6*1 
 071 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 07- 
 
 ill 
 •JII 
 
 171 
 
 on 
 
 Bli 
 
 Cm 
 
 to. 
 
 00' 
 
 WJ 
 
 (01 
 ?M 
 
 0« 
 
 u 
 
 « 
 
 ■0 
 
 10 
 « 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 til 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 iTJl 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Oil 
 «ll 
 011 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 11) 
 
 511 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 lot 
 
 101 
 ■JOt 
 flOl 
 #01 
 (01 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 10! 
 001 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Bi 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ?6 
 
 
 
 
 
 
 
 
 *_, i., ' , v ^ g >■■ l ■ i C [■ O .,. Li -■> -' -t -11 -- P O . j 'li 
 
 ^-. •* «J '< •& r^ if "» °0 "i * *> ' ■*! — -4 fcj « r «J 
 o O nC KJ "S — « **l ftj 
 
 Into 
 — o 
 
 1*1 C7> 
 
 
 
 
 
 
 
 
 
 
 
 
 
 00 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 »0 
 
 10 "^ 
 
 o-> i e 
 
 
 
 
 
 
 
 
 
 
 = e. 
 
 
 
 
 w — 
 
 6* 1=1 
 
 l(0 
 
 5 ° 
 
 
 1: 1 1 
 
 ^ «<l oooooooooooooooooo ~ 
 ■^ 55 ooooooooooooooooooi 
 
 >^ ooooooooooooooooooi ^i 
 
 ^r t^J OOOOOOOOOOOOOOOOOO* 
 
 1— £ OOOOOOOOOOOOOOOOOO i S 
 
 J2 .^ ..^-"lO^omoooioooooooooS 2 * s S 
 o o — — •s*M-wuir-o j ioinooao-t ^* J ^S — 
 
 5 g- -5-1 
 
 x: "ooooooooooooooooooo — 
 ""1 vooooooooooooooooooo mt 
 
 •— OOOOOOOOOOOOOOOOOOO g 
 £ OOOOOOOOOOOOOOOOOOO 5 
 2 OOOOOOOOOOOOOOOOOOO 
 
 M m*uioioo"iooot/>ooooooao • 
 
 t «— «. NiMriv'ONOlflOlOOOo 
 
 £: ....,.., .j -i m './i o 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ■**: ti 
 
 
 
 
 
 
 
 
 
 
 S* ei 
 
 
 
 
 
 
 3: b? 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 10 ■»*'■ 
 
 
 
 n <=> 
 
 n = 
 
 It < 
 
 r. § 
 
 w 
 
 « s 
 
 K 
 St 
 
 
 
 
 i Bl ^H L^H 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ■ ■■ 
 
 
 
 
 
 
 
 
 ■ ■■ 
 
 
 
 
 
 
 ■ ■■ 
 
 
 
 
 
 
 - ^^M |^| ^^S 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ■ ■■ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 a 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 It 
 
 BI 
 
 
 * 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ^H i^p^Ki^H 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 2 
 
 Igf 
 
 isl 
 
 H|H 
 
 lei 
 
 1 ; 
 
 3 S 
 
 H 
 
 I E « 
 
 y 
 
 * ft 
 
 S s 
 
 II 
 
 14 
 
 11 
 
 11 
 
 1 ° 
 
 S 1 
 
 o o 
 
 Ie! 
 
 ! s 
 
 »1 
 
 f-S 
 
 
FEDERAL 
 
 INCOME TAX 
 
 A PLAIN PRESENTATION OF THE COMPLEX LAW 
 
 FOR THE BENEFIT OF THE LAWYER 
 
 AND THE BUSINESS MAN 
 
 BRUCE CRAVEN 
 Attorney and Counselor at Law, Trinity, N. C. 
 
 Author of Torrens Title Systems, Synopsis of Corporation Law, 
 Member of American Bar Association, Etc. 
 
 R. 0. EVERETT 
 of the Durham, N. C, Bar 
 
 Of the Law Firm of Manning, Everett & Kitchin, 
 Member of American Bar Association, Etc. 
 
 Raleigh, N. 0. 
 
 Edwaeds & Beoughton Peinting 00. 
 
 1916 
 
'■ 
 
 
 COPYRIGHT. 1916, BY 
 BRUCE CRAVEN 
 
CONTENTS 
 
 (Alphabetical Index in Last Part of Volume) 
 
 Frontispiece: Chart of Statistics. 
 
 Introduction: Purpose and aim of book; general view of contents; 
 
 how to use Index; proposed amendments to present law, etc. 
 Abbreviations. 
 Summary. PART I 
 
 Analysis. (Pages 1-39.) 
 
 HI. Necessity for Taxation. 
 
 H2. Income Tax Theory. 
 
 113. First Taxes Were Income Taxes. 
 
 1[4. Income Taxes in Europe. 
 
 1[5. State Income Taxation. 
 
 H6. Constitutional Provisions. 
 
 T7. Direct and Indirect Taxation. 
 
 H8. First National Laws. 
 
 H9. The Act of 1894. 
 
 K10. The Pollock Case. 
 
 1111. Corporation Excise Tax of 1909. 
 
 H12. Sixteenth Amendment. 
 
 H13. Constitutionality of New Law. 
 
 H14. The Act of October 3, 1913. 
 
 1115. Corporation Income Tax. 
 
 U16. Rate of the Individual Tax. 
 
 1117. Who Must Make Returns of Income. 
 
 K18. Gross Income Defined. 
 
 H19. Nontaxable Gross Income. 
 
 1f20. Net Income Defined. 
 
 H21. Expenses of Conducting Business. 
 
 H22. Interest Paid on Debts. 
 
 H23. Taxes Deductible. 
 
 124. Losses Deductible. 
 
 125. Debts Proven Worthless. 
 1126. Depreciation. 
 
 127. Exemptions from Net Income. 
 
 128. Bonds. 
 
 129. Gifts and Bequests. 
 H30. Life Insurance. 
 
 131. Salaries. 
 
 132. Withholding at Source. 
 
 133. Fiduciaries. 
 
 734. Foreign Corporations. 
 
 135. Americans Residing Abroad. 
 
 136. Partnerships. 
 
 iii 
 
 342179 
 
IV 
 
 Contents 
 
 1[37. Time and Place for Making Returns. 
 
 U38. Banks. 
 
 1139. Surplus and Undivided Profits. 
 
 1140. Penalties and Fines. 
 1)41. Inspection of Returns. 
 
 1142. Powers of the Collectors. 
 
 1143. Insurance Companies. 
 1)44. Assessment. 
 
 1f45. Nonresident Aliens. 
 
 1f46. "Accrued Income" Defined. 
 
 K47. Professional Fees. 
 
 H48. Rents. 
 
 H49. Dividends. 
 
 1150. Income from Sales of Property. 
 
 1151. Income from Farming. 
 
 1152. Husband and Wife, Joint Income. 
 1f53. Forms for Returns. 
 
 U54. Protests of Taxpayers. 
 
 1155. License for Foreign Collections. 
 
 1f56. Patents and Patent Rights. 
 
 U57. Corporation Bookkeeping. 
 
 H58. Individual Exemption. 
 
 PART II 
 The Complete Statute Law. (Pages 41-75.) 
 
 PAGE 
 
 Section A. Levying tax 43 
 
 Section B. Deductions 45 
 
 Section C. $3,000 exemption 47 
 
 Section D. Returns 47 
 
 Section E. Assessment, withholding 50 
 
 Section F. Penalty for false return 55 
 
 Section G. Tax on corporations 56 
 
 Section H. "State" construed 69 
 
 Section I. Collection laws 69 
 
 Section J. Receipts 72 
 
 Section K. Jurisdiction of courts 73 
 
 Section L. Laws made applicable 73 
 
 Section M. Philippines and Porto Rico 74 
 
 Section S. Excise tax to 1913 74 
 
 PART III 
 Tbeasury Regulations (199 Articles). (Pages 79-164.) 
 
 Part 1. Individual income 81- 94 
 
 Part 2. Collections at source 95-120 
 
 Part 3. Corporations 121-159 
 
 Part 4. Assessment and collection 160-164 
 
Contents v 
 
 PART IV 
 Tbeasdbt Depabtjient Rulings. (Pages 165-320.) 
 
 PAGE 
 
 T. D. 1892. Government bonds 167 
 
 T. D. 1933. Mutual companies 168 
 
 T. D. 1937. Corporation excise tax 169 
 
 T. D. 1943. Fiduciaries 170 
 
 T. D. 1945. Income from dividends 175 
 
 T. D. 1946. Special assessment districts 176 
 
 T. D. 1947. Fiduciaries 177 
 
 T. D. 1948. Tax-free covenants 177 
 
 T. D. 1950. Returns, time, and penalties 178 
 
 T. D. 1956. Collectors to answer inquiries 179 
 
 T. D. 1957. Partnerships 180 
 
 T. D. 1960. Corporation interest deduction 181 
 
 T. D. 1961. Returns by fiduciaries 183 
 
 T. D. 1962. Returns held confidential 183 
 
 T. D. 1965. Withholding agents 184 
 
 T. D. 1967. Exempt corporations, etc 184 
 
 T. D. 1973. Withholding agent, form revised 185 
 
 T. D. 1974. Tax on bond income withheld 186 
 
 T. D. 1976. Forms, withholding tax 188 
 
 T. D. 1977. Forms, foreign agents, etc 198 
 
 T. D. 1986. Banks, withholding certificate 200 
 
 T. D. 1988. Nonresident aliens, United States agents 201 
 
 T. D. 1989. Deductible losses 201 
 
 T. D. 1992. Foreign corporation bonds 201 
 
 T. D. 1993. Corporation, deductible interest 203 
 
 T. D. 1996. Cooperative dairies 206 
 
 T. D. 1997. Monthly withholding returns 207 
 
 T. D. 1998. Withholding exemption certificates 298 
 
 T. D. 2001. Corporation fiscal year 209 
 
 T. D. 2005. Deductible losses, depreciation 211 
 
 T. D. 2006. Defining foreign corporation and fiscal agent 213 
 
 T. D. 2011. Commissions, insurance premiums 215 
 
 T D. 2012. Aliens, dividend exemptions 215 
 
 T. D. 2013. Aliens, amending T. R. 8 216 
 
 T. D. 2015. Compromises, penalties 217 
 
 T. D. 2016. Inspection of returns 218 
 
 T. D. 2017. Aliens, dividend exemption 218 
 
 T. D. 2022. Withholding bond interest tax 222 
 
 T. D. 2023. Foreign collections, amending T. R. 58 222 
 
 T. D. 2024. Amending T. R. 192, collectors 223 
 
 T. D. 2029. Corporation fiscal year 224 
 
 T. D. 2048. Dividends from net earnings 225 
 
 T. D. 2049. Certificates, exemption, etc., not taxed 226 
 
 T. D. 2077. Capital assets, deductible depreciation 227 
 
vi Contents 
 
 PAGE 
 
 T. D. 2079. Mileage, subsistence, etc 228 
 
 T. D. 2090. Synopsis of rulings 230-261 
 
 T. D. 2109. Aliens, amending T. R. 8 216 
 
 T. D. 2130. Excise tax, explaining T. D. 2005 261 
 
 T. D. 2131. Refund of tax withheld 263 
 
 T. D. 2135. Synopsis of rulings 265-275 
 
 T. D. 2137. Synopsis of rulings 275-293 
 
 T. D. 2152. Synopsis of rulings 293-300 
 
 T. D. 2153. Farm products 303 
 
 T. D. 2161. Synopsis of rulings 302 
 
 T. D. 2162. Extending T. D. 2017 308 
 
 T. D. 2163. Revising T. D. 2048 309 
 
 T. D. 2193. Revising T. D. 2015 310 
 
 T. D. 2201. Deductible bad debts 311 
 
 T. D. 2224. Revising 2201 311 
 
 T. D. 2231. Amendments as to fiduciaries 312 
 
 T. D. 2242. Aliens, "residence" defined 315 
 
 T. D. 2258. Banks, ownership certificates 316 
 
 T. D. 2267. Fiduciaries, depreciation 317 
 
 T. D. 2274. Dividends, revising 2163 318 
 
 T. D. 2289. Revising 2231 319 
 
 PART V 
 
 Supreme Court Opinion in Brushaber v. Union Pacific Railroad. 
 
 (Pages 328-38S.) 
 
 PART VI 
 
 Forms. (Pages 340-365.) 
 
 For individual returns 355 
 
 For corporation return 341 
 
 Instructions to corporations 352 
 
 Instructions to individuals 365 
 
 Withholding forms 298 
 
 PART VII 
 
 Statistics. (Pages S69-3S0.) 
 
 Chart of statistics Frontispiece 
 
 Receipts by States, all sources 369 
 
 Receipts by years, all sources 370 
 
 Corporation returns 372 
 
 Personal returns 377 
 
 PART VIII 
 
 General Index. (Page SSI.) 
 
INTRODUCTION 
 
 An eminent artist said that, to get the full value of his 
 work, it must he viewed from the viewpoint of the artist 
 himself. In the same sense the authors of this book on the 
 Federal Income Tax believe that a careful consideration of 
 these introductory paragraphs will prove beneficial to the 
 reader in his effort to gain a comprehensive understanding of 
 this complex and very much misunderstood law. 
 
 The motive of this publication is in the fact that there is 
 not a treatise on the subject that is intelligible to any one un- 
 acquainted with legal phraseology, and similarly there is none 
 that is both brief and complete, and which is based on the 
 Supreme Court construction of the law; hence the purpose 
 of this effort is to reduce the requirements of the new law to 
 plain language so that any one by reading it may clearly 
 grasp it and know his rights as well as his duties under the 
 law. 
 
 While fulfilling this aim for the general reader who may 
 be liable for the Income Tax, we have endeavored at the 
 same time to make this work equally desirable and valuable 
 for the lawyer. We have tried to strike a happy medium in 
 a book that is so plain that it cannot fail to be understood 
 and so complete and accurate that nothing essential shall be 
 left out of it. All the law is given for reference, and, by the 
 use of the Index to the law and the explanations, it is be- 
 lieved that the answer to any desired question may be easily 
 
 vli 
 
viii Introduction 
 
 and quickly obtained. All the law and the constructions and 
 regulations are included with the analysis in one alphabeti- 
 cal Index. 
 
 In developing these aims we have not followed the usual 
 style of law books. We have tried to meet a demand, not to 
 create one. In the first part of the work we give the one- 
 page summary, by the mastery of which the reader will have 
 a general idea of the law, and this will aid him in grasping 
 the details. Next we give our own plain outline of the main 
 requirements of the statute in brief paragraphs that include 
 answers to all the usual inquiries of persons interested. By 
 the cross-index the reader is referred to all other parts of the 
 work. Following this are the complete Statute, the Regula- 
 tions of the Treasury Department, the special rulings, the 
 Supreme Court opinion in the Brushaber case, Forms, Sta- 
 tistics and the Index. 
 
 The Statute and the Regulations are given in full, and 
 without accompanying comment. The Regulations by the 
 Commissioner of Internal Revenue cover the closest details 
 and are secondary in importance only to the Statute itself. 
 They contain all the regulations made by the Department for 
 the current year in which this book goes to press. 
 
 The reader who undertakes to gain a general knowledge of 
 the new law is advised to read the book in the order in which 
 it is given. When an answer to a particular question, how- 
 ever, is needed, the proper method is to consult the Table of 
 Contents and then, if necessary, the Index. Both the Table 
 
Introduction ix 
 
 of Contents and the Index have been made as complete as 
 possible, and under the name of the subject indicated the 
 searcher will find his references to that point in every part 
 of the book, including the authors' explanation, the forms, 
 the Statute, the Regulations and the Statistics. On account 
 of this feature of the Index, we have not cumbered the ex- 
 planatory paragraphs with numerous citations of authori- 
 ties, but give only such references to cases and other works 
 as may be really useful. The case of Brushaber v. Union 
 Pacific Railroad (If 13) practically covers all the Statute. 
 
 From the Report of the Commissioner of Internal Revenue 
 for the fiscal year ending June 30, 1915, it is made plain that 
 the administration of the new law has been effective and that 
 only minor changes are contemplated in the near future. One 
 of these is that all persons having "gross" incomes of $3,000 
 or more be required to list the incomes. At present the re- 
 quirement is for "net" incomes, so that the individual with 
 an income near $3,000 is practically left to be his own judge 
 as to whether or not his "net" income is up to the required 
 amount. A second probable amendment is to require part- 
 nerships to list the partnership income as now required of 
 corporations, instead of the present arrangement, which only 
 requires the partners to list their own proportionate parts of 
 the income. 
 
 The present law requires the return of the income to be 
 made in the district where the taxpayer's principal place of 
 business is located, and it is proposed that this be changed 
 
x Introduction 
 
 so that the return shall be made in the district of the legal 
 residence of the taxpayer. These, and other suggestions con- 
 cerned with the administration of the law, are the only prob- 
 able changes contemplated except such as may arise for the 
 purpose of increasing revenue. For this latter purpose it is 
 proposed that the $3,000 limit be lowered so as to include net 
 incomes exceeding $1,000, and between this idea and the op- 
 posing one of placing a heavier additional tax on the great 
 incomes, will be fought out the future battles in connection 
 with the Income Tax. 
 
 Because of the changes that will likely be made during 
 the ensuing year, a concise supplement to this work will be 
 published soon after the amendments are enacted, which will 
 probably be on or about the first day of 1917. As these new 
 amendments, whatever they are, will affect only the taxes for 
 1917, this supplement will be all that is needed for additional 
 information for the year 1917, and doubtless for several 
 
 years thereafter. „ ^ „,.,„,„ 
 
 J Beuce Craven, Trinity, N. C. 
 
 R. O. Eveeett, Durham, N. C. 
 February 10, 1916. 
 
 
ABBREVIATIONS 
 
 (Used in Cross References, Index, etc.) 
 
 H refers always to the paragraphs in the Analysis or first 
 part of this book. Tf42 signifies paragraph 42 of the Analysis. 
 
 Int., Introduction. 
 
 T. R., Treasury Regulations, articles 1-199, Part III. 
 
 T. D., Treasury Department special rulings, Part IV. 
 
 St., Statute, Part II. 
 
 "Statute" refers always to the complete Federal Income 
 Tax Law, now in force, enacted October 3, 1913, and given 
 in full in Part II. 
 
 "Analysis" refers always to the 58 paragraphs in the first 
 part of this hook. 
 
 "R. S." refers to the Revised Statutes of the United States. 
 
 "Sup. Ct" refers to the Supreme Court opinion in the 
 Brushaber case, Part V. 
 
 xi 
 
SUMMARY 
 
 The Federal Income Tax was enacted by the Congress of 
 the United States and signed by the President, October 3, 
 1913. 
 
 The new law has been fully upheld by the Supreme Court 
 of the United States, construing the Sixteenth Amendment. 
 
 (1113.) _ 
 
 The income on which the taxation is based is the income 
 since March 1, 1913. (If 13.) 
 
 The calendar year is the basis for determining the income, 
 except for certain corporations whose fiscal year ends at some 
 other time. (1137.) 
 
 The return for all individuals must be made on or before 
 the first day of March of each year, this return being of the 
 amount of income for the previous calendar year ending De- 
 cember 31. (1f37.) 
 
 Every individual 21 years of age, whose net income for 
 any calendar year exceeds $3,000, must list the income for 
 taxation on or before the first day of the following March. 
 
 Unmarried persons pay the "normal tax" on the amount 
 by which the net income exceeds $3,000, and married persons 
 pay only on the excess above $4,000. (1f58.) 
 
 Every corporation conducted for private gain must make 
 a return of the income, and must pay the "normal tax" on all 
 of the net income. (1115.) 
 
 "Net income" means the income above the expenses of con- 
 ducting business, but this "expense" does not include per- 
 sonal or family expenses. (1120.) 
 
 The income from Government bonds and from salaries of 
 State officers are exempt from taxation under the present 
 statute. (If 19.) 
 
 The "normal tax" is a tax of 1 per centum on net income. 
 The "additional tax," ranging from 1 to 4 per centum, is 
 on incomes exceeding $20,000, but this additional tax does 
 not apply to Corporations. (1fl6.) 
 
 xil 
 
 
PART I 
 
 ANALYSIS 
 
Discussion of the Income Tax law in paragraphs from 1 
 to 58, inclusive, with cross references to other parte of the 
 work. 
 
 *t 
 
ANALYSIS 
 
 Tfl. Necessity for Taxation. The foundation reason for 
 public taxation is the general convenience. Certain things 
 become essential for the public good, and it is, in any large 
 group of people, a practical impossibility to raise the amount 
 by toll or personal voluntary contributions, or even by gen- 
 eral or unanimous consent. Hence arose the governmental 
 policy of enforced taxation. The governing power decides 
 what expense is necessary for the public welfare, and raises 
 the required revenue by a levy or tax on all the people. The 
 only alternative or substitute for it would be the method by 
 which two or three persons contribute to the expense of some 
 undertaking for their mutual benefit, and, as total equality 
 could never be possible, this system in any nation cannot be 
 feasible. Hence the expense is undertaken on the theory of 
 the greatest good to the greatest number, and all are forced 
 to contribute to it. "A sum or rate imposed by governmental 
 authority for a public object or purpose." Pettibone v. Smith, 
 150 Pa. 118, 17 L. R. A. 423. 
 
 1f2. Income Tax Theory. There are two general theories 
 of taxation, in one or the other of which all schemes of taxa- 
 tion are included. One is the cost to the Government of the 
 benefits conferred upon the taxpayer, or, in other words, the 
 taxpayer pays according to the protection afforded him, bas- 
 ing the amount on the actual cost to the Government. In this 
 class comes the property tax, which each person pays accord- 
 ing to the amount of property he owns. The other theory, 
 under which comes the Income Tax, is that the taxpayer en- 
 joys his benefits and opportunities by governmental protec- 
 tion, and therefore should pay according to his ability to pay. 
 It is argued that a man who has income from the manage- 
 ment of his property, as, for instance, a merchant, should not 
 be liable for tax any more than the professional man whom by 
 fees or tuition the merchant helps to support and whose in- 
 come is not connected with care of property and its dangers 
 and losses. As a further corollary to this, it is contended 
 
4 Federal Income Tax 
 
 that the income from a professional man's labors should 
 not be taxed as high as the income from his or another's 
 vested property, and this principle is part of the Income Tax 
 system of England where "earned" income has rights over 
 "unearned" income. "The power of taxation is exercised 
 upon the assumption of an equivalent rendered to the tax- 
 payer in the protection of his person and property." Transit 
 Co. v. Kentucky, 199 U. S. 202. To this is now added the 
 extension that the taxation may also consider the special cir- 
 cumstances by which one man's income is greater than an- 
 other man's, though the amount of their property may be the 
 same. See IflO and 1fl3. 
 
 1f3. First Taxes Were Income Taxes. When the wander- 
 ing tribes, before the days of established governments and 
 fixed boundaries, faced the necessity of compelling recalci- 
 trants to assume their proportional parts of the general ex- 
 pense, taxation became necessary, and the first tax levied was 
 a tax according to ability to pay, or an Income tax. It was 
 the policy of the ancient kings to take from their subjects 
 according to their ability to contribute, and on the same 
 theory was based the biblical taking of a tenth of the income 
 to the Church, which was then also the Government. 
 
 For the complete History of Income Tax Laws, refer to 
 Foster's "Income Tax," 1915. 
 
 If4. Income Taxes in Europe. In all European countries 
 the Income Tax has afforded an irregular source of income 
 as far back as history goes. To give the account of it would 
 fill a volume with the simple record. In England, what 
 might be called the modern tax was first begun in 1799. It 
 was amended and modified often until 1853, when the act 
 which is chapter 34 of the 16th and 17th Victorian Statutes 
 may be said to have found a permanent basis. The present 
 English act, 7 Edward VII., chapter 13 (August 9, 1907), 
 taxes all incomes in excess of 150 pounds, or our approximate 
 equivalent of $750. The present tax on the lowest income is 
 in excess of a shilling on a pound, or approximately in our 
 money of four cents on the dollar above $750, with additional 
 
 # 
 
Analysis 5 
 
 taxes on larger incomes to the extent that of the highest in- 
 comes the English tax now takes about 40 per cent. In Eng- 
 land the Income Tax affords the chief source of revenue. In 
 France, Germany, and other nations it is also an important 
 part of the revenue system. 
 
 1f5. State Income Taxation. From the early days of the 
 Plymouth Colony to the present there have been numerous 
 and sundry experiments with the Income Tax, in the Colonies 
 first, and later in many of the States of the American Union. 
 The tax, in one form or another, has existed in Massachusetts 
 since 1646, but has produced but little revenue and is hardly 
 worthy of the name of a tax. (Wilcox v. Middlesex County 
 Commissioners, 103 Mass. 544.) In Virginia the tax has 
 existed since 1898 and has produced more income there than 
 any other State tax. The other States where the tax is now 
 in force as a part of the State revenue laws are South Caro- 
 lina, Wisconsin, Tennessee, North Carolina, and Oklahoma. 
 It is also in effect in Hawaii and has been in the Philippine 
 Islands, but was repealed there in 1904 ; and it has been tried 
 in different forms and at various times in a number of other 
 States. The new law applies, of course, to Hawaii and the 
 Philippines. (St. M.) The constitutions of Virginia, North 
 Carolina, Texas, California, and Tennessee expressly author- 
 ize a tax on incomes, though in Tennessee and North Caro- 
 lina it can only affect incomes from other sources than from 
 property which is taxed. The Congress of the Confederate 
 States of America (April 24, 1863) imposed an Income Tax 
 on incomes exceeding $500, and at a rate increasing to 15 
 per cent, and this was later raised to 25 per cent. It applied 
 to individuals, corporations, and joint stock companies. 
 
 If6. Constitutional Provisions. The sections of the Con- 
 stitution bearing upon the subject of the Income Tax, the 
 combined meaning of which could never be settled until the 
 enactment of the Sixteenth Amendment, are as follows : 
 
 9th Amendment: The enumeration in the Constitution, of certain 
 rights, shall not be construed to deny or disparage others retained 
 by the people. Spies v. Illinois, 123 U. S. 131; Jack v. Kansas, 199 
 U. S. 372. 
 
6 Federal Income Tax 
 
 10th Amendment: The powers not delegated to the United States 
 by the Constitution, nor prohibited by it to the States, are reserved 
 to the States respectively, or to the people. Curtvn v. Benson, 22 
 U. S. 78; Interstate Commerce Com. v. Transit Co., 224 U. S. 194. 
 
 Article I, section 2: Representatives and direct taxes shall be 
 apportioned among the several States which may be included within 
 this Union, according to their respective numbers * * * . 
 
 Article I, section 8: 'Ihe Congress shall have power to lay and 
 collect taxes, duties, imposts and excises, to pay the debts and pro- 
 vide for the common defense and general welfare of the United 
 States; but all duties, imposts and excises shall be uniform through- 
 out the United States. Hooe v. United States, 218 U. S. 322; Flint v. 
 Tracy Co., 220 U. S. 107. 
 
 Article I, section 9: No capitation, or other direct, tax shall be 
 laid, unless in proportion to the census or enumeration hereinbefore 
 directed to be taken. Spreckles Co. v. McClain, 192 U. S. 397 ; South 
 Carolina v. United, States, 199 U. S. 437. 
 
 See 1112 for 16th Amendment; T|10 for Pollock case; 1113 
 for Brushaber case, which in full, in Part V, construes all 
 these provisions. 
 
 1f7. Direct and Indirect Taxation. Section 9 of Article 
 
 1 of the Constitution, which was one of the sections protect- 
 ing the States on an equal hasis, declares that no direct tax 
 shall be laid unless in proportion to population, and section 
 
 2 of the same article has practically the same provision. 
 Direct tax is tax directed at an individual or corporation, in- 
 cluding capitation or "poll" tax, property taxes, taxes on 
 business, incomes, etc. Indirect taxation is that imposed by 
 what is commonly known as the tariff on goods imported 
 into the country, and which is a tax on the goods, and not 
 on a person. All internal revenue paid by individuals was 
 indirect taxation until the passage of the Sixteenth Amend- 
 ment. (Cooley on Taxation.) According to the Pollock 
 case, hereinafter discussed, there is no tax outside of direct 
 taxation on the one side, and "duties, imposts and excises" 
 on the other. Under this definition Congress could only levy 
 tariffs on imports, taxes on business, like tobacco and liquor 
 manufactures ; and all other taxes levied by Congress must 
 be apportioned equally among the States. Hence a capitation 
 
Analysis 7 
 
 tax or any other direct tax was an impossibility to Congress 
 until the new amendment expressly conferred the power with 
 regard to incomes. As to whether or not the income tax was 
 a direct tax was the problem upon which the division came 
 that forced the amendment. 
 
 "The distinction between direct and indirect taxation was well 
 understood by the framers of the Constitution and those who adopted 
 it. Under the State systems of taxation all taxes on real estate or 
 personal property or the rents or income thereof were regarded as 
 direct taxes. The rules of apportionment and uniformity were 
 adopted in view of that distinction and those systems." Chief Justice 
 Fuller, Pollock v. Trust Co., 157 U. S. 573. 
 
 See Brushaber case, 1fl3. 
 
 1f8. First National Laivs. A Federal Income Tax was 
 recommended by the Secretary of the Treasury in 1812, but 
 not enacted. By act of August 5, 1861, a tax of 3 per centum 
 was imposed on all incomes in excess of $800, but this was 
 repealed by the act of July 1, 1862, which in turn laid the 3 
 per centum tax on all incomes between $600 and $10,000, 
 and 5 per centum on the excess above $10,000. June 30, 
 1864, the rate was increased to 5 per centum between $600 
 and $5,000, 74, per centum between $5,000 and $10,000, and 
 10 per centum on all over $10,000. March 3, 1865, the rate 
 above $5,000 was fixed at 10 per cent. March 2, 1867, the 
 tax was fixed at 5 per cent above $1,000. The rate was 
 cut in half July 14, 1870, and the entire law expired by limi- 
 tation the following year. During all this time the constitu- 
 tionality of the law was not questioned, though it may be 
 assumed that this fact was partly due to the stre?s of war. 
 For further history of income taxes in general, see Foster's 
 "Income Tax." National Bank v. United States, 101 U. S. 
 1 ; Springer v. United States, 102 U. S. 5S6. See If 13. 
 
 119. The Act of 1894. August 28, 1894, Congress again 
 enacted an Income Tax, this levying a tax of 2 per centum on 
 all incomes exceeding $4,000 a year. This act was amended 
 as to time of filing returns, February 19, 1895. The first 
 tax under the act was due to be paid on or before July 1, 
 
8 Federal Income Tax 
 
 1895, but before tbat limit was reacbed tbe act bad been de- 
 clared unconstitutional. (See 1113.) 28 St. at L. 509, 3 
 Fed. St. Ann. 622, 28 St. at L. 971, Pollock v. Farmers Loan 
 and Trust Co., 157 U. S. 429, 158 U. S. 601. 
 
 1(10. The Pollock Case. It is possible tbat tbere would 
 have been no attack on tbe constitutionality of tbe act of 
 1894 except for tbe exemption of incomes of less tban 
 $4,000, the previous exemption having been only $600. Be- 
 cause of this radical change, four-fifths of the tax under the 
 act would have been paid by the States of Pennsylvania, New 
 York, New Jersey, and Massachusetts. The statute made 
 it impossible for an injunction to be granted against the tax 
 collector (Rev. St. 3224), and by any of the usual methods 
 of bringing suit the final decision would have been delayed 
 until many millions of dollars had been paid in tax. Hence 
 it was tbat Pollock, a private citizen, as a stockholder in the 
 Farmers Loan and Trust Company, petitioned the courts to 
 enjoin the company from paying tbe tax. By mutual con- 
 sent tbe case was hurried to tbe final decision. Chief Justice 
 Fuller, for a divided court, decided that the tax on income 
 from real estate was a direct tax, and hence tbe act taxing 
 income from real estate was unconstitutional. In his opinion 
 he recalled the careful guarding of the rights of the wealthier 
 States by the makers of the Constitution and was plainly 
 influenced by the consideration that the act would levy heav- 
 ily on a few States and almost none at all on others. (Pollock 
 v. Loan and Trust Co., 157 U. S. 429.) Both sides were dis- 
 satisfied with this decision and asked for a rehearing, and, 
 in the second opinion, the Court again divided, it was held 
 that the tax on income from personal property was also direct 
 taxation, and hence the entire act was unconstitutional. Pol- 
 lock v. Trust Co., 158 U. S. 601. See If 13 for synopsis of 
 the Brushaber case, and see opinion in full in Part V of this 
 volume. 
 
 Ifll. Corporation Excise Tax of 1909. By the Act of 
 August 5, 1909, there was imposed a tax of 1 per centum 
 on incomes in excess of $5,000 of all corporations other than 
 
Analysis 9 
 
 partnerships. This tax as enacted is "a special excise tax 
 with respect to the carrying on or doing business by such cor- 
 poration," etc. 36 St. at L., ch. 6, page 112. This act was 
 held to be constitutional, but comes under the name of excise 
 tax and is not an income tax, though the tax is based on the 
 amount of income. Flint v. Stone Tracy Company, 220 
 U. S. 107. This Excise Tax Law was repealed by the present 
 Income Tax Law. The normal tax on corporations of the 
 new law (section G-a) takes the place of the old excise tax. 
 Section S, at the end of the Statute in this book, provides for 
 the collection of the tax to March 1, 1913, when the new tax 
 became effective. For all purposes, the present income tax 
 on corporations (Hi 5) is substantially the same as the excise 
 tax of 1909, except that the excise tax exempted $5,000 and 
 the Income Tax of 1913 does not. 
 
 If 12. Sixteenth Amendment. The constitutional amend- 
 ment expressly authorizing a Federal Income Tax is in the 
 following words : "The Congress shall have power to lay and 
 collect taxes on incomes, from whatever source derived, with- 
 out apportioning among the several States, and without re- 
 gard to any census or enumeration." 
 
 Notwithstanding the unrestricted power the Act of 1913 
 does not tax the income from salaries of State officers, nor 
 from bonds of a State or any political subdivision thereof, 
 these exemptions being in deference to the previous opinions 
 of the Supreme Court that such income could not be taxed. 
 
 The Sixteenth Amendment was proposed to the legislatures 
 of the forty-eight States by the Sixty-first Congress, on the 
 12th day of July, 1909. The Secretary of State, in a proc- 
 lamation dated February 25, 1913, declared the amendment 
 to be a part of the Constitution, having been ratified by 
 thirty-eight of the forty-eight States. Only three States actu- 
 ally rejected the amendment, these being New Hampshire, 
 Ehode Island and Utah. It was apparent from the ratifica- 
 tions that the objection upon which the Act of 1894 was de- 
 clared unconstitutional was more of a theory than a fact. The 
 basis of that objection was that the States of New York, New 
 
10 Federal Income Tax 
 
 Jersey, Massachusetts and Pennsylvania, being the wealthi- 
 est, would be discriminated against. Of these States, all ex- 
 cept Pennsylvania ratified the amendment, and Pennsyl- 
 vania did not act on it. Illinois, which was third in the 
 amount of tax paid in the first year of the operation of the 
 law, was the fourth State to ratify the amendment. (See 
 U. S. Senate Constitutional Manual, 1913.) See If 13 and 
 Brushaber case in full in Part V, construing the Sixteenth 
 Amendment. 
 
 1fl3. Constitutionality of New Law. The present In- 
 come Tax law was declared constitutional in a comprehensive 
 opinion by the Supreme Court of the United States, Janu- 
 ary 24, 1916, in the case of Brushaber v. Union Pacific Bail- 
 road, given in full herein as Part V. The opinion of the 
 Court was unanimous, but Justice McReynolds took no part 
 in it because of his activity in connection with the subject 
 when he was Attorney-General. Chief Justice White wrote 
 the opinion for the Court, and in every point the validity of 
 the statute was upheld. The case was exactly similar in its 
 inception to the Pollock case (flO). A private stockholder 
 brought an action against the railroad company to restrain 
 it from paying the tax on the ground that it was unconstitu- 
 tional. The Court sustains the ruling in the Pollock case that 
 the income tax is a direct tax, and, therefore, previous to the 
 Sixteenth Amendment (1112), it could not be valid without 
 being apportioned out among the States. The basic error of 
 the attack on the law, according to the Court, was in assum- 
 ing that the Sixteenth Amendment conferred the power to 
 levy an income tax, whereas the power had always existed, 
 and "the whole purpose of the amendment was to relieve all 
 income taxes from a consideration of the source whence the 
 income was derived." As to the "uniformity" required by 
 section 8 of Article I of the Constitution, the Court holds 
 that this means merely that the law must be the same in all 
 the States, and nothing more than this. The principal detail 
 argued to the Court was the withholding provision requiring 
 banks, etc., at their own expense to withhold and pay tax, and 
 
Analysis 11 
 
 the Court upheld this as not violating the "due process of 
 law." The Court declared valid the retroactive provision 
 making the tax date from March 1, 1913, though the law was 
 enacted October 3, 1913 ; there being nothing in the Consti- 
 tution prohibiting retroactive taxation, and it not being in 
 violation of the "due process" clause of the Fifth Amend- 
 ment. Exemption of labor and agricultural organizations 
 (1115) was upheld. Limitation of the amount of interest 
 allowed to be deducted by a corporation (1122), deduction of 
 income from dividends by individuals, but not by corpora- 
 tions (149), denial of a "second exemption" for additional 
 tax (1(16), difference in specific exemption for husband and 
 wife when not living together (1f52), denial of deduction for 
 rent (H48), and distinction between farmers and others with 
 regard to personal and family expenses (1[21, 51) were the 
 chief other points declared valid by the Court. See Constitu- 
 tional Provisions (K6) and Excise Law (111). For details 
 in the Brushaber case, see references in the General Index of 
 this book, preceded by "Sup. Ct." 
 
 1114. The Act of October 3, WIS. This law, signed by 
 the President, October 3, 1913, is the subject of this book, 
 and the various provisions of it will be explained in subse- 
 quent paragraphs. The complete statute, which is section 2 
 of the Tariff act of 1913, is given elsewhere in this volume, 
 together with the Treasury Department rulings concerning 
 the operation of it, and the Supreme Court construction of it. 
 (1(13.) The bill was passed by the House of Representa- 
 tives May 8, by a vote of 281 to 139, and by the Senate, Sep- 
 tember 9, by a vote of 44 to 37. It was then sent to confer- 
 ence regarding minor disagreements between the two houses, 
 and was finally adopted in the Senate October 2, and in the 
 House October 3, and the President signed it October 3. 
 The bill was carefully drawn to meet all constitutional objec- 
 tions, and is held to be entirely valid in the Brushaber case 
 given in full in Part V of this work. (See 1113.) The total 
 receipts under the law in 1914 (for the last ten months of 
 1913) were $71,381,274.69. For the full year of 1914, the 
 
12 Fedebal Income Tax 
 
 taxes for which were collected in 1915, the total receipts were 
 $79,999,834.25. See Statistics in last part of this volume. 
 
 1)15. Corporation Income Tax. Every corporation, 
 joint-stock company, insurance company or association, not 
 including partnerships, doing business for private gain in 
 the United States, shall make a return of the income for each 
 year, and is required to pay a tax of 1 per centum on all the 
 net income, however small it may be. (T. R. 163.) There 
 is no additional tax on corporations, but the 1 per centum 
 on the entire net income, known as the normal tax, is the ex- 
 tent of the corporation income tax ; but see Dividends, 1f49. 
 If the corporation is a foreign one the tax is based only on 
 the income accruing from business in the United States. The 
 law does not apply to labor, agricultural, or horticultural or- 
 ganizations (T. D. 2090, page 18, and T. D. 1996) or to 
 mutual savings banks not having capital stock represented bv 
 shares, nor to fraternal beneficiary societies operating under 
 the lodge system, nor to domestic building and loan associa- 
 tions, nor to cemetery companies operated not for gain, nor 
 to corporations or organizations operated for religious, scien- 
 tific, charitable, or educational purposes, nor to business 
 leagues, boards of trade, chambers of commerce, civic leagues, 
 etc., which are not operated for profit or for the benefit of 
 any private stockholders. (T. D. 1967.) In brief, the tax 
 applies only to corporations conducted for the profit of the 
 private stockholders and not for public good. (T. R. 87.) 
 The tax does not apply to income from any public utility 
 operated wholly or in part by the State or any municipality, 
 etc., in such a way that the tax would fall as a burden on the 
 Government. (See in full section G a of the Statute.) Cor- 
 poration Bookkeeping, 1f57. Forms and Instructions in last 
 part of this book. Corporation fiscal year, 1137, and T. D. 
 2029.) Treasury Regulations, Articles 76-186, and T. D. 
 2152, pages 2-6. For Corporation deductions, see T. R. 113. 
 Bonds guaranteed tax-free, T. D. 1948. 
 
 Hi 6. Rate of the Individual Tax. The rate of taxation 
 on the income of individuals is 1 per centum (known as the 
 
Analysis 13 
 
 normal tax) on the income above $3,000, if unmarried, and 
 above $4,000 if married (1158). Every individual whose net 
 income exceeds $3,000 in any calendar year must make a re- 
 turn of his income to the collector of his district before March 
 1 of the succeeding year. The normal tax of 1 per centum 
 is on the income above the $3,000 or $4,000 and up to $20,- 
 000. On the income from $20,000 to $50,000 the tax is 2 
 per centum. Between $50,000 and $75,000 it is 3 per cen- 
 tum. From $75,000 to $100,000 it is 4 per centum. Be- 
 tween $100,000 and $250,000 it is 5 per centum. From 
 $250,000 and $500,000 it is 6 per centum and 7 per centum 
 on the excess above $500,000. To apply the tax on an in- 
 come of a million dollars will serve to make the requirement 
 plain. On the first $20,000 the tax is 1 per centum above 
 $4,000, or $160. On the next $30,000 it is 2 per centum, or 
 $600. On the next $25,000 it is 3 per centum, or $750. On 
 the next $25,000 it is 4 per centum, or $1,000. On the next 
 $150,000 it is 5 per centum, or $7,500. On the next $250,- 
 000 it is 6 per centum or $15,000. On the next $500,000 
 it is 7 per centum, or $35,000. This makes the total income 
 tax on a net income of a million dollars amount to $60,010. 
 See first and second paragraphs of the Statute. T. R. 1 
 and 2. 
 
 1fl7. Who Must Make Returns of Income. Every cor- 
 poration conducted for private gain must report the income 
 regardless of the amount. (1|15.) Every individual who is 
 as much as 21 years of age and whose net income is more than 
 $3,000, must make the return. (T. R. 15-18.) Every fidu- 
 ciary, guardian, trustee, etc., who is entrusted with the man- 
 agement of the funds of another whose income amounts to 
 more than $3,000 must make the return of the income. 
 (1133.) In this income is not to be included any income 
 from dividends of corporations which also pay the tax. 
 (H49.) In no case is any return required from an individual 
 where the net income does not exceed $3,000. (St. D.) 
 Time and place for making returns, 1137. There are five 
 different forms for income returns, these being for individ- 
 
14 Federal Income Tax 
 
 uals, fiduciaries, withholding agents, corporations other than 
 insurance companies, and insurance companies. See indi- 
 vidual and corporation forms herein. Corporations, ][15. 
 Insurance Companies, 143. Eeturns generally, 153. Fidu- 
 ciaries, 133. Withholding agents, 1(32. Mutual Telephone 
 Companies, etc., T. D. 1933. Exempt corporations, T. E. 
 87, and T. D. 2090 "exempt." 
 
 If 18. Gross Income Defined. The tax is based on net in- 
 come, but every person who makes a return of his income 
 must list his gross income, and gross income includes all in- 
 come, gains and profits from all sources whatever in the cal- 
 endar year for which the return is made (T. E. 4), except as 
 mentioned in the succeeding paragraph, and does specifically 
 include all of the following: salaries and wages (131), com- 
 pensation for personal services in whatever form paid, pro- 
 fessions (1147), vocations, business (whether the profits are 
 actually divided or not, as in partnerships) (136), trade, com- 
 merce, sales, dealings in personal or real property (1(50), in- 
 terest, rents (1148), dividends (149), or from any business or 
 transaction for gain, including the income from, but not the 
 value of the property obtained by gift, bequest, devise or de- 
 scent (129). Insurance companies' gross income, T. E. 97- 
 102. Manufacturing company, T. E. 104. Mercantile cor- 
 poration, T. E. 105. Miscellaneous corporations, T. E. 106. 
 Mutual fire insurance company, T. E. 108. General defi- 
 nition gross income, T. E. 107. 
 
 1J19. Nontaxable Gross Income. The following are not 
 to be considered as a part of the gross income and need not 
 be listed in making the return of the Income: proceeds from 
 life insurance policies of any kind except interest payments 
 made to beneficiaries (130) ; income from United States 
 bonds or of any of its possessions, or from bonds of a State 
 or of any of the political subdivisions thereof (128) ; income 
 from salaries paid to officers of a State or any subdivision 
 thereof, including public school teachers, unless such salaries 
 are paid by the United States (1f31) ; the value of property 
 acquired by gift, bequest, devise or descent (129). The 
 
Analysis 15 
 
 salaries of the President of the United States for the present 
 term and of United States judges who were in office when the 
 law was enacted are not subject to the tax, because of the con- 
 stitutional provision that these salaries shall not be changed 
 during the term of office. (St. B.) See Article 5 of the 
 Treasury Regulations herein, and succeeding paragraphs, to 
 30 inclusive. 
 
 1(20. Net Income Defined. Net income alone is taxable, 
 and under the provisions of the Income Tax law net income 
 is the gross income as defined in the two preceding para- 
 graphs, less the deductions as noted in the following para- 
 graphs. Gross income in realty is all income, but gross in- 
 come for purposes of taxation under this act is the income 
 less the nontaxable items mentioned in paragraph 19. From 
 this taxable gross income the net income is obtained by de- 
 ducting the expense of conducting business, interest paid on 
 debts, taxes paid, losses sustained and not otherwise com- 
 pensated, debts due to individual taxpayer and found to be 
 worthless, and a reasonable allowance for wear and tear. 
 These six items, discussed in paragraphs 21 to 26 inclusive, 
 deducted from gross income, leave the legal definition of net 
 income. Even of the net income, however, there are three 
 items which are not taxable, to wit, the amount represented 
 by income of an individual from stock in a corporation which 
 has paid tax on its income (1149), the amount of income the 
 normal tax on which has been withheld or paid at the source 
 (1132), and the individual exemption of $3,000 for an un- 
 married person or $4,000 for a married person (1f58). See 
 Insurance Companies, 1143, "Accrued income" defined, |46. 
 Treasury Regulations 1 to 6. For Corporation deductions, 
 see T. R. 113. 
 
 H21. Expenses of Conducting Business. This is the first 
 deduction allowed from taxable gross income for the purpose 
 of determining the net income. This deduction is meant to 
 include the necessary and usual expenses of conducting the 
 business. This item includes the actual expenditures during 
 the year for conducting the business and making necessary 
 
16 Fedebal Income Tax 
 
 repairs, but not for permanent improvements or increase of 
 capital or resources. It includes the cost of labor, fuel, lights, 
 rent, taxes, and insurance, except for life insurance for the 
 benefit of a personal beneficiary. The expenses for supplies 
 for office use should include only the amount used and not 
 the total purchased. The cost of repairs necessary for ope- 
 rating the business, but which do not add to the value of the 
 business, is allowable as a deduction. "Ordinary and neces- 
 sary" are the terms which fix the expenses allowed to be de- 
 ducted. For fuller details, see the Treasury Regulations 
 herein, Articles 14, 114, 116, 120. This deductible allow- 
 ance cannot include personal, living or family expenses," 
 such as medical attendance, family supplies, wages of domes- 
 tic servants, cost of board, room-rent, house-rent, repairs on 
 residence, etc. Farming, Tf51. 
 
 1f22. Interest Paid on Debts. This is the second deduc- 
 tion allowed from the gross income in fixing the net income, 
 and is fully covered by subsection B of the Statute and the 
 Treasury Regulations. The rules for individuals and for cor- 
 porations are different. An individual is allowed to deduct 
 all interest actually paid by him on outstanding debts during 
 the year, provided that interest accrued during that year, and 
 was not past-due interest, and it cannot include any payment 
 made on the principal of the indebtedness. For corporations 
 the same rule applies, except that the amount of the exemp- 
 tion is limited. The amount of corporation indebtedness for 
 which interest deduction is allowable cannot exceed one-half 
 of the amount of the interest-bearing indebtedness plus the 
 paid-up capital stock outstanding at the close of the year. 
 (T. D. 1960.) If the association or company has no capital 
 stock then the amount of indebtedness on which the deduct- 
 ible interest is allowable cannot exceed the amount of capital 
 actually employed in the business at the close of the year. 
 Corporation indebtedness, secured wholly by collateral, which 
 is the subject of sale in the ordinary business of the corpora- 
 tion, does not come within the limitation, but if the interest 
 incoming from such collateral is returned as part of the in- 
 
 
Analysis 17 
 
 come, then all the interest paid on the collaterally secured 
 debt is deductible. Treasury Regulations 148 and 150, and 
 T. D. 1993. Withheld at source, 1(32 and T. R. 37. 
 
 1123. Taxes Deductible. This third deduction is allow- 
 able to the amount of taxes actually paid out during the year, 
 but not for taxes that became due but were not paid during 
 the year. (St. B.) Taxes for this deduction include Na- 
 tional, State, county, municipal and school, but not those for 
 local benefits, such as special district taxes for irrigation, 
 drainage, reclamation, sidewalks, streets, paving, etc. (T. D. 
 2090, page 11.) Taxes paid abroad are not deductible. 
 Foreign corporations doing business in the United States are 
 taxed only on their income from business in the United 
 States, and only taxes in the United States are deductible. 
 (H34.) A corporation cannot deduct taxes assessed against 
 its shareholders under a State statute, but the individuals 
 deduct the amount from their own returns. Import duties 
 are not deductible as taxes, but may be included as expense 
 of carrying on business when they actually are so. (T. R, 
 155.) A corporation paying a certain tax on a contract that 
 certain bonds, etc., shall not be taxed cannot deduct the 
 amount of such tax. (T. R. 153, T. D. 1948.) 
 
 1J24. Losses Deductible. Fourth among the six deduc- 
 tions, according to the wording of the statute (B), is "losses 
 actually sustained during the year, incurred in trade or aris- 
 ing from fires, storms or shipwreck, and not compensated for 
 by insurance or otherwise." (T. D. 1989 and 2005.) Con- 
 cerning this provision, the draftsman of the bill, Representa- 
 tive Cordell Hull, said in the House, April 2G, 1913 : "These 
 provisions primarily contemplate allowance for losses grow- 
 ing out of the trade or business from which the taxable in- 
 come is derived, and generally termed trade losses, as distin- 
 guished from losses of capital or principal or losses incurred 
 entirely apart from business transactions from which income 
 is derived. A similar rule goverus deductions for expenses." 
 The losses deductible are those occurring directly as a part 
 of the business and as a result of the operations in connection 
 2 
 
18 Fedebal Income Tax 
 
 with it. A loss, to be deductible, must be one that has al- 
 ready been paid off or charged off the books, and not merely 
 an estimated or speculative loss. Treasury Regulations, 
 Articles 124, 126, 127, 128, 138. Insurance Companies, If 43 
 and T. R. 147a. See T. D. 2135, page 5. Losses from sale 
 of real estate (1f50) are not deductible. (T. D. 1989.) 
 
 1f25. Debts Proven Worthless. The fifth deduction is 
 "debts due to the taxpayer actually ascertained to be worth- 
 less and charged off within the year." Treasury Department 
 ruling 2224 construes this provision to include unpaid and 
 uncollectible wages, salaries, rents, etc., provided that such 
 were listed as income for the year in which they became due 
 and were afterwards ascertained to be uncollectible. The 
 same regulation says that all debts that became due and pay- 
 able prior to March 1, 1913, and not ascertained to be worth- 
 less prior to that date, are allowable as deduction for the year 
 in which they are actually ascertained to be worthless and are 
 charged off the books. Treasury Regulation 125 construes 
 the words "ascertained to be worthless" to mean "after legal 
 proceedings to collect same have proved fruitless, or it clearly 
 appears that the debtor is insolvent." If the debts are subse- 
 quently collected after being charged off, they must be listed 
 as income for the year in which they are collected. Briefly, 
 when one listing his income tax lists a certain debt as de- 
 ductible, he must show his reason for charging it off his books, 
 and if the Collector has any doubt about it, he has power to 
 call for fuller details. This deduction does not apply to cor- 
 porations, but only to individuals. For Corporation exemp- 
 tions see St. G(b) and T. R. 113. Accrued income, Tf46. 
 Professional fees, H47. 
 
 1f26. Depreciation. Sixth among the allowable deduc- 
 tions is "a reasonable allowance for the exhaustion, wear and 
 tear of property arising out of its use or employment in the 
 business, not to exceed, in the case of mines, 5 per centum of 
 the gross value at the mine of the output for the year for 
 which the computation is made." (T. R. 6, 142, 145, and 
 T. D. 2137, page 7.) No deduction is allowable for repair- 
 
Analysis 19 
 
 ing or restoring such wear and tear, for which an allowance 
 has elsewhere been made, and none for new buildings and 
 permanent improvements made to increase the value of the 
 property. "Depreciation" as herein allowed is entirely dis- 
 tinct from "losses" as discussed in paragraph 24. The 
 "losses" must be absolute and complete, while the "wear and 
 tear" or "depreciation" constituting the sixth allowable de- 
 duction is merely a reduction in the value and not a loss of 
 it. This depreciation is defined by Treasury Regulation 
 2005 as "the deterioration of physical improvements or as- 
 sets, such as are susceptible of having their value lessened 
 through wear and tear, use or obsolescence." Shrinkage in 
 the market value of stocks, bonds and like securities is not 
 allowable as a deduction under either provision. This pro- 
 vision of the statute is clearly defined in Articles 129 and 
 130 of the Treasury Regulations herein, and the summary 
 of which is that depreciation must be such as is not covered 
 by the expenses of operating, must be due to the wear and 
 tear of ordinary use, and must be so averaged up from year 
 to year that all the allowances together would constitute the 
 value of the life of the property. For "Depreciation" on 
 Patents see 1f56. Farms, 1J51. See T. D. 2005, 2131, and 
 2137, page 5. Depreciation for Fiduciaries, T. D. 2267. 
 
 1f27. Exemptions from Net Income. This paragraph dis- 
 cusses the part of the net income that is not taxable (T. R. 3). 
 The preceding six paragraphs defined the six parts of gross 
 income which are not included in net income. Preceding 
 them, in paragraph 19, are listed four items that are part of 
 gross income, but not taxable and not required to be listed. 
 All the paragraphs from 18 to 26 inclusive constitute the 
 legal definition of net income, and this paragraph added to 
 it defines what is taxable net income. The first exemption 
 is that part of the net income which is represented by the 
 dividends on stocks in corporations and other associations on 
 which the corporation itself paid the normal tax. (St. B. and 
 1149.) The second is that part of the net income on which the 
 tax was withheld and paid at the source, as explained in para- 
 
20 Federal Income Tax 
 
 graph 32. The third is the exemption of $3,000 for an indi- 
 vidual who is not married, or $4,000 if married. (St. C, 
 If 58.) This latter obviously does not apply to corporations, 
 which are required to pay the normal tax of 1 per centum, 
 and that only on all their net income. If both husband and 
 wife have sejjarate incomes, the return for both of them shall 
 be made, but only one exemption of $4,000 shall be allowed. 
 (1f52.) 
 
 1f28. Bonds. Government bonds are not taxable under 
 the Income law. The Sixteenth Amendment permits the tax 
 to be levied on income "from whatever source derived," but 
 notwithstanding this, the Pollock case (1110) and many others 
 have plainly held that one taxing power cannot tax another 
 taxing power, and the present statute accordingly exempts 
 the income from all Government bonds. (St. B.) The bonds 
 exempt are those of the United States or any of its posses- 
 sions, a State, city, town, or any other political subdivision 
 of a State. (T. R. 5.) The provision does not include any 
 kind of private obligation or bond, but only those under the 
 legislative authority of a State or of the United States. Any 
 bonds or obligations of any taxation district duly authorized 
 by a State are included. By Treasury Department ruling 
 1946 it is held that the provision specifically includes the 
 bonds of special assessment districts under the constitutional 
 authority of a State, such as districts for improvements of 
 streets or highways, sewerage, gas, light, reclamation, drain- 
 age, irrigation for public use, levee and school purposes. As 
 to withholding the tax on bonds at the source, see paragraph 
 32. Bonds, other than Government bonds, with a clause 
 guaranteeing the owner against any tax, shall not be free 
 from the income tax. (Section G(b) of the Statute, and 
 T. D. 1942, and T. D. 2090.) A corporation or other tax- 
 payer is allowed deduction for depreciation in value of bonds 
 purchased above par which decrease as the time of maturity 
 approaches, the deduction to be proportionate with the num- 
 ber of years of the life of such bonds, and the decrease in 
 value to be entered on the books of account. (T. R. 135.) 
 
Analysis 21 
 
 If 29. Gifts and Bequests. Property acquired by gift or 
 bequest, like tbe income from bonds and life insurance, are in 
 reality a part of the gross income, but are not to be considered 
 as such for purposes of taxation. (St. B.) Any property, 
 real or personal, acquired by gift, bequest, devise or descent, 
 in any year, is not to be included as part of the income for 
 that year, but the income from it during the year and after 
 being acquired is to be included. (T. R. 4.) Treasury 
 Regulations 120 and 121 concern donations made to others 
 and not received by the taxpayer. Such gifts or donations 
 which are paid as pensions to retired employees or on account 
 of injuries received by employees, or for charitable or educa- 
 tional purposes directly in connection with the business, are 
 allowable as deductions under the head of "expenses." (See 
 paragraph 21 above.) Gifts or gratuities to employees not as 
 a regular system in the business are not deductible for "ex- 
 penses" or otherwise. (T. R. 120.) 
 
 1[30. Life Insurance. Income from life insurance shall 
 not be included in the taxable income, with only one excep- 
 tion. (St. B.) This exception is an interest payment to a 
 beneficiary or an excess repayment to the insured. (T. R. 
 56 and T. D. 2090.) Premiums paid on life insurance do 
 not constitute an allowable deuction as necessary expense, but 
 are a part of personal expenses. (If 21.) When a partner- 
 ship or corporation pays premiums on life insurance of in- 
 dividual members for the benefit of the business, the amount 
 so paid is deductible as "expenses," but when such policies 
 mature or otherwise become payable by the Insurance Com- 
 pany, the amount so received must be included as income. 
 (T. D. 2090, pages 11 and 23, and T. D. 2152.) The amount 
 received from a life insurance policy on the death of the in- 
 sured is not to be included as income by the beneficiary, and 
 the amount received by the insured himself at the maturity 
 of an endowment or cash-surrender policy is not to be counted 
 as income, but the amount by which life insurance exceeds the 
 premiums paid, when returned to the insured himself, is to 
 be counted as income. (T. D. 2090, under head of Annuity.) 
 
22 Federal Income Tax 
 
 An insurance agent must return as income his commissions 
 on insurance premiums. (T. D. 2011.) Insurance com- 
 panies. (1J43.) See T. D. 2137, page 2. 
 
 1J31. Salaries. All salaries except those specifically ex- 
 empted are taxable as income and are to be included in the 
 return of the income, and salaries, as here used, applies to 
 wages and other compensation for personal services. (St. B.) 
 The tax is paid by the employer unless the amount is so un- 
 certain that he cannot determine it, this being what is known 
 as "withholding at the source" as discussed in paragraph 32. 
 The amount of mileage or "subsistence," as also "board" or 
 other compensation, is to be counted as part of the salary, but 
 as to mileage and "subsistence," only to the extent of the 
 excess over the actual expense. This tax applies to all officers 
 and employees of the United States whose income exceeds 
 $3,000, and in such cases the amount of the tax is withheld 
 by the paymaster and paid by him. (T. D. 2079.) (The 
 President, during the present term of his office, and all 
 United States judges, during present terms of office, are ex- 
 empt from this tax. 1fl9.) Salaries paid by a State or any 
 political subdivision thereof, as a city, county, or town, are 
 exempt from taxation, and this includes salaries of public 
 school teachers unless their salaries are paid by the United 
 States. (T. R. 5e. ) No salary is taxable under any circum- 
 stances unless it, together with other income, exceeds the ex- 
 emptions and deductions allowed by law as shown in preced- 
 ing paragraphs. Compensation for personal services is to be 
 returned as income, including produce, rent, board, or in 
 "whatever form paid." For Professional fees see 1J47. For 
 Salaries plus commissions see T. D. 2090, "Compensation." 
 H32. Withholding at Source. This provision in subsec- 
 tion D of the Statute has been most misunderstood and most 
 criticised of all the requirements. It has been said that this 
 requirement in the English law made it a success, presum- 
 ably that because of it individuals could not escape the tax ; 
 but in America it has caused complaint, and suggestions for 
 
Analysis 23 
 
 amending or repealing it have been made. It simply requires 
 that when any bank or other corporation or agent has the 
 duty of handling and receiving certain income belonging to 
 an individual, then the corporation or other agent must with- 
 hold the tax before paying out the amount to the individual, 
 and pay the tax to the collector. (T. R. 29-75.) This ap- 
 plies, however, only when the amount to be so paid out ex- 
 ceeds $3,000. It does not apply to interest paid by banks 
 on deposits. (T. R. 67.) An agent whose duty it is to col- 
 lect rents, etc., for a landlord, withholds the tax only when 
 the total amount reaches $3,000. The provision for with- 
 holding applies only to the normal tax of 1 per centum, and 
 does not apply to the income from dividends from stocks on 
 which the normal tax is paid elsewhere. (H49.) The pro- 
 vision as to withholding applies to banks, corporations, trust 
 companies, associations, organizations, trustees acting in any 
 trust capacity, agents, administrators, executors, receivers, 
 conservators, employers, Government paymasters, and all 
 others entrusted with the control of income payable to any 
 taxpayer, provided such income exceeds $3,000 (St. E.) It 
 is not required of corporations or other organizations which 
 are not themselves subject to the tax. (T. R. 37 and T. D. 
 1967.) The tax is not to be paid prior to thirty days before 
 return is due. (T. R. 33a and T. D. 1965.) Reports are 
 required from withholding agents on special blanks supplied 
 by the collector of the district. (T. D. 1976.) See Fiduci- 
 aries, 1f33. Banks, 1f38. Partnerships, 1f36. See T. D. 2135, 
 page 7. 
 
 1f33. Fiduciaries. Guardians, trustees, executors, admin- 
 istrators, agents, receivers, conservators, and all persons, cor- 
 porations, or associations acting in any fiduciary capacity, 
 are referred to as fiduciary agents by Treasury Regulation, 
 Article 70. All such fiduciaries are required to list the in- 
 come for the person for whom they act in such capacity. They 
 list, however, only such part of the income as comes into 
 their control. All such income which may be subject to a 
 withholding tax elsewhere, by notice from the fiduciary, will 
 
'24: Federal Income Tax 
 
 become subject to the withholding tax only by the fiduciary 
 aud not elsewhere. The return by the fiduciary is to be made 
 only when the income for the beneficiary exceeds $3,000, 
 and in this and other things it is subject to the same regula- 
 tions as individual returns, though made on a different form. 
 (T. D. 2090, "Fiduciaries.") Treasury regulations, 70-75. 
 See Withholding, 1J32. Where a fiduciary or guardian acts 
 only for one person, the return is made for the person by the 
 fiduciary as any personal return. Fiduciaries acting for 
 more than one person must report to the collector for all of 
 them, and also make a return for each one whose income ex- 
 ceeds $3,000. (T. D. 1943, 1947, 1961, 2231.) See 1f53 
 for Forms. Depreciation for Fiduciaries, T. D. 2267. 
 
 1134. Foreign Corporations. The normal tax of 1 per 
 cent must be paid by foreign corporations the same as if they 
 were domestic corporations, though they are required to pay 
 the tax only on that portion of their income accruing from 
 business done in the United States. (St. E.) If such cor- 
 poration has more than one branch office in the United States 
 it must designate to the Department the office and the person 
 who is authorized to make the return of the income. (T. R. 
 83.) The allowable deduction for taxes paid is for taxes paid 
 in the United States only, and other deductions are likewise 
 limited. For foreign corporations, as for domestic corpora- 
 tions, there is no allowable deduction for debts proven worth- 
 less, as in the case of individuals. Foreign corporations, with 
 respect to their business in the United States, are treated ex- 
 actly on a basis with domestic corporations. (1115.) Form 
 of return, T. R. 163. Foreign corporation bonds, T. D. 1992. 
 Foreign corporations subject to tax, T. D. 2161, page 2. 
 
 If35. Americans Residing Abroad. The Income tax is 
 levied upon "every citizen of the United States, whether re- 
 siding at home or abroad, and every person residing in the 
 United States, though not a citizen thereof." (St. A.) For 
 a foreigner residing abroad the income is based on his prop- 
 erty in the United States. (1(45.) The citizen residing 
 abroad may make his own return of income, or it may be 
 
Analysis 25 
 
 made for hini in liis own collection district by any one who 
 will swear that he is sufficiently acquainted with his business 
 to make it and authorized to do so. (St. E.) There is no 
 difference otherwise in estimating the tax of the citizen 
 abroad from the methods used if he were at home. (T. R. 
 15-17.) Forms for Returns, 1f53. Nonresident aliens, 1(45. 
 Time and place for making returns, 1137. Who must make 
 returns, 1fl7. 
 
 If36. Partnerships. A partnership is not required to 
 make return of income, except when specially requested to do 
 so by the Collector of Internal Revenue for the district in 
 which it is located. (St. D.) When this is requested the 
 partnership must make a correct and complete statement of 
 gross income, actual expenses, net profit, and the names and 
 addresses of all persons who are partners, with their respect- 
 ive proportional interests in the net profits. (T. R. 12.) 
 The net profits if divided to the partners during the year are 
 to be returned as income by the individuals. If not divided 
 they are to be returned also by the individuals as if they had 
 l>een divided and distributed ; but later, when the distribution 
 is made, it shall not be required that the amount be again re- 
 turned. (T. R. 11-12.) The net profits must be returned 
 by the partners in their individual returns, whether they are 
 apportioned out to them from the partnership treasury or not. 
 (T. R. 94.) As a partnership is not taxable on its income, 
 the "withholding" provision (1f32) does not apply, and the 
 tax on income due to a partnership cannot be withheld by 
 any one. (T. D. 1957.) Partnerships owning bonds, mort- 
 gages, etc., shall file certificates of ownership of such so that 
 the normal tax on them will not be withheld. Foreign Part- 
 nerships, T. R. 48-49. Forms for returns, lf53. Undivided 
 profits, If 39. 
 
 If 37. Time and Place for Making Returns. All individ- 
 uals are required to make the return of their income on or 
 before March of each year, the income to be that of the previ- 
 ous calendar year ending December 31. (St. D.) Corpora- 
 tions are required to make returns at the same time unless 
 
26 Fedehae Income Tax 
 
 they apply to the Collector for special permission to make 
 return for their own fiscal year, ending at some other time 
 than with the calendar year, and, in such cases, they make 
 the return within sixty days after the end of the fiscal year. 
 (T. D. 2029.) (According to the report of the commissioner 
 not more than 20 per cent of the corporations ask for this 
 special permission, the others preferring to make their fiscal 
 year correspond to the calendar year.) Both individuals and 
 corporations make their returns to the Collector of that dis- 
 trict in which is located their principal place of business. 
 (T. R. 15; St. D. ; T. D. 2090.) The taxpayer is notified 
 on or before June 1 of the amount of tax due, and it is to be 
 paid on or before June 30. (T. R. 25 and 197.) For un- 
 avoidable causes, special permission may be obtained from 
 the Collector for delay not exceeding thirty days in making 
 the return, but the permission must be requested in advance 
 of the time for return. (T. R. 23 and 173.) The return 
 is due to be made on or before March 1 ; the taxpayer is noti- 
 fied of the amount of his tax on or before June 1, and the 
 amount must be paid on or before June 30. Who must make 
 returns, 117. Time for returns and penalties, T. D. 1950. 
 Penalties, If 40. 
 
 138. Banks. All National and State and private incor- 
 porated banks, trust companies, etc., operated for private 
 gain of the stockholders, are subject to all the provisions of 
 the Income Tax law as to corporations. (115.) The one ex- 
 ception is a mutual savings bank not having a capital stock 
 represented by shares, which, though called a bank, is in real- 
 ity merely an association for the benefit of all concerned and 
 not for the gain of any special persons. (St. G a). Gross 
 income of banks consists of the total revenue derived from 
 the operation of the business, including income, gains, or 
 profits from all other sources, as shown by the entries on the 
 books for the year for which the return is made. A bank, as 
 any other corporation, may make the return either for the 
 calendar year or for its own fiscal year (137.) Interest paid 
 by a bank to the depositors is deductible under allowance 
 
Analysis 27 
 
 for interest, but the total amount on which such interest is 
 paid cannot exceed the amount of the capital stock plus one- 
 half the outstanding interest-bearing indebtedness. (1122.) 
 A bank is a withholding agent and is bound by the require- 
 ments for withholding at the source. (1132.) A bank, how- 
 ever, does not withhold tax or interest paid on deposits. 
 (T. E. 67.) See Treasury Kegulations 38, 39, 43 and 46. 
 Undivided profits or surplus accruing in any year for which 
 the return is made must be included as a part of the income 
 of the bank on which tax must be paid. (See paragraphs 15 
 and 36.) Taxes assessed against shareholders are due to be 
 paid by the holders, and, if paid by the bank, cannot be de- 
 ducted as expense. (T. E. 154, 1(21.) Withholding certifi- 
 cates, T. D. 1986 and 2258. 
 
 Tf39. Surplus and Undivided Profits. Section A of the 
 Statute provides that the taxable income of any individual 
 shall include the share to which he would be entitled in any 
 surplus ox undivided profits, whether divided or distributed 
 or not, in any corporation, partnership or other association. 
 Even if the company is a mere holding company the same 
 rule holds. When requested by the Commissioner of Internal 
 Revenue or any District Collector, such company must make 
 a report of all such profits or surplus, with the names of the 
 individuals who would be entitled to the same if distributed. 
 If the gains and profits shall be allowed to accumulate and 
 become surplus, it shall be prima facie evidence of a fraudu- 
 lent purpose to evade the tax, but such surplus shall not be 
 construed as evidence of fraud unless the Secretary of the 
 Treasury shall certify that in his opinion such accumulation 
 is unreasonable for the purpose of the business. (Statute, 
 section A.) See Partnerships, 1136. 
 
 140. Penalties and Fines. The final day of payment is 
 June 30, and to any taxes remaining unpaid after that date 
 and for ten days after notice and demand from the Collector, 
 there shall be added the sum of 5 per centum on the amount 
 of unpaid tax and interest at the rate of 1 per centum a month 
 from the time the tax became due. (St. G c.) A corporation 
 
28 Federal Income Tax 
 
 refusing or neglecting to make a return shall have added 50 
 per centum to the amount of tax, or for a false or fraudulent 
 return, 100 per cent (St. I), besides being liable to a specific 
 penalty not exceeding $10,000. (St. G d.) Any person or 
 any officer of a corporation required to make a return, who 
 shall therein make any false or fraudulent statement with 
 intent to evade the tax, shall be guilty of a misdemeanor and 
 be liable to a fine of $2,000 and to imprisonment for one year. 
 (T. R. 164.) Any person divulging unlawfully any infor- 
 mation whatever disclosed by a return shall be subject to a 
 fine of $1,000 and to imprisonment for one year. (St. I.) 
 For making a false statement for the purpose of obtaining 
 any reduction or exemption, the person shall be liable to a 
 penalty of $300. (St. E.) The statute of limitations in 
 enforcing collection of income tax is three years. (T. R. 
 177.) Any person, corporation or association liable to make 
 return and not making it in due time shall be liable to a 
 penalty of not less than $20 and not more than $1,000. (T. R. 
 164.) As every return must be made under oath, any willful 
 misstatement contained in it is a violation of law. A fine not 
 exceeding $5,000 and imprisonment for a year may be im- 
 posed on any person or corporation undertaking for profit 
 to collect interest from coupons, checks and bills of exchange 
 from foreign countries, without first having obtained a license 
 for such purpose from the Commissioner of Internal Reve- 
 nue. (Section 3 of the Statute.) Failure to make a return 
 in due time by an individual who is required to make it 
 (Hi 7) incurs a penalty of not less than $20 nor more than 
 $1,000. (See Protests, H54, and Compromises, T. D. 2015.) 
 1f41. Inspection of Returns. It is unlawful for any offi- 
 cial or other person to divulge any information from the re- 
 turns of income, except as specifically allowed as herein 
 noted. (Statute I.) The returns shall be open to inspection 
 only upon the order of the President, under rules and regu- 
 lations to be prescribed by the Secretary of the Treasury and 
 approved by the President. The proper officers of any State 
 imposing a general income tax may, upon the request of the 
 
Analysis 29 
 
 Governor thereof, have access to the returns or an abstract of 
 them. (T. R. 178.) (Section G, subsection d, of the 
 Statute.) (T. D. 1962 and 2016.) 
 
 1f42. Powers of the Collectors. Section 3172 of the Re- 
 vised Statutes provides that every Collector shall, from time 
 to time, cause his deputies to proceed through every part of 
 his district and inquire after and concerning all persons 
 therein who are liable to pay any internal revenue tax. The 
 latter part of section D of the Statute provides that if the 
 Collector or Deputy Collector has reason to believe that the 
 amount of any income is understated he shall give due notice 
 to the lister to show cause why it should not be increased. 
 If the return shall not be made as required by law, the 
 Collector shall cause it to be made by summoning the person 
 or others having charge of the books and accounts, and requh-e 
 them to produce the accounts and to answer any questions 
 concerning said income. From any decision of the Collector 
 the taxpayer may appeal to the Commissioner of Internal 
 Revenue. See Treasury Regulations, Articles 20 and 21, 
 and section I of the Statute. Corporation Bookkeeping, Tf57. 
 On order of the Commissioner of Internal Revenue the books 
 of a corporation are to be open to inspection. (T. R. 186.) 
 
 1f43. Insurance Companies. A different form of return 
 is required for insurance companies, though, except in a few 
 details, they are essentially the same in requirements as for 
 other corporations. (St. G c. ) Deductions allowable for in- 
 surance companies are expenses (1[21), losses (fl24), interest 
 (1f22), taxes (T|23), and the two following. Fifth is "the net 
 addition, if any, required by law to be made within the year to 
 reserve funds." (T. R. 147.) Sixth is "sums other than 
 dividends paid within the year on policy and annuity con- 
 tracts." (See Article 100 of Treasury Regulations.) Mu- 
 tual fire insurance companies shall not return as income any 
 portion of premium deposits returned to policyholders, but 
 shall return all income from other sources plus such portions 
 of the premium deposits as are retained by the companies for 
 purposes other than the payment of losses and expenses and 
 
30 Federal Income Tax 
 
 reinsurance reserves. (T. R. 98-100.) Mutual marine in- 
 surance companies may deduct from gross income the amount 
 repaid to policyholders on account of premiums previously 
 paid. (T. R. 99.) Life Insurance, 130. Corporations, 1fl5. 
 Penalties, 140. 
 
 144. Assessment. Section E of the Statute says that "all 
 assessments shall be made by the Commissioner of Internal 
 Revenue, and all persons shall be notified of the amount for 
 which they are respectively liable on or before the first day 
 of June of each successive year." In the case of corporations 
 whose fiscal years end at other times than December 31, the 
 assessment is made within three months from the time of 
 making the return. (137.) It is the duty of the Collector 
 of Internal Revenue for the district to have all returns made 
 according to the requirements. When this is accomplished, 
 the returns are forwarded to the Commissioner in Washing- 
 ton, and the assessments of tax are made by him. (T. R. 
 195.) The list of tax to be collected is then sent to the Col- 
 lector, and it is then his duty to. collect it. (T. R. 197.) 
 (Protests, 154.) . 
 
 145. Nonresident Aliens. Persons owning property in 
 the United States, and who are neither citizens nor residents 
 of the United States, are subject to the Income Tax in so far 
 as it affects the income from such property in the United 
 States. (T. R. 8.) Such nonresident alien is allowed all the 
 deductions in section B of the act, 1 to 8, inclusive. (T. R. 
 6.) The exemption of $3,000, however, is not allowed, but 
 the tax must be paid on all the income in the United States, 
 and the tax includes the normal tax and the additional tax, 
 as discussed in paragraph 16. (T. D. 2109.) The persons 
 in charge of the property shall make the return and pay the 
 tax. (T. R. 8.) "Residence" of aliens defined, T. D. 2242. 
 As to exemption on dividends (149), see T. D. 2012. U. S. 
 banks as agents for aliens, T. D. 1988. Alien does not pay 
 tax on income derived wholly in foreign country for services, 
 etc. (T. D. 2152.) 
 
Analysis 31 
 
 If 46. "Accrued Income" Defined. The first sentence of 
 the Statute says that the tax shall be levied and paid annually 
 "upon the entire net income arising or accruing from all 
 sources during the preceding calendar year." Section G(a) 
 of the Statute likewise imposes the normal tax for corpora- 
 tions on the income "arising or accruing." Section G(c) 
 says that "the tax herein imposed shall be computed upon the 
 entire net income accrued within each preceding calendar 
 year." ("Calendar year," wherever used in this connection, 
 is subject to the provision that any corporation may substi- 
 tute its own fiscal year as stated in 1(37.) This word, "accru- 
 ing" or "accrued," has caused misunderstanding in view of 
 the fact that the excise corporation tax of 1909 (IfH) im- 
 posed the tax on "income received." This presents the ques- 
 tion as to whether ox not the tax under the present Statute 
 is to be paid on the income that was actually received during 
 the year, or that accrued and was therefore due to be received. 
 The distinction and meaning can probably be made clear by 
 the requirement as to partnerships. (Tf36.) A partner must 
 return the income which has "accrued" to him in the profits 
 of the partnership, whether or not the "accrued" profits have 
 been actually distributed to him and the others. It has been 
 said that uncertain income which "may never be received" 
 cannot be included as income. (Life Ins. Co. v. Herold, 198 
 Fed. 199.) Therefore it may be held as certain that taxable 
 income does not include uncertainties, but only the "accrued" 
 income, such as interest or dividends or profits due and un- 
 paid, but collectible. Even if such should later not be col- 
 lected, they would be deducted for that year and thus the 
 balance made. See lf25 and 1f47, and T. D. 2090, page 13. 
 
 1f47. Professional Fees. The first sentence of section B 
 of the Statute prescribes that "net income of a taxable person 
 shall include that derived from professions, vocations, busi- 
 nesses." Instructions on the form for individual returns pro- 
 vided by the Treasury Department prescribe: "Persons 
 receiving fees or emoluments for professional or other serv- 
 ices should include all actual receipts for the services ren- 
 
32 Federal Income Tax 
 
 dered in the year for which return is made, together with all 
 unpaid accounts, charges for services, or contingent income 
 due for that year, if good and collectible." This requirement 
 concerning "unpaid accounts" has been misunderstood, but 
 in connection with the last words of the instruction, "if good 
 and collectible," ought to be plain enough. It leaves the pro- 
 vision practically as "accrued income." (1f46.) The tax- 
 payer is left as the judge as to whether or not the "unpaid 
 accounts" are "collectible." If he should make a mistake 
 about it either way, it will be corrected in subsequent years. 
 If the amount should be returned as income and later charged 
 off the books as uncollectible, it would be deductible for such 
 latter year. (1125.) On the other hand, if certain unpaid 
 accounts should be considered worthless and not be included 
 as income, and later should be collected, they would have to 
 be included as income for the year in which they were col- 
 lected. It might be more simple to regulate it as in Wiscon- 
 sin, where, under the State law, professional fees are included 
 "when collected" ; but as the taxpayer is the judge, the differ- 
 ence is slight. Fees that are irregular or uncertain are not 
 subject to withholding, 1(32. Salaries (H31) paid to profes- 
 sional men are subject to withholding. 
 
 H48. Rents. Another of the specific sources of taxable in- 
 come is rents. (St. B.) This includes the receipts from all 
 property used by another and for which use a certain amount 
 is paid. It makes no difference in what form the rent is paid, 
 whether in services, produce, or otherwise. Where land was 
 leased and the lessee erected a building which at the end of a 
 term of years was to go to the owner of the land, the cost of 
 the building was held as rent for the number of years. (T. E. 
 115.) Any agent entrusted with the collection of rents shall 
 withhold the normal tax on the amount after it exceeds 
 $3,000. (1132.) (Interest paid by corporations as rent, 
 T. E, 148.) See T. D. 2090, pages 16 and 23, and T. D. 
 2135, page 6. 
 
 1149. Dividends. The income from dividends is a specific- 
 ally named source of taxable income. (St. B.) The Statute 
 
Analysis 33 
 
 requires that the income from all dividends shall be included 
 in the returns, but that in computing the normal tax for an 
 individual there shall be excluded the amount received as 
 dividends from stock or net earnings of a corporation which 
 is taxable upon its net earnings. A corporation must pay the 
 tax on income from another corporation. (T. D. 2090, page 
 20, and T. D. 2137, page 6.) This exemption applies only 
 to the normal tax, which on that income is paid by the cor- 
 poration. For the additional tax (that on income exceeding 
 $20,000) the individual must pay on income from dividends 
 from a corporation which pays the normal tax. A corpora- 
 tion pays the "normal tax" of 1 per cent on all income, and 
 the shareholders pay the "additional" tax on their respective 
 proportions of the income. As to dividends of aliens from 
 domestic corporations see T. D. 2162. See Statute, sections 
 B and G, and Treasury Regulations, Articles 6, 97, and 107, 
 and T. D. 1945. A withholding agent (1f32) does not with- 
 hold tax on income accruing to an individual from dividends 
 on stock on which the normal tax has been paid, as in such 
 case the individual is not liable for such tax. (Treasury 
 Regulation 6, subsection 7; and 1[20.) Aliens regarding 
 dividends, T. D. 2017. See full details, T. D. 2274. 
 
 1f50. Income from Sales of Property. The Statute spe- 
 cifically taxes the income from "sales, or dealings in prop- 
 erty, whether real or personal. (St. B.) This does not mean 
 that the total amount received by an owner of property in 
 selling it is to be returned as income for that year, but only 
 the profit made on the sale. The same rule applies to all 
 kinds of property, real estate, products, stocks, bonds, and 
 securities. If property is sold which was bought many years 
 previously the profit is to be prorated, and only the portions 
 of such profit that have accrued since March 1, 1913, for in- 
 dividuals, and since January 1, 1909, for corporations, are 
 to be included as income. It is governed by the same rule 
 if the transaction is a part of regular business or merely an 
 individual act. Profits so made by regular real estate dealers 
 or other persons acting as agents for the real owners in the 
 3 
 
34 Federal Income Tax 
 
 sale of real estate or securities are to be returned by the 
 dealer on bis own part of tbe profit, and by the owner on bis 
 sbare of it. For income tax purposes, wbere there is an 
 actual transfer of the property, the profit will be counted as 
 of that year, even though the payments are to be made in 
 installments. See Treasury Department Ruling No. 2090, 
 under head of "Profit From Sale of Real Estate," and T. D. 
 2137, page 8. 
 
 1J51. Income from Farming. Any farmer whose net in- 
 come exceeds $3,000 from all sources must list the return of 
 his income. These regulations apply to plantations, ranches, 
 stock farms, dairies, fruit and truck farms, and all land used 
 for similar purposes. The return must include every item of 
 income from all sources, sales of stock and products, and any 
 other profits from dealing in farm products. The income is 
 to be calculated for the year in which the products were actu- 
 ally marketed and sold. Rents received in crop-shares shall 
 be included as income for the year in which the crop-shares 
 were reduced to a money equivalent. Deductions and exemp- 
 tions for expenses, wear and tear, etc., are allowable as ex- 
 plained in paragraphs 21 to 29 inclusive. Machinery cannot 
 be included as expense, as it is an addition to the capital, but 
 the renewal of furnishings and implements and the cost of 
 ordinary working tools are a part of the expense. Money 
 expended for stock for breeding purposes is an addition to 
 capital and not allowable as a deduction for expense; but 
 money expended for stock for temporary trading purposes 
 and intended for resale is an allowable expense. Personal 
 and family expenses are not deductible expenses, but are part 
 of the taxable income. Allowance for "wear and tear" (1|26) 
 is deductible for depreciation in value of farm buildings, 
 machinery and stock, but not for the personal dwelling of the 
 owner. A person operating a farm for recreation and pleas- 
 ure and whose expense therefrom exceeds the income need 
 not report the income, and the actual net expense is personal, 
 and therefore not allowable as a deduction. See Treasury 
 Department Ruling No. 2153, and 1fl3. 
 
 
Analysis 35 
 
 1f52. Husband and Wife, Joint Income. Section C of the 
 Statute contains the "specific exemption" of $3,000 of net 
 income for a single person, or $4,000 if married and living 
 with his wife, or, if a woman, living with her husband. When 
 they are separated and in no way dependent one on the other 
 they are each entitled to all the exemptions, and each must 
 list the income regardless of the other. When living together 
 they both together are entitled to one exemption of $4,000. 
 (1f58.) If each has a separate income the income of both 
 may be made on one return with the amount of the income 
 of each and the full name and address of each. The husband 
 is presumed by the law to know of his wife's income and to 
 include the amount of it in his own return unless otherwise 
 stated. If the aggregate net income of both of them together 
 is in excess of $3,000 they are required to make the return, 
 though the tax is assessed only on the excess over $4,000. 
 The single or married status of the person claiming the 
 "specific" exemption shall be as of the time of claiming the 
 exemption if the claim is made during the taxable calendar 
 year, and if the claim is not made during the year then it is 
 taken as of the status on the last day of the calendar year. 
 See Treasury Kegulations, Articles 9 and 10. Time and 
 place for returns, 1f37. The joint return applies only to the 
 normal tax. The additional tax must be based on separate 
 returns. (T. D. 2090, "Husband.") When living apart 
 only $3,000 is allowed as exemption, T. D. 2135, page 4. 
 Wife's income included as husband's, T. D. 2135, page 4. 
 
 1153. Forms for Returns. Different kinds of blank forms 
 are required. For an individual or for a fiduciary or other 
 agent who makes the return for an individual, Form 1040, re- 
 vised, is used. For a corporation other than an insurance 
 company it is Form 1031. Insurance companies use Form 
 1030. Fiduciaries or other agents serving in such capacity 
 of trust for a number of persons are required to make the 
 return for each on Form 1040, and another return for all 
 together on Form 1041. (133.) Withholding agents use Form 
 1042 (1f32), and partnerships 1065. (1136.) Every person 
 
36 Federal Income Tax 
 
 or corporation liable for the tax, whose name is already listed 
 with the Collector of the district, will be supplied with the 
 necessary form; but the responsibility is the taxpayer's, and 
 it is his duty to apply for the form if it is not sent to him. 
 (1f40.) In all cases the application for the blank form or the 
 return itself shall be made to the Collector of the district in 
 which is located the taxpayer's principal place of business. 
 (Tf37.) Each return contains four general divisions: all in- 
 come listed from each specific source; items of deduction 
 claimed under section B of the Statute; amount of specific 
 exemption, if any, claimed under section C of the Statute; 
 and all items of income upon which tax has been withheld 
 at the source. See Treasury Regulations 15, 16 and 17, and 
 forms in last part of this book. Forms for withholding, 
 T. D. 1973 and 1976; foreign agents, T. D. 1977; banks 
 withholding, T. D. 1986 and T. D. 2258; nonresident aliens, 
 T. D. 1988. 
 
 H54. Protests of Taxpayer. All allowances for deduc- 
 tions and exemptions must be asked for by the taxpayer, and 
 in case of a person whose return is made by a withholding 
 agent or another, such person must file either with the Col- 
 lector or the agent a written demand for the exemptions 
 thirty days before the return is due to be made. (T. E. 41, 
 42, 60.) If such demand should not be made in due time, 
 or in case of any taxes which were paid and not legally due, 
 the recourse is an appeal to the Commissioner of Internal 
 Revenue, in accordance with section 3220 of the Revised 
 Statutes. A protest against assessment can be made before 
 collection of the tax in the same way. The Commissioner of 
 Internal Revenue is authorized to refund "all taxes errone- 
 ously or illegally assessed or collected, all penalties collected 
 without authority, and all taxes that appear to be unjustly 
 assessed or excessive in amount or in any manner wrongfully 
 collected," and to pay to any collector or deputy the amount 
 recovered against him in any suit brought against him for 
 anything done in performance of his official duty. The Com- 
 missioner apparently has full discretion, except that with re- 
 
Analysis 37 
 
 gard to penalties incurred he cannot remit them if they were 
 assessed and collected according to the law. (Revised Stat- 
 utes, section 3220, and T. D. herein 2015.) Section 3224 
 of the Revised Statutes of the United States prescribes that 
 "no suit for the purpose of restraining the assessment or col- 
 lection of any tax shall be maintained in any court." This 
 means, of course, that an injunction against a Collector of 
 Internal Revenue is not possible. Tax illegally withheld is 
 to be returned. T. D. 2131. The procedure for any wrong 
 done to the taxpayer is by appealing first to the Commis- 
 sioner, and after that, but not before, suit can be brought in 
 the Federal court for the recovery of the alleged illegal tax 
 that was collected. (R. S. 3226.) Both the appeal to the 
 Commissioner and the suit are limited to two years from the 
 date the cause of action accrued. (R. S. 3226 and 3227.) 
 The legal limit for collecting tax is three years after the re- 
 turn was due to be made. (St. E.) Penalties, 1J40. Assess- 
 ment, 1f44. 
 
 If55. License for Foreign Collections. This provision ap- 
 plies to the collection of coupons, checks, bills of exchange, 
 etc., representing interest due by bonds, mortgages and other 
 obligations issued in foreign countries, and the real source 
 of payment of which is in a foreign country. It applies to 
 any "handling" of the coupons, etc., for profit, by way of pur- 
 chase, sale or collection or otherwise. All persons, firms or 
 corporations undertaking the collection of such income for 
 profit are required by law to obtain a license from the Com- 
 missioner of Internal Revenue. Application for the license 
 will be made to the Collector for the district in which the 
 applicant has his place of business. The Collector will issue 
 the license without charge, and it will continue in force until 
 revoked or canceled. If the Collector is not satisfied as to 
 the entire responsibility of the applicant, he may require a 
 bond with sureties equal to the estimated amount of tax due 
 to be withheld by the applicant during one year. The person 
 so licensed will make regular reports to the Collector of all 
 items collected bv him in such business. Failure to obtain 
 
38 Federal Income Tax 
 
 a license or to comply with the regulations is punishable by 
 a fine not exceeding $5,000 or imprisonment not exceeding 
 one year, or both. See Statute, section E, Treasury Regula- 
 tions 54 to 62, and T. D. 2023, amending T. R. 58. See also 
 T. D. 2090, "Income." 
 
 1f56. Patents and Patent Bights. The income from the 
 use of a patented article or from the rentals from rights 
 therein is a part of the gross income, and is taxable. The 
 allowance for depreciation (1(26) of the value of a patent is 
 one-seventeenth of its cost for each year, as the term is seven- 
 teen years. (T. R. 137.) If the patent was purchased from 
 the originator, then the cost represented is the amount of the 
 purchase. If it remains in the hands of the original owner 
 the cost is the amount of the fees, expenses, etc., in securing 
 the patent from the Government. Each year one-seventeenth 
 of its value as capital is gone, and that part is allowed as a 
 deduction. 
 
 157. Corporation Bookkeeping. By Treasury Regula- 
 tions 161, 182, and 183, it is provided that corporations, in 
 order to estimate their income, must necessarily take an an- 
 nual inventory or its equivalent. A complete physical inven- 
 tory is desired, but where it is not possible an equivalent in- 
 ventory will be accepted. An equivalent inventory is an in- 
 ventory of materials, supplies, and merchandise on hand, 
 taken from the books of the corporation. No particular sys- 
 tem of bookkeeping is required, but some system is necessary 
 by which the return of income can be verified. The annual 
 balance sheet or report to stockholders should show the same 
 amount of net profits as that reported as net income in the 
 return of the income. The books of a corporation shall be 
 open to inspection on order of the Commissioner of Internal 
 Revenue. (T. R. 186.) The books are assumed to show the 
 facts as to income. (T. R. 183.) Corporations, 1fl5. Pow- 
 ers of Collectors, Tf42. 
 
 If 5 8. Individual Exemption. Section C of the Statute 
 prescribes the "specific" exemption for individuals. This 
 specific exemption is $3,000 for an unmarried person, or 
 
 
Analysis 39 
 
 $4,000 for a married person. The $4,000 exemption applies 
 to a married person only while living with husband or wife; 
 and if both have incomes, only one exemption is allowed. 
 (1)52.) This specific exemption applies only to persons. A 
 corporation must pay the tax on all of its net income. The 
 exemption is from the "net" income. (1120.) This means 
 that after determining the net income this part of it is not 
 subjeet to tax. The allowance of this exemption is sup- 
 posedly fox necessary living expenses, and, consequently, 
 there is no other allowance for personal or family expenses, 
 but the cost of such is to be included as part of the income. 
 (1f2l.) No person is required to make a return of his income 
 unless the "net" income exceeds $3,000. (Statute, section 
 D.) The individual is left to determine whether or not his 
 net income does amount to that much, but in case of doubt 
 the Collector may require him to make the return. Even 
 when the return is made, the person, if married, does not pay 
 any tax unless the net income amounts to $4,000. See Treas- 
 ury Regulations, Articles 9 and 10. When a person's tax is 
 paid by a fiduciary (H33) or withholding agent (1J32), writ- 
 ten demand for the specific exemption must be made thirty 
 days before March 1, to either the agent or the Collector. An 
 American woman who marries a foreigner takes the nation- 
 ality of her husband and cannot claim the exemption. (T. D. 
 2090, "Citizenship.") 
 
PART II 
 
 THE COMPLETE STATUTE LAW 
 
For detailed references see General Index. 
 
 The Statute, when referred to in cross references, is ab- 
 breviated as "St." It is given in the following pages without 
 accompanying comment, as the reader, for explanation of any 
 part of it, is expected to refer to the Index or Analysis. Prac- 
 tically every sentence in the Statute is covered in the 58 
 paragraphs of the Analysis, and for convenience the lettered 
 sections of the Statute with reference to the parallel para- 
 graph of the Analysis (abbreviated as A) are here given: 
 
 St. A. Levying tax, A 16. 
 
 St. B. Deductions, A 18-27. 
 
 St. C. $3,000 exemption, A 58. 
 
 St. D. Returns, A 17, 37. 
 
 St. E. Assessment, withholding, A 44, 32. 
 
 St. F. Penalties, A 40. 
 
 St. G. Corporation Tax, A 15. 
 
 St. H. "State" construed. 
 
 St. I. Collection Laws, A 40, 41, 42, 54. 
 
 St. J. Receipts. 
 
 St. K. Jurisdiction of Courts. 
 
 St. L. Laws made applicable. 
 
 St. M. Philippines, Porto Rico. 
 
 St. S. Excise Tax, A 11. 
 
INCOME TAX LAW 
 
 ISeotion 2, Act October 3, 1913] 
 
 Normal Tax, How Levied. 
 
 Subdivision 1. That there shall be levied, assessed, col- 
 lected and paid annually upon the entire net income arising 
 or accruing from all sources in the preceding calendar year 
 to every citizen of the United States, whether residing at 
 home or abroad, and to every person residing in the United 
 States, though not a citizen thereof, a tax of 1 per centum per 
 annum upon such income, except as hereinafter provided ; and 
 a like tax shall be assessed, levied, collected, and paid annu- 
 ally upon the entire net income from all property owned 
 and of every business, trade, or profession carried on in the 
 United States by persons residing elsewhere. 
 
 Additional Tax on Net Incomes in Excess of $20,000. 
 
 Subdivision 2. In addition to the income tax provided 
 under this section (herein referred to as the normal income 
 tax) there shall be levied, assessed, and collected upon the 
 net income of every individual an additional income tax 
 (herein referred to as the additional tax) of 1 per centum 
 per annum upon the amount by which the total net income 
 exceeds $20,000 and does not exceed $50,000, and 2 per 
 centum per annum upon the amount by which the total net 
 income exceeds $50,000 and does not exceed $75,000, & 
 per centum per annum upon the amount by which the total 
 net income exceeds $75,000 and does not exceed $100,000, 
 
 4 per centum per annum upon the amount by which the total 
 net income exceeds $100,000 and does not exceed $250,000, 
 
 5 per centum per annum upon the amount by which the total 
 net income exceeds $250,000 and does not exceed $500,000, 
 and 6 per centum per annum upon the amount by which 
 the total net income exceeds $500,000. All the provisions 
 of this section relating to individuals who are chargeable 
 
44 Federal Income Tax 
 
 with the normal income tax, so far as they are applicable 
 and are not inconsistent with this subdivision of paragraph 
 A, shall apply to the levy, assessment, and collection of the 
 additional tax imposed under this section. 
 
 Personal Return of Net Income to be Made Annually. 
 
 Every person subject to this additional tax shall, for the 
 purpose of its assessment and collection, make a personal re- 
 turn of his total net income from all sources, corporate or 
 otherwise, for the preceding calendar year, under rules and 
 regulations to be prescribed by the Commissioner of Internal 
 Bevenue and approved by the Secretary of the Treasury. 
 
 Interest in Gains and Profits of Corporations to be Included. 
 
 For the purpose of this additional tax the taxable income 
 of any individual shall embrace the share to which he would 
 be entitled of the gains and profits, if divided or distributed, 
 whether divided or distributed or not, of all corporations, 
 joint-stock companies, or associations, however created or 
 organized, formed or fraudulently availed of for the pur- 
 pose of preventing the imposition of such tax through the 
 medium of permitting such gains and profits to accumulate 
 instead of being divided or distributed; and the fact that 
 any such corporation, joint-stock company, or association is 
 a mere holding company, or that the gains and profits are per- 
 mitted to accumulate beyond the reasonable needs of the 
 business shall be prima facie evidence of a fraudulent pur- 
 pose to escape such tax ; but the fact that the gains and profits 
 are in any case permitted to accumulate and become surplus 
 shall not be construed as evidence of a purpose to escape the 
 said tax in such case unless the Secretary of the Treasury 
 shall certify that in his opinion such accumulation is unrea- 
 sonable for the purposes of the business. When requested 
 by the Commissioner of Internal Eeveune, or any district 
 collector of internal revenue, such corporation, joint-stock 
 company, or association shall forward to him a correct state- 
 ment of such profits and the names of the individuals who 
 would be entitled to the same if distributed. 
 
Income Tax Law 45 
 
 B 
 
 Net Income, Items Constituting Same. 
 
 That, subject only to such exemptions and deductions as 
 are hereinafter allowed, the net income of a taxable person 
 shall include gains, profits, and income derived from sala- 
 ries, wages, or compensation for personal service of what- 
 ever kind and in whatever form paid, or from professions, 
 vocations, businesses, trade, commerce, or sales, or dealings 
 in property, whether real or personal, growing out of the own- 
 ership or use of or interest in real or personal property, also 
 from interest, rent, dividends, securities, or the transaction of 
 any lawful business carried on for gain or profit, or gains or 
 profits, and income derived from any source whatever, in- 
 cluding the income from but not the value of property ac- 
 quired by gift, bequest, devise, or descent: Provided, That 
 the proceeds of life insurance policies paid upon the death 
 of the person insured or payments made by or credited to 
 the insured, on life insurance, endowment, or annuity con- 
 tracts, upon the return thereof to the insured at the maturity 
 of the term mentioned in the contract, or upon surrender of 
 contract, shall not be included as income. 
 
 Deductions Allowed in Computing Net Income for the 
 Purpose of the Normal Tax. 
 
 That in computing net income for the purpose of the nor- 
 mal tax there shall be allowed as deductions: First, the 
 necessary expenses actually paid in carrying on any business, 
 not including personal, living, or family expenses; second, 
 all interest paid within the year by a taxable person on in- 
 debtedness; third, all National, State, county, school, and 
 municipal taxes paid within the year, not including those 
 assessed against local benefits; fourth, losses actually sus- 
 tained during the year, incurred in trade or arising from 
 fires, storms, or shipwreck, and not compensated for by in- 
 surance or otherwise ; fifth, debts due to the taxpayer actually 
 ascertained to be worthless and charged off within the year ; 
 sixth, a reasonable allowance for the exhaustion, wear and 
 
46 Fedeeal Income Tax 
 
 tear of property arising out of its use or employment in the 
 business, not to exceed, in the case of mines, 5 per centum 
 of the gross value at the mine of the output for the year for 
 which the computation is made, but no deduction shall be 
 made for any amount of expense of restoring property or 
 making good the exhaustion thereof for which an allowance 
 is or has been made : Provided, That no deductions shall be 
 allowed for any amount paid out for new buildings, perma- 
 nent improvements, or betterments, made to increase the 
 value of any property or estate; seventh, the amount re- 
 ceived as dividends upon the stock or from the net earnings 
 of any corporation, joint-stock company, association, or in- 
 surance company which is taxable upon its net income as 
 hereinafter provided ; eighth, the amount of income, the tax 
 upon which has been paid or withheld for payment at the 
 source of the income, under the provisions of this section, pro- 
 vided that whenever the tax upon the income of a person is 
 required to be withheld and paid at the source as hereinafter 
 required, if such annual income does not exceed the sum 
 of $3,000 or is not fixed or certain, or is indefinite or irreg- 
 ular as to amount or time of accrual, the same shall not be 
 deducted in the personal return of such person. 
 
 Net Income of Nonresidents, from Property Owned in 
 the United States. 
 
 The net income from property owned and business carried 
 on in the United States by persons residing elsewhere shall 
 be computed upon the basis prescribed in this paragraph 
 and that part of paragraph G of this section relating to the 
 computation of the net income of corporations, joint-stock 
 and insurance companies, organized, created, or existing un- 
 der the laws of foreign countries, in so far as applicable. 
 
 Interest on Obligations of State or of United States and Com- 
 pensation of Certain United States Officers Exempt from 
 Tax. 
 That in computing net income under this section there 
 
 shall be excluded the interest upon the obligations of a State 
 
Income Tax Law 47 
 
 or any political subdivision thereof, and upon the obliga- 
 tions of the United States or its possessions ; also the com- 
 pensation of the present President of the United States dur- 
 ing the term for which he has been elected, and of the judges 
 of the supreme and inferior courts of the United States now 
 in office, and the compensation of all officers and employees 
 of a State or any political subdivision thereof except when 
 such compensation is paid by the United States Government. 
 
 Deduction of $8,000 Allowed Each Single Person and $1,000 
 Additional for Married Man and Wife Living Together. 
 
 That there shall be deducted from the amount of the net 
 income of each of said persons, ascertained as provided here- 
 in, the sum of $3,000, plus $1,000 additional if the person 
 making the return be a married man with a wife living with 
 him, or plus the sum of $1,000 additional if the person mak- 
 ing the return be a married woman with a husband living 
 with her; but in no event shall this additional exemption of 
 $1,000 be deducted by both a husband and a wife: Provided, 
 That only one deduction of $4,000 shall be made from the 
 aggregate income of both husband and wife when living to- 
 gether. 
 
