate contaners of dsted sprts w, on and after ebru-
ary 10, 1934, be requred to bear a stamp ndcatng the payment of a nterna-
revenue ta es thereon, wth the foowng e ceptons:
(a) Dsted sprts paced n a contaner for mmedate consumpton on
the premses or for preparaton for such consumpton
( ) Dsted sprts n bond or n customs custody
(c) Dsted sprts n mmedate contaners requred to be stamped under
e stng aw
( f) Dsted sprts In actua process of rectfcaton, bendng, or bottng,
or n actua use n processes of manufacture
(c) Dsted sprts on whch no nterna-revenue ta s requred to be pad
( ) Dsted sprts not ntended for sae or for use n the manufacture or
producton of any artce ntended for sae
(g) ny reguary estabshed common carrer recevng, transportng, de-
verng, or hodng for transportaton or devery dsted sprts n the ord-
nary course of ts busness as a common carrer
() Dsted sprts temporary e empted under paragraph 3 or 8.
Par. 2. very person who paces ta -pad dsted sprts n bottes not
e cepted by the statute must, at that tme, attach thereto the stamp prescrbed
by these reguatons.
Pah. 3. Importers may, under the aw, obtan stamps to send abroad for
aff ng to bottes to be shpped to ths country. Where stamps are aff ed to
bottes before entry nto ths country, the name and address of the mporter
must be paced on the stamp, as requred by paragraph 5 of these reguatons.
Where stamps are not paced on bottes pror to shpment from abroad, the
mporter w be entted to purchase from the coector the requste number
of stamps to be aff ed to the bottes. Such stamps need not be aff ed to the
bottes unt the cases are opened or sod at reta, provded the stamps a e
sod or transferred n connecton wth any sae or transfer of such cases of
bottes and the person n possesson thereof s n possesson of such stamps
therefor.
Par. 4. Stamps prescrbed by these reguatons w be n the foowng
denomnatons: uarts, ffth-gaons, pnts, haf-pnts, and ess than haf-pnts.
The prce s 1 cent for each stamp, e cept that n the case of stamps for
bottes of ess than one-haf pnt, the prce s one-quarter of 1 cent for each
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stamp. Stamps for bottes contanng ess than one-haf pnt w be ssued
In sheets of 50. Stamps of other denomnatons w be ssued n sheets of 20.
Par. 5. Pror to aff ng any stamp to a botte under these reguatons, the
person aff ng the stamp must pace hs name and address thereon, n wrtng
or by rubber stamp, prntng, or perforatng. The name and address must bo
pan and egbe.
Par. C. The stamps must be aff ed to the bottes wth the use of strong
adhesve gue or paste. The stamps must pass over the mouth of the botte,
e tendng an equa dstance on two sdes of the botte. No part of the stamp
rta be obscured or covered by any abe or otherwse.
Par. 7. cept as provded n paragraph 8, coectors w se te stamps
upon appcaton therefor, ony to regstered dsters, rectfers, mporters,
propretors of concentraton, genera and speca bonded warehouses, and whoe-
sae deaers and reta druggsts authorzed to botte acoho for noubeverage
purposes. The statute authorzes coectors to se those stamps pror to eb-
ruary 10, 1934. In suppyng the stamps for use under these reguatons,
coectors w requre such evdence as they deem proper as to the need for
the quantty of stamps for whch appcaton s made. orm 237 w Indcate
to coectors the appro mate number of stamps requred by rectfers.
Pak. 8. very person who, on ebruary 10, 1934, hods for sae (or use In
the manufacture or producton of an artce ntended for sae) any dsted
sprts n bottes requred to be stamped, on whch a nterna-revenue ta es
have been pad, may possess such sprts, but sha, not ater than eb-
ruary 20, 1934, appy for, and sha be sod the requste stamps. Such sam, s
sha be prompty aff ed to the bottes contanng such sprts, e cept that
when such sprts contaned In bottes n cosed cases are hed for sae or
sod otherwse than at reta, such stamps need not be aff ed unt the cases
are opened or sod at reta, when such stamps sha be mmedatey aff ed
to the bottes, but such stamps sha be sod or transferred n connecton wth
any sae or transfer of such sprts and the person n possesson of such
sprts sha be n possesson of such stamps therefor. ppcaton for stamps
for use under ths paragraph may be made to coectors pror to ebruary
10, 1934.
Par. 0. very person emptyng any botte stam d under the provsons of
Tte II of the Lquor Ta ng ct of 1934 sha, at the tme of emptyng such
botte, destroy the stamp thereon.
Par. 10. dsted sprts found n any botte requred to bear a stamp
by Tte II of the Lquor Ta ng ct of 1934, whch botte s not stamped n
compance wth that tte and reguatons ssued thereunder, sha be forfeted
to the nted States.
Dsted sprts paced In bottes pror to ebruary 10, 1934, sha not be
sub|ect to forfeture unt ebruary 20, 1934, nor (when t s estabshed that
appcaton for stamps therefor was made wthn the proper tme) unt such
stamps are receved by the appcant.
Par. 11. ny person who voates any provson of Tte II of the Lquor
Ta ng Law of 1934, or who, wth ntent to defraud, fasey makes, forges,
aters, or counterfets any stamp made or used under that tte, or who uses,
ses, or hus n hs possesson any such forged, atered, or counterfeted stamp,
or any pate or de used or whch may be used n the manufacture thereof, or
Rny stamp requred to be destroyed by that tte, or who makes, uses, ses, or
has n hs possesson any paper n mtaton of the paper used n the manu-
facture of any such stamp, or who reuses any stamp requred to be destroyed
by that tte, or who paces any dsted sprts n any botte wnch has been
fed and stamped under that tte wthout destroyng the stamp prevousy
aff ed to such botte, or who aff es any stamp ssued under that tte to any
contaner of dsted sprts on whch any ta due s unpad, or who makes any
fase statement n any appcaton for stamps under that tte, or who has n
hs possesson any such stamps obtaned by hm otherwse than as provded n
sectons 202 and 203 of Tte II of the Lquor Ta ng ct of 1934, or who ses
or transfers any such stamp otherwse than as provded n secton 202 of that
tte, sha, on convcton, be punshed by a fne not e ceedng 1,000, or by
mprsonment at hard abor not e ceedng fve years, or by both. ny offcer
authorzed to enforce any provson of aw reatng to Interna-revenue stamps
Is authorzed to enforce the provsons of ths paragraph and the provsons
of secton 7 of the ct of March 3, 1897, reatng to the bottng of dsted
sprts n bond.
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52
Par. 12. Dsted sprts arrvng n the Unted States, awa or aska
from any Terrtory or possesson of the Unted States n whch the Interna-
revenue aws are not n effect sha be sub|ect to the provsons of Tte II
of the Lquor Ta ng ct of 1934 and reguatons ssued pursuant thereto,
and sha, for the purposes of obtanng and aff ng stamps, be treated as an
mportaton.
D. S. ss,
Commssoner of Industra coho.
Guy T. everng,
Commssoner of Interna Revenue.
pproved anuary 27, 1934.
Stephen . Gbbons,
ctng Secretary of the Treasury.
Stamps Indcatng ta payment of dsted sprts n bottes
suppementng Treasury Decson 4418 page 522, ths uetn .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, I). C.
To Coectors of Interna Revenue, Supervsors of Permts, and
Others Concerned:
Paragraph 4 of Treasury Decson 4418, dated anuary 27, 1934, s
hereby amended to read as foows:
Par. 4. (a) Stamps prescrbed by these reguatons w be In the foowng
denomnatons: uarts, ffth-gaons, pnts, haf-pnts, and ess than haf-pnts.
The prce s 1 cent for each stamp, e cept that n the case of stamps for
bottes of ess than one-haf pnt, the prce s one-quarter of 1 cent for each
stamp. Stamps for bottes contanng ess than one-haf pnt w be Issued
n sheets of 50. Stamps of other denomnatons w be ssued n sheets of 25.
(b) When bottes contanng dsted sprts are of szes for whch no
stamps are provded, the person requred to aff the stamps w wrte or
prnt on the stamps the e act quantty of sprts contaned n the bottes.
or ths purpose on bottes contanng more than one-haf pnt and ess than
1 pnt of dsted sprts, stamps of the haf-pnt denomnatons w be
used. or bottes contanng more than 1 pnt and ess than one-ffth gaon,
stamps of the pnt denomnaton w be used. or bottes contanng more
than one-ffth gaon and oss than 1 quart, stamps of the one-ffth gaon
denomnaton w be used. or bottes contanng more than 1 quart, stamps
of the 1 quart denomnaton w be used. Stamps of the denomnaton of ess
than haf-pnt need not be overprnted wth the e act quantty of sprts
contaned n the botte.
III-8- G5
T. D. 4420
D. S. ss,
Commssoner of Industra coho.
Guy T. everng,
Commssoner of Interna Revenue.
pproved ebruary 13, 1934.
. MORG NT U, r.,
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III-1 - 7 2
T. D.4428
Stamps ndcatng ta payment of dsted sprts n bottes
suppementng Treasury Decson 4418 page 522, ths uetn .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue, Dstrct Supervsors, and Othcrt
Concerned:
Paragraph 5 of Treasury Decson 4418, approved anuary 27,
1934, s hereby amended to read as foows:
Par. . (a) Pror to aff ng any stamp to a botte under these reguatons,
the person aff ng the stamp must pace hs name and address thereon, n wrt-
ng or by rubber stamp, prntng, or perforatng. The name and address must
be pan and egbe.
( ) When stamps are attached to bottes by the dster of the sprts : u-
taned n the botte, the regstry number of the dstery producng the sprts
may be substtuted for the name of the dster.
(o) When stamps are attached to bottes contanng rectfed sprts, re
edera coho Contro dmnstraton permt number may be substtuted for
the name of the rectfer.
(d) If a number s used as provded In subparagraph (f ) or (c), su h
number must be accompaned by some desgnaton or symbo suffcenty Indc-
atve of the cass or seres to whch the number pertans, at east. In the
case of dsters the etter D and the number of the coecton dstrct, and,
In the case of rectfers, the etter R.
D. S. ss,
Commssoner of Industra coho.
Gut T. everng,
Commssoner of Interna Revenue.
pproved pr 12, 1934.
. MORG NT U. r.,
Secretary of the Treasury.
III-18- 779
T. D. 44 29
Stamps Indcatng ta payment of dsted sprts In bottes
amendng Treasury Decson 4418 page 3122, ths uetn .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue, Supervsors of Permts, and
Others Concerned:
Paragraphs 3 and 7, of Treasury Decson 4418, approved anuary
27,1934, are hereby amended to read as foows:
Par. 3. When dsted sprts are Imported, the mporter w be entted to
purchase from the coector of nterna revenue the requste number of stamps
to be aff ed to the bottes. Coectors of customs w not reease any m-
ported dsted sprts uness the mporter has aff ed to each botte the stamp
requred by aw, or has n hs possesson the requste number of stamps to be
aff ed to the bottes. Such stamps need not be aff ed to the bottes unt
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528
the cases are opened or sod at reta, provded the stamps are sod or trans-
ferred n connecton wth any sae or transfer of such cases of bottes and
the person n possesson thereof s n possesson of such stamps therefor.
Pab. 7. (a) cept as provded n paragraph 8, coectors w se the stamps
upon appcaton therefor, ony to regstered dsters, rectfers, mporters,
propretors of concentraton, genera and speca bonded warehouses, and
reta druggsts and whoesae deaers authorzed to botte and se acoho for
nonbeverage purposes. In suppyng the stamps for use under these regua-
tons, coectors w requre such evdence as they deem proper as to the need
for te quantty of stamps for whch appcaton s made. orm 237 w Ind-
cate to coectors the appro mate number of stamps requred by rectfers.
(b) ach dster, rectfer, mporter, propretor of concentraton, genera
or speca bonded warehouse, or reta druggst or whoesae deaer authorzed
to botte acoho for nonbeverage purposes, who purchases stamps from the
coector of nterna revenue, w render a report each month (the frst
report beng for the month of May) on orm 90, statng the number of stamps
of each denom.naton on hand the 1st day of the month, the number purchased
durng the month, the number used durng the month, and the number on hand
at the cose of the month. One copy of the report on orm 90 must be maed
to the coector, and one copy to the Commssoner of Industra coho, on
or before the 5th day of the month foowng the month for whch the report
s rendered. One copy must be retaned n the fes of the person renderng
the report
D. S. uss,
Commssoner of Industra coho.
Guy T. evebnq,
Commssoner of Interna Revenue.
pproved pr 25, 1934.
. MoRG NT U, r.,
Secretary of the Treasury.
orm 00. Treasury Department, urbao of Industra coho. pr, 1934.
Monthy Rkpokt of Strp Stamps Purchased and Uscd Undeb the Lquob
Ta ng ct of 1934.
Month of , 193..
Roportof: Operatng as:
(Name.) (Dster, Rectfer, Importer, etc.)
Located at: In: .
(Street and number.) (Cty and State.)
uart.
fth
gaon.
Pnt.
af pnt.
Less than
haf pnt.
(Sgnature.)
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529
MbO.
INSTRUCTION .
ts form w be prepared by dsters, rectfers, Importers, propretors of
concentraton, genera and speca bonded warehouses, reta druggsts and
whoesae quor deaers authorzed to se acoho for nonbeverage purposes,
who purchase strp stamps for aff ng to bottes of dsted sprts under the
Lquor Ta ng ct of 1934. Ths form w be prepared n trpcate and one
copy forwarded to the coector of nterna revenue for the dstrct, and one
copy to the Commssoner of Industra coho, Washngton, D. C, on or
before the 5th day of the month foowng the mouth for whch the report s
rendered. The other copy w be retaned by the person makng the report.
III-13- 728
T. D.4424
Unted States Pharmacopoea and Natona ormuary acohoc
preparatons.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. .
To Coectors of Inferna Revenue, Supervsors of Permts, ard
Others Conce ned:
Unted States Pharmacopoea tncture of gnger, under whatever
name sod, s cassfed ns an nto catng quor. The manufacturer
thereof must quafy as a rectfer, and pay rectfer s speca ta .
The product s sub|ect to ta on rectfed sprts and the sae thereof
woud requre whoesae or reta quor deaer s speca ta stamp,
even though such sae s for medcna purposes. Unted States
Pharmacopoea tncture of gnger s sub|ect to the provsons of Tte
II of the Lquor Ta ng ct of 1934, and stamps as provded n
Treasury Decson 4418 page 522, ths uetn must be paced
upon the botte n whch the preparaton s dstrbuted and sod.
The foowng Unted States Pharmacopoea and Natona ormu-
ary preparatons whch are used by physcans and pharmacsts
rncpay as vehces, and whch are capabe of beverage use, may
e made wth acoho .and sod n good fath for egtmate non-
beverage purposes wthout ncurrng speca ta es for ther manu-
facture and sae: r aromatcum e r ans e r aromatcum
rubrum e r aurant amar e r cardamom compostum e r
gycyrrhza| e r gycyrrhzse aromatcum e r tara ac compos-
tum e r terpn hydrats sprtus athers sprtus myrcse tnc-
tura amara tnctura aromatca tnctura aurant ducs tnctura
mons cortcs.
