D d = :z 8 REGIOI 2 — ^ ^ 9 3 9 2 UNIVERSITY OF CALIFORNIA LOS ANGELES SCHOOL OF LAW LIBBLARY SUPPLEMENT TO TREASURY DECISIONS (T. D. 2868) TREASURY DEPARTMENT UNITED STATES INTERNAL REVENUE U,S. Ii/i"h8.fv»;».l "P-flAf-AMM*. Se^-^h^ REGULATIONS No. 55 REGULATIONS PROMULGATED BY THE COMMISSIONER OF INTERNAL REVENUE WITH THE APPROVAL OF THE SECRETARY OF THE TREASURY RELATING TO THE COLLECTION OF TAX ON MOTION PICTURE FILMS TITLE IX, SECTION 906. OF THE REVENUE ACT OF 1913 WASHINGTON GOVERNMEiNT PRINTLNG OFFICE 1919 s 50 . i? TABLE OF CONTENTS. 'Article. Page. IMPOSITION OF TAX. Section 906 of Revenue Act of 1918 5 1. Use of terms 5 2. Effective date 5 PERSONS LIABLE. 3. Lessors ; owners ; lessees 5 MEASURE OF TAX. 4. Lessors; bad debts and expenses; deductible items 6 5. Owner-exhibitors '. 6 6. Lessees 7 TRANSFER OF BURDEN OF TAX. Section 90G or Reo^nue Act of 191S 7 7. Transfer of burden of tax 7 8. Charging tax to lessee , 7 TAX IN LIEU OF OTHER TAXES. Section 90G of REVENtTE Act of 1918 8 9. Tax in lieu of other taxes 8 LEASE AT LESS THAN FAIR MARKET PRICE. Section 901 of Revenue Act of 1918 8 10. Lease at less than fair market price S RETURN AND PAYMENT OF TAX. Sections 903, 1309, Revenue Act of 1918 8-9 11. Return ; date when due ; first return ; branches ; receivers, etc. ; tax- payer's records ; forms ; inspection of books ; payment 9 EXTENSION OF EXISTING STATUTES. Section 1305 of Revenue Act of 1018 9 12. Aids to collection of tax 10 CREDITS AND REFUNDS. Section 1310 (a) of Revenue Act of 1918 10 13. Credits and refunds 10 14. Claims for refund 10 1203G5— 10 (3) 4 MEDIUM OF PAYMENT OF TAX. Page. Section 1314 of I1k\tcnue Act of 1918 10 15. Payment by uncertified check 11 16. Pi'ocedure with respect to di.«honored checks 11 MISREPRESENTATION OF TAX. Section 1319 of Revenue Act of 1918^ 11 17. Misrepresentation of tax 12 PENALTIES. Section 3176 R. S. ; Sections 003, 1308, 1319, Revenue Act of 1918— _ 12-13 AUTHORITY FOR REGULATIONS. 18. Promulgation of regulations 13 IMPOSITION OF TAX. THE LAW. Sec. 006. That on and after the first day of May, 1919, any person engaged in the business of leasing or licensing for exhibition positive motion-picture films containing pictures ready for projection shall pay uionthly an excise tax in re.spect to carrying on such business equal to five per centum of the total rentals earned from each such lease or license during the preceding month. If a person owning such a film exhibits it for profit he shall pay a tax equivalent to five per centum of the fair rental or license value of such film at the time and place where and for the period during which exhibited. * * * Article 1. Use of terms. — In these regulations, for convenience, unless obviously inapplicable, the term " Film " shall be held to mean positive motion-picture films containing pictures ready for projection ; " Person " shall include partnerships, corporations, and as.sociations, as well as individuals ; " Lease " shall include license, and any method of letting and acquiring the use of a film for exhibi- tion, for which a charge is made ; " Lessor " shall include licensor, and any person granting to another the right to the use for exhibi- tion of a film for profit ; " Distributor " shall be synonymous with lessor or licensor ; " Exhibitor " shall be synonymous with " lessee " or " licensee " ; and " Rental value " shall include " license value." Art. 2. Effective date. — The tax is effective May 1, 1919, and attaches to sums accruing on account of exhibitions of films gi^'cn on or after that date. See also article 11. PERSONS LIABLE. Art. 3. Lessors. — All persons whose business it is, as principals, ■whether it is their sole or principal business or not, to grant to others the right to use films for exhibition, are liable to the tax. If leases, contracts, or agreements wliereby the right to the use of films is conveyed are entered into by one person acting for and in the name of another, the principal is liable to the tax. One exe- cuting such leases, contracts, or agreements in his own name will be regarded as a principal and as liable to the tax, unless the contrary is shown. Owners. — One who, being the owner of a film or of any interest therein, himself exhibits such film for profit, is also subject to tax. Lessees. — As to transfer of liability from lessors to lessees, by the statute under certain circumstances, see article 7. As to transfer of burden of tax by agreement, see article 8. (5) MEASURE OF TAX. Art. 4. Lessors. — The provision of the statute allowing the owner who exhibits a film to measure the tax by the fair rental value has no application to lessors. The tax to which a lessor is liable is 5 per cent of the total rentals earned. Total rentals earned. — The total rental earned is not the net profit arising from each lease, etc., but is the gross simi due and payable to the lessor by each exhibitor upon each lease dvu-ing the month, less the amounts represented by bona fide cancellations and reductions of rentals made in the ordinary and regular course of business, but with no reductions on account of expenses, losses, bad debts, etc. Deductible items. — Credits due to {a) cancellation because of the failiu-e of the lessor to perform contractual obligations (as, for in- stance, failure to