 D 
 
 Period for Which Tax is to be Computed. 
 
 The said tax shall be computed upon the remainder of said 
 net income of each person subject thereto, accruing during 
 each preceding calendar year ending December thirty-first: 
 Provided, however, That for the year ending December 
 thirty-first, nineteen hundred and thirteen, said tax shall be 
 computed on the net income accruing from March first to De- 
 cember thirty-first, nineteen hundred and thirteen, both 
 dates inclusive, after deducting five-sixths only of the specific 
 exemptions and deductions herein provided for. 
 
48 Federal Income Tax 
 
 Return to be Made Under Oath by Each Person Having 
 a Net Income of $8,000 or Over. 
 
 On or before the first day of March, nineteen hundred 
 and fourteen, and the first day of March in each year there- 
 after, a true and accurate return, under oath or affirmation, 
 shall be made by each person of lawful age, except as herein- 
 after provided, subject to the tax imposed by this section, and 
 having a net income of $3,000 or over for the taxable year, 
 to the Collector of Internal Revenue for the district in which 
 such person resides or has his principal place of business, 
 or, in the case of a person residing in a foreign country, in 
 the place where his principal business is carried on within 
 the United States, in such form as the Commissioner of 
 Internal Revenue, with the approval of the Secretary of the 
 Treasury, shall prescribe, setting forth specifically the gross 
 amount of income from all separate sources, and from the 
 total thereof deducting the aggregate items or expenses and 
 allowance herein authorized. 
 
 Guardians, Trustees, etc., to Make Return for Persons 
 for Whom They Act. 
 
 Guardians, trustees, executors, administrators, agents, re- 
 ceivers, conservators, and all persons, corporations, or asso- 
 ciations acting in any fiduciary capacity, shall make and 
 render a return of the net income of the person for whom 
 they act, subject to this tax, coming into their custody or 
 control and management, and be subject to all the provisions 
 of this section which apply to individuals : Provided, That a 
 return made by one of two or more joint guardians, trus- 
 tees, executors, administrators, agents, receivers, and con- 
 servators, or other persons acting in a fiduciary capacity, 
 filed in the district where such person resides, or in the dis- 
 trict where the will or other instrument under which he acts 
 is recorded, under such regulations as the Secretary of the 
 Treasury may prescribe, shall be a sufficient compliance with 
 the requirements of this paragraph. 
 
Income Tax Law 49 
 
 Persons, Firms, etc., Having Control of Determinable 
 Income Payable to Others. 
 
 And also all persons, firms, companies, copartnerships, cor- 
 porations, joint-stock companies or associations, and insur- 
 ance companies, except as hereinafter provided, in whatever 
 capacity acting, having the control, receipt, disposal, or pay- 
 ment of fixed or determinable annual or periodical gains, 
 profits, and income of another person subject to tax, shall in 
 behalf of such person deduct and withhold from the pay- 
 ment an amount equivalent to the normal income tax upon 
 the same and make and render a return, as aforesaid, but 
 separate and distinct, of the portion of the income of each 
 person from which the normal tax has been thus withheld, 
 and containing also the name and address of such person or 
 stating that the name and address or the address, as the case 
 may be, are unknown: Provided, That the provision re- 
 quiring the normal tax of individuals to be withheld at the 
 source of the income shall not be construed to require any 
 of such tax to be withheld prior to the first day of November, 
 nineteen hundred and thirteen. 
 
 No Return Required Unless Income Exceeds $3,000. 
 
 Provided further, That in either case above mentioned 
 no return of income not exceeding $3,000 shall be required. 
 
 Interest in Partnership Profits to be Included in Return. 
 
 Provided further, That any persons carrying on busi- 
 ness in partnership shall be liable for income tax only in 
 their individual capacity, and the share of the profits of a 
 partnership to which any taxable partner would be entitled 
 if the same were divided, whether divided or otherwise, shall 
 be returned for taxation and the tax paid, under the pro- 
 visions of this section, and any such firm, when requested 
 by the Commissioner of Internal Revenue, or any district 
 collector, shall forward to him a correct statement of such 
 profits and the names of the individuals who would be en- 
 titled to the same, if distributed. 
 4 
 
50 Federal Income Tax 
 
 Dividends on Stock, When to he Excluded from Return. 
 
 Provided further, That persons liable for the normal in- 
 come tax only, on their own account or in behalf of another, 
 shall not be required to make return of the income derived 
 from dividends on the capital stock or from the net earnings 
 of corporations, joint-stock companies or associations, and 
 insurance companies taxable upon their net income as here- 
 inafter provided. Any person for whom return has been 
 made and the tax paid, or to be paid as aforesaid, shall not 
 be required to make a return unless such person has other 
 net income, but only one deduction of $3,000 shall be made 
 in the case of any such person. 
 
 Returns to be Verified by Oath, and Amended Returns May 
 be Required by Collector. 
 
 The collector or deputy collector shall require every list 
 to be verified by the oath or affirmation of the party ren- 
 dering it. If the collector or deputy collector have reason 
 to believe that the amount of any income returned is under- 
 stated, he shall give due notice to the person making the re- 
 turn to show cause why the amount of the return should not 
 be increased, and upon proof of the amount understated 
 may increase the same accordingly. 
 
 Appeals from Decision of Collector. 
 
 If dissatisfied with the decision of the collector, such per- 
 son may submit the case, with all the papers, to the Commis- 
 sioner of Internal Eevenue for his decision, and may fur- 
 nish sworn testimony of witnesses to prove any relevant 
 facts. 
 
 E 
 
 Assessments, Notice, and Payments of. 
 
 That all assessments shall be made by the Commissioner 
 of Internal Eevenue and all persons shall be notified of the 
 amount for which they are respectively liable on or before 
 the first day of June of each successive year, and said as- 
 sessments shall be paid on or before the thirtieth day of June, 
 
Income Tax Law 51 
 
 except in cases of refusal or neglect to make such return 
 and in cases of false or fraudulent returns, in which cases 
 the Commissioner of Internal Revenue shall, upon the dis- 
 covery thereof, at any time within three years after said 
 return is due, make a return upon information obtained as 
 provided for in this section or by existing law, and the as- 
 sessment made by the Commissioner of Internal Revenue 
 thereon shall be paid by such person or persons immediately 
 upon notification of the amount of such assessment; and to 
 any sum or sums due and unpaid after the thirtieth day of 
 June in any year, and for ten days after notice and demand 
 thereof by the collector, there shall be added the sum of 5 
 per centum on the amount of tax unpaid, and interest at the 
 rate of 1 per centum per month upon said tax from the time 
 the same became due, except from the estates of insane, de- 
 ceased, or insolvent persons. 
 
 Persons, Firms, etc., Withholding Normal Tax on 
 Behalf of Others. 
 All persons, firms, copartnerships, companies, corpora- 
 tions, joint-stock companies or associations, and insurance 
 companies, in whatever capacity acting, including lessees 
 or mortgagors of real or personal property, trustees acting 
 in any trust capacity, executors, administrators, agents, re- 
 ceivers, conservators, employers, and all officers and em- 
 ployees of the United States having the control, receipt, cus- 
 tody, disposal, or payment of interest, rent, salaries, wages, 
 premiums, annuities, compensation, remuneration, emolu- 
 ments, or other fixed or determinable annual gains, profits, 
 and income of another person, exceeding $3,000 for any 
 taxable year, other than dividends on capital stock, or from 
 the net earnings of corporations and joint-stock companies or 
 associations subject to like tax, who are required to make 
 and render a return in behalf of another, as provided here- 
 in, to the collector of his, her, or its district, are hereby 
 authorized and required to deduct and withhold from such 
 annual gains, profits, and income such sum as will be suffi- 
 cient to pay the normal tax imposed thereon by this section. 
 
52 Federal Income Tax 
 
 and shall pay to the officer of the United States Government 
 authorized to receive the same; and they are each hereby 
 made personally liable for such tax. 
 
 Notice Must be Filed in Advance for Claims for Exemption 
 Under Paragraph C. 
 
 In all cases where the income tax of a person is withheld 
 and deducted and paid or to be paid at the source, as afore- 
 said, such person shall not receive the benefit of the deduction 
 and exemption allowed in paragraph C of this section ex- 
 cept by an application for refund of the tax unless "he shall, 
 not less than thirty days prior to the day on which the re- 
 turn of his income is due, file with the person who is re- 
 quired to withhold and pay tax for him, a signed notice in 
 writing claiming the benefit of such exemption, and there- 
 upon no tax shall be withheld upon the amount of such 
 exemption. 
 
 Penalty for Filing False Claim. 
 
 Provided, That if any person for the purpose of obtaining 
 any allowance or reduction by virtue of a claim for such 
 exemption, either for himself or for any other person, know- 
 ingly makes any false statement or false or fraudulent rep- 
 resentation, he shall be liable to a penalty of $300. 
 
 Notice Must be Filed in Advance for Claim for Deduction. 
 
 Nor shall any person under the foregoing conditions be al- 
 lowed the benefit of any deduction provided for in subsec- 
 tion B of this section unless he shall, not less than thirty 
 days prior to the day on which the return of his income is 
 due, either file with the person who is required to withhold 
 and pay tax for him a true and correct return of his annual 
 gains, profits, and income from all other sources, and also the 
 deductions asked for, and the showing thus made shall then 
 become a part of the return to be made in his behalf by the 
 person required to withhold and pay the tax, or likewise make 
 application for deductions to the collector of the district in 
 which return is made or to be made for him. 
 
Income Tax Law 53 
 
 Returns for Minors, Insane Persons, etc., by Whom Made. 
 
 Provided further, That if such person is a minor or an 
 insane person, or is absent from the United States, or is 
 unable owing to serious illness to make the return and appli- 
 cation above provided for, the return and application may be 
 made for him or her by the person required to withhold and 
 pay the tax, he making oath under the penalties of this Act 
 that he has sufficient knowledge of the affairs and property 
 of his beneficiary to enable him to make a full and com- 
 plete return for him or her, and that the return and appli- 
 cation made by him are full and complete. 
 
 Normal Tax to be Deducted and Withheld at Source of 
 Income from Bonds, etc., of Corporations. 
 
 Provided further, That the amount of the normal tax 
 hereinbefore imposed shall be deducted and withheld from 
 fixed and determinable annual gains, profits, and income de- 
 rived from interest upon bonds and mortgages, or deeds of 
 trust or other similar obligations of corporations, joint-stock 
 companies or associations, and insurance companies, whether 
 payable annually or at shorter or longer periods, although 
 such interest does not amount to $3,000, subject to the pro- 
 visions of this section requiring the tax to be withheld at the 
 source and deducted from annual income and paid to the 
 Government. 
 
 Dividends on Stocks, or Interest on Foreign Bonds, 
 Mortgages, etc. 
 
 And likewise the amount of such tax shall be deducted and 
 withheld from coupons, checks, or bills of exchange for or 
 in payment of interest upon bonds of foreign countries and 
 upon foreign mortgages or like obligations (not payable in 
 the United States), and also from coupons, checks, or bills 
 of exchange for or in payment of any dividends upon the 
 stock or interest upon the obligations of foreign corpora- 
 tions, associations, and insurance companies engaged in bus- 
 iness in foreign countries ; and the tax in each case shall be 
 
54 Fedeeal Income Tax 
 
 withheld and deducted for and in behalf of any person subject 
 to the tax hereinbefore imposed, although such interest, divi- 
 dends, or other compensation does not exceed $3,000, by any 
 banker or person who shall sell or otherwise realize coupons, 
 checks, or bills of exchange drawn or made in payment of 
 any such interest or dividends (not payable in the United 
 States), and any person who shall obtain payment (not in 
 the United States), in behalf of another of such dividends 
 and interest by means of coupons, checks, or bills of exchange, 
 and also any dealer in such coupons who shall purchase the 
 same for any such dividends or interest (not payable in the 
 United States), otherwise than from a banker or another 
 dealer in such coupons; but in each case the benefit of the 
 exemption and the deduction allowable under this section may 
 be had by complying with the foregoing provisions of this 
 paragraph. 
 
 License to be Obtained by Persons, etc., Engaged in Business 
 of Collecting Foreign Payments of Interest, etc. 
 All persons, firms, or corporations undertaking as a mat- 
 ter of business or for profit the collection of foreign pay- 
 ments of such interest or dividends by means of coupons, 
 checks, or bills of exchange shall obtain a license from the 
 Commissioner of Internal Revenue, and shall be subject to 
 such regulations enabling the Government to ascertain and 
 verify the due withholding and payment of the income tax 
 required to be withheld and paid as the Commissioner of 
 Internal Revenue, with the approval of the Secretary of the 
 Treasury, shall prescribe. 
 
 Penalty for Failure to Obtain License. 
 And any person who shall knowingly undertake to collect 
 such payments as aforesaid without having obtained a license 
 therefor, or without complying with such regulations, shall 
 be deemed guilty of a misdemeanor and for each offense be 
 fined in a sum not exceeding $5,000, or imprisoned for a 
 term not exceeding one year, or both, in the discretion of the 
 court. 
 
Income Tax Law 55 
 
 Liability for Tax Not Affected by Any Contract Entered 
 Into After Passage of Act. 
 
 Nothing in this section shall be construed to release a 
 taxable person from liability for income tax, nor shall any 
 contract entered into after this Act takes effect be valid in 
 regard to any Federal income tax imposed upon a person 
 liable to such payment. 
 
 The tax herein imposed upon annual gains, profits, and 
 income not falling under the foregoing and not returned 
 and paid by virtue of the foregoing shall be assessed by per- 
 sonal return under rules and regulations to be prescribed by 
 the Commissioner of Internal Eevenue and approved by the 
 Secretary of the Treasury. 
 
 Deductions at Source Apply to Normal Tax Only. 
 
 The provisions of this section relating to the deduction 
 and payment of the tax at the source of income shall only 
 apply to the normal tax hereinbefore imposed upon indi- 
 viduals. 
 
 F 
 
 Penalty for Refusal or Neglect to Make Required Return or 
 for Making False Return. 
 That if any person, corporation, joint-stock company, as- 
 sociation, or insurance company liable to make the return 
 or pay the tax aforesaid shall refuse or neglect to make a re- 
 turn at the time or times hereinbefore specified in each year, 
 such person shall be liable to a penalty of not less than $20 
 nor more than $1,000. 
 
 Penalty for Making False or Fraudulent Return. 
 
 Any person or any officer of any corporation required by 
 law to make, render, sign, or verify any return who makes 
 any false or fraudulent return or statement with intent to 
 defeat or evade the assessment required by this section to be 
 made shall be guilty of a misdemeanor, and shall be fined 
 not exceeding $2,000 or be imprisoned not exceeding one 
 year, or both, at the discretion of the court, with the costs 
 of prosecution. 
 
56 Federal Income Tax 
 
 Normal Tax to be Assessed and Paid on Annual Net Income 
 of Corporations, Joint-Stock Companies and Associa- 
 tions. 
 
 (a) That the normal tax hereinbefore imposed upon in- 
 dividuals likewise shall be levied, assessed, and paid annually 
 upon the entire net income arising or accruing from all 
 sources during the preceding calendar year to every corpor- 
 ation, joint-stock company or association, and every insur- 
 ance company, organized in the United States, no matter 
 how created or organized, not including partnerships ; but if 
 organized, authorized, or existing under the laws of any 
 foreign country, then upon the amount of net income accru- 
 ing from business transacted and capital invested within the 
 United States during such year. 
 
 Tax Not to Apply to Certain Organizations Specified. 
 
 Provided, however, That nothing in this section shall ap- 
 ply to labor, agricultural, or horticultural organizations, or 
 to mutual savings banks not having a capital stock repre- 
 sented by shares, or to fraternal beneficiary societies, orders, 
 or associations operating under the lodge system or for the 
 exclusive benefit of the members of a fraternity itself operat- 
 ing under the lodge system, and providing for the payment 
 of life, sick, accident, and other benefits to the members of 
 such societies, orders, or associations and dependents of such 
 members, nor to domestic building and loan associations, nor 
 to cemetery companies, organized and operated exclusively 
 for the mutual benefit of their members, nor to any corpora- 
 tion or association organized and operated exclusively for re- 
 ligious, charitable, scientific, or educational purposes, no 
 part of the net income of which inures to the benefit of any 
 private stockholder or individual, nor to business leagues, 
 nor to chambers of commerce or boards of trade, not organ- 
 ized for profit or no part of the net income of which inures 
 to the benefit of the private stockholder or individual ; nor 
 
Income Tax Law 57 
 
 to any civic league or organization not organized for profit, 
 but operated exclusively for the promotion of social welfare. 
 
 Income Derived from Public Utilities or Governmental 
 Functions Accruing to States, Territories, etc. 
 
 Provided further, That there shall not be taxed under 
 this section any income derived from any public utility or 
 from the exercise of any essential governmental function 
 accruing to any State, Territory, or the District of Columbia, 
 or any political subdivision of a State, Territory, or the Dis- 
 trict of Columbia, nor any income accruing to the govern- 
 ment of the Philippine Islands or Porto Rico, or of any 
 political subdivision of the Philippine Islands or Porto 
 Rico : Provided, That whenever any State, Territory, or the 
 District of Columbia, or any political subdivision of a State 
 or Territory, has, prior to the passage of this Act, entered 
 in good faith into a contract with any person or corporation 
 the object and purpose of which is to acquire, construct, op- 
 erate or maintain a public utility, no tax shall be levied un- 
 der the provisions of this Act upon the income derived from 
 the operation of such public utility, so far as the payment 
 thereof will impose a loss or burden upon such State, Terri- 
 tory, or the District of Columbia, or a political subdivision 
 of a State or Territory. 
 
 Exemptions Not to Apply to Gains or Profits Derived from. 
 Contracts by Persons or Corporations. 
 
 But this provision is not intended to confer upon such 
 person or corporation any financial gain or exemption or to 
 relieve such person or corporation from the payment of a tax 
 as provided for in this section upon the part or portion of 
 the said income to which such person or corporation shall be 
 entitled under such contract. 
 
 Net Income of Corporations, Joint-Stock Companies, etc., 
 How Ascertained. 
 
 (b) Such net income shall be ascertained by deducting 
 from the gross amount of the income of such corporation, 
 
58 Federal Income Tax 
 
 joint-stock company or association, or insurance company, re- 
 ceived within the year from all sources, (first) all the ordi- 
 nary and necessary expenses paid within the year in the 
 maintenance and operation of its business and properties, in- 
 cluding rentals or other payments required to be made as a 
 condition to the continued use or possession of property ; 
 (second) all losses actually sustained within the year and 
 not compensated by insurance or otherwise, including a rea- 
 sonable allowance for depreciation by use, wear and tear of 
 property, if any; and in the case of mines a reasonable al- 
 lowance for depletion of ores and all other natural deposits, 
 not to exceed 5 per centum of the gross value at the mine of 
 the output for the year for which the computation is made-, 
 and in case of insurance companies the net addition, if any, 
 required by law to be made within the year to reserve funds 
 and the sums other than dividends paid within the year on 
 policy and annuity contracts. 
 
 Mutual Fire Insurance Companies. 
 
 Provided, That mutual fire insurance companies requiring 
 their members to make premium deposits to provide for losses 
 and expenses shall not return as income any portion of the 
 premium deposits returned to their policyholders, but shall 
 return as taxable income all income received by them from 
 all other sources plus such portions of the premium deposits 
 as are retained by the companies for purposes other than the 
 payment of losses and expenses and reinsurance reserves. 
 
 Mutual Marine Insurance Companies, Life Insurance 
 Companies. 
 
 Provided further, That mutual marine insurance compa- 
 nies shall include in their return of gross income gross pre- 
 miums collected and received by them, less amounts paid for 
 reinsurance, but shall be entitled to include in deductions 
 from gross income amounts repaid to policyholders on account 
 of premiums previously paid by them and interest paid 
 upon such amounts between the ascertainment thereof and 
 the payment thereof, and life insurance companies shall not 
 
Income Tax Law 59 
 
 include as income in any year such portion of any actual 
 premium received from any individual policyholder as shall 
 have been paid back or credited to such individual policy- 
 holder, or treated as an abatement of premium of such indi- 
 vidual policyholder, within such year; (third) the amount 
 of interest accrued and paid within the year on its indebted- 
 ness to an amount of such indebtedness not exceeding one- 
 half of the sum of its interest-bearing indebtedness and its 
 paid-up capital stock outstanding at the close of the year, or 
 if no capital stock, the amount of interest paid within the 
 year on an amount of its indebtedness not exceeding the 
 amount of capital employed in the business at the close of 
 the year : Provided, That in case of indebtedness wholly se- 
 cured by collateral the subject of sale in ordinary business of 
 such corporation, joint-stock company, or association, the 
 total interest secured and paid by such company, corporation, 
 or association within the year on any such indebtedness may 
 be deducted as a part of its expense of doing business. 
 
 Bonds Issued with Guaranty That Interest Shall be Free 
 from Taxation. 
 
 Provided further, That in the case of bonds or other in- 
 debtedness, which have been issued with a guaranty that the 
 interest payable thereon shall be free from taxation, no de- 
 duction for the payment of the tax herein imposed shall be 
 allowed. 
 
 Interest on Deposits May be Deducted from Gross Income. 
 
 And in the case of a bank, banking association, loan or 
 trust company, interest paid within the year on deposits or 
 on moneys received for investment and secured by interest- 
 bearing certificates of indebtedness issued by such bank, bank- 
 ing association, loan or trust company; (fourth) all sums 
 paid by it within the year for taxes imposed under the author- 
 ity of the United States or of any State or Territory thereof, 
 or imposed by the Government of any foreign country. 
 
60 Federal Income Tax 
 
 Foreign Corporations, etc., Income from Business in 
 United States. 
 
 Provided, That in the case of a corporation, joint-stock 
 
 company or association, or insurance company, organized, 
 
 authorized, or existing under the laws of any foreign country, 
 
 such net income shall be ascertained by deducting from the 
 
 gross amount of its income accrued within the year from 
 
 business transacted and capital invested within the United 
 
 States, 
 
 Ordinary Expenses, Rentals, etc. 
 
 First. All the ordinary and necessary expenses actually 
 
 paid within the year out of earnings in the maintenance and 
 
 operation of its business and property within the United 
 
 States, including rentals or other payments required to be 
 
 made as a condition to the continued use or possession of 
 
 property. 
 
 Losses and Depreciation. 
 
 Second. All losses actually sustained within the year in 
 business conducted by it within the United States and not 
 compensated by insurance or otherwise, including a reason- 
 able allowance for depreciation by use, wear and tear of 
 property, if any, and in the case of mines a reasonable allow- 
 ance for depletion of ores and all other natural deposits, not 
 to exceed 5 per centum of the gross value at the mine of the 
 output for the year for which the computation is made. 
 
 Reserve Funds of Insurance Companies. 
 And in case of insurance companies the net addition, if 
 any, required by law to be made within the year to reserve 
 funds and the sums other than dividends paid within the 
 year on policy and annuity contracts. 
 
 Mutual Fire Insurance. 
 Provided further, That mutual fire insurance companies 
 requiring their members to make premium deposits to pro- 
 vide for losses and expenses shall not return as income any 
 portion of the premium deposits returned to their policy- 
 holders, but shall return as taxable income all income re- 
 
Income Tax Law 61 
 
 ceived by them from all other sources plus such portions of the 
 premium deposits as are retained by the companies for pur- 
 poses other than the payment of losses and expenses and re- 
 insurance reserves. 
 
 Mutual Marine Insurance. 
 
 Provided further, That mutual marine insurance compa- 
 nies shall include in their return of gross income gross pre- 
 miums collected and received by them less amounts paid for 
 reinsurance, but shall be entitled to include in deductions 
 from gross income amounts repaid to policyholders on ac- 
 count of premiums previously paid by them, and interest 
 paid upon such amounts between the ascertainment thereof 
 and the payment thereof and life insurance companies shall 
 not include as income in any year such portion of any ac- 
 tual premium received from any individual policyholder as 
 shall have been paid back or credited to such individual pol- 
 icyholder, or treated as an abatement of premium of such 
 individual policyholder, within such year. 
 
 Interest Accruing and Paid During the Year on 
 Indebtedness. 
 Third. The amount of interest accrued and paid within 
 the year on its indebtedness to an amount of such indebted- 
 ness not exceeding the proportion of one-half of the sum of 
 its interest-bearing indebtedness and its paid-up capital stock 
 outstanding at the close of the year, or, if no capital stock, 
 the capital employed in the business at the close of the year 
 which the gross amount of its income for the year from bus- 
 iness transacted and capital invested within the United 
 States bears to the gross amount of its income derived from 
 all sources within and without the United States. 
 
 Bonds Whose Makers Have Agreed to Pay Interest Without 
 Tax Deduction. 
 
 Provided, That in the case of bonds or other indebtedness 
 which have been issued with a guaranty that the interest pay- 
 able thereon shall be free from taxation, no deduction for 
 the payment of the tax herein imposed shall be allowed. 
 
62 Federal Income Tax 
 
 Taxes. 
 Fourth. All sums paid by it within the year for taxes im- 
 posed under the authority of the United States or of any 
 State or Territory thereof or the District of Columbia. In 
 the case of assessment insurance companies, whether domestic 
 or foreign, the actual deposit of sums with State or Terri- 
 torial officers, pursuant to law, as additions to guarantee or 
 reserve funds shall be treated as being payments required 
 by law to reserve funds. 
 
 Tax to be Computed on Net Income Accruing Each 
 Calendar Year. 
 
 (c) The tax herein imposed shall be computed upon its 
 entire net income accrued within each preceding calendar 
 year ending December thirty-first : Provided, however, That 
 for the year ending December thirty-first, nineteen hundred 
 and thirteen, said tax shall be imposed upon its entire net 
 income accrued within that portion of said year from March 
 first to December thirty-first, both dates inclusive, to be as- 
 certained by taking five-sixths of its entire net income for 
 said calendar year. 
 
 But Fiscal Year Other Than Calendar May be Designated 
 by Corporations. 
 Provided further, That any corporation, joint-stock com- 
 pany or association, or insurance company subject to this 
 tax may designate the last day of any month in the year as 
 the day of the closing of its fiscal year and shall be entitled 
 to have the tax payable by it computed upon the basis of the 
 net income ascertained as herein provided for the year end- 
 ing on the day so designated in the year preceding the date 
 of assessment instead of upon the basis of the net income for 
 the calendar year preceding the date of assessment ; and it 
 shall give notice of the day it has thus designated as the 
 closing of its fiscal year to the collector of the district in 
 which its principal business office is located at any time 
 not less than thirty days prior to the date upon which its 
 annual return shall be filed. 
 
Income Tax Law 63 
 
 Returns, When to be Rendered. 
 All corporations, joint-stock companies or associations, and 
 insurance companies subject to the tax herein imposed, com- 
 puting taxes upon the income of the calendar year, shall, 
 on or before the first day of March, nineteen hundred and 
 fourteen, and the first day of March in each year thereafter, 
 and all corporations, joint-stock companies or associations, 
 and insurance companies, computing taxes upon the income 
 of a fiscal year which it may designate in the manner herein- 
 before provided, shall render a like return within sixty days 
 after the close of its said fiscal year, and within sixty days 
 after the close of its fiscal year in each year thereafter, or in 
 the case of a corporation, joint-stock company or association, 
 or insurance company, organized or existing under the laws of 
 a foreign country, in the place where its principal business 
 is located within the United States, in such form as the Com- 
 missioner of Internal Revenue, with the approval of the 
 Secretary of the Treasury, shall prescribe, shall render a 
 true and accurate return under oath or affirmation of its 
 president, vice president, or other principal officer, and its 
 treasurer or assistant treasurer, to the collector of internal 
 revenue for the district in which it has its principal place of 
 business, setting forth : 
 
 Paid-up Capital. 
 First. The total amount of its paid-up capital stock out- 
 standing, or, if no capital stock, its capital employed in bus- 
 iness, at the close of the year. 
 
 Bonded Indebtedness. 
 Second. The total amount of its bonded and other in- 
 debtedness at the close of the year. 
 
 Gross Income. 
 Third. The gross amount of its income, received during 
 such year from all sources, and if organized under the laws 
 of a foreign country the gross amount of its income re- 
 ceived within the year from business transacted and capital 
 invested within the United States. 
 
64 Federal Income Tax 
 
 Ordinary Expenses of Operation and Maintenance. 
 Fourth. The total amount of all its ordinary and necessary 
 expenses paid out of earnings in the maintenance and oper- 
 ation of the business and properties of such corporation, 
 joint-stock company or association, or insurance company, 
 within the year, stating separately all rentals or other pay- 
 ments required to be made as a condition to the continued use 
 or possession of property, and if organized under the laws 
 of a foreign country the amount so paid in the maintenance 
 and operation of its business within the United States. 
 
 Losses and Depreciation. 
 
 Fifth. The total amount of all losses actually sustained 
 during the year and not compensated by insurance or other- 
 wise, stating separately any amounts allowed for deprecia- 
 tion of property, and in case of insurance companies the net 
 addition, if any, required by law to be made within the 
 year to reserve funds and the siims other than dividends paid 
 within the year on policy and annuity contracts. 
 
 Certain Premium Deposits Not to be Returned as Taxable 
 
 Income. 
 
 Provided further, That mutual fire insurance companies 
 requiring their members to make premium deposits to pro- 
 vide for losses and expenses shall not return as income any 
 portion of the premium deposits returned to their policy- 
 holders, but shall return as taxable income all income re- 
 ceived by them from all other sources plus such portions of 
 the premium deposits as are retained by the companies for 
 purposes other than the payment of losses and expenses and 
 reinsurance reserves. 
 
 Premiums, Reinsurance, etc. 
 
 Provided further, That mutual marine insurance compa- 
 nies shall include in their return of gross income gross pre- 
 miums collected and received by them less amounts paid for 
 reinsurance, but shall be entitled to include in deductions 
 from gross income amounts repaid to policyholders on ae- 
 
Income Tax Law 65 
 
 count of premiums previously paid by them, and interest 
 paid upon such amounts between the ascertainment thereof 
 and the payment thereof, and life insurance companies shall 
 not include as income in any year such portion of any actual 
 premium received from any individual policyholder as shall 
 have been paid back or credited to such individual policy- 
 holder, or treated as an abatement of premium of such in- 
 dividual policyholder, within such year ; 
 
 Foreign Corporations Doing Business in the United States. 
 And in case of a corporation, joint-stock company or asso- 
 ciation, or insurance company, organized under the laws of a 
 foreign country, all losses actually sustained by it during 
 the year in business conducted by it within the United States, 
 not compensated by insurance or otherwise, stating sepa- 
 rately any amounts allowed for depreciation of property, and 
 in case of insurance companies the net addition, if any, re- 
 quired by law to be made within the year to reserve funds 
 and the sums other than dividends paid within the year on 
 policy and annuity contracts. 
 
 Mutual Fire Insurance Companies. 
 
 Provided further, That mutual fire insurance companies 
 requiring their members to make premium deposits to pro- 
 vide for losses and expenses shall not return as income any 
 portion of the premium deposits returned to their policyhold- 
 ers, but shall return as taxable income all income received 
 by them from all other sources plus such portions of the pre- 
 mium deposits as are retained by the companies for pur- 
 poses other than the payment of losses and expenses and re- 
 insurance reserves. 
 
 Mutual Marine Insurance Companies. 
 
 Provided further, That mutual marine insurance com- 
 panies shall include in their return of gross income gross pre- 
 miums collected and received by them less amounts paid for 
 reinsurance, but shall be entitled to include in deductions 
 from gross income amounts repaid to policyholders on ac- 
 5 
 
66 Federal Income Tax 
 
 count of premiums previously paid by them and interest 
 paid upon such amounts between the ascertainment thereof 
 and the payment thereof, and life insurance companies shall 
 not include as income in any year such portion of any actual 
 premium received from any individual policyholder as shall 
 have been paid back or credited to such individual policy- 
 holder, or treated as an abatement of premium of such indi- 
 vidual policyholder, within such year. 
 
 What Interest on Bonded Indebtedness May be Deducted. 
 
 Sixth. The amount of interest accrued and paid within 
 the year on its bonded or other indebtedness not exceeding 
 one-half of the sum of its interest-bearing indebtedness and 
 its paid-up capital stock, outstanding at the close of the year, 
 or, if no capital stock, the amount of interest paid within the 
 year on an amount of indebtedness not exceeding the amount 
 of capital employed in the business at the close of the year, 
 and in the case of a bank, banking association, or trust com- 
 pany, stating separately all interest paid by it within the 
 year on deposits ; 
 
 Interest on Indebtedness of Foreign Corporations. 
 
 Or in case of a corporation, joint-stock company or associa- 
 tion, or insurance company, organized under the laws of a 
 foreign country, interest so paid on its bonded or other in- 
 debtedness to an amount of such bonded or other indebted- 
 ness not exceeding the proportion of its paid-up capital stock 
 outstanding at the close of the year, or, if no capital stock, 
 the amount of capital employed in the business at the close 
 of the year, which the gross amount of its income for the 
 year from business transacted and capital invested within 
 the United States bears to the gross amount of its income 
 derived from all sources within and without the United 
 
 Taxes Paid. 
 Seventh. The amount paid by it within the year for taxes 
 imposed under the authority of the United States and sepa- 
 rately the amount so paid by it for taxes imposed by the 
 Government of any foreign country. 
 
Income Tax Law 67 
 
 Net Income to be Shown on Return. 
 Eighth. The net income of such corporation, joint-stock 
 company or association, or insurance company, after mak- 
 ing the deductions in this subsection authorized. All such 
 returns shall as received be transmitted forthwith by the 
 collector to the Commissioner of Internal Eevenue. 
 
 Assessments to be Made, and Notice to be Given. 
 
 All assessments shall be made and the several corpora- 
 tions, joint-stock companies or associations, and insurance 
 companies shall be notified of the amount for which they 
 are respectively liable on or before the first day of June of 
 each successive year, and said assessment shall be paid on 
 or before the thirtieth day of June. 
 
 When False Return Has Been Rendered and Facts Are De- 
 tected within Three Years, Commissioner May Make New 
 Assessment. 
 
 Provided, That every corporation, joint-stock company or 
 association, and insurance company, computing taxes upon 
 the income of the fiscal year which it may designate in the 
 manner hereinbefore provided, shall pay the taxes due under 
 its assessment within one hundred and twenty days after the 
 date upon which it is required to file its list or return of in- 
 come for assessment; except in cases of refusal or neglect to 
 make such return, and in cases of false or fraudulent returns, 
 in which cases the Commissioner of Internal Revenue shall, 
 upon the discovery thereof, at any time within three years 
 after said return is due, make a return upon information ob- 
 tained as provided for in this section or by existing law, and 
 the assessment made by the Commissioner of Internal Rev- 
 enue thereon shall be paid by such corporation, joint-stock 
 company or association, or insurance company immediately 
 upon notification of the amount of such assessment ; 
 
 Penalty and Interest Incurred by Failure to Pay Tax Within 
 Prescribed Time. 
 And to any sum or sums due and unpaid after the thirtieth 
 day of June in any year, or after one hundred and twenty 
 
68 Federal Income Tax 
 
 days from the date on which the return of income is re- 
 quired to be made by the taxpayer, and after ten days no- 
 tice and demand thereof by the collector, there shall be added 
 the sum of 5 per centum on the amount of tax unpaid and 
 interest at the rate of 1 per centum per month upon said tax 
 from the time the same becomes due. 
 
 Returns Rendered to he Filed with Commissioner of 
 Internal Revenue. 
 
 (d) When the assessment shall be made, as provided in 
 this section, the returns, together with any corrections there- 
 of which may have been made by the commissioner, shall be 
 filed in the office of the Commissioner of Internal Revenue 
 and shall constitute public records and be open to inspection 
 as such. 
 
 Returns to be Open to Inspection Under Certain Conditions. 
 
 Provided, That any and all such returns shall be open to 
 inspection only upon the order of the President, under rules 
 and regulations to be prescribed by the Secretary of the 
 Treasury and approved by the President: Provided fur- 
 ther. That the proper officers of any State imposing a general 
 income tax may, upon the request of the Governor thereof, 
 have access to said returns or to an abstract thereof, show- 
 ing the name and income of each such corporation, joint- 
 stock company, association or insurance company, at such 
 times and in such manner as the Secretary of the Treasury 
 may prescribe. 
 
 Penalty to Corporations, etc., for Refusing or Neglecting to 
 File Required Return. 
 
 If any of the corporations, joint-stock companies or asso- 
 ciations, or insurance companies aforesaid shall refuse or 
 neglect to make a return at the time or times hereinbefore 
 specified in each year, or shall render a false or fraudulent 
 return, such corporation, joint-stock company or association, 
 or insurance company shall be liable to a penalty of not ex- 
 ceeding $10,000. 
 
Income Tax Law 69 
 
 H 
 
 That the word "State" or "United States" when used in 
 this section shall be construed to include any Territory, 
 Alaska, the District of Columbia, Porto Rico, and the Phil- 
 ippine Islands, when such construction is necessary to carry 
 out its provisions. 
 
 I 
 
 That sections thirty-one hundred and sixty-seven, thirty- 
 one hundred aud seventy-two, thirty-one hundred and seventy- 
 three, and thirty-one hundred and seventy-six of the Revised 
 Statutes of the United States as amended are hereby amended 
 so as to read as follows: 
 
 "Sec. 3167. It shall be unlawful for any collector, dep- 
 uty collector, agent, clerk, or other officer or employee of 
 the United States to divulge or to make known in any man- 
 ner whatever not provided by law to any person the opera- 
 tions, style of work, or apparatus of any manufacturer or 
 producer visited by him in the discharge of his official du- 
 ties ; or the amount or source of income, profits, losses, ex- 
 penditures, or any particular thereof, set forth or disclosed 
 in any income return by any person or corporation, or to 
 permit any income return or copy thereof or any book con- 
 taining any abstract or particulars thereof to be seen or ex- 
 amined by any person except as provided by law ; and it 
 shall be unlawful for any person to print or publish in any 
 manner whatever not provided by law any income return or 
 any part thereof or the amount or source of income, profits, 
 losses, or expenditures appearing in any income return ; and 
 any offense against the foregoing provision shall be a misde- 
 meanor and be punished by a fine not exceeding $1,000 or 
 by imprisonment not exceeding one year, or both, at the 
 discretion of the court; and if the offender be an officer or 
 employee of the United States he shall be dismissed from of- 
 fice and be incapable thereafter of holding any office under 
 the Government. 
 
70 Federal Income Tax 
 
 "Sec. 3172. Every collector shall, from time to time, 
 cause bis deputies to proceed through every part of his dis- 
 trict and inquire after and concerning all persons therein 
 who are liable to pay any internal-reveune tax, and all per- 
 sons owning or having the care and management of any 
 objects liable to pay any tax, and to make a list of such 
 persons and enumerate said objects. 
 
 "Sec. 3173. It shall be the duty of any person, partner- 
 ship, firm, association, or corporation, made liable to any 
 duty, special tax, or other tax imposed by law, when not other- 
 wise provided for, in case of a special tax, on or before the 
 thirty-first day of July in each year, in case of income tax on 
 or before the first day of March in each year, and in other 
 cases before the day on which the taxes accrue, to make a 
 list or return, verified by oath or affirmation, to the collector 
 or a deputy collector of the district where located, of the 
 articles or objects, including the amount of annual income 
 charged with a duty or tax, the quantity of goods, wares, and 
 merchandise made or sold and charged with a tax, the several 
 rates and aggregate amount, according to the forms and regu- 
 lations to be prescribed by the Commissioner of Internal 
 Revenue, with the approval of the Secretary of the Treasury, 
 for which such person, partnership, firm, association, or cor- 
 poration is liable: Provided, That if any person liable to pay 
 any duty or tax, or owning, possessing, or having the care or 
 management of property, goods, wares, and merchandise, 
 articles, or objects liable to pay any duty, tax, or license, shall 
 fail to make and exhibit a list or return required by law, but 
 shall consent to disclose the particulars of any and all the 
 property, goods, wares, and merchandise, articles, and objects 
 liable to pay any duty or tax, or any business or occupation 
 liable to pay any tax as aforesaid, then and in that case it 
 shall be the duty of the collector or deputy collector to make 
 such list or return, which, being distinctly read, consented 
 to, and signed and verified by oath or affirmation by the per- 
 son so owning, possessing, or having the care and manage- 
 ment as aforesaid, may be received as the list of such per- 
 
Income Tax Law 71 
 
 son : Provided further, That in case no annual list or return 
 has been rendered by such person to the collector or deputy 
 collector as required by law, and the person shall be absent 
 from his or her residence or place of business at the time the 
 collector or a deputy collector shall call for the annual list 
 or return, it shall be the duty of such collector or deputy col- 
 lector to leave at such place of residence or business, with 
 some one of suitable age and discretion, if such be present, 
 otherwise to deposit in the nearest postofEce, a note or memo- 
 randum addressed to such person, requiring him or her to 
 render to such collector or deputy collector the list or return 
 required by law within ten days from the date of such note 
 or memorandum, verified by oath or affirmation. And if any 
 person, on being notified or required as aforesaid, shall refuse 
 or neglect to render such list or return within the time re- 
 quired as aforesaid, or whenever any person who is required 
 to deliver a monthly or other return of objects subject to tax 
 fails to do so at the time required, or delivers any return 
 which, in the opinion of the collector, is false or fraudulent, 
 or contains any undervaluation or understatement, it shall 
 be lawful for the collector to summon such person, or any 
 other person having possession, custody, or care of books of 
 account containing entries relating to the business of such 
 person, or any other person he may deem proper, to appear 
 before him and produce such books, at a time and place 
 named in the summons, and to give testimony or answer in- 
 terrogatories, under oath, respecting any objects liable to tax 
 or the returns thereof. The collector may summon any per- 
 son residing or found within the State in which his district 
 lies ; and when the person intended to be summoned does not 
 reside and cannot be found within such State, he may enter 
 any collection district where such person may be found and 
 there make the examination herein authorized. And to this 
 end he may there exercise all the authority which he might 
 lawfully exercise in the district for which he was commis- 
 sioned. 
 
72 Federal, Income Tax 
 
 "Sec. 3176. When any person, corporation, company, or 
 association refuses or neglects to render any return or list re- 
 quired by law, or renders a false or fraudulent return or list, 
 the collector or any deputy collector shall make, according to 
 the best information which he can obtain, including that de- 
 rived from the evidence elicited by the examination of the 
 collector, and on his own view and information, such list or 
 return, according to the form prescribed, of the income, prop- 
 erty, and objects liable to tax owned or possessed or under 
 the care or management of such person or corporation, com- 
 pany or association, and the Commissioner of Internal Reve- 
 nue shall assess all taxes not paid by stamps, including the 
 amount, if any, due for special tax, income or other tax, and 
 in case of any return of a false or fraudulent list or valuation 
 intentionally he shall add 100 per centum to such tax; and 
 in case of a refusal or neglect, except in cases of sickness or 
 absence, to make a list or return, or to verify the same as 
 aforesaid, he shall add 50 per centum to such tax. In case 
 of neglect occasioned by sickness or absence as aforesaid the 
 collector may allow such further time for making and de- 
 livering such list or return as he may deem necessary, not 
 exceeding thirty days. The amount so added to the tax shall 
 be collected at the same time and in the same manner as the 
 tax unless the neglect or falsity is discovered after the tax has 
 been paid, in which case the amount so added shall be col- 
 lected in the same manner as the tax; and the list or return 
 so made and subscribed by such collector or deputy collector 
 shall be held prima facie good and sufficient for all legal pur- 
 poses." 
 
 J 
 
 Receipts for Tax Paid to he Given by Collector. 
 
 That it shall be the duty of every collector of internal reve- 
 nue, to whom any payment of any taxes other than the tax 
 represented by an adhesive stamp or other engraved stamp is 
 made under the provisions of this section, to give to the per- 
 son making such payment a full written or printed receipt, 
 
Income Tax Law 73 
 
 expressing the amount paid and the particular account for 
 which such payment was made ; and whenever such payment 
 is made such collector shall, if required, give a separate re- 
 ceipt for each tax paid by any debtor, on account of payments 
 made to ox to be made by him to separate creditors in such 
 form that such debtor can conveniently produce the same 
 separately to his several creditors in satisfaction of their re- 
 spective demands to the amounts specified in such receipts; 
 and such receipts shall be sufficient evidence in favor of such 
 debtor to justify him in withholding the amount therein ex- 
 pressed from his next payment to his creditor ; but such cred- 
 itor may, upon giving to his debtor a full written receipt, 
 acknowledging the payment to him of whatever sum may be 
 actually paid, and accepting the amount of tax paid as afore- 
 said (specifying the same) as a further satisfaction of the 
 debt to that amount, require the surrender to him of such 
 collector's receipt. 
 
 K 
 
 Jurisdiction Conferred on District Courts in Compelling 
 Attendance of Witnesses, etc. 
 That jurisdiction is hereby conferred upon the district 
 courts of the United States for the district within which any 
 person summoned under this section to appear to testify or 
 to produce books shall reside, to compel such attendance, pro- 
 duction of books, and testimony by appropriate process. 
 
 Laws Relating to Assessment, Remission, Collection, and 
 Refunding of Taxes Made Applicable. 
 
 That all administrative, special, and general provisions of 
 law, including the laws in relation to the assessment, remis- 
 sion, collection, and refund of iuternal-revenue taxes not here- 
 tofore specifically repealed and not inconsistent with the pro- 
 visions of this section, are hereby extended and made appli- 
 cable to all the provisions of this section and to the tax herein 
 imposed. 
 
74 Federal Income Tax 
 
 M 
 
 Provisions Relating to Income Tax Extended to Porto Bic6 
 and Philippine Islands. 
 
 That the provisions of this section shall extend to Porto 
 Rico and the Philippine Islands: Provided, That the ad- 
 ministration of the law and the collection of the taxes im- 
 posed in Porto Rico and the Philippine Islands shall be by 
 the appropriate internal-revenue officers of those govern- 
 ments, and all revenues collected in Porto Rico and the 
 Philippine Islands thereunder shall accrue intact to the gen- 
 eral governments thereof, respectively: and Provided fur- 
 ther, That the jurisdiction in this section conferred upon the 
 district courts of the United States shall, so far as the Philip- 
 pine Islands are concerued, be vested in the courts of the first 
 instance of said islands: and Provided further, That noth- 
 ing in this section shall be held to exclude from the computa- 
 tion of the net income the compensation paid any official by 
 the governments of the District of Columbia, Porto Rico and 
 the Philippine Islands or the political subdivisions thereof. 
 
 Income Subject to Special Excise Tax Under Act of 
 August 5, 1909. 
 
 Section 4 (paragraph S) of the act of October 3, 1913, 
 further provides * * * That a special excise tax with 
 respect to the carrying on or doing of business, equivalent to 
 1 per centum upon their entire net income, shall be levied, 
 assessed, and collected upon corporations, joint-stock com- 
 panies or associations, and insurance companies, of the char- 
 acter described in section thirty-eight of the Act of August 
 fifth, nineteen hundred and nine, for the period from Janu- 
 ary first to February twenty-eighth, nineteen hundred and 
 thirteen, both dates inclusive, which said tax shall be com- 
 puted upon one-sixth of the entire net income of said cor- 
 porations, joint-stock companies or associations, and insur- 
 
Income Tax Law 75 
 
 ance companies, for said year, said net income to be ascer- 
 tained in accordance with the provisions of subsection G of 
 section two of this act. 
 
 One Return May be Filed for Both Special Excise and 
 Income Tax for Year 1913. 
 
 Provided further, That the provisions of said section 
 thirty-eight of the Act of August fifth, nineteen hundred and 
 nine, relative to the collection of the tax therein imposed shall 
 remain in force for the collection of the excise tax herein 
 provided, but for the year nineteen hundred and thirteen it 
 shall not be necessary to make more than one return and 
 assessment for all the taxes imposed herein upon said cor- 
 porations, joint-stock companies or associations, and insur- 
 ance companies, either by way of income or excise, which 
 return and assessment shall be made at the times and in the 
 manner provided in this act. * * * 
 
PART III 
 
 TREASURY REGULATIONS 
 
 Comprising 199 Articles, Construing the Administrative 
 
 Features of the Law. See Index, Part VIII, 
 
 for Detailed References 
 
PREFACE 
 
 The accompanying regulations embrace the various ad- 
 ministrative features of the law (sec. 2, Act of Oct. 3, 1913) 
 imposing a tax on incomes. They contain instructions rela- 
 tive to the preparation of returns, etc., and are designed to 
 assist both the taxpayer and the officers charged with its en- 
 forcement in complying with the requirements of this law. 
 
 Liberal construction of the law has been given that those 
 charged with withholding the tax at the source may not do 
 so unnecessarily. Withholding agents may forward evidences 
 of nonliability to payment, when such evidences are received 
 by them, to collector for the district in lieu of the tax. This 
 will relieve them of the necessity of withholding such tax. 
 
 The regulations are arranged according to general sub- 
 jects, as follows: 
 
 Part 1. Individual income returns and collections. 
 
 Part 2. Collections at the source. 
 
 A. Bonds, mortgages, deeds of trust, etc. 
 
 B. Bonds, mortgages, deeds of trust, etc., by first 
 
 bank or collection agency where certificates of 
 owners are not filed. 
 
 C. Bonds, mortgages, dividends, etc., of foreign cor- 
 
 porations. 
 
 D. Salaries, wages, rent, etc. 
 
 E. Fiduciaries. 
 
 Part 3. Relative to corporations, joint-stock companies or 
 associations, and insurance companies. 
 
 Part 4. Assessment and collection. 
 
 All forms of certificates herein provided shall be 8 inches 
 wide and 3^ inches from top to bottom, and printed on 
 paper of substantial weight and texture. 
 
REGULATIONS 
 
 Regulations concerning the tax imposed by Section 2, Act of October 
 3, 1913, on net income of Individuals, Corporations, Joint-Stock 
 Companies, Associations, and Insurance Companies. 
 
 Treasury Department. 
 Office of Commissioner of Internal Revenue, 
 
 Washington, D. C, January 5, 1914. 
 
 PART I 
 
 Individual Income Returns and Collections. 
 
 Persons Taxable. 
 Article 1. Section 2 of the above-named act imposes a 
 tax of 1 per centum (designated as the normal tax) on net 
 incomes arising or accruing from all sources during the 
 preceding calendar year to — 
 
 (a) Every citizen of the United States, whether residing 
 at home or abroad ; and 
 
 (b) Every person residing in the United States, though 
 not a citizen thereof; and 
 
 (c) From all property owned and from every business, 
 trade, or profession carried on in the United States, by a 
 person residing elsewhere. 
 
 Additional or Super Tax. 
 
 Art. 2. Said section also imposes an additional tax on 
 all net incomes of individuals exceeding $20,000, as follows: 
 
 1 per cent on incomes exceeding $20,000 and not exceeding 
 
 $50,000. 
 
 2 per cent on incomes exceeding $50,000 and not exceeding 
 
 $75,000. 
 
 3 per cent on incomes exceeding $75,000 and not exceeding 
 
 $100,000. 
 6 
 
82 Federal Income Tax 
 
 4 per cent on incomes exceeding $100,000 and not exceeding 
 
 $250,000. 
 6 per cent on incomes exceeding $250,000 and not exceeding 
 
 $500,000. 
 6 per cent on incomes exceeding $500,000. 
 
 Net Income Defined. 
 
 Abt. 3. The Net Income shall consist of the total gains, 
 profits, and income derived from all sources (designated 
 as gross income) less deductions numbered first to sixth, 
 inclusive, specifically enumerated in paragraph B of the 
 act (See Article 6.) 
 
 Normal Tax; Upon What Computed. 
 
 In computing the taxable income for the purposes of the 
 normal tax there shall be deducted from the net income as 
 above ascertained : 
 
 (a) The amount included in the gross income received 
 as dividends upon the stock or from the net earnings of any 
 corporation, joint-stock company, association, or insurance 
 company which is taxable upon its net income ; 
 
 (b) The amount of income the tax upon which has been 
 paid or withheld for payment at the source; and 
 
 (c) The specific exemption of $3,000 or $4,000, as the 
 case may be, except in the case of nonresident aliens. 
 
 Oross Income. What it Includes. 
 
 Abt. 4. Gross income includes all gains, profits, and in- 
 come derived from — 
 
 (a) Salaries, wages, or compensation for personal service 
 of whatever kind and in whatever form paid. 
 
 (b) Professions, vocations, business (including income 
 from copartnerships), trade, commerce, or sales or dealings 
 in property, growing out of the ownership or use of or in- 
 terest in, real or personal property. 
 
 (c) Interest, rent, dividends, securities, or transaction of 
 any lawful business carried on for gain or profit. (See Art. 
 67 as to interest on deposits and certificates of deposit) 
 
Income Tax Regulations 83 
 
 (d) Gains or profits and income derived from any source 
 whatever, including the income from, but not the value of, 
 property acquired by gift, bequest, devise or descent. 
 
 The foregoing is held to include all income, gains, and 
 profits arising or accruing from all sources whatever in the 
 calendar year for which the return is made, except as herein- 
 after specifically stated. 
 
 Income Exempt from Taxation. 
 
 Aet. 5. The following items should not be included as 
 gross income: 
 
 (a) Value of property acquired by gift, bequest, devise, 
 or descent during the year. 
 
 (b) Proceeds of life insurance policies paid upon the 
 death of the person insured to beneficiaries, or payments 
 made by or credited to the insured, on life insurance, en- 
 dowment, or annuity contracts, upon the return thereof to 
 the insured at the maturity of the term mentioned in the 
 contract, but this shall not be construed to mean that in- 
 terest payments to beneficiaries from insurance companies 
 shall not be included as income. 
 
 (c) Income derived from interest upon the obligations 
 of a State or any political subdivision thereof and upon the 
 obligations of the United States or its possessions. 
 
 (d) The compensation of the President of the United 
 States in office at the time of the passage of the act of Oc- 
 tober 3, 1913, during the term for which he was elected, and 
 the judges of the Supreme and inferior courts of the United 
 States in office at the time of the passage of the act of Oc- 
 tober 3, 1913; 
 
 (e) The compensation of all officers and employees of a 
 State or any political subdivision thereof, including public- 
 school teachers, etc. When such State officers or employees 
 are compensated by the United States, they must include 
 such income as taxable. 
 
84 Federal Income Tax 
 
 Art. 6. Deductions and exemptions allowed in computing 
 taxable income for the purposes of the normal tax. 
 
 Deductions Allowed Under Paragraph B. 
 
 Under paragraph B the following items are to be de- 
 ducted from the gross income: 
 
 1. The amount of necessary expenses actually paid for 
 carrying on business, but not including business expenses of 
 partnerships and not including personal, living, or family 
 expenses. / 
 
 2. All interest paid within the year on personal indebted- 
 ness of the taxpayer incurred in the conduct of business. 
 
 3. All National, State, county, school, and municipal 
 taxes paid within the year (not including those assessed 
 against local benefits). 
 
 4. Losses actually sustained during the year incurred in 
 trade or arising from fires, storms, or shipwreck and not 
 compensated for by insurance or otherwise. 
 
 5. Debts due to the taxpayer which have been actually 
 ascertained to be worthless and charged off within the year. 
 
 6. Amount representing a reasonable allowance for the 
 exhaustion, wear, and tear of property arising out of its use 
 or employment in the business, not to exceed, in the case of 
 mines, 5 per cent of the gross value at the mine of the output 
 for the year for which the computation is made, but not in- 
 cluding the expense of restoring property or making good the 
 exhaustion thereof, for which an allowance is or has been 
 made, nor for any amount paid for new buildings, permanent 
 improvements, or betterments, made to increase the value of 
 any property or estate. 
 
 "Gross Value at the Mine" Defined. 
 
 The term "gross value at the mine," as used in paragraphs B and 
 G of section 2 of the act of October 3, 1913, prescribing a limit to 
 the amount which may be deducted in the return of individuals and 
 corporations as depreciation in the case of mines, is held to mean 
 the bona fide market value of ore, coal, crude oil, and gas at the 
 mine or well, where such value is established by actual sales at the 
 mine or well; and in case the market value of the product of the 
 
Income Tax Regulations 85 
 
 mine or well is established at some other place than at the mine or 
 well, or on the basis of the bullion or metallic value of the ore, then 
 the gross value at the mine is held to be the value of the ore, coal, 
 oil, or gas sold, or of the metal produced, less transportation, reduc- 
 tion, and smelting charges. 
 
 7. The amount included in gross income received as div- 
 idends upon the stock, or upon the net earnings, of any cor- 
 poration, joint-stock company, association, or insurance com- 
 pany which is taxable upon its net income. 
 
 8. The amount of income, the normal tax upon which 
 has been paid or withheld for payment at the source of in- 
 come. 
 
 Gifts or Donations Made During the Year Not to be 
 Deducted. 
 
 None of the above items of deduction shall include money 
 or other items of value disposed of by gift, donation, or 
 endowment. 
 
 Exemptions Allowed Under Paragraph C. 
 Under paragraph C the personal exemption of $3,000 
 or $4,000, as the case may be, is to be deducted from the 
 net income except in the cases of nonresident aliens. (See 
 Arts. 7, 9, and 10.) 
 
 Tax Computed on the Calendar Year Except for 1913. 
 
 Art. 7. The act provides that the said normal tax shall 
 be computed on the remainder of said net income accruing 
 during each preceding calendar year, and that for the year 
 ended December 31, 1913, said tax shall be computed on 
 the net income accruing from March 1 to December 31, both 
 dates inclusive, after deducting five-sixths only of the specific 
 exemptions and deductions authorized. A specific exemp- 
 tion, therefore, of $2,500 or $3,333.33, as the case may be, 
 will be allowed for the year 1913. 
 
 Income of Nonresident Aliens Subject to the Normal Tax. 
 
 Art. 8. The income of nonresident aliens subject to the 
 normal tax of 1 per cent shall consist of the total gains. 
 
86 Federal Income Tax 
 
 profits, and income derived from all property owned, and 
 from every business, trade, or profession carried on and cap- 
 ital invested within the United States (to be designated as 
 gross income), less deductions (1 to 8, inclusive) specifically 
 enumerated in paragraph B of the act (see Art. 6), in so 
 far as said deductions relate to said gains, profits, etc. 
 
 Exemption Under Paragraph C Not Allowed in Computing 
 Taxable Incomes of Nonresident Aliens. 
 
 The specific exemption in paragraph C of the act can not 
 be allowed as a deduction in computing the normal tax of 
 nonresident aliens. 
 
 Nonresident Aliens Subject to Additional or Surtax. 
 
 Nonresident aliens are subject to additional or surtax the 
 same as prescribed in the case of citizens of the United States 
 or persons residing in the United States. 
 
 The responsible heads, agents, or representatives of said 
 nonresident aliens who are in charge of the property owned 
 or business carried on or capital invested shall make full 
 and complete return of said income and shall pay the tax 
 as provided herein. (See T. D. 2109.) 
 
 Specific Exemption Allowed to Single Person or Married 
 Persons Living Apart. 
 
 Art. 9. Under paragraph C, every single person and ev- 
 ery married person not living with husband or wife in the 
 sense below defined, who has a net income exceeding $3,000 
 per annum, is liable to pay the normal tax under this law, 
 but in making return for such tax such person may claim an 
 exemption of $3,000 from his or her total net income. 
 
 Specific Exemption Allowed with Respect to Aggregate 
 Income of Husband and Wife. 
 
 Art. 10. Husband and wife living together are entitled 
 to an exemption of $4,000 only from the aggregate net in- 
 come of both, which may be deducted in making the return 
 of such income for taxation. However, when the husband 
 
Income Tax Regulations 87 
 
 and wife are separated and living permanently apart from 
 each other each shall be entitled to an exemption of $3,000. 
 
 If Husband and Wife Have Separate Estates One Return 
 May be Made Showing Income of Each. 
 
 If the husband and wife not living apart have separate es- 
 tates, the income from both may be made on one return, but 
 the amount of income of each, and tbe full name and ad- 
 dress of both, must be shown in such return. 
 
 The husband, as the head and legal representative of the 
 household and general custodian of its income, should make 
 and render the return of the aggregate income of himself and 
 wife, and for the purpose of levying the income tax it is as- 
 sumed that he can ascertain the total amount of said in- 
 come. 
 
 Wife's Return of Separate Estate to be Attached to Hus- 
 band's Return or Husband's Income May be Included in 
 Wife's Return. 
 
 If a wife has a separate estate managed by herself as her 
 own separate property and receives an income of $3,000 or 
 over, she may make return of her own income, and if the 
 husband has other net income, making the aggregate of both 
 incomes more than $4,000, the wife's return should be 
 attached to the return of her husband, or his income should 
 be included in her return, in order that a deduction of $i,000 
 may be made from the aggregate of both incomes. The tax 
 in such case, however, will be imposed only upon so much 
 of the aggregate income of both as shall exceed $4,000. 
 
 Return Required if Either Husband or Wife Has an 
 Income of $3,000 or Over. 
 
 If either husband or wife separately has an income equal 
 to or in excess of $3,000, a return of annual net income is 
 required under the law, and such return must include the 
 income of both, and in such case the return must be made 
 even though the combined income of both be less than $4,000. 
 
88 Federal Income Tax 
 
 Return Required if Aggregate Income of Husband and Wife 
 is in Excess of $4,000, Although Neither May Have an 
 Income of $3,000 or Over. 
 
 If the aggregate net income of both exceeds $4,000, an 
 annual return of their combined incomes must be made in 
 the manner stated, although neither one separately may have 
 an income of $3,000 per annum. They are jointly and sep- 
 arately liable for such return and for the payment of the tax. 
 
 When Status is to be Determined. 
 
 The single or married status of the person claiming the 
 specific exemption shall be determined as of the time of 
 claiming such exemption if such claim be made within the 
 year for which return is made, otherwise the status at the 
 close of the year. 
 
 Interest in Partnership Profit; How Reported. 
 
 Art. 11. His or her pro rata share of the net profits de- 
 rived from a partnership business, whether or not divided 
 and paid out, shall be included in the personal return of each 
 partner. 
 
 Partnerships, as Such, Not Liable to Tax, but Statement 
 May be Required. 
 
 Art. 12. Partnerships, as such, are not subject to the 
 income tax, and are only required to make return when re- 
 quested to do so by the Commissioner of Internal Revenue 
 or the collector of internal revenue for the district in which 
 said partnership has its principal place of business; and 
 when a return is required it shall give a complete and cor- 
 rect statement of the gross income of the said partnership 
 and also a complete statement of the actual expenses of 
 conducting the business of said partnership, and the net 
 profits and the name and address of each member of said part- 
 nership, and their respective interest in the net profit thus 
 reported. 
 
Income Tax Regulations 89 
 
 Partnership Profits to be Included in Returns Made 
 by Individual Partners. 
 
 Art. 13. The net annual profits of a partnership when 
 divided and paid to the members thereof shall be included 
 by each individual partner receiving same in his annual 
 return of net income, and the tax shall be paid thereon as 
 required by law. When the annual profits of a partnership 
 are not distributed and paid to the members thereof the 
 respective interest of each member in said profits shall be 
 ascertained, and the individuals entitled thereto shall in- 
 clude the said amount in their annual return as a part of 
 their gross income, the same as if said profits had been dis- 
 tributed and paid to them. 
 
 Individual Partnership Profits. 
 
 Art. 14. Undivided annual net profits of partnerships 
 thus returned by the individual members thereof, and tax 
 paid thereon, shall not, when said profits are actually dis- 
 tributed and paid to such members, be again included in their 
 annual return as a part of their gross income. 
 
 Partnerships, as Such, May File Certificate Claiming 
 Deduction. 
 
 Partnerships owning interest coupons or registered interest 
 orders may claim deduction for legitimate expenses incurred 
 in business by filing the proper certificate with the with- 
 holding agent. (See T. D. 1957.) 
 
 RETURNS. 
 
 When Returns of Annual Net Income of $8,000 or Over 
 Are to be Made. 
 
 Art. 15. Each person of lawful age whose net income is 
 $3,000 or over shall, on or before the 1st day of March, 
 1914, and on or before the 1st day of March each year there- 
 after, file an accurate return of income under oath or affirma- 
 tion, except as herein provided. (See Article 8.) 
 
90 Federal Income Tax 
 
 Where Filed. 
 
 If the person making the return of income has his place 
 of business in the collection district in which he resides, 
 the return shall be filed with the collector of that district. 
 If his principal place of business is elsewhere, the return 
 shall be filed in the district in which that business is lo- 
 cated. 
 
 In the case of an individual residing in a foreign country 
 return shall be made to the collector of internal revenue 
 for the district where his principal business is carried on 
 within the United States. 
 
 Form of Return. 
 Aet. 16. The required return will be made on Form 
 1040 in accordance with the instructions printed thereon, 
 and will specifically set forth — 
 
 1. All income received from each specific source and the 
 total thereof. 
 
 2. All the separate items of deduction claimed under 
 paragraph B of this law. 
 
 3. The amount of specific exemption claimed under par- 
 agraph C. 
 
 4. All amounts of income upon which tax has been with- 
 held at source by withholding agent or agents. 
 
 When Return Will be Made by Guardian or Duly 
 Authorized Agent. 
 
 Art. 17. When by reason of minority, insanity, absence, 
 sickness, or other disability, the individual is unable to 
 make his own return, the same shall be made by his guardian 
 or duly authorized agent. 
 
 Executor or Administrator to Make Return in Case of Death. 
 
 In the case of the death of a person whose net income 
 for the part of the year during which he lived was $3,000 
 or over, return of net income shall be made by the executor 
 or administrator of the estate of the deceased, and in com- 
 puting the taxable income of such estate there shall be al- 
 lowed the specific exemption provided by law. 
 
Income Tax Regulations 91 
 
 Notice of Failure to File Return to be Served on 
 Guardian or Agent. 
 Art. 18. When the required return has not been made 
 by a person acting as guardian, agent of a nonresident alien, 
 or by one acting in any other capacity in which the law 
 makes it a duty for him to represent the individual, notice 
 of failure to make such return will be served upon such 
 guardian or agent. 
 
 Evidence May be Filed Showing Nonliability to Make 
 
 Return. 
 
 The person upon whom such notice is served may, how- 
 ever, when the facts warrant, file evidence with the col- 
 lector showing that the individual for whom he acts did not 
 receive an income subject to tax during the year, or that 
 the said guardian or agent had filed the return with some 
 other collector. 
 
 Returns Not Required of Persons for Whom Full Returns 
 Have Been Made by Others. 
 
 Art. 19. Any individual whose net income is less than 
 $20,000, for whom full return has been made by others as 
 withholding agents, shall not be required to make a return. 
 
 Returns to be Prepared by Collector in Certain Cases. 
 
 Art. 20. If any person liable to pay an income tax for 
 himself or others shall fail to make and deliver the return re- 
 quired by law, but shall consent to disclose the particulars of 
 any business or occupation liable to pay such tax, it shall 
 be the duty of the collector or deputy collector to make such 
 list or return, which being distinctly read and consented to, 
 signed, and verified by oath or affirmation by the person liable 
 to make such return, the same may be received as the list or 
 return of such person. 
 
 Refusal or Neglect to Make Return. 
 
 Art. 21. In case any person liable to make return shall 
 neglect or refuse to make or render a list or return, or shall 
 
92 Federal Income Tax 
 
 render a willfully false or fraudulent return, it shall be the 
 duty of the collector, after due notice has been given, to make 
 such list, according to the best information he can obtain by 
 the examination of such person, or any other evidence. 1 
 
 Penalty for Failure to Make Return or for Making False 
 
 Return. 
 
 When duly certified by the collector, the said list thus pre- 
 pared shall be the return of said person, and the tax so ascer- 
 tained to be due, together with the 50 per cent or 100 per 
 cent penalty incurred, shall be assessed and collected. 
 
 Returns to be Verified by Oath or Affirmation. 
 
 Art. 22. The annual return must be verified by oath or 
 affirmation of the person making the same. Collectors are 
 directed by law to require every return to be so verified by the 
 person rendering it. The affidavit may be made before the 
 collector for the district or before any officer authorized by 
 law to administer oaths. 
 
 Extension of Time to File Return May be Granted. 
 
 Art. 23. When the return is not filed within the required 
 time by reason of sickness or absence of the individual, an 
 extension of time, not exceeding 30 days from March 1, 
 within which to file such return may be granted by the col- 
 lector, provided a written application therefor is made by the 
 individual within the period for which such extension is de- 
 sired. 
 
 Returns to be Forwarded to Commissioner of Internal 
 Revenue by Registered Mail. 
 
 Art. 24. The annual returns will be forwarded by col- 
 lectors by registered mail to the Commissioner of Internal 
 Revenue with the list for the month in which the returns 
 are filed. Collectors must provide that said returns and all 
 
 l For method of procedure in such cases, see sees. 3173 and 3176, Rev. Stat., and also 
 Form 1045, the form of notice to be given in such cases. 
 
Income Tax Regulations 93 
 
 forms relating thereto are securely sealed in envelopes or 
 packages before forwarding the same. 
 
 Assessments; Notification of; When to be Paid. 
 
 Art. 25. All assessments shall be made by the Commis- 
 sioner of Internal Eevenue, and all persons shall be notified 
 of the amount for which they are respectively liable on or 
 before the 1st day of June of each successive year, and 
 said assessments shall be paid on or before the 30th day of 
 June, except in cases of refusal or neglect to make such re- 
 turn and in cases of false or fraudulent returns, in which 
 cases the Commissioner of Internal Revenue shall, upon the 
 discovery thereof, at any time within three years after said 
 return is due, make a return upon information obtained, as 
 provided by the law, and the assessment made by the Com- 
 missioner of Internal Revenue thereon shall be paid by 
 such person or persons immediately upon notification of the 
 amount of such assessment. 
 
 Penalty for Failure to Pay Tax. 
 
 To any sum or sums due and unpaid after the 30th day 
 of June in any year, and for 10 days after notice and de- 
 mand thereof by the collector, there shall be added the sum 
 of 5 per cent on the amount of tax unpaid, and interest at the 
 rate of 1 per cent per month upon said tax from the time the 
 same became due, except from the estates of insane, de- 
 ceased, or insolvent persons. 
 
 Penalties for Failure to Make Returns. 
 
 Art. 26. If any person, corporation, joint-stock company, 
 association, or insurance company liable to make returns ot 
 pay tax shall refuse or neglect to make returns at the time 
 or times specified in each year, such person shall be liable 
 to a penalty of not less than $20 nor more than $1,000. 
 
 Penalties for Making False or Fraudulent Returns. 
 
 Any person or any officer of any corporation required by 
 law to make, render, sign, or verify any return who makes 
 
94 Federal Income Tax 
 
 any false or fraudulent return or statement with intent to 
 defeat or evade the assessment required by law to he made 
 shall be guilty of a misdemeanor, and shall be fined not ex- 
 ceeding $2,000 or be imprisoned not exceeding one year, or 
 both, at the discretion of the court, with the costs of prose- 
 cution. 
 
 Art. 27. Nothing in the law or these regulations shall be 
 construed to release a taxable person from liability for in- 
 come tax, nor shall any contract entered into after the act of 
 October 3, 1913, took effect be valid in regard to any Fed- 
 eral income tax imposed upon a person liable to such pay- 
 ment. 
 
 Art. 28. For regulations relative to the claiming of ex- 
 emptions and deductions on income, the tax on which is to 
 be deducted and withheld at the source, see Article 33. 
 
PART 2 
 
 Collections at the Souece. 
 
 Collections at Source Applies Only to the Normal Tax Im- 
 posed Upon Individuals. Collection at Source Not Oper- 
 ative Until November 1, WIS. 
 
 Aet. 29. The deductions and payment of the tax at the 
 source of income applies only to the normal tax imposed upon 
 individuals and shall not be construed to require any of 
 such tax to be withheld prior to the 1st day of November, 
 1913. 
 
 Persons, Firms, etc., Required to Withhold Tax at the 
 
 Source. 
 
 Aet. 30. Paragraph E of section 2 of the act provides 
 that- 
 All persons, firms, copartnerships, companies, corporations, joint- 
 stock companies or associations, and insurance companies, in what- 
 ever capacity acting, including lessees or mortgagors of real or per- 
 sonal property, trustees acting in any trust capacity, executors, ad- 
 ministrators, agents, receivers, conservators, employers, and all 
 officers and employees of the United States having the control, re- 
 ceipt, custody, disposal, or payment of interest, rent, salaries, wages, 
 premiums, annuities, compensation, remuneration, emoluments, or 
 other fixed or determinable annual gains, profits, and income of 
 another person, exceeding $3,000 for any taxable year, other than 
 dividends on capital stock, or from the net earnings of corporations 
 and joint-stock companies or associations subject to like tax, who 
 are required to make and render a return in behalf of another, as 
 provided herein, to the collector of his, her, or its district, are 
 hereby authorized and required to deduct and withhold from such 
 annual gains, profits, and income such sum as will be sufficient to 
 pay the normal tax imposed thereon by this section, and shall pay 
 to the officer of the United States Government authorized to receive 
 the same; and they are each hereby made personally liable for such 
 tax. 
 
 Withholding Agents. 
 
 Aet. 31. All persons, firms, etc., mentioned in the above- 
 quoted paragraph are referred to in these regulations as 
 
96 Federal Income Tax 
 
 "debtors" or "withholding agents," and the word "source" 
 is to apply to the place where the income originated and is 
 payable. 
 
 Income as to Which Tax is to be Withheld. 
 
 Art. 32. The income from which the normal tax of 1 per 
 cent is to be withheld by withholding agents includes all 
 items of income exceeding in the aggregate $3,000 and pay- 
 able to any one person during the year, except: 
 
 (a) Dividends on capital stock or from the net earnings 
 of corporations and joint-stock companies or associations and 
 insurance companies subject to like tax. 
 
 (b) Income of an individual which is not fixed or cer- 
 tain and not payable at stated periods, or is indefinite or 
 irregular as to amount or time of accrual, shall not be with- 
 held at the source, but shall be listed in the annual return 
 of the individual, and the tax shall be paid thereon by him. 
 
 Incomes derived from the following professions and vo- 
 cations come under this head: Agents compensated on the 
 commission basis, lawyers, doctors, authors, inventors, and 
 other professional persons whose income is irregular and 
 indefinite. 
 
 Special Fees and Annual Retainers. 
 
 Such persons shall make personal return of all their in- 
 come, provided their total net income from all sources is 
 $3,000 or over. For example : When a lawyer receives a re- 
 tainer of $5,000 as a special fee, a deduction therefrom 
 shall not be made by the payer; but when a lawyer receives 
 a retainer of $5,000 per annum, and the exemption claimed 
 is $3,000, $2,000 of such income would be taxed and the 
 tax retained at the source ; or if his exemption claimed should 
 be $4,000, $1,000 of such income would be taxed and the 
 tax thereon withheld at the source. 
 
 (c) Items listed in article 5, which are wholly exempt 
 from tax. 
 
Income Tax Eegdlations 97 
 
 Exemptions Under Paragraph C. Certificate to be Filed 
 with Withholding Agent. 
 
 Art. 33. (a) In all cases where the income tax of a per- 
 son is withheld and deducted and paid or to be paid at the 
 source, such person shall not receive the benefit of the de- 
 duction and exemption allowed in paragraph C (see Arts. 9 
 and 10) except by an application to the collector for refund 
 of the tax unless he shall, not less than SO days prior to the 
 day on which the return of his income is due, file with the 
 person who is required to withhold and pay tax for him a 
 certificate claiming the benefit of such exemption, and there- 
 upon no tax shall be withheld upon the amount of such ex- 
 emption. 
 
 Penalty for Making False Representations to Obtain 
 Exemption. 
 
 If any person for the purpose of obtaining any allowance 
 or reduction by virtue of a claim for such exemption, either 
 for himself or for any other person, knowingly makes any 
 false statement or false or fraudulent representation, he shall 
 be liable to a penalty of $300. 
 
 Deductions Under Paragraph B. Form 1008 to be Filed 
 with Withholding Agent or Collector. 
 
 (6) Nor shall any person under the foregoing conditions 
 be allowed the benefit of any deduction provided for in sub- 
 section B (see Art. 6, 1 to 6) unless he shall, not less than 
 30 days prior to the day on which the return of his income 
 is due, either file with the person who is required to with- 
 hold and pay tax for him a true and correct return (on Form 
 1008) of his annual gains, profits, and income from all other 
 sources, and also the deductions asked for, and the showing 
 thus made shall then become a part of the return to be made 
 in his behalf by the person required to withhold and pay the 
 tax, and the debtor or withholding agent will only withhold 
 the tax on the payments made in excess of the deductions 
 claimed on said form. Or such person may likewise make 
 7 
 
98 Federal Income Tax 
 
 application for deductions to the collector of the district 
 in which the return is made or to be made for him, (See 
 T. D., 1965.) 
 
 Certificate Filed on Behalf of Minors or Insane Persons. 
 
 If such person is a minor or an insane person, or is absent 
 from the United States, or is unable owing to serious illness 
 to make the return and application above provided for, the 
 return and application may be made for him or her by the 
 person required to withhold and pay the tax, he making oath 
 on certificate (Form 1009) under the penalties of this act 
 that he has sufficient knowledge of the affairs and property of 
 his beneficiary to enable him to make a full and complete 
 return for him or her, and that the return and application 
 made by him are full and complete. 
 
 Claims for Refund. 
 (c) When, however, claims for exemption and deductions 
 as above described are not filed within the prescribed time, 
 the tax collected in excess can be remitted only on presenta- 
 tion of a claim for refund under the provisions of section 
 3220, Revised Statutes, said claims to be made either by the 
 withholding agent against whom the assessment was made or 
 by the person on account of whom such taxes were withheld. 
 
 Claims for Abatement. 
 Claims for abatement of taxes erroneously assessed, or 
 which are excessive in amount, may, prior to collection 
 thereof, be filed under the provisions of said section 3220, 
 Revised Statutes, either by the withholding agent against 
 whom the assessment was made or by the persons on account 
 of whom such taxes were withheld. 
 
 Taxes Withheld Not to be Forwarded to Collector Until 
 Notices of Assessment Have Been Received. 
 
 In the monthly list returns as now prescribed a space is 
 provided to show the amount of taxes which the withhold- 
 ing agent may remit to the collector when such returns are 
 filed. The withholding agent will not, however, forward 
 
Income Tax Regulations 99 
 
 to the collector amounts withheld by him until notices of as- 
 sessment are received from the collector. 
 
 Claims for exemption and deductions may be filed with 
 the withholding agent and claims for deductions may be 
 filed with the collector not later than SO days prior to 
 March 1. 
 
 Withholding Agents to be Furnished Statement of Deduc- 
 tions Claimed Through Collector. 
 
 In cases where claims for deductions are filed with the col- 
 lector within the time prescribed the collector will imme- 
 diately furnish the withholding agent (whose name and ad- 
 dress must be shown on Form 1008) with a statement of 
 the amount of deductions claimed, and said withholding 
 agent shall not withhold and pay the normal tax to the ex- 
 tent of the deductions claimed as per said list. 
 
 Withholding agents should not file their annual returns 
 until after the expiration of the time allowed persons to file 
 claims for exemptions and deductions, and if claims for de- 
 ductions are filed with the collector in the required time, 
 yet not in sufficient time to have the adjustment made by 
 the withholding agent, the collector will make the adjust- 
 ment on the withholding agent's return and in reporting 
 such withholding agent for assessment will make allowance 
 for the amount of such deductions claimed. Notice of such 
 adjustment, however, must be furnished the withholding 
 agent. 
 
 Tax Withheld to be Paid to Collector of District. 
 
 Art. 34. The normal tax of 1 per cent shall be deducted 
 and withheld at the source, and payment made to the col- 
 lector of internal revenue as provided in the law, by the 
 debtor, or his, her, or its duly appointed agent authorized to 
 make such deduction and payment. 
 
 Tax Withheld by One Agent Not to be Again Withheld by 
 Another Agent. 
 No other person, firm, or organization, in whatever ca- 
 pacity acting, having the receipt, custody, or disposal of any 
 
100 Federal Income Tax 
 
 income, as herein provided, shall be required to again deduct 
 and withhold the normal tax of 1 per cent thereon, pro- 
 vided that any such person, firm, or organization other than 
 the debtor who has withheld said tax shall file with the 
 collector of internal revenue for his, her, or its district 
 a certificate (Form 1006) showing from whom and in what 
 amount the tax has been so withheld. 
 
 Returns to be Made to Collector of Internal Revenue. 
 
 Art. 35. Withholding agents who are required to make 
 monthly returns will, on or before the 20th day of each 
 month, file with the collector for their respective districts 
 such returns for the preceding month, accompanied by all 
 certificates relating thereto, and there shall also accompany 
 said returns all certificates claiming exemptions and deduc- 
 tions which are not required to be listed thereon ; and on or 
 before the 1st day of March in each year said withholding 
 agents shall likewise file their annual returns for the pre- 
 ceding calendar year. Annual returns (Forms 1041 and 
 1042) must be accompanied by all certificates claiming ex- 
 emptions and deductions relating thereto. 
 
 Art. 36. For regulations as to assessment and collection 
 of taxes from withholding agents, see article 25 and "As- 
 sessments and collections," Part 4. 
 
 Income Derived from Interest Upon Bonds and Mort- 
 gages or Deeds of Trust or Other Similar Obliga- 
 tions of Corporations, etc. 
 
 Tax on Income Derived from Interest on Bonds, etc., to be 
 
 Deducted. 
 Art. 37. Under the law a tax of 1 per cent, designated 
 as the normal tax, shall be deducted at "the source," begin- 
 ning November 1, 1913, from all income accruing and pay- 
 able to any person subject to such tax which may be derived 
 from interest upon bonds and mortgages, or deeds of trust, or 
 other similar obligations, including equipment trust agree- 
 
Income Tax Regulations 101 
 
 ments and receivers' certificates of corporations, joint-stock 
 companies or associations, and insurance companies, although 
 such interest does not amount to $3,000. 
 
 Interest on State and Government Obligations Exempt. 
 
 Income derived from the interest upon the obligations of 
 a State, county, city, or any other political subdivision there- 
 of, and upon the obligations of the United States or its pos- 
 sessions, is not subject to the income tax, and certificates of 
 ownership in connection with coupons or registered interest 
 orders for such interest will not be required. 
 
 Term "Debtor" to Apply to all Corporations, etc., and to 
 Duly Appointed Withholding and Paying Agents. 
 
 Art. 38. The term "debtor," as hereinafter used, shall 
 apply to all corporations, joint-stock companies or associa- 
 tions, and insurance companies ; and such "debtor" may ap- 
 point withholding and paying agents to act for it in matters 
 pertaining to the collection of this tax, upon filing with the 
 collector of internal revenue for the district a proper notice 
 of the appointment of such agent or agents. Where such 
 withholding agent is so authorized by the debtor corporation, 
 he may file with the collector of his district the required re- 
 turns and accompanying certificates (Arts. 50 and 51), in 
 which case the assessment of the tax withheld by him will be 
 made in that district. Unless such authority is given, such 
 reports, etc., will be furnished by the debtor corporation to 
 the collector of its district (i. e., the district in which its 
 principal financial or business office is located), where, in 
 such case, assessment will be made. 
 
 Tax to be Deducted and Withheld by Debtor Corporation. 
 
 Aet. 39. For the purpose of collecting the tax on all cou- 
 pons and registered interest originating or payable in the 
 United States, the source shall be the debtor (or its with- 
 
102 Federal Income Tax 
 
 holding and paying agent in the United States), who shall 
 deduct the tax when same is to be withheld, and no other 
 bank, trust company, banking firm, or individual taking 
 coupons or interest orders for collection, or otherwise, shall 
 withhold the tax thereon, where such coupons or orders for 
 registered interest are accompanied by certificates of owner- 
 ship signed by the owners of the bonds upon which the in- 
 terest matured. These certificates shall be made on the 
 prescribed forms and shall be made out by each owner of 
 bonds for the coupons or interest orders for each separate 
 issue of bonds or obligations of each debtor. (See Arts. 43 
 and 46 and 70.) 
 
 Substitute Certificates, When Permitted. Record to be Kept 
 by Collecting Agent. 
 
 Art. 40. Responsible banks, bankers, and collecting 
 agents receiving coupons for collection with the aforesaid 
 certificates of ownership attached may present the coupons 
 with the attached certificates to the debtor or withholding 
 agent for collection, or such certificates may be attached and 
 forwarded direct to the Commissioner of Internal Revenue, 
 provided such bank, banker, or collecting agent shall substi- 
 tute for such certificates its own certificate, and shall keep 
 a complete record of each transaction, showing — 
 
 1. Serial number of item received. 
 
 2. Date received. 
 
 3. Name and address of person from whom received. 
 
 4. Name of debtor corporation. 
 
 5. Class of bonds from which coupons were cut. 
 
 6. Face amount of coupons. 
 
 7. Exemptions from tax claimed by owner under para- 
 graph C. 
 
 For the purpose of identification, such substitute certifi- 
 cates should be numbered consecutively, and corresponding 
 numbers given the original certificates of ownership. 
 
Income Tax Regulations 103 
 
 Privilege of Substituting Certificates Extended to Foreign 
 
 Countries. 
 
 The permission here granted will extend to responsible 
 banks, bankers, and collecting agents in foreign countries, 
 through whom collection of such interest coupons is made. 
 
 The various substitute certificates hereby authorized will 
 correspond with the form numbers of the ownership certifi- 
 cates detached by the collecting agent, except that the sub- 
 stitute certificates' form numbers will be followed by the let- 
 ter "a." (See T. D. 1974, amending Arts. 41-46.) 
 
 Normal Tax to be Deducted Before Payment of Interest. 
 (See T. D. 197b.) 
 
 Art. 41. A debtor whose bonds may be registered, both 
 as to principal and interest, shall deduct the normal tax of 
 1 per cent from the accruing interest on all bonds before 
 sending out checks for said interest to registered owners or 
 before paying such interest upon interest orders signed by 
 the registered holders of said bonds unless there shall be 
 filed with said debtor or its fiscal agent (not later than 30 
 days prior to March 1), through whom said interest is cus- 
 tomarily paid, the proper certificates claiming exemption 
 from liability for said tax as herein provided, executed— 
 
 Claims for Exemption from Tax; by Whom Same May 
 be Filed. 
 
 By a citizen or resident of the United States, the bona fide 
 owner of the registered obligations, who may claim exemp- 
 tion under paragraph C, section 2, of the income tax law, or 
 
 By corporations, joint-stock companies, associations, or 
 insurance companies organized in the United States, or or- 
 ganizations, associations, fraternities, etc., which are either 
 taxable or exempt from taxation, as provided in paragraph 
 G, subdivision (a), of the act, or 
 
 By a bona fide resident and citizen of a foreign country, 
 claiming exemption as such. 
 
104 Federal Income Tax 
 
 Certificates of Ownership to Specify Bonds and Amount of 
 Interest Due. 
 
 Art. 42. If the owners of the bonds are individuals who 
 are citizens or residents of the United States, the aforesaid 
 certificates shall accompany the coupons, or, with respect to 
 the interest on registered bonds, shall be filed with payer of 
 said interest, and such certificates shall describe the bonds 
 and show the amount of coupons attached or the amount of 
 interest due such owners on registered bonds and the name 
 and address of the owners, and if registered in names other 
 than the owners such names with addresses shall also be 
 given. 
 
 Claim for Exemption Under Paragraph C. 
 
 Such certificates shall also show whether the claimants do 
 or do not then claim exemption from taxation at the source, 
 under paragraph C, Articles 9 and 10 ($3,000, and under 
 certain conditions $4,000), as to the income represented by 
 such coupons or interest. The certificates will be prepared 
 on Form 1000 and must show the amount, if any, of ex- 
 emption claimed, the total amount of exemption to which the 
 claimant is entitled, and must be signed by the claimants, 
 who shall use their ordinary business signatures. The cer- 
 tificates shall also show the postoffice and street address of 
 the claimants, the internal revenue district, and the date 
 when signed. 
 
 Certificates May be Signed by Duly Authorized Agents, etc. 
 Certificates to be Verified by Withholding Agents. 
 
 Art. 43. Duly authorized agents may sign such certifi- 
 cates for the persons for whom they act, and withholding 
 agents, banks, or others, with whom such certificates are filed, 
 if satisfied as to the identity and responsibility of the per- 
 sons so signing, shall stamp or write on the face of each such 
 certificate, "Satisfied as to identity and responsibility of 
 agent," giving name and address of person thus certifying. 
 Certificates so verified may be accepted by all other persons, 
 firms, or organizations to whom presented, without question 
 
Income Tax Regulations 105 
 
 as to authority of such agent If the person, firm, or organi- 
 zation first receiving such certificate is not satisfied as to the 
 agent's identity and responsibility, then, in that event, the 
 agent shall furnish evidence of his authority to so act, which 
 will be retained by the person, firm, or organization re- 
 ceiving it, and the certificate of ownership shall be indorsed 
 as above provided. 
 
 Tax to be Deducted Before Payment of Interest. 
 
 Art. 44. Whenever interest coupons, accompanied by a 
 certificate of an individual who is a citizen or resident of 
 the United States, are presented to a debtor or its withhold- 
 ing agent for payment, or whenever interest is payable to 
 such individual on a bond registered as to both principal and 
 interest, the debtor or its withholding agent shall deduct 
 and withhold the amount of the normal tax, except to the ex- 
 tent that exemption is claimed in the certificate of owner- 
 ship (Form 1000). 
 
 Where the interest to be paid is registered, the same form 
 of certificate shall be used where exemptions are claimed, 
 and it shall be filed with the debtor at least five clays before 
 the due date of such interest. 
 
 Tax on Interest Payable to Certain Corporations, etc., Not 
 to be Deducted. 
 
 Art. 45. If the owners of the bonds are corporations, 
 joint-stock companies, associations, or insurance companies 
 organized in the United States, no matter how created or or- 
 ganized, or organizations, associations, fraternities, etc., 
 which are either taxable or exempt from taxation as pro- 
 vided in paragraph G, subdivision (a) of the act, the debtor 
 is not required to withhold or deduct the tax upon income 
 derived from interest on such bonds, provided coupons or 
 orders for interest from such bonds shall be accompanied by 
 a certificate of the owners thereof certifying to such own- 
 ership, which certificates shall be filed with the debtor when 
 such coupons or interest orders are presented for payment. 
 
106 Federal Income Tax 
 
 Certificates of Corporations Claiming Exemption. 
 Such certificate will be made on Form 1001, and must be 
 signed in the name of the organization (stating its place of 
 business) by the president, secretary, or some other principal 
 officer of the said corporation or organization duly author- 
 ized to sign same, and must be properly dated. 
 
 Certificates of Nonresident Aliens. 
 
 Art. 46. Coupons, or orders for registered interest, pay- 
 able in the United States, representing the interest on bonds 
 owned by nonresident aliens, must be accompanied by the pre- 
 scribed certificate (Form 1004), but this certificate may be 
 signed either by the owner or, in behalf of the owner, by a 
 reputable bank or bankers or other responsible collecting 
 agency, certifying to the ownership of the bonds and giving 
 the name and address of the bona fide nonresident and alien 
 owners, and when such certificate is thus attached the normal 
 tax of 1 per cent on such coupons or interest orders need 
 not be withheld at the source by the debtor or collecting 
 agency. Unless such proof of foreign ownership is fur- 
 nished, the normal tax of 1 per cent should be deducted. 
 
 Foreign organizations engaged in business within the 
 United States are subject to the normal tax of 1 per cent per 
 annum upon the amount of net income accruing from busi- 
 ness transacted and capital invested within the United States ; 
 but said organizations shall be exempt from having any 
 part of their income withheld by a debtor or withholding 
 agent, and claim for such exemption will be made on Form 
 1018. 
 
 Certificates Filed by Partnership, Showing Interest of 
 Individual in Partnership Profits, etc. 
 
 Art. 47. Inasmuch as individual members of a partner- 
 ship are liable for income tax upon their respective interest 
 in the net earnings of such partnership, the partnership may 
 file with the withholding agent a notice signed in the name 
 of the partnership, by a member thereof, claiming a deduc- 
 tion of a specific amount on account of the legitimate ex- 
 
Income Tax Regulations 107 
 
 pense incurred in conducting the business of said partner- 
 ship ; and upon receipt of said notice said withholding agent 
 shall not withhold, and shall not be held liable for, the nor- 
 mal tax on the amount of income equal to the amount of de- 
 duction claimed in said notice ; but in no event shall the 
 total of the amounts claimed, as provided herein, be in ex- 
 cess of the total amount of the actual legitimate annual ex- 
 penses incurred by said partnership in the conduct of its 
 business. Application for such deduction shall be made on 
 Form 1011. (This article 47 repealed by T. D. 1957.) 
 
 Foreign Partnerships, Certificate of Ownership May be 
 Filed by. 
 
 Art. 48. Foreign partnerships or firms, all the members 
 of which are both citizens, or subjects, and residents of a 
 foreign country, which are the owners of bonds and mort- 
 gages or deeds of trust or other similar obligations, including 
 equipment trust agreements, receivers' certificates, and stocks 
 of corporations, joint-stock companies or associations and 
 insurance companies, organized or doing business in the 
 United States, may file with the debtor or withholding agent, 
 with their coupons or orders for registered interest, or orders 
 for other income derived from property or investments in 
 the United States, a certificate and notice of ownership 
 (Form 1016) setting forth the above facts; and the debtor or 
 withholding agent shall not withhold any part of said in- 
 come. 
 
 Foreign Partnership, Composed of Nonresident Foreigners 
 and Citizens of United States. 
 Art. 49. Where a foreign partnership or firm is composed 
 of both nonresident foreigners and citizens of the United 
 States, or foreigners residing in the United States or its 
 possessions, the certificate of ownership shall show this fact, 
 and the name and legal address of each member of said 
 partnership who is a citizen of the United States, or who is 
 a foreigner residing in the United States or its possessions, 
 shall be given on the back of said certificate, and no part of 
 
108 Federal Income Tax 
 
 said income shall be withheld. The said certificate and 
 
 notice of ownership in either case above provided shall be 
 
 on Form 1014. 
 
 Monthly List Return. 
 
 Art. 50. Withholding agents are required to file in dupli- 
 cate a monthly list return (Form 1012) giving a list of all 
 coupon or interest payments made on which the normal tax 
 of 1 per cent was deducted and withheld from interest pay- 
 ments made upon bonds or other similar obligations, and 
 shall show the name and address in full of the owners of the 
 bonds, amount of the income, amount of exemption claimed, 
 amount of income on which withholding agent is liable for 
 tax, and the amount of tax withheld. 
 
 Forms 1012a, 1012b, and 1012c are to be used where 
 Form 1012 does not afford sufficient space in which to enter 
 all items. 
 
 Summary of Monthly Lists May be Used. 
 
 Form 101 2d, when necessary to be used, shall be made in 
 duplicate and shall be a summary of the monthly list re- 
 turn, Form 1012, as made in detail by the withholding 
 agent, and the said summary and lists thereto attached when 
 properly filled in and the summary signed and sworn to shall 
 constitute the complete monthly list return of the withhold- 
 ing agent making same as fully as if each list attached to 
 the summary was signed and sworn to separately. 
 
 An annual list return (Form 1013) in duplicate is also 
 required to be made by debtors or withholding agents of 
 the normal tax of 1 per cent withheld from interest payments 
 made upon bonds or other similar obligations, and it shall 
 bo filed on or before March 1 of each calendar year. 
 
 Monthly List to Constitute a rart of the Annual List Return. 
 
 Art. 51. The monthly list return in the form as re- 
 quired herein shall constitute a part of the annual list re- 
 turn to be made by debtors or withholding agents, and the 
 debtor or withholding agent will not be required, in making 
 an annual list return of the tax withheld from income de- 
 
Income Tax Regulations 109 
 
 rived from interest upon bonds and mortgages or deeds of 
 trust, or other similar obligations of corporations, joint- 
 stock companies, or associations and insurance companies, 
 to again make an itemized list of the amount of tax with- 
 held from each person, but will give in the annual list re- 
 turn the totals of the monthly list return for each month of 
 the year for which annual list return is made. 
 
 Certificates to be Forwarded to Collector. 
 
 All substitute certificates of collecting agents, authorized 
 by regulations, that are received by debtors or withholding 
 agents will be considered the same as certificates of owners, 
 and in entering same in making monthly list returns debtors 
 or withholding agents will enter the name and address of the 
 collecting agent and the number of the substitute certificate 
 issued in lieu of the original certificate containing the name 
 and address of the owner of the bonds. Until the further 
 ruling on this subject by this department no list return is 
 required to be made of certificates of ownership accompany- 
 ing coupons or registered interest orders filed with a debtor 
 or withholding agent when the owners of the bonds are not 
 subject to having the normal tax withheld at the source, but 
 all such certificates of ownership shall be forwarded by the 
 debtor or withholding agent to the collector of internal rev- 
 enue for the district, on or before the 20th day of the month 
 succeeding that in which said certificates of ownership were 
 received. 
 
 B 
 
 Income Derived from Interest Upon Bonds, Mort- 
 gages, etc., Paid by First Bank or Collecting Agen- 
 cy When Certificates of Owners are not Filed. 
 
 Interest Coupons or Orders, Not Accompanied by Certificate. 
 
 Art. 52. Where the coupons or interest orders are not 
 accompanied by certificates as heretofore prescribed, the first 
 bank, trust company, banking firm, or individual, or col- 
 lecting agency receiving the coupons or interest orders for 
 
110 Federal Income Tax 
 
 collection, or otherwise, shall deduct and withhold the tax 
 and shall attach to such coupons or interest orders its own 
 certificate (Form 1002), giving the name and address of the 
 owner of, or the person presenting such coupons or interest 
 orders if the owner is not known, with a description of the 
 coupons or interest orders ; also setting forth the fact that 
 they are withholding the tax upon them; whereupon the 
 debtor shall not again withhold the tax on said coupons or in- 
 terest orders, but in lieu thereof shall deliver to the Collector 
 of Internal Revenue the certificate of such bank, trust com- 
 pany, etc., which is withholding such tax money. 
 
 Identity of Persons Presenting Interest Coupons to be 
 
 Established. 
 
 Any corporation, collecting agency, or person first receiv- 
 ing from the owner any interest coupons or orders for the 
 collection of registered interest should require the persons 
 tendering such coupons or orders for registered interest to 
 satisfactorily establish their identity. 
 
 Monthly and Annual List Returns. 
 
 Art. 53. Withholding agents receiving coupons or in- 
 terest orders not accompanied by certificates of owners are 
 required to file monthly and annual list returns in duplicate. 
 
 The required monthly list return (Form 1044) shall give 
 a list of all coupon or interest payments made on which the 
 normal tax of 1 per cent was deducted and withheld and 
 shall show the name and address in full of the owner of, or 
 the person presenting such coupons or interest orders, if the 
 owner is known, amount of the income subject to tax and 
 the amount of tax withheld. 
 
 An annual list return (Form 1044a) is also required to 
 be made by such withholding agents, showing the amount of 
 tav withheld during the preceding year on income of this 
 character. This return must be filed on or before the 1st 
 day of March of each calendar year. 
 
Income Tax Regulations 111 
 
 The monthly list returns in the form as required herein 
 shall constitute a part of the annual list return to be made, 
 and the withholding agent will not be required, in making 
 an annual list return of the tax thus withheld, to again make 
 an itemized list of the amount of tax withheld from each 
 person, but will give in the annual list return the totals of 
 the monthly list returns for the year for which annual list 
 return is made. 
 
 c 
 
 Income Deeived from Coupons, Checks oe Bills of Ex- 
 change on Foreign Bonds, Mortgages, Dividends, etc. 
 
 Collection of Coupons, Checks, Bills of Exchange, etc. License 
 to be Obtained from Commissioner of Internal Revenue. 
 
 Art. 54. All persons, firms, or corporations undertaking 
 for accommodation or profit (this includes handling either 
 by way of purchase or collection) the collection of coupons, 
 checks, bills of exchange, etc., for or in payment of interest 
 upon bonds issued in foreign countries, and upon foreign 
 mortgages or like obligations, and for any dividends upon 
 stock or interest upon obligations of foreign corporations, 
 associations, or insurance companies engaged in business in 
 foreign coimtries, are required by law to obtain a license 
 from the Commissioner of Internal Revenue. 
 
 Application for License to be Made to Collector of District. 
 
 Aet. 55. Application for such license (Form 1017) will 
 be made to the collector for the district in which such busi- 
 ness is to be carried on. Upon the acceptance of such ap- 
 plication the collector will issue to the applicant without cost 
 a license (Form 1010) which will continue in force until 
 revoked or canceled. Blank forms of such license, bearing 
 the facsimile signature of the Commissioner of Internal 
 Revenue, will be furnished collectors on requisition, who will 
 in all cases countersign the same before issuing it to appli- 
 cant. 
 
112 Federal Income Tax 
 
 Penalty for Failure to Obtain License. 
 
 Failure to obtain a license or to comply with regula- 
 tions is punishable by a fine not exceeding $5,000 or im- 
 prisonment not exceeding one year, or both, in the discretion 
 of the court. 
 
 Bond May be Required in Certain Cases. 
 
 Art. 56. Where the collector is not sufficiently informed 
 as to the entire responsibility of the applicant, or where in 
 any case he deems it advisable, the Commissioner of Internal 
 Revenue may upon the recommendation of the collector re- 
 quire of the applicant a bond, in duplicate, with satisfactory 
 sureties, in a penal sum at least equal to the estimated amount 
 of tax to be withheld by such applicant during any one year. 
 A form of bond to be given in such cases will be furnished 
 collectors on application for the same. Where licenses are 
 issued without bond, the collector will each year inquire into 
 and satisfy himself of the financial responsibility of the 
 licensee. 
 
 License to be Obtained for Branch Offices. Application for 
 License to be Certified to Collector of District in Which 
 Branch Offices Are Located. 
 
 Art. 57. When any person, firm, or corporation shall 
 have branch offices and desire to collect foreign interest or 
 dividend income through said branch offices, the application 
 for license or licenses shall be made by the person, firm, or 
 corporation through its principal office for its branch office 
 or offices. Application for licenses in such cases shall be 
 made to the collector of internal revenue for the district in 
 which the home office is located. The names and addresses of 
 the branch offices shall be furnished to the collector in the 
 application of the said principal, and if the requirements of 
 the foregoing regulations have been complied with to the sat- 
 isfaction of the collector, he shall certify this fact to the col- 
 lector of internal revenue for the district in which the 
 branch office is located, and the collector to whom this cer- 
 
Income Tax Regulations 113 
 
 tification is made shall issue to such branch office a license, 
 as in the case provided in Article 55. 
 
 Normal Tax on Interest Collected to be Withheld by Agent. 
 Statement as to Tax Withheld to be Indorsed or Appended 
 to Coupons, Checks, etc. 
 
 Art. 58. The licensed person, firm, or corporation first 
 receiving any such foreign items for collection or otherwise 
 shall withhold therefrom the normal tax of 1 per cent, and 
 will be held responsible therefor. Such licensee shall in- 
 dorse or stamp on each such coupon, check, or bill of ex- 
 change, when practicable, the words "Income tax withheld 
 by" (giving his or their name, address, and date), which 
 shall be sufficient evidence to relieve subsequent holders or 
 purchasers from the duty of also withholding the income 
 tax. 
 