D. S. ss,
Commssoner of Industra coho.
Guy T. everng,
Commssoner of Interna Revenue.
pproved March 15, 1934.
. Moroenthau, r.,
Sec7 etary of the Treasury.
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530
T ON RM NT D LI UOR ( CT O M RC 22, 1933).
Reguatons 9 (Pro.), Secton 1 : Labes. III-12- 715
T. D.4423
ermented quor. Reguatons 0 amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue, Supervsors of Permts, and
Others Concerned:
Secton 1 of Reguatons 9 as amended by Treasury Decson 15
Pro. , approved uy 11, 1933, s hereby further amended to read
as foows:
Seo. 1 . (a) The name of the manufacturer of the fermented quor and the
pace of manufacture must be embossed on, or ndented n, meta barres or
kegs. The name of the manufacturer and the pace of manufacture must be
branded by burnng on the sde across the staves, and must e tend over 0
per cent or more of the crcumference, of wooden barres or kegs contanng
fermented quor. The brandng must be of suffcent depth and sze so that
t may not be scraped from barres wthout eavng traces to ndcate scrapng.
No wooden barre or keg whch has been rebranded across the staves and
no wooden barre or keg whch has the name of more than one manufacturer
branded thereon may be used by a brewer as a contaner for fermented quor,
provded that the remova and repacement of one or more staves by the
brewer whose name and address are orgnay so branded on a barre or keg
sha not be deemed to bs a rebrandng hereunder.
ach botte contanng fermented quors must be abeed, and each cosed
case of bottes must be abeed or branded, showng, n ceary egbe fgures
and etters, the foowng:
(1) The name of the manufacturer
(2) The ocaton of the brewery, by cty, or town, and State
(3) The sera number of the basc permt under whch the fermented quor
s produced
(4) The speca name of the quor, f any. (The use of the words beer, ue,
porter, ager, bock, stout, etc., s permssbe on such abes)
(5) Ta -pad at the rate prescrbed by nterna revenue aw, or Interna
revenue ta pad.
Wooden or meta barres and kegs must aso bear abes or brands, or be
embossed or Indented, showng the data n the above tems Nos. 3 and 4.
(b) Where such fermented quor s botted or marketed by a dstrbutor or
deaer, and t s not desred to dscose on the abe the name of the actua
manufacturer, the abe above-descrbed must contan a the prescrbed data,
e cept that the name and address of the botter, dstrbutor or deaer may be
substtuted for the name and address of the actua manufacturer.
(c) If the name of a dstrbutor appears on the abe n addton to the name
of the manufacturer, the dstrbutor s name must be preceded by the phrase,
Packed for or Dstrbuted by
(d) ttenton s caed to the fact that under the ood and Drugs ct the
name and other data on the abes may not mpy a foregn orgn of the fer-
mented quor, uness such name or data are foowed by the word type
or stye, or the other data on the abe ceary show the domestc orgn of
the fermented quor.
(e) Copes of the abes are not requred to be submtted to the supervsor
or the Commssoner uness requested.
D. S. ss,
Commssoner of Industra eoho.
Guy T. everno,
Commssoner of Interna Revenue.
pproved March 13, 1934.
. Morgenthau, r.,
Secretary of the Treasury.
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531
MUe.
S CTION 3244, R IS D ST TUT S. SP CI L T S.
III-23- 83
Ct, D. 83
SP CI L CIS T S R IS D ST TUT S D CISION O SUTR M CO T.
1. Reta and Whoesae Lquor Deaers Immunty of State
Governmenta uncton.
Where a State, pursuant to authorty granted by ts egsature,
engages n the manufacture, sae anU Importaton of, and traffc n.
Into catng quors through State quor stores, under a depart-
ment of quor contro, t s not e ercsng a governmenta functon
but s conductng busness of a prvate nature, and s not Immune
from the ta mposed upon quor deaers by secton 205 of Tte 20
of the Unted States Code (Revsed Statutes, secton 3244, as
amended).
2. Same Poce Power.
State whch engages n the quor busness s not mmune from
edera ta aton on the ground that the conduct of such busness s
n the e ercse of ts poce power. Poce power s a governmenta
power, and apped to busness actvtes Is the power to reguate
those actvtes, not to engage n carryng them on.
8. Same State as a Person.
When a State becomes a deaer n nto catng quors t fas
wthn the reach of the edera ta ether as a person under the
statutory e tenson of that word to ncude a corporaton (secton
11, Tte 20 of the Unted States Code (Revsed Statutes, secton
3140)), or as a person wthout regard to such e tenson.
4. Decson oowed.
South Carona v. Unted States (199 U. S., 437 (T. D. 901, vo-
ume 8, Treasury Decsons, 110) foowed.
Supreme Court of the Unted States.
The State of Oho, companant, v. Guy T. everng, at an Indvdua and at
Commssoner of Interna Revenue, and Thomas . Connor, Car Moore,
arry . usey, and Chares . Graves, at Indvduas and at Unted Staet
Coectors of Interna Revenue n the State of Oho.
Moton for eave to fe b of compant
May 21, 1 34.
opnon.
Mr. ustce Sutherand devered the opnon of the court.
Upon the moton of companant for eave to fe a b of compant Invokng
the orgna |ursdcton of ths court, a rue was ssued drectng the defend-
ants to show cause why such eave shoud not be granted. Defendants, by ther
return to the rue, oppose the moton upon the ground, among others, that the
merts have been concusvey setted aganst companant by pror decson of
ths court.
The b aeges that the defendant everng s Commssoner of Interna
Revenue, and that the other defendants are coectors of nterna revenue n
the severa nterna revenue dstrcts n the State of Oho that on December
22, 1933, the State egsature passed an act provdng a system of contro for
the manufacture, sae and mportaton of, and traffc In, beer and nto catng
quors wthn the State, and creatng a State monopoy for the dstrbuton
and sae of a sprtuous quors under a department of quor contro that the
State has purchased nto catng quors at a cost of more than 4,500,000 for
sae to permt hoders and to the pubc through ts State stores, each of whch
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532
w be entrey and e cusvey State owned, managed and controed that the
State s about to open n the varous countes 1S7 such State quor stores that
defendants have threatened to, and uness en|oned by ths court w, evy and
coect e cse ta es on the agences and operatons of the State n the conduct
of ts department of quor contro, and enforce aganst the State, ts offcers,
agents and empoyees, penates for nonpayment of ta es mposed by secton
3244, R. S. (U. S. C, Tte 20, secton 205), and other desgnated statutes of the
Unted Staes that companant s not sub|ect to these statutes and s mmune
from any ta mposed thereby and that the cts of Congress whch mpose
such ta es do not by ther terms ncude a State, or ts offcers or empoyees,
and were not ntended to do so. It s further aeged that the crcumstances of
the case are e traordnary and e ceptona n severa respects, among them
beng that the attempt s to ta a soveregn State and t, therefore, s contended
that the equty power of the court s propery nvoked under the prncpes
stated n S v. Waace (259 U. S., 44, 2).
The State act deas wth the sub|ect n great deta but for present pur-
poses the provsons set forth n the b to whch we have |ust referred are
a that requre consderaton.
The provsons of the edera statutes, so far as necessary to be stated,
foow:
U. S. C, Tte 2 , secton 205 (R. S., secton 3244, as amended) :
(a) Reta quor deaers. Reta deaers n quor sha pay 25. very
person who ses or effers for sae foregn or domestc dsted sprts, wnes
or mat quors otherwse than as herenafter provded n ess quanttes than
5 wne gaons at the same tme sha be regarded as a reta deaer n quors.
(b) Whoesae quor deaers. Whoesae quor deaers sha each pay
100. very person who ses, or offers for sae foregn or domestc dsted
sprts, wnes or mat quors, otherwse than as herenafter provded n
quanttes of not ess than 5 wne gaons at the same tme sha be regarded
as a whoesae quor deaer.
U. S. C, Tte 20, secton 11 (R. S., secton 3140) :
where not otherwse dstncty e pressed or manfesty Incom-
patbe wth the ntent thereof, the word person, as used n ths tte, sha
be construed to mean and ncude a partnershp, assocaton, company, or
corporaton, as we as a natura person.
Puttng asde varous premnary questons rased by defendants (compare
parte akcte Corp n, 279 U. S., 438, 448 Chares Rver rdge v. Warren
rdge, 11 Pet., 420, 553), we pass at once to the fundamenta queston nvoved
n the State s chaenge to the vadty of the ta . That chaenge seeks to
nvoke a prncpe, resutng from our dua system of government, whch fre-
quenty has been announced by ths court and s now frmy estabshed
that the nstrumentates, means and operatons whereby the States e ert
the governmenta powers beongng to them are e empt from ta -
aton by the Unted States. (Indan Motocyce Co. v. Unted States, 283
U. S., 570, 575 Ct. D. 354, O. . -, 4391 oCuoch v. Maryand, 4 Wheat.,
31 , 430 The Coector v. Day, 11 Wa., 113 and other eases cted In Trnty-
farm Constructon Co. v. Gro |ean, 291 U. S., 4 0, March 5, 1934.) ut, by the
very terms of the rue, the mmunty of the States from edera ta aton s
mted to those agences whch are of a governmenta character. Whenever
a State engages n a busness of a prvate nature t e ercses nongovernmenta
functons, and the busness, though conducted by the State, s not mmune
from the e ercse of the power of ta aton whch the Consttuton vests n
the Congress. Ths court, n South Carona v. Unted States (199 U. S., 437),
a case n no substanta respect dstngushabe from the present one, defntey
so hed. Compare oard of Trustees v. Unted States (289 U. S., 48, 59).
The South Carona case arose under a State statute, whch, ke the one at
bar, created a monopoy and prohbted the sae of nto catng quors e cept
at dspensares to be operated by the State. Ths court, whe sustanng the
vadty of the statute and fuy acceptng the rue that the Natona Govern-
ment was wthout power to mpose a ta n any form whch had the effect
of prohbtng the fu dscharge by the State of ts governmenta functons,
hed that whenever a State engages n a busness whch s of a prvate nature
that busness s not wthdrawn from the ta ng power of the Naton. The
decson sustaned the dentca ta provsons nvoved n the present case,
and, therefore, we foow t as controng.
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533
IMtc.
dstncton Is ought In the fact that after that case was decded the
eghteenth amendment was passed, and thereby, t a contended, the traffc
In nto catng quors ceased to be prvate busness, and then wth the repea
of the amendment assumed a status whch enabed a State to carry t on
tnder the poce power. The pont seems to us atogether fancfu. The
eghteenth amendment outawed the traffc but. certany, t dd not have
the effect of convertng what had aways been a prvate actvty nto a gov-
ernmenta functon. The argument seems to be that the poce power s
eastc and capabe of deveopment and change to meet changng condtons.
Nevertheess, the poce power s and remans a governmenta power, and
apped to busness actvtes s the power to reguate those actvtes, not
to engage n carryng them on. (Rppe v. ecker, 5 Mnn., 100, 111-112.)
If a State chooses to go nto the busness of buyng and seng commodtes,
Its rght to do so may be conceded so far as the edera Consttuton s con-
cerned but the e ercse of the rght s not the performance of a governmenta
functon, and must nd ts support n some authorty apart from the poce
power. When a State enters the market pace seekng customers t dvests
tsef of ts quas soveregnty pro tanto, and takes on the character of a trader,
so far, at east, as the ta ng power of the edera Government Is concerned.
(Compare Georga v. Chattanooga, 284 T . S., 472, 480-483 Unted States ank
v. Panters ank, 9 Wheat., 904, 907 ank of entucky v. Wtter, 2 Pet.. 318,
823 rscoe v. ank of entucky, 11 Pet, 257, 323-825 Curran v. State of
rkansas, 15 ow., 304, 309.)
We fnd no mert n the further contenton that a State Is not embraced
wthn the meanng of the word person, as used n U. S. C, Tte 2 ,
secton 205, and defned n secton 11, supra. y secton 205 the ta Is
eved upon every person who ses, etc. and by secton 11 the word
person s to be construed as meanng and Incudng a partnershp, asso-
caton, company or corporaton, as we as a natura person. Whether the
word person or corporaton Incudes a State or the Unted States
depends upon the connecton n whch the word Is found. Thus, n Stanc v.
Schcaby (147 U. S., 508, 517), t s sad that the word person n the
statute there under consderaton woud ncude the Unted States as a body
potc and corporate. (See aso Gddnas v. oer, 19 Mont., 2 3, 2 State
v. erod, 9 an., 194, 199.) State Is a person wthn the meanng of a
Statute punshng the fase makng or frauduent ateraton of a pubc record
wth Intent that any person may be defrauded. (Martn v. State, 24 Te as,
1. 8.) Under a statute defnng a negotabe note as a note made by one
Person whereby he promses to pay money to another person, and provdng
that the word person shoud be construed to e tend to every corporaton
capabe by aw of makng contracts, t was hed that the word ncuded a
State. (State of Indana v. Woram, (N. Y.), 83, 88.) nd a State
Is a person or a corporaton wthn the purvew of the prorty provsons
of the ankruptcy ct.1 (In re Western Impement Co., 1 ed., 57 , 582.
Compare In re ensen, 59 N. Y. Supp., 53, 55 ray v. Wangford, 20 Conn.,
41 , 418 County of Lancaster v. TrmUe, 34 Neb., 752, 75 Rans v. Cty of
Oshkofh, 14 Ws., 372, 874 1 ack. Comm., 123.)
In the South Carona case ths court dsposed of the queston by hodng
that snce the State was not e empt from the ta , the statute reached the
Indvdua seers who acted as dspensers for the State. Whe not re|ect ag
that vew, we prefer, n the ght of the foregong e ampes, to pace our
rung upon the broader ground that the State Itsef, when t becomes a
deaer n nto catng quors, fas wthn the reach of the ta ether as a
person under the statutory e tenson of that word to ncude a corporaton,
or as a person wthout regard to such e tenson. The moton for eave to
fe the b of compant, accordngy, s dened.
Mr. ustce Sto e concurs n the resut.
1 U. S. C, Tte 11, secton 104(b)3 ebs owng to any person who by the aws of the
fates or the Unted States s entted to prorty. Ths constructon Is e pcty adopted
( the amendment of May 27, 192 (cb. 40 , secton 1 , 44 Stat, U. 8. C, Supp.
II, Tte 11, secton 104(b)7).
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534
MISC LL N OUS.