provide or deliver a film contracted for), or to (h) reduction of the rental charge which is predicated upon a reasonable basis, when in good faith actually given in accordance with a recognized trade usage (as, for instance, in case of failure of a film to attract sufficiently profitable audiences) are deductible, and allow- ances therefor may be made in computing the tax. If the credit is given after tax on the amomit due under the original contract has been paid, deduction thereof may be made in the return for the month during which the credit is given. Bad debts and expenses. — The tax being measured by the amount earned, whether actually received or not, no allowances or deductions may be made for losses or unpaid accounts charged off. Neither will any credit or deduction from gross compensation be allowed to be made for any tax or other expense incurred by the lessor, or ex- hibitor, such as cost of operations, commissions, advertising, or other charges, either general or special. Art, 5. Owner-exhibitors. — An exhibitor who is also the owner of a film must pay a tax equivalent to 5 per cent of the fair rental value of the film were it leased or licensed for exliibition. The fair rental or license value of a film exhibited by an owner for profit shall ordinarily be held to be represented by the net profits he derives therefrom, which shall be determined by deducting from his gross receipts his reasonable expenses or allowances for services (but no deduction will be permitted for such items as expenses of production, upkeep, or replacement of films) ; but should his return show that such net profits do not amount to 33-^- per cent of his gross receipts, he shall accompany his return with a statement in detail showing the items entering into the expenses and allowances charged against such receii)ts. It is conceded that this ruling may not be entirely applicable to all cases ; therefore particular cases will be sub- ject to review by the Commissioner upon application. Akt. 6. Lessees. — T\nien liability to the tax is transferred by opera- tion of law from the lessor to the lessee (see art. 7) the same allow- ances for cancellations or reductions of rental charges may be made as when the tax is pa3'able by the lessor. TRANSFER OF BURDEN OF TAX. Sec. 906. * * * If any such person has prior to December sixth, nineteen hundred and eighteen, made a bona fide contract witli any per- son for the lease or licensing, after the tax imposed by this section takes effect, of such a film for exhibition for profit, and if such contract does not permit the adding of the whole of the tax imposed by this section to the amount to be paid under such contract, then the lessee or licensee shall, in lieu of the lessor or licensor, pay so much of such tax as is not so permitted to be added to the contract price. * * * Art. 7. Where a contract was made prior to December 6, 1918, con- veying to an exhibitor the right to the use of a film on or after May 1, 1919, the liability for the whole or such portion of the tax as can not, under the contract, be added to the amount to be paid under such contract is on the exhibitor, who shall make returns and pay tax on rentals due and payable under the contract on account of exhibi- tions given on and after May 1, 1919, in the manner of a lessor or licensor, as indicated by article 11 of these regulations. The lessor or licensor shall, on or before the last day of June, 1919, file with the collector a statement, in duplicate, showing the tax liability of the exhibitor. If the lessor or licensor is himself subject to tax, such statement shall be filed with his return for the month of Ma}'', 1919. A separate statement shall be made in the case of each exhibitor. The collector will preserve one copy of each statement for use in the determination by him of whether returns required of lessees and licensees are duly made. The other copies received during each month will be forwarded together to the collector of internal revenue for auditing purposes. Art. 8. Charging tax to lessee. — Except in circumstances indicated by article 7, the law requires the lessor or licensor of leased or licensed films to pay the tax. It does not, however, prohibit the charging of the tax to the exhibitor by the distributor. Wliere the tax is charged to the exhibitor as a separate item, the tax will be based upon the amount charged for the use of the film only, and not upon the com- bined total including the tax. Where, however, a lessor does not sep- arately bill the tax to the exhibitor, but advances his price to cover the tax, the tax must be measured by the full amount of such ad- vanced price. With respect to leases or licenses entered into before December 6, 1918, which do not permit adding the tax to the amount to be paid under the lease or license and the transferring of liability in such cases, see article 7. TAX IN LIEU OF OTHER TAXES. Skc. 90(5. * * * The tax imposed by this section shall he in lieu of the tax imposed by subdivisions (c) and (d) of section six hundred of the Revenue Act of 1917. Art. 9. Tax in lieu of otker taxes. — While the new tax is in lieu of taxes imposed by the Act of October 3, 1917, this merely means that no tax shall be asserted under the prior statute on any sale or lease of a moving-picture