 If the size or nature of such coupons, checks, etc., makes it 
 impracticable to make said indorsement thereon, a state- 
 ment identifying the item on which tax is withheld and bear- 
 ing said indorsement may be attached thereto with the same 
 effect as if the indorsement was made directly thereon. 
 (Amended T. D. 2023.) 
 
 Licensee to Furnish Collector of District with List of Taxes 
 Deducted, etc. 
 
 Aet. 59. Such licensee shall obtain the names and ad- 
 dresses of the persons from whom such items are received 
 and shall prepare a list of same in duplicate (on Form 1043) 
 and file it with the collector of internal revenue for his dis- 
 trict not later than the 20th day of the month next succeed- 
 ing the month in which such items were paid. The list shall 
 be dated, and shall contain the names and addresses of the 
 taxable persons, the character and amount of income, amount 
 of exemption claimed, amount of income on which with- 
 holding agent is liable for tax, and the amount of tax with- 
 held. In addition to the monthly lists the licensee will, on or 
 before the 1st day of March in each year, file with the col- 
 8 
 
114 Federal Income Tax 
 
 lector in duplicate a return (Form 1043a), showing tho 
 amount of income paid and the amount of tax withheld by 
 him during the preceding year and such other information 
 as the form prescribes. 
 
 The monthly list return in the form as required herein 
 shall constitute a part of the annual list return to be made 
 by the licensee as withholding agent, and he will not be re- 
 quired, in making an annual list return of the tax withheld 
 from income described in Article 54, to again make an item- 
 ized list of the amount of tax withheld from each person, 
 but will give in the annual list return the totals of the 
 monthly list return for each month of the year for which 
 annual list return is made. 
 
 Claims for Exemption Under Paragraph C May be Filed. 
 Organizations Exempt from Having Tax Withheld at the 
 Source. 
 
 Art. 60. In the event such coupons, checks, or bills of 
 exchange above mentioned are presented for collection by 
 an individual claiming the benefit of the exemptions allow- 
 able under paragraph C (Arts. 9 and 10), such individual 
 shall be permitted to avail himself of the exemption claimed, 
 upon signing on the form heretofore prescribed for cou- 
 pons payable in the United States, and no tax shall be de- 
 ducted for the amount of the exemption so claimed ; or if 
 such items are presented by corporations, joint-stock com- 
 panies, or associations and insurance companies, organized 
 in the United States, the form of certificate heretofore pre- 
 scribed for such organizations shall be used, and in such 
 instances no tax shall be deducted. 
 
 Certificates of Exemption to be Forwarded with Monthly 
 List Returns to Collector. 
 
 Art. 61. In both instances the licensee first receiving 
 such items shall retain such certificates for delivery with 
 the list aforesaid, and with respect to said coupons, checks, 
 or bills of exchange, said licensee shall attach thereto (iden- 
 
Income Tax Regulations 115 
 
 tifying the items) or indorse or stamp thereon the words 
 "Income tax exemption claimed through" (giving name 
 and address of licensee), which shall be sufficient evidence 
 to relieve subsequent holders or purchasers from the duty of 
 also withholding the tax thereon. 
 
 The provisions for collection of the tax on foreign obli- 
 gations herein set forth includes the interest upon all for- 
 eign bonds, even though the coupons may, at the option of 
 the holder, be payable in the United States as well as in 
 some foreign country. 
 
 Licensee to Keep Records. 
 Art. 62. All persons licensed shall keep their records in 
 such manner as to show from whom every such item has 
 been received, and such records shall be open at all times to 
 the inspection of internal revenue officers. 
 
 Income Derived from Wages, Rent, Interest, or Other 
 Fixed and Determinable Gains, Profits, and Income. 
 
 Wages, Salaries, Rents, etc. 
 
 Art. 63. The above title includes all income derived from 
 salaries, wages, rents, royalties, interest, taxable annuities, 
 emoluments, or other fixed and determinable annual gains, 
 profits, and income of another person. ("Income derived 
 from interest upon bonds and mortgages, or deeds of trust, 
 or other similar obligations of corporations, etc.," and "In- 
 come derived from coupons, checks, or bills of exchange on 
 foreign bonds, mortgages, dividends, etc.," which have been 
 covered by regulations under such titles, are not to be in- 
 cluded here.) 
 
 Withholding Agents to Deduct and Pay Tax. 
 Art. 64. Copartnerships, companies, corporations, joint- 
 stock companies or associations, insurance companies, in 
 whatever capacity acting, including lessees, mortgagors of 
 
116 Federal Income Tax 
 
 real or personal property, trustees acting in any trust capac- 
 ity, executors, administrators, agents, receivers, conservators, 
 employers and all officers and employees of the United States, 
 hereinafter referred to as "debtors" or withholding agents, 
 having the control, receipt, custody, disposal, or payment of 
 income as described in Article 63, shall deduct and withhold 
 from such annual gains, profit, and income, when the same 
 shall have reached an aggregate amount in excess of $3,000, 
 such sum as will be sufficient to pay the normal tax of 1 per 
 cent imposed by law, and shall pay the taxes so withheld to 
 the collector of internal revenue for the district in which the 
 said withholding agent resides or has his, her, or its principal 
 place of business. 
 
 Tax to be Withheld on Periodical Payments When They 
 Aggregate $8,000. Exemption Under Paragraph C May 
 be Claimed. 
 
 Art. 65. A withholding agent who pays monthly, or 
 periodically during the year, interest, rents, salaries, wages, 
 etc., shall not withhold the said tax until such time as the 
 interest, rents, salaries, wages, etc., shall have reached an 
 aggregate amount in excess of $3,000. When such amount 
 has been reached, such agent shall withhold the tax on the 
 whole $3,000 and any excess thereof, unless the person to 
 whom the income is due files a notice claiming exemption 
 under paragraph C (as provided in Art. 33 a), in which 
 case the withholding agent shall withhold only the tax on 
 the income in excess of said exemption of $3,000 or $4,000 
 (as the case may be), and the tax so withheld shall be paid 
 as required by law. 
 
 Deductions Under Paragraph B May be Claimed. 
 
 Art. 66. In case the person to whom the income is due 
 is entitled to any deductions under paragraph B, he may 
 avail himself of such deductions by filing with the withhold- 
 ing agent Form 1008, as provided in Articule 33(b), in which 
 
Income Tax Regulations 117 
 
 case the withholding agent will only withhold the tax on such 
 income in excess of the deductions claimed on said form. 
 
 Tax Not to be Withheld by Banks on Interest Paid on 
 Deposits. 
 
 Art. 67. Banks, bankers, trust companies, and other bank- 
 ing institutions receiving deposits of money, are not required 
 to withhold at the source the normal income tax of 1 per cent 
 on interest paid, or accrued, or accruing to depositors, whether 
 on open accounts or on certificates of deposit; but all such 
 interest, whether paid or accrued and unpaid, must be in- 
 cluded in the annual income return of the person entitled to 
 receive such interest, whether on open account or on the cer- 
 tificate of deposit. 
 
 Tax to be Withheld on Payment of Interest Notes, or Notes 
 Given for Rent. 
 Art. 68. When a note shall have been given in payment 
 of interest, rents, or other income accruing after March 1, 
 1913, the maker of the note, as the "debtor" and as the 
 "source" where the income originates, is required, in paying 
 such note, to withhold the normal tax of 1 per cent on the 
 entire amount of the note, if in excess of $3,000, unless claim 
 for exemption or deductions under Article 33(a) or 33(b) is 
 filed, in which case the said tax shall be withheld only on 
 the amount of said note in excess of the exemption or deduc- 
 tions so claimed. 
 
 Purchasers of Interest Notes as to Which Tax Has Not Been 
 
 Withheld. 
 If any person who has purchased or discounted any such 
 notes omitted, in acquiring them from previous holder, to 
 make a deduction or allowance for said tax, he can look for 
 relief only to the person from whom the notes were obtained, 
 as the "debtor," the maker of said notes, is required to deduct, 
 withhold, and pay to the collector of internal revenue the 
 amount of the normal tax of 1 per cent which may be due 
 thereon. 
 
118 Federal Income Tax 
 
 Annual List Return by Withholding Agents. 
 
 Art. 69. Withholding agents shall make an annual list 
 return (Form 1042), in duplicate, to the collector of internal 
 revenue for the district in which the withholding agent re- 
 sides or has his principal place of business on or before the 
 1st day of March in each year, showing the names and ad- 
 dresses of persons who have received incomes in excess of 
 $3,000, on which the normal tax of 1 per cent has been de- 
 ducted and withheld during the preceding year. This return 
 must be accompanied by all forms presented claiming ex- 
 emptions and deductions. 
 
 E 
 
 Fiduciaries. 
 
 (See T. D. 1943 and T. D. 1961.) 
 
 Guardians, etc., as Fiduciary Agents, to Deduct Tax. Notice 
 of Deduction to be Filed with Other Withholding Agents. 
 
 Art. 70. Guardians, trustees, executors, administrators, 
 agents, receivers, conservators, and all persons, corporations, 
 or associations acting in any fiduciary capacity, hereinafter 
 referred to as fiduciary agents, who hold in trust an estate 
 of another person or persons, shall be designated the "source" 
 for the purpose of collecting the income tax, and by filing 
 notice with other debtors or withholding agents said fiduciary 
 shall be exempt from having any income, due to them as such, 
 withheld for any income tax by any other debtor or withhold- 
 ing agent. Other debtors or withholding agents upon receipt 
 of such notice shall not withhold any part of such income 
 from said fiduciary and will not in such case be held liable 
 for normal tax of 1 per cent due thereon. The form of notice 
 to be filed with the debtor or withholding agent by fiduciary 
 will be on Form 1015. Where such exemption is not claimed, 
 notice thereof on Form 1019 should be filed with the with- 
 holding agent. 
 
Income Tax Regulations 119 
 
 Annual Return to be Made to the Collector of the District. 
 
 Art. 71. Fiduciaries shall, on or before March 1 of each 
 year, make and render a return of the income coming into 
 their custody or control and management from each trust or 
 estate when the annual interest of any beneficiary in said 
 trust or estate is in excess of $3,000. This return (Form 
 1041) must be filed with the collector for the district in which 
 the fiduciary resides or has his principal place of business, 
 and shall contain an itemized statement of the gross income 
 and deductions claimed. 
 
 Notice of failure to file return as required shall be served 
 upon the fiduciary. (See Art. 18.) 
 
 The entries on the first page of Form 1041 in column 
 headed "Amount of income paid or accrued to beneficiaries" 
 should not include their respective shares of income derived 
 from dividends on the stock or from the net earnings of cor- 
 porations, joint-stock companies, etc., subject to like tax or 
 the income on which the normal tax of 1 per cent has been 
 deducted and withheld at the source by the debtor or the prior 
 withholding agent, as these two items of income are treated 
 as deductions in determining the amount of income subject 
 to tax for which the fiduciary as withholding agent has to 
 account. 
 
 When the share of any beneficiary, therefore, in the amount 
 stated on line 3 of the first page of said return is in excess 
 of $3,000, return must be made. 
 
 Return to Include Only Income Accruing from Trust, 
 Unless Otherwise Authorized by Beneficiary. 
 
 Art. 72. As each such fiduciary acts solely in behalf of the 
 beneficiaries of the trust, the annual return required in such 
 cases has reference only to the income accruing and payable 
 through said fiduciary, and not to the income of the benefici- 
 ary derived from other sources. If, however, such fiduciary 
 is legally authorized to act for such beneficiary as agent or 
 attorney in fact, he may in such case also make for the bene- 
 ficiary the personal annual return (Form 1040) required 
 by law. 
 
120 Federal Income Tax 
 
 Annual Return to Include List of Beneficiaries, Showing 
 Tax Withheld from Each. 
 Aet. 73. The annual return of the fiduciary shall contain 
 a list of the name and full address of each beneficiary and 
 the share of said income to which each may be entitled. There 
 must also be entered opposite the name of each beneficiary 
 the amount of exemption, if any, claimed by him, the amount 
 of income on which the fiduciary is liable for tax, and the 
 amount of tax withheld, and the said return shall be signed 
 and sworn to by the fiduciary, if an individual, making 
 same, and his full address must be stated. If the fiduciary 
 is an organization, the return shall be signed and sworn to 
 by the president, secretary, or treasurer of said organization. 
 
 Return to be Made of Undistributed Income Accruing Dur- 
 ing the Year. Claim for Exemption of Undistributed In- 
 come. Paragraph C. 
 
 Aet. 74. Fiduciaries having control of any portion of an 
 annual income accruing during the year, but not distributed 
 or paid to the beneficiaries during the year, shall, in render- 
 ing their annual return (Form 1041), give the name and 
 address of each of said beneficiaries having a distributive 
 interest in said income, and shall furnish all information 
 called for in such returns. The fiduciary shall in all such 
 cases withhold and pay to the collector, as provided by law, 
 the normal tax of 1 per cent upon the distributive interest 
 of each of said beneficiaries when in excess of $3,000, the 
 same as if said income was actually distributed and paid. 
 Exemption under paragraph C, however, may be claimed by 
 the beneficiary or his legal representative by filing his claim 
 for exemption with the fiduciary agent. 
 
 Tax Withheld on Undivided Income Not to be Again 
 Withheld When Income is Distributed. 
 
 Aet. 75. When the normal tax on undivided annual net 
 income has been so withheld, such tax shall not be again 
 withheld when such portion of the income is actually distrib- 
 uted and paid to said beneficiary. 
 
PART 3 
 
 Relating to the Income Tax Imposed by Sections 2 and 
 4 of the Act of October 3, 1913, on Corpobations, 
 Joint-stock Companies or Associations, and Insur- 
 ance Companies. 
 
 Organizations Subject to Tax. One Per Cent on Entire Net 
 
 Income. 
 
 Art. 76. Under the provisions of sections 2 and 4 of the 
 act of October 3, 1913, every corporation, joint-stock com- 
 pany or association, and every insurance company organized 
 in the United States, no matter how created or organized, 
 except those specifically exempted, shall be subject to pay 
 annually an income tax of 1 per centum per annum upon the 
 entire net income arising or accruing from all sources during 
 the preceding calendar or fiscal year, as the case may be. 
 Certain exceptions as to taxability will be noted specifically 
 hereinafter. 
 
 Foreign Corporations Subject to the Tax. 
 
 Art. 77. A similar tax shall be levied, assessed against, 
 and paid annually by corporations, joint-stock companies or 
 associations, and insurance companies organized, authorized, 
 or existing under the laws of any foreign country upon the 
 amount of net income accruing from business transacted and 
 capital invested within the United States during such year. 
 
 Corporations Defined. 
 Art. 78. "Corporation" or "corporations," as used in these 
 Regulations, shall be construed to include all corporations, 
 joint-stock companies or associations, and all insurance com- 
 panies coming within the terms of the law, and such organi- 
 zations will hereinafter be referred to as "corporations." 
 
 Associations, Real Estate Trusts, Etc., Subject to Tax. 
 Art. 79. It is immaterial how such corporations are cre- 
 ated or organized. The terms "joint-stock companies" or 
 
122 Federal Income Tax 
 
 "associations" shall include associates, real estate trusts, or 
 by whatever name known, which carry on or do business in 
 an organized capacity, whether organized under and pursu- 
 ant to State laws, trust agreements, declarations of trusts, or 
 otherwise, the net income of which, if any, is distributed, or 
 distributable, among the members or share owners on the 
 basis of the capital stock which each holds, or, where there 
 is no capital stock, on the basis of the proportionate share of 
 capital which each has invested in the business or property 
 of the organization, all of which joint-stock companies or 
 associations shall, in their organized capacity, be subject to 
 the tax imposed by this act. 
 
 Corporations Required to Make Returns. Mutual Telephone 
 and Mutual Insurance Companies Not Exempt. 
 
 Art. 80. Every corporation not specifically enumerated as 
 exempt shall make the return of annual net income required 
 by law whether or not it may have any income liable to tax, 
 or whether or not it shall be subordinate to or controlled by 
 another corporation. Mutual telephone companies, mutual 
 insurance companies, and like organizations, although local 
 in character, and whose income consists largely from assess- 
 ments, dues, and fees paid by members, do not come within 
 the class of corporations specifically enumerated as exempt. 
 Their status under the law is not dependent upon whether 
 they are or are not organized for profit. Not coming within 
 the statutory exemption, all organizations of this character 
 will be required to make returns of annual net income, and 
 pay any income tax thereby shown to be due. For this pur- 
 pose the surplus of receipts of the year over expenses will 
 constitute the net income upon which the tax will be assessed. 
 
 A railroad or other corporation which has leased its prop- 
 erties in consideration of a rental equivalent to a certain rate 
 of dividends on its outstanding capital stock and the interest 
 on the bended indebtedness, and such rental is paid by the 
 lessee directly to the stock and bond holders, should, never- 
 
Income Tax Kegulations 123 
 
 theless, make a return of annual net income showing the 
 rental so paid as having been received by the corporation. 
 
 Interest Deduction by Corporations Operating Leased or 
 Purchased Lines. 
 
 Art. 81. A railroad company operating leased or pur- 
 chased lines shall include all receipts derived therefrom, and, 
 if bonded indebtedness of such lines has been assumed, such 
 operating company may deduct the interest paid thereon to 
 an amount not exceeding one-half of the sum of its interest- 
 bearing indebtedness and its paid-up capital stock outstand- 
 ing at the close of the year. 
 
 Lessee Corporations Not to Include Capital Stock or Indebt- 
 edness of Lessor Corporations. 
 
 Art. 82. Corporations operating leased lines should not 
 include the capital stock of the lessor corporations in their 
 own statement of capital stock outstanding at the close of the 
 year. The indebtedness of such lessor corporations should 
 not be included in the statement of the indebtedness of the 
 lessee unless the lessee has assumed the same. Each leased 
 or subsidiary company will make its own separate return, 
 accounting for therein all income which it may have received 
 by way of dividends, rentals, interest, or from any other 
 source. 
 
 Foreign Corporations Having Branch Offices in United 
 States to Designate Principal Office. 
 
 Art. 83. A foreign corporation having several branch 
 offices in the United States should designate one of such 
 branches as its principal office and should also designate the 
 proper officers to make the required return. 
 
 Corporations Organized During Year to Make Returns. 
 
 Art. 84. A corporation organized during the year should 
 render a sworn return on the prescribed form, covering that 
 portion of the year (calendar or fiscal) during which it was 
 engaged in business or had an income accruing to it. 
 
124 Federal Income Tax 
 
 Corporations Going Into Liquidation. 
 
 Art. 85. Corporations going into liquidation during any 
 tax period may, at the time of such liquidation, prepare a 
 "final return" covering the income received or accrued to 
 them during the fractional part of the year during which 
 they were engaged in business, and immediately file the same 
 with the collector of the district in which the corporations 
 have their principal places of business. 
 
 Limited Partnerships. 
 
 Art. 86. Limited partnerships are held to be corporations 
 within the meaning of this act and these regulations, and in 
 their organized capacity are subject to the Income Tax as 
 corporations. 
 
 Corporations Exempt from Tax. 
 
 Art. 87. The act specifically enumerates and exempts from 
 its provisions and requirements, labor, agricultural or horti- 
 cultural organizations, mutual savings banks not having a 
 capital stock represented by shares, fraternal beneficiary so- 
 cieties, orders, or associations operating under the lodge sys- 
 tem, or for the exclusive benefit of the members of a fra- 
 ternity itself operating under the lodge system, and provid- 
 ing for the payment of life, sick, accident, and other benefits 
 to the members of such societies, orders, or associations, and 
 dependents of such members, domestic building and loan 
 associations, cemetery companies organized and operated ex- 
 clusively for the mutual benefit of their members, any and 
 all corporations or associations organized and operated ex- 
 clusively for religious, charitable, scientific, or educational 
 purposes, no part of whose net income inures to the benefit 
 of any private stockholder or individual, business leagues, 
 chambers of commerce, or boards of trade not organized for 
 profit, no part of the net income of which inures to the benefit 
 of the private stockholder or individual, and civic leagues 
 or similar organizations not organized for profit, but operated 
 exclusively for the promotion of social welfare. 
 
Income Tax Regulations 125 
 
 Domestic Building and Loan Associations Defined. 
 Mutuality Essential. 
 
 Domestic building and loan associations are among those 
 enumerated as exempt from the requirements of the law. A 
 domestic building and loan association is held to be one or- 
 ganized under and pursuant to the laws of the United States, 
 or of a State or Territory thereof, or under the laws appli- 
 cable to Alaska or the District of Columbia. Mutuality in 
 operation and in the distribution of profits and benefits is 
 essential to exemption. Therefore, in order to come within 
 the exempted class such associations must not only be "Do- 
 mestic," as defined, but they must be organized and operated 
 exclusively for the mutual benefit of the members ; that is, 
 all the profits and benefits provided for in the articles of asso- 
 ciation and by-laws must be ratably distributed among all 
 members regardless of the kind of stock held, according to 
 the amount of money they have on deposit. An association 
 issuing different classes of stock upon which different rates 
 of interest or dividends are guaranteed or paid, does not come 
 within the exempted class. 
 
 Corporations Must Establish Their Right to Exemption. 
 
 Aet. 88. All corporations and all beneficiary societies 
 enumerated above shall, by affidavit, or otherwise, at the re- 
 quest of the Collector or Commissioner of Internal Revenue, 
 establish their right to the exemption provided, in which case 
 it will not be sufficient to merely declare that they are exempt, 
 but they must show the character and purpose of the organi- 
 zation, the manner of distributing the net income, if any, or 
 that none of the net income inures to the benefit of any pri- 
 vate stockholder or individual. In the absence of such a 
 showing, such organizations may, at any time, be required to 
 make returns of annual net income or disclose their books 
 of account to a revenue officer for examination in order that 
 the status of the company may be determined. 
 
126 Federal Income Tax 
 
 Society or Association Subject to Exemption Defined. 
 
 Aet. 89. A society or association "operating under the 
 lodge system" is considered to be one organized under a 
 charter, with properly appointed or elected officers, with an 
 adopted ritual or ceremonial, holding meetings at stated in- 
 tervals, and supported by fees, dues, or assessments. 
 
 Cemetery Companies Organized for Mutual Benefit of Their 
 Members, Exempt. 
 Aet. 90. Cemetery companies organized and operated ex- 
 clusively for the mutual benefit of their members are exempt. 
 The provisions of the law clearly indicate that companies 
 which operate cemeteries for profit are liable to the tax. The 
 status of cemetery associations under the law will, therefore, 
 depend upon the character and purpose of the organization 
 and what disposition is made of the income. 
 
 Corporations Whose Status as to Exemption is in Doubt Must 
 Make Return. 
 Aet. 91. Any corporation, concerning whose status under 
 the law there is any doubt, or which does not clearly come 
 within one or another of the classes of those specifically enu- 
 merated as exempt, should file a return (in blank if desired) 
 and attach thereto a statement setting out fully the nature 
 and purpose of the organization, the source of its income, and 
 what disposition is made of it, and particularly of any 
 surplus. 
 
 Cooperative Dairies Not Issuing Stock and Allowing Patrons 
 Dividends , Exempt. 
 Aet. 92. Cooperative dairies not issuing stock and allow- 
 ing patrons dividends based on butter-fat in milk furnished 
 are not liable. In such case the "dividends" are the purchase 
 price of the raw material furnished. 
 
 When Income from Public Utilities is Not Taxable. Persons 
 or Corporations Not Exempt. 
 Aet. 93. The income derived from any public utility or 
 from the exercise of any essential governmental function, 
 
Income Tax Regulations 127 
 
 which income accrues to any State, Territory, the District 
 of Columbia, or any political subdivision of a State, Terri- 
 tory, or the District of Columbia, and any income accruing 
 to the Government of the Philippine Islands, or to Porto 
 Rico, shall not be subject to. the tax imposed by this act. In 
 cases wherein any State, Territory, or the District of Colum- 
 bia, or any political subdivision of a State or Territory shall 
 have, prior to the passage of this act, contracted in good faith 
 with any person or corporation to acquire, construct, operate, 
 or maintain a public utility, no income tax pursuant to this 
 act shall be levied upon the income derived from the opera- 
 tion of such public utility, so far as the assessment and pay- 
 ment of such tax will impose a loss or burden upon such State, 
 Territory, District of Columbia, or political subdivision. But 
 the person or corporation is not relieved from the payment 
 of the tax upon that portion of the income accruing to him, 
 or it, under such contract. 
 
 Partnerships Not Taxable as Corporations. 
 
 Aet. 94. Ordinary copartnerships are not, as such, subject 
 to the tax imposed by this act, but the individual members of 
 any such partnership are liable for income tax only in their 
 individual capacity on their respective shares of the earnings 
 of such partnership, whether such earnings be distributed or 
 not. 
 
 What Constitutes Paid-up Capital Stock. 
 
 Aet. 95. Full amount of stock, as represented by the par 
 value of the shares issued, is to be regarded as the paid-up 
 capital stock, except when such stock is assessable on account 
 of deferred payments, or payable in installments, in which 
 case the amount actually paid on such shares will constitute 
 the actual paid-up capital stock of the corporation. 
 
 Gross Income, How Determined. 
 Aet. 96. The following definitions and rules are given for 
 determining the gross income of various classes of corpora- 
 tions : 
 
128 Federal Income Tax 
 
 Gross Income of Banks and Other Financial Institutions. 
 
 Gross income of banks and other financial institutions 
 consists of the total revenue derived from the operation of 
 the business, including income, gains, or profits from all 
 other sources, as shown by the entries on the books of account, 
 within the calendar or fiscal year for which the return is 
 made. 
 
 Gross Income of Insurance Companies. 
 
 Art. 97. Gross income of insurance companies consists of 
 the total revenue derived from the operation of the business, 
 including income, gains, or profits from all other sources, as 
 shown by the entries on the books of account within the cal- 
 endar or fiscal year for which the return is made, except as 
 modified by the express exemptions of the articles which 
 apply to mutual fire, mutual marine, and life insurance com- 
 panies. 
 
 Gross Income of Mutual Fire Insurance Companies. 
 
 Art. 98. Mutual fire insurance companies which require 
 their members to make premium deposits to provide for 
 losses and expenses shall not return as gross income any pro- 
 tion of the premium deposits returned to their policyholders, 
 but shall return as taxable income all income received by 
 them from all other sources plus such portions of the pre- 
 mium deposits as are retained by the companies for purposes 
 other than the payment of losses and expenses and reinsur- 
 ance reserves. 
 
 Mutual Marine Insurance Companies. 
 
 Art. 99. Mutual marine insurance companies may in- 
 clude in their deductions from gross income amounts repaid 
 to policyholders on account of premiums previously paid by 
 them and interest paid upon such amounts between the ascer- 
 tainment thereof and the payment thereof, such amounts and 
 interest having been included in gross income. 
 
Income Tax Regulations 129 
 
 Deferred Dividends Deductible, When. 
 
 Aet. 100. Life insurance companies are authorized to 
 omit from gross income such portion of any actual premium 
 received from any individual policyholder as shall have been 
 paid back or credited to the policyholder or treated as an 
 abatement of his premium. In so far as "deferred divi- 
 dends" payable at a stated period represent "a portion of 
 any actual premium received," such deferred dividends may 
 be included in the amounts to be omitted from gross income 
 for the year in which they were actually paid back, credited 
 to the policyholder, or applied as an abatement of premium. 
 In the case of dividends credited or apportioned annually 
 to the policyholder, only the aggregate amount so actually 
 credited or apportioned during the premium-paying period, 
 and not any accretions thereto, can be excluded from gross 
 income. In the case of whole-life or five-year distribution 
 policies, deferred dividends may be excluded from gross in- 
 come to the extent that they are paid back, or credited to the 
 insured, or used as an abatement of his annual premiums. 
 
 Gross Income of Insurance Companies, to Include What. 
 
 Art. 101. Gross income of insurance companies, as de- 
 fined above, will include net premium income as reported to 
 the State insurance departments, except the foregoing items 
 specifically exempted in the act, and, in the case of life in- 
 surance companies, surrender values applied in any manner, 
 consideration for supplementary contracts involving and not 
 involving life contingencies, and all other income, gains, or 
 profit as shown by the books of account. 
 
 Consideration for Supplementary Contracts. 
 
 Art. 102. Applied surrender values and consideration for 
 supplementary contracts not involving life contingencies in- 
 cluded in income will, of course, be deducted as payments 
 under policy contracts, but for convenience in verifying the 
 returns these items should appear in the return in both gross 
 income and deductions. 
 9 
 
130 Federal Income Tax 
 
 Supplementary Statement to Accompany Returns. 
 
 Art. 103. All insurance companies should include and 
 attach to their returns a supplementary statement showing, 
 for life companies, the aggregate of items "of such portion 
 of any actual premium received from any individual policy- 
 holder as shall have heen paid back or credited to such in- 
 dividual policyholder, or treated as an abatement of pre- 
 mium of such individual policyholder within such year"; in 
 the case of mutual fire insurance companies a statement show- 
 ing "any portion of the premium deposits returned to their 
 policyholders" ; and in the case of mutual marine companies 
 "amounts repaid to policyholders on account of premiums 
 previously paid by them, and interest paid upon such amounts 
 between the ascertainment thereof and the payment thereof," 
 which are, or may be, omitted from gross income. (For 
 authorized deductions, on account of losses, etc., see Arts. 
 113 and 147.) 
 
 Gross Income of Manufacturing Companies. 
 
 Art. 104. Gross income of manufacturing companies shall 
 consist of the total sales of manufactured goods during the 
 year covered by the return, increased or decreased by the 
 gain or loss as shown by the inventories of finished and un- 
 finished products, raw material, etc., at the beginning and 
 end of the year. To this amount should be added the income, 
 gains, or profits from all other sources as shown by the books 
 of account. 
 
 Gross Income of Mercantile Corporations. 
 
 Art. 105. Gross income of mercantile companies shall in- 
 clude the total merchandise sales during the year, increased 
 or decreased by the gain or loss as shown by the inventories 
 of merchandise at the beginning and end of the year for 
 which the return is made; to this amount should be added 
 the income, gains, or profits derived from all other sources 
 as shown by the books of account. 
 
Income Tax Keguxations 131 
 
 Gross Income of Miscellaneous Companies. 
 
 Art. 106. Gross income of miscellaneous corporations con- 
 sists of the total revenue derived from the operation and 
 management of the business and property of the corporation 
 making the return, together with all amounts of income, in- 
 cluding the income, gains, or profits from all other sources 
 as shown by the books of account. 
 
 Definition of Gross Income. 
 
 Art. 107. It will be noted from these definitions that the 
 gross income embraces not only the operating revenues, but 
 also income, gains, or profits from all other sources, such as 
 rentals, royalties, interest, and dividends from stock owned 
 in other corporations, and appreciation in values of assets, 
 if taken up on the books of account as gain ; also profits made 
 from the sale of assets, investments, etc. 
 
 Income Derived from Sale of Capital Assets. 
 
 Art. 108. For the purpose of determining the income re- 
 sulting from the sale of capital assets and the amount to be 
 accounted for as income under this act, there shall be in- 
 cluded any and all profit resulting from such sale and which 
 may be apportioned to the period during which the Corpora- 
 tion Tax Law (sec. 38, act of August 5, 1909) was in force 
 and effect, which was not returned as income during that 
 period. 
 
 Ascertaining Net Income from the Sale of Capital Assets. 
 
 Art. 109. In ascertaining net income derived from the 
 sale of capital assets, if such assets were acquired subsequent 
 to January 1, 1909, the difference between the selling price 
 and the buying price shall constitute an item to be added to 
 or subtracted from gross income according to whether the 
 selling price was greater or less than the buying price. If 
 the capital assets were acquired prior to January 1, 1909, 
 the amount of profit or loss representing the difference be- 
 tween the selling and buying price is to be prorated to de- 
 
132 Federal Income Tax 
 
 termine the proportion of the gain or loss arising subsequent 
 to January 1, 1909, and the proportionate part belonging 
 to the years subsequent to January 1, 1909, shall be added 
 to or deducted from the gross income for the year in which 
 the sale was made. 
 
 Profit or Loss Arising from the Sale of Such Assets. 
 
 Art. 110. For the purpose of determining the profit or 
 loss arising from the sale of such assets, there shall be added 
 to the price actually realized from the sale any amount which 
 has heretofore been set aside and deducted from gross income 
 by way of depreciation since January 1, 1909, which has 
 not been paid out in making good such depreciation on the 
 property sold. (Amended T. D. 2077.) 
 
 Changes in Book Value of Assets. 
 
 Akt. 111. In the case of changes in book values of capital 
 assets resulting from a reappraisal of property, the conse- 
 quent gains or losses shall be computed for the return in the 
 manner prescribed above in the case of the sale of capital 
 assets. 
 
 Result of Annual Adjustment of Values to be Shown in 
 
 Return. 
 
 In cases wherein there is an annual adjustment of book 
 values of securities, real estate and like assets, and the in- 
 creases and decreases in values, thus indicated, are taken up 
 on the books and reflected in the profit and loss account, such 
 readjusted values will be taken into account in making the 
 return of annual net income, and no prorating will be re- 
 quired. If such adjustment had been made annually prior 
 to March 1, 1913, the book value of the assets at that date 
 will be taken as the basis for determining gain or loss re- 
 sulting from subsequent sale, maturity, or adjustment. The 
 adjustment referred to will comprehend assets which have 
 increased in value as well as those which have decreased. 
 
Income Tax Regulations 133 
 
 Where Corporations Are Engaged in More Than One Class 
 
 of Business. 
 
 Akt. 112. Where a corporation is engaged in carrying on 
 more than one class of business, gross income derived from 
 the different classes of business shall be ascertained accord- 
 ing to the definitions above, and which are applicable thereto. 
 
 Net Income, How Ascertained. 
 
 Art. 113. The net income shall be ascertained by deduct- 
 ing from the gross amount of the income of such corporation 
 received within the year from all sources : 
 
 Ordinary and Necessary Expenses. 
 
 First. All the ordinary and necessary expenses paid 
 within the year in the maintenance and operation of its busi- 
 ness and properties, including rentals or other payments 
 required to be made as a condition to the continued use or 
 possession of property. 
 
 Loss Sustained Within the Year. Depreciation. 
 
 Second. All losses actually sustained within the year and 
 not compensated by insurance or otherwise, including a rea- 
 sonable allowance for depreciation by use, wear and tear of 
 property, if any, and in the case of mines, a reasonable allow- 
 ance for depletion of ores and all natural deposits, not to 
 exceed 5 per centum of the gross value at the mine of the 
 output for the year for which the computation is made ; and 
 in the case of insurance companies, the net addition, if any, 
 required by law to be made within the year to reserve funds, 
 and the sums other than dividends paid within the year on 
 policy and annuity contracts, except as provided in the cases 
 of mutual fire, mutual marine, and life insurance companies. 
 
 Interest Accrued and Paid Within the Year. 
 
 Third. The amount of interest accrued and paid within 
 the year on its indebtedness to an amount of such indebted- 
 ness not exceeding one-half of the sum of its interest-bearing 
 
134 Federal Income Tax 
 
 indebtedness and its paid-up capital stock outstanding at the 
 close of the year, or if no capital stock, on the amount of its 
 indebtedness not exceeding the amount of capital employed 
 in the business at the close of the year. 
 
 Interest on Indebtedness Secured by Collateral. 
 
 Provided, That in case of indebtedness wholly secured by 
 collateral the subject of sale in ordinary business of such 
 corporation, joint-stock company, or association, the total 
 interest secured and paid by such company, corporation, or 
 association within the year on any such indebtedness may 
 be deducted as a part of its expense of doing business. 
 
 Tax Paid on Guaranteed Bonds Not Deductible. 
 
 Provided further, That in the case of bonds or other in- 
 debtedness, which have been issued with a guaranty that the 
 interest payable thereon shall be free from taxation, no de- 
 duction for the payment of the tax herein imposed shall be 
 allowed ; and in the case of a bank, banking association, loan 
 or trust company, interest paid within the year on deposits 
 or on moneys received for investment and secured by in- 
 terest-bearing certificates of indebtedness issued by such bank, 
 banking association, loan or trust company. 
 
 Taxes Paid Within the Year. 
 
 Fourth. All sums paid within the year for taxes imposed 
 under the authority of the United States, or any State or 
 Territory thereof, or imposed by the government of any 
 foreign country. 
 
 General Expenses. 
 
 Art. 114. Expenses of operation and maintenance shall 
 include all expenditures for material, labor, fuel, and other 
 items entering into the cost of the goods sold or inventoried 
 at the end of the year, and all other expenses incurred in 
 the operation of the business except such as are required by 
 the act to be segregated in the return. 
 
Income Tax Regulations 135 
 
 Cost of Buildings on Leased Grounds. 
 Art. 115. The cost of erecting permanent buildings on 
 ground leased by a company is a proper deduction as a rental 
 charge, provided such buildings are left on the ground at 
 the expiration of the lease as a part of the rental payment. 
 In such case the cost will be prorated according to the num- 
 ber of years constituting the term of the lease and the annual 
 deduction will be made accordingly. 
 
 Expense, Foreign Steamship Companies. 
 
 Art. 116. General expenses, such as coal, ship stores, etc., 
 of foreign steamship companies, shall be prorated as pro- 
 vided in the act for interest deductions in the case of foreign 
 corporations. 
 
 Commissions to Salesmen Paid in Stock. 
 
 Art. 117. Commissions allowed salesmen, paid in stock, 
 may be deducted as expense if so charged on books at the 
 actual value of such stock. 
 
 Additions and Betterments. 
 
 Art. 118. Amounts expended in additions and betterments 
 which constitute an increase in capital investment are not a 
 proper deduction. 
 
 Compensation Based on Stockholding Not Deductible. 
 
 Art. 119. Amounts paid as compensation or additional 
 compensation to officers or employees, which amounts are 
 based upon the stockholdings of such officers or employees, 
 are held to be dividends, and although paid in lieu of salaries 
 or wages, are not allowable deductions from gross income, 
 for the reason that dividends are not deductible. 
 
 Gifts, Pensions, or Gratuities Not Deductible. 
 
 Art. 120. Amounts paid for pensions to retired employ- 
 ees, or to their families, or others dependent upon them, or 
 on account of injuries received by employees, are proper 
 deductions as "ordinary and necessary expenses" ; gifts or 
 
136 Federal Income Tax 
 
 gratuities to employees in the service of a corporation are 
 not properly deductible in ascertaining net income. 
 
 Donations Which Are Deductible. 
 Aet. 121. Donations made for purposes connected with 
 the operation of the property when limited to charitable in- 
 stitutions, hospitals, or educational institutions, conducted 
 for the benefit of its employees, or their dependents, shall 
 be a proper deduction for ordinary and necessary expenses. 
 
 Reserves for Insurance. 
 Art. 122. Funds set aside by a corporation for insuring 
 its own property are not a proper deduction, but any loss 
 actually sustained and charged to such fund may be deducted. 
 
 Materials and Supplies. 
 Art. 123. In ascertaining expenses proper to be included 
 in the deductions to be made under the item of "Expenses," 
 corporations carrying materials and supplies on hand for 
 use should include in such expenses the charges for materials 
 and supplies only to the amount that the same are actually 
 disbursed and used in operation and maintenance during the 
 year for which the return is made. 
 
 Losses Sustained During the Year. 
 
 Art. 124. The deduction for losses must be losses actu- 
 ally sustained during the year and not compensated by in- 
 surance or otherwise. It must be based upon the difference 
 between the cost value and salvage value of property or assets, 
 including in the latter value such amount, if any, as has, in 
 the current or previous years, been set aside and deducted 
 from gross income by way of depreciation, as elsewhere de- 
 fined, and has not been paid out in making good such depre- 
 ciation. 
 
 Bad Debts Charged Off. 
 
 Art. 125. Bad debts, if so charged off the company's 
 books, during the year, are proper deductions. But such 
 debts, if subsequently collected, must be treated as income. 
 
Income Tax Regulations 137 
 
 Reserves Not Deductible. 
 Art. 126. Reserves to take care of anticipated or probable 
 losses are not a proper deduction from gross income. 
 
 Loss Due to Removal of Buildings. 
 
 Art. 127. Loss due to voluntary removal of buildings, etc., 
 incident to improvements is either a proper charge to the 
 cost of new additions or to depreciation already provided, 
 as the facts may indicate, but in no case is it a proper de- 
 duction in determining net income, except as it may be re- 
 flected in the reasonable amount allowable as a deduction 
 for depreciation of the new building. Any loss claimed be- 
 cause of the voluntary removal of a building is presumed to 
 have been covered by previous depreciation charges ; other- 
 wise the amount of such loss will constitute a part of the 
 cost of the new building. 
 
 Losses from Sale of Capital Assets. 
 
 Art. 128. All losses claimed arising from sale of capital 
 assets should be arrived at in the manner prescribed in 
 Article 109, defining gains arising from sale of capital assets. 
 
 Depreciation Defined. Depreciation, How Determined. 
 
 Art. 129. The deduction for depreciation should be the 
 estimated amount of the loss, accrued during the year to 
 which the return relates, in the value of the property in re- 
 spect of which such deduction is claimed, that arises from 
 exhaustion, wear and tear, or obsolescence out of the uses 
 to which the property is put, and which loss has not been 
 made good by payments for ordinary maintenance and re- 
 pairs deducted under the heading of expenses of mainte- 
 nance and operation. This estimate should be formed upon 
 the assumed life of the property, its cost, and its use. Ex- 
 penses paid in any one year in making good exhaustion, wear 
 and tear, or obsolescence in respect of which any deduction 
 for depreciation is claimed must not be included in the de- 
 duction for expense of maintenance and operation of the 
 
138 Federal Income Tax 
 
 property, but must be made out of accumulated allowances, 
 deducted for depreciation in current and previous years. 
 
 Depreciation Deductible, How Treated. 
 
 Art. 130. The depreciation allowance, to be deductible, 
 must be, as nearly as possible, the measure of the loss duo 
 to wear and tear, exhaustion, and obsolescence, and should 
 be so entered on the books as to constitute a liability against 
 the assets of the company, and must be reflected in the an- 
 nual balance sheet of the company. The annual allowance 
 deductible on this account should be such an amount as that 
 the aggregate of the annual allowances deducted during the 
 life of the property with respect to which it is claimed will 
 not, when the property is worn out, exhausted, or obsolete, 
 exceed its original cost. 
 
 Incidental Repairs. 
 
 Art. 131. Incidental repairs which neither add to the 
 value of the property nor appreciably prolong its life, but 
 keep it in an operating condition, may be deducted as ex- 
 penses. 
 
 Depreciation Reserve. 
 
 Art. 132. Depreciation set up on the books and deducted 
 from gross income cannot be used for any purpose other than 
 making good the loss sustained by reason of the wear and 
 tear, exhaustion, or obsolescence of the property with respect 
 to which it was claimed. If it develops that an amount has 
 been reserved or deducted in excess of the loss by deprecia- 
 tion, the excess shall be restored to income and so accounted 
 for. 
 
 Diversion of Depreciation Reserve. 
 
 Art. 133. If any portion of the depreciation set up is 
 diverted to any purpose other than making good the loss sus- 
 tained by reason of depreciation, the income account for the 
 year in which such diversion takes place must be correspond- 
 ingly increased. 
 
Income Tax Regulations 139 
 
 Shrinkage in Booh Values. 
 
 Art. 134. Depreciation in book values of capital assets 
 shall be treated in the return in the manner prescribed in the 
 case of loss from the sale of capital assets (Art. 109), but 
 amounts arbitrarily charged off will not be allowed as deduce 
 tions except so far as they represent an actual shrinkage in 
 values which may be determined to have taken place during 
 the year for which the return is made. 
 
 Amortization of Bonds. Loss to Be Prorated. 
 
 Aet. 135. Where a corporation holds bonds which were 
 purchased at a rate above par and said corporation shall pro- 
 portionately reduce the value of those bonds on its books 
 each year so that the book value shall be the redemption value 
 of the bonds when such bonds become due and payable, the 
 return of annual net income of the corporation holding such 
 bonds may show the depreciation on account of amortization 
 of such bonds. The requirement is, however, that the amount 
 carried to the amortization account each year shall be equi- 
 tably proportioned with respect to the difference between the 
 purchase price and the maturing value and the number of 
 years to elapse until the bonds become due and payable. With 
 respect to bond issues where such bonds are disposed of for 
 a price less than par and are redeemable at par, it is also 
 held that because of the fact that such bonds must be re- 
 deemed at their face value, the loss sustained by reason of 
 their sale for less than their face value may be prorated by 
 the issuing corporation in accordance with the life of the 
 bond. (Amended 2005, 2130, 2161.) 
 
 Good Will. 
 
 Aet. 136. "Good will" represents the value attached to a 
 business over and above the value of the physical property, 
 and is such an entirely intangible asset that no claim for 
 depreciation in connection therewith can be allowed. 
 
 Aet. 137. An allowance for depreciation of patents will 
 be made on the following basis : 
 
140 Federal Income Tax 
 
 Depreciation on Patents. How Determined. 
 
 The deduction claimed for exhaustion of the capital assets 
 as represented by patents to be made in the return of annual 
 net income of a corporation for any given year shall be one- 
 seventeenth of the actual cost of such patents reduced to a 
 cash basis. Where the patent has been secured from the 
 Government by a corporation itself, its cost would be repre- 
 sented by the various Government fees, cost of drawings, ex- 
 perimental models, attorneys' fees, etc. Where the patent 
 has been purchased by the corporation for a cash considera- 
 tion, the amount would represent the cost. Where the cor- 
 poration has purchased a patent and made payment therefor 
 in stocks or other securities, the actual cash value of such 
 stocks or other securities at the time of the purchase will 
 represent the cost of the patent to the corporation. 
 
 Deduction in Case of Obsolescence of Patents. 
 
 Art. 138. With respect to the depreciation of patents, one- 
 seventeenth of the cost is allowable as a proper deduction 
 each year until the cost of the patent has been returned to the 
 corporation. Where the value of a patent has disappeared 
 through obsolescence or any other cause and the fact has been 
 established that the patent is valueless, the unreturned cash 
 investment remaining in the patent may be claimed as a 
 total loss and be deducted from gross income in the return 
 of annual net income for the year during which the facts as 
 to obsolescence or loss shall be established, such unreturned 
 cash value to be fixed in accordance with the proportion that 
 the number of years which the patent still has to run bears 
 to the full patent period of 17 years. 
 
 Depi-eciation of Timber Land. 
 
 Art. 139. Corporations owning tracts of timber lands and 
 removing therefrom and selling or otherwise disposing of 
 the timber will be permitted to deduct from their gross in- 
 come on account of depreciation or depletion an amount rep- 
 resenting the original cost of such timber, plus any carrying 
 
Income Tax Regulations 141 
 
 charges that may have been capitalized or not deducted from 
 income. The purpose of the depreciation or depletion deduc- 
 tion is to secure to the corporation, when the timber has been 
 exhausted, an aggregate amount which, plus the salvage value 
 of the land, will equal the capital actually invested in such 
 timber and land. 
 
 Deductions to Cease, When. 
 
 Aet. 140. When an amount sufficient to return this capi- 
 tal has been secured through annual depreciation deductions 
 no further deduction on this account shall be allowed. For 
 the purpose of increasing the deduction on this account no 
 arbitrary increase in values shall be made, unless such in- 
 crease in value shall be returned as income for the year in 
 which the increase in value was taken up on the books. 
 
 Depreciation of Natural Deposits. 
 
 Aet. 141. The depreciation of coal, iron, oil, gas, and all 
 other natural deposits must be based upon the actual cost 
 of the properties containing such deposits. In no case shall 
 the annual deduction on this account exceed 5 per cent of 
 the gross value at the mine (well, etc.) of the output for the 
 year for which the computation is made. 
 
 Definition of "Gross Value" at the Mine. 
 
 Aet. 142. The term "gross value at the mine," as used in 
 paragraphs B and G of section 2 of the act of October 3, 
 1913, prescribing a limit to the amount which may be de- 
 ducted in the return of individuals and corporations as de- 
 preciation in the case of mines, is held to mean the market 
 value of ore, coal, crude oil, and gas at the mine or well, 
 where such value is established by actual sales at the mine or 
 well ; and in case the market value of the product of the mine 
 or well is established at some place other than at the mine 
 or well, or on the basis of the bullion or metallic value of the 
 ore, then the gross value at the mine is held to be the value 
 of the ore, coal, oil, or gas sold, or of the metal produced, 
 less transportation, reduction, and smelting charges. 
 
142 Federal Income Tax 
 
 Rate of Deduction to Be Reduced, When. 
 
 If the rate of 5 per cent per annum shall return to the cor- 
 poration its capital investment prior to the exhaustion of the 
 deposits, the rate on which the annual deduction for deple- 
 tion of deposits is based must be lowered in accordance with 
 the estimated number of years it will take to exhaust the 
 estimated reserves. 
 
 Deduction to Cease, When. 
 
 In case the reserves shall be in excess of the estimates, no 
 further deduction on account of depletion shall be made where 
 the capital investment has been returned to the corporation. 
 
 Depreciation of Plant, etc. 
 
 Art. 143. In addition to the deduction to measure the loss 
 due to depletion, the corporation will be allowed the usual 
 depreciation of its machinery, equipment, etc., such depre- 
 ciation to be determined on the basis of the cost and esti- 
 mated life of the property with respect to which the depre- 
 ciation is claimed. 
 
 Corporatioixs Leasing Oil or Gas. 
 
 Aet. 144. Corporations leasing oil or gas territory shall 
 base their depletion deduction upon the cost of the lease, and 
 not upon the estimated value, in place, of the oil or gas. 
 
 Corporations Operating Mines. 
 Aet. 145. Corporations operating mines (including oil or 
 gas wells) upon a royalty basis only cannot claim deprecia- 
 tion because of the exhaustion of the deposits. 
 
 Unearned Increment. 
 Aet. 146. Unearned increment will not be considered in 
 fixing the value on which depreciation shall be based. 
 
 Deduction of Losses, Depreciation, Payments on Policy 
 Contracts by Insurance Companies. 
 Aet. 147. (a) Under item 5 (a) of the return form, the 
 insurance company may take credit for all losses actually 
 
Income Tax Regulations 143 
 
 sustained during the year and not compensated by insurance 
 or otherwise, including losses resulting from the sale or ma- 
 turity of securities or other assets, as well as decreases by 
 adjustment of book values of securities, in so far as such de- 
 creases represent actual declines in values which have taken 
 place during the year for which the return is made; also 
 losses from agency balances, or other accounts, charged off as 
 worthless ; losses by defalcation ; premium notes voided by 
 lapse, when such notes shall have been included in gross in- 
 come. This item will not, however, include payments on 
 policy contracts. 
 
 Losses by Shrinkage in Value of Property. 
 
 (b) In this item may be deducted actual losses sustained 
 within the year by reason of the depreciation of property, 
 which shall have been so entered on the books of the com- 
 pany as to constitute a liability against its assets. An arbi- 
 trary depreciation deduction claimed in the return, but not 
 evidenced by book entry, cannot be allowed. 
 
 Policy Contracts Paid. Losses Incurred and Unpaid Not 
 
 Deductible. 
 
 (c) In this item credit will be taken for all death, dis- 
 ability, or other policy claims, including fire, accident, and 
 liability losses, matured endowments, annuities, payments on 
 installment policies, surrender values, and all claims actually 
 paid under the terms of policy contracts. Salvage need not 
 be included in gross income if deducted in ascertaining the 
 net amount paid for losses under policy contracts. Reserves 
 covering liabilities for losses incurred, reported, resisted, ad- 
 justed or unadjusted but not paid, cannot be deducted from 
 gross income under this or any other item of the return. 
 
 Additions to Reserves Required by Law, How Determined. 
 
 (d) The reserve funds of insurance companies to be con- 
 sidered in computing the deductible net addition to reserve 
 funds are held to include only the reinsurance reserve and 
 
144 Federal Income Tax 
 
 the reserve for supplementary contracts required by law in 
 the case of life insurance companies, the unearned premium 
 reserves required by law in the case of fire, marine, accident, 
 liability, and other insurance companies, and only such other 
 reserves as are specifically required by the statutes of a State 
 within which the company making the return is doing busi- 
 ness. The reserves used in computing the net addition must 
 not include the reserve on any policies the premiums on 
 which have not been accounted for in gross income. For the 
 purpose of this deduction, the net addition is the excess of 
 the reserve at the end of the year over that at the beginning 
 of the year and may be based upon the highest authorized 
 reserve required by any State in which the company making 
 the return does business. 
 
 Assessment Company Reserves. 
 
 In the case of assessment insurance companies, the actual 
 deposits of sums with the State or Territorial officers pursu- 
 ant to law, as additions to guaranty or reserve funds, shall 
 be treated as payments required by law to reserve funds. 
 
 Mutual marine insurance companies will deduct under 
 item 5(e) amounts repaid to policyholders on account of pre- 
 miums previously paid by them and interest paid upon such 
 amounts between the ascertainment thereof and the payment 
 thereof. 
 
 What Constitutes Allowable Interest Deduction. 
 Art. 148. The amount of interest accrued and paid within 
 the year by a corporation on an amount of bonded or other 
 indebtedness not in excess of one-half of the sum of the in- 
 terest-bearing indebtedness and the paid-up capital stock out- 
 standing at the close of the year, or, if no capital stock, on 
 the amount of interest-bearing indebtedness not exceeding 
 the amount of capital employed in the business at the close 
 of the year, constitutes an allowable deduction ; that is, the 
 maximum principal, upon which interest for the purpose of 
 this deduction can be computed, must not exceed, in the one 
 case, one-half of the sum of the interest-bearing indebtedness 
 
Income Tax Regulations 145 
 
 and the capital stock outstanding at the close of the year, 
 or, in the other case, must not exceed the amount of capital 
 employed in the business at the close of the year. The in- 
 terest to be deductible must have been computed on the proper 
 principal at the contract rate and must have been actually 
 paid within the year. 
 
 Interest Paid as Rental Deductible. Interest on Mortgage 
 on Real Estate in Which Corporation Has Equity Not 
 Deductible. 
 
 Interest paid pursuant to contract on an indebtedness se- 
 cured by mortgage on real estate occupied and used by a cor- 
 poration, in which real estate the corporation has no equity or 
 to which it is not taking title is an allowable deduction from 
 gross income as a rental charge, payment of which is required 
 to be made as a condition to the continued use and possession 
 of the property. If, however, the corporation has an equity 
 in or is purchasing for its own use the real estate upon which 
 such mortgage is a prior lien, the indebtedness will be held 
 to be indebtedness of the corporation within the meaning of 
 the law, and the interest paid on such mortgage will be de- 
 ductible only to the extent that it, with interest on other 
 obligations of the corporation, is within the limit fixed by the 
 act. 
 
 Banks and Banking Associations. 
 
 Art. 149. In the case of banks and banking associations, 
 loan or trust companies, interest paid within the year on 
 deposits, or on moneys received for investment and secured 
 by interest-bearing certificates of indebtedness issued by such 
 bank, banking association, loan or trust company, may be 
 allowably deducted from the gross income of such corpora- 
 tions. 
 
 Interest Paid on Indebtedness. 
 
 Art. 150. Interest paid on indebtedness, wholly secured 
 by collateral the subject of sale in ordinary business of such 
 corporations, is also deductible to the full amount of such 
 10 
 
146 Federal Income Tax 
 
 interest paid. This contemplates that the entire interest re- 
 ceived on the collateral securing such indebtedness shall be 
 included in the gross income returned. 
 
 Different Rates of Interest. 
 
 Art. 151. Interest on bonded or other indebtedness bear- 
 ing different rates of interest may be deducted from gross 
 income during the year, provided the aggregate amount of 
 such indebtedness on which the interest is paid does not ex- 
 ceed the limit prescribed by law, and in case the indebted- 
 ness is in excess of the amount on which interest may be 
 legally deducted the indebtedness bearing the highest rate 
 may be first considered in computing the interest deduction, 
 and the balance, if any, will be computed upon the indebted- 
 ness bearing the next lower rate actually paid, and so on 
 until interest on the maximum principal allowed has been 
 
 ^ ' Taxes Deductible. 
 
 Art. 152. All sums paid within the year for taxes imposed 
 under the authority of the United States or of any State or 
 Territory thereof, or imposed by the government of any 
 foreign country, are deductible from gross income. 
 
 Taxes Not Deductible. 
 
 Art. 153. Taxes paid for local benefits are not deductible. 
 Taxes paid by a corporation pursuant to a contract guaran- 
 teeing that the interest payable on its bonds or other indebt- 
 edness shall be free from taxation are not deductible. 
 
 Tax on Capital Stock of Banks. 
 
 Art. 154. Banks paying taxes assessed against their stock- 
 holders because of their ownership of the shares of stock is- 
 sued by such banks cannot deduct the amount of taxes so 
 paid in making their return for the income tax imposed by 
 this act unless specially authorized to do so by the laws of 
 the State in which they do business. The shares of stock are 
 the property of the stockholders, and such holders are pri- 
 marily liable for the tax. 
 
Income Tax Regulations 147 
 
 Import Duties. 
 
 Art. 155. Import duties or taxes are not deductible under 
 the item of taxes paid during the year, but should be included 
 in arriving at the cost of goods under item No. 4 (expenses). 
 
 Reserves for Taxes. 
 
 Art. 156. Reserves for taxes cannot be allowed, as the law 
 specifically provides that only such sums as are paid within 
 the year for taxes shall be deducted. 
 
 Foreign Corporations Subject to Tax. Deductions Confined 
 to Expenses of Business Done in the United States. 
 
 Aet. 157. Foreign corporations shall be subject to the 
 normal tax of 1 per cent computed upon the net income re- 
 ceived by or accruing to such corporations from business 
 transacted and capital invested in this country. For the 
 purpose of the tax the net income of such foreign organiza- 
 tions shall be ascertained by deducting from the gross income 
 arising, received, or accruing from business done and capital 
 invested in this country the deductions enumerated in the 
 act, which deductions shall be limited to expenditures or 
 charges actually incurred in the maintenance and operation 
 of the business transacted and capital invested in the United 
 States, or, as to certain charges, such proportion of the ag- 
 gregate charges as the gross income from business done and 
 capital invested in the United States bears to the aggregate 
 income within and without the United States. In other 
 words, the deductions from the gross income of a foreign cor- 
 poration doing business in this country should, as nearly as 
 possible, represent the actual expenses and authorized charges 
 incident to the business done and capital invested in this 
 country, and must not comprehend, either directly or indi- 
 rectly, any expenditures or charges incurred in the transac- 
 tion of business or the investment of capital without the 
 United States. 
 
148 Federal Income Tax 
 
 How Deductions Shall Be Evidenced. 
 
 Art. 158. It is immaterial whether the deductions except 
 for taxes and losses are evidenced by actual disbursements 
 in cash, or whether evidenced in such other way as to be 
 properly acknowledged by the corporate officers and so en- 
 tered on the books of the corporation as to constitute a lia- 
 bility against the assets of the corporation making the return. 
 Deductions for taxes, however, should be the aggregate of 
 the amounts actually paid, as shown on the cash book of the 
 corporation. Deductions for losses should be confined to 
 losses actually sustained and charged off during the year 
 and not compensated by insurance or otherwise. Except as 
 the same may be modified by the provisions of the act, limit- 
 ing certain deductions and authorizing others, the net income 
 as returned for the purpose of the tax should be the same 
 as that shown by the books or the annual balance sheet. 
 
 Tax on Net Income of Corporations for the Year 1918. 
 
 Art. 159. The tax imposed upon the income of corpora- 
 tions, whether domestic or foreign, shall be computed upon 
 the net income, ascertained in the manner hereinbefore indi- 
 cated, except that for the year ending December 31, 1913, the 
 income tax will be imposed upon the net income accrued from 
 March 1 to December 31, both dates inclusive, and such 
 amount of net income is ascertained by taking five-sixths of 
 the entire net income for said calendar year. 
 
 Special Excise Tax on Corporations. 
 
 Art. 160. The special excise tax on corporations provided 
 for in the act of August 5, 1909, is reaffirmed and made 
 operative and effective as to the period from January 1 to 
 February 28, 1913, both dates inclusive, which said tax shall 
 be computed upon one-sixth of the entire net income of said 
 corporations for said year, and the net income shall be ascer- 
 tained in accordance with the provisions of the income-tax 
 law. 
 
Income Tax Regulations 149 
 
 Return and Assessment. 
 
 For the year 1913 it shall be necessary to make but one 
 return and assessment for all taxes imposed in the income-tax 
 law upon corporations, either by way of income or excise, 
 which return and assessment shall be made at the times and 
 in the manner provided in section 2 of the act of October 3, 
 1913. 
 
 No Specific Exemption Alloivable as a Deduction. 
 
 Under the present law, no specific exemption is allowable, 
 as was the case under the corporation-tax law; hence the 
 assessment will be based upon the entire net income of the 
 corporation arising or accruing to it from all sources during 
 the entire year for which the return is made. 
 
 Inventories. 
 Aet. 161. In order that certain classes of corporations may 
 arrive at their correct income, it is necessary that an inven- 
 tory, or its equivalent, of materials, supplies, and merchan- 
 dise on hand for use or sale at the close of each calendar year 
 shall be made in order to determine the gross income or to 
 determine the expense of operation. 
 
 Physical Inventory. 
 
 A physical inventory is at all times preferred, but where a 
 physical inventory is impossible and an equivalent inventory 
 is equally accurate, the latter will be acceptable. 
 
 An equivalent inventory is an inventory of materials, sup- 
 plies, and merchandise on hand taken from the books of the 
 
 corporation. 
 
 Corporations, Classes of. 
 
 Art. 162. For the purpose of this tax, corporations are 
 divided into five classes, as follows: 
 
 Class A. Financial and commercial, including banks, 
 banking associations, trust companies, guaranty and surety 
 companies, title insurance companies, building associations 
 (if for profit), and insurance companies, not specifically 
 exempt. 
 
150 Federal Income Tax 
 
 Class B. Public service, such as railroad, steamboat, 
 ferryboat, and stage-line companies; street-railway com- 
 panies; pipe-line, gas-light, and electric-light companies; ex- 
 press companies, telegraph and telephone companies. 
 
 Class C. Industrial and manufacturing, such as mining, 
 oil and gas producing companies, lumber and coke companies ; 
 rolling mills ; foundry and machine shops ; sawmills ; flour, 
 woolen, cotton, and other mills; manufacturers of cars, auto- 
 mobiles, elevators, agricultural implements, etc. ; manufac- 
 turers or refiners of sugar, molasses, sirups, or other products ; 
 ice and refrigerating companies ; slaughterhouse, tannery, 
 packing, or canning companies; printing and publishing 
 companies, etc. 
 
 Class D. Mercantile, including all dealers (not otherwise 
 classed as producers or manufacturers) in coal, lumber, grain, 
 produce, and all goods, wares, and merchandise. 
 
 Class E. Miscellaneous, such as architects, contractors, 
 hotel, theater, or other companies or associations not other- 
 wise classified. 
 
 Form of Return. 
 
 Art. 163. Under the authority conferred by this act, forms 
 of return have been prescribed, in which the various items 
 specified in the law are to be stated. Blank forms of this 
 return will be forwarded to collectors and should be furnished 
 to every corporation, not expressly exempted, on or before 
 January 1 of each year, in the case of corporations making 
 their returns for the calendar year, or on or before the first 
 day of the next fiscal year in the case of corporations making 
 returns for their fiscal year. Failure on the part of any cor- 
 poration, joint-stock company, association, or insurance com- 
 pany liable to this tax to receive a prescribed blank form will 
 not excuse it from making the return required by law, or 
 relieve it from any penalties for failure to make the return 
 in the prescribed time. Corporations not supplied with the 
 proper forms for making the return should make application 
 therefor to the Collector of Internal Revenue in whose dis- 
 trict is located its principal place of business in ample time 
 
Income Tax Regulations 151 
 
 to have its return prepared, verified, and filed with the Col- 
 lector on or before the last due date as hereinafter defined. 
 Failure in this respect subjects it not only to 50 per cent 
 additional tax, but to the specific penalty imposed for de- 
 linquency. Each corporation should carefully prepare its 
 return so as to fully and clearly set forth the data therein 
 called for. Imperfect or incorrect returns will not be ac- 
 cepted as meeting the requirements of the law. 
 
 Penalties Imposed by Act. 
 Art. 164. To any sum or sums due and unpaid after the 
 date for payment stated in the notice and demand issued by 
 the Collector, there shall be added the sum of 5 per cent of 
 the amount so unpaid, and interest at the rate of 1 per cent 
 per month. To the amount assessable on the basis of the net 
 income there shall be added 50 per cent in case of refusal or 
 neglect of a corporation to make a return or 100 per cent in 
 case of a false or fraudulent return. For refusal or neglect 
 to make a return within the prescribed time, or for a false 
 or fraudulent return, the corporation so offending shall be 
 liable to a specific penalty not exceeding $10,000. Any per- 
 son divulging unlawfully any information whatever disclosed 
 by a return shall be punished by a fine not exceeding $1,000, 
 or by imprisonment not exceeding one year, or both. 
 
 Fraudulent Returns. 
 
 Any person or any officer of any corporation required by 
 law to make, render, sign, or verify any return, who makes 
 any false or fraudulent return or statement with intent to 
 defeat or evade the assessment required by section 2, act of 
 October 3, 1913, shall be guilty of a misdemeanor and shall 
 be fined not exceeding $2,000 or be imprisoned not exceeding 
 one year, or both, at the discretion of the court, with the 
 costs of prosecution. 
 
 Fiscal Year; Hoiv Established. 
 
 Art. 165. The Federal Income-tax Law authorizes cor- 
 porations, joint-stock companies, etc., under certain condi- 
 
152 Federal Income Tax 
 
 tions to make their returns ou the basis of an established 
 "fiscal year" or consecutive 12-months period, which may be 
 other than the calendar year. 
 
 Pursuant to this provision the following instructions are 
 issued for the guidance of collectors and other interested 
 parties : 
 
 May Designate Day for Closing of Fiscal Year and Must 
 Give at Least Thirty Days Notice to Collector of the Day 
 so Designated. 
 
 Any corporation, joint-stock company, or association, or 
 any insurance company subject to the tax imposed by this 
 act may, at its option, have the tax payable by it computed 
 upon the basis of the net income arising or accruing from all 
 sources during its fiscal year, provided that it shall designate 
 the last day of the month selected as the month in which its 
 fiscal year shall close as the day of the closing of its fiscal 
 year, and shall, not less than thirty days prior to the date 
 upon which its annual return is to be filed, give notice, in 
 writing, to the Collector of Internal Revenue of the district 
 in which its principal place of business is located, of the day 
 it has thus designated as the closing of such fiscal year. 
 
 Illustration of Fiscal Year. 
 
 Aet. 166. In pursuance of this provision, a corporation 
 or like organization subject to this tax may, for example, 
 designate the 30th day of September as the day for the closing 
 of its fiscal year, whereupon its return of annual net income 
 shall be filed with the Collector of Internal Revenue of the 
 district in which its principal place of business is located 
 not later than sixty days after the close of its said proposed 
 fiscal year ; that is to say, on or before the 29th day of Novem- 
 ber next succeeding. 
 
 The date of the closing of the fiscal year having been desig- 
 nated, notice thereof must be given to the Collector not less 
 than thirty days prior to the last day of such sixty-day period. 
 In the case just instanced the notice must be given not later 
 than October 29. 
 
 
Income Tax Regulations 153 
 
 If such designation (September 30, 1913) had been made 
 and notice given, as hereinbefore indicated, as to the closing 
 of the fiscal year 1913, the corporation would be authorized 
 to make its return and have the tax payable by it computed 
 upon the basis of the net income arising or accruing to it 
 during the period from January 1 to September 30, 1913, 
 both dates inclusive. 
 
 Collectors Must Make a Record of the Designation of the 
 "Fiscal Year." 
 Art. 167. Collectors of internal revenue receiving notices 
 of the selection and designation of the "fiscal years," as above 
 indicated, will make record of the same, recording (a) the 
 name of the corporation or like organization, (b) the date 
 when notice was given, (c) the day designated for the closing 
 of the fiscal year, and (d) the date when the return under 
 such designation must be filed, which must be, as above stated, 
 not later than the last day of the sixty-day period next fol- 
 lowing the day designated as the close of the fiscal year. 
 
 Unless Notice Was Given Within Prescribed Time, Calendar 
 Year Will Govern. 
 Art. 168. If it shall appear that for the year 1913 the 
 notice was given within the prescribed time — that is, within 
 thirty days of the last day of the sixty-day period — the 1913 
 return may be made as of the fiscal year so established ; other- 
 wise it will be made on the basis of the calendar year until 
 such time as the designation shall be duly made and notice 
 thereof properly given. 
 
 Designation arid Notice Cannot be Retroactive. 
 Art. 169. The designation and notice cannot be retroac- 
 tive ; that is to say, if a corporation now designates April 30, 
 1914, as the date of the closing of its fiscal year and gives 
 notice of such designation, it would not be authorized to make 
 a return for the four months ended April 30, 1913, and then 
 for the fiscal year ended April 30, 1914, nor would it be 
 authorized to make one return covering the entire sixteen 
 
154 Federal Income Tax 
 
 months ended April 30, 1914. In the case of such corpora- 
 tion the return for the year must be made for the calendar 
 year ended December 31, 1913, and then, assuming that des- 
 ignation and notice had been properly made and given, it 
 may make a return for the four months ended April 30, 1914, 
 and thereafter the return will be made on the basis of the 
 fiscal year so established. 
 
 Where Fiscal Year is Not Properly Established, Returns 
 Must be Made for Calendar Year. 
 
 Art. 170. In all cases where a fiscal year is not established 
 as above prescribed returns must be made on the basis of the 
 calendar year, in which case such returns must be filed on 
 or before the 1st day of March next succeeding such calendar 
 year. Such returns in either case provided must be verified 
 under oath or affirmation of its president or other principal 
 officer, and its treasurer or assistant treasurer ; that is to say, 
 by two different persons acting in the official capacity 
 indicated. 
 
 Returns Made on Basis of Fiscal Year Not so Designated 
 Cannot be Accepted. 
 
 Aet. 171. If it shall appear in any case that returns have 
 been made to the Collector on the basis of a fiscal year not 
 designated as above indicated, the corporations making such 
 returns will be advised that such returns cannot be accepted, 
 but must be made to cover the business of the calendar year. 
 
 Returns for 1918 Must be Made on Neiv Forms. 
 
 Art. 172. Returns made under this act and pursuant to 
 these instructions must be made on the new forms prescribed 
 by this Department. 
 
 The forms heretofore in use, under the special excise tax 
 law, cannot be used for making returns for either the fiscal 
 or calendar year 1913. 
 
Income Tax Regulations 155 
 
 Extension Not to Exceed Thirty Days. 
 
 Art. 173. An extension of time within which a return 
 may be filed can in no case exceed thirty days from the date 
 on which the return is due and can be granted only upon 
 written application to the Collector, and in case of sickness 
 or absence of an officer whose signature to the return is re- 
 quired, such application to be made prior to the expiration 
 of the period for which the extension is desired. 
 
 Returns Properly Mailed in Time to Reach Collector Not 
 Subject to Penalty Under Certain Conditions. 
 
 Aet. 174. If a return is made and placed in the United 
 States mails, properly addressed, and postage paid, in ample 
 time, in due course of mails, to reach the office of the Collector 
 or deputy collector on or before the last due date, no penalty 
 will be held to attach should the return not be actually re- 
 ceived by such officer until subsequent to that date. 
 
 Last Due Date Defined. 
 
 Art. 175. "Last due date," as hereinbefore used, is con- 
 strued to mean the last day upon which a return is required 
 to be filed in accordance with the provisions of the law, or 
 the last day of the period not exceeding thirty days covered 
 by an extension of time granted by the Collector. 
 
 When Due Date Falls on Sunday or Legal Holiday. 
 
 Art. 176. When the due date as above defined falls on 
 Sunday or on a legal holiday, the last due date will be held 
 to be the day next following such Sunday or legal holiday, 
 and the return should be made to the Collector not later than 
 such following day, or, if placed in the mails, it should be 
 posted in ample time to reach the Collector's office, under 
 ordinary handling of the mails, on or before the date on 
 which the return is thus made due in the office of the 
 Collector. 
 
156 Federal Income Tax 
 
 Assessment and Payment of Taxes. Notice of Assessment. 
 
 Aet. 177. All assessments against corporations, etc., mak- 
 ing returns for the calendar year are required to be made and 
 the several corporations, joint-stock companies, etc., notified 
 of the amount for which they are liable on or before the 1st 
 of June of each successive year, and said assessments shall 
 be paid on or before the 30th day of June of such year. In 
 the case of corporations making returns for the fiscal year, 
 the assessments shall be made and notice given on or before 
 the expiration of ninety days from the date when the returns 
 were required to be filed, and the taxes assessed against such 
 corporations, etc., shall be paid within one hundred and 
 twenty days after the date upon which the returns were re- 
 quired to be filed. In case of refusal or neglect by a corpora- 
 tion, etc., to make a return, and in case of false or fraudulent 
 return, the Commissioner, upon the discovery thereof within 
 three years after such returns are due, shall make a return 
 upon information obtained in the manner provided in the 
 act, and the assessment made on the basis of such return 
 shall be paid immediately upon notice and demand given by 
 the Collector. 
 
 Failure to Pay Tax When Due. 
 
 Upon failure to pay the tax when due and for ten days 
 after notice and demand, a penalty of 5 per cent of the 
 amount of the tax unpaid and interest at the rate of 1 per 
 cent per month until paid shall be added to the amount of 
 such tax. 
 
 Returns Are Public Records, Subject to Inspection Upon 
 Order of the President. 
 
 Art. 178. When the assessments shall have been made, the 
 returns shall be filed in the office of the Commissioner and 
 shall constitute public records, subject to inspection upon the 
 order of the President, under rules and regulations pre- 
 scribed by the Secretary of the Treasury and approved by the 
 President. Copies of returns on file in the Commissioner's 
 
Income Tax Regulations 157 
 
 office are not permitted to be sent to any person, except to the 
 corporation itself or to its duly authorized attorney. 
 
 Information to States Which Impose Income Taxes. 
 
 Art. 179. Upon request of the Governor of a State which 
 imposes a general income tax, the proper officers of such 
 State may have access to the returns filed by corporations 
 doing business in such States, or to an abstract thereof show- 
 ing the name and income of such corporations, etc., at such 
 times and in such manner as the Secretary may prescribe. 
 In no case are the original returns to be removed from the 
 office of the Commissioner, except upon order and by direc- 
 tion of the Secretary of the Treasury or the President. 
 
 Certified Copies of Returns. 
 
 Art. 180. At the request of the Attorney General, or by 
 direction of the Secretary of the Treasury, certified copies 
 of returns may be made and delivered to the United States 
 district attorneys for their use as evidence in the prosecution 
 or defense of suits in which the collection or legality of the 
 tax assessed on the basis of such returns is involved, or in any 
 suit to which the United States Government and the corpora- 
 tion, etc., making the return are parties and in which suit 
 such certified copies would constitute material evidence. 
 
 Penalty for Giving Information in Regard to Returns. 
 
 Art. 181. The disclosure by any collector, deputy col- 
 lector, agent, clerk, or other officer or employee of the United 
 States to any person of any information whatever contained 
 in or set forth by any return of annual net income made pur- 
 suant to this act is, by the act, made a misdemeanor, and is 
 punishable by a fine not exceeding $1,000 or by imprison- 
 ment not exceeding one year, or both, at the discretion of the 
 court, and if the offender is an officer or employee of the 
 United States he shall be dismissed and be incapable there- 
 after of holding any office under the United States Govern- 
 ment. 
 
158 Federal Income Tax 
 
 Bookkeeping. 
 
 Art. 182. No particular system of bookkeeping or account- 
 ing will be required by the department. However, the busi- 
 ness transacted by corporations must be so recorded that each 
 and every item set forth in the return of annual net income 
 may be readily verified by an examination of the books of 
 account. 
 
 Books of Account Best Guide to Income. 
 
 Aet. 183. The books of a corporation are assumed to re- 
 flect the facts as to its earnings, income, etc. Hence they will 
 be taken as the best guide in determining the net income upon 
 which the tax imposed by this act is calculated. Except as 
 the same may be modified by the provisions of the law, 
 wherein certain deductions are limited, the net income dis- 
 closed by the books and verified by the annual balance sheet, 
 or the annual report to stockholders, should be the same as 
 that returned for taxation. 
 
 Omitted Taxes May be Assessed. 
 
 Aet. 184. In cases wherein corporations have neglected or 
 refused to make returns, and in cases wherein returns made 
 are found, upon investigation or otherwise, to be false ox 
 fraudulent, the Commissioner may, upon discovery thereof, at 
 any time within three years after said return is due, make 
 return upon the information obtained in the manner provided 
 in the act, and the tax so discovered to be due, together with 
 the additional tax prescribed, shall be assessed, and the 
 amount thereof shall be paid immediately upon notice and de- 
 mand. 
 
 Corporations Subject to Normal Tax. 
 
 Aet. 185. Corporations coming within the terms of this 
 law are subject to the normal tax only ; that is, a tax computed 
 at a level rate of 1 per cent of their entire net income regard- 
 less of the amount of such net income. 
 
Income Tax Regulations 159 
 
 Examination of Books. 
 Art. 186. For the purpose of verifying any return, made 
 pursuant to this act, the Commissioner of Internal Revenue 
 may, by any duly authorized revenue agent or deputy collec- 
 tor, cause the books of such corporation to be examined, and 
 if such examination discloses that the corporation is liable to 
 tax in addition to that previously assessed, os assessable, the 
 same shall be assessed and shall be payable immediately upon 
 notice and demand. For the purpose of such examination, 
 the books of corporations shall be open to the examining offi- 
 cer, or shall be produced for this purpose upon summons 
 issued by any properly authorized officer. 
 
PART 4 
 
 Assessment and Collection. 
 
 Taxes Due to be Reported on Assessment List. 
 
 Art. 187. All income taxes found to be due will be re- 
 ported by collectors on their assessment lists, Form 23-A in 
 the case of corporations, and on Form 23-B in the case of indi- 
 viduals and withholding agents. 
 
 Names to be Listed in Alphabetical Order. Na?nes of 
 Withholding Agents, How to be Listed. 
 
 Aet. 188. The names of corporations subject to tax will be 
 listed on Form 23-A, according to their designated class, and 
 in alphabetical order as to each class. Names of individuals 
 subject to tax will be listed on Form 23-B, alphabetically, 
 without reference to class or rate of tax. Following such 
 names there will be listed, alphabetically, the names of all 
 withholding or licensed collecting agents, and the aggregate 
 amount of tax withheld by each, as shown by the annual re- 
 turns rendered by them. An assessment against each person, 
 firm or company from whose income the tax has been so 
 withheld will be unnecessary in such cases. 
 
 Assessment Against Withholding Agents to be Deferred Until 
 Annual Reports Are Received. 
 
 Aet. 189. To avoid, as far as possible, the assessment of 
 taxes as to which claims for exemption or deduction may be 
 filed under Article 33, collectors will delay reporting for 
 assessment taxes remaining in the hands of withholding 
 agents until the annual reports of such agents, which must 
 be filed not later than March 1 in each year, are received. 
 
 Returns, When to be Made. 
 
 Aet. 190. Returns of withholding agents (including those 
 of licensed collecting agents) as to interest payments shall be 
 made monthly and returns containing summaries of said 
 monthly returns shall be made annually. (See Part 2, A, B, 
 
Income Tax Regulations 161 
 
 and C.) Returns of individuals (see Part 1), corporations 
 (see Part 3), and -withholding agents, withholding tax on 
 wages, salaries, rents, etc. (see Part 2, D), and fiduciaries act- 
 ing as withholding agents (see Part 2, E) shall be made annu- 
 ally. All monthly returns are required to be made on or 
 before the 20th day of each month for the preceding month. 
 All annual returns are required to be made on or before the 
 1st day of March in each year, except in the case of corpora- 
 tions which have given due notice of the termination of their 
 fiscal year, in which cases the prescribed return is to be filed 
 within 60 days after the termination of such fiscal year. 
 
 Corporations May Include in Returns for Year 1913 Income 
 Subject to Special Excise Tax. 
 
 Art. 191. Corporations which are subject to the special 
 excise tax on income received during the months of January 
 and February, 1913, may, under the provisions of section 4, 
 paragraph S, of the act of October 3, 1913, include such in- 
 come, as also the income taxable under said act, in one return 
 for the year 1913. In each such case one assessment only will 
 be made. 
 
 Returns of Income to be Foricarded With Assessment Lists. 
 False or Fraudulent Returns. 
 
 Art. 192. All returns of income, whether of individuals or 
 corporations, should be forwarded with the assessment list 
 rendered. Where in any case the collector has reason to be- 
 lieve that any return rendered is false or fraudulent, he will 
 prepare and retain in his office a copy of such return, and will 
 note on the original and under the head of "Remarks" of his 
 assessment list the words "Investigation pending." He will 
 in all such cases make his investigation in the manner pre- 
 scribed in section 3173, Revised Statutes, and paragraph D 
 of said act of October 3, 1913 ; and he will report the results 
 of his investigation to the Commissioner of Internal Revenue, 
 referring to the list, folio, and line on which the assessment 
 was reported. (Amended T. D. 2024.) 
 11 
 
162 Federal Income Tax 
 
 Certain Returns of Withholding Agents to be in Duplicate. 
 
 Art. 193. Monthly and annual returns of withholding 
 agents (including those of licensed agents) as to interest pay- 
 ments and the annual returns of withholding agents withhold- 
 ing tax on wages, salaries, etc, will be made in duplicate, one 
 copy of which will be retained by the collector in his office 
 and one copy transmitted to the Commissioner of Internal 
 Revenue. Annual returns of withholding agents (including 
 those of licensed agents) as to interest payments, and returns 
 of withholding agents as to wages, salaries, etc., and of fiduci- 
 aries will be forwarded by the collector with his list, Form 
 23-B, on which the tax withheld is reported for assessment. 
 
 Certificates and Returns to be Forwarded as Soon as Received. 
 
 Abt. 194. All certificates of exemption or deductions, filed 
 by or on behalf of persons subject to tax, will be forwarded 
 by the collector as soon as received ; and all such certificates, 
 reports, and returns, before being transmitted to the commis- 
 sioner, will have stamped thereon the name and number of 
 the district; will be arranged (unfolded) in alphabetical 
 order and, in the case of corporations, according to the desig- 
 nated class to which they belong. Care should be taken to 
 have all such papers, when so arranged, carefully secured by 
 cord or other fastening, so as to insure their receipt in like 
 order. This is especially necessary in view of the large num- 
 ber of like papers which will be forwarded from the various 
 districts. 
 
 Reports and Returns to be at Once Examined by Collectors. 
 
 Art. 195. In order that assessment lists may be promptly 
 prepared and forwarded, collectors will see that all reports 
 and returns to be listed are examined as received, and that no 
 delay occurs in this branch of the work. Special diligence 
 in this matter is necessary, as sufficient time must be given 
 for the reexamination of such returns in the commissioner's 
 office before assessment is made. The forwarding of assess- 
 
Income Tax Regulations 163 
 
 ment lists, however, should in no case be delayed, beyond the 
 time allowed, on account of unexamined returns, as such re- 
 turns can be examined and reported on a subsequent list. As 
 the law limits the time in which these assessments are to be 
 made and notice of assessment given, collectors will assign to 
 this work all available force in their respective offices. 
 
 Notice to be Sent to Delinquents. 
 
 Art. 196. Where the required returns are not filed within 
 the prescribed time, either by individuals or corporations, 
 notice on Form 1045 should in each case be sent to the de- 
 linquent. (For authorized extension of time, see Articles 23 
 and 173.) 
 
 Notice of Assessment. Demand for Tax, Penalty, and 
 Interest. 
 
 Art. 197. When assessment has been made, collectors will, 
 on receipt of their returned lists, at once issue preliminary 
 notices of assessment (Form 647), and where in any case the 
 tax assessed is not paid on or before the 30th day of June or, 
 in case of corporations designating their own fiscal year, 
 within 120 days following the date on which the return 
 should have been filed, notice and demand (Form 17) should 
 be at once issued, and unless the tax in such case is paid 
 within 10 days after the service of such notice, general de- 
 mand for tax, penalty, and interest (Form 21) should at 
 once be issued. Immediate notice and demand (Form 17) 
 will, however, be served in case of failure to file the required 
 return within the statutory period. 
 
 Notice of Assessment to be Sent Immediately on Return 
 
 of List. 
 
 Art. 198. Pending assessment on returns forwarded to the 
 commissioner, collectors will have prepared the necessary 
 notices of assessment, with properly addressed envelopes, to 
 be used immediatelv on return of their assessment lists. 
 
164 Federal Income Tax 
 
 Payments, Abatements, and Outstanding Balances. 
 
 Akt. 199. Statements of payment, abatement, and out- 
 standing balances of sucb assessed taxes will be rendered 
 monthly by collectors on special Form 325. Sucb statements 
 will be prepared in tbe same manner as required in tbe case 
 of assessments on tbe regular Form 23, except tbat in State- 
 ment III tbe outstanding balances on tbe various lists will bo 
 reported in aggregate only. Items constituting sucb balances, 
 bowever, will be carded by collectors, but only as to sucb as 
 were assessed during the month for which the return is ren- 
 dered, thus avoiding detailed statements each month of out- 
 standing balances previously reported. A separate card 
 (Form 1020) will be used for each such item; and all cards 
 so prepared each month should be arranged alphabetically, 
 and so forwarded by the collector with his report on special 
 Form 325. W. H. Osborn, 
 
 Commissioner of Internal Revenue. 
 
 Approved : 
 
 W. G. McAdoo, 
 
 Secretary of the Treasury. 
 
PART IV 
 
 TREASURY DEPARTMENT SPECIAL RULINGS 
 
Sixty-six decisions, construing the law, supplementary to 
 the preceding 199 articles. The ones given here are the 
 Treasury Department rulings concerning the income tax, 
 from T. D. 1892, November 6, 1913, to T. D. 2289, Jan- 
 uary 28, 1916, and all are given except a few of temporary 
 application which are now obsolete. The usual headings and 
 signatures are omitted from all after the first. See general 
 subjects in Table of Contents, and detailed references in 
 Index. 
 
TREASURY DEPARTMENT SPECIAL RULINGS 
 
 (T. D. 1892.) 
 
 Income Tax. 
 
 Interest upon obligations of the United States or its possessions, or 
 of any State, county, city, or any other political subdivision 
 thereof, is not subject to income tax. 
 
 Treasury Department, 
 Office of Commissioner of Internal, Revenue, 
 
 Washington, D. C, November 6, 1913. 
 
 To collectors of internal revenue: 
 
 It has been called to the attention of this office that banks in 
 certain sections are refusing to pay coupons for interest on 
 bonds of States, counties, cities, or other political subdivisions 
 of the United States, when such coupons are not accompanied 
 by certificates of ownership, without deducting the normal in- 
 come tax of 1 per cent, which the law and the regulations of 
 this department require shall be deducted at the source in pay- 
 ing the interest on bonds of corporations, joint-stock compa- 
 nies or associations, and insurance companies. 
 
 Please inform all parties interested, giving the information 
 wide publicity, that the income derived from the interest upon 
 the obligations of a State, county, city, or any other political 
 subdivision thereof, and upon the obligations of the United 
 States or its possessions, is not subject to the income tax, and 
 a certificate of ownership in connection with the coupons or 
 registered interest orders for such interest will not be re- 
 quired. 
 
 The interest coupons should clearly show on their face 
 whether they are issued by the United States or any political 
 subdivision thereof. If, however, they do not clearly show 
 this, then, of course, an ownership certificate should be re- 
 quired W. H. Osborn, Commissioner. 
 
168 Federal Income Tax 
 
 (T. D. 1933— See T. D. 1996.) 
 
 Mutual telephone companies, mutual Insurance companies, and like 
 organizations whose status, under the law, is not dependent 
 upon whether or not they are organized tor profit, and not being 
 specifically enumerated as exempt, must make returns of an- 
 nual net income pursuant to the requirements of section 2, act 
 of October 3, 1913. 
 
 This office is in receipt of your letter asking advice as to 
 whether or not mutual telephone companies will be required 
 to file returns of annual net income under the provisions of 
 section 2, act of October 3, 1913. 
 
 In reply you are informed that under the provisions of the 
 act above cited, every corporation, joint-stock company, and 
 every insurance company, no matter how created or organized, 
 is subject to the income tax and will be required to make 
 returns of annual net income, except such as are specifically 
 enumerated in the act as exempt from its provisions. In the 
 list of those so enumerated as exempt do not appear mutual 
 telephone companies or similar organizations. 
 
 Since under this act no exemption is provided, either ex- 
 press or implied, for mutual telephone and like companies, 
 and liability is not dependent upon whether or not the corpo- 
 ration is organized for profit, it is held that all corporations 
 not specifically enumerated as exempt will be required to 
 make returns of annual net income and to pay any tax that 
 may be assessed upon the net income returned. 
 
 This ruling will comprehend all telephone companies, local 
 insurance companies, and like corporations, whether or not 
 they are organized primarily for the mutual benefit of their 
 members. 
 
Treasury Department Special Rulings 169 
 
 (T. D. 1937.) 
 
 Corporations are not permitted to deduct from gross or net income 
 for the year 1913 any portion of specific exemption authorized 
 under corporation tax law. — Sec. 38, act Aug. 5, 1909. 
 
 Section 2 of the act approved October 3, 1913, known as 
 the Federal Income Tax Law, provides that all corporations, 
 joint-stock companies, and all insurance companies, except 
 those specifically enumerated as exempt, shall be subject to 
 the normal tax imposed upon individuals, such tax to be 
 levied, assessed, and paid annually upon the entire net in- 
 come arising or accruing from all sources during the preced- 
 ing calendar year. 
 
 The provisions of this act apply to corporations which have 
 or may have income arising or accruing on and after March 
 1, 1913. For the purpose of covering the liability of corpora- 
 tions to special excise tax for the months of January and Feb- 
 ruary, 1913, the provisions of the corporation tax law (sec. 
 38, act August 5, 1909) were extended, and in subsection S of 
 the income tax law it is provided that the net income for these 
 two months shall be ascertained in accordance with the provi- 
 sions of subsection G of section 2 of the act of October 3, 
 1913, that is, in the same manner as the net income for the 
 remaining 10 months of the year is ascertained. 
 
 In the subsection G, just cited, all items or charges against 
 income, which constitute allowable deductions from gross in- 
 come, are specifically set out. Xo provision, either express or 
 implied, is made in this subsection or elsewhere in the act for 
 the allowance of all or any portion of the specific exemption 
 ($5,000) allowed under the corporation tax law. As applied 
 to the months of January and February, 1913, the income tax 
 law in effect amends the corporation tax law by eliminating 
 the specific exemption previously allowed, and provides that 
 the tax for that period shall be measured by the net income 
 ascertained according to the rule set out in subsection G of the 
 later act. (See second proviso in subsec. S, act Oct. 3, 1913.) 
 
170 Federal Income Tax 
 
 The third proviso of subsection S also provides that — 
 
 For the year 1913 it shall not be necessary to make more than 
 one return and assessment for all taxes imposed * * * by way 
 of income or special excise. 
 
 The net income for both kinds of taxes and for both periods 
 of the year being ascertained in exactly the same manner, but 
 one return covering the entire calendar year 1913 is required. 
 That return will show the entire net income ascertained in 
 accordance with the provisions of the income tax law, and no 
 specific exemption whatever being authorized, such net income 
 as returned for the entire year will be the amount upon which 
 the tax is computed. 
 
 (T. D. 1943.) 
 
 Instructions to collectors relative to fiduciaries and returns to be 
 made by them on Form 1041. 
 
 To collectors of internal revenue: 
 
 T. D. 1908 provides that all fiduciaries shall on or before 
 March 1 of each year, when the annual interest of any bene- 
 ficiary in the income of the estate or trust is in excess of 
 $3,000 ($2,500 for the year 1913), make and render a return 
 of the income of the person or persons (the beneficiaries) for 
 whom they act to the collector of internal revenue of the dis- 
 trict in which the fiduciary resides. 
 
 Where a decedent died after March 1 in the year 1913, and 
 from March 1 up to the date of his death had a net income of 
 $2,500 or more, the fiduciary (i. e., the executor or adminis- 
 trator) should make a return for the decedent on Form 1040, 
 and the income tax, both normal and additional, shown to be 
 due thereon will be a debt against the estate of the decedent. 
 The same principle will apply to subsequent years if the net 
 income of the decedent from January 1 to the date of his death 
 amounts to $3,000 or more. No other return is required to 
 be made by the fiduciary until the settlement of the estate has 
 reached the stage when the beneficiaries thereof and their re- 
 
Tkeastjky Depaktment Special Rulings 171 
 
 spective interests in the income derived from the estate are de- 
 terminable, and then the fiduciary is required to file a return 
 on or before March 1 of each year, as prescribed by the regu- 
 lations. 
 
 The fiduciary will enter on page 2 of Form 1041, under the 
 appropriate heads, all income accruing to the beneficiaries of 
 the trust or estate from March 1 to December 31, 1913, in- 
 clusive; but the interest derived from the obligations of a 
 State or any political subdivision thereof and the obligations 
 of the United States or its possessions is not to be included. 
 
 The fiduciary will enter on page 3 of Form 1041 for the 
 year 1913 five-sixths of the deductions allowable under para- 
 graph B of the law, and on line 1 it will be proper for the 
 fiduciary to enter all legitimate expenses incurred in adminis- 
 tering the estate or trust. If the fiduciary holds and rents 
 business or residential i>roperty and pays insurance, water 
 rents, commissions for the collection of rents, or any other 
 necessary expenses in managing the estate or trust, it will be 
 proper to enter same on line 1 as an allowable deduction. 
 
 The amount to be shown on page 1, line 3, will represent 
 the total amount of income accruing through the fiduciary to 
 the beneficiaries of the estate or trust which is subject to the 
 normal tax, and when the interest of any one beneficiary iD 
 this amount from November 1 to December 31, 1913, inclu- 
 sive, was in excess of $3,000, whether distributed or not, the 
 fiduciary was required to withhold and pay the normal tax on 
 the whole $3,000 and excess thereof, unless the beneficiary 
 filed with the fiduciary Form 1007, as prescribed by the regu- 
 lations, claiming exemption under paragraph C, and in that 
 event the fiduciary was only required to withhold and pay the 
 normal tax on the amount in excess of the exemption claimed. 
 
 T. D. 1906 prescribes that when fiduciaries make their 
 annual return they shall give the name and full address of 
 each beneficiary and the share of income to which each may 
 be entitled, which information shall be given on page 1 of 
 Form 1041. In the column "Amount of income paid or ac- 
 crued to beneficiaries" should be entered the respective in- 
 
172 Federal Income Tax 
 
 terest of the beneficiary in the amount of income as shown on 
 page 1, line 3. 
 
 When the interest of any beneficiary in the amount of in- 
 come subject to the normal tax, as shown on Form 1041, page 
 1, line 3, is in excess of $3,000, and the same was paid to the 
 beneficiary within the period from November 1 to December 
 31, 1913, both dates inclusive, the fiduciary was required to 
 withhold and pay the normal tax as prescribed by the regula- 
 tions, and the information required should be given on Form 
 1041, page 1, giving the name and full address of each bene- 
 ficiary, the amount of income paid or payable to each bene- 
 ficiary (this amount would be the beneficiary's interest in the 
 amount of income subject to the normal tax as shown on line 
 3), the amount of exemption claimed under paragraph C (if 
 any), the amount of income on which normal tax should be 
 withheld, and the amount of tax withheld, all to be given in 
 the respective columns in the order named. 
 
 A fiduciary acting for a minor or insane person who had a 
 net income of $2,500 or more for the year 1913 will make the 
 return for his ward on Form 1040 and will not be required to 
 file a return on Form 1041, unless he has more than one ward 
 by reason of the same estate or trust ; then in that event a re- 
 turn will be required on Form 1041, and a separate return 
 on Form 1040 for each ward having a net income of $2,500 
 or more for the year 1913. 
 
 The income accruing or paid to a beneficiary through a 
 fiduciary may be composed in part of dividends, or income 
 upon which the normal tax has been withheld and paid or to 
 be paid at the source, or income derived from the obligations 
 of a State or any political subdivision thereof or from the 
 obligations of the United States or its possessions (income 
 from obligations of a State or any political subdivision thereof 
 and from the obligations of the United States or its posses- 
 sions is not subject to the tax and should not be included). 
 If a beneficiary has other income which, added to the income 
 accruing to him through his fiduciary, gives him a net income 
 
Treasury Department Special Rulings 173 
 
 of $2,500 or more for the period from March 1 to December 
 31, 1913, inclusive, he should make a return of his gross in- 
 come on Form 1010, as required by the regulations. 
 
 To illustrate: If a fiduciary's gross income was $10,000, 
 derived from the following sources : 
 
 1. Interest upon the obligations of the United States $ 1,000 
 
 2. Dividends on stock or net earnings of corporations 2,000 
 
 3. Interest from bonds containing "tax-free covenant clause," 
 
 upon which the fiduciary did not claim any exemption at 
 source and which he entered on Form 1041, on page 2, 
 column A, as income on which normal tax was withheld. 2,000 
 
 4. Income from rents, etc 5,000 
 
 $10,000 
 
 the fiduciary's return on Form 1011 would show as follows: 
 
 Page 2. Line 3, column B, amount of rents $5,000 
 
 Line 5, interest from bonds, "tax-free clause," column 
 
 A 2,000 
 
 Line 10, dividends 2,000 
 
 Aggregate total of gross income $9,000 
 
 (No entry of interest on United States bonds, $1,000.) 
 
 Page 3. Line 1, necessary expenses actually paid in carrying 
 
 on business, including compensation of fiduciary, 
 
 water rents, insurance, etc $ 450 
 
 Line 3, taxes paid 400 
 
 Line 6, actual repairs made on building, or amount 
 
 allowed for wear and tear 150 
 
 Line 7, dividends not subject to normal tax 2,000 
 
 Line 8, amount of income on which normal tax has 
 been deducted and withheld at source, bonds with 
 "tax-free clause" 2,000 
 
 Total deductions $5,000 
 
 Page 1. Line 1, gross income $9,000 
 
 Line 2, total deductions 5,000 
 
 Line 3, amount of income due beneficiary, which is 
 subject to normal tax $ 4,000 
 
174 Federal Income Tax 
 
 The beneficiary has filed with the fiduciary as a withhold- 
 ing agent a claim for exemption tinder paragraph C for 
 $2,500 (exemption of single person for 1913), and the return 
 on Form 1041 would show on page 1, in addition to the fore- 
 going entries, the following : 
 
 John Doe, 76 B Street, New York City. 
 
 In third column, amount of income paid or accrued to benefi- 
 ciary $4,000 
 
 In fourth column, amount of exemption claimed 2,500 
 
 In fifth column, amount of income on which fiduciary is liable 
 to tax 1,500 
 
 In sixth column, amount of normal tax withheld 15 
 
 In the foregoing illustration the beneficiary, in his return 
 on Form 1040, would make no return of item 1, interest on 
 United States bonds. Item 2, dividends, would be entered 
 on page 2, line 11, and for the purpose of calculating the 
 normal tax would be an allowable deduction on page 1, line 4. 
 Item 3, interest on bonds, would be entered on page 2, line 7, 
 column A, and for the purpose of calculating the normal tax 
 would be an allowable deduction on page 1, line 5. Item 4, 
 rents, would be entered on page 2, line 7 ; $1,500 in column 
 A, and $2,500 in column B (exemption of $2,500 claimed and 
 no tax withheld on this amount). This would show — 
 
 Income received from fiduciary subject to be returned on 
 Form 1040 $8,000 
 
 Deductions and exemption allowable in calculating normal 
 tax 8,000 
 
 No normal tax due, it having been paid at the source by the 
 fiduciary as shown by his return on Form 1041. 
 
 In making the foregoing entry on Form 1040, on line 11, 
 there should be written just above the printed heading, 
 "Amount received from fiduciary," and the amount should 
 be entered in the appropriate column. 
 
 No illustration is given of income accruing to the benefi- 
 ciary from other sources, an illustration of this not being 
 deemed necessary, as such income is entered in the usual way. 
 
Treasury Department Special Rulings 175 
 
 (T. D. 1945— See T. D. 1947.) 
 
 Regulation relative to exclusion of income derived from dividends 
 or net earnings of corporations, joint-stock companies or associ- 
 ations, and insurance companies by persons subject to the nor- 
 mal tax only in computing their net income for the taxable 
 year. 
 
 Referring to that provision of the income-tax law which 
 reads as follows : 
 
 Provided further, That persons liable for the normal income tax 
 only, on their own account or in behalf of another, shall not be 
 required to make return of the income derived from dividends on 
 the capital stock or from the net earnings of corporations, joint- 
 stock companies or associations, and insurance companies taxable 
 upon their net income as hereinafter provided — 
 
 you are informed that returns of individuals, when such indi- 
 viduals are subject to the normal tax only, need not include 
 the income derived from the dividends or net earnings re- 
 ferred to above. When individuals are subject to the addi- 
 tional tax, such income derived from said dividends or net 
 earnings must be shown on the return. 
 
 Persons having an annual net income of $3,000 or more, 
 including the income derived from dividends or net earnings 
 of corporations, etc., but whose total net income is less than 
 $20,000, and whose net income, exclusive of the income de- 
 rived from dividends or net earnings of such corporations, 
 etc., is less than $3,000 for the taxable year ($2,500 for the 
 year 1913), shall not be required to make a return of annual 
 net income. 
 
 Returns which have been or may be received from persons 
 subject to the normal tax only, in which such dividends are 
 included and deducted, need not be changed to meet the pro- 
 visions of this regulation. 
 
 All previous rulings of the department, including the gen- 
 eral regulations Xo. 33, are amended accordingly. 
 
176 Federal Income Tax 
 
 (T. D. 194(5.) 
 
 Special assessment districts created under the laws of the several 
 States for public purposes, such as the improvement of streets 
 and public highways, the provision for sewerage, gas, and light, 
 and the reclamation, drainage, or irrigation of bodies of land, 
 and levee and school districts are held to be political subdivi- 
 sions of a State. 
 
 To collectors of internal revenue: 
 
 Referring to paragraph B, section 2, of the income-tax 
 law, which reads as follows : 
 
 That in computing net income there shall be excluded interest 
 upon the obligations of a State or any political subdivision thereof — 
 
 you are informed that under date of January 30, 1914, the 
 honorable the Attorney General held that special assessment 
 districts created under the laws of the several States for public 
 purposes, such as the improvement of streets and public high- 
 ways, the provision for sewerage, gas, and light, and the rec- 
 lamation, drainage, or irrigation of bodies of land within such 
 special assessment districts when such districts are for public 
 use, are political subdivisions of the State within the mean- 
 ing of the above proviso. 
 
 It is held that the term "'political subdivision" includes 
 special assessment districts or divisions of a State created by 
 the proper authority of the State acting within its constitu- 
 tional powers and under its general laws, for the purpose of 
 carrying out a portion of those functions of the State which 
 by long usage and inherent necessities of government have 
 always been regarded as public. 
 
 Levee and school districts when lawfully created under the 
 authority of the State and which are authorized by the laws 
 of the State to levy a tax to meet the obligations of such dis- 
 tricts are also held to be political subdivisions of a State 
 within the meaning of the income-tax law. 
 
 The income derived from interest upon the obligations of 
 all such public districts shall therefore be excluded in com- 
 puting net income for the income tax. 
 