III-20-0803
T. D.4432
stabshng an coho Ta Unt n the ureau of Interna
Revenue, and defnng ts |ursdcton.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Offcers and mpoyees of the ureau of Interna Revenue, Co-
ectors of Interna Revenue, and Others Concerned:
1. There s hereby estabshed n the ureau of Interna Revenue
a unt to be known as the coho Ta Unt, at the head of whch
sha be a Deputy Commssoner of Interna Revenue apponted as
requred by aw.
2. The coho Ta Unt sha be charged wth the admnstraton,
under the drecton of the Commssoner of Interna Revenue, of the
nterna revenue aws concernng the foowng sub|ects:
(a) The producton, custody, and supervson ot dsted sprts,
acoho, wnes, fermented quors, cerea beverages, denatured acoho,
and other such quors and quds
(b| The estabshment, constructon, operaton, custody, and su-
pervson of dsteres, ndustra-acoho pants, bonded warehouses,
denaturng pants, wneres, bonded wne storerooms, breweres, rect-
fyng houses, deacohozng pants, cerea beverage pants, and other
paces at whch such sprts, quors, or quds are produced or
stored
(c) The determnaton, asserton, and assessment of a nterna
revenue ta es and penates pertanng to dsted sprts, acoho,
wnes, fermented quors, cerea beverages, denatured acoho, and
other such quors and quds, and the compromse thereof, e cept
that a moneys sha be receved and accounted for by the coectors
of nterna revenue under the drecton of the Commssoner of
Interna Revenue
(d) Inqures and nvestgatons reatng to the fng of returns
for occupatona and commodty ta es and penates n respect to
dsted sprts, acoho, wnes, fermented quors, cerea beverages,
denatured acoho, and other such quors and quds, e cept that
the coectors of nterna revenue w reman charged wth the rou-
tne nspecton of the paces of busness of reta deaers n such
quors and quds
(e) The nvestgaton, preventon, and detecton of voatons of
the aws pertanng to dsted sprts, acoho, wnes, fermented
quors, cerea beverages, denatured acoho, and other such quors
and quds, or any reguatons ssued thereunder, and the apprehen-
son of offenders aganst such aws
(/) The detenton and sezure, for voaton of aws reatng to
dsted sprts, acoho, wnes, fermented quors, cerea beverages,
denatured acoho, and other such quors and quds, of propertv,
whether rea or persona (e cept sezure under dstrant warrant),
and the custody, contro, sae, and dsposton of property so sezed
(g) The dscharge of ens under secton 902 of the Revenue ct
of 192 .
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535
Msc.
8. There are conferred and mposed upon the Deputy Comms-
soner of Interna Revenue n charge of the coho Ta Unt, and
the assstants, nspectors, and agents under hs supervson, sub|ect
to the drecton of the Commssoner of Interna Revenue and sub-
|ect to such reguatons as he may prescrbe from tme to tme wth
the approva of the Secretary of the Treasury, a the rghts, prv-
eges, powers, and dutes conferred and mposed upon the Secretary
of the Treasury and/or the Commssoner of Interna Revenue under
the provsons of the ecutve order of March 10, 1934 (No. 39),
and of secton 4(a) of the ct approved March 3, 1927, entted n
ct to create a ureau of Customs and a ureau of Prohbton n
the Department of the Treasury, n so far as they reate to the
dutes to be performed by the coho Ta Unt as enumerated n
paragraph 2 hereof.
4. cept as may hereafter be otherwse provded, a reguatons
prescrbed, a orders and nstructons ssued, and a forms adopted
for the enforcement of the aws heretofore admnstered by the Com-
mssoner of Industra coho or the ureau of Industra coho,
and assstants, nspectors, and agents thereunder, and remanng n
effect after the repea of the eghteenth amendment, w contnue n
effect as reguatons, orders, nstructons, and forms of the ureau
of Interna Revenue: Provded, That the term Commssoner or
Commssoner of Industra coho and the term supervsor
or supervsor of permts, wherever used n such reguatons, orders,
nstructons, and forms, sha be hed to mean, respectvey, Dep-
uty Commssoner of Interna Revenue and dstrct supervsor.
Gttt T. everng,
Commssoner of Interna Revenue.
pproved May 10, 1934.
enry Morgenthau. r.,
Secretary of the Treasury.
III-2- |
Mn . 4120
Speca tu es on reta and whoesae quor deaers.
Treasury Department.
Offce or Commssoner of Interna Revenue,
Washngton, D. C, December 1 , 1933.
Coectors of Interna Revenue and Others Concerned:
1. oowng the repea of the eghteenth amendment, t s antc-
ated that many reta and whoesae deaers n fermented mat
quors w desre to e pand ther paces of busness so as to ncude
the sae of quors contanng more than 3.2 per cent of acoho by
weght. Numerous nqures are beng receved from coectors and
others concerned n regard to the procedure whch must be foowed
n order for mat quor deaers to quafy as reta and whoesae
quor deaers.
2. Persons desrng to procure speca ta stamps as reta and
whoesae quor deaers are requred to fe returns wth the coec-
tors of nterna revenue for ther dstrcts, on orm 11, accompaned
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53
by proper remttance of ta , n accordance wth the rates prescrbed
as foows:
Secton 3244, Revsed Statutes, as mended, ourth Subdvson.
That reta deaers In quors sha pay 25.
very person who ses or offers for sae, foregn or domestc dsted
sprts, wnes, or mat quors, otherwse than as herenafter provded, n ess
quanttes th n 5 wne gaons at the same tme, sha be regarded as a reta
deaer In quors.
Whoesae quor deaers sha each pay 100.
very person who ses, or offers for sae, foregn or domestc dsted sprts,
wnes, or mat quors, otherwse than as herenafter provded, n quanttes
of not ess than 5 wne gaons at the same tme, sha be regarded as a
whoesae quor-deaer.
ut no dster who has gven the requred bond and who ses ony ds-
ted sprts of hs own producton at the pace of manufacture, or at the pace
of storage n bond, n the orgna packages to whch the ta -pad stamps are
aff ed, sha be requred to pay the speca ta of a whoesae quor-deaer on
account of such saes.
Secton 324 , Revsed Statutes, as mended.
Nothng n ths chapter sha be construed to mpose a speca ta upon
vntners who se wne of ther own growth, or manufacturers who se wne
produced from grapes grown by others, at the pace where the same Is made
or at the genera busness offce of such vntner or manufacturer: Provded,
That no vntner or manufacturer sha have more than one offce for the sae ot
such wne that sha be e empt from speca ta under ths ct nor sha any
speca ta be mposed upon apothecares as to wnes or sprtuous quors whch
they use e cusvey n the preparaton or makng-up of medcnes.
Nor sha any speca ta be mposed upon manufacturng chemsts or favor-
ng e tract manufacturers for recoverng ta -pad acoho or sprtuous quors
from dregs or marc of percoaton or e tracton f sad recovered acoho or
sprtuous quors be agan used n the manufacture of favorng e tracts.
Secton 3243, Revsed Statutes.
The payment of any ta mposed by the nterna-revenue aws for carryng
on any trade or busness sha not bo hed to e empt any person from any
penaty or punshment provded by the aws of any State for carryng on the
same wthn such State, or n any manner to authorze the commencement or
contnuance of such trade or busness contrary to the aws of such State or In
paces prohbted by muncpa aw nor sha the payment of any such ta be
hed to prohbt any State from pacng a duty or ta on the same trade or
busness, for State or other purposes.
3. quafed whoesae quor deaer can not se quors n reta
quanttes of ess than 5 gaons wthout ncurrng abty as a
reta quor deaer. Lkewse, a quafed reta quor deaer can not
se quors n whoesae quanttes of 5 gaons or more to the same
party at the same tme wthout ncurrng abty to speca ta as a
whoesae quor deaer.
4. Pursuant to the provsons of secton 3237, Revsed Statutes, as
amended, the ta es referred to above sha be due on the 1st day of
uy n each year, or on commencng any trade or busness on whch
such ta s mposed. In the former case the amount of ta due s
reckoned for one year, and n the atter case the amount of ta
requred s prorated from the 1st day of the month n whch such
busness was commenced to the end of the fsca year.
5. Treasury Decson 415, ssued September 30, 1901, dstngushes
between the busness of a mat quor deaer and a quor deaer n
the foowng manner:
The busness of a reta mat-quor deaer beng under the statute a separate
busness from that of a reta quor deaer, one who begns the busness of a
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537
IMso.
reta mat-quor deaer and takes out the requste speca-ta stamps for the
year, and thereafter begns busness as a reta quor deaer and takes out the
speca-ta stamp as such deaer, s not entted to the redempton of the speca-
ta stamp ssued to hm as a reta mat-quor deaer.
. person who s aready engaged n the sae of mat quors and
desres to e pand hs busness n order to se dsted sprts and
wnes w be requred to quafy as a quor deaer on a prorated bass
from the 1st day of the month n whch such busness was com-
menced to the end of the fsca year, and no refund of the speca
ta pad as a mat quor deaer w be aowed.
7. speca ta payer does not ncur the 25 per cent and specfc
penates when he commences the sae of dsted sprts and wnes,
provded he fes a return on orm 11 and remts the requred ta to
the coector of nterna revenue on or before the ast day of the
month n whch he commences busness as a reta or whoesae quor
deaer.
8. persons now n possesson of reta and whoesae quor
deaers speca ta stamps, ssued pursuant to the provsons of the
Natona Prohbton ct and the ct of March 22, 1933, w not bo
requred to purchase new stamps for the remander of the present
fsca year n order to conduct the sae of dsted sprts, wnes, and
fermented mat quors after the effectve date of the twenty-frst
amendment.
9. ttenton s aso drected to the fact that reta and whoesae
fermented quor deaers speca ta stamps, ssued to cover the sae
of beer contanng not more than 3.2 per cent of acoho by weght,
may aso be used to cover the sae of mat quors of a hgher
acohoc content.
10. It s the beef of the ureau that the dssemnaton of the
nformaton contaned n ths mmeograph by coectors to a of
the deaers n ther respectve dstrcts may resut n the emnaton
of msunderstandng and n a number of cases obvate the necessty
on the part of such deaers of purchasng two speca ta stamps.
11. Correspondence n regard to the procedure outned heren
shoud refer to the number of ths mmeograph and to the symbos
MT:ST.
Guy T. everng,
Commssoner.
III-23- 829
T. D.4435
ng of packages for entry nto bonded warehouses.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue, Dstrct Supervsors, and Others
Concerned:
Paragraph 27 of the Gaugng Manua, anuary, 1934, s hereby
amended to read as foows:
packages of dsted sprts beow 150 proof w be fed to capacty,
e cept (1) where upon suspenson of dstng operatons there are nsuff-
cent sprts to competey f the ast package, or (2) where, upon appca-
ton and proper showng, the Commssoner may authorze a certan wantage
77 2 34 18
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538
or content per package to permt subsequent heatng of the sprts In ware-
house or reducton n proof n the orgna package upon ta payment, or for
other vad reason. In such cases notaton showng the wantage aowed, or
that a unform quantty was paced n each package, or that the package was
a remnant, as the case may be, w be made by the storekeeper-gauger on
orm 1520 or orm 59 coverng the entry gauge of the packages.
Guy T. everng.
Commssoner of Interna Revenue.
pproved May 2 , 1934.
T. . CoOLIDG ,
ctng Secretary of the Treasury.
III-23- 841
T. D.4437
Wne produced by grape growers.
Treasury Department,
Offce of Commssoner of Interna Revenue.
Washngton, D. C.
To Coectors of Interna Revenue, Dstrct Supervsors, and Others
Concerned:
1. It appears that, by reasons of weather and market condtons,
many grape growers were unabe to make sae of ther 1933 crops.
To prevent compete oss of ther grapes, certan growers produced
wne therefrom wthout quafyng as wnemakers under the aw.
Such growers, n order to dspose of wnes so produced, may quafy
as wnemakers n accordance wth Reguatons No. 7, effectve May 1.
1930, reatng to the producton, fortfcaton, ta payment, etc., of
wne, or they may pay ta under the rues heren promugated. The
permsson w appy where the wne was produced by the grower
of the grapes and s st owned by hm and n hs possesson and on
the premses where the grapes were grown. Such permsson w
not appy where the grapes were crushed or the wne was produced
by partes other than the grower, or off the grower s premses: nor
where the grower has parted wth tte to the grapes or the wne
produced therefrom.
2. The permsson e tends ony to natura wne contanng not
more than 14 per cent of acoho by voume. It does not e tend to
fortfed wne.
3. grower choosng n accordance wth ths reguaton to quafy
as a wnonaker must make appcaton, accompaned by a suffcent
bond, wthn 0 days after the date of the approva of ths regua-
ton. fter quafyng he w ake up on hs monthy reports as
a wnemaker. orms 701 and 702. a wnes on hand and n process
of manufacture.
4. grower decdng to make mmedate payment of ta nstead
of quafyng as a wnemaker w, wthn 0 days after the date of
approva of ths reguaton, submt to the coector of nterna reve-
nue such sworn statement of the crcumstances as w enabe the
coector to determne whether the case s wthn the scope hereof.
If the statement shows the case not wthn the scope hereof, the
coector w notfy the party to that effect. If the statement shows
the case apparenty wthn ths reguaton, the coector w cause
an nspecton to be made to verfy the aegatons, and determne
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539
Msc.
the amount of the wne and the acohoc content. If the report
|ustfes, the coector w notfy the grower of the amount of ta
due, and the grower forthwth w make payment of the ta , and
the coector w ssue wne stamps n the necessary amounts and
denomnatons to be aff ed to the contaners of the wne and canceed.
grower thus makng payment of ta on the wne w not be sub-
|ect to speca ta as a whoesae or reta deaer under the nterna
revenue aws. e w not, however, thereby gan any mmunty
under any oca aw or ordnance, etc.
Guy T. everng,
Commssoner of Interna Revenue.
pproved May 28, 1934.
. MO G NT U, r.,
Secretary of the Treasury.
RRISON N RCOTIC L W, S M ND D Y S CTION
432 O T R NU CT O 1928.
III-12- 713
Mm.415
Regstraton of departments of chemstry, medcne, dentstry,
veternary, and pharmacy, n schoos, coeges, and unverstes.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, ebruary 87, 193 .
Coectors of Interna Revenue and Others Concerned:
1. The attenton of ths ureau has been drected to the fact that
an apparent ack of unformty e sts wth respect to the regstra-
ton, under the arrson narcotc aw, as amended, of departments
of chemstry, medcne, dentstry, veternary, and pharmacy n var-
ous schoos, coeges, and unverstes throughout the country.
2. Secton 1 of the arrson narcotc aw, as amended by secton
432 of the Revenue ct of 1928, requres the regstraton and pay-
ment of nterna revenue ta es on or before uy 1 of each year, as
foows:
Importers, manufacturers, producers, or compounders, 24 a year|
whoesae deaers, 12 a year reta deaers, 3 a year physcans, dentsts,
veternary surgeons, and other practtoners awfuy entted to dstrbute,
dspense, gve away, or admnster any of the aforesad drugs to patents upon
whom they n the course of ther professona practce are In attendance, sha
pay 1 each year or fracton thereof durng whch they engage n any of such
actvtes.