film occurring or executed on or after May 1, 1919, the effective date of the new tax. Persons otherwise liable to the tax imposed by the Act of February 24, 1919, are not relieved of such liability by reason of having paid the tax imposed by the prior Act. Neither does payment of the new tax entitle the taxpayer ^o refund of anj- taxes paid under the earlier statute. LEASE AT LESS THAN FAIR MARKET PRICE. Sec. 901. Tliat if any person * * * leases or licenses for ex- hibition any positive motion-picture film containing a pictui'e ready for projection, and, whether through any agreement, arrangement, or understanding, or otherwise, * * * leases or licenses sucli ai-ticle at less than the fair market price obtainable therefor, either (a) in sucli manner as directly or indirectly to benefit such person or any pei-son directly or Indirectly interested in the business of such person, or (b) with intent to cause such benefit, the amount for which such article is * * * leased or licensed shall be taken to be the amount which would have been received from the * * * lease, or license of such article if '^- * * leased, or licensed at the fair market price. Art. 10. This section will be regarded as intended to cover the pos- sible attempt by a lessor to disguise the compensation received by him from the exhibition of a film; thus, if a le^or, through any device contrives to lease a film at less than the fair market price or rental, and he derives or has the intent to derive some other benefit of any kind from the transaction, the tax shall be based on the fair market price or rental, and not that named in the lease. If such method is followed for the purpose of evading or defeating the tax liability, penalt}' will also be incurred. RETURN AND PAYMENT OF TAX. Sec. 903. That every person liable for any tax imposed by section ' * * 906 shall make monthly returns under oath in duplicate and pay the taxes * "' * to the collector for the district in which is located the principal place of business. Such returns shall contain such information and be made at such times and in such manner as the Commissioner, with the ap]>roval of the Secretary, may by regula- tions prescribe. The tax shall, without assessment by the Commis- sioner or notice from the collector, be due and payable to the collector at the time so fixe;l for filing the return. * * * Section 1309 of the Act also provides that the Commissionerj with the approval of the Secretarj'', may by regulation provide that any return required by Titles * * * IX * * * to be under oatli may, if the amount of the tax covered thereby is not in excess of $10, be signed or acknowledged before two witnesses instead of under oatli. Art. 11. Return. — Any person engaged in the business of leasing or licensing films, and each owner who exhibits his film for profit, must make return each month in duplicate and under oath (except that if the amount of the tax covered thereby is not in excess of $10 such return may be signed or acknowledged before two witnesses in- stead of under oath) and pay the tax upon the total rentals earned, or (in the case of an oAvner-exhibitor) upon the fair rental valiic of the film for the period or periods of the preceding month, during which exhibitions were given, to the collector of internal revenue for the district in which his principal place of business is located, in accordance with these regulations. But see below as to taxpayer's records. Date when due. — The return for each month is to be rendered and the tax paid on or before the last day of the succeeding month. First return. — The first return shall cover the tax accruing on and after May 1, 1919, and be made on or before June 30, 1919. Branches. — Transactions of branches should be included in the returns rendered by the principal office. Receivers, etc. — The receiver or trustee in bankruptcy of a lessor or owner and exhibitor conducting a business under court order is liable to the tax. Taxpayer's records. — Any taxpayer whose books ai*e so kept that they accurately reflect the business done with each lessee, or with each person dealt with, on a weekly basis, »?ay render his return in groups of as many weeks as have their endings in each calendar month, but the total business done during each week must be correctly shown and added so as to indicate the total business done for tho several weeks ending in the particular calendar month. Forms. — The returns should be made on Form 728x1. Instructions for preparing the return will be found on the back of the form. Inspection of books. — The books of every person liable to the tax shall be open at all times for inspection by examining internal-rev- enue officers. Payment. — Remittance of the amount of the tax should accompany the return as made. See article 15. EXTENSION OF EXISTING STATUTES. Sec. 1305. That all admnistratlve, special, or stamp provisions of law, including the law relating to the assessment of taxes, so far as applicable, are hereby extended to and made a part of this Act, and 10 every person liable to any tax imposed by tliis Act, or for the collection thereof, sliall Iceep such records and render, under oath, such statements and returns, and shall comply with such regulations as the Commis- sioner with the approval of the Secretary