 This decision supersedes T. D. 1910. 
 
Treasury Department Special Kulings 177 
 
 (T. D. 1947.) 
 
 Extending T. D. 1945 to cover returns made by fiduciaries in their 
 fiduciary capacity. 
 
 You are advised that the provisions of T. D. 1945 — in mat- 
 ter of exclusion of dividends or net earnings of corporations, 
 joint-stock companies or associations, and insurance com- 
 panies, by persons subject to the normal tax only, in comput- 
 ing their net income for the taxable year — are extended to 
 cover such returns by fiduciaries. 
 
 To make clear any doubt on the subject, the provisions of 
 T. D. 1945 are hereby specifically extended to include returns 
 made by fiduciaries as such. 
 
 (T. D. 1948 — Tax-free covenant clause — succeeding T. D. 
 
 1942.) 
 
 This office is in receipt of numerous letters asking whether 
 income, tax on which is paid or to be paid at the source, al- 
 though not withheld at the source, can be placed in column A, 
 page 2, of Form 1040, and in reply to this inquiry you will 
 advise as follows : 
 
 The stipulation in bonds whereby the tax which may be 
 assessed against them or the income therefrom is guaranteed, 
 is a contract wholly between the corporation and the bond- 
 holder, and in so far as the income-tax law applies, the Gov- 
 ernment will not differentiate between coupons from bonds 
 of this character and those from bonds carrying no such 
 guaranty. The debtor corporation, or its duly authorized 
 withholding agent, will be held responsible for the normal 
 tax due in such cases when no tax has been withheld and no 
 exemption claimed. 
 
 Income paid by "debtors" from March 1 to November 1, 
 1913, shall be included in the return of the individual (under 
 column B, page 2, of Form 1040) as income upon which the 
 12 
 
178 Federal Income Tax 
 
 normal tax of 1 per cent has not been withheld and paid at 
 the source. Income received by individuals between Novem- 
 ber 1 and December 31, 1913, upon which the normal tax 
 has been withheld at the source shall be included in their 
 annual return (under column A, page 2, of Form 1040) as 
 income upon which the tax has been withheld. 
 
 (T. D. 1950.) 
 
 Time for filing returns of income, and penalties in connection 
 
 therewith. 
 
 You are advised, and will so announce from your respective 
 offices, that the law and regulations require returns of in- 
 come for the taxable period, March 1 to December 31, 1913, 
 to be made and filed on or before March 1, 1914. The law 
 is mandatory and allows no discretion to be exercised by any 
 officer. Section 3176, Revised Statutes of the United States, 
 as amended and made part of the income-tax law, gives to 
 collectors of internal revenue (they being satisfied as to the 
 merits of the claim, and in the reasonable exercise of their 
 judgment and discretion) authority to grant extension of 
 time not to exceed 30 days from the time prescribed by law 
 in which to file a return of net income, and then only in cases 
 where such failure, neglect, or refusal is the result of "sick- 
 ness or absence." 
 
 You are also advised, and will so announce, that there will 
 be no change in income-tax regulations as they now exist prior 
 to March 1, 1914, and that all persons and corporations re- 
 quired to make a return which have not as yet done so should 
 make and file their returns at the earliest opportunity and on 
 or before March 1. 
 
 Collectors will forward to this office immediately a report 
 showing the number of returns filed in their respective offices 
 as of February 20, 1914. 
 
Treasury Department Special Rulings 179 
 
 Penalties and additional tax, in connection with refusal or 
 neglect to file return of income within the prescribed 
 timie. 
 
 As to corporations. — For neglect or refusal to make a re- 
 turn within the prescribed time, corporations are liable to a 
 penalty not to exceed $10,000 ; and in case of neglect or re- 
 fusal to make, or for a false or fraudulent return made, 100 
 per cent is to be added to the tax ; and in the case of neglect 
 or refusal to make and verify a return within the prescribed 
 time (except in case of sickness or absence) 50 per cent is 
 to be added to the tax ; and in case of an officer of a corpora- 
 tion or like institution charged with the duty and responsi- 
 bility of making and verifying a return who makes a false 
 or fraudulent return with the intent to defeat or evade any 
 assessment or tax, he shall be guilty of a misdemeanor, and be 
 subject to a fine not to exceed $2,000, or to imprisonment not 
 to exceed one year, or both, at the discretion of the court, 
 together with costs. 
 
 As to individuals. — For neglect or refusal to make a return 
 within the prescribed time, the penalty is not less than $20 
 nor more than $1,000 ; and in case of intentional neglect or 
 refusal to make, or for a false or fraudulent return made, 
 there shall be added 100 per cent to the tax; and in case of 
 neglect or refusal to make a return within the prescribed time 
 (except in case of sickness or absence) there shall be added 
 50 per cent to the tax. 
 
 (T. D. 1956.) 
 
 Inquiries relative to the income tax covered by regulations and 
 rulings to be answered by collectors. 
 
 To collectors of internal revenue: 
 
 A large part of the volume of correspondence coming to 
 this office asking for information relative to making return 
 and ascertainment of net income, etc., for the income tax, is 
 
180 Federal Income Tax 
 
 sufficiently covered by regulations, and shoidd be answered in 
 tbe offices of collectors. 
 
 Collectors bave been furnisbed witb copies of Regulations 
 No. 33, and will be advised from time to time of additional 
 rulings in income-tax matters. 
 
 Collectors are tberefore advised that letters coming to this 
 office asking for information which should be supplied by 
 collectors in accordance with instructions and regulations 
 furnished them, will be referred to collectors for reply and 
 writers of the letters advised of the reference. Collectors, 
 upon receipt of letter referred to them by this office, will give 
 immediate attention to the subject-matter of the inquiry, in 
 accordance with the regulations and instructions bearing upon 
 the same. 
 
 (T. D. 1957.) 
 
 Partnerships are not subject to income tax, but are required to file 
 certificates of ownership of bonds, etc., in connection with cou- 
 pon and registered interest payments to prevent withholding of 
 their income at the source. 
 
 Referring to the following provision in paragraph I) of the 
 income-tax law — 
 
 That any persons carrying on business in partnership shall be 
 liable for income tax only in their individual capacity, and the share 
 of the profits of a partnership to which any taxable partner would 
 be entitled if the same were divided, whether divided or otherwise, 
 shall be returned for taxation and the tax paid, under the provisions 
 of this section, and any such firm, when requested by the Commis- 
 sioner of Internal Revenue, or any district collector, shall forward 
 to him a correct statement of such profits and the names of the in- 
 dividuals who would be entitled to the same, if distributed — 
 
 it is held that the income of partnerships per se is not subject 
 to the income tax. The provisions of the law "relating to the 
 deduction and payment of the tax at the source of income" 
 do not apply to the income of partnerships as such. Taxable 
 members of partnerships will be required to account, in their 
 
Treasury Department Special Rulings 181 
 
 individual returns, for their respective shares or interest in 
 the partnership profits, whether the same are divided and dis- 
 tributed or not. 
 
 Partnerships owning "bonds and mortgages, or deeds of 
 trust, and other similar obligations of corporations, joint- 
 stock companies or associations, and insurance companies," 
 shall file certificates of ownership, in Form 1001, evidencing 
 the fact of partnership ownership when presenting for collec- 
 tion or payment coupons or interest orders for interest upon 
 said obligations ; and when such certificates are filed, the tax 
 on such interest payments to partnerships shall not be with- 
 held. 
 
 The last sentence in Article 14, page 35, and Article 47 of 
 Income Tax Regulations No. 33, providing for claim by 
 partnerships for deduction for legitimate expense incurred 
 in conducting the business of a partnership, are hereby super- 
 seded and repealed. 
 
 (T. D. 1960.) 
 
 Corporations are allowed by law to deduct interest actually accrued 
 and paid within the year on an amount not in excess of paid-up 
 capital stock outstanding at the close of the year, plus one-half 
 the interest-bearing indebtedness then also outstanding. 
 
 Your attention is called to that provision of the income-tax 
 law designated as the third deduction, subdivision (b), para- 
 graph G, reading as follows: 
 
 The amount of interest accrued and paid within the year on its 
 indebtedness to an amount of such indebtedness not exceeding one- 
 half of the sum of its interest-bearing indebtedness and its paid-up 
 capital stock outstanding at the close of the year, and if no paid-up 
 capital stock, the amount of interest paid within the year on an 
 amount of its indebtedness not exceeding the amount of capital em- 
 ployed in the business at the close of the year. 
 
 It is held that in the case of a corporation having capital 
 stock this deductible interest is interest actually accrued and 
 paid within the year on an amount of indebtedness not ex- 
 
182 Federal Income Tax 
 
 ceeding the paid-up capital stock outstanding at the close of 
 the year, increased by the addition thereto of one-half the 
 interest-bearing indebtedness outstanding at the close of the 
 year. 
 
 The qualifying phrase, "outstanding at the close of the 
 year," appearing in the foregoing quotation, is held to apply 
 to both paid-up capital stock and indebtedness, and "one-half 
 the sum of" qualifies only the indebtedness, which indebted- 
 ness, like the paid-up capital stock, is required by the law to 
 be reported, in making return of annual net income, as out- 
 standing at the close of the year. 
 
 If no indebtedness is outstanding at the close of the year, 
 the maximum deduction allowable on account of interest paid 
 will be the amount of interest actually accrued and paid on 
 an amount of indebtedness not exceeding at any time within 
 the year the entire paid-up capital stock outstanding at the 
 close of the taxable year; that is, in such case, the paid-up 
 capital stock outstanding at the close of the year measures the 
 highest amount of indebtedness upon which deductible in- 
 terest can be computed. 
 
 For the purpose of an allowable deduction, interest on the 
 maximum amount of indebtedness, determined in the man- 
 ner above indicated, can be computed upon such amount only 
 for the time during which such amount of indebtedness is not 
 in excess of the paid-up capital stock, increased by one-half 
 the sum of the interest-bearing indebtedness outstanding at 
 the close of the year. 
 
 In any event, the amount of interest, in order to constitute 
 an allowable deduction, must not only be within the limit of 
 the law as herein defined, but must have actually accrued and 
 been paid within the year for which the return is made. 
 
 In cases where no capital stock exists, the limitation as to 
 deduction is confined to interest actually paid on an amount 
 of indebtedness not exceeding at any time during the year 
 the capital employed in the business at the close of the year. 
 
 Any provision in the regulations heretofore issued incon- 
 sistent with the foregoing is hereby revoked. 
 
Treasury Department Special Rulings 183 
 
 (T. D. 1961.) 
 
 Fiduciaries. 
 
 Forms 1015 and 1019 may be adapted so that but one certificate will 
 be required to be filed with coupons from the same issue of 
 bonds, the property of different estates or trusts. 
 
 Under Income Tax Regulations Xo. 33, Articles 39 and 70, 
 fiduciaries are required to file certificates on Form 1015 or 
 Form 1019, according to the nature of the claim to be made 
 by the fiduciary, for each issue of bonds and for each trust. 
 
 It is therefore provided that where fiduciaries have the cus- 
 tody and control of more than one estate or trust, and said 
 estates or trusts have as assets bonds of corporations, etc., of 
 the same issue, said fiduciaries may adapt certificates Form 
 1015 or Form 1019 by changing the words "estate or trust" 
 in lines 2 and 3 of said forms to the plural, and inserting in 
 the blank space provided in line 3 of said forms for the de- 
 scription of the estate or trust the words "as noted on the 
 back hereof." In such cases the notation on the back of the 
 certificate should show for each estate or trust (a) the name 
 of the estate or trust, (b) the amount of the bond, (c) the 
 amount of the interest. In all other respects the certificates 
 should be filled out as indicated thereon. 
 
 (T. D. 1962— See T. D. 2016.) 
 
 Information contained in income-tax returns to be treated as 
 inviolably confidential. 
 
 The attention of collectors of internal revenue, internal- 
 revenue agents, and other officers concerned is invited to sec- 
 tion 3167 of the United States Revenue Statutes, which pro- 
 hibits the disclosure of information contained in income and 
 other returns of internal-revenue taxpayers. 
 
 All internal-revenue officers will preserve as inviolably con- 
 fidential all income-tax returns, as the slightest infraction of 
 law upon this subject will be severely punished. 
 
184 Federal Income Tax 
 
 (T. D. 1965.) 
 
 Advance payment of tax withheld by withholding agents not to be 
 made prior to 30 days preceding the date on which the annual 
 return is required to be filed. 
 
 Attention is directed to note A appearing on the bottom of 
 Forms 1012, 1012c, 1043, and 1044, providing that- 
 Withholding agents may, if they so desire, pay at the time this 
 list is filed, to the collector of internal revenue with whom the list 
 is filed, the amount of tax withheld during the month for which the 
 list is made, 
 
 And to note A, Form 1042, providing that — 
 
 The amount of the tax withheld during the year for which the 
 list is made may be paid to the collector at the time the list is filed. 
 
 In order that persons whose income tax is deducted and 
 withheld and is to be paid at the source may have an oppor- 
 tunity to file with the source which is required to withhold 
 and pay tax for them certificates claiming the benefit of de- 
 ductions and exemptions provided for in paragraph B and 
 allowed in paragraph C of the law, withholding agents will 
 not pay to collectors of internal revenue the tax withheld by 
 them under the law until after the time for filing claims for 
 deductions and exemptions has expired. See Regulations No. 
 33, Art. 33, (a) and (b). 
 
 (T. D. 1967— See Page 297.) 
 
 Organizations, etc., exempted by the first proviso of paragraph G 
 of section 2 of the act of October 3, 1913, from payment of the 
 income tax are not subject to the provisions of the income-tax 
 law as withholding agents. 
 
 This office is in receipt of several communications relative 
 to the duty as withholding agents of religious corporations 
 and other organizations which are specifically enumerated in 
 the first proviso of paragraph G of section 2 of the act of 
 October 3, 1913. 
 
 The language of said proviso is as follows : 
 
Treasury Department Special Rulings 185 
 
 That nothing in this section shall apply to labor, agricultural, or 
 horticultural organizations, or to mutual savings banks not having 
 a capital stock represented by shares, or to fraternal beneficiary 
 societies, orders, or associations operating under the lodge system 
 or for the exclusive benefit of the members of a fraternity itself 
 operating under the lodge system, and providing for the payment of 
 life, sick, accident, and other benefits to the members of such socie- 
 ties, orders, or associations and dependents of such members; nor 
 to domestic building and loan associations; nor to cemetery com- 
 panies, organized and operated exclusively for the mutual benefit of 
 their members; nor to any corporation or association organized and 
 operated exclusively for religious, charitable, scientific, or educa- 
 tional purposes, no part of the net income of which inures to the 
 benefit of any private stockholder or individual; nor to business 
 leagues; nor to chambers of commerce or boards of trade, not organ- 
 ized for profit or no part of the net income of which inures to the 
 benefit of the private stockholder or individual, nor to any civic 
 league or organization not organized for profit but operated exclu- 
 sively for the promotion of social welfare. 
 
 You are therefore advised that the words "this section" are 
 held to refer to and mean the whole of section 2 of the act of 
 October 3, 1913,. which section comprises the income-tax law, 
 and that the words "nothing in this section shall apply to" 
 were intended to relieve such organizations, etc., as properly 
 come within the classifications referred to in the proviso 
 quoted, not only from the payment of an income tax but from 
 every obligation or requirement imposed by any or all of the 
 provisions of said section upon withholding agents. 
 
 (T. D. 1973.) 
 
 Revision of Form 1044, monthly list return of amount of normal in- 
 come tax withheld by first bank or collecting agency. 
 
 Collectors are hereby advised that Form 1044, for monthly 
 list return of amount of normal tax withheld by first bank or 
 collecting agency, has been revised in the following particu- 
 
186 Federal Income Tax 
 
 lars, so that the tax withheld from interest on bonds of differ- 
 ent classes or of more than one organization can be reported 
 thereon : 
 
 In the section of reading matter beginning, "To be made in 
 duplicate,'' in the fourth line thereof, change "coupon" to 
 "coupons," and strike out "and interest orders." 
 
 In the last line, next above the tabular list, strike out the 
 blank lines and the words thereunder, "Describe the particu- 
 lar issue of bonds," and "State name and address of debtor 
 organization." 
 
 Strike out the headings in the tabular list and substitute 
 therefor, in separate columns, "Party presenting coupons," 
 and immediately thereunder, in separate columns, "Name" 
 and "Address," "Name of debtor corporation," "Name of 
 particular issue of bonds," "Amount of income subject to 
 tax," and "Amount of tax withheld." 
 
 Immediately after and under the line of totals of the tabu- 
 lar list there shall be a double rule line. Strike out the words 
 now appearing below the total line of the tabular list on Form 
 1044, viz., "Amount of tax remitted herewith (if any) to col- 
 lector," and strike out the dotted line following these words, 
 and also the dollar mark on the same line, and strike out the 
 double rule line appearing immediately thereunder. 
 
 Strike out all of note A appearing at the bottom of the 
 form. 
 
 (T. L>. 1974.) 
 
 Change of regulations as to certificates of ownership in connection 
 with interest orders or checks for interest on registered bonds. 
 
 Articles 41 to 46 of the Regulations are hereby amended 
 so as to require, in the case of interest payments on bonds 
 registered as to both principal and interest, that debtors in 
 such cases shall deduct the normal tax of 1 per cent from 
 accruing interest on all such bonds before sending out orders 
 or checks for said interest to registered owners, unless there 
 
Treasury Department Special Rulings 187 
 
 shall be filed with said debtors, at least five days before the 
 due date of said interest, the prescribed certificates claiming 
 exemption. 
 
 Where such certificates are so filed the said debtors shall 
 stamp or write on the interest orders or checks, as the case 
 may be, "Exemption claimed by certificate filed with debtor." 
 
 Where prescribed certificates are not so filed, said debtor 
 shall deduct and withhold the normal tax of 1 per cent from 
 the amount of such payment, and shall stamp or write on the 
 interest order or check, as the case may be, "Income tax with- 
 held by debtor." 
 
 Responsible banks, bankers, or collecting agents receiving 
 for collection interest orders or checks bearing the aforesaid 
 indorsements may present said interest orders or checks for 
 collection without requiring that certificates of ownership be 
 filed therewith. 
 
 Certificates of ownership are not required to accompany in- 
 terest orders or checks in payment of interest on fully regis- 
 tered bonds, as information as to ownership of bonds will be 
 furnished by debtor organizations on monthly list returns, 
 Form 1012 ; but claim for exemption must be filed with 
 debtors, or the tax must be withheld ; and the form of certifi- 
 cate provided for use of owners of coupon bonds may be used 
 by owners of registered bonds for the purpose of claiming this 
 exemption. 
 
 Where, because of failure to file certificates claiming ex- 
 emption, in compliance with above regulations, a part of the 
 income from interest on registered bonds has been withheld 
 for the payment of the normal income tax, debtors may, upon 
 the filing of the proper certificates as provided in Article 42, 
 Income Tax Regulations, to the extent of exemption claimed, 
 release and pay to the persons entitled thereto the amount of 
 such income so withheld. 
 
188 
 
 Federal Income Tax 
 
 (T. D. 1976— See 1998.) 
 
 Supplemental regulations prescribing revised forms of certificates 
 of ownership, exemption, and substitute certificates in lieu of 
 such certificates now in use. 
 
 The following certificates are prescribed in lieu of certifi- 
 cates now in use, and are to be used in complying with the 
 income-tax regulations requiring the filing of certificates when 
 presenting coupons or interest orders for collection : 
 
 Revised Form 1000. 
 Ownership Certificate— Individual— EXEMPTION NOT CLAIMED. 
 
 shall be in the following form and shall be printed on white 
 paper : 
 Form 
 
 1000. 
 Revised. 
 
 I 
 
 a 
 
 o 
 
 
 
 SB 
 
 m 
 a 
 
 g 
 
 < 
 
 s 
 
 Ownership Certificate — Individual — Exemption not Claimed. 
 (To be furnished with coupons or interest orders showing ownership of bonds.) 
 
 (Give name of debtor.) 
 
 (Full description of bonds, giving name of issue and interest rate.) 
 191.. 
 
 (Date of maturity of interest.) 
 
 Amount of coupon or registered interest, $ 
 
 I do solemnly declare that I am a citizen or resident of 
 the United States and am the owner of the above-described 
 bonds from which were detached the accompanying coupons, 
 or from which I am entitled to the above-described regis- 
 tered interest, and that all of the information as given in 
 this certificate is true and correct. I do not now claim ex- 
 emption from having the normal tax of 1 per cent withheld 
 from said income by the debtor at the source. 
 
 Date, ,191 
 
 (Usual business signature of owner 
 •Note 1. — To be filled in only of bonds.) 
 when duly authorized agent exe- 
 cutes this certificate for owner, in 
 which case the name and address 
 of owner must be given and col- 
 lecting agent first receiving certifi- 
 cate must stamp across face, "Sat- 
 isfied as to identity and responsi- 
 bility of agent" (giving name and "O+By Agent 
 
 (Full post-office address of owner.) 
 
 (Usual business signature of agent 
 authorized to sign for owner.) 
 
 address of collecting agent) 
 
 Note 2. — If securities are owned 
 jointly by several persons one may 
 sign, and the names, addresses, and 
 proportion of ownership of each 
 indorsed on the back hereof. 
 
 Note 3. — When numbers of bonds _ _ 
 
 are required to be given, same are (Full post-office address of agent.) 
 
 to be entered on back hereof. 
 
 (SIGNATURES MUST BE CLEARLY AND LEGIBLY WRITTEN.) 
 
Treasury Department Special Rulings 
 
 189 
 
 On the back of said certificate there shall be printed, for 
 the use of joint owners of bonds, the following form, to wit: 
 
 JOINT OWNEBS. 
 
 If securities described on other side are owned jointly, the names 
 and addresses of owners and the proportion of ownership of each 
 should he given. 
 
 Names 
 
 Full Post-office Addresses 
 
 Proportion Owned 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Revised Form 1000 B. 
 Ownership Certificate— Individual— EXEMPTION CLAIMED. 
 
 shall be in the following form, and shall be printed on yellow 
 paper : 
 
 Form 
 1000 B. 
 Revised. 
 
 CM 
 H 
 Q 
 
 & 
 
 P 
 
 CD 
 
 < 
 
 m 
 S 
 
 H 
 
 Ownership Certificate— Individual — Exemption Claimed. 
 
 (To be furnished with coupons or interest orders showing ownership of bonds 
 
 and amount of exemption claimed under paragraph C of the Federal 
 
 income tax law.) 
 
 (Give name of debtor.) 
 
 (Full description of bonds, giving name of issue and interest rate.) 
 
 , 191 
 
 (Date of maturity of interest.) 
 
 Amount of coupon or registered interest, $ 
 
 Total exemption allowed under paragraph C, $ 
 
 Amount of exemption now claimed, $ 
 
 I do solemnly declare that I am a citizen or resident of 
 the United States and am the owner of the above-described 
 bonds from which were detached the accompanying coupons, 
 or from which I am entitled to the above-described regis- 
 tered interest, and that all of the information as given in 
 this certificate is true and correct. 
 
 Date, ,191 
 
 _,.-„-. , , (Usual business signature of owner 
 
 •Note 1.— To be filled in only when f bonds.) 
 
 duly authorized agent executes this 
 certificate for owner, in which case 
 the name and address of owner 
 must be given, and collecting agent 
 first receiving certificate must stamp 
 across face, "Satisfied as to identity 
 and responsibility of agent" (giv- 
 ing name and address of collecting 
 agent). 
 
 Note 2.— If securities are owned 
 jointly by several persons one may 
 sign, and the names, addresses, and 
 proportion of ownership of each in- 
 dorsed on the back hereof. 
 
 Note 3. — When numbers of bonds 
 are required to be given, same are 
 to be entered on back hereof. 
 
 (SIGNATURES MUST BE CLEARLY AND LEGIBLY WRITTEN.) 
 
 (Full post-office address of owner.) 
 
 -®a*By Agent. 
 
 (Usual business signature of agent 
 authorized to sign for owner.) 
 
 (Full post-office address of agent.) 
 
190 
 
 Federal Income Tax 
 
 On the back of said certificate there shall be printed, for 
 the use of joint owners of bonds, the following form, to wit: 
 
 JOINT OWNERS. 
 
 If securities described on other side are owned jointly, the names 
 and addresses of owners and the proportion of ownership of each 
 should be given. 
 
 Names 
 
 Full Post-office Addresses 
 
 Proportion Owned 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Revised Form 1001. 
 Ownership Certificate— FIRMS AND ORGANIZATIONS. 
 
 shall be in the following form, and shall be printed on yellow 
 paper : 
 Form 
 
 1001. 
 
 Revised. 
 
 3 1 
 
 Ownership Certificate — Firms and Organizations. 
 (Showing ownership of bonds, which is to be furnished by firms or organiza- 
 tions not subject to withholding of tax on interest at source.) 
 
 (Give name of debtor.) 
 
 (Full description of bonds, giving name of issue and interest rate.) 
 , 191 
 
 (Date of maturity of interest.) 
 
 Amount of coupon or registered interest, $ 
 
 I do solemnly declare that the firm or organization 
 named below, and of which I am a member or an officer, is 
 the owner of the above-described bonds from which were 
 detached the accompanying coupons, or upon which there 
 is due the above-described registered interest, and that 
 under the provisions of the Income Tax Law and Regula- 
 tions said interest is exempt from having the tax withheld 
 at the source, and that all the information given herein is 
 true and correct. 
 
 Date ,191 
 
 (Name of firm or organization.) 
 
 By 
 
 (Signature of person duly author- 
 ized to sign, and his official 
 position.) 
 
 Address: 
 
 (Give full post-office address of firm 
 or organization.) 
 Note. — When numbers of bonds are required to be given, same are to be 
 entered on back hereof. 
 
Treasury Department Special Rulings 
 
 191 
 
 Revised Form 1002. 
 
 CERTIFICATE FOR USE OF FIRST BANK OR COLLECTING 
 
 AGENCY. 
 
 shall be in the following form, and shall he printed on green 
 paper : 
 
 Form Certificate of Bank or Collecting Agency. 
 
 Revised. (To be presented with coupons or interest orders when not accompanied by 
 
 certificates of owners.) 
 
 X 
 ■< 
 H 
 
 W 
 S 
 
 z 
 o 
 
 (Give name of debtor.) 
 
 (Full description of bonds, giving name of issue and interest rate.) 
 
 , 191 
 
 (Date of maturity of interest.) 
 
 Amount of coupon or registered interest, $ 
 
 I (we) do solemnly declare that the bank or collecting 
 agency named below has purchased or accepted for collec- 
 tion the accompanying coupons or interest orders from 
 
 : , of and 
 
 (Name of party from whom received.) (Full post-office address of said party.) 
 
 that no certificate of ownership accompanied said coupons 
 or interest orders, and that I (we) have no knowledge as 
 to who is the owner or owners of the bonds (except as 
 noted on back hereof)* upon which the above-described in- 
 terest is due, and the bank or collecting agency hereby 
 acknowledges responsibility of withholding therefrom the 
 normal income tax of 1 per cent, in accordance with the 
 regulations of the Treasury Department. 
 
 Date, , 191.. 
 
 (Bank or collecting agency.) 
 
 By 
 
 (Signature of officer authorized to sign, and official position.) 
 
 (Full address of bank or withholding agency.) 
 
 •Note. — If the ownership of bonds is known to person signing this certifi- 
 cate, he must give the name and address of the owner on the back hereof. 
 
 (SIGNATURES MUST BE CLEARLY AND LEGIBLY WRITTEN.) 
 
192 
 
 Federal Income Tax 
 
 Revised Form 1004. 
 Ownership Certificate— NONRESIDENT ALIENS. 
 
 shall ho in the following form, and shall be printed on yellow 
 paper : 
 
 Form Ownerbhip Certificate — Nonresident Aliens. 
 
 1004. 
 
 Revised. (To De furnished with coupons detached from bond9 or other obligations owned 
 by citizens or subjects, firms, corporations, or organizations of foreign coun- 
 tries and who are not residents of the United StateB.) 
 
 < 
 
 H 
 
 § 
 
 o 
 o 
 
 z 
 
 a. 
 
 Q 
 
 « 
 
 5 
 
 ►a 
 < 
 
 H 
 
 (Give name of debtor.) 
 
 (Full description of bonds, giving name of issue and interest rate.) 
 
 191.. 
 
 (Date of maturity of interest.) 
 
 Amount of coupon or registered interest, % 
 
 I do solemnly declare that the owner of the bonds from 
 which were detached the accompanying coupons, or upon 
 which there matured the aforesaid registered interest, is a 
 nonresident alien in respect to the United States, and is 
 exempt from the income tax imposed on such income by 
 the United States Government under the law enacted Octo- 
 ber 3, 1913; that no citizen of the United States wherever 
 residing, or foreigner residing in the United States or in 
 any of its possessions, has any interest in said bonds; and 
 that all of the information as given in this certificate is 
 true and correct. 
 
 Date,.. 
 
 191.. 
 
 (Signature of owner or, if organiza- 
 tion, name.) 
 
 (If organization, signature of offi- 
 cial authorized to sign, and 
 official position.) 
 
 (Full post-office address of owner.) 
 
 Note. — When numbers of bonds are required to be given, same are to be en- 
 tered on back hereof.) 
 
 (SIGNATURES MUST BE CLEARLY AND LEGIBLY WRITTEN.) 
 
Treasury Department Special Rulings 
 
 193 
 
 Revised Form 1007. 
 CERTIFICATE CLAIMING EXEMPTION. 
 
 allowed citizens and resident aliens under paragraph C, shall 
 be in the following form, and shall be printed on yellow 
 paper : 
 
 Form 
 1007. 
 
 Revised. 
 
 
 H 
 Z 
 
 s 
 
 E-i 
 
 Ph 
 W 
 Q 
 
 !* 
 
 o 
 u 
 
 7 
 
 5 
 z 
 w 
 
 3 
 
 M 
 
 a 
 
 H 
 V. 
 
 Exemption Certificate- 
 
 (For claiming exemption at the source as provided in paragraph C of the 
 Federal income tax law of October 3, 1913.) 
 
 To.. 
 
 (Give name of withholding agent.) 
 
 (Full post-office address.) 
 
 I hereby serve you with notice that I am single — married, 
 with my (wife — husband) living with me, and that I now 
 
 claim the benefit of the exemption of $ , as allowed 
 
 in paragraph C of the Federal Income Tax Law of October 
 3, 1913 (my total exemption under said paragraph being 
 f ). 
 
 Date.. 
 
 .,191... Signed:. 
 
 Address:. 
 
 (Full post-office address.) 
 
 Note. — Claim for exemption on Form 1007 can be filed with the debtor or 
 withholding agent at any time, not less than 30 days prior to March first 
 next succeeding the year for which exemption is claimed. 
 
 (SIGNATURES MUST BE CLEARLY AND LEGIBLY WRITTEN.) 
 
 13 
 
194 
 
 Federal Income Tax 
 
 Revised Form 1015. 
 Ownership Certificate— FIDUCIARY, THE SOURCE. 
 
 shall be in the following form, and shall be printed on yellow 
 paper : 
 Form 
 
 1015. 
 Revised. 
 
 ►4 
 
 z s 
 
 w o 
 
 3 
 
 H 
 
 Q 
 
 & 
 
 P 
 00 
 
 «« 
 3 
 
 Ownership Certificate — Fiduciary, The Source. 
 
 (To be filed with debtor or withholding agents by fiduciaries claiming 
 exemption from withholding at the source.) 
 
 (Give name of debtor.) 
 
 (Full description of bonds, giving name of issue and interest rate.) 
 
 ,191.... 
 
 (Date of maturity of interest.) 
 
 Amount ot coupon or registered interest, $ 
 
 I (we) do solemnly declare that the estate or trust named 
 below is the owner of the above-described bonds from which 
 were detached the accompanying coupons, or upon which 
 there is due the above-described registered interest, and 
 acting for the estate or trust in the capacity herein stated, 
 I (we) hereby declare that I (we) do now claim exemption 
 from having the normal tax of 1 per cent withheld from 
 said income by the debtor at the source. I (we) hereby 
 assume the duty and responsibility, imposed upon with- 
 holding agents under the law, of withholding and paying 
 the income tax due for which I (we) may be liable. 
 
 Date.. 
 
 (Name of fiduciary.) (Capacity in which acting.) 
 
 ...,191.... For : 
 
 (Name of estate or trust.) 
 
 (Full post-office address.) 
 
 Note. — When numbers of bonds are required to be given, same are to be en- 
 tered on the back hereof. 
 
 (SIGNATURES MUST BE CLEARLY AND LEGIBLY WRITTEN.) 
 
Treasury Department Special Rulings 
 
 195 
 
 Revised Form 1019. 
 Certificate of Ownership— FIDUCIARY, NOT SOURCE. 
 
 shall be in the following form, and shall be printed on white 
 paper : 
 
 Ownership Certificate — Fiduciary, Not Source. 
 
 Form 
 1019. 
 
 Revised. 
 
 Z 
 S 
 
 m 
 
 a 
 
 g 
 
 s 
 
 O 
 O 
 
 z 
 
 (To be filed with debtor or withholding agents by fiduciaries when not claim- 
 ing any exemption, as an alternative to the filing of Form No. 1015 in which 
 exemption is claimed.) 
 
 (Give name of debtor.) 
 
 (Full description of bonds, giving name of issue and interest rate.) 
 
 ,191.... 
 
 (Date of maturity of interest.) 
 
 Amount of coupon or registered interest, $ 
 
 I (we) do solemnly declare that the estate or trust named 
 below is the owner of the above-described bonds from which 
 were detached the accompanying coupons, or upon which 
 there is due the above-described registered interest, and 
 acting for the estate or trust in the capacity herein stated, 
 I (we) hereby declare that I (we) do not now claim ex- 
 emption from having the normal tax of 1 per cent withheld 
 from said income by the debtor at the source. 
 
 Date.. 
 
 (Name of fiduciary.) (Capacity in which acting.) 
 ,191.... For 
 
 (Name of estate or trust.) 
 
 (Full post-office address.) 
 
 Note. — When numbers of bonds are required to be given, same are to be en* 
 tered on the back hereof. 
 
 (SIGNATURES MUST BE CLEARLY AND LEGIBLY WRITTEN.) 
 
196 
 
 Federal Income Tax 
 
 Form 1058. 
 Substitute Certificate— EXEMPTION CLAIMED. 
 
 shall be in the following form, and shall be printed on yellow 
 paper: 
 Form 
 
 1058. 
 
 Z 
 
 5 X 
 
 Q 
 
 El 
 
 D 
 
 OS 
 
 <! 
 H 
 
 i- 
 
 Substitute Certificate — Exemption Claimed. 
 
 (To be attached to interest coupons when the collecting agent's certificate ia 
 substituted for the certificate of owner in which exemption was claimed.) 
 
 (Give name of debtor.) 
 
 (Full description of bonds, giving names of issue and interest rate.) 
 
 ,191.... 
 
 (Date of maturity of interest.) 
 
 Amount of coupon or registered interest, $ 
 
 Total exemption allowed under paragraph C, $ 
 
 Amount of exemption claimed, $ 
 
 I (we) do solemnly declare that the owner of the above- 
 described bonds from which were detached the accompany- 
 ing interest coupons has filed with me (us) a certificate of 
 
 ownership, Form No , duly executed and filled in 
 
 according to Treasury Regulations, which certificate has 
 been indorsed by me (us) as required by Treasury Regula- 
 tions, and that under the provisions of the income tax law 
 and regulations, said interest is exempt from the withhold- 
 ing and payment of the income tax at the source, or that 
 exemption was claimed as stated herein; and I (we) do 
 hereby promise and pledge myself (ourselves) to forward 
 the said certificate to the Commissioner of Internal Reve- 
 nue, at Washington, D. C, not later than the 20th day of 
 next month, in accordance with Treasury Regulations. 
 
 Date 191.... 
 
 By 
 
 No.. 
 
 (Name of bank or collecting agency.) 
 (Signature of person authorized to sign, and his official position.) 
 (Full post-office address of collecting agency.) 
 
Treasury Department Special Rulings 
 
 Form 1059. 
 
 Substitute Certificate— EXEMPTION NOT CLAIMED. 
 
 197 
 
 shall be in the following form, and shall be printed on white 
 paper : 
 
 Form 
 1059. 
 
 H 
 v, 
 
 9 
 
 < 
 
 H 
 P 
 
 SOBSTITTJTB CERTIFICATE— EXEMPTION NOT CLAIMED. 
 
 (To be attached to interest coupons when collecting agent's certificate is sub- 
 stituted for certificate of owner in which exemption was not claimed.) 
 
 (Give name of debtor.) 
 
 (Full description of bonds, giving name of issue and interest rate.) 
 
 ,191.... 
 
 (Date of maturity of interest.) 
 
 Amount of coupon or registered interest, % 
 
 I (we) do solemnly declare that the owner of the above- 
 described bonds from which were detached the accompany- 
 ing coupons has filed with me (us) a certificate of owner- 
 ship, Form No , duly executed and filled in according 
 
 to Treasury Regulations, which certificate has been indorsed 
 by me (us) as required by Treasury Regulations, and which 
 certificate did not claim any exemption from having the 
 normal tax of 1 per cent withheld by the debtor at the 
 source; and I (we) do hereby promise and pledge myself 
 (ourselves) to forward the said certificate to the Commis- 
 sioner of Internal Revenue, at Washington, D. C, not later 
 than the 20th day of next month, in accordance with Treas- 
 ury Regulations. 
 
 Date.. 
 
 191.. 
 
 (Name of bank or collecting agency.) 
 
 By 
 
 (Signature of person authorized to sign, 
 and his official position.) 
 
 No.. 
 
 (Full post-office address of collecting agency.) 
 
 All certificates shall be, in size, 8 by 3^ inches, and shall 
 be printed to read from left to right along the 8-inch dimen- 
 sion. 
 
198 Federal Income Tax 
 
 All certificates claiming exemption shall be printed on yel- 
 low paper; all certificates not claiming exemption shall be 
 printed on white paper; and certificate Form 1002, for use 
 by the first bank or collecting agency, shall be printed on 
 green paper. 
 
 All paper upon which certificates shall be printed shall cor- 
 respond in weight and texture to white writing paper 21 by 
 32, about 40 pounds to the ream of 500 sheets. 
 
 Certificates heretofore authorized, when properly executed, 
 will be accepted up to October 1, 1914. 
 
 The revised certificates hereby provided will be printed by 
 the Government and furnished without cost for the use of 
 bond owners. 
 
 All existing regulations which may be in conflict with the 
 prescriptions of this regulation are hereby superseded. 
 
 individuals or organizations desiring to print their own 
 certificates may do so, but certificates so printed must con- 
 form in size and be printed in similar type, upon the same 
 color, shade, and weight of paper as used by the Government. 
 
 W. H. OSBOEN, 
 
 Approved : Commissioner of Internal Revenue. 
 
 W. G. McAdoo, 
 
 Secretary of the Treasury. 
 
 (T. D. 1977.) 
 
 Ownership certificate to be executed by foreign banks, bankers, etc., 
 claiming exemption of nonresident alien from income tax on in- 
 terest on bonds owned by said nonresident alien, viz., citizens 
 or subjects, firms, corporations, or organizations of foreign coun- 
 tries who are not residents of the United States. 
 
 For the purpose of complying with income-tax regulations 
 requiring the filing of certificates of ownership of bonds when 
 presenting coupons or interest orders for collection of interest 
 
 1 Note. — Sample certiBcates showing size of type and color of paper can be secured 
 from collectors of internal revenue in their several districts or from the Commissioner of 
 Internal Revenue at Washington, D. C. 
 
Treasury Department Special Rulings 
 
 199 
 
 on bonds of domestic corporations of the United States owned 
 by nonresident aliens as to the United States, a certificate in 
 the form following is provided, which may be executed by 
 responsible banks or bankers in foreign countries for and in 
 behalf of nonresident alien owners of bonds of United States 
 corporations : 
 
 Form 
 1060. 
 
 3 
 
 Z § 
 W O 
 
 s o 
 
 5 2 
 5 T 
 
 £ B 
 w 5 
 
 i 
 
 2 
 
 Ownership Certificate— Nonresident Alien— To be Execcted 
 by Banks, Bankers, Etc. 
 
 {For use by foreign banks or bankers, to accompany coupons detached from 
 bonds or other obligations owned by citizens or subjects, firms, corpora- 
 tions, or organizations of foreign countries, and who are not residents of 
 the United States.) 
 
 (Give name of debtor.) 
 
 (Full description of bonds, giving name of issue and interest rate.) 
 
 191 Amount of coupon or registered interest, $ 
 
 (Date of maturity of interest.) 
 
 I (we) do solemnly declare that the owners of the bonds from which were 
 detached the accompanying coupons or upon which there matured the afore- 
 said registered interest are nonresident aliens as to the United States and are 
 exempt from the income tax imposed on such income by the United States 
 Government under the law enacted October 3, 1913; that no citizen of the 
 United States, wherever residing, or foreigner residing in the United States or 
 in any of its possessions, has any interest in said bonds; and that all of the in- 
 formation as given in this certificate is true and correct. I (we) hereby agree 
 that if at any time within three years from the date of this certificate it shall 
 appear that the income or any part thereof represented or covered by this 
 certificate was or is subject to the normal tax imposed by the United States, 
 upon presentation of proof of that fact to me (us) by, from, or through the 
 Commissioner of Internal Revenue, Washington, D. C, I (we) will pay and re- 
 mit to the United States Government the amount of tax claimed to be due; 
 and I (we) hereby further agree that whenever in the judgment of the Com- 
 missioner of Internal Revenue it shall be necessary in or to the administration 
 of the income tax law, I (we) will, upon request of the said Commissioner of 
 Internal Revenue, disclose and furnish to him the names and addresses of the 
 owners and the amounts of the bonds aforesaid. 
 
 Date, 
 
 ., 191.. 
 
 (Name of bank or banker.) 
 
 By_ -— - 
 
 (Signature of official authorized to sign.) 
 
 (Official position.) 
 
 (Full post-office address of bank or banker.) 
 
 Note. — When numbers of bonds are required to be given, same are to be en- 
 tered on back hereof. 
 
 (SIGNATURES MUST BE CLEARLY AND LEGIBLY WRITTEN.) 
 
 When foreign banks or bankers shall use the foregoing cer- 
 tificate, they may include in one certificate all the coupons 
 from bonds of the same class and same issue, and may include 
 
200 Federal Income Tax 
 
 in one certificate all the interest orders or checks for interest 
 on registered bonds of the same class and same issue. 
 
 The above certificate shall be in size 8 by 3} inches, and 
 shall be printed to read from left to right along the 8-inch 
 dimension. 
 
 The certificate shall be printed on yellow paper and such 
 paper shall correspond in weight and texture to white writing 
 paper 21 by 32, about 40 pounds to the ream of 500 sheets. 
 
 The revised certificate hereby authorized will be printed 
 by the Government and furnished without cost. 
 
 Individuals or organizations desiring to furnish their own 
 certificates may do so, but certificates so printed must con- 
 form in size to that prescribed above and be printed in similar 
 type upon the same color, shade, and weight of paper as used 
 by the Government. 
 
 Sample certificates showing size of type and color of paper 
 can be secured from collectors of internal revenue in their 
 several districts, or from the Commissioner of Internal 
 Revenue, Washington, D. C. 
 
 (T. D. 1986.) 
 
 Execution of income tax substitute certificates 1058 and 1059 by 
 banks or collecting agents. 
 
 You are advised that as a convenience to banks and collect- 
 ing agents who desire to substitute their certificates, Forms 
 1058 and 1059, for the owner's certificate accompanying the 
 coupons deposited for collection, it is hereby provided that 
 the name of the bank or collecting agent may be printed or 
 stamped, and that a facsimile of the signature of the person 
 authorized to sign the substitute certificate for the bank or 
 collecting agent may also be printed or stamped on the certifi- 
 cate: Provided, that in all cases the bank shall first file with 
 the Commissioner of Internal Revenue a certificate of its au- 
 thorization in substantially the form following: 
 
Treasury Department Special Kulings 201 
 
 (City.) (Date.) 
 
 The Commissioner of Internal Revenue. 
 
 Washington, D. C. 
 The undersigned hereby authorizes the use of the facsimile signa- 
 ture shown below upon all substitute income tax certificates issued 
 in its name until this authorization is revoked by written notice to 
 you. 
 
 (Name of bank or collecting agent.) 
 
 By 
 
 (Signature of person authorized to sign.) 
 
 (Facsimile signature of person au- (Official position.) 
 
 thorized to sign.) 
 
 (T. D. 1988.) 
 Certificate of Ownership of Bonds — Nonresident Alien. 
 
 (Form 1060) provided to be executed by foreign banks or bankers 
 may be used by domestic banks or bankers. 
 
 The provisions of T. D. 1977 permitting responsible banks 
 or bankers of foreign countries to execute certificates of own- 
 ership (Form 1060) for nonresident alien owners of bonds 
 of domestic corporations are hereby extended to and for the 
 use of responsible banks or bankers in the United States for 
 and in behalf of nonresident alien owners of bonds of United 
 States corporations. 
 
 (T. D. 1989.) 
 
 Designation of losses which are deductible from gross income within 
 a taxable year. 
 
 Several letters have been received in which inquiry has been 
 made as to whether losses resulting from the sale of real estate 
 
202 Federal Income Tax 
 
 by individuals are properly deductible from gross income in 
 the returns of annual net income of individuals for the in- 
 come tax. 
 
 Under paragraph B of the Income Tax Law it is provided 
 that among the deductions to be allowed shall be "losses actu- 
 ally sustained during the year, incurred in trade or arising 
 from fires, storms, or shipwreck, and not compensated for by 
 insurance or otherwise." 
 
 Losses arising from fires, storms, or shipwreck and not com- 
 pensated for by insurance or otherwise are easily ascertained 
 and there would not appear to be any chance of an erroneous 
 construction as to these. Losses actually sustained during 
 the year incurred in trade are limited by the language of the 
 act itself. 
 
 "In trade" is synonymous with business. 
 
 "Business" has been defined as — 
 
 That which occupies and engages the time, attention, and labor of 
 any one for the purpose of livelihood, profit, or improvement; that 
 which is his personal concern or interest; employment, regular occu- 
 pation, but it is not necessary that it should be his sole occupation 
 or employment. 
 
 The doing of a single act incidentally or of necessity not 
 pertaining to the particular business of the person doing the 
 same will not be considered engaging in or carrying on the 
 business. 
 
 It is therefore held that no losses are deductible in a return 
 of income save and only those losses permitted and provided 
 for by the statute, viz., those actually sustained during the 
 year — 
 
 Which are "incurred in trade," 
 
 Or which arise from "fires, storms, or shipwreck and not 
 compensated for by insurance or otherwise." 
 
Treasury Department Special Rulings 203 
 
 (T. D. 1992— See T. D. 2006.) 
 
 Bonds of foreign corporations payable, as to interest, wholly within 
 the United States, or within or without the United States, at the 
 option of the owner of the bonds, to be treated for income-tax 
 purposes as domestic bonds when accompanied by certificates of 
 ownership properly executed. 
 
 Where foreign corporations have an issue of bonds, the in- 
 terest upon which is payable wholly within the United States, 
 or within or without the United States, at the option of the 
 owners of the bonds, in all cases where said foreign corpora- 
 tions have fiscal agents within the United States and the said 
 bonds are owned by citizens of the United States or aliens 
 resident within the United States, the collection of interest 
 on said bonds shall be considered to be and be treated as a 
 domestic transaction upon the filing with said coupons certifi- 
 cates of ownership properly executed : Provided, That when- 
 ever coupons from foreign bonds not accompanied by certifi- 
 cates of ownership are presented for collection they shall be 
 treated as foreign items, and the first bank or collecting agency 
 receiving or accepting the same for collection or otherwise 
 shall deduct, withhold, and pay the tax as provided by in- 
 come-tax regulations for the collection of foreign income. 
 
 Where a foreign corporation has an issue of registered 
 bonds, the interest on which is payable through a fiscal agent 
 in the United States, certificates of exemption may be filed 
 with said fiscal agent in manner and form as prescribed by 
 T. D. 1974, and payment by said fiscal agent shall be made 
 in accordance with the provisions of T. D. 1974. 
 
 (T. D. 1993.) 
 
 Interest paid on indebtedness wholly secured by collateral the sub- 
 ject of sale in the ordinary business of a corporation may be 
 deducted as a part of its expense of doing business. 
 
 This office is in receipt of numerous letters asking a ruling 
 of this office as to the application of the following proviso 
 
204 Federal Income Tax 
 
 quoted from subdivision (b) of subsection G of section 2, act 
 of Congress approved October 3, 1913, to wit: 
 
 Provided, That in the case of indebtedness wholly secured by col- 
 lateral the subject ot sale in the ordinary business of such corpora- 
 tion, joint-stock company or association, the total interest secured 
 and paid by such company, corporation, or association, within the 
 year on any such indebtedness may be deducted as a part of its ex- 
 pense of doing business. 
 
 Many of these inquiries come from corporations engaged in 
 buying and selling real estate, which real estate is pledged for 
 the payment of indebtedness, and the question submitted is 
 whether or not such real estate is "collateral" within the 
 meaning of the proviso quoted and whether or not corpora- 
 tions paying interest on indebtedness wholly secured by such 
 collateral may deduct from gross income as "an expense of 
 doing business" the amount of interest paid on such indebted- 
 ness. 
 
 Relative to this you are informed that "collateral," as used 
 in this proviso, comj>rehends and includes real estate or any 
 form of physical or tangible property bound for the perform- 
 ance of certain covenants, the payment of certain obligations, 
 and if such real estate or other physical or tangible property 
 is the "subject of sale in the ordinary business of the corpora- 
 tion" owning the same, that is, if such corporation is, as a 
 matter of its ordinary business, engaged in buying and selling, 
 or dealing in such property, the interest actually paid within 
 the year on indebtedness wholly secured by such collateral 
 (a mortgage on such property) may be allowably deducted 
 from gross income under item 4 (a) of the return form as an 
 expense of doing business, without regard to the limit of de- 
 ductible interest as set out in subdivision "Third," paragraph 
 (b), subsection G of the Federal Income Tax Law hereinbe- 
 fore cited. 
 
 This construction of the proviso quoted is not intended to 
 and does not authorize the deduction as "an expense of doing 
 business" of any interest paid or indebtedness secured by 
 property, real or personal, which is not the "subject of sale in 
 
Treasury Department Special Rulings 205 
 
 the ordinary business of the corporation," but which is held 
 by it for the purpose of, or as an instrument in carrying on, 
 its ordinary business — such as the rights of way and other 
 property of public utility companies, permanent office build- 
 ings and property of like character held or occupied for their 
 own particular use or purpose in the furtherance of the objects 
 of the corporation, but Avhich property is not the subject of 
 sale in their ordinary business, and which is simply occupied 
 or used as an instrument or means of, or essential to, the 
 carrying on of the ordinary business for the transaction of 
 which they are organized. The fact that such property may 
 be subject to sale under extraordinary or peculiar conditions 
 does not qualify, but rather disqualifies, it as "collateral" 
 such as is contemplated by this provision of the act cited. 
 
 The only corporations, joint-stock companies, or associa- 
 tions which will be allowed under this proviso as herein in- 
 terpreted to deduct as "an expense of doing business" interest 
 paid on indebtedness wholly secured by mortgage on real 
 estate, or other physical and tangible property, are those cor- 
 porations, joint-stock companies, or associations which are 
 organized and operated for the exclusive purpose of buying, 
 selling, and dealing in the particular kind of property upon 
 which the mortgage is given, and the particular property 
 pledged for the debt upon which the interest is paid must be 
 the "subject of sale in the ordinary business of the corpora- 
 tion." 
 
 Any corporation whose indebtedness is secured by a trust, 
 mortgage, or by any form of indenture which covers and in- 
 cludes in the lien any property which is not the subject of sale 
 in the ordinary business of such corporation, will be and is 
 excluded from the benefit of this proviso, as hereinbefore 
 construed, and its interest deduction will be limited to the 
 amount authorized in subdivision "Third" above referred to — 
 that is, the interest actually paid within the year at the con- 
 tract rate on an amount of bonded or other indebtedness at no 
 time within the year in excess of a sum ascertained by adding 
 to the paid-up capital stock outstanding at the close of the 
 
206 Federal Income Tax 
 
 year one-half of the total amount of the interest-bearing in- 
 debtedness also then outstanding. 
 
 Corporations which under this ruling are entitled to deduct 
 as "an expense of doing business" the total amount of interest 
 paid within the year on "indebtedness wholly secured by col- 
 lateral the subject of sale in the ordinary business of such 
 corporations," are required to state separately in their returns 
 the amount of indebtedness upon which such interest is paid, 
 segregating it from the indebtedness not so secured and upon 
 which the interest paid is taken credit for or deducted under 
 item 6 (a) of the return form. The interest-bearing indebt- 
 edness stated under item 2 of the return form as one of the 
 bases for determining the amount of interest which may be 
 allowably deducted under item 6 (a) must not include any 
 "indebtedness wholly secured by collateral the subject of sale 
 in the ordinary business of the corporation." Failure to seg- 
 regate the two forms of indebtedness will render the interest 
 deduction under item 6 (a) subject to suspension and dis- 
 allowance. 
 
 (T. D. 1996.) 
 
 Cooperative dairies and like organizations do not fall within the 
 classes of organizations enumerated in subsection G, section 2, 
 act of October 3, 1913, as exempt, and are required to make 
 returns of annual net income. 
 
 Attention is called to Article 92 of Kegulations No. 33, 
 approved January 5, 1914, in which it is provided that co- 
 operative dairies not issuing stock and allowing patrons divi- 
 dends based on the percentage of butterfat in milk furnished 
 are not liable to the requirements of section 2, act of October 
 3, 1913. 
 
 This article is amended to the effect that cooperative dairy 
 associations, whether issuing capital stock or not, are required 
 to make returns of annual net income pursuant to the require- 
 ments of this act. 
 
Treasury Department Special Rulings 207 
 
 The only corporations, joint-stock companies or associa- 
 tions, or insurance companies exempt from the requirements 
 of this act are those which fall within one or another of the 
 classes specifically enumerated in the first proviso of subsec- 
 tion G of the act cited as exempt. 
 
 Cooperative dairies, no matter how organized, do not ap- 
 pear to fall within any of these exempted classes, and will, 
 therefore, be required to make returns. 
 
 In the preparation of their returns, cooperative dairies 
 may include in their deductions from gross income the amount 
 actually paid to members and patrons for milk, but any 
 amount retained at the end of the year over and above ex- 
 penditures will be returned as net income, upon which the tax 
 will be computed and assessed. 
 
 In so far as Article 92, hereinbefore referred to, is in con- 
 flict with this ruling, it is hereby revoked, and collectors will 
 require all organizations of this character to make returns of 
 annual net income and in other respects comply with the re- 
 quirements of the Federal Income Tax Law as it applies to 
 corporations, joint-stock companies or associations, and in- 
 surance companies. 
 
 In so far as applicable, this ruling also applies to mutual 
 or cooperative telephone companies, farmers' insurance com- 
 panies, and like organizations. 
 
 (T. D. 1997.) 
 Monthly list returns not to be made under oath. 
 
 The requirement that monthly list returns be made under 
 oath (as provided by Articles 35, 50, 53, and 59, Income Tax 
 Regulations No. 33, when filed by withholding agents on or 
 before the 20th of the month following that in which with- 
 holding occurred) is hereby waived. 
 
 In all cases the annual list return required of withholding 
 agents (of which the monthly list returns will form a part 
 
208 Federal Income Tax 
 
 as required by regulations) will be made, sworn to, and filed 
 as now required by existing regulations, and the jurat for the 
 annual list return will cover the entire return as thus made up. 
 
 (T. D. 1908.) 
 
 Exemption certificate provided for use of firms, organizations, and 
 fiduciaries claiming exemption from withholding of tax at source 
 on income other than interest on bonds. 
 
 The following certificate is hereby provided for use of 
 firms, organizations, and fiduciaries for the purpose of estab- 
 lishing their identity and nonliability to withholding at the 
 source of income (other than interest on bonds) payable to 
 them. Said certificates shall be of the size and be printed on 
 yellow paper of the weight and texture all as provided by 
 T. D. 1976, the requirements of which are hereby made appli- 
 cable to the certificate hereby provided. 
 
 (Form 1063.) 
 
 Exemption Certificate — Firms, Organizations, or Fiduciaries. 
 
 (For use of firms, organizations, or fiduciaries entitled to receive income other than from 
 
 interest on bonds to establish their identity and nonliability to withholding 
 
 at the source.) 
 
 (Give name of debtor.) 
 
 (Character of income, other than interest on bonds, as rent, dividends from foreign cor- 
 porations, etc.) 
 
 I do solemnly declare that the firm, organization, or person named 
 below is entitled to receive the above-described income, and that 
 under the provisions of the income tax law and regulations said in- 
 come is exempt from having the tax withheld at the source, and that 
 all the information given herein is true and correct. 
 
 Date, 191 
 
 (Name of firm, organization, or fiduciary.) 
 
 By.. 
 
 (Signature of person duly authorized to sign 
 for firm or organization and his official 
 position or name of trust.) 
 
 Address 
 
 (Give full post-office address of firm or or- 
 ganization or fiduciary.) 
 
Treasury Department Special Eulings 209 
 
 The exemption certificate provided for the use of indi- 
 viduals is Form 1007, which will be used by individuals in all 
 cases except for interest on bonds, for which Forms 1000 and 
 1000B are provided. 
 
 (T. D. 2001— See 2029.) 
 
 Corporations desiring to make returns of annual net income on the 
 basis of a fiscal year must give notice in writing to the collector 
 not less than 30 days prior to March 1, designating in such no- 
 tice the last day of some month as the close of the fiscal year. 
 Failure to give such notice at least 30 days prior to March 1, or 
 to make return for the preceding calendar year on or before 
 March 1, renders corporations liable to additional tax and pen- 
 alty. 
 
 Your attention is called to the following provision quoted 
 from paragraph O, subsection G of section 2, act of October 
 3, 1913: 
 
 The tax herein imposed shall be computed upon its entire net in- 
 come accrued within each preceding calendar year ending December 
 thirty-first; * * * Provided further, That any corporation, etc., 
 subject to this tax may designate the last day of any month in the 
 year as the day of the closing of its fiscal year and shall be entitled 
 to have the tax payable by it computed upon the basis of the net in- 
 come ascertained as herein provided for the year ending on the day 
 so designated * * * and it shall give notice of the day it has 
 thus designated as the closing of the fiscal year to the collector of 
 the district in which its principal business office is located at any 
 time not less than thirty days prior to the date upon which its an- 
 nual return shall be filed. 
 
 Except as provided in the act, all corporations are required 
 to make their returns of annual net income on the basis of the 
 calendar year and to file such returns on or before the 1st day 
 of March next following. March 1 is, therefore, the primary 
 due date for the returns of all corporations. This due date 
 can be postponed only in accordance with some legal or 
 authorized action. Unless such action is taken within the 
 prescribed time, or the returns filed on or before March 1, all 
 corporations in existence at the preceding December 31 and 
 14 
 
210 Federal Income Tax 
 
 failing to take such action, or so file their returns for the 
 period ended December 31, will be held to be delinquent, and 
 will be subject to 50 per cent additional tax and the penalty 
 of the law. 
 
 The filing of returns at any date other than on or before 
 March 1 and on a basis other than the calendar year can be 
 authorized only in cases wherein corporations, not less than 
 30 days prior to March 1, give notice in writing to the col- 
 lector of the district in which are located their principal 
 places of business, designating in such notice the last day of 
 some month as the close of their fiscal year. In this case the 
 corporations will make their returns for the year so estab- 
 lished, and will file their returns on or before the last day of 
 the 60-day period next following the date designated as the 
 close of the fiscal year. 
 
 For the purpose of the income tax law, a fiscal year, when 
 designated, must be so designated that the return made on 
 this basis will not comprehend a period greater than 12 con- 
 secutive months. If the required notice is delayed until it 
 cannot be given at least 30 days prior to March 1, or if the 
 date designated as the close of the fiscal year comprehends a 
 period greater than 12 months from the close of the period 
 for which the last prior return was made, the returns must 
 be made as of the calendar year and must be filed on or before 
 March 1 until such time as a fiscal year for this purpose can 
 be legally established. 
 
 If a corporation which shall have filed, on or before March 
 1, its return for the preceding period ended December 31, 
 desires to establish, as a basis for making future returns, a 
 fiscal year ended at some date prior to the next December 31, 
 it may do so by filing, at least 30 days prior to the date when 
 its returns, on a fiscal year basis, will be due, a notice with 
 the collector designating the last day of some month as the 
 close of its fiscal year. It will then, on or before the last day 
 of the 60-day period next following the date so designated, 
 file a return covering the period from January 1 to the date 
 
 
Treasury Department Special Rulings 211 
 
 so designated in the same year, and thereafter its returns 
 will be made for each twelve-month period next following 
 such date. 
 
 The above rulings will apply to corporations which began 
 business within the year, as well as to those which were in 
 existence and transacted business throughout the year. 
 
 Any ruling or Treasury decision heretofore issued and in 
 conflict with this decision is hereby recalled and revoked. 
 
 (T. D. 2005— See 2130 and 2090, page 12.) 
 
 Instructions and rules for determining what amount is to be allowed 
 as a deduction tor loss in a return ot income. — Depreciation 
 allowed by law does not include shrinkage in value of stocks, 
 bonds, etc. 
 
 For the purpose of checking up returns and ascertaining 
 the amount of taxable income of individuals and corporations 
 you are given the following instructions and rules for use in 
 determining the amount of deductible loss allowable to indi- 
 viduals and corporations under the fourth deduction (par. B, 
 p. 5), Regulations No. 33, and second deduction, for domestic 
 corporations (par. G, p. 11), and second deduction, for for- 
 eign corporations (par. G, p. 15), Regulations Xo. 33. 
 
 The loss considered here has in it no element of "deprecia- 
 tion," or "allowance for wear and tear," or "compensation 
 from insurance or otherwise." It is to be such loss as is abso- 
 lute and complete and which has been actually sustained. 
 
 Depreciation as an allowable deduction in ascertaining 
 annual net income for the income tax is separately provided 
 for and is not to be confused with loss. The depreciation 
 provided to be taken as a deduction in a return of income is 
 the value assigned to the deterioration of physical improve- 
 ments or assets, such as are susceptible of having their value 
 lessened through wear and tear, use or obsolescence. 
 
 The depreciation referred to in the income-tax law does not 
 
212 Federal Income Tax 
 
 relate to evidence of a right or interest in property, and hence 
 any shrinkage in the value of bonds, stocks, and like securi- 
 ties due to fluctuations in their market value is not deductible 
 in a return of income as depreciation or loss. 
 
 Losses may be sustained by individuals or corporations on 
 personal or real property. Only those losses are deductible 
 which are sustained during the tax year "in trade" — that is, 
 the business which engages the time, attention, and labor of 
 any one for the purpose of livelihood, profit, or improvement. 
 Loss to bo deductible must be an absolute loss, not a specula^ 
 tive or fluctuating valuation of continuing investment, but 
 must be an actual loss, actually sustained and ascertained 
 during the tax year for which the deduction is sought to be 
 made; it must be incurred in trade and be determined and 
 ascertained upon an actual, a completed, a closed transaction. 
 
 Losses sustained by individuals or corporations from the 
 sale of or dealings in personal or real property growing out 
 of ownership or use of or interest in such property will not 
 be deductible at all unless they are an incident of, connected 
 with, and grow out of the business of the individual or cor- 
 poration sustaining the loss, and are ascertained, determined, 
 and fixed as absolute in the above sense within the taxable 
 year in which the deduction is sought to be made. When loss 
 under this heading is ascertained to be deductible, the entire 
 amount of the loss will be deductible except where the prop- 
 erty in connection with which the loss occurred was acquired 
 prior to March 1, 1913, in the case of individuals, and prior 
 to January 1, 1909, in the case of corporations, and then and 
 in such event the loss ascertained will be prorated over the 
 whole time the property was held, and that part of the whole 
 loss apportioned to the taxable period will be taken into ac- 
 count in annual returns of income. In prorating, fractional 
 parts of years will not be considered. 
 
 Loss is the difference between selling price and cost where 
 the selling price is less than cost. 
 
 Cost of property purchased prior to the incidence of the 
 special excise tax (Jan. 1, 1909), or the incidence of the 
 
Treasury Department Speciax Rulings 213 
 
 income tax (Mar. 1, 1913), will be the actital price paid for 
 the property, including the expense incident to the procure- 
 ment of the property in the first instance and its sale there- 
 after, together with carrying charges of interest, insurance, 
 and taxes actually paid prior to the incidence of tax (special 
 assessments, if any, "actually paid" as "local benefits" in 
 connection with real estate) ; provided that where, up to the 
 incidence of the tax, the expense of carrying property has 
 exceeded the income from it, the difference between the ex- 
 pense of carrying and the income from the property shall be 
 added to the purchase price and the sum thus ascertained 
 shall be the cost of the property ; and provided further, that 
 in the case of property purchased prior to the incidence of 
 the tax and sale thereof subsequent to the incidence of the tax 
 there shall be excluded from consideration in ascertaining 
 cost any items of income, expense, interest, and taxes previ- 
 ously taken into account in preparing a return of annual net 
 income. 
 
 The cost of property acquired subsequent to the incidence 
 of the tax will be the actual price paid for it, together with 
 the expense incident to the procurement of the property in 
 the first instance and its sale thereafter and the cost of im- 
 provement or development, if any. 
 
 All existing rulings and regulations in conflict herewith 
 are hereby annulled and superseded. 
 
 (T. D. 2006.) 
 
 Definition of "foreign corporation" and "fiscal agent" as used in T. D. 
 1992, and further explanation of method of handling collection 
 of income from bonds of such foreign corporations and foreign 
 countries having fiscal agents in the United States. 
 
 Doubt having arisen as to the comprehensiveness of the 
 term "foreign corporation," and the duties under the income 
 tax law of "fiscal agents," as provided in T. D. 1992, you are 
 
214 Federal Income Tax 
 
 advised that ''foreign corporations" as used in said decision 
 was intended to include municipal and private corporations 
 holding charters under laws of countries foreign to the United 
 States, and "hscal agents" refers to financial agents in the 
 ordinary sense, upon whom the law casts the same duties with 
 reference to withholding and paying the tax as are imposed 
 upon withholding and paying agents of domestic corporations 
 by appointment. 
 
 Where a foreign government has a fiscal agent in the United 
 States for the purpose of paying the interest on its obligations, 
 such fiscal agent will be charged with the duty of withholding 
 and paying the tax on such interest payments, except to the 
 extent of exemption claimed. 
 
 "Where such foreign countries or corporations have an issue 
 of bonds payable wholly within the United States or within 
 or without the United States, at the option of the owner of 
 the bonds, and where the coupons from such bonds are pre- 
 sented for payment to the fiscal agent in the United States of 
 such foreign countries or corporations or for collection to a 
 bank or collecting agency whether licensed or not, with owner- 
 ship certificate attached, then and in all such cases said cou- 
 pons shall be treated as domestic items and the aforesaid fiscal 
 agents will be charged with the duties and responsibilities of 
 withholding and paying agents, and will make return on Form 
 1012, as provided by income tax regulations. 
 
 Where, however, such coupons are not presented with such 
 ownership certificates attached, they shall be received only 
 by a licensed bank or collecting agency, and when so received 
 shall be considered to be and be treated as foreign items, in 
 accordance with the regulations for the collection of foreign 
 income. 
 
 This ruling is made in explanation and amendment of 
 T. D. 1992 and other applicable regulations. 
 
Treasury Department Special Rulings 215 
 
 (T. D. 2011.) 
 Taxability of commissions on renewal premiums on insurance. 
 
 Commissions on renewal premiums for insurance are in- 
 come when received and income for the period in which 
 received. Therefore, commissions on renewal premiums re- 
 ceived between March 1 and December 31, 1913, are taxable 
 income for that period and should be included in returns of 
 income for 1913. 
 
 Where commissions on renewal premiums received by indi- 
 viduals between March 1 and December 31, 1913 (including 
 commissions on renewal premiums on business written prior 
 to March 1, 1913, and payable and paid subsequent to that 
 date), were not included in returns of income of such indi- 
 viduals for 1913, they should file amended returns and in- 
 clude in such amended returns the amount of said commis- 
 sions on renewal premiums. 
 
 Where returns of annual net income were not made by 
 individuals in receipt of commissions on renewal premiums 
 because of insufficient income to require a return of income, 
 and such showing of insufficient income was caused by the 
 exclusion from the return of said commissions on renewal 
 premiums, such individuals should make and file returns of 
 income and include therein the commissions received by them 
 on renewal premiums within the period from March 1 to 
 December 31, 1913. 
 
 (T. D. 2012.) 
 
 Extending exemption certificate No. 1063, as prescribed in T. D. 1998, 
 to nonresident alien individuals. 
 
 Exemption certificate 1063, as provided in T. D. 1998, is 
 hereby extended to and made applicable to the use of persons 
 who are nonresident aliens in claiming exemption from 
 income tax on dividends payable in the United States from 
 stock of foreign corporations. 
 
216 Federal Income Tax 
 
 (T. D. 2013— See 2109 and 2242.) 
 
 Nonresident aliens — Amendment of article 8 of Regulations 33, pro- 
 viding for the collection of tax on income of nonresident aliens 
 derived from trades or professions in the United States. 
 
 Article 8, Income Tax Kegulations 33, is hereby amended 
 by adding thereto the following: 
 
 The person, firm, company, copartnership, corporation, joint-stock 
 company or association, and insurance company in the United States 
 — citizen or resident alien — in whatever capacity acting, having the 
 control, receipt, disposal, or payment of fixed or determinable annual 
 or periodical gains, profits, and income, of whatever kind, to a non- 
 resident alien, under any contract or otherwise, and which payment 
 shall represent income of a nonresident alien from the exercise of 
 any trade or profession within the United States, shall make return 
 for such nonresident alien on Form 1040 and shall pay any and all 
 tax — normal and additional tax — chargeable upon the said income of 
 such nonresident alien. 
 
 (T. D. 2109.) 
 
 So that Article 8 as amended shall read : 
 
 Art. 8. The income of nonresident aliens subject to the normal tax 
 of 1 per cent shall consist of the total gains, profits, and income de- 
 rived from all property owned and from every business, trade, or 
 profession carried on within the United States (to be designated as 
 gross income), less deductions (1 to 8, inclusive) specifically enu- 
 merated in paragraph B of the act (see Art. 6), in so far as said de- 
 ductions relate to said gains, profits, etc. 
 
 The specific exemption in paragraph C of the act cannot be allowed 
 as a deduction in computing the normal tax of nonresident aliens. 
 
 Nonresident aliens are subject to additional or surtax the same as 
 prescribed in the case of citizens of the United States or persons 
 residing in the United States. 
 
 The responsible heads, agents, or representatives of said nonresi- 
 dent aliens who are in charge of the property owned or business car- 
 ried on shall make full and complete return of the income there- 
 from on Form 1040 and shall pay any and all tax, normal and addi- 
 tional, assessed upon the said income of such nonresident aliens. 
 
 The person, firm, company, copartnership, corporation, joint-stock 
 company or association, and insurance company in the United States 
 — citizen or resident alien — in whatever capacity acting, having the 
 
Treasury Department Special Rulings 217 
 
 control, receipt, disposal, or payment of fixed or determinable annual 
 or periodical gains, profits, and income, of whatever kind, to a non- 
 resident alien, under any contract or otherwise, which payment 
 shall represent income of a nonresident alien from the exercise of 
 any trade or profession within the United States, shall deduct and 
 withhold from such annual gains, profits and income, regardless 
 of amount, and pay to the officer of the United States Government 
 authorized to receive the same, such tax as will be sufficient to pay 
 the normal tax of 1 per cent imposed thereon by law, and shall 
 make an annual return on Form 1042. 
 
 (T. D. 2015.) 
 Compromises — Minimum amounts which will be accepted. 
 
 To collectors of internal revenue: 
 
 The fact has been developed that a great number of indi- 
 viduals and corporations failed to make returns of annual 
 net income for the income tax, either through ignorance of 
 the requirements of the law or through a misunderstanding 
 of its requirements, and it has been determined by the Treas- 
 ury Department to accept offers in compromise of the specific 
 penalty for failure to file returns within the period prescribed 
 by law in a minimum sum, as follows: $5 from individuals, 
 $10 from corporations which are organized for profit. 
 
 In the cases of all corporations not organized for profit, the 
 specific penalty will not be asserted this year, provided the 
 required return has been or shall be filed before December 
 31, 191-4. The United States District Attorney should be 
 requested not to institute proceedings in such cases. 
 
 The foregoing applies only to those cases where there was 
 no intent to evade the law or escape taxation. 
 
 In all cases, however, wherein a return is not made until 
 the liability to make a return is discovered by investigation 
 of collectors of internal revenue or revenue agents, the above 
 schedule will not necessarily apply, but each individual case 
 will be decided upon its own merits and the amount of the 
 offer in compromise which may be favorably considered will 
 be determined accordingly. 
 
218 Federal Income Tax 
 
 (T. D. 2016.) 
 
 Inspection of income tax returns — Executive order — -Regulations. 
 
 The following Executive order, together with regulations 
 signed by the Secretary and approved by the President, rela- 
 tive to the publicity feature of section 2 of the act of October 
 3, 1913, imposing an income tax, is hereby published for your 
 
 information. _ _ 
 
 Executive Order. 
 
 Pursuant to the provisions of Section 2 of the Tariff Act of October 
 3, 1913, said section providing for an income tax, and which contains 
 in paragraph G, sub-paragraph (d) the following provision, 
 
 When the assessment shall be made, as provided in this section, the returns, together 
 with any corrections thereof which may have been made by the Commissioner, shall be 
 filed in the office of the Commissioner of Internal Revenue and shall constitute public 
 records and be open to inspection as such: Provided, That any and all such returns shall 
 be open to inspection only upon the order of the President, under rules and regulations 
 to be prescribed by the Secretary of the Treasury and approved by the President: Pro- 
 vided further. That the proper officers of any State imposing a general income tax may, 
 upon the request of the Governor thereof, have access to said returns_ or to any abstract 
 thereof, showing the name and income of each such corporation, joint-stock company, 
 association or insurance company, at such times and in such manner as the Secretary of 
 the Treasury may prescribe, 
 
 it is hereby ordered, that all such returns shall be subject to inspec- 
 tion in accordance and upon compliance with rules and regulations 
 prescribed by the Secretary of the Treasury and approved by the 
 President, bearing even date herewith. Woodrow Wilson. 
 
 The White House, July 28, 1914. 
 
 [No. 1999.J 
 
 Inspection of Returns. 
 
 Regulations governing the inspection of returns of corporations, 
 joint-stock companies, associations, or insurance companies, 
 made in compliance with the requirements of section 2, act of 
 October 3, 1913. Returns of individuals are not open to the in- 
 spection of any one except the proper officers and employees of 
 
 the Treasury Department. 
 
 Treasury Department, 
 
 Washington, D. C, July 28, 1914. 
 By section 2 of the act of October 3, 1913, Congress imposed a tax 
 upon the entire net income arising or accruing from all sources to 
 every citizen of the United States, whether residing at home or 
 abroad, and to every person residing in the United States, though 
 not a citizen thereof, and upon the entire net income from all prop- 
 erty owned and of every business, trade, or profession carried on in 
 the United States by persons residing elsewhere, and upon every cor- 
 
Treasury Department Special Rulings 219 
 
 poration, joint-stock company or association, and every insurance 
 company, with certain exceptions, engaged in business in the United 
 States, and prescribed the method of handling the returns of annual 
 net income filed in compliance with said law, as follows: 
 
 (d) When the assessment shall be made, as provided in this section, the returns, to- 
 gether with any corrections thereof which may have been made by the Commissioner, 
 shall be filed in the office of the Commissioner of Internal Revenue and shall constitute 
 public records and be open to inspection as such: Provided, That any and all such re- 
 turns shall be open to inspection only upon the order of the President, under rules and 
 regulations to be prescribed by the Secretary of the Treasury and approved by the Pres- 
 ident: Provided further, That the proper officers of any State imposing a general income 
 tax may, upon the request of the Governor thereof, have access to said returns or to an 
 abstract thereof, showing the name and income of each such corporation, joint-stock com- 
 pany or association or insurance company, at such times and in such manner as the Sec- 
 retary of the Treasury may prescribe. 
 
 For the purpose of making effective the legislative intent thus ex- 
 pressed, the President has ordered that such returns shall be open 
 to inspection under the following rules and regulations. The word 
 "corporation," when used alone herein, shall be construed to refer to 
 corporations, joint-stock companies or associations, and insurance 
 companies. 
 
 1. The return of every individual, and of every corporation, joint- 
 stock company or association, and every insurance company, whether 
 foreign or domestic, shall be open to the inspection of the proper 
 officers and employees of the Treasury Department. Returns of in- 
 dividuals shall not be subject to inspection by any one except the 
 proper officers and employees of the Treasury Department. 
 
 2. Where access to any return of any corporation is desired by an 
 officer or employee of any other department of the Government, an 
 application for permission to inspect such return, setting out the 
 reasons therefor, shall be made in writing, signed by the head of the 
 Executive Department or other Government establishment in which 
 such officer or employee is employed, and transmitted to the Secre- 
 tary of the Treasury. If the return of a corporation is desired to be 
 used in any legal proceedings other than those to which the United 
 States is a party, or to be used in any manner by which any infor- 
 mation contained in the return could be made public, the application 
 for permission to inspect such return or to furnish a certified copy 
 thereof shall be referred to the Attorney General, and, if recom- 
 mended by him, transmitted to the Secretary of the Treasury. 
 
 3. All returns, whether of persons or of corporations, joint-stock 
 companies or associations, or insurance companies, may be furnished, 
 upon approval of the Secretary of the Treasury, for use, either in 
 the original or by certified copies thereof, in any legal proceedings 
 before any United States grand jury or in the trial of any cause to 
 which both the United States and the person or corporation or asso- 
 ciation rendering the return are parties either as plaintiff or defend- 
 ant, and in the prosecution or defense or trial of which action, or 
 
220 Federal Income Tax 
 
 proceeding before a grand jury, such return would constitute mate- 
 rial evidence, but in any case arising in the collection of the income 
 tax, the Commissioner of Internal Revenue may furnish for use to 
 the proper officer either the original or certified copies of returns 
 without the approval of the Secretary of the Treasury. In all cases 
 where the use of the original return is necessary, it shall be placed 
 in evidence by the Commissioner of Internal Revenue or by some 
 officer of the Bureau of Internal Revenue designated by him for that 
 purpose, and after such original return has been placed in evidence 
 It shall be returned to the files in the office of the Commissioner of 
 Internal Revenue at Washington, D. C. 
 
 4. The Secretary of the Treasury, at his discretion, upon applica- 
 tion to him made, setting forth what constitutes a proper showing of 
 cause, may permit inspection of the return of any corporation by 
 any bona fide stockholder in such corporation. The person desiring 
 to inspect such return shall make application, in writing, to the 
 Secretary of the Treasury, setting forth the reasons why he should 
 be permitted to make such inspection, and shall attach to his appli- 
 cation a certificate, signed by the president, or other principal officer, 
 of such corporation, countersigned by the secretary, under the cor- 
 porate seal of the company, that he is a bona fide stockholder in said 
 company. (Where this certificate cannot be secured, other evidence 
 will be considered by the Secretary of the Treasury to determine the 
 fact whether or not the applicant is a bona fide stockholder and, 
 therefore, entitled to inspect the return made by such company.) 
 Upon receipt of such application the corporation whose return it is 
 desired to inspect shall be notified of the facts and shall be given 
 opportunity to state whether any legitimate reason exists for re- 
 fusing permission to inspect its returns of annual net income by the 
 stockholder applying for permission to make such inspection. The 
 privilege of inspecting the return of any corporation is personal to 
 the stockholders, and the permission granted by the Secretary to a 
 stockholder to make such inspection cannot be delegated to any other 
 person. 
 
 5. The returns of the following corporations shall be open to the 
 inspection of any person upon written application to the Secretary 
 of the Treasury, which application shall set forth briefly and suc- 
 cinctly all facts necessary to enable the Secretary to act upon the 
 request: 
 
 (a) The returns of all companies whose stock ifl listed upon any duly organized and 
 recognised stock exchange within the United States, for the purpose of having its shares 
 dealt in by the public generally. 
 
 fb) All corporations whose stock is advertised in the press or offered to the public by 
 the corporation itself for sale. In ca9e of doubt as to whether any company falls within 
 the classification above, the person desiring to see such return should make application, 
 supported by advertisements, prospectus, or such other evidence as he may deem proper 
 to establish the fact that the stock of such corporation is offered for general public sale. 
 
Treasury Department Special Rulings 221 
 
 Returns can be inspected only in the office of the Commissioner of 
 Internal Revenue, in Washington, D. C. In no case shall any col- 
 lector, or any other internal revenue officer outside of the Treasury 
 Department in Washington, permit to be inspected any return or 
 furnish any information whatsoever relative to any return or any 
 information secured by him in his official capacity relating to such 
 return, except in answer to a proper subpoena, in a case to which the 
 United States is a party. 
 
 6. Returns of individuals shall not be open to the inspection of 
 any person other than the proper officers and employees of the 
 Treasury Department or person rendering the same, and are under 
 no conditions to be made public, except where such publicity shall 
 result through the use of such returns in any legal proceedings in 
 which the United States is a party. 
 
 7. Upon request of the Governor of a State imposing a general in- 
 come tax, the proper officer of such State, to be designated by name 
 and official position by the Governor of such State in his application 
 to the Secretary of the Treasury, may have access to the returns or 
 to abstracts thereof showing the name and income of each corpora- 
 tion, joint-stock company or association, or insurance company, at 
 such times and in such manner as the Secretary of the Treasury 
 may prescribe. Such application shall be made in writing, addressed 
 to the Secretary of the Treasury and shall show (first) that the 
 State whose Governor makes the request imposes a general income 
 tax; (second) the name and address of each corporation, etc., to 
 which access is desired; (third) why permission to inspect the re- 
 turns of the corporations, etc., named in the request is desired, and 
 (fourth) what officer or officers are designated to make the desired 
 inspection, giving their names and official designations. Such request 
 must be signed by the Governor of the State and sealed with the 
 seal thereof, and shall be transmitted to the Secretary of the Treas- 
 ury for his consideration and action thereon. 
 
 No provision is made in the law for furnishing a copy of any 
 return to any person or corporation, and no copy of any return will 
 be furnished to any other than the person or corporation making the 
 return, or their duly constituted attorney, except as hereinbefore 
 authorized. 
 
 The provisions herein contained shall be effective on and after the 
 1st day of September. 1914. w ft McAnoo, 
 
 Secretary of the Treasury. 
 Approved : 
 
 Woodbow Wilson, 
 
 The White House. July 38, 191J. 
 
222 Federal Income Tax 
 
 (T. D. 2017.) 
 
 Nontaxability of interest from bonds and dividends on stock of 
 domestic corporations owned by nonresident aliens. 
 
 Interest on bonds of domestic corporations and dividends 
 on stock of domestic corporations owned by nonresident aliens, 
 and whether such bonds and stock be physically located within 
 or without the United States, are not subject to the income 
 tax. 
 
 (T. D. 2022.) 
 
 Waiver until further notice of regulation requiring the filling in on 
 certificates of numbers of bonds. 
 
 Notice is hereby given that regulation requiring the filling 
 in on certificates of numbers of bonds or other like obligations 
 of corporations, etc., from which interest coupons are detached 
 or upon which registered interest is to be paid — which was 
 extended to October 31, 1914, by T. D. 1985, issued May 28, 
 1914 — is hereby waived until further notice. 
 
 (T. D. 2023.) 
 
 Amending Article 58, Income Tax Regulations 33, requiring indorse- 
 ment or stamp on foreign coupons, checks, bills of exchange, 
 etc. 
 
 Article 58, Income Tax Regulations 33, is hereby amended 
 to read as follows: 
 
 Article 58. The licensed person, firm, or corporation first receiv- 
 ing such foreign items for collection, or otherwise, shall withhold 
 therefrom the normal tax of 1 per cent, and will be held responsible 
 therefor. If the foreign item is in the form of a check or bill of ex- 
 change, the words "Income tax withheld by " (giving name, 
 
 address, and date) shall be indorsed or stamped thereon by such 
 
 m 
 
Treasury Department Special Rulings 223 
 
 licensee; but if the item is represented by a coupon or coupons from 
 bonds, the licensee shall attach thereto a statement identifying the 
 same, and the indorsement or stamp showing the tax withheld shall 
 be placed on the statement instead of the coupon or coupons. 
 
 Said indorsement or stamp shall be sufficient evidence of tax with- 
 held to relieve subsequent holders or purchasers from the obligations 
 of withholding. 
 
 (T. D. 2024.) 
 
 Amendment of Article 192 of Regulations No. 33, providing that col- 
 lectors should not retain copies of returns in their offices. 
 
 Referring to Article 192 of Regulations No. 33, wherein 
 it is provided that — 
 
 Where in any case the collector has reason to believe that any 
 return rendered is false or fraudulent, he will prepare and retain in 
 his office a copy of such return, and will note on the original and 
 under the head of "Remarks" of his assessment list the words "In- 
 vestigation pending." He will in all such cases make his investiga- 
 tion in the manner prescribed in section 3173, Revised Statutes, and 
 paragraph D of said act of October 3, 1913; and he will report the 
 results of his investigation to the Commissioner of Internal Revenue, 
 referring to the list, folio, and line on which the assessment was 
 reported. 
 
 you are informed that inasmuch as these investigations are 
 to be made by the revenue agents' force, the portion of the 
 article of Regulations No. 33 quoted above is hereby annulled. 
 Collectors should not under any conditions retain copies of 
 returns in their offices, but when information relative to any 
 return of annual net income filed by any taxpayer is neces- 
 sary in connection with the assessment and collection of the 
 income tax the same may be secured from the Commissioner 
 of Internal Revenue at Washington. 
 
224 Federal Income Tax 
 
 (T. D. 2029— See 2090, page 21.) 
 
 Corporations desiring to make returns ot annual net income on the 
 basis of a fiscal year must, not less than 30 days prior to the 
 first day of March, give notice in writing to the collector, desig- 
 nating in such notice the last day of some month as the close of 
 the fiscal year, in which case the fiscal year return will cover a 
 12-months period. The return for that portion of the calendar 
 year preceding the beginning of the fiscal year will be filed on 
 or before March next following. 
 
 Reference is made to T. D. 2001, relative to the designa- 
 tion by corporations of a fiscal year other than a calendar 
 year as a basis for making returns of annual net income. 
 
 You are informed that every corporation amenable to the 
 income-tax law in existence at the close of a calendar year is 
 required to file a return covering all or any part of the pre- 
 ceding calendar year during which it may have been in ex- 
 istence on or before March 1, provided such corporation has 
 not established or does not establish a fiscal year. 
 
 In order to establish a fiscal year it is necessary for the 
 corporation to give notice to you in writing designating the 
 last day of some month as the close of its fiscal year. This 
 notice must be filed not less than 30 days prior to March 1 
 of the year in which the fiscal-year period of 12 months closes. 
 A return for that portion of the calendar year preceding the 
 commencement of the fiscal period of 12 months is required 
 to be filed on or before March 1 of the year next following 
 the calendar year of which it is a part, and the return for the 
 first full fiscal year is required to be filed on or before the last 
 day of the 60-day period following the close of the fiscal year. 
 
 Example: A corporation desiring to establish its fiscal 
 year as ending on June 30, 1915, must file notice not less than 
 thirty (30) days prior to March 1, 1915, on or before Janu- 
 ary 29, 1915. A return for the period January 1 to June 30, 
 1914, must then be filed on or before March 1, 1915, and a 
 return for the first fiscal year period (July 1, 1914, to June 
 30, 1915) must be filed on or before August 29, 1915. 
 
Treasury Department Special Rulings 225 
 
 That portion of the year preceding the beginning of an 
 established fiscal year is held to be a fractional part of the 
 calendar year, and as the return of a calendar year is not 
 required to be filed until on or before the first day of March 
 next following, there is no provision of law whereby the 
 return covering a fraction of a calendar year is required to 
 be filed earlier than "on or before" the next March 1st, though 
 it is preferred that the return for this fraction shall be filed 
 as early as possible after the close of the period. 
 
 The above instructions are supplemental to T. D. 2001, and 
 rulings or decisions heretofore issued in conflict with the fore- 
 going are hereby revoked. 
 
 (T. D. 2048— See Revision T. D. 2163.) 
 
 Taxable status of dividends paid on the capital stock from the cur- 
 rent net earnings or established surplus created from the net 
 earnings of corporations, joint-stock companies or associations, 
 and insurance companies taxable upon their net income. 
 
 Dividends from the net earnings or established surplus 
 created from the net earnings of any corporation, joint-stock 
 company or association, and insurance company are vested in 
 the stockholder on the date on which such dividends are de- 
 clared, whether distributed or not, and regardless of the time 
 when the surplus or undivided profits from which such divi- 
 dends are declared were earned and entered on the books of 
 the corporation as such. Dividends so declared should be 
 accounted for in full in the returns of income of individuals 
 for the year in which they became due and payable, whenever 
 the amount of income is sufficient to require the inclusion of 
 dividends, as provided in paragraph D of the income-tax law 
 and T. D. 1945, and should be included in the gross income 
 of corporations, etc., regardless of the amount of income. 
 
 All decisions and regulations which are in conflict herewith 
 are hereby revoked. 
 15 
 
226 Federal Income Tax 
 
 (T. D. 2049.) 
 
 Emergency Revenue Law — Income-tax Certificates. 
 
 Income-tax certificates which are not required by specific statute, but 
 by regulations only, are not subject to tax as "certificates re- 
 quired by law" under act of October 22, 1914. 
 
 In reply to your verbal inquiry as to whether certificates of 
 ownership, certificates of exenrption, and other certificates 
 required by the income-tax regulations, but not by specific 
 statute, are subject to tax as certificates required under the 
 internal-revenue act of October 22, 1914, I beg to advise you 
 that they are not. 
 
 While regulations made pursuant to and under authority 
 of law as a rule have the force and effect of law, it is held by 
 this office that it was not the intent of Congress to tax certifi- 
 cates which are required by regulations of the department for 
 its own purposes and not by any express provision of law. 
 
 (T. D. 2077.) 
 
 The gain or loss resulting from the sale of capital assets and appor- 
 tioned to the years subsequent to January 1, 1909, should be in- 
 creased or decreased accordingly as there was gain or loss by 
 the amount of depreciation charged off since January 1, 1909, 
 and not used to make good such depreciation. 
 
 Article 110, page 66, of Regulations No. 33, should be, and 
 is hereby, amended to read as follows : 
 
 Art. 110. For the purpose of determining the amount of profit or 
 loss arising from the sale of capital assets acquired prior to January 
 1, 1909, which shall be taken into account by corporations in making 
 their returns of annual net income, the gain or loss represented by 
 the difference between the purchase price and the selling price shall 
 be prorated according to the number of years the assets were held 
 prior to their sale, and the amount thus apportioned or apportion- 
 able to the years subsequent to January 1, 1909, shall be included in 
 or deducted from the gross income of the year in which the assets 
 were sold, accordingly as they were sold for more or less than their 
 
 
Treasury Department Special Rulings 227 
 
 original cost. To any gain thus apportioned and to be included in 
 income there should be added any amount or amounts which had 
 been charged against and deducted from gross income during the 
 years since the inception of the special excise tax law, on account of 
 depreciation and which had not been paid out in making good the 
 depreciation — that is, any amount charged off subsequent to January 
 1, 1909, on account of the depreciation of the assets sold and not 
 used to make good such depreciation shall be added to the gain 
 apportioned to these years and will be included in the income of the 
 year in which the property was sold. Likewise, for the purpose of a 
 deduction from gross income of the year in which the assets were 
 sold, loss resulting from any such sale, apportionable to the years 
 subsequent to January 1, 1909, will be reduced by the amount of the 
 unused portion of the depreciation charged off with respect to such 
 assets since January 1, 1909. 
 
 This ruling, in so far as it relates to depreciation, applies 
 only to such tangible property as is subject to wear and tear, 
 exhaustion and obsolescence, and is not to be construed as 
 recognizing any gain or loss due to fluctuations in the market 
 value or arbitrary changes in the book value of securities and 
 like assets, the gain or loss with respect to which will be 
 determined only when such assets mature or are sold or dis- 
 posed of — that is, when there is a completed, a closed, trans- 
 action. (See T. D. 2005.) 
 
 (T. D. 2079.) 
 
 Income tax liability and withholding requirements in connection 
 with quarters, heat and light, mileage, reimbursements for 
 actual expenses, and per diem allowances in lieu of subsistence 
 while traveling under orders, furnished or paid by the Govern- 
 ment to officers and employees. 
 
 All decisions and regulations which are in conflict with the 
 holdings that follow are hereby revoked. 
 
 (A) Income Tax Liability. 
 
 (1) Quarters. — Commutation of quarters and the money 
 equivalent of quarters furnished in kind shall be returned as 
 income. 
 
228 Federal Income Tax 
 
 When quarters are furnished in kind, of a less number of 
 rooms than the number allowed by law, the money equivalent 
 only of the number of rooms actually assigned shall be re- 
 turned as income. When quarters are furnished in kind, of a 
 greater number of rooms than the number allowed by law, it 
 is to be assumed that the excess number is assigned for the 
 convenience of the Government, and the money equivalent 
 only of the number of rooms allowed by law shall be returned 
 as income. 
 
 (2) Heat and Light. — Amounts received by, or paid for, 
 an officer for heat and light shall be returned as income. 
 
 This includes the money equivalent, as fixed by the Gov- 
 ernment, of heat and light furnished to an officer occupying 
 public quarters. 
 
 (3) Mileage. — The difference between the amount received 
 as mileage and the amount of actual necessary expenses in- 
 curred on a journey shall be returned as income. 
 
 Mileage, as such, is not gain, profit, or income to the officer, 
 as he is required to pay his actual expenses while traveling 
 under mileage orders. The gain, profit, or income is the 
 difference between the amount received as mileage and the 
 amount properly expended by the officer while traveling, and 
 this difference only should be returned as income. 
 
 The actual expenses to be deducted by the individual before 
 ascertaining his gain, profit, or income on account of mileage 
 are the expenses for which reimbursement would be made by 
 the Government if he had traveled on an actual expense basis 
 instead of a mileage basis. 
 
 (4) Reimbursement for Actual Expenses. — Amounts paid 
 by the Government in the nature of reimbursement for sub- 
 sistence and other items of actual expenses incurred while 
 absent on business for the Government are not required to be 
 returned as income. 
 
 (5) Per Diem Allowances in Lieu of Subsistence While 
 Traveling Under Orders. — The difference between the amount 
 received as a per diem allowance and the amount of actual 
 necessary expenses incurred on a journey shall be returned 
 as income. 
 
Treasury Department Special Rulings 229 
 
 (B) Withholding Requirements. 
 
 Payments in connection with (1) quarters, (2) heat and 
 light, (3) mileage, (4) reimbursement for actual expenses, 
 and (5) per diem allowances in lieu of subsistence while 
 traveling under orders are indefinite and irregular as to right 
 of possession, amount, and time of accrual, and are not, there- 
 fore, subject to withholding as "fixed or determinable annual 
 or periodical gains, profits, and income" under the require- 
 ments of the income-tax law. 
 
 (T. D. 2090.) 
 
 Synopsis of rulings on questions relating to the income tax imposed 
 by section 2 of the act of October 3, 1913. 
 
 The following synopsis of rulings on questions relating to 
 the income tax imposed by section 2 of the act of October 3, 
 1913, on individuals, corporations, joint-stock companies, 
 associations, and insurance companies, is published for the 
 information of interna 1-re venue officers and others concerned. 
 All rulings or parts of rulings heretofore made which are in 
 conflict herewith are hereby revoked. 
 
 Part I. 
 
 RULINGS IN RELATION TO PERSONAL INCOME TAX. 
 
 Actors and Actresses. — If costumes purchased by actors 
 and actresses are used exclusively in the production of a play, 
 and are not adapted for occasional personal use and are not 
 so used, a deduction may be claimed on account of such de- 
 preciation in their value as occurs during the year on account 
 of wear and tear arising from their use in the productions of 
 the play or to their becoming obsolete at the close of the pro- 
 duction. 
 
 Administration of estates, expenses of. — Expenses of ad- 
 ministration of an estate, such as court costs, attorneys' fees, 
 executors' commissions, etc., are chargeable against the corpus 
 
230 Federal Income Tax 
 
 of the estate and are not allowable deductions in a return of 
 a fiduciary on Form 1041. 
 
 Administrators. — See Executors and administrators. 
 
 Agent. — The word "agents" as used in paragraphs D and E 
 of the income-tax law in connection with the words "control, 
 receipt, custody, disposal or payment of income to another 
 person," does not relate to agents not acting in a fiduciary 
 capacity. Agents not acting in a fiduciary capacity have no 
 responsibility with reference to withholding the tax on, or 
 making a return of, income turned over to resident aliens or 
 citizens of the United States; but the responsible heads, 
 agents, or representatives of nonresident aliens who are in 
 charge of property owned, business carried on, or capital 
 invested within the United States shall make full and com- 
 plete returns of the income therefrom on Form 1040, re- 
 vised, and pay the tax thereon. See Nonresident alien, 
 agent of. 
 
 Agent, real estate. — See Real estate agent. 
 
 Agent for nonresident alien, — See Nonresident alien, 
 agent of. 
 
 Aids' pay. — See Pay. 
 
 Alimony. — Alimony is regarded as fixed and determinable 
 income, and in cases where it is in excess of $3,000 the per- 
 son paying such alimony is required to withhold the normal 
 tax on the same unless exemption is claimed under paragraph 
 C, in which case the normal tax will be withheld only on the 
 amount paid in excess of the exemption claimed. It must be 
 accounted for as income if, together with other income, the 
 recipient is in receipt, of a net income of $3,000 or more. It 
 is regarded as a personal expense to the person paying it and 
 is, therefore, not an allowable deduction in his return. 
 
 Annuity. — The amount paid under a life insurance, en- 
 dowment, or annuity contract is not income when returned 
 to the person making the contract, either upon the maturity 
 or surrender of the contract; but the amount by which the 
 sum received exceeds the sum paid and coming into the hands 
 of the person making the contract and payment is income. 
 
Treasury Department Special Rulings 231 
 
 When the settlement under such a contract is made in more 
 than one payment each payment will be considered as being 
 composed of interest and a proportionate part of the prin- 
 cipal. Where the entire annuity is composed of an interest 
 return upon the principal sum paid therefor, the entire an- 
 nuity is income. (Amended T. D. 2152.) 
 
 Assessments on stock. — Assessments made by a corporation 
 on its capital stock are regarded as an investment of capital 
 and do not constitute an allowable deduction in the return 
 of the individual. 
 
 Bad debt. — See Debt. 
 
 Beneficiary. — A beneficiary is liable for the normal tax 
 upon the amount of net income derived by him from a taxable 
 source through a fiduciary, less the amount of exemption 
 claimed and the amount of income on which the normal tax 
 has been withheld at source, and is also liable for the addi- 
 tional tax assessable on the amount of net income received 
 by him in excess of $20,000 ; and in order to determine 
 whether the net income of a beneficiary is or is not in excess 
 of $20,000 and subject to the additional tax, the amount de- 
 rived by him from an estate and all other taxable sources is 
 required to be shown on his personal annual return. 
 
 Board of education, requirements of, with reference to 
 withholding.- — See Rent. 
 
 Bond, premium on. — Where an employee is required to 
 furnish bond and pay the premium on such bond, as a neces- 
 sary incident of his employment, the premium on the bond 
 will constitute an allowable deduction in computing net in- 
 come. 
 
 Bonds containing tax-free covenant clause. — The stipula- 
 tion in bonds whereby the tax which may be assessed against 
 them, or the income therefrom is guaranteed, is a contract 
 wholly between the corporation and the bondholder, and in 
 so far as the income-tax law applies, the Government will 
 not differentiate between coupons from bonds of this char- 
 acter and those from bonds carrying no such guaranty. The 
 debtor corporation or its duly authorized withholding agent 
 
232 Federal Income Tax 
 
 will be held responsible for the normal tax due in such cases 
 when no exemption is claimed. When coupons are accom- 
 panied by certificates of ownership in which no exemption 
 is claimed, the income from such coupons may be included 
 in the return of the individual (under column A, p. 2, of 
 Form 1040, revised) as income upon which the normal tax 
 of 1 per cent has been paid or is to be paid at the source. 
 (T. D. 1948.) 
 
 Bonds, interest on. — The exchange of interest coupons for 
 funding bonds is a payment of interest on the bonds and the 
 income tax should be imposed and paid upon such interest as 
 income for the year in which it matures and such payment is 
 made, and in the absence of proper claim for exemption the 
 tax should be deducted and withheld on the amount repre- 
 sented by the coupons. 
 
 Book value. — Book values which reflect a shrinkage in the 
 value of assets are not a basis for determining taxable income. 
 (T. D. 2005.) 
 
 Certificate of merit, pay for. — See Pay. 
 
 Certificate of ownership. — -Where bonds, under contract 
 provisions in the bonds, are retired within an interest period 
 and prior to the expiration of the full term of the bond, own- 
 ership certificates will be required and should cover that part 
 of the interest period affected between the beginning of such 
 period and the date of the retirement of the bonds. 
 
 Certificates. — The department will furnish blank forms of 
 certificates to be used in connection with the collection of the 
 income tax by such parties as may make application for the 
 same. Private corporations and others desiring to have 
 these certificates printed for themselves may do so if they 
 will strictly observe the requirements of the department as to 
 size, print, form, color, and contents. 
 
 Certificates to be used in claiming exemption from with- 
 holding on income derived from foreign sources. — See Income 
 derived from coupons, checks, etc. 
 
 Citizenship. — An American woman who marries a for- 
 eigner takes the nationality of her husband and can not claim 
 exemption under paragraph 0. 
 
Teeasuey Depaetment Special Rulings 233 
 
 Clubs. — All clubs are not exempt from the provisions of 
 the income-tax law, even though not operated for profit. A 
 club desiring to be registered as an exempt organization 
 should file with the Commissioner of Internal Revenue a 
 copy of its charter, or an affidavit of its principal officer, set- 
 ting forth the nature of its organization, the purpose for 
 which organized, the source, if any, from which it derives 
 income, and the disposition made of such income as is re- 
 ceived by it for consideration and determination as to whether 
 or not it comes within the class of organizations held to be 
 exempt under the provisions of paragraph G of the income- 
 tax law. 
 
 Commission. — A commission paid to a real estate agent 
 for collecting rents and management of property is a legiti- 
 mate business expense and constitutes an allowable deduc- 
 tion in computing net income. 
 
 Commission on renewal premium, — See Renewal premium. 
 
 Commissions. — See Compensation. 
 
 Commissions paid salesmen. — Commissions paid to sales- 
 men as a part of the expense of conducting business are 
 allowable deductions to the payer of the commission. Such 
 commissions, however, are income and should be accounted 
 for in the return of the person receiving them. When indefi- 
 nite as to amount and time of accrual, they are not subject- 
 to withholding. 
 