3. Pursuant to artce 10, Reguatons 5, ssued by the ureau of
Prohbton n anuary, 1928, persons sub|ect to ta under the above-
mentoned aw are dvded nto casses as foows:
Cass.
nnua
ta rate.
I
24
II
12
III
8
I
1

1
abe.
Importers, manufacturers, producers, compounders, chemsts.
Whoesae deaers.
Reta deaers.
Physcans, dentsts, veternary surgeons, and other practtoners.
Manufacturers of and deaers n e empt preparatons (ncudng dspensng physcans).
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540
4. Pursuant to the authorty contaned n the ct entted n
ct to create n the Treasury Department a ureau of Narcotcs,
and for other purposes, approved une 14, 1930, t has been hed
that the use of narcotcs as a part of the actvtes of medca schoos
and coeges s more an actvty of a practtoner than a compounder,
and such nsttutons have been requred to regster under Cass I ,
and pay speca ta at the rate of 1 a vear.
. Ths cassfcaton of medca schoos and coeges, however,
does not ncude a coeges or departments of a unversty whch
mght have use for narcotc drugs, such as for nstance a department
of chemstry, nasmuch as the use of narcotc drugs n the two types
of nsttutons vary. It woud appear that n medca schoos and
coeges generay narcotc drugs are used prmary for demonstra-
ton purposes n order to famarze students wth the physca and
chemca propertes of the varous preparatons. Other coeges
have departments whch u .arcotc drugs amost e cusvey for
research and e permenta purposes. The, use of narcotcs for these
purposes s not n the nature of a practtoner s use but more that of
a compounder, and such nsttutons are cassfed n Cass I and
requred to pay the same rate of ta as a compounder.
. Coeges of medcne and pharmacy may ordnary be regstered
n Casses I and III respectvey as at present, but the hgher
speca ta abty n Cass I w appy to such of these as are
engaged n anaytca and/or e permenta work and a other edu-
catona nsttutons where other departments are regstered to
obtan narcotcs soey for research or e permenta purposes.
7. In the regstraton of educatona nsttutons coectors shoud
ascertan the purpose for whch such nsttutons purchase narcotc
drugs before they can be propery cassfed. In order to nsure
unformty of acton coectors sha conduct a survey of the educa-
tona nsttutons regstered wthn ther respectve dstrcts for
the purpose of read|ustng regstraton and ta wherever necessary.
8. Correspondence reatve to the procedure outned heren shoud
refer to the number of ths mmeograph and to the symbos MT: ST.
Wrght Matthews,
ctn g Co-mm - s n er.
S CTION 3 O T INSON CT (PU LIC, NO. 135,
S NTY-T IRD CONGR SS).
III-22- 822
T. D.4434
Secton 3 of the nson ct cess profts on N:vy contracts.
Treasury Department.
Offce of the Secretary of the Treasury,
Washngton, D. C.
Navy Department,
Offce of the Secretary f the Navy.
Washngton, / . C.
To Offcers and mpoyees of the Treasury Department, the Nary
Department, and Others Concerned:
The ct known as the nson ct (Pubc, No. 135, Seventy-thrd
Congress, . R. 04), was approved March 27, 1934, and s entted
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n ct to estabsh the composton of the Unted States Navy wth
respect to the categores of vesses mted by the treates sgned at
Washngton, ebruary , 1922, and at London, pr 22, 1930, at the
mts prescrbed by those treates to authorze the constructon of
certan nava vesses and for other purposes. The ct, among
other thngs, authorzes the Presdent, sub|ect to the provsons or
those treates, to undertake the constructon of certan nava vesses
and nava arcraft or parts thereof. Secton 3 of the ct provdes:
Sec. 3. The Secretary of the Navy s hereby drected to submt annuay to
the ureau of the udget estmates for the constructon of the foregong vesses
and arcraft and there s hereby authorzed to be approprated such sums as
may be necessary to carry nto effect the provsons of ths ct: Provded, That
no contract sha be made by the Secretary of the Navy for the constructon
and/or manufacture of any compete nava vesse or arcraft, or any porton
thereof, heren, heretofore, or hereafter authorzed uness the contractor
agrees
(a) To make a report, as herenafter descrbed, under oath, to the Secretary
of the Navy upon the competon of the contract.
( ) To pay nto the Treasury proft, as herenafter provded sha be deter-
mned by the Treasury Department, n e cess of 10 per centum of the tota
contract prce, such amount to become the property of the Unted States: Pro-
vded, That f such amount s not vountary pad the Secretary of the Treas-
ury may coect the same under the usua methods empoyed under the nterna
revenue aws to coect edera ncome ta es.
(c) To make no subdvsons of any contract or subcontract for the same
artce or artces for the purpose of evadng the provsons of ths ct, but
any subdvson of any contract or subcontract Invovng an amount n e cess
of 10,000 sha be sub|ect to the condtons heren prescrbed.
(d) That the manufacturng spaces and books of ts own pant, affates,
and subdvsons sha at a tmes be sub|ect to nspecton and audt by any
person desgnated by the Secretary of the Navy, the Secretary of the Treasury,
and/or by a duy authorzed commttee of Congress.
(e) To make no subcontract uness the subcontractor agrees to the fore-
gong condtons.
The report sha be n form prescrbed by the Secretary of the Navy and
sha state the tota contract prce, the cost of performng the contract, the
net ncome, and the per centum such net ncome bears to the contract prce.
copy of such report sha be transmtted to the Secretary of the Treasury for
consderaton n connecton wth the edera ncome ta returns of the con-
tractor for the ta abe year or years concerned.
The method of ascertanng the amount of e cess proft to be pad nto the
Treasury sha be determned by the Secretary of the Treasury n agreement
wth the Secretary of the Navy and made avaabe to the pubc. The method
ntay f ed upon sha be so determned on or before une 30, 1934: Pro-
vded, That n any case where an e cess proft may be found to be owng to the
Unted States n consequence hereof, the Secretary of the Treasury sha aow
credt for any edera ncome ta es pad or remanng to be pad upon the
amount of such e cess proft.
The contract or subcontracts referred to heren are mted to those where
the award e ceeds 10,000.
The method of ascertanng the amount of e cess proft to be
pad to the Unted States n respect of contracts entered nto under
the nson ct sha be as foows:
The e cess proft sha be determned on each contract separatey
upon the competon or other termnaton of the contract. The
amount of such e cess proft sha be the amount of the proft on
the contract n e cess of 10 per cent of the tota contract prce.
The amount of the proft on the contract sha be the dfference
contract. The cost of performng the contract sha be the drect
between the tota contract
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542
costs, such as matera and abor, ncurred by the contractor n per-
formng the contract, pus a reasonabe proporton of any ndrect
costs (ncudng overhead or genera e penses) appertanng to the
contract whch are not usuay drecty aocated to the cost of per-
formng the contract. No genera rue may be stated for ascertan-
ng the reasonabe proporton of the ndrect costs to be aocated to
the cost of performng a contract whch woud be appcabe to a
cases. The proper proporton of the ndrect costs to be apped to
the cost of performng a partcuar contract depends upon a the
facts and crcumstances reatng to the performance of the partcu-
ar contract. The contractor sha ncude as a part of the report
requred to be made to the Secretary of the Navy upon the compe-
ton or other termnaton of the contract, a statement e panng the
manner n whch such ndrect costs were determned and aocated
to the cost of performng the contract.
copy of the report reatng to the contract requred to be made
to the Secretary of the Navy sha mmedatey upon competon or
other termnaton of the contract be fed by the contractor wth
the coector of nterna revenue for the coecton dstrct n whch
the contractor s edera ncome ta returns are requred to be fed.
The contractor sha pay any e cess proft dscosed n such report
to the coector of nterna revenue at the tme such report s hed.
The duty of determnng the proft, and the e cess proft, f any,
on contracts entered nto under the nson ct s hereby deegated
to the Commssoner of Interna Revenue.
If the Commssoner determnes n respect of any contract entered
nto under the nson ct that there s an e cess proft n an amount
e ceedng the e cess proft, f any, shown upon the copy of the re-
port fed wth the coector of nterna revenue and aready pad,
or, n case no such copy s fed and/or no e cess proft s pad, the
Commssoner fnds and determnes that the contract has been com-
peted or otherwse termnated and that an e cess proft has been
receved, the Commssoner may proceed to coect such unpad
e cess proft under the usua methods empoyed under the nterna
revenue aws to coect edera ncome ta es.
T. . Coodoe,
ctng Secretary of the Treasury.
Mat 19, 1934.
greed to by
Wam D. Leahy,
ctng Secretary of the Navy.
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OL OM RG RIN .
I1I-2- 597
MS. 14
Schedue of oeomarparne produced and materas used durnp the month of
November, 1933, as compared rcth November, 1932.

November,
1933.
November,
1932.
Pounds.
I 23, 724,099
Pounds.
18.98 , CM
Ingredent schedue for uncoorod oeomargarne:
22, 798. 520
19.134,7 0
477
35
14,242, 587
40,805
1,909,310
2,187
304
11,8 3.417
1,097
1,355,289
32,490
45
Mk
,703, 204
788,755
1,743,154
209,11
40,9 5
51,435
2 4.790
1,382,855
9,854
11,517
4, 429,307
781,019
973, 97
279,820
30,588
1 ,800
212.1 2
1,048. 148
,7 8
Neutra ard
Oeo o
Tota
28,521,301
21,030.999
218, 559
179,448
Ingredent schedue (or coored oeomargarne:
39,540
47,508
utter -
57
Cocoanut o..
4,125
204
29,098
302
1, 8
13,254
5.08
1,7 2
315
8,200
1,849
17,248
1
15
72,128
204
23,128
7
Coor
Dervatve of gycerne
Mk
58,083
22,822
41, 247
2, 85
1,048
7,150
2,945
15, 378
8
Neutra ard
Oeo stearne
Pam o -
Peanut o
Sat
Tota
2 3,21
244, 828
1 Of the amount produced, 4,552 pounds wore reworked.
1 Of the amount produced, 1 ,798 pounds were reworked.
1 Of the amount produced, 128 pounds were reworked.
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544
III- - 4T
MS. 147
Schedue of oeomargarne produced and matera used (hrng the month of
December, I I3, (s compared ctth December, 19S2.
December,
December,
1932.
Pounds.
21,045,338
Pounds.
19,878. 88
Tota wthdrawn ta -pad
20, 798, 707
19.408,89
Ingredent schedue for uncoored oeomargarne:
utter
u
80
Lecthn
12,920,437
11,9 5
1, 729, 57
,595
232
5. 009,851
7,02
1, 187,742
21 ,0 4
35, 12
33, 50
244,2 4
1,228,87
7,895
7,471
12, 151,4
1,732
1,483,383
32,427
0
Mk
4, 4, 112
942,035
1,1 9,827
271,482
24,120
17,210
204, 03
1,144,822
.340
Sat -
Soda (henzoate of) _
Sugar
Tota
23, 357,191
22, 114,299
Tota producton of coored oeomargarne
840.474
2 3,549
Ingredent schedue for coored oeomargarne:
34.772
,897
Coor
108,0 2
304
55,8 3
40
9 , 39
28.509
79,2 8
8,92
4, 38
82,710
240
35.2

Cottonseed o..
Mk
72,010
2 ,398
4 , 489
4, 19
200
1 ,190
1, 0
2,094
Sat..
27,22
3
29
Pugur .
Tota
411,480
303.393
Of the amount produced, 4,839 pounds were reworked.
Of the amount produced, 8,274 pounds were reworked.
Of the amount produced, 4,980 pounds were reworked.
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545
Mso.
III-11- 701
MS. 148
Schedue of oeomargarne produced and materas used durng Ike month of
anuary, 1934, as compared wth anuary, 1933.
-: 1
anuary,
1934.
anuary,
1933.
Pound.
1 17, 2 ,472
Ptmnt.
1 20,810,940
Tota wthdrawn ta -pad
18,388,9 0
20.852,158
Ingredent schedue for uncoored oeomargarne:
utter
1,575
10,4 8, 150
00
1, 494, 402
44, 1
288
4,242,931
815,841
I, 17 ,943
257,852
23,5 5
31,124
219, 995
1.02 ,892
7,030
9,228
242
13,357, 454
1,297
1,442,092
30,857
44
Mk
4,972,203
715, 235
920, 470
25 ,499
21,875
1 , 49
2 2,737
1,153, 74
8,534
Oeo stock
Peanut o
Sat
Soda (benzoateof)
Tota
19,820, 582
23,1 5,8 3
243.885
211, 01
Ingredent schedue for coored oeomargarne:
utter
32,150
45,488
Coor
90, 224
199
120
7 ,8 0
137
17
Dervatve of gycerne -
41, 737
134
9,590
20,355
42.978
7,050
305
24,981
19
Mk
, 449
19, 03
34. 11
1,9 5
5 5
8,500
2,808
1 , 18
11
Oeo o
Pam o
1,27
21,274
2
0
Sat
Tota
295,184
253,2 4
1 Of the amount produced, 12,244 pounds were reworked.
1 OI the amount produced, 8,171 pounds were reworked.
1 Of the amount produced, 10 pounds were reworked.
Of the amount produced, 12 pounds were reworked.
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4
III-15- 750
MS. 149
Schedue of oeomargarne produced and materas used durng the month of
ebruary, S , as compared wth ebruary, 1933.
ebruary,
1934.
ebruary,
1933.
Tota producton of uncoorcd oeomargarne.
Tota wthdrawn ta -pad -
Ingredent schedue (or uueoorcd oeomargarne:
utter
Cocoanut o - -
Com o
Cottonseed o
Dervatve of gycerne
Lecthn - - -
Mk-
Neutra ard .
Oeo o..
Oeo stearne.
Oeo stock
Pam o
Peanut o
Sat.
Soda (benzoate of).
Sugar
Tota. _
Tota producton of coored ocomargnrne.
Tota wthdraw n ta -pud
Ingredent schedue for coored oeomargarne:
Cocoanut o
Coor...
Cottonseed o
Dervatve of gycerne
Mk.
Neutra ard
Oeo o
Oeo sfearne.
Oeo stock
Pam o
Peanut o
Sat....
Soda (bentoate of)..
Sugar
Tota.
Pounds.
21,339,483
Potndt.
17.071,153
21, 18. 593
950
12 070, 15
500
1,849,01
54, 24
451
4.U71.0I9
889,84
1, 492, 919
24 ,015
25.289
1 ,732
192, 70
1,173,343
7,994
10,410
17,1 1,852
190
10, 39,930
2,490
1.241). 44
28,728
3
3.933.193
87, 529
911,1 4
228, m
17,730
11,02
140,991
9 5.31
5,831
23. 02,570
18,821,777
232, 739
174. 943
34.U22
3 . 73
74,90
177
40,382
83
9,5
21.819
48, 00
5,740
175
1,83
19,0 1
8
49
282,403
.309
187
24, 148
1
55,209
15.980
27,999
2.59
275
7,300
2,220
15, 138
217,3S
I Of the amount produced, 4,435 pounds were reworked.