may from time to time pre- scribe. Whenever in the judgment of the Commissioner necessary he may require any person, by notice served upon him, to make a return or such statements as he deems sufficient to show whether or not such person is liable to tax. The Commissioner, for the purpose of ascertaininj; the correctness of any return or for the purpose of inakng a return where none has been made, is hereby authorized, by any revenue agent or inspector designated by him for that purpose, to examine any books, papers, records, or memoranda bearing upon the matters required to be in- cluded in the return, and may require the attendance of the person rendering the return or of any officer or employee of such person, or the attendance of any other person having knowledge in the premises, and may take his testimony with reference to the matter required by law to be included in such return, with pov/er to administer oaths to such person or persons. Art. 12. Aids to collection of tax. — In collecting the excise taxes the Commissioner has the benefit of all existing internal-revenue laws. In aid of the enforcement of the statute the Commissioner may require any person to keep specified records, to render returns and statements as directed, to submit himself and his books to examination, and to comply with such regulations as may be prescribed. CREDITS AND REFUNDS. Sec. 1310 (a). That in the case of any overpayment or overcoUection of any tax imposed by section six hundred and twenty-eight or six hundred and thirty or by Title V, Title VIII, or Title IX, the person making such overpayment or overcoUection may take ci'edit therefor against taxes due upon any monthly return, and shall make refund of any excessive amount collected by him upon proper application by the person entitled thei'eto. Art. 13. If a taxpayer overpays the tax due with one return, he may take credit for the overpayment against the tax due with the succeeding return. Art. 14. Claims for refund. — For procedure with reference to claims for refund, see sections 3220 and 3225 of the Revised Statutes, as amended by section 1316 of the Eevenue Act of 1918, and Eegulations No. 14 (revised). MEDIUM OF PAYI^IENT OF TAX. Skc. 1314. That collectors may receive, at par with an adjustment for accrued interest, certificates of indebtedness issued by the United States and uncertified checks in payment of income, war-profits, and excess-profits taxes and any other taxes payable other than by stamp, during such time and under such regulations as the Commissioner, with the approval of the Secretary, shall prescrile; but if a check 11 so received is not paid by tlie bank on which it is drawn the person by whom such check has been tendered shall remain liable for the payment of the tax and for all legal penalties and additions the same as if such check had not been tendered. Art. 15. Payment of tax by uncertified checks. — Collectors may ac- cept uncertified checks in payment of excise taxes, provided such checks are collectible at par; that is, for their full amount without any deduction for exchange or other charges. The collector will stamp on the face of each check before deposit the words " This check is in payment of an obligation to the United States and must be paid at par. No protest," \'itli his name and title. The day on which the collector receives the check will be considered the date of payment so far as the taxpayer is concerned, unless the check is returned dishon- ored. If one check is remitted to cover two or more persons' taxes, the remittance must be accompanied by a letter of transmittal stating (a) the name of the drawer of the check ; (b) the amount of the check ; (c) the amount of any cash, money order, or other instrument in- cluded in the same remittance; (d) the name of each person whose tax is to be paid by the remittance; (e) the amount of the payment on account of each i^erson; and (f) the kind of tax paid. Art. 16. Procedure with respect to dishonored checks. — If the bank on which any such check is drawn should refuse to x^ay it at par, the check should be returned through the depositary bank and be treated in the same manner as a bad check. All expenses incident to the at- tempt to collect such a check and the return of it through the de- positary bank must be paid by the drawer of the check to the bank on which it is drawn, since no deduction can be made from amounts received in payment of taxes. See section 3210 of the Revised Stat- utes. If any taxpayer whose check has been returned uncollected by the depositary bank should fail at once to make the check good, the collector should proceed to collect the tax as though no check had been given. A taxpayer who tenders a certified check in pay- ment for taxes is also not released from his obligation until the check has been paid. See chapter 191 of the Act of March 2, 1911. MISREPRESENTATION OF TAX. Sec. 1319. That whoever in connection with the sale or lease or offer for sale or lease, of any article, or for the purpose of making such sale or lease, makes any statement, written or oral, (1) in- tende. Words aud phrases : See Definitions, ante. o LAW LIBRARY UNIVERSITY OF CALIFORNU LOS ANGELES ■J GAYLAMOUNT PAMPHLET BINDER Manufactured by 'GAYLDRDBRGS. Inc. Syracuse, N.Y. Stockton, Colif.