 Commutation of heat and light. — Amounts paid on ac- 
 count of commutation of heat and light are not subject to 
 withholding. (T. D. 2079.) 
 
 Continuation of quarters. — Payments made on account of 
 commutation of quarters are not subject to withholding. 
 (T. D. 2079.) 
 
 Compensation. — (1) A person receiving a salary in excess 
 of $4,000, and, in addition, a commission of 1 per cent on 
 all sales, the exact amount due on account of commissions not 
 being determinable until February following the year in 
 which the commissions were earned, at which time both his 
 salary for the preceding year and his commissions are paid 
 
234 Federal Income Tax 
 
 to him, should return as income, for the year in which pay- 
 ment was made, the aggregate amount received on account of 
 salary and commissious. The normal tax should be deducted 
 and withheld therefrom when the combined payments of 
 salary and commissions aggregate in excess of $3,000, sub- 
 ject to authorized exemption claimed. The normal tax de- 
 ducted from these payments should be accounted for on the 
 withholding agent's return, Form 104-2, for the year in 
 which the deductions were made. 
 
 (2) Where an employee is paid a sum equal to two years' 
 salary on condition that he surrender his contract of employ- 
 ment, such sum should be reported by him on his annual re- 
 turn as income, and if the sum paid exceeds $3,000, the nor- 
 mal tax should be deducted and withheld therefrom, subject 
 to authorized exemption claimed. 
 
 (3) When profits distributed by a corporation to an em- 
 ployee, together with payments of the employee's salary, 
 aggregate in excess of $3,000, the normal tax should be 
 deducted and withheld therefrom, subject to authorized ex- 
 emption claimed. 
 
 Compensation for service upon an annual, monthly, or 
 weekly basis. — Where a service and payment period is divided 
 by the end of a taxable year, the compensation for the period 
 so divided at the end of the year will be accounted for in 
 the return for the year in which payment is made and re- 
 ceived. Where the service is of such nature as to be com- 
 pensated by fee, or of such nature that no portion of the 
 amount becomes due until the service is completed, then the 
 total amount of the compensation should be included in the 
 return for the year in which the compensation is received. 
 
 Compensation, value of quarters furnished, part of. — 
 Where an individual is furnished living quarters in addition 
 to salary, the rental value of such living quarters is re- 
 garded as compensation subject to the income tax. 
 
 Corporation notes for a period of one year or less. — See 
 Promissory note of corporations. 
 
Treastjey Depaetment Special Rulings 235 
 
 Corporations, equipment trust notes of. — See Equipment 
 trust notes. 
 
 Corporations, obligations of. — Obligations of corporations 
 similar to bonds, mortgages, deeds of trust, etc., for income- 
 tax purposes are beld to be tbose obligations of corporations 
 which, though not bonds, mortgages, or deeds of trust, are 
 similar in form, purpose, or in being extended beyond the 
 time of ordinary bankable commercial paper. Interest pay- 
 ments on ordinary bankable commercial paper of corpora- 
 tions payable to individuals are subject to withholding at the 
 source only when the payment to any one individual within 
 a taxable year exceeds $3,000. On all other obligations of 
 corporations, etc., payable to individuals, interest payments 
 are subject to withholding regardless of the amount of in- 
 terest payment. See Mortgage, property purchased subject 
 to. 
 
 Corporations, principal place of business of. — The prin- 
 cipal place of business of a corporation is the place or office 
 in which are kept the books of account and other data from 
 which the return is to be prepared. 
 
 Corporations, property purchased by, subject to mortgage. 
 — See Mortgage, property purchased subject to. 
 
 Corporations, residence of. — Corporations whose business 
 is done wholly in Porto Rico and the Philippine Islands, even 
 though incorporated in the United States, are held to be res- 
 ident corporations of these possessions, and will make returns 
 and pay the income tax to the collectors of internal revenue 
 having jurisdiction there. 
 
 Costumes. — See Actors and actresses. 
 
 Debt. — A bad or worthless debt, as contemplated by the 
 income-tax law, and which may be deducted in a return of 
 income, is a debt which has been actually ascertained to be 
 worthless and charged off within the taxable year. 
 
 Decedent, return of a. — See Executors and administrators. 
 
 Deductions, paragraph B. — (1) Necessary expenses actu- 
 ally paid in carrying on any business, not including personal, 
 living, or family expenses. 
 
236 Federal Income Tax 
 
 (2) All interest paid within the year by a taxable person 
 on indebtedness. 
 
 (3) All National, State, county, school, and municipal 
 taxes paid within the year, not including those assessed 
 against local benefits. 
 
 (4) Losses actually sustained during the year incurred in 
 trade or arising from fires, storms, or shipwreck and not 
 compensated for by insurance or otherwise. 
 
 (5) Debts due to the taxpayer actually ascertained to be 
 worthless and charged off within the year. 
 
 (6) A reasonable allowance for the exhaustion and wear 
 and tear of property arising out of its use or employment in 
 the business not to exceed, in the case of mines, 5 per cent 
 of the gross value at the mine of the output for tbe year for 
 which the computation is made ; but no deduction shall be 
 made for any amount of expense of restoring property or 
 making good the exhaustion thereof for which an allowance 
 is or has been made; provided that no deduction shall be 
 allowed for any amount paid out for new buildings, perma- 
 nent improvements, or betterments made to increase the 
 value of any property or estate. (See paragraph B, sec. 2, 
 act of October 3, 1913.) 
 
 Depreciation-. — See Actors and actresses. 
 
 Dividends declared by foreign corporations transacting 
 business wholly within the United States. — See Foreign cor- 
 porations, property owned and business transacted wholly 
 within the United States. 
 
 Drainage, irrigation, and reclamation districts, interest on 
 bonds of. — See Special assessment districts. 
 
 Employees, foreign, of domestic corporations. — See For- 
 eign employees of domestic corporations. 
 
 Equipment trust notes. — Equipment trust notes secured 
 by mortgage issued by a corporation are subject to withhold- 
 ing. Temporary receipts issued pending preparation and 
 issue of the notes themselves stand in the place of the notes, 
 and where an interest period intervenes and receipts are to 
 l>e presented for indorsement thereon of a payment of interest, 
 
Treasury Department Special Rulings 237 
 
 requisite certificates of ownership claiming or not claiming 
 exemption should, be filed. 
 
 Executors and administrators. — If the net income of a de- 
 cedent from January 1 of the year in which he died to the 
 date of his death was $3,000 or over, a return for such de- 
 cedent must be made by the executor or administrator on 
 Form 1040, revised, and such executor or administrator may 
 claim all deductions and exemption to which the decedent 
 would have been entitled under the law. 
 
 Exempt organizations. — Any organization which has been 
 held by the Commissioner of Internal Revenue to come with- 
 in the class of organizations enumerated in paragraph G of 
 the income-tax law is not required to deduct and withhold 
 the normal tax from the amount of any salary or interest 
 paid by it, and it is subject to no requirements of said law. 
 However, the owner of bonds issued by such an organization 
 is not relieved from the filing of certificates of ownership, 
 with coupons detached from such bonds when presenting 
 same to a bank or other collecting agency for collection or 
 otherwise, or to the debtor corporation or its duly designated 
 paying agent for payment ; and while such an organization as 
 the source of income is under no obligation to withhold the 
 tax in cases where no exemption is claimed, it should, never- 
 theless, forward with a letter of transmittal such certificates 
 as are received by it to the collector of internal revenue for 
 its district on or before the 20th day of the month next suc- 
 ceeding that in which the said certificates were received. 
 No special form of certificate has been issued for presenta- 
 tion with coupons detached from bonds of exempt organiza- 
 tions, but certificates in the usual form, claiming or not claim- 
 ing exemption, may be used. (T. D. 1967.) 
 
 Where such organizations have an issue of registered bonds, 
 they should, before sending out cheeks issued in payment 
 of registered interest, stamp or write across the face of such 
 check, "Corporation exempt under paragraph G from with- 
 holding;" otherwise the first bank or collecting agent would 
 deduct and withhold the normal tax therefrom. 
 
238 Federal Income Tax 
 
 Exempt organizations, salaries paid by. — Salaries paid by 
 corporations which corporations have been held to be exempt 
 from the income tax under paragraph G of the income-tax 
 law, are subject to the income tax and should be returned 
 as income by the individual, but the corporation is not re- 
 quired to withhold the tax. 
 
 Exemption and deductions allowed in the return of a dece- 
 dent. — See Executors and administrators. 
 
 Exemption, husband and wife. — See Husband and wife. 
 
 Exemption on income received from partnerships. — See 
 Partnerships, identity of income. 
 
 Expense. — Taxes paid by a tenant to a landlord are con- 
 sidered as additional payment for rent and are deductible as 
 an expense of carrying on business. 
 
 Failure to render a return, penalty for. — Every person 
 having a net income of $3,000 or more for the calendar year 
 is required to render a return, and the penalty provided by 
 law for refusal or neglect to file a return will be enforced re- 
 gardless of the fact that the net income may be less than the 
 exemption to which the individual is entitled. 
 
 Farm buildings, depreciation of. — Depreciation of farm 
 buildings, other than a dwelling occupied by the owner, ac- 
 tually sustained within the year in excess of repairs made, 
 will be considered an allowable deduction. 
 
 Fiduciary. — "Fiduciary" is a term which applies to all 
 persons or corporations that occupy positions of peculiar con- 
 fidence toward others, such as trustees, executors, or admin- 
 istrators ; and a fiduciary, for income-tax purposes, is any per- 
 son or corporation that holds in trust an estate of another 
 person or persons. 
 
 There may be a fiduciary relationship between an agent 
 and a principal; but the word "agent" does not denote a 
 "fiduciary" within the meaning of the income-tax law. 
 
 Fiduciary, return of. — Fiduciaries are required to make a 
 return on Form 1041, revised, whenever the interest of any 
 one beneficiary in the income from the estate or trust sub- 
 ject to the normal tax is in excess of $3,000. This duty can 
 
Treasury Department Special Rulings 239 
 
 not be delegated to another person. When the interest of any 
 one beneficiary exceeds $3,000 and a return is required, the 
 name and full address of each beneficiary and the share of 
 income to which entitled, even though it be less than $3,000. 
 must be shown ; and in all cases where the beneficiary's inter- 
 est is in excess of $3,000 the fiduciary is required to with- 
 hold the normal tax unless exemption is claimed under para- 
 graph Cj and then only on the amount in excess of the exemp- 
 tion so claimed. 
 
 A fiduciary acting for a beneficiary in more than one estate 
 or trust is required to account for each estate separately, 
 and if the amount of income from no one estate exceeds 
 $3,000 no return or withholding will be required. Unless the 
 beneficiary is under some disability which requires the fidu- 
 ciary to act, the beneficiary will make his own return and ac- 
 count for the tax upon his entire net income. 
 
 A fiduciary acting for a minor or insane person having a 
 net income in excess of $3,000 will make the return for his 
 ward on Form 1040, revised, and will not lie required to file 
 a return on Form 1041, revised, unless he has more than one 
 ward by reason of the same estate or trust. Then, in that 
 event, a return will be required on Form 1041, revised, and a 
 separate return on Form 1040 for each ward having a net 
 income of $3,000 or more for the calendar year. 
 
 Dividends in the hands of a fiduciary and belonging to a 
 beneficiary are not subject to the normal tax, but will be sub- 
 ject to the additional tax to the beneficiary whenever the 
 beneficiary's income from all taxable sources is in excess of 
 $20,000. (T. D. 1943.) 
 
 Fire-insurance policy, premiums paid on. — See Insurance 
 premium. 
 
 Foreign corporations, interest on bonds of. — See Income 
 derived from coupons, checks, etc. 
 
 Foreign corporations, property owned and business trans- 
 acted wholly within the United States. — Dividends declared 
 and paid by a foreign corporation which derives its entire in- 
 come from business done wholly within the United States 
 
240 Federal Income Tax 
 
 and pays, under the provisions of the Federal income-tax law, 
 a tax upon its net income, should be treated in the same man- 
 ner as dividends from domestic corporations. 
 
 Foreign employees of domestic corporations. — Salary re- 
 ceived by a foreign employee of a domestic corporation for 
 services rendered entirely in a foreign land is not subject to 
 deduction and withholding of the normal tax at source. 
 
 Foreign mortgages, income from. — See Income derived 
 from coupons, checks, etc. 
 
 Foreign service pay. — See Pay. 
 
 Gift, property acquired by. — The value of property ac- 
 quired by gift is not subject to income tax, but all gains, 
 profits, or income derived therefrom are subject to tax, and 
 if the property so acquired is subsequently sold at a price 
 greater than the appraised value at the time the property 
 was acquired by gift, the gain in value is held to be income 
 and subject to tax under the provisions of the Federal in- 
 come-tax law. 
 
 Gifts. — See Voluntary offering. 
 
 Gratuity. — Where the monthly salary of an officer or em- 
 ployee is paid for a limited period after his death to his 
 widow in recognition of the services rendered by her hus- 
 band, no services being rendered by the widow, it is held 
 that such payment is a gratuity and exempt from taxation 
 under the income-tax law. Such a payment would not, how- 
 ever, be an allowable deduction as an expense of carrying on 
 business in the return of the person, firm, or corporation pay- 
 ing same. 
 
 Guardian, return of. — See Fiduciary, return of. 
 
 Heat and light. — Amounts received by or paid for an of- 
 ficer for heat and light shall be returned as income. 
 
 This includes the money equivalent, as fixed by the Gov- 
 ernment, of heat and light furnished to an officer occupying 
 public quarters. (T. D. 2079.) 
 
 Heat and light, corn-mutation of. — See Commutation of 
 heat and light. 
 
Treasury Department Special Rulings 241 
 
 Husband and wife. — Where either dies during the year 
 having a net taxable income of $3,000 or more a return of 
 income should be made by the executor or administrator of 
 the deceased as of the date of his death, and the executor or 
 administrator may claim an exemption of $4,000 under par- 
 agraph C. The survivor, when making a return at the end 
 of the year for the entire year, will be allowed the applicable 
 exemption for the single or married status existing at the 
 close of the year. 
 
 Husband and wife, additional tax computed on separate 
 income of. — The regulations of the department requiring the 
 incomes of husband and wife to be combined and authorizing 
 the aggregate exemption of $4,000 from such combined in- 
 come are applicable for the purpose of the normal tax only. 
 The additional, or surtax, imposed by the act will be com- 
 puted on the basis of the separate income of each individual ; 
 that is, on the amount of each individual's income in excess 
 of the minimum amounts upon which the surtax at the grad- 
 uated rates is to be calculated. 
 
 Income derived from coupons, checks, or bills of exchange 
 on foreign bonds, mortgages, dividends, etc. — Amounts re- 
 ceived by citizens or residents of the United States for or in 
 payment of interest upon bonds issued in foreign countries, 
 and upon foreign mortgages or like obligations, and for any 
 dividends upon stock or interest upon obligations of foreign 
 corporations, associations, or insurance companies engaged 
 in business in foreign countries, are subject to the income 
 tax. (Art. 54, Regulations No. 33.) 
 
 The licensed person, firm, or corporation first receiving 
 such foreign item for collection or otherwise shall withhold 
 therefrom the normal tax of 1 per cent and will be held re- 
 sponsible therefor unless exemption is claimed. 
 
 If the foreign item is in the form of a check or bill of ex- 
 change, the words "Income tax withheld by " (giving 
 
 name, address, and date), or the words, "Income-tax exemp- 
 tion claimed through " (giving name and address of 
 
 licensee), as the case may be, shall be indorsed or stamped 
 16 
 
242 Federal Income Tax 
 
 thereon by such licensee ; but if the item is represented by a 
 coupon or coupons from bonds, the licensee shall attach 
 thereto a statement identifying the same, and the indorse- 
 ment or stamp showing the tax withheld or exemption claimed 
 shall be placed on the statement instead of the coupon or 
 coupons. 
 
 Such indorsement or stamp shall be sufficient evidence of 
 tax withheld or exemption claimed to relieve subsequent 
 holders or purchasers from the obligations of withholding. 
 (T. D. 2023, Arts. 60-61, Kegulations 33.) 
 
 Claims for exemption from withholding on income other 
 than from interest on bonds may be made by individuals on 
 Form 1007 ; by firms, organizations, or fiduciaries on Form 
 1063 ; claims for exemption from withholding on interest 
 from bonds may be made by individuals on Form 1000B ; 
 by firms and organizations on Form 1001 ; and by fiduciaries 
 on Form 1015. (T. D. 1998.) 
 
 Insurance premium. — Premiums paid for insurance on 
 property which is not occupied by the owner as a dwelling, 
 but is rented or leased to secure an income, constitute allow- 
 able deductions in computing net income. 
 
 Premiums paid on life insurance by the insured do not 
 constitute allowable deductions under the income-tax law. 
 
 Premiums paid on life insurance taken out by a partner- 
 ship upon the lives of individual members of such partnership 
 constitute allowable deductions in ascertaining the net earn- 
 ings of the partnership. However, when such policies ma- 
 ture, or upon the death of the insured partner, the amount 
 received as life insurance should be included in the gross in- 
 come of the partnership. 
 
 Investment certificates. — Investment securities issued by 
 a corporation for a term of years are corporate obligations 
 within the meaning of the income-tax law. 
 
 Judges, salary of. — The salary of judges of the Supreme 
 and inferior courts of the United States appointed sub- 
 sequent to October 3, 1913, and of judges who have been 
 retired, is subject to the income tax and to the withholding 
 provisions of the income-tax law. 
 
Treasury Department Special Rulings 243 
 
 Landlord. — A landlord in receipt of annual rental from a 
 tenant in excess of $3,000 may, at the time the amount of 
 rental payments aggregates $3,000, file with the tenant a 
 claim for exemption under paragraph C of the income-tax 
 law (Form 1007, revised). He may, also, after December 
 31 of the taxable year, file with the tenant, or with the col- 
 lector of internal revenue, a claim for deductions under para- 
 graph B on Form 1008, revised. 
 
 For duties of tenant with reference to withholding, see 
 Tenant, (T. D. 1965.) 
 
 Legacy. — The general policy of the law and rule of inter- 
 pretation require that legacies in all cases, unless clearly in- 
 consistent with the intention of the testator, should be held 
 to be vested rather than contingent. Where there is a vested 
 interest the income from such interest, whether distributed 
 or not, is subject to the tax ; and when in the hands of fiducia- 
 ries they are required to account for and pay the tax thereon. 
 
 Life insurance policy, premiums paid on. — See Insurance 
 premium. 
 
 Living qimrters furnished. — See Compensation, value of 
 quarters furnished part of. 
 
 Local benefits, taxes assessed against. — Taxes paid pur- 
 suant to assessments levied by special districts, such as irri- 
 gation, reclamation, drainage districts, etc., for sidewalks in 
 cities, street extension, grading, paving, etc., are held to be 
 "taxes assessed against local benefits." Such taxes are not 
 allowable deductions in a return of annual net income. 
 
 Losses in trade. — "Only those losses are deductible which 
 are sustained during the tax year 'in trade.' Loss to be de- 
 ductible must be an absolute loss, not a speculative or fluctu- 
 ating valuation of continuing investment, but must be an 
 actual loss, actually sustained and ascertained, during the tax 
 year for which the deduction is sought to be made ; it must be 
 incurred in trade and be determined and ascertained upon 
 an actual, a completed, a closed transaction." 
 
 The term "in trade," as used in the law and in T. D. 
 2005, is held to mean the trade or trades in which the per- 
 
244 Federal Income Tax 
 
 son making the return is engaged ; that is, in which he has 
 invested money otherwise than for the purpose of being em- 
 ployed in isolated transactions and to which he devotes at 
 least a part of his time and attention. A person may engage 
 in more than one trade and may deduct losses incurred in 
 all of them, provided that in each trade the above require- 
 ments are met. As to losses on stocks, grain, cotton, etc., if 
 these are incurred by a person engaged in trade to which the 
 buying or selling of stocks, etc., are incident as a part of the 
 business, as by a member of a stock, grain, or cotton ex- 
 change, such losses may be deducted. A person can be en- 
 gaged in more than one business, but it must be clearly 
 shown in such cases that he is actually a dealer, or trader, or 
 manufacturer, or whatever the occupation may be, and is 
 actually engaged in one or more lines of recognized businesses 
 before losses can be claimed with respect to either or more 
 than one line of business, and his status as such dealer must 
 be clearly established. (T. D. 2005.) 
 
 Mileage. — The difference between the amount received as 
 mileage and the amount of actual necessary expenses incurred 
 on a journey shall be returned as income. Payments on ac- 
 count of mileage are not subject to withholding. (T. D. 
 2079.) 
 
 Minor child, return o/.— See Guardian, natural. 
 
 Mortgage, property purchased subject to. — An individual 
 issues coupon bonds secured by a mortgage upon real estate. 
 Subsequently a corporation purchases the real estate and as- 
 sumes (as between the mortgagor and itself) the payment of 
 bonds and coupons. Held, that the situation is not changed 
 by the purchase by the corporation. The corporation pur- 
 chased only the mortgagor's equity of redemption (and the 
 mortgagor's possession) ; the property is the security, and the 
 character of the bond obligation remains unchanged and as 
 created, even though the corporation is to pay all interest and 
 will ultimately pay off the mortgage. There will be no with- 
 holding by the corporation (it being placed in the stead of 
 the mortgagor) until the interest payment to any one person 
 in any year exceeds $3,000. (See public utility.) 
 
Treasury Department Special Rulings 245 
 
 Municipality, obligation of. — See Public utility, and 
 Mortgage, property purchased subject to. 
 
 Naval Officers.-. — See Oaths. 
 
 Nonresident alien, agent of. — The responsible heads, 
 agents, or representatives of nonresident aliens who are in 
 charge of the property owned or business carried on within 
 the United States by nonresident aliens shall make full and 
 complete returns of the income therefrom on Form 1040, re- 
 vised, and shall pay any and all tax, normal and additional, 
 assessed upon the said income of such nonresident aliens. 
 (T. D. 2013.) 
 
 Notary public. — See Oaths. 
 
 Oaths. — (1) A return of income rendered by an individual 
 residing abroad may be acknowledged before any duly ap- 
 pointed officer of the country in which he resides authorized 
 to administer oaths and use an official seal. 
 
 (2) If a return is executed in a State before a notary 
 who is not required by the laws of the State to use a seal, 
 and none is used, the notary should file with the Commis- 
 sioner of Internal Revenue the certificate of an officer pos- 
 sessing a seal, showing that he is duly commissioned and 
 authorized to administer oaths ; otherwise the certificate will 
 not be recognized. 
 
 (3) Returns acknowledged before commanding officers of 
 naval vessels while at sea or in foreign ports will be ac- 
 cepted. 
 
 (4) Returns executed before a summary court officer, 
 United States Army, will not be accepted. 
 
 Ownership certificates. — Ownership certificates should be 
 filed with coupons of exempt organizations when presented 
 for collection. (See Exempt organizations.) 
 
 Partnership — Identity of income. — The character of part- 
 nership profits divisible between persons has no reference to 
 any character which, as income accruing to the partnership, it 
 may have borne prior to receipt by the partnership. It is 
 therefore held that income received from a partnership can 
 not be traced to its source behind the partnership for the 
 purpose of claiming individual exemption. 
 
246 Federal Income Tax 
 
 Income, when accrued. — It is held that the income from a 
 partnership accrues to the individual partner at the time his 
 distributive interest is determined and reducible to possession. 
 In the returns of income made by individuals for the calen- 
 dar year, therefore, there should be included such income 
 accruing from the business of partnerships for their business 
 years as may have been definitely ascertained by means of a 
 book balance, whether distributed or not. In other words, 
 members of partnerships are required to make returns of in- 
 come like other individauls for the calendar year, and should 
 include in their returns the net proceeds of their interest in 
 partnership profits ascertained at the end of the business year 
 falling within the calendar year for which the individual 
 return is being rendered. 
 
 Pay. — Congress has clearly specified the conditions under 
 which officers and enlisted men are entitled to foreign service 
 pay, aids' pay, and pay for certificate of merit, and such 
 items of income are considered as fixed and determinable and 
 subject to the withholding provisions of the income-tax law. 
 
 Penalty for failure to render a, return. — See Failure to 
 render a return, penalty for. 
 
 Pension, foreign. — License not required for collection of 
 foreign pensions paid to resident aliens or citizens of the 
 United States. 
 
 Pensions. — Pensions paid by the United States Govern- 
 ment are subject to the income tax. 
 
 Per diem allowances in lieu of subsistence while traveling 
 under orders. — The difference between the amount received 
 as a per diem allowance and the amount of actual necessary 
 expenses incurred on a journey shall be returned as income 
 and is not subject to withholding. (T. D. 2079.) 
 
 Power of attorney, fiduciary relation can not be created by. 
 — A person can not, by a power of attorney, delegate to an- 
 other a duty which he himself could not perform, and in- 
 asmuch as an individual can not relieve a withholding agent 
 from the withholding requirements of the income-tax law by 
 filing Form 1015, a person holding a power of attorney from 
 another is without authority to file this certificate as a fidu- 
 
Treasury Depaktment Special Kulings 247 
 
 ciary. However, for income-tax jmrposes he is authorized 
 to rile any certificate which bis principal, as such, would be 
 entitled to file. 
 
 Premium on bond. — See Bond, premium on. 
 
 Principal place of business of corporations. — See Corpor- 
 ations, principal place of business of. 
 
 Profit from sale of real estate. — Profit is the difference 
 between tbe selling price and the cost where the selling- 
 price is more than the cost. 
 
 "Cost of property purchased prior to the incidence of the 
 special excise tax (Jan. 1, 1909), or tbe incidence of the in- 
 come tax (Mar. 1, 1913), will be the actual price paid for 
 the property, including the expense incident to the procure- 
 ment of the property in the first instance and its sale there- 
 after, togetber with carrying cbarges of interest actually 
 paid, insurance, and taxes actually paid prior to tbe incidence 
 (special assessments, if any, 'actually paid' as 'local bene- 
 fits' in connection with real estate) ; provided that where, up 
 to the incidence of the tax, the expense of carrying property 
 has exceeded the income from it, the difference between tbe 
 expense of carrying and tbe income from the property shall 
 be added to the purchase price, and the sum thus ascertained 
 shall be the cost of the property ; and provided further, that 
 in the case of property purchased prior to the incidence of the 
 tax and sale thereof subsequent to the incidence of the tax, 
 there shall be excluded from consideration in ascertaining 
 cost of any items of income, expense, interest, and taxes pre- 
 viously taken into account in preparing a return of annual 
 net income. 
 
 "The cost of property acquired subsequent to the incidence 
 of the tax will be tbe actual price paid for it, together with 
 the expense incident to the procurement of the property in 
 the first instance, and its sale thereafter, and the cost of im- 
 provement or betterment, if any." 
 
 The entire profits realized by individuals or corporations 
 from the sale of real estate will be taxable except where the 
 property in connection with which the profit is obtained was 
 acquired prior to March 1, 1913, in the case of individuals, 
 
248 Federal Income Tax 
 
 or prior to January 1, 190!>, in the case of corporations ; and 
 then and in such event the profit will be prorated over the 
 whole time the property was held, and that part of the whole 
 profit apportioned to the taxable period will be reported in 
 annual returns of income. In prorating, fractional parts of 
 years will not be considered. 
 
 For income-tax purposes, where there is an actual sale and 
 transfer, profit will be considered as realized even though 
 payment is to be made in installments, as notes for deferred 
 payments are secured by the title to the property and pre- 
 sumably bear interest and are held to be worth, in cash, their 
 face value. 
 
 In case of default on installment payments there may be 
 charged off as bad debts the amount of such unpaid install- 
 ments less the salvage value of the real estate repossessed. 
 (T. D. 2005.) 
 
 Profit sharing. — See Compensation. 
 
 Promissory note of corporations. — A simple promissory 
 note not exceeding one year in time is not "similar to bonds, 
 mortgages, or deeds of trust of corporations," and the interest 
 on such a note is not subject to withholding except when the 
 amount of interest thereon payable to an individual in any 
 one year is in excess of $3,000, or when the interest thereon 
 is payable to a nonresident alien, in which latter case the 
 tax should be withheld regardless of the amount of interest 
 payment. 
 
 Public utility. — Where a municipality purchases a public 
 utility subject to a mortgage, the mortgage retains its orig- 
 inal character, even though the municipality assumes the 
 mortgage indebtedness and pays the interest thereon. There- 
 fore, the indebtedness secured by such mortgage is not an 
 obligation of the municipality within the meaning of para- 
 graph B of the income-tax law. (See Mortgage, property 
 purchased subject to.) 
 
 Quarters. — Commutation of quarters and the money 
 equivalent of quarters furnished in kind shall be returned 
 as income. 
 
 
Treasury Department Special Rulings 249 
 
 When quarters are furnished in kind of a less number of 
 rooms than the number allowed by law, the money equivalent 
 only of the number of rooms actually assigned shall be re- 
 turned as income. When quarters are furnished in kind of 
 a greater number of rooms than the number allowed by law, 
 it is to be assumed that the excess number is assigned for 
 the convenience of the Government, and the money equiv- 
 alent only of the number of rooms allowed by law shall be 
 returned as income. (T. D. 2079.) 
 
 Quarters, commutation of. — See Commutation of quarters. 
 
 Real estate agents. — Eeal estate agents are not required to 
 deduct and withhold the normal tax from rents collected, 
 even though the amount is in excess of $3,000. The agent 
 stands in the place of the landlord and receives money from 
 tenants in exactly the same capacity as the landlord would 
 receive such moneys and should be treated as such. A real 
 estate agent does not act as an agent of the debtor. Therefore 
 the duty of withholding the tax can not be transferred from 
 the debtor to such agent, localise such transfer woidd simply 
 be transferring the duty of withholding to the landlord him- 
 self. 
 
 Eeal estate, profit from sale of. — See Profit from sale of 
 real estate. 
 
 Reimbursement for actual expenses. — Amounts paid by 
 the Government in the nature of reimbursement for subsist- 
 ence and other items of actual expense incurred while absent 
 on business for the Government are not required to be re- 
 turned as income. (T. D. 2079.) 
 
 Renewal premium. — Commissions on renewal premiums 
 for insurance are income when received and income for the 
 period in which received. 
 
 Rent. — Where a tenant rents two pieces of property from 
 the same owner, the tenant should combine the payments, 
 and when such payments so combined aggregate in excess of 
 $3,000 the normal tax should be deducted and withheld, sub- 
 ject to authorized exemptions claimed. 
 
 Where a board of education for a school district rents prop- 
 erty at an annual rental exceeding $3,000, such board of ed- 
 
250 Federal Income Tax 
 
 ucation is regarded as a tenant and should withhold the nor- 
 mal tax, subject, however, to the exemption claimed. 
 
 A lessee paying rent in excess of $3,000 a year under a 
 lease from two or more individuals must mate deduction 
 from all payments to individuals in excess of $3,000 unless 
 certificates of exemption are filed. He should ascertain in 
 what proportion the rent is divided by the use of office Form 
 1000B, which may be adapted and executed by one of the 
 parties in interest, the others executing Form 1007. The 
 withholding should be made from the income of individuals 
 and not from the aggrgate amount paid. This situation is 
 not different if the lessors are husband and wife if their in- 
 dividual interests are separate. The situation is not changed 
 if, by instruction, the actual payments of rent are made to one 
 lessor, the payments to be distributed by him. Where notes 
 are given in payment of rent, the lessee's obligation to with- 
 hold is not altered. The lessee's obligation is the same as in 
 the case of cash rental, withholding occurring at the time the 
 notes are given, and not at maturity. When rental payments 
 in excess of $3,000 a year are payable to a fiduciary, who 
 fails or refuses to file Form 1063, agreeing to act as the 
 source, the beneficiaries are not entitled to file exemption cer- 
 tificates directly, the lease having been taken from the fidu- 
 ciary. If the fiduciary's certificate is not filed, the lessee 
 should withhold 1 per cent on the entire amount. The lessee 
 is not presumed to have knowledge of the beneficiaries un- 
 less they are parties to the lease. 
 
 Bent. — See Living quarters. 
 
 Return of fiduciary or guardian. — See Fiduciary, return 
 of. 
 
 Returns, execution of. — See Oaths. 
 
 Salaries, withholding on, based on calendar year. — The 
 salary of an individual is subject to withholding at the source 
 only on the basis of the calendar year. Corporations which 
 have a fiscal year other than the calendar year and pay em- 
 ployees salaries of $3,000 or over per annum will be required 
 to withhold on the basis of the calendar year. 
 
Treasury Department Special Eulings 251 
 
 Salary of judges. — See Judges, salary of. 
 
 Salary paid in advance. — See Compensation. 
 
 Salary paid to widow for a limited time after death of 
 employee. — See Gratuity. 
 
 Scrip. — Scrip certificates issued by a corporation to its 
 stockholders in lieu of dividends, such scrip certificates bear- 
 ing interest payable semiannually and redeemable at a speci- 
 fied time not longer than one year from date of issue, are 
 not corporate obligations similar to bonds, mortgages, or deeds 
 of trust, and the interest payable thereon will not be subject 
 to withholding except when the amount thereof payable to an 
 individual in a calendar year exceeds $3,000. Payment in 
 scrip is held to be equivalent to payment in cash, and when 
 the amount of such scrip payment to any one individual in a 
 calendar year is in excess of $3,000 the tax must be with- 
 held and accounted for in excess of exemption claimed. 
 
 Special assessment districts. — Special assessment districts 
 created under the laws of the several States for public pur- 
 poses, such as the improvement of streets and public high- 
 ways, the provision for sewerage, gas, and light, and the 
 reclamation, drainage, or irrigation of bodies of land, and 
 levee and school districts, are held to be political subdivisions 
 of a State, and income derived from interest upon the obli- 
 gations of such districts shall not be included in computing 
 net income. (T. D. 1946.) 
 
 Taxes paid pursuant to assessments levied by such special 
 assessment districts are held to be "taxes against local bene- 
 fits," and are, therefore, not allowable deductions in comput- 
 ing net income. 
 
 Stock dividends. — Stock dividends when required to be 
 included in a return of income should be accounted for at the 
 valuation jilaced upon the stock by the corporation when said 
 stock dividends were issued. 
 
 Summary court officers. — See Oaths. 
 
 Taxes. — Taxes paid by citizens or resident aliens of the 
 United States to a foreign country are not allowable deduc- 
 tions in computing net income. The provision of law for 
 
252 Federal Income Tax 
 
 the deduction of taxes applies only to taxes paid to the United 
 States, or to some State or political subdivision thereof in the 
 United States. 
 
 Taxes, special. — See Special assessment districts. 
 
 Tax-free covenant clause. — See Bonds containing tax-free 
 covenant clause. 
 
 Tenant. — See Rent. 
 
 Theatrical profession. — See Actors and actresses. 
 
 Voluntary offering. — Easter offerings, and fees received by 
 clergymen for funerals, masses, marriages, baptisms, etc., are 
 considered income subject to tax under the provisions of the 
 income-tax law of October 3, 1913. Christmas gifts, how- 
 ever, are not considered income within the meaning of the 
 law and should not be included in a return. 
 
 Withholding from, rents. — See Rent. 
 
 Worthless debt. — See Debt. 
 
 Part II. 
 
 RULINGS IN RELATION TO CORPORATION INCOME TAX. 
 
 Agricultural and Horticultural Associations. 
 
 Agricultural and horticultural associations specifically 
 enumerated as exempt are held to be such associations as 
 county fairs, or like organizations, not themselves engaged in 
 agricultural or horticultural pursuits, but which, by means 
 of awards, premiums, etc., are intended to encourage better 
 production and no part of whose income inures to the benefit 
 of any private stockholder or individual. 
 
 Corporations engaged in agricultural or horticultural pur- 
 suits for profit are liable under the law to make returns and 
 to pay the income tax thereby shown to be due. 
 
 Agricultural organizations. — Corporations owning sugar 
 or other plantations and disposing of the products thereof 
 are held to be operating for profit and are not entitled to 
 exemption as agricultural organizations. 
 
 Bank guaranty fund. — The reserve required to be set aside 
 by banks in various States and kept and maintained in said 
 
Treasury Department Special Eulings 253 
 
 banks as a guaranty of depositors in the banks of said States 
 — which said guaranty fund is subject to draft by said bank- 
 ing commissions or boards, in amounts to be determined by 
 said State banking commissions or boards, only for the pur- 
 pose of supplying deficiencies in estates of failed or insol- 
 vent banks — is not an expenditure and can not be considered 
 either as a tax or an expense. It is a reserve required to be 
 kept and maintained for a certain and specifically designated 
 purpose. The amoimts actually expended from such fund in 
 paying therefrom drafts of the State banking commissions or 
 boards on said fund are in the nature of insurance cost, and 
 as such may be deducted as a business expense. The reserve, 
 per se, is not deductible in a return of income. (See page 
 296.) 
 
 Capital of a corporation. — The amount received by a cor- 
 poration for the original issue and sale of its capital stock is 
 held to be the capital of the corporation. In cases where the 
 stock, as originally issued, is sold at a price greater or less 
 than the par value, neither the premium nor the discount will 
 be taken into account in determining the net income of the 
 corporation for the year in which the stock is sold. This is 
 purely a capital transaction and the income is neither in- 
 creased nor decreased by reason of the sale, per se, of the 
 stock at a price greater or less than its par value. 
 
 Collateral the subject of sale in ordinary course of business 
 of a corporation {expense of business). — As used in the act, 
 the expression "collateral the subject of sale," etc., refers to 
 physical or tangible property bound for the performance of 
 certain covenants or payment of certain obligations, and 
 which physical or tangible property is the "subject of sale in 
 the ordinary business of a corporation" owning the same. 
 Where such corporation is, as a matter of its ordinary busi- 
 ness, engaged in buying and selling, or dealing in such prop- 
 erty, the interest actually paid within the year on indebted- 
 ness wholly secured by such collateral may be allowably de- 
 ducted from gross income as an expense of doing business, 
 without regard to the limit of deductible interest as otherwise 
 provided by the statute. The corporation, etc., must be or- 
 
254 Federal Income Tax 
 
 ganized and operated for the purpose of buying, selling, 
 and dealing in the particular kind of property which becomes 
 the collateral in question, and the particular property pledged 
 for the debt upon which the interest is paid must be the "sub- 
 ject of sale in the ordinary business of the corporation." Real 
 estate mortgaged, and the property of corporations organized 
 for and engaged in the business of buying, selling, and deal- 
 ing in real estate, warehouse receipts representing property 
 the subject of sale in the ordinary business of the corporation 
 owning the same, and which warehouse receipts are pledged 
 as collateral for such corporation's own debt, are examples 
 where the interest paid wall be deductible as a "business ex- 
 pense" and not be subject to the statutory limitation as to 
 interest deduction. (See T. D. 1993.) 
 
 Corporation — Exempt. — Cooperative dairies are not. (T. 
 D. 1996.) 
 
 Corporations in existence hid part of year. — All corpora- 
 tions having an existence as such during all or any portion of 
 a year, unless coming within the classes specifically enumer- 
 ated as exempt, are required to make returns. Dissolved cor- 
 porations whose fiscal year coincides with the calendar year 
 will make returns covering the period from January 1 to the 
 date of dissolution, and corporations having a fiscal year 
 other than the calendar year will make returns covering the 
 period from the beginning of the fiscal year to the date of 
 dissolution ; and new corporations will make return for the 
 period from the date of their organization to December 31. 
 The net income in all such cases will be ascertained in the 
 manner set forth in paragraph G of the act. 
 
 Donations. — Donations by corporations which legitimately 
 represent a consideration for a benefit flowing directly or 
 indirectly to the corporation as an incident of its business are 
 allowable deductions from gross income in ascertaining net 
 income subject to the income tax, as donations to a hospital 
 upon consideration that employees of the corporation are to 
 have a ward for their use in case of accident or illness. The 
 absence of consideration moving in some form to the corpora- 
 
Treasury Department Special Rulings 255 
 
 tion will make a contribution a mere gratuity. Gratuities 
 are not allowable deductions in a return of income by cor- 
 porations. 
 
 Donations made for purposes connected with the operation 
 of the property, when limited to charitable institutions, hos- 
 pitals, or educational institutions conducted for the benefit 
 of the employees of a corporation or their dependents, shall 
 be proper as a deduction under the head of expense in the re- 
 turn of the corporation. 
 
 Earnings or dividends not deductible. — Every corporation, 
 no matter how closely related it may be to any other corpora- 
 tion, is required to make return of annual net income and to 
 pay any income tax thereby shown to be due. 
 
 Parent, holding, or other corporations must include in their 
 gross income, and can not deduct therefrom, any dividends or 
 share of earnings which they may receive from a subsidiary, 
 related, or any other corporation. The fact that the parent 
 or holding company owns all the stock of the subsidiary com- 
 pany is immaterial and will not warrant such parent com- 
 pany in omitting or deducting dividends from gross income. 
 
 The Federal income-tax law fixes a specific rule by which 
 the net income, for the purposes of the tax, is to be confuted. 
 That rule makes no provision for the exclusion or deduction 
 from the taxable income of dividends received. 
 
 Expense {spending or treating money). — So-called spend- 
 ing or treating money actually advanced by corporations to 
 their traveling salesmen as a part of selling expense of the 
 product of such corporation is an allowable deduction in a 
 return of income by such corporation. There must be some 
 showing that all the allowance claimed as a deduction was 
 actually expended for the purpose for which the allowance 
 was made, namely, the selling of the product of the corpor- 
 ation in question. 
 
 Fiscal year {corporation) — The financial year of a corpor- 
 ation, etc., at the end of which the accounts are balanced. — 
 For income-tax purposes, in the absence of designation other- 
 wise, all returns are required to be made on the basis of the 
 calendar year. The privilege of making a return of income 
 
256 Federal Income Tax 
 
 ou the basis of a fiscal year other than the calendar year is 
 limited to corporations or institutions which make returns 
 and pay tax as corporations. The statute provides that re- 
 turns must be made on the basis of a calendar year unless the 
 corporation, etc., involved shall designate a fiscal year other 
 than the calendar year in the manner provided by the statute. 
 When the calendar year shall have passed, a return of income 
 for the entire period of such calendar year is then due and 
 must be made out and filed with the proper collector of inter- 
 nal revenue on or before March 1 then next following. This 
 is true even of corporations and institutions making return 
 as corporations, except that such corporations, etc., are given 
 the privilege of filing with the collector of internal revenue 
 (with whom their return must be filed) not less than 30 days 
 (more, but not less) prior to March 1 (the date when the re- 
 turn on the basis of a calendar year is to be filed), a notice, 
 in writing, setting forth that such corporation, etc., has desig- 
 nated the last day of some month in the year (other than the 
 last day of December) as the day of the closing of its fiscal 
 year, and that from the date so designated as the close of its 
 fiscal year its books have been or will be kept on the basis 
 of such designated fiscal year. When this said notice is filed 
 with the collector of internal revenue, a return must then be 
 made on or before March 1 for such part of the calendar year 
 elapsed as is not included in the said designated fiscal year, 
 and return for the full designated fiscal year must be made 
 and filed within 60 days next succeeding the last day of said 
 designated fiscal year. This rule will apply whether the 
 designation affects the fiiture or past, provided always that 
 the return of income can not cover more than 12 consecutive 
 months. 
 Example : 
 
 1914 
 A X B C Y Z 
 
 Jan. 1 June 30 Dec. 31 Mar. 1 June 30 Aug. 29 
 
 AB is calendar year and C is March 1, the time when re- 
 turn on the basis of the calendar year must be filed. At any 
 
Treasury Department Special Kulings 257 
 
 time not less than 30 days prior to C a corporation may file 
 with the collector with whom its return of income must be 
 filed a notice in writing setting forth that said corporation, 
 etc., has designated the last day of some month in the year 
 (other than December 31) as the day of the close of its fiscal 
 year, as June 30, represented by X; thereafter, on March 1, 
 a return will be filed for the period AX. XY represents the 
 first designated fiscal year, and for this said fiscal year a re- 
 turn of income must be made (covering the period XY) sub- 
 sequent to June 30 and on or before August 29 ; in other 
 words, the 60-day period next following the close of the fiscal 
 year. Thereafter returns of income will be made and filed 
 annually subsequent to June 30, and on or before August 29. 
 (See T. D. 2001 and 2029.) 
 
 Gifts to corporation — Income. — The value or amount of a 
 gift to a corporation is held to be income to such corporation 
 and should be returned as such for the year in which the 
 gift is received. The provision of the act of October 3, 1913, 
 which exempts gifts, bequests, etc., from the tax imposed by 
 the act applies to individuals and not to corporations. 
 
 Horticultural societies. — Fruit-growers' associations whose 
 purpose is to promote the mutual benefit of their members in 
 marketing their products and which are not organized for 
 profit and have no capital stock represented by shares, and 
 whose income is derived wholly from membership fees, dues, 
 and assessments to meet necessary expenses, are horticultural 
 societies within the meaning of the law and are not subject to 
 tax or required to make returns. 
 
 Interest. — Individuals are permitted a deduction of "all 
 interest paid within the year * * * on indebtedness" ; 
 corporations are permitted a deduction of interest paid with- 
 in the year on an amount measured by "the amount of cap- 
 ital stock, or capital employed, plus one-half the interest- 
 bearing debt," both outstanding at the close of the year. 
 
 A foreign corporation in determining the maximum prin- 
 cipal upon which interest for the purpose of a deduction may 
 be computed will add to the amount of its paid-up capital 
 stock, or if no capital stock, then the amount of capital em- 
 17 
 
258 Fedekal Income Tax 
 
 ployed in business, one-half the interest-bearing indebtedness, 
 both outstanding at the close of the year. Such proportion of 
 this sum as the gross income derived from business transacted 
 in this country bears to the gross income received from bus- 
 iness done or capital invested, both within and without the 
 United States, will constitute the maximum principal upon 
 which interest for the purpose of a deduction from the income 
 in the United States may be computed. For instance, if the 
 gross income in the United States is one-fourth of the entire 
 gross income, then one-fourth of the sum of the paid-up capital 
 stock plus one-half the interest-bearing indebtedness will be 
 the maximum principal upon which interest deductible from 
 the United States income may be computed. 
 
 Life insurance in favor of corporations. — In cases wherein 
 corporations pay premiums on insurance policies insuring, 
 in favor of the corporations, the lives of officers or others, 
 such premiums may be allowably deducted from the gross 
 income of the corporations paying the same. 
 
 In all such cases the proceeds of the policies when paid at 
 maturity or upon death of the insured shall be returned by 
 the corporation as income for the year in which such proceeds 
 were received. 
 
 Paid-up capital stock outstanding at close of year. — "Paid- 
 up capital stock outstanding at the close of the year," when 
 used in connection with "interest-bearing indebtedness," to 
 determine the maximum principal upon which interest for 
 the purpose of an authorized deduction is to be computed, 
 means the par value of shares issued as reported in Item 1 
 of the return form, and will not include the surplus carried 
 by the corporation. (See T. D. 1960 for method of computa- 
 tion and T. D. 1993 for regulation as to deduction of in- 
 terest paid on indebtedness wholly secured by collateral, 
 the subject of sale, in the ordinary course of business.) 
 
 Pensions paid employees, etc. — Amounts paid for pensions 
 to retired employees or to their families or others dependent 
 upon them, or on account of injuries received by employees, 
 are proper deductions as ordinary and necessary expenses. 
 Gifts or gratuities to employees in the service of a corpora- 
 
Treasury Department Special Rulings 259 
 
 tion are not properly deductible in ascertaining net income 
 of the corporation. 
 
 Philippine and Porto Rican corporations. — Such corpora- 
 tions organized under laws of the United States or any State 
 thereof, resident in the United States but doing business in 
 these possessions, are taxable in the United States. If they 
 are organized under the laws of the United States or local 
 laws of these possessions and resident in said possessions, 
 they are required to pay their tax in the Philippines or in 
 Porto Rico, as the case may be. The law provides that cor- 
 porations shall make their returns "to the collector of inter- 
 nal revenue for the district in which they have their prin- 
 cipal place of business." Held, "principal place of busi- 
 ness" of a corporation is the place or office in which are 
 kept the books of account and other data from which the 
 return is to be prepared. 
 
 Public utility (business expense). — In case of a public 
 utility constructed, operated, or maintained under contract 
 with any city, Territory, or the District of Columbia, or a 
 city where a portion of the net earnings of such public utility 
 is payable under such contract to the State, Territory, etc., 
 the amount so paid may be deducted by the public utility 
 operated under such contract as an "expense of business." 
 (See Art. 93, Reg. 33.) 
 
 Rent. — Payments measured by a fixed percentage on the 
 stock of a railroad corporation whose lines are leased by 
 another railroad corporation and which rent is payable by 
 the lessee directly to the stockholders of the lessor corpora- 
 tion, have, under the income-tax law with respect to the cor- 
 poration paying such sums, the status of a rental payment. 
 
 In such cases there are two corporations involved, the lessor 
 and the lessee — one the rent payer and the other the rent 
 receiver. To the lessee rental payments are an expense of 
 operation; to the lessor the rentals are an income. 
 
 A contract which provides that the rentals shall be paid to 
 a third party, not a party to the contract, does not change 
 the character of the payment, nor relieve the lessor from lia- 
 bility to tax on the rental income which the lessee pays to it 
 
260 Federal Income Tax 
 
 or to such third party. The income of the third party, the 
 stockholder, is dividends on the stock which he holds in the 
 lessor company. Dividends can not be paid unless the lessor 
 has an income out of which to pay them. Hence the lessor 
 company is required under the law to return as income the 
 rentals which the lessee is required to pay. In paying direct 
 to the stockholders the lessee is acting as the agent of the 
 lessor, and the amounts received by stockholders are, in 
 effect and in fact, dividends received out of the earnings 
 of the lessor. 
 
 Return {corporation). — A corporation organized and trans- 
 acting no business within the calendar year of its organiza- 
 tion must, nevertheless, make and file a return on the basis 
 of the calendar year unless such corporation shall designate 
 a fiscal year other than the calendar year in the manner and 
 form as provided for that purpose. The duty to make a 
 return depends upon corporate or associational existence and 
 not upon the receipt of income. 
 
 Return period. — The return for a completed period must 
 be made independently of any other period. A corporation 
 changing from the basis of a calendar year to a fiscal year, 
 and because of said change having a part of the calendar year 
 for which return is to be made, will be required to make a 
 separate return for the fraction of the calendar year, and 
 another separate return for the entire fiscal year; as June 
 30 being designated as the end of the fiscal year, the part of 
 the calendar year from January 1 to June 30 must be cov- 
 ered in a return to be made on or before March 1 then fol- 
 lowing, and on or before 60 days next following June 30 
 (next after the filing of return for the fractional part of a 
 calendar year) a return must be made and filed for the entire 
 fiscal year of the corporation. (T. D. 2029.) 
 
Treasury Department Special Rulings 261 
 (T. I). 2109— See page 216.) 
 
 (T. D. 2130.) 
 
 Corporation Income Tor. 
 
 (See correction T. D. 2161, page 2.) 
 
 T. D. 2005 not applicable to returns made for 1909 to 1912, inclusive, 
 if values of securities were treated in returns for that period in 
 accordance with regulations then in force, in which case no 
 reopening or readjustment of securities account will be required. 
 
 Reference is made to T. D. 2005, which holds, in effect, 
 that neither increase nor shrinkage in the book value of secur- 
 ities due to market fluctuations or otherwise is to be taken 
 into account in making returns of annual net income as 
 required by section 2, act of October 3, 1913. 
 
 Numerous inquiries have been made as to whether or not 
 the terms of this Treasury decision are applicable to returns 
 made under the special excise tax law. (Sec. 38, act of 
 Aug. 5, 1909.) 
 
 Relative to this, it is held that if returns made for the 
 years 1909 to 1913, inclusive, were made strictly in accord 
 with the regulations then in force — that is, if the increase in 
 the book values of securities was returned as income and the 
 shrinkage was deducted from gross income, as the regulations 
 then required and permitted — no readjustment of the in- 
 come in so far as it is affected by the adjusted values of 
 securities need now be made. The return as to this item will 
 be accepted as correct and final where the adjustment was 
 made in the ordinary course of business and without refer- 
 ence to the special excise tax on corporations. 
 
 In all such cases wherein the book values of the securities 
 were taken into account in making returns for the years 1909 
 to 1912, inclusive, if such securities have been, or shall be 
 hereafter, sold or otherwise disposed of, the gain or loss re- 
 sulting from such sale or disposal will be determined upon 
 the basis of the difference between the last adjusted value 
 
262 Federal Income Tax 
 
 subsequent to January 1, 1909, taken into account in mak- 
 ing the return and the amount realized for the securities 
 when disposed of, and in this event no prorating will be 
 required or permitted. 
 
 If for the purpose of the special excise tax no adjustment 
 of the value of securities acquired prior to January 1, 1909, 
 had been made or taken into either side of the account in the 
 return of annual net income subsequent to January 1, 1909, 
 the gain or loss will be determined in accordance with the 
 rule set out in T. D. 2005 ; that is, the gain or loss will be 
 determined on the basis of the difference between the actual 
 cost and selling price and prorated according to the number 
 of years the securities were held. 
 
 Therefore, if, in the examination of the books of corpora- 
 tions, examining officers find that the securities account was 
 treated in the returns for the years 1909 to 1912, inclusive, 
 in accordance with the regulations then in force, no reopen- 
 ing or readjustment of this account will be required. In 
 such case, as to this item, the returns will be considered final 
 and correct, the gain or loss resulting from the disposal 
 thereafter of such securities to be determined in accordance 
 with the instructions hereinbefore given. 
 
 (T. D. 2131.) 
 
 Use of Form 1008, revised, for claiming refundment of normal tax 
 withheld in excess of total tax liability. 
 
 There follows a synopsis of the requirements in the use of 
 Form 1008, revised, and the relation between that form and 
 Form 1040, revised. 
 
 1. A person who has had income tax withheld from his 
 income during the year 1914 in excess of his total liability 
 for the normal tax should file Form 1008, revised, with either 
 the withholding agent or the collector of internal revenue with 
 whom the withholding agent's return is required to be filed, 
 as he may elect. The withholding agent is required by T. D. 
 
Treasury Department Special Rulings 263 
 
 19G5 to retain the amount of tax withheld by him until 30 
 .days prior to March 1, 1915, in order to refund amounts 
 withheld in excess of the taxpayer's liability for the normal 
 tax should a proper claim be filed for deductions and exemp- 
 tions. He is required by law to file his return on or before 
 March 1, 1915, and may, in his discretion, file his return 
 on any date between January 1 and March 1. If he has filed 
 his return with the collector, Form 1008, revised, should also 
 be filed with the collector, who will notify the withholding 
 agent and authorize him to make a refundment, changing the 
 entry on the return and filing therewith Form 1008, revised, 
 as a voucher for the refundment. If, however, the withhold- 
 ing agent has not filed his return, and a claim on Form 1008, 
 revised, is filed with him, he will make the proper refund- 
 ment on his own responsibility, filing Form 1008, revised, 
 as a voucher therefor. If Form 1008, revised, is filed with 
 the collector under these circumstances, he will authorize 
 the withholding agent to make refundment. The withholding 
 agent is not required by law to forward to the collector the 
 •tax withheld by him until he has received notice of assess- 
 ment, and then, like the tax assessed in other cases, payment 
 should be made by him on or before June 30 of each year. 
 
 2. Where there are two or more withholding agents whose 
 collection districts are the same, Form 1008, revised, should 
 be filed with the collector of that district, and a statement set- 
 ting forth the names of the withholding agents and the 
 amounts withheld by each should be attached to the form. 
 The collector will then notify the withholding agents of the 
 exact amount that may be refunded by each. 
 
 3. Where excess deductions have been made by two or 
 more withholding agents in different collection districts, 
 Form 100S, revised, may be filed with either collector, as the 
 individual may elect ; and there should be attached to the 
 form a complete statement setting forth the names of all 
 withholding agents, the amounts withheld by each, and the 
 exact amount claimed as a refundment from each. The col- 
 lector with whom the statement is filed will accept it as a 
 part of Form 1008, revised, and as subject to the penalties 
 
264 Federal Income Tax 
 
 imposed by law, and will notify the withholding agents, 
 whether in his district or other districts, to make the refund- 
 ment claimed from each. 
 
 4. It is to be noted that this ruling provides for the exe- 
 cution by the taxpayer of only one Fonn 1008, revised, cov- 
 ering all the general deductions and exemptions claimed by 
 him for the tax year. 
 
 5. The adjustment of total tax liability by the use of Form 
 1008, revised, does not, necessarily, mean that a return on 
 Form 1040, revised, is not required under the law. 
 
 A return of annual net income on Form 1040, revised, is 
 required in all cases of individual incomes subject to the tax, 
 except where the individual's tax liability is required by 
 law to be satisfied at the source. 
 
 In other words, when an individual is liable for the nor- 
 mal tax, only, and his entire net income is subject to with- 
 holding, no return on Form 1040, revised, is required to be 
 filed. If, however, his net income includes any item that 
 is not subject to withholding, a return on Form 1040, re- 
 vised, is required to be filed, although no further tax may be 
 due, and whether or not Form 1008, revised, has been filed. 
 
 (T. D. 2135.) 
 
 Synopsis of rulings on questions relating to the income tax imposed 
 by section 2 of the act of October 3, 1913. 
 
 The following synopsis of rulings on questions relating to 
 the income tax imposed by section 2 of the act of October 3, 
 1913, on individuals, corporations, joint-stock companies, as- 
 sociations, and insurance companies is published for the 
 information of internal-revenue officers and others concerned. 
 All rulings or parts of rulings heretofore made which are in 
 conflict herewith are hereby revoked. 
 
 Accident insurance. — Money paid to the person insured by 
 an accident insurance policy on account of accidents sus- 
 tained is returnable as gross income by the insured person. 
 
Treasury Department Speoiai Rulings 265 
 
 The proceeds of accident insurance policies paid upon the 
 death of the person insured to the beneficiaries is to be 
 treated like the proceeds of life insurance policies. 
 
 Administration of estates, expenses of. — Referring to the 
 difference between the expenses of administration of estates, 
 set forth as not allowable deductions in T. D. 2090, and the 
 expenses itemized as allowable deductions on Form 1041, re- 
 vised, the distinction is sought to be made between such first 
 expenses as are properly chargeable against an estate as an 
 entity, and such other expenses incident to administration 
 as may arise from the nature of the properties and the details 
 of business management. 
 
 Among the former, T. D. 2090 cites court costs, attorneys' 
 fees, executors' commissions, etc., and among the latter may 
 be cited the usual and necessary expenses of carrying on 
 a business, including salaries, wages, and rentals paid, and 
 such repairs to business properties as do not constitute perma- 
 nent improvements or betterments which increase the value 
 of the property or estate. The former is meant to apply to 
 expenses that i-educe the estate in the administrator's hands, 
 and the latter to legitimate expenses that reduce the income 
 accruing to beneficiaries, but not the estate itself. 
 
 Agent. — An agent having entire charge of property with 
 authority to effect and execute leases with tenants entirely on 
 his own responsibility, and without consulting his principal, 
 paying taxes and expenses and all other charges in connection 
 with the property out of funds in his hands from collection 
 of rents, merely turning over the net proceeds from the prop- 
 erty periodically to his principal by virtue of authority con- 
 ferred upon him by a power of attorney, is not a fiduciary 
 within the meaning of the income tax law. 
 
 Agent for a nonresident, alien. — An agent, whether an indi- 
 vidual or a corporation, for a nonresident alien stands in the 
 place of the principal and should execute Form 1040, revised, 
 for the principal when the principal is liable for the tax on 
 income passing through the agent's hands. As a nonresident 
 alien is not subject to the tax on income derived from stocks 
 and bonds of domestic corporations, no return is required to 
 
266 Federal Income Tax 
 
 be made by an agent in such a case. (See Aliens, nonresi- 
 dent, income from mortgages accruing to.) 
 
 Agents, withholding, responsibility of, for refundment 
 when Form 1008, revised, is filed. — No penalty attaches to 
 the action of a withholding agent in refunding amounts 
 improperly claimed in Form 1008, revised, properly exe- 
 cuted, when the refundment is made in good faith and with- 
 out intention to defraud tho Government. 
 
 Withholding agents should be aware of the fact that the 
 assessment will be made on their returns by this office in 
 the light of the facts shown by the certificates and the Form 
 1008, revised, attached to their returns ; and that reasonable 
 care, under the penalties of law, is to be exercised in the 
 performance of the duties imposed upon them by law. 
 
 When it is apparent on the face of Form 1008, revised, 
 and from the facts in possession of the withholding agent 
 that the claim is either erroneous or fraudulent, refundment 
 should be denied. In such a case the claimant has proper 
 redress by means of a claim for abatement or refundment 
 as provided by Article 33 (c), Regulations No. 33, of Janu- 
 ary 5, 1914. 
 
 The same care should be exercised by collectors in author- 
 izing refundment as would be expected of withholding agents 
 in cases of refundment made on their own responsibility. 
 
 Bank stock, taxes paid by banks on, held by individuals. — 
 Taxes assessed against the stockholders of a bank and paid 
 by the bank in behalf of the stockholders do not constitute 
 an allowable deduction from the gross income of the bank, 
 but do constitute an allowable deduction in the return of 
 the individual. If such individual is subject to the addi- 
 tional tax, the amount of taxes so paid should be included in 
 his return as income, the said amount being considered as 
 an additional dividend to the amount of the taxes paid. 
 
 Citizenship. — Determination by the State Department of 
 right to registry is not conclusive upon the Treasury in fixing 
 citizenship for income-tax purposes. Held, that native and 
 naturalized status remains unless changed by affirmative 
 action or forfeited by overt act. 
 
Treasury Department Special Eulings 267 
 
 Collecting agent, duties of, when no certificate is filed. — 
 The first bank or collecting agency receiving an interest cou- 
 pon from a domestic bond, unaccompanied by a certificate of 
 ownership, shall withhold the normal tax of 1 per cent and 
 execute Form 1002. The amount of tax withheld should be 
 reported by the bank or collecting agency on monthly list 
 return, Form 1044. The certificate should accompany the 
 coupon to the debtor corporation in order that the normal tax 
 may not be withheld again should the coupons pass through 
 the hands of other banks or collecting agencies. The debtor 
 corporation, upon receipt of Form 1002, should treat such 
 certificate as an exemption certificate. 
 
 Compensation. — If an employee's total compensation, sal- 
 ary, and bonus is fixed, determined, and paid to him at one 
 time, withholding should occur at that time; and both the 
 company's withholding return and the employee's individual 
 return of income for the year in which the amount is thus 
 determined and paid should take consideration of the item. 
 It follows that where a part of the compensation is in the 
 form of a salary payable monthly, and a part in the form of 
 a bonus not fixed and determined until on or after January 
 1 of the year following that in which the services were ren- 
 dered, the two parts of any one year's compensation can not 
 be considered together for the purposes of withholding the 
 tax and making return ; but the fixed salary of one year 
 should be considered together with the bonus received on or 
 after January 1 of that year. Thus, if the services were ren- 
 dered in the year 1914 the employee's compensation would 
 be liable to withholding whenever the fixed salary and the 
 bonus paid on or after January 1, 1914, amounted to $3,000, 
 subject to the exemption claimed under the law. The bonus 
 to be paid on or after January 1, 1915, will belong to the 
 tax year 1915, together with the fixed salary received dur- 
 ing 1915. 
 
 Compensation for services as trustee. — If no determina- 
 tion was made of the amount due the trustee of an estate as 
 compensation for his services over a period of years until the 
 trust was terminated, the amount allowed him should be re- 
 
268 Federal Income Tax 
 
 turned in full, subject to allowable deductions, as income for 
 the year in which paid, and should not be prorated over the 
 length of time during which he served as trustee. 
 
 Damages. — An amount received as the result of a suit or 
 compromise for "pain and suffering'' is held to be such in- 
 come as would be taxable under the provision of law that 
 includes "gains or profits and income derived from any 
 source whatever." An amount thus received would be, in 
 its nature, similar to an amount paid to a person insured by 
 an accident insurance policy on account of an accident sus- 
 tained. 
 
 Disbursing officer, withholding by, to be governed by 
 amounts paid by him alone.— An effort has been made to 
 meet the views of certain departments that withholding 
 should occur from the aggregate amounts received by an 
 individual from the various disbursing officers within a de- 
 partment; but, after further and careful consideration of 
 both the law and the administrative features involved, it has 
 been determined that each disbursing officer must be gov- 
 erned by the amounts paid by him alone, and that it is not 
 incumbent upon him to ascertain and take into consideration 
 amounts that may have been paid or may be paid by other 
 disbursing officers. 
 
 This view is in full accord with the provisions of the in- 
 come tax law which makes "all officers and employees of the 
 United States having the control, receipt, custody, disposal, 
 or payment," etc, personally liable for the normal tax of 1 
 per cent on amounts passing through their hands, subject to 
 the character and amount of income and the exempions fixed 
 by law. 
 
 All rulings heretofore made on the subject, by letter or 
 otherwise, that are in conflict herewith, are hereby overruled 
 and superseded. 
 
 Dividends on stoclc of corporations subject to tax, when 
 returnable. — Persons having an annual net income of $3,000 
 or more, including the income derived from dividends or net 
 earnings of corporations, etc., subject to tax, but whose total 
 net income is less than $20,000, and whose net income, ex- 
 
Treasury Department Special Rulings 269 
 
 elusive of the income derived from dividends or net earnings 
 of such corporations, etc., is less than $3,000 for the taxable 
 year, are not required to make a return of annual net income. 
 
 Exemption (paragraph C). — A husband who has a wife 
 and children whom he supports, but who is living apart from 
 his wife under an agreement to do so, there being no judicial 
 decree of separation, is entitled only to the specific exemp- 
 tion of $3,000. 
 
 Exemption, specific, amounts of, allowed deceased hus- 
 band and widow in same tax year. — In the return, if the 
 amount of income necessitates one, the decedent's specific ex- 
 emption for the entire year ($4,000) should be claimed. 
 
 The widow is required to file a return on Form 1040, re- 
 vised, in her own behalf if her entire income for the calendar 
 year during which her husband died amounted to $3,000 or 
 more, and should claim a specific exemption of $3,000 if 
 not in a married status, living with a husband, on December 
 31 of that year. 
 
 Income of wife from sale of special articles is to be included 
 in husband's return, when. — Unless the wife has a separate 
 estate which requires her to file a separate return of income 
 or to join with her husband in a return which shall set forth 
 her income separately, a husband having a taxable income of 
 his own should include in his return the income accruing to 
 the wife from the sale of special magazine articles. If 
 neither has a net income of $3,000 or more, but together they 
 have an aggregate net income exceeding $4,000, a return of 
 the joint income is required to be filed by either the husband 
 or wife, and the income derived by the wife as above set forth 
 should be included in such return. The actual proceeds com- 
 ing into the wife's possession during the tax year constitute 
 the income to be included, and not the amounts estimated 
 upon acceptance prior to publication and payment. 
 
 Income tax as an allowable deduction. — For the purpose 
 of claiming as allowable deductions the amounts paid to the 
 collector and the amounts withheld at the source on account 
 of the income tax, it is held that amounts of both classes are 
 paid, within the meaning of the law, in the year in which 
 
270 Fedeeal Income Tax 
 
 assessment is made and the tax paid to the collector of in- 
 ternal revenue. 
 
 Information from withholding returns of income. — The 
 income tax law is specific and mandatory in the matter of 
 safeguarding from publicity the information acquired by 
 reason of its requirements relative to annual returns of in- 
 come. The law imposes the penalty of "fine, imprisonment, 
 dismissal from office, and forfeiture of right to hold office, 
 for making known in any manner not provided by law the 
 * * * amount or source of income * * * or any par- 
 ticular thereof * * * set forth or disclosed in any in- 
 come return by any person * * * ." 
 
 The law does not provide for supplying corporations with a 
 list of their bondholders drawn from withholding returns 
 of income. 
 
 Loss. — (1) A person may have more than one business in 
 the sense of being engaged in more than one trade, and may 
 deduct losses incurred in all of them, provided that in each 
 trade it can be clearly shown that he is actually a dealer, or 
 trader, or manufacturer, or whatever the occupation may 
 be. Neither the investment by an individual of money in 
 the stock of a company nor the employment by the company 
 of his services in any official capacity can serve to make the 
 business in which the company was engaged a matter of his 
 individual trade. 
 
 (2) A loss is none the less actual because an individual 
 can not divest himself of the possession of worthless stock by 
 sale, but that condition alone does not give the loss in ques- 
 tion such a character as appears to the department to have 
 been contemplated by the income tax law. 
 
 Losses in trade. — "A person not a recognized or licensed 
 dealer in stocks and bonds makes $5,000 profit during the 
 year on a stock purchase and sale, and makes a loss during 
 the same year on a stock purchase and sale of $4,000. Is it 
 correct to return this difference of $1,000 in gains, or should 
 the entire $5,000 be returned as gain ?" 
 
 This office holds that the profit of $5,000 is income to be 
 included in a return of income, and that the $4,000 is not 
 
Treasury Department Special Rulings 271 
 
 such a loss as may be deducted in a return of income, for the 
 reason that it is not incurred "in trade" within the accepted 
 definition of that term. 
 
 Penalty of 50 per cent additional tax. — The income tax 
 law is explicit and mandatory in its provisions relative to 
 the additional assessment of 50 per cent of the tax otherwise 
 due, in case of failure to file a return of income within the 
 prescribed time, and does not give discretionary authority of 
 remission of this additional tax to any officer of the Gov- 
 ernment. 
 
 Reimbursement of expenses. — Amounts received from a 
 railroad company by way of reimbursement for expenses inci- 
 dent to an accident are not subject to the income tax. 
 
 Rental: Board, lodging, or other consideration received in 
 lieu of cash. — Board, lodging, or other consideration re- 
 ceived in lieu of rental is considered income equal in amount 
 to the indebtedness in payment of which it is received, and 
 should be included in any return of annual net income its 
 recipient is required to render under the provisions of the 
 income tax law. 
 
 Rental: Permanent improvements made under contract in 
 addition to yearly. — Where a tenant enters into a contract 
 under which he agrees to pay a yearly rental of a fixed sum, 
 and in addition agrees to expend during the rental period 
 a certain fixed sum in making improvements, or where he 
 agrees to erect a building of a certain size, quality, and 
 style of architecture in addition to a fixed annual rental, the 
 amount expended in accordance with the contract in making 
 permanent improvements, or in the erection of the building, 
 forms part of the consideration named for the rental of the 
 property, and the amount thus expended actually accrues to 
 the benefit of the landlord and is, in effect, an advance pay- 
 ment of rental which is held to be income to the landlord at 
 the time of its expenditure, and the tax computed on the 
 amount expended for improvements should be deducted and 
 withheld by the tenant, subject to authorized exemptions 
 claimed, for the taxable vear in which the benefits of such 
 
272 Federal Income Tax 
 
 expenditures accrued to the landlord, and not be prorated 
 over the full period of the lease term. 
 
 Return on Form 1040, revised. — A return on Form 1040, 
 revised, is not required in cases where the individual's tax 
 liability has been or is to be paid at the source. In other 
 words, when an individual is liable for the normal tax only, 
 and his entire net income is subject to withholding, no return 
 on Form 1040, revised, is required under the law. If his 
 net income, not taking his specific exemption into considera- 
 tion, includes items that are not subject to withholding, a 
 return on Form 1040, revised, is required, although no tax 
 may be due. 
 
 Undivided surplus of corporations, individual distributive 
 interest in. — Subdivision 2 of paragraph A, income tax law 
 of October 3, 1913, imposes no duty on the taxpayer to 
 ascertain his distributive interest in the undivided surplus 
 of corporations for the purpose of making return of the 
 amount, in addition to the amount of dividends declared on 
 his stock, unless the Secretary of the Treasury has certified 
 that, in his opinion, such accumulation is unreasonable for 
 the purposes of the business. 
 
 Withholding agent, requirements of, on obligations other 
 than bonds. — All persons having the control or payment of 
 annual income of another person exceeding $3,000, such 
 income being derived from fixed or determinable annual 
 gains — such as the payment of interest upon the obligation of 
 individuals, salaries, rents, wages, etc.— shall when the ag- 
 gregate payments exceed $3,000, withhold the normal tax of 
 1 per cent upon the entire amount unless exemption is 
 claimed, and then only on the amount in excess of the ex- 
 emption so claimed. Any tax withheld from income derived 
 from this class of obligations should be reported by the 
 debtor or withholding agent on annual list return, Form 
 1042, which should be filed with the collector of internal 
 revenue for the district in which the debtor or withholding 
 agent is located, and all certificates received during the year 
 should accompany this return. When certificates have been 
 filed claiming exemption to the full extent of the payments 
 
Treasury Department Special Rulings 273 
 
 made, no return is required; but the certificates should be 
 forwarded to the proper collector of interanl revenue. The 
 annual return, or the certificates, or both, as the case may 
 be, should be forwarded to the collector of internal revenue 
 subsequent to the end of the calendar year and not later than 
 March 1 of the succeeding year. The amount withheld, 
 however, should not be forwarded to the collector until 30 
 days prior to March 1 of the year succeeding that in which 
 the tax was withheld. 
 
 Withholding agent's return when Form 1008, revised, has 
 oeen filed. — The entries on Form 1042 should be made by a 
 withholding agent from the facts before him after he has re- 
 ceived the authority of the collector for the refundment of 
 a part of the amount previously withheld. When he has 
 received notification of the amount of tax to be refunded, 
 he has sufficient information to make correct entries on the 
 form. 
 
 Thus, when a withholding agent has been authorized by 
 a collector to refund, say, $10, he will reduce the amount 
 otherwise to be entered in the column headed "Amount of 
 tax withheld" by $10 ; he will reduce the amount otherwise 
 to be entered in the column headed "Amount of income on 
 which withholding agent is liable for tax" by $1,000 ; he 
 will increase the amount otherwise to be entered in column 
 headed "Amount of exemption claimed" by $1,000, and 
 may change the heading to read "Amount of exemption and 
 deductions claimed," if desired. The figures to be entered in 
 the column headed "Amount of income" will remain the 
 same, that amount being the actual amount passing through 
 the hands of the withholding agent, whether or not Form 
 1008, revised, is filed. 
 
 Withholding from compensation paid at a per diem rate. — 
 Per diem salaries paid on a straight basis of compensation 
 for services rendered are subject to withholding at the source, 
 the amount of compensation being fixed and periodic. If, 
 however, a per diem salary rate is paid and the employee is 
 required by the terms of his employment or contract to pay 
 therefrom his own travel or other legitimate expenses incident 
 18 
 
274 Fedekal Income Tax 
 
 to the business of his employment, the income accruing to him 
 from the per diem rate is not subject to withholding, the 
 amount not being fixed or determinable. 
 
 Withholding returns required of corporations or their duly 
 authorized withholding agents. — A corporation, having 
 bonded indebtedness, which has withheld income tax during 
 the preceding month is required to file a monthly list return, 
 Form 1012, showing the amount of tax withheld. Certifi- 
 cates of ownership in which exemption is claimed to the ex- 
 tent of the amount of payment need not be listed, and if this 
 is the only class of certificates received during the said pre- 
 ceding month, no return is required. However, such certifi- 
 cates should be forwarded to the proper collector of internal 
 revenue, together with a letter of transmittal. 
 
 The return should be filed with the collector of internal 
 revenue for the district in which the debtor corporation is 
 located or has its principal place of business, provided the said 
 debtor corporation has not filed with the said collector of 
 internal revenue a notice of the appointment of a duly author- 
 ized withholding agent, in which case the debtor corporation 
 is not required to file a monthly list return, Form 1012, or the 
 corresponding annual list return, Form 1013. 
 
 This notice of appointment should be placed on file in the 
 office of the collector of internal revenue for the district in 
 which the debtor corporation is located or has its principal 
 place of business, and the said collector should notify the col- 
 lector of internal revenue for the district in which the duly 
 authorized withholding agent is located. The duly author- 
 ized withholding agent is required to file its return with the 
 collector of internal revenue for the district in which the said 
 withholding agent is located, and is not required to file a 
 return with the collector for the district in which the debtor 
 corporation is located. 
 
 
Treasury Department Special Rulings 275 
 
 (T. D. 2137.) 
 
 Synopsis of rulings on questions relating to the income tax imposed 
 by section 2 of the act of October 3, 1913. 
 
 The following synopsis of rulings on questions relating to 
 the income tax imposed by section 2 of the act of October 3, 
 1913, on individuals, corporations, joint-stock companies, 
 associations, and insurance companies, is published for the 
 information of internal-revenue officers and others concerned. 
 All rulings or parts of rulings heretofore made which are in 
 conflict herewith are hereby revoked. 
 
 Part I. — Rulings in Relation to Personal Income Tax. 
 
 Aliens, nonresident, royalties paid to. — Royalties paid to 
 nonresident aliens under an agreement of purchase of certain 
 patent rights, the payments being based upon the quantity of 
 goods produced by the use of such patents, are held to be 
 income accruing to nonresident aliens by reason of property 
 owned or business carried on within the United States; and, 
 as provided in T. D. 2109 of December 28, 1914, the cor- 
 poration or individual purchasing and using the patent rights 
 is required to make full and complete returns of the income 
 therefrom on Form 1040, revised, and to pay any and all tax, 
 normal and additional, assessed upon such income of said 
 nonresident aliens. 
 
 Commission retained by agent on his own life insurance 
 policy. — A commission retained by a life insurance agent on 
 his own life insurance policy is held to be income accruing to 
 the agent, and should be included in his return of income for 
 the assessment of the income tax. 
 
 Deductions: Expenses incurred in connection with salary 
 received from a State or a political subdivision thereof not 
 allowable. — Expenses incurred in earning income which is 
 not subject to tax under the income tax law do not constitute 
 allowable deductions in computing net income from other 
 sources which are taxable under the law. 
 
276 Fedebal Income Tax 
 
 Husband and wife, separate incomes of. — The specific ex- 
 emption of $4,000 may be claimed in the separate return of 
 either husband or wife, the other claiming no exemption; or 
 may be prorated between the two. 
 
 The separate incomes of husband and wife should not be 
 combined in a return of income for the purpose of assessing 
 the additional or surtax. 
 
 Life insurance. — Dividends paid on life insurance policies 
 that have not matured, whether such dividends are drawn in 
 cash by the insured or applied to the reduction of the annual 
 premium due, are not considered items of taxable income 
 under the law, and should be excluded from a return of 
 income. 
 
 Dividends from paid-up policies, however, are considered 
 income to the recipient, and must be included in the annual 
 return of income whenever the taxpayer's income, including 
 such dividends, is in excess of $20,000. They are considered 
 the same as dividends or net earnings from corporations sub- 
 ject to a like tax and may, therefore, be excluded from a 
 return of income in cases where the income is subject to the 
 normal tax of 1 per cent only. 
 
 Partnership returns.— ~No return for a partnership, as 
 such, is required to be made for the year 1914 unless it shall 
 be hereafter specifically requested. Form 1065 was provided 
 for the returns of annual net incomes of partnerships for the 
 year 1913, as requested by circular-letter No. 2 of July 31, 
 1914, but no similar request has yet been made for partner- 
 ship returns for the year 1914. 
 
 The individual members of a partnership firm should 
 include in their individual returns of income to be filed on 
 Form 1040, revised, for the calendar year 1914, their re- 
 spective distributive interests in the partnership's profits as- 
 certained for the business year ending on any date in 1914. 
 Line 19, page 2, of Form 1040, revised, is provided for this 
 purpose. 
 
 Powers of attorney. — A person acting under a power of 
 attorney in the management of property having no title 
 
Treasury Department Special Rulings 277 
 
 thereto but with full power and authority to deal with the 
 property as he sees fit is under no obligation to render returns 
 as a fiduciary. A power of attorney does not constitute a fidu- 
 ciary relationship within the meaning of the income tax law, 
 and in all cases where no legal trust has been created in the 
 estate controlled by the agent and attorney the liability under 
 the law rests with the principal. 
 
 Rents, withholding from, accruing to joint owners. — When 
 the joint owners of rented property do not desire to claim the 
 exemption allowed by paragraph C of the income tax law and 
 merely wish to file a statement with the lessees that will show 
 the proportionate interests of the joint owners in order that 
 the normal tax of 1 per cent may be properly deducted, if the 
 amounts are such as to render deduction necessary, from the 
 income accruing to the individuals, respectively, no certifi- 
 cate has been prescribed ; but the desired information may 
 be imparted to the withholding agents by the use of office 
 Certificate 1000, revised, adapted to rentals, and executed by 
 one of the joint owners. 
 
 Under these circumstances any proper statement of the 
 joint ownership that may be made to the lessees will be accept- 
 able to this office, as no certificate is required to be attached 
 by the withholding agent to his annual return on Form 1042, 
 his duty being fulfilled by withholding the tax from the indi- 
 viduals concerned, making the proper entries specified on the 
 form relative to these individuals, and omitting the names 
 of the individual joint owners whose interests were not suffi- 
 cient in amount to require a deduction of the normal tax. 
 
 Return by a fiduciary. — A return of income by a fiduciary 
 is required if the distributive interest of any one beneficiary 
 in the amount entered on line 5, page 1 of Form 1041, 
 revised, exceeds $3,000. 
 
 Line 5, page 1 of Form 1041, revised, corresponds with line 
 3, page 1 of Form 1041, in use for the tax year 1913. 
 
 Trustee, return of. — The creator of the trust in each in- 
 stance being the same person and the trustee in each instance 
 being the same, the trustee should make a single return on 
 
278 Federal Income Tax 
 
 Form 1041, revised, for all of the trusts in his hands, not- 
 withstanding the fact that they arise from different instru- 
 ments. Where a trustee holds trusts created by different per- 
 sons for the benefit of the same beneficiaries, he should make 
 return for each trust separately on Form 1041, revised. It 
 is to be noted that this ruling is based on the identity of the 
 creator and the identity of the trustee of the various trusts, 
 and not upon the identity of the beneficiaries. 
 
 Part II. — Rulings in Relation to Corporation Income Tax. 
 
 Bond discount deductible. — In the case of a corporation 
 selling its own bonds at a discount, the amount of the discount 
 should be prorated over the life of the bonds, and the propor- 
 tionate part of such discount applicable to each year during 
 the life of the bonds, constitutes an allowable deduction from 
 the gross income of such year. The deduction from gross 
 income in the case of 20-year bonds would be one-twentieth 
 of the aggregate amount of the discount on the bonds sold. 
 
 Discount on bonds issued prior to the year 1909, if such 
 discount was charged against the income of the year in which 
 the bonds were sold, is held not to be deductible from the in- 
 come of subsequent years, for the reason that the charging off 
 prior to January 1, 1909, of the entire amount of the discount 
 constitutes a closed transaction, and such transaction cannot 
 be reopened for the purpose of reducing the taxable income 
 of a corporation by deducting therefrom an aliquot part of 
 the discount. 
 
 Change of name of corporation. — The mere change in name 
 does not constitute a new corporation. If the business was 
 continuous throughout the year, no change in management or 
 operation other than the change of name, the return should be 
 made covering the business transacted throughout the year, 
 such return to be made by the corporation in the name which 
 it bears at the end of the year, with a notation on the return 
 to the effect that the name had been changed, giving both the 
 old and new names. If, however, a distinct new corporation 
 
Treasury Department Special Rulings 279 
 
 was organized to take over the property of the old, both cor- 
 porations will be required to make separate returns covering 
 the periods of the year during which they were respectively 
 in charge of the business. 
 
 Corporation owned by an organization exempt, liable. — A 
 stock corporation all of whose stock is owned by "a corpora- 
 tion or association organized and operated exclusively for 
 religious, charitable, scientific, or educational purposes, no 
 part of whose net income inures to the benefit of any mem- 
 ber, stockholder, or individual," is required under the pro- 
 visions of the Federal Income Tax Law to make a return of 
 annual net income and pay income tax. 
 
 The fact that all of the stock of the corporation, except 
 shares qualifying the directors, is owned by a corporation 
 which itself comes within the class specifically enumerated as 
 exempt does not relieve the firstrnamed corporation from lia- 
 bility under the income tax law. The liability of a corpora- 
 tion to the requirements of the Federal Income Tax Law is 
 not contingent upon the ownership of its stock. 
 
 Domestic corporation doing foreign business. — A domestic 
 corporation doing the greater part of its business in the 
 United States and having its principal place of business in 
 this country and transacting business in Porto Rico through 
 a branch office, is required to report in its return of annual 
 net income its entire earnings from all sources, including 
 those arising and accruing to the branch in Porto Rico or 
 elsewhere. 
 
 The return of such corporation will be made to the collector 
 of internal revenue of the district in this country in which is 
 located its principal place of business. 
 
 Carrying charges part of the cost of assets. — T. D. 2005 is 
 not intended to lie so construed that carrying charges, if 
 they consist of such expenditures as constitute allowable 
 deductions from gross income, are to be added to the cost of 
 the property if there is a gross income from which such 
 charges as constitute allowable deductions may be deducted. 
 It is intended, however, that in the case of a holding or de- 
 
280 Federal Income Tax 
 
 veloping company which has not yet reached the stage of 
 having any income of consequence resulting from its cor- 
 porate operations, the carrying charges or other excess over 
 the incidental income received may be added to, and made a 
 part of the cost of the property. 
 
 As a general proposition involving the acquirement and 
 holding of property for future sale, which property was ac- 
 quired prior to the incidence of the tax and from which 
 property there is but a nominal income, insufficient to meet 
 the carrying charges, it would be proper for the corporation 
 to add to the initial cost of the property the carrying charges, 
 such as interest, insurance, and taxes actually paid, and from 
 that amount deduct the incidental income which may have 
 been received between the date of purchase and the date of the 
 incidence of the tax. The result then shown will be the cost 
 of the property or the amount to be excluded from the pro- 
 ceeds as capital when the property is sold. 
 
 Depreciation deduction. — The Federal Income Tax Law 
 specifically provides that in making their returns of annual 
 net income corporations may deduct, among other items, "all 
 losses actually sustained within the year and not compensated 
 by insurance or otherwise, including a reasonable allowance 
 for depreciation by use, wear and tear of property, if any." 
 
 Under this provision of the law assets of any character 
 whatever which are not affected by use, wear and tear, are 
 not subject to the depreciation authorized by the act. Real 
 estate as such, and as distinct from the improvements thereon, 
 is not reduced in value by reason of wear and tear, and it 
 therefore follows that the "allowance" contemplated by depre- 
 ciation in the case of real estate corporations does not apply 
 to the ground, but is intended to measure the decline in the 
 value of the improvements, which decline in value is due to 
 wear and tear of such improvements. 
 
 In determining the cost of the real estate, in most cases no 
 segregation is made of the cost of buildings as separate and 
 distinct from the cost of the grounds upon which such build- 
 ings stand. In such cases, where the actual cost of the build- 
 
Treasury Department Special Rulings 281 
 
 ings or improvements at the time they were taken over by 
 the corporation cannot be definitely determined, it will be 
 sufficient for the purpose of determining the rate of deprecia- 
 tion to be used in computing the amount which will be de- 
 ductible from gross income to estimate the actual value of the 
 buildings or improvements as of January 1, 1909, provided 
 such buildings were in existence at that time, and provided 
 that the value placed upon such buildings shall not be in 
 excess of the cost of such buildings, less an amount measuring 
 the depreciation which had previously been sustained. 
 
 Dividends received by corporations. — The income received 
 by corporations on account of dividends will be subject to tax 
 in the hands of the company paying the same, being a part 
 of its net earnings, and also in the hands of the company 
 receiving the same. 
 
 The Federal Income Tax Law specifically sets out that 
 there shall be returned as gross income all income received 
 from all sources during the year for which the return is made, 
 and it specifically enumerates the items which may be allow- 
 ably deducted from such gross income. There is no provision 
 of the law whereby dividends received from other corpora- 
 tions may be excluded from gross income or deducted there- 
 from. Each corporation is a separate and distinct entity and 
 must return, for the purposes of the tax, the income which 
 it receives (except interest on obligations of a State or its 
 political subdivisions or on the obligations of the United 
 States or its possessions), regardless of the source from which 
 such income is received or regardless of the fact that a portion 
 of such income may constitute dividends from other corpora- 
 tions subject to tax. 
 
 Exempt corporations. — In cases wherein corporations have, 
 by affidavit or otherwise, clearly established the fact and satis- 
 fied collectors of internal revenue that they are exempt from 
 the requirements of the Federal Income Tax Law, or are 
 defunct, dissolved, or obsolete, and are no longer carrying on 
 any business and have no property or income, returns will 
 not be required of them after such condition has been clearly 
 
282 Federal Income Tax 
 
 established. But one showing of this character as to each such 
 particular corporation will be required unless it shall later 
 appear that any such corporation shall have such income 
 within the meaning of the law as brings it within its require- 
 ments. 
 
 Expenses deductible by tenant corporations. — In the case 
 of corporations which occupy leased premises under a lease 
 contract which requires such corporations to make all neces- 
 sary repairs or improvements, which repairs or improvements 
 revert to the owner of the fee at the expiration of the lease, 
 the tenant corporation is entitled to charge the cost of all such 
 repairs and improvements to the expense of doing business. 
 This expense of improvements, somewhat permanent in char- 
 acter, should, however, bo prorated over the number of years 
 constituting the term of the lease, and the amount deductible 
 from gross income of each year would be the aliquot part of 
 the cost of such repairs and improvements. 
 
 Foreign corporation doing business by an agent. — The 
 Federal Income Tax Law provides that the normal tax im- 
 posed by it shall be levied, assessed, and collected upon the 
 entire net income arising and accruing to foreign corporations 
 from business transacted or capital invested in this country. 
 Such a corporation may transact business or have capital 
 invested in this country through and by an agent as com- 
 pletely as if it were transacting the business or investing the 
 capital direct from its home office or through a duly estab- 
 lished branch office in the United States. An agent who is 
 doing business in this country, buying and selling certain 
 products of the foreign corporation, is to all intents and pur- 
 poses a branch of the foreign corporation, as through and by 
 him the foreign corporation is transacting business in this 
 country. 
 
 The buying and selling of a product in this country through 
 a local agency or branch for and on behalf of a foreign cor- 
 poration is clearly transacting business in this country within 
 the meaning of the Federal Income Tax Law, and any net 
 income arising and accruing because of the business so trans- 
 
Treasury Department Special Rulings 283 
 
 acted will be held to be subject to the tax imposed by the 
 Federal Income Tax Law, and every foreign corporation 
 carrying on business in the manner indicated will be required 
 to make a return of annual net income covering the business 
 so transacted. 
 
 Fiscal year returns of new corporations. — In the case of 
 new corporations, if they shall file or shall have filed within 
 the prescribed time, a notice designating the last day of some 
 month as the close of the fiscal year, such corporations will 
 be permitted to make their returns as of the period ended 
 with the date designated, provided the period intervening 
 between the date of organization of the corporation and the 
 date designated as the close of its fiscal year does not exceed 
 12 months. If such period does exceed 12 months, the corpo- 
 ration will make a return for the portion of the calendar year 
 preceding the beginning of the fiscal year, which return must 
 be filed on or before the 1st day of March next following the 
 calendar year of which it is a part. Corporations partially 
 organized during the year 1914 should file a return for the 
 period ended December 31, 1914, unless they shall have estab- 
 lished a fiscal year for this purpose, and if they shall have 
 actually done no business during the period for which the 
 return is made, that fact will be set out in a notation on or a 
 rider attached to the return. 
 
 Good will. — Good will does not represent a value attaching 
 to physical property, and is held to be an intangible asset, 
 whose value separate "and apart from the business with which 
 it is connected is not capable of determination. For the pur- 
 pose of the income tax, it is capable of neither appreciation 
 nor depreciation. Hence an amount claimed to represent its 
 decline in value is not an allowable deduction from gross 
 income in computing the tax liability of an individual or a 
 corporation. 
 
 Gross value at the mine, etc. — "Gross value at the mine," 
 as contemplated in that provision of the Federal Income Tax 
 Law which authorizes mining companies to deduct from gross 
 income an amount to take care of depletion of natural de- 
 
284 Federal Income Tax 
 
 posits, is held to mean the gross price at which the product 
 could be sold at the mine ; that is, its actual bona fide market 
 value. 
 
 The term "gross" as applied to "value" contemplates the 
 aggregate value of the product at the mine determined upon 
 the basis of the market conditions at the time and place, and 
 is best defined as the price at which the product sells or would 
 sell when delivered at the mouth of the mine in a marketable 
 condition. Five per cent of the value thus determined will 
 constitute the maximum amount which a mining corporation 
 may deduct under the Federal Income Tax Law from gross 
 income on account of depletion of natural deposits. This 
 does not contemplate that the full 5 per cent of the gross value 
 will be allowed if the aggregate amount calculated at a less 
 rate will equal the cost in place of such deposits or secure to 
 the corporation the return of its capital when the deposits 
 have been exhausted. 
 
 Indebtedness secured by collateral. — The instruction given 
 under item 6 (a) of the supplementary statement forming a 
 part of the return Form 1031 is in error, in so far as it 
 requires indebtedness wholly secured by collateral the subject 
 of sale in the ordinary business of a corporation to be included 
 in item 2 of the return proper. 
 
 Indebtedness to be included under item 2 of the return is 
 all interest-bearing indebtedness, except that wholly secured 
 by collateral the subject of sale in the ordinary business of the 
 corporation. 
 
 Income from real estate transactions. — Gains and profits 
 resulting from a real estate transaction are subject to income 
 tax in so far as they represent actual net income for the year 
 in which the transaction occurred. The amount of income 
 to be returned for the purpose of the income tax in the case 
 of the sale of capital assets is the amount received upon the 
 sale of the property in excess of its original cost, provided 
 both the purchase and sale of the property took place since 
 January 1, 1909. If the property was acquired prior to 
 January 1, 1909, the difference between the cost price and the 
 
 
Treasury Department Special Kdlings 285 
 
 selling price will be considered income to the corporation, 
 which income may be prorated according to the number of 
 years the property was held prior to its sale, and the amount 
 thus apportioned to the years subsequent to January 1, 1909, 
 will be returned as income for the year in which the property 
 was sold. 
 
 In determining the amount of income to be accounted for 
 on this basis the corporation will consider mortgages, mort- 
 gage notes, or any other credits received in payment of the 
 property as though they were cash, and if it should occur that 
 the purchaser of any of the property should later default in 
 payment the corporation will be entitled to take credit as a 
 loss for the amount of loss actually sustained by reason of the 
 default. 
 
 In determining the cost of the property for the purpose of 
 arriving at the profit realized upon the sale it will be permis- 
 sible for the corporation to add to the initial cost such carry- 
 ing charges as interest, taxes, insurance, etc., provided such 
 carrying charges have not been deducted from net income 
 which the corporation may have had and returned for years 
 subsequent to January 1, 1909, and prior to the date of the 
 sale of the property. 
 
 Itemized statement on Form 1031. — In the case of public- 
 service and all other corporations it is desired by this office 
 that the supplementary statement which forms a part of the 
 return Form 1031, prescribed by the Secretary of the Treas- 
 ury for the use of such corporations in making their returns 
 of annual net income, shall be prepared as far as practicable 
 in detail. 
 
 It is not expected or required, however, that every particu- 
 lar item going to make up either gross income or the deduc- 
 tions therefrom shall be set out in the supplementary state- 
 ment. It will be sufficient for the purpose of this office in the 
 case of public-service corporations and other similar concerns 
 that they supply the information by classes rather than giving 
 the items in detail, classifying the income and expenditures in 
 
286 Federal Income Tax 
 
 the same manner as is required as to these items by the Inter- 
 state Commerce Commission. 
 
 Investment of depreciation fund. — The investment of de- 
 preciation reserve funds in the concern's own plant in the way 
 of additions and extensions would appear to be such a diver- 
 sion of the funds as is contemplated by Articles 132 and 133 
 of Eegulations 33 and T. D. 1943. * * * 
 
 Investments in additions and extensions are primarily 
 capital investments and the fact that the corporation is in- 
 vesting its depreciation funds in additions and betterments 
 or improvements would seem to indicate that the amounts 
 set aside on account of depreciation were in excess of a reason- 
 able allowance which the law contemplates a corporation may 
 deduct from its gross income, and when it shall appear that 
 by reason of the investing of its depreciation funds in addi- 
 tions, betterments and improvements, it actually adds to the 
 value of its capital assets it will be insisted upon that the 
 amount by which the assets are increased on this account shall 
 be returned as income and be subject to the income tax. 
 
 Interest-bearing indebtedness. — The amount of interest- 
 bearing indebtedness of a corporation, outstanding at the close 
 of the year, should bo reported under item 2 of the return 
 Form 1031 whether the interest accrued upon such indebted- 
 ness was actually paid within the year or not. 
 
 Items entering into cost of manufacture. — The only inter- 
 est which constitutes an allowable deduction from gross in- 
 come under the Federal Income Tax Law is the amount actu- 
 ally paid within the year on the maximum principal ascer- 
 tained by adding to the full amount of the paid-up capital 
 stock outstanding at the close of the year one-half of the 
 interest-bearing indebtedness also then outstanding and such 
 interest as is actually paid on indebtedness wholly secured by 
 collateral the subject of sale in the ordinary business of the 
 corporation. 
 
 Interest payments of this character, being allowable deduc- 
 tions from gross income, will not be taken into account as a 
 part of the cost of manufacture for the reason that to consider 
 
Treasury Department Special Rulings 287 
 
 them an element of the cost of manufacture and to deduct 
 them from gross income as specific items would in effect result 
 in a double deduction of the amounts involved. 
 
 A corporation would not be permitted to include in its 
 deductions the rental value of the property which it owns and 
 occupies nor would it be permitted to deduct from gross in- 
 come the interest which the capital invested or employed 
 would earn were it otherwise invested. 
 
 It therefore follows that a corporation cannot take into 
 account as a part of the cost of manufacture any possible 
 earnings ; that is, earnings which might accrue on its capital 
 or investment had such capital been so placed as to earn a 
 given rate of interest. 
 
 Liability of close corporation. — A corporation formed as a 
 family affair to hold property together and not to sacrifice in 
 selling does not come within the class of corporations specifi- 
 cally enumerated as exempt from the requirements of the 
 Federal Income Tax Law, and is required to make a return 
 of annual net income showing therein all income arising and 
 accruing to it from all sources and to pay any income tax 
 shown by such return to be due. 
 
 Limited partnerships. — Limited partnerships, which are 
 held to be associations within the meaning of the Federal In- 
 come Tax Law, will use Form 1031 in making their returns 
 of annual net income for the year 1914. 
 
 The profits of limited partnerships making returns in the 
 same manner as corporations make returns will be treated the 
 same as dividends of corporations and will be returned in the 
 returns of individuals in the same manner as are dividends 
 upon the stock of corporations ; that is to say, the dividends 
 received from such limited partnerships will not be subject 
 to the normal tax in the hands of the members of the partner- 
 ship receiving the same. 
 
 Lobbying expenses. — Sums of money expended for lobby- 
 ing purposes and contributions for campaign expenses are 
 held not to be an ordinary and necessary expense in the opera- 
 tion and maintenance of the business of a corporation, and 
 
288 Federal Income Tax 
 
 are therefore not deductible from gross income in arriving 
 at the net income upon which the income tax is computed. 
 
 Publicity of supplementary statements. — The supplement- 
 ary statement which is made a part of the return form pre- 
 scribed for the use of corporations in making returns of 
 annual net income is by express terms made a part of the 
 return, and to the same extent that the return constitutes a 
 public record and is open to inspection, to that extent the 
 supplementary statement is also a public record and open to 
 inspection "only upon the order of the President under rules 
 and regulations prescribed by the Secretary of the Treasury 
 and approved by the President." 
 
 Place of filing returns. — In the case of domestic corpora- 
 tions whose books of account and other data are kept in 
 foreign countries, the returns should be made to the collector 
 of internal revenue of the district in which they have branch 
 offices in this country, if they have such branch offices. Other- 
 wise, the returns of annual net income of such corporations 
 should be made to the collector of the district in which are 
 located the statutory offices of the corporations. 
 
 Private hanks — Associations. — Private banks which have 
 the form of corporate organizations, elect officers and a board 
 of managers, have a distinctive name, a fixed situs, and dis- 
 tribute their net earnings upon the basis of the amount of 
 capital invested by the members or owners are held to be 
 associations within the meaning of the Federal Income Tax 
 Law, and in their organized capacity should make returns 
 of annual net income and pay any income tax thereby shown 
 to be due. 
 
 The holders of the stock or the owners of the bank will be 
 exempt from the normal tax to the extent of the dividends or 
 earnings which they receive from such private banks as make 
 returns in their organized capacity and pay income tax in 
 accordance therewith. The individual owners of the bank 
 will not be required to return as income for the purpose of 
 the normal tax any dividends or earnings received from the 
 private bank which pays the tax on its net earnings, but for 
 
Treasury Department Special Rulings 289 
 
 the purpose of the supertax the dividends will be returned as 
 income by the individual stockholders or owners. 
 
 Private banks — Individual ownership. — When it can be 
 clearly shown that a private bank is owned by one man, it is 
 evident that such bank is not an association within the mean- 
 ing of the Federal Income Tax Law, and that therefore such 
 bank will not be required to make a return such as corpora- 
 tions and associations are required to make, but the indi- 
 vidual owner, if he has a net income of $3,000 or more, will 
 be required to make a return on Form 1040, showing in such 
 return the income which he receives not only from the bank 
 but from all other sources. 
 
 Paid-up capital stock. — In making returns of annual net 
 income for the purpose of the income tax, every corporation, 
 in making such returns, must report under item 1 of the 
 return form the total par value of its stock, both common and 
 preferred, outstanding at the close of the year. 
 
 Stock outstanding at the close of the year and upon the 
 basis of which dividends are or may be paid is held to be 
 paid-up capital stock within the meaning of the law. For 
 this purpose it is immaterial whether the stock be paid for 
 in cash, promissory notes, or other assets. The fact that notes 
 are given in payment of the stock issued and that the notes 
 have not been paid in full at the time the return is made is 
 immaterial. 
 
 Returns of holding companies. — In a case wherein a hold- 
 ing company actually takes up each month on its books its 
 proportionate share of the earnings of the underlying com- 
 panies, such holding company will be required to include in 
 its gross income the amounts thus taken up regardless of the 
 fact that the same may not have been actually paid to it in 
 cash. The fact that the underlying companies credit to the 
 holding company the amount of earnings to which it is en- 
 titled on the basis of the stock it holds, together with the fact 
 that the holding company takes up on its books the amount 
 thus credited, renders it incumbent upon the holding company 
 to return these amounts as income, regardless of the fact that 
 19 
 
290 Federal Income Tax 
 
 the underlying companies needed these earnings and used 
 them in making extensions and improvements and in further- 
 ance of their business. 
 
 Expenditures for such extensions and improvements being 
 chargeable to the property account of the subsidiary com- 
 panies are not deductible from the gross income and will 
 therefore not have the effect to reduce the earnings to their 
 respective shares of which the stockholders are entitled. 
 
 Returns of subsidiary companies — Where made. — Under 
 the provisions of the Federal Income Tax Law and the regu- 
 lations of this department, every corporation, joint-stock com- 
 pany or association, and every insurance company, regardless 
 of its relation to another corporation, is held to be a separate 
 and distinct entity, and unless it comes within the class of 
 organizations specifically enumerated in the act as exempt 
 must make a separate and distinct return, complete in every 
 detail. 
 