Of the amount produced, 5,932 pounds were reworked.
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547
Msc.
III-19- 789
MS. 150
/Schedue of oeomargarne produced and materas used durng month of March,
1934, as compared wth March, 193S.
March, 1 34.
March, 1933.
Tota producton of uncoored oeomargarne.
Tota
Pounds.
23, 278,52
Ingredent schedue (or uncoored oeomargarne:
utter
Cocoanut o
Corn o
Cottonseed o
Tota.
Tota producton of coored oeomargarne..
Tota wthdrawn ta -pad _
Ingredent schedue for coored oeomargarne:
utter
Cocoanut o
Coor
Com o
Cottonseed o -
Dervatve of gycerne
Mk
Neutra ard..
Oeoo
Oeo stearne.
Ooo stock
Pam o.
Peanut o.
Sat __
Soda (benzoate of).
Tota.
21, 22,510
2 ,023,04
337,942
58,97
11)3, DM
357
4,412
3 2
98.350
29,928
70,432
12,137
1,050
2,814
15
0
411, 82
Of the amount produced, ,74 pounds were reworked.
1 Of the amount produced, 3, 35 pounds were reworked.
Of the amount produced, 19 pounds were reworked.
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548
III-23- 838
MS. 151
Schedue of oeomargarne produced md materas used durng the month of
pr, 1934, M compared wth pr, 1933.
c- . -. -. .
pr, I 34.
pr, 1933.
Tota producton of uncoored oeomargarne
Pounds.
17,773,92
Pounds.
1 20, 181, 102
Ingredent schedue for uncoored oeomargarne:
20,722,788
380
400
Lecthn
10,488,100
700
2,027,8 5
42,201
200
4,147,911
89,549
1,055, 131
23 ,29
22,01
12,70 . 13
7,095
1,340, 89
33,984
92
Mk ... .
212,378
1,014,329
,725
4, 783,090
Tt, 205
1,0 1.581
274,785
2 ,71
42,94
201.897
1, 151, 290
7.789
3, 40
10, 272
Sat
9,490
Tota
19,853,3 1
22,409,084
Tota producton of coored oeomargarne
248,588
257, 4 5
Tota wthdrawn ta -pad. -
37,442
Tso
Ingredent schedue for coored oeomargarne:
70, 00
307
81,007
225
30
41,510
Mk
44,893
32
77,370
25,115
50,012
8, 30
1
7 ,041
as
7, 05
1,050
2,840
21,021
14
54
14,800
2,001
Sat
1,8 8
24
301,843
308, 5
Of the amouDt produced, 13, 08 pounds were reworked.
Of the amount produced, 7,857 pounds were reworded.
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549
Msc.
MISC LL N OUS.
III-15- 748
. . 70. PU LIC, NO. 88, S NTY-T IRD CONGR SS. D R L
RM MORTG G CORPOR TION CT.
n ct to provde for the estabshment of a corporaton to ad
In the refnancng of farm debts, and for other purposes.

Sec. 12. (a) The corporaton, ncudng ts franchse, ts capta,
reserves, and surpus, and ts ncome sha be e empt from a ta a-
ton now or hereafter mposed by the Unted States, by any Terr-
tory, dependency, or possesson thereof, or by any State, county,
muncpaty, or oca ta ng authorty e cept that any rea prop-
erty of the corporaton sha be sub|ect to State, Terrtora, county,
muncpa, or oca ta aton to the same e tent accordng to ts vaue
as other rea property s ta ed.
(b) Mortgages e ecuted to the Land ank Commssoner and
mortgages hed by the corporaton, and the credt nstruments se-
cured thereby, and bonds ssued by the corporaton under the pro-
vsons of ths ct, sha be deemed and hed to be nstrumentates
of the Government of the Unted States, and as such they and the
ncome derved therefrom sha be e empt from edera, State,
muncpa, and oca ta aton (e cept estate, nhertance, and gft
ta es).

pproved anuary 31, 1934.
III-15- 749
. R. 7928. PU LIC, NO. 107, S NTY-T IRD CONGR SS.
n ct to amend subsecton (b) of secton 12 of the ct en-
tted n ct to provde for the estabshment of a corporaton
to ad n the refnancng of farm debts, and for other purposes,
approved anuary 31, 1934.
e t enacted by the Senate and ouse of Representatves of tha
Unted States of merca n Congress assembed, That subsecton
(b) of secton 12 of the ct entted n ct to provde for the
estabshment of a corporaton to ad n the refnancng of farm
debts, and for other purposes, approved anuary 31, 1934, s
amended to read as foows:
(b) Mortgages e ecuted to the Land ank Commssoner and mortgages hed
by the corporaton, and the credt nstruments secured thereby, and bonds
ssued by the corporaton under the provsons of ths ct, sha be deemed
and hed to be nstrumentates of the Government of the Unted States, and
as such they and the ncome derved therefrom sha be e empt from edera,
State, muncpa, and oca ta aton (e cept surta es, estate, nhertance, and
gft ta es).
pproved ebruary 2 , 1934.
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Msc.
550
. It. 747S. PU LIC, NO. 142, S NTY-T IRD CONGR SS.
III-19- 788
ct to amend the grcutura d|ustment ct so as to ncude
catte and other products as basc agrcutura commodtes, and
for other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed. That secton 11
of the grcutura d|ustment ct, as amended, s amended by
addng after the word hogs a comma and the word catte.
Sec. 2. Subsecton (a) of secton 12 of the grcutura d|ust-
ment ct, as amended, s amended by addng at the end thereof a
new paragraph as foows:
To enabe the Secretary of grcuture to fnance, under such terms and con-
dtons as he may proscrbe, surpus reductons and producton ad|ustments
wth respect to (he dary- and beef-catte Industres, and to carry out any of
the purposes descrbed n subsectons (a) and (b) of ths secton (12) and to
support and baance the markets for the dary and beef catte ndustres,
there s authorzed to be approprated, out of any money n the Treasury
not otherwse approprated, the sum of 200,000,000: Provded, That not more
than 00 per centum of such amount sha be used for ether of such ndustres.
Sec. 3. (a) Subsecton (d) of secton 9 of the grcutura d|ust-
ment ct, as amended, s amended by renumberng paragraph (5)
as paragraph ( ) and by addng after paragraph (4) a new para-
graph as foows:
(5) In case of peanuts, the term processng means the ceanng, posh-
ng. gradng, sheng, crushng, or other processng thereof.
(b) Secton 11 of such ct, as amended, s amended by addng
after the word tobacco a comma and the word peanuts.
Sec. 4. Secton 11 of the grcutura d|ustment ct, as amended,
s amended by addng after the word wheat a comma and the
words rye, fa , barey.
Sec. 5. Secton 11 of the grcutura d|ustment ct, as amended,
s amended by addng after the words fed corn a comma and
the words gran sorghums.

Sec. 7. The frst sentence of subsecton (2) of secton 8 of the
grcutura d|ustment ct, as amended, s amended to read as
foows: fter due notce and opportunty for hearng, to enter
nto marketng agreements wth processors, producers, assocatons
of producers, and others engaged n the handng of any agrcutura
commodty or product thereof, n the current of or n competton
wth, or so as to burden, obstruct, or n any way affect, nterstate
or foregn commerce.
pproved pr 7, 1934.
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551
I Msc.
III-5- 30
D. C. 230 (Revsed)
Laws and Reguatons Governng the Recognton of ttorneys, gents,
and Other Persons Representng Camants and Others efore thh
Treasury Department and Offces Thereof.
1934. Second Suppement to Department Crcuar No. 230 (Revsed) of uy 1, 1927.
Commttee on nroment and Dsbarment.
Treasury Department,
Offce of the Secretary,
Washngton, anuary 5,193 .
Secton 1 of Treasury Department Crcuar No. 230 (revsed) dated
uy 1, 1927, prescrbng rues and reguatons governng the recog-
nton of attorneys and agents and other persons representng cam-
ants before the Treasury Department and offces thereof as amended
by frst suppement dated ugust 8, 1933, s hereby further amended
to read as foows:
commttee on enroment and dsbarment Is hereby created consstng
of s members who sha be apponted by the Secretary of the Treasury, of
whom two sha be detaed from the offce of the Secretary. The Secretary
of the Treasury sha desgnate a charman and vce charman of the com-
mttee. The charman sha be desgnated from the members detaed from
the Secretary s offce. The commttee sha make such rues for ts own govern-
ment as t consders advsabe. The commttee sha meet reguary on Tues-
day and rday of each week f a busness day, and sha meet on other
days at the ca of the charman. Three members sha consttute a quorum.
The commttee sha receve and consder appcatons to be recognzed as
attorney, agent, or other representatve before the Treasury Department or
offces thereof receve compants aganst those enroed conduct hearngs
make nqures perform other dutes as prescrbed heren, and do a thngs
necessary n the matter of proceedngs for enroment, suspenson, or dsbar-
ment of such attorneys, agents, or other representatves, pursuant to these
reguatons and submt ts recommendatons thereon to the Secretary of the
Treasury for approva.
The Secretary of the Treasury sha appont an attorney for te commttee
who sha not be a member of the commttee. Such attorney sha be the
ega advser of the commttee, present a forma compants aganst enroed
attorneys or agents, and represent the Government n a proceedngs before the
commttee. Such attorney sha aso be the secretary of the commttee and
sha keep and mantan ts records and sha have the custody of a of ts
papers, records, ros, etc.
. Moroenthat|, r.,
Secretary of the Treasury.
1 III-2 - 870
Dsbarments and suspensons from practce before Treasury Department of
attorneys and agents
dsbarments.
The Secretary of the Treasury, after due notce and opportunty
for hearng, has ordered the dsbarment from further practce be-
Ths rung (0870) ncudes aso run s Nos. 0588, 0598. 0R07, 0021, 0033. 040,
0 50, 08, 82, 091, 702, 0714, 727, 739, 0751, 700, 0770, 0778, 0790. 802. 0813,
823, 0839. 0852. and 883. These rungs have been thus consodated because pubca-
ton of each one separatey woud be argey dupcaton.
Ths st Incudes a attorneys and agents whose dsbarment from practce before
the Treasury Department was pubshed durng the 12-month perod ended une 30, 1934,
and a suspensons n effect durng the -month perod anuary 1- une 30, 1934,
ncusve. It does not ncude those barred from practce by reason of dsapprova of
ther appcaton for enroment.
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MI8C
552
fore the Treasury Department of the foowng-named attorneys and
agents:
Name.
ddress.
Date of
dsbarment.
, .
en, W. 8
acchus, Robert R.
urnett, Lews
urns, ames
Cathrae, T IIam M
Chaken, rank D_.
Cark, Pau
Oarke, orrest S.._
Crane, Rchard M
Davdson, Robert..
Davs, ames C.
Dorenkamp, enry
.
conn, braham .
Gorman, ohn
ackett, Chauncey.
erehy, Catherne
.
Rndenang, Theo-
dore O.
ames, Davd
eer, I 8
rssnff, braham.
ormery ous-
ton, Te ., now
Pontac, Mch.
Los ngees, Caf
Sprngfed, 111...
New York, N.Y
Phadepha, Pa.
usts, a
New York, N.Y.
Orange, Caf....
Modesto, Caf..
Denver, Coo...
Detrot, Mch...
ort Smth, rk.
Lousve, y...
ormery Toedo,
Oho, now De-
trot, Mch.
Chcago, III.
ormery Wash-
ngton, D. C,
now Provnce-
town, Mass.
Detrot, Mch
Newark, N. ..
Lackey, Carence ..
Indanapos, Ind.
Los ngees, Caf.
ormery New
York, N.Y., now
Long ranch,
N. .
ormery St.Lous.
Mo., now ast
St. Lous, 111.
une 30,1933 Charged wth embet ng funds of an empoyer.
Charges found proved.
Mar. 30, L934 I Charged wth havng been convcted n State
court for msappropraton of funds. Charges
found proved.
Mar. 1,1933 I Charged wth knowngy preparng fase n-
come ta returns for 2 ta payers. Charges
found proved.
an. 4,1933 I Charged wth attemptng to e tort money from
a cent to setto an aeged defcency n n-
come ta . Charges found proved.
uno 1,1934 I Charged wth makng fase Income ta returns
for hmsef. Charges found proved.
May 17,1934 I Charged wth knowngy preparng frauduent
ncome ta returns for ta payers. Charges
found proved.
May 8,1934 I Charged wth faure to fe ncome ta returns
and to pay ncome ta es for two years.
Charges found proved.
une 30,1933 Charged wth theft of funds and convcton for
such offense In State court. Charges found
proved.
une 30,1933 Charged wth embetng funds of a ta payer.
pad to respondent to be devered to coector
of Interna revenue. Charges found proved.
une 28,1933 Charged wth havng been convcted for con-
spracy to defraud, n State court. Charges
found proved.
Mar. 28,1934 Charged wth ssung worthess checks to a
coector of Interna revenue n payment of
ta es, and wth other offenses. Charges
found proved.
une 30.1933 I Charged wth preparng fase ncome ta
returns, and frauduenty procurng a cosng
agreement In two ta coses. Charges found
proved.
May 4,1934 I Charged wth preparng a fase edera Income
ta return for a ta payer and wth havng
been convcted n Unted States dstrct
court for preparng such fase return.
Charges found proved.
May 20,1934 I Charged wth knowngy fng protest contan-
ng fase statement of facts n a ta case for a
ta payer and makng fase statement of
facts before a conference on such ta case.
Charges found proved.
eb. 23,1933 I Charged wth havng been dsbarred by the
Supreme Court of the State of Inos.
Charges found proved.
May 18,1934 I Charged wth havng been dsbarred as an
attorney by the Supreme Court of the Ds-
trct of Coumba. Charges found proved,
ug. 2,1933 I Charged wth havng been dsbarred from
practce as an attorney n the edera court
of the eastern dstrct of Mchgan. Charges
found proved.
une 30,1933 Charged wth havng been dsbarred by the
Supreme Court of New ersey. Charges
found proved.
une 30,1933 I Charged wth embattng funds pad to re
sponden to be devered to the coector of
nterna revenue. Charges found proved.
eb. 2,1933 Charged wth havng been convcted and
sentenced n a crmna case n a Sate court.
Charges found proved.
pr. 10.1931 I Charged wth havng been dsbarred by the
Supreme Court of New York for professona
msconduct. Charges found proved.
eb. 2 , 1934 1 Charged wth havng been ndcted and con-
vcted for makng fa e ncome ta returns
I for a ta payer. Charges found proved.
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553
Msc.
Name.
ddress.
Date of
dsbarment.
Cause.
Lchtenberg, oseph
McLaurn, Syvester
I
Neey, Robert .
O ren, ugh ...
O Tooe, rthur ..
Pckett, Thomas Y.
Rowe, omer W...
Schmtz, Chares
Sega, bner
verstrom, Samue
D.
Staunng, ndreas
ragh.
Wenatock, Leonard
.
Woford, . C
atmore, Md
Washngton, D.C.
Chcago, n
Rochester, N.Y..
ersey Cty, N. _
Daas, Te
ormery M1 d-
and, Te ., ater
rownfed, Te .
San rancsco,
Caf.
ormery Wash-
ngton, D. C.
Chcago, 111.
ormcryStPau,
Mnn., now
ose, Idaho.
St. Pau, Mnn-
re, Pa
uy 20,1933
eb. 20,1934
ug. 3.1933
pr. 10,1934
pr. 10,1934
eb. 23,1933
ob. 2 ,1934
May 4,1934
une 30,1933
May 8,1934
May 3,1934
une 30,1933
eb. 24,1933
Charged wth havng been dsbarred from
practce as an attorney before the courts of
atmore, Md. Charges found proved.
Charged wth havng been dsbarred as attor-
ney by the Supreme Court of the Dstrct of
Coumba. Charges found proved.
Charged wth handng a ta case n whch
respondent ganed knowedge of the facts and
Issues nvoved whe empoyed as actng co-
ector of nterna revenue, and wth retanng
funds of the ta payer after demand made
therefor by the ta payer, sad funds havng
been receved n trust and ntended for pay-
ment to the coector of Interna revenue.
Charges found proved.
Charged wth recevng money to ad|ust the
Income ta abty of two cents and ap-
propratng such funds to hs own use.
Charges found proved.
Charged wtt havng been convcted n State
court for msappropraton of funds. Chnrges
found proved.
Charged wth havng been convcted and sen-
tenced n a crmna case n the Unted States
dstrct court. Charges found proved.
Charged wth appropratng money beongng
to a Natona arm Loan ssocaton to hs
own use. Charges found proved.
Charged wth havng been convcted and sen-
tenced n Unted States dstrct court for
conspracy to voate the Natona Prohb-
ton ct. Charges found proved.
Charged wth havng been convcted of crme,
and dsbarred as attorney by the Supreme
Court of the Dstrct of Coumba. Charges
found proved. .
Charged wth knowngy preparng and fng
fase cam for refund and procurng pay-
ment of such fase cam for a ta payer.
Charges found proved.
Charged wth msappropratng funds and wth
havng been dsbarred from practce as attor-
ney by the Supreme Court of Mnnesota.
Charges found proved.
Charged wth fng fase ncome ta returns
for hmsef. Charges found proved.
Charged wth havng been convcted and sen-
tenced n a crmna case n the Unted States
dstrct court. Charges found proved.
SUSP NSIONS.
The Secretary of the Treasury, after due notce and opportunty
for hearng, has ordered the suspenson from practce before the
Treasury Department for the perod stated n each case of the
foowng-named attorneys and agents:
Name.
ddress.
Perod of
suspenson.
Cause.
McCean, Robert
.
San rancsco,
0 days, from
eb. 21,1934.
Charged wth soctng empoyment In
edera ta matters. Charges found proved.
Phps, Martn I...
Wnters, R. C
Caf.
New York, N. Y..
1 year, from
une 30,1933.
Charged wth fng fase ncome ta returns
for hmsef. Charges found proved.
bene, Te
months, from
eb. 27, 1U34.
Charged wth havng receved the fu
amount of ta es due from a ta payer to be
pad to coector of nterna revenue and
payng such ta es n quartery nstaments.
Charges found proved.
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Msc.
554
Resgnaton from enroment to practce before the Treasury Department.
The foowng-named person has tendered hs resgnaton from
enroment to practce before the Treasury Department. The ctng
Secretary of the Treasury has accepted hs resgnaton and ordered
hs name strcken from the ro of attorneys and agents enroed to
practce before the Treasury Department. e s therefore no onger
entted to practce before the Treasury Department.
Name.
ddress.
Desgnaton.
Date of
acceptance.
ormery Washngton, D. C,
ater New York, N. Y.,
now Washngton, D. 0.
gont
Dec. 29, 1933
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IND .
.
s, accrua bass, debt partay worthess, gross
dmssons. (.See Msceaneous ta es.)
ffated corporatons, returns. (See Returns: Consodated.)
rcraft, nava, not vesses. (See Manufacturers e cseta ea.)
coho Ta Unt, estabshment and |ursdcton
mendments:
grcutura d|ustment ct
Secton 8
Secton 9
Secton 11
Secton 12 .
Gaugng manua (1934 edton), paragraph 27
Reguatons 9 (Pro.), secton 1
Reguatons 44, artce 52
Reguatons 4 , artce 71
Reguatons 2, artce 1 .5
Reguatons 5
rtce 1 5
rtce 543
rtce 5 3
Reguatons 9
rtce 1 5
rtce 543
rtce 5 3
Reguatons 74
rtce
rtce 17
rtce 205
Reguatons 77
rtce
rtce 17
rtce 205
Reguatons 81
rtce 2(f)
rtce 32
Reguatons 82, artce 1(h)
Revenue ct of 1932
Secton 17
Tte I
Treasury Decson 441
mortzaton:
ond dscount, vendee corporaton s deducton
Magaznes, new subscrptons
nnutes:
In eu of wdow s statutory rghts
Payment from trust ncome or corpus, deducton
rgentne ncome ta , credt for
rzona prvege (reta saes) ta , deducton
Rung
No.
808
S03
788
788
788
788
829
715
752
7 1
92
92
792
792
92
792
792
792
792
92
792
792
92
G23
57
23
8 2
853
83
795
18
/ 585
70
77
39
73
(555)
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55
rmy, chapan s aowance for quarters
ssessment of ta es. (See fa es.)
ssgnments, nsurance commssons, payment of assgnor s debts.
ssocatons:
Partnershp dstngushed
Syndcate cassfcaton
Trusts dstngushed
ttorneys and agents:
Dsbarments and suspensons
Reguatons governng recognton by Treasury Department,
revsed ...
utomobes, parts or accessores. (See Manufacturers e cse
ta es.)
wards:
Condemnaton
No separate aowance for severance damages, gan or oss
Smar property purchase gan or oss
Rung
No.
Trust fund hed by cty offca, ta abty of earnngs..
.
ad debts:
dvances to subsdary on notes beeved uncoectbe
urden of proof
Coecton n ater year, ncome
Deducton mpropery aowed n pror years, effect
Parta worthessness
ccrua bass, ncome and deducton
scertanment wthn ta abe year
ags ( grcutura d|ustment ct), mutwa paper, new and
unused, foor stock ta
ae tags, requrements under Cotton Contro ct
anks:
Centra, for cooperatves, e empton
edera ntermedate credt, e empton
edera and, e empton
or cooperatves
Dvdends, ta abty
empton .
Natona, Massachusetts, e cse ta es, deducton
Payments to temporary edera depost nsurance fund, bus-
ness e penses
Worthess stock, osses
aseba poos. (See Manufacturers e cse ta es: Sportng goods.)
everage ta , Oho
onds:
batement cam, sut on, survva of cause of acton
Dscount, amortzaton, vendee corporaton s deducton
ome Owners Loan Corporaton, e changed for mortgage,
gan or oss
Interest. (See Interest: onds.)
Muncpa, nterest. (See Interest: State obgatons.)
Producers, etc., of gasone and ubrcatng os
Sae and retrement, ncome
roadcastng staton, tme wre servce to
rokers, nformaton returns
ureau of Interna Revenue, coho Ta Unt, estabshment and
|ursdcton
842
737
737
737
782
737
732
0
772
845
4
795
731
( 854
8 2
734
8 1
( 32
74
803
37
35
831
21
583
99
8
1
2
171
. 759
419
870
551
30
551
12
80
1
183
94
104
744
201
783
2 0
785
33
723
229
723
229
808
281
817
ue
799
45
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557
usness e penses:
anks, payments to temporary edera depost nsurance
fund.
Compensaton for persona servces, absence of approprate
evdence, treatment
Increasng magazne crcuaton
Insurance premums pad n advance for more than year
Management, etc., of ncome-producng propertes.
Natona Industra Recovery ct
Code, ntaton and approva costs
Reta Code uthorty, assessments
C.
Caforna:
udng and oan assocaton, nterest deducton
ranchse ta es
Canada, shps earnngs, equvaent e empton
Candy. (See Manufacturers e cse ta es.)
Capta e pendtures:
Deveopment e penses, o and gas ease, eecton
Increasng magazne crcuaton
Capta gans and osses:
Stock and stock rghts
Trust property, 2-year perod
Capta stock ta :
arnngs and profts, Natona Industra Recovery ct
Massachusetts trust, carryng on busness
Orgna decared vaue-
d|ustment where porton of stock s retred
May not be ess than zero
State bank converted nto natona bank
Ta -e empt nterest, dvdends, etc
Centra ank for Cooperatves:
Dvdends, ta abty
emptons
Chapans, rmy and Navy, aowance for quarters
Checks. (See Msceaneous ta es.)
Cgarette ta , Oho
Cams aganst transferred assets, ta abty assumed by vendee
of corporaton assets
Cosng agreements. (See Ta es: na determnaton and assess-
ment.)
Coast Guard, suppes for vesses. (See Manufacturers e cse
ta es.)
Coectors, e tenson of tme for fng returns, nstructons
Commssons:
Insurance
gent, overrdng commssons, method of reportng..
ssgnment, payment of assgnor s debts
Compensaton:
owance for quarters, chapans, rmy and Navy
Deductons, absence of approprate evdence, treatment
Persona servces, empoyment contracts pror to March 1,
1913
State offcers and empoyees. (See State.)
eterans, ta abty . .
Compromse, suffcency of evdence, effect of oard s fndng
Condemnaton awards:
ed n trust by cty offca, ta abty of earnngs
No separate aowance for severance damages, gan or oss
Smar property purchase, gan or oss
Consodated returns. (See Returns.)
Rung
No.
0
85
18
85
10
58
7 4
77
717
14
0
18
755
S59
711
759
712
0
738
711
782
737
37
827
785
09
51
831
37
85
775
781
784
744
/ 12
1
94
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558
Constructve recept:
Dvdends
Checks n payment receved foowng year
Credted but not wthdrawn, subsequenty canceed
Payment n year foowng decaraton
Consuar offcers. (See Msceaneous ta es: Stamp ta es.)
Contracts:
mpoyment pror to March 1, 1913, subsequent payments,
ncome
utures, mtaton on oss deducton
Navy, under secton 3 of the nson ct, e cess profts on_.
Corporatons:
ffated, consodated returns
Net ncome, ntercompany transactons
Net oss deducton.
onds, sae and retrement, ncome
empton. (See empt corporatons.)
oregn, nterest on bank deposts and foregn bonds, oper-
atng e penses .
Lqudaton, sae of assets, ncome _
Recept of own stock as nstament sae payment, ncome..
Sae of capta asset and dstrbuton of proceeds to stock-
hoders
Cosmetcs and other toet preparatons, stamp ta , Oho
Cotton ( grcutura d|ustment ct). (See Processng Ta .)
Cotton Contro ct, bae tag requrements
Court decsons:
e ander v. Cosden Ppe Lne Co
umnum Company of merca v. Unted States
worth-Washburn Co. v. everng
mercan Chan Co., Inc., v. aton
mercan Chce Co. everng v
mercan Cgar Co. v. Commssoner
mercan qutabe ssurance Co. of New York v. everng.
nderson Contnenta-Inos Natona Dank Trust Co. of
Chcago v
nderson Iteson e a. v
nderson Lawyers Mortgage Co. v
skn Marne Co. v. Commssoner
very v. Commssoner
ecker Town Cub of St. Lous v
oca Cega Deveopment Co. Commssoner v
oston Safe Depost Trust Co. e a. v. Commssoner
owers Cty ank armers Trust Co. v
rown v. everng
uckey v. Commssoner
urnet dety Savngs Loan ssocaton v
utterworth et a. everng v
Cana-Commerca Trust Savngs ank v. Commssoner
Canfed everng v --
Cty ank armers Trust Co. v. owers
Cnton Coa Co. v. Unted States..---
Coanga-Mohawk O Co. v. Commssoner
Commssoner mercan Cgar Co. v
Commssoner skn Marne Co. v
Commssoner very v
Commssoner v. oca Cega Deveopment Co
Commssoner oston Safe Depost Trust Co. et a. v
Rung
No.
591
8
80
775
741
822
849
97
1 708
720
734
857
17
709
807
828
842

97
733
710
734
783
785
98
759
7 9
723
80
821
709
77
832
51
744
77
585
3
50
832
79
03
783
723
80
709
77
I
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559
Court decsons Contnued.
Commssoner uckey v
Commssoner Cana-Commerca Trust Savngs ank v
Commssoner Coanga-Mohawk O Co. v
Commssoner Crucbe See Castng Co. v -.
Commssoner Darcy et a. v
Commssoner Deaware udson Co. v
Commssoner Deaware udson Co. et a. v
Commssoner ord v
Commssoner reeman- ampton O Corporaton v
Commssoner anby v
Commssoner eebush v
Commssoner Co. v
Commssoner asch v
Commssoner Mac ueen Co. v
Commssoner Meredth Pubshng Co. v
Commssoner Muford v
Commssoner v. Nea et a
Commssoner Oson v
Commssoner Ramsey v
Commssoner Rockford Lfe Insurance Co. v
Commssoner v. Rosenboom nance Corporaton
Commssoner Shearman v
Commssoner Shubn et a.v --
Commssoner Sprng Cty oundry Co. v
Commssoner Terre aute ectrc Co., Inc., v
Commssoner v. Terre aute ectrc Co., Inc
Commssoner Tyson v
Commssoner Unted usness Corporaton of merca v
Commssoner Waker, r., v
Commssoner Warner v
Commssoner Wshon-Watson Co. v
Contnenta-Inos Natona ank Trust Co. of Chcago v.
nderson ,
Cooper et a. Reynods v
Cosden Ppe Lne Co. e ander v
Crucbe Stee Castng Co. v. Commssoner
Darcy e a. v. Commssoner
Deaware udson Co. v. Commssoner
Deaware udson Co. et a. v. Commssoner
aton mercan Chan Co., Inc., v
ak et a. everng v
dety-Phadepha Trust Co. everng v
dety Savngs t Loan ssocaton v. urnet
v. Natona Surety Co
v. Phadepha arge Co
ord v. Commssoner
reeman- ampton O Corporaton v. Commssoner
reuer v. everng
a v. everng
anby v. Commssoner
eebush v. Commssoner
everng worth-Washbum Co. v
everng v. mercan Chce Co
everng mercan qutabe ssurance Co. of ew York v..
everng: roun v
everng v. utterworh et a
everng v. Can fed
everng v. ak et a
everng v. dety-Phadepha Trust Co
everng reuer v
everng a v
Rung
Page.