 If the subsidiary companies of any parent corporation 
 making a return in any particular district have their princi- 
 pal places of business in the same district, such corporations 
 will be listed by the collector of that district on his Form 632, 
 and will be required to make separate returns as above indi- 
 cated. 
 
 If, however, the subsidiary companies keep separate books 
 of account and have their principal accounting offices in other 
 districts, returns of such corporations will be made to the 
 collector of internal revenue of the district in which they have 
 such principal offices. 
 
 Real estate collateral. — The Federal Income Tax Law pro- 
 vides that in case of indebtedness wholly secured by collateral 
 the subject of sale in the ordinary business of such corpora- 
 tion, joint-stock company or association, the total interest 
 secured and paid by such company, corporation, or associa- 
 tion within the year on any such indebtedness may be de- 
 ducted as a part of its expenses of doing business. 
 
 Real estate to constitute collateral within the meaning of 
 this clause of tho law must be such real estate as is in fact 
 
Treasury Department Special Rulings 291 
 
 the subject of sale in the ordinary business of the corporation. 
 If the corporation whose ordinary business is the purchase 
 and sale of real estate has an office building under mortgage, 
 which office building is not subject to sale in the ordinary 
 business of the corporation, the interest paid on such mort- 
 gage will not be deductible under item 4 of the return form 
 (1031), but in that case would be deductible under item 
 6 (a) of the return form to an amount not in excess of the 
 limit fixed by the law as set out in said item. 
 
 Tentative returns. — In cases wherein foreign corporations 
 or domestic corporations doing business in foreign countries 
 are unable to assemble their data in time to make their 
 returns of annual net income within the prescribed time, it 
 will be permissible for such corporations upon a showing of 
 this fact to file with the collector of internal revenue a tenta- 
 tive return in which there shall be approximated, as nearly 
 as possible, the actual business transacted during the year. 
 
 This tentative return will be substituted by a true and 
 accurate return as soon as the necessary data to make such 
 true and accurate return shall be available. 
 
 Collectors of internal revenue are authorized to grant an 
 extension of time not in excess of 30 days from the date when 
 returns are due, such extension to be granted only in cases 
 wherein the neglect to file the return within the prescribed 
 time was due to the sickness or absence of an officer whose 
 signature to the return was necessary. Foreign corporations 
 or domestic corporations doing business in foreign countries 
 cannot be granted an extension of time merely for the reason 
 that they are unable to assemble their data to make the return 
 within the prescribed time. In all such cases liability to the 
 penalty of the act can be obviated only by filing a tentative 
 return as hereinbefore indicated. 
 
 Tax payable at source on bond coupons. — Interest received 
 by a corporation on bonds by the terms of which the debtor 
 corporation is required to pay any tax which may be assessed 
 thereon must be returned by the corporation receiving the 
 same as a part of its gross income, and, notwithstanding the 
 
292 Fedekal Income Tax 
 
 fact that the debtor corporation may have withheld and paid 
 the tax on such interest, the receiving corporation is not per- 
 mitted to deduct from its gross income the amount of interest 
 upon which this tax may have been paid. 
 
 Tax-free covenant. — The contract between the issuing cor- 
 poration and the bondholder whereby the bonds are guaran- 
 teed to be tax free is a contract in which this office in the 
 administration of the Federal Income Tax Law can have no 
 concern. Each corporation must account for, in its return 
 of annual net income, all income which it receives from all 
 sources. Interest received by a corporation on bonds which 
 it holds, whether they are guaranteed to be tax free or not, 
 must be included in the income of the corporation receiving 
 the same and so accounted for in its return of annual net 
 income. In other words, the corporation receiving the in- 
 come must pay the tax upon the same, if it have a net income 
 subject to tax, and the matter of complying with the covenant 
 of the bond is a matter to be adjusted between the debtor cor- 
 poration and the bondholder. 
 
 Subsidiary companies must make returns. — In the case of 
 parent corporations owning all or practically all of the stock 
 of subsidiary companies, it is held that both corporations are 
 separate and distinct entities and that each must make true 
 and accurate returns, accounting for, in detail, their separate 
 gross income and deductions therefrom, and each such com- 
 pany will be required to pay the income tax on the net earn- 
 ing shown by such return. 
 
 It is not sufficient for the purpose of the Income Tax Law 
 that the parent company shall report the gross income of the 
 subsidiaries and deduct from such gross income the expenses 
 of such subsidiaries. The net earnings of the subsidiary com- 
 panies turned over to the parent company are dividends 
 within the meaning of the law, and as such dividends are not 
 deductible from gross income, the parent company must pay 
 income tax on its net income notwithstanding the fact that 
 the earnings out of which the dividends were paid had been 
 subject to tax as against the subsidiary companies. 
 
\ 
 
 Treasury Department Special Rulings 293 
 
 (T. D. 2152.) 
 
 Synopsis of rulings on questions relating to the income tax imposed 
 by section 2 of the act of October 3, 1913. 
 
 The following synopsis of rulings on questions relating to 
 the income tax imposed by section 2 of the act of October 3, 
 1913, on individuals, corporations, joint-stock companies, 
 associations, and insurance companies is published for the 
 information of internal-revenue officers and others concerned. 
 All rulings or parts of rulings heretofore made which are in 
 conflict herewith are hereby revoked. 
 
 Part I. — Bulings in Relation to Personal Income Tax. 
 
 Alien, nonresident, services rendered by a, in a foreign 
 country. — If the status is that of a nonresident alien the com- 
 pensation paid for services rendered in a foreign country, in- 
 cluding the per diem allowance for business and travel ex- 
 penses, is not subject to the income tax imposed by section 2 
 of the act of October 3, 1913. 
 
 Annuity. — The ruling with reference to annuities on page 
 2 of T. D. 2090 of December 14, 1914, is hereby amended 
 by omitting therefrom the words, "When the settlement under 
 such a contract is made in more than one payment, each pay- 
 ment will be considered as being composed of interest and a 
 proportionate part of the principal. Where the entire an- 
 nuity is composed of an interest return upon the principal 
 sum paid therefor, the entire annuity is income," so that the 
 ruling as amended will read as follows : 
 
 "Annuity. — The amount paid under a life insurance, en- 
 dowment, or annuity contract is not income when returned to 
 the person making the contract, either upon the maturity or 
 surrender of the contract ; but the amount by which the sum 
 received exceeds the sum paid and coming into the hands of 
 the person making the contract and payment is income." 
 
 Executor or administrator: Return on Form 10J/.0, revised, 
 
294 Federal Income Tax 
 
 by. — The income-tax law of October 3, 1913, provides in 
 paragraph E that — 
 
 The tax herein imposed upon annual gains, profits, and income not 
 falling under the foregoing and not returned and paid by virtue of 
 the foregoing shall be assessed by personal return under rules and 
 regulations to be prescribed by the Commissioner of Internal Reve- 
 nue and approved by the Secretary of the Treasury. 
 
 It is held that the income tax due from a deceased person 
 is a debt against the estate in the hands of his executor or 
 administrator ; and under the authority quoted it has been 
 prescribed by regulations that the executor or administrator 
 shall file a return for the decedent in order that the amount 
 due the Government from the decedent's estate may be deter- 
 mined and paid. 
 
 Income-tax laws of other countries. — American citizens, 
 whether residing at home or abroad, resident aliens, and non- 
 resident aliens receiving income from property owned and 
 from business, trade, or profession carried on within the 
 United States, all of whom are subject to the income-tax law 
 of October 3, 1913, are not relieved from tax liability under 
 that act by reason of the fact that they are also subject to the 
 income-tax laws of other countries. 
 
 Scrip. — The ruling under this heading on page 17 of T. D. 
 2090 of December 14, 1914, is hereby amended by inserting 
 after the word "of" in line 8, the words "interest paid on" 
 and omitting the word "payment" after the word "scrip" in 
 same line, so that the ruling as amended will read : 
 
 "Scrip. — Scrip certificates issued by a corporation to its 
 stockholders in lieu of dividends, such scrip certificates bear- 
 ing interest and redeemable at a specified time not longer 
 than one year from date of issue, are not corporate obliga- 
 tions similar to bonds, mortgages, or deeds of trust, and the 
 interest jtayable thereon will not be subject to withholding 
 except when the amount thereof payable to an individual in a 
 calendar year exceeds $3,000. Payment in scrip is held to be 
 equivalent to payment in cash, and when the amount of in- 
 terest paid on such scrip to any one individual in a calendar 
 
Treasury Department Special Rulings 295 
 
 year is in excess of $3,000 the tax must be withheld and 
 accounted for in excess of exemption claimed." 
 
 State, payment by, to contractor not exempt. — An indi- 
 vidual who enters into a contract with a State, or any politi- 
 cal subdivision thereof, for the construction of a public high- 
 way, is held not to be an officer or employee of the said State 
 or a political subdivision thereof, and, therefore, the amounts 
 received by him from the State or a political subdivision 
 thereof, under the terms of the contract, are not exempt from 
 tax under the provisions of the Federal Income Tax Law, and 
 should be included in any return of annual net income he may 
 be required to render. 
 
 Part II. — Rulings in Relation to Corporation Income Tax. 
 
 Assessments against private banks as associations. — In the 
 case of private banks which have the form of corporations and 
 which are held to be associations within the meaning of the 
 Federal Income Tax Law, it is not the purpose of this office 
 to assess the income tax against such banking associations and 
 then also against the individual members of the association. 
 
 Income which the members of the association receive from 
 the bank because of their investments therein will be con- 
 sidered dividends, and for the purposes of the normal tax 
 these dividends will not be required to be returned by the 
 individual members receiving them, but if any individual 
 member of the association have an income, including the divi- 
 dends, of more than $20,000, the dividends in that case must 
 be returned as income for the purposes of the additional or 
 supertax. 
 
 Bank guaranty fund. — Banking corporations, which, pur- 
 suant to the laws of the States in which they are doing busi- 
 ness, are required to set apart, keep, and maintain in their 
 banks the amount levied and assessed against them by the 
 State authorities as a "Depositors' guaranty fund," may de- 
 duct from their gross income in their returns of annual net 
 income the amount so set apart each year to. this fund, pro- 
 vided that such fund is set aside and carried to the credit of 
 
296 Fedekal Income Tax 
 
 the State banking board, or other duly authorized State offi- 
 cer, and may be withdrawn upon demand by such board or 
 State officer to meet the demands of these officials in reim- 
 bursing depositors in insolvent banks, and provided further 
 that no portion of the amount thus set aside and credited is 
 returnable under the existing laws of the State to the assets 
 of the banking corporation. 
 
 In such eases the amount of the guaranty fund thus levied 
 against the banking corporation and so set apart, kept and 
 maintained is no longer an asset of the bank, but is in the 
 nature of a tax "imposed by authority of the State," and as 
 such is deductible from the gross income of the banking cor- 
 poration. 
 
 The first paragraph on page 19 of T. D. 2090, issued De- 
 cember 14, 1914, which paragraph bears the title "Bank 
 Guaranty Fund,'' being in conflict with the above ruling, is 
 hereby rescinded. 
 
 Bank taxes deductible. — The ruling of this office previously 
 made to the effect that banking corporations are not permitted 
 to deduct from gross income the amount of taxes paid for 
 stockholders on the value of their capital stock outstanding 
 applies only to the taxes levied upon the value of the capital 
 stock and is not intended to operate so as to prevent banking 
 corporations from deducting from their gross income any 
 State tax imposed against the corporation itself, as an excise 
 or franchise tax; that is, a tax which the corporation is re- 
 quired to pay to the State in order that it may transact busi- 
 ness within the State. 
 
 Corporations liable to make returns. — The tax imposed by 
 the Federal Income Tax Law is not imposed only upon such 
 corporations as are organized and operated for pirofit. Any 
 corporation, joint-stock company, or association, and any in- 
 surance company, no matter how created or organized or what 
 the purposes of its organization may be, unless it comes within 
 the class of organizations specifically enumerated in the act 
 as exempt, will be required to make returns of annual net 
 
Treasuey Department Special Rulings 297 
 
 income and pay income tax upon the net income which arises 
 and accrues to it during- the year. 
 
 A corporation is not exempt simply and only because it is 
 primarily not organized and operated for profit. If income 
 within the meaning of the law arises and accrues to a corpora- 
 tion which is not organized and operated for profit, such 
 income will be subject to the tax imposed by this act. 
 
 It is therefore held that commercial men's associations, 
 farmers' mutual fire insurance companies, and like organiza- 
 tions come within the requirements of the law. 
 
 Corporations not completely organized. — Corporations 
 which have applied for and never received charters, or cor- 
 porations which have received charters and never perfected 
 their organizations, transacted no business and had no income 
 whatever from any source, may, upon presentation of these 
 facts to the collector of internal revenue, be relieved from the 
 necessity of making returns of annual net income so long as 
 they remain in this unorganized condition. 
 
 Cost of manufactured products. — A manufacturing cor- 
 poration may include as an element of the cost of manufac- 
 tured products the cost of the raw material, the cost of labor 
 of the men who actually work on such products, as well as the 
 cost of supervisory, or what may be denominated as "unpro- 
 ductive" labor, such as that of the foremen, inspectors, over- 
 seers, etc., provided such expenditures are not separately 
 deducted from gross income in the return of annual net 
 income. 
 
 The overhead charges referred to in Form 1031 should 
 include the salaries of officers, clerk hire, and such other office 
 expenses as do not have to do directly with the manufacture 
 of the product. 
 
 Fixed salaries and commissions. — In cases wherein em- 
 ployees or officers of a corporation are paid a stated salary to 
 which is added a certain percentage of the net profits of the 
 corporation as compensation for services rendered, such cor- 
 poration will be required to report under item 4 (a) 7 of 
 Form 1030 or 1031 the amount of such combined payments 
 
298 Fedeeal Income Tax 
 
 made to such individuals during the year, provided the com- 
 hined amount is $3,000 or more. 
 
 Irrigation bonds, district. — District irrigation bonds as a 
 rule, if not always, are a lien upon the real estate affected by 
 the irrigation project, and until the corporation has taken 
 such steps as are necessary to protect its rights and enforce 
 the collection of the bonds, it does not appear that the corpora- 
 tion would be warranted in writing out of its assets and 
 deducting from income, as a loss, the face value or any other 
 arbitrarily ascertained amount representing a loss or shrink- 
 age in the value of such bonds. 
 
 No fixed rating for depreciation. — This office has fixed no 
 definite rates by which an allowable deduction on account of 
 depreciation in the value of any class of property subject 
 to wear and tear is to be computed. 
 
 The rule which this office has established and which is very 
 generally followed by corporations contemplates that an allow- 
 able depreciation deduction within the meaning of the Fed- 
 eral income tax law shall be computed upon the basis of the 
 cost of the property and the probable number of years con- 
 stituting its life. 
 
 The life of property necessarily depends upon its character, 
 tbe uses to which it is put, and the conditions under which it 
 is used. These elements being taken into consideration, cor- 
 porations should, as a result of experience and observation, 
 very closely approximate the number of years constituting the 
 life of the property and upon this basis determine the rate 
 of depreciation which annually occurs. 
 
 Royalties subject to income tax. — In the case of mines 
 operated by a lessee on a royalty basis it is held that the lessor 
 in disposing of his ores or natural deposits on the basis of 
 royalties has a measure of profit in every ton of ore disposed of 
 in this way, and that so much of the gross receipts on account 
 of royalties as is in excess of depletion, not exceeding 5 per 
 cent of the gross value of the output at the mine, plus any 
 incidental expenses to which the corporation may be subject, 
 is income within the meaning of the Federal income tax law 
 and should be so returned bv the lessor. 
 
Treasury Department Special Rulings 299 
 
 Salaries paid officers and employees. — In the case of sala- 
 ries paid to officers and employees of corporations, this office 
 has fixed no definite amounts which may be allowably de- 
 ducted from gross income. Any amount representing a fair 
 and reasonable compensation for the services rendered by the 
 officers or employees, if actually paid, will constitute an allow- 
 able deduction from gross income. The salaries which consti- 
 tute such allowable deductions should not depend upon the 
 profits of the corporation, but should, as indicated, be a fair 
 measure of compensation for services rendered, and upon this 
 basis should not vary accordingly as the net income or profits 
 of the corporation may vary from year to year. 
 
 Shrinkage in value of securities. — Bonds and securities are 
 not subject to wear and tear within the meaning of the Fed- 
 eral income tax law, and therefore depreciation does not apply 
 to any shrinkage in their value. Shrinkage in the value of 
 securities as such does not constitute a loss actually sustained 
 within the year, the amount of which is definitely ascertained. 
 Therefore, under the rules of this office and consistent with 
 the provisions of the law, a shrinkage in the value of bonds 
 or like securities does not constitute an allowable deduction 
 from gross income either as loss or depreciation. 
 
 The fact that bonds and similar securities were written off 
 at the direction of the Comptroller of the Currency or the 
 State banking department is not material. A mere book 
 entry does not constitute either a loss or gain for the purpose 
 of the income tax. The fact that bonds were written off does 
 not necessarily imply that they are a total loss, nor is this 
 act a conclusive proof that any loss occurred during the year 
 for which the return is made. 
 
 Losses of this character are only ascertainable when the 
 securities mature, are disposed of, or canceled. 
 
 . Special compensation not deductible. — Special payments 
 made by a corporation as extra compensation to certain of its 
 employees may be deducted from gross income, if it is clearly 
 shown that such payments are made as compensation for serv- 
 ices rendered and are paid in pursuance of a contract ex- 
 pressed or implied. 
 
300 Federal Ixcome Tax 
 
 If such so-called "compensation" is a gratuity or voluntary 
 payment, for which no service is rendered, the amounts so 
 paid are not deductible. In cases wherein the payments are 
 made as compensation for services rendered, the employee 
 receiving the same, if he be a "taxable person," will be re- 
 quired to include the amount of such compensation in his 
 personal income tax return. 
 
 (T. D. 2153.) 
 
 Income from farm products and crop-share rentals to be included in 
 the return of income for the year in which sold or exchanged for 
 money or a money equivalent. 
 
 The tercn "farm" as herein used embraces the farm in the 
 ordinarily accepted sense, plantations, ranches, stock farms, 
 dairy farms, poultry farms, fruit farms, truck farms, and all 
 lands used for similar purposes ; and for the purposes of this 
 decision all persons who cultivate, operate, or manage farms 
 for gain or profit, either as owners or tenants, are designated 
 as "farmers." 
 
 All gains, profits, and income derived from the sale or ex- 
 change of farm products, whether produced on the farm or 
 purchased and resold by a farmer, shall be included in the 
 return of income for the year in which the products were 
 actually marketed and sold ; and all allowable deductions, in- 
 chiding the legitimate expenses incident to the production 
 of that year or future years, may be claimed in the return 
 of income for the tax year in which the right to such deduc- 
 tions shall arise, although the products to which such expenses 
 and deductions are incidental may not have been sold or ex- 
 changed for money, or a money equivalent, during the year 
 for which the return is rendered. 
 
 Rents received in crop shares shall likewise be returned 
 as of the year in which the crop shares are reduced to money 
 or a money equivalent, and allowable deductions, likewise, 
 shall be claimed in the return of income for the tax year to 
 
Treasury Department Special Rulings 301 
 
 which they apply, although expenses and deductions may be 
 incident to products which remained unsold at the end of the 
 year for which the deductions are claimed. When farm prod- 
 ucts are held for favorable market prices, no deduction on 
 account of shrinkage in weight or physical value, or losses by 
 reason of such shrinkage or deterioration in storage, shall be 
 allowed. 
 
 Cost of stock purchased for resale is an allowable deduction 
 under the item of expense, but money expended for stock for 
 breeding purposes is regarded as capital invested, and 
 amounts so expended do not constitute allowable deductions 
 except as hereinafter stated. 
 
 Where stock has been purchased for any purpose, and 
 afterwards dies from disease or injury, or is killed by order 
 of the authorities of a State or the United States, and the 
 cost thereof has not been claimed as an item of expense, the 
 actual purchase price of such stock, less any depreciation 
 which may have been previously claimed, may be deducted 
 as a loss. Property destroyed by order of the authorities of 
 a State or of the United States may, in like manner, be 
 claimed as a loss; but if reimbursement is made by a State 
 or the United States, in whole or in part, on account of stock 
 killed or property destroyed, the amount received shall be 
 reported as income for the year in which reimbursement is 
 made. 
 
 The cost of farm machinery is not an allowable deduction 
 as an item of expense, but the cost of ordinary tools may be 
 included under this item. 
 
 Under the sixth deduction enumerated in paragraph B, 
 providing for "a reasonable allowance for the exhaustion, 
 wear and tear of property arising out of its use or employ- 
 ment * * *," there may be claimed a reasonable allowance 
 for depreciation on farm buildings (other than a dwelling- 
 occupied by the owner), farm machinery, and other physical 
 property, including stock purchased for breeding purposes ; 
 but no claim for depreciation on stock raised or purchased 
 for resale will be allowed. 
 
302 Federal Income Tax 
 
 Farmers who keep books according to some approved 
 method of accounting, which clearly show the net income, 
 may prepare their returns from such books, although the 
 method of accounting may not be strictly in accordance with 
 the provisions of this decision. 
 
 A person cultivating or operating a farm for recreation or 
 pleasure, on a basis other than the recognized principles of 
 commercial farming, the result of which is a continual loss 
 from year to year, is not regarded as a farmer. In such 
 cases, if the expenses incurred in connection with the farm 
 are in excess of the receipts therefrom, the entire receipts 
 from sale of products may be ignored in rendering a return 
 of income, and the expenses incurred, being regarded as per- 
 sonal expenses, will not constitute allowable deductions in the 
 return of income derived from other sources. 
 
 (T. D. 2161.) 
 
 Synopsis of rulings on questions relating to the income tax imposed 
 by section 2 of the act of October 3, 1913. 
 
 The following synopsis of rulings on questions relating to 
 the income tax imposed by section 2 of the act of October 3, 
 1913, on individuals, corporations, joint-stock companies, as- 
 sociations, and insurance companies is published for the in- 
 formation of internal revenue officers and others concerned. 
 All rulings or parts of rulings heretofore made which are in 
 conflict herewith are hereby revoked. 
 
 Part II. — Rulings in Relation to Corporation Income Tax. 
 
 Amortization of bonds — Amending Article 135, Regula- 
 tions No. 33. — That part of Article 135 of Eegulations No. 
 33, relative to the amortization of bonds, which ends with the 
 words "become due and payable," has been entirely rescinded 
 and superseded by T. D. 2005 and T. D. 2130. The remain- 
 ing portion of Article 135, beginning with the words "with 
 
Treasury Department Special Rulings 303 
 
 respect to bond issues," remains in full force and effect and 
 refers entirely to the treatment of bonds discounted in cases 
 wherein corporations sell their bonds at a discount. The in- 
 tention of this part of the article is to allow corporations sell- 
 ing their own bonds at a discount to prorate the discount over 
 the life of the bonds and to deduct from gross income each 
 year an aliquot part of the discount determined in accordance 
 with the number of years which the bonds have to run from 
 the date of issue. 
 
 This clause is not to be considered, however, as permitting 
 corporations which had sold bonds issued prior to 1909 at a 
 discount, and had at that time charged the entire amount of 
 the discount into profit and loss, to take up such discount and 
 prorate it over the life of the bonds for the purpose of de- 
 ducting an aliquot part of such discount from the income of 
 current years and thus reduce the taxable income. 
 
 Banks deducting capital stock tax to make amended re- 
 turns. — The capital stock outstanding of a banking corpora- 
 tion is the personal property of the individual stockholder. 
 Hence any tax paid on the value of this property is a liability 
 of the owner, and the requirement of a State law that a bank 
 shall pay the tax for the stockholder can not be considered as 
 authority under which the bank may deduct from its gross 
 income the taxes so paid. 
 
 If banking corporations in their returns of annual net in- 
 come for the year 1913 or prior years actually deducted 
 from gross income the amount of tax paid upon the value of 
 the capital stock outstanding and in the hands of the stock- 
 holders, such corporations are required to file amended re- 
 turns in which the amount of such tax so paid shall be elim- 
 inated from the deductions, and additional assessments will 
 be returned accordingly. 
 
 Capital assets, value of; ivhen. — In cases wherein property 
 was taken over in exchange for the capital stock of a corpo- 
 ration at a par value greatly in excess of the true value of 
 the property, and such property should be later sold, it will 
 be necessary to ascertain as nearly as possible the true value 
 
304 Federal Income Tax 
 
 of the property at the time it was taken over, and any excess 
 over this ascertained true value at which the property is sold 
 will be held to be profit or income to the corporation. 
 
 Similar action may bo taken in cases wherein corporations 
 acquire property for a mere nominal sum and which had at 
 the time of its acquirement a value greatly in excess of such 
 sum. A careful estimate of the value of such property at the 
 time it was acquired may be fixed and set up as the value 
 representing the cost of the property, and any excess over 
 such fixed value at which such property may be thereafter 
 disposed of will be treated as income to be accounted for in 
 accordance with the rules of this department in the case of 
 the sale of capital assets. The value of the property fixed in 
 the manner and for the purpose hereinbefore indicated will 
 be subject to the approval of the Internal Revenue Bureau. 
 
 Error in T. D. 2130. — In the first two lines of the third 
 paragraph of T. D. 2130 the words "for the years 1909 to 
 1913, inclusive," should read "for the years 1909 to 1912, 
 inclusive." 
 
 Foreign corporations subject to income tax. — In the case 
 of foreign corporations, section 2, act of October 3, 1913, 
 provides that — 
 
 The normal tax hereinbefore imposed shall be levied, assessed, and 
 paid annually upon the entire net income accruing from business 
 transacted and capital invested within the United States. 
 
 When a foreign corporation sends a representative to this 
 country to solicit business, the merchandise thus sold to be 
 shipped direct to the consignee, it will be held that such cor- 
 poration is transacting business in this country. The fact 
 that the solicitor or representative has only a mailing ad- 
 dress in this country is immaterial: he is none the less an 
 agent of the foreign corporation. To the extent that he sells 
 in this country goods or merchandise for the foreign corpo- 
 ration, to that extent the foreign corporation is transacting 
 business in the United States, and the net income arising 
 and accruing to the corporation by reason of the business so 
 
Treasury Department Special Rulings 305 
 
 transacted will be subject to the income tax imposed by sec- 
 tion 2, act of October 3, 1913. 
 
 Any foreign corporation transacting business in this coun- 
 try in the manner hereinbefore indicated will make a return 
 of annual net income to the collector of the district in which 
 its representative has bis mailing address, showing in such 
 return the net income accruing to it from the business so 
 transacted. 
 
 Income from tax-free bonds returnable. — The Federal in- 
 come tax law specifically provides that corporations subject to 
 the law must return, for the purpose of the tax, all income 
 which they receive from every source, the only exception 
 being income received on account of interest, on the obliga- 
 tions of a State or its political subdivisions or the obligations 
 of the United States or its possessions. 
 
 The act also specifically enumerates the items which they 
 may allowably deduct from the gross income so returned. 
 Under the provisions of this act corporations must return 
 as income the full amount of the interest received on bonds, 
 although such bonds may contain a tax-free covenant — that 
 is, a covenant in which the debtor corporation agrees to pay 
 any tax assessed upon the bonds or income therefrom — and 
 since there is no specific provision in the law for excluding 
 or deducting from gross income interest upon bonds of this 
 character, the receiving corporation can not allowably omit or 
 deduct such interest from its gross income, and the same 
 will necessarily be reflected in the net income upon which 
 the tax is computed. 
 
 Income of contracting companies. — As this office requires 
 no special system of bookkeeping, neither does it require any 
 specific method by which the net income to be returned by 
 corporations shall be determined. 
 
 In the case of a large contracting company, which has 
 
 numerous uncompleted contracts which probably, in some 
 
 cases, rim for periods of several years, there does not appear 
 
 to be any objection to such corporation preparing its return 
 
 20 
 
306 Federal Income Tax 
 
 in such manner that its gross income will be arrived at on 
 the basis of completed work — that is to say, on jobs which 
 have been finally completed and payments made during the 
 year in which the return is made. If the gross income is 
 arrived at in this method, the deductions from gross income 
 should be limited to the expenditures made on account of 
 such completed coutracts. 
 
 Mutual insurance companies subject to tax. — The Federal 
 income tax law provides — 
 
 That mutual fire insurance companies requiring their members to 
 make premium deposits to provide for losses and expenses shall not 
 return as income any portion of the premium deposits returned to 
 their policyholders, but shall return as taxable income all income 
 received by them from all other sources plus such portion of the 
 premium deposits as are retained by the company for purposes other 
 than the payment of losses and expenses and reinsurance reserves. 
 
 It would appear from this provision of the law that all 
 assessments received by a mutual fire insurance company 
 and not returned to the policyholders, but retained for pur- 
 poses other than paying losses and expenses incurred during 
 the year for which the return is made and for such reinsur- 
 ance reserves as the laws of the State require, are taxable 
 income. 
 
 Therefore, if mutual fire insurance companies retain out 
 of moneys received on account of assessments an amount in 
 excess of the losses, expenses, and reinsurance reserves of 
 any particular year, that excess, plus amounts received from 
 interest, dividends, or any other source, will be considered 
 net income, upon which the tax will be assessed. 
 
 The above quoted provision of the law as construed by 
 this office applies to all mutual fire insurance companies, re- 
 gardless of the fact that some of them may not be primarily 
 organized for profit. 
 
 Offers in compromise not acceptable, when. — In cases 
 wherein corporations submit offers in compromise in lieu 
 of the specific penalty imposed by section 38, act of August 
 
Treasury Department Special Rulings 307 
 
 5, 1909, or section 2, act of October 3, 1913, it is a condition 
 precedent to the adjustment of the matter involved that the 
 returns of the corporations for the year with respect to which 
 the corporations are delinquent shall be filed. 
 
 Offers in compromise are acceptable only iu cases where 
 the corporations were delinquent in the matter of filing their 
 returns and can not be considered as sufficiently satisfying 
 the requirements of the law in cases wherein corporations 
 fail or refuse to file any returns whatever. 
 
 Delinquency applies to the neglect of a corporation to file 
 its return within the time prescribed by law and does not 
 apply to the failure of a corporation to make a return at any 
 time. 
 
 Therefore if returns are not filed, action looking to the 
 enforcement of the specific penalty against corporations fail- 
 ing to file returns will be taken. 
 
 Sinking fund increment taxable income. — In cases wherein 
 corporations set aside and place in a sinking fund under the 
 control of trustees their own bonds or the bonds of other cor- 
 porations which they may own, it is held that the fund thus 
 set aside by the corporation is an asset of the corporation, 
 and any increment to that fund as a result of investments 
 made by the trustees having the same in charge is income 
 to tho corporation and should be so included and accounted 
 for in its returns of annual net income. 
 
 If the trustees have invested the amount of the sinking 
 fund reserve or any portion of it in the bonds of the corpora- 
 tion and such corporation pays to the trustees the interest 
 on these bonds, such corporation will be permitted to deduct 
 such interest from its gross income, provided the amount of 
 the interest thus paid, plus the interest on any other out- 
 standing indebtedness which it may have, does not exceed 
 the limit fixed by the law, and provided further that the 
 interest paid to the trustees, together with all other earnings 
 on investments of the sinking fund made by the trustees, is 
 included in the income of the corporation. 
 
308 Federal Income Tax 
 
 Subsidiaries to make returns, when. — The fact that a cor- 
 poration maintains a number of subsidiary corporations for 
 the purpose of protecting brands, trade-marks, and trade 
 names is immaterial. The liability to make' returns attaches 
 to each subsidiary company by reason of the fact that it is a 
 separate and distinct entity. 
 
 If such subsidiary companies actually have no net income 
 or earnings and no expenses of operation, and the earnings 
 accrue direct to the parent company, which company also 
 pays direct the operating expenses of the subsidiaries, that 
 fact must be clearly set out in the returns of the subsidiaries. 
 
 In any event, subsidiary corporations can not escape lia- 
 bility to make returns. 
 
 If, however, the subsidiary concerns are mere partnerships 
 or branches of the parent company, and not incorporated 
 organizations, then these subsidiary concerns will not be re- 
 quired to make returns of annual net income, but all of their 
 earnings and expenses will be taken up and accounted for in 
 the return of the parent company or corporation. 
 
 (T. D. 2162.) 
 
 Nontaxability of interest from bonds and dividends on stock of 
 domestic corporations owned by nonresident aliens. 
 
 Interest from bonds and dividends on stock of domestic 
 corporations owned by nonresident aliens are not subject to 
 the income tax, whether such bonds or stock are physically 
 located within or without the United States or whether they 
 are in the possession of agents or trustees in some fiduciary 
 capacity in the United States or otherwise. 
 
 All rulings and decisions in conflict herewith are hereby 
 superseded and overruled. 
 
Treasury Department Special Rulings 309 
 
 (T. D. 2163— See T. D. 2274.) 
 
 Revision of T. D. 2048 defining taxable status of dividends paid on 
 the capital stock from the current net earnings or established 
 surplus created from the net earnings of corporations, joint- 
 stock companies or associations, and insurance companies tax- 
 able upon their net income. 
 
 Cash dividends or their equivalent paid from the net earn- 
 ings or the established surplus or undivided profits of corpora- 
 tions, joint-stock companies or associations, and insurance 
 companies, if declared and paid on or after March 1, 1913, 
 constitute taxable income in the hands of shareholders or 
 beneficiaries when received, and should be returned when 
 the total net income of any individual is in excess of $20,000, 
 inclusive of such dividends, and the additional tax should be 
 paid thereon as on income for the year in which such divi- 
 dends were received, without regard to the period in which 
 the profits or surplus were earned or the period during which 
 they were carried as surplus or undivided profits in the 
 treasury or on the books of the corporations, etc. 
 
 Stock dividends issued as a bona fide and permanent in- 
 crease of the capital stock of corporations, etc., without intent 
 to evade the imposition of the personal income tax, are held 
 to represent capital, and are not, therefore, subject to the 
 income tax as gains, profits, and income in the hands of the 
 stockholder. 
 
 If, however, the dividend stock should be surrendered to 
 the corporation for cash or its equivalent, or if the assets 
 of the corporation in any manner should be distributed by 
 means of the stock dividend, the amount realized will be con- 
 sidered income for the year when so converted or received, 
 and will be returned as income by the corporation or indi- 
 vidual receiving the same. 
 
 T. D. 2048 of November 12, 1914, is hereby revised, and 
 all rulings or parts of ruling's heretofore made which are in 
 conflict herewith are hereby revoked. 
 
310 Federal Income Tax 
 
 (T. D. 2193.) 
 
 Compromises. 
 
 Minimum amounts which will be accepted in settlement of the 
 specific penalty. 
 
 With reference to corporations and individuals who have 
 failed to file returns of annual net income within the pre- 
 scribed time for the year 1914, you are advised that it has 
 been determined by the Treasury Department to accept offers 
 in compromise of the specific 23« na lties in minimum sums 
 as follows : $10 from corporations and $5 from individuals. 
 
 Where such delinquents failed to file returns for 1913 
 within the prescribed time, offers for 1914 delinquencies will 
 be accepted as follows: $15 from corporations and $7.50 
 from individuals. 
 
 The foregoing applies only to those cases where there was 
 no intention to evade the law or escape taxation. 
 
 The minimum sum of $15 also applies to corporations ''not 
 organized for profit" which were relieved of the specific 
 penalty for failing to file returns within the prescribed 
 time for 1913. 
 
 In preparing compromise cases for transmission to this 
 office, a notation should be made on Form 656 in the case 
 of corporations and individuals also delinquent for 1913, in 
 order that proper consideration can be given the offers in 
 accordance with the above schedule. 
 
 In the case of delinquent withholding agents, offers in 
 compromise of not less than $5 in settlement of the specific, 
 penalty may be accepted for deposit where it is believed that 
 the delinquency was due simply to oversight or lack of in- 
 formation concerning the requirements of the law. It should 
 be made clear, however, that each case will be decided upon 
 its merits, and where the facts indicate carelessness or disre- 
 gard of the law such offers will no doubt be rejected. 
 
 Offers in compromise can not receive favorable considera- 
 tion in cases where the returns for the year in question have 
 not been filed. In such cases the recommendation that the 
 
Treasury Department Special Rulings 311 
 
 offer be accepted should be made "subject to the filing of the 
 return," the date of filing to be furnished promptly upon 
 receipt of the return. 
 
 (T. D. 2201— See 2224.) 
 
 Bad Debts. 
 
 Bad debts which, if collected, would constitute income in their en- 
 tirety, are not deductible in a return ot annual net income unless 
 the amount ot such items has been entered on the books of the 
 taxpayer as income and such entry has been made within the 
 year for which such amount is sought to be deducted as a bad 
 debt. 
 
 Debts on account of unpaid wages, salaries, rents, or items 
 of a similar character which, if collected, would be properly 
 included in gross income in returns of annual net income will 
 not constitute an allowable deduction from gross income as 
 bad debts in ascertaining taxable net income unless the 
 amount representing such debts has been entered on the 
 books of the taxpayer and included as income in his income 
 tax return for the year in which the deduction is claimed, 
 and has also been charged off, as required by law, it being 
 specifically provided that only such debts due to the taxpayer 
 actually ascertained to be worthless and charged off within 
 the year may be deducted as bad debts. An entry of the 
 item on the books and its inclusion in gross income must, 
 therefore, precede the charging off of such item and its de- 
 duction as a bad debt. 
 
 (T. D. 2221.) 
 
 Revising T. D. 2201 of April 28, 1915, relative to bad debts as an 
 allowable deduction under paragraph B of the act of October 3, 
 1913. 
 
 Debts arising from unpaid wages, salaries, rents, and items 
 of similar taxable income due and payable on or after March 
 
312 Federal Income Tax 
 
 1, 1913, will not be allowed as general deductions under 
 paragraph B of the income tax law unless the income which 
 they represent has been included in a return of gross income 
 for the year in which the deduction as a bad debt is sought 
 to be made or in a previous year and the debts themselves 
 have been actually ascertained to be worthless and charged 
 off. 
 
 All debts representing amounts that became due and pay- 
 able prior to March 1, 1913, and not ascertained to be worth- 
 less prior to that date, whether representing income or a 
 return of capital, are held to be allowable deductions under 
 paragraph B of the law in a return of income for the year 
 in which they are actually ascertained to be worthless and 
 are charged off. 
 
 T. D. 2201 and all other regulations inconsistent herewith 
 are hereby superseded. 
 
 (T. D. 2231— See T. D. 2289.) 
 
 Amendment of regulations requiring return and payment of tax by 
 fiduciaries under trust estates. 
 
 Guardians, trustees, executors, administrators, agents, 
 receivers, conservators, and all persons, corporations, or asso- 
 ciations acting in any fiduciary capacity, hereinafter referred 
 to as fiduciary agents, who hold in trust an estate of another 
 person or persons, shall be designated the "source" for the 
 purpose of collecting the income tax, and by filing notice with 
 other debtors or withholding agents said fiduciary shall be 
 exempt from having any income, due to them as such, with- 
 held for any income tax by any other debtor or withholding 
 agent. Other debtors or withholding agents upon receipt of 
 such notice shall not withhold any part of such income from 
 said fiduciary and will not in such case be held liable for 
 normal tax of 1 per cent due thereon. The form of notice 
 
Treasuey Department Special Rulings 313 
 
 to be filed with the debtor or withholding agent by fiduciary 
 will be on Form 1015. Where such exemption is not 
 claimed, notice thereof on Form 1019 should be filed with 
 the withholding agent ; provided, that Form 1019 can not be 
 used when the income affected is payable by the fiduciary to 
 a beneficiary who would not be liable under the statute for 
 income tax if such income were payable to such beneficiary 
 directly. 
 
 Fiduciaries shall, on or before March 1 of each year, make 
 and render a return, in form prescribed by the Commissioner 
 of Internal Revenue, of the income coming into their custody 
 or control and management from each trust estate when the 
 annual interest of any beneficiary in the income of said trust 
 estate subject to the normal tax is in excess of $3,000, and 
 also when the undistributed income of the estate (as an entity 
 or beneficiary in and of itself for tax purposes), consisting 
 of income from dividends of corporations and other income 
 (or of dividends alone), shall exceed $20,000. In such cases 
 the estate shall be reported as a beneficiary for the undis- 
 tributed income. 
 
 Notice of failure to file a return as required shall be served 
 upon the fiduciary. (See Art. 18.) 
 
 The entries on the first page of Form 1041, in column 3, 
 beaded "Beneficiaries' interest in amount reported on line 5, 
 whether distributed or not," should not include their respect- 
 ive shares of income derived from dividends on the stock or 
 from the net earnings of corporations, joint-stock companies, 
 etc., subject to like tax, or the income on which the normal 
 tax has beeen deducted and withheld at the source by the 
 debtor or prior withholding agent. These two items should 
 be treated as deductions in determining the amount of in- 
 come subject to the normal tax and for which the fiduciary 
 as withholding agent is to account. 
 
 The income of trust estates, as any other income, is subject 
 to the income tax. When such income is received annually 
 by a beneficiary of an estate the fiduciary will withhold the 
 
314 Federal Income Tax 
 
 normal tax due and subject to withholding by him. Any 
 part of the annual income of trust estates not distributed 
 becomes an entity and, as such, is liable for the normal and 
 additional tax, which must be paid by the fiduciary. When 
 the beneficiary is not in esse and the income of the estate is 
 retained by the fiduciary, such income will be taxable to the 
 estate as for an individual and the fiduciary will pay the 
 tax, both normal and additional. When the beneficiary 
 receives a part only of the income to which he is entitled 
 from the estate and the balance is retained by the fiduciary 
 the normal tax will be withheld on the income paid to the 
 beneficiary and the amount of such income retained by the 
 fiduciary will be treated as income taxable to the estate for 
 both the normal and additional tax, which tax will be paid 
 by the fiduciary. When the gross net income not distributed 
 and remaining in the hands of a fiduciary is less than $20,- 
 000 the estate will be listed as a beneficiary, and only the 
 normal income tax will be assessable, and such tax will be 
 paid by the fiduciary. When the gross net income not dis- 
 tributed and remaining in the hands of a fiduciary exceeds 
 $20,000 such income is subject to both the normal and addi- 
 tional tax, and the estate will be listed as a beneficiary and 
 both the normal and additional tax will be paid by the fidu- 
 ciary. 
 
 In all eases where fiduciaries act for minors or other in- 
 competents they are held, for the purpose of the income tax, 
 to be acting as the agents of such minors or other incompe- 
 tents and must pay all tax (normal and additional) charge- 
 able on such income in their hands as though the persons for 
 whom they act were acting for themselves. 
 
 T. D. 1906 and T. D. 1943 and Articles 70, 71, 74, and 75 
 of Regulations 33, and all other regulations so far as incon- 
 sistent herewith, are hereby superseded. 
 
Tbeasuby Depabtiiext Special Rulings 315 
 
 (T. D. 2242.) 
 
 Nonresident aliens — Definition of residence in subdivision 1, 
 paragraph A, and T. D. 2109 of December 28, 1914. 
 
 "Residence," as used in subdivision 1 of paragraph A of 
 the act of October 3, 1913, and T. D. 2109, is held to be- 
 That place where a man has his true, fixed, and permanent home 
 and principal establishment and to which, whenever he is absent, he 
 has the intention of returning, and indicates permanency of occupa- 
 tion as distinct from lodging or boarding or temporary occupation. 
 
 For the purposes of the income tax it is held that where, 
 for business purposes or otherwise, an alien is permanently 
 located in the United States, has there his principal business 
 establishment, and is there permanently occupied or em- 
 ployed, even though his domicile may be without the United 
 States, he will be held to be within the definition of "every 
 person residing in the United States, though not a citizen 
 thereof * * * ," while aliens who are physically present 
 in the United States but only temporarily resident or em- 
 ployed therein (as for a season or other similarly definite 
 term, and with the expectation or intention of leaving the 
 United States upon the termination of employment or accom- 
 plishment of the purpose which necessitated presence in the 
 United States) are within the class of "persons residing else- 
 where * * * ." 
 
 Aliens coming to the United States with the intention of 
 becoming residents thereof within the meaning and intent of 
 the income tax statute may establish that fact and have the 
 privilege of resident aliens under the statute by filing with 
 withholding agents a certificate in the following form, under 
 oath, and which certificate shall be filed by said withholding 
 agents with collectors of internal revenue as justification for 
 withholding on the basis of "residence" in the United States. 
 
316 
 
 Federal Income Tax 
 
 Form 
 1078 
 
 ri H 
 
 w i 
 
 Q 2 
 
 
 CEETIFICATE. 
 
 Certificate of residence — Claim by aliens. 
 
 (To be filed by aliens with withholding agents when residence in the United 
 States is a fact, for the purpose of claiming the benefit of residence for income- 
 tax purposes, where otherwise status would be that of a nonresident alien.) 
 
 I hereby declare that I am a citizen or subject of ; 
 
 that I arrived in the United States on or about , and 
 
 that it is my intention to establish and maintain a resi- 
 dence in the United States; that the address in the United 
 States where any and all notices and communications rela- 
 tive to my liability for any income tax may be sent or 
 mailed to me is 
 
 (Street and number.) 
 
 (State.) 
 
 (City.) 
 (Signed) 
 
 Sworn to and subscribed before me this day of , 
 
 191 
 
 (Official capacity.) 
 
 Said certificate shall be in size 8 by 3 1 /-) inches and shall 
 be printed to read from left to right along the 8-inch dimen- 
 sion. It shall be printed on blue paper corresponding in 
 weight and texture to white writing paper 21 by 32, about 
 40 pounds to the ream of 500 sheets, and will be provided 
 by the Government and furnished without cost to the users 
 thereof. 
 
 (T. D. 2258.) 
 
 Execution of income-tax ownership certificates by banks and trust 
 
 companies. 
 
 You are advised that as a convenience to banks and trust 
 companies having a large number of ownership certificates 
 to execute in the collection of interest on bonds it is hereby 
 provided that the name of the bank or trust company may 
 be printed or stamped and the facsimile of the signature of 
 the person authorized to sign for the bank or trust company 
 in executing the said ownership certificates may be printed 
 
Treasury Department Special Rulings 317 
 
 or stamped on the certificates: Provided, That in all cases 
 the bank or trust company shall first file with the Commis- 
 sioner of Internal Revenue a certificate of its authorization 
 in substantially the following form : 
 
 (City.) 
 
 (Date.) 
 The Commissioner of Internal Revenue, Washington, D. C. 
 
 The undersigned hereby authorizes the use of the facsimile signa- 
 ture shown below upon all income-tax ownership certificates issued 
 in its name until this authorization is revoked by written notice to 
 you. 
 
 (Name of bank or trust company.) 
 
 By 
 
 (Signature of person authorized to sign.) 
 (Official position.) 
 
 (Facsimile signature of person 
 authorized to sign.) 
 
 (T. D. 2267.) 
 
 Depreciation not allowed fiduciaries as a deduction from gross in- 
 come in cases where no depreciation reserve is maintained, but 
 the amount claimed as a deduction for depreciation is paid to 
 the beneficiary as income. 
 
 To collectors of internal revenue: 
 
 In the case of a trust estate where the terms of the will or 
 trust or the decree of a court of competent jurisdiction pro- 
 vide for keeping the corpus of the estate intact and where 
 physical property forming a part of the corpus of such estate 
 has suffered depreciation through its employment in business 
 this office will permit a deduction from gross income for the 
 purpose of caring for this depreciation, where the deduction 
 is applied or held by the fiduciary for making good such de- 
 preciation. No depreciation deduction will be permitted by 
 
318 Federal Income Tax 
 
 fiduciaries otherwise than as here provided. Fiduciaries 
 should set forth in connection with their returns the pro- 
 vision of the will or trust or decree requiring such deprecia- 
 tion deduction where any exists, or that actual depreciation 
 occurs, the amount thereof, and that the same has been or 
 will be preserved and applied as such. 
 
 The intent and purpose of this regulation is to deny to 
 fiduciaries the right of claiming a deduction for depreciation 
 in returns for the income tax of beneficiaries when, in fact, 
 no dej)reciation reserve is established nor is authorized to be 
 established, but the amount claimed as a deduction for depre- 
 ciation is actually paid to the beneficiary as income. 
 
 All amounts paid by fiduciaries to beneficiaries of trust 
 estates from the income of such trust estates are held to be 
 distributions of income and will be treated for income-tax 
 purposes in accordance with the provisions of the law and 
 regulations applicable to the income of such beneficiaries. 
 
 Nothing in this regulation shall be construed to deny the 
 right of trustees to make deductions from gross income for 
 expenses actually incurred for repairs and such other neces- 
 sary expenses other than betterments as may be required to 
 preserve the corpus of the estate in accordance with the facts, 
 actual application, or reservation of the necessary amounts 
 or proper provisions of the trust, the requirements of law, or 
 the order of a court of competent jurisdiction. 
 
 (T. D. 2274.) 
 
 Revision of T. D. 2163 of February 18, 1915, defining the taxable 
 status of stock dividends paid on the capital stock from the cur- 
 rent net earnings or established surplus created from the net 
 earnings of corporations, joint-stock companies or associations, 
 and insurance companies taxable upon their net income. 
 
 To collectors of internal revenue: 
 
 Cash dividends or their equivalent paid from the net earn- 
 ings or the established surplus or undivided profits of corpo- 
 
Treasury Department Special Rulings 319 
 
 rations, joint-stock companies or associations, and insurance 
 companies, if declared and paid on or after March 1, 1913, 
 constitute taxable income in the hands of shareholders or 
 beneficiaries when received, and should be returned when 
 the total net income of any individual is in excess of $20,000, 
 inclusive of such dividends, and the additional tax should be 
 paid thereon as on income for the year in which such divi- 
 dends were received, without regard to the period in which 
 the profits or surplus were earned or the period during which 
 they were carried as surplus or undivided profits in the treas- 
 ury or on the books of the corporations, etc. 
 
 Stock dividends paid from the net earnings or the estab- 
 lished surplus or undivided profits of corporations, joint- 
 stock companies or associations, and insurance companies, are 
 held to be the equivalent of cash, and to constitute taxable in- 
 come under the same conditions as cash dividends. 
 
 T. D. 2163 of February 18, 1915, is hereby revised, and 
 all rulings or parts of rulings heretofore made which are in 
 conflict herewith are hereby revoked. 
 
 (T. D. 2289, Revising 2231, Jan. 28, 1916.) 
 
 T. D. 2231 is hereby amended to provide that fiduciaries 
 having control of any portion of income accruing during the 
 year to known beneficiaries, other than trust estates as pro- 
 vided in T. D. 2231, but not distributed or paid to the bene- 
 ficiaries during the year, shall, in rendering their annual 
 return (Form 1041), give the name and address of each of 
 said beneficiaries having a distributive interest in said in- 
 come, and shall furnish all the information called for in 
 such returns. 
 
 In all such cases the fiduciary shall withhold and pay to 
 the collector, as provided by law, the normal tax of 1 per 
 cent upon the distributive interest of each of said beneficiaries 
 when such interest is in excess of $3,000, the same as if said 
 income were actually distributed and paid to the beneficiary. 
 
320 Fedebal Income Tax 
 
 Exemption under paragraph C, however, may be claimed by 
 the beneficiary or his legal representative by filing his claim 
 for exemption with the fiduciary agent. 
 
 When the normal tax on undivided annual net income has 
 been so withheld, such tax shall not be again withheld when 
 such portion of the income is actually distributed and paid 
 to said beneficiary, but the beneficiary will account for such 
 income in his return of income for the year in which the same 
 is actually received by him, entering in column "A" the 
 amount of income on which the normal tax has heretofore 
 been paid. 
 
PART V 
 
 United States Supreme Court opinion in Brushaber v. Union Pacific 
 
 Railroad, January 24, 1916, construing the statute 
 
 and the Sixteenth Amendment 
 
 21 
 
See 1fl3 for Synopsis, and the Index to this volume, for 
 references to details, abbreviated as "Sup. Ct.," followed by 
 the page number. 
 
Supreme Court of the United States. 
 (No. 140. October Term, 1915.) 
 
 Frank R. Bkushabeb, Appellant, v. Union Pacific Rail- 
 
 eoad Co. Appeal from the District Court of the 
 
 United States for the Southern District of New 
 
 York. 
 
 (January 24, 1916.) 
 
 Mr. Chief Justice White delivered the opinion of the court. 
 
 As a stockholder of the Union Pacific Railroad Co. the ap- 
 pellant filed his bill to enjoin the corporation from complying 
 with the income-tax provisions of the tariff act of October 3, 
 1913 (Sec. II, ch. 16, 38 Stat, 166). Because of constitu- 
 tional questions duly arising the case is here on direct appeal 
 from a decree sustaining a motion to dismiss because no 
 ground for relief was stated. 
 
 The right to prevent the corporation from returning and 
 paying the tax was based upon many averments as to the 
 repugnancy of the statute to the Constitution of the United 
 States, of the peculiar relation of the corporation to the stock- 
 holders and their particular interests resulting from any of 
 the administrative provisions of the assailed act, of the con- 
 fusion, wrong, and multiplicity of suits and the absence of 
 all means of redress which would result if the corporation 
 paid the tax and complied with the act in other respects with- 
 out protest, as it was alleged it was its intention to do. To 
 put out of the way a question of jurisdiction, we at once say 
 that in view of these averments and the ruling in Pollock v. 
 Fanners' Loan and Trust Co. (157 U. S., 429), sustaining 
 the right of a stockholder to sue to restrain a corporation 
 under proper averments from voluntarily paying a tax 
 charged to be unconstitutional on the ground that to permit 
 such a suit did not violate the prohibitions of section 3224, 
 Revised Statutes, against enjoining the enforcement of taxes, 
 we are of opinion that the contention here made that there 
 was no jurisdiction of the cause, since to entertain it would 
 violate the provisions of the Revised Statutes referred to, is 
 
324 Federal Income Tax 
 
 without merit. Before coming to dispose of the case on the 
 merits, however, we observe that the defendant corporation 
 having called the attention of the Government to the pendency 
 of the cause and the nature of the controversy and its unwill- 
 ingness to voluntarily refuse to conijdy with the act assailed, 
 the United States as amicus curias has at bar been heard both 
 orally and by brief for the purpose of sustaining the decree. 
 
 Aside from averments as to citizenship and residence, 
 recitals as to the provisions of the statute and statements as 
 to the business of the corporation contained in the first 10 
 paragraphs of the bill advauced to sustain jurisdiction, the 
 bill alleged 21 constitutional objections specified in that num- 
 ber of paragraphs or subdivisions. As all the grounds assert 
 a violation of the Constitution, it follows that in a wide sense 
 they all charge a repugnancy of the statute to the sixteenth 
 amendment, under the more immediate sanction of which the 
 statute was adopted. 
 
 The various propositions are so intermingled as to cause it 
 to be difficult to classify them. We are of opinion, however, 
 that the confusion is not inherent, but rather arises from the 
 conclusion that the sixteenth amendment provides for a hith- 
 erto unknown power of taxation ; that is, a power to levy an 
 income tax which, although direct, should not be subject to 
 the regulation of apportionment applicable to all other direct 
 taxes. And the far-reaching effect of this erroneous assump- 
 tion will be made clear by generalizing the many contentions 
 advanced in argument to support it, as follows: (a) The 
 amendment authorizes only a particular character of direct 
 tax without apportionment, and therefore if a tax is levied 
 under its assumed authority which does not partake of the 
 characteristics exacted by the amendment it is outside of the 
 amendment and is void as a direct tax in the general consti- 
 tutional sense because not apportioned, (b) As the amend- 
 ment authorizes a tax only upon incomes "from whatever 
 source derived," the exclusion from taxation of some income 
 of designated persons and classes is not authorized, and hence 
 the constitutionality of the law must be tested by the general 
 
The Brushaber Case 325 
 
 provisions of the Constitution as to taxation, and thus again 
 the tax is void for want of apportionment, (c) As the right 
 to tax "incomes from whatever source derived" for which 
 the amendment provides must be considered as exacting in- 
 trinsic uniformity, therefore no tax comes imder the author- 
 ity of the amendment not conforming to such standard, and 
 hence all the provisions of the assailed statute must once 
 more be tested solely under the general and preexisting pro- 
 visions of the Constitution, causing the statute again to be 
 void in the absence of apportionment, (d) As the power con- 
 ferred by the amendment is new and prospective the attempt 
 in the statute to make its provisions retroactively apply is 
 void, because so far as the retroactive period is concerned it 
 is governed by the preexisting constitutional requirement as 
 to apportionment. 
 
 But it clearly results that the proposition and the conten- 
 tions under it, if acceded to, would cause one provision of the 
 Constitution to destroy another ; that is, they would result in 
 bringing the provisions of the amendment exempting a direct, 
 tax from apportionment into irreconcilable conflict with the 
 general requirement that all direct taxes be apportioned. 
 Moreover, the tax authorized by the amendment, being direct, 
 would not come under the rule of uniformity applicable under 
 the Constitution to other than direct taxes, and thus it would 
 come to pass that the result of the amendment would be to 
 authorize a particular direct tax not subject either to appor- 
 tionment or to the rule of geographical uniformity, thus giv- 
 ing power to impose a different tax in one State or States 
 than was levied in another State or States. This result in- 
 stead of simplifying' the situation and making clear the lim- 
 itations on the taxing power, which obviously the amendment 
 must have intended to accomplish, would create radical and 
 destructive changes in our constitutional system and multiply 
 confusion. 
 
 But let us by a demonstration of the error of the funda- 
 mental proposition as to the significance of the amendment 
 dispel the confusion necessarily arising from the arguments 
 
326 Federal Income Tax 
 
 deduced from it. Before coming, however, to the text of the 
 amendment, to the end that its significance may be deter- 
 mined in the light of the previous legislative and judicial 
 history of the subject with which the amendment is concerned 
 and with a knowledge of the conditions which presumptively 
 led up to its adoption and hence of the purpose it was in- 
 tended to accomplish, we make a brief statement on those 
 subjects. 
 
 That the authority conferred upon Congress by section 8 
 of Article I, "to lay and collect taxes, duties, imposts, and 
 excises," is exhaustive and embraces every conceivable power 
 of taxation has never been questioned, or, if it has, has been 
 so often authoritatively declared as to render it necessary 
 only to state the doctrine. And it has also never been ques- 
 tioned from the foundation, without stopping presently to 
 determine under which of the separate headings the power 
 was properly to be classed, that there was authority given, as 
 the part was included in the whole, to lay and collect income 
 taxes. Again it has never, moreover, been questioned that 
 the conceded complete and all-embracing taxing power was 
 subject, so far as they were respectively applicable, to limita- 
 tions resulting from the requirements of Article I, section 8, 
 clause 1, that "all duties, imposts, and excises shall be uni- 
 form throughout the United States," and to the limitations 
 of Article I, section 2, clause 3, that "direct taxes shall be 
 apportioned among the several States," and of Article I, 
 section 9, clause 4, that "no capitation or other direct tax 
 shall be laid, unless in proportion to the census or enumera- 
 tion hereinbefore directed to be taken." In fact, the two 
 great subdivisions embracing the complete and perfect dele- 
 gation of the power to tax and the two correlated limitations 
 as to such power were thus aptly stated by Mr. Chief Justice 
 Fuller in Pollock v. Farmers' Loan and T?~ust Co., supra, at 
 page 557 : "In the matter of taxation, the Constitution 
 recognizes the two great classes of direct and indirect taxes, 
 and lays down two rules by which their imposition must be 
 governed, namely, the rule of apportionment as to direct 
 
The Brushaber Case 327 
 
 taxes and the rule of uniformity as to duties, imposts, and 
 excises." It is to be observed, however, as long ago pointed 
 out in Veazie Bank v. Fenno (8 Wall., 533, 541), that the 
 requirement of apportionment as to one of the great classes 
 and of uniformity as to the other class were not so much a 
 limitation upon the complete and all-embracing authority to 
 tax, but in their essence were simply regulations concerning 
 the mode in which the plenary power was to be exerted. In 
 the whole history of the Government down to the time of the 
 adoption of the sixteenth amendment, leaving aside some con- 
 jectures expressed of the possibility of a tax lying interme- 
 diate between the two great classes and embraced by neither, 
 no question has been anywhere, made as to the correctness of 
 these propositions. At the very beginning, however, there 
 arose differences of opinion concerning the criteria to be 
 applied in determining in which of the two great subdivisions 
 a tax would fall. Without pausing to state at length the 
 basis of these differences and the consequences which arose 
 from them, as the whole subject was elaborately reviewed in 
 Pollock v. Farmers' Loan and Trust Co. (157 U. S., 429; 
 158 TJ. S., 601), we make a condensed statement which is, 
 in substance, taken from what was said in that case. Early 
 the differences were manifested in pressing on the one hand 
 and opposing on the other the passage of an act levying a tax 
 without apportionment on carriages "for the conveyance of 
 persons," and when such a tax was enacted the question of 
 its repugnancy to the Constitution soon came to this court for 
 determination. (Ilylton v. United States, 3 Dall., 171.) It 
 was held that the tax came within the class of excises, duties, 
 and imposts, and therefore did not require apportionment, 
 and while this conclusion was agreed to by all the members 
 of the court who took part in the decision of the case, there 
 was not an exact coincidence in the reasoning by which the 
 conclusion was sustained. Without stating the minor differ- 
 ences, it may be said with substantial accuracy that the diver- 
 gent reasoning was this : On the one hand, that the tax was 
 not in the class of direct taxes requiring apportionment, be- 
 
328 Federal Income Tax 
 
 cause it was not levied directly on property because of its 
 ownership, but rather on its use, and was, therefore, an ex- 
 cise, duty, or impost ; and, on the other, that in any event the 
 class of direct taxes included only taxes directly levied on 
 real estate because of its ownership. 
 
 Putting out of view the difference of reasoning which led 
 to the concurrent conclusion in the Hylton case, it is un- 
 doubted that it came to pass in the legislative practice that 
 the line of demarcation between the two great classes of direct 
 taxes on the one hand and excises, duties, and imposts on the 
 other, which was exemplified by the ruling in that case, was 
 accepted and acted upon. In the first place, this is shown by 
 the fact that wherever — and there were a number of cases of 
 that kind — a tax was levied directly on real estate or slaves 
 because of ownership it was treated as coming within the 
 direct class, and apportionment was provided for, while no 
 instance of apportionment as to any other kind of tax is 
 afforded. Again, the situation is aptly illustrated by the vari- 
 ous acts taxing incomes derived from property of every kind 
 and nature which were enacted beginning in 1861 and lasting 
 during what may be termed the Civil War period. It is not 
 disputable that these latter taxing laws were classed under 
 the head of excises, duties, and imposts, because it was as- 
 sumed that they were of that character, inasmuch as, although 
 putting a tax burden on income of every kind, including that 
 derived from property, real or personal, they were not taxes 
 directly on property because of its ownership. And this prac- 
 tical construction came in theory to be the accepted one, since 
 it was adopted without dissent by the most eminent of the 
 text-writers. (1 Kent Com., 254, 256; 1 Story Const., sec. 
 955 ; Cooley Const. Lim. (5th ed.), *480 ; Miller on the Con- 
 stitution, 237 ; Pomeroy's Const. Law, sec. 281 ; Hare Const. 
 Law, vol. 1, 249, 250 ; Burroughs on Taxation, 502 ; Ordro- 
 naux, Const. Leg., 225.) 
 
 Upon the lapsing of a considerable period after the repeal 
 of the income-tax laws referred to, in 1894 an act was passed 
 laying a; tax on incomes from all classes of property and other 
 
The Brushaber Case 329 
 
 sources of revenue which was not apportioned, and which, 
 therefore, was, of course, assumed to come within the classi- 
 fication of excises, duties, and imposts which were siibject to 
 the rule of uniformity but not to the rule of apportionment. 
 The constitutional validity of this law was challenged on the 
 ground that it did not fall within the class of excises, duties, 
 and imposts, but was direct in the constitutional sense, and 
 was therefore void for want of apportionment ; and that ques- 
 tion came to this court and was passed upon in Pollock v. 
 Farmers' Loan and Trust Co. (157 IT. S., 429; 158 U. S., 
 601). The court, fully recognizing in the passage which we 
 have previously quoted the all-embracing character of the two 
 great classifications, including, on the one hand, direct taxes 
 subject to apportionment, and, on the other, excises, duties, 
 and imposts subject to uniformity, held the law to be uncon- 
 stitutional in substance for these reasons: Concluding that 
 the classification of direct was adopted for the purpose of 
 rendering it impossible to burden by taxation accumulations 
 of property, real or personal, except subject to the regulation 
 of apportionment, it was held that the duty existed to fix 
 what was a direct tax in the constitutional sense so as to 
 accomplish this purpose contemplated by the Constitution. 
 (157 U. S.j 581.) Coming to consider the validity of the tax 
 from this point of view, while not questioning at all that in 
 common understanding it was direct merely on income and 
 only indirect on property, it was held that considering the 
 substance of things it was direct on property in a constitu- 
 tional sense, since to burden an income by a tax was, from 
 the point of substance, to burden the property from which 
 the income was derived and thus accomplish the very thing 
 which the provision as to apportionment of direct taxes was 
 adopted to prevent. As this conclusion but enforced a regu- 
 lation as to the mode of exercising power under particular 
 circumstances, it did not in any way dispute the all-embracing 
 taxing authority possessed by Congress, including necessarily 
 therein the poAver to impose income taxes if only they con- 
 formed to the constitutional regulations which were appli- 
 
330 Federal Income Tax 
 
 cable to them. Moreover, in addition, the conclusion reached 
 in the Pollock case did not in any degree involve holding that 
 income taxes generieally and necessarily came within the 
 class of direct taxes on property, but, on the contrary, recog- 
 nized the fact that taxation on income was in its nature an 
 excise entitled to be enforced as such unless and until it was 
 concluded that to enforce it would amount to accomplishing 
 the result which the requirement as to apportionment of direct 
 taxation was adopted to prevent, in which case the duty would 
 arise to disregard form and consider substance alone, and 
 hence subject the tax to the regulation as to apportionment, 
 which otherwise as an excise would not apply to it. Nothing 
 could serve to make this clearer than to recall that in the 
 Pollock case, in so far as the law taxed incomes from other 
 classes of property than real estate and invested personal prop- 
 erty — that is, income from "professions, trades, employments, 
 or vocations" (158 U. S., 637) — its validity was recognized; 
 indeed, it was expressly declared that no dispute was made 
 upon that subject, and attention was called to the fact that 
 taxes on such income had been sustained as excise taxes in 
 the past. (lb., p. 635.) The whole law was, however, de- 
 clared unconstitutional on the ground that to permit it to thus 
 operate would relieve real estate and invested personal prop- 
 erty from taxation and "would leave the burden of the tax to 
 be borne by professions, trades, employments, or vocations, 
 and in that way what was intended as a tax on capital would 
 remain, in substance, a tax on occupations and labor" (ib., 
 p. 637), a result which it was held could not have been con- 
 templated by Congress. 
 
 This is the text of the amendment: 
 
 The Congress shall have power to lay and collect taxes on incomes, 
 from whatever source derived, without apportionment among the 
 several States, and without regard to any census or enumeration. 
 
 It is clear on the face of this text that it does not purport 
 to confer power to levy income taxes in a generic sense — an 
 authority already possessed and never questioned — or to limit 
 and distinguish between one kind of income taxes and another, 
 
The Brushabek Case 331 
 
 but that the whole purpose of the amendment was to relieve 
 all income taxes when imposed from apportionment from a 
 consideration of the source whence the income was derived. 
 Indeed, in the light of the history which we have given and of 
 the decision in the Pollock case and the ground upon which 
 the ruling in that case was based, there is no escape from the 
 conclusion that the amendment was drawn for the purpose of 
 doing away for the future with the principle upon which the 
 Pollock case was decided ; that is, of determining whether a 
 tax on income was direct, not by a consideration of the burden 
 placed on the taxed income upon which it directly operated, 
 but by taking into view the burden which resulted on the 
 property from which the income was derived, since in express 
 terms the amendment provides that income taxes, from what- 
 ever source the income may be derived, shall not be subject to 
 the regulation of apportionment. From this, in substance, it 
 indisputably arises, first, that all the contentions which we 
 have previously noticed concerning the assumed limitations to 
 be implied from the language of the amendment as to the 
 nature and character of the income taxes which it authorizes 
 find no support in the text and are in irreconcilable conflict 
 with the very purpose which the amendment was adopted to 
 accomplish. Second, that the contention that the amendment 
 treats a tax on income as a direct tax, although it is relieved 
 from apportionment and is necessarily therefore not subject to 
 the rule of uniformity, as such rule only applies to taxes which 
 are not direct, thus destroying the two great classifications 
 which have been recognized and enforced from the beginning, 
 is also wholly without foundation, since the command of the 
 amendment, that all income taxes shall not be subject to ap- 
 portionment by a consideration of the sources from which 
 the taxed income may be derived, forbids the application to 
 such taxes of the rule applied in the Pollock case by which 
 alone such taxes were removed from the great class of excises, 
 duties, and imposts subject to the rule of uniformity and 
 were placed under the other or direct class. This must be 
 unless it can be said that although the Constitution, as a result 
 
332 Federal Income Tax 
 
 of the amendment, in express terms excludes the criterion 
 of source of income, that criterion yet remains for the pur- 
 pose of destroying the classifications of the Constitution hy 
 taking an excise out of the class to which it belongs and 
 transferring it to a class in which it can not be placed con- 
 sistently with the requirements of the Constitution. Indeed, 
 from another point of view, the amendment demonstrates that 
 no such purpose was intended and, on the contrary, shows 
 that it was drawn with the object of maintaining the limita- 
 tions of the Constitution and harmonizing their operation. 
 We say this because it is to be observed that although from the 
 date of the Hylton case, because of statements made in the 
 opinions in that case, it had come to be accepted that direct 
 taxes in the constitutional sense were confined to taxes levied 
 directly on real estate because of its ownership, the amend- 
 ment contains nothing repudiating or challenging the ruling 
 in the Pollock case that the word direct had a broader signifi- 
 cance since it embraced also taxes levied directly on personal 
 property because of its ownership, and therefore the amend- 
 ment at least impliedly makes such wider significance a part 
 of the Constitution— a condition which clearly demonstrates 
 that the purpose was not to change the existing interpretation 
 except to the extent necessary to accomplish the result in- 
 tended ; that is, the prevention of the resort to the sources 
 from which a taxed income was derived in order to cause a 
 direct tax on the income to be a direct tax on the source itself, 
 and thereby to take an income tax out of the class of excises, 
 duties, and imposts and place it in the class of direct taxes. 
 
 We come, then, to ascertain the merits of the many con- 
 tentions made in the light of the Constitution as it now 
 stands ; that is to say, including within its terms the provisions 
 of the sixteenth amendment as correctly interpreted. We 
 first dispose of two propositions assailing the validity of the 
 statute on the one hand because of its repugnancy to the 
 Constitution in other respects, and especially because its 
 enactment was not authorized by the sixteenth amendment. 
 
 The statute was enacted October 3, 1913, and provided for 
 
The Beushaber Case 333 
 
 a general yearly income tax from December to December of 
 each year. Exceptionally, however, it fixed a first period 
 embracing only the time from March 1, to December 31, 
 1913, and this limited retroactivity is assailed as repugnant 
 to the due-process clause of the fifth amendment and as incon- 
 sistent with the sixteenth amendment itself. But the date of 
 the retroactivity did not extend beyond the time when the 
 amendment was operative, and there can be no dispute that 
 there was power by virtue of the amendment during that 
 period to levy the tax, without apportionment, and so far as 
 the limitations of the Constitution in other respects are con- 
 cerned, the contention is not open, since in Stockdale v. In- 
 surance Companies (20 Wall., 323, 331), in sustaining a pro- 
 vision in a prior income-tax law which was assailed because 
 of its retroactive character, it was said : 
 
 The right of Congress to have imposed this tax by a new statute, 
 although the measure of it was governed by the income of the past 
 year, cannot be doubted; much less can it be doubted that it could 
 impose such a tax on the income of the current year, though part of 
 that year had elapsed when the statute was passed. The joint reso- 
 lution of July 4, 1864, imposed a tax of 5 per cent upon all income of 
 the previous year, although one tax on it had already been paid, and 
 no one doubted the validity of the tax or attempted to resist it. 
 
 The statute provides that the tax should not apply to enu- 
 merated organizations or corporations, such as labor, agricul- 
 tural, or horticultural organizations, mutual savings banks, 
 etc., and the argument is that as the amendment authorized 
 a tax on incomes "from whatever source derived," by impli- 
 cation it excluded the power to make these exemptions. But 
 this is only a form of expressing the erroneous contention as 
 to the meaning of the amendment, which we have already dis- 
 posed of. And so far as this alleged illegality is based on 
 other provisions of the Constitution, the contention is also not 
 open, since it was expressly considered and disposed of in 
 Flint v. Stone Tracy Co. (220 U. S., 108, 173). 
 
 Without expressly stating all the other contentions, we 
 summarize them to a degree adequate to enable us to typify 
 and dispose of all of them. 
 
334 Fedekal Income Tax 
 
 1. The statute levies one tax called a normal tax on all 
 incomes of individuals up to $20,000 and from that amount 
 up by gradations, a progressively increasing tax called an 
 additional tax, is imposed. No tax, however, is levied upon 
 incomes of unmarried individuals amounting to $3,000 or 
 less nor upon incomes of married persons amounting to 
 $4,000 or less. The progressive tax and the exempted 
 amounts, it is said, are based on wealth alone, and the tax is 
 therefore repugnant to the due-process clause of the fifth 
 amendment. 
 
 2. The act provides for collecting the tax at the source — 
 that is, makes it the duty of corporations, etc., to retain and 
 pay the sum of the tax on interest due on bonds and mort- 
 gages, unless the owner to whom the interest is payable gives 
 a notice that he claims an exemption. This duty cast upon 
 corporations, because of the cost to which they are subjected, 
 is asserted to be repugnant to due process of law as a taking 
 of their property without compensation, and we recapitulate 
 various contentions as to discrimination against corporations 
 and against individuals predicated on provisions of the act 
 dealing with the subject: 
 
 (a) Corporations indebted upon coupon or registered bonds 
 are discriminated against, since corporations not so indebted 
 are relieved of any labor or expense involved in deducting 
 and paying the taxes of individuals on the income derived 
 from bonds. 
 
 (b) Of the class of corporations indebted as above stated, 
 the law further discriminates against those which have as- 
 sumed the payment of taxes on their bonds, since although 
 some or all of their bondholders may be exempt from taxation, 
 the corporations have no means of ascertaining such fact, 
 and it would therefore result that taxes would often be paid 
 by such corporations when no taxes were owing by the indi- 
 viduals to the Government. 
 
 (c) The law discriminates against owners of corporate 
 bonds in favor of individuals none of whose income is derived 
 from such property, since bondholders are, during the in- 
 
The Beushabek Case 335 
 
 terval between the deducting and the paying of the tax on 
 their bonds, deprived of the use of the money so withheld. 
 
 (d) Again corporate bondholders are discriminated 
 against because the law does not release them from payment 
 of taxes on their bonds even after the taxes have been de- 
 ducted by the corporation, and therefore if after deduction 
 the corporation should fail, the bondholders would be com- 
 pelled to pay the tax a second time. 
 
 (e) Owners of bonds the taxes on which have been as- 
 sumed by the corporation are discriminated against, because 
 the payment of the taxes by the corporation does not relieve 
 the bondholders of their duty to include the income from such 
 bonds in making a return of all income, the result being a 
 double payment of the taxes, labor and expense in applying 
 for a refund, and a deprivation of the use of the sum of the 
 taxes during the interval which elapses before they are re- 
 funded. 
 
 3. The provision limiting the amount of interest paid 
 which may be deducted from gross income of corporations 
 for the purpose of fixing the taxable income to interest on 
 indebtedness not exceeding one-half the sum of bonded indebt- 
 edness and paid-up capital stock, is also charged to be want- 
 ing in due process because discriminating between different 
 classes of corporations and individuals. 
 
 4. It is urged that want of due process results from the 
 provision allowing individuals to deduct from their gross 
 income dividends paid them by corporations whose incomes 
 are taxed and not giving such right of deduction to corpora- 
 tions. 
 
 5. Want of due process is also asserted to result from the 
 fact that the act allows a deduction of $3,000 or $4,000 to 
 those who pay the normal tax ; that is, whose incomes are 
 $20,000 or less, and does not allow the deduction to those 
 whose incomes are greater than $20,000 ; that is, such per- 
 sons are not allowed for the purpose of the additional or pro- 
 gressive tax a second right to deduct the $3,000 or $4,000 
 wbich they have already enjoyed. And a further violation 
 
336 Federal Income Tax 
 
 of due process is based on the fact that for the purpose of 
 the additional tax no second right to deduct dividends re- 
 ceived from corporations is permitted. 
 
 6. In various forms of statement want of due process, it 
 is, moreover, insisted, arises from the provisions of the act 
 allowing a deduction for the purpose of ascertaining the tax- 
 able income of stated amounts on the ground that the pro- 
 visions discriminate between married and single people and 
 discriminate between husbands and wives who are living to- 
 gether and those who are not. 
 
 7. Discrimination and want of due process results, it is 
 said, from the fact that the owners of houses in which they 
 live are not compelled to estimate the rental value in making 
 uj) their incomes, while those who are living in rented houses 
 and pay rent are not allowed, in making up their taxable in- 
 come, to deduct rent which they have paid, and that want of 
 due process also results from the fact that although family 
 expenses are not as a rule permitted to be deducted from gross 
 to arrive at taxable income, farmers are permitted to omit 
 from their income return certain products of the farm which 
 are susceptible of use by them for sustaining their families 
 during the year. 
 
 So far as these numerous and minute, not to say in many 
 respects hypercritical, contentions are based upon an assumed 
 violation of the uniformity clause, their want of legal merit 
 is at once apparent, since it is settled that that clause exacts 
 only a geographical uniformity, and there is not a semblance 
 of ground in any of the propositions for assuming that a vio- 
 lation of such uniformity is complained of. (Knoivlton v. 
 Moore, 178 U. S., 41 ; Patton v. Brady, 184 U. S., 608, 622 ; 
 Flint v. Stone Tracy Co., 220 U. S., 107, 158; Billings v. 
 United States, 232 U. S., 608, 622.) 
 
 So far as the due-process clause of the fifth amendment is 
 relied upon, it suffices to say that there is no basis for such 
 reliance, since it is equally well settled that such clause is not 
 a limitation upon the taxing power conferred upon Congress 
 by the Constitution ; in other words, that the Constitution 
 
The Brdshabee Case 337 
 
 does not conflict with itself by conferring upon the one hand 
 a taxing power and taking the same power away on the other 
 by the limitations of the due-process clause. {Treat v. White, 
 181 U. S., 264; Patton v. Brady, 184 U. S., 608; McCray 
 v. United States, 195 TJ. S., 27, 61 ; Flint v. Stone Tracy Co., 
 supra; Billings v. United States, 232 U. S., 261, 282.) And 
 no change in the situation here would arise even if it be con- 
 ceded, as we think it must be, that this doctrine would have 
 no application in a case where, although there was a seeming 
 exercise of the taxing power, the act complained of was so 
 arbitrary as to constrain to the conclusion that it was not the 
 exertion of taxation, but a confiscation of property ; that is, a 
 taking of the same in violation of the fifth amendment, or, 
 what is equivalent thereto, was so wanting in basis for classi- 
 fication as to produce such a gross and patent inequality as 
 to inevitably lead to the same conclusion. We say this be- 
 cause none of the propositions relied upon in the remotest 
 degree present such questions. 
 
 It is true that it is elaborately insisted that although there 
 be no express constitutional provision prohibiting it, the pro- 
 gressive feature of the tax causes it to transcend the concep- 
 tion of all taxation and to be a mere arbitrary abuse of power 
 which must be treated as wanting in due process. But the 
 proposition disregards the fact that in the very early history 
 of the Government a progressive tax was imposed by Congress, 
 and that such authority was exerted in some if not all of the 
 various income taxes enacted prior to 1894, to which we have 
 previously adverted. And over and above all this the conten- 
 tion but disregards the further fact that its absolute want of 
 foundation in reason was plainly pointed out in Knowlton v. 
 Moore, supra, and the right to urge it was necessarily fore- 
 closed by the ruling in that case made. In this situation it is, 
 of course, superfluous to say that arguments as to the expedi- 
 ency of levying such taxes or of the economic mistake or 
 wrong involved in their imposition are beyond judicial cog- 
 nizance. Besides this demonstration of the want of merit in 
 the contention based upon the progressive feature of the tax, 
 22 
 
338 Federal Income Tax 
 
 the error in the others is equally well established, either by 
 prior decisions or by the adequate bases for classification 
 which are apparent on the face of the assailed provisions ; 
 that is, the distinction between individuals and corporations, 
 the difference between various kinds of corporations, etc. 
 Knowlton v. Moore, supra; Flint v. Stone Tracy Co., supra j 
 Billings v. United States, supra; National Bank v. Common- 
 wealth (9 Wall., 353) ; National Safe Deposit Co. v. Illinois 
 (232 U. S., 58, 70). In fact, comprehensively surveying all 
 the contentions relied upon, aside from the erroneous con- 
 struction of the amendment which we have previously dis- 
 posed of, we can not escape the conclusion that they all rest 
 upon the mistaken theory that although there be differences 
 between the subjects taxed, to differently tax them transcends 
 the limit of taxation and amounts to a want of due process, 
 and that where a tax levied is believed by one who resists its 
 enforcement to be wanting in wisdom and to operate injus- 
 tice, from that fact in the nature of things there arises a want 
 of due process of law and a resulting authority in the judici- 
 ary to exceed its powers and correct what is assumed to be 
 mistaken or unwise exertions by the legislative authority of 
 its lawful powers, even although there be no semblance of 
 warrants in the Constitution for so doing. 
 
 We have not referred to a contention that because certain 
 administrative powers to enforce the act were conferred by 
 the statute upon the Secretary of the Treasury, therefore it 
 was void as unwarrantedly delegating legislative authority, 
 because we think to state the proposition is to answer it. 
 Field v. Clark (143 U. S., 649) ; Buttfieldv. Stranahan (192 
 IT. S., 470, 496) ; Oceanic Steam Navigation Co. v. Strana- 
 han (214 IT. S., 320). 
 
 Affirmed. 
 
 Mr. Justice McReynolds took no part in the consideration 
 and decision of this case. 
 
PART VI 
 
 FORMS FOR INDIVIDUAL AND CORPORATION 
 RETURNS, WITH INSTRUCTIONS 
 
Different forms, but essentially similar, are required for 
 Insurance Companies, Fiduciaries, and withholding agents. 
 See paragraph 53. 
 
Form 1031. 
 
 (Revised September, 1915.) 
 CORPORATIONS 
 
 (OTHEB THAN INSURANCE COMPANIES) 
 
 ( Calendar ) 
 Retubn of Net Income for the -j *pi sca i j year ended , 191... 
 
 by ,.-- - ; - 
 
 (Name of corporation, joint-stock company, or association.) (Kind of business.) 
 
 and located at 
 
 Street and number.) (City or town.) (State.) 
 
 (The address given must be that of the principal place of business of the corporation.) 
 
 If no figures are to be extended opposite any item in the return, 
 the word "None" should be inserted. 
 
 Total amount of paid-up capital stock outstanding 
 at the close of the year or, if no capital stock, the 
 capital employed in the business 
 
 Total amount of bonded and other interest-bearing 
 indebtedness outstanding at close of year, exclusive 
 of indebtedness wholly secured by collateral, the 
 Bubject of sale in ordinary business of the corpora- 
 tion. 
 
 Gross Income: 
 
 Dollars 
 
 Cta. 
 
 
 $ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 $ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 $ 
 
 
 
 
 
 
 
 
 
 
 $ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Total 
 
 $ 
 
 
 
 
 
 
 
 
 
342 
 
 Federal Income Tax 
 
 Deductions 
 
 4. (a) Expenses, general 
 
 (6) Payments in lieu of rent 
 
 5. (a) LoBses sustained 
 
 (6) Depreciation 
 
 (c) Depletion (natural deposits) 
 
 6. (a) Interest paid (see Note 6a) 
 
 (6) Interest paid by banks on deposits.. 
 
 7. (a) Taxes, domestic paid 
 
 (6) Taxes, foreign paid 
 
 Total deductions 
 
 Dollars 
 
 Cts. 
 
 We, , president, and , treasurer, 
 
 of the above-named company, whose return of net income is herein 
 set forth, being severally duly sworn, each for himself, deposes and 
 says that the items entered in the foregoing report and in the sup- 
 plementary statement and in any additional list or lists attached to 
 or accompanying this return are, to his best knowledge and belief 
 and from such information as he has been able to obtain, true and 
 correct in each and every particular. 
 
 President. 
 
 Treasurer. 
 Sworn to and subscribed before me this day of , 191 
 
 (Seal of officer 
 taking affidavit.) 
 
 (Official capacity.) 
 
 GENERAL INSTRUCTIONS. 
 
 Time of filing returns. — Returns made on the basis of a calendar 
 year must be filed on or before March 1 with the collector of in- 
 ternal revenue of the district in which is located the principal place 
 
Forms and Instructions 343 
 
 of business of the corporation; if made on the basis of a fiscal year* 
 they must be gled within 60 days after the close of such year. 
 
 *Fiscal year. — Corporations desiring to make returns of annual 
 net income on the basis of a fiscal year other than the calendar year, 
 must, not less than 30 days prior to March 1, file with the collector 
 a notice in writing designating the last day of some month as the 
 close of such fiscal year. A return for that portion of the calendar 
 year preceding the first full fiscal year thus established must be filed 
 on or before March 1 of the next calendar year, and the return for the 
 fiscal year (12 months) must be filed on or before the last day of 
 the 60-day period next following the closing date of the fiscal year. 
 
 Extension of time. — In the case of neglect to file the return within 
 the prescribed time, the collector is authorized to grant an extension 
 of the filing period not exceeding 30 days, provided such neglect was 
 due to absence or sickness of an officer required to sign the return, 
 and provided an application in writing is made prior to the expira- 
 tion of the period for which extension may be granted. 
 
 Signatures and verification. — Returns must be signed and verified 
 by two officers of the corporation, that is, by the president vice- 
 president, or other principal officer, and the treasurer or other finan- 
 cial officer, and must be sworn to before an officer authorized to ad- 
 minister oaths and the seal of the attesting officer, if he is required 
 to have a seal, must be impressed on the return in the space pro- 
 vided for that purpose. 
 
 Subsidiary companies. — The corporation making this return should 
 attach hereto a list of all its subsidiary companies, if any, with the 
 location of the principal place of business of each. Each subsidiary 
 company must make a separate and distinct return. 
 
 Foreign corporations.— Foreign corporations subject to the law are 
 required to make returns to the collector of the district in which 
 the principal place of business in the United States is located. The 
 gross income to be returned is that received from business trans- 
 acted and capital invested in the United States. The deductions 
 allowable are those losses and disbursements incident and necessary 
 to the transaction of the business in this country, all as specifically 
 set out in the act. Foreign taxes are not deductible from the gross 
 income arising and accruing to a foreign corporation from business 
 done or capital invested in the United States. 
 
 Penalties. — Corporations refusing or neglecting to file returns 
 within the time prescribed by law or rendering false or fraudulent 
 returns shall be liable to a penalty of not exceeding $10,000, and an 
 additional tax of 50 per cent in case of neglect to file the return 
 within the time prescribed by law, and 100 per cent in the case of a 
 false or fraudulent return shall be added to the assessment. 
 
344 
 
 Federal Income Tax 
 
 Any officer of any corporation required by law to make, render, 
 sign, or verify any return, who makes any false or fraudulent return 
 or statement with intent to defeat or evade the assessment required 
 to be made shall be guilty of a misdemeanor, and shall be fined not 
 exceeding $2,000 or be imprisoned not exceeding one year, or both, 
 at the discretion of the court, with the costs of prosecution. 
 
 SUPPLEMENTABY STATEMENT. 
 
 The following information must be furnished by every corporation, 
 joint-stock company, or association, without which the return will 
 not be accepted as complete. The items herein relate to the items 
 listed above and bear corresponding numbers, and the totals must 
 agree with the totals set out in the above return. 
 
 1. Paid-up Capital Stock: 
 
 Unissued or treasury stock should not be included in this item, 
 but only such stock as has been actually issued and is outstanding 
 at the close of the year and for which payment has been received. 
 Where the stock issued is payable in installments or assessments, 
 only so much of it as has been actually paid in upon such install- 
 ments or assessments should be reported. 
 
 In case no stock is issued there should be reported the amount of 
 capital actually employed in the business and property of the corpo- 
 ration at the close of the year. 
 
 
 $ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 $ 
 
 
 
 
 
 
 
 
 
 
 $ 
 
 
 
 
 
 
 
 
 
 2. Indebtedness: 
 
 All interest-bearing indebtedness, for the payment of which the 
 corporation or its property is hound, should he reported below. In 
 the case of banking corporations and like financial institutions de- 
 posits should not be reported as indebtedness. Indebtedness wholly 
 secured by collateral, the subject of sale in the ordinary business of 
 the corporation, should be reported here, but such indebtedness must 
 not be entered under item 2 above nor be considered in determining 
 the amount of interest deductible under item 6 (a). 
 
Foems and Instructions 
 
 345 
 
 Charaoter of Obligation 
 
 Rate of 
 Interest 
 
 Principal 
 
 
 
 $ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 $ 
 
 
 
 
 
 
 
 
 
 
 3. Gboss Income: 
 
 All manufacturing, mercantile, and other corporations which de- 
 termine their annual gain or loss by inventory are required to state 
 the same in the form indicated below. If the annual income or loss 
 is determined otherwise, the methods employed must be stated in the 
 space provided. 
 
 The profit or income to be returned in the event of the sale of 
 capital assets should be determined upon the basis of the difference 
 between the cost and selling price of such assets. If the assets were 
 acquired prior to January 1, 1909, the profit resulting from their sale 
 may be prorated, in which case the amount apportioned to the years 
 subsequent to January 1, 1909, will be included as income of the year 
 in which sold. 
 
 (o) From Operations: Per inventory — 
 
 Sales during year 
 
 Stock on hand at 
 
 , 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Total .. 
 
 $____! 1 
 
 
 
 % 
 
 
 
 
 
 Stock on band at be- 
 
 
 
 
 
 
 
 
 Total 
 
 $.... 
 
 
 
 
 
 
 
 
 
 Total gain or loss 
 [3 (a), first page]. 
 
 
 
 
 
 $.... 
 
 
 
 
 In the case of manufacturing corporations "Purchases during the year" will include 
 so much of the cost of goods, finished or unfinished, sold or unsold, as has not been sepa- 
 rately deducted under any item of the return. 
 
 Overhead charges should not be included in inventory (see Item 4). 
 
 (If inventory shows loss, make entry in red ink or strike out gain.) 
 
346 
 
 Federal Income Tax 
 
 If inventory is not used, state below method of determining gain 
 or loss from operations: 
 
 (6) From Rentals: Rentals to be reported as income will include 
 all payments received in cash or its equivalent as rent on buildings 
 or other property owned by the corporation making the return, as 
 well as all royalties received. 
 
 (c) From Interest: Interest to be reported as income includes all 
 interest received on bonds or securities owned by the corporation 
 with the exception of interest on obligations of a State or political 
 subdivision thereof or interest upon the obligations of the United 
 States or its possessions, which latter interest for the purpose of in- 
 formation should be extended below: 
 
 UNITED STATES, STATE, AND OTHER OBLIGATIONS. 
 
 Name of Obligation 
 
 Amount of 
 Principal 
 
 Rate 
 
 Amount of Inter- 
 est Received 
 
 
 $ 
 
 
 S 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Total 
 
 % 
 
 $ 
 
 
 
 
 
 (d) From Dividends Received: Dividends received upon the stock 
 of other corporations must be included in the gross income of the 
 corporation receiving the same and are not deductible from gross in- 
 come in ascertaining the net income upon which the tax is computed. 
 
 (e) From Other Sources: All other sources from which income 
 has been received, and the amount thereof, should be itemized below: 
 
 
 S 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Total 
 
 $ 
 
 
 
 
 
 
 
 
 
Forms and Instructions 
 
 347 
 
 deductions. 
 4. Expenses, Genebal: 
 
 The items below should only include the ordinary and necessary 
 expenses paid within the year in the maintenance and operation of 
 the business and properties of the corporation, not including interest 
 payments (which are to be reported under item 6 (a) ), except inter- 
 est paid on indebtedness wholly secured by collateral the subject of 
 sale in the ordinary business of the corporation, which interest may 
 be reported under this item as an expense. 
 
 All expenses for material, labor, fuel, and other items entering into 
 the cost of the goods produced, sold, or inventoried are deductible 
 under this head as expense, provided such items have not been con- 
 sidered in determining the income derived from operations under 
 item 3 (a), Inventory. 
 
 Expenditures for incidental repairs which do not add to the value 
 of the property are deductible as expenses, but expenditures for addi- 
 tions and betterments which add to the value of the property are not 
 deductible under this or any other item of the return. Expenditures 
 for renewals and replacements are not, as such, deductible as ex- 
 penses, but should be charged to depreciation reserve account. 
 
 Salaries of officers in order to constitute an allowable deduction 
 must be reasonable compensation for the services rendered and must 
 not be based upon the stock holdings nor comprehend any compensa- 
 tion for capital invested in the business. 
 
 Payments in lieu of rent should be reported separately under item 
 4 (6). 
 
 (a) 1. Labor, wages, commissions, et 
 
 
 $ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 4, Repairs, ordinary and incident 
 
 5. Interest on indebtedness who 
 
 lateral the subject of sale, et 
 
 aL 
 
 
 
 
 
 ly secured by col- 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 $ 
 
 
 
 
 
 
 
 
 
348 
 
 Federal Income Tax 
 
 4. (a) 8. Names of officers and employees to whom salaries of $3,000 
 or more were paid during the year and amount paid to each. (If the 
 space below is not adequate, a list marked "Item 4 (a)" containing 
 this information should he attached to this form.) 
 
 Name 
 
 Amount 
 
 
 S 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Total _ 
 
 s 
 
 
 
 
 
 
 
 (6) Payments in Lieu of Rent: This item should include all royal- 
 ties, as well as interest paid in lieu of rent on mortgages secured by 
 property which the corporation occupies but which it does not own 
 and in which it has no equity. See Note 6 (a). 
 
 5. (a) Losses: 
 
 Losses deductible under this item must be distinguished from de- 
 preciation or allowances for wear and tear, exhaustion, or obsoles- 
 cence of property. The losses must be absolute, complete, actually 
 sustained during the year, and charged off on the books of the cor- 
 poration, and if the loss results from the sale of assets acquired 
 prior to January 1, 1909, such loss shall be prorated and the amount 
 apportioned to the years subsequent to January 1, 1909, may be de- 
 ducted under this item. 
 
 Losses compensated by insurance or otherwise are not deductible. 
 
 Kind of Asset 
 
 Original 
 Amount 
 
 Date Charged Off 
 
 Amount Charged Off 
 
 
 $ 
 
 
 8 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Total 
 
 $ 
 
 
 
 
 
 
 
 When were the deducted losses ascertained to he such 
 
 > 
 
 How were they so asc 
 
 ertained? 
 
 
 
Forms and Instructions 
 
 349 
 
 (6) Depreciation: The amount deductible on account of deprecia- 
 tion is an amount which fairly measures the deterioration during the 
 year in the value of physical property by reason of use, wear and 
 tear, and such amount should be determined upon the basis of the 
 cost of the property and the probable number of years constituting 
 its life. Stocks, bonds, and like securities are not subject to wear 
 and tear within the meaning of the law, and any shrinkage in their 
 value due to fluctuations in the market is not deductible either as 
 depreciation or loss. 
 
 Depreciation computed on total invoice value of merchandise in 
 stock is not an allowable deduction. However, the extent of shrink- 
 age in value below invoice cost of certain articles of merchandise in 
 stock, determined upon the individual articles affected, may be taken 
 and should be reflected in the value of merchandise inventory shown 
 in the supplementary statement 3 (a). 
 
 Kind of Property 
 
 Its Cost 
 
 Probable Life 
 After Acquire- 
 ment 
 
 Amount of Depreciation 
 
 This Year 
 
 Previous Years] 
 
 
 S 
 
 
 s 
 
 t 
 
 
 
 
 
 
 
 
 . 
 
 
 
 
 
 
 
 
 Totals.. 
 
 S 
 
 $ 
 
 $ 
 
 
 
 
 
 
 If buildings, state kind of construction. 
 
 (c) Depletion applies to the wasting of natural deposits and con- 
 templates a deduction to return to the corporation the cost of or 
 capital invested in such deposits, provided such deduction must not 
 exceed 5 per cent of the gross value at the mine (or well) of the out- 
 put of the year. 
 
 "DEPLETION." 
 
 •Kind of 
 
 tits Cost 
 
 Gross Value at 
 
 Mine of 
 Output for Year 
 
 Amount of Depletion 
 
 Property- 
 
 This Year 
 
 All Years to Date 
 
 
 $ 
 
 $ 
 
 S 
 
 $ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 *Coal, iron ore, copper, oil, or gas. 
 
 tCost to include only initial purchase price plus all carrying charges not deducted from 
 groBa income for purpose of special excise and income tax. 
 
350 
 
 Federal Income Tax 
 
 6. (a) Interest Deductible: 
 
 The amount of interest which may be deducted under this item is 
 the amount actually accrued (due and payable) and paid within the 
 year on an amount of bonded or other indebtedness not in excess of 
 the paid-up capital stock outstanding at the close of the year plus 
 one-half of the interest-bearing indebtedness also then outstanding. 
 Where there is no capital stock the amount of interest deductible is 
 the amount actually paid on an amount of indebtedness not in excess, 
 at any time during the year, of the capital employed in the business 
 at the close of the year. 
 
 Interest paid on mortgage indebtedness, assumed or unassumed, on 
 property to which the corporation has taken or is taking title, or in 
 which it has an equity, or in the acquirement of which the mortgage 
 was considered a part of the purchase price, should be reported under 
 this item, as such indebtedness is held to be the debt of the corpora- 
 tion. 
 
 Interest paid in lieu of rent on mortgage indebtedness secured by 
 property which the corporation occupies, but does not own, or have 
 an equity in, should be reported under item 4 (o). Such debt is the 
 debt of the property and not of the corporation. 
 
 Interest paid on indebtedness wholly secured by collateral the sub- 
 ject of sale in the ordinary business of the corporation should be 
 reported under item 4 (n). 
 
 INTEREST PAYMENTS ACTUALLY MADE DURING YEAR. 
 All forms of indebtedness upon which interest was paid should be listed here. 
 
 Name or Kind of 
 Obligation 
 
 Amount of Principal 
 
 Rate of 
 Interest 
 
 Amount of 
 Interest Paid 
 
 
 $.... 
 
 
 
 
 
 $ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Total 
 
 *..- 
 
 
 
 
 $ 
 
 
 
 
 
 
 
 
 
 
 
 
 (ft) Interest Paid on Deposits: Interest paid on deposits is a 
 proper deduction from gross income under this item in case of 
 banks and banking institutions only. 
 
 7. (a) Taxes — Federal and State: 
 
 (6) Taxes — Foreign: Taxes deductible under these items are such 
 taxes actually paid within the year as are imposed by either the 
 United States or any State or Territory thereof, or by the Govern- 
 
Forms and Instructions 351 
 
 ment of any foreign country, not including taxes for local benefits, 
 nor taxes paid by corporations pursuant to covenants guaranteeing 
 their bonds to be tax free. 
 
 A reserve for taxes, as such, is not deductible. 
 
 Banks paying taxes assessed on the value of their capital stock 
 outstanding and in the hands of their stockholders cannot deduct 
 the same. Such taxes are a liability of the stockholders, deductible 
 from the dividends of such stockholders. 
 
 Where sufficient space is not provided for the entry of the infor- 
 mation required in the "Supplementary statement," lists containing 
 full information in the form indicated should be marked in accord- 
 ance with the particular item and attached to this form. 
 
 INSTRUCTIONS TO CORPORATIONS WITH RESPECT TO 
 MAKING RETURNS OF ANNUAL NET INCOME. 
 
 Washington, D. C, December 8, 1915. 
 
 The officers of corporations will please read carefully the follow- 
 ing instructions, as well as those given on the return form (1031), 
 before inserting the figures in either the return proper or the supple- 
 mentary statement. 
 
 Returns must be filed by all corporations having existence during 
 all or any part of the year, and, if made on the basis of a calendar 
 year, must be filed on or before March 1 ; if on the basis of a fiscal, 
 other than the calendar, year they must be filed on or before the 
 last day of the 60-day period next following the close of the fiscal 
 year. 
 
 Dissolved corporations, making return on the basis of a calendar 
 year, will make final return covering the period from January 1 to 
 date of dissolution. Dissolved corporations making return on the 
 basis of a fiscal, other than the calendar, year will make a final 
 return covering the period from the beginning of the fiscal year to 
 the date of dissolution. Date of dissolution in either case must be 
 noted on the face of the return in red ink. 
 
 New corporations organized during the year must make return 
 covering the period from date of organization to December 31, unless 
 the collector is given written notice, not less than 30 days prior to 
 March 1, designating the last day of some month, other than Decem- 
 ber, as the closing date of the fiscal year. In this event a return will 
 be made within 60 days after the close of the fiscal year designated, 
 provided the period from date of organization to the closing date of 
 the fiscal year does not exceed 12 months. Further instructions will 
 be given by the collector. 
 
352 Federal Income Tax 
 
 Address in the heading must show where books are kept from 
 which return is prepared, and the return will be filed in the district 
 in which this address shows the books to be kept. 
 
 SUPPLEMENTARY STATEMENT MUST BE PREPARED FIRST AND THE TOTALS 
 CARRIED TO THE PROPER SPACES BEARING SIMILAR NUMBER AND LETTER 
 IN THE RETURN PROPER. 
 
 Paid-up capital stock, to be entered under item 1, should repre- 
 sent total par value of paid-up stock issued, both common and pre- 
 ferred, outstanding at the close of the period covered by the return. 
 It is immaterial whether stock is paid for in cash, promissory notes, 
 or other assets. When stock is assessable on account of deferred 
 payments or is payable in installments, the amount actually paid on 
 such shares will constitute the actual paid-up capital stock of the 
 corporation, and the amount so actually paid in will be entered under 
 this item. 
 
 Indebtedness, to be entered under item 2, should embrace all out- 
 standing interest-bearing indebtedness for which the corporation has 
 acknowledged liability, in the form of mortgage, note, bond, or other 
 paper, said paper bearing interest, not including indebtedness wholly 
 secured by collateral the subject of sale in the ordinary business of 
 the corporation. Such latter indebtedness should be included under 
 item 2 of the supplementary statement, at the lower margin of the 
 return proper, and should be properly explained. 
 
 UROSS INCOME. 
 
 Banks and other financial institutions will include as Gross Income 
 the total revenue, gains, or profits from all sources, as shown by the 
 entries on the books of account. 
 