No.
744
201
3
181
03
270
725
32
75
238
708
197
708
197
742
10
587
348
784
329
17
2 8
78
313
002
235
807
20
18
272
88
31
0 02
171
797
350
9
232
848
153
719
187
591
118
7 7
210
808
281
849
295
849
293
01
155
593
257
41
213
87
179
7
275
98
353
53
250

412
725
32
750
238
708
197
708
197
710
393
52
449
0585
151
77
285
4
307
4
307
742
10
5S7
348
-12
242
831
21
784
329
17
2 8
733
208
734
2 5
785
33
51
223
585
151
50
170
52
247
585
151
42
242
831
21
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5 0
Court decsons Contnued.
everng McPherson
everng New Coona Ice Co., Inc.. v
everng v. Newport Co
everng v. New York Trust Co
everng New York Trust Co., etc., v
everng v. Pardee e a
everng Pomeroy e a. v
everng et a. State of Oho v
everng v. The Independent Lfe Insurance Co...
everng Thorsen v
everng v. Tte Guarantee Loan Trust Co
everng Turner- arber-Love Co. v
everng Whtcomb v
ernandez Ifed Co. v
Co. v. Commssoner
Ifed Co. v. ernandez
Iteson ct a. v. nderson
efferson ectrc Manufacturng Co. Unted States v
asch v. Commssoner
Lawyers Mortgage Co. v. nderson
Lousve Credt Men s d|ustment ureau v. Unted States.
Mac ueen Co. v. Commssoner
McLaughn Parrot e a. v
McLaughn Standard O Co. v
McPherson v. everng
Meon Oson v
Meon et a. Unted Sates v
Meredth Pubshng Co. v. Commssoner..
Motter Prare O Gas Co. v
Muford v. Commssoner
Murdoch Unted Staes v
Natona Lfe Insurance Co. v. Unted States
Natona Surety Co. v
Nea et a.. Commssoner v
New Coona Ice Co., Inc., v. everng
Newport Co. everng v
New York Trust Co. everng v
New York Trust Co., etc., v. everng ---
Oson v. Commssoner
Oson v. Meon
Page Perry et a. v
Pardee e a. everng v
Parrot ct a. v. McLaughn
Perry et a. v. Page
Phadepha arge Co.
Pomeroy et a. v. everng
Prare O Gas Co. v. Matter
Provdent Trust Co. Unted States v
Ramsey v. Commssoner
Reynods v. Cooper et a
Rockford Lfe Insurance Co. v. Commssoner
Rosenboom nance Corporaton Commssoner v
Routzahn v. Ward Storage attery Co
Shearman v. Commssoner
Shubn et a. v. Commssoner
Sprng Cty oundry Co. v. Commssoner
Standard O Co. v. McLaughn
Standard O Co. (Indana) v. Unted States
Sate of Oho v. everng et a
Stearns Co. v. Unted Sates
Terre aute ectrc Co., Inc., v. Commssoner
Rung
No.
Pag .
775
204
8 0
194
724
318
859
188
859
188
585
151
819
192
838
548
850
302
50
17
585
151
795
279
42
242
774
139
78
313
774
139
759
419
710
393
02
235
7 9
438
818
12
807
2
757
3 0
27
402
775
204
8 7
309
8 7
309
18
272
58
183
88
31
592
144
735
290
4
307
2
171
8 0
194
724
318
859
188
859
188
797
350
8 7
309
743
1 3
585
151
757
3 0
743
1 3
4
307
819
192
58
183
89
3 5
9
232
53
250
848
153
719
187
710
393
591
118
7 7
210
808
2S1
27
402
8 8
339
83
531
31
321
849
295
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5 1
Court decsons Contnued.
Terre aute ectrc Co., Inc. Commssoner v
The Independent Lfe Insurance Co. everng v
Thorsen v. everng
Tte Guarantee Loan v Trust Co. everng v
Town Ctb of St. Lous v. ecker
Town Cub of St. Lous v. Unted Sates
Turner- arber-Love Co. v. everng --
Tyson v. Commssoner r
Unted usness Corporaton of merca v. Commssoner
Unted States umnum Company of merca v
Unted Sates Cnton Coa Co. v
Unted States v. efferson ectrc Manufacturng Co
Unted States Lousve Credt Men s d|ustment ureau v._
Unted States v. Meon et a
Unted Staes v. Murdoch
Unted States Natona Lfe Insurance Co. v
Unted States v. Provdent Trust Co
Unted States Standard O Co. (Indana) v
Unted States Stearns Co. v
Unted States Town Cub of St. Lous v
Unted States v. Wamper
Unted States Western Wheeed Scraper Co. v -.
Waker, r., v. Commssoner
Wamper Unted States v
Warner v. Commssoner
Western Wheeed Scraper Co. v. Unted Staes
Whcomb v. everng
Ward Storage attery Co. Routzahn v
Wshon-Wason Co. v. Commssoner
Credt Men s d|ustment ureau, e empton
Credt or refund:
ppcaton of overassessment aganst defcency, Comms-
soner s authorty
Lmtaton perod. (See Lmtaton perod.)
Manufacturer. (See Manufacturers e cse ta es.)
Stamp ta on foregn nsurance pocy. (See Msceaneous
ta es.)
Suts. (See Suts.)
Credts:
Ta es, foregn
rgentne ncome ta
Countres not mposng on ncome ta
ormua for determnng ta on accumuated profts
Great rtan, smar credt requrement
Sam, smar credt requrement
Credts aganst net ncome, dvdends, Centra ank for Coopera-
tves, Producton Credt Corporatons, etc.
Depeton:
Lqudaton, bass of aowance
Perod after sae prce deposted n escrow.
Sae or reorganzaton, bass
Trust property, benefcares aowance.
Deprecaton:
Informaton necessary n support of deducton
Leased property, essor s deducton
Lqudaton, bass of aowance.
Method of computaton, reguatons amended.
Trust ncome
e dstrbutabe to benefcares.
Rung
No.
S49
850
50
585
821
821
795
01
593
97
79
710
818
8 7
592
735
8 8
31
821
1
2
41
1
87
2
42
710
7
818
8 8
39
71
70
815
858
782
581
41
58
/ 52
53
754
849
5S4
92
042
G
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5 2
Deveopment e penses, o and pas ease
Dsbarments. (See ttorneys and agents.)
Dscount, bonds, vendee corporaton s amortzaton deducton
Dsted sprts. (.See Msceaneous ta es.)
Dvdends:
udng and oan assocatons, nterest dstngushed _.
Centra ank for Cooperatves, Producton Credt Corpora-
tons, etc., ta abty
Credted but not wthdrawn, subsequenty canceed, ncome
cse ta on
Date of decaraton, determnaton.
oregn corporaton s faure to wthhod, ctzen s ab-
ty - ---
Lqudatng, parent and subsdary
Pad out of capta, gan or oss on sae of stock
Payment n year foowng decaraton
Profts accumuated before March 1, 1913, effect of ater
osses
When ta abe
Constructve recept
Dower mprest, annuty n eu of
Dues and ntaton fees. (See Msceaneous ta es.)
.
asement or rght of way. (See Msceaneous ta es: Stamp ta es.)
ectrca energy. (See Manufacturers e cse ta es.)
states and trusts:
Dstrbuton to wdow, deducton
Income, converson of reaty nto personaty
Trust ncome dstrbutabe to benefcares, deprecaton de-
ducton
state ta :
Deductons, nonresdents, 10 per cent mtaton
Defcency, appea fed wth oard, assessment and coecton
mtaton -
Devse to charty on death of fe tenant wthout ssue, deducton
Gross estate, pedged securtes
stoppe, credt by drecton of ta payer, mtaton, sut
vason of surta by ncorporaton
cess profts, Navy contract under secton 3 of the nson ct..
changes:
Gan or oss. (See Gan or oss: changes.)
Rates, foregn.
cse ta es:
Dvdends. (Sec Dvdends.)
Massachusetts
Oho -
empt corporatons:
usness eagues, Credt Men s d|ustment ureau
armers cooperatve marketng organzatons
empt ncome:
Dvdends, Centra ank for Cooperatves, etc
arnngs of condemnaton award hed n trust
edera arm Mortgage Corporaton obgatons
Shps earnngs
Canada
Countres not mposng an ncome ta
Irsh ree State
ang
No,
9
795
77
f 782
1 825
8
99
824
. 825
29
3
87
80
50
98
591
/ 585
70
/ 5S5
70
812
42
S32
757
89
832
79
593
822
793
732
712
845
5
818
12
847
77
782
41
744
201
f 748
49
1 749
549
14
97
71
87
15
97
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5 3
empt ncome Contnued.
Treasury bs
eterans pensons and compensaton
tenson of tme, fng of returns:
Coectors nstructons
Lega representatve s power of attorney
.
armers:
Cooperatve marketng organzatons, e empton
Renta or beneft payments under grcutura d|ustment
ct, ta abty
edera agency, stamp ta abty
edera arm Mortgage Corporaton ct
mendment
edera ntermedate credt banks, e empton
edera and banks, e empton
ermented quors. (See Msceaneous ta es.)
ed corn, grcutura d|ustment ct. (See Processng ta .)
sca years ended n 1933, revsed ncome ta forms
oor stock ta ( grcutura d|ustment ct):
ags, mutwa paper, new and unused
Cotton bags contanng four, sugaf, cement, etc
Drawback, products e ported, etc., cotton bags
Tres and nner tubes, cotton content. (See Manufacturers
e cse ta es.)
When ta attached under certan saes contract
our sod under certan saes contract, when foor ta attaches-
oregn :
Corporatons, nterest on bank deposts and foregn bonds,
operatng e penses
change, rates prevang December 31, 1933
orgveness of ndebtedness, ncome
orms, revsed, ncome ta , fsca year 1933
ranchse ta es, Caforna, deducton .
urs. (See Manufacturers e cse ta es.)
utures contract, mtaton on oss deducton
G.
Gan or oss:
Condemnaton awards
No separate aowance for severance damages
Smar property purchase
changes
Mortgage for ome Owners Loan Corporaton bonds. .
Securtes, debentures of dfferent dates, rates, and re-
dempton amounts
Lqudaton of subsdary
)S
ssets of corporaton n qudaton
ar market vaue of purchase money mortgage
Property acqured by gft after December 31, 1920
Rea estate, purchase money mortgage dscounted
Stock-
Dvdends pad out of capta, bass
Rghts, by admnstrator pendente te
Traffckng n own shares
Reguatons amended
Trust property, bass
(See Manufacturers e cse ta es: Sportng goods.)
, te Manufacturers e cse ta es.)
801
781
9
8 5
0847
704
747
74S
749
737
737
11
799
20
20
851
851
857
/ 34
793
/ 721
722
11
717
741
1/ 12
1
94
731
0773
/ 584
3
17
7 7
719
722
87
742
0800
792
S59
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1
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2

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5 4
Gaugng Manua, 1934 amendment. (See mendments: Gaugng
Manua.)
Gfts, sae of, gan or oss bass
Gft ta , assgnment of fe nsurance pocy, vaue computaton.
Good w, nvested capta, burden of proof
Governmenta functon, State quor store
Grape growers makng wne from own grapes, reguatons govern-
ng sae of product
Great rtan, ta es, smar credt requrements
.
arrson narcotc aw, regstraton of departments of schoos, etc
ogs ( grcutura d|ustment ct)
orse racng poos. (See Manufacturers e cse ta es.)
usband and wfe, oans, nterest deducton
I.
Iega transactons, ncome
Inos:
Mortgage forecosure, osses, year deductbe
Retaers occupaton ta , deducton
Income from sources wthn Unted States, nterest on bank
deposts and bonds
Inspecton of returns, reguatons governng
Instament saes:
Change to competed saes bass, estoppe, mtaton
Inta payment corporaton s own stock, ncome
Notes dscounted or sod n subsequent year, ncome
Rea estate, nta payment, proceeds of second mortgage-
Insurance:
Commssons
ssgnment, payment of assgnor s debts
Overrdng commssons, method of reportng
Poces, assgned for gft ta purposes, vaue computaton..
Premums pad n advance for more than year, deducton
Refund of stamp ta , foregn nsurance pocy
Insurance companes:
Consodated returns, affaton wth other busness...
Lfe-
Deprecaton on furnture and f tures, deducton aow-
ance
Renta vaue of rea estate
Interest:
ccrued, purchase by mortgagee at forecosure sae, ncome
onds
unds advanced by credtor, ncome
Muncpa
udng and oan assocatons, Caforna, dvdends dstn-
gushed 7
oregn corporaton s bank deposts and foregn bonds
usband and wfe oans, deducton
Recapture amounts dstrbuted to raroads, when reported
State obgatons, bonds, muncpa, ncome abty
Ta es, overassessment 1918 apped aganst 1920 ta payabe
n nstaments
Invested capta:
ccounts recevabe erroneousy charged off n pror year
Good w, burden of proof
Invountary converson of property, gan or oss
Irsh ree State, shps earnngs, equvaent e empton
719
820
78
S3
841
815
713
729
830
1
718
805
857
/ 840
S71
41
709
733
7 7
831
51
820
85
835
735
848
/ 848
1 850
735
783
590
77
857
830
3
590
S 8
723
78
94
15
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5 5
,1.
essment aganst transferor pendng transferee s appea
(See Manufacturers e cse ta es.)
eopardy asses
ewery, etc.
ursdcton, oard of Ta ppeas
ute fabrc, |ute yarn, and certan paper ( grcutura d|ustment
ct). (See Processng ta .)
Deprecaton deducton aowed essor-
O and gas
Coowners partnershp returns
rd_
Deveopment e penses
Ta payment by essee, essor s ncome
Lmtaton perod:
ssessment of ta es
state ta defcency, appea fed wth o|
ng of return, devery to revenue agent...
eopardv assessment, fase and frauduent returns
Request for prompt assessment before fng decedent s
returns _-
Suspenson n case of dsmssa of petton
Coecton of ta
Credt by drecton of ta payer, estoppe
state ta defcency, appea to board
ng of return, devery to revenue agent
Credt or refund, petton to oard as waver
Suts for recovery of ta es, account stated
Wavers
ssessment
Coecton contempated
ecuted after bar of statute
Coecton by credt, estoppe
Commssoner s sgnature after mtaton perod, vadty
Consent n wrtng
ecuted after bar of statute, vadty
Instructons governng
Petton fed wth oard
Year unspecfed, vadty, estoppe
Lquor:
Deaers. (See Msceaneous ta es.)
Stamps on contaners. (See Msceaneous ta es.)
Store, muncpa, checks. (See Msceaneous ta es.)
Ta es, deducton
Losses:
ad debts, parta worthessness
ona fde sae, burden of proof
utures contract, mtaton on deducton _
Lqudaton of subsdares, consodated returns, deducton..
Mortgage forecosure
Caforna
Inos
Stock, sae contract December 31, devery In anuary, year
deductbe
When deductbe
Worthess bank stock
Lubrcatng os. ( S ee Manufacturers e cse ta es.)
785
01
849
f 583
81
9
S49
757
78
784
95
785
79
757
78
2
31
725
724
31
31
31
725
40
2
88
705
808
7
741
774
75
718
25
03
772
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5
M.
Mat srup. (Sec Manufacturers e cse ta es.)
Manufacturers e cse ta es:
utomobe, parts or accessores
oor mats T
Gasone, use n manufacture of ta abe brake nng..
Purchased ta -free and used n manufacture of nonta -
abe artces or sod for repars or repacements
Refund of accessores ta , sut, burden of proof
S whee attachment
Truck chasss and tractor dstngushed
Candy, repea of ta on saes after May 10, 1934
Credts and refunds, evdence supportng cam, reguatons
amended
ectrca energy, for ndustra consumpton, porton sod to
empoyees
edera and banks, etc., e empton
urs, amendment of secton 04, Revenue ct of 1932, effec-
tve on or after May 11, 1934
Gasone
ender, producer s ta abty
ondng producers or mporters
ngne dstate
Manufacture of ta abe brake nng
Procedure for regsterng and bondng producers, etc
ewery, etc., amendment of secton 05, Revenue ct of 1932,
effectve on or after May 11, 1934.
Lubrcatng o
ondng producers or mporters
Procedure for bondng and regsterng producers, etc
Mat srup, saes for whsky producton
Matches, ncrease n ta , on or after May 11, 1934
Nava arcraft not vesses of war of Unted States
Soft drnks, etc., repea of ta on sae or use of, effectve after
May 10, 1934
Sportng goods, games
aseba and horse racng poos, tay cards and devces
ectrc traveng crane 1
Tres and nner tubes
Component parts of automobes, saes to States, etc
Computaton of ta where processng ta or foor ta was
pad on cotton content
esses, Coast Guard Suppes
Massachusetts:
cse ta es, natona banks, deducton
usband and wfe oan, nterest deducton
Recever of nsurance company, compensaton
Trust, ta abe as assocaton
Matches. (See Manufacturers e cse ta es.)
Msceaneous ta es:
dmssons
ssocaton payng sck Le.efts
Dances, cabarets, etc., where mnmum charge
Checks drawn aganst funds of muncpa quor store
Dsted sprts, fng of packages for entry nto bonded
warehouses
Dues and ntaton fees, soca cub, ta abty
edera and banks, etc., e empton
ermented quor, secton 1 (abes) of Reguatons 9 (Pro.),
amended
Lquor deaers, State mmunty and poce power, person
cassfed
Rung
No.
809
834
19
710
758
44
853
/ 752
7 1
80
737
853
74
8 2
78
834
854
853
8 2
854
43
853
73
853
745
833
04
72
54
732
830
707
759
594
81
810
829
821
737
715
83
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5 7
Rung
No.
Msceaneous ta es- Contnued.
Speca ta es
Reta and whoesae quor deaers
Tncture of gnger, manufacturer
Stamp ta es
cohoc preparatons
Conveyances
Computaton of ta
Reconveyance from mortgagee to mortgagor
Rght of way or easement to and n certan States..
Dsted sprts, n bottes
Gnger, tncture of
Guaranteed frst mortgage certfcates
Passage tckets, consuar offcers of Germany and Poand
Refund on canceed foregn nsurance pocy or where
premum s reduced
State, abty for ta as deaer n quor
Stock transfer
Decedent s nomnee to e ecutor
Partnershp name to partners
Transfer of bonds or stock by or to edera agency
Teegraph, teephone, rado, and cabe factes, tme wre
servce, rado broadcastng staton
Transportaton of o by ppe ne
Money egay obtaned, ncome
Mortgages:
changed for ome Owners Loan Corporaton bonds, gan
or oss
orecosure, oss deducton
Caforna
Inos
Motor vehce fue ta , Oregon
N.
Narcotc aw. ( See arrson narcotc aw.)
Natona Industra Recovery ct:
Code, costs of ntatng and approv ng, busness e penses
Reta Code uthorty, assessments
Nava arcraft, cassfcaton. (See Manufacturers e cse ta es.)
Navy:
Chapan s aowance for quarters
Contracts, under secton 3 of the nson ct, e cess profts on
Net ncome:
ffated corporatons, ntercompany transactons
Computaton, nsurance premums pad n advance
Net osses:
ffated corporatons
Deaware corporaton ater domestcated n Pennsyvana
orecosure saes, Caforna
Successor corporaton s deducton
New York:
Cty, oard of Transportaton, empoyees compensaton
Saes ta , deducton
North Carona reta saes ta
59
535
728
529
728
529
7 8
42
595
427
777
427
48
522
5
52
7 2
527
779
527
728
529
7 9
438
28
437
835
442
83
531
45
424
05
435
747
425
8 1
423
27
402

412
1
101
731
75
718
844
58
7 4
37
822
97
85
/ 708
720
84
75
8 0
794
38
00
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5 8
o.
Oho:
everage ta
Cgarette ta
Cosmetcs ta
Labty for ta as deaer n quor
O and gas:
Lease, deveopment e penses --
Saes, royaty nterests, cash recepts and dsbursements bass.
Oeo margarne:
Schedue of producton and materas used
November, 1933 and 1932
December, 1933 and 1932
anuarv, 1934 and 1933
ebruarv, 1934 and 1933
March, 1934 and 1933
pr, 1934 and 1933
Oregon, motor vehce fue ta
P.
Paper, |ute fabrc, and |ute yarn ( grcutura d|ustment ct).
(See Processng ta .)
Partnershps:
ssocaton dstngushed
amy arrangement, Te as
sca year, proraton of deceased member s ncome, caendar
year bass
Income, survvng member s abty
Returns, coowners of o and gas eases
Penates, fase and frauduent returns, peadngs
Pensons, veterans , ta abty
Person, State as
Poce power, appcaton to quor busness carred on by a State..
Power of attorney, e tenson of tme for fng returns
Processng ta ( grcutura d|ustment ct):
Cotton
ags contanng four, sugar, cement, etc., drawback
Change of converson factors, effect on refunds
Reguatons governng, party revokng Treasury De-
cson 4389.
Drawback, products e ported n cotton bags
ffectve date, reguatons amended
ed corn, corn mea and feed obtaned from processng
ogs
Products spoed pror to marketng
Reguatons
Saughter company frst domestc processor
ute
abrc, |ute yarn, and certan paper reguatons
Yarn nto twne
Refunds
Change n cotton converson factors
Products devered for chartabe dstrbuton or use
Sugar beets or sugar cane, reguatons governng
Tres and nner tubes, cotton content. (See Manufacturers
e cse ta es.)
Wheat-
ppcaton of the term producer .
Converson nto wheat mat, frst domestc processng
Producers, renta and beneft payments under grcutura d-
|ustment ct, ta abty
Rung
No.
845
827
828
838
9
41
597
47
701
750
789
838
844
583
02
75
819
/0583
81
784
781
83
83
8 5
20
90
811
20
23
55
729
837
729
798
08
787
90
57
8 9
7
700
704
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5 9
Rung
No.
Page.
Producton credt assocatons and corporatons:
Dvdends, ta abty
empton
Pubshers, cost of ncreasng crcuaton, deducton, amortzaton
of subscrpton costs
-
uarters, aowance for, rmy and Navy chapans
R.
Rado broadcastng staton, tme wre servce to
Raroads, recapture amounts wth nterest, when reported
Rates of e change, foregn. (See oregn e change.)
Rea estate, deferred payment, saes, nta payments, proceeds
from vendee s note
Refunds:
grcutura d|ustment ct. (See Processng ta .)
Manufacturers e cse ta es. (See Manufacturers e cse
ta .)
Regstraton of producers, etc., of gasone and ubrcatng o
Regstraton under arrson narcotc aw
Reguatons:
mendments. (See mendments: Reguatons.)
ttorneys and agents. (See ttorneys and agents.)
Renta payments to producers under grcutura d|ustment
ct, ta abty
Res ad|udcata:
cqutta, ta evason, as bar to penaty mposton
oard s determnaton of bequest to chartabe organzatons.
Reta saes ta , North Carona, deducton
Retaers occupaton ta , Inos
Returns:
Capta stock ta
State bank converted nto natona bank
Consodated
ffaton determnaton
Insurance company and other busness
Lqudaton of subsdary, gan or oss
Net ncome, ntercompany transacton of affated cor-
poratons
New eecton under amendments to 1932 ct
tenson of tme for fng. (See tenson of tme: ng
of returns.)
ase and frauduent, assessment mtaton, penates
ng, devery to revenue agent, statute of mtatons
sca year 1933, revsed ncome ta forms
Income, caendar year 1933, statement as to preparaton..
brokers :.
Inspecton of, reguatons governng
Partnershp, coowners of o and gas eases
Revocaton, Treasury Decson 440 (C. . II-2, 453)
Rghtof wayoreasement. (See Msceaneous ta es: Stampta es.)
S.
Saes:
ona fde, osses, burden of proof
Gan or oss
ssets of corporaton n qudaton
ar market vaue of purchase money mortgage .
77 2 34 19
782
737
18
37
8 1
3
f 7 5
7
854
713
704
784
77
00
805
738
849
735
/ 584
774
97
13
784
78
11
/ 22
83
32
1 74
840
8 9
/ 583
81
29
7
17
7 7
41
391
272
35
423
33
20
207
383
539
35
329
251
48
54
448
295
290
142
139
299
90
329
313
71
8
70
91
92
304
501
99
9
443
275
2 8
210
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570
Saes Contnued.
Gan or oss Contnued.
Stock-
Dvdends pad out of capta, bass
Traffckng n own shares
Reguatons amended
Trust property, bass - -
Instament. (See Instament saes.)
O propertes, depeton bass
Rea estate
Deferred payment, nta payments, proceeds from
vendee s note . ,
Losses on forecosures, Caforna
Stock-
Dvdends pad out of capta, gan or oss bass
Rghts, by admnstrator pendente te, gan or oss
Stock and stock rghts, capta gan
Saes ta , New York, deducton
Shps, foregn, e empton of earnngs:
Canada
Countres not mposng an ncome ta
Irsh ree State
Sam, ta es, smar credt requrement
Soca cub, dues. (See Msceaneous ta es: Dues.)
Soft drnks, etc. (See Manufacturers e cse ta es.)
Speca ta es. (See Msceaneous ta es.)
Sportng goods. (See Manufacturers e cse ta es.)
Stamp ta es. (See Msceaneous ta es.)
State:
s quor deaer, mmunty and poce power, person cas-
sfed
Income, earnngs of condemnaton award hed n trust
Offcers and empoyees, compensaton
New York Cty oard of Transportaton-
Recever of nsurance company, Massachusetts
Stock:
ank. (See anks.)
ed n trust, ncome, when ta abe
Loss
Deducton mtaton, futures contract
Saes. (See Losses.)
Recept of own stock as nstament sae payment, rcome...
Rghts, saes. (See Saes.)
Saes. (See Saes.)
Sugar beets or sugar cane. (See Processng ta es.)
Sut:
Coecton of ta es, bond supportng abatement cam, cause
of acton, survva
Recovery of fnes and penates, Commssoner s consent
Recovery of ta es
Cam for refund
cse ta es, automobe accessores ta , burden of
proof
ursdcton of court, fnaty of |udgment
Prerequste, suffcency of cam
Cosng agreement, effect of
Coecton by credt, mtaton, estoppe
Surta , evason by ncorporaton
Suspensons. (See ttorneys and agents.)
Syndcate, cassfcaton
Rung
No.
87
800
792
859
58
/ 7 5
7
75
87
742
755
38
14
71
15
858
c,.s:(
744
794
707
797
741
709
4
8 7
710
710
98
743
79
593
8
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571
T.
Ta es:
ssessment
eopardy, aganst transferor pendng transferee s appea
Lmtaton perod. (See Lmtaton perod.)
everage, Oho
Caforna franchse ta
Cgarette, Oho
Coecton, mtaton perod. (See Lmtaton perod.)
Cosmetcs, Oho
Credt for. (See Credts.)
cse, Massachusetts
na determnaton and assessment
Cosng agreement
Secton COG, 1928 ct, procedure
oregn, credt for. (See Credts.)
Leased property, payment by essee
Lquor, deducton
Motor vehce fue, Oregon
Payment, aocaton, returns requred on dfferent bass
Retaers occupaton ta , Inos, deducton
Saes
rzona prvege (reta saes) ta
New York
North Carona
Speca e cse, State as quor deaer, mmunty and poce
power, person cassfed
Stamp ta es, cgarettes and cosmetcs, Oho
Teegraph, teephone, rado, and cabe factes. (See Msceane-
ous ta es.)
Temporary edera depost nsurance fund, payments to, busness
e penses
Testmony, ncome ta prosecuton, other crmes
Te as, partnershps, famy arrangement
Tres and nner tubes. (See Manufacturers e cse ta es.)
Tractors. (See Manufacturers e cse ta es: utomobes, etc.)
Transportaton of o by ppe ne. (See Msceaneous ta es.)
Treasurv bs, e empton
Trusts:
nnutes payabe from ncome or corpus, deducton
ssocatons dstngushed
Capta gans and osses, 2-year perod
Depeton aowabe to benefcares
Dstrbuton to wdow, deducton
arnngs of fund n custody of cty offca, ta abty
Income
Dstrbutabe to benefcares, deprecaton deducton
Set asde for chartabe purposes, deducton
Massachusetts, capta stock ta
Sae of capta assets, gan or oss bass
U.
Unted States oard of Ta ppeas:
Case remanded, authorty to consder queston rased but not
decded
Decsons of, st of acquescences and nonacquescences
ndngs of fact, correcton of error, ncorporaton n record..
Rung
No.
785
845
717
827
828
732
743
79
849
705
844
78
805
73
38
00
83
/ 827
828
0
1
02
801
77
52
2
859
/ 585
53
70
744
42
77
759
859
831
8 4
797
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572
Rung
No.
Page.
Unted States oard of Ta ppeas Contnued.
ursdcton
Moton for rehearng, oard s dscreton
Petton fed wth, waver effect
.
esses, e empton, saes of suppes for. (See Manufacturers
e cse ta es.)
eterans pensons, ta abty
nson ct, e cess profts on Navy contracts under
W.
Waver of statute of mtatons. (See Lmtaton perod:
Wavers.)
Wheat ( grcutura d|ustment ct). (Sec Processng ta .)
Whsky, use of mat srup. (See Manufacturers e cse ta es.)
Wdow, annuty n eu of dower
Wne produced by grape growers not quafed as wne-makers,
reguatons as to sae
Wtnesses, refusa to testfy
01
587
2
781
822
155
348
159
37
540
/ 5S5
70
841
592
151
98
538
144
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