 Manufacturing corporations will ascertain Gross Income from 
 Operations through the inventory computation (3a) on the back of 
 the form. In this computation "Sales" should represent the entire 
 sales during the year, whether for cash or otherwise. "Purchases" 
 should include all purchases of raw material, supplies, etc., during 
 the same period. "Purchases" will not, however, include any ex- 
 penses or other items claimed as deductions under the headings 4a 
 to 7b, inclusive. (Purchases of equipment, office furniture, fixtures, 
 and so forth, are considered to be capital investments and are not 
 subject to deduction as purchases or expenses.) Such items are to 
 be charged to capital account and are susceptible to depreciation 
 charge, which may be taken in the return if such account is set up 
 on the books of the corporation and so entered on the books as to 
 constitute a liability against the assets of the company. "Inven- 
 
Forms and Instructions 353 
 
 tories" should be as of the beginning and close of the period covered 
 by the return and will embrace finished and unfinished products, 
 raw materials, supplies, etc. 
 
 Mercantile corporations will ascertain "Gross Income from Opera- 
 tions" in the same manner as manufacturing corporations, except 
 that inventories will embrace merchandise or stock in trade, or on 
 hand, at the beginning and close of the period, as well as the amount 
 of the gross sales and purchases during the period. 
 
 Other corporations will include as gross income the total revenue 
 derived from the operation and management of the business and 
 property of the corporation, together with all amounts of income, 
 gains, or profits arising or accruing from all other sources, as shown 
 by the books of account. 
 
 DEDUCTIONS. 
 
 Expenses, general, should be segregated and entered under the 
 proper heading of the schedule at the lower left-hand corner of the 
 back of the sheet. The schedule will not, however, include any 
 items specifically called for under items 4b to 7b, inclusive, nor will 
 the schedule include any items that have been taken into considera- 
 tion in the inventory computation (3a) when ascertaining the "Gross 
 Income from Operations." 
 
 Line 1 should embrace the expenses of nonproductive, supervisory, 
 executive and selling labor, commissions, etc., not including salaries 
 paid to officers. 
 
 Line 2 should include light, heat, and power expense. 
 
 Line 3 should cover ordinary rentals. 
 
 Line 4 may include incidental repairs, which do not add to the 
 value or appreciably prolong the life of the property, or which do 
 not constitute additions and betterments, the latter being properly 
 chargeable to property account. 
 
 Line 5 should not be used unless the corporation is paying interest 
 on indebtedness wholly secured by collateral, which particular collat- 
 eral securing the debt is the subject of sale in the ordinary business 
 of the corporation. 
 
 Line 6 should show total salaries paid to officers, including those 
 stated in detail under item (4 (a) 8, which item, in detail, is re- 
 quired for information only. 
 
 Line 7, "Other expenditures," may include such expenses as are not 
 accounted for in any of the above items, and should be classified 
 under three or four general heads, as indicated. 
 
 Losses, to be deductible, must be definite, absolute, actually sus- 
 tained during the period and charged off on the books, and will not 
 include shrinkage in the value of securities or other assets. Appro- 
 priate explanation should be made in the space provided on the back 
 
 23 
 
35+ Federal Income Tax 
 
 of the form of each loss for which deduction is claimed. Decrease 
 in value of stock inventory is not a loss contemplated to be treated 
 here, but will be taken into account in the inventory in the compu- 
 tation under 3 (a) of the supplementary statement. Bad debts 
 should be listed and date of charging off stated as to each. If the 
 space provided is not sufficient to make such list, use additional 
 paper and securely attach same to the return. Bad debts are not 
 deductible as a loss unless at some time, either through inventory 
 or otherwise, they shall have been taken up as income. 
 
 Depreciation, deducted under item 5 (b), should be appropriately 
 explained. If depreciation is claimed on more than one class of 
 property at different rates, the cost of each separate class will be 
 stated, with its corresponding probable life, the amount charged off 
 this and prior years. The amount deducted must appear on the 
 books of the corporation as a liability against the assets, and must 
 be reflected in the annual "Balance Sheet." Depreciation on merchan- 
 dise or stock in trade must not be deducted here, but should be taken 
 into consideration through the inventory at the close of the year in 
 computing 3 (a). Deduction as depreciation cannot be taken for 
 such wear and tear as has been made good by repairs, deducted in 
 item 4 (a). The depreciation deduction cannot be cumulative, but 
 will consist of an amount measuring the loss due to use, wear and 
 tear occurring during the period for which the return is made. 
 
 Interest deductions should include only the interest actually ac- 
 crued and paid during the period, and cannot exceed the amount set 
 out in the instructions given under item 6 (a) of the supplementary 
 statement. Appropriate explanation must be made in the space pro- 
 vided therefor. If space is not sufficient, additional paper should be 
 used and attached to return. Interest cannot be deducted in excess 
 of the amount actually paid, at the contract rate, upon a principal 
 measured by the sum of the paid-up capital stock plus one-half of 
 the interest-bearing indebtedness at the close of the period. 
 
 W. H. Osbobn, 
 Commissioner of Internal Revenue. 
 
Forms and Instructions 355 
 
 (Form 1040 (Revised). 
 
 RETURN OP ANNUAL NET INCOME OF INDIVIDUALS. 
 
 (As provided by Act of Congress, approved October 3, 1913.) 
 
 Income Received or Accbued During the Year Ended Dec. 31, 191 
 Filed by (or for) of 
 
 (Street and number.) 
 (pVst-office address.")""" " (State.) 
 
 COMPLETE ANSWERS SHOULD BE GIVEN TO THE FOLLOWING QUESTIONS. 
 
 Did you render a return of income for the preceding year? 
 
 If so, in what Internal Revenue District was it filed? 
 
 Were you single or married with wife or husband living with you 
 on December 31 of the year for which this return is rendered? 
 
 If married, give full name of wife or husband 
 
 Has your wife or husband income from sources independent of 
 
 your own? 
 
 Have you included your wife's or husband's income in this return? 
 
356 
 
 Federal Income Tax 
 
 ■6 
 
 a 
 
 sr a 
 
 « « 
 
 o o 
 
 ■8 
 
 I 
 
 0)— O 
 
 a ca m 
 
 -gj; 
 ass: 
 
 Mj ' 
 
 - -^ a) 3 
 
 Jo 
 
 » 0.5! 
 
 
 zss 
 
 ■Si-sa «< 
 5.S £ 
 
 - 
 
 .5 
 
 d 
 o 
 
 •a 
 § 
 
 ■s 
 
 o 
 o 
 o 
 
 a 
 o 
 
 to 
 
 > 
 o 
 
 ■a 
 
 a 
 o 
 
 £ 
 o 
 
 o 
 
 .9 
 
 *3 
 
 B S 
 
 o o 
 
 n v 
 
 
 
 a 
 
 -a ja 
 
 fc .2 
 
 I d 
 
 O m 
 
Forms and Instructions 
 
 357 
 
 5 
 
 ■a 
 
 a - 
 
 es 
 
 3 
 
 o- 
 
 H 
 
 3" 
 W 
 
 ■O _jf- 
 
 
 O 
 
 do 
 
 -8 
 
 So" 
 
 •g» 
 
 n* 
 
 V M 
 
 
 
 <J a 
 
 >. a 
 
 » a 
 
 11 
 
 
 
 ES 
 
 
 
 
 
 ^ <K 
 
 — - 
 
 o « 
 
 £ 
 
 H 
 
 fe 
 
 
358 
 
 Federal Income Tax 
 
 o rf o o 
 
 >^3 
 
 C3t3 
 
 t. o 
 
 III! 
 
 <L> ■ 
 
 :-s 
 
 V 
 
 g— > to 
 
 o.E-1-0 u 
 -Cl, J3 o 
 2m 3 — 
 
 " o 
 
 e M o 
 2 s s s 
 
 O ft °'S 
 
 ^ o -^^3 
 Cd <u«3 to 
 
 £s >,- 
 S « a ca 
 3.2 
 
 ft' _ 
 
 id . Q 
 
 c.9 
 
 CO t, 
 
 CDTJ 
 P. 
 
 
 
 *a 
 
 4^« O 
 
 33^9 
 
 5- OB 5 
 DO 0-^,0 
 
 S % ° s o 
 
 «°£ a 
 
 B 
 
 Income on which the tax has NOT been paid 
 or is not to be paid at the source. 
 
 nil it 
 
 *a i i i i ii 
 
 d t i ■ i i . 
 
 O i < i i . i 
 
 o ; ; : ; ; ; 
 
 to ; ' • > i ■ 
 
 -a ; : : : : : 
 
 | i i : i i : 
 
 gill! ; : 
 
 w i i i i 
 
 m ■ ■ i i ! ! 
 T3 i ■ ■ ii 
 
 0) I I 1 1 1 ■ 
 D 1 I 1 1 1 < 
 
 3 ; ; ; ; ; ; 
 
 •* ! ! ! ! 1 
 
 
 B i i • i , , 
 
 o < ' i < ii 
 
 g : : : : : : 
 
 a i i i i 
 
 " i i i i i 
 
 A 
 
 Income on which the tax has been paid or is to 
 be paid at the source. 
 
 CD ■ i . i 
 
 a ' ! I ! ! ! 
 
 OJ i i I i it 
 
 o : ; : : 
 
 CD ' ' 
 
 fa 1 I I 1 t i 
 
 -a . i . i •• 
 
 giiii : ! 
 
 w i i i i i i 
 
 B l t i l ii 
 
 13 i • • i ■ 
 
 09 i i i i ii 
 
 3 i i i i i i 
 
 h : : : : j j 
 
 
 3 . . i i •• 
 
 o ' .' ! ! ! ! 
 
 g : : : : : : 
 
 a i j j j 
 
 Description of Income 
 
 Note.— If husband and wife render separate re- 
 turns, only the income and deductions of the 
 husband or wife (as the case may be) who 
 renders this return shall be included herein; 
 but if separate returns are not rendered by 
 both husband and wife the income and de- 
 ductions of both husband and wife shall be 
 included separately as provided on this form. 
 
 Total Amount Derived from — 
 
 12. Salaries and wages 
 
 Wife's income 
 
 13. Professions and vocations... 
 
 Wife's income 
 
 14. Business, trade, commerce, or sales, or deal- 
 
 ings in property, whether real or personal. 
 
 Wife's income 
 
Forms and Instructions 
 
 359 
 
 •oSe. 
 
 X 
 
 tS o 
 
 b£J3 
 O o 
 
 a '5^ 
 gsr; 
 
 t On 
 
 O O.S <U 
 
 J2 * 2 
 -rt ih o ™ 
 
 s o 2* a 
 
 "■?! 
 
 wj o a j 
 t *"3.S 
 
 fl d a 
 -So* 
 
 d S 2 d 
 
 ° fe ^ 
 d . o- rt 
 
 O 
 
 -a — 
 BM.. 
 
 £ m o 
 
 5S.S 
 
 .S 5 
 
 fe en 
 
 & 
 
 v. 3 «U , 
 
 "»■= 
 .S Bt3 
 £ o ai 
 
 f&l 
 
 "s g s 
 
 'SS-o 
 3 So 
 
 -i*^* M 
 
 s'Ss 
 
 
 a 
 
 3-S 
 
 fl 
 
 
 c 
 
 
 Fl 
 
 *■" 
 
 (D 
 
 .- 
 
 
 d 
 
 o 
 
 3 
 
 a 
 
 o 
 
 tn 
 
 fl 
 
 
 m 
 
 — 
 d 
 
 p, 
 
 
 d^J 
 
 
 3 
 
 -5 
 
 U 
 
 a 
 
 r. 
 
 — 
 
 3 
 
 rt 
 
 fl 
 
 ■d 
 
 0) 
 
 
 d 
 
 '-; 
 
 H 
 
 a 
 
 
 ; 
 
 
 — 
 
 | 
 
 to 
 
 — 
 
 o 
 
 — 
 
 s 
 e 
 
 q 
 
 d 
 o 
 
 - 
 
 — 
 
 - 
 P, 
 
 -*> 
 O 
 
 d 
 
 — — 
 
 Is 
 
 3 = 
 
 /. 
 
 - B 
 
 DO 
 
 03 
 7' 
 
 a 
 
 2 
 
 d 
 
 1 
 
 M 
 
 C 
 
 <u 
 
 a 
 
 - 
 
 
 
 
 A 
 
 
 t. fl 
 o 
 
 10 
 
 d 
 
 2 
 
 d 
 
 2 
 a 
 
 
 
 
 fl 
 
 
 a 
 
 ;-S o-jq'B^.B.S 
 
360 
 
 Federal Income Tax 
 
 B 
 
 Income on which the tax has NOT been paid 
 or is not to be paid at the source. 
 
 3 i i : i 
 
 (O i I i i 
 
 Oil'!! 
 
 
 
 1? ' ' ' ' 
 
 
 ■S i i i i 
 
 S ! ! ! ! 
 
 
 w i i i i 
 
 
 81 r . 
 
 -a i i i i 
 
 
 eg i i i i 
 n • ■ ■ ' 
 
 g ; ; ! ! 
 
 
 h ; ; j j 
 
 
 
 
 3 iii 
 »° I I I I 
 
 
 S i i i i 
 
 •» 
 
 A 
 
 Income on which the tax has been paid or is to 
 be paid at the source. 
 
 n i i i i 
 
 +j > . i i 
 
 a > 
 
 4) i . i ■ 
 
 O ! ! ! ! 
 
 
 n ! .' .' ! 
 •tf ! ! ! ! 
 
 
 o ; ! ! ! 
 
 
 w i 
 
 
 b ■ ! J ! 
 
 13 
 
 
 e3 i i i i 
 
 en i t ■ • 
 
 3 : : ! : 
 
 
 •** ! ! ! 
 
 h : : i 
 
 
 
 
 a t i i j 
 
 •^ : ! ! ! 
 
 
 s i j j j 
 
 
 Description of Income 
 
 Note. — If husband and wife render separate re- 
 turns, only the income and deductions of the 
 husband or wife (as the case may be) who 
 renders this return shall be included herein; 
 but if separate returns are not rendered by 
 both husband and wife the income and de- 
 ductions of both husband and wife shall be 
 included separately as provided on thiB f orm. 
 
 Total Amount Derived from— 
 
 21. Royalties from mines, oil wells, patents, 
 franchises, or other legalized privileges 
 
 Wife's income 
 
 Note. — State here sources from which 
 income entered on line 22 is received 
 and amount received from each. 
 
 
 23. Totals (Note.— Enter total of Col- 
 umn A on line 5) 
 
FOBMS AND InSTBUOTIONS 
 
 361 
 
 .2 o o 
 
 mm 
 
 o) o » 
 
 « o « 
 0) <n cj 
 
 9.2 I 
 
 "Ot3 - - 13 © 
 
 ■a to 
 .2a 
 
 Fl 
 
362 Federal Income Tax 
 
 GENERAL DEDUCTIONS. 
 
 Note.— Claims for deductions cannot be allowed unless the Infor- 
 mation required below is clearly set forth. 
 
 29. The amount of necessary expenses 
 actually paid within the calendar 
 year, for which the return is 
 made, in carrying on any individ- 
 ual business. There must not be 
 included under this head per- 
 sonal, living, or family expenses, 
 business expenses of partnerships, 
 or cost of merchandise. Amounts 
 paid for permanent improvement 
 or betterment of property are not 
 
 Mi 
 
 Uion 
 
 a 
 
 Th 
 
 ousa 
 
 lulu 
 
 11 
 
 indr 
 
 2ds 
 
 Cents 
 
 
 
 
 
 
 
 
 
 
 
 
 Note. — State on the follow- 
 ing lines the principal busi- 
 nesses in which the above ex- 
 penses were incurred. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 30. All interest paid within the year 
 on personal indebtedness of tax- 
 
 
 
 
 
 
 
 
 
 
 
 
 
 31. All National, State, county, school, 
 and municipal taxes paid within 
 the year (not including those as- 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 32. Losses actually sustained during 
 the year incurred in trade or aris- 
 ing from fires, Btorms, or ship- 
 wreck, and not compensated by 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Note. — State (a) of what the 
 loss consisted, (b) when it was 
 actually sustained, and (c) how 
 it was determined to be a loss. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Forms and Instructions 
 
 363 
 
 33. DebtB past due which have been 
 actually ascertained to be worth- 
 less and which have been charged 
 
 S 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Note. — State (a) of what the 
 debts consisted, (b) when they 
 were created, (c) when they be- 
 oame due, and (d) how they 
 were actually determined to be 
 worthless. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 34. Amount representing a reasonable 
 allowance for the exhaustion, 
 wear and tear of property arisina 
 out of its use or employment in 
 business. No deduction shall be 
 made for any amount of ex- 
 pense of restoring property or 
 making good the exhaustion 
 thereof for which a deduction is 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Note. — State (a) what the 
 property was on which depre- 
 ciation is taken (if buildings, 
 state when erected, of what 
 material constructed, and value 
 of same, as of January 1 of the 
 calendar year for which this 
 return is rendered), and (6) 
 what percentage of deprecia- 
 tion is claimed. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 35. Amount allowed to cover depletion 
 in case of mines and oil wells, not 
 to exceed 5 per cent of the gross 
 value at the mine or well of the 
 output for the calendar year for 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Note. — State (a) cost of 
 mine or well, (6) gross value 
 at the mine or well of the out- 
 put for the calendar year for 
 which this return is rendered, 
 and (c) what percentage of de- 
 pletion is claimed. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 36. Total "General Deduc- 
 tions" (to be entered on 
 line 2) 
 
 $— . 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Note. — If space is insufficient for answering any questions, attach a supplemental sheet to 
 this return. 
 
364 Federal Income Tax 
 
 AFFIDAVIT TO BE EXECUTED BY INDIVIDUAL MAKING 
 HIS OWN BETUBN. 
 
 I swear (or affirm) that the foregoing return, to the best of my 
 knowledge and belief, contains a true and complete statement of 
 all taxable gains, profits, and income received by or accrued to me 
 during the year for which the return is made, and that I am enti- 
 tled to all the deductions and exemptions entered or claimed therein 
 under the Federal Income Tax Law of October 3, 1913. 
 
 (Signature of individual.) 
 
 Sworn to and subscribed before me this day of , 191.... 
 
 [SEAL.] 
 
 (Official capacity.) 
 
 AFFIDAVIT TO BE EXECUTED BY DULY AUTHOBIZED AGENT MAKING 
 RETUBN FOB INDIVIDUAL. 
 
 I swear (or affirm) that I have sufficient knowledge of the affairs 
 
 and property of to enable me to make a 
 
 full and complete return of the taxable income thereof, and that the 
 foregoing return, to the best of my knowledge and belief, contains 
 a true and complete statement of all the taxable gains, profits, and in- 
 come received by or accrued to said individual during the year for 
 which the return is made, and that the said individual is entitled 
 under the Federal Income Tax Law of October 3, 1913, to all the 
 deductions and exemptions entered or claimed therein, and that I 
 am authorized to make this return for the following reasons: 
 
 (Signature of agent.) 
 
 (Po3t-office address of agent.) 
 
 Sworn to and subscribed before me this day of , 191.. 
 
 [SEAL.] 
 
 (Official capacity.) 
 
Foems and Insteuotions 365 
 
 instructions. 
 
 1. This return shall be made by every citizen of the United States, 
 whether residing at home or abroad, and by every person residing 
 in the United States, though not a citizen thereof, having a net in- 
 come of $3,000, or over, for the taxable year. 
 
 2. This return shall be made by every nonresident alien deriving 
 any net income from property owned and business, trade, or pro- 
 fession carried on in the United States by him. No specific exemp- 
 tion is allowed nonresident aliens. 
 
 3. When an individual by reason of minority, sickness, or other 
 disability, or absence from the United States, is unable to make his 
 own return, it may be made for him by his duly authorized repre- 
 sentative. 
 
 4. This return should be filed with the Collector of Internal Reve- 
 nue for the district in which the individual resides. In case the 
 person resides in a foreign country, then with the collector for the 
 district in which his principal business is carried on in the United 
 States. 
 
 5. When the return is not filed within the required time by rea- 
 son of sickness or absence of the individual, an extension of time, 
 not exceeding 30 days from March 1, within which to file such 
 return may be granted by the collector, provided a written appli- 
 cation therefor is made by the individual within the period for 
 which such extension is desired. 
 
 6. This return, properly filled out, must be made under oath or 
 affirmation. Affidavits may be made before any officer authorized by 
 law to administer oaths. 
 
 7. An unmarried individual or married individual not living with 
 husband or wife shall be allowed an exemption of $3,000. When 
 husband and wife live together they shall be allowed jointly a total 
 exemption of only $4,000 on their aggregate income. Either hus- 
 band or wife may make, sign, and verify a return of their joint in- 
 come. Where husband and wife have separate incomes they make a 
 joint return of such separate income, both subscribing to the return, 
 or they may make separate returns of their respective incomes, but 
 in no case shall they claim or be allowed more than $4,000 exemption 
 on their aggregate incomes. 
 
 8. Amounts charged on line 29 for restoring property or making 
 good the exhaustion thereof from its use in business, together with 
 the amount claimed for depreciation on line 34, must not exceed the 
 deterioration of the property in one year. 
 
PART VII 
 
 STATISTICS 
 
 (See Frontispiece Chart) 
 
Receipts by States from all sources, receipts by years all 
 sources, Corporation and Personal Income Tax figures tabu- 
 lated. 
 
STATISTICS 
 
 RECEIPTS BY STATES AND TERRITORIES DURING THE LAST FISCAL YEAR. 
 
 Aggregate collection of internal revenue, by States and Territories of the United States and 
 the Philippine Islands, during the fiscal year ended June SO, 1915. 
 
 State, Territory, etc. 
 
 Aggregate 
 Collections 
 
 State, Territory, etc. 
 
 Aggregate 
 Collections 
 
 
 $ 661,217.64 
 
 31,699.46 
 
 208,912.05 
 
 394,536.43 
 
 13,129,026.52 
 
 1,509,773.16 
 
 3,222,249.67 
 
 722,298.66 
 
 1,438,62S.75 
 
 1,562,425.02 
 
 1,041,349.35 
 
 434,582.62 
 
 208,004.69 
 
 56,242,546.12 
 
 25,761,193.45 
 
 2,621,308.38 
 
 1,101,868.00 
 
 33,653,848.21 
 
 8,604,940.00 
 
 718,084.03 
 
 7,766,490.56 
 
 12,094,625.11 
 
 11,085,043.07 
 
 5,195,257.80 
 
 223,965 .84 
 
 14,874,845.68 
 
 752,908.96 
 
 2,878,265.06 
 
 
 $ 171,095.06 
 
 
 
 783,234 45 
 
 
 
 15.358,014.08 
 
 
 
 142, 593 ,0S 
 
 
 
 76,271,908.24 
 
 
 
 13,651,937.38 
 
 
 
 261,610.05 
 
 
 Ohio- 
 
 27,424,294.20 
 729,323.56 
 
 
 
 
 
 1,160,496.09 
 
 
 
 37,611,791.32 
 
 
 
 624,793.60 
 
 
 
 1,797,903.53 
 
 
 
 453,396.66 
 359,551.25 
 
 
 
 
 
 2,375,418.27 
 2,841,336.60 
 
 
 
 
 Utah 
 
 576,720.59 
 
 
 
 276,446.50 
 
 
 
 8,642 35S.70 
 
 
 
 2,329,311 .84 
 
 
 
 1,969,473.72 
 
 
 Wisconsin 
 
 11,390,243.87 
 
 
 133,509.79 
 
 
 Philippine Islands 
 
 Alaska (special fund) 1 
 
 Total 
 
 193,302.08 
 
 
 11,065.06 
 
 
 
 415,681,023.86 
 
 
 
 'Income tax collected on railroads in Alaska. 
 
 Note. — Alabama and Mississippi comprise the district of Alabama; Colorado and Wy- 
 oming, the district of Colorado; Connecticut and Rhode Island, the district of Connec- 
 ticut; Maryland, Delaware, District of Columbia, and the counties of Accomac and 
 Northampton, Va., the district of Maryland; Montana, Idaho, and Utah, the district of 
 Montana; New Hampshire, Maine, and Vermont, the district of New Hampshire; New 
 Mexico and Arizona, the district of New Mexico; North Dakota and South Dakota, 
 the district of North and South Dakota; Washington and Alaska, the district of Washing- 
 ton; and Nevada forms a part of the First district of California. 
 
 The collections credited to Porto Rico were returned from the following districts, viz.: 
 
 First district of New York.. $ 114,048.65 
 
 Second district of New York __ 510,744.95 
 
 Total 624,793.60 
 
 24 
 
370 
 
 Federal Income Tax 
 
 Statement showing the total internal-revenue receipts in the United States for each fiscal year 
 from September I, 1861, to June SO, WIS 
 
 1863 $41,003,192.93 
 
 1864 116,965,578.26 
 
 1865 210,855,864.53 
 
 1866 310,120,448.13 
 
 1867 265,064,938.43 
 
 1868 190,374,925.59 
 
 1869 159,124,126.86 
 
 1870 184,302,828.34 
 
 1871 143,198,322.10 
 
 1872 130,890,096.90 
 
 1873 113,504,012.80 
 
 1874 102,191,016.98 
 
 1875 110,071,515.00 
 
 1876 116,768,096.22 
 
 1877. 118,549,230.25 
 
 1878 110,654,163.37 
 
 1879 113,449,621.38 
 
 1880. 123,981,916.10 
 
 1881 135,229,912.30 
 
 1882 146,523,273.72 
 
 1883. _ 144,553,344.86 
 
 1884.. 121,590,039.83 
 
 1885.. 112,421,121.07 
 
 1886 116,902,869.44 
 
 1887 118,837,301 .06 
 
 1888 124,326,475.32 
 
 1889 130,894,434.20 
 
 1890 142,594,696.57 
 
 1891 $146,035,415.97 
 
 1892. 153,857,544.35 
 
 1893... 161,004,989.67 
 
 1894 147,168,449.70 
 
 1895 143,246,077.75 
 
 1896. 146,830,615.66 
 
 1S97 146,619,593.47 
 
 1898 170,866,819.36 
 
 1899.... 273,484,573.44 
 
 1900 295,316,107.57 
 
 1901 306.871,669.42 
 
 1902 271.867,990.25 
 
 1903.... 230.740,925.22 
 
 1904 232,903,781.06 
 
 1905 234,187,976.37 
 
 1906 249,102,738.00 
 
 1907 269,664,022.85 
 
 1908 _ 251,665,950.04 
 
 1909 246,212,719.22 
 
 1910 289,957,220.16 
 
 1911 322,526,299.73 
 
 1912. 321,615,894.69 
 
 1913. 344,424,453.85 
 
 1914 380,008,893.96 
 
 1915 415,681,023.86 
 
 Total 10,106,805,108.16 
 
Statistics 
 
 371 
 
 CORPORATION AND INDIVIDUAL INCOME TAX. 
 
 Supplemental statement showing by States and Territories the receipts under act of Oct. 3, 
 1913, during the fiscal year ended June SO, 1915. 
 
 States, Terri- 
 tories, etc. 
 
 Alabama 
 
 Alaska 
 
 Arizona 
 
 Arkansas 
 
 California 
 
 Colorado 
 
 Connecticut ... 
 
 Delaware 
 
 Dist. of Col— 
 
 Florida 
 
 Georgia 
 
 Hawaii. 
 
 Idaho. .- 
 
 Illinois _- 
 
 Indiana 
 
 Iowa 
 
 Kansas 
 
 Kentucky 
 
 Louisiana 
 
 Maine 
 
 Maryland 
 
 Massachusetts 
 
 Michigan 
 
 Minnesota 
 
 Mississippi 
 
 Missouri 
 
 Montana 
 
 Corpora- 
 tion In- 
 come Tax 
 
 177,127.39 
 4,412.49 
 
 74,935.76 
 
 89,149.52 
 620,250.50 
 333, 683 .28 
 634,804.71 
 143,955.10 
 134,767.04 
 108,141.60 
 320,617.52 
 198,610.97 
 
 71,202.56 
 983,527.31 
 644, 147 .38 
 469,173.05 
 460,043.69 
 467,638.45 
 316,364.74 
 325,168.99 
 385,539.58 
 853,057.41 
 379,478.99 
 202,379.50 
 
 73,516.09 
 099,384.38 
 134,651.53 
 
 Individual 
 
 Income 
 
 Tax 
 
 $ 84,633.40 
 
 4,556.11 
 
 51,624.12 
 
 38,177.09 
 
 1,240,501.03 
 
 226,735.74 
 
 648,891.26 
 
 138,835.94 
 
 378,673.72 
 
 121,368.22 
 
 119,983.61 
 
 45,211.04 
 
 24,567.89 
 
 2,670,630.34 
 
 345,653.92 
 
 264,315.64 
 
 94,975.59 
 
 163,191.46 
 
 209,813.20 
 
 150.094.51 
 
 636,340.03 
 
 2,683,084.53 
 
 1,533,829.14 
 
 581,949.32 
 
 34,664.57 
 
 934,139.02 
 
 51,184.39 
 
 States, Terri- 
 tories, etc. 
 
 Nebraska 
 
 Nevada 
 
 New Hampsh. 
 New Jersey.. . 
 New Mexico .- 
 
 New York 
 
 North Caro... 
 North Dakota 
 
 Ohio 
 
 Oklahoma 
 
 Oregon ... 
 
 Pennsylvania- 
 Rhode Island. 
 South Caro. .. 
 South Dakota 
 
 Tennessee 
 
 Texas 
 
 Utah 
 
 Vermont 
 
 Virginia- 
 
 Washington. _- 
 West Virginia- 
 Wisconsin 
 
 Wyoming 
 
 Total . 
 
 Corpora- Individual 
 tion In- Income 
 
 come Tax I Tax 
 
 $ 232, 
 
 51 
 
 96 
 
 1,395, 
 
 37 
 
 10,221, 
 
 257 
 
 71, 
 
 2,538 
 
 273 
 
 184 
 
 4,725 
 
 278, 
 
 118, 
 
 58, 
 
 244, 
 
 622, 
 
 216, 
 
 53, 
 
 430, 
 
 316, 
 
 357, 
 
 602, 
 
 54, 
 
 638 .07 
 843.57 
 944.33 
 098 .46 
 240.58 
 206 .65 
 825 .38 
 340 .70 
 058 .60 
 203.26 
 435 .06 
 139.26 
 658.26 
 032 .23 
 966.15 
 305 .05 
 646.16 
 234 .83 
 645 .86 
 379.24 
 322 .33 
 614.85 
 876.39 
 146.91 
 
 $ 128 
 
 31 
 
 71, 
 
 1,278 
 
 16 
 
 17,417, 
 
 123 
 
 26 
 
 1,489 
 
 133, 
 
 121 
 
 4,642 
 
 432 
 
 43 
 
 15 
 
 165 
 
 425 
 
 44 
 
 141 
 
 197 
 
 198 
 
 139 
 
 272 
 
 12 
 
 735.25 
 246 .39 
 023.29 
 169 .92 
 278 .53 
 537.60 
 553 .96 
 155 .98 
 401.11 
 685.76 
 305 .87 
 557 .08 
 453 .37 
 369 .72 
 071 .31 
 904.45 
 631 .57 
 975 .43 
 428 .77 
 : 559 .27 
 579.39 
 188 .47 
 476.09 
 248.68 
 
 39,144,531.71 ' 41,046,162.09 
 
 Note. — The receipts during the fiscal year ended June 30, 1914, were as follows: 
 
 Corporation excise and income taxes $43,127,739.89 
 
 Individual income tax (10 months) 28,253,534.85 
 
 Total _ _ 71,381,274.74 
 
372 
 
 Federal Income Tax 
 
 CORPORATION INCOME TAX DIVISION. 
 
 Statement showing number of returns received, number of returns showing tax liability, and amount 0/ tax 
 assessed on the basis of returns filed pursuant to the requirements of the acts of Aug. 6, 1919, and Oct. 
 S, 191S, by districts, during the year ended June SO, 1915. 
 
 District 
 
 Alabama 
 
 Arkansas 
 
 First California 
 
 Sixth California.. -_. 
 
 Colorado 
 
 Connecticut 
 
 Florida 
 
 Georgia 
 
 Hawaii 
 
 Firet Illinois 
 
 Fifth Illinois 
 
 Eighth Illinois.-- 
 
 Thirteenth Illinois. 
 
 Sixth Indiana 
 
 Seventh Indiana 
 
 Third Iowa— 
 
 Kansas- 
 
 Second Kentucky 
 
 Fifth Kentucky 
 
 Sixth Kentucky 
 
 Seventh Kentucky 
 
 Eighth Kentucky 
 
 Louisiana 
 
 Maryland 
 
 Third Massachusetts 
 
 First Michigan 
 
 Fourth Michigan— 
 
 Minnesota 
 
 First Missouri- 
 
 Sixth Missouri 
 
 Montana 
 
 Nebraska 
 
 New Hampshire 
 
 First New Jersey 
 
 Fifth New Jersey 
 
 New Mexico 
 
 First New York 
 
 Second New York 
 
 Third New York 
 
 Fourteenth New York 
 
 Twenty-first New York 
 
 Twenty -eighth New York... 
 
 Fourth North Carolina 
 
 Fifth North Carolina 
 
 North and South Dakota... 
 
 First Ohio 
 
 Tenth Ohio 
 
 Eleventh Ohio 
 
 Eighteenth Ohio 
 
 Oklahoma 
 
 Oregon _ 
 
 First Pennsylvania 
 
 Ninth Pennsylvania 
 
 Twelfth Pennsylvania 1 
 
 Twenty-third Pennsylvania 
 
 South Carolina — 
 
 Tennessee 
 
 Third Texas. 
 
 Second Virginia 
 
 Sixth Virginia 
 
 Washington 
 
 West Virginia 
 
 First Wisconsin 
 
 Second Wisconsin 
 
 Totals.— 
 
 Returns 
 
 Krrriv I'.l 
 
 3,104 
 2,363 
 
 12,207 
 8,102 
 9,114 
 3,816 
 2,693 
 4,763 
 564 
 
 16,057 
 1,059 
 2,788 
 2,156 
 5,399 
 2,449 
 8,142 
 4,346 
 1,251 
 1,917 
 477 
 899 
 671 
 3,772 
 5,781 
 7,017 
 5,754 
 3,326 
 8,828 
 8,004 
 5,665 
 3,937 
 4,684 
 4,577 
 2,516 
 4,319 
 1.941 
 5,631 
 
 12,183 
 4.875 
 5,076 
 3.398 
 6,260 
 2,277 
 2,322 
 4,458 
 3,410 
 3,037 
 3,171 
 6,346 
 5,839 
 4,854 
 6,936 
 3,603 
 83 
 7,222 
 2,075 
 4,323 
 8,513 
 2,896 
 2,039 
 8,504 
 4,647 
 6,500 
 4,459 
 
 299,445 
 
 Taxable 
 Returns 
 
 2,591 
 1,570 
 6,040 
 3,091 
 3,453 
 3,229 
 1,412 
 3,009 
 
 379 
 7,644 
 
 640 
 1,818 
 1,250 
 3,497 
 1,521 
 5,342 
 3,070 
 
 754 
 1,151 
 
 298 
 
 515 
 
 396 
 2,014 
 3,058 
 6,325 
 3,411 
 1,813 
 5,424 
 4,187 
 3,583 
 3,724 
 3,084 
 3,058 
 1,326 
 3,626 
 
 854 
 2.608 
 5,859 
 4,310 
 2,459 
 1,982 
 3,251 
 1,590 
 1,407 
 3,182 
 2,061 
 1,953 
 1,851 
 4,290 
 2,729 
 2,073 
 3,799 
 2,607 
 47 
 4,095 
 1,532 
 2,594 
 5,071 
 1,531 
 1,277 
 3,490 
 2,485 
 3,270 
 2,645 
 
 Corporation 
 
 Income 
 
 Tax 
 
 $ 196 
 83 
 
 1,178 
 432 
 389 
 819 
 103 
 288 
 198 
 
 3,222 
 
 129 
 
 130 
 
 95 
 
 492 
 
 117 
 
 403 
 
 232 
 
 31 
 
 235 
 
 20 
 
 37 
 
 19 
 
 296 
 
 616 
 
 1,674 
 
 1,023 
 257 
 
 1,199 
 705 
 345 
 443 
 224 
 398 
 240 
 
 1,049 
 130 
 425 
 
 6,342 
 
 1,587 
 467 
 290 
 639 
 76 
 133 
 124 
 472 
 371 
 197 
 
 1,095 
 240 
 146 
 
 2,149 
 
 553 
 
 19 
 
 1,806 
 81 
 225 
 584 
 262 
 142 
 317 
 307 
 445 
 136 
 
 751 .55 
 073 .47 
 998.51 
 701.22 
 
 391 .96 
 245 .46 
 217.88 
 004.16 
 482 .62 
 951 .30 
 
 103 .32 
 
 415 .97 
 305.11 
 981 .35 
 805 .42 
 
 370 .96 
 698 .78 
 180 .48 
 057 .07 
 706 .59 
 612 .42 
 285 .27 
 749 .57 
 311.23 
 496.16 
 096.26 
 097 .41 
 714.78 
 345 .05 
 195 .61 
 910.76 
 342 .68 
 089.11 
 393.91 
 
 928 .97 
 444.51 
 093 .80 
 964.89 
 441 .64 
 270.56 
 
 942 .34 
 347 .22 
 257.22 
 129.11 
 371 .01 
 
 763 .33 
 252 .03 
 150.20 
 438.13 
 628 .77 
 410.08 
 SSS.49 
 590.85 
 092 .62 
 068 .SO 
 670.75 
 627 .60 
 747 .95 
 316.09 
 161 .00 
 511.96 
 595 .93 
 314.87 
 
 891 .35 
 
 174,205 37,106,395.47 1,743,074.08 
 
 Special 
 
 Excise 
 
 Tax 
 
 % 32,995.44 
 3,416.14 
 69,973.47 
 31,061.56 
 19,243.20 
 104,117.80 
 3,015.79 
 2S.462.02 
 
 35,291.26 
 
 11,826.54 
 
 14,628.49 
 
 2,046.57 
 
 28,661.68 
 
 818.37 
 
 33,273.31 
 
 1,415.01 
 
 6,718.95 
 
 21,668.29 
 
 3,630.00 
 
 1,273.01 
 
 63, 60S .46 
 
 17,809.96 
 
 92,781.71 
 
 21,583.44 
 
 12,815.20 
 
 31,003.90 
 
 19,999.52 
 
 17,058.15 
 
 22,130.34 
 
 1,215.90 
 
 13,750.48 
 
 4,472.61 
 
 109,342.73 
 
 1,921.41 
 
 9,902.67 
 
 196,078.01 
 
 37,526.01 
 
 59,664.17 
 
 2,861.56 
 
 3,131.35 
 
 7,729.97 
 
 24,280.26 
 
 2,438.46 
 
 30,885.76 
 
 4,197.77 
 
 7,345.77 
 
 57,553.63 
 
 19.64S.67 
 
 29,693.29 
 
 123,147.89 
 
 38,705.00 
 
 19,834.92 
 
 45,761.64 
 
 5,945.62 
 
 18,701.80 
 
 44,447.69 
 
 23,465.51 
 
 4,961.05 
 
 3,663.07 
 
 8,235.13 
 
 15,975.12 
 
 14,361.58 
 
 50 Per Cent 
 and 100 Per 
 Cent Addi- 
 tional Tax 
 
 5,267.53 
 
 406.28 
 
 827 .46 
 
 3,750.53 
 
 1,476.85 
 
 653 .94 
 
 1,199.61 
 
 3,327.33 
 
 172.45 
 
 19,338.54 
 
 365 .31 
 
 193 .82 
 
 766.60 
 
 2,205.65 
 
 1,039.62 
 
 3,383.49 
 
 511 .69 
 
 333 .54 
 
 23.50 
 
 8.24 
 
 421 .68 
 
 315.29 
 
 2,446.02 
 
 802 .63 
 
 6,455.83 
 
 2,327.42 
 
 526 .65 
 
 2,718.27 
 
 3,314.93 
 
 1,421.75 
 
 6,337.70 
 
 126 .9S 
 
 4,652.31 
 
 705 .73 
 
 3,848.87 
 
 456 .05 
 
 938 .89 
 
 3,316.03 
 
 8,820.27 
 
 851 .34 
 
 544 .43 
 620.42 
 464 .81 
 755 .54 
 
 2,297.90 
 
 878 .41 
 
 1,611.86 
 
 7,773.23 
 
 735 .88 
 
 715.19 
 
 604.73 
 
 1,738.43 
 
 2,606.66 
 
 480 .44 
 6,002.33 
 
 513.30 
 
 456.52 
 
 5,009.33 
 
 1,274.03 
 
 1,126.96 
 
 1,809.10 
 
 2,852.22 
 
 322 .80 
 
 231 .44 
 
 137,482.73 
 
 Total 
 
 % 235,014.52 
 86,895.89 
 
 1,249,799.44 
 467,513.31 
 410,112.01 
 924,017.20 
 107,433.28 
 319,793.51 
 198, 655 .07 
 
 3,277,581.10 
 
 141,295.10 
 
 145,238.28 
 
 98,118.28 
 
 523,848.68 
 
 119,663.41 
 
 440,027.76 
 
 234,625.48 
 
 38, 232 .97 
 
 256,643.86 
 
 24,344.83 
 
 39,307.11 
 
 19,600.56 
 
 362,804.05 
 
 634,923.87 
 
 1,773,733.70 
 
 1,047,007.12 
 270,439.26 
 
 1,233,436.95 
 728,659.50 
 363,675.51 
 472,378.80 
 225,655.56 
 416,491.90 
 245,572.25 
 
 1,163,120.57 
 132,821.97 
 435,935.36 
 
 6,542,358.98 
 
 1,633,787.92 
 527,786.07 
 294,348.33 
 643,098.99 
 84,452.00 
 158,164.91 
 129,107.37 
 504,527.50 
 377,061.66 
 212, 269 .20 
 
 1,153,727.64 
 260,992.63 
 176,708.10 
 
 2,274,774.81 
 594.902.51 
 39,407.98 
 
 1,857,832.77 
 88,129.67 
 244,785.92 
 634,204.97 
 287,055.68 
 148,249.01 
 322,984.13 
 318,683.28 
 461,612.79 
 151,484.37 
 
 38,986,952.28 
 
 'Reestablished May 1, 1915. 
 
Statistics 
 
 373 
 
 Statement showing number of corporation returns received, number of returns showing tax liability, and 
 amount of tax assessed on the bsais of returns filed pursuant to the requirements of the acts of Aug. 5. 
 1809, and Oct. 8, 1918, by States, during the year ended June SO, 1915. 
 
 States and Territories 
 
 Alabama... 
 
 Alaska 
 
 Arizona. _ 
 
 Arkansas 
 
 California 
 
 Colorado 
 
 Connecticut 
 
 Delaware 
 
 District of Columbia- 
 Florida. 
 
 Georgia 
 
 Hawaii 
 
 Idaho _ 
 
 Illinois 
 
 Indiana 
 
 Iowa 
 
 Kansas 
 
 Kentucky 
 
 Louisiana — 
 
 Maine 
 
 Maryland 
 
 Massachusetts 
 
 Michigan 
 
 Minnesota. 
 
 Mississippi.. _- 
 
 Missouri.,. __ 
 
 Montana 
 
 Nebraska 
 
 Nevada . 
 
 New Hampshire 
 
 New Jersey 
 
 New Mexico 
 
 New York 
 
 North Carolina 
 
 North Dakota _. 
 
 Ohio - 
 
 Oklahoma 
 
 Oregon 
 
 Pennsylvania.. _ 
 
 Rhode Island 
 
 South Carolina 
 
 South Dakota 
 
 Tennessee 
 
 Texas. 
 
 Utah.. 
 
 Vermont 
 
 Virginia _ __- 
 
 Washington 
 
 West Virginia -_. 
 
 Wisconsin 
 
 Wyoming 
 
 Totals—. 299,445 
 
 Returns 
 
 Taxable 
 
 Received 
 
 Returns 
 
 1,912 
 
 1,576 
 
 157 
 
 82 
 
 1,026 
 
 346 
 
 2,363 
 
 1,570 
 
 19,939 
 
 8,816 
 
 7,803 
 
 2,842 
 
 2,667 
 
 2,268 
 
 843 
 
 448 
 
 966 
 
 564 
 
 2,693 
 
 1,412 
 
 4,763 
 
 3,009 
 
 564 
 
 379 
 
 968 
 
 878 
 
 22,060 
 
 11,352 
 
 7,848 
 
 5,018 
 
 8,142 
 
 5,342 
 
 4,346 
 
 3,070 
 
 5,215 
 
 3,114 
 
 3,772 
 
 2,014 
 
 2,824 
 
 1,829 
 
 3,928 
 
 2,016 
 
 7,017 
 
 6,325 
 
 9,080 
 
 5,224 
 
 8,828 
 
 5,424 
 
 1,192 
 
 1,015 
 
 13,669 
 
 7,770 
 
 1,551 
 
 1,492 
 
 4,684 
 
 3.0S4 
 
 370 
 
 315 
 
 940 
 
 666 
 
 6,835 
 
 4,952 
 
 915 
 
 50S 
 
 37,423 
 
 20,469 
 
 4,599 
 
 2.997 
 
 2,353 
 
 1,714 
 
 16,014 
 
 10,155 
 
 5,839 
 
 2,729 
 
 4.854 
 
 2,073 
 
 17,844 
 
 10,548 
 
 1.149 
 
 961 
 
 2,075 
 
 1,532 
 
 2,105 
 
 1,468 
 
 4,323 
 
 2,594 
 
 8,513 
 
 5,071 
 
 1,418 
 
 1,354 
 
 813 
 
 563 
 
 4,979 
 
 2,838 
 
 8,347 
 
 3,403 
 
 4.647 
 
 2,485 
 
 10.959 
 
 5,915 
 
 1,311 
 
 611 
 
 299.445 
 
 174,205 
 
 Corporation 
 
 Income 
 
 Tax 
 
 . 
 
 % 146,923.54 
 
 6,258.35 
 
 67,325.98 
 
 83,073.47 
 
 1,571,865.97 
 
 337,859.55 
 
 562,760.12 
 
 117,693.84 
 
 123,856.73 
 
 103,217.88 
 
 288,004.16 
 
 198,482.62 
 
 87,164.78 
 
 3,577,775.70 
 
 610,786.77 
 
 403,370.96 
 
 232.698.78 
 
 343,841.83 
 
 296,749.57 
 
 272,129.65 
 
 372,923.65 
 
 1,674,496.16 
 
 1,280,193.67 
 
 1,199.714.78 
 
 49,828.01 
 
 1,050.540.66 
 
 130,306.22 
 
 224,342.68 
 
 39,833.76 
 
 74.053.86 
 
 1,290,322.88 
 
 63,118.53 
 
 9,753,060.45 
 
 209,386.33 
 
 63,291.49 
 
 2,136,603.69 
 
 240, 628 .77 
 
 146,410.08 
 
 4,528,640.76 
 
 256,485.34 
 
 81,670.75 
 
 56.079.52 
 
 225,627.60 
 
 584,747.95 
 
 226,439.76 
 
 51,905.60 
 
 406,314.10 
 
 311,253.61 
 
 307,595.93 
 
 582,206.22 
 
 51,532.41 
 
 Special 
 
 Excise 
 
 Tax 
 
 % 21,061.93 
 
 37,106,395.47 
 
 1,921.41 
 
 3,416.14 
 
 90,475.06 
 
 18,288.98 
 
 81,486.93 
 
 5.49 
 
 1,940.82 
 
 3,015.79 
 
 28,462.02 
 
 ~"~3~647~.23 
 
 63,792.86 
 29,480.05 
 33,273.31 
 
 1,415.01 
 33,190.25 
 63,608.46 
 
 6,140.60 
 15,863.65 
 92,781.71 
 34,398.64 
 31.003.90 
 11,933.51 
 37,057.67 
 
 9,411.44 
 
 1.215.90 
 10.559.97 
 
 3,175.12 
 113,815.34 
 
 309,163.77 
 
 32,010.23 
 
 344 .60 
 
 99,982.93 
 
 19,648.67 
 
 29,693.29 
 
 227,449.45 
 
 22,630.87 
 
 5,945.62 
 
 2,093.86 
 
 18.701.80 
 
 44,447.69 
 
 9,671.67 
 
 4,434.76 
 
 28,426.56 
 
 3,663.07 
 
 8,235.13 
 
 30,336.70 
 
 954 .22 
 
 1,743,074.08 
 
 50 Per Cent 
 and 100 Per 
 Cent Addi- 
 tional Tax 
 
 I 2,919.32 
 
 16.63 
 
 262 .25 
 
 406.28 
 
 4,563.11 
 
 1,147.27 
 
 461.44 
 
 277 .94 
 
 38.37 
 
 1,199.61 
 
 3,327.33 
 
 172 .45 
 
 5,591.75 
 
 20.664.27 
 
 3,245.27 
 
 3,383.49 
 
 511.69 
 
 1,102.25 
 
 2,446.02 
 
 3,858.31 
 
 480.71 
 
 6,455.83 
 
 2,854.07 
 
 2,718.27 
 
 2,348.21 
 
 4,736.68 
 
 391 .92 
 
 126.98 
 
 9.88 
 
 491 .20 
 
 4,554.60 
 
 193 .80 
 
 15,091.43 
 
 1,220.35 
 
 1,192.60 
 
 10,999.33 
 
 715.19 
 
 604 .73 
 
 10,827.86 
 
 192 .50 
 
 513.30 
 
 1,105.30 
 
 456 .52 
 
 5,009.33 
 
 354 .03 
 
 302 .80 
 
 2,406.70 
 
 1,792.47 
 
 2,852.22 
 
 554 .24 
 
 329 .58 
 
 137,482.73 
 
 Total 
 
 $ 170 
 
 1, 
 
 357 
 
 644 
 117 
 125 
 107 
 319 
 198 
 
 95 
 
 3,662 
 
 643 
 
 440 
 
 234 
 
 378. 
 
 362. 
 
 282 
 
 389, 
 
 1,773 
 
 1,317. 
 
 1,233, 
 
 64, 
 
 1,092, 
 
 140, 
 
 225, 
 
 50, 
 
 77, 
 1,408, 
 
 63, 
 
 10,077, 
 
 242, 
 
 69, 
 
 2,247, 
 
 260, 
 
 176, 
 
 4,766 
 
 279, 
 
 88, 
 
 59 
 244 
 634 
 236 
 
 56 
 437 
 316 
 318 
 613 
 
 52 
 
 ,904.79 
 274.98 
 509.64 
 895 .89 
 909.14 
 295 .80 
 708 .49 
 
 977 .27 
 835 .92 
 433 .28 
 793.51 
 655 .07 
 S03 .76 
 232 .83 
 512.09 
 027 .76 
 625 .48 
 134 .33 
 804.05 
 128 .56 
 268.01 
 733 .70 
 446.38 
 436 .95 
 109 .73 
 335 .01 
 109.58 
 685 .56 
 403 .61 
 720.18 
 692.82 
 312.33 
 315.65 
 616.91 
 828.69 
 586 .00 
 992 .63 
 703.10 
 918.07 
 308 .71 
 
 129 .67 
 
 278 .68 
 785 .92 
 204 .97 
 465 .46 
 643.16 
 147.36 
 709.15 
 
 633 .28 
 0117. 16 
 816.21 
 
 38,986,952.28 
 
374 
 
 Federal Income Tax 
 
 Comparative statement of corporation returns received, number of taxable returns, and the amount of tax 
 assessed against corporations during the years ended June SO, 1914, and June SO, 1915, by districts. 
 
 District 
 
 Alabama- 
 
 Arkansas : 
 
 First California 
 
 Sixth California 
 
 Colorado 
 
 Connecticut 
 
 Florida.- - 
 
 Georgia.. _ 
 
 Hawaii 
 
 First Illinois 
 
 Fifth Illinois 
 
 Eighth Illinois 
 
 Thirteenth Illinois. 
 
 Sixth Indiana 
 
 Seventh Indiana 
 
 Third Iowa 
 
 Kansas 
 
 Second Kentucky 
 
 Fifth Kentucky 
 
 Sixth Kentucky 
 
 Seventh Kentucky 
 
 Eighth Kentucky 
 
 Louisiana 
 
 Maryland. 
 
 Third Massachusetts 
 
 First Michigan 
 
 Fourth Michigan 
 
 Minnesota 
 
 First Missouri 
 
 Sixth Missouri 
 
 Montana 
 
 Nebraska . 
 
 New Hampshire. 
 
 First New Jersey 
 
 Fifth New Jersey 
 
 New Mexico 
 
 First New York 
 
 Second New York 
 
 Third New York 
 
 Fourteenth New York 
 
 Twenty-first New York 
 
 Twenty-eighth New York... 
 
 Fourth North Carolina 
 
 Fifth North Carolina 
 
 North and South Dakota... 
 
 First Ohio 
 
 Tenth Ohio 
 
 Eleventh Ohio 
 
 Eighteenth Ohio 
 
 Oklahoma 
 
 Oregon 
 
 First Pennsylvania 
 
 Ninth Pennsylvania- 
 
 Twelfth Pennsylvania 2 
 
 Twenty-third Pennsylvania- 
 South Carolina 
 
 Tennessee 
 
 Third Texas _ 
 
 Second Virginia 
 
 Sixth Virginia 
 
 Washington 
 
 West Virginia 
 
 First Wisconsin 
 
 Second Wisconsin 
 
 Totals 316,909 
 
 Returns 
 Received 
 
 4,102 
 2,333 
 
 13,177 
 7,191 
 9,241 
 5,830 
 2,239 
 4,783 
 537 
 
 14,716 
 1,020 
 2,577 
 1,921 
 5,446 
 2,043 
 7,484 
 5,003 
 1,203 
 1,746 
 450 
 784 
 568 
 3,255 
 6,380 
 
 10,407 
 5,184 
 3,128 
 8,427 
 7.0S8 
 5,358 
 7,191 
 5,267 
 5,021 
 3,101 
 7,090 
 1,821 
 5,480 
 
 13,514 
 8,654 
 4,767 
 3,691 
 5,977 
 2,270 
 2,316 
 5,304 
 4,480 
 3,062 
 3,431 
 6,038 
 6,112 
 4,497 
 6,858 
 4,171 
 
 7,030 
 3,246 
 4,798 
 8,310 
 2,332 
 2,033 
 10,069 
 4,449 
 6,240 
 4,663 
 
 Returns 
 Showing 
 Tax Due 
 
 3,238 
 1.456 
 6,294 
 3,272 
 3,560 
 4,345 
 1,499 
 3,588 
 
 357 
 9,346 
 
 720 
 1,798 
 1,130 
 3,453 
 1,472 
 5,232 
 2,727 
 
 843 
 1,191 
 
 311 
 
 511 
 
 398 
 2,169 
 3,721 
 6,852 
 3,318 
 1,918 
 5,747 
 4,897 
 3,636 
 3,530 
 3,141 
 3,209 
 1,417 
 4,110 
 
 935 
 2,641 
 6,219 
 5,477 
 2,892 
 2,327 
 3,572 
 1.673 
 1,575 
 3,622 
 2,433 
 1,977 
 2,003 
 4,273 
 2,833 
 2,332 
 3,938 
 2,716 
 
 4,558 
 1,995 
 2,649 
 5,887 
 1,631 
 1,427 
 4,283 
 2,575 
 3,399 
 2,618 
 
 188,866 
 
 Total Tax 
 
 $ 298,781.72 
 123,844.16 
 
 1,397,893.52 
 516,860.10 
 389,822.87 
 
 1,001,063.68 
 123,581.68 
 359,600.61 
 116,698.73 
 
 3,962,892.98 
 
 170,364.70 
 
 140,005.31 
 
 112,855.30 
 
 576,458.50 
 
 124,404.70 
 
 413,701.58 
 
 327,941.63 
 
 35,217.14 
 
 254,367.43 
 
 23,007.96 
 
 50,140.26 
 
 35,258.83 
 
 366,581.75 
 
 761,697.25 
 
 1,955,253.53 
 
 1,119,449.06 
 268,354.47 
 
 1,485,289.30 
 948,775.14 
 353,011.38 
 425,927.46 
 212,074.89 
 447,374.72 
 271,282.88 
 
 1,267,685.46 
 140, 649 .52 
 387,519.18 
 
 6,734,189.16 
 
 1,738,499.20 
 479,860.82 
 302,384.75 
 979,264.87 
 91,142.04 
 149, 132 .55 
 130,988.81 
 514,434.58 
 545,916.40 
 230, 725 .67 
 
 1,390,729.14 
 236,044.33 
 198,186.65 
 
 2,558,418.23 
 459,450.83 
 
 2,669,148.21 
 134,637.67 
 289,891.79 
 713,038.95 
 311,556.12 
 203,404.90 
 385,527.03 
 351,557.68 
 484,911.45 
 146,767.88 
 
 43,395,500.09 
 
 Returns 
 Received 
 
 3,104 
 2,363 
 
 12,207 
 8,102 
 9,114 
 3,816 
 2,693 
 4,763 
 564 
 
 16,057 
 1,059 
 2,788 
 2,156 
 5,399 
 2,449 
 8.142 
 4,346 
 1,251 
 1,917 
 477 
 899 
 671 
 3,772 
 5,781 
 7,017 
 5,754 
 3,326 
 8,828 
 8,004 
 5,665 
 3,937 
 4,684 
 4,577 
 2,516 
 4,319 
 1,941 
 5,631 
 
 12,183 
 
 ,875 
 5,076 
 3,398 
 6.260 
 2,277 
 2,322 
 4,458 
 3.410 
 3,087 
 3,171 
 6,346 
 5,839 
 4,854 
 6,936 
 3,603 
 83 
 7,222 
 2,075 
 4,323 
 8,513 
 2,896 
 2,039 
 8,504 
 4,647 
 6,500 
 4,459 
 
 299,445 
 
 Returns 
 Showing 
 Tax Due 
 
 2,591 
 1,570 
 6,040 
 3,091 
 3,453 
 3,229 
 1,412 
 3,009 
 
 379 
 7,644 
 
 640 
 1,818 
 1,250 
 3,497 
 1,521 
 5,342 
 3,070 
 
 754 
 1,151 
 
 298 
 
 515 
 
 396 
 2,014 
 3,058 
 6,325 
 3,411 
 1,813 
 5,424 
 4,187 
 3,583 
 3,724 
 3,084 
 3,058 
 1,326 
 3,626 
 
 854 
 2,608 
 5,859 
 4,310 
 2,459 
 1,982 
 3,251 
 1,590 
 1,407 
 3,182 
 2,061 
 1,953 
 1,851 
 4,290 
 2,729 
 2,073 
 3,799 
 2,607 
 47 
 4,095 
 1,532 
 2,594 
 5,071 
 1,531 
 1,277 
 3,490 
 2,485 
 3,270 
 2,645 
 
 174,205 
 
 Total Tax 
 Assessed ' 
 
 $ 196 
 83 
 1,178 
 432 
 389, 
 819, 
 
 103; 
 
 288, 
 198 
 
 3,222 
 
 129, 
 
 130, 
 
 95 
 
 492, 
 
 117 
 
 403, 
 
 232, 
 
 31, 
 
 235, 
 
 20, 
 
 37, 
 
 19, 
 
 296, 
 
 616 
 
 1.674, 
 
 1,023. 
 257, 
 
 1,199 
 705, 
 345, 
 443, 
 224, 
 398, 
 240, 
 
 1,049, 
 130 
 425, 
 
 6,342, 
 
 1,587, 
 467, 
 290, 
 639, 
 76, 
 133, 
 124, 
 472, 
 371, 
 197, 
 
 1,095, 
 240, 
 146, 
 
 2,149, 
 
 553, 
 
 19, 
 
 1,806, 
 81, 
 225, 
 584, 
 262, 
 142, 
 317, 
 307, 
 445, 
 136, 
 
 ,751.55 
 073.47 
 
 998 .61 
 701 .22 
 
 391 .96 
 245 .46 
 217.88 
 004.16 
 482.62 
 951 .30 
 103 .32 
 415 .97 
 305.11 
 981 .35 
 805 .42 
 370.96 
 698.78 
 180.48 
 057 .07 
 706.59 
 612 .42 
 285 .27 
 749 .57 
 311.23 
 496.16 
 096.26 
 097.41 
 714 .78 
 345.05 
 195.61 
 910.76 
 342 .68 
 089.11 
 393 .91 
 
 928 .97 
 444.51 
 093 .80 
 964 .S9 
 441.64 
 270 .56 
 
 942 .34 
 347.22 
 257.22 
 129.11 
 371 .01 
 763 .33 
 252.03 
 150.20 
 438.13 
 628 .77 
 410.08 
 888 .49 
 590 .85 
 
 092 .62 
 068.80 
 670.75 
 627.60 
 747 .95 
 316.09 
 161 .00 
 511.96 
 595 .93 
 314.87 
 
 891 .35 
 
 37,106,395.47 
 
 •The figures given in these columns represent taxes assessed on basis of returns received and do not 
 include the 50 per cent and 100 per cent additional tax or special excise taxes assessed during the year. 
 'Reestablished May 1, 1915. 
 
Statistics 
 
 375 
 
 Comparative statement of corporation returns received, number of taxable returns and the amount of tax 
 assessed against corporations during the years ended June SO, 191J^, and June SO, 1915, by States. 
 
 
 1914 
 
 1915 
 
 States and Territories 
 
 Returns 
 Received 
 
 Returns 
 Showing 
 Tax Due 
 
 Total Tax 
 Assessed l 
 
 Returns 
 Received 
 
 Returns 
 Showing 
 Tax Due 
 
 Total Tax 
 Assessed * 
 
 
 2,747 
 
 174 
 
 983 
 
 2,333 
 
 19,321 
 7,863 
 4,096 
 975 
 1,170 
 2,239 
 4,783 
 537 
 1,398 
 
 20, 234 
 7,489 
 7,484 
 5,008 
 4,751 
 3,255 
 2,927 
 4,195 
 
 10,407 
 8,312 
 8.427 
 1,355 
 
 12,446 
 
 2,606 
 
 5,267 
 
 1,047 
 
 965 
 
 10,191 
 838 
 
 42,083 
 4,586 
 2,671 
 
 17,011 
 6,112 
 4,497 
 
 18,059 
 1,734 
 3,246 
 2,633 
 4,798 
 8,310 
 3,187 
 1,129 
 4,405 
 9,895 
 4,449 
 
 10,903 
 1,378 
 
 2,137 
 70 
 
 489 
 1,456 
 9,227 
 2,979 
 3,193 
 
 461 
 
 451 
 1.499 
 3,588 
 
 357 
 
 768 
 12,994 
 4,925 
 5,232 
 2,727 
 3,254 
 2,169 
 1,878 
 2,778 
 6,852 
 5,236 
 5,747 
 1.101 
 8,533 
 1,366 
 3,141 
 
 339 
 
 736 
 5,527 
 
 446 
 
 23,128 
 
 3,248 
 
 l.'i>,7 
 
 10,686 
 
 2,833 
 
 2,332 
 
 11,212 
 
 1,152 
 
 1,995 
 
 1,635 
 
 2,649 
 
 5,887 
 
 1,396 
 
 595 
 3.0S9 
 4,213 
 2,575 
 6,017 
 
 581 
 
 $ 20S.486.14 
 
 4,631.24 
 
 87,537.37 
 
 123,844.16 
 
 1,864,322.49 
 
 335,894.75 
 
 682,247.42 
 
 183,894.67 
 
 185, 144 .03 
 
 123,581.68 
 
 359,601.61 
 
 116,698.73 
 
 54,577.92 
 
 4,386,118.30 
 
 700,863.20 
 
 413,701.58 
 
 327,941.63 
 
 397,991.62 
 
 366,581.75 
 
 307,504.94 
 
 391, 187 .OS 
 
 1,955,253.53 
 
 1,387,803.53 
 
 1,485,289.29 
 
 90,295.58 
 
 1,301,786.52 
 
 150,519.20 
 
 212,074.89 
 
 50,431.13 
 
 83,291.03 
 
 1,538,968.34 
 
 53,112.15 
 
 10,621,717.97 
 
 240,274.59 
 
 77,947.40 
 
 2,681,805.79 
 
 236.044.33 
 
 198,186.65 
 
 5,687,017.28 
 
 318,816.26 
 
 134,637.67 
 
 53.041.41 
 
 289,891.79 
 
 713,038.95 
 
 220,830.34 
 
 56,578.75 
 
 516,432.49 
 
 380,895.79 
 
 351,557.68 
 
 631,679.33 
 
 53,928.12 
 
 1,912 
 
 157 
 
 1,026 
 
 2,363 
 
 19,939 
 
 7,803 
 
 2,667 
 
 843 
 
 966 
 
 2,693 
 
 4,763 
 
 564 
 
 968 
 
 22,060 
 
 7,848 
 
 8,142 
 
 4,346 
 
 5,215 
 
 3, 772 
 
 2,824 
 
 3,928 
 
 7,017 
 
 9,080 
 
 8,828 
 
 1,192 
 
 13,669 
 
 1,551 
 
 4,684 
 
 370 
 
 940 
 
 6,835 
 
 915 
 
 37,423 
 
 4,599 
 
 2,353 
 
 16,014 
 
 5.839 
 
 4,854 
 
 17,844 
 
 1,149 
 
 2,075 
 
 2,105 
 
 4,323 
 
 8,513 
 
 1,418 
 
 813 
 
 4,979 
 
 8,347 
 
 4,647 
 
 10,959 
 
 1,311 
 
 1,576 
 
 82 
 
 346 
 
 1,570 
 
 8,816 
 
 2,842 
 
 2,268 
 
 448 
 
 564 
 
 1,412 
 
 3,009 
 
 379 
 
 878 
 
 11,352 
 
 5,018 
 
 5,342 
 
 3,070 
 
 3,114 
 
 2,014 
 
 1,829 
 
 2,016 
 
 6,325 
 
 5,224 
 
 5,424 
 
 1,015 
 
 7,770 
 
 1,492 
 
 3,084 
 
 315 
 
 666 
 
 4,952 
 
 508 
 
 20,469 
 
 2,997 
 
 1,714 
 
 10,155 
 
 2,729 
 
 2,073 
 
 10,548 
 
 961 
 
 1,532 
 
 1,468 
 
 2,594 
 
 5,071 
 
 1,354 
 
 563 
 
 2,838 
 
 3.403 
 
 2,485 
 
 5,915 
 
 611 
 
 S 146,923.54 
 
 
 6,258.35 
 
 
 67,325.98 
 
 
 83,073.47 
 
 
 1,571,865.97 
 
 
 337,859.55 
 
 
 562,760.12 
 
 
 117,693.84 
 
 
 123,856.73 
 
 Florida 
 
 103,217.88 
 
 
 288,004.16 
 
 
 198,482.62 
 
 
 87,164.78 
 
 
 3,577,775.70 
 
 
 610,786.77 
 
 
 403,370.96 
 
 
 232, 698 .78 
 
 
 343,841.83 
 
 
 296,749.57 
 
 
 272,129.65 
 
 
 372.923.65 
 
 
 1,674,496.16 
 
 
 1.2S0.193.67 
 
 
 1,199,714.78 
 
 
 49,828.01 
 
 
 1,050,540.66 
 
 
 130,306.22 
 
 
 224,342.68 
 
 
 39,833.76 
 
 
 74,053.89 
 
 
 1,290,322.88 
 
 
 63,118.53 
 
 
 9,753,060.45 
 
 
 209.3S6.33 
 
 
 68,291.49 
 
 Ohio 
 
 2,136,603.69 
 
 
 240, 628 .77 
 
 
 146.410.08 
 
 
 4,528,040.76 
 
 
 256,485.34 
 
 
 81,670.75 
 
 
 56,079.52 
 
 
 225,627.60 
 
 
 584,747.95 
 
 Utah.. _ 
 
 226,439.76 
 
 
 51,905.60 
 
 
 406,314.10 
 
 
 311,253.61 
 
 
 307,595.93 
 
 
 582,206.22 
 
 
 51,532.41 
 
 
 
 Totals 
 
 316,909 
 
 188,866 
 
 43,395,500.09 
 
 299,445 
 
 174,205 
 
 37,106,395.47 
 
 
 
 'The figures given in these columns represent taxes assessed on basis of returns received and do not 
 include the 50 per cent and 100 per cent additional tax or special excise taxes assessed during the year. 
 
376 
 
 Federal Income Tax 
 
 Tax assessed on corporations during the year ended June SO, 1915, on basis of revenue agents 1 examinations 
 of returns for the years 1909 to 1914, by divisions. 
 
 Division 
 
 1909 
 
 1910 
 
 1911 
 
 1912 
 
 1913 
 
 1914 
 
 Total 
 
 Albany 1 
 
 $ 3,137.64 
 
 8,619.77 
 
 1,319.03 
 
 8,377.08 
 
 27.04 
 
 5,042.23 
 
 17,076.93 
 
 1,208.88 
 
 349.12 
 
 1,841.39 
 
 7,013.13 
 
 4,814.16 
 
 9,862.99 
 
 271 .22 
 
 4,635.46 
 
 1,228.86 
 
 4,604.31 
 
 4,469.15 
 
 45,745.42 
 
 5,894.91 
 
 128.69 
 
 44,168.54 
 
 538 .82 
 
 5,934.45 
 
 3,937.03 
 
 1,836.92 
 
 6,870.54 
 
 11,287.52 
 
 17.73 
 
 10,418.65 
 
 22,744.42 
 
 8 4,310.04 
 
 11,974.34 
 
 1,725.82 
 
 12,189.45 
 
 28.16 
 
 13,338.69 
 
 20,429.32 
 
 5,374.49 
 
 852.59 
 
 2,972.24 
 
 9,603.74 
 
 5,987.87 
 
 17,625.38 
 
 370 .88 
 
 7,273.46 
 
 1,552.31 
 
 5,964.09 
 
 9,290.94 
 
 62,722.30 
 
 6,776.88 
 
 311.65 
 
 43.6S0.80 
 
 557 .69 
 
 10,913.38 
 
 7,151.41 
 
 2,829.80 
 
 12,860.52 
 
 16,605.91 
 
 116.71 
 
 15,832.50 
 
 11,876.50 
 
 S 5,626.72 
 
 13,939.64 
 
 1,722.49 
 
 22,781.37 
 
 50.49 
 
 13,282.78 
 
 19,753.71 
 
 7,315.07 
 
 658.45 
 
 1,178.89 
 
 8,205.10 
 
 12,551.38 
 
 411.52 
 
 8,340.59 
 
 1,371.19 
 
 7,848.42 
 
 13,067.94 
 
 91,390.96 
 
 9,942.32 
 
 258.56 
 
 49 985.70 
 
 1,663.19 
 
 8,552.99 
 
 6,160.82 
 
 3,358.53 
 
 17,029.07 
 
 14,890.76 
 
 44S .05 
 
 18,289.95 
 
 16,942.92 
 
 $21,644.92 
 
 18,493.31 
 
 7,831.68 
 
 41,367.99 
 
 77.02 
 
 27,192.64 
 
 20,756.47 
 
 21,586.38 
 
 620 .08 
 
 735.10 
 
 13, 90S .71 
 
 5,555.84 
 
 13,159.39 
 
 1,225.06 
 
 12,224.30 
 
 2.849.62 
 
 5,967.73 
 
 11,499.06 
 
 139,038.56 
 
 8,880.06 
 
 878.55 
 
 86,928.40 
 
 2, 129 .79 
 
 8,420.56 
 
 7,323.50 
 
 5,770.34 
 
 18,456.38 
 
 14,341.90 
 
 5,452.95 
 
 19,781.83 
 
 42,078.83 
 
 829,609.44 
 
 18,424.37 
 
 2,235.02 
 
 43,843.46 
 
 149.61 
 
 43,261.21 
 
 22,172.75 
 
 8,914.57 
 
 563.81 
 
 1,090.61 
 
 15,450.56 
 
 8,279.04 
 
 9,771.57 
 
 1,378.04 
 
 12,172.92 
 
 1,371.16 
 
 6,983.56 
 
 51,700.27 
 
 187,896.71 
 
 7,251.83 
 
 1,841.08 
 
 132,302.35 
 
 559 .68 
 
 6,995.17 
 
 8,983.98 
 
 8,922.89 
 
 21,978.23 
 
 16,448.50 
 
 351 .06 
 
 25,360.44 
 
 53,831.36 
 
 $ 
 
 124 .94 
 42.40 
 
 5,238.37 
 107.99 
 
 4,249.47 
 824.55 
 831 .72 
 
 4,438.38 
 454.11 
 346.72 
 292.83 
 
 2,161.06 
 
 S 64,328.76 
 71,566.37 
 
 Baltimore 
 
 14,876.44 
 133,797.72 
 
 Buffalo'. 
 
 440.31 
 106,367.02 
 
 Cincinnati 
 
 101,013.73 
 45,231.11 
 
 Detroit' 
 
 Elizabeth' 
 
 Greensboro 
 
 Hartford'- 
 
 Indianapolis — 
 Little Rock' 
 
 7,482.43 
 8,272.34 
 54,527.96 
 30,076.68 
 65, 131 .77 
 3,656.72 
 
 Louisville 
 
 Milwaukee'.. .. 
 
 Nashville 
 
 New Orleans ... 
 New York 
 
 661.14 
 
 1,071.85 
 
 414.80 
 
 486.21 
 
 10,845.37 
 334 .79 
 732.02 
 
 19,737.56 
 
 933 .25 
 
 728.15 
 
 1,204.67 
 
 45.307.87 
 9,444.99 
 31,782.91 
 90,513.57 
 537,639.32 
 39,080.79 
 
 Parkeraburg'—. 
 Philadelphia ... 
 
 Pittsburg' 
 
 Portland 
 
 Richmond 
 
 4,150.55 
 376,803.35 
 
 6,387.42 
 41,544.70 
 34,761.41 
 22,718.48 
 
 St. Louia - 
 
 St. Paul 
 
 Salt Lake' 
 
 San Antonio — 
 Saa Franciaco.. 
 
 9,592.34 
 2,211.74 
 36.70 
 1,119.94 
 1,313.02 
 
 86,887.08 
 75,786.33 
 6,423.20 
 90,803.31 
 148,787.05 
 
 Totals 
 
 243,522.03 
 
 323,099.86 
 
 382,171.46 
 
 586,176.95 
 
 750,095.25 
 
 70,526.14 
 
 2,355,591.69 
 
 discontinued and reestablished at Buffalo. 
 
 ^Established during the year. 
 
 •Discontinued and reestablished at Parkersburg, W. Va. 
 
05 
 
 a 
 
 +3 S 
 
 
 O E 
 
 J3 
 
 g 
 
 a 
 
 03 
 
 ■73 
 
 T3 
 S3 
 
 s 1 
 
 IS 
 
 O 
 -9 
 
 a » 
 
 a 
 
 =3 
 o 
 
 J3 
 
 sajn^j£ p!?ox 
 
 -Bdag auuapuajj 
 
 aarao^i 
 
 U8J^ 
 
 paixiBj^ 
 
 J3A0 pas 000'OOSS 
 
 000'OOSJ <>% OOO'OOW 
 
 OOO'OOH oi OOO'OOES 
 
 OOO'OOES 01 OOO'OSSJ 
 
 OOO'OSCS oi OOO'OOCS 
 
 OOO'OOES °» 000'09IS 
 
 OOO'OSIt o? OOO'OOIS 
 
 XMifl«i-~-)T,Cii;OMi6(ONiO«ii3V«ffl-i*»5rtN»MO»0 
 WlD«5'*HSUii)N0n0Ni0CIDii3-«^O00mu3WrtWN'XlO«O<MO« 
 OSiO0OOSrJ<t-I>.— - r-C— i«i— <C>a-HrJ>CM-->cOCOcO»f3CMt'--COasC»CO-HOCOCO 
 
 i(0«a-^M r- — co — *& —■ t— co 
 
 MrtHmwet-v: 
 
 «r» — t- rO iO 
 
 cM»T*»QtM»a*j<eM-* 
 
 .-ICO 
 
 «-l OCC~»C» >-■ CM CM r+ C^l^H CM O ■*** CO ^H CM ** CM 
 
 ■"■ffiOwMO-oi — to — ~ -r M 70 eO -r t -r re '3; co co o o cm co eo r— C- co 
 
 TJ" — C» 00 *J" Tf CM *r — io CM CO — IQ ■-> l>- CO CM CO CM CO t- CM t>. O »Q CO 
 
 - , CO CI W OJ •- p- M C Ci T- "-C 1- ^ p" ^ tO f - •? Ol M IO CI C) O fO I* OO t» ^ 
 O fl) -" (D r« X C O -r -T --C t I - C^ iC> ^ T ?! - O - X I - ^1 C. 'X C- 1" O N X 
 - — — r- CO CO CO CO rj" 
 
 cocmo5^"'3C"Otj-cc-o - ?i m o * » 
 
 «000>H«]CflrtirjCOM 
 
 "TO CM t~ >-■ CM CM >- 
 
 ■i CO '-•COCM —■ 
 
 CMCM iCO 
 
 ~r^—« . .cocm 
 
 •>* CM ->!• >-• '-H i-JCMhp. t-— I OS CO 
 
 I, 
 
 000'OOU °1 000'SiS 
 
 ooo'e^s °* ooo'osi 
 
 000*098 o» 000*01$ 
 
 ooo'oh <n ooo'oej 
 
 000'OES °1 000'K* 
 
 000'SSt a» OOO'OS* 
 
 000*0?$ <n OOO'SU 
 
 ooo'eu <n ooo'ois 
 
 000*01$ <n ooo'ss 
 
 ooo'es <n ooo'f-s 
 
 000* H °* 000'£S 
 
 S 
 
 .3 
 
 Q 
 
 a 
 
 ■JCO-* <CM w* 
 
 CM^OCM i« 
 
 taiotONcoocimiO 
 
 O TJ" CO CO CO "5 -*• CO "O r- CR OS CO CO I- Tt> t- i CO rf Tf CM CJ> CO O O "TJ CM — ■*»< OQ 
 CM lOCJJCO — 'CMCM~- t— .—I »T3 to-* iCM ^cO«J"-h-0<MCMtJ1CM 
 
 r-i CM -J* 
 
 «eice-j'MNMOM«'HNatDn't i 'Nooe'.»?iTj'-xon|jflp5Mte* 
 
 cici'Meo— -^0"CnOir;Mi-0'0— toi"J l '-f««icDco«M'-inc 
 
 .-cir— cocMrj"Ooo-. - 
 
 if3 CO -* CM CJ> *« C I TfiOiOiO'- -Hirjr— CM CMcOOOXCMeOiOO 
 
 Tj"CM >—CO ■— G? 
 
 ■^H-rfCOCM CMCM — - 
 
 OOO l ©MO««iOONO-.h.flX'*©'OMMCTiTt<CCCJ i acit~^NiaiO 
 
 io "O t o) 1 1- o f f ^ i ? i i- f ■■■; r c? : i s. s:i~ ■./:■ .o s. iTi-iQira-NO 
 
 meOCOCOCOCOcOCC-HCOcOCOCMOOCMn'cO CM 
 
 CO r-co Or; 
 
 CMCO r-> f i - 
 
 Trcocococorj<co^-«o--'^a'c:-t" ~ ~ r- co cr. o cr- o ■» co >-o en oo t-- — t-- cm co 
 
 t— rp CO t^ O 0> rj< CO CM rf ^j. CO CO O CO — ' OJ rj" — — 
 
 -> CO >0 CM 00 CM CO 
 
 'as 
 
 So 
 
 a o:. - 
 S3". S cj 
 
 3 _£ cj fl 
 
 up rtV « «i (0*2 
 
 - t.l. 
 
 c3*a 
 »9 
 
 §8 
 
 ^ g"j g SS ffgSjasIa s « I °-°S gS-s bl* s s-s^-a 
 ^■2 s s| § s s § s^Sa « £ * S 2.s ts S§ g 5 §E g.SE s § 
 
 <!<feinOOtaOffiEfc.Wf-'M«5W'/ife«rjHJSSli.b.S(i<tca 
 
eujnidH I*V>X 
 
 
 siooooHtcm 
 
 <OtO«NO)(NT 
 
 ecooc^o>"*ca«!t<'-t 
 
 -Bdag 3uuapoay 
 uatnOM pouxBft 
 
 QOCOiNI-OOOOl-HrtirtiOC 
 CO 00 CO O 10 O -H CO—hj if 
 
 l>W00i-<<O(OP3WO)Nro 
 00 CM.CM COi-« »-< 
 
 naoiOjW 
 
 ■-h d ca es O r- t- co co ira 
 
 C* *-l COCO 
 
 nsjq 
 
 cj!' r I CI Q /: O CI iO Ol O) t- O TT iO N * U3 N N O S CO H io "t CI O "f o oo O t- CO 
 
 co ■"»<**** — ir-ior-oiirsoj'-'-irtf.wcNa-HpjoocD ©i-<v5wwi'«iow 
 .-T ^h -^jTio —T ci" t-7 m 
 
 pOTJJUJ^ 
 
 OcatMt^co^cDcoi^cocjeor^oiraot— cft^NiOeocccDr^ajc^OO^O^OcO 
 
 C^rf"CTCOCOCOC10^iraOs^co^^OscOr~cO>n'oCtco^-+''rT''riI--coasi-»Tf<t^ 
 COCOWCOO^COCMCOcOONt— CR03cDt^Tt<C)i-i0ScDi-iOt^«O©cOr^r^t^cDira 
 MtMNCB •-«" os r— os"h. co to 
 
 - cD — H CM CI CO OS C* r— •- 
 
 I9AO puB 000'OOSt 
 
 ooo'oost °i 000'OOW 
 
 000'OOH °* Oi)ii'no;:S 
 
 CI •— lO CO (M CO 
 
 000'OOES <n OOO'OKS 
 
 000'OSZJ °i 000'OOZJ 
 
 kmmooho«o-.05 lira 
 
 ooo'oozs °» ooo'osis 
 
 OOO'OSU °? OOO'OOU 
 
 O-tfrtfl^ iON 
 
 ■*<<NM>OMU3'*t<»-i 
 
 OOO'OOU o% QOO'SiS 
 
 000'SZJ o% 000'OQS 
 
 000'OSS <n ooo'ow 
 
 f . : - o 
 
 OOO'OB °% OOO'OSS 
 
 i-H — Ot- •■ 
 
 OOO'OES °» OOO'SSS 
 
 osooa--oocKCSTt'ococo^asci.cor^cOi-tNevicoi-icD — cocoos^cjitihcocm 
 
 NCOMCCOINrtMMTI'O OS CM CJ CO •-. CM CO CO 10«MOCON«MfCM 
 
 1-1 — .- — — ^1 1-1 CO >-t 1-1 
 
 OOO'SEJ °1 OOO'OSS 
 
 (DP5<OiN'H*NO)0(DtOOCD-HtDu5i('«0)'->noiClMi-i'J'C-0«r«fOC»CO 
 
 ■W O >ra CTj C J CO — i -Jj CI Cs t— CJ — CI CO -*f ^f r- CO -9" CO OS O -h jo ■# CO "D CD CO OS CM 
 
 ~H CM IMt^OiCM i-> l-> 1-1 ^t« CM ^H 
 
 ooo'oss <>* ooo'eis 
 
 O co cs — njiO>rnicirHrtinciti(;ci*i--oiouciOui pHCMiowcooirtOcoio 
 
 ^H I-l ID V N W U" C] CO CM CO O CJ lO l-HCO ^H-Hr-4 
 
 OOO'SIS o-» OOO'OIS 
 
 NCOONOC^ro«Mrt'XIWC , no(OT)im<Oh.t^C'](JiC»lOr-M-«(KC , IN--0) 
 
 tOcoOTi'MO'*( , :cr.ciMtcocimiojci-"noOMcBf»cnxoiMC'iC'jirHMf 
 
 CM CO CO " <-i i-i "cf i-H uo "* I— ^H i-H l ra !-■ rH t— •-• i— ' OJ tj< OS CO t- O CM CO CM ">* •- 
 
 ooo'ois <n ooo' ss 
 
 i-HiraGOCMOScOcD — CC00MOMO'0Cl«<0'*MHM™tDOi0fl'C0Or- i CO ira 
 OlOWO'tCO'^'^"1 - OCCI--tccOi-(Ci>}'J'0:C105u)iOir3"OCOC'ltOWJ5^ l CO 
 
 cm— iO'*^j'CMr-r~^".rar~cOcoiracot-cocOiraoo-Tf>r— as co *-i os r— oo^t^iraco 
 
 Tf t- OS CO •-■ cm 
 
 HIM ~H — ' 
 
 ooo'es o^ ooo'ts 
 
 WN'fC ! l«WMNON«Oh.<D'l , iratOin«'l'M'^iOOMi-iCO-inOO»(0 
 h-OOOt-CI-T^ /!■ -»_' "— l~ I- t£ — -^ -<\ fflCll-M »■ CO M >T O! O) O -" M CO C C ■-*"' 
 
 toou^c^cNirar--c>it~ooco--^Hcvicococo^'c>jiraOoo ©>-«iracD*tH*t«QOTt<ooco 
 ci" o co"-* ■— i -h — . co cm « 
 
 000' M °i ooo'ss 
 
 QOO'tC>INii"--if3C<lMOCOT|iC<)C10<OMtraOr-C-10COnOf-iCOC»©0'(<'-_ 
 
 Os cs r-i on co o c i c i :o -r t- -~ co t— to i-i o i-- ^- c-i -f >o if o co >o ao co r- cm ■» tj« co 
 
 DMi-.NmOmco-HOJh.cje> o>ra>racocococoos cccico«irjTi"rTrC)cD 
 
 CJ CO*'*I< ^<W —" -H —h CO CM CM~ i-T i-l 
 
 .a 
 q 
 
 •8S< 
 
 °K H 
 
 So. 
 
 ^ J fry * °ja 
 
 
 6 
 
 o>" 
 
 o « 
 
 II 
 
 cv 1 
 
 ija o I 
 
 o 
 
 ^i2 < 
 
 OS 
 
 'H 
 
 .5>, 
 ra a 2 
 .2'n s 9 
 
 ? > >•&. a 
 
 
 '3co 
 
 '&'!! o'3 
 
 .S bu O'r* 
 
 >l- - - 
 
 5 3 S-o'-Sv 
 
 S-9 « 
 
 h(S(l 
 
 O ^ 
 
 Z'fc. 
 
 SS.S3£.g-2gggg sg . H « 
 
 HWWOOb.5SHHi»HHa)ccS& 
 
 ^■x 
 
su-m^a i«ioj, 
 
 -udag Snuapna^j 
 
 
 -leaeor- -*«-*co niON«n«'-iN«ao» « — i eo 
 
 1 O — I- C4 C» t© w CO (MNOVMO <» •"-! "t^ 
 
 aaaiOjW 
 
 U9J^ 
 
 w o t» -< ^< oo n <j< — oo«i>- t— r~-<© 
 
 CO ~-00 
 
 paujBpj 
 
 
 m» — --comO'- ' — « ■» © m to n m n — totoowioo 
 
 «WMlO CO — CJ C-^COCIOCI— urjt— «Oi« OS >— ■ C» 
 
 i9ao pas ooo'ooes 
 
 000'OOSS <H 000'OOB 
 
 ooo'ooh °i ooo'ouss 
 
 •*** 'rt oj * 
 
 — CI wOOl 
 
 (inivi)ii i ,:s' «t iKin'iiers 
 
 CI --I Cl i d 
 
 000'OSZS <n OOO'OOgS 
 
 CO HN ilO 
 
 " CJ CI ** 00 iO 
 
 ooo'oozl o* ooo'oeis 
 
 »«Oi CM-* 
 
 n— — * lO ■«* OS o» 
 
 ooo'osis <n ooo'aoii 
 
 OOO'OOII °1 OOO'Stf 
 
 OOO'SiS »1 000'OSS 
 
 000'OSS °i OOO'OW 
 
 ooo'on °» ooo'oes 
 
 "• mCOira-H-^rCJd*— r^<0!Or-(TjWQ^fN CO ,-. ^h C» *»• 
 
 ci t* o m « ■— w n 
 
 000'OSS o% OOO'ScS 
 
 !Dr^OON'J , HOiOO)-NntOOimCO!DMiOh-*OiNMMOiO!«iflO 
 ^h r-rtiflNTOINiOrHrtrt (OwCKNC-lTCNCOrtMO — iO-" <M «-l CI 
 
 OOO'SSS o* OOO'OCS 
 
 «■* ci ■>* <e> co cs C 
 
 OOO'OES 01 OOO'SIS 
 
 OVCO<N'*Wt^aiOIMOrti»C»gi')*!N-""J5NtDMOCOh.OnOa)OJ»')' 
 t^t-lCO i-t ~H eO.-<CM <-"^i COOCOCM »* .-H SO 
 
 000*515 o-j ooo'ots 
 
 N©NCnOO)Or-HO'-iO)MK5i(5-"CnOcO<DiliCO')«p-ONpHejiOSN 
 
 os r-OwO-ioinvjOit-.tN'-'O'rOTi-woTOr^r.MMtOr^oi' 
 
 n «NN« CO — CJ aOiONClMi-iOINcOirj 0--1CJ i-H ■*«< 
 
 OOO'OTS °1 000'SS 
 
 (D*I-u;'0 3ii'.OTTi(.nffi»1 , tD'-M',"T--OOMOOOOOi/" 
 [-- CliOt--OS»racO<D<©--*~ 
 
 HO-fl'--NiONCClCIMX'iO^ — COW 
 
 CJ Ci d i— i — « ~H CICOCIC1 CO 
 
 OOO'SS *n OOO'frS 
 
 HMO".inCl-"OP3^'^r-lOrH'*<DmONi(DMU5rtpHiMC^C HOO 
 
 000'»>S "I OOO'SS 
 
 ©ooitotoiOQOWcooo-HOaocooc^ntorow'i'cjio-'iooj^cocoooo 
 
 ^T« «TfO»0 — fO>tQOWi-i'-M-HC»i»0>"aOrt30NClrtCOO> .-I iO 
 
 'E 
 
 iSS? 
 
 o 
 
 a c 
 
 So 
 1.2 ° 
 
 qqE 
 
 x a 
 
 .13-SoJ^S.sSlgSS-o 
 *«•« s § g |'s s s.h.s.s.s S-g 5 
 
 * 5; 
 252 
 
eaiman pn<\L 
 
 -«dag Sauapna-H 
 uaiao^ paujrjv 
 
 
 
 s^-ojocoojin-- 
 
 tlNKJr-r-CO'l'OM'Ci-'tClMW^COfOr- 
 
 aapj 
 
 CM<M CM r~* CO C-» ^f i-« *TO-* cO^fCOQO 
 
 paixrcj^ 
 
 CM OO O ^- O CO iO CO O -rj< C I -f CI CO Cn t - I— i— »-H , 
 CD r-l c* 
 
 j3ao paB ooo'ooe* 
 
 ooo'ooss <n ooo'ooH 
 
 ooo'oot-s <n ooo'oijj:S 
 
 «M-K3« 
 
 oon'ooss <n ono'OGTS 
 
 000'OKI °'i 000*0031 
 
 CJ lOl^H 
 
 000'00o$ o-j 000'OSTI 
 
 ooo'osis <n ooo'oort 
 
 XH-HCKW 
 
 ^NMINlOiO 
 
 ooo'oois 01 ooo'ezs 
 
 000'SZS o% ooo'oes 
 
 C4 vt ** 
 
 ooo'oes °* ooo'ots 
 
 10 •->-- loco 
 
 000'OS-S °1 000'OES 
 
 <0©tf!ffiMOaiSMt»OOcO'J'0(«MOO(N 
 
 co ^h oo cm w ^-i co ioQ«H«icmci:N 
 
 OO OJ CO 
 
 3 
 8 
 
 000'OSS °» 000'SCS 
 
 tO N 
 
 ooo'sel o% ooo'oss 
 
 000'OSJ °» OOO'SIS 
 
 
 •8 
 J. 
 
 4 
 
 OOO'SIS °» 000'OIS 
 
 |(O0lOC0i)I--t»O!0iNt-MN>(:MmWON 
 
 OOO'OIi °1 OOO'SS 
 
 OS tO CJ »■* i-id -h >h cm" 
 
 000'fit °* ooo'ts 
 
 "cOcO^OC^uaOl^^wScSi—J-HOOOO**'*-" 
 
 000 'H °? OOO'SS 
 
 NOiMWMXI-WOOOl — «fl>f.iM-H"tNO0 
 Wf ifl^WIMM X CO CI iO /ION'1'I-GCN CI 
 .-h OO tJI CT> CO OO -* ■** CM GO CO CM Oco-^"oo — 
 
 SSoQ 
 
 ?2 S a « 
 
 ja o 2-S.a.a 
 
 s.s a 
 
 ".S-S-S-a-a £ 8 •« o o S S3 S.S "i 5.8 ;>. 
 
PART VIII 
 
 INDEX 
 
All of the preceding seven parts of this book are included 
 herein under one combined alphabetical index. For general 
 subjects, refer to Table of Contents. 
 
 References herein to the Analysis (Part I) are abbre- 
 viated to "A," followed by the number of the paragraph, as 
 "A49," referring to 1149 of the Analysis. 
 
 Part II, The Complete Statute, is referred to as "St.," 
 followed by the letter reference to the section, as "St. Ga," 
 referring to Statute, section G, and subsection a. 
 
 Treasury Regulations, Part III, are abbreviated as "T. 
 R.," followed by the number of the article, as "T. R. 141," 
 referring to Article 141 of the Treasury Regulations. 
 
 Treasury Department special rulings. Part IV, are abbre- 
 viated as "T. D.," followed by the number, as "T. D. 2006," 
 referring to Treasury Department ruling No. 2006. 
 
 The Supreme Court opinion in the Brushaber case, Part 
 V, is referred to as "Sup. Ct," followed by the page of the 
 book. 
 
 Forms and Statistics, Part VI and Part VII, are given 
 in full wherever mentioned. 
 
 The reason for this method of indexing in preference to 
 indexing by pages is that the index references here given 
 apply to the Statute and Regulations wherever found in any 
 publication. 
 
 See abbreviations preceding Part I. 
 
INDEX 
 
 A 
 
 Abatement: 
 
 Claim for, of tax, may be filed when, by whom. . . . A54; T. R. 33c 
 Absence: 
 
 From U. S., who may make claim for deductions 
 
 (Form 1008) for A35; T. R. 33b 
 
 ACCBUED INCOME DEFINED A46 ; T. D. 2090 
 
 Act of 1894 A9 
 
 Act of 1913 A14 
 
 Actobs, costumes T. D. 2090 
 
 Additional tax (A16) : 
 
 Nonresident alien subject to, computed same as for 
 
 citizens of United States p. 216; T. R. 8 
 
 Regluations for St. A2; T. R. 2 
 
 Additions and bettebments: 
 
 Constituting increase in capital investment not de- 
 ductible expense of corporation T. R. 118 
 
 Adjustment: 
 
 Assessment of tax withheld, withholding agent to be 
 
 notified T. R. 33c 
 
 Administbatob: 
 
 Expenses of T. D. 2135 
 
 Is fiduciary when T. R. 70 
 
 Make return of income deceased person, when and 
 
 what T. D. 2152; T. D. 2090; T. R. 17 
 
 Affidavit: 
 
 Verifying return of income, before whom made T. R. 22 
 
 Agent: 
 
 Authorized, may sign for principal, certificate of own- 
 ership of bond T. R. 43 
 
 Compensated on commission basis, income of, not sub- 
 ject to withholding at source T. R. 32 
 
 Defined T. D. 2090; T. D. 2006; T. D. 2135 
 
 Return made by, when T. R. 17 
 
 Signing for principal, certificate of ownership of 
 bonds, to furnish evidence of authority to act, when . T. R. 43 
 Agbicultubal obganizationb : 
 
 Exempt from tax St. G(a) ; A15; p. 253 
 
384 Index 
 
 Aliens : 
 
 Nonresident (A45; T. D. 2013; T. D. 2090; T. D. 2135; 
 T. D. 2152) — 
 Duly authorized agent of, to make return for and 
 
 pay tax, when p. 216 ; T. R. 8 
 
 Income of, what to be included in return of T. R. 8 
 
 Net income of, defined T. R. 8 
 
 Normal tax on entire net income of T. R. 8 
 
 Not allowed exemption T. R. 8 
 
 Not entitled to exemption T. R. 3 
 
 Not taxable on income from stocks and bonds in 
 
 domestic corporations T. D. 2017 
 
 Residence defined T. D. 2242 
 
 Royalties T. D. 2137 
 
 Subject to additional tax T. R. 8 
 
 Taxable on entire net income in United States... T. R. 1 
 Tax on coupons or registered interest payable in 
 United States to be withheld unless certificate 
 
 of exemption T. D. 1977; T. D. 2162; T. R. 46 
 
 Resident — 
 
 Certificate of ownership of bond, when and how to 
 
 be used, and to specify what T. R. 42 
 
 Income of, from coupon or registered interest, tax 
 on to be deducted and withheld except to ex- 
 tent exemption claimed T. R. 44 
 
 Taxable on net income less exemption and deduc- 
 tions T. R. 1 
 
 Alimony T. D. 2090 
 
 Amendment, sixteenth A12 
 
 Amendments : 
 
 Sections 3167, 3172, 3173, 3176, Rev. Stat St. I 
 
 Americans residing abroad A35 
 
 Amortization : 
 
 Depreciation for, corporation allowed, when, how.A28; 
 
 T. D. 2161; T. R. 135 
 
 Analysis pp. 1-39 
 
 Annual return: 
 
 Form 1013, to show what, and to be filed on or before 
 
 March 1 each year T. R. 50 
 
 Of coupons or interest orders not accompanied by cer- 
 tificate of ownership (form of), what to show when 
 
 filed, totals only of monthly return T. R. 53 
 
 Of licensee for collection of foreign items (form of), 
 
 what to show, with whom filed, when T. R. 59 
 
Index 385 
 
 Annuity: 
 
 Money paid for (returned) not to be included in gross 
 
 income T. D. 2152 ; T. R. 5 
 
 Taxable, how treated T. R. 63 
 
 Answer: 
 
 Of guardian, etc., to notice for failure to make re- 
 turn, may show what T. R. 18 
 
 Appeal: 
 
 Decision of collector — 
 
 All papers of, to Commissioner of Internal Reve- 
 nue; dissatisfied may submit case; furnish 
 
 sworn testimony to prove facts St. D 
 
 Application : 
 
 For license — 
 
 For collection foreign items A55; T. R. 56 
 
 To collect foreign items to be made through prin- 
 cipal office to collector of district in which 
 
 located principal office T. R. 57 
 
 Applied surrender values and consideration: 
 For supplementary contracts — 
 
 To be both added and deducted in return life 
 
 insurance company T. R. 102 
 
 Arrangement and packing: 
 
 Certificates, reports, returns, for forwarding by col- 
 lector T. R. 194 
 
 Assessment (A44) : 
 
 Amount of, when persons shall be notified St. E 
 
 Basis of calendar year or fiscal year, time to be made. T. R. 177 
 
 Failure to pay, extra tax on A40 ; St. E 
 
 Form and notice of T. R. 197 
 
 Insurance company, reserve of, definition T. R. 147d 
 
 Limitation on time of making St. E 
 
 List rendered, collector to forward T. R. 192; T. D. 2024 
 
 Made by Commissioner of Internal Revenue St. E 
 
 Of tax to be made by Commissioner of Internal Reve- 
 nue T. R. 25 
 
 Against income withheld at source, where to be 
 
 made T. R. 38 
 
 Against withholding agent T. R. 36 
 
 Of tax against withholding agent, deferred until agent 
 
 makes return T. R. 189 
 
 On stock by corporation T. D. 2090 
 
 Penalty and interest for nonpayment of, exceptions. . St. E 
 
 Persons notified of amount of St. E 
 
 When to be paid St E 
 
 25 
 
386 Index 
 
 Assets, capital: 
 Corporation — 
 
 Change in book value by annual adjustment on 
 books, that value to be used in making annual 
 
 returns, net income T. D. 2161; T. R. Ill 
 
 Change in book value by reappraisal, gain or 
 
 loss, how computed T. R. Ill 
 
 Loss from sale of, how ascertained T. R. 128 
 
 Profit or loss on sale of, how determined p. 227 
 
 Sale of corporation, net income from, how deter- 
 mined T. R. 109 
 
 Sale of by corporation, income from, how deter- 
 mined T. R. 108 
 
 Shrinkage in book value of corporation, how 
 
 treated T. R. 134 
 
 Association : 
 
 Charitable, exemption, when St. G(a) 
 
 Making false return, penalty for St. F 
 
 Mutual, domestic building, etc St. G(a) 
 
 Neglecting to make return, penalty for St. P 
 
 Net income of, preceding calendar year, normal tax on. St. E 
 
 Operating under "Lodge system" defined T. R. 89 
 
 Refusing to make return, penalty for St. P 
 
 Religious, exemption St. G(a) 
 
 Return of, when available St. G(a) 
 
 Scientific, exemption, when St. G(a) 
 
 Taxes to be assessed by Commissioner of Internal 
 
 Revenue, when, section 3176 St. I 
 
 To make list or return of taxes, how, when, section 
 
 3173 St. I 
 
 Authors: 
 
 Earnings of, indefinite or irregular, not subject to 
 
 withholding at source T. R. 32 
 
 B 
 
 Bad debts (A25; T. D. 2201): 
 
 Corporation, deductible, when T. R. 125; T. D. 2090 
 
 Collected, are income T. R. 125 
 
 Balances: 
 
 Outstanding tax, how treated T. R. 199 
 
 Banks (A38; T. D. 2161; T. D. 2258): 
 
 Allowing interest on deposits, not to withhold tax 
 
 from T. R. 67 
 
Index 387 
 
 Banks — Continued. 
 
 Deductible status of taxes assessed against stock- 
 holder, paid by T. R. 154; T. D. 2135; p. 297 
 
 Guaranty fund p. 253 
 
 Interest paid on deposits allowable deduction, St. G(a) ; T. R. 149 
 Taking coupons for collection, originated or payable 
 
 in the United States, duty of T. R. 39 
 
 Private pp. 289, 295 
 
 Mutual savings — 
 
 Not having capital stock represented by shares, 
 
 exempt from tax St. G (a ) 
 
 Beneficiaries (T. D. 2090; p. 232): 
 
 Exemption from tax may be claimed by, from fidu- 
 ciaries T. R. 74 
 
 Interest received by, from insurance companies on 
 
 insurance contract, part of gross income T. R. 5 
 
 Bequest (A29) : 
 Of property — 
 
 Income from part of gross income T. R. 4 
 
 Value of, not income T. R. 4 
 
 Value of, is income to corporations p. 257 
 
 Board, lodging, etc T. D. 2135 
 
 Boards of Trade: 
 
 Exempt, when St. G(a) 
 
 Bond: 
 
 May be required of licensee for collection of foreign 
 
 items A55 ; T. R. 56 
 
 Premium on by employee p. 232 
 
 Bond and mortgages: 
 
 Interest on, subject to deductions, when St. E; A22 
 
 Bonds, etc.: 
 
 Discount, deductible T. D. 2137 
 
 Government A28; T. D. 1892; T. D. 1946 
 
 Of corporations, etc. — 
 
 Income from, subject to withholding at source, 
 
 regardless of amount T. R. 37 
 
 Interest and funding p. 232 
 
 Interest of foreign, subject to deduction and with- 
 holding, when St. E; T. D. 1992 
 
 Irrigation p. 298 
 
 Bookkeeping: 
 
 Requisites of, for verifying return A57; T. R. 182 
 
 Books: 
 
 Of corporation subject to examination, by whom, for 
 what, result T. R. 186 
 
388 Index 
 
 Book value: 
 
 Capital assets — 
 
 Change in, by reappraisal, gain or loss, how 
 
 computed T. R. Ill 
 
 Shrinkage in, how treated T. R. 134 
 
 Bbokees A24 ; A50 ; T. D. 2090 ; p. 12 
 
 Brush aber case: 
 
 In full p. 323 
 
 Summarized A13 
 
 Building : 
 
 Removal of, corporation, not deductible loss, why. ... T. R. 127 
 Building and loan association: 
 
 Domestic, defined; what necessary to exempt from tax T. R. 87 
 Business: 
 
 Defined p. 202 
 
 Lawful, carried on for gain or profit; income from 
 part of gross income T. R. 4 
 
 C 
 Calendar teas: 
 
 To govern when notice of corporation fiscal year not 
 
 given in time A37; T. R. 168 
 
 Capital assets: 
 
 Book value of corporation, shrinkage in, how treated . T. R. 134 
 Corporation — 
 
 Change in value of, by annual adjustment on 
 books, that value used in making return annual 
 
 net income T. R. Ill 
 
 Change in book value by reappraisal; gain or loss, 
 
 how computed T. R. Ill 
 
 Loss from sale of, how ascertained T. R. 128 
 
 Net income from sale of, how determined T. R. 109 
 
 Profit or loss on sale of, how determined 
 
 T. R. 110; T. D. 2077 
 Sale of, by corporation, income from, how deter- 
 mined T. R. 108 
 
 Capital investment: 
 
 Corporation, increased by additions and betterments, 
 
 not deductible expense T. R. 118 
 
 Cases : 
 
 Brushaber case A13 
 
 Excise tax cases All 
 
 Pollock case A10 
 
 Cemetery company: 
 
 Taxable status depends on what T. R. 90 
 
Index 389 
 
 Certificate (See Forms) : 
 
 Accompanying foreign items, disposition of, by 
 
 licensee T. R. 61 
 
 Claiming deductions account partnership expense, 
 
 what and how T. R. 47 
 
 Claiming exemption and deductions to accompany 
 
 annual return of withholding agents T. R. 69 
 
 Claiming exemption — 
 
 As nonresident alien must be filed or tax with- 
 held from payment coupon or registered in- 
 terest T. R. 46 
 
 For nonresident alien, may be executed by whom. T. R. 46 
 From tax on registered interest to be filed at least 
 
 five days before due date of interest T. R. 44 
 
 Of withholding, by foreign organizations (Form 
 
 1018) T.R. 46 
 
 Exemption or deduction, disposition of T. R. 194 
 
 Form of, for foreign partnership composed of non- 
 resident aliens, resident aliens, and citizens of 
 
 United States T. R. 49 
 
 Not subject to emergency tax T. D. 2049 
 
 Of deposit, interest on, part of gross income T. R. 4 
 
 Of ownership accompanying coupons or registered 
 
 orders, duty of collecting agency T. R. 39 
 
 Of ownership T. D. 1976; p. 233 
 
 By corporations organized in United States claim- 
 ing exemption, form of, and how executed.... T.R. 45 
 
 Disposition of, by collecting agent T. R. 40 
 
 Not accompanying coupons or interest orders, tax 
 to be withheld by first collecting agent, disposi- 
 tion of certificate T. R. 52 
 
 Of persons not subject to "having tax withheld, 
 disposition of, by debtors and withholding 
 
 agent T. R. 51 
 
 Of bonds— 
 
 By citizen or resident of United States, when 
 
 and how to be used and to specify what. . . T. R. 42 
 By corporations organized in United States 
 and certain exempt, must be filed to pre- 
 vent withholding T. R. 45 
 
 May be signed by authorized agents T.R. 43 
 
 Of corporations, etc., organized or doing 
 business in United States, form of, for 
 foreign partnership T. R. 48 
 
390 Index 
 
 Ceetificate — Continued. 
 
 Of ownership — Continued. 
 Of bonds — Continued. 
 
 Signed by agent, when verified by first with- 
 holding agent, etc., good in all other hands. T. R. 43 
 
 Who to make and for what T. R. 39 
 
 Size of and paper for Preface to Part III 
 
 Substitute by collecting agent, how to be treated by 
 
 debtors or withholding agent T. R. 51 
 
 That of collecting agent substituted when T. R. 40 
 
 Certificates, reports, returns: 
 
 Arrangement and packing of, for forwarding by col- 
 lector T. R. 194 
 
 Chambers of commerce: 
 
 Exempt, when St. G(a) 
 
 Change in book value: 
 
 Capital assets, corporation, reappraisal, gain or loss, 
 
 how computed T. R. Ill 
 
 Citizen: 
 
 Income of, from coupon or registered interest, tax to 
 
 be withheld on except to extent exemption claimed. T. R. 44 
 Of United States, certificate of ownership of bond, 
 
 when and how to be used and to specify what T. R. 42 
 
 Residing abroad A35 
 
 Taxable on net income less exemption and deductions. T. R. 1 
 
 Woman marrying foreigner p. 233 
 
 Citizenship: 
 
 How determined T. D. 2135 
 
 Civic leagues: 
 
 Exempt, when St. G(a) 
 
 Organizations — ■ 
 
 Exempt, when St. G(a) ; A15 
 
 Claim: 
 
 For exemption — 
 
 By whom, for what, who to file T. R. 41 
 
 Paragraph C, in connection with foreign item, 
 
 allowed to person entitled to T. R. 60 
 
 Penalty for false St. E 
 
 What must show and how executed T. R. 42 
 
 When, and when to be filed St. E 
 
 For overpaid tax A54 
 
 Insurance company, amount actually paid under 
 
 policy contract, constitute deduction T. R. 147c 
 
 Clubs T. D. 2090; p. 233 
 
 Collateral: 
 
 Interest secured by T. D. 1993; pp. 254, 284, 291 
 
Index 391 
 
 Collecting agency: 
 
 First receiving coupons or interest orders not accom- 
 panied by certificates of ownership should withhold 
 tax and attach its certificate, Form 1002, that tax 
 
 withheld T. R. 52 
 
 Agent (T. D. 2135) — 
 
 In foreign countries to have privilege of substi- 
 tuting certificates for original ownership T. R. 40 
 
 Record to be kept by, what T. R. 40 
 
 Should require person presenting coupon or inter- 
 est orders to establish identity T. R. 52 
 
 Collection : 
 
 At service A32 
 
 Of tax from withholding agent T. R. 36 
 
 Collector ( A42 ) : 
 
 Advanced preparation notice of assessment by, par- 
 ticulars T. R. 198 
 
 Arrangement and packing certificates, reports, re- 
 turns T. R. 194 
 
 Authority of, in any district, section 3173 St. I 
 
 Claim for deductions may be filed with, when T. R. 33c 
 
 Copy of returns ■ T. D. 2024 
 
 Dispatch of business in offices of T. R. 195 
 
 Duty of— 
 
 As to returns withholding agents T. R. 193 
 
 In absence from home or place of business St. I 
 
 In case of refusal or neglect of liable individual 
 
 to make return T. R. 21 
 
 In case of undervaluation or understatement St. I 
 
 If persons refuse or neglect to render return. ... St. I 
 
 In forwarding — 
 
 Annual individual return to Commissioner.. T. R. 24 
 Return and assessment list and investigation 
 
 of return T. R. 192 
 
 In making returns for persons failing to do so. . . St. I 
 
 Upon receiving notice of fiscal year of corporation T. R. 167 
 
 Failure to find person at home, duty of, section 3173. . St. I 
 
 Legality of returns made by, section 3176 St. I 
 
 Make return for individual, when T. R. 20 
 
 May enter any collection district to examine wit- 
 nesses, when, section 3173 St. I 
 
 Method of handling and accounting for outstanding 
 
 tax balances T. R. 199 
 
 Must require returns to be verified by oath or affirma- 
 tion T. R. 22 
 
392 Index 
 
 Coixectoe — Continued. 
 
 Not satisfied with responsibility, applicant for license 
 
 to collect foreign items, may require bond T. R. 56 
 
 Of what district, Form 1008 to be filed T. R. 33b 
 
 Order of arrangement, names in list made by T. R. 188 
 
 Shall make report of false or fraudulent returns, how, 
 
 section 3176 St. I 
 
 Shall require deputies to ascertain persons liable to 
 
 tax, section 3172 St. I 
 
 Sickness or absence, may extend time for making re- 
 turns, section 3176 St. I 
 
 Tax statement rendered monthly, particulars of T. R. 199 
 
 Tax withheld to be paid to T. R. 34 
 
 To adjust in assessment in case of withholding, when. T. R. 33c 
 To furnish withholding agent with statement of claim 
 
 for deductions filed with collector T. R. 33c 
 
 To obtain testimony, may summon whom, section 
 
 3173 St. I 
 
 To report tax due, how, forms for T. R. 187 
 
 To send notice of what, form of and time to serve. ... T. R. 197 
 
 To send notice to delinquent and file return T. R. 196 
 
 To which, application of principal office made for 
 license for branch office, to serve collector in district 
 
 of branch with what T. T. 57 
 
 When claim for deductions, paragraph B, to be filed 
 
 with T. R. 33b 
 
 Commissioner of Internal Revenue: 
 
 Annual return of individual to be forwarded to, how. . T. R. 24 
 
 Assessments made by St. D 
 
 Facsimile of signature on licenses for collecting for- 
 eign items furnished collectors T. R. 55 
 
 Shall add 50 per cent or 100 per cent to tax, when. ... St. I 
 
 Shall assess taxes, when, section 3176 St. I 
 
 To impose additional tax, when St. E 
 
 To issue licenses for collection of foreign items 
 
 through collectors T. R. 54 
 
 To make assessment of taxes; give notice of, when; 
 duty of in case neglect or refusal to make return 
 
 or of false or fraudulent return T. R. 25 
 
 Commissions: 
 
 Salary and p. 234 
 
 Paid to salesmen in stock of corporation, deductible 
 
 expense T. D. 2090 ; T. R. 117 
 
 To real estate agents p. 234 
 
 To insurance agents T. D. 2011; T. D. 2137; p. 250 
 
Index 393 
 
 Company : 
 
 Foreign, normal tax on business transacted in the 
 
 United States St. G(a) 
 
 Joint-stock, etc., withholding normal tax on behalf 
 
 of others St. E 
 
 Mutual cemetery, exempt when 6(a) 
 
 Taxes to be assessed by Commissioner, when, section 
 
 3176 St. I 
 
 Compensation : 
 
 For personal service, part of gross income 
 
 p. 300; A31; T. D. 2135; T. R. 4 
 Officers and employees of State or political subdivision 
 
 of, not to be included in gross income T. R. 5 
 
 Paid to employees of corporation on basis of stock- 
 holdings not deductible, why T. R. 119 
 
 Present President and judges of court exempt from 
 
 tax, what T. R. 5 
 
 Public-school teachers of State or political subdivision 
 
 of, not part of gross income T. R. 5 
 
 Complaints A54 
 
 Compromises T. D. 2015; T. D. 2161; T. D. 2193 
 
 Consideration for supplementary contracts and applied 
 surrender values: 
 To be both added and deducted in return life insur- 
 ance companies T. R. 102 
 
 Constitutional provisions A6; A13 
 
 Construction of law: 
 
 As to withholding at source, liberal Preface to Part III 
 
 Brushaber case A13 
 
 Contract: 
 
 Affecting liability of a taxable person as such, to be 
 
 invalid T. R. 27 
 
 Contracting company: 
 
 Income of T. D. 2161 
 
 Contractor with State: 
 
 Liable for tax p. 295 
 
 Copies of returns: 
 
 How obtained, for what purpose T. R. 178, 180 
 
 Corporations (See A15 and T. R. 76-18(1) : 
 
 Additions and betterments constituting increase in 
 
 capital investment not deductible T. R. 118 
 
 All organized in United States subject to tax (certain 
 
 exceptions ) T. R. 76 
 
 Amount allowed for depreciation of property St. G(c) 
 
394 Index 
 
 Corporations — Continued. 
 
 Amounts paid employees — 
 
 As compensation on basis of stockholdings not 
 
 deductible, why T. R. 119 
 
 For pension or on account injuries, deductible 
 
 expense T. R. 120 
 
 Assessment — 
 
 Insurance company, reserve, definition T. R. 147d 
 
 On stock T. D. 2090 
 
 To be paid when St. G(c) 
 
 Bad debts, deductible, when T. R. 125 
 
 Banks, etc. — 
 
 Interest paid on deposits, etc., allowable deduction. T. R. 149 
 Paying taxes assessed against their stockholders, 
 
 deductible status of T. R. 154 
 
 Bonds T. D. 1992 
 
 Bookkeeping A57 
 
 Books of, subject to examination, by whom, for what, 
 
 result T. R. 186 
 
 Capital p. 253 
 
 Carrying charges p. 280 
 
 Cemetery, taxable status depends on what T. R. 90 
 
 Certificates of ownership by claiming exemption, form 
 
 of and how executed T. R. 45 
 
 Change in book value of capital assets by annual 
 adjustment on books, that value to be carried into 
 
 return T. R. Ill 
 
 Change in book value of capital assets by reappraisal, 
 
 gain or loss, how computed T. R. Ill 
 
 Change of name T. D. 2137 
 
 Charitable, exempt, when St. G(a) 
 
 Classes, enumeration of T. R. 162 
 
 Close p. 287 
 
 Collector to furnish blanks for return of T. R. 163 
 
 Collecting foreign income, to have license St. E 
 
 Commissions to salesmen paid in stock, deductible ex- 
 pense when T. R. 117 
 
 Complete return to be made by or will not be accepted. T. R. 163 
 Contract with by State, etc., prior to passage income- 
 tax act, income from accruing to individual, subject 
 
 to tax T. R. 93 
 
 Contract with by State, etc., prior to the passage of 
 income-tax act, income from accruing to State, etc., 
 exempt from tax when T. R. 93 
 
Index 395 
 
 Corporations — Continued. 
 
 Cost of buildings on leased ground, deductible as rent, 
 
 when T. R. 115 
 
 Dairies, cooperative, not subject to tax, what T. R. 92 
 
 Debts deductible A25 
 
 Deductible loss denned A24 ; T. R. 124 
 
 Deduction account interest on indebtedness limited.. 
 
 A22; T. R. 81 
 Deduction — 
 
 Account materials and supplies on hand, what.. T. R. 123 
 For depletion of mines regulation and rate of, 
 
 limit of T. R. 142 
 
 For depreciation of natural deposits, basis and 
 
 limit of T. R. 141 
 
 For depreciation on patent, what, how deter- 
 mined T. R. 137 
 
 For depreciation on timberlands, limit of, excess 
 
 of, is income T. R. 140 
 
 For interest paid at different rates, rule of 
 
 application T. R. 151 
 
 For obsolescence of patents, what, how deter- 
 mined T. T. 138 
 
 Denned T. R. 78 
 
 Depreciation timberland from removal of timber, 
 
 amount, how determined T. R. 139 
 
 Depreciation (A26) — 
 
 Deductible, amount, how treated T. R. 130 
 
 Defined T. R. 129 
 
 For amortization allowed, when, how T. R. 135 
 
 How determined T. R. 129 
 
 Reserve, use of, disposition excess of T. R. 132 
 
 Dividends not deductible p. 255 
 
 Dissolved p. 254 
 
 Division of depreciation of reserve, correction T. R. 133 
 
 Domestic dairy, foreign business p. 279 
 
 Donation for charitable purposes, deductible when... T. R. 121 
 
 Duties not deductible as tax, but item of cost T. R. 155 
 
 Educational, exempt, when St. G(a) 
 
 Engaged in more than one class of business, gross in- 
 come ascertained in accordance with applicable 
 
 definitions of such income T. R. 112 
 
 Every, not specifically exempt, required to make re- 
 turn of income T. R. 80 
 
 Evidence requisite for allowance of deductions T. R. 158 
 
 Excise and income tax for 1913 in one return. .St. S; T. R. 191 
 
396 Index 
 
 Corporations — Continued. 
 
 Excise tax on, for what period, how computed 
 
 All; T. D. 1937; T. R. 160 
 
 Exempt from tax, what are T. D. 2090; A15; 
 
 T. D. 2137; p. 297; T. R. 87 
 
 Exempt, owning another, liable p. 279 
 
 Expense of operation and maintenance to be shown 
 
 in return St. G(a) 
 
 Includes what T. R. 114 
 
 Expense in connection with salary T. D. 2137 
 
 Failure to receive blanks will not excuse from making 
 
 returns, or from penalties for such failure T. R. 163 
 
 Firms, etc., withholding normal tax on behalf of 
 
 others T. R. 9 
 
 Fiscal year of, how established, what to do.T. D. 2001; T. R. 165 
 
 Illustration of and what to do T. R. 166 
 
 Foreign, normal lax on business in United States. ... St. G(a) 
 Coupons, checks, bills of exchange, etc., normal 
 
 tax deducted from, when St. E 
 
 Dividends on stocks of, normal tax deducted 
 
 when St. E 
 
 Doing business by agent p. 282 
 
 Having more than one branch office in United 
 States to designate principal office and person 
 
 to make return T. R. 83 
 
 Interest on indebtedness to be deducted, what. ... St. G(c) 
 
 To give amount of bonded and other indebtedness. St. G(c) 
 
 To set forth paid-up capital stock St. G(c) 
 
 Form of return prescribed for T. R. 163 
 
 General expense foreign steamship companies, how 
 
 treated T. R. 116 
 
 Gifts or gratuities to employees not deductible T. R. 120 
 
 Good-will, depreciation not allowed in connection with. T. R. 136 
 Gross income — ■ 
 
 Definition of T. R. 96 
 
 General definition T. R. 107 
 
 Gross value at the mines, definition of T. R. 142 
 
 Holding corporations pp. 255, 290 
 
 In addition to deduction for depletion of mines, etc., 
 
 deduction for depreciation of plant, what, basis of. T. R. 143 
 Income — 
 
 Excepted during the year T. R. 15 
 
 From sale of capital assets, how determined T. R. 108 
 
 How ascertained St. G(b) 
 
 Losses from St. G(b) 
 
Index 397 
 
 Corporations — Continued. 
 
 Indebtedness, return of p. 286 
 
 Insurance company i A43) — 
 
 "Deductible net addition to reserve," definition: 
 what basis of computation of; what not to be 
 
 included in T. R. 147d 
 
 Deduction claims actually paid under policy con- 
 tract T. R. 147c 
 
 Depreciation loss by shrinkage in property value. 
 
 what and when deductible T. R. 147b 
 
 Gross income of, definition of T. R. 97, 101 
 
 Losses, deductions for, what T. R. 147a 
 
 Reserve to meet losses, how treated T. R. 147e 
 
 Salvage, how to be treated in return of T. R. 147c 
 
 Interest paid — 
 
 As rental, how treated T. R. 148 
 
 By, on mortgage on property in which corporation 
 
 has equity or is purchasing T. R. 148 
 
 Deduction, what, when T. D. 1960 ; T. R. 148 
 
 On debts secured by collateral subject to sale, de- 
 ductible, when, why T. R. 150; T. D. 1993 
 
 On deposits, etc., deductible, when T. R. 113 
 
 Inventory, purpose and use of; kinds of T. R. 161 
 
 Leased, to make its own return T. R. 82 
 
 Leasing oil or gas territory, deductions for depletion, 
 
 basis of T. R. 144 
 
 Lessee, property of. assuming indebtedness of lessor, 
 
 return by lessee, what T. R. 81 
 
 Lessee, not to include capital stock or debts of lessor 
 
 in return, except T. R. 82 
 
 Life insurance A30 
 
 Life Insurance Coup ant (A43) — ■ 
 
 Applied surrender values and consideration for 
 supplementary contracts both added and de- 
 ducted in return T. R. 102 
 
 Deductions from gross income, what T. R. 100 
 
 Gross income, definition of T. R. 101 
 
 Supplementary statement attached to return of, 
 
 showing what T. R- 103 
 
 Liquidation of, make final return of what; filed when 
 
 and where T. R. 85 
 
 Lodge System." defined T. R. 89 
 
 Loss — 
 
 Actual, sustained St. G(b) 
 
 Sustained during year St. G(c) 
 
398 Index 
 
 Corporations — Con tinned. 
 Loss — Continued. 
 
 From removal of buildings, not deductible, why.. T. R. 127 
 
 From sale of capital assets, how ascertained T. R. 128 
 
 Securities below par, how treated T. R. 135 
 
 Making false return, penalty for St. F 
 
 May designate day to pay tax St. G(c) 
 
 Manufacturing company, gross income, definition.... T. R. 104 
 
 Mercantile company, gross income, definition T. R. 105 
 
 Miscellaneous, gross income, definition T. R. 106 
 
 Mutual companies making return, definition of net in- 
 come T. D. 1993; T. R. 80 
 
 Mutual fire insurance company — 
 
 Gross income, definition T. R. 98 
 
 Supplementary statement attached to return, 
 
 showing, what T. R. 103 
 
 Mutual marine insurance company — 
 
 Deductions from gross income, what T. R. 99 
 
 Supplementary statement attached to return of, 
 
 showing what T. R. 103 
 
 Will deduct, what T. R. 147d 
 
 Neglecting to make return, penalty for St. F 
 
 Net income — 
 
 Annual, normal tax on St. G.(a) ; A16; A27 
 
 Defined A20 
 
 Engaged in more than one class business, how 
 
 ascertained T. R. 113 
 
 For 1913, how ascertained T. R. 159 
 
 From all sources St. G(b) 
 
 From sale of capital assets, how determined T. R. 109 
 
 Of, should be what T. R. 158 
 
 Of, which is distributable to owners thereof; sub- 
 ject to tax T. R. 79 
 
 Preceding calendar year, normal tax on St. G(a) 
 
 To be shown on return St. G(c) 
 
 No specific exemption from tax on corporations. . .A27; T. R. 160 
 Notice — 
 
 Given of assessments made St. G(c) 
 
 Of fiscal year, not retroactive T. R. 169 
 
 Not receiving blank for making return, should make 
 
 application for, to whom, when T. R. 163 
 
 Not transacting business p. 260 
 
 Not completely organized p. 297 
 
 Not to include taxes paid in foreign countries in in- 
 come; see seventh deduction St. G(c) 
 
 Obligations of, defined pp. 235, 237 
 
Index 399 
 
 Corporations — Continued. 
 
 Officers of, making false return, penalty St. F 
 
 Only one return and assessment for 1913 T. R. 160 
 
 On what taxed; what, and amount of St. G(a) 
 
 Operating mines, oil or gas wells, on royalty basis, not 
 
 allowed, deduction for depletion of deposits T. R. 145 
 
 Operations of, etc., unlawful to divulge. Section 3167 St. I 
 Organized — 
 
 During the year, to make return of what T. R. 84 
 
 Elsewhere than in United States, subject to tax on 
 
 what T. R. 77 
 
 In United States and certain exempt, interest on 
 bonds payable to, tax not to be withheld if cer- 
 tificate of ownership filed T. R. 45 
 
 Paid-up capital stock, definition of p. 259; T. R. 95 
 
 Partnership — - 
 
 Limited, is, and subject to corporation tax T. R. 86 
 
 Ordinary, not subject to tax as T. R. 94 
 
 Payments on account of tax from covenant in bonds, 
 
 not deductible in ascertaining net income T. R. 113 
 
 Penalty for — 
 Failure to 
 
 Make return St. G(c) ; T. R. 163 
 
 Pay tax by June 30 St. G(c) 
 
 Refusal to make return St. F 
 
 Profit or loss on sale, capital assets, how determined. . T. R. 110 
 Public utility, governmental function, income accru- 
 ing through, to State, exempt from tax T. R. 93 
 
 Railroad whose income paid by its lessee direct to 
 
 stockholders must make return of income T. R. 80 
 
 Religious, exempt St. G ( a ) 
 
 Repairs may be deducted, what T. R. 131 
 
 Reserve for — 
 
 Insurance of own property not deductible T. R. 122 
 
 Losses, not deductible T. R. 126 
 
 Taxes not deductible T. R. 156 
 
 Residence of p. 236 
 
 Return — 
 
 For 1913 must be on new form and not on excise 
 
 form heretofore used T. R. 172 
 
 To be made, when T. R. 190 
 
 When available St. G(d) 
 
 When State officers may have access to St. G(d) 
 
 When to be made. Section 3173 St. I ; p. 261 
 
 Shrinkage in value, capital assets, how treated T. R. 134 
 
400 Index 
 
 Corporations — Continued. 
 
 Special excise tax, how computed, St. S 
 
 Status for taxation purposes to be established, how. . T. R. 88 
 
 Subsidiary companies pp. 290, 293 
 
 Subject to tax — 
 
 Classes enumerated St. G (a) 
 
 Normal only, but on entire net income T. R. 185 
 
 Special excise, under act August 5, 1909 St. S 
 
 Taxable status in doubt, must make return and attach 
 
 thereto statement showing what T. R. 91 
 
 Tax — 
 
 Computed on net income of T. R. 159 
 
 Deduct amount paid for St. G(c) ; A23 
 
 Paid by — 
 
 Constitute deduction, when T. R. 152 
 
 When not deductible T. R. 153 
 
 To be assessed by Commissioner of Internal Reve- 
 nue, when. Section 3176 St. I 
 
 Tenant corporation expense p. 282 
 
 To give notice, day designated for return St. G(c) 
 
 Make list or return, how, when. Section 3173 St. I 
 
 Unearned increment, not value for depreciation pur- 
 poses T. R. 146 
 
 United States, filing certificates of ownership, exempt 
 
 from withholding of foreign items T. R. 60 
 
 When to make return St. G(c) 
 
 Cost: 
 
 Of buildings on leased ground, deductible as rent of 
 
 corporation, when T. R. 115 
 
 Costumes T. D. 2090 
 
 D 
 
 Dairies : 
 
 Cooperative, not subject to tax, what T. D. 1996; T. R. 92 
 
 Damages T. D. 2135 
 
 Debtor: 
 
 Annual — 
 
 List return by, when and what T. R. 50 
 
 Return by, to show totals only of monthly list 
 
 return T. R. 51 
 
 Definition of T. R. 38 
 
 How to treat substitute certificate of collecting agent 
 and certificate of owner not subject to having tax 
 withheld T. R. 51 
 
Index 401 
 
 Debtor — Continued. 
 
 Interest on bonds due, corporations organized in 
 United States and certain exempt, not to withhold 
 tax if certificate filed T. R. 45 
 
 In United States (or its withholding agent) charged 
 with duty of withholding from coupons or registered 
 interest T. R. 39 
 
 In United States, duty of, before payment of registered 
 interest T. R. 41 
 
 Maker of note given in payment of interest held re- 
 sponsible for tax on T. R. 68 
 
 May appoint withholding and paying agent to act for 
 it T. R. 38 
 
 Note given in payment of income, maker of note is. . T. R. 68 
 
 Not to withhold against nonresident alien or foreign 
 
 organization doing business in United States, when. T. R. 46 
 
 Not to withhold when receiving certificate of collect- 
 ing agent that tax withheld by same, disposition of 
 certificate T. R. 52 
 
 Return of withholding by, where to be filed T. R. 38 
 
 When source for withholding purposes T. R. 31 
 
 Debts : 
 
 Interest on A22; T. R. 125 
 
 "Deductible net addition to reserve": 
 
 Insurance company; definition; what basis of compu- 
 tation of; what not to be included in T. R. 147d 
 
 Deductions (A21-29; T. D. 2090): 
 
 Account partnership expense, account of and form for 
 
 claiming T. R. 47 
 
 Additions and betterments constituting increase in 
 
 capital investment, not T. R. 118 
 
 Allowance for in computing, what, when St. B 
 
 Amount of, to ascertain net income St. B 
 
 At source, applies to normal tax only St. E 
 
 Bad debts of corporation, when T. R. 125 
 
 Basis, for depletion leased oil or gas territory T. R. 144 
 
 Claims for — 
 
 Filed with collector, withholding agent to be fur- 
 nished statement of T. R. 33c 
 
 May be filed with withholding agent, when T. R. 33c 
 
 Not allowed unless made, when St. E 
 
 Commission to salesmen paid in stock of corporation 
 is, when T. R. 117 
 
402 Index 
 
 Deductions — Continued. 
 
 Compensation, officers and employees of State, etc., 
 except, when; judges Federal courts now in office; 
 
 present President for present term St. B 
 
 Compensation paid employees of corporation based on 
 
 stockholding, not, why T. R. 119 
 
 Corporation — 
 
 Account interest paid on debt, limited to what, 
 
 when T. R. 81 
 
 Depreciation, amount, how treated T. R. 130 
 
 Donations for charitable purpose, when T. R. 121 
 
 Evidence requisite for allowance of T. R. 158 
 
 For interest paid at different rates, rule of appli- 
 cation T. R. 151 
 
 Gifts or gratuities to employees, not T. R. 120 
 
 Materials and supplies on hand, what T. R. 123 
 
 Pensions and damages for injuries to employees, 
 
 are T. R. 120 
 
 Reserve — 
 
 For insurance its own property, not T. R. 122 
 
 To meet losses insurance companies, not T. R. 147C 
 
 Status of tax for, to bank, assessed against stock- 
 holder, paid by bank T. R. 154 
 
 And exemptions in certain cases St. E 
 
 Debts due taxpayer, ascertained worthless and charged 
 
 off in year St. B 
 
 Depletion of mines, regulation of rate of, limit of T. R. 142 
 
 Depreciation — 
 
 Defined A26; T. R. 129 
 
 For amortization, allowed when, how T. R. 135 
 
 How determined T. R. 129 
 
 Loss by shrinkage in property value, insurance 
 
 company, what and when T. R. 147d 
 
 Of good-will not allowable T. R. 136 
 
 Of natural deposits, basis and limit of T. R. 141 
 
 Of plant (in addition to deduction for depletion 
 
 of mine) , what, and basis of T. R. 143 
 
 On patent, what, how determined T. R. 137 
 
 Reserve, how, disposition excess of T. R. 132 
 
 Timberland — 
 
 Limit of, excess of, is income T. R. 140 
 
 Removal of timber, amount, how determined T. R. 139 
 
 Unearned increment, not value for purpose of . . . . T. R. 146 
 
 Dividends on stock, what, when p. 255; St. B 
 
Index 403 
 
 Deductions — Continued. 
 
 Exemption under paragraph C, not allowed nonresi- 
 dent alien St. B 
 
 False statement in regard to, penalty St. E 
 
 For ascertaining net income, what T. R. 3 
 
 For expense of business, partnership may claim, when 
 
 and how T. R. 14 
 
 For fire, storm, shipwreck St. B 
 
 For restoring property, etc., none St. B 
 
 Foreign corporation, to ascertain net income T. R. 157 
 
 From gross income — 
 
 Mutual marine insurance companies, what T. R. 99 
 
 Of nonresident alien, what T. R. 8 
 
 To ascertain net income, for normal tax, para- 
 graph B, what T. R. 6 
 
 From net income to ascertain taxable, exemption, 
 
 paragraph C T. R. 6 
 
 From premiums, etc., by whom made, when St. E 
 
 Increase value of property, none St. B 
 
 Insurance company — 
 
 Claims actually paid under policy contract, are. . . T. R. 147c 
 
 Losses, what T. R. 147a 
 
 Interest on obligations, State or political subdivision 
 
 of, and of United States or possession St. B 
 
 Interest paid by — 
 
 Bank, etc., on deposits, etc., is T. R. 149 
 
 Corporation — 
 
 As rental, not allowable T. R. 148 
 
 Is, what, when T. R. 148 
 
 On indebtedness secured by collateral subject 
 
 to sale, when, why T. R. 150 
 
 On mortgage on property in which corpora- 
 tion has equity, is an amount of T. R. 148 
 
 Joint-stock company St. B 
 
 Life insurance company — 
 
 From gross income, applied surrendered values 
 
 and consideration for supplementary contracts T. R. 102 
 
 From gross income, what T. R. 100 
 
 Loss — 
 
 During year St. B 
 
 From removal of building not deductible, why. . . T. R. 127 
 From sale — 
 
 Capital assets, how ascertained T. R. 128 
 
 Corporation securities below par, how treated T. R. 135 
 Which corporation may make, defined T. R. 124 
 
404 Index 
 
 Deduction s — Continued. 
 
 May be claimed account tax on note given in payment 
 
 of income T. R. 68 
 
 Mutual marine insurance company, what T. R. 147d 
 
 Not compensated by insurance or otherwise St. B 
 
 Notice to be filed for St. E 
 
 Obsolescence of patents, what, how determined T. R. 138 
 
 Only, claim for, may be filed with collector, when. ... T. R. 33c 
 
 Paid for new buildings, none St. B 
 
 Paragraph B — 
 
 For normal tax only, 7 and 8 included for purpose 
 
 of additional tax T. R. 6 
 
 May be claimed in case of fixed, determinable an- 
 nual income T. R. 66 
 
 Not claimed of withholding agent in time, only 
 
 remedy, application for refund T. R. 33c 
 
 When claim for (Form 1008), to be filed with 
 
 withholding agent or collector T. R. 33b 
 
 Permanent improvements or betterments, none St. B 
 
 Property owned, business carried on in United States, 
 
 person residing elsewhere, what St. B 
 
 Repairs, when T. R. 131 
 
 Reserve for losses, not T. R. 126 
 
 Single person, amount allowed St. C 
 
 Tax, income, paid T.D. 2135 
 
 Tax withheld, when St. B 
 
 Taxes paid by corporation — 
 
 Are, when T. R. 152 
 
 When not T. R. 153 
 
 To ascertain net income corporation engaged in more 
 
 than one class of business T. R. 113 
 
 Deeds of trust, etc.: 
 
 Corporation, income from, subject to withholding at 
 
 source regardless of amount, when St. E 
 
 Delinquent: 
 
 Tax becomes, if not paid by June 30 T. R. 25 
 
 Depletion: 
 
 Deduction for, mines, oil or gas wells operated on 
 
 royalty basis, not allowed operating corporation.. T. R. 145 
 Leased oil or gas territory, basis for deduction for. . . T. R. 144 
 Of mines, etc., regulation of rate of deduction for, 
 
 limit of T. R. 142 
 
 Deposit : 
 
 Certificate of, interest on, part of gross income T. R. 4 
 
Index 405 
 
 Deposit — Continued. 
 
 Interest on, not subject to withholding; must be in- 
 cluded in personal return whether paid or not T. R. 67 
 
 Interest on, part of gross income T. R. 4 
 
 Depreciation : 
 
 Corporation, defined A26; T. R. 129 
 
 Deductible, amount how treated T. D. 2005; T. R. 130 
 
 Deduction for (T. D. 2137) — 
 
 Of natural deposits, basis and limit of T. R. 141 
 
 Of plant (in addition to deduction for depletion 
 
 of mine), what, and basis of T. R. 143 
 
 On patent, what, how determined T. R. 137 
 
 Diversion reserve for, correction T. R. 133 
 
 For amortization, allowed when, how T. R. 135 
 
 Fund for reserve p. 286 
 
 Gross value at the mine, defined T. R. 6 
 
 How established in case of mines T. R. 6 
 
 Loss by shrinkage in property value, insurance com- 
 pany, what, and when deductible T. R. 147b 
 
 No fixed rating p. 298 
 
 Of good-will not allowable deduction T. R. 136 
 
 Timberland— 
 
 From removal timber, amount, how determined . . T. R. 139 
 
 Deduction for, limit of, excess of is income T. R. 140 
 
 Unearned increment, not value for basis of deduction 
 
 for T. R. 146 
 
 Depreciation reserve: 
 
 Use of, disposition excess of T. R. 132 
 
 Deputy Collector: 
 
 Ascertain persons liable to tax and enumerate objects, 
 
 section 3172 St. I 
 
 Legality of returns made by, section 3176 St. I 
 
 To make report, false or fraudulent return, how, sec- 
 tion 3176 St. I 
 
 Descent: 
 
 Of property — 
 
 Income from, part of gross income T. R. 4 
 
 Value of, not income T. R. 4 
 
 Devise of property: 
 
 Income, part of gross income; value of, not income. . . T. R. 4 
 
 Direct Taxation A7 
 
 Dispatch of business: 
 
 In collector's office T. R. 195 
 
 District of Columbia: 
 
 Exemptions, proviso G(a) 
 
400 Index 
 
 Diversion: 
 
 Depreciation reserve, correction T. R. 133 
 
 Dividends (A49; T. D. 2274): 
 
 Compensation paid employees of corporation based on 
 
 stockholding are, when T. R. 119 
 
 Cooperative dairies, is purchase price of raw material T. R. 92 
 
 Deducted from net income, when T. D. 1945; T. R. 3 
 
 Not deductible by corporation pp. 255, 281 
 
 Of corporations subject to tax not subject to withhold- 
 ing St. E 
 
 Part of gross income T. R. 4 
 
 Stock foreign corporations, subject to withholding 
 
 when St. E 
 
 Stock subject to tax — individual owning, how treated, 
 
 St. D; T. D. 2090; T. D. 2135 
 
 To aliens, not taxable T. D. 2017 
 
 Doctors : 
 
 Fees of, indefinite or irregular not subject to with- 
 holding A47-, T. R. 32 
 
 Donations : 
 
 By corporation for charitable purpose, deductible 
 
 when T. R. 121; T. D. 2090 
 
 Domestic building and loan association: 
 
 Definition, what necessary to exempt from tax T. R. 87 
 
 Due date: 
 
 Return on Sunday or legal holiday, effect of T. R. 176 
 
 Duties: 
 
 Not tax and not deductible, but are item of cost T. R. 155 
 
 E 
 
 Educational corporations: 
 
 Exempt, when St. G(a) 
 
 Emergency revenue law: 
 
 Not to apply to income-tax certificates T. D. 2049 
 
 Employees : 
 
 State or political subdivisions, compensation of offi- 
 cers and employees paid by, not part of gross income T. R. 5 
 State officers or employees, compensation paid by 
 
 United States a part of gross income T. R. 5 
 
 Endowment: 
 
 Money paid for; returned, not to be included in gross 
 
 income T. R. 5 
 
 Entertaining as expense p. 256 
 
Index 407 
 
 Evidence: 
 
 Furnished by agent of authority to sign ownership 
 
 certificate to be retained by verifying agent T. R. 43 
 
 Guardian, etc., served with notice for failure to make 
 
 return, may furnish, what T. R. 18 
 
 Of nonliability to payment of tax, filed with withhold- 
 ing agent, may be forwarded to collector in lieu of 
 
 tax Preface to Part III 
 
 Requisite for allowance of deduction by corporation. . T. R. 158 
 Excise and income: 
 
 Tax, corporation, 1913 in one return T. R. 191 
 
 Excise tax (T. D. 1937; T. D. 2130) : 
 
 Corporation All ; St. S ; T. R. 160 
 
 Executor: 
 
 Is fiduciary, when T. R. 70 
 
 Make return of income of deceased within taxable 
 
 year, when and what T. R. 17 
 
 Return T. D. 2090; T. D. 2152 
 
 Exempt: 
 
 From tax — 
 
 Cooperative dairies, what T. D. 1996 ; T. R. 92 
 
 Corporations, what A15; T. D. 1967; T. R. 87 
 
 Income from public utility T. R. 93 
 
 Exemption: 
 
 Allowed in computing taxable income of deceased per- 
 son, when T. R. 17 
 
 Amount allowed married person A58; T. D. 2135; St. C 
 
 Beneficiary may claim from fiduciary T. R. 74 
 
 Boards of trade, when St. G(a) 
 
 And deductions St. E 
 
 Cemetery company, depends on what T. R. 90 
 
 Certificate claiming by corporation organized in 
 
 United States, form of and how executed T. R. 45 
 
 Certificate claiming, what must show and how exe- 
 cuted T. R. 42 
 
 Chambers of commerce, when St. G(a) 
 
 Charitable associations, when St. G(a) 
 
 Civic leagues or organizations, classes of, when St. G(a) 
 
 Claimed by fiduciary, forms 1015 or 1019 T. R. 70 
 
 Claimed for — 
 
 By whom, with whom and when to be filed. . . St. E; T. R. 41 
 
 How to be filed St. B 
 
 May be filed with withholding agent when T. R. 33c 
 
 Under paragraph C — 
 
 Allowed to person permitted to claim T. R. 60 
 
408 Index 
 
 Exemption — Con tinned. 
 
 Claimed for — Continued. 
 
 Under paragraph C — Continued. 
 
 Failure to claim, effect of T. R. 65 
 
 Corporation claiming — 
 
 To establish rights to, ho w T. R. 88 
 
 Whose taxable status in doubt, must make return 
 
 and attach statement showing what T. R. 91 
 
 District of Columbia, provisions St. G(a) 
 
 Domestic building and loan associations St. G(a) 
 
 Educational corporation, when St. G(a) 
 
 False claim or statement as to, penalty for T. R. 33a 
 
 Fraternal societies St. G(a) 
 
 Husband and wife (A52) — 
 
 Living together, citizen or resident alien, add in- 
 comes for purpose of, amount of T. R. 10 
 
 Separated and living permanently apart, citizen 
 
 or resident alien, each entitled to $3,000 T. R. 10 
 
 Individual — 
 
 Amount of for 1913 T. R. 7 
 
 Deduction of from net income to ascertain taxable T. R. 3 
 Single, or married but not living with husband or 
 
 wife, may claim $3,000 each St. E 
 
 May be claimed, note given in payment of income. ... T. R. 68 
 
 Mutual cemetery companies St. G(a) 
 
 None for corporations T. R. 160 
 
 Paragraph C — 
 
 Not allowed nonresident alien T. R. 8 
 
 Not claimed of withholding agent in time, only 
 
 remedy application for refund T. R. 33c 
 
 To be filed with withholding agent when T. R. 33 
 
 Philippine Islands St. G(a) 
 
 Porto Rico St. G(a) 
 
 Public utility St. G(a) 
 
 Religious associations and corporations St. G(a) 
 
 Scientific associations, when St. G(a) 
 
 Status of person claiming determined as of time of 
 
 claim T. R. 10 
 
 To be deducted from net income to ascertain taxable T. R. 6 
 Expense (A21) : 
 
 Deductible, pension or amounts paid employees ac- 
 count injuries are T. R. 120 
 
 General, foreign steamship companies, how treated. . . T. R. 116 
 
 Of manufacture pp. 287, 298 
 
 Of operation and maintenance corporate business, 
 
 what includes T. R. 114 
 
Index 409 
 
 Expense — Continued. 
 
 Partnership may claim deduction for, when and how T. R. 14 
 
 Rent paid by tenant T. D. 2090 
 
 Explanation of law pp. 1-39 
 
 Extension : 
 
 Time for filing return, when, what, how T. R. 23 
 
 To make return, not exceed what, how and to 
 
 whom made T. R. 173 
 
 P 
 
 False returns: 
 
 Additional tax imposed St. E 
 
 Or fraudulent, penalty St. G(d) 
 
 Farming A51; T. D. 2153 
 
 Fees, professional A47 
 
 Fiduciary (A33; T. D. 2231; T. D. 2267): 
 
 Annual return by, what to show and how executed, 
 
 T. D. 1943; T. R. 73 
 
 Definition of T. D. 2135; T. R. 70; p. 239 
 
 Filing notice with other withholding agent (Form 
 
 1015), nothing to be withheld T. R. 70 
 
 Having withheld and paid tax on undistributed annual 
 net income not to again withhold when distribution 
 
 made T. R. 75 
 
 Income of beneficiary not distributed during the year; 
 what to be shown in return; tax to be withheld and 
 
 paid when T. R. 74 
 
 May be appointed agent or attorney for the purpose of 
 making personal return of income (Form 1040) for 
 
 beneficiary T. R. 72; p. 239 
 
 Optional claim (Form 1015 or 1019) T. R. 70 
 
 Regulations as to T. D. 1961; T. R. 70-75 
 
 Return by must be made, when p. 278; T. R. 71 
 
 Return by to include only matter within scope of au- 
 thority T. R. 72 
 
 Return of not to include income on which tax paid.. T. R. 71 
 
 Return, when to be made T. R. 190 
 
 To make annual return (Form 1041) to collector of 
 
 district, when, to show what T. R. 71 
 
 Filling in number of bonds, etc T. D. 2022 
 
 Pines A40 ; T. D. 2015 
 
 Firm: 
 
 Collecting foreign items, license required St. E 
 
 To make return, how, when, section 3173 St. I 
 
 Fiscal agent, defined T. D. 2006 
 
410 Index 
 
 Fiscal year: 
 
 Corporation (A15; T. D. 2001; T. D. 2029) — 
 
 Duty of collector upon receiving notice of T. R. 167 
 
 How established, what to be done T. R. 165 
 
 Illustration of and what to do T. R. 166 
 
 Making return on basis of but not so designating, 
 return not accepted and must be made for cal- 
 endar year T. D. 2090; T. R. 171 
 
 New corporations p. 283 
 
 Notice of not retroactive T. R. 169 
 
 Notice to collector not given in prescribed time, 
 
 calendar year to govern T. R. 168 
 
 Not properly established, return to be made for what 
 
 calendar year and filed when T. R. 170 
 
 Foreign : 
 
 Bonds T. D. 1992 
 
 Collections A55; T. D. 2023 
 
 Corporation (A34; T. D. 2006) — 
 
 Doing business in United States — 
 
 Provision for T. D. 2161; St. G(b) ; T. D. 2090 
 
 Return by St. G(c) 
 
 Particulars of St. G(c) 
 
 Where filed St. G(c) 
 
 Income tax in foreign countries p. 294 
 
 Subject to tax on what T. R. 77 
 
 Tax on net income; net income defined; deduc- 
 tions to ascertain T. R. 157 
 
 Income paid in United States, provisions for collection 
 
 of tax on A55; T. R. 54-62 
 
 Items — 
 
 License required for collection of, when and from 
 
 whom T. R. 54 
 
 Provisions for collection of tax on apply wherever 
 
 said items payable, if paid in United States. ... T. R. 61 
 Too small for notation on, statement of facts may 
 
 be attached to T. R. 58 
 
 Organization doing business in United States subject 
 to tax but exempt from withholding upon filing cer- 
 tificate claiming (Form 1018) T. R. 46 
 
 Partnership owning bonds of corporations organized 
 or doing business within United States, not subject 
 
 to withholding on interest of, when T. R. 48 
 
 Payments of dividends, etc., provisions as to collec- 
 tion, license, penalty St. E 
 
 Steamship company, general expense of, how treated. . T. R. 116 
 
Index 411 
 
 Forms (A53, pp. 340-365): 
 
 Aliens, certificate for. . '. T D. 1977, 1988, 1976 
 
 Banks, etc., stamping name T. D. 1986 
 
 Certificates, ownership, amended T. D. 1974 
 
 Exemption T. D. 1976 
 
 Exemption at service T. D. 1998 
 
 Fiduciaries T. D. 1943, 1976 
 
 For corporations p. 341 
 
 For individuals p. 355 
 
 Ownership T. D. 1976 
 
 Substitute certificates T. D. 1976 
 
 Withholding monthly list T. D. 1973 
 
 Fraudulent leturn: 
 
 Additional tax imposed; time limit for paying after 
 notice St. E 
 
 G 
 Gains: 
 
 For taxable purposes arising or accruing within calen- 
 dar year, part of gross income, what T. R. 4 
 
 Gas or oil territory leased: 
 
 Corporation, basis of deduction for depletion of T. R. 144 
 
 Gas or oil wells and mines: 
 
 Operated on royalty basis, deduction for depletion of 
 
 deposits not allowed operating corporation T. R. 145 
 
 Gift (A29) : 
 
 Of property, income from part of gross income; value 
 
 not income T.D.2090; T. R. 4 
 
 To corporation is income p. 257 
 
 To employees of corporation not deductible T. R. 120 
 
 Good- will: 
 
 Corporation, depreciation of, not allowable deduction, 
 
 T. D. 2137; T. R. 136 
 Governmental function: 
 
 Income accruing to State from exercise of, exempt. ... T. R. 93 
 Gratuities: 
 
 To employees of corporation not deductible. .T. D. 2090; T. R. 120 
 Gross income: 
 
 All sources to be specified St. D 
 
 Corporation — 
 
 Definition of A18; T. R. 96 
 
 Engaged in more than one class business, ascer- 
 tained in accordance with applicable definition 
 
 each class T. R. 112 
 
 General definition of gross income T. R. 107 
 
412 Index 
 
 Gross income — Continued. 
 Corporation — Continued. 
 
 Manufacturing company, definition of T. R. 104 
 
 Mercantile company, definition of T. R. 105 
 
 Miscellaneous corporation, definition of T. R. 106 
 
 Deductions from — 
 
 By mutual marine insurance companies, what. . . T. R. 99 
 To ascertain net income for normal tax, para- 
 graph B T. R. 6 
 
 Definitions T. R. 3, 4 
 
 Insurance company, definition of T. R. 101 
 
 Life insurance company — 
 
 Definition T. R. 101 
 
 To include applied surrender values and consider- 
 ation for supplementary contracts T. R. 102 
 
 Of nonresident alien, what constitutes T. R. 8 
 
 What to be excluded in computing A19; T. R. 5 
 
 Gross value at the mine: 
 
 Corporation definition T. R. 142 
 
 Defined T. D. 2137; T. R. 6 
 
 Guardian (A33) : 
 
 Is fiduciary, when T. R. 70 
 
 Return made by, when, regulation St. D; St. G(c) 
 
 H 
 Heat and light: 
 
 Allowance T. D. 2079 ; T. D. 2090 
 
 History of income taxes A3-14 
 
 Holiday : 
 
 Due date of return falling on, effect of T. R. 176 
 
 Horticultural organizations: 
 
 Exempt T. D. 2090; St. G(a) 
 
 Husband (A52; A58): 
 
 Assumed to have sufficient knowledge of income of 
 
 wife to make return for T. R. 10 
 
 Having net income other than wife's income from 
 separate estate so that aggregate income both more 
 than $4,000, wife return attached to husband or his 
 income included in her return for purpose of 
 
 $4,000 exemption T. R. 10 
 
 Should make return of income for self and wife T. R. 10 
 
 Husband and wife (A52; T. D. 2090; T. D. 2137) : 
 
 Both jointly and separately liable for return and pay- 
 ment of tax T. R. 10 
 
Index 4:13 
 
 Husband and wife — Continued. 
 
 Combined net income of, exceeds $4,000, return of 
 must be made T. R. 10 
 
 Living together, citizen or resident alien, entitled to 
 
 $4,000 exemption from their aggregate net income T. R. 10 
 
 Not living apart, having separate estates, income of 
 both may be made on one return, but return must 
 show income of each separately stated with name 
 and address of both T. D. 2135; T. R. 10 
 
 Separated and living permanently apart, citizen or 
 resident alien, each entitled to $3,000 exemption 
 
 from net income T. R. 10 
 
 Husband or wife (A52) : 
 
 Either having net income of $3,000, return required, 
 
 and must include incomes of both T. R. 10 
 
 I 
 
 Identity: 
 
 Persons presenting coupons or interest orders should 
 
 be required to establish T. R. 52 
 
 Income tax: 
 
 Theory and history Al-14 
 
 Income: 
 
 Additional tax on, referred to as additional tax St. A2 
 
 Amount from which withholding to be had T. R. 32 
 
 Banks, interest paid on deposits by, to be deducted.. St. G(c) 
 
 Bonds or other indebtedness St. G(b) 
 
 But not value of property, acquired by gift, bequest, 
 
 devise or descent St. B 
 
 Compensation of officers and employees of State or 
 political subdivision of, paid by United States, part 
 
 of gross income T. R. 5 
 
 Corporation — 
 
 Allowance for depreciation by wear and tear. . .. St. G(b) 
 Amount allowed for — 
 
 Depreciation St. G(c) 
 
 Taxes St. G(c) 
 
 Bad debts collected are T. R. 125 
 
 Prom sale of capital assets, how determined .... T. R. 108 
 
 How ascertained St. G(b) 
 
 Interest paid deductible St. G(c) 
 
 Losses sustained during the year St. G(c) 
 
 May designate fiscal year St. G(c) 
 
 Ordinary expenses of operation deductible St. G(c) 
 
414 Index 
 
 Income — Continued. 
 
 Corporation — Continued. 
 
 Penalty for failure to — 
 
 Make return of St. G(d) 
 
 Pay tax on after June 30 St. G(c) 
 
 To give notice of fiscal year adopted St. G(c) 
 
 Deductions from gross, mutual marine insurance 
 
 company, what T. R. 99 
 
 Derived from all sources St. G(a) 
 
 Fixed determinable annual — 
 
 From what derived T. R. 63 
 
 Normal tax on bonds, etc., when deducted St. E 
 
 Withholding from, when T. R. 64 
 
 Foreign corporation doing business in the United 
 
 States, return of, particulars St. G 
 
 Foreign, paid in United States, provisions for collec- 
 tion of tax on T. D. 2090; T. R. 54-62 
 
 For taxable purposes — is income for calendar year.. T. R. 4 
 
 For 1913, how computed St. G(c) 
 
 From all sources part of gross income T. R. 4 
 
 From bonds, mortgages, deeds of trust, and similar 
 obligations of corporations, etc., subject to withhold- 
 ing at source regardless of amount T. R. 37 
 
 From capital invested in the United States St. G(c) 
 
 From certain professions not subject to withholding 
 
 at source T. R. 32 
 
 From farming A51 
 
 From life insurance A30 
 
 From sales and trades A50 
 
 From public utility or governmental function accru- 
 ing to State, etc., exempt from tax T. R. 93 
 
 From what, obligations not subject to tax and certifi- 
 cate of ownership not required T. R. 37 
 
 Gross defined A18 ; T. R. 3, 4 
 
 Corporation — 
 
 Definition of T. R. 96 
 
 Engaged in more than one class of business, 
 ascertained in accordance with applicable 
 
 definition for each class T. R. 112 
 
 General definition T. R. 107 
 
 Insurance company, definition of gross in- 
 come T. R. 97, 101 
 
 Life insurance company, to include applied 
 surrender values and consideration for sup- 
 plementary contracts T. R. 102 
 
Index 415 
 
 I ncome — Continued. 
 
 Gross defined — Continued. 
 Corporation — Continued. 
 
 Manufacturing company, definition T. R. 104 
 
 Mercantile corporation, definition T. R. 105 
 
 Miscellaneous corporation, definition T. R. 106 
 
 Mutual fire insurance company, definition ... T. R. 108 
 
 What to be included in computing T. R. 5 
 
 Husband and wife, what A52; T. R. 10 
 
 Individual, not subject to withholding, when T. R. 32 
 
 Insurance company, to be separately stated St. G(c) 
 
 Insurance reserve, how treated St. G(b) 
 
 Interest — ■ 
 
 Accruing during year St. G(b) 
 
 On deposits St. G(b) 
 
 On obligations of State, etc T. R. 5 
 
 Joint-stock companies, how ascertained and stated... St. G 
 Life insurance companies, what included, deductions, 
 
 St. G; T. R. 100 
 
 Mutual fire insurance companies , St. G 
 
 What taxable T. R. 98 
 
 Mutual marine insurance companies St. G(c) 
 
 Net- 
 Deductions allowed for ascertaining St. B 
 
 Defined A20; T. R. 3 
 
 Not subject to withholding at source, to be covered 
 
 in personal return T. R. 32 
 
 Note given in payment of; maker of note is debtor 
 
 and source; required to withhold, except, when. T. R. 68 
 Of corporation engaged in more than one class of 
 
 business, how ascertained T. R. 113 
 
 Of corporations, verified, how T. R. 183 
 
 Penalty for divulging information on or exhibit- 
 ing returns, section 3167 St. I 
 
 Returns of, filed, are public records; inspection 
 
 of, who may and for what purpose St. G(d) 
 
 Shall include what St. A; St. G 
 
 Tax paid at source, deducted in ascertaining taxable. . T. R. 3 
 On, from coupon or registered interest to be de- 
 ducted and withheld, except to extent exemp- 
 tion claimed T. R. 44 
 
 Taxable — 
 
 Defined T. R. 3 
 
 For normal tax, what, how ascertained St. A; T. R. 7 
 
 Persons subject to T. R. 1 
 
416 Index 
 
 Income — Continued. 
 
 Subject to additional tax St. A 
 
 What not liable to withholding at source T. R. 32 
 
 Withheld, what, when, by whom St. E 
 
 Indirect taxation A7 
 
 Individual: 
 
 Duty of, collection interest coupons originating in 
 
 United States T. R. 39 
 
 Husband and wife living together, citizen or resident 
 
 alien, exemption $4,000 T. R. 10 
 
 Income accruing to, from contract with State, etc., 
 prior to passage of act for construction, operation, 
 
 or maintenance, public utility, taxable T. R. 93 
 
 Income less than $20,000 required to make return, ex- 
 cept when T. R. 19 
 
 Income of, liable to withholding at source on and after 
 
 November 1, 1913 T. R. 29 
 
 Liable for income tax on share of net earnings of part- 
 nership T. R. 47 
 
 Married and not living with husband or wife, amount 
 
 exemption T. R. 9 
 
 Normal tax, what T. R. 1 
 
 Partnership profits included in return of and tax paid, 
 
 not reported as income again T. R. 14 
 
 Residing in foreign country, where to file return ... T. R. 15 
 Return — 
 
 For calendar year T. R. 4 
 
 Required of guardian, etc., notice of failure to 
 
 make, served, when T. R. 18 
 
 When to be made T. R. 190 
 
 Share of earnings, partnership, property of, subject 
 
 to tax chargeable to individual T. R. 94 
 
 Share of partnership profits to be included in personal 
 
 return T. R. 13 
 
 Single, allowable exemption for T. R. 9 
 
 Status for claiming exemption, determined as of time 
 
 of claim T. R. 10 
 
 Who may claim exemption, paragraph C A58; T. R. 9, 10 
 
 Information: 
 
 Prom returns to officers of State, when, what, how. . . T. R. 179 
 
 To be given by collectors T. D. 1956 
 
 Inquiries answered by collectors T. D. 1956 
 
 Insane: 
 
 Who make claim for deductions for T. R. 33b 
 
Index 417 
 
 Inspection : 
 
 Of returns, how A41; T. D. 1962; T. D. 2016; T. R. 178 
 
 Insurance: 
 
 Accident T. D. 2136 
 
 Life- 
 Paid to beneficiaries not to be included in gross 
 
 income, when T. R. 5 
 
 Payment credited to insurance not to be included 
 
 in gross income, when T. D. 2090; T. R. 5 
 
 Received by insured not to be included in gross 
 
 income, when T. R. 5 
 
 Insurance commissions taxable T. D. 2011 
 
 Insurance company (A43): 
 
 "Deductible net addition to reserve"; definition; what 
 
 basis of computation of; what not to be included in. T. R. 147d 
 
 Deduction, claims actually paid under policy contract. T. R. 147c 
 Depreciation loss by shrinkage in property value, what 
 
 and when deductible T. R. 147b 
 
 Gross income, definition T. R. 97, 101 
 
 Income to be stated separately St. G(b) 
 
 Losses — 
 
 Actually sustained St. G 
 
 Deduction for what T. R. 147a 
 
 Making false return, penalty St. F 
 
 Mutual marine, deduct what T. R. 147d 
 
 Neglecting to make return, penalty St. F 
 
 Net addition to reserve St. G(b) 
 
 Net income, source, time of accrual, return of St. G 
 
 Notice of assessments to St. G(c) 
 
 Penalty for failure to pay tax St. G(c) 
 
 Refusing to make return, penalty St. F 
 
 Reserve — 
 
 Definition T. R. 147d 
 
 Fund, how treated St. G(b) 
 
 To meet losses, how treated T. R. 147c 
 
 Returns of, when available St. G(d) 
 
 Salvage, how treated in return of T. R. 147c 
 
 Special excise tax, how computed, time, what St. S 
 
 To make return of others, when St. E 
 
 Interest (A22) : 
 
 Coupon or registered, originating or payable in the 
 
 United States, who to withhold T. R. 39 
 
 From what obligation not subject to tax and certifi- 
 cates of ownership not required T. R. 37 
 
 27 
 
418 Index 
 
 I ntebest — Continued. 
 
 How treated p. 258 ; T. R. 63 
 
 On deposits — 
 
 Part of gross income T. R. 4 
 
 Subject to withholding; must be included in per- 
 sonal return, whether paid or not T. R. 67 
 
 On obligations of State or political subdivision of 
 United States or possessions, not part of gross in- 
 come A28; T. D. 1892; T. R. 5 
 
 Paid as rental by corporation, how treated T. R. 148 
 
 Paid by bank, etc., on deposits, etc., allowable deduc- 
 tion A38; T. R. 149 
 
 Paid by corporation — 
 
 At different rates, rule for application of deduc- 
 tion of T. R. 151 
 
 Deduction of what, when T. D. 1960; T. R. 148 
 
 On indebtedness secured by collateral subject to 
 
 sale, deductible when, why T. R. 150 
 
 On mortgage on property in which corporation 
 
 has equity or is purchasing, how treated T. R. 148 
 
 Part of gross income T. R. 4 
 
 Payment of, to beneficiaries by insurance companies, 
 
 part of gross income T. R. 5 
 
 Registered, certificate claiming exemption to be filed 
 
 at least five days before due-date of interest T. R. 44 
 
 Registered, duty of debtor before payment of T. R. 41 
 
 Inventors: 
 
 Earnings of, indefinite or irregular not subject to 
 
 withholding T. R. 32 
 
 Inventory: 
 
 Corporation, purpose and use of, kinds of T. R. 161 
 
 J 
 
 Joint income husband and wife A52 
 
 Joint-stock company: 
 
 Assessment against, payable St. A; St. G(c) 
 
 Deductions allowable to T. R. 9 
 
 Income — 
 
 How ascertained St. G(b) 
 
 To be separately stated St. G(c) 
 
 Losses actually sustained St. G(b) 
 
 Neglecting to make return, penalty St. F 
 
 Net income from all sources St. G(b) 
 
 Net income taxable for preceding calendar year St. G(a) 
 
 Notice to be given of assessments St. G(c) 
 
Index 419 
 
 Joint-stock company — Continued. 
 Penalty for failure — 
 
 To make return St. G(c) 
 
 To pay tax St. G (c) 
 
 Return — 
 
 False, penalty for St. F 
 
 For others made by St. E 
 
 Net income to be shown on St. G(c) 
 
 Refusing to make, penalty St. F 
 
 When available St. G(d) 
 
 When to make St. G(c) 
 
 Special excise tax and how computed St. S 
 
 Judges: 
 
 United States courts, salaries exempt, what.T. D. 2090; T. R. 6 
 Jurisdiction : 
 
 Of courts St. K 
 
 L 
 
 Labob organizations: 
 
 Exempt St. G(a) 
 
 Landlord : 
 
 Rents T. D. 2090 
 
 Last dub date: 
 
 Defined T. R. 176 
 
 Laws (See Statute) : 
 
 Income tax laws A14 
 
 Relating to assessment, remission, collection, refund- 
 ing St. L 
 
 Lawyers : 
 
 Fees, indefinite or irregular, not subject to withhold- 
 ing T. R. 32 
 
 Legacy T. D. 2090 
 
 Lessees or mortgagors: 
 
 Make return for others, when St. E 
 
 Liability : 
 
 To tax of a taxable person not to be released T. R. 27 
 
 License (A55) : 
 
 Bond may be required on form furnished T. R. 66 
 
 Failure to obtain, penalty for T. R. 55 
 
 For branch, to be made through principal office T. R. 57 
 
 Form of application for, to be made to collector of dis- 
 trict T. R. 55 
 
 Form of; to be issued by collector, good until revoked. T. R. 55 
 Required for collection of interest or other foreign 
 
 items, when, by whom, where obtained St. E; T. R. 54 
 
420 Index 
 
 Licensee: 
 
 First, receiving foreign item for collection to withhold 
 and be responsible for tax and to note fact of with- 
 holding on such item T. D. 2023; T. R. 58 
 
 For collection of foreign items — 
 
 Disposition of certificate accompanying, by T. R. 61 
 
 To keep record showing what T. R. 62 
 
 To report to collector (Form 1043), what, when. . T. R. 69 
 
 Life insurance A30; T. D. 2137 
 
 For benefit of corporations p. 258 
 
 Proceeds of policies, when to be excluded from gross 
 
 income St. B; T. R. 5 
 
 Life insurance company (A43): 
 
 Applied surrender values and consideration for sup- 
 plementary contracts both to be added and deducted 
 
 in return T. R. 102 
 
 Deductions from gross income, what St. G(a) ; T. R. 100 
 
 Gross income, definition St. G; T. R. 101 
 
 Supplementary statement attached to return of, show- 
 ing what T. R. 103 
 
 Limitation, statute of: 
 
 For income tax purposes, three years T. R. 177 
 
 Lobbying expense T. D. 2137 
 
 Lodge system: 
 
 Corporation operating under, defined T. R. 89 
 
 Loss: 
 
 Corporation — 
 
 Deductible, defined A24; T. R. 124 
 
 From sale capital assets, how ascertained T. R. 128 
 
 From sale securities below par, how treated T. R. 135 
 
 Insurance company, deduction for, what T. R. 147a 
 
 Losses A24; T. D. 1989; T. D. 2005; T. D. 2090; T. D. 2135 
 
 Removal of building not deductible, why T. R. 127 
 
 Reserve for, not deductible T. R. 126 
 
 M 
 Maker: 
 
 Of note given in payment of interest held responsible 
 
 for normal tax T. R. 68 
 
 Manufacturers : 
 
 Returns of, accessible how, penalty, sec. 3167 St. I 
 
 Manufacturing company: 
 
 Gross income, definition T. R. 104 
 
 Marine insurance company: 
 
 Deductions by St. G(c) 
 
Index 421 
 
 Materials and supplies on hand: 
 
 Deduction by corporation on account of, what T. R. 123 
 
 Mercantile corporation : 
 
 Gross income, definition T. R. 105 
 
 Mileage T. D. 2079; T. D. 2090 
 
 Mine: 
 
 Depreciation St. G(t>) 
 
 Gross value at — 
 
 Defined T. R. 6 
 
 Corporation, definition T. R. 142 
 
 Operated on royalty basis, corporation, deduction for 
 depletion of deposits not allowed operating corpora- 
 tion T. R. 145 
 
 Minor: 
 
 Who make claim for deductions for T. R. 33b 
 
 Miscellaneous corporation: 
 
 Gross income of, definition T. R. 106 
 
 Monthly list return: 
 
 Form of, what to contain, to be filed in duplicate T. R. 50 
 
 Of coupon or registered interest orders received with 
 
 ownership certificates, form of and what to show. . . T. R. 53 
 Of licensee for collection of foreign item, form of, what 
 
 to show, with whom filed, when T. R. 59 
 
 Summary of, when to be filed and what to show T. R. 50 
 
 Totals only to be carried into annual return T. R. 51 
 
 Mortgages (T. D. 2090): 
 
 Interest on, when subject to withholding St. E 
 
 Not payable in United States, when subject to 
 
 withholding St. E 
 
 Paid by corporation which has equity, how treated T. R. 148 
 Of corporation, income from, subject to withholding, 
 
 regardless of amount T. R. 37 
 
 Mutual companies: 
 
 To make return of income; definition of net income, 
 
 T. D. 1933; T. D. 2161; T. R. 80 
 Mutual fire insurance company: 
 
 Gross income of, definition T. R. 98 
 
 Premium deposits returned, what St. G(b) 
 
 Return of St. G 
 
 Supplementary statement attached to return of, show- 
 ing what T. R. 103 
 
 Taxable income, what T. R. 98 
 
 Mutual marine insurance company: 
 
 Deductions, what St. G(c) ; T. R. 99, 147d 
 
 Gross income St. G(b) 
 
422 Index 
 
 Mutual mabine insurance company — Continued. 
 
 Supplementary statement attached to return of, show- 
 ing what T. R. 103 
 
 N 
 Names : 
 
 Arrangement of, in list by collector T. R. 188 
 
 Natueal deposits: 
 
 Deduction for depreciation of, basis and limit of T. R. 141 
 
 Necessity foe taxation Al 
 
 Net income: 
 
 Corporation — 
 
 Engaged in more than one class of business, how 
 
 ascertained T. R. 113 
 
 For 1913, how ascertained T. R. 159 
 
 Prom sale of capital assets, how determined T. R. 109 
 
 Should be what T. R. 158, 183 
 
 Denned A20; T. R. 3 
 
 Foreign corporation, denned T. R. 157 
 
 Mutual companies, defined T. R. 80 
 
 Nonresident aliens A45 
 
 Forms for, etc T. D. 1977 
 
 Nonresident Americans A35 
 
 Normal tax A16; T. R. 1 
 
 Note: 
 
 Given in payment of income; maker is debtor or 
 source and must withhold on entire amount of note 
 if in excess $3,000, except allowance exemption or 
 
 deduction claimed T. R. 68 
 
 Given in payment of interest; failure of purchaser to 
 make allowance or deduction for tax, only remedy 
 
 is against vendor, how T. R. 68 
 
 Notice: 
 
 Answer of guardian, etc., may show what T. R. 18 
 
 Assessment, advance preparation of, by collector T. R. 198 
 
 Claiming deduction account partnership expense, by 
 
 whom filed, what and how T. R. 47 
 
 Collector to give withholding agent, when tax with- 
 held is adjusted in assessment T. R. 33c 
 
 Form 1015 filed by fiduciary with other withholding 
 
 agent, nothing withheld T. R. 70 
 
 Of assessment; failure to pay tax; make return; form 
 
 of; time T. R. 197 
 
 Of claim for exemption by foreign partnership, when, 
 what, how T. R. 48 
 
Index 423 
 
 Notice — Continued. 
 
 Of failure fiduciary to file return, served T. R. 71 
 
 Of failure to make return, when to be served on 
 
 guardian, etc T. R. 18 
 
 To delinquent, failure to file return in time T. R. 196 
 
 To taxpayer, of amount for which liable as on or be- 
 fore June 1 T. R. 25 
 
 O 
 Oath of affirmation: 
 
 Required in verifying returns T. D. 2090; T. R. 22 
 
 Obligations: 
 
 Interest on, of State or political subdivision; United 
 States or possessions not part of gross income. A28; 
 
 T. D. 1892; T. D. 1946; T. R. 6 
 Obligations of corporations, etc.: 
 
 Similar to bonds, mortgages, and deeds of trust, in- 
 come from, subject to withholding, regardless of 
 
 amount T. R. 37 
 
 Obsolescence: 
 
 Of patents, deduction for, what, how determined T. R. 138 
 
 Officers: 
 
 Of State or political subdivision of, compensation — 
 
 Of not part of gross income T. R. 5 
 
 Paid by United States is part of gross income. ... T. R. 5 
 
 Of the United States making returns for others T. R. 9 
 
 Regulations designed for enforcing compliance with 
 law Preface to Part III 
 
 On, OR GAS TERRITORY LEASED: 
 
 Basis of deduction for depletion of T. R. 144 
 
 On, OR GAS WELLS OR MINES: 
 
 Operated on royalty basis, deduction for depletion of 
 
 deposits not allowed operating corporation T. R. 145 
 
 Omitted tax: 
 
 May be assessed and with penalty, when T. R. 184 
 
 Opinions (See Cases). 
 Organizations: 
 
 Civic, exemptions St. G(a) 
 
 P 
 
 Paid-up capital stock: 
 
 Definition of T. R. 95 
 
 Partnership (A36; T. D. 2090): 
 
 As such not subject to tax and not required to make 
 return except on request Commissioner or Secre- 
 tary T. D. 1957; T. R. 12 
 
424 Index 
 
 Partnership — Continued. 
 Foreign — 
 
 Composed of nonresident aliens, resident aliens, 
 and citizens of United States, either or both, 
 
 requisites of ownership certificate for T. R. 49 
 
 Owning bonds, etc., of corporations, etc., organ- 
 ized or doing business in the United States not 
 subject to withholding on interest of, provided 
 
 exemption claimed (Form 1016) T. R. 48 
 
 Individual share of profits of, to be included in per- 
 sonal return T. R. 11 
 
 Liable only in individual capacity St. D 
 
 Limited, is corporation and subject to corporation 
 
 tax T. D. 2137; T. R. 86 
 
 May claim deduction for expenses of business, when 
 
 and how T. R. 14 
 
 Members of, liable in individual capacity for tax on 
 their respective shares of earnings of, whether dis- 
 tributed or not St. A2; T. R. 94 
 
 Profits of— 
 
 Once returned and tax paid, not again reported 
 
 as income T. R. 14 
 
 To be included by individuals entitled to. in their 
 
 personal return T. R. 13 
 
 Return of, when to be made, section 3173 St. I; T. D. 2137 
 
 Shall forward correct statement of profits and names. St. D 
 
 Share of profit to partners St. D 
 
 To file with withholding agent notice claiming deduc- 
 tion for expense of, what and how T. R. 47 
 
 To make list or return, how and when, section 3173. . 
 
 St. I; T. R. 23 
 When required to make return must make complete 
 
 and correct T. R. 12 
 
 Patents : 
 
 Deduction for (A56) — 
 
 Depreciation, what, and how determined T. R. 137 
 
 Obsolescence, what, how determined T. R. 138 
 
 Payment: 
 
 To officer authorized to receive St. E 
 
 Penalty : 
 
 And interest for nonpayment when due and for 10 
 
 days after notice, when St. E 
 
 Delinquent tax — 
 
 Amount of, and how determined, not assessed 
 against estates, insane, deceased, or insolvent 
 persons T. R. 25 
 
Index 425 
 
 Penalty (A40; T. D. 1950): 
 
 Compromises T. D. 2015 
 
 Failure to make return in prescribed time or for false 
 
 or fraudulent, fine or imprisonment, or both St. G(d) 
 
 Failure to pay tax, 5 per cent to tax plus 1 per cent 
 
 per month T. R. 164 
 
 False claim or statement to secure exemption. . .St. E; T. R. 33a 
 False or fraudulent return with intent to evade or 
 
 defeat tax, what T. R. 26 
 
 False or fraudulent return, 100 per cent to tax, 
 
 St. G(c); T. R. 164 
 
 False statement in regard to deduction St. E ; T. R. 33b 
 
 For divulging — 
 
 Information on return, what T. R. 181 
 
 Unlawfully, information on return, fine or im- 
 prisonment, or both, with costs T. R. 164 
 
 Making false return St. F 
 
 Neglect or refusal to make return St. F; T. R. 164 
 
 Person or officer of corporation required to make re- 
 turn, making false or fraudulent, with intent to de- 
 feat or evade assessment T. R. 164 
 
 Refusal or neglect to make return, liable person, cor- 
 poration, etc St. F; T. R. 26 
 
 Refusal to make or for false return, to be assessed 
 
 and collected, what T. R. 21 
 
 Return made and property mailed in time but not re- 
 ceived in time, none T. R. 174 
 
 Pensions: 
 
 Or payments on account of injuries to employees of 
 
 corporations, deductible expense p. 259; T. R. 120 
 
 Person : 
 
 Whose income is not subject to withholding at source, 
 
 make personal return T. R. 32 
 
 Persons, firms, etc.: 
 
 Collecting foreign items, license required St. E 
 
 Whatever capacity acting, withholding agent, when, 
 
 what St. D; St. E 
 
 Who must make returns A17 
 
 Withholding none prior to November 1, 1913 St. D 
 
 Philippine Islands: 
 
 Exemptions St. G(a) ; T. R. 25, 26; T. D. 2090 
 
 Place of filing returns T. D. 2137 
 
 Place of making returns A37 
 
426 Index 
 
 Plant: 
 
 Corporation, deduction for depreciation (in addition 
 to the deduction for depletion of mine), what and 
 
 basis of T. R. 143 
 
 Political subdivision of State: 
 
 Interest on obligations of, not part of gross income. . T. R. 5 
 Officers and employees of, compensation not part of 
 
 gross income T. R. 5 
 
 Pollock case A10 
 
 Porto Rico: 
 
 Exemptions and provisions. . . St. G(a) ; T. R. 25, 26; T. D. 2090 
 Possession: 
 
 Of United States, interest on obligations of, not part 
 
 of gross income T. R. 5 
 
 Power of attorney T. D. 2090 ; T. D. 2137 
 
 Premiums: 
 
 Deductions from, by whom, when St. E 
 
 President of the United States: 
 
 Salary of. exempt, what T. R. 5 
 
 Procedure: 
 
 In case of refusal or neglect, liable individual to make 
 
 return or for false return made T. R. 21 
 
 Professional: 
 
 Fees as income A47 
 
 Persons whose income indefinite or irregular, not sub- 
 ject to withholding T. R. 32 
 
 Profit or loss: 
 
 Corporation, on sale of capital assets, how determined, 
 
 T. D. 2077; T. R. 110 
 Profits : 
 
 For taxable purposes of those arising or accruing 
 
 within calendar year T. R. 4 
 
 From any source part of gross income T. R. 4 
 
 From sales and trade T. D. 2090 
 
 Partnership, individual entitled to include in his per- 
 sonal return T. R. 13 
 
 Partnership once return and tax paid, not reported 
 
 as income T. R. 14 
 
 Share of, in partnership to be included in return 
 
 of individual T. R. 11 
 
 Undivided A39 
 
 Promissory note, withholding T. D. 2090 
 
 Property : 
 
 Received by gift, bequest, devise, descent, income 
 
 from but not value, part of gross income T. R. 4 
 
Index 427 
 
 Protest against tax A54 ; T. D. 2131 
 
 Public records: 
 
 Returns are, inspection of or copies, how T. R. 178 
 
 Public utility: 
 
 Income from accruing to State, etc., exempt from 
 
 tax T. D. 2090; T. R. 93 
 
 Purchaser : 
 
 Of note given in payment of interest, failure to make 
 allowance or deduction of tax in purchase or dis- 
 count only remedy is against vendor T. R. 68 
 
 Q 
 Quarters, allowance for T. D. 2079 ; pp. 234, 249 
 
 R 
 Rate (See A16): 
 
 Deduction for depletion of mines, etc., regulation and 
 
 limit of T. R. 142 
 
 Real estate, profits from sale of pp. 247, 249, 285 
 
 Receipts : 
 
 Separate to be issued, when T. R. 25 
 
 Record : 
 
 To be kept by — 
 
 Collecting agent, what T. R. 40 
 
 Licensee for collection of foreign items, what to 
 
 show T. R. 62 
 
 Refund: 
 
 Failure to make claim for exemption or deductions 
 with withholding agent in time; only remedy is by 
 
 application for T. R. 33c ; T. D. 2131 
 
 Registered interest: 
 
 Certificate claiming exemption from tax on, to be 
 
 filed at least five days before due date of interest. . T. R. 44 
 Regulations (Part 3 — Pages 79-164): 
 
 Designed to assist taxpayer and officer in complying 
 
 with the law Preface to Part III 
 
 Subjects covered and arrangement of Preface to Part III 
 
 Reimbursement for expenses T. D. 2135 
 
 Removal of buildings: 
 
 Not deductible loss, corporation, why T. R. 127 
 
 Rent (A48; T. D. 2090; T. D. 2135; T. D. 2137): 
 
 Corporation, cost of buildings on leased ground de- 
 ductible, when T. R. 115 
 
428 Index 
 
 Rent — Continued. 
 
 How treated T. R. 63 
 
 Interest paid by corporation as, how treated T. R. 148 
 
 Part of gross income T. R. 4 
 
 Repairs : 
 
 Deduction, when T. R. 131 
 
 Reserve: 
 
 Assessment insurance company, definition T. R. 147d 
 
 For depreciation — 
 
 Diversion of, correction T. R. 133 
 
 Use of, disposition of excess of T. R. 132 
 
 For insurance of corporate property not deductible.. T. R. 122 
 
 For losses not deductible T. R. 126 
 
 For taxes of corporation not deductible T. R. 156 
 
 Insurance company, deductible net addition to, defini- 
 tion; what basis computation; what not to be in- 
 cluded in T. R. 147d 
 
 To meet loss, insurance company, how treated T. R. 147c 
 
 Resident alien: 
 
 Certificates of ownership of bonds, when and how to 
 
 be used and to specify what T. R. 42 
 
 Income of, from coupon or registered interest, subject 
 to withholding except to extent exemption claimed. T. R. 44 
 Returns (A17) : 
 
 Administrators to make for heirs, when T. R. 9 
 
 Agents to make for others T. R. 9 
 
 Annual individual and monthly list to be forwarded 
 
 to Commissioner, how T. R. 24 
 
 Annual list (Form 1013), to show what, and to be 
 
 filed on or before March 1 T. R. 50 
 
 Annual, of coupon or registered interest orders not 
 accompanied by certificates of ownership; form of, 
 and what to show; to be filed when; to show totals 
 
 only on monthly return T. R. 53 
 
 Annual, of debtors or withholding agents to show 
 
 totals only on monthly list T. R. 51 
 
 Annual, fiduciary to collector of district, when; show 
 
 what T. R. 71 
 
 Annual, of withholding agent, form for, to be accom- 
 panied by what, when to be filed T. R. 35 
 
 Annual, of withholding agent (Form 1042), what to 
 
 show and when to be filed T. R. 69 
 
 Approval of Secretary T. R. 7 
 
 Blanks for, furnished corporations by collector T. R. 163 
 
 By persons of lawful age T. R. 7 
 
Index 429 
 
 Returns — Continued. 
 
 Certified copies of, when, why, delivered to whom ... T. R. 180 
 
 Conservators to make for others T. R. 9 
 
 Copy not retained by collector T. D. 2024 
 
 Copy of, unlawful to exhibit, section 3167 St. I 
 
 Corporation — 
 
 Every, not specifically exempt, to make T. R. 80 
 
 Fiduciaries, withholding agents, when to be made. T. R. 190 
 Going into liquidation to make final; filed when 
 
 and where T. R. 85 
 
 Not receiving blank for, should make application 
 
 for, to whom, when T. R. 163 
 
 One only for 1913 T. R. 160 
 
 Organized during year, to make T. R. 84 
 
 To make complete or not accepted T. R. 163 
 
 When income paid by lessee direct to stock- 
 holders, must nevertheless make T. R. 80 
 
 Divulging — 
 
 Information from, penalty T. D. 1962; T. R. 181 
 
 Unlawfully, information on, penalty T. R. 164 
 
 Due date on Sunday or legal holiday, effect of T. R. 176 
 
 Duplicate, when, of whom required, disposition of. . 
 
 T. R. 193; T. D. 2024 
 Duty of collector — 
 
 In forwarding and investigation of T. R. 192; T. D. 2024 
 
 On failure to find person at home, section 3173. . St. I 
 
 Employees to make for others St. E 
 
 Evidence by which to verify, what T. R. 183 
 
 Executors to make for others St. E 
 
 Extension of time — 
 
 For filing, when, what, how T. R. 23 
 
 To make, not to exceed what, how, to whom made. T. R. 173 
 Failure of corporation to receive blank for, not ex- 
 cused from making return or penalties for failure. . T. R. 163 
 Failure — 
 
 Of fiduciary to file, notice of, served T. R. 71 
 
 To make by guardian, agent, or other person act- 
 ing in trust capacity, notice to, served on T. R. 18 
 
 To make in prescribed time, of a false or fraudu- 
 lent, penalty T. R. 164 
 
 To make — 
 
 Legal provisions as to St. I 
 
 Notice of. form and time to serve T. R. 197 
 
430 Index 
 
 Returns — Continued. 
 
 False or fraudulent — 
 
 Duty of collector in matter of T. R. 192 
 
 Penalty St. F; T. R. 164 
 
 With intent to defeat or evade tax, penalty T. R. 26 
 
 Fiduciary — 
 
 Having income not distributed; what to be 
 
 shown; tax to be withheld and paid when T. R. 24 
 
 Must be made when T. R. 71 
 
 Not to include income on which tax paid T. R. 71 
 
 To include only matter within scope of authority. T. R. 72 
 
 What to show, and how executed T. R. 73 
 
 Filing, place T. D. 2137 
 
 For 1913, must be on new form and not on excise form 
 
 heretofore used T. R. 172 
 
 Foreign corporation having more than one branch 
 office in United States to designate principal office 
 
 and person to make return T. R. 83 
 
 Form of for corporation prescribed T. R. 163 
 
 For persons absent from United States, by whom made St. E 
 
 For persons incapacitated, by whom made St. E 
 
 Fraudulent — 
 
 Duty of collector St. I 
 
 Extra tax because of St. E 
 
 Time limitation for paying after notice St. E 
 
 Husband and wife, net income both exceeds $4,000, 
 
 of combined income, required T. R. 10 
 
 Husband and wife not living apart, separate income 
 from separate estate may be made on one; sepa- 
 rately stated and with names and addresses of 
 
 both T. R. 10 
 
 Husband or wife, either having net income $3,000 or 
 over, required, and must include income of both. . . T. R. 10 
 
 Husband should make for himself and wife T. R. 10 
 
 Individual — 
 
 For calendar year T. R. 4 
 
 Made by collector when T. R. 20 
 
 Not required to make, when made by other for 
 
 him, when T. R. 19 
 
 To be made when A37 ; T. R. 190 
 
 To include share of partnership profits in T. R. 13 
 
 Information or copies from, to officers of State, when, 
 
 what, how, original not removed except T. R. 179 
 
 Last due date defined T. R. 175 
 
 Leased corporations make their own T. R. 82 
 
Index 431 
 
 Returns — Continued. 
 
 Legality of, made by collector or deputy, section 3176. St. I 
 
 Lessee corporation assuming debts of lessor to include 
 
 in lessee return all receipts of lessor T. R. 81 
 
 Lessee corporation not to include in its own statement 
 of capital stock, that of lessor; nor in its own state- 
 ment of indebtedness, that of lessor except when 
 
 said indebtedness is assumed by lessee T. R. 82 
 
 Life insurance company — 
 
 Applied surrender values and consideration for 
 supplementary contracts both added and de- 
 duced T. R. 102 
 
 Supplementary statement attached to return of, 
 
 showing what T. R. 103 
 
 Made and properly mailed in time, no penalty if not 
 
 received in time T. R. 174 
 
 Made by guardian or authorized agent, when T. R. 17 
 
 Made on basis of fiscal year but not so designated, not 
 
 accepted, and must be made for calendar year T. R. 171 
 
 Made to collector St. E 
 
 Monthly, by withholding agent, when to be filed; with 
 
 whom, what to accompany T. R. 35 
 
 Monthly list and annual, by licensee for collection of 
 
 foreign items, what, to whom, when T. R. 59 
 
 Monthly list, form of, what to contain, to be filed in 
 
 duplicate T. R. 50 
 
 Monthly list of coupon or interest orders not accom- 
 panied by certificates of ownership, form of, and 
 
 what to show T. R. 53 
 
 Must be made, when, section 3173 St. I 
 
 Mutual companies to make; definition net income. . . T. R. 80 
 Mutual fire insurance companies, supplementary state- 
 ment attached to, showing what T. R. 103 
 
 Mutual marine insurance companies, supplementary 
 
 statement attached to, showing what T. R. 103 
 
 Neglect or refusal of liable person, corporation, etc., 
 
 to make, penalty T. R. 26 
 
 Neglect or refusal to make, 50 per cent additional tax. T. R. 164 
 
 Neglect to make, penalty St. F 
 
 Nonresident alien, agent or representative to make 
 
 for, when, what to be included in T. R. 8 
 
 Not filed in time, notice sent to delinquent T. R. 196 
 
 Not required, income not exceeding $3,000 St. D 
 
 Officers and employees of the United States, having 
 control salaries, rents, etc., to make when St. E 
 
432 Index 
 
 Retubns — Continued. 
 Of income — 
 
 Persons deceased within taxable year, made by 
 
 executor or administrator T. R. 17 
 
 When required, where filed T. R. 15 
 
 On basis of calendar year or fiscal year, time of assess- 
 ment and payment of tax T. R. 177 
 
 One deduction only of exemption St. D 
 
 One to cover both special excise and income tax for 
 
 1913 for corporation St. S 
 
 Open to inspection, when St. G(d) 
 
 Partial or tentative p. 291 
 
 Partnership profits included by individual and tax 
 
 paid, not again reported as income T. R. 14 
 
 Partnership, requisite of T. R. 12 
 
 Penalty— 
 
 Against corporation for failure to make T. R. 163 
 
 For failure to make at time specified St. G(d) 
 
 For refusal to make St. F 
 
 Personal, Form 1040; fiduciary may be appointed 
 
 agent or attorney to make for beneficiary T. R. 72 
 
 Personal not required, when T. R. 8 
 
 Person or officer of corporation required to make, 
 making false or fraudulent with i,ntent to defeat or 
 
 evade ; penalty T. R. 164 
 
 Person residing in foreign country, provision for.... T. R. 7 
 
 Place for A37 
 
 Public records, inspection or copies, how St. G(d) 
 
 Receivers to make for others T. R. 9 
 
 Refusal or neglect of liable individual, duty of col- 
 lector St. I; T. R. 21 
 
 Refusal to make, extra tax St. E 
 
 Requisite of bookkeeping for verifying T. R. 182 
 
 State officer may have access to St. G(d) 
 
 Statistics of returns pp. 369-380 
 
 Time for A37 
 
 To be filed, when St. D 
 
 To be made on Form 1040 for individuals T. R. 16 
 
 To be made to collector St. D; St. E 
 
 To be verified, how, before whom St. D; St. I 
 
 To include — 
 
 Personal income not subject to withholding T. R. 32 
 
 Share of profits in partnership whether divided 
 
 or not T. R. 11 
 
Index 433 
 
 Retubns — Continued. 
 
 Trustees to make for others St. E 
 
 Understatement of income, cause to be shown why 
 
 amount not increased St. D 
 
 Undervaluation or understatement St. I 
 
 Unlawful to exhibit or divulge information from, 
 
 section 3167 St. I 
 
 What must be shown on T. R. 16 
 
 When to be made; where filed, section 3173 St. I; A37 
 
 Who must make A17 
 
 Wife having income of $3,000 from separate estate 
 
 managed by herself may make her own T. R. 10 
 
 Withholding agent, what disposition of; should not 
 be filed until expiration of time allowed for filing 
 
 claims for exemption or deductions T. R. 33c 
 
 Revenue statistics pp. 369-380 
 
 Revised Statutes: 
 
 Amended sections of, providing duties and penalties, 
 
 sections 3167, 3172, 3173 St. 1 
 
 Royalties : 
 
 How treated T. R. 63 
 
 Royalty basis: 
 
 Mines, oil or gas wells, operated on, deduction for 
 depletion of deposits not allowed operating corpora- 
 tion T. R. 145 
 
 Rulings, Treasury p. 166 
 
 S 
 Salaries (A31; T. D. 2137): 
 
 How treated T. D. 2090; T. R. 4, 63; p. 298 
 
 Sale of capital assets: 
 
 Corporation — 
 
 Income from, how determined T. R. 108, 109 
 
 Loss from, how ascertained T. R. 128 
 
 Profit or loss on T. R. 110 ; p. 227 
 
 Sales: 
 
 Income from A50 
 
 Salesmen: 
 
 Commission to, paid in stock, deductible expense 
 
 when T. R. 117 
 
 Salvage: 
 
 How treated in return of insurance company T. R. 147c 
 
 Scientific association: 
 
 Exemptions St. G(a) 
 
 Scrip T. D. 2090; T. D. 2152 
 
 28 
 
434 Index 
 
 Securities : 
 
 Income from; sale of, below par; loss T. R. 4, 135 
 
 Sheinkage: 
 
 In book value capital assets, how treated T. R. 134 
 
 In property value insurance company, depreciation 
 loss by, what and when deductible p. 299; T. R. 147b 
 
 Sinking fund taxable T. D. 2161 
 
 Sixteenth amendment A12 
 
 Size: 
 
 Foreign items too small for notation on, statement 
 may be attached to T. R. 58 
 
 Society : 
 
 Operating under the "lodge system," denned; exemp- 
 tions St. G(a) ; T. R. 80 
 
 Source: 
 
 Denned T. R. 31 
 
 Example of where and where not withholding at T. R. 32 
 
 Fiduciary is, when T. R. 70 
 
 Note given in payment of income, maker of note is. . T. R. 68 
 Persons, firms, etc., acting as, designated "debtors" 
 
 or "withholding agents" „ T. R. 31 
 
 Tax withheld at, to be paid to collector T. R. 34 
 
 Withholding at, applies only to normal tax imposed on 
 
 individuals T. R. 29 
 
 Who required to act as; liable for tax withheld T. R. 30 
 
 Special assessment districts T. D. 1946; pp. 244, 252 
 
 Special rulings, Treasury -. p. 165 
 
 Special tax: 
 
 See sections 3173, 3176 St. I 
 
 State: 
 
 Information from return, when, how T. R. 179 
 
 Officers and employees, paid by United States; com- 
 pensation part of gross income T. R. 5 
 
 Political subdivision of, compensation of officers and 
 employees not part of gross income; interest on ob- 
 ligations of, not part of gross income T. R. 5 
 
 State income taxes A5 
 
 State or United States: 
 
 Construction; exemptions, distinction as to, for cer- 
 tain income from State, etc St. G(a) ; St. H 
 
 Statistics, Part VII pp. 369-380 
 
 Status : 
 
 For claiming exemption by individuals T. R. 10 
 
 Statute, Income Tax, complete pp. 41-75 
 
 Analysis pp. 1-39 
 
Index 435 
 
 Statute, Income Tax — Continued. 
 
 Divisions (See Table of Contents). 
 
 Excise Tax Law All 
 
 History A14 
 
 Statute of limitations: 
 
 For income-tax purposes, three years T. R. 177 
 
 Stock : 
 
 Paid-up capital, definition T. R. 96 
 
 Profit and loss from sale of A50; T. D. 2090; A24 
 
 Subsistence T. D. 2090; T. D. 2079 
 
 Substitute certificates T. R. 40 
 
 Summaet of income tax law (See Introduction). 
 
 SUMMABY OF MONTHLY LIST BETUBN T. R. 50 
 
 Summons, section 3173 St. I 
 
 Sunday ob legal holiday T. R. 176 
 
 Supertax A16 
 
 Supplementary statement attached to return. T. D. 2137; T. R. 103 
 
 Supplies on hand T. R. 123 
 
 Supreme Court opinions (See Cases). 
 
 Surplus A39 
 
 Surtax A16 
 
 T 
 
 Tax (Theory and History, Al-14): 
 
 Additional, on individuals only, rates and classes. ... T. R. 2 
 
 Amounts added as penalty, section 3176 St. I 
 
 Assessment and collection T. R. 25 
 
 Assessment — ■ 
 
 Against income withheld at source T. R. 38 
 
 Of, against withholding agent deferred T. R. 189 
 
 Claim for abatement of T. R. 33c 
 
 Cooperative dairies exempt T. R. 92 
 
 Corporations — ■ 
 
 Exempt T. R. 87 
 
 On entire net income T. R. 185 
 
 Organized in United States, all (with exceptions) 
 
 subject to T. R. 76 
 
 Deductible A23 
 
 Delinquent if not paid by June 30 T. R. 25 
 
 Deputy collectors, duties, section 3172 St. I 
 
 Domestic building and loan association, what neces- 
 sary to exempt T. R. 87 
 
 "Duties" are not but item of cost T. R. 155 
 
 Evidence of nonliability, received by withholding 
 agent, disposition of Preface to Part III 
 
436 Index 
 
 Tax — Continued. 
 
 Evidence of payment of, by corporation for deduction 
 
 purposes T. R. 158 
 
 Excise on corporation T. R. 160-191 
 
 Extra St. E 
 
 Failure to pay T. R. 164, 177, 197 
 
 Fixed determinable annual income, subject to with- 
 holding T. R. 65, 66 
 
 Fraternal societies, exempt St. G(a) 
 
 From withholding agent T. R. 36 
 
 Income of corporations organized elsewhere than in 
 
 the United States, liability T. R. 79 
 
 Individual — 
 
 Income from public utility taxable when T. R. 93 
 
 Net income over $3,000 annually, liable to T. R. 9 
 
 Normal — 
 
 Agricultural, horticultural, and labor organiza- 
 tions, certain mutual savings banks, exempt... St. G(a) 
 
 Computation of T. R. 1, 7 
 
 Deductions in connection with St. E; T. R. 41 
 
 Not to be withheld against "partnership profits.. T. R. 47 
 
 Not to be withheld on bank deposits T. R. 67 
 
 Omitted, procedure upon discovery of T. R. 184 
 
 Once withheld, subsequent withholding agent, exempt 
 
 on filing certificate (Form 1006) T. R. 34 
 
 On excess of income over exemption T. R. 10 
 
 On income — 
 
 From bonds, etc., corporations, etc T. R. 37 
 
 Paid by note T. R. 68 
 
 On interest on bonds owned by corporations organized 
 
 in United States T. R. 45 
 
 On net income of corporation — 
 
 Computation of T. R. 159 
 
 Distributable to owners T. R. 79 
 
 Rate of A16 
 
 On net income of foreign corporation; definition; de- 
 duction T. R. 157 
 
 Paid by corporation, when not deductible. . .T. D. 1948; T. R. 153 
 Partnership limited is corporation and subject to cor- 
 poration tax T. R. 86 
 
 Penalty on delinquent T. R. 25 
 
 Receipts to be given by collector St. J 
 
 Returns of, to be made, section 3173 St. I 
 
 Special excise St. S 
 
 Taxable person not to be relieved from liability T. R. 27 
 
Index +37 
 
 Tax— Continued. 
 
 To be paid T. R. 177 
 
 To be withheld T. R. 44, 64 
 
 Withheld— 
 
 At source, to be paid to T. R. 30 
 
 By first licensee, fact of withholding noted T. R. 58 
 
 Collector to adjust in assessment against with- 
 holding agent T. R. 33c 
 
 From what T. R. 64, 75 
 
 To be paid to collector T. R. 33c, 34 
 
 Taxable income: 
 
 Definition ; liability T. R. 3, 7 
 
 Tax due T. R. 187 
 
 Tax-free covenant clause. . A23; T. D. 1948; pp. 232, 292; T. D. 2161 
 Taxes: 
 
 Paid by corporation constitute deduction T. R. 152 
 
 Reserve for, by corporation not deductible T. R. 156 
 
 Taxpayer: 
 
 Regulations designed to assist Preface to Part III 
 
 Tax statements T. R. 199 
 
 Tax year 1913 T. R. 7 
 
 Trustee: 
 
 As fiduciary T. R. 70 
 
 Duties of T. D. 2137; St. E 
 
 Teacher: 
 
 Public school . . : T. R. 5 
 
 Theory of taxation .' A2 
 
 Timberland: 
 
 Deduction for depreciation — 
 
 Account removal of timber T. R. 139 
 
 Limit of, excess of, is income T. R. 140 
 
 Time and place for making returns A37 ; T. D. 1950 
 
 Time: 
 
 Extension of, for making and filing return T. R. 23, 173 
 
 "Trade" defined p. 202 
 
 Treating as expense p. 256 
 
 Treasury decisions p. 165 
 
 Treasury regulations pp. 79-164 
 
 U 
 Unearned increment: 
 
 Not value for depreciation purposes T. R. 146 
 
 Undivided profits A39 ; T. D. 2135 
 
 "United States" or "State": 
 
 Construction St. H 
 
 Interest upon obligations of T. R. 5 
 
438 Ihdex 
 
 v 
 Value: 
 
 Book, capital assets, shrinkage in T. R. 134 
 
 Gross at the mine, definition T. R. 6, 142 
 
 Of property, acquired by gift, etc T. R. 4, 5 
 
 Shrinkage in property, deductible T. R. 147b 
 
 Unearned increment, not as basis of deduction for de- 
 preciation T. R. 146 
 
 Voluntary offerings T. D. 2090 
 
 W 
 
 Wages A31; T. R. 4, 63 
 
 Weab and tear (See Depreciation) . 
 Wife: 
 
 Having income of $3,000 from separate estate managed 
 
 by herself may make return of her own income T. R. 10 
 
 Wife and husband: 
 
 Combined net income of exceeds $4,000, return re- 
 quired, both jointly and separately liable for return 
 
 and tax .- T. R. 10 
 
 Wife or husband: 
 
 Either having income $3,000 or over, return required 
 
 and must include incomes of both T. R. 10 
 
 Withholding A32 ; T. D. 2135 
 
 At source T. R. 30 
 
 Example of where and where not T. R. 32 
 
 On and after November 1, 1913 T. R. 29 
 
 On bond coupons p. 292 
 
 Pay of officers T. D. 2090 
 
 By exempt corporations, not required T. D. 1967 
 
 By first licensee; notation by; responsibility of T. R. 58 
 
 Excess T. D. 2131 
 
 From what T. R. 64 
 
 Withholding agent (T. D. 2135) : 
 Annual return by — 
 
 By, when, to show what T. R. 50, 51 
 
 Not to be filed until T. R. 33c 
 
 Of (Form 1042), when to be filed, to be accom- 
 panied by what T. R. 35, 69 
 
 Assessment of tax against, deferred until T. R. 189 
 
 Claim for exemption and deductions filed with. .T. R. 33ac; St. E 
 
 Definition of, as source T. R. 31 
 
 Disbursing officer T. D. 2135 
 
 Disposition of returns of T. R. 193. 
 
Index 439 
 
 Withholding agent — Continued. 
 
 Duty in matter of certificates of ownership St. E; T. R. 43 
 
 Duty of, in matter of claims for deduction. .T. D. 2135; T. R. 33c 
 
 Duty of, in case of foreign partnership T. R. 48 
 
 Equipment trust notes p. 237 
 
 Evidence of nonliability to tax filed with, disposition 
 
 of Preface to Part III 
 
 How to treat substitute certificate of collecting agent 
 and certificates of owners not subject to having tax 
 
 withheld T. R. 51 
 
 May file claim for abatement of tax T. R. 33c 
 
 Monthly return by, when to be made, with whom filed, 
 
 to be accompanied by what. . .T. D. 1973; T. D. 1997; T. R. 35 
 Notice filed with, claim for deduction, account partner- 
 ship expense T. R. 47 
 
 Not to withhold against nonresident alien or foreign 
 organization doing business in United States, when. T. R. 46 
 
 Promissory notes T. D. 2090 
 
 Relieved from necessity of withholding, when, Preface to Part III 
 
 Rents T. D. 2137 
 
 Return of, when to be made T. R. 190 
 
 To file monthly list return, form of, and what to con- 
 tain T. R. 50 
 
 To forward to collector tax withheld, when. .T. D. 1965; T. R. 33c 
 To furnish statement of claim for deductions filed 
 
 with collector T. R. 33c 
 
 To pay to collector tax withheld T. R. 64 
 
 To withhold from, what, amount of T. R. 32, 65 
 
 When claim for deductions, paragraph B, to be filed 
 
 with, duty of T. R. 33b, 66 
 
 When so authorized, may file return of withholding in 
 
 district of his location T. R. 38 
 
 Who to be, in cases cited T. R. 64 
 
 Withholding and paying agent: 
 
 Of debtor in United States, charged with duty of with- 
 holding, when T. R. 39 
 
 Witnesses: 
 
 Jurisdiction for compelling attendance St. K 
 
 Y 
 Yeab: 
 
 For taxable purposes for individual, is calendar year . T. R. 4 
 (See fiscal year for corporation.) 
 
DAY AND TO $t-° __^=. 
 
 OVERDUE. 
 
 LD 21-lOOm- 8 '' 34 
 
 PH 
 
%ol<yv 
 
 VD 05496' 
 
 UNIVERSITY OF CALIFORNIA LIBRARY 